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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
[Fee Required]
For the fiscal year ended DECEMBER 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[No Fee Required]
Commission File Number 0-20288
COLUMBIA BANKING SYSTEM, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1422237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1102 BROADWAY PLAZA
TACOMA, WASHINGTON 98402
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, Including Area Code: (206) 305-1900
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of class)
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 (17 C.F.R. 229.405) is not contained herein, and will not be
contained, to the best of 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 Common Stock held by non-affiliates of registrant
at February 28, 1997 was $90,418,214.
The number of shares of registrant's Common Stock outstanding at
February 28, 1997 was 5,203,926
Documents incorporated by reference and parts of Form 10-K into which
incorporated:
Registrant's Annual Report to Shareholders Parts I and II
for the year ended December 31, 1996
Registrant's definitive Proxy Statement Part III
dated March 20, 1997
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CROSS REFERENCE SHEET
Location in Annual Report to Shareholders and Definitive Proxy Statement
of Items required by Form 10-K
<TABLE>
<CAPTION>
Annual Report to Shareholders and
Form 10-K Definitive Proxy Statement
- ----------------------------------------------- ----------------------------------------------------
Part and Page
Item No. Caption Caption Number
- ---------- ------------------------------- ----------------------------------------------------
<S> <C> <C> <C>
PART I ANNUAL REPORT TO SHAREHOLDERS
-----------------------------
Item 1 Business
Consolidated Average Balance Consolidated Five-Year Summary of
Sheet and Analysis of Net Average Balances and Net Interest
Interest Income and Expense Revenue 62
Management Discussion and Analysis of
Financial Condition and Results of
Operations("Management Discussion")
20
Investments Note 4, Notes to Consolidated
Financial Statements 46
Management Discussion - Securities 28
Lending Activities Management Discussion - Loan
Portfolio 24
Management Discussion - Nonperforming
Assets 26
Note 5, Notes to Consolidated
Financial Statements 47
Summary of Loan Loss Experience Management Discussion - Provision and
Allowance for Loan Losses 27
Supervision and Regulation Management Discussion - Capital 31
Item 2 Properties Note 7, Notes to Consolidated
Financial Statements 49
Item 3 Legal Proceedings Note 12, Notes to Consolidated
Financial Statements 53
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Annual Report to Shareholders and
Form 10-K Definitive Proxy Statement
- -------------------------------------------- ----------------------------------------------------
Part and Page
Item No. Caption Caption Number
- --------- ---------------------------- -----------------------------------------------------
<S> <C> <C> <C>
PART II ANNUAL REPORT TO SHAREHOLDERS
-----------------------------
Item 5 Market for the Registrant's Management Discussion - Quarterly
Common Stock and Related Common Stock Prices & Dividend
Stockholder Matters Payments 33
Item 6 Selected Financial Data Consolidated Highlights 15
Consolidated Five-Year Statements of
Operations 60
Consolidated Five-Year Summary of
Average Balances and Net Interest
Revenue 62
Item 7 Management's Discussion and Management Discussion 20
Analysis of Financial
Condition and Results of
Operations
Consolidated Five-Year Summary of
Average Balances and Net Interest
Revenue 62
Item 8 Financial Statements and Audited Financial Statements 36
Supplementary Data
Summary of Quarterly Financial
Information (Unaudited) 59
Item 9 Changes in and Disagreements With Recent Change in Accounting Firms 33
Accountants on Accounting and
Financial Disclosure
PART III DEFINITIVE PROXY STATEMENT
--------------------------
Item 10 Directors and Executive Officers Election of Directors 2
of the Registrant
Item 11 Executive Compensation Executive Compensation 6
Item 12 Security Ownership of Certain Election of Directors 2, 12
Beneficial Owners and
Management
Item 13 Certain Relationships and Related Interest of Management in Certain
Transactions Transactions 13
</TABLE>
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COLUMBIA BANKING SYSTEM, INC.
FORM 10-K
December 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page
----
<S> <C> <C>
Item 1. Business
General 1
Strategy 2
Market Area 3
Competition 4
Employees 4
Executive Officers of the Company 5
Effects of Governmental Monetary Policies 6
Consolidated Average Balance Sheet and Analysis of Net Interest Income and Expense
6
Consolidated Analysis of Changes in Interest Income and Expense 7
Investments 8
Lending Activities 10
Summary of Loan Loss Experience 12
Deposits 13
Significant Financial Ratios 14
Short-term Borrowings 14
Supervision and Regulation 14
Item 2. Properties 18
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 18
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure 19
PART III
Item 10 Directors and Executive Officers of the Registrant 19
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial Owners and Management 19
Item 13. Certain Relationships and Related Transactions 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 20
</TABLE>
<PAGE> 5
PART I
ITEM 1. BUSINESS
GENERAL
Columbia Banking System, Inc. (the "Company"), a Washington corporation, was
originally organized in 1988 under the name "First Federal Corporation" in
connection with the acquisition by an investor group, which included recently
deceased director emeritus Stanley Rose and current director Sidney Snyder, of
a savings association, which was later named Columbia Savings Bank, a Federal
Savings Bank ("the Savings Bank"). In 1990, an investor group headed by Arnold
Espe, (Chairman and Chief Executive Officer of the Company) and financed in
part by NorCap, LLC acquired from Mr. Rose a controlling interest in the
Company, a second corporation, Columbia National Bankshares, Inc. ("CNBI"), and
CNBI's sole subsidiary, Columbia National Bank, located in Longview,
Washington. See "Security Ownership of Certain Beneficial Owners and
Management" and "Certain Transactions -- NorCap Options." In connection with
the 1993 reorganization of the Company, CNBI was merged into the Company,
Columbia National Bank was merged into the newly chartered Columbia State Bank
("Columbia Bank") and additional management was added. In 1994, the Savings
Bank was merged into Columbia Bank.
The 1993 reorganization was undertaken in order to take advantage of commercial
banking business opportunities resulting from increased consolidation of banks
in the Company's principal market area, primarily through acquisitions by
out-of-state holding companies, and the resulting dislocation of customers. In
August 1993, the Company completed a public offering of common stock with net
proceeds of approximately $17.2 million, of which the Company contributed
approximately $16.3 million to the capital of Columbia Bank. In connection
with the reorganization, the Company moved its headquarters to Tacoma,
Washington, with the intent of focusing on growth opportunities in the Tacoma
metropolitan area and contiguous parts of the Puget Sound region. Management
believes the ongoing consolidation among financial institutions in Washington
has created significant gaps in the ability of large banks operating in
Washington to serve certain customers, particularly the Company's target
customer base of small and medium-sized businesses, professionals and other
individuals. The business strategy of the Company is to provide its customers
with the financial sophistication and breadth of products of a regional bank
while retaining the appeal and service level of a community bank. As a result
of the Company's strong commitment to highly personalized customer service, its
varied products, and the long-standing community presence of its managers,
lending officers and branch personnel, the Company believes it is well
positioned to attract new customers and to increase its market share in lending
and deposits.
In November and December 1996, the Company issued approximately 1.445 million
shares of common stock in a public offering. The issuance raised approximately
$20.7 million in new capital. The Company contributed approximately $10.0
million of these proceeds to Columbia Bank primarily to fund additional
expansion in Pierce County, and, over the next several years, into south King
and Thurston Counties. The remainder was used to repay a $3.0 million
borrowing and for general corporate purposes.
The Company's sole subsidiary, Columbia Bank, is a Washington state-chartered
commercial bank, the deposits of which are insured by the Federal Deposit
Insurance Corporation (the "FDIC"). Columbia Bank is subject to regulation by
the FDIC and the Washington State Department of Financial Institutions,
Division of Banks (the "Division"). Although Columbia Bank is not a member of
the Federal Reserve System, the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") has certain supervisory authority over the
Company which can also affect Columbia Bank. Columbia Bank provides a wide
range of banking services to small- and medium-sized businesses and
individuals.
At December 31, 1996, the Company had total consolidated assets of $588.9
million, loans of $446.1 million and deposits of $493.2 million.
1
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STRATEGY
The Company's goal is to create, over the next several years, a
well-capitalized, customer-focused Pacific Northwest commercial banking
institution with a significant presence in selected markets and total assets in
excess of $1.0 billion. Management believes that the ongoing consolidation in
its principal market area affords an opportunity for aggressive growth in loans
and deposits. The Company's growth strategy consists of the following
elements:
* Focus on relationship lending to small and medium-sized businesses,
professionals and other individuals whom the Company believes are
underserved by larger banks in its market area and are attracted by
the Company's emphasis on relationship banking.
* Fund loan growth through the creation of a branch system catering
primarily to retail depositors, supplemented by business banking
customer deposits and other borrowings.
* Continue growth in the Tacoma metropolitan area and selectively expand
into neighboring King and Thurston Counties.
* Control credit risk through established loan underwriting and
monitoring procedures, loan concentration limits, product and industry
diversification, and the hiring of experienced lending personnel with
a high degree of familiarity with their market area.
Focus on Relationship Lending. The Company focuses on lending to small and
medium-sized businesses, professionals and other individuals who value high
levels of customer service from a locally based institution. The Company
believes that there are significant commercial banking business opportunities
arising from the ongoing consolidation of banks in its principal market area,
primarily through acquisitions by out-of- state holding companies, and the
resulting dislocation of customers. Management believes that many business
customers of previously acquired banks are dissatisfied with low levels of
service and the lack of personal contact, flexibility and local decision-making
authority at these institutions, and thus willing to transfer their primary
banking relationship to a customer-service oriented institution like the
Company which can be more responsive to their specific needs. As part of its
effort to provide responsive service to its target customers, the Company
markets a varied menu of relationship banking products, including private
banking and cash management services. Management continually strives to
develop a business culture in which customers are accorded the highest priority
in all aspects of the Company's operations. This philosophy is combined with
the Company's emphasis on personalized, local decision-making in each of the
markets it serves.
Create a Branch-Based Deposit Franchise. In order to fund its lending
activities, the Company is establishing a branch system catering primarily to
retail depositors, supplemented by business banking customer deposits and other
borrowings. The Company believes this mix of funding sources will enable it to
expand its commercial lending activities rapidly while establishing a stable
core deposit base. Additionally, the Company's strategically placed branch
offices allow for increased contact with customers. While the Company's
primary lending focus will continue to be on business lending, management
believes that its customer deposit and lending activities will produce
significant benefits, including increased core deposits and greater loan
portfolio diversification.
2
<PAGE> 7
Geographic Expansion. The Company currently has regulatory approval to open
four additional branches in Pierce County, and anticipates opening several more
branches in the next few years to strengthen its local market position and
capitalize on expansion opportunities resulting from strong demand for a
locally based banking institution. The Company also currently anticipates
expansion into neighboring Thurston County (the location of Olympia, the
capital of Washington) and parts of neighboring King County, such as Bellevue
and surrounding areas and the Auburn and Kent Valley areas. The Company plans
to effect its growth strategy through a combination of growth at existing
branch facilities, new branch openings and acquisitions. Typically, expansion
into new markets will be in connection with the hiring of an experienced branch
manager and /or lending officers with strong community ties and banking
relationships.
Control credit Risk. Management considers the maintenance of high asset
quality, with corresponding low levels of nonperforming assets and charge-offs,
to be of utmost importance as it pursues its growth strategy. The Company has
implemented loan underwriting and monitoring procedures and loan concentration
limits which management believes permit continued portfolio expansion without
materially increasing credit risk. The Company will also seek to control
credit risk as it grows through increased product and industry diversification,
by expanding its loan product offerings and related services, and through the
hiring of experienced lending personnel with a high degree of familiarity with
their market area.
MARKET AREA
The Company's principal market area is the Tacoma metropolitan area and
contiguous parts of the Puget Sound region of Washington state. The economy of
that area, while primarily dependent upon aerospace, foreign trade and natural
resources, including agriculture and timber, has become more diversified over
the past decade as a result of the success of Microsoft and the establishment
of numerous research and biotechnology firms. The Washington economy and that
of the Puget Sound region generally have experienced moderate growth and
stability in recent years. According to the Puget Sound Economic Forecaster, a
regional publication providing economic forecasts and commentary, the greater
Puget Sound economy is projected to expand at nearly twice the national rate
for the years 1997 through 1999. The region is projected to add 220,000 new
jobs and 290,000 new residents during this time. Boeing, the region's largest
employer, has announced increased production after recent years of declining
orders for aircraft and related reductions in its work force. Microsoft and
other major employers in the area east of Seattle also anticipate continued
growth.
Pierce County, the area in which the Company's expansion is primarily focused,
is located in the South Puget Sound region. The economy of this area is
well-diversified, with the principal industries being aerospace, shipping,
military-related government employment, agriculture and forest products.
Pierce County's economy is expected to benefit over the next few years because
of Intel's decision to build a computer chip facility in DuPont and the
expansion of the Matsushita semiconductor plant in Puyallup, east of Tacoma.
The Puget Sound Economic Forecaster predicts that Pierce County will likely
have the strongest economic performance in the Puget Sound region through 1999.
Forbes magazine recently published its prediction that the Tacoma area would be
among the top twenty-five cities in the United States in terms of job growth,
especially in the area of computers and semiconductors.
Bellevue, where the Company has two banking offices, is located in an area
known as the "Eastside", a metropolitan area with a population of approximately
215,000 that includes several cities located east of Seattle. A large portion
of the Eastside economy is linked to aerospace, construction, computer software
and biotechnology industries. Microsoft is headquartered just north of
Bellevue and several biotech firms are located on the Eastside. In recent
years, the Eastside has experienced relatively rapid growth in population and
employment, and household incomes in the Eastside are among the highest in
Washington.
3
<PAGE> 8
The Company anticipates further expanding into neighboring south King County,
which contains several residential communities whose employment base is
supported by light industrial, aerospace, and forest products industries. With
its close proximity to Tacoma, this market area is considered an important
natural extension of the Company's Pierce County market area. The Weyerhaeuser
Corporation maintains its world headquarters in Federal Way, which is located
in south King County adjacent to the King / Pierce County line. The Auburn and
Kent Valley areas to the east of Federal Way are also considered by management
to be natural areas of expansion for the Company.
Expansion south of Tacoma into Thurston County is also considered by management
to be an extension of the Company's Pierce County market area. Olympia, with a
population of approximately 38,000, and the neighboring community of Lacey,
with a population of approximately 26,000, are the principal cities in Thurston
County. As of April 1996, the county had an approximate population of 193,000.
The area enjoys a stable economic climate due largely to state government
employment and the proximity of the Fort Lewis Army Base and McChord Air Force
Base. According to the Thurston County Regional Planning Council, out of a
total civilian work force of 88,000, approximately 33% were employed by
federal, state, and local government. The area also has a significant
population of retired military personnel.
The Company's market area also includes the Longview and Woodland communities
in southwestern Washington. The population of Cowlitz County, in which
Longview and Woodland are located, is approximately 85,000. Cowlitz County's
economy has become more diversified in recent years, but remains materially
dependent on the forest products industry and, as a result, is relatively
vulnerable to the cyclical downturns of that industry as well as environmental
disputes.
COMPETITION
The Company anticipates that the substantial consolidation among financial
institutions in Washington that has occurred to date will continue, due in part
to recent federal legislation concerning interstate banking. Legislation has
recently been passed by the Washington legislature (effective June 1996) that
allows, subject to certain conditions, mergers or other combinations,
relocations of a bank's main office and branching across state lines in advance
of the June 1, 1997 date established by federal law (see "Supervision and
Regulation -- Other Regulatory Developments"). Many other financial
institutions, most of which have greater resources than the Company, compete
with the Company for banking business in the Company's market area. Among the
advantages of some of these institutions are their ability to make larger
loans, finance extensive advertising campaigns, access international money
markets and allocate their investment assets to regions of highest yield and
demand. The Company currently does not have a significant market share of the
deposit-taking or lending activities in the areas in which it conducts
operations. The Company's strategy involves significant expansion throughout
the Tacoma metropolitan area and contiguous parts of the Puget Sound region of
Washington. Although, the Company has been able to compete effectively in its
market areas to date, there can be no assurance that it will be able to
continue to do so in the future.
EMPLOYEES
At December 31, 1996, the Company had 247 full-time equivalent employees. The
Company has placed an increased emphasis and high priority on staff
development. This development involves selective hiring and extensive training
(including customer service training). New hires are selected on the basis of
both technical skills and customer service capabilities. Emphasis has been
placed upon hiring and retaining additional key officers in areas such as
lending, administration and finance. None of the Company's employees are
covered by a collective bargaining agreement with the Company, and management
believes that its relationship with its employees is satisfactory.
4
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EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information about the executive officers
of the Company.
<TABLE>
<CAPTION>
Has Served as an
Executive Officer of
the Company
Name Age Position Since
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A. G. Espe(1) 60 Director, Chairman and Chief Executive Officer 1990
W. W. Philip(2) 70 Director, President and Chief Operating Officer 1993
Donald A. Andersen(3) 51 Senior Vice President, Senior Credit 1996
Administrator - Columbia Bank
Julie A. Healy(4) 41 Senior Vice President, Operations Manager 1994
H. R. Russell(5) 42 Senior Vice President, Senior Loan Production 1996
Officer - Columbia Bank
Gary R. Schminkey(6) 39 Senior Vice President and Chief Financial 1993
Officer
Evans Q. Whitney(7) 53 Senior Vice President, Human Resources Director 1994
</TABLE>
(1) Mr. Espe has been Chairman of the Board of the Company since September 1990
and Chief Executive Officer of the Company since march 1993. Mr. Espe, who
is also Chairman of the Board of Columbia Bank and of Northrim Bank, has
extensive banking and business experience. From 1985 to 1989, Mr. Espe
served as Chairman of the Board, President and Chief Executive Officer of
Key Pacific Bancorp.
(2) Mr. Philip has been a director of the Company since July 1993. He became
President and Chief Operating Officer of the Company and President and
Chief Executive Officer of Columbia Bank in August 1993 when the Company's
reorganization was completed and the Company began operations in Tacoma.
Until his retirement in December 1992, Mr. Philip was Chairman of the Board
and Chief Executive Officer of Puget Sound Bancorp ("PSB") since its
inception in 1981 and was Chairman of the Board and Chief Executive Officer
of Puget Sound National Bank prior to and after the inception of PSB,
having served with that institution for more than 40 years.
(3) Mr. Andersen joined Columbia Bank as Senior Vice President -- Commercial
Loans in January 1995. Mr. Andersen was employed by Puget Sound National
Bank and its successor institution for nearly 25 years, having served as
Vice President -- Commercial Loan Officer from 1991 to 1995.
(4) Ms. Healy joined Columbia Bank as Senior Vice President -- Operations in
June 1993. Ms. Healy was employed by Puget Sound National Bank for nearly
12 years, having served as Vice President -- Operations from 1991 to 1993.
(5) Mr. Russell joined Columbia Bank as Senior Vice President -- Commercial
Loans in October 1993. Mr. Russell was employed by Puget Sound National
Bank and its successor institution for nearly 14 years, having served as
Vice President -- Commercial Loan Officer from 1991 to 1993.
5
<PAGE> 10
(6) Mr. Schminkey joined Columbia Bank as Vice President and Controller in
March 1993. He was appointed Senior Vice President -- Chief Financial
Officer of Columbia Bank and the Company in 1994. Mr. Schminkey was
employed by PSB, Puget Sound National Bank and its successor institution
for nearly 10 years, having served from 1991 to 1993 as Assistant Vice
President -- Assistant Controller for PSB and during that same period as
Vice President -- Accounting and Finance for Puget Sound National Bank and
its successor institution.
(7) Mr. Whitney joined Columbia Bank as Senior Vice President -- Human
Resources in March 1993. Mr. Whitney is also the Senior Vice President - -
Human Resources of the Company. Mr. Whitney was employed by PSB and Puget
Sound National Bank for nearly 27 years, having served as Senior Vice
President -- Human Resources for PSB and Puget Sound National Bank from
1991 to 1993.
All officers are elected by the Board of Directors and serve at the pleasure of
the Board for an unspecified term.
EFFECTS OF GOVERNMENTAL MONETARY POLICIES
Profitability in banking depends on interest rate differentials. In general,
the difference between the interest earned on a bank's loans, securities and
other interest-earning assets and the interest paid on a bank's deposits and
other interest-bearing liabilities is the major source of a bank's earnings.
Thus, the earnings and growth of the Company are affected not only by general
economic conditions, but also by the monetary and fiscal policies of the United
States and its agencies, particularly the Federal Reserve. The Federal Reserve
implements national monetary policy for such purposes as controlling inflation
and recession by its open-market operations in United States government
securities, control of the discount rate applicable to borrowings from the
Federal Reserve and the establishment of reserve requirements against certain
deposits. The actions of the Federal Reserve in these areas influence growth
of bank loans, investments and deposits and also affect interest rates charged
on loans and paid on deposits. The nature and impact of future changes in
monetary policies and their impact on the Company are not predictable.
CONSOLIDATED AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME AND
EXPENSE
For information concerning consolidated daily average balances, along with
average yields for earning assets and average interest rates for
interest-bearing liabilities, see "Consolidated Five-Year Summary of Average
Balances and Net Interest Revenue" at page 62 of the Annual Report to
Shareholders for the year ended December 31, 1996 ("Annual Report"), which is
incorporated herein by reference. See also "Management Discussion and Analysis
of Financial Condition and Results of Operations" ("Management Discussion")
beginning at page 20 of the Annual Report for additional details on various
asset and liability categories.
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CONSOLIDATED ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
The following table sets forth the amounts of the changes in consolidated net
interest income attributable to changes in volume and changes in interest rates
for the Company. Changes attributable to the combined effect of volume and
interest rates have been allocated proportionately to the changes due to volume
and the changes due to interest rates.
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------- --------------------------
(in thousands) Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans:
Commercial business $3,628 $ (832) $2,796 $2,728 $ 986 $3,714
One- to four-family residential (349) (304) (653) 1,693 885 2,578
Five or more family residential and
commercial properties 3,291 (146) 3,145 3,002 85 3,087
Consumer 967 (245) 722 1,439 230 1,669
- ----------------------------------------------------------------------------------------------------------------
Total loans 7,537 (1,527) 6,010 8,862 2,186 11,048
Securities 492 18 510 (40) 76 36
Interest-earning deposits with banks 850 (28) 822 55 (75) (20)
- ----------------------------------------------------------------------------------------------------------------
Total interest revenue $8,879 $(1,537) $7,342 $8,877 $2,187 $11,064
================================================================================================================
INTEREST EXPENSE
Certificates of deposit $1,176 $ (29) $1,147 $2,424 $1,546 $3,970
Savings accounts (81) 20 (61) (257) 31 (226)
Interest-bearing demand 2,236 (238) 1,998 1,261 1,076 2,337
- ----------------------------------------------------------------------------------------------------------------
Total interest on deposits 3,331 (247) 3,084 3,428 2,653 6,081
Federal Home Loan Bank advances 459 (97) 362 200 143 343
Other borrowings (70) (17) (87) (324) (17) (341)
- ----------------------------------------------------------------------------------------------------------------
Total interest expense $3,720 $ (361) $3,359 $3,304 $2,779 $6,083
================================================================================================================
</TABLE>
7
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INVESTMENTS
For additional information concerning securities (securities available for
sale), see Note 4 of "Notes to Consolidated Financial Statements" at page 46 of
the Annual Report and "Management Discussion - Securities" at page 28 of the
Annual Report, all of which are incorporated herein by reference.
