<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _________________ to ___________________
Commission file number 0-27938
COLUMBIA BANCORP
(Exact name of registrant as specified in its charter)
Oregon 93-1193156
(State of Incorporation) (I.R.S. Employer
Identification Number)
420 East Third Street, Suite 200
The Dalles, Oregon 97058
(Address of principal executive offices)
(541) 298-6649
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
3,470,141 shares as of August 6, 1998
<PAGE> 2
COLUMBIA BANCORP
FORM 10-Q
JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION REFERENCE
- ------------------------------ ---------
<S> <C>
Consolidated Balance Sheets as of June 30, 1998 and 3
December 31, 1997.
Consolidated Statements of Income and Comprehensive Income for the six
months and quarter ended June 30, 1998 and 1997. 4
Consolidated Statements of Cash Flows for the six months ended June 30,
1998 and 1997. 5
Consolidated Statements of Changes in Shareholders' Equity for the
periods of December 31, 1996 to June 30, 1998. 6
Notes to Consolidated Financial Statements 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Overview 9
Material Changes in Financial Condition 9
Material Changes in Results of Operations 10
Loan Loss Provision 10
Liquidity and Capital Resources 10-11
Quantitative and Qualitative Disclosures About Market Risk 11
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 11
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
<PAGE> 3
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ---------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 18,551,281 $ 16,878,138
Federal funds sold 4,230,310 2,834,363
------------- -------------
Total cash and cash equivalents 22,781,591 19,712,501
Investment securities available-for-sale 29,337,691 31,309,883
Investment securities held-to-maturity 17,183,099 16,728,036
Restricted equity securities 795,100 765,900
------------- -------------
Total investment securities 47,315,890 48,803,819
Loans held-for-sale 7,989,563 2,713,665
Loans, net of allowance for loan losses and unearned
loan fees 164,988,634 152,504,671
Property and equipment, net of depreciation 5,222,865 5,256,561
Accrued interest receivable 2,697,352 2,185,544
Other assets 2,113,891 649,982
------------- -------------
Total assets $ 253,109,786 $ 231,826,743
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing demand deposits $ 48,926,683 $ 46,377,081
Interest bearing demand accounts 86,601,963 85,502,927
Savings accounts 25,925,233 22,743,932
Time certificates and IRA accounts 56,966,666 46,944,204
------------- -------------
Total deposits 218,420,545 201,568,144
Notes payable 8,218,511 5,263,824
Accrued interest payable and other liabilities 1,548,218 2,007,289
------------- -------------
Total liabilities 228,187,274 208,839,257
Employee stock ownership plan shares subject to put option 2,351,020 1,430,450
Shareholders' equity:
Common stock, no par value; 10,000,000 shares
authorized, 3,468,391 issued and outstanding
(2,288,451 at December 31, 1997) 5,954,049 5,528,218
Additional paid-in capital 6,317,732 6,317,732
Retained earnings 12,657,019 11,131,444
Accumulated other comprehensive income, net of tax (6,288) 10,092
------------- -------------
24,922,512 22,987,486
Less: employee stock ownership plan shares subject
to put option (2,351,020) (1,430,450)
------------- -------------
Total shareholders' equity 22,571,492 21,557,036
------------- -------------
$ 253,109,786 $ 231,826,743
============= =============
</TABLE>
See accompanying notes.
