<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 10-K
(Mark One)
[X]Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1999 or
[_]Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission File Number 0-20288
----------------
Columbia Banking System, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Washington 91-1422237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
1102 Broadway Plaza
Tacoma, Washington 98402
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, Including Area Code: (253) 305-1900
----------------
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of class)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (17 C.F.R .229.405) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates of
registrant at February 29, 2000 was $122,678,807.
The number of shares of registrant's Common Stock outstanding at February
29, 1999 was 10,610,059.
Documents incorporated by reference and parts of Form 10-K into which
incorporated:
<TABLE>
<S> <C>
Registrant's definitive Proxy Statement Dated March 10,
2000....................................................... Part III
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
COLUMBIA BANKING SYSTEM, INC.
FINANCIAL INFORMATION
<TABLE>
<S> <C>
The Company............................................................... 1
Five-Year Summary of Selected Financial Data.............................. 4
Management's Discussion and Analysis of Financial Condition And Results of
Operations............................................................... 5
Quarterly Common Stock Prices and Dividend Payments....................... 17
Report of Independent Auditors............................................ 18
Consolidated Financial Statements
Consolidated Statements of Operations................................... 19
Consolidated Balance Sheets............................................. 20
Consolidated Statements of Shareholders' Equity......................... 21
Consolidated Statements of Cash Flows................................... 22
Notes to Consolidated Financial Statements.............................. 23
Financial Data Supplement
Consolidated Five-Year Statements of Operations......................... 40
Consolidated Five-Year Summary of Average Balances and Net Interest
Revenue................................................................ 41
Consolidated Analysis of Changes in Interest Income and Expense......... 43
Loan Maturities and Sensitivity to Changes in Interest Rates............ 43
Loan Loss Allowance Allocation.......................................... 44
Average Deposit Liabilities............................................. 44
Effects of Governmental Monetary Policies............................... 45
Supervision and Regulation.............................................. 45
Employees............................................................... 46
Executive Officers of the Company....................................... 47
10-K Cross Reference Index................................................ 49
Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 50
</TABLE>
i
<PAGE>
THE COMPANY
General
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. Columbia Bank is a Washington state-chartered commercial
bank, the deposits of which are insured by the Federal Deposit Insurance
Corporation (the "FDIC"). The Bank is subject to regulation by the FDIC and
the Washington State Department of Financial Institutions (Division of Banks).
Although Columbia Bank is not a member of the Federal Reserve System, the
Board of Governors of the Federal Reserve System has certain supervisory
authority over the Company, which can also affect Columbia Bank.
The Company was reorganized and additional management was added in 1993 in
order to take advantage of commercial banking business opportunities resulting
from increased consolidation of banks in the Company's principal market area,
primarily through acquisitions by out-of-state holding companies, and the
resulting dislocation of customers. Since the reorganization, Columbia Bank
has grown from four branch offices at January 1, 1993 to its present 27 branch
offices and has regulatory approval to open one additional branch office in
its market area and plans to open additional branches in 2000 as discussed
below. Between January 1, 1993 and December 31, 1999, the Company increased
its consolidated assets to $1.2 billion from $198.2 million, its loans to $1.0
billion from $146.2 million, and its deposits to $1.0 billion from $151.9
million. During that same period, net interest income per year increased to
$49.5 million in 1999 from $8.6 million in 1993 and net income per year
increased to $11.7 million in 1999, from a loss of $2.2 million in 1993.
The senior management team was reorganized in mid-1998 in contemplation of
the retirement of W.W. Philip. Mr. Philip retired as President and Chief
Executive Officer of Columbia Banking System, Inc. and Chief Executive Officer
of Columbia Bank effective January 1, 2000. Upon Mr. Philip's retirement, J.
James Gallagher, Vice Chairman, was appointed Chief Executive Officer of
Columbia Banking System, Inc., and Melanie Dressel was named President and
Chief Operating Officer of Columbia Banking System, Inc. and President and
Chief Executive Officer of Columbia Bank. With the changes in leadership,
management intends to build on the solid foundation and growth momentum that
the Company has achieved to date and pursue the Company's goal of becoming a
well-capitalized, customer focused, Pacific Northwest banking institution with
a significant presence in selected markets.
Strategy
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
banking company 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,
deposits, and other financial services. The Company has closely followed the
recent changes to federal banking laws that allow financial institutions to
engage in a broader range of activities than previously permitted. The new
legislation also authorizes the creation of financial holding companies to
facilitate such expanded activity. As the Company pursues its aggressive
growth strategy, it is likely that the Company will utilize the new financial
holding company structure to accommodate an expansion of its products and
services.
<PAGE>
The Company intends to effect its 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 capital, Olympia) and northwest into Kitsap County (the
location of 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 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 expense 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 has placed increased
emphasis on control of noninterest expense.
During 1999, Columbia Bank opened two new branches. In January, Columbia
Bank 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. 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 growth and external
growth by acquisition. New branches normally do not contribute to net income
for many months after opening.
At December 31, 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 4 to 27 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. Also, new technology and services are reviewed for business
development and cost saving purposes. Several new departments were added or
expanded during 1999, which are contributing to net income. The International
Department was launched during the first quarter, and became profitable
shortly thereafter. The department's services, including letters of credit,
wire transfers, and foreign currency, add excellent value to the Company's
core services. The Correspondent Banking Department continued to grow and to
provide banking services to smaller commercial banks in the northwest.
Currently, the department has relationships with eighteen banks, up from two
in 1998. The expanded Merchant Services area grew significantly during 1999,
and currently serves approximately 3,000 businesses. The Company's dealer
banking program now includes thirteen dealer relationships and grew loan
totals to $45 million from $16 million in 1998, an increase of 180%. Wholesale
Residential Lending added to net income in 1999 and offset some of the decline
in 1-4 family real estate due to rising rates in the latter part of the year.
Market Area
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.
Pierce County, the area in which the Company's expansion is primarily
focused, is located in the South Puget Sound region. With 15 branch offices in
Pierce County at the end of 1999, the Company is positioning itself to
increase its market share in this County of approximately 700,000 residents,
the second most populous county in Washington State.
2
<PAGE>
Bellevue, where the Company has two banking offices, is located in an area
known as the "Eastside," a metropolitan area with a population of
approximately 236,000 that includes several King County cities located east of
Seattle. A large portion of that economy is linked to the aerospace,
construction, computer software and biotechnology industries. Microsoft is
headquartered just north of Bellevue and several biotech firms are located on
the Eastside. In recent years, the area has experienced relatively rapid
growth in population and employment, and household incomes are among the
highest in Washington.
The Company has four branches in south King County, an area of several
residential communities whose employment base is supported by light
industrial, aerospace, and forest products industries. With its close
proximity to Tacoma, the south King County market area is considered an
important natural extension of the Company's Pierce County market area. The
Weyerhaeuser Corporation maintains its world headquarters in Federal Way,
which is located in south King County adjacent to the King/Pierce County line.
The Auburn and Kent Valley areas to the east of Federal Way are high
residential and commercial growth markets and considered by management to be
natural areas of expansion for the Company.
The Company's market area also includes the Longview and Woodland
communities in southwest Washington. The population of Cowlitz County, in
which Longview and Woodland are located, is approximately 94,100. Cowlitz
County's economy has become more diversified in recent years, but remains
materially dependent on the forest products industry and, as a result, is
relatively vulnerable to the cyclical downturns of that industry as well as
environmental disputes.
Olympia, with a population of approximately 40,000, and the neighboring
community of Lacey, with a population of approximately 29,000, are the
principal cities in Thurston County. The County has an approximate population
of 203,000. The area enjoys a stable economic climate due largely to state
government employment and the proximity of the Fort Lewis Army Base and
McChord Air Force Base. According to the Washington State Almanac (an annual
publication of demographic information of Washington State counties and
cities), approximately 40% of the average employment in Thurston County was
through federal, state, and local government agencies. The area also has a
significant population of retired military personnel.
Kitsap County, with a population of approximately 230,000 (sixth largest in
the State), is home to the Bremerton Naval shipyard, the Trident Submarine
Base, and the city of Port Orchard. Directly west of Seattle across Puget
Sound, commuters and visitors are able to travel by ferry in 30 to 60 minutes
to jobs and entertainment in Seattle from residences in Kitsap County.
According to the Washington State Almanac, approximately 37% of the average
employment in Kitsap County is government related.
Competition
The Company anticipates that the substantial consolidation among financial
institutions in Washington that has occurred to date will continue due in part
to recent federal legislation concerning interstate banking. Federal law
allows mergers or other combinations, relocations of a bank's main office and
branching across state lines. Several other financial institutions, which have
greater resources than the Company, compete with the Company for banking
business in the Company's market area. Among the advantages of some of these
institutions are their ability to make larger loans, finance extensive
advertising campaigns, access international money markets and allocate their
investment assets to regions of highest yield and demand. The Company
currently does not have a significant market share of the deposit-taking or
lending activities in the areas in which it conducts operations, other than in
Pierce County where its share of bank deposits has grown substantially over
the last several years. In June 1999, the Federal Deposit Insurance
Corporation (FDIC) market share report classified Columbia Bank with 15.8% of
the deposit market share in Pierce County, which placed the Bank second in the
county. Although, the Company has been able to compete effectively in its
market areas to date, there can be no assurance that it will be able to
continue to do so in the future.
In addition to competition from other banking institutions, the Company
continues to experience increased competition from non-banking companies such
as credit unions, financial services companies and brokerage houses. Recent
amendments to the federal banking laws to eliminate certain barriers between
banking and commercial firms are expected to result in even greater
competition in the future.
3
<PAGE>
COLUMBIA BANKING SYSTEM, INC.
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------------------------------- -------- --------
(dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
For the Year
Net interest income...... $ 49,509 $ 41,960 $ 35,231 $ 25,344 $ 20,702
Provision for loan
losses.................. 2,400 1,900 4,726 1,635 1,382
Noninterest income....... 10,146 8,182 10,624 4,785 3,443
Noninterest expense...... 39,644 32,794 29,066 23,380 18,656
Net income............... 11,670 10,201 9,275* 4,635* 3,691
Per Share
Net income (basic)....... $ 1.10 $ 0.97 $ 0.89* $ 0.61* $ 0.54
Net income (diluted)..... 1.08 0.94 0.87* 0.60* 0.53
Book value............... 9.35 8.48 7.55 6.93 5.34
Averages
Total Assets............. $ 1,131,416 $ 939,274 $764,728 $595,252 $458,338
Earning assets........... 1,039,628 863,193 711,484 554,941 422,968
Loans.................... 927,373 748,587 613,671 473,887 373,560
Securities............... 99,149 83,657 71,424 51,056 38,353
Deposits................. 994,096 813,685 656,206 507,612 389,327
Shareholders' equity..... 94,718 84,680 64,384 45,669 37,450
Financial Ratios
Net interest margin...... 4.78% 4.87% 4.96% 4.58% 4.91%
Return on average
assets.................. 1.03 1.09 1.21* 0.78* 1.21
Return on average
equity.................. 12.32 12.05 14.41* 10.15* 14.41
Efficiency ratio......... 66.46 65.40 65.74 75.57 77.27
Average equity to average
assets.................. 8.37 9.02 8.42 7.67 8.17
At Year-End
Total assets............. $ 1,237,157 $ 1,059,919 $864,555 $706,448 $520,059
Loans.................... 1,048,006 828,639 685,889 523,151 418,057
Allowance for loan
losses.................. 9,967 9,002 8,440 5,282 4,340
Deposits................. 1,043,544 938,345 740,430 596,504 446,899
Shareholders' equity..... 99,214 89,566 78,353 68,224 40,194
Number of full-time
equivalent employees.... 469 439 327 294 243
Number of banking
offices................. 27 25 21 20 17
Nonperforming assets:
Nonaccrual loans......... $ 4,360 $ 3,603 $ 1,462 $ 2,256 $ 449
Restructured loans....... 187 1,783 20 25 29
Real estate owned........ 1,263 901 231 484 3,304
----------- ----------- -------- -------- --------
Total nonperforming
assets................ $ 5,810 $ 6,287 $ 1,713 $ 2,765 $ 3,782
=========== =========== ======== ======== ========
Nonperforming loans to
period-end loans........ 0.43% 0.65% 0.22% 0.44% 0.11%
Nonperforming assets to
period-end assets....... 0.47% 0.59% 0.20% 0.39% 0.73%
Net loan chargeoffs...... $ 1,435 $ 1,338 $ 1,568 $ 693 $ 217
Risk-Based Capital
Ratios:
Tier I capital........... 9.12% 9.89% 10.77% 12.51% 9.53%
Total capital............ 10.01 10.88 11.93 13.48 11.21
Leverage ratio........... 8.46 8.72 9.33 10.17 7.94
<CAPTION>
1997(1) 1996(1)
-------- --------
(dollars in
thousands except
per share
*Financial information excluding certain items: amounts)
<S> <C> <C> <C> <C> <C>
For the Year
Net income excluding unusual items............... $ 8,165 $ 5,247
Per Share:
Net income excluding unusual items (basic)....... $ 0.79 $ 0.69
Net income excluding unusual items (diluted)..... 0.76 0.68
Financial Ratios
Return on average assets excluding unusual
items........................................... 1.07% 0.88%
Return on average equity excluding unusual
items........................................... 12.68% 11.49%
</TABLE>
- --------
(1) 1997 unusual items include: key man life insurance proceeds of $3.5
million (non-taxable), additional loan loss provision of $1.3 million (net
of tax), and merger related expenses of $1.1 million (net of tax). In 1996
there was one unusual item, a SAIF special assessment of $612,000.
4
<PAGE>
MANAGEMENT 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 projected 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.
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, merchant services fees, and income
from mortgage banking operations. The Company's operating expenses consist
primarily of compensation and employee benefit expense, and occupancy expense.
Like most financial institutions, the Company's interest income and cost of
funds are affected significantly by general economic conditions, particularly
changes in market interest rates, and by government policies and actions of
regulatory authorities.
After a soft first quarter that reflected the full impact of the Company's
new operations center and technology expenses associated with that facility,
the Company recorded net income of $11.7 million for 1999. This compares to
net income of $10.2 million in 1998 and $9.3 million in 1997. On a diluted per
share basis, net income for 1999 was $1.08 per share, compared with $0.94 per
share in 1998, and $0.87 per share in 1997.
In 1997, the results of operations include proceeds from a key man life
insurance policy upon the passing of Chairman A. G. Espe and expenses
associated with two completed mergers.
The Company completed its first bank acquisitions during the fourth quarter
of 1997, merging Cascade Community Bank and Bank of Fife into Columbia Bank.
The mergers were accounted for on a pooling-of-interest basis, and Company
financial statements for all reported periods have been restated to reflect
the mergers.
Net Interest Income. Net interest income increased $7.5 million, or 18%, in
1999 compared with an increase of $6.7 million, or 19%, in 1998. The 1999 and
1998 increase in net interest income was largely due to the overall growth of
the Company. Net interest income was favorably affected by average interest-
earning assets increasing more rapidly than average interest-bearing
liabilities, with the difference funded by noninterest-bearing deposits and
shareholders' equity. Average interest-earning assets increased $176.4 million
and $151.7 million in 1999 and 1998, respectively, while average interest-
bearing liabilities increased only $146.9 million and $116.9 million,
respectively.
Net interest margin (net interest income divided by average interest-
earning assets) decreased to 4.78% in 1999, compared with 4.87% in 1998 and
4.96% in 1997. While average interest-earning assets grew by 20% during fiscal
year 1999, that growth was offset by a decline in the average yield on
interest-earning assets to 8.13%, from 8.54% in fiscal year 1998. Similarly,
average interest-bearing liabilities grew by 21% in 1999 while the average
cost of interest-bearing liabilities decreased to 4.12% in 1999 from 4.53% in
1998. The decrease in net interest margin reflects the resulting net increase
in interest-earning assets during 1999, coupled with a flat net interest
spread for the year. Interest rates in general exhibited an upward trend
during the later half of 1999 after declining during the second half of 1998
and the first half of 1999. While the net interest margin for the
5
<PAGE>
year ended December 31, 1999 is lower than the same period in 1998, the net
interest margin increased to 4.86% for the fourth quarter of 1999 compared
with 4.61% for the same period in 1998, and has improved since the second
quarter of 1999 net interest margin of 4.70%, and the third quarter of 1999
net interest margin of 4.83%.
Provision for Loan Losses. For the years ended December 31, 1999, 1998 and
1997, net loan charge-offs amounted to $1.4 million, $1.3 million and $1.6
million, respectively. The Company's provision for loan losses was $2.4
million for 1999, compared with $1.9 million for 1998 and $4.7 million for
1997. During 1999, the allowance for loan losses increased $965,000 to $10.0
million as compared with $9.0 million and $8.4 million at the end of 1998 and
1997, respectively. The allowance for loan losses as a percentage of loans
(excluding loans held for sale at each date) decreased to 0.95% at December
31, 1999 as compared to 1.09% and 1.23% of loans at December 31, 1998 and
1997, respectively. The decrease was primarily due to rapid loan growth during
1999. At year-end 1999, the allowance for loan losses to nonperforming loans
was 168.70% compared to 167.14% and 569.50% at December 31, 1998 and 1997,
respectively. Management anticipates that continued growth of its loan
portfolio will require increases in its loan loss provision during fiscal year
2000.
Noninterest Income. Total noninterest income increased $2.0 million, or
24%, in 1999, and $2.7 million, or 29%, in 1998 excluding proceeds from a key
man life insurance policy in 1997. Increases in noninterest income during 1999
were centered in account service charges and merchant services fees. In
general, increases in account service charges are due to the growth of the
Company, and increases in merchant services fees reflect a planned effort by
the Company to develop this portion of its business. Income from mortgage
banking declined by $614,000, or 37%, in 1999 after an increase of $645,000,
or 63% in 1998. The changes each year reflected the impact of movements in
long-term interest rates upon mortgage loan activity.
Noninterest Expense. Total noninterest expense increased $6.9 million, or
21%, in 1999 and $5.0 million, or 18%, in 1998 excluding non-recurring items
(merger expense in 1997). The increase was primarily due to personnel costs
associated with the Company's expansion as well as occupancy, merchant
processing, other expenses, and expenses associated with a new operations
center. Other expenses are volume driven and reflect the Company's rapid
growth. 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 66.5% for
1999 compared with 65.4% and 65.7% for 1998 and 1997, respectively. The
Company has placed increased emphasis on control of noninterest expense,
however, management anticipates that the ratios will remain relatively high by
industry standards for the foreseeable future due to the Company's aggressive
growth strategy.
6
<PAGE>
Set forth below is a schedule showing additional detail concerning
increases and decreases in the Company's noninterest expense. The portion of
compensation expense related to loan originations is deferred and deducted
from interest income over the life of the related loans.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1999 Increase/(Decrease) 1998 Increase/(Decrease) 1997
------- ------------------- ------- ------------------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Compensation and
employee benefits...... $21,509 $3,584 $17,925 $ 2,669 $15,256
Loan origination costs.. (1,720) 389 (2,109) (182) (1,927)
------- ------ ------- ------- -------
Net compensation and
Employee benefits (as
reported).............. 19,789 3,973 15,816 2,487 13,329
Occupancy............... 6,520 1,305 5,215 727 4,488
Professional Services... 926 (25) 951 353 598
Advertising and
promotion.............. 1,712 (136) 1,848 584 1,264
Printing and supplies... 739 51 688 (51) 739
Regulatory assessments.. 404 206 198 (47) 245
Data processing......... 1,976 245 1,731 187 1,544
Losses on real estate
owned.................. 33 (29) 62 (62) 124
Telephone and network... 715 250 465 (35) 500
Postage & delivery...... 564 91 473 (58) 531
ATM network............. 390 109 281 60 221
Merchant processing..... 1,359 558 801 216 585
Taxes, licenses and
fees................... 1,485 165 1,320 330 990
Other................... 3,032 87 2,945 271 2,674
Merger expenses......... (1,234) 1,234
------- ------ ------- ------- -------
Total noninterest
expense.............. $39,644 $6,850 $32,794 $ 3,728 $29,066
======= ====== ======= ======= =======
</TABLE>
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. Additionally, the Company would assess whether an
impairment of a loan as provided in SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan", would warrant a write-down of the loan.
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,
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.
7
<PAGE>
Loan Portfolio Analysis
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 by type of loan
for the dates indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------
% of % of % of % of % of
1999 Total 1998 Total 1997 Total 1996 Total 1995 Total
---------- ----- -------- ----- -------- ----- -------- ----- -------- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial business..... $ 426,060 40.6 % $332,638 40.1 % $270,946 39.5 % $194,843 37.2 % $133,885 32.0%
---------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Real estate:
One- to four-family
residential.......... 64,669 6.2 61,132 7.4 71,095 10.4 77,359 14.8 77,603 18.6
Five or more family
residential and
commercial
properties........... 377,708 36.0 291,868 35.2 206,628 30.1 151,179 28.9 113,784 27.2
---------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total real estate.... 442,377 42.2 353,000 42.6 277,723 40.5 228,538 43.7 191,387 45.8
Real estate
construction:
One- to four-family
residential.......... 32,742 3.1 26,444 3.2 29,695 4.3 31,446 6.0 32,819 7.9
Five or more family
residential and
commercial
properties........... 45,886 4.4 23,213 2.8 33,806 4.9 10,724 2.1 8,985 2.1
---------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total real estate
construction........ 78,628 7.5 49,657 6.0 63,501 9.2 42,170 8.1 41,804 10.0
---------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Consumer................ 103,296 9.9 94,572 11.4 74,710 10.9 58,249 11.1 51,788 12.4
---------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Subtotal.............. 1,050,361 100.2 829,867 100.1 686,880 100.1 523,800 100.1 418,864 100.2
Less deferred loan fees
and other.............. (2,355) (0.2) (1,228) (0.1) (991) (0.1) (649) (0.1) (807) (0.2)
---------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans.......... $1,048,006 100.0 % $828,639 100.0 % $685,889 100.0 % $523,151 100.0 % $418,057 100.0 %
========== ===== ======== ===== ======== ===== ======== ===== ======== =====
Loans held for sale..... $ 5,479 $ 10,023 $ 4,377 $ 11,341 $ 1,367
========== ======== ======== ======== ========
</TABLE>
Total loans at year-end increased $219.4 million, or 26%, from year-end
1998. All loan categories contributed to the increase.
Commercial Loans: Commercial loans increased $93.4 million, or 28%, to
$426.1 million from year-end 1998, representing 40.6% of total loans. Net
growth in commercial loans slowed during the first quarter of 1999 and
rebounded during the last nine months of 1999. Growth during 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 providing 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.
Real Estate Loans: Residential one- to four-family loans increased $3.5
million to $64.7 million at December 31, 1999, representing 6.2% of total
loans, compared with $61.1 million at December 31, 1998. 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.
The Company makes multi-family and commercial real estate loans in its
primary market areas. Multi-family and commercial real estate lending
increased to $377.7 million at December 31, 1999, representing 36.0% of total
loans, from $291.9 million at December 31, 1998. The increase in multi-family
and commercial real
8
<PAGE>
estate lending during 1999 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 in the future. 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.
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 increased
to $32.7 million at December 31, 1999, representing 3.1% of total loans, from
$26.4 million of total loans at December 31, 1998. Multi-family and commercial
real estate construction loans increased to $45.9 million at December 31,
1999, representing 4.4% of total loans, from $23.2 million, or 2.8% of loans,
at December 31, 1998.
The Company endeavors to limit its construction lending risk through
adherence to strict underwriting procedures.
Consumer Loans: At December 31, 1999, the Company had $103.3 million of
consumer loans outstanding, representing 9.9% of total loans, as compared with
$94.6 million, or 11.4% of loans, at December 31, 1998. Consumer loans made by
the Company include automobile loans, boat and recreational vehicle financing,
home equity and home improvement loans and miscellaneous personal loans.
At December 31, 1999, the Company had no loans to foreign domiciled
businesses or foreign countries, or loans related to highly leveraged
transactions.
Management's growth strategy has concentrated on the Tacoma/Pierce County
market. The results of that strategy are evident in the following summary of
loan growth by market area. In addition, management has aggressively pursued
growth in Cowlitz County, South King County, the Bellevue/Eastside area,
Kitsap County, and Thurston County and has committed additional resources to
those markets.
<TABLE>
<CAPTION>
December 31, Increase
------------------- ----------------
1999 1998 Amount Percent
---------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
Pierce County.............................. $ 781,803 $619,688 $162,114 26.2%
All other counties......................... 266,203 208,951 57,252 27.4
---------- -------- -------- ----
Total.................................... $1,048,006 $828,639 $219,366 26.5%
========== ======== ======== ====
</TABLE>
Nonperforming Assets
Nonperforming assets consist of: (i) nonaccrual loans, which are loans
placed on a nonaccrual basis 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) real estate owned. Potential problem
loans are loans which are currently performing and are not included in
nonaccrual or restructured loans, but about which there are serious doubts as
to the borrower's ability to comply with present repayment terms and which may
later be included in nonaccrual, past due or restructured loans.
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, total
nonperforming assets, accruing loans past-due 90 days or more, impaired loans,
and potential problem loans of the Company:
9
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual:
One- to four-family residential...... $ 23 $ 722 $ 661 $1,645 $ 329
Commercial real estate............... 1,784 1,542
Commercial business.................. 2,176 1,214 728 385 86
Consumer............................. 377 125 73 226 34
------ ------ ------ ------ ------
Total.............................. 4,360 3,603 1,462 2,256 449
Restructured:
One- to four-family residential...... 15 20 25 29
One- to four-family residential
construction........................ 122 1,768
Commercial business.................. 65
------ ------ ------ ------ ------
Total.............................. 187 1,783 20 25 29
Total nonperforming loans.......... $4,547 $5,386 $1,482 $2,281 $ 478
====== ====== ====== ====== ======
Real estate owned...................... 1,263 901 231 484 3,304
------ ------ ------ ------ ------
Total nonperforming assets......... $5,810 $6,287 $1,713 $2,765 $3,782
====== ====== ====== ====== ======
Accruing loans past-due 90 days or
more.................................. $ 40 $ 111 $ 154
Impaired loans......................... $4,147 $4,579 $ 728 385 86
Potential problem loans................ 2,234 1,862 669 346 239
Allowance for loan losses.............. 9,967 9,002 8,440 5,282 4,340
Nonperforming loans to loans........... 0.43% 0.65% 0.22% 0.44% 0.11%
Nonperforming assets to total assets... 0.47 0.59 0.20 0.39 0.73
====== ====== ====== ====== ======
</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.
Impaired loans, generally, refer to commercial business, commercial real
estate, and real estate construction loans that are restructured in a troubled
debt restructuring involving a modification of terms; nonaccrual loans and
loans past due 90 days and still accruing.
Nonperforming loans were $4.5 million, or 0.43% of total loans (excluding
loans held for sale), at December 31, 1999, compared to $5.4 million, or 0.65%
of total loans at December 31, 1998 due principally to increases in the
commercial business, commercial real estate, and consumer loan categories.
Nonaccrual loans and other nonperforming assets are centered in a small
number of lending relationships which management considers to be adequately
reserved. Substantially, all nonperforming loans are to borrowers within the
State of Washington.
Real estate owned, which is comprised of foreclosed real estate loans,
increased to $1.3 million at December 31, 1999, from $901,000 at December 31,
1998. During 1999, the Company foreclosed on $964,000 of loans collateralized
by real estate and transferred the real estate to REO. Also, the Company
reduced REO by $602,000, with proceeds of $562,000 from sales and net losses
on sales of $4,000, and write-downs of $36,000. At December 31, 1999, REO
consisted of two foreclosed properties.
Total nonperforming assets totaled $5.8 million, or 0.47% of period-end
assets at December 31, 1999, compared to $6.3 million, or 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:
10
<PAGE>
1. Formula based allowances calculated on minimum thresholds and
historical performance of the portfolio for the past five years.
2. Specific allowances for identified problem loans in accordance with
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan."
3. Unallocated allowance.
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 non-performing 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.
At December 31, 1999, the Company's allowance for loan losses was $10.0
million, or 0.95% of the total loan portfolio, and 168.7% of nonperforming
loans. This compares with an allowance of $9.0 million, or 1.09% of the total
loan portfolio, and 167% of nonperforming loans, at December 31, 1998. The
decrease in the allowance as a percentage of loans was due primarily to the
$219.4 million growth in loans during 1999.
During the year ended December 31, 1999, the Company set aside $2.4 million
as a provision for loan losses as compared with $1.9 million during 1998. For
the years ended December 31, 1999, 1998 and 1997, net loan charge-offs
amounted to $1.4 million, $1.3 million, and $1.6 million, respectively.
During 1999, there were no changes in estimation methods or assumptions
that affected the Company's methodology for assessing the appropriateness of
the allowance, except that certain changes in assumptions regarding the effect
of portfolio maturity and of economic and business conditions on borrowers
affected the assessment of the appropriate provision for the year 1999. In
1997 management concluded that loss potential had increased in the loan
portfolio as a result of average annual growth in the portfolio of
approximately 31% since 1993 combined with indications of a business downturn
resulting from the effect of global economic conditions from the Asian
financial crisis and, in particular, potential adverse effects on the
aerospace, foreign trade and timber industries. This judgement was made
despite the absence of a manifested increase in nonaccrual loans or
nonperforming assets but after considering the additional factors management
considers when determining the adequacy of the allowance, as discussed above.
