COLUMBIA BANCORP \OR\, S-1, 1998-09-25

COLUMBIA BANCORP \OR\
S-1, 1998-09-25
STATE COMMERCIAL BANKS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1998

REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

COLUMBIA BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
OREGON 6711 93-1193156
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

420 EAST THIRD STREET, SUITE 200, THE DALLES, OREGON 97058 (541) 298-6649
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

TERRY L. COCHRAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
420 EAST THIRD STREET, SUITE 200
THE DALLES, OREGON 97058
(541) 298-6649
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES OF COMMUNICATIONS TO:

<TABLE>
<S> <C>
BENNETT H. GOLDSTEIN, ESQ. STEPHEN M. KLEIN, ESQ.
BENNETT H. GOLDSTEIN, ATTORNEY AT LAW CARMEN L. SMITH, ESQ.
2548 SW ST. HELENS COURT GRAHAM & DUNN PC
PORTLAND, OREGON 97201 1420 FIFTH AVENUE, 33RD FLOOR
SEATTLE, WASHINGTON 98101-2390
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]________

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]________

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT BEING OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
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Common Stock, no par
value.................. 1,150,000 $10.00 $11,500,000 $3,392.50
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</TABLE>

(1) Includes 150,000 shares that may be purchased by the Underwriter to cover
over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended ("1933
Act").

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE 1933
ACT, OR UNTIL THIS REGISTRATION STATEMENT BECOMES EFFECTIVE ON SUCH DATE AS THE
SECURITIES AND EXCHANGE COMMISSION, ACTING UNDER SECTION 8(a), MAY DETERMINE.

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<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION DATED SEPTEMBER 25, 1998

LOGO

COLUMBIA BANCORP
COMMON STOCK

All of the shares of Common Stock, no par value (the "Common Stock"),
offered hereby ("the Offering") are being sold by Columbia Bancorp ("Columbia").
Prior to this Offering there has been a limited public market for the shares of
the Common Stock. It is currently anticipated that the offering price will be
between $ and $ per share of Common Stock. See "Underwriting" for a
discussion of the factors to be considered in determining the offering price.
The shares are currently quoted on the OTC Bulletin Board under the symbol
"CBBO." Columbia has applied to the Nasdaq Stock Market for listing of the
Common Stock on the Nasdaq National Market under the symbol "CBBO."
------------------------

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS"
BEGINNING ON PAGE 8.
------------------------

THE SHARES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER
OBLIGATIONS OF COLUMBIA AND ARE NOT INSURED BY THE BANK INSURANCE FUND OF THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY AND ARE
SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<S> <C> <C> <C>
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UNDERWRITING
DISCOUNT AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COLUMBIA(2)
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Per Share......................... $ $ $
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Total(3).......................... $ $ $
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</TABLE>

(1) Columbia has agreed to indemnify Pacific Crest Securities Inc. (the
"Underwriter") against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses payable by Columbia estimated at $110,000.

(3) Columbia has granted to the Underwriter a 30-day option to purchase up to
additional shares of Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. See
"Underwriting." If such option is exercised, the total Price to Public,
Underwriting Discount and Commissions, and Proceeds to Columbia will be
$ , $ , and $ , respectively.

The shares of Common Stock are being offered by the Underwriter when, as
and if delivered to and accepted by the Underwriter and subject to certain
conditions. It is expected that delivery of the shares of Common Stock will be
made on or about , 1998.

PACIFIC CREST SECURITIES INC.

The date of this Prospectus is , 1998.
<PAGE> 3

[MAP OF MARKET AREAS]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF COLUMBIA'S COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING, AND SHORT-COVERING TRANSACTIONS IN
SUCH SECURITY, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4

PROSPECTUS SUMMARY

The following is a summary of information set forth in more detail
elsewhere in this Prospectus. Unless otherwise indicated, all information
contained in this Prospectus assumes that the Underwriter's over-allotment
option is not exercised. The number of shares and options outstanding and per
share amounts reflect Columbia's 2-for-1 stock split effective September 11,
1998. Unless otherwise indicated, "Columbia" in this Prospectus mean Columbia
and Columbia River Bank, its subsidiary, and references to the "Offering" mean
the offering of shares of Common Stock pursuant to this Prospectus. For further
definitions of certain terms used in this Prospectus, see "Glossary of Certain
Key Terms."

