<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1996
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission file number: 0-27938
COLUMBIA BANCORP
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
Oregon 93-1193156
(State of incorporation (I.R.S. Employer
Identification No.)
</TABLE>
316 East Third Street
The Dalles, Oregon 97058
(Address of principal executive offices)
Issuer's telephone number: (503) 298-6649
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common stock,
no par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
---- ----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $17,159,603.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of March 10, 1997 was $28,926,080.
The number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: 2,255,641 shares of no par
value common stock on March 10, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Part I and Part II incorporate by reference to the issuer's Annual Report
to Shareholders for the fiscal year ended December 31, 1996. Part III is
incorporates by reference the issuer's definitive proxy statement for the
annual meeting of shareholders to be held on April 17, 1997.
Transitional Small Business Disclosure Format (Check one):
Yes ; No X
----- -----
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COLUMBIA BANCORP
FORM 10-KSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
- ------ ----
<S> <C> <C>
(Portions of Item 1 are incorporated by reference from Columbia
Bancorp's Annual Report to Shareholders)
Item 1. Description of Business 3 - 25
Item 2. Description of Property 26 - 27
Item 3. Legal Proceedings 27
Item 4. Submission of Matters to a Vote of Security Holders 28
PART II
- -------
(Items 5, 6, 7 and 8 are incorporated by reference from Columbia
Bancorp's Annual Report to Shareholders)
Item 5. Market for Common Equity and Related Stockholder Matters 28
Item 6. Management's Discussion and Analysis or Plan of Operation 28
Item 7. Financial Statements 28
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure 28
PART III
- --------
(Items 9 through 12 are incorporated by reference from Columbia
Bancorp's definitive proxy statement for the annual meeting
of shareholders to be held on April 17, 1997)
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act 28
Item 10. Executive Compensation 28
Item 11. Security Ownership of Certain Beneficial Owners and
Management 28
Item 12. Certain Relationships and Related Transactions 29
Item 13. Exhibits and Reports on Form 8-K 29 - 30
SIGNATURES 31 - 32
</TABLE>
2
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ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
COLUMBIA BANCORP. Columbia Bancorp (Bancorp), an Oregon corporation,
is the parent corporation and holding company of Columbia River Banking Company
(Columbia), and Klickitat Valley Bank (Klickitat).
Bancorp was incorporated on October 3, 1995 and became the holding
company of Columbia through Columbia's merger with a "phantom bank" subsidiary
established by Bancorp. As a result of the merger, Bancorp acquired 100% of
the common stock of Columbia, and the shareholders of Columbia became
shareholders of Bancorp under a one-for-one exchange of shares.
Effective June 13, 1996, Bancorp completed its acquisition of
Klickitat, making Klickitat the second wholly-owned bank subsidiary of Bancorp.
The business combination was accomplished through the exchange of 8.5 shares of
Bancorp common stock for each share of Klickitat common stock.
As of February 28, 1997, Bancorp had 1,213 shareholders of record, and
2,255,641 shares of its common stock issued and outstanding.
All data in this Annual Report on Form 10-KSB has been restated to
give retroactive effect to the acquisition of Klickitat. In addition, all
share and per share information in years prior to 1996 has been restated to
give retroactive effect to various stock splits and stock dividends.
COLUMBIA RIVER BANKING COMPANY. Columbia is an independent,
full-service state-chartered community bank with headquarters in The Dalles,
Oregon.
Columbia was originally incorporated under the laws of the State of
Oregon on or about June 8, 1976, and received its bank charter on June 11,
1976. Effective January 1, 1995, Columbia merged with and into Juniper Banking
Company (Juniper), an Oregon state-chartered bank. Columbia was the surviving
entity in the merger.
Columbia has seven offices in Oregon. It does business under the
assumed business name "Columbia River Bank" in Hood River, Maupin, and two
locations in The Dalles. In Madras, Redmond, and Bend, Columbia does business
under the assumed business name "Juniper Banking Company." Columbia's seven
offices serve the financial needs of businesses and individuals in four
counties stretching from Deschutes and Jefferson Counties, in the approximate
geographical center of the State of Oregon, to Wasco and Hood River Counties,
on the Columbia River in the north.
KLICKITAT VALLEY BANK. Klickitat is a state-chartered community bank
headquartered in Goldendale, Washington. Klickitat was chartered by the State
of Washington and approved by the Federal Deposit Insurance Corporation on
August 26, 1968. It operates a branch in White Salmon, Washington.
3
<PAGE> 4
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
In December of 1996 the Board of Directors of Bancorp approved the
merger of Klickitat into Columbia, with Columbia to be the surviving bank and
sole subsidiary of Bancorp. The regulatory approval process was complete in
February 1997, and the merger became effective on March 1, 1997. The two
former branches of Klickitat shall continue to do business under the "Klickitat
Valley Bank" name. The Board of Directors of Bancorp believes this merger will
result in streamlined financial reporting, greater management efficiencies and
enhanced opportunities for Klickitat employees. The discussion in this Form
10-KSB of Bancorp's two subsidiaries is for the pre-merger period ending
December 31, 1996.
BUSINESS OF COLUMBIA AND KLICKITAT
Both banks provide a broad range of depository and lending services to
commercial, industrial and agricultural enterprises, governmental entities, and
individuals. Columbia and Klickitat direct their deposit taking and lending
activities primarily to the communities in which their branches are located.
The primary marketing focus is on small to medium-sized businesses and on
professionals in those communities. Neither bank provides trust services.
Commercial loans generally consist of secured credit lines, typically
renewed annually, used for the operations and working capital requirements of
business borrowers.
Agricultural loans generally consist of operating lines used to
finance farm operations through the growing season. Columbia's borrowers
include wheat, mint, seed, apple, cherry and pear growers and livestock
operations. Klickitat borrowers include wheat, alfalfa, barley, and livestock
operations. Agricultural loans also include term loans used to finance farm
equipment purchases. Agricultural loans are subject to increased credit risks
from causes such as bad weather, crop failures, and fluctuations in crop
prices.
Both banks make loans secured by commercial, farmland, and residential
property. Growth in the residential loan portfolio has been intentionally
limited to avoid exposure to increased interest rate risk on long-term fixed
rate loans. Most of Columbia's residential real estate loans are made on
behalf of other lenders.
Consumer loans generally consist of automobile loans, personal credit
lines, and borrowings under Columbia's VISA card program.
The quality of its personal financial services and dedication to
customer service have enabled Bancorp's subsidiary banks to maintain a stable
and relatively low cost retail deposit base, while generating a substantial
volume of loans. Total deposits increased from $158.9 million at December 31,
1995, to $178.7 million at December 31, 1996. Net loans increased from $104.2
million at December 31, 1995, to $118.2 million at December 31, 1996.
4
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ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Deposit accounts are insured to statutory limits by the Federal
Deposit Insurance Corporation (the FDIC). Neither bank is a member of the
Federal Reserve System. Columbia, through its Columbia River Bank Financial
Services division, markets stocks, mutual funds, and other investment and
insurance products to customers of Columbia and Klickitat as well as the public
through an arrangement with PrimeVest Financial Services Inc., a registered
securities broker-dealer.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
Net interest income. For most financial institutions, the primary
component of earnings is net interest income. Net interest income is the
difference between interest income, principally from loans and investment
securities portfolios, and interest expense, principally on customer deposits
and borrowings. Changes in net interest income result from changes in
"volume," "spread," and "margin." Volume refers to the dollar level of
interest-earning assets and interest-bearing liabilities. Spread refers to the
difference between the yield on interest- earning assets and the cost of
interest-bearing liabilities. Margin refers to net interest income divided by
interest-earning assets and is influenced by the level and relative mix of
interest-earning assets and interest-bearing liabilities.
During 1996, 1995 and 1994, Bancorp's average interest-earning assets
were $172.8 million, $156.4 million and $149.2 million, respectively. During
these same years, Bancorp's net interest margin was 5.81%, 5.71% and 5.74%,
respectively.
5
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Average balances and average rates earned and paid. The following table sets
forth for 1996, 1995, and 1994 information with regard to average balances of
assets and liabilities, as well as total dollar amounts of interest income from
interest-earning assets and interest expense on interest-bearing liabilities,
resultant average yields or rates, net interest income, net interest spread,
net interest margin.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- ------------------------------- ----------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE(1) EXPENSE RATES BALANCE(1) EXPENSE RATES BALANCE(1) EXPENSE RATES
---------- --------- -------- ---------- --------- -------- ---------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
------
Investment securities
Taxable securities $ 34,781 $ 2,170 6.24% $ 39,571 $ 2,201 5.56% $ 43,918 $ 2,280 5.19%
Nontaxable securities (2) 14,964 1,168 7.80 13,120 998 7.61 13,449 1,035 7.69
Federal funds sold 11,182 589 5.27 6,666 343 5.14 4,262 159 3.74
Loans (3) 111,841 11,855 10.60 97,087 10,612 10.93 87,609 9,098 10.39
-------- ------- ----- -------- ------- ----- ------ ------- -----
Total interest-earning
assets/interest income 172,768 15,782 9.13 156,444 14,154 9.05 149,238 12,572 8.42
Cash and due from banks 10,105 8,678 7,708
Premises and equipment, net 4,092 3,714 3,606
Reserve for loan losses (1,153) (1,026) (1,014)
Other assets 2,249 2,542 2,133
-------- -------- --------
Total assets $188,061 $170,352 $161,671
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Savings and interest-bearing
demand deposits $ 90,062 2,967 3.29 $ 80,078 2,688 3.36 $ 84,303 2,353 2.79
Time deposits 49,286 2,717 5.51 44,036 2,369 5.38 37,274 1,540 4.13
Borrowed funds 1,073 61 5.66 2,632 159 6.05 2,164 106 4.92
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-bearing
liabilities/interest
expense 140,421 5,745 4.09 126,746 5,216 4.12 123,741 3,999 3.23
Noninterest-bearing deposits 28,328 24,398 22,665
Other liabilities 1,872 3,559 1,355
-------- -------- --------
Total liabilities 170,621 154,703 147,761
Shareholders' equity 17,440 15,649 13,910
-------- ------- -------- ------- -------- -------
Total liabilities and
shareholders' equity $188,061 $170,352 $161,671
======== ======== ========
Net interest income $10,037 $ 8,938 $ 8,573
======= ======= =======
Net interest spread 5.04% 4.93% 5.19%
==== ==== ====
Interest expense to
earning assets 3.33% 3.33% 2.68%
==== ==== ====
Net interest margin 5.81% 5.71% 5.74%
==== ==== ====
- -----------------
</TABLE>
(1) Average balances are based on daily averages.
(2) Tax-exempt income has been adjusted to a tax-equivalent basis at a 34%
rate.
(3) Nonaccrual loans are included in the average balance.
6
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ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Analysis of changes in interest rate differential. The following
table shows the dollar amount of the increase (decrease) in Bancorp's interest
income and interest expense for the years indicated, on a tax-equivalent basis,
and attributes such dollar amounts to changes in volume and changes in interest
rates. Changes attributable to the combined effect of volume and interest rate
changes, which were immaterial, have been allocated equally between interest
rate and volume.
<TABLE>
<CAPTION>
1996 VS. 1995 1995 VS. 1994
CHANGE IN NET INTEREST CHANGE IN NET INTEREST
INCOME DUE TO INCOME DUE TO
-------------------------------- -------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ -------- --------- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Securities - taxable $(266,425) $ 235,569 $ (30,856) $(225,602) $146,800 $ (78,802)
Securities - tax-exempt 140,411 28,594 169,005 (25,333) (10,922) (36,255)
Federal funds sold 232,195 14,300 246,495 89,964 93,344 183,308
Loans 1,612,731 (369,953) 1,242,778 984,294 529,229 1,513,523
--------- ---------- --------- -------- ------- ---------
Total interest income 1,718,912 (91,490) 1,627,422 823,323 758,451 1,581,774
--------- ---------- --------- -------- -------- ---------
Interest expense:
Savings and interest-
bearing demand deposits 335,148 (55,982) 279,166 (117,931) 453,046 335,115
Time deposits 282,416 66,188 348,604 279,428 549,325 828,753
Borrowed funds (94,244) (4,187) (98,431) 23,002 29,693 52,695
--------- --------- --------- --------- --------- ---------
Total interest expense 523,320 6,019 529,339 184,499 1,032,064 1,216,563
--------- --------- --------- --------- --------- ---------
Net interest income $1,195,592 $ (97,509) $1,098,083 $638,824 $(273,613) $ 365,211
========== ========== ========== ======== ========= =========
</TABLE>
II. INVESTMENT ACTIVITIES
The objectives of Bancorp's investment portfolio are (i) to provide
liquidity to meet seasonal or other unexpected cash needs resulting from
declines in deposits or increases in loans and (ii) to provide an adequate rate
of return within the constraints of liquidity requirements. Bancorp's policy
is to maintain a loan/deposit ratio of approximately 80%. Accordingly,
investment securities are a major source of Bancorp's revenues. Investments are
made by the Chief Executive Officer or the Chief Financial Officer of the
subsidiary bank, and are generally limited to investment grade securities. The
banks do not actively trade securities and, as of December 31, 1996 and 1995,
approximately 80% and 83%, respectively, were designated as being
held-to-maturity. The remaining investment securities are available-for-sale
to provide Bancorp with necessary liquidity or funds available for alternative
investments.
7
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ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
The following table provides the carrying values of Bancorp's
investment portfolio at the end of each of the last three years. See Note 2 of
Notes to Consolidated Financial Statements for more information about
investment securities held at December 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
U.S. Treasury securities $ 4,121 $ 7,340 $14,913
U.S. government agencies 28,431 21,169 20,400
State and political subdivisions 15,351 14,728 12,672
Other securities 2,609 5,595 7,694
------- ------ ------
Total debt securities 50,812 48,832 55,679
Equity securities 972 622 551
------- ------- -------
Total investment securities $51,484 $49,454 $56,230
====== ====== ======
</TABLE>
The following table provides the amortized cost, market value,
maturities and weighted average yields of Bancorp's investment securities at
December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AMORTIZED MARKET AVERAGE
TYPE AND MATURITY COST VALUE YIELD (1)
----------------- --------- ------- ---------
<S> <C> <C> <C>
U.S. Treasury securities:
Due within one year $ 902 $ 904 5.81%
Due after one but within five years 3,215 3,196 5.97
------ ------ ----
Total U.S. Treasury securities 4,117 4,100 5.93
------ ------ ----
U.S. government agencies:
Due within one year 1,814 1,814 5.47
Due after one but within five years 19,393 19,284 6.37
Due after five but within ten years 5,331 5,304 7.01
Due after ten years 1,916 1,900 7.30
------ ------ ----
Total U.S. government
agencies 28,454 28,302 6.49
------ ------ ----
</TABLE>
8
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ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
<TABLE>
<CAPTION>
WEIGHTED
AMORTIZED MARKET AVERAGE
TYPE AND MATURITY COST VALUE YIELD (1)
----------------- --------- -------- ---------
<S> <C> <C> <C>
State and political subdivisions:
Due within one year $ 2,659 $ 2,674 5.77%
Due after one but within five years 8,340 8,517 6.61
Due after five but within ten years 3,952 3,966 7.40
Due after ten years 400 400 7.74
------ ------- ----
Total states and political sub-
divisions 15,351 15,557 6.70
------ ------ ----
Other securities:
Due within one year 1,852 1,861 5.83
Due after one but within five years 756 756 6.45
------- ------- ----
Total corporate securities 2,608 2,617 6.01%
------- ------- ====
Total debt securities 50,830 50,876 6.49%
====
Equity securities 972 972
------- -------
Total securities $51,502 $51,548
====== ======
</TABLE>
(1) Weighted average yield on states and political subdivisions has been
computed on a 34% tax-equivalent basis.
III. LENDING ACTIVITIES
Bancorp's subsidiary banks spread their lending among commercial,
agricultural, real estate, and consumer loans. The interest rates charged for
the various loans made by the banks vary with the degree of risk, size, and
maturity of the loans, the borrower's depository relationship with the bank and
prevailing money market rates. The bank's overall lending operations are
guided by its loan policy, which outlines the basic policies and procedures by
which lending operations are conducted. Generally, the policy addresses loan
authority, underwriting and collateral requirements, terms, interest rate
considerations, and compliance with laws and regulations.
Loan pricing decisions are based on an evaluation of risk, cost of
funds, operating and administrative costs, a reserve for loan losses, desired
profit margin, and other factors. Loan risk is based in part on a risk rating
assigned to each loan.
The banks sell loan participations to accommodate borrowers whose
financing needs exceed the bank's lending limit and to diversify risk. The
banks occasionally purchase participations in loans from correspondent banks.
9
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ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Most of Bancorp's loans are made to customers in the trade areas
served by the subsidiary bank's branch offices. Underwriting standards are
designed to achieve a high quality loan portfolio, compliance with lending
regulations and the desired mix of loan maturities and industry concentrations.
Management further seeks to minimize credit losses by closely monitoring the
financial condition of its borrowers and the value of collateral.
Loan portfolio composition. The following table sets forth
information with respect to the composition of Bancorp's loan portfolio by type
of loan at December 31 for each of the last five years:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial $26,485 $20,540 $16,475 $16,985 $13,519
Agricultural 15,592 14,796 11,554 10,175 9,363
Secured by real estate
Commercial property 19,255 18,019 16,180 11,934 10,742
Farmland 5,610 4,371 3,617 3,406 3,482
Construction 4,613 2,873 2,998 3,034 2,568
Residential 31,489 29,216 26,389 22,938 23,046
Home equity lines 1,555 1,585 1,046 977 830
-------- -------- ------- ------- -------
Total real estate 62,522 56,064 50,230 42,289 40,668
Consumer 13,776 13,325 12,729 12,530 10,622
Other 1,148 737 295 413 1,621
-------- -------- ------- ------- -------
Total loans 119,523 105,462 91,283 82,392 75,793
Less deferred loan fees (300) (212) (258) - -
Less reserve for loan (995) (1,072) (955) (992) (843)
-------- -------- ------- ------- -------
losses
Loans receivable, net $118,228 $104,178 $90,070 $81,400 $74,950
======== ======== ======= ======= =======
</TABLE>
Loan maturities and interest rate sensitivity. The following table
presents the aggregate maturities of loans in each major category of Bancorp's
loan portfolio at December 31, 1996. Actual maturities may differ from the
contractual maturities shown below as a result of renewals and prepayments.
<TABLE>
<CAPTION>
DUE AFTER ONE TOTAL
DUE WITHIN BUT WITHIN DUE AFTER LOANS BY
LOAN CATEGORY ONE YEAR FIVE YEARS FIVE YEARS CATEGORY
------------- ------------ -------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C>
Commercial $16,459 $ 8,347 $ 1,679 $26,485
Agricultural 14,071 1,249 272 15,592
Secured by real estate
Commercial property 4,178 8,073 7,004 19,255
Farmland 1,842 2,084 1,684 5,610
Construction 3,086 1,403 124 4,613
Residential 3,814 3,159 24,516 31,489
Home equity lines 170 12 1,373 1,555
------- ------- ------- ------
Total real estate 13,090 14,731 34,701 62,522
Consumer 5,023 7,017 1,736 13,776
Other 150 750 248 1,148
------- ------- ------- --------
Total loans by maturity $48,793 $32,094 $38,636 $119,523
======= ======= ======= ========
</TABLE>
10
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ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
At December 31, 1996, $63.8 million (approximately 53%) of the loan
portfolio had fixed interest rates and $55.7 million (approximately 47%) had
variable interest rates. Of the $70.7 million in loans that mature after one
year, a total of $53.1 million (75%) are fixed-rate loans, and a total of $17.6
million (25%) are variable-rate loans.
Commercial loans. As of December 31, 1996, commercial loans that are
not collateralized by real estate represent 22% of total loans. Columbia and
Klickitat provide a wide range of commercial business loans, including lines of
credit for working capital and term loans for the acquisition of equipment and
other purposes. Collateral generally includes equipment, accounts receivable
and inventory. When and if warranted, loans may be made on an unsecured basis.
At December 31, 1996, approximately 67% of the commercial loans had
floating or adjustable interest rates; the remaining 33% had fixed interest
rates. Operating lines of credit are payable on demand and generally subject to
annual renewal. Term loan maturities generally range from one to five years.
Commercial loans outstanding at December 31, 1996, were $26.5 million, compared
to $20.5 million at December 31, 1995. Management believes the increase in
1996 was primarily a result of the ability of Klickitat and Columbia to respond
quickly to customers' needs. At December 31, 1996, nonaccrual loans in this
category totaled $40,000; there were no restructured loans.
Agricultural. Agricultural loans represent 13% of the loan portfolio
at December 31, 1996. Bancorp's subsidiary banks provide production lines of
credit, equipment financing, and term loans for capital improvements and
investments. Collateral generally consists of crops, equipment, and inventory.
Loans will be granted on an unsecured basis when and if warranted.
At December 31, 1996, approximately 88% of the agricultural loans had
floating or adjustable rates; the remaining 12% had fixed rates. Operating
lines of credit are payable on demand and usually mature at the end of the
production year. Term loan maturities generally range from two to five years.
Agricultural loans outstanding on December 31, 1996, were $15.6 million
compared to $14.8 million on December 31, 1995. The increase was primarily a
result of marketing efforts and renewed or increased borrowings from
orchardists caused by three consecutive years of below average returns. At
December 31, 1996, there were no nonaccrual or restructured loans in this
category.
Real estate mortgage loans. Real estate mortgage loans represent the
largest category of loans. Real estate mortgage loans outstanding increased to
$62.5 million at December 31, 1996, from $56.1 million at December 31, 1995.
The increase was primarily a result of loans secured by residential real
estate. Of the $62.5 million of real estate mortgage loans outstanding at
December 31, 1996, $19.2 million were made to commercial customers where the
collateral for the loans included the real estate occupied by the customers'
businesses. Therefore, many loans classified as real estate mortgage loans
could be characterized as commercial loans that are collateralized by real
estate. Commercial real estate loans typically involve large loan balances to
single borrowers or groups of related borrowers. These borrowers may be more
sensitive to changes in economic conditions than are residential loan
customers. At December 31, 1996, there was $10,000 in nonaccrual loans, and no
restructured loans, in this category.
11
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ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
At December 31, 1996, $41.9 million (or approximately 67%) of the real
estate mortgage loans had fixed interest rates and $20.6 million (or
approximately 33%) had floating or adjustable interest rates. Maturities of
real estate mortgage loans usually range from one to fifteen years. Bancorp's
subsidiary bank's underwriting standards specify maximum loan-to-value ratios
for real estate loans: 80% for loans collateralized by owner-occupied
residences, 80% for other residential loans and for construction loans, and 75%
for commercial real estate loans. Management believes that the current real
estate mortgage portfolio does not present a material risk of loan losses.
Bancorp's subsidiary banks originate Small Business Administration
(SBA) commercial real estate loans on owner-occupied properties where the
maturities may be up to 20 years, and the loan-to-value ratio may reach 80% of
appraised value or cost, whichever is lower. Up to 90% of the amount of these
loans is guaranteed or insured by an agency of the U.S. Government. The
guaranteed portion of these loans is typically sold to secondary-market
investors.
Bancorp's subsidiary banks are active in making residential real
estate loans, not only for the bank portfolio, but also on behalf of other
lenders. Loans originated for other lenders are primarily made under an
arrangement with PHH US Mortgage Corporation (PHH) of Mount Laurel, New Jersey.
The banks process loan applications and related paperwork and then submit the
documentation to PHH. PHH then makes the lending decisions and funds and
services the loans. For the year ended December 31, 1996, Bancorp's subsidiary
banks originated and sold 80 residential loans, receiving $86,487 in fee
income.
Real estate construction loans. Bancorp's subsidiary banks make
construction loans to individuals and contractors to construct single- family
primary residences and second homes. These loans generally have maturities of
six to nine months. Interest rates are typically adjustable, although
fixed-rate loans are also made under appropriate conditions. This type of loan
is generally made only when permanent financing has been arranged. It is each
bank's policy to limit its loans to contractors building houses on a
speculative basis, so that only one or two of these types of loans are
outstanding to any single borrower at any time, depending on the financial
condition of and prior lending experience with the contractor.
Construction loans have many of the same risks that are present in
real estate mortgage loans and may present additional risks, such as
construction delays, cost overruns, and insufficient collateral. At December
31, 1996, there were no nonaccrual loans or restructured loans in this
category.
Consumer loans. Consumer loans generally consist of automobile loans,
personal credit lines and borrowings under the VISA card program
Consumer loans were $13.8 million at December 31, 1996, compared to
$13.3 million at December 31, 1995. This increase was primarily due to
economic growth and an expanding customer base. At December 31, 1996, there
was $2,000 in nonaccrual loans or restructured loans in this category.
12
<PAGE> 13
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Commitments and contingent liabilities. In the ordinary course of
business, Bancorp's bank subsidiaries enter into various types of transactions
that include commitments to extend credit and standby letters of credit as
described in Note 9 to the Consolidated Financial Statements of Bancorp.
Bancorp applies the same credit standards to these commitments as it uses in
all its lending processes and has included these commitments in its lending
risk evaluations. Collateral for these commitments may include cash,
securities, and/or real estate.
Nonperforming assets. The following table sets forth information with
respect to nonperforming assets as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $ 52 $ 308 $ 68 $ 51 $ 148
Accruing loans past due 90 days or more 30 60 118 20 22
Restructured loans - - - - -
----- ----- ----- ----- -----
Total nonperforming loans 82 368 186 71 170
Other real estate owned - - 5 457 712
----- ----- ---- ---- ----
Total nonperforming assets $ 82 $ 368 $ 191 $ 528 $ 882
==== ==== ==== ==== ====
Reserve for loan losses $995 $1,072 $955 $992 $843
Ratio of total nonperforming assets to total .04% .21% .12% .33% .63%
assets
Ratio of total nonperforming loans to total .07% .35% .20% .09% .22%
loans
Ratio of reserve for loan losses to total non-
performing loans 1,213% 291% 513% 1,397% 496%
</TABLE>
Nonaccrual loans are loans on which interest income is no longer
accrued. The accrual of interest on a loan is discontinued when, in the
opinion of management, the future collectibility of principal of interest is in
serious doubt or is expected to be substantially delayed. Typically, loans are
classified as nonaccrual after 70 days of nonpayment. Loans that are 70 days
past due are kept in the accruing category only if there is strong reason to
believe that loan payments will be made. Additional interest income that would
have been earned in 1996 on nonaccrual loans was $10,991.
All nonaccrual loans are considered to be impaired loans. As of
January 1, 1995, the Financial Accounting Standards Board's Statements No. 114
"Accounting by Creditors for Impairment of a Loan" and No. 118 "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures" was
adopted. These pronouncements require that impaired loans be measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or at the loan's market price or the fair value of the
collateral if the loan is collateral dependent. The accrual of interest on
impaired loans is discontinued when, in management's opinion, the borrower may
be unable to meet payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest is subsequently
recognized only to the extent cash payments are received. The adoption of this
statement did not have a material effect on the consolidated financial
statements.
13
<PAGE> 14
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Restructured loans are those for which concessions have been granted
due to the borrower's weakened financial condition or other factors. Such
concessions may include reduction of interest rates below rates otherwise
available to that borrower or deferral of interest or principal. Interest on
restructured loans is accrued at the restructured rate when it is anticipated
that no loss of original principal will occur. There were no restructured
loans at December 31, 1996 or 1995.
Other real estate owned (OREO) consists of real estate acquired
through foreclosure or by a deed in lieu of foreclosure. Properties in OREO
are carried at the lower of fair market value (less anticipated selling costs)
or the principal balance of the related loan. Any excess of the loan balance
over fair value of the property is charged to the reserve for loan losses.
There was no OREO at December 31, 1996 or 1995.
Analysis of the reserve for loan losses. The reserve for loan losses
represents management's estimate of the losses inherent in the loan portfolio.
The reserve is based primarily on management's evaluation of the overall
quality and risk characteristics of the subsidiary bank's loan portfolio, which
is dependent upon numerous interrelated factors including present nonperforming
and delinquent loans, borrowers' perceived abilities to repay, value of
collateral, general and local economic conditions, and historical loan loss
experience.
