DEF 14A
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ddef14a.txt
DEFINITIVE PROXY STATEMENT
SCHEDULE 14A - INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Columbia Banking System, Inc.
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(Name of Registrant as Specified in its Charter)
J. James Gallagher
Vice Chairman and Chief Executive Officer
Columbia Banking System, Inc.
1301 "A" Street
Tacoma, Washington 98402
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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3) Filing Party:
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4) Date Filed:
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Important Notice Regarding Delivery of Security Holder Documents
HOUSEHOLDING NOTICE TO SHAREHOLDERS
Dear Shareholder:
The Securities and Exchange Commission recently approved a new rule that
allows us to send a single copy of our annual reports and proxy statements to
any household at which two or more of our shareholders reside, if we believe
the shareholders are members of the same family. We will, however, continue to
mail one proxy card for each registered shareholder. This program is referred
to as "householding."
You do not need to do anything in order to participate in our householding
program. If we do not hear from you on or before April 28, 2002, you will be
deemed to have consented to the receipt of only one set of our shareholder
mailings by your household. Your consent will be perpetual unless you revoke it
according to the following instructions:
. If your Columbia shares are registered in your own name, please call toll
free, or write to, ADP at (888) 603-5847 or Householding Department, 51
Mercedes Way, Edgewood, NY 11717, with your request.
. If a broker or other nominee holds your Columbia shares, please call toll
free, or write to, ADP at (888) 603-5847 or Householding Department, 51
Mercedes Way, Edgewood, NY 11717, to inform them of your request. Be sure
to include your name, the name of your brokerage firm and your account
number.
We will begin sending you a separate copy of our shareholder mailings within
30 days after receipt of your revocation notice.
Our new householding program benefits both you and the Company. It not only
reduces the volume of duplicate information received at your household, but
also helps reduce our expenses. We encourage you to participate in this program!
Thank you very much.
COLUMBIA BANKING SYSTEM, INC.
[LOGO] COLUMBIA BANKING SYSTEM
1301 "A" Street
Tacoma, Washington 98402
February 26, 2002
Dear Shareholder:
I am pleased to invite you to Columbia Banking System's Annual Meeting of
Shareholders. The meeting will be at 1:00 p.m. on Tuesday, April 2, 2002 at the
Best Western Executive Inn, 5700 Pacific Highway E., Fife, Washington 98424.
At the meeting, you and the other shareholders will be asked to approve the
election of 12 directors to the Columbia Board. You also will have the
opportunity to hear what has happened in our business in the past year and to
ask questions. You will find additional information concerning Columbia and its
operations, including its audited financial statements, in the enclosed Annual
Report for the year ended December 31, 2001.
I hope that you can join us on April 2nd. Whether or not you plan to attend,
please sign and return your proxy card as soon as possible. Your opinion and
your vote are important to us. Voting by proxy will not prevent you from voting
in person if you attend the meeting, but it will ensure that your vote is
counted if you are unable to attend.
Sincerely,
/s/ William T. Weyerhaeuser /s/ J James Gallagher
William T. Weyerhaeuser J. James Gallagher
Chairman Vice Chairman and CEO
[LOGO] COLUMBIA BANKING SYSTEM
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 2, 2002
The 2002 Annual Meeting of Shareholders of Columbia Banking System, Inc.
will be held at the Best Western Executive Inn, 5700 Pacific Highway E., Fife,
Washington 98424 at 1:00 p.m. on Tuesday, April 2, 2002, for the following
purposes:
1. To elect 12 directors to serve on the Board until the 2003 Annual
Meeting of Shareholders.
2. To transact any other business that properly comes before the meeting or
any adjournment of the meeting.
Shareholders owning Columbia's shares at the close of business on the
February 12, 2002 are entitled to vote at the meeting.
By Order of the Board of Directors
/s/ Kristy House
Kristy W. House
Secretary
TABLE OF CONTENTS
PROXY STATEMENT............................................................. 1
ABOUT THE MEETING........................................................... 1
STOCK OWNERSHIP............................................................. 3
PROPOSAL 1: ELECTION OF DIRECTORS........................................... 5
EXECUTIVE COMPENSATION...................................................... 9
Report of the Personnel and Compensation Committee on Executive Compensation 9
Stock Performance Graph..................................................... 13
Compensation Tables......................................................... 14
Other Employee Benefits..................................................... 15
Executive Employment and Severance Agreements............................... 16
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..................... 17
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.............................. 17
INDEPENDENT PUBLIC ACCOUNTANTS.............................................. 18
AUDIT COMMITTEE REPORT...................................................... 18
ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K................................. 19
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COLUMBIA BANKING SYSTEM, INC.
1301 "A" Street
Tacoma, Washington 98402
PROXY STATEMENT
The Board of Directors is soliciting proxies for this year's Annual Meeting
of Shareholders. This Proxy Statement contains important information for you to
consider when deciding how to vote on the matters brought before the meeting.
Please read it carefully.
The Board set February 12, 2002 as the record date for the meeting (the
"Record Date"). Shareholders who owned Columbia common stock on that date are
entitled to vote at the meeting, with each share entitled to one vote. There
were 12,619,831 shares of Columbia common stock outstanding on the Record Date.
Voting materials, which include this Proxy Statement, a proxy card, and the
2001 Annual Report, are first being mailed to shareholders on or about February
26, 2002.
ABOUT THE MEETING
Why am I receiving this Proxy Statement and proxy card?
You are receiving this Proxy Statement and proxy card because you own shares
of Columbia common stock. This Proxy Statement describes issues on which we
would like you to vote.
When you sign the proxy card you appoint J. James Gallagher and Melanie J.
Dressel as your representatives at the meeting. Mr. Gallagher and Ms. Dressel
will vote your shares at the meeting as you have instructed on the proxy card.
This way, your shares will be voted even if you cannot attend the meeting.
Who is soliciting my proxy and who is paying the cost of solicitation?
Columbia's Board of Directors is sending you this Proxy Statement in
connection with its solicitation of proxies for use at the 2002 Annual Meeting.
Certain directors, officers and employees of Columbia and/or its banking
subsidiary, Columbia Bank, may solicit proxies by mail, telephone, facsimile or
in person.
Columbia will pay for the costs of solicitation. Columbia does not expect to
pay any compensation for the solicitation of proxies, except to brokers,
nominees and similar record holders for reasonable expenses in mailing proxy
materials to beneficial owners of Columbia common stock.
What am I voting on?
At the Annual Meeting you will be asked to vote on the election of 12
directors to serve on the Board until the 2003 Annual Meeting of Shareholders.
Who is entitled to vote?
Only shareholders who owned Columbia common stock as of the close of
business on the Record Date are entitled to receive notice of the Annual
Meeting and to vote the shares that they held on that date at the meeting, or
any postponement or adjournment of the meeting.
How do I vote?
You may vote your shares either in person at the Annual Meeting or by proxy.
To vote by proxy, you should mark, date, sign and mail the enclosed proxy card
in the prepaid envelope provided. If your shares are registered
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in your own name and you attend the meeting, you may deliver your completed
proxy card in person. "Street name" shareholders, that is, those shareholders
whose shares are held in the name of and through a broker or nominee, who wish
to vote at the meeting will need to obtain proxy materials from the institution
that holds their shares.
Internet Voting
You may also grant a proxy to vote your shares by means of the Internet. The
Internet voting procedures below are designed to authenticate your identity, to
allow you to grant a proxy to vote your shares and to confirm that your
instructions have been recorded properly.
For shares registered in your name
As a shareholder of record, you may go to http://www.proxyvote.com to grant
a proxy to vote your shares by means of the Internet. You will be required to
provide your control number, which is contained on your proxy card. You will
then be asked to complete an electronic proxy card. The votes represented by
such proxy will be generated on the computer screen, and you will be prompted
to submit or revise them as desired.
