<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission File Number 0-20288
COLUMBIA BANKING SYSTEM, INC.
(Exact name of small business issuer 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)
(253) 305-1900
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the issuer: (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
The number of shares of the issuer's Common Stock outstanding at
July 30, 1999 was 10,593,223.
<PAGE>
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Page
Item 1. Financial statements
Consolidated Statements of Operations - three months and
six months ended June 30, 1999 and 1998 2
Consolidated Balance Sheets - June 30, 1999
and December 31, 1998 3
Consolidated Statements of Shareholders' Equity -
twelve months ended December 31, 1997 and 1998,
and six months ended June 30, 1999 4
Consolidated Statements of Cash Flows -
six months ended June 30, 1999 and 1998 5
Notes to consolidated financial statements 6
Item 2. Management Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Qualitative and Quantitative Disclosures about Market Risk 19
PART II -- OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders 20
Item 6. Exhibits and reports on Form 8-K 20
Signatures 21
1
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CONSOLIDATED STATEMENTS OF OPERATIONS
Columbia Banking System, Inc.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands except per share) 1999 1998 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans $18,548 $16,522 $36,027 $32,375
Securities available for sale 1,416 1,100 2,855 2,158
Securities held to maturity 73 110 154 246
Deposits with banks 136 153 488 513
- -----------------------------------------------------------------------------
Total interest income 20,173 17,885 39,524 35,292
Interest Expense
Deposits 7,864 7,023 15,581 13,872
Federal Home Loan Bank advances 499 549 839 1,076
- -----------------------------------------------------------------------------
Total interest expense 8,363 7,572 16,420 14,948
Net Interest Income 11,810 10,313 23,104 20,344
Provision for loan losses 600 450 1,200 1,000
- -----------------------------------------------------------------------------
Net interest income after
provision for loan losses 11,210 9,863 21,904 19,344
Noninterest Income
Service charges and other fees 1,825 1,416 3,402 2,701
Mortgage banking 297 412 653 810
Other fees 1,899 1,043 3,310 1,880
- -----------------------------------------------------------------------------
Total noninterest income 4,021 2,871 7,365 5,391
Noninterest Expense
Compensation and employee benefits 4,829 3,889 9,668 7,660
Occupancy 1,631 1,206 3,278 2,329
Advertising and promotion 474 371 914 737
Data processing 502 453 984 860
Other 3,772 2,918 7,241 5,509
- -----------------------------------------------------------------------------
Total noninterest expense 11,208 8,837 22,085 17,095
Income before income taxes 4,023 3,897 7,184 7,640
Provision for income taxes 1,361 1,349 2,434 2,679
- -----------------------------------------------------------------------------
Net Income $ 2,662 $ 2,548 $ 4,750 $ 4,961
=============================================================================
Net income per common share:
Basic $ 0.25 $ 0.24 $ 0.45 $ 0.47
Diluted 0.25 0.23 0.44 0.46
Average number of common shares
outstanding 10,590 10,529 10,587 10,513
Average number of diluted common
shares oustanding 10,859 10,906 10,860 10,871
See accompanying notes to consolidated financial statements.
</TABLE>
2
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CONSOLIDATED BALANCE SHEETS
Columbia Banking System, Inc.
<TABLE>
<CAPTION>
June 30, December 31,
(in thousands) 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 58,679 $ 53,602
Interest-earning deposits with banks 6,688 22,816
Securities available for sale 84,221 93,726
Securities held to maturity 7,479 6,358
FHLB stock 6,131 5,550
Loans held for sale 6,643 10,023
Loans 934,329 828,639
Less: allowance for loan losses 9,981 9,002
- -----------------------------------------------------------------------------
Loans, net 924,348 819,637
Interest Receivable 6,944 6,420
Premises and equipment, net 38,207 37,077
Real estate owned 1,310 901
Other 6,288 3,809
- -----------------------------------------------------------------------------
Total Assets $1,146,938 $1,059,919
=============================================================================
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 183,533 $ 180,445
Interest-bearing 806,830 757,900
- -----------------------------------------------------------------------------
Total Deposits 990,363 938,345
Federal Home Loan Bank advances 57,250 25,000
Other liabilities 6,139 7,008
- ----------------------------------------------------------------------------
Total liabilities 1,053,752 970,353
Shareholders' equity:
Preferred stock (no par value)
Authorized, 2 million shares;
None outstanding
June 30, December 31,
Common stock (no par value) 1999 1998
--------- ----------
<S> <C> <C>
Authorized shares 47,250 47,250
Issued and outstanding 10,593 10,062 77,903 68,612
Retained Earnings 16,996 20,616
Unrealized gains (losses) on securities
available for sale, net of tax (1,713) 338
- -----------------------------------------------------------------------------
Total shareholders' equity 93,186 89,566
- -----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,146,938 $1,059,919
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Columbia Banking System, Inc.
<TABLE>
<CAPTION> Accumulated
Common stock Other Total
Number of Retained Comprehensive Shareholders'
(in thousands) Shares Amount Earnings Income (Loss) Equity
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 9,372 $62,980 $ 5,282 ($ 38) $68,224
Comprehensive income:
Net income for 1997 9,275
Change in unrealized gains and (losses)
on securities available for sale, net of tax 75
Total comprehensive income 9,350
Issuance of stock under stock option
and other plans 117 779 779
Issuance of shares of common stock--
5% stock dividend 391 4,142 (4,142)
- -----------------------------------------------------------------------------
Balance at
December 31, 1997 9,880 67,901 10,415 37 78,353
Comprehensive income:
Net income for 1998 10,201
Change in unrealized gains and (losses)
on securities available for sale, net of tax 301
Total comprehensive income 10,502
Issuance of stock under stock option
and other plans 182 711 711
- -----------------------------------------------------------------------------
Balance at
December 31, 1998 10,062 68,612 20,616 338 89,566
Comprehensive income:
Net income for 1999 4,750
Change in unrealized gains and (losses)
on securities available for sale, net of tax (2,051)
Total comprehensive income 2,699
Issuance of stock under stock option
and other plans (1) 27 921 921
Issuance of shares of common stock--
5% stock dividend 504 8,370 (8,370)
- -----------------------------------------------------------------------------
Balance at
June 30, 1999 10,593 $77,903 $16,996 ($1,713) $93,186
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
(1) Includes the amortization of restricted stock grants of which 33,075 shares
were issued and oustanding during 1996, and an additional 70,875 shares
were issued and oustanding during 1998.
4
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Banking System, Inc.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(in thousands) 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 4,750 $ 4,961
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 1,200 1,000
Losses on real estate owned (5)
Depreciation and amortization 1,389 900
Deferred income taxes benefit (1,066)
Net realized losses on sale of assets 2
(Increase) decrease in loans held for sale 3,380 (4,666)
Increase in interest receivable (524) (626)
Increase in interest payable 525 91
Net changes in other assets and liabilities (1,769) (876)
- -----------------------------------------------------------------------------
Net cash provided by operating activities 7,885 781
Investing Activities
Proceeds from maturities of securities
available for sale 14,109 20,849
Purchases of securities available for sale (8,731) (31,423)
Proceeds from maturities of mortgage-backed
securities available for sale 204 5,065
Proceeds from maturities of securities
held to maturity 860 2,750
Purchases of securities held to maturity (1,980) (325)
Loans originated and acquired, net of
principal collected (105,854) (68,148)
Purchases of premises and equipment (2,728) (6,486)
Proceeds from disposal of premises and equipment 2 1
Proceeds from sale of real estate owned 46
Other, net (7) 47
- -----------------------------------------------------------------------------
Net cash used by investing activities (104,125) (77,624)
Financing Activities
Net increase in deposits 52,018 89,529
Net increase in short-term borrowings 32,250
Repayment of FHLB advances and other long-term debt (5,000)
Proceeds from issuance of common stock 921 541
- -----------------------------------------------------------------------------
Net cash provided by financing activities 85,189 85,070
- -----------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (11,051) 8,227
Cash and cash equivalents at beginning of period 76,418 75,712
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 65,367 $ 83,939
=============================================================================
Supplemental information:
Cash paid for interest $ 15,895 $ 14,857
Cash paid for income taxes 2,670 2,776
Loans foreclosed and transferred to real estate owned 402 731
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Columbia Banking System, Inc.
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 banking services to small
and medium-sized businesses, professionals and other individuals through
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. Basis of Presentation
The interim unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with instructions to Form 10-Q. Accordingly, they do not
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 the interim periods included
herein have been made. The results of operations for the six months ended
June 30, 1999, are not necessarily indicative of results to be anticipated
for the year ending December 31, 1999. Certain amounts in the 1998 financial
statements have been reclassified to conform with the 1999 presentation. For
additional information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1998.
2. Stock Dividend
On April 28, 1999, the Company announced a 5% stock dividend payable on
May 26, 1999, to shareholders of record on May 12, 1999. 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.
3. Prospective Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards requiring that every derivative instrument
be recorded in the balance sheet measured at its fair value. This Statement
requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. The FASB has
delayed the implementation date of SFAS No. 133 for one year to fiscal years
beginning after June 15, 2000. The Company currently has no activity in
derivative instruments and hedging activities, and does not expect adopting
of SFAS No. 133 to have a material effect on the financial statements.
6
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CONSOLIDATED AVERAGE BALANCES--NET CHANGES
Columbia Banking System, Inc.
<TABLE>
<CAPTION>
Three Months Ended Increase Six Months Ended Increase
June 30, (Decrease) June 30, (Decrease)
(in thousands) 1999 1998 Amount 1999 1998 Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans $ 899,818 $731,906 $167,912 $869,801 $716,119 $153,682
Securities 100,441 78,753 21,688 101,885 76,960 24,925
Interest-earning
deposits with banks 11,449 11,085 364 20,587 18,683 1,904
- --------------------------------------------------------------------------------
Total interest-earning
assets 1,011,708 821,744 189,964 992,273 811,762 180,511
Noninterest-earning
assets 89,740 73,413 16,327 88,047 69,891 18,156
- --------------------------------------------------------------------------------
Total assets $1,101,448 $895,157 $206,291 $1,080,320 $881,653 $198,667
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing
deposits $ 786,675 $624,253 $162,422 $776,809 $617,875 $158,934
Federal Home Loan Bank
advances 37,907 39,707 (1,800) 31,622 39,398 (7,776)
- --------------------------------------------------------------------------------
Total interest-bearing
liabilities $824,582 663,960 160,622 808,431 657,273 151,158
Noninterest-bearing
deposits 176,905 142,320 34,585 173,104 136,565 36,539
Other noninterest-bearing
liabilities 6,596 5,506 1,090 6,439 5,718 721
Shareholders' Equity 93,365 83,371 9,994 92,346 82,097 10,249
- --------------------------------------------------------------------------------
Total liabilities and
shareholders'equity $1,101,448 $895,157 $206,291 $1,080,320 $881,653 $198,667
================================================================================
</TABLE>
7
<PAGE>
MANAGEMENT's DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Columbia Banking System, Inc.
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.
This discussion contains certain forward-looking statements within the meaning
of the federal securities laws. Actual results and the timing of certain
events could differ materially from those discussed in the forward-looking
statements due to a number of factors. Specific factors include, among
others, the effect of interest rate changes, risk associated with acquiring
other banks, or opening and acquiring new branches, controlling expenses, and
general economic conditions. Readers are cautioned not to place undue
reliance on the forward-looking statements since they reflect management's
analysis only as of the date of the statement.
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 27 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 June 30, 1999, the Company had total assets of $1.15 billion.
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 Company's business strategy is to provide its
customers with the financial sophistication and breadth of products of a
regional bank while retaining the appeal and service level of a community
bank. Management 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.
The Company's goal over the next several years is to create a well-capitalized,
customer focused, Pacific Northwest banking institution with a significant
presence in selected markets. The Company intends to effect this growth
strategy through a combination of growth at existing branch offices, new
branch openings (usually following the hiring of an experienced branch
manager and/or lending officer with strong community ties and banking
relationships) and acquisitions. In particular, the Company anticipates
continued expansion in Pierce County, north into King County (the location of
Auburn and Bellevue), south into Thurston County (the location of the state
capitol, Olympia) and northwest into Kitsap County (the location of Bremerton
and Port Orchard). Expansion by acquisition into other markets will be
considered as promising situations arise. In order to fund its 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 customer deposits and other borrowings. The Company
believes this mix of funding sources will enable it to expand lending
activities rapidly while attracting a stable core deposit base. In order to
support its strategy of growth, without compromising its personalized banking
approach or its commitment to asset quality, the Company has made significant
investments in experienced branch, lending and
8
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administrative personnel and has incurred significant costs related to its
branch expansion. Although the Company's expense ratios have improved since
1993, management anticipates that the ratios will remain relatively high by
industry standards for the foreseeable future due to the Company's aggressive
growth strategy and emphasis on convenience and personal service. Management
is placing increased emphasis on control of noninterest expense.
During the first six months of 1999 Columbia Bank opened two new branches.
In January, the Company opened a newly constructed branch in Port Orchard,
its first office in Kitsap County. Additionally, a new West Olympia branch
opened in temporary quarters in April and is the Company's first Thurston
County location. Both branches are full service facilities. The Company's
future plans include new locations in Pierce, King, Kitsap and Thurston
counties of western Washington. Management continues to pursue opportunities
for expansion via a combination of internal and external growth by
acquisition. New branches normally do not contribute to net income for many
months after opening.
At June 30, 1999, the Company had 27 branches, 15 in Pierce County, 6 in King
County, 4 in Cowlitz County, 1 in Kitsap County, and 1 in Thurston County.
Since beginning its major Pierce County expansion in August 1993, the Company
has grown from four to twenty-seven branches through a combination of
internal and external growth by acquisition.
In addition to the ongoing expansion of its branch network, the Company
continuously reviews new products and services to give its customers more
banking options. In addition, new technology and services are reviewed for
business development and cost saving purposes. During the first quarter of
1999, the Company opened an International Banking division located in
downtown Tacoma. The division serves local businesses and individuals
involved in international trade by providing letters of credit, wire
transfers, and foreign currency. During the first quarter of 1999, the
Company also made an equity investment in Manzanita Capital, Inc., a newly
formed holding company which owns all of the outstanding common stock of
The Trust Company of Washington, a non-depository trust and investment
company, and McAdams Wright Ragen, a full service brokerage and advisory firm.
Management expects that the services provided by these companies will expand
and compliment the services provided by Columbia Bank in a cost-effective
manner and will assist in carrying out the Company's growth strategy.
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 Washington economy and that
of the Puget Sound region generally have experienced strong growth and
stability in recent years. The Pierce County Economic Index, a regional
publication providing economic forecasts and commentary, reports that "Five
years after it started in late 1992, the Pierce County economy continued its
growth through the first half of 1998. The local economy has grown at an
average rate of just under 2.5%, that's 0.5% above the long-term historical
growth rate." In the third quarter of 1998 the Company was named in the
Fortune magazine annual ranking of America's 100 fastest growing companies
as judged by earnings growth. The Company was the only banking company on
the list and was ranked 82nd.
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 and merchant services. The Company's operating expenses consist
primarily of compensation and employee benefit expense, occupancy expense,
and merchant services and bank card expenses. 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.
