10-Q 1 0001.txt FORM 10-Q ================================================================================ 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, 2000. / / 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 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 27, 2000 was 11,705,588 ================================================================================ TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION Page ---- Item 1. Condensed unaudited Financial statements Consolidated Condensed Statements of Operations - three months and six months ended June 30, 2000 and 1999 2 Consolidated Condensed Balance Sheets - June 30, 2000 and December 31, 1999 3 Consolidated Condensed Statements of Shareholders' Equity - twelve months ended December 31, 1999, and six months ended June 30, 2000 4 Consolidated Condensed Statements of Cash Flows - six months ended June 30, 2000 and 1999 5 Notes to consolidated financial statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk 20 PART II -- OTHER INFORMATION Item 4. Submission of matters to a vote of security holders 21 Item 6. Exhibits and reports on Form 8-K 21 Signatures 22 1 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS COLUMBIA BANKING SYSTEM, INC. (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, (IN THOUSANDS EXCEPT PER SHARE) 2000 1999 2000 1999 ---------------------------------------- ------- ------- ------- ------- INTEREST INCOME Loans $25,516 $18,548 $48,859 $36,027 Securities available for sale 1,390 1,416 2,779 2,855 Securities held to maturity 67 73 131 154 Deposits with banks 37 136 54 488 ---------------------------------------- ------- ------- ------- ------- Total interest income 27,010 20,173 51,823 39,524 INTEREST EXPENSE Deposits 11,287 7,864 21,296 15,581 Federal Home Loan Bank advances 1,141 499 2,032 839 Other borrowings 133 192 ---------------------------------------- ------- ------- ------- ------- Total interest expense 12,561 8,363 23,520 16,420 ---------------------------------------- ------- ------- ------- ------- NET INTEREST INCOME 14,449 11,810 28,303 23,104 Provision for loan losses 900 600 1,800 1,200 ---------------------------------------- ------- ------- ------- ------- Net interest income after provision for loan losses 13,549 11,210 26,503 21,904 NONINTEREST INCOME Service charges and other fees 1,488 1,479 3,016 2,751 Mortgage banking 245 297 400 653 Merchant services fees 910 647 1,682 1,157 Other 264 154 402 279 ---------------------------------------- ------- ------- ------- ------- Total noninterest income 2,907 2,577 5,500 4,840 NONINTEREST EXPENSE Compensation and employee benefits 5,736 4,829 11,310 9,668 Occupancy 1,542 1,631 3,133 3,278 Merchant processing 495 347 889 594 Advertising and promotion 371 474 812 914 Data processing 564 502 1,093 984 Taxes, licenses & fees 588 371 1,016 681 Other 1,988 1,610 3,854 3,441 ---------------------------------------- ------- ------- ------- ------- Total noninterest expense 11,284 9,764 22,107 19,560 ---------------------------------------- ------- ------- ------- ------- Income before income taxes 5,172 4,023 9,896 7,184 Provision for income taxes 1,781 1,361 3,409 2,434 ---------------------------------------- ------- ------- ------- ------- NET INCOME $ 3,391 $ 2,662 $ 6,487 $ 4,750 ======================================== ======= ======= ======= ======= Net income per common share: Basic $ 0.29 $ 0.23 $ 0.56 $ 0.41 Diluted 0.28 0.22 0.54 0.40 Average number of common shares outstanding 11,570 11,649 11,568 11,646 Average number of diluted common shares outstanding 11,917 11,945 11,921 11,946
See accompanying notes to consolidated condensed financial statements. 2 CONSOLIDATED CONDENSED BALANCE SHEETS COLUMBIA BANKING SYSTEM, INC. (UNAUDITED)
June 30, December 31, (IN THOUSANDS) 2000 1999 -------------------------------------------------------------------------- ---------- ---------- ASSETS Cash and due from banks $ 57,369 $ 43,027 Interest-earning deposits with banks 3,430 170 -------------------------------------------------------------------------- ---------- ---------- Total cash and cash equivalents 60,799 43,197 Securities available for sale (fair value) 80,644 81,029 Securities held to maturity (fair value of $7,034 and $7,040 respectively) 7,094 7,084 Federal Home Loan Bank stock 8,267 6,916 Loans held for sale 13,641 5,479 Loans, net of unearned income 1,156,890 1,048,006 Less: allowance for loan losses 12,072 9,967 -------------------------------------------------------------------------- ---------- ---------- Loans, net 1,144,818 1,038,039 Interest receivable 9,282 7,609 Premises and equipment, net 47,949 39,166 Real estate owned 1,285 1,263 Other 7,736 7,375 -------------------------------------------------------------------------- ---------- ---------- Total Assets $1,381,515 $1,237,157 ========================================================================== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing $ 209,243 $ 181,716 Interest-bearing 969,739 861,828 -------------------------------------------------------------------------- ---------- ---------- Total deposits 1,178,982 1,043,544 Federal Home Loan Bank advances 79,000 83,700 Other borrowings 6,500 3,000 Other liabilities 10,654 7,699 -------------------------------------------------------------------------- ---------- ---------- Total liabilities 1,275,136 1,137,943 Shareholders' equity: Preferred stock (no par value) Authorized, 2 million shares; none outstanding June 30, December 31, 2000 1999 ---------- ---------- Common stock (no par value) Authorized shares 51,975 51,975 Issued and outstanding 11,692 10,603 91,331 78,285 Retained earnings 18,066 23,916 Accumulated other comprehensive income (loss): Unrealized losses on securities available for sale, net of tax (3,018) (2,987) -------------------------------------------------------------------------- ---------- ---------- Total shareholders' equity 106,379 99,214 -------------------------------------------------------------------------- ---------- ---------- Total Liabilities and Shareholders' Equity $1,381,515 $1,237,157 ========================================================================== ========== ==========