Investment securities are those securities which the Company has the ability
and the intent to hold to maturity. Events which may be reasonably anticipated
are considered when determining the Company's intent to hold investment
securities for the foreseeable future. Investment securities are carried at
cost, adjusted for amortization of premiums and accretion of discounts.
Securities to be held for indefinite periods of time and not intended to be
held to maturity are classified as available for sale and carried at fair
value. Securities held for indefinite periods of time include securities that
management intends to use as part of its asset/liability management strategy
and that may be sold in response to changes in interest rates and/or
significant prepayment risks.
At December 31, 1996, all of the Company's securities were classified in the
"available for sale" portfolio. At December 31, 1996, there were no securities
of any issuer that exceeded ten percent of shareholders' equity.
The following table summarizes the amortized cost, gross unrealized gains and
losses and the resulting market value of securities available for sale.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996:
U.S. Treasury & government agency $30,441 $40 $30,481
Mortgage-backed 10,874 ($114) 10,760
FHLB stock 4,248 4,248
- -----------------------------------------------------------------------------------------------------------
Total $45,563 $40 ($114) $45,489
===========================================================================================================
December 31, 1995:
U.S. Treasury & government agency $ 6,935 $13 $ 6,948
Mortgage-backed 12,572 ($126) 12,446
FHLB stock 3,281 3,281
- -----------------------------------------------------------------------------------------------------------
Total $22,788 $13 ($126) $22,675
===========================================================================================================
December 31, 1994:
Mortgage-backed $ 3,079 ($361) $ 2,718
===========================================================================================================
</TABLE>
8
<PAGE> 13
At December 31, 1996 and 1995, the Company had no securities held for
investment purposes. The following table summarizes the recorded value, gross
unrealized gains and losses and the resulting market value of investment
securities as of December 31, 1994:
<TABLE>
<CAPTION>
Gross Gross
Recorded Unrealized Unrealized Market
- -----------------------------------------------------------------------------------------------------------
(in thousands) Value Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1994:
U.S. Treasury $ 1,003 ($ 17) $ 986
Mortgage-backed 16,389 ( 863) 15,526
FHLB stock and other 2,149 2,149
- -----------------------------------------------------------------------------------------------------------
Total $19,541 ($880) $18,661
===========================================================================================================
</TABLE>
The following table provides the carrying values, maturities and weighted
average yields of the Company's "available for sale" portfolio at December 31,
1996.
<TABLE>
<CAPTION>
Maturing
------------------------------------------------------------------
After 1 After 5
Within 1 But Within But Within After 10
(dollars in thousands) Year 5 Years 10 Years Years Total
- --------------------------------------------------------------------------------------------------------------
U.S. Treasury
<S> <C> <C> <C> <C> <C>
Balance $15,040 $ 2,000 $ 17,040
Weighted Average Yield 5.74% 5.68% 5.73%
U.S. government agency
Balance 11,728 $1,713 13,441
Weighted Average Yield 6.56% 6.51% 6.55%
Mortgage-backed (1)
Balance 8,801 $1,959 10,760
Weighted Average Yield 5.32% 6.17% 5.47%
FHLB stock and other (2)
Balance 4,248 4,248
Weighted Average Yield 7.80% 7.80%
- --------------------------------------------------------------------------------------------------------------
Total
Balance $15,040 $22,529 $1,959 $5,961 $45,489
Weighted Average Yield 5.74% 6.00% 6.17% 7.43% 6.11%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The maturities reported for mortgage-backed securities are based on
contractual maturities and principal amortization.
(2) The weighted average yield on FHLB stock is based upon the dividend yield
and average balances for the 12 months ended December 31, 1996.
9
<PAGE> 14
LENDING ACTIVITIES
The following table sets forth the composition of the Company's loan portfolio
by type of loan at the dates indicated.
<TABLE>
<CAPTION>
(in thousands) December 31, 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial business $169,318 $113,775 $ 72,829 $ 44,772 $ 16,511
Real estate:
One-to four-family residential 67,709 67,991 76,260 55,804 53,161
Five or more family residential and
commercial properties 128,803 97,103 68,531 45,193 30,681
- -----------------------------------------------------------------------------------------------------------
Total real estate 196,512 165,094 144,791 100,997 83,842
Real estate construction:
One- to four-family residential 21,380 22,741 17,411 16,328 9,408
Five or more family residential and
commercial properties 10,680 8,884 4,004 4,799 4,689
- -----------------------------------------------------------------------------------------------------------
Total real estate construction 32,060 31,625 21,415 21,127 14,097
Consumer 48,807 43,343 30,860 14,417 6,584
- -----------------------------------------------------------------------------------------------------------
Subtotal 446,697 353,837 269,895 181,313 121,034
Less deferred loan fees and other (602) (744) (899) (297) (237)
- -----------------------------------------------------------------------------------------------------------
Total loans $446,095 $353,093 $268,996 $181,016 $120,797
===========================================================================================================
Loans held for sale $ 11,341 $ 1,367 $ 1,612 $ 1,777 $ 2,021
===========================================================================================================
</TABLE>
NOTE: During 1994, as part of its focus on loan quality, management
developed more detailed statistical information on various types of
lending. In this connection, the December 31, 1996, 1995 and 1994
loan balances in the table above reflect changes in classifications
from prior periods. Due to the impracticality of developing similar
information for prior period balances, prior period balances have not
been restated and, as a result, are not comparable with December 31,
1996, 1995 and 1994.
The following table presents at December 31, 1996, (i) the aggregate maturities
of loans in each major category of the Company's loan portfolio and (ii) the
aggregate amounts of variable and fixed rate loans that mature after one year.
<TABLE>
<CAPTION>
Maturing
------------------------------------------------------------------
After 1 But After Five
(in thousands) Within 1 Year Within 5 Years Years Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial business $146,357 $22,509 $452 $169,318
Real estate construction 31,852 55 153 32,060
- -----------------------------------------------------------------------------------------------------------
Total $178,209 $22,564 $605 $201,378
===========================================================================================================
Fixed rate loans $17,561 $605 $ 18,166
Variable rate loans 5,003 5,003
- -----------------------------------------------------------------------------------------------------------
Total $22,564 $605 $ 23,169
===========================================================================================================
</TABLE>
10
<PAGE> 15
Risk Elements
Risk elements consist of: (i) nonaccrual loans, which are loans placed on a
nonaccrual basis generally when the loan becomes past due 90 days or when there
are otherwise serious doubts about the collectibility of principal or interest;
(ii) restructured loans, for which concessions, including the reduction of
interest rates below a rate otherwise available to that borrower or the
deferral of interest or principal, have been granted due to the borrower's
weakened financial condition (interest on restructured loans is accrued at the
restructured rates when it is anticipated that no loss of original principal
will occur); (iii) accruing loans which are contractually past due ninety days
or more as to interest or principal payments; and (iv) potential problem loans,
which are currently performing and are not included in nonaccrual or
restructured loans, but about which there are serious doubts as to the
borrower's ability to comply with present repayment terms and, therefore, will
likely be included later in nonaccrual, past due or restructured loans.
The following table sets forth, at the dates indicated, information with
respect to nonaccrual loans, restructured loans, total nonperforming loans
(nonaccrual loans plus restructured loans), real estate owned ("REO"), total
nonperforming assets, accruing loans past-due 90 days or more and potential
problem loans of the Company.
<TABLE>
<CAPTION>
(in thousands) December 31, 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual $2,227 $ 435 $ 452 $1,631 $ 650
Restructured 25 29 44 94 109
- -----------------------------------------------------------------------------------------------------------
Total nonperforming loans 2,252 464 496 1,725 759
Real estate owned 40 3,304 3,227 3,305 2,959
- -----------------------------------------------------------------------------------------------------------
Total nonperforming assets $2,292 $3,768 $3,723 $5,030 $3,718
===========================================================================================================
Accruing loans past-due 90 days or $ 152 $ 82
more
===========================================================================================================
Potential problem loans $ 213
===========================================================================================================
</TABLE>
For information pertaining to risk elements, see the appropriate sections in
"Management Discussion - Loan Portfolio" beginning at page 24 of the Annual
Report, "Management Discussion - Nonperforming Assets" beginning at page 26 of
the Annual Report and Note 5 of "Notes to Consolidated Financial Statements"
beginning at page 47 of the Annual Report, all of which are incorporated herein
by reference.
11
<PAGE> 16
SUMMARY OF LOAN LOSS EXPERIENCE
The following table provides an analysis of net losses by loan type for the
last five years.
<TABLE>
<CAPTION>
(dollars in thousands) December 31, 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total loans, net at end of period $446,095 $353,093 $268,996 $181,016 $120,797
Daily average loans 405,131 318,039 222,236 140,353 107,182
- -----------------------------------------------------------------------------------------------------------
Balance of allowance for loan losses
at beginning of period $ 3,748 $ 2,711 $ 1,992 $ 1,539 $ 1,426
Charge-offs:
Real estate:
One- to four-family residential (31)
Five or more family residential and
commercial properties (18)
Commercial business (514) (148) (258) (72) (45)
Consumer (170) (115) (106) (38) (32)
- -----------------------------------------------------------------------------------------------------------
Total charge-offs (684) (263) (364) (110) (126)
Recoveries:
Real estate:
One-to four-family residential 1
Five or more family residential and
commercial properties
Commercial business 17 45 83 56 47
Consumer 3 5 5 16
- -----------------------------------------------------------------------------------------------------------
Total recoveries 20 50 83 61 64
- -----------------------------------------------------------------------------------------------------------
Net charge-offs (664) (213) (281) (49) (62)
Provision charged to expense 1,420 1,250 1,000 502 170
Allowance acquired in purchase of
branch 5
- -----------------------------------------------------------------------------------------------------------
Balance of allowance for loan losses at
end of period $ 4,504 $ 3,748 $ 2,711 $ 1,992 $ 1,539
===========================================================================================================
Ratio of net charge-offs during period
to average loans outstanding 0.16% 0.07% 0.13% 0.03% 0.06%
===========================================================================================================
</TABLE>
In determining the adequacy of the allowance, management considered numerous
factors including the level of nonperforming loans, loan loss experience,
credit concentrations, a review of the quality of the loan portfolio,
collateral values and uncertain economic conditions.
For additional information, see "Management Discussion - Provision and
Allowance for Loan Losses" at page 27 of the Annual Report, which is
incorporated herein by reference.
12
<PAGE> 17
The table below shows the allocation of the Allowance for Loan Losses for the
last five years. The allocation is based on an evaluation of defined loan
problems, historical ratios of loan losses and other factors which may affect
future loan losses in the categories of loans shown.
<TABLE>
<CAPTION>
(dollars in thousands)
December 31, 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
Balance at End of Total Total Total Total Total
Period Applicable to: Amount Loans* Amount Loans* Amount Loans* Amount Loans* Amount Loans*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial business $3,103 37.9% $1,796 32.2% $1,369 27.0% $ 389 23.6% $ 348 13.2%
Real estate and
construction:
One- to four-family 933 19.9 560 25.6 687 34.7 489 42.6 390 53.4
residential
Five or more family
residential 294 31.3 187 30.0 146 26.9 545 26.3 264 28.2
and commercial
properties
Consumer 402 10.9 284 12.2 216 11.4 138 7.5 88 5.2
Unallocated (228) 921 293 431 449
- -------------------------------------------------------------------------------------------------------------------
Total $4,504 100.0% $3,748 100.0% $2,711 100% $1,992 100% $1,539 100%
===================================================================================================================
</TABLE>
*Represents the total of all outstanding loans in each category as a percent
of total loans outstanding.
DEPOSITS
The following table presents the average balances outstanding and weighted
average interest rate for each major category of deposits:
<TABLE>
<CAPTION>
years ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
(dollars in thousands) Balance Rate Paid Balance Rate Paid Balance Rate Paid
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing demand and
money market accounts $142,103 3.62% $ 79,706 3.95% $ 38,962 2.09%
Savings accounts 21,673 2.80 24,547 2.73 33,938 2.64
Certificates of deposit 189,122 5.66 168,351 5.68 122,198 4.58
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 352,898 4.67 272,604 4.91 195,098 3.74
Demand and other
noninterest-bearing 60,691 42,167 26,238
- -------------------------------------------------------------------------------------------------------------------
Total deposits $413,589 $314,771 $221,336
===================================================================================================================
</TABLE>
The following table shows the amount and maturity of certificates of deposit
that had balances of more than $100,000:
<TABLE>
<CAPTION>
(in thousands) December 31, 1996
- ------------------------------------------------------------------------------------------------
<S> <C>
Remaining maturity
Three months or less $38,318
Over three through six months 16,408
Over six through twelve months 18,870
Over twelve months 7,626
- ------------------------------------------------------------------------------------------------
Total $81,222
================================================================================================
</TABLE>
13
<PAGE> 18
SIGNIFICANT FINANCIAL RATIOS
Ratios for the last three years, based on daily average balances, are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on assets 0.73% 0.74% (0.22%)
Return on equity 9.68 9.25 (2.12)
Dividend payout ratio
Equity to assets 7.55 7.95 10.38
</TABLE>
SHORT-TERM BORROWINGS
At December 31, 1996, 1995 and 1994, there were no short-term (original
maturity of one year or less) borrowings that exceeded 30 percent of
shareholders' equity at the end of the period.
SUPERVISION AND REGULATION
The Company and Columbia Bank are subject to extensive federal and Washington
state legislation, regulation and supervision. These laws and regulations are
primarily intended to protect depositors and the FDIC rather than shareholders
of the Company. The laws and regulations affecting banks and bank holding
companies have changed significantly over recent years, and there is reason to
expect that similar changes will continue in the future. Any change in
applicable laws, regulations or regulatory policies may have a material effect
on the business, operations and prospects of the Company. The Company is
unable to predict the nature or extent of the effects on its business and
earnings that any fiscal or monetary policies or new federal or state
legislation may have in the future. The following information is qualified in
its entirety by reference to the particular statutory and regulatory provisions
described herein.
THE COMPANY
The Company is subject to regulation as a bank holding company within the
meaning of the Bank Holding Company Act of 1956 (the "BHCA"), as amended. As
such, the Company is supervised by the Federal Reserve Board.
The Federal Reserve Board has the authority to order bank holding companies to
cease and desist from unsound practices and violations of conditions imposed by
the Board. The Federal Reserve Board is also empowered to assess civil money
penalties against companies and individuals who violate the BHCA or orders or
regulations thereunder in amounts up to $1.0 million per day or order
termination of non-banking activities of non-banking subsidiaries of bank
holding companies, and to order termination of ownership and control of a
non-banking subsidiary by a bank holding company. Certain violations may also
result in criminal penalties. The FDIC is authorized to exercise comparable
authority under the Federal Deposit Insurance Act and other statutes with
respect to state nonmember banks such as Columbia Bank.
The Federal Reserve Board takes the position that a bank holding company is
required to serve as a source of financial and managerial strength to its
subsidiary banks and may not conduct its operations in an unsafe or unsound
manner. In addition, it is the Board's position that in serving as a source of
strength to its subsidiary banks, bank holding companies should be prepared to
use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary
banks will generally be considered by the Board to be an unsafe and unsound
banking practice or a violation of the Board's regulations of both. The
Federal Deposit Insurance Act requires an undercapitalized institution to
submit to the Federal Reserve Board a capital restoration plan with a guarantee
by each company having control of the bank's compliance with the plan.
14
<PAGE> 19
The BHCA prohibits a bank holding company, with certain exceptions, from
acquiring direct or indirect ownership or control of any company which is not a
bank or from engaging in any activities other than those of banking, managing
or controlling banks and certain other subsidiaries, or furnishing services to
or performing services for its subsidiaries. One principal exception to these
prohibitions allows a bank holding company to acquire an interest in companies
whose activities are found by the Federal Reserve Board, by order or by
regulation, to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. The Company must obtain the approval
of the Federal Reserve before it acquires all, or substantially all, of any
bank, or ownership or control of more than 5 percent of the voting shares of a
bank.
The Company is required under the BHCA to file an annual report and periodic
reports with the Federal Reserve Board and such additional information as the
Federal Reserve Board may require pursuant to the BHCA. The Board may examine
a bank holding company and any of its subsidiaries and charge the company for
the cost of such an examination.
The Company and any subsidiaries which it may control are deemed "affiliates"
within the meaning of the Federal Reserve Act, and transactions between bank
subsidiaries of the Company and its affiliates are subject to certain
restrictions. With certain exceptions, the Company and its subsidiaries also
are prohibited from tying the provision of certain services, such as extensions
of credit, to other services offered by the Company or its affiliates.
Banking regulations require bank holding companies and banks to maintain a
minimum "leverage ratio" of core capital to adjusted quarterly average total
assets of a least 3%. In addition, banking regulators have adopted risk-based
capital guidelines under which risk percentages are assigned to various
categories of assets and off-balance sheet items to calculate a risk-adjusted
capital ratio. Tier I capital generally consists of common shareholders'
equity (which does not include unrealized gains and losses on securities), less
goodwill and certain intangible assets, while Tier II capital includes the
allowance for loan losses and subordinated debt, both subject to certain
limitations. Regulatory risk-based capital guidelines require Tier I capital
of 4% of risk-adjusted assets and minimum total capital ratio (combined Tier I
and Tier II) of 8%. At December 31, 1996, the Company's leverage ratio was
10.62% compared with 7.72% at December 31, 1995. The Company's Tier I and
total capital ratios were 12.81% and 13.79%, respectively, at December 31,
1996, compared with 9.10% and 10.95% at December 31, 1995.
BANKING SUBSIDIARY
Columbia Bank is a Washington state-chartered commercial bank, the deposits of
which are insured by the FDIC. It is subject to regulation by the FDIC and the
Division. Although Columbia Bank is not a member of the Federal Reserve
System, the Federal Reserve Board's supervisory authority over the Company can
also affect Columbia Bank.
Among other things, applicable federal and state statutes and regulations which
govern a bank's operations relate to minimum capital requirements, required
reserves against deposits, investments, loans, legal lending limits, mergers
and consolidations, borrowings, issuance of securities, payment of dividends,
establishment of branches and other aspects of its operations. The Division
and the FDIC also have authority to prohibit banks under their supervision from
engaging in what they consider to be unsafe and unsound practices.
Columbia Bank is required to file periodic reports with the FDIC and the
Division and is subject to periodic examinations and evaluations by those
regulatory authorities. Based upon such an evaluation, the regulators may
revalue the assets of an institution and require that it establish specific
reserves to compensate for the differences between the regulator-determined
value and the book value of such assets. These examinations must be conducted
every 12 months, except that certain well-capitalized banks may be examined
every 18 months. The FDIC and the Division may each accept the results of an
examination by the other in lieu of conducting an independent examination.
15
<PAGE> 20
As a subsidiary of a bank holding company, Columbia Bank is subject to certain
restrictions in its dealings with the Company and with other companies that may
become affiliated with the Company.
Columbia Bank's deposits are insured by the FDIC through the Bank Insurance
Fund (the "BIF") and the Savings Association Insurance Fund (the "SAIF").
Prior to enactment of recent legislation and promulgation of regulations
thereunder, the FDIC's annual assessment rate for deposits ranged from 0.0% to
0.27% of insured deposits for the BIF and 0.23% to 0.31% of insured deposits
for the SAIF, depending on an institution's risk classification. The recent
legislation was enacted to resolve the difference in rates between the two
funds. Pursuant to this legislation, the FDIC adopted regulations lowering the
SAIF assessment rates to a range of 0.04% to 0.31% and then through application
of an adjustment factor further reducing SAIF assessment rates to an effective
range of 0.0% to 0.27%. The FDIC has also proposed to maintain the BIF
assessment rate within a range of 0.0% and 0.27% of covered deposits. These
rates essentially became effective October 1, 1996 for certain institutions,
such as Columbia Bank. The legislation also resulted in a one-time special
assessment of $612,000 for the Company. The special assessment, which is tax
deductible, was recognized during the third quarter of 1996. Moreover, the
legislation requires assessments on both SAIF and BIF members in order to
service bonds issued in connection with the government resolution of the
savings and loan crisis. This assessment is not tied to an institution's risk
classification. The FDIC has estimated that for the next three years beginning
on January 1, 1997 through December 31, 1999, an annual assessment of
approximately 0.064% of covered deposits and 0.013% of covered deposits will be
assessed upon SAIF- and BIF-insured deposits, respectively, and from January 1,
2000 through December 31, 2017, the assessment rate will be 0.024% of covered
deposits for all insured institutions. If the deposit insurance funds are
merged on January 1, 1999 pursuant to the legislation, then the uniform
assessment rate to service the bonds will apply from that date forward.
Management anticipates that its total assessment rate for deposits deemed to be
SAIF-insured will be 0.064% for the year 1997. Management also anticipates
that its total assessment rate for BIF-insured deposits will be 0.013% for the
year 1997. At December 31, 1996, approximately $169.8 million, or 34.4%, of
Columbia Bank's deposits were deemed to be SAIF-insured under the allocation
formula.
Other Regulatory Developments
Congress has enacted significant federal banking legislation in recent years.
Included in this legislation have been the Financial Institution Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). FIRREA, among other
things, (i) created two deposit insurance pools within the FDIC; (ii) permitted
commercial banks that meet certain housing- related asset requirements to
secure advances and other financial services from local Federal Home Loan
Banks; (iii) restructured the federal regulatory agencies for savings
associations; and (iv) greatly enhanced the regulators' enforcement powers over
financial institutions and their affiliates.
FDICIA went substantially farther than FIRREA in establishing a more rigorous
regulatory environment. Under FDICIA, regulatory authorities are required to
enact a number of new regulations, substantially all of which are now
effective. These regulations include, among other things, (i) a new method for
calculating deposit insurance premiums based on risk, (ii) restrictions on
acceptance of brokered deposits except by well- capitalized institutions, (iii)
additional limitations on loans to executive officers and directors of banks,
(iv) the employment of interest rate risk in the calculation of risk-based
capital, (v) safety and soundness standards that take into consideration, among
other things, management, operations, asset quality, earnings and compensation,
(vi) a five-tiered rating system from well-capitalized to critically
undercapitalized, along with the prompt corrective action the agencies may take
depending on the category, and (vii) new disclosure and advertising
requirements with respect to interest paid on savings accounts.