9
<PAGE>
Net income for the second quarter of 1999 was $2.7 million, or $0.25 per share
(diluted), compared to $2.5 million, or $0.23 per share (diluted), for the
second quarter of 1998, an increase in net income of 4.5%. Net income for the
six months ended June 30, 1999, was $4.8 million, or $0.44 per share, down
4.3% compared with $5.0 million, or $0.46 per share for the same period in
1998. The earnings increase for the second quarter reflects significant
growth in assets, loans and deposits as compared to the quarter ended
June 30, 1998, and to continued increases in noninterest income. The decrease
in net income for the six months ended June 30, 1999 is due largely to a
disappointing first quarter of 1999, with per share (diluted) earnings of
$0.19 per share, which resulted from increased expenses associated with
branch and infrastructure expansion, coupled with loan growth that was later
and slightly less than expected. Management has reemphasized cost controls
as a high priority and will continue taking steps to control expenses, while
continuing to pursue its growth strategy.
On April 28, 1999, the Company announced a 5% stock dividend payable on
May 26, 1999, to shareholders of record on May 12, 1999. 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.
Net Interest Income
Net interest income for the second quarter of 1999 increased 15% to
$11.8 million, from $10.3 million in the second quarter of 1998. For the
first six months of 1999, net interest income increased 14% to $23.1 million
from $20.3 million for the same period in 1998. The 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. During the
first six months of 1999, average interest-earning assets increased
$180.5 million, while average interest-bearing liabilities increased only
$151.2 million, compared with the same period in 1998.
Net interest margin (net interest income divided by average interest-earning
assets) decreased to 4.70% in the second quarter of 1999 from 5.03% in the
second quarter of 1998. Average interest-earning assets grew to $1.0 billion
during the second quarter of 1999, compared with $821.7 million for the
period in 1998. The average yield on interest-earning assets decreased 0.72%
to 8.01% during the second quarter of 1999 from 8.73% in the same period of
1998. In comparison, the average cost of interest-bearing liabilities
decreased 0.50% to 4.07% during the second quarter of 1999 from 4.57% in
the same period of 1998.
For the first six months of 1999, net interest margin decreased to 4.71% from
5.05% for the same period in 1998. Average interest-earning assets grew to
$992.3 million during the first six months of 1999, compared with
$811.8 million for the same period in 1998. The average yield on
interest-earning assets decreased 0.72% to 8.05% during the first six months
of 1999 from 8.77% in the same period of 1998. In comparison, the average
cost of interest-bearing liabilities decreased 0.49% to 4.10% during the
first six months of 1999 from 4.59% in the same period of 1998.
For the first six months of 1999 compared to the same period in 1998, the
decrease in net interest margin is primarily due to decreasing interest
rates and to average deposit growth exceeding average loan growth with
consequent investments in lower yielding assets. Competition and declining
interest rates have caused loan yields to decline to a greater degree than
corresponding decreases in deposit and borrowing costs, causing the net
interest margin to decrease. Interest rates in general exhibited a downward
trend during 1998 and were generally stable during the first quarter of 1999,
but exhibited a slight upward trend during the second quarter of 1999.
During the first six months of 1999, average loan growth of $102.3 million
exceeded average deposit growth of $63.6 million, and during the second
quarter ended June 30, 1999, average loan growth was $60.3 million while
average deposit growth was $27.5 million. Average borrowings during the
first six months of 1999 grew $11.2 million, and during thesecond quarter
average borrowings grew $12.6 million.
10
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Noninterest Income
Noninterest income increased $1.2 million, or 40%, in the second quarter of
1999, and $2.0 million, or 37%, for the first six months of 1999, compared
with the same periods in 1998, respectively, despite decreases in mortgage
banking income. Increases during the second quarter and the first six months
of 1999, were primarily centered in account service charges and merchant
services income. In general, increases in account service charges and
merchant services are due to the growth of the Company.
Noninterest Expense
Total noninterest expense increased $2.4 million, or 27%, for the second
quarter of 1999, and $5.0 million, or 29%, for the first six months of 1999,
compared with the same period in 1998. The increases were primarily due to
personnel costs associated with the Company's expansion as well as occupancy,
merchant services and bank card, and other expenses. The Company's efficiency
ratio (noninterest expense, excluding unusual and nonrecurring items, divided
by the sum of net interest income plus noninterest income, excluding unusual
and nonrecurring items) was 70.8% and 72.5% for the second quarter and
first six months of 1999, respectively, compared to 67.0% and 66.4% for the
same periods in 1998. The increases were primarily due to slower than
expected loan growth in the early first quarter of 1999 and expenses
associated with branch and infrastructure expansion. During the first quarter
of 1999, the Company reported an efficiency ratio of 74.3% and an increase in
noninterest expense of 32% over the same period in 1998. Early in 1999, the
Company reemphasized cost controls as shown by a decrease in the efficiency
ratio to 70.8% in the second quarter and a 3% increase in noninterest expense
compared with the first quarter of 1999. The portion of compensation expense
related to loan originations is deferred and deducted from interest income
over the life of the related loans. Slower loan originations translate
into slower interest income growth and lower deferrals of compensation
expense. 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.
Income Taxes
For the second quarter and first six months of 1999, the Company recorded
income tax provisions of $1.4 million and $2.4 million, respectively.
Credit Risk Management
The extension of credit in the form of loans or other credit substitutes to
individuals and businesses is a major portion of the Company's principal
business activity. Company policies and applicable laws and regulations
require risk analysis as well as ongoing portfolio and credit management. The
Company manages its credit risk through lending limit constraints, credit
review, approval policies and extensive, ongoing internal monitoring. The
Company also manages credit risk through diversification of the loan
portfolio by type of loan, type of industry, aggregation of debt limits to
a single borrower and the type of borrower.
In analyzing its existing portfolio, the Company reviews its consumer and
residential loan portfolios by risk rating each loan and analyzing their
performance as a pool of loans since no single loan is individually
significant or judged by its risk rating size or potential risk of loss. In
contrast, the monitoring process for the commercial business, real estate
construction, and commercial real estate portfolios includes periodic reviews
of individual loans with risk ratings assigned to each loan and performance
judged on a loan by loan basis. The Company reviews these loans to assess
the ability of the borrower to service all of its interest and principal
obligations and as a result the risk rating may be adjusted accordingly. In
the event that full collection of principal and interest is not reasonably
assured, the loan is appropriately downgraded and, if warranted, placed on
non-accrual status even though the loan may be current as to principal and
interest payments.
Loan policies, credit quality criteria, portfolio guidelines and other
controls are established under the guidance of the Company's chief credit
officer and approved, as appropriate, by the Board. Credit Administration,
11
<PAGE>
together with appropriate loan committees, has the responsibility for
administering the credit approval process. As another part of its control
process, the Company uses an independent internal credit review and
examination function to provide assurance that loans and commitments are
made and maintained as prescribed by its credit policies. This includes a
review of documentation when the loan is initially extended and subsequent
on-site examination to ensure continued performance and proper risk
assessment.
Lending Activities
The Company is a full service commercial bank, which originates a wide
variety of loans. Consistent with the trend begun in 1993, the Company
continues to have success originating commercial business and commercial
real estate loans.
The following table sets forth the Company's loan portfolio composition by
type of loan for the dates indicated:
<TABLE>
<CAPTION>
June 30, % of December 31 % of
(in thousands) 1999 Total 1998 Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $393,076 42.1% $332,638 40.1%
Real estate:
One-to four-family residential 56,943 6.1 61,132 7.4
Five or more family residential and
commercial properties 355,511 38.0 291,868 35.2
- -----------------------------------------------------------------------------
Total real estate 412,454 44.1 353,000 42.6
Real estate construction:
One-to four-family residential 18,265 2.0 26,444 3.2
Five or more family residential and
commercial properties 21,698 2.3 23,213 2.8
- -----------------------------------------------------------------------------
Total real estate construction 39,963 4.3 49,657 6.0
Consumer 90,690 9.7 94,572 11.4
- -----------------------------------------------------------------------------
Sub-total loans 936,183 100.2 829,867 100.1
Less: Deferred loan fees (1,854) (0.2) (1,228) (0.1)
- -----------------------------------------------------------------------------
Total loans $934,329 100.0% $828,639 100.0%
=============================================================================
Loans held for sale $ 6,643 $ 10,023
=============================================================================
</TABLE>
Total loans increased $105.7 million, or 13%, to $934.3 million from year-end
1998. Commercial business and commercial real estate were the only
categories contributing to the increase.
Commercial and Private Banking Lending
Commercial loans increased to $60.4 million, or 18%, to $393.1 million from
year-end 1998, representing 42.1% of total loans. Net growth in commercial
loans slowed during the first quarter of 1999 and rebounded during the second
quarter of 1999. Growth during the second quarter of 1999 was favorably
affected by continued emphasis on maintaining and expanding an aggressive
calling campaign whereby loan officers concentrated on traditional commercial
business loans and related borrowing needs. Management is committed to
provide competitive commercial lending in the Company's primary market areas.
The Company expects to continue to expand its commercial lending products
and to emphasize in particular its relationship banking with businesses,
business owners and professional individuals.
12
<PAGE>
Real Estate Lending
One- to Four-Family Residential. Residential one- to four-family loans
decreased $4.2 million to $56.9 million at June 30, 1999, representing 6.1%
of total loans, compared with $61.1 million at December 31, 1998. The
decrease is attributable to maturities and prepayments of the portfolio.
These loans are used by the Company to collateralize advances from 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.
Five or More Family Residential and Commercial Properties. The Company makes
multi-family and commercial real estate loans in its primary market areas.
Multi-family and commercial real estate lending increased to $355.5 million
at June 30, 1999, representing 38.0% of total loans, from $291.9 million at
December 31, 1998. The increase in multi-family and commercial real estate
lending in the first six months reflects a mix of owner occupied and income
property transactions. Generally, multi-family and commercial real estate
loans are made only to borrowers who have existing banking relationships with
the Company. Management believes that volumes in this category of loans will
increase at a slower rate during the balance of 1999. 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. Underwriting standards can be influenced by competition. The
Company endeavors to maintain the highest practical underwriting standards
while balancing the need to remain competitive in its lending practices.
Construction Loans
The Company originates a variety of real estate construction loans. One- to
four-family residential construction loans are originated 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. Construction loans on one- to
four-family residences decreased to $18.3 million at June 30, 1999,
representing 2.0% of total loans, from $26.4 million at December 31, 1998.
Multi-family and commercial real estate construction loans decreased to
$21.7 million at June 30, 1999, representing 2.3% of total loans, from
$23.2 million at December 31, 1998. The decrease is a result of growing
competition fueled in part by declining interest rates during 1998 as well
as management's intention to focus on commercial loans.
The Company endeavors to limit its construction lending risk through
adherence to strict underwriting procedures.
Consumer Lending
At June 30, 1999, the Company had $90.7 million of consumer loans outstanding,
representing 9.7% of total loans, as compared with $94.6 million at
December 31, 1998. The balance at December 31, 1998, included approximately
$10.0 million of short-term loans made to a group of individuals in
connection with a singular transaction which matured in early January 1999.
Consumer loans made by the Company include automobile loans, boat and
recreational vehicle financing, home equity and home improvement loans and
miscellaneous personal loans.
13
<PAGE>
Nonperforming Assets
Nonperforming assets 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.
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>
June 30, December 31,
(in thousands) 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual:
One-to four-family residential $ 582 $ 722
Commercial real estate 1,608 1,542
Commercial business 748 1,214
Consumer 223 125
- -----------------------------------------------------------------------------
Total 3,161 3,603
Restructured:
One-to four-family residential 15
One-to four-family residential construction 1,803 1,768
Commercial business 71
- -----------------------------------------------------------------------------
Total 1,874 1,783
- -----------------------------------------------------------------------------
Total nonperforming loans $ 5,035 $ 5,386
=============================================================================
Real estate owned $ 1,310 $ 901
=============================================================================
Total nonperforming assets $ 6,345 $ 6,287
=============================================================================
</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. The 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.
Nonperforming loans decreased to $5.0 million, or 0.54% of total loans
(excluding loans held for sale), at June 30, 1999, from $5.4 million, or
0.65% of total loans at December 31, 1998 due principally to decreases in
the commercial business category.
Nonaccrual loans and other nonperforming assets are centered in a small
number of lending relationships which management considers to be adequately
reserved. All nonperforming loans are to Washington businesses. Columbia
Bank is not involved with loans to foreign companies and foreign countries.
Real estate owned ("REO") increased to $1.3 million at June 30, 1999 from
$901,000 at December 31, 1998. During the second quarter of 1999, the Company
foreclosed on a $409,000 one-to four-family residential loan collateralized
by real estate and transferred the real estate to REO.
14
<PAGE>
Total nonperforming assets increased by approximately $58,000, at June 30,
1999 from its balance of $6.3 million at December 31, 1998. As a percentage
of period-end assets at June 30, 1999, nonperforming assets decreased to
0.55% from 0.59% of period-end assets at December 31, 1998.
Provision and Allowance for Loan Losses
The Company maintains an allowance for loan losses to absorb losses inherent
in the loan portfolio. The size of the allowance is determined through
quarterly assessments of the probable estimated losses in the loan portfolio.
The Company's methodology for making such assessments and determining the
adequacy of the allowance includes the following key elements:
1. Formula based allowances calculated on minimum thresholds and historical
performance of the portfolio for the past 5 years
2. Specific allowances for identified problem loans and/or portfolio segments
3. Unallocated allowance
In addition, the allowance incorporates the results of measuring impaired
loans as provided in the Statement of Financial Accounting Standards ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan", and SFAS No. 118,
which amended SFAS No. 114. These accounting standards prescribe the
measurement methods, income recognition and disclosures concerning impaired
loans.
On a quarterly basis (semi-annual in the case of economic and business
conditions reviews) the senior credit officers of the Company review with
Executive Management and the Board of Directors the various additional
factors that management considers when determining the adequacy of the
allowance. These factors include the following as of the applicable balance
sheet date:
1. Existing general economic and business conditions affecting the Company's
market place
2. Credit quality trends, including trends in nonperforming loans
3. Collateral values
4. Seasoning of the loan portfolio
5. Bank regulatory examination results
6. Findings of internal credit examiners
7. Duration of current business cycle
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, 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 June 30, 1999 increased $1.0 million to
$10.0 million from $9.0 million at December 31, 1998. The allowance for
loan losses as a percentage of loans (excluding loans held for sale at each
date) at June 30, 1999 decreased to 1.07% from 1.09% of loans at December 31,
1998. The decrease in the allowance as a percentage of loans was due to the
$105.7 million growth in loans during the first six months of 1999.
Net loan charge-offs amounted to $221,000 for the first six months of 1999
compared with net loan charge-offs of $563,000 for the same period in 1998.
During the first six months of 1999, the Company set aside a $1.2 million
provision for loan losses as compared with $1.0 million for the same period
in 1998.
15
<PAGE>
The following table sets forth at the dates indicated the changes in the
Company's allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 1999 1998 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $9,588 $8,987 $9,002 $8,440
Charge offs:
One-to-four family residential (1)
Commercial business (233) (458) (281) (495)
Consumer (8) (178) (32) (243)
- ----------------------------------------------------------------------------
Total charge-offs (241) (636) (314) (738)
Recoveries:
Commercial business 2 31 57 126
Consumer 32 45 36 49
- ----------------------------------------------------------------------------
Total recoveries 34 76 93 175
- ----------------------------------------------------------------------------
Net (charge-offs) recoveries (207) (560) (221) (563)
Provision charged to expense 600 450 1,200 1,000
- ----------------------------------------------------------------------------
Ending balance $9,981 $8,877 $9,981 $8,877
============================================================================
</TABLE>
The allowance for loan losses equaled 198% of nonperforming loans and 157%
of nonperforming assets at June 30, 1999.
Liquidity and Sources of Funds
The Company's primary sources of funds are customer deposits, advances from
the Federal Home Loan Bank of Seattle (the "FHLB") and brokered deposits.
