<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, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13 IR 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)
93-1193156
Oregon (I.R.S. Employer
(State of incorporation) Identification No.)
420 East Third Street, Suite 200
The Dalles, Oregon 97058
(Address of principal executive offices)
Issuer's telephone number: (541) 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 $20,624,243
The aggregate market vale 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 February 26, 1998 was $61,356,289.
The number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: 2,307,216 shares of no par value
common stock on February 26, 1998.
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, 1997. Part III is
incorporated by reference to the issuer's definitive proxy statement for the
annual meeting of shareholders to be held on April 23, 1998.
Transitional Small Business Disclosure Format (Check one): Yes ; No X
--- ---
<PAGE> 2
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 - 26
Item 2. Description of Property 26 - 28
Item 3. Legal Proceedings 28
Item 4. Submission of Matters to a Vote of Security Holders 28
PART II
(Portions of 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 29
Item 6. Management's Discussion and Analysis 29 - 33
Item 7. Financial Statements 33
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 34
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 23, 1998)
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act 34
Item 10. Executive Compensation 34
Item 11. Security Ownership of Certain Beneficial Owners and
Management 34
Item 12. Certain Relationships and Related Transactions 34
Item 13. Exhibits and Reports on Form 8-K 35 - 36
SIGNATURES 36 - 37
</TABLE>
2
<PAGE> 3
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
(the Bank).
Bancorp was incorporated on October 3, 1995 and became the holding
company of the Bank through the merger of a "phantom bank" subsidiary
established by Bancorp with the Bank. As a result of the merger, Bancorp
acquired 100% of the common stock of the Bank, and the shareholders of the Bank
became shareholders of Bancorp under a one-for-one exchange of shares.
Effective June 13, 1996, Bancorp acquired Klickitat Valley Bank
(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. On March 1, 1997,
Klickitat was merged with and into the Bank, resulting in Bancorp having only
one banking subsidiary.
As of February 26, 1998, Bancorp had 1,234 shareholders of record, and
2,307,216 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 has been restated to give retroactive effect to various
stock splits and stock dividends declared in years prior to 1997.
COLUMBIA RIVER BANKING COMPANY. The Bank is an independent, full-service
state-chartered community bank with headquarters in The Dalles, Oregon.
The Bank 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, the Bank merged with and into Juniper Banking Company
(JBC), an Oregon state-chartered bank. The Bank was the surviving entity in the
merger. Effective March 1, 1997, the Bank merged with Klickitat, a Washington
state-chartered bank with headquarters in Goldendale, Washington. The Bank was
the surviving entity in the merger.
The Bank has seven offices in Oregon and two offices in Washington. 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,
the Bank does business under the assumed business name "Juniper Banking
Company." In the two Washington locations of Goldendale and White Salmon, it
does business under the "Klickitat Valley Bank" assumed business name. The
Bank's nine offices serve the financial needs of businesses and individuals in
Klickitat County, Washington and four Oregon 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.
3
<PAGE> 4
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
The Bank provides a broad range of depository and lending services to
commercial, industrial and agricultural enterprises, governmental entities, and
individuals. It 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. The Bank does not provide trust services.
The Bank's commercial loans generally consist of secured credit lines,
typically renewed annually, used for the operations and working capital
requirements of its business borrowers.
The Bank's agricultural loans generally consist of operating lines used
to finance farm operations through the growing season. Borrowers include wheat,
mint, seed, apple, cherry and pear growers 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.
The Bank makes 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.
The Bank's consumer loans generally consist of automobile loans,
personal credit lines, and borrowings under the Bank's VISA card program.
Columbia Mortgage Group (CMG) is a department of the Bank and was formed
in late 1997 to originate conventional and federally insured residential
mortgage loans for sale in the secondary market. CMG originated $8 million of
mortgage loans in approximately three months of operations. The mortgage loans
generally are sold without recourse and with no servicing rights retained. CMG
maintains its primary office on the second floor of the Bank's Bend Office of
Juniper Banking Company.
The quality of personal financial service provided customers and
dedication to customer service have enabled the Bank to maintain a stable and
relatively low cost retail deposit base, while generating a substantial volume
of loans. Total deposits increased from $178.7 million at December 31, 1996, to
$201.6 million at December 31, 1997. Net loans increased from $118.2 million at
December 31, 1996, to $155.2 million at December 31, 1997.
The Federal Deposit Insurance Corporation (the FDIC) insures deposit
accounts at the Bank to statutory limits. The Bank is not a member of the
Federal Reserve System. It is a merchant depository for MasterCard and VISA. The
Bank, through its Columbia River Bank Financial Services department, markets
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.
4
<PAGE> 5
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
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 1997, 1996 and 1995, Bancorp's average interest-earning assets
were $199.3 million, $174.9 million and $157.7 million, respectively. During
these same years, Bancorp's net interest margin was 6.15%, 5.74% and 5.67%,
respectively.
5
<PAGE> 6
Average balances and average rates earned and paid. The following table sets
forth for 1997, 1996, and 1995 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,
-------------------------------------------------------------------------
1997 1996
---------------------------------- --------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE(1) EXPENSE RATES BALANCE(1) EXPENSE RATES
----------- ----------- -------- ------------ ----------- ------------
(In thousands)
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Interest-earning due from banks $2,322 $127 5.45% $2,129 $96 4.51%
Taxable securities 36,826 2,296 6.24 34,781 2,074 5.96
Nontaxable securities (2) 15,112 1,114 7.37 14,964 1,168 7.80
Federal funds sold 4,114 221 5.38 11,182 589 5.27
Loans (3) 140,891 14,764 10.48 111,841 11,855 10.60
-------- ------- ----- ------- ------ -----
Total interest-earning
assets/interest
Income 199,265 18,522 9.30 174,897 15,782 9.02
Cash and due from banks 14,091 7,976
Premises and equipment, net 5,096 4,092
Reserve for loan losses (1,315) (1,153)
Other assets 2,768 2,249
-------- --------
Total assets $219,905 $188,061
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings and interest-bearing demand
deposits $102,005 3,313 3.25 $90,062 2,967 3.29
Time deposits 51,164 2,772 5.42 49,286 2,717 5.51
Borrowed funds 3,236 184 5.68 1,073 61 5.66
-------- ------- ---- ------- ------ -----
Total interest-bearing
liabilities/interest
Expense 156,405 6,269 4.01 140,421 5,745 4.09
Noninterest-bearing deposits 38,299 28,328
Other liabilities 5,326 1,872
-------- -------
Total liabilities 200,030 170,621
Shareholders' equity 19,875 17,440
-------- ------- ------- ------
Total liabilities and
shareholders' equity $219,905 $188,061
======== ========
Net interest income $12,253 $10,037
======= =======
Net interest spread 5.29% 4.93%
==== ====
Interest expense to earning assets 3.15% 3.29%
==== ====
Net interest margin 6.15% 5.74%
==== ====
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995
-------------------------------------
INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR
BALANCE(1) EXPENSE RATES
------------ ----------- --------
(In thousands)
<S> <C> <C> <C>
ASSETS
Interest-earning due from banks $ 1,258 $ 48 3.80%
Taxable securities 39,571 2,153 5.47
Nontaxable securities (2) 13,120 998 7.61
Federal funds sold 6,666 343 5.14
Loans (3) 97,087 10,612 10.93
------ ------ -----
Total interest-earning
assets/interest
Income 157,702 14,154 8.98
Cash and due from banks 7,420
Premises and equipment, net 3,714
Reserve for loan losses (1,026)
Other assets 2,542
--------
Total assets $170,352
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings and interest-bearing demand
deposits $ 80,078 2,688 3.36
Time deposits 44,036 2,369 5.38
Borrowed funds 2,632 159 6.05
-------- ------ -----
Total interest-bearing
liabilities/interest
Expense 126,746 5,216 4.12
Noninterest-bearing deposits 24,398
Other liabilities 3,559
-------- ------
Total liabilities 154,703
Shareholders' equity 15,649
--------
Total liabilities and
shareholders' equity $170,352
========
Net interest income $8,938
======
Net interest spread 4.86%
====
Interest expense to earning assets 3.31%
====
Net interest margin 5.67%
====
</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
<PAGE> 7
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Analyses 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>
1997 VS. 1996 1996 VS. 1995
CHANGE IN NET INTEREST CHANGE IN NET INTEREST
INCOME DUE TO INCOME DUE TO
------------------------------- -----------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ----- ------ ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Balances due from banks $ 8,758 $ 21,682 $ 30,440 $ 33,126 $ 15,085 $ 48,211
Securities - taxable 121,939 100,197 222,136 (260,633) 181,566 (79,067)
Securities - tax-exempt 11,532 (64,878) (53,346) 140,411 28,594 169,005
Federal funds sold (372,468) 4,371 (368,097) 232,195 14,300 246,495
Loans 3,079,137 (169,589) 2,909,548 1,612,731 (369,953) 1,242,778
---------- -------- ---------- ---------- ---------- ----------
Total interest income 2,848,898 (108,217) 2,740,681 1,757,830 (130,408) 1,627,422
---------- -------- ---------- ---------- ---------- ----------
Interest expense:
Savings and interest-
bearing demand deposits 393,487 (47,228) 346,259 335,148 (55,982) 279,166
Time deposits 103,538 (49,032) 54,506 282,416 66,188 348,604
Borrowed funds 122,311 609 122,920 (94,244) (4,187) (98,431)
---------- -------- ---------- ---------- ---------- ----------
Total interest expense 619,336 (95,651) 523,685 523,320 6,019 529,339
---------- -------- ---------- ---------- ---------- ----------
Net interest income $2,229,562 $(12,566) $2,216,996 $1,234,510 $(136,427) $1,098,083
========== ======== ========== ========== ========= ==========
</TABLE>
II. INVESTMENT ACTIVITIES
Management's objectives for 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, and are generally
limited to investment grade securities. The Bank does not actively trade
securities and, as of December 31, 1997 and 1996, approximately 34% and 80%,
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
<PAGE> 8
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
The following table provides the carrying values of the Bank'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, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1997 1996 1995
---------- ---------- -------
(In thousands)
<S> <C> <C> <C>
U.S. Treasury securities $ 3,213 $ 4,121 $ 7,340
U.S. government agencies 27,100 28,431 21,169
State and political subdivisions 16,572 15,351 14,728
Other securities 853 2,609 5,595
------ ---- ----
Total debt securities 47,738 50,512 48,832
Equity securities 1,066 972 622
------ ---- ----
Total investment securities $48,804 $51,484 $49,454
====== ====== ======
</TABLE>
The following table provides the amortized cost, market value,
maturities and weighted average yields of the Bank's investment securities at
December 31, 1997:
<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 $1,599 $1,599 5.47%
Due after one but within five years 1,611 1,614 5.72
------ ------ ----
Total U.S. Treasury securities 3,210 3,213 5.60
----- ----- ----
U.S. government agencies:
Due within one year 5,052 5,058 5.75
Due after one but within five years 17,333 17,321 6.35
Due after five but within ten years 3,701 3,727 6.60
Due after ten years 1,000 994 7.51
------ ---- ----
Total U.S. government agencies 27,086 27,100 6.31
------ ------ ----
</TABLE>
8
<PAGE> 9
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 $ 2,165 $ 2,187 6.00%
Due after one but within five years 6,887 7,051 7.29
Due after one but within five years 3,005 3,080 6.72
Due after ten years 4,515 4,610 7.35
------ ------ ----
Total states and political sub-
Divisions 16,572 16,928 7.04
------ ------ ----
Corporate securities:
Due within one year 250 250 5.98
Due after one but within five years 603 603 6.45
---- ---- ----
Total corporate securities 853 853 6.31%
---- ---- ====
Total debt securities 47,723 48,094 6.90%
====
Equity securities 1,066 1,066
------ ------
Total securities $48,789 $49,160
====== ======
</TABLE>
- -----------
(1) Weighted average yield on states and political subdivisions has been
computed on a 34% tax-equivalent basis.