3
<PAGE> 4
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 4,382,494 $ 3,664,947 $ 8,416,856 $ 6,860,613
Interest on investments
Taxable investment securities 449,774 603,327 863,255 1,204,832
Nontaxable investment securities 207,333 190,425 419,455 378,804
Other interest income 124,429 35,021 225,368 135,087
----------- ----------- ----------- -----------
Total interest income 5,164,030 4,493,720 9,924,934 8,579,336
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest bearing demand and savings 861,370 816,546 1,719,853 1,597,453
Interest on time deposit accounts 803,290 714,279 1,485,930 1,402,995
Other borrowed funds 121,422 16,947 209,575 28,598
----------- ----------- ----------- -----------
Total interest expense 1,786,082 1,547,772 3,415,358 3,029,046
----------- ----------- ----------- -----------
NET INTEREST INCOME 3,377,948 2,945,948 6,509,576 5,550,290
PROVISION FOR LOAN LOSSES 225,000 160,000 450,000 250,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,152,948 2,785,948 6,059,576 5,300,290
----------- ----------- ----------- -----------
NONINTEREST INCOME
Service charges and fees 427,043 341,424 834,286 658,091
Credit card discounts and fees 103,807 81,088 184,899 146,188
Financial services department 90,857 69,554 154,831 114,841
Mortgage loan origination and
processing 225,580 -- 323,803 --
Net gains on sale of loans 88,593 -- 177,377 --
Other noninterest income 276,925 59,536 401,602 117,454
----------- ----------- ----------- -----------
Total noninterest income 1,212,805 551,602 2,076,798 1,036,574
----------- ----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits 1,453,807 940,995 2,713,898 1,996,765
Occupancy expense 231,808 176,989 448,966 372,401
Credit card processing fees 74,358 59,336 123,508 105,900
Office Supplies 36,431 47,893 79,350 85,965
Data processing expense 97,202 62,207 183,533 131,336
Other noninterest expenses 599,817 490,680 1,221,059 1,054,900
----------- ----------- ----------- -----------
Total noninterest expense 2,493,423 1,778,100 4,770,314 3,747,267
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,872,330 1,559,450 3,366,060 2,589,597
PROVISION FOR INCOME TAXES 658,890 509,758 1,146,743 827,503
----------- ----------- ----------- -----------
NET INCOME $ 1,213,440 $ 1,049,692 $ 2,219,317 $ 1,762,094
=========== =========== =========== ===========
OTHER COMPREHENSIVE INCOME, NET
Unrealized gain or loss on AFS
securities, net 13,711 (23,991) 19,180 (102,218)
Reclassification for gain included
in net income (4,600) -- (35,560) --
----------- ----------- ----------- -----------
9,111 (23,991) (16,380) (102,218)
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ 1,222,551 $ 1,025,701 $ 2,202,937 $ 1,659,876
=========== =========== =========== ===========
Earnings per share of common stock
Net Income Basic $ .35 $ .31 $ .64 $ .52
===== ===== ===== =====
Net Income Diluted $ .34 $ .30 $ .62 $ .51
===== ===== ===== =====
Weighted average common shares outstanding
Basic 3,466,994 3,404,160 3,458,291 3,393,577
Diluted 3,568,450 3,462,450 3,560,806 3,453,499
</TABLE>
See accompanying notes.
4
<PAGE> 5
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,219,317 $ 1,762,094
Adjustments to reconcile net income to net cash
provided by operating activities
Loss on sale or call of investment securities (35,560) --
Depreciation 241,241 226,144
Provision for loan losses 450,000 250,000
Federal Home Loan Bank stock dividend (29,352) (11,800)
Benefit for deferred income taxes (143,863) --
Increase (decrease) in cash due to changes in certain assets
and liabilities
Accrued interest receivable (511,808) (586,736)
Other assets (1,463,909) (30,081)
Accrued interest payable and other liabilities (455,103) 267,786
------------ ------------
Net cash provided by operating activities 270,963 1,877,407
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of available-for-sale securities 3,086,176 --
Proceeds from the maturity of available-for-sale securities 11,724,309 1,200,000
Purchases of available-for-sale securities (13,000,158) (1,374,715)
Proceeds from the maturity of held-to-maturity securities 591,846 3,400,135
Purchases of held-to-maturity securities (741,185) (2,898,353)
Net change in loans made to customers (18,209,861) (24,460,541)
Purchases of premises and equipment (192,578) (282,887)
Proceeds from the sale of premises and equipment 400 --
------------ ------------
Net cash used in investing activities (16,741,051) (24,416,361)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand deposits and savings accounts 6,829,939 11,448,375
Net change in time deposits and IRA accounts 10,022,462 3,589,253
Net increase in borrowings from Federal Home Loan Bank 2,700,000 3,600,000
Dividends paid (693,742) (385,191)
Proceeds from stock options and purchases net of effect
of stock split 425,831 236,288
