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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number: 0-27938
COLUMBIA BANCORP
(Exact name of registrant as specified in its charter)
Oregon 93-1193156
(State of incorporation) (I.R.S. Employer
Identification No.)
420 East Third Street, Suite 200
The Dalles, Oregon 97058
(Address of principal executive offices)
Registrant's telephone number: (541) 298-6649
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of February 15, 2000 was $45,378,145.
The number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: 8,012,822 shares of no par value
common stock on March 1, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement dated March 10, 2000 for the
2000 Annual Meeting of Shareholders ("Proxy Statement"), and the 1999 Annual
Report to Shareholders are incorporated by reference in Part II and III hereof.
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COLUMBIA BANCORP
FORM 10-K
TABLE OF CONTENTS
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Disclosure Regarding Forward Looking Statements 3
PART I
Item 1. Business 3 - 15
Item 2. Properties 15 - 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
(Portions of Items 5, 6, 7 and 8 are incorporated by reference from
Columbia Bancorp's 1999 Annual Report to Shareholders)
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18 - 33
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 33 - 34
Item 8. Financial Statements and Supplementary Data 34
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 35
PART III
(Items 10 through 13 are incorporated by reference from Columbia
Bancorp's definitive proxy statement for the Annual Meeting
of Shareholders to be held on April 25, 2000)
Item 10. Directors, Executive Officers of the Registrant 35
Item 11 Executive Compensation and Report of Compensation Committee 35
Item 12. Security Ownership of Certain Beneficial Owners and Management 35
Item 13. Certain Relationships and Related Transactions 35
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 35 - 36
SIGNATURES 37 - 38
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This document includes forward-looking statements as defined in applicable
federal securities laws and regulations. Such forward-looking statements are
based on certain assumptions made by Columbia's management, information
currently available to management, and management's present beliefs about
Columbia's business and operations. All statements, other than statements of
historical fact in this document, including without limitation, statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" regarding Columbia's financial position, business
strategy, and plans and objectives of management of Columbia for future
operations, are forward-looking statements. Forward-looking statements can be
identified by words such as "believe," "estimate," "anticipate," "expect,"
"intend," "will," "may," "should," or other similar phrases or words. Although
Columbia believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Readers are therefore cautioned not to place undue
reliance on such forward-looking statements. Such factors as changed conditions,
incorrect assumptions or the materialization of a risk or uncertainty could
cause actual results to differ materially from results described in this
document as believed, anticipated, estimated, expected, or intended. Columbia
does not intend to update these forward-looking statements other than in
Columbia's quarterly and annual reports and other filings under applicable
securities laws.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Columbia Bancorp ("Columbia") is a bank holding company headquartered in
The Dalles, Oregon. Its subsidiaries include Columbia River Bank ("CRB") and
Valley Community Mortgage Services, Inc. CRB is a 13 branch, state-chartered
institution authorized to provide banking services by the States of Oregon and
Washington. Columbia offers a broad range of financial services to its
customers, primarily small and medium sized businesses, farmers, and
individuals. Columbia's 11 Oregon branches serve the northern and eastern Oregon
communities of The Dalles, Hood River, Pendleton and Hermiston, the central
Oregon communities of Madras, Redmond, and Bend, and the communities of
McMinnville and Newberg in the Willamette Valley. Columbia's two south central
Washington branches serve the communities of Goldendale and White Salmon.
As of December 31, 1999, Columbia had total assets of $361.24 million,
total deposits of $310.91 million, and shareholders' equity of $37.32 million.
Columbia's net income for the year ended December 31, 1999, was $5.01 million,
which was Columbia's twelfth consecutive year of increasingly higher net income.
For the year ended December 31, 1999, Columbia's return on average assets was
1.44% and return on average equity was 13.90%. Since the year ended December 31,
1994, it has increased earnings by an average of 22.90% per year and achieved an
average return on average assets of 1.57%. During the same period, Columbia has
achieved an average return on average equity of 16.21%.
From its origins as a one-branch community bank in The Dalles, Columbia
has grown as a result of merger and acquisition activity, new branch openings,
the introduction of new business lines, and the expansion and cross-marketing of
its existing products and community-bank lending expertise. In 1995, CRB merged
with Juniper Banking Company. In 1996, Columbia was formed as CRB's holding
company and Columbia acquired Washington-based Klickitat Valley Bank. Further
growth came from CRB's Hood River and Bend branch openings and from the
expansion in 1997 of CRB's residential mortgage business. In September 1998, CRB
opened a new branch in Hermiston, Oregon and in November, Columbia acquired
Valley Community Bank ("VCB"). In 1999, CRB opened a new branch in Pendleton,
Oregon in January, completed construction of a second Bend branch in August, and
opened its first branch in Newberg, Oregon in November. Collectively, these
growth and acquisition activities have enabled Columbia to diversify its loan
portfolio and its operating risks over several market areas and local economies.
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The markets in which Columbia operates are relatively economically
diverse, and therefore pose both opportunities and challenges to a community
bank operating in all of these economies. Columbia's approach to meeting the
challenge is to staff its branches and business groups with managers who are
established in their communities and have developed a loyal customer following.
Columbia's senior management, in conjunction with the branch managers, reviews
the operations of each branch to determine which products and services are best
suited for that geographic region. The diverse economies also provide
opportunities to limit Columbia's exposure to adverse market conditions in any
one economic sector.
BUSINESS STRATEGY
Columbia's strategy is to continue building on its position as a leading
community-based provider of financial services in Oregon and south central
Washington. The key to the success of this strategy, in Columbia's view, is to
continue to provide exceptional personal service to the communities it now
serves, and to successfully expand into new communities by identifying and
meeting their unique financial services needs. Columbia's target branch
locations are in non-metropolitan regions, where it aims to deliver prompt and
friendly personal banking services. The components of Columbia's business
strategy are outlined below.
Successfully operate in non-metropolitan regions. In direct contrast to
the present strategies of certain major regional banks, which have closed
branches and reduced service levels in Columbia's service areas, Columbia
believes that the key to profitably operating in non-metropolitan communities is
to: (i) provide a high level of service to the customer; (ii) staff branches
with employees who have established ties to the community; (iii) attract and
retain a highly skilled management team; and, (iv) allow branch personnel the
flexibility to emphasize products and services which best fit their local
economy. In addition, by decentralizing a portion of the management function to
the branch level, Columbia believes it can make business decisions regarding
customers more quickly and with more knowledge than its major banking
competitors. Columbia believes it is able to profitably attract and retain
customers by providing and delivering such products and services tailored to
their individual needs, and by delivering them with a high degree of personal
attention.
Maintain high asset quality. Columbia seeks to maintain high asset
quality through a program that includes prompt and strict adherence to
established credit policies, training and supervision of lending officers.
Additionally, Columbia uses incentives to maintain high asset quality, including
tying a portion of its loan officers' compensation to the quality of the loans
they originate. Columbia also believes that its commitment to hire branch
managers with long term ties to their communities is of significant assistance
in determining the quality of loan transactions. The variety of economies in
which Columbia's branches are located increases the diversification and, in
Columbia's opinion, the strength of the overall loan portfolio.
Seize merger and acquisition opportunities. In 1995, CRB merged with
Juniper Banking Company ("Juniper") of central Oregon. In 1996 Columbia acquired
Klickitat Valley Bank of south central Washington, and in November 1998,
Columbia acquired McMinnville-based VCB. After these transactions, Columbia was
able to provide the same or improved levels of community banking products and
services in these new market areas.
Continue to expand through new branches and new products. Columbia has
grown through the establishment of new branches including, in 1999, branches in
Pendleton, Newberg and a second branch in Bend. In addition, Columbia's banking
products, including its loan programs, and other services are designed to be
responsive to the needs of local community businesses and individual customers.
For example, in 1997 Columbia recognized an opportunity in rapidly growing
central Oregon, and established a mortgage lending group in Bend to originate
and sell residential mortgages. Columbia also offers investment products and
services through its affiliation with the Primevest Financial Services, Inc.
brokerage organization, through which it offers stocks, bonds, mutual funds,
IRAs, retirement plans, and estate planning. Columbia's products and services
are designed to both increase its customer base and to enhance cross-selling
opportunities.
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GROWTH HISTORY
Columbia's Origins and Activities Through 1994. Columbia's subsidiary,
CRB, was incorporated and chartered in Oregon in 1976 and opened for business in
1977. CRB developed and grew as a one-branch community bank in The Dalles.
Several of Columbia's present senior executive officers, including its Chief
Executive Officer and President, have been with the company since the early
1980s. Collectively, Columbia's five-member senior management team has, on
average, over 22 years of banking experience, much of it gained through years of
service at CRB.
CRB's first branch expansion was a satellite branch facility that opened
in 1986 west of The Dalles' city center. Two years later, Columbia opened a
branch in the small Oregon community of Maupin. (Management subsequently
determined that the Maupin branch was unprofitable, and the branch was closed in
May 1998.)
In 1992 CRB purchased land adjacent to a newly established Wal-Mart
store in nearby Hood River, on which it built and opened its second branch
outside of The Dalles. The Hood River Branch opened for business in May 1993.
Activities in 1995. On January 1, 1995 CRB merged with Juniper, a
community bank in central Oregon with branches in Madras and Redmond, Oregon.
Following this merger, CRB's full service branches increased from three to five,
and its assets increased from $62 million to $92 million. CRB retained the
"Juniper Banking Company" name and added three experienced former Juniper
directors to its Board. Also, in 1995 CRB replaced its existing branch facility
in the western part of The Dalles with a branch facility in a newly built
Safeway supermarket west of The Dalles' downtown core. This branch takes
deposits, accepts loan applications, and offers other products and services,
however, it does not process loans on-site.
Activities in 1996. In early 1996, Columbia became CRB's holding
company. In June of 1996 Columbia acquired Klickitat Valley Bank ("Klickitat"),
a south central Washington community bank headquartered in Goldendale,
Washington with a branch in White Salmon. As CRB did with Juniper, Columbia
retained the "Klickitat Valley Bank" name, and added, during 1996 and 1997, four
experienced former Klickitat directors to the Columbia Board. Klickitat was a
natural acquisition candidate for Columbia. Klickitat's White Salmon branch was
within a few miles of CRB's Hood River branch across the Columbia River, and
there were and are multiple economic ties between these two communities.
Klickitat Valley Bank was Goldendale's only community bank, and this community's
agriculture-based economy fit well with CRB's lending expertise.
In late 1996 CRB opened its first branch in Bend, Oregon under the
"Juniper Banking Company" name. Bend's proximity to CRB's existing Redmond and
Madras branches, and Bend's economic growth and increasing population, made this
a natural branch extension for Columbia. Bend is the largest community in which
Columbia operates. Management believes that Bend's population growth, the
expansion and diversity of its economic base, and its strong home construction
market afford significant opportunities for growth.
Activities in 1997. In 1997, Columbia's growth came internally from
increased loans and deposits at its branches. Loan growth at the new Bend branch
was significant, with assets increasing 239% over the prior year, from $3.3
million to $11.2 million. Further growth came from enhanced home mortgage growth
through Columbia's mortgage group, established in mid-1997.
Activities in 1998.
Secondary Common Stock Offering and Nasdaq Listing. During November
1998, Columbia registered 1,000,000 shares of common stock for sale to the
public at a price of $9 per share, for an aggregate offering price of
$9,000,000. All shares were sold, resulting in net proceeds of $8,126,115, after
deducting $873,885 for underwriting discounts and commissions, legal,
accounting, printing fees, and other offering expenses. Net proceeds were used
to implement Columbia's expansion plans, including the acquisition of Valley
Community Bancorp ("Valley"). In connection with the offering, Columbia's common
stock was listed on the Nasdaq Stock Market, where trading commenced on November
6, 1998.
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Acquisition of Valley Community Bancorp. Columbia's most recent
acquisition-based expansion was its purchase of Valley on November 30, 1998 for
a cash purchase price of $15.10 million (the "Acquisition"). Subsequent to the
Acquisition, Valley was merged into Columbia Bancorp, and its subsidiaries,
including VCB, became wholly-owned subsidiaries of Columbia.
Columbia believes the economy in the McMinnville area affords it the
opportunity to leverage two of its core competencies: small business lending and
agricultural lending. Additionally, the acquisition became Columbia's first
entrance into Oregon's most populous region, the Willamette Valley. Management
believes there are significant future growth opportunities in McMinnville,
Newberg and surrounding communities.
Columbia operated VCB as a separate subsidiary under the "Valley
Community Bank" name until November 30, 1999 when it was merged into CRB.
Columbia's management believes the combination will lower overall costs in the
years ahead and capitalize on synergistic marketing, advertising and customer
awareness issues.
Hermiston, Umatilla County, Oregon. Columbia opened a new branch in
Hermiston, Oregon in September of 1998. Hermiston, which has a population of
over 11,000, is 100 miles east of The Dalles. The new branch operates from 1,500
square feet of leased space south of downtown Hermiston. A permanent Hermiston
branch is under construction and will be finished in late first quarter 2000.
The branch offers full-service community banking services, including loans to
local commercial and agricultural-based business.
Activities in 1999.
Pendleton, Umatilla County, Oregon. In January 1999 Columbia opened a
branch in Pendleton, which is 26 miles east of Hermiston and is the largest town
in eastern Oregon. Columbia hired a manager for the new branch who has strong
ties to the Pendleton community and 25 years experience with one of Columbia's
super-regional bank competitors. Columbia currently operates out of leased
facilities. A permanent branch facility is under construction and will be
completed in late first quarter 2000.
Shevlin Center Branch - Bend, Deschutes County, Oregon. Columbia opened
a second branch in Bend, Oregon in the summer of 1999. The branch is located in
the western part of Bend in the upscale Shevlin Business Park, an office park
development. The additional branch in Bend was planned in order to take
advantage of growth opportunities and to leverage existing nearby operations.
Bend is the largest city in central Oregon, and the largest single market area
in which Columbia operates. Columbia believes the second Bend branch will allow
opportunities for future growth, especially for business lending services.
Newberg Branch, Yamhill County, Oregon. Columbia opened its first branch
in Newberg, Oregon in November 1999. Currently operating from temporary
facilities, the branch will move into leased space in the Columbia River Bank
Building in early second quarter of 2000. The Newberg branch is Columbia's
second branch in Oregon's fast growing Willamette Valley.
All three branches opened in 1999 allow Columbia to leverage certain
promotional and advertising costs due to their proximity to existing Columbia
communities. All three are located in Oregon counties with population growth
rates that exceeded the State average of 13.1% for the period from 1990 to 1999.
Name Uniformity. Following the mergers and acquisitions involving
Juniper Banking Company, Klickitat Valley Bank and Valley Community Bank, CRB
for various lengths of time retained the use of these banks' names as assumed
business names at select branch facilities. However, eventually all of these
assumed business names were replaced with the "Columbia River Bank" name. In
1999 the last name transition was complete when VCB merged into CRB, and the
"Valley Community Bank" name was retired. As of December 31, 1999 all of CRB's
branches, including the most recently opened branches, operate under the
"Columbia River Bank" name.
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CONSUMER PRODUCTS AND SERVICES
Columbia offers a broad range of deposit and loan products and services
tailored to meet the banking requirements of consumers in Columbia's market
areas. These include:
Deposit Products. Columbia's consumer deposit products include many
noninterest-bearing checking account products priced at various levels,
interest-bearing checking and savings accounts, money market accounts, and
certificates of deposit. These interest-bearing accounts generally earn
interest, or are priced, at rates established by management based on competitive
market factors and management's desire to increase certain types or maturities
of deposit liabilities. Columbia does not pay brokerage commissions to attract
deposits. It strives to establish customer relations to attract core deposits in
noninterest-bearing transactional accounts, which reduces its cost of funds.
Mortgage Loans. In August of 1997, Columbia created a division of CRB to
originate conventional and federally insured residential mortgage loans for sale
in the secondary market. The division, known as the "Columbia River Bank
Mortgage Group," has grown its business substantially since its inception. As of
December 31, 1997, the mortgage group had sold 60 loans valued at $6.44 million.
Between January 1, 1998 and December 31, 1998, an additional 1,064 loans valued
at $117.54 million were sold. And between January 1, 1999 and December 31, 1999,
1,179 loans valued at $130.21 million were sold. The group has benefited from a
number of factors, including strong demand for mortgages, especially in the Bend
area, a favorable interest rate environment, utilization of advanced software
for evaluating and processing mortgage applications, and an aggressive sales
culture. The mortgage group operates its primary retail loan operations from
branch facilities in Bend, Oregon, but offers its products at all of Columbia's
Oregon and Washington branches. It also offers mortgage loan products, brokerage
and servicing support for certain other Oregon banks. In 1999, approximately 60%
of Columbia's mortgage business was generated from its mortgage group and from
Columbia's branches. The remaining 40% derive from relationships with mortgage
brokers and other community banks.
Investment Products. Through an arrangement with Primevest Financial
Services, Inc., ("Primevest"), a registered securities broker-dealer, Columbia
offers a wide range of financial products and services to consumers. These
include stocks, mutual funds, traditional and Roth IRAs, SEPs, tax-sheltered
annuities, life insurance, and other financial products. Primevest's
representatives also offer retirement planning services. Columbia receives a
portion of the commissions generated by financial product sales.
Technology-Based Products and Services. Columbia uses both traditional
and new technology to support its focus on personal service. These include a
VISA credit and check card (debit card) program, ATMs at each of Columbia's
full-service branches, including six drive-up ATMs, and a telephone banking
service that allows customers to speak directly with a customer service
representative during normal banking hours, and 24-hour telephone access to
their accounts. In addition, Columbia, through its website, intends to begin
offering BankNet, its internet banking service, by early second quarter 2000.
Consumer Loans. Columbia provides loans to individual borrowers for a
variety of purposes, including secured and unsecured personal loans, home equity
and personal lines of credit, and motor vehicle loans.
Senior Customer Services. Since a significant portion of Columbia's
consumer market consists of senior citizens, Columbia offers several special
products and programs aimed at this group. These include a reduced rate checking
account product for seniors, and special trips to the Oregon coast, the
Pendleton Roundup, an annual rodeo event, and other places and events. In
addition, Columbia's Primevest division markets retirement planning products and
investments to the senior customer group.
LOAN PRODUCTS FOR COMMERCIAL, AGRICULTURAL, AND OTHER BUSINESS CUSTOMERS
Columbia has an experienced lending staff, including special expertise
in small business and agricultural lending. Columbia's loan officers emphasize
continuing contact with business customers after loans are made. Columbia
believes that its business customers appreciate the ongoing relationship they
develop with their local
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lending officer. Such relationship-based banking is an important aspect of
Columbia's continuous effort to maintain high asset quality.
Commercial Loans. Columbia offers customized loans to its commercial
customers, including equipment and inventory financing, operational lines of
credit, SBA loans for qualified businesses, and accounts receivable financing. A
significant portion of Columbia's loan portfolio consists of commercial loans.
(For regulatory reporting purposes, a portion of Columbia's commercial loans are
designated as real estate loans because they are secured by real property,
although these loans may finance accounts receivable, equipment and inventory
purchases, or other commercial activities.) Lending decisions are based on
careful evaluation of the financial strength, management, and credit history of
the borrower and the quality of the collateral securing the loan. Commercial
loans secured by real property are generally limited to 75% of the value of the
collateral. Columbia typically requires personal guarantees and relies on the
identification of secondary sources of repayment.
Agricultural Loans. Columbia provides loans to agricultural businesses,
including production lines of credit, equipment financing, and term loans for
capital improvements and other business purposes. Agricultural loans are
generally secured by crops, equipment, and inventory, as well as real estate.
Agricultural lending can require significant follow-up time, as farmers request
budgeting assistance and other financial advice. Columbia employs both an
agricultural loan consultant with decades of farm lending experience, and an
experienced agricultural representative who is a full-time Columbia employee, to
assist its loan officers in loan processing and administration. Columbia's loan
officers, many of whom are graduates of the Western Agricultural School in
Pullman, Washington, make frequent visits to farming operation sites, attend
regular agricultural lending programs and seminars, and actively participate in
growers' associations and other agricultural-based organizations.
Real Estate Loans. Real estate loans are available for the construction,
purchasing, and refinancing of commercial and rental properties. Borrowers can
choose from a variety of fixed and adjustable rate options and terms.
Columbia's real estate loans are in large part loans to commercial
customers, farmers, and ranchers, which are secured by the properties used in
their businesses. The majority of these loans have a variable rate feature with
adjustment periods varying from one to five years. Columbia often requires a
government guaranty as additional collateral support. Insofar as payments on
real estate loans depend on the successful operation and management of the
businesses and properties securing the loans, repayment can be affected by local
real estate market and economic conditions. Fluctuating land values and local
economic conditions can make loans secured by real property difficult to
evaluate and monitor.
Government-Assisted Loan Programs. Columbia's loan officers make loans
to small businesses and to farmers that are supported by guarantees issued by
various state and federal government agencies. Columbia is active in the SBA 7-A
and 504 programs, and in similar programs offered by the Farm Services Agency
(formerly the Farmers Home Administration) and by Oregon's state government.
Columbia has utilized these programs to serve customers who are expanding their
operations, venturing into new product lines, or constructing special use real
estate. The government guarantees a portion of these loans, which reduces risk
in Columbia's loan portfolio.
Services to Non-Profits and Public Entities. Columbia offers a general
array of loan products to borrowers in the non-profit and public entity sector,
including city and county governments, together with special programs, such as
jumbo CDs and low-cost loan programs. Columbia also offers consumer services to
nonprofit and public sector employees, such as Columbia VISA card enrollment and
direct deposit services.
For all of its loans, Columbia at all times seeks to maintain sound loan
underwriting standards with written loan policies, appropriate individual and
branch limits, and loan committee reviews. In the case of particularly large
loan commitments or loan participations, loans are reviewed by a loan committee
at the Board of Directors level of CRB. Underwriting standards are designed to
achieve a high-quality loan portfolio, compliance with lending regulations and
the desired mix of loan maturities and industry concentrations. Management seeks
to minimize credit losses by closely monitoring the financial condition of its
borrowers and the value of collateral.
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OTHER PRODUCTS AND SERVICES FOR BUSINESS CUSTOMERS
Deposit and Related Products. Columbia's business deposit products
include basic, regular, and interest-bearing checking accounts, merchant VISA
and MasterCard programs, and business money market and sweep accounts. Columbia
also offers check verification services to merchants allowing them the ability
to determine, on a 24-hour basis, whether a check drawn on an account has
sufficient funds to cover the amount drawn.
Investment Products. Columbia's affiliation with Primevest allows it to
offer financial products and services to Columbia's business customers as well
as to consumers. These include insurance and annuity products, and employee
retirement plan products such as SEPs, IRAs and 401(k) plans.
Accounts Receivable Financing. Columbia offers its business customers
the opportunity to obtain financing for their businesses through an accounts
receivable financing program. Columbia offers this program in collaboration with
a third-party vendor specializing in accounts receivable management that
utilizes proprietary collection software. Under the program, Columbia purchases
accounts receivable at a discount on a daily basis and maintains customer cash
reserve balances to protect it from potential losses. Accounts receivable
collection is handled by Columbia using the vendor's proprietary software.
Columbia began offering this service in early 1998.
STAFF TRAINING AND EDUCATION - COLUMBIA BANCORP UNIVERSITY
Columbia has several staff training and education programs. All new
employees undergo a two-day orientation program, during which they meet senior
management and become familiar with Columbia's history, customer service goals,
and culture. In 1997, Columbia established a formal, continuing education
program for employees under the name "Columbia Bancorp University." Under this
program, employees are encouraged to attend regular employment-related
educational programs consistent with the employee's career goals and needs. Many
of the programs are taught by Columbia's senior management and other experienced
in-house staff, although attendance at classes offered by banking schools and
associations is also encouraged. These activities are coordinated through
Columbia's full-time corporate training officer. Columbia's management believes
that such continuing training and education programs are important to
maintaining organizational cohesion and consistently high quality customer
service.
MARKETING
Columbia accepts deposits at its branches in Wasco, Hood River,
Jefferson, Deschutes, Yamhill and Umatilla Counties in Oregon and in Klickitat
County in Washington. Columbia makes loans in all of these counties and in
adjacent counties, including Sherman, Gilliam, and Crook counties in Oregon and
Skamania County in Washington. Many of its products and services, including
investment products through Primevest and mortgages through Columbia's mortgage
group, are offered and sold throughout Oregon and south central Washington.
Columbia's ability to increase its market share in the communities it
serves is driven by a marketing plan consisting of several key components. A
principal objective is to create and foster a sales culture in each office.
Employees are trained to cross-sell, offering appropriate products and services
to existing customers and attempting to increase the business relationships
Columbia shares with these customers. Columbia regularly examines the
desirability and profitability of adding new products and services to those
currently offered. Columbia also promotes specific products by media
advertising, but relies primarily on referrals and direct contacts for new
business. Columbia recognizes the importance of community service and supports
employee involvement in community activities. This participation allows Columbia
to make a contribution to the communities it serves, which management believes
increases Columbia's visibility in its markets and thereby increases business
opportunities.
Columbia does business in many different non-metropolitan communities.
Management believes the diverse assortment of customers, communities, and
economic sectors that Columbia serves is a source of strength. In addition, as a
community banking organization Columbia has certain competitive advantages
because of its local
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focus. However, Columbia is also more reliant on the local economies in its
market areas than are super-regional and national banks.
COMPETITION
The market for banking services, including deposit and loan products, is
highly competitive. The major commercial bank competitors are super-regional
institutions headquartered outside the state of Oregon. Deposits held by
super-regionals were approximately 59% of statewide commercial bank deposits as
of June 30, 1999, which is the most recent date for which this information is
available. These major banks have the advantage of offering their customers
services and statewide banking facilities that Columbia does not offer.
Columbia's competitors for deposits are commercial banks, savings and
loan associations, credit unions, money market funds, issuers of corporate and
government securities, insurance companies, brokerage firms, mutual funds, and
other financial intermediaries. These competitors may offer rates greater than
Columbia can or is willing to offer. Columbia competes for deposits by offering
a variety of deposit accounts at rates generally competitive with financial
institutions in the area.
Columbia's competition for loans comes principally from commercial
banks, savings and loan associations, mortgage companies, finance companies,
insurance companies, credit unions, and other institutional lenders. An
important competitor for agricultural loans is Farm Credit Services, formerly
known as the Production Credit Association. Columbia competes for loan
originations through the level of interest rates and loan fees charged, its
array of commercial and mortgage loan products, and the efficiency and quality
of services provided to borrowers. Lending activity can also be affected by the
availability of lendable funds, local and national economic conditions, current
interest rate levels, and loan demand. As described above, Columbia competes
with the larger commercial banks by emphasizing a community bank orientation and
efficient personal service to customers.
Competition from other single or multi-branch community banks, of which
there are many in Oregon and Washington, presents a special competitive threat.
These other community banks can open new branches in the communities Columbia
serves, competing directly for customers who desire the high level of service
that a community bank can offer. Therefore, these banks directly target the loan
and deposit customers that Columbia seeks. Other community banks also compete
for the same management personnel and the same potential acquisition and merger
candidates that would be of interest to Columbia. New community bank start-ups
present similar competitive threats.
A potential new source of competition is the array of on-line banking
services offered by traditional commercial banks and other financial service
providers, and by newly formed companies that use the Internet to advertise and
sell competing products. However, Columbia's management believes that for the
foreseeable future its customers will continue to want the personal,
locally-based services that it offers. Columbia also plans to begin offering
some on-line banking services to its customers within the next three months.
THE YEAR 2000 ISSUE
To meet the challenges posed by our computer-reliant world, Columbia
made Y2K a top priority in 1999. Hardware, software and vendor issues were
assessed. Systems and services were tested and renovations were completed. Total
costs incurred by Columbia directly attributable to Y2K issues exceeded $500,000
and included costs for continuing technology upgrades, contingency planning,
system testing and personnel training. Preparations for Y2K accelerated some
planed technology upgrades and delayed others. This preparedness exercise,
coupled with a three-year technology plan implemented in 1999 provides clear
direction for Columbia's use of technology. Management feels that Columbia is
now better prepared than ever to meet the banking business needs of our
customers today and well into the future.
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<PAGE> 11
SUPERVISION AND REGULATION
GENERAL
Columbia is extensively regulated under federal and state law. These
laws and regulations are primarily intended to protect depositors, not
shareholders. The discussion below describes and summarizes certain statutes and
regulations. These descriptions and summaries are qualified in their entirety by
reference to the particular statute or regulation. Changes in applicable laws or
regulations may have a material effect on the business and prospects of
Columbia. The operations of Columbia may also be affected by changes in the
policies of banking and other government regulators. Columbia cannot accurately
predict the nature or extent of the effects on its business and earnings that
fiscal or monetary policies, or new federal or state laws, may have in the
future.
FEDERAL BANK HOLDING COMPANY REGULATION
Columbia is a bank holding company as defined in the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and is therefore subject to
regulation, supervision, and examination by the Federal Reserve. In general, the
BHCA limits the business of bank holding companies to owning or controlling
banks and engaging in other activities closely related to banking. Columbia must
file annual reports with the Federal Reserve and must provide it with such
additional information as it may require.
Holding Company Bank Ownership. The BHCA requires every bank holding
company to obtain the prior approval of the Federal Reserve before (i)
acquiring, directly or indirectly, ownership or control of any voting shares of
another bank or bank holding company if, after such acquisition, it would own or
control more than 5% of such shares, (ii) acquiring all or substantially all of
the assets of another bank or bank holding company, or (iii) merging or
consolidating with another bank or bank holding company.
Holding Company Control of Nonbanks. With some exceptions, the BHCA also
prohibits a bank holding company from acquiring or retaining direct or indirect
ownership or control of more than 5% of the voting shares of any company which
is not a bank or bank holding company, or from engaging directly or indirectly
in activities other than those of banking, managing, or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain nonbank activities which, by statute or by Federal
Reserve regulation or order, have been identified as activities closely related
to the business of banking or of managing or controlling banks. In making this
determination, the Federal Reserve considers whether the performance of such
activities by a bank holding company can be expected to produce benefits to the
public such as greater convenience, increased competition, or gains in the
efficient use of resources, which can be expected to outweigh the risks of
possible adverse effects such as decreased or unfair competition, conflicts of
interest, or unsound banking practices. The Economic Growth and Regulatory
Reduction Act of 1996 amended the BHCA to eliminate the requirement that bank
holding companies seek prior Federal Reserve approval before engaging in certain
permissible nonbanking activities if the holding company is well-capitalized and
meets certain other specific criteria.
Transactions with Affiliates. Subsidiary banks of a bank holding company
are subject to restrictions imposed by the Federal Reserve Act on extensions of
credit to the holding company or its subsidiaries, on investments in their
securities, and on the use of their securities as collateral for loans to any
borrower. These regulations and restrictions may limit Columbia's ability to
obtain funds from CRB for its cash needs, including funds for payment of
dividends, interest, and operational expenses.
Tying Arrangements. Under the Federal Reserve Act and certain
regulations of the Federal Reserve, a bank holding company and its subsidiaries
are prohibited from engaging in certain tying arrangements in connection with
any extension of credit, lease or sale of property, or furnishing of services.
For example, CRB may not generally require a customer to obtain other services
from it or from Columbia, and may not require that the customer promise not to
obtain other services from a competitor as a condition to an extension of credit
to the customer.
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<PAGE> 12
GRAMM-LEACH-BLILEY FINANCIAL SERVICES MODERNIZATION ACT
In 1999 Congress passed the Gramm-Leach-Bliley Financial Services
Modernization Act (the "FSMA"). This new legislation repealed certain provisions
of the Glass-Steagall Act that had required the separation of the banking,
insurance and securities businesses. It also created a new business structure
known as a financial services holding company. Under this new law, banks will
have broader opportunities to affiliate with insurance and securities companies.
Banks could also become tempting acquisition targets, as insurance and
securities companies seek such affiliations themselves. The FMSA may also
encourage local jurisdictions to enact tighter bank privacy provisions. The
enactment and implementation of the FMSA will result in new competitive
challenges and opportunities for community banks in the coming years.
FEDERAL AND STATE BANK REGULATION
General. CRB is an Oregon stock bank with deposits insured by the
Federal Deposit Insurance Corporation ("FDIC"), and is subject to the
supervision and regulation of the Oregon Director of Banks and the FDIC. CRB is
also subject to the supervision and regulation the Washington Department of
Financial Institutions. These agencies have the authority to prohibit banks from
engaging in what they believe constitute unsafe or unsound banking practices.
CRA. The Community Reinvestment Act (the "CRA") requires that, in
connection with examinations of financial institutions within their
jurisdiction, the Federal Reserve or the FDIC evaluates the record of the
financial institutions in meeting the credit needs of their local communities,
including low and moderate income neighborhoods, consistent with the safe and
sound operation of those banks. These factors are also considered in evaluating
mergers, acquisitions, and applications to open a branch or facility.
Insider Credit Transactions. Banks are also subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
executive officers, directors, principal shareholders, or any related interests
of such persons. Extensions of credit (i) must be made on substantially the same
terms, including interest rates and collateral, and follow credit underwriting
procedures that are not less stringent than those prevailing at the time for
comparable transactions with persons not covered above and who are not
employees; and (ii) must not involve more than the normal risk of repayment or
present other unfavorable features. Banks are also subject to certain lending
limits and restrictions on overdrafts to such persons. A violation of these
restrictions may result in the assessment of substantial civil monetary
penalties on the affected bank or any officer, director, employee, agent, or
other person participating in the conduct of the affairs of that bank, the
imposition of a cease and desist order, and other regulatory sanctions.
FDICIA. Under the Federal Deposit Insurance Corporation Improvement Act
(the "FDICIA"), each federal banking agency has prescribed, by regulation,
noncapital safety and soundness standards for institutions under its authority.
These standards cover internal controls, information systems, and internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits, such other operational and managerial
standards as the agency determines to be appropriate, and standards for asset
quality, earnings and stock valuation. An institution which fails to meet these
standards must develop a plan acceptable to the agency, specifying the steps
that the institution will take to meet the standards. Failure to submit or
implement such a plan may subject the institution to regulatory sanctions.
Management believes that CRB meets all such standards, and therefore, does not
believe that these regulatory standards materially affect Columbia's business
operations.
INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act") permits nationwide interstate banking and branching under
certain circumstances. This legislation generally authorizes interstate
branching and relaxes federal law restrictions on interstate banking. Currently,
bank holding companies may purchase banks in any state, and states may not
prohibit such purchases. Additionally, banks are permitted to merge with banks
in other states as long as the home state of neither merging bank has opted out.
The Interstate Act
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<PAGE> 13
requires regulators to consult with community organizations before permitting an
interstate institution to close a branch in a low-income area.
Under recent FDIC regulations, banks are prohibited from using their
interstate branches primarily for deposit production. The FDIC has accordingly
implemented a loan-to-deposit ratio screen to ensure compliance with this
prohibition.
Oregon and Washington each enacted "opting in" legislation in accordance
with the Interstate Act provisions allowing banks to engage in interstate merger
transactions subject to certain "aging" requirements. In both states, branches
may not be acquired or opened separately in the home state by an out-of-state
bank, but once an out-of-state bank has acquired a bank within the state, either
through merger or acquisition of all or substantially all of the bank's assets,
the out-of-state bank may open additional branches within the home state.
DEPOSIT INSURANCE
The deposits of CRB are currently insured to a maximum of $100,000 per
depositor through the Bank Insurance Fund ("BIF") administered by the FDIC. CRB
is required to pay semi-annual deposit insurance premium assessments to the
FDIC.
The FDICIA included provisions to reform the Federal Deposit Insurance
System, including the implementation of risk-based deposit insurance premiums.
The FDICIA also permits the FDIC to make special assessments on insured
depository institutions in amounts determined by the FDIC to be necessary to
give it adequate assessment income to repay amounts borrowed from the U.S.
Treasury and other sources, or for any other purpose the FDIC deems necessary.
The FDIC has implemented a risk-based insurance premium system under which banks
are assessed insurance premiums based on how much risk they present to the BIF.
Banks with higher levels of capital and a low degree of supervisory concern are
assessed lower premiums than banks with lower levels of capital or a higher
degree of supervisory concern.
DIVIDENDS
The principal source of Columbia's cash revenues is dividends received
from its subsidiary. The payment of dividends is subject to government
regulation, in that regulatory authorities may prohibit banks and bank holding
companies from paying dividends which would constitute an unsafe or unsound
banking practice. In addition, a bank may not pay cash dividends if that payment
could reduce the amount of its capital below that necessary to meet minimum
applicable regulatory capital requirements. Also, under the Oregon Bank Act, the
Oregon Director of Banks may suspend the payment of dividends if it is
determined that the payment would cause a bank's remaining stockholders' equity
to be inadequate for the safe and sound operation of the bank. Other than the
laws and regulations noted above, which apply to all banks and bank holding
companies, neither Columbia nor CRB is currently subject to any regulatory
restrictions on their dividends.
CAPITAL ADEQUACY
Federal bank regulatory agencies use capital adequacy guidelines in the
examination and regulation of bank holding companies and banks. If capital falls
below minimum guideline levels, the holding company or bank may be denied
approval to acquire or establish additional banks or nonbank businesses or to
open new facilities.
The FDIC and Federal Reserve use risk-based capital guidelines for banks
and bank holding companies. These are designed to make such capital requirements
more sensitive to differences in risk profiles among banks and bank holding
companies, to account for off-balance sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items. The guidelines are minimums, and the Federal
Reserve has noted that bank holding companies contemplating significant
expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios well in excess of the minimum. The current guidelines
require all bank holding companies and federally
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<PAGE> 14
regulated banks to maintain a minimum risk-based total capital ratio equal to
8%, of which at least 4% must be Tier I capital.
Tier I capital for bank holding companies includes common shareholders'
equity, qualifying perpetual preferred stock (up to 25% of total Tier I capital,
if cumulative, although under a Federal Reserve Rule, redeemable perpetual
preferred stock may not be counted as Tier I capital unless the redemption is
subject to the prior approval of the Federal Reserve), and minority interests in
equity accounts of consolidated subsidiaries, less intangibles, except as
described above. Tier II capital includes: (i) the allowance for loan losses of
up to 1.25% of risk-weighted assets; (ii) any qualifying perpetual preferred
stock which exceeds the amount which may be included in Tier I capital; (iii)
hybrid capital instruments; (iv) perpetual debt; (v) mandatory convertible
securities; and (vi) subordinated debt and intermediate term preferred stock of
up to 50% of Tier I capital. Total capital is the sum of Tier I and Tier II
capital, less reciprocal holdings of other banking organizations, capital
instruments, and investments in unconsolidated subsidiaries.
The assets of banks and bank holding companies receive risk-weights of
0%, 20%, 50%, and 100%. In addition, certain off-balance sheet items are given
credit conversion factors to convert them to asset equivalent amounts to which
an appropriate risk-weight will apply. These computations result in total
risk-weighted assets.
Most loans are assigned to the 100% risk category, except for first
mortgage loans fully secured by residential property, which carry a 50% rating.
Most investment securities are assigned to the 20% category, except for
municipal or state revenue bonds, which have a 50% risk-weight, and direct
obligations of, or obligations guaranteed by, the United States Treasury or
agencies of the federal government, which have 0% risk-weight. In converting
off-balance sheet items, direct credit substitutes, including general guarantees
and standby letters of credit backing financial obligations, are given a 100%
conversion factor. Transaction related contingencies such as bid bonds, other
standby letters of credit and undrawn commitments, including commercial credit
lines with an initial maturity of more than one year, have a 50% conversion
factor. Short-term, self-liquidating trade contingencies are converted at 20%,
and short-term commitments have a 0% factor.
The Federal Reserve also employs a leverage ratio, which is Tier I
capital as a percentage of total assets less intangibles, to be used as a
supplement to risk-based guidelines. The principal objective of the leverage
ratio is to constrain the maximum degree to which a bank holding company may
leverage its equity capital base. The Federal Reserve requires a minimum
leverage ratio of 3%. However, for all but the most highly rated bank holding
companies, and for bank holding companies seeking to expand, the Federal Reserve
expects an additional cushion of at least 1% to 2%.
The FDICIA created a statutory framework of supervisory actions indexed
to the capital level of the individual institution. Under regulations adopted by
the FDIC, an institution is assigned to one of five capital categories,
depending on its total risk-based capital ratio, Tier I risk-based capital
ratio, and leverage ratio, together with certain subjective factors.
Institutions which are deemed to be "undercapitalized" depending on the category
to which they are assigned are subject to certain mandatory supervisory
corrective actions. Columbia does not believe that these regulations have any
material effect on its operations.
EFFECTS OF GOVERNMENT MONETARY POLICY
The earnings and growth of Columbia are affected not only by general
economic conditions, but also by the fiscal and monetary policies of the federal
government, particularly the Federal Reserve. The Federal Reserve can and does
implement national monetary policy for such purposes as curbing inflation and
combating recession, but its open market operations in U.S. government
securities, control of the discount rate applicable to borrowings from the
Federal Reserve, and establishment of reserve requirements against certain
deposits, influence the growth of bank loans, investments and deposits, and also
affect interest rates charged on loans or paid on deposits. The nature and
impact of future changes in monetary policies and their impact on Columbia
cannot be predicted with certainty.
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<PAGE> 15
CHANGES IN BANKING LAWS AND REGULATIONS
The laws and regulations that affect banks and bank holding companies
are currently undergoing significant changes. Bills may be introduced in the
United States Congress that contain proposals to alter the structure,
regulation, and competitive relationships of the nation's financial
institutions. If enacted into law, these bills could have the effect of
increasing or decreasing the cost of doing business, limiting or expanding
permissible activities (including activities in the insurance and securities
fields), or affecting the competitive balance among banks, savings associations,
and other financial institutions. Some of these bills could reduce the extent of
federal deposit insurance, broaden the powers or the geographical range of
operations of bank holding companies, alter the extent to which banks could
engage in securities activities, and change the structure and jurisdiction of
various financial institution regulatory agencies. Whether or in what form such
legislation may be adopted, or the extent to which the business of Columbia
might be affected thereby, cannot be predicted with certainty.
ITEM 2. PROPERTIES
........Seven of Columbia's facilities in Hood River, The Dalles, Redmond, Bend,
McMinnville and Madras, Oregon, as well as its two full-service branch
facilities in south central Washington, are housed in properties owned by
Columbia. Columbia leases the space for its in-store facility in the Safeway
store in The Dalles. The new branches in Hermiston and Pendleton presently
occupy leased space, but early in 2000 will be moving into Columbia owned
facilities. The Newberg branch is currently located in a temporary trailer with
plans to move into leased space early in 2000. All of Columbia's presently owned
full-service branches have drive-up facilities and automated teller machines.
Columbia's mortgage group operates from the second floor of Columbia's present
Bend branch, as well as leased office space in The Dalles. The following sets
forth certain information regarding Columbia's branch facilities.
<TABLE>
<CAPTION>
Date
Opened
Square or Occupancy
City and County Address Feet Acquired Status
- --------------- ------- ------- -------- ----------
<S> <C> <C> <C> <C>
Oregon Branches
The Dalles (Main Branch), Wasco County 316 East Third Street 8,000 1977 Owned
The Dalles (Westside Branch), Wasco County(1) 520 Mt. Hood Street 430 1986 Leased
Hood River Branch, Hood River County 2650 Cascade Avenue 6,255 1993 Owned
Madras Branch, Jefferson County 624 SW Fourth Street 7,400 1995 Owned
Redmond Branch, Deschutes County 434 North Fifth Street 4,700 1995 Owned
Bend Branch, Deschutes County 1701 NE Third Street 8,306 1996 Owned
Shevlin Center Branch,(2) Deschutes County 925 SW Emkay Drive 15,000 1996 Owned
Hermiston Branch, Umatilla County(3) 1055 South Highway 395 1,500 1998 Leased
Pendleton Branch, Umatilla County(3) 16 SE Court Avenue 1,776 1999 Leased
McMinnville Branch, Yamhill County 723 N Baker 9,600 1998 Owned
Newberg Branch, Yamhill County 901 N Brutscher St. 720 1999 Leased
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
Date
Opened
Square or Occupancy
City and County Address Feet Acquired Status
- --------------- ------- ------- -------- ----------
<S> <C> <C> <C> <C>
Washington Branches
White Salmon Branch, Klickitat County 390 NE Tohomish Street 5,500 1996 Owned
Goldendale Branch, Klickitat County 202 West Main Street 6,105 1996 Owned
</TABLE>
- --------------------
(1) Leased space in a Safeway supermarket. Lease term expires September 2000.
(2) Branch operations are located on the first floor (7,500 square feet). The
second floor is leased to other parties.
(3) Leased on a month-to-month basis pending construction of new facility.
Columbia maintains its administrative offices in 1,900 square feet of
leased office space in The Dalles. This space is adequate presently but will not
be suitable over the longer term. Columbia purchased property in the Columbia
River Center in The Dalles for future branch or administrative operations
expansion. Columbia is committed to keeping its administrative headquarters in
The Dalles
EMPLOYEES
As of December 31, 1999, Columbia had a total of 217 full-time
equivalent employees. This number of employees, which compares to 187 at
December 31, 1998, has increased due to the opening of three branches in 1999,
as well as increased staffing in other branch and administrative functions. None
of the employees are subject to a collective bargaining agreement. Columbia
considers its relationships with its employees to be good.
ITEM 3. LEGAL PROCEEDINGS
Columbia is from time-to-time a party to various legal actions arising
in the normal course of business, such as collection cases and the enforcement
of creditors' rights in bankruptcy proceedings. Management is not presently
aware of any material pending or threatened claims against Columbia.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of securities holders of Columbia
during the quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The information called for by this item is contained in Columbia's
Annual Report to Shareholders for the year ended December 31, 1999, portions of
which are attached hereto as Exhibit 13.1.
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<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain information concerning the
consolidated financial condition, operating results, and key operating ratios
for Columbia at the dates and for the periods indicated. This information does
not purport to be complete, and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the Consolidated Financial Statements of Columbia and Notes thereto.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income $ 26,883 $ 21,328 $ 18,144 $ 15,385 $ 13,815
Interest expense 8,568 7,205 6,270 5,746 5,216
-------- -------- -------- -------- --------
Net interest income 18,315 14,123 11,874 9,639 8,599
Loan loss provision 1,005 1,000 581 246 88
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 17,310 13,123 11,293 9,393 8,511
Noninterest income 5,784 4,678 2,481 1,799 1,552
Noninterest expense 14,976 10,633 8,092 7,180 6,495
-------- -------- -------- -------- --------
Income before provision for
income taxes 8,118 7,168 5,682 4,012 3,568
Provision for income taxes 3,105 2,450 1,795 1,285 1,079
-------- -------- -------- -------- --------
Net income $ 5,013 $ 4,718 $ 3,887 $ 2,727 $ 2,489
======== ======== ======== ======== ========
DIVIDENDS
Cash dividends declared and paid $ 1,999 $ 1,587 $ 842 $ 882 $ 555
Ratio of dividends to net income 39.88% 33.64% 21.67% 32.37% 22.30%
PER SHARE DATA(1)
Earnings Per Share
Basic earnings per common share $ 0.63 $ 0.67 $ 0.57 $ 0.41 $ 0.37
Diluted earnings per common share $ 0.62 $ 0.65 $ 0.55 $ 0.40 $ 0.36
Cash Earnings Per Share
Basic earnings per common share $ 0.71 $ 0.68 $ 0.57 $ 0.41 $ 0.37
Diluted earnings per common share $ 0.70 $ 0.66 $ 0.55 $ 0.40 $ 0.36
Book value per common share $ 4.66 $ 4.37 $ 3.35 $ 2.89 $ 2.60
Weighted average shares outstanding
Basic 7,985 7,066 6,813 6,732 6,693
Diluted 8,090 7,238 7,013 6,847 6,842
BALANCE SHEET DATA
Investment securities $ 62,333 $ 47,894 $ 48,804 $ 51,484 $ 49,454
Loans, net $246,975 $206,551 $155,219 $118,228 $104,178
Total assets $361,241 $342,413 $231,827 $200,302 $178,486
Total deposits $310,910 $295,680 $201,568 $178,744 $158,874
Shareholders' equity $ 37,322 $ 34,756 $ 22,987 $ 19,533 $ 17,484
SELECTED RATIOS
Return on average assets 1.44% 1.83% 1.77% 1.45% 1.46%
Return on average equity 13.90% 18.10% 18.37% 14.91% 15.45%
Total loans to deposits 79.44% 69.86% 77.00% 66.14% 65.57%
Net interest margin 6.17% 6.19% 6.15% 5.74% 5.67%
Efficiency ratio 62.14% 56.56% 56.37% 62.77% 63.98%
Cash efficiency ratio 59.53% 56.28% 56.37% 62.77% 63.98%
ASSET QUALITY RATIOS
Reserve for loans losses to:
Ending total loans 1.32% 1.13% 1.04% 0.83% 1.02%
Nonperforming assets(2) 553.45% 108.82% 112.65% 384.17% 291.30%
Nonperforming assets to ending
total assets(2) 0.16% 0.64% 0.63% 0.04% 0.21%
Net loan charge-offs(recoveries)
to average loans 0.04% 0.38% (0.04)% 0.29% (0.03)%
CAPITAL RATIOS
Average shareholders' equity to
average assets 10.40% 10.12% 9.62% 9.73% 9.48%
Tier I capital ratio(3) 10.20% 10.90% 13.70% 14.20% 14.40%
Total risk-based capital ratio(4) 11.30% 11.90% 14.70% 14.90% 15.20%
Leverage ratio(5) 8.30% 8.90% 10.60% 9.90% 9.90%
</TABLE>
(1) Per share data reflects retroactive restatement for stock splits in 1998
(3-for-2 and 2-for-1) and 1995 (3-for-1).
