-----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, N2vIjrQRx0mGg2ESy4f3pxVZuNIQ9PzthrF4bS7O3CbKzMewIQbaibBpSeafmoMr kUHA7yt8hGyrDNrUGqT0dQ== /in/edgar/work/20000728/0001072613-00-000749/0001072613-00-000749.txt : 20000921 0001072613-00-000749.hdr.sgml : 20000921 ACCESSION NUMBER: 0001072613-00-000749 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000728 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA BANKING SYSTEM INC CENTRAL INDEX KEY: 0000887343 STANDARD INDUSTRIAL CLASSIFICATION: [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: 681449 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 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 EX-10.A 2 0002.txt STOCK OPTION PLAN OF COLUMBIA BANKING SYSTEM, INC. EXHIBIT 10.a ------------ AMENDED AND RESTATED STOCK OPTION PLAN OF COLUMBIA BANKING SYSTEM, INC. RECITAL The original Employee Stock Option Plan (the "Plan") of First Federal Corporation, the predecessor to Columbia Banking System, Inc., was adopted by the Board of Directors and Shareholders on August 2, 1988. The Plan was subsequently amended and approved by the Shareholders on July 19, 1993 and April 23, 1997. The Plan is now being amended and restated, subject to shareholder approval, for the purpose of (1) extending the term of the Plan; (2) adding and clarifying definitions and making implementing changes throughout the Plan, including amending the definition of employee to provide authority to grant options to new hires prior to the employees start date (provided that the options may not vest prior to the start date); (3) increasing the number of shares available for issuance under the Plan by 325,000 shares of common stock to 995,734 shares of Common Stock plus up to 100,000 shares of Common Stock that are reacquired by the Company in the open market or in private transactions (by amending Section 3); (4) clarifying the authority and composition of the Committee empowered to administer the Plan (by amending Section 4); (5) clarifying the manner in which options may be exercised and the authority the Committee has to determine procedures and conditions for exercises of options (by amending Section 6); and (6) implementing miscellaneous technical changes throughout the Plan. In all other respects, this Amended and Restated Stock Option Plan is as adopted by the Board and approved by the Shareholders on April 23, 1997. PLAN 1. Purpose of the Plan. The purpose of this Plan is to provide additional incentives to Employees and Directors of Columbia Banking System, Inc. and its present and future Subsidiaries, thereby helping to attract and retain the best available personnel for positions of responsibility with said corporations and otherwise promoting the success of the business activities of said corporations. It is intended that Options issued pursuant to this Plan shall constitute either Incentive Stock Options or Nonqualified Stock Options. 2. Definitions. As used herein, the following definitions shall apply: a. "Board" shall mean the Board of Directors of the Employer. b. "Code" means the Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code. 1 c. "Common Stock" shall mean the Employer's no par value common stock. d. "Committee" shall mean the Board or the Committee appointed by the Board in accordance with subsection 4(a) of the Plan. e. "Continuous Status as an Employee" shall mean the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of sick leave, military leave, or any other approved leave of absence, except as provided under applicable Incentive Stock Option rules. f. "Director" shall mean any person who has been elected or appointed as a member of the Board of Directors of the Employer and who occupied that position at the date an Option was granted to such person. g. "Employee" shall mean any person employed by the Employer or any Subsidiary of the Employer which now exists or is hereafter organized or is acquired by the Employer. An Option may be granted to an Employee, in connection with hiring, retention or otherwise, prior to the date the Employee first performs services for Employer or a Subsidiary, provided that such Option shall not become vested prior to the date the Employee first performs such services. h. "Employer" shall mean Columbia Banking System, Inc., a Washington corporation. i. "Exchange Act" means the Securities Exchange Act of 1934, as amended. j. "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation The Nasdaq National Market or The Nasdaq Small Market of the Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day on the date of such determination, as reported in The Wall Street Journal or other source as the Committee deems reliable, or, (2) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for such stock on the date of such determination, as reported in The Wall Street Journal or other source as the Committee deems reliable, or, (3) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Committee. 2 k. "Incentive Stock Option" means an Option with the intention that it qualify as an "incentive stock option" as that term is defined in Section 422 of the Code. l. "Nonqualified Stock Option" shall mean an Option other than an Incentive Stock Option. m. "Option" shall mean a right to purchase Common Stock granted under the Plan. Options shall include both Incentive Stock Options and Nonqualified Stock Options as the context requires. n. "Optioned Stock" shall mean the Common Stock subject to an Option. o. "Optionee" shall mean an Employee or Director who receives an Option. p. "Plan" shall mean this Amended and Restated Stock Option Plan. q. "SEC" means the United States Securities and Exchange Commission. r. "Shareholder-Employee" shall mean an Employee who owns, at the time an Incentive Stock Option is granted, stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Employer or Subsidiary. For this purpose, the attribution of stock ownership rules provided in Section 424(d) of the Internal Revenue Code shall apply. s. "Subsidiary" shall mean any corporation having a relationship with the Employer as described in Section 424(f) of the Internal Revenue Code. 3. Stock Subject to Options. Subject to Section 