Thus management substantially increased the provision in 1997 to reserve for
such loss potential.
During 1998, nonperforming loan levels did rise significantly but the
reasons for the increase were determined by management to be a reflection of
the maturing of the portfolio rather than problems in the aerospace, foreign
trade and timber industries. Those borrowers who were downgraded to
nonperforming status received close supervision by the Bank with the objective
of seeing substantial improvement in performance or
11
<PAGE>
elimination from the portfolio by refinancing outside the Bank or other means.
Progress in improving their condition was made by several borrowers during
1998. Also, the stability of other borrowers despite the downturn convinced
management that a similarly large provision in 1998 was not required. Thus the
1998 provision was reduced to an amount which did not anticipate further
significant deterioration in the quality of the loan portfolio.
In 1999, the Company's experience with loan losses was consistent with
prior years. However, its loan loss reserve as a percentage of total loans
declined due to rapid growth in the loan portfolio. Management anticipates
that continued growth of the loan portfolio will require increases in the loan
loss provision during the year 2000. In addition, the increased provision is
intended to protect against any slowdown in the local economy, which could
result in deteriorating credit quality.
The following table provides an analysis of net losses by loan type for the
last five years.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total loans, net at end of
period(1)................ $1,048,006 $828,639 $685,889 $523,151 $418,057
Daily average loans....... 927,373 748,587 613,671 473,887 373,560
---------- -------- -------- -------- --------
Balance of allowance for
loan losses at beginning
of period................ $ 9,002 $ 8,440 $ 5,282 $ 4,340 $ 3,175
Charge-offs:
One-to four-family
residential
construction........... (314) (57) (364) (7)
Commercial business..... (1,006) (1,195) (1,025) (514) (148)
Consumer................ (299) (333) (270) (199) (119)
---------- -------- -------- -------- --------
Total charge-offs..... (1,619) (1,585) (1,659) (720) (267)
Recoveries:
One-to four-family
residential............ 1 7
Commercial business..... 118 175 43 17 45
Consumer................ 66 72 47 3 5
---------- -------- -------- -------- --------
Total recoveries...... 184 247 91 27 50
---------- -------- -------- -------- --------
Net charge-offs......... (1,435) (1,338) (1,568) (693) (217)
Provision charged to
expense.................. 2,400 1,900 4,726 1,635 1,382
---------- -------- -------- -------- --------
Balance of allowance for
loan losses at end of
period................... $ 9,967 $ 9,002 $ 8,440 $ 5,282 $ 4,340
Net charge-off to average
loans outstanding........ 0.16% 0.18% 0.26% 0.15% 0.06%
Allowance for loan losses
to loans................. 0.95 1.09 1.23 1.01 1.04
Allowance for loan losses
to nonperforming loans... 168.70 167.14 569.50 231.57 907.95
</TABLE>
- --------
(1) Excludes loans held for sale
Securities
The Company's securities (securities available for sale and securities held
to maturity) decreased by $12.0 million to $88.1 million from year-end 1998 to
year-end 1999. The Company had no sales of securities during 1999. Purchases
during the year totaled $10.4 million while maturities and prepayments totaled
$17.4 million. U.S. Treasury and government agency securities comprise 80.1%
of the investment portfolio, with mortgage-backed securities at 10.7% and
state and municipal securities at 7.5%. The average maturity of the securities
portfolio was 5 years, 3 months at December 31, 1999.
Approximately 92.0% of the Company's securities are classified as available
for sale and carried at fair value. These securities are used by management as
part of its asset/liability management strategy and may be sold in response to
changes in interest rates and/or significant prepayment risk. For further
information on investment securities, including gross unrealized gains and
losses in the portfolio and gross realized gains and losses on sales of
securities, see Note 5 to the consolidated financial statements.
12
<PAGE>
Premises and Equipment
In 1999, fixed assets increased $2.1 million, or 5.6% from 1998. The net
change includes purchases of $5.3 million, disposals of $2,000 and
depreciation expense of $3.2 million. The Company's capital expenditures in
2000 are anticipated to be approximately $14.0 million. Such expenditures are
expected to include approximately $12.8 million for new buildings and for
remodeling existing structures, and $1.2 million for new furniture, equipment,
and software.
Liquidity and Sources of Funds
The Company's primary sources of funds are customer deposits and advances
from the FHLB. These funds, together with loan repayments, loan sales,
retained earnings, equity and other borrowed funds, are used to make loans, to
acquire securities and other assets, and to fund continuing operations.
Deposit Activities
The Company experienced overall average deposit growth of 22.2% and 24.0%
in 1999 and 1998, respectively. All categories of deposits increased during
both years. The increase occurred primarily in "core deposits." The average
interest-bearing and noninterest-bearing demand deposits increased 31.0% and
23.3%, respectively, in 1999, and 28.4% and 34.0%, respectively in 1998.
Average deposits are summarized in the following table:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Demand and other noninterest-
bearing......................... $184,094 $149,353 $111,492 $ 74,940 $ 54,878
Interest-bearing demand.......... 376,079 287,007 223,514 160,020 97,326
Savings.......................... 45,478 39,768 38,301 32,438 33,145
Certificates of deposit.......... 388,445 337,557 282,899 240,214 203,978
-------- -------- -------- -------- --------
Total average deposits......... $994,096 $813,685 $656,206 $507,612 $389,327
======== ======== ======== ======== ========
</TABLE>
The Company is establishing a branch system catering primarily to retail
depositors, supplemented by business customer deposits and other borrowings.
The branch system deposits are intended to provide a stable core funding base
for the Company. Together with that stable core deposit base, management's
strategy for funding growth is also to make use of brokered and other
wholesale deposits. The Company's use of brokered and other wholesale deposits
increased in 1999 and management anticipates continued use of such deposits to
fund increasing loan demand. During 1999, total deposits increased $105.2
million to $1.0 billion at December 31, 1999. Brokered and other wholesale
deposits (excluding public deposits) increased $18.0 million to $25.3 million,
or 2.43% of total deposits, at December 31, 1999, from $7.3 million, or 0.78%
of total deposits, at December 31, 1998.
Brokered and other wholesale deposits are summarized below. The average
interest rate for these deposits was 5.60% and 5.59% at December 31, 1999 and
1998, respectively.
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
---------------- ---------------
Percent Percent
of Total of Total
Amount maturing: Amount Deposits Amount Deposits
- ---------------- ------- -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Due within 1 year........................... $ 5,327 0.51% $2,000 0.21%
After 1 but within 3 years.................. 9,000 0.86 5,327 0.57
After 3 but within 5 years.................. 11,000 1.06
------- ---- ------ ----
Total brokered and other wholesale
deposits................................. $25,327 2.43% $7,327 0.78%
======= ==== ====== ====
</TABLE>
13
<PAGE>
The increase in deposits during 1999 is largely due to the Company's growth
strategy. The following table is a summary of year-end deposits by county.
<TABLE>
<CAPTION>
December 31,
------------------------------------
Increase
----------------
1999 1998 Amount Percent
---------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
Pierce County.............................. $ 737,268 $678,019 $ 59,281 8.7%
All other counties......................... 306,276 260,326 45,950 17.7
---------- -------- -------- ----
Total.................................. $1,043,544 $938,345 $105,231 11.2%
========== ======== ======== ====
</TABLE>
Borrowings
The Company relies on FHLB advances to supplement its funding sources, and
the FHLB serves as the Company's primary source of long-term borrowings. In
addition, the Company uses short-term borrowings from the FHLB when necessary.
FHLB advances are secured by one- to four-family real estate mortgages and
certain other assets. At December 31, 1999, the Company had short-term
advances of $83.7 million at an interest rate of 5.70%. During 1999 strong
loan growth exceeded deposit growth, as a result the Company utilized short-
term borrowings from the FHLB for funding. At December 31, 1999 the maximum
borrowing line from the FHLB was $123.8 million. Management anticipates that
the Company will continue to rely on the same sources of funds in the future,
and will use those funds primarily to make loans and purchase securities.
The Company, in addition to the FHLB maintains a borrowing relationship
with another financial institution. At December 31, 1999, the Company had $3.0
million in long-term borrowings.
At December 31, 1999, 1998, and 1997, average short-term (original maturity
of one year or less) borrowings did not exceed 30 percent of shareholders
equity at the end of the period.
Interest Rate Sensitivity
Columbia Bank is exposed to interest rate risk, which is the risk that
changes in prevailing interest rates will adversely affect assets,
liabilities, capital, income and expenses at different times or in different
amounts. Generally, there are four sources of interest rate risk as described
below:
Repricing risk--Generally, repricing risk is the risk of adverse
consequences from a change in interest rates that arises because of
differences in the timing of when those interest rate changes affect an
institution's assets and liabilities.
Basis risk--Basis risk is the risk of adverse consequence resulting from
unequal changes in the spread between two or more rates for different
instruments with the same maturity.
Yield curve risk--Yield curve risk is the risk of adverse consequence
resulting from unequal changes in the spread between two or more rates for
different maturities for the same instrument.
Option risk--In banking, option risks are known as borrower options to
prepay loans and depositor options to make deposits, withdrawals, and early
redemptions. Option risk arises whenever bank products give customers the
right, but not the obligation, to alter the quantity of the timing of cash
flows.
The Company maintains an asset/liability management policy that provides
guidelines for controlling exposure to interest rate risk. The guidelines
direct management to assess the impact of changes in interest rates upon both
earnings and capital. The guidelines further provide that in the event of an
increase in interest rate risk beyond preestablished limits, management will
consider steps to reduce interest rate risk to acceptable levels.
The analysis of an institution's interest rate gap (the difference between
the repricing of interest-earning assets and interest-bearing liabilities
during a given period of time) is one standard tool for the measurement of the
exposure to interest rate risk. The Company believes that because interest
rate gap analysis does not address all factors that can affect earnings
performance, it should be used in conjunction with other methods of evaluating
interest rate risk.
14
<PAGE>
The following table sets forth the estimated maturity or repricing, and the
resulting interest rate gap of the Company's interest-earning assets and
interest-bearing liabilities at December 31, 1999. The amounts in the table
are derived from the Company's internal data and are based upon regulatory
reporting formats. Therefore, they may not be consistent with financial
information appearing elsewhere herein that has been prepared in accordance
with generally accepted accounting principles. The amounts could be
significantly affected by external factors such as changes in prepayment
assumptions, early withdrawal of deposits and competition. For example,
although certain assets and liabilities may have similar maturities or periods
to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates,
while other types may lag behind changes in market interest rates.
Additionally, certain assets, such as adjustable-rate mortgages, have features
which restrict changes in the interest rates of such assets both on a short-
term basis and over the lives of such assets. Further, in the event of a
change in market interest rates, prepayment and early withdrawal levels could
deviate significantly from those assumed in calculating the tables. Finally,
the ability of many borrowers to service their adjustable-rate debt may
decrease in the event of a substantial increase in market interest rates.
<TABLE>
<CAPTION>
Estimated Maturity or Repricing
---------------------------------------------------------------
0-3 4-12 1-5 5-10 More than
December 31, 1999 months months years years 10 years Total
----------------- -------- --------- -------- -------- --------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Interest-earning
deposits............... $ 170 $ 170
Securities.............. 571 $ 11,303 $ 61,218 $ 21,937 95,029
Loans:
Business and
commercial real
estate............... 374,762 $ 32,608 261,338 27,619 4,098 700,425
One- to four-family
and owner-occupied
residential real
estate............... 56,066 49,498 107,508 8,881 18,606 240,559
Consumer.............. 17,972 42,581 33,683 9,747 4,158 108,141
-------- --------- -------- -------- -------- ----------
Total interest-
earning assets...... $449,541 $ 124,687 $413,832 $107,465 $ 48,799 $1,144,324
======== ========= ======== ======== ======== ==========
Noninterest-earning
assets................. 4,360 88,473 92,833
-------- --------- -------- -------- -------- ----------
Total assets......... $449,541 $ 129,047 $413,832 $107,465 $137,272 $1,237,157
======== ========= ======== ======== ======== ==========
Percent of total
interest-earning
assets................. 39.29% 10.90 % 36.16% 9.39% 4.26% 100.00%
======== ========= ======== ======== ======== ==========
Interest-Bearing
Liabilities
Deposits:
Money market
checking............. $ 98,749 $ 98,749 $ 98,748 $ 296,246
NOW accounts.......... 20,136 80,545 100,681
Savings accounts...... 15,192 $ 15,192 $ 15,192 45,576
Time certificates of
deposit.............. 100,315 239,247 80,652 20 420,234
FHLB advances........... 83,700 83,700
Other borrowings........ 3,000 3,000
-------- --------- -------- -------- -------- ----------
Total interest-
bearing
liabilities......... $318,092 $ 340,996 $259,945 $ 15,212 $ 15,192 $ 949,437
======== ========= ======== ======== ======== ==========
Noninterest-bearing
liabilities and
equity................. 144,671 36,168 106,881 287,720
======== ========= ======== ======== ======== ==========
Total liabilities and
equity.............. $462,763 $ 340,996 $296,113 $ 15,212 $122,073 $1,237,157
======== ========= ======== ======== ======== ==========
Percent of total
interest-earning
assets................. 27.80% 29.79 % 22.71% 1.33% 1.33% 82.96%
======== ========= ======== ======== ======== ==========
Rate sensitivity gap.... $131,449 $(216,309) $153,887 $ 92,253 $ 33,607 $ 194,887
Cumulative rate
sensitivity gap........ 131,449 (84,860) 69,027 161,280 194,887
-------- --------- -------- -------- -------- ----------
Rate sensitivity gap as
a percentage of
interest-earning
assets................. 11.49% (18.89)% 13.45% 8.06% 2.93% 17.04%
Cumulative rate
sensitivity gap as a
percentage of interest-
earning assets......... 11.49% (7.40)% 6.05% 14.11% 17.04%
======== ========= ======== ======== ======== ==========
</TABLE>
15
<PAGE>
Interest Rate Sensitivity on Net Interest Income
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 mortgage-
related 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.
Based on the results of the simulation model as of December 31, 1999, the
Company would expect an increase in net interest income of $2.8 million and a
decrease in net interest income of $966,000 if interest rates gradually
decrease or increase, respectively, from current rates by 100 basis points
over a twelve-month period. Based on the results of the simulation model as of
December 31, 1998, the Company would expect an increase in net interest income
of $470,000 and a decrease in net interest income of $461,000 if interest
rates gradually decrease or increase, respectively, from current rates by 100
basis points over a twelve-month period.
Income Tax
For the years ending December 31, 1999, 1998 and 1997, the Company recorded
income tax provisions of $5.9 million, $5.2 million and $2.8 million,
respectively.
Capital
Shareholders' equity increased to $99.2 million at December 31, 1999, from
$89.6 million at December 31, 1998. The increase is due primarily to net
income for the year of $11.7 million. Shareholders' equity was 8.02% and 8.45%
of total assets at December 31, 1999 and December 31, 1998, respectively.
Banking regulations require bank holding companies to maintain a minimum
"leverage" ratio of core capital to adjusted quarterly average total assets of
at least 3%. At December 31, 1999, the Company's leverage ratio was 8.46%,
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, 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% to be considered
"adequately capitalized". The Company's Tier I and total capital ratios were
9.12% and 10.01%, respectively, at December 31, 1999, compared with 9.89% and
10.88%, respectively, at December 31, 1998.
During 1992, the Federal Deposit Insurance Corporation (the "FDIC")
published the qualifications necessary to be classified as a "well
capitalized" bank, primarily for assignment of FDIC insurance premium rates
beginning in 1993. To qualify as "well capitalized," banks must have a Tier I
risk-adjusted capital ratio of at least 6%, a total risk-adjusted capital
ratio of at least 10%, and a leverage ratio of at least 5%. Columbia Bank
qualified as "well-capitalized" at December 31, 1999. Failure to qualify as
"well capitalized" can negatively impact a bank's ability to expand and to
engage in certain activities.
Applicable federal and Washington state regulations restrict capital
distributions by institutions such as Columbia Bank, including dividends. Such
restrictions are tied to the institution's capital levels after giving effect
to distributions. The Company's ability to pay cash dividends is substantially
dependent upon receipt of dividends from the Bank.
On April 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 and net income per share for all periods presented have been
retroactively adjusted to give effect to this transaction.
16
<PAGE>
Impact of Inflation and Changing Prices
The impact of inflation on the Company's operations is increased operating
costs. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than the effect of general levels of inflation.
Although interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services, increases in inflation
generally have resulted in increased interest rates.
Impact of the Year 2000 Issue (Y2K)
Many existing computer systems, including the systems used by the Company,
originally used only two digits to identify a year in the date field. These
programs were designed and developed without taking into account the recent
change in the century. It was feared that the failure of any of these systems
to recognize the year 2000 could have a material effect on a company's
business, results of operations, and/or financial condition. At the century
date change on January 1, 2000, the Company's operations and electronic
systems did not incur any breakdowns, stoppages, complications or
interruptions of any type. In addition, all outside service and utility
providers that the Company subscribes to experienced no service interruptions,
and to the best of the Company's knowledge, its customers experienced few, if
any, problems. The Company developed a comprehensive Year 2000 contingency
plan. 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. Although the Company has taken precautions to assure
its technology is Y2K ready, should any complications arise in the future, the
Company is prepared to address such potential problems or situations. Expenses
incurred to prepare the Company for the year 2000 did not have a material
effect on its financial results for the year ended December 31, 1999.
QUARTERLY COMMON STOCK PRICES AND DIVIDEND PAYMENTS
The Company's common stock trades on The Nasdaq Stock Market under the
symbol COLB. Price information generally appears daily in the Nasdaq National
Market Issues section of The Wall Street Journal and in most major Pacific
Northwest metropolitan newspapers. On December 31, 1999, the last sale price
for the Company's stock in the over-the-counter market was $13 1/8.
The Company presently intends to retain earnings to support anticipated
growth. Accordingly, the Company does not intend to pay cash dividends on its
common stock in the foreseeable future. Please refer to the "Capital" section
of the "Management Discussion and Analysis of Financial Condition and Results
of Operations" and Notes 4 and 12 to the consolidated financial statements,
contained elsewhere in this report, for regulatory capital requirements and
restrictions on dividends to shareholders.
At December 31, 1999, the number of shareholders of record was 1,356. This
figure does not represent the actual number of beneficial owners of common
stock because shares are frequently held in "street name" by securities
dealers and others for the benefit of individual owners who may vote the
shares.
The following are high and low sales prices as reported in Nasdaq according
to information furnished by the National Association of Securities Dealers.
Prices do not include retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
1999 High Low
---- ---- ----
<S> <C> <C>
First quarter............................................ $17 3/4 $ 15
Second quarter........................................... 17 7/16 13 7/8
Third quarter............................................ 16 1/4 12 1/2
Fourth quarter........................................... 16 1/2 12 7/8
For the year............................................. $17 3/4 12 1/2
<CAPTION>
1998 High Low
---- ---- ----
<S> <C> <C>
First quarter............................................ $21 1/4 $17 7/8
Second quarter........................................... 27 5/32 19 7/8
Third quarter............................................ 23 1/2 14 3/8
Fourth quarter........................................... 22 1/2 15 7/16
For the year............................................. 27 5/32 14 3/8
</TABLE>
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Columbia Banking System, Inc.
We have audited the accompanying consolidated balance sheets of Columbia
Banking System, Inc. and its subsidiary (the Company) as of December 31, 1999
and 1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Columbia Banking System, Inc.
and subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
Seattle, Washington
January 28, 2000
18
<PAGE>
COLUMBIA BANKING SYSTEM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December
31,
-----------------------
1999 1998 1997
------- ------- -------
(in thousands except
per share)
<S> <C> <C> <C>
Interest Income
Loans................................................... $77,807 $66,858 $56,176
Securities available for sale........................... 5,619 4,696 3,800
Securities held to maturity............................. 287 419 628
Deposits with banks..................................... 639 1,654 1,457
------- ------- -------
Total interest income................................. 84,352 73,627 62,061
Interest Expense
Deposits................................................ 32,898 29,759 24,775
Federal Home Loan Bank advances......................... 1,939 1,908 1,971
Other borrowings........................................ 6 84
------- ------- -------
Total interest expense................................ 34,843 31,667 26,830
------- ------- -------
Net Interest Income..................................... 49,509 41,960 35,231
Provision for loan losses............................... 2,400 1,900 4,726
------- ------- -------
Net interest income after provision for loan losses... 47,109 40,060 30,505
Noninterest Income
Service charges and other fees.......................... 5,812 4,414 3,498
Mortgage banking........................................ 1,063 1,677 1,032
Merchant services fees.................................. 2,655 1,617 1,140
Gains on sales of loans, net............................ 1,035
Other................................................... 616 474 401
Key man life insurance.................................. 3,518
------- ------- -------
Total noninterest income.............................. 10,146 8,182 10,624
Noninterest Expense
Compensation and employee benefits...................... 19,789 15,816 13,329
Occupancy............................................... 6,520 5,215 4,488
Merchant processing..................................... 1,359 801 585
Advertising and promotion............................... 1,712 1,848 1,264
Data processing......................................... 1,976 1,731 1,544
Taxes, licenses & fees.................................. 1,485 1,320 990
Other................................................... 6,803 6,063 5,632
Merger expenses......................................... 1,234
------- ------- -------
Total noninterest expense............................. 39,644 32,794 29,066
------- ------- -------
Income before income taxes.............................. 17,611 15,448 12,063
Provision for income taxes.............................. 5,941 5,247 2,788
------- ------- -------
Net Income.............................................. $11,670 $10,201 $ 9,275
======= ======= =======
Net Income Per Common Share:
Basic................................................. $ 1.10 $ 0.97 $ 0.89
Diluted............................................... 1.08 0.94 0.87
Average number of common shares outstanding............. 10,593 10,548 10,369
Average number of diluted common shares outstanding..... 10,843 10,877 10,674
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
COLUMBIA BANKING SYSTEM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks................................. $ 43,027 $ 53,602
Interest-earning deposits with banks.................... 170 22,816
---------- ----------
Total cash and cash equivalents................... 43,197 76,418
Securities available for sale (fair value).............. 81,029 93,726
Securities held to maturity (fair value of $7,040 and
$6,505, respectively).................................. 7,084 6,358
FHLB stock.............................................. 6,916 5,550
Loans held for sale..................................... 5,479 10,023
Loans, net of unearned income........................... 1,048,006 828,639
Less: allowance for loan losses....................... 9,967 9,002
---------- ----------
Loans, net........................................ 1,038,039 819,637
Interest receivable..................................... 7,609 6,420
Premises and equipment, net............................. 39,166 37,077
Real estate owned....................................... 1,263 901
Other................................................... 7,375 3,809
---------- ----------
Total Assets...................................... $1,237,157 $1,059,919
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing..................................... $ 181,716 $ 180,445
Interest-bearing........................................ 861,828 757,900
---------- ----------
Total deposits.................................... 1,043,544 938,345
Federal Home Loan Bank advances......................... 83,700 25,000
Other borrowings........................................ 3,000
Other liabilities....................................... 7,699 7,008
---------- ----------
Total liabilities................................. 1,137,943 970,353
Commitments and contingent liabilities
(Note 14)
Shareholders' equity:
Preferred stock (no par value)
Authorized, 2 million shares; none
outstanding
December 31,
---------------
1999 1998
------- -------
Common stock (no par value)
Authorized shares................... 47,250 47,250
Issued and outstanding.............. 10,603 10,050 78,285 68,612
Retained earnings..................... 23,916 20,616
Accumulated other comprehensive income
(loss):
Unrealized gains (losses) on
securities available for sale, net of
tax.................................. (2,987) 338
---------- ----------
Total shareholders' equity........ 99,214 89,566
---------- ----------
Total Liabilities and
Shareholders' Equity............. $1,237,157 $1,059,919
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
COLUMBIA BANKING SYSTEM, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock Accumulated
----------------- Other Total
Number of Retained Comprehensive Shareholders'
Shares Amount Earnings Income (Loss) Equity
--------- ------- -------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 9,360 $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................... 9,868 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................... 10,050 68,612 20,616 338 89,566
Comprehensive income:
Net income for 1999... 11,670
Change in unrealized
gains and (losses) on
securities available
for sale, net of
tax.................. (3,325)
Total comprehensive
income............. 8,345
Issuance of stock under
stock option and other
plans.................. 49 1,303 1,303
Issuance of shares of
common stock-- 5% stock
dividend............... 504 8,370 (8,370)
------ ------- ------- ------- -------
Balance at December 31,
1999................... 10,603 $78,285 $23,916 $(2,987) $99,214
====== ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
COLUMBIA BANKING SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Operating Activities
Net income.................................... $ 11,670 $ 10,201 $ 9,275
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses................... 2,400 1,900 4,726
Deferred income tax expense (benefit)....... (724) 30 956
Losses on real estate owned................. 4 35 105
Depreciation and amortization............... 2,270 2,304 2,189
Net realized (gains) losses on sale of
assets..................................... 2 (55) (971)
(Increase) decrease in loans held for sale.. 4,544 (5,646) 6,964
Increase in interest receivable............. (1,189) (1,397) (903)
Increase in interest payable................ 1,109 660 528
Net changes in other assets and
liabilities................................ (1,561) (883) (3,546)
--------- --------- ---------
Net cash provided by operating
activities............................... 18,525 7,149 19,323
Investing Activities
Proceeds from maturities of securities
available for sale........................... 15,191 49,250 25,337
Purchase of securities available for sale..... (8,150) (82,780) (34,286)
Proceeds from maturities of mortgage-backed
securities available for sale................ 625 5,075 3,814
Purchase of mortgage-backed securities
available for sale........................... (8,710)
Proceeds from maturities of securities held to
maturity..................................... 1,559 4,698 4,414
Purchases of securities held to maturity...... (2,287) (1,380) (1,470)
Purchases of FHLB stock....................... (927) (174)
Loans originated and acquired, net of
principal collected.......................... (220,761) (144,585) (173,877)
Proceeds from sales of loans.................. 10,177
Purchases of premises and equipment........... (5,324) (12,546) (11,043)
Proceeds from disposal of premises and
equipment.................................... 10 20 400
Proceeds from sale of real estate owned....... 562 308 588
Other, net.................................... (446) (419) (454)
--------- --------- ---------
Net cash used by investing activities..... (219,948) (191,069) (176,574)
Financing Activities
Net increase in deposits...................... 105,199 197,915 143,926
Net increase in short-term borrowings......... 3,000
Proceeds from FHLB advances................... 83,700 25,000
Repayment of FHLB advances.................... (25,000) (14,000) (20,000)
Proceeds from issuance of common stock, net... 1,303 711 779
--------- --------- ---------
Net cash provided by financing
activities............................... 168,202 184,626 149,705
--------- --------- ---------
Increase (decrease) in cash and cash
equivalents............................ (33,221) 706 (7,546)
Cash and cash equivalents at beginning
of period.............................. 76,418 75,712 83,258
--------- --------- ---------
Cash and cash equivalents at end of
period................................... $ 43,197 $ 76,418 $ 75,712
========= ========= =========
Supplemental information:
Cash paid for interest........................ $ 33,734 $ 31,007 $ 26,302
Cash paid for income taxes.................... 6,586 5,547 3,380
Transfer from securities available for sale to
held to maturity............................. 996
Loans foreclosed and transferred to real
estate owned................................. 921 1,000 440
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
COLUMBIA BANKING SYSTEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Columbia Banking System, Inc. (the "Company") is a registered bank holding
company whose wholly owned subsidiary, Columbia State Bank ("Columbia Bank"),
conducts a full-service commercial banking business. Headquartered in Tacoma,
Washington, the Company provides a full range of 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. Summary of Significant Accounting Policies
In the opinion of management, all adjustments including normal recurring
accruals necessary for a fair presentation of results of operations for all
periods included herein have been made. The results of operations for the year
ending December 31, 1999 are not necessarily indicative of results to be
anticipated for future periods.
Consolidation
The consolidated financial statements of the Company include the accounts
of the corporation and its wholly owned subsidiary after the elimination of
all material intercompany transactions and accounts.
Accounting Treatment of Mergers
All mergers consummated during the reported periods qualify for "pooling of
interests" accounting treatment. Under the pooling of interests method of
accounting, the historical basis of the assets, liabilities, and equity are
combined and carried forward at their previously recorded amounts. The
statement of operations and other financial statements after the mergers are
restated retroactively as if the mergers had taken place prior to the periods
covered by such financial statements. No recognition of goodwill arising from
the mergers is required under the pooling of interests accounting method.
Securities Available for Sale
Securities to be held for indefinite periods of time and not intended to be
held to maturity or on a long-term basis are classified as available for sale
and carried at fair value. Unrealized gains and losses are recorded net of tax
as "other comprehensive income" in the consolidated statements of
shareholders' equity. Securities available for sale include securities that
management intends to use as part of its asset/liability management strategy
and that may be sold in response to changes in interest rates and/or
significant prepayment risk.