III. LENDING ACTIVITIES
The Bank's lending is spread among commercial, agricultural, real
estate, and consumer loans. The interest rates charged for the various loans
made by the Bank 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 Bank sells loan participations to accommodate borrowers whose
financing needs exceed the Bank's lending limits, and to diversify risk. The
Bank occasionally purchases participations in loans from other community banks.
9
<PAGE> 10
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Most of the Bank's loans are made to customers in the trade areas served
by 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 the Bank's
borrowers and the value of collateral.
Loan portfolio composition. The following table sets forth information
with respect to the composition of the Bank's loan portfolio by type of loan at
December 31 for each of the last five years:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial $28,464 $26,485 $20,540 $16,475 $16,985
Agricultural 20,511 15,592 14,796 11,554 10,175
Secured by real estate
Commercial property 29,319 19,255 18,019 16,180 11,934
Farmland 6,212 5,610 4,371 3,617 3,406
Construction 13,504 4,613 2,873 2,998 3,034
Residential 40,200 31,489 29,216 26,389 22,938
Home equity lines 2,239 1,555 1,585 1,046 977
------ ------ ------ ------ ----
Total real estate 91,474 62,522 56,064 50,230 42,289
Consumer 15,665 13,776 13,325 12,729 12,530
Other 1,356 1,148 737 295 413
------ ------ ---- ---- ----
Total loans 157,470 119,523 105,462 91,283 82,392
Less deferred loan fees (613) (300) (212) (258) -
Less reserve for loan losses (1,639) (995) (1,072) (955) (992)
------- ----- ------- ----- -----
Loans receivable, net $155,218 $118,228 $104,178 $90,070 $81,400
======= ======= ======= ====== ======
</TABLE>
Loan maturities and interest rate sensitivity. The following table
presents the aggregate maturities of loans in each major category of the Bank's
loan portfolio at December 31, 1997. Actual maturities may differ from the
contractual maturities shown below as a result of renewals and prepayments.
10
<PAGE> 11
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
<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 $19,312 $ 6,098 $ 3,054 $28,464
Agricultural 19,407 935 169 20,511
Secured by real estate
Commercial property 4,063 10,257 14,999 29,319
Farmland 1,549 2,709 1,954 6,212
Construction 9,957 2,769 778 13,504
Residential 8,774 3,586 27,840 40,200
Home equity lines 2,086 124 29 2,239
------ ------ ------- -------
Total real estate 26,429 19,445 45,600 91,474
Consumer 6,682 7,131 1,852 15,665
Other 937 86 333 1,356
------ ------ ------- -------
Total loans by maturity $72,767 $33,695 $51,008 $157,470
====== ====== ====== =======
</TABLE>
At December 31, 1997, $80.7 million (approximately 51% of the Bank's
loan portfolio) had fixed interest rates and $76.8 million (approximately 49%)
had variable interest rates. Of the Bank's $84.7 million in loans that mature
after one year, a total of $69.3 million (82%) are fixed-rate loans, and a total
of $15.4 million (18%) are variable-rate loans.
Commercial loans. As of December 31, 1997, commercial loans that are not
collateralized by real estate represent 18% 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, 1997, approximately 60% of the Bank's commercial loans
had floating or adjustable interest rates; the remaining 40% 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, 1997, were $28.5 million, compared
to $26.5 million at December 31, 1996. Management believes the increase in 1997
was primarily a result of the Bank's ability to respond quickly to customers'
needs. At December 31, 1997, nonaccrual loans in this category totaled $342
thousand; there were no restructured loans.
Agricultural. Agricultural loans represent 13% of the Bank's loan
portfolio at December 31, 1997. 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.
At December 31, 1997, approximately 93% of the Bank's agricultural loans
had floating or adjustable rates; the remaining 7% 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
11
<PAGE> 12
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
two to five years. Agricultural loans outstanding on December 31, 1997, were
$20.5 million compared to $15.6 million on December 31, 1996. The increase was
primarily a result of the Bank's marketing efforts and value-added expertise of
the Bank's agricultural representatives and experienced loan officers. At
December 31, 1997, nonaccrual loans totaled $406 thousand in this category;
there were no restructured loans.
Real estate mortgage loans. Real estate mortgage loans represent the
Bank's largest category of loans. Of the $91.5 million of real estate mortgage
loans outstanding at December 31, 1997, $29.3 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. Real estate mortgage loans outstanding increased to
$91.5 million at December 31, 1997, from $62.5 million at December 31, 1996. The
increase was primarily a result of a renewed emphasis on commercial and
residential real estate. The formation of CMG and the efforts of the Bend branch
office have contributed to the growth in all real estate categories. At December
31, 1997, nonaccrual loans totaled $170 thousand in this category; there were no
restructured loans.
At December 31, 1997, $55.1 million (or approximately 60%) of the Bank's
real estate mortgage loans had fixed interest rates and $36.4 million (or
approximately 40%) 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.
Columbia Mortgage Group (CMG) is a department of the Bank formed in late
1997 to originate conventional and federally insured residential mortgage loans
for sale in the secondary market. CMG originated $8 million of mortgage loans in
approximately three months of operations. The mortgage loans generally are sold
without recourse and with no servicing rights retained. CMG maintains its
primary office on the second floor of the Bank's Bend Office of Juniper Banking
Company.
12
<PAGE> 13
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Before the formation of CMG, the Bank was active in making residential
real estate loans on behalf of other lenders. Most of the Bank's residential
lending on behalf of other lenders was made under an arrangement with PHH US
Mortgage Corporation ("PHH") of Mount Laurel, New Jersey, pursuant to which the
Bank processed loan applications and related paperwork and then submitted the
documentation to PHH. PHH then made the lending decision, funded and serviced
the loan. For the year ended December 31, 1997, the Bank originated and sold 104
residential loans, receiving $46,327 in fee income.
Real estate construction loans. The Bank makes construction loans to
individuals and contractors to construct multi-family and 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. It is the
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 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, 1997, 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 $15.7 million at December 31, 1997, compared to
$13.8 million at December 31, 1996. This increase was primarily due to economic
growth and an expanding customer base. At December 31, 1997, there were $123
thousand in nonaccrual loans in this category; there were no restructured loans.
Commitments and contingent liabilities. In the ordinary course of
business, the Bank enters into various types of transactions that include
commitments to extend credit and standby letters of credit as described in Note
10 to the Consolidated Financial Statements of Bancorp. The Bank 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.
13
<PAGE> 14
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Nonperforming assets. The following table sets forth information with
respect to nonperforming assets as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $1,041 $ 52 $ 308 $ 68 $ 51
Accruing loans past due 90 days or more 414 30 60 118 20
Restructured loans - - - - -
--- --- --- --- ----
Total nonperforming loans 1,455 82 368 186 71
Other real estate owned - - - 5 457
--- --- --- -- ----
Total nonperforming assets $1,455 $ 82 $ 368 $ 191 $ 528
===== === ==== ==== ====
Reserve for loan losses $1,639 $995 $1,072 $955 $992
Ratio of total nonperforming assets to
total assets .63% .04% .21% .12% .33%
Ratio of total nonperforming loans to
total loans .94% .07% .35% .20% .09%
Ratio of reserve for loan losses to
total non-performing loans 113% 1,213% 291% 513% 1,397%
</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 Bank management, the future collectibility of principal and interest is in
serious doubt or is expected to be substantially delayed. Typically, the Bank
will classify loans 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 1997 and 1996 on nonaccrual loans was $58,533 and
$10,991, respectively.
All nonaccrual loans are considered to be impaired loans. The Bank
adopted the Financial Accounting Standards Board's Statements No. 114
"Accounting by Creditors for Impairment of a Loan" as amended by 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
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.
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
14
<PAGE> 15
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
restructured loans is accrued at the restructured rate when it is anticipated
that no loss of original principal will occur. The Bank had no restructured
loans at December 31, 1997 or 1996.
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, 1997 or 1996.
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 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 the Bank 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 Bank's 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. Additionally, the Bank has initiated a
credit 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 by the Loan Committee 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 the Bank to increase 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.
15
<PAGE> 16
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The following table sets forth information regarding changes in the
Bank's reserve for loan losses for each of the last five years:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans at year-end $ 157,470 $ 119,523 $ 105,462 $ 91,283 $ 82,392
========= ========= ========= ========= =========
Reserve for loan losses,
beginning of year $ 995 $ 1,072 $ 955 $ 992 $ 843
Charge-offs:
Real estate loans - - - - -
Agricultural - (317) (14) (50) -
Installment loans (19) (21) (16) (19) (13)
Credit card and related plans (14) (9) (55) (7) -
Commercial and other (7) (30) (34) (193) (27)
--------- --------- --------- --------- ---------
Total charge-offs (40) (377) (119) (269) (40)
--------- --------- --------- --------- ---------
Recoveries:
Real estate loans - - - - -
Agricultural 80 7 7 1 2
Installment loans 1 20 31 4 11
Credit card and related plans 1 - 3 5 -
Commercial and other 21 26 107 19 18
--------- --------- --------- --------- ---------
Total recoveries 103 53 148 29 31
--------- --------- --------- --------- ---------
Net loans recovered (charged-off) 63 (324) 29 (240) (9)
Provision for loan losses 581 247 88 203 158
--------- --------- --------- --------- ---------
Reserve for loan losses at year-end $ 1,639 $ 995 $ 1,072 $ 955 $ 992
========= ========= ========= ========= =========
Ratio of net recoveries (charge-off) to
average loans outstanding during
the period .05% (.29)% .03% (.27)% (.01)%
Ratio of reserve for loan losses to
loans at year-end 1.04% .83% 1.02% 1.05% 1.20%
</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), the Bank 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
16
<PAGE> 17
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
loans. The approximate anticipated amount of charge-offs during 1998 by category
is as follows (in thousands):
<TABLE>
<S> <C>
Real estate loans $ 0
Agricultural loans 75
Installment loans 25
Credit card and related plans 25
Commercial and other 125
----
Total $250
====
</TABLE>
V. DEPOSITS
At December 31, 1997, the Bank had approximately 23,700 depositors. The
Bank offers various types of deposit accounts, 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 funds must remain on deposit and
the interest rate. Unlike some other financial institutions, the Bank has never
relied on brokered deposits. The Bank 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, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
AVERAGE AVERAGE AVERAGE
----------------- ------------------ ----------------
BALANCE RATE BALANCE RATE BALANCE RATE
-------- ------ -------- ------ -------- ------
(In thousands)
<S> <C> <C> <C>
Noninterest-bearing demand $ 38,299 N/A $ 28,328 N/A $ 24,398 N/A
Interest-bearing demand 29,021 1.92% 24,850 1.95% 21,341 3.04%
Money market accounts 50,113 4.17 42,006 4.17 35,822 3.63
Other savings 30,818 3.80 26,986 3.12 26,403 3.58
Time deposits 43,217 5.25 45,506 5.50 40,547 5.31
-------- ---- -------- ---- -------- ----
Total $191,468 3.97% $167,676 4.01% $148,511 4.06%
======== ==== ======== ==== ======== ====
</TABLE>
17
<PAGE> 18
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
The following table shows the dollar amount and maturities of CDs that
had balances of $100,000 or more at December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Three months or less $ 5,275 $ 5,373 $ 6,813
Over three months through six months 1,279 4,008 5,012
Over six months through twelve months 1,851 1,636 1,531
Over twelve months 533 1,188 581
------- ------- -------
Total $ 8,938 $12,205 $13,937
======= ======= =======
</TABLE>
VI. RETURN ON EQUITY AND ASSETS
The following table sets forth the Bank's return on assets and return on
equity for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
-------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Net income $ 3,886 $ 2,727 $ 2,489
Average total assets $219,905 $188,061 $170,352
Return on average assets 1.77% 1.45% 1.46%
Net income $ 3,886 $ 2,727 $ 2,489
Average equity $ 19,875 $ 17,440 $ 15,649
Return on average equity 19.55% 15.64% 15.91%
Average total equity $ 19,875 $ 17,440 $ 15,649
Average total assets $219,905 $188,061 $170,352
Average total equity to assets ratio 9.04% 9.27% 9.19%
</TABLE>
VII. SHORT-TERM BORROWINGS
At December 31, 1997, the Bank's short-term borrowings consisted of
advances from the Federal Home Loan Bank of Seattle totaling $4.6 million, and
borrowings of approximately $600 thousand under the U.S. Treasury's Investment
Program. The following table sets forth certain information with respect to the
Federal Home Loan Bank of Seattle borrowings at December 31 for the years 1997,
1996, and 1995:
18
<PAGE> 19
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996 1995
------ ------- -------
(In thousands)
<S> <C> <C> <C>
Amount outstanding at year-end $4,600 $ 600 $1,200
Weighted average interest rate at year-end 5.89% 5.68% 5.42%
Maximum amount outstanding at any month-end
during the year $4,600 $1,200 $3,581
Approximate average amount outstanding during
the year $2,781 $813 $2,341
Approximate average weighted interest rate
during the year 5.80% 5.86% 6.15%
</TABLE>
VIII. OTHER FINANCIAL SERVICES
Columbia River Bank Financial Services is a department of the Bank that
markets stocks, mutual funds, and other investment and insurance products to
customers of the Bank and the public principally through an arrangement with
PrimeVest Financial Services, Inc., a registered securities broker-dealer. In
July 1991, the Bank 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 the
Bank. She works out of the Bank's main office pursuant to an agreement under
which the Bank receives a portion of the commissions generated by her efforts.