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's deposit products include a wide variety of transaction accounts,
savings accounts and time deposit accounts. Total deposits increased $52.0
million, or 6%, to $990.4 million at June 30, 1999, from $938.3 million at
December 31, 1998.
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. Management anticipates continued use of such
deposits, as needed, to fund increasing loan demand. Brokered and other
wholesale deposits (excluding public deposits) increased $20.0 million to
$27.3 million, or 2.8% of total deposits at June 30, 1999.
Borrowings
The Company relies on short-term and long-term advances from the FHLB to
supplement its funding sources. FHLB advances increased $32.3 million to
$57.3 million at June 30, 1999 compared to a balance of $25.0 million at
December 31, 1998. All of the increase is in short-term FHLB advances for
funding strong second quarter loan growth. FHLB advances are secured by
one- to four-family real estate mortgages and certain other assets.
16
<PAGE>
Capital
Shareholders' equity at June 30, 1999, was $93.2 million compared with
$89.6 million at December 31, 1998. The increase is due primarily to net
income of $4.8 million during the first six months of 1999. Shareholders'
equity was 8.12% and 8.45% of total period-end assets at June 30, 1999, and
December 31, 1998, respectively.
Banking regulations require bank holding companies and banks to maintain a
minimum "leverage" ratio of core capital to adjusted quarterly average total
assets of at least 3%. At June 30, 1999, the Company's leverage ratio was
8.61%, compared with 8.72% at December 31, 1998. 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
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 9.36% and 10.34%,
respectively, at June 30, 1999, compared with 9.89% and 10.88%, respectively,
at December 31, 1998.
The Federal Deposit Insurance Corporation (the "FDIC") established the
qualifications necessary to be classified as a "well-capitalized" bank,
primarily for assignment of FDIC insurance premium rates. 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 June 30, 1999. Federal laws generally bar institutions which are not
well-capitalized from accepting brokered deposits. The FDIC has issued
rules which prohibit under-capitalized institutions from soliciting or
accepting such deposits. Adequately capitalized institutions are allowed
to solicit such deposits, but only to accept them if a waiver is obtained
from the FDIC.
Applicable federal and Washington state regulations restrict capital
distributions, including dividends by institutions such as Columbia Bank.
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. 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.
On April 28, 1999, the Company announced a 5% stock dividend payable on
May 26, 1999, to shareholders of record on May 12, 1999. 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.
Impact of the Year 2000 Issue (Y2K)
Many existing computer systems, including the systems used by the Company,
use only two digits to identify a year in the date field. These programs
were designed and developed without considering the impact of the upcoming
change in the century. If not corrected, many computer applications could
fail or create erroneous results by or at the Year 2000. Financial
institutions, such as Columbia, are dependent on many types of automated
computer systems for their day to day operations. The failure of any of
theses systems to recognize the year 2000 could have a material effect on
the Company's business, results of operations, and/or financial condition.
17
<PAGE>
The Company's State of Readiness: The Company currently is preparing its
operations for the year 2000 and has established a project team, which has
developed a project plan intended to insure that the Company will be Y2K
compatible well before December 31, 1999. The project plan incorporates
five phases: awareness, assessment, renovation, validation, and
implementation.
The awareness phase is ongoing and incorporates monthly updates to the
Board of Directors, management, and staff. In addition, shareholders and
customers are informed through mailings, financial reports and through the
Company's website. The Y2K project team meets monthly. Loan officers
have been trained in interviewing and surveying credit customers on the
state of readiness of their businesses and have begun those activities.
The Company has completed its assessment of all of its computer systems,
hardware, software, networks, telecommunications, ATM, property, and
equipment that could potentially be either directly or indirectly affected
by Y2K. The Company has identified all vendors that supply services and/or
products that could be considered critical to day-to-day operations to
determine if they are Y2K compatible. The Company is identifying all
customers who have a total borrowing relationship of $250,000 or more or
otherwise have the potential to adversely affect the Company's asset quality
or profitability if they do not become Y2K compatible and updating the status
of those relationships quarterly.
Based on its assessment, the Company has essentially completed renovating
all systems and equipment needing Y2K upgrades. In early October 1998, the
Company's data processing provider advised the Company that it had
successfully converted its systems to Y2K compatibility. Testing has been
completed and the Company's data processing system is fully compliant at
March 31, 1999. All other systems and equipment have been upgraded or are
in process of being upgraded.
The validation process involves testing all systems and equipment for Y2K
compatibility. Bank hardware has been tested and the Company has replaced
obsolete equipment as part of its normal business operations.
The implementation phase is ongoing and incorporates the development of
contingency plans for the century date change. The Company has developed a
year 2000 contingency plan, a credit risk mitigation plan, a liquidity
contingency plan, and ongoing disclosures and inquiries to customers and
vendors.
The Costs to Address the Company's Year 2000 Issues: The Company has expended
approximately $64,000 in staff time and travel expenses in addressing the Y2K
issue. Equipment upgrades are expected to cost approximately $562,000.
Much of the Company's equipment, such as PCs, has been upgraded as part of
normal business operations. The Company is relatively new and the majority
of its hardware and software are recent purchases or are being upgraded to
meet growth demands. The Company moved into a new state-of-the-art operations
center in August 1998. The center included the installation of new item
processing hardware and software, a new voice response unit, a new wire
transfer system, and a new optical storage system, all of which are Y2K
compatible. Future expenses cannot be predicted with certainty at this time;
however, management believes that expenses relating to meeting the Company's
Y2K challenges will not have a material effect on its operations or financial
performance.
The Risks of the Company's Year 2000 Issues: Although the Company has
prepared its operations for the century change, there can be no assurance
that forces beyond its control will not impact its operations. The Company
purchases systems, equipment, and data processing services from vendors and
suppliers. It also depends on many other vendors for various services needed
for day-to-day operations. The Company's customers could also be impacted
adversely by the century change and thereby impact the financial performance
of the Company. In spite of the Company's diligent efforts in assuring that
its outside suppliers, vendors and customers are Y2K ready, their can be no
assurance that when the century changes, certain systems, technology and
equipment of Columbia, its vendors and its customers will not be impacted
and consequently impact the operations of the Company.
18
<PAGE>
The Company's Contingency Plan: The Company has developed a comprehensive
Year 2000 contingency plan. Although the Company has taken precaution to
assure its technology is Y2K ready, it will continue to address possible
emergency scenarios. Testing of the contingency plan will take place through
1999.
The Company's new state-of-the-art operations center has a generator backup
to run the entire facility. All branch offices have special procedures in
order to operate without the usual telecommunications links so that, in the
event of a telecommunications failure, the Company is able to process its
data through a remote site.
Qualitative and Quantitative Disclosures about Market Risk
A number of measures are used to monitor and manage interest rate risk,
including income simulations and interest sensitivity (gap) analyses. An
income simulation model is the primary tool used to assess the direction and
magnitude of changes in net interest income resulting from changes in
interest rates. Key assumptions in the model include prepayment speeds on
certain assets, cash flows and maturities of other investment securities,
loan and deposit volumes and pricing. These assumptions are inherently
uncertain and, as a result, the model cannot precisely estimate net interest
income or precisely predict the impact of higher or lower interest rates on
net interest income. Actual results will differ from simulated results due
to timing, magnitude and frequency of interest rate changes and changes in
market conditions and management strategies, among other factors. At
June 30, 1999, based on the measures used to monitor and manage interest
rate risk, there has not been a material change in the Company's interest
rate risk since December 31, 1998. For additional information, refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" referenced in the Company's annual report on Form 10-K for the
year ended December 31, 1998.
19
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual shareholders meeting on April 28, 1999, for
the purpose of electing a Board of Directors.
All seventeen persons nominated were elected to hold office for the ensuing
year. Subsequent to that date, Mr. Gillenwater died. No replacement has been
named to fill the vacated board position as of this date.
Nominee Votes "For" Votes "Withheld"
- ----------------------------------------------------------------------------
Richard S. DeVine 6,620,098 63,546
Melanie J. Dressel 6,620,098 63,546
Jack Fabulich 6,620,098 63,546
Jonathan Fine 6,620,098 63,546
John P. Folsom 6,619,663 63,981
J. James Gallagher 6,619,663 63,981
Margel S. Gallagher 6,619,663 63,981
W. Kelso Gillenwater 6,620,098 63,546
John A. Halleran 6,620,098 63,546
Thomas L. Matson 6,619,663 63,981
William W. Philip 6,619,663 63,981
John H. Powell 6,619,663 63,981
Robert E. Quoidbach 6,619,663 63,981
Donald Rodman 6,619,663 63,981
Sidney R. Snyder 6,619,663 63,981
William T. Weyerhaeuser 6,619,663 63,981
James M. Will 6,620,098 63,546
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10
*(a) Amended employment agreement between the Company and
W. W. Philip effective January 1, 1998, except with respect to
sections 4.3 and 4.4 (granting restricted stock awards) which
are effective August 28, 1996 and January 28, 1998, respectively.
*(b) Amended employment agreement between the Company and
J.James Gallagher effective July 1, 1998, except with respect
to sections 4.3 (granting restricted stock awards) which is
effective April 22, 1998.
*(c) Employment agreement between the Company and Melanie J. Dressel
effective July 1, 1999.
*(d) Severance agreement between the Company and Harald R. Russell
effective June 23, 1999.
20
<PAGE>
*(e) Severance agreement between the Company and Evans Q. Whitney
effective June 23, 1999.
*(f) Severance agreement between the Company and Gary R. Schminkey
effective June 23, 1999.
*(g) Severance agreement between the Company and Donald A. Andersen
effective June 23, 1999.
*(h) Severance agreement between the Company and Janet D. Hildebrand
effective June 23, 1999.
Exhibit 11 - Statement re computation of per share net income
Exhibit 27 - Financial Data Schedule
(b) On March 25, 1999, the Company filed Form 8-K, announcing that first
quarter earnings per share will fall short of consensus estimates.
SIGNATURES
Pursuant to the requirements 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.
COLUMBIA BANKING SYSTEM, INC.
(Registrant)
Date July 30, 1999 By /s/ W. W. Philip
----------------------------- --------------------------------
W. W. Philip
Chairman and
Chief Executive Officer
Date July 30, 1999 By /s/ Gary R. Schminkey
----------------------------- ---------------------------------
Gary R. Schminkey
Executive Vice President and
Chief Financial Officer
21
<PAGE>
Exhibit 10(a)
AMENDED EMPLOYMENT AGREEMENT
THIS AMENDED EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into by and between Columbia State Bank, a Washington banking
corporation ("Columbia Bank") together with Columbia Banking System, Inc.,
a Washington corporation ("CBSI") (collectively, the "Employer"), and
W. W. PHILIP (the "Executive"). This amended Agreement, which amends the
Agreement which became effective on January 1, 1998 (except for the earlier
effectiveness of Sections 4.3 and 4.4 of that Agreement) is effective as of
July 1, 1999.
RECITALS
1. The terms and conditions of an Employment Agreement effective January 1,
1997 provided for Executive's service as the President and Chief Executive
Officer of Columbia Bank and the President and Chief Operating Officer of CBSI.
The term of that Employment Agreement expired on December 31, 1998
(the "Original Agreement").
2. On November 19, 1997, and following the passing of Mr. A. G. Espe,
Mr. Philip was appointed by the Board of Directors to serve as the Chairman,
President and Chief Executive Officer of Columbia Bank and CBSI.
3. Executive and the Board of Directors of CBSI and Columbia Bank extended
the term of Executive's service from December 31, 1998 to December 31, 1999,
and entered into an Agreement effective on January 1, 1998 (the "January 1,
1998 Agreement"), which superseded and replaced the terms and conditions of
the Original Agreement. This Agreement amends and restates the January 1,
1998 Agreement.
In consideration of the mutual promises made in this Agreement, the
parties agree as follows:
AGREEMENT
1. Employment.
Employer employs Executive and Executive accepts employment with Employer
on the terms and conditions set forth in this Agreement.
2. Term.
The term of this Agreement will commence as of January 1, 1998 and will
continue until December 31, 1999, unless extended or sooner terminated as
provided in this Agreement; provided that the 1996 Restricted Stock Award
described in Section 4.3 shall be granted effective August 28, 1996 and the
1998 Restricted Stock Award described in Section 4.4 shall be granted
effective January 28, 1998.
1
<PAGE>
3. Duties.
(a) Executive will be Chairman, President and Chief Executive Officer of
Columbia Bank and CBSI. In such capacities, and subject to the authority of
the Board of Directors of Columbia Bank and CBSI, as appropriate, Executive
will render the executive management and perform the tasks in connection
with the affairs of Columbia Bank and CBSI that are normal and customary to
the positions that he will hold.
(b) Executive will perform such other duties as may be appropriate to his
position and as may be prescribed from time to time by the Board, or that are
provided in the Bylaws, of Columbia Bank or CBSI. He will be the person to
whom all other officers of Columbia Bank and CBSI report.
(c) Executive will devote his best efforts and all necessary time,
attention, and effort to the business and affairs of Employer and its
affiliates, as such business and affairs now exist or hereafter may be
changed or supplemented, in order to properly discharge his responsibilities
under this Agreement. He may delegate such of his duties as he sees fit to
the other officers of CBSI or its subsidiaries.
4. Salary, Bonus, and Other Compensation.
4.1 Salary.
(a) During the term of this Agreement, Employer will pay Executive
an annual base salary of not less than $225,000 per year beginning January 1,
1998.
(b) CBSI will guarantee payment of any portion of Executive's
compensation that may be allocated to a subsidiary of CBSI.
(c) If this Agreement terminates prior to December 31, 1999, then
Employer will pay Executive such greater or lesser amount of the agreed
compensation as provided in Section 5.
4.2 Bonus. Executive will be eligible to participate in the bonus
pools, if any, that the Board of Columbia Bank or CBSI may establish for
senior executives, either under an executive incentive plan or otherwise.
4.3 1996 Restricted Stock Award.
(a) Grant of Restricted Stock Award. In order to reward Executive
for his outstanding prior service and to incent Executive to continue as a
director following his employment as a senior executive officer, CBSI has
granted to the Executive as a Restricted Stock Award a total of Twenty
Thousand (20,000) shares of the no par value common stock of CBSI (the "1996
Shares"). The date of grant was August 28, 1996.
(b) Consideration for Issuance of 1996 Shares. In consideration for
the issuance of the 1996 Shares, the Executive agrees to remain as an active
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executive officer and/or Board member of CBSI and Columbia Bank from August
28, 1996 through the period the 1996 Shares are subject to the escrow, as
provided herein. Should the Executive fail, without the express approval of
the Board of Directors or the Personnel and Compensation Committee of the
Board of Directors (the "Committee"), to remain in such capacity, the 1996
Shares will be redelivered by the Escrow Agent to CBSI and will be canceled.
CBSI will have no other remedy for such a breach.
(c) Escrow. The certificate(s) evidencing the 1996 Shares shall be
deposited in escrow immediately upon issuance by CBSI. Columbia Bank shall
act as Escrow Agent and, as such, shall hold the 1996 Shares subject to
delivery to the Executive or redelivery to CBSI in its corporate capacity,
all in accordance with the terms of this Agreement. The Executive hereby
grants an irrevocable power of attorney to the Escrow Agent to transfer and
deliver the 1996 Shares and the stock certificate(s) evidencing the same in
accordance with the terms and provisions of this Agreement and the directions
of the Board of Directors or the Committee.
(d) Escrow Stock Not Transferable. No transfer, pledge or other
disposition of the 1996 Shares may be made by the Executive so long as they
are held under and remain subject to the escrow.