For shares registered in the name of a broker or bank
Most beneficial owners whose stock is held in street name receive
instructions for granting proxies from their banks, brokers or other agents,
rather than a proxy card.
A number of brokers and banks are participating in a program provided
through ADP Investor Communication Services that offers the means to grant
proxies to vote shares over the telephone and Internet. If your shares are held
in an account with a broker or bank participating in the ADP Investor
Communication Services program, you may grant a proxy to vote those shares
telephonically by calling the telephone number shown on the instruction form
received from your broker or bank, or via the Internet at ADP Investor
Communication Services' Web site at http://www.proxyvote.com.
General information for all shares voted via the Internet
We must receive votes submitted via the Internet by 11:59 p.m. Eastern Time
on April 1, 2002.
Can I change my vote after I return my proxy card?
Yes. You may revoke your proxy and change your vote at any time before the
proxy is exercised by filing with Columbia's Secretary either a notice of
revocation or another signed proxy bearing a later date. The powers of the
proxy holders will be suspended if you attend the meeting in person and so
request, although attendance at the meeting will not by itself revoke a
previously granted proxy.
What are the Board's recommendations?
Unless you give other instructions on your proxy card, Mr. Gallagher and Ms.
Dressel, as the persons named as proxy holders on the proxy card, will vote as
recommended by the Board of Directors. The Board recommends a vote FOR the
election of the nominated directors listed in this Proxy Statement.
If any other matters are considered at the meeting, Mr. Gallagher and Ms.
Dressel will vote as recommended by the Board of Directors. If the Board does
not give a recommendation, Mr. Gallagher and Ms. Dressel will have discretion
to vote as they think best.
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Will my shares be voted if I do not sign and return my proxy card?
If your shares are registered in your name and you do not return your proxy
card or do not vote in person at the Annual Meeting, your shares will not be
voted.
If your shares are held in street name and you do not submit voting
instructions to your broker, your broker may vote your shares at this meeting
on the election of directors.
How many votes are needed to hold the Annual Meeting?
A majority of Columbia's outstanding shares as of the Record Date (a quorum)
must be present at the Annual Meeting in order to hold the meeting and conduct
business. Shares are counted as present at the meeting if a shareholder is
present and votes in person at the meeting or has properly submitted a proxy
card. As of the Record Date for the Annual Meeting, 12,619,831 shares of
Columbia common stock were outstanding and eligible to vote.
What vote is required to elect directors?
The 12 director nominees who receive the highest number of FOR votes will be
elected. You may vote FOR all or some of the nominees or WITHHOLD AUTHORITY for
all or some of the nominees. Votes withheld are counted as "no" votes for the
individual director.
Can I vote on other matters?
Columbia has not received timely notice of any shareholder proposals to be
considered at the Annual Meeting, and the Board of Directors does not know of
any other matters to be brought before the Annual Meeting.
When are proposals for the 2003 Annual Meeting due?
Proposals by shareholders to transact business at Columbia's 2003 Annual
Meeting must be delivered to Columbia's Secretary no later than November 15,
2002, in order to be considered for inclusion in Columbia's proxy statement and
proxy card under the conditions set forth in federal securities laws. However,
Columbia may elect, in its sole discretion, to include shareholder proposals
delivered to Columbia's Secretary by January 15, 2003 in the proxy materials.
If Columbia receives notice of a shareholder proposal after January 15, 2003,
the proposal will not be included in the proxy materials and the proxy holders
will have discretion on how to vote on such proposals.
How do I nominate someone to be a director?
If you wish to nominate someone for election to the Board at the Annual
Meeting of Shareholders you must give written notice to Columbia's Chairman not
less than 14 days nor more than 50 days prior to the date of the Annual
Meeting. If Columbia gives less than 21 days' notice of the Annual Meeting,
your notification must be mailed or delivered to the Chairman not later than
the close of business on the seventh day following the day that notice of the
Annual Meeting was mailed. Your notification should contain the following
information to the extent known: (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 Columbia that will be voted for each proposed
nominee; (d) your name and address; and (e) the number of shares of stock of
Columbia you own. Columbia's Chairman may disregard your nomination if it does
not meet these requirements.
STOCK OWNERSHIP
Are there any owners of more than 5% of Columbia's stock?
Currently, no shareholder owns more than 5% of the outstanding shares of
Columbia common stock.
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How much stock do Columbia's directors and executive officers own?
The following table shows, as of January 31, 2002, the amount of Columbia
common stock beneficially owned (unless otherwise indicated) by (a) each
director and director nominee; (b) the executive officers named in the Summary
Compensation Table below; and (c) all of Columbia's directors and executive
officers as a group. Except as otherwise noted, Columbia believes that the
beneficial owners of the shares listed below, based on information furnished by
such owners, have or share with a spouse voting and investment power with
respect to the shares. The address for all of the persons listed below is 1301
"A" Street, Tacoma, Washington, 98402. All share numbers and prices have been
adjusted for applicable stock splits and applicable stock dividends.
Name Position Number Percentage(1)
---- -------- ------ -------------
J. James Gallagher................. Director, Vice Chairman and
Chief Executive Officer 240,658(3) 1.9%
Melanie J. Dressel................. Director, President and Chief
Operating Officer 71,425(4) *
Richard S. DeVine.................. Director 56,972(2) *
Jack Fabulich...................... Director 14,662(2) *
Jonathan Fine...................... Director 30,571(2)(5) *
John P. Folsom..................... Director 19,007(2) *
John A. Halleran................... Director 22,203(2) *
Don L. Hirtzel..................... Executive Vice President 6,872(6) *
Thomas M. Hulbert.................. Director 10,972 *
Thomas L. Matson, Sr............... Director 116,761(7) *
Donald Rodman...................... Director 14,302(2) *
Harald R. Russell.................. Executive Vice President 51,922(8) *
Sidney R. Snyder................... Director 20,127(2) *
William T. Weyerhaeuser............ Chairman of the Board 80,139(9) *
Evans Q. Whitney................... Executive Vice President 61,293(10) *
James M. Will...................... Director 14,663(2) *
Directors and executive officers as
a group (17 persons)............. 853,682(11) 6.7%
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* Represents less than 1% of Columbia's outstanding common stock.
(1) Percentages shown are based on the number of shares of Columbia common
stock deemed outstanding under applicable regulations, including options
exercisable within 60 days.
(2) Includes 2,001 shares issuable upon exercise of options that became
exercisable on April 23, 2000 at $7.94 per share, and 1,906 shares
issuable upon exercise of options that became exercisable on April 22,
2001 at $20.46 per share.
(3) Includes: (a) 34,943 shares held in an IRA for the benefit of Mr.
Gallagher; (b) 19,057 shares issued to Mr. Gallagher in April 1998 as a
restricted stock award and held in escrow until certain conditions are
met; (c) 47,664 shares issuable upon exercise of options that became
exercisable on July 1, 2001 at $20.46 per share (d) 2,001 shares issuable
to Mr. Gallagher's spouse, Ms. Margel Gallagher, a former director of
Columbia, upon exercise of options that became exercisable upon her
retirement from the Board on December 31, 1999 at $7.94 per share; and (e)
1,906 shares issuable to Ms. Margel Gallagher upon exercise of options
that became exercisable upon her retirement from the Board on December 31,
1999 at $20.46 per share.
(4) Includes: (a) 2,185 shares held by a corporation owned by Ms. Dressel and
her spouse; (b) 4,202 shares issuable upon exercise of options that became
exercisable on December 16, 1997 at $4.65 per share; (c) 3,002 shares
issuable upon exercise of options that became exercisable on April 23,
2000 at $7.94 per share; (d) 9,528 shares issued to Ms. Dressel in January
1998 as a restricted stock award and held in escrow until certain
conditions are met; and (e)12,705 shares issuable upon exercise of options
that became exercisable on January 20, 2002 at $12.98 per share.