(2) Nonperforming assets consist of nonaccrual loans, loans contractually past
due 90 days or more, and other real estate owned.
(3) Tier I capital divided by risk-weighted assets.
(4) Total capital divided by risk-weighted assets.
(5) Tier I capital divided by average total assets.
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<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
From its origins as a one-branch bank in The Dalles, Columbia has grown
as a result of merger and acquisition activity, new branch openings, the
introduction of new business lines, and the expansion and cross-marketing of its
existing products and community-bank lending expertise. In 1995, CRB merged with
Juniper Banking Company, and in 1996 Columbia was formed as CRB's holding
company. In 1996, Columbia acquired Washington-based Klickitat Valley Bank.
Further growth came from CRB's Hood River and Bend branch openings, and from the
expansion in 1997 of CRB's residential mortgage business. In November 1998,
Columbia acquired Valley Community Bank, and in September CRB opened a new
branch in Hermiston, Oregon. In 1999, CRB opened a new branch in Pendleton,
Oregon in January, completed construction and opened a second Bend branch in
August, and opened its first branch in Newberg, Oregon in November.
Collectively, these growth and acquisition activities have enabled Columbia to
diversify its portfolio and its operating risk over several market areas and
local economies.
Columbia's goal is to grow its earning assets while maintaining a high
return on equity and keeping asset quality high. The key to this, in Columbia's
view, is to emphasize personal, quality banking products and services for its
customers, to hire and retain competent branch management and administrative
personnel, and to respond quickly to customer demand and growth opportunities.
Columbia also intends to increase its market penetration in its existing
markets, and to expand into new markets through further suitable acquisitions
and through new branch openings. Columbia's goal continues to be to increase
earning assets without compromising its commitment to high asset quality.
For the year ended December 31, 1999, net income was $5.01 million,
representing an increase of 6.26% over net income of $4.72 million earned during
the year ended December 31, 1998. Net income for 1998 was up 21.39% over net
income of $3.89 million earned during the year ended December 31, 1997. Net
income for 1997 was up 42.49% from $2.73 million for the year ended December 31,
1996. Cash basis diluted earnings per share were $0.70 $0.66, and $0.55 for the
years ended December 31, 1999, 1998, and 1997, respectively. Return on average
assets was 1.44% for the year ended December 31, 1999, compared with 1.83% for
the year ended December 31, 1998, and 1.77% in 1997. Return on average equity
was 13.90% for the year ended December 31, 1999, compared with 18.10% for the
year ended December 31, 1998, and 18.37% for the year ended December 31, 1997.
The increase in earnings for the year ended December 31, 1999, versus the
comparable period in 1998 can be attributed to growth in earning assets,
deposits, fee income growth, and increased customer activity in new markets.
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<PAGE> 19
Return on average daily assets and equity and certain other ratios for
the periods indicated are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Net income $ 5,013 $ 4,718 $ 3,887 $ 2,727 $ 2,489
Average assets 347,003 257,664 219,905 188,061 170,352
RETURN ON AVERAGE ASSETS 1.44% 1.83% 1.77% 1.45% 1.46%
Net income $ 5,013 $ 4,718 $ 3,887 $ 2,727 $ 2,489
Average equity 36,075 26,069 21,157 18,292 16,114
RETURN ON AVERAGE EQUITY 13.90% 18.10% 18.37% 14.91% 15.45%
Cash dividends declared and paid per share $ 0.25 $ 0.22 $ 0.12 $ 0.13 $ 0.08
Basic earnings per common share 0.63 0.67 0.57 0.41 0.37
DIVIDEND PAYOUT RATIO 39.88% 33.64% 21.67% 32.37% 22.30%
Average equity $ 36,075 $ 26,069 $ 21,157 $ 18,292 $ 16,144
Average assets 347,003 257,664 219,905 188,061 170,352
AVERAGE EQUITY TO ASSET RATIO 10.40% 10.12% 9.62% 9.73% 9.48%
</TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
For financial institutions, the primary component of earnings is net
interest income. Net interest income is the difference between interest income,
principally from loan and investment security portfolios, and interest expense,
principally on customer deposits. Changes in net interest income result from
changes in "volume," "spread," and "margin." Volume refers to the dollar level
of interest-earning assets and interest-bearing liabilities. Spread refers to
the difference between the yield on interest-earning assets and the cost of
interest-bearing liabilities. Net interest margin is the ratio of net interest
income to total average interest-earning assets and is influenced by the
relative level of interest-earning assets and interest-bearing liabilities.
19
<PAGE> 20
Average Balances and Average Rates Earned and Paid. The following table
shows average balances and interest income or interest expense, with the
resulting average yield or rates by category of earning assets or
interest-bearing liabilities:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 Year Ended December 31, 1998 Year Ended December 31, 1997
----------------------------- ---------------------------- -------------------------------
Average Average
Interest Yields Interest Yields Interest Average
Average Income or or Average Income or or Average Income or Yields or
Balance Expense Rates Balance Expense Rates Balance Expense Rates
--------- --------- ------- --------- --------- ------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(2) $222,276 $22,495 10.12% $175,588 $17,939 10.22% $140,891 $14,764 10.48%
Investment securities
Taxable securities 38,434 2,195 5.71 31,686 1,890 5.97 36,826 2,296 6.24
Nontaxable securities(1) 20,895 1,519 7.27 16,819 1,284 7.63 15,112 1,114 7.37
Interest-earning balances due
from banks 6,533 362 5.54 3,142 159 5.05 2,322 127 5.45
Federal funds sold 17,149 829 4.83 8,042 492 6.12 4,114 221 5.38
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-earning
assets(3) 305,287 27,400 8.98 235,277 21,764 9.25 199,265 18,522 9.30
Cash and due from banks 18,505 14,663 14,091
Premises and equipment, net 9,738 5,545 5,096
Loan loss allowance (2,961) (1,917) (1,315)
Other assets 16,434 4,096 2,768
------- ------ --------
Total assets $347,003 $257,664 $219,905
======== ======== ========
Interest-bearing liabilities:
Interest-bearing checking and
savings accounts $153,609 $ 4,148 2.70% $115,101 $3,571 3.10% $102,005 $3,313 3.25%
Time deposit & IRAs 75,619 3,886 5.14 58,370 3,195 5.47 51,164 2,772 5.42
Borrowed Funds 9,418 534 5.67 7,929 439 5.53 3,236 185 5.68
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-bearing
liabilities 238,646 8,568 3.60 181,400 7,205 3.97 156,405 6,270 4.01
Noninterest-bearing deposits 70,000 48,983 38,299
Other liabilities 2,282 1,212 4,044
-------- -------- --------
Total liabilities 310,928 231,595 198,748
Shareholders' equity 36,075 26,069 21,157
-------- -------- --------
Total liabilities and
shareholders' equity $347,003 $257,664 $219,905
======== ======== ========
Net interest income $18,832 $14,559 $12,252
======= ======= =======
Net interest spread 5.38% 5.28% 5.29%
===== ===== =====
Average yield on average earning
assets(1) 8.98% 9.25% 9.30%
===== ===== =====
Interest expense to average
earning assets 2.81% 3.06% 3.15%
===== ===== =====
Net interest margin(3) 6.17% 6.19% 6.15%
===== ===== =====
</TABLE>
- ----------------
(1) Tax-exempt income has been adjusted to a tax-equivalent basis at 34%.
(2) Nonaccural loans are included in the average balance.
(3) Net interest margin is computed by dividing net interest income by total
average earning assets.
20
<PAGE> 21
Analysis of Changes in Interest Differential. The following table shows
the dollar amount of the increase (decrease) in Columbia's net interest income
and expense and attributes such dollar amounts to changes in volume as well as
changes in rates. Rate and volume variances have been allocated proportionally
between rate and volume changes:
<TABLE>
<CAPTION>
1999 OVER 1998 1998 OVER 1997 1997 OVER 1996
---------------------------- ------------------------------- -------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
---------------------------- ------------------------------- -------------------------------
NET NET NET
VOLUME RATE CHANGE VOLUME RATE CHANGE VOLUME RATE CHANGE
------ ----- ------ ------- ----- ------- ------- ----- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $4,770 $(214) $4,556 $ 3,636 $(461) $ 3,175 $ 3,079 $(169) $ 2,910
Investment securities
Taxable securities 403 (98) 305 (321) (85) (406) 122 100 222
Nontaxable securities 311 (76) 235 126 44 170 12 (65) (53)
Balances due from banks 170 33 203 45 (13) 32 8 22 30
Federal funds sold 558 (221) 337 211 60 271 (372) 4 (368)
------ ----- ------ ------- ----- ------- ------- ----- -------
Total 6,212 (576) 5,636 3,697 (455) 3,242 2,849 (108) 2,741
------ ----- ------ ------- ----- ------- ------- ----- -------
Interest-bearing liabilities:
Interest-bearing checking
and savings accounts 1,195 (618) 577 426 (168) 258 393 (47) 346
Time deposits 944 (253) 691 390 33 423 104 (49) 55
Borrowed funds 82 13 95 265 (11) 254 122 1 123
------ ----- ------ ------- ----- ------- ------- ----- -------
Total 2,221 (858) 1,363 1,081 (146) 935 619 (95) 524
------ ----- ------ ------- ----- ------- ------- ----- -------
Net increase (decrease) in
net interest income $3,991 $ 282 $4,273 $ 2,616 $(309) $ 2,307 $ 2,230 $ (13) $ 2,217
====== ===== ====== ======= ===== ======= ======= ===== =======
</TABLE>
Net interest income, before provision for loan loss, for the year ended
December 31, 1999 was $18.32 million, an increase of 29.68% compared to net
interest income of $14.12 million in 1998, an increase of 18.94% compared to net
interest income of $11.87 million in 1997. The overall tax-equivalent earning
asset yield was 8.98% in 1999 compared to 9.25% in 1998 and 9.30% in 1997. For
the same years, rates on interest-bearing liabilities were 3.60%, 3.97%, and
4.01%, respectively. These results were primarily due to an increase in the
volume of earning assets and the growth of noninterest-bearing deposits. For the
three-year period 1997 through 1999, the average yield on earning assets
decreased 0.32% while rates paid on interest-bearing liabilities decreased by
0.41%. Average loans increased 57.76% while average noninterest-bearing deposits
increased 82.77%.
Total interest-earning assets averaged $305.29 million for the year
ended December 31, 1999, compared to $235.28 million for the corresponding
period in 1998. Most of the increase was due to an increase in loans. Increases
in the loan portfolio are attributed to the acquisition of Valley Community
Bank, opportunities afforded by the banking industry's consolidation and closure
of competitors' branches in Columbia's market areas, and the hiring of
additional senior lending personnel in strategic locations.
Interest-bearing liabilities averaged $238.65 million for the year ended
December 31, 1999 compared to $181.40 million during the same period in 1998.
Although further competitive pressure is expected in expanding deposit
relationships, management, as a matter of policy, does not seek to attract
high-priced, brokered deposits. In the near-term, management does not anticipate
Columbia's net interest margins will be significantly impacted by competitive
pressure for deposit accounts.
21
<PAGE> 22
Loans, which generally carry a higher yield than investment securities
and other earning assets, comprised 72.81% of average earning assets during
1999, compared to 74.63% in 1998 and 70.71% in 1997. During the same periods,
average yields on loans were 10.12% in 1999, 10.22% in 1998, and 10.48% in 1997.
Investment securities comprised 19.43% of average earning assets in 1999, which
was down from 20.62% in 1998 and 26.06% in 1997. Tax equivalent interest yields
on investment securities have ranged from 6.27% in 1999 to 6.54% in 1998 and
6.57% in 1997.
Interest cost, as a percentage of earning assets, decreased to 2.81% in
1999, compared to 3.06% in 1998 and 3.15% in 1997. Local competitive pricing
conditions and funding needs for Columbia's investments in loans have been the
primary determinants of rates paid for deposits during these three years.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents charges made to earnings to
maintain an adequate allowance for loan losses. The allowance is maintained at
an amount believed to be sufficient to absorb losses in the loan portfolio.
Factors considered in establishing an appropriate allowance include a careful
assessment of the financial condition of the borrower; a realistic determination
of the value and adequacy of underlying collateral; the condition of the local
economy and the condition of the specific industry of the borrower; a
comprehensive analysis of the levels and trends of loan categories; and a review
of delinquent and classified loans. Columbia applies a systematic process for
determining the adequacy of the allowance for loan losses, including an internal
loan review function and a quarterly analysis of the adequacy of the allowance.
The quarterly analysis includes determination of specific potential loss factors
on individual classified loans, historical potential loss factors derived from
actual net charge-off experience and trends in nonperforming loans, and
potential loss factors for other loan portfolio risks such as loan
concentrations, the condition of the local economy, and the nature and volume of
loans.
The recorded values of loans actually removed from the consolidated
balance sheets are referred to as charge-offs and, after netting out recoveries
on previously charged-off assets, become net charge-offs. Columbia's policy is
to charge off loans when, in management's opinion, the loan or a portion thereof
is deemed uncollectible, although concerted efforts are made to maximize
recovery after the charge-off. When a charge to the loan loss provision is
recorded, the amount is based on past charge-off experience, a careful analysis
of the current portfolio, and an evaluation of economic trends in Columbia's
market areas. Management will continue to closely monitor the loan quality of
new and existing relationships through stringent review and evaluation
procedures and by making loan officers accountable for collection efforts.
For the years ended December 31, 1999 through 1997, Columbia charged
$1.01 million, $1.00 million and $581,000 respectively, to its provision for
loan losses. The 72.12% increase in 1998 over the provision for loan losses
recorded in 1997 was necessary to accommodate the growth in Columbia's loan
portfolio, to establish a reserve for potential losses consistent with revisions
in Columbia's loan policy, and to replenish the allowance for loan losses for
charge-offs incurred during 1998. During the last three years, average
outstanding loans grew 57.76% and the allowance for loan losses kept pace by
increasing 101.29% through charges to the provision for loan losses. Columbia's
increase in the provision for loan losses has primarily been a function of
strong loan demand and the resulting growth in the loan portfolio.
For the year ended December 31, 1999, loan charge-offs exceeded
recoveries by $86,000 as compared to 1998, when loan charge-offs exceeded
recoveries by $669,000. Nearly one-third of the loss experienced in 1998 was due
to a loss from one loan. All remaining net charge-offs incurred by Columbia were
smaller in amount and generally distributed evenly among all other branch
locations.
NONINTEREST INCOME
Total noninterest income increased through year-end 1999 over 1998 and
1997. Over this three-year period, noninterest income has increased from $2.48
million in 1997, to $4.68 million in 1998, and to $5.78 million in 1999.
Noninterest income is primarily derived from service charges and related fees,
as well as mortgage origination and processing fees. Such income increased $1.11
million, or 23.64% for the year ended December 31,
22
<PAGE> 23
1999, compared to the year ended December 31, 1998. The principal reason for
this increase was income generated by Columbia's mortgage lending division,
which was formed in September of 1997, and which operates under the name
"Columbia River Bank Mortgage Group." For the year ended 1999, this division
generated $1.85 million in income from originating, processing, servicing, and
selling mortgage loans. The increase was also the result of increasing deposit
volumes and related service fees. Service charges were $2.19 million for the
year ended December 31, 1999, compared to $1.74 million for the year ended
December 31, 1998, and $1.55 million for the year ended December 31, 1997.
Management attributes this 25.35% increase to the increase in customers served
at all of Columbia's branches. The remainder of the increase in noninterest
income is primarily attributable to improved revenues received from credit card
discounts and fees, investment fee income provided by Columbia's financial
services department and other noninterest fees and charges.
NONINTEREST EXPENSE
Noninterest expenses consist principally of employees' salaries and
benefits, occupancy costs, data processing expenses and other noninterest
expenses. A measure of Columbia's ability to contain noninterest expenses is the
efficiency ratio. For the year ended December 31, 1999, the cash basis
efficiency ratio had slipped to 59.53% compared to 56.28% for the corresponding
period of 1998. The decline in the efficiency ratio primarily reflects increased
expenses.
Noninterest expense was $14.98 million for the year ended December 31, 1999,
an increase from $10.63 million for the year ended December 31, 1998, and $8.09
million for the year ended December 31, 1997. This was due to an increase in
staffing costs, as well as increases in other key operating costs such as
occupancy expense, data processing expenses and other noninterest expense. The
additional expenses related primarily to costs associated with the opening of
three branches in 1999 as well as one-time non-recurring charges in 1999 for Y2K
compliance, a technology study and the combination of the two subsidiary banks.
In 1999, Columbia's total noninterest expense was 62.14% of net revenues, while
in 1998 and 1997 it was 56.56% and 56.37%, respectively, of net revenues.
Salary and benefit expense was $8.04 million in 1999, $6.01 million in
1998, and $4.46 million in 1997. As of December 31, 1999, Columbia had 217
full-time equivalent employees, which compares to 187 as of December 31, 1998
and 133 as of December 31, 1997. The increase in this expense category was the
result of additional staffing in the new Newberg, Hermiston and Pendleton
branches and the normal expense increases associated with maintaining an
expanded employee base.
Net occupancy expense consists of depreciation on premises and
equipment, maintenance and repair expenses, utilities, and related expenses.
Columbia's net occupancy expense increased steadily over the three-year period.
This expense category was $1.19 million in 1999, an increase of $241,000, or
25.38%, over the $948,000 reported in 1998. From 1997 to 1999, net occupancy
expense increased by $454,000, from $736,000 to $1.19 million, an increase of
61.57%. These increases reflect the operation of the five additional branches
and the formation in 1997 of the Columbia River Bank Mortgage Group. This also
reflects the costs relating to continued investment in Columbia's computer
systems, which have been upgraded throughout the organization.
FDIC insurance premiums are a function of outstanding deposit
liabilities. Because the Bank Insurance Fund has since been adequately
capitalized, Columbia was required to make only nominal premium payments in
1999, 1998 and 1997. For the three-year period ended December 31, 1999, Columbia
paid the lowest premium available for its deposit insurance coverage.
Other noninterest expense increases arose from investments in technology
and data processing, and in new service delivery channels to enable Columbia to
continue its focus on efficient, personal service. Data processing expenses
increased 55.34% in 1999 over the previous year, which reflects both the growth
of Columbia's customer and account base and ongoing upgrades to the data
processing operations.
INCOME TAXES
The provision for income taxes was $3.11 million in 1999, $2.45 million
in 1998 and $1.80 million in
23
<PAGE> 24
1997. The provision resulted in effective combined federal and state tax rates
of 38.25% in 1999, 34.18% in 1998, and 31.60% in 1997. The growth of the
effective tax rate in 1999 is primarily due to the effect of nondeductible
goodwill amortization. The effective tax rates differ from combined estimated
statutory rates of 38% principally due to the effects of nontaxable interest
income which is recognized for book, but not for tax purposes. In addition,
Columbia's state income tax rate was reduced from 6.60% to 3.81% in 1997 as a
result of surplus revenues received by the State of Oregon.
FINANCIAL CONDITION
SUMMARY BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, INCREASE (DECREASE)
-------------------------------- --------------------------------------------
1999 1998 1997 12/31/98 - 12/31/99 12/31/97 - 12/31/98
-------- -------- -------- ------------------- --------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 680 $ 12,555 $ 2,834 $(11,875) -94.58% $ 9,721 343.01%
Investments 62,333 47,894 48,804 14,439 30.15% (910) -1.86%
Loans 246,975 206,551 155,219 40,424 19.57% 51,332 33.07%
Other assets(1) 51,253 75,413 24,970 (24,160) -32.04% 50,443 202.01%
-------- -------- -------- -------- ---------
Total assets $361,241 $342,413 $231,827 $ 18,828 5.50% $ 110,586 47.70%
======== ======== ======== ======== =========
LIABILITIES
Noninterest-bearing
deposits $ 74,889 $ 67,409 $ 46,377 $ 7,480 11.10% $ 21,032 45.35%
Interest-bearing deposits 236,021 228,271 155,191 7,750 3.40% 73,080 47.09%
-------- -------- -------- -------- ---------
Total deposits 310,910 295,680 201,568 15,230 5.15% 94,112 46.69%
Other liabilities(2) 13,009 11,977 7,272 1,032 8.62% 4,705 64.70%
-------- -------- -------- -------- ---------
Total liabilities 323,919 307,657 208,840 16,262 5.29% 98,817 47.32%
SHAREHOLDERS'
EQUITY 37,322 34,756 22,987 2,566 7.38% 11,769 51.20%
-------- -------- -------- -------- ---------
Total liabilities and
shareholder's equity $361,241 $342,413 $231,827 $ 18,828 5.50% $ 110,586 47.70%
======== ======== ======== ======== =========
</TABLE>
(1) Includes cash and due from banks, fixed assets, and accrued interest
receivable.
(2) Includes accrued interest payable and other liabilities.
INVESTMENTS
A year-to-year comparison shows that Columbia's investment securities at
December 31, 1999, totaled $62.33 million, compared to $47.89 million at
December 31, 1998, and $48.80 million at December 31, 1997. This represents an
increase of 30.15% between 1998 and 1999 and a decrease of 1.86% between 1997
and 1998. Increases or decreases in the investment portfolio are primarily a
function of loan demand and changes in Columbia's deposit structure. On December
31, 1999, investments in federal funds sold (an overnight investment) were
$680,000 and investments in restricted stock were $1.10 million. The balance of
federal funds sold is influenced by cash demands, customer deposit levels, loan
activity, and other investment transactions.
Columbia follows a financial accounting principle which requires that
investment securities be identified as held-to-maturity or available-for-sale.
Held-to-maturity securities are those that Columbia has the intent and ability
to hold until they mature or are called. Available-for-sale securities are those
that management may sell if liquidity requirements dictate or if alternative
investment opportunities arise. The mix of available-for-sale and
held-to-maturity investment securities is determined by management, based on
Columbia's asset-liability policy,
24
<PAGE> 25
management's assessment of the relative liquidity of Columbia, and other
factors.
At December 31, 1999, the investment portfolio, excluding restricted
equity securities, consisted of 67.14% available-for-sale securities and 32.86%
held-to-maturity securities. At December 31, 1998, the portfolio consisted of
62.99% available-for-sale securities and 37.01% held-to-maturity securities. At
December 31, 1997, Columbia's investment portfolio, excluding restricted equity
securities, consisted of 65.18% available-for-sale securities and 34.82%
held-to-maturity securities. The present mix provides investment flexibility by
placing more of the portfolio in the available-for-sale category.
At December 31, 1999, Columbia's investment portfolio had total net
unrealized losses of approximately $1.58 million. This compares to net
unrealized gains of approximately $574,000 at December 31, 1998, and $371,000 at
December 31, 1997. Unrealized gains and losses reflect changes in market
conditions and do not represent the amount of actual profits or losses Columbia
may ultimately realize. Actual realized gains and losses occur at the time
investment securities are sold or redeemed.
Federal funds sold are short term investments which mature on a daily
basis. Columbia invests in these instruments to provide for additional earnings
on excess available cash balances. Because of their short maturities, the
balance of federal funds sold fluctuates dramatically on a day-to-day basis. The
balance on any one day is influenced by cash demands, customer deposit levels,
loan activity and other investment transactions. Investments in federal funds
sold totaled $680,000 at December 31, 1999, compared to $12.55 million at
December 31, 1998, and $2.83 million at December 31, 1997.
The following table provides the carrying value of Columbia's portfolio
of investment securities as of December 31, 1999, 1998, and 1997, respectively.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------
1999 1998 1997
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Investments available-for-sale:
U.S. Treasury securities $ 1,610 $ 3,199 $ 3,214
U.S. Government obligations 36,205 23,168 26,943
Corporate debt securities 532 605 853
Corporate equity securities 300 300 300
Municipal securities 2,464 2,195 --
-------- -------- --------
41,111 29,467 31,310
-------- -------- --------
Investments held-to-maturity:
Obligations of states and political subdivisions 17,586 16,336 16,571
Mortgage-backed securities 2,539 974 157
-------- -------- --------
20,125 17,310 16,728
-------- -------- --------
Restricted equity securities 1,097 1,117 766
-------- -------- --------
Total investment securities $ 62,333 $ 47,894 $ 48,804
======== ======== ========
</TABLE>
25
<PAGE> 26
Investment securities at the dates indicated consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------ ------------------------------ -----------------------------
APPROX- APPROX- APPROX-
IMATE IMATE IMATE
AMORTIZED MARKET % AMORTIZED MARKET % AMORTIZED MARKET %
COST VALUE YIELD* COST VALUE YIELD* COST VALUE YIELD*
-------- -------- ------ --------- -------- ------ --------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries and
agencies:
One year or less $ 600 $ 601 5.67% $ 558 $ 553 5.34% $ 1,599 $ 1,599 5.47%
One to five years 1,031 1,009 6.21% 2,603 2,646 4.80% 1,611 1,614 5.72%
U.S. Government
agencies:
One year or less 628 619 6.42% 1,190 1,181 5.95% 5,052 5,058 5.75%
One to five years 38,079 37,105 6.76% 20,377 20,465 5.94% 17,333 17,321 6.35%
Five to ten years 995 1,000 5.47% 2,499 2,494 5.94% 3,701 3,727 6.60%
Due after ten years -- -- 0.00% -- -- 0.00% 1,000 994 7.51%
Obligations of states and
political subdivisions:
One year or less 2,304 2,324 8.81% 2,820 2,822 4.57% 2,165 2,187 6.00%
One to five years 6,350 6,337 7.20% 7,167 7,379 6.93% 6,887 7,051 7.29%
Five to ten years 3,493 3,365 7.78% 2,887 2,952 6.56% 3,005 3,080 6.72%
Over ten years 7,927 7,489 8.14% 5,655 5,838 6.95% 4,513 4,610 7.35%
Corporate and other
debt securities:
One year or less -- -- 0.00% 605 605 6.37% 250 250 5.98%
One to five years 557 532 7.19% -- -- 0.00% 603 603 6.45%
-------- -------- ---- -------- -------- ---- -------- -------- ----
Total debt securities 61,964 60,381 7.07% 46,361 46,935 6.11% 47,719 48,094 6.90%
Corporate equity securities 300 300 300 300 300 300
Restricted equity securities 1,097 1,097 816 816 766 766
-------- -------- -------- -------- -------- -------
Total securities $ 63,361 $ 61,778 $ 47,477 $ 48,051 $ 48,785 $49,160
======== ======== ======== ======== ======== =======
</TABLE>
* Weighted average yields are stated on a federal tax-equivalent basis at a
34% rate, and have been annualized, where appropriate.
LOANS
Columbia's loan policies and procedures establish the basic guidelines
governing its lending operations. Generally, the guidelines address the types of
loans that Columbia seeks, target markets, underwriting and collateral
requirements, terms, interest rate and yield considerations, and compliance with
laws and regulations. All loans or credit lines are subject to approval
procedures and amount limitations. These limitations apply to the borrower's
total outstanding indebtedness to Columbia, including the indebtedness of any
guarantor. The policies are reviewed and approved at least annually by the Board
of Directors of Columbia. Columbia supplements its own supervision of the loan
underwriting and approval process with periodic loan audits by outside
professionals experienced in loan review work.
Bank officers are charged with loan origination in compliance with
underwriting standards overseen by the loan administration department and in
conformity with established loan policies. On an annual basis, the Board of
Directors determines the lending authority of the President, who then delegates
lending authority to the Chief Lending Officer and other lending officers. Such
delegated authority may include authority related to loans, letters of credit,
overdrafts, uncollected funds, and such other authority as determined by the
Board or the President within the President's delegated authority.
The President has authority to approve loans up to a lending limit set
by the Board of Directors. All loans above the lending limit of the President
and up to a certain limit are reviewed for approval by an internal loan
26
<PAGE> 27
committee. Loans which exceed this limit but are less than pre-established
lending limits must be conditionally approved by an internal loan committee, and
are subject to the approval of the Board's loan committee up to pre-established
lending limits. Minutes from Board loan committee meetings are reviewed by the
full Board at regularly scheduled monthly meetings. All loans above the lending
limit up to Columbia's statutory loan-to-one - borrower limitation (also known
as the legal lending limit) require approval of the full Board of Directors.
Columbia's unsecured legal lending limit was $4.89 million at December 31, 1999.
Columbia seldom makes loans approaching its unsecured legal lending limit.
Net outstanding loans totaled $246.98 at December 31, 1999, representing
an increase of $40.43 million, or 19.57% compared to $206.55 million as of
December 31, 1998. Loan commitments grew to $82.69 million as of December 31,
1999, representing an increase of $25.03 million over year-end 1998. Net
outstanding loans were $155.22 million at December 31, 1997, and $118.23 million
at December 31, 1996.
Columbia's net loan portfolio at December 31, 1999, includes loans
secured by real estate (54.09% of total), commercial loans (24.65% of total),
agricultural loans (15.30% of total) and consumer loans (7.66% of total). Loans
secured by real estate include loans made for purposes other than financing
purchases of real property, such as inventory financing and equipment purchases,
where real property serves as collateral for the loan.
This table presents the composition of Columbia's loan portfolio at the
dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ---------------------- ----------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
--------- ---------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 60,869 24.65% $ 41,275 19.98% $ 28,464 18.34%
Agricultural 37,775 15.30% 34,604 16.75% 20,511 13.21%
Real estate secured loans:
Commercial property 43,469 17.59% 41,089 19.89% 29,319 18.89%
Farmland 13,270 5.37% 8,603 4.17% 6,212 4.00%
Construction 33,780 13.68% 20,048 9.71% 13,504 8.70%
Residential 40,051 16.22% 43,919 21.26% 40,200 25.90%
Home equity lines 3,027 1.23% 2,675 1.30% 2,239 1.44%
--------- ------ --------- ------ --------- ------
Total real estate 133,597 54.09% 116,334 56.32% 91,474 58.93%
Consumer 18,096 7.33% 16,569 8.02% 15,665 10.09%
Other 827 0.33% 933 0.45% 1,356 0.88%
--------- ------ --------- ------ --------- ------
Total loans 251,164 101.70% 209,715 101.53% 157,470 101.45%
Less deferred loan fees (891) (0.36)% (784) (0.38)% (612) (0.39)%
Less reserve for loan losses (3,298) (1.34)% (2,380) (1.15)% (1,639) (1.06)%
--------- ------ --------- ------ --------- ------
Loans receivable, net $ 246,975 100.00% $ 206,551 100.00% $ 155,219 100.00%
========= ====== ========= ====== ========= ======
</TABLE>
27
<PAGE> 28
The following table shows the maturities and sensitivity of Columbia's
loans to changes in interest rates at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------------------------- ---------------------------------------------
DUE AFTER DUE AFTER
DUE IN ONE YEAR DUE DUE IN ONE YEAR DUE
ONE YEAR THROUGH AFTER TOTAL ONE YEAR THROUGH AFTER TOTAL
OR LESS FIVE YEARS FIVE YEARS LOANS OR LESS FIVE YEARS FIVE YEARS LOANS
-------- ---------- ---------- -------- -------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans $ 31,220 $18,225 $11,424 $ 60,869 $ 25,827 $10,347 $ 5,101 41,275
Agricultural loans 32,257 4,637 881 37,775 31,499 2,714 391 34,604
Real estate secured loans:
Commercial property 8,943 17,513 17,013 43,469 10,725 13,603 16,761 41,089
Farmland 3,155 4,783 5,332 13,270 1,862 3,872 2,869 8,603
Construction 27,279 2,508 3,993 33,780 16,421 2,878 749 20,048
Residential 11,061 5,966 23,024 40,051 13,472 4,463 25,984 43,919
Home equity lines 2,905 122 -- 3,027 2,553 122 -- 2,675
-------- ------- ------- -------- -------- ------- ------- --------
Total real estate loans 53,343 30,892 49,362 133,597 45,033 24,938 46,363 116,334
Consumer 9,049 7,163 1,884 18,096 7,334 7,710 1,525 16,569
Other 474 118 235 827 734 52 147 933
-------- ------- ------- -------- -------- ------- ------- --------
Total loans $126,343 $61,035 $63,786 $251,164 $110,427 $45,761 $53,527 $209,715
======== ======= ======= ======== ======== ======= ======= ========
Loans with fixed interest rates $119,579 $107,388
Loans with floating interest rates 131,585 102,327
======== ========
$251,164 $209,715
======== ========
</TABLE>
LOAN LOSSES AND RECOVERIES
The reserve for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the reserve for loan
losses when management believes that the collectibility of the principal or a
portion thereof is unlikely. The reserve is an amount that management believes
will be adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans and current economic conditions that
may affect the borrower's ability to pay. Accrual of interest is discontinued on
a loan when management believes, after considering economic and business
conditions, collection efforts and collateral position, that the borrower's
financial condition is such that collection of interest is doubtful.
28
<PAGE> 29
The following table shows Columbia's loan loss experience for the
periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of period, net of
unearned interest income $246,990 $208,932 $156,858 $119,223 $105,250
======== ======== ======== ======== ========
Average loans outstanding for the period $222,276 $175,588 $140,891 $111,841 $ 97,087
======== ======== ======== ======== ========
Reserve for loan losses balance, beginning of year $ 2,380 $ 1,639 $ 995 $ 1,072 $ 955
-------- -------- -------- -------- --------
Loans charged off:
Commercial (41) (219) (7) (30) (34)
Real estate (15) (51) -- -- --
Agriculture (26) (369) -- (317) (14)
Installment loans (57) (77) (19) (21) (16)
Credit card and related accounts (43) (51) (14) (9) (55)
-------- -------- -------- -------- --------
Total loans charged off (182) (767) (40) (377) (119)
-------- -------- -------- -------- --------
Recoveries:
Commercial 32 40 21 26 107
Real estate -- -- -- -- --
Agriculture 48 49 80 7 7
Installment loans 3 1 1 20 31
Credit card and related accounts 12 8 1 -- 3
-------- -------- -------- -------- --------
Total recoveries 95 98 103 53 148
-------- -------- -------- -------- --------
Net (charge-offs) recoveries (87) (669) 63 (324) 29
Provision charged to operations 1,005 1,000 581 247 88
-------- -------- -------- -------- --------
Acquisition of Valley Community Bancorp 410
-------- -------- -------- -------- --------
Reserve for loan losses balance, end of period $ 3,298 $ 2,380 $ 1,639 $ 995 $ 1,072
======== ======== ======== ======== ========
Ratio of net loans charged off (recovered) to
average loans outstanding 0.04% 0.38% (0.04)% 0.29% (0.03)%
Ratio of reserve for loan losses to loans at
end of period 1.32% 1.13% 1.04% 0.83% 1.02%
</TABLE>
The adequacy of the reserve for loan losses should be measured in the
context of several key ratios: (1) the ratio of the reserve to total outstanding
loans; (2) the ratio of total nonperforming loans to total loans; and, (3) the
ratio of net charge-offs (recoveries) to average loans outstanding. Since 1995,
Columbia's ratio of the reserve for loan losses to total loans has ranged from
0.83% to 1.32%. The amounts provided by these ratios have been sufficient to
fund Columbia's charge-offs, which have not been historically significant, and
to provide for potential losses as the loan portfolio has grown. These ratios
have also been consistent with the level of nonperforming loans to total loans.
From December 31, 1995 through December 31, 1999, nonperforming loans to total
loans have ranged from a low of 0.21% to a high of .93%. This experience tracks
with changes in the ratio of the reserve for loan losses to total loans and with
the actual balances maintained in the reserve account. Finally, Columbia's
historical ratio of net charge-offs (recoveries) to average outstanding loans
illustrates its favorable loan charge-off and recovery experience. In two of the
five years from 1995 to 1999, annual loan recoveries have actually exceeded
charge-offs. For the remaining three years between December 31, 1995 and 1999,
net charge-offs ranged from 0.04% to 0.38% of average loans. Management believes
Columbia's loan underwriting policies and its loan officers' knowledge of their
customers are significant contributors to Columbia's success in limiting loan
losses.
During the year ended December 31, 1999, Columbia recognized $182,000 in
loan losses and $95,000 in recoveries. Charge-offs recorded in 1999 were
consistent with Columbia's historical experience in view of the growth in its
loan portfolio.
29
<PAGE> 30
The following table presents information with respect to nonperforming
loans and other assets:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual status $ 394 $ 1,082 $ 1,041 $ 229 $ 308
Loans past due - greater than 90 days -- -- 414 30 60
Restructured loans 202 825 -- -- --
-------- -------- -------- -------- --------
Total nonperforming loans 596 1,907 1,455 259 368
Other real estate owned -- 281 -- -- --
-------- -------- -------- -------- --------
Total nonperforming assets $ 596 $ 2,188 $ 1,455 $ 259 $ 368
======== ======== ======== ======== ========
Allowance for loans losses $ 3,298 $ 2,380 $ 1,639 $ 995 $ 1,072
Ratio of total nonperforming assets to
total assets 0.16% 0.64% 0.63% 0.04% 0.21%
Ratio of total nonperforming loans to
total loans 0.24% 0.91% 0.93% 0.21% 0.35%
Ratio of allowance for loan losses to
total nonperforming assets 553.45% 108.82% 112.65% 384.17% 291.30%
</TABLE>
Columbia has adopted a policy for placement of loans on nonaccrual
status after they become 90 days past due unless otherwise formally waived.
Further, Columbia may place loans that are not contractually past due or that
are deemed fully collateralized on nonaccrual status to promote better oversight
and review of loan arrangements. Loans on nonaccrual status at December 31, 1999
totaled approximately $394,000, compared to $1.08 million at December 31, 1998
and $1.04 at the end of 1997.
In 1998, Columbia adopted procedures to identify and monitor loans that
have had their original terms restructured to accommodate borrowers' financial
needs. Loan revisions and modifications are commonly provided to meet the credit
needs of borrowers in weakened financial condition and to enhance ultimate
collection. As of December 31, 1999, Columbia identified loans totaling $202,000
that had been classified as restructured. All of these loans are currently
performing in accordance with their restructured terms. However, management will
continue to monitor these loans for any changes or deterioration in performance.
At December 31, 1999, Columbia had no assets in the other real estate
owned ("OREO") category, which represents assets held through loan foreclosure
or recovery activities. There was $281,000 in OREO at December 31, 1998, none in
1997.
30
<PAGE> 31
DEPOSITS
The following table sets forth the average balances of Columbia's
interest-bearing deposits, interest expense, and average rates paid for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1997
------------------------------ ------------------------------ -----------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing checking $128,207 $3,563 2.78% $ 92,669 $2,962 3.20% $ 79,134 $2,645 3.34%
Savings 29,395 821 2.79% 26,252 855 3.26% 30,818 1,172 3.80%
Time deposits 71,626 3,650 5.10% 54,550 2,949 5.41% 43,217 2,268 5.25%
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total interest-bearing
deposits 229,228 $8,034 3.51% 173,471 $6,766 3.90% 153,169 $6,085 3.97%
====== ==== ====== ==== ====== ====
Total noninterest-bearing
deposits 70,000 48,983 38,299
-------- -------- --------
Total interest-bearing and
noninterest-bearing
deposits $299,228 $222,454 $191,468
======== ======== ========
</TABLE>
At December 31, 1999, total deposits were $310.91 million, an increase
of $15.23 million or 5.15%, from total deposits of $295.68 million at December
31, 1998. Total deposits in 1998 increased by 49.69% over 1997. Deposit growth
in 1997 and 1998 was due to a combination of pricing strategies, increased
marketing, and increased emphasis on implementing a sales culture within the
branches, as well as the acquisition of VCB. The growth in deposit accounts in
1999 has primarily been in time deposits and noninterest-bearing demand
accounts. Noninterest-bearing demand deposits, also called "core deposits,"
continued to be a significant portion of Columbia's deposit base. To the extent
Columbia can fund operations with core deposits, net interest spread, which is
the difference between interest income and interest expense, will improve. At
December 31, 1999, core deposits accounted for 24.09% of total deposits, up from
22.80% as of December 31, 1998.
Interest-bearing deposits consist of money market, savings, and time
certificate accounts. Interest-bearing account balances tend to grow or decline
as Columbia adjusts its pricing and product strategies based on market
conditions, including competing deposit products. At December 31, 1999, total
interest-bearing deposit accounts were $236.02 million, an increase of $7.75
million, or 3.39%, from December 31, 1998. Increases in time deposits offset
declines in interest-bearing deposit and savings accounts. Interest-bearing
demand accounts decreased $4.57 million, or 3.39%, from December 31, 1998 to
1999, after increasing $49.21 million, or 57.56%, from 1997 to 1998. Overall
growth in deposits has, in management's opinion, been helped by continued
customer perceptions of declining service levels provided by super-regional bank
competitors.
Columbia is not dependent on brokered deposits or high-priced time
deposits. At December 31, 1999, time certificates of deposits in excess of
$100,000 totaled $19.18 million, or 6.17% of total outstanding deposits,
compared to $10.88 million, or 3.68%, of total outstanding deposits at December
31, 1998, and $8.94 million, or 4.43%, of total outstanding deposits at December
31, 1997. The following table sets forth, by time remaining to maturity, all
time certificates of deposit accounts outstanding at December 31, 1999:
(IN THOUSANDS)
<TABLE>
<S> <C>
Three months or less $29,222
Over three through six months 20,049
Over six months through twelve months 18,776
Over twelve months 10,498
-------
$78,545
=======
</TABLE>
31
<PAGE> 32
SHORT-TERM BORROWINGS
The following table sets forth certain information with respect to
Columbia's Federal Home Loan Bank of Seattle borrowings.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Amount outstanding at end of period $ 10,598 $7,300 $4,600 $ 600 $1,200
Weighted average interest rate at end of
period 5.83% 5.41% 5.89% 5.68% 5.42%
Maximum amount outstanding at any
month-end and during the year $ 10,605 $7,600 $4,600 $1,200 $3,581
Average amount outstanding during the
period $ 8,801 $6,933 $2,781 $ 813 $2,341
Average weighted interest rate during
the period 5.33% 5.53% 5.80% 5.86% 6.15%
</TABLE>
SHAREHOLDERS' EQUITY
Shareholders' equity increased $2.57 million during 1999. Shareholders'
equity at December 31, 1999 was $37.32 million compared to $34.76 million at
December 31, 1998. This increase reflects net income and comprehensive income of
$4.24 million and $267,000 in exercised stock options. These additions to equity
were partially offset by cash dividends paid or declared of $2.00 million.
Dividends declared and paid were $0.25 per share in 1999, $0.22 per
share in 1998, and $0.12 per share in 1997.
LIQUIDITY
Columbia has adopted policies to maintain a relatively liquid position
to enable it to respond to changes in the financial environment and ensure
sufficient funds are available to meet customers' needs for borrowing and
deposit withdrawals. Generally, Columbia's major sources of liquidity are
customer deposits, sales and maturities of investment securities, the use of
federal funds markets, and net cash provided by operating activities. Scheduled
loan repayments are a relatively stable source of funds, while deposit inflows
and unscheduled loan prepayments, which are influenced by general interest rate
levels, interest rates available on other investments, competition, economic
conditions, and other factors, are not. Liquid asset balances include cash,
amounts due from other banks, federal funds sold, and securities
available-for-sale and securities held-to-maturity with maturities in the next
three months. At December 31, 1999, these liquid assets totaled $67.04 million
or 18.56% of total assets as compared to $95.88 million or 28.00% of total
assets at December 31, 1998. Another source of liquidity is the ability to
borrow from the Federal Home Loan Bank of Seattle and other correspondent banks.
The analysis of liquidity also includes a review of the changes that
appear in the consolidated statements of cash flows for the year ended December
31, 1999. The statement of cash flows includes operating, investing and
financing categories. Operating activities include net income of $5.01 million,
which is adjusted for non-cash items and increases or decreases in cash due to
changes in certain assets and liabilities. Investing activities consist
primarily of both proceeds from and purchases of securities, and the impact of
the net growth in loans. Financing activities present the cash flows associated
with deposit accounts, and reflect dividends paid to shareholders.
At December 31, 1999, Columbia had outstanding commitments to make loans
of $82.69 million. Nearly all of these commitments represented unused portions
of credit lines available to consumers under credit card and other arrangements
and to businesses. Many of these credit lines will not be fully drawn upon and,
accordingly, the aggregate commitments do not necessarily represent future cash
requirements. Management believes that Columbia's sources of liquidity are more
than adequate to meet likely calls on outstanding commitments, although there
can be no assurance in this regard.
32
<PAGE> 33
CAPITAL
The Federal Reserve Board and the Federal Deposit Insurance Corporation
have established minimum requirements for capital adequacy for bank holding
companies and member banks. The requirements address both risk-based capital and
leveraged capital. The regulatory agencies may establish higher minimum
requirements if, for example, a corporation has previously received special
attention or has a high susceptibility to interest rate risk.
The following reflects Columbia's various capital ratios at December 31,
1999, and December 31, 1998, as compared to regulatory minimums for capital
adequacy purposes:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999 AT DECEMBER 31, 1998 REGULATORY MINIMUM
-------------------- -------------------- ------------------
<S> <C> <C> <C>
Tier 1 capital 10.20% 10.90% 4.00%
Total risk-based capital 11.30% 11.90% 8.00%
Leverage ratio 8.30% 8.90% 4.00%
</TABLE>
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET-LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
Columbia's results of operations depend substantially on its net
interest income. Interest income and interest expense are affected by general
economic conditions and by competition in the marketplace. Columbia's interest
and pricing strategies are driven by its asset-liability management analysis and
by local market conditions.
Columbia seeks to manage its assets and liabilities to generate a stable
level of earnings in response to changing interest rates and to manage its
interest rate risk. Columbia further strives to serve its communities and
customers through deployment of its resources on a corporate-wide basis so that
qualified loan demands may be funded wherever necessary in its branch banking
system. Asset/liability management involves managing the relationship between
interest rate sensitive assets and interest rate sensitive liabilities. If
assets and liabilities do not mature or reprice simultaneously, and in equal
amounts, the potential for exposure to interest rate risk exists, and an
interest rate "gap" is said to be present.
Rising and falling interest rate environments can have various effects
on a bank's net interest income, depending on the interest rate gap, the
relative changes in interest rates that occur when assets and liabilities are
repriced, unscheduled repayments of loans, early withdrawals of deposits, and
other factors.
The following table sets forth the dollar amount of maturing
interest-earning assets and interest-bearing liabilities at December 31, 1999
and the difference between them for the maturing or repricing periods indicated.