The Board of Directors of Bancorp's subsidiary banks reviews the
adequacy of the reserve for loan losses quarterly. Although determination of
the adequacy of the reserve involves substantial subjective judgment based on
the analysis of the risk characteristics of the entire loan portfolio,
management also uses two quantitative methods to analyze the adequacy of the
reserve. Under the first method, management assigns a specific percentage to
each nonperforming, substandard or doubtful loan in the loan portfolio to
calculate a total amount of average anticipated loan losses. The second method
assesses a six-year historical loss ratio in the primary loan classifications
and compares the average to the existing reserve balance. Bancorp's subsidiary
banks have initiated a risk rating system but sufficient data has not been
compiled from which to draw meaningful conclusions. The amounts calculated by
the two quantitative methods are then compared to the reserve for loan losses
in evaluating the adequacy of the reserve.
As a result of the decline in real estate market values in many parts
of the United States and the significant losses experienced by many financial
institutions, regulators have increasingly scrutinized loan portfolios and loss
reserves, particularly with respect to commercial and multi-family residential
real estate loans. Management believes that the reserve for loan losses is
adequate to cover anticipated losses and is in accordance with generally
accepted accounting principles. There can be no assurance, however, that
management will not decide to increase the reserve for loan losses or that
regulators will not require an increase to the reserve, either of which events
could adversely affect Bancorp's results of operations. Further, there can be
no assurance that actual loan losses will not exceed the reserve.
14
<PAGE> 15
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The following table sets forth information regarding changes in the
reserve for loan losses for each of the last five years:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans at year-end $119,523 $105,462 $91,283 $82,392 $75,793
======= ======= ====== ====== ======
Reserve for loan losses,
beginning of year $1,072 $ 955 $ 992 $ 843 $ 879
Charge-offs:
Real estate loans - - - - -
Agricultural (317) (14) (50) - (14)
Installment loans (21) (16) (19) (13) (21)
Credit card and related plans (9) (55) (7) - (7)
Commercial and other (30) (34) (193) (27) (277)
---- ---- ---- ---- -----
Total charge-offs (377) (119) (269) (40) (319)
---- ---- ---- ---- ----
Recoveries:
Real estate loans - - - - 10
Agricultural 7 7 1 2 4
Installment loans 20 31 4 11 9
Credit card and related plans - 3 5 - -
Commercial and other 26 107 19 18 28
----- ----- ----- ----- -----
Total recoveries 53 148 29 31 51
---- ---- ---- ---- ----
Net loans recovered (charged-off) (324) 29 (240) (9) (268)
Provision for loan losses 247 88 203 158 232
----- ----- ----- ----- -----
Reserve for loan losses at year-end $ 995 $1,072 $ 955 $ 992 $ 843
==== ===== ==== ==== ====
Ratio of net recoveries (charge-off)
to average loans outstanding during
the period (.29)% .03% (.27)% (.01)% (.36)%
Ratio of reserve for loan losses to
loans at year-end .83% 1.02% 1.05% 1.20% 1.11%
</TABLE>
Anticipated loan losses are charged against the reserve for loan
losses when, in management's opinion, ultimate recovery is unlikely or when
bank examiners require a charge-off. As the actual amount of loss with respect
to specific loans is often dependent upon future events (including liquidation
of collateral), management cannot accurately predict precisely what losses, if
any, will be sustained with respect to specific loans. Historical experience
has also shown that, at any particular time, loan losses may exist in a loan
portfolio that have not yet been identified. For these reasons, although
management analyzes specific loans in determining the adequacy of its reserve
for loan losses, it does not normally allocate the reserve to specific groups
or categories of loans. The approximate anticipated amount of charge-offs
during 1997 by category is as follows (in thousands):
<TABLE>
<S> <C>
Real estate loans $ 0
Agricultural loans 75
Installment loans 30
Credit card and related plans 20
Commercial and other 50
----
Total $175
===
</TABLE>
15
<PAGE> 16
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
V. DEPOSITS
At December 31, 1996, Bancorp's subsidiary banks had approximately
23,900 deposit accounts. Various types of deposit accounts are offered,
including interest-bearing and noninterest-bearing checking accounts, money
market type accounts, passbook and other savings accounts, and time
certificates ranging in maturity from 32 days to 10 years. Deposit accounts
vary as to terms, with principal differences being the minimum balance
required, the time period the funds must remain on deposit and the interest
rate. Unlike some other financial institutions, Bancorp's subsidiary banks
have never relied on brokered deposits. Management believes that retail
deposit accounts are a more dependable and cost effective source of funds. The
following table presents the average balances for each major category of
deposits and the weighted average interest rates paid for interest-bearing
deposits for the years ended December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
AVERAGE AVERAGE AVERAGE
--------------------- --------------------- ---------------------
BALANCE RATE BALANCE RATE BALANCE RATE
------- ---- ------- ---- ------- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $28,328 -- % $24,398 -- % $22,665 -- %
Interest-bearing demand 24,850 1.95 21,341 3.04 21,573 1.88
Money market accounts 42,006 4.17 35,822 3.63 38,424 3.20
Other savings 26,986 3.12 26,403 3.58 27,928 3.04
Time deposits 45,506 5.50 40,547 5.31 33,652 4.51
------ ---- ------ ---- ------ ----
Total $167,676 4.01% $148,511 4.06% $144,242 3.29%
======= ==== ======= ==== ======= ====
</TABLE>
The following table shows the dollar amount and maturities of CDs that
had balances of $100,000 or more at December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
CDs $100,000 or over with remaining maturity:
Three months or less $5,373 $6,813 $3,562
Over three months through six months 4,008 5,012 2,957
Over six months through twelve months 1,636 1,531 647
Over twelve months 1,188 581 579
------ ------ ------
Total $12,205 $13,937 $7,745
====== ====== =====
</TABLE>
16
<PAGE> 17
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
VI. RETURN ON EQUITY AND ASSETS
The following table sets forth the return on assets and return on
equity for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Net income $2,727 $2,489 $2,337
Average total assets $188,061 $170,352 $161,671
Return on average assets 1.45% 1.46% 1.45%
Net income $2,727 $2,489 $2,337
Average equity $17,440 $15,649 $13,910
Return on average equity 15.64% 15.91% 16.80%
Average equity $17,440 $15,649 $13,910
Average total assets $188,061 $170,352 $161,671
Average total equity to assets ratio 9.27% 9.19% 8.60%
</TABLE>
VII. SHORT-TERM BORROWINGS
At December 31, 1996, short-term borrowings consisted of advances from
the Federal Home Loan Bank of Seattle totaling $600,000. The following table
sets forth certain information with respect to short-term borrowings for the
years 1996, 1995, and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Amount outstanding at year-end $ 600 $1,200 $3,381
Weighted average interest rate at year-end 5.68% 5.42% 5.27%
Maximum amount outstanding at any month-end
during the year $1,200 $3,581 $4,031
Approximate average amount outstanding during
the year $ 813 $2,341 $1,872
Approximate average weighted interest rate
during the year 5.86% 6.15% 5.08%
</TABLE>
17
<PAGE> 18
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
VII. OTHER FINANCIAL SERVICES
Columbia River Bank Financial Services is a division of Columbia that
markets stocks, mutual funds, and other investment and insurance products to
customers of Columbia, Klickitat, and the public principally through an
arrangement with PrimeVest Financial Services, Inc., a registered securities
broker-dealer. In July 1991, Columbia established a relationship with
PrimeVest and hired Ann-Marie Jelderks as a full-time investment salesperson.
Ms. Jelderks is a registered representative of PrimeVest and a joint employee
of PrimeVest and Columbia. Columbia receives a portion of the commissions
generated by her department's efforts. Most of these commissions arise from
the sale of financial products offered through PrimeVest, and the remainder
from sales of financial products, such as annuities, offered by insurance
companies and other vendors. Total commission income received by Columbia from
these activities was $158,575, $105,358 and $107,198 for the years ending
December 31, 1996, 1995, and 1994, respectively.
IX. COMPETITION
Commercial banking in Oregon and Washington is highly competitive with
respect to both loans and deposits. United States National Bank of Oregon, and
Wells Fargo dominate banking with offices throughout the region. Bancorp's
subsidiary banks compete directly with these institutions through its branches
in Madras, Redmond, Bend, The Dalles and Hood River. Other competitors include
Bank of America, Key Bank, Washington Federal Savings Bank, Riverview Savings
Bank, First Independent Bank, Western Bank, West One, and Bank of the Cascades,
all of which have branches in some of the communities served by Bancorp.
Bancorp's subsidiary banks stress personal service and local decision
making and believe they benefit from their local orientation. They also
believe they have benefited from customer confusion resulting from mergers and
acquisitions involving certain competitors. Most of the competition is better
capitalized and, therefore, may have higher lending capabilities. The larger
competitors also provide certain specialized banking services, such as trust
services and international banking services that Bancorp's subsidiary banks do
not provide.
X. EMPLOYEES
At December 31, 1996, Bancorp's subsidiary banks had 132 full-time
equivalent employees. Management places a high priority on selective hiring
and development of staff. Staff development involves training in customer
service, marketing and regulatory compliance. No employees are represented by
labor unions, and management considers its employee relations to be excellent.
Bancorp has no paid employees. The executive officers of Bancorp, who
receive no compensation from Bancorp for their services on behalf of the
holding company, consist of Terry L. Cochran, President and Chief Executive
Officer, and Richard J. Croghan, Secretary. Messrs. Cochran and Croghan are
employed full-time as executive officers of Columbia.
18
<PAGE> 19
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
XI. OWNERSHIP OF DATA PROCESSING COMPANY
As of December 31, 1996, Columbia owned 33% of the issued and
outstanding shares of Datatech of Oregon, Inc. (Datatech), an Oregon
corporation formed in November 1990. The remaining shares are owned by four
other Oregon state-chartered banking corporations. Datatech was established to
provide data processing services to its owner-banks. Datatech does not provide
any data processing services to any other banks or any other persons or
entities. Datatech operates from leased premises in Eugene, Oregon. It owns
or leases its data processing and other equipment and personal property. As of
December 31, 1996, Columbia's interest in Datatech was valued at $52,070.
XII. SUPERVISION AND REGULATION
Bancorp and its subsidiary banks are extensively regulated under
federal, Oregon, and Washington law. These laws and regulations are primarily
intended to protect depositors and the deposit insurance fund, not shareholders
of Bancorp. The following information is qualified in its entirety by
reference to applicable statutory and regulatory provisions. Any change in
applicable laws, regulations, or regulatory policies may have a material effect
on the business, operations, and prospects of Bancorp and its subsidiaries.
BANCORP
Applicable law. Bancorp is an Oregon corporation subject to the
provisions of the Oregon Business Corporation Act, Oregon Revised Statutes
(ORS) 60.001 through 60.992. Bancorp is also subject to the Oregon Business
Combination Act (the OBCA). The OBCA generally provides that if a person (an
Interested Shareholder) acquires voting stock of an Oregon corporation in a
transaction resulting in such person owning 15% or more of the total voting
stock of such corporation, then the corporation and the Interested Shareholder
may not engage in certain business combination transactions for three years
following the date of such acquisition. A corporation may provide in its
Articles of Incorporation or Bylaws that the OBCA does not apply to its shares.
Bancorp has not adopted such a provision and does not presently plan to do so.
The OBCA may make Bancorp less attractive for takeover.
ORS 60.357 applies to directors of Bancorp. Under ORS 60.357, when
directors of a corporation evaluate a proposed tender or exchange offer,
merger, acquisition, or similar proposal, the directors "may, in determining
what they believe to be in the best interest of the corporation, give due
consideration to the social, legal and economic effects on employees, customers
and suppliers of the corporation and its shareholders, including the
possibility that these interests may be best serviced by the continued
independence of the corporation and other relevant factors."
19
<PAGE> 20
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Regulatory oversight. Bancorp, as an Oregon corporation, is not
regulated by the FDIC. Bancorp is, however, a bank holding company registered
under the Bank Holding Company Act of 1956, as amended (the Act), and is
subject to supervision of the Board of Governors of the Federal Reserve System
(FRB). Bancorp is required to file annual reports with the FRB and such other
additional information as the FRB requires pursuant to the Act. The FRB may
also make examinations of the holding company and of the subsidiary banks.
Bancorp is an "affiliate" of its subsidiary banks and is subject to
the provisions of Section 23A of the Federal Reserve Act which set certain
limits with respect to the amount of (1) loans or extensions of credit to, or
investments in, Bancorp by its subsidiary banks, and (2) advances to third
parties collateralized by the securities or obligations of Bancorp.
Acquisitions. As a bank holding company, Bancorp is required to
obtain the prior approval of the FRB before acquiring direct or indirect
ownership or control of more than 5% of the voting shares of a bank or bank
holding company. The FRB may not approve any acquisition, merger or
consolidation that would have a substantial anti-competitive result, unless the
anti-competitive effects of the proposed transaction are outweighed by a
greater public interest in meeting the needs and convenience of the public.
The FRB also considers managerial, capital, and other financial factors in
acting on acquisition or merger applications. Bancorp also is required to
obtain the prior approval of the Director of the Oregon Department of Consumer
and Business Services (the Oregon Director) before acquiring direct or indirect
ownership or control of 25% or more of the voting shares of an Oregon
state-chartered bank or bank holding company.
Permissible activities. A bank holding company may not engage in, or
acquire, direct or indirect control of more than 5% of the voting shares of any
company engaged in a nonbanking activity, unless the activity has been
determined by the FRB to be closely related to banking or managing banks. The
FRB has identified certain nonbanking activities in which a bank holding
company may engage with notice to, or prior approval by, the FRB.
Capital adequacy. The federal bank regulatory agencies monitor the
capital adequacy of bank holding companies and have adopted risk-based capital
adequacy guidelines to evaluate bank holding companies and banks. If an
institution's capital falls below the minimum levels established by these
guidelines, the bank holding company may be denied approval to acquire or
establish additional banks or nonbank businesses. The guidelines require a
minimum ratio of total capital to risk-weighted assets of 8%.
The FRB also uses a leverage ratio to evaluate the capital adequacy of
bank holding companies. The leverage ratio applicable to Bancorp requires a
ratio of "Tier 1" capital (generally, tangible common stockholders' equity,
perpetual preferred stock, and minority interests in consolidated subsidiaries)
to adjusted average total assets of not less than 3% and up to 5% or higher
depending on Bancorp's general capital condition.
20
<PAGE> 21
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
If Bancorp fails to meet capital guidelines, the FRB may institute
appropriate supervisory or enforcement actions. As discussed below, Bancorp's
subsidiary banks are also subject to capital adequacy requirements. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), Bancorp
could be required to guarantee the capital restoration plan of the banks,
should they become undercapitalized. In addition, the Oregon Director (for
Columbia) and the Washington Director (for Klickitat) have the authority to
require Bancorp to contribute additional capital to the banks if their capital
becomes impaired.
COLUMBIA RIVER BANKING COMPANY AND KLICKITAT VALLEY BANK
Regulatory oversight. Columbia is an Oregon state-chartered bank, and
Klickitat is a Washington state-chartered bank. The deposits of each bank are
insured by the FDIC. Accordingly, each bank files financial and other reports
periodically with, and is regularly examined by, both the respective state
Director and the FDIC. Neither bank is a member of the Federal Reserve System.
Permissible activities. Under FDICIA, no state bank may engage in any
activity not permitted for national banks, unless the institution complies with
applicable capital requirements and the FDIC determines that the activity poses
no significant risk to the insurance fund. This limitation should not affect
Columbia or Klickitat, since management believes that neither bank is presently
involved in any such activity.
Branching and acquisitions. Banks are permitted to conduct business
through branches after application to and approval of the FDIC and the state
Director, if they make certain findings regarding the financial history and
condition of the bank and the appropriateness of the branch in the community to
be served. Columbia currently has seven branches, and Klickitat currently has
two branches.
Acquisitions of banks and bank holding companies by out-of-state
banks, holding companies, and other financial institutions is permitted if the
bank being acquired has been providing banking services for a period of at
least three years in Oregon and five years in Washington prior to the effective
date of the acquisition and upon receipt of the approval of the state Director.
Other conditions set forth in state law also must be satisfied.
Community Reinvestment Act. Enacted in 1977, the federal Community
Reinvestment Act (the CRA) has become increasingly important to financial
institutions, including their holding companies. The CRA allows regulators to
reject an application to make an acquisition or establish a branch unless the
applicant has performed satisfactorily under the CRA. Citizens and interest
groups have standing before the FRB to assert noncompliance with the CRA.
Satisfactory performance means adequately meeting the credit needs of the
communities the applicant serves, including low- and moderate-income
neighborhoods, consistent with the safe and sound operation of the institution.
The applicable federal regulators now regularly conduct CRA examinations to
assess the performance of financial institutions. Both Columbia and Klickitat
have received satisfactory ratings in their most recent CRA examinations.
21
<PAGE> 22
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Transactions with affiliates. The banks are subject to certain FRB
restrictions on transactions among related parties. Section 23A of the Federal
Reserve Act limits the amount of certain transactions, including loans to and
investments in affiliates of the banks, requires certain levels of collateral
for such loans, and limits the amount of advances to third parties that may be
collateralized by the securities of Bancorp or its subsidiaries.
Section 23B of the Federal Reserve Act requires that certain
transactions between the banks and their affiliates must be on terms
substantially the same, or at least as favorable to the bank, as those
prevailing at the time for comparable transactions with or involving
nonaffiliated companies or, in the absence of comparable transactions, on terms
and under circumstances, including credit standards, that in good faith would
be offered to or would apply to nonaffiliated companies.
In addition, Section 22(h) of the Federal Reserve Act requires that
the aggregate amount of an institution's loans to officers, directors, and
principal shareholders (and their affiliates) is limited to the amount of its
unimpaired capital and surplus, unless the FDIC determines that a lesser amount
is appropriate.
A violation of any of the foregoing restrictions may result in the
assessment of civil fines on a bank or a person participating in the conduct of
the affairs of such bank or the imposition of a cease and desist order.
Dividend restrictions. Dividends paid by Columbia and Klickitat
provide substantially all Bancorp's cash flow. Under federal law, prior to the
declaration of any dividend by a bank, the approval of the principal regulator
is required if the total of all dividends in any calendar year exceeds the
total of the bank's net profits for that year combined with its retained net
profits for the preceding two years. In addition, FDICIA provides that a bank
cannot pay a dividend if it will cause the bank to be "undercapitalized."
Oregon law imposes the following limitations on the payment of dividends by
Oregon state-chartered banks: (i) no dividends may be paid that would impair
capital; (ii) until the surplus fund of a bank is equal to 50% of its paid-in
capital, no dividends may be declared unless there has been carried to the
surplus account at least 20% of the bank's net profits for the dividend period;
(iii) dividends cannot be greater than net undivided profits minus losses,
certain bad debts, certain charged-off assets or depreciation and accrued
expenses, interest, and taxes; and, (iv) if the surplus fund does not exceed
50% of paid-up capital and a further reduction in the surplus occurs due to
losses, dividends cannot be declared or paid in excess of 50% of net earnings
until the surplus fund is restored to at least the amount from which the
surplus was originally reduced. Washington law permits state-chartered banks
to pay dividends out of retained earnings.
Examinations. The FDIC periodically examines and evaluates
state-chartered banks. Based upon such an evaluation, the examining regulator
may revalue the assets of an insured institution and require that it charge-off
or reduce the carrying value of specific assets or establish specific reserves
to compensate for the difference between the value determined by the regulator
and the book value of such assets. The costs of conducting examinations by the
FDIC are assessed to the banks.
22
<PAGE> 23
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Capital adequacy. Federal regulations establish minimum requirements
for the capital adequacy of depository institutions. The regulators may
establish higher minimum requirements if, for example, a bank has previously
received special attention or has a high susceptibility to interest rate risk.
Banks with capital ratios below the required minimums are subject to certain
administrative actions, including prompt corrective action, the termination of
deposit insurance upon notice and hearing, or a temporary suspension of
insurance without a hearing.
The federal risk-based capital guidelines for banks require a ratio of
Tier 1 or core capital to total risk-weighted assets of 4% and a ratio of total
capital to total risk-weighted assets of 8%. The leverage capital guidelines
require that banks maintain Tier 1 capital of no less than 5% of total adjusted
assets, except in the case of certain highly rated banks for which the minimum
requirement is 3% of total adjusted assets. At December 31, 1996, Bancorp's
leverage ratio, Tier 1 capital to risk-weighted assets ratio and total
risk-based capital to risk-weighted assets ratio were 9.86%, 14.20%, and
14.92%, respectively.
FDICIA requires federal banking regulators to take "prompt corrective
action" with respect to a capital-deficient institution, including requiring a
capital restoration plan and restricting certain growth activities of the
institution. Bancorp could be required to guarantee any such restoration plan
required of its subsidiary banks. Bancorp's maximum liability under such
guarantee would be the lesser of 5% of the bank's total assets at the time it
became undercapitalized or the amount necessary to bring the bank into
compliance with the capital plan.
Under Oregon law, the Oregon Director has the authority to require the
shareholders of an Oregon state-chartered bank (Bancorp, in the case of
Columbia) to contribute additional capital to the bank if its capital becomes
impaired. The capital of a bank is impaired under Oregon law when the value of
the bank's assets is insufficient to pay its liabilities (excluding any
liability on outstanding capital debentures) plus the amount of its paid-up
capital stock.
As an institution's capital decreases, the powers of the federal
regulators increase, which can include mandated capital-raising activities,
restrictions on interest rates paid, restrictions on transactions with
affiliates, and removal of management. In addition, an institution generally
is prohibited from paying dividends or management fees to control persons if
the institution would be undercapitalized after any such payment.
Pursuant to FDICIA, regulations were adopted defining five capital
levels: well capitalized, adequately capitalized, undercapitalized, severely
undercapitalized and critically undercapitalized. Under the regulations,
Columbia and Klickitat are considered well capitalized.
Internal operating requirements. In 1993, federal regulators adopted
regulations addressing, among other things: (i) internal controls, information
systems, and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate exposure; (v) asset growth; (vi) ratio of
23
<PAGE> 24
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
classified assets to capital; (vii) minimum earnings; and, (viii) compensation
and benefit standards for management officials. These regulations add further
to the cost of compliance and impose recordkeeping requirements on the banks
and Bancorp.
The consumer lending activities of the banks are also regulated by
numerous laws and regulations which impose disclosure requirements, prohibit
discrimination based on race, sex, age, marital status, and other specified
classifications and impose other restrictions on credit and collection
practices.
Real estate lending evaluations. Federal regulators have adopted
uniform standards for evaluating loans secured by real estate or made to
finance improvements to real estate. Banks are required to establish and
maintain written internal real estate lending policies consistent with safe and
sound banking practices and appropriate to the size of the institution and the
nature and scope of its operations. The regulations establish loan-to-value
ratio limitations on real estate loans, which are equal to or higher than the
loan-to-value limitations established by the bank.
Deposit insurance premiums. The FDIC has adopted regulations
establishing a risk-based deposit insurance premium schedule. Columbia and
Klickitat have been assigned the lowest possible risk assessment
classification. Classifications are reviewed semiannually. In addition, the
FDIC has the power to impose special assessments to cover the cost of
borrowings from the U.S. Treasury, the Federal Financing Bank, and Bank
Insurance Fund member banks.
XIII. CHANGING REGULATORY STRUCTURE
The laws and regulations affecting banks and bank holding companies
are in a state of flux. The rules and the regulatory agencies in this area
have changed significantly over recent years, and there is reason to expect
that similar changes will occur in the future. It is difficult to predict the
outcome of these changes. The Clinton Administration has announced a program
to reduce the regulatory burden on banks and to streamline and consolidate
regulatory oversight. The scope and effect of this program are not yet known.
One of the major additional burdens imposed on the banking industry by
FDICIA is the increased authority of federal agencies to regulate the
activities of federal and state banks and their holding companies. The FRB,
the FDIC, the Washington Director, and the Oregon Director have extensive
enforcement authority to police unsafe or unsound practices by depository
institutions and their holding companies and to penalize them for violating
applicable laws and regulations. FDICIA and other laws have expanded the
agencies' authority in recent years, and the agencies have not yet fully tested
the limits of their powers.
24
<PAGE> 25
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
XIV. EFFECT OF ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary
policies of the FRB, have a significant effect on the operating results of bank
holding companies and their subsidiaries. Among the means available to the FRB
to affect the money supply are open-market operations in U.S. Government
securities, changes in the discount rate on member bank borrowings, and changes
in reserve requirements against member bank deposits. These means are used in
varying combinations to influence overall growth and distribution of bank
loans, investments and deposits, and their use may affect interest rates
charged on loans or paid for deposits.
FRB monetary policies have materially affected the operating results
of commercial banks in the past and are expected to continue to do so in the
future. The nature of future monetary policies and the effect of such policies
on the business and earnings of Bancorp and its subsidiaries cannot be
predicted.
25
<PAGE> 26
ITEM 2. DESCRIPTION OF PROPERTY
COLUMBIA BANCORP. On February 14, 1996, Bancorp purchased .43 acres
of bare land adjacent to Columbia's Hood River office for a cash purchase price
of $111,000. Bancorp holds title to the land free and clear. The land was
purchased as an investment, and Bancorp has no present plans to improve or
develop the property. Possible future uses for the property include an
expansion of the existing Hood River branch facility, additional parking for
customers, or the sale or lease of the property to a third party.
COLUMBIA RIVER BANKING COMPANY. Columbia operates from seven
locations in northern and central Oregon. The northern Oregon locations
include two branches in The Dalles, one branch in Hood River, and one branch in
Maupin. The central Oregon locations consist of one branch each in Redmond,
Bend and Madras. Columbia also leases office space in The Dalles.
Columbia's main office is located at 316 East Third Street, The
Dalles, Oregon. The office is centrally located in the downtown area. The
building, which was completely remodeled in 1990, consists of approximately
8,000 square feet of space on two floors. The building sits on .35 acres of
land, which includes parking and a drive-up window area. Columbia holds title
to the land and building free and clear.
Columbia's Westside branch, at 520 Mt. Hood Street in The Dalles, was
opened for business on December 6, 1995. This branch consists of 430 square
feet inside a Safeway supermarket. This facility was built to Columbia's
specifications in conjunction with the construction of the supermarket.
Columbia leases this space under a License Agreement entered into on September
8, 1995, with Safeway, Inc., for an annual payment of $22,500. The initial
term of the License Agreement is five years. The Westside branch replaced a
previous Westside facility, also on leased premises, closed by Columbia in
1995.
Columbia's Hood River branch is located at 2650 Cascade Avenue, Hood
River, Oregon. This facility was built in 1993. It consists of a 4,000 square
foot one-story building on .58 acres of land on the outskirts of Hood River
adjacent to a recently built Wal-Mart store. Columbia owns the land and
building free and clear.
Columbia's Maupin branch is located at Fifth and Deschutes Avenue in
Maupin, Oregon. This facility consists of 675 square feet in a building which
contains other businesses. Columbia rents this space at a monthly payment of
$350 on a month-to-month basis.
Columbia's Madras office is located at 624 S.W. Fourth Avenue in
downtown Madras, Oregon. This building consists of approximately 7,400 square
feet of space, including offices and meeting rooms on a partial second floor.
The building was built in 1978, and remodeled most recently in 1994. It sits
on .64 acres of land, which includes parking and a drive-up window area.
Columbia holds title to the land and building free and clear.
26
<PAGE> 27
ITEM 3. DESCRIPTION OF PROPERTY - (Continued)
Columbia's Redmond office is located at 434 North Fifth Street, which
is one of the main thoroughfares in Redmond, Oregon. This facility was built
in 1992, and consists of approximately 4,000 square feet of space on one floor.
The building sits on .54 acres of land, which includes parking and a drive-up
window area and a partial second floor. Columbia holds title to the land and
building free and clear.
Columbia's new Bend office is located at 1701 Northeast Third Street,
Bend, Oregon. The facility, previously a branch of West One bank, consists of
approximately 8,306 square feet. The bank branch occupies approximately 3,055
square feet, and an additional 5,251 square feet of vacant office space which
is available for lease. Columbia holds title to the land and building free and
clear.