Net increase (decrease) in short-term borrowings 254,688 (322,092)
------------ ------------
Net cash provided by financing activities 19,539,178 18,166,633
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,069,090 (4,372,321)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,712,501 23,397,411
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22,781,591 $ 19,025,090
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid in cash $ 3,419,427 $ 2,992,119
============ ============
Taxes paid in cash $ 644,985 $ 435,090
============ ============
SCHEDULE OF NONCASH ACTIVITIES
Change in unrealized loss on available-for sale
securities, net of tax $ (16,380) $ (102,218)
============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated ESOP
Additional Other plan shares Total
Common Paid-in Retained Comprehensive subject to Shareholders'
Shares Stock Capital Earnings Income put options Equity
--------- ----------- ---------- ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 2,254,841 $ 5,139,218 $6,317,732 $ 8,087,264 $(11,232) $(1,058,183) $ 18,474,799
(Audited)
Stock options exercised 21,415 214,001 -- -- -- -- 214,001
Sale of common stock 12,195 174,999 -- -- -- -- 174,999
Changes in ESOP shares
subject to put option -- -- -- -- -- (372,267) (372,267)
Cash dividend -- -- -- (613,384) -- -- (613,384)
Cash dividend declared -- -- -- (228,845) -- -- (228,845)
Net Income and
Comprehensive Income -- -- -- 3,886,409 21,324 -- 3,907,733
--------- ----------- ---------- ------------ -------- ----------- ------------
BALANCE, December 31, 1997 2,288,451 $ 5,528,218 $6,317,732 $ 11,131,444 $ 10,092 $(1,430,450) $ 21,557,036
(Audited)
Stock options exercised 15,810 195,494 -- -- -- -- 195,494
Sale of common stock 9,375 234,375 -- -- -- -- 234,375
3 for 2 stock split 1,154,755 (4,038) -- -- -- -- (4,038)
Changes in ESOP shares
subject to put option -- -- -- -- -- (920,570) (920,570)
Cash dividend paid or
declared -- -- -- (693,742) -- -- (693,742)
Net Income and
Comprehensive Income -- -- -- 2,219,317 (16,380) -- 2,202,937
--------- ----------- ---------- ------------ -------- ----------- ------------
BALANCE, June 30, 1998
(Unaudited) 3,468,391 $ 5,954,049 $6,317,732 $ 12,657,019 $ (6,288) $(2,351,020) $ 22,571,492
========= =========== ========== ============ ======== =========== ============
</TABLE>
See accompanying notes.
6
<PAGE> 7
COLUMBIA BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Principles of Consolidation
The interim consolidated financial statements include the accounts of
Columbia Bancorp, a bank holding company (Bancorp), and its wholly-owned
subsidiary, Columbia River Bank ("Columbia River"), after elimination of
intercompany transactions and balances. Columbia River is an Oregon
state-chartered bank, headquartered in The Dalles, Oregon, and doing
business as Columbia River Bank, Juniper Banking Company, and Klickitat
Valley Bank. Substantially all activity of Bancorp is conducted through its
subsidiary bank.
The interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The financial information included in this interim report has
been prepared by management without audit by independent public
accountants. Bancorp's annual report will contain audited financial
statements. All adjustments including normal recurring accruals necessary
for fair presentation of results of operations for the interim periods
included herein have been made. The results of operations for the six
months ended June 30, 1998 are not necessarily indicative of results to be
anticipated for the year ending December 31, 1998.
Certain reclassifications have been made to prior period financial
statements to conform with current period presentation.
2. Recent Mergers & Corporate Activity
On June 8, 1998, through an amendment to its Articles of Incorporation
filed with the Secretary of State of the State of Oregon, Columbia River
changed its legal name from "Columbia River Banking Company" to "Columbia
River Bank."
On July 30, 1998, Columbia Bancorp announced an agreement in principal
to acquire 100% of the issued and outstanding shares of the common stock of
Valley Community Bancorp (VCB), the holding company of Valley Community
Bank. The parties executed a definitive agreement effective August 3, 1998.
Valley Community Bank is a community bank headquartered in McMinnville,
Oregon, with total assets of approximately $40 million as of July 31, 1998.
The acquisition price of $15,101,542.50, or $16.30 per share of VCB common
stock, will be accounted for as a purchase transaction. The acquisition is
subject to the approval of the holders of two-thirds of the issued and
outstanding shares of VCB's common stock and is also subject to regulatory
approval and various other conditions to closing. Following consummation of
the transaction VCB will be a wholly owned subsidiary of Columbia Bancorp.