6(a), the maximum number of shares that may be delivered to Optionees and their beneficiaries under the Plan shall be equal to the sum of: (i) 995,734 (subject to adjustment as provided in subsection 6(i) of the Plan); and (ii) up to 100,000 shares, to the extent authorized by the Board of Directors, which are reacquired by the Employer in the open market or in private transactions after the effective date of this Plan. To the extent any shares covered by an Option are not delivered to an Optionee or beneficiary because the Option is forfeited or cancelled, or the shares are not delivered because the Employer settles the Option in cash or the Option is used to satisfy applicable tax withholding obligations, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of shares available for delivery under the Plan. If the exercise price of any Option granted under the Plan is satisfied by tendering shares to the Employer (by either actual delivery or by attestation), only the number of shares issued net of the shares tendered shall be deemed delivered for purposes of determining the maximum number of shares available for delivery under the Plan. 3 4. Administration of the Plan. a. The Committee. The authority to control and manage the operation and administration of the Plan shall be vested in a committee (the "Committee") in accordance with this Section 4. The Committee shall be selected by the Board and shall consist solely of two or more members of the Board. If the Committee does not exist, or if for any other reason as determined by the Board, the Board desires to directly exercise its powers under this Plan, then the Board may take any action under the Plan that would otherwise be the responsibility of the Committee. Once appointed, any such Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members, remove members (with or without cause), appoint individuals in substitution therefor, and fill vacancies however caused. The Committee shall select one of its members as chairman, and shall hold meetings at such times and places as the chairman or a majority of the Committee may determine. Except to the extent prohibited by applicable law or the applicable rules of a stock exchange, the Committee may allocate all or a portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time. At least annually, the Committee shall present a written report to the Board indicating the persons to whom Options have been granted since the date of the last such report, and in each case the date or dates of Options granted, the number of shares optioned, and the Option price per share. b. Powers of the Committee. Except for the terms and conditions explicitly set forth in the Plan, the Committee shall have the authority and discretion: (1) to determine the persons to whom Options are to be granted, the times of grant, and the number of shares to be represented by each Option; (2) to determine the Option price for the shares of Common Stock to be issued pursuant to each Option, subject to the provisions of subsection 6(b) of the Plan; (3) to determine all other terms and conditions of each Option granted under the Plan, which need not be identical; (4) to modify or amend the terms of any Option previously granted, or to grant substitute Options, subject to the provisions of subsections 6(l) and 6(m) and Section 8 of the Plan; provided that the Committee shall not have the authority to reprice or exchange Options in an aggregate amount which will exceed 10% of the number of shares subject to outstanding Options at such date; 4 (5) to cancel or suspend Options, subject to the restrictions imposed by Section 8 of the Plan; (6) to interpret the Plan; (7) to authorize any person or persons to execute and deliver Option agreements or to take any other actions deemed by the Committee to be necessary or appropriate to effectuate the grant of Options; (8) to make all other determinations and take all other actions which the Committee deems necessary or appropriate to administer the Plan in accordance with its terms and conditions. All decisions, determinations and interpretations of the Committee shall be final and binding upon all persons, including all Optionees and any other holders or persons interested in any Options, unless otherwise expressly determined by a vote of the majority of the entire Board. No member of the Committee or of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Option. c. Section 16(b) Compliance and Bifurcation of Plan. It is the intention of the Company that this Plan, and Options granted under this Plan, comply in all respects with Rule 16b-3 under the Exchange Act and, if any Plan provision is later found not to be in compliance with such Rule, the provision shall be deemed null and void, and in all events this Plan will be construed in favor of its meeting the requirements of Rule 16b-3. Notwithstanding anything in this Plan to the contrary, the Board, in its absolute discretion, may bifurcate this Plan so as to restrict, limit or condition the use of any provision of this Plan to participants who are officers and directors subject to Section 16(b) of the Exchange Act without so restricting, limiting, or conditioning other Plan participants. 5. Eligibility. Options may be granted only to Employees and Directors who the Committee, in its discretion, from time to time selects; provided that Directors who are not also Employees may not be granted Incentive Stock Options. Granting of Options pursuant to the Plan shall be entirely discretionary with the Committee or its designee(s), and the adoption of this Plan shall not confer upon any person any right to receive any Option or Options pursuant to the Plan unless and until said Options are granted by the Committee or its designee(s), in its sole discretion. Neither the adoption of the Plan nor the granting of any Options pursuant to the Plan shall confer upon any Employee any right with respect to continuation of employment, nor shall the same interfere in any way with the Employee's right or with the right of the Employer or any Subsidiary to terminate the employment relationship at any time. 6. Terms and Conditions of Options. All Options