-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UQdd8/tVU33ooDSrGWH8Ic34/xb32WUcwddcQvJHWND3zS/tlsQpBD+AWMoHMsDo EESvX7KK1UTiYaeiKxGaPA== 0000887343-99-000008.txt : 19990809 0000887343-99-000008.hdr.sgml : 19990809 ACCESSION NUMBER: 0000887343-99-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA BANKING SYSTEM INC CENTRAL INDEX KEY: 0000887343 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 911422237 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20288 FILM NUMBER: 99675869 BUSINESS ADDRESS: STREET 1: 1102 BROADWAY PLAZA CITY: TACOMA STATE: WA ZIP: 98402 BUSINESS PHONE: 2533051900 MAIL ADDRESS: STREET 1: 1102 BROADWAY PLAZA CITY: TACOMA STATE: WA ZIP: 98402 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999. / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________. Commission File Number 0-20288 COLUMBIA BANKING SYSTEM, INC. (Exact name of small business issuer as specified in its charter) Washington 91-1422237 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1102 Broadway Plaza Tacoma, Washington 98402 (Address of principal executive offices) (Zip Code) (253) 305-1900 (Issuer's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares of the issuer's Common Stock outstanding at July 30, 1999 was 10,593,223. TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION Page Item 1. Financial statements Consolidated Statements of Operations - three months and six months ended June 30, 1999 and 1998 2 Consolidated Balance Sheets - June 30, 1999 and December 31, 1998 3 Consolidated Statements of Shareholders' Equity - twelve months ended December 31, 1997 and 1998, and six months ended June 30, 1999 4 Consolidated Statements of Cash Flows - six months ended June 30, 1999 and 1998 5 Notes to consolidated financial statements 6 Item 2. Management Discussion and Analysis of Financial 8 Condition and Results of Operations Item 3. Qualitative and Quantitative Disclosures about Market Risk 19 PART II -- OTHER INFORMATION Item 4. Submission of matters to a vote of security holders 20 Item 6. Exhibits and reports on Form 8-K 20 Signatures 21 1 CONSOLIDATED STATEMENTS OF OPERATIONS Columbia Banking System, Inc.
Three Months Ended Six Months Ended June 30, June 30, (in thousands except per share) 1999 1998 1999 1998 - ----------------------------------------------------------------------------- Interest Income Loans $18,548 $16,522 $36,027 $32,375 Securities available for sale 1,416 1,100 2,855 2,158 Securities held to maturity 73 110 154 246 Deposits with banks 136 153 488 513 - ----------------------------------------------------------------------------- Total interest income 20,173 17,885 39,524 35,292 Interest Expense Deposits 7,864 7,023 15,581 13,872 Federal Home Loan Bank advances 499 549 839 1,076 - ----------------------------------------------------------------------------- Total interest expense 8,363 7,572 16,420 14,948 Net Interest Income 11,810 10,313 23,104 20,344 Provision for loan losses 600 450 1,200 1,000 - ----------------------------------------------------------------------------- Net interest income after provision for loan losses 11,210 9,863 21,904 19,344 Noninterest Income Service charges and other fees 1,825 1,416 3,402 2,701 Mortgage banking 297 412 653 810 Other fees 1,899 1,043 3,310 1,880 - ----------------------------------------------------------------------------- Total noninterest income 4,021 2,871 7,365 5,391 Noninterest Expense Compensation and employee benefits 4,829 3,889 9,668 7,660 Occupancy 1,631 1,206 3,278 2,329 Advertising and promotion 474 371 914 737 Data processing 502 453 984 860 Other 3,772 2,918 7,241 5,509 - ----------------------------------------------------------------------------- Total noninterest expense 11,208 8,837 22,085 17,095 Income before income taxes 4,023 3,897 7,184 7,640 Provision for income taxes 1,361 1,349 2,434 2,679 - ----------------------------------------------------------------------------- Net Income $ 2,662 $ 2,548 $ 4,750 $ 4,961 ============================================================================= Net income per common share: Basic $ 0.25 $ 0.24 $ 0.45 $ 0.47 Diluted 0.25 0.23 0.44 0.46 Average number of common shares outstanding 10,590 10,529 10,587 10,513 Average number of diluted common shares oustanding 10,859 10,906 10,860 10,871 See accompanying notes to consolidated financial statements.
2 CONSOLIDATED BALANCE SHEETS Columbia Banking System, Inc.
June 30, December 31, (in thousands) 1999 1998 - ----------------------------------------------------------------------------- Assets Cash and due from banks $ 58,679 $ 53,602 Interest-earning deposits with banks 6,688 22,816 Securities available for sale 84,221 93,726 Securities held to maturity 7,479 6,358 FHLB stock 6,131 5,550 Loans held for sale 6,643 10,023 Loans 934,329 828,639 Less: allowance for loan losses 9,981 9,002 - ----------------------------------------------------------------------------- Loans, net 924,348 819,637 Interest Receivable 6,944 6,420 Premises and equipment, net 38,207 37,077 Real estate owned 1,310 901 Other 6,288 3,809 - ----------------------------------------------------------------------------- Total Assets $1,146,938 $1,059,919 ============================================================================= Liabilities and Shareholders' Equity Deposits: Noninterest-bearing $ 183,533 $ 180,445 Interest-bearing 806,830 757,900 - ----------------------------------------------------------------------------- Total Deposits 990,363 938,345 Federal Home Loan Bank advances 57,250 25,000 Other liabilities 6,139 7,008 - ---------------------------------------------------------------------------- Total liabilities 1,053,752 970,353 Shareholders' equity: Preferred stock (no par value) Authorized, 2 million shares; None outstanding June 30, December 31, Common stock (no par value) 1999 1998 --------- ---------- Authorized shares 47,250 47,250 Issued and outstanding 10,593 10,062 77,903 68,612 Retained Earnings 16,996 20,616 Unrealized gains (losses) on securities available for sale, net of tax (1,713) 338 - ----------------------------------------------------------------------------- Total shareholders' equity 93,186 89,566 - ----------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $1,146,938 $1,059,919 =============================================================================
See accompanying notes to consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Columbia Banking System, Inc.
Accumulated Common stock Other Total Number of Retained Comprehensive Shareholders' (in thousands) Shares Amount Earnings Income (Loss) Equity - ----------------------------------------------------------------------------- Balance at December 31, 1996 9,372 $62,980 $ 5,282 ($ 38) $68,224 Comprehensive income: Net income for 1997 9,275 Change in unrealized gains and (losses) on securities available for sale, net of tax 75 Total comprehensive income 9,350 Issuance of stock under stock option and other plans 117 779 779 Issuance of shares of common stock-- 5% stock dividend 391 4,142 (4,142) - ----------------------------------------------------------------------------- Balance at December 31, 1997 9,880 67,901 10,415 37 78,353 Comprehensive income: Net income for 1998 10,201 Change in unrealized gains and (losses) on securities available for sale, net of tax 301 Total comprehensive income 10,502 Issuance of stock under stock option and other plans 182 711 711 - ----------------------------------------------------------------------------- Balance at December 31, 1998 10,062 68,612 20,616 338 89,566 Comprehensive income: Net income for 1999 4,750 Change in unrealized gains and (losses) on securities available for sale, net of tax (2,051) Total comprehensive income 2,699 Issuance of stock under stock option and other plans (1) 27 921 921 Issuance of shares of common stock-- 5% stock dividend 504 8,370 (8,370) - ----------------------------------------------------------------------------- Balance at June 30, 1999 10,593 $77,903 $16,996 ($1,713) $93,186 =============================================================================
See accompanying notes to consolidated financial statements. (1) Includes the amortization of restricted stock grants of which 33,075 shares were issued and oustanding during 1996, and an additional 70,875 shares were issued and oustanding during 1998. 4 CONSOLIDATED STATEMENTS OF CASH FLOWS Columbia Banking System, Inc.
Six Months Ended June 30, (in thousands) 1999 1998 - ----------------------------------------------------------------------------- Operating Activities Net income $ 4,750 $ 4,961 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for loan losses 1,200 1,000 Losses on real estate owned (5) Depreciation and amortization 1,389 900 Deferred income taxes benefit (1,066) Net realized losses on sale of assets 2 (Increase) decrease in loans held for sale 3,380 (4,666) Increase in interest receivable (524) (626) Increase in interest payable 525 91 Net changes in other assets and liabilities (1,769) (876) - ----------------------------------------------------------------------------- Net cash provided by operating activities 7,885 781 Investing Activities Proceeds from maturities of securities available for sale 14,109 20,849 Purchases of securities available for sale (8,731) (31,423) Proceeds from maturities of mortgage-backed securities available for sale 204 5,065 Proceeds from maturities of securities held to maturity 860 2,750 Purchases of securities held to maturity (1,980) (325) Loans originated and acquired, net of principal collected (105,854) (68,148) Purchases of premises and equipment (2,728) (6,486) Proceeds from disposal of premises and equipment 2 1 Proceeds from sale of real estate owned 46 Other, net (7) 47 - ----------------------------------------------------------------------------- Net cash used by investing activities (104,125) (77,624) Financing Activities Net increase in deposits 52,018 89,529 Net increase in short-term borrowings 32,250 Repayment of FHLB advances and other long-term debt (5,000) Proceeds from issuance of common stock 921 541 - ----------------------------------------------------------------------------- Net cash provided by financing activities 85,189 85,070 - ----------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (11,051) 8,227 Cash and cash equivalents at beginning of period 76,418 75,712 - ----------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 65,367 $ 83,939 ============================================================================= Supplemental information: Cash paid for interest $ 15,895 $ 14,857 Cash paid for income taxes 2,670 2,776 Loans foreclosed and transferred to real estate owned 402 731 See accompanying notes to consolidated financial statements.
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Columbia Banking System, Inc. Columbia Banking System, Inc. (the "Company") is a registered bank holding company whose wholly owned subsidiary, Columbia State Bank ("Columbia Bank"), conducts a full-service commercial banking business. Headquartered in Tacoma, Washington, the Company provides a full range of banking services to small and medium-sized businesses, professionals and other individuals through banking offices located in the Tacoma metropolitan area and contiguous parts of the Puget Sound region of Washington, as well as the Longview and Woodland communities in southwestern Washington. Substantially all of the Company's loans, loan commitments and core deposits are geographically concentrated in its service areas. 1. Basis of Presentation The interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments including normal recurring accruals necessary for a fair presentation of results of operations for the interim periods included herein have been made. The results of operations for the six months ended June 30, 1999, are not necessarily indicative of results to be anticipated for the year ending December 31, 1999. Certain amounts in the 1998 financial statements have been reclassified to conform with the 1999 presentation. For additional information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1998. 2. Stock Dividend On April 28, 1999, the Company announced a 5% stock dividend payable on May 26, 1999, to shareholders of record on May 12, 1999. Average shares outstanding, net income per share and book value per share for all periods presented have been retroactively adjusted to give effect to this transaction. 3. Prospective Accounting Pronouncement In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet measured at its fair value. This Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The FASB has delayed the implementation date of SFAS No. 133 for one year to fiscal years beginning after June 15, 2000. The Company currently has no activity in derivative instruments and hedging activities, and does not expect adopting of SFAS No. 133 to have a material effect on the financial statements. 6 CONSOLIDATED AVERAGE BALANCES--NET CHANGES Columbia Banking System, Inc.