She also manages two Investment Consultants, which allows the Bank to provide
services throughout its market area. Most 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 the Bank from these activities was
$230,405, $158,575 and $105,358 for the year ending December 31, 1997, 1996, and
1995, respectively.
IX. COMPETITION
Commercial banking in Oregon and Washington is highly competitive with
respect to both loans and deposits. United States National Bank, and Wells Fargo
dominate banking in Oregon with offices statewide. The Bank competes 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 the Bank.
19
<PAGE> 20
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
The Bank stresses personal service and local decision making and
believes it benefits from its local orientation. The Bank also believes it has
benefited from customer confusion resulting from mergers and acquisitions
involving certain of its competitors. Most of the Bank's competitors are better
capitalized and, therefore, have higher lending capabilities. The larger
competitors also provide certain specialized banking services, such as trust
services and international banking services that the Bank does not provide.
X. EMPLOYEES
At December 31, 1997, the Bank had 133 full-time equivalent employees.
The Bank 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 the
Bank 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,
Neal T. McLaughlin, Chief Financial Officer, and Richard J. Croghan, Secretary.
All three are employed full-time as executive officers of the Bank.
XI. OWNERSHIP OF DATA PROCESSING COMPANY
As of December 31, 1997, the Bank owned 14.3% 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 six 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,
1997, the Bank's interest in Datatech was valued at $31,706.
XII. SUPERVISION AND REGULATION
The banking industry is extensively regulated. Both Bancorp and the Bank
are subject to statutes and regulations under federal and state laws, and are
subject to supervision and regulation by various federal and state agencies. For
example, federal and state enforcement agencies have the authority to define and
monitor unsafe or unsound practices by depository institutions and their holding
companies, and to penalize these entities for violations. Many of the applicable
statutes and regulations are designed to protect constituencies other than
Bancorp shareholders, such as Bank depositors. In addition, these statutes and
regulations add to Bancorp's costs of doing business, and in many cases limit
management's ability to deploy assets and maximize income.
20
<PAGE> 21
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Moreover, the regulatory environment for the banking industry is subject
to continual change. Over the past several years there have been legislative
initiatives that have imposed additional burdens on the industry, as well as
initiatives that have made the banking industry more competitive. The regulatory
environment will likely continue to be in a state of change for the foreseeable
future. Such changes can have a material effect on the business, operations and
prospects of Bancorp and the Bank.
The information that follows is a brief summary of some of the
significant features of the regulatory environment. The summary is qualified in
its entirety by reference to applicable statutory and regulatory provisions, and
by reference to pending proposals to change the legislation and regulations that
apply to or may impact the banking industry.
BANCORP
Applicable law. Bancorp is an Oregon corporation subject to the
provisions of the Oregon Business Corporation Act and 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."
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 bank.
21
<PAGE> 22
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Bancorp is an "affiliate" of the Bank 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 the Bank, 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.
If Bancorp fails to meet capital guidelines, the FRB may institute
appropriate supervisory or enforcement actions. As discussed below, the Bank is
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 Bank, should the Bank
become undercapitalized. In addition, the Oregon Director has the authority to
require Bancorp to contribute additional capital to the Bank if its capital
becomes impaired.
22
<PAGE> 23
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
COLUMBIA RIVER BANKING COMPANY
Regulatory oversight. The Bank is an Oregon state-chartered bank, the
deposits of which are insured by the FDIC. Accordingly, the Bank files financial
and other reports periodically with, and is regularly examined by, both the
Oregon Director and the FDIC. The Bank is not 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 the
Bank, since management believes that the Bank is not presently involved in any
such activities.
Branching and acquisitions. Banks are permitted to conduct business
through branches after application to and approval of the FDIC and the Oregon
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. The Bank currently has nine 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 prior to the effective date of the acquisition and upon receipt of
the approval of the Oregon 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. The Bank has received
satisfactory ratings in its most recent CRA examinations.
Transactions with affiliates. The Bank is 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 Bank, 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.
23
<PAGE> 24
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
Section 23B of the Federal Reserve Act requires that certain
transactions between the Bank and its 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 the Bank provide substantially
all Bancorp's cash flow. Under federal law, prior to the declaration of any
dividend by the 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 allows the Oregon
Director authority to suspend payment of any dividend if it is determined that
the payment would result in the remaining stockholders' equity of the
institution being inadequate for the safe and sound operation of the
institution.
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 Bank.
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.
24
<PAGE> 25
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
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, 1997, the Bancorp's
leverage ratio, Tier 1 capital to risk-weighted assets ratio and total
risk-based capital to risk-weighted assets ratio were 10.6%, 13.7%, and 14.7%,
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 the Bank. 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, an Oregon commercial bank may reduce its paid-in
capital to eliminate or reduce deficits in retained earnings arising from
losses, or in order to redeem shares. Prior approval of the Oregon Director is
required in either case, and may be refused if the Oregon Director determines
that the remaining paid-in capital of the bank would be inadequate for its safe
and sound operation.
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, the
Bank is 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
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 Bank and
Bancorp.
25
<PAGE> 26
ITEM 1. DESCRIPTION OF BUSINESS - (Continued)
The consumer lending activities of the Bank 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. The Bank has 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. 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.
ITEM 2. DESCRIPTION OF PROPERTY
Columbia Bancorp. On February 14, 1996, Bancorp purchased .43 acres of
bare land adjacent to the Bank'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 immediate 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.
26
<PAGE> 27
ITEM 2. DESCRIPTION OF PROPERTY - (Continued)
Columbia River Banking Company. The Bank operates from nine locations
stretching from central Oregon to south-central Washington. The central Oregon
locations consist of one branch each in Redmond, Bend and Madras. In the
mid-Columbia Gorge region of northern Oregon and south-central Washington,
locations include two branches in The Dalles, one branch in Hood River,
Goldendale, White Salmon and Maupin.
The Bank'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. The Bank holds title to the land
and building free and clear.
The 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 the Bank's specifications in
conjunction with the construction of the supermarket. The Bank 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 new Westside branch replaced a previous Westside facility, also
on leased premises, closed by the Bank in 1995.
The 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. The Bank owns the land and building free and
clear.
The Maupin branch is located at Fifth and Deschutes Avenue in Maupin,
Oregon. This facility consists of 675 square feet in a building that contains
other businesses. The Bank rents this space at a monthly payment of $350 on a
month-to-month basis.
The Madras office is located at 624 SW 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. The Bank holds title to
the land and building free and clear.
The 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. The Bank holds title to the land and building free and
clear.
27
<PAGE> 28
ITEM 2. DESCRIPTION OF PROPERTY - (Continued)
The 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 branch occupies approximately 3,055 square feet; Columbia
Mortgage Group occupies approximately 3,000 square feet on the second floor of
the building. An additional 2,251 square feet is vacant and available for lease.
The Goldendale office 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 office 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.
The Bank leases approximately 3,035 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 the Bancorp and the Bank's executive
management as well as the Human Resource and Financial Management departments
and operational staff. The Bank leases this space for $1,820 per month.
Bancorp believes all of the real property facilities owned or leased by
Bancorp and the Bank are in good condition and adequate to meet its current
requirements. No portion of the Bank's 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. The Bank is not a party
to any material legal proceeding. The Bank is from time to time involved in
routine litigation, such as collection matters, incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
28
<PAGE> 29
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The information called for by this item is contained in Columbia
Bancorp's Annual Report to Shareholders for the year ended December 31, 1997,
and is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
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, 1997, 1996 and 1995 included as an Exhibit to this Form
10-KSB.
Financial Highlights. Columbia Bancorp had net income for 1997 of $3.89
million, or $1.67 per diluted share. This represents a 43% increase over the
$2.73 million or $1.19 per diluted share earned in 1996, and a 56% increase as
compared to the $2.49 million or $1.09 earned in 1995. The improved earnings for
1997 compared to 1996 and 1995 primarily reflect increased net interest income
and noninterest income. These were offset, in part, by increased salary and
benefit expenses, an increase in the provision for loan losses and increased
other noninterest expenses. The increased net interest income resulted from
increased earning assets. Increased salary and benefits are a result of the full
year expense of staffing for the full service Bend branch office (opened in late
1996), expenses related to the formation of Columbia Mortgage Group, and normal
increases associated with an expanded employee base.
Selected Financial Data.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Interest income $ 18,144 $ 15,385 $ 13,815
Interest expense 6,269 5,745 5,216
Net interest income 11,293 9,393 8,511
Loan loss provision (581) (246) (88)
Net income 3,886 2,727 2,489
Total assets 231,827 200,302 178,486
Total deposits 201,568 178,744 158,874
Shareholders' equity 21,557 18,475 16,617
Total loans to deposits 77.0% 66.1% 65.6%
Return on average assets 1.77% 1.45% 1.46%
Return on average equity 19.55% 15.64% 15.91%
Average assets to
average equity 9.04% 9.27% 9.19%
</TABLE>
29
<PAGE> 30
ITEM 6. 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-bearing assets and is influence by the level and relative
mix of interest-earning assets and interest-bearing liabilities.
During 1997, 1996 and 1995, the Bank's average interest-earning assets
were $199.3 million, $174.9 million, and $157.7 million, respectively. During
these same years, the Bank's net interest margin was 6.15%, 5.74%, and 5.67%
respectively. Continued strong growth in the volume of total average earning
assets (primarily loans) contributed approximately $2,849,000 to interest income
in 1997 compared to $1,758,000 in 1996. Average yields on interest-earning
assets increased slightly during 1997 while the Bank's cost of funds remained
relatively stable. Net interest income was impacted negatively by $12,566 due to
interest rate changes.
The increase in the Bank's net margin is attributable to the increase in
the volume of earning assets and the growth of noninterest bearing deposits. The
average yield on earning assets increased .28% while cost of funds decreased by
.08%. Average loans increased 26.0% while average noninterest-bearing deposits
increased 35.2%.
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 that is considered adequate in relation to the risk of future
losses inherent in the loan portfolio. Though recoveries outpaced charge-offs in
1997, management more than doubled the provision as compared to 1996 primarily
due to growth of and inherent risk in the loan portfolio. The ratio of the
allowance for loan losses to total loans was 1.04%, .83% and 1.02% on December
31, 1997, 1996, and 1995, respectively. Net recoveries were $103,000, $53,000
and $148,000 in 1997, 1996 and 1995. Net charge-offs of $40,000, $377,000 and
$118,000 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 $2,480,723 in 1997 compared
to $1,799,060 in 1996 and $1,551,837 in 1995. 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 41% in 1997.
Management attributes this to the increase in the numbers 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 38% increase in
overall noninterest income.