FDICIA and regulations adopted by the FDIC impose additional requirements for
annual independent audits and reporting when a bank begins a fiscal year with
assets of $500 million or more. Such banks, or their holding companies, are
also required to establish audit committees comprised of directors who are
independent of management. The Company had $588.9 million in assets at
December 31, 1996, and thus became subject to the FDIC regulations on January
1, 1997. The Bank has an Audit Committee of independent directors which meets
the audited financial statement requirements of applicable regulations.
16
<PAGE> 21
Also, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act") provides banks with greater opportunities to
merge with other institutions and to open branches nationwide. The Interstate
Banking Act also allows a bank holding company whose principal operations are
in one state to apply to the Federal Reserve for approval to acquire a bank
that is headquartered in a different state. States cannot "opt out" but may
impose minimum time periods, not to exceed five years, for the target bank's
existence.
The Interstate Banking Act also allows bank subsidiaries of bank holding
companies to establish "agency" relationships with their depository institution
affiliates. In an agency relationship, a bank can accept deposits, renew time
deposits, close and service loans, and receive payments for a depository
institution affiliate. States cannot "opt out."
In addition, the Interstate Banking Act allows banks whose principal operations
are located in different states to apply to federal regulators to merge. This
provision takes effect June 1, 1997, unless states enact laws to either (i)
authorize such transactions at an earlier date or (ii) prohibit such
transactions entirely. The Interstate Banking Act also allows banks to apply
to establish de novo branches in states in which they do not already have a
branch office. This provision takes effect June 1, 1997, but (i) states must
enact laws to permit such branching and (ii) a bank's primary federal regulator
must approve any such branch establishment. The Washington legislature passed
legislation that allows, subject to certain conditions, mergers or other
combinations, relocations of banks' main office and branching across state
lines in advance of the June 1, 1997 date established by federal law.
Further effects on the Company may result from the Riegle Community Development
and Regulatory Improvement Act of 1994 (the "Community Development Act"). The
Community Development Act (i) establishes and funds institutions that are
focused on investing in economically distressed areas and (ii) streamlines the
procedures for certain transactions by financial institutions with federal
banking agencies.
Among other things, the Community Development Act requires the federal banking
agencies to (i) consider the burdens that are imposed on financial institutions
when new regulations are issued or new compliance burdens are created and (ii)
coordinate their examinations of financial institutions when more than one
agency is involved. The Community Development Act also streamlines the
procedures for forming certain one-bank holding companies and engaging in
authorized non-banking activities.
In addition to the changes to the BIF and SAIF assessment rates implemented by
the legislation which was recently passed as part of the 1996 Omnibus spending
bill, various regulatory relief provisions were enacted. The new legislation
includes, among other things, changes to (I) the Truth in Lending Act and the
Real Estate Settlement Procedures Act to coordinate and simplify the two laws'
disclosure requirements; (ii) eliminate civil liabiltity for violations of the
Truth in Savings Act after five years; and (iii) streamline the application
process for a number of bank holding company and bank applications; (iv)
establish a privilege from discovery in any civil or administrative proceeding
or bank examination for any fair lending self-test results conducted by, or on
behalf of, a financial institution in certain circumstances; (v) repeal the
FDICIA requirement that independent public accountants attest to compliance
with designated safety and soundness regulations; (vi) impose a continuous
regulatory review of regulations to identify and eliminate outdated and
unnecessary rules; and (vii) various other miscellaneous provisions to reduce
bank regulatory burden.
The foregoing is just a brief summary of certain important statutes and
regulations. It is impossible to determine with any certainty the impact, both
operationally and financially, that enacted and proposed statutes and
regulations will have on the Company and its subsidiary. Implementation of the
new regulations has resulted and will result in initial costs to financial
institutions. In addition, many of the new regulations include additional
reporting requirements which will result in increased and recurring personnel
and other costs.
17
<PAGE> 22
ITEM 2. PROPERTIES
The Company's executive offices and the Main Office of Columbia Bank are
located in approximately 37,500 square feet of leased space in downtown
Tacoma. The lease of the downtown Tacoma office has an initial lease term of
seven years. With an expiration of August 2000, the lease agreement provides
for one renewal option for three years and two additional renewal options for
five years each. The base rent is approximately $34,000 per month for the
first five years, subject to certain increases for landlord operating expenses.
Beginning in the sixth year of the lease and at each five-year renewal date,
the base rent may be adjusted pursuant to a formula which limits the
adjustments to an average of 3% of the base rent per year or 15% of the base
rent over the five-year renewal term. The downtown lease also includes
customer and employee parking spaces at rates at or below current market rates
for downtown parking. As of December 31, 1996, Columbia Bank had 11 offices in
Pierce County, including the Main Office ( 8 leased and 3 owned), two offices
in Longview (both owned), one office in Bellevue (leased), one office in
Federal Way (leased), and one office in Woodland (owned). Commerce Plaza, one
of Columbia Bank's banking offices in Longview, houses a retail banking office
and numerous retail and other tenants.
For additional information pertaining to properties, see Note 7 of "Notes to
Consolidated Financial Statements" at page 49 of the Annual Report, which is
incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
For information concerning legal proceedings, see Note 12 of "Notes to
Consolidated Financial Statements" at page 53 of the Annual Report, which is
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
For information concerning the Company's common stock and related security
holder matters, see "Quarterly Common Stock Prices & Dividend Payments" at page
33 of the Annual Report, which is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
For selected financial data concerning the Company, see "Consolidated
Highlights," "Consolidated Five-Year Statements of Operations" and
"Consolidated Five-Year Summary of Average Balances and Net Interest Revenue"
at pages 15, 60 and 62, respectively, of the Annual Report, which is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For management's discussion and analysis, see "Consolidated Analysis of Changes
in Interest Income and Expense" in Part I of this report, "Management
Discussion and Analysis of Financial Condition and Results of Operations" at
pages 20 through 33 of the Annual Report and "Consolidated Five-Year Summary of
Average Balances and Net Interest Revenue" at page 62 of the Annual Report, all
of which are incorporated herein by reference.
18
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For consolidated financial statements of the Company, see "Audited Financial
Statements" beginning at page 36 of the Annual Report which is incorporated
herein by reference. The "Summary of Quarterly Financial Information
(Unaudited)" on page 59 of the Annual Report is also incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
For information concerning a change in the Company's independent accountant ,
see "Recent Change in Accounting Firms" on page 33 of the Annual Report, which
is incorporated herein by reference.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors of the registrant is incorporated herein by
reference to the section entitled "Information With Respect to Nominees"
beginning at page 2 of the Company's definitive Proxy Statement dated March 20,
1997 (the "Proxy Statement") for the annual meeting of shareholders to be held
April 23, 1997.
The required information with respect to the executive officers of the Company
is included under the caption "Executive Officers of the Company" in Part I of
this report. Part I of this report is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For information concerning executive compensation see "Executive Compensation"
beginning at page 6 of the Proxy Statement, which is incorporated herein by
reference. Neither the Report of the Personnel and Compensation Committee on
Executive Compensation nor The Stock Performance Graph, both of which are
contained in the Proxy Statement, are incorporated by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning security ownership of certain beneficial owners and
of management see "Information With Respect to Nominees" beginning at page 2
and 12 of the Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning certain relationships and related transactions, see
"Interest of Management in Certain Transactions" beginning at page 13 of the
Proxy Statement, which is incorporated herein by reference.
19
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
List of Financial Statements and Financial Statement Schedules.
(a) (1) Financial Statements:
The following consolidated financial statements of the Company.,
included in the Annual Report of the registrant to its shareholders
for the year ended December 31, 1996, are incorporated by reference
in Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Statements of Operations--Years ended December 31, 1996, 1995 and 1994 36
Consolidated Balance Sheets--December 31, 1996 and 1995 38
Consolidated Statements of Shareholders' Equity--Years ended
December 31, 1996, 1995 and 1994 40
Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1995 and 1994 42
Notes to Consolidated Financial Statements 44
Report of Independent Accountants 35
</TABLE>
(2) Exhibits:
See "Index to Exhibits" at page 23 of this Form 10-K.
(b) Reports on Form 8-K:
None
20
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 24th day of March,
1997.
Columbia Banking System, Inc.
(Registrant)
By /s/ A. G. Espe
------------------------------
A. G. Espe
Chairman and
Chief Executive Officer
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 indicated, on the 24th day of March, 1997.
Principal Executive Officer:
/s/ A. G. Espe
------------------------------
A. G. Espe
Chairman and
Chief Executive Officer
Principal Financial Officer:
/s/ Gary R. Schminkey
------------------------------
Gary R. Schminkey
Senior Vice President and
Chief Financial Officer
21
<PAGE> 26
A. G. Espe, pursuant to powers of attorney which are being filed with this
Annual Report on Form 10-K, has signed this report on March 24, 1997 as
attorney-in-fact for the following directors who constitute a majority of the
board of directors.
W. Barry Connoley Robert Quoidbach
Richard S. DeVine Donald Rodman
Jack Fabulich Frank Russell
Jonathan Fine Sidney R. Snyder
Margel Gallagher James M. Will, Jr.
John A. Halleran
/s/ A. G. Espe
------------------------------
A. G. Espe
Attorney-in-fact
March 24, 1997
22
<PAGE> 27
INDEX TO EXHIBITS
Exhibit
No.
- --------
3 (a) Restated Articles of Incorporation of the Company. (1)
(b) Restated Bylaws of the Company. (4)
4 Form of Indenture. (1)
10 (a) Lease dated May 7, 1993 between the Company and William B.
Swensen Enterprises for Tacoma Main Office
premises of Columbia Bank. (2)
(b) Amended Employee Stock Option Plan dated July 19, 1993. (2)
*(c) Amended Employment Agreement dated December 30, 1993 between the
Company and A. G. Espe. (3)
*(d) Amended Employment Agreement between the Company and A. G. Espe,
dated as of September 25, 1996, effective January 1, 1997. (6)
*(e) Amended Employment Agreement dated December 30, 1993 between the
Company and W. W. Philip, as further amended effective
December 29, 1995. (7)
*(f) Amended Employment Agreement between the Company and W. W.
Philip dated as of September 25, 1996, effective January 1,
1997, except with respect to section 4.3 (granting restricted
stock award) which is immediately effective. (6)
(g) Agreement of September 30, 1994 with the Federal Deposit
Insurance Corporation regarding termination of the
Assistance Agreement dated August 2, 1988 among the Federal
Savings and Loan Insurance Corporation, Columbia Savings Bank
and the Company. The termination agreement also resulted in the
termination of the Regulatory Capital Maintenance Agreement
dated August 2, 1988 among the Company, Stanley B. Rose
Company, Stanley B. Rose, Columbia Savings Bank and the Federal
Savings and Loan Insurance Corporation. (4)
(h) Amended Agreement Granting Options to NorCap, Ltd. to Purchase
Shares of Common Stock of the Company dated September 26,
1990. (1)
(i) Cash or Deferred Profit Sharing Plan effective as of July 1,
1992. (2)
(j) Data processing servicing agreement dated May 3, 1993 between
the Company and M&I Data Services. (3)
11 Statement re computation of per share earnings.
23
<PAGE> 28
13 The Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1996. (5)
21 Subsidiaries of the Company are:
(a) Columbia State Bank, Tacoma, Washington, a Washington
state-chartered commercial bank.
24 Powers of Attorney dated February 26, 1997.
(1) Incorporated by reference to the Form S-1 (Registration No.
33-47711) previously filed by the Company, declared
effective on June 16, 1992.
(2) Incorporated by reference to the Form SB-2 (Registration No.
33-66224) previously filed by the Company, declared
effective on August 16, 1993.
(3) Incorporated by reference to the Annual Report on Form 10-KSB
for the year ended December 31, 1993 previously
filed by the Company.
(4) Incorporated by reference to the Annual Report on Form 10-K
for the year ended December 31, 1994 previously
filed by the Company.
(5) Portions of the Annual Report to Shareholders have been
specifically incorporated by reference elsewhere in this
report.
(6) Incorporated by reference to the Form S-2 (Registration No.
333-14465) previously filed by the Company, declared
effective November 12, 1996.
(7) Incorporated by reference to the Annual Report on Form 10-K
for the year ended December 31, 1995 previously
filed by the Company.
* The listed documents are management contracts which contain
compensatory arrangements.
24
<PAGE> 1
EXHIBIT 11
<PAGE> 2
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
COLUMBIA BANKING SYSTEM, INC.
<TABLE>
<S> <C> <C> <C>
(in thousands, except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
EARNINGS
Net income (loss) applicable to common stock $3,577 $2,755 ($614)
Interest on convertible subordinated notes, net of
income tax effects--Note 1
- --------------------------------------------------------------------------------------------------------
Pro forma net income (loss) available to common stock $3,577 $2,755 ($614)
========================================================================================================
SHARES
Weighted average number of common and common
equivalent shares outstanding 3,866 3,496 3,481
Additional shares assuming conversion of convertible
subordinated notes--Note 1
- --------------------------------------------------------------------------------------------------------
Pro forma shares 3,866 3,496 3,481
========================================================================================================
Fully diluted earnings (loss) per share $0.92 $0.79 ($0.18)
========================================================================================================
</TABLE>
Note 1. Earnings (loss) per share and fully diluted earnings (loss) per share
are the same for the years ended December 31, 1995 and 1994. The inclusion of
convertible subordinated notes would produce an antidilutive effect and
therefore have not been included in the above presentation. Additional average
shares, assuming the conversion of convertible subordinated notes which are not
included, represent 243,011 and 246,619 shares for the years ended December 31,
1995 and 1994, respectively. The related interest expense on these notes (net
of income tax effects) was $244,870 and $246,009 for the years ended December
31, 1995 and 1994, respectively.
On June 3, 1996, the Company gave notice that it would redeem all of its issued
and outstanding 7.85% Convertible Subordinated Notes (the "Notes") on August 1,
1996. The Notes were convertible on whole or in part, in multiples of $1,000
principal amount, at 100% of the principal amount of the Note (or portion
thereof), at the conversion price per share of common stock of $10.56. Prior
to August 1, 1996, all of the Notes were converted into 223,743 shares of
common stock.
For additional information on earnings per share, please see the "Capital"
section of the "Management Discussion and Analysis of Financial Condition and
Results of Operations" beginning at page 31 of the Annual Report, which is
incorporated herein by reference.
<PAGE> 1
Exhibit 13
COLUMBIA BANKING SYSTEM 1996 ANNUAL REPORT
[4 GRAPHICS]
COLUMBIA BANKING SYSTEM
1996 ANNUAL REPORT
[2 GRAPHICS]
<PAGE> 2
PROFILE
Columbia Banking System, Inc. is a Tacoma, Washington-based bank holding company
which operates Columbia Bank, a state-chartered full-service commercial bank
with 17 banking offices in Pierce, King and Cowlitz counties. The cornerstone of
Columbia Bank's approach to banking is a return to friendly, old-fashioned
banking, coupled with modern convenience and technology. Columbia Bank is a
local bank, strongly committed to its customers and the communities it serves.
Columbia Banking System trades on The Nasdaq Stock Market under the symbol COLB.
Columbia Banking System achieved record results in 1996, thanks to a balanced
combination of strategy, skill, and opportunity. With growing assets, a
commitment to earn our customers' loyalty every day, and a market that continues
to benefit from the vacuum created by industry consolidation, 1997 represents
the opportunity for continued profitable growth.
<PAGE> 3
CONTENTS
2 1996
16 letter to shareholders
19 financial review
64 corporate directory
65 shareholder information
66 branch locations
<PAGE> 4
Page 2
[Graphic display of the total assets of Columbia Banking System, Inc. at
December 31, 1996]
$588,916,000
<PAGE> 5
record growth
A MAJOR MILESTONE.
<TABLE>
<CAPTION>
MEASURES
<S> <C>
38.9% average annual growth rate for total assets, 1992 - 1996
39.0% average annual growth rate for total loans, 1992-1996
43.4% average annual growth rate for total deposits, 1992-1996
</TABLE>
Think of it as more than a measure of success. Think of it as a measure of just
how much customers have come to value our personal approach to banking. In 1996
we crossed the one half-billion dollar mark in assets, increasing 38.5% from one
year ago. And we believe that there is plenty of room to grow.
<PAGE> 6
people and places
BANKS AROUND BANKERS.
<TABLE>
<CAPTION>
MEASURES
<S> <C>
15 years average in-market experience for our loan officers
14 years average in-market experience for our branch managers
17 branches total, up from 13 in 1995
</TABLE>
It's simple. Banks are best managed by bankers. We build our branch
network by first finding the right banker for the market, and then building
around their experience, skills and relationships with customers and the
community. And it works. After all, wouldn't you rather do business with a
banker you know?
<PAGE> 7
Page 5
[Photograph of four bank employees symbolizing the narrative on the preceeding
page #4]
<PAGE> 8
Page 6
[Graphic display of the side profile of a human head symbolizing the narrative
on page #7]
<PAGE> 9
complete service
CUSTOMERS FIRST.
SERVICES
- Columbia Financial Services - investing through a third party
broker-dealer relationship
- Pronto - delivers mortgage closings within 10 days or less in most
cases
- Save For America(TM) - government endorsed savings program for
students
Too often technology is being used to dehumanize banking and to keep
contact with customers to a minimum. While we're just as technologically
sophisticated as any other bank, we use technology to enhance our customer
relationships, not to replace them. In other words, we give our customers the
best of both worlds.
<PAGE> 10
customer focus
ALL TOGETHER NOW.
FOCUS
We are committed to our customers and our communities, offering a return to
friendly, old-fashioned banking, in addition to providing our customers with all
the modern conveniences and technology of banking today.
At Columbia, banking is what banking was. People who listen and respond. Who
work with our customers and see them as individuals instead of mere numbers.
This approach may be the single biggest reason for our record-setting growth.
Because, when you treat people as individuals, the word gets around.
<PAGE> 11
Page 9
Photograph of two sets of hands working together raising an American flag up a
flag pole symbolizing the narrative on the preceding page #8.
<PAGE> 12
Page 10
Graphic display of the mathematical function of "6 times" symbolizing the
narrative on page #11.
<PAGE> 13
high performance
WAY ABOVE AVERAGE.
<TABLE>
<CAPTION>
MEASURES
<S> <C>
31.3% Total asset growth vs. 4.6% industry average*
27.6% Total loan growth vs. 6.7% industry average*
33.4% Total deposit growth vs. 4.2% industry average*
* Average based on all FDIC-insured institutions, 9-95 through
9-96
</TABLE>
Not only compared to the county, or the state or the region. Compared to all the
FDIC-insured institutions, everywhere in the country. Our balance sheet growth
outpaced the industry average by an average of six times based on above
measures, while non-performing loans reached an all time low of 0.39 percent.
<PAGE> 14
continued growth
THE TIME IS NOW.
<TABLE>
<CAPTION>
MEASURES
<S> <C>
29.8% increase in net income
26.3% increase in loans
36.3% increase in deposits
</TABLE>
Combine our strategy, performance, skill and dedication to customers with a
marketplace that is looking for a better way to bank in the aftermath of
industry consolidation, and our window for growth is wide open. And that is
where our focus remains: making the most of our business and our opportunity.
<PAGE> 15
Page 13
Photograph of an eight-pane window with a view of blue sky and clouds
symbolizing the narrative on the preceding page #12
<PAGE> 16
Page 14
financial charts
<TABLE>
<CAPTION>
December 31,
(dollars in
thousands) 1992 1993 1994 1995 1996
- ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Assets 158,694 235,944 319,072 $425,206 $588,916
Loans 120,797 181,016 268,996 $353,093 $446,095
Deposits 118,014 165,339 268,692 $361,875 $493,222
</TABLE>
<PAGE> 17
consolidated highlights
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS PERCENT
EXCEPT PER SHARE AMOUNTS 1996 1995 CHANGE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Year
Net interest income $ 20,544 $ 16,561 24.1%
Provision for loan losses 1,420 1,250 13.6
Net income 3,577 2,755 29.8
Net income excluding SAIF
special assessment 4,189 52.1
Per Share:
Net income 0.93 0.79 17.7
Net income excluding SAIF
special assessment 1.09 38.0
Fully diluted net income 0.92 0.79 16.5
Fully diluted net income excluding
SAIF special assessment 1.07 35.4
Book value 11.37 9.76 16.5
At Year-end
Assets 588,916 425,206 38.5
Loans 446,095 353,093 26.3
Deposits 493,222 361,875 36.3
Shareholders' equity 58,960 31,967 84.4
Number of full-time
equivalent employees 247 201 22.9
Number of banking offices 16 13 23.1
Financial Ratios
Net interest margin 4.48% 4.78%
Return on average assets 0.73 0.74
Return on average assets excluding SAIF
special assessment 0.86
Return on average equity 9.68 9.25
Return on average equity excluding SAIF
special assessment 11.34
Average equity to average assets 7.55 7.95
Risk-based capital ratios:
Tier I capital 12.81 9.10
Total capital 13.79 10.95
Leverage ratio 10.62 7.72
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
PAGE 15.
<PAGE> 18
TO OUR SHAREHOLDERS
Over the past several years, your Company has grown substantially while pursuing
aggressive strategies. We have focused on the rapid expansion of Columbia Bank
in order to establish a competitive presence in our markets. In the process, we
have experienced growth rates well above-average for the banking industry, and
have achieved strong earnings momentum.
<PAGE> 19
In 1996, our achievements were the result of successful implementation of our
business plan. Continuing to build your Company's solid foundation while
increasing the value of your investment remains our top priority.
We sought to keep pace with market demand in 1996 through ongoing
development of our branch network, now numbering 17 branches in 3 counties.
Accordingly, Columbia Banking System's asset size has tripled since opening the
Tacoma Main Office in August 1993, entirely the result of internal growth.
Surpassing one-half billion dollars in total assets during the third quarter of
1996 marked an important milestone. This measure of success was realized earlier
than we had originally anticipated. As of December 31, 1996, your Company's
assets totaled $588.9 million.
Our capital position supports our plan for continued growth. Completion
of a secondary equity offering of 1,445,000 shares of common stock during the
fourth quarter resulted in net proceeds of approximately $21 million. Of this
amount, $10 million was contributed to the capital of Columbia Bank to finance
further expansion in Pierce County, and, over the next several years, north into
King County and south into Thurston County. Additionally, $3 million was used to
repay a borrowing, and $8 million will be used for general corporate purposes.