Three Months Ended Increase Six Months Ended Increase June 30, (Decrease) June 30, (Decrease) (in thousands) 1999 1998 Amount 1999 1998 Amount - -------------------------------------------------------------------------------- ASSETS Loans $ 899,818 $731,906 $167,912 $869,801 $716,119 $153,682 Securities 100,441 78,753 21,688 101,885 76,960 24,925 Interest-earning deposits with banks 11,449 11,085 364 20,587 18,683 1,904 - -------------------------------------------------------------------------------- Total interest-earning assets 1,011,708 821,744 189,964 992,273 811,762 180,511 Noninterest-earning assets 89,740 73,413 16,327 88,047 69,891 18,156 - -------------------------------------------------------------------------------- Total assets $1,101,448 $895,157 $206,291 $1,080,320 $881,653 $198,667 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits $ 786,675 $624,253 $162,422 $776,809 $617,875 $158,934 Federal Home Loan Bank advances 37,907 39,707 (1,800) 31,622 39,398 (7,776) - -------------------------------------------------------------------------------- Total interest-bearing liabilities $824,582 663,960 160,622 808,431 657,273 151,158 Noninterest-bearing deposits 176,905 142,320 34,585 173,104 136,565 36,539 Other noninterest-bearing liabilities 6,596 5,506 1,090 6,439 5,718 721 Shareholders' Equity 93,365 83,371 9,994 92,346 82,097 10,249 - -------------------------------------------------------------------------------- Total liabilities and shareholders'equity $1,101,448 $895,157 $206,291 $1,080,320 $881,653 $198,667 ================================================================================
7 MANAGEMENT's DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Columbia Banking System, Inc. This discussion should be read in conjunction with the consolidated financial statements of Columbia Banking System, Inc. (the "Company") and notes thereto presented elsewhere in this report. In the following discussion, unless otherwise noted, references to increases or decreases in average balances in items of income and expense for a particular period and balances at a particular date refer to the comparison with corresponding amounts for the period or date one year earlier. This discussion contains certain forward-looking statements within the meaning of the federal securities laws. Actual results and the timing of certain events could differ materially from those discussed in the forward-looking statements due to a number of factors. Specific factors include, among others, the effect of interest rate changes, risk associated with acquiring other banks, or opening and acquiring new branches, controlling expenses, and general economic conditions. Readers are cautioned not to place undue reliance on the forward-looking statements since they reflect management's analysis only as of the date of the statement. Overview Columbia Banking System, Inc., a Washington corporation, is a registered bank holding company whose wholly owned subsidiary, Columbia State Bank ("Columbia Bank"), conducts a full-service commercial banking business. Headquartered in Tacoma, Washington, the Company serves small and medium-sized businesses, professionals and other individuals through 27 banking offices located in the Tacoma metropolitan area and contiguous parts of the Puget Sound region of Washington, as well as the Longview and Woodland communities in southwestern Washington. At June 30, 1999, the Company had total assets of $1.15 billion. Management believes the ongoing consolidation among financial institutions in Washington has created significant gaps in the ability of large banks operating in Washington to serve certain customers, particularly the Company's target customer base of small and medium-sized businesses, professionals and other individuals. The Company's business strategy is to provide its customers with the financial sophistication and breadth of products of a regional bank while retaining the appeal and service level of a community bank. Management believes that as a result of the Company's strong commitment to highly personalized relationship-oriented customer service, its varied products, its strategic branch locations and the long-standing community presence of its managers, lending officers and branch personnel, it is well positioned to attract new customers and to increase its market share of loans and deposits. The Company's goal over the next several years is to create a well-capitalized, customer focused, Pacific Northwest banking institution with a significant presence in selected markets. The Company intends to effect this growth strategy through a combination of growth at existing branch offices, new branch openings (usually following the hiring of an experienced branch manager and/or lending officer with strong community ties and banking relationships) and acquisitions. In particular, the Company anticipates continued expansion in Pierce County, north into King County (the location of Auburn and Bellevue), south into Thurston County (the location of the state capitol, Olympia) and northwest into Kitsap County (the location of Bremerton and Port Orchard). Expansion by acquisition into other markets will be considered as promising situations arise. In order to fund its lending activities and to allow for increased contact with customers, the Company is establishing a branch system catering primarily to retail depositors, supplemented by business customer deposits and other borrowings. The Company believes this mix of funding sources will enable it to expand lending activities rapidly while attracting a stable core deposit base. In order to support its strategy of growth, without compromising its personalized banking approach or its commitment to asset quality, the Company has made significant investments in experienced branch, lending and 8 administrative personnel and has incurred significant costs related to its branch expansion. Although the Company's expense ratios have improved since 1993, management anticipates that the ratios will remain relatively high by industry standards for the foreseeable future due to the Company's aggressive growth strategy and emphasis on convenience and personal service. Management is placing increased emphasis on control of noninterest expense. During the first six months of 1999 Columbia Bank opened two new branches. In January, the Company opened a newly constructed branch in Port Orchard, its first office in Kitsap County. Additionally, a new West Olympia branch opened in temporary quarters in April and is the Company's first Thurston County location. Both branches are full service facilities. The Company's future plans include new locations in Pierce, King, Kitsap and Thurston counties of western Washington. Management continues to pursue opportunities for expansion via a combination of internal and external growth by acquisition. New branches normally do not contribute to net income for many months after opening. At June 30, 1999, the Company had 27 branches, 15 in Pierce County, 6 in King County, 4 in Cowlitz County, 1 in Kitsap County, and 1 in Thurston County. Since beginning its major Pierce County expansion in August 1993, the Company has grown from four to twenty-seven branches through a combination of internal and external growth by acquisition. In addition to the ongoing expansion of its branch network, the Company continuously reviews new products and services to give its customers more banking options. In addition, new technology and services are reviewed for business development and cost saving purposes. During the first quarter of 1999, the Company opened an International Banking division located in downtown Tacoma. The division serves local businesses and individuals involved in international trade by providing letters of credit, wire transfers, and foreign currency. During the first quarter of 1999, the Company also made an equity investment in Manzanita Capital, Inc., a newly formed holding company which owns all of the outstanding common stock of The Trust Company of Washington, a non-depository trust and investment company, and McAdams Wright Ragen, a full service brokerage and advisory firm. Management expects that the services provided by these companies will expand and compliment the services provided by Columbia Bank in a cost-effective manner and will assist in carrying out the Company's growth strategy. The economy of the Company's principal market area, while primarily dependent upon aerospace, foreign trade and natural resources, including agriculture and timber, has become more diversified over the past decade as a result of the success of software companies such as Microsoft and the establishment of numerous research and biotechnology firms. The Washington economy and that of the Puget Sound region generally have experienced strong growth and stability in recent years. The Pierce County Economic Index, a regional publication providing economic forecasts and commentary, reports that "Five years after it started in late 1992, the Pierce County economy continued its growth through the first half of 1998. The local economy has grown at an average rate of just under 2.5%, that's 0.5% above the long-term historical growth rate." In the third quarter of 1998 the Company was named in the Fortune magazine annual ranking of America's 100 fastest growing companies as judged by earnings growth. The Company was the only banking company on the list and was ranked 82nd. Results of Operations The results of operations of the Company are dependent to a large degree on the Company's net interest income. The Company also generates noninterest income through service charges and fees and income from mortgage banking operations and merchant services. The Company's operating expenses consist primarily of compensation and employee benefit expense, occupancy expense, and merchant services and bank card expenses. Like most financial institutions, the Company's interest income and cost of funds are affected significantly by general economic conditions, particularly changes in market interest rates, and by government policies and actions of regulatory authorities. 9 Net income for the second quarter of 1999 was $2.7 million, or $0.25 per share (diluted), compared to $2.5 million, or $0.23 per share (diluted), for the second quarter of 1998, an increase in net income of 4.5%. Net income for the six months ended June 30, 1999, was $4.8 million, or $0.44 per share, down 4.3% compared with $5.0 million, or $0.46 per share for the same period in 1998. The earnings increase for the second quarter reflects significant growth in assets, loans and deposits as compared to the quarter ended June 30, 1998, and to continued increases in noninterest income. The decrease in net income for the six months ended June 30, 1999 is due largely to a disappointing first quarter of 1999, with per share (diluted) earnings of $0.19 per share, which resulted from increased expenses associated with branch and infrastructure expansion, coupled with loan growth that was later and slightly less than expected. Management has reemphasized cost controls as a high priority and will continue taking steps to control expenses, while continuing to pursue its growth strategy. On April 28, 1999, the Company announced a 5% stock dividend payable on May 26, 1999, to shareholders of record on May 12, 1999. Average shares outstanding, net income per share and book value per share for all periods presented have been retroactively adjusted to give effect to this transaction. Net Interest Income Net interest income for the second quarter of 1999 increased 15% to $11.8 million, from $10.3 million in the second quarter of 1998. For the first six months of 1999, net interest income increased 14% to $23.1 million from $20.3 million for the same period in 1998. The increase in net interest income was largely due to the overall growth of the Company. Net interest income was favorably affected by average interest-earning assets increasing more rapidly than average interest-bearing liabilities, with the difference funded by noninterest-bearing deposits and shareholders' equity. During the first six months of 1999, average interest-earning assets increased $180.5 million, while average interest-bearing liabilities increased only $151.2 million, compared with the same period in 1998. Net interest margin (net interest income divided by average interest-earning assets) decreased to 4.70% in the second quarter of 1999 from 5.03% in the second quarter of 1998. Average interest-earning assets grew to $1.0 billion during the second quarter of 1999, compared with $821.7 million for the period in 1998. The average yield on interest-earning assets decreased 0.72% to 8.01% during the second quarter of 1999 from 8.73% in the same period of 1998. In comparison, the average cost of interest-bearing liabilities decreased 0.50% to 4.07% during the second quarter of 1999 from 4.57% in the same period of 1998. For the first six months of 1999, net interest margin decreased to 4.71% from 5.05% for the same period in 1998. Average interest-earning assets grew to $992.3 million during the first six months of 1999, compared with $811.8 million for the same period in 1998. The average yield on interest-earning assets decreased 0.72% to 8.05% during the first six months of 1999 from 8.77% in the same period of 1998. In comparison, the average cost of interest-bearing liabilities decreased 0.49% to 4.10% during the first six months of 1999 from 4.59% in the same period of 1998. For the first six months of 1999 compared to the same period in 1998, the decrease in net interest margin is primarily due to decreasing interest rates and to average deposit growth exceeding average loan growth with consequent investments in lower yielding assets. Competition and declining interest rates have caused loan yields to decline to a greater degree than corresponding decreases in deposit and borrowing costs, causing the net interest margin to decrease. Interest rates in general exhibited a downward trend during 1998 and were generally stable during the first quarter of 1999, but exhibited a slight upward trend during the second quarter of 1999. During the first six months of 1999, average loan growth of $102.3 million exceeded average deposit growth of $63.6 million, and during the second quarter ended June 30, 1999, average loan growth was $60.3 million while average deposit growth was $27.5 million. Average borrowings during the first six months of 1999 grew $11.2 million, and during thesecond quarter average borrowings grew $12.6 million. 10 Noninterest Income Noninterest income increased $1.2 million, or 40%, in the second quarter of 1999, and $2.0 million, or 37%, for the first six months of 1999, compared with the same periods in 1998, respectively, despite decreases in mortgage banking income. Increases during the second quarter and the first six months of 1999, were primarily centered in account service charges and merchant services income. In general, increases in account service charges and merchant services are due to the growth of the Company. Noninterest Expense Total noninterest expense increased $2.4 million, or 27%, for the second quarter of 1999, and $5.0 million, or 29%, for the first six months of 1999, compared with the same period in 1998. The increases were primarily due to personnel costs associated with the Company's expansion as well as occupancy, merchant services and bank card, and other expenses. The Company's efficiency ratio (noninterest expense, excluding unusual and nonrecurring items, divided by the sum of net interest income plus noninterest income, excluding unusual and nonrecurring items) was 70.8% and 72.5% for the second quarter and first six months of 1999, respectively, compared to 67.0% and 66.4% for the same periods in 1998. The increases were primarily due to slower than expected loan growth in the early first quarter of 1999 and expenses associated with branch and infrastructure expansion. During the first quarter of 1999, the Company reported an efficiency ratio of 74.3% and an increase in noninterest expense of 32% over the same period in 1998. Early in 1999, the Company reemphasized cost controls as shown by a decrease in the efficiency ratio to 70.8% in the second quarter and a 3% increase in noninterest expense compared with the first quarter of 1999. The portion of compensation expense related to loan originations is deferred and deducted from interest income over the life of the related loans. Slower loan originations translate into slower interest income growth and lower deferrals of compensation expense. Other categories of expense are volume driven and reflect the Company's rapid growth. Total noninterest expense for the Company is expected to decline in relation to revenues as the Company's asset base grows. Income Taxes For the second quarter and first six months of 1999, the Company recorded income tax provisions of $1.4 million and $2.4 million, respectively. Credit Risk Management The extension of credit in the form of loans or other credit substitutes to individuals and businesses is a major portion of the Company's principal business activity. Company policies and applicable laws and regulations require risk analysis as well as ongoing portfolio and credit management. The Company manages its credit risk through lending limit constraints, credit review, approval policies and extensive, ongoing internal monitoring. The Company also manages credit risk through diversification of the loan portfolio by type of loan, type of industry, aggregation of debt limits to a single borrower and the type of borrower. In analyzing its existing portfolio, the Company reviews its consumer and residential loan portfolios by risk rating each loan and analyzing their performance as a pool of loans since no single loan is individually significant or judged by its risk rating size or potential risk of loss. In contrast, the monitoring process for the commercial business, real estate construction, and commercial real estate portfolios includes periodic reviews of individual loans with risk ratings assigned to each loan and performance judged on a loan by loan basis. The Company reviews these loans to assess the ability of the borrower to service all of its interest and principal obligations and as a result the risk rating may be adjusted accordingly. In the event that full collection of principal and interest is not reasonably assured, the loan is appropriately downgraded and, if warranted, placed on non-accrual status even though the loan may be current as to principal and interest payments. Loan policies, credit quality criteria, portfolio guidelines and other controls are established under the guidance of the Company's chief credit officer and approved, as appropriate, by the Board. Credit Administration, 11 together with appropriate loan committees, has the responsibility for administering the credit approval process. As another part of its control process, the Company uses an independent internal credit review and examination function to provide assurance that loans and commitments are made and maintained as prescribed by its credit policies. This includes a review of documentation when the loan is initially extended and subsequent on-site examination to ensure continued performance and proper risk assessment. Lending Activities The Company is a full service commercial bank, which originates a wide variety of loans. Consistent with the trend begun in 1993, the Company continues to have success originating commercial business and commercial real estate loans. The following table sets forth the Company's loan portfolio composition by type of loan for the dates indicated:
June 30, % of December 31 % of (in thousands) 1999 Total 1998 Total - ----------------------------------------------------------------------------- Commercial $393,076 42.1% $332,638 40.1% Real estate: One-to four-family residential 56,943 6.1 61,132 7.4 Five or more family residential and commercial properties 355,511 38.0 291,868 35.2 - ----------------------------------------------------------------------------- Total real estate 412,454 44.1 353,000 42.6 Real estate construction: One-to four-family residential 18,265 2.0 26,444 3.2 Five or more family residential and commercial properties 21,698 2.3 23,213 2.8 - ----------------------------------------------------------------------------- Total real estate construction 39,963 4.3 49,657 6.0 Consumer 90,690 9.7 94,572 11.4 - ----------------------------------------------------------------------------- Sub-total loans 936,183 100.2 829,867 100.1 Less: Deferred loan fees (1,854) (0.2) (1,228) (0.1) - ----------------------------------------------------------------------------- Total loans $934,329 100.0% $828,639 100.0% ============================================================================= Loans held for sale $ 6,643 $ 10,023 =============================================================================