Columbia leases approximately 1,900 square feet of office space in the
Hammel Building located at Suite 200, 420 East Third Street, The Dalles,
Oregon. This facility provides office space for some members of Columbia's
executive management as well as the Human Resource department and secretarial
staff. Columbia leases this space under a Lease Agreement entered into on
October 23, 1996, for monthly payments of $1,140.
KLICKITAT VALLEY BANK. Klickitat owns two buildings in which it does
business along with the underlying land in Goldendale and White Salmon,
Washington. Klickitat is headquartered in Goldendale, which is approximately
65 miles south of Yakima, Washington, 30 miles north of The Dalles, Oregon and
120 miles east of Portland, Oregon. White Salmon is approximately 45 miles
southwest of Goldendale, 25 miles west of The Dalles, Oregon, and 65 miles east
of Portland.
The main office building in Goldendale has approximately 3,105 square
feet on the main level with a 3,000 square foot basement. The building was
completely remodeled in early 1995. The building, located on West Main Street
in the downtown area, is near to competing banks and other commercial
businesses. The building has a drive-up window, a night depository for
customer use, a vault, and 394 safe deposit boxes.
The White Salmon branch has approximately 5,500 square feet on two
levels. A parking lot with 24 spaces surrounds the building. The building
contains a vault with 412 safe deposit boxes.
Bancorp believes all of its real property facilities are in good
condition and adequate to meet its current requirements. No portion of the
real property facilities described above are leased or rented to third parties.
ITEM 3. LEGAL PROCEEDINGS
Bancorp is not a party to any legal proceeding. Neither Columbia or
Klickitat are a party to any material legal proceeding. Bancorp and its
subsidiaries are from time to time involved in routine litigation, such as
collection matters, incidental to their business.
27
<PAGE> 28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
The information called for by Items 5, 6, and 7 of Part II is included
in Columbia Bancorp's Annual Report to Shareholders for the year ended December
31, 1996, and is incorporated herein by reference as follows:
<TABLE>
<CAPTION>
Columbia Bancorp
Annual Report to
Shareholders Page No.
---------------------
<S> <C> <C>
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS 24
---------------------------------------------------------
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 5 - 8
---------------------------------------------------------
ITEM 7 FINANCIAL STATEMENTS 9 - 23
--------------------
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information called for by this item is contained in Columbia
Bancorp's definitive proxy statement for the annual meeting of shareholders to
be held on April 17, 1997, and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information called for by this item is contained in Columbia
Bancorp's definitive proxy statement for the annual meeting of shareholders to
be held on April 17, 1997, and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is contained in Columbia
Bancorp's definitive proxy statement for the annual meeting of shareholders to
be held on April 17, 1997, and is incorporated herein by reference.
28
<PAGE> 29
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is contained in Columbia
Bancorp's definitive proxy statement for the annual meeting of shareholders to
be held on April 17, 1997, and is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Pursuant to Item 601 of Regulation S-B, the following exhibits are attached
hereto or incorporated by reference.
Note: The statement regarding computation of per share earnings required
by Item 601(b)(11) of Regulation S-B is contained in Note 16 to the
Consolidated Financial Statements contained at page 21 in the 1996 Annual
Report to Shareholders. A copy of the 1996 Annual Report is also attached
hereto as an exhibit.
1. Plan of Reorganization. (Regulation S-B, Item 601, Exhibit
Table Item (2)). Attached hereto is a copy of the December 10, 1996 Agreement
and Plan of Reorganization and Merger between Columbia River Banking Company
and Klickitat Valley Bank. This Agreement provides for the merger of Bancorp's
two wholly-owned subsidiaries.
2. Agreements with Management. . (Regulation S-B, Item 601,
Exhibit Table Item (10)). The following employment contracts are attached
hereto:
2.1 Employment Agreement of May 14, 1996 between
Terry L. Cochran and Columbia Bancorp.
2.2 Deferred Compensation Agreement of May 14,
1996 between Terry L. Cochran and Columbia Bancorp.
2.3 Employment Agreement of June 19, 1996 between
Wesley A. Kangas and Klickitat Valley Bank.
2.4 Deferred Compensation Agreement of June 19, 1996
between Wesley A. Kangas and Klickitate Valley Bank.
3. 1996 Stock Incentive Plan. (Regulation S-B, Item 601, Exhibit
Table Item (10)). Attached hereto is a copy of the Columbia Bancorp 1996 Stock
Incentive Plan.
4. 1996 Annual Report to Shareholders. (Regulation S-B, Item
601, Exhibit Table Item (13)). Attached hereto is the Annual Report to
Shareholders of Bancorp for the fiscal year ending December 31, 1996.
29
<PAGE> 30
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K - (Continued)
5. List of Subsidiaries of Bancorp. (Regulation S-B, Item 601,
Exhibit Table Item (21)). Attached hereto is a list of the subsidiaries of
Bancorp and the assumed business names used by the subsidiaries.
6. Financial Data Schedule. (Regulation S-B, Item 601, Exhibit
Table Item (27)). Attached hereto is the Financial Data Schedule.
7. Documents Incorporated by Reference. The following exhibits
are incorporated herein by reference to the pages shown of Bancorp's Form 10-SB
filed pursuant to the Securities and Exchange Act of 1934 on or about March 1,
1996.
7.1 Articles of Incorporation and Bylaws of Bancorp,
pages 167 and 181. (Regulation S-B, Item 601, Exhibit Table
Item (3)).
7.2 Columbia River Banking Company Employee Stock
Ownership Plan, page 207. (Regulation S-B, Item 601, Exhibit
Table Item (10)).
7.3 Columbia River Banking Company 401(k) Plan, page 275.
(Regulation S-B, Item 601, Exhibit Table Item (10)).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of
Bancorp's most current fiscal year, which ended December 31, 1996.
Upon written request to Richard J. Croghan, Chief Financial Officer,
Bancorp, Post Office Box 1030, The Dalles, Oregon, 97058, shareholders will be
furnished a copy of any exhibit, upon payment of $.25 per page, which
represents Bancorp's reasonable expenses in furnishing the exhibit requested.
30
<PAGE> 31
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
BANCORP
DATED: March 26, 1997 By:/s/ Terry L. Cochran
------------------------------------
Terry L. Cochran, President & C.E.O.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR
DATED: March 26, 1997 By /s/ Terry L. Cochran
------------------------------------
Terry L. Cochran, President, C.E.O.,
and Director
CHIEF FINANCIAL OFFICER
DATED: March 26, 1997 By /s/ Richard J. Croghan
------------------------------------
Richard J. Croghan: Chief
Financial Officer and Chief
Accounting Officer - Columbia River
Banking Company
Richard J. Croghan - Chief Financial
Officer and
Chief Accounting Officer -
Columbia Bancorp
DIRECTORS:
DATED: March 21, 1997 By /s/ Stephen D. Martin
-------------------------------
Stephen D. Martin, Director
DATED: March 24, 1997 By /s/ Don T. Mitchell
-------------------------------
Don T. Mitchell, Director
DATED: March 21, 1997 By /s/ Robert L. R. Bailey
-------------------------------
Robert L. R. Bailey, Director
31
<PAGE> 32
SIGNATURES
(Continued)
DIRECTORS:
DATED: March 21, 1997 By /s/ Charles F. Beardsley
--------------------------------
Charles F. Beardsley, Director
DATED: March 21, 1997 By /s/ William A. Booth
--------------------------------
William A. Booth, Director
DATED: ______________________, 1997 By ________________________________
Ted M. Freeman, Director
DATED: March 22, 1997 By /s/ Don C. Gomes
--------------------------------
Don C. Gomes, Director
DATED: ______________________, 1997 By ________________________________
George W. Hall, Director
DATED: March 24, 1997 By /s/ Jean McKinney
--------------------------------
Jean McKinney, Director
DATED: March 21, 1997 By /s/ Greg Walden
--------------------------------
Greg Walden, Director
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT NUMBER
- ------- ------
<S> <C>
2.1 Agreement and Plan of Reorganization and Merger between
Columbia River Banking Company and Klickitat Valley Bank
dated December 10, 1996.
3.1 Articles of Incorporation and Bylaws of Columbia Bancorp, page 167 and
181 (filed as exhibit to Bancorp's Form 10-SB dated on or about March
1, 1996, and incorporated herein by reference)
10.1 Employment Agreement of May 14, 1996 between Terry L. Cochran
and Columbia Bancorp.
10.2 Deferred Compensation Agreement of May 14, 1996 between
Terry L. Cochran and Columbia Bancorp.
10.3 Employment Agreement of June 19, 1996 between Wesley A. Kangas
and Klickitat Valley Bank.
10.4 Deferred Compensation Agreement of June 19, 1996 between
Wesley A. Kangas and Klickitat Valley Bank.
10.5 1996 Columbia Bancorp Stock Incentive Plan
10.6 Columbia River Banking Company Employee Stock Ownership Plan,
page 207 (filed as exhibit to Bancorp's Form 10-SB dated on
or about March 1, 1996, and incorporated herein by reference)
10.7 Columbia River Banking Company 401(k) Plan, page 275 (filed as
exhibit to Bancorp's Form 10-SB dated on or about March 1, 1996,
and incorporated herein by reference)
13.1 1996 Annual Report to Shareholders of Columbia Bancorp
21.1 List of Subsidiaries for Columbia Bancorp and the assumed
business names used by subsidiaries
27.1 Financial Data Schedule
</TABLE>
33
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
PARTIES: COLUMBIA RIVER BANKING COMPANY ("CRBC")
KLICKITAT VALLEY BANK ("KVB")
DATE: DECEMBER 10, 1996
RECITALS
A. CRBC is a banking corporation organized and existing under the
laws of the state of Oregon with its principal office at 318 East Third Street,
The Dalles, Oregon and with branches in The Dalles, Hood River, Maupin,
Redmond, Madras and Bend, Oregon. CRBC does business under the assumed
business name "Columbia River Bank" in The Dalles, Hood River, Oregon and under
the assumed business name "Juniper Banking Company" in Redmond, Madras and
Bend, Oregon.
B. KVB is a banking corporation organized and existing under the
laws of the state of Washington with its principal office at 202 West Main
Street, Goldendale, Washington and with a branch in White Salmon, Washington.
C. Both CRBC and KVB are wholly-owned subsidiaries of Columbia
Bancorp ("Bancorp"), an Oregon corporation and bank holding company.
D. The Board of Directors of CRBC and KVB have concluded that the
merger of CRBC and KVB is in the best interests of these companies.
NOW, THEREFORE, THE PARTIES AGREE:
1. THE MERGER.
1.1 Merger of CRBC and KVB. Subject to the terms and conditions of
the Agreement and of applicable law, on the Effective Date as defined herein,
KVB shall merge with and into CRBC (the "Merger"). Following the Merger, the
separate existence of KVB shall cease and CRBC shall survive and be the
"resulting Bank" as defined in ORS 711.005(5).
1.2 Effective Date. The Merger shall become effective (the
"Effective Date") on the date specified in the Certificate of Merger issued by
the Director of the Department of Consumer and Business Services, Division of
Page - 1 Agreement and Plan of Reorganization and Merger (CRBC and KVB)
<PAGE> 2
Finance and Corporate Securities, State of Oregon (the "Director") pursuant to
ORS 711.030.
1.3 Effects of the Merger. On the Effective Date, CRBC shall become
the only subsidiary of Bancorp, and Bancorp shall become the owner of 100% of
the issued and outstanding common stock of one banking corporation, CRBC. KVB
shall cease to exist as a separate corporate entity. The Merger shall not
implement any changes in the places of business or personnel of CRBC or KVB
other than as expressly provided in the Agreement.
1.4 Bank Charter, Articles and Bylaws of CRBC. The Charter of CRBC
in effect prior to the Effective Date shall be the Charter of CRBC on the
Effective Date. The Articles of Incorporation and Bylaws of CRBC in effect
prior to the Effective Date shall be the Articles of Incorporation and Bylaws
of CRBC on the Effective Date.
1.5 Directors and Officers of CRBC. The merger shall have no effect
on the identity or terms of service of the directors and officers of CRBC
serving as of the date of the Agreement. All such directors and officers
serving immediately prior to the Effective Date shall be the directors and
officers of CRBC on the Effective Date, all of whom shall continue in office
until their respective successors are duly qualified and elected as provided in
the Articles of Incorporation and Bylaws of CRBC. In addition, on or before the
Effective Date no more than four (4) present members of the KVB Board of
Directors who are not also presently members of the CRBC Board of Directors
shall join the CRBC Board of Directors.
1.6 Executive Officers of KVB. All executive officers of KVB who
are in office immediately prior to the Effective Date shall, on the Effective
Date, become executive officers of CRBC.
1.7 Retention and Use of KVB Name. CRBC shall apply for the right
to do business in the State of Washington at one or more locations, including
the existing branches of KVB, under the assumed business name "Klickitat Valley
Bank." After the Effective Date, the White Salmon and Goldendale branches of
CRBC shall do business under the "Klickitat Valley Bank" assumed business name.
1.8 Conversion of Pre-merger KVB Shares. Each share of common stock
of KVB which is issued and outstanding prior to the Effective Date shall, on
the Effective Date, by virtue of the Merger and without any action on the part
of the holder thereof, cease to exist and shall be canceled and converted into
the right to receive one share of common stock of CRBC.
1.9 Exchange of Pre-Merger KVB Shares for CRBC Shares. On the
Effective Date, Bancorp as the sole stockholder of CRBC shall receive one
Page - 2 Agreement and Plan of Reorganization and Merger (CRBC - KVB)
<PAGE> 3
(1) share of CRBC common stock in exchange for every one (1) share of KVB
common stock owned by Bancorp. On or promptly after the Effective Date, CRBC
shall issue sufficient shares to effect the exchange of shares, and Bancorp
shall surrender for cancellation all certificates representing shares of KVB.
1.10 Dissenters. Any stockholders of CRBC who have exercised and
perfected their rights as dissenters pursuant to ORS 711.042 and 711.045 shall
be entitled to receive, in exchange for their shares, the amounts determined in
accordance with ORS 711.045(21)-(6).
1.11 Post-Merger Transfers. After the Effective Date, there shall be
no transfers on the stock transfer books of KVB of the shares which were
outstanding immediately prior to the Effective Date.
2. CLOSING.
2.1 Closing Date. Subject to the satisfaction or waiver of all
conditions set forth in Section 5, the closing of the Merger (the "Closing")
shall occur on a date not later than thirty (30) business days after the Merger
has been approved by all applicable regulatory authorities and all required
waiting periods have elapsed.
2.2 Actions to Take Place at Closing. At the Closing, CRBC and KVB
shall execute and deliver the closing certificates of executive officers and
other documents required of each of them under the Agreement.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
3.1 Limitation of Representations and Warranties. The parties
acknowledge and agree that the Merger does not constitute a negotiated,
arms-length transaction between two independent entities, but rather is a
merger of the two wholly-owned subsidiaries of Bancorp. For this reason,
warranties and representations that would otherwise be appropriate or necessary
between independent entities are neither appropriate nor necessary in this
instance. Notwithstanding the foregoing, CRBC and KVB warrant and represent
that neither of them will, at any time prior to the Effective Date.
3.1.1 Fall to perform or do any act or thing necessary to
effect the Merger.
3.1.2 Fail to comply with any applicable law or regulation
pertaining to or necessary to effect the Merger; or
3.1.3 Issue any shares of stock.
Page - 3 Agreement and Plan of Reorganization and Merger (CRBC - KVB)
<PAGE> 4
3.2 ORGANIZATION. Each party is duly organized, validly existing
and in good standing under the laws of the state of their incorporation, and
has all requisite corporate power and authority to own and operate its
properties and assets, to lease the leased properties used in its business, and
to carry on its business as now conducted. Each owns or possesses all
franchises, licenses, permits, branch certificates, consents, approvals,
waivers and other authorizations, governmental or otherwise, which are
necessary for it to conduct its business as now conducted, none of which will
lapse or be adversely affected by reason of the consummation of the
transactions contemplated by the Agreement. Each is duly qualified and licensed
to do business and is in good standing in every jurisdiction in which such
qualification or license is required or with respect to which the failure to be
so qualified or licensed could result in liability or adversely affect the
business or operations of either party in any material respect.
3.3 EXECUTION AND PERFORMANCE OF AGREEMENT. Each party has all
requisite corporate power and authority to execute and deliver the Agreement
and to consummate the transactions contemplated by the Agreement. The
execution and delivery of the Agreement, compliance with its terms and the
consummation of the transactions contemplated by the Agreement have been duly
and validly authorized by each Board of Directors, and no other corporate
proceedings are necessary to authorize the Agreement or to consummate the
transactions contemplated other than stockholder approval of the Merger.
3.4 BINDING OBLIGATION. This Agreement has been duly and validly
executed and delivered by the parties and constitutes the valid, legal and
binding agreement of each, enforceable against each of them in accordance with
its terms.
3.5 NO VIOLATIONS. Neither the execution and delivery of the
Agreement nor the consummation of the transactions contemplated hereby, nor
compliance by the parties with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of their respective Articles of
Incorporation or Bylaws, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, lease, agreement or other instrument or obligation of
either party or by which either party or any of their properties or assets may
be bound, or (iii) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to either party, or any of their properties or assets.
3.6 REGULATORY APPLICATIONS AND APPROVALS. CRBC and KVB shall, as
soon as reasonably practicable after the date of the Agreement, prepare and
file with the Federal Deposit Insurance Corporation (the "FDIC"), the Federal
Reserve Board (the "FRB"), the Director and any other governmental
Page - 4 Agreement and Plan of Reorganization and Merger (CRBC - KVB)
<PAGE> 5
agency that may have or assert jurisdiction over the transaction or the actions
contemplated herein, appropriate applications for approval to effect the Merger,
and such other documents, instruments, and notices as may be necessary or
desirable to assist in securing the approval of the applicable governmental
agencies.
3.7 Capital Structure of CRBC. The authorized capital stock of CRBC
consists of 1,500,000 shares of common stock (the "CRBC shares"), par value of
$2.22 per share, of which 1,310,233 shares were issued and outstanding as of
December 1, 1996. Bancorp owns 100% of the CRBC Shares. All issued and
outstanding Shares have been duly authorized and validly issued in compliance
with applicable law including, without limitation, federal and state securities
laws. All issued and outstanding shares are fully paid and nonassessable.
None of the CRBC Shares have been issued in violation of the preemptive rights
of any stockholder.
3.8 Capital Structure of KVB. The authorized capital stock of KVB
consists of 109,546 shares of common stock (the "KVB shares"), par value of
$10.00 per share, of which 109,546 shares were issued and outstanding as of
December 1, 1996. Bancorp owns 100% of the KVB Shares. All issued and
outstanding Shares have been duly authorized and validly issued in compliance
with applicable law including, without limitation, federal and state securities
laws. All issued and outstanding shares are fully paid and nonassessable.
None of the KVB Shares have been issued in violation of the preemptive rights
of any stockholder.
3.9 Further Assurances. Each party shall use its best efforts to
promptly do or cause to be done all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by
the Agreement.
4. EMPLOYEES.
4.1 Employees. The employees of KVB who are employed immediately
prior to the Effective Date shall become employees of CRBC on the Effective
Date, all of whom shall continue such employment on the same terms and
conditions as existed prior to the Effective Date. The Merger shall effect no
modifications to the terms of any employment agreements to which KVB is a party
existing prior to the Effective Date.
4.2 Employee Benefit Plans. The Merger shall effect no
modifications to the terms of any employee benefit, profit-sharing or
retirement plans of CRBC or KVB existing prior to the Effective Date.
Page - 5 Agreement and Plan of Reorganization and Merger (CRBC - KVB)
<PAGE> 6
5. CONDITIONS PRECEDENT.
5.1 Conditions Precedent to Parties' Obligations. The obligation
of the parties to effect the Merger contemplated by the Agreement shall be
subject to the satisfaction or waiver of each of the following conditions on or
before the Effective Date:
5.1.1 Bancorp Approval. The Agreement and the Merger shall
have been duly and validly authorized, approved and adopted by Bancorp as the
sole shareholder of CRBC and KVB in accordance with ORS 711.025.
5.1.2 Regulatory Approvals and Consents. Orders, consents,
and approvals, in form and substance satisfactory to the parties, shall have
been entered by the FRB, the FDIC, the Director, and such other regulatory
authorities having jurisdiction over the parties and the transactions
contemplated hereby, granting the authority necessary for consummation of the
transaction contemplated by the Agreement; all other requirements prescribed by
law or by the rules and regulations of any other regulatory authority having
jurisdiction over such transactions shall have been satisfied; and the parties
shall have received evidence satisfactory to them of the satisfaction of the
foregoing conditions. No order or approval shall contain any term, provision,
or condition that either party deems materially burdensome.
5.1.3 No Litigation. The absence of any material suit, action
or proceeding (made or threatened) against CRBC or KVB or any of their
directors or officers seeking to challenge, restrain, enjoin or otherwise
affect the Agreement or the transactions contemplated by the Agreement, seeking
to restrict the rights of the parties or the operation of the business of CRBC
or KVB after the consummation of the Agreement; or seeking to subject the
parties hereto or any of their officers or directors to any liability, fine,
forfeiture or penalty on the grounds that the parties hereto or their directors
or officers have violated or will violate their fiduciary duties or will
violate any applicable laws or regulations in connection with the transactions
contemplated by the Agreement.
5.1.4 KVB Name. CRBC shall have obtained approval to do
business in the State of Washington through one or more locations under the
assumed business name "Klickitat Valley Bank."
6. TERMINATION AND AMENDMENT.
6.1 Termination. Prior to the Effective Date, the Agreement may be
terminated and the Merger abandoned at any time notwithstanding approval by the
Bancorp or by any applicable regulatory authority:
6.1.1 Through written consent of the Board of Directors of
CRBC and KVB;
Page - 6 Agreement and Plan of Reorganization and Merger (CRBC - KVB)
<PAGE> 7
6.1.2 By the parties if the Effective Date shall not have
occurred on or before June 30, 1997, unless the Boards of Directors of CRBC and
KVB have agreed to extend the time in which the Merger may be consummated;
6.1.3 By the parties if any court of competent jurisdiction or
any governmental agency has issued an order, decree, or ruling or taken any
other action restraining, enjoining, or otherwise prohibiting the Merger and
such order, decree, ruling, or other action shall have become final and
nonappealable;
6.1.4 By the parties if the conditions set forth in Section 5
have not been complied with or performed in any material respect and such
noncompliance or nonperformance has not been cured or eliminated (or by its
nature cannot be cured or eliminated) by CRBC or KVB on or before the Effective
Date;
6.1.5 Upon the final disapproval by any of the FRB, the FDIC,
the Director or any other regulatory authority whose approval is required, in
whole or in part, of the transactions contemplated by the Agreement.
6.2 Amendment. The Agreement may not be amended except by a
subsequent written agreement signed by all parties hereto.
7. MISCELLANEOUS.
7.1 Governing Law. Each and every portion of the Agreement is
contractual and not a mere recital, and all recitals shall be deemed
incorporated into the Agreement. The Agreement shall be governed by and
interpreted according to Oregon law and any applicable federal law.
7.2 Integration. The Agreement contains the entire understanding
and agreement of the parties with respect to the parties' relationship, and all
prior negotiations, discussions or understandings, oral or written, are hereby
integrated herein. No prior negotiations, discussions or agreements not
contained herein or in such documents shall be binding or enforceable against
the parties.
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<PAGE> 8
7.3 Counterparts. The Agreement may be signed in several
counterparts. The signature of one party on any counterpart shall bind such
party just as if all parties had signed that counterpart. Each counterpart
shall be considered an original. All counterparts of the Agreement shall
together constitute one original document.
COLUMBIA RIVER BANKING COMPANY KLICKITAT VALLEY BANK
[SIGNATURE] [SIGNATURE]
- ------------------------------ ------------------------------
Board Chairman Board Chairman
[SIGNATURE] [SIGNATURE]
- ------------------------------ ------------------------------
Chief Executive Officer Chief Executive Officer
Page - 8 Agreement and Plan of Reorganization and Merger (CRBC - KVB)
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and
entered into this 14th day of May, 1996 by and between Columbia Bancorp, an
Oregon corporation ("Bancorp") and Terry L. Cochran ("Employee").
RECITALS
(1) Bancorp is an Oregon corporation and is the holding
company of Columbia River Banking Company (the "Bank"), a state-chartered
Oregon financial institution with its principal office in The Dalles, Oregon.
(2) Bancorp desires to employ Employee as President and
Chief Executive Officer of Bancorp and of the Bank.
Now, therefore, it is agreed:
1. Relationship and Duties.
1.1 Bancorp shall employ Employee as an officer of
Bancorp with the title of President and Chief Executive Officer to perform such
services and duties as the Board of Directors of Bancorp (the "Bancorp Board")
may designate from time to time. Subject to the terms and conditions hereof,
employee shall perform such duties and exercise such authority as are
customarily performed and exercised by persons holding such office, subject to
the general direction of the Bancorp Board. Such services and duties shall be
exercised in good faith and in accordance with standards of reasonable business
judgment.
1.2 Employee shall serve on the Bancorp Board and on such
committees established by the Bancorp Board to which Employee may be appointed.
1.3 Subject to Section 1.7 of the Agreement, Employee
shall also be employed to serve as an officer of the Bank with the title of
President and Chief Executive Officer to perform such services and duties as
the Board of Directors of the Bank (the "Bank Board") may designate from time
to time. Subject to the terms and conditions hereof, employee shall perform
such duties and exercise such authority as are customarily performed and
exercised by persons holding such office, subject to the general direction of
the Bank Board. Such services and duties shall be exercised in good faith and
in accordance with standards of reasonable business judgment.
1.4 Employee shall serve on the Bank Board and on such
committees established by the Bank Board to which Employee may be appointed.
1.5 Employee shall devote his full time, attention and
efforts to the diligent performance of his duties as an officer and director of
Bancorp and of the Bank. Employee will not accept employment with any other
individual, corporation, partnership, governmental authority or any other
entity, or engage in any other venture for profit which Bancorp may consider to
be in conflict with Bancorp's or the Bank's best
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<PAGE> 2
interests or to be in competition with Bancorp's or the Bank's business, or
which may interfere in any way with Employee's performance of his duties
hereunder. Any exceptions to the above conditions must be approved by the
Bancorp Board in writing.
1.6 Nothing in the Agreement shall prohibit Employee from
serving on the board of directors of any profit or non-profit corporation not
in direct competition with Bancorp or the Bank or with any other subsidiary,
sister or affiliated corporation of Bancorp. In addition, Employee may own
stock in any other corporation whether or not the stock is publicly traded;
provided, that if such corporation operates a business in competition with
Bancorp Employee may not own more than five percent (5%) of the outstanding
shares of such corporation.
1.7 Nothing in the Agreement shall prohibit Bancorp from
modifying, adding to or otherwise changing Employee's duties as a full-time
employee during the term of the Agreement. In particular, and without
limitation, Bancorp may in its discretion direct Employee to (i) cease work as
President and Chief Executive Officer of the Bank and devote 100% of his
efforts to serving as President and Chief Executive Officer of Bancorp, (ii)
allocate his efforts on behalf of Bancorp and of the Bank in a manner
determined by the Bancorp Board, or (iii) undertake special projects on behalf
of Bancorp, the Bank or both. Any such modifications, additions to or changes
in Employee's duties shall not be deemed a termination of Employee's employment
under the Agreement. Notwithstanding the foregoing, Employee shall retain the
title of President and Chief Executive Officer of Bancorp during the term of
the Agreement.
2. Term of Employment.
2.1 The initial term of employment under the Agreement
shall be two years beginning May 15, 1996 and ending May 14, 1998.
2.2 Employee's term of employment under the Agreement may
be extended for successive one-year terms after May 14, 1998 subject to the
mutual agreement of the parties. The parties shall reach mutual agreement
concerning such extensions on or before a date which is no less than one year
prior to the date of expiration of Employee's term of employment under the
Agreement, including any extensions thereof. Each extended term shall begin on
the fifteenth day of May in the year the extension becomes effective.
3. Termination.
3.1 As used in the Agreement, "termination" shall mean
the termination of Employee's employment relation with Bancorp, whether
initiated by Bancorp or by Employee, and whether for cause or without cause;
provided, that Employee's retirement from full-time employment under Section 7
herein shall not constitute a "termination" of employment under the terms of
the Agreement.