3. Loans and Reserve for Loan Losses
The composition of the loan portfolio was as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
Commercial $ 43,183,247 $ 38,012,762
Agriculture 27,702,658 22,365,007
Real estate 76,999,711 75,003,128
Consumer 17,265,946 17,385,488
Other 2,186,340 1,989,591
------------- -------------
167,337,902 154,755,976
Allowance for loan losses (1,665,868) (1,638,633)
Deferred loan fees (683,400) (612,672)
------------- -------------
$ 164,988,634 $ 152,504,671
============= =============
</TABLE>
7
<PAGE> 8
Transactions in the reserve for loan losses were as follows for the
six months ended June 30:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Balance at beginning of period $ 1,638,633 $ 994,577
Provision charged to operations 450,000 250,000
Recoveries 38,057 84,613
Loans charged off (460,822) (10,870)
----------- -----------
Balance at end of period $ 1,665,868 $ 1,318,320
=========== ===========
</TABLE>
It is the policy of Bancorp's subsidiary Columbia River, to place
loans on nonaccrual status whenever the collection of all or a part of the
principal balance is in doubt. Loans placed on nonaccrual status may or may
not be contractually past due at the time of such determination, and may or
may not be secured by collateral. Loans on nonaccrual status at June 30,
1998 and December 31, 1997 were approximately $1,145,000 and $1,041,000,
respectively.
Loans past due 90 days or more on which Columbia River continued to
accrue interest were approximately $13,000 at June 30, 1998, and
approximately $414,000 at December 31, 1997. There were eight loans with a
total principal balance of approximately $716,000 on which the interest
rate or payment schedule was modified from original terms to accommodate a
borrower's weakened financial position at June 30, 1998. There were no
loans in this category at December 31, 1997.
4. Earnings Per Share
Basic earning per share excludes dilution and is computed by dividing
net income by the weighted average common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution that
could occur if common shares were issued pursuant to the exercise of
options under stock option plans. Weighted average shares outstanding
consist of common shares outstanding and common stock equivalents
attributable to outstanding stock options.
The weighted average number of shares and common share equivalents
have been adjusted to give retroactive effect to the 3-for-2 stock split in
March 1998, and all prior stock dividends or splits.
5. Recently Issued Accounting Standards
In February 1998, the FASB issued SFAS No. 132 "Employer' Disclosures
about Pensions and Other Postretirement Benefits" which is effective for
fiscal years beginning after December 15, 1997. The statement revises and
standardizes disclosure requirements for pension and other postretirement
benefit plans.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting
and reporting standards for derivative instruments and hedging activities
and is effective for all fiscal quarters for fiscal years beginning after
June 15, 1999.
Bancorp does not expect either pronouncement to materially impact the
financial condition or results of operations of Bancorp.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Columbia Bancorp has continued to experience record earnings and strong
asset growth during the first six months of 1998. The success of Columbia
Mortgage Group, a real estate lending division of Bancorp's subsidiary, Columbia
River Bank, is now being realized and contributes to achieving Bancorp's mission
of being a high performing banking corporation providing superior financial
services to the communities it serves.
Columbia Bancorp reported net income of $2,219,317, or $.62 per diluted
share for the six months ended June 30, 1998. This represented a 26% increase in
net income, as compared to $1,762,094, or $.51 per diluted share, for the six
months ended June 30, 1997. Net income of $1,213,440, or $.34 per diluted share
for the quarter ended June 30, 1998 represented a 16% increase in net income as
compared to $1,049,692, or $.30 per diluted share for the quarter ended June 30,
1997. The increased earnings during the quarter ended June 30, 1998 reflected
both the expansion of Bancorp's interest-earning assets and increased net
interest income and noninterest income.
The net income added to shareholders' equity during the first six months of
1998 was offset, in part, by dividends declared and paid of $693,742. A first
quarter dividend of $.10 per share was paid May 1 to shareholders of record
April 15. On June 29 the Bancorp board of directors declared a second-quarter
dividend of $.10 per share payable August 1 to shareholders of record July 15.