Total loans increased $105.7 million, or 13%, to $934.3 million from year-end 1998. Commercial business and commercial real estate were the only categories contributing to the increase. Commercial and Private Banking Lending Commercial loans increased to $60.4 million, or 18%, to $393.1 million from year-end 1998, representing 42.1% of total loans. Net growth in commercial loans slowed during the first quarter of 1999 and rebounded during the second quarter of 1999. Growth during the second quarter of 1999 was favorably affected by continued emphasis on maintaining and expanding an aggressive calling campaign whereby loan officers concentrated on traditional commercial business loans and related borrowing needs. Management is committed to provide competitive commercial lending in the Company's primary market areas. The Company expects to continue to expand its commercial lending products and to emphasize in particular its relationship banking with businesses, business owners and professional individuals. 12 Real Estate Lending One- to Four-Family Residential. Residential one- to four-family loans decreased $4.2 million to $56.9 million at June 30, 1999, representing 6.1% of total loans, compared with $61.1 million at December 31, 1998. The decrease is attributable to maturities and prepayments of the portfolio. These loans are used by the Company to collateralize advances from the FHLB. The Company's underwriting standards require that one- to four-family portfolio loans generally be owner-occupied and that loan amounts not exceed 80% (90% with private mortgage insurance) of the appraised value or cost, whichever is lower, of the underlying collateral at origination. Generally, management's policy is to originate for sale to third parties residential loans secured by properties located within the Company's primary market areas. Five or More Family Residential and Commercial Properties. The Company makes multi-family and commercial real estate loans in its primary market areas. Multi-family and commercial real estate lending increased to $355.5 million at June 30, 1999, representing 38.0% of total loans, from $291.9 million at December 31, 1998. The increase in multi-family and commercial real estate lending in the first six months reflects a mix of owner occupied and income property transactions. Generally, multi-family and commercial real estate loans are made only to borrowers who have existing banking relationships with the Company. Management believes that volumes in this category of loans will increase at a slower rate during the balance of 1999. The Company's underwriting standards generally require that the loan-to-value ratio for multi-family and commercial loans not exceed 75% of appraised value or cost, whichever is lower, and that commercial properties maintain debt coverage ratios (net operating income divided by annual debt servicing) of 1.2 or better. Underwriting standards can be influenced by competition. The Company endeavors to maintain the highest practical underwriting standards while balancing the need to remain competitive in its lending practices. Construction Loans The Company originates a variety of real estate construction loans. One- to four-family residential construction loans are originated for the construction of custom homes (where the home buyer is the borrower) and provides financing to builders for the construction of pre-sold homes and speculative residential construction. Construction loans on one- to four-family residences decreased to $18.3 million at June 30, 1999, representing 2.0% of total loans, from $26.4 million at December 31, 1998. Multi-family and commercial real estate construction loans decreased to $21.7 million at June 30, 1999, representing 2.3% of total loans, from $23.2 million at December 31, 1998. The decrease is a result of growing competition fueled in part by declining interest rates during 1998 as well as management's intention to focus on commercial loans. The Company endeavors to limit its construction lending risk through adherence to strict underwriting procedures. Consumer Lending At June 30, 1999, the Company had $90.7 million of consumer loans outstanding, representing 9.7% of total loans, as compared with $94.6 million at December 31, 1998. The balance at December 31, 1998, included approximately $10.0 million of short-term loans made to a group of individuals in connection with a singular transaction which matured in early January 1999. Consumer loans made by the Company include automobile loans, boat and recreational vehicle financing, home equity and home improvement loans and miscellaneous personal loans. 13 Nonperforming Assets Nonperforming assets consist of: (i) nonaccrual loans, which are loans placed on a nonaccrual basis generally when the loan becomes past due 90 days or when there are otherwise serious doubts about the collectibility of principal or interest; (ii) restructured loans, for which concessions, including the reduction of interest rates below a rate otherwise available to that borrower or the deferral of interest or principal, have been granted due to the borrower's weakened financial condition (interest on restructured loans is accrued at the restructured rates when it is anticipated that no loss of original principal will occur); (iii) accruing loans which are contractually past due ninety days or more as to interest or principal payments. The following tables set forth, at the dates indicated, information with respect to nonaccrual loans, restructured loans, total nonperforming loans (nonaccrual loans plus restructured loans), real estate owned, and total nonperforming assets of the Company:
June 30, December 31, (in thousands) 1999 1998 - ----------------------------------------------------------------------------- Nonaccrual: One-to four-family residential $ 582 $ 722 Commercial real estate 1,608 1,542 Commercial business 748 1,214 Consumer 223 125 - ----------------------------------------------------------------------------- Total 3,161 3,603 Restructured: One-to four-family residential 15 One-to four-family residential construction 1,803 1,768 Commercial business 71 - ----------------------------------------------------------------------------- Total 1,874 1,783 - ----------------------------------------------------------------------------- Total nonperforming loans $ 5,035 $ 5,386 ============================================================================= Real estate owned $ 1,310 $ 901 ============================================================================= Total nonperforming assets $ 6,345 $ 6,287 =============================================================================
The consolidated financial statements are prepared according to the accrual basis of accounting. This includes the recognition of interest income on the loan portfolio, unless a loan is placed on a nonaccrual basis, which occurs when there are serious doubts about the collectibility of principal or interest. The policy of the Company generally is to discontinue the accrual of interest on all loans past due 90 days or more and place them on nonaccrual status. Nonperforming loans decreased to $5.0 million, or 0.54% of total loans (excluding loans held for sale), at June 30, 1999, from $5.4 million, or 0.65% of total loans at December 31, 1998 due principally to decreases in the commercial business category. Nonaccrual loans and other nonperforming assets are centered in a small number of lending relationships which management considers to be adequately reserved. All nonperforming loans are to Washington businesses. Columbia Bank is not involved with loans to foreign companies and foreign countries. Real estate owned ("REO") increased to $1.3 million at June 30, 1999 from $901,000 at December 31, 1998. During the second quarter of 1999, the Company foreclosed on a $409,000 one-to four-family residential loan collateralized by real estate and transferred the real estate to REO. 14 Total nonperforming assets increased by approximately $58,000, at June 30, 1999 from its balance of $6.3 million at December 31, 1998. As a percentage of period-end assets at June 30, 1999, nonperforming assets decreased to 0.55% from 0.59% of period-end assets at December 31, 1998. Provision and Allowance for Loan Losses The Company maintains an allowance for loan losses to absorb losses inherent in the loan portfolio. The size of the allowance is determined through quarterly assessments of the probable estimated losses in the loan portfolio. The Company's methodology for making such assessments and determining the adequacy of the allowance includes the following key elements: 1. Formula based allowances calculated on minimum thresholds and historical performance of the portfolio for the past 5 years 2. Specific allowances for identified problem loans and/or portfolio segments 3. Unallocated allowance In addition, the allowance incorporates the results of measuring impaired loans as provided in the Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan", and SFAS No. 118, which amended SFAS No. 114. These accounting standards prescribe the measurement methods, income recognition and disclosures concerning impaired loans. On a quarterly basis (semi-annual in the case of economic and business conditions reviews) the senior credit officers of the Company review with Executive Management and the Board of Directors the various additional factors that management considers when determining the adequacy of the allowance. These factors include the following as of the applicable balance sheet date: 1. Existing general economic and business conditions affecting the Company's market place 2. Credit quality trends, including trends in nonperforming loans 3. Collateral values 4. Seasoning of the loan portfolio 5. Bank regulatory examination results 6. Findings of internal credit examiners 7. Duration of current business cycle The allowance is increased by provisions charged to operations, and is reduced by loans charged off, net of recoveries. While management believes it uses the best information available to determine the allowance for loan losses, unforeseen market conditions could result in adjustments to the allowance, and net income could be significantly affected, if circumstances differ substantially from the assumptions used in determining the allowance. The allowance for loan losses at June 30, 1999 increased $1.0 million to $10.0 million from $9.0 million at December 31, 1998. The allowance for loan losses as a percentage of loans (excluding loans held for sale at each date) at June 30, 1999 decreased to 1.07% from 1.09% of loans at December 31, 1998. The decrease in the allowance as a percentage of loans was due to the $105.7 million growth in loans during the first six months of 1999. Net loan charge-offs amounted to $221,000 for the first six months of 1999 compared with net loan charge-offs of $563,000 for the same period in 1998. During the first six months of 1999, the Company set aside a $1.2 million provision for loan losses as compared with $1.0 million for the same period in 1998. 15 The following table sets forth at the dates indicated the changes in the Company's allowance for loan losses:
Three Months Ended Six Months Ended June 30, June 30, (in thousands) 1999 1998 1999 1998 - ---------------------------------------------------------------------------- Beginning balance $9,588 $8,987 $9,002 $8,440 Charge offs: One-to-four family residential (1) Commercial business (233) (458) (281) (495) Consumer (8) (178) (32) (243) - ---------------------------------------------------------------------------- Total charge-offs (241) (636) (314) (738) Recoveries: Commercial business 2 31 57 126 Consumer 32 45 36 49 - ---------------------------------------------------------------------------- Total recoveries 34 76 93 175 - ---------------------------------------------------------------------------- Net (charge-offs) recoveries (207) (560) (221) (563) Provision charged to expense 600 450 1,200 1,000 - ---------------------------------------------------------------------------- Ending balance $9,981 $8,877 $9,981 $8,877 ============================================================================
The allowance for loan losses equaled 198% of nonperforming loans and 157% of nonperforming assets at June 30, 1999. Liquidity and Sources of Funds The Company's primary sources of funds are customer deposits, advances from the Federal Home Loan Bank of Seattle (the "FHLB") and brokered deposits. These funds, together with loan repayments, loan sales, retained earnings, equity and other borrowed funds, are used to make loans, to acquire securities and other assets and to fund continuing operations. Deposit Activities The Company's deposit products include a wide variety of transaction accounts, savings accounts and time deposit accounts. Total deposits increased $52.0 million, or 6%, to $990.4 million at June 30, 1999, from $938.3 million at December 31, 1998. The Company is establishing a branch system catering primarily to retail depositors, supplemented by business banking customer deposits and other borrowings. While that stable core deposit base is being established, management's strategy for funding growth has been to make use of brokered and other wholesale deposits. Management anticipates continued use of such deposits, as needed, to fund increasing loan demand. Brokered and other wholesale deposits (excluding public deposits) increased $20.0 million to $27.3 million, or 2.8% of total deposits at June 30, 1999. Borrowings The Company relies on short-term and long-term advances from the FHLB to supplement its funding sources. FHLB advances increased $32.3 million to $57.3 million at June 30, 1999 compared to a balance of $25.0 million at December 31, 1998. All of the increase is in short-term FHLB advances for funding strong second quarter loan growth. FHLB advances are secured by one- to four-family real estate mortgages and certain other assets. 16 Capital Shareholders' equity at June 30, 1999, was $93.2 million compared with $89.6 million at December 31, 1998. The increase is due primarily to net income of $4.8 million during the first six months of 1999. Shareholders' equity was 8.12% and 8.45% of total period-end assets at June 30, 1999, and December 31, 1998, respectively. Banking regulations require bank holding companies and banks to maintain a minimum "leverage" ratio of core capital to adjusted quarterly average total assets of at least 3%. At June 30, 1999, the Company's leverage ratio was 8.61%, compared with 8.72% at December 31, 1998. In addition, banking regulators have adopted risk-based capital guidelines, under which risk percentages are assigned to various categories of assets and off-balance sheet items to calculate a risk-adjusted capital ratio. Tier I capital generally consists of common shareholders' equity (which does not include unrealized gains and losses on securities), less goodwill and certain identifiable intangible assets, while Tier II capital includes the allowance for loan losses and subordinated debt, both subject to certain limitations. Regulatory minimum risk-based capital guidelines require Tier I capital of 4% of risk-adjusted assets and total capital (combined Tier I and Tier II) of 8%. The Company's Tier I and total capital ratios were 9.36% and 10.34%, respectively, at June 30, 1999, compared with 9.89% and 10.88%, respectively, at December 31, 1998. The Federal Deposit Insurance Corporation (the "FDIC") established the qualifications necessary to be classified as a "well-capitalized" bank, primarily for assignment of FDIC insurance premium rates. To qualify as "well-capitalized," banks must have a Tier I risk-adjusted capital ratio of at least 6%, a total risk-adjusted capital ratio of at least 10%, and a leverage ratio of at least 5%. Columbia Bank qualified as "well-capitalized" at June 30, 1999. Federal laws generally bar institutions which are not well-capitalized from accepting brokered deposits. The FDIC has issued rules which prohibit under-capitalized institutions from soliciting or accepting such deposits. Adequately capitalized institutions are allowed to solicit such deposits, but only to accept them if a waiver is obtained from the FDIC. Applicable federal and Washington state regulations restrict capital distributions, including dividends by institutions such as Columbia Bank. Such restrictions are tied to the institution's capital levels after giving effect to distributions. The Company's ability to pay cash dividends is substantially dependent upon receipt of dividends from the Bank. The Company presently intends to retain earnings to support anticipated growth. Accordingly, the Company does not intend to pay cash dividends on its common stock in the foreseeable future. On April 28, 1999, the Company announced a 5% stock dividend payable on May 26, 1999, to shareholders of record on May 12, 1999. Average shares outstanding, net income per share and book value per share for all periods presented have been retroactively adjusted to give effect to this transaction. Impact of the Year 2000 Issue (Y2K) Many existing computer systems, including the systems used by the Company, use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000. Financial institutions, such as Columbia, are dependent on many types of automated computer systems for their day to day operations. The failure of any of theses systems to recognize the year 2000 could have a material effect on the Company's business, results of operations, and/or financial condition. 17 The Company's State of Readiness: The Company currently is preparing its operations for the year 2000 and has established a project team, which has developed a project plan intended to insure that the Company will be Y2K compatible well before December 31, 1999. The project plan incorporates five phases: awareness, assessment, renovation, validation, and implementation. The awareness phase is ongoing and incorporates monthly updates to the Board of Directors, management, and staff. In addition, shareholders and customers are informed through mailings, financial reports and through the Company's website. The Y2K project team meets monthly. Loan officers have been trained in interviewing and surveying credit customers on the state of readiness of their businesses and have begun those activities. The Company has completed its assessment of all of its computer systems, hardware, software, networks, telecommunications, ATM, property, and equipment that could potentially be either directly or indirectly affected by Y2K. The Company has identified all vendors that supply services and/or products that could be considered critical to day-to-day operations to determine if they are Y2K compatible. The Company is identifying all customers who have a total borrowing relationship of $250,000 or more or otherwise have the potential to adversely affect the Company's asset quality or profitability if they do not become Y2K compatible and updating the status of those relationships quarterly. Based on its assessment, the Company has essentially completed renovating all systems and equipment needing Y2K upgrades. In early October 1998, the Company's data processing provider advised the Company that it had successfully converted its systems to Y2K compatibility. Testing has been completed and the Company's data processing system is fully compliant at March 31, 1999. All other systems and equipment have been upgraded or are in process of being upgraded. The validation process involves testing all systems and equipment for Y2K compatibility. Bank hardware has been tested and the Company has replaced obsolete equipment as part of its normal business operations. The implementation phase is ongoing and incorporates the development of contingency plans for the century date change. The Company has developed a year 2000 contingency plan, a credit risk mitigation plan, a liquidity contingency plan, and ongoing disclosures and inquiries to customers and vendors. The Costs to Address the Company's Year 2000 Issues: The Company has expended approximately $64,000 in staff time and travel expenses in addressing the Y2K issue. Equipment upgrades are expected to cost approximately $562,000. Much of the Company's equipment, such as PCs, has been upgraded as part of normal business operations. The Company is relatively new and the majority of its hardware and software are recent purchases or are being upgraded to meet growth demands. The Company moved into a new state-of-the-art operations center in August 1998. The center included the installation of new item processing hardware and software, a new voice response unit, a new wire transfer system, and a new optical storage system, all of which are Y2K compatible. Future expenses cannot be predicted with certainty at this time; however, management believes that expenses relating to meeting the Company's Y2K challenges will not have a material effect on its operations or financial performance. The Risks of the Company's Year 2000 Issues: Although the Company has prepared its operations for the century change, there can be no assurance that forces beyond its control will not impact its operations. The Company purchases systems, equipment, and data processing services from vendors and suppliers. It also depends on many other vendors for various services needed for day-to-day operations. The Company's customers could also be impacted adversely by the century change and thereby impact the financial performance of the Company. In spite of the Company's diligent efforts in assuring that its outside suppliers, vendors and customers are Y2K ready, their can be no assurance that when the century changes, certain systems, technology and equipment of Columbia, its vendors and its customers will not be impacted and consequently impact the operations of the Company. 