3.2 Notwithstanding any other provisions of the
Agreement, the employment of Employee shall terminate immediately on the
earlier to occur of any of the following:
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<PAGE> 3
3.2.1 Employee's death;
3.2.2 Employee's complete disability. "Complete
disability" as used herein shall mean the inability of Employee, due to
illness, accident, or other physical or mental incapacity, to perform the
services required under the Agreement for an aggregate of sixty (60) days
within any period of 120 consecutive days during the term hereof; provided,
however, that disability shall not constitute a basis for discharge for cause;
3.2.3 The discharge of Employee by Bancorp for
cause. "Cause" as used herein shall mean (i) Employee's negligence or
misconduct as shall constitute, as a matter of law, a breach of the covenants
and obligations of Employee hereunder; (ii) failure or refusal of Employee to
comply with the provisions of the Agreement; (iii) Employee's conviction by any
duly constituted court with competent jurisdiction of a crime (other than
traffic offenses); (iv) Employee's malfeasance or incompetence, provided that
in applying this criteria the Bancorp Board shall not be unreasonable or
arbitrary, and provided further that prior to effecting a dismissal under this
Section (iv) the Bancorp Board shall afford Employee with fair and reasonable
warning and with a fair and reasonable opportunity to cure any defects in
Employee's performance.
3.3 Employee may terminate his employment with Bancorp
with or without cause by giving thirty (30) days written notice of termination.
"Cause" as used herein shall include Bancorp's failure or refusal to comply
with the provisions of the Agreement.
3.4 The termination of Employee's employment prior to the
Retirement Date as defined in Section 7.1 herein shall constitute a tender by
Employee of his resignation as an officer of Bancorp and of the Bank, as a
member of the Bancorp Board, the Bank Board and any committees thereof, and as
an officer and Board member of any other subsidiaries of Bancorp.
3.5 If prior to the Retirement Date Employee's employment
is terminated by Employee with or without cause, or by Bancorp without cause,
Employee shall be paid all base salary and benefits accrued under the Agreement
as of the termination date, and in addition, shall be entitled to the deferred
compensation payments provided under Section 1 of the Deferred Compensation
Agreement of May 14, 1996 between the parties (the "DC Agreement").
3.6 If prior to the Retirement Date, as defined in
Section 7.1 herein, Employee's employment is terminated by Bancorp with cause,
Employee shall be paid all base salary and benefits accrued under the Agreement
as of the termination date, but shall not be entitled to the deferred
compensation payments provided under Section 1 of the DC Agreement.
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<PAGE> 4
4. Compensation.
4.1 Employee shall be paid (i) an annual base salary of
$100,000 in equal bimonthly installments, subject to any deductions required by
law, for the period beginning May 15, 1996 and ending December 31, 1996, and
(ii) an annual base salary of $105,000 in equal bimonthly installments, subject
to any deductions required by law, for the period beginning January 1, 1997 and
ending December 30, 1997.
4.2 On or before the 30th day of April, 1997, Bancorp
shall determine Employee's annual base salary for the calendar year beginning
January 1, 1998. If Employee's term of employment under the Agreement has been
extended, on the 30th day of April, 1998, and for each successive April 30th
prior to the date of beginning of any further extended term, Bancorp shall
determine Employee's annual base salary for the immediately following calendar
year.
4.3 In December, 1996 and in the month of December of
each successive year for as long as Employee is employed under the Agreement,
the Bancorp Board shall determine the amount of and the formulas and methods
for establishing Employee's performance bonus for the following calendar year,
subject to any deductions required by law. The amount of such bonus shall be
set in the Bancorp Board's sole discretion, and the Bancorp Board may decline
to award a performance bonus in any year.
4.4 Effective as of June 13, 1996, the effective date of
Bancorp's acquisition of Klickitat Valley Bank, Employee shall receive no fees
for serving as a member of the Bancorp Board or the Bank Board as long as
Employee is also employed by Bancorp. If after the Retirement Date Employee
continues to serve as a member of the Bancorp Board or any the Board of any of
Bancorp's subsidiaries, Employee shall be entitled to receive the fees and
other amounts payable to any other such member.
5. Benefits.
5.1 Employee shall be eligible to participate in any plan
of the Bank or of Bancorp relating to stock options, stock purchases, profit
sharing, group life insurance, medical coverage, education and other retirement
or employee benefits that the Bank or Bancorp may adopt for the benefit of
employees.
5.2 Employee shall be eligible to participate in any
other benefits which may be or become applicable to Bancorp's or the Bank's
executive employees. In addition, Employee shall be entitled to (i) a
reasonable car allowance or, at the Bancorp Board's discretion, in lieu of an
allowance an automobile and all expenses of maintenance to cover its use, (ii)
a reasonable expense account for use in connection with Bancorp and Bank
business, (iii) membership fees and dues for membership in one golf club
mutually agreeable between Employee and the Bancorp Board, and (iv) any other
benefits which in the Bancorp Board's judgment are commensurate with the
responsibilities and functions to be performed by Employee under the Agreement,
including the payment of reasonable expenses for attendance by Employee and
Employee's spouse at annual and periodic meetings of trade associations.
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<PAGE> 5
6. Vacations and Leaves.
6.1 Employee shall be entitled to an annual paid vacation
of five (5) weeks per year. The timing of vacations shall be scheduled in a
reasonable manner by Employee. Employee shall not be entitled to receive any
additional compensation from Bancorp on account of his failure to take a
vacation, and may not accumulate unused vacation time from one calendar year to
the next.
6.2 In addition to paid vacations, Employee shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment with Bancorp and the Bank for such additional
periods of time and for such valid and legitimate reasons as the Bancorp Board
in its discretion may determine.
6.3 The Bancorp Board may grant Employee a leave or
leaves of absence, with or without pay, at such time or times and upon such
terms and conditions as the Bancorp Board, in its discretion, may determine.
6.4 In each calendar year Employee shall be absent from
Bancorp and the Bank for one period of two consecutive weeks. Such period may
include vacation, leave, sick leave, attendance at seminars or conventions, or
any combination thereof.
7. Retirement From Full-Time Employment.
7.1 If Employee's employment is not otherwise terminated
prior thereto, Employee's last day of employment under the Agreement or any
extensions thereof shall be deemed Employee's date of retirement (the
"Retirement Date"), after which Employee shall be deemed retired from
employment by Bancorp. From and after the Retirement Date, the Agreement shall
be of no further force and effect, and the relationship between Employee and
Bancorp shall be governed exclusively by the DC Agreement.
7.2 If Employee's employment is terminated hereunder
prior to the Retirement Date, Employee's right to payment and benefits under
the Agreement and under the DC Agreement shall be determined in accordance with
Section 3 and Section 8 of the Agreement and under the DC Agreement. Such
termination of employment shall not invalidate the DC Agreement.
7.3 Employee's retirement shall not constitute Employee's
tender of resignation as a Board member or Board committee member of the Board
of Directors of Bancorp or any of its subsidiaries. From and after the
Retirement Date Employee may serve in such positions on the same terms and
conditions as other such members and in accordance with applicable bylaws.
8. Change of Control.
8.1 Employee's rights on termination of employment under
Section 3 of the Agreement, as well as all other rights of Employee under the
Agreement and the DC Agreement or otherwise, shall survive a change of control
of Bancorp.
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<PAGE> 6
8.2 If a change of control of Bancorp occurs prior to the
Retirement Date, Employee shall have ninety (90) days following the date such
change of control becomes effective to elect to terminate Employee's employment
without cause. If Employee so elects to terminate, Employee shall receive all
payments and benefits due to Employee on termination under the Agreement and
under the DC Agreement. Such payments and benefits shall include, without
limitation, the deferred compensation payments provided under Section 1 of the
DC Agreement.
8.3 Employee shall be entitled to the payments and
benefits provided under this Section 8 whether or not Employee opposed or
favored the change in control. Employee's rights under this Section are in
addition to, and not in lieu of, Employee's rights under Section 7 of the
Agreement and under the DC Agreement.
8.4 The following items shall be due and payable
immediately at Employee's election in the event that a change of control
occurs:
8.4.1 Nonforfeitable deferred compensation;
8.4.2 Long-term performance plan objective
payments, if any, shall be declared accomplished and earned based upon
performance up to the date of the change of control.
8.5 If Employee is a participant in a restricted stock
plan or share option plan, and such plan is terminated involuntarily as a
result of the change of control, all stock and options shall be declared fully
vested and shall be paid, awarded or otherwise distributed. With respect to
any unexercised options under any stock option plan, such options may be
exercised within the period provided in such plan. Effective as of the date of
the change of control, any holding period established for stock paid as bonus
or other compensation shall be deemed terminated, except as otherwise provided
by law.
8.6 As used in this Section, "control" shall mean the
acquisition of twenty-five percent (25%) or more of the voting securities of
Bancorp by any person, or persons acting as a group within the meaning of
Section 13(d) of the Securities Exchange Act of 1934, or to such acquisition of
a percentage between ten percent (10%) and twenty-five percent (25%) if the
Board or the Comptroller of the Currency, the FDIC, or the Federal Reserve Bank
have made a determination that such acquisition constitutes or will constitute
control of Bancorp. The term "person" refers to an individual, corporation,
Bank, bank holding company, or other entity, but excludes any Employee Stock
Ownership Plan established for the benefit of employees of Bancorp or any of
its subsidiaries.
9. Post Termination Covenants.
9.1 If Employee terminates his employment without cause,
or if Employee's employment is terminated by Bancorp for cause, then for one
year from the date of such termination Employee will not, without the prior
written consent of Bancorp:
Page 6 - Employment Agreement (Columbia Bancorp - Terry L. Cochran)
<PAGE> 7
9.1.1 Undertake full or part-time work, either as
an employee or as a consultant, for another financial institution if such work
is to be done, in whole or in part, in or from an office or other work site in
Wasco, Hood River, Jefferson, Deschutes, Sherman or Gilliam Counties, Oregon or
in Klickitat County, Washington; or
9.1.2 Hire for any financial institution or other
employer (including himself) any employee of Bancorp, the Bank or any other
subsidiary of Bancorp, or directly or indirectly cause such an employee to
leave his or her employment to work for another employer, if such employee is
to work in or from an office or other work site in Wasco, Hood River,
Jefferson, Deschutes, Sherman or Gilliam Counties, Oregon or in Klickitat
County, Washington.
9.2 The covenants in this Section do not apply if
Employee terminates his employment for cause, or if Employee's employment is
terminated by Bancorp without cause.
10. Miscellaneous.
10.1 Employee's retirement from employment under the
Agreement on the Retirement Date shall not be deemed a retirement or general
termination under Section 8 of the Bank's 1993 Stock Incentive Plan, except as
otherwise provided therein or as provided under law, and shall therefore not
limit the time within which Employee may exercise Employee's stock option
rights under the Plan unless the Plan or applicable law provides to the
contrary.
10.2 Each and every portion of the Agreement is
contractual and not a mere recital, and all recitals shall be deemed
incorporated into the Agreement. The Agreement shall be governed by and
interpreted according to Oregon law and any applicable federal law. The
Agreement may not be amended except by a subsequent written agreement signed by
all parties hereto.
10.3 The Agreement contains the entire understanding and
agreement of the parties with respect to the parties' relationship, and all
prior negotiations, discussions or understandings, oral or written, are hereby
integrated herein. No prior negotiations, discussions or agreements not
contained herein or in such documents shall be binding or enforceable against
the parties.
10.4 The Agreement may be signed in several counterparts.
The signature of one party on any counterpart shall bind such party just as if
all parties had signed that counterpart. Each counterpart shall be considered
an original. All counterparts of the Agreement shall together constitute one
original document.
10.5 Employee's rights under the Agreement are in addition
to Employee's rights under the Deferred Compensation Agreement of May 14, 1996
between the parties.
10.6 All rights and duties of Bancorp under the Agreement
shall be binding on and inure to the benefit of Bancorp's successors and
assigns, including any
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<PAGE> 8
person or entity which acquires a controlling interest in Bancorp and any
person or entity which acquires all or substantially all of Bancorp's assets.
Bancorp and any such successor or assign shall be and remain jointly and
severally liable to Employee under the Agreement. Employee may not assign or
transfer Employee's rights or interests in or under the Agreement other than by
a will or by the laws of descent and distribution. The Agreement shall inure
to the benefit of and be enforceable by Employee's estate or legal
representative.
10.7 Any waiver by any party hereto of any provision of
the Agreement, or of any breach thereof, shall not constitute a waiver of any
other provision or of any other breach. If any provision, paragraph or
subparagraph herein shall be deemed invalid, illegal or unenforceable in any
respect, the validity and enforceability of the remaining provisions,
paragraphs and subparagraphs shall not be affected.
10.8 Any dispute, controversy, claim or difference
concerning or arising from the Agreement or the rights or performance of either
party under the Agreement, including disputes about the interpretation or
construction of the Agreement, shall be settled through binding arbitration in
the State of Oregon and in accordance with the rules of the American
Arbitration Association. A judgment upon the award rendered in such
arbitration may be entered in any court of competent jurisdiction.
10.9 The Agreement supersedes and replaces the Employment
Agreement between Employee and the Bank of October 1, 1995, and the latter
agreement shall be deemed null and void as of May 14, 1996.
[SIG]
______________________________________
Employee
COLUMBIA BANCORP
[SIG]
By:____________________________________
Chairman of the Board
Page 8 - Employment Agreement (Columbia Bancorp - Terry L. Cochran)
<PAGE> 1
EXHIBIT 10.2
DEFERRED COMPENSATION AGREEMENT
This Deferred Compensation Agreement (the "Agreement") is made
and entered into this 14th day of May, 1996 by and between Columbia Bancorp, an
Oregon corporation ("Bancorp") and Terry L. Cochran ("Cochran").
RECITALS
(1) Bancorp is an Oregon corporation and is the holding
company of Columbia River Banking Company (the "Bank"), a state-chartered
Oregon financial institution with its principal office in The Dalles, Oregon.
(2) Cochran is now employed full-time by Bancorp as
President and Chief Executive Officer of Bancorp and of the Bank. Cochran has
served as President and Chief Executive Officer of Bancorp since its formation
in 1995, and has served in many positions at the Bank, including President and
Chief Executive Officer, since 1981.
(3) Bancorp recognizes the contributions that Cochran has
made to the success and profitability of the Bank and of Bancorp, and desires
to provide deferred compensation and other consideration to Cochran as
compensation for his services and for the confidentiality covenants set forth
in the Agreement.
Now, therefore, it is agreed:
1. Deferred Compensation.
1.1 Cochran shall become eligible for deferred
compensation under the Agreement upon his retirement as a full-time employee of
Bancorp; provided, that in no event shall Cochran be entitled to deferred
compensation payments under the Agreement prior to May 15, 1998 regardless of
the date of Cochran's termination of employment by retirement or otherwise.
1.2 Beginning on the first 15th day of May immediately
following the date of Cochran's retirement, and on the 15th day of May of each
year thereafter through and including May 15, 2004, Bancorp shall pay Cochran
deferred compensation consisting of (i) $26,000 per year, plus (ii) Accrued
Interest as provided in Section 1.3 herein.
1.3 Payment of the Accrued Interest described in Section
1.2(ii) has been provided for by the purchase of a $120,000 market rate
certificate of deposit (the "CD") on December 26, 1995. The CD, which matures
on May 15, 1997, was purchased to fund such payments. Upon the maturity of the
CD a new market rate certificate of deposit shall be purchased with a
comparable maturity for the same purpose as long as Cochran is entitled to
deferred compensation payments under the Agreement. Any interest earned (the
"Accrued Interest") on the CD and any subsequent certificates of deposit
purchased under the Agreement shall be paid to Cochran as follows: (i) on the
first May 15 on which Cochran is paid his first yearly deferred compensation
payment
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<PAGE> 2
under the Agreement, Cochran shall also be paid all Accrued Interest
earned from the first date the CD and any subsequent certificates of deposit
began earning interest through the May 15 of the year in which Cochran is paid
such first yearly payment; (ii) on the 15th day of May of each year thereafter
through and including May 15, 2004, Cochran shall be paid all Accrued Interest
earned from the CD and any subsequent certificates of deposit from May 15 of
the previous calendar year through May 15 of the current payment year.
1.4 For the purposes of this Agreement, Cochran shall be
deemed "retired" on and as of the date of occurrence of one or more of the
following: (i) the date of expiration of Cochran's term of employment under the
Employment Agreement of May 14, 1996 between the parties where such term has
not been extended; (ii) the effective date of termination of Cochran's
employment by Bancorp or by Cochran, with or without cause; or (iii) such other
date on which the parties may mutually agree in writing.
1.5 If prior to retirement Cochran is terminated by
Bancorp with cause, Cochran shall not be entitled to any deferred compensation
payments or any benefits under Section 1.6 or elsewhere in the Agreement, and
the Agreement shall as of such termination date be null and void.
1.6 As additional consideration under the Agreement, from
and after the date of Cochran's retirement through May 15, 2004, Bancorp shall
provide Cochran with all medical, dental, disability, vision and life insurance
which Bancorp or the Bank provides to full-time employees.
2. Change of Control.
2.1 If there is a change of control of Bancorp on or at
any time prior to May 15, 2004, Cochran shall continue to be entitled to
receive the deferred compensation provided in Section 1 of the Agreement.
2.2 If Cochran is a participant in a restricted stock
plan or share option plan, and such plan is terminated involuntarily as a
result of the change of control, all stock and options shall be declared fully
vested and shall be distributed. With respect to any unexercised options under
any stock option plan, such options may be exercised within the period provided
in such plan. Effective as of the date of the change of control, any holding
period established for stock paid as bonus or other compensation shall be
deemed terminated, except as otherwise provided by law.
2.3 As used in this Section, "control" shall mean the
acquisition of twenty-five percent (25%) or more of the voting securities of
Bancorp by any person, or persons acting as a group within the meaning of
Section 13(d) of the Securities Exchange Act of 1934, or to such acquisition of
a percentage between ten percent (10%) and twenty-five percent (25%) if the
Board or the Comptroller of the Currency, the FDIC, or the Federal Reserve Bank
have made a determination that such acquisition constitutes or will constitute
control of Bancorp. The term "person" refers to an individual, corporation,
Bank, bank holding company, or other entity, but excludes any Employee
Page 2 - Deferred Compensation Agreement (Columbia Bancorp - Terry L. Cochran)
<PAGE> 3
Stock Ownership Plan established for the benefit of employees of Bancorp or any
of its subsidiaries.
3. Covenants.
3.1 Cochran shall at all times fully cooperate with
Bancorp and its affiliates in the defense or prosecution of any litigation
arising from or relating to matters about which Cochran has knowledge based on
his employment or other work, paid or unpaid, for Bancorp and its affiliates.
3.2 Cochran shall at all times keep all confidential and
proprietary information gained from his employment by Bancorp, or other
previous and present paid or unpaid work for Bancorp and its affiliates, in
strictest confidence, and will not disclose or otherwise disseminate such
information to anyone, other than to Board members or employees of Bancorp or
its affiliates, except as may be required by law, regulation or subpoena.
4. Miscellaneous.
4.1 Cochran's retirement shall not be deemed a retirement
or general termination under Section 8 of the Bank's 1993 Stock Incentive Plan
or any successor plan, and shall therefore not limit the time within which
Cochran may exercise his stock option rights thereunder, except as otherwise
provided under the Plan or any successor plan or under applicable law.
4.2 Each and every portion of the Agreement is
contractual and not a mere recital, and all recitals shall be deemed
incorporated into the Agreement. The Agreement shall be governed by and
interpreted according to Oregon law and any applicable federal law. The
Agreement may not be amended except by a subsequent written agreement signed by
all parties hereto.
4.3 The Agreement contains the entire understanding and
agreement of the parties with respect to the parties' relationship, and all
prior negotiations, discussions or understandings, oral or written, are hereby
integrated herein. No prior negotiations, discussions or agreements not
contained herein or in such documents shall be binding or enforceable against
the parties.
4.4 The Agreement shall be effective and binding upon the
parties as of and from and after May 14, 1996 until its expiration or
termination as provided herein. Cochran's rights under the Agreement are in
addition to Cochran's rights under the Employment Agreement of May 14, 1996
between the parties.
4.5 The Agreement may be signed in several counterparts.
The signature of one party on any counterpart shall bind such party just as if
all parties had signed that counterpart. Each counterpart shall be considered
an original. All counterparts of the Agreement shall together constitute one
original document.
Page 3 - Deferred Compensation Agreement (Columbia Bancorp - Terry L. Cochran)
<PAGE> 4
4.6 All rights and duties of Bancorp under the Agreement
shall be binding on and inure to the benefit of Bancorp's successors and
assigns, including any person or entity which acquires a controlling interest
Bancorp and any person or entity which acquires all or substantially all of
Bancorp's assets. Bancorp and any such successor or assign shall be and remain
jointly and severally liable to Cochran under the Agreement. Cochran may not
assign or transfer Cochran's rights or interests in or under the Agreement
other than by a will or by the laws of descent and distribution.
4.7 The Agreement, including the payment rights provided
in the Agreement, shall inure to the benefit of and be enforceable by Cochran's
estate or legal representative. Without limitation of the foregoing, it is
understood and agreed that if Cochran's employment is terminated prior to the
first date on which Cochran becomes eligible for the deferred compensation
payments provided under the Agreement, and if such termination is due to death,
disability or any other reason, other than termination with cause as described
in Section 1.5 herein, Cochran or his estate shall be entitled to all deferred
compensation payments hereunder from and after the first such date of
eligibility.
4.8 Any waiver by any party hereto of any provision of
the Agreement, or of any breach thereof, shall not constitute a waiver of any
other provision or of any other breach. If any provision, paragraph or
subparagraph herein shall be deemed invalid, illegal or unenforceable in any
respect, the validity and enforceability of the remaining provisions,
paragraphs and subparagraphs shall not be affected.
4.9 Any dispute, controversy, claim or difference
concerning or arising from the Agreement or the rights or performance of either
party under the Agreement, including disputes about the interpretation or
construction of the Agreement, shall be settled through binding arbitration in
the State of Oregon and in accordance with the rules of the American
Arbitration Association. A judgment upon the award rendered in such
arbitration may be entered in any court of competent jurisdiction.
[SIG]
______________________________________
Terry L. Cochran
COLUMBIA BANCORP
[SIG]
By:____________________________________
Chairman of the Board
Page 4 - Deferred Compensation Agreement (Columbia Bancorp - Terry L. Cochran)
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and
entered into as of June 19, 1996 by and between Klickitat Valley Bank (the
"Bank") and Wesley A. Kangas ("Employee").
RECITALS
(1) The Bank is a state-chartered Washington financial
institution with its principal office in Goldendale, Washington.
(2) The Bank desires to employ Employee as President and
Chief Executive Officer of the Bank.
Now, therefore, it is agreed:
1. Relationship and Duties.
1.1 The Bank shall employ Employee as an officer of the
Bank with the title of President and Chief Executive Officer to perform such
services and duties as the Board of Directors of the Bank (the "Board") may
designate from time to time. Subject to the terms and conditions hereof,
employee shall perform such duties and exercise such authority as are
customarily performed and exercised by persons holding such office, subject to
the general direction of the Board. Such services and duties shall be
exercised in good faith and in accordance with standards of reasonable business
judgment.
1.2 Employee shall serve on the Board and on such
committees established by the Board to which Employee may be appointed.
1.3 Employee shall devote his full time, attention and
efforts to the diligent performance of his duties as an officer and director of
the Bank. Employee will not accept employment with any other individual,
corporation, partnership, governmental authority or any other entity, or engage
in any other venture for profit which the Bank may consider to be in conflict
with the Bank's best interests or to be in competition with the Bank's
business, or which may interfere in any way with Employee's performance of his
duties hereunder. Any exceptions to the above conditions must be approved by
the Board in writing.
1.4 Nothing in the Agreement shall prohibit Employee from
serving on the board of directors of any profit or non-profit corporation not
in direct competition with Bank or with any subsidiary, sister or affiliated
corporation of the Bank. In addition, Employee may own stock in any other
corporation whether or not the stock is publicly traded; provided, that if such
corporation operates a business in competition with the Bank Employee may not
own more than five percent (5%) of the outstanding shares of such corporation.
Page 1 - Employment Agreement (Wesley A. Kangas - Klickitat Valley Bank)
<PAGE> 2
2. Term of Employment.
2.1 The term of employment under the Agreement shall
commence on the Effective Date, as that term is defined in that certain
Agreement and Plan of Merger Between Columbia Bancorp and Klickitat Valley Bank
of January 13, 1996, of the acquisition of the Bank by Columbia Bancorp, and
shall end on or before July 31, 1998.
2.2 Employee's term of employment under the Agreement may
be extended after July 31, 1998 subject to the mutual agreement of the parties.
The parties shall reach mutual agreement concerning such extensions on or
before a date which is no less than six months prior to the date of expiration
of Employee's term of employment under the Agreement, including any extensions
thereof.
3. Termination.
3.1 As used in the Agreement, "termination" shall mean
the termination of Employee's employment relation with the Bank, whether
initiated by Bank or by Employee, and whether with cause or without cause.
3.2 Notwithstanding any other provisions of the
Agreement, the employment of Employee shall terminate immediately on the
earlier to occur of any of the following:
3.2.1 Employee's death;
3.2.2 Employee's complete disability. "Complete
disability" as used herein shall mean the inability of Employee, due to
illness, accident, or other physical or mental incapacity, to perform the
services required under the Agreement for an aggregate of sixty (60) days
within any period of 120 consecutive days during the term hereof; provided,
however, that disability shall not constitute a basis for discharge with cause;
3.2.3 The discharge of Employee by the Bank with
cause. "Cause" as used herein shall mean (i) Employee's negligence or
misconduct as shall constitute, as a matter of law, a breach of the covenants
and obligations of Employee hereunder; (ii) failure or refusal of Employee to
comply with the provisions of the Agreement; (iii) Employee's conviction by any
duly constituted court with competent jurisdiction of a crime (other than
traffic offenses); (iv) Employee's malfeasance or incompetence, provided that
in applying this criteria the Board shall not be unreasonable or arbitrary, and
provided further that prior to effecting a dismissal under this Section (iv)
the Board shall afford Employee with fair and reasonable warning and with a
fair and reasonable opportunity to cure any defects in Employee's performance.
3.3 Employee may terminate his employment with the Bank
with cause by giving thirty (30) days written notice of termination. "Cause"
as used herein shall include Bank's failure or refusal to comply with the
provisions of the Agreement. Employee may terminate his employment with the
Bank without cause by giving ninety (90) days written notice of termination.
Page 2 - Employment Agreement (Wesley A. Kangas - Klickitat Valley Bank)
<PAGE> 3
3.4 The termination of Employee's employment shall
constitute a tender by Employee of his resignation as an officer, Board member
and Board committee member of the Bank.
3.5 If prior to the Retirement Date, as defined in
Section 7.1 herein, Employee's employment is terminated by the Bank without
cause, Employee shall be paid all base salary and benefits accrued under the
Agreement as of the termination date, and in addition, shall be entitled to
severance payments consisting of (i) $7,916.76 per month for a period of
twenty-four (24) months from and after the date of termination, and (ii)
$5,000.00 per month thereafter through and including the date of Employee's
60th birthday. The foregoing severance payments shall be in lieu of, and not
in addition to, the deferred compensation payments and other benefits provided
under the Deferred Compensation Agreement of June 19, 1996 between the parties
(the "DC Agreement"). Employee's termination as provided under this Section
3.5 shall be deemed a cancellation of the DC Agreement, and Employee shall
thereafter be entitled to no payments or benefits thereunder.
3.6 If prior to the Retirement Date, as defined in
Section 7.1 herein, Employee's employment is terminated by Employee with or
without cause, Employee shall be paid all base salary and benefits accrued
under the Agreement as of the termination date, and shall be entitled to the
deferred compensation payments and benefits under the DC Agreement. The
foregoing payments shall be in lieu of, and not in addition to, the severance
payments provided under Section 3.5 of the Agreement. The date of Employee's
termination as provided in this Section 3.6 shall be deemed the Retirement Date
under the DC Agreement.