(e) Term of Escrow. The 1996 Shares shall be subject to escrow
until August 28, 2001 unless sooner terminated in accordance with the terms
of this Employment Agreement.
(f) Dividends and Voting Rights. During the period while the 1996
Shares are held in escrow, all dividends payable with respect the such 1996
Shares shall be paid by the Escrow Agent directly to the Executive and the
Executive shall be entitled to exercise all voting rights with respect to
such 1996 Shares, all in the same manner and to the full extent as though
such 1996 Shares were held by the Executive free of the escrow.
(g) Release of Stock From Escrow. 1996 Shares held in escrow
pursuant to this Agreement shall be released from such escrow by the delivery
of the stock certificate(s) evidencing such 1996 Shares to the Executive (or,
in the case of death or disability of the Executive, to the Executive's
estate or legal guardian) at the earlier of:
(i) August 28, 2001;
(ii) The death or disability (as defined below) of the Executive;
(iii) The determination by the Board of Directors or the
Committee to authorize the release of such 1996 Shares to the Executive upon
the occurrence of any event that the Board or Committee determines to warrant
such release; or
(iv) The occurrence of a change in control, as defined in
Section 7.2 of this Agreement.
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(h) Termination of Service/Forfeiture of 1996 Shares. In the event
of the termination of service as an active executive officer and/or Board
member of CBSI or Columbia Bank during the period that the 1996 Shares are
held in escrow (and the 1996 Shares are not then released pursuant to the
provisions of Section 4.3(g) above), such 1996 Shares shall be forfeited to
CBSI and all rights of the Executive with respect thereto terminated, unless,
in the case of termination by act of Employer, the Board of Directors or the
Committee, within thirty (30) days following such termination, authorizes the
release of such 1996 Shares to Executive. Upon the expiration of such thirty
(30) day period without action by the Board or Committee to release such 1996
Shares to the Executive, the 1996 Shares shall be deemed forfeited and the
stock certificate(s) evidencing the same shall be redelivered to CBSI,
whereupon they shall be canceled and retired.
(i) Reliance by Escrow Agent. The Escrow Agent shall have no
liability for action in reliance upon any instructions delivered to it and
believed in good faith by it to be from the Board or the Committee.
4.4 1998 Restricted Stock Award.
(a) Grant of Restricted Stock Award. In order to reward Executive
for his service as Chairman, President and Chief Executive Officer for an
extended term and to incent Executive to continue as a director following his
employment as a senior executive officer, CBSI hereby grants and issues to
and in the name of the Executive as a Restricted Stock Award a total of
Twenty Thousand (20,000) shares of the no par value common stock of CBSI (the
"1998 Shares"). The date of grant is January 28, 1998.
(b) Consideration for Issuance of 1998 Shares. In consideration for
the issuance of the 1998 Shares, the Executive agrees to remain as an active
executive officer and/or Board member of CBSI and Columbia Bank from January
28, 1998 through the period the 1998 Shares are subject to the escrow, as
provided herein. Should the Executive fail, without the express approval of
the Committee, to remain in such capacity, the 1998 Shares will be redelivered
by the Escrow Agent to CBSI and will be canceled. CBSI will have no other
remedy for such a breach.
(c) Escrow. The certificate(s) evidencing the 1998 Shares shall be
deposited in escrow immediately upon issuance by CBSI. Columbia Bank shall
act as Escrow Agent and, as such, shall hold the 1998 Shares subject to
delivery to the Executive or redelivery to CBSI in its corporate capacity,
all in accordance with the terms of this Agreement. The Executive hereby
grants an irrevocable power of attorney to the Escrow Agent to transfer and
deliver the 1998 Shares and the stock certificate(s) evidencing the same in
accordance with the terms and provisions of this Agreement and the directions
of the Board of Directors or the Committee.
(d) Escrow Stock Not Transferable. No transfer, pledge or other
disposition of the 1998 Shares may be made by the Executive so long as they
are held under and remain subject to the escrow.
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(e) Term of Escrow. The 1998 Shares shall be subject to escrow
until April 1, 2002 or such earlier date in that year upon which the annual
meeting of shareholders shall be held unless sooner terminated in accordance
with the terms of this Employment Agreement.
(f) Dividends and Voting Rights. During the period while the 1998
Shares are held in escrow, all dividends payable with respect the such 1998
Shares shall be paid by the Escrow Agent directly to the Executive and the
Executive shall be entitled to exercise all voting rights with respect to
such 1998 Shares, all in the same manner and to the full extent as though
such 1998 Shares were held by the Executive free of the escrow.
(g) Release of Stock From Escrow. 1998 Shares held in escrow
pursuant to this Agreement shall be released from such escrow by the delivery
of the stock certificate(s) evidencing such 1998 Shares to the Executive (or,
in the case of death or disability of the Executive, to the Executive's
estate or legal guardian) at the earlier of:
(i) April 1, 2002 or such earlier date in that year upon which
the annual meeting of shareholders shall be held;
(ii) The mandatory retirement of Executive from service as a
director, as provided in Section 2.3 of CBSI's Bylaws and Section 2.1 of
Columbia Bank's Bylaws;
(iii) The death or disability (as defined below) of the
Executive;
(iv) The determination by the Board of Directors or the
Committee to authorize the release of such 1998 Shares to the Executive upon
the occurrence of any event that the Board or Committee determines to warrant
such release; or
(v) The occurrence of a change in control, as defined in
Section 7.2 of this Agreement.
(h) Termination of Service/Forfeiture of 1998 Shares. In the event
of the termination of service as an active executive officer and/or Board
member of CBSI or Columbia Bank during the period that the 1998 Shares are
held in escrow (and the 1998 Shares are not then released pursuant to the
provisions of Section 4.4(g) above), such 1998 Shares shall be forfeited to
CBSI and all rights of the Executive with respect thereto terminated, unless,
in the case of termination by act of Employer, the Board of Directors or the
Committee, within thirty (30) days following such termination, authorizes the
release of such 1998 Shares to Executive. Upon the expiration of such thirty
(30) day period without action by the Board or Committee to release such 1998
Shares to the Executive, the 1998 Shares shall be deemed forfeited and the
stock certificate(s) evidencing the same shall be redelivered to CBSI,
whereupon they shall be canceled and retired.
(i) Reliance by Escrow Agent. The Escrow Agent shall have no
liability for action in reliance upon any instructions delivered to it and
believed in good faith by it to be from the Board or the Committee.
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4.5 Benefits. In addition to the base salary and bonus payable or
potentially payable to Executive pursuant to this Section 4, Executive will
be entitled to receive benefits similar to those offered to other senior
executives of Employer.
5. Termination of Agreement.
5.1 Early Termination.
(a) This Agreement may be terminated at any time by the Board of
Employer or by Executive, and it shall terminate upon Executive's death or
disability. Any termination by the Board of Employer other than termination
for cause (as defined below) shall not prejudice Executive's right to
compensation or other benefits under this Agreement. Except as provided in
Section 7, if Executive voluntarily terminates his employment before December
31, 1999 he will be entitled to such payments as he would have the right to
receive upon termination for cause under subsection 5.1 (b).
(b) Except as provided in Section 7, if Employer terminates this
Agreement without cause, Employer shall pay Executive upon the effective date
of such termination all salary earned and all reimbursable expenses hereunder
incurred through such termination date and, in addition, liquidated damages
in an amount equal to the greater of two years' salary or salary for the
then-remaining term of the Agreement (without regard to the term) payable
hereunder; in such event, all forfeiture provisions regarding the Restricted
Stock Award shall lapse. If Employer terminates this Agreement for cause,
Employer shall pay Executive upon the effective date of such termination only
such salary earned and expenses reimbursable hereunder incurred through such
termination date. Executive shall have no right to receive compensation or
other benefits for any period after termination for cause.
(c) For purposes of this Agreement, the term "cause" shall mean
willful misfeasance or gross negligence in the performance of his duties,
conduct demonstrably and significantly harmful to Employer (including willful
violation of any final cease and desist order applicable to Employer or a
financial institution subsidiary), or conviction of a felony. For purposes
of this Agreement, "disability" shall mean a medically reimbursable physical
or mental impairment that may be expected to result in death, or to be of
long, continued duration, and that renders Executive incapable of performing
the duties required under this Agreement. The Board or the Committee, acting
in good faith, shall make the final determination of whether Executive is
suffering under any disability as herein defined and, for purposes of making
such determination, may require Executive to submit himself to a physical
examination by a physician mutually agreed upon by Executive and the Board or
the Committee at Employer's expense.
(d) In the event of termination of this Agreement by reason of
Executive's death or disability, all forfeiture provisions regarding the
Restricted Stock Award shall lapse.
5.2 Obligations. Except as otherwise provided in Section 7 or in
a particular option grant, Executive's rights, if any, to vested but
unexercised stock options will continue for a period of one year after
early termination, other than termination for cause. In the case of
termination for cause, Executive's unvested stock options, if any, shall
terminate immediately.
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6. Restrictive Covenant.
6.1 Noncompetition.
(a) Executive agrees that except as otherwise set forth in this
Agreement, he will not, during the term of this Agreement and for a period of
two years after the later of (i) expiration of the term of this Agreement, or
(ii) completion of service as an active executive officer and/or Board member
of CBSI or Columbia Bank pursuant to Section 4.3(b) of this Agreement,
directly or indirectly, become interested in, as principal shareholder,
director, or officer, any financial institution (other than an institution
controlled by, controlling, or under common control with Employer and its
affiliates) that competes within the State of Washington with Employer or any
of its affiliates, with respect to activities of the type performed by such
companies within such service area immediately prior to Executive's
termination.
(b) The restrictions concerning competition after termination as
contained in this Section 6.1 shall apply only in the event the Executive
voluntarily terminates his employment with Employer without good reason.
For purposes of this Agreement, termination for "good reason" shall mean
termination by Executive as a result of any material breach of this Agreement
by Employer, or any diminution of duties of Executive by the Board of either
Columbia Bank or CBSI. The provisions restricting competition by Executive
may be waived by the Employer.
6.2 Noninterference. During the noncompetition period described
in Section 6.1, Executive shall not solicit or attempt to solicit any other
employee of Employer or its affiliates to leave the employ of those companies,
or in any way interfere with the relationship between Employer and any other
employee of Employer or its affiliates.
6.3 Interpretation. If a court or any other administrative body
with jurisdiction over a dispute related to this Agreement should determine
that the restrictive covenants set forth above is unreasonably broad, the
parties authorize such court or administrative body to narrow the covenants
so as to make it reasonable, given all relevant circumstances, and to enforce
such revised covenants. The covenants in this paragraph shall survive
termination of this Agreement.
7. Change of Control.
7.1 Benefits. The parties recognize that a "change of control" of
Employer (as defined in Section 7.2) could be detrimental to Executive's
continued employment. Accordingly, in order to give further assurances to
the Executive to enter into this Agreement, if:
(a) There is a change of control of CBSI; and either
(b) Within 730 days of such change in control, Executive terminates
his employment with Employer; or
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(c) At any time from and after sixty days prior to the public
announcement by Employer of a transaction that will result in the change of
control, Employer (or its successor) terminates Executive's employment without
cause, then Executive, as of the date of termination of his employment,
subject to the remaining provisions of this Section 7.1, shall be paid or
provided with: (i) continued payment of his base salary and all benefits
provided for in this Agreement for a period of two years following
termination; and (ii) vesting of all stock options and lapse of all
restrictions with respect to the Restricted Stock Award shall occur. The
provisions of this Section 7.1 shall survive expiration of the term of the
Agreement.
7.2 Definition. For purposes of this Agreement, the term "change
of control" shall mean the occurrence of one or more of the following events:
(a) One person or entity acquiring or otherwise becoming the owner
of twenty-five percent or more of CBSI's outstanding common stock;
(b) Replacement of a majority of the incumbent directors of CBSI
or Columbia Bank by directors whose elections have not been supported by a
majority of the Board of either company, as appropriate; or
(c) Dissolution, or sale of fifty percent or more in value of the
assets, of either CBSI or Columbia Bank.
7.3 Reimbursement. In the event the provisions of this Agreement
result in imposition of a tax on Executive under the provisions of Internal
Revenue Code # 4999, Employer agrees to reimburse Executive for the same,
exclusive of any tax imposed by reason of receipt of reimbursement under
this Agreement.
8. Deferred Compensation Arrangement. Executive will be entitled to defer
the entire salary and bonus, if any, provided in Sections 4.1 and 4.2 of
this Agreement, for the years 1997, 1998 and 1999, which amounts shall
accrue interest at the rate paid on 2-year Treasury bills at January 1 of
each year, until paid, plus 2% compounded annually, all in accordance with
a nonqualified deferred compensation agreement to be entered into between
the parties.
9. Miscellaneous.
9.1 This Agreement contains the entire agreement between the
parties with respect to Executive's employment with Employer and his covenant
not to compete with Employer and its affiliates, and is subject to
modification or amendment only upon amendment in writing signed by both
parties.
9.2 This Agreement shall bind and inure to the benefit of the
heirs, legal representatives, successors, and assigns of the parties, except
that Employer's rights and obligations may not be assigned. The provisions
of Section 6.1 of this Agreement are intended to confer upon CBSI and its
subsidiaries and affiliates the benefits of Executive's covenant not to
compete.
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9.3 If any provision of this Agreement is invalid or otherwise
unenforceable, all other provisions shall remain unaffected and shall be
enforceable to the fullest extent permitted by law.
9.4 This Agreement is made with reference to and is intended to
be construed in accordance with the laws of the State of Washington. Venue
for any action arising out of or concerning this Agreement shall lie in
Pierce County, Washington. In the event of a dispute under this Agreement
not involving injunctive relief, the dispute shall be arbitrated pursuant to
the Superior Court Mandatory Arbitration Rules ("MAR") adopted by the
Washington State Supreme Court, irrespective of the amount in controversy.
This Agreement shall be deemed as stipulation to that effect pursuant to
MAR 1.2 and 8.1. The arbitrator, in his or her discretion, may award
attorney's fees to the prevailing party or parties.
9.5 Any notice required to be given under this Agreement to
either party shall be given by personal service or by depositing a copy
thereof in the United States registered or certified mail, postage prepaid,
addressed to the following address, or such other address as addressee
shall designate in writing:
Employer: 1102 Broadway
Tacoma, WA 98402
Executive: 100 Shore Acres Road S.W.
Tacoma, WA 98498
COLUMBIA STATE BANK
By: /s/ Richard S. Devine
Richard S. DeVine, Chairman,
Personnel & Compensation Committee
COLUMBIA BANKING SYSTEM, INC.
By: /s/ Richard S. Devine /s/ W.W. Philip
Richard S. DeVine, Chairman, W.W. Philip
Personnel & Compensation Committee Executive
Compensation Committee
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Exhibit 10(b)
AMENDED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into by and
between Columbia State Bank, a Washington banking corporation ("Columbia Bank")
together with Columbia Banking System, Inc., a Washington corporation ("CBSI")
(collectively, the "Employer"), and J. JAMES GALLAGHER (the "Executive").
This amended Agreement shall become effective as of July 1, 1999.
RECITALS
Executive has served as outside legal counsel to Employer and has substantial
knowledge of Employer's affairs and of the business of financial institutions
in general. Employer has incurred substantial growth and is looking to
continue expansion of its operations, with the assistance of Executive.
Executive and Employer have entered into an Employment Agreement effective
as of July 1, 1998, and desire to amend and restate that Agreement to read
as provided herein.
In consideration of the mutual promises made in this Agreement, the parties
agree as follows:
AGREEMENT
1. Employment.
Employer employs Executive and Executive accepts employment with Employer on
the terms and conditions set forth in this Agreement.