18 The Company's Contingency Plan: The Company has developed a comprehensive Year 2000 contingency plan. Although the Company has taken precaution to assure its technology is Y2K ready, it will continue to address possible emergency scenarios. Testing of the contingency plan will take place through 1999. The Company's new state-of-the-art operations center has a generator backup to run the entire facility. All branch offices have special procedures in order to operate without the usual telecommunications links so that, in the event of a telecommunications failure, the Company is able to process its data through a remote site. Qualitative and Quantitative Disclosures about Market Risk A number of measures are used to monitor and manage interest rate risk, including income simulations and interest sensitivity (gap) analyses. An income simulation model is the primary tool used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Key assumptions in the model include prepayment speeds on certain assets, cash flows and maturities of other investment securities, loan and deposit volumes and pricing. These assumptions are inherently uncertain and, as a result, the model cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. At June 30, 1999, based on the measures used to monitor and manage interest rate risk, there has not been a material change in the Company's interest rate risk since December 31, 1998. For additional information, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" referenced in the Company's annual report on Form 10-K for the year ended December 31, 1998. 19 PART II - OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual shareholders meeting on April 28, 1999, for the purpose of electing a Board of Directors. All seventeen persons nominated were elected to hold office for the ensuing year. Subsequent to that date, Mr. Gillenwater died. No replacement has been named to fill the vacated board position as of this date. Nominee Votes "For" Votes "Withheld" - ---------------------------------------------------------------------------- Richard S. DeVine 6,620,098 63,546 Melanie J. Dressel 6,620,098 63,546 Jack Fabulich 6,620,098 63,546 Jonathan Fine 6,620,098 63,546 John P. Folsom 6,619,663 63,981 J. James Gallagher 6,619,663 63,981 Margel S. Gallagher 6,619,663 63,981 W. Kelso Gillenwater 6,620,098 63,546 John A. Halleran 6,620,098 63,546 Thomas L. Matson 6,619,663 63,981 William W. Philip 6,619,663 63,981 John H. Powell 6,619,663 63,981 Robert E. Quoidbach 6,619,663 63,981 Donald Rodman 6,619,663 63,981 Sidney R. Snyder 6,619,663 63,981 William T. Weyerhaeuser 6,619,663 63,981 James M. Will 6,620,098 63,546 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 10 *(a) Amended employment agreement between the Company and W. W. Philip effective January 1, 1998, except with respect to sections 4.3 and 4.4 (granting restricted stock awards) which are effective August 28, 1996 and January 28, 1998, respectively. *(b) Amended employment agreement between the Company and J.James Gallagher effective July 1, 1998, except with respect to sections 4.3 (granting restricted stock awards) which is effective April 22, 1998. *(c) Employment agreement between the Company and Melanie J. Dressel effective July 1, 1999. *(d) Severance agreement between the Company and Harald R. Russell effective June 23, 1999. 20 *(e) Severance agreement between the Company and Evans Q. Whitney effective June 23, 1999. *(f) Severance agreement between the Company and Gary R. Schminkey effective June 23, 1999. *(g) Severance agreement between the Company and Donald A. Andersen effective June 23, 1999. *(h) Severance agreement between the Company and Janet D. Hildebrand effective June 23, 1999. Exhibit 11 - Statement re computation of per share net income Exhibit 27 - Financial Data Schedule (b) On March 25, 1999, the Company filed Form 8-K, announcing that first quarter earnings per share will fall short of consensus estimates. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COLUMBIA BANKING SYSTEM, INC. (Registrant) Date July 30, 1999 By /s/ W. W. Philip ----------------------------- -------------------------------- W. W. Philip Chairman and Chief Executive Officer Date July 30, 1999 By /s/ Gary R. Schminkey ----------------------------- --------------------------------- Gary R. Schminkey Executive Vice President and Chief Financial Officer 21 Exhibit 10(a) AMENDED EMPLOYMENT AGREEMENT THIS AMENDED EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into by and between Columbia State Bank, a Washington banking corporation ("Columbia Bank") together with Columbia Banking System, Inc., a Washington corporation ("CBSI") (collectively, the "Employer"), and W. W. PHILIP (the "Executive"). This amended Agreement, which amends the Agreement which became effective on January 1, 1998 (except for the earlier effectiveness of Sections 4.3 and 4.4 of that Agreement) is effective as of July 1, 1999. RECITALS 1. The terms and conditions of an Employment Agreement effective January 1, 1997 provided for Executive's service as the President and Chief Executive Officer of Columbia Bank and the President and Chief Operating Officer of CBSI. The term of that Employment Agreement expired on December 31, 1998 (the "Original Agreement"). 2. On November 19, 1997, and following the passing of Mr. A. G. Espe, Mr. Philip was appointed by the Board of Directors to serve as the Chairman, President and Chief Executive Officer of Columbia Bank and CBSI. 3. Executive and the Board of Directors of CBSI and Columbia Bank extended the term of Executive's service from December 31, 1998 to December 31, 1999, and entered into an Agreement effective on January 1, 1998 (the "January 1, 1998 Agreement"), which superseded and replaced the terms and conditions of the Original Agreement. This Agreement amends and restates the January 1, 1998 Agreement. In consideration of the mutual promises made in this Agreement, the parties agree as follows: AGREEMENT 1. Employment. Employer employs Executive and Executive accepts employment with Employer on the terms and conditions set forth in this Agreement. 2. Term. The term of this Agreement will commence as of January 1, 1998 and will continue until December 31, 1999, unless extended or sooner terminated as provided in this Agreement; provided that the 1996 Restricted Stock Award described in Section 4.3 shall be granted effective August 28, 1996 and the 1998 Restricted Stock Award described in Section 4.4 shall be granted effective January 28, 1998. 1 3. Duties. (a) Executive will be Chairman, President and Chief Executive Officer of Columbia Bank and CBSI. In such capacities, and subject to the authority of the Board of Directors of Columbia Bank and CBSI, as appropriate, Executive will render the executive management and perform the tasks in connection with the affairs of Columbia Bank and CBSI that are normal and customary to the positions that he will hold. (b) Executive will perform such other duties as may be appropriate to his position and as may be prescribed from time to time by the Board, or that are provided in the Bylaws, of Columbia Bank or CBSI. He will be the person to whom all other officers of Columbia Bank and CBSI report. (c) Executive will devote his best efforts and all necessary time, attention, and effort to the business and affairs of Employer and its affiliates, as such business and affairs now exist or hereafter may be changed or supplemented, in order to properly discharge his responsibilities under this Agreement. He may delegate such of his duties as he sees fit to the other officers of CBSI or its subsidiaries. 4. Salary, Bonus, and Other Compensation. 4.1 Salary. (a) During the term of this Agreement, Employer will pay Executive an annual base salary of not less than $225,000 per year beginning January 1, 1998. (b) CBSI will guarantee payment of any portion of Executive's compensation that may be allocated to a subsidiary of CBSI. (c) If this Agreement terminates prior to December 31, 1999, then Employer will pay Executive such greater or lesser amount of the agreed compensation as provided in Section 5. 4.2 Bonus. Executive will be eligible to participate in the bonus pools, if any, that the Board of Columbia Bank or CBSI may establish for senior executives, either under an executive incentive plan or otherwise. 4.3 1996 Restricted Stock Award. (a) Grant of Restricted Stock Award. In order to reward Executive for his outstanding prior service and to incent Executive to continue as a director following his employment as a senior executive officer, CBSI has granted to the Executive as a Restricted Stock Award a total of Twenty Thousand (20,000) shares of the no par value common stock of CBSI (the "1996 Shares"). The date of grant was August 28, 1996. (b) Consideration for Issuance of 1996 Shares. In consideration for the issuance of the 1996 Shares, the Executive agrees to remain as an active 2 executive officer and/or Board member of CBSI and Columbia Bank from August 28, 1996 through the period the 1996 Shares are subject to the escrow, as provided herein. Should the Executive fail, without the express approval of the Board of Directors or the Personnel and Compensation Committee of the Board of Directors (the "Committee"), to remain in such capacity, the 1996 Shares will be redelivered by the Escrow Agent to CBSI and will be canceled. CBSI will have no other remedy for such a breach. (c) Escrow. The certificate(s) evidencing the 1996 Shares shall be deposited in escrow immediately upon issuance by CBSI. Columbia Bank shall act as Escrow Agent and, as such, shall hold the 1996 Shares subject to delivery to the Executive or redelivery to CBSI in its corporate capacity, all in accordance with the terms of this Agreement. The Executive hereby grants an irrevocable power of attorney to the Escrow Agent to transfer and deliver the 1996 Shares and the stock certificate(s) evidencing the same in accordance with the terms and provisions of this Agreement and the directions of the Board of Directors or the Committee. (d) Escrow Stock Not Transferable. No transfer, pledge or other disposition of the 1996 Shares may be made by the Executive so long as they are held under and remain subject to the escrow. (e) Term of Escrow. The 1996 Shares shall be subject to escrow until August 28, 2001 unless sooner terminated in accordance with the terms of this Employment Agreement. (f) Dividends and Voting Rights. During the period while the 1996 Shares are held in escrow, all dividends payable with respect the such 1996 Shares shall be paid by the Escrow Agent directly to the Executive and the Executive shall be entitled to exercise all voting rights with respect to such 1996 Shares, all in the same manner and to the full extent as though such 1996 Shares were held by the Executive free of the escrow. (g) Release of Stock From Escrow. 1996 Shares held in escrow pursuant to this Agreement shall be released from such escrow by the delivery of the stock certificate(s) evidencing such 1996 Shares to the Executive (or, in the case of death or disability of the Executive, to the Executive's estate or legal guardian) at the earlier of: (i) August 28, 2001; (ii) The death or disability (as defined below) of the Executive; (iii) The determination by the Board of Directors or the Committee to authorize the release of such 1996 Shares to the Executive upon the occurrence of any event that the Board or Committee determines to warrant such release; or (iv) The occurrence of a change in control, as defined in Section 7.2 of this Agreement. 3 (h) Termination of Service/Forfeiture of 1996 Shares. In the event of the termination of service as an active executive officer and/or Board member of CBSI or Columbia Bank during the period that the 1996 Shares are held in escrow (and the 1996 Shares are not then released pursuant to the provisions of Section 4.3(g) above), such 1996 Shares shall be forfeited to CBSI and all rights of the Executive with respect thereto terminated, unless, in the case of termination by act of Employer, the Board of Directors or the Committee, within thirty (30) days following such termination, authorizes the release of such 1996 Shares to Executive. Upon the expiration of such thirty (30) day period without action by the Board or Committee to release such 1996 Shares to the Executive, the 1996 Shares shall be deemed forfeited and the stock certificate(s) evidencing the same shall be redelivered to CBSI, whereupon they shall be canceled and retired. (i) Reliance by Escrow Agent. The Escrow Agent shall have no liability for action in reliance upon any instructions delivered to it and believed in good faith by it to be from the Board or the Committee. 4.4 1998 Restricted Stock Award. (a) Grant of Restricted Stock Award. In order to reward Executive for his service as Chairman, President and Chief Executive Officer for an extended term and to incent Executive to continue as a director following his employment as a senior executive officer, CBSI hereby grants and issues to and in the name of the Executive as a Restricted Stock Award a total of Twenty Thousand (20,000) shares of the no par value common stock of CBSI (the "1998 Shares"). The date of grant is January 28, 1998. (b) Consideration for Issuance of 1998 Shares. In consideration for the issuance of the 1998 Shares, the Executive agrees to remain as an active executive officer and/or Board member of CBSI and Columbia Bank from January 28, 1998 through the period the 1998 Shares are subject to the escrow, as provided herein. Should the Executive fail, without the express approval of the Committee, to remain in such capacity, the 1998 Shares will be redelivered by the Escrow Agent to CBSI and will be canceled. CBSI will have no other remedy for such a breach. (c) Escrow. The certificate(s) evidencing the 1998 Shares shall be deposited in escrow immediately upon issuance by CBSI. Columbia Bank shall act as Escrow Agent and, as such, shall hold the 1998 Shares subject to delivery to the Executive or redelivery to CBSI in its corporate capacity, all in accordance with the terms of this Agreement. The Executive hereby grants an irrevocable power of attorney to the Escrow Agent to transfer and deliver the 1998 Shares and the stock certificate(s) evidencing the same in accordance with the terms and provisions of this Agreement and the directions of the Board of Directors or the Committee. (d) Escrow Stock Not Transferable. No transfer, pledge or other disposition of the 1998 Shares may be made by the Executive so long as they are held under and remain subject to the escrow. 4 (e) Term of Escrow. The 1998 Shares shall be subject to escrow until April 1, 2002 or such earlier date in that year upon which the annual meeting of shareholders shall be held unless sooner terminated in accordance with the terms of this Employment Agreement. (f) Dividends and Voting Rights. During the period while the 1998 Shares are held in escrow, all dividends payable with respect the such 1998 Shares shall be paid by the Escrow Agent directly to the Executive and the Executive shall be entitled to exercise all voting rights with respect to such 1998 Shares, all in the same manner and to the full extent as though such 1998 Shares were held by the Executive free of the escrow. (g) Release of Stock From Escrow. 1998 Shares held in escrow pursuant to this Agreement shall be released from such escrow by the delivery of the stock certificate(s) evidencing such 1998 Shares to the Executive (or, in the case of death or disability of the Executive, to the Executive's estate or legal guardian) at the earlier of: (i) April 1, 2002 or such earlier date in that year upon which the annual meeting of shareholders shall be held; (ii) The mandatory retirement of Executive from service as a director, as provided in Section 2.3 of CBSI's Bylaws and Section 2.1 of Columbia Bank's Bylaws; (iii) The death or disability (as defined below) of the Executive; (iv) The determination by the Board of Directors or the Committee to authorize the release of such 1998 Shares to the Executive upon the occurrence of any event that the Board or Committee determines to warrant such release; or (v) The occurrence of a change in control, as defined in Section 7.2 of this Agreement. (h) Termination of Service/Forfeiture of 1998 Shares. In the event of the termination of service as an active executive officer and/or Board member of CBSI or Columbia Bank during the period that the 1998 Shares are held in escrow (and the 1998 Shares are not then released pursuant to the provisions of Section 4.4(g) above), such 1998 Shares shall be forfeited to CBSI and all rights of the Executive with respect thereto terminated, unless, in the case of termination by act of Employer, the Board of Directors or the Committee, within thirty (30) days following such termination, authorizes the release of such 1998 Shares to Executive. Upon the expiration of such thirty (30) day period without action by the Board or Committee to release such 1998 Shares to the Executive, the 1998 Shares shall be deemed forfeited and the stock certificate(s) evidencing the same shall be redelivered to CBSI, whereupon they shall be canceled and retired. (i) Reliance by Escrow Agent. The Escrow Agent shall have no liability for action in reliance upon any instructions delivered to it and believed in good faith by it to be from the Board or the Committee. 5 4.5 Benefits. In addition to the base salary and bonus payable or potentially payable to Executive pursuant to this Section 4, Executive will be entitled to receive benefits similar to those offered to other senior executives of Employer. 5. Termination of Agreement. 5.1 Early Termination. (a) This Agreement may be terminated at any time by the Board of Employer or by Executive, and it shall terminate upon Executive's death or disability. Any termination by the Board of Employer other than termination for cause (as defined below) shall not prejudice Executive's right to compensation or other benefits under this Agreement. Except as provided in Section 7, if Executive voluntarily terminates his employment before December 31, 1999 he will be entitled to such payments as he would have the right to receive upon termination for cause under subsection 5.1 (b). (b) Except as provided in Section 7, if Employer terminates this Agreement without cause, Employer shall pay Executive upon the effective date of such termination all salary earned and all reimbursable expenses hereunder incurred through such termination date and, in addition, liquidated damages in an amount equal to the greater of two years' salary or salary for the then-remaining term of the Agreement (without regard to the term) payable hereunder; in such event, all forfeiture provisions regarding the Restricted Stock Award shall lapse. If Employer terminates this Agreement for cause, Employer shall pay Executive upon the effective date of such termination only such salary earned and expenses reimbursable hereunder incurred through such termination date. Executive shall have no right to receive compensation or other benefits for any period after termination for cause. (c) For purposes of this Agreement, the term "cause" shall mean willful misfeasance or gross negligence in the performance of his duties, conduct demonstrably and significantly harmful to Employer (including willful violation of any final cease and desist order applicable to Employer or a financial institution subsidiary), or conviction of a felony. For purposes of this Agreement, "disability" shall mean a medically reimbursable physical or mental impairment that may be expected to result in death, or to be of long, continued duration, and that renders Executive incapable of performing the duties required under this Agreement. The Board or the Committee, acting in good faith, shall make the final determination of whether Executive is suffering under any disability as herein defined and, for purposes of making such determination, may require Executive to submit himself to a physical examination by a physician mutually agreed upon by Executive and the Board or the Committee at Employer's expense. (d) In the event of termination of this Agreement by reason of Executive's death or disability, all forfeiture provisions regarding the Restricted Stock Award shall lapse. 