See accompanying notes to consolidated condensed financial statements. 3 CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY COLUMBIA BANKING SYSTEM, INC. (UNAUDITED)
Common stock Accumulated ---------------------- Other Total Number of Retained Comprehensive Shareholders' (IN THOUSANDS) Shares Amount Earnings Income(Loss) Equity --------------------------------------------------- -------- -------- -------- -------- -------- BALANCE AT JANUARY 1, 1999 10,050 $ 68,612 $ 20,616 $ 338 $ 89,566 Comprehensive income: Net income for 1999 11,670 Change in unrealized gains and (losses) on securities available for sale, net of tax (3,325) Total comprehensive income 8,345 Issuance of stock under stock option and other plans 49 1,303 1,303 Issuance of shares of common stock-- 5% stock dividend 504 8,370 (8,370) --------------------------------------------------- -------- -------- -------- -------- -------- BALANCE AT DECEMBER 31, 1999 10,603 78,285 23,916 (2,987) 99,214 --------------------------------------------------- -------- -------- -------- -------- -------- Comprehensive income: Net income for 2000 6,487 Change in unrealized gains and (losses) on securities available for sale, net of tax (31) Total comprehensive income 6,456 Issuance of stock under stock option and other plans 28 331 331 Tax benefits from prior year exercise of stock options 378 378 Issuance of shares of common stock-- 10% stock dividend 1,061 12,337 (12,337) --------------------------------------------------- -------- -------- -------- -------- -------- BALANCE AT JUNE 30, 2000 11,692 $ 91,331 $ 18,066 ($ 3,018) $106,379 =================================================== ======== ======== ======== ======== ========
See accompanying notes to consolidated condensed financial statements. 4 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS COLUMBIA BANKING SYSTEM, INC. (UNAUDITED)
Six Months Ended June 30, (IN THOUSANDS) 2000 1999 --------------------------------------------------------------------------- --------- --------- OPERATING ACTIVITIES Net income $ 6,487 $ 4,750 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,800 1,200 Depreciation and amortization 1,048 1,389 Deferred income tax (benefit) expense (75) (1,066) (Increase) decrease in loans held for sale (8,162) 3,380 (Increase) Decrease in interest receivable (1,673) (524) Increase in interest payable 3,496 525 Net changes in other assets and liabilities (816) (1,769) --------------------------------------------------------------------------- --------- --------- Net cash provided by operating activities 2,105 7,885 INVESTING ACTIVITIES Proceeds from maturities of securities available for sale 23 14,109 Purchases of securities available for sale (8,151) Proceeds from maturities of mortgage-backed securities available for sale 324 204 Proceeds from maturities of securities held to maturity 280 860 Purchases of securities held to maturity (291) (1,980) Purchases of Federal Home Loan Bank stock (1,351) (580) Loans originated and acquired, net of principal collected (107,988) (105,854) Purchases of premises and equipment (10,453) (2,728) Other, net 6 (5) --------------------------------------------------------------------------- --------- --------- Net cash used by investing activities (119,450) (104,125) FINANCING ACTIVITIES Net increase in deposits 135,438 52,018 Net increase in long-term borrowings 3,500 Net increase (decrease) in Federal Home Loan Bank advances (4,700) 32,250 Proceeds from issuance of common stock, net 331 921 Tax benefits from prior year exercise of stock options 378 --------------------------------------------------------------------------- --------- --------- Net cash provided by financing activities 134,947 85,189 --------------------------------------------------------------------------- --------- --------- Increase (decrease) in cash and cash equivalents 17,602 (11,051) Cash and cash equivalents at beginning of period 43,197 76,418 --------------------------------------------------------------------------- --------- --------- Cash and cash equivalents at end of period $ 60,799 $ 65,367 =========================================================================== ========= ========= Supplemental information: Cash paid for interest $ 20,024 $ 15,895 Cash paid for income taxes 4,025 2,670 Loans foreclosed and transferred to real estate owned 22 402
See accompanying notes to consolidated condensed 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 consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting only of normal recurring accruals necessary for a fair presentation of the financial condition and the results of operations for the interim periods included herein have been made. The results of operations for the six months ended June 30, 2000, are not necessarily indicative of results to be anticipated for the year ending December 31, 2000. Certain amounts in the 1999 financial statements have been reclassified to conform with the 2000 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, 1999. 2. EARNINGS PER SHARE Earnings per share ("EPS") is computed using the weighted average number of common and diluted common shares outstanding during the period. Basic EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The primary reconciling items affecting the calculation of earnings per share is the inclusion of stock options affecting diluted earnings per share of 347,000 and 296,000 for the three months ended June 30, 2000 and 1999, respectively, and 353,000 and 300,000 for the six months ended June 30, 2000 and 1999, respectively. 3. STOCK DIVIDEND On April 25, 2000, the Company announced a 10% stock dividend payable on May 24, 2000, to shareholders of record as of May 10, 2000. Average shares outstanding and net income per share for all periods presented have been retroactively adjusted to give effect to this transaction. 