2. Term.
The term of this Agreement will commence as of July 1, 1998 and will continue
until June 30, 2003, unless extended or sooner terminated as provided in this
Agreement.
3. Duties.
(a) Executive will be Vice-Chairman of Columbia Bank and CBSI. In
such capacities, and subject to the authority of the Chairman and the Board
of Directors of Columbia Bank and CBSI, as appropriate, Executive will be
responsible for strategic planning, merger and acquisition activity, legal
and regulatory compliance and will in addition render the executive
management and perform the tasks in connection with the affairs of Columbia
Bank and CBSI that are normal and customary to the positions that he will
hold.
(b) Executive will perform such other duties as may be appropriate
to his position and as may be prescribed from time to time by the Chairman or
the Board, or that are provided in the Bylaws, of Columbia Bank or CBSI. He
will also report to the Chairman.
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(c) Executive will devote his best efforts and all necessary time,
attention, and effort to the business and affairs of Employer and its
affiliates, as such business and affairs now exist or hereafter may be
changed or supplemented, in order to properly discharge his responsibilities
under this Agreement. He may delegate such of his duties as he sees fit to
the other officers of CBSI or its subsidiaries.
4. Salary, Bonus, and Other Compensation.
4.1 Salary.
(a) during the term of this Agreement, Employer will pay Executive
an annual (calendar year) base salary of not less than $175,000 per year
(payable at the rate of $14,583.33 per month) beginning July 1, 1998.
(b) Columbia Bank will guarantee payment of any portion of
Executive's compensation that may be allocated to a subsidiary of CBSI.
(c) If this Agreement terminates prior to June 30, 2003, then
Employer will pay Executive such greater or lesser amount of the agreed
compensation as provided in Section 5.
4.2 Bonus. Executive will be eligible to participate in the bonus
pools, if any, that the Board of Columbia Bank or CBSI may establish for
senior executives, either under an executive incentive plan or otherwise.
4.3 1998 Restricted Stock Award. In order to further incent
Executive in his employment as a senior executive officer, CBSI hereby grants
and issues to and in the name of the Executive as a Restricted Stock Award
a total of fifteen thousand (15,000) shares of the no par value common stock
of CBSI (the " 1998 Shares"). The date of grant is July 1, 1998. The terms
and conditions of the Restricted Stock Award are as set forth in the
Restricted Stock Award Agreement with Executive effective as of July 1, 1998.
4.4 Benefits. In addition to the base salary and bonus payable
or potentially payable to Executive pursuant to this Section 4, Executive
will be entitled to receive benefits similar to those offered to other senior
executives of Employer.
5. Termination of Agreement.
5.1 Early Termination.
(a) This Agreement may be terminated at any time by the Board of
Employer or by Executive, and it shall terminate upon Executive's death or
disability. Any termination by the Board of Employer other than termination
for cause (as defined below) shall not prejudice Executive's right to
compensation or other benefits under this Agreement. Except as provided in
Section 7, if Executive voluntarily terminates his employment before June 30,
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2003 he will be entitled to such payments as he would have the right to
receive upon termination for cause under subsection 5.1 (b).
(b) Except as provided in Section 7, if Employer terminates this
Agreement without cause, Employer shall pay Executive upon the effective date
of such termination all salary earned, benefits accrued and all reimbursable
expenses hereunder incurred through such termination date and, in addition,
liquidated damages in an amount equal to the greater of (i) two years' salary,
or (ii) salary for the then-remaining term of the Agreement payable hereunder;
in such event, all forfeiture provisions regarding the Restricted Stock Award
shall lapse. If Employer terminates this Agreement for cause, Employer shall
pay Executive upon the effective date of such termination only such salary
earned, benefits accrued and expenses reimbursable hereunder incurred through
such termination date. Executive shall have no right to receive compensation
or other benefits for any period after termination for cause.
(c) For purposes of this Agreement, the term "cause" shall mean (i)
willful misfeasance or gross negligence in the performance of his duties; (ii)
conduct demonstrably and significantly harmful to Employer (including willful
violation of any final cease and desist order applicable to Employer or a
financial institution subsidiary); or (iii) conviction of a felony. For
purposes of this Agreement, "disability" shall mean a medically reimbursable
physical or mental impairment that may be expected to result in death, or to
be of long, continued duration, and that renders Executive incapable of
performing the duties required under this Agreement. The Board or the
Committee, acting in good faith, shall make the final determination of
whether Executive is suffering under any disability as herein defined and,
for purposes of making such determination, may require Executive to submit
himself to a physical examination by a physician mutually agreed upon by
Executive and the Board or the Committee at Employer's expense.
(d) In the event of termination of this Agreement by reason of
Executive's death or disability, all forfeiture provisions regarding the
Restricted Stock Award shall lapse.
5.2 Obligations. Except as otherwise provided in Section 7 or
in a particular option grant, Executive's rights, if any, to vested but
unexercised stock options will continue for a period of one year after early
termination, other than termination for cause. In the case of termination for
cause, Executive's unvested stock options, if any, shall terminate
immediately.
6. Restrictive Covenant.
6.1 Noncompetition.
(a) Executive agrees that except as otherwise set forth in this
Agreement, he will not, during the term of this Agreement and for a period
of two years after the later of (i) expiration of the term of this Agreement,
or (ii) completion of service as an active executive officer and/or Board
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member of CBSI or Columbia Bank, directly or indirectly, become interested
in, as principal shareholder, director, or officer, any financial institution
(other than an institution controlled by, controlling, or under common
control with Employer and its affiliates) that competes within the State of
Washington with Employer or any of its affiliates, with respect to activities
of the type performed by such companies within such service area immediately
prior to Executive's termination.
(b) The restrictions concerning competition after termination as
contained in this Section 6.1 shall apply only in the event that Executive
voluntarily terminates his employment with Employer without good reason. For
purposes of this Agreement, termination for "good reason" shall mean
termination by Executive as a result of any material breach of this Agreement
by Employer, or any diminution of duties of Executive by the Board of either
Columbia Bank or CBSI. The provisions restricting competition by Executive
may be waived by the Employer.
6.2 Noninterference. During the noncompetition period described
in Section 6.1, Executive shall not solicit or attempt to solicit any other
employee of Employer or its affiliates to leave the employ of those companies,
or in any way interfere with the relationship between Employer and any other
employee of Employer or its affiliates.
6.3 Interpretation. If a court or any other administrative body
with jurisdiction over a dispute related to this Agreement should determine
that the restrictive covenants set forth above is unreasonably broad, the
parties authorize such court or administrative body to narrow the covenants
so as to make it reasonable, given all relevant circumstances, and to enforce
such revised covenants. The covenants in this paragraph shall survive
termination of this Agreement.
7. Change of Control.
7.1 Benefits. The parties recognize that a "change of control"
of Employer (as defined in Section 7.2) could be detrimental to Executive's
continued employment. Accordingly, in order to give further assurances to
the Executive to enter into this Agreement, if:
(a) There is a change of control of CBSI; and either
(b) Within 730 days of such change in control, Executive
terminates his employment with Employer; or
(c) At any time from and after sixty days prior to the public
announcement by Employer of a transaction that will result in the change of
control, Employer (or its successor) terminates Executive's employment
without cause, then Executive, as of the date of termination of his
employment, subject to the remaining provisions of this Section 7.1, shall
be paid or provided with: (i) continued payment of his base salary and all
benefits provided for in this Agreement until two years following termination
or June 30, 2003, whichever is longer; and (ii) vesting of all stock options
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and lapse of all restrictions with respect to the Restricted Stock Award
shall occur. The provisions of this Section 7.1 shall survive expiration of
the term of the Agreement.
7.2 Definitions. For purposes of this Agreement, the term "change
of control" shall mean the occurrence of one or more of the following events:
(a) One person or entity acquiring or otherwise becoming the
owner of twenty-five percent or more of CBSI's outstanding common stock;
(b) Replacement of a majority of the incumbent directors of CBSI
or Columbia Bank by directors whose elections have not been supported by a
majority of the Board of either company, as appropriate; or
(c) Dissolution, or sale of fifty percent or more in value of
the assets, of either CBSI or Columbia Bank.
7.3 Reimbursement. In the event that performance in accordance
with the provisions of this Agreement results in imposition of a tax on
Executive under the provisions of Internal Revenue Code # 4999, Employer
agrees to reimburse Executive for the same, exclusive of any tax imposed by
reason of receipt of reimbursement under this Agreement.
8. Miscellaneous.
8.1 This Agreement contains the entire agreement between the
parties with respect to Executive's employment with Employer and his covenant
not to compete with Employer and its affiliates, and is subject to
modification or amendment only upon amendment in writing signed by both
parties.
8.2 This Agreement shall bind and inure to the benefit of the
heirs, legal representatives, successors, and assigns of the parties, except
that Employer's rights and obligations may not be assigned. The provisions
of Section 6.1 of this Agreement are intended to confer upon CBSI and its
subsidiaries and affiliates the benefits of Executive's covenant not to
compete.
8.3 If any provision of this Agreement is invalid or otherwise
unenforceable, all other provisions shall remain unaffected and shall be
enforceable to the fullest extent permitted by law.
8.4 This Agreement is made with reference to and is intended to
be construed in accordance with the laws of the State of Washington. Venue
for any action arising out of or concerning this Agreement shall lie in
Pierce County, Washington. In the event of a dispute under this Agreement
not involving injunctive relief, the dispute shall be arbitrated pursuant to
the Superior Court Mandatory Arbitration Rules ("MAR") adopted by the
Washington State Supreme Court, irrespective of the amount in controversy.
This Agreement shall be deemed as stipulation to that effect pursuant to
MAR 1.2 and 8.1. The arbitrator, in his or her discretion, may award
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attorney's fees to the prevailing party or parties.
8.5 Any notice required to be given under this Agreement to
either party shall be given by personal service or by depositing a copy
thereof in the United States registered or certified mail, postage prepaid,
addressed to the following address, or such other address as addressee shall
designate in writing:
Employer: 1102 Broadway Executive: 23 Lagoon Lane North
Tacoma, WA 98402 Lakewood, WA 98498
COLUMBIA STATE BANK
By: /s/ W.W. Philip
W.W. Philip
Its: Chairman, President and Chief Executive Officer
COLUMBIA BANKING SYSTEM, INC.
By: /s/ W.W. Philip
W.W. Philip
Its: Chairman, President and Chief Executive Officer
/s/ J. James Gallagher
J. James Gallagher
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Exhibit 10(c)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into by and
between Columbia State Bank, a Washington banking corporation ("Columbia Bank")
together with Columbia Banking System, Inc., a Washington corporation ("CBSI")
(collectively, the "Employer"), and MELANIE J. DRESSEL (the "Executive").
This Agreement shall become effective as of July 1,1999.
RECITALS
A. Executive is currently serving as Executive Vice President of CBSI and
President and Chief Operating Officer of Columbia Bank.
B. Employer considers the continuance of sound and vital management as
essential to protecting and enhancing Employer's best interests.
C. Employer desires to assure itself of retaining the exclusive services
of Executive and to continue the Employment of Executive under the terms of
this Agreement, and to reward Executive for her valuable, dedicated service
to Employer should her employment be terminated under the circumstances
described in this Agreement.
In consideration of the mutual promises made in this Agreement, the parties
agree as follows:
AGREEMENT
1. Employment.
Employer employs Executive and Executive accepts employment with Employer on
the terms and conditions set forth in this Agreement.
2. Term.
The term of this Agreement will commence as of July 1, 1999 and will continue
until June 30, 2004, unless extended or sooner terminated as provided in this
Agreement.
3. Duties.
(a) Executive will continue to serve as Executive Vice President of
CBSI and President and Chief Operating Officer of Columbia Bank. In such
capacities, and subject to the authority of the Chairman and the Board of
Directors of Columbia Bank and CBSI (separately or collectively, the "Board"
as applicable), as appropriate, Executive will render the executive
management services and perform such tasks in connection with the affairs of
Columbia Bank and CBSI that are normal and customary to the positions that
she holds.
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(b) Executive will perform such other duties as may be appropriate
to her position and as may be prescribed from time to time by the Chairman
or the Board, or that are provided in the Bylaws, of Columbia Bank or CBSI.
(c) Executive will devote her best efforts and all necessary time,
attention, and effort to the business and affairs of Employer and its
affiliates, as such business and affairs now exist or hereafter may be
changed or supplemented, in order to properly discharge her responsibilities
under this Agreement. She may delegate such of her duties as she sees fit
to the other officers of CBSI or its subsidiaries.
4. Salary, Bonus, and Other Compensation.
4.1 Salary.
(a) During the term of this Agreement, Employer will pay Executive
an annual (calendar year) base salary of not less than $150,000 per year
(payable at the rate of $12,500.00 per month) beginning July 1, 1999 and
$175,000 per year (payable at the rate of $14,583.33 per month) beginning
January 1, 2000.
(b) Columbia Bank will guarantee payment of any portion of
Executive's compensation that may be allocated to a subsidiary of CBSI.
(c) If this Agreement terminates prior to June 30, 2004, then
Employer will pay Executive such greater or lesser amount of the agreed
compensation as provided in Section 5.
4.2 Bonus. Executive will be eligible to participate in the bonus
pools, if any, that the Board of Columbia Bank or CBSI may establish for
senior executives, either under an executive incentive plan or otherwise.
4.3 Benefits. In addition to the base salary and bonus payable or
potentially payable to Executive pursuant to this Section 4, Executive will
be entitled to receive benefits similar to those offered to other senior
executives of Employer.
5. Termination of Agreement.
5.1 Early Termination.
(a) This Agreement may be terminated at any time by the Board of
Employer or by Executive, and it shall terminate upon Executive's death or
disability. Any termination by the Board of Employer other than termination
for cause (as defined below) shall not prejudice Executive's right to
compensation or other benefits under this Agreement. Except as provided in
Section 7, if Executive voluntarily terminates her employment before June 30,
2004 she will be entitled to such payments as she would have the right to
receive upon termination for cause under subsection 5.1 (b).
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(b) Except as provided in Section 7, if Employer terminates this
Agreement without cause, Employer shall pay Executive upon the effective date
of such termination all salary earned, benefits accrued and all reimbursable
expenses hereunder incurred through such termination date and, in addition,
liquidated damages in an amount equal to the greater of (i) two years' salary,
or (ii) salary for the then-remaining term of the Agreement payable hereunder.
If Employer terminates this Agreement for cause, Employer shall pay Executive
upon the effective date of such termination only such salary earned, benefits
accrued and expenses reimbursable hereunder incurred through such termination
date. Executive shall have no right to receive compensation or other benefits
for any period after termination for cause.
(c) For purposes of this Agreement, the term "cause" shall mean (i)
willful misfeasance or gross negligence in the performance of her duties; (ii)
conduct demonstrably and significantly harmful to Employer (including willful
violation of any final cease and desist order applicable to Employer or a
financial institution subsidiary); or (iii) conviction of a felony. For
purposes of this Agreement, "disability" shall mean a medically reimbursable
physical or mental impairment that may be expected to result in death, or to
be of long, continued duration, and that renders Executive incapable of
performing the duties required under this Agreement. The Board or the
Compensation Committee of the Board ("Committee"), acting in good faith,
shall make the final determination of whether Executive is suffering under
any disability as herein defined and, for purposes of making such d
etermination, may require Executive to submit himself to a physical
examination by a physician mutually agreed upon by Executive and the Board or
the Committee at Employer's expense.
5.2 Obligations. Except as otherwise provided in Section 7 or in
a particular option grant, Executive's rights, if any, to vested but
unexercised stock options will continue for a period of one year after early
termination, other than termination for cause. In the case of termination
for cause, Executive's unvested stock options, if any, shall terminate
immediately.