30
<PAGE> 31
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS - (Continued)
Noninterest Expense. The Bank's noninterest expenses increased 13% in
1997 as compared to 1996. Increased salary and benefits resulted from the
expense of a full year of staffing the full service Bend branch office (opened
in late 1996), expenses related to the formation of Columbia Mortgage Group, and
normal increases associated with an expanded employee base. Other increases
within the noninterest expense category primarily relate to investments in
technology and data processing and new service delivery channels to ensure the
continued focus on efficient, personalized service. Occupancy expense increased
13%, reflecting not only costs associated with the first full year of operation
of the Bank's Bend branch, but also costs associated with significant investment
upgrading the front line computer systems bank-wide. Data processing expenses
increased 31% and reflect both the growth of the customer and account base of
the Bank as well as the merging of the former Klickitat Valley Bank's data
processing operations into the Bank's systems.
Management has initiated an enterprise-wide program to prepare the
Bank's computer systems and applications for the year 2000. The "Year 2000"
problem is pervasive and complex. At issue is whether computer systems will
properly recognize date-sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate erroneous
data or cause them to fail. Testing and conversion of system applications are
expected to cost approximately $500,000 to $1,000,000 over the next three years.
A significant proportion of these costs are not likely to be incremental costs
to the Bank, but rather will represent the redeployment of existing management
and information technology resources.
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 - to manage its
interest rate risk. 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 interest 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 bank'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 withdrawals 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, 1997
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
31
<PAGE> 32
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS - (Continued)
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.
<TABLE>
<CAPTION>
Less than Longer than
Variable Rate one year one year Total
------------- --------- ----------- --------
ASSETS
<S> <C> <C> <C> <C>
Investments $ 4,358 $ 9,016 $ 40,754 $ 54,128
Loans 51,666 24,787 78,061 154,514
-------- -------- -------- --------
56,024 33,803 118,815 208,642
-------- -------- -------- --------
Cumulative $ 89,827 $208,642
======== ========
LIABILITIES
Core deposits 112,342 27,755 52,849 192,946
Jumbo CD's 0 8,194 635 8,829
Borrowings 664 4,300 300 5,264
-------- -------- -------- --------
113,006 40,249 53,784 207,039
-------- -------- -------- --------
Cumulative $153,255 $207,039
======== ========
Net Cumulative Position $(63,428) $ 1,603
======== ========
</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 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 that Bank has low interest rate risk - that 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 short-term loans.
The Bank's sensitivity to the potential loss of future earnings due to a
hypothetical drop in interest rates is as follows:
<TABLE>
<CAPTION>
Financial Impact
Decline In On Net
Interest Rates Interest Margin
-------------- ----------------
<S> <C>
1% $(326,000)
2% $(652,000)
</TABLE>
32
<PAGE> 33
ITEM 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 securities available for sale and securities held to
maturity and maturing in the next three months. At December 31, 1997, these
liquid assets totaled $51 million or 22% of total assets. Another source of
liquidity is the Bank's ability to borrow from the Federal Home Loan Bank of
Seattle, of which the Bank is a member.
At December 31, 1997, the Bank had outstanding commitments to make loans
of $36 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 aggregrate 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 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 percent and a ratio of
total capital to total risk-weighted assets of 8 percent. The leverage capital
guidelines require that banks maintain Tier 1 capital of no less than 5 percent
of total adjusted assets, except in the case of certain highly rated banks for
which the minimum requirement is 3 percent of total adjusted assets. At December
31, 1997, the Bank's leverage ratio, Tier 1 capital to risk-weighted assets
ratio, and total risk-based capital to risk-weighted assets ratio were 10.6%,
13.7% and 14.7%.
ITEM 7. FINANCIAL STATEMENTS
The information called for by this item is contained in Columbia
Bancorp's Annual Report to Shareholders for the year ended December 31, 1997,
and is incorporated herein by reference.
33
<PAGE> 34
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 April 23, 1998, 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 April 23, 1998, 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 April 23, 1998, and is incorporated herein by reference.
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 April 23, 1998, and is incorporated herein by reference.
34
<PAGE> 35
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 ort incorporated by reference.
Note: The statement regarding the computation of per share earnings
required by Item 601(b)(11) of Regulation S-B is contained in Note 17 to the
Consolidated Financial Statements contained at page 26 in the 1997 Annual Report
to Shareholders. A copy of the 1997 Annual Report is also attached hereto as an
exhibit.
1. Material Contracts. (Regulation S-B, Item 601, Exhibit Table
Item (10)). The following employment contracts are attached hereto:
1.1 Employment Agreement of May 1, 1997 between Terry L.
Cochran and Columbia Bancorp.
1.2 Deferred Compensation Agreement of May 1, 1997 between
Terry L. Cochran and Columbia Bancorp.
1.3 1996 Stock Incentive Plan. This document is incorporated
herein by reference to Exhibit 10.5 filed with the
Columbia Bancorp 10-KSB dated December 31, 1996.
2. 1997 Annual Report to Shareholders. (Regulation S-B, Item 601,
Exhibit Table Item (13)). Attached hereto is a copy of the Annual Report to
Shareholders of Bancorp for the fiscal year ending December 31, 1997.
3. List of Subsidiaries of Bancorp. (Regulation S-B, Item 601, Exhibit
Table Item (21)). Attached hereto is information on the subsidiary of Bancorp
and the assumed business names used by the subsidiary.
4. Financial Data Schedule. (Regulation S-B, Item 601, Exhibit Table
Item (27)). Attached hereto is the Financial Data Schedule.
(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, 1997.
35
<PAGE> 36
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K - (Continued)
--------------------------------
Upon written request to Neal T. McLaughlin, Chief Financial Officer,
Bancorp, Post Office Box 1310, 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.
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 19, 1998 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 19, 1998 By:/s/ Terry L. Cochran
------------------- -----------------------------------------
Terry L. Cochran, President, C.E.O.,
and Director
CHIEF FINANCIAL OFFICER
DATED: March 19, 1998 By:/s/ Neal T. McLaughlin
------------------- ----------------------------------------
Neal T. McLaughlin: Chief Financial
Officer and Chief Accounting
Officer - Columbia River Banking Company
Neal T. McLaughlin - Chief Financial
Officer and Chief Accounting Officer -
Columbia Bancorp
DIRECTORS:
DATED: March 19, 1998 By:/s/ Stephen D. Martin
------------------- ---------------------------------------
Stephen D. Martin, Director
DATED: March 19, 1998 By:/s/ Don T. Mitchell
------------------- ---------------------------------------
Don T. Mitchell, Director
36
<PAGE> 37
SIGNATURES
(Continued)
DATED: March 19, 1998 By:/s/ Robert L. R. Baily
------------------- ---------------------------------------
Robert L. R. Bailey, Director
DATED: March 19, 1998 By:/s/ Charles F. Beardsley
------------------- ---------------------------------------
Charles F. Beardsley, Director
DATED: March 19, 1998 By:/s/ William A. Booth
------------------- ---------------------------------------
William A. Booth, Director
DATED: March 19, 1998 By:/s/ Dennis Carver
------------------- ---------------------------------------
Dennis Carver, Director
DATED: March 19, 1998 By:/s/ Don C. Gomes
------------------- ---------------------------------------
Don C. Gomes, Director
DATED: March 19, 1998 By:/s/ George Hall
------------------- ---------------------------------------
George Hall, Director
DATED: March 19, 1998 By:/s/ Jane Lee
------------------- ---------------------------------------
Jane Lee, Director
DATED: March 19, 1998 By:/s/ Jean McKinney
------------------- ---------------------------------------
Jean McKinney, Director
DATED: March 19, 1998 By:/s/ Greg Walden
------------------- ---------------------------------------
Greg Walden, Director
37
<PAGE> 38
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
<S> <C> <C>
1.1 Employment Agreement of May 1, 1997 between Terry L. Cochran and
Columbia Bancorp.
1.2 Deferred Compensation Agreement of May 1, 1997 between Terry L.
Cochran and Columbia Bancorp.
13.1 1997 Annual Report to Shareholders of Columbia Bancorp.
21.1 List of Subsidiaries of Bancorp and the assumed business names used
by the subsidiary.
27.1 Financial Data Schedule (Dec 31, 1997)
27.2 Financial Data Schedule (Restated - Sep 30, 1997)
27.3 Financial Data Schedule (Restated - Jun 30, 1997)
27.4 Financial Data Schedule (Restated - Mar 31, 1997)
27.5 Financial Data Schedule (Restated - Dec 31, 1996)
27.6 Financial Data Schedule (Restated - Sep 30, 1996)
27.7 Financial Data Schedule (Restated - Jun 30, 1996)
27.8 Financial Data Schedule (Restated - Mar 31, 1996)
</TABLE>
38
<PAGE> 1
EXHIBIT 1.1
DRAFT - APRIL 25, 1997
1997 EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into this
1st day of May, 1997 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 Executives
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,
Page 1 - 1997 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)
<PAGE> 2
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 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 this 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 servicing 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, 1997 and ending May 14, 1999.
2.2 Employee's term of employment under the Agreement may be extended for
successive one-year terms after May 14, 1999 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:
Page 2 - 1997 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)
<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.
4. Compensation.
4.1 Employee shall be paid an annual base salary of $140,000 in equal
bimonthly installments, subject to any deductions required by law, for the
period beginning May 15, 1997 and ending December 31, 1998.
Page 3 - 1997 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)
<PAGE> 4
4.2 On or before the 30th day of April, 1998, Bancorp shall determine
Employee's annual base salary for the calendar year beginning January 1, 1999.
If Employee's term of employment under the Agreement has been extended, on the
30th day of April, 1999, 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 On or before June 30, 1997, the Bancorp Board shall determine the
amount of and the formulas and methods for establishing Employee's performance
bonus for the 1997 calendar year, subject to any deductions required by law.
Further, in December, 1997 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 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.
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
Page 4 - 1997 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)
<PAGE> 5
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.
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
Page 5 - 1997 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)
<PAGE> 6
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 excluded 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:
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
Page 6 - 1997 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)
<PAGE> 7
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 or under any similar
provision of any successor 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, discussons 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 1, 1997
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 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.
Page 7 - 1997 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)
<PAGE> 8
10.7 Any waiver by and 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 Bancorp of May 14, 1996, and the latter agreement shall be
deemed null and void as of May 1, 1997.
/s/ Terry L. Cochram
- --------------------------------------
Employee
COLUMBIA BANCORP
By: /s/ Steve Martin
----------------------------------
Chairman
Page 8 - 1997 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)
<PAGE> 1
Exhibit 1.2
DRAFT - APRIL 25, 1997
1997 DEFERRED COMPENSATION AGREEMENT
This 1997 Deferred Compensation Agreement (the "Agreement") is made and
entered into this 1st day of May, 1997 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) Employee is now employed full-time by Bancorp as President and
Chief Executive Officer of Bancorp and of the Bank. Employee 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 Employee has made to
the success and profitability of the Bank and of Bancorp, and desires to
provide deferred compensation and other consideration to Employee 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 Employee 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 Employee be entitled to deferred compensation payments
under the Agreement prior to May 15, 1999 regardless of the date of Employee's
termination of employment by retirement or otherwise.
1.2 Beginning on the first 15th day of May immediately following
the date of Employee's retirement, and on the 15th day of May of each year
thereafter through and including May 15, 2005, Bancorp shall pay Employee
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 Employee 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 Employee as follows: (i) on the first May 15 on which Employee
is paid his first yearly deferred compensation payment
Page 1 - 1997 DEFERRED COMPENSATION AGREEMENT (Columbia Bancorp -
Terry L. Cochran)
<PAGE> 2
under the Agreement, Employee 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 Employee is paid such
first yearly payment; (ii) on the 15th day of May of each year thereafter
through and including May 15, 2005, Employee 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, Employee 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 Employee's term of employment under the
employment Agreement between the parties of May 1, 1997 where such term has not
been extended; (ii) the effective date of termination of Employee's employment
by Bancorp or by Employee, with or without cause; or (ii) such other date on
which the parties may mutually agree in writing.