5.2 Obligations. Except as otherwise provided in Section 7 or in a particular option grant, Executive's rights, if any, to vested but unexercised stock options will continue for a period of one year after early termination, other than termination for cause. In the case of termination for cause, Executive's unvested stock options, if any, shall terminate immediately. 6 6. Restrictive Covenant. 6.1 Noncompetition. (a) Executive agrees that except as otherwise set forth in this Agreement, he will not, during the term of this Agreement and for a period of two years after the later of (i) expiration of the term of this Agreement, or (ii) completion of service as an active executive officer and/or Board member of CBSI or Columbia Bank pursuant to Section 4.3(b) of this Agreement, directly or indirectly, become interested in, as principal shareholder, director, or officer, any financial institution (other than an institution controlled by, controlling, or under common control with Employer and its affiliates) that competes within the State of Washington with Employer or any of its affiliates, with respect to activities of the type performed by such companies within such service area immediately prior to Executive's termination. (b) The restrictions concerning competition after termination as contained in this Section 6.1 shall apply only in the event the Executive voluntarily terminates his employment with Employer without good reason. For purposes of this Agreement, termination for "good reason" shall mean termination by Executive as a result of any material breach of this Agreement by Employer, or any diminution of duties of Executive by the Board of either Columbia Bank or CBSI. The provisions restricting competition by Executive may be waived by the Employer. 6.2 Noninterference. During the noncompetition period described in Section 6.1, Executive shall not solicit or attempt to solicit any other employee of Employer or its affiliates to leave the employ of those companies, or in any way interfere with the relationship between Employer and any other employee of Employer or its affiliates. 6.3 Interpretation. If a court or any other administrative body with jurisdiction over a dispute related to this Agreement should determine that the restrictive covenants set forth above is unreasonably broad, the parties authorize such court or administrative body to narrow the covenants so as to make it reasonable, given all relevant circumstances, and to enforce such revised covenants. The covenants in this paragraph shall survive termination of this Agreement. 7. Change of Control. 7.1 Benefits. The parties recognize that a "change of control" of Employer (as defined in Section 7.2) could be detrimental to Executive's continued employment. Accordingly, in order to give further assurances to the Executive to enter into this Agreement, if: (a) There is a change of control of CBSI; and either (b) Within 730 days of such change in control, Executive terminates his employment with Employer; or 7 (c) At any time from and after sixty days prior to the public announcement by Employer of a transaction that will result in the change of control, Employer (or its successor) terminates Executive's employment without cause, then Executive, as of the date of termination of his employment, subject to the remaining provisions of this Section 7.1, shall be paid or provided with: (i) continued payment of his base salary and all benefits provided for in this Agreement for a period of two years following termination; and (ii) vesting of all stock options and lapse of all restrictions with respect to the Restricted Stock Award shall occur. The provisions of this Section 7.1 shall survive expiration of the term of the Agreement. 7.2 Definition. For purposes of this Agreement, the term "change of control" shall mean the occurrence of one or more of the following events: (a) One person or entity acquiring or otherwise becoming the owner of twenty-five percent or more of CBSI's outstanding common stock; (b) Replacement of a majority of the incumbent directors of CBSI or Columbia Bank by directors whose elections have not been supported by a majority of the Board of either company, as appropriate; or (c) Dissolution, or sale of fifty percent or more in value of the assets, of either CBSI or Columbia Bank. 7.3 Reimbursement. In the event the provisions of this Agreement result in imposition of a tax on Executive under the provisions of Internal Revenue Code # 4999, Employer agrees to reimburse Executive for the same, exclusive of any tax imposed by reason of receipt of reimbursement under this Agreement. 8. Deferred Compensation Arrangement. Executive will be entitled to defer the entire salary and bonus, if any, provided in Sections 4.1 and 4.2 of this Agreement, for the years 1997, 1998 and 1999, which amounts shall accrue interest at the rate paid on 2-year Treasury bills at January 1 of each year, until paid, plus 2% compounded annually, all in accordance with a nonqualified deferred compensation agreement to be entered into between the parties. 9. Miscellaneous. 9.1 This Agreement contains the entire agreement between the parties with respect to Executive's employment with Employer and his covenant not to compete with Employer and its affiliates, and is subject to modification or amendment only upon amendment in writing signed by both parties. 9.2 This Agreement shall bind and inure to the benefit of the heirs, legal representatives, successors, and assigns of the parties, except that Employer's rights and obligations may not be assigned. The provisions of Section 6.1 of this Agreement are intended to confer upon CBSI and its subsidiaries and affiliates the benefits of Executive's covenant not to compete. 8 9.3 If any provision of this Agreement is invalid or otherwise unenforceable, all other provisions shall remain unaffected and shall be enforceable to the fullest extent permitted by law. 9.4 This Agreement is made with reference to and is intended to be construed in accordance with the laws of the State of Washington. Venue for any action arising out of or concerning this Agreement shall lie in Pierce County, Washington. In the event of a dispute under this Agreement not involving injunctive relief, the dispute shall be arbitrated pursuant to the Superior Court Mandatory Arbitration Rules ("MAR") adopted by the Washington State Supreme Court, irrespective of the amount in controversy. This Agreement shall be deemed as stipulation to that effect pursuant to MAR 1.2 and 8.1. The arbitrator, in his or her discretion, may award attorney's fees to the prevailing party or parties. 9.5 Any notice required to be given under this Agreement to either party shall be given by personal service or by depositing a copy thereof in the United States registered or certified mail, postage prepaid, addressed to the following address, or such other address as addressee shall designate in writing: Employer: 1102 Broadway Tacoma, WA 98402 Executive: 100 Shore Acres Road S.W. Tacoma, WA 98498 COLUMBIA STATE BANK By: /s/ Richard S. Devine Richard S. DeVine, Chairman, Personnel & Compensation Committee COLUMBIA BANKING SYSTEM, INC. By: /s/ Richard S. Devine /s/ W.W. Philip Richard S. DeVine, Chairman, W.W. Philip Personnel & Compensation Committee Executive Compensation Committee 9 Exhibit 10(b) AMENDED EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into by and between Columbia State Bank, a Washington banking corporation ("Columbia Bank") together with Columbia Banking System, Inc., a Washington corporation ("CBSI") (collectively, the "Employer"), and J. JAMES GALLAGHER (the "Executive"). This amended Agreement shall become effective as of July 1, 1999. RECITALS Executive has served as outside legal counsel to Employer and has substantial knowledge of Employer's affairs and of the business of financial institutions in general. Employer has incurred substantial growth and is looking to continue expansion of its operations, with the assistance of Executive. Executive and Employer have entered into an Employment Agreement effective as of July 1, 1998, and desire to amend and restate that Agreement to read as provided herein. In consideration of the mutual promises made in this Agreement, the parties agree as follows: AGREEMENT 1. Employment. Employer employs Executive and Executive accepts employment with Employer on the terms and conditions set forth in this Agreement. 2. Term. The term of this Agreement will commence as of July 1, 1998 and will continue until June 30, 2003, unless extended or sooner terminated as provided in this Agreement. 3. Duties. (a) Executive will be Vice-Chairman of Columbia Bank and CBSI. In such capacities, and subject to the authority of the Chairman and the Board of Directors of Columbia Bank and CBSI, as appropriate, Executive will be responsible for strategic planning, merger and acquisition activity, legal and regulatory compliance and will in addition render the executive management and perform the tasks in connection with the affairs of Columbia Bank and CBSI that are normal and customary to the positions that he will hold. (b) Executive will perform such other duties as may be appropriate to his position and as may be prescribed from time to time by the Chairman or the Board, or that are provided in the Bylaws, of Columbia Bank or CBSI. He will also report to the Chairman. 1 (c) Executive will devote his best efforts and all necessary time, attention, and effort to the business and affairs of Employer and its affiliates, as such business and affairs now exist or hereafter may be changed or supplemented, in order to properly discharge his responsibilities under this Agreement. He may delegate such of his duties as he sees fit to the other officers of CBSI or its subsidiaries. 4. Salary, Bonus, and Other Compensation. 4.1 Salary. (a) during the term of this Agreement, Employer will pay Executive an annual (calendar year) base salary of not less than $175,000 per year (payable at the rate of $14,583.33 per month) beginning July 1, 1998. (b) Columbia Bank will guarantee payment of any portion of Executive's compensation that may be allocated to a subsidiary of CBSI. (c) If this Agreement terminates prior to June 30, 2003, then Employer will pay Executive such greater or lesser amount of the agreed compensation as provided in Section 5. 4.2 Bonus. Executive will be eligible to participate in the bonus pools, if any, that the Board of Columbia Bank or CBSI may establish for senior executives, either under an executive incentive plan or otherwise. 4.3 1998 Restricted Stock Award. In order to further incent Executive in his employment as a senior executive officer, CBSI hereby grants and issues to and in the name of the Executive as a Restricted Stock Award a total of fifteen thousand (15,000) shares of the no par value common stock of CBSI (the " 1998 Shares"). The date of grant is July 1, 1998. The terms and conditions of the Restricted Stock Award are as set forth in the Restricted Stock Award Agreement with Executive effective as of July 1, 1998. 4.4 Benefits. In addition to the base salary and bonus payable or potentially payable to Executive pursuant to this Section 4, Executive will be entitled to receive benefits similar to those offered to other senior executives of Employer. 5. Termination of Agreement. 5.1 Early Termination. (a) This Agreement may be terminated at any time by the Board of Employer or by Executive, and it shall terminate upon Executive's death or disability. Any termination by the Board of Employer other than termination for cause (as defined below) shall not prejudice Executive's right to compensation or other benefits under this Agreement. Except as provided in Section 7, if Executive voluntarily terminates his employment before June 30, 2 2003 he will be entitled to such payments as he would have the right to receive upon termination for cause under subsection 5.1 (b). (b) Except as provided in Section 7, if Employer terminates this Agreement without cause, Employer shall pay Executive upon the effective date of such termination all salary earned, benefits accrued and all reimbursable expenses hereunder incurred through such termination date and, in addition, liquidated damages in an amount equal to the greater of (i) two years' salary, or (ii) salary for the then-remaining term of the Agreement payable hereunder; in such event, all forfeiture provisions regarding the Restricted Stock Award shall lapse. If Employer terminates this Agreement for cause, Employer shall pay Executive upon the effective date of such termination only such salary earned, benefits accrued and expenses reimbursable hereunder incurred through such termination date. Executive shall have no right to receive compensation or other benefits for any period after termination for cause. (c) For purposes of this Agreement, the term "cause" shall mean (i) willful misfeasance or gross negligence in the performance of his duties; (ii) conduct demonstrably and significantly harmful to Employer (including willful violation of any final cease and desist order applicable to Employer or a financial institution subsidiary); or (iii) conviction of a felony. For purposes of this Agreement, "disability" shall mean a medically reimbursable physical or mental impairment that may be expected to result in death, or to be of long, continued duration, and that renders Executive incapable of performing the duties required under this Agreement. The Board or the Committee, acting in good faith, shall make the final determination of whether Executive is suffering under any disability as herein defined and, for purposes of making such determination, may require Executive to submit himself to a physical examination by a physician mutually agreed upon by Executive and the Board or the Committee at Employer's expense. (d) In the event of termination of this Agreement by reason of Executive's death or disability, all forfeiture provisions regarding the Restricted Stock Award shall lapse. 5.2 Obligations. Except as otherwise provided in Section 7 or in a particular option grant, Executive's rights, if any, to vested but unexercised stock options will continue for a period of one year after early termination, other than termination for cause. In the case of termination for cause, Executive's unvested stock options, if any, shall terminate immediately. 6. Restrictive Covenant. 6.1 Noncompetition. (a) Executive agrees that except as otherwise set forth in this Agreement, he will not, during the term of this Agreement and for a period of two years after the later of (i) expiration of the term of this Agreement, or (ii) completion of service as an active executive officer and/or Board 3 member of CBSI or Columbia Bank, directly or indirectly, become interested in, as principal shareholder, director, or officer, any financial institution (other than an institution controlled by, controlling, or under common control with Employer and its affiliates) that competes within the State of Washington with Employer or any of its affiliates, with respect to activities of the type performed by such companies within such service area immediately prior to Executive's termination. (b) The restrictions concerning competition after termination as contained in this Section 6.1 shall apply only in the event that Executive voluntarily terminates his employment with Employer without good reason. For purposes of this Agreement, termination for "good reason" shall mean termination by Executive as a result of any material breach of this Agreement by Employer, or any diminution of duties of Executive by the Board of either Columbia Bank or CBSI. The provisions restricting competition by Executive may be waived by the Employer. 6.2 Noninterference. During the noncompetition period described in Section 6.1, Executive shall not solicit or attempt to solicit any other employee of Employer or its affiliates to leave the employ of those companies, or in any way interfere with the relationship between Employer and any other employee of Employer or its affiliates. 6.3 Interpretation. If a court or any other administrative body with jurisdiction over a dispute related to this Agreement should determine that the restrictive covenants set forth above is unreasonably broad, the parties authorize such court or administrative body to narrow the covenants so as to make it reasonable, given all relevant circumstances, and to enforce such revised covenants. The covenants in this paragraph shall survive termination of this Agreement. 7. Change of Control. 7.1 Benefits. The parties recognize that a "change of control" of Employer (as defined in Section 7.2) could be detrimental to Executive's continued employment. Accordingly, in order to give further assurances to the Executive to enter into this Agreement, if: (a) There is a change of control of CBSI; and either (b) Within 730 days of such change in control, Executive terminates his employment with Employer; or (c) At any time from and after sixty days prior to the public announcement by Employer of a transaction that will result in the change of control, Employer (or its successor) terminates Executive's employment without cause, then Executive, as of the date of termination of his employment, subject to the remaining provisions of this Section 7.1, shall be paid or provided with: (i) continued payment of his base salary and all benefits provided for in this Agreement until two years following termination or June 30, 2003, whichever is longer; and (ii) vesting of all stock options 4 and lapse of all restrictions with respect to the Restricted Stock Award shall occur. The provisions of this Section 7.1 shall survive expiration of the term of the Agreement. 7.2 Definitions. For purposes of this Agreement, the term "change of control" shall mean the occurrence of one or more of the following events: (a) One person or entity acquiring or otherwise becoming the owner of twenty-five percent or more of CBSI's outstanding common stock; (b) Replacement of a majority of the incumbent directors of CBSI or Columbia Bank by directors whose elections have not been supported by a majority of the Board of either company, as appropriate; or (c) Dissolution, or sale of fifty percent or more in value of the assets, of either CBSI or Columbia Bank. 7.3 Reimbursement. In the event that performance in accordance with the provisions of this Agreement results in imposition of a tax on Executive under the provisions of Internal Revenue Code # 4999, Employer agrees to reimburse Executive for the same, exclusive of any tax imposed by reason of receipt of reimbursement under this Agreement. 8. Miscellaneous. 8.1 This Agreement contains the entire agreement between the parties with respect to Executive's employment with Employer and his covenant not to compete with Employer and its affiliates, and is subject to modification or amendment only upon amendment in writing signed by both parties. 8.2 This Agreement shall bind and inure to the benefit of the heirs, legal representatives, successors, and assigns of the parties, except that Employer's rights and obligations may not be assigned. The provisions of Section 6.1 of this Agreement are intended to confer upon CBSI and its subsidiaries and affiliates the benefits of Executive's covenant not to compete. 8.3 If any provision of this Agreement is invalid or otherwise unenforceable, all other provisions shall remain unaffected and shall be enforceable to the fullest extent permitted by law. 8.4 This Agreement is made with reference to and is intended to be construed in accordance with the laws of the State of Washington. Venue for any action arising out of or concerning this Agreement shall lie in Pierce County, Washington. In the event of a dispute under this Agreement not involving injunctive relief, the dispute shall be arbitrated pursuant to the Superior Court Mandatory Arbitration Rules ("MAR") adopted by the Washington State Supreme Court, irrespective of the amount in controversy. This Agreement shall be deemed as stipulation to that effect pursuant to MAR 1.2 and 8.1. The arbitrator, in his or her discretion, may award 5 attorney's fees to the prevailing party or parties. 