The amounts in the table are derived from Columbia's internal data, which varies
from amounts classified in its financial statements, and, although the
information may be useful as a general measure of interest rate risk, the data
could be significantly affected by external factors such as prepayments of loans
or early withdrawals of deposits. Each of these may greatly influence the timing
and extent of actual repricing of interest-earning assets and interest-bearing
liabilities.
33
<PAGE> 34
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------
VARIABLE LESS THAN ONE YEAR
RATE ONE YEAR OR LONGER TOTAL
--------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Investments $ 1,592 $ 2,611 $ 64,991 $ 69,194
Loans 101,102 32,438 113,435 246,975
--------- --------- --------- ---------
Total assets 102,694 35,049 178,426 316,169
LIABILITIES
Core deposits 170,288 52,689 70,326 293,303
Jumbo CDs -- 17,687 1,296 18,983
Borrowings 9,272 -- 1,598 10,870
--------- --------- --------- ---------
Total liabilities 179,560 70,376 73,220 323,156
--------- --------- --------- ---------
(76,866) (35,327) 105,206 $ (6,987)
--------- --------- --------- =========
Net cumulative position $ (76,866) $(112,193) $ (6,987)
========= ========= =========
Cumulative Gap as a percent of assets (21.28)% (31.06)% (1.93)%
========= ========= =========
</TABLE>
The net cumulative gap position is somewhat negative since more
liabilities than assets reprice during the next year. This exposure to
increasing rates is currently exaggerated by "sticky" deposit rates (not
expected to reprice rapidly in increasing rate environment). However, Columbia's
asset rates change more than deposit rates, and management feels Columbia's
asset yields will change more than cost of funds when rates change.
Management believes that Columbia has relatively low interest rate risk
that is somewhat asset-sensitive. The net interest margin should increase
slightly when rates increase and shrink somewhat when rates fall. This interest
rate risk is driven by concentration of rate sensitive variable rate and
short-term commercial loans, one of Columbia's major business lines. Columbia
does have significant amounts of fixed rate loans to offset most of the impact
from repricing of short-term loans. However, there can be no assurance that
fluctuations in interest rates will not have a material adverse impact on
Columbia.
Columbia's sensitivity to gains or losses in future earnings due to
hypothetical decreases or increases in interest rates is as follows:
<TABLE>
<CAPTION>
INCREASE OR FINANCIAL IMPACT
DECREASE IN ON NET
INTEREST RATES INTEREST MARGIN
-------------- -------------------
<S> <C>
2% $ 1,014,000
1% $ 507,000
-1% $ (507,000)
-2% $(1,014,000)
</TABLE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is contained in Columbia
Bancorp's Annual Report to Shareholders for the year ended December 31, 1999,
and is incorporated herein by reference.
34
<PAGE> 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is contained in Columbia's
definitive proxy statement for the annual meeting of shareholders to be held
April 25, 2000, and is incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION AND REPORT OF COMPENSATION COMMITTEE
The information called for by this item is contained in Columbia's
definitive proxy statement for the annual meeting of shareholders to be held
April 25, 2000, and is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is contained in Columbia's
definitive proxy statement for the Annual Meeting of Shareholders to be held
April 25, 2000, and is incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is contained in Columbia's
definitive proxy statement for the Annual Meeting of Shareholders to be held
April 25, 2000, and is incorporated herein by reference.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits.
Pursuant to Item 601 of Regulation S-K, the following exhibits are
attached hereto or are incorporated herein by reference.
(Note: The per share earnings computation statement required by Item
601(b)(11) of Regulation S-K is contained in Note 19 to the Consolidated
Financial Statements included in Columbia's 1999 Annual Report to Shareholders.
A copy of this 1999 Annual Report is attached hereto as an exhibit.)
1. Articles of Incorporation and Bylaws. (Regulation S-K, Item 601,
Exhibit Table Item (3)). Columbia's Articles of Incorporation,
as amended, are attached as Exhibit 3(i) to Columbia's Form 10-Q
for the period ended June 30, 1999 and incorporated herein by
reference. Columbia's Bylaws are attached as Exhibit 15.5 to
Columbia's Annual Report on Form 10-KSB for the year ended
December 31, 1998 and incorporated herein by reference.
2. Material Contracts. (Regulation S-K, Item 601, Exhibit Table
Item (10)).
10.1 Employment Agreement of April 1, 1999 between Terry L.
Cochran and Columbia Bancorp, a copy of which is attached
hereto.
35
<PAGE> 36
10.2 Deferred Compensation Agreement of April 1, 1999 between
Terry L. Cochran and Columbia Bancorp, a copy of which is
attached hereto.
10.3 Employment Agreement of July 20, 1999 between Roger
Christensen and Columbia Bancorp, a copy of which is
attached hereto.
10.4 Columbia Bancorp Restated Employee Stock Ownership Plan
and Trust Agreement (1999 Restatement).
3. Annual Report to Shareholders. (Regulation S-K, Item 601,
Exhibit Table Item (13)). A copy of Columbia's 1999 Annual
Report to Shareholders is attached hereto.
4. List of Subsidiaries. (Regulation S-K, Item 601, Exhibit Table
Item (21)). Attached hereto is a list of Columbia's subsidiaries
as of December 31, 1999.
5. Financial Data Schedule. (Regulation S-K, Item 601, Exhibit
Table Item (27)). Columbia's Financial Data Schedule is attached
hereto.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the year ended December 31,
1999.
Upon written request to Columbia's Chief Financial Officer, Neal T.
McLaughlin, P.O. Box 1050, The Dalles, Oregon 97058 a copy of any exhibit
referenced herein will be provided to the requesting party upon payment of
Columbia's reasonable copying expense of $.25 per page.
36
<PAGE> 37
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
BANCORP
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Terry L. Cochran, President & C.E.O.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Terry L. Cochran, President, C.E.O.,
and Director
CHIEF FINANCIAL OFFICER
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Neal T. McLaughlin: Chief Financial
Officer and Chief Accounting Officer
- Columbia and CRB
DIRECTORS:
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Don T. Mitchell, Director and
Chairman
DATED: March , 2000 By: /s/
--------------- ------------------------------------
William A. Booth, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Robert L. R. Bailey, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Charles F. Beardsley, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Richard E. Betz, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Dennis L. Carver, Director
37
<PAGE> 38
SIGNATURES
(Continued)
DATED: March , 2000 By: /s/
--------------- ------------------------------------
James J. Doran, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Ward Eason, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Jane F. Lee, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Jean S. McKinney, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
James B. Roberson, Director
38
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<S> <C> <C>
10.1 Employment Agreement of April 1, 1999 between Terry L. Cochran
and Columbia Bancorp.
10.2 Deferred Compensation Agreement of April 1, 1999 between Terry L.
Cochran and Columbia Bancorp.
10.3 Employment Agreement of July 20, 1999 between Roger Christensen
and Columbia Bancorp.
10.4 Columbia Bancorp Restated Employee Stock Ownership Plan and Trust
Agreement (1999 Restatement).
13.1 1999 Annual Report to Shareholders.
21.1 Columbia's subsidiaries as of December 31, 1999.
27.1 Financial Data Schedule.
</TABLE>
39
<PAGE> 1
EXHIBIT 10.1
1999 EMPLOYMENT AGREEMENT
Columbia Bancorp - Terry L. Cochran
This Employment Agreement (the "Agreement") is made and entered into
this 1st day of April, 1999 by and between Columbia Bancorp, an Oregon
corporation ("Bancorp") and Terry L. Cochran ("Employee").
RECITALS
(1) Bancorp is an Oregon corporation and is the holding company of
Columbia River Bank and of Valley Community Bank (collectively, the "Banks"),
both of which are state-chartered Oregon financial institutions. Bancorp's
principal office is at 420 East Third Street, Suite 200, The Dalles, Oregon
97058.
(2) Bancorp desires to employ Employee as President and Chief Executive
Officer of Bancorp.
Now, therefore, it is agreed:
1. RELATIONSHIP AND DUTIES.
1.1 EMPLOYMENT AND TITLE. Bancorp shall employ Employee as an officer
of Bancorp with the title of President and Chief Executive Officer to perform
such services and duties as the Board of Directors of Bancorp (the "Bancorp
Board") may designate from time to time. Subject to the terms and conditions
hereof, employee shall perform such duties and exercise such authority as are
customarily performed and exercised by persons holding such office, subject to
the general direction of the Bancorp Board. Such services and duties shall be
exercised in good faith and in accordance with standards of reasonable business
judgment.
1.2 SERVICE ON BOARDS. Employee shall serve on the Bancorp Board and on
such committees established by the Bancorp Board to which Employee may be
appointed. Employee shall also serve on the Boards of the Banks and on such
committees established by such Boards to which Employee may be appointed.
1.3 DUTIES; CONFLICTS. Employee shall devote his full time, attention
and efforts to the diligent performance of his duties as an officer and director
of Bancorp and as a director of the Banks. Employee will not accept employment
with any other individual, corporation, partnership, governmental authority or
any other entity, or engage in any other venture for profit which Bancorp may
consider to be in conflict with the best interests or business of Bancorp or any
of Bancorp's subsidiary, sister or affiliated corporations, or which may
interfere in any way with Employee's performance of his duties hereunder. Any
exceptions to the above conditions must be approved by the Bancorp Board in
writing.
<PAGE> 2
1.4 OTHER BOARDS. Nothing in the Agreement shall prohibit Employee from
serving on the board of directors of any profit or non-profit corporation not in
direct competition with Bancorp or any of Bancorp's subsidiaries, sister or
affiliated corporations. In addition, Employee may own stock in any other
corporation whether or not the stock is publicly traded; provided, that if such
corporation operates a business in competition with Bancorp Employee may not own
more than five percent (5%) of the outstanding shares of such corporation.
1.5 CHANGE IN DUTIES. Nothing in the Agreement shall prohibit Bancorp
from modifying, adding to or otherwise changing Employee's duties as a full-time
employee during the term of the Agreement. Any such modifications, additions to
or changes in Employee's duties shall not be deemed a termination of Employee's
employment under the Agreement. Notwithstanding the foregoing, Employee shall
retain the title of President and Chief Executive Officer of Bancorp during the
term of the Agreement.
1.6 SERVICE AS PRESIDENT OF SUBSIDIARY. Employee shall serve as
President and Chief Executive Officer of Columbia River Bank from April 1, 1999
through the date this position is filled by an individual chosen by the Bancorp
Board.
2. TERM OF EMPLOYMENT.
2.1 TERM. The term of employment under the Agreement shall be for the
period beginning April 1, 1999 and ending May 14, 2001.
2.2 EXTENSIONS. Employee's term of employment under the Agreement may
be extended for successive one-year terms after May 14, 2001 subject to the
mutual agreement of the parties. The parties shall reach mutual agreement
concerning such extensions on or before a date which is no less than one year
prior to the date of expiration of Employee's term of employment under the
Agreement, including any extensions thereof. Each extended term shall begin on
the first day of April in the year the extension becomes effective.
3. TERMINATION.
3.1 DEFINITION. As used in the Agreement, "termination" shall mean the
termination of Employee's employment relation with Bancorp, whether initiated by
Bancorp or by Employee, and whether for cause or without cause; provided, that
Employee's retirement from full-time employment under Section 7 herein shall not
constitute a "termination" of employment under the terms of the Agreement.
3.2 TERMINATION EVENTS. Notwithstanding any other provisions of the
Agreement, the employment of Employee shall terminate immediately on the earlier
to occur of any of the following:
3.2.1 Employee's death;
<PAGE> 3
3.2.2 Employee's complete disability. "Complete disability" as
used herein shall mean the inability of Employee, due to illness, accident, or
other physical or mental incapacity, to perform the services required under the
Agreement for an aggregate of sixty (60) days within any period of 120
consecutive days during the term hereof; provided, however, that disability
shall not constitute a basis for discharge for cause;
3.2.3 The discharge of Employee by Bancorp for cause. "Cause"
as used herein shall mean (i) Employee's negligence or misconduct as shall
constitute, as a matter of law, a breach of the covenants and obligations of
Employee hereunder; (ii) failure or refusal of Employee to comply with the
provisions of the Agreement; (iii) Employee's conviction by any duly constituted
court with competent jurisdiction of a crime (other than traffic offenses); (iv)
Employee's malfeasance or incompetence, provided that in applying this criteria
the Bancorp Board shall not be unreasonable or arbitrary, and provided further
that prior to effecting a dismissal under this Section (iv) the Bancorp Board
shall afford Employee with fair and reasonable warning and with a fair and
reasonable opportunity to cure any defects in Employee's performance.
3.3 TERMINATION BY EMPLOYEE. Employee may terminate his employment with
Bancorp with or without cause by giving thirty (30) days written notice of
termination. "Cause" as used herein shall include Bancorp's failure or refusal
to comply with the provisions of the Agreement.
3.4 EFFECT OF TERMINATION. The termination of Employee's employment
prior to the Retirement Date as defined in Section 7.1 herein shall constitute a
tender by Employee of his resignation as an officer of Bancorp and as a member
of the Bancorp Board, the Boards of any subsidiaries of Bancorp, and any
committees of such Boards.
3.5 PAYMENTS ON TERMINATION.
3.5.1 If prior to the Retirement Date Employee's employment is
terminated by Employee with or without cause, or by Bancorp without cause,
Employee shall be paid all base salary and benefits accrued under the Agreement
as of the termination date, and in addition, shall be entitled to the deferred
compensation payments provided under Section 1 of the Deferred Compensation
Agreement of April 1, 1999 between the parties (the "DC Agreement") or any
successor agreement thereto.
3.5.2 If prior to the Retirement Date, as defined in Section
7.1 herein, Employee's employment is terminated by Bancorp with cause, Employee
shall be paid all base salary and benefits accrued under the Agreement as of the
termination date, but shall not be entitled to the deferred compensation
payments provided under Section 1 of the DC Agreement.
4. COMPENSATION.
4.1 BASE SALARY. Employee shall be paid an annual base salary of
$157,500 in equal bimonthly installments, subject to any deductions required by
law, for the period beginning May
<PAGE> 4
1, 1999 and ending December 31, 1999. For the period beginning January 1, 2000
and ending December 31, 2000, Employee's annual base salary shall be $163,406.
For the period beginning January 1, 2001 and ending May 14, 2001, Employee's
annual base salary shall be $171,576.
4.2 EXTENSIONS. If Employee's term of employment under the Agreement
has been extended, on the 31st day of March, 2001, and for each successive March
31st prior to the date of beginning of any further extended term, Bancorp shall
determine Employee's annual base salary for the immediately following calendar
year.
4.3 PERFORMANCE BONUS. On or before June 30, 1999, the Bancorp Board
shall determine the amount of and the formulas and methods for establishing
Employee's performance bonus for the 1999 calendar year, subject to any
deductions required by law. Further, in December, 1999 and in the month of
December of each successive year for as long as Employee is employed under the
Agreement, the Bancorp Board shall determine the amount of and the formulas and
methods for establishing Employee's performance bonus for the following calendar
year, subject to any deductions required by law. The amount of such bonus shall
be set in the Bancorp Board's sole discretion, and the Bancorp Board may decline
to award a performance bonus in any year.
4.4 BOARD SERVICE. Employee shall receive no fees for serving as a
member of the Bancorp Board or the Board of the Banks as long as Employee is
also employed by Bancorp. If after the Retirement Date Employee continues to
serve as a member of the Bancorp Board or any Board of Bancorp's subsidiaries,
Employee shall be entitled to receive the fees and other amounts payable to any
other such member.
4.5 STOCK OPTIONS. On a date to be determined by the Bancorp Board,
which shall be no later than December 31, 1999, Employee shall be granted an
option to purchase 10,000 shares, adjusted for stock splits, if any, of Bancorp
common stock ("Bancorp Stock") in accordance with the terms of the Columbia
Bancorp 1999 Stock Incentive Plan. The exercise date for this option grant shall
be such date as the Bancorp Board may establish consistent with the provisions
of the Columbia Bancorp 1999 Stock Incentive Plan.
5. BENEFITS.
5.1 ELIGIBILITY FOR GENERAL BENEFITS. Employee shall be eligible to
participate in any plan of the Banks or of Bancorp relating to stock options,
stock purchases, profit sharing, group life insurance, medical coverage,
education and other retirement or employee benefits that the Banks or Bancorp
may adopt for the benefit of employees.
5.2 ADDITIONAL BENEFITS. Employee shall be eligible to participate in
any other benefits which may be or become applicable to Bancorp's or the Banks'
executive employees. In addition, Employee shall be entitled to (i) a reasonable
car allowance or, at the Bancorp Board's discretion, in lieu of an allowance an
automobile and all expenses of maintenance to cover its use, (ii) a reasonable
expense account for use in connection with Bancorp business, (iii) membership
fees and dues for membership in one golf club mutually agreeable between
<PAGE> 5
Employee and the Bancorp Board, and (iv) any other benefits which in the Bancorp
Board's judgment are commensurate with the responsibilities and functions to be
performed by Employee under the Agreement, including the payment of reasonable
expenses for attendance by Employee and Employee's spouse at annual and periodic
meetings of trade associations.
6. VACATIONS AND LEAVES.
6.1 PAID VACATION. Employee shall be entitled to an annual paid
vacation of forty-two (42) business days per year for the 1999 calendar year and
forty-two (42) business days per year for the 2000 calendar year. If the
Agreement is not renewed or extended beyond May 14, 2001, Employee shall be
entitled to paid vacation of twenty (20) business days for the period beginning
January 1, 2001 and ending May 14, 2001. The timing of vacations shall be
scheduled in a reasonable manner by Employee. Employee shall not be entitled to
receive any additional compensation from Bancorp on account of his failure to
take a vacation, and may not accumulate unused vacation time from one calendar
year to the next.
6.2 ABSENCES. In addition to paid vacations, Employee shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment with Bancorp for such additional periods of time
and for such valid and legitimate reasons as the Bancorp Board in its discretion
may determine.
6.3 LEAVES WITH OR WITHOUT PAY. The Bancorp Board may grant Employee a
leave or leaves of absence, with or without pay, at such time or times and upon
such terms and conditions as the Bancorp Board, in its discretion, may
determine.
6.4 MANDATORY ABSENCE. In each calendar year Employee shall be absent
from Bancorp for one period of two consecutive weeks. Such period may include
vacation, leave, sick leave, attendance at seminars or conventions, or any
combination thereof.
7. RETIREMENT FROM FULL-TIME EMPLOYMENT.
7.1 RETIREMENT. If Employee's employment is not otherwise terminated
prior thereto, Employee's last day of employment under the Agreement or any
extensions thereof shall be deemed Employee's date of retirement (the
"Retirement Date"), after which Employee shall be deemed retired from employment
by Bancorp. From and after the Retirement Date, the Agreement shall be of no
further force and effect, and the relationship between Employee and Bancorp
shall be governed exclusively by the DC Agreement.
7.2 EARLY RETIREMENT. If Employee's employment is terminated hereunder
prior to the Retirement Date, Employee's right to payment and benefits under the
Agreement and under the DC Agreement shall be determined in accordance with
Section 3 and Section 8 of the Agreement and under the DC Agreement. Such
termination of employment shall not invalidate the DC Agreement.
<PAGE> 6
7.3 SERVICE ON BOARDS. Employee's retirement shall not constitute
Employee's tender of resignation as a Board member or Board committee member of
the Board of Directors of Bancorp or any of its subsidiaries. From and after the
Retirement Date Employee may serve in such positions on the same terms and
conditions as other such members and in accordance with applicable bylaws.
8. CHANGE OF CONTROL.
8.1 SURVIVAL OF RIGHTS. Employee's rights on termination of employment
under Section 3 of the Agreement, as well as all other rights of Employee under
the Agreement and the DC Agreement or otherwise, shall survive a change of
control of Bancorp.
8.2 EARLY RETIREMENT. If a change of control of Bancorp occurs prior to
the Retirement Date, Employee shall have ninety (90) days following the date
such change of control becomes effective to elect to terminate Employee's
employment without cause. If Employee so elects to terminate, Employee shall
receive all payments and benefits due to Employee on termination under the
Agreement and under the DC Agreement. Such payments and benefits shall include,
without limitation, the deferred compensation payments provided under Section 1
of the DC Agreement.
8.3 PRESERVATION OF RIGHTS. Employee shall be entitled to the payments
and benefits provided under this Section 8 whether or not Employee opposed or
favored the change in control. Employee's rights under this Section are in
addition to, and not in lieu of, Employee's rights under Section 7 of the
Agreement and under the DC Agreement.
8.4 PAYMENTS ON CHANGE OF CONTROL. The following items shall be due and
payable immediately at Employee's election in the event that a change of control
occurs:
8.4.1 Nonforfeitable deferred compensation;
8.4.2 Long-term performance plan objective payments, if any,
shall be declared accomplished and earned based upon performance up to the date
of the change of control.
8.5 OPTIONS AND STOCK. If Employee is a participant in a restricted
stock plan or share option plan, and such plan is terminated involuntarily as a
result of the change of control, all stock and options shall be declared fully
vested and shall be paid, awarded or otherwise distributed. With respect to any
unexercised options under any stock option plan, such options may be exercised
within the period provided in such plan. Effective as of the date of the change
of control, any holding period established for stock paid as bonus or other
compensation shall be deemed terminated, except as otherwise provided by law.
8.6 DEFINITION. As used in this Section, "control" shall mean the
acquisition of twenty-five percent (25%) or more of the voting securities of
Bancorp by any person, or persons acting as a group within the meaning of
Section 13(d) of the Securities Exchange Act of 1934, or to such acquisition of
a percentage between ten percent (10%) and twenty-five percent (25%) if
<PAGE> 7
the Board or the Comptroller of the Currency, the FDIC, or the Federal Reserve
Bank have made a determination that such acquisition constitutes or will
constitute control of Bancorp. The term "person" refers to an individual,
corporation, bank, bank holding company, or other entity, but excludes any
Employee Stock Ownership Plan established for the benefit of employees of
Bancorp or any of its subsidiaries.
9. POST TERMINATION COVENANTS.
9.1 NON-COMPETE COVENANTS. If Employee terminates his employment
without cause, or if Employee's employment is terminated by Bancorp for cause,
then for one year from the date of such termination Employee will not, without
the prior written consent of Bancorp:
9.1.1 Undertake full or part-time work, either as an employee
or as a consultant, for another financial institution if such work is to be
done, in whole or in part, in or from an office or other work site in Yamhill,
Wasco, Hood River, Jefferson, Deschutes, Sherman or Gilliam Counties, Oregon, in
Klickitat County, Washington, or in any other county in Oregon or Washington in
which Bancorp or any of its affiliates has a place of business at the time of
termination; or
9.1.2 Hire for any financial institution or other employer
(including himself) any employee of Bancorp, or any subsidiary or other
affiliate of Bancorp, or directly or indirectly cause such an employee to leave
his or her employment to work for another employer, if such employee is to work
in or from an office or other work site in Yamhill, Wasco, Hood River,
Jefferson, Deschutes, Sherman or Gilliam Counties, Oregon, in Klickitat County,
Washington, or in any other county in Oregon or Washington in which Bancorp or
any of its affiliates has a place of business at the time of termination.
9.2 LIMITATION. The covenants in this Section do not apply if Employee
terminates his employment for cause, or if Employee's employment is terminated
by Bancorp without cause.
10. MISCELLANEOUS.
10.1 STOCK INCENTIVE PLAN. Employee's retirement from employment under
the Agreement on the Retirement Date shall not be deemed a retirement or general
termination under any provision of the Columbia Bancorp 1999 Stock Incentive
Plan or under any provision of any successor Plan, except as otherwise provided
therein or as provided under law, and shall therefore not limit the time within
which Employee may exercise Employee's stock option rights under the Plan unless
the Plan or applicable law provides to the contrary.
10.2 RECITALS; LAW; AMENDMENTS. Each and every portion of the Agreement
is contractual and not a mere recital, and all recitals shall be deemed
incorporated into the Agreement. The Agreement shall be governed by and
interpreted according to Oregon law and any applicable federal law. The
Agreement may not be amended except by a subsequent written agreement signed by
all parties hereto.
<PAGE> 8
10.3 ENTIRE AGREEMENT. The Agreement contains the entire understanding
and agreement of the parties with respect to the parties' relationship, and all
prior negotiations, discussions or understandings, oral or written, are hereby
integrated herein. No prior negotiations, discussions or agreements not
contained herein or in such documents shall be binding or enforceable against
the parties.
10.4 COUNTERPARTS. The Agreement may be signed in several counterparts.
The signature of one party on any counterpart shall bind such party just as if
all parties had signed that counterpart. Each counterpart shall be considered an
original. All counterparts of the Agreement shall together constitute one
original document.
10.5 ADDITIONAL AGREEMENT. Employee's rights under the Agreement are in
addition to Employee's rights under the Deferred Compensation Agreement of April
1, 1999 between the parties or any successor agreement thereto.
10.6 SUCCESSORS AND ASSIGNS. All rights and duties of Bancorp under the
Agreement shall be binding on and inure to the benefit of Bancorp's successors
and assigns, including any person or entity which acquires a controlling
interest in Bancorp and any person or entity which acquires all or substantially
all of Bancorp's assets. Bancorp and any such successor or assign shall be and
remain jointly and severally liable to Employee under the Agreement. Employee
may not assign or transfer Employee's rights or interests in or under the
Agreement other than by a will or by the laws of descent and distribution. The
Agreement shall inure to the benefit of and be enforceable by Employee's estate
or legal representative.
10.7 WAIVER. Any waiver by any party hereto of any provision of the
Agreement, or of any breach thereof, shall not constitute a waiver of any other
provision or of any other breach. If any provision, paragraph or subparagraph
herein shall be deemed invalid, illegal or unenforceable in any respect, the
validity and enforceability of the remaining provisions, paragraphs and
subparagraphs shall not be affected.
10.8 ARBITRATION. Any dispute, controversy, claim or difference
concerning or arising from the Agreement or the rights or performance of either
party under the Agreement, including disputes about the interpretation or
construction of the Agreement, shall be settled through binding arbitration in
the State of Oregon and in accordance with the rules of the American Arbitration
Association. A judgment upon the award rendered in such arbitration may be
entered in any court of competent jurisdiction.
10.9 PRIOR EMPLOYMENT AGREEMENT. The Agreement supersedes and replaces
the Employment Agreement between Employee and Bancorp of May 1, 1998, and the
latter agreement shall be deemed null and void as of April 1, 1999.
10.10 EMPLOYEE HANDBOOK. Employee agrees to be bound by the terms and
conditions of any employee handbook of Bancorp or its affiliates as may be in
effect from time to time, except that in the event of a conflict between such
employee handbook and the Agreement, the Agreement shall control.
<PAGE> 9
10.11 CAPTIONS. All captions, titles and headings in the Agreement are
for convenience only, and shall not be construed to limit any term of the
Agreement.
/s/
- --------------------------------------
Employee
COLUMBIA BANCORP
By: /s/
----------------------------------
Board Chairman
<PAGE> 1
EXHIBIT 10.2
1999 DEFERRED COMPENSATION AGREEMENT
Columbia Bancorp - Terry L. Cochran
This 1999 Deferred Compensation Agreement (the "Agreement") is made and
entered into this 1st day of April, 1999 by and between Columbia Bancorp, an
Oregon corporation ("Bancorp") and Terry L. Cochran ("Employee").
RECITALS
(1) Bancorp is an Oregon corporation and is the holding company of
Columbia River Bank and of Valley Community Bank (collectively, the "Banks"),
both of which are state-chartered Oregon financial institutions. Bancorp's
principal office is at 420 East Third Street, Suite 200, The Dalles, Oregon
97058.
(2) Employee is now employed full-time by Bancorp as President and
Chief Executive Officer of Bancorp, and also serves as President and Chief
Executive Officer of Columbia River Bank. Employee has served as President and
Chief Executive Officer of Bancorp since its formation in 1995, and has served
in many positions at Columbia River Bank, including President and Chief
Executive Officer, since 1981.
(3) Bancorp recognizes the contributions that Employee has made to the
success and profitability of Bancorp, and desires to provide deferred
compensation and other consideration to Employee as compensation for his
services and for the confidentiality covenants set forth in the Agreement.
Now, therefore, it is agreed:
1. DEFERRED COMPENSATION.
1.1 ELIGIBILITY. Employee shall become eligible for deferred
compensation under the Agreement upon his retirement as a full-time employee of
Bancorp; provided, that in no event shall Employee be entitled to deferred
compensation payments under the Agreement prior to May 15, 2001 regardless of
the date of Employee's termination of employment by retirement or otherwise.
1.2 COMPENSATION. Beginning on the first 15th day of May immediately
following the date of Employee's retirement, and on the 15th day of May of each
year thereafter through and including May 15, 2007, Bancorp shall pay Employee
deferred compensation consisting of (i) $48,000 per year, plus (ii) Accrued
Interest as provided in Section 1.3 herein.
1.3 ACCRUED INTEREST. Payment of the Accrued Interest described in
Section 1.2(ii) has been provided for by the purchase of a $120,000 market rate
certificate of deposit (the "CD") on December 26, 1995. The CD, which has been
or shall be replaced upon maturity as required
<PAGE> 2
from time to time to fulfill the terms of the Agreement, was purchased to fund
such payments. Upon the maturity of the CD a new market rate certificate of
deposit shall be purchased with a comparable maturity for the same purpose as
long as Employee is entitled to deferred compensation payments under the
Agreement. Any interest earned (the "Accrued Interest") on the CD and any
subsequent certificates of deposit purchased under the Agreement shall be paid
to Employee as follows: (i) on the first May 15 on which Employee is paid his
first yearly deferred compensation payment under the Agreement, Employee shall
also be paid all Accrued Interest earned from the first date the CD and any
subsequent certificates of deposit began earning interest through the May 15 of
the year in which Employee is paid such first yearly payment; (ii) on the 15th
day of May of each year thereafter through and including May 15, 2007, Employee
shall be paid all Accrued Interest earned from the CD and any subsequent
certificates of deposit from May 15 of the previous calendar year through May 15
of the current payment year.
1.4 OWNERSHIP OF CD. Bancorp is and shall be the exclusive owner and
beneficiary of the CD, and has and shall have all right, title and interest in
and to the Policy. Neither the Employee nor Employee's heirs, beneficiaries,
creditors, successors, assigns, probate estate or legal representatives shall
have any right, title or interest in the CD or in the values, benefits or
proceeds of the CD. The CD and all values, benefits and proceeds of the CD shall
be and remain part of the general assets of Bancorp, and all sums of any kind
payable under the Policy shall be payable to Bancorp, not to Employee. Nothing
in the Agreement shall create or be construed to create a trust of any kind, or
a fiduciary relationship between Bancorp and Employee, Employee's beneficiaries
or any other person. Nothing in the Agreement shall give rise to a duty or
obligation on the part of the entity issuing the CD toward Employee or
Employee's heirs, beneficiaries, creditors, successors, assigns, probate estate
or legal representatives.
1.5 GENERAL CREDITOR STATUS. All payments to be made to Employee under
the Agreement shall be made solely from Bancorp's general funds and assets. All
references in the Agreement to the CD and to the amounts payable to Employee are
made solely for the purpose of determining and measuring the amounts Bancorp is
obligated to pay to Employee under the Agreement from its own funds and assets.
No person claiming the right to payment under the Agreement, including Employee
and Employee's heirs, beneficiaries, creditors or assigns, shall have a creditor
status greater or other than that of a general unsecured creditor of Bancorp.
Payments received by or payable to Bancorp under the CD shall not be deemed to
be held by or payable to Bancorp under a trust for the benefit of Employee or
anyone, nor shall such payments be deemed to be security for the performance of
Bancorp's obligations under the Agreement.
1.6 ERISA. It is the understanding and intent of the parties that the
Agreement, in form, substance and operation, shall constitute and be interpreted
as an "unfunded" deferred compensation plan (the "Plan") within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Bancorp shall be the Named Fiduciary under ERISA, and the Agreement shall
constitute the written plan instrument. Bancorp shall also serve as the Plan
Administrator of the Plan. The procedure for filing claims under the Plan is set
forth in Section 4 of the Agreement.
<PAGE> 3
1.7 DISPOSITION OF CD. Bancorp may cancel, replace or otherwise dispose
of the CD at any time during the term of the Agreement; provided, that such
disposition shall not relieve Bancorp of its obligations to Employee under the
Agreement. If at any time during the term of the Agreement the CD is no longer
in existence for any reason, Employee's benefits under the Agreement shall be
determined using appropriate and reasonable methods, calculations and
assumptions, such that Employee shall receive benefits in an amount no less than
what he would have received had the CD been in existence.
1.8 DEFINITION. For the purposes of this Agreement, Employee shall be
deemed "retired" on and as of the date of occurrence of one or more of the
following: (i) the date of expiration of Employee's term of employment under the
Employment Agreement between the parties of April 1, 1999 where such term has
not been extended; (ii) the effective date of termination of Employee's
employment by Bancorp or by Employee, with or without cause; or (iii) such other
date on which the parties may mutually agree in writing.
1.9 TERMINATION WITH CAUSE. If prior to retirement Employee is
terminated by Bancorp with cause, Employee shall not be entitled to any deferred
compensation payments or any benefits under Section 1.6 or elsewhere in the
Agreement, and the Agreement shall as of such termination date be null and void.
1.10 VESTING. Employee's right to benefits and payments under the
Agreement shall become 100% vested on the date of the Agreement, April 1, 1999,
(the "Vesting Date"), provided that on the Vesting Date Employee is a full-time
employee of Bancorp. No vesting with respect to any benefits or payments under
the Agreement shall occur prior to the Vesting Date.
1.11 BENEFITS. As additional consideration under the Agreement, from
and after the date of Employee's retirement through May 15, 2007, Bancorp shall
provide Employee with all medical, dental, disability, vision and life insurance
which Bancorp or the Banks provide to full-time employees.
2. CHANGE OF CONTROL.
2.1 SURVIVAL OF RIGHTS. If there is a change of control of Bancorp on
or at any time prior to May 15, 2007, Employee shall continue to be entitled to
receive the deferred compensation provided in Section 1 of the Agreement.
2.2 OPTIONS AND STOCK. If Employee is a participant in a restricted
stock plan or share option plan, and such plan is terminated involuntarily as a
result of the change of control, all stock and options shall be declared fully
vested and shall be distributed. With respect to any unexercised options under
any stock option plan, such options may be exercised within the period provided
in such plan. Effective as of the date of the change of control, any holding
period established for stock paid as bonus or other compensation shall be deemed
terminated, except as otherwise provided by law.
<PAGE> 4
2.3 DEFINITION. As used in this Section, "control" shall mean the
acquisition of twenty-five percent (25%) or more of the voting securities of
Bancorp by any person, or persons acting as a group within the meaning of
Section 13(d) of the Securities Exchange Act of 1934, or to such acquisition of
a percentage between ten percent (10%) and twenty-five percent (25%) if the
Board or the Comptroller of the Currency, the FDIC, or the Federal Reserve Bank
have made a determination that such acquisition constitutes or will constitute
control of Bancorp. The term "person" refers to an individual, corporation,
bank, bank holding company, or other entity, but excludes any Employee Stock
Ownership Plan established for the benefit of employees of Bancorp or any of its
subsidiaries.
3. COVENANTS.
3.1 COOPERATION. Employee shall at all times fully cooperate with
Bancorp and its affiliates in the defense or prosecution of any litigation
arising from or relating to matters about which Employee has knowledge based on
his employment or other work, paid or unpaid, for Bancorp and its affiliates.
3.2 CONFIDENTIALITY. Employee shall at all times keep all confidential
and proprietary information gained from his employment by Bancorp, or other
previous and present paid or unpaid work for Bancorp and its affiliates, in
strictest confidence, and will not disclose or otherwise disseminate such
information to anyone, other than to Board members or employees of Bancorp or
its affiliates, except as may be required by law, regulation or subpoena.
3.3 NON-COMPETE COVENANTS. After the date of Employee's retirement or
other termination of employment with Bancorp, and as long as Employee is
eligible to receive deferred compensation under the Agreement but in no event
for a period less than one year from such date, Employee shall not, without the
prior written consent of Bancorp:
3.3.1 Undertake full or part-time work, either as an employee
or as a consultant, for another financial institution if such work is to be
done, in whole or in part, in or from an office or other work site in Yamhill,
Wasco, Hood River, Jefferson, Deschutes, Sherman or Gilliam Counties, Oregon, in
Klickitat County, Washington, or in any other county in Oregon or Washington in
which Bancorp or any subsidiary, parent, sister or other affiliated corporation
of Bancorp has a place of business at the time of termination; or
3.3.2 Hire for any financial institution or other employer
(including himself) any employee of Bancorp, or any subsidiary or other
affiliate of Bancorp, or directly or indirectly cause such an employee to leave
his or her employment to work for another employer, if such employee is to work
in or from an office or other work site in Yamhill, Wasco, Hood River,
Jefferson, Deschutes, Sherman or Gilliam Counties, Oregon, in Klickitat County,
Washington, or in any other county in Oregon or Washington in which Bancorp or
any subsidiary, parent, sister or other affiliated corporation of Bancorp has a
place of business at the time of termination.
4. CLAIMS PROCEDURE; REVIEW.
<PAGE> 5
4.1 CLAIMS. A claim for benefits under the Plan shall be made in
writing and delivered to Bancorp as Plan Administrator. Within a reasonable time
after receipt of the claim, the Plan Administrator shall provide a written
notice of decision to the claimant. If a claim is wholly or partially denied,
the following shall apply:
4.1.1 The written notice shall be provided to each claimant,
shall state in plain language the specific reason or reasons for the denial,
shall make specific reference to the pertinent provisions of the Plan on which
the denial is based, and shall describe any additional material or information
necessary to perfect the claim and an explanation of why such information is
necessary.
4.1.2 The written notice shall also contain an explanation of
the review procedure established under the Plan.
4.2 REVIEW. The review procedure set forth in this Section is for the
purpose of allowing a claimant under the Plan to have a reasonable opportunity
to appeal a denial of a claim and to receive a full and fair review.
4.2.1 Within sixty (60) days of the denial, in whole or in
part, of a claim for benefits under the Plan, the claimant may file a written
request with Bancorp as Named Fiduciary under the Plan for a review of the
denial. The request may contain issues and comments, and may include any other
materials or information that may be pertinent to the review. The claimant may
also request and review any pertinent Plan documents.
4.2.2 Within sixty (60) days of the receipt of a written
request for review, the Named Fiduciary shall make a decision on the request.
The Named Fiduciary may in its discretion (i) extend the time for decision to no
more than one hundred and twenty (120) days of the receipt of a written request
for review, (ii) hold a hearing on the denied claim, and (iii) request
additional information from the claimant.
4.2.3 The decision of the Named Fiduciary on the request for
review shall be provided to each claimant, shall state in plain language the
specific reason or reasons for the decision, and shall make specific reference
to the pertinent provisions of the Plan on which the decision is based.
5. MISCELLANEOUS.
5.1 STOCK INCENTIVE PLAN. Employee's retirement shall not be deemed a
retirement or general termination under any provision of the Columbia Bancorp
1999 Stock Incentive Plan or under any provision of any successor Plan, and
shall therefore not limit the time within which Employee may exercise his stock
option rights thereunder, except as otherwise provided under the Plan or any
successor plan or under applicable law.
5.2 RECITALS; LAW; AMENDMENTS. Each and every portion of the Agreement
is contractual and not a mere recital, and all recitals shall be deemed
incorporated into the
<PAGE> 6
Agreement. The Agreement shall be governed by and interpreted according to
Oregon law and any applicable federal law. The Agreement may not be amended
except by a subsequent written agreement signed by all parties hereto.
5.3 ENTIRE AGREEMENT. The Agreement contains the entire understanding
and agreement of the parties with respect to the parties' relationship, and all
prior negotiations, discussions or understandings, oral or written, are hereby
integrated herein. No prior negotiations, discussions or agreements not
contained herein or in such documents shall be binding or enforceable against
the parties.
5.4 ADDITIONAL AGREEMENT. The Agreement shall be effective and binding
upon the parties as of and from and after April 1, 1999 until its expiration or
termination as provided herein. Employee's rights under the Agreement are in
addition to Employee's rights under the Employment Agreement of April 1, 1999
between the parties.
5.5 COUNTERPARTS. The Agreement may be signed in several counterparts.
The signature of one party on any counterpart shall bind such party just as if
all parties had signed that counterpart. Each counterpart shall be considered an
original. All counterparts of the Agreement shall together constitute one
original document.
5.6 SUCCESSORS AND ASSIGNS. All rights and duties of Bancorp under the
Agreement shall be binding on and inure to the benefit of Bancorp's successors
and assigns, including any person or entity which acquires a controlling
interest Bancorp and any person or entity which acquires all or substantially
all of Bancorp's assets. Bancorp and any such successor or assign shall be and
remain jointly and severally liable to Employee under the Agreement. Employee
may not assign or transfer Employee's rights or interests in or under the
Agreement other than by a will or by the laws of descent and distribution.
5.7 BENEFICIARIES. The Agreement, including the payment rights provided
in the Agreement, shall inure to the benefit of and be enforceable by Employee's
estate or legal representative. Without limitation of the foregoing, it is
understood and agreed that if Employee's employment is terminated prior to the
first date on which Employee becomes eligible for the deferred compensation
payments provided under the Agreement, and if such termination is due to death,
disability or any other reason, other than termination with cause as described
in Section 1.5 herein, the Employee or his estate shall be entitled to all
deferred compensation payments hereunder from and after the first such date of
eligibility. As used in the Agreement, "beneficiary" shall mean any person or
entity, including a trust, which has been designated by Employee as Employee's
beneficiary in writing. Such designation shall be made on a form of Nomination
of Beneficiary in substantially the form attached hereto as Exhibit 1, the
original of which shall by delivered to and acknowledged by Bancorp. Employee
may revoke or change a designation of beneficiary at any time and at Employee's
sole discretion, and may name more than one beneficiary. On the date of
Employee's death, Employee's beneficiary under the Agreement shall be the
beneficiary named on the most current form of Nomination of Beneficiary on file
with Bancorp. If no Nomination of Beneficiary form is on file with Bancorp
<PAGE> 7
on the date of Employee's death, Employee's estate shall be Employee's
beneficiary under the Agreement.
5.8 WAIVER. Any waiver by any party hereto of any provision of the
Agreement, or of any breach thereof, shall not constitute a waiver of any other
provision or of any other breach. If any provision, paragraph or subparagraph
herein shall be deemed invalid, illegal or unenforceable in any respect, the
validity and enforceability of the remaining provisions, paragraphs and
subparagraphs shall not be affected.
5.9 ARBITRATION. Any dispute, controversy, claim or difference
concerning or arising from the Agreement or the rights or performance of either
party under the Agreement, including disputes about the interpretation or
construction of the Agreement, shall be settled through binding arbitration in
the State of Oregon and in accordance with the rules of the American Arbitration
Association. A judgment upon the award rendered in such arbitration may be
entered in any court of competent jurisdiction.
5.10 PRIOR AGREEMENT. The Agreement supersedes and replaces the
Deferred Compensation Agreement between Employee and Bancorp of May 1, 1998, and
the latter agreement shall be deemed null and void as of April 1, 1999.
5.11 ERISA FILING. Within one hundred and twenty (120) days of
Bancorp's adoption of the Plan, the Plan Administrator shall file a notice and
disclosure under ERISA in the form attached hereto as Exhibit 2. The adoption
date of the Plan shall be the date of the Agreement, April 1, 1999.
5.12 CAPTIONS. All captions, titles and headings in the Agreement are
for convenience only, and shall not be construed to limit any term of the
Agreement.
/s/
- --------------------------------------
Terry L. Cochran
COLUMBIA BANCORP
By: /s/
----------------------------------
Chairman
<PAGE> 8
Exhibit 1
NOMINATION OF BENEFICIARY
In accordance with the rights granted to me under the Deferred
Compensation Agreement (the "Agreement") between me and Columbia Bancorp (the
"Company") of April 1, 1999, I do hereby nominate the following as Beneficiary
thereunder to receive payments thereunder in the event of my death:
First Nominee:___________________________________
Second Nominee:__________________________________
The following terms and conditions shall apply.
1. I reserve the right and privilege of changing the Beneficiary herein
named at any time or times without the consent of any such Beneficiary.
2. As used herein, "Beneficiary" shall include the plural,
"Beneficiaries," wherever the Agreement so permits.
3. If any sole Beneficiary who is then receiving monthly payments
hereunder and under the Agreement shall not be living on any monthly payment
date provided for in the Agreement, any and all remaining monthly payments shall
be payable to the next Beneficiary in the order named above unless the executors
or administrators of such sole Beneficiary are named as Beneficiaries
hereinabove.
4. If more than one Beneficiary is named either individually or as a
class, monthly payments shall lie made equally to such Beneficiaries unless
otherwise provided hereinabove. If any such Beneficiaries die while receiving
monthly payments hereunder under the Agreement, any and all remaining payments
shall be made equally to the surviving Beneficiaries of such designation or
class or all to the sole survivor of them unless otherwise provided herein. If
all of such Beneficiaries shall die, any and all remaining payments shall he
made to the next Beneficiary in the order named hereinabove.
5. If none of the Beneficiaries named herein are living on any monthly
payment date, any and all remaining payments shall be made to my executors or
administrators, or upon their written request, to any person or persons so
designated by them.
6. If any such monthly payments shall be payable upon any trust, the
Company shall not be liable to see to the application by the trustee of any
payment hereunder at any time, and may rely upon the sole signature of the
trustee to any receipt, release, or waiver, or to any
<PAGE> 9
transfer or other instrument to whomsoever made purporting to affect this
nomination or any right hereunder.
7. This Nomination of Beneficiary shall be executed in duplicate, but
it shall not be valid unless one copy of it is filed with and receipt thereof is
acknowledged thereon by the Company during my lifetime. Any revocation or change
of this Nomination of Beneficiary shall not be valid unless it is filed with and
receipt thereof is acknowledged thereon by the Company during my lifetime, and
any loss or destruction of any copy retained by me shall not constitute a
revocation or change of this Nomination of Beneficiary.
This nomination cancels and supersedes any Nomination of Beneficiary
heretofore made by me with respect to the Agreement and the right to receive
payments thereunder.
Date:_________________.
_____________________________
ACKNOWLEDGMENT
Columbia Bancorp hereby acknowledges receipt of the foregoing
Nomination of Beneficiary as of the date shown below.
Columbia Bancorp
By:____________________________
Title:_________________________
<PAGE> 10
Exhibit 2
[DATE]
To: The Secretary of Labor
Top Hat Exemption, Pension and Welfare Benefits Administration
U. S. Department of Labor
Washington, D. C. 20210
Re: Reporting and Disclosure Statement
In compliance with the alternative reporting and disclosure method
under the Employee Retirement Income Security Act of 1974, as amended, and as
provided for an unfunded deferred compensation plan for a select group of
management or highly compensated employees under D. O. L. Regulation Section
2520.104-23, the following information is provided by Columbia Bancorp, the Plan
Administrator.
1. The name of the employer is Columbia Bancorp.
2. The mailing address of the employer is P. O. Box 1050, The
Dalles, Oregon 97058.
3. The Federal Identification Number (EIN) of the employer
is ________________.
4. The employer maintains one (1) unfunded deferred compensation
plan (the "Plan") for one (1) employee.
5. The employer maintains the Plan exclusively for the purpose of
providing deferred compensation to employer's President and Chief Executive
Officer, one of a select group of employer's management and a highly compensated
employee.
A copy of the Plan, which is set forth in a form of deferred
compensation agreement between the employer and the employee, shall be provided
to the Secretary of Labor upon request.
Columbia Bancorp, Employer and Plan
Administrator
By:_____________________________
<PAGE> 1
EXHIBIT 10.3
1999 EMPLOYMENT AGREEMENT
Columbia Bancorp - Roger Christensen
This Employment Agreement (the "Agreement") is made and entered into
this 20th day of July, 1999 by and between Columbia Bancorp, an Oregon
corporation and bank holding company ("Bancorp") and Roger Christensen
("Employee").
RECITALS
(1) Bancorp is an Oregon corporation and is the holding company of
Columbia River Bank and Valley Community Bank, which are both state-chartered
Oregon financial institutions. Bancorp's principal office is at 420 East Third
Street, Suite 200, The Dalles, Oregon 97058.