Securities Held to Maturity
Securities held to maturity are those securities which the Company has both
the ability and intent to hold to maturity. Events which may be reasonably
anticipated are considered when determining the Company's intent to hold
investment securities until maturity. Securities held to maturity are carried
at cost, adjusted for amortization of premiums and accretion of discounts
using a method that approximates the interest method.
Other than temporary declines in fair value are recognized as a reduction
in current earnings. Gains and losses on the sale of all securities are
determined using the specific identification method.
Loans
Loans are stated at their principal amount outstanding, less any
unamortized discounts and deferred net loan fees. Loans held for sale are
carried at the lower of cost or market value. The amount by which cost exceeds
market for loans held for sale is accounted for as a valuation allowance, and
changes in the allowance are included in the determination of net income in
the period in which the change occurs.
The current policy of the Company is to discontinue the accrual of interest
on all loans past due 90 days or more and place them on nonaccrual status.
23
<PAGE>
Premiums or discounts on loans purchased and sold are amortized, using the
interest method, over periods which approximate the average life of the loans.
Loan Fee Income
Loan origination fees and direct loan origination costs are deferred and
the net amount is recognized as an adjustment to yield over the contractual
life of the related loans. Fees related to lending activity other than the
origination or purchase of loans are recognized as noninterest income during
the period the related services are performed.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed to be
sufficient to absorb probable losses inherent in the loan portfolio.
Management's determination of the adequacy of the allowance is based on a
number of factors, including the level of nonperforming loans, loan loss
experience, credit concentrations, a review of the quality of the loan
portfolio, collateral values and uncertainties in economic conditions.
The Bank evaluates commercial real estate, real estate construction, and
commercial business loans for impairment on an individual basis. A loan is
considered impaired when it is probable that the bank will be unable to
collect all amounts due according to the terms of the loan agreement. Factors
involved in determining impairment include, but are not limited to, the
financial condition of the borrower, value of the underlying collateral, and
current economic conditions. The valuation of impaired loans is based on
either the present value of expected future cash flows discounted at the
loan's effective interest rate or at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. The amount
by which the recorded investment in the loan exceeds either the present value
of expected future cash flows or the value of the impaired loan's collateral
when applicable, would be a specifically allocated reserve for loan losses.
Any portion of an impaired loan classified as loss under regulatory guidelines
is charged-off.
Premises and Equipment
Land, buildings, leasehold improvements and equipment are carried at
amortized cost. Buildings and equipment are depreciated over their estimated
useful lives using the straight-line method. Leasehold improvements are
amortized over the shorter of their useful lives or lease terms. Gains or
losses on dispositions are reflected in operations. Expenditures for
improvements and major renewals are capitalized, and ordinary maintenance,
repairs and small purchases are charged to operations as incurred.
Real Estate Owned
All real estate acquired in satisfaction of a loan is considered held for
disposal and reported as "real estate owned." Real estate owned is carried at
the lower of cost or fair value less estimated cost of disposal. Cost at the
time of foreclosure is defined as the fair value of the asset less estimated
disposal costs.
Income Tax
The provision for income tax is based on income and expense reported for
financial statement purposes, using the "asset and liability method" for
accounting for deferred income tax. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
A valuation allowance is recorded against any deferred tax assets for which it
is more likely than not that the deferred tax asset will not be realized.
Earnings Per Share
Earnings per share is computed using the weighted average number of common
and diluted common shares outstanding during the period. Basic EPS is computed
by dividing income available to common stockholders by
24
<PAGE>
the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock. The only reconciling item affecting the calculation of earnings per
share is the inclusion of stock options increasing the shares outstanding for
diluted earnings per share by 250,000, 313,000, and 291,000 in 1999, 1998, and
1997, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant estimates are used in determining the level of the allowance for
loan losses, valuation allowance on deferred tax assets, depreciation of
premises and equipment and others.
Statement of Cash Flows
The accompanying consolidated statements of cash flows have been prepared
using the "indirect" method for presenting cash flows from operating
activities. For purposes of this statement, cash and cash equivalents include
cash and due from banks, interest-earning deposits with banks and federal
funds sold.
Reclassification
Certain amounts in the 1998 and 1997 consolidated financial statements have
been reclassified to conform with the 1999 presentation. These
reclassifications had no effect on net income.
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 the
adoption of SFAS No. 133 to have a material effect on the financial
statements.
2. Stock Dividend and Stock Split
On April 28, 1999, the Company announced a 5% stock dividend payable on May
26, 1999, to shareholders of record on May 12, 1999. On April 22, 1998, the
Company announced a three shares for two stock split payable on May 20, 1998,
to shareholders of record on May 6, 1998. On April 23, 1997, the Company
announced a 5% stock dividend payable on May 22, 1997, to shareholders of
record on May 8, 1997. Average shares outstanding, net income per share and
book value per share for all periods presented have been retroactively
adjusted to give effect to these transactions.
3. Business Combinations / Restructuring
On December 1, 1997, the Company merged with Cascade Bancorp ("Cascade")
and Bank of Fife ("Fife"). At December 1, 1997, Cascade Bancorp had assets of
$90.3 million, deposits of $78.7 million and shareholders' equity of $6.8
million. At December 1, 1997, Bank of Fife had assets of $34.0 million,
deposits of $30.2 million and shareholders' equity of $3.5 million. The
Company issued 1,185,196 shares of common stock to complete the merger with
Cascade Bancorp and 488,540 shares to complete the merger with Bank of Fife.
The mergers were treated as a pooling of interests. The financial information
presented in this document reflects the pooling of interests method of
accounting for both mergers. Accordingly, under generally accepted accounting
principles, the assets, liabilities and shareholders' equity of Cascade
Bancorp and Bank of Fife were recorded on the books of the resulting
institution at their values as reported on the books of Cascade Bancorp and
Bank of Fife
25
<PAGE>
immediately prior to the consummation of the mergers. No goodwill was created
in the mergers. This presentation required the restatement of prior periods as
if the companies had been combined for all years presented.
4. Restrictions on Subsidiary Cash, Loans and Dividends
Columbia Bank is required to maintain reserve balances with the Federal
Reserve Bank. The average required reserves for the year ended December 31,
1999 were approximately $5.7 million. The required reserves are based on
specified percentages of the Bank's total average deposits, which are
established by the Federal Reserve Board.
Under Federal Reserve regulations, Columbia Bank, generally, is limited as
to the amount it may loan to the Company, to 10% of its capital stock and
additional paid-in capital. Such loans must be collateralized by specified
obligations.
Under Washington State banking regulations, Columbia Bank is limited as to
the ability to declare or pay dividends to the Company up to the amount of the
Bank's net profits then on hand, less any required transfers to additional
paid-in capital.
5. Securities
At December 31, 1999, there were no securities of any issuer, other than
the U.S. Government and its agencies and corporations, that exceeded ten
percent of shareholders' equity.
The following table summarizes the amortized cost, gross unrealized gains
and losses and the resulting fair value of securities available for sale.
Securities Available for Sale
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1999:
U.S. Treasury & government agency..... $74,517 $ 7 $(3,902) $70,622
Mortgage-backed....................... 10,043 (627) 9,416
Other securities...................... 994 (3) 991
------- ---- ------- -------
Total............................... $85,554 $ 7 $(4,532) $81,029
======= ==== ======= =======
December 31, 1998:
U.S. Treasury & government agency..... $81,549 $474 $82,023
Mortgage-backed....................... 10,672 1 10,673
Other securities...................... 992 38 1,030
------- ---- ------- -------
Total............................... $93,213 $513 $93,726
======= ==== ======= =======
December 31, 1997:
U.S. Treasury & government agency..... $48,178 $ 78 $48,256
Mortgage-backed....................... 7,046 $ (27) 7,019
Other securities...................... 990 14 1,004
------- ---- ------- -------
Total............................... $56,214 $ 92 $ (27) $56,279
======= ==== ======= =======
</TABLE>
There were no sales of securities available for sale during the years ended
December 31, 1999, 1998, and 1997.
At December 31, 1999 and 1998, securities available for sale with a fair
value of $25.5 million and $4.8 million, respectively, were pledged to secure
public deposits and for other purposes as required or permitted by law.
26
<PAGE>
The following table summarizes the amortized cost, fair value, and average
yield of securities available for sale by contractual maturity groups:
<TABLE>
<CAPTION>
December 31, 1999
-----------------------
Amortized Fair
Cost Value Yield
--------- ------- -----
(in thousands)
<S> <C> <C> <C>
U.S. Government Agency
After 1 but within 5 years............................. $38,721 $37,102 5.68%
After 5 but within 10 years............................ 35,495 33,235 6.07%
After 10 years......................................... 301 285 7.05%
------- ------- ----
Total................................................ $74,517 $70,622 5.87%
======= ======= ====
Mortgage-Backed Securities(1)
After 1 but within 5 years............................. $ 1,937 $ 1,906 6.35%
After 10 years......................................... 8,106 7,510 5.99%
------- ------- ----
Total................................................ $10,043 $ 9,416 6.06%
======= ======= ====
Other Securities
After 1 but within 5 years............................. $ 994 $ 991 6.74%
------- ------- ----
Total................................................ $ 994 $ 991 6.74%
======= ======= ====
</TABLE>
- --------
(1) The maturities reported for mortgage-backed securities are based on
contractual maturities and principal amortization.
The following table summarizes the amortized cost, gross unrealized gains
and losses and the resulting fair value of securities held to maturity.
Securities Held To Maturity
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1999:
State and municipal securities......... $6,587 $ 12 $(54) $6,545
Other Securities....................... 497 (2) 495
------ ---- ---- ------
Total................................ $7,084 $ 12 $(56) $7,040
====== ==== ==== ======
December 31, 1998:
U.S. Treasury & government agency...... $ 497 $ 7 $ 504
State and municipal securities......... 5,115 121 5,236
Other Securities....................... 496 18 514
FHLMC preferred stock.................. 250 1 251
------ ---- ---- ------
Total................................ $6,358 $147 $6,505
====== ==== ==== ======
December 31, 1997:
U.S. Treasury & government agency...... $4,743 $ 8 $4,751
State and municipal securities......... 4,191 54 4,245
Other Securities....................... 495 6 501
FHLMC preferred stock.................. 250 7 257
------ ---- ---- ------
Total................................ $9,679 $ 75 $9,754
====== ==== ==== ======
</TABLE>
27
<PAGE>
The following table summarizes the amortized cost, fair value, and average
yield of securities held to maturity by contractual maturity groups:
<TABLE>
<CAPTION>
December 31, 1999
-------------------------
Amortized Fair
Cost Value Yield(2)
--------- ------ --------
(in thousands)
<S> <C> <C> <C>
State and Municipal Securities(2)
Due within 1 year..................................... $ 933 $ 933 6.13%
After 1 but within 5 years............................ 3,927 3,920 6.45%
After 5 but within 10 years........................... 1,727 1,692 6.33%
------ ------ ----
Total............................................... $6,587 $6,545 6.37%
====== ====== ====
Other Securities
After 1 but within 5 years............................ $ 497 $ 495 6.77%
------ ------ ----
Total............................................... $ 497 $ 495 6.77%
====== ====== ====
</TABLE>
- --------
(2) Yields on fully taxable equivalent basis, based on a marginal tax rate of
34%.
There were no sales of securities held to maturity during the years ended
December 31, 1999, 1998, and 1997.
6. Loans
The following is an analysis of the loan portfolio by major types of loans:
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
---------- --------
(in thousands)
<S> <C> <C>
Commercial business...................................... $ 426,060 $332,638
Real estate:
One- to four-family residential........................ 64,669 61,132
Five or more family residential and commercial
properties............................................ 377,708 291,868
---------- --------
Total real estate.................................... 442,377 353,000
Real estate construction:
One- to four-family residential........................ 32,742 26,444
Five or more family residential and commercial
properties............................................ 45,886 23,213
---------- --------
Total real estate construction....................... 78,628 49,657
Consumer................................................. 103,296 94,572
---------- --------
Subtotal................................................. 1,050,361 829,867
Less deferred loan fees, net and other................... (2,355) (1,228)
---------- --------
Total loans.......................................... $1,048,006 $828,639
========== ========
Loans held for sale...................................... $ 5,479 $ 10,023
========== ========
</TABLE>
The following table summarizes certain information related to nonperforming
loans:
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998 1997
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis................. $4,360 $3,603 $1,462
Restructured loans........................................ 187 1,783 20
------ ------ ------
Total nonperforming loans............................... $4,547 $5,386 $1,482
====== ====== ======
Originally contracted interest............................ $ 385 $ 408 $ 68
Recorded interest......................................... 191 221 12
------ ------ ------
Reduction in interest income............................ $ 194 $ 187 $ 56
====== ====== ======
</TABLE>
28
<PAGE>
At December 31, 1999 and 1998, the recorded investment in impaired loans
was $4.1 million and $4.6 million, respectively. The average recorded
investment in impaired loans for the periods ended December 31, 1999, 1998 and
1997 were $4.5 million, $3.0 million, and $570,000, respectively.
At December 31, 1999 and 1998, there were no commitments for additional
funds for loans accounted for on a nonaccrual basis.
At December 31, 1999 and 1998, the Company had no loans to foreign
domiciled businesses or foreign countries, or loans related to highly
leveraged transactions.
The Company's banking subsidiary has granted loans to officers and
directors of the Company and their associates. These loans are made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with unrelated
persons and do not involve more than the normal risk of collectibility. The
aggregate dollar amount of these loans was $25.1 million and $27.6 million at
December 31, 1999 and 1998, respectively. During 1999, $1.8 million of new
related party loans were made, and repayments and transfers totaled $4.3
million.
7. Allowance for Loan Losses
Transactions in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December
31,
-------------------------
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of period.................... $ 9,002 $ 8,440 $ 5,282
Loans charged off................................. (1,619) (1,585) (1,659)
Recoveries........................................ 184 247 91
------- ------- -------
Net charge-offs................................. (1,435) (1,338) (1,568)
Provision charged to operating expense............ 2,400 1,900 4,726
------- ------- -------
Balance at end of period........................ $ 9,967 $ 9,002 $ 8,440
======= ======= =======
</TABLE>
8. Premises and Equipment
During 1999, the Company agreed to become the major tenant of a new office
building in downtown Tacoma, the Columbia Bank Center. The Company's executive
offices will be relocated to this new building upon completion in early 2001.
The lease agreement is for 62,105 square feet at $115,000 per month. With an
expiration date of January 1, 2016, the lease agreement provides for two
renewal options of five years each. Currently, the Company's executive offices
and the Main Office of Columbia Bank are located in approximately 51,000
square feet of leased space in downtown Tacoma. In February of 2000, the
Company expects to reach an agreement to purchase the Main Office building.
The purchase is expected to close in March 2000, and the Company intends to
lease all floors of the 5 story building except for the first floor where the
Main Office Branch is located. As of December 31, 1999, Columbia Bank had 15
offices in Pierce County, including the Main Office (7 leased and 8 owned),
three offices in Longview (two owned and one leased), two offices in Bellevue
(1 leased and 1 owned), two offices in Auburn (both owned), one office in
Federal Way (owned), one office in Kent (owned), one office in Woodland
(owned), one office in Olympia (leased), and one office in Port Orchard
(owned). Commerce Plaza, one of Columbia Bank's banking offices in Longview,
houses a retail banking office and other tenants. The Company currently is
constructing permanent full service branch buildings at four of the leased
branch locations.
29
<PAGE>
Land, buildings, and furniture and equipment, less accumulated depreciation
and amortization, were as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Land..................................................... $ 10,910 $ 8,667
Buildings................................................ 22,579 21,337
Leasehold improvements................................... 1,736 1,583
Furniture and equipment.................................. 14,429 13,180
Vehicles................................................. 207 181
Computer software........................................ 2,345 2,610
-------- --------
Total cost............................................. 52,206 47,558
Less accumulated depreciation and amortization........... (13,040) (10,481)
-------- --------
Total.................................................. $ 39,166 $ 37,077
======== ========
</TABLE>
Total depreciation and amortization expense on buildings and furniture and
equipment was $3.2 million, $2.6 million, and $2.1 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
The Company is obligated under various noncancellable lease agreements for
property and equipment (primarily for land and buildings) which require future
minimum rental payments, exclusive of taxes and other charges, as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
1999
--------------
(in thousands)
<S> <C>
2000....................................................... $ 917
2001....................................................... 2,099
2002....................................................... 2,016
2003....................................................... 1,995
2004....................................................... 1,857
2005 and thereafter........................................ 20,613
-------
Total minimum payments................................... $29,497
=======
</TABLE>
Total rental expense on buildings and equipment was $1.6 million for the
year ended December 31, 1999, and $1.2 million for each of the years ended
December 31, 1998 and 1997.
9. Federal Home Loan Bank Advances and Long-term Debt
The Company had Federal Home Loan Bank (FHLB) short-term advances of $83.7
million at December 31, 1999, and long-term advances of $25.0 million at
December 31, 1998. In addition, the Company had long-term debt of $3.0 million
at December 31, 1999.
FHLB advances and long-term debt are at the following interest rates:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
(dollars in
thousands)
<S> <C> <C>
7.50....................................................... $ 3,000
5.70....................................................... 83,700
5.39....................................................... $25,000
------- -------
Total.................................................... $86,700 $25,000
======= =======
</TABLE>
30
<PAGE>
Aggregate maturities of FHLB advances and long-term debt due in years
ending after December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Amount
--------------
(in thousands)
<S> <C>
2000........................................................ $83,700
2001........................................................ 3,000
</TABLE>
FHLB advances are collateralized by a blanket pledge of residential real
estate loans with a recorded value of approximately $100.4 million at December
31, 1999, and $30.0 million at December 31, 1998. Penalties are generally
required for prepayments of certain long-term FHLB advances.
10. Income Tax
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Years Ended December
31,
----------------------
1999 1998 1997
------ ------ -------
(in thousands)
<S> <C> <C> <C>
Current............................................ $6,665 $5,217 $ 4,258
Deferred (benefit)................................. (724) 30 (1,470)
------ ------ -------
Total............................................ $5,941 $5,247 $ 2,788
====== ====== =======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses.............................. $ 3,444 $ 3,099
Unrealized gain on investment securities available for
sale.................................................. 1,539
Depreciation........................................... 402
------- -------
Total deferred tax assets............................ 5,385 3,099
Deferred tax liabilities:
FHLB stock dividends................................... (1,087) (938)
Unrealized gain on investment securities available for
sale.................................................. (174)
Depreciation........................................... (100)
Other.................................................. (169) (195)
------- -------
Total deferred tax liabilities....................... (1,256) (1,407)
------- -------
Net deferred tax assets.............................. $ 4,129 $ 1,692
======= =======
</TABLE>
A reconciliation of the Company's effective income tax rate with the
federal statutory tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1999 1998 1997
--------------- --------------- ----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income tax based on
statutory rate.......... $5,988 34 % $5,252 34 % $ 4,101 34 %
Increase (reduction)
resulting from:
Tax credits............ (68) (0) (32) (1) (1,252) (10)
Other nondeductible
items................. 21 0 27 1 707 5
Valuation allowance.... (768) (6)
------ --- ------ --- ------- ---
Income tax expense....... $5,941 34 % $5,247 34 % $ 2,788 23 %
====== === ====== === ======= ===
</TABLE>
31
<PAGE>
11. Stock Options
The Company has a stock option plan ("the Plan") to provide additional
incentives to employees and directors thereby helping to attract and retain
the best available personnel. The Company applies APB Opinion 25 and related
interpretations in accounting for the Plan. Accordingly, no compensation cost
has been recognized for the Plan since the exercise price of all options has
been equal to the fair value of the Company's stock at the grant date. At
December 31, 1999, a maximum of 934,369 option shares were authorized under
the Plan, of which 613,768 were outstanding, 263,635 had been exercised and
56,966 were available for future grants.
Additionally, at December 31, 1999, the Company had options outstanding
originally granted to a company controlled by a prior director (now controlled
by the shareholder of that Company by reason of a liquidating dividend) for
the purchase of 45,392 and 17,325 shares of common stock at exercise prices of
approximately $3.37 and $4.83 per share, respectively. These options are
generally exercisable in whole or in part at any time before September 26,
2000.
At December 31, 1999 and 1998, the Company had total stock options
outstanding of 676,485 shares and 622,864 shares, respectively, for the
purchase of common stock at option prices ranging from $2.33 to
$24.76 per share. The Company's policy is to recognize compensation expense at
the date the options were granted due to the difference, if any, between the
then market value of the Company's common stock and the stated option price.
The Company has previously granted restricted stock awards to its named
executives. The purpose of such awards is to reward the executives for prior
service to the Company and to incent such executives to continue to serve the
Company in the future. In each case, the awards provide for the immediate
issuance of shares of Company common stock to the executive, with such shares
held in escrow until the executive meets certain conditions. The Company did
not grant any restricted stock awards to its executives in 1999. In 1998, the
Company granted restricted stock awards of 47,250 shares to its named
executives.
The following table outlines the stock option activity for 1999, 1998 and
1997:
<TABLE>
<CAPTION>
Weighted Weighted
Average Price Average Issue
Number of of Option Date Fair
Option Shares Shares Value
------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Balance at December 31, 1996......... 643,758 $ 6.10
Issued............................. 98,942 11.04 $ 4.61
Exercised.......................... (110,537) 5.09
Terminated......................... (826) 5.90
-------- ------
Balance at December 31, 1997......... 631,337 7.05
Issued............................. 97,048 23.28 12.15
Exercised.......................... (105,127) 4.75
Terminated......................... (394) 17.62
-------- ------
Balance at December 31, 1998......... 622,864 9.88
Issued............................. 93,579 15.33 6.57
Exercised.......................... (29,720) 6.40
Terminated......................... (10,238) 13.75
-------- ------
Balance at December 31, 1999......... 676,485 $10.66
======== ======
Total Vested at December 31, 1999.... 427,902 $ 7.26
======== ======
</TABLE>
32
<PAGE>
Financial data pertaining to outstanding stock options were as follows:
<TABLE>
<CAPTION>
December 31, 1999
- -------------------------------------------------------------------------------------
Weighted
Weighted Average
Average Weighted Exercise
Ranges of Remaining Average Exercise Number of Price of
Exercise Number of Contractual Price of Exercisable Exercisable
Prices Option Shares Life Option Shares Option Shares Option Shares
--------- ------------- ----------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 2.33-$ 2.80 31,846 1.8 Years $ 2.37 31,846 $ 2.37
3.72- 5.40 79,217 1.2 4.42 79,217 4.42
5.62- 7.59 204,368 2.2 6.53 204,368 6.53
9.08- 12.85 162,298 6.3 10.15 91,995 10.54
13.63- 18.75 126,831 6.4 16.07 17,326 17.14
22.38- 24.76 71,925 6.4 24.54 3,150 24.76
------- --------- ------ ------- ------
676,485 4.3 Years $10.66 427,902 $ 7.26
======= ========= ====== ======= ======
</TABLE>
Had compensation cost for the Company's Plan been determined based on the
fair value at the option grant dates, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------
1999 1998 1997
------- ------- ------
(dollars in thousands
except per share)
<S> <C> <C> <C>
Net income attributable to common stock:
As reported........................................... $11,670 $10,201 $9,275
Pro forma............................................. 11,299 9,947 9,163
Net income per common share:
Basic:
As reported......................................... $ 1.10 $ 0.97 $ 0.89
Pro forma........................................... 1.07 0.94 0.88
Diluted:
As reported......................................... $ 1.08 $ 0.94 $ 0.87
Pro forma........................................... 1.04 0.91 0.86
</TABLE>
The fair value of options granted under the Company's stock option plan is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in 1999, 1998
and 1997; expected volatility of 42.00% in 1999, 57.00% in 1998 and 36.95% in
1997; risk-free rates of 5.79% for 1999, 4.51% for 1998 and 5.56% for 1997; no
annual dividend yields; and expected lives of five years for all years.
12. Regulatory Capital Requirements
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory practices. The Company's capital amounts
and classification are also subject to qualitative judgment by the regulators
about components, risk weightings, and other factors.
The FDIC has established minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets. The
regulations set forth the definitions of capital, risk-weighted and average
assets. During 1992, the Federal Deposit Insurance Corporation (the "FDIC")
published the qualifications necessary to be classified as a "well
capitalized" bank, primarily for assignment of FDIC insurance premium rates
beginning in 1993. To qualify as "well capitalized," banks must have a Tier I
risk-adjusted capital
33
<PAGE>
ratio of at least 6%, a total risk-adjusted capital ratio of at least 10%, and
a leverage ratio of at least 5%. Columbia Bank qualified as "well-capitalized"
at December 31, 1999. Failure to qualify as "well-capitalized" can negatively
impact a bank's ability to expand and to engage in certain activities.
As of September 30, 1999, the most recent notification from the FDIC
categorized the Bank as well-capitalized.
The Bank's actual capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
Adequately Well
Actual Capitalized Capitalized
-------------- ------------- --------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital.................... $113,591 10.3% $88,384 8.0% $110,480 10.0%
(to risk-weighted assets)
Tier 1 Capital................... 103,624 9.4% 44,192 4.0% 66,288 6.0%
(to risk-weighted assets)
Tier 1 Capital................... 103,624 8.6% 48,213 4.0% 60,267 5.0%
(to average assets)
As of December 31, 1998:
Total Capital ................... $ 87,693 9.8% $71,863 8.0% $ 89,829 10.0%
(to risk-weighted assets)
Tier 1 Capital .................. 78,691 8.8% 35,931 4.0% 53,897 6.0%
(to risk-weighted assets)
Tier 1 Capital .................. 78,691 7.8% 40,515 4.0% 50,644 5.0%
(to average assets)
</TABLE>
13. Employee Benefit Plan
The Company maintains a defined contribution plan which allows employees to
contribute up to 15% of their compensation to the plan. Employees who are at
least 20 years of age and have completed 6 months of service are eligible to
participate in the plan. The Company is required to match 50% of employee
contributions up to 3% of each employee's total compensation. The Company
contributed approximately $316,000, $273,000 and $211,000 in matching funds to
the plan during the years ended December 31, 1999, 1998 and 1997,
respectively.
The Company's defined contribution plan provides for a nonmatching,
discretionary contribution as determined annually by the Board of Directors of
the Company. In January 2000 and 1999, the Company announced discretionary
contributions of approximately $721,000 and $581,000 for the years ended 1999
and 1998, respectively.
The Company maintains an "Employee Stock Purchase Plan" ("ESPP"). The ESPP
was amended by the Board of Directors on January 26, 2000. Under the revised
plan, substantially all employees of the Company are eligible to participate
in the ESPP. The amended plan provides for offerings every six months at which
time Common Stock is issued for cash at a price of the lower of 90% of the
fair market value of the stock at the beginning or end of the offering period.
Prior to being amended, the ESPP provided for quarterly offerings with a
purchase price of 90% of the fair market value of the Common Stock at the end
of the offering period. The new offering period will take effect March 1, 2000
with a short period starting March 1, 2000 and ending June 30, 2000 and a full
six month offering period beginning July 1, 2000. Under the ESPP, 20,117
shares were acquired by employees for approximately $293,000 in 1999. There is
no charge to income as a result of issuance of stock under this plan. The
discount offered to employees approximates the cost of raising capital and
does not have a material effect on earnings per share. At December 31, 1999,
173,643 shares of common stock were reserved for issuance under this plan.
34
<PAGE>
14. Commitments and Contingent Liabilities
In the normal course of business, the Company makes loan commitments
(unfunded loans and unused lines of credit) and issues standby letters of
credit to accommodate the financial needs of its customers. Standby letters of
credit commit the Company to make payments on behalf of customers under
specified conditions. Historically, no significant losses have been incurred
by the Company under standby letters of credit. Both arrangements have credit
risk essentially the same as that involved in extending loans to customers and
are subject to the Company's normal credit policies, including the obtaining
of collateral, where appropriate. At December 31, 1999 and 1998, the Company's
loan commitments amounted to $372.7 million and $267.5 million, respectively.
Standby letters of credit were $6.5 million and $8.8 million at December 31,
1999 and 1998, respectively. In addition, commitments under commercial letters
of credit used to facilitate customers' trade transactions amounted to
$984,000 and $591,000 at December 31, 1999 and 1998, respectively.
The Company and its subsidiaries are from time to time defendants in and
are threatened with various legal proceedings arising from their regular
business activities. Management, after consulting with legal counsel, is of
the opinion that the ultimate liability, if any, resulting from these and
other pending or threatened actions and proceedings will not have a material
effect on the financial position or results of operations of the Company and
its subsidiaries.
15. Fair Value of Financial Instruments
The following table summarizes carrying amounts and estimated fair values
of selected financial instruments as well as assumptions used by the Company
in estimating fair value:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998
--------------------- -----------------
Assumptions Used in Carrying Fair Carrying Fair
Estimating Fair Value Amount Value Amount Value
--------------------- ---------- ---------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Cash and due from Approximately equal to $ 43,027 $ 43,027 $ 53,602 $ 53,602
banks.................. carrying value
Interest-earning
deposits with banks.... Approximately equal to 170 170 22,816 22,816
carrying value
Securities available for
sale................... Quoted market prices 81,029 81,029 93,726 93,726
Securities held to Quoted market prices 7,084 7,040 6,358 6,505
maturity...............