3.7 If prior to the Retirement Date, as defined in
Section 7.1 herein, Employee's employment is terminated by the Bank with cause,
Employee shall be paid all base salary and benefits accrued under the Agreement
as of the termination date, but shall not be entitled to the deferred
compensation payments and benefits under the DC Agreement, and the DC Agreement
shall be null and void as of such termination date.
4. Compensation.
4.1 Employee shall be paid (i) an annual base salary of
$96,420 in equal bimonthly installments, subject to any deductions required by
law, for the period beginning on the date the Agreement becomes effective and
ending December 31, 1996, and (ii) an annual base salary of $100,000 in equal
bimonthly installments, subject to any deductions required by law, for the
period beginning January 1, 1997 and ending July 31, 1998.
4.2 In December, 1996 and in the month of December of
each successive year for as long as Employee is employed under the Agreement,
the Board shall determine the amount of and the formulas and methods for
establishing Employee's performance bonus for the following calendar year,
subject to any deductions required by law. The amount of such bonus shall be
set in the Board's sole discretion, and the Board may decline to award a
performance bonus in any year.
Page 3 - Employment Agreement (Wesley A. Kangas - Klickitat Valley Bank)
<PAGE> 4
4.3 As of the Effective Date, as that term is defined in
that certain Agreement and Plan of Merger Between Columbia Bancorp and
Klickitat Valley Bank of January 13, 1996, of the acquisition of the Bank by
Columbia Bancorp, Employee shall receive no fees for serving as a member of the
Board of Directors of the Bank or of Columbia Bancorp.
5. Benefits.
5.1 Employee shall be eligible to participate in any plan
of the Bank or of Columbia Bancorp relating to stock options, stock purchases,
education and other retirement or employee benefits that the Bank or Columbia
Bancorp may adopt for the benefit of employees.
5.2 Employee shall receive medical, dental, disability,
vision and life insurance coverage comparable to the coverage provide to the
President and Chief Executive Officer of Columbia Bancorp's subsidiary,
Columbia River Banking Company.
5.3 For the calendar years 1997 and 1998, Employee shall
receive profit sharing benefits comparable to those received by employees of
Columbia Bancorp's subsidiary, Columbia River Banking Company, under the
latter's ESOP and 401(k) plans, or under such other profit sharing plans for
the benefit of employees adopted by Columbia Bancorp or Columbia River Banking
Company.
5.4 Employee shall be eligible to participate in any
other benefits which may be or become applicable to the Bank's executive
employees. In addition, prior to the Retirement Date Employee shall be
entitled to (i) continued use of the Bank automobile presently used by
Employee, and all expenses of maintenance to cover its use, (ii) a reasonable
expense account for use in connection with Bank business, (iii) membership fees
and dues for membership in one golf club mutually agreeable between Employee
and the Board, and (iv) any other benefits which in the Board's judgment are
commensurate with the responsibilities and functions to be performed by
Employee under the Agreement, including the payment of reasonable expenses for
attendance by Employee and Employee's spouse at annual and periodic meetings of
trade associations.
6. Vacations and Leaves.
6.1 Employee shall be entitled to an annual paid vacation
of seven (7) weeks during the period beginning August 1, 1996 and ending July
31, 1997, and five (5) weeks during one successive comparable yearly period.
Each such period shall be referred to herein as the "Vacation Calculation
Period." If Employee's Retirement Date is earlier than the last calendar day
of any Vacation Calculation Period, Employee's entitlement to vacation during
such Period shall be pro-rated over the number of weeks of employment during
such Period. For example, if Employee's Retirement Date is January 31, 1997,
Employee shall be entitled to two and one-half weeks of paid vacation during
the Vacation Calculation Period ending July 31, 1997.
6.2 The timing of vacations shall be scheduled in a
reasonable manner by Employee. Employee shall not be entitled to receive any
additional compensation
Page 4 - Employment Agreement (Wesley A. Kangas - Klickitat Valley Bank)
<PAGE> 5
from the Bank on account of his failure to take a vacation, and may not
accumulate unused vacation time from one Vacation Calculation Period to the
next.
6.3 In addition to paid vacations, Employee shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment with the Bank for such additional periods of time
and for such valid and legitimate reasons as the Board in its discretion may
determine.
6.4 The Board may grant Employee a leave or leaves of
absence, with or without pay, at such time or times and upon such terms and
conditions as the Board, in its discretion, may determine.
6.5 In each calendar year Employee shall be absent from
the Bank for one period of two consecutive weeks. Such period may include
vacation, leave, sick leave, attendance at seminars or conventions, or any
combination thereof.
7. Retirement of Employee.
7.1 If Employee's employment is not otherwise terminated
prior thereto, Employee's last day of employment under the Agreement shall be
deemed Employee's date of retirement (the "Retirement Date"), after which
Employee shall be deemed retired from employment with the Bank. Employee's
Retirement Date shall be selected by Employee, and may be any date between
January 1, 1997 and July 31, 1998. The Retirement Date shall in any event be no
later than July 31, 1998, unless Employee's term of employment under the
Agreement has been extended under Section 2.2 of the Agreement. Employee shall
give the Bank no less than ninety (90) days advance notice in writing of the
Retirement Date.
7.2 Unless otherwise provided herein, from and after the
Retirement Date, the Agreement shall be of no further force and effect, and the
relationship between Employee and the Bank shall be governed exclusively by the
DC Agreement.
7.3 If Employee's employment is terminated hereunder
prior to the Retirement Date, Employee's right to payment and benefits under
the Agreement and under the DC Agreement shall be determined in accordance with
Section 3 and Section 8 of the Agreement and under the DC Agreement. Such
termination of employment shall not invalidate the DC Agreement except as
otherwise provided thereunder or under the Agreement.
8. Change of Control.
8.1 Employee's rights on termination of employment under
Section 3 of the Agreement, as well as all other rights of Employee under the
Agreement and the DC Agreement or otherwise, shall survive a change of control
of the Bank.
8.2 If a change of control of the Bank occurs prior to
the Retirement Date, Employee shall have ninety (90) days following the date
such change of control becomes effective to elect to terminate Employee's
employment without cause. If
Page 5 - Employment Agreement (Wesley A. Kangas - Klickitat Valley Bank)
<PAGE> 6
Employee so elects to terminate, Employee shall receive all payments and
benefits due to Employee on termination under Section 3.6 of the Agreement.
8.3 Employee shall be entitled to the payments and
benefits provided under this Section 8 whether or not Employee opposed or
favored the change in control.
8.4 The following items shall be due and payable
immediately at Employee's election in the event that a change of control
occurs:
8.4.1 Nonforfeitable deferred compensation;
8.4.2 Long-term performance plan objective
payments, if any, shall be declared accomplished and earned based upon
performance up to the date of the change of control.
8.5 If Employee is a participant in a restricted stock
plan or share option plan, and such plan is terminated involuntarily as a
result of the change of control, all stock and options shall be declared fully
vested and shall be paid, awarded or otherwise distributed. With respect to
any unexercised options under any stock option plan, such options may be
exercised within the period provided in such plan. Effective as of the date of
the change of control, any holding period established for stock paid as bonus
or other compensation shall be deemed terminated, except as otherwise provided
by law.
8.6 As used in this Section, "control" shall mean the
acquisition of twenty-five percent (25%) or more of the voting securities of
the Bank, or of a holding company owning the shares of the Bank, by any person,
or persons acting as a group within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, or to such acquisition of a percentage between
ten percent (10%) and twenty-five percent (25%) if the Board or the Comptroller
of the Currency, the FDIC, or the Federal Reserve Bank have made a
determination that such acquisition constitutes or will constitute control of
the Bank. The term "person" refers to an individual, corporation, Bank, bank
holding company, or other entity. The formation of a one-bank holding company
shall not constitute a change of control under the Agreement.
9. Post Termination Covenants.
9.1 If Employee terminates his employment without cause,
or if Employee's employment is terminated by the Bank with cause, then for one
year from the date of such termination Employee will not, without the prior
written consent of the Bank:
9.1.1 Undertake full or part-time work, either as
an employee or as a consultant, for another financial institution if such work
is to be done, in whole or in part, in or from an office or other work site in
Wasco, Hood River, Jefferson, Deschutes, Sherman or Gilliam Counties, Oregon or
in Klickitat County, Washington; or
Page 6 - Employment Agreement (Wesley A. Kangas - Klickitat Valley Bank)
<PAGE> 7
9.1.2 Hire for any financial institution or other
employer (including himself) any employee of the Bank, or directly or
indirectly cause a Bank employee to leave his or her employment to work for
another employer, if such employee is to work in or from an office or other
work site in Wasco, Hood River, Jefferson, Deschutes, Sherman or Gilliam
Counties, Oregon or in Klickitat County, Washington.
9.2 The covenants in this Section do not apply if
Employee terminates his employment with cause, or if Employee's employment is
terminated by the Bank without cause.
10. Effective Date of Agreement.
10.1 The Agreement shall become effective as of the
Effective Date, as that term is defined in that certain Agreement and Plan of
Merger Between Columbia Bancorp and Klickitat Valley Bank of January 13, 1996,
of the acquisition of the Bank by Columbia Bancorp. The Agreement shall not
become effective if the proposed acquisition does not occur for any reason.
10.2 The Agreement, when effective, shall supersede and
replace the Wesley A. Kangas Change of Control Protection Agreement between the
parties of September 26, 1995, and the latter agreement shall be deemed null
and void as of the date the Agreement becomes effective.
11. Miscellaneous.
11.1 Employee's retirement from employment under the
Agreement on the Retirement Date shall not be deemed a retirement or general
termination under any stock incentive plan applicable to Employee, except as
otherwise provided therein or as provided under law, and shall therefore not
limit the time within which Employee may exercise Employee's stock option
rights, if any, under such plan unless the plan or applicable law provides to
the contrary.
11.2 Each and every portion of the Agreement is
contractual and not a mere recital, and all recitals shall be deemed
incorporated into the Agreement. The Agreement shall be governed by and
interpreted according to Washington law and any applicable federal law. The
Agreement may not be amended except by a subsequent written agreement signed by
all parties hereto.
11.3 The Agreement contains the entire understanding and
agreement of the parties with respect to the parties' relationship, and all
prior negotiations, discussions or understandings, oral or written, are hereby
integrated herein. No prior negotiations, discussions or agreements not
contained herein or in such documents shall be binding or enforceable against
the parties.
11.4 The Agreement may be signed in several counterparts.
The signature of one party on any counterpart shall bind such party just as if
all parties had
Page 7 - Employment Agreement (Wesley A. Kangas - Klickitat Valley Bank)
<PAGE> 8
signed that counterpart. Each counterpart shall be considered an original.
All counterparts of the Agreement shall together constitute one original
document.
11.5 Employee's rights under the Agreement are in addition
to Employee's rights under the DC Agreement, except as otherwise provided
herein or under the DC Agreement.
11.6 All rights and duties of the Bank under the Agreement
shall be binding on and inure to the benefit of the Bank's successors and
assigns, including any person or entity which acquires a controlling interest
in the Bank and any person or entity which acquires all or substantially all of
Bank's assets. The Bank and any such successor or assign shall be and remain
jointly and severally liable to Employee under the Agreement. Employee may not
assign or transfer Employee's rights or interests in or under the Agreement
other than by a will or by the laws of descent and distribution. The Agreement
shall inure to the benefit of and be enforceable by Employee's estate or legal
representative. Notwithstanding the foregoing, all benefits provided under
Section 5 of the Agreement shall terminate upon Employee's death.
11.7 If Employee dies prior to receiving all or any
portion of the severance payments payable under Section 3.5 of the Agreement,
the Agreement shall be null and void as of the date of Employees' death, and no
further payments shall be due under Section 3.5 to Employee's estate, to any
assignee, or to any other person or entity.
11.8 Any waiver by any party hereto of any provision of
the Agreement, or of any breach thereof, shall not constitute a waiver of any
other provision or of any other breach. If any provision, paragraph or
subparagraph herein shall be deemed invalid, illegal or unenforceable in any
respect, the validity and enforceability of the remaining provisions,
paragraphs and subparagraphs shall not be affected.
11.9 Any dispute, controversy, claim or difference
concerning or arising from the Agreement or the rights or performance of either
party under the Agreement, including disputes about the interpretation or
construction of the Agreement, shall be settled through binding arbitration in
the State of Washington and in accordance with the rules of the American
Arbitration Association. A judgment upon the award rendered in such
arbitration may be entered in any court of competent jurisdiction.
[SIG]
______________________________________
Employee
KLICKITAT VALLEY BANK
[SIG]
By:____________________________________
Chairman of the Board
Page 8 - Employment Agreement (Wesley A. Kangas - Klickitat Valley Bank)
<PAGE> 1
EXHIBIT 10.4
DEFERRED COMPENSATION AGREEMENT
This Deferred Compensation Agreement (the "Agreement") is made
and entered into this 19th day of June, 1996 by and between Klickitat Valley
Bank (the "Bank") and Wesley A. Kangas ("Kangas").
RECITALS
(1) The Bank is a state-chartered Washington financial
institution with its principal office in Goldendale, Washington.
(2) Kangas is now employed full-time by the Bank as its
President and Chief Executive Officer, and has served in that position and in
other positions at the Bank since 1968.
(3) The Bank recognizes the contributions that Kangas has
made to the success and profitability of the Bank, and desires to provide
deferred compensation and other consideration to Kangas as compensation for his
services and for the confidentiality covenants set forth in the Agreement.
Now, therefore, it is agreed:
1. Deferred Compensation.
1.1 Kangas shall become eligible for deferred
compensation under the Agreement upon his retirement as a full-time employee of
the Bank.
1.2 As of the date of his retirement (the "Retirement
Date"), Kangas shall be entitled to payment of deferred compensation in the
principal sum of $180,000.00, payable either monthly or annually as determined
by Kangas, and subject to the following conditions:
1.2.1 For the calendar year in which Kangas
retires, if Kangas has been employed by the Bank for any portion of such year,
the aggregate of salary received by Kangas in such year plus deferred
compensation under the Agreement may not exceed $100,000.00.
1.2.2 For any subsequent calendar year, Kangas may
not receive deferred compensation payments under the Agreement in an amount
exceeding $60,000.00.
1.2.3 At least thirty (30) days prior to the
beginning of any calendar year in which Kangas is entitled to receive deferred
compensation under the Agreement, Kangas shall notify the Bank in writing of
(i) the amount of deferred compensation to be paid for such calendar year, and
(ii) whether such deferred compensation is to be paid monthly or annually.
Such election may not be revoked or changed for such calendar year once made.
Page 1 - Deferred Compensation Agreement (Wesley A. Kangas -
Klickitat Valley Bank
<PAGE> 2
1.2.4. All deferred compensation payments to be made
hereunder must be paid in full to Kangas on or before the date Kangas reaches
the age of 60.
1.2.5. Any deferred compensation to be paid annually
shall be paid on or before the 30th day of January of the calendar year in
which such payment is to be made. Deferred compensation payments to be paid
monthly shall be paid on the first day of each month in the calendar year in
which such payments are to be made.
1.2.6. At no time shall Kangas be entitled to be
paid interest on any deferred compensation payments to be paid under the
Agreement.
1.2.7 During the term of the Agreement, the
deferred compensation to be paid under the Agreement shall be reduced by an
amount equal to any payments Kangas receives by reason of or arising from a
disability, including payments under any disability insurance policy.
1.3 As additional consideration under the Agreement, the
Bank shall provide Kangas with all medical, dental, vision and life insurance
coverage which the Bank provides to full-time employees. Such coverage shall
be provided for the period from the Retirement Date to and including the
earlier of (i) the date on which Kangas reaches the age of 60, or (ii) the date
of Kangas' death. The Bank shall provide no disability coverage.
1.4 For the purposes of the Agreement, the Retirement
Date shall be the date of Kangas' retirement as provided under the Employment
Agreement of June 19, 1996 between the parties (the "Employment Agreement").
1.5 If Kangas is terminated by the Bank with cause within
the meaning of the Employment Agreement prior to becoming eligible for deferred
compensation payments under the Agreement, the Agreement shall be null and void
as of the date of such termination, and no deferred compensation payments or
any other benefits under the Agreement shall be due to Kangas.
2. Change of Control.
2.1 If there is a change of control of the Bank after the
Retirement Date, Kangas shall continue to be entitled to receive the deferred
compensation provided in the Agreement.
2.2 If Kangas is a participant in a restricted stock plan
or share option plan, and such plan is terminated involuntarily as a result of
the change of control, all stock and options shall be declared fully vested and
shall be distributed. With respect to any unexercised options under any stock
option plan, such options may be exercised within the period provided in such
plan. Effective as of the date of the change of control, any holding period
established for stock paid as bonus or other compensation shall be deemed
terminated, except as otherwise provided by law.
Page 2 - Deferred Compensation Agreement (Wesley A. Kangas -
Klickitat Valley Bank
<PAGE> 3
2.3 As used in this Section, "control" shall mean the
acquisition of twenty-five percent (25%) or more of the voting securities of
the Bank, or of a holding company owning the shares of the Bank, by any person,
or persons acting as a group within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, or to such acquisition of a percentage between
ten percent (10%) and twenty-five percent (25%) if the Board or the Comptroller
of the Currency, the FDIC, or the Federal Reserve Bank have made a
determination that such acquisition constitutes or will constitute control of
the Bank. The term "person" refers to an individual, corporation, Bank, bank
holding company, or other entity.
3. Covenants.
3.1 Kangas shall at all times fully cooperate with the
Bank and its affiliates in the defense or prosecution of any litigation arising
from or relating to matters about which Kangas has knowledge based on his
employment by the Bank or other work, paid or unpaid, for the Bank or any Bank
affiliate.
3.2 Kangas shall at all times keep all confidential and
proprietary information gained from his employment by the Bank or other paid or
unpaid work for the Bank and any Bank affiliate in strictest confidence, and
will not disclose or otherwise disseminate such information to anyone, other
than to Board members or employees of the Bank or its affiliates, except as may
be required by law, regulation or subpoena.
4. Effective Date of Agreement.
4.1 The Agreement shall become effective as of the
Effective Date, as that term is defined in that certain Agreement and Plan of
Merger Between Columbia Bancorp and Klickitat Valley Bank of January 13, 1996,
of the acquisition of the Bank by Columbia Bancorp. The Agreement shall not
become effective if the proposed acquisition does not occur for any reason.
4.2 The Agreement, when effective, shall supersede and
replace the Wesley A. Kangas Change of Control Protection Agreement between the
parties of September 26, 1995, and the latter agreement shall be deemed null
and void as of the date the Agreement becomes effective.
5. Miscellaneous.
5.1 Kangas' retirement shall not be deemed a retirement
or general termination under any stock incentive plan applicable to Kangas,
except as otherwise provided therein or as provided under law, and shall
therefore not limit the time within which Kangas may exercise his stock option
rights, if any, under such plan unless the plan or applicable law provides to
the contrary.
5.2 Each and every portion of the Agreement is
contractual and not a mere recital, and all recitals shall be deemed
incorporated into the Agreement. The Agreement shall be governed by and
interpreted according to Washington law and any
Page 3 - Deferred Compensation Agreement (Wesley A. Kangas -
Klickitat Valley Bank
<PAGE> 4
applicable federal law. The Agreement may not be amended except by a
subsequent written agreement signed by all parties hereto.
5.3 The Agreement contains the entire understanding and
agreement of the parties with respect to the parties' relationship, and all
prior negotiations, discussions or understandings, oral or written, are hereby
integrated herein. No prior negotiations, discussions or agreements not
contained herein or in such documents shall be binding or enforceable against
the parties.
5.4 Kangas' rights under the Agreement are in addition
to, and subject to, Kangas' rights under the Employment Agreement, including
without limitation Section 3 of the Employment Agreement.
5.5 The Agreement may be signed in several counterparts.
The signature of one party on any counterpart shall bind such party just as if
all parties had signed that counterpart. Each counterpart shall be considered
an original. All counterparts of the Agreement shall together constitute one
original document.
5.6 All rights and duties of the Bank under the Agreement
shall be binding on and inure to the benefit of the Bank's successors and
assigns, including any person or entity which acquires a controlling interest
in the Bank and any person or entity which acquires all or substantially all of
Bank's assets. The Bank and any such successor or assign shall be and remain
jointly and severally liable to Kangas under the Agreement. Kangas may not
assign or transfer Kangas' rights or interests in or under the Agreement to
anyone, including by will or by the laws of descent and distribution.
5.7 If Kangas dies prior to receiving all or any portion
of the deferred compensation payable under the Agreement, the Agreement shall
be null and void as of the date of Kangas' death, and no further payments shall
be due hereunder to Kangas' estate, to any assignee, or to any other person or
entity.
5.8 Any waiver by any party hereto of any provision of
the Agreement, or of any breach thereof, shall not constitute a waiver of any
other provision or of any other breach. If any provision, paragraph or
subparagraph herein shall be deemed invalid, illegal or unenforceable in any
respect, the validity and enforceability of the remaining provisions,
paragraphs and subparagraphs shall not be affected.
5.9 The deferred compensation and other benefits to be
paid under the Agreement shall be made from the general, unrestricted assets of
the Bank. No person shall have or acquire any interest in such assets under
the Agreement. The Bank's obligations hereunder are unfunded and unsecured.
Any right of any person to receive payments or other benefits under the
Agreement shall be no greater than the right of any other unsecured creditor of
the Bank, and shall not constitute a legal or equitable right, interest, lien
or claim in or to any property or assets of the Bank. Nothing in the
Agreement, and no action by any party hereto, shall create or be deemed to
create a trust of any kind, or a fiduciary relationship between Kangas or
anyone and the Bank.
Page 4 - Deferred Compensation Agreement (Wesley A. Kangas -
Klickitat Valley Bank
<PAGE> 5
5.10 Any dispute, controversy, claim or difference
concerning or arising from the Agreement or the rights or performance of either
party under the Agreement, including disputes about the interpretation or
construction of the Agreement, shall be settled through binding arbitration in
the State of Washington and in accordance with the rules of the American
Arbitration Association. A judgment upon the award rendered in such
arbitration may be entered in any court of competent jurisdiction.
[SIG]
______________________________________
Wesley A. Kangas
KLICKITAT VALLEY BANK
[SIG]
By:____________________________________
Chairman of the Board
Page 5 - Deferred Compensation Agreement (Wesley A. Kangas -
Klickitat Valley Bank
<PAGE> 1
EXHIBIT 10.5
COLUMBIA BANCORP
1996 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this 1996 Stock Incentive Plan (the
"Plan") is to enable Columbia Bancorp (the "Company") to attract and retain
experienced and able directors, officers, employees and other key contributors
and to provide an additional incentive to these individuals to exert their best
efforts for the Company and its shareholders.
2. Administration.
2.1 Board of Directors. The Plan shall be administered
by the board of directors of the Company (the "Board of Directors"), which
shall determine and designate from time to time the persons to whom grants and
awards shall be made and the amounts, terms and conditions of those grants and
awards. Subject to the provisions of the Plan, the Board of Directors may from
time to time adopt or amend rules and regulations relating to administration of
the Plan, and the interpretation and construction of the provisions of the Plan
by the Board of Directors shall be final and conclusive. Whenever the
operation of the Plan requires that the fair market value of the Company's
common stock ("Stock") be determined, the fair market value shall be determined
by, or in a manner approved by, the Board of Directors. No employee who
receives an option under the Plan shall participate in any decisions of the
Board of Directors with respect to the Plan.
2.2 Committee. The Board of Directors may delegate to a
committee of the Board of Directors (the "Committee") any or all authority for
administration of the Plan. If authority is delegated to a Committee, all
references to the Board of Directors in the Plan shall mean and relate to the
Committee except (i) as otherwise provided by the Board of Directors and (ii)
that only the Board of Directors may amend or terminate the Plan as provided
elsewhere herein.
3. Eligibility. Grants and awards may be made under the Plan to
directors, officers, and key employees of the Company or any parent or
subsidiary of the Company, and other key individuals such as consultants to the
Company who the Board of Directors believes have made or will make an essential
contribution to the Company; provided, however, that only employees of the
Company shall be eligible to receive Incentive Stock Options under the Plan.
4. Shares Subject to the Plan. Except as provided in paragraph
9, the total number of shares of Stock that may be issued (i) upon exercise of
all options and stock appreciation rights granted under the Plan, (ii) as
bonuses under the Plan and (iii) pursuant to sales under the Plan, shall not
exceed in the aggregate 200,000 shares. If any option under the Plan or stock
appreciation right granted without a related option expires or is canceled or
terminated and is unexercised in whole or in part, the shares allocable to the
unexercised portion shall again become available for awards under the Plan,
except that shares that are issued on exercise of a stock appreciation right
that were
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<PAGE> 2
allocable to an option, or portion thereof, surrendered in connection with the
exercise of the stock appreciation right shall not again become available for
awards under the Plan. If Stock sold or awarded as a bonus under the Plan is
forfeited to the Company or repurchased by the Company pursuant to applicable
restrictions, the number of shares forfeited or repurchased shall again be
available under the Plan. Stock issued under the Plan may be subject to such
restrictions on transfer, repurchase rights, or other restrictions as are
determined by the Board of Directors. The certificates representing such Stock
shall bear such legends as are determined by the Board of Directors.
5. Effective Date and Duration of Plan.
5.1 Effective Date. The Plan shall become effective when
adopted by the Board of Directors (the "Effective Date"). Subject to this
limitation, options and stock appreciation rights may be granted and Stock may
be awarded as bonuses or sold under the Plan at any time after the Effective
Date and before termination of the Plan.
5.2 Duration of the Plan. The Plan shall continue until,
in the aggregate, options and stock appreciation rights have been granted and
exercised and Stock has been awarded as bonuses or sold and the restrictions on
any such Stock have lapsed with respect to all shares subject to the Plan under
paragraph 4 (subject to any adjustments under paragraph 9). The Board of
Directors may suspend or terminate the Plan at any time except with respect to
options, stock appreciation rights and bonus rights, and Stock subject to
restrictions then outstanding under the Plan. Termination shall not affect any
right of the Company to repurchase shares or the forfeitability of shares
issued under the Plan.
6. Grants, Awards and Sales.
6.1 Type of Security. The Board of Directors may, from
time to time, take the following actions, separately or in combination, under
the Plan: (i) grant Incentive Stock Options, as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"); (ii) grant options
other than Incentive Stock Options (hereinafter "Non-Statutory Stock Options");
(iii) grant stock appreciation rights or bonus rights; (iv) award bonuses of
Stock; and (v) sell Stock subject to restrictions. The Board of Directors
shall specify the action taken with respect to each person granted, awarded, or
sold any option or Stock under the Plan and shall specifically designate each
option granted under the Plan as an Incentive Stock Option or a Non-Statutory
Stock Option.
6.2 General Rules Relating to Options.
6.2.1 Time of Exercise. Except as provided in
paragraph 8, options granted under the Plan may be exercised over the period
stated in each option in amounts and at times prescribed by the Board of
Directors and stated in the option, provided that options shall not be
exercised for fractional shares. If the optionee does not exercise an option
in any period with respect to the full number of shares to which the
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<PAGE> 3
optionee is entitled in that period, the optionee's rights shall be cumulative
and the optionee may purchase those shares in any subsequent period during the
term of the option.
6.2.2 Purchase of Shares. Shares may be purchased or
acquired pursuant to an option granted under the Plan only on receipt by the
Company of notice in writing from the optionee of the optionee's intention to
exercise, specifying the number of shares the optionee desires to purchase and
the date on which the optionee desires to complete the transaction, which may
not be more than 30 days after receipt of the notice. On or before the date
specified for completion of the purchase, the optionee must have paid the
Company the full purchase price in cash, including cash that may be the
proceeds of a loan from the Company, in shares of Stock previously acquired by
the optionee valued at fair market value, or in any combination of cash and
shares of Stock. No shares shall be issued until full payment therefor has
been made. Each optionee who has exercised an option shall, on notification of
the amount due, if any, and prior to or concurrently with delivery of the
certificates representing the shares for which the option was exercised, pay to
the Company amounts necessary to satisfy any applicable federal, state, and
local withholding tax requirements. If additional withholding becomes required
beyond any amount deposited before delivery of the certificates, the optionee
shall pay such amount to the Company on demand. If the employee fails to pay
the amount demanded, the Company shall have the right to withhold that amount
from other amounts payable by the Company to the optionee, including salary,
subject to applicable law.