COLUMBIA BANCORP

Columbia is a bank holding company headquartered in The Dalles, Oregon. It
is the parent corporation of Columbia River Bank ("CRB"), a nine-branch, full
service, community banking organization. Since 1993 Columbia has grown rapidly
through merger and acquisition activity and new branch openings. Columbia's
pending acquisition of Valley Community Bancorp ("Valley") is anticipated to
close by early 1999. According to information published by the State of Oregon,
if the acquisition of Valley had been completed as of June 30, 1998, Columbia
would rank as the 4th largest bank based in Oregon. See "Business -- Pending
Acquisition of Valley Community Bancorp."

Columbia offers a broad range of financial services to its customers,
primarily small and medium sized businesses, farmers and individuals. Columbia's
seven Oregon branches serve the northern and eastern Oregon communities of The
Dalles, Hood River, and Hermiston, and the central Oregon communities of Madras,
Redmond, and Bend. Columbia's two south central Washington branches serve the
communities of Goldendale and White Salmon. Valley operates from McMinnville,
Oregon, 36 miles southwest of metropolitan Portland.

The markets in which Columbia operates are relatively economically diverse,
and therefore pose both opportunities and challenges to a community bank
operating in all of these economies. Columbia's approach to meeting the
challenge is to staff its branches and business groups with managers who are
established in their communities and have developed a loyal customer following.
Columbia's branches emphasize those products and services that are best suited
for the geographic region served by the branch. These diverse economies also
provide opportunities to limit Columbia's exposure to risks within any one
economic sector.

GROWTH HISTORY

Columbia's subsidiary, CRB, was chartered in Oregon in 1976 as a one-branch
community bank in The Dalles, and has since grown as a result of merger and
acquisition activity, new branch openings, the introduction of new business
lines, and the expansion of its existing products and community bank lending
expertise. The majority of Columbia's growth has occurred since 1993, and is
marked by the following highlights:

1993 - Opened first branch outside of The Dalles, in Hood River, Oregon

- Completed first full year in which CRB offered investment products
to customers through affiliation with Primevest Financial
Services, Inc.

1994 - Began and concluded negotiations to merge with Juniper Banking
Company, which added branches in Madras and Redmond, Oregon, and
increased assets by $31 million; merger effective January 1, 1995

1995 - Opened branch in Safeway store in The Dalles
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<PAGE> 5

- Introduced VISA check (debit) card

1996 - Columbia became CRB's holding company

- Introduced 24-hour telephone banking

- Acquired Klickitat Valley Bank, which added branches in White
Salmon and Goldendale, Washington and increased assets by $78
million

- Opened first branch in Bend, Oregon, the largest community in
which Columbia operates

1997 - Established a residential mortgage lending group in Bend, Oregon to
enhance Columbia's mortgage business

- Achieved 12-month increases in assets, loans, and deposits of 16%,
31%, and 13%, respectively, all through internal growth

- Introduced corporate sweep accounts for business customers

1998 - Signed agreement to acquire Valley Community Bancorp, a
McMinnville, Oregon community banking organization with $37 million
in assets as of June 30, 1998

- Opened branch in Hermiston, Oregon and announced plans to open a
branch in Pendleton, Oregon and a second Bend, Oregon branch,
which will include a business lending group.

- From June 30, 1997 to June 30, 1998, assets increased by 15% and
income increased 26% for the six-month period ended June 30, 1998
compared to the six month period ended June 30, 1997

BUSINESS STRATEGY

Columbia's strategy is to continue building on its position as a leading
community-based provider of financial services in Oregon and south central
Washington. The key to the success of this strategy, in Columbia's view, is to
continue to provide exceptional personal service to the communities it now
serves, and to successfully expand into new communities by identifying and
meeting their unique financial services needs. Columbia's target branch
locations are in non-metropolitan regions, where it aims to deliver prompt,
accurate, and friendly personal banking services. The components of Columbia's
business strategy are outlined below:

Successfully operate in non-metropolitan regions. In contrast to the
present strategies of certain major regional banks, which have closed branches
and reduced service levels in Columbia's identified communities, Columbia
believes that the key to profitably operating in non-metropolitan communities is
to: (i) provide a high level of service to the customer; (ii) staff branches
with employees who have established ties to the community; (iii) attract and
retain a highly skilled management team; and, (iv) allow branch personnel the
flexibility to emphasize products and services which best fit their local
economy. In addition, by decentralizing a portion of CRB's management function
to the branch level, Columbia believes it can make business decisions regarding
customers more quickly and with more knowledge than its major banking
competitors. Columbia believes it is able to profitably attract and retain
customers by providing and delivering such products and services tailored to
their individual needs, and by delivering them with a high degree of personal
attention.