Loans held for sale..... Approximately equal to 5,479 5,479 10,023 10,023
carrying value
Loans................... Discounted expected future 1,038,039 1,139,118 819,637 882,836
cash flows, net of allowance
for loan losses
Liabilities
Deposits................ Fixed-rate certificates of
deposit: Discounted expected
future cash flows
All other deposits: Approximately equal
to carrying value $1,043,544 $1,047,786 $938,345 $948,718
Federal Home Loan Bank
advances............... Discounted expected future 83,700 83,700 25,000 24,994
cash flows
Other borrowings........ Discounted expected future 3,000 3,000
cash flows
</TABLE>
35
<PAGE>
Off-Balance-Sheet Financial Instruments
The fair value of commitments is estimated based upon fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate commitments, the fair value estimation takes
into consideration an interest rate risk factor. The fair value of guarantees
and letters of credit is based on fees currently charged for similar
agreements. The fair value of these off-balance sheet items at December 31,
1999 approximates the recorded amounts of the related fees.
16. Business Segment Information
The Company is managed along three major lines of business: commercial
banking, retail banking, and real estate lending. The treasury function of the
Company, although not considered a line of business, is responsible for the
management of investments and interest rate risk.
The principal activities conducted by commercial banking are the
origination of commercial business loans and private banking services. Retail
banking includes all deposit products, with their related fee income, and all
consumer loan products as well as commercial loan products offered in the
Bank's branch offices. Real estate lending offers single-family residential,
multi-family residential, and commercial real estate loans, and the associated
loan servicing activities.
Prior to 1999, the Company was managed as one segment, not by discrete
operating segments. With the appointment of a new Executive Management
Committee in 1999, the Company began reviewing financial performance along the
three major lines described above. The Executive Management Committee, which
is the senior decision-making group of the Company, is comprised of five
members including the Vice Chairman and Chief Executive Officer, and the
President and Chief Operating Officer.
The Company generates segment results that include balances directly
attributable to business line activities. Overhead and other indirect expenses
are not allocated to the major lines of business. The Company's Executive
Management Committee manages the major lines collectively, since in the
opinion of management, all the lines are interrelated.
The financial results of each segment were derived from the Company's
general ledger system. Most reportable segments are comprised of more than one
operating segment. Expenses incurred directly by sales and back office support
functions are not allocated to the major lines of business.
Since SFAS No. 131 requires no segmentation or methodology standardization,
the organizational structure of the Company and its business line financial
results are not necessarily comparable across companies. As such, the
Company's business line performance may not be directly comparable with
similar information from other financial institutions.
Financial highlights by lines of business:
Condensed Statement of Operations
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-----------------------------------------------------
Commercial Retail Real Estate
Banking Banking Lending Other Total
---------- -------- ----------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net interest income
after provision for
loan loss.............. $ 9,925 $ 30,979 $ 7,377 $ (1,172) $ 47,109
Other income............ 522 3,847 1,114 4,663 10,146
Other expense........... (2,445) (13,112) (1,882) (22,205) (39,644)
-------- -------- -------- -------- ----------
Contribution to overhead
and profit............. $ 8,002 $ 21,714 $ 6,609 $(18,714) 17,611
Income taxes.......... (5,941)
-------- -------- -------- -------- ----------
Net income.............. $ 11,670
======== ======== ======== ======== ==========
Total assets............ $369,390 $479,272 $266,051 $122,444 $1,237,157
======== ======== ======== ======== ==========
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------------
Commercial Retail Real Estate
Banking Banking Lending Other Total
---------- -------- ----------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net interest income
after provision for
loan loss.............. $ 7,770 $ 26,545 $ 6,212 $ (467) $ 40,060
Other income............ 180 3,356 1,801 2,845 8,182
Other expense........... (1,845) (10,874) (1,731) (18,344) (32,794)
-------- -------- -------- -------- ----------
Contribution to overhead
and profit............. $ 6,105 $ 19,027 $ 6,282 $(15,966) 15,448
Income taxes.......... (5,247)
-------- -------- -------- -------- ----------
Net income.............. $ 10,201
======== ======== ======== ======== ==========
Total assets............ $275,756 $420,120 $206,286 $148,757 $1,050,919
======== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
---------------------------------------------------
Commercial Retail Real Estate
Banking Banking Lending Other Total
---------- -------- ----------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net interest income after
provision for loan
loss.................... $ 5,749 $ 21,920 $ 4,488 $ (1,652) $ 30,505
Other income............. 25 3,108 1,108 6,383 10,624
Other expense............ (1,695) (11,366) (1,720) (14,285) (29,066)
-------- -------- -------- -------- --------
Contribution to overhead
and profit.............. $ 4,079 $ 13,662 $ 3,876 $ (9,554) 12,063
Income taxes........... (2,788)
-------- -------- -------- -------- --------
Net income............... $ 9,275
======== ======== ======== ======== ========
Total assets............. $187,824 $394,597 $164,047 $118,087 $864,555
======== ======== ======== ======== ========
</TABLE>
17. Parent Company Financial Information
Condensed Statement of Operations--Parent Company Only
<TABLE>
<CAPTION>
Years ended December
31,
------------------------
1999 1998 1997
------- ------- ------
(in thousands)
<S> <C> <C> <C>
Income
Interest on loans................................... $ 21 $ 20 $ 44
Interest on securities available for sale........... 57 376 322
Interest-earning deposits:
Subsidiary banks .................................
Unrelated banks................................... 128 154 177
Other............................................. 67 3,518
------- ------- ------
Total Income.................................... 206 617 4,061
Expense
Compensation and employee benefits.................. 318 (16) 313
Interest............................................ 1
Other............................................... 312 278 330
------- ------- ------
Total Expenses.................................. 631 262 643
------- ------- ------
Income (Loss) before income tax benefit and equity
in undistributed net income of subsidiaries........ (425) 355 3,418
Income tax expense (benefit)........................ (145) 100 (14)
------- ------- ------
Income (loss) before equity in undistributed net
income of subsidiaries............................. (280) 255 3,432
Equity in undistributed net income of subsidiaries.. 11,950 9,946 5,843
------- ------- ------
Net Income.......................................... $11,670 $10,201 $9,275
======= ======= ======
</TABLE>
37
<PAGE>
Condensed Balance Sheet--Parent Company Only
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
-------- -------
(in thousands)
<S> <C> <C>
Assets
Cash and due from subsidiary bank............................. $ 32
Interest-earning deposits with unrelated banks................ 122 $ 4,020
-------- -------
Total cash and cash equivalents............................. 154 4,020
Securities available for sale................................. 5,998
Loans......................................................... 360 360
Investments in bank subsidiaries.............................. 100,637 79,032
Other assets.................................................. 1,327 3041
-------- -------
Total Assets................................................ $102,478 $89,714
======== =======
Liabilities and Shareholders' Equity
Borrowed funds................................................ $ 3,000
Other liabilities............................................. 264 $ 148
-------- -------
Total liabilities........................................... 3,264 148
Shareholders' equity.......................................... 99,214 89,566
-------- -------
Total Liabilities and Shareholders' Equity.................. $102,478 $89,714
======== =======
</TABLE>
Condensed Statement of Cash Flows--Parent Company Only
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1999 1998 1997
-------- ------- -------
(in thousands)
<S> <C> <C> <C>
Operating Activities
Net income........................................ $ 11,670 $10,201 $ 9,275
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Equity in undistributed earnings of
subsidiaries................................... (11,950) (9,946) (5,843)
Provision for depreciation and amortization..... 12 14 31
Net changes in other assets and liabilities..... 129 (124) 181
-------- ------- -------
Net cash provided (used) by operating
activities................................... (139) 145 3,644
Investing Activities
Purchase of securities available for sale......... (5,995) (9,792)
Proceeds from maturities of securities available
for sale......................................... 6,000 6,800 7,000
Loans originated or acquired, net of principal
collected........................................ 360
Contribution of capital--bank subsidiaries........ (12,980) (3,500)
Other, net........................................ (1,050) 2 (162)
-------- ------- -------
Net cash provided (used) by investing
activities..................................... (8,030) 807 (6,094)
Financing Activities
Proceeds from other borrowings.................... 3,000
Proceeds from issuance of common stock............ 1,303 711 779
-------- ------- -------
Net cash provided by financing activities....... 4,303 711 779
-------- ------- -------
Increase (decrease) in cash and cash
equivalents.................................. (3,866) 1,663 (1,670)
Cash and cash equivalents at beginning of period.. 4,020 2,357 4,027
-------- ------- -------
Cash and cash equivalents at end of period...... $ 154 $ 4,020 $ 2,357
======== ======= =======
</TABLE>
38
<PAGE>
18. Summary of Quarterly Financial Information--Unaudited
Quarterly financial information for the years ended December 31, 1999 and
1998 is summarized as follows:
<TABLE>
<CAPTION>
First Second Third Fourth Year Ended
1999 Quarter Quarter Quarter Quarter December 31,
---- ------- ------- ------- ------- ------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total interest income............. $19,351 $20,173 $21,725 $23,103 $84,352
Total interest expense............ 8,057 8,363 8,859 9,564 34,843
------- ------- ------- ------- -------
Net interest income............. 11,294 11,810 12,866 13,539 49,509
Provision for loan losses......... 600 600 600 600 2,400
Noninterest income................ 2,263 2,577 2,608 2,698 10,146
Noninterest expense............... 9,796 9,764 9,919 10,165 39,644
------- ------- ------- ------- -------
Income before income tax........ 3,161 4,023 4,955 5,472 17,611
Provision for income tax.......... 1,073 1,361 1,666 1,841 5,941
------- ------- ------- ------- -------
Net income........................ $ 2,088 $ 2,662 $ 3,289 $ 3,631 $11,670
======= ======= ======= ======= =======
Net income per common share:
Basic........................... $ 0.20 $ 0.25 $ 0.31 $ 0.34 $ 1.10
Diluted......................... 0.19 0.25 0.30 0.33 1.08
======= ======= ======= ======= =======
<CAPTION>
First Second Third Fourth Year Ended
1998 Quarter Quarter Quarter Quarter December 31,
---- ------- ------- ------- ------- ------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total interest income............. $17,407 $17,885 $19,009 $19,326 $73,627
Total interest expense............ 7,376 7,572 8,281 8,438 31,667
------- ------- ------- ------- -------
Net interest income............. 10,031 10,313 10,728 10,888 41,960
Provision for loan losses......... 550 450 450 450 1,900
Noninterest income................ 1,800 1,943 2,124 2,315 8,182
Noninterest expense............... 7,538 7,909 8,446 8,901 32,794
------- ------- ------- ------- -------
Income before income tax........ 3,743 3,897 3,956 3,852 15,448
Provision for income tax.......... 1,330 1,349 1,362 1,206 5,247
------- ------- ------- ------- -------
Net income........................ $ 2,413 $ 2,548 $ 2,594 $ 2,646 $10,201
======= ======= ======= ======= =======
Net income per common share:
Basic........................... $ 0.23 $ 0.24 $ 0.25 $ 0.25 $ 0.97
Diluted......................... 0.22 0.23 0.24 0.24 0.94
======= ======= ======= ======= =======
</TABLE>
39
<PAGE>
CONSOLIDATED FIVE-YEAR STATEMENTS OF OPERATIONS(/1/)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- -------- -------- --------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Interest Income:
Loans........................ $ 77,807 $ 66,858 $ 56,176 $ 43,240 $ 36,013
Securities available for
sale........................ 5,619 4,696 3,800 2,360 705
Securities held to maturity.. 287 419 628 702 1,491
Deposits with banks.......... 639 1,654 1,457 1,583 667
---------- ---------- -------- -------- --------
Total interest income...... 84,352 73,627 62,061 47,885 38,876
Interest Expense:
Deposits..................... 32,898 29,759 24,775 20,370 16,369
Federal Home Loan Bank
advances.................... 1,939 1,908 1,971 1,938 1,503
Other borrowings............. 6 84 233 302
---------- ---------- -------- -------- --------
Total interest expense..... 34,843 31,667 26,830 22,541 18,174
---------- ---------- -------- -------- --------
Net Interest Income.......... 49,509 41,960 35,231 25,344 20,702
Provision for loan losses.... 2,400 1,900 4,726 1,635 1,382
---------- ---------- -------- -------- --------
Net interest income after
provision for loan losses... 47,109 40,060 30,505 23,709 19,320
Noninterest income........... 10,146 8,182 7,106 4,785 3,443
Key man life insurance
proceeds.................... 3,518
Noninterest expense.......... 39,644 32,794 27,832 22,768 18,656
SAIF special assessment...... 612
Merger expenses.............. 1,234
---------- ---------- -------- -------- --------
Total Noninterest expense.... 39,644 32,794 29,066 23,380 18,656
---------- ---------- -------- -------- --------
Income (loss) from continuing
operations before income
tax......................... 17,611 15,448 12,063 5,114 4,107
Provision for income tax..... 5,941 5,247 2,788 479 416
---------- ---------- -------- -------- --------
Net Income................... $ 11,670 $ 10,201 $ 9,275 $ 4,635 $ 3,691
========== ========== ======== ======== ========
Net Income Per Common Share:
Net Income Basic........... $ 1.10 $ 0.97 $ 0.89 $ 0.61 $ 0.54
Net Income Diluted......... 1.08 0.94 0.87 0.60 0.53
Average number of common
shares outstanding (basic).. 10,593 10,548 10,369 7,552 6,784
Average number of common
shares outstanding
(diluted)................... 10,843 10,877 10,674 7,767 6,907
========== ========== ======== ======== ========
Total assets at end of
period...................... $1,237,157 $1,059,919 $864,555 $706,448 $520,059
Long-term obligations........ 3,000 25,000 39,000 34,000 27,695
Cash dividends...............
========== ========== ======== ======== ========
</TABLE>
- --------
(1) These unaudited schedules provide selected financial information
concerning the Company which should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations in this Annual Report.
40
<PAGE>
CONSOLIDATED FIVE-YEAR SUMMARY OF AVERAGE BALANCES
AND NET INTEREST REVENUE
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
Average Average Average Average
Balances(1) Interest Rate Balances(1) Interest Rate
----------- -------- ------- ----------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans:
Commercial business... $ 371,549 $32,338 8.70% $307,174 $28,039 9.13%
Real estate(2):
One-to four-family
residential........ 90,233 7,437 8.24 96,999 8,512 8.78
Five or more family
residential and
commercial
properties......... 374,788 29,985 8.00 264,314 23,008 8.70
Consumer.............. 90,803 8,047 8.86 80,100 7,299 9.11
---------- ------- ------ -------- ------- ------
Total loans....... 927,373 77,807 8.39 748,587 66,858 8.93
Securities(3)........... 99,149 6,085 6.14 83,657 5,221 6.24
Interest-earning
deposits with banks.... 13,106 639 4.87 30,949 1,654 5.35
---------- ------- ------ -------- ------- ------
Total interest-
earning assets... 1,039,628 84,531 8.13 863,193 73,733 8.54
Noninterest-earning
assets................. 91,788 76,081
---------- --------
Total assets...... $1,131,416 $939,274
========== ========
Interest-Bearing
Liabilities
Certificates of
deposit................ $ 388,445 $20,332 5.23% $337,557 $18,917 5.60%
Savings accounts........ 45,478 936 2.06 39,768 997 2.51
Interest-bearing demand
and money market
accounts............... 376,079 11,630 3.09 287,007 9,845 3.43
---------- ------- ------ -------- ------- ------
Total interest-
bearing
deposits......... 810,002 32,898 4.06 664,332 29,759 4.48
Federal Home Loan Bank
advances............... 35,684 1,939 5.43 34,538 1,908 5.52
Other borrowings........ 109 6 5.16
---------- ------- ------ -------- ------- ------
Total interest-
bearing
liabilities...... 845,795 34,843 4.12 698,870 31,667 4.53
Demand and other
noninterest-bearing
deposits............... 184,094 149,353
Other noninterest-
bearing liabilities.... 6,809 6,371
Shareholders' equity.... 94,718 84,680
---------- --------
Total liabilities
and shareholders'
equity........... $1,131,416 $939,274
========== ========
Net interest
revenue.......... $49,688 $42,066
======= =======
Net interest
spread........... 4.01% 4.01%
====== ======
Net interest
margin........... 4.78% 4.87%
====== ======
Average interest-earning
assets to average
interest-bearing
liabilities............ 122.92% 123.51%
====== ======
</TABLE>
- --------
(1) Nonaccrual loans were included in their respective loan categories.
Amortized net deferred loan fees were included in the interest income
calculations. The amortization of net deferred loan fees was $962,000 in
1999. $503,000 in 1998, $2,000 in 1997, ($588,000) in 1996, and $448,790
in 1995.
(2) Real estate average balances include real estate construction loans.
(3) Yields on fully taxable equivalent basis, based on a marginal tax rate of
34%.
41
<PAGE>
CONSOLIDATED FIVE-YEAR SUMMARY OF AVERAGE BALANCES
AND NET INTEREST REVENUE--(Continued)
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ---------------------------- ----------------------------
Average Average Average Average Average Average
Balances(1) Interest Rate Balances(1) Interest Rate Balances(1) Interest Rate
----------- -------- ------- ----------- -------- ------- ----------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans:
Commercial business.... $218,560 $20,172 9.23% $158,460 $14,153 8.93% $110,500 $10,855 9.82%
Real estate(2):
One-to four-family
residential.......... 109,659 10,936 9.97 112,986 10,468 9.26 113,341 10,861 9.58
Five or more family
residential and
commercial
properties........... 217,412 18,727 8.61 144,340 13,473 9.33 103,878 9,942 9.57
Consumer............... 68,040 6,341 9.32 58,101 5,146 8.86 45,841 4,355 9.50
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total loans.......... 613,671 56,176 9.15 473,887 43,240 9.12 373,560 36,013 9.64
Securities(3)........... 71,424 4,513 6.32 51,056 3,126 6.12 38,353 2,241 5.84
Interest-earning
deposits with banks.... 26,389 1,456 5.52 29,998 1,583 5.28 11,055 667 6.03
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-
earning assets...... 711,484 62,145 8.73 554,941 47,949 8.64 422,968 38,921 9.20
Noninterest-earning
assets................. 53,244 40,311 35,370
-------- -------- --------
Total assets......... $764,728 $595,252 $458,338
======== ======== ========
Interest-Bearing
Liabilities
Certificates of
deposit................ $282,899 $16,017 5.66% $240,214 $13,771 5.73% $203,978 $11,680 5.73%
Savings accounts........ 38,301 1,054 2.75 32,438 943 2.91 33,145 971 2.93
Interest-bearing demand
and money market
accounts............... 223,514 7,704 3.45 160,020 5,656 3.53 97,326 3,718 3.82
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-
bearing deposits.... 544,714 24,775 4.55 432,672 20,370 4.71 334,449 16,369 4.89
Federal Home Loan Bank
advances............... 35,597 1,971 5.54 34,096 1,914 5.61 24,915 1,503 6.03
Other borrowings........ 1,681 84 5.02 3,454 257 7.44 3,331 302 9.07
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-
bearing
liabilities......... 581,992 26,830 4.61 470,222 22,541 4.79 362,695 18,174 5.01
Demand and other
noninterest-bearing
deposits............... 111,492 74,940 54,878
Other noninterest-
bearing liabilities.... 6,860 4,421 3,315
Shareholders' equity.... 64,384 45,669 37,450
-------- -------- --------
Total liabilities and
shareholders'
equity.............. $764,728 $595,252 $458,338
======== ======== ========
Net interest
revenue............. $35,315 $25,408 $20,747
======= ======= =======
Net interest spread.. 4.12% 3.85% 4.19%
====== ====== ======
Net interest margin.. 4.96% 4.58% 4.91%
====== ====== ======
Average interest-earning
assets to average
interest-bearing
liabilities............ 122.25% 118.02% 116.62%
====== ====== ======
</TABLE>
42
<PAGE>
CONSOLIDATED ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
The following table sets forth the amounts of the changes in consolidated
net interest income attributable to changes in volume and changes in interest
rates for the Company. Changes attributable to the combined effect of volume
and interest rates have been allocated proportionately to the changes due to
volume and the changes due to interest rates.
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Due Increase (Decrease) Due
to to
------------------------- -------------------------
Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Loans:
Commercial business.... $ 5,525 $(1,226) $ 4,299 $ 8,086 $ (219) $ 7,867
One- to four-family
residential........... (574) (501) (1,075) (1,188) (1,236) (2,424)
Five or more family
residential and
commercial
properties............ 8,652 ($1,675) 6,977 4,081 200 4,281
Consumer............... 942 (194) 748 1,095 (137) 958
------- ------- ------- ------- ------- -------
Total loans.......... 14,545 (3,596) 10,949 12,074 (1,392) 10,682
Securities............... 949 (85) 864 763 (54) 709
Interest-earning deposits
with banks.............. (881) (134) (1,015) 242 (45) 197
------- ------- ------- ------- ------- -------
Total interest
revenue............. $14,613 $(3,815) $10,798 $13,079 $(1,491) $11,588
======= ======= ======= ======= ======= =======
Interest Expense
Deposits:
Certificates of
deposit............... $ 2,517 $(1,102) $ 1,415 $ 3,061 $ (161) $ 2,900
Savings accounts....... 247 (308) (61) 43 (100) (57)
Interest-bearing
demand................ 2,661 (876) 1,785 2,178 (37) 2,141
------- ------- ------- ------- ------- -------
Total interest on
deposits............ 5,425 (2,286) 3,139 5,282 (298) 4,984
Federal Home Loan Bank
advances................ 61 (30) 31 (59) (4) (63)
Other borrowings......... 6 6 (42) (42) (84)
------- ------- ------- ------- ------- -------
Total interest
expense............. $ 5,486 $(2,310) $ 3,176 $ 5,181 $ (344) $ 4,837
======= ======= ======= ======= ======= =======
</TABLE>
Loan Maturities and Sensitivity to Changes in Interest Rates
The following table presents, (i) the aggregate maturities of loans in each
major reportable category named below of the Company's loan portfolio and (ii)
the aggregate amounts of variable and fixed rate loans that mature after one
year.
<TABLE>
<CAPTION>
Maturing
------------------------------------------
Due Within Over 1 but Over 5
December 31, 1999 1 Year Within 5 Years Years Total
- ----------------- ---------- -------------- ------- --------
(in thousands)
<S> <C> <C> <C> <C>
Commercial business................. $242,126 $131,617 $52,317 $426,060
Real estate construction............ 23,075 14,327 41,226 78,628
-------- -------- ------- --------
Total............................. $265,201 $145,944 $93,543 $504,688
======== ======== ======= ========
Fixed rate loans.................... $ 73,081 $20,373 $ 93,454
Variable rate loans................. 72,863 73,170 146,033
-------- ------- --------
Total............................. $145,944 $93,543 $239,487
======== ======= ========
</TABLE>
43
<PAGE>
Loan Loss Allowance Allocation
The table below shows the allocation of the Allowance for Loan Losses for
the last five years. The allocation is based on an evaluation of loan
problems, historical ratios of loan losses and other factors which may affect
future loan losses in the categories of loans shown.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
% of % of % of % of % of
Balance at End of Period Total Total Total Total Total
Applicable to: Amount Loans* Amount Loans* Amount Loans* Amount Loans* Amount Loans*
- ------------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial business..... $6,388 40.0% $5,540 40.0% $4,109 39.4% $3,178 37.2% $2,006 32.0%
Real estate and
construction:
One- to four-family
residential........... 969 10.6 972 10.6 1,041 14.7 1,115 20.8 699 26.3
Five or more family
residential and
commercial
properties............ 1,990 38.0 2,008 38.0 1,414 35.0 490 30.9 330 29.3
Consumer................ 339 11.4 482 11.4 334 10.9 499 11.1 386 12.4
Unallocated............. 281 1,542 919
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total................. $9,967 100.0% $9,002 100.0% $8,440 100.0% $5,282 100.0% $4,340 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
- --------
*Represents the total of all outstanding loans in each category as a percent
of total loans outstanding.
Average Deposit Liabilities
The following table presents the average balances outstanding and weighted
average interest rate for each major category of deposits:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------
1999 1998 1997
------------------ ------------------ ------------------
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
-------- --------- -------- --------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing demand
and money market
accounts............... $376,079 3.09% $287,007 3.43% $223,514 3.45%
Savings accounts........ 45,478 2.06 39,768 2.51 38,301 2.75
Certificates of
deposit................ 388,445 5.23 337,557 5.60 282,899 5.66
-------- ---- -------- ---- -------- ----
Total interest-bearing
deposits............. 810,002 4.06 664,332 4.48 544,714 4.55
Demand and other
noninterest-bearing.... 184,094 149,353 111,492
-------- ---- -------- ---- -------- ----
Total deposits........ $994,096 $813,685 $656,206
======== ==== ======== ==== ======== ====
</TABLE>
The following table shows the amount and maturity of certificates of
deposit that had balances of more than $100,000:
<TABLE>
<CAPTION>
December 31,
1999
--------------
(in thousands)
<S> <C>
Remaining maturity
3 months and under....................................... $ 58,131
Over 3 through 6 months.................................. 34,460
Over 6 through 12 months................................. 43,579
Over 12 months........................................... 14,400
--------
Total.................................................. $150,570
========
</TABLE>
44
<PAGE>
Effects of Governmental Monetary Policies
Profitability in banking depends on interest rate differentials. In
general, the difference between the interest earned on a bank's loans,
securities and other interest-earning assets and the interest paid on a bank's
deposits and other interest-bearing liabilities are the major source of a
bank's earnings. Thus, the earnings and growth of the Company are affected not
only by general economic conditions, but also by the monetary and fiscal
policies of the United States and its agencies, particularly the Federal
Reserve. The Federal Reserve System implements national monetary policy for
such purposes as controlling inflation and recession by its open-market
operations in United States government securities, control of the discount
rate applicable to borrowings from the Federal Reserve and the establishment
of reserve requirements against certain deposits. The actions of the Federal
Reserve in these areas influence growth of bank loans, investments and
deposits and also affect interest rates charged on loans and paid on deposits.
The nature and impact of future changes in monetary policies and their impact
on the Company are not predictable.
Supervision and Regulation
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956 ("BHC Act") registered with and subject to
examination by the Federal Reserve Board ("FRB"). The Company's bank
subsidiary is a Washington state chartered commercial bank and is subject to
examination, supervision, and regulation by the Washington State Department of
Financial Institutions--Division of Banks ("Division"). The FDIC insures
Columbia Bank's deposits and in that capacity also regulates the Bank.
The Company's earnings and activities are affected by legislation, by
actions of the FRB, the Division, the FDIC and other regulators, and by local
legislative and administrative bodies and decisions of courts in Washington
state. For example, these include limitations on the ability of Columbia Bank
to pay dividends to the Company, and numerous federal and state consumer
protection laws imposing requirements on the making, enforcement, and
collection of consumer loans, and restrictions by regulators on the sale of
mutual funds and other uninsured investment products to customers.
Congress enacted major federal financial institution legislation in 1999.
Title I of the Gramm-Leach-Bliley Act, which becomes effective March 11, 2000,
allows bank holding companies to elect to become financial holding companies.
In addition to the activities previously permitted bank holding companies,
financial holding companies may engage in non-banking activities that are
financial in nature, such as securities, insurance, and merchant banking
activities, subject to certain limitations. It is likely that the Company will
utilize the new structure to accommodate an expansion of its products and
services.
The activities of bank holding companies, such as the Company, that are not
financial holding companies are generally limited to managing or controlling
banks. Nonbank activities of such bank holding companies are generally limited
to acquisitions of up to 5% of voting shares and activities previously
determined by the FRB by regulation or order to be closely related to banking.
Additional legislation may be enacted or regulations imposed to further
regulate banking and financial services or to limit finance charges or other
fees or charges earned in such activities. There can be no assurance whether
any such legislation or regulation will place additional limitations on the
Company's operations or adversely affect its earnings.
Federal law imposes certain restrictions on transactions between the
Company and any nonbank subsidiaries, on the one hand, and Columbia Bank on
the other. With certain exceptions, federal law also imposes limitations on,
and requires collateral for, extensions of credit by insured depository
institutions, such as Columbia Bank, to their non-bank affiliates, such as the
Company.
Subject to certain limitations and restrictions, a bank holding company,
with prior approval of the FRB, may acquire an out-of-state bank. Banks in
states that do not prohibit out-of-state mergers may merge with the approval
of the appropriate federal banking agency. A state bank may establish a de
novo branch out of state if such branching is expressly permitted by the other
state.
45
<PAGE>
Among other things, applicable federal and state statutes and regulations
which govern a bank's activities relate to minimum capital requirements,
required reserves against deposits, investments, loans, legal lending limits,
mergers and consolidations, borrowings, issuance of securities, payment of
dividends, establishment of branches and other aspects of its operations. The
Division and the FDIC also have authority to prohibit banks under their
supervision from engaging in what they consider to be unsafe and unsound
practices.
Under longstanding FRB policy, a bank holding company is expected to act as
a source of financial strength for its subsidiary banks and to commit
resources to support such banks. The Company could be required to commit
resources to its subsidiary banks in circumstances where it might not do so,
absent such policy.