granted pursuant to the Plan must be authorized by the Committee or its designee(s) and shall be subject to such terms and conditions, not inconsistent with this Plan, as the Committee shall, in its sole discretion, 5 prescribe. The terms and conditions of any Option shall be reflected in such form of written document as is determined by the Committee. Unless waived or modified by the Committee, all Options shall be subject to the following terms and conditions: a. Number of Shares; Annual Limitation. Each Option agreement shall state whether the Option is an Incentive Stock Option or a Nonqualified Stock Option and the number of shares subject to Option. Any number of Options may be granted to a single eligible person at any time and from time to time, except that (i) in the case of Incentive Stock Options, the aggregate fair market value (determined as of the time each Option is granted) of all shares of Common Stock with respect to which Incentive Stock Options become exercisable for the first time by an Employee in any one calendar year (under all incentive stock option plans of the Employer, and all of its Subsidiaries taken together) shall not exceed $100,000, and (ii) not more than 50,000 shares of Common Stock, as adjusted pursuant to Section 6(i), in the aggregate may be made subject to grants under the Plan to any participant in any one fiscal year. b. Option Price and Consideration. The exercise price of each Option shall be established by the Committee or shall be determined by a method established by the Committee at the time the Option is granted. The exercise price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of the Option. In the case of an Incentive Stock Option granted to an Employee who, immediately before the grant of such Incentive Stock Option, is a Shareholder-Employee, the Incentive Stock Option exercise price shall be at least 110% of the Fair Market Value of the Common Stock on the date of grant of the Incentive Stock Option. c. Term of Option. No Incentive Stock Option granted pursuant to the Plan shall in any event be exercisable after the expiration of ten (10) years from the date such Option is granted, except that the term of an Incentive Stock Option granted to an Employee who, immediately before such Incentive Stock Option is granted, is a Shareholder-Employee shall be for not more than five (5) years from the date of grant thereof. Subject to the foregoing and other applicable provisions of the Plan including but not limited to subsection 6(e) herein, the term of each Option shall be determined by the Committee in its discretion. d. Manner of Exercise. An Option shall be exercisable in accordance with such terms and conditions and during such periods as may be established by the Committee. The payment of the exercise price of an Option shall be subject to the following: (i) subject to the following provisions of this subsection 6(d), the full exercise price for shares of Common Stock purchased upon the exercise of any Option shall be paid at the time of such exercise (except that, in the case of an exercise arrangement approved by the Committee and described in paragraph (iii) below, payment may be made as soon as practicable after the exercise). (ii) the exercise price shall be payable in cash or such other consideration of comparable value deemed to be acceptable by the Committee, including tendering, by either actual delivery of shares or by attestation, shares of Common 6 Stock acceptable to the Committee, and valued at Fair Market Value as of the day of exercise, or in any combination thereof, as determined by the Committee. (iii) the Committee may permit an Optionee to elect to pay the exercise price upon the exercise of an Option by irrevocably authorizing a third party to sell shares of Common Stock (or a sufficient portion of the shares of Common Stock) acquired upon exercise of the Option and remit to Employer a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding resulting from such exercise. Shares of Common Stock delivered pursuant to the exercise of an Option shall be subject to such conditions, restrictions and contingencies as the Committee may establish. The Committee may impose such conditions, restrictions and contingencies with respect to shares of Common Stock acquired pursuant to the exercise of an Option as the Committee determines to be desirable. e. Death of Optionee. In the event of the death of an Optionee who at the time of his death was an Employee and who had been in Continuous Status as an Employee since the date of grant of the Option, the Option shall terminate on the earlier of (1)(a) one year after the date of death of the Optionee or (b) such later date as may be set in the discretion of the Committee; or (2) the expiration date otherwise provided in the Option agreement, except that if the expiration date of an Option should occur during the 90-day period immediately following the Optionee's death, such Option shall terminate at the end of such 90-day period. The Option shall be exercisable at any time prior to such termination by the Optionee's estate, or by such person or persons who have acquired the right to exercise the Option by bequest or by inheritance or by reason of the death of the Optionee. f. Disability of Optionee. If an Optionee's status as an Employee is terminated at any time during the Option period by reason of a disability (within the meaning of Section 22(e) (3) of the Internal Revenue Code) and if said Optionee had been in Continuous Status as an Employee at all times between the date of grant of the Option and the termination of his status as an Employee, his Incentive Stock Option shall terminate on the earlier of (i) one year after the date of termination of his status as an Employee, or (ii) the expiration date otherwise provided in his Option agreement. g. Termination of Status as an Employee. If an Optionee's status as an Employee is terminated at any time after the grant of his Option for any reason other than death or disability, as provided in subparagraphs (e) and (f) above, and not by reason of fraud or willful misconduct, as provided below: (1) His Incentive Stock Option