4. BUSINESS SEGMENT INFORMATION The Company is managed along three major lines of business: commercial banking, retail banking, and real estate lending. The treasury function of the Company, although not considered a line of business, is responsible for the management of investments and interest rate risk. The principal activities conducted by commercial banking are the origination of commercial business loans and private banking services. Retail banking includes all deposit products, with their related fee income, and all consumer loan products as well as commercial loan products offered in the Bank's branch offices. Real estate lending includes single-family residential, multi-family residential, and commercial real estate loans, and the associated loan servicing activities. Prior to 1999, the Company was managed as one segment, not by discrete operating segments. Segment information for the three months and six months ended June 30, 1999, has been restated to conform with presentation of the Company's reportable segments at June 30, 2000. 6 The financial results of each segment were derived from the Company's general ledger system. Since the Company is not specifically organized around lines of business, most reportable segments are comprised of more than one operating segment. Expenses incurred directly by sales and back office support functions are not allocated to the major lines of business. Since the Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," requires no segmentation or methodology standardization, the organizational structure of the Company and its business line financial results are not necessarily comparable across companies. As such, the Company's business line performance may not be directly comparable with similar information from other financial institutions. Financial highlights by lines of business: CONDENSED STATEMENTS OF OPERATIONS:
THREE MONTHS ENDED JUNE 30, 2000 Commercial Retail Real Estate (IN THOUSANDS) Banking Banking Lending Other Total -------------------------------------------- ----------- ----------- ----------- ----------- ----------- Net interest income after provision for loan losses $ 2,420 $ 10,764 $ 1,391 $ (1,026) $ 13,549 Other income 141 1,048 247 1,471 2,907 Other expense (415) (3,394) (511) (6,964) (11,284) -------------------------------------------- ----------- ----------- ----------- ----------- ----------- Contribution to overhead and profit $ 2,146 $ 8,418 $ 1,127 $ (6,519) 5,172 Income taxes (1,781) -------------------------------------------- ----------- ----------- ----------- ----------- ----------- Net income $ 3,391 ============================================ =========== =========== =========== =========== =========== Total assets $ 363,174 $ 587,697 $ 301,560 $ 129,084 $ 1,381,515 ============================================ =========== =========== =========== =========== =========== THREE MONTHS ENDED JUNE 30, 1999 Commercial Retail Real Estate (IN THOUSANDS) Banking Banking Lending Other Total -------------------------------------------- ----------- ----------- ----------- ----------- ----------- Net interest income after provision for loan losses $ 2,437 $ 7,187 $ 1,865 $ (279) $ 11,210 Other income 131 964 305 1,177 2,577 Other expense (575) (3,206) (465) (5,518) (9,764) -------------------------------------------- ----------- ----------- ----------- ----------- ----------- Contribution to overhead and profit $ 1,993 $ 4,945 $ 1,705 $ (4,620) 4,023 Income taxes (1,361) -------------------------------------------- ----------- ----------- ----------- ----------- ----------- Net income $ 2,662 ============================================ =========== =========== =========== =========== =========== Total assets $ 322,821 $ 446,222 $ 239,142 $ 138,753 $ 1,146,938 ============================================ =========== =========== =========== =========== ===========
7 CONDENSED STATEMENTS OF OPERATIONS:
SIX MONTHS ENDED JUNE 30, 2000 Commercial Retail Real Estate (IN THOUSANDS) Banking Banking Lending Other Total -------------------------------------------- ----------- ----------- ----------- ----------- ----------- Net interest income after provision for loan losses $ 4,899 $ 20,393 $ 2,950 $ (1,739) $ 26,503 Other income 296 2,064 404 2,736 5,500 Other expense (1,044) (6,883) (1,041) (13,139) (22,107) -------------------------------------------- ----------- ----------- ----------- ----------- ----------- Contribution to overhead and profit $ 4,151 $ 15,574 $ 2,313 $ (12,142) 9,896 Income taxes (3,409) -------------------------------------------- ----------- ----------- ----------- ----------- ----------- Net income $ 6,487 ============================================ =========== =========== =========== =========== =========== Total assets $ 363,174 $ 587,697 $ 301,560 $ 129,084 $ 1,381,515 ============================================ =========== =========== =========== =========== =========== SIX MONTHS ENDED JUNE 30, 1999 Commercial Retail Real Estate (IN THOUSANDS) Banking Banking Lending Other Total -------------------------------------------- ----------- ----------- ----------- ----------- ----------- Net interest income after provision for loan losses $ 4,652 $ 13,815 $ 3,916 $ (479) $ 21,904 Other income 197 1,855 703 2,085 4,840 Other expense (1,178) (6,395) (987) (11,000) (19,560) -------------------------------------------- ----------- ----------- ----------- ----------- ----------- Contribution to overhead and profit $ 3,671 $ 9,275 $ 3,632 $ (9,394) 7,184 Income taxes (2,434) -------------------------------------------- ----------- ----------- ----------- ----------- ----------- Net income $ 4,750 ============================================ =========== =========== =========== =========== =========== Total assets $ 322,821 $ 446,222 $ 239,142 $ 138,753 $ 1,146,938 ============================================ =========== =========== =========== =========== ===========