As your Company grows in size, we are also pleased to report consistent
growth in earnings, in spite of major investments in our expansion. Net income
for 1996 was $3.6 million, a 30% increase from $2.8 million for 1995. On a per
share basis, earnings were $0.93 for 1996 compared with $0.79 for 1995. In the
third quarter, federal legislation designed to recapitalize the Savings
Association Insurance Fund (SAIF) resulted in a one-time charge to earnings. If
not for this SAIF special assessment, 1996 net income would have been $4.2
million, or $1.09 per share, up 52% from the prior year.
Our approach to the business of banking is what sets us apart from our
competitors. We believe that banking is a people business. This philosophy is
what drives our organization, from back-room operations to front-line
management, and it is what sets us apart from the mega-bank mentality. Our
strategy is to provide our customers with the sophisticated systems and products
of a regional bank while offering the superior service of a locally-managed
community bank. Relationship banking and personal attention to detail make the
difference.
There are a number of factors influencing the successful implementation
of our strategy. First of all, Columbia Bank's knowledgeable management team has
considerable depth of experience: the average banking experience in market is 15
years for our loan officers and 14 years for our branch officers. Secondly,
potential expansion opportunities are determined by our ability to hire the
right banker to serve each community. We call it "building banks around
bankers." The right people working together as a team is paramount to our rapid
accumulation of loans and deposits and timely capture of market share.
Additionally, we're benefiting from a market supportive of our banking
style. Well-received in the areas in which we operate, we provide an alternative
to the impersonal out-of-state financial institutions dominating western
Washington's banking industry. We appeal to customers disillusioned by
large-scale bank consolidations and the inconveniences associated with computer
conversions, product changes and staff turnover. Our decentralized management
system gives us the flexibility to provide prompt, local decision-making and to
manage customer relationships with a superior quality of service.
Although we have grown rapidly, we remain focused on maintaining sound
asset quality while building a diversified loan portfolio. In 1996, we
deemphasized commercial real estate lending activity in order to lessen our risk
profile and to concentrate on meeting strong demand for lower-risk commercial
business loans. We are also in the process of selling our VISA(R) credit card
loans which will devote more resources to our commercial portfolio.
Our future plans involve continued expansion in Pierce County and
gradually north and south along the I-5 corridor in western Washington (see map
on page 66). Having just opened a second Bellevue branch in February, and a new
branch in Kent later this month, both in King County, we expect to open our
Westgate office in north Tacoma later this year, and we have regulatory approval
for branches in the Stadium and Lincoln districts of Tacoma.
<PAGE> 20
With a strong, well-diversified economy, Washington ranks among the top
ten states in the nation in terms of both population and job growth. In
accordance with our growth objectives for Columbia Bank, the Puget Sound Region
made up of Pierce, King and Thurston counties is projected to expand at nearly
twice the national rate through the end of this century.
An important factor to our competitive position is our commitment to
technological advancement while keeping our primary focus on the personal
aspects of banking. Our product and service mix matches that of most multi-state
financial institutions. However, more and more we're seeing an industry trend
toward automation which is replacing front-line people. Our customers like to
work with people, but they also like to have the choice of up-to-date products,
systems, services and conveniences. We'll continue to provide both because
that's what customers want.
We note with sadness the passing of Columbia Banking System Director
Emeritus Stanley B. Rose in July 1996. As one of your Company's original Board
members, Mr. Rose was a staunch supporter of this organization since its
beginning. He will be greatly missed.
In closing, it is our distinctive business style and our prospects for
ongoing growth which reinforce the value of Columbia Banking System. 1996 was a
great year, and we're meeting future challenges with the same enthusiasm and
energy that has created strong performance so far. We thank our employees,
shareholders and customers, all of whom have contributed to our success.
[Photograph of Chairman and Chief Executive Officer,
A. G. Espe sitting, and President and Chief Operating Officer,
W. W. Phillip Standing]
/s/ W. W. Philip /s/ A. G. Espe
------------------ ---------------------
W. W. PHILIP A. G. ESPE
President and Chairman and
Chief Operating Officer Chief Executive Officer
MARCH 1, 1997
Page 18.
<PAGE> 21
financial review
20 management discussion and analysis of financial condition
and results of operations
34 report of management
35 report of independent accountants
audited financial statements
36 consolidated statements of operations
38 consolidated balance sheets
40 consolidated statements of shareholders' equity
42 consolidated statements of cash flows
44 notes to consolidated financial statements
supplemental financial data (unaudited)
59 summary of quarterly financial information
60 consolidated five-year statements of operations
62 consolidated five-year summary of average balances and net
interest revenue
<PAGE> 22
management discussion and analysis of financial condition and results of
operations
This discussion should be read in conjunction with the consolidated financial
statements of Columbia Banking System, Inc. (the "Company") and notes thereto
presented elsewhere in this report. In the following discussion, unless
otherwise noted, references to increases or decreases in average balances in
items of income and expense for a particular period and balances at a particular
date refer to the comparison with corresponding amounts for the period or date
one year earlier.
Overview
Columbia Banking System, Inc., a Washington corporation, is a registered bank
holding company whose wholly owned subsidiary, Columbia State Bank ("Columbia
Bank"), conducts a full-service commercial banking business. Headquartered in
Tacoma, Washington, the Company serves small and medium-sized businesses,
professionals and other individuals through 16 banking offices located in the
Tacoma metropolitan area and contiguous parts of the Puget Sound region of
Washington, as well as the Longview and Woodland communities in southwestern
Washington. At December 31, 1996, based on total assets of $588.9 million, the
Company was the largest publicly traded bank holding company headquartered in
Washington engaged primarily in commercial banking.
In 1993, the Company reorganized in preparation for its aggressive
expansion in Tacoma-Pierce County, and raised approximately $17.2 million in net
proceeds in a public offering of common stock. Columbia Bank then began a rapid
expansion in order to take advantage of opportunities resulting from increased
consolidation of banks in the Company's principal market area, primarily through
acquisitions by out-of-state holding companies, and the resulting dislocation of
customers. Management believes this industry consolidation has created
significant gaps in the ability of large banks operating in Washington to serve
certain customers, particularly the Company's target customer base of small and
medium-sized businesses, professionals and other individuals.
The business strategy of the Company is to provide its customers with
the financial sophistication and breadth of products of a regional bank while
retaining the appeal and service level of a community bank. Management believes
that as a result of the Company's strong commitment to highly personalized
relationship-oriented customer service, its varied products, its strategic
branch locations and the long-standing community presence of its managers,
lending officers and branch personnel, it is well positioned to attract new
customers and to increase its market share of loans and deposits.
Since its reorganization, the Company has experienced rapid growth and
has greatly expanded its commercial lending activities. The Company has grown
from four banking offices at January 1, 1993 to its present sixteen banking
offices, and currently has regulatory approval to open four additional banking
offices. From January 1, 1993 to December 31, 1996, the Company increased its
consolidated assets from $158.7 million to $588.9 million, its loans from $120.8
million to $446.1 million and its deposits from $118.0 million to $493.2
million. While experiencing this growth, the Company's asset quality, measured
by total nonperforming assets as a percentage of total assets, has improved. At
December 31, 1996, the Company's nonperforming assets constituted 0.39% of total
assets, as compared to 0.89%, 1.17%, and 2.13% at December 31, 1995, 1994 and
1993, respectively. Although the Company incurred anticipated losses in the four
quarters
COLUMBIA BANKING SYSTEM, INC.
page 20.
<PAGE> 23
following its 1993 reorganization, the Company has been profitable in each of
the last ten consecutive quarters beginning with the third quarter 1994.
The Company's goal is to create, over the next several years, a
well-capitalized, customer focused, Pacific Northwest commercial banking
institution with a significant presence in selected markets and total assets in
excess of $1.0 billion. The Company intends to effect this growth strategy
through a combination of growth at existing branch offices, new branch openings
(coupled with the hiring of an experienced branch manager and/or lending officer
with strong community ties and banking relationships) and acquisitions. In
particular, the Company anticipates continued expansion in Pierce County, north
into King County (the location of Seattle and Bellevue) and south into Thurston
County (the location of the state capital, Olympia). In order to fund its
commercial and consumer lending activities and to allow for increased contact
with customers, the Company is establishing a branch system catering primarily
to retail depositors, supplemented by business banking customer deposits and
other borrowings. The Company believes this mix of funding sources will enable
it to expand its commercial lending activities rapidly while attracting a stable
core deposit base.
In order to support its growth strategy, without compromising its
personalized banking approach or its commitment to asset quality, the Company
has made significant investments in experienced branch, lending and
administrative personnel and has incurred significant costs related to branch
expansion. Although the Company's expense ratios have improved since 1993,
management anticipates that the ratios will remain relatively high by industry
standards for the foreseeable future due to the Company's aggressive growth and
emphasis on convenience and personal service.
The economy of the Company's principal market area, while primarily
dependent upon aerospace, foreign trade and natural resources, including
agriculture and timber, has become more diversified over the past decade as a
result of the success of software companies such as Microsoft and the
establishment of numerous research and biotechnology firms. The economies of
Washington and the Puget Sound region generally have experienced moderate growth
and stability in recent years. Pierce County is projected to have the strongest
economic performance in the Puget Sound region through 1999 according to the
Puget Sound Economic Forecaster, a regional publication providing economic
forecasts and commentary. According to the same publication, the greater Puget
Sound economy is projected to expand at nearly twice the national rate for the
years 1997 through 1999.
In November and December 1996, the Company issued 1.445 million shares
of common stock in a public offering, raising approximately $20.7 million in new
capital. The Company contributed approximately $10.0 million of these proceeds
to Columbia Bank primarily to fund additional expansion in Pierce County, and,
over the next several years, into south King and Thurston Counties. The
remainder was used to repay a $3.0 million borrowing and for general corporate
purposes.
In November of 1996, the Gig Harbor branch moved into a new, permanent,
full service facility. During the second quarter of 1996 a new branch in
Spanaway opened in a temporary facility. Also, in September and December, two
new branches were opened in Puyallup and Edgewood/Milton. Columbia Bank has
opened 12 branch locations since beginning its major Pierce County expansion in
August 1993, and the Company currently has regulatory approval to open three
additional branches in Pierce County and one in King County. During 1997, the
Company anticipates the establishment of new branches and the relocation of the
Spanaway branch from a temporary to a permanent facility. New branches normally
do not contribute to net income for many months after opening.
In addition to the ongoing expansion of its branch network, the Company
has added new products and services to give its customers more banking options
and to keep current with industry trends and technology. During the second
quarter of 1996, Columbia Bank introduced "Columbia Free Checking," with no
monthly fee, no minimum balance, no per-check charges and free use of any ATM in
Washington state (exclusive of surcharges assessed by other financial
institutions). Columbia Bank also launched "Columbia Financial Services," an
alternative investments department which makes available mutual funds,
annuities, and other investment products through a contractual arrangement with
PrimeVest Financial Services, Inc.
COLUMBIA BANKING SYSTEM, INC.
page 21.
<PAGE> 24
Results of Operations
The results of operations of the Company are dependent to a large degree on the
Company's net interest income. The Company also generates noninterest income
through service charges and fees and income from mortgage banking operations.
The Company's operating expenses consist primarily of compensation and employee
benefit expense and occupancy expense. Like most financial institutions, the
Company's interest income and cost of funds are affected significantly by
general economic conditions, particularly changes in market interest rates, and
by government policies and actions of regulatory authorities.
For 1996, the Company recorded net income of $3.6 million, compared
with net income of $2.8 million in 1995 and a net loss of $614,000 in 1994. Net
income per share amounted to $0.93 in 1996, compared with $0.79 per share in
1995 and a net loss per share of $0.18 in 1994. Excluding a one-time special
assessment on SAIF-insured deposits of $612,000 recorded in the third quarter of
1996, (see Note 15 to consolidated financial statements), net income for 1996
would have been $4.2 million, or $1.09 per share. The increase in net income in
1996 was primarily due to increased revenue from continued loan and deposit
growth. Additionally, the Company continued to benefit from utilization of its
net operating loss carryforwards for federal income tax purposes and therefore,
the Company had no federal income tax provision for the year ended December 31,
1996. Had earnings been fully taxable, net income would have been $2.4 million,
or $0.61 per share.
Net Interest Income
Net interest income increased $4.0 million, or 24%, in 1996 compared with $5.0
million, or 43%, in 1995. The 1996 increase in net interest income was largely
due to the overall growth of the Company. Net interest income was favorably
affected by average interest-earning assets increasing more rapidly than average
interest-bearing liabilities, with the difference funded by noninterest-bearing
deposits and shareholders' equity. Average interest-earning assets increased
$111.4 million and $91.8 million in 1996 and 1995, respectively, while average
interest-bearing liabilities increased only $87.9 million and $77.7 million,
respectively.
Net interest margin (net interest income divided by average
interest-earning assets) decreased to 4.48% for 1996, compared with 4.78% in
1995 and 4.54% in 1994. The decrease in net interest margin was primarily the
result of reduced spreads on earning assets. While interest-earning assets grew
during fiscal year 1996, the average yield on interest-earning assets decreased
to 8.53%, from 9.15% in fiscal year 1995. In comparison, the average cost of
interest-bearing liabilities decreased to 4.77% in 1996, from 5.05% in 1995. The
decrease in net interest margin was primarily due to lower yields obtained on
loans as a result of a planned change in loan mix from higher yielding
commercial real estate loans to high quality but lower yielding commercial
loans, and to increased competition in the Company's market area. Also affecting
net interest margin was a one-time adjustment to the amortization of deferred
loan origination fees during the third quarter of 1996, amounting to
approximately $100,000.
Provision for Loan Losses
For the years ended December 31, 1996, 1995 and 1994, net loan charge-offs
amounted to $664,000, $213,000 and $281,000, respectively. The Company's
provision for loan losses was $1.4 million for 1996, compared with $1.3 million
for 1995 and $1.0 million for 1994. During 1996, the allowance for loan losses
increased by $756,000 to 1.01% of loans (excluding loans held for sale) at
December 31, 1996 as compared with 1.06% and 1.01% of loans at December 31, 1995
and 1994, respectively.
COLUMBIA BANKING SYSTEM, INC.
page 22.
<PAGE> 25
Noninterest Income
Total noninterest income increased $1.3 million, or 33.0% in 1996, and $995,000,
or 33.2% in 1995. Increases in noninterest income during 1996 were made up of
account service charges, bank card revenue, and mortgage banking income.
Noninterest Expense
Excluding the SAIF special assessment during the third quarter, total
noninterest expense increased $3.7 million, or 22.3%, in 1996, and $2.5 million,
or 17.9% in 1995. The increase was primarily due to personnel and occupancy
costs associated with the Company's expansion as well as bank card, data
processing and other expenses. Total noninterest expense was 78.3% of adjusted
revenue (the sum of net interest income plus noninterest income, less
nonrecurring items) for 1996 compared with 80.5% and 96.3% for 1995 and 1994,
respectively. The portion of compensation expense related to loan originations
is deferred and deducted from interest income over the life of the related
loans. Other categories of expense are volume driven and reflect the Company's
rapid growth. Total noninterest expense for the Company is expected to decline
in relation to revenues as the Company's asset base grows. Regulatory
assessments increased $612,000 in the third quarter of 1996 due to a one-time
special assessment, required by recently enacted legislation, to recapitalize
the SAIF fund of the FDIC (see Note 15 to consolidated financial statements).
Management is currently evaluating a proposed sale of Columbia Bank's credit
card portfolio which, if consummated, will result in a one-time gain. The sale
of the bank card business is not expected to have a material effect on results
of operations in future periods.
Set forth below is a schedule showing additional detail concerning increases
and decreases in the Company's noninterest expense.
<TABLE>
<CAPTION>
in thousands Increase/ Increase/
year ended December 31, 1996 (Decrease) 1995 (Decrease) 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Compensation and employee benefits $ 10,737 $ 2,310 $ 8,427 $ 1,339 $ 7,088
Less: loan origination costs 2,300 1,212 1,088 219 869
Net compensation and
employee benefits (as reported) 8,437 1,098 7,339 1,120 6,219
Occupancy 3,388 543 2,845 43 2,802
Professional services 574 138 436 9 427
Advertising and promotion 772 138 634 126 508
Printing and supplies 414 39 375 (22) 397
Regulatory assessments 323 (159) 482 7 475
Data processing 807 192 615 152 463
Gains on real estate owned 400 (400) (86) (314)
Telephone and network 338 67 271 (49) 320
Postage and delivery 297 74 223 76 147
ATM network 176 125 51 (21) 72
Bank card 1,473 454 1,019 346 673
Taxes, licenses and fees 659 (52) 711 386 325
Other 2,585 639 1,946 424 1,522
SAIF special assessment 612 612
-------- -------- -------- -------- --------
Total noninterest expense $ 20,855 $ 4,308 $ 16,547 $ 2,511 $ 14,036
======== ======== ======== ======== ========
</TABLE>
In February 1996, the Company recorded a loss of $41,000 on the sale of its
only "real estate owned" property. Also, in March 1996, the Company recorded a
loss of $38,000 on a branch real estate transaction. In June 1996, the Company
wrote off $135,000 due to the abandonment of a potential branch site.
COLUMBIA BANKING SYSTEM, INC.
page 23
<PAGE> 26
Lending Activities
The Company originates a wide variety of loans. Consistent with the trend begun
in 1993, the Company continues to increase commercial business loans as a
percentage of its total loan portfolio. The Company also emphasizes its private
banking services to high income and high net worth individuals.
Loan Portfolio
The following table sets forth at the dates indicated the Company's loan
portfolio by type of loan:
<TABLE>
<CAPTION>
in thousands % of % of
December 31, 1996 Total 1995 Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Commercial business $ 169,318 38.0% $ 113,775 32.2%
Real estate:
One- to four-family residential 67,709 15.1 67,991 19.3
Five or more family residential
and commercial properties 128,803 28.9 97,103 27.5
--------- --------- --------- ---------
Total real estate 196,512 44.0 165,094 46.8
Real estate construction:
One- to four-family residential 21,380 4.8 22,741 6.5
Five or more family residential
and commercial properties 10,680 2.4 8,884 2.5
--------- --------- --------- ---------
Total real estate construction 32,060 7.2 31,625 9.0
Consumer 48,807 10.9 43,343 12.2
--------- --------- --------- ---------
Subtotal 446,697 100.1 353,837 100.2
Less deferred loan fees and other (602) (0.1) (744) (0.2)
--------- --------- --------- ---------
Total loans $ 446,095 100.0% $ 353,093 100.0%
========= ========= ========= =========
Loans held for sale $ 11,341 $ 1,367
========= ========= ========= =========
</TABLE>
Total loans at year end increased $93.0 million, or 26.3%, from year end 1995.
All loan categories except for one-to four-family loans contributed
significantly to the increase.
Commercial and Private Banking Lending
Commercial loans increased to $169.3 million at December 31, 1996, representing
38.0% of total loans, from $113.8 million at December 31, 1995. This increase
reflects management's commitment to provide competitive commercial lending in
the Company's primary market area. The Company expects to continue to expand
COLUMBIA BANKING SYSTEM, INC.
page 24
<PAGE> 27
its commercial lending products and emphasize, in particular, its relationship
banking with businesses, business owners and professional individuals.
Real Estate Lending
One- to Four-Family Residential Real Estate Lending Residential one- to
four-family loans amounted to $67.7 million at December 31, 1996, representing
15.1% of total loans, compared with $68.0 million at December 31, 1995. These
loans are used by the Company to collateralize advances from the Federal Home
Loan Bank of Seattle (the "FHLB"). The Company's underwriting standards require
that one- to four-family portfolio loans generally be owner-occupied and that
loan amounts not exceed 80% (90% with private mortgage insurance) of the
appraised value or cost, whichever is lower, of the underlying collateral at
origination. Generally, management's policy is to originate for sale to third
parties residential loans secured by properties located within the Company's
primary market areas.
Multi-family and Commercial Real Estate Lending The Company makes multi-family
and commercial real estate loans in its primary market areas. Multi-family and
commercial real estate lending increased to $128.8 million at December 31, 1996,
representing 28.9% of total loans, from $97.1 million at December 31, 1995. The
Company's underwriting standards generally require that the loan-to-value ratio
for multi-family and commercial loans not exceed 75% of appraised value or cost,
whichever is lower, and that commercial properties maintain debt coverage ratios
(net operating income divided by annual debt servicing) of 1.2 or better.
Construction Loans
The Company originates one- to four-family residential construction loans for
the construction of custom homes (where the home buyer is the borrower) and
provides financing to builders for the construction of pre-sold homes and
speculative residential construction. The Company endeavors to limit its
construction lending risk through adherence to strict underwriting procedures.
Construction loans on one- to four-family residences decreased to $21.4 million
at December 31, 1996, representing 4.8% of total loans, from $22.7 million at
December 31, 1995.
Consumer Lending
At December 31, 1996, the Company had $48.8 million of consumer loans
outstanding, representing 10.9% of total loans, as compared with $43.3 million
at December 31, 1995. Consumer loans made by the Company include automobile
loans, boat and recreational vehicle financing, home equity and home improvement
loans and miscellaneous personal loans. Excluded from the $48.8 million at
December 31, 1996 are $7.3 million of bank card loans that have been transferred
to "Loans Held For Sale," due to a pending transaction for the sale of all bank
card loans. The corresponding balance of consumer loans at December 31, 1995,
excluding bank card loans, would have been $37.3 million which translates into
an $11.5 million, or 30.8% increase in consumer loans for 1996.
COLUMBIA BANKING SYSTEM, INC.
page 25
<PAGE> 28
At December 31, 1996, the Company had no foreign loans or loans related to
highly leveraged transactions.
Management's growth strategy has concentrated on the Tacoma/Pierce County
market. The results of that strategy are evident in the following summary of
loans:
<TABLE>
<CAPTION>
in thousands Increase
December 31, 1996 1995 Amount Percent
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Pierce County $324,132 $238,763 $ 85,369 35.8%
All other counties 121,963 114,330 7,633 6.7
-------- -------- -------- --------
Total $446,095 $353,093 $ 93,002 26.3%
-------- -------- -------- --------
</TABLE>
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, restructured loans and real
estate owned. The following tables set forth, at the dates indicated,
information with respect to nonaccrual loans, restructured loans, total
nonperforming loans (nonaccrual loans plus restructured loans), real estate
owned and total nonperforming assets of the Company:
<TABLE>
<CAPTION>
in thousands
December 31, 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Nonaccrual:
One-to four-family residential $1,645 $ 329 $ 299
Commercial business 385 86 143
Consumer 197 20 10
------ ------ ------
Total 2,227 435 452
Restructured:
One-to four-family residential 25 29 44
------ ------ ------
Total nonperforming loans $2,252 $ 464 $ 496
====== ====== ======
Real estate owned 40 3,304 3,227
------ ------ ------
Total nonperforming assets $2,292 $3,768 $3,723
====== ====== ======
Accruing loans past-due 90 days or more $ 152 $ 82
Potential problem loans $ 213 37 23
Allowance for loan losses 4,504 3,748 2,711
Nonperforming loans to loans 0.50% 0.13% 0.18%
Allowance for loan losses to loans 1.01 1.06 1.01
Nonperforming assets to total assets 0.39 0.89 1.17
------ ------ ------
</TABLE>
The consolidated financial statements are prepared according to the accrual
basis of accounting. This includes the recognition of interest income on the
loan portfolio, unless a loan is placed on a nonaccrual basis, which occurs when
there are serious doubts about the collectibility of principal or interest.