(2) Bancorp desires to employ Employee as an Executive Vice President
and Chief Operating Officer of Bancorp on the terms and conditions set forth
herein.
Now, therefore, it is agreed:
1. RELATIONSHIP AND DUTIES.
1.1 EMPLOYMENT AND TITLE. Bancorp shall employ Employee as an officer
of Bancorp with the title of Executive Vice President and Chief Operating
Officer to perform such services and duties as the Chief Executive Officer of
Bancorp may designate from time to time. Subject to the terms and conditions
hereof, employee shall perform such duties and exercise such authority as are
customarily performed and exercised by persons holding such office, subject to
the general direction of the Chief Executive Officer of Bancorp. Such services
and duties shall be exercised in good faith and in accordance with standards of
reasonable business judgment.
1.2 DUTIES; CONFLICTS. Employee shall devote his full time, attention
and efforts to the diligent performance of his duties as an officer of Bancorp.
Employee will not accept employment with any other individual, corporation,
partnership, governmental authority or any other entity, or engage in any other
venture for profit which Bancorp, or any subsidiary, parent, sister or
affiliated corporation of Bancorp, considers to be in conflict with their best
interests or to be in competition with their business, or which may interfere in
any way with Employee's performance of his duties hereunder.
1.3 SERVICE ON OTHER COMPANY BOARDS. Nothing in the Agreement shall
prohibit Employee from serving on the board of directors of any profit or
non-profit corporation not in direct competition with Bancorp or with any other
subsidiary, parent, sister or affiliated corporation of Bancorp. In addition,
Employee may own stock in any other corporation whether or not the stock is
publicly traded; provided, that if such corporation operates a business in
competition with Bancorp Employee may not own more than five percent (5%) of the
outstanding shares of such corporation.
<PAGE> 2
2. TERM OF EMPLOYMENT.
2.1 TERM. The term of employment under the Agreement shall begin on
May 13, 1999 and end on March 31, 2001.
2.2 EXTENSIONS. Employee's term of employment under the Agreement may
be extended for successive one-year terms beyond the initial term of the
Agreement specified in Section 2.1, subject to the mutual agreement of the
parties. The parties shall reach mutual agreement concerning such extensions on
or before a date which is no less than one year prior to the date of expiration
of Employee's term of employment under the Agreement, including any extensions
thereof.
3. TERMINATION.
3.1 DEFINITION. As used in the Agreement, "termination" shall mean the
termination of Employee's employment relation with Bancorp, whether initiated by
Bancorp or by Employee, and whether for cause or without cause.
3.2 TERMINATION EVENTS. Notwithstanding any other provisions of the
Agreement, the employment of Employee shall terminate immediately on the earlier
to occur of any of the following:
3.2.1 Employee's death;
3.2.2 Employee's complete disability. "Complete disability" as
used herein shall mean the inability of Employee, due to illness, accident, or
other physical or mental incapacity, to perform the services required under the
Agreement for an aggregate of ninety (90) days within any period of 180
consecutive days during the term hereof; provided, however, that disability
shall not constitute a basis for discharge for cause;
3.2.3 The discharge of Employee by Bancorp for cause. "Cause"
as used herein shall mean (i) Employee's negligence or misconduct as shall
constitute, as a matter of law, a breach of the covenants and obligations of
Employee hereunder; (ii) failure or refusal of Employee to comply with the
provisions of the Agreement; (iii) Employee's conviction by any duly constituted
court with competent jurisdiction of a crime (other than traffic offenses); (iv)
Employee's malfeasance or incompetence, provided that in applying this criteria
Bancorp shall not be unreasonable or arbitrary, and provided further that prior
to effecting a dismissal under this Section (iv) Bancorp shall afford Employee
with fair and reasonable warning and with a fair and reasonable opportunity to
cure any defects in Employee's performance.
3.3 TERMINATION BY EMPLOYEE. Employee may terminate his employment with
Bancorp with or without cause by giving thirty (30) days written notice of
termination. "Cause" as used herein shall include Bancorp's failure or refusal
to comply with the provisions of the Agreement.
<PAGE> 3
3.4 EFFECT OF TERMINATION. The termination of Employee's employment
shall constitute a tender by Employee of his resignation as an officer of
Bancorp, and as a member of any board of directors or board committees of
Bancorp or its affiliates if Employee is a member thereof at the time of
termination.
3.5 PAYMENT ON TERMINATION. If Employee's employment is terminated by
Employee with or without cause, or by Bancorp with or without cause, Employee
shall be paid all base salary and benefits accrued under the Agreement as of the
termination date.
3.6 SEVERANCE PAYMENT. If Employee's employment is terminated by
Employee with cause, or by Bancorp without cause, Employee shall be paid all
base salary and benefits accrued under the Agreement as of the termination date,
and in addition, shall be entitled to a severance payment equal to the greater
of (i) one month's base salary as of the date of termination multiplied by the
number of full calendar years Employee has been employed by Bancorp or any
predecessor thereof, or (ii) one month's base salary as of the date of
termination multiplied by twelve (12). For purposes of Section 3.6(i) a period
of continuous full-time employment for six months or more in a calendar year
shall count as a full calendar year. If for any period Employee has been
employed simultaneously by Bancorp and by one or more of its affiliates, such
period shall count only once in determined the severance payment under Section
3.6(i). The severance payment provided herein shall be paid in full within
thirty (30) days of the date of Employee's termination. Employee shall not be
entitled to such severance payment if Employee's employment is terminated by
Bancorp with cause, or by Employee without cause, and in either such case
Employee shall only be entitled to receive on termination a payment equal to
Employee's base salary and benefits accrued under the Agreement as of the
termination date, and no other payments.
3.7 PERFORMANCE BONUS. If Employee's employment is terminated by
Employee with cause, or by Bancorp without cause, Employee shall be paid, in
addition to the amounts payable under Sections 3.5 and 3.6 of the Agreement: (i)
all nonforfeitable deferred compensation, if any; and (ii) unpaid performance
bonus payments, if any, payable under Section 4.4 of the Agreement, which shall
be declared earned and payable based upon performance up to, and shall be
pro-rated as of, the date of termination. Employee shall not be entitled to such
unpaid performance bonus payments if Employee's employment is terminated by
Bancorp with cause, or by Employee without cause,
4. COMPENSATION.
4.1 BASE SALARY. For the period beginning May 13, 1999 and ending March
31, 2000, Employee shall be paid an annual base salary of $95,000.00, payable in
equal bimonthly installments and subject to any deductions required by law.
4.2 EXTENSIONS. On or before March 1, 2000, Bancorp shall determine
Employee's annual base salary for the period beginning April 1, 2000 through the
remaining term of employment under the Agreement. If Employee's term of
employment under the Agreement has
<PAGE> 4
been extended, Bancorp shall determine Employee's annual base salary for
subsequent periods of Employee's employment at least 30 (thirty) days prior to
the date of beginning of any such extended term.
4.4 PERFORMANCE BONUS. Employee shall be entitled to consideration for
annual performance bonus compensation for each calendar year, in an amount up to
35% of annual base salary earned from his employment by Bancorp during such
calendar year. Bonus compensation shall be subject to any deductions required by
law. The Chief Executive Officer of Bancorp shall timely, and at least once
yearly, determine the amount of and the formulas and methods for establishing
such bonus compensation. The amount of such bonus compensation shall at all
times be discretionary, and Bancorp may decline to award a performance bonus to
Employee in any year.
5. BENEFITS; PURCHASE OF SHARES.
5.1 ELIGIBILITY FOR GENERAL BENEFITS. Employee shall be eligible to
participate in any plan of Bancorp or its affiliates relating to stock options,
stock purchases, profit sharing, group life insurance, medical coverage,
education and other retirement or employee benefits that Bancorp or its
affiliates may adopt for the benefit of employees.
5.2 STOCK OPTIONS. Within 30 days of May 13, 1999 Employee shall be
granted an option to purchase 2,000 shares, adjusted for stock splits, if any,
of Bancorp common stock ("Bancorp Stock") in accordance with the terms of the
Columbia Bancorp 1999 Stock Incentive Plan.
5.3 ADDITIONAL BENEFITS. Employee shall be eligible to participate in
any other benefits which may be or become applicable to Bancorp's executive
employees of similar rank. In addition, Employee shall be entitled to: (i) a
reasonable expense account for use in connection with Bancorp business; and (ii)
any other benefits which in Bancorp's judgment are commensurate with the
responsibilities and functions to be performed by Employee under the Agreement,
including the payment of reasonable expenses for attendance by Employee and
Employee's spouse at annual meetings of the Oregon Bankers Association.
5.4 SHARE OWNERSHIP. During the term of the Agreement, including
extensions, Employee shall purchase shares of Bancorp Stock, including purchases
through the exercise of stock options, in accordance with the share ownership
policies and requirements established by Bancorp management in effect from time
to time for employees of comparable rank.
6. VACATIONS AND LEAVES.
6.1 PAID VACATION. During the term of the Agreement, Employee shall be
entitled to annual paid vacation benefits identical to those offered to
employees of Bancorp holding executive vice president positions. The timing of
vacations shall be scheduled in a reasonable manner by Employee. Employee shall
not be entitled to receive any additional compensation
<PAGE> 5
from Bancorp on account of his failure to take a vacation, and may not
accumulate unused vacation time from one calendar year to the next.
6.2 LEAVES WITH OR WITHOUT PAY. The Chief Executive Officer of Bancorp
may grant Employee a leave or leaves of absence, with or without pay, at such
time or times and upon such terms and conditions as such Chief Executive Officer
may determine.
6.3 MANDATORY ABSENCE. In each calendar year Employee shall be absent
from Bancorp for one period of two consecutive weeks. Such period may include
vacation, leave, sick leave, attendance at seminars or conventions, or any
combination thereof.
7. CHANGE OF CONTROL.
7.1 SURVIVAL OF RIGHTS. Employee's rights on termination of employment
under Section 3 of the Agreement, as well as all other rights of Employee under
the Agreement or applicable law, shall survive a change of control of Bancorp
whether or not Employee opposed or favored the change of control.
7.2 RIGHTS ON CHANGE OF CONTROL. If a change of control of Bancorp
occurs while the Agreement is in effect, Employee shall have ninety (90) days
following the date such change of control becomes effective to elect to
terminate Employee's employment with cause. If Employee so elects to terminate,
such termination shall constitute a termination by Employee with cause, and
Employee shall receive all payments and benefits due to Employee on termination
by Employee with cause under Section 3 of the Agreement.
7.3 BASE COMPENSATION. Following a change of control, Bancorp shall not
reduce Employee's base compensation in effect prior to the effective date of the
change of control for a period of time equal to the greater of (i) twelve (12)
months from the effective date of the change of control; (ii) one (1) month for
each full calendar year Employee has been employed by Bancorp; or (iii) the
remaining term of the Agreement, including any extensions thereof. For purposes
of this Subsection 7.3, a period of continuous full-time employment for six
months or more in a calendar year shall count as a full calendar year.
7.4 TERMINATION WITHOUT CAUSE. If following a change of control Bancorp
terminates Employee's employment within one (1) year of the effective date of
the change of control because of a reduction in force or for any other reason,
other than for cause pursuant to Section 3.3 of the Agreement, such termination
shall constitute a termination by Bancorp without cause, and Employee shall
receive all payments and benefits due to Employee on termination under Sections
3.5 and 3.6 of the Agreement, plus: (i) all nonforfeitable deferred
compensation, if any; and (ii) unpaid performance bonus payments, if any,
payable under Section 4.4 of the Agreement, which shall be declared earned and
payable based upon performance up to, and shall be pro-rated as of, the date of
termination.
7.5 OPTIONS AND STOCK. If Employee is a participant in a restricted
stock plan or share option plan, and such plan is terminated involuntarily as a
result of the change of control,
<PAGE> 6
all stock and options shall be declared fully vested and shall be paid, awarded
or otherwise distributed. With respect to any unexercised options under any
stock option plan, such options may be exercised within the period provided in
such plan. Effective as of the date of the change of control, any holding period
established for stock paid as bonus or other compensation shall be deemed
terminated, except as otherwise provided by law.
7.6 DEFINITION. As used in this Section, "control" shall mean the
acquisition during Employee's employment of twenty-five percent (25%) or more of
the voting securities of the Bancorp by any person, or persons acting as a group
within the meaning of Section 13(d) of the Securities Exchange Act of 1934, or
to such acquisition of a percentage between ten percent (10%) and twenty-five
percent (25%) if the Board or the Comptroller of the Currency, the FDIC, or the
Federal Reserve Bank have made a determination that such acquisition constitutes
or will constitute control of Bancorp. The term "person" refers to an
individual, corporation, bank, bank holding company, or other entity, but
excludes any Employee Stock Ownership Plan established for the benefit of
employees of Bancorp or any of its subsidiaries or other affiliates.
8. POST TERMINATION COVENANTS.
8.1 NON-COMPETE COVENANTS. If Employee terminates his employment
without cause, or if Employee's employment is terminated by Bancorp for cause,
then for one year from the date of such termination Employee will not, without
the prior written consent of Bancorp:
8.1.1 Undertake full or part-time work, either as an employee
or as a consultant, for another financial institution if such work is to be
done, in whole or in part, in or from an office or other work site in Yamhill,
Wasco, Hood River, Jefferson, Deschutes, Sherman or Gilliam Counties, Oregon, in
Klickitat County, Washington, or in any other county in Oregon or Washington in
which Bancorp or any of its affiliates has a place of business at the time of
termination; or
8.1.2 Hire for any financial institution or other employer
(including himself) any employee of Bancorp or any of its affiliates, or
directly or indirectly cause such an employee to leave his or her employment to
work for another employer, if such employee is to work in or from an office or
other work site in Yamhill, Wasco, Hood River, Jefferson, Deschutes, Sherman or
Gilliam Counties, Oregon, in Klickitat County, Washington, or in any other
county in Oregon or Washington in which Bancorp or any of its affiliates has a
place of business at the time of termination.
8.2 LIQUIDATED DAMAGES FOR BREACH OF NON-COMPETE COVENANTS; OTHER
REMEDIES. If Employee breaches the covenants of Section 8.1, Employee shall be
liable to Bancorp for liquidated damages equal to the lesser of (i) $18,000, or
(ii) $1,500 multiplied by the number of months (including fractions thereof)
between the date of breach and one year from the date of Employee's termination
of employment. For example, if the date of breach occurs six months after the
date of Employee's termination, liquidated damages shall be $9,000 (6 x $1,500).
The parties agree that Bancorp's actual money damages upon Employee's breach
will be difficult to compute, and further agree that the liquidated damages
formula provided herein
<PAGE> 7
reasonably represents Bancorp's actual money damages. Employee shall pay the
liquidated damages required hereunder within ten (10) days of the date Bancorp
makes written demand for such payment. Nothing herein shall preclude Bancorp
from enforcing any other legal or equitable remedies it may have upon Employee's
breach, including injunctive relief. Such other remedies may be enforced in
addition to Bancorp's right to liquidated damages under this Section.
8.3 LIMITATION. The covenants in Sections 8.1 and 8.2 do not apply if
Employee terminates his employment for cause, if Employee terminates his
employment for any reason within ninety (90) days after the effective date of a
change of control within the meaning of Section 7 of the Agreement, or if
Employee's employment is terminated by Bancorp without cause.
8.4 ADDITIONAL COVENANTS. The following provisions shall apply and be
binding on Employee following Employee's termination of employment under all
circumstances, whether termination occurred with cause, without cause, following
illness or disability, because of a change of control, or for any other reason:
8.4.1 Employee shall fully cooperate in the defense or
prosecution of any litigation arising from or relating to matters about which
Employee has knowledge based on his employment or other work, paid or unpaid,
for Bancorp and its affiliates. To the extent allowed by law Employee shall
receive reasonable compensation in connection with his performance under this
Section 8.3.1;
8.4.2 Employee shall at all times keep all confidential and
proprietary information gained from his employment by Bancorp, or from other
previous, present or subsequent paid or unpaid work for Bancorp and its
affiliates, in strictest confidence, and will not disclose or otherwise
disseminate such information to anyone, other than to employees of Bancorp or
its affiliates, except as may be required by law, regulation or subpoena; and
8.4.3 Employee shall not take or use for any purpose confidential
or proprietary information of Bancorp or its affiliates, including without
limitation customer or potential customer lists and trade secrets.
9. MISCELLANEOUS.
9.1 RECITALS; LAW; AMENDMENTS. Each and every portion of the Agreement
is contractual and not a mere recital, and all recitals shall be deemed
incorporated into the Agreement. The Agreement shall be governed by and
interpreted according to Oregon law and any applicable federal law. The
Agreement may not be amended except by a subsequent written agreement signed by
all parties hereto.
9.2 ENTIRE AGREEMENT. The Agreement contains the entire understanding
and agreement of the parties with respect to the parties' relationship, and all
prior negotiations, discussions or understandings, oral or written, are hereby
integrated herein. No prior
<PAGE> 8
negotiations, discussions or agreements not contained herein or in such
documents shall be binding or enforceable against the parties.
9.3 COUNTERPARTS. The Agreement may be signed in several counterparts.
The signature of one party on any counterpart shall bind such party just as if
all parties had signed that counterpart. Each counterpart shall be considered an
original. All counterparts of the Agreement shall together constitute one
original document.
9.4 SUCCESSORS AND ASSIGNS. All rights and duties of Bancorp under the
Agreement shall be binding on and inure to the benefit of Bancorp's successors
and assigns, including any person or entity which acquires a controlling
interest in Bancorp and any person or entity which acquires all or substantially
all of Bancorp's assets. Bancorp and any such successor or assign shall be and
remain jointly and severally liable to Employee under the Agreement. Employee
may not assign or transfer Employee's rights or interests in or under the
Agreement other than by a will or by the laws of descent and distribution. The
Agreement shall inure to the benefit of and be enforceable by Employee's estate
or legal representative.
9.5 WAIVER. Any waiver by any party hereto of any provision of the
Agreement, or of any breach thereof, shall not constitute a waiver of any other
provision or of any other breach. If any provision, paragraph or subparagraph
herein shall be deemed invalid, illegal or unenforceable in any respect, the
validity and enforceability of the remaining provisions, paragraphs and
subparagraphs shall not be affected.
9.6 ARBITRATION. Any dispute, controversy, claim or difference
concerning or arising from the Agreement or the rights or performance of either
party under the Agreement, including disputes about the interpretation or
construction of the Agreement, shall be settled through binding arbitration in
the State of Oregon and in accordance with the rules of the American Arbitration
Association. A judgment upon the award rendered in such arbitration may be
entered in any court of competent jurisdiction.
9.7 EMPLOYEE HANDBOOK. Employee agrees to be bound by the terms and
conditions of any employee handbook of Bancorp or its affiliates as may be in
effect from time to time, except that in the event of a conflict between such
employee handbook and the Agreement, the Agreement shall control.
9.8 CAPTIONS. All captions, titles and headings in the Agreement are
for convenience only, and shall not be construed to limit any term of the
Agreement.
9.9 DEFINITION. When used herein in reference to a corporation,
"affiliate" shall mean, without limitation, any parent or subsidiary of the
corporation and any entity controlled by the corporation.
9.10 EXCEPTIONS. The Bancorp Board or the management of Bancorp may, in
its discretion, make exceptions to one or more of the conditions contained in
the Agreement, provided that any such exceptions must be approved in writing.
<PAGE> 9
9.11 PRIOR CONTRACTS. This Agreement replaces and supersedes all prior
written employment agreements between the parties, specifically including the
Employment Agreement of May 13, 1999.
/s/
- ---------------------------------------
Employee
COLUMBIA BANCORP
By: /s/
-----------------------------------
Title:
--------------------------------
<PAGE> 1
COLUMBIA BANCORP
RESTATED EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
(1999 RESTATEMENT)
(C) 1999 BENNER & ASSOCIATES, P.C.
ALL RIGHTS RESERVED
<PAGE> 2
COLUMBIA BANCORP
RESTATED EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
INDEX
Section 1
NATURE OF PLAN
<TABLE>
<S> <C>
1.1 Purpose of Plan
1.2 Design of Plan
1.3 Treatment of Related Employers
1.4 Named Fiduciaries
1.5 Allocation of Responsibilities
1.6 Funding Policy
Section 2
DEFINITIONS
2.1 Act
2.2 Account
2.3 Administrator
2.4 Affiliate
2.5 Anniversary Date
2.6 Annual Compensation
2.7 Beneficiary
2.8 Benefit Commencement Date
2.9 Break in Service
2.10 The Code
2.11 Company
2.12 Company Stock
2.13 Company Stock Account
2.14 Disability
2.15 ERISA
2.16 Employee
2.17 Employer
2.18 Employment Commencement Date
2.19 Exempt Loan
2.20 Forfeiture
2.21 Hour of Service
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
2.22 Normal Retirement Date
2.23 Other Investments Account
2.24 The Plan
2.25 Plan Benefit
2.26 Plan Year
2.27 Related Employer(s)
2.28 Trustee
2.29 Year of Service
2.30 Valuation Date
Section 3
ADMINISTRATION
3.1 Assignment of Administrative Authority
3.2 Organization and Operation
3.3 Powers and Duties
3.4 Records and Reports
3.5 Payment of Expenses
3.6 Agent for Service of Process
3.7 Indemnity
3.8 Personal Data to Administrator
3.9 Address for Notification
3.10 Employer's Powers and Duties
Section 4
ELIGIBILITY
4.1 Eligibility and Commencement of Participation
4.2 Continued Participation
4.3 Reemployment
4.4 Excluded Employees
4.5 Change in Employment Classification
Section 5
EMPLOYER CONTRIBUTIONS TO PLAN
5.1 Employer Contributions
5.2 Limitations on Contributions
5.3 Time of Payment
5.4 Conditional Employer Contributions
5.5 Employee Contributions.
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 6
ALLOCATION OF EMPLOYER CONTRIBUTIONS
6.1 Participants' Accounts
6.2 Allocations to Participants' Accounts
6.3 Allocations of Contributions and Forfeitures
6.4 Partial Year Allocation
6.5 Overall Limitation on Allocations
6.6 Restriction on Allocating Company Stock to Selling Shareholders
Section 7
EXEMPT LOANS TO ACQUIRE COMPANY STOCK
7.1 Acquisition of Company Stock
7.2 Exempt Loans
7.3 Release of Company Stock from Suspense Account
7.4 Employer Guarantee
7.5 Restrictions of Company Stock Acquired With Exempt Loan
Section 8
VESTING
8.1 Vested Interest in Accrued Benefit
8.2 Vesting Years of Service
8.3 Retirement, Death and Disability
8.4 Forfeitures
8.5 Allocation of Forfeitures
8.6 Separate Accounts For Post- and Pre-Break Benefits of Rehired
Participants
8.7 Treatment of Forfeitures on Rehire
8.8 Special Account - Rehire Prior to Forfeiture
8.9 Amendment of Vesting Schedule
8.10 Forfeitures - Multiple Employers
8.11 Transferred or Rollover Accounts
8.12 Forfeiture Due to Inability to Locate
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Section 9
ACCOUNTS AND VALUATION
9.1 Valuation of Assets
9.2 Nonreversion
9.3 Adjustment of Accounts
9.4 Valuation of Accounts Upon Termination
9.5 Transferred Accounts
Section 10
BENEFITS
10.1 Retirement
10.2 Death
10.3 Disability
10.4 Termination of Employment
10.5 Minimum Required Distributions
10.6 Income Tax Withholding and Reporting
10.7 Spendthrift Clause
10.8 Missing Participants or Beneficiaries
Section 11
FORM AND TIME OF PAYMENT
11.1 Benefit Elections
11.2 Medium of Payment
11.3 Method of Payment
11.4 Time of Payment
11.5 Hardship Distributions
11.6 Dividends
11.7 Restrictions on Non-Publicly Traded Company Stock
Section 12
INVESTMENT OF TRUST FUND
12.1 Investment Policy
12.2 Investment of Cash Contributions
12.3 Other Authorized Investments
12.4 Collective Investment Funds
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
12.5 Purchases of Company Stock
12.6 Voting of Company Stock
12.7 Authority of Trustees with Respect to Investments
12.8 Prohibited Transactions
12.9 Diversification of Investments
Section 13
TRUSTEE
13.1 Powers of Trustee
13.2 Payments From the Trust
13.3 Trustee's Compensation, Expenses and Taxes
13.4 Certification of Instructions
13.5 Accounting
13.6 Settlement of Accountings
13.7 Determination of Duties
13.8 Removal, Resignation and Appointment of Successor Trustee
13.9 Receipt of Contributions
Section 14
AMENDMENT AND TERMINATION
14.1 Amendment
14.2 Restrictions on Amendment
14.3 Effective Date of Amendments
14.4 Termination and Discontinuance of Contributions
14.5 Distribution of Plan and Trust
14.6 Liquidation of Plan and Trust
14.7 Dissolution of Employer
14.8 Withdrawal by Participating Employer
Section 15
ROLLOVERS AND PLAN TRANSFERS
15.1 Transfers of Eligible Rollover Distributions
15.2 Transfers From Qualified Plans
15.3 Accounting for Transferred Funds
15.4 Rollovers From Tax-Sheltered Annuities Prohibited
15.5 Mergers, Consolidations and Transfers of Plan Assets
15.6 Transfers to Other Plans
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C>
Section 16
ALLOCATION LIMITATIONS
16.1 General Limitations
Section 17
CLAIMS PROCEDURE
17.1 Filing of Claim
17.2 Notification of Decision
17.3 Request for Review
17.4 Review
Section 18
QUALIFIED DOMESTIC RELATIONS ORDER
18.1 General
18.2 Distributions under QDRO
18.3 Time and Manner of Payment
18.4 Procedures
Section 19
STAND-BY TOP-HEAVY PROVISIONS
19.1 General
19.2 Top-Heavy Year
19.3 Definitions
19.4 Top-Heavy Minimum Contributions
19.5 Vesting
19.6 Annual Additions Limitations
Section 20
MISCELLANEOUS PROVISIONS
20.1 No Contractual Relationship
20.2 Liability for Benefits
20.3 Inability to Perform
</TABLE>
vi
<PAGE> 8
<TABLE>
<S> <C>
20.4 Participant's Rights
20.5 Plan and Trust Binding on all Parties
20.6 Conflict of Law Provisions
20.7 Waiver of Notice
20.8 Third Party
20.9 Use of Terms
20.10 USERRA Provisions
</TABLE>
vii
<PAGE> 9
COLUMBIA BANCORP
RESTATED EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
THIS RESTATED AGREEMENT is hereby adopted by and between Columbia
Bancorp, with principal place of business at The Dalles, Oregon ("Employer") and
Terry Cochran, Jean McKinney, Robert Bailey and Dennis Carver ("Trustees").
The Board of Directors of Employer have heretofore adopted the
Columbia Bancorp Restated Employee Stock Ownership Plan and Trust Agreement.
The Plan and Trust has previously been amended and restated
effective for Plan Years beginning January 1, 1991, and has subsequently been
amended.
The Plan and Trust are hereby further amended and restated to (1)
incorporate all interim amendments made since its restatement in 1991, and (2)
to comply with the provisions of the Small Business Job Protection Act of 1996,
the Taxpayer Relief Act of 1997, GATT and USERRA.
The Effective Date of the amendment and restatement of this Plan
shall be as follows:
1. Interim Amendments shall be effective as stated in the
respective amendments.
2. The provisions required by the Small Business Job Protection
Act of 1996 and the Taxpayer Relief Act of 1997 shall be effective as of January
1, 1997, or such later dates as specifically provided herein.
3. The increase in the mandatory cash-out provisions from $3,500
to $5,000 shall be effective for Plan Years beginning after December 31, 1998.
4. The change in "Valuation Date" as defined in Sections 2.30 and
9.4 shall be effective as of termination of employment occurring after October
1, 1999.
5. Such later effective dates as are specifically provided
herein.
For Plan Years beginning before the Effective Dates set forth
above, the terms of the Plan prior to its restatement shall control for purposes
of the designated provision.
The amendment of any plan provision which liberalizes a protected
benefit under Section 411(d)(6) of the Code shall apply on the later of the
adoption date or the Effective Date of this Restated Plan. Any provision which
liberalizes the eligibility, vesting or benefit accrual provisions of the Plan
shall only apply to Employees who are credited with at least one Hour of Service
after the Effective Date or the Effective Date specified for a particular
provision.
<PAGE> 10
Section 1
NATURE OF PLAN
1.1 Purpose of Plan. The purpose of this Plan is to enable
participating Employees of the Company and of any participating Affiliates to
share in the growth and prosperity of the Company and to provide Participants
with an opportunity to accumulate capital for their future economic security and
to enable Participants to acquire a proprietary interest in the Company.
Consequently, all contributions made to the Trust will be primarily invested in
Company Stock.
1.2 Design of Plan. This Plan is intended to qualify as an
Employee Stock Ownership Plan, as defined in Section 4975(e)(7) of the Code and
407(d)(6) of the Act, and is designed to qualify under Section 401(a) of the
Code. All assets acquired under this Plan as a result of contributions, income
and other additions to the Trust will be administered, distributed, forfeited
and otherwise governed by the provisions of this Plan which is administered by
the Administrator for the exclusive benefit of Participants in the Plan and
their Beneficiaries.
1.3 Treatment of Related Employers. For purposes of determining
eligibility, continued participation, Employer Contributions and limitations
thereto, accrual of benefits, forfeitures and vesting, all Employees of all
Related Employers shall be treated as employed by a single Employer to the
extent and in the manner provided herein without regard to whether each Related
Employer has adopted the Plan.
1.4 Named Fiduciaries. Trustee, Employer and Administrator shall
be the named fiduciaries under the Plan.
1.5 Allocation of Responsibilities.
(a) Administrator shall have the authority to manage and
control the operation and administration of the Plan pursuant to
Section 3.
(b) Trustee shall have the custody of and the authority to
manage and control the assets of the Trust Fund pursuant to
Sections 12 and 13.
1.6 Funding Policy. The funding policy of the Plan shall be to
make contributions to the Trust to be invested primarily in Company Stock to
provide for retirement benefits for the Participants.
Page 1-1
<PAGE> 11
Section 2
DEFINITIONS
When used herein, the following words shall have the following
meanings, unless the context clearly indicates otherwise:
2.1 "Act" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
2.2 "Account" shall mean the records maintained by the
Administrator pursuant to this Plan for the purpose of determining the accrued
benefit of a Participant or Beneficiary. The Administrator may maintain one or
more subaccounts for a Participant as necessary to accurately reflect the
interest of the Participant. Each Participant's accrued benefit under the Plan
shall be equal to the combined balance of all the subaccounts maintained for the
Participant.
2.3 "Administrator" shall mean the Employee Representatives
elected by the Employees of the Company (the "Committee").
2.4 "Affiliate" shall mean any company or business entity in
which Columbia Bancorp or any controlled subsidiary of Columbia Bancorp owns a
controlling interest.
2.5 "Anniversary Date" shall mean the last day of the Plan Year
(December 31).
2.6 "Annual Compensation" shall mean all of the earnings which
would be included in the Participant's Form W-2. Annual Compensation shall
include only that compensation which is actually paid to the Participant during
the applicable Plan Year.
Annual Compensation shall include any amount which is contributed
by the Employer pursuant to a salary reduction agreement and which is not
includible in the gross income of the Employee under Sections 125, 402(e)(3),
402(h) or 403(b) of the Code covering Cafeteria Plans, Cash or Deferred
Arrangements under 401(k) Plans, Salary Reduction Arrangements under Simplified
Employee Pension Plans, and Tax-Sheltered Annuities, but shall not include
contributions to a plan of deferred compensation, amounts realized in connection
with stock options and amounts that receive special tax benefits.
The Annual Compensation of each Participant taken into account
under the Plan for any year shall not exceed the OBRA '93 Annual Compensation
limit of $150,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with Section 401(a)(17)(B) of the Code. The cost of living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of
Page 2-1
<PAGE> 12
fewer than 12 months, the OBRA '93 Annual Compensation limit will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under Section 401(a)(17) of the Code
shall mean the OBRA '93 Annual Compensation limit set forth in this provision.
If compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the compensation for that prior determination period is subject to the OBRA '93
Annual Compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 Annual
Compensation limit is $150,000.
2.7 "Beneficiary" shall mean any individual, Trustee or other
entity who, by the terms of any contract, the terms of the Plan or because of
the designation by the Participant pursuant to the terms of the Plan, is
entitled to receive any amount or benefit in the event of a Participant's death.
2.8 "Benefit Commencement Date" shall mean the first date of the
first period for which Plan Benefits become payable to a Participant,
Alternative Payee (as defined in Section 414(p)(8) of the Code) or Beneficiary.
The Benefit Commencement Date shall include the annuity starting date for
benefits payable in the form of an annuity and the date benefits first become
payable in the case of any other form of benefit. A payment shall not be
considered to occur after the Benefit Commencement Date if all payments are
actually made merely because actual payment is reasonably delayed for
administrative reasons including delay for calculation of the benefit amount.
2.9 "Break in Service" means a Plan Year during which an Employee
has not completed more than 500 Hours of Service.
(a) One-Year Break in Service means a Plan Year during
which an Employee has not completed more than 500 Hours of
Service.
(b) Five-year Break in Service means five consecutive
one-year Breaks in Service.
Solely for purposes of determining whether a Break in Service for
participation and vesting purposes has occurred in a computation period, an
Employee who is absent from work for maternity or paternity reasons shall
receive credit for the Hours of Service which would otherwise have been credited
to such Employee but for such absence. In any case in which such hours cannot be
determined, eight Hours of Service per day of such absence shall be credited. An
absence from work for maternity or paternity reasons means an absence (a) by
reason of the pregnancy of the Employee, (b) by reason of a birth of a child of
the Employee, (c) by reason of the placement of a child with the Employee in
connection with the adoption of
Page 2-2
<PAGE> 13
such child by such Employee, or (d) for purposes of caring for such child for a
period beginning immediately following such birth or placement. The Hours of
Service credited under this paragraph shall be credited (a) in the computation
period in which the absence begins if the crediting is necessary to prevent a
Break in Service in that period, or (b) in all other cases, in the following
computation period.
2.10 The "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any succeeding statute of substantially similar effect.
2.11 "Company" shall mean Columbia Bancorp.
2.12 "Company Stock" shall mean common stock issued by the
Company having a combination of voting power and dividend rights equal to (1)
that class of common stock of the Company having the greatest voting power and
(2) that class of stock of the Company having the greatest dividend rights.
2.13 "Company Stock Account" shall mean the Account of a
Participant which is credited with the shares of Company Stock purchased and
paid for by the Trust, contributed to the Trust or received as stock dividends.
2.14 "Disability" shall mean a disability (while employed by the
Company or an Affiliated Company) of a type that entitles the Participant to
receive total disability benefits under Social Security.
2.15 "ERISA" means the Employee Retirement Income Security Act of
1974.
2.16 "Employee" shall mean any individual considered to be a
common law employee who is actually employed by Employer maintaining the Plan or
of any Related Employer required to be aggregated with the Primary Employer
under Sections 414(b), (c), (m) or (o) of the Code.
The term Employee shall also include any Leased Employee deemed
to be an Employee of any Employer described in the previous paragraph as
provided in Sections 414(n) or (o) of the Code, defined as follows.
The term "Leased Employee" means any person (other than an
Employee of the recipient) who pursuant to an agreement between the recipient
and any other person ("leasing organization") has performed services for the
recipient (or for the recipient and related persons determined in accordance
with Section 414(n)(6) of the Code) on a substantially full time basis for a
period of at least one year, and such services are performed under the primary
direction or control of the recipient. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient Employer shall be treated as provided by the
recipient Employer.
Page 2-3
<PAGE> 14
A Leased Employee shall not be considered an Employee of the
recipient if: (a) such Employee is covered by a money purchase pension plan
providing: (i) a nonintegrated Employer Contribution rate of at least 10 percent
of compensation, as defined in Section 415(c)(3) of the Code, but including
amounts contributed by the Employer pursuant to a salary reduction agreement
which are excludable from the Employee's gross income under Sections 125,
402(e)(3), 402(h) or 403(b) of the Code, (ii) immediate participation, and (iii)
full and immediate vesting; and (b) Leased Employees do not constitute more than
20 percent of the recipient's non-highly compensated work force.
2.17 "Employer" shall include:
(a) Columbia Bancorp, the "Primary Employer";
(b) Any "Participating Employer" which is a Related Employer to
the Primary Employer, executes a Participating Employer Agreement and
has Employees who are required to be aggregated with the Primary
Employer under Sections 414(b), (c), (m), or (o) of the Code; and
(c) Any successor business to a Primary or Participating
Employer which shall adopt and maintain the Plan.
2.18 "Employment Commencement Date" shall mean the date on which
the Employee shall first perform an Hour of Service for the Employer.
2.19 "Exempt Loan" shall mean a loan to the Trust which complies
with the requirements of Section 4975(d)(3) of the Internal Revenue Code.
2.20 "Forfeiture" shall mean the non-vested portion of a
Participant's Account which shall not become part of the Plan Benefit.
2.21 "Hour of Service" shall be:
(a) Each hour for which an Employee is paid or entitled to
payment by Employer for the performance of duties during the applicable
period; and
(b) Each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time during which no
duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness,
incapacity (including Disability), layoff, jury duty, military duty or
leave of absence. No more than 501 Hours of Service will be credited
under this paragraph for any single continuous period (whether or not
such period occurs in a single computation period). Hours under this
paragraph will be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations which is incorporated
herein by this reference; and
Page 2-4
<PAGE> 15
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer.
The same Hours of Service will not be credited both under
paragraph (a) or paragraph (b), as the case may be, and under this
paragraph (c). These hours will be credited to the Employee for the
computation period or periods to which the award or agreement pertains
rather than the computation period in which the award, agreement or
payment is made.
Hours of Service will be credited for employment with other
members of an affiliated service group (under Section 414(m) of the
Code), a controlled group of corporations (under Section 414(b) of the
Code), or a group of trades or businesses under common control (under
Section 414(c) of the Code) of which the adopting Employer is a member,
and any other entity required to be aggregated with the Employer
pursuant to Section 414(o) of the Code and the regulations thereunder.
Such hours will be credited hereunder regardless of whether such other
member or entity has adopted this Plan; excluding, however, service
during periods when Employer was not a member of the group or required
to be aggregated.
Hours of Service will also be credited for any individual
considered an Employee for purposes of this Plan under Section 414(n) of
the Code covering Leased Employees or Section 414(o) of the Code and the
regulations thereunder.
(d) If an Employee's compensation is not determined on an hourly
basis, the Hours of Service set forth in (a) above shall be credited on
the basis of months worked as follows: a non-hourly paid Employee will
be credited with 190 Hours of Service if under (a) above such Employee
would be credited with at least one Hour of Service during the month.
2.22 "Normal Retirement Date" shall mean the date the Participant
attains age 55 and completes 15 Years of Service.
2.23 "Other Investments Account" means an Account of a
Participant which is credited with his share of the net income (or loss) of the
Trust and Employer Contributions and Forfeitures in other than Company Stock,
and which is debited with payments made to pay for Company Stock.
2.24 The "Plan" shall mean the Columbia Bancorp Restated Employee
Stock Ownership Plan set forth herein.
2.25 "Plan Benefit" shall mean the nonforfeitable interest in a
Participant's Account(s).
2.26 "Plan Year" shall mean the year on which the Plan records
are kept, which shall be the 12-month period beginning on the first day of
January of each year and ending on the last day of December.
Page 2-5
<PAGE> 16
2.27 "Related Employer(s)" shall include all corporations which
are members of a controlled group of corporations (as defined in Section 414(b)
of the Code), all trades or businesses (whether or not incorporated) which are
under common control (as defined in Section 414(c) of the Code) and all members
of an affiliated service group (as defined in Section 414(m) and (o) of the
Code) with the Primary Employer.
2.28 "Trustee" shall mean the trustee or trustees designated by
the Company's Board of Directors or any successor designated herein.
2.29 "Year of Service" shall mean the computation period during
which the Employee has performed at least 1,000 Hours of Service with Employer.
The computation period shall be as follows:
(a) For eligibility purposes, a Year of Service shall be as
defined in Section 4.1(a) herein.
(b) For accrual of benefits and vesting purposes, the
computation period shall be the Plan Year.
(c) If an Employer maintains the plan of a predecessor employer,
service with the predecessor employer shall be treated as service with
Employer for purposes of eligibility and vesting under this Plan.
(d) Service with Valley Community Bank will be treated as
Service with Employer for purposes of eligibility and vesting.
2.30 "Valuation Date" shall generally mean the last day of the
Plan Year . For purposes of determining the value of a Plan Benefit for purposes
of Sections 10 and 11, the Valuation Date shall be determined as provided in
Section 9.4.
Page 2-6
<PAGE> 17
Section 3
ADMINISTRATION
3.1 Assignment of Administrative Authority. A Committee shall be
appointed as the "Administrator" to administer the Plan. This Committee shall
consist of one or more Employees of Employer. Any member may resign by
delivering written resignation to the Committee. Vacancies in the Committee
arising by resignation, death, removal, or otherwise, shall be filled as
provided below. The Committee shall be the "Administrator" of the Plan and shall
be responsible for the administration of the Plan. The Administrator may
delegate, from time to time, by written instrument, all or any part of its
administrative responsibilities and duties hereunder to a person, persons or
organization (including Trustee) approved by the Employer. Any such entity,
person or organization shall be a fiduciary and may resign by delivery of a
written resignation to the Committee. Vacancies arising by resignation, death,
removal or otherwise shall be filled as provided below. The reasonable expenses
of such person, persons or organization in carrying out its authority shall be
an expense of the administration of the Trust, unless Employer elects to pay
such expenses.
The appointment of the Committee members and the filling of
vacancies shall be the responsibility of the Employee Representatives. The
Employee Representatives shall consist of one Employee Representative for each
county in which an office of Employer is located.
3.2 Organization and Operation. Administrator shall act by a
majority of its members at the time in office, and such action may be taken
either by a vote at a meeting or by unanimous consent in writing without a
meeting.
Administrator may authorize any one or more of its members to
execute any document or documents on behalf of Administrator, in which event
Administrator shall notify Trustee in writing of such action and the name or
names of its member or members so designated. Trustee shall thereafter accept
and rely upon any document executed by such member or members as representing
action by Administrator until Administrator shall file with Trustee a written
revocation of such designation.
Administrator may adopt such bylaws and regulations as it deems
desirable for the conduct of its affairs, and may appoint such accountants,
counsel, specialists and other persons as it deems necessary or desirable in
connection with the administration of the Plan. Administrator shall be entitled
to rely conclusively upon and shall be fully protected in any action taken by it
in good faith in relying upon any opinions or reports which shall be furnished
to it by such accountant, counsel or other specialist.
3.3 Powers and Duties. Administrator shall have the primary
responsibility for the administration and operation of the Plan and shall have
all powers necessary to carry out the provisions of the Plan. The Administrator
shall determine all questions arising in the administration, interpretation and
application of the Plan and the interpretation of the
Page 3-1
<PAGE> 18
Administrator shall be final and binding on all parties unless such
interpretation is found to be arbitrary and capricious, made in bad faith or
erroneous as a matter of law.
The Administrator shall:
(a) Determine the eligibility of each Employee for participation
in the Plan.
(b) Establish and maintain Participants' Accounts under the
Plan.
(c) Determine the benefits hereunder to which Participants and
their Beneficiaries are entitled.
(d) Authorize all disbursements by Trustee from the Trust.
(e) Set down uniform and nondiscriminatory rules of
interpretation and administration to the extent necessary or
appropriate, which may be modified from time to time in light of
Administrator's experience.
(f) Publish and file or disclose or cause to be published and
filed or disclosed all reports and disclosures required by ERISA.
(g) Direct or assist Trustee in notifying Participants and their
Beneficiaries of their elections with respect to withholding
requirements applicable to benefit payments and to withhold from such
payments, unless Administrator has directed Trustee to withhold.
(h) Obtain from Participants and their Beneficiaries elections
with respect to forms of payment of benefits and obtain spousal consent
and waivers where required.
3.4 Records and Reports. Administrator shall keep records of its
proceedings and acts, and shall keep such books of account, records and other
data as may be necessary or appropriate for proper administration of the Plan.
Administrator shall maintain records with respect to each Participant sufficient
to determine the benefits due or which may become due to such Participant.
Administrator shall report to each Participant with respect to accrued benefits
if such Participant requests such a report in writing pursuant to the Act. Said
report shall be sufficient, based upon the latest information available, to
inform the Participant of his Plan Benefit under the Plan and the percentage of
such benefits which are nonforfeitable under the Plan. Administrator shall be
responsible for reporting and disclosure requirements under the Act relating to
the Plan, unless another fiduciary of the Plan has agreed to undertake
responsibility for one or more specific requirements.
Page 3-2
<PAGE> 19
3.5 Payment of Expenses. Unless otherwise determined by the
Employer, Administrator shall serve without compensation for services as such.
Employer may elect to pay all expenses of Administrator. Such expenses shall
include any expenses incident to the functioning of Administrator, including,
but not limited to, fees of accountants, counsel and other specialists, and
other costs of administering the Plan. If an Employer does not elect to pay such
expenses, they shall be paid from the Trust Fund.
3.6 Agent for Service of Process. The agent for service of
process for the Plan and Trust shall be the Plan Administrator. No Participant
or Beneficiary is entitled to any notice of process unless required by the Act.
3.7 Indemnity. If the Administrator is an officer, director or
Employee of an Employer, Employer agrees to indemnify Administrator against any
and all claims, loss, damage, expense or liability arising from any action or
failure to act, except when the same is judicially determined to be due to the
gross negligence or willful misconduct of Administrator or such member.
3.8 Personal Data to Administrator. Each Participant and each
Beneficiary of a deceased Participant must furnish to the Administrator such
evidence, data or information as the Administrator considers necessary or
desirable for the purpose of administering the Plan. The provisions of this Plan
are effective for the benefit of each Participant upon the condition precedent
that each Participant will furnish promptly full, true and complete evidence,
data and information when requested by the Administrator, provided the
Administrator advises each Participant of the effect of his failure to comply
with its request.
3.9 Address for Notification. Each Participant and each
Beneficiary of a deceased Participant must file with the Administrator from time
to time, in writing, his post office address and any change of post office
address. Any communication, statement or notice addressed to a Participant, or
Beneficiary, at his last post office address filed with the Administrator, or as
shown on the records of the Employer, binds the Participant, or Beneficiary, for
all purposes of this Plan.
3.10 Employer's Powers and Duties. The Employer, acting through
its Board of Directors, shall have the following duties and responsibilities in
connection with the administration of the Plan:
(a) Making decisions with respect to amending or terminating the
Plan.
(b) Making decisions with respect to the selection, retention or
removal of Trustees.
(c) Periodically reviewing the performance of Trustees, the
members of the Plan Administrator, persons to whom duties have been
allocated or delegated and any advisers appointed.
(d) Determining the form and amount of Employer Contributions.
Page 3-3
<PAGE> 20
The Board of Directors may by written resolution allocate its
duties and responsibilities to one or more of its members or delegate such
duties and responsibilities to any other persons; provided, however, that any
such allocation or delegation shall be terminable upon such notice as the Board
of Directors deems reasonable and prudent under the circumstances.
Page 3-4
<PAGE> 21
Section 4
ELIGIBILITY
4.1 Eligibility and Commencement of Participation.
(a) Eligibility Requirements. All Employees (except those
excluded under Section 4.4 herein) shall be eligible to participate on
the December 31 following their Employment Commencement Date, provided
that they have attained age 20 and are credited with at least 1,000
Hours of Service for the Plan Year ending on that December 31.
An Employee who fails to meet these requirements by the December
31 following his Employment Commencement Date shall participate in the
Plan on the subsequent December 31 after he has attained age 20 and has
completed at least one full Year of Service in which he is credited with
at least 1,000 Hours of Service. For this purpose, the eligibility
computation period for determining the one Year of Service shall first
be the Plan Year.