(5) Includes 7,623 shares owned by a family trust for which Mr. Fine is
co-trustee and shares voting and investment power.
(6) Includes 5,500 shares issued to Mr. Hirtzel in October 2000 as a
restricted stock award held in escrow until certain conditions are met.
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(7) Includes 1,906 shares issuable upon exercise of options that became
exercisable on April 22, 2001 at $20.46 per share.
(8) Includes: (a) 3,153 shares issuable upon exercise of options that became
exercisable on December 16, 1997 at $4.65 per share; (b) 4,202 shares
issuable upon exercise of options that became exercisable on April 24,
1999 at $6.27 per share; (c) 5,404 shares issuable upon exercise of
options that became exercisable on April 23, 2000 at $7.94 per share; (d)
9,528 shares issued to Mr. Russell in January 1998 as a restricted stock
award and held in escrow until certain conditions are met; and (e) 6,358
shares issuable upon exercise of options that became exercisable on
January 20, 2002 at $12.98 per share.
(9) All shares are owned by the WBW Trust No. One for which Mr. Weyerhaeuser
is the trustee with sole voting and investment power. Includes 1,906
shares issuable upon exercise of options that became exercisable on April
22, 2001 at $20.46 per share.
(10) Includes: (a) 129 shares held by Mr. Whitney as custodian for his
grandchildren; (b) 2,541 shares held in a brokerage account for Mr.
Whitney's mother, over which Mr. Whitney exercises investment power;
(c) 4,202 shares issuable upon exercise of options that became exercisable
on December 16, 1997 at $4.65 per share; (d) 3,002 shares issuable upon
exercise of options that became exercisable on April 23, 2000 at $7.94 per
share; (e) 9,528 shares issued to Mr. Whitney in January 1998 as a
restricted stock award and held in escrow until certain conditions are
met; and (f) 6,353 shares issuable upon exercise of options that became
exercisable on January 20, 2002 at $12.98 per share.
(11) Includes 197,901 shares issuable upon exercise of options.
PROPOSAL 1: ELECTION OF DIRECTORS
How many directors are nominated?
Columbia's Bylaws provide that the number of directors to be elected by the
shareholders will be at least five and not more than 25. Under the Bylaws, the
Board has authority to decide the exact number of directors to be elected
within these limits. The Bylaws further provide that up to two directors may be
added by the Board between annual meetings of the shareholders. Columbia's
Board has fixed the number of directors to be elected at the Annual Meeting at
12 and has nominated the persons listed on the following pages for election as
directors to serve until the 2003 Annual Meeting or until their successors are
elected.
What is the retirement age for directors?
Columbia's Bylaws provide that any person who has not attained the age of 75
before the meeting of shareholders at which they are nominated for election (or
who had not attained that age by the date of the last annual meeting of
shareholders, if appointed) may become a director.
What happens if a nominee refuses or is unable to stand for election?
The Board may reduce the number of seats on the Board or designate a
replacement nominee. If the Board designates a substitute, shares represented
by proxy will be voted FOR the substitute nominee. The Board presently has no
knowledge that any of the nominees will refuse or be unable to serve.
Who are the nominees?
Information regarding each of the nominees is provided below, including each
nominee's name and age, principal occupation during the past five years, and
the year first elected as a director of Columbia, its predecessor corporation
or one of its former or current subsidiaries. All of the nominees are presently
directors of Columbia and Columbia Bank.
Richard S. DeVine Director since 1993
Mr. DeVine, 74, has served as president of Chinook Resources, Inc. (timber
acquisition and sales) since 1992. Until 2001, Mr. DeVine served as chairman of
Raleigh Schwarz & Powell, Inc., now known as Brown & Brown, Inc. (insurance
brokers), Tacoma, Washington, having served as president of that company from
1976 to 1989.
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Melanie J. Dressel Director since July 1998
Ms. Dressel, 49, has served as President and Chief Executive Officer of
Columbia Bank since January 2000, having served prior to that time and since
July 1998 as President and Chief Operating Officer, and from May 1997 to July
1998, as Executive Vice President. Ms. Dressel has also served as the President
and Chief Operating Officer of Columbia since January 2000, having served prior
to that time and since May 1997 as Executive Vice President. Ms. Dressel, who
has over 20 years of banking experience, joined Columbia Bank in 1993, serving
as Senior Vice President and Private Banking Manager until May 1997.
Jack Fabulich Director since 1993
Mr. Fabulich, 73, is honorary chairman of Parker Paint Manufacturing Co.,
Inc., Tacoma, Washington, having served as president from 1982 to 1993. He is
currently a commissioner and the president of the Port of Tacoma and formerly
the president of Washington Public Ports. Mr. Fabulich also serves as a
director of Washington Public Ports and R.A.E. Corp.
Jonathan Fine Director since 1993
Mr. Fine, 47, is the president and chief executive officer of United Way of
King County. Prior to joining United Way in September 2000, Mr. Fine served as
chief executive officer of the American Red Cross, Seattle, King-County Chapter
beginning in April 1996. Prior to that time, Mr. Fine was a private investor
and from 1986 until December 1992, he served as senior vice president and
treasurer of Puget Sound Bancorp, Inc., Tacoma, Washington.
John P. Folsom Director since 1997
Mr. Folsom, 58, has been president and chief executive officer of Raleigh
Schwarz & Powell, Inc., now known as Brown & Brown, Inc. (insurance brokers),
Tacoma, Washington, since 1989.
J. James Gallagher Director since July 1998
Mr. Gallagher, 63, has served as Vice Chairman and Chief Executive Officer
of Columbia and Vice Chairman of Columbia Bank since January 2000, having
served prior to that time and since July 1998 as Vice Chairman of Columbia and
Columbia Bank. From January 1994 until his appointment at Columbia, Mr.
Gallagher was a principal of Gordon, Thomas, Honeywell, Malanca, Peterson &
Daheim, P.L.L.C., a law firm headquartered in Tacoma, Washington, where he
served as outside legal counsel for Columbia. Mr. Gallagher, who is a former
bank regulator, has over 30 years of experience as legal counsel to financial
institutions throughout the Northwest.
John A. Halleran Director since 1992
Mr. Halleran, 73, has been a private investor since 1992. Prior to that time
he was a general contractor with headquarters in Bellevue, Washington.
Thomas M. Hulbert Director since October 1999
Mr. Hulbert, 55, is the president and chief executive officer of Winsor
Corporation (lighting technologies), Olympia, Washington. From 1986 to 1996,
Mr. Hulbert was the president of Log Contractors, Inc. (timber contracting and
logging), Olympia, Washington, and from 1994 to 1998, was also the president of
Techwood (furniture panel manufacturer), Shelton, Washington.
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Thomas L. Matson, Sr. Director since 1998
Mr. Matson, 64, has been the owner and president of Tom Matson Dodge, Inc.
(automobile dealership), Auburn, Washington, since 1963. Mr. Matson served as
the chairman of Cascade Bancorp, Inc. and its subsidiary, Cascade Community
Bank, Auburn, Washington, from 1990 to 1997, when those institutions were
acquired by Columbia.
Donald Rodman Director since 1991
Mr. Rodman, 63, has been the owner and an executive officer of Rodman
Realty, Longview, Washington, since 1961.
William T. Weyerhaeuser Director since 1998
Mr. Weyerhaeuser, 58, is a clinical psychologist who has been in private
practice in Tacoma, Washington since 1975. Mr. Weyerhauser is currently the
chairman of the board of EDEN Bioscience Corporation. From 1984 to July 2000,
Mr. Weyerhaeuser was also the owner and chairman of the board of Comerco, Inc.
(holding company for the Yelm Telephone Company), Tacoma, Washington, and, from
1994 until June 1998, served as the chairman of the board of Rock Island
Company (private investment company), St. Paul, Minnesota. Since 1990, Mr.