Generally, the Company's policy is to place a loan on nonaccrual status when the
loan is past due 90 days. Restructured loans are those for which concessions
have been granted due to the borrower's weakened financial condition. This
includes the reduction of interest rates below a rate otherwise available to
that borrower, or the deferral of interest or principal. Interest on
restructured loans is accrued at the restructured rates when it is anticipated
that no loss of original principal will occur.
Potential problem loans are loans which are currently performing and are not
included in nonaccrual or restructured loans above, but about which there are
serious doubts as to the borrower's ability to comply with present repayment
terms. Therefore, these loans will likely be included later in nonaccrual, past
due or restructured loans and are considered by management in assessing the
adequacy of the allowance for loan losses.
COLUMBIA BANKING SYSTEM, INC.
page 26.
<PAGE> 29
Nonperforming loans increased to $2.3 million at December 31, 1996 from
$464,000 at December 31, 1995 due principally to the inclusion of loans which,
though nonperforming, are secured by real estate. Management anticipates some
charge-offs of those unsecured or undersecured nonperforming loans, although the
amount of such charge-offs is not expected to be material. At December 31, 1996,
nonperforming loans were 0.50% of period-end loans (excluding loans held for
sale). In February 1996, the Company sold all of its "real estate owned" (which
consisted of one property in the state of Washington), thus reducing total
nonperforming assets to $2.3 million, or 0.39% of total assets at December 31,
1996, from $3.8 million, or 0.89% of total assets at year-end 1995.
Provision and Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered by management
to be adequate to provide for anticipated loan losses based on management's
assessment of various factors affecting the loan portfolio. This includes a
review of problem loans, business conditions and loss experience, and overall
evaluation of the quality of the underlying collateral, holding and disposal
costs and costs of capital. The allowance is increased by provisions charged to
operations, and is reduced by loans charged off, net of recoveries.
While management believes it uses the best information available to
determine the allowance for loan losses, unforeseen market conditions could
result in adjustments to the allowance for loan losses, and net income could be
significantly affected, if circumstances differ substantially from the
assumptions used in determining the allowance.
The allowance for loan losses at December 31, 1996 decreased to 1.01%, from
1.06% of loans at December 31, 1995 (excluding loans held for sale at each
date). The decrease was due to a $421,000 increase in charge-offs compared with
1995, and a $93.0 million, or 26.3%, increase in loans since year-end 1995. For
the years ended December 31, 1996, 1995 and 1994, net loan charge-offs amounted
to $664,000, $213,000 and $281,000, respectively. The Company's provision for
loan losses was $1.4 million for 1996, compared with $1.3 million for 1995 and
$1.0 million for 1994.
The following table summarizes the changes in the allowance for loan losses:
<TABLE>
<CAPTION>
in thousands
December 31, 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Total loans, net at end of period(1) $ 446,095 $ 353,093 $ 268,996
Daily average loans 405,131 318,039 222,236
Beginning balance of allowance for loan losses 3,748 2,711 1,992
Charge-offs:
Commercial business (514) (148) (258)
Consumer (170) (115) (106)
--------- --------- ---------
Total charge-offs (684) (263) (364)
Recoveries:
Commercial business 17 45 83
Consumer 3 5
--------- --------- ---------
Total recoveries 20 50 83
--------- --------- ---------
Net charge-offs (664) (213) (281)
Provision charged to expense 1,420 1,250 1,000
--------- --------- ---------
Ending balance $ 4,504 $ 3,748 $ 2,711
========= ========= ========
Ratio of net charge-offs during period
to average loans outstanding 0.16% 0.07% 0.13%
========= ========= ========
</TABLE>
(1) Excludes loans held for sale
COLUMBIA BANKING SYSTEM, INC.
page 27.
<PAGE> 30
Securities
The Company's securities (securities available for sale) increased by $22.8
million to $45.5 million from year end 1995 to year end 1996. The investment
portfolio is comprised primarily of U.S. Treasury and government agency
securities. The average maturity of the securities portfolio was 2 years, 6
months at December 31, 1996. In November 1995, the Financial Accounting
Standards Board ("FASB") issued a Special Report permitting a one-time
opportunity for institutions to reassess the appropriateness of the designations
of all securities. Accordingly, in December 1995, the Company reclassified all
"investment securities" as "securities available for sale." For further
information on investment securities, including gross unrealized gains and
losses in the portfolio and gross realized gains and losses on sales of
securities, see Note 4 to the consolidated financial statements.
Premises and Equipment
In 1996, fixed assets increased $1.5 million, or 11.0% from 1995. The net change
includes purchases of $4.8 million, disposals of $1.5 million and depreciation
expense of $1.8 million. The Company's capital expenditures in 1997 are
anticipated to be approximately $5.3 million. Such expenditures are expected to
include approximately $4.1 million for new buildings and for remodeling existing
structures, and $1.2 million for new furniture and equipment.
Liquidity and Sources of Funds
The Company's primary sources of funds are customer deposits and advances from
the FHLB. These funds, together with loan repayments, loan sales, retained
earnings, equity and other borrowed funds, are used to make loans, to acquire
securities and other assets, and to fund continuing operations.
Deposit Activities The Company experienced overall average deposit growth of
31.4% and 42.2% in 1996 and 1995, respectively. All categories of deposits
increased during both years, except for savings accounts which decreased 11.7%
and 27.7% in 1996 and 1995, respectively. Interest-bearing and
noninterest-bearing demand deposits increased 78.3% and 43.9% in 1996, and
104.6% and 60.7% in 1995, respectively.
Average deposits are summarized in the following table:
<TABLE>
<CAPTION>
in thousands
years ended December 31, 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Demand and other noninterest-bearing $ 60,691 $ 42,167 $ 26,238
Interest-bearing demand 142,103 79,706 38,962
Savings 21,673 24,547 33,938
Certificates of deposit 189,122 168,351 122,198
-------- -------- --------
Total average deposits $413,589 $314,771 $221,336
======== ======== ========
</TABLE>
The Company is establishing a branch system catering primarily to retail
depositors, supplemented by business banking customer deposits and other
borrowings. While that stable core deposit base is being established,
management's strategy for funding growth has been to make use of brokered and
other wholesale deposits. The Company's use of brokered and other wholesale
deposits decreased in 1996, though management anticipates continued use of such
deposits to fund increasing loan demand. However, management anticipates use of
brokered deposits will decrease over time as a percent of total deposits. The
deposit increase of $131.3 million during 1996 occurred entirely in "core
deposits." Brokered and other wholesale deposits (excluding public deposits)
decreased $18.0 million to $30.3 million, or 6.1% of total deposits at December
31, 1996, from $48.3 million, or 13.3% of total deposits at December 31, 1995.
COLUMBIA BANKING SYSTEM, INC.
page 28.
<PAGE> 31
Brokered and other wholesale deposits are summarized below. The average interest
rate for these deposits was 5.63% and 5.94% at December 31, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
in thousands
December 31, 1996 1995
Percent Percent
of Total of Total
Amount Deposits Amount Deposits
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maturing within one year $28,863 5.8% $41,546 11.5%
Maturing after one year but
within three years 1,387 0.3 5,633 1.5
Maturing after three years
but within ten years 1,091 0.3
------- ------- ------- -------
Total brokered and other
wholesale deposits $30,250 6.1% $48,270 13.3%
------- ------- ------- -------
</TABLE>
The increase in deposits is largely due to management's growth strategy
emphasizing the Tacoma/Pierce County market area. Following is a summary of
year-end deposits by county:
<TABLE>
<CAPTION>
in thousands Increase
December 31, 1996 1995 Amount Percent
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Pierce County $373,380 $264,848 $108,532 41.0%
All other counties 119,842 97,027 22,815 23.5
-------- -------- -------- ----
Total $493,222 $361,875 $131,347 36.3%
======== ======== ======== ====
</TABLE>
Borrowings The Company relies on FHLB advances to supplement its funding
sources, and the FHLB serves as the Company's primary source of long-term
borrowing. FHLB advances are secured by one- to four-family real estate
mortgages and certain other assets. At December 31, 1996, the Company had total
advances of $32 million at interest rates ranging from 5.20% to 6.14%. The
weighted average interest rate on such advances was 5.63%. At December 31, 1996
the maximum borrowing line from the FHLB was $99.6 million. Management
anticipates that the Company will continue to rely on the same sources of funds
in the future, and will use those funds primarily to make loans and purchase
securities.
Interest Rate Sensitivity
The mismatch between maturities and interest-rate sensitivities of balance sheet
items results in interest rate risk. The Company maintains an asset/liability
management policy that provides guidelines for controlling exposure to that
risk. The guidelines direct management to assess the impact of changes in
interest rates upon both earnings and capital. The guidelines further provide
that in the event of an increase in interest rate risk beyond preestablished
limits, management will consider steps intended to reduce interest rate risk to
acceptable levels.
Analysis of an institution's interest rate gap (the difference between the
repricing of interest-earning assets and interest-bearing liabilities during a
given period of time) is one standard tool for the measurement of the exposure
to interest rate risk. The Company believes that, because interest rate gap
analysis does not address all factors that can effect earnings performance, it
should be used in conjunction with other methods of evaluating interest rate
risk.
COLUMBIA BANKING SYSTEM, INC.
page 29.
<PAGE> 32
The following table sets forth the estimated maturity or repricing, and the
resulting interest rate gap of the Company's interest-earning assets and
interest-bearing liabilities at December 31, 1996. The amounts in the table are
derived from the Company's internal data and are based upon regulatory reporting
formats. Therefore, they may not be consistent with financial information
appearing elsewhere herein that has been prepared in accordance with generally
accepted accounting principles. The amounts could be significantly affected by
external factors such as changes in prepayment assumptions, early withdrawal of
deposits and competition.
<TABLE>
<CAPTION>
Estimated Maturity or Repricing
in thousands 0-3 4-12 1-5 5-10 More than
December 31, 1996 months months years years 10 years Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Interest-earning deposits $ 38,086 $ 38,086
Securities 1,863 $ 15,539 $ 22,763 $ 1,077 $ 4,247 45,489
Loans:
Business and commercial
real estate 188,667 5,201 31,018 1,842 1,822 228,550
One- to four-family 73,816 25,074 58,703 2,151 11,012 170,756
Consumer 5,079 26,847 21,593 1,859 525 55,903
-------------------------------------------------------------------------------------------
Total interest-
earning assets $ 307,511 $ 72,661 $ 134,077 $ 6,929 $ 17,606 $ 538,784
===========================================================================================
Noninterest-earning assets 2,227 47,905 50,132
-------------------------------------------------------------------------------------------
Total assets $ 307,511 $ 74,888 $ 134,077 $ 6,929 $ 65,511 $ 588,916
===========================================================================================
Percent of total interest-
earning assets 57.08% 13.48% 24.89% 1.29% 3.26% 100.00%
===========================================================================================
Interest-Bearing Liabilities
Deposits:
Money market checking $ 125,428 $ 125,428
NOW accounts 8,922 $ 35,689 44,611
Savings accounts 7,456 $ 7,456 $ 7,456 22,368
Time certificates of deposit 66,470 $ 106,309 44,042 11 216,832
FHLB advances 12,000 20,000 32,000
-------------------------------------------------------------------------------------------
Total interest-
bearing liabilities $ 220,276 $ 106,309 $ 99,731 $ 7,467 $ 7,456 $ 441,239
===========================================================================================
Noninterest-bearing liabilities
and equity 67,218 16,771 63,688 147,677
-------------------------------------------------------------------------------------------
Total liabilities
and equity $ 287,494 $ 106,309 $ 116,502 $ 7,467 $ 71,144 $ 588,916
===========================================================================================
Percent of total interest-
earning assets 40.88% 19.73% 18.52% 1.39% 1.38% 81.90%
===========================================================================================
Rate sensitivity gap $ 87,235 $ (33,648) $ 34,346 $ (538) $ 10,150 $ 97,545
Cumulative rate sensitivity gap 87,235 53,587 87,933 87,395 97,545
-------------------------------------------------------------------------------------------
Rate sensitivity gap as
a percentage of
interest-earning assets 16.20% (6.25)% 6.37% (0.10)% 1.88% 18.10%
Cumulative rate sensitivity gap
as a percentage of interest-
earning assets 16.20% 9.95% 16.32% 16.22% 18.10%
===========================================================================================
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
page 30
<PAGE> 33
As stated above, certain shortcomings are inherent in the method of analysis
presented in the foregoing tables. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market interest rates. Additionally, certain assets, such as
adjustable-rate mortgages, have features which restrict changes in the interest
rates of such assets both on a short-term basis and over the lives of such
assets. Further, in the event of a change in market interest rates, prepayment
and early withdrawal levels could deviate significantly from those assumed in
calculating the tables. Finally, the ability of many borrowers to service their
adjustable-rate debt may decrease in the event of a substantial increase in
market interest rates.
Income Tax
Effective January 1, 1993, the Company adopted the FASB's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which
requires the use of the "asset and liability" method of accounting for income
taxes. Deferred income tax represents the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Upon adoption
of SFAS 109, the Company recorded a deferred tax asset with an equal valuation
allowance due to uncertainties regarding the ability to ultimately recognize the
tax benefits from the net operating losses and certain tax credits. The Company
did not record an income tax expense from that date through December 31, 1996
since the expected income tax expense (calculated by applying statutory tax
rates to income before income taxes) was offset by a reduction in the valuation
allowance established when the Company adopted SFAS 109.
The deferred tax asset is measured by applying tax rates to the difference
between the carrying value and the tax basis of assets and liabilities.
Management anticipates that the Company will record a provision for income taxes
during 1997.
Capital
Shareholders' equity increased to $59.0 million at December 31, 1996 from $32.0
million at December 31, 1995. The increase is due primarily to the issuance of
1.445 million shares of common stock with net proceeds of $20.7 million.
Shareholders' equity was also enhanced by net income for the year of $3.6
million, conversion of convertible subordinated notes of $2.5 million, and a
decrease in the reserve for unrealized gains and losses on securities available
for sale. Shareholders' equity was 10.0% and 7.5% of total assets at December
31, 1996 and December 31, 1995, respectively.
Banking regulations require bank holding companies to maintain a minimum
"leverage" ratio of core capital to adjusted quarterly average total assets of
at least 3%. At December 31, 1996, the Company's leverage ratio was 10.62%,
compared with 7.72% at December 31, 1995. In addition, banking regulators have
adopted risk-based capital guidelines, under which risk percentages are assigned
to various categories of assets and off-balance sheet items to calculate a
risk-adjusted capital ratio. Tier I capital generally consists of common
shareholders' equity, less goodwill and certain identifiable intangible assets,
while Tier II capital includes the allowance for loan losses and subordinated
debt, both subject to certain limitations. Regulatory minimum risk-based capital
guidelines require Tier I capital of 4% of risk-adjusted assets and total
capital (combined Tier I and Tier II) of 8%. The Company's Tier I and total
capital ratios were 12.81% and 13.79%, respectively, at December 31, 1996,
compared with 9.10% and 10.95%, respectively, at December 31, 1995.
During 1992, the Federal Deposit Insurance Corporation (the "FDIC")
published the qualifications necessary to be classified as a "well capitalized"
bank, primarily for assignment of FDIC insurance premium rates beginning in
1993. To qualify as "well capitalized," banks must have a Tier I risk-adjusted
capital ratio of at least 6%, a total risk-adjusted capital ratio of at least
10%, and a leverage ratio of at least 5%. Columbia Bank qualified as
"well-capitalized" at December 31, 1996. Failure to qualify as
"well-capitalized" can negatively impact a bank's ability to expand and to
engage in certain activities.
COLUMBIA BANKING SYSTEM, INC.
page 31
<PAGE> 34
Applicable federal and Washington state regulations restrict capital
distributions by institutions such as Columbia Bank, including dividends. Such
restrictions are tied to the institution's capital levels after giving effect to
distributions. The Company's ability to pay cash dividends is substantially
dependent upon receipt of dividends from the Bank.
On April 24, 1996, the Company announced a 5% stock dividend payable on May
22, 1996, to shareholders of record on May 8, 1996. On May 22, 1996, 164,051
common shares were issued to shareholders. Average shares outstanding, net
income per share and book value per share for all periods presented have been
retroactively adjusted to give effect to this transaction.
On June 3, 1996, the Company gave notice that it would redeem all of its
issued and outstanding 7.85% Convertible Subordinated Notes (the "Notes") on
August 1, 1996. The Notes were convertible in whole or in part, in multiples of
$1,000 principal amount, at 100% of the principal amount of the Note (or portion
thereof), at the conversion price per share of common stock of $10.56. As of
August 1, 1996, all of the Notes were converted into 223,743 shares of common
stock.
In connection with the public offering of common stock in 1996, the Company
contributed approximately $10 million of the net proceeds to Columbia Bank
primarily to finance additional expansion in Pierce County, and, over the next
several years, into south King and Thurston Counties. The remainder was used to
repay a $3.0 million borrowing and for general corporate purposes.
Impact of Inflation and Changing Prices
The impact of inflation on the Company's operations is increased operating
costs. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than the effect of general levels of inflation.
Although interest rates do not necessarily move in the same direction or to the
same extent as the prices of goods and services, increases in inflation
generally have resulted in increased interest rates.
Recent Accounting Pronouncements
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires
the Company to elect to account for stock-based compensation on a fair value
basis or an intrinsic value basis. The intrinsic value basis is currently used
by the Company and is the accounting principle prescribed by Accounting
Principles Board No. 25 "Accounting for Stock Issued to Employees" (APB 25).
SFAS 123 requires among other things, disclosure in the footnotes of the pro
forma impact on net income and earnings per share of the difference between
compensation expense using the intrinsic value method and the fair value method
if the fair value method of accounting is not used. The adoption of SFAS 123 is
required for the fiscal year ended December 31, 1996. The Company elected to
continue to apply APB 25 for measurement of stock compensation and has provided
disclosure required by SFAS 123 in footnote No. 10 accompanying the consolidated
financials of the Company.
In June 1996, the FASB issued Statement of Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 125"). SFAS 125 requires the Company to recognize all
financial assets and servicing that it controls and liabilities that it has
incurred after a transfer of financial assets. The Company must also
"derecognize" financial assets when control has been surrendered and must
derecognize liabilities when extinguished. SFAS 125 is not expected to have a
significant impact on the Company.
COLUMBIA BANKING SYSTEM, INC.
page 32
<PAGE> 35
Recent Change in Accounting Firms
On February 26, 1997, the Company engaged Deloitte & Touche LLP as the Company's
principal independent accountant. Prior to Deloitte & Touche's engagement, Price
Waterhouse LLP, independent certified public accountants, had served as the
principal independent accountant for the Company and rendered their report with
respect to the Company's financial statements for the year ended December 31,
1996. The recommendation to change accountants was made by management of the
Company and was approved by the Audit Committee and the Board of Directors.
In the two most recent fiscal years preceding the Board's actions, there
were no disagreements with Price Waterhouse LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to Price Waterhouse's satisfaction, would have
caused them to make reference to the subject matter of the disagreement in
connection with their report. Price Waterhouse's reports on the Company's
financial statements for such fiscal years did not contain any adverse opinion
or disclaimer of opinion, nor were such reports qualified in any respect. A
representative of Price Waterhouse is expected to be present at the Annual
Meeting to make a statement, if desired, and to be available to respond to
appropriate questions. The Company does not anticipate that a representative of
Deloitte & Touche will be present at the Meeting.
Quarterly Common Stock Prices and Dividend Payments
The Company's common stock trades on The Nasdaq Stock Market under the symbol
COLB. Price information generally appears daily in the Nasdaq National Market
Issues section of The Wall Street Journal and in most major Pacific Northwest
metropolitan newspapers. On December 31, 1996, the last sale price for the
Company's stock in the over-the-counter market was $16 1/4.
The Company presently intends to retain earnings to support anticipated
growth. Accordingly, the Company does not intend to pay cash dividends on its
common stock in the foreseeable future. Please refer to the "Capital" section of
the Management Discussion and Analysis of Financial Condition and Results of
Operations, and Note 3 to the consolidated financial statements, contained
elsewhere in this report, for regulatory capital requirements and restrictions
on dividends to shareholders.
The Company is aware that large blocks of its stock are held in street name
by brokerage firms. At December 31, 1996, the number of shareholders of record
was 872.
The following are high and low sales prices as reported on the Nasdaq
National Market according to information furnished by the National Association
of Securities Dealers. Prices do not include retail mark-ups, mark-downs or
commissions.
<TABLE>
<CAPTION>
1996 High Low
------- -------
<S> <C> <C>
First quarter $14 3/4 $11 1/2
Second quarter 16 1/2 13
Third quarter 16 14 1/4
Fourth quarter 17 1/4 14 1/2
For the year 17 1/4 11 1/2
1995
First quarter $12 $ 9 1/8
Second quarter 12 1/2 9 7/8
Third quarter 12 3/8 11 1/8
Fourth quarter 12 3/4 11 1/4
For the year 12 3/4 9 1/8
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
page 33.
<PAGE> 36
report of management
The consolidated financial statements have been prepared by management in
accordance with generally accepted accounting principles and include, where
necessary, amounts based on the best estimates and judgments of management. The
primary responsibility for the integrity of data in these financial statements
is that of management. The other financial information in the Annual Report is
consistent with that contained in the consolidated financial statements.
The consolidated financial statements for 1996 have been audited by Price
Waterhouse LLP, the Company's independent accountants. In planning and
performing their audit, Price Waterhouse LLP considered the Company's internal
control structure in order to determine their auditing procedures for the
purpose of expressing their opinion on the financial statements and not to
provide assurance on the internal control structure. Their consideration of the
internal control structure would not necessarily disclose all matters in the
internal control structure that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants.