(b) Commencement of Participation. An Employee who has satisfied
the eligibility requirements shall become a Participant in the Plan on
the December 31 which occurs after the eligibility service requirement
is satisfied or the date of attainment of age 20 if it occurs later. An
Employee must be employed on the December 31 Entry Date in order to
become a Participant.
4.2 Continued Participation. Temporary layoffs and leaves of
absence granted by Employer shall not be deemed to be a termination of
employment. Any Participant who fails to return to active employment at or
before the expiration of his leave of absence shall be deemed to have terminated
his employment as of the date of expiration of his leave of absence, except that
should he fail to return because of death or Disability, his service shall be
deemed to have continued until the date of his death or the termination of his
employment for Disability. Employer, in granting leaves of absence, shall follow
uniform rules which shall be consistently applied so that all Participants
similarly situated shall be treated alike.
4.3 Reemployment. If a Participant is rehired after termination
of employment with Employer, his Years of Service prior to termination of
employment shall be counted for purposes of eligibility and he shall be eligible
to participate in the Plan on his reemployment commencement date.
4.4 Excluded Employees. The following classes of Employees shall
not be eligible to participate in the Plan:
Page 4-1
<PAGE> 22
(a) Bargaining Unit Employees. If an Employee is or shall become
included in a unit of Employees covered by a collective bargaining
agreement between Employee representatives and Employer, and if
retirement benefits were the subject of good-faith bargaining between
such Employee representatives and Employer, then any Employee included
in such a unit shall not be eligible to participate or to continue to
participate in this Plan unless the Employee's coverage under this Plan
was provided for in the collective bargaining agreement. The term
"employer representatives" does not include any organization of which
more than one-half of whose members are Employees who are owners,
officers or executives of an Employer.
(b) Nonresident Aliens. Those Employees who are nonresident
aliens and who receive no earned income from the Employer which
constitutes income from sources within the United States shall not be
eligible to participate in the Plan.
4.5 Change in Employment Classification. If a Participant becomes
ineligible to participate because he is no longer a member of an eligible class
of Employees, such Employee shall participate immediately upon his return to an
eligible class of Employees.
If an Employee who is not a member of the eligible class of
Employees becomes a member of the eligible class, such Employee shall
participate immediately if such Employee has satisfied the eligibility
requirements and would have previously become a Participant had he been in the
eligible class.
Page 4-2
<PAGE> 23
Section 5
EMPLOYER CONTRIBUTIONS TO PLAN
5.1 Employer Contributions.
(a) Determination. For each Plan Year, Employer Contributions
under the Plan may be paid to the Trust in such amounts (or under such
formula) and at such times as may be determined by the Board of
Directors of Employer.
(b) Exempt Loan Payments. Employer Contributions shall be made
in sufficient amounts to cover principal and interest payments on an
Exempt Loan pursuant to Section 7. Notwithstanding the foregoing,
Employer Contributions may not be made in amounts which would permit the
limitation described in Section 16 to be exceeded.
(c) Form of Contributions. Employer Contributions may be paid to
the Trust in cash or in shares of Company Stock, as determined by the
Employer's Board of Directors; provided that Employer Contributions
shall be paid in cash in such amounts, and at such times (subject to the
limitations described herein), as needed to provide the Trust with funds
sufficient to pay in full when due any principal and interest payments
required by a loan incurred by Trustee to finance the acquisitions of
Company Stock, except to the extent such principal and interest payments
have been satisfied by the Trustee from cash dividends paid to it with
respect to Company Stock.
5.2 Limitations on Contributions. In no event shall the amount of
Employer's Contributions for a Plan Year exceed:
(a) The maximum amount allowable as a deduction to Employer
under the provisions of Section 404 of the Code, as amended.
(b) An amount which would cause an allocation to be made to a
Participant's Account which would exceed the maximum "annual addition"
permitted to be allocated to a Participant's Account under Section 415
of the Code, as amended, which cannot be returned or reallocated
pursuant to the provisions of Section 16.
5.3 Time of Payment. Employer shall pay to Trustee its
contribution for each fiscal year on or before the time prescribed by law for
filing Employer's federal tax return for such year, including granted extensions
of time, and such contribution shall be treated as though it was paid on the
last day of such year, unless otherwise designated.
Page 5-1
<PAGE> 24
5.4 Conditional Employer Contributions.
(a) Conditional Contributions. All Employer Contributions made
by Employer under this Plan to this Trust are conditioned upon the
deductibility of such contributions under Section 404 of the Code.
(b) Return to Employer. Upon Employer's request, an Employer
Contribution may be returned to Employer if the surrounding facts and
circumstances indicate that:
(i) The contribution is attributable to a good-faith
mistake of fact; or
(ii) In the case of a disallowance of a deduction of a
contribution conditioned on its deductibility under the Code, a
good-faith mistake is made in determining the deductibility of
the contribution.
The return to Employer of the amount of the contribution
involved must be made within one year of the mistaken payment of the
contribution, or the date of disallowance of the deduction, as the case
may be. The return to Employer may occur even if a resulting adjustment
is made to the Accounts of Participants which are partially or entirely
nonforfeitable under Section 8 herein. The amount which may be returned
shall be the excess of (a) the amount contributed over (b): (i) the
amount that would have been contributed had there not occurred a mistake
of fact, or (ii) the amount that would have been contributed had the
deduction been limited to the amount that is deductible after any
disallowance. Earnings attributable to the contribution to be returned
may not be returned to Employer, but losses attributable thereto must
reduce the amount to be returned. If the withdrawal of the amount
attributable to the mistaken or nondeductible contribution would cause
the balance of the individual account balance of any Participant to be
reduced to less than the balance which would have been in the account
had the mistaken or nondeductible amount not been contributed, then the
amount to be returned shall be limited so as to avoid such reduction.
5.5 Employee Contributions. Participant Contributions shall not
be required or permitted.
Page 5-2
<PAGE> 25
Section 6
ALLOCATION OF EMPLOYER CONTRIBUTIONS
6.1 Participants' Accounts. Administrator shall establish and
maintain accounts in the name of each Participant.
(a) Company Contribution Accounts. All Employer Contributions
for a Plan Year shall be allocated to a Company Contribution Account
when paid. There shall be a Company Stock Account and an Other
Investments Account for each Participant.
(b) Suspense Account. Company Stock purchased with the proceeds
of a loan pursuant to Section 7, shall be held in a Suspense Account
pending release and reallocation to other Accounts as the Loan is paid.
6.2 Allocations to Participants' Accounts.
(a) Separate Accounts. Separate Company Stock Accounts and Other
Investments Accounts will be established to reflect Participants'
interest under the Plan. Records shall be kept by the Administrator from
which can be determined the portion of each Other Investments Account
which at any time is available to meet obligations under a loan in
accordance with Section 7.
(b) Company Stock. The Company Stock Account maintained for each
Participant will be credited with his allocable share determined under
Section 7 of Company Stock (including fractional shares) purchased and
paid for by the Trust or contributed in kind to the Trust, with
Forfeitures of Company Stock, and with any stock dividends on Company
Stock allocated to his Company Stock Accounts to the extent such
dividends are not distributed pursuant to Section 11.6. Company Stock
acquired by the Trust with the proceeds of a loan obtained pursuant to
Section 7 shall be allocated to the Company Stock Accounts of
Participants according to the method set forth in Section 7, as the
Company Stock is released from Suspense Accounts.
(c) Other Investments. The Other Investments Account under the
Plan maintained for each Participant will be credited (or debited) with
its allocable share of the net income (or loss) of the Trust, with any
cash dividends on Company Stock allocated to his Company Stock Accounts
to the extent such dividends are not distributed pursuant to Section
11.6, and with Employer Contributions which have not been used to make
principal and interest payments on a loan or to purchase Company Stock
and with Forfeitures in other than Company Stock. Each Other Investments
Account will be debited for its share of any cash payments for the
acquisition of Company Stock for the benefit of Company Stock Accounts
and for any repayment of principal or interest on any loan chargeable to
Participants' Company Stock Accounts;
Page 6-1
<PAGE> 26
provided that only the portion of each Other Investments Account which
is available to meet obligations under loans shall be used to pay
principal or interest on a loan.
6.3 Allocations of Contributions and Forfeitures. The Company
Stock and Other Investments held in the Company Contribution Accounts under the
Plan, and Forfeitures incurred for each Plan Year, shall be allocated as of the
last day of such Plan Year (even though receipt of the Employer Contributions by
the Trustee may take place after the close of such Year) among the Company Stock
and Other Investments Accounts of all Participants who have performed at least
1,000 Hours of Service during the Plan Year in proportion to the ratio which
their Annual Compensation for the year bears to the Annual Compensation of all
participating Employees for the year. Annual allocations shall be subject to the
provisions of Section 6.4 covering partial year allocations.
6.4 Partial Year Allocation.
(a) Initial Year. With respect to the initial Plan Year in which
an Employee commences participation, the allocation shall be based upon
the Participant's Annual Compensation for the entire Plan Year.
(b) Termination Year. With respect to a Plan Year during which a
Participant terminates employment for any reason other than retirement,
disability or death, the Participant (or Beneficiary) shall not be
entitled to share in the allocation of Employer Contributions and
Forfeitures made for that Plan Year unless the Participant is employed
on the last day of the Plan Year.
(c) Special Allocation Upon Death, Disability or Retirement. If
the Participant's termination of employment is on account of Death,
Disability or attainment of Normal Retirement Age under the Plan, the
Participant (or Beneficiary) shall share in the Employer's Contributions
and any Forfeitures made and allocated for the Plan Year during which
the Participant's termination of employment occurs, regardless of the
number of Hours of Service performed during the Plan Year or whether the
Participant was employed on the last day of the Plan Year.
6.5 Overall Limitation on Allocations. The allocation made to a
Participant's Account(s) each Plan Year shall be subject to the additional
limitations contained in Section 16 herein.
6.6 Restriction on Allocating Company Stock to Section 1042
Selling Shareholders. No portion of the assets of the Plan attributable to (or
allocable in lieu of) Company Stock, which was not readily tradable on an
established securities market, acquired by the Plan in a sale to which Section
1042 of the Code applies may be allocated directly or indirectly or accrued
under the Plan during the non-allocation period for the benefit of the following
individuals:
(a) Any shareholder of the Employer who makes an election under
Section 1042(a) of the Code with respect to Company Stock;
Page 6-2
<PAGE> 27
(b) Any individual who is related to the shareholders referred
to in (a) above within the meaning of Section 267(b) of the Code;
(c) Any person who owns after the application of Section 318(a)
of the Code (without regard to the employee trust exception in paragraph
(2)(B)(i)) more than 25 percent:
(i) Any class of outstanding stock of the Employer or of
any corporation which is a member of the same controlled group
of corporation (within the meaning of Section 409(l)(4) of the
Code; or
(ii) The total value of any class of outstanding stock
of any such corporation.
For purposes of this paragraph, the non-allocation period shall
mean the period beginning on the date of the sale of the Company Stock and
ending on the later of the date which is 10 years after the date of such sale or
the date of the Plan allocation attributable to the final payment of acquisition
indebtedness incurred in connection with such sale.
For purposes of this paragraph, a more than 25 percent
shareholder shall be treated as failing to meet the stock ownership limitation
if such person fails such limitation at any time during the one-year period
ending on the date of sale of Company Stock to the Plan or on the date as of
which Company Stock is allocated to Participants in the Plan.
Page 6-3
<PAGE> 28
Section 7
EXEMPT LOANS TO ACQUIRE COMPANY STOCK
7.1 Acquisition of Company Stock. The Trustee is expressly
authorized to acquire Company Stock for cash. However, Company Stock may be
purchased with borrowed funds if such borrowed funds constitute an exempt loan,
pursuant to Section 7.2.
7.2 Exempt Loans. Administrator may direct Trustee to obtain
loans. Any such loan will meet all requirements necessary to constitute an
"exempt loan" within the meaning of Section 4975(d)(3) of the Code and Treasury
Regulation 54.4975-7(b)(1)(iii) and shall be used primarily for the benefit of
the Participants and their Beneficiaries. The proceeds of any such loan shall be
used, within a reasonable time after the loan is obtained, only to purchase
Company Stock, repay the loan, or repay any prior loan.
"Exempt Loan" means any loan described in Section 4975(d)(1) of
the Code to the Trustee made or guaranteed by a disqualified person (within the
meaning of Section 4975(e)(2) of the Code), including, but not limited to, a
direct loan of cash, a purchase money transaction, an assumption of an
obligation of the Trustee, an unsecured guarantee or the use of assets of a
disqualified person (within the meaning of Section 4975(e)(2) of the Code) as
collateral for a loan.
An Exempt Loan shall meet the following conditions:
(a) The stock purchased must be the sole collateral for the
Exempt Loan and the creditor shall have no recourse against the Trust
except with respect to such collateral, contributions that are made to
the Plan to meet its obligations under the Exempt Loan (other than
contributions of Company Stock), and earnings attributable to such
collateral and the investments of such contributions.
(b) Any such Exempt Loan must be at a reasonable rate of
interest (as determined under Treasury Regulation 54.4975-7(b)(7)), and
all other terms of the Exempt Loan must be commercially reasonable.
(c) Any such Exempt Loan must be for a specific term and cannot
be payable at the demand of any person except in the case of default.
(d) The Exempt Loan shall be repaid only from contributions by
the Employer to the Trust, from amounts earned from the collateral, from
collateral given for the Exempt Loan in the event of a default on such
loan, and dividends paid by the Employer attributable to shares
allocated to Company Stock Accounts of Participants and used to make
payments on an Exempt Loan.
(e) The transaction is primarily for the benefit of the
Participants and their Beneficiaries.
Page 7-1
<PAGE> 29
7.3 Release of Company Stock from Suspense Account. The Exempt
Loan must provide for a release from encumbrance of Plan Assets used as
collateral for the loan. The purchased shares shall be maintained in a Suspense
Account.
The number of shares to be released will be determined in the
following manner:
(a) Special Rule. If the Exempt Loan provides annual payments of
principal and interest at a cumulative rate that is not less rapid at
any time than level annual payments of principal and interest over 10
years, and if (at the time of any renewal, extension or refinancing of
such Exempt Loan) the sum of the expired duration of the Exempt Loan
including any renewal or extension period of such Exempt Loan and the
duration of any new loan does not exceed 10 years, then for each Plan
Year during the duration of the Exempt Loan the number of shares of
Company Stock released from such pledge shall equal the number of
encumbered securities held immediately before release for the current
Plan Year multiplied by a fraction. The numerator of the fraction is the
principal paid in such Plan Year. The denominator of the fraction is the
sum of the numerator plus the principal to be paid for all future years.
Such years will be determined without taking into account any possible
extension or renewal periods. To the extent that the net proceeds
received by the Plan in respect of any Exempt Loan exceed the stated
principal amount of the Exempt Loan that portion of any interest payment
that would be deemed to be a repayment of principal under standard loan
amortization tables shall be treated as principal paid or principal to
be paid, as the case may be, for purposes of the above calculation.
(b) General Rule. If the Exempt Loan does not satisfy the
conditions stated in subparagraph (a), then for each Plan Year during
the duration of the Exempt Loan, the number of shares of Company Stock
released from such pledge shall equal the number of encumbered
securities held immediately before release for the current Plan Year
multiplied by a fraction. The numerator of the fraction is the sum of
principal and interest paid in such Plan Year. The denominator of the
fraction is the sum of the numerator plus the principal and interest to
be paid for all future years. The number of future years will be
determined without taking into account any possible extension of renewal
periods and will be definitely ascertainable. If the interest rate on
the Exempt Loan is variable, the interest to be paid in all future years
for purposes of this paragraph will be computed by using the interest
rate applicable as of the last day of the applicable Plan Year.
The shares released during any fiscal year shall be allocated in
accordance with Section 6 to the Accounts of Participants who satisfy the
requirements of such section for such year.
7.4 Employer Guarantee. Notwithstanding any provision herein,
Employer may guarantee repayment of such loan by the Trust to any creditor
thereof.
Page 7-2
<PAGE> 30
7.5 Restrictions of Company Stock Acquired With Exempt Loan. No
security acquired with borrowed funds may be subject to a "put", call or other
option, or buy-sell or similar arrangement while held by and when distributed
from the Plan, except as provided in Sections 11.8, 11.9 and 11.10.
Page 7-3
<PAGE> 31
Section 8
VESTING
8.1 Vested Interest in Accrued Benefit. Except as provided in
Sections 5.4 and 8.3, a Participant shall have a vested interest in his Accrued
Benefit in the Employee Stock Ownership Plan derived from Employer Contributions
and accumulations thereon as follows:
<TABLE>
<CAPTION>
Years of Service Vested Interest
---------------- ---------------
<S> <C>
Less than 2 years 0%
2 years but less than 3 20%
3 years but less than 4 40%
4 years but less than 5 60%
5 years but less than 6 80%
6 years or more 100%
</TABLE>
8.2 Vesting Years of Service. For the purpose of determining
Years of Service for vesting purposes:
(a) Years of Service shall be Plan Years as defined in Section
2.29; provided, however, the Employee need not be employed at the
beginning or the end of the Plan Year if at least 1,000 Hours of Service
have been performed during the Plan Year.
(b) Years of Service after a Break in Service shall not be taken
into account to increase a Participant's vested percentage in Accrued
Benefits which accrued prior to the Break in Service if the Participant
incurs a five-year Break in Service. Separate Accounts shall be
established pursuant to Section 8.6 to account for pre-break and
post-break Accrued Benefits.
8.3 Retirement, Death and Disability. A Participant's interest in
his Accrued Benefit shall be fully vested regardless of his Years of Service
upon the occurrence of (a) attainment of Normal Retirement Date, (b) death while
employed by Employer or, (c) Disability.
8.4 Forfeitures. A Forfeiture will be deemed to occur when a
Participant incurs a one-year Break in Service and either has no vested interest
under the Plan, or has received a cash-out distribution upon termination of
participation in the Plan.
A cash-out distribution must consist of the Participant's entire
vested account balance(s). If the vested value of the Participant's account
balance(s) is zero upon termination (due to a 100 percent Forfeiture), the
Participant shall be deemed to have received a cash-out distribution of the
accrued benefit. The Forfeiture of the non-vested account balance(s) shall
Page 8-1
<PAGE> 32
occur as of the last day of the Plan Year during the which the cash-out
distribution is made or is deemed to have been made.
8.5 Allocation of Forfeitures. Any amount in a Participant's
Account which is not vested upon the Participant's termination of employment in
accordance with the Plan's vesting schedule shall be held in an unallocated
Account in accordance with the following procedure:
(a) If the Participant resumes employment prior to the time when
a Forfeiture occurs, the Account shall be credited back to his
Participant Account.
(b) If the Participant does not resume employment prior to the
time when a Forfeiture occurs, the Account shall be forfeited and shall
be reallocated and applied on the last day of the Plan Year during which
the Forfeiture occurs in accordance with the provisions of the Plan
applicable at that time.
(c) The amount of any Forfeiture shall first be deducted from
the Participant's Other Investment Accounts. If the Participant's Other
Investment Accounts are not sufficient, the remainder of the Forfeiture
shall be deducted from the Participant's Company Stock Account.
(d) The Account shall share in allocations of Trust income and
losses and market value adjustments and shall be treated as a part of
the Participant's Account for such purposes.
(e) In the event of a discontinuance of contributions or a
termination of Employer's Plan which requires full vesting of the
affected Participant's Account, and if such event occurs at a time
before a Forfeiture occurs with respect to an affected terminated
Participant's non-vested account balance(s), then the unallocated
Accounts of such terminated Participants shall be credited back to the
Participant's Account(s) and shall be fully vested and nonforfeitable.
8.6 Separate Accounts For Post- and Pre-Break Benefits of Rehired
Participants. If a Participant who was not fully vested resumes employment after
incurring a one-year Break in Service, and has not received a cash-out
distribution, the following Accounts shall be established:
(a) A new Account shall be created for the Participant for
allocations of Employer Contributions and Forfeitures made after
resumption of employment. The Account shall be subject to the vesting
schedule under Section 8.1, taking into account Years of Service before
and after the one-year Break in Service occurred.
(b) The undistributed balance of the Participant's old Account
shall be carried as a separate Account which shall be fully vested.
Page 8-2
<PAGE> 33
(c) At such time as the post-break Account established under (a)
becomes fully vested, the two Accounts shall be combined.
(d) In the event the Participant is rehired before incurring a
five-year Break in Service, repays the amount of the distribution as
provided herein and has the Forfeiture restored, then the Accounts
established hereunder shall be combined with the paid back and restored
amounts and shall be subject to the vesting schedule under Employer's
Plan, taking into account Years of Service before and after the Break in
Service.
8.7 Treatment of Forfeitures on Rehire. If a Participant incurs a
Forfeiture and is subsequently rehired, the Forfeiture shall remain forfeited or
shall be restored as follows:
(a) After Five Years. If the Participant is rehired after
incurring a five-year Break in Service, Years of Service after such
five-year Break in Service period shall not be counted for purposes of
determining the Participant's vested interest in pre-break benefits, and
the Forfeiture incurred shall remain forfeited.
(b) Before Five Years.
(i) If the Participant is rehired before incurring a
five-year Break in Service and received or is deemed to have
received a cash-out distribution before being rehired, any
Forfeiture which occurred prior to rehire shall be restored if
the Participant repays to the Plan the full amount of the
cash-out distribution and the repayment is made on or before the
earlier of the following times: (a) five years after the first
date on which the Participant is subsequently rehired or (b) the
close of the five-year Break in Service period commencing after
the distribution.
The restored amount shall be the same dollar amount
which was forfeited, unadjusted for gains or losses occurring
subsequent to the date of the Forfeiture. The restored amount
shall be made first from the Forfeitures occurring during the
Plan Year in which the repayment is made, and if necessary the
Employer(s) shall contribute an amount to make the required
restoration. If the Participant does not repay as provided
above, the Forfeiture shall remain forfeited.
(ii) If the Participant's entire Account was forfeited,
and no actual distribution of any Plan Benefit was distributed
before rehire, then any Forfeiture which occurred prior to
rehire will be restored if the Participant is rehired within the
five-year period prescribed above. For purposes of applying the
repayment and restoration provisions above, the rehired
Participant shall be treated as repaying his deemed cash-out
distribution on the date of rehire.
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<PAGE> 34
The amount repaid by the Participant, if any, and the
amount restored by the Plan on behalf of the Participant shall
be used to purchase Company Stock (based on the most recent
Company Stock Valuation) which shall be allocated to the
Participant's Company Stock Account.
8.8 Special Account - Rehire Prior to Forfeiture. If a
distribution is made to a partially vested Participant before a one-year Break
in Service occurs and the Participant is rehired before a one-year Break in
Service occurs, the following provisions shall apply:
(a) No Forfeiture shall occur, and the Participant's unallocated
Account established hereunder shall be credited back to the
Participant's Account; and
(b) A separate Account shall be established for the
Participant's interest in the Plan as of the time of distribution; and
(c) At any relevant time, the Participant's vested portion of
the separate Account shall not be less than the amount ("X") determined
by the formula: X = P (AB + D) - D. For purposes of applying the
formula: P is the vested percentage at the relevant time; AB is the
account balance at the relevant time; and D is the amount of
distribution.
8.9 Amendment of Vesting Schedule. No amendment of the vesting
schedule shall directly or indirectly deprive a Participant of nonforfeitable
rights to benefits accrued to the date of the amendment. Further, if the vesting
schedule of the Plan is amended, or the Plan is amended in any way that directly
or indirectly affects the computation of any Participant's nonforfeitable
percentage, or if the Plan is deemed amended by an automatic change to or from a
top-heavy vesting schedule, each Participant with at least three Years of
Service with the Employer may elect, within a reasonable period after the
adoption of the amendment or the change, to have the nonforfeitable percentage
computed under the Plan without regard to such amendment.
An amended vesting schedule will apply to a Participant only if
the Participant receives credit for at least one Hour of Service after the new
schedule becomes effective.
The period during which the election may be made shall commence
with the date the amendment is adopted or deemed to be made and shall end on the
latest of:
(a) 60 days after the amendment is adopted;
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of
the amendment by Employer or Administrator.
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8.10 Forfeitures - Multiple Employers. Forfeitures resulting from
contributions of all Employers shall be reallocated for the benefit of
Participants and Beneficiaries of the Primary Employer and all Participating
Employers in the manner designated without regard to which contributing group
member employs the Participant.
For purposes of determining and allocating a Participating
Employer's Contribution, a Participant's compensation includes compensation from
all Participating Employers. If a Participant receives compensation from more
than one Participating Employer during a Plan Year, Administrator shall
determine Employer's Contribution and allocations to Participant by prorating
the Participant's compensation among the Participating Employers.
8.11 Transferred or Rollover Accounts. If Employer's Plan shall
receive any Accounts as a result of a rollover or a plan transfer, such Accounts
shall be fully vested and nonforfeitable.
8.12 Forfeiture Due to Inability to Locate. If a Participant's
Plan Benefit becomes payable and the Administrator, after a reasonable search
cannot locate the Participant (or his Beneficiary who is entitled to payment),
the Plan Benefit shall be forfeited as provided in Section 10.9 herein. If the
Participant or his Beneficiary subsequently presents a valid claim for benefits,
the Administrator shall reinstate the Plan Benefit in the manner provided in
Section 10.9.
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Section 9
ACCOUNTS AND VALUATION
9.1 Valuation of Assets.
(a) Non-Company Stock Assets. Trustee, as of the last day of
each Plan Year (and at such other time or times as Administrator shall
direct), shall determine the net worth of the assets of the Trust Fund
(other than Company Stock Accounts) and report such value to
Administrator in writing. In determining such net worth Trustee shall
evaluate the assets of the Trust Fund at their fair market value as of
such Valuation Date and shall deduct all expenses for which the Trustee
has not yet obtained reimbursement from Employer or from the Fund. Such
valuation shall not include any contribution made by Employer for the
fiscal year ending as of such Valuation Date and shall not include any
investments in Company Stock.
The value thus determined shall be allocated to the "Other
Investment Accounts" of each Participant in a ratio which each such
Participant's "Other Investment Accounts" as of the accounting date,
excluding segregated accounts, bears to the account balances as of the
accounting date and prior to such evaluation, or all Participants'
"Other Investment Accounts", excluding segregated accounts. Company
Stock in "Company Stock Accounts" shall not be taken into account in
such allocation.
(b) Company Stock. If Company Stock is readily tradable on an
established securities market, the fair market value of Company Stock
shall be based upon the offering price established by current bid and
asked prices quoted by persons independent of the Company, pursuant to
Section 3(18)(A)(ii) of ERISA. In the absence of Company Stock trading
on an established securities market, all valuations of Company Stock
pursuant to activities carried on by the Plan shall be made by an
independent appraiser meeting requirements similar to those contained in
Treasury Regulations under Section 170(a)(1) of the Code.
9.2 Nonreversion. Under no circumstances shall any part of the
corpus or income of the Trust (including Forfeitures) ever revert to or inure to
the benefit of Employer or be used for any purpose whatsoever other than for the
exclusive purposes of providing benefits to Participants in the Plan and their
Beneficiaries and defraying reasonable expenses of administering the Plan,
except as provided in Section 5.4.
9.3 Adjustment of Accounts. As of the Anniversary Date (and at
such interim Valuation Date as Administrator may direct), and before crediting
the amount of any contributions and Forfeitures for the year of Employer
allocated to the Participants, Administrator shall adjust and make allocations
to the Accounts of Participants, as follows:
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<PAGE> 37
(a) In the case of Participants who first became Participants
during the current Plan Year, or whose Accounts have been segregated
pursuant to Section 10, no allocation shall be made to their Accounts.
(b) In the case of all other Participants, their Accounts,
including unallocated Forfeiture Accounts under Section 8.5, shall be
adjusted as follows:
(i) Adjust the Account to reflect proportionately any
adjustment of fair market value of assets made pursuant to
Section 9.1.
(ii) Allocate proportionately to the Account any income
or losses incurred by the Trust.
(iii) Such adjustment of and allocation to the Account
shall be made in the proportion that the value of the Account on
the preceding Valuation Date bears to the value on the preceding
Valuation Date of the Accounts of all such Participants.
(c) In the case of all Participants who are entitled to share in
Employer Contributions and Forfeiture allocations for the current year,
there shall be credited to each such Participant's Account that portion
of Employer's current contribution and Forfeitures accruing during the
current year that is allocable to them and any Company Stock released
from the Suspense Account, as provided in Sections 6 and 7 herein.
(d) The time determined by Administrator for adjustment
hereunder shall be the "Valuation Date" which shall be at least once
each Plan Year.
9.4 Valuation of Accounts Upon Termination. Should a Participant
terminate employment, retire, become disabled or die, the Participant's Accounts
shall be valued on the date of distribution.
9.5 Transferred Accounts. Assets received on behalf of a
Participant as rollovers and assets transferred from other plans shall be
accounted for in a separate Account. Transfers from other plans and rollovers
may be combined with the Participant's Account(s) under this Plan when the
Participant's Account(s) under this Plan becomes fully vested, unless required
to be separately accounted for.
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<PAGE> 38
Section 10
BENEFITS
10.1 Retirement. When a Participant attains the Normal Retirement
Date and terminates employment with Employer, Administrator shall direct Trustee
to distribute the Plan Benefit to the Participant pursuant to the provisions of
this Plan.
(a) Normal retirement shall occur when a Participant reaches the
Normal Retirement Date designated in Section 2.22 and terminates
employment with Employer.
(b) Deferred retirement may occur if a Participant continues
employment with Employer beyond the Normal Retirement Date. During any
period of continued employment, the Participant shall continue to
participate in the Plan until actual retirement, when participation
shall cease.
10.2 Death.
(a) Benefits. Upon the death of a Participant, Administrator
shall direct Trustee to distribute the Participant's Plan Benefit to the
Beneficiaries designated pursuant to the applicable provisions of this
Plan. The Plan Benefit shall be equal to the value of the deceased
Participant's Account(s) which have not been distributed at the time of
death or the survivor's portion of any annuity which has been purchased
for the Participant. The deceased Participant's Account(s) shall include
the proceeds of any life insurance policies on the life of the
Participant earmarked for such Accounts and the proceeds shall be
distributed to the Beneficiary. Any key man life insurance acquired as a
general asset of the Trust and not earmarked for the deceased
Participant's Account shall be treated as a gain to the Trust and
allocated proportionately, based upon account balances to all Trust
Accounts (except segregated accounts) as of the date of death.
(b) Proof of Death. Administrator may require such proper proof
of death and such evidence of the right of any person to receive payment
of the Account value of a deceased Participant or former Participant as
Administrator may deem desirable.
(c) Designation of Beneficiary. Each Participant may designate a
Beneficiary of the Participant's Plan Benefit which becomes payable on
account of the death of the Participant. Such designation shall be made
in a form satisfactory to Administrator and in accordance with the
requirements of Section 401(a)(9) of the Code and the applicable
regulations. The designation shall name a specific Beneficiary or
Beneficiaries. A valid irrevocable trust with identifiable trust
beneficiaries may be designated if a copy of the trust instrument is
provided to Administrator prior to the date of Participant's death. Any
Participant may, at any time, revoke or change the
Page 10-1
<PAGE> 39
designation of Beneficiary by filing written notice of such revocation
or change with Administrator. Any change requires a new designation made
in accordance with these provisions and shall automatically revoke all
prior designations.
A designation or change of a designation by a married
Participant of a Beneficiary other than the surviving spouse shall not
be effective unless one of the following applies:
(i) The spouse (or the spouse's legal guardian if the
spouse is legally incompetent) executes a consent in writing
that acknowledges the identity of the specific non-spouse
Beneficiary (including any class of Beneficiaries or any
contingent Beneficiaries) who will receive the benefit. If the
designation is a trust, the Participant's spouse need only
consent to the trust and need not consent to the specific trust
Beneficiaries or changes to Beneficiaries.
(ii) The spouse (or the spouse's legal guardian if the
spouse is legally incompetent) executes a general consent which
permits the Participant to change the beneficiary designation
without any requirement of further consent by the spouse. A
general consent executed after October 21, 1986, must state that
the spouse has the right to limit consent to a specific
Beneficiary (or a specific optional form of benefit where
applicable) and that the spouse voluntarily elects to relinquish
such right.
(iii) The consent cannot be obtained because (a) the
spouse cannot be located, (b) the Participant obtains a court
order (in the absence of a Qualified Domestic Relations Order)
that the Participant is legally separated or has been abandoned
by his or her spouse (within the meaning of local law), or (c)
because of other circumstances provided by applicable
regulations.
Any consent must be in writing and be witnessed by a
plan representative or a notary public. The consent may, by its
terms, preclude the spouse from revoking the consent after it
has been given.
(d) Effect of Divorce. If the Participant's marital status
changes after the Participant has designated a Beneficiary, the
following shall apply subject to any applicable qualified domestic
relations order:
(i) If the Participant is married at death but was
unmarried when the designation was made, the designation shall
be void unless the spouse had consented to it in the manner
prescribed above.
(ii) If the Participant is unmarried at death but was
married when the designation was made, any designation of the
ex-spouse as a Beneficiary shall be void but a designation of a
non-spouse Beneficiary shall remain valid.
Page 10-2
<PAGE> 40
(iii) If the Participant was married when the
designation was made and is married to a different spouse at
death, the designation shall be void unless the new spouse has
consented to it in the manner prescribed above.
(e) Failure to Designate a Beneficiary. If any Participant shall
fail to designate a Beneficiary, if all designated beneficiaries shall
have predeceased the Participant, or if the beneficiary designation on
file with Administrator is not valid at the time of Participant's death,
then Administrator shall distribute the Participant's Plan Benefits as
follows:
(i) To the Participant's surviving spouse, or if there
be none surviving,
(ii) To the Participant's children, in equal shares, or
if there be none surviving,
(iii) To the estate of the Participant.
10.3 Disability. In the event of a Participant's Disability,
Administrator shall direct Trustee to distribute his Plan Benefit to him
pursuant to the provisions of the Plan.
A Participant who is disabled as defined in Section 2.14 herein
may, by giving at least 90 days' notice, direct the Administrator to distribute
all or a portion of the Participant's nonforfeitable account balance as an
accident or health disability benefit.
10.4 Termination of Employment. If a Participant shall terminate
employment with Employer for any reason other than those specified in the
preceding paragraphs of this section, participation in the Plan shall cease, the
Participant's Account(s) shall be subject to the vesting schedule in Section
8.1, and the Participant's Plan Benefit shall be distributed pursuant to the
following provisions of the Plan.
10.5 Minimum Required Distributions. Any distribution provisions
which are required in order to comply with Section 401(a)(9) of the Code and the
regulations thereunder shall override any inconsistent distribution provisions
in the Plan. The distribution of a Participant's interest in the Plan must begin
by the Required Beginning Date defined in Section 11.4. The amount of the
distribution must satisfy the minimum distribution requirements under Section
401(a)(9) of the Code and the applicable Treasury Regulations, including the
minimum distribution incidental benefit requirement ("MDIB") of Section
1.401(a)(9)-2 of the Treasury Regulations.
The minimum distribution to be made each year will be an amount
equal to the quotient obtained by dividing the Participant's adjusted account
balance by the life expectancy of the Participant (or the joint life and last
survivor's expectancy of such Participant and his or her designated
Beneficiary). Life expectancy and joint and last survivor expectancy are
computed by the use of the return multiples contained in Section 1.72-9 of the
Treasury Regulations. For purposes of this computation, a Participant's life
expectancy may be
Page 10-3
<PAGE> 41
recalculated (but not more frequently than annually) upon the written election
of the Participant (or his spouse - Beneficiary, if Participant has died) made
no later than the time of the first required minimum distribution under this
election. The election shall be irrevocable and shall apply with respect to the
Participant (or spouse) and to all subsequent years. The life expectancy of a
non-spouse Beneficiary shall not be recalculated.
The Participant's adjusted account balance for purposes of this
section shall be the account balance as of the latest Valuation Date in the
valuation calendar year (the calendar year immediately preceding the
distribution calendar year for which a minimum distribution is being made)
increased by any contributions or Forfeitures allocated to the Account and
decreased by any distributions made from the Account subsequent to such
Valuation Date and by the December 31 of the valuation calendar year. Any
portion of the minimum distribution for the first distribution calendar year is
made after the close of that year shall be treated as a distribution made in the
first distribution calendar year.
The minimum required distribution for the first distribution
calendar year must be made by the Required Beginning Date. The minimum required
distribution for each subsequent distribution calendar year, including the
calendar year in which the Participant's Required Beginning Date falls, is due
by December 31 of that year. If the Participant receives distribution in the
form of a Nontransferable Annuity Contract, the distribution satisfies this
section if the contract complies with the requirements of Section 401(a)(9) of
the Code and the applicable Treasury Regulations.
If the Participant's spouse is not his designated Beneficiary,
the method of payment to the Participant (beginning on or after the
Participant's required beginning date and before his death) shall not provide
more than incidental benefits to the Beneficiary. A Participant's benefit shall
satisfy the minimum distribution incidental benefit ("MDIB") requirements
described in Treasury Regulation Section 1.401(a)(9)-2 and shall be computed
using the lesser of the applicable life expectancy factor set forth in Treasury
Regulation Section 1.401(a)(9)-1 or the applicable MDIB divisor set forth in
Treasury Regulation Section 1.401(a)(9)-2. The MDIB divisor shall be disregarded
following the Participant's death.
10.6 Income Tax Withholding and Reporting. Prior to making any
distribution to Participants or Beneficiaries, Administrator shall require the
recipient to complete the applicable income tax withholding certificate for
distributions from qualified retirement plans (IRS Form W-4P). Administrator
shall also complete and file with the appropriate agencies, if required by law,
the Statement for Recipients of Total Distributions (IRS Form 1099-R) and any
other reports required by law. Administrator shall also comply with any similar
requirements applicable for state income tax purposes.
10.7 Spendthrift Clause. The provisions hereof are intended as
personal protection for the Participants. No Participant shall have any right to
assign, anticipate or hypothecate his Account, nor shall any such assets be
subject to seizure by legal process or be in any way subject to the claims of
any creditor of such Participant; provided, however, a Participant may pledge
his vested interest under this Plan herein as security for a loan made from the
Trust to the Participant which is exempt from the tax imposed by Section 4975 of
the
Page 10-4
<PAGE> 42
Code by reason of Section 4975(d)(1) of the Code, and provided further,
Administrator may direct trustee to comply with a Qualified Domestic Relations
Order, as defined in Section 414(p) of the Code and in compliance with the
procedures set forth in Section 414(p) of the Code and any applicable
regulations issued thereunder. Administrator may disregard any assignment of an
interest in the Plan to the extent the assignment is security for a participant
loan which is not exempt under Section 4975(d)(1) of the Code.
10.8 Missing Participants or Beneficiaries. In the event a
distribution is to be made to a Participant or a Beneficiary who cannot be
located after the benefit becomes payable, the Administrator shall make
reasonably diligent attempts to ascertain the whereabouts of the Participant or
Beneficiary, by notifying any such Participant or Beneficiary by certified or
registered mail addressed to his last known address of record with the
Administrator or Employer that he is entitled to a distribution under the Plan.
If the Participant or Beneficiary fails to claim his distributive share or make
his whereabouts known in writing to the Administrator within six months from the
date of mailing of the notice, the account shall be forfeited and allocated to
those Participant's entitled to an allocation of forfeitures pursuant to Section
6 as of the last day of the Plan Year coinciding with or following the
expiration of the six-month period. In the event the Participant or Beneficiary
is located subsequent to the forfeiture and makes a claim for benefits, the
forfeited benefit shall be reinstated and restored to the same dollar amount of
the benefit forfeited, unadjusted for any gains or losses occurring subsequent
to the date of the forfeiture. Administrator shall make the restoration during
the Plan Year in which the Participant or Beneficiary makes the claim first from
the amount, if any, of forfeitures occurring during the Plan Year in which the
reinstatement occurs and then from the amount, or additional amount, Employer
shall contribute to enable Administrator to make the required restoration.
Administrator shall direct Trustee to distribute the Participant's or
Beneficiary's restored account to him not later than 60 days after the close of
the Plan Year in which the Administrator restores the forfeited benefit.
Page 10-5
<PAGE> 43
Section 11
FORM AND TIME OF PAYMENT`
11.1 Benefit Elections. If the Participant is eligible to receive
a Plan Benefit in excess of $5,000, the Administrator shall provide a benefit
election notice to a Participant at least 30 days (unless waived) and not more
than 90 days prior to the Benefit Commencement Date.
Such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Income Tax Regulations and this
Section 11.1, provided that:
(a) The Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to elect
a distribution (and, if applicable, a particular distribution option).
(b) If Employer's Plan provides an Annuity option form of
payment, the distribution cannot commence within seven days after the
notice is provided, and the Participant's spouse must be provided with
the notice and must consent to the earlier distribution
(c) The Participant, after receiving the notice, affirmatively
elects a distribution.
The notice shall explain the optional forms of benefit under the
Plan, including the material features and relative values of the options, and
the Participant's right to defer distribution until the Participant attains the
later of age 62 or the Normal Retirement Date. A benefit election shall not be
made before the Participant receives the benefit election notice and shall not
be made prior to the Benefit Commencement Date. Optional forms of benefit may
not be conditioned upon the discretion of Employer, Administrator, Trustee,
fiduciary, independent third party or any other person (other than the
Participant) except for such administrative discretion as may be permitted by
regulations.
11.2 Medium of Payment. Distribution of a Participant's Plan
Benefit will be made in the following manner: at least 30 days prior to the
Benefit Commencement Date the Participant or Beneficiary entitled to such
distribution will be notified in writing by the Administrator of his right to
demand that all or any part of the distribution be made in shares of Company
Stock; provided, however, if Company Stock is readily tradable on an established
market, a Participant does not have the right to demand distribution in the form
of Company Stock. The Participant or Beneficiary, may, within 15 days following
the date of the Administrator's notification of such right (if required), notify
the Administrator in writing of his demand that all or a specified portion of
the distribution be made in whole shares of Company Stock. If the Participant or
Beneficiary exercises such right of demand, the balance
Page 11-1
<PAGE> 44
in the Participant's Other Investment Accounts, to the extent necessary to
comply with such demand, will be used to acquire whole shares of Company Stock
for distribution at the then fair market value (as determined by the
Administrator pursuant to Section 9.1(b)), with the value of the fractional
shares distributed in cash. In the absence of the timely exercise of such right
as set forth above, or if the Participant demands that less than all of such
distribution be made in shares of Company Stock, distribution of the
Participant's Accounts, or the portion thereof not demanded in shares of Company
Stock, will be made in shares of Company Stock. The right of a Participant to
receive a distribution in shares of Company Stock pursuant to this Section shall
not apply to the extent the Participant is a Qualified Participant who makes a
valid and timely election for a distribution pursuant to Section 12.10.
11.3 Method of Payment. The distributions provided hereunder
shall be made in one of the following forms as determined by the Participant.
The distribution of Company Stock shall be valued at its fair market value on
the date of its distribution. The minimum required distributions made pursuant
to Section 10.5 may be paid in annual installments.
(a) A lump-sum payment of the amount of Plan Benefit
distributable at the applicable time.
(b) Installment Payments. Distributions may be made in
substantially equal annual payments over a period of five years unless
the Participant otherwise elects under other provisions of the Plan. In
no event shall such distribution period exceed the period permitted in
Section 401(a)(9) of the Code, if applicable. The amount shall be
segregated in a segregated account. The installment payments will
include accrued net income derived from the segregated account and will
reflect any increase or decrease in value of the segregated assets.
If the fair market value of Participant's Account attributable
to Company Stock is in excess of $735,000 (multiplied by the Adjustment
Factor as prescribed by the Secretary of the Treasury) as of the date
distribution is required to begin, distributions shall be made in
substantially equal annual payments over a period not longer than five
years plus an additional one year (up to an additional five years) for
each $145,000 increment or fraction of such increment, by which the
value of the Participant's Account exceeds $735,000 (as indexed), unless
the Participant otherwise elects under the other applicable provisions
of the Plan. In no event shall such distribution period exceed the
period permitted under Section 401(a)(9) of the Code.
(c) Direct Rollovers.
(i) General. A Distributee may elect, at the time and in
the manner prescribed by the Plan Administrator, to have any
portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan specified by the Distributee in a
Direct Rollover.
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<PAGE> 45
(ii) Definitions.
a. Eligible Rollover Distribution. An Eligible Rollover
Distribution is any distribution of all or any portion of the
balance to the credit of the Distributee, except that an
Eligible Rollover Distribution does not include: (1) any
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the Distributee or the joint
lives (or joint life expectancies) of the Distributee and the
Distributee's designated beneficiary, or for a specified period
of 10 years or more; (2) any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code;
(3) the portion of any distribution that is not includable in
gross income (determined without regard to the exclusion for the
net unrealized appreciation with respect to Employer
Securities); and (4) for distributions made after December 31,
1998, any hardship distribution described in Section
401(k)(2)(B)(i)(V) of the Code.
b. Eligible Retirement Plan. An Eligible Retirement Plan
is an individual retirement account described in Section 408(a)
of the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described in Section
403(a) of the Code, or a qualified trust described in Section
401(a) of the Code, that accepts the Distributee's Eligible
Rollover Distribution. However, in the case of an Eligible
Rollover Distribution to the surviving spouse, an Eligible
Retirement Plan is an individual retirement account or
individual retirement annuity.
c. Distributee. A Distributee includes an Employee or
former Employee. In addition, the Employee's or former
Employee's surviving spouse and the Employee's or former
Employee's spouse or former spouse who is the alternate payee
under a qualified domestic relations order, as defined in
Section 414(p) of the Code, are Distributees with regard to the
interest of the spouse or former spouse.
(d) Protected Benefits. Any optional form of protected benefit
required to be continued pursuant to Section 411(d)(6) of the Code for
affected Participants shall be continued.
11.4 Time of Payment.
(a) Retirement, Death or Disability. If the Participant
terminates employment with Employer by reason of the attainment of
Normal Retirement Date under the Plan, death or Disability, the
distribution of the Participant's Plan Benefits shall be made as
follows:
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<PAGE> 46
(i) An initial lump-sum payment of the balance in the
Participant's account at the time the event occurred shall be
distributed as soon as administratively feasible after the event
occurred.
(ii) The Participant's share of the Employer's
contribution and any forfeitures for the Plan Year during which
the event occurred shall be distributed as soon as
administratively feasible after the Participant's share thereof
is determined and paid to the Trust.
(b) Other Termination. If the Participant terminates employment
with Employer for any reasons other than those enumerated in paragraph
(a) above, distribution of the Participant's Plan benefit will begin as
soon as administratively feasible after the Participant's termination of
employment occurred, unless the Participant elects to delay the time of
payment.
(c) If the Participant terminates employment with Employer for a
reason other than those described in paragraph (a) above and is
reemployed by the Company before distribution is required to begin under
(b) above, distribution to the Participant, prior to any subsequent
termination of employment with Employer, shall be in accordance with
other terms of the Plan.
(d) If the Participant's Plan benefit includes any Company Stock
acquired with the proceeds of an Exempt Loan described in Section
404(a)(9) of the Code, distribution may be delayed until the close of
the Plan Year in which such loan is repaid in full.
(e) Restrictions on Immediate Distributions. If the value of the
Participant's Plan Benefit is more than $5,000 (or at the time of any
prior distribution was more than $5,000), the Plan Benefit may not be
distributed prior to the Participant's attaining the later of the Normal
Retirement Date under the Plan or age 62 unless (i) the Participant
consents in writing within 90 days of being provided with a benefit
election notice, and (ii) the Plan provides for a distribution at such
time.
Neither the consent of the Participant nor the Participant's
spouse shall be required to the extent that a minimum required
distribution under Section 10.5 is required to satisfy Section 401(a)(9)
or Section 415 of the Code. In addition, upon termination of this Plan,
the Participant's account balance may, without the Participant's
consent, be distributed to the Participant or transferred to another
defined contribution plan.
If the Participant does not consent to a distribution at such
time, distribution will be deferred until the Participant requests a
distribution be made. Distributions will only be made as soon as
administratively feasible after the end of the December 31 Plan Year
following the date of request.