Weyerhaeuser has also been a director of Potlatch Corporation (forest products)
and since 1998, a director of EDEN Bioscience Corporation, each of which has a
class of securities registered pursuant to Section 12(b) of the Securities
Exchange Act of 1934. Mr. Weyerhauser also serves on the compensation
committees for EDEN Bioscience Corporation, the University of Puget Sound,
Potlatch Corporation and Clearwater Management Company.
James M. Will Director since 1993
Mr. Will, 55, has served as the president of Titus-Will Enterprises
(automobile leasing, rental and property management), Tacoma, Washington, since
1995, and also currently serves as president of that company's subsidiary,
Titus-Will Chevrolet, Oldsmobile and Cadillac, Olympia, Washington. Prior to
that time and since 1969, Mr. Will was the president of Tam Manufacturing Co.
(automotive reengineering), Tacoma, Washington.
What committees has the Board established?
The Board of Directors has established an Executive Committee, an Audit
Committee, a Personnel and Compensation Committee and a Nominating Committee.
Executive Committee. The Executive Committee may exercise all of the
authority of the Board of Directors during the intervals between meetings of
the Board, except that the Committee does not have the authority to: (1)
authorize or approve a distribution or issuance of shares except in limited
circumstances, (2) approve or propose to shareholders actions requiring
shareholder approval, (3) fill vacancies on the Board or any Committee of the
Board, (4) amend the Articles of Incorporation of Columbia, (5) adopt, amend,
or repeal the Bylaws of Columbia, (6) approve a plan of merger not requiring
shareholder approval, or (7) authorize or approve the issuance or sale of
shares or determine rights and preferences with regard to any class or series
of shares, except within certain limits specifically prescribed by the full
Board of Directors. Current members of the Executive Committee are: Messrs.
Weyerhaeuser (Chairman), DeVine, Fine, Folsom, Gallagher, and Matson and Ms.
Dressel. There were 3 meetings of the Executive Committee in 2001.
Audit Committee. The Audit Committee reviews and approves the services of
the independent auditors, reviews the plan, scope, and audit results of the
internal auditors and the independent auditors, and reviews the reports of bank
regulatory authorities. The Audit Committee also has oversight with respect to
Columbia's financial reporting, including the annual and other reports to the
Securities and Exchange Commission and the annual report to the shareholders.
In May 2000, the Audit Committee adopted a written charter. Current members
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of the Audit Committee, none of whom are officers or employees of Columbia or
Columbia Bank, are: Messrs. Fine (Chairman), Fabulich, Folsom, Hulbert, and
Matson. All members of Columbia's Audit Committee are independent, as defined
by applicable rules of the National Association of Securities Dealers. There
were 7 meetings of the Audit Committee during 2001.
Personnel and Compensation Committee. The Personnel and Compensation
Committee reviews and recommends compensation arrangements for senior
management. Current members of the Personnel and Compensation Committee, none
of whom are officers or employees of Columbia or Columbia Bank, are: Messrs.
DeVine (Chairman), Halleran, Rodman, Snyder, Weyerhaeuser and Will. There were
3 meetings of the Personnel and Compensation Committee during 2001.
Nominating Committee. The Board of Directors has delegated to the Executive
Committee the function of a Nominating Committee. The Nominating Committee
identifies and recommends persons to be the board's nominees for the board of
directors at each annual meeting of shareholders, and to fill vacancies on the
board between annual meetings. Current members of the Nominating Committee are
those shown above for the Executive Committee. The chairman of the board, as
chairman of the Executive Committee, is chairman of the Nominating Committee.
How often did the Board of Directors meet during 2001?
The Board met 11 times during 2001. Each director attended at least 75% of
the total number of meetings of the Board and committees on which he or she
served, except Senator Snyder whose absences were excused due to his mandatory
attendance at meetings of the Washington State Senate.
How are directors compensated?
Columbia does not pay directors who are also employees of Columbia or
Columbia Bank additional compensation for their service as directors. During
2001, each of Columbia's outside directors received an annual retainer of
$6,000 for serving on the Board and $500 per meeting for attending committee
meetings of the Board. In addition, each outside director of Columbia was
granted non-qualified stock options to purchase shares (as adjusted for
applicable stock dividends and splits) of Columbia common stock, as follows:
Year # of Shares Exercise PricePer Share
---- ----------- -----------------------
All Directors 1997 2,001 $7.94
All Directors 1998 1,906 $20.46
All Directors 1999 No grants N/A
All Directors 2000 1,650 $10.91
All Directors 2001 1,650 $13.15
In 2001, the Chairman of the Board and each committee chairman also received
options for 1,000 additional shares at an exercise price of $12.90 per share.
These options vest (i.e. become exercisable) three years from the date of
grant, unless earlier vesting is approved by the Personnel and Compensation
Committee. The options may be exercised for a period of five years after they
vest. If a director dies, becomes disabled, or retires (defined to mean a
termination of directorship with at least five years of service or after
attaining the age of 75), all options (whether or not vested) become
immediately exercisable and may be exercised by the director or the director's
estate for a period of five years or until the expiration of the stated term of
the option. If a director terminates service on the Board for any reason other
than death, disability or retirement, all options, to the extent then
exercisable, must be exercised within 90 days unless the term for exercise is
extended by the Board. If any director is terminated for cause, all options
will immediately terminate. Any additional option grants, which may be approved
from time to time in the discretion of the Personnel and Compensation Committee
and the Board, are generally subject to a director's
8
unexcused absence for the year from no more than 25% of the total meetings of
the Board and all committees of which the director is a member.
In 2001, Columbia implemented a long-term care program for directors.
Currently, directors Devine, Folsom, Gallagher, Halleran, Hulbert, Rodman and
Will participate in the program which provides benefits in the event those
individuals become chronically ill. The coverage is for a period of 3 years up
to a lifetime, depending on the age of the director, and the amount of the
benefit is based on the director's years of service with Columbia after the
inception of the long-term care program. Columbia paid a one time premium for
the long-term care policies. Expenses are allocated to the directors
participating in the program for 2001 as follows: Mr. Devine ($2,913), Mr.
Folsom ($2,665), Mr. Gallagher ($3,763), Mr. Halleran ($1,935), Mr. Hulbert
($3,285), and Mr. Will ($2,464). The benefit vests over a 5 year period
provided that the directors are fully vested if (1) they obtain the age of 75,
(2) they are not reelected to the board, (3) they become disabled, or (4) there
is a change of control of Columbia. If a director is terminated for cause, the
director must reimburse Columbia for the full premium paid. A director must
reimburse a percentage of the premium if the director voluntarily resigns or
chooses not to run for reelection. The long-term care program is available to
all Columbia directors, including executive officers who are also directors.
Columbia has purchased Bank Owned Life Insurance policies to fund this program.
EXECUTIVE COMPENSATION
The following section describes the compensation that Columbia pays its
Chief Executive Officer and the next four most highly compensated executive
officers (the "Named Executives"). This section includes:
. a report of Columbia's Personnel and Compensation Committee on executive
compensation;
. a graph showing comparative performance of Columbia's common stock;
. a detailed table showing compensation of the Named Executives for the last
three years; and
. information about stock options and other benefits.
Report of the Personnel and Compensation Committee
on Executive Compensation
The Personnel and Compensation Committee of the Board of Directors of
Columbia (the "Committee") has furnished the following report on executive
compensation for fiscal year 2001. The Committee report is intended to describe
in general terms the process the Committee undertakes and the matters it
considers in determining the appropriate compensation for Columbia's executive
officers, including the Named Executives.
Responsibilities and Composition of the Committee
The Committee is responsible for (1) establishing compensation programs for
executive officers of Columbia designed to attract, motivate and retain key
executives responsible for the success of Columbia as a whole; (2)
administering and maintaining such programs in a manner that will benefit the
long-term interests of Columbia and its shareholders; and (3) determining the
salary, bonus, stock option and other compensation of Columbia's executive
officers. The Committee serves pursuant to a Charter adopted by the Board of
Directors.