1.5 If prior to retirement Employee is terminated by Bancorp with cause,
Employee 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 Employee's retirement through May 15, 2005, Bancorp shall provide
Employee with all medical, dental, disability, vision and life insurance which
Bancorp or the Bank provided 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, 2005, Employee shall continue to be entitled to receive the deferred
compensation provided in Section 1 of the Agreement.
2.2 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
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 Stock
Page 2 - 1997 DEFERRED COMPENSATION AGREEMENT (Columbia Bancorp-
Terry L. Cochran)
<PAGE> 3
Ownership Plan established for the benefit of employees of Bancorp or any of
its subsidiaries.
3. Covenants.
3.1 Employee 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 Employee has knowledge based on his employment
or other work, paid or unpaid, for Bancorp and its affiliates.
3.2 Employee 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 Employee's retirement shall not be deemed a retirement or general
termination under Section 8 of the Bank's 1993 Stock Incentive Plan or under
any similar provision of any successor Plan, and shall therefore not limit the
time within which Employee 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, 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 1, 1997 until its expiration or termination as provided
herein. Employee's rights under the Agreement are in addition to Employee's
rights under the Employment Agreement of May 1, 1997 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.
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
Page 3 - 1997 DEFERRED COMPENSATION AGREEMENT (Columbia Bancorp -
Terry L. Cochran)
<PAGE> 4
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.
4.7 The Agreement, including the payment rights provided in the
Agreement, shall inure to the benefit of and be enforceable by Employee's
estate or legal representative. Without limitation of the foregoing, it is
understood and agreed that if Employee's employment is terminated prior to the
first day on which Employee 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, the Employee 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 of 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.
4.10 The Agreement supersedes and replaces the Deferred Compensation
Agreement between Employee and Bancorp of May 14, 1996, and the latter agrement
shall be deemed null and void as of May 1, 1997.
/s/ TERRY L. COCHRAN
- -------------------------
Terry L. Cochran
COLUMBIA BANCORP
By:/s/ STEVE MARTIN
----------------------
Chairman
Page 4 - 1997 DEFERRED COMPENSATION AGREEMENT (Columbia Bancorp -
Terry L. Cochran)
<PAGE> 1
EXHIBIT 13.1
CONSOLIDATED BALANCE SHEETS
===========================
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 16,878,138 $ 16,030,017
Federal funds sold 2,834,363 7,367,394
------------ ------------
Total cash and cash equivalents 19,712,501 23,397,411
Investment securities available-for-sale 31,309,883 9,714,233
Investment securities held-to-maturity 16,728,036 41,098,327
Restricted equity securities 765,900 671,900
------------ ------------
Total investment securities 48,803,819 51,484,460
Loans held-for-sale 2,713,665 --
Loans, net of allowance for loan losses and unearned
loan fees 152,504,671 118,227,668
Property and equipment, net of depreciation 5,256,561 4,881,318
Accrued interest receivable 2,185,544 1,948,444
Other assets 649,982 362,456
------------ ------------
Total assets $231,826,743 $200,301,757
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
Noninterest-bearing demand deposits $ 46,377,081 $ 33,548,608
Interest-bearing demand deposits 85,502,927 72,671,399
Saving accounts 22,743,932 22,833,187
Time certificates and IRA accounts 46,944,204 49,690,664
------------ ------------
Total deposits 201,568,144 178,743,858
Notes payable 5,263,824 600,000
Accrued interest payable and other liabilities 2,007,289 1,424,917
------------ ------------
Total liabilities 208,839,257 180,768,775
------------ ------------
Employee stock ownership plan shares subject to
put option 1,430,450 1,058,183
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares authorized,
2,288,451 issued and outstanding at December 31,
1997 (2,254,841 in 1996) 5,528,218 5,139,218
Additional paid-in capital 6,317,732 6,317,732
Retained earnings 11,131,444 8,087,264
Unrealized gain (loss) on available-for-sale investment securities, net of tax 10,092 (11,232)
Less employee stock ownership plan shares subject
to put option (1,430,450) (1,058,183)
------------ ------------
Total stockholders' equity 21,557,036 18,474,799
------------ ------------
Total liabilities and stockholders' equity $231,826,743 $200,301,757
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE> 2
CONSOLIDATED STATEMENTS OF INCOME
===============================================================================
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $14,764,313 $11,854,765 $10,611,987
Interest on investments:
Taxable investment securities 2,257,934 2,094,413 2,117,485
Nontaxable investment securities 735,421 770,631 659,087
Interest on federal funds sold 221,167 589,264 342,769
Other interest and dividend income 164,685 75,632 83,415
----------- ----------- -----------
18,143,520 15,384,705 13,814,743
INTEREST EXPENSE
Interest on interest-bearing deposit and savings accounts 3,313,451 2,967,193 2,688,026
Interest on time deposit accounts 2,771,986 2,717,481 2,368,876
Other borrowed funds 183,637 60,717 159,148
----------- ----------- -----------
Net interest income before provision for loan losses 11,874,446 9,639,314 8,598,693
PROVISION FOR LOAN LOSSES
Net interest income after provision for loan losses 581,000 246,479 88,000
----------- ----------- -----------
11,293,446 9,392,835 8,510,693
----------- ----------- -----------
NONINTEREST INCOME
Service charges and fees 1,545,174 1,093,346 998,065
Credit card discounts and fees 389,965 288,075 223,291
Financial services department income 230,405 158,575 105,358
Other noninterest income 315,179 259,064 225,123
----------- ----------- -----------
Total noninterest income 2,480,723 1,779,060 1,551,837
----------- ----------- -----------
NONINTEREST EXPENSES
Salaries and employee benefits 4,463,483 3,965,087 3,611,208
Occupancy expense 735,858 653,541 565,788
Credit card processing fees 254,299 213,887 161,746
Office supplies 199,930 164,680 181,492
FDIC assessment 19,749 5,742 165,581
Data processing expense 304,456 231,817 232,797
Other noninterest expenses 2,114,509 1,945,259 1,575,506
----------- ----------- -----------
Total noninterest expenses 8,092,284 7,180,013 6,494,118
----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 5,681,885 4,011,882 3,568,412
PROVISION FOR INCOME TAXES 1,795,476 1,285,011 1,079,249
----------- ----------- -----------
NET INCOME $ 3,886,409 $ 2,726,871 $ 2,489,163
=========== =========== ===========
BASIC EARNINGS PER SHARE OF COMMON STOCK $1.71 $1.22 $1.09
=========== =========== ===========
DILUTED EARNINGS PER SHARE OF COMMON STOCK $1.67 $1.19 $1.12
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE> 3
STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) ESOP
ON AVAILABLE SHARES
COMMON STOCK ADDITIONAL FOR SALE SUBJECT TOTAL
----------------------- PAID-IN RETAINED INVESTMENT TO PUT STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SECURITIES OPTION EQUITY
--------- ---------- ---------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 -- 292,054
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) -- -- (180,348)
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
Stock options exercised 21,415 214,001 -- -- -- -- 214,001
Sale of common stock 12,195 174,999 -- -- -- -- 174,999
Changes in unrealized loss
on available-for-sale
securities, net of tax -- -- -- -- (2,667) -- (2,667)
Gain on securities
transferred from held-
to-maturity on
available-for-sale -- -- -- -- 23,991 -- 23,991
Changes in ESOP shares
subject to put option -- -- -- -- -- (372,267) (372,267)
Cash dividends -- -- -- (613,384) -- -- (613,384)
Cash dividends declared -- -- -- (228,845) -- -- (228,845)
Net income
--------- ---------- ---------- ----------- --------- ----------- -----------
BALANCE,
December 31, 1997 2,288,451 $5,528,218 $6,317,732 $11,131,444 $ 10,092 $(1,430,450) $21,557,036
========= ========== ========== =========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS RELATED TO OPERATING ACTIVITIES
Net income $ 3,886,409 $ 2,726,871 $ 2,489,163
Adjustments to reconcile net income to net cash
from operating activities:
Amortization of premiums and discounts of investment securities 30,775 -- 6,540
Gain (loss) on write-down of property and equipment (1,576) 145 24,749
Loss on sale of available-for-sale securities 4,940 -- --
Loss on call of held-to-maturity investment securities 7,583 422 10,076
Depreciation 449,048 380,198 322,762
Federal Home Loan Bank stock dividend (53,000) (49,500) (38,100)
Benefit for deferred income taxes (278,770) (168,112) (96,712)
Provision for loan losses 581,000 246,479 88,000
Increase (decease) in cash due to changes in certain assets and liabilities:
Accrued interest receivable (237,100) (132,568) (142,404)
Other assets (8,756) 477,221 (100,847)
Accrued interest payable and other liabilities 533,915 272,868 158,630
------------ ------------ ------------
Net cash from operating activities 4,914,468 3,754,024 2,721,857
------------ ------------ ------------
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Proceeds from the sale of available-for-sale securities 1,647,406 -- 1,351,001
Proceeds from the maturity of available-for-sale securities 12,517,460 4,718,237 7,589,547
Proceeds from the maturity of held-to-maturity securities 3,576,370 14,795,881 11,913,247
Purchases of held-to-maturity securities (4,234,473) (15,266,716) (12,226,056)
Purchases of available-for-sale securities (10,454,096) (6,769,594) (1,349,000)
Purchase of Federal Home Loan Bank stock (341,000) -- (33,300)
Net change in loans made to customers (37,571,668) (14,296,125) (14,195,919)
Proceeds from the sale of property and equipment -- 40,200 --
Payments made for purchase of property and equipment (822,715) (1,446,111) (448,851)
------------ ------------ ------------
Net cash from investing activities (35,682,716) (18,224,228) (7,399,331)
------------ ------------ ------------
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Net change in demand deposit and savings accounts 25,570,746 18,144,547 3,775,450
Net change in time deposits and IRA accounts (2,746,460) 1,725,002 12,295,648
Borrowings of long-term debt 663,824 -- 600,000
Repayments of long-term debt -- (600,000) (1,281,000)
Net decrease in Federal Funds purchased -- -- (1,500,000)
Dividends paid (793,772) (702,215) (555,077)
Proceeds from stock options exercised and purchases of common stock 389,000 192,717 71,494
Net increase (decrease) in short term borrowings 4,000,000 224,712 (164,955)
------------ ------------ ------------
Net cash from financing activities 27,083,338 18,984,763 13,241,560
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,684,910) 4,514,559 8,564,086
CASH AND CASH EQUIVALENTS, beginning of year 23,397,411 18,882,852 10,318,766
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $19,712,501 $23,197,411 $18,882,852
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid in cash 6,250,774 5,677,890 5,088,653
============ ============ ============
Taxes paid in cash $2,069,541 $1,459,808 $1,210,678
============ ============ ============
SCHEDULE OF NONCASH ACTIVITIES
Unrealized loss on securities transferred from
held-to-maturity to available-for-sale, net of tax -- -- --
============ ============ ============
Change in unrealized loss on available-for-sale securities,
net of tax $21,324 $12,105 $292,054
============ ============ ============
Cash dividend declared and payable after year-end $228,845 $180,388
============ ============
The accompanying rules are an integral part of these consolidated financial statements.
</TABLE>
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS -- Columbia Bancorp (Bancorp) was
incorporated on October 3, 1995, and became the holding company of Columbia
River Banking Company (Columbia or Bank) through merger. The merger was approved
by a statutory majority of the stockholders 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 Columbia became shareholders of Bancorp under a one-for-one
exchange of shares. Since the consummation on January 13, 1996, was essentially
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 Columbia Bancorp is conducted through its subsidiary bank and
all significant inter-company accounts and transactions have been eliminated in
the preparation of the consolidated financial statements.
In June 1996, Columbia Bancorp merged with 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 accounted for as a
pooling-of-interests and accordingly, the assets, liabilities, and
stockholders' equities, and results of operations of the separate entities have
been combined for 1995, 1996, and 1997 as though the entities had been
combined as of the beginning of 1995.
Columbia Bancorp's subsidiary bank is a state-chartered institution
authorized to provide banking services by the States of Oregon and Washington.