8 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 unaudited consolidated financial statements of Columbia Banking System, Inc. (the "Company") and notes thereto presented elsewhere in this report. In the following discussion, unless otherwise noted, references to increases or decreases in average balances in items of income and expense for a particular period and balances at a particular date refer to the comparison with corresponding amounts for the period or date one year earlier. THIS DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS. SPECIFIC FACTORS INCLUDE, AMONG OTHERS, THE EFFECT OF INTEREST RATE CHANGES, RISK ASSOCIATED WITH ACQUIRING OTHER BANKS, OR OPENING AND ACQUIRING NEW BRANCHES, CONTROLLING EXPENSES, AND GENERAL ECONOMIC CONDITIONS. OVERVIEW 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 28 banking offices located in the Tacoma metropolitan area and contiguous parts of the Puget Sound region of Washington, as well as the Longview and Woodland communities in southwestern Washington. Substantially all of the Company's loans, loan commitments and core deposits are geographically concentrated in its service areas. Columbia Bank is a Washington state-chartered commercial bank, the deposits of which are insured by the Federal Deposit Insurance Corporation (the "FDIC"). The Bank is subject to regulation by the FDIC and the Washington State Department of Financial Institutions (Division of Banks). Although Columbia Bank is not a member of the Federal Reserve System, the Board of Governors of the Federal Reserve System has certain supervisory authority over the Company, which can also affect Columbia Bank. At June 30, 2000, the Company had total assets of $1.4 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 banking company while retaining the appeal and service level of a community bank. Management believes that as a result of the Company's strong commitment to highly personalized relationship-oriented customer service, its varied products, its strategic branch locations and the long-standing community presence of its managers, lending officers and branch personnel, it is well positioned to attract new customers and to increase its market share of loans, deposits, and other financial services. The Company has closely followed the recent changes to federal banking laws which allow financial institutions to engage in a broader range of activities than previously permitted. The new legislation also authorizes the creation of financial holding companies to facilitate such expanded activity. As the Company pursues its aggressive growth strategy, it is likely that the Company will utilize the new financial holding company structure to accommodate an expansion of its products and services. The Company intends to effect its growth strategy through a combination of growth at existing branch offices, new branch openings (usually following the hiring of an experienced branch manager and/or lending officer with strong community ties and banking relationships), Columbia On Call telephone banking, Columbia OnLine internet banking, development of complimentary lines of business, and acquisitions. In particular, the Company anticipates continued expansion in Pierce County, north into King County (the location of 9 Auburn and Bellevue), south into Thurston County (the location of the state capital, Olympia) and northwest into Kitsap County (the location of Port Orchard). Expansion by acquisition into other geographic and product line markets will be considered as promising situations arise. In order to fund its lending activities and to allow for increased contact with customers, the Company is establishing a branch system catering primarily to retail depositors, supplemented by business customer deposits and other borrowings. The Company believes this mix of funding sources will enable it to expand lending activities rapidly while attracting a stable core deposit base. In order to support its strategy of growth, without compromising its personalized banking approach or its commitment to asset quality, the Company has made significant investments in experienced branch, lending and administrative personnel and has incurred significant costs related to its branch expansion. Although the Company's expense ratios have improved since 1993, management anticipates that the expense ratios will remain relatively high by industry standards for the foreseeable future due to the Company's aggressive growth strategy and emphasis on convenience and personal service. Management has consistently emphasized control of noninterest expense. See the discussion of noninterest expense for further detail. In April 2000, Columbia Bank opened its third branch in the Auburn area with its newly constructed Forest Villa Branch. The Company's future plans include new locations in Pierce, King, Kitsap and Thurston counties of western Washington. Management continues to pursue opportunities for expansion via a combination of internal growth and external growth by acquisition. New branches normally do not contribute to net income for many months after opening. The Company has 28 branches, 15 in Pierce County, 7 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 to 28 branches from 4 primarily through internal and to a lesser degree, 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 financial services options. Also, new technology and services are reviewed for business development and cost saving purposes. The Company is now completing the testing phase of its new online banking module "Columbia On-Line", with plans for full operation by the end of the third quarter of 2000. Customers will be able to conduct a full range of services, including, balance inquiries, transfers, bill paying, and loan information. 