Maintain high asset quality. Columbia seeks to maintain high asset quality
through a program that includes prompt and strict adherence to established
credit policies, training and supervision of lending officers, and periodic
professional independent loan review. Additionally, Columbia uses incentives to
maintain high asset quality, including tying a portion of its loan officers'
compensation to the quality of the loans they originate. Columbia also believes
that its commitment to hire branch managers with long term ties to their
communities is of significant assistance in determining the quality of loan
transactions. The variety of economies in which Columbia's branches are located
increases the diversification and, in Columbia's opinion, the strength of the
overall loan portfolio. For the years ended December 31, 1995, 1996, 1997, and
for the six

4
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months ended June 30, 1998, Columbia's net charge-offs (recoveries) to average
loans were (0.03)%, 0.29%, (0.04)%, and 0.26%, respectively.

Seize merger and acquisition opportunities. In 1995, CRB merged with
Juniper Banking Company of central Oregon, and in 1996 Columbia acquired
Klickitat Valley Bank of south central Washington. After both transactions,
Columbia was able to provide the same or improved levels of community banking
products and services in these new market areas. In August 1998, Columbia
entered into a definitive agreement to acquire McMinnville-based Valley.
Columbia believes the economy in the McMinnville area affords it the opportunity
to leverage two of its core competencies: small business lending and
agricultural lending. Additionally, the pending acquisition will be Columbia's
first entrance into Oregon's most populous region, the Willamette Valley.
Management believes there are significant future growth opportunities in
McMinnville and its surrounding communities.

Continue to expand through new branches and new products. Columbia has
grown through the establishment of new branches in Hood River and Bend, Oregon
and more recently through the opening in September 1998 of a branch in
Hermiston, Oregon. Additional branches in central and eastern Oregon are planned
in order to take advantage of growth opportunities and to leverage existing
nearby operations. In addition, Columbia's banking products, including its loan
programs, and other services are designed to be responsive to the needs of local
community businesses and individual customers. For example, in 1997 Columbia
recognized an opportunity in rapidly growing central Oregon, and established a
mortgage lending group in Bend to originate and sell residential mortgages.
Columbia also offers investment products and services through its affiliation
with the Primevest Financial Services, Inc. brokerage organization, through
which it offers stocks, bonds, mutual funds, IRAs, retirement plans, and estate
planning. Columbia's products and services are designed to both increase its
customer base and to enhance cross-selling opportunities.

Columbia maintains its administrative headquarters at 420 East Third
Street, Suite 200, The Dalles, Oregon 97058. Its telephone number at that
address is (541) 298-6649.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by Columbia............. shares(1)
Common Stock to be outstanding after the shares(2)
Offering...................................
Use of Proceeds.............................. To provide funds to finance Columbia's
expansion plans (including the Valley
acquisition, potential future acquisitions,
and expansion of the branch network).
Proposed Nasdaq National Market symbol....... CBBO
</TABLE>

- ---------------
(1) Excludes shares subject to the Underwriter's over-allotment option.

(2) Reflects all shares issued and outstanding as of September 14, 1998. Does
not include an aggregate of 408,838 shares of Common Stock reserved for
issuance under Columbia's stock incentive plan, 328,838 of which are subject
to outstanding options as of September 14, 1998. See
"Management -- Executive and Employee Compensation Plans."

5
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

The following table presents (1) summary historical financial data of
Columbia as of the dates and for the periods indicated and (2) summary pro forma
financial data giving effect to this Offering, the acquisition of Valley as
though the transaction had occurred immediately prior to January 1, 1997, with
respect to the Income Statement, and prior to June 30, 1998, with respect to the
Balance Sheet, and reclassification of Employee Stock Ownership Plan ("ESOP")
shareholders' equity subject to a put option. The summary pro forma financial
data are not necessarily indicative of operating results or financial position
that would have been achieved had these events been consummated on such dates
and should not be construed as representative of future operating results or
financial position. The summary historical and pro forma financial data should
be read in conjunction with the financial statements and related notes thereto
of Columbia and Valley, and with the "Pro Forma Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>

AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
PRO
FORMA,(1)
ACTUAL AS ADJUSTED
---------------------------------------------------- -----------
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income................................ $ 11,782 $ 12,220 $ 13,815 $ 15,385 $ 18,144 $ 21,136
Interest expense............................... 3,993 3,999 5,216 5,746 6,270 7,353
-------- -------- -------- -------- -------- --------
Net interest income............................ 7,789 8,221 8,599 9,639 11,874 13,783
Loan loss provision............................ 158 203 88 246 581 620
-------- -------- -------- -------- -------- --------
Net interest income after provision for loan
losses....................................... 7,631 8,018 8,511 9,393 11,293 13,163
Noninterest income............................. 1,298 1,486 1,552 1,799 2,481 2,753
Noninterest expense............................ 5,894 6,070 6,495 7,180 8,092 9,715
-------- -------- -------- -------- -------- --------
Income before provision for income taxes....... 3,035 3,434 3,568 4,012 5,682 6,201
Provision for income taxes..................... 962 1,098 1,079 1,285 1,795 2,147
-------- -------- -------- -------- -------- --------
Net income............................... $ 2,073 $ 2,336 $ 2,489 $ 2,727 $ 3,887 $ 4,054
======== ======== ======== ======== ======== ========
DIVIDENDS
Cash dividends declared and paid............... $ 451 $ 472 $ 555 $ 882 $ 842
Ratio of dividends to net income............... 21.76% 20.21% 22.30% 32.37% 21.67%
Per Share Data(2)
Basic earnings per common share................ $ 0.31 $ 0.35 $ 0.37 $ 0.41 $ 0.57 $ 0.52
Diluted earnings per common share.............. $ 0.31 $ 0.35 $ 0.36 $ 0.40 $ 0.56 $ 0.51
Book value per common share(3)................. $ 2.08 $ 2.32 $ 2.56 $ 2.83 $ 3.29
Weighted average shares outstanding:
Basic........................................ 6,596 6,688 6,693 6,732 6,801 7,801
Diluted...................................... 6,672 6,762 6,842 6,847 7,001 8,001
BALANCE SHEET DATA
Investment securities.......................... $ 57,574 $ 56,229 $ 49,454 $ 51,484 $ 48,804
Loans, net..................................... $ 81,335 $ 90,070 $104,178 $118,228 $155,219
Total assets................................... $161,138 $162,202 $178,486 $200,302 $231,827
Total deposits................................. $145,425 $142,803 $158,874 $178,744 $201,568
Shareholders' equity........................... $ 13,409 $ 15,186 $ 16,617 $ 18,475 $ 21,557
Selected Ratios(4)
Return on average assets....................... 1.38% 1.45% 1.46% 1.45% 1.77%
Return on average equity....................... 16.35% 16.80% 15.91% 15.64% 19.55%
Total loans to deposits........................ 55.93% 63.07% 65.57% 66.14% 77.00%
Net interest margin............................ 5.69% 5.74% 5.67% 5.74% 6.15%
Efficiency ratio(5)............................ 64.86% 62.53% 63.98% 62.77% 56.37%
ASSETS QUALITY RATIOS
Reserve for loans losses to:
Ending total loans........................... 1.20% 1.05% 1.02% 0.83% 1.04%
Nonperforming assets......................... 187.88% 500.00% 291.30% 384.17% 112.65%
Nonperforming assets to ending total assets.... 0.33% 0.12% 0.21% 0.04% 0.63%
Net loan charge-offs (recoveries) to average
loans........................................ 0.01% 0.27% (0.03)% 0.29% (0.04)%
CAPITAL RATIOS
Average shareholders' equity to average
assets....................................... 8.46% 8.60% 9.19% 9.27% 9.04%
Tier 1 capital ratio(6)........................ 13.18% 14.55% 14.40% 14.20% 13.70%
Total risk-based capital ratio(7).............. 14.16% 15.46% 15.20% 14.90% 14.70%
Leverage ratio(8).............................. 8.32% 9.47% 9.90% 9.90% 10.60%