The Committee is currently composed of Richard S. DeVine (Chairman), John
Halleran, Donald Rodman, Sidney R. Snyder, William T. Weyerhaeuser, and James
M. Will. None of the members are officers or employees of Columbia or Columbia
Bank.
Compensation Philosophy
Columbia's long-term goal is to become the leading super community banking
company headquartered in the Pacific Northwest, with a significant presence in
selected markets. Management believes that the ongoing
9
consolidation in its principal market area affords an opportunity for
aggressive growth. Columbia's growth strategy consists of the following
elements:
. Focus on relationship lending to small and medium-sized businesses,
professionals and other individuals whom Columbia believes are
under-served by larger banks in its market area and are attracted by
Columbia's emphasis on relationship banking.
. Fund loan growth through the creation of a branch system and other
delivery systems catering primarily to retail depositors, supplemented by
business banking customer deposits and other borrowings.
. Continue growth through a combination of growth at existing offices,
establishing new offices in desirable markets, expanding products beyond
traditional loan and deposit services, and acquiring bank and non-bank
companies as promising opportunities arise.
. Control credit risk through established loan underwriting and monitoring
procedures, loan concentration limits, product and industry
diversification, and the hiring of experienced lending personnel with a
high degree of familiarity with their market area.
The achievement of these goals is intended to create long-term value for
Columbia's shareholders, consistent with protecting the interests of depositors.
The Committee believes that compensation of Columbia's Chief Executive
Officer, other executive officers and key personnel should be based to a
substantial extent on achievement of the goals and strategies that Columbia has
established and enunciated.
When establishing salaries, bonus levels and stock option awards for
executive officers, the Committee considers (1) Columbia's performance during
the past year and recent quarters in meeting its financial and other
performance goals, (2) the individual's performance during the past year and
recent quarters, and (3) the salaries of executive officers in similar
positions with companies of comparable size, maturity and pursuing similar
objectives, and other companies within the financial institutions industry.
With respect to executive officers other than the Chief Executive Officer, the
Committee takes into consideration the recommendations of the Chief Executive
Officer. The method for determining compensation varies from case to case based
on a discretionary and subjective determination of what is appropriate at the
time.
Compensation Programs and Practices
Columbia's compensation program for executives consists of three key
elements: (1) base salary, (2) a performance-based annual bonus, and (3)
periodic grants of options and other stock-based compensation.
The Committee believes that this three-part approach best serves the
interests of Columbia and its shareholders. It enables Columbia to meet the
requirements of the highly competitive banking environment in which it
operates, while ensuring that executive officers are compensated in a way that
advances both the short-term and long-term interests of shareholders. The
variable annual bonus permits individual performance to be recognized and is
based, in significant part, on an evaluation of the contribution made by the
officer to Columbia's overall performance. Options and other stock-based
compensation relate a significant portion of long-term remuneration directly to
stock price appreciation. This type of compensation is intended to align the
interests of option holders and of Columbia's shareholders, and further serve
to promote an executive's continued service to the organization.
Base Salary. Base salaries for Columbia's executive officers are based upon
recommendations by the Chief Executive Officer, taking into account such
factors as competitive industry salaries, an executive's scope of
responsibilities, and individual performance and contribution to the
organization. Columbia's Human Resources department obtains executive
compensation data from salary surveys that reflect a peer group of other
banking companies, including companies of different sizes, and provides this
data to the Committee for its consideration in connection with the
determination of levels of compensation. To the extent it deems appropriate,
10
the Committee also considers general economic conditions within the area and
within the industry. The Committee also meets periodically with an outside
compensation consultant to evaluate the information obtained in light of
Columbia's stated compensation objectives.
Annual Bonus. Executive officers have an annual incentive (bonus)
opportunity with awards based on the overall performance of Columbia and on
specific individual performance targets. The performance targets may be based
on one or more of the following criteria: successfully pursuing Columbia's
growth strategy, maintaining sound asset quality, improving productivity, and
increasing earnings and return on equity.
The size of the bonus pool is based upon an assessment of Columbia's
performance as compared to both budgeted and prior fiscal year performance and
the extent to which Columbia achieved its overall goals. Once the bonus pool is
determined, the Chief Executive Officer or other executive officers, as
appropriate, make individual bonus recommendations to the Compensation
Committee, within the limits of the pool, for eligible employees based upon an
evaluation of their individual performance and contribution to Columbia's
overall performance.
Options and Other Stock-Based Compensation. The Committee follows a
compensation philosophy that emphasizes options and other stock-based
compensation. Columbia's use of stock-based compensation focuses on the
following guiding principles: (1) stock-based compensation has been and will
continue to be an important element of employee pay, (2) the grant of stock
options will be based on performance measures within the employee's control,
(3) owning stock is an important ingredient in forming the partnership between
employees and the organization, and (4) ownership of significant amounts of
Columbia's stock by executives and senior officers of Columbia will facilitate
aligning management's goals with the goals of shareholders. The Committee
anticipates that it will continue to emphasize stock-based compensation in the
future.
Columbia's performance in recent years has, in the Committee's opinion,
shown the value of this approach. In particular, the Committee has taken note
that, as shown on the Stock Performance Graph that follows, the total annual
returns for Columbia's shareholders as compared to total annual returns for the
Nasdaq U.S. Stock Index and for Columbia's Peer Group (comprised of banks with
assets of $1 billion to $5 billion, all of which are located in the western
United States), showed good performance through 1998, lagged in 1999, performed
well in 2000, and lagged in 2001.
Stock Ownership Guidelines
In 1997, the Committee approved stock ownership guidelines, which were
amended in January 1999, for its executive officers. The guidelines are
intended to help closely align the financial interests of these officers with
those of Columbia's shareholders. Officers are expected to make continuing
progress towards compliance with the guidelines during the five-year period
that began in April 1997 (or, as appropriate, January 1999) or the date a
person is designated as an executive officer, whichever is later.
The ownership guidelines are as follows: (1) senior executive officers
(currently including the positions of Vice Chairman, Chief Executive Officer,
President, and Chief Operating Officer) have a required minimum ownership of
25,410 shares; and (2) Executive Vice Presidents in charge of lending and
retail, the Chief Credit Officer, and the Chief Financial Officer have a
required minimum ownership of 19,058 shares.
The Board has also approved stock ownership guidelines that call for
directors to achieve a stock ownership position of at least 6,353 shares by the
year 2002 or within five years of joining the Board.
At year-end 2001, all of the directors had exceeded the ownership
guidelines, and the executive officers as a group far exceeded the guidelines.
11
Chief Executive Officer Compensation
Mr. J. James Gallagher served as Columbia's Vice Chairman and Chief
Executive Officer for the 2001 fiscal year, and Ms. Melanie J. Dressel served
as President and Chief Executive Officer of Columbia Bank. In evaluating the
compensation of Mr. Gallagher and Ms. Dressel for services rendered in 2001,
the Committee considered both quantitative and qualitative factors.
In looking at quantitative factors, the Committee reviewed Columbia's 2001
financial results and compared them with Columbia's budget and actual financial
results for 2000. Specifically, the Committee considered that:
. net income increased 24% from 2000 net income;
. earnings per share (diluted) increased 25% from 2000;
. average total assets, total loans and total deposits grew by 6%, 6% and
7%, respectively, from year end 2000 to 2001;
. the 2001 return on average total assets was 0.86% compared to 0.73% in
2000, while the return on average equity increased to 10.39% compared to
9.36% in 2000;
. credit quality did not compare favorably with peer group performance; and
. progress was less than expected in expanding Columbia's presence in King
County and otherwise executing its growth strategy.