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. RESULTS OF OPERATIONS The results of operations of the Company are dependent to a large degree on the Company's net interest income. The Company also generates noninterest income through service charges and fees, merchant services fees, and income from mortgage banking operations. The Company's operating expenses consist primarily of compensation and employee benefits expense, and occupancy expense. Like most financial institutions, the Company's interest income and cost of funds are affected significantly by general economic conditions, particularly changes in market interest rates, and by government policies and actions of regulatory authorities. Net income for the second quarter of 2000 was $3.4 million, or $0.28 per diluted share, compared to $2.7 million, or $0.22 per diluted share, for the second quarter of 1999, an increase in net income of 27%. Net income for the six months ended June 30, 2000, was $6.5 million, or $0.54 per diluted share, an increase of 37%, compared to $4.8 million, or $0.40 per diluted share for the same period in 1999. The earnings increase for the second quarter and six month periods reflect significant growth in total revenue (net interest income plus noninterest income), which was up 21% from both the second quarter and the six month periods ending 10 June 30, 1999, and to slower increases in noninterest expense, which increased 16% compared with the second quarter of 1999 and 13% from the six month period ending June 30, 1999. On April 25, 2000, the Company announced a 10% stock dividend payable on May 24, 2000, to shareholders of record as of May 12, 2000. Average shares outstanding and net income 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 2000 increased 22% to $14.4 million, from $11.8 million in the second quarter of 1999. For the six months ended June 30, 2000, net interest income increased 23% to $28.3 million from $23.1 million for the same period in 1999. 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 2000, average interest-earning assets increased $221.7 million, while average interest-bearing liabilities increased only $201.1 million, compared with the same period in 1999. Net interest income is up 4% from the first quarter to the second quarter of 2000. Net interest margin (net interest income divided by average interest-earning assets) decreased to 4.67% in the second quarter of 2000 from 4.70% in the second quarter of 1999. Average interest-earning assets grew to $1.2 billion during the second quarter of 2000, compared with $1.0 billion for the same period in 1999. The average yield on interest-earning assets increased 0.70% to 8.71% during the second quarter of 2000 from 8.01% in the same period of 1999. In comparison, the average cost of interest-bearing liabilities increased 0.77% to 4.84% during the second quarter of 2000 from 4.07% in the same period of 1999. For the first six months of 2000, net interest margin was unchanged at 4.71% from the same period in 1999. Average interest-earning assets grew to $1.2 billion during the first six months of 2000, compared with $992.3 million for the same period in 1999. The average yield on interest-earning assets increased 0.55% to 8.60% during the first six months of 2000 from 8.05% in the same period of 1999. In comparison, the average cost of interest-bearing liabilities increased 0.61% to 4.68% during the first nine months of 2000 from 4.07% in the same period of 1999. For the first six months of 2000, competition and increasing interest rates have caused loan yields to rise along with deposit and borrowing costs, causing the net interest margin to remain steady. Interest rates in general have exhibited an increasing trend since the middle of 1999 and during the first six months of 2000. During the past twelve months, although loan yields have risen with increases in the "prime rate", competition for deposits to fund continued strong loan demand within the Company's market areas has placed upward pressure on the cost of deposits and borrowings. To fund strong loan demand during the first six months of 2000, the Company has made greater use of borrowings from the FHLB of Seattle and wholesale certificates of deposit. The funding of new loan production at higher incremental rates, versus the Company's historical mix of deposits, has caused the average cost of interest-bearing liabilities to increase faster than the yield on interest-earning assets. 11 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) 2000 1999 Amount 2000 1999 Amount -------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ASSETS Loans $1,151,729 $ 899,818 $ 251,911 $1,116,732 $ 869,801 $ 246,931 Securities 95,566 100,441 (4,875) 95,479 101,885 (6,406) Interest-earning deposits with banks 2,383 11,449 (9,066) 1,753 20,587 (18,834) -------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Total interest-earning assets 1,249,678 1,011,708 237,970 1,213,964 992,273 221,691 Noninterest-earning assets 115,678 89,740 25,938 107,201 88,047 19,154 -------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Total assets $1,365,356 $1,101,448 $ 263,908 $1,321,165 $1,080,320 $ 240,845 ====================================== ========== ========== ========== ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits $ 968,198 $ 786,675 $ 181,523 $ 940,254 $ 776,809 $ 163,445 Federal Home Loan Bank advances 69,622 37,907 31,715 64,528 31,622 32,906 Other borrowings 6,500 6,500 4,788 4,788 -------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Total interest-bearing liabilities 1,044,320 824,582 219,738 1,009,570 808,431 201,139 Noninterest-bearing deposits 205,326 176,905 28,421 198,642 173,104 25,538 Other noninterest-bearing liabilities 10,705 6,596 4,109 9,776 6,439 3,337 Shareholders' equity 105,005 93,365 11,640 103,177 92,346 10,831 -------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Total liabilities and shareholders' equity $1,365,356 $1,101,448 $ 263,908 $1,321,165 $1,080,320 240,845 ====================================== ========== ========== ========== ========== ========== ==========