<CAPTION>
AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30,
---------------------------------
PRO
FORMA,(1)
ACTUAL AS ADJUSTED
------------------- -----------
1997 1998 1998
-------- -------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA
Interest income................................ $ 8,579 $ 9,924 $ 11,504
Interest expense............................... 3,029 3,415 4,011
-------- -------- --------
Net interest income............................ 5,550 6,509 7,493
Loan loss provision............................ 250 450 450
-------- -------- --------
Net interest income after provision for loan
losses....................................... 5,300 6,059 7,043
Noninterest income............................. 1,037 2,077 2,210
Noninterest expense............................ 3,747 4,770 5,567
-------- -------- --------
Income before provision for income taxes....... 2,590 3,366 3,686
Provision for income taxes..................... 828 1,147 1,350
-------- -------- --------
Net income............................... $ 1,762 $ 2,219 $ 2,336
======== ======== ========
DIVIDENDS
Cash dividends declared and paid............... $ 385 $ 693
Ratio of dividends to net income............... 21.86% 31.26%
Per Share Data(2)
Basic earnings per common share................ $ 0.26 $ 0.32 $ 0.30
Diluted earnings per common share.............. $ 0.26 $ 0.31 $ 0.29
Book value per common share(3)................. $ 3.03 $ 3.40 $ 4.30
Weighted average shares outstanding:
Basic........................................ 6,787 6,917 7,917
Diluted...................................... 6,907 7,122 8,122
BALANCE SHEET DATA
Investment securities.......................... $ 50,739 $ 47,316 $ 52,912
Loans, net..................................... $142,438 $172,979 $195,024
Total assets................................... $220,396 $253,110 $293,959
Total deposits................................. $193,781 $218,421 $249,239
Shareholders' equity........................... $ 19,818 $ 22,571 $ 34,113
Selected Ratios(4)
Return on average assets....................... 1.70% 1.87%
Return on average equity....................... 18.41% 20.12%
Total loans to deposits........................ 73.50% 79.20%
Net interest margin............................ 6.02% 6.12%
Efficiency ratio(5)............................ 56.89% 55.56%
ASSETS QUALITY RATIOS
Reserve for loans losses to:
Ending total loans........................... 0.91% 0.95%
Nonperforming assets......................... 133.16% 88.90%
Nonperforming assets to ending total assets.... 0.45% 0.74%
Net loan charge-offs (recoveries) to average
loans........................................ (0.06)% 0.26%
CAPITAL RATIOS
Average shareholders' equity to average
assets....................................... 9.25% 9.30%
Tier 1 capital ratio(6)........................ 13.40% 13.26%
Total risk-based capital ratio(7).............. 14.30% 14.14%
Leverage ratio(8).............................. 9.90% 10.50%
</TABLE>

- ---------------
(1) For information regarding the pro forma adjustments made to Columbia's
historical financial data, see "Pro Forma Financial Statements."
(2) Per share data reflects retroactive restatement for stock splits in 1998
(3-for-2 and 2-for-1) and 1995 (3-for-1).
(3) Book value per common share has been computed exclusive of ESOP
shareholders' equity and related shares subject to a put option.
(4) Annualized, where appropriate.
(5) Efficiency ratio is noninterest expense divided by the sum of net interest
income plus noninterest income.
(6) Tier I capital divided by risk-weighted assets.
(7) Total capital divided by risk-weighted assets.
(8) Tier I capital divided by average total assets.
- --------------------------------------------------------------------------------

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus includes forward-looking statements that are based on the
current beliefs of Columbia's management as well as assumptions made by and
information currently available to Columbia's management. All statements other
than statements of historical facts included in this Prospectus, including
without limitation statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" regarding Columbia's financial position, business
strategy, and plans and objectives of management of Columbia for future
operations, are forward-looking statements. When used in this Prospectus, the
words "anticipate," "believe," "estimate," "expect," and "intend" and words or
phrases of similar meaning, as they relate to Columbia or its management, are
intended to identify forward-looking statements. Although Columbia believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from
Columbia's expectations ("cautionary statements") are disclosed under "Risk
Factors" and elsewhere in this Prospectus. Based upon changing conditions, if
any one or more of these risks or uncertainties materialize or if any underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected, or intended.
Columbia does not intend to update these forward-looking statements. All
subsequent written and oral forward-looking statements attributable to Columbia
or persons acting on its behalf are expressly qualified in their entirety by the
applicable cautionary statements.

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RISK FACTORS

Prospective investors should carefully consider and evaluate all of the
information set forth in this Prospectus, including these Risk Factors. This
list of Risk Factors may not be exhaustive.