Management maintains an internal control structure which is deemed adequate
to provide reasonable assurance as to the reliability of financial records and
the protection of assets. In establishing the internal control structure,
management weighs the cost of control procedures against the benefits that it
believes can be derived. The Board of Directors monitors the internal control
structure through its Audit Committee. The membership of the Committee is
composed of directors who are not officers or employees of the Company. The
independent and internal auditors have free access to the Audit Committee, and
they meet with the Committee regularly, with and without management present, to
discuss accounting, auditing, internal controls and financial reporting matters.
In the opinion of management, the Company has a capable and aggressive internal
audit department which serves as an integral part of the internal control
structure.
/s/ A. G. Espe /s/ W. W. Philip /s/ Gary R. Schminkey
A. G. Espe W. W. Philip Gary R. Schminkey
Chairman and President and Senior Vice President and
Chief Executive Officer Chief Operating Officer Chief Financial Officer
COLUMBIA BANKING SYSTEM, INC.
page 34.
<PAGE> 37
report of independent accountants
To the Board of Directors and Shareholders of Columbia Banking System, Inc.
In our opinion, the accompanying consolidated balance sheets as of December 31,
1996 and 1995, and the related consolidated statements of operations, of
shareholders' equity and of cash flows for each of the three years in the period
ended December 31, 1996, present fairly, in all material respects, the financial
position of Columbia Banking System, Inc. and its subsidiaries, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
Seattle, Washington
January 22, 1997
COLUMBIA BANKING SYSTEM, INC.
page 35.
<PAGE> 38
consolidated statements of operations
<TABLE>
<CAPTION>
in thousands except per share
years ended December 31, 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest Income
Loans $ 36,048 $ 30,038 $ 18,990
Investment securities 1,078 1,127
Securities available for sale 1,878 290 205
Deposits with banks 1,136 314 334
-------- -------- --------
Total interest income 39,062 31,720 20,656
Interest Expense
Deposits 16,469 13,385 7,304
Federal Home Loan Bank advances 1,865 1,503 1,160
Other borrowings 184 271 612
-------- -------- --------
Total interest expense 18,518 15,159 9,076
-------- -------- --------
Net Interest Income 20,544 16,561 11,580
Provision for loan losses 1,420 1,250 1,000
Net interest income after
provision for loan losses 19,124 15,311 10,580
Noninterest Income
Service charges and other fees 2,381 1,895 1,242
Mortgage banking 636 394 782
Gains (losses) on sales of
securities available for sale (8)
Gains on sales of loans, net 39
Credit card fees and other fees 2,291 1,671 972
-------- -------- --------
Total noninterest income 5,308 3,991 2,996
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
page 36.
<PAGE> 39
<TABLE>
<CAPTION>
in thousands except per share
years ended December 31, 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Noninterest Expense
Compensation and employee benefits $ 8,437 $ 7,339 $ 6,219
Occupancy 3,388 2,845 2,802
Professional services 574 436 427
Advertising and promotion 772 634 508
Printing and supplies 414 375 397
Regulatory assessments 323 482 475
Data processing 807 615 463
Gains on, and net cost of, real estate owned (400) (314)
Other 5,528 4,221 3,059
SAIF special assessment 612
-------- -------- --------
Total noninterest expense 20,855 16,547 14,036
Income (loss) from
continuing operations
before income tax 3,577 2,755 (460)
-------- -------- --------
Provision for income tax
Income (loss) from continuing
operations before
extraordinary item 3,577 2,755 (460)
Extraordinary loss on
extinguishment of debt, net (154)
-------- -------- --------
Net Income (Loss) $ 3,577 $ 2,755 $ (614)
======== ======== ========
Per Share (On Average Shares Outstanding)
Income (loss) from continuing operations $ 0.93 $ 0.79 $ (0.13)
Extraordinary loss on
extinguishment of debt, net (0.05)
Net income (loss) 0.93 0.79 (0.18)
Fully diluted net income (loss) 0.92 0.79 (0.18)
Average number of common and common
equivalent shares outstanding 3,866 3,496 3,481
Fully diluted average common and common
equivalent shares outstanding 4,047 3,752 3,740
</TABLE>
see accompanying notes to consolidated financial statements
COLUMBIA BANKING SYSTEM, INC.
page 37
<PAGE> 40
consolidated balance sheets
<TABLE>
<CAPTION>
in thousands
December 31, 1996 1995
-------- --------
<S> <C> <C>
Assets
Cash and due from banks $ 32,092 $ 18,244
Interest-earning deposits with banks 38,086 12,635
Securities available for sale:
U.S. Treasury & government agencies 30,481 6,948
Mortgage-backed 10,760 12,446
FHLB stock 4,248 3,281
-------- --------
Total securities available for sale 45,489 22,675
Loans held for sale 11,341 1,367
Loans 446,095 353,093
Less: allowance for loan losses 4,504 3,748
-------- --------
Loans, net 441,591 349,345
Interest receivable 3,347 2,469
Premises and equipment, net 15,250 13,736
Real estate owned 40 3,304
Other 1,680 1,431
-------- --------
Total Assets $588,916 $425,206
======== ========
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
page 38
<PAGE> 41
<TABLE>
<CAPTION>
December 31,
in thousands 1996 1995
-------- --------
<S> <C> <C>
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 83,983 $ 52,991
Interest-bearing 409,239 308,884
-------- --------
Total deposits 493,222 361,875
Federal Home Loan Bank advances 32,000 25,000
Other liabilities 4,734 3,669
Convertible subordinated notes 2,695
-------- --------
Total liabilities 529,956 393,239
Commitments and contingent liabilities (Note 12)
Shareholders' equity:
Preferred stock (no par value)
Authorized, 2,000,000 shares; none outstanding
</TABLE>
<TABLE>
<CAPTION>
December 31,
1996 1995
--------- ---------
<S> <C> <C> <C> <C>
Common stock (no par value)
Authorized shares 10,000 10,000
Issued and outstanding 5,185 3,274 56,340 30,806
Retained earnings 2,694 1,274
Unrealized losses on securities available for sale (74) (113)
Total shareholders' equity 58,960 31,967
--------- ---------
Total Liabilities and Shareholders' Equity $ 588,916 $ 425,206
========= =========
</TABLE>
see accompanying notes to consolidated financial statements
COLUMBIA BANKING SYSTEM, INC.
page 39
<PAGE> 42
consolidated statements of shareholders' equity
<TABLE>
<CAPTION>
Common Stock
Number
in thousands of Shares Amount
--------- --------
<S> <C> <C>
Balance at December 31, 1993 3,250 $ 30,668
Adjustment to beginning balance
for change in accounting method, net
Net loss
Issuance of shares of common stock, net 8 35
----- -------
Change in unrealized losses
Balance at December 31, 1994 3,258 30,703
Net income
Issuance of shares of common stock, net 16 103
----- -------
Change in unrealized gains and (losses)
Balance at December 31, 1995 3,274 30,806
Net income
Issuance of shares of common stock, net 1,492 20,868
Issuance of shares of common stock
5% stock dividend 164 2,157
Conversion of Convertible
Subordinated Notes 255 2,509
----- --------
Change in unrealized gains and (losses)
Balance at December 31, 1996 5,185 $ 56,340
===== ========
</TABLE>
see accompanying notes to consolidated financial statements
COLUMBIA BANKING SYSTEM, INC.
page 40
<PAGE> 43
<TABLE>
<CAPTION>
Unrealized Total
Retained Gains and Shareholders'
in thousands Earnings (Losses) Equity
-------- ---------- -------------
<S> <C> <C> <C>
Balance at December 31, 1993 $ (867) $ 29,801
Adjustment to beginning balance
for change in accounting method, net $ (32) (32)
Net loss (614) (614)
Issuance of shares of common stock, net 35
Change in unrealized losses (329) (329)
-------- -------- --------
Balance at December 31, 1994 (1,481) (361) 28,861
Net income 2,755 2,755
Issuance of shares of common stock, net 103
Change in unrealized gains and (losses) 248 248
-------- -------- --------
Balance at December 31, 1995 1,274 (113) 31,967
Net income 3,577 3,577
Issuance of shares of common stock, net 20,868
Issuance of shares of common stock
5% stock dividend (2,157)
Conversion of Convertible
Subordinated Notes 2,509
Change in unrealized gains and (losses) 39 39
-------- -------- --------
Balance at December 31, 1996 $ 2,694 $ (74) $ 58,960
======== ======== ========
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
page 41
<PAGE> 44
consolidated statements of cash flows
<TABLE>
<CAPTION>
in thousands 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 3,577 $ 2,755 $ (614)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Provision for loan losses 1,420 1,250 1,000
Losses (gains) on real estate owned 41 29 (30)
Depreciation and amortization 2,327 1,365 1,610
Net realized losses (gains) on sale of investments 185 (53) (12)
(Increase) decrease in loans held for sale (9,974) 245 165
Increase in interest receivable (878) (735) (635)
Increase in interest payable 368 388 538
Net changes in other assets and liabilities 184 1,317 (352)
--------- -------- --------
Net cash provided (used) by operating activities (2,750) 6,561 1,670
Investing Activities
Proceeds from maturities of securities available for sale 11,347 215 537
Proceeds from sales of securities available for sale 5,980
Purchase of securities available for sale (35,686) (6,000)
Proceeds from maturities of mortgage-backed
securities available for sale 1,682
Proceeds from maturities of investment securities 4,243 2,557
Purchases of investment securities (4,675) (266)
Loans originated and acquired, net of principal collected (94,294) (88,579) (88,286)
Proceeds from sales of loans 4,756
Purchases of premises and equipment (4,751) (6,660) (3,544)
Proceeds from disposal of premises and equipment 1,273 240 412
Proceeds from sale of real estate owned 3,263 13 536
Other, net (119)
--------- -------- --------
Net cash used by investing activities (117,166) (90,586) (88,054)
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
page 42
<PAGE> 45
<TABLE>
<CAPTION>
in thousands 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Financing Activities
Net increase in deposits 131,347 93,183 103,353
Proceeds from FHLB advances
and other long-term debt 30,800 17,000 17,000
Repayment of FHLB advances
and other long-term debt (23,800) (9,000) (32,000)
Repayment of other borrowings (4,600)
Proceeds from issuance of common stock, net 20,868 63 35
--------- --------- ---------
Net cash provided by financing activities 159,215 101,246 83,788
--------- --------- ---------
Increase (decrease) in cash
and cash equivalents 39,299 17,221 (2,596)
Cash and cash equivalents at
beginning of period 30,879 13,658 16,254
--------- --------- ---------
Cash and cash equivalents at end of period $ 70,178 $ 30,879 $ 13,658
========= ========= =========
Supplemental Information
Cash paid for interest $ 18,149 $ 14,771 $ 8,538
Transfer from investment securities
to securities available for sale 19,912
Loans foreclosed and transferred to real estate owned 40 428
Issuance of common stock from conversion
of convertible subordinated notes 2,509 40
</TABLE>
see accompanying notes to consolidated financial statements
COLUMBIA BANKING SYSTEM, INC.
page 43
<PAGE> 46
notes to consolidated financial statements
Columbia Banking System, Inc. (the "Company") is a registered bank
holding company whose wholly owned subsidiary, Columbia State Bank
("Columbia Bank"), conducts a full-service commercial banking business.
Headquartered in Tacoma, Washington, the Company provides a full range
of commercial banking services to small and medium-sized businesses,
professionals and other individuals through 16 banking offices located
in the Tacoma metropolitan area and contiguous parts of the Puget Sound
region of Washington, as well as the Longview and Woodland communities
in southwestern Washington. Substantially all of the Company's loans,
loan commitments and core deposits are geographically concentrated in
its service areas.
1. summary of significant accounting policies
The financial statements have been prepared in accordance with
generally accepted accounting principles. Accordingly, they include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments including normal recurring accruals
necessary for a fair presentation of results of operations for all
periods included herein have been made. The results of operations for
the year ending December 31, 1996 are not necessarily indicative of
results to be anticipated for future periods.
Consolidation
The consolidated financial statements of the Company include the
accounts of the corporation and its wholly-owned subsidiaries after the
elimination of all material intercompany transactions and accounts.
Securities
Securities to be held for indefinite periods of time and not intended
to be held to maturity or on a long-term basis are classified as
available for sale and carried at market value. Unrealized gains and
losses are recorded directly to a component of shareholders' equity.
Securities held for indefinite periods of time include securities that
management intends to use as part of its asset/liability management
strategy and that may be sold in response to changes in interest rates
and/or significant prepayment risk.
Investment securities are those securities which the Company
has the ability and intent to hold to maturity. Events which may be
reasonably anticipated are considered when determining the Company's
intent to hold investment securities until maturity. Investment
securities are carried at cost, adjusted for amortization of premiums
and accretion of discounts using a method that approximates the
interest method. Gains and losses on the sale of all securities are
determined using the specific identification method.
Loans
Loans are stated at their principal amount outstanding, less any
unamortized discounts and deferred net loan fees. Loans held for sale
are carried at the lower of cost or market value. The amount by which
cost exceeds market for loans held for sale is accounted for as a
valuation allowance, and changes in the allowance are included in the
determination of net income in the period in which the change occurs.
The current policy of the Company generally is to discontinue
the accrual of interest on all loans past due 90 days or more and place
them on nonaccrual status.
Premiums or discounts purchased and sold are amortized, using
the interest method, over periods which approximate the average life of
the loans.
Loan Fee Income
Loan origination fees and certain direct loan origination costs are
deferred and the net amount recognized as an adjustment to yield over
the contractual life of the related loans. Costs related to origination
of credit cards are expensed as incurred. Fees related to lending
activity other than the origination or purchase of loans are recognized
as noninterest income during the period the related services are
performed.
COLUMBIA BANKING SYSTEM, INC.
page 44
<PAGE> 47
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed to be sufficient
to absorb potential losses in the portfolio. Management's determination of the
adequacy of the allowance is based on a number of factors, including the level
of nonperforming loans, loan loss experience, credit concentrations, a review of
the quality of the loan portfolio, collateral values and uncertainties in
economic conditions.
Premises and Equipment
Premises and equipment are recorded at cost and depreciated over the estimated
useful lives of the assets. Depreciation and amortization are computed using the
straight-line method. Gains or losses on dispositions are reflected in
operations. Expenditures for improvements and major renewals are capitalized,
and ordinary maintenance, repairs and small purchases are charged to operations
as incurred.
Real Estate Owned
All real estate acquired in satisfaction of a loan is considered held for sale
and reported as "real estate owned." Real estate owned is carried at the lower
of cost or fair value less estimated cost of disposal. Cost at the time of
foreclosure is defined as the fair value of the asset less estimated disposal
costs.
Intangible Assets
Intangible assets represent assets purchased by the Company in mergers and
acquisitions. The recorded cost of each asset is amortized using the
straight-line method over its estimated useful life (up to 15 years for core
deposit intangible assets and 25 years for goodwill).
At December 31, 1996 and 1995, intangible assets amounted to $188,000
and $266,000, respectively, net of accumulated amortizations.
Income Tax
The provision for income tax, generally, is based on income and expense reported
for financial statement purposes, using the "asset and liability method" for
accounting for deferred income tax. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation
allowance is recorded against any deferred tax assets for which it is more
likely than not that the deferred tax asset will not be realized.
Earnings Per Share
Earnings per share is computed using the weighted average number of shares of
common and common equivalent shares outstanding during the period. Common
equivalent shares result from the assumed exercise of outstanding stock options,
if dilutive. Fully diluted earnings per share assumes conversion of convertible
subordinated notes, if dilutive.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates are used
in determining the level of the allowance for loan losses, valuation allowance
on deferred tax assets, depreciation of premises and equipment and others.
Statement of Cash Flows
The accompanying consolidated statements of cash flows have been prepared using
the "indirect" method for presenting cash flows from operating activities. For
purposes of this statement, cash and cash equivalents include cash and due from
banks, interest-earning deposits with banks and federal funds sold.
Reclassification
Certain amounts in the 1995 and 1994 consolidated financial statements have been
reclassified to conform with the 1996 presentation. These reclassifications had
no effect on net income (loss).
COLUMBIA BANKING SYSTEM, INC.
page 45
<PAGE> 48
2. termination of assistance agreement and extinguishment of debt
In connection with the acquisition of the Savings Bank in 1988, the
Savings Bank and the Company entered into an agreement (the "Assistance
Agreement"), pursuant to which the Federal Savings and Loan Insurance
Corporation (the "FSLIC") provided various forms of financial and other
assistance to the Savings Bank, including the purchase of a $5 million
subordinated debenture due August 2, 1998. On September 30, 1994,
Columbia Bank entered into an agreement with the FDIC, as successor to
the FSLIC, to terminate the Assistance Agreement and to settle the
obligations under the subordinated debenture for $4.6 million,
resulting in an extraordinary nonrecurring loss of approximately
$154,000.
3. restrictions on subsidiary cash, loans and dividends
Columbia Bank is required to maintain reserve balances with the Federal
Reserve Bank. The average required reserves for the year ended December
31, 1996 were approximately $1.1 million. The required reserves are
based on specified percentages of the Bank's total average deposits
which are established by the Federal Reserve Board.
Under Federal Reserve regulations, Columbia Bank, generally,
is limited as to the amount it may loan to the Company to 10% of its
capital stock and additional paid-in capital. Such loans must be
collateralized by specified obligations.
Under Washington state banking regulations, Columbia Bank is
limited as to the ability to declare or pay dividends to the Company up
to the amount of the Columbia Bank's net profits then on hand, less any
required transfers to additional paid-in capital.
4. securities
The following table summarizes the amortized cost, gross unrealized
gains and losses and the resulting market value of securities available
for sale.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
in thousands Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
December 31, 1996
U.S. Treasury and government agency $ 30,441 $ 40 $ 30,481
Mortgage-backed 10,874 $ (114) 10,760
FHLB stock 4,248 4,248
-------- -------- -------- --------
Total $ 45,563 $ 40 $ (114) $ 45,489
======== ======== ======== ========
December 31, 1995
U.S. Treasury and government agency $ 6,935 $ 13 $ 6,948
Mortgage-backed 12,572 $ (126) 12,446
FHLB stock 3,281 3,281
-------- -------- -------- --------
Total $ 22,788 $ 13 $ (126) $ 22,675
======== ======== ======== ========
</TABLE>
In November 1995, the FASB issued a Special Report, "A Guide
to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." In addition to the report,
the FASB permitted a one-time opportunity for institutions to reassess
the appropriateness of the designations of all securities. Accordingly,
in December 1995, the Company reclassified all "investment securities"
to "securities available for sale" resulting in additional net
unrealized losses of $113,000.
COLUMBIA BANKING SYSTEM, INC.
page 46
<PAGE> 49
At December 31, 1996 and 1995, securities available for sale
with a fair value of $3.7 million and $3.0 million, respectively, were
pledged to secure public deposits and for other purposes as required or
permitted by law.
The following table summarizes the amortized cost and market
values of securities available for sale by contractual maturity groups:
<TABLE>
<CAPTION>
in thousands Amortized Market
December 31, 1996 Cost Value
--------- ---------
<S> <C> <C>
Amount maturing:
Within one year $15,015 $15,040
Greater than one year and less than five years 22,613 22,529
Greater than five years and less than ten years 2,011 1,959
After ten years 5,924 5,961
-----------------------
Total $45,563 $45,489
=======================
</TABLE>
5. loans
The following is an analysis of the loan portfolio by major types of
loans:
<TABLE>
<CAPTION>
in thousands
December 31, 1996 1995
--------- ---------
<S> <C> <C>
Commercial business $ 169,318 $ 113,775
Real estate:
One- to four-family residential 67,709 67,991
Five or more family residential and commercial properties 128,803 97,103
--------- ---------
Total real estate 196,512 165,094
Real estate construction:
One- to four-family residential 21,380 22,741
Five or more family residential and commercial properties 10,680 8,884
--------- ---------
Total real estate construction 32,060 31,625
Consumer 48,807 43,343
--------- ---------
Subtotal 446,697 353,837
Less deferred loan fees, net and other (602) (744)
--------- ---------
Total loans $ 446,095 $ 353,093
========= =========
Loans held for sale $ 11,341 $ 1,367
========= =========
</TABLE>
At December 31, 1996 and 1995, residential real estate loans
with recorded values of $38.4 million and $30.0 million, respectively,
were pledged to secure Federal Home Loan Bank advances and for other
purposes.
COLUMBIA BANKING SYSTEM, INC.
page 47
<PAGE> 50
The following table summarizes certain information related to
nonperforming loans:
<TABLE>
<CAPTION>
in thousands
December 31, 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis $2,227 $ 435 $ 452
Restructured loans 25 29 44
------------------------------
Total nonperforming loans $2,252 $ 464 $ 496
==============================
Originally contracted interest $ 219 $ 49 $ 50
Recorded interest 102 38 27
------------------------------
Reduction in interest income $ 117 $ 11 $ 23
==============================
</TABLE>
In May 1993, the FASB issued Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS 114"), which requires that impaired loans (as defined) be
measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or the fair value of
the collateral. In October 1994, the Board issued Statement No. 118
("SFAS 118"), amending SFAS 114 with regard to income recognition and
disclosure related to impaired loans. Impaired loans generally refer to
all loans that are restructured in a troubled debt restructuring
involving a modification of terms, nonaccrual loans and loans past due
90 days and still accruing. The Company adopted the new standard in
1995.
At December 31, 1996 and 1995, the recorded investment in
impaired loans was $2.3 million and $616,000, respectively. No specific
allocated allowance for loan losses has been made for impaired loans.
The average recorded investment in impaired loans for the periods ended
December 31, 1996 and 1995 was $1.4 million and $513,000 respectively.
At December 31, 1996 and 1995, there were no commitments for
additional funds for loans accounted for on a nonaccrual basis.
At December 31, 1996 and 1995, the Company had no foreign
loans or loans related to highly leveraged transactions.
The Company's banking subsidiaries have granted loans to
officers and directors of the Company and their associates. These loans
are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions
with unrelated persons and do not involve more than the normal risk of
collectibility. The aggregate dollar amount of these loans were $4.4
million and $4.6 million at December 31, 1996 and 1995, respectively.
During 1996, $2.9 million of new related party loans were made and
repayments and transfers totaled $3.1 million.
6. allowance for loan losses
Transactions in the allowance for loan losses are summarized as
follows:
<TABLE>
<CAPTION>
in thousands
years ended December 31, 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period $ 3,748 $ 2,711 $ 1,992
Loans charged off (684) (263) (364)
Recoveries 20 50 83
------- ------- -------
Net charge-offs (664) (213) (281)
Provision charged to operating expense 1,420 1,250 1,000
-----------------------------------
Balance at end of period $ 4,504 $ 3,748 $ 2,711
===================================
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
page 48
<PAGE> 51
7. premises and equipment
Land, buildings, and furniture and equipment, less accumulated
depreciation and amortization, were as follows:
<TABLE>
<CAPTION>
in thousands
December 31, 1996 1995
-------- --------
<S> <C> <C>
Land $ 2,914 $ 1,748
Buildings 9,419 8,589
Leasehold improvements 1,434 1,509
Furniture and equipment 6,339 5,533
Automobiles 102 101
Computer software 583 691
-----------------------
Total cost 20,791 18,171
Less accumulated depreciation and amortization (5,541) (4,435)
-----------------------
Total $ 15,250 $ 13,736
=======================
</TABLE>
Total depreciation and amortization expense on buildings and
furniture and equipment was $1.8 million, $1.7 million and $1.6 million
for the years ended December 31, 1996, 1995 and 1994, respectively.