In addition to these quantitative accomplishments, the Committee also
considered certain qualitative accomplishments by Mr. Gallagher and Ms. Dressel
in 2001. Specifically, the Committee recognized their leadership in
strategically positioning Columbia for future significant developments in the
banking industry and in Columbia's market area, and otherwise developing
long-term strategies for the organization.
Policy With Respect to $1 Million Deduction Limit
It is not anticipated that the limitations on deductibility, under Internal
Revenue Code Section 162(m), of compensation to any one executive that exceeds
$1,000,000 in a single year will apply to Columbia or its subsidiaries in the
foreseeable future. In the event that such limitations would apply, the
Committee will analyze the circumstances presented and act in a manner that, in
its judgment, is in the best interests of Columbia. This may or may not involve
actions to preserve deductibility.
Conclusion
The Committee believes that for 2001, the compensation terms for Mr.
Gallagher and Ms. Dressel, as well as for the other executive officers, were
clearly related to the realization of the goals and strategies established by
Columbia. Due to Columbia's inability to meet targeted performance in certain
quantitative factors in 2001, no bonuses or options were awarded in 2001.
Richard S. DeVine, Chairman
John Halleran
Donald Rodman
Sidney R. Snyder
William T. Weyerhaeuser
James M. Will
12
Stock Performance Graph
The following graph shows a five-year comparison of the total return to
shareholders of Columbia's common stock, the Nasdaq U.S. Stock Index (which is
a broad nationally recognized index of stock performance by companies traded on
the Nasdaq National Market and the Nasdaq Small Cap Market) and the Columbia
Peer Group (comprised of banks with assets of $1 billion to $5 billion, all of
which are located in the western United States). The definition of total return
includes appreciation in market value of the stock as well as the actual cash
and stock dividends paid to shareholders. The graph assumes that the value of
the investment in Columbia's common stock, the Nasdaq and the Columbia Peer
Group was $100 on December 31, 1996, and that all dividends were reinvested.
[CHART]
Period Ending
-----------------------------------------------------
Index 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
----- -------- -------- -------- -------- -------- --------
Columbia Banking System, Inc. 100.00 174.47 179.32 133.58 174.22 160.71
NASDAQ--Total US*............ 100.00 122.48 172.68 320.89 193.01 153.15
Columbia Peer Group**........ 100.00 174.57 160.68 165.26 205.59 215.23
--------
* Source: CRSP, Center for Research in Security Prices, Graduate School of
Business, The University of Chicago 2002.
** The financial institutions which comprise the Peer Group consist of Western
banks with total assets between $1-5 billion.
13
Compensation Tables
Summary Compensation Table
The following table shows compensation paid or accrued for the last three
fiscal years to Columbia's Chief Executive Officer and each of the Named
Executives.
Long-Term
Annual Compensation Compensation Awards
------------------------- ------------------------
Restricted Securities
Stock Underlying All Other
Name and Principal Position Year Salary(1) Bonus Awards(2) Options(#)(3) Compensation(4)
--------------------------- ---- --------- ------- ---------- ------------- ---------------
J. James Gallagher, 2001 $235,000 $ -0- $ -0- -0- $14,575
Vice Chairman and 2000 200,000 60,000 -0- 11,000 15,730
Chief Executive Officer 1999 179,777 -0- -0- -0- 10,745
Melanie J. Dressel, 2001 $225,000 $ -0- $ -0- -0- $14,198
President and 2000 190,000 60,000 -0- 11,000 14,200
Chief Operating Officer 1999 175,000 -0- -0- 11,550 13,679
Don L. Hirtzel, 2001 $152,499 $ -0- $ -0- -0- $ 8,531
Executive Vice President 2000(5) 25,000 50,000 70,000 16,500 -0-
Harald R. Russell, 2001 $165,000 $ -0- $ -0- -0- $12,700
Executive Vice President and 2000 150,000 45,000 -0- 8,250 13,653
Chief Credit Officer 1999 140,000 -0- -0- 5,775 13,257
Evans Q. Whitney, 2001 $165,000 $ -0- $ -0- -0- $13,045
Executive Vice President 2000 150,000 45,000 -0- 8,250 14,506
1999 140,000 -0- -0- 5,775 14,128
--------
(1) Represents total cash compensation earned, including interest on deferred
compensation accruals.
(2) The Named Executive Officers had the following restricted stock award
balances outstanding as of December 31, 2001: Mr. Gallagher, 19,057 shares
($248,694); Ms. Dressel, 9,528 shares ($124,340); Mr. Whitney, 9,528 shares
($124,340); Mr. Russell, 9,528 shares ($124,340); and Mr. Hirtzel, 5,500
shares ($71,775). Dollar values are based on the $13.05 per share closing
price of Columbia's common stock reported on the Nasdaq National Market on
December 31, 2001. Numbers have been adjusted for applicable stock splits
and applicable stock dividends.
(3) Numbers have been adjusted for applicable stock splits and applicable stock
dividends.
(4) Amounts shown for Mr. Gallagher in 2001 include $4,706 in 401(k) plan
matching contributions, $8,500 in profit sharing, $324 in group term life
insurance premiums, and $1,045 in economic benefit for split dollar
insurance.
Amounts shown for Ms. Dressel in 2001 include $4,984 in 401(k) plan matching
contributions, $8,500 in profit sharing, $324 in group term life insurance
premiums, and $390.00 in economic benefit for split dollar insurance.
Amounts shown for Mr. Hirtzel in 2001 include $3,075 in 401(k) plan matching
contributions, $5,132 in profit sharing, and $324 in group term life
insurance premiums.
Amounts shown for Mr. Russell in 2001 include $4,017 in 401(k) plan matching
contributions, $8,017 in profit sharing, $324 in group term life insurance
premiums, and $342 in economic benefit for split dollar insurance.
Amounts shown for Mr. Whitney in 2001 include $4,326 in 401(k) plan matching
contributions, $7,686 in profit sharing, $324 in group term life insurance
premiums, and $710 in economic benefit for split dollar insurance.
(5) Mr. Hirtzel joined Columbia on October 31, 2000. At that time, he received
a $50,000 bonus, as well as a restricted stock award grant of 5,500 shares
of Columbia common stock (as adjusted for stock splits and dividends), and
a nonqualified stock option to purchase 16,500 shares of Columbia common
stock (as adjusted for stock splits and dividends).
14
Option Grants in 2001
No options were granted to the Named Executives during 2001.
Option Exercises and Year-End Option Values
The following table summarizes option exercises by and the value of
unexercised options held by the Named Executives during 2001:
Number of
Securities
Underlying
Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired December 31, at December 31, 2001
On Value 2001 (Exercisable/ (Exercisable/
Name Exercise Realized Unexercisable) Unexercisable) (1)
---- -------- ----------- ------------------ --------------------
J. James Gallagher -0- -0- 47,644 / 11,000 -0- / $143,550
Melanie J. Dressel 12,561 $102,497 11,410 / 23,705 $148,901 / $309,350
Don L. Hirtzel -0- -0- -0- / 16,500 -0- / $215,325
Harald R. Russell -0- -0- 18,015 / 14,603 $235,096 / $190,569
Evans Q. Whitney 16,870 $137,659.20 11,410 / 14,603 $148,901 / $190,569
--------
(1) In accordance with applicable rules of the Securities and Exchange
Commission, values are calculated by subtracting the exercise price from
the fair market value of the underlying stock. For purposes of this table,
fair market value is deemed to be $13.05, the closing sale price of
Columbia's common stock reported on the Nasdaq National Market on December
31, 2001, the last trading day of 2001.
Other Employee Benefits
401(k) Plan. Columbia maintains a defined contribution plan, in the form of
a 401(k) plan, that allows employees, including executive officers, to
contribute up to 15% of their compensation each year. Columbia currently makes
matching contributions to the extent of 50% of employees' contributions up to
3% of each employee's total compensation and is authorized to make a
discretionary contribution as determined by the Committee each year. Columbia
contributed approximately $357,000 in matching funds to the 401(k) Plan during
2001, and made a discretionary contribution of approximately $888,000 for the
year 2001.