shall terminate on the earlier of (i) the same day of the third month after the date of termination of his status as an Employee, or (ii) the expiration date otherwise provided in his Option agreement; (2) His Nonqualified Stock Option shall terminate on the expiration date as provided in his Option Agreement, or if no such expiration date is provided, 7 then such Option shall terminate on the same day of the third month after the date of termination of his status as an Employee. If an Optionee's status as an Employee is terminated at any time after the grant of his Option by reason of fraud or willful misconduct, then his Option shall terminate on the date of termination of his status as an Employee. h. Non-transferability of Options. No Option granted pursuant to the Plan may be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. i. Adjustments Upon Changes in Capitalization. Subject to any required action by the shareholders of the Employer, the number of shares of Common Stock covered by each outstanding Option, the number of shares of Common Stock available for grant of additional Options, and the price per share of Common Stock specified in each outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from any stock split or other subdivision or consolidation of shares, the payment of any stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such shares of Common Stock effected without receipt of consideration by the Employer; provided, however, that conversion of any convertible securities of the Employer shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. No Incentive Stock Option shall be adjusted by the Committee pursuant to this subparagraph 6(i) in a manner which causes the Incentive Stock Option to fail to continue to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code. Except as otherwise expressly provided in this subsection 6(i), no Optionee shall have any rights by reason of any stock split or the payment of any stock dividend or any other increase or decrease in the number of shares of Common Stock. Except as otherwise expressly provided in this subsection 6(i), any issue by the Employer of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect the number of shares or price of Common Stock subject to any Options, and no adjustments in Options shall be made by reason thereof. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Employer to make adjustments, reclassifications, reorganizations or changes of its capital or business structure. j. Date of Grant of Option. The date of grant of an Option shall, for all purposes, be the date on which the Committee or its designee makes the determination granting such Option. Said date of grant shall be specified in the Option agreement. 8 k. Conditions Upon Issuance of Shares. Shares of Common Stock shall not be issued with respect to an Option granted under the Plan unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Employer with respect to such compliance. l. Merger, Sale of Assets, Etc. Except as otherwise provided in the written agreement that evidences an Option, in the event of the merger or other reorganization of the Employer with and into any other corporation with the Employer not surviving (other than a reorganization where the ownership of the surviving company is substantially the same as that of the Employer), or in the event of a proposed sale of substantially all of the assets of the Employer, or in the event of a proposed dissolution or liquidation of the Employer, (i) all outstanding and unexercised Options shall become immediately exercisable, and (ii) such Options shall either be assumed by the successor corporation, or parent thereof, in the reorganization transaction described above or be replaced with a comparable award for the purchase of shares of the capital stock of the successor corporation, except that if such Options are not so assumed or replaced, then (iii) the Committee may, in the exercise of its sole discretion, terminate all outstanding Options as of a date fixed by the Committee, which may be sooner than the originally stated Option term. The Committee shall notify each Optionee of such action in writing not less than sixty (60) days prior to the termination date fixed by the Committee, and each Optionee shall have the right to exercise his Option prior to said termination date. m. Substitute Stock Options. In connection with the acquisition or proposed acquisition by the Employer or any Subsidiary, whether by merger, acquisition of stock or assets, or other reorganization transaction, of a business any employees of which have been granted Incentive Stock Options, the Committee is authorized to issue, in substitution of any such unexercised stock option, a new Option under this Plan which confers upon the Optionee substantially the same benefits as the old option; provided, however, that the issuance of any new Option for an old Incentive Stock Option shall satisfy the requirements of Section 424(a) of the Internal Revenue Code. n. Tax Compliance. The Employer, in its sole discretion, may take any actions reasonably believed by it to be required to comply with any local, state, or federal tax laws relating to the reporting or withholding of taxes attributable to the grant or exercise of any Option or the disposition of any shares of Common Stock issued upon exercise of an Option, including, but not limited to, (i) withholding from any person exercising an Option a number of shares of Common Stock having a fair market value equal to the amount required to be withheld by Employer under applicable tax laws, and (ii) withholding from any form of compensation or other amount due an Optionee or holder of shares of Common Stock issued upon exercise of an Option any amount required to be withheld by Employer under applicable tax laws. Withholding or reporting shall be considered required for purposes of this subparagraph if any tax deduction or other favorable tax treatment available to Employer is conditioned upon such reporting or withholding. 