The Company is obligated under various noncancellable lease
agreements for property and equipment (primarily for land and
buildings) which require future minimum rental payments, exclusive of
taxes and other charges, as follows:
<TABLE>
<CAPTION>
in thousands
years ending December 31,
<S> <C>
1997 $1,151
1998 1,055
1999 888
2000 634
2001 394
2002 and thereafter 2,757
------
Total minimum payments $6,879
======
</TABLE>
Total rental expense on buildings and equipment was $983,000,
$946,000 and $909,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
8. federal home loan bank advances and long-term debt
Federal Home Loan Bank ("FHLB") advances and long-term debt consisted
of the following:
<TABLE>
<CAPTION>
in thousands
December 31, 1996 1995
------- -------
<S> <C> <C>
Federal Home Loan Bank advances $32,000 $25,000
7.85% Convertible Subordinated Notes due June 30, 2002 2,695
--------------------
Total FHLB advances and other long-term debt $32,000 $27,695
====================
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
page 49
<PAGE> 52
On June 3, 1996, the Company gave notice that it would redeem
all of its issued and outstanding 7.85% Convertible Subordinated Notes
(the "Notes") on August 1, 1996. The Notes were convertible in whole or
in part, in multiples of $1,000 principal amount, at 100% of the
principal amount of the Note (or portion thereof), at the conversion
price per share of common stock of $10.56. As of August 1, 1996 all of
the Notes were converted into 223,743 shares of common stock.
FHLB advances are at the following interest rates:
<TABLE>
<CAPTION>
in thousands
December 31, 1996 1995
------- -------
<S> <C> <C>
6.90% $ 5,000
6.20 2,000
6.14 $10,000
6.09 8,000
5.79 2,000
5.45 10,000
5.32 5,000 5,000
5.20 5,000 5,000
------------------------
Total $32,000 $25,000
========================
</TABLE>
Aggregate maturities of FHLB advances due in years ending after
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
in thousands Amount
-------
<S> <C>
1997 $10,000
1998 20,000
2000 2,000
-------
Total $32,000
=======
</TABLE>
FHLB advances are collateralized by residential real estate
loans with a recorded value of approximately $38.4 million at December
31, 1996, and $30.0 million at December 31, 1995 (see Note 5).
Penalties are generally required for prepayments of certain long-term
FHLB advances.
9. income tax
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
in thousands
years ended December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current
Deferred
---- ---- ----
Total None None None
==== ==== ====
</TABLE>
Effective January 1, 1993, the Company adopted the FASB's
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). This Statement requires the use of the
"asset and liability" method of accounting for income taxes. Deferred
income tax represents the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
COLUMBIA BANKING SYSTEM, INC.
page 50
<PAGE> 53
Significant components of the Company's deferred tax assets
and liabilities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
in thousands
December 31, 1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 1,478
Allowance for loan losses $ 1,531 1,274
Contributions 164 97
------- -------
Total deferred tax assets 1,695 2,849
Less: valuation allowance (768) (2,011)
------- -------
Subtotal 927 838
Deferred tax liabilities:
FHLB stock dividends (657) (551)
Depreciation (18) (35)
------- -------
Total deferred tax liabilities (675) (586)
------- -------
Net deferred tax assets $ 252 $ 252
======= =======
</TABLE>
A reconciliation of the Company's effective income tax rate with the
federal statutory tax rate is as follows:
<TABLE>
<CAPTION>
dollars in thousands 1996 1995 1994
------------------ ------------------ ------------------
years ended December 31, Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income tax based
on statutory rate $(1,216) (34)% $ (937) (34)% $ 209 34%
Increase (reduction)
resulting from:
Other nondeductible
items (27) (1) (37) (1) (27) (4)
Valuation allowance 1,243 35 974 35 (182) (30)
------- ------- ------- ------- ------- -------
Income tax $ 0 0% $ 0 0% $ 0 0%
======= ======= ======= ======= ======= =======
</TABLE>
10. stock options and warrants
At December 31, 1996 and 1995, the Company had stock options
outstanding of 275,168 shares and 247,433 shares, respectively, for the
purchase of common stock at option prices ranging from $2.38 to $21.25
per share. The Company's policy is to recognize compensation expense at
the date the options were granted due to the difference, if any,
between the then market value of the Company's common stock and the
stated option price.
At December 31, 1996 and 1995, the Company had options
outstanding granted to a company controlled by a director for the
purchase of 36,317 and 13,858 shares of common stock at exercise prices
of approximately $6.45 and $8.81 per share, respectively. These options
are generally exercisable in whole or in part at any time before
September 26, 2000.
At December 31, 1996 and 1995, the Company had stock warrants
outstanding to purchase 18,716 shares of common stock at $10.14 per
share, which expires in 1997.
COLUMBIA BANKING SYSTEM, INC.
page 51
<PAGE> 54
The following table outlines the stock option activity for 1996 and
1995:
<TABLE>
<CAPTION>
in thousands Balance Price Range
------- -------------
<S> <C> <C>
Balance at December 31, 1994 316,061 $ 2.38-$11.19
Issued 15,225 9.29- 10.71
Exercised (8,400) 2.38
Terminated (6,562) 9.29- 11.19
------- -------------
Balance at December 31, 1995 316,324 2.38- 11.19
Issued 53,525 12.56- 21.25
Exercised (18,970) 2.38- 11.19
Terminated (6,820) 9.29- 11.19
------- -------------
Balance at December 31, 1996 344,059 $ 3.81-$21.25
======= =============
Total Vested at December 31, 1996 194,716 $ 3.81-$11.19
======= =============
</TABLE>
In August 1996, the Personnel and Compensation Committee of
the Board of Directors of the Company approved the grant to Mr. A. G.
Espe (Chairman of the Board and Chief Executive Officer) of an option
to purchase 40,000 shares of Common Stock at prices ranging from $15.25
to $21.25. The Board also approved the grant to Mr. W. W. Philip
(Director, President and Senior Operating Officer) of a restricted
stock award for 20,000 shares of Common Stock. The market value of the
Common Stock at the date of grants to both Messrs. Espe and Philip was
$15.25 per share.
The option to Mr. Espe, which is subject to approval by the
shareholders of additional shares to be available pursuant to the Plan
and certain other amendments to the Plan, provides for 10,000 shares to
vest (become exercisable) in August 1997 at an option price of $15.25,
and 10,000 additional shares to vest each year beginning in August 1998
and continuing through August 2000 at option prices of $17.25, $19.25
and $21.25, respectively. Earlier vesting of the options may be
approved at the sole discretion of the Board or the Compensation
Committee of the Board and will occur in the event of termination of
employment without cause (as defined) following a change in control (as
defined) of the Company. Vested options will remain exercisable for ten
years from the date of vesting in the event of Mr. Espe's retirement
(as approved by the Board), death or disability, or a change in control
of the Company or Columbia Bank (as the term is defined in Mr. Espe's
Employment Agreement).
The restricted stock award to Mr. Philip provides for the
immediate issuance of 20,000 shares of the Company's Common Stock to
Mr. Philip in escrow. The shares are to remain in escrow until Mr.
Philip has served as an active officer or Board member of the Company
and/or Columbia Bank for a period of five years from the date of the
grant, unless that term is reduced (i) by action of the Board or the
Personnel and Compensation Committee, (ii) by reason of a change of
control of the Company or Columbia Bank (as defined in Mr. Philip's
Employment Agreement), or (iii) by Mr. Philip's death or disability.
Mr. Philip will have the right to vote shares and to receive any
dividends or other distributions on the shares while they remain in
escrow.
The Company has an employee stock option plan ("the Plan") to
provide additional incentives to key employees, thereby helping to
attract and retain the best available personnel. The Company applies
APB Opinion 25 and related interpretations in accounting for the Plan.
Accordingly, no compensation cost has been recognized for the Plan. The
Company estimates the fair value of its stock options using the
Black-Scholes option-pricing model. Had compensation cost for the
Company's Plan been determined based on the fair value at the grant
dates consistent with the FASB's Statement of Accounting Standards No.
123, "Accounting for Stock-Based Compensation," the impact on net
income and earnings per share would not have been significant for the
years ended December 31, 1996 and 1995.
COLUMBIA BANKING SYSTEM, INC.
page 52
<PAGE> 55
11. employee benefit plan
The Company maintains a defined contribution plan which allows
employees to contribute up to 15% of their compensation to the plan.
Employees who are at least 20 1/2 years of age and have completed 6
months of service are eligible to participate in the plan. The Company
is required to match 50% of employee contributions up to 3% of each
employee's total compensation. The Company contributed approximately
$153,000, $126,000 and $80,000 in matching funds to the plan during the
years ended December 31, 1996, 1995 and 1994, respectively.
The Company amended the defined contribution plan effective
April 1, 1990 to add a nonmatching, discretionary contribution as
determined by the Board of Directors of the Company. In January 1997
and 1996, the Company announced discretionary contributions of
approximately $348,000 and $290,000 for the years ended 1996 and 1995
respectively.
The Company maintains an "Employee Stock Purchase Plan"
("ESPP"). Substantially all employees of the Company who have been
continuously employed for six months are eligible to participate in the
ESPP under which Common Stock is issued at quarterly intervals for cash
at a price of 90% of the fair market value of the stock. Under the
ESPP, 7,955 shares were acquired by employees for $110,000 in 1996.
There is no charge to income as a result of issuance of stock under
this plan. The discount offered to employees approximates the cost of
raising capital and does not have a material effect on net income and
earnings per share. At December 31, 1996, 88,296 shares of common stock
were reserved for issuance under this plan.
12. commitments and contingent liabilities
The employment agreement with Mr. Espe originally provided for an
annual salary of $150,000 in 1994 through 1996. As part of the
agreement, the Company provides a Supplementary Employee Retirement
Plan ("SERP") based on a contribution of 10% of total compensation per
year and earnings at a stated rate on that amount. The agreement has
recently been amended, effective January 1, 1997, to extend the term to
December 31, 2001 and to establish the minimum salary at $160,000.
Also, the employment agreement with Mr. Philip has recently been
amended, effective January 1, 1997, to extend the term to December 31,
1998 and to establish his minimum annual salary at $175,000.
In 1993, Messrs. Espe and Philip each purchased 30,000 shares
of the Company's common stock at the fair value of $12.00 per share at
the date of purchase. The purchase of stock was financed by the Company
with annual interest-only payments at 6% and principal due in April and
July 2000.
The Company had Long Term Incentive Plan arrangements with
Messrs. Espe and Philip. Under the arrangements, specific compensation
and allowance payments were agreed to be made for work performed since
1993 if the Company achieved certain performance objectives by December
31, 1996. At December 31, 1996, the terms of the incentive plan were
fulfilled, and in January 1997, $706,000 was paid under the terms of
the plan. From 1993 through 1996, Mr. Philip received no salary or
bonus payments.
In the normal course of business, the Company makes loan
commitments (unfunded loans and unused lines of credit) and issues
standby letters of credit to accommodate the financial needs of its
customers. Standby letters of credit commit the Company to make
payments on behalf of customers under specified conditions.
Historically, no significant losses have been incurred by the Company
under standby letters of credit. Both arrangements have credit risk
essentially the same as that involved in extending loans to customers
and are subject to the Company's normal credit policies, including the
obtaining of collateral, where appropriate. At December 31, 1996 and
1995, the Company's loan commitments amounted to $122.9 million and
$72.8 million, respectively. Standby letters of credit were $1.6
million and $1.5 million at December 31, 1996 and 1995, respectively.
In addition, commitments under commercial letters of credit used to
facilitate customers' trade transactions amounted to $2.5 million at
December 31, 1996 and 1995.
The Company and its subsidiaries are from time to time
defendants in and are threatened with various legal proceedings arising
from their regular business activities. Management, after consulting
with legal counsel, is of the opinion that the ultimate liability, if
any, resulting from these and other pending or threatened actions and
proceedings will not have a material effect on the financial position
or results of operations of the Company and its subsidiaries.
COLUMBIA BANKING SYSTEM, INC.
page 53
<PAGE> 56
13. fair value of financial instruments
The FASB's Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("SFAS 107"),
requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which
it is practicable to estimate that value. "Fair Value" is defined in
SFAS 107 as the amount at which an instrument could be exchanged in a
current transaction between willing parties, other than a forced or
liquidation sale.
The following table summarizes carrying amounts and estimated
fair values of selected financial instruments as well as assumptions
used by the Company in estimating fair value:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
in thousands Assumptions Used in Carrying Fair Carrying Fair
December 31, Estimating Fair Value Amount Value Amount Value
--------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Cash and due Approximately equal
from banks to carrying value $ 32,092 $ 32,092 $ 18,244 $ 18,244
Interest-earning Approximately equal
deposits with banks to carrying value 38,086 38,086 12,635 12,635
Securities available Quoted market prices
for sale 45,489 45,489 22,675 22,675
Loans held for sale Approximately equal
to carrying value 11,341 11,341 1,367 1,367
Loans Discounted expected
future cash flows,
net of allowance
for loan losses 441,591 454,326 349,345 371,720
Liabilities
Deposits Fixed-rate certificates
of deposit: Discounted
expected future
cash flows
All other deposits:
Approximately
equal to
carrying value $493,222 $489,206 $361,875 $360,609
Federal Home Discounted
Loan Bank expected future
advances cash flows 32,000 31,362 25,000 24,585
Convertible Discounted
subordinated expected future
notes cash flows 2,695 2,695
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
page 54
<PAGE> 57
Off-Balance-Sheet Financial Instruments
The fair value of commitments is estimated based upon fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of
the counterparties. For fixed rate commitments, the fair value
estimation takes into consideration an interest rate risk factor. The
fair value of guarantees and letters of credit is based on fees
currently charged for similar agreements. The fair value of these
off-balance sheet items at December 31, 1996 approximates the recorded
amounts of the related fees.
14. stock dividend
On April 24, 1996, the Company announced a 5% stock dividend payable on
May 22, 1996, to holders of record on May 8, 1996. On May 22, 1996,
164,051 common shares were issued to shareholders. Average shares
outstanding, net income per share and book value per share for all
periods presented have been retro-actively adjusted to give effect to
this transaction.
15. SAIF special assessment
Columbia Bank's deposits are insured by the FDIC through the Bank
Insurance Fund and through the Saving Association Insurance Fund (the
"SAIF"). SAIF-insured deposits of Columbia Bank are a result of a
so-called Oakar transaction in which deposits were acquired from a
savings bank. Legislation was enacted in 1996 for the purpose of
recapitalizing the SAIF fund. The legislation required a special
assessment on SAIF-insured deposits of approximately 65.7 cents per
$100 of insured deposits at March 31, 1995 (SAIF deposits then $116.5
million) with a discount of 20% on the special assessment of Oakar
institutions, such as Columbia Bank, which meet certain tests. The
one-time special assessment of $612,000, which is tax deductible, was
recognized in third quarter 1996 earnings.
COLUMBIA BANKING SYSTEM, INC.
page 55
<PAGE> 58
16. parent company financial information
condensed balance sheets
parent company only
<TABLE>
<CAPTION>
in thousands
December 31, 1996 1995
------- -------
<S> <C> <C>
Assets
Cash and due from banks:
Subsidiary banks $ 6 $ 41
Unrelated banks 68
Interest-earning deposits with banks:
Subsidiary banks
Unrelated banks 4,021
Securities available for sale 4,007
Loans 720 905
Investments in bank subsidiaries 49,951 32,660
Premises and equipment, net 28 49
Real estate owned 3,304
Other assets 429 354
------- -------
Total Assets $59,162 $37,381
======= =======
Liabilities and Shareholders' Equity
Other liabilities $ 202 $ 119
Borrowed funds 2,600
Convertible subordinated notes 2,695
------- -------
Total liabilities 202 5,414
Shareholders' equity 58,960 31,967
------- -------
Total Liabilities and Shareholders' Equity $59,162 $37,381
======= =======
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
page 56
<PAGE> 59
condensed statements of operations
parent company only
<TABLE>
<CAPTION>
in thousands
years ended December 31, 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income
Interest on loans $ 48 $ 54 $ 54
Interest on securities available for sale 20 188
Gains (losses) on securities available for sale (1) (270)
Interest-earning deposits:
Subsidiary banks 6 9
Unrelated banks 53 16 31
Other 55 533 470
------- ------- -------
Total income 176 609 482
Expense
Compensation and employee benefits 346 341 234
Interest 204 377 246
Other 309 612 493
------- ------- -------
Total expenses 859 1,330 973
------- ------- -------
Loss before income tax benefit and equity
in undistributed net income (loss) of subsidiaries (683) (721) (491)
------- ------- -------
Income tax benefit
Loss before equity in undistributed
net income (loss) of subsidiaries (683) (721) (491)
Equity in undistributed
net income (loss) of subsidiaries: 4,260 3,476 (123)
------- ------- -------
Net Income (Loss) $ 3,577 $ 2,755 $ (614)
======= ======= =======
</TABLE>
(1) In November 1994, the Parent Company sold a mortgage-backed security to
Columbia Bank. A loss was recognized by the Parent Company while the
security was recorded at fair value by Columbia Bank. The proceeds from
the sale were subsequently contributed to the capital of Columbia Bank.
On a consolidated basis the loss recorded by the Parent Company is
eliminated as if no transaction had occurred.
COLUMBIA BANKING SYSTEM, INC.
page 57
<PAGE> 60
condensed statements of cash flows
parent company only
<TABLE>
<CAPTION>
in thousands
years ended December 31, 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 3,577 $ 2,755 $ (614)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Equity in undistributed (earnings) losses
of subsidiaries (4,260) (3,476) 123
Loss on sale of real estate owned 41
Provision for depreciation and amortization 35 34 40
Loss on sale of security available for sale 270
Net changes in other assets and liabilities (140) 2,698 80
-------- -------- --------
Net cash provided (used) by operating activities (747) 2,011 (101)
Investing Activities
Proceeds from sales of securities available for sale 2,808
Purchase of securities available for sale (4,000)
Proceeds from maturities of securities available
for sale 209
Loans originated or acquired, net of principal
collected 134
Contribution of capital - bank subsidiaries (16,800) (3,100) (2,813)
Return of capital to parent 3,800
Proceeds from sale of real estate owned 3,263
Purchases of premises and equipment 34
-------- -------- --------
Net cash provided (used) by investing activities (13,603) (3,100) 238
Financing Activities
Proceeds from other borrowings 7,000
Repayment of other borrowings (9,600)
Proceeds from issuance of common stock 20,868 103 35
-------- -------- --------
Net cash provided by financing activities 18,268 103 35
-------- -------- --------
Increase (decrease) in
cash and cash equivalents 3,918 (986) 172
Cash and cash equivalents
at beginning of period 109 1,095 923
-------- -------- --------
Cash and cash equivalents at end of period $ 4,027 $ 109 $ 1,095
======== ======== ========
Supplemental Information
Cash paid for interest $ 204 $ 377 $ 246
Issuance of common stock from
conversion of convertible subordinated notes 2,509 40
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
page 58
<PAGE> 61
summary of quarterly financial information (1)
Quarterly financial information for the years ended December 31, 1996 and 1995
is summarized as follows:
<TABLE>
<CAPTION>
in thousands First Second Third Fourth Year Ended
except per share amounts Quarter Quarter Quarter Quarter December 31,
------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
1996
Total interest income $ 8,786 $ 9,311 $10,041 $10,924 $39,062
Total interest expense 4,296 4,306 4,780 5,136 18,518
------- ------- ------- ------- -------
Net interest income 4,490 5,005 5,261 5,788 20,544
Provision for loan losses 330 430 330 330 1,420
Noninterest income 1,165 1,308 1,390 1,445 5,308
Noninterest expense 4,517 4,851 5,226 5,649 20,243
SAIF special assessment 612 612
------- ------- ------- ------- -------
Income before income tax 808 1,032 483 1,254 3,577
------- ------- ------- ------- -------
Provision for income tax
Net income $ 808 $ 1,032 $ 483 $ 1,254 $ 3,577
------- ------- ------- ------- -------
Per share:
Net income $ 0.23 $ 0.29 $ 0.13 $ 0.28 $ 0.93
======= ======= ======= ======= =======
1995
Total interest income $ 6,942 $ 7,775 $ 8,373 $ 8,630 $31,720
Total interest expense 3,093 3,699 4,092 4,275 15,159
------- ------- ------- ------- -------
Net interest income 3,849 4,076 4,281 4,355 16,561
Provision for loan losses 300 300 320 330 1,250
Noninterest income 883 950 1,078 1,080 3,991
Noninterest expense 3,987 4,124 4,267 4,169 16,547
------- ------- ------- ------- -------
Income before income tax 445 602 772 936 2,755
------- ------- ------- ------- -------
Provision for income tax
Net income $ 445 $ 602 $ 772 $ 936 $ 2,755
------- ------- ------- ------- -------
Per share:
Net income $ 0.13 $ 0.17 $ 0.22 $ 0.27 $ 0.79
======= ======= ======= ======= =======
</TABLE>
(1) These unaudited schedules provide selected financial information
concerning the Company which should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results
of Operations in this Annual Report.