With its administrative headquarters in The Dalles, Oregon, the Bank operates
as Columbia River Banking Company through branch facilities in The Dalles, Hood
River, and Maupin, Oregon; as Juniper Banking Company (an assumed name acquired
as a result of a 1994 merger transaction) through branches in Madras, Redmond,
and Bend, Oregon; and, as Klickitat Valley Bank through branches in Goldendale
and White Salmon, Washington. In 1997, the Bank also commenced operations of a
mortgage banking division, Columbia Mortgage Group, which is headquartered in
Bend, Oregon and provides services to all commercial banking branches of the
Bank. Columbia Bancorp and the 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, 1997 and 1996, 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 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.
<PAGE> 6
RESTRICTED EQUITY SECURITIES -- The Bank's equity investments in the
Federal Home Loan Bank and Federal Agriculture Mortgage Corporation are
classified as restricted equity securities since ownership of these instruments
is restricted and they do not have an active market. As restricted equity
securities, these investments are carried at cost.
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. Various regulatory agencies, as a regular part of
their examination process, periodically review the Bank's reserve for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgment of information available to them at the time
of their examination.
Impaired loans are carried at the present value of expected future cash
flows discounted at the loan's effective interest rate, the loan's market
price, or the fair value of the collateral if the loan is collateral dependent.
Accrual of interest is discontinued on impaired loans 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. When interest accrual is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently recognized
only to the extent cash payments are received. Loan origination fees and
certain direct origination costs are capitalized and recognized as an
adjustment of the yield of the related loan.
LOANS HELD-FOR-SALE -- Mortgage loans held-for-sale are carried at the
lower of cost or estimated market value. Market value is determined on an
aggregate loan basis. At December 31, 1997, mortgage loans held-for-sale were
carried at cost which approximated market. At December 31, 1996, the Bank held
no mortgage loans for sale.
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 years for furniture and equipment and 31-1/2 years for building
premises.
OTHER REAL ESTATE -- Other real estate, acquired through foreclosure or
deeds in lieu of foreclosure, is carried at the lower of cost or estimated net
realizable value. When property is acquired, any excess of the loan balance
over its estimated net realizable value is charged to the reserve for loan
losses. Subsequent write-downs to net realizable value, if any, or any
disposition gains or losses are included in noninterest income and expense. The
Bank had no other real estate at December 31, 1997 and 1996.
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.
STATEMENT OF CASH FLOWS -- Cash equivalents are generally all short-term
investments with a maturity of three months or less. Cash and cash equivalents
normally include cash on hand, amounts due from banks, and federal funds sold.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS -- The Bank holds no derivative
financial instruments. However, in the ordinary course of business, the Bank 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. However, such financial
instruments are recorded in the financial statements when they are funded or
related fees are incurred or received.
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
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 analyses, 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 analyses 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 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 analyses based
on the Bank's current incremental borrowing arrangements.
Long-term debt -- The fair values of the Bank's long-term debt are
estimated using discounted cash flow analyses 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.
ADVERTISING -- Advertising costs are charged to expense during the year in
which they are incurred.
STOCK OPTIONS -- In October 1995, the Financial Accounting Standards Board
(FASB) 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 continuing 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.
RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1997, the FASB issued SFAS
No. 130 "Reporting Comprehensive Income" which the Bank is required to adopt
for years beginning after December 15, 1997. This statement establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general purpose
financial statements. When adopted, the unrealized gain or loss on
available-for-sale securities will be recognized as a component of
comprehensive income. Other issued but not yet required FASB statements are not
currently applicable to the Bank's operations.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1996
and 1995 financial statements to conform with current year presentations.
NOTE 2 -- INVESTMENT SECURITIES
The book value and approximate market values of investment securities at
December 31, 1997 and 1996, are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
Available-for-sale securities:
U.S. Treasury securities $ 3,210,274 $ 6,017 $ 2,996 $ 3,213,295
Obligation to U.S. government
agencies 26,929,960 72,640 59,483 26,943,117
Corporate debt securities 853,967 149 645 853,471
Corporate equity securities 300,000 -- -- 300,000
----------- -------- --------- -----------
$31,294,201 $ 78,806 $ 63,124 $31,309,883
=========== ======== ========= ===========
Held-to-maturity securities:
Mortgage-backed securities $ 156,509 $ 1,833 $ 2,641 $ 155,701
Municipal securities 16,571,527 356,342 70 16,927,799
----------- -------- --------- -----------
$16,728,036 $358,175 $ 2,711 $17,083,500
=========== ======== ========= ===========
December 31, 1996
Available-for-sale securities:
U.S. Treasury securities $ 1,798,606 $ 5,484 $ (1,442) $ 1,802,648
Obligation of U.S. government
agencies 7,181,983 17,952 (40,852) 7,159,083
Corporate debt securities 451,098 1,665 (261) 452,502
Corporate equity securities 300,000 -- -- 300,000
----------- -------- --------- -----------
$ 9,731,687 $ 25,101 $ (42,555) $ 9,714,233
=========== ======== ========= ===========
Held-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 debt securities 2,156,952 8,291 (814) 2,164,429
Mortgage-backed securities 450,971 3,621 (6,531) 448,061
----------- -------- --------- -----------
Municipal securities 15,351,052 224,985 (19,528) 15,551,509
----------- -------- --------- -----------
$41,098,327 $775,689 $(712,368) $41,161,648
=========== ======== ========= ===========
</TABLE>
<PAGE> 8
The amortized cost and estimated market value of investment securities at
December 31, 1997, 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>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
--------------------------- ---------------------------
COST MARKET COST MARKET
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 6,860,440 $ 6,850,987 $ 2,219,953 $ 2,243,035
Due after one year through
five years 19,433,211 19,438,346 6,988,305 7,150,216
Due after five years through
ten years 3,700,550 3,726,676 3,005,078 3,079,934
Due after ten years 1,000,000 993,874 4,514,700 4,610,315
----------- ----------- ----------- -----------
30,994,201 31,009,883 16,728,036 17,083,500
Corporate equity securities 300,000 300,000 - -
----------- ----------- ----------- -----------
$31,294,201 $31,309,883 $16,728,036 $17,083,500
----------- ----------- ----------- -----------
</TABLE>
For the purpose of the maturity table, mortgage-backed securities, which
are not due at a single maturity date, have been allocated over maturity
groupings based on the weighted-average contractual maturities of underlying
collateral. Mortgage-backed securities mature earlier than their
weighted-average contractual maturities because of principal prepayments.
Effective with the merger of Columbia River Banking Company and Klickitat
Valley Bank (see Note 1), the Bank reclassified certain investments in debt
securities, held by Klickitat, from held-to-maturity to available-for-sale to
maintain its existing interest rate risk position and credit risk policy as
permitted by financial accounting standards. At the time of transfer, the
investment securities had an amortized cost of $25,242,573 and an estimated
market value of $25,205,592. Recognition of the market value of the transferred
investment securities resulted in an after tax adjustment to stockholders'
equity at December 31, 1997, of $23,991.
As of December 31, 1997 and 1996, investment securities with a book value
of $5,337,367 and $3,283,294, respectively, have been pledged to secure public
deposits as required by law.
NOTE 3 - RESTRICTED EQUITY SECURITIES
The composition of restricted equity securities is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Federal Home Loan Bank stock $756,500 $669,900
Federal Agricultural Mortgage Corporation stock 9,400 2,000
-------- --------
$765,900 $671,000
======== ========
</TABLE>
NOTE 4 - LOANS
The composition of loan balances is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Commercial $ 38,012,762 $ 32,685,858
Agriculture 22,365,007 16,013,558
Real estate 75,003,128 55,287,031
Consumer 17,385,488 13,837,832
Credit card and other loans 1,989,591 1,698,290
------------ ------------
154,755,976 119,522,569
Less: Allowance for loan losses (1,638,633) (994,576)
Unearned loan fees (612,672) (300,325)
------------ ------------
$152,504,671 $118,227,668
============ ============
</TABLE>
Impairment of loans having recorded investments of $1,041,389 at December
31, 1997, and $228,857 at December 31, 1996, 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 $461,586 during 1997 and $267,653 during 1996. The total allowance
for loan losses related to these loans at December 31, 1997 and 1996 was
approximately $221,000, and $34,000, respectively. Had the impaired loans
performed according to their original terms, additional interest income of
$58,533 and $10,991 would have been recognized in 1997 and 1996, respectively.
No interest income has been recognized on impaired loans during the period of
impairment.
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
BALANCE, beginning of year $ 994,576 $1,071,494 $ 954,355
Provision for loan losses 581,000 246,479 88,000
Loans charged-off (40,144) (391,873) (118,000)
Recoveries $ 103,201 $ 68,476 $ 147,577
---------- ---------- ----------
BALANCE, end of year $1,638,633 $ 994,576 $1,071,494
========== ========== ==========
</TABLE>
NOTE 6 - PROPERTY AND EQUIPMENT
The major classification of property and equipment are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Land $ 1,049,281 $ 1,049,281
Buildings and improvements 4,134,478 4,030,691
Furniture and equipment 2,917,131 2,220,202
----------- -----------
8,100,890 7,300,174
Less accumulated depreciation (2,844,329) (2,418,856)
----------- -----------
$ 5,256,561 $ 4,881,318
=========== ===========
</TABLE>
NOTE 7 - TIME DEPOSITS
Time certificates of deposit of $100,000 and over, aggregated
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$8,937,725 and $12,204,995 at December 31, 1997 and 1996, respectively.
At December 31, 1997, the scheduled maturities for all time deposits are
as follows:
<TABLE>
<S> <C>
1998 $35,841,969
1999 4,102,171
2000 1,723,072
2001 693,012
2002 and thereafter 492,200
-----------
$42,852,424
===========
</TABLE>
NOTE 8 - INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current tax provision
Federal $1,901,578 $1,280,500 $1,092,333
State 172,668 172,623 83,628
---------- ---------- ----------
2,074,246 1,453,123 1,175,961
Deferred tax benefit
Federal (252,657) (142,785) (85,334)
State (26,113) (25,327) (11,378)
---------- ---------- ----------
(278,770) (168,112) (96,712)
---------- ---------- ----------
$1,795,476 $1,285,011 $1,079,249
========== ========== ==========
</TABLE>
The components of the deferred tax benefit consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Loan loss provision not deductible for tax $(236,640) $ (92,993) $(32,120)
Difference between book and recognition of
deferred loan fees - 34,513 18,250
Difference between book and tax
depreciation methods 36,577 (6,996) 11,207
Difference between accrual and cash basis
tax reporting (58,547) (71,077) (102,493)
Deferred compensation expense (43,025) (51,908) (6,916)
Other differences 22,865 20,349 15,360
--------- --------- --------
Deferred tax benefit $(278,770) $(168,112) $(96,712)
========= ========= ========
</TABLE>
The net deferred tax asset in the accompanying consolidated balance sheets
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 437,156 $ 200,516
Deferred compensation 101,849 58,824
--------- ---------
539,005 259,340
--------- ---------
Deferred tax liabilities:
Accumulated depreciation (58,698) (22,121)
Conversion to accrual basis tax
reporting (76,238) (134,785)
Federal Home Loan Bank stock dividendS (50,898) (28,033)
--------- ---------
(185,834) (184,939)
--------- ---------
Net deferred tax assets $ 353,171 $ 74,401
========= =========
</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 1997 provision for income taxes reflects a reduction in the
state income tax rate from 6.6% to 3.8%.
A reconciliation between the statutory federal income tax rate and the
effective tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Federal income taxes at statutory rate $1,931,841 $1,364,039 $1,213,259
State income tax expense, net of
federal income tax benefit 126,501 174,757 48,839
Effect of nontaxable interest income (220,901) (221,674) (216,346)
Other (41,965) (32,111) 33,497
---------- ---------- ----------
$1,795,476 $1,285,011 $1,079,249
========== ========== ==========
32% 32% 30%
========== ========== ==========
</TABLE>
NOTE 9 - TRANSACTIONS WITH RELATED PARTIES
Certain directors, executive officers, and principal stockholders are
customers of and 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>
1997 1996
---------- ----------
<S> <C> <C>
BALANCE beginning of year $2,967,310 $1,535,235
Loans made 634,100 1,787,577
Loans repaid (1,303,874) (355,502)
---------- ----------
BALANCE, end of year $2,297,536 $2,967,310
========== ==========
</TABLE>
Columbia has a 14.3% shareholder interest in Datatech of Oregon, Inc.