8.5 Any notice required to be given under this Agreement to either party shall be given by personal service or by depositing a copy thereof in the United States registered or certified mail, postage prepaid, addressed to the following address, or such other address as addressee shall designate in writing: Employer: 1102 Broadway Executive: 23 Lagoon Lane North Tacoma, WA 98402 Lakewood, WA 98498 COLUMBIA STATE BANK By: /s/ W.W. Philip W.W. Philip Its: Chairman, President and Chief Executive Officer COLUMBIA BANKING SYSTEM, INC. By: /s/ W.W. Philip W.W. Philip Its: Chairman, President and Chief Executive Officer /s/ J. James Gallagher J. James Gallagher 6 Exhibit 10(c) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into by and between Columbia State Bank, a Washington banking corporation ("Columbia Bank") together with Columbia Banking System, Inc., a Washington corporation ("CBSI") (collectively, the "Employer"), and MELANIE J. DRESSEL (the "Executive"). This Agreement shall become effective as of July 1,1999. RECITALS A. Executive is currently serving as Executive Vice President of CBSI and President and Chief Operating Officer of Columbia Bank. B. Employer considers the continuance of sound and vital management as essential to protecting and enhancing Employer's best interests. C. Employer desires to assure itself of retaining the exclusive services of Executive and to continue the Employment of Executive under the terms of this Agreement, and to reward Executive for her valuable, dedicated service to Employer should her employment be terminated under the circumstances described in this Agreement. In consideration of the mutual promises made in this Agreement, the parties agree as follows: AGREEMENT 1. Employment. Employer employs Executive and Executive accepts employment with Employer on the terms and conditions set forth in this Agreement. 2. Term. The term of this Agreement will commence as of July 1, 1999 and will continue until June 30, 2004, unless extended or sooner terminated as provided in this Agreement. 3. Duties. (a) Executive will continue to serve as Executive Vice President of CBSI and President and Chief Operating Officer of Columbia Bank. In such capacities, and subject to the authority of the Chairman and the Board of Directors of Columbia Bank and CBSI (separately or collectively, the "Board" as applicable), as appropriate, Executive will render the executive management services and perform such tasks in connection with the affairs of Columbia Bank and CBSI that are normal and customary to the positions that she holds. 1 (b) Executive will perform such other duties as may be appropriate to her position and as may be prescribed from time to time by the Chairman or the Board, or that are provided in the Bylaws, of Columbia Bank or CBSI. (c) Executive will devote her best efforts and all necessary time, attention, and effort to the business and affairs of Employer and its affiliates, as such business and affairs now exist or hereafter may be changed or supplemented, in order to properly discharge her responsibilities under this Agreement. She may delegate such of her duties as she sees fit to the other officers of CBSI or its subsidiaries. 4. Salary, Bonus, and Other Compensation. 4.1 Salary. (a) During the term of this Agreement, Employer will pay Executive an annual (calendar year) base salary of not less than $150,000 per year (payable at the rate of $12,500.00 per month) beginning July 1, 1999 and $175,000 per year (payable at the rate of $14,583.33 per month) beginning January 1, 2000. (b) Columbia Bank will guarantee payment of any portion of Executive's compensation that may be allocated to a subsidiary of CBSI. (c) If this Agreement terminates prior to June 30, 2004, then Employer will pay Executive such greater or lesser amount of the agreed compensation as provided in Section 5. 4.2 Bonus. Executive will be eligible to participate in the bonus pools, if any, that the Board of Columbia Bank or CBSI may establish for senior executives, either under an executive incentive plan or otherwise. 4.3 Benefits. In addition to the base salary and bonus payable or potentially payable to Executive pursuant to this Section 4, Executive will be entitled to receive benefits similar to those offered to other senior executives of Employer. 5. Termination of Agreement. 5.1 Early Termination. (a) This Agreement may be terminated at any time by the Board of Employer or by Executive, and it shall terminate upon Executive's death or disability. Any termination by the Board of Employer other than termination for cause (as defined below) shall not prejudice Executive's right to compensation or other benefits under this Agreement. Except as provided in Section 7, if Executive voluntarily terminates her employment before June 30, 2004 she will be entitled to such payments as she would have the right to receive upon termination for cause under subsection 5.1 (b). 2 (b) Except as provided in Section 7, if Employer terminates this Agreement without cause, Employer shall pay Executive upon the effective date of such termination all salary earned, benefits accrued and all reimbursable expenses hereunder incurred through such termination date and, in addition, liquidated damages in an amount equal to the greater of (i) two years' salary, or (ii) salary for the then-remaining term of the Agreement payable hereunder. If Employer terminates this Agreement for cause, Employer shall pay Executive upon the effective date of such termination only such salary earned, benefits accrued and expenses reimbursable hereunder incurred through such termination date. Executive shall have no right to receive compensation or other benefits for any period after termination for cause. (c) For purposes of this Agreement, the term "cause" shall mean (i) willful misfeasance or gross negligence in the performance of her duties; (ii) conduct demonstrably and significantly harmful to Employer (including willful violation of any final cease and desist order applicable to Employer or a financial institution subsidiary); or (iii) conviction of a felony. For purposes of this Agreement, "disability" shall mean a medically reimbursable physical or mental impairment that may be expected to result in death, or to be of long, continued duration, and that renders Executive incapable of performing the duties required under this Agreement. The Board or the Compensation Committee of the Board ("Committee"), acting in good faith, shall make the final determination of whether Executive is suffering under any disability as herein defined and, for purposes of making such d etermination, may require Executive to submit himself to a physical examination by a physician mutually agreed upon by Executive and the Board or the Committee at Employer's expense. 5.2 Obligations. Except as otherwise provided in Section 7 or in a particular option grant, Executive's rights, if any, to vested but unexercised stock options will continue for a period of one year after early termination, other than termination for cause. In the case of termination for cause, Executive's unvested stock options, if any, shall terminate immediately. 6. Restrictive Covenant. 6.1 Noncompetition. (a) Executive agrees that except as otherwise set forth in this Agreement, she will not, during the term of this Agreement and for a period of two years after the later of (i) expiration of the term of this Agreement, or (ii) completion of service as an active executive officer and/or Board member of CBSI or Columbia Bank, directly or indirectly, become interested in, as principal shareholder, director, or officer, any financial institution (other than an institution controlled by, controlling, or under common control with Employer and its affiliates) that competes within the State of Washington with Employer or any of its affiliates, with respect to activities of the type performed by such companies within such service area immediately prior to Executive's termination. 3 (b) The restrictions concerning competition after termination as contained in this Section 6.1 shall apply only in the event that Executive voluntarily terminates her employment with Employer without good reason. For purposes of this Agreement, termination for "good reason" shall mean termination by Executive as a result of any material breach of this Agreement by Employer, or any diminution of duties of Executive by the Board of either Columbia Bank or CBSI. The provisions restricting competition by Executive may be waived by the Employer. 6.2 Noninterference. During the noncompetition period described in Section 6.1, Executive shall not solicit or attempt to solicit any other employee of Employer or its affiliates to leave the employ of those companies, or in any way interfere with the relationship between Employer and any other employee of Employer or its affiliates. 6.3 Interpretation. If a court or any other administrative body with jurisdiction over a dispute related to this Agreement should determine that the restrictive covenants set forth above is unreasonably broad, the parties authorize such court or administrative body to narrow the covenants so as to make it reasonable, given all relevant circumstances, and to enforce such revised covenants. The covenants in this paragraph shall survive termination of this Agreement. 7. Change of Control. 7.1 Benefits. The parties recognize that a "change of control" of Employer (as defined in Section 7.2) could be detrimental to Executive's continued employment. Accordingly, in order to give further assurances to the Executive to enter into this Agreement, if: (a) There is a change of control; and either (b) Within 730 days of such change in control, Executive terminates her employment with Employer; or (c) At any time from and after sixty days prior to the public announcement by Employer of a transaction that will result in the change of control, Employer (or its successor) terminates Executive's employment without cause, then Executive, as of the date of termination of her employment, subject to the remaining provisions of this Section 7.1, shall be paid or provided with: (i) continued payment of her base salary and all benefits provided for in this Agreement until two years following termination or June 30, 2004, whichever is longer; and (ii) vesting of all stock options and lapse of all restrictions with respect to any restricted stock awards shall occur. The provisions of this Section 7.1 shall survive expiration of the term of the Agreement. 7.2 Definitions. For purposes of this Agreement, the term "change of control" shall mean the occurrence of one or more of the following events: 4 (a) One person or entity acquiring or otherwise becoming the owner of twenty-five percent or more of CBSI's outstanding common stock; (b) Replacement of a majority of the incumbent directors of CBSI or Columbia Bank by directors whose elections have not been supported by a majority of the Board of either company, as appropriate; or (c) Dissolution, or sale of fifty percent or more in value of the assets, of either CBSI or Columbia Bank. 7.3 Reimbursement. In the event that performance in accordance with the provisions of this Agreement results in imposition of a tax on Executive under the provisions of Internal Revenue Code # 4999, Employer agrees to reimburse Executive for the same, exclusive of any tax imposed by reason of receipt of reimbursement under this Agreement. 8. Miscellaneous. 8.1 This Agreement contains the entire agreement between the parties with respect to Executive's employment with Employer and her covenant not to compete with Employer and its affiliates, and is subject to modification or amendment only upon amendment in writing signed by both parties. 8.2 This Agreement shall bind and inure to the benefit of the heirs, legal representatives, successors, and assigns of the parties, except that Employer's rights and obligations may not be assigned. The provisions of Section 6.1 of this Agreement are intended to confer upon CBSI and its subsidiaries and affiliates the benefits of Executive's covenant not to compete. 8.3 If any provision of this Agreement is invalid or otherwise unenforceable, all other provisions shall remain unaffected and shall be enforceable to the fullest extent permitted by law. 8.4 This Agreement is made with reference to and is intended to be construed in accordance with the laws of the State of Washington. Venue for any action arising out of or concerning this Agreement shall lie in Pierce County, Washington. In the event of a dispute under this Agreement not involving injunctive relief, the dispute shall be arbitrated pursuant to the Superior Court Mandatory Arbitration Rules ("MAR") adopted by the Washington State Supreme Court, irrespective of the amount in controversy. This Agreement shall be deemed as stipulation to that effect pursuant to MAR 1.2 and 8.1. The arbitrator, in his or her discretion, may award attorney's fees to the prevailing party or parties. 8.5 Any notice required to be given under this Agreement to either party shall be given by personal service or by depositing a copy thereof in the United States registered or certified mail, postage prepaid, addressed 5 to the following address, or such other address as addressee shall designate in writing: Employer: 1102 Broadway Tacoma, WA 98402 Executive: Melanie J. Dressel IN WITNESS WHEREOF, the parties have executed this Agreement effective on July 1, 1999. COLUMBIA STATE BANK By: /s/ W.W. Philip Its: Chairman and CEO COLUMBIA BANKING SYSTEM, INC. By: /s/ W.W. Philip Its: Chairman and CEO EXECUTIVE /s/ Melanie J. Dressel 6 Exhibit 10(d) SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective this 23 day of June, 1999, by and among COLUMBIA BANKING SYSTEM, INC., a Washington corporation ("CBSI"), COLUMBIA STATE BANK, a Washington banking corporation (the "Bank") and HARALD R. RUSSELL ("Executive"). RECITALS 1. CBSI and the Bank (collectively referred to as the "Company") currently receive the exclusive services of Executive as its employee, and both the Company and Executive desire that this employment relationship continue. 2. The Company desires to provide a severance benefit to Executive (i) to encourage Executive to continue his employment relationship with the Company; (ii) to continue obtaining his services in the event of a potential Change in Control (as defined below) of the Company that may be detrimental to the Executive; and (iii) to allow the Company to maximize the benefits obtainable by its shareholders from any Change in Control. In consideration of the mutual promises, covenants, agreements and undertakings contained in this Agreement, the parties hereby contract and agree as follows: AGREEMENT 1. Term. The term of this Agreement ("Term") shall commence as of the date first above written and shall end on the earlier of the termination of Executive's employment in a manner that does not constitute a Termination Event or on the fifth anniversary of the date first above written, unless extended in writing by the parties. 2. Severance Benefit. 2.1. Determination of Benefit. In the case of a Termination Event, as defined in Section 4, (i) the Company shall pay to Executive all salary and benefits earned through the effective date of Executive's termination and a severance benefit ("Severance Benefit") in an amount equal to three times the amount of Executive's then-current annual base salary, and (ii) vesting of all stock options and lapse of all restrictions with respect to restricted stock awards shall occur. Payment of the Severance Benefit shall begin, and vesting and lapse of restrictions described in the preceding sentence shall occur, (i) in the case of a Termination Event described in paragraph 4.1, upon the effective date of termination, and (ii) in the case of a Termination Event described in paragraph 4.2, upon the effective date of the Change of Control which is then pending (or announced within sixty days) of the date when the Executive's employment terminated. The Severance Benefit shall be paid over a three year period in equal regular periodic payments without interest on the same dates that other salaried employees of the Company are paid. 1 2.2. Reimbursement of Excise Tax. In the event that performance in accordance with the provisions of this Agreement results in imposition of a tax on Executive under the provisions of Internal Revenue Code # 4999, Employer agrees to reimburse Executive for the same, exclusive of any tax imposed by reason of receipt of reimbursement under this Agreement. 3. Other Compensation and Terms of Employment. Except with respect to the Severance Payment, this Agreement shall have no effect on the determination of any compensation payable by the Company to the Executive, or upon any of the other terms of Executive's employment with the Company. 4. Termination Events. A Termination Event shall be deemed to occur upon, and only upon, one or more of the following: 4.1 Termination of Executive's employment by the Company without Cause (as defined below) or by Executive for Good Reason (as defined below) within 730 days following the effective date of a Change of Control; or 4.2 Termination of Executive's employment by the Company without Cause prior to a Change of Control if such termination occurs at any time from and after sixty days prior to the public announcement by the Company or any other party of a transaction which will result in a Change of Control; provided that the effective date of the Change of Control occurs within eighteen (18) months of Executive's termination. 5. Restrictive Covenant. 5.1 Noncompetition. Executive agrees that he will not, during his employment with the Company and for a period of two years after commencement of the payment to him of the Severance Benefit, directly or indirectly become interested in, as a principal shareholder, director, or officer, any financial institution, now existing or organized hereafter, that competes or will compete with the Company, including any successor, or any of the Company's affiliates within any county in which the Company does business; provided that Executive's covenant not to compete shall terminate in the event Executive waives the right to payment of any balance of the Severance Benefit then payable; and provided further, that Executive shall not be deemed a " principal shareholder" unless (i) his investment in such an institution exceeds 2% of the institution's outstanding voting securities or (ii) Executive is active in the organization, management or affairs of such institution. The provisions restricting competition by Executive may be waived by action of the Board. Executive recognizes and agrees that any breach of this covenant by Executive will cause immediate and irreparable injury to the Company, and Executive hereby authorizes recourse by the Company to injunction and/or specific performance, as well as to other legal or equitable remedies to which the Company may be entitled. 5.2 Noninterference. During the noncompetition period described in Section 5.1, Executive shall not solicit or attempt to solicit any other 2 employee of the Company or its affiliates to leave the employ of those companies, or in any way interfere with the relationship between the Company and any other employee of the Company. 5.3 Interpretation. If a court or any other administrative body with jurisdiction over a dispute related to this Agreement should determine that the restrictive covenant set forth in Section 5.1 above is unreasonably broad, the parties hereby authorize and direct said court or administrative body to narrow same so as to make it reasonable, given all relevant circumstances, and to enforce same. The covenants in this paragraph shall survive termination of this Agreement. 6. Definitions. 6.1. Cause. "Cause" shall mean only (i) willful misfeasance or gross negligence in the performance of Executive's duties, (ii) conduct demonstrably and significantly harmful to the Company (which would include willful violation of any final cease and desist order applicable to the Company), or (iii) conviction of a felony. 6.2. Change of Control. "Change of Control" shall mean the occurrence of one or more of the following events: 6.2.1. One person or entity acquiring or otherwise becoming the owner of twenty-five percent (25%) or more of CBSI's outstanding common stock; 6.2.2. Replacement of incumbent directors or election of newly-elected directors constituting a majority of the Board of CBSI where such replacement or election has not been supported by the Board; or 6.2.3. Dissolution, or sale of fifty percent (50%) or more in value of the assets, of either CBSI or the Bank. 6.3 Good Reason. "Good Reason" shall mean (i) any reduction of Executive's salary or any reduction or elimination of any other compensation or benefit plan, which reduction or elimination is not of general application to substantially all employees of the Company or such employees of any successor entity or of any entity in control of the Company, (ii) any changes in Executive's authority or duties substantially inconsistent with Executive's position, or (iii) any transfer to a location more than thirty miles from Executive's then office location. 