9 o. Other Provisions. Option agreements executed pursuant to the Plan may contain such other provisions as the Committee shall deem advisable, provided in the case of Incentive Stock Options that the provisions are not inconsistent with the provisions of Section 422(b) of the Internal Revenue Code or with any of the other terms and conditions of this Plan. p. Director Options. Notwithstanding the terms and conditions set forth above in this section 6, (i) no Director who is not also an Employee shall be granted an Incentive Stock Option, and (ii) Non-Qualified Stock Options granted to a Director who ceases to be a member of the Board of Employer or any Subsidiary shall be exercisable on such terms and conditions as the Committee shall determine. 7. Term of the Plan. The Plan shall become effective on the earlier of (a) the date of adoption of the Plan by the Board; or (b) the date of shareholder approval of the Plan. The Plan shall be unlimited in duration and, in the event of a Plan termination as provided in Section 8 of the Plan, shall remain in effect as long as any Options under it are outstanding; provided, however, that, to the extent required by the Code, no Incentive Stock Option may be granted under the Plan on a date that is more than ten years from the date the Plan (or amendment increasing shares available under the Plan) is adopted or, if earlier, the date the Plan (or amendment increasing shares available under the Plan) is approved by shareholders. 8. Amendment or Early Termination of the Plan. a. Amendment or Early Termination. The Board may terminate the Plan at any time. The Board may amend the Plan at any time and from time to time in such respects as the Board may deem advisable, except that, without proper approval of the shareholders, no such revision or amendment shall: (1) increase the number of shares of Common Stock subject to the Plan other than in connection with an adjustment under subsection 6(i) of the Plan; or (2) make any amendment to the Plan which would require shareholder approval under any applicable law or regulation. Any amendment made to this Plan which would constitute a "modification" to Incentive Stock Options outstanding on the date of such amendment, shall not be applicable to such outstanding Incentive Stock Options, but shall have prospective effect only, unless the Optionee agrees otherwise. b. Modification and Amendment of Option. Subject to the requirements of Code Section 422 with respect to incentive stock options and to the terms and conditions and within the limitations of this Plan, the Board or Committee may modify or amend outstanding Options granted under this Plan. The modification or amendment of an outstanding Option shall not, without the consent of the Optionee, impair or diminish any of his or her rights or any of the obligations of the Company under such Option. Except as otherwise provided in this Plan, no outstanding Option shall be terminated without the consent of the Optionee. Unless the Optionee 10 agrees otherwise, any changes or adjustments made to outstanding Incentive Stock Options granted under this Plan shall be made in such manner so as not to constitute a "modification" as defined in Code Section 424(h) and so as not to cause any Incentive Stock Option issued hereunder to fail to continue to qualify as an Incentive Stock Option as defined in Code Section 422(b). CERTIFICATE OF ADOPTION I certify that the foregoing Plan was adopted by the Board of Directors of Columbia Banking System, Inc. on January 26, 2000, and approved by the shareholders of Columbia Banking System, Inc. on April 25, 2000. /s/ Jill L. Myers ------------------------ Jill L. Myers, Secretary 11 EX-10.B 3 0003.txt ARTICLES OF INCORPORATION OF COLUMBIA BANKING SYS. EXHIBIT 10.b ------------ AMENDED AND RESTATED ARTICLES OF INCORPORATION OF COLUMBIA BANKING SYSTEM, INC. The undersigned, being the Secretary of Columbia Banking System, Inc., executes in duplicate the following Amended and Restated Articles of Incorporation for the corporation. ARTICLE 1 --------- SECTION 1.1 The name of the corporation shall be COLUMBIA BANKING SYSTEM, INC. ARTICLE 2 --------- SECTION 2.1 The corporation's period of duration shall be perpetual. ARTICLE 3 --------- SECTION 3.1 The purpose for which the corporation is organized is the transaction of any and all lawful business for which corporations may be incorporated under the Washington Business Corporation Act. ARTICLE 4 --------- SECTION 4.1 The aggregate number of shares which the corporation shall have authority to issue is 51,975,000 common shares with no par value (hereinafter referred to as "the common stock") and 2,000,000 preferred shares with no par value (hereinafter referred to as "the preferred stock"). The preferred stock is senior to the common stock, and the common stock is subject to the rights and preferences of the preferred stock as provided in the following section. SECTION 4.2 The board of directors is hereby vested with authority to divide any or all of the preferred stock into one or more series and, within the limitations set forth in the Washington Business Corporation Act (as amended from time to time), to fix and determine or to amend the relative rights and preferences of the shares of any series so established. ARTICLE 5 --------- SECTION 5.1 No shareholder shall have the preemptive right to acquire unissued shares of the corporation. ARTICLE 6 --------- SECTION 6.1 Each shareholder entitled to vote at any election for directors shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are 1 directors to be elected and for whose election he has a right to vote, and no shareholder shall be entitled to cumulate his votes. ARTICLE 7 --------- SECTION 7.1 The corporation reserves the right to amend, alter, change or repeal any provision of its Articles of Incorporation to the extent permitted by the laws of the State of Washington. All rights of shareholders are granted subject to this reservation. ARTICLE 8 --------- SECTION 8.1 The address of the initial registered office of the corporation is 1301 Fifth Avenue, Suite 3400, Seattle, Washington 98101. The name of its initial registered agent at that address is J. James Gallagher. ARTICLE 9 --------- SECTION 9.1 The corporation may enter into a contract and otherwise transact