(Datatech), a bank service corporation functioning as a data processing
facility for the Bank and six other community banks in Oregon. Columbia's
investment in Datatech is accounted for the cost method. Under this accounting
method, Columbia recognizes income from its investment as dividends are
distributed. Dividends received in excess of earnings subsequent to Columbia's
investment are considered a return of investment and are recorded as reductions
of cost of the investment. For the periods ended December 31, 1997, 1996, and
1995, the Bank recorded data processing expenses paid to Datatech in the amount
of $304,456, $194,696, and $205,841. As of December 31, 1997, Columbia's
recorded investment in Datatech was $31,706.
<PAGE> 10
The Bank has a prime rate, unsecured operating line of credit to Datatech
for $80,000. The outstanding principal balance was $23,353 at December 31,
1997, and $74,000 at December 31, 1996. Interest income of $4,502 was realized
by Columbia in 1997, and $4,195 in 1996.
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business to meet the financial 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
issuance of letters of credit. The 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>
CONTRACT AMOUNTS
DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $31,314,369 $23,809,924
Undisbursed credit card lines of credit 4,707,097 3,696,163
Commercial and standby letters of credit 287,684 179,654
----------- -----------
$36,309,150 $27,685,741
</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 11 - 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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
(in thousands) (in thousands)
-------------------- --------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 16,878 $ 16,878 $ 16,030 $ 16,030
Federal funds sold $ 2,834 $ 2,834 $ 7,367 $ 7,367
Securities available-for-sale $ 31,310 $ 31,310 $ 9,714 $ 9,714
Securities held-to-maturity $ 16,728 $ 17,084 $ 41,098 $ 41,162
Restricted equity securities $ 766 $ 766 $ 672 $ 672
Loans held-for-sale $ 2,714 $ 2,714 $ 2,714 $ 2,714
Loans, net of allowance for loan losses
and unearned loan fees $152,505 $149,981 $118,228 $118,234
Financial liabilities:
Demand and savings deposits $154,624 $154,624 $129,053 $129,053
Time deposits and IRA accounts $ 46,944 $ 46,894 $49,691 $ 49,717
Notes payable $ 5,264 $ 5,264 $ 600 $ 600
</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, 1997 and 1996, 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, 1997 and 1996, 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 12 - 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
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bank's market area. The majority of such customers are also depositors of the
Bank. Investments in state and municipal securities are not significantly
concentrated within any one region of the United States. The concentrations of
credit by type of loan are set forth in Note 4. 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, 1997. The Bank's loan policy does not allow the extension of
credit to any single borrower or group of related borrowers in excess of
$1,000,000 without approval from the Board of Director's loan committee.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE CONTINGENCIES - As of December 31, 1997, the Bank leased
certain properties. The approximate annual commitment for rentals under these
noncancellable operating leases is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 44,340
1999 44,340
2000 20,897
--------
$109,577
--------
</TABLE>
Rental expense for all operating leases was $44,510, $28,303, and $20,940
for the periods ended December 31, 1997, 1996, and 1995, 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 14 - NOTES PAYABLE
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, 1997
and 1996, the Bank had borrowings outstanding with the FHLB of $4,600,000 and
$600,000, respectively. The promissory notes mature in 1998 and 2001 and carry
interest rates from 5.35% to 6.00%.
The Bank also participates in the U.S. Treasury Department's Treasury
Investment Program which facilitates the acceptance and processing of federal
tax deposits. Under this program, the Bank is authorized to accumulate daily
tax payments, up to authorized limits, and deploy the funds in short term
investments. In exchange, the Bank is required to issue a fully collateralized,
demand note to the Treasury and pay interest at the federal funds rate minus 25
basis points. As of December 31, 1997, the Bank had $663,824 outstanding under
this program; no balances were outstanding in 1996.
NOTE 15 - 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 200,000 shares of the Bancorp's common
stock. As of December, 1997, the amount of shares reserved under the Plan was
27,800. 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 of December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
OPTIONS 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 or forfeited in 1995 (600) $ (6.33)
Options under grant and exercisable -
December 31, 1995 88,700 $ 9.00
Options exercised in 1996:
Incentive stock options (6,656) $ (8.83)
Nonstatutory stock options (3,500) $(10,000)
Options expired or forfeited in 1996 (1,200) $ (9.00)
Options under grant and exercisable -
December 31, 1996 77,344 $ 9.10
Options granted in 1997:
Incentive stock options 43,000 $ 16.75
Nonstatutory stock options 26,000 $ 16.75
Options exercised in 1997:
Incentive stock options (17,415) $ (8,44)
Nonstatutory stock options (4,000) $(16.75)
Options expired or forfeited in 1997 - -
-------
Options under grant and exercisable -
December 31, 1997 124,929 $ 13.17
========
Options reserved - December 31, 1997 27,800
========
</TABLE>
Had compensation cost for the Bank's 1997 grants for stock-based
compensation plans been determined consistent with SFAS
<PAGE> 12
No. 123, the Bank's net income, and net income per common share for December 31,
1997, would approximate the pro forma amounts shown below. The disclosure
requirements of SFAS No. 123 were not material to the 1996 consolidated
financial statements.
The fair value of each option granted during 1997 is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions: (1) dividend yield of 2.09%, (2) expected volatility of 32.57%, (3)
risk-free rate of 6.36%; and (4) expected life of 3.75 years.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated.
<TABLE>
<CAPTION>
1997
----
AS PRO
REPORTED FORMA
---------- -------
<S> <C> <C>
Net income $3,886,409 $3,668,546
Basic earnings per common share $1.71 $1.62
Diluted earnings per common share $1.67 $1.57
</TABLE>
NOTE 16 - 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 Bancorp'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, 1997, 1996, and 1995,
Columbia contributed $222,966, $163,279 and $150,000, 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 ESOPs
assets as of December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Allocated shares 85,400 73,741
------- -------
Cash on hand $12,685 $63,680
======= =======
</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 statutory limits, 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, 1997, 1996, and 1995, Columbia contributed $31,278, $21,932, and $16,914,
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, 1997, 1996, and 1995, additional compensation of
$428,890, $158,979, and $293,435, respectively, was paid to eligible employees.
During 1997, Columbia 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 1999. The retirement agreement provides annual post-retirement
compensation for a seven-year period after the chief executive's retirement. A
portion of Columbia'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,
1997, Columbia recorded a liability of $161,352 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 maintained a profit sharing plan covering substantially all
employees. The Plan provided for a discretionary employer contribution each
year. Klickitat's maximum profit sharing contribution was 15% of taxable
compensation for the year, limited to $150,000. There were no employer or
employee contributions to this Plan in 1997 when it was terminated and all
covered employees became eligible under Columbia's Plan. The employer
contribution was $111,382 and $107,647 for the years ended December 31, 1996 and
1995, respectively.
During 1996, Klickitat entered into both employment and retirement
agreements with its chief executive officer. Klickitat's
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
chief executive retired on December 31, 1996, and pursuant to the agreement,
will be paid in 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 17 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" which is
effective for financial statements issued for periods ending after December 15,
1997. SFAS No. 128 replaced standards for computing and presenting earnings per
share and requires a dual presentation of basic and diluted earnings per share.
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the year. Diluted earnings per share reflect the
potential dilution that could occur if common shares were issued pursuant to
the exercise of options under Columbia's stock option plans. Comparative
earnings per share data for the years ended December 31, 1997, 1996, and 1995,
have been restated to conform with the current year presentation. The following
table illustrates the computations of basic and diluted earnings per share for
the years ended December 31, 1997, 1996, and 1995 (dollars in thousands except
per share amounts):
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
1997
Basic earnings per share
Income available to common
shareholders $3,886,409 $2,266,990 $1.71
=====
Effect of dilutive securities
Outstanding common stock options -- $ 66,811
---------- ----------
Income available to common shareholders
plus assumed conversion $3,886,409 $2,333,801 $1.67
========== ========== =====
1996
Basic earnings per share
Income available to common
shareholders $2,726,872 $2,244,131 $1.22
=====
Effect of dilutive securities
Outstanding common stock options -- $ 38,163
---------- ----------
Income available to common shareholders
plus assumed conversion $2,726,872 $2,282,294 $1.19
========== ========== =====
1995
Basic earnings per share
Income available to common
shareholders $2,489,163 $2,231,136 $1.12
=====
Effect of dilutive securities
Outstanding common stock options -- $ 49,613
---------- ----------
Income available to common shareholders
plus assumed conversion $2,489,163 $2,280,749 $1.09
========== ========== =====
</TABLE>
NOTE 18 - PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for Columbia Bancorp (unconsolidated
parent company only) is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash $ 186,018 $ 240,142
Investment securities 300,000 300,000
Investment in subsidiaries 22,561,360 18,998,691
Other assets 168,953 174,537
----------- -----------
Total assets $23,216,331 $19,713,370
----------- -----------
LIABILITIES
Dividends payable $ 228,845 $ 180,388
----------- -----------
Total liabilities 228,845 180,388
----------- -----------
EMPLOYEE STOCK OWNERSHIP PLAN
SHARES SUBJECT TO PUT OPTION 1,430,450 1,058,183
----------- -----------
STOCKHOLDERS' EQUITY
Common stock 5,528,218 5,139,218
Additional paid-in capital 6,317,732 6,317,732
Retained earnings 11,131,444 8,087,264
Unrealized gain (loss) on available-for-sale
investment securities 10,092 (11,232)
Less employee stock ownership plan
shares subject to put option (1,430,450) (1,058,183)
----------- -----------
21,557,036 18,474,799
----------- -----------
Total liabilities and stockholders' equity $23,216,331 $19,713,370
=========== ===========
REVENUES
Equity in undistributed earnings of subsidiary banks $ 3,541,345 $ 1,526,965
Dividends 468,956 1,388,366
EXPENSES
Goodwill and administrative expenses (123,892) (188,450)
----------- -----------
Net income $ 3,886,409 $ 2,726,871
----------- -----------
CASH FLOWS RELATED TO OPERATING ACTIVITIES
Net income $ 3,886,409 $ 2,726,871
----------- -----------
Adjustments to reconcile net income to net cash
from operating activities:
Equity in undistributed earnings of subsidiary bank (3,541,345) (1,526,965)
Changes in other assets and liabilities 5,584 (39,439)
----------- -----------
Net cash from operating activities 350,648 1,160,467
----------- -----------
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Cash dividends paid (793,772) (702,215)
Proceeds from stock options exercised and purchases
of common stock 389,000 192,717
----------- -----------
Net cash from financing activities (404,772) (509,498)
----------- -----------
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Purchase of land -- (111,717)
Purchase of held-to-maturity investments -- (300,000)
----------- -----------
Net cash from investing activities -- (411,717)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (54,124) 239,252
CASH AND CASH EQUIVALENTS, beginning of year 240,142 890
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 186,018 $ 240,142
----------- -----------
SCHEDULE OF NONCASH ACTIVITIES
Cash dividend declared payable after year-end $ 228,410 $ 180,388
----------- -----------
</TABLE>
NOTE 19 - REGULATORY MATTERS
Banks 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
banks' financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the banks must meet specific
capital guidelines that involve quantitative measures of the banks' assets,
liabilities, and certain off-balance-sheet items as cal-
<PAGE> 14
culated under regulatory accounting practices. The banks' capital amounts and
classification 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 require the Banks to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets (as
defined). Management believes, as of December 31, 1997, that the banks meet all
capital adequacy requirements to which they are subject.
As of the most recent notifications from the regulators, Columbia and
Bancorp 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 I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institutions' category.