7. Miscellaneous. 7.1 This Agreement contains the entire agreement between the parties with respect to the subject matter, and is subject to modification or amendment only upon amendment in writing signed by both parties. 7.2 This Agreement shall bind and inure to the benefit of the heirs, legal representatives, successors, and assigns of the parties. 3 7.3 If any provision of this Agreement is invalid or otherwise unenforceable, all other provisions shall remain unaffected and shall be enforceable to the fullest extent permitted by law. 7.4 This Agreement is made with reference to and is intended to be construed in accordance with the laws of the State of Washington. Venue for any action arising out of or concerning this Agreement shall lie in Pierce County, Washington. In the event of a dispute under this Agreement, the dispute shall be arbitrated pursuant to the Superior Court Mandatory Arbitration Rules ("MAR") adopted by the Washington State Supreme Court, irrespective of the amount in controversy. This Agreement shall be deemed as stipulation to that effect pursuant to MAR 1.2 and 8.1 The arbitrator, in his or her discretion, may award attorney's fees to the prevailing party or parties. 7.5 Any notice required to be given under this Agreement to either party shall be given by personal service or by depositing a copy thereof in the United States registered or certified mail, postage prepaid, addressed to the following address, or such other address as addressee shall designate in writing: Company: Columbia Banking System, Inc. 1102 Broadway Plaza Tacoma, WA 98401 Attn: Corporate Secretary Executive: Harald R. Russell ________________________ IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date first above written. COLUMBIA BANKING SYSTEM, INC. By: /s/ W.W. Philip Its: Chairman and CEO COLUMBIA STATE BANK By: /s/ W.W. Philip Its: Chairman and CEO EXECUTIVE /s/ Harald R. Russell Harald R. Russell 4 Exhibit 10(e) SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective this 23 day of June, 1999, by and among COLUMBIA BANKING SYSTEM, INC., a Washington corporation ("CBSI"), COLUMBIA STATE BANK, a Washington banking corporation (the "Bank") and EVANS Q. WHITNEY ("Executive"). RECITALS 1. CBSI and the Bank (collectively referred to as the "Company") currently receive the exclusive services of Executive as its employee, and both the Company and Executive desire that this employment relationship continue. 2. The Company desires to provide a severance benefit to Executive (i) to encourage Executive to continue his employment relationship with the Company; (ii) to continue obtaining his services in the event of a potential Change in Control (as defined below) of the Company that may be detrimental to the Executive; and (iii) to allow the Company to maximize the benefits obtainable by its shareholders from any Change in Control. In consideration of the mutual promises, covenants, agreements and undertakings contained in this Agreement, the parties hereby contract and agree as follows: AGREEMENT 1. Term. The term of this Agreement ("Term") shall commence as of the date first above written and shall end on the earlier of the termination of Executive's employment in a manner that does not constitute a Termination Event or on the fifth anniversary of the date first above written, unless extended in writing by the parties. 2. Severance Benefit. 2.1. Determination of Benefit. In the case of a Termination Event, as defined in Section 4, (i) the Company shall pay to Executive all salary and benefits earned through the effective date of Executive's termination and a severance benefit ("Severance Benefit") in an amount equal to three times the amount of Executive's then-current annual base salary, and (ii) vesting of all stock options and lapse of all restrictions with respect to restricted stock awards shall occur. Payment of the Severance Benefit shall begin, and vesting and lapse of restrictions described in the preceding sentence shall occur, (i) in the case of a Termination Event described in paragraph 4.1, upon the effective date of termination, and (ii) in the case of an Termination Event described in paragraph 4.2, upon the effective date of the Change of Control which is then pending (or announced within sixty days) of the date when the Executive's employment terminated. The Severance Benefit shall be paid over a three year period in equal regular periodic payments without interest on the same dates that other salaried employees of the Company are paid. 2.2. Reimbursement of Excise Tax. In the event that performance in accordance with the provisions of this Agreement results in imposition of a tax on Executive under the provisions of Internal Revenue Code # 4999, 1 Employer agrees to reimburse Executive for the same, exclusive of any tax imposed by reason of receipt of reimbursement under this Agreement. 3. Other Compensation and Terms of Employment. Except with respect to the Severance Payment, this Agreement shall have no effect on the determination of any compensation payable by the Company to the Executive, or upon any of the other terms of Executive's employment with the Company. 4. Termination Events. A Termination Event shall be deemed to occur upon, and only upon, one or more of the following: 4.1 Termination of Executive's employment by the Company without Cause (as defined below) or by Executive for Good Reason (as defined below) within 730 days following the effective date of a Change of Control; or 4.2 Termination of Executive's employment by the Company without Cause prior to a Change of Control if such termination occurs at any time from and after sixty days prior to the public announcement by the Company or any other party of a transaction which will result in a Change of Control; provided that the effective date of the Change of Control occurs within eighteen (18) months of Executive's termination. 5. Restrictive Covenant. 5.1 Noncompetition. Executive agrees that he will not, during his employment with the Company and for a period of two years after commencement of the payment to him of the Severance Benefit, directly or indirectly become interested in, as a principal shareholder, director, or officer, any financial institution, now existing or organized hereafter, that competes or will compete with the Company, including any successor, or any of the Company's affiliates within any county in which the Company does business; provided that Executive's covenant not to compete shall terminate in the event Executive waives the right to payment of any balance of the Severance Benefit then payable; and provided further, that Executive shall not be deemed a "principal shareholder" unless (i) his investment in such an institution exceeds 2% of the institution's outstanding voting securities or (ii) Executive is active in the organization, management or affairs of such institution. The provisions restricting competition by Executive may be waived by action of the Board. Executive recognizes and agrees that any breach of this covenant by Executive will cause immediate and irreparable injury to the Company, and Executive hereby authorizes recourse by the Company to injunction and/or specific performance, as well as to other legal or equitable remedies to which the Company may be entitled. 5.2 Noninterference. During the noncompetition period described in Section 5.1, Executive shall not solicit or attempt to solicit any other employee of the Company or its affiliates to leave the employ of those companies, or in any way interfere with the relationship between the Company and any other employee of the Company. 5.3 Interpretation. If a court or any other administrative body with jurisdiction over a dispute related to this Agreement should determine 2 that the restrictive covenant set forth in Section 5.1 above is unreasonably broad, the parties hereby authorize and direct said court or administrative body to narrow same so as to make it reasonable, given all relevant circumstances, and to enforce same. The covenants in this paragraph shall survive termination of this Agreement. 6. Definitions. 6.1. Cause. "Cause" shall mean only (i) willful misfeasance or gross negligence in the performance of Executive's duties, (ii) conduct demonstrably and significantly harmful to the Company (which would include willful violation of any final cease and desist order applicable to the Company), or (iii) conviction of a felony. 6.2. Change of Control. "Change of Control" shall mean the occurrence of one or more of the following events: 6.2.1. One person or entity acquiring or otherwise becoming the owner of twenty-five percent (25%) or more of CBSI's outstanding common stock; 6.2.2. Replacement of incumbent directors or election of newly-elected directors constituting a majority of the Board of CBSI where such replacement or election has not been supported by the Board; or 6.2.3. Dissolution, or sale of fifty percent (50%) or more in value of the assets, of either CBSI or the Bank or any of their respective subsidiaries. 6.3 Good Reason. "Good Reason" shall mean (i) any reduction of Executive's salary or any reduction or elimination of any other compensation or benefit plan, which reduction or elimination is not of general application to substantially all employees of the Company or such employees of any successor entity or of any entity in control of the Company, (ii) any changes in Executive's authority or duties substantially inconsistent with Executive's position, or (iii) any transfer to a location more than thirty miles from Executive's then office location. 7. Miscellaneous. 7.1 This Agreement contains the entire agreement between the parties with respect to the subject matter, and is subject to modification or amendment only upon amendment in writing signed by both parties. 7.2 This Agreement shall bind and inure to the benefit of the heirs, legal representatives, successors, and assigns of the parties. 7.3 If any provision of this Agreement is invalid or otherwise unenforceable, all other provisions shall remain unaffected and shall be enforceable to the fullest extent permitted by law. 7.4 This Agreement is made with reference to and is intended to be construed in accordance with the laws of the State of Washington. Venue 3 for any action arising out of or concerning this Agreement shall lie in Pierce County, Washington. In the event of a dispute under this Agreement, the dispute shall be arbitrated pursuant to the Superior Court Mandatory Arbitration Rules ("MAR") adopted by the Washington State Supreme Court, irrespective of the amount in controversy. This Agreement shall be deemed as stipulation to that effect pursuant to MAR 1.2 and 8.1 The arbitrator, in his or her discretion, may award attorney's fees to the prevailing party or parties. 7.5 Any notice required to be given under this Agreement to either party shall be given by personal service or by depositing a copy thereof in the United States registered or certified mail, postage prepaid, addressed to the following address, or such other address as addressee shall designate in writing: Company: Columbia Banking System, Inc. 1102 Broadway Plaza Tacoma, WA 98401 Attn: Corporate Secretary Executive: Evans Q. Whitney _________________ IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date first above written. COLUMBIA BANKING SYSTEM, INC. By: /s/ W.W. Philip Its: Chairman and CEO COLUMBIA STATE BANK By: /s/ W.W. Philip Its: Chairman and CEO EXECUTIVE /s/ Evans Q. Whitney Evans Q. Whitney 4 Exhibit 10(f) SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective this 23 day of June, 1999, by and among COLUMBIA BANKING SYSTEM, INC., a Washington corporation ("CBSI"), COLUMBIA STATE BANK, a Washington banking corporation (the "Bank") and GARY R. SCHMINKEY ("Executive"). RECITALS 1. CBSI and the Bank (collectively referred to as the "Company") currently receive the exclusive services of Executive as its employee, and both the Company and Executive desire that this employment relationship continue. 2. The Company desires to provide a severance benefit to Executive (i) to encourage Executive to continue his employment relationship with the Company; (ii) to continue obtaining his services in the event of a potential Change in Control (as defined below) of the Company that may be detrimental to the Executive; and (iii) to allow the Company to maximize the benefits obtainable by its shareholders from any Change in Control. In consideration of the mutual promises, covenants, agreements and undertakings contained in this Agreement, the parties hereby contract and agree as follows: AGREEMENT 1. Term. The term of this Agreement ("Term") shall commence as of the date first above written and shall end on the earlier of the termination of Executive's employment in a manner that does not constitute a Termination Event or on the fifth anniversary of the date first above written, unless extended in writing by the parties. 2. Severance Benefit. 2.1. Determination of Benef it. In the case of a Termination Event, as defined in Section 4, (i) the Company shall pay to Executive all salary and benefits earned through the effective date of Executive's termination and a severance benefit ("Severance Benefit") in an amount equal to two times the amount of Executive's then-current annual base salary, and (ii) vesting of all stock options and lapse of all restrictions with respect to restricted stock awards shall occur. Payment of the Severance Benefit shall begin, and vesting and lapse of restrictions described in the preceding sentence shall occur, (i) in the case of a Termination Event described in paragraph 4.1, upon the effective date of termination, and (ii) in the case of an Termination Event described in paragraph 4.2, upon the effective date of the Change of Control which is then pending (or announced within sixty days) of the date when the Executive's employment terminated. The Severance Benefit shall be paid over a two year period in equal regular periodic payments without interest on the same dates that other salaried employees of the Company are paid. 2.2. Reimbursement of Excise Tax. In the event that performance in accordance with the provisions of this Agreement results in imposition of a tax on Executive under the provisions of Internal Revenue Code # 4999, 1 Employer agrees to reimburse Executive for the same, exclusive of any tax imposed by reason of receipt of reimbursement under this Agreement. 3. Other Compensation and Terms of Employment. Except with respect to the Severance Payment, this Agreement shall have no effect on the determination of any compensation payable by the Company to the Executive, or upon any of the other terms of Executive's employment with the Company. 4. Termination Events. A Termination Event shall be deemed to occur upon, and only upon, one or more of the following: 4.1 Termination of Executive's employment by the Company without Cause (as defined below) or by Executive for Good Reason (as defined below) within 730 days following the effective date of a Change of Control; or 4.2 Termination of Executive's employment by the Company without Cause prior to a Change of Control if such termination occurs at any time from and after sixty days prior to the public announcement by the Company or any other party of a transaction which will result in a Change of Control; provided that the effective date of the Change of Control occurs within eighteen (18) months of Executive's termination. 5. Restrictive Covenant. 5.1 Noncompetition. Executive agrees that he will not, during his employment with the Company and for a period of two years after commencement of the payment to him of the Severance Benefit, directly or indirectly become interested in, as a principal shareholder, director, or officer, any financial institution, now existing or organized hereafter, that competes or will compete with the Company, including any successor, or any of the Company's affiliates within any county in which the Company does business; provided that Executive's covenant not to compete shall terminate in the event Executive waives the right to payment of any balance of the Severance Benefit then payable; and provided further, that Executive shall not be deemed a "principal shareholder" unless (i) his investment in such an institution exceeds 2% of the institution's outstanding voting securities or (ii) Executive is active in the organization, management or affairs of such institution. The provisions restricting competition by Executive may be waived by action of the Board. Executive recognizes and agrees that any breach of this covenant by Executive will cause immediate and irreparable injury to the Company, and Executive hereby authorizes recourse by the Company to injunction and/or specific performance, as well as to other legal or equitable remedies to which the Company may be entitled. 5.2 Noninterference. During the noncompetition period described in Section 5.1, Executive shall not solicit or attempt to solicit any other employee of the Company or its affiliates to leave the employ of those companies, or in any way interfere with the relationship between the Company and any other employee of the Company. 5.3 Interpretation. If a court or any other administrative body with jurisdiction over a dispute related to this Agreement should 2 determine that the restrictive covenant set forth in Section 5.1 above is unreasonably broad, the parties hereby authorize and direct said court or administrative body to narrow same so as to make it reasonable, given all relevant circumstances, and to enforce same. The covenants in this paragraph shall survive termination of this Agreement. 6. Definitions. 6.1. Cause. "Cause" shall mean only (i) willful misfeasance or gross negligence in the performance of Executive's duties, (ii) conduct demonstrably and significantly harmful to the Company (which would include willful violation of any final cease and desist order applicable to the Company), or (iii) conviction of a felony. 6.2. Change of Control. "Change of Control" shall mean the occurrence of one or more of the following events: 6.2.1. One person or entity acquiring or otherwise becoming the owner of twenty-five percent (25%) or more of CBSI's outstanding common stock; 6.2.2. Replacement of incumbent directors or election of newly-elected directors constituting a majority of the Board of CBSI where such replacement or election has not been supported by the Board; or 6.2.3. Dissolution, or sale of fifty percent (50%) or more in value of the assets, of either CBSI or the Bank. 6.3 Good Reason. "Good Reason" shall mean (i) any reduction of Executive's salary or any reduction or elimination of any other compensation or benefit plan, which reduction or elimination is not of general application to substantially all employees of the Company or such employees of any successor entity or of any entity in control of the Company, (ii) any changes in Executive's authority or duties substantially inconsistent with Executive's position, or (iii) any transfer to a location more than thirty miles from Executive's then office location. 7. Miscellaneous. 7.1 This Agreement contains the entire agreement between the parties with respect to the subject matter, and is subject to modification or amendment only upon amendment in writing signed by both parties. 7.2 This Agreement shall bind and inure to the benefit of the heirs, legal representatives, successors, and assigns of the parties. 7.3 If any provision of this Agreement is invalid or otherwise unenforceable, all other provisions shall remain unaffected and shall be enforceable to the fullest extent permitted by law. 7.4 This Agreement is made with reference to and is intended to be construed in accordance with the laws of the State of Washington. Venue 3 for any action arising out of or concerning this Agreement shall lie in Pierce County, Washington. In the event of a dispute under this Agreement, the dispute shall be arbitrated pursuant to the Superior Court Mandatory Arbitration Rules ("MAR") adopted by the Washington State Supreme Court, irrespective of the amount in controversy. This Agreement shall be deemed as stipulation to that effect pursuant to MAR 1.2 and 8.1 The arbitrator, in his or her discretion, may award attorney's fees to the prevailing party or parties. 