6. Restrictive Covenant.
6.1 Noncompetition.
(a) Executive agrees that except as otherwise set forth in this
Agreement, she will not, during the term of this Agreement and for a period
of two years after the later of (i) expiration of the term of this Agreement,
or (ii) completion of service as an active executive officer and/or Board
member of CBSI or Columbia Bank, directly or indirectly, become interested
in, as principal shareholder, director, or officer, any financial institution
(other than an institution controlled by, controlling, or under common
control with Employer and its affiliates) that competes within the State of
Washington with Employer or any of its affiliates, with respect to activities
of the type performed by such companies within such service area immediately
prior to Executive's termination.
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(b) The restrictions concerning competition after termination as
contained in this Section 6.1 shall apply only in the event that Executive
voluntarily terminates her employment with Employer without good reason. For
purposes of this Agreement, termination for "good reason" shall mean
termination by Executive as a result of any material breach of this Agreement
by Employer, or any diminution of duties of Executive by the Board of either
Columbia Bank or CBSI. The provisions restricting competition by Executive
may be waived by the Employer.
6.2 Noninterference. During the noncompetition period described
in Section 6.1, Executive shall not solicit or attempt to solicit any other
employee of Employer or its affiliates to leave the employ of those companies,
or in any way interfere with the relationship between Employer and any other
employee of Employer or its affiliates.
6.3 Interpretation. If a court or any other administrative body
with jurisdiction over a dispute related to this Agreement should determine
that the restrictive covenants set forth above is unreasonably broad, the
parties authorize such court or administrative body to narrow the covenants
so as to make it reasonable, given all relevant circumstances, and to enforce
such revised covenants. The covenants in this paragraph shall survive
termination of this Agreement.
7. Change of Control.
7.1 Benefits. The parties recognize that a "change of control" of
Employer (as defined in Section 7.2) could be detrimental to Executive's
continued employment. Accordingly, in order to give further assurances to
the Executive to enter into this Agreement, if:
(a) There is a change of control; and either
(b) Within 730 days of such change in control, Executive
terminates her employment with Employer; or
(c) At any time from and after sixty days prior to the public
announcement by Employer of a transaction that will result in the change of
control, Employer (or its successor) terminates Executive's employment
without cause, then Executive, as of the date of termination of her
employment, subject to the remaining provisions of this Section 7.1, shall be
paid or provided with: (i) continued payment of her base salary and all
benefits provided for in this Agreement until two years following termination
or June 30, 2004, whichever is longer; and (ii) vesting of all stock options
and lapse of all restrictions with respect to any restricted stock awards
shall occur. The provisions of this Section 7.1 shall survive expiration of
the term of the Agreement.
7.2 Definitions. For purposes of this Agreement, the term "change
of control" shall mean the occurrence of one or more of the following events:
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(a) One person or entity acquiring or otherwise becoming the
owner of twenty-five percent or more of CBSI's outstanding common stock;
(b) Replacement of a majority of the incumbent directors of CBSI
or Columbia Bank by directors whose elections have not been supported by a
majority of the Board of either company, as appropriate; or
(c) Dissolution, or sale of fifty percent or more in value of the
assets, of either CBSI or Columbia Bank.
7.3 Reimbursement. In the event that performance in accordance
with the provisions of this Agreement results in imposition of a tax on
Executive under the provisions of Internal Revenue Code # 4999, Employer
agrees to reimburse Executive for the same, exclusive of any tax imposed by
reason of receipt of reimbursement under this Agreement.
8. Miscellaneous.
8.1 This Agreement contains the entire agreement between the parties
with respect to Executive's employment with Employer and her covenant not to
compete with Employer and its affiliates, and is subject to modification or
amendment only upon amendment in writing signed by both parties.
8.2 This Agreement shall bind and inure to the benefit of the heirs,
legal representatives, successors, and assigns of the parties, except that
Employer's rights and obligations may not be assigned. The provisions of
Section 6.1 of this Agreement are intended to confer upon CBSI and its
subsidiaries and affiliates the benefits of Executive's covenant not to
compete.
8.3 If any provision of this Agreement is invalid or otherwise
unenforceable, all other provisions shall remain unaffected and shall be
enforceable to the fullest extent permitted by law.
8.4 This Agreement is made with reference to and is intended to be
construed in accordance with the laws of the State of Washington. Venue for
any action arising out of or concerning this Agreement shall lie in Pierce
County, Washington. In the event of a dispute under this Agreement not
involving injunctive relief, the dispute shall be arbitrated pursuant to the
Superior Court Mandatory Arbitration Rules ("MAR") adopted by the Washington
State Supreme Court, irrespective of the amount in controversy. This
Agreement shall be deemed as stipulation to that effect pursuant to MAR 1.2
and 8.1. The arbitrator, in his or her discretion, may award attorney's fees
to the prevailing party or parties.
8.5 Any notice required to be given under this Agreement to either
party shall be given by personal service or by depositing a copy thereof in
the United States registered or certified mail, postage prepaid, addressed
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to the following address, or such other address as addressee shall designate
in writing:
Employer: 1102 Broadway
Tacoma, WA 98402
Executive: Melanie J. Dressel
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
July 1, 1999.
COLUMBIA STATE BANK
By: /s/ W.W. Philip
Its: Chairman and CEO
COLUMBIA BANKING SYSTEM, INC.
By: /s/ W.W. Philip
Its: Chairman and CEO
EXECUTIVE
/s/ Melanie J. Dressel
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Exhibit 10(d)
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective
this 23 day of June, 1999, by and among COLUMBIA BANKING SYSTEM, INC., a
Washington corporation ("CBSI"), COLUMBIA STATE BANK, a Washington banking
corporation (the "Bank") and HARALD R. RUSSELL ("Executive").
RECITALS
1. CBSI and the Bank (collectively referred to as the "Company")
currently receive the exclusive services of Executive as its employee, and
both the Company and Executive desire that this employment relationship
continue.
2. The Company desires to provide a severance benefit to Executive (i)
to encourage Executive to continue his employment relationship with the
Company; (ii) to continue obtaining his services in the event of a potential
Change in Control (as defined below) of the Company that may be detrimental
to the Executive; and (iii) to allow the Company to maximize the benefits
obtainable by its shareholders from any Change in Control.
In consideration of the mutual promises, covenants, agreements and
undertakings contained in this Agreement, the parties hereby contract and
agree as follows:
AGREEMENT
1. Term. The term of this Agreement ("Term") shall commence as of the
date first above written and shall end on the earlier of the termination of
Executive's employment in a manner that does not constitute a Termination
Event or on the fifth anniversary of the date first above written, unless
extended in writing by the parties.
2. Severance Benefit.
2.1. Determination of Benefit. In the case of a Termination Event, as
defined in Section 4, (i) the Company shall pay to Executive all salary and
benefits earned through the effective date of Executive's termination and a
severance benefit ("Severance Benefit") in an amount equal to three times
the amount of Executive's then-current annual base salary, and (ii) vesting
of all stock options and lapse of all restrictions with respect to restricted
stock awards shall occur. Payment of the Severance Benefit shall begin, and
vesting and lapse of restrictions described in the preceding sentence shall
occur, (i) in the case of a Termination Event described in paragraph 4.1,
upon the effective date of termination, and (ii) in the case of a Termination
Event described in paragraph 4.2, upon the effective date of the Change of
Control which is then pending (or announced within sixty days) of the date
when the Executive's employment terminated. The Severance Benefit shall be
paid over a three year period in equal regular periodic payments without
interest on the same dates that other salaried employees of the Company are
paid.
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2.2. Reimbursement of Excise Tax. In the event that performance in
accordance with the provisions of this Agreement results in imposition of a
tax on Executive under the provisions of Internal Revenue Code # 4999,
Employer agrees to reimburse Executive for the same, exclusive of any tax
imposed by reason of receipt of reimbursement under this Agreement.
3. Other Compensation and Terms of Employment. Except with respect to
the Severance Payment, this Agreement shall have no effect on the
determination of any compensation payable by the Company to the Executive,
or upon any of the other terms of Executive's employment with the Company.
4. Termination Events. A Termination Event shall be deemed to occur
upon, and only upon, one or more of the following:
4.1 Termination of Executive's employment by the Company without
Cause (as defined below) or by Executive for Good Reason (as defined below)
within 730 days following the effective date of a Change of Control; or
4.2 Termination of Executive's employment by the Company without
Cause prior to a Change of Control if such termination occurs at any time
from and after sixty days prior to the public announcement by the Company or
any other party of a transaction which will result in a Change of Control;
provided that the effective date of the Change of Control occurs within
eighteen (18) months of Executive's termination.
5. Restrictive Covenant.
5.1 Noncompetition. Executive agrees that he will not, during his
employment with the Company and for a period of two years after commencement
of the payment to him of the Severance Benefit, directly or indirectly become
interested in, as a principal shareholder, director, or officer, any financial
institution, now existing or organized hereafter, that competes or will
compete with the Company, including any successor, or any of the Company's
affiliates within any county in which the Company does business; provided
that Executive's covenant not to compete shall terminate in the event
Executive waives the right to payment of any balance of the Severance Benefit
then payable; and provided further, that Executive shall not be deemed a "
principal shareholder" unless (i) his investment in such an institution
exceeds 2% of the institution's outstanding voting securities or
(ii) Executive is active in the organization, management or affairs of such
institution. The provisions restricting competition by Executive may be waived
by action of the Board. Executive recognizes and agrees that any breach of
this covenant by Executive will cause immediate and irreparable injury to the
Company, and Executive hereby authorizes recourse by the Company to injunction
and/or specific performance, as well as to other legal or equitable remedies to
which the Company may be entitled.
5.2 Noninterference. During the noncompetition period described in
Section 5.1, Executive shall not solicit or attempt to solicit any other
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employee of the Company or its affiliates to leave the employ of those
companies, or in any way interfere with the relationship between the Company
and any other employee of the Company.
5.3 Interpretation. If a court or any other administrative body
with jurisdiction over a dispute related to this Agreement should determine
that the restrictive covenant set forth in Section 5.1 above is unreasonably
broad, the parties hereby authorize and direct said court or administrative
body to narrow same so as to make it reasonable, given all relevant
circumstances, and to enforce same. The covenants in this paragraph shall
survive termination of this Agreement.
6. Definitions.
6.1. Cause. "Cause" shall mean only (i) willful misfeasance or
gross negligence in the performance of Executive's duties, (ii) conduct
demonstrably and significantly harmful to the Company (which would include
willful violation of any final cease and desist order applicable to the
Company), or (iii) conviction of a felony.
6.2. Change of Control. "Change of Control" shall mean the
occurrence of one or more of the following events:
6.2.1. One person or entity acquiring or otherwise becoming the owner
of twenty-five percent (25%) or more of CBSI's outstanding common stock;
6.2.2. Replacement of incumbent directors or election of newly-elected
directors constituting a majority of the Board of CBSI where such replacement
or election has not been supported by the Board; or
6.2.3. Dissolution, or sale of fifty percent (50%) or more in value of
the assets, of either CBSI or the Bank.
6.3 Good Reason. "Good Reason" shall mean (i) any reduction of
Executive's salary or any reduction or elimination of any other compensation
or benefit plan, which reduction or elimination is not of general application
to substantially all employees of the Company or such employees of any
successor entity or of any entity in control of the Company, (ii) any changes
in Executive's authority or duties substantially inconsistent with Executive's
position, or (iii) any transfer to a location more than thirty miles from
Executive's then office location.
7. Miscellaneous.
7.1 This Agreement contains the entire agreement between the parties
with respect to the subject matter, and is subject to modification or
amendment only upon amendment in writing signed by both parties.
7.2 This Agreement shall bind and inure to the benefit of the heirs,
legal representatives, successors, and assigns of the parties.
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7.3 If any provision of this Agreement is invalid or otherwise
unenforceable, all other provisions shall remain unaffected and shall be
enforceable to the fullest extent permitted by law.
7.4 This Agreement is made with reference to and is intended to be
construed in accordance with the laws of the State of Washington. Venue for
any action arising out of or concerning this Agreement shall lie in Pierce
County, Washington. In the event of a dispute under this Agreement, the
dispute shall be arbitrated pursuant to the Superior Court Mandatory
Arbitration Rules ("MAR") adopted by the Washington State Supreme Court,
irrespective of the amount in controversy. This Agreement shall be deemed
as stipulation to that effect pursuant to MAR 1.2 and 8.1 The arbitrator,
in his or her discretion, may award attorney's fees to the prevailing party
or parties.
7.5 Any notice required to be given under this Agreement to either
party shall be given by personal service or by depositing a copy thereof in
the United States registered or certified mail, postage prepaid, addressed
to the following address, or such other address as addressee shall designate
in writing:
Company: Columbia Banking System, Inc.
1102 Broadway Plaza
Tacoma, WA 98401
Attn: Corporate Secretary
Executive: Harald R. Russell
________________________
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date first above written.
COLUMBIA BANKING SYSTEM, INC.
By: /s/ W.W. Philip
Its: Chairman and CEO
COLUMBIA STATE BANK
By: /s/ W.W. Philip
Its: Chairman and CEO
EXECUTIVE
/s/ Harald R. Russell
Harald R. Russell
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Exhibit 10(e)
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective
this 23 day of June, 1999, by and among COLUMBIA BANKING SYSTEM, INC., a
Washington corporation ("CBSI"), COLUMBIA STATE BANK, a Washington banking
corporation (the "Bank") and EVANS Q. WHITNEY ("Executive").
RECITALS
1. CBSI and the Bank (collectively referred to as the "Company")
currently receive the exclusive services of Executive as its employee, and
both the Company and Executive desire that this employment relationship
continue.
2. The Company desires to provide a severance benefit to Executive
(i) to encourage Executive to continue his employment relationship with the
Company; (ii) to continue obtaining his services in the event of a potential
Change in Control (as defined below) of the Company that may be detrimental
to the Executive; and (iii) to allow the Company to maximize the benefits
obtainable by its shareholders from any Change in Control.
In consideration of the mutual promises, covenants, agreements and undertakings
contained in this Agreement, the parties hereby contract and agree as follows:
AGREEMENT
1. Term. The term of this Agreement ("Term") shall commence as of
the date first above written and shall end on the earlier of the termination
of Executive's employment in a manner that does not constitute a Termination
Event or on the fifth anniversary of the date first above written, unless
extended in writing by the parties.
2. Severance Benefit.
2.1. Determination of Benefit. In the case of a Termination
Event, as defined in Section 4, (i) the Company shall pay to Executive all
salary and benefits earned through the effective date of Executive's
termination and a severance benefit ("Severance Benefit") in an amount equal
to three times the amount of Executive's then-current annual base salary, and
(ii) vesting of all stock options and lapse of all restrictions with respect
to restricted stock awards shall occur. Payment of the Severance Benefit
shall begin, and vesting and lapse of restrictions described in the preceding
sentence shall occur, (i) in the case of a Termination Event described in
paragraph 4.1, upon the effective date of termination, and (ii) in the case
of an Termination Event described in paragraph 4.2, upon the effective date
of the Change of Control which is then pending (or announced within sixty
days) of the date when the Executive's employment terminated. The Severance
Benefit shall be paid over a three year period in equal regular periodic
payments without interest on the same dates that other salaried employees of
the Company are paid.
2.2. Reimbursement of Excise Tax. In the event that performance
in accordance with the provisions of this Agreement results in imposition of
a tax on Executive under the provisions of Internal Revenue Code # 4999,
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Employer agrees to reimburse Executive for the same, exclusive of any tax
imposed by reason of receipt of reimbursement under this Agreement.