MANAGEMENT OF GROWTH

Columbia has grown substantially since 1993 through merger and acquisition
activity, new branch openings, the introduction of new product lines, and
sustained increases in loans and deposits. Management expects the pace of growth
to continue through 1998 and into 1999 through a pending acquisition and
proposed new branch openings, which are described elsewhere in this Prospectus.
Such rapid growth has at times put high demands on Columbia's management, and
has required increased expenditures for new employees, enhanced training, office
space, and technology upgrades. Continued rapid growth will place further
demands on management, other personnel, computer and management systems, and
other parts of the Columbia organization, and may create problems of scale and
scope not faced when growth is more gradual. If not well managed, rapid growth
can adversely affect asset quality and earnings. There can be no assurance that
Columbia's management will successfully manage rapid increases in loans and
deposits, new branch openings, or future acquisitions, or that such growth will
result in an increase in earnings. See also "Risk Factors -- Completion and
Management of Valley Community Bancorp Acquisition."

POTENTIAL FUTURE ACQUISITIONS

Columbia from time to time considers potential acquisitions as part of its
growth strategy. Any future acquisitions would create potential risks and
uncertainties, including the need to obtain regulatory approval, and the
possible issuance of additional shares of Common Stock to pay for potential
acquisitions, which could effectively dilute the percentage ownership interest
of current Columbia shareholders. Also, there are only a limited number of
suitable acquisition candidates within Columbia's existing or potential market
areas, and many of these candidates would also be attractive acquisition
candidates for other financial institutions. Columbia's ability to grow through
acquisition could therefore be significantly constrained. Further, acquisition
negotiations and evaluations require substantial time and attention by
Columbia's executive officers, which takes their time away from daily
management. Aside from the pending acquisition of Valley, Columbia has no
potential acquisition transactions under consideration at present. However,
Columbia is likely to actively consider additional growth through acquisitions
in the near future if appropriate opportunities arise.

COMPLETION AND MANAGEMENT OF VALLEY COMMUNITY BANCORP ACQUISITION

Columbia has entered into a definitive agreement to acquire Valley. While
the closing of the Valley acquisition is anticipated by early 1999, it is
subject to certain conditions, including approval by banking regulators and
Valley's shareholders. No assurance can be given that the Valley acquisition
will occur. Also, managing Valley as part of the Columbia organization is
critical to the success of this transaction. While Columbia has experience in
managing growth through mergers and acquisitions, Valley is its first venture
into Oregon's Willamette Valley. Valley's business could decrease or stagnate if
Columbia does not effectively manage Valley as an integral part of the Columbia
organization. Unexpected employee departures, computer hardware or software
problems, the failure to maintain and improve customer service, or other
problems Columbia may not foresee, could affect Columbia's ability to realize
the benefits of the Valley acquisition. In addition, problems could arise with
the coordination of Valley's systems and procedures, including computer systems,
with Columbia's. Also, the Valley acquisition will occur while Columbia is
expanding on other fronts, including planned new branch openings in Pendleton
and Bend, Oregon. See "Risk Factors -- Management of Growth" and
"Business -- Pending Acquisition of Valley Community Bancorp."

A change in bank control often causes deposit losses, although management
believes that such losses should be minimal because the Valley acquisition will
not result in a name or location change or significant changes in personnel.
Nevertheless, after the transaction Valley may lose loan or deposit customers,
and no assurance can be given that Valley's deposits will remain at present
levels. Such a decrease could reduce

8
<PAGE> 10

Columbia's return on equity and cause Columbia to lose some of the anticipated
benefit of the Valley acquisition.

The acquisition of Valley for cash, even after the application of the
Offering proceeds, will significantly reduce the capital ratios of Columbia. For
example, had the Valley acquisition been completed as of June 30, 1998, and
based upon anticipated net proceeds from the Offering, Columbia's ratio of Tier
I capital to average assets would have been reduced from 10.50% to 8.29%.
Although the post-acquisition pro forma ratio is substantially above the
regulatory minimum of 3.00%, and Columbia would still qualify as "well
capitalized," the reduction in the capital-to-asset ratio and other regulatory
capital ratios could limit Columbia's future growth or ability to pursue other
acquisitions. Also, the Valley acquisition will cause the recognition of a
significant amount of goodwill and a charge to operations of approximately
$614,000 per year in each of the 15 years following the acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

If the Valley acquisition does not occur, Columbia will use the Offering
proceeds for other planned expansion purposes. Without the Valley acquisition,
however, Columbia may not be able to effectively utilize all of the proceeds
immediately, which could adversely affect its return on equity and earnings per
share. See "Use of Proceeds."