The Company and Columbia Bank are subject to risk-based capital and
leverage guidelines issued by federal banking agencies for banks and bank
holding companies. These agencies are required by law to take specific prompt
corrective actions with respect to institutions that do not meet minimum
capital standards and have defined five capital tiers, the highest of which is
"well-capitalized."
Columbia Bank is required to file periodic reports with the FDIC and the
Division and is subject to periodic examinations and evaluations by those
regulatory authorities. These examinations must be conducted every 12 months,
except that certain well-capitalized banks may be examined every 18 months.
The FDIC and the Division may each accept the results of an examination by the
other in lieu of conducting an independent examination.
In the liquidation or other resolution of a failed insured depository
institution, deposits in offices and certain claims for administrative
expenses and employee compensation are afforded a priority over other general
unsecured claims, including non-deposit claims, and claims of a parent company
such as the Company. Such priority creditors would include the FDIC, which
succeeds to the position of insured depositors.
The Company is also subject to the information, proxy solicitation, insider
trading restrictions and other requirements of the Securities Exchange Act of
1934.
The earnings of the Company are affected by general economic conditions and
the conduct of monetary policy by the U.S. government.
Employees
At December 31, 1999, the Company had 469 full-time equivalent employees.
The Company has placed a high priority on staff development. This development
involves selective hiring and extensive training (including customer service
training). New hires are selected on the basis of both technical skills and
customer service capabilities. Emphasis has been placed upon hiring and
retaining additional key officers in areas such as lending, administration and
finance. None of the Company's employees are covered by a collective
bargaining agreement with the Company, and management believes that its
relationship with its employees is satisfactory.
46
<PAGE>
Executive Officers of the Company
The following table sets forth certain information about the executive
officers of the Company.
<TABLE>
<CAPTION>
Has Served as
an Executive
Officer
of the
Name Age Position Company Since
---- --- -------- -------------
<C> <C> <S> <C>
J. James Gallagher(1)... 61 Director, Vice Chairman and Chief
Executive Officer 1998
Melanie J. Dressel(2)... 47 Director, President and Chief
Operating Officer--the Company;
President and Chief Executive
Officer--Columbia Bank 1997
H. R. Russell(3)........ 45 Executive Vice President--Chief
Credit Officer 1996
Gary R. Schminkey(4).... 42 Executive Vice President and
Chief Financial Officer 1993
Evans Q. Whitney(5)..... 56 Executive Vice President, Retail
Banking 1994
Donald A. Andersen(6)... 54 Senior Vice President, Senior
Loan Production Officer--
Columbia Bank 1996
Janet D. Hildebrand(7).. 51 Senior Vice President, Credit
Administrator--Columbia Bank 1998
</TABLE>
- --------
(1) Mr. Gallagher assumed the position of Chief Executive Officer of the
Company on January 1, 2000. Prior to that time and since July 1998, Mr.
Gallagher served as Vice Chairman. From January 1994 until his appointment
at Columbia, Mr. Gallagher was a principal of Gordon, Thomas, Honeywell,
Malanca, Peterson & Daheim, P.L.L.C., a law firm headquartered in Tacoma,
Washington, where he served as outside legal counsel for the Company. Mr.
Gallagher, who is a former bank regulator, has over 30 years of experience
as legal counsel to financial institutions throughout the Northwest.
(2) Ms. Dressel assumed the position of President and Chief Operating Officer
of the Company and Chief Executive Officer of Columbia Bank on January 1,
2000. Prior to that time and since July 1998, Ms. Dressell served Columbia
Bank as President and Chief Operating Officer and, since May 1997, as
Executive Vice President. Prior to that time and since June 1993,
Ms. Dressel served Columbia Bank as Senior Vice President--Private
Banking. Ms. Dressel also served as an Executive Vice President of the
Company since May 1997. She became a Director of the Company in 1998.
Ms. Dressel served as Senior Vice President and directed the private
banking division of Puget Sound National Bank for nearly five years and
was employed by Bank of California for over 14 years.
(3) Mr. Russell joined Columbia Bank as Senior Vice President--Commercial
Loans in October 1993. He was appointed Executive Vice President--Chief
Credit Officer for Columbia Bank in May 1997. Mr. Russell was employed by
Puget Sound National Bank and its successor institution for nearly 14
years, having served as Vice President--Commercial Loan Officer from 1991
to 1993.
(4) Mr. Schminkey joined Columbia Bank as Vice President and Controller in
March 1993. In 1994, he was appointed Senior Vice President--Chief
Financial Officer of Columbia Bank and the Company and subsequently was
appointed Executive Vice President--Chief Financial Officer in December
1998. Mr. Schminkey was employed by PSB, Puget Sound National Bank and its
successor institution for nearly 10 years, having served from 1991 to 1993
as Assistant Vice President--Assistant Controller for PSB and during that
same period as Vice President--Accounting and Finance for Puget Sound
National Bank and its successor institution.
(5) Mr. Whitney joined Columbia Bank as Senior Vice President--Human Resources
in March 1993. In July 1998, Mr. Whitney was appointed Executive Vice
President--Retail Banking for Columbia Bank and the Company. Mr. Whitney
was employed by PSB and Puget Sound National Bank for nearly 27 years,
having served as Senior Vice President--Human Resources for PSB and Puget
Sound National Bank from 1991 to 1993.
47
<PAGE>
(6) Mr. Andersen joined Columbia Bank as Senior Vice President--Commercial
Loans in January 1995. Mr. Andersen was employed by Puget Sound National
Bank and its successor institution for nearly 25 years, having served as
Vice President--Commercial Loan Officer from 1991 to 1995.
(7) Ms. Hildebrand joined Columbia Bank as Senior Vice President--Credit
Administrator in August 1997. Ms. Hildebrand was employed by First
Interstate Bank of Washington and its successor, Wells Fargo Bank, for 23
years, having served as Senior Vice President and Regional Manager of Loan
Review prior to leaving that institution in 1997.
All officers are elected by the Board of Directors and serve at the
pleasure of the Board for an unspecified term.
48
<PAGE>
10-K CROSS REFERENCE INDEX
This Annual Report and Form 10-K incorporate into a single document the
requirements of the accounting profession and the Securities and Exchange
Commission, including a comprehensive explanation of 1999 results.
Form 10-K
<TABLE>
<CAPTION>
Part and
Item No. Caption Page Number
-------- ------- ---------------------------------------------------
<C> <S> <C>
Part 1
Item 1 Business................ 1-3, 26 (Note 5), 33 (Note 12), 36 (Note 16), 41-46
Item 2 Properties.............. 29 (Note 8)
Item 3 Legal Proceedings....... 35 (Note 14)
Item 4 Submission of Matters to
a Vote of Security
Holders................ Not applicable
Part II
Item 5 Market for the
Registrant's Common
Stock and Related
Stockholder Matters.... 17
Item 6 Selected Financial
Data................... 4
Item 7 Management's Discussion
and Analysis of
Financial Condition and
Results of Operations.. 5-17
Item 7a Quantitative and
Qualitative Disclosures
About Market Risk...... 14-16
Item 8 Financial Statements and
Supplementary Data..... 19-22, 39 (Note 18)
Item 9 Changes in and
Disagreements with
Accountants on
Accounting and
Financial Disclosure... Not applicable
Part III
Item 10 Directors and Executive
Officers of the
Registrant............. *47-48
Item 11 Executive Compensation.. **
Item 12 Security Ownership of
Certain Beneficial
Owners and Management.. ***
Item 13 Certain Relationships
and Related
Transactions........... ****
Part IV
Item 14 Exhibits, Financial
Statement Schedules,
and Reports on Form 8-
K...................... 50
</TABLE>
- --------
* For information about Columbia's directors and executive officers, see
the discussion under "Proposal 1: Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance", in the definitive Proxy
Statement for Columbia's Annual Meeting of Shareholders to be held on
April 25, 2000, filed with the SEC (the "Proxy Statement"), incorporated
herein by reference.
** See the discussion under "Executive Compensation" of the Proxy Statement,
incorporated herein by reference.
***See the discussion under "Stock Ownership" of the Proxy Statement,
incorporated herein by reference.
**** See the discussion under "Interest of Management in Certain Transactions"
of the Proxy Statement, incorporated herein by reference.
None of the foregoing incorporation by reference shall include the
information referred to in Item 402 (a)(8) of Regulation S-K.
49
<PAGE>
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following exhibits are either filed herewith or have been previously
filed with the Securities and Exchange Commission and are filed herewith by
incorporation by reference:
. Columbia's Restated Articles of Incorporation
. Columbia's Restated Bylaws
. Material Contracts, including certain compensatory plans
. Subsidiaries of the Company
. Powers of Attorney of Directors Devine, Dressel, Fabulich, Fine, Folsom,
Halleran, Hulbert, Matson, Philip, Powell, Quoidbach, Rodman, Snyder,
Weyerhaeuser, and Will
. Financial Data Schedule
A more detailed exhibit index has been filed with the SEC. Stockholders may
obtain copies of that index, or any of the documents on that index by writing
to Columbia Banking System, Inc., Investor Relations, P.O. Box 2156, MS 8300,
Tacoma, WA 98401-2156
Reports on Form 8-K:
None
Securities and Exchange Commission
Washington, DC 20549
Form 10-K
Annual Report pursuant to Section 13 of 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999
Commission File Number 0-20288
Columbia Banking System, Inc.
Incorporated in the State of Washington
IRS Employer Identification Number: 91-1422237
Address: 1102 Broadway Plaza
P.O. Box 2156
Tacoma, Washington 98401-2156
Telephone: (253) 305-1900
Columbia (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.
Certain information has been incorporated by reference as described herein
into Part III of this report from Columbia's 2000 Proxy Statement.
50
<PAGE>
Independent Auditors
Deloitte & Touche LLP
Transfer Agent and Registrar
American Stock Transfer & Trust Company
Market Makers
First Union Capital Markets
Herzog, Heine, Geduld, Inc.
Keefe, Bruyette & Woods, Inc.
Mayer & Schweitzer Inc.
Pacific Crest Securities
Ragen MacKenzie Inc.
Ryan Beck & Co. Inc.
Regulatory & Securities Counsel
Davis Wright Tremaine, LLP
Annual Meeting
Sheraton Tacoma Hotel
1320 Broadway Plaza
Tacoma, Washington
Tuesday, April 25, 2000
1:00 p.m.
Stock Listing
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Marketsm under the symbol: COLB.
Financial Information
Columbia news and financial results are available through the Internet and
mail.
Internet: For information about Columbia, including news and financial
results, product information and service locations, access our home page on
the World Wide Web; the address is http://www.columbiabank.com. You can
also view or retrieve copies of Columbia's financial reports on the
Internet by connecting to http://www.sec.gov.
Mail: At your request, we will mail you our quarterly earnings news
release, quarterly financial data on Form 10-Q and additional annual
reports. Immediate access to the Company's quarterly earnings news release
via facsimile is provided by Company News On Call by calling (800) 758-
5804, access #152519. To be added to Columbia's mailing list for quarterly
earnings news releases, or to request other information, please contact:
Jo Anne Coy
Vice President,
Marketing Director
P.O. Box 2156, MS 8300
Tacoma, WA 98401-2156
Tel (253) 305-1965
Fax (253) 305-0317
E-Mail: [email protected]
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 10th day
of March, 2000.
COLUMBIA BANKING SYSTEM, INC.
(Registrant)
/s/ J. James Gallagher
By __________________________________
J. James Gallagher
Vice Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 10th day of March, 2000.
Principal Executive Officer:
/s/ J. James Gallagher
By __________________________________
J. James Gallagher
Vice Chairman and
Chief Executive Officer
Principal Financial Officer:
/s/ Gary R. Schminkey
-------------------------------------
Gary R. Schminkey
Executive Vice President and
Chief Financial Officer
J. James Gallagher, pursuant to a power of attorney which is being filed
with the Annual Report on Form 10-K, has signed this report on March 10, 2000
as attorney in fact for the following directors who constitute a majority of
the Board.
<TABLE>
<S> <C>
[Richard S. DeVine] [W. W. Philip]
[Melanie J. Dressel] [John H. Powell]
[Jack Fabulich] [Robert E. Quoidbach]
[Jonathan Fine] [Donald Rodman]
[John P. Folsom] [Sidney R. Snyder]
[John Halleran] [William T. Weyerhaeuser]
[Thomas M. Hulbert] [James M. Will]
[Thomas L. Matson]
</TABLE>
/s/ J. James Gallagher
- -------------------------------------
J. James Gallagher
Attorney-in-fact
March 10, 2000
52
<PAGE>
Columbia Banking System, Inc. Board of Directors
Richard S. Devine Melanie J. Dressell* Jack Fabulieh
President of Chinook President and Chief Chairman of Parker Paint
Resources, Inc. Operating Officer Manufacturing, Inc.
Columbia Banking
Jonathan Fine System, Inc., President J. James Gallagher*
Chief Executive Officer and Chief Executive Vice Chairman and Chief
American Red Cross Officer Executive Officer
Columbia Bank
Seattle-King County
Chapter
Columbia Banking System.
Inc.
John A. Halleran John P. Folsom Thomas L. Matson
Private Investor Chairman, President and
Owner and President
Chief Executive Officer Tom Matson Dodge, Inc.
William W. Philip*
Raleigh, Schwartz &
Powell, Inc.
Chairman, Retired Robert E. Quoidbach
President and Chief Thomas M. Hulbert Private Investor
Executive Officer
President and William T. Weyerhaeuser
Columbia Banking System, Chief Executive Officer Clinical Psychologist
Inc. and Columbia Bank Winsor Corporation
Owner and Chairman
John H. Powell** Comercom
Donald Rodman Owner
Owner and Sound Oil Company
Executive Officer Sidney R. Snyder
Rodman Realty
Vice Chairman
James M. Will Pacific Financial
President Corporation
Titus-Will Enterprises Washington State
Senator
Owner of Sid's Food
Market
- --------
* Effective January 1, 2000, Mr. Philip retired as President and Chief
Executive Officer of Columbia Banking System, Inc. and Columbia Bank. J.
James Gallagher, Vice Chairman, was appointed Chief Executive Officer of
Columbia Banking System, Inc., and Melanie Dressel was named President and
Chief Operating Officer of Columbia Banking System, Inc. and President and
Chief Executive Officer of Columbia Bank.
** John H. Powell reached the age of 75 prior to the Annual Meeting of
Shareholders to be held on April 25, 2000, and is retiring from the Board
in accordance with the Company's Bylaws.
53
<PAGE>
Branch Locations
<TABLE>
<S> <C> <C> <C> <C> <C>
PIERCE COUNTY
1 MAIN OFFICE 2 ALLENMORE 3 EDGEWOOD/MILTON
1102 Broadway Plaza 1959 South Union 900 Meridian E
Tacoma, WA 98402 Tacoma, WA 98405 Suite 17
(253) 305-1940 (253) 627-6909 Milton, WA 98354
John Collins Ron Staples (253) 952-6646
Michael Butcher
4 FIFE 5 FIRCREST 6 GIG HARBOR
5501 Pacific Hwy. E 2401 Mildred St. W 5303 Point Fosdick Dr. NW
Fife, WA 98424 Fircrest, WA 98466 Gig Harbor, WA 98335
(253) 922-7870 (253) 566-1172 (253) 858-5105
Frank Marzano Dan Patjens Chris Gullett
7 LAKEWOOD 8 OLD TOWN 9 176th & MERIDIAN
6202 Mount Tacoma Dr. SW 2200 North 30th St. 17208 Meridian E
Lakewood, WA 98499 Tacoma, WA 98403 Puyallup, WA 98373
(253) 581-4232 (253) 272-0412 (253) 445-6748
Jay Mayer Connie Pentecost Pat Horan
10 PUYALLUP 11 SOUTH HILL MALL 12 SPANAWAY
4220 S. Meridian 3500 S. Meridian 17502 Pacific Ave. S
Puyallup, WA 98373 Suite 503 Spanaway, WA 98387
(253) 770-0770 Puyallup, WA 98373 (253) 539-3094
Stan Ausmus (253) 770-8161 Joy Johnson
Robin Conrads
13 STADIUM 14 SUMMIT 15 WESTGATE
601 N. 1st. 10409 Canyon Road E 5727 N. 21st St.
Tacoma, WA 98403 Puyallup, WA 98373 Tacoma, WA 98406
(253) 597-8811 (253) 770-9323 (253) 761-8170
Monica Stevens Debra Hamilton Connie Pentecost
KING COUNTY
16 AUBURN 17 BELLEVUE 18 BELLEVUE WAY
25 16th St. NE 777 108th Ave. NE 10350 NE 10th St.
Auburn, WA 98002 Suite 100 Bellevue, WA 98004
(253) 939-9600 Bellevue, WA 98004 (425) 452-7323
Patty Osthus (425) 646-9696 Rich Martinez
Ernie Smith
19 FEDERAL WAY 20 KENT 21 SOUTH AUBURN
33370 Pacific Highway S 504 W. Meeker 4101 A St. SE
Federal Way, WA 98003 Kent, WA 98032 Auburn, WA 98002
(253) 925-9323 (253) 852-8400 (253) 939-9800
Mike Harris Shirley McGregor Rod Clemmer
COWLITZ COUNTY
22 COMMERCE 23 30th AVENUE 24 TRIANGE MALL
1338 Commerce Ave. 2207 30th Ave. 620 A Triangle Mall
Longview, WA 98632 Longview, WA 98632 Longview, WA 98632
(360) 636-9200 (360) 423-8760 (360) 501-5601
Faith Pacheco Faith Pacheco Faith Pacheco
KITSAP COUNTY THURSTON COUNTY
25 WOODLAND 26 PORT ORCHARD 27 WEST OLYMPIA
782 Goerig St. 228 Bravo Terrace 2915 Harrison Ave. Suite 230
Woodland, WA 98674 Port Orchard, WA 98366 Olympia, WA 98502
(360) 225-9421 (360) 876-8384 (360) 375-5800
Carol Rounds Rob Putas Patti Tupper
</TABLE>
54
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.
-----------
<C> <S>
3(a) Restated Articles of Incorporation of the Company.
(b) Restated Bylaws of the Company.
10(a) Lease dated May 7, 1993 between the Company and William B. Swensen
Enterprises for Tacoma Main Office premises of Columbia Bank.(1)
(b) Stock Option Plan as amended and restated effective April 23,
1997.(2)
(c) 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.(3)(4)
(d) Amended employment agreement between the Company and J. James
Gallagher effective July 1, 1998, except with respect to section
4.3 (granting restricted stock award) which is effective
April 22, 1998.(4)
(e) Amended employment agreement between the Company and Melanie J.
Dressel effective July 1, 1999.(4)
(f) Severance agreement between the Company and Harald R. Russell
effective June 23, 1999.(3)(4)
(g) Severance agreement between the Company and Evans Q. Whitney
effective June 23, 1999.(3)(4)
(h) Severance agreement between the Company and Gary R. Schminkey
effective June 23, 1999.(3)(4)
(i) Severance agreement between the Company and Donald A. Andersen
effective June 23, 1999.(3)(4)
(j) Severance agreement between the Company and Janet D. Hildebrand
effective June 23, 1999.(3)(4)
(k) Data processing servicing agreement dated May 3, 1993 between the
Company and M&I Data Services.(5)
(l) Deferred Compensation Plan for directors and certain key employees
effective September 22, 1999.
21 Subsidiaries of the Company are:
(a) Columbia State Bank, Tacoma, Washington, a Washington state-
chartered commercial bank.
24 Powers of Attorney dated February 23, 2000.
27 Financial Data Schedule
</TABLE>
<TABLE>
- --------
<C> <S>
(1) Incorporated by reference to the Form SB-2 (Registration No. 33-66224)
previously filed by the Company, declared effective on August 16, 1993.
(2) Incorporated by reference to the definitive Proxy Statement dated March
20, 1997 for the Annual Meeting of Shareholders held April 23, 1997.
(3) Incorporated by reference to the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999 previously filed by the Company.
(4) This document is a management contract containing compensatory
arrangements and is required to be filed as an exhibit pursuant to Item
14(c) of this Form 10-K.
(5) Incorporated by reference to the Annual Report on Form 10-KSB for the year
ended December 31, 1993 previously filed by the Company.
</TABLE>
55
<PAGE>
EXHIBIT 3(a)
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
COLUMBIA BANKING SYSTEM, INC.
The undersigned, being the Secretary of Columbia Banking System, Inc.,
executes in duplicate the following Amended and Restated Articles of
Incorporation for the corporation.
ARTICLE 1
Section 1.1 The name of the corporation shall be COLUMBIA BANKING SYSTEM,
INC.
ARTICLE 2
Section 2.1 The corporation's period of duration shall be perpetual.
ARTICLE 3
Section 3.1 The purpose for which the corporation is organized is the
transaction of any and all lawful business for which corporations may be
incorporated under the Washington Business Corporation Act.
ARTICLE 4
Section 4.1 The aggregate number of shares which the corporation shall
have authority to issue is 47,250,000 common shares with no par value
(hereinafter referred to as "the common stock") and 2,000,000 preferred shares
with no par value (hereinafter referred to as "the preferred stock"). The
preferred stock is senior to the common stock, and the common stock is subject
to the rights and preferences of the preferred stock as provided in the
following section.
Section 4.2 The board of directors is hereby vested with authority to
divide any or all of the preferred stock into one or more series and, within the
limitations set forth in the Washington Business Corporation Act (as amended
from time to time), to fix and determine or to amend the relative rights and
preferences of the shares of any series so established.
ARTICLE 5
Section 5.1 No shareholder shall have the preemptive right to acquire
unissued shares of the corporation.
ARTICLE 6
Section 6.1 Each shareholder entitled to vote at any election for
directors shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected and
for whose election he has a right to vote, and no shareholder shall be entitled
to cumulate his votes.
<PAGE>
ARTICLE 7
Section 7.1 The corporation reserves the right to amend, alter, change or
repeal any provision of its Articles of Incorporation to the extent permitted by
the laws of the State of Washington. All rights of shareholders are granted
subject to this reservation.
ARTICLE 8
Section 8.1 The address of the initial registered office of the
corporation is 1301 Fifth Avenue, Suite 3400, Seattle, Washington 98101. The
name of its initial registered agent at that address is J. James Gallagher.
ARTICLE 9
Section 9.1 The corporation may enter into a contract and otherwise
transact business as vendor, purchaser, or otherwise, with its directors,
officers and shareholders, and with corporations, associations, firms and
entities in which they are or may become interested as directors, officers,
shareholders, members or otherwise, as freely as though such adverse interest
did not exist, even though the vote, action or presence of such director,
officer or shareholder may be necessary to obligate the corporation upon such
contract or transaction; and in the absence of fraud, no such contract or
transaction shall be avoided and no such director, officer or shareholder shall
be held liable to account to the corporation, by reason of such adverse interest
or any fiduciary relationship to the corporation arising out of such office or
stock ownership, for any profit or benefit realized by him through any such
contract or transaction; provided that the nature of the interest of such
director, officer or shareholder, though not necessarily the details or extent
thereof, be disclosed or known to the board of directors or shareholders of the
corporation, at the meeting thereof at which such contract or transaction is
authorized or confirmed. A general notice that a director, officer or
shareholder of the corporation is interested in any corporation, association,
firm or entity shall be sufficient disclosure as to such director, officer or
shareholder with respect to all contracts and transactions with that
corporation, association, firm or entity.
ARTICLE 10
Section 10.1 Nominations for election to the board of directors may be
made by the board of directors or by any stockholder of any outstanding class of
stock of the corporation entitled to vote for the election of directors.
Nominations, other than those made by the board of directors, shall be made in
writing and shall be delivered or mailed, U.S. mail, postage prepaid, to the
Chairman of the corporation not less than fourteen (14) days nor more than fifty
(50) days prior to any meeting of shareholders called for the election of
directors; provided, however, that if less than twenty-one days' notice of the
meeting is given to shareholders, such nomination shall be delivered or mailed,
U.S. mail, postage prepaid, to the Chairman of the corporation not later than
the close of business on the seventh day following the day on which the notice
of meeting was mailed. Such notification shall contain the following
information to the extent known to the notifying shareholder:
(a) The name and address of each proposed nominee;
-2-
<PAGE>
(b) The principal occupation of each proposed nominee;
(c) The total number of shares of stock of the corporation that will be
voted for each proposed nominee;
(d) The name and address of the notifying shareholder; and
(e) The number of shares of common stock of the corporation owned by the
notifying shareholder.
Nominations not made in accordance herewith may, in his discretion, be
disregarded by the Chairman of the meeting, and upon his instructions, the vote
teller may disregard all votes cast for such nominee.
ARTICLE 11
Section 11.1 In addition to the requirements of any applicable statute,
and notwithstanding any other provisions of any other articles of these Articles
of Incorporation, the affirmative vote of not less than 66 2/3% of the total
shares attributable to persons other than a Control Person (as defined below),
considered for the purposes of this Article 11 as one class, which are entitled
to be voted in an election of directors shall be required for the approval of
any Business Combination (as defined below) between the corporation and any
Control Person.
Section 11.2 The approval requirements of Section 11.1 shall not apply if
either:
(a) The Business Combination is approved by at least a majority of
Continuing Directors (as defined below) of the corporation; or
(b) All the following conditions are satisfied:
(i) The cash or fair market value of the property, securities or
other consideration to be received per share in the Business Combination by
holders of the common stock of the corporation is not less than the higher of:
(A) the highest price per share (including brokerage commissions, soliciting
dealers, fees and dealer-management compensation) paid by such Control Person in
acquiring any of its holdings of the corporation's common stock; (B) the highest
per share market price of the common stock during the three-month period
immediately preceding the date of the proxy statement described in (iii) below;
or (C) the per share value of the common stock at the end of the fiscal quarter
immediately prior to the Business Combination, as determined by an appraisal
prepared by persons, selected by the Continuing Directors, who are independent
of the corporation and the Control Person, and who are experienced and expert in
the area of corporate appraisal.
(ii) After becoming a Control Person and prior to the consummation of
such Business Combination (A) such Control Person shall not have acquired any
newly issued shares of capital stock, directly or indirectly, from the
corporation (except upon conversion of convertible securities acquired by it
prior to becoming a Control Person or upon compliance with the provisions of
this Article 11 or as a result of a pro rata stock dividend or stock split), and
(B) such Control Person shall not have received the benefit, directly or
indirectly (except
-3-
<PAGE>
proportionately as a stockholder), of any loans, advances, guarantees, pledges
or other financial assistance or tax credits provided by the corporation, or
made any major changes in the corporation's business or equity capital
structure; and
(iii) A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934, whether or not the corporation is then subject
to such requirements, shall be mailed to the public stockholders of the
corporation for the purpose of soliciting stockholder approval of such Business
Combination.
Section 11.3 For the purpose of this Article 11
(a) The term "Business Combination" shall mean (i) any merger or
consolidation of the corporation with or into a Control Person, (ii) any sale,
lease, exchange, transfer or other disposition, including without limitation a
mortgage or any other security device, of all or any Substantial Part (as
defined below) of the assets of the corporation (including without limitation
any voting securities of a subsidiary) or of a subsidiary, to a Control Person,
(iii) any merger or consolidation of a Control Person with or into the
corporation or a subsidiary of the corporation, (iv) any sale, lease, exchange,
transfer or other disposition of all or any Substantial Part of the assets of a
Control Person to the corporation or a subsidiary of the corporation, (v) the
issuance of any securities of the corporation or a subsidiary of the corporation
to a Control Person, (vi) the acquisition by the corporation or a subsidiary of
the corporation of any securities of a Control Person, (vii) any
reclassification of common stock of the corporation, or any recapitalization
involving common stock of the corporation, consummated within five years after a
Control Person becomes a Control Person, or (viii) any agreement, contract or
other arrangement providing for any of the transactions described in this
definition of Business Combination;
(b) The term "Continuing Director" shall mean (i) a director who was a
member of the board of directors of the corporation immediately prior to the
time that a Control Person became the beneficial owner (as this term is defined
in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934 on the date on which this amendment becomes effective) of 10% or
more of the outstanding shares of common stock of the corporation or (ii) a
person so designated before initially becoming a director by a majority of the
then Continuing Directors.
(c) The term "Control Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with their
Affiliates and Associates (as those terms are defined on the date on which this
amendment becomes effective in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934) is the beneficial owner in the
aggregate of 20% or more of the outstanding shares of common stock of the
corporation, and any Affiliate or Associate of any such individual, corporation,
partnership or other person or entity;
(d) The term "Substantial Part" shall mean more than 10% of the total
assets of the corporation in question, as of the end of its most recent fiscal
year prior to the time the determination is being made;
-4-
<PAGE>
(e) Without limitation, any shares of common stock of the corporation
which any Control Person has the right to acquire at any time pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise, shall be deemed outstanding and beneficially owned by such Control
Person for purposes of this Article 11; and
(f) For the purposes of Section 11.2(b)(i) of this Article 11, the phrase
"other consideration to be received" shall include, without limitation, common
stock of the corporation retained by its existing public stockholders in the
event of a Business Combination with such Control Person in which the
corporation is the surviving corporation.