Employee Stock Purchase Plan. Columbia also maintains an Employee Stock
Purchase Plan (the "ESPP") that was adopted in 1995 and amended in January
2000. The ESPP allows eligible employees to purchase shares of Columbia common
stock at 90% of the lower of the market price at either the beginning or the
end of each six-month offering period by means of payroll deductions.
Incentive Bonus Plan. Columbia has in place a discretionary Incentive Bonus
Plan for the benefit of certain employees. Contributions by Columbia are based
upon year-end results of operations for Columbia and attainment of goals by
individuals. In 2001, Columbia contributed $189,265 to the Plan.
Supplemental Executive Retirement Plan and Split Dollar Benefit. In 2001,
Columbia implemented a supplemental executive retirement plan (the "SERP") for
certain executive officers of Columbia (the "Executives") to provide retirement
benefits to those officers. The SERP is unsecured and unfunded and there are no
plan assets. Columbia has purchased single premium Bank Owned Life Insurance
("BOLI policies") on the lives of the Executives and other officers and intends
to use income from the BOLI policies to offset SERP benefit expenses.
The SERP provides the Executives with lifetime retirement benefits generally
targeted to be the lesser of a fixed initial amount or 60% of the Executive's
respective final full year of total compensation (as shown on the
15
Form W-2), except that J. James Gallagher's annual benefit is fixed at
$150,000, without regard to his final base wage. The fixed initial amounts for
Ms. Dressel and Messrs. Russell and Whitney are $294,688, $238,255 and
$139,303. The SERP includes a number of restrictions on payment, including a
requirement, subject to exception, that the Executive remain employed by
Columbia until age 65 (62 in the event of a change in control). The SERP
includes a number of potential adjustments to the date on which retirement
payments are initiated and to the amount of the Executive's benefit. These
potential adjustments include provisions for early retirement at a reduced
benefit amount, a 2% annual inflation adjustment to benefit payments, an
"Applicable Percentage" schedule, from 0% to 100%, analogous to a five year
vesting schedule, that provides for a reduction in some benefit payments based
on the Executive's tenure. Executives terminated pursuant to a change in
control of Columbia, or disabled under any circumstances will be entitled to an
Applicable Percentage of 100%, regardless of tenure. Other potential SERP
adjustments include an elimination of benefits if the Executive violates
non-competition requirements or is terminated for cause or resigns voluntarily
before achieving an Applicable Percentage of 100%.
Associated with the SERP benefit is a death benefit for each Executive's
designated beneficiaries. Beneficiaries designated by an Executive are entitled
to a split dollar share of the death proceeds from the life insurance policies
on each Executive, which vary depending on the Executive's age at death,
employment status with Columbia at the time of death, and eligibility to
receive SERP payments.
Restricted Stock. Columbia has made restricted stock awards to executives
in order to reward the executives for prior service to Columbia and to provide
incentives for such executives to continue to serve Columbia in the future. In
each case, the awards provide for the immediate issuance of shares of Columbia
common stock to the executive, with such shares held in escrow until the
executive meets certain conditions. The condition to the awards is continued
service as an executive officer of Columbia and/or Columbia Bank for at least
five years from the date of grant of the award. If an executive does not meet
the required condition, the executive forfeits his or her right to the shares.
The term of the escrow may be reduced by action of the Board or the Committee,
by reason of a change in control of Columbia or Columbia Bank, or by the death
or disability of the executive. The executives have the right to vote the award
shares and to receive dividends or other distributions on the shares while they
remain in escrow.
General Benefits. Columbia provides a group health insurance plan along
with the normal vacation and sick pay benefits.
Executive Employment and Severance Agreements
Mr. Gallagher serves as Vice Chairman of Columbia and Columbia Bank and
Chief Executive Officer of Columbia pursuant to an employment agreement entered
into effective July 1, 1998 and as amended effective December 20, 2000. The
term of the employment agreement with Mr. Gallagher expires June 30, 2003,
unless extended or sooner terminated as provided in such agreement. The
employment agreement with Mr. Gallagher, as most recently amended, establishes
his minimum annual salary at $235,000 beginning January 1, 2001.
Ms. Dressel serves as President and Chief Executive Officer of Columbia Bank
and as President and Chief Operating Officer of Columbia pursuant to an
employment agreement entered into effective July 1, 1999 and as amended
effective December 20, 2000. The term of the employment agreement with Ms.
Dressel expires on June 30, 2004, unless extended or sooner terminated as
provided in such agreement. The employment agreement with Ms. Dressel, as most
recently amended, establishes her minimum annual salary at $225,000 beginning
January 1, 2001.
Columbia has also entered into employment agreements effective December 20,
2000, pursuant to which Messrs. Russell and Whitney serve as Executive Vice
Presidents of Columbia. The terms of the employment agreements with Messrs.
Russell and Whitney expire June 30, 2004, unless extended or sooner terminated
as provided in such agreements. The employment agreements with Messrs. Russell
and Whitney establish each such executive's minimum annual salary at $165,000
beginning January 1, 2001. The employment agreements entered
16
into with Messrs. Russell and Whitney replaced the Severance Agreements with
these executives effective June 23, 1999. On October 31, 2001, Columbia also
entered into an employment agreement with Mr. Hirtzel pursuant to which he
agreed to serve as an Executive Vice President. The term of Mr. Hirtzel's
employment agreement expires December 31, 2003, unless extended or sooner
terminated as provided in such agreement. The employment agreement establishes
Mr. Hirtzel's minimum annual salary at $150,000.
The employment agreements with Messrs. Gallagher, Russell, Whitney and
Hirtzel and Ms. Dressel contain covenants by such executives that they will not
compete with Columbia in the State of Washington for two years after
voluntarily terminating employment without "good reason" (as defined in the
agreements).
The employment agreements also contain provisions that require payments in
the event of a change in control (as defined in the agreements) and termination
of employment without cause (as defined in the agreements). The payments would
be due if such termination followed by up to two years and in certain cases
preceded the change in control. Generally, in such circumstances, all
contingent payments payable to the executives are deemed earned. Under the
terms of the agreements, each of the executives is entitled to receive their
base salary for two years following such termination or until the end of the
term of their respective employment agreements, whichever is longer. In such
circumstances, the executives are also entitled to all benefits provided for in
their respective agreements, to be fully vested as to any nonvested options and
to have restrictions lapse with regard to any restricted stock or other
restricted securities. In the event that the executive receives an amount under
these provisions which results in imposition of a tax on the executive under
the provisions of Internal Revenue Code Section 4999 (relating to Golden
Parachute payments), Columbia is obligated to reimburse such executive for that
amount exclusive of any tax imposed by reason of receipt of reimbursement under
their employment agreement.
Columbia has entered into a Severance Agreement with Gary R. Schminkey,
Executive Vice President and Chief Financial Officer. The severance agreement
contains provisions, similar to those contained in the employment agreements
discussed above, that require payments in the event of a change in control and
termination of employment without cause. Under the terms of Mr. Schminkey's
agreement, he is entitled to receive his base salary for varying terms of up to
three years following termination arising out of a change in control situation,
and is also entitled to be fully vested as to any nonvested options and to have
restrictions lapse with regard to any restricted stock or other restricted
securities. His agreement also contains a covenant that he will not compete
with Columbia in the State of Washington for up to three years after the
commencement of severance benefit payments. The term of the severance agreement
becomes operable only in certain circumstances involving a change in control
and does not constitute a contract for continued employment.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Columbia's
directors and executive officers to send reports of their ownership of
Columbia's stock to the Securities and Exchange Commission. Columbia believes
that all Section 16(a) filing requirements that apply to its directors and
executive officers were complied with for the fiscal year ending December 31,
2001. In making this disclosure, Columbia has relied solely on written
representations of its directors and executive officers, and copies of the
reports that they have filed with the SEC.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
During 2001, certain directors and executive officers of Columbia and
Columbia Bank, and their associates, were customers of Columbia Bank, and it is
anticipated that such individuals will continue to be customers of Columbia
Bank in the future. All transactions between Columbia Bank and its executive
officers and directors, and their associates, were made in the ordinary course
of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and, in the opinion of management, did not involve more than the
normal risk of collectability or present other unfavorable features.