Page 11-4
<PAGE> 47
Participant shall give the Plan Administrator 60 days prior
written notice of his request for a distribution.
(f) Latest Benefit Commencement Date. In the event of a
Participant's termination of employment, the terminated Participant's
Plan Benefit shall be paid at such time or times as provided herein;
provided, however, the latest time that payment must begin shall not be
later than the Required Beginning Date, unless otherwise provided below:
(i) The payment of a Participant's benefit shall begin
not later than 60 days after the end of the Plan Year in which
the latest of the following occurs unless the Participant
otherwise elects:
a. The Participant reaches the Normal Retirement
Date under the Plan; or
b. The date the Participant terminates
employment if subsequent to the Normal Retirement Date.
Notwithstanding the foregoing, the failure of a
Participant and spouse to consent to a distribution while a
benefit is immediately distributable, shall be deemed to be an
election to defer commencement of payment of any benefit
sufficient to satisfy this section.
(ii) The Required Beginning Date. The Required Beginning
Date of a Participant is the later of the April 1 of the
calendar year following the calendar year in which the
Participant attains age 70 1/2 or retires except that benefit
distributions to a five percent owner must commence by the April
1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2.
a. Any Participant attaining age 70 1/2 in years
after 1995 may elect by April 1 of the calendar year
following the year in which the Participant attained age
70 1/2 (or by December 31, 1997 in the case of a
Participant attaining age 70 1/2 in 1996), to defer
distributions until the calendar year following the
calendar year in which the Participant retires. If no
such election is made the Participant will begin
receiving distributions by the April 1 of the calendar
year following the year in which the Participant
attained age 70 1/2 (or by December 31, 1997 in the case
of a Participant attaining age 70 1/2 in 1996).
Page 11-5
<PAGE> 48
b. Any Participant attaining age 70 1/2 in years
prior to 1997 may elect to stop distributions and
recommence by the April 1 of the calendar year following
the year in which the Participant retires. There shall
be a new annuity starting date upon recommencement.
c. The preretirement age 70 1/2 distribution
option is only eliminated with respect to Employees who
reach age 70 1/2 in or after a calendar year that begins
after the later of December 31, 1998, or the adoption
date of the amendment. The preretirement age 70 1/2
distribution option is an optional form of benefit under
which benefits payable in a particular distribution form
(including any modifications that may be elected after
benefit commencement) commence at a time during the
period that begins on or after January 1 of the calendar
year in which an Employee attains age 70 1/2 and ends
April 1 of the immediately following calendar year.
(iii) Five percent owner. A Participant is treated as a
five percent owner for purposes of this section if such
Participant is a five percent owner as defined in Section 416 of
the Code at any time during the Plan Year ending with or within
the calendar year in which such owner attains age 70 1/2.
Once distributions have begun to a five percent owner
under this section, they must continue to be distributed, even
if the Participant ceases to be a five percent owner in a
subsequent year.
11.5 Hardship Distributions. A distribution of a portion of a
Participant's Account may be made to a Participant even though the Participant
has not terminated employment with the Company upon the following conditions:
(a) The amount of the requested distribution shall not
exceed 50 percent of the Participant's vested interest in his
Account under the Plan;
(b) The purpose of the distribution shall be limited to
purposes of enabling a Participant to meet an immediate and
heavy financial need and shall be approved only up to the amount
that is necessary to satisfy such financial need. The
determination of the existence of an immediate and heavy
financial need and of the amount necessary to meet such need is
to be made in a nondiscriminatory and objective manner on the
basis of all relevant facts and circumstances. The determination
of the Administrator as to justification of the withdrawal and
the amount thereof shall be final. For purposes of this section,
the term "financial hardship" shall mean the financial inability
of the Participant to provide the necessary funds:
Page 11-6
<PAGE> 49
(i) to meet the extraordinary medical expenses
(described in Section 213(d) of the Code) incurred by
the Participant, the Participant's spouse, or any
dependents of the Participant (as defined in Section 152
of the Code); or
(ii) to provide payment of tuition, related
educational fees and room and board for the next 12
months of postsecondary education for the Participant,
his or her spouse, children or dependents; or
(iii) to provide funds for the purchase
(excluding mortgage payments) of a principal residence
for the Participant or to provide funds to prevent the
eviction of the Participant from his principal residence
or foreclosure on the mortgage of the Participant's
principal residence.
Administrator shall determine whether the Participant
meets the conditions for such need based upon the written
representations of the Participant setting forth the reason for
the requested distribution, that the need cannot be met from
other reasonably available resources and the amount needed.
The amount determined to be needed to meet the hardship
may be distributed in a single lump-sum or in installments based
upon the Participant's request.
11.6 Dividends. Any cash dividends received by Trustee on Company
Stock allocated to the Accounts of Participants (or former Participants or
Beneficiaries) may be retained in the Participants' applicable Accounts or paid
to such Participants, former Participants or Beneficiaries (in a
nondiscriminatory manner) at the sole discretion of Administrator; provided that
any current payment in cash must be paid to Participants, former Participants or
Beneficiaries within 90 days after the close of the Plan Year in which the
dividend is received by Trustee. Any such payment of cash dividends on shares of
Company Stock shall be accounted for as if the Participant or former Participant
receiving such dividends was the direct owner of such shares of Company Stock
and such payment shall not be treated as a distribution under the Plan.
11.7 Restrictions on Non-Publicly Traded Company Stock. If at the
time of distribution of Company Stock, such stock is not "publicly traded," the
following provisions shall apply:
(a) Right of First Refusal on Distributed Shares of Company
Stock. Shares of Company Stock distributed by the Trustee may, as
determined by the Administrator, be subject to a right of first refusal.
If the shares of stock were acquired with the proceeds of an Exempt
Loan, as provided in Section 7, such right exists only if the stock is
not publicly traded at the time the right may be exercised. For this
purpose, "publicly traded" refers to shares of Company Stock which are
listed on a national securities exchange or which are quoted on a system
sponsored by a national securities association.
Page 11-7
<PAGE> 50
Such right shall provide that prior to any subsequent transfer,
the shares must first be offered in writing to the Trust and then, if
refused by the Trust, to the Employer at the then fair market value as
determined by the Administrator. In no event, however, may the Employer
offer a price less than that offered to the Participant by another
potential buyer making a bona fide offer. The Trust or the Employer must
exercise the right within 14 days after the Participant gives written
notice to them that an offer to purchase the Company Stock has been
received.
(b) Put Option on Distributed Shares of Company Stock. Company
Stock acquired with the proceeds of an Exempt Loan, as provided in
Section 7, is subject to a "put" option if the Company is not readily
tradable on any established market and if the Company is allowed by law
to purchase its own stock. If a "put" option is required, it shall
provide that, for a period of 60 days after such shares are distributed,
a Participant, his Beneficiaries under the Plan, a Participant's or his
Beneficiaries' donees, or a person to whom the stock passes because of
the death of a Participant or his Beneficiaries, (and, if the "put"
option is not exercised within such 60-day period, for an additional
60-day period in the following Plan Year beginning with the Anniversary
Date of the date of distribution), have the right to require Employer to
purchase such shares at their fair market value as determined under the
provisions of the Plan.
Administrator may direct Trustee to assume the rights and
obligations of Employer at the time the "put" option is exercised,
insofar as the repurchase of Company Stock is concerned. Terms of
payment may be either in a lump-sum or in installments.
An installment payment in connection with such "put" option
shall:
(i) Be adequately secured, as determined by the
Administrator;
(ii) Bear a reasonable rate of interest, as determined
by the Administrator;
(iii) Require equal annual payments;
(iv) Have a payment period not longer than the greater
of:
a. Five years from the date the "put" option is
exercised, or
b. The earlier of (a) 10 years from the date the
"put" option is exercised, or (b) the date any Exempt
Loan used by the Plan to acquire Company Stock subject
to the "put" option has been entirely repaid;
Page 11-8
<PAGE> 51
(v) Require that any payments pursuant to the
installment obligation must be substantially equal and begin to
be made no later than 30 days after the date the "put" option is
exercised; and
(vi) In all respects satisfy the requirements of
Treasury Regulation Section 54.4975-7(b)(12).
The "put" for stock purchased with the proceeds of an
Exempt Loan is exercised by the holder notifying the Employer in
writing that the option is being exercised.
(c) Put Option Terms for Company Stock. With respect to Company
Stock acquired by the Plan, the following provisions shall apply to the
terms of payment for the repurchase of Company Stock pursuant to a put
option.
(i) Put Option Payment. If a put option is exercised,
the Employer shall repurchase the Company Stock as follows:
a. If the distribution constitutes a Total
Distribution, payment of the fair market value of a
Participant's account balance shall be made in five
substantially equal annual payments. The first
installment shall be paid not later than 30 days after
the Participant exercises the put option. The Plan will
pay a reasonable rate of interest and provide adequate
security on amounts not paid after 30 days.
b. If the distribution does not constitute a
Total Distribution, the Plan shall pay the Participant
an amount equal to the fair market value of the Company
Stock repurchased no later than 30 days after the
Participant exercises the put option.
(ii) "Total Distribution" shall mean distribution to a
Participant or a Participant's Beneficiary, within one taxable
year of such recipient, of the entire balance to the credit of
the Participant.
(d) Continuation of Rights or Put Option. The right of first
refusal and the "put" option provided for herein are nonterminable and
shall continue to apply to shares of Company Stock purchased by the
Trustee with the proceeds of an Exempt Loan or to shares of Company
Stock distributed hereunder notwithstanding the repayment of the loan or
any amendment to, or termination of, this Plan which causes the Plan to
cease to be an employee stock ownership plan within the meaning of
Section 4975(e) of the Code.
Page 11-9
<PAGE> 52
Section 12
INVESTMENT OF TRUST FUND
12.1 Investment Policy. The investment policy of the Plan is
designed to invest primarily in Company Stock. Trustees may incur debt
(including Exempt Loans) from time to time to finance the acquisition of Company
Stock by the Trust or otherwise. The entire Trust Fund may be invested and held
in Company Stock or Trustees may temporarily invest in other investments
pursuant to Section 12.3.
12.2 Investment of Cash Contributions. Employer Contributions in
cash and other cash received by the Trust will be applied to any obligations of
the Trust incurred for purchase of Company Stock, or may be applied to purchase
additional shares of Company Stock from current shareholders or from the
Company.
12.3 Other Authorized Investments. To the extent funds are
available, Trustees may invest funds temporarily in savings accounts maintained
by any institution insured by an agency of the federal government, certificates
of deposit issued by any bank insured by an agency of the federal government
(including Trustee), high grade short term securities, stocks, bonds, collective
investment funds described in Section 12.4 or investments deemed by the Trustees
to be desirable for the Trust, or such funds may be held, for short periods of
time only, in cash.
12.4 Collective Investment Funds. Pursuant to Section 12.3, a
portion of the Trust Fund may be invested in any collective investment fund
maintained by a plan fiduciary under which employee benefit trusts qualified
under Section 401(a) of the Code and tax exempt under Section 501(a) of the Code
are eligible to participate. The instrument establishing any such fund, as
amended from time to time, is incorporated in this Agreement and shall control
the administration of any such assets of the Trust Fund which are invested in
the collective investment fund.
12.5 Purchases of Company Stock. All purchases of Company Stock
by the Trust will be made at a price, or at prices, which, in the judgment of
the Trustees, do not exceed the fair market value of such Company Stock. The
determination of fair market value of Company Stock for all purposes under the
Plan shall be made as provided pursuant to Section 9.1(b). No commission shall
be charged with respect to a "disqualified person" as defined in Section 12.10
herein.
12.6 Voting of Company Stock.
(a) Registration-Type Securities. If the Company Stock is a
registration-type class of securities as described in Section 409(e)(4)
of the Code, each Participant will be entitled to direct the Trustees as
to the exercise of any voting rights attributable to shares of Company
Stock then allocated to the Participants' Company Stock Account. In that
event, if voting instructions are not received from Participants
Page 12-1
<PAGE> 53
with respect to allocated Company Stock, suck stock shall not be voted.
Any Company Stock which is not allocated to Participants' Company Stock
Accounts shall be voted by the Trustees.
(b) Nonregistration-Type Securities. If the Company Stock is not
a registration-type class of securities, such Company Stock shall be
voted as follows:
A Participant (or Beneficiary) shall be entitled to direct the
Trustees how to vote shares of Company Stock allocated to the
Participant's (or Beneficiary's) Company Stock Account as follows:
(i) On any corporate matter which involves the voting of
such shares with respect to the approval or disapproval of any
corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business, or such similar
transaction as may be prescribed in Treasury Regulations;
(ii) With respect to Company Stock acquired by or
transferred to the Plan in connection with an Exempt Loan made
after July 10, 1989, a Participant (or Beneficiary) shall be
entitled to vote such shares on any matter on which an owner of
such shares is entitled to vote if the Exempt Loan is intended
to qualify as a "Securities Acquisition Loan" under Section
133(b) of the Code;
(iii) Company Stock held in the Suspense Account shall
not be subject to the Participant's (or Beneficiary's) right to
vote shares under this subsection (b).
(c) Voting Procedures. Trustees shall, at least 20 days prior to
each meeting of holders of Company Stock, provide each Participant
entitled under this section to direct the voting of Company Stock, with
notice of such meeting and of those matters which at the time of the
mailing of such notice are subject to direction by a Participant, as set
forth in this section, and are expected to be presented at such meeting
for action by holders of Company Stock, together with an appropriate
form with which the Participant can direct the manner of voting on such
matters. If instructions on such matters are received by Trustees with
respect to any Company Stock at least 10 days prior to such meeting,
Trustees shall vote in accordance with such instructions.
If a Participant shall fail or refuse to give timely
instructions as to how to vote any Company Stock allocated to such
Participant's Account that Trustees otherwise has a right to vote,
Trustees shall not exercise its power to direct the vote of such Company
Stock.
12.7 Authority of Trustees with Respect to Investments. Trustees
shall be responsible for the making of investments to the extent prescribed in
this Plan. Investments
Page 12-2
<PAGE> 54
directed by the Trustees shall not be in conflict with provisions of the Act as
such provisions may be amended from time to time. Trustees may purchase such
securities or other property, including shares of Company Stock, or shall sell
such securities or other property held as part of the trust assets as deemed
appropriate by Trustees; provided, however, Trustees shall not participate
knowingly in or knowingly undertake to conceal any act or omission of any other
fiduciary to the Plan (as "fiduciary" is defined in Section 3(21) of the Act),
knowing such act or omission is a breach.
12.8 Prohibited Transactions. Unless otherwise specifically
permitted by law or unless an exemption has been granted pursuant to Section
408(a) of the Act and Section 4975(c)(2) of the Code, any of the following
transactions directly or indirectly between a plan and a party in interest (as
defined by Section 3(14) of the Act) or a disqualified person (as defined by
Section 4975(e)(2) of the Code constitutes a prohibited transaction:
(a) A sale or exchange or leasing of any property;
(b) The lending of money or other extension of credit;
(c) The furnishing of goods, services, or facilities;
(d) The transfer to, or use by or for the benefit of a party in
interest of any assets of the plan; or
(e) The acquisition on behalf of a plan of any employer security
or employer real property in violation of Section 407 of the Act, except
as provided under Section 4975(d)(3) of the Code.
Unless excepted or exempt, a fiduciary, with respect to a plan
shall not (1) deal with the assets of the plan in his own interest or for his
own Account; (2) act in any transaction involving the plan on behalf of a party
(or represent a party) whose interests are adverse to the interest of the plan
or its Participants or beneficiaries; or (3) receive any consideration for his
own personal account from any person dealing with such plan in connection with a
transaction involving the assets of the plan.
12.9 Diversification of Investments. With respect to Company
Stock held in Company Stock Accounts under the Plan, the following provisions
shall apply:
(a) Election by Qualified Participant. Each Qualified
Participant shall be permitted to direct the Plan as to the investment
of 25 percent of the value of the Participant's Company Stock Accounts
within 90 days after the last day of each Plan Year in the Participant's
Qualified Election Period. Within 90 days after the close of the last
Plan Year in the Participant's Qualified Election Period, a Qualified
Participant may direct the Plan as to the investment of 50 percent of
the value of such account balance. Notwithstanding the foregoing, a
Qualified Participant shall not be entitled to make the election
hereunder for a Plan Year within the Qualified Election
Page 12-3
<PAGE> 55
Period if the fair market value of his Accounts as of the last day of
such Plan Year is less than $500.
(i) "Qualified Participant" shall mean a Participant who
has attained age 55 and who has completed at least 10 years of
participation in the Plan.
(ii) "Qualified Election Period" shall mean the six Plan
Year period beginning with the Plan Year in which the
Participant first becomes a Qualified Participant.
(b) Method of Diversifying Investment. The Participant's
direction shall be provided to the Plan Administrator in writing; shall
be effective no later than 180 days after the close of the Plan Year to
which the direction applies; and shall specify which, if any, of the
options set forth in this section the Participant selects.
(c) Diversification Options.
(i) The diversification requirement may be satisfied
with respect to a Qualified Participant who elects to direct the
investment of the amount subject to the election by the
Administrator directing that the amount be distributed to the
Participant within 90 days after the last day of the period
during which the election can be made. Such distribution shall
be subject to such requirements of the Plan concerning put
options as would otherwise apply to a distribution of Company
Stock from the Plan. This Subsection shall apply notwithstanding
any other provision of the Plan other than such provisions as
require the consent of the Participant to a distribution with a
present value in excess of $5,000. If the Participant does not
consent, such amount shall be retained in the Plan.
(ii) In lieu of distribution under (i) above, the
Qualified Participant who has the right to receive a cash
distribution under (i) above may direct the Administrator to
transfer the portion of the Participant's Account that is
covered by the election to another qualified Plan of the
Employer which accepts such transfers, provided that such Plan
permits Employee directed investment and does not invest in
Company Stock to a substantial degree. Such transfer shall be
made no later than 90 days after the last day of the period
during which the election can be made.
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Section 13
TRUSTEE
13.1 Powers of Trustee. The Trustee shall have the power to
invest and reinvest the assets of the Trust Fund over which the Trustee has the
responsibility for and control over the investments. With respect to any and all
securities or property at any time purchased, received or held in the Trust
Fund, the Trustee shall have the power and authority to do all necessary acts,
undertake all necessary proceedings specifically referred to or not, as could be
done, taken or exercised by the absolute owner thereof. The Trustee's powers and
investments may include, but are not limited to, the following:
(a) Purchase of Property. To purchase or subscribe for any
securities or other property and to retain the same in Trust.
(b) Sale, Exchange, Conveyance and Transfer of Property. To
sell, exchange, convey, transfer, or otherwise dispose of any securities
or other property held by it by private contract or at public auction.
No person dealing with Trustee shall be bound to see to the application
of the purchase money or to inquire into the validity, expediency or
propriety of any such sale or other disposition.
(c) Exercise of Owner's Rights. Except as provided in Section
12, with respect to Company Stock, to vote upon any stocks, bonds or
other securities; to give general power of substitution; to exercise any
conversion privileges, subscription rights or other options, and to make
any payments incidental thereto; to oppose or to consent to, or
otherwise participate in, corporate reorganizations or other changes
affecting corporate securities; to delegate discretionary powers and to
pay any assessments or charges in connection therewith; and generally to
exercise any of the powers of an owner with respect to stocks, bonds,
securities or other property held as part of the Trust Fund.
(d) Registration of Investments. To cause any securities or
other property held as part of the Trust Fund to be registered in its
own name or in the name of one or more of its nominees, and to hold any
investments in bearer form, but the books and records of Trustee shall
at all times show that all such investments are part of the Trust Fund.
(e) Borrowing. To borrow or raise money for the purpose of the
Trust in such amount and upon such terms and conditions as Trustee shall
deem advisable and, for any sum so borrowed, to issue its promissory
note as Trustee, and to secure the repayment thereof by pledging all or
any part of the Trust Fund, save and except that segregated Accounts
shall not be pledged. No person lending money to Trustee shall be bound
to see to the application of the money loaned or to inquire into the
validity, expediency or propriety of any such borrowing.
Page 13-1
<PAGE> 57
(f) Retention of Cash. To keep such portion of the Trust Fund in
cash or cash balances as Trustee may from time to time deem to be in the
best interests of the Trust created hereby, without liability for
interest thereon.
(g) Retention of Property Acquired. To accept and retain for
such time as it may deem advisable any securities or other property
received or acquired by it as Trustee hereunder.
(h) Execution of Instruments. To make, execute, acknowledge and
deliver any and all documents of transfer and conveyance and any and all
other instruments that may be necessary or appropriate to carry out the
powers herein granted.
(i) Settlement of Claims and Debts. To settle, compromise or
submit to arbitration any claims, debts or damages due or owing to or
from the Trust Fund; to commence or defend suits or legal or
administrative proceedings; and to represent the Trust Fund in all suits
and legal and administrative proceedings.
(j) Interest Bearing Obligations. To invest funds of the Trust
in time deposits or savings accounts bearing a reasonable rate of
interest.
(k) Government Obligations. To invest in Treasury Bills and
other forms of United States government obligations.
(l) Agency Appointments. To appoint agents to act on behalf of
Trustee in all matters of investment, retention of funds and all other
acts as may be directed by Trustee. Such agency appointments shall be
effective upon entering into such agency agreements as may be deemed
necessary by Trustee and the agents in order to carry out the purposes
of such agency appointment.
(m) Bank Deposits. To hold such portion of the Trust as it may
deem necessary for the orderly administration of the Trust and
disbursement of funds as provided herein in cash, without liability for
interest, or by depositing the same in any bank subject to the rules and
regulations governing such deposits, and without regard to the amount of
any such deposit.
(n) Common Trust Fund. Pursuant to Section 12, to invest all or
part of the funds of the Trust in a common trust fund or similar fund
administered by a corporate Trustee or custodian as specifically
authorized by this Agreement.
(o) Deposits with Fiduciary Bank. To invest all or part of the
funds of the Trust in deposits which bear a reasonable rate of interest
in Accounts maintained by a fiduciary which is a bank or similar
financial institution supervised by the United States or a State.
Page 13-2
<PAGE> 58
(p) Ancillary Bank Services. To provide the ancillary services
of a bank or similar financial institution supervised by the United
States or a State which is a fiduciary if (1) the bank or similar
financial institution has adopted adequate internal safeguards which
assure that the providing of such ancillary service is consistent with
sound banking and financial practice, as determined by Federal or State
supervisory authority and (2) the extent to which such ancillary service
is provided is subject to specific guidelines issued by such bank or
similar financial institution and adherence to such guidelines would
reasonably preclude such bank or similar financial institution from
providing such ancillary service in a manner that would be inconsistent
with the best interests of Participants and Beneficiaries of employee
benefit plans.
Such ancillary services shall not be provided at more than
reasonable compensation.
(q) Common or Pooled Fund Transactions. Pursuant to Section 12,
to engage in any transaction between a plan and (i) a common or
collective trust fund or pooled investment fund maintained by a
fiduciary which is a bank or trust company supervised by a State or
Federal agency or (ii) a pooled investment fund of an insurance company
qualified to do business in a State, if
(i) the transaction is a sale or purchase of an interest
in the fund, and
(ii) the bank, trust company, or insurance company
receives not more than reasonable compensation.
13.2 Payments From the Trust. Trustee (if not a full-time
Employee of Employer) shall from time to time, on the written direction of
Administrator, make payments out of the Trust Fund to such persons, in such
manner, in such amounts, and for such purposes as may be specified in the
written direction of Administrator, and upon any such payment being made, the
amount thereof shall no longer constitute a part of the Trust Fund. Trustee
shall not be responsible for the application of such payments or for the
adequacy of the Trust Fund to meet and discharge any and all liabilities under
the Plan, except for failure to properly withhold, when the responsibility for
withholding has been properly delegated to Trustee.
13.3 Trustee's Compensation, Expenses and Taxes. Trustee (if not
a full-time Employee of Employer) shall be paid such reasonable compensation as
shall from time to time be agreed upon in writing by Employer and Trustee. In
addition, Trustee shall be reimbursed for any reasonable expenses, including
reasonable counsel fees, incurred by Trustee in the administration of the Trust
Fund. Such compensation and expenses may be paid by Employer, but if not paid by
Employer, shall be paid from the Trust Fund. All taxes of any and all kinds
whatsoever that may be levied or assessed under existing or future laws upon or
in respect to the Trust Fund or the income thereof shall be paid from the Trust
Fund, except those assessed personally upon fiduciaries.
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<PAGE> 59
13.4 Certification of Instructions. Trustee may rely upon a
certification of a member of Administrator or a Participant with respect to any
instruction or direction of Administrator or a Participant or an appointed
Investment Manager, and may also rely upon the certification as it then exists,
and in continuing to rely upon such certification until a subsequent
certification is filed with Trustee. Trustee may act upon any instrument,
certificate or paper believed by it to be genuine and to be signed or presented
by the proper person or persons, and Trustee shall be under no duty to make any
investigation or inquiry as to any statement contained in any such writing, but
may accept the same as conclusive evidence of the truth and accuracy of the
statements therein contained.
13.5 Accounting. Trustee shall keep complete and accurate
accounts of all investments, receipts, disbursements and other transactions
hereunder. All accounts, books and records relating to such transactions shall
be open to inspection and audit at all reasonable times by any person designated
by Administrator.
Within 60 days following the close of each Trust Year, and within
90 days following the effective date of the removal or resignation of Trustee,
Trustee shall file with Administrator a written statement of account setting
forth the assets and liabilities, receipts and disbursements and other
transactions during such year or during the period from the close of the last
Trust Year, to the date of such removal or resignation. The form and content of
the Account shall be sufficient for Administrator to comply with reporting and
disclosure requirements under applicable law.
13.6 Settlement of Accountings. Administrator may object to an
accounting and require that it be settled by audit by a qualified, independent
certified public accountant. The auditor shall be chosen by Trustee from a list
of at least three such accountants furnished by Administrator at the time the
audit is requested. Either Administrator or Trustee may require that the account
be settled by a court of competent jurisdiction in lieu of or in conjunction
with the audit. All expenses of any audit or court proceedings including
reasonable attorneys' fees shall be allowed as administrative expenses of the
Trust.
When an account has been accepted by the Administrator, it shall
be final and binding on all parties, including Employer and all Participants and
persons claiming through them.
13.7 Determination of Duties. In the event any controversy shall
arise between Trustee and any other person, including but not limited to
Administrator, Employer or any Employees under the Plan, with respect to the
payment or delivery by Trustee of any moneys or other property held by it
hereunder, or with respect to the proper construction of this Agreement or of
any amendment thereto, or with respect to the management of the Trust Fund,
Trustee may require that its duties be determined by a court of competent
jurisdiction.
13.8 Removal, Resignation and Appointment of Successor Trustee.
Any Trustee may be removed by Employer at any time upon 60 days' notice in
writing to Trustee and Administrator. Any Trustee may resign at any time upon 60
days' notice in writing to Administrator and Employer. Upon such removal or
resignation of a Trustee, Employer may
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appoint a successor Trustee, who shall have the same powers and duties as those
conferred upon the Trustee resigning.
13.9 Receipt of Contributions. Trustee is accountable only for
funds actually received by Trustee. Trustee shall have no right or duty to see
that the contributions received comply with the Plan or to collect any
contributions from Employer or Participants.
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Section 14
AMENDMENT AND TERMINATION
14.1 Amendment. To provide for contingencies which may require or
make advisable the clarification, modification or amendment of this Agreement,
the Company reserves the right to amend the Plan at any time and from time to
time, in whole or in part, including without limitation, retroactive amendments
necessary or advisable to qualify the Plan and Trust under the provisions of
Section 401(a) of the Code, or any successor or similar statute enacted.
However, no such amendment shall (a) cause any part of the assets of the Plan
and Trust to revert to or be recoverable by the Company or be used for or
diverted to purposes other than the exclusive benefit of Participants, former
Participants and Beneficiaries; or (b) eliminate an optional form of
distribution, except to the extent permitted under the regulations. Amendments
shall apply to all Participating Employers who have adopted this Plan.
14.2 Restrictions on Amendment. Any amendment by the Employer to
this Plan must be in writing and shall comply with the following restrictions:
(a) No amendment shall authorize or permit any accrued benefits,
to the extent funded, (other than such part as is required to pay taxes
and administration expenses or otherwise permitted by this Plan) to be
used for or diverted to purposes other than for the exclusive benefit of
the Participants or their beneficiaries.
(b) No amendment shall cause or permit any portion of the Trust
Fund to revert to or become the property of Employer, except as
otherwise provided herein prior to the satisfaction of all liabilities
to Participants and their Beneficiaries.
(c) No amendment shall cause any reduction in the nonforfeitable
accrued benefits of any Participant, except as may be permitted under
the Act, necessary to continue qualification of the Plan and Trust as
exempt under the Code; or permitted under Section 412(c)(8) of the Code
or this Plan.
(d) No amendment shall have the effect of decreasing a
Participant's vested interest determined without regard to such
amendment as of the later date of the date such amendment is adopted or
the date it becomes effective.
(e) No amendment shall decrease a Participant's account balance,
except to the extent permitted under Section 412(c)(8) of the Code. For
purposes of this paragraph, a plan amendment which has the effect of
decreasing a Participant's account balance or eliminating an optional
form of benefit, with respect to benefits attributable to service before
the amendment, shall be treated as reducing an accrued benefit.
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(f) No amendment shall reduce or eliminate a protected benefit
under Section 411(d)(6) of the Code with respect to benefits accrued up
to and including the date the amendment is adopted (or, if later, the
Effective Date) except as permitted by Section 412(c)(8) of the Code,
Section 4281 of the Act, Treasury Regulations or by authority of the
Commissioner of the Internal Revenue Service exercised through
publication of revenue rulings, notices or other documents of general
applicability. In the event the Administrator determines that any
amendment to this Plan or the adoption of this Plan as a restatement of
an existing plan has the affect of eliminating or reducing a protected
benefit in violation of Section 411(d)(6) of the Code or regulations
promulgated thereunder, the amendment shall be disregarded to the extent
necessary to satisfy Section 411(d)(6) and the regulation.
An amendment reduces or eliminates Code Section 411(d)(6)
protected benefits if the amendment has the effect of either (i)
eliminating or reducing an early retirement benefit or a retirement-type
subsidy (as defined in Treasury Regulations), or (ii) eliminating an
optional form of benefit except to the extent permitted under Treasury
Regulations.
14.3 Effective Date of Amendments. Any amendment shall be
effective on the date provided therein and may have retroactive effect if
necessary to satisfy the requirements of the Code or the Act. Amendments may be
adopted at any time prior to the later of the time prescribed by law for filing
the tax return of Employer for the fiscal year in which such amendment was
adopted (including extensions thereof), a date designated by the Secretary of
the Treasury or his delegate, or as otherwise permitted by law.
14.4 Termination and Discontinuance of Contributions. Primary
Employer shall have the right at any time to discontinue Employer Contributions
hereunder and to terminate the Plan hereby created by delivering to the Trustee,
Administrator and all Participating Employers written notice of such
discontinuance or termination. The Plan shall also terminate with respect to an
Employer upon the dissolution, merger, consolidation, bankruptcy or
reorganization of the Employer or the sale by the Employer of substantially all
of its assets unless the Administrator's successor in interest or purchaser
substitutes itself for the Employer under this Plan.
Upon complete discontinuance of Employer's Contributions to the
Plan or upon termination or partial termination of the Plan, the rights of all
affected Participants to accrued benefits under such Plans to the date of such
termination or discontinuance, to the extent funded as of such date, shall
become fully vested and nonforfeitable. Unallocated Forfeiture Accounts shall be
credited back to the Participant's Account(s) as provided in Section 8 herein.
Forfeitures occurring prior to the date of termination shall not become fully
vested or restored to the Participant's Account as a result of a complete or
partial termination of the Plan.
14.5 Distribution of Plan and Trust. Upon permanent
discontinuance of contributions under the Plan, the Plan and Trust created
hereunder shall not automatically terminate. Primary Employer shall have the
option of terminating the Plan and Trust or continuing the Plan in accordance
with the provisions of this section. If Employer elects to
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continue the Plan and Trust, Trustee shall continue to hold the fully vested and
nonforfeitable Accounts of the Participants for their benefit, and the Trust
Agreement shall be administered as though the Plan were otherwise in full force
and effect, to the extent not inconsistent with this section; provided, however,
that no further contributions will be made thereafter by either Employer or the
Participants.
14.6 Liquidation of Plan and Trust. If the Primary Employer
elects to terminate the Plan and Trust, the Primary Employer shall direct
Trustee to distribute the assets remaining in the Trust after payment of any
expenses properly chargeable against the Trust to the Participants in the
amounts credited to their Accounts as of the date of such termination. If a
Participant's account balance under the Plan exceeds $5,000 and the Participant
does not consent to an immediate distribution: (a) the Participant's Account may
be transferred without the Participant's consent to another plan maintained by a
Related Employer; or (b) if no other plan is maintained by a Related Employer,
the Account may then be distributed to the Participant without the consent of
the Participant.
14.7 Dissolution of Employer. In the event Employer shall be
dissolved or liquidated and has elected not to terminate this Trust,
Administrator shall retain all of its powers and duties granted herein and shall
assume the authority to fill any vacancies occurring, to appoint successor
Trustees in the event of resignation by Trustee and to amend the Plan and Trust
in order to keep the Plan and Trust qualified under applicable law. If Employer
is Administrator, a successor Administrator shall be appointed.
14.8 Withdrawal by Participating Employer. A Participating
Employer may not withdraw from the Plan without the written consent of the
Primary Employer. The Primary Employer is authorized and directed to take all
necessary actions as the agent for each Participating Employer to maintain the
registration and qualification under Section 401(a) of the Code on behalf of the
Participating Employer.
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Section 15
ROLLOVERS AND PLAN TRANSFERS
15.1 Transfers of Eligible Rollover Distributions. A distribution
from a qualified plan or from an individual retirement account may be
transferred to this Trust, subject to the following conditions:
(a) The amount transferred consists of an Eligible Rollover
Distribution as defined in Section 10 herein.
(b) The amount being transferred consists of the same property
(other than cash), except as otherwise provided under Section
402(a)(6)(D) of the Code;
(c) Administrator consents to the transfer;
(d) The Employee is a Participant under this Plan unless
Employer elects to permit rollovers prior to becoming a Participant
under this Plan
(e) With respect to a transfer from an individual retirement
account, a transfer may not be made if, during the preceding one-year
period, the Employee has received a similar distribution which was not
included in his gross income.
(f) Administrator's Acceptance of Rollover. Administrator may
decline to accept any Rollover, which in the opinion of the
Administrator would jeopardize the qualified status of this Plan or
impose undue administrative burdens upon this Plan.
Administrator may rely upon a certification provided by the Plan
Administrator of the transferor plan that the transferor plan is
intended to be a qualified plan. If it is later determined that the
transferor plan was not a qualified plan at the time of the transfer of
assets to this Plan or that any portion of the distribution was not an
Eligible Rollover Distribution, a corrective distribution shall be made
from this Plan to the Participant of the amount of the transferred
distribution, plus earnings thereon, within a reasonable time after such
determination is made.
15.2 Transfers From Qualified Plans Prohibited. Trustee of this
Plan is not authorized to accept assets from a Trustee of another qualified plan
other than as a Direct Rollover.
15.3 Accounting for Transferred Funds. Amounts received by
transfer of a distribution or from another plan will be accounted for in such
manner as Administrator shall decide.
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15.4 Rollovers From Tax-Sheltered Annuities Prohibited. A
distribution from an individual retirement account may not be transferred to
this Plan if the amount represents a distribution from a tax-sheltered annuity
under Section 403(b) of the Code.
15.5 Mergers, Consolidations and Transfers of Plan Assets. In the
case of any merger or consolidation with, or transfers of assets to any other
Plan, each Participant in this Plan shall be entitled (if the Plan had then
terminated) to receive a benefit immediately after the merger, consolidation or
transfer which is equal to or greater than the benefit he would have been
entitled to receive immediately before the merger, consolidation or transfer (if
the Plan had then terminated).
15.6 Transfers to Other Plans. If a Participant shall be entitled
to receive a distribution of benefits under this Plan and (i) becomes a
Participant under another qualified plan established by Employer or (ii) shall
be subsequently employed by another employer which has a qualified plan, the
Participant's vested interest in his account(s) under this Plan may be
transferred directly to the Trustee of the other plan if the following
conditions are satisfied:
(a) The plan to which such funds are to be transferred permits
the transfer to be made;
(b) The Participant's vested interest in the transferred funds
shall not be forfeitable or reduce in any way the obligation of the new
employer;
(c) The transferee plan provides for all protected benefit
options contained in this Plan, as required under Section 411(d)(6) of
the Code;
(d) The Secretary of the Treasury has been properly notified as
required by Section 6057(d) of the Code.
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Section 16
ALLOCATION LIMITATIONS
16.1 General Limitations.
(a) Notwithstanding anything to the contrary contained in this
Plan, the total Annual Additions to Accounts of a Participant for any
Plan Year shall not exceed the lesser of:
(i) the Defined Contribution Dollar Limitation, or
(ii) 25 percent of the Participant's compensation,
within the meaning of Section 415(c)(3) of the Code for the
Limitation Year.
For purposes of this section, "Defined Contribution Dollar
Limitation" shall mean $30,000, as adjusted under Section 415(d) of the
Code.
The compensation limitation referred to above shall not apply
to:
(i) Any contribution for medical benefits (within the
meaning of Section 419(A)(f)(2) of the Code) after separation
from service which is otherwise treated as an Annual Addition,
or
(ii) Any amount otherwise treated as an Annual Addition
under Section 415(l)(1) of the Code.
For purposes of the plan, "Annual Addition" shall mean
the amount allocated to a Participant's Account during the
Limitation Year that constitutes:
(i) Employer Contributions,
(ii) Employee Contributions,
(iii) Forfeitures, and
(iv) Amounts described in Sections 415(l)(1) and
419(A)(d)(2) of the Code.
If no more than one-third of the Company Contributions for a
Limitation Year that are deductible as principal or interest payments on
an Exempt Loan, pursuant to the provisions of Section 404(a)(9) of the
Code, are allocated to Highly Compensated Employee Participants, then
the limitations imposed by subsection (a)(i) or (ii) above, whichever is
applicable, shall not apply to:
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(i) Forfeitures of Company Stock if the Company Stock
was acquired with the proceeds of an Exempt Loan, or
(ii) Company Contributions that are deductible as
interest payments on an Exempt Loan under Section 404(a)(9)(B)
of the Code and charged against a Participant's Account.
The term "Total Annual Compensation" for purposes of this
section of the Plan shall mean only the Participant's Earned Income,
wages, salaries, fees for professional services and other amounts
received for personal services actually rendered in the course of
employment with the Employer maintaining the Plan (including, but not
limited to, commissions paid to salesmen, compensation for services on
the basis of a percentage of profits, commissions on insurance premiums,
tips and bonuses), and excluding all other forms of compensation.
(b) If the Company is contributing to another defined
contribution plan, as defined in Section 414(i) of the Code, for
Employees of the Company, some or all of whom may be Participants in
this Plan, then any such Participant's Annual Additions in such other
plan shall be aggregated with the Participant's Annual Additions derived
from this Plan for purpose of the limitation in subparagraph (a) of this
paragraph.
(c) If a Participant in this Plan is also a Participant in a
defined benefit plan, as defined in Section 414(j) of the Code, to which
contributions are made by the Company, then in addition to the
limitation contained in subparagraph (a) of this paragraph, such
Participant shall be subject to the limitation set forth in Section
415(e) of the Code.
(d) If Company Stock is purchased from a shareholder of the
Company and if such shareholder is also a Participant in this Plan,
then, notwithstanding anything to the contrary contained in this Plan,
the total account balances of such Participant's Accounts, combined with
the total account balances of such Participant's spouse, parents,
grandparents, children and grandchildren, shall not exceed 20 percent of
the total of all account balances under the Plan.
(e) If the account balances or the Annual Additions to a
Participant's Accounts would exceed the limitations described in
subparagraphs (a), (b), (c) or (d) of this section, the aggregate of the
Annual Additions to this Plan and the Annual Additions to any other plan
described in subparagraph (c) shall be reduced until the applicable
limitation is satisfied.
(f) The reduction described above shall be treated as a
Forfeiture and shall be allocated as such to the Accounts of
Participants who are not affected by this limitation.
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(g) If any amount cannot be reallocated under the foregoing
provision, such amount shall be deposited in a Suspense Account and
allocated to the maximum extent possible under Section 16.1(a) in
succeeding years.
(h) If any amount remains in such Suspense Account upon
termination of the Plan, such amount shall thereupon revert to the
Company.
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Section 17
CLAIMS PROCEDURE
17.1 Filing of Claim. A Participant or Beneficiary may make a
claim for a Plan Benefit by written request to the Plan Administrator.
17.2 Notification of Decision. A decision shall be made on the
claim as soon as practicable and shall be communicated in writing to the person
who made the claim. If the claim is partially or wholly denied, written notice
of such denial shall be made to the claimant within 90 days after receipt of the
written claim by the Plan Administrator. The notice of denial shall contain:
(a) The reasons for the denial, with specific reference to the
provisions of the Plan upon which the denial is based;
(b) If required, a description of any additional data necessary,
which may be furnished to further support the request, and the reason
why such additional data may be necessary; and
(c) Notice of the claimant's right to have the denial reviewed,
together with specific information as to the steps to be taken, and the
time limit involved, if the claimant wishes to request a review of the
decision.
If a written communication of the decision is not made within 90
days, the claimant may deem the request denied.
17.3 Request for Review. If a claimant receives a notice of
denial or if no response has been made to his claim within a specified 90 days,
the claimant may request a review of his claim and the denial thereof by giving
written notice to the Plan Administrator. The claimant's request for review must
be made not later than 60 days after receipt of the notice of denial, or if no
such notice has been given, within 60 days after the expiration of the 90-day
period specified for such notice. If the written request for review is not made
within the specified 60-day period, the claimant shall waive his right to
review.
17.4 Review. A review shall be promptly made by the Plan
Administrator after receipt of a timely filed request for review. The claimant
may submit issues and comments in writing, may review pertinent documents and
may request a hearing. A decision on review shall be made and furnished in
writing to the claimant. The decision shall be made not later than 60 days after
receipt of the request for review unless special circumstances, such as a
claimant's request for a hearing, require an extension of time for processing,
in which case the time limit shall be not later than 120 days after such
receipt. The decision on review shall be furnished to the claimant in writing
and shall include the reasons for the decision, with references to the pertinent
plan provisions upon which the decision is based.
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Section 18
QUALIFIED DOMESTIC RELATIONS ORDER
18.1 General. The provisions of this section shall take precedent
over any other provisions in the Plan which may be inconsistent with this
section.
18.2 Distributions under QDRO. Distributions to an Alternate
Payee (as defined in Section 414(p)(8) of the Code) may be made in the manner
described herein pursuant to a Qualified Domestic Relations Order (as defined in
Section 414(p) of the Code ("QDRO")).
18.3 Time and Manner of Payment. Distributions may be made to an
Alternate Payee pursuant to the terms of a QDRO. The time and manner of payment
may be as provided herein, even if the time of payment is prior to the "earliest
retirement age" as defined under Section 414(p)(4)(B) of the Code, and without
regard to whether the Participant has terminated employment with Employer,
provided the following conditions are met:
(a) The QDRO specifies distribution at an administratively
feasible time which would be permitted under the Plan if the Participant
had terminated employment as of the date of the QDRO or permits an
agreement between the Plan and the Alternate Payee to authorize a time
for distribution; and
(b) Payment to the Alternate Payee must be in a form permitted
under the Plan, but not in the form of a joint and survivor annuity with
respect to the Alternate Payee and his/her subsequent spouse. Notice and
consent to make a distribution to an Alternative Payee are not required
except as may be otherwise provided in the QDRO.
18.4 Procedures. The Administrator shall establish reasonable
procedures to determine the qualified status of a QDRO and to administer
distributions under a QDRO, including:
(a) Upon receiving a domestic relations order, the Administrator
shall promptly notify the Participant and any Alternate Payee named in
the order, in writing, of the receipt of the order and the Plan's
procedures for determining the qualified status of the order. Within a
reasonable period of time after receiving the domestic relations order,
the Administrator must determine the qualified status of the order and
must notify the Participant and each Alternate Payee, in writing, of its
determination. The Administrator must provide such notice by mailing the
notice to the individual's address specified in the domestic relations
order, or in a manner consistent with Department of Labor regulations.
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(b) If any portion of the Participant's nonforfeitable Account
is payable during the period the Administrator is making its
determination of the qualified status of the domestic relations order,
the Administrator must make a separate accounting of the amounts
payable. If the Administrator determines the order is a Qualified
Domestic Relations Order within 18 months of the date amounts first are
payable following receipt of the order, the Administrator will direct
the Trustee to distribute the payable amounts in accordance with the
order. If the Administrator does not make its determination of the
qualified status of the order within the 18-month determination period,
the segregated Account shall be returned to the Participant's Accounts
under the Plan and shall be paid at the time and the manner provided
under the Plan as if no order had been received by the Plan. If the
Administrator later determines that the order is a Qualified Domestic
Relations Order, Administrator will apply the order prospectively.
(c) To the extent it is not inconsistent with the provisions of
the Qualified Domestic Relations Order, the Administrator may direct the
Trustee to invest any partitioned amount in a segregated subaccount or
separate Account and to invest the Account in federally insured,
interest-bearing savings account(s) or time deposit(s) (or a combination
of both), or in other fixed income investments. A segregated subaccount
remains a part of the Trust, but it alone shares in any income it earns,
and it alone bears any expense or loss it incurs. The Trustee will make
any payments or distributions required under this section by separate
benefit check(s) or other separate distribution to the Alternate
Payee(s).
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Section 19
STAND-BY TOP-HEAVY PROVISIONS
19.1 General. If the Plan is or becomes top heavy or a member of
a "required aggregation group" which is a "top-heavy group" (as defined in
Section 416 of the Code), in any Plan Year after December 31, 1983, the
provisions of this section will supersede any conflicting provisions in the
Plan, but only for those Plan Years in which the Plan remains top heavy, except
as otherwise provided below with respect to vesting. The top-heavy provisions
shall only apply to Employees who completed at least one Hour of Service in a
top-heavy year. The top-heavy provisions shall be interpreted to meet the
requirements of Section 416 of the Code and the regulations promulgated
thereunder. If Employer's Plan is or becomes top heavy, the top-heavy vesting
schedule applicable to Employer's Plan will not be cut back in any Plan Year
when the Plan ceases to be top heavy.
19.2 Top-Heavy Year. "Top-Heavy Year" shall mean any Plan Year
beginning after December 31, 1983, in which the present value of the cumulative
accrued benefits, with respect to Key Employees in the aggregation group of
plans, exceeds 60 percent of the present value of the cumulative accrued
benefits for all Employees in the aggregation group of plans on the applicable
determination date.
19.3 Definitions. For purposes of this section, the following
definitions shall apply:
(a) Key Employee. Any Employee or former Employee (and the
Beneficiaries of such Employee) who at any time during the determination
period was an officer of the Employer if such individual's Annual
Compensation exceeds 50 percent of the dollar limitation under Section
415(b)(1)(A) of the Code, an owner (or considered an owner under Section
318 of the Code) of one of the 10 largest interests in the Employer if
such individual's compensation exceeds 100 percent of the dollar
limitation under Section 415(c)(1)(A) of the Code, a five percent owner
of the Employer, or a one percent owner of the Employer who has an
Annual Compensation of more than $150,000. The determination of who is a
Key Employee will be made in accordance with Section 416(i)(1) of the
Code and the regulations thereunder.
(b) Annual Compensation. Compensation as defined in Section
415(c)(3) of the Code, but including amounts contributed by the Employer
pursuant to a salary reduction agreement which are excludable from the
Employee's gross income under Sections 125, 402(e)(3), 402(h) or 403(b)
of the Code. The determination period is the Plan Year containing the
determination date and the four preceding Plan Years.