Section 11.4 For the purposes of this Article 11, a majority of the
Continuing Directors shall have the power and duty to determine on the basis of
information known to them (a) whether a proposed transaction is subject to the
provisions of this Article 11, (b) the amount of shares of the corporation
Beneficially Owned by any person, (c) whether a person is an Affiliate or
Associate of another, and (d) such other matters as to which a determination may
be required by the provisions of this Article 11.
Section 11.5 The provisions set forth in this Article 11 may not be
repealed or amended in any respect or in any manner including any merger or
consolidation of the corporation with any other corporation unless the surviving
corporation's Articles of Incorporation contain an article to the same effect as
this Article 11, except by the affirmative vote of the holders of not less than
66 2/3% of the outstanding shares of common stock of the corporation, subject to
the provisions of any series of preferred stock which may at the time be
outstanding; provided, however, that if there is a Control Person such action
must be approved by not less than 66 2/3% of the total shares entitled to be
voted in an election of directors attributable to shares owned by person other
than the Control Persons.
ARTICLE 12
Section 12.1 The board of directors of the corporation, when evaluating
any offer of another party to (a) make a tender or exchange offer for any equity
security of the corporation, (b) merge or consolidate the corporation with
another corporation, or (c) purchase or otherwise acquire all or substantially
all of the properties and assets of the corporation, shall, in connection with
the exercise of its judgment in determining what is in the best interests of the
corporation and its stockholders, give due consideration to all relevant
factors, including without limitation the social and economic effects on the
employees, customers, suppliers and other constituents of the corporation and
its subsidiaries and on the communities in which the corporation and its
subsidiaries operate or are located.
ARTICLE 13
Section 13.1 Defined Terms. As used in this Article 13:
(a) "Egregious conduct" by a person shall mean acts or omissions that
involve intentional misconduct or a knowing violation of law, conduct violating
section 23B. of the Revised Code of Washington, or participation in any
transaction from which the person will personally receive a benefit in money,
property, or services to which the person is not legally entitled.
-5-
<PAGE>
(b) "Finally adjudged" shall mean stated in a judgment based upon clear
and convincing evidence by a court having jurisdiction, from which there is no
further right to appeal.
(c) "Director" shall mean any person who is a director of the corporation
and any person who, while a director of the corporation, is serving at the
request of the corporation as a director, officer, partner, trustee, employee,
or agent of another foreign or domestic corporation, partnership, joint venture,
trust, or other enterprise, or is a fiduciary or party in interest in relation
to any employee benefit plan covering any employee of the corporation or of any
employer in which it has an ownership interest; and "conduct as a director"
shall include conduct while a director is acting in any of such capacities.
(d) "Officer-director" shall mean any person who is simultaneously both an
officer and director of the corporation and any person who, while simultaneously
both an officer and director of the corporation, is serving at the request of
the corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust, or
other enterprise, or is a fiduciary or party in interest in relation to any
employee benefit plan covering any employee of the corporation or of any
employer in which it has an ownership interest; and "conduct as an officer-
director" shall include conduct while an officer-director is acting as an
officer of the corporation or in any of such other capacities.
(e) "Subsidiary corporation" shall mean any corporation at least eighty
percent of the voting stock of which is held beneficially by this corporation.
Section 13.2 - Liability of Directors. No director, officer-director,
former director or former officer-director of the corporation shall be
personally liable to the corporation or its shareholders for monetary damages
for conduct as a director or officer-director occurring after the effective date
of this Article 13 unless the conduct is finally adjudged to have been egregious
conduct, as defined herein.
Section 13.3 - Liability of Subsidiary Directors. No director, officer-
director, former director, or former officer-director of a subsidiary
corporation shall be personally liable in any action brought directly by this
corporation as a shareholder of the subsidiary corporation or derivatively on
behalf of the subsidiary corporation (or by any shareholder of this corporation
double-derivatively on behalf of this corporation and the subsidiary
corporation) for monetary damages for conduct as a director or officer-director
of such subsidiary corporation occurring after the effective date of this
Article 13 unless the conduct is finally adjudged to have been egregious
conduct, as defined herein.
Section 13.4 - Indemnification of Directors. The corporation shall
indemnify any person who is, or is threatened to be made, a party to any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
and whether by or in the right of the corporation or its shareholders or by any
other party, by reason of the fact that the person is or was a director or
officer-director of the corporation or of a subsidiary corporation against
judgments, penalties or penalty taxes, fines, settlements (even if paid or
payable to the corporation or its shareholders or to a subsidiary corporation)
and reasonable expenses, including attorneys' fees, actually incurred in
connection with such proceeding unless the liability and expenses were on
account of
-6-
<PAGE>
conduct finally adjudged to be egregious conduct, as defined herein. The
reasonable expenses, including attorneys' fees, of such person incurred in
connection with such proceeding shall be paid or reimbursed by the corporation,
upon request of such person, in advance of the final disposition of such
proceeding upon receipt by the corporation of a written, unsecured promise by
the person to repay such amount if it shall be finally adjudged that the person
is not eligible for indemnification. All expenses incurred by such person in
connection with such proceeding shall be considered reasonable unless finally
adjudged to be unreasonable.
Section 13.5 - Procedure. No action by the board of directors, the
shareholders, independent counsel, or any other person or persons shall be
necessary or appropriate to the determination of the corporation's
indemnification obligation in any specific case, to the determination of the
reasonableness of any expenses incurred by a person entitled to indemnification
under this Article 13, nor to the authorization of indemnification in any
specific case.
Section 13.6 Internal Claims Expected. Notwithstanding section 13.4, the
corporation shall not be obligated to indemnify any person for any expenses,
including attorneys' fees, incurred to assert any claim against the corporation
(except a claim based on section 13.7) or any person related to or associated
with it, including any person who would be entitled hereby to indemnification in
connection with the claim.
Section 13.7 - Enforcement of Rights. The corporation shall indemnify any
person granted indemnification rights under this Article 13 against any
reasonable expenses incurred by the person to enforce such rights.
Section 13.8 - Set-off of Claims. Any person granted indemnification
rights herein may directly assert such rights in set-off of any claim raised
against the person by or in the right of the corporation and shall be entitled
to have the same tribunal which adjudicates the corporation's claim adjudicate
the person's entitlement to indemnification by the corporation.
Section 13.9 - Continuation of Rights. The indemnification rights provided
in this Article 13 shall continue as to a person who has ceased to be a director
or officer-director and shall inure to the benefit of the heirs, executors, and
administrators of such person.
Section 13.10 - Effect of Amendment or Repeal. Any amendment or repeal of
this Article 13 shall not adversely affect any right or protection of a
director, officer-director, former director or former officer-director existing
at the time of such amendment or repeal with respect to acts or omissions
occurring prior to such amendment or repeal.
Section 13.11 - Severability of Provisions. Each of the substantive
provisions of this Article 13 is separate and independent of the others, so that
if any provision hereof shall be held to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions.
ARTICLE 14
Section 14.1 The name and address of the incorporator is Mark C.
Lewington, 1301 Fifth Avenue, Suite 3400, Seattle, WA 98101.
-7-
<PAGE>
These Amended and Restated Articles of Incorporation correctly set forth
without change the corresponding provisions of the Articles of Incorporation as
heretofore amended, and supersede the original Articles of Incorporation and all
amendments thereto.
Executed in duplicate this 29th day of April, 1999.
COLUMBIA BANKING SYSTEM, INC.
By: /s/ Jill L. Myers
---------------------------------
Jill L. Myers, Secretary
-8-
<PAGE>
EXHIBIT 3(b)
RESTATED BYLAWS OF
COLUMBIA BANKING SYSTEM, INC.
January 26, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 - MEETINGS OF SHAREHOLDERS....................................... 1
Section 1.1 - Shareholder Meetings.................................... 1
Section 1.2 - Annual Meeting.......................................... 1
Section 1.3 - Special Meetings........................................ 1
Section 1.4 - Notice.................................................. 1
Section 1.5 - Quorum.................................................. 2
Section 1.6 - Adjournment............................................. 2
Section 1.7 - Chairman of Meeting..................................... 2
Section 1.8 - Secretary of Meeting.................................... 2
Section 1.9 - Conduct of Meetings..................................... 2
Section 1.10 - Consent to Action...................................... 2
Section 1.11 - Proxies................................................ 2
Section 1.12 - Shareholder Advisor.................................... 3
Section 1.13 - Recording of Proceedings............................... 3
Section 1.14 - Record Date............................................ 3
Section 1.15 - List of Shareholders................................... 3
ARTICLE 2 - DIRECTORS...................................................... 4
Section 2.1 - Management of Corporation............................... 4
Section 2.2 - Number of Directors..................................... 4
Section 2.3 - Qualifications and Nominations
of Directors......................................................... 4
Section 2.4 - Annual Meetings......................................... 4
Section 2.5 - Place of Meetings....................................... 4
Section 2.6 - Regular Meetings........................................ 4
Section 2.7 - Special Meetings........................................ 5
Section 2.8 - Notices................................................. 5
Section 2.9 - Quorum.................................................. 5
Section 2.10 - Attendance by Conference
Telecommunication................................................... 5
Section 2.11 - Consent to Action...................................... 5
Section 2.12 - Compensation........................................... 6
Section 2.13 - Manifestation of Dissent............................... 6
ARTICLE 3 - COMMITTEES OF THE BOARD OF DIRECTORS .......................... 6
i
<PAGE>
Section 3.1 - Executive Committee..................................... 6
Section 3.2 - Audit Committee......................................... 7
Section 3.3 - Other Committees........................................ 7
Section 3.4 - Rules of Procedure...................................... 7
ARTICLE 4 - OFFICERS AND EMPLOYEES......................................... 7
Section 4.1 - Officers................................................ 7
Section 4.2 - Election................................................ 8
Section 4.3 - Removal and Vacancy..................................... 8
Section 4.4 - Compensation............................................ 8
Section 4.5 - Exercise of Rights as Stockholders 8
Section 4.6 - Duties of Chairman of the Board......................... 8
Section 4.7 - Duties of Vice Chairman.................................
Section 4.8 - Duties of Chief Executive Officer.......................
Section 4.9 - Duties of President..................................... 9
Section 4.10 - Duties of Vice President............................... 9
Section 4.11 - Duties of Secretary.................................... 9
Section 4.12 - Duties of Treasurer.................................... 10
Section 4.13 - Other Officers......................................... 10
Section 4.14 - Clerks and Agents...................................... 10
ARTICLE 5 - SHARES AND CERTIFICATES FOR SHARES............................. 10
Section 5.1 - Consideration........................................... 10
Section 5.2 - Stock Certificates...................................... 10
Section 5.3 - Lost Certificates....................................... 11
Section 5.4 - Transfer of Shares...................................... 11
Section 5.5 - Holder of Record........................................ 11
Section 5.6 - Issuance of Shares...................................... 11
Section 5.7 - Subscriptions........................................... 12
Section 5.8 - Payment of Subscriptions................................ 12
Section 5.9 - Default in Payment of Subscriptions..................... 12
ARTICLE 6 - SEAL........................................................... 11
Section 6.1 - Corporate Seal.......................................... 12
ARTICLE 7 - MISCELLANEOUS PROVISIONS....................................... 12
Section 7.1 - Fiscal Year............................................ 12
ii
<PAGE>
Section 7.2 - Records................................................ 13
ARTICLE 8 - BYLAWS......................................................... 13
Section 8.1 - Inspection............................................. 13
Section 8.2 - Amendments............................................. 13
iii
<PAGE>
RESTATED BYLAWS OF
COLUMBIA BANKING SYSTEM, INC.
ARTICLE 1
---------
Meetings of Shareholders
------------------------
SECTION 1.1 - Shareholder Meetings. Shareholder meetings shall be held at
the principal office of the corporation, or at such other location within or
without the State of Washington as shall be determined by the Board of Directors
and stated in the Notice of Meeting.
SECTION 1.2 - Annual Meeting. The regular annual meeting of the
shareholders for the election of directors and for the transaction of such other
business as may properly be brought before the meeting shall be held on such day
and at such time following the close of the corporation's fiscal year as shall
be determined each year by the Board of Directors. If such annual meeting is
omitted by oversight or otherwise during such period, a subsequent annual
meeting may nonetheless be held, and any business transacted or elections held
at such meeting shall be as valid as if the annual meeting had been held during
the period provided above.
SECTION 1.3 - Special Meetings. Special meetings of the shareholders may
be called at any time by the Chairman, the Chief Executive Officer, the
President, a majority of the Board of Directors, or any shareholder or
shareholders holding in the aggregate not less than one-tenth of all shares
entitled to vote at the special meeting. Shareholders may hold a meeting at any
time and place without notice or call, upon appropriate waivers signed by all
shareholders who are entitled to vote at a shareholders' meeting.
SECTION 1.4 - Notice. Written notice stating the place, day, and hour of
the meeting, and in case of a special meeting the purpose or purposes for which
the meeting is called, shall be delivered not less than ten (10) days nor more
that sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the Chairman, the Chief Executive Officer, the
President, the Secretary, or the person or persons calling the meeting to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the shareholder at his address as it appears on
the stock transfer books of the corporation. Each shareholder shall be
responsible for providing the
1
<PAGE>
Secretary with the shareholder's current mailing address to which notices of
meetings and all other corporate notices may be sent. A shareholder may waive
any notice required for any meeting by executing a written waiver of notice
either before or after said meeting and such waiver shall be equivalent to the
giving of such notice. The attendance of a shareholder at a shareholders'
meeting, in person or by proxy, shall constitute a waiver of notice of the
meeting.
SECTION 1.5 - Quorum. A majority of the shares entitled to vote shall
constitute a quorum at a meeting of shareholders. When a quorum is present at
any meeting, action on a matter, other than the election of directors, is
approved if the votes cast favoring the action exceed the votes cast opposing
the action, unless otherwise provided by the Articles of Incorporation or law.
SECTION 1.6 - Adjournment. A majority of the shares represented at a
meeting, even if less than a quorum, may adjourn the meeting from time to time
without further notice. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally stated in the notice of meeting. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment notwithstanding the withdrawal of enough shareholders
to leave less than a quorum.
SECTION 1.7 - Chairman of Meeting. The Chairman, or in his absence, the
Chief Executive Officer, or the President, shall preside at all meetings of the
shareholders unless the Board of Directors shall otherwise determine. The Board
of Directors may appoint any shareholder to act as chairman of the meeting.
SECTION 1.8 - Secretary of Meeting. The Secretary shall act as a secretary
at all meeting of the shareholders, and in his absence, the presiding officer
may appoint any person to act as secretary.
SECTION 1.9 - Conduct of Meetings. Shareholder meetings shall be conducted
in an orderly and fair manner, but the presiding officer shall not be bound by
any technical rules of parliamentary procedure.
SECTION 1.10 - Voting. Each outstanding share shall be entitled to one
vote on each matter submitted to a vote at a meeting of shareholder.
SECTION 1.11 - Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder of by his duly authorized
attorney in fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
2
<PAGE>
eleven (11) months from the date of its execution, unless otherwise provided in
the proxy.
SECTION 1.12 - Shareholder Advisor. A shareholder or holder of a valid
proxy may be accompanied at any shareholders' meeting by one personal advisor,
but no such advisor may address the meeting without the consent of the presiding
officer.
SECTION 1.13 - Recording of Proceedings. The proceedings of a
shareholders' meeting may not be mechanically or electronically recorded other
than by the Secretary or acting secretary without the express approval of all
individuals in attendance at the meeting.
SECTION 1.14 - Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders. Such date in any case shall not be more than
sixty (60) days and, in case of a meeting of shareholders, not less than ten
(10) days prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed by the
Board of Directors, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
SECTION 1.15 - List of Shareholders. The Secretary of the corporation
shall make a complete record of the shareholders entitled to vote at a meeting
of shareholders, or any adjournment thereof, arranged in alphabetical order,
with the address of and the number of shares held by each as shown on the
corporation's stock transfer books on the record date. Such record shall be
kept on file a the registered office of the corporation for a period of ten (10)
days prior to the meeting of shareholders. Such record shall be produced and
kept open at the time and place of the shareholders' meeting and shall be
subject to the inspection of any shareholder during the meeting for any proper
purpose.
3
<PAGE>
ARTICLE 2
---------
Directors
---------
SECTION 2.1 - Management of Corporation. All corporate powers shall be
exercised by, or under authority of, and the business and affairs of the
corporation shall be managed under the direction of the Board of Directors
(hereinafter sometimes referred to as the "Board").
SECTION 2.2 - Number of Directors. The initial number of directors is
stated in the Articles of Incorporation. The number to be elected by the
shareholders shall consist of not less than five (5) nor more than twenty-five
(25) persons. The exact number within such minimum and maximum limits shall be
fixed and determined by resolution of the Board of Directors. The number of
directors elected by the shareholders at the last preceding annual meeting may
be increased by not more than two(2) directors by the Board between annual
meetings of the shareholders. The Board of Directors may appoint qualified
persons to fill vacancies on the Board of Directors, whether caused by
resignation, death or otherwise; provided, that at no time shall the total
number of directors exceed twenty-five (25).
SECTION 2.3 - Qualifications and Nominations of Directors. Any person who
will not attain the age of 75 before the meeting of shareholders at which
elected (or had not attained that age by the date of the last annual meeting of
shareholders, if appointed) may become a director of this corporation; provided
that this provision shall not become effective until January 1, 1996. Any
nomination to the Board of Directors (other than one proposed by the existing
Board of the corporation) must be made in the manner set forth in the Articles
of Incorporation.
SECTION 2.4 - Annual Meetings. Immediately after the annual meeting of
shareholders, the Directors shall meet to elect officers and transact any other
business.
SECTION 2.5 - Place of Meetings. Meetings of the Board of Directors,
regular or special, may be held within or without this state.
SECTION 2.6 - Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as the Board may by
vote from time to time designate.
4
<PAGE>
SECTION 2.7 - Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman, the Chief Executive Officer, the President, or by
any two (2) directors.
SECTION 2.8 - Notices. Notices of special meetings of the Board of
Directors stating the date, time, place and in general terms the purpose or
purposes thereof shall be delivered to each director, by mailing written notice
at least two (2) days before the meeting or by telephoning, telegraphing or
personally advising each director at least one (1) day before the meeting. A
special meeting shall be held not more than twenty (20) days after the delivery
of said notice. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the director
at the address provided to the Secretary. An entry of the service of notice,
given in the manner above provided, shall be made in the minutes of the
proceedings of the Board of Directors, and such entry, if read and approved at
the subsequent meeting of the Board, shall be conclusive on the question of
service. Attendance of a director at a special meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting was not lawfully called or convened. A director also may waive any
notice required for any meeting by executing a written waiver of notice either
before or after said meeting, and such waiver shall be equivalent to the giving
of such notice.
SECTION 2.9 Quorum. A majority of the directors shall constitute a quorum
for the transaction of business. Unless otherwise provided in the Articles of
Incorporation or these Bylaws, the act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors. A majority of those present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn from time to time,
without further notice, until a quorum shall attend. When a quorum shall
attend, any business may be transacted which might have been transacted at the
meeting had the same been held on the date stated in the notice of meeting.
SECTION 2.10 - Attendance by Conference Telecommunication. Members of the
Board of Directors may participate in a meeting of such Board by means of a
conference telephone or similar communications equipment, by means of which all
person participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
SECTION 2.11 - Consent to Action. Any action which may be taken at a
meeting of the Board of Directors, or at a meeting of any committee of the
Board, may be taken without a meeting if a consent in writing, setting forth the
action so
5
<PAGE>
taken shall be signed by all of the directors or all the members of the
committee. Such consent shall have the same force and effect as a unanimous vote
at a duly convened meeting.
SECTION 2.12 - Compensation. The directors shall receive such reasonable
compensation for their services as directors and as members of any committee
appointed by the Board as may be prescribed by the Board of Directors, and may
be reimbursed by the corporation for ordinary and reasonable expenses incurred
in the performance of their duties.
SECTION 2.13 - Manifestation of Dissent. A director of the corporation who
is present at a meeting of the Board at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the Secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
ARTICLE 3
---------
Committees of the Board of Directors
------------------------------------
SECTION 3.1 - Executive Committee. By resolution adopted by a majority of
the entire Board of Directors, the Board may designate from among its members an
Executive Committee of not less than five (5) nor more than nine (9) members,
including the Chairman, the Chief Executive Officer, and the President. The
Chairman, or in his absence the Chief Executive Officer, shall act as chairman
of the Executive Committee. Any member of the Board may serve as an alternate
member of the Executive Committee in the absence of a regular member or members.
The Executive Committee shall have and may exercise all of the authority of the
Board of Directors during the intervals between meetings of the Bank, except
that the committee shall not have the authority to: (1) authorize or approve a
distribution or issuance of shares, except according to a general formula or
method prescribed by the Board of Directors, (2) approve or propose to
shareholders actions or proposals requiring shareholder approval, (3) fill
vacancies on the Board of Directors or any committee thereof, (4) amend the
Articles of Incorporation pursuant to RCW 23B.10.020, (5) adopt, amend or repeal
Bylaws, (6) approve a plan of merger not requiring shareholder approval, or (7)
authorize or approve the issuance or sale or contract for sale of shares, or
6
<PAGE>
determine the designation and relative rights, preferences, and limitations of a
class or series of shares, except within certain limits specifically prescribed
by the Board of Directors.
SECTION 3.2 - Audit Committee. By resolution adopted by a majority of the
entire Board of Directors, the Board may appoint from among its members an Audit
Committee of three (3) or more, none of whom shall be active officers of the
corporation, and may designate one (l) of such members as chairman of the
Committee. The Board may also designate one or more directors as alternates to
serve as a member or members of the Committee in the absence of a regular member
or members. The Committee shall establish and maintain continuing
communications between the Board and the corporation's independent auditors,
internal auditors, and members of financial management with respect to the audit
of the corporation's accounts and financial affairs and the audit of the
corporation's controlled subsidiaries. The Committee shall have such other
powers and perform such other duties as may from time to time be prescribed by
the Board of Directors.
SECTION 3.3 - Other Committees. By resolution adopted by a majority of the
entire Board of Directors, the Board may designate from among its members such
other committees as it may deem necessary, each of which shall consist of not
less than two (2) directors and have such powers and duties as may from time to
time be prescribed by the Board.
SECTION 3.4 - Rules of Procedure. The majority of the members of any
committee may fix its rules of procedure. All actions by any committee shall be
reported in written minutes available at any reasonable time to any Board
member. Such actions shall be subject to revision, alteration and approval by
the Board of Directors; provided, that no rights or acts of third parties who
have relied in good faith on the authority granted herein shall be affected by
such revision or alteration.
ARTICLE 4
---------
Officers and Employees
----------------------
SECTION 4.1 - Officers. The Board of Directors shall elect a Chairman, a
Chief Executive Officer, and a President. It shall also elect one or more Vice
Presidents, a Secretary and a Treasurer and such additional officers as in the
opinion of the Board the business of the corporation requires. The Board may
also elect or appoint, or in its discretion delegate to the Chief Executive
Officer
7
<PAGE>
the authority to appoint, from time to time such other or additional officers as
are desirable for the conduct of the business of the corporation.
SECTION 4.2 - Election. The Chairman, the Chief Executive Officer and the
President shall be directors. These persons shall be elected annually by the
Board of Directors and they shall hold office at the pleasure of the Board of
Directors.
SECTION 4.3 - Removal and Vacancy. Any officer, agent, or employee of the
corporation may be removed by the Board of Directors at any time with or without
cause. Such removal, however, shall be without prejudice to the contract
rights, if any, of the persons so removed. Election or appointment of an
officer or agent or employee shall not of itself create contract rights. If any
corporate office becomes vacant by reason of death, resignation, removal or
otherwise, the Board of Directors or the executive officer possessing delegated
authority to appoint such an officer, shall have power to fill such vacancies.
In case of the absence or disability of any officer, the Board of Directors or
the Chief Executive Officer may delegate the powers or duties of any such
officer to another officer for the time being.
SECTION 4.4 - Compensation. The compensation of the Chief Executive
Officer shall be fixed by the Board of Directors. Unless fixed by the Board of
Directors, the compensation for all other officers, employees or agents of the
corporation shall be established by or at the direction of the Chief Executive
Officer.
SECTION 4.5 - Exercise of Rights as Stockholders. Unless otherwise ordered
by the Board of Directors, the Chief Executive Officer or the Chief Executive
Officer's designee acting by written designation, shall have full power and
authority on behalf of the corporation to attend and to vote at any meeting of
shareholders of any corporation in which this corporation may hold stock, other
than in a fiduciary capacity, and may exercise on behalf of this corporation any
and all of the rights and powers incident to the ownership of such stock at any
such meeting, and shall have power and authority to execute and deliver proxies
and consents on behalf of this corporation in connection with the exercise by
this corporation of the rights and powers incident to the ownership of such
stock. The Board of Directors, from time to time, may confer like powers upon
any other person or persons.
SECTION 4.6 - Duties of Chairman of the Board. The Chairman shall preside
at all meetings of the shareholders and at meetings of the Board of Directors
and the Executive Committee; provided, however, that the Chairman of
8
<PAGE>
the Board shall not, by reason of such office, be considered an executive
officer of the corporation or be assigned executive responsibilities or
participate in the operational management of the corporation.
SECTION 4.7 - Duties of Vice Chairman. he Vice Chairman shall have such
powers and exercise such other duties as shall be delegated to such officer by
the Chief Executive Officer or the Board.
SECTION 4.8 - Duties of Chief Executive Officer. The Chief Executive
Officer shall have general management of the business of the corporation. The
Chief Executive Officer shall see that all orders and resolutions of the Board
of Directors and the Executive Committee are carried into effect and shall have
general supervision over the property, business, and affairs of the corporation
and its several officers. The Chief Executive Officer shall be the person to
whom the President, and all other officers designated by the Chief Executive
Officer, shall report. The Chief Executive Officer may delegate such duties as
such officer sees fit to delegate to the President, or other officers of the
corporation. The Chief Executive Officer may appoint agents or employees other
than those appointed by the Board of Directors, and shall perform such other
duties as may be prescribed from time to time by the Board of Directors or by
the Bylaws.
SECTION 4.9 - Duties of President. The President shall, subject to the
authority granted to the Chief Executive Officer, be the chief operating officer
of the corporation and shall have general supervision over the day-to-day
business of the corporation. The President shall have such other authority and
shall exercise such other duties as shall, from time to time, be delegated to
such officer by the Chief Executive Officer or by the Board. Unless otherwise
determined by the Board of Directors, the President shall perform all of the
duties of the Chief Executive Officer in case of absence or disability of the
Chief Executive Officer.
SECTION 4.10 - Duties of Vice President. The Vice Presidents shall have
such powers and perform such duties as may be assigned to them by the Board of
Directors or the Chief Executive Officer. A Vice President designated by the
Board of Directors shall perform all of the duties of the President in case of
absence or disability of the President.
SECTION 4.11 - Duties of Secretary. The Secretary shall, subject to the
direction of the Chief Executive Officer keep the minutes of all meetings of the
shareholders and of the Board of Directors, and to the extent ordered by the
Board of Directors or the Chief Executive Officer the minutes of all meetings of
all committees. The Secretary shall cause notice to be given of the meetings of
the shareholders, of the Board of Directors, and of any committee appointed by
the
9
<PAGE>
Board. The Secretary shall have custody of the corporate seal and general charge
of the records, documents, and papers of the corporation not pertaining to the
performance of the duties vested in other officers, which shall at all
reasonable times be open to the examination of any director. Without limiting
the generality of the foregoing, the Secretary shall have charge (directly or
through such transfer agents or registrars as the Board of Directors may
appoint) of the issuance, transfer, and registration of certificates for shares
of the corporation and of the records pertaining thereto. Said records shall be
kept in such manner as to show at any time the number of shares of the
corporation issued and outstanding, the manner in which and the time when such
shares were paid for, the names and addresses of the holders of record thereof,
the numbers and classes of shares held by each, and the time when each became
such holder of record. The Secretary shall perform such other duties as may be
assigned by the Board of Directors or the Chief Executive Officer.
SECTION 4.12 - Duties of Treasurer. Except as otherwise set forth herein,
the Treasurer shall, subject to the direction of the Chief Executive Officer
have general custody of all the property, funds and securities of the
corporation and have general supervision of the collection and disbursement of
funds of the corporation. The Treasurer shall provide for the keeping of proper
records of all transactions of the corporation, and shall perform such other
duties as may be assigned to him by the Board of Directors or the Chief
Executive Officer.
SECTION 4.13 - Other Officers. Such other officers as shall be appointed
by the Board of Directors, or the Chief Executive Officer, acting pursuant to
delegated authority of the Board, shall exercise such powers and perform such
duties as pertain to their several offices, or as may be conferred upon, or
assigned to, them by the Board of Directors or the Chief Executive Officer or
such officer's designee.
SECTION 4.14 - Clerks and Agents. The Chief Executive Officer, or any
other officer of the corporation authorized by the Chief Executive Officer, may,
subject to the supervision of the Board of Directors, appoint such custodians,
bookkeepers and other clerks, agents, and employees as he shall deem advisable
for the prompt and orderly transaction of the business of the corporation and
shall define their duties, fix the salaries to be paid to them and dismiss them.
ARTICLE 5
---------
Shares and Certificates for Shares
----------------------------------
10
<PAGE>
SECTION 5.1 - Consideration. Certificates for shares of the corporation
shall be issued only when fully paid for.