7.5 Any notice required to be given under this Agreement to either party shall be given by personal service or by depositing a copy thereof in the United States registered or certified mail, postage prepaid, addressed to the following address, or such other address as addressee shall designate in writing: Company: Columbia Banking System, Inc. 1102 Broadway Plaza Tacoma, WA 98401 Attn: Corporate Secretary Executive: Gary R. Schminkey ___________________ IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date first above written. COLUMBIA BANKING SYSTEM, INC. By: /s/ W.W. Philip Its: Chairman and CEO COLUMBIA STATE BANK By: /s/ W.W. Philip Its: Chairman and CEO EXECUTIVE /s/ Gary R. Schminkey Gary R. Schminkey 4 Exhibit 10(g) SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective this 23 day of June, 1999, by and among COLUMBIA BANKING SYSTEM, INC., a Washington corporation ("CBSI"), COLUMBIA STATE BANK, a Washington banking corporation (the "Bank") and DONALD A. ANDERSEN ("Executive"). RECITALS 1. CBSI and the Bank (collectively referred to as the "Company") currently receive the exclusive services of Executive as its employee, and both the Company and Executive desire that this employment relationship continue. 2. The Company desires to provide a severance benefit to Executive (i) to encourage Executive to continue his employment relationship with the Company; (ii) to continue obtaining his services in the event of a potential Change in Control (as defined below) of the Company that may be detrimental to the Executive; and (iii) to allow the Company to maximize the benefits obtainable by its shareholders from any Change in Control. In consideration of the mutual promises, covenants, agreements and undertakings contained in this Agreement, the parties hereby contract and agree as follows: AGREEMENT 1. Term. The term of this Agreement ("Term") shall commence as of the date first above written and shall end on the earlier of the termination of Executive's employment in a manner that does not constitute a Termination Event or on the fifth anniversary of the date first above written, unless extended in writing by the parties. 2. Severance Benefit. In the case of a Termination Event, as defined in Section 4, (i) the Company shall pay to Executive all salary and benefits earned through the effective date of Executive's termination and a severance benefit ("Severance Benefit") in an amount equal to the amount of Executive's then-current annual base salary, and (ii) vesting of all stock options and lapse of all restrictions with respect to restricted stock awards shall occur. Payment of the Severance Benefit shall begin, and vesting and lapse of restrictions described in the preceding sentence shall occur, (i) in the case of a Termination Event described in paragraph 4.1, upon the effective date of termination, and (ii) in the case of an Termination Event described in paragraph 4.2, upon the effective date of the Change of Control which is then pending (or announced within sixty days) of the date when the Executive's employment terminated. The Severance Benefit shall be paid over a one year period in equal regular periodic payments without interest on the same dates that other salaried employees of the Company are paid. 3. Other Compensation and Terms of Employment. Except with respect to the Severance Payment, this Agreement shall have no effect on the determination of any compensation payable by the Company to the Executive, or upon any of the other terms of Executive's employment with the Company. 1 4. Termination Events. A Termination Event shall be deemed to occur upon, and only upon, one or more of the following: 4.1 Termination of Executive's employment by the Company without Cause (as defined below) or by Executive for Good Reason (as defined below) within 730 days following the effective date of a Change of Control; or 4.2 Termination of Executive's employment by the Company without Cause prior to a Change of Control if such termination occurs at any time from and after sixty days prior to the public announcement by the Company or any other party of a transaction which will result in a Change of Control; provided that the effective date of the Change of Control occurs within eighteen (18) months of Executive's termination. 5. Restrictive Covenant. 5.1 Noncompetition. Executive agrees that he will not, during his employment with the Company and for a period of one year after commencement of the payment to him of the Severance Benefit, directly or indirectly become interested in, as a principal shareholder, director, or officer, any financial institution, now existing or organized hereafter, that competes or will compete with the Company, including any successor, or any of the Company's affiliates within any county in which the Company does business; provided that Executive's covenant not to compete shall terminate in the event Executive waives the right to payment of any balance of the Severance Benefit then payable; and provided further, that Executive shall not be deemed a "principal shareholder" unless (i) his investment in such an institution exceeds 2% of the institution's outstanding voting securities or (ii) Executive is active in the organization, management or affairs of such institution. The provisions restricting competition by Executive may be waived by action of the Board. Executive recognizes and agrees that any breach of this covenant by Executive will cause immediate and irreparable injury to the Company, and Executive hereby authorizes recourse by the Company to injunction and/or specific performance, as well as to other legal or equitable remedies to which the Company may be entitled. 5.2 Noninterference. During the noncompetition period described in Section 5.1, Executive shall not solicit or attempt to solicit any other employee of the Company or its affiliates to leave the employ of those companies, or in any way interfere with the relationship between the Company and any other employee of the Company. 5.3 Interpretation. If a court or any other administrative body with jurisdiction over a dispute related to this Agreement should determine that the restrictive covenant set forth in Section 5.1 above is unreasonably broad, the parties hereby authorize and direct said court or administrative body to narrow same so as to make it reasonable, given all relevant circumstances, and to enforce same. The covenants in this paragraph shall survive termination of this Agreement. 2 6. Definitions. 6.1. Cause. "Cause" shall mean only (i) willful misfeasance or gross negligence in the performance of Executive's duties, (ii) conduct demonstrably and significantly harmful to the Company (which would include willful violation of any final cease and desist order applicable to the Company), or (iii) conviction of a felony. 6.2. Change of Control. "Change of Control" shall mean the occurrence of one or more of the following events: 6.2.1. One person or entity acquiring or otherwise becoming the owner of twenty-five percent (25%) or more of CBSI's outstanding common stock; 6.2.2. Replacement of incumbent directors or election of newly-elected directors constituting a majority of the Board of CBSI where such replacement or election has not been supported by the Board; or 6.2.3. Dissolution, or sale of fifty percent (50%) or more in value of the assets, of either CBSI or the Bank. 6.3 Good Reason. "Good Reason" shall mean (i) any reduction of Executive's salary or any reduction or elimination of any other compensation or benefit plan, which reduction or elimination is not of general application to substantially all employees of the Company or such employees of any successor entity or of any entity in control of the Company, (ii) any changes in Executive's authority or duties substantially inconsistent with Executive's position, or (iii) any transfer to a location more than thirty miles from Executive's then office location. 7. Miscellaneous. 7.1 This Agreement contains the entire agreement between the parties with respect to the subject matter, and is subject to modification or amendment only upon amendment in writing signed by both parties. 7.2 This Agreement shall bind and inure to the benefit of the heirs, legal representatives, successors, and assigns of the parties. 7.3 If any provision of this Agreement is invalid or otherwise unenforceable, all other provisions shall remain unaffected and shall be enforceable to the fullest extent permitted by law. 7.4 This Agreement is made with reference to and is intended to be construed in accordance with the laws of the State of Washington. Venue for any action arising out of or concerning this Agreement shall lie in Pierce County, Washington. In the event of a dispute under this Agreement, the dispute shall be arbitrated pursuant to the Superior Court Mandatory Arbitration Rules ("MAR") adopted by the Washington State Supreme Court, irrespective of the amount in controversy. This Agreement shall be deemed 3 as stipulation to that effect pursuant to MAR 1.2 and 8.1 The arbitrator, in his or her discretion, may award attorney's fees to the prevailing party or parties. 7.5 Any notice required to be given under this Agreement to either party shall be given by personal service or by depositing a copy thereof in the United States registered or certified mail, postage prepaid, addressed to the following address, or such other address as addressee shall designate in writing: Company: Columbia Banking System, Inc. 1102 Broadway Plaza Tacoma, WA 98401 Attn: Corporate Secretary Executive: Donald A. Andersen ________________________ IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date first above written. COLUMBIA BANKING SYSTEM, INC. By: /s/ W.W. Philip Its: Chairman and CEO COLUMBIA STATE BANK By: /s/ W.W. Philip Its: Chairman and CEO EXECUTIVE /s/ Donald A. Andersen Donald A. Andersen 4 Exhibit 10(h) SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into effective this 23 day of June, 1999, by and among COLUMBIA BANKING SYSTEM, INC., a Washington corporation ("CBSI"), COLUMBIA STATE BANK, a Washington banking corporation (the "Bank") and JANET D. HILDEBRAND ("Executive"). RECITALS 1. CBSI and the Bank (collectively referred to as the "Company") currently receive the exclusive services of Executive as its employee, and both the Company and Executive desire that this employment relationship continue. 2. The Company desires to provide a severance benefit to Executive (i) to encourage Executive to continue her employment relationship with the Company; (ii) to continue obtaining her services in the event of a potential Change in Control (as defined below) of the Company that may be detrimental to the Executive; and (iii) to allow the Company to maximize the benefits obtainable by its shareholders from any Change in Control. In consideration of the mutual promises, covenants, agreements and undertakings contained in this Agreement, the parties hereby contract and agree as follows: AGREEMENT 1. Term. The term of this Agreement ("Term") shall commence as of the date first above written and shall end on the earlier of the termination of Executive's employment in a manner that does not constitute a Termination Event or on the fifth anniversary of the date first above written, unless extended in writing by the parties. 2. Severance Benefit. In the case of a Termination Event, as defined in Section 4, (i) the Company shall pay to Executive all salary and benefits earned through the effective date of Executive's termination and a severance benefit ("Severance Benefit") in an amount equal to the amount of Executive's then-current annual base salary, and (ii) vesting of all stock options and lapse of all restrictions with respect to restricted stock awards shall occur. Payment of the Severance Benefit shall begin, and vesting and lapse of restrictions described in the preceding sentence shall occur, (i) in the case of a Termination Event described in paragraph 4.1, upon the effective date of termination, and (ii) in the case of an Termination Event described in paragraph 4.2, upon the effective date of the Change of Control which is then pending (or announced within sixty days) of the date when the Executive's employment terminated. The Severance Benefit shall be paid over a one year period in equal regular periodic payments without interest on the same dates that other salaried employees of the Company are paid. 3. Other Compensation and Terms of Employment. Except with respect to the Severance Payment, this Agreement shall have no effect on the determination of any compensation payable by the Company to the Executive, or upon any of the other terms of Executive's employment with the Company. 1 4. Termination Events. A Termination Event shall be deemed to occur upon, and only upon, one or more of the following: 4.1 Termination of Executive's employment by the Company without Cause (as defined below) or by Executive for Good Reason (as defined below) within 730 days following the effective date of a Change of Control; or 4.2 Termination of Executive's employment by the Company without Cause prior to a Change of Control if such termination occurs at any time from and after sixty days prior to the public announcement by the Company or any other party of a transaction which will result in a Change of Control; provided that the effective date of the Change of Control occurs within eighteen (18) months of Executive's termination. 5. Restrictive Covenant. 5.1 Noncompetition. Executive agrees that he will not, during her employment with the Company and for a period of one year after commencement of the payment to her of the Severance Benefit, directly or indirectly become interested in, as a principal shareholder, director, or officer, any financial institution, now existing or organized hereafter, that competes or will compete with the Company, including any successor, or any of the Company's affiliates within any county in which the Company does business; provided that Executive's covenant not to compete shall terminate in the event Executive waives the right to payment of any balance of the Severance Benefit then payable; and provided further, that Executive shall not be deemed a "principal shareholder" unless (i) her investment in such an institution exceeds 2% of the institution's outstanding voting securities or (ii) Executive is active in the organization, management or affairs of such institution. The provisions restricting competition by Executive may be waived by action of the Board. Executive recognizes and agrees that any breach of this covenant by Executive will cause immediate and irreparable injury to the Company, and Executive hereby authorizes recourse by the Company to injunction and/or specific performance, as well as to other legal or equitable remedies to which the Company may be entitled. 5.2 Noninterference. During the noncompetition period described in Section 5.1, Executive shall not solicit or attempt to solicit any other employee of the Company or its affiliates to leave the employ of those companies, or in any way interfere with the relationship between the Company and any other employee of the Company. 5.3 Interpretation. If a court or any other administrative body with jurisdiction over a dispute related to this Agreement should determine that the restrictive covenant set forth in Section 5.1 above is unreasonably broad, the parties hereby authorize and direct said court or administrative body to narrow same so as to make it reasonable, given all relevant circumstances, and to enforce same. The covenants in this paragraph shall survive termination of this Agreement. 2 6. Definitions. 6.1. Cause. "Cause" shall mean only (i) willful misfeasance or gross negligence in the performance of Executive's duties, (ii) conduct demonstrably and significantly harmful to the Company (which would include willful violation of any final cease and desist order applicable to the Company), or (iii) conviction of a felony. 6.2. Change of Control. "Change of Control" shall mean the occurrence of one or more of the following events: 6.2.1. One person or entity acquiring or otherwise becoming the owner of twenty-five percent (25%) or more of CBSI's outstanding common stock; 6.2.2. Replacement of incumbent directors or election of newly-elected directors constituting a majority of the Board of CBSI where such replacement or election has not been supported by the Board; or 6.2.3. Dissolution, or sale of fifty percent (50%) or more in value of the assets, of either CBSI or the Bank. 6.3 Good Reason. "Good Reason" shall mean (i) any reduction of Executive's salary or any reduction or elimination of any other compensation or benefit plan, which reduction or elimination is not of general application to substantially all employees of the Company or such employees of any successor entity or of any entity in control of the Company, (ii) any changes in Executive's authority or duties substantially inconsistent with Executive's position, or (iii) any transfer to a location more than thirty miles from Executive's then office location. 7. Miscellaneous. 7.1 This Agreement contains the entire agreement between the parties with respect to the subject matter, and is subject to modification or amendment only upon amendment in writing signed by both parties. 7.2 This Agreement shall bind and inure to the benefit of the heirs, legal representatives, successors, and assigns of the parties. 7.3 If any provision of this Agreement is invalid or otherwise unenforceable, all other provisions shall remain unaffected and shall be enforceable to the fullest extent permitted by law. 7.4 This Agreement is made with reference to and is intended to be construed in accordance with the laws of the State of Washington. Venue for any action arising out of or concerning this Agreement shall lie in Pierce County, Washington. In the event of a dispute under this Agreement, the dispute shall be arbitrated pursuant to the Superior Court Mandatory Arbitration Rules ("MAR") adopted by the Washington State Supreme Court, irrespective of the amount in controversy. This Agreement shall be deemed 3 as stipulation to that effect pursuant to MAR 1.2 and 8.1 The arbitrator, in his or her discretion, may award attorney's fees to the prevailing party or parties. 7.5 Any notice required to be given under this Agreement to either party shall be given by personal service or by depositing a copy thereof in the United States registered or certified mail, postage prepaid, addressed to the following address, or such other address as addressee shall designate in writing: Company: Columbia Banking System, Inc. 1102 Broadway Plaza Tacoma, WA 98401 Attn: Corporate Secretary Executive: Janet D. Hildebrand ________________________ IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date first above written. COLUMBIA BANKING SYSTEM, INC. By: /s/ W.W. Philip Its: Chai rman and CEO COLUMBIA STATE BANK By: /s/ W.W. Philip Its: Chairman and CEO EXECUTIVE /s/ Janet D. Hildebrand Janet D. Hildebrand 4 Exhibit 11 Statement re computation of per share net income Columbia Banking System, Inc.
Three Months Ended Six Months Ended June 30, June 30, (in thousands, except per share data) 1999 1998 1999 1998 - -------------------------------------------------------------------------------- Net income applicable to common stock $2,662 $2,548 $4,750 $4,961 - -------------------------------------------------------------------------------- Average number of basic common shares outstanding 10,590 10,529 10,587 10,513 Dilutive effect of stock options unexercised 269 377 273 358 - -------------------------------------------------------------------------------- Average number of diluted common shares outstanding 10,859 10,906 10,860 10,871 ================================================================================ Diluted net income per share $ 0.25 $ 0.23 $ 0.44 $ 0.46 ================================================================================
On April 28, 1999, the Company announced a 5% stock dividend payable on May 26, 1999, to shareholders of record on May 12, 1999. Average shares outstanding, net income per share and book value per share for all periods presented have been retroactively adjusted to give effect to this transaction. For additional information on earnings per share, please see the "Capital" section of the "Management's Discussion and Analysis of Financial Condition and Results of Operations". EX-27 2
9 FINANCIAL DATA SCHEDULE Columbia Banking System, Inc. (in thousands except per share) 0000887343 COLUMBIA BANKING SYSTEM, INC. 1000 $ 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1 58679 6688 0 0 84221 7479 0 934329 9981 1146938 990363 32250 6139 25000 0 0 77903 15283 1146938 36027 2855 154 39524 15581 16420 23104 1200 0 22085 7184 7184 0 0 4750 .45 .44 4.71 3161 0 1874 0 9002 314 93 9981 9981 0 314
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