With the payment of the declared dividend, approximately 31% of earnings will
have been returned to shareholders, the remainder being retained to fund the
continued strong growth of Bancorp.
MATERIAL CHANGES IN FINANCIAL CONDITION
Changes in the balance sheet for the six months ended June 30, 1998 include
an increase in total assets, primarily in loans and loans held-for-sale. Federal
funds sold and other assets also increased. Funds were provided for these
changes primarily by an increase in total deposits and notes payable, and a
reduction in investment securities.
At June 30, 1998, total assets increased 9.2%, or approximately $21.3
million, over total assets at December 31, 1997. Major components of the change
in total assets were:
- $17.8 million increase in loans
- $3.1 million increase in cash and cash equivalents
- $1.5 million decrease in investment securities
The increase in loans is reflected in increases in all loan categories,
except consumer loans, and is indicative of the continuing good local economy.
It is also attributable to the efforts of experienced loan professionals
capitalizing on borrowers' desire for local service and local decision making
abilities.
Bancorp experienced an increase in deposits of approximately $16.9 million
during the first six months of 1998, specifically as follows:
- Interest bearing demand deposits increased $1.1 million
- Non-interest bearing deposits increased $2.5 million
- Savings deposits increased $3.2 million
- Time certificate deposits and IRA's increased $10.0 million
Management believes deposit increases are due to continuing marketing
efforts and helped by continued customer dissatisfaction with merger and
consolidation activities among competitors.
Short-term borrowings from the Federal Home Loan Bank of Seattle were
utilized to fund the strong growth in loan demand and increased $2.7 million as
compared to end of year borrowings.
All other changes experienced in asset and liability categories during the
first six months of 1998 were comparatively modest.
9
<PAGE> 10
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Total interest income increased $1,345,598 for the six months ended June
30, 1998, and $670,310 for the quarter ended June 30, 1998, as compared to the
same periods in 1997. This increase is primarily due to the increase in loans
and investment securities held in 1998 as compared to 1997.
Total interest expense also increased $386,312 for the six months ended
June 30, 1998, and $238,310 for the quarter ended June 30, 1998, as compared to
the same periods in 1997. This increase is primarily due to the increase in
interest bearing deposits held during 1998 as compared to 1997.
Bancorp's net interest income increased by $959,286 for the six months
ended June 30, 1998, as compared to the six months ended June 30, 1997. Diluted
net income per common share increased to $.62 for the first six months of 1998
from $.51 for the first six months of 1997.
Noninterest income increased approximately $1,040,000 for the six months
ended June 30, 1998 as compared to the same period in 1997. This increase is
primarily attributable to increases in income generated by service charges and
fees on deposit accounts, and income generated by the Bank's mortgage group.
Noninterest expense increased approximately $1,023,000 for the six months
ended June 30, 1998 as compared to the comparable 1997 period. The increase for
the six month period was primarily attributable to increases in salaries and
employee benefits and other expenses. The formation and staffing of the mortgage
group, and commitment and investment in technology and new products were primary
forces in the increased expense in these categories.
Bancorp's "Year 2000" efforts (the enterprise-wide program to prepare
Bancorp's computer systems and applications for the year 2000) are within
required timelines and proceeding according to internal plans. Management has
placed a high priority on this project. Completed and ongoing efforts include
community seminars on the subject, education of customers and the assessment and
testing of internal systems.
LOAN LOSS PROVISION
During the six months ended June 30, 1998, Bancorp charged a $450,000 loan
loss provision to operations, as compared to $250,000 charged during the same
period in 1997. Loans charged off, net of loan recoveries, was $422,765 during
the six months ended June 30, 1998, as compared to net charged off loans of
$73,743 for the like period in 1997.
Management believes that the reserve for loan losses is adequate for
potential loan losses, based on management's assessment of various factors,
including present delinquent and nonperforming loans, past history of industry
loan loss experience, and present and anticipated future economic trends
impacting the areas and customers served by Bancorp.
LIQUIDITY AND CAPITAL RESOURCES
Bancorp's subsidiary, Columbia River, has adopted policies to maintain a
relatively liquid position to enable it to respond to changes in the financial
environment. Generally, the Bank's major sources of liquidity is customer
deposits, sales and maturities of investment securities, the use of federal
funds markets and net cash provided by operating activities. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
unscheduled loan prepayments, which are influenced by general interest rate
levels, interest rates available on other investments, competition, economic
conditions and other factors, are not.