6.3 Incentive Stock Options. Incentive Stock Options shall be
subject to the following additional terms and conditions:
6.3.1 Limitation on Amount of Grants. No employee may be
granted Incentive Stock Options under the Plan such that the aggregate fair
market value on the date of grant of the Stock with respect to which Incentive
Stock Options are exercisable for the first time by that employee during any
calendar year, under the Plan and under any other incentive stock option plan
(within the meaning of Section 422 of the Code) of the Company or any parent or
subsidiary of the Company, exceeds $100,000.
6.3.2 Option Price. The option price per share under each
option granted under the Plan shall be determined by the Board of Directors,
but the option price with respect to an Incentive Stock Option shall be not
less than 100 percent of the fair market value of the shares covered by the
option on the date the option is granted.
6.3.3 Duration of Options. Subject to paragraphs 6.3.4 and
8, each option granted under the Plan shall continue in effect for the period
fixed by the Board of Directors, except that no Incentive Stock Option shall be
exercisable after the expiration of 10 years from the date it is granted.
6.3.4 Limitations on Grants to 10 Percent Shareholders. An
Incentive Stock Option may be granted under the Plan to an employee of the
Company, or of any
Page 3 - Columbia Bancorp 1996 Stock Option Incentive Plan
<PAGE> 4
parent or subsidiary of the Company, possessing more than 10 percent of the
total combined voting power of all classes of stock of the Company, or of any
parent or subsidiary of the Company, only if the option price is at least 110
percent of the fair market value of the Stock subject to the option on the date
it is granted, and the option by its terms is not exercisable after the
expiration of five years from the date it is granted.
6.3.5 Limitation on Time of Grant. No Incentive Stock
Option may be granted on or after the tenth anniversary of the earlier of the
Effective Date or shareholder approval of the Plan.
6.4 Non-Statutory Stock Options. Non-Statutory Stock Options
shall be subject to the following additional terms and conditions:
6.4.1 Option Price. The option price per share under each
option granted under the Plan shall be determined by the Board of Directors in
its discretion.
6.4.2 Duration of Options. Non-Statutory Stock Options
granted under the Plan shall continue in effect for the period fixed by the
Board of Directors.
6.5 Stock Bonuses. Stock awarded as a bonus shall be subject to
the terms, conditions, and restrictions determined by the Board of Directors at
the time the Stock is awarded as a bonus. The Board of Directors may require
the recipient to sign an agreement as a condition of the award, but may not
require the recipient to pay any money consideration except as provided in the
last sentence of this paragraph. The agreement may contain such terms,
conditions, representations, and warranties as the Board of Directors may
require. The Company may require any recipient of a Stock bonus to pay to the
Company amounts necessary to satisfy any applicable federal, state, or local
tax withholding requirements prior to delivery of certificates.
6.6 Restricted Stock. The Board of Directors may issue shares of
Stock under the Plan for such consideration (including promissory notes and
services) as determined by the Board of Directors in accordance with the law
and with such restrictions concerning transferability, repurchase by the
Company, or forfeiture as determined by the Board of Directors. All shares of
Stock issued pursuant to this paragraph 6.6 shall be subject to a purchase
agreement, which shall be executed by the Company and the prospective recipient
of the Stock prior to the delivery of certificates representing such shares to
the recipient. the purchase agreement shall contain such terms and conditions
and representations and warranties as the Board of Directors shall require.
6.7 Stock Appreciation Rights.
6.7.1 Description. Each stock appreciation right shall
entitle the holder, on exercise, to receive from the Company in exchange
therefor an amount equal in value to the excess of the fair market value on the
date of exercise of one share of Stock over its fair market value on the date
of grant (or, in the case of a stock appreciation right granted in connection
with an option, the option price per share under the option to which the
Page 4 - Columbia Bancorp 1996 Stock Option Incentive Plan
<PAGE> 5
stock appreciation right relates), multiplied by the number of shares covered
by the stock appreciation right or the option, or portion thereof, that is
surrendered.
6.7.2 Exercise. A stock appreciation right shall be
exercisable only at the time or times established by the Board of Directors.
If a stock appreciation right is granted in connection with an option, then it
shall be exercisable only to the extent and on the same conditions that the
related option is exercisable. Upon exercise of a stock appreciation right,
any option or portion thereof to which the stock appreciation right relates
must be surrendered unexercised.
6.7.3 Payment. Payment by the Company upon exercise of a
stock appreciation right may be made in shares of Stock valued at fair market
value, or in cash, or partly in Stock and partly in cash, as determined by the
Board of Directors. No fractional shares shall be issued upon exercise of a
stock appreciation right. In lieu thereof, cash may be paid in an amount equal
to the value of the fraction or, in the discretion of the Board of Directors,
the number of shares may be rounded to the next whole share.
6.7.4 Adjustment. In the event of any adjustment pursuant
to paragraph 9 in the number of shares of Stock subject to an option granted
under the Plan, any stock appreciation right granted hereunder in connection
with such option shall be proportionately adjusted.
6.8 Cash Bonus Rights.
6.8.1 Grant. The Board of Directors may grant bonus rights
under the Plan in connection with (i) an option or stock appreciation right
granted or previously granted, (ii) Stock awarded, or previously awarded, as a
bonus, and (iii) Stock sold, or previously sold, under the Plan. Bonus rights
will be subject to rules, terms, and conditions as the Board of Directors may
prescribe.
6.8.2 Bonus Rights in Connection with Options and Stock
Appreciation Rights. A bonus right granted in connection with an option will
entitle an optionee to a cash bonus when the related option is exercised (or is
surrendered in connection with the exercise of a stock appreciation right
related to the option) in whole or in part. A bonus right granted in
connection with a stock appreciation right will entitle the holder to a cash
bonus when the stock appreciation right is exercised. Upon exercise of an
option, the amount of the bonus shall be determined by multiplying the excess
of the total fair market value of the shares to be acquired upon the exercise
over the total option price for the shares by the applicable bonus percentage.
Upon exercise of a stock appreciation right, the bonus shall be determined by
multiplying the total fair market value of the shares or cash received pursuant
to the exercise of the stock appreciation right by the applicable bonus
percentage. The bonus percentage applicable to a bonus right shall be
determined from time to time by the Board of Directors but shall in no event
exceed 100 percent.
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<PAGE> 6
6.8.3 Bonus Rights in Connection with Stock Bonus. A bonus
right granted in connection with Stock awarded as a bonus will entitle the
person awarded such Stock to a cash bonus either at the time the Stock is
awarded or at such time as restrictions, if any, to which the Stock is subject
lapse. If Stock awarded is subject to restrictions and is repurchased by the
Company or forfeited by the holder, the bonus right granted in connection with
such Stock shall terminate and may not be exercised. The amount of cash bonus
to be awarded and the time such cash bonus is to be paid shall be determined
from time to time by the Board of Directors.
6.8.4 Bonus Rights in Connection with Stock Purchase. A
bonus right granted in connection with Stock purchased hereunder (excluding
Stock purchased pursuant to an option) shall terminate and may not be exercised
in the event the Stock is repurchased by the Company or forfeited by the holder
pursuant to restrictions applicable to the Stock. The amount of cash bonus to
be awarded and the time such cash bonus is to be paid shall be determined from
time to time by the Board of Directors.
7. Nontransferability. Each option, stock appreciation right, or
cash bonus right granted under the Plan by its terms shall be nonassignable and
nontransferable by the holder except by will or by the laws of descent and
distribution of the state or country of the holder's domicile at the time of
death, and each option, stock appreciation right, or cash bonus right by its
terms shall be exercisable during the holder's lifetime only by the holder.
8. Termination of Employment.
8.1 Retirement or General Termination. Unless otherwise
determined by the Board of Directors, if an employee's employment by the
Company or any parent or subsidiary of the Company is terminated by retirement
or for any reason other than in the circumstances specified in 8.2 below, any
option, stock appreciation right or cash bonus right held by the employee may
be exercised at any time prior to its expiration date or the expiration of
three months after the date of the termination, whichever is the shorter
period, but only if and to the extent the employee was entitled to exercise the
option, stock appreciation right or cash bonus right on the date of
termination. Transfer of an employee by the Company or any parent or
subsidiary of the Company to the Company or any parent or subsidiary of the
Company shall not be considered a termination for purposes of the Plan.
8.2 Death or Disability. Unless otherwise determined by
the Board of Directors, if an employee's employment by the Company or any
parent or subsidiary of the Company is terminated because of death or physical
disability (within the meaning of Section 22(e)(3) of the Code), any option
stock appreciation right or cash bonus right held by the employee may be
exercised at any time prior to its expiration date or the expiration of one
year after the date of termination, whichever is the shorter period, for the
greater of (a) the number of remaining shares for which the employee was
entitled to exercise the option, stock appreciation right or cash bonus right
on the date of termination
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<PAGE> 7
or (b) the number of remaining shares for which the employee would have been
entitled to exercise the option, stock appreciation right or cash bonus right
if such option or right had been 50 percent exercisable on the date of
termination. If an employee's employment is terminated by death, any option,
stock appreciation right or cash bonus right held by the employee shall be
exercisable only by the person or persons to whom the employee's rights under
the option, stock appreciation right or cash bonus right pass by the employee's
will or by the laws of descent and distribution of the state or country of the
employee's domicile at the time of death.
8.3 Termination of Unexercised Rights. to the extent an
option, stock appreciation right or cash bonus right held by any deceased
employee or by any employee whose employment is terminated is not exercised
within the limited periods provided above, all further rights to exercise the
option, stock appreciation right or cash bonus right shall terminate at the
expiration of such periods.
8.4 Termination of Non-Employees. With respect to
options, stock appreciation rights and cash bonus rights granted to persons who
are not employees of the Company, the Board of Directors may establish
provisions relating to the termination of those persons' status with the
Company.
9. Changes in Capital Structure. If the outstanding shares of
Stock are increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company or of another
corporation, by reason of any reorganization, merger, consolidation, plan of
exchange, recapitalization, reclassification, stock split-up, combination of
shares, or dividend payable in shares, appropriate adjustment shall be made by
the Board of Directors in the number and kind of shares for the purchase of
which options or stock appreciation rights may be granted and for which Stock
may be awarded as bonuses or sold subject to restrictions under the Plan. In
addition, the Board of Directors shall make appropriate adjustments in the
number and kind of shares as to which outstanding options, or portions thereof
then unexercised, shall be exercisable, and the number and kind of shares
covered by outstanding stock appreciation rights to the end that each
optionee's proportionate interest shall be maintained as before the occurrence
of such event. Adjustments in outstanding options shall be made without change
in the total price applicable to the unexercised portion of any option and with
a corresponding adjustment in the option price per share. Adjustments in
outstanding stock appreciation rights shall be made without change in their
total value. Any such adjustment made by the Board of Directors shall be
conclusive. In the event of dissolution or liquidation of the Company or a
merger, consolidation, or plan of exchange affecting the Company, in lieu of
making adjustments as provided for above in this paragraph 9, the Board of
Directors may, in its sole discretion, provide a 30-day period prior to such
event during which optionees shall have the right to exercise options or stock
appreciation rights.
Page 7 - Columbia Bancorp 1996 Stock Option Incentive Plan
<PAGE> 8
10. Corporate Mergers, Acquisitions, Etc. The Board of Directors
may also grant options and stock appreciation rights having terms and
provisions which vary from those specified in this Plan provided that any
options and stock appreciation rights granted pursuant to this section are
granted in substitution for, or in connection with the assumption of, existing
options and stock appreciation rights granted by another corporation and
assumed or otherwise agreed to be provided for by the Company pursuant to or by
reason of a transaction involving a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation to
which the Company or a subsidiary is a party.
11. Amendment of Plan. The Board of Directors may at any time and
from time to time modify or amend the Plan in such respects as it deems
advisable because of changes in the law while the Plan is in effect or for any
other reason. Except as provided in paragraph 9, however, no change in an
option or stock appreciation right already granted to any person shall be made
without the written consent of such person. Furthermore, unless approved at an
annual meeting or a special meeting by the shareholders of the Company entitled
to vote thereon, no amendment or change shall be made in the Plan (a)
increasing the total number of shares that may be issued under the Plan, or (b)
changing the class of persons eligible to receive options under the Plan.
12. Approvals. The obligations of the Company under the Plan are
subject to the approval of state and federal authorities or agencies with
jurisdiction in the matter. The Company will use its best efforts to take
steps required by state or federal law or applicable regulations in connection
with the granting of any option or the issuance or sale of any shares under the
Plan. the foregoing notwithstanding, the Company shall not be obligated to
issue or deliver shares of Stock under the Plan if the Company is advised by
its legal counsel that such issuance or delivery would violate applicable state
or federal laws.
13. Employment Rights. Nothing in the Plan or any grant pursuant
to the Plan shall confer on any employee any right to be continued in the
employment of the Company or any parent or subsidiary of the Company or shall
interfere in any way with the right of the Company or any parent or subsidiary
of the Company by whom such employee is employed to terminate such employee's
employment at any time, with or without cause.
14. Rights as a Shareholder. A holder of an option or a stock
appreciation right, a recipient of Stock awarded as a bonus, or a purchaser of
Stock shall have no rights as a shareholder with respect to any shares covered
by any option, stock appreciation right, bonus award, or stock purchase
agreement until the date of issue of a stock certificate to him or her for such
shares. Except as otherwise provided in the Plan, no adjustment shall be made
for dividends or other rights for which the record date is prior to the date
such stock certificate is issued.
Page 8 -- Columbia Bancorp 1996 Stock Incentive Plan
<PAGE> 1
EXHIBIT 13
GENERAL DESCRIPTION OF BUSINESS AND
LENDING ACTIVITIES
COLUMBIA Bancorp (Bancorp or the bank) is the fourth largest bank holding
company with headquarters in Oregon, and the largest in North-Central Oregon.
In July 1996, Bancorp completed its acquisition of Klickitat Valley Bank
(Klickitat). Bancorp now operates nine branch offices through Klickitat and its
other subsidiary, Columbia River Banking Company (Columbia).
Columbia does business in Oregon under the assumed business name
"Columbia River Bank" in Hood River, Maupin, and two locations in The Dalles.
In Madras, Redmond and Bend, Columbia does business under the assumed business
name "Juniper Banking Company." Klickitat operates offices in Goldendale and
White Salmon, Washington. Bancorp's nine offices serve the financial needs of
businesses and individuals in four Oregon counties stretching from Deschutes
and Jefferson counties, in the approximate geographical center of the State to
Wasco and Hood River Counties on the Columbia River in the north. With the
acquisition of Klickitat, the Bank's service area stretches into Klickitat
County, Washington and extends from Goldendale in the east to White Salmon in
the west.
The Bank provides a broad range of depository and lending services to
commercial, industrial and agricultural enterprises, governmental entities, and
individuals. The Bank directs its deposit taking and lending activities
primarily to the communities in which its branches are located. Its primary
marketing focus is on small to medium-sized businesses and on professionals in
those communities.
Total deposits increased from $159 million at December 31, 1995 to
$179 million at December 31, 1996. Net loans increased from $104 million at
December 31, 1995 to $118 million at December 31, 1996. Deposit accounts at
the Bank are insured to statutory limits by the Federal Deposit Insurance
Corporation (the "FDIC"). The Bank, through its Columbia River Bank Financial
Services division, market stocks, mutual funds, and other investment and
insurance products to customers of the Bank and the public through an
arrangement with PrimeVest Financial Services Inc., a registered securities
broker-dealer.
COMMERCIAL LOANS
AS of December 31, 1996, commercial loans that are not collateralized by real
estate represent 28% of the Bank's loans. The Bank provides a wide range of
commercial business loans, including lines of credit for working capital and
term loans for the acquisition of equipment and other purposes. Collateral
generally includes equipment, accounts receivable and inventory. Where
warranted by the overall financial condition of the borrower, loans may be made
on an unsecured basis. At December 31, 1996, approximately 67% of the Bank's
commercial loans had floating or adjustable interest rates. Operating lines of
credit are payable on demand and generally subject to annual renewal. Term loan
maturities generally range from one to five years. Commercial loans outstanding
at December 31, 1996, were $32.7 million. At December 31, 1996, nonaccrual
loans in this category totaled $40,000; there were no restructured loans.
AGRICULTURAL LOANS
AGRICULTURAL loans represent 14% of the Bank's loan portfolio at December 31,
1996. The Bank provides production lines of credit, equipment financing, and
term loans for capital improvements and investments. Collateral generally
consists of crops, equipment, and inventory. The Bank will grant loans on an
unsecured basis when and if warranted. Borrowers include wheat, mint, seed,
apple, cherry and pear growers and livestock operations. Agricultural loans
are subject to increased credit risks from causes such as bad weather, crop
failures, and fluctuations in crop prices.
At December 31, 1996, approximately 88% of the Bank's agricultural
loans had floating or adjustable rates; the remaining 12% has fixed rates.
Operating lines of credit are payable on demand and usually mature at the end
of the production year. Term loan maturities generally range from two to five
years. Agricultural loans outstanding on December 31, 1996, were $16 million.
At December 31, 1996, there were no nonaccrual loans in this category; there
were no restructured loans.
3
<PAGE> 2
GENERAL DESCRIPTION OF BUSINESS AND LENDING
ACTIVITIES [CONTINUED]
REAL ESTATE MORTGAGE LOANS
REAL estate mortgage loans represent the Bank's largest category of loans. Of
the $55.3 million of real estate mortgage loans outstanding at December 31,
1996, $24.9 million were made to commercial customers where the collateral for
the loans included the real estate occupied by the customers' businesses.
Therefore, many loans classified as real estate mortgage loans could be
characterized as commercial loans that are collateralized by real estate.
Commercial real estate loans typically involve large loan balances to single
borrowers or groups of related borrowers. These borrowers may be more
sensitive to changes in economic conditions than are residential loan
customers.
At December 31, 1996, nonaccrual loans in this category totalled
$10,000. There were no restructured loans in this category. At December 31,
1996, 67% of the Bank's real estate mortgage loans had fixed interest rates and
33% had floating or adjustable interest rates. Maturities of real estate
mortgage loans usually range from one to fifteen years. The Bank's
underwriting standards specify maximum loan-to-value ratios for real estate
loans; 80% for loans collateralized by owner-occupied residences, 80% for other
residential loans and for construction loans, and 75% for commercial real
estate loans. Management believes that the Bank's current real estate mortgage
portfolio does not present a material risk of loan losses.
The bank originates Small Business Administration (SBA) commercial real
estate loans on owner-occupied properties where the maturities may be up to 20
years, and the loan-to-value ratio may reach 80% of appraised value or cost,
whichever is lower. Up to 90% of the amount of these loans is guaranteed or
insured by an agency of the U.S. Government. The guaranteed portion of these
loans is typically sold to secondary-market investors.
The bank also makes residential real estate loans for the Bank's
portfolio as well as on behalf of other lenders. Loans originated for other
lenders are primarily made under an arrangement with PHH US Mortgage
Corporation ("PHH") of Mount Laurel, New Jersey. The Bank processes loan
applications and related paperwork and submits the documentation to PHH. PHH
makes the lending decisions, and funds and services the loans. For the year
ended December 31, 1996, the Bank originated and sold 80 residential loans
receiving $86,487 in fee income.
------------------------------------
"THE BANK PROVIDES A BROAD
RANGE OF DEPOSITORY AND LENDING
SERVICES TO COMMERCIAL, INDUSTRIAL
AND AGRICULTURAL ENTERPRISES,
GOVERNMENTAL ENTITIES,
AND INDIVIDUALS."
------------------------------------
REAL ESTATE CONSTRUCTION LOANS
THE Bank makes construction loans to individuals and contractors to construct
single family primary residences and second homes. These loans generally have
maturities of six to nine months. Interest rates are typically adjustable,
although fixed-rate loans are also made under appropriate conditions. The Bank
generally makes residential construction loans only when permanent financing
has been arranged. The Bank limits its loans to contractors building houses on
a speculative basis, so that only one or two of these types of loans are
outstanding to any single borrower at any time, depending on the financial
condition of and the Bank's prior lending experience with the contractor.
Construction loans have many of the same risks that are present in real estate
mortgage loans and may present additional risks, such as construction delays,
cost overruns, and insufficient collateral. At December 31, 1996, there were
no nonaccrual loans or restructured loans in this category.
CONSUMER LOANS
CONSUMER loans generally consist of automobile loans, personal credit lines and
borrowings under the Bank's VISA card program. Consumer loans were $13.8
million at December 31, 1996. At December 31, 1996, there were $2,000 in
nonaccrual loans or restructured loans in this category.
4
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
As a local financial institution with a strong franchise in its communities,
Bancorp is continually seeking ways to make its delivery of services and
products more personal, more responsive, and more flexible than it competitors.
Bancorp strives to motivate its staff through training, incentive programs, and
being attentive to the needs of Bank customers. Further, in order to bring
banking services closer to the customer, Columbia opened, under the Juniper
Banking Company name, a branch in Bend, Oregon in the fall of 1996.
The following discussion should be read in conjunction with Bancorp's audited
consolidated financial statements and the notes thereto for the years ended
December 31, 1996, 1995 and 1994 included in the annual reports.
FINANCIAL HIGHLIGHTS
Bancorp had net income for 1996 of $2.73 million, or $1.19 per share. This
represents a 9.5% increase over the $2.49 million or $1.09 per share earned in
1995, and a 16.7% increase as compared to the $2.34 million or $1.05 earned in
1994. The improved earnings for 1996 compared to 1995 and 1994 primarily
reflected increased net interest income, and reduction in FDIC assessments.
These were offset by increased salary and benefit expenses. The increased net
interest income resulted from increased earnings assets. Reduced FDIC premiums
are continued indicators of the safety and soundness of the Bank, and
currently, of the banking industry. Increased salary and benefits are a result
of both the deferred compensation expense recognized by each subsidiary on
behalf of their CEO's for services rendered, and a result of the staffing of
the new full service branch office in Bend, Oregon.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Interest income $ 15,385 $ 13,815 $ 12,221
Interest expense 5,745 5,216 3,999
-------- ------- -------
Net interest income 9,639 8,599 8,221
Loan loss provision (246) (88) (203)
Net income 2,727 2,489 2,337
Total assets 200,302 178,486 162,202
Total deposits 178,744 158,874 142,803
Shareholders' equity 18,475 16,617 14,682
Total loans to deposits 66.1% 65.6% 63.1%
Return on average assets 1.45% 1.46% 1.45%
Return on average equity 15.64% 15.91% 16.80%
Average equity
to average assets 9.27% 9.19% 8.60%
</TABLE>
5
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
RESULTS OF OPERATIONS
NET INTEREST INCOME
FOR most financial institutions the primary component of earnings is
net interest income. Net interest income is the difference between interest
income, principally from loans and investment securities portfolios, and
interest expense, principally on customer deposits. Changes in net interest
income result from changes in "volume," "spread," and "margin". Volume refers
to the dollar level of interest-earning assets and interest-bearing
liabilities. Spread refers to the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities. Margin
refers to net interest income divided by interest-bearing assets and is
influenced by the level and relative mix of interest-bearing assets and
interest-bearing liabilities. During 1996, 1995 and 1994, the Bank's average
interest-earning assets were $172.8 million, $156.4 million and $149.2 million,
respectively. During these same years, the Bank's net interest margin was
5.81%, 5.71% and 5.74%, respectively. Continued strong growth in the volume
of total average earning assets (primarily loans) contributed approximately
$1,477,000 to interest income in 1996 compared to $607,000 in 1995. Average
yields on interest-earning assets increased slightly during 1996 while the
Bank's cost of funds remained relatively stable. The change in net interest
income attributable to rate changes was $183,906.
The increase in the Bank's net margin is attributable to the increase
in volume of earning assets and the growth of noninterest-bearing deposits.
The average yield on earning assets increased .08% while cost of funds
decreased by .03%. Average loans increased 15.2% while average
noninterest-bearing deposits increased 16.1%.
-------------------------------------------------
". . .THE BANK IS CONTINUALLY SEEKING WAYS
TO MAKE ITS DELIVERY OF SERVICES AND PRODUCTS
MORE PERSONAL, MORE RESPONSIVE, AND MORE
FLEXIBLE THAN ITS COMPETITORS."
-------------------------------------------------
PROVISION FOR LOAN LOSSES
THE provision for loan losses represents management's estimate of the
amount necessary to maintain the allowance for loan losses at a level which is
considered adequate in relation to the risk of future losses inherent in the
loan portfolio. Significant charge-offs in the agricultural loan portfolio
were charged to the reserve, resulting in an increase to the provision in
1996. The ratio of the allowance for loan losses to total loans was .83%,
1.01% and 1.05% at December 31, 1996, 1995, and 1994, respectively. Net
recoveries were $68,000, $148,000 and $29,000 in 1996, 1995 and 1994,
respectively. Net charge-offs of $392,000, $118,000 and $269,000 were realized
during the same periods. Management believes the quality of the loan portfolio
remains outstanding due to the efforts of experienced loan officers and the
strong Oregon and south-central Washington economies.
NONINTEREST INCOME
NONINTEREST income was $1,774,897 in 1996 compared to $1,542,313 in 1995 and
$1,486,448 in 1994. The main contributor to noninterest income is the service
charges and fees charged for the Bank's deposit services. Service charges were
up slightly more than 9% in 1996. Management attributes this to the increase in
the number of new customers being served in all offices of the bank. Continued
strong performance by the Bank's financial services and bank card departments
added to the 15% increase in overall noninterest income.
NONINTEREST EXPENSE
THE Bank's noninterest expenses increased 10.4% in 1996 as compared to
1995. This occurred despite the continued reduction in FDIC assessments of
nearly $160,000 (a result of the Bank paying the lowest premiums on deposits
held and the banking industry's recapitalization of the Bank Insurance Fund in
1995). Increased salary and benefits are a result of deferred compensation for
the benefit of the subsidiary banks CEOs as well as the staffing of the full
service branch office opened in the fall of 1996 in Bend, Oregon. Other
noninterest expenses increased 23% as compared to 1995. Many of these costs
related to the formation of Bancorp as the holding company for the bank, the
initial filing of registration of
6
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS [Continued]
Bancorp with the Securities and Exchange Commission, and expenses related to the
Klickitat acquisition.
ASSET/LIABILITY MANAGEMENT
THE Bank's results of operations depend substantially on its net
interest income. Interest income and interest expense are affected by general
economic conditions and by competition in the marketplace.
The Bank seeks to manage its assets and liabilities to generate a
stable level of earnings in response to changing interest rates. This
asset/liability management involves managing the relationship between interest
rate sensitive assets and interest rate sensitive liabilities. If assets and
liabilities do not mature or reprice simultaneously, and in equal amounts, the
potential for exposure to internal rate risk exists, and an interest rate "GAP"
is said to be present.
Rising and falling interest rate environments can have various effects
on a lender's net interest income, depending on the interest rate GAP, the
relative changes in interest rates that occur when assets and liabilities are
repriced, unscheduled repayments of loans, early withdrawal of deposits, and
other factors.
The following table sets forth the dollar amount of maturing
interest-earning assets and interest-bearing liabilities at December 31, 1996,
and the difference between them for the maturing or repricing periods
indicated. The amounts in the table are derived from the Bank's internal data,
which varies from amounts classified in its financial statements, and, although
the information may be useful as a general measure of interest rate risk, the
data could be significantly affected by external factors such as prepayments of
loans or early withdrawals of deposits. Each of these may greatly influence the
timing and extent of actual repricing of interest-earning assets and
interest-bearing liabilities.
REPRICING SCHEDULE
<TABLE>
<CAPTION>
Fixed Rate:
Longer
Variable Less Than Than
Rate One Year One Year Total
<S> <C> <C> <C> <C>
ASSETS
Investments $11,346 $ 7,432 $ 44,605 $ 63,383
Loans 45,317 13,684 59,227 118,611
------- ------- -------- --------
56,663 21,116 103,832 181,611
Cumulative $77,779 $181,611
LIABILITIES
Core deposits 97,242 24,142 45,155 166,539
Jumbo CD's 0 11,017 1,188 12,205
Borrowings 322 0 600 922
------- ------- -------- --------
97,564 35,159 46,943 179,666
Cumulative $132,723 $179,666
NET CUMULATIVE
POSITION $(59,944) $1,945
</TABLE>
The net cumulative GAP position is somewhat negative - more liabilities
than assets reprice during the next year. This exposure to increasing rates is
currently exaggerated by "sticky" deposit rates (not expected to reprice
rapidly in increasing rate-environment) and a higher than normal level of
short-term cash (not included in rate sensitive assets). However, the Bank's
asset rates change more than deposit rates, and management feels the Bank's
interest income will change more than cost of funds when rates change.