SECTION 5.2 - Stock Certificates. The certificates shall be in such form
as designated by the Board of Directors, shall be numbered in the order in which
they shall be issued, and shall be signed, either manually or in facsimile, by
the Chief Executive Officer and by the Secretary, or by such officers as may be
designated by the Board of Directors. If a corporate seal is maintained, it or
a facsimile thereof may be affixed to the certificates. Each certificate shall
state upon its face the name of the corporation and that the corporation is
organized under the laws of the State of Washington, the name of the person to
whom it is issued, and the number and class of shares and the designation of the
series, if any, the certificate represents.
SECTION 5.3 - Lost Certificates. No new certificates shall be issued until
the former certificate for the shares represented thereby shall have been
surrendered and cancelled, except in the case of lost or destroyed certificates,
and in that case only after the receipt of a bond or other security by the
corporation, satisfactory to the Board of Directors, indemnifying the
corporation and all persons against loss in consequence of the issuance of such
new certificate.
SECTION 5.4 - Transfer of Shares. Shares of the corporation may be
transferred by endorsement by the signature of the owner, his agent, attorney or
legal representative, and the delivery of the certificate; but no transfer shall
be valid except between the parties thereto, until the same shall have been
entered upon the books of the corporation, so as to show the names of the
parties, by and to whom transferred, the numbers and designation of the shares
and the date of transfer.
SECTION 5.5 - Holder of Record. The person registered on the books of the
corporation as the owner of the issued shares shall be recognized by the
corporation as the person exclusively entitled to have and to exercise the
rights and privileges incident to the ownership of such shares. Notwithstanding
the preceding sentence, the Board of Directors may adopt by resolution a
procedure whereby a shareholder may certify in writing to the corporation that
all or a portion of the shares registered in the name of such shareholder are
held for the account of a specified person or persons. Upon receipt by the
corporation of a certification complying with such an adopted procedure, the
person specified in the certification shall be deemed, for the purpose or
purposes set forth in the certification, to be the holders of record of the
number of shares specified in place of the shareholder making the certification.
11
<PAGE>
SECTION 5.6 - Issuance of Shares. Any shares authorized but not issued by
this corporation shall be issued, sold, or otherwise transferred by this
corporation only upon authorization of the Board of Directors.
SECTION 5.7 - Subscriptions. A subscription for shares of this corporation
shall be in writing and upon such terms as may be approved by the Board of
Directors.
SECTION 5.8 - Payment of Subscriptions. A subscription for shares shall be
paid in accordance with the terms set forth in the subscription or related
subscription agreement, if any. If the subscription or subscription agreement
does not require payment on or before a stated date or at a fixed period after a
stated date, then payment shall be made in such manner and at such times as may
be determined by the Board of Directors and expressed by it in a written call
for payment; provided that the call shall be uniform as to all shares of the
same class or series and that the call shall be mailed to each subscriber at his
last post office address known to the corporation at least thirty (30) days in
advance of the date upon which payment or the first installment, if installment
payments are called for, is due.
SECTION 5.9 - Default in Payment of Subscriptions. If a payment required
by a subscription, a subscription agreement, or a call of the Board of Directors
is not paid when due, then the corporation may make written demand for payment
upon the defaulting subscriber by personal service or by mailing a copy of the
demand to the subscriber at his last post office address known to the
corporation. If the payment is not made within twenty (20) days of the serving
or mailing of the demand for payment, the corporation may terminate the
subscription, forfeit the subscriber's rights thereunder, retain as liquidated
damages any sums previously paid on the subscription, and hold and dispose of
the shares as though never subject to the subscription. In lieu of forfeiture,
the corporation may proceed to collect the amount due in the same manner as any
debt due the corporation.
ARTICLE 6
---------
Seal
----
SECTION 6.1 - Corporate Seal. In the exercise of its discretion the Board
of Directors may adopt and maintain a suitable seal for the corporation.
ARTICLE 7
---------
12
<PAGE>
Miscellaneous Provisions
------------------------
SECTION 7.1 - Fiscal Year. The fiscal year of the corporation shall be the
calendar year.
SECTION 7.2 - Records. The Articles of Incorporation, the Bylaws, and the
proceedings of all meetings of the shareholders, the Board of Directors and
standing committees of the Board shall be recorded in appropriate minute books
provided for that purpose. The minutes of each meeting shall be signed by the
Secretary or other officer appointed to act as Secretary.
ARTICLE 8
---------
Bylaws
------
SECTION 8.1 - Inspection. A copy of the Bylaws, with all amendments
thereto, shall at all times be kept in a convenient place at the principal
office of the corporation, and shall be open for inspection of all shareholders
during normal business hours.
SECTION 8.2 - Amendments. The Bylaws may be amended, altered or repealed,
at any regular meeting of the Board of Directors, by a vote of the majority of
the whole Board of Directors, provided that a written statement of the proposed
action shall have been personally delivered or mailed to all directors at least
two (2) days prior to any such meeting.
I HEREBY CERTIFY that the foregoing are the Restated Bylaws of Columbia
Banking System, Inc in effect on this 26th day of January, 2000.
/s/ Jill L. Myers
Secretary
13
<PAGE>
EXHIBIT 10(d)
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
Agreement shall become effective as of July 1, 1998.
RECITALS
1. 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 entered into an
Employment Agreement effective as of July 1, 1998.
2. This Agreement was amended and restated in June 1999.
3. Effective January 1, 2000, Executive was appointed to serve as Chief
Executive Officer of CBSI, in addition to his position as Vice
Chairman of CBSI and Columbia Bank. Employer and Executive desire to
amend and restate this Agreement to reflect the change in position of
Executive.
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 and Chief Executive Officer
of CBSI and Vice Chairman of Columbia Bank. In such capacities, and subject to
the authority of the Board of Directors of CBSI and Columbia Bank, as
appropriate, (i) Executive will have general management of the business of CBSI;
(ii) will be specifically responsible for strategic planning, merger and
acquisition activity, and legal and regulatory compliance of Columbia
<PAGE>
Bank; and (iii) will perform such other tasks in connection with the affairs of
Columbia Bank that are normal and customary to the position 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 CBSI or Columbia Bank.
(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.
2
<PAGE>
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, 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.
3
<PAGE>
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, 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
4
<PAGE>
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 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 the provisions of this Section 7.3
result in imposition of a tax on Executive under the provisions of Internal
Revenue Code (S) 4999, Employer agrees to reimburse Executive for the same,
exclusive of any tax imposed by reason of receipt of reimbursement under this
Section 7.3.
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
5
<PAGE>
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 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
COLUMBIA BANKING SYSTEM, INC.
By: /s/ W.W. Philip
------------------------------
W.W. Philip
Its Chairman
EXECUTIVE
/s/ J. James Gallagher
----------------------------------
J. JAMES GALLAGHER
6
<PAGE>
EXHIBIT 10(e)
AMENDED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered 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
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. Executive and
Employer have entered into an Employment Agreement effective July 1,
1999.
D. Effective January 1, 2000, Executive was appointed to serve as
President and Chief Operating Officer of CBSI and President and Chief
Executive Officer of Columbia Bank. Executive and Employer desire to
amend and restate this Agreement to reflect this change in position.
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.
<PAGE>
3. Duties.
(a) Executive will be President and Chief Executive Officer of
Columbia Bank and President and Chief Operating Officer of CBSI. In such
capacities, and subject to the authority of the Vice Chairman and Chief
Executive Officer of CBSI and the Boards 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.
(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
Vice Chairman and Chief Executive Officer of CBSI or the Board of Columbia Bank,
as appropriate, 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.
2
<PAGE>
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.l(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.
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 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.
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
3
<PAGE>
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.
(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 shall occur. The provisions of
this Section 7.1 shall survive expiration of the term of the Agreement.
4
<PAGE>
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 the provisions of this Section 7.3
result in imposition of a tax on Executive under the provisions of Internal
Revenue Code (S) 4999, Employer agrees to reimburse Executive for the same,
exclusive of any tax imposed by reason of receipt of reimbursement under this
Section 7.3.
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 to the
following address, or such other address as addressee shall designate in
writing:
5
<PAGE>
Employer: 1102 Broadway
Tacoma, WA 98402
Executive: 10924 Bliss Cochrane KPN
Gig Harbor, WA 98329
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
July 1, 1999.
COLUMBIA STATE BANK
By: /s/ W.W. Philip
-------------------------------------
W.W. Philip
Its Chairman
COLUMBIA BANKING SYSTEM, INC.
By: /s/ W.W. Philip
-------------------------------------
W.W. Philip
Its Chairman
EXECUTIVE
/s/ Melanie J. Dressel
----------------------------------------
Melanie J. Dressel
6
<PAGE>
EXHIBIT 10(l)
COLUMBIA BANKING SYSTEM, INC.
DEFERRED COMPENSATION PLAN
September 22, 1999
-1-
<PAGE>
Columbia Banking System, Inc.
DEFERRED COMPENSATION PLAN
Table of Contents
ARTICLE I-RECITALS....................................................... 5
ARTICLE II-DEFINITIONS................................................... 5
2.01 Account....................................................... 5
2.02 Account Balance............................................... 6
2.03 Annual Bonus.................................................. 6
2.04 Annual Deferral Amount........................................ 6
2.05 Base Annual Salary............................................ 6
2.06 Beneficiary................................................... 7
2.07 Beneficiary Designation Form.................................. 7
2.08 Change in Control............................................. 7
2.09 Code.......................................................... 7
2.10 Compensation.................................................. 7
2.11 Deduction Limitation.......................................... 8
2.12 Deferral Amount............................................... 8
2.13 Disability.................................................... 8
2.14 Discretionary Employer Contribution........................... 9
2.15 Election Form................................................. 9
2.16 Eligible Employee............................................. 9
2.17 Enrollment Form............................................... 9
2.18 ERISA......................................................... 10
2.19 Hardship Distribution......................................... 10
2.20 Matching Contribution......................................... 10
2.21 Monthly Payments.............................................. 11
2.22 Participant................................................... 11
2.23 Plan Year..................................................... 11
2.24 Preretirement Death Benefit................................... 12
2.25 Retirement.................................................... 12
-2-
<PAGE>
2.26 Retirement Benefit............................................ 12
2.27 Rules and Procedures.......................................... 12
2.28 Termination Benefit........................................... 12
2.29 Termination of Employment..................................... 12
2.30 Total Monthly Deferrals....................................... 12
2.31 Unforeseeable Financial Emergency............................. 13
ARTICLE III-ELIGIBILITY AND PARTICIPATION................................ 14
3.01 Eligibility................................................... 14
3.02 Enrollment Requirements....................................... 14
3.03 Commencement of Participation................................. 14
3.04 Change of Employment Category................................. 14
ARTICLE IV-CONTRIBUTIONS AND CREDITS..................................... 15
4.01 Deferral Election............................................. 15
4.02 Election to Defer............................................. 15
4.03 Withholding of Deferrals...................................... 16
4.04 Payment to Plan............................................... 16
4.05 Credits to Accounts........................................... 16
4.06 Withholding Taxes............................................. 17
ARTICLE V-INVESTMENT CREDITS............................................. 17
5.01 Allocation of Earnings or Losses.............................. 17
5.02 Investment Directions......................................... 18
ARTICLE VI-ENTITLEMENT TO BENEFITS....................................... 19
6.01 Retirement Benefit............................................ 19
6.02 Termination Benefit........................................... 20
6.03 Hardship Distributions........................................ 21
6.04 Preretirement Death Benefit................................... 21
6.05 Nontransferable............................................... 21
ARTICLE VII-BENEFICIARY DESIGNATION...................................... 22
7.01 Beneficiary................................................... 22
7.02 Method of Designation......................................... 22
7.03 Acknowledgment of Designation................................. 22
-3-
<PAGE>
7.04 No Beneficiary Designation.................................... 22
7.05 Beneficiary Dispute........................................... 23
7.06 Discharge of Obligations...................................... 23
ARTICLE VIII-ADMINISTRATION.............................................. 23
8.01. Administrative Authority...................................... 23
8.02. Mutual Exclusion.............................................. 24
8.03. Uniformity of Acts............................................ 24
8.04. Litigation.................................................... 24
8.05. Payment of Administration Expenses............................ 25
ARTICLE IX-TERMINATION AND AMENDMENT..................................... 25
9.01. Discretionary Termination..................................... 25
9.02 Automatic Plan Termination.................................... 25
9.03 Individual Termination........................................ 26
9.04 Amendment..................................................... 26
ARTICLE X-ERISA.......................................................... 26
10.01 Terms......................................................... 26
10.02 Procedure..................................................... 27
ARTICLE XI-ARBITRATION................................................... 27
ARTICLE XII-GENERAL PROVISIONS........................................... 28
12.01.Notice........................................................ 28
12.02 Inurement..................................................... 28
12.03 Governing Law................................................. 28
12.04 Construction.................................................. 29
12.05 Severability.................................................. 29
12.06 Termination................................................... 29
12.07.Compliance With Code.......................................... 29
-4-
<PAGE>
Columbia Banking System, Inc.
DEFERRED COMPENSATION PLAN
This Columbia Banking System, Inc. Deferred Compensation Plan (the "Plan")
is adopted as of the date on the signature page by Columbia Banking System,
Inc., and its subsidiaries, a Washington corporation ("Employer").
ARTICLE I-RECITALS
Employer presently has a select group of senior management and highly
compensated employees who contribute materially to the continued growth,
development, and business success of Employer. Each member of this select group
has experience and knowledge in the conduct of Employer's business that is of
great value to Employer. In the future, Employer expects that it will employ
additional senior management and highly compensated individuals who will
contribute materially to the continued growth, development, and business success
of Employer and who will have experience and knowledge in the conduct of
Employer's business that is of great value to Employer. In recognition of the
value of Employer's present and future senior management and highly compensated
employees, the purpose of this Plan is to provide specified benefits to a select
group of Employer's senior management and highly compensated employees. The Plan
is intended to be a top-hat plan (i.e., an unfunded deferred compensation plan
maintained for a select group of management or highly compensated employees)
under ERISA (S)(S)201(2), 301(a)(3), and 401(a)(1).
ARTICLE II-DEFINITIONS
The following capitalized terms shall have the meanings specified in this
article, unless otherwise clearly apparent from the context. 2.01 Account.
"Account" means the record maintained by Employer for each Participant under the
Plan. The Account shall be a bookkeeping entry only and shall be utilized solely
as a device for the
-5-
<PAGE>
measurement and determination of the amounts to be paid to a Participant
pursuant to the Plan.
2.02 Account Balance.
"Account Balance" means (a) the Deferral Amount, plus (b) any Matching
Contributions made by Employer, plus (c) any Discretionary Employer
Contributions made by Employer, plus (d) income, gains, and losses credited in
accordance with the applicable provisions of the Plan, less (e) all related
expenses, including without limitation investment, management, transaction, and
mortality expenses, less (f) all distributions to the Participant or the
Participant's Beneficiary.
2.03 Annual Bonus.
"Annual Bonus" means any compensation, in addition to Base Annual Salary, which
would be payable in cash to a Participant as an employee of Employer under any
of Employer's bonus or incentive plans.
2.04 Annual Deferral Amount .
"Annual Deferral Amount" means that portion of a Participant's Base Annual
Salary or Annual Bonus that a Participant elects to have deferred and, in fact,
is deferred in accordance with Article IV for any Plan Year. In the event a
Participant's deferrals cease, for any reason, prior to the end of a Plan Year,
that Participant's Annual Deferral Amount for that Plan Year shall be the actual
amount withheld prior to the cessation of such deferrals.
2.05 Base Annual Salary.
"Base Annual Salary" means the annual compensation payable in cash to a
Participant by Employer, excluding bonuses, relocation expenses, incentive plan
payments, director's fees and other fees, severance allowances, pay in lieu of
vacations, Employer contributions to qualified or nonqualified plans, and
automobile and other allowances paid to a Participant for employment services
rendered (whether or not such allowances are included in the Participant's gross
income for tax purposes). Base Annual Salary also specifically does not include
nonmonetary awards and fringe benefits not payable in cash. Base Annual Salary
shall be calculated before reduction for compensation voluntarily deferred or
contributed by a Participant pursuant to all qualified or nonqualified plans and
shall be calculated to include amounts not otherwise included in the
Participant's gross income under Code (S)(S)125, 402(e)(3), 402(h), or 403(b)
pursuant to any plans
-6-
<PAGE>
established by Employer; provided, however, that all such amounts will be
included in Base Annual Salary only to the extent that, had there been no such
plan, the amount would have been payable in cash to the Participant.
2.06 Beneficiary.
"Beneficiary" means one or more persons or estates that are entitled to receive
a Participant's remaining benefits under the Plan upon the death of a
Participant.
2.07 Beneficiary Designation Form.
"Beneficiary Designation Form" means the form established from time to time by
Employer to be used by a Participant to designate one or more Beneficiaries
2.08 Change in Control.
A "Change in Control" shall be deemed to have occurred if any person (including
a "Group" as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934) acquires shares of Employer either (a) having a majority of the
total number of votes that may be cast for the election of directors of Employer
or (b) possessing, directly or indirectly, the power to control the direction of
management or policies of Employer; provided, however, that no Change in Control
shall be deemed to occur in the event of a merger, consolidation, or
reorganization of Employer where the shareholders of Employer are substantially
the same as before such merger, consolidation, or reorganization.
2.09 Code.
"Code" means the Internal Revenue Code of 1986 and the Treasury Regulations
adopted thereunder, as each is amended from time to time.
2.10 Compensation.
"Compensation" means the total Annual Bonus and Base Annual Salary paid by
Employer to a
-7-
<PAGE>
Participant in any Plan Year.
2.11 Deduction Limitation.
"Deduction Limitation" means the following described limitation on a benefit
that may otherwise be distributable to a Participant pursuant to the provisions
of the Plan. Except as otherwise provided, this limitation shall be applied to
all distributions that are "subject to the Deduction of Limitation" under the
Plan. If Employer determines in good faith prior to a Change in Control that
there is a reasonable likelihood that any compensation paid to a Participant for
a taxable year of Employer would not be deductible by Employer solely by reason
of the limitation under Code (S)162(m), then to the extent deemed necessary by
Employer to ensure that the entire amount of any distribution to such
Participant pursuant to the Plan prior to a Change in Control is deductible,
Employer may defer all or any portion of a distribution under the Plan. Any
amounts deferred pursuant to this limitation shall continue to accrue income,
gains, and losses as otherwise provided in the Plan. The amounts so deferred and
the income, gains, and losses accrued thereon shall be distributed to such
Participant or such Participant's Beneficiary, in the event of the Participant's
death, at the earliest possible date, as determined by Employer in good faith,
on which the deductibility of compensation paid or payable to the Participant
for the taxable year of Employer during which the distribution is made will not
be limited by Code (S)162(m) or, if earlier, the effective date of a Change in
Control. Notwithstanding anything to the contrary in the Plan, the Deduction
Limitation shall not apply to any distributions made after a Change in Control.
2.12 Deferral Amount.
"Deferral Amount" means the sum of all of a Participant's Annual Deferral
Amounts.
2.13 Disability.
"Disability" means a period of disability during which a Participant qualifies
for benefits under Employer's long-term disability plan or, if a Participant
does not participate in such plan, a period of disability during which the
Participant would have qualified for benefits under such
-8-
<PAGE>
plan had the Participant been a participant in such plan. If Employer does not
sponsor such a plan, Disability shall be determined by Employer in its
discretion.
2.14 Discretionary Employer Contribution.
"Discretionary Employer Contribution" means contributions made by Employer, in
Employer's sole discretion, to the Account of one or more Participants in such
amount as Employer shall determine. Employer is under no obligation to make any
Discretionary Employer Contributions at any time under this Plan. If Employer
makes any Discretionary Employer Contributions, Employer shall be free to
allocate them among Participants in any way Employer deems appropriate and
Employer shall be free to omit any Participants from the allocation of such
Discretionary Employer Contributions. Any Discretionary Employer Contributions
shall be credited to a Participant's Account upon delivery of the contribution
to the Plan Administrator for credit to the Participant's Plan Account.
2.15 Election Form.
"Election Form" means the form established from time to time by Employer that a
Participant completes, signs, and returns to Employer to make an election under
the Plan.
2.16 Eligible Employee.
"Eligible Employee" means an Director of Employer or Employee of Employer who is
a member of senior management or, in Employer's sole discretion, a highly
compensated employee and who is designated by Employer, in Employer's sole
discretion, to be eligible to participate in the Plan.
2.17 Enrollment Form.
"Enrollment Form" means the form established from time to time by Employer that
an Eligible Employee completes, signs, and returns to Employer in order to
enroll in, and become a Participant in, the Plan.
-9-
<PAGE>
2.18 ERISA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as it may be
amended from time to time.
2.19 Hardship Distribution.
"Hardship Distribution" means the distribution provided for in paragraph (b) of
Section 6.03. A Participant may petition for a Hardship Distribution if the
Participant experiences an Unforeseeable Financial Emergency or suffers a
Disability. Employer shall consider the circumstances of each such case and the
best interests of the Participant and the Participant's family and shall have
the right, in Employer's sole discretion, to allow the entire distribution
requested by the Participant, to allow only a portion of the distribution
requested by the Participant, or to refuse to allow any distribution to the
Participant. Upon determining that a Participant is entitled to a Hardship
Distribution, Employer shall instruct the Plan Administrator to make the
appropriate distribution to the Participant from the Participant's Plan Account.
In no event shall the aggregate amount of any Hardship Distribution exceed
either the full value of the Participant's Account or the amount determined by
Employer to be necessary to alleviate the Participant's Unforeseeable Financial
Emergency or the costs of the Participant's Disability. In determining the
amount to be distributed to a Participant as a Hardship Distribution, Employer
may consider any taxes due because of the Hardship Distribution to the
Participant.
2.20 Matching Contribution.
"Matching Contribution" means an amount determined in writing by Employer prior
to the beginning of each Plan Year, designated as a percentage which may be zero
or greater, of the Annual Deferral Amount for each Participant during that Plan
Year. Employer shall contribute to each Participant's Account during that Plan
Year an amount equal to that Plan Year's designated percentage, if any, times
the Participant's Annual Deferral Amount for that Plan Year. Unless Employer
determines a Matching Contribution for a Plan Year in the manner provided in
this section, there shall be no Matching Contribution for that Plan year. If
Employer establishes a Matching Contribution for any Plan Year, then such
Matching Contributions shall be paid to the Plan Administrator on a quarterly
basis, within fifteen (15) days after the close of each
-10-
<PAGE>
calendar quarter. Each Participant's share of any declared Matching Contribution
shall be credited to the Participant's Account effective upon receipt by the
Plan Administrator of each such Matching Contribution.
2.21 Monthly Payments.
"Monthly Payments" means monthly installments equal to 1/N of the Participant's
Account Balance, where "N" is the number of monthly installments remaining to be
paid. Employer, in Employer's sole discretion, may recalculate a Participant's
or a Beneficiary's Monthly Payment on a monthly, quarterly, semi-annual, or
annual basis. If Employer recalculates the Monthly Payment on other than a
monthly basis, the Monthly Payments shall terminate when the Participant's
Account Balance reaches zero, even if this occurs prior to the last scheduled
Monthly Payment as a result of investment losses debited to the Participant's
Plan Account. The last scheduled Monthly Payment shall include the entire
balance in the Participant's Account, even if it is larger than the scheduled
amount of the Monthly Payment.
2.22 Participant.
"Participant" means any Eligible Employee who is selected by Employer to
participate in the Plan, who elects to participate in the Plan, who signs an
Enrollment Form, an Election Form, and a Beneficiary Designation Form, all of
which are accepted by Employer, and whose participation in the Plan has not
terminated. A spouse or former spouse of a Participant shall not be treated as a
Participant in the Plan, even if such spouse has an interest in the
Participant's benefits under the Plan under any applicable law or as a result of
any property settlement resulting from legal separation or divorce.
2.23 Plan Year.
"Plan Year" means a calendar year ending each December 31. The first Plan Year
shall commence on the effective date of this Plan and end on December 31 of that
year.
-11-
<PAGE>
2.24 Preretirement Death Benefit.
"Preretirement Death Benefit" means the benefit provided for in Section 6.04.
2.25 Retirement.
"Retirement" means severance from employment with Employer after age sixty-five
(65) for any Employee, and age 75 for any Director for any reason other than
death or Disability.
2.26 Retirement Benefit.
"Retirement Benefit" means the benefit provided for in Section 6.01.
2.27 Rules and Procedures.
"Rules and Procedures" means such rules of procedure and regulations as
Employer, in Employer's opinion, deems necessary or appropriate for the proper
and efficient administration of the Plan. Any Rules and Procedures must be
consistent with the Plan. Employer may modify, amend, or revoke the Rules and
Procedures, or any portion of them, at any time and from time to time.
2.28 Termination Benefit.
"Termination Benefit" means the benefit provided for in Section 6.02.
2.29 Termination of Employment.
"Termination of Employment" means a Participant's severance from employment with
Employer, voluntarily or involuntarily, for any reason other than Retirement,
Disability, or death.
2.30 Total Monthly Deferrals.
"Total Monthly Deferrals" means the total deferrals withheld from all
Participants' Compensation during any calendar month.
-12-
<PAGE>
2.31 Unforeseeable Financial Emergency.
"Unforeseeable Financial Emergency" means an unanticipated emergency that is
caused by an event beyond the control of the Participant that would cause severe
financial hardship to the Participant resulting from (a) a sudden and unexpected
illness or accident of the Participant or a dependant of the Participant, (b) a
loss of the Participant's property due to casualty, or (c) such other
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant, all as determined in the sole discretion
of Employer.
-13-
<PAGE>
ARTICLE III-ELIGIBILITY AND PARTICIPATION
3.01 Eligibility
Eligible participants will come from a group of senior management, Directors,
and other highly compensated employees. From that group, Employer shall select,
in Employer's sole discretion, those individuals who shall be Eligible
Employees.
3.02 Enrollment Requirements
As a condition to participation in the Plan, each Eligible Employee shall
complete, execute, and return to Employer, within thirty (30) days of being
notified by Employer that he or she is an Eligible Employee, an Enrollment Form,
an Election Form, and a Beneficiary Designation Form. In addition, Employer may
establish from time to time any other enrollment requirements that Employer
determines, in Employer's sole discretion, are necessary or convenient to the
implementation and administration of the Plan. Participation in the Plan is
voluntary and an Eligible Employee shall be under no obligation to elect to
participate in the Plan.
3.03 Commencement of Participation.
Provided that an Eligible Employee has met all enrollment requirements set forth
in this Plan and established by Employer, including returning all required
documents to Employer in a timely manner, that Eligible Employee shall commence
participation in the Plan upon the timely completion of those requirements and
Employer's acceptance of all submitted documents. If an Eligible Employee fails
to meet all such requirements within the required thirty (30)-day period, that
Eligible Employee shall not be eligible to participate in the Plan until the
first day of the Plan Year which begins after the delivery to Employer of the
required documents, provided that those documents are accepted by Employer.
3.04 Change of Employment Category.
If Employer determines in good faith that a Participant no longer qualifies as
an Eligible
-14-
<PAGE>
Employee, Employer shall have the right, in Employer's sole discretion, to:
(a) Terminate deferral. Terminate any deferral election the Participant has made
for the Plan Year in which the Participant's employment status changes;
(b) Prohibit future elections. Prevent the Participant from making future
deferral elections; and/or
(c) Terminate participation. Immediately distribute the Participant's then
Account Balance as a Termination Benefit and terminate the Participant's
participation in the Plan.
If Employer chooses not to terminate the Participant's participation in the
Plan, Employer may, in Employer's sole discretion, reinstate the Participant to
full participation in the Plan at any future time when the Participant again
becomes an Eligible Employee.
ARTICLE IV-CONTRIBUTIONS AND CREDITS
4.01 Deferral Election.
In accordance with the Rules and Procedures, a Participant may elect to defer
Base Annual Salary or Annual Bonus that is due to be earned and that would
otherwise be paid to the Participant, up to the maximum percentages for each
established in the Rules and Procedures.
4.02 Election to Defer.
In connection with a Participant's initial participation in the Plan, the
Participant shall make a deferral election by delivering to Employer a completed
and signed Election Form. An Election Form shall be valid only if it is timely
delivered to, and accepted by, Employer. A Participant may change his or her
deferral election effective as of the first day of a Plan Year by delivering a
new completed and signed Election Form to Employer. In order to be effective,
the new Election Form must be received and accepted by Employer prior to the
beginning of the Plan Year. If a new Election Form is received and accepted by
Employer after the beginning of a new Plan Year, such new Election Form shall
not be effective until the beginning of the next Plan Year. Once accepted by
Employer, an Election Form shall continue in force indefinitely, until changed
by the Participant on a subsequent Election Form submitted to, and accepted by,
Employer.
-15-
<PAGE>
4.03 Withholding of Deferrals.
The portion of the Annual Deferral Amount attributable to Base Annual Salary
shall be withheld each payroll period in equal amounts from the Participant's
Base Annual Salary. If a Participant's Base Annual Salary increases or
decreases, the amounts withheld shall be adjusted to take into consideration
such increases or decreases, if the Annual Deferral Amount is expressed as a
percentage of Base Annual Salary. The portion of the Annual Deferral Amount
attributable to the Annual Bonus shall be withheld at the time each Annual Bonus
is, or otherwise would be, paid to the Participant.