3. Other Compensation and Terms of Employment. Except with respect
to the Severance Payment, this Agreement shall have no effect on the
determination of any compensation payable by the Company to the Executive,
or upon any of the other terms of Executive's employment with the Company.
4. Termination Events. A Termination Event shall be deemed to occur
upon, and only upon, one or more of the following:
4.1 Termination of Executive's employment by the Company without
Cause (as defined below) or by Executive for Good Reason (as defined below)
within 730 days following the effective date of a Change of Control; or
4.2 Termination of Executive's employment by the Company without
Cause prior to a Change of Control if such termination occurs at any time
from and after sixty days prior to the public announcement by the Company or
any other party of a transaction which will result in a Change of Control;
provided that the effective date of the Change of Control occurs within
eighteen (18) months of Executive's termination.
5. Restrictive Covenant.
5.1 Noncompetition. Executive agrees that he will not, during
his employment with the Company and for a period of two years after
commencement of the payment to him of the Severance Benefit, directly or
indirectly become interested in, as a principal shareholder, director, or
officer, any financial institution, now existing or organized hereafter, that
competes or will compete with the Company, including any successor, or any of
the Company's affiliates within any county in which the Company does business;
provided that Executive's covenant not to compete shall terminate in the event
Executive waives the right to payment of any balance of the Severance Benefit
then payable; and provided further, that Executive shall not be deemed a
"principal shareholder" unless (i) his investment in such an institution
exceeds 2% of the institution's outstanding voting securities or (ii)
Executive is active in the organization, management or affairs of such
institution. The provisions restricting competition by Executive may be
waived by action of the Board. Executive recognizes and agrees that any
breach of this covenant by Executive will cause immediate and irreparable
injury to the Company, and Executive hereby authorizes recourse by the
Company to injunction and/or specific performance, as well as to other legal
or equitable remedies to which the Company may be entitled.
5.2 Noninterference. During the noncompetition period described
in Section 5.1, Executive shall not solicit or attempt to solicit any other
employee of the Company or its affiliates to leave the employ of those
companies, or in any way interfere with the relationship between the Company
and any other employee of the Company.
5.3 Interpretation. If a court or any other administrative body
with jurisdiction over a dispute related to this Agreement should determine
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that the restrictive covenant set forth in Section 5.1 above is unreasonably
broad, the parties hereby authorize and direct said court or administrative
body to narrow same so as to make it reasonable, given all relevant
circumstances, and to enforce same. The covenants in this paragraph shall
survive termination of this Agreement.
6. Definitions.
6.1. Cause. "Cause" shall mean only (i) willful misfeasance or
gross negligence in the performance of Executive's duties, (ii) conduct
demonstrably and significantly harmful to the Company (which would include
willful violation of any final cease and desist order applicable to the
Company), or (iii) conviction of a felony.
6.2. Change of Control. "Change of Control" shall mean the
occurrence of one or more of the following events:
6.2.1. One person or entity acquiring or otherwise becoming the
owner of twenty-five percent (25%) or more of CBSI's outstanding common
stock;
6.2.2. Replacement of incumbent directors or election of
newly-elected directors constituting a majority of the Board of CBSI where
such replacement or election has not been supported by the Board; or
6.2.3. Dissolution, or sale of fifty percent (50%) or more in
value of the assets, of either CBSI or the Bank or any of their respective
subsidiaries.
6.3 Good Reason. "Good Reason" shall mean (i) any reduction
of Executive's salary or any reduction or elimination of any other
compensation or benefit plan, which reduction or elimination is not of
general application to substantially all employees of the Company or such
employees of any successor entity or of any entity in control of the Company,
(ii) any changes in Executive's authority or duties substantially
inconsistent with Executive's position, or (iii) any transfer to a location
more than thirty miles from Executive's then office location.
7. Miscellaneous.
7.1 This Agreement contains the entire agreement between the
parties with respect to the subject matter, and is subject to modification or
amendment only upon amendment in writing signed by both parties.
7.2 This Agreement shall bind and inure to the benefit of the
heirs, legal representatives, successors, and assigns of the parties.
7.3 If any provision of this Agreement is invalid or otherwise
unenforceable, all other provisions shall remain unaffected and shall be
enforceable to the fullest extent permitted by law.
7.4 This Agreement is made with reference to and is intended to
be construed in accordance with the laws of the State of Washington. Venue
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for any action arising out of or concerning this Agreement shall lie in
Pierce County, Washington. In the event of a dispute under this Agreement,
the dispute shall be arbitrated pursuant to the Superior Court Mandatory
Arbitration Rules ("MAR") adopted by the Washington State Supreme Court,
irrespective of the amount in controversy. This Agreement shall be deemed
as stipulation to that effect pursuant to MAR 1.2 and 8.1 The arbitrator,
in his or her discretion, may award attorney's fees to the prevailing party
or parties.
7.5 Any notice required to be given under this Agreement to
either party shall be given by personal service or by depositing a copy
thereof in the United States registered or certified mail, postage prepaid,
addressed to the following address, or such other address as addressee shall
designate in writing:
Company: Columbia Banking System, Inc.
1102 Broadway Plaza
Tacoma, WA 98401
Attn: Corporate Secretary
Executive: Evans Q. Whitney
_________________
IN WITNESS WHEREOF, the parties have executed this Agreement effective on the
date first above written.
COLUMBIA BANKING SYSTEM, INC.
By: /s/ W.W. Philip
Its: Chairman and CEO
COLUMBIA STATE BANK
By: /s/ W.W. Philip
Its: Chairman and CEO
EXECUTIVE
/s/ Evans Q. Whitney
Evans Q. Whitney
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Exhibit 10(f)
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective
this 23 day of June, 1999, by and among COLUMBIA BANKING SYSTEM, INC., a
Washington corporation ("CBSI"), COLUMBIA STATE BANK, a Washington banking
corporation (the "Bank") and GARY R. SCHMINKEY ("Executive").
RECITALS
1. CBSI and the Bank (collectively referred to as the "Company")
currently receive the exclusive services of Executive as its employee, and
both the Company and Executive desire that this employment relationship
continue.
2. The Company desires to provide a severance benefit to Executive
(i) to encourage Executive to continue his employment relationship with the
Company; (ii) to continue obtaining his services in the event of a potential
Change in Control (as defined below) of the Company that may be detrimental
to the Executive; and (iii) to allow the Company to maximize the benefits
obtainable by its shareholders from any Change in Control.
In consideration of the mutual promises, covenants, agreements and
undertakings contained in this Agreement, the parties hereby contract and
agree as follows:
AGREEMENT
1. Term. The term of this Agreement ("Term") shall commence as of
the date first above written and shall end on the earlier of the termination
of Executive's employment in a manner that does not constitute a Termination
Event or on the fifth anniversary of the date first above written, unless
extended in writing by the parties.
2. Severance Benefit.
2.1. Determination of Benef it. In the case of a Termination
Event, as defined in Section 4, (i) the Company shall pay to Executive all
salary and benefits earned through the effective date of Executive's termination
and a severance benefit ("Severance Benefit") in an amount equal to two times
the amount of Executive's then-current annual base salary, and (ii) vesting
of all stock options and lapse of all restrictions with respect to restricted
stock awards shall occur. Payment of the Severance Benefit shall begin, and
vesting and lapse of restrictions described in the preceding sentence shall
occur, (i) in the case of a Termination Event described in paragraph 4.1, upon
the effective date of termination, and (ii) in the case of an Termination
Event described in paragraph 4.2, upon the effective date of the Change of
Control which is then pending (or announced within sixty days) of the date when
the Executive's employment terminated. The Severance Benefit shall be paid
over a two year period in equal regular periodic payments without interest on
the same dates that other salaried employees of the Company are paid.
2.2. Reimbursement of Excise Tax. In the event that performance
in accordance with the provisions of this Agreement results in imposition of
a tax on Executive under the provisions of Internal Revenue Code # 4999,
1
<PAGE>
Employer agrees to reimburse Executive for the same, exclusive of any tax
imposed by reason of receipt of reimbursement under this Agreement.
3. Other Compensation and Terms of Employment. Except with respect
to the Severance Payment, this Agreement shall have no effect on the
determination of any compensation payable by the Company to the Executive, or
upon any of the other terms of Executive's employment with the Company.
4. Termination Events. A Termination Event shall be deemed to occur
upon, and only upon, one or more of the following:
4.1 Termination of Executive's employment by the Company without
Cause (as defined below) or by Executive for Good Reason (as defined below)
within 730 days following the effective date of a Change of Control; or
4.2 Termination of Executive's employment by the Company without
Cause prior to a Change of Control if such termination occurs at any time
from and after sixty days prior to the public announcement by the Company or
any other party of a transaction which will result in a Change of Control;
provided that the effective date of the Change of Control occurs within
eighteen (18) months of Executive's termination.
5. Restrictive Covenant.
5.1 Noncompetition. Executive agrees that he will not, during
his employment with the Company and for a period of two years after
commencement of the payment to him of the Severance Benefit, directly or
indirectly become interested in, as a principal shareholder, director, or
officer, any financial institution, now existing or organized hereafter, that
competes or will compete with the Company, including any successor, or any
of the Company's affiliates within any county in which the Company does
business; provided that Executive's covenant not to compete shall terminate
in the event Executive waives the right to payment of any balance of the
Severance Benefit then payable; and provided further, that Executive shall
not be deemed a "principal shareholder" unless (i) his investment in such an
institution exceeds 2% of the institution's outstanding voting securities or
(ii) Executive is active in the organization, management or affairs of such
institution. The provisions restricting competition by Executive may be
waived by action of the Board. Executive recognizes and agrees that any
breach of this covenant by Executive will cause immediate and irreparable
injury to the Company, and Executive hereby authorizes recourse by the
Company to injunction and/or specific performance, as well as to other legal
or equitable remedies to which the Company may be entitled.
5.2 Noninterference. During the noncompetition period described
in Section 5.1, Executive shall not solicit or attempt to solicit any other
employee of the Company or its affiliates to leave the employ of those
companies, or in any way interfere with the relationship between the Company
and any other employee of the Company.
5.3 Interpretation. If a court or any other administrative
body with jurisdiction over a dispute related to this Agreement should
2
<PAGE>
determine that the restrictive covenant set forth in Section 5.1 above is
unreasonably broad, the parties hereby authorize and direct said court or
administrative body to narrow same so as to make it reasonable, given all
relevant circumstances, and to enforce same. The covenants in this paragraph
shall survive termination of this Agreement.
6. Definitions.
6.1. Cause. "Cause" shall mean only (i) willful misfeasance or
gross negligence in the performance of Executive's duties, (ii) conduct
demonstrably and significantly harmful to the Company (which would include
willful violation of any final cease and desist order applicable to the
Company), or (iii) conviction of a felony.
6.2. Change of Control. "Change of Control" shall mean the
occurrence of one or more of the following events:
6.2.1. One person or entity acquiring or otherwise becoming the
owner of twenty-five percent (25%) or more of CBSI's outstanding common stock;
6.2.2. Replacement of incumbent directors or election of
newly-elected directors constituting a majority of the Board of CBSI where
such replacement or election has not been supported by the Board; or
6.2.3. Dissolution, or sale of fifty percent (50%) or more in
value of the assets, of either CBSI or the Bank.
6.3 Good Reason. "Good Reason" shall mean (i) any reduction of
Executive's salary or any reduction or elimination of any other compensation
or benefit plan, which reduction or elimination is not of general application
to substantially all employees of the Company or such employees of any
successor entity or of any entity in control of the Company, (ii) any changes
in Executive's authority or duties substantially inconsistent with Executive's
position, or (iii) any transfer to a location more than thirty miles from
Executive's then office location.
7. Miscellaneous.
7.1 This Agreement contains the entire agreement between the
parties with respect to the subject matter, and is subject to modification or
amendment only upon amendment in writing signed by both parties.
7.2 This Agreement shall bind and inure to the benefit of the
heirs, legal representatives, successors, and assigns of the parties.
7.3 If any provision of this Agreement is invalid or otherwise
unenforceable, all other provisions shall remain unaffected and shall be
enforceable to the fullest extent permitted by law.
7.4 This Agreement is made with reference to and is intended to
be construed in accordance with the laws of the State of Washington. Venue
3
<PAGE>
for any action arising out of or concerning this Agreement shall lie in
Pierce County, Washington. In the event of a dispute under this Agreement,
the dispute shall be arbitrated pursuant to the Superior Court Mandatory
Arbitration Rules ("MAR") adopted by the Washington State Supreme Court,
irrespective of the amount in controversy. This Agreement shall be deemed
as stipulation to that effect pursuant to MAR 1.2 and 8.1 The arbitrator,
in his or her discretion, may award attorney's fees to the prevailing party
or parties.
7.5 Any notice required to be given under this Agreement to
either party shall be given by personal service or by depositing
a copy thereof in the United States registered or certified mail,
postage prepaid, addressed to the following address, or such other
address as addressee shall designate in writing:
Company: Columbia Banking System, Inc.
1102 Broadway Plaza
Tacoma, WA 98401
Attn: Corporate Secretary
Executive: Gary R. Schminkey
___________________
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date first above written.
COLUMBIA BANKING SYSTEM, INC.
By: /s/ W.W. Philip
Its: Chairman and CEO
COLUMBIA STATE BANK
By: /s/ W.W. Philip
Its: Chairman and CEO
EXECUTIVE
/s/ Gary R. Schminkey
Gary R. Schminkey
4
<PAGE>
Exhibit 10(g)
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective
this 23 day of June, 1999, by and among COLUMBIA BANKING SYSTEM, INC., a
Washington corporation ("CBSI"), COLUMBIA STATE BANK, a Washington banking
corporation (the "Bank") and DONALD A. ANDERSEN ("Executive").
RECITALS
1. CBSI and the Bank (collectively referred to as the "Company")
currently receive the exclusive services of Executive as its employee, and
both the Company and Executive desire that this employment relationship
continue.
2. The Company desires to provide a severance benefit to Executive
(i) to encourage Executive to continue his employment relationship with the
Company; (ii) to continue obtaining his services in the event of a potential
Change in Control (as defined below) of the Company that may be detrimental
to the Executive; and (iii) to allow the Company to maximize the benefits
obtainable by its shareholders from any Change in Control.
In consideration of the mutual promises, covenants, agreements and undertakings
contained in this Agreement, the parties hereby contract and agree as follows:
AGREEMENT
1. Term. The term of this Agreement ("Term") shall commence as of
the date first above written and shall end on the earlier of the termination of
Executive's employment in a manner that does not constitute a Termination
Event or on the fifth anniversary of the date first above written, unless
extended in writing by the parties.
2. Severance Benefit. In the case of a Termination Event, as
defined in Section 4, (i) the Company shall pay to Executive all salary and
benefits earned through the effective date of Executive's termination and a
severance benefit ("Severance Benefit") in an amount equal to the amount of
Executive's then-current annual base salary, and (ii) vesting of all stock
options and lapse of all restrictions with respect to restricted stock awards
shall occur. Payment of the Severance Benefit shall begin, and vesting and
lapse of restrictions described in the preceding sentence shall occur, (i) in
the case of a Termination Event described in paragraph 4.1, upon the
effective date of termination, and (ii) in the case of an Termination Event
described in paragraph 4.2, upon the effective date of the Change of Control
which is then pending (or announced within sixty days) of the date when the
Executive's employment terminated. The Severance Benefit shall be paid over
a one year period in equal regular periodic payments without interest on the
same dates that other salaried employees of the Company are paid.