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<PAGE> 73
(c) Top-heavy Plan. This Plan is top heavy if any of the
following conditions exists:
(i) If the top-heavy ratio for this Plan exceeds 60
percent, and this Plan is not part of any required aggregation
group or permissive aggregation group of plans.
(ii) If this Plan is a part of a required aggregation
group of plans, but not part of a permissive aggregation group,
and the top-heavy ratio for the group of plans exceeds 60
percent.
(iii) If this Plan is a part of a required aggregation
group and part of a permissive aggregation group of plans and
the top-heavy ratio for the permissive aggregation group exceeds
60 percent.
(d) Top-heavy Ratio:
(i) If the Employer maintains one or more defined
contribution plans (including any simplified employee pension
plan) and the Employer has not maintained any defined benefit
plan which, during the five-year period ending on the
determination date(s) has or has had accrued benefits, the
top-heavy ratio for this Plan alone, or for the required or
permissive aggregation group as appropriate, is a fraction, the
numerator of which is the sum of the account balances of all Key
Employees as of the determination date(s) (including any part of
any account balance distributed in the 5-year period ending on
the determination date(s)), and the denominator of which is the
sum of all account balances (including any part of any account
balance distributed in the five-year period ending on the
determination date(s)), both computed in accordance with Section
416 of the Code and the regulations thereunder. Both the
numerator and denominator of the top-heavy ratio are increased
to reflect any contribution not actually made as of the
determination date, but which is required to be taken into
account on that date under Section 416 of the Code and the
regulations thereunder.
(ii) If the Employer maintains one or more defined
contribution plans (including any simplified employee pension
plan) and the Employer maintains or has maintained one or more
defined benefit plans which, during the five-year period ending
on the determination date(s), has or has had any accrued
benefits, the top-heavy ratio for any required or permissive
aggregation group, as appropriate, is a fraction, the numerator
of which is the sum of account balances under the aggregated
defined contribution plan or plans for all Key Employees,
determined in accordance with (i) above, and the present value
of accrued benefits under the aggregated defined benefit plan or
plans for all Key Employees as of the determination date(s), and
the denominator of which is the sum of the account balances
under the aggregated defined contribution plan or plans for all
Participants, determined in accordance
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with (i) above, and the present value of accrued benefits under
the defined benefit plan or plans for all Participants as of the
determination date(s), all determined in accordance with Section
416 of the Code and the regulations thereunder. The accrued
benefits under a defined benefit plan in both the numerator and
denominator of the top-heavy ratio are increased for any
distribution of an accrued benefit made in the five-year period
ending on the determination date.
(iii) For purposes of (i) and (ii) above, the value of
account balances and the present value of accrued benefits will
be determined as of the most recent Valuation Date that falls
within or ends with the 12-month period ending on the
determination date, except as provided in Section 416 of the
Code and the regulations thereunder for the first and second
Plan Years of a defined benefit plan. The account balances and
accrued benefits of a Participant (a) who is not a Key Employee
but who was a Key Employee in a prior year, or (b) who has not
been credited with at least one Hour of Service with any
Employer maintaining the Plan at any time during the five-year
period ending on the determination date, will be disregarded.
The calculation of the top-heavy ratio, and the extent to which
distributions, rollovers, and transfers are taken into account
will be made in accordance with Section 416 of the Code and the
regulations thereunder. Deductible Employee Contributions will
not be taken into account for purposes of computing the
top-heavy ratio. When aggregating plans, the value of account
balances and accrued benefits will be calculated with reference
to the determination dates that fall within the same calendar
year.
The accrued benefit of a Participant, other than a Key
Employee, shall be determined under (a) the method, if any, that
uniformly applies for accrual purposes under all defined benefit
plans maintained by the Employer, or (b) if there is no such
method, as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under the fractional rule of
Section 411(b)(1)(C) of the Code.
(e) Permissive Aggregation Group. The required aggregation group
of plans plus any other plan or plans of the Employer which, when
considered as a group with the required aggregation group, would
continue to satisfy the requirements of Sections 401(a)(4) and 410 of
the Code.
(f) Required Aggregation Group. (i) Each qualified plan of the
Employer in which at least one Key Employee participates or participated
at any time during the determination period (regardless of whether the
plan has terminated), and (ii) any other qualified plan of the Employer
which enables a plan described in (i) to meet the requirements of
Sections 401(a)(4) or 410 of the Code.
(g) Determination Date. For any Plan Year subsequent to the
first Plan Year, the last day of the preceding Plan Year. For the first
Plan Year of the Plan, the last day of that year.
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(h) Valuation Date. The same date as the Determination Date.
(i) Non-Key Employee. An Employee who is not a Key Employee.
19.4 Top-Heavy Minimum Contributions.
(a) Minimum Contribution. If the Plan is a top-heavy plan for a
Plan Year, the Employer shall contribute to the Plan for the benefit of
and allocate to all Non-Key Employee Participants who have not separated
from service at the end of the Plan Year, an amount not less than the
lesser of the following:
(i) Three percent of the Non-Key Employee Participant's
Total Annual Compensation (as defined in Section 16.1 herein)
reduced by any Forfeitures allocated to the Account of the
Participant for the Plan Year; or
(ii) The same percentage of the Non-Key Employee
Participant's Total Annual Compensation (as defined in Section
16.1 herein) as the percentage made on behalf of the Key
Employee Participant who receives the highest percentage for the
Plan Year reduced by any Forfeitures allocated to the Account of
the Participant for the Plan Year.
For purposes of determining the amount of the top-heavy minimum
contribution, Annual Compensation for any Plan Year shall not exceed the
adjusted Dollar Limitation set forth in Section 2.6.
The Minimum Contribution is determined without regard to any
integration with social security otherwise permitted under Section
401(l) of the Code.
(b) Determination of Top-Heavy Minimum Contribution. In
determining the Minimum Contribution for a Non-Key Employee Participant,
Employer's Discretionary Contribution and allocation made shall be taken
into account and applied toward the satisfaction of the top-heavy
Minimum Contribution requirement but Employee's Minimum Contribution
shall be in addition to Employee Elective Deferrals and Employer
Matching Contributions, if any.
(c) Non Duplication of Top-Heavy Minimum Contribution. In
determining the Minimum Contribution for a Non-Key Employee Participant,
any Employer Contribution or Forfeitures allocated under this Plan and
any other defined contribution plan qualified under Section 401(a) of
the Code sponsored by a Related Employer shall be taken into account and
applied toward the satisfaction of the top-heavy Minimum Contribution
requirement. To the extent the required Minimum Contribution is
satisfied under another defined contribution plan maintained by a
Related Employer, then no minimum contribution is required under this
Plan.
Page 19-4
<PAGE> 76
(d) Top-Heavy Contribution with Defined Benefit Plan.
(i) If a Key Employee is a Participant in both a defined
contribution plan and a defined benefit plan that are part of a
top-heavy group wherein neither plan is a super top-heavy plan,
the three percent Minimum Contribution shall be increased to
four percent if necessary to avoid the application of Section
416(h)(1) of the Code.
(ii) Notwithstanding anything herein to the contrary, in
any Plan Year in which a Non-Key Employee is a Participant in
both this plan and a defined benefit pension plan, and both such
plans are top-heavy plans, the Employer shall not be required to
provide a Non-Key Employee with both the full separate minimum
defined benefit plan benefit and the full separate defined
contribution plan allocations. Therefore, for Non-Key Employees
who are participating in a defined benefit plan maintained by
the Employer and the minimum benefits under Section 416(c)(1) of
the Code are accruing to a Non-Key Employee under such Plan, the
minimum allocations provided for above shall not be applicable,
and no Minimum Contribution shall be made to the Plan on behalf
of the Non-Key Employee. Alternatively, the Employer may satisfy
the minimum benefit requirement of Section 416(c)(1) of the Code
for the Non-Key Employee by providing a five percent Minimum
Contribution for Non-Key Employees under this Plan.
19.5 Vesting. Vesting shall be determined in accordance with the
following schedule:
<TABLE>
<CAPTION>
Years of Service
for Vesting Purposes Vested Interest
-------------------- ---------------
<S> <C>
Less than 2 years 0%
2 years but less than 3 20%
3 years but less than 4 40%
4 years but less than 5 60%
5 years but less than 6 80%
6 years or more 100%
</TABLE>
If the Plan becomes top-heavy with the vesting schedule herein
becoming effective, and the Plan subsequently is determined not to be top-heavy
the top-heavy vesting schedule will not automatically revert back to the prior
schedule without complying with the requirements of Section 411(a)(10) of the
Code and the regulations thereunder, including the election of former schedule
provisions which must be given to Participants with at least five years of
service. For Plan Years beginning after December 31, 1988, the five-year period
shall be a three-year period.
Page 19-5
<PAGE> 77
19.6 Annual Additions Limitations. If for any Plan Year a
Participant is a Participant in both a defined contribution plan and a defined
benefit plan maintained by the Employer that are part of a top-heavy group, the
determination of the sum of the defined contribution plan fraction and the
defined benefit fraction for purposes of Section 415(e) of the Code shall be
made substituting "1.0" for "1.25," unless the extra minimum benefit or
contribution is made. The extra required minimum contribution shall be 7 1/2
percent. Also, for any Plan Year in which the plans are part of a super
top-heavy group, 1.0 shall be substituted for 1.25 in any event.
Page 19-6
<PAGE> 78
Section 20
MISCELLANEOUS PROVISIONS
20.1 No Contractual Relationship. The establishment of this Plan
shall not be construed as creating any contract of employment between any
Employer and any Employee. Nothing herein contained shall give any Employee of
an Employer the right to inspect the books of the Employer or any Related
Employer; nor to interfere with the right of the Employer to discharge any
Employee at any time; nor shall it give any Employer the right to require any
Employee to remain in its employ; nor shall it interfere with any Employee's
right to terminate his employment at any time.
20.2 Liability for Benefits. All Plan Benefits payable under this
Plan shall be provided solely from the Trust, to the extent funded, and neither
the Employer, the Administrator, or the Trustee assume any liability or
responsibility therefor.
20.3 Inability to Perform. Neither the Employer, the
Administrator, or the Trustee shall be responsible for any inability to perform
or delay in performing, any act occasioned by any person or by law, and, in the
event any such inability or delay shall be so occasioned, the Employer, the
Administrator or the Trustee shall perform such act which, in their sole
discretion, most completely carries out the intention and purpose of this Plan.
All parties to this Plan or in any way interested therein shall be bound by any
acts so performed under such conditions.
20.4 Participant's Rights. No Participant or Beneficiary shall
have any rights or interest in any specific assets in the Trust, except as
expressly set forth herein.
20.5 Plan and Trust Binding on all Parties. The Plan and Trust
provisions shall be binding upon the heirs, personal representatives, successors
and assigns of all present and future parties.
20.6 Conflict of Law Provisions. All matters respecting the
validity, effect, interpretation and administration of the Plan and Trust shall
be determined in accordance with the laws of the state in which the Primary
Employer maintains its principal place of business, except as preempted by
federal law.
20.7 Waiver of Notice. Any person, including a Participant or
Beneficiary, entitled to notice under the Plan may waive the notice.
20.8 Third Party. No person dealing with the Trustee is obligated
to see to the proper application of any money paid or property delivered to the
Trustee, or to inquire whether the Trustee has acted pursuant to any of the
terms of the Plan. Each person dealing with the Trustee may act upon any notice,
request or representation in writing by the Trustee, or by the Trustee's duly
authorized agent, and is not liable to any person in so acting. The certificate
of the Trustee that it is acting in accordance with the Plan will be conclusive
in
Page 20-1
<PAGE> 79
favor of any person relying on the certificate. If more than two persons act as
Trustee, a decision of the majority of such persons controls with respect to any
decision regarding the administration or investment of the Trust Fund.
20.9 Use of Terms. Wherever appropriate, words used herein in the
singular may include the plural, or the plural may be read as the singular, and
the masculine may include the feminine.
20.10 USERRA Provisions. Effective December 12, 1994,
notwithstanding any provision of this Plan to the contrary, contributions,
benefits and service credit with respect to qualified military service will be
provided in accordance with Section 414(u) of the Code.
Page 20-2
<PAGE> 80
IN WITNESS WHEREOF, Employer and Trustee have caused this
Agreement to be executed by their duly authorized officers this _____ day of
December, 1999.
EMPLOYER:
COLUMBIA BANCORP
By: /s/ TERRY COCHRAN
---------------------------
TRUSTEES:
/s/ TERRY COCHRAN
------------------------------
Terry Cochran
/s/ JEAN MCKINNEY
------------------------------
Jean McKinney
/s/ ROBERT BAILEY
------------------------------
Robert Bailey
/s/ DENNIS CARVER
------------------------------
Dennis Carver
<PAGE> 1
EXHIBIT 13.1
FINANCIAL REVIEW
<TABLE>
<CAPTION>
<S> <C>
Selected Financial Information 10
Management's Discussion and Analysis 11
Consolidated Balance Sheets 16
Consolidated Statements of Income and
Comprehensive Income 17
Consolidated Statements of Changes in
Stockholders' Equity 18
Consolidated Statements of Cash Flows 19
Notes to Consolidated Financial Statements 20
Independent Auditor's Report 34
Columbia Bancorp and Columbia River Bank
Executives and Other Vice Presidents 34
Columbia River Bank
Branch Managers and Branch Locations 35
Corporate and Shareholder Information 36
Board of Directors 37
</TABLE>
9
<PAGE> 2
Financial Condition and Results of Operations
Selected Financial Data
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
(dollars in thousands) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income $ 26,883 $ 21,328 $ 18,144 $ 15,385 $ 13,815
Interest expense 8,568 7,205 6,270 5,746 5,216
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income 18,315 14,123 11,874 9,639 8,599
Loan loss provision 1,005 1,000 581 246 88
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 17,310 13,123 11,293 9,393 8,511
Noninterest income 5,784 4,678 2,481 1,799 1,552
Noninterest expense 14,976 10,633 8,092 7,180 6,495
- -------------------------------------------------------------------------------------------------------------------------------
Income before provision for
income taxes 8,118 7,168 5,682 4,012 3,568
Provision for income taxes 3,105 2,450 1,795 1,285 1,079
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 5,013 $ 4,718 $ 3,887 $ 2,727 $ 2,489
===============================================================================================================================
DIVIDENDS
Cash dividends declared $ 1,999 $ 1,587 $ 842 $ 882 $ 555
Ratio of dividends declared
to net income 39.88% 33.64% 21.67% 32.37% 22.30%
Per Share Data
Earnings Per Share
Basic earnings per common share $ 0.63 $ 0.67 $ 0.57 $ 0.41 $ 0.37
Diluted earnings per common share 0.62 0.65 0.55 0.40 0.36
Cash Earnings Per Share
Basic earnings per common share $ 0.71 $ 0.68 $ 0.57 $ 0.41 $ 0.37
Diluted earnings per common share 0.70 0.66 0.55 0.40 0.36
Weighted average shares outstanding
Basic 7,985 7,066 6,813 6,732 6,693
Diluted 8,090 7,238 7,013 6,847 6,842
BALANCE SHEET DATA
Investment securities $ 62,333 $ 47,894 $ 48,804 $ 51,484 $ 49,454
Loans, net 246,975 206,551 155,219 118,228 104,178
Total assets 361,241 342,413 231,827 200,302 178,486
Total deposits 310,910 295,680 201,568 178,744 158,874
Shareholders' equity 37,322 34,756 22,987 19,533 17,484
SELECTED RATIOS
Return on average assets 1.44% 1.83% 1.77% 1.45% 1.46%
Return on average equity 13.90 18.10 18.37 14.91 15.45
Total loans to deposits 79.44 69.86 77.00 66.14 65.57
Net interest margin(1) 6.17 6.19 6.15 5.74 5.67
Efficiency ratio 62.14 56.56 56.37 62.77 63.98
Cash efficiency ratio 59.53 56.28 56.37 62.77 63.98
ASSET QUALITY RATIOS
Reserve for loans losses to:
Nonperforming assets 553.45% 108.82% 112.65% 384.17% 291.30%
Ending total loans 1.32 1.13 1.04 0.83 1.02
Nonperforming assets to ending
total assets 0.16 0.64 0.63 0.04 0.21
Net loan charge offs (recoveries)
to average loans 0.04 0.38 (0.04) 0.29 (0.03)
CAPITAL RATIOS
Average shareholders' equity to
average assets 10.40% 10.12% 9.62% 9.73% 9.48%
Tier 1 capital ratio 10.20 10.90 13.70 14.20 14.40
Total risk-based capital ratio 11.30 11.90 14.70 14.90 15.20
Leverage ratio 8.30 8.90 10.60 9.90 9.90
</TABLE>
(1) Interest earned on nontaxable securities has been computed on a 34% tax
equivalent basis.
10
<PAGE> 3
Management's Discussion and Analysis
Stock Price and Dividends
The common stock of Columbia Bancorp ("Columbia") trades on the Nasdaq National
Market under the symbol "CBBO". Beginning in January 1998, several brokerage
firms began serving as market makers for the stock and the stock became
available on the OTC Bulletin Board. Trading in Columbia's stock on Nasdaq
commenced on November 6, 1998. The respective high and low sale prices of
Columbia's common stock for the periods indicated are shown below. All prices
for the periods shown have been adjusted for all stock splits. Prices do not
include retail markups, markdowns, or commissions, and may not represent actual
transactions. As of February 3, 2000, Columbia's stock was held of record by
approximately 1,100 shareholders.
<TABLE>
<CAPTION>
1999 1998
------------------------------ -------------------------------
Cash Dividend Cash Dividend
High Low Declared High Low Declared
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 9.13 $ 8.25 $ 0.06 $12.00 $ 8.17 $ 0.05
Second Quarter $ 9.13 $ 7.44 $ 0.06 $11.63 $10.13 $ 0.05
Third Quarter $ 8.13 $ 6.25 $ 0.06 $10.75 $ 9.00 $ 0.06
Fourth Quarter $ 8.25 $ 6.25 $ 0.07 $ 9.37 $ 8.25 $ 0.06
</TABLE>
Overview
From its origins as a one-branch bank in The Dalles, Columbia has grown as a
result of merger and acquisition activity, new branch openings, the introduction
of new business lines, and the expansion and cross-marketing of its existing
products and community-bank lending expertise. In 1995, Columbia River Bank
("CRB") merged with Juniper Banking Company. In 1996, Columbia was formed as
CRB's holding company, and Columbia acquired Washington-based Klickitat Valley
Bank. Further growth came from CRB's Hood River and Bend branch openings, and
from the expansion in 1997 of CRB's residential mortgage business. In September
1998, CRB opened a new branch in Hermiston, Oregon and in November, Columbia
acquired Valley Community Bank. In 1999, CRB opened a new branch in Pendleton,
Oregon in January, completed construction and opened a second Bend branch in
August, and opened its first branch in Newberg, Oregon in November.
Collectively, these growth and acquisition activities have enabled Columbia to
diversify its portfolio and its operating risk over several market areas and
local economies.
Columbia's goal is to grow its earning assets while maintaining a high return on
equity and keeping asset quality high. The key to this, in Columbia's view, is
to emphasize personal, quality banking products and services for its customers,
to hire and retain competent branch management and administrative personnel, and
to respond quickly to customer demand and growth opportunities. Columbia also
intends to increase its market penetration in its existing markets, and to
expand into new markets through further suitable acquisitions and through new
branch openings. Columbia's goal is to increase earning assets without
compromising its commitment to high asset quality.
As of December 31, 1999, Columbia had total assets of $361.24 million, total
deposits of $310.91 million and shareholders' equity of $37.32 million.
Columbia's net income for the year ended December 31, 1999, was $5.01 million,
which was Columbia's 12th consecutive year of increasingly higher net income.
For the year ended December 31, 1999, Columbia's return on average assets was
1.44% and return on average equity was 13.90%. Since the year ended December 31,
1994, it has increased earnings by an average of 22.90% per year and achieved an
average return on average assets of 1.57%. During the same period, Columbia
achieved an average return on average equity of 16.21% while sustaining high
asset quality.
Results of Operations
NET INTEREST INCOME
Net interest income, before provision for loan loss, for the year ended December
31, 1999 was $18.32 million, an increase of 29.68% compared to net interest
income of $14.12 million in 1998, an increase of 18.94% compared to net interest
income of $11.87 million in 1997. The overall tax-equivalent earning asset yield
was 8.98% in 1999 compared to 9.25% in 1998 and 9.30% in 1997. For the same
years, rates on interest-bearing liabilities were 3.60%, 3.97%, and 4.01%,
respectively. These results were primarily due to an increase in the volume of
earning assets and the growth of noninterest-bearing deposits. For the
three-year period 1997 through 1999, the average yield on earning assets
decreased 0.32% while rates paid on interest-bearing liabilities decreased by
0.41%. Average loans increased 57.76% while average noninterest-bearing deposits
increased 82.77%.
11
<PAGE> 4
ANALYSIS OF NET INTEREST INCOME
The following table presents information regarding yields on interest-earning
assets, expense on interest-bearing liabilities and net yields on
interest-earning assets for the period indicated.
<TABLE>
<CAPTION>
Year Ended December 31, Increase Change
---------------------------------- -------------------- ---------------
(dollars in thousands) 1999 1998 1997 99-98 98-97 99-98 98-97
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest and fee income(1) $ 27,400 $ 21,764 $ 18,522 $ 5,636 $ 3,242 25.90% 17.50%
Interest expense $ 8,568 $ 7,205 $ 6,270 $ 1,363 $ 935 18.92% 14.91%
Net interest income before
provision for loan loss(1) $ 18,832 $ 14,559 $ 12,252 $ 4,273 $ 2,307 29.35% 18.83%
Average interest earning assets $ 305,287 $ 235,277 $ 199,265 $ 70,010 $ 36,012 29.76% 18.07%
Average interest bearing liabilities $ 238,646 $ 181,400 $ 156,405 $ 57,246 $ 24,995 31.56% 15.98%
Average interest earning assets/
interest bearing liabilities 127.92% 129.70% 127.40% (1.78) 2.30
Average yields earned(1) 8.98% 9.25% 9.30% (0.27) (0.05)
Average rates paid 3.60% 3.97% 4.01% (0.37) (0.04)
Net interest spread(1) 5.38% 5.28% 5.29% 0.10 (0.01)
Net interest margin(1) 6.17% 6.19% 6.15% (0.02) 0.04
</TABLE>
(1) Tax-exempt income has been subjected to a tax-equivalent basis at 34%.
Total interest-earning assets averaged $305.29 million for the year ended
December 31, 1999, compared to $235.28 million for the corresponding period in
1998. Most of the increase was due to an increase in loans. Increases in the
loan portfolio are attributed to the acquisition of Valley Community Bank,
opportunities afforded by the banking industry's consolidation and the closure
of competitors' branches in Columbia's market areas, and the hiring of
additional senior lending personnel in strategic branch locations and
administrative capacities.
Interest-bearing liabilities averaged $238.65 million for the year ended
December 31, 1999 compared to $181.40 million during the same period in 1998.
Although further competitive pressure is expected in expanding deposit
relationships, management, as a matter of policy, does not seek to attract
high-priced, brokered deposits. In the near-term, management does not anticipate
Columbia's net interest margins will be significantly impacted by competitive
pressure for deposit accounts.
Loans, which generally carry a higher yield than investment securities and other
earning assets, comprised 72.81% of average earning assets during 1999, compared
to 74.63% in 1998 and 70.71% in 1997. During the same periods, average yields on
loans were 10.12% in 1999, 10.22% in 1998, and 10.48% in 1997. Investment
securities comprised 19.43% of average earning assets in 1999, which was down
from 20.62% in 1998 and 26.06% in 1997. Tax equivalent interest yields on
investment securities have ranged from 6.27% in 1999 to 6.54% in 1998 and 6.57%
in 1997.
Interest cost, as a percentage of earning assets, decreased to 2.81% in 1999,
compared to 3.06% in 1998 and 3.15% in 1997. Local competitive pricing
conditions and funding needs for Columbia's investments in loans have been the
primary determinants of rates paid for deposits during these three years.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents charges made to earnings to maintain an
adequate allowance for loan losses. The allowance is maintained at an amount
believed to be sufficient to absorb losses in the loan portfolio. Factors
considered in establishing an appropriate allowance include a careful assessment
of the financial condition of the borrower; a realistic determination of the
value and adequacy of underlying collateral; the condition of the local economy
and the condition of the specific industry of the borrower; a comprehensive
analysis of the levels and trends of loan categories; and a review of delinquent
and classified loans.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding loans at end of period,
net of unearned interest income $ 250,274 $ 208,932 $ 156,858 $ 119,223 $ 105,250
Net charge-offs (recoveries) $ 86 $ 669 $ (63) $ 324 $ (29)
Ratio of net loans charged-off
(recovered) to average
outstanding loans 0.04% 0.38% (0.04)% 0.29% (0.03)%
</TABLE>
12
<PAGE> 5
For the year ended December 31, 1999, loan charge-offs exceeded recoveries by
$86,000 as compared to 1998, when loan charge-offs exceeded recoveries by
$669,000. Nearly one-third of the loss experienced in 1998 was due to a loss
from one loan. All remaining net charge-offs incurred by Columbia were smaller
in amount and generally distributed evenly among all other branch locations.
NONINTEREST INCOME
Total noninterest income increased through year-end 1999 from 1997. Over this
three-year period, noninterest income has increased from $2.48 million in 1997,
to $4.68 million in 1998, and to $5.78 million in 1999. Noninterest income is
primarily derived from service charges and related fees, as well as mortgage
origination and processing fees. Such income increased $1.11 million, or 23.64%
for the year ended December 31, 1999, compared to the year ended December 31,
1998. The principal reason for this increase was income generated by Columbia's
mortgage lending division, which was formed in September of 1997, and which
operates under the name "Columbia River Bank Mortgage Group." For the year ended
1999, this division generated $1.85 million in income from originating,
processing, servicing, and selling mortgage loans. The increase was also the
result of increasing deposit volumes and related service fees. Service charges
were $2.19 million for the year ended December 31, 1999, compared to $1.74
million for the year ended December 31, 1998, and $1.55 million for the year
ended December 31, 1997. Management attributes the 25.35% increase in 1999 to
the increase in customers served at all of Columbia's branches. The remainder of
the increase in noninterest income is primarily attributable to improved
revenues received from credit card discounts and fees, investment fee income
provided by Columbia's financial services department, and other noninterest
fees and charges.
NONINTEREST EXPENSE
Noninterest expenses consist principally of employees' salaries and benefits,
occupancy costs, data processing expenses and other noninterest expenses. A
measure of Columbia's ability to contain noninterest expenses is the efficiency
ratio. For the year ended December 31, 1999, the cash basis efficiency ratio had
slipped to 59.53% compared to 56.28% for the corresponding period of 1998. The
decline in the efficiency ratio primarily reflects increased expenses.
Noninterest expense was $14.98 million for the year ended December 31, 1999 an
increase of $4.34 million for the year ended December 31, 1998. This was due to
an increase in staffing costs, as well as increases in other key operating costs
such as occupancy expense, data processing expenses and other noninterest
expense. The additional expenses related primarily to costs associated with the
opening of three branches in 1999 as well as one-time non-recurring charges in
1999 for Y2K compliance, a technology study and the combination of the two
subsidiary banks.
INCOME TAXES
The provision for income taxes was $3.11 million in 1999, $2.45 million in 1998
and $1.80 million in 1997. The provision resulted in effective combined
federal and state tax rates of 38.25% in 1999, 34.18% in 1998, and 31.60% in
1997. The growth of the effective tax rate in 1999 is primarily due to the
effect of nondeductible goodwill amortization. The effective tax rates differ
from combined estimated statutory rates of 38% principally due to the effects
of nontaxable interest income which is recognized for book but not for tax
purposes. In addition, Columbia's state income tax rate was reduced from 6.6% to
3.81% in 1997 as a result of surplus revenues received by the State of Oregon.
LOANS
Columbia's loan policies and procedures establish the basic guidelines governing
its lending operations. Generally, the guidelines address the types of loans
that Columbia seeks, target markets, underwriting and collateral requirements,
terms, interest rate and yield considerations, and compliance with laws and
regulations. All loans or credit lines are subject to approval procedures and
amount limitations. These limitations apply to the borrower's total outstanding
indebtedness to Columbia, including the indebtedness of any guarantor. The
policies are reviewed and approved at least annually by the Board of Directors
of CRB.
Net outstanding loans totaled $246.98 at December 31, 1999, representing an
increase of $40.43 million, or 19.57% compared to $206.55 million as of December
31, 1998. Loan commitments grew to $82.69 million as of December 31, 1999,
representing an increase of $25.03 million over year-end 1998. Net outstanding
loans were $155.22 million at December 31, 1997.
Columbia's net loan portfolio at December 31, 1999, includes loans secured by
real estate (53.47% of total), commercial loans (24.98% of total), agricultural
loans (15.50% of total) and consumer loans (7.77% of total). These percentages
are generally consistent with previous reporting periods. Loans secured by real
estate include loans made for purposes other than financing purchases of real
property, such as inventory financing and equipment purchases, where real
property serves as collateral for the loan.
ASSET-LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
Columbia's results of operations depend substantially on its net interest
income. Interest income and interest expense are affected by general economic
conditions and by competition in the marketplace. Columbia's interest and
pricing strategies are driven by its asset-liability management analysis and by
local market conditions.
Columbia seeks to manage its assets and liabilities to generate a stable level
of earnings in response to changing interest rates and to manage its interest
rate risk. Columbia further strives to serve its communities and customers
through deployment of its resources on a corporate-wide basis so that
qualified loan demands may be funded wherever necessary in its branch banking
system. Asset/liability management involves managing the relationship between
interest rate sensitive assets and interest rate sensitive liabilities. If
assets and liabilities do not mature or reprice simultaneously, and in equal
amounts, the potential for exposure to interest rate risk exists, and an
interest rate "gap" is said to be present.
Rising and falling interest rate environments can have various effects on a
bank's net interest income, depending on the interest rate gap, the relative
changes in interest
13
<PAGE> 6
rates that occur when assets and liabilities are repriced, unscheduled
repayments of loans, early withdrawals of deposits and other factors.
The following table sets forth the dollar amount of maturing interest-earning
assets and interest-bearing liabilities at December 31, 1999, and the difference
between them for the maturing or repricing periods indicated. The amounts in the
table are derived from Columbia's internal data, which varies from amounts
classified in its financial statements, and, although the information may be
useful as a general measure of interest rate risk, the data could be
significantly affected by external factors such as prepayments of loans or early
withdrawals of deposits. Each of these may greatly influence the timing and
extent of actual repricing of interest-earning assets and interest-bearing
liabilities.
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------
Variable Less Than One Year
(dollars in thousands) Rate One Year or Longer Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments $ 1,592 $ 2,611 $ 64,991 $ 69,194
Loans 101,102 32,438 113,435 246,975
- --------------------------------------------------------------------------------------------
Total assets 102,694 35,049 178,426 316,169
LIABILITIES
Core deposits 170,288 52,689 70,326 293,303
Jumbo CDs -- 17,687 1,296 18,983
Borrowings 9,272 -- 1,598 10,870
- --------------------------------------------------------------------------------------------
Total liabilities 179,560 70,376 73,220 323,156
- --------------------------------------------------------------------------------------------
Net position (76,866) (35,327) 105,206 (6,987)
- --------------------------------------------------------------------------------------------
Net cumulative position $ (76,866) $(112,193) $ (6,987)
============================================================================================
Cumulative Gap as a percent of assets (21.28)% (31.06)% (1.93)%
============================================================================================
</TABLE>
The net cumulative gap position is somewhat negative since more liabilities than
assets reprice during the next year. This exposure to increasing rates is
currently exaggerated by "sticky" deposit rates (not expected to reprice
rapidly in increasing rate environment). However, Columbia's asset rates change
more than deposit rates, and management feels Columbia's asset yields will
change more than cost of funds when rates change.
Management believes that Columbia has relatively low interest rate risk that is
somewhat asset-sensitive. The net interest margin should increase slightly when
rates increase and shrink somewhat when rates fall. This interest rate risk is
driven by concentration of rate sensitive variable rate and short-term
commercial loans, one of Columbia's major business lines. Columbia does have
significant amounts of fixed rate loans to offset most of the impact from
repricing of short-term loans. However, there can be no assurance that
fluctuations in interest rates will not have a material adverse impact on
Columbia.
Columbia's sensitivity to gains or losses in future earnings due to hypothetical
decreases or increases in interest rates is as follows:
<TABLE>
<CAPTION>
Increase or Financial Impact
Decrease in on Net
Interest Rates Interest Margin
- ---------------------------------------------------------
<S> <C> <C>
2% $ 1,014,000
1% $ 507,000
-1% $ (507,000)
-2% $(1,014,000)
</TABLE>
LIQUIDITY
Columbia has adopted policies to maintain a relatively liquid position to enable
it to respond to changes in the financial environment and ensure sufficient
funds are available to meet customers' needs for borrowing and deposit
withdrawals. Generally, Columbia's major sources of liquidity are customer
deposits, sales and maturities of investment securities, the use of federal
funds markets and net cash provided by operating activities. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
unscheduled loan prepayments, which are influenced by general interest rate
levels, interest rates available on other investments, competition,
14
<PAGE> 7
economic conditions, and other factors, are not. Liquid asset balances include
cash, amounts due from other banks, federal funds sold, and securities
available-for-sale and securities held-to-maturity with maturities in the next
three months. At December 31, 1999, these liquid assets totaled $67.04 million
or 18.56% of total assets as compared to $95.88 million or 28.00% of total
assets at December 31, 1998. Another source of liquidity is the ability to
borrow from the Federal Home Loan Bank of Seattle and other correspondent banks.
An analysis of liquidity also includes a review of the changes that appear in
the consolidated statements of cash flows for the year ended December 31, 1999.
The statement of cash flows includes operating, investing and financing
categories. Operating activities include net income of $5.01 million, which is
adjusted for non-cash items and increases or decreases in cash due to changes in
certain assets and liabilities. Investing activities consist primarily of both
proceeds from and purchases of securities and the impact of the net growth in
loans. Financing activities present the cash flows associated with deposit
accounts and reflect dividends paid to shareholders.
At December 31, 1999, Columbia had outstanding commitments to make loans of
$82.69 million. Nearly all of these commitments represented unused portions of
credit lines available to consumers under credit card and other arrangements and
to businesses. Many of these credit lines will not be fully drawn upon and,
accordingly, the aggregate commitments do not necessarily represent future cash
requirements. Management believes that Columbia's sources of liquidity are more
than adequate to meet likely calls on outstanding commitments, although there
can be no assurance in this regard.
SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL
Shareholders' equity increased $2.57 million during 1999. Shareholders' equity
at December 31, 1999 was $37.32 million compared to $34.76 million at December
31, 1998. This increase reflects net income and comprehensive income of $4.24
million and $267,000 in exercised stock options. These additions to equity were
partially offset by cash dividends paid or declared of $2.00 million.
The Federal Reserve Board and the Federal Deposit Insurance Corporation have
established minimum requirements for capital adequacy for bank holding companies
and member banks. The requirements address both risk-based capital and
leveraged capital. The regulatory agencies may establish higher minimum
requirements if, for example, a corporation has previously received special
attention or has a high susceptibility to interest rate risk.
The following reflects Columbia's various capital ratios at December 31, 1999,
and December 31, 1998, as compared to regulatory minimums for capital adequacy
purposes:
<TABLE>
<CAPTION>
At At
December December Regulatory
31, 1999 31, 1998 Minimum
- --------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 capital 10.2% 10.9% 4.0%
Total risk-based capital 11.3% 11.9% 8.0%
Leverage ratio 8.3% 8.9% 4.0%
</TABLE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report includes forward-looking statements as defined in applicable
federal securities laws and regulations. Such forward-looking statements are
based on certain assumptions made by Columbia's management, information
currently available to management, and management's present beliefs about
Columbia's business and operations. All statements, other than statements of
historical fact in this document, regarding Columbia's financial position,
business strategy and plans and objectives of management of Columbia for future
operations, are forward-looking statements. Forward-looking statements can be
identified by words such as "believe," "estimate," "anticipate," "expect,"
"intend," "will," "may," "should," or other similar phrases or words. Although
Columbia believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Readers are therefore cautioned not to place undue
reliance on such forward-looking statements. Such factors as changed conditions,
incorrect assumptions or the materialization of a risk or uncertainty could
cause actual results to differ materially from results described in this
document as believed, anticipated, estimated, expected, or intended. Columbia
does not intend to update these forward-looking statements other than in
Columbia's quarterly and annual reports and other filings under applicable
securities laws.
15
<PAGE> 8
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 23,796,174 $ 22,643,895
Interest-bearing deposits with other banks 912,838 30,575,012
Federal funds sold 680,024 12,554,775
------------- -------------
Total cash and cash equivalents 25,389,036 65,773,682
------------- -------------
Investment securities available-for-sale 41,111,041 29,466,769
Investment securities held-to-maturity 20,125,225 17,310,222
Restricted equity securities 1,096,800 1,117,200
------------- -------------
Total investment securities 62,333,066 47,894,191
------------- -------------
Loans held-for-sale 3,282,849 7,818,603
Loans, net of allowance for loan losses and
unearned loan fees 243,692,191 198,733,188
Property and equipment, net of accumulated
depreciation 12,008,224 8,190,068
Goodwill, net of amortization 8,646,341 9,274,963
Accrued interest receivable 2,902,601 2,487,122
Other real estate owned -- 280,800
Other assets 2,986,359 1,960,632
- ------------------------------------------------------------------------------------------
Total assets $ 361,240,667 $ 342,413,249
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 74,889,247 $ 67,408,747
Interest-bearing demand deposits 130,148,498 134,716,357
Savings accounts 27,326,830 27,969,402
Time certificates 78,545,214 65,585,883
------------- -------------
Total deposits 310,909,789 295,680,389
------------- -------------
Notes payable 10,870,318 9,734,095
Accrued interest payable and other liabilities 2,138,998 2,242,545
- ------------------------------------------------------------------------------------------
Total liabilities 323,919,105 307,657,029
- ------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 15)
STOCKHOLDERS' EQUITY
Common stock, no par value,
20,000,000 shares authorized, 8,010,522
issued and outstanding at December 31, 1999
(7,949,032 in 1998) 14,392,229 14,125,315
Additional paid-in capital 6,371,490 6,317,732
Retained earnings 17,272,137 14,257,975
Accumulated comprehensive income,
net of taxes (714,294) 55,198
- ------------------------------------------------------------------------------------------
Total stockholders' equity 37,321,562 34,756,220
- ------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 361,240,667 $ 342,413,249
==========================================================================================
</TABLE>
See accompanying notes.
16
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 22,494,529 $ 17,938,902 $ 14,764,313
Interest on investments:
Taxable investment securities 2,194,632 1,719,464 2,257,934
Nontaxable investment securities 1,002,837 847,508 735,421
Interest on federal funds sold 829,137 492,361 221,167
Other interest and dividend income 362,171 329,615 164,685
- -----------------------------------------------------------------------------------------------------------------------
Total interest income 26,883,306 21,327,850 18,143,520
- -----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on interest-bearing deposit
and savings accounts 4,147,874 3,570,752 3,313,451
Interest on time deposit accounts 3,886,563 3,195,414 2,771,986
Other borrowed funds 533,800 438,588 183,637
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense 8,568,237 7,204,754 6,269,074
- -----------------------------------------------------------------------------------------------------------------------
Net interest income before
provision for loan losses 18,315,069 14,123,096 11,874,446
- -----------------------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 1,005,000 1,000,000 581,000
Net interest income after
provision for loan losses 17,310,069 13,123,096 11,293,446
- -----------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges and fees 2,186,953 1,744,620 1,545,174
Credit card discounts and fees 550,812 420,577 389,965
Financial services department income 377,332 311,925 230,405
Mortgage servicing revenues 1,105,753 681,558 --
Gain on loan sales, net of discounts 147,906 197,154 --
Mortgage loan origination income 598,456 726,538 118,818
Other noninterest income 816,408 595,446 196,361
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest income 5,783,620 4,677,818 2,480,723
- -----------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and employee benefits 8,043,843 6,014,344 4,463,483
Occupancy expense 1,188,923 948,287 735,858
Data processing expense 566,113 364,431 304,456
Credit card processing fees 405,075 282,041 254,299
Office supplies 240,943 200,439 199,930
FDIC assessment 36,491 24,042 19,749
Other noninterest expenses 4,493,722 2,799,578 2,114,509
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 14,975,110 10,633,162 8,092,284
- -----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 8,118,579 7,167,752 5,681,885
- -----------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 3,105,356 2,449,899 1,795,476
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME 5,013,223 4,717,853 3,886,409
=======================================================================================================================
OTHER COMPREHENSIVE INCOME
Unrealized gain on available-for-sale securities, net of
taxes and reclassification adjustment to net income (769,492) 45,106 21,324
=======================================================================================================================
COMPREHENSIVE INCOME $ 4,243,731 $ 4,762,959 $ 3,907,733
=======================================================================================================================
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 0.63 $ 0.67 $ 0.57
=======================================================================================================================
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 0.62 $ 0.65 $ 0.55
=======================================================================================================================
</TABLE>
See accompanying notes.
17
<PAGE> 10
Consolidated Statements of Changes
in Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Compre- Total
-------------------------- Paid-In Retained hensive Stockholders'
Shares Amount Capital Earnings Income Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1996 2,254,841 $ 5,139,218 $ 6,317,732 $ 8,087,264 $ (11,232) $ 19,532,982
Stock options exercised 21,415 214,001 -- -- -- 214,001
Sale of common stock 12,195 174,999 -- -- -- 174,999
Cash dividends -- -- -- (613,384) -- (613,384)
Cash dividends declared -- -- -- (228,845) -- (228,845)
Net income and
comprehensive income -- -- -- 3,886,409 21,324 3,907,733
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1997 2,288,451 $ 5,528,218 $ 6,317,732 $ 11,131,444 $ 10,092 $ 22,987,486
Stock options exercised 26,110 236,607 -- -- -- 236,607
Sale of common stock 1,009,375 8,360,490 -- -- -- 8,360,490
3 for 2 stock split and cash
paid for fractional shares 1,154,755 -- -- (4,037) -- (4,037)
2 for 1 stock split 3,470,341 -- -- -- -- --
Cash dividends -- -- -- (1,110,343) -- (1,110,343)
Cash dividends declared -- -- -- (476,942) -- (476,942)
Net income and
comprehensive income -- -- -- 4,717,853 45,106 4,762,959
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1998 7,949,032 $ 14,125,315 $ 6,317,732 $ 14,257,975 $ 55,198 $ 34,756,220
Stock options exercised 61,490 266,914 -- -- -- 266,914
Income tax benefit from
stock options exercised -- -- 53,758 -- -- 53,758
Cash dividends -- -- -- (1,438,324) -- (1,438,324)
Cash dividends declared -- -- -- (560,737) -- (560,737)
Net income and
comprehensive income -- -- -- 5,013,223 (769,492) 4,243,731
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1999 8,010,522 $ 14,392,229 $ 6,371,490 $ 17,272,137 $ (714,294) $ 37,321,562
==================================================================================================================================
</TABLE>
See accompanying notes
18
<PAGE> 11
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,013,223 $ 4,717,853 $ 3,886,409
Adjustments to reconcile net income to net
cash from operating activities:
Amortization of premiums and discounts 43,171 (8,385) 30,775
Loss (gain) on write-down of property, equipment and OREO 41,450 (10,393) (1,576)
Loss (gain) on sale of available-for-sale securities (8,566) (142,320) 4,940
Loss (gain) on call of held-to-maturity securities 793 (15,003) 7,583
Depreciation and amortization 1,328,275 552,955 449,048
Federal Home Loan Bank stock dividend (79,700) (59,600) (53,000)
Benefit for deferred income taxes (147,344) (186,665) (278,770)
Provision for loan losses 1,005,000 1,000,000 581,000
Increase (decrease) in cash due to changes in certain assets
and liabilities:
Proceeds from the sale of loans 134,746,355 112,433,596 6,440,000
Production of loans held-for-sale (130,210,601) (117,538,534) (9,153,665)
Accrued interest receivable (415,479) (76,406) (237,100)
Other assets (506,152) (865,964) (8,756)
Accrued interest payable and other liabilities (133,584) (946,616) 533,915
- ------------------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 10,676,841 (1,145,482) 2,200,803
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of available-for-sale securities 9,706,623 16,220,625 1,647,406
Proceeds from the maturity of available-for-sale securities 1,565,000 7,665,000 12,517,460
Proceeds from the maturity of held-to-maturity securities 3,473,381 2,524,291 3,576,370
Purchases of held-to-maturity securities (6,304,797) (3,097,129) (4,534,473)
Purchases of available-for-sale securities (24,076,603) (15,995,790) (10,454,096)
Net change in restricted equity securities 100,100 -- (41,000)
Net change in loans made to customers (46,123,083) (27,489,520) (34,858,003)
Cash paid, net of cash received from acquisition -- (709,364) --
Proceeds from the sale of property, equipment and OREO 398,430 10,393 --
Payments made for purchase of property and equipment (4,517,809) (1,847,077) (822,715)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash from investing activities (65,778,758) (22,718,571) (32,969,051)
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in demand deposit and savings accounts 2,270,069 43,715,064 24,253,865
Net change in time deposit accounts 12,959,331 15,860,017 (1,429,579)
Proceeds from public stock offering, net of expenses -- 8,126,115 --
Borrowings of long-term debt -- 402,471 663,824
Repayments of long-term debt (794,367) -- --
Fractional share payments -- (4,037) --
Dividends paid (1,915,266) (1,339,189) (793,772)
Proceeds from stock options exercised and purchases
of common stock 266,914 470,982 389,000
Net increase in short term borrowings 1,930,590 2,693,811 4,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 14,717,271 69,925,234 27,083,338
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (40,384,646) 46,061,181 (3,684,910)
CASH AND CASH EQUIVALENTS, beginning of year 65,773,682 19,712,501 23,397,411
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year 25,389,036 $ 65,773,682 $ 19,712,501
==============================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid in cash $ 8,464,322 $ 7,270,325 $ 6,250,774
==============================================================================================================================
Taxes paid in cash $ 2,930,000 $ 2,582,783 $ 2,069,541
==============================================================================================================================
SCHEDULE OF NONCASH ACTIVITIES
Unrealized gain on securities transferred from
held-to-maturity to available-for-sale, net of tax $ -- $ -- $ 23,991
==============================================================================================================================
Change in unrealized gain (loss) on available-for-sale
securities, net of tax $ (769,492) $ 45,106 $ (2,667)
==============================================================================================================================
Cash dividend declared and payable after year-end $ 560,737 $ 476,942 $ 228,845
==============================================================================================================================
Transfers of loans to other real estate owned $ 159,080 $ 280,800 $ --
==============================================================================================================================
</TABLE>
See accompanying notes
19
<PAGE> 12
Notes to Consolidated Financial Statements
Note 1 -- Organization and Summary of Significant Accounting Policies
ORGANIZATION AND NATURE OF OPERATIONS -- Columbia Bancorp ("Columbia") was
incorporated on October 3, 1995 and became the holding company of Columbia River
Bank ("CRB" or "Bank") effective January 1, 1996.
CRB is a state-chartered banking institution authorized to provide banking
services by the States of Oregon and Washington. With its administrative
headquarters in The Dalles, Oregon, CRB operates branch facilities in The
Dalles, Hood River, Hermiston, Pendleton, McMinnville, Newberg, Madras, Redmond
and Bend, Oregon. In Washington, it operates branches in Goldendale and White
Salmon.
Substantially all activity of Columbia is conducted through its subsidiary bank,
CRB, which, along with Columbia, is subject to the regulations of certain
federal and state agencies and undergo periodic examinations by those regulatory
authorities. All significant intercompany accounts and transactions between
Columbia and its subsidiaries have been eliminated in the preparation of the
consolidated financial statements.
BUSINESS ACQUISITION AND EXPANSION ACTIVITY -- In 1997, CRB began operation of a
mortgage banking division, Columbia River Bank Mortgage Group (the "Mortgage
Group"), which is headquartered in Bend, Oregon. The Mortgage Group has an
office in The Dalles, Oregon and provides services to all commercial banking
branches of CRB.