business as vendor, purchaser, or otherwise, with its directors, officers and shareholders, and with corporations, associations, firms and entities in which they are or may become interested as directors, officers, shareholders, members or otherwise, as freely as though such adverse interest did not exist, even though the vote, action or presence of such director, officer or shareholder may be necessary to obligate the corporation upon such contract or transaction; and in the absence of fraud, no such contract or transaction shall be avoided and no such director, officer or shareholder shall be held liable to account to the corporation, by reason of such adverse interest or any fiduciary relationship to the corporation arising out of such office or stock ownership, for any profit or benefit realized by him through any such contract or transaction; provided that the nature of the interest of such director, officer or shareholder, though not necessarily the details or extent thereof, be disclosed or known to the board of directors or shareholders of the corporation, at the meeting thereof at which such contract or transaction is authorized or confirmed. A general notice that a director, officer or shareholder of the corporation is interested in any corporation, association, firm or entity shall be sufficient disclosure as to such director, officer or shareholder with respect to all contracts and transactions with that corporation, association, firm or entity. ARTICLE 10 ---------- SECTION 10.1 Nominations for election to the board of directors may be made by the board of directors or by any stockholder of any outstanding class of stock of the corporation entitled to vote for the election of directors. Nominations, other than those made by the board of directors, shall be made in writing and shall be delivered or mailed, U.S. mail, postage prepaid, to the Chairman of the corporation not less than fourteen (14) days nor more than fifty (50) days prior to any meeting of shareholders called for the election of directors; provided, however, that if less than twenty-one days' notice of the meeting is given to shareholders, such nomination shall be delivered or mailed, U.S. mail, postage prepaid, to the Chairman of the corporation not later than the close of business on the seventh day following the day on which the notice of meeting was 2 mailed. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) The name and address of each proposed nominee; (b) The principal occupation of each proposed nominee; (c) The total number of shares of stock of the corporation that will be voted for each proposed nominee; (d) The name and address of the notifying shareholder; and (e) The number of shares of common stock of the corporation owned by the notifying shareholder. Nominations not made in accordance herewith may, in his discretion, be disregarded by the Chairman of the meeting, and upon his instructions, the vote teller may disregard all votes cast for such nominee. ARTICLE 11 ---------- SECTION 11.1 In addition to the requirements of any applicable statute, and notwithstanding any other provisions of any other articles of these Articles of Incorporation, the affirmative vote of not less than 66 2/3% of the total shares attributable to persons other than a Control Person (as defined below), considered for the purposes of this Article 11 as one class, which are entitled to be voted in an election of directors shall be required for the approval of any Business Combination (as defined below) between the corporation and any Control Person. SECTION 11.2 The approval requirements of Section 11.1 shall not apply if either: (a) The Business Combination is approved by at least a majority of Continuing Directors (as defined below) of the corporation; or (b) All the following conditions are satisfied: (i) The cash or fair market value of the property, securities or other consideration to be received per share in the Business Combination by holders of the common stock of the corporation is not less than the higher of: (A) the highest price per share (including brokerage commissions, soliciting dealers, fees and dealer-management compensation) paid by such Control Person in acquiring any of its holdings of the corporation's common stock; (B) the highest per share market price of the common stock during the three-month period immediately preceding the date of the proxy statement described in (iii) below; or (C) the per share value of the common stock at the end of the fiscal quarter immediately prior to the Business Combination, as determined by an appraisal prepared by persons, selected by the Continuing Directors, who are 3 independent of the corporation and the Control Person, and who are experienced and expert in the area of corporate appraisal. (ii) After becoming a Control Person and prior to the consummation of such Business Combination (A) such Control Person shall not have acquired any newly issued shares of capital stock, directly or indirectly, from the corporation (except upon conversion of convertible securities acquired by it prior to becoming a Control Person or upon compliance with the provisions of this Article 11 or as a result of a pro rata stock dividend or stock split), and (B) such Control Person shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the corporation, or made any major changes in the corporation's business or equity capital structure; and (iii) A proxy statement responsive to the requirements of the Securities Exchange Act of 1934, whether or not the corporation is then subject to such requirements, shall be mailed to the public stockholders of the corporation for the purpose of soliciting stockholder approval of such Business Combination. SECTION 11.3 For the purpose of this Article 11 (a) The term "Business Combination" shall mean (i) any merger or consolidation of the corporation with or into a Control Person, (ii) any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any other security device, of all or any Substantial Part (as defined below) of the assets of the corporation (including without limitation any voting securities of a subsidiary) or of a subsidiary, to a Control