NONINTEREST INCOME Noninterest income increased $330,000, or 13%, in the second quarter of 2000, and $660,000, or 14%, for the first six months of 2000, compared with the same periods in 1999, respectively, despite decreases in residential mortgage loan originations due to the effect of higher long-term interest rates. Increases during the second quarter and the first six months of 2000, 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 overall growth of the Company. NONINTEREST EXPENSE Total noninterest expense increased $1.5 million, or 16%, for the second quarter of 2000, and $2.5 million, or 13%, for the first six months of 2000,compared with the same periods in 1999. The increase was primarily due to personnel costs associated with the Company's expansion as well as merchant services, taxes and licenses, 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 65.0% and 65.4% for the second quarter and first six months of 2000, respectively, compared to 67.9% and 70.0% for the same periods in 1999. There were no material unusual and nonrecurring items for the three and six months ending June 30, 2000 and 1999. INCOME TAXES For the second quarter and first six months of 2000, the Company recorded income tax provisions of $1.8 million and $3.4 million, respectively, compared with $1.4 million and $2.4 million for the same periods in 1999. 12 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 nonaccrual status even though the loan may be current as to principal and interest payments. Additionally, the Company would assess whether an impairment of a loan as provided in SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", would warrant establishing a specific reserve for the loan. Loan policies, credit quality criteria, portfolio guidelines and other controls are established under the guidance of the Company's chief credit officer and approved, as appropriate, by the Board. Credit Administration, together with appropriate loan committee, 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 the Company's 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. 13 LENDING ACTIVITIES The Company operates 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) 2000 Total 1999 Total -------------------------------------------------- ----------- -------- ----------- -------- Commercial $ 492,894 42.6% $ 426,060 40.6% Real estate: One-to four-family residential 63,348 5.5 64,669 6.2 Five or more family residential and commercial properties 408,738 35.3 377,708 36.0 -------------------------------------------------- ----------- -------- ----------- -------- Total real estate 472,086 40.8 442,377 42.2 Real estate construction: One-to four-family residential 38,435 3.3 32,742 3.1 Five or more family residential and commercial properties 51,213 4.4 45,886 4.4 -------------------------------------------------- ----------- -------- ----------- -------- Total real estate construction 89,648 7.7 78,628 7.5 Consumer 105,160 9.1 103,296 9.9 -------------------------------------------------- ----------- -------- ----------- -------- Sub-total loans 1,159,788 100.2 1,050,361 100.2 Less: Deferred loan fees (2,898) (0.2) (2,355) (0.2) -------------------------------------------------- ----------- -------- ----------- -------- Total loans $ 1,156,890 100.0% $ 1,048,006 100.0% ================================================== =========== ======== =========== ======== Loans held for sale $ 13,641 $ 5,479 ================================================== =========== ======== =========== ========
Total loans at June 30, 2000, increased $108.9 million, or 10%, to $1.2 billion from year-end 1999. Commercial loans and five or more family residential and commercial properties were the categories contributing a majority of the increase. COMMERCIAL LOANS: Commercial loans increased $66.8 million, or 16%, to $492.9 million from year-end 1999, representing 42.6% of total loans compared with 40.6% of total loans at December 31, 1999. Management is committed to providing competitive commercial lending in the Company's primary market areas. The Company expects to continue to expand its commercial lending products and to emphasize in particular its relationship banking with businesses, business owners and affluent individuals. REAL ESTATE LOANS: Residential one- to four-family loans decreased $1.3 million to $63.3 million at June 30, 2000, representing 5.5% of total loans, compared with $64.7 million, or 6.2% of total loans at December 31, 1999. These loans are used by the Company to collateralize advances from the FHLB. The Company's underwriting standards require that one- to four-family portfolio loans generally be owner-occupied and that loan amounts not exceed 80% (90% with private mortgage insurance) of the appraised value or cost, whichever is lower, of the underlying collateral at origination. Generally, management's policy is to originate for sale to third parties residential loans secured by properties located within the Company's primary market areas. The Company makes multi-family and commercial real estate loans in its primary market areas. Multi-family and commercial real estate lending increased $31.0 million, or 8%, to $408.7 million at June 30, 2000, representing 35.3% of total loans, from $377.7 million, or 36.0% of total loans at December 31, 1999. The increase in multi-family and commercial real estate lending in the first three months reflects a mix of owner occupied and income property transactions. Generally, multi-family and commercial real estate loans are made 14 only to borrowers who have existing banking relationships with the Company. The Company's underwriting standards generally require that the loan-to-value ratio for multi-family and commercial real estate loans not exceed 75% of appraised value or cost, whichever is lower, and that commercial properties maintain debt coverage ratios (net operating income divided by annual debt servicing) of 1.2 or better. Underwriting standards can be influenced by competition. The Company endeavors to maintain the highest practical underwriting standards while balancing the need to remain competitive in its lending practices. The Company originates a variety of real estate construction loans. One- to four-family residential construction loans are originated for the construction of custom homes (where the home buyer is the borrower) and provides financing to builders for the construction of pre-sold homes and speculative residential construction. Construction loans on one- to four-family residences increased $5.7 million to $38.4 million at June 30, 2000, representing 3.3% of total loans, from $32.7 million, or 3.1% of total loans at December 31, 1999. Multi-family and commercial real estate construction loans increased $5.3 million, or 12%, to $51.2 million at June 30, 2000 from $45.9 million at December 31, 1999, representing 4.4% of total loans for both ending periods. The Company endeavors to limit its construction lending risk through adherence to strict underwriting procedures. CONSUMER LENDING: At June 30, 2000, the Company had $105.2 million of consumer loans outstanding, representing 9.1% of total loans, as compared with $103.3 million, or 9.9%, at December 31, 1999. The balance at December 31, 1999, included approximately $6.0 million of short-term loans made to a group of individuals in connection with a single transaction which matured in February 2000. Consumer loans made by the Company include automobile loans, boat and recreational vehicle financing, home equity and home improvement loans and miscellaneous personal loans. Columbia Bank is not involved with loans to foreign companies and foreign countries. 