Management feels the Bank has low interest rate risk - that it is
somewhat asset sensitive. The net interest margin should increase slightly when
rates increase and shrink somewhat when rates fall. The Bank is normally
slightly asset sensitive. This interest rate risk is driven by the
concentration of rate sensitive variable rate and short-term commercial loans -
one of the Bank's major business lines. The Bank does have significant amounts
of fixed rate loans to offset most of the impact of the short-term loans.
7
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS [Continued]
LIQUIDITY
THE Bank manages its liquidity position to ensure sufficient funds are
available to meet customers' needs for borrowing and deposit withdrawals.
Liquid asset balances include cash, amounts due from other banks, federal funds
sold, and marketable securities available for sale. At December 31, 1996, these
liquid assets totaled $33,111,644 (16.5% of total assets), of which $23,379,411
(11.7% of total assets) consisted of immediately available cash, amounts due
from banks, and federal funds sold. Another source of liquidity is the Bank's
ability to borrow federal funds pursuant to existing credit lines with
correspondent banks, and the ability to borrow from the Federal Home Loan Bank
of Seattle of which the Bank is a member.
At December 31, 1996, the Bank had outstanding commitments to make
loans of $27.7 million. Nearly all of these commitments represented unused
portions of credit lines available to consumers under credit card and other
arrangements and to businesses. Many of these credit lines will not be fully
drawn upon and, accordingly, the aggregate commitments do not necessarily
represent future cash requirements. Management believes that the Bank's sources
of liquidity are more than adequate to meet likely calls on outstanding
commitments.
CAPITAL RESOURCES
THE Bank's capital planning considers current capital needs and
anticipated future growth, both internally and through mergers and
acquisitions. The Bank's primary source of capital has been from retention of
earnings.
Federal regulations establish minimum requirements for the capital
adequacy of depository institutions. The regulators may establish higher
minimum requirements if, for example, a bank has previously received special
attention or has a high susceptibility to interest rate risk. Banks with
capital ratios below the required minimums are subject to certain
administrative actions, including prompt corrective action, the termination of
deposit insurance upon notice and hearing, or a temporary suspension of
insurance without a hearing.
The federal risk-based capital guidelines for banks require a ratio of
Tier 1 or core capital to total risk-weighted assets of 4% and a ratio of total
capital to total risk-weighted assets of 8%. The leverage capital guidelines
require that banks maintain Tier 1 capital of no less than 5% of total adjusted
assets, except in the case of certain highly rated banks for which the minimum
requirement is 3% of total adjusted assets. At December 31, 1996, the Bank's
leverage ratio, Tier 1 capital to risk-weighted assets ratio, and total
risk-based capital to risk-weighted assets ratio were 9.86%, 14.20% and 14.92%,
respectively.
8
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 16,030,017 $ 12,610,087
Federal funds sold 7,367,394 6,272,765
------------ ------------
Total cash and cash equivalents 23,397,411 18,882,852
Investment securities available-for-sale 9,714,233 7,665,899
Investment securities held-to-maturity 41,098,327 41,165,508
Federal Home Loan Bank stock 671,900 622,400
------------ ------------
Total investment securities 51,484,460 49,453,807
Loans, net of allowance for loan losses and unearned
loan fees 118,227,668 104,178,022
Property and equipment, net of depreciation 4,881,318 3,719,073
Accrued interest receivable 1,948,444 1,815,876
Other assets 362,456 435,907
------------ ------------
Total assets $200,301,757 $178,485,537
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing demand deposits $ 33,548,608 $ 28,290,165
Interest-bearing demand deposits 72,671,399 60,414,724
Savings accounts 22,833,187 22,203,757
Time certificates and IRA accounts 49,690,664 47,965,662
------------ ------------
Total deposits 178,743,858 158,874,308
Notes payable to Federal Home Loan Bank 600,000 1,200,000
Accrued interest payable and other liabilities 1,424,917 927,337
------------ ------------
Total liabilities 180,768,775 161,001,645
------------ ------------
Employee stock ownership plan shares subject to
put option 1,058,183 866,471
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value, 4,000,000 shares
authorized, 2,254,841 issued and
outstanding at December 31, 1996
(2,237,817 in 1995) 5,139,218 4,974,400
Additional paid-in capital 6,317,732 4,848,953
Retained earnings 8,087,264 7,683,876
Unrealized loss on available-for-sale
investment securities, net of tax (11,232) (23,337)
Less employee stock ownership plan shares
subject to put option (1,058,183) (866,471)
------------ ------------
Total stockholders' equity 18,474,799 16,617,421
------------ ------------
$200,301,757 $178,485,537
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
9
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $11,854,765 $10,611,987 $ 9,098,464
Interest on investments:
Taxable investment securities 2,094,413 2,117,485 2,245,547
Nontaxable investment securities 770,631 659,087 683,002
Interest on federal funds sold 589,264 342,769 159,461
Other interest and dividend income 75,632 82,415 34,155
----------- ----------- -----------
Total interest income 15,384,705 13,814,743 12,220,629
----------- ----------- -----------
INTEREST EXPENSE
Interest on interest-bearing deposit and
savings accounts 2,967,193 2,688,026 2,352,911
Interest on time deposit accounts 2,717,481 2,368,876 1,540,123
Other borrowed funds 60,717 159,148 106,453
----------- ----------- -----------
Total interest expense 5,745,391 5,216,050 3,999,487
----------- ----------- -----------
Net interest income before provision
for loan losses 9,639,314 8,598,693 8,221,142
PROVISION FOR LOAN LOSSES 246,479 88,000 203,000
----------- ----------- -----------
Net interest income after provision
for loan losses 9,392,835 8,510,693 8,018,142
----------- ----------- -----------
NONINTEREST INCOME
Service charges and fees 1,093,346 998,065 999,915
Credit card discounts and fees 288,075 223,291 203,634
Financial services department income,
net of expenses 134,413 95,834 78,739
Other noninterest income 259,064 225,123 204,160
----------- ----------- -----------
Total noninterest income 1,774,898 1,542,313 1,486,448
----------- ----------- -----------
NONINTEREST EXPENSES
Salaries and employee benefits 3,965,087 3,611,208 3,053,844
Occupancy expense 653,541 565,788 528,550
Credit card processing fees 213,887 161,746 164,886
Office supplies 164,680 181,492 145,209
FDIC assessment 5,742 165,581 321,252
Data processing expense 231,817 232,797 193,909
Other noninterest expenses 1,921,097 1,565,982 1,662,534
----------- ----------- -----------
Total noninterest expenses 7,155,851 6,484,594 6,070,184
----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 4,011,882 3,568,412 3,434,406
PROVISION FOR INCOME TAXES 1,285,011 1,079,249 1,097,741
----------- ----------- -----------
NET INCOME $ 2,726,871 $ 2,489,163 $ 2,336,665
=========== =========== ===========
EARNINGS PER SHARE OF COMMON STOCK $1.19 $1.09 $1.05
===== ===== =====
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
10
<PAGE> 9
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) on ESOP
Common Stock Additional Available-For- Shares Subject Total
------------ Paid-in Retained Sale Investment to put Stockholders'
Shares Amount Capital Earnings Securities Option Equity
------ ------ ---------- -------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1993 739,588 $4,932,064 $3,091,414 $5,538,375 -- (424,800) $13,137,053
Cash dividends -- -- -- (472,401) -- -- (472,401)
Stock options exercised 1,300 8,666 16,033 -- -- -- 24,699
Sale of common stock 2,118 14,121 36,712 -- -- -- 50,833
Transfer to surplus -- -- 1,652,849 (1,652,849) -- -- --
Changes in unrealized loss
on available-for-sale
securities, net of tax and
on securities transferred
from held-to-maturity to
available-for-sale -- -- -- -- (315,391) -- (315,391)
Changes in ESOP shares
subject to put option -- -- -- -- -- (79,950) (79,950)
Net income -- -- 2,336,665 -- -- 2,336,665
--------- ---------- ---------- ---------- -------- ----------- -----------
BALANCE,
December 31, 1994 743,006 4,954,851 4,797,008 5,749,790 (315,391) (504,750) 14,681,508
Cash dividends -- -- -- (555,077) -- -- (555,077)
Stock options exercised 6,800 19,549 51,945 -- -- -- 71,494
3 for 1 stock split 1,488,011 -- -- -- -- -- --
Changes in unrealized loss
on available-for-sale
securities, net of tax -- -- -- -- 292,054 -- 294,054
Changes in ESOP shares
subject to put option -- -- -- -- -- (361,721) (361,721)
Net income -- -- -- 2,489,163 -- -- 2,489,163
--------- ---------- ---------- ---------- -------- ----------- -----------
BALANCE,
December 31, 1995 2,237,817 4,974,400 4,848,953 7,683,876 (23,337) (866,471) 16,617,421
Stock options exercised 10,156 $ 66,262 27,899 -- -- -- 94,161
Sale of common stock 6,868 98,556 -- -- -- -- 98,556
Transfer to surplus -- -- 1,440,880 (1,440,880) -- -- --
Changes in unrealized loss
on available-for-sale
securities, net of tax -- -- -- -- 12,105 -- 12,105
Changes in ESOP shares
subject to put option -- -- -- -- -- (191,712) (191,712)
Cash dividends -- -- -- (702,215) -- -- (702,215)
Cash dividends declared -- -- -- (180,388) -- -- (180,388)
Net income -- -- -- 2,726,871 -- -- 2,726,871
--------- ---------- ---------- ---------- -------- ----------- -----------
BALANCE,
December 31, 1996 2,254,841 $5,139,218 $6,317,732 $8,087,264 $(11,232) $(1,058,183) $18,474,799
--------- ---------- ---------- ---------- -------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
11
<PAGE> 10
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
-------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS RELATED TO OPERATING ACTIVITIES
Net income $ 2,726,871 $ 2,489,163 $ 2,336,665
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of premiums and discounts of
investment securities - 6,540 24,619
Loss on write-down of property and equipment 145 24,749 -
Loss on call of held-to-maturity investment
securities 422 10,076 5,449
Loss on sale of other real estate owned - - 137,228
Depreciation 380,198 322,762 320,463
Federal Home Loan Bank stock dividend (49,500) (38,100) (18,500)
Provision (benefit) for deferred income taxes (168,112) 96,712 (35,785)
Provision for loan losses 246,479 88,000 203,000
Increase (decrease) in cash due to changes in
certain assets and liabilities:
Accrued interest receivable (132,568) (142,404) (110,052)
Other Assets 477,221 (294,271) 39,412
Accrued interest payable and other liabilities 272,868 158,630 14,392
------------ ------------ -----------
Net cash provided by operating activities 3,754,024 2,721,857 2,916,891
------------ ------------ -----------
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Proceeds from the sale of available-for-sale
securities - 1,351,001 854,787
Proceeds from maturity of available-for-sale
securities 4,718,237 7,589,547 2,000,000
Proceeds from the maturity of held-to-maturity
securities 14,795,881 11,913,247 9,737,496
Purchases of held-to-maturity securities (15,266,716) (12,226,056) (9,585,576)
Purchases of available-for-sale securities (6,769,594) (1,349,000) (2,391,924)
Purchase of Federal Home Loan Bank Stock - (33,000) (125,500)
Net change in loans made to customers (14,296,125) (14,195,919) (8,937,898)
Proceeds from the sale of other real estate
owned, net of expenses - - 296,195
Proceeds from the sale of property and
equipment 40,200 - -
Payments made for purchase of property and
equipment (1,446,111) (448,851) (324,748)
------------ ------------ -----------
Net cash used in investing activities (18,224,228) (7,399,331) (8,477,168)
------------ ------------ -----------
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Net change in demand deposit and savings
accounts $ 18,144,547 $ 3,775,450 $(2,035,617)
Net change in time deposits and IRA accounts 1,725,002 12,295,648 (895,334)
Borrowings from Federal Home Loan Bank - 600,000 981,000
Repayments of Federal Home Loan Bank debt (600,000) (1,281,000) -
Net increase (decrease) in federal funds
purchased - (1,500,000) 1,500,000
Dividends paid (702,215) (555,077) (472,401)
Proceeds from stock options exercised and
purchases of common stock 192,717 71,494 75,532
Net increase (decrease) in short term
borrowings 224,712 (164,955) (19,146)
------------ ------------ -----------
Net cash provided by (used in) financing
activities 18,984,763 13,241,560 (865,966)
------------ ------------ -----------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
12
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,514,559 8,564,086 (6,426,243)
CASH AND CASH EQUIVALENTS, beginning of year 18,882,852 10,318,766 16,745,009
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $23,397,411 $18,882,852 $10,318,766
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid in cash $ 5,677,890 $ 5,088,653 $ 3,962,280
----------- ----------- -----------
Taxes paid in cash $ 1,459,808 $ 1,210,678 $ 810,565
----------- ----------- -----------
SCHEDULE OF NONCASH ACTIVITIES
Unrealized loss on securities transferred from held-to-
maturity to available-for-sale, net of tax $ -- $ -- $ 118,349
----------- ----------- -----------
Change in unrealized loss on available-for-sale securities, net of tax $ 12,105 $ 292,054 $ 197,042
----------- ----------- -----------
Cash dividends declared and payable February 1997 $ 180,388
-----------
</TABLE>
DISCLOSURE OF ACCOUNTING POLICY
For purposes of reporting cash flows, cash and cash equivalents
include cash and due from banks and federal funds sold. Generally, federal
funds are purchased and sold for one-day periods.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and nature of operations - Columbia Bancorp (Bancorp or
Bank) was incorporated on October 3, 1995, and became the holding company of
Columbia River Banking Company (Columbia) through a merger. The merger was
approved by a statutory majority of the shareholders of the Bank at a special
meeting of shareholders on December 21, 1995. Approval from all of the Bank's
regulatory agencies was also received in December 1995. The effective date of
the merger was January 1, 1996, and the transaction was consummated on January
13, 1996, on which date Bancorp acquired 100% of the common stock of Columbia,
and the shareholders of the Bank became shareholders of Bancorp under a
one-for-one exchange of shares. Since the consummation on January 13, 1996, was
essentially executory in nature and the required shareholder and regulatory
approvals had been obtained prior to December 31, 1995, the accompanying
financial statements have been accounted for in a manner similar to a
pooling-of-interests and prepared to reflect the change in reporting entity as
of December 31, 1995. Substantially all activity of Bancorp is conducted
through its subsidiary banks and all significant inter-company accounts and
transactions have been eliminated in the preparation of the consolidated
financial statements.
As of December 31, 1994, Columbia merged with Juniper Banking Company
(Juniper), a community bank headquartered in Madras, Oregon. The business
combination was accomplished through the exchange of four shares of common
stock in Columbia. The transaction was accounted for as a pooling of interests
and, accordingly, the assets, liabilities, stockholders' equities, and results
of operations of the separate entities have been combined as though the
entities had been combined as of the beginning of 1994.
In June 1996, Bancorp acquired Klickitat Valley Bank (Klickitat), a
community bank headquartered in Goldendale, Washington, with branch operations
in White Salmon, Washington. The business combination was accomplished through
the exchange of 8.5 shares of Bancorp common stock for each share of Klickitat
common stock. The transaction was also accounted for as a pooling of interests
and, accordingly, the assets, liabilities, and stockholders' equity, and
results of operations of the
13
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
separate entities have been combined as of 1994, 1995, and 1996 as though the
entities had been combined as of the beginning of 1994.
Bancorp's 1995 and 1994 consolidated financial statements have been
restated to include the results of Juniper and Klickitat as follows:
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
KLICKITAT VALLEY
COLUMBIA BANCORP BANK COMBINED
---------------- ---------------- --------
<S> <C> <C> <C>
Interest Income $8,401,671 $5,413,072 $13,814,743
Net interest expense $2,734,942 $2,481,108 $ 5,216,050
Provision for loan losses $ 88,000 $ -- $ 88,000
Noninterest income $1,294,264 $ 248,049 $ 1,542,313
Noninterest expense $4,630,605 $1,853,989 $ 6,484,594
Provision for income taxes $ 755,932 $ 323,317 $ 1,079,249
Net income $1,486,456 $1,002,707 $ 2,489,163
Number of shares 1,306,693 931,124 2,237,817
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
COLUMBIA RIVER JUNIPER BANKING KLICKITAT VALLEY
BANKING COMPANY COMPANY BANK COMBINED
--------------- --------------- ---------------- --------
<S> <C> <C> <C> <C>
Interest income $5,032,378 $2,171,801 $5,016,450 $12,220,629
Net interest expense $1,428,946 $ 506,703 $2,063,838 $ 3,999,487
Provision for loan losses $ 116,000 $ 87,000 $ -- $ 203,000
Noninterest income $ 758,574 $ 475,364 $ 252,510 $ 1,486,448
Noninterest expense $2,537,422 $1,617,932 $1,914,830 $ 6,070,184
Provision for income taxes $ 637,439 $ 196,302 $ 264,000 $ 1,097,741
Net income $1,071,146 $ 239,227 $1,026,292 $ 2,336,665
Number of shares 320,008 112,623 310,375 743,006
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Columbia Bancorp's subsidiary banks are state-chartered institutions
authorized to provide banking services by the States of Oregon and Washington.
With its headquarters in The Dalles, Oregon, Bancorp has, through its two
subsidiaries, branch operations in Hood River, Maupin, Madras, and Redmond,
Oregon as well as Goldendale and White Salmon, Washington, Columbia Bancorp,
Columbia River Banking Company, and Klickitat Valley Bank are subject to the
regulations of certain Federal and State agencies and undergo periodic
examinations by those regulatory authorities.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS -- In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates. Significant estimations made by
management primarily involve the calculation of the allowance for loan losses.
INVESTMENT SECURITIES -- The Bank is required to specifically identify
its investment securities as "held-to-maturity," "available-for-sale" or
"trading accounts." Accordingly, management has determined that all investment
securities held at December 31, 1996 and 1995, are either "available-for-sale"
or "held-to-maturity" and conform to the following accounting policies:
Securities held-to-maturity -- Bonds, notes and debentures for which the
Bank has the intent and ability to hold to maturity are reported at cost,
adjusted for premiums and discounts that are recognized in interest income using
the interest method over the period to maturity.
Securities available-for-sale -- Available-for-sale securities consist
of bonds, notes, debentures, and certain equity securities not classified as
held-to-maturity securities. Securities are generally classified as
available-for-sale if the instrument may be sold in response to such factors as:
(1) changes in market interest rates and related changes in the securities
prepayment risk, (2) needs for liquidity, (3) changes in the availability of and
the yield on alternative instruments, and (4) changes in funding sources and
terms. Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of equity until
realized Fair values for these investment securities are based on quoted market
prices. Gains and losses on the sale of available-for-sale securities are
determined using the specific-identification method.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary
result in write-downs of the individual securities to their fair value. The
related write-downs would be included in earnings as realized losses. Premiums
and discounts are recognized in interest income using the effective interest
method over the period to maturity.
14
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Continued]
Loans, net of allowance for loan losses and unearned income - Loans are stated
at the amount of unpaid principal, reduced by an allowance for loan losses and
unearned income. Interest on loans is calculated by using the simple interest
method on daily balances of the principal amount outstanding. The allowance for
loan losses is established through a provision for loan losses charged to
expenses. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrower's
ability to pay. Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions, collection
efforts and collateral position, that the borrower's financial condition is
such that collection of interest is doubtful. Loan origination fees and certain
direct origination costs are capitalized and recognized as an adjustment of the
yield of the related loan.
The Bank adopted the Financial Accounting Standards Board's Statements
No. 114 "Accounting by Creditors for Impairment of a Loan" and No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" as of January 1, 1995. These pronouncements require that impaired
loans be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or at the loan's market price
or the fair value of the collateral if the loan is collateral dependent. The
Bank measures impaired loans on a loan-by-loan basis except for
smaller-balance, homogeneous groups consisting of credit card and consumer loan
accounts. The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued interest
is reversed. Impaired loans are charged to losses when management believes that
the collectibility of the principal is unlikely. Interest is subsequently
recognized only to the extent cash payments are received. The adoption of this
statement did not have a material effect on the consolidated financial
statements.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost,
less accumulated depreciation. Depreciation is computed by the straight-line
and accelerated methods over the estimated useful lives of the assets, which
range from 5 to 7 yeas for furniture and equipment and 31-1/2 years for
building premises.
INCOME TAXES - Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS - In the ordinary course of
business, Bancorp has entered into off-balance-sheet financial instruments
consisting of commitments to extend credit, commitments under credit card
arrangements, commercial letters of credit and standby letters of credit. Such
financial instruments are recorded in the financial statements when they are
funded or related fees are incurred or received.
The Financial Accounting Standards Board issued Statement No. 119
"Disclosures about Derivative Financial Instruments and Fair Value of Financial
Instruments" which became effective for the Bank for the year ending December
31, 1995. This pronouncement requires that banks holding derivative financial
instruments disclose quantitative and qualitative information about the
instruments. For the years ended December 31, 1996 and 1995, the Bank held no
derivative financial instruments.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The following methods and
assumptions were used by the Bank in estimating fair values of financial
instruments as disclosed herein:
Cash and cash equivalents - The carrying amounts of cash and short-term
instruments approximate their fair value.
Held-to-maturity and available-for-sale securities - Fair values for
investment securities, excluding restricted equity securities, are based on
quoted market prices. The carrying values of restricted equity securities
approximate fair values.
Loans receivable - For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on carrying
values. Fair values for certain mortgage loans (for example, one-to-four family
residential), credit card loans, and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. Fair values for
commercial real estate and commercial loans are estimated using discounted cash
flow analysis, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values for impaired
loans are estimated using discounted cash flow analysis or underlying
collateral values, where applicable.
Deposit liabilities - The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The carrying amounts of variable-rate,
fixed-term money market accounts and certificates of deposit (CDs) approximate
their fair values at the reporting date. Fair values for fixed-rate CDs are
estimated using a discounted cash flow calculation that applies interest rates
currently
15
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Cont.]
being offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.
Short-term borrowings - The carrying amounts of federal funds
purchased, borrowings under repurchase agreements, and other short-term
borrowings maturing within 90 days approximate their fair values. Fair values
of other short-term borrowings are estimated using discounted cash flow
analysis based on the Bank's current incremental borrowing rates for similar
types of borrowing arrangements.
Long-term debt - The fair values of the Bank's long-term debt are
estimated using discounted cash flow analysis based on the Bank's current
incremental borrowing rates for similar types of borrowing arrangements.
Accrued interest - The carrying amounts of accrued interest approximate
their fair values.
Off-balance-sheet instruments - The Bank's off-balance-sheet
instruments include unfunded commitments to extend credit and standby letters
of credit. The fair value of these instruments is not considered practicable to
estimate because of the lack of quoted market prices and the inability to
estimate fair value without incurring excessive costs.
STOCK OPTIONS - In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation." This new standard defines a fair
value based method of accounting for an employee stock option or similar equity
instrument. This statement gives entities a choice of recognizing related
compensation expense by adopting the new fair value method or to continue to
measure compensation using the intrinsic value approach under Accounting
Principles Board (APB) Opinion No. 25, the former standard. If the former
standard for measurement were elected, SFAS No. 123 requires supplemental
disclosure to show any significant effects of using the new measurement
criteria. The Bank has elected to continue using the measurement prescribed by
APB Opinion No. 25, and accordingly, this pronouncement has had no effect on
the Bank's financial position or results of operations. The disclosure
requirements of SFAS No. 123 are not considered material to these financial
statements.
RECLASSIFICATIONS - Certain reclassifications have been made to the
1995 and 1994 financial statements to conform with current year presentations.
NOTE 2 - INVESTMENT SECURITIES
The book values and approximate market values of investment securities
at December 31, 1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1996 Cost Gains Losses Value
- ----------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Treasury securities $ 1,798,605 $ 5,484 $ (1,442) $ 1,802,648
Obligation of U.S.
government agencies 7,181,983 17,952 (40,852) 7,159,083
Corporate securities 751,098 1,665 (261) 752,502
----------- -------- --------- -----------
$ 9,731,687 $ 25,101 $ (42,555) $ 9,714,233
=========== ======== ========= ===========
Hold-to-maturity securities:
U.S. Treasury securities 2,318,701 -- (21,302) 2,297,399
Obligation of U.S.
government agencies 20,820,651 538,792 (664,193) 20,695,250
Corporate securities 2,156,952 8,291 (814) 2,164,429
Mortgage-backed agencies 450,971 3,621 (6,531) 448,061
Municipal securities 15,351,052 224,985 (19,528) 15,556,509
----------- -------- --------- -----------
$41,098,327 $775,689 $(712,368) $41,161,648
=========== ======== ========= ===========
December 31, 1995
- -----------------
Available-for-sale securities:
U.S. Treasury securities $ 2,166,138 $ 5,056 $ (7,740) $ 2,163,449
Obligation of U.S.
government agencies 4,582,409 2,416 (40,257) 4,544,568
Corporate securities 955,842 5,761 (3,721) 957,882
----------- -------- --------- -----------
$ 7,704,384 $ 13,233 $(51,718) $ 7,665,899
=========== ======== ========= ===========
Held-to-maturity securities:
U.S. Treasury securities 5,176,137 4,441 -- 5,180,578
Obligation of U.S.
government agencies 15,321,251 -- (21,869) 15,299,382
Corporate securities 4,636,946 25,847 -- 4,662,793
Mortgage-backed agencies 1,303,120 -- (5,833) 1,297,287
Municipal securities 14,728,051 305,375 (6,131) 15,027,298
----------- -------- --------- -----------
$41,165,508 $335,663 $ (33,833) $41,467,338
=========== ======== ========= ===========
</TABLE>
The amortized cost and estimated market value of investment securities
at December 31, 1996 and 1995, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
--------------------------- -------------------------
December 31, 1996 Cost Market Cost Market
- ----------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 6,363,951 $ 6,386,672 $1,156,025 $1,159,407
Due after one year through
five years 24,569,499 24,718,531 7,200,032 7,185,430
Due after five years through
ten years 7,800,778 7,720,583 1,375,630 1,369,396
Due after ten years 2,364,099 2,335,862 -- --
----------- ----------- ---------- ----------
$41,098,327 $41,161,648 $9,731,687 $9,714,233
=========== =========== ========== ==========
December 31, 1995 Cost Market Cost Market
- ----------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $10,268,937 $10,273,528 $3,485,426 $ 469,670
Due after one year through
five years 22,640,015 23,457,995 3,968,958 3,946,229
Due after five years through
ten years 6,267,510 5,728,003 250,000 250,000
Due after ten years 1,989,046 2,007,812 -- --
----------- ----------- ---------- ----------
$41,165,508 $41,467,338 $7,704,384 $7,665,899
=========== =========== ========== ==========
</TABLE>
16
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Proceeds from maturities of held-to-maturity investment securities
during 1996 and 1995, were $14,795,881 and $11,913,247, respectively. Proceeds
from the maturity of available-for-sale securities was $4,718,237 in 1996 and
$7,589,547 in 1995. Gross losses of $422, $10,076, and $5,449 were realized on
calls during 1996, 1995, and 1994, respectively.
Proceeds from sales of available-for-sale investment securities during
1995 and 1994 were $1,351,001 and $854,787, respectively. On these sales, gross
gains of $13,884 and $8,299, respectively, were realized. Gross losses of
$4,440 in 1995 and $17,716 in 1994 were also realized in these sales. There
were no sales of available-for-sale securities in 1996.
Effective with the merger of Columbia and Juniper Banking Company as of
December 31, 1994 (see Note 1), the Bank reclassified certain investments in
debt securities, held by Juniper Banking Company, from held-to-maturity to
available-for-sale to maintain its existing interest rate risk position as
permitted by financial accounting standards. At the time of transfer, the
investment securities had an amortized cost of $5,574,850 and an estimated
market value of $5,456,501. Recognition of the market value of the transferred
investment securities resulted in an after tax adjustment to stockholders'
equity at December 31, 1994, of $118,349.