Person, (iii) any merger or consolidation of a Control Person with or into the corporation or a subsidiary of the corporation, (iv) any sale, lease, exchange, transfer or other disposition of all or any Substantial Part of the assets of a Control Person to the corporation or a subsidiary of the corporation, (v) the issuance of any securities of the corporation or a subsidiary of the corporation to a Control Person, (vi) the acquisition by the corporation or a subsidiary of the corporation of any securities of a Control Person, (vii) any reclassification of common stock of the corporation, or any recapitalization involving common stock of the corporation, consummated within five years after a Control Person becomes a Control Person, or (viii) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Combination; (b) The term "Continuing Director" shall mean (i) a director who was a member of the board of directors of the corporation immediately prior to the time that a Control Person became the beneficial owner (as this term is defined in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 on the date on which this amendment becomes effective) of 10% or more of the outstanding shares of common stock of the corporation or (ii) a person so designated before initially becoming a director by a majority of the then Continuing Directors. (c) The term "Control Person" shall mean and include any individual, corporation, partnership or other person or entity which, together with their Affiliates and Associates (as those terms 4 are defined on the date on which this amendment becomes effective in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934) is the beneficial owner in the aggregate of 20% or more of the outstanding shares of common stock of the corporation, and any Affiliate or Associate of any such individual, corporation, partnership or other person or entity; (d) The term "Substantial Part" shall mean more than 10% of the total assets of the corporation in question, as of the end of its most recent fiscal year prior to the time the determination is being made; (e) Without limitation, any shares of common stock of the corporation which any Control Person has the right to acquire at any time pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed outstanding and beneficially owned by such Control Person for purposes of this Article 11; and (f) For the purposes of Section 11.2(b)(i) of this Article 11, the phrase "other consideration to be received" shall include, without limitation, common stock of the corporation retained by its existing public stockholders in the event of a Business Combination with such Control Person in which the corporation is the surviving corporation. SECTION 11.4 For the purposes of this Article 11, a majority of the Continuing Directors shall have the power and duty to determine on the basis of information known to them (a) whether a proposed transaction is subject to the provisions of this Article 11, (b) the amount of shares of the corporation Beneficially Owned by any person, (c) whether a person is an Affiliate or Associate of another, and (d) such other matters as to which a determination may be required by the provisions of this Article 11. SECTION 11.5 The provisions set forth in this Article 11 may not be repealed or amended in any respect or in any manner including any merger or consolidation of the corporation with any other corporation unless the surviving corporation's Articles of Incorporation contain an article to the same effect as this Article 11, except by the affirmative vote of the holders of not less than 66 2/3% of the outstanding shares of common stock of the corporation, subject to the provisions of any series of preferred stock which may at the time be outstanding; provided, however, that if there is a Control Person such action must be approved by not less than 66 2/3% of the total shares entitled to be voted in an election of directors attributable to shares owned by person other than the Control Persons. ARTICLE 12 ---------- SECTION 12.1 The board of directors of the corporation, when evaluating any offer of another party to (a) make a tender or exchange offer for any equity security of the corporation, (b) merge or consolidate the corporation with another corporation, or (c) purchase or otherwise acquire all or substantially all of the properties and assets of the corporation, shall, in connection with the exercise of its judgment in determining what is in the best interests of the corporation and its stockholders, give due consideration to all relevant factors, including without limitation the social and economic effects on the employees, customers, suppliers and other constituents of the 5 corporation and its subsidiaries and on the communities in which the corporation and its subsidiaries operate or are located. ARTICLE 13 SECTION 13.1 Defined Terms. As used in this Article 13: (a) "Egregious conduct" by a person shall mean acts or omissions that involve intentional misconduct or a knowing violation of law, conduct violating section 23B. of the Revised Code of Washington, or participation in any transaction from which the person will personally receive a benefit in money, property, or services to which the person is not legally entitled. (b) "Finally adjudged" shall mean stated in a judgment based upon clear and convincing evidence by a court having jurisdiction, from which there is no further right to appeal. (c) "Director" shall mean any person who is a director of the corporation and any person who, while a director of the corporation, is serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or is a fiduciary or party in interest in relation to any employee benefit plan covering any employee of the corporation or of any employer in which it has an ownership interest; and "conduct as a director" shall include conduct while a director is acting in any of such capacities. (d) "Officer-director" shall mean any person who is simultaneously both an officer and director of the corporation and any person who, while simultaneously both an officer and director of the corporation, is serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or