The analysis of liquidity also includes a review of the changes that appear
in the consolidated statement of cash flows for the first six months of 1998.
The statement of cash flows includes operating, investing and financing
categories. Operating activities include net income of $2,219,317, which is
adjusted for non-cash items and increases
10
<PAGE> 11
or decreases in cash due to changes in certain assets and liabilities. Investing
activities consist primarily of both proceeds from and purchases of securities,
and the impact of the net growth in loans. Financing activities present the cash
flows associated with deposit accounts, and reflect the dividend paid to
shareholders.
The Federal Reserve Board ("FRB") and Federal Deposit Insurance Corporation
("FDIC") have established minimum requirements for capital adequacy for bank
holding companies and member banks. The requirements address both risk-based
capital and leveraged capital. The regulatory agencies may establish higher
minimum requirements if, for example, a corporation has previously received
special attention or has a high susceptibility to interest rate risk. The
following reflects Bancorp's various capital ratios at June 30, 1998, as
compared regulatory minimums.
<TABLE>
<CAPTION>
At June 30, 1998 Regulatory Minimum
---------------- ------------------
<S> <C> <C>
Tier-one capital 13.26% 4%
Total risk-based capital 14.14% 8%
Leverage ratio 10.50% 3%
</TABLE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has not been a material change since the end of the latest fiscal
year in the market risks faced by Columbia Bancorp. Please refer to the
discussion of quantitative and qualitative disclosures in the Columbia Bancorp
form 10-KSB for the latest fiscal year.
FORWARD LOOKING INFORMATION
Forward-looking statements with respect to the financial condition, results
of operations and the business of Bancorp are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
set forth in such statements. These include, without limitation: Bancorp's
dependence on the timely development, introduction and customer acceptance of
new products; the impact of competition on revenues and margins; and other risks
and uncertainties, including statements relating to the year 2000, as may be
detailed from time to time in Bancorp's public announcements and filings with
the SEC. Forward-looking statements can be identified by the use of
forward-looking terminology, such as "may", "will", "should", "expect",
"anticipate", "estimate", "continue", "plans", "intends", or other similar
terminology. Bancorp does not intend to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
the Report, other than in its periodic filings with the SEC, or to reflect the
occurrence of unanticipated events.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of Columbia Bancorp was held April 23,
1998. At the meeting, the only item put to a vote of the shareholders was the
election of five directors of Bancorp. All directors nominated were elected. The
following shows results of the voting including term to be served for each
director.
<TABLE>
<CAPTION>
For Term Ended Votes For Votes Against Abstain
-------------- --------- ------------- -------
<S> <C> <C> <C> <C>
Ted M. Freeman 1999 1,699,713 47,598 23,539
Charles F. Beardsley 2001 1,730,040 17,271 23,539
William A. Booth 2001 1,701,463 45,848 23,539
Terry L. Cochran 2001 1,730,226 17,085 23,539
James B. Roberson 2001 1,745,528 1,783 23,539
</TABLE>
Directors continuing in office include Robert L.R. Bailey, Dennis Carver,
Jane F. Lee, Steve Martin, Jean McKinney, Greg Walden, and Donald T. Mitchell.
11
<PAGE> 12
ITEM 5. OTHER INFORMATION
Valley Community Bancorp Acquisition
On July 30, 1998, Columbia Bancorp announced an agreement in principle to
acquire 100% of the issued and outstanding shares of the common stock of Valley
Community Bancorp (VCB), the holding company of Valley Community Bank. The
parties executed a definitive agreement effective August 3, 1998. Valley
Community Bank is a community bank headquartered in McMinnville, Oregon, with
total assets of approximately $40 million as of July 31, 1998. Valley Community
Bank has one physical business facility located at 723 North Banker Street in
McMinnville.