15 NONPERFORMING ASSETS Nonperforming assets consist of: (i) nonaccrual loans, which generally are loans placed on a nonaccrual basis when the loan becomes past due 90 days or when there are otherwise serious doubts about the collectibility of principal or interest; (ii) restructured loans, for which concessions, including the reduction of interest rates below a rate otherwise available to that borrower or the deferral of interest or principal, have been granted due to the borrower's weakened financial condition (interest on restructured loans is accrued at the restructured rates when it is anticipated that no loss of original principal will occur); (iii) real estate owned. 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) 2000 1999 ---------------------------------------------------- ------ ------ Nonaccrual: One-to four-family residential $ 4 $ 23 Commercial real estate 2,183 1,784 Commercial business 4,114 2,176 Consumer 396 377 ---------------------------------------------------- ------ ------ Total 6,697 4,360 Restructured: One-to four-family residential construction 122 Commercial business 4 65 Consumer 17 ---------------------------------------------------- ------ ------ Total 21 187 ---------------------------------------------------- ------ ------ Total nonperforming loans $6,718 $4,547 ==================================================== ====== ====== Real estate owned $1,285 $1,263 ---------------------------------------------------- ------ ------ Total nonperforming assets $8,003 $5,810 ==================================================== ====== ====== Nonperforming loans increased $2.2 million to $6.7 million, or 0.58% of total loans (excluding loans held for sale) at June 30, 2000, from $4.5 million, or 0.43% of total loans at December 31, 1999, due principally to increases in the commercial business and commercial real estate categories. Restructured loans totaled $21,000 at June 30, 2000. Real estate owned, which is comprised of foreclosed real estate loans, increased $22,000 at June 30, 2000, from its balance of $1.3 million at December 31, 1999. During the second quarter of 2000, the Company foreclosed on a $34,000 residential land loan collateralized by real estate and transferred the real estate to REO. At June 30, 2000, REO consisted of three foreclosed properties. Total nonperforming assets totaled $8.0 million, or 58% of period-end assets, at June 30,2000, compared to $5.8 million, or .47% of period-end assets, at December 31, 1999. 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. 16 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 a minimum of 5 years. 2. Specific allowances for identified problem loans in accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." 3. Unallocated allowance that considers other potential losses inherent in the loan portfolio that are not contemplated in the formula based allowances. 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. At June 30, 2000, the Company's allowance for loan losses was $12.1 million, or 1.04% of the total loan portfolio (excluding loans held for sale), and 179.7% of nonperforming loans. This compares with an allowance of $10.0 million, or 0.95% of the total loan portfolio, and 219.2% of nonperforming loans, at December 31, 1999. The increase in the allowance as a percentage of loans was due primarily to the $1.8 million in loan loss provisions during the first six months of 2000. Net loan recoveries amounted to $305,000 for the first six months of 2000 compared with net loan charge-offs of $221,000 for the same period in 1999. During the first six months of 2000, the Company set aside a $1.8 million provision for loan losses as compared with $1.2 million for the same period in 1999. 17 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) 2000 1999 2000 1999 ------------------------------------------------ -------- -------- -------- -------- Beginning balance $ 10,897 $ 9,588 $ 9,967 $ 9,002 Charge-offs: One-to-four family residential construction (12) (12) (1) Commercial business (86) (233) (273) (281) Consumer (57) (8) (116) (32) ------------------------------------------------ -------- -------- -------- -------- Total charge-offs (155) (241) (401) (314) Recoveries: Commercial business 429 2 694 57 Consumer 1 32 12 36 ------------------------------------------------ -------- -------- -------- -------- Total recoveries 430 34 706 93 ------------------------------------------------ -------- -------- -------- -------- Net (charge-offs) recoveries 275 (207) 305 (221) Provision charged to expense 900 600 1,800 1,200 ------------------------------------------------ -------- -------- -------- -------- Ending balance $ 12,072 $ 9,981 $ 12,072 $ 9,981 ================================================ ======== ======== ======== ========