Bancorp's actual capital amounts and ratios are also presented in the
following 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, 1997:
Total Capital to risk-weighted assets $22,987,486 13.7% $13,420,168 >8.0% $16,775,210 >10.0%
Tier I Capital to risk-weighted assets $22,977,384 13.7% $ 6,710,084 >4.0% $10,065,126 > 6.0%
Tier I Capital to average assets $22,977,384 10.6% $ 8,640,957 >4.0% $10,801,196 > 5.0%
A of December 31, 1996:
Total Capital to risk-weighted assets $19,532,982 14.2% $11,014,536 >8.0% $13,768,171 >10.0%
Tier I Capital to risk-weighted assets $19,544,214 14.2% $ 5,507,268 >4.0% $ 8,260,902 > 6.0%
Tier I Capital to average assets $19,544,214 9.9% $ 7,927,089 >4.0% $ 9,908,862 > 5.0%
</TABLE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Columbia Bancorp
We have audited the accompanying consolidated balance sheets of Columbia
Bancorp and subsidiary as of December 31, 1997 and 1996, and the related
statements of income, changes in stockholders' equity, and cash flows for the
years ended December 31, 1997, 1996, and 1995. 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 Subsidiary as of December 31, 1997 and 1996, and the results of its
operations and cash flows for the years ended December 31, 1997, 1996, and
1995, in conformity with generally accepted accounting principles.
Portland, Oregon
January 23, 1998
<PAGE> 1
EXHIBIT 21.1
Subsidiary of Bancorp and Assumed Business Names
Columbia Bancorp had one wholly-owned subsidiary as of December 31,
1997, Columbia River Banking Company. Columbia River Banking Company does
business under the assumed business name "Columbia River Bank" in Hood River,
The Dalles, and Maupin, Oregon; under the assumed business name "Juniper Banking
Company" in Madras, Redmond, and Bend, Oregon; and under the assumed business
name "Klickitat Valley Bank" in White Salmon, and Goldendale, Washington.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES CONTAINED IN THE 1997 ANNUAL REPORT
TO SHAREHOLDERS OF COLUMBIA BANCORP AND IS QUALIFIED IN ITS ENTIRETY BY REFEENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 16,878
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,834
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,310
<INVESTMENTS-CARRYING> 17,494
<INVESTMENTS-MARKET> 17,849
<LOANS> 156,849
<ALLOWANCE> 1,639
<TOTAL-ASSETS> 231,827
<DEPOSITS> 201,568
<SHORT-TERM> 4,600
<LIABILITIES-OTHER> 2,071
<LONG-TERM> 600
0
0
<COMMON> 5,528
<OTHER-SE> 16,029
<TOTAL-LIABILITIES-AND-EQUITY> 231,827
<INTEREST-LOAN> 14,764
<INTEREST-INVEST> 2,993
<INTEREST-OTHER> 386
<INTEREST-TOTAL> 18,144
<INTEREST-DEPOSIT> 6,085
<INTEREST-EXPENSE> 184
<INTEREST-INCOME-NET> 11,874
<LOAN-LOSSES> 581
<SECURITIES-GAINS> (11)
<EXPENSE-OTHER> 0
<INCOME-PRETAX> 5,682
<INCOME-PRE-EXTRAORDINARY> 5,682
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,886
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.67
<YIELD-ACTUAL> 9.30
<LOANS-NON> 1,041
<LOANS-PAST> 414
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 995
<CHARGE-OFFS> 40
<RECOVERIES> 103
<ALLOWANCE-CLOSE> 1,639
<ALLOWANCE-DOMESTIC> 1,639
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COLUMBIA
BANCORP'S 10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,059,314
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 945,886
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 34,349,977
<INVESTMENTS-CARRYING> 15,083,812
<INVESTMENTS-MARKET> 0
<LOANS> 149,641,636
<ALLOWANCE> 1,546,526
<TOTAL-ASSETS> 222,609,879
<DEPOSITS> 194,268,814
<SHORT-TERM> 4,869,043
<LIABILITIES-OTHER> 1,155,896
<LONG-TERM> 300,000
0
0
<COMMON> 5,477,139
<OTHER-SE> 16,538,987
<TOTAL-LIABILITIES-AND-EQUITY> 222,609,879
<INTEREST-LOAN> 10,681,602
<INTEREST-INVEST> 2,250,920
<INTEREST-OTHER> 306,750
<INTEREST-TOTAL> 13,239,272
<INTEREST-DEPOSIT> 4,559,472
<INTEREST-EXPENSE> 4,651,342
<INTEREST-INCOME-NET> 8,587,930
<LOAN-LOSSES> 470,000
<SECURITIES-GAINS> (3,114)
<EXPENSE-OTHER> 4,077,962
<INCOME-PRETAX> 4,036,854
<INCOME-PRE-EXTRAORDINARY> 2,749,830
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,749,830
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.18
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 1,211,000
<LOANS-PAST> 345,000
<LOANS-TROUBLED> 50,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 994,576
<CHARGE-OFFS> 19,420
<RECOVERIES> 101,370
<ALLOWANCE-CLOSE> 1,546,526
<ALLOWANCE-DOMESTIC> 1,546,526
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>INFORMATION NOT CALCULATED FOR INTERIM REPORTS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SHCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COLUMBIA
BANCORPS CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY REPORT ON
FORM 10-QSB FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 14,144,931
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,880,159
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,851,577
<INVESTMENTS-CARRYING> 14,887,390
<INVESTMENTS-MARKET> 0
<LOANS> 143,756,528
<ALLOWANCE> 1,318,319
<TOTAL-ASSETS> 220,396,051
<DEPOSITS> 193,781,486
<SHORT-TERM> 3,900,000
<LIABILITIES-OTHER> 1,370,610
<LONG-TERM> 300,000
0
0
<COMMON> 5,375,506
<OTHER-SE> 15,668,449
<TOTAL-LIABILITIES-AND-EQUITY> 220,396,051
<INTEREST-LOAN> 6,860,613
<INTEREST-INVEST> 1,583,636
<INTEREST-OTHER> 135,087
<INTEREST-TOTAL> 8,579,336
<INTEREST-DEPOSIT> 3,000,448
<INTEREST-EXPENSE> 3,029,046
<INTEREST-INCOME-NET> 5,550,290
<LOAN-LOSSES> 250,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,747,267
<INCOME-PRETAX> 2,589,597
<INCOME-PRE-EXTRAORDINARY> 1,762,094
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,762,094
<EPS-PRIMARY> .78
<EPS-DILUTED> .77
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 16,000
<LOANS-PAST> 974,000
<LOANS-TROUBLED> 50,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 994,576
<CHARGE-OFFS> 10,870
<RECOVERIES> 84,613
<ALLOWANCE-CLOSE> 1,318,319
<ALLOWANCE-DOMESTIC> 1,318,319
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>INFORMATION NOT CALCULATED FOR INTERIM REPORTS
</FN>
</TABLE>
<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 10-QSB FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 13,229,995
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,203,277
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,651,504
<INVESTMENTS-CARRYING> 41,012,149
<INVESTMENTS-MARKET> 0
<LOANS> 129,556,559
<ALLOWANCE> 1,086,571
<TOTAL-ASSETS> 204,780,571
<DEPOSITS> 182,527,790
<SHORT-TERM> 290,163
<LIABILITIES-OTHER> 1,365,135
<LONG-TERM> 600,000
0
0
<COMMON> 5,150,018
<OTHER-SE> 14,847,465
<TOTAL-LIABILITIES-AND-EQUITY> 204,780,571
<INTEREST-LOAN> 3,195,665
<INTEREST-INVEST> 789,884
<INTEREST-OTHER> 100,066
<INTEREST-TOTAL> 4,085,615
<INTEREST-DEPOSIT> 1,469,623
<INTEREST-EXPENSE> 1,481,274
<INTEREST-INCOME-NET> 2,604,341
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,969,167
<INCOME-PRETAX> 1,030,147
<INCOME-PRE-EXTRAORDINARY> 712,402
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 712,402
<EPS-PRIMARY> .32
<EPS-DILUTED> .31
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 15,000
<LOANS-PAST> 495,000
<LOANS-TROUBLED> 51,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 994,577
<CHARGE-OFFS> 9,165
<RECOVERIES> 11,159
<ALLOWANCE-CLOSE> 1,086,571
<ALLOWANCE-DOMESTIC> 10,086,571
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>INFORMATION NOT CALCULATED FOR INTERIM REPORTS
</FN>
</TABLE>
<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>
<RESTATED>
<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> 1.22
<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>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 15,027,703
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,365,546
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,559,720
<INVESTMENTS-CARRYING> 40,307,056
<INVESTMENTS-MARKET> 39,852,557
<LOANS> 115,230,319
<ALLOWANCE> 1,219,629
<TOTAL-ASSETS> 196,052,710
<DEPOSITS> 175,127,797
<SHORT-TERM> 1,056,801
<LIABILITIES-OTHER> 1,053,707
<LONG-TERM> 0
0
0
<COMMON> 5,024,433
<OTHER-SE> 13,789,972
<TOTAL-LIABILITIES-AND-EQUITY> 196,052,710
<INTEREST-LOAN> 8,780,954
<INTEREST-INVEST> 2,114,330
<INTEREST-OTHER> 409,135
<INTEREST-TOTAL> 11,304,419
<INTEREST-DEPOSIT> 4,212,094
<INTEREST-EXPENSE> 4,261,157
<INTEREST-INCOME-NET> 7,043,262
<LOAN-LOSSES> 156,479
<SECURITIES-GAINS> 121
<EXPENSE-OTHER> 5,181,662
<INCOME-PRETAX> 3,017,611
<INCOME-PRE-EXTRAORDINARY> 3,017,611
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,014,190
<EPS-PRIMARY> .90
<EPS-DILUTED> .88
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,529,069
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,697,468
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,946,481
<INVESTMENTS-CARRYING> 39,202,063
<INVESTMENTS-MARKET> 8,845,523
<LOANS> 115,611,657
<ALLOWANCE> 1,132,722
<TOTAL-ASSETS> 187,091,528
<DEPOSITS> 166,982,499
<SHORT-TERM> 1,053,158
<LIABILITIES-OTHER> 880,285
<LONG-TERM> 0
0
0
<COMMON> 5,024,433
<OTHER-SE> 13,151,153
<TOTAL-LIABILITIES-AND-EQUITY> 187,091,528
<INTEREST-LOAN> 5,704,465
<INTEREST-INVEST> 1,405,964
<INTEREST-OTHER> 274,105
<INTEREST-TOTAL> 7,384,264
<INTEREST-DEPOSIT> 2,790,106
<INTEREST-EXPENSE> 2,827,304
<INTEREST-INCOME-NET> 4,556,960
<LOAN-LOSSES> 75,000
<SECURITIES-GAINS> 3,416
<EXPENSE-OTHER> 3,498,300
<INCOME-PRETAX> 1,840,628
<INCOME-PRE-EXTRAORDINARY> 1,840,628
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,222,057
<EPS-PRIMARY> .55
<EPS-DILUTED> .53
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,361,407
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,565,240
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 5,111,550
<INVESTMENTS-MARKET> 8,372,788
<LOANS> 70,807,897
<ALLOWANCE> (751,960)
<TOTAL-ASSETS> 106,795,763
<DEPOSITS> 95,037,779
<SHORT-TERM> 1,200,000
<LIABILITIES-OTHER> 483,892
<LONG-TERM> 0
0
0
<COMMON> 2,914,803
<OTHER-SE> 5,426,347
<TOTAL-LIABILITIES-AND-EQUITY> 106,795,763
<INTEREST-LOAN> 1,863,325
<INTEREST-INVEST> 311,353
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,174,678
<INTEREST-DEPOSIT> 737,434
<INTEREST-EXPENSE> 753,665
<INTEREST-INCOME-NET> 1,421,013
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,220,474
<INCOME-PRETAX> 507,698
<INCOME-PRE-EXTRAORDINARY> 507,698
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 324,058
<EPS-PRIMARY> .24
<EPS-DILUTED> .23
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