The acquisition price of $15,101,542.50, or $16.30 per share of VCB common
stock, will be accounted for as a purchase transaction. The purchase price was
agreed to following negotiations between the parties and after the consideration
by Columbia Bancorp of a number of factors, including VCB's assets, deposit base
and future growth prospects, Columbia Bancorp's strategic plan, and the receipt
of a fairness opinion commissioned by and delivered to Columbia Bancorp by an
independent appraiser. Funding for the proposed acquisition is available through
Columbia Bancorp's current assets and available or potential credit lines.
The acquisition is subject to the approval of the holders of two-thirds of
the issued and outstanding shares of VCB's common stock, and is also subject to
regulatory approval and various other conditions to closing. On the effective
date of the acquisition VCB will become a wholly-owned subsidiary of Columbia
Bancorp, and will continue to operate Valley Community Bank as a community bank.
The parties hope to close the transaction no later than January 1, 1999,
although the effective date may be extended beyond that date subject to certain
conditions, including the timing of the receipt of final regulatory approval.
Financial statements and pro-forma information relating to the proposed VCB
acquisition that may be required to be filed under the Securities Exchange Act
of 1934 or any applicable regulation shall be filed by an amendment to this Form
10-Q. Any such amendment shall be filed no later than 60 days from the date of
filing of this Form 10-Q.
Additional information concerning this transaction is contained in a press
release of July 30, 1998, a copy of which is attached hereto as Exhibit 99 and
incorporated herein by reference.
Bend and Hermiston, Oregon - Expansion
Columbia Bancorp's subsidiary bank, Columbia River Bank, plans to establish
its first branch office in Hermiston, Oregon and a second branch office in Bend,
Oregon.
The Hermiston office, a new market for Columbia River, is a natural
extension for the Bank's brand of relationship banking. The Bank plans to
initially operate out of leased facilities with plans for a permanent facility
in the future. Management feels the Bank's agricultural and small business
lending specialties and commitment to exceptional customer service will be well
received in the Hermiston community.
The Bend branch represents the second office for the Bank in the City of
Bend. The Bank has entered into a binding earnest money agreement to purchase
property in West Bend in the upscale Shevlin Business Park, an office park
development. The purchase price for the property is $515,722. Consummation of
the purchase is contingent upon certain conditions including approval of
building plans. Bend is the largest market in which the Bank operates, and
strong growth in the Bank's downtown office and the development of Bend's west
side allow significant opportunities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) (i) Exhibit 27 Article 9 Financial Data Schedule for Form 10-Q
(ii) Exhibit 99 Valley Community Bancorp Acquisition Press Release
(b) No current reports on Form 8-K were filed during the quarter ended June 30,
1998.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLUMBIA BANCORP
Dated: August 7, 1998
----------------------------------
Terry L. Cochran
President & Chief Executive Officer
Dated: August 7, 1998
---------------------------------
Neal T. McLaughlin, EVP, Chief
Financial Officer - Columbia River
Bank; and Chief Financial Officer -
Columbia Bancorp
13
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COLUMBIA
BANCORP'S CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY REPORT ON
FORM 10Q FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 18,551,281
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,230,310
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,132,791
<INVESTMENTS-CARRYING> 17,183,099
<INVESTMENTS-MARKET> 0
<LOANS> 175,327,465
<ALLOWANCE> 1,665,868
<TOTAL-ASSETS> 253,109,786
<DEPOSITS> 218,420,545
<SHORT-TERM> 7,918,511
<LIABILITIES-OTHER> 1,548,218
<LONG-TERM> 300,000
0
0
<COMMON> 5,954,049
<OTHER-SE> 18,968,463
<TOTAL-LIABILITIES-AND-EQUITY> 253,109,786
<INTEREST-LOAN> 8,416,856
<INTEREST-INVEST> 1,282,710
<INTEREST-OTHER> 225,368
<INTEREST-TOTAL> 9,924,934
<INTEREST-DEPOSIT> 3,205,783
<INTEREST-EXPENSE> 3,415,358
<INTEREST-INCOME-NET> 6,509,576
<LOAN-LOSSES> 450,000
<SECURITIES-GAINS> 35,560
<EXPENSE-OTHER> 2,729,076
<INCOME-PRETAX> 3,366,060
<INCOME-PRE-EXTRAORDINARY> 2,219,317
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,219,317
<EPS-PRIMARY> .64
<EPS-DILUTED> .62
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 1,145,000
<LOANS-PAST> 13,000
<LOANS-TROUBLED> 716,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,638,633
<CHARGE-OFFS> 460,822
<RECOVERIES> 38,057
<ALLOWANCE-CLOSE> 1,665,868
<ALLOWANCE-DOMESTIC> 1,665,868
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Information not calculated for interim reports.