17
In addition, in December 2000, Columbia's Board approved the issuance of an
aggregate of 50,000 shares of Columbia common stock to certain of its Named
Executives, in return for receipt from each Executive of a full recourse
promissory note payable to Columbia, on or before the seventh anniversary of
the date of purchase, for the full amount of the purchase price of the shares,
with interest payable annually at the fixed rate of 5.87% per annum, the
mid-term federal rate established by the Internal Revenue Service and effective
in the month of December 2000. Specifically, the Board approved the deferred
purchase of 15,000 shares each by Mr. Gallagher and Ms. Dressel in exchange for
a $196,875 promissory note from each, and for the deferred purchase of
10,000 shares each by Messrs. Russell and Whitney in exchange for a $131,250
promissory note from each.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP performed the audit of the consolidated
financial statements of Columbia and its subsidiary for the year ended December
31, 2001. Columbia's Board has selected Deloitte & Touche to be Columbia's
independent accountants for the current fiscal year. Shareholders are not
required to take action on this selection. A representative of Deloitte &
Touche is expected to be present at the Annual Meeting to make a statement, if
desired, and to be available to respond to appropriate questions.
Fees billed by Deloitte & Touche LLP during calendar year 2001
Audit Fees. The audit fees that Deloitte & Touche LLP billed Columbia for
its audit services, including review of Columbia's annual financial statements
and those financial statements included in Columbia's quarterly reports on Form
10-Q, totaled $155,125.
Financial Information Systems Design and Implementation Fees. During the
year Deloitte & Touche LLP did not bill Columbia for financial information
systems design and implementation services.
All Other Fees. Other fees that Deloitte & Touche LLP billed Columbia for
all other non-audit services rendered to Columbia, including tax related
services, totaled $29,304. The Audit Committee has considered these fees and
determined that they are compatible with maintaining Deloitte & Touche LLP's
independence.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors makes the following report,
which, notwithstanding anything to the contrary set forth in any of Columbia's
filings under the Securities Act of 1933 or the Securities Exchange Act of
1934, will not be incorporated by reference into any such filings and will not
otherwise be deemed to be proxy soliciting materials or to be filed under such
Acts.
With respect to fiscal 2001, the Audit Committee has:
(1) reviewed and discussed the audited financial statements with management,
and management represented to the Audit Committee that Columbia's
consolidated financial statements were prepared in accordance with
generally accepted accounting principles;
(2) discussed with the independent accountants the matters required to be
discussed by SAS 61 (Communication with Audit Committees);
(3) discussed with the Columbia's internal and independent accountants the
overall scope and plans for their respective audits;
(4) met with the internal and independent auditors, with and without
management present, to discuss the results of their examinations, the
evaluations of Columbia's internal controls, and the overall quality of
Columbia's financial reporting; and
18
(5) received the written disclosures and the letter from the independent
accountants required by Independence Standards Board Standard No.1
(Independence Discussion with Audit Committee) and has discussed with
representatives of Deloitte & Touche LLP that firm's independence.
Based on the review and discussions referred to in items (1) through (5)
above, the Audit Committee has recommended to Columbia's Board of Directors
that the audited financial statements be included in Columbia's Annual Report
on Form 10-K for the last fiscal year for filing with the Securities and
Exchange Commission.
Jonathan Fine, Chairman
Jack Fabulich
John P. Folsom
Thomas M. Hulbert
Thomas L. Matson, Sr.
ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K
Columbia's Annual Report and Form 10-K for the year ended December 31, 2001
(which is not a part of Columbia's proxy soliciting materials) is being mailed
to Columbia's shareholders with this Proxy Statement. Additional copies of the
Annual Report and Form 10-K will be furnished to shareholders upon request to:
JoAnne Coy
Vice President and Marketing Director
P. O. Box 2156, MS 8300
Tacoma, WA 98401-2156
Fax: (253) 305-0317
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD AS PROMPTLY AS POSSIBLE, WHETHER
OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. IF YOU DO ATTEND THE
ANNUAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY. THE PROXY MAY BE REVOKED AT
ANY TIME PRIOR TO ITS EXERCISE.
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COLUMBIA BANKING SYSTEM, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
APRIL 2, 2002.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
COLUMBIA BANKING SYSTEM, INC.
The undersigned shareholder of COLUMBIA BANKING SYSTEM, INC. ("Columbia")
hereby nominates, constitutes and appoints J. James Gallagher and Melanie J.
Dressel and each of them (with full power to act alone), the true and lawful
attorneys and proxies, each with full power of substitution, for me and in my
name, place and stead, to act and vote all of the common stock of Columbia
standing in my name and on its books on February 12, 2002 at the Annual Meeting
of Shareholders to be held at the Best Western Executive Inn, Fife, Washington,
on April 2, 2002, at 1:00 p.m., and at any adjournment thereof, with all the
powers the undersigned would possess if personally present.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders for the April 2, 2002 Annual Meeting, and the accompanying
documents forwarded therewith, and ratifies all lawful action taken by the
above-named attorneys and proxies.
Please date, sign and mail your proxy card back as soon as possible!
COLUMBIA BANKING SYSTEM, INC.
1301 A STREET
TACOMA, WASHINGTON 98402-2156
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic
delivery of information up until 11:59 P.M. Eastern Time the day before the
cut-off date or meeting date. Have your proxy card in hand when you access the
web site. You will be prompted to enter your 12-digit Control Number which is
located below to obtain your records and to create an electronic voting
instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have your
proxy card in hand when you call. You will be prompted to enter your 12-digit
Control Number which is located below and then follow the simple instructions
the Vote Voice provides you.
VOTE BY MAIL
Mark, sign, and date your proxy card and return it in the postage-paid envelope
we have provided or return it to Columbia Banking System, Inc., c/o ADP, 51
Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: x
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COLBNK KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
COLUMBIA BANKING SYSTEM, INC.
1. ELECTION OF DIRECTORS.
A proposal to elect as directors the persons listed below to serve until the
Annual Meeting of Shareholders in the year 2003 or until their successors are
duly elected and qualified:
01) Richard S. DeVine 07) John A. Halleran
02) Melanie J. Dressel 08) Thomas M. Hulbert
03) Jack Fabulich 09) Thomas L. Matson
04) Jonathan Fine 10) Donald Rodman
05) John P. Folsom 11) William T. Weyerhaeuser
06) J. James Gallagher 12) James M. Will
For Withhold For All To withhold authority to vote, mark "For All
All All Except Except" and write the nominee's number on the
[ ] [ ] [ ] line below.
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2. In their discretion, upon such other business as may properly come before the
Annual Meeting or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTE AS SPECIFIED ABOVE. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL SET FORTH HEREIN.
Management knows of no other matters that may properly be, or which are
likely to be, brought before the Annual Meeting. However, if any other matters
are properly presented at the Annual Meeting, this Proxy will be voted in
accordance with the recommendations of management.
NOTE: Signature(s) should agree with name(s) on Columbia stock certificate(s).
Executors, administrator, trustees and other fiduciaries, and persons signing on
behalf of corporations or partnerships should so indicate when signing. All
joint owners must sign. PLEASE SIGN AND RETURN IMMEDIATELY.
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Signature Date Signature Date
(PLEASE SIGN WITHIN BOX) (Joint Owners)