As of December 31, 1996 and 1995, investment securities with a book
value of $3,283,294 and $4,767,730, respectively, have been pledged to secure
public deposits as required by law.
Bancorp, as a member of the Federal Home Loan Bank (FHLB) system, is
required to maintain an investment in capital stock of the FHLB. The FHLB stock
is not actively traded but is redeemable by FHLB at its current book value.
NOTE 3 - LOANS
The composition of loan balances is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Commercial $ 32,685,858 $ 24,080,823
Agriculture 16,013,558 15,226,705
Real estate 55,287,031 52,200,356
Consumer 13,837,832 13,214,311
Other 1,698,290 739,663
------------ ------------
119,522,569 105,461,858
Less: Allowance for loan losses (994,576) (1,071,494)
Unearned loan fees (300,325) (212,342)
------------ ------------
$118,227,668 $104,178,022
============ ============
</TABLE>
Impairment of loans having recorded investments of $228,857 at December
31, 1996, and $308,230 at December 31, 1995 have been recognized in conformity
with FASB Statement No. 114 as amended by FASB Statement No. 118. The Bank's
average investment in impaired loans, measured on the basis of the present
value of expected future cash flows discounted at the loan's effective interest
rate, was $267,653 during 1996 and $187,655 during 1995. The total allowance
for loan losses related to these loans at December 31, 1996 and 1995 was
$34,326, and $55,717, respectively. Had the impaired loans performed according
to their original terms, additional interest income of $10,991 and $31,352
would have been recognized in 1996 and 1995, respectively. No interest income
has been recognized on impaired loans during the period of impairment.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
BALANCE, beginning of year $1,071,494 $ 954,355 $ 992,052
Provision for loan loses 246,479 88,000 203,000
Loans charged-off (391,873) (118,438) (269,390)
Recoveries 68,476 147,577 28,693
__________ _________ ________
BALANCE, end of year $ 994,576 $1,071,494 $954,355
========== ========== ========
</TABLE>
NOTE 5 - PROPERTY FOR LOAN LOSSES
The major classifications of property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Land $1,049,281 $ 772,613
Buildings and improvements 4,030,691 3,309,985
Furniture and equipment 2,220,202 1,763,645
---------- ----------
7,300,174 5,846,243
Less accumulated depreciation (2,418,856) (2,127,170)
---------- ----------
$4,881,318 $3,719,073
========== ==========
</TABLE>
NOTE 6 - TIME DEPOSITS
Time certificates of deposit of $100,000 and over, aggregated $12,204,995 and
$13,937,516 at December 31, 1996 and 1995, respectively.
At December 31, 1996, the scheduled maturities for all time
certificates of deposit are as follows:
1997 $ 34,987,712
1998 3,501,539
1999 1,456,596
2000 874,282
2001 and thereafter 715,777
------------
$ 41,535,906
============
NOTE 7 - INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current tax provision
Federal $1,016,828 $1,092,333 $ 909,424
State 100,071 83,628 152,582
---------- ---------- ----------
1,116,899 1,175,961 1,061,956
Deferred tax (benefit) expense
Federal 153,714 (85,334) 26,840
State 14,398 (11,378) 8,945
---------- ---------- ----------
168,112 (96,712) 35,785
---------- ---------- ----------
$1,285,011 $1,079,249 $1,097,741
========== ========== ==========
</TABLE>
17
<PAGE> 16
The components of the deferred tax (benefit) expense consisted of the
following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Loan loss provision not
deductible for tax $ 36,488 $ (32,120) $ (14,790)
Difference between book
and tax recognition of
deferred loan fees 19,167 18,250 29,340
Difference between book
and tax depreciation methods 5,599 11,207 7,195
Difference between accrual
and cash basis tax reporting 67,393 (102,493) 14,040
Deferred compensation expense 52,760 (6,916)
Other differences (13,295) 15,360
---------- ---------- ----------
Deferred tax (benefit)
expense $168,112 $ (96,712) $ 35,785
======== ========== ==========
</TABLE>
The net deferred tax asset (liability) in the accompanying consolidated
balance sheets consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 200,516 $ 107,523
Deferred compensation 58,824 6,916
Deferred loan fees 34,513
---------- -----------
259,340 148,952
========== ===========
Deferred tax liabilities:
Accumulated depreciation (22,121) (29,117)
Conversion to accrual basis tax
reporting (134,785) (205,862)
Other (28,033) (7,684)
----------- -----------
(184,939) (242,663)
----------- ------------
$ 74,401 $ (98,711)
=========== ============
</TABLE>
Management believes, based upon the Bank's historical performance,
the deferred tax asset will be realized in the normal course of operations and,
accordingly, management has not reduced deferred tax assets by a valuation
allowance.
The tax provision differs from the federal statutory rate of 34% due
principally to the effect of tax exemptions for interest received on municipal
investments. The 1995 provision for income taxes reflects a reduction in the
state income tax rate from 6.6% to 3.3%.
A reconciliation between the statutory federal income tax rate and the
effective tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Federal income taxes at
statutory rate $1,364,039 $1,213,259 $1,167,697
State income tax expense,
net of federal income tax
benefit 174,757 48,839 93,398
Effect of nontaxable
interest income (221,674) (216,346) (226,038)
Nondeductible merger
expenses -- -- 32,300
Other (32,111) 33,497 30,384
---------- ----------- ----------
$1,285,011 $1,079,249 $1,097,741
========== =========== ==========
32% 30% 32%
======== ========= ========
</TABLE>
NOTE 8 - TRANSACTIONS WITH RELATED PARTIES
Certain directors, executive officers and principal stockholders are
customers of and have had banking transactions with the Bank, and the Bank
expects to have such transactions in the future. All loans and commitments to
loan included in such transactions were made in compliance with applicable laws
on substantially the same terms (including interest rates and collateral) as
those prevailing at the time for comparable transactions with other persons and
do not involve more than the normal risk of collectibility or present any other
unfavorable features. The amount of loans outstanding to directors, executive
officers, principal stockholders, and companies with which they are associated
was as follows:
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------
1996 1995
---------- -----------
<S> <C> <C>
BALANCE, beginning of year $1,535,235 $1,802,369
Loans made 1,854,323 72,984
Loans repaid (422,248) (340,118)
---------- -----------
BALANCE, end of year $2,963,310 $1,535,235
========== ===========
</TABLE>
Columbia has a 33% shareholder interest in Datatech of Oregon, Inc.
(Datatech), a bank service corporation functioning as a data processing facility
for Columbia and four other community banks in Oregon. Columbia's investment in
Datatech is accounted for by the equity method. Under this accounting method,
Columbia's investment is increased or decreased to reflect its receipt of
dividend payments. Columbia's share of income or losses is included in net
income as Datatech reports them. For the periods ended December 31, 1996, 1995,
and 1994. Columbia recorded data processing expenses paid to Datatech in the
amount of $194,696, $205,841, and $170,333, and recognized gains on its
investment of $4,482, $16,964,and $10,592, respectively. As of December 31,
1996, Columbia's recorded investment in Datatech was $52,070. Columbia has a
financing lease arrangement with Datatech. The lease agreement covered certain
data processing equipment utilized in Datatech's operations. During 1995,
Datatech paid the outstanding balance in full. Interest income, computed at 12%,
was realized by Columbia in the amount of $2,125 in 1995 and $4,433 in 1994.
Columbia has a prime rate, unsecured operating line of credit to Datatech for
$80,000. The outstanding principal balance was $74,000 at December 31, 1996,
there was no outstanding balance at December 31, 1995. Interest income of $4,195
was realized by Columbia in 1996, none was realized in 1995.
NOTE 9 - FINANCIAL INSTRUMENTS
WITH OFF-BALANCE-SHEET RISK
In the normal course of business to meet the financing needs of its
customers, the Bank is a party to financial instruments with off-balance-sheet
risk. These financial instruments include commitments to extend credit and the
18
<PAGE> 17
Notes to Consolidated Financial Statements [Cont.]
issuance of letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the statement of financial position. The contract amounts of those instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and letters of credit written is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Bank does not require collateral or other
security to support financial instruments with credit risk.
<TABLE>
<CAPTION>
December 31
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit: $23,809,924 $16,389,862
Undisbursed credit card
lines of credit 3,696,163 2,656,099
Commercial and standby letters
of credit 179,654 622,000
----------- -----------
$27,685,741 $19,667,961
=========== ===========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property and equipment, and income-producing
properties.
Letters of credit written are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third-party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Bank holds cash,
marketable securities, or real estate as collateral supporting those commitments
for which collateral is deemed necessary.
NOTE 10 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table estimates fair value and the related carrying values
of the Bank's financial instruments at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR AMOUNT FAIR
VALUE VALUE
(in thousands) (in thousands)
--------------------------------------
<S> <C> <C> <C> <C>
Federal Assets:
Cash and due from banks $ 16,030 $ 16,030 $ 12,610 $ 12,610
Federal funds sold $ 7,367 $ 7,367 $ 6,273 $ 6,273
Securities availabe-for-sale $ 9,714 $ 9,714 $ 7,666 $ 7,666
Securities held-to-maturity $ 41,098 $ 41,162 $ 41,166 $ 41,467
Loans, net of allowances for
loan losses and unearned
loan fees $118,228 $118,234 $104,178 $107,016
Accrued interest receivable $ 1,948 $ 1,948 $ 1,816 $ 1,816
Financial liabilities:
Demand and savings deposits $129,053 $129,053 $110,909 $110,909
Time deposits and IRA
accounts $ 49,691 $ 49,717 $ 47,965 $ 43,960
Accrued interest payable $ 357 $ 357 $ 289 $ 289
Note payable to Federal
Home Loan Bank $ 600 $ 600 $ 1,200 $ 1,200
Treasury tax and loan note
payable $ 322 $ 322 $ 97 $ 97
</TABLE>
While estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Bank to have
disposed of such items at December 31, 1996 and 1995, the estimated fair values
would necessarily have been achieved at that date, since market values may
differ depending on various circumstances. The estimated fair values at
December 31, 1996 and 1995, should not necessarily be considered to apply at
subsequent dates.
In addition, other assets and liabilities of the Bank that are not
defined as financial instruments are not included in the above disclosures, such
as property and equipment. Also, nonfinancial instruments typically not
recognized in the financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the trained work force, customer goodwill and similar
items.
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
All of the Bank's loans, commitments, and commercial and standby
letters of credit have been granted to customers in the Bank's market area. The
majority of such customers are also depositors of the Bank. Investments in
state and municipal securities involve governmental entities within the Bank's
geographical region. The concentrations of credit by type of loan are set
forth in Note 3. The distribution of commitments to extend credit approximates
the distribution of loans outstanding. Commercial and standby letters of
credit were granted primarily to commercial borrowers as of December 31, 1996.
The Bank's loan policy does not allow the extension of credit to any single
borrower or group of related borrowers in excess of $600,000 without approval
from the Board of Director's loan committee.
19
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [CONT.]
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Operating lease commitments - As of December 31, 1996, the Bank leased property
at various locations. The approximate annual commitment for rentals under these
noncancelable operating lease is summarized as follows:
Years Ended December 31 Amount
- ----------------------- ------
1997 $ 36,180
1998 $ 36,180
1999 $ 35,040
2000 $ 20,887
--------
$128,287
=======
Rental expense for all operating leases was $28,303, $20,940, and
$19,337 for the periods ended December 31, 1996, 1995, and 1994, respectively.
Legal contingencies - The Bank may become a defendant in certain claims
and legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, there are no current matters
expected to have a material adverse effect on the consolidated financial
condition of the Bank.
NOTE 13 - NOTE PAYABLE TO FEDERAL HOME LOAN BANK
The Bank is a member of the Federal Home Loan Bank (FHLB) of Seattle.
As a member, the Bank has entered into an "Advances, Security and Deposit
Agreement" which provides a credit arrangement with FHLB. Borrowings under the
credit arrangement are collateralized by the Bank's FHLB stock as well as
deposits or other instruments which may be pledged. As of December 31, 1996
and 1995, the Bank had borrowings outstanding with the FHLB of $600,000 and
$1,200,000, respectively. The promissory notes mature in 1998 and 2001 and
carry interest rates of 5.35% and 6.00%.
NOTE 14 - STOCK OPTION PLANS
During 1993, Columbia adopted a Stock Incentive Plan (the Plan) for the
benefit of its employees and Board members. Under the Plan, as amended in
1996, options were reserved for the purchase of 120,000 shares of Bancorp's
common stock. As of December 31, 1996, the amount of shares reserved under the
Plan was 16,800. The Plan allows for the granting of both incentive stock
options and nonstatutory stock options. The option price for incentive stock
options is determined by the Board of Directors and cannot be less than 100% of
the fair market value of the shares on the date of grant. The incentive stock
options expire ten years from the date of grant. The option price and duration
of options for nonstatutory stock options is determined by the Board of
Directors.
The following summarizes options available and outstanding under this
Plan as December 31, 1996, and includes the effects of the 1995 stock split:
<TABLE>
<CAPTION>
Number of Average
--------- ---------
Options Exercise Price
------ --------------
<S> <C> <C>
Options under grant-December 31, 1994 24,100 $ 6.33
Options granted in 1995:
Incentive stock options 45,000 10.00
Nonstatutory stock options 27,000 10.00
Options exercised in 1995:
Incentive stock options (5,800) (8.29)
Nonstatutory stock options (1,000) (7.80)
Options expired in 1995 (600)
-------- --------------
Options under grant - December 31, 1995 88,700 9.00
Options exercised in 1996:
Incentive stock options: (6,656) (8.83)
Nonstatutory stock options (3,500) (10.00)
Options expired in 1996 (1,200)
-------- --------------
Options under grant - December 31, 1996 77,344 $ 9.10
</TABLE>
NOTE 15 - EMPLOYEE BENEFIT PLANS
In January 1988, Columbia adopted an Employee Stock Ownership Plan. The
Plan allows participation by all employees over the age of 20 who have also met
minimum service requirements. Contributions to the Plan are at the discretion
of the Board of Directors and are used to purchase shares of the parent
company's common stock. Employees are not permitted to contribute individually
to the Plan but vest in their proportionate share of the Plan interest after
six years of participation. For the periods ending December 31, 1996, 1995,
and 1994, Columbia contributed $163,279, $150,000, and $115,000, respectively,
to the Plan.
Bancorp accounts for its ESOP in accordance with Statement of Position
93-6 "Employer's Accounting for Employee Stock Ownership Plans." The ESOP's
assets as of December 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
December 31
------------------------
1996 1995
-------- --------
<S> <C> <C>
Allocated shares 73,741 65,394
-------- --------
Cash on hand $ 63,680 $150,067
======== ========
</TABLE>
The Bank is required to provide a "put option" to any participant who
receives a stock distribution, if this stock is not readily tradable on an
established market. This "put option" allows the participant to sell the stock
to the Bank for its fair market value during a stipulated period of time.
Accordingly, employee stock ownership plan shares subject to the put option are
classified outside of permanent equity on the basis of fair market value
determined by an independent appraisal.
Columbia has also adopted a 401(k) Savings Investment Plan which allows
employees to defer certain amounts of compensation for income tax purposes
under Section 401(k) of the Internal Revenue Code. Essentially, all full-time
employees over the age of 20 and meeting length of service requirements are
eligible to participate in the Plan. Employees may elect to defer and
contribute, within
20
<PAGE> 19
Notes to Consolidated Financial Statements [Cont.]
statutory limited, up to 10% of their annual compensation into the Plan. Their
contributions and those of Columbia, which are limited to 25% of employee
contributions up to 4% of total participant compensation, are invested by Plan
trustees in employee designated funds. For the periods ending December 31,
1996, 1995, and 1994. Columbia contributed $21,932, $16,914, and $9,753,
respectively to the Plan.
Columbia has also established an employee bonus program which provides
eligible participants additional compensation based upon the achievement of
annual return on asset targets established by the Board of Directors. For the
periods ending December 31, 1996, 1995, and 1994, additional compensation of
$158,979, $293,435, and $137,203, respectively, was paid to eligible employees.
During 1996, Bancorp entered into both employment and retirement
agreements with its chief executive officer. The employment agreement provides
for the executive's salary and customary benefits until termination of the
agreement in May 1998. The retirement agreement provides annual post-retirement
compensation for a seven-year period after the chief executive's retirement. A
portion of Bancorp's obligation under the agreement has been funded with a
$120,000 interest-earning investment and will be paid in annual installments of
$26,000 plus interest earned on invested funds. For the year ended December 31,
1996, Bancorp recorded a liability of $63,824 as its obligation for current
services pursuant to the retirement plan. In the event employment of the chief
executive officer is terminated prior to expiration of the agreements, all
salary and benefits accrued as of the termination date and all retirement
payments provided in the retirement agreement will be paid to the executive.
Klickitat has a profit sharing plan covering substantially all
employees. The plan provides for a discretionary employer contribution each
year. Klickitat's maximum profit sharing contribution is 15% of taxable
compensation for the year, limited to $150,000. The employer contribution was
$111,382, $107,647, and $99,700 for the years ended December 31, 1996, 1995,
and 1994, respectively.
During 1996, Klickitat entered into both employment and retirement
agreements with its chief executive officer, Klickitat's chief executive
retired on December 31, 1996, and pursuant to the agreement, will be paid in
three annual installments of $60,000. For the year ended December 31, 1996,
Klickitat recorded a liability of $180,000 as its obligation for current
services pursuant to the retirement plan.
NOTE 16 - EARNINGS PER SHARE
Earnings per share were computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the periods after giving retroactive effect to the 1995
stock split and shares issued in business acquisitions accounted for as poolings
of interest. Common stock equivalents include the number of shares issuable on
exercise of the outstanding options less the number of shares that would have
been purchased with the proceeds from the exercise of the options based on the
average price of common stock during the year. The weighted average number of
shares of common stock and common stock equivalents outstanding for the years
ending December 31, 1996, 1995, and 1994, were 2,282,304, 2,280,749, and
2,235,817, respectively.
NOTE - 17 PARENT COMPANY
FINANCIAL INFORMATION
Condensed financial information for Columbia Bancorp (unconsolidated
parent company only) is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1996 1995
---------- ----------
<S> <C> <C>
BALANCE SHEET
- -------------
ASSETS
Cash $ 240,142 $ 890
Investment securities 800,000
Investment in subsidiaries 8,998,691 17,483,892
Other assets 174,537 --
Organizational expense -- 16,000
------------- -----------
Total assets $19,713,370 $17,500,782
============= ===========
LIABILITIES
Note payable $ $ 6,000
Accounts payable 10,890
Dividend payable 180,388
------------- -----------
Total liabilities 180,388 16,890
Employee stock ownership plan
shares subject to put option 1,058,183 866,471
------------- -----------
STOCKHOLDERS' EQUITY
Common stock 5,139,218 4,974,400
Additional paid-in capital 6,317,732 4,848,953
Retained earnings 8,087,264 7,683,876
Unrealized loss on available-
for-sale investment securities (11,232) (23,337)
------------- ----------
Less employee stock ownership
plan shares subject to put
option (1,058,183) (866,471)
------------- -----------
18,474,799 16,617,421
Total liabilities and
stockholders' equity $ 19,713,370 $17,500,782
============== ===========
</TABLE>
for the year ended December 31, 1996
---------------------------------------
INCOME STATEMENT
- ----------------
REVENUES
Equity in undistributed earnings
of subsidiary banks $ 1,526,965
Dividends 1,388,366
--------------
EXPENSES
Goodwill and administrative expenses (188,460)
---------------
Net income $ 2,726,871
===============
21
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Cont.]
<TABLE>
<S> <C>
CASH FLOW STATEMENT
CASH FLOWS RELATED TO OPERATING ACTIVITIES
Net income $ 2,726,871
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed earnings of subsidiary bank (1,526,965)
Changes in other assets and liabilities (39,439)
----------
Net cash provided by operating activities 1,160,467
----------
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Cash dividends paid (702,215)
Cash received from exercise of common stock options 192,717
----------
Net cash used in financing activities (509,498)
----------
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Purchase of land (111,717)
Purchase of held-to-maturity investments (300,000)
----------
Net cash used by investing activities (411,717)
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 239,252
CASH AND CASH EQUIVALENTS, beginning of year 890
----------
CASH AND CASH EQUIVALENTS, end of year $ 240,142
----------
SCHEDULE OF NONCASH ACTIVITIES
Cash dividend declared payable February 1997 $ 180,388
----------
</TABLE>
NOTE 18 -- REGULATORY MATTERS
Bancorp and its subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the financial statements of Bancorp and its subsidiaries.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, banks must meet specific capital guidelines that involve
quantitative measures of a bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. A
bank's capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital
adequacy requires the Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital to average assets (as
defined). Management believes, as of December 31, 1996, that the Banks meet all
capital adequacy requirements to which they are subject.
As of June 30, 1995, the most recent notification from FDIC for
Columbia, and as of February 12, 1996, the most recent notification from the
State of Washington for Klickitat, the banks were categorized as adequately
capitalized under the regulatory framework for prompt corrective action. To be
categorized as adequately capitalized, the Banks must maintain minimum total
risk based, Tier 1 risk-based, and Tier 1 leverage ratios. There are no
conditions or events since the notification that management believes have
changed the institutions' category.
Bancorp's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
To Be Well Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital to Risk
Weighted Assets $20,538,791 14.9% $11,014,536 >/= 8.0% $13,768,171 >/= 10.0%
Tier 1 Capital to Risk
Weighted Assets $19,544,214 14.2% $ 5,507,268 >/= 4.0% $ 8,260,902 >/= 6.0%
Tier 1 Capital to
Average Assets $19,544,214 9.9% $ 7,927,089 >/= 4.0% $11,890,634 >/= 6.0%
As of December 31, 1995:
Total Capital to Risk
Weighted Assets $18,578,723 15.2% $ 9,757,020 >/= 8.0% $12,196,275 >/= 10.0%
Tier 1 Capital to Risk
Weighted Assets $17,507,229 14.4% $ 4,878,510 >/= 4.0% $ 7,317,765 >/= 6.0%
Tier 1 Capital to
Average Assets $17,507,229 9.9% $ 7,104,988 >/= 4.0% $10,657,482 >/= 6.0%
</TABLE>
22
<PAGE> 21
Independent Auditor's Report
To the Board of Directors
Columbia Bancorp
We have audited the accompanying consolidated balance sheets of Columbia Bancorp
and subsidiaries as of December 31, 1996 and 1995, and the related statements of
income, changes in stockholders' equity, and cash flows for the years ended
December 31, 1996, 1995, and 1994. These financial statements are the
responsibility of Columbia Bancorp's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Columbia
Bancorp and subsidiaries as of December 31, 1996 and 1995, and the results of
its operations and cash flows for the years ended December 31, 1996, 1995, and
1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements,
Columbia Bancorp acquired all of the outstanding common stock of Klickitat
Valley Bank during 1996. The business combination has been accounted for as a
pooling of interests and, accordingly, the assets, liabilities, stockholders'
equities and results of operations of the separate entities have been combined
in the accompanying financial statements as though the entities had been
combined at the beginning of 1994.
MOSS ADAMS L.L.P.
Portland, Oregon
January 17, 1997
23
<PAGE> 22
STOCK PRICE & DIVIDEND INFORMATION
COLUMBIA Bancorp stock did not trade on or through any exchange, established
quotation or listing system or market-maker. Bancorp endeavored to facilitate
transactions among shareholders and potential investors in its common stock by
keeping an informal record of persons who had expressed an interest in buying
or selling stock, and acting as an unpaid middleman between buyers and
sellers. Bancorp also kept some informal records as to transaction prices.
Many transactions between buyers and sellers occurred without Bancorp's
knowledge and involvement, and came to the Bancorp's attention only after the
fact when Bancorp was notified of a change in record ownership. Norwest
Shareholder Services served as the transfer agent for Bancorp.
Columbia Bancorp equity securities consist of one class of common stock
of which there were 2,254,841 shares outstanding, held by approximately 1,150
shareholders on December 31, 1996.
The inset table sets forth the high, low and closing sale prices paid
for the common stock of Bancorp for each quarter of the 1996 and 1995 fiscal
years. This information is based solely on prices reported to Bancorp for
specific transactions by those persons whose transactions have come to
Bancorp's attention. The reported prices do not represent all transactions in
Bancorp's common stock, and Bancorp can give no assurance as to the accuracy of
the reported prices, as it did not attempt to independently verify them.
Bancorp did not maintain records of high and low bid prices. Bancorp's records
reflect prices for actual sales transactions. All prices shown have been
restated to reflect a 3-for-1 stock split for shareholders of record on
September 1, 1995.
Bancorp paid dividends of $.25 per share in February 1996, and $.07 per
share in both July and October 1996. An $.08 per share dividend was declared
by Bancorp in December 1996, payable in February 1997. Prior to its
acquisition by Bancorp, Klickitat Valley Bank paid a $.55 per share dividend in
March 1996.
- --------------------------------------------------------------------------
<TABLE>
QUARTER ENDED HIGH LOW CLOSING
<S> <C> <C> <C>
March 31, 1996 $20.00 $18.50 $20.00
June 30, 1996 20.00 18.00 20.00
September 30, 1996 20.00 13.50 16.00
December 31, 1996 16.25 13.25 15.00
March 31, 1995 $10.67 $10.00 $10.00
June 30, 1995 10.67 10.00 10.00
September 30, 1995 12.00 10.00 11.00
December 31, 1995 25.00 12.00 19.00
- --------------------------------------------------------------------------
</TABLE>
INFORMATION CONCERNING FILINGS WITH THE
SECURITIES & EXCHANGE COMMISSION
COLUMBIA Bancorp shall provide without charge upon the written request of any
person receiving this Annual Report a copy of Columbia Bancorp's Form 10-KSB
and a copy of any Form 10-QSB, including the financial statements and financial
statement schedules but without other exhibits, for Columbia Bancorp with the
Securities and Exchange Commission. Such written requests should be to the
attention of Richard J. Croghan, Chief Financial Officer of Columbia Bancorp,
P.O. Box 1030, The Dalles, Oregon 97058. Copies of Exhibits to such filings
will be supplied upon payment of Columbia Bancorp's reasonable expenses in
furnishing such exhibit in the amount of $.25 per page.
24
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries of Bancorp and Assumed Business Names.
Columbia Bancorp had two wholly-owned subsidiaries as of December 31,
1996, Columbia River Banking Company (CRBC) and Klickitat Valley Bank (KVB).
CRBC did business under the assumed business name "Columbia River Bank" in Hood
River, The Dalles and Maupin, Oregon, and under the assumed business name
"Juniper Banking Company" in Madras, Redmond and Bend, Oregon.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES CONTAINED IN THE 1996 ANNUAL REPORT
TO SHAREHOLDERS OF COLUMBIA BANCORP AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 16,030
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,367
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,386
<INVESTMENTS-CARRYING> 41,098
<INVESTMENTS-MARKET> 41,162
<LOANS> 119,222
<ALLOWANCE> 995
<TOTAL-ASSETS> 200,302
<DEPOSITS> 178,744
<SHORT-TERM> 600
<LIABILITIES-OTHER> 1,425
<LONG-TERM> 0
5,139
0
<COMMON> 0
<OTHER-SE> 13,336
<TOTAL-LIABILITIES-AND-EQUITY> 200,302
<INTEREST-LOAN> 11,855
<INTEREST-INVEST> 2,865
<INTEREST-OTHER> 665
<INTEREST-TOTAL> 15,385
<INTEREST-DEPOSIT> 5,685
<INTEREST-EXPENSE> 5,745
<INTEREST-INCOME-NET> 9,639
<LOAN-LOSSES> 246
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 7,156
<INCOME-PRETAX> 4,012
<INCOME-PRE-EXTRAORDINARY> 4,012
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,727
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.19
<YIELD-ACTUAL> 9.13
<LOANS-NON> 52
<LOANS-PAST> 30
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,072
<CHARGE-OFFS> 377
<RECOVERIES> 53
<ALLOWANCE-CLOSE> 995
<ALLOWANCE-DOMESTIC> 995
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