</FN>
</TABLE>
<PAGE> 1
COLUMBIA BANCORP
420 E. Third St., Suite 200
The Dalles, OR 97058
Contact: Terry Cochran Contact: Bruce Bryant
President & CEO President & CEO, Valley Community Bank
541-298-6611 503-472-0534
July 29, 1998
FOR THURSDAY, JULY 30TH PUBLICATION
Columbia Bancorp (OTC Bulletin Board, CBBO), The Dalles, Oregon, today
announced an agreement in principle to acquire Valley Community Bancorp and its
subsidiary, Valley Community Bank, McMinnville, Oregon.
Completion of the transaction will be finalized subject to regulatory
and shareholder approvals and various other conditions of closing. Under the
terms of the agreement, Columbia Bancorp will pay cash of $16.30 for each share
of Valley Community Bancorp common stock, or a total of approximately $15.1
million.
Mr. Delford M. Smith, majority shareholder of Valley Community Bancorp,
states "the sale will benefit the community in several ways." First of all, Mr.
Smith plans to donate a substantial portion of the proceeds he will receive from
the transaction towards funding the Captain Michael King Smith Evergreen
Aviation Educational Center in McMinnville. The Center will ultimately house the
Spruce Goose and several other historical aircraft as well as serve as a
teaching resource center. Another benefit will be the broader array of financial
services
(over)
<PAGE> 2
Columbia Bancorp Acquisition - Page 2
that will be offered by Valley Community Bank. Mr. Smith states "I am
particularly pleased that the sale of the banking organization will be to an
Oregon based community banking organization that shares the same strong desire
to provide a high level of personal service to the local communities served."
Bruce Bryant, President of Valley Community Bank since 1987, will
continue in this role. Bryant agrees with Mr. Smith that the sale of the bank
will be a benefit to the customers, the employees, the community and the
shareholders. The bank will continue to operate as Valley Community Bank with a
local board of directors and the same employees. Existing services such as
residential mortgage lending and personal investment services will be expanded
in the near future and additional services will be added. Also, as the bank
expands its' presence in Yamhill County, additional employees will also be
added.
Columbia Bancorp is the holding company for Columbia River Bank, which
is a successful community bank with eight branches doing business as Juniper
Banking Company in Central Oregon, Klickitat Valley Bank in South Central
Washington and Columbia River Bank in North Central Oregon, a Mortgage Group,
and Bankcard Center. Also investments are offered through PrimeVest Financial
Services. Columbia River Bank and Valley Community Bank have worked together for
several years and presently both hold ownership interests in Datatech of Oregon,
a bank data processing company. Columbia Bancorp has
(over)
<PAGE> 3
Columbia Bancorp Acquisition - Page 3
approximately 1200 shareholders located primarily in the areas the bank serves
with no shareholder owning more than 10% of outstanding stock.
Through the first six months of the year, Columbia Bancorp reported net
income of $2,219,317 or $.62 per diluted share, a gain of 25.9% from $1,762,094
or $.51 per diluted share for the same period of 1997. In the same period,
Valley Community Bancorp reported net income of $516,315, or $.56 per diluted
share, a gain of 18.2% from $436,958, or $.47 per diluted share for the same
period of 1997.
Both organizations rank among the top performing bank holding companies
in Oregon, based on return on equity, with Columbia Bancorp at 20.1% and Valley
Community Bancorp at 21.1% in the first half of 1998. Columbia Bancorp's total
assets were $253 million and Valley Community Bancorp had total assets of $37
million, as of June 30, 1998.
"At Columbia we are pleased to have an opportunity to be part of this
expanding market. We are looking forward to leveraging Valley Community Bank's
solid performance through enhancement of Mortgage and Small Business lending,"
stated Terry Cochran, President and CEO of Columbia Bancorp. "Our mission
remains unchanged: to provide increasing shareholder value by offering superior
financial services in the communities we serve."
# # #