COLUMBIA BANKING SYSTEM, INC.
page 59
<PAGE> 62
consolidated five-year
statements of operations(1)
<TABLE>
<CAPTION>
dollars in thousands,
except per share amounts
years ended December 31, 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest Income
Loans $ 36,048 $ 30,038 $ 18,990 $ 12,258 $ 10,649
Investment securities 1,078 1,127 1,108 59
Securities available for sale 1,878 290 205 227 639
Deposits with banks 1,136 314 334 362 236
-------- -------- -------- -------- --------
Total interest income 39,062 31,720 20,656 13,955 11,583
Interest Expense
Deposits 16,469 13,385 7,304 4,867 4,860
Federal Home Loan Bank advances 1,865 1,503 1,160 1,788 1,328
Other borrowings 184 271 612 876 735
-------- -------- -------- -------- --------
Total interest expense 18,518 15,159 9,076 7,531 6,923
-------- -------- -------- -------- --------
Net Interest Income 20,544 16,561 11,580 6,424 4,660
Provision for loan losses 1,420 1,250 1,000 502 170
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 19,124 15,311 10,580 5,922 4,490
Noninterest income 5,308 3,991 2,996 2,043 1,021
Noninterest expense 20,243 16,547 14,036 10,656 4,488
SAIF special assessment 612
-------- -------- -------- -------- --------
Noninterest expense 20,855 16,547 14,036 10,656 4,488
-------- -------- -------- -------- --------
Income (loss) from
continuing operations
before income tax 3,577 2,755 (460) (2,691) 1,023
Provision for income tax
-------- -------- -------- -------- --------
Income (loss) from
continuing operations 3,577 2,755 (460) (2,691) 1,023
Extraordinary loss on
extinguishment of debt, net (154)
Cumulative effect of
accounting change 252
-------- -------- -------- -------- --------
Net Income (Loss) $ 3,577 $ 2,755 $ (614) $ (2,439) $ 1,023
======== ======== ======== ======== ========
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
page 60
<PAGE> 63
<TABLE>
<CAPTION>
dollars in thousands,
except per share amounts
years ended December 31, 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Per share (on average
shares outstanding):
Income (loss) from
continuing operations $ 0.93 $ 0.79 $ (0.13) $ (1.17) $ 0.89
Extraordinary loss on
extinguishment
of debt, net (0.05)
Cumulative effect of
accounting change 0.11
Net income (loss) 0.93 0.79 (0.18) (1.06) 0.89
Fully diluted net income (loss) 0.92 0.79 (0.18) (1.06) 0.76
Average number of common
and common equivalent
shares outstanding:
Primary 3,866 3,496 3,481 2,301 1,155
Fully diluted 4,047 3,752 3,740 2,560 1,700
----------- ----------- ----------- ----------- -----------
Total assets at end of period $588,916 $425,206 $319,072 $235,944 $158,694
Long-term obligations 32,000 27,695 19,735 39,081 27,975
Cash dividends
----------- ----------- ----------- ----------- -----------
</TABLE>
(1) These unaudited schedules provide selected financial information
concerning the Company which should be read in conjunction with the
Management Discussion and Analysis of Financial Condition and Results
of Operations in this Annual Report.
COLUMBIA BANKING SYSTEM, INC.
page 61
<PAGE> 64
consolidated five-year summary of average
<TABLE>
<CAPTION>
1996 1995
Average Average Average Average
dollars in thousands Balances(1) Interest Rate Balances(1) Interest Rate
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans:
Commercial business $ 136,386 $ 11,782 8.64% $ 92,831 $ 8,986 9.68%
Real estate (2):
One- to four-family
residential 93,471 8,420 9.01 97,280 9,073 9.33
Five or more family
residential and
commercial properties 126,061 11,556 9.17 90,135 8,411 9.33
Consumer 49,213 4,290 8.72 37,793 3,568 9.44
----------- ----------- ----------- ----------- ----------- -----------
Total loans 405,131 36,048 8.90 318,039 30,038 9.44
Securities 31,527 1,878 5.96 23,266 1,368 5.89
Interest-earning deposit with banks 21,416 1,136 5.31 5,336 314 5.88
----------- ----------- ----------- ----------- ----------- -----------
Total interest-earning assets 458,074 39,062 8.53 346,641 31,720 9.15
Noninterest-earning assets 31,177 28,007
----------- -----------
Total assets $ 489,251 $ 374,648
----------- -----------
Interest-Bearing Liabilities
Certificates of deposit $ 189,122 $ 10,712 5.66% $ 168,351 $ 9,565 5.68%
Savings accounts 21,673 608 2.80 24,547 669 2.73
Interest-bearing demand 142,103 5,149 3.62 79,706 3,151 3.95
----------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing
deposits 352,898 16,469 4.67 272,604 13,385 4.91
Federal Home Loan Bank advances 33,287 1,865 5.60 24,915 1,503 6.03
Other borrowings 1,990 184 9.25 2,744 271 9.88
----------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing
liabilities 388,175 18,518 4.77 300,263 15,159 5.05
Demand and other noninterest-bearing
deposits 60,691 42,167
Other noninterest-bearing
liabilities 3,439 2,444
Shareholders' equity 36,946 29,774
----------- -----------
Total liabilities and
shareholders' equity $ 489,251 $ 374,648
----------- ----------- ----------- ----------- ----------- -----------
Net interest revenue $ 20,544 $ 16,561
----------- ----------- ----------- ----------- ----------- -----------
Net interest spread 3.76% 4.10%
----------- ----------- ----------- ----------- ----------- -----------
Net interest margin 4.48% 4.78%
----------- ----------- ----------- ----------- ----------- -----------
Average interest-earning assets to average
interest-bearing liabilities 118.01% 115.45%
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
COLUMBIA BANKING SYSTEM, INC.
page 62.
<PAGE> 65
balances and net interest revenue
<TABLE>
<CAPTION>
1994 1993
Average Average Average Average
dollars in thousands Balances(1) Interest Rate Balances(1) Interest Rate
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans:
Commercial business $ 63,541 $ 5,272 8.30% $ 23,894 $ 1,690 7.07%
Real estate (2):
One- to four-family
residential 78,408 6,495 8.28 73,076 6,221 8.51
Five or more family
residential and
commercial properties 57,952 5,324 9.19 35,255 3,608 10.23
Consumer 22,335 1,899 8.50 8,128 739 9.09
----------- ----------- ----------- ----------- ----------- -----------
Total loans 222,236 18,990 8.54 140,353 12,258 8.73
Securities 24,045 1,332 5.54 20,940 1,335 6.38
Interest-earning deposits with banks 8,597 334 3.89 12,800 362 2.83
----------- ----------- ----------- ----------- ----------- -----------
Total interest-earning assets 254,878 20,656 8.10 174,093 13,955 8.02
Noninterest-earning assets 24,384 15,825
----------- -----------
Total assets $ 279,262 $ 189,918
----------- -----------
Interest-Bearing Liabilities
Certificates of deposit $ 122,198 $ 5,595 4.58% $ 75,682 $ 3,459 4.57%
Savings accounts 33,938 895 2.64 29,743 1,039 3.49
Interest-bearing demand 38,962 814 2.09 18,090 369 2.04
----------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing
deposits 195,098 7,304 3.74 123,515 4,867 3.94
Federal Home Loan Bank advances 21,452 1,160 5.41 25,875 1,788 6.91
Other borrowings 6,017 612 10.17 9,868 876 8.88
----------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing
liabilities 222,567 9,076 4.08 159,258 7,531 4.73
Demand and other noninterest-bearing deposits 26,238 10,621
Other noninterest-bearing liabilities 1,476 923
Shareholders' equity 28,981 19,116
----------- -----------
Total liabilities and
shareholders' equity $ 279,262 $ 189,918
----------- ----------- ----------- ----------- ----------- -----------
Net interest revenue $ 11,580 $ 6,424
----------- ----------- ----------- ----------- ----------- -----------
Net interest spread 4.02% 3.29%
----------- ----------- ----------- ----------- ----------- -----------
Net interest margin 4.54% 3.69%
----------- ----------- ----------- ----------- ----------- -----------
Average interest-earning assets to average
interest-bearing liabilities 114.52% 109.32%
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
1992
Average Average
dollars in thousands Balances(1) Interest Rate
----------- ----------- -----------
<S> <C> <C> <C>
Interest-Earning Assets
Loans:
Commercial business $ 15,949 $ 1,501 9.41%
Real estate (2):
One- to four-family
residential 61,461 6,120 9.96
Five or more family
residential and
commercial properties 24,086 2,463 10.23
Consumer 5,686 565 9.94
----------- ----------- -----------
Total loans 107,182 10,649 9.94
Securities 9,382 698 7.44
Interest-earning deposits with banks 6,416 236 3.68
----------- ----------- -----------
Total interest-earning assets 122,980 11,583 9.42
Noninterest-earning assets 14,295
-----------
Total assets $ 137,275
-----------
Interest-Bearing Liabilities
Certificates of deposit $ 57,072 $ 3,331 5.84%
Savings accounts 25,087 1,059 4.22
Interest-bearing demand 12,976 470 3.62
----------- ----------- -----------
Total interest-bearing
deposits 95,135 4,860 5.11
Federal Home Loan Bank advances 16,282 1,328 8.16
Other borrowings 7,730 735 9.51
----------- ----------- -----------
Total interest-bearing
liabilities 119,147 6,923 5.81
Demand and other noninterest-bearing deposits 3,416
Other noninterest-bearing liabilities 5,673
Shareholders' equity 9,039
-----------
Total liabilities and
shareholders' equity $ 137,275
----------- ----------- -----------
Net interest revenue $ 4,660
----------- ----------- -----------
Net interest spread 3.61%
----------- ----------- -----------
Net interest margin 3.79%
----------- ----------- -----------
Average interest-earning assets to average
interest-bearing liabilities 103.22%
----------- ----------- -----------
</TABLE>
1 Loans on a nonaccrual status have been included in the computation of
average balances.
2 Real estate average balances include real estate construction loans.
COLUMBIA BANKING SYSTEM, INC.
page 63.
<PAGE> 66
corporate directory
Board of
Directors
W. Barry Connoley
President and
Chief Executive Officer,
MultiCare Medical Center
Richard S. DeVine
President,
Chinook Resources, Inc.
Chairman, Raleigh,
Schwarz & Powell, Inc.
A. G. Espe
Chairman and
Chief Executive Officer,
Columbia Banking System, Inc.
Chairman, Columbia Bank
Jack Fabulich
Chairman, Parker Paint
Manufacturing Co., Inc.
President and Commissioner,
Port of Tacoma
Jonathan Fine
Chief Operating Officer,
American Red Cross,
Seattle-King County Chapter
Margel S. Gallagher
President, Viva Imports, Ltd.
John A. Halleran
Private Investor
W. W. Philip
President and
Chief Operating Officer,
Columbia Banking System, Inc.
President and Chief Executive
Officer, Columbia Bank
John H. Powell
President and Co-owner,
Sound Oil Company
Robert E. Quoidbach
Private Investor
Donald Rodman
Owner and Vice President,
Rodman Realty, Inc.
Frank H. Russell
President, Professional Services
Unified, Inc. and
Quality Meal Expeditors
Sidney R. Snyder
Washington State Senator,
Owner of Sid's Food Market
and Midtown Market
James M. Will
President,
Titus-Will Enterprises
Executive
Officers
A. G. Espe
Chairman and
Chief Executive Officer
W. W. Philip
President and
Chief Operating Officer
Donald A. Andersen
Senior Vice President,
Loan Administration
Julie A. Healy
Senior Vice President,
Operations Manager
H. R. Russell
Senior Vice President,
Loan Production
Gary R. Schminkey
Senior Vice President,
Chief Financial Officer
Evans Q. Whitney
Senior Vice President,
Human Resources Director
Senior Officers
Stan Ausmus
Senior Vice President,
Puyallup Branch Manager
Melanie J. Dressel
Senior Vice President,
Private Banking Manager
Alan W. Fulp
Senior Vice President,
Bellevue Branch Manager
Bret M. Gagliardi
Senior Vice President,
Commercial Loans,
Kent Valley
Gary Gahan
Senior Vice President,
Private Banking
Kurt Graff
Senior Vice President,
Lakewood Branch Manager
Eugene Horan
Senior Vice President,
Fircrest Branch Manager
Trent Jonas
Senior Vice President,
Commercial Loans,
Gig Harbor
Gary Lindberg
Senior Vice President,
Commercial Loans
Richard B. Martinez
Senior Vice President,
Private Banking, Bellevue
Samuel R. Noel
Executive Vice President,
Southwest Region
Ronald D. Staples
Senior Vice President,
Allenmore Branch Manager
Loran W. Todd
Senior Vice President,
General Auditor
Rick W. Tunnell
Senior Vice President,
Real Estate
Brett R. Willis
Senior Vice President,
Commercial Loans
Kenneth M. Yokoyama
Senior Vice President,
Commercial Loans, Bellevue
COLUMBIA BANKING SYSTEM, INC.
page 64.
<PAGE> 67
shareholder information
Corporate
Headquarters
Columbia Banking System, Inc.
1102 Broadway Plaza
P.O. Box 2156
Tacoma, WA 98401-2156
(206) 305-1900*
Independent
Accountants
Price Waterhouse LLP
Transfer Agent
and Registrar
American Stock Transfer &
Trust Company
Market
Makers
Alex. Brown & Sons Inc.
Dain Bosworth, Inc.
Dean Witter Reynolds, Inc.
Everen Securities, Inc.
Herzog, Heine, Geduld, Inc.
Keefe, Bruyette & Woods, Inc.
Ragen MacKenzie Inc.
Legal Counsel
Gordon, Thomas, Honeywell,
Malanca, Peterson & Daheim,
PLLC
Annual Meeting
Sheraton Tacoma Hotel
1320 Broadway Plaza
Tacoma, Washington
Wednesday, April 23, 1997
1:00 p.m.
Stock
Listing
The Company's common
stock trades on the Nasdaq
National Market tier of
The Nasdaq Stock Market(sm)
under the symbol: COLB.
Form 10-K Report
Upon request, Columbia
Banking System provides to
shareholders a copy of the
1996 Annual Report on
Form 10-K, as filed with
the Securities and Exchange
Commission. There is no
charge for this information.
Quarterly
Reporting
In the interest of providing
financial results in a timely
and cost-effective manner,
the Company does not
publish a formal quarterly
report. A copy of the
quarterly earnings news
release is available upon
request.
Immediate access to
the Company's quarterly
earnings news release via
facsimile is provided by
Company News On Call:
(800) 758-5804,
access #152519
For shareholder information,
please contact:
Kristen Kopay
Marketing Officer
Corporate Communications
P.O. Box 2156, MS 8300
Tacoma, WA 98401-2156
tel (206) 305-1965*
fax (206) 305-0317*
E-mail: [email protected]
* area code will change
to (253) effective
April 25, 1997
COLUMBIA BANKING SYSTEM, INC.
page 65
<PAGE> 68
locations
Pierce County
Main Office
1102 Broadway Plaza
Tacoma, WA 98402
(206) 305-1920*
John Collins
Allenmore
1959 South Union
Tacoma, WA 98405
(206) 627-6909*
Ron Staples
Edgewood/Milton
900 Meridian E., Suite 17
Milton, WA 98354
(206) 952-6646*
Michael Butcher
[A map of Western Washington
indicating the Company's market
area with existing and approved
branch locations marked by
location.]
Fircrest
2401 Mildred Street W.
Fircrest, WA 98466
(206) 566-1172*
Gene Horan
Gig Harbor
5311 Point Fosdick Dr. N.W.
Gig Harbor, WA 98335
(206) 858-5105*
Marilyn Naylor
Lakewood
6202 Mount Tacoma Dr. S.W.
Lakewood, WA 98499
(206) 581-4232*
Kurt Graff
Old Town
2200 North 30th Street
Tacoma, WA 98403
(206) 272-0412*
Priscilla May
Puyallup
4220 S. Meridian
Puyallup, WA 98373
(206) 770-0770*
Stan Ausmus
South Hill Mall
3500 S. Meridian, Suite 503
Puyallup, WA 98373
(206) 770-8161*
Robin Conrads
Stacy Gibson
Spanaway
220 South 175th
Spanaway, WA 98387
(206) 539-3094*
Joy Johnson
Summit
10409 Canyon Road E.
Puyallup, WA 98373
(206) 770-9323*
Mike Williams
King County
Bellevue
777 108th Avenue N.E., Suite 100
Bellevue, WA 98004
(206) 646-9696+
Alan Fulp
Bellevue Way (February 1997)
10350 N.E. 10th Street
Bellevue, WA 98004
(206) 452-7323+
Stacy Sullivan
Federal Way
33370 Pacific Highway S.
Federal Way, WA 98003
(206) 925-9323
Chuck Folsom
Kent (March 1997)
112 Washington Avenue N.
Kent, WA 98032
(206) 852-0475*
Patty Osthus
Cowlitz County
Commerce
1338 Commerce Avenue
Longview, WA 98632
(360) 636-9200
Barbara Perret-Brusco
30th Avenue
2207 30th Avenue
Longview, WA 98632
(360) 423-8760
Sheryl Vlach
Woodland
782 Goerig Street
Woodland, WA 98674
(360) 225-9421
Carol Rounds
* area code will change
to (253) effective
April 25, 1997
+ area code will change
to (425) effective
April 25, 1997
COLUMBIA BANKING SYSTEM, INC.
page 66
<PAGE> 69
[ COLUMBIA BANK LOGO ]
1102 BROADWAY PLAZA
TACOMA, WASHINGTON 98402
www.columbiabank.com
<PAGE> 1
Exhibit 24
<PAGE> 2
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints Arnold G. Espe, W. W. Philip and J.
James Gallagher, or either of them, as his attorney to sign, in his name and
behalf and in any and all capacities stated below, the Company's Form 10-K
Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934,
and likewise to sign any and all amendments and other documents relating
thereto as shall be necessary, such person hereby granting to each such
attorney power to act with or without the other and full power of substitution
and revocation, and hereby ratifying all that any such attorney or his
substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 26 day of February, 1997.
Signature Title
/s/ W. Barry Connoley Director
- ---------------------------------
W. Barry Connoley
<PAGE> 3
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints Arnold G. Espe, W. W. Philip and J.
James Gallagher, or either of them, as his attorney to sign, in his name and
behalf and in any and all capacities stated below, the Company's Form 10-K
Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934,
and likewise to sign any and all amendments and other documents relating
thereto as shall be necessary, such person hereby granting to each such
attorney power to act with or without the other and full power of substitution
and revocation, and hereby ratifying all that any such attorney or his
substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 26 day of February, 1997.
Signature Title
/s/ Richard S. DeVine Director
- ---------------------------------
Richard S. DeVine
<PAGE> 4
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints Arnold G. Espe, W. W. Philip and J.
James Gallagher, or either of them, as his attorney to sign, in his name and
behalf and in any and all capacities stated below, the Company's Form 10-K
Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934,
and likewise to sign any and all amendments and other documents relating
thereto as shall be necessary, such person hereby granting to each such
attorney power to act with or without the other and full power of substitution
and revocation, and hereby ratifying all that any such attorney or his
substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 26 day of February, 1997.
Signature Title
/s/ Jack Fabulich Director
- ---------------------------------
Jack Fabulich
<PAGE> 5
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints Arnold G. Espe, W. W. Philip and J.
James Gallagher, or either of them, as his attorney to sign, in his name and
behalf and in any and all capacities stated below, the Company's Form 10-K
Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934,
and likewise to sign any and all amendments and other documents relating
thereto as shall be necessary, such person hereby granting to each such
attorney power to act with or without the other and full power of substitution
and revocation, and hereby ratifying all that any such attorney or his
substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 26 day of February, 1997.
Signature Title
/s/ Jonathan Fine Director
- ---------------------------------
Jonathan Fine
<PAGE> 6
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints Arnold G. Espe, W. W. Philip and J.
James Gallagher, or either of them, as his attorney to sign, in his name and
behalf and in any and all capacities stated below, the Company's Form 10-K
Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934,
and likewise to sign any and all amendments and other documents relating
thereto as shall be necessary, such person hereby granting to each such
attorney power to act with or without the other and full power of substitution
and revocation, and hereby ratifying all that any such attorney or his
substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 26 day of February, 1997.
Signature Title
/s/ Margel Gallagher Director
- ---------------------------------
Margel Gallagher
<PAGE> 7
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints Arnold G. Espe, W. W. Philip and J.
James Gallagher, or either of them, as his attorney to sign, in his name and
behalf and in any and all capacities stated below, the Company's Form 10-K
Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934,
and likewise to sign any and all amendments and other documents relating
thereto as shall be necessary, such person hereby granting to each such
attorney power to act with or without the other and full power of substitution
and revocation, and hereby ratifying all that any such attorney or his
substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 26 day of February, 1997.
Signature Title
/s/ John A. Halleran Director
- ---------------------------------
John A. Halleran
<PAGE> 8
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints Arnold G. Espe, W. W. Philip and J.
James Gallagher, or either of them, as his attorney to sign, in his name and
behalf and in any and all capacities stated below, the Company's Form 10-K
Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934,
and likewise to sign any and all amendments and other documents relating
thereto as shall be necessary, such person hereby granting to each such
attorney power to act with or without the other and full power of substitution
and revocation, and hereby ratifying all that any such attorney or his
substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 26 day of February, 1997.
Signature Title
/s/ Robert Quoidbach Director
- ---------------------------------
Robert Quoidbach
<PAGE> 9
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints Arnold G. Espe, W. W. Philip and J.
James Gallagher, or either of them, as his attorney to sign, in his name and
behalf and in any and all capacities stated below, the Company's Form 10-K
Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934,
and likewise to sign any and all amendments and other documents relating
thereto as shall be necessary, such person hereby granting to each such
attorney power to act with or without the other and full power of substitution
and revocation, and hereby ratifying all that any such attorney or his
substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 26 day of February, 1997.
Signature Title
/s/ Donald Rodman Director
- ---------------------------------
Donald Rodman
<PAGE> 10
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints Arnold G. Espe, W. W. Philip and J.
James Gallagher, or either of them, as his attorney to sign, in his name and
behalf and in any and all capacities stated below, the Company's Form 10-K
Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934,
and likewise to sign any and all amendments and other documents relating
thereto as shall be necessary, such person hereby granting to each such
attorney power to act with or without the other and full power of substitution
and revocation, and hereby ratifying all that any such attorney or his
substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 26 day of February, 1997.
Signature Title
/s/ Frank Russell Director
- ---------------------------------
Frank Russell
<PAGE> 11
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints Arnold G. Espe, W. W. Philip and J.
James Gallagher, or either of them, as his attorney to sign, in his name and
behalf and in any and all capacities stated below, the Company's Form 10-K
Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934,
and likewise to sign any and all amendments and other documents relating
thereto as shall be necessary, such person hereby granting to each such
attorney power to act with or without the other and full power of substitution
and revocation, and hereby ratifying all that any such attorney or his
substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 26 day of February, 1997.
Signature Title
/s/ Sidney R. Snyder Director
- ---------------------------------
Sidney R. Snyder
<PAGE> 12
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints Arnold G. Espe, W. W. Philip and J.
James Gallagher, or either of them, as his attorney to sign, in his name and
behalf and in any and all capacities stated below, the Company's Form 10-K
Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934,
and likewise to sign any and all amendments and other documents relating
thereto as shall be necessary, such person hereby granting to each such
attorney power to act with or without the other and full power of substitution
and revocation, and hereby ratifying all that any such attorney or his
substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 26 day of February, 1997.
Signature Title
/s/ James M. Will, Jr. Director
- ---------------------------------
James M. Will, Jr.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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