DEPENDENCE ON LOCAL ECONOMIES

Columbia does business in several different non-metropolitan communities,
some of which are economically linked because of geographic proximity, while
other areas may be influenced by different economic variables. For example,
Columbia's markets in Redmond and Bend, and to some extent Madras, are part of a
sub-regional central Oregon economy. Economic activity in central Oregon is not
closely linked to Columbia's two south central Washington branches. The
different areas Columbia serves have diverse, and to some extent independent,
economic characteristics, strengths and weaknesses, although all of these depend
to various degrees on agriculture, small business, and construction.

The areas served by Columbia include: (i) The Dalles and Hood River, which
depend on wheat, cherries, pears, apples, and other agricultural products, an
aluminum smelting facility and a variety of small business enterprises; (ii) the
central Oregon market, including Bend, Redmond and Madras, which benefits from
home construction and a growing service economy, resulting from rapid population
increases; (iii) the eastern Oregon market in Umatilla County, encompassing
Hermiston and Pendleton, which depends on wheat growing, cattle ranching, field
crops such as onions, hay, and potatoes, and a growing service and government
employment economy, (iv) the Klickitat County, Washington market, which has a
stable, dry-climate agricultural base, an aluminum smelting facility, and less
rapid population growth; and, (v) when the acquisition of Valley is completed,
Yamhill County, Oregon which has a diverse, wet-climate agricultural industry
and a diverse small business base. Given the varied economies of its market
areas, Columbia's management faces a challenge in effectively managing its
diverse loan portfolio.

Columbia's performance would be vulnerable to a general economic downturn,
which would affect loan demand and the collectibility of existing loans. In
addition, weakness in one of Columbia's market areas, or in one economic sector
such as agriculture, could depress Columbia's overall earnings and financial
condition.

COMPETITION

In recent years, competition for bank customers, the source of deposits and
loans, has greatly intensified. This competition comes from many sources,
including super-regional banks, such as Wells Fargo, Bank of America, and U.S.
Bank, which have well-established branches and significant market share in many
of the communities Columbia serves, and companies that offer bank-like products,
such as finance companies, investment banking and brokerage firms, and insurance
companies. Other competitors include credit unions, which can offer highly
competitive rates on loans and deposits because they receive tax advantages not
available to commercial banks; government-assisted farm credit programs that
offer competitive agricultural loans; other community banks, including start-up
banks, that can compete with Columbia for customers who

9
<PAGE> 11

desire a high degree of personal service and technology-based financial
institutions offering on-line deposit, bill payment, and mortgage loan
application services.

These competitors present different types of threats. For example, the
super-regionals have higher public visibility, and can spend more on advertising
and marketing than Columbia. The super-regionals can also make larger loans,
because single-borrower lending limits, which are set by law, increase with the
size of a bank's capital. Many of the super-regionals have the ability to retain
a substantial share of the market for bank customers in the same communities
Columbia serves, especially in larger communities such as Bend. Also, while the
super-regionals have for now largely reduced their presence as lenders in
smaller communities, they could in the future re-enter this arena and attempt to
win back loan and deposit customers by competing aggressively on price. Other
competition such as insurance companies, brokerage firms, and other non-bank
competitors are subject to less regulation than banks are, and therefore can be
more flexible in the products and services they offer.

Other existing single or multi-branch community banks, or new community
bank start-ups, have marketing strategies similar to Columbia's. These other
community banks can open new branches in the communities Columbia serves,
competing directly for customers who want the high level of service community
banks offer. Other community banks also compete for the same management
personnel and the same potential acquisition and merger candidates in Oregon and
Washington. See "Risk Factors -- Competition Due to Technological Change" and
"Business -- Competition."

Competition could also affect the outcome of the Valley acquisition.
McMinnville, Oregon is presently served by branches of five super-regional
banks, a credit union, a locally operated savings and loan, a mortgage company,
and a consumer-targeted brokerage firm. Valley's business could decrease as a
result of competition from such bank and non-bank competitors. There can be no
assurance that, because of competing products and services or other reasons,
Valley's loan and deposit customers will not go elsewhere as a result of such
continued competition. See "Risk Factors -- Completion and Management of Valley
Community Bancorp Acquisition."