3. Other Compensation and Terms of Employment. Except with respect
to the Severance Payment, this Agreement shall have no effect on the
determination of any compensation payable by the Company to the Executive, or
upon any of the other terms of Executive's employment with the Company.
1
<PAGE>
4. Termination Events. A Termination Event shall be deemed to
occur upon, and only upon, one or more of the following:
4.1 Termination of Executive's employment by the Company
without Cause (as defined below) or by Executive for Good Reason (as defined
below) within 730 days following the effective date of a Change of Control;
or
4.2 Termination of Executive's employment by the Company
without Cause prior to a Change of Control if such termination occurs at any
time from and after sixty days prior to the public announcement by the
Company or any other party of a transaction which will result in a Change of
Control; provided that the effective date of the Change of Control occurs
within eighteen (18) months of Executive's termination.
5. Restrictive Covenant.
5.1 Noncompetition. Executive agrees that he will not, during
his employment with the Company and for a period of one year after
commencement of the payment to him of the Severance Benefit, directly or
indirectly become interested in, as a principal shareholder, director, or
officer, any financial institution, now existing or organized hereafter, that
competes or will compete with the Company, including any successor, or any
of the Company's affiliates within any county in which the Company does
business; provided that Executive's covenant not to compete shall terminate
in the event Executive waives the right to payment of any balance of the
Severance Benefit then payable; and provided further, that Executive shall
not be deemed a "principal shareholder" unless (i) his investment in such an
institution exceeds 2% of the institution's outstanding voting securities or
(ii) Executive is active in the organization, management or affairs of such
institution. The provisions restricting competition by Executive may be
waived by action of the Board. Executive recognizes and agrees that any
breach of this covenant by Executive will cause immediate and irreparable
injury to the Company, and Executive hereby authorizes recourse by the
Company to injunction and/or specific performance, as well as to other legal
or equitable remedies to which the Company may be entitled.
5.2 Noninterference. During the noncompetition period described
in Section 5.1, Executive shall not solicit or attempt to solicit any other
employee of the Company or its affiliates to leave the employ of those
companies, or in any way interfere with the relationship between the Company
and any other employee of the Company.
5.3 Interpretation. If a court or any other administrative body
with jurisdiction over a dispute related to this Agreement should determine
that the restrictive covenant set forth in Section 5.1 above is unreasonably
broad, the parties hereby authorize and direct said court or administrative
body to narrow same so as to make it reasonable, given all relevant
circumstances, and to enforce same. The covenants in this paragraph shall
survive termination of this Agreement.
2
<PAGE>
6. Definitions.
6.1. Cause. "Cause" shall mean only (i) willful misfeasance or
gross negligence in the performance of Executive's duties, (ii) conduct
demonstrably and significantly harmful to the Company (which would include
willful violation of any final cease and desist order applicable to the
Company), or (iii) conviction of a felony.
6.2. Change of Control. "Change of Control" shall mean the
occurrence of one or more of the following events:
6.2.1. One person or entity acquiring or otherwise becoming the
owner of twenty-five percent (25%) or more of CBSI's outstanding common
stock;
6.2.2. Replacement of incumbent directors or election of
newly-elected directors constituting a majority of the Board of CBSI where
such replacement or election has not been supported by the Board; or
6.2.3. Dissolution, or sale of fifty percent (50%) or more in
value of the assets, of either CBSI or the Bank.
6.3 Good Reason. "Good Reason" shall mean (i) any reduction
of Executive's salary or any reduction or elimination of any other
compensation or benefit plan, which reduction or elimination is not of
general application to substantially all employees of the Company or such
employees of any successor entity or of any entity in control of the Company,
(ii) any changes in Executive's authority or duties substantially
inconsistent with Executive's position, or (iii) any transfer to a location
more than thirty miles from Executive's then office location.
7. Miscellaneous.
7.1 This Agreement contains the entire agreement between the
parties with respect to the subject matter, and is subject to modification or
amendment only upon amendment in writing signed by both parties.
7.2 This Agreement shall bind and inure to the benefit of the
heirs, legal representatives, successors, and assigns of the parties.
7.3 If any provision of this Agreement is invalid or otherwise
unenforceable, all other provisions shall remain unaffected and shall be
enforceable to the fullest extent permitted by law.
7.4 This Agreement is made with reference to and is intended to
be construed in accordance with the laws of the State of Washington. Venue
for any action arising out of or concerning this Agreement shall lie in
Pierce County, Washington. In the event of a dispute under this Agreement,
the dispute shall be arbitrated pursuant to the Superior Court Mandatory
Arbitration Rules ("MAR") adopted by the Washington State Supreme Court,
irrespective of the amount in controversy. This Agreement shall be deemed
3
<PAGE>
as stipulation to that effect pursuant to MAR 1.2 and 8.1 The arbitrator,
in his or her discretion, may award attorney's fees to the prevailing party
or parties.
7.5 Any notice required to be given under this Agreement to
either party shall be given by personal service or by depositing a copy
thereof in the United States registered or certified mail, postage prepaid,
addressed to the following address, or such other address as addressee shall
designate in writing:
Company: Columbia Banking System, Inc.
1102 Broadway Plaza
Tacoma, WA 98401
Attn: Corporate Secretary
Executive: Donald A. Andersen
________________________
IN WITNESS WHEREOF, the parties have executed this Agreement effective on the
date first above written.
COLUMBIA BANKING SYSTEM, INC.
By: /s/ W.W. Philip
Its: Chairman and CEO
COLUMBIA STATE BANK
By: /s/ W.W. Philip
Its: Chairman and CEO
EXECUTIVE
/s/ Donald A. Andersen
Donald A. Andersen
4
<PAGE>
Exhibit 10(h)
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective
this 23 day of June, 1999, by and among COLUMBIA BANKING SYSTEM,
INC., a Washington corporation ("CBSI"), COLUMBIA STATE BANK, a Washington
banking corporation (the "Bank") and JANET D. HILDEBRAND ("Executive").
RECITALS
1. CBSI and the Bank (collectively referred to as the "Company")
currently receive the exclusive services of Executive as its employee, and
both the Company and Executive desire that this employment relationship
continue.
2. The Company desires to provide a severance benefit to Executive
(i) to encourage Executive to continue her employment relationship with the
Company; (ii) to continue obtaining her services in the event of a potential
Change in Control (as defined below) of the Company that may be detrimental
to the Executive; and (iii) to allow the Company to maximize the benefits
obtainable by its shareholders from any Change in Control.
In consideration of the mutual promises, covenants, agreements and undertakings
contained in this Agreement, the parties hereby contract and agree as follows:
AGREEMENT
1. Term. The term of this Agreement ("Term") shall commence as of
the date first above written and shall end on the earlier of the termination
of Executive's employment in a manner that does not constitute a Termination
Event or on the fifth anniversary of the date first above written, unless
extended in writing by the parties.
2. Severance Benefit. In the case of a Termination Event, as
defined in Section 4, (i) the Company shall pay to Executive all salary and
benefits earned through the effective date of Executive's termination and a
severance benefit ("Severance Benefit") in an amount equal to the amount of
Executive's then-current annual base salary, and (ii) vesting of all stock
options and lapse of all restrictions with respect to restricted stock awards
shall occur. Payment of the Severance Benefit shall begin, and vesting and
lapse of restrictions described in the preceding sentence shall occur, (i) in
the case of a Termination Event described in paragraph 4.1, upon the
effective date of termination, and (ii) in the case of an Termination Event
described in paragraph 4.2, upon the effective date of the Change of Control
which is then pending (or announced within sixty days) of the date when the
Executive's employment terminated. The Severance Benefit shall be paid over
a one year period in equal regular periodic payments without interest on the
same dates that other salaried employees of the Company are paid.
3. Other Compensation and Terms of Employment. Except with respect
to the Severance Payment, this Agreement shall have no effect on the
determination of any compensation payable by the Company to the Executive, or
upon any of the other terms of Executive's employment with the Company.
1
<PAGE>
4. Termination Events. A Termination Event shall be deemed to
occur upon, and only upon, one or more of the following:
4.1 Termination of Executive's employment by the Company without
Cause (as defined below) or by Executive for Good Reason (as defined below)
within 730 days following the effective date of a Change of Control; or
4.2 Termination of Executive's employment by the Company without
Cause prior to a Change of Control if such termination occurs at any time
from and after sixty days prior to the public announcement by the Company or
any other party of a transaction which will result in a Change of Control;
provided that the effective date of the Change of Control occurs within
eighteen (18) months of Executive's termination.
5. Restrictive Covenant.
5.1 Noncompetition. Executive agrees that he will not, during
her employment with the Company and for a period of one year after commencement
of the payment to her of the Severance Benefit, directly or indirectly become
interested in, as a principal shareholder, director, or officer, any financial
institution, now existing or organized hereafter, that competes or will
compete with the Company, including any successor, or any of the Company's
affiliates within any county in which the Company does business; provided
that Executive's covenant not to compete shall terminate in the event
Executive waives the right to payment of any balance of the Severance Benefit
then payable; and provided further, that Executive shall not be deemed a
"principal shareholder" unless (i) her investment in such an institution
exceeds 2% of the institution's outstanding voting securities or (ii)
Executive is active in the organization, management or affairs of such
institution. The provisions restricting competition by Executive may be
waived by action of the Board. Executive recognizes and agrees that any
breach of this covenant by Executive will cause immediate and irreparable
injury to the Company, and Executive hereby authorizes recourse by the
Company to injunction and/or specific performance, as well as to other legal
or equitable remedies to which the Company may be entitled.
5.2 Noninterference. During the noncompetition period
described in Section 5.1, Executive shall not solicit or attempt to solicit
any other employee of the Company or its affiliates to leave the employ of
those companies, or in any way interfere with the relationship between the
Company and any other employee of the Company.
5.3 Interpretation. If a court or any other administrative
body with jurisdiction over a dispute related to this Agreement should
determine that the restrictive covenant set forth in Section 5.1 above is
unreasonably broad, the parties hereby authorize and direct said court or
administrative body to narrow same so as to make it reasonable, given all
relevant circumstances, and to enforce same. The covenants in this paragraph
shall survive termination of this Agreement.
2
<PAGE>
6. Definitions.
6.1. Cause. "Cause" shall mean only (i) willful misfeasance or
gross negligence in the performance of Executive's duties, (ii) conduct
demonstrably and significantly harmful to the Company (which would include
willful violation of any final cease and desist order applicable to the
Company), or (iii) conviction of a felony.
6.2. Change of Control. "Change of Control" shall mean the
occurrence of one or more of the following events:
6.2.1. One person or entity acquiring or otherwise becoming the
owner of twenty-five percent (25%) or more of CBSI's outstanding common
stock;
6.2.2. Replacement of incumbent directors or election of
newly-elected directors constituting a majority of the Board of CBSI where
such replacement or election has not been supported by the Board; or
6.2.3. Dissolution, or sale of fifty percent (50%) or more in
value of the assets, of either CBSI or the Bank.
6.3 Good Reason. "Good Reason" shall mean (i) any reduction
of Executive's salary or any reduction or elimination of any other
compensation or benefit plan, which reduction or elimination is not of
general application to substantially all employees of the Company or such
employees of any successor entity or of any entity in control of the Company,
(ii) any changes in Executive's authority or duties substantially
inconsistent with Executive's position, or (iii) any transfer to a location
more than thirty miles from Executive's then office location.
7. Miscellaneous.
7.1 This Agreement contains the entire agreement between the
parties with respect to the subject matter, and is subject to modification
or amendment only upon amendment in writing signed by both parties.
7.2 This Agreement shall bind and inure to the benefit of the
heirs, legal representatives, successors, and assigns of the parties.
7.3 If any provision of this Agreement is invalid or otherwise
unenforceable, all other provisions shall remain unaffected and shall be
enforceable to the fullest extent permitted by law.
7.4 This Agreement is made with reference to and is intended
to be construed in accordance with the laws of the State of Washington.
Venue for any action arising out of or concerning this Agreement shall lie
in Pierce County, Washington. In the event of a dispute under this Agreement,
the dispute shall be arbitrated pursuant to the Superior Court Mandatory
Arbitration Rules ("MAR") adopted by the Washington State Supreme Court,
irrespective of the amount in controversy. This Agreement shall be deemed
3
<PAGE>
as stipulation to that effect pursuant to MAR 1.2 and 8.1 The arbitrator,
in his or her discretion, may award attorney's fees to the prevailing party
or parties.
7.5 Any notice required to be given under this Agreement to
either party shall be given by personal service or by depositing a copy
thereof in the United States registered or certified mail, postage prepaid,
addressed to the following address, or such other address as addressee shall
designate in writing:
Company: Columbia Banking System, Inc.
1102 Broadway Plaza
Tacoma, WA 98401
Attn: Corporate Secretary
Executive: Janet D. Hildebrand
________________________
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date first above written.
COLUMBIA BANKING SYSTEM, INC.
By: /s/ W.W. Philip
Its: Chai rman and CEO
COLUMBIA STATE BANK
By: /s/ W.W. Philip
Its: Chairman and CEO
EXECUTIVE
/s/ Janet D. Hildebrand
Janet D. Hildebrand
4
<PAGE>
Exhibit 11
Statement re computation of per share net income
Columbia Banking System, Inc.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except per share data) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income applicable to common stock $2,662 $2,548 $4,750 $4,961
- --------------------------------------------------------------------------------
Average number of basic common shares
outstanding 10,590 10,529 10,587 10,513
Dilutive effect of stock options
unexercised 269 377 273 358
- --------------------------------------------------------------------------------
Average number of diluted common shares
outstanding 10,859 10,906 10,860 10,871
================================================================================
Diluted net income per share $ 0.25 $ 0.23 $ 0.44 $ 0.46
================================================================================
</TABLE>
On April 28, 1999, the Company announced a 5% stock dividend payable on
May 26, 1999, to shareholders of record on May 12, 1999. 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.
For additional information on earnings per share, please see the "Capital"
section of the "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
FINANCIAL DATA SCHEDULE
Columbia Banking System, Inc.
(in thousands except per share)
</LEGEND>
<CIK> 0000887343
<NAME> COLUMBIA BANKING SYSTEM, INC.
<MULTIPLIER> 1000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 58679
<INT-BEARING-DEPOSITS> 6688
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 84221
<INVESTMENTS-CARRYING> 7479
<INVESTMENTS-MARKET> 0
<LOANS> 934329
<ALLOWANCE> 9981
<TOTAL-ASSETS> 1146938
<DEPOSITS> 990363
<SHORT-TERM> 32250
<LIABILITIES-OTHER> 6139
<LONG-TERM> 25000
0
0
<COMMON> 77903
<OTHER-SE> 15283
<TOTAL-LIABILITIES-AND-EQUITY> 1146938
<INTEREST-LOAN> 36027
<INTEREST-INVEST> 2855
<INTEREST-OTHER> 154
<INTEREST-TOTAL> 39524
<INTEREST-DEPOSIT> 15581
<INTEREST-EXPENSE> 16420
<INTEREST-INCOME-NET> 23104
<LOAN-LOSSES> 1200
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 22085
<INCOME-PRETAX> 7184
<INCOME-PRE-EXTRAORDINARY> 7184
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4750
<EPS-BASIC> .45
<EPS-DILUTED> .44
<YIELD-ACTUAL> 4.71
<LOANS-NON> 3161
<LOANS-PAST> 0
<LOANS-TROUBLED> 1874
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9002
<CHARGE-OFFS> 314
<RECOVERIES> 93
<ALLOWANCE-CLOSE> 9981
<ALLOWANCE-DOMESTIC> 9981
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 314
</TABLE>