4.04 Payment to Plan.
On or before the fifteenth day of each month, Employer shall contribute to the
Plan the Total Monthly Deferrals withheld during the prior month. Employer shall
provide the Plan Adminstrator with the proper allocation of the Total Monthly
Deferrals among the Participants' Accounts. Each Participant's portion of the
Total Monthly Deferrals shall be allocated to that Participant's Plan Account
upon receipt by the Plan Administrator and shall begin to accrue income, gains,
and losses as of that time.
4.05 Credits to Accounts.
Employer shall establish and maintain a separate Account in the name of each
Participant, which shall at all times be one hundred percent (100%) vested in
the Participant. Each Participant's Account shall be credited or debited with
the following:
(a) Deferrals. Amounts equal to the Participant's Deferral Amount,
effective upon the date it is withheld from the Participant's Compensation;
(b) Matching Contribution. Any Matching Contributions allocable to the
Participant, effective as of the date each portion of the Participant's
Annual Deferral Amount subject to such Matching Contribution is withheld
from the Participant's Compensation;
(c) Discretionary Employer Contribution. Any Discretionary Employer
Contributions allocated by Employer to the Participant, effective upon
receipt by the Plan Administrator of each such Discretionary Employer
Contribution;
(d) Investment income. Amounts equal to any income, gains, or losses
(to the extent realized, based upon the investment performance of the
Participant's Plan
-16-
<PAGE>
Account) attributable or allocable to the amounts under paragraphs (a),
(b), and (c) above (Employer shall have the discretion to allocate such
income, gains, or losses among Accounts pursuant to such allocation rules
as Employer deems to be reasonable and administratively practicable);
(e) Expenses. All related expenses, including without limitation
investment, management, transaction, and mortality expenses; and
(f) Distributions. Any distributions made to the Participant or the
Participant's Beneficiary.
4.06 Withholding Taxes.
For each Plan Year in which an Annual Deferral Amount is being withheld
from a Participant, Employer shall withhold from that portion of the
Participant's Compensation that is not being deferred, in a manner determined by
Employer, the Participant's share of FICA and other employment taxes. If
necessary, Employer shall reduce the Annual Deferral Amount in order to comply
with this Section 4.06. In addition, Employer or the Plan shall withhold from
any payment made to a Participant under this Plan all federal, state, and local
income, employment, and other taxes required to be withheld by Employer or the
Plan in connection with such payments, in amounts and in a manner to be
determined in the sole discretion of Employer or the Plan.
ARTICLE V-INVESTMENT CREDITS
5.01 Allocation of Earnings or Losses
Pursuant to Section 5.02, each Participant shall have the right to direct
Employer how amounts in the Participant's Plan Account shall be invested among
the various investment alternatives available under the Plan from time to time,
as determined by Employer, in Employer's sole discretion. Any such direction
given by a Participant to Employer shall be in writing. Employer shall then
direct the Plan Administrator to invest the Plan Account maintained on behalf of
the Participant pursuant to the direction provided by the Participant to
Employer. Employer, in Employer's sole discretion, may authorize Participants to
directly give investment instructions to the Plan Administrator. The
Participant's Account shall be credited or debited with the increase or decrease
in the realizable net asset value or credited with interest, as applicable, from
the
-17-
<PAGE>
designated investments in the Participant's Plan Account. The Participant's
Account shall be debited with any investment, management, transaction, or
mortality costs or expenses attributable or allocable to the designated
investments in the Participant's Plan Account.
5.02 Investment Directions.
Subject to any limitations that may from time to time be required by law,
imposed by Employer, imposed by the Plan Administrator, or contained elsewhere
in the Plan, and subject to the Rules and Procedures, each Participant may
communicate to Employer or, if permitted by the Rules and Procedures, to the
Plan Administrator, written directions as to how the Participant's Plan Account
should be invested among such investments as may be made available under the
Plan by Employer. A Participant's written directions shall designate the
percentage (in any whole percentage multiples) of the current balance in the
Participant's Plan Account that is to be invested in each investment and the
percentage (in any whole percentage multiples) of each subsequent addition to
the Participant's Plan Account that is to be invested in each investment, and
shall be subject to the following rules:
(a) Written directions. The initial and each subsequent investment
direction shall be in writing, on a form supplied by and filed with
Employer or, if permitted by the Rules and Procedures, the Plan
Administrator, and shall be effective on or before the fifth business day
following receipt of such written direction by Employer or the Plan
Administrator, as the case may be.
(b) Effect of investment directions. All Compensation deferrals, Matching
Contributions, and Discretionary Employer Contributions credited to a
Participant's Plan Account shall be invested in accordance with the then
effective investment directions provided by such Participant. As of the
effective date of any new investment directions, all or a portion of the
Participant's Plan Account on that date shall be reallocated among the
designated investment funds according to the percentages specified in the
new investment directions for the investment of the current balance in the
Participant's Plan Account. A written direction concerning investment
choices shall continue indefinitely, unless and until a subsequent written
investment direction shall be filed and become effective.
(c) Deficient investment directions. If Employer or, if permitted by the
Rules and Procedures, the Plan Administrator receives an initial or revised
investment direction that
-18-
<PAGE>
it deems to be incomplete, unclear, or improper, the Participant's
investment direction then in effect shall remain in effect (or, in the case
of a deficiency in an initial investment direction, the Participant shall
be deemed to have filed no investment direction) until such deficiency in
the investment direction is corrected by the Participant.
(d) Undesignated investment. If at any time Employer or, if permitted by
the Rules and Procedures, the Plan Administrator, possesses no investment
directions for, or investment directions covering less than all of, a
Participant's Plan Account, the Participant shall be deemed to have
directed that the undesignated portion of the Participant's Plan Account be
invested in a money market, fixed income, or similar fund made available
under the Plan, as determined by Employer, in Employer's sole discretion.
(e) Indemnity. Each Participant under the Plan, as a condition to the
Participant's participation in the Plan, agrees to indemnify and hold
harmless Employer, the Plan Administrator, and their agents and
representatives from any losses or damages of any kind relating to the
investment of the Participant's Plan Account and the resulting income,
gains, or losses credited to the Participant's Account under the Plan.
(f) Beneficiary as Participant. Each reference in this Section 5.02 to a
Participant shall be deemed to include, where applicable, a reference to a
Beneficiary.
ARTICLE VI-ENTITLEMENT TO BENEFITS
6.01 Retirement Benefit.
Subject to the Deduction Limitation, upon Retirement a Participant shall
receive, as a Retirement Benefit, the Participant's Account Balance.
(a) Payment of Retirement Benefit. A Participant, upon enrollment in the
Plan, shall elect on the Election Form to receive the Retirement Benefit in
a lump sum, in Monthly Payments over a period of sixty (60), one hundred
twenty (120), one hundred eighty (180), or two hundred forty (240) months,
or in a fixed or variable annuity payable over the Participant's lifetime
or the joint and survivor lifetimes of the Participant and the
Participant's spouse. The Participant may change this election to any
allowable alternative payout by submitting a new Election Form to Employer,
provided that any
-19-
<PAGE>
such Election Form must be submitted at least six (6) months prior to the
Participant's Retirement. The Election Form most recently accepted by
Employer shall govern the payout of the Retirement Benefit. If a
Participant does not make any election with respect to the payment of the
Retirement Benefit, the Participant's Retirement Benefit shall be paid in a
lump sum. The lump sum payment shall be made, or Monthly Payments shall
commence, no later than two (2) months from the date of the Participant's
Retirement. Any payment of a Retirement Benefit shall be subject to the
Deduction Limitation.
(b) Death prior to payout. If a Participant dies after Retirement, but
before the Retirement Benefit is paid in full, the Participant's unpaid
Retirement Benefit shall continue and shall be paid as follows:
1. In Monthly Payments to the Participant's Beneficiary over the remaining
number of months that the benefit would have been paid to the Participant
had the Participant survived;
2. To the Participant's spouse for the balance of the spouse's lifetime, if
the Participant had elected to receive the Retirement Benefit in the form
of an annuity payable over the joint and survivor lifetimes of the
Participant and the Participant's spouse; or
3. At Employer's discretion, in a lump sum that is equal to the
Participant's remaining unpaid Account Balance.
6.02 Termination Benefit.
Subject to the Deduction Limitation, upon a Termination of Employment by a
Participant prior to the Participant's Retirement or death, the Participant
shall receive a Termination Benefit which shall be equal to the Participant's
Account Balance. The Termination Benefit shall be paid in a lump sum within two
(2) months of the Termination of Employment, unless the Participant was eligible
for Retirement at the time of Termination of Employment. If the Participant was
eligible for Retirement at the time of Termination of Employment, then the
Termination Benefit shall be paid in the same manner as a Retirement Benefit,
with the Termination of Employment being treated as Retirement. Any payment of
the Termination Benefit shall be subject to the Deduction Limitation.
-20-
<PAGE>
6.03 Hardship Distributions.
If a Participant experiences an Unforeseeable Financial Emergency or if a
Participant suffers a Disability, the Participant may petition Employer to do
the following:
(a) Suspend deferrals. Suspend any deferrals required to be made by
the Participant; or
(b) Receive payout. Receive a Hardship Distribution from the
Participant's Account.
If the petition for suspension or a Hardship Distribution is approved by
Employer, in Employer's sole discretion, suspension shall take effect upon the
date of approval by Employer and the Hardship Distribution shall be made, or
shall commence, within sixty (60) days of Employer's approval. A Hardship
Distribution shall not be subject to the Deduction Limitation.
6.04 Preretirement Death Benefit.
Subject to the Deduction Limitation, if a Participant dies before the
Participant's Retirement or Termination of Employment, the Participant's
Beneficiary shall receive a Preretirement Death Benefit equal to the
Participant's Account Balance. The Preretirement Death Benefit shall be paid in
a lump sum. However, if the Preretirement Death Benefit exceeds fifty thousand
dollars ($50,000), Employer, in Employer's sole discretion, may make payment in
Monthly Payments over a period of time not to exceed the period of time elected
by the Participant for the Participant's Retirement Benefit. The lump sum
payment shall be made, or the Monthly Payments shall commence, within two (2)
months after Employer's receipt of proof of the Participant's death. Any
Preretirement Death Benefit paid shall be subject to the Deduction Limitation.
6.05 Nontransferable.
A Participant and a Participant's Beneficiary shall have no right to
assign, transfer, or otherwise convey the right to receive any payments under
this Plan. Such payments and the right to receive such payments are expressly
declared to be nonassignable and nontransferable. In the event of any attempted
assignment or transfer, Employer shall have no further liability in respect of
such payment under this Plan.
-21-
<PAGE>
ARTICLE VII-BENEFICIARY DESIGNATION
7.01 Beneficiary.
Each Participant shall have the right, at any time, to designate one or
more primary and one or more contingent Beneficiaries to receive any benefits
payable under the Plan to a Beneficiary upon the death of a Participant. The
Beneficiary designated under the Plan may be the same as or different from the
beneficiary designated under any other plan maintained by Employer in which the
Participant participates.
7.02 Method of Designation.
A Participant shall designate the Participant's Beneficiary by completing
and signing the Beneficiary Designation Form and returning it to Employer. A
Participant shall have the right to change a Beneficiary by completing, signing,
and otherwise complying with the terms of the Beneficiary Designation Form and
the Rules and Procedures. If a Participant is married and names someone other
than the Participant's spouse as a primary Beneficiary, a spousal consent, on a
form adopted by Employer, must be signed by that Participant's spouse and
returned to Employer. Upon Employer's acceptance of a Beneficiary Designation
Form, all prior Beneficiary designations shall be canceled. Employer shall be
entitled to rely on the last Beneficiary Designation Form filed by a Participant
and accepted by Employer prior to the Participant's death.
7.03 Acknowledgment of Designation.
No designation, or change in designation, of a Beneficiary shall be
effective until received, accepted, and acknowledged in writing by Employer.
7.04 No Beneficiary Designation.
If a Participant fails to designate a Beneficiary as provided in this
article or if all Beneficiaries designated by a Participant predecease the
Participant, then the Participant's designated Beneficiary shall be deemed to be
the Participant's surviving spouse; if the Participant has no surviving spouse,
then the Participant's designated Beneficiary shall be deemed to be the
Participant's surviving issue, on the principle of representation; if the
Participant has no surviving spouse and no surviving issue, then the
Participant's designated Beneficiary shall be deemed to be the Participant's
estate.
-22-
<PAGE>
7.05 Beneficiary Dispute.
If Employer has any doubt as to the proper Beneficiary to receive payments
pursuant to this Plan, Employer shall have the right, exercisable in Employer's
sole discretion, to withhold such payments until this matter is resolved to
Employer's satisfaction.
7.06 Discharge of Obligations.
The payment of benefits under the Plan to a Beneficiary shall fully and
completely discharge Employer from all further obligations under this Plan with
respect to the Participant and that Participant's participation in the Plan
shall terminate upon such full payment of benefits.
ARTICLE VIII-ADMINISTRATION
8.01. Administrative Authority.
Except as otherwise specifically provided in this Plan, Employer shall have the
sole responsibility for, and the sole control of, the operation and
administration of the Plan and Employer shall have the power and authority to
take all actions and to make all decisions and interpretations that may be
necessary or appropriate in order to administer and operate the Plan, including,
but not limited to, the power, duty, and responsibility to:
(a) Resolve disputes. Resolve and determine all disputes or questions
arising under the Plan, including the power to determine the rights and
respective benefits of Eligible Employees, Participants, and Beneficiaries,
and to remedy any ambiguities, inconsistences, or omissions in the Plan.
(b) Rules and Procedures. Adopt any Rules and Procedures that, in
Employer's opinion, may be appropriate for the proper and efficient
administration of the Plan.
(c) Implement Plan. Implement the Plan in accordance with its terms
and the Rules and Procedures.
(d) Eligibility, crediting, and distribution decisions. Make
determinations with respect to the eligibility of any Eligible Employee as
a Participant and make determinations concerning the crediting to and
distribution of Accounts.
(e) Agents. Appoint any persons or firms or otherwise act to secure
specialized advice or assistance deemed necessary or desirable by Employer
in connection with the administration and operation of the Plan. Employer
shall be entitled to rely conclusively
-23-
<PAGE>
upon, and shall be fully protected in any action or omission taken by
Employer in good faith reliance upon, the advice or opinion of such firms
or persons. Employer shall have the power and authority to delegate from
time to time by written instrument all or any part of Employer's duties,
powers, or responsibilities under the Plan, both ministerial and
discretionary, as Employer deems appropriate, to any person or committee.
Employer shall have the power and authority, in the same manner, to revoke
any such delegation of duties, powers, or responsibilities. Any action
taken by any such person or committee in the exercise of such delegated
duties, powers, or responsibilities shall have the same force and effect
for all purposes under this Plan as if such action had been taken by
Employer. Further, Employer may authorize one or more persons to execute
any certificate or document on behalf of Employer, in which event any
person notified by Employer of such authorization shall be entitled to
accept and conclusively rely upon any such certificate or document executed
by such person as representing an action by Employer until such third
person has been notified of the revocation of such authority.
8.02. Mutual Exclusion.
Neither the Plan Administrator nor the Employer shall be obligated to inquire
into or be responsible for any act or failure to act on the part of the other.
8.03. Uniformity of Acts.
Whenever discretionary actions by Employer are required or permitted in the
administration or operation of the Plan, such actions shall be consistently and
uniformly applied to all persons similarly situated and no such action shall be
taken that shall discriminate in favor of any particular person or group of
persons. Nothing in this section shall limit Employer's discretion to designate
Eligible Employees or to allocate any Discretionary Employer Contributions in
any manner deemed appropriate by Employer. Employer shall be free to exclude any
employee otherwise eligible from designation as an Eligible Employee and to
exclude any Participant from any such Discretionary Employer Contributions.
8.04. Litigation.
Except as may otherwise be required by law, in any action, judicial
proceeding, or arbitration affecting the Plan, no Participant or Beneficiary
shall be entitled to any notice or service of process and any final judgment
entered in such action shall be binding on all persons
-24-
<PAGE>
interested in or claiming under the Plan.
8.05. Payment of Administration Expenses.
All expenses incurred in the administration and operation of the Plan,
including any taxes payable by Employer in respect of the Plan or payable by or
from the Plan pursuant to its terms, but excluding investment, management,
transaction, and mortality costs or expenses associated with the investments in
the Participants' Plan Accounts, shall be paid by Employer.
ARTICLE IX-TERMINATION AND AMENDMENT
9.01. Discretionary Termination.
Employer reserves the right, at any time, to terminate the Plan. Upon any
such discretionary termination of the Plan by Employer, each Participant's
Account Balance shall be paid out in accordance with the benefits that the
Participant would have received if there had been a Termination of Employment
for the Participant on the date the Plan terminates; provided, however, if the
Plan terminates after the date upon which a Participant was eligible for
Retirement, that Participant's Account Balance shall be paid out in accordance
with the benefits that the Participant would have received if the Participant's
Retirement had occurred on the date the Plan terminates. Any benefits payable as
a result of a discretionary termination shall be subject to the Deduction
Limitation.
9.02 Automatic Plan Termination.
The Plan shall automatically terminate upon the occurrence of any of the
following:
(a) Change in Control. A Change in Control of Employer;
(b) Dissolution. The dissolution of Employer; or
(c) Financial change. The ratio of Employer's current assets to
Employer's current liabilities falls below .9 to 1.0 for three (3)
consecutive calendar months.
Upon any such automatic termination of the Plan, Employer shall distribute
to each Participant his or her Account Balance in a lump sum, within fifteen
(15) days after such automatic termination. All benefits payable pursuant to
this Plan after any such automatic termination shall not be subject to the
Deduction Limitation.
-25-
<PAGE>
9.03 Individual Termination.
The full payment of a Participant's Account Balance to the Participant or
the Participant's designated Beneficiaries, as otherwise provided for in this
Plan, shall terminate the Participant's participation in the Plan.
9.04 Amendment.
Employer may, at any time, amend or modify the Plan, in whole or in part,
in a written instrument executed by Employer; provided, however, that no
amendment or modification shall be effective to decrease or restrict a
Participant's Account Balance in existence at the time the amendment or
modification is made. Any amendment or modification of the Plan shall not affect
any Participant or Beneficiary who has become entitled to the payment of
benefits under the Plan as of the date of the amendment or modification;
provided, however, that Employer shall have the right to accelerate Monthly
Payments by paying the Participant's then unpaid Account Balance.
ARTICLE X-ERISA
The following provisions are part of this Plan and are intended to meet the
requirements of ERISA:
10.01 Terms.
(a) Fiduciary. The named fiduciary under this Plan is Employer.
(b) Funding policy. The funding policy under this Plan is that
Employer shall contribute all Deferral Amounts, Matching Contributions, and
Discretionary Employer Contributions to the Plan. The Plan Administrator
shall create segregated Plan Accounts for each Participant and those Plan
Accounts shall be invested by the Plan Administrator. The income, gains,
and losses on each Participant's segregated Plan Account shall be credited
or debited to each Participant's Account. No Participant shall have any
interest in the assets in the Plan other than as a general unsecured
creditor of Employer. Employer shall be responsible for paying any and all
benefits under this Plan, regardless of whether or not the Plan has
sufficient assets to pay such benefits.
(c) Benefit payment. Direct payment by Employer, the Plan
Administrator, or their designated agent is the basis of payment of
benefits under this Plan.
-26-
<PAGE>
(d) Claims Manager. For claims procedure purposes, the "Claims
Manager" shall be Corporate secretary unless changed by Employer.
10.02 Procedure.
(a) Explanation of denial. If for any reason a claim for benefits
under this Plan is denied by Employer, the Claims Manager shall deliver to
the claimant a written explanation setting forth the specific reasons for
the denial, pertinent references to the Plan's or the Rules and Procedures'
section(s) on which the denial is based, such other data as may be
pertinent, and information on the procedures to be followed by the claimant
in obtaining a review of the claim. All of these items shall be written in
a manner calculated to be understood by the claimant. For this purpose:
1. The claimant's claim shall be deemed filed when presented
orally or in writing to the Claims Manager.
2. The Claims Manager's explanation shall be in writing and shall
be delivered to the claimant within ninety (90) days of the date the
claim is filed.
(b) Request for review. The claimant shall have sixty (60) days
following receipt of the denial of the claim to file with the Claims
Manager a written request for review of the denial. The claimant or the
claimant's representative may submit pertinent documents and written issues
and comments in connection with such review.
(c) Decision on review. The Claims Manager shall decide the issue on
review and furnish the claimant with a copy of the decision within sixty
(60) days of receipt of the request for review. The decision on review
shall be in writing and shall include specific reasons for the decision, as
well as specific references to the pertinent Plan or Rules and Procedures
provisions on which the decision is based. The decision shall be written in
a manner calculated to be understood by the claimant. If a copy of the
decision is not furnished to the claimant within the allotted sixty (60)
days, the claim shall be deemed denied on review.
ARTICLE XI-ARBITRATION
Any controversy between Employer and any Participant or Beneficiary or any
other person interested in the Plan involving any element of this Plan shall be
submitted to arbitration on the written request of any party to the controversy
served on the other(s). The arbitration shall
-27-
<PAGE>
be governed by the then current commercial arbitration rules of the American
Arbitration Association. Unless the parties can agree in writing within ten (10)
days of a party's written request for arbitration upon a single mutually
acceptable arbitrator, the parties shall each appoint one person to hear and
determine the dispute and those two (2) individuals shall select a third
impartial arbitrator. The decision of a majority of the arbitrators shall be
final and conclusive upon all parties. If one of the parties fails to name that
party's arbitrator within fifteen (15) days of being notified of the other
party's selection of an arbitrator, then the party who has failed to designate
an arbitrator shall be conclusively presumed to have consented to use the
arbitrator nominated by the other party as a single arbitrator. The cost of
arbitration shall be borne by the losing party or in such proportion as the
arbitrator(s) shall decide.
ARTICLE XII-GENERAL PROVISIONS
12.01 Notice.
Any notice, consent, or demand required or permitted to be given under the
provisions of this Plan shall be in writing, shall be signed by the party giving
or making the notice, consent, or demand, and may be given either by delivering
the same to the other party or by mailing it to the other party by United States
certified mail, return receipt requested, postage prepaid, addressed to the
party's last known address as shown on the records of Employer. If mailed, the
notice, consent, or demand shall be deemed given two (2) days after mailing. Any
party may change that party's address by notifying Employer of such new address
pursuant to this section.
12.02 Inurement.
Subject to the restrictions against transfer or assignment above, this Plan
shall bind Employer and its successors, transferees, and assigns, and each
Participant or Participant's Beneficiary, heirs, executors, administrators,
successors, transferees, and assigns.
12.03 Governing Law.
This Plan and the rights of the parties under this Plan shall be governed
by and construed pursuant to the laws of the State of Washington.
-28-
<PAGE>
12.04 Construction.
The article and section headings used in this Plan are for convenience of
reference only and shall not be used as an aid to interpret this Plan. Whenever
the context so requires, the masculine shall include the feminine and the neuter
and the singular shall include the plural and vice versa.
12.05 Severability.
If any of the provisions of this Plan, or portions of any of them, are held
to be unenforceable or invalid by any court of competent jurisdiction, the
validity or enforceability of the remaining provisions, or portions of them,
shall not be affected.
12.06 Termination.
Nothing in this Plan shall confer on any Eligible Employee or Participant
any rights to continued employment with Employer nor shall this Plan in any way
restrict or abridge any right Employer may otherwise have to terminate any
Eligible Employee's or Participant's employment.
12.07 Compliance With Code.
It is intended that this Plan comply with provisions of the Code so that no
federal or state income tax liability shall arise until such time as a
Participant actually receives a distribution from the Participant's Account. If,
at any time, the Code or the applicable portion of the taxation provisions of
any state are construed in such a way as to cause taxation to a Participant
prior to that time, then this Plan shall be given effect in such manner as will
best carry out the purposes and intentions expressed above. Notwithstanding
anything to the contrary contained in this Plan, if this Plan shall ever be
interpreted by the Internal Revenue Service as ineffective with regard to the
deferral of a Participant's income and such interpretation shall become final
and unappealable, then each Participant shall be paid a lump sum equal to the
portion of the Participant's Account Balance which is treated as taxable income
by the Internal Revenue Service at the time of such final interpretation. The
balance, if any, in each Participant's Account at the time of such final
interpretation shall be distributed according to the other provisions of this
Plan.
-29-
<PAGE>
This Plan is adopted by Employer effective as of September 22, 1999.
"EMPLOYER"
Columbia Banking System, Inc.,
a Washington Corporation
By: /s/ Jill L Myers
---------------------------
CorporateSecretary
-30-
<PAGE>
EXHIBIT 24
Powers of Attorney dated February 23, 2000
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ Richard S. Devine Director
- -----------------------
Richard S. Devine
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ Melanie J. Dressel Director
- ------------------------
Melanie J. Dressel
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ Jack Fabulich Director
- -----------------
Jack Fabulich
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ Jonathan Fine Director
- -----------------
Jonathan Fine
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ John P. Folsom Director
- ------------------
John P. Folsom
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ John Halleran Director
- -----------------
John Halleran
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ Thomas M. Hulbert Director
- ---------------------
Thomas M. Hulbert
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ Thomas L. Matson Director
- --------------------
Thomas L. Matson
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ W.W. Philip Director
- ------------------
W.W. Philip
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ John H. Powell
- --------------------- Director
John H. Powell
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ Robert E. Quoidbach Director
- --------------------------
Robert E. Quoidbach
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ Donald Rodman Director
- --------------------
Donald Rodman
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ Sidney R. Snyder Director
- -----------------------
Sidney R. Snyder
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ William T. Weyerhaeuser Director
- ---------------------------
William T. Weyerhaeuser
<PAGE>
POWER OF ATTORNEY
The director of Columbia Banking System, Inc. (the "Company"), whose
signature appears below, hereby appoints W. W. Philip and J. James Gallagher, or
either of them, as his/her attorney to sign, in his/her name and behalf and in
any and all capacities stated below, the Company's Form 10-K Annual Report
pursuant to Section 13 of the Securities Exchange Act of 1934, and likewise to
sign any and all amendments and other documents relating thereto as shall be
necessary, such person hereby granting to each such attorney power to act with
or without the other and full power of substitution and revocation, and hereby
ratifying all that any such attorney or his substitute may do by virtue hereof.
This Power of Attorney has been signed by the following person in the
capacity indicated, on the 23rd day of February, 2000.
Signature Title
- --------- -----
/s/ James M. Will Director
- --------------------
James M. Will
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 43,027 53,602 47,604
<INT-BEARING-DEPOSITS> 170 22,816 28,108
<FED-FUNDS-SOLD> 0 0 0
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 81,029 93,726 56,279
<INVESTMENTS-CARRYING> 7,084 6,358 9,679
<INVESTMENTS-MARKET> 0 0 0
<LOANS> 1,048,006 828,639 685,889
<ALLOWANCE> 9,967 9,002 8,440
<TOTAL-ASSETS> 1,237,157 1,059,919 864,555
<DEPOSITS> 1,043,544 938,345 740,430
<SHORT-TERM> 83,700 0 0
<LIABILITIES-OTHER> 10,699 7,008 6,772
<LONG-TERM> 0 25,000 39,000
0 0 0
0 0 0
<COMMON> 78,285 68,612 67,901
<OTHER-SE> 20,929 20,954 10,452
<TOTAL-LIABILITIES-AND-EQUITY> 1,237,157 1,059,919 864,555
<INTEREST-LOAN> 77,807 66,858 56,176
<INTEREST-INVEST> 5,906 5,115 4,428
<INTEREST-OTHER> 639 1,654 1,457
<INTEREST-TOTAL> 84,352 73,627 62,061
<INTEREST-DEPOSIT> 32,898 29,759 24,775
<INTEREST-EXPENSE> 34,843 31,667 26,830
<INTEREST-INCOME-NET> 49,509 41,960 35,231
<LOAN-LOSSES> 2,400 1,900 4,726
<SECURITIES-GAINS> 0 0 0
<EXPENSE-OTHER> 39,644 32,794 29,066
<INCOME-PRETAX> 17,611 15,448 12,063
<INCOME-PRE-EXTRAORDINARY> 11,670 10,201 9,275
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 11,670 10,201 9,275
<EPS-BASIC> 1.10 0.97 0.89
<EPS-DILUTED> 1.08 0.94 0.87
<YIELD-ACTUAL> 4.78 4.87 4.96
<LOANS-NON> 4,360 3,603 1,462
<LOANS-PAST> 0 40 0
<LOANS-TROUBLED> 187 1,783 20
<LOANS-PROBLEM> 2,234 1,862 669
<ALLOWANCE-OPEN> 9,002 8,440 5,282
<CHARGE-OFFS> 1,619 1,585 1,659
<RECOVERIES> 184 247 91
<ALLOWANCE-CLOSE> 9,967 9,002 8,440
<ALLOWANCE-DOMESTIC> 9,967 9,002 8,440
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 281 0 1,542
</TABLE>