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 $135.4 million, or 13%, to $1.2 billion at June 30, 2000 from $1.0 billion at December 31, 1999. The Company has established a branch system catering primarily to retail depositors, supplemented by business customer deposits and other borrowings. The branch system deposits are intended to provide a stable core funding base for the Company. Together with that stable core deposit base, management's strategy for funding growth is also to make use of brokered and other wholesale deposits. The Company's use of brokered and other wholesale deposits increased in 1999 and 2000, and management anticipates continued use of such deposits to fund increasing loan demand. At June 30, 2000, brokered and other wholesale deposits (excluding public deposits) totaled $53.6 million, or 5% of total deposits, compared with $25.3 million, or 2.4% of total deposits at December 31, 1999. The brokered deposits have varied maturities up to 5 years. BORROWINGS The Company relies on FHLB advances to supplement its funding sources, and the FHLB serves as the Company's primary source of long-term borrowings. In addition, the Company uses short-term borrowings from the FHLB when necessary. FHLB advances are secured by one- to four-family real estate mortgages and certain other assets. At June 30, 2000, the Company had short-term advances of $79.0 million compared to a balance of $83.7 million at December 31, 1999. Management anticipates that the Company will continue to rely on the same sources of funds in the future, and will use those funds primarily to make loans and purchase securities. 18 The Company maintains a borrowing relationship with a third party financial institution to fund the liquidity needs of the Company and to provide for the capital needs of Columbia Bank. At June 30, 2000, the Company had $6.5 million in long-term borrowings from that institution. CAPITAL Shareholders' equity at June 30, 2000, was $106.4 million compared with $99.2 million at December 31, 1999. The increase is due primarily to net income of $6.5 million during the first six months of 2000. Shareholders' equity was 7.70% and 8.02% of total period-end assets at June 30, 2000, and December 31, 1999, respectively. Banking regulations require bank holding companies to maintain a minimum "leverage" ratio of core capital to adjusted quarterly average total assets of at least 3%. At June 30, 2000, the Company's leverage ratio was 8.01%, compared with 8.46% at December 31, 1999. In addition, banking regulators have adopted risk-based capital guidelines, under which risk percentages are assigned to various categories of assets and off-balance sheet items to calculate a risk-adjusted capital ratio. Tier I capital generally consists of common shareholders' equity, less goodwill and certain identifiable intangible assets, while Tier II capital includes the allowance for loan losses and subordinated debt, both subject to certain limitations. Regulatory minimum risk-based capital guidelines require Tier I capital of 4% of risk-adjusted assets and total capital (combined Tier I and Tier II) of 8% of risk-adjusted assets to be considered "adequately capitalized". The Company's Tier I and total capital ratios were 8.71% and 9.67%, respectively, at June 30, 2000, compared with 9.12% and 10.01%, respectively, at December 31, 1999. During 1992, the Federal Deposit Insurance Corporation (the "FDIC") published the qualifications necessary to be classified as a "well capitalized" bank, primarily for assignment of FDIC insurance premium rates beginning in 1993. To qualify as "well capitalized," banks must have a Tier I risk-adjusted capital ratio of at least 6%, a total risk-adjusted capital ratio of at least 10%, and a leverage ratio of at least 5%. Columbia Bank qualified as "well-capitalized" at June 30, 2000. Failure to qualify as "well capitalized" can negatively impact a bank's ability to expand and to engage in certain activities. Applicable federal and Washington state regulations restrict capital distributions by institutions such as Columbia Bank, including dividends. Such restrictions are tied to the institution's capital levels after giving effect to distributions. The Company's ability to pay cash dividends is substantially dependent upon receipt of dividends from the Bank. On April 25, 2000, the Company announced a 10% stock dividend payable on May 24, 2000, to shareholders of record as of May 10, 2000. 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. 19 QUANTITATIVE AND QUALITATIVE 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 mortgage-related assets, cash flows and maturities of other investment securities, loan and deposit volumes and pricing. These assumptions are inherently subjective 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, 2000, 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, 1999. 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, 1999. 20 PART II - OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual shareholders meeting on April 25, 2000, for the purpose of electing the Board of Directors. All fifteen persons nominated were elected to hold office for the ensuing year. Nominee Votes "For" Votes "Withheld" --------------------------------------------------------------------------- Richard S. DeVine 8,953,618 181,868 Melanie J. Dressel 8,954,137 181,349 Jack Fabulich 8,952,484 183,002 Jonathan Fine 8,954,137 181,349 John P. Folsom 8,953,618 181,868 J. James Gallagher 8,954,144 181,342 John A. Halleran 8,954,137 181,349 Thomas M. Hulbert 8,954,144 181,342 Thomas L. Matson 8,954,144 181,342 William W. Philip 8,954,144 181,342 Robert E. Quoidbach 8,954,137 181,349 Donald Rodman 8,954,137 181,349 Sidney R. Snyder 8,954,137 181,349 William T. Weyerhaeuser 8,953,688 181,798 James M. Will 8,954,137 181,349 A proposal to amend and restate Columbia's Stock Option Plan was approved by the following vote of the shareholders: Shares Shares Shares Voted Voted Shares Broker Not "FOR" "AGAINST" "ABSTAINING" Non-Votes Voted ----- --------- ------------ --------- ----- 5,028,910 1,003,210 136,711 2,966,655 1,467,578 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 10 (a) Amended and Restated Stock Option Plan of Columbia Banking System, Inc. (b) Amended and Restated Articles of Incorporation of Columbia Banking System, Inc. Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None 21 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 28, 2000 By /s/ J. James Gallagher ----------------------- ------------------------------ J. James Gallagher Vice Chairman and Chief Executive Officer Date July 28, 2000 By /s/ Gary R. Schminkey ----------------------- ------------------------------ Gary R. Schminkey Executive Vice President and Chief Financial Officer 22