is a fiduciary or party in interest in relation to any employee benefit plan covering any employee of the corporation or of any employer in which it has an ownership interest; and "conduct as an officer-director" shall include conduct while an officer-director is acting as an officer of the corporation or in any of such other capacities. (e) "Subsidiary corporation" shall mean any corporation at least eighty percent of the voting stock of which is held beneficially by this corporation. SECTION 13.2 - LIABILITY OF DIRECTORS. No director, officer-director, former director or former officer-director of the corporation shall be personally liable to the corporation or its shareholders for monetary damages for conduct as a director or officer-director occurring after the effective date of this Article 13 unless the conduct is finally adjudged to have been egregious conduct, as defined herein. SECTION 13.3 - LIABILITY OF SUBSIDIARY DIRECTORS. No director, officer-director, former director, or former officer-director of a subsidiary corporation shall be personally liable in any action brought directly by this corporation as a shareholder of the subsidiary corporation or derivatively on behalf of the subsidiary corporation (or by any shareholder of this corporation double- 6 derivatively on behalf of this corporation and the subsidiary corporation) for monetary damages for conduct as a director or officer-director of such subsidiary corporation occurring after the effective date of this Article 13 unless the conduct is finally adjudged to have been egregious conduct, as defined herein. SECTION 13.4 - INDEMNIFICATION OF DIRECTORS. The corporation shall indemnify any person who is, or is threatened to be made, a party to any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and whether by or in the right of the corporation or its shareholders or by any other party, by reason of the fact that the person is or was a director or officer-director of the corporation or of a subsidiary corporation against judgments, penalties or penalty taxes, fines, settlements (even if paid or payable to the corporation or its shareholders or to a subsidiary corporation) and reasonable expenses, including attorneys' fees, actually incurred in connection with such proceeding unless the liability and expenses were on account of conduct finally adjudged to be egregious conduct, as defined herein. The reasonable expenses, including attorneys' fees, of such person incurred in connection with such proceeding shall be paid or reimbursed by the corporation, upon request of such person, in advance of the final disposition of such proceeding upon receipt by the corporation of a written, unsecured promise by the person to repay such amount if it shall be finally adjudged that the person is not eligible for indemnification. All expenses incurred by such person in connection with such proceeding shall be considered reasonable unless finally adjudged to be unreasonable. SECTION 13.5 - PROCEDURE. No action by the board of directors, the shareholders, independent counsel, or any other person or persons shall be necessary or appropriate to the determination of the corporation's indemnification obligation in any specific case, to the determination of the reasonableness of any expenses incurred by a person entitled to indemnification under this Article 13, nor to the authorization of indemnification in any specific case. SECTION 13.6 INTERNAL CLAIMS EXPECTED. Notwithstanding section 13.4, the corporation shall not be obligated to indemnify any person for any expenses, including attorneys' fees, incurred to assert any claim against the corporation (except a claim based on section 13.7) or any person related to or associated with it, including any person who would be entitled hereby to indemnification in connection with the claim. SECTION 13.7 - ENFORCEMENT OF RIGHTS. The corporation shall indemnify any person granted indemnification rights under this Article 13 against any reasonable expenses incurred by the person to enforce such rights. SECTION 13.8 - SET-OFF OF CLAIMS. Any person granted indemnification rights herein may directly assert such rights in set-off of any claim raised against the person by or in the right of the corporation and shall be entitled to have the same tribunal which adjudicates the corporation's claim adjudicate the person's entitlement to indemnification by the corporation. SECTION 13.9 - CONTINUATION OF RIGHTS. The indemnification rights provided in this Article 13 shall continue as to a person who has ceased to be a director or officer-director and shall inure to the benefit of the heirs, executors, and administrators of such person. 7 SECTION 13.10 - EFFECT OF AMENDMENT OR REPEAL. Any amendment or repeal of this Article 13 shall not adversely affect any right or protection of a director, officer-director, former director or former officer-director existing at the time of such amendment or repeal with respect to acts or omissions occurring prior to such amendment or repeal. SECTION 13.11 - SEVERABILITY OF PROVISIONS. Each of the substantive provisions of this Article 13 is separate and independent of the others, so that if any provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions. ARTICLE 14 ---------- SECTION 14.1 The name and address of the incorporator is Mark C. Lewington, 1301 Fifth Avenue, Suite 3400, Seattle, WA 98101. These Amended and Restated Articles of Incorporation correctly set forth without change the corresponding provisions of the Articles of Incorporation as heretofore amended, and supersede the original Articles of Incorporation and all amendments thereto. Executed in duplicate this 26th day of April, 2000. ---- COLUMBIA BANKING SYSTEM, INC. By: /s/ Jill L. Myers ------------------------ Jill L. Myers, Secretary 8 EX-27 4 0004.txt FINANCIAL DATA SCHEDULE
9 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 57369 3430 0 0 80644 7094 0 1170531 12072 1381515 1178982 79000 10654 6500 0 0 91331 15048 1381515 48859 2910 54 51823 21296 23520 28303 1800 0 22107 9896 9896 0 0 6487 .56 .54 4.71 6697 0 21 0 9967 401 706 12072 12072 0 0
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