As further discussed in Note 2, Columbia acquired Valley Community Bancorp and
its subsidiaries, Valley Community Bank ("VCB"), and Valley Community Mortgage
Services, Inc., in November 1998. VCB was a state-chartered institution
authorized to provide banking services from its single office location in
McMinnville, Oregon. In 1999, VCB was merged into CRB and CRB replaced the
"Valley Community Bank" name with "Columbia River Bank."
In 1999, Columbia opened new CRB branches in Bend, Pendleton and Newberg,
Oregon. With these new branch openings, Columbia's operations as of December 31,
1999, include 11 bank branches and two mortgage banking division offices in
Oregon and two bank branches in Southwest Washington.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS -- 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. Significant estimations made by
management primarily involve the calculation of the allowance for loan losses.
INVESTMENT SECURITIES -- Columbia is required to specifically identify its
investment securities as "held-to-maturity," "available-for-sale," or "trading
accounts." Accordingly, management has determined that all investment securities
held at December 31, 1999 and 1998, are either "available-for-sale" or
"held-to-maturity" and conform to the following accounting policies:
Securities held-to-maturity -- Bonds, notes, and debentures for which Columbia
has the intent and ability to hold to maturity are reported at cost, adjusted
for premiums and discounts that are recognized in interest income using the
interest method over the period to maturity.
Securities available-for-sale -- Available-for-sale securities consist of bonds,
notes, debentures, and certain equity securities not classified as
held-to-maturity securities. Securities are generally classified as
available-for-sale if the instrument may be sold in response to such factors as:
(1) changes in market interest rates and related changes in the prepayment risk,
(2) needs for liquidity, (3) changes in the availability of and the yield on
alternative instruments, and (4) changes in funding sources and terms.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as other comprehensive income and carried as accumulated
comprehensive income or loss within stockholders' equity until realized. Fair
values for these investment securities are based on quoted market prices. Gains
and losses on the sale of available-for-sale securities are determined using the
specific-identification method.
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary result in write-downs
of the individual securities to their fair value. The related write-downs
would be included in earnings as realized losses. Premiums and discounts are
recognized in interest income using the effective interest method over the
period to maturity.
RESTRICTED EQUITY SECURITIES -- Columbia's equity investments in the Federal
Home Loan Bank, Federal Agriculture Mortgage Corporation and Federal Reserve
Bank stock are classified as restricted equity securities since ownership of
these instruments is restricted and they do not have an active market. As
restricted equity securities, these investments are carried at cost.
LOANS, NET OF ALLOWANCE FOR LOAN LOSSES AND UNEARNED INCOME -- Loans are stated
at the amount of unpaid principal, reduced by an allowance for loan losses and
unearned income. Interest on loans is calculated by using the simple-interest
method on daily balances of the principal amount outstanding. The allowance for
loan losses is established through a provision for loan losses charged to
expenses. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrower's
ability to pay. Various regulatory agencies, as a regular part of their
examination process, periodically review the Bank's reserve for loan losses.
Such agencies may require the Bank to recognize additions to the allowance based
on their judgment of information available to them at the time of examinations.
20
<PAGE> 13
Impaired loans are carried at the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's market price, or
the fair value of the collateral if the loan is collateral dependent. Accrual of
interest is discontinued on impaired loans when management believes, after
considering economic and business conditions, collection efforts, and collateral
position, that the borrower's financial condition is such that collection of
interest is doubtful. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to the
extent cash payments are received.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.
LOANS HELD-FOR-SALE -- Mortgage loans held-for-sale are carried at the lower of
cost or estimated market value. Market value is determined on an aggregate loan
basis. At December 31, 1999 and 1998, mortgage loans held-for-sale were carried
at cost which approximated market.
LOAN SERVICING -- The cost of mortgage servicing rights is amortized in
proportion to, and over the period of estimated net servicing revenues.
Impairment of mortgage servicing rights is assessed based on the fair value of
those rights. Fair values are estimated using discounted cash flows based on
current market interest rates. The amount of impairment recognized is the amount
by which the capitalized mortgage servicing rights exceed fair value.
Rights to future interest income from serviced loans that exceeds contractually
specified servicing fees are classified as interest-only strips and accounted
for as debt securities that are available-for-sale.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed by the straight-line and
accelerated methods over the estimated useful lives of the assets, which range
from three to seven years for furniture and equipment and 31 1/2 years for
building premises.
OTHER REAL ESTATE -- Other real estate, acquired through foreclosure or deeds in
lieu of foreclosure, is carried at the lower of cost or estimated net realizable
value. When property is acquired, any excess of the loan balance over its
estimated net realizable value is charged to the reserve for loan losses.
Subsequent write-downs to net realizable value, if any, or any disposition gains
or losses are included in noninterest income and expense.
GOODWILL -- Goodwill represents the excess of cost over the fair value of net
assets acquired from the purchase of Valley Community Bancorp (see Note 2), and
is being amortized by the straight-line method over a 15-year period.
INCOME TAXES -- Deferred income tax assets and liabilities are determined
based on the tax effects of the differences between the book and tax bases of
the various balance sheet assets and liabilities. 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.
ADVERTISING -- Advertising costs are charged to expense during the year in which
they are incurred. Advertising expenses were $278,834, $248,239, and $144,057
for the years ended December 31, 1999, 1998 and 1997, respectively.
STATEMENT OF CASH FLOWS -- Cash equivalents are generally all short-term
investments with a maturity of three months or less. Cash and cash equivalents
normally include cash on hand, amounts due from banks and federal funds sold.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS -- Columbia holds no derivative
financial instruments. However, in the ordinary course of business, the Bank has
entered into off-balance-sheet financial instruments consisting of commitments
to extend credit, commitments under credit card arrangements, commercial letters
of credit and standby letters of credit. These financial instruments are
recorded in the financial statements when they are funded or related fees are
incurred or received.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The following methods and assumptions
were used by Columbia in estimating fair values of financial instruments as
disclosed herein:
Cash and cash equivalents -- The carrying amounts of cash and short-term
instruments approximate their fair value.
Held-to-maturity and available-for-sale securities -- Fair values for investment
securities, excluding restricted equity securities, are based on quoted market
prices. The carrying values of restricted equity securities approximate fair
values.
Loans receivable -- For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
Fair values for certain mortgage loans (for example, one-to-four family
residential), credit card loans, and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. Fair values for
commercial real estate and commercial loans are estimated using discounted
cash flow analyses, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flow analyses or underlying
collateral values, where applicable.
Deposit liabilities -- The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date (that
is, their carrying amounts). The carrying amounts of variable-rate, fixed-term
money market accounts and certificates of deposit (CDs) approximate their fair
values at the reporting date. Fair values for fixed-rate CDs are estimated using
a discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.
Short-term borrowings -- The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
maturing within 90 days approximate their fair values. Fair values of other
short-term borrowings are estimated using discounted cash flow analyses based on
the Bank's current incremental borrowing rates for similar types of borrowing
arrangements.
21
<PAGE> 14
Long-term debt -- The fair values of the Bank's long-term debt is estimated
using discounted cash flow analyses based on the Bank's current incremental
borrowing rates for similar types of borrowing arrangements.
Accrued interest -- The carrying amounts of accrued interest approximate their
fair values.
Off-balance-sheet instruments -- The Bank's off-balance-sheet instruments
include unfunded commitments to extend credit and standby letters of credit. The
fair value of these instruments is not considered practicable to estimate
because of the lack of quoted market prices and the inability to estimate fair
value without incurring excessive costs.
STOCK OPTIONS -- Columbia applies Accounting Principles Board Opinion 25 and
related interpretations in accounting for its stock option plans. Accordingly,
compensation costs are recognized as the difference between the exercise price
of each option and the market price of Columbia's stock at the date of each
grant. No compensation costs were recognized in 1999, 1998 and 1997,
respectively. Had compensation for Columbia's stock option plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of Statement of Financial Accounting Standards
(SFAS) No. 123, net income would have been affected as described in Note 17.
RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1999, the Financial Accounting
Standards Board (FASB) issued SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that Columbia recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. SFAS No. 133, as amended
by SFAS No. 137, shall be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. Management believes this accounting standard will
have no effect on the financial condition and results of operations of Columbia
and the Bank.
Other issued but not yet required FASB statements are not currently applicable
to Columbia's operations. Management believes these pronouncements will have no
material effect upon Columbia's financial position or results of operation.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1998 and
1997 financial statements to conform with current year presentations.
Note 2 -- Acquisition of Valley Community Bancorp
Effective November 30, 1998, Columbia completed its acquisition of Valley
Community Bancorp and its wholly-owned subsidiaries, VCB and Valley Community
Mortgage Services, Inc., headquartered in McMinnville, Oregon. As consideration
for the acquisition, Columbia paid $15.1 million in exchange for all of the
outstanding common and preferred stock held by shareholders of Valley Community
Bancorp. Following the acquisition, Valley Community Bancorp was effectively
dissolved and its subsidiaries became direct subsidiaries of Columbia. As of
December 31, 1998, substantially all activity was conducted through VCB. Valley
Community Mortgage Services, Inc., was not engaged in any business activities in
1998 or 1999.
The business combination was accounted for as a purchase for accounting
purposes. Accordingly, under generally accepted accounting principles, the
assets and liabilities of Valley Community Bancorp were recorded by Columbia at
their respective fair market values as of the effective date of the acquisition.
As a result, goodwill, which is the excess of the purchase price over the net
fair value of the assets acquired and liabilities assumed, was recorded at
$9,327,348. Amortization of goodwill over a 15-year period will result in a
charge to earnings of approximately $629,000 per year. The following summa-
rizes the fair values of the assets acquired and liabilities assumed as of the
November 30, 1998, acquisition date.
<TABLE>
<CAPTION>
(in thousands)
- ----------------------------------------------
<S> <C>
Cash and due from banks $14,334
Investment securities 5,863
Restricted equity securities 292
Loans, net 20,020
Premises and equipment, net 1,587
Accrued interest and other assets 472
Goodwill 9,327
- ----------------------------------------------
Total assets $51,895
==============================================
Deposits $34,537
Notes payable 1,374
Accrued interest and
other liabilities 882
- ----------------------------------------------
Total liabilities 36,793
Cash paid for acquisition 15,102
- ----------------------------------------------
Total liabilities assumed
and cash paid for acquisition $51,895
==============================================
</TABLE>
The financial statements for the year ended December 31, 1998, include the
operations of VCB from November 30, 1998 to December 31, 1998. The following
information presents the pro forma results of operations for the years ended
December 31, 1998 and 1997, as though the acquisition had occurred on January
1, 1997. The pro forma results do not necessarily indicate the actual result
that would have been obtained nor are they necessarily indicative of the
future operations of the combined companies.
22
<PAGE> 15
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------
Unaudited Pro Forma
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net interest income before provision for loan loss $ 16,137 $ 13,783
Net income $ 5,446 $ 4,054
Earnings per common share:
Basic $ 0.80 $ 0.52
Diluted $ 0.78 $ 0.51
</TABLE>
Note 3 -- Investment Securities
The book value and approximate market values of Columbia's investment securities
at December 31, 1999 and 1998, are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Available-for-sale securities:
U.S. Treasury securities $ 1,630,825 $ 1,701 $ (22,405) $ 1,610,121
Obligations of U.S. government agencies 37,162,723 1,343 (959,218) 36,204,848
Corporate debt securities 557,334 -- (25,162) 532,172
Corporate equity securities 300,000 -- -- 300,000
Municipal securities 2,488,684 1,931 (26,715) 2,463,900
- ----------------------------------------------------------------------------------------------------------------
$ 42,139,566 $ 4,975 $ (1,033,500) $ 41,111,041
================================================================================================================
Held-to-maturity securities:
Mortgage-backed securities $ 2,538,993 $ 405 $ (20,108) $ 2,519,290
Municipal securities 17,586,232 30,999 (565,409) 17,051,822
- ----------------------------------------------------------------------------------------------------------------
$ 20,125,225 $ 31,404 $ (585,517) $ 19,571,112
================================================================================================================
DECEMBER 31, 1998
Available-for-sale securities:
U.S. Treasury securities $ 3,160,162 $ 38,507 $ -- $ 3,198,669
Obligations of U.S. government agencies 23,092,877 91,876 (16,546) 23,168,207
Corporate debt securities 604,896 230 (93) 605,033
Corporate equity securities 300,000 -- -- 300,000
Municipal securities 2,193,373 1,487 -- 2,194,860
- ----------------------------------------------------------------------------------------------------------------
$ 29,351,308 $ 132,100 $ (16,639) $ 29,466,769
================================================================================================================
Held-to-maturity securities:
Mortgage-backed securities $ 973,836 $ 792 $ (2,148) $ 972,480
Municipal securities 16,336,386 472,033 (12,207) 16,796,212
- ----------------------------------------------------------------------------------------------------------------
$ 17,310,222 $ 472,825 $ (14,355) $ 17,768,692
================================================================================================================
</TABLE>
23
<PAGE> 16
The amortized cost and estimated market value of investment securities at
December 31, 1999, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
--------------------------- ---------------------------
Cost Market Cost Market
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,049,819 $ 1,051,808 $ 2,481,745 $ 2,492,921
Due after one year through five years 40,150,936 39,131,425 5,866,926 5,851,742
Due after five years through ten years 638,811 627,808 3,849,595 3,737,273
Due after ten years -- -- 7,926,959 7,489,176
- ------------------------------------------------------------------------------------------------------
41,839,566 40,811,041 20,125,225 19,571,112
Corporate equity securities 300,000 300,000 -- --
- ------------------------------------------------------------------------------------------------------
$42,139,566 $41,111,041 $20,125,225 $19,571,112
======================================================================================================
</TABLE>
For the purpose of the maturity table, mortgage-backed securities, which are not
due at a single maturity date, have been allocated over maturity groupings based
on the weighted-average contractual maturities of underlying collateral.
Mortgage-backed securities mature earlier than their weighted-average
contractual maturities because of principal prepayments.
As of December 31, 1999 and 1998, investment securities with a book value of
$11,715,839 and $8,092,616, respectively, have been pledged to secure public
and other deposits, as required by law.
Note 4 -- Restricted Equity Securities
The composition of restricted equity securities is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Bank stock $1,087,400 $ 999,800
Federal Agriculture Mortgage Corporation stock 9,400 9,400
Federal Reserve Bank stock -- 108,000
- ----------------------------------------------------------------------------
$1,096,800 $1,117,200
============================================================================
</TABLE>
Note 5 -- Loans
The loan portfolio consists of the following:
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------
<S> <C> <C>
Commercial $ 60,868,875 $ 41,274,990
Agriculture 37,775,087 34,603,691
Real estate 130,313,434 108,516,555
Consumer 18,096,432 16,568,629
Other loans 827,362 933,494
- -----------------------------------------------------
247,881,190 201,897,359
Less:
Allowance for
loan losses (3,298,460) (2,380,220)
Unearned loan
fees (890,539) (783,951)
- -----------------------------------------------------
$ 243,692,191 $ 198,733,188
=====================================================
</TABLE>
Impairment of loans having recorded investments of $595,329 at December 31,
1999, and $1,906,757 at December 31, 1998, have been recognized by the Bank.
CRB's average investment in impaired loans, measured on the basis of the present
value of expected future cash flows discounted at the loans' effective interest
rate, was $640,697 during 1999 and $2,020,428 during 1998. The total allowance
for loan losses related to these loans at December 31, 1999 and 1998 was
approximately $75,000, and $293,000, respectively. Had the impaired loans per-
formed according to their original terms, additional interest income of
$43,156, $113,298, and $58,533 would have been recognized in 1999, 1998 and
1997, respectively. No interest income has been recognized on impaired loans
during the period of impairment.
24
<PAGE> 17
Note 6 -- Allowance for Loan Losses
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, beginning of year $ 2,380,220 $ 1,638,633 $ 994,576
Acquired with acquisition of Valley Community Bancorp -- 410,540 --
Provision for loan losses 1,005,000 1,000,000 581,000
Loans charged-off (182,366) (766,632) (40,144)
Loan recoveries 95,606 97,679 103,201
- -------------------------------------------------------------------------------------------------------
BALANCE, end of year $ 3,298,460 $ 2,380,220 $ 1,638,633
=======================================================================================================
</TABLE>
Note 7 -- Loan Servicing
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
mortgage loans serviced for others was $89,650,772 and $44,530,731 at December
31, 1999 and 1998, respectively.
Mortgage servicing rights of $932,724 and $667,961 were capitalized in 1999 and
1998, respectively. Amortization of mortgage servicing rights was $96,896 and
$20,119 for the years ended December 31, 1999 and 1998, respectively.
Note 8 -- Property and Equipment
The major classifications of property and equipment are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------
<S> <C> <C>
Land $ 3,529,909 $ 2,019,606
Construction
in progress 727,565 710,410
Buildings and
improvements 7,808,056 5,632,191
Furniture and
equipment 4,517,450 3,702,965
- ----------------------------------------------------
16,582,980 12,065,172
Less accumulated
depreciation (4,574,756) (3,875,104)
- ----------------------------------------------------
$ 12,008,224 $ 8,190,068
====================================================
</TABLE>
Note 9 -- Time Deposits
Time certificates of deposit of $100,000 and over, aggregated $19,177,862 and
$10,878,017 at December 31, 1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities for all time deposits are as
follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $68,048,952
2001 7,026,336
2002 1,466,935
2003 783,370
2004 and thereafter 1,221,621
- ---------------------------------------------------
$78,545,214
===================================================
</TABLE>
25
<PAGE> 18
Note 10 -- Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax provision
Federal $ 2,716,807 $ 2,225,178 $ 1,901,578
State 535,893 411,386 172,668
- --------------------------------------------------------------------------------------------------------------
3,252,700 2,636,564 2,074,246
- --------------------------------------------------------------------------------------------------------------
Deferred tax benefit
Federal (131,834) (165,276) (252,657)
State (15,510) (21,389) (26,113)
- --------------------------------------------------------------------------------------------------------------
(147,344) (186,665) (278,770)
- --------------------------------------------------------------------------------------------------------------
$ 3,105,356 $ 2,449,899 $ 1,795,476
==============================================================================================================
</TABLE>
The components of the deferred tax benefit consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loan loss provision not deductible for tax $ (321,941) $ (127,122) $ (236,640)
Difference between book and tax depreciation methods 6,270 38,698 36,577
Difference between accrual and cash basis tax reporting (17,406) (102,083) (58,547)
Deferred compensation expense 119,491 7,233 (43,025)
Difference between book and tax recognition of
Federal Home Loan Bank stock dividends 30,400 22,979 22,865
Other differences 35,842 (26,370) --
- --------------------------------------------------------------------------------------------------------------
Deferred tax benefit $ (147,344) $ (186,665) $ (278,770)
==============================================================================================================
</TABLE>
The net deferred tax asset in the accompanying consolidated balance sheets
consists of the following:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 1,047,250 $ 725,309
Net operating loss carryforward 27,524 61,471
Deferred compensation 101,641 221,132
- --------------------------------------------------------------------------------------------------------------
1,176,415 1,007,912
- --------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation (587,293) (581,023)
Conversion to accrual basis tax reporting (45,564) (62,970)
Federal Home Loan Bank stock dividends (122,897) (92,497)
Other (14,941) (13,046)
- --------------------------------------------------------------------------------------------------------------
(770,695) (749,536)
- --------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 405,720 $ 258,376
==============================================================================================================
</TABLE>
Management believes, based upon Columbia's historical performance, that the
deferred tax asset will be realized in the normal course of operations and,
accordingly, management has not reduced deferred tax assets by a valuation
allowance.
As a result of Columbia's acquisition of Valley Community Bancorp, Columbia
recorded an additional net deferred tax liability of $281,460 at November 30,
1998.
The tax provision differs from the federal statutory rate of 34% due principally
to the effect of tax exemptions for interest received on municipal investments.
The 1997 provision for income taxes reflects a reduction in the state income tax
rate from 6.6% to 3.8%.
26
<PAGE> 19
A reconciliation between the statutory federal income tax rate and the effective
tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes at statutory rate $ 2,886,086 $ 2,437,036 $ 1,931,841
State income tax expense, net of federal income tax benefit 340,773 271,503 126,501
Effect of nontaxable interest income (305,873) (255,867) (220,901)
Effect of nondeductible goodwill amortization 213,732 -- --
Other (29,362) (2,773) (41,965)
- ---------------------------------------------------------------------------------------------------------------
$ 3,105,356 $ 2,449,899 $ 1,795,476
===============================================================================================================
38% 34% 32%
===============================================================================================================
</TABLE>
Note 11 -- Transactions with Related Parties
Certain directors, executive officers and principal stockholders are customers
of and have had banking transactions with the Bank, and the Bank expects to have
such transactions in the future. All loans and commitments to loan included in
such transactions were made in compliance with applicable laws on substantially
the same terms (including interest rates and collateral) as those prevailing at
the time for comparable transactions with other persons and do not involve more
than the normal risk of collectibility or present any other unfavorable
features. The amount of loans outstanding to directors, executive officers,
principal stockholders, and companies with which they are associated was as
follows:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------
<S> <C> <C>
BALANCE, beginning
of year $ 2,821,788 $ 2,297,536
Acquired with Valley
Community Bancorp -- 798,564
Loans made 214,305 972,945
Loans repaid and
reclassified (1,345,589) (1,247,257)
- ---------------------------------------------------------------------
BALANCE, end of year $ 1,690,504 $ 2,821,788
=====================================================================
</TABLE>
Columbia has a 28.6% shareholder interest in Datatech of Oregon, Inc.
("Datatech"), a bank service corporation functioning as a data processing
facility for the Bank and five other community banks in Oregon. The investment
in Datatech is accounted for by the cost method. Under this accounting method,
Columbia recognizes income from its investment as dividends are distributed.
Dividends received in excess of earnings are considered as a return of
investment and are recorded as reductions of cost of the investment. For the
periods ended December 31, 1999, 1998, and 1997, Bancorp recorded data
processing expenses paid to Datatech in the amount of $530,424, $361,782 and
$304,456, respectively. Columbia also had prime rate, unsecured loans to
Datatech of $106,978 at December 31, 1999, and $167,323 at December 31, 1998. As
of December 31, 1999, Columbia's recorded investment in Datatech was $66,507.
Note 12 -- Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business to meet the financing needs of its customers,
the Bank is a party to financial instruments with off-balance-sheet risk. These
financial instruments include commitments to extend credit and the issuance of
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the state-
ment of financial position. The contract amounts of those instruments reflect
the extent of involvement the Bank has in particular classes of financial
instruments.
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 letters
of credit written is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as they do for on-balance-sheet instruments.
Unless noted otherwise, the Bank does not require collateral or other security
to support financial instruments with credit risk.
<TABLE>
<CAPTION>
Contract Amounts
December 31,
---------------------------
1999 1998
- -------------------------------------------------------
<S> <C> <C>
Financial instruments
whose contract amounts
represent credit risk:
Commitments to
extend credit $74,100,106 $50,735,130
Undisbursed credit
card lines of credit 7,703,902 6,329,831
Commercial and
standby letters
of credit 889,019 597,797
- -------------------------------------------------------
$82,693,027 $57,662,758
=======================================================
</TABLE>
27
<PAGE> 20
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. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, total commitment amounts do not necessarily represent
future cash requirements. The amount of collateral obtained, if deemed necessary
by the Bank upon an extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies but may include accounts
receivable, inventory, property and equipment, and income-producing properties.
Letters of credit written 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,
including commercial paper, bond financing and similar transactions. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Bank holds cash,
marketable securities or real estate as collateral supporting those
commitments for which collateral is deemed necessary.
Note 13 -- Fair Values of Financial Instruments
The following table estimates fair value and the related carrying values of
Columbia's financial instruments at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 23,796 $ 23,796 $ 22,644 $ 22,644
Interest-bearing deposits with other banks 913 913 30,575 30,575
Federal funds sold 680 680 12,555 12,555
Securities available-for-sale 41,111 41,111 29,467 29,467
Securities held-to-maturity 20,125 19,571 17,310 17,769
Restricted equity securities 1,097 1,097 1,117 1,117
Loans held-for-sale 3,283 3,283 7,819 7,819
Loans, net of allowance for loan
losses and unearned loan fees 243,692 243,086 198,733 204,334
Accrued interest receivable 2,903 2,903 2,487 2,487
Financial liabilities:
Demand and savings deposits $232,365 $232,365 $230,095 $230,095
Time deposits 78,545 78,528 65,586 65,416
Notes payable 10,870 10,870 9,734 9,734
Accrued interest payable 427 427 323 323
</TABLE>
While estimates of fair value are based on management's judgment of the most
appropriate factors, there is no assurance that were Columbia to have disposed
of such items at December 31, 1999 and 1998, the estimated fair values would
necessarily have been achieved at that date, since market values may differ
depending on various circumstances. The estimated fair values at December 31,
1999 and 1998, should not necessarily be considered to apply at subsequent
dates.
In addition, other assets and liabilities of Columbia that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not recognized
in the financial statements nevertheless may have value but are not included in
the above disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the earnings potential of loan servicing rights,
the trained work force, customer goodwill and similar items.
Note 14 -- Concentrations of Credit Risk
All of the Bank's loans, commitments and commercial and standby letters of
credit have been granted to customers in the Bank's market areas. The majority
of such customers are also depositors of the Bank. Investments in state and
municipal securities are not significantly concentrated within any one region of
the United States. The concentrations of credit by type of loan are set forth in
Note 5. The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Commercial and standby letters of credit were
granted primarily to commercial borrowers as of December 31, 1999. The Bank's
loan policies do not allow the extension of credit to any single borrower or
group of related borrowers in excess of $1,000,000 without approval from the
Bank's respective loan committees.
28
<PAGE> 21
Note 15 -- Commitments and Contingencies
OPERATING LEASE COMMITMENTS -- As of December 31, 1999, Bancorp leased certain
properties. The annual commitment for rentals under these noncancellable
operating leases expires in 2000 and is not material to the consolidated
financial statements.
Rental expense for all operating leases was $106,106, $65,457, and $44,510 for
the years ended December 31, 1999, 1998, and 1997, respectively.
LEGAL CONTINGENCIES -- Columbia may become a defendant in certain claims and
legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, there are no matters
presently known to Columbia that are expected to have a material adverse effect
on the consolidated financial condition of Columbia.
Y2K MATTER -- Because of the unprecedented nature of the Y2K issue, its effects,
if any, may not be identified until a future date. Management cannot assure that
the Company has identified all Y2K issues, that the Company's remediation
efforts has been successful in whole or in part, or that parties with whom the
Company does business will not be significantly impacted by Y2K issues.
Note 16 -- Notes Payable
The Bank is a member of the Federal Home Loan Bank ("FHLB") of Seattle. As a
members, the Bank has entered into "Advances, Security and Deposit Agreements"
which provide a credit arrangement from FHLB. Borrowings under the credit
arrangement are collateralized by the Bank's FHLB stock as well as deposits or
other instruments, which may be pledged. As of December 31, 1999 and 1998, the
Bank had borrowings outstanding with the FHLB of $10,598,390 and $8,667,800,
respectively. The promissory notes mature in 2000, 2001, 2008, and 2013 and
carry interest rates ranging from 5.32% to 6.12%.
CRB also participates in the U.S. Treasury Department's Treasury Investment
Program, which facilitates the acceptance and processing of federal tax
deposits. Under this program, CRB is authorized to accumulate daily tax
payments, up to authorized limits, and deploy the funds in short-term
investments. In exchange, CRB is required to issue a fully collateralized demand
note to the Treasury and pay interest at the federal funds rate minus 25 basis
points. As of December 31, 1999 and 1998, the Bank had $271,928 and $1,066,295,
respectively, outstanding under this program.
Note 17 -- Stock Incentive Plans
Columbia maintains a stock incentive plan originally adopted by CRB in 1993
prior to Columbia's formation. The plan, most recently amended in February 1999,
and ratified by the shareholders in April 1999, allows for the granting of both
incentive stock options and nonstatutory stock options. The option price for
incentive stock options is determined by Columbia's Board of Directors and can-
not be less than 100% of the fair market value of the shares on the date of
grant. The incentive stock options expire ten years from the date of grant. The
option price and duration of options for nonstatutory stock options is also
determined by the Board of Directors.
The following, adjusted for stock splits and dividends, summarizes options
available and outstanding under this plan.
<TABLE>
<CAPTION>
Weighted
Number Average
Of Exercise
Options Price
- ----------------------------------------------------------------------
<S> <C> <C>
Options under grant and exercisable --
December 31, 1996 232,032 $ 3.03
Options granted in 1997:
Incentive stock options 129,000 $ 5.58
Nonstatutory stock options 78,000 $ 5.58
Options exercised in 1997:
Incentive stock options (52,244) $ 2.81
Nonstatutory stock options (12,000) $ 5.58
Options expired or
forfeited in 1997 (1,800) $ 3.34
- ------------------------------------------------------
Options under grant and exercisable --
December 31, 1997 372,988 $ 4.39
Options granted in 1998:
Incentive stock options 5,000 $ 10.50
Gifted shares in 1998 400 $ --
Options exercised in 1998:
Incentive stock options (31,000) $ 3.84
Nonstatutory stock options (24,900) $ 4.72
- ------------------------------------------------------
Options under grant and exercisable --
December 31, 1998 322,488 $ 4.53
Options granted in 1999:
Incentive stock options 3,000 $ 7.83
Nonstatutory stock options 4,000 $ 7.75
Gifted shares in 1999 400 $ --
Options exercised in 1999:
Incentive stock options (26,690) $ 4.70
Nonstatutory stock options (34,800) $ 4.07
Options expired or forfeited in 1999 (900) $ --
- ------------------------------------------------------
Options under grant and exercisable --
December 31, 1999 267,498 $ 4.65
======================================================
Options reserved -- December 31, 1999 170,420
======================================================
</TABLE>
29
<PAGE> 22
On January 3, 2000, options covering a total of 142,600 shares of Columbia's
common stock were granted to directors and employees of Columbia. Under the
1999 plan, an aggregate of no more than 4% of the issued and outstanding
shares of Columbia common stock is available for award or grant. At December 31,
1999, 4% of the issued and outstanding shares amounted to 320,420 shares of
common stock. Subsequent to the January 3 option grant, a total of 150,000
shares of common stock had been either issued or committed for issuance under
the Incentive Plan, leaving a total of 170,420 shares of common stock available
for awards or grants.
Had compensation cost for Columbia's 1999, 1998, and 1997, grants for
stock-based compensation plans been determined consistent with SFAS No. 123, its
net income and net income per common share for December 31, 1999, 1998, and
1997, would approximate the pro forma amounts below.
<TABLE>
<CAPTION>
1999
-------------------------
As Pro
Reported Forma
- ----------------------------------------------------------------------
<S> <C> <C>
Net income $ 5,013 $ 5,002
Basic earnings per
common share $ 0.63 $ 0.63
Diluted earnings per
common share $ 0.62 $ 0.62
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------
As Pro
Reported Forma
- ----------------------------------------------------------------------
<S> <C> <C>
Net income $ 4,718 $ 4,512
Basic earnings per
common share $ 0.67 $ 0.64
Diluted earnings per
common share $ 0.65 $ 0.62
</TABLE>
<TABLE>
<CAPTION>
1997
-------------------------
As Pro
Reported Forma
- ----------------------------------------------------------------------
<S> <C> <C>
Net income $ 3,886 $ 3,669
Basic earnings per
common share $ 0.57 $ 0.54
Diluted earnings per
common share $ 0.55 $ 0.52
</TABLE>
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions for
December 31, 1999, 1998, and 1997, respectively: (1) dividend yield of 3.38%,
2.08%, and 2.09%, (2) expected volatility of 39.68%, 34.89%, and 32.57%, (3)
risk-free rate of 6.39%, 4.55%, and 6.36%, and (4) expected life of 4.25, 3.92,
and 3.75 years.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated.
Note 18 -- Employee Benefit Plans
Columbia maintains an Employee Stock Ownership Plan ("ESOP") for the benefit of
its employees. The ESOP allows participation by all employees over the age of 20
who have also met minimum service requirements. Contributions to the ESOP are at
the discretion of the Board of Directors and are used to purchase shares of
Columbia's common stock. Employees are not permitted to contribute individually
to the ESOP, but vest in their proportionate share of the ESOP interest after
six years of participation. For the periods ending December 31, 1999, 1998, and
1997, Columbia contributed $230,000, $230,000 and $222,966, respectively, to the
ESOP.
The ESOP's assets as of December 31, 1999 and 1998, were as follows:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------
<S> <C> <C>
Allocated shares 309,884 284,766
=================================================
Cash on hand $ (167) $ 19,588
=================================================
</TABLE>
Columbia has also adopted a 401(k) Savings Investment Plan which allows
employees to defer certain amounts of compensation for income tax purposes under
Section 401(k) of the Internal Revenue Code. Essentially, all full-time
employees over the age of 20 and meeting length of service requirements are
eligible to participate in the plan. Employees may elect to defer and
contribute, within statutory limits, up to 10% of their annual compensation into
the plan. Their contributions and those of Columbia, which are limited to 25% of
employee contributions up to 6% of total participant compensation, are invested
by plan trustees in employee designated funds. For the periods ending December
31, 1999, 1998, and 1997, Columbia contributed approximately $51,000, $45,000
and $31,000, respectively, to the Plan.
Columbia has established an employee bonus program, which provides eligible
participants additional compensation based upon the achievement of certain
company goals. For the periods ending December 31, 1999, 1998, and 1997,
additional compensation of $695,611, $636,169, and $428,890, respectively, was
paid to eligible employees.
Beginning 1996 and as later amended, Columbia entered into both employment and
retirement agreements with its chief executive officer. The employment agreement
provides for the executive's salary and customary benefits until termination
of the agreement in May 2001. The retirement agreement provides annual
post-retirement compensation for a seven-year period after the chief exec-
utive's retirement. A portion of Columbia's obligation under the agreement has
been funded with a $120,000 interest-earning investment and will be paid in
annual installments of $48,000 plus interest earned on invested funds. For the
year ended December 31, 1999, Columbia recorded a liability of $229,611 as its
obligation for current services pursuant to the retirement plan. In the event
employment of the chief executive officer is terminated prior to expiration of
the agreements, all salary and benefits accrued as of the termination date and
all retirement payments provided in the retirement agreement will be paid to the
executive.
30
<PAGE> 23
Note 19 -- Earnings Per Share
In 1997, the FASB issued a new accounting standard for computing and presenting
earnings per share which requires a dual presentation of basic and diluted
earnings per share. Basic earnings per share excludes dilution and is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding for the year. Diluted earnings per share
reflect the potential dilution that could occur if common shares were issued
pursuant to the exercise of options under existing stock option plans. The
following table illustrates the computations of basic and diluted earnings per
share for the years ended December 31, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Basic earnings per share
Income available to common shareholders $5,013,223 7,985,227 $ 0.63
==========
Effect of dilutive securities
Outstanding common stock options -- 104,733
Income available to common
shareholders plus assumed conversions $5,013,223 8,089,960 $ 0.62
===========================================================================================
1998
Basic earnings per share
Income available to common shareholders $4,717,853 7,066,229 $ 0.67
==========
Effect of dilutive securities
Outstanding common stock options -- 172,236
Income available to common
shareholders plus assumed conversions $4,717,853 7,238,465 $ 0.65
===========================================================================================
1997
Basic earnings per share
Income available to common shareholders $3,886,409 6,813,264 $ 0.57
==========
Effect of dilutive securities
Outstanding common stock options -- 200,225
Income available to common
shareholders plus assumed conversions $3,886,409 7,013,489 $ 0.55
===========================================================================================
</TABLE>
Note 20 -- Parent Company Financial Information
Condensed financial information for Columbia Bancorp (unconsolidated parent
company only) is as follows:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 239,449 $ 180,369
Investment securities 300,000 300,000
Investment in subsidiaries 37,264,503 34,790,266
Other assets 150,248 281,411
- ---------------------------------------------------------------------------------------------------------
Total assets $ 37,954,200 $ 35,552,046
=========================================================================================================
LIABILITIES
Dividend payable $ 560,737 $ 476,942
Deferred compensation -- 318,884
Income tax payable 71,901 --
- ---------------------------------------------------------------------------------------------------------
Total liabilities $ 632,638 $ 795,826
- ---------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock $ 14,392,229 $ 14,125,315
Additional paid-in capital 6,371,490 6,317,732
Retained earnings 17,272,137 14,257,975
Unrealized (loss) gain on available-for-sale investment securities (714,294) 55,198
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 37,321,562 34,756,220
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 37,954,200 $ 35,552,046
=========================================================================================================
</TABLE>
31
<PAGE> 24
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Equity in undistributed (excess distribution of) earnings
of subsidiary banks $ 3,255,598 $ (3,098,692) $ 3,541,345
Dividends 2,250,000 7,975,000 468,956
EXPENSES
Administrative expenses (492,375) (158,455) (123,892)
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 5,013,223 $ 4,717,853 $ 3,886,409
=============================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,013,223 $ 4,717,853 $ 3,886,409
Adjustments to reconcile net income to net cash from
operating activities:
Excess distribution of (equity in undistributed)
earnings of subsidiary bank (3,255,598) 3,098,692 (3,541,345)
Changes in other assets and liabilities (527,135) (7,513) 5,584
- -----------------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 1,230,490 7,809,032 350,648
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public stock offering, net of costs $ -- $ 8,126,115 $ --
Cash dividends and fractional share payments (1,438,324) (1,343,226) (793,772)
Proceeds from stock options exercised and purchases
of common stock 266,914 470,982 389,000
- -----------------------------------------------------------------------------------------------------------------------------
Net cash from financing activities (1,171,410) 7,253,871 (404,772)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition of Valley Community Bancorp
and subsidiaries $ -- $(15,068,552) $ --
- -----------------------------------------------------------------------------------------------------------------------------
Net cash from investing activities -- (15,068,552) --
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 59,080 (5,649) (54,124)
CASH AND CASH EQUIVALENTS, beginning of year 180,369 186,018 240,142
- -----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 239,449 $ 180,369 $ 186,018
=============================================================================================================================
SCHEDULE OF NONCASH ACTIVITIES
Change in unrealized (loss) gain on available-for-sale securities,
net of tax $ (769,492) $ 45,106 $ 21,324
=============================================================================================================================
Unrealized gain on securities transferred from held-to-maturity
to available-for-sale, net of taxes $ -- $ -- $ 23,991
=============================================================================================================================
Cash dividend payable $ 560,737 $ 476,942 $ 228,845
=============================================================================================================================
</TABLE>
Note 21 -- Regulatory Matters
Columbia and CRB are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on a bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, banks must
meet specific capital guidelines that involve quantitative measures of the
bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. Capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Columbia and the Bank to maintain minimum amounts and ratios (set forth
in the table on the following page) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to
average assets (as
32
<PAGE> 25
defined). Management believes, as of December 31, 1999, that Columbia and CRB
meet all capital adequacy requirements to which they are subject.
As of the most recent notifications from their regulatory agencies, Columbia and
CRB were categorized as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as adequately capitalized, Columbia
and CRB must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the table below. There are no conditions or
events since these notifications that management believes have changed the
institutions' category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------------------------------------------------------------
(in thousands) Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999
COLUMBIA BANCORP
Total capital to risk-weighted assets $32,539 11.3% $23,036 >=8.0% $28,796 >=10.0%
Tier 1 capital to risk-weighted assets 29,241 10.2 11,467 >=4.0 17,201 >=6.0
Tier 1 capital to average assets 29,241 8.3 14,092 >=4.0 17,615 >=5.0
AS OF DECEMBER 31, 1999
COLUMBIA RIVER BANK
Total capital to risk-weighted assets $32,481 11.0% $23,623 >=8.0% $29,528 >=10.0%
Tier 1 capital to risk-weighted assets 29,183 9.8 11,911 >=4.0 17,867 >=6.0
Tier 1 capital to average assets 29,183 8.3 14,064 >=4.0 17,580 >=5.0
AS OF DECEMBER 31, 1998
COLUMBIA BANCORP
Total capital to risk-weighted assets $27,588 11.9% $18,544 >=8.0% $23,180 >=10.0%
Tier 1 capital to risk-weighted assets 25,207 10.9 9,272 >=4.0 13,908 >=6.0
Tier 1 capital to average assets 25,207 8.9 11,283 >=4.0 14,104 >=5.0
AS OF DECEMBER 31, 1998
COLUMBIA RIVER BANK
Total capital to risk-weighted assets $22,852 11.3% $16,186 >=8.0% $20,232 >=10.0%
Tier 1 capital to risk-weighted assets 20,882 10.3 8,093 >=4.0 12,139 >=6.0
Tier 1 capital to average assets 20,882 7.7 10,860 >=4.0 13,575 >=5.0
AS OF DECEMBER 31, 1998
VALLEY COMMUNITY BANK
Total capital to risk-weighted assets $ 4,812 16.6% $ 2,320 >=8.0% $ 2,900 >=10.0%
Tier 1 capital to risk-weighted assets 4,449 15.3 1,160 >=4.0 1,740 >=6.0
Tier 1 capital to average assets 4,449 8.9 1,993 >=4.0 2,491 >=5.0
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 22 -- Stock Offering
During November 1998, Columbia registered 1,000,000 shares of common stock for
sale to the public at a price of $9 per share, for an aggregate offering price
of $9,000,000. All shares were sold, resulting in net proceeds of $8,126,115,
after deducting $873,885 for underwriting discounts and commissions, legal,
accounting, printing fees, and other offering expenses. Net proceeds used in
connection with Columbia's expansion plans included the acquisition of Valley
Community Bancorp as of November 30, 1998 (see Note 2). Pending such use, the
net proceeds were invested in short-term, investment-grade securities.
33
<PAGE> 26
Independent Auditor's Report
TO THE BOARD OF DIRECTORS
COLUMBIA BANCORP
We have audited the accompanying consolidated balance sheets of Columbia Bancorp
and Subsidiaries as of December 31, 1999 and 1998, and the related statements of
income and comprehensive income, changes in stockholders' equity, and cash flows
for the years ended December 31, 1999, 1998 and 1997. These financial statements
are the responsibility of Columbia Bancorp's management. Our responsibility is
to express an opinion on these consolidated 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 audits 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 Columbia Bancorp and
Subsidiaries as of December 31, 1999 and 1998, and the results of its operations
and cash flows for the three-year periods ended December 31, 1999, in conformity
with generally accepted accounting principles.
/s/ MOSS ADAMS LLP
- -------------------------------
Portland, Oregon
January 25, 2000
Columbia Bancorp and Columbia River Bank
Executives and Other Vice Presidents
EXECUTIVE OFFICERS
TERRY L. COCHRAN
President and CEO, Columbia Bancorp
ROGER L. CHRISTENSEN
Chief Operating Officer, Columbia Bancorp
CRAIG J. ORTEGA
President and CEO, Columbia River Bank
JAMES C. MCCALL
Chief Lending Officer
NEAL T. MCLAUGHLIN
Chief Financial Officer
OTHER CORPORATE VICE PRESIDENTS
TOM C. BOURDAGE
Vice President/Marketing
RICHARD J. CROGHAN
Vice President
PHILIP S. HAMILTON
Vice President/Mortgage Group Manager
CHARLA L. HERMAN
Vice President/Human Resource Director
ANN MARIE JELDERKS
Vice President/Investment Executive
DAVE V. KINSER
Vice President/Assistant Manager
The Dalles
BRITT W. THOMAS
Vice President/Loan Administrator
PATTY A. WEISS
Vice President/Senior Operations Officer
34
<PAGE> 27
Columbia River Bank
Branch Managers and Branch Locations
RICK A. ANDERSEN
Vice President and Manager
McMinnville Branch
GERALD "HAP" P. COOLEY
Vice President and Manager [MAP]
Pendleton Branch
JAMES "MARSHALL" CORNETT
Vice President and Manager
Hood River Branch
R. SHANE CORREA
Vice President and Manager
Hermiston Branch
LINDA J. CREAGER
Vice President and Manager
White Salmon Branch
BOB J. FICKER
Vice President and Manager
Newberg Branch
I. NORMAN GLOVER
Senior Vice President and Manager
Goldendale Branch
GARY W. HERTEL
Senior Vice President and Manager
The Dalles Branch
PETE R. MCCABE
Vice President and Manager
Madras Branch
SANDI K. OLSON
Assistant Vice President and Manager
Westside Branch
KYLE E. SAGER
Vice President and Manager
Redmond Branch
MICHAEL F. TESTERMAN
Vice President and Manager
Bend Branch
PHILLIP L. WAGGONER
Assistant Vice President and Manager
Shevlin Center Branch
35
<PAGE> 28
Corporate and Shareholder Information
ANNUAL MEETING
The annual meeting of shareholders is scheduled for 6:30 pm, Pacific Time, April
25, 2000, at Columbia Gorge Discovery Center, 5000 Discovery Drive, The Dalles,
Oregon.
FINANCIAL INFORMATION
Copies of financial reports are available upon request and without charge.
Quarterly financial information is available in press release format. To receive
the above information, you can dial our Fax On Demand Service at 1-800-683-0074
or write the address or call the phone number below and these will be provided.
Financial reports, press releases and the annual report are also available on
the Internet at the following address: www.columbiabancorp.com.
Investor Relations Columbia Bancorp
PO Box 1050
The Dalles, Oregon 97058
541-298-6649
TRANSFER AGENT
Shareholder Services
Norwest Bank Minnesota, NA
PO Box 64854
St. Paul, Minnesota 55164-0854
1-800-468-9716
OUTSIDE LEGAL COUNSEL
Bennett H. Goldstein
Attorney At Law
2548 SW St. Helens Court
Portland, Oregon 97201
INDEPENDENT AUDITORS
Moss Adams LLP
222 SW Columbia, Suite 400
Portland, Oregon 97201
STOCK TRADING MARKET
Columbia Bancorp common stock is quoted on the NASDAQ National Market under the
symbol "CBBO."
WEB SITE
Visit us online at www.columbiabancorp.com or
www.columbiariverbank.com
Member FDIC
[LOGO] Equal Housing Opportunity
This statement has not been reviewed, or confirmed for accuracy or relevance by
the Federal Deposit Insurance Corporation.
36
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of Bancorp
Columbia Bancorp's wholly-owned subsidiaries as of December 31, 1999
were Columbia River Bank and Valley Community Mortgage Services, Inc.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES CONTAINED IN THE 1999 ANNUAL REPORT
TO SHAREHOLDERS OF COLUMBIA BANCORP AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 24,709,012
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 680,024
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,207,841
<INVESTMENTS-CARRYING> 20,125,225
<INVESTMENTS-MARKET> 0
<LOANS> 251,164,039
<ALLOWANCE> 3,298,460
<TOTAL-ASSETS> 361,240,667
<DEPOSITS> 310,909,789
<SHORT-TERM> 10,870,318
<LIABILITIES-OTHER> 2,138,998
<LONG-TERM> 0
0
0
<COMMON> 14,392,229
<OTHER-SE> 22,929,333
<TOTAL-LIABILITIES-AND-EQUITY> 361,240,667
<INTEREST-LOAN> 22,494,529
<INTEREST-INVEST> 4,026,606
<INTEREST-OTHER> 362,171
<INTEREST-TOTAL> 26,883,306
<INTEREST-DEPOSIT> 8,034,437
<INTEREST-EXPENSE> 8,568,237
<INTEREST-INCOME-NET> 18,315,069
<LOAN-LOSSES> 1,005,000
<SECURITIES-GAINS> 7,772
<EXPENSE-OTHER> 9,199,262
<INCOME-PRETAX> 8,118,579
<INCOME-PRE-EXTRAORDINARY> 5,013,223
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,013,223
<EPS-BASIC> .63
<EPS-DILUTED> .62
<YIELD-ACTUAL> 8.98
<LOANS-NON> 394,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 202,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,380,000
<CHARGE-OFFS> 182,000
<RECOVERIES> 95,000
<ALLOWANCE-CLOSE> 3,298,000
<ALLOWANCE-DOMESTIC> 3,298,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
