FMSB » Topics » Board Committees

This excerpt taken from the FMSB DEF 14A filed Mar 17, 2005.
Board Committees

      During 2004, the Board had audit, long range planning, compensation, stock option, nominations and corporate governance, and investment (Bank only) committees. Effective January 27, 2005, the Compensation and Stock Option Committees were combined by the Board. The membership of the two committees had been identical.

      Audit Committee – The Audit Committee is responsible for retaining the independent auditor for the Company and reviews the audit results and services of the independent auditors and the Company’s internal controls. The Committee meets periodically with the independent auditors. It also monitors compliance with regulatory and audit requirements and changes in accounting policies and procedures. During 2004, the Audit Committee made recommendations to the Board as it deemed appropriate, including the appointment of the independent auditors and changes in accounting policies and procedures. During 2004, the Audit Committee was composed of Directors Doud, Florence, Rowley and Sprague, and it met nine times. The functions of the Audit Committee and its activities during fiscal 2004 are described below under the heading, “Report of the Audit Committee and Audit Fees.” The Audit Committee Charter was revised effective September 23, 2004, and a copy is attached as Appendix A.

      The Board has examined the composition of the Audit Committee in light of the Securities and Exchange Commission (“SEC”) and NASDAQ rules governing audit committees. Based upon this examination, the Board confirmed that all members of the Audit Committee are “independent” within the meaning of the current SEC and NASDAQ rules regarding audit committee members. The Board took note

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that Richard Sprague, Chairman of the Audit Committee, may not meet the “safe harbor” test for a determination regarding the SEC’s definition for an “independent audit committee member.” Mr. Sprague is an executive officer and a director of Bellevue Square Managers, Inc., which is affiliated with persons, including F. Kemper Freeman, Jr., which beneficially own or control more than 10% of the Company’s common shares. The Board determined to its satisfaction that Mr. Sprague is not an “affiliate” of this Company, and the Company has certified that Mr. Sprague meets the criteria for “independence” of SEC Rule 10A-3 and the NASDAQ rules. He is expected to continue as Chair of the Audit Committee.

      The Board of Directors has determined that Audit Committee member, James J. Doud, Jr., meets the definition of an “audit committee financial expert” as that term has been defined by the SEC. As noted above, Mr. Doud is an “independent” member of the Board as that term is defined by the SEC and NASDAQ rules. The identification of a person as an “audit committee financial expert” does not impose any duties, obligations or liabilities that are greater than those imposed on all members of the Audit Committee and the Board of Directors, and does not affect the duties, obligations or liabilities of any other member of the Audit Committee or the Board of Directors.

      Long Range Planning Committee – The Long Range Planning Committee is responsible for the formation and implementation of a long range strategic plan for the Company. During 2004, the Long Range Planning Committee was composed of Directors Doud, Dunnam, Florence, Freeman, Valaas and Wallace (effective 07/22/04), and it met one time.

      Compensation Committee – The Compensation Committee for both the Bank and the Company is charged with reviewing the Company’s general compensation strategy; establishing certain salaries and reviewing benefit programs; reviewing, approving, recommending and administering the Bank’s incentive compensation and certain other compensation plans; and approving certain employment contracts. During 2004, the Compensation Committee was composed of Directors Dunnam, Florence and Herbold, and it met six times. The Compensation Committee consists solely of directors who are “independent” members of the Board as that term is defined by the NASDAQ rules.

      Stock Option Committee – The Stock Option Committee manages the First Mutual Bancshares, Inc. Stock Option and Incentive Plan (the “Plan”). During 2004, the Stock Option Committee was composed of Directors Dunnam, Florence and Herbold, and it met three times. The Stock Option Committee consists solely of directors who are “independent” members of the Board as that term is defined by the NASDAQ rules.

      Nominations and Corporate Governance Committee – The Nominations Committee annually reviews the qualifications of the existing members of the Board whose terms expire at the next annual shareholders meeting and their interest in a further term on the Board. The Committee also reviews the qualifications of various other persons in the Company’s communities of interest who are considered as potential Board members. The Nominations and Corporate Governance Committee is composed of Directors Dunnam, Rowley and Sprague, and it met two times in 2004. Mr. Herbold, who was added to the Board in May 2003, was recommended as an addition to the Board by Chairman Freeman, based on Mr. Herbold’s credentials as the former chief operating officer of Microsoft Corporation and his qualification as a business leader and founder of a consulting company focused on improving profitability of businesses. For the 2005 Annual Meeting, the Committee met and unanimously nominated for re-election the nominees named in this Proxy Statement.

      The Committee adopted a Charter for the Nominations and Corporate Governance Committee effective September 23, 2004, and such Charter may be found on the Company’s web site, www.firstmutual.com. All members of the Nominations and Corporate Governance Committee are “independent” members of the Board as that term is defined by the NASDAQ rules. The Nominations and Corporate Governance Committee will consider for nomination as directors individuals recommended by shareholders, if such nominations are received by the Secretary of the Company prior to October 15 of the year preceding the meeting of shareholders called for the election of directors. No such nomination considerations were received for the 2005 Annual Shareholders Meeting. Nominees for the Board must meet the minimum qualifications for a director of a bank as set forth in RCW 32.16.010 and in federal banking regulations. All communications

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regarding the nomination of persons for the Board which are sent by a shareholder to the Secretary of the Company will be forwarded to all the Nominations and Corporate Governance Committee members. No nomination from the floor of any annual shareholders meeting shall be entertained, and any vote for a nominee not reviewed by the Nominations and Corporate Governance Committee will be void and not counted. Accordingly, shareholder recommendations of individuals to be considered for nomination to be elected as directors at next year’s Annual Meeting of Shareholders must be received by the Secretary of the Company on or prior to October 15, 2005.

      Investment Committee – The Investment Committee of the Bank meets almost weekly and oversees the investment practices, including hedging and lending activities, of the Bank. During 2004, the Investment Committee was composed of Directors Doud, Florence, Parker, Rowley, Valaas and Wallace, and it met 44 times.

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