COMPETITION DUE TO TECHNOLOGICAL CHANGE

Changes in technology, mostly from the growing use of computers and
computer-based technology, pose competitive challenges to community banks such
as Columbia. Large banking institutions typically offer on-line banking and
other banking products and services over the Internet, including deposit
services and mortgage loans, and have the ability to devote significant
resources to developing and maintaining such technology-based services. Other
bank competitors, such as brokerage houses, also offer competitive services
on-line. Some new banking competitors offer all of their services on-line.
Customers who bank by computer or by telephone need never set foot in a bank
branch. Columbia's high service philosophy emphasizes face-to-face contact with
tellers, loan officers, and other bank employees. Columbia believes its personal
approach to banking is a source of strength, one that will remain popular in the
non-metropolitan communities which are its natural marketplace. However,
customer preferences may change, and the rapid growth of on-line banking could,
at some point, render Columbia's personal, branch-based approach obsolete.
Columbia plans to partially address this risk by offering some on-line banking
services to its customers within the next 18 months, and by continuing to
provide 24-hour telephone banking services. There is no assurance, however, that
these efforts will be successful in preventing the loss of customers to
competitors. See "Business -- Competition."

THE YEAR 2000 ISSUE

All financial institutions, including Columbia, and the vendors that
provide them with technological products and services are potentially vulnerable
to the effects of the "Year 2000 Issue." Many computer software programs and
automated systems were designed to store calendar year data only for years
beginning with the digits "19." Consequently, for many such programs the entry
of the year "2000" will be read as "1900." If these programs and systems are not
re-coded, updated, or replaced prior to the Year 2000, this defect could cause
them to confuse data or fail entirely. In addition, many such programs and
systems will fail

10
<PAGE> 12

to recognize that the Year 2000 is a leap year. The issue extends beyond
computer systems, since every device with an embedded microchip, such as ATMs,
elevators, and vaults, could be adversely affected. Columbia is addressing the
impact of the Year 2000 Issue through its current and pending plans and
procedures, including computer system upgrades. However, there can be no
assurance that the Year 2000 Issue will not have a material adverse effect on
Columbia's earnings, business, and return on equity. See "Business -- The Year
2000 Issue" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

CREDIT RISK

Making loans is a key part of Columbia's business. This business requires
Columbia to take "credit risk," which is the risk of losing principal and
interest income because borrowers fail to repay loans. Columbia seeks to limit
this risk by following conservative underwriting practices and credit
guidelines, by taking collateral to secure repayment in most cases, and by
screening potential borrowers. However, collateral may not always assure
repayment, especially if it consists of depreciating assets such as automobiles
and equipment. For consumer loans, a job loss, illness, and other personal
factors can affect the borrower's financial stability and ability to repay.
Moreover, at any time there could be a downturn in the economy, the real estate
market or one or more agricultural sectors, or a rapid increase in interest
rates. These events could decrease collateral values, and could make it more
difficult for borrowers to repay. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

INTEREST RATE RISK

Columbia's earnings are largely derived from net interest income, which is
interest income and fees earned on loans and investment income, less interest
expense paid on deposits and other borrowings. Interest rates are highly
sensitive to many factors beyond Columbia's control, including general economic
conditions and the policies of governmental and regulatory authorities. As
interest rates change, net interest income is affected. With fixed rate assets
(such as fixed rate loans) and liabilities (such as certificates of deposit),
the effect on net interest income depends significantly on the maturity of the
asset or liability. Although Columbia strives to minimize interest rate risk
through asset/liability management policies, often maturities are not balanced.
Further, while rates have remained stable in recent periods, an unanticipated
rapid decrease or increase in interest rates could have an adverse effect on the
spreads between the interest rates earned on assets and the rates of interest
paid on liabilities, and therefore on the level of net interest income. In
addition, growth in Columbia's real estate loan business could be especially
harmed if interest rates rise. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

DEPENDENCE ON KEY PERSONNEL

Columbia's success depends heavily on the services of Terry L. Cochran, its
President and Chief Executive Officer, and on several other key executives who
have been instrumental in its growth. Columbia could be harmed if it lost the
services of any of these key executives. Except for Mr. Cochran, Columbia does
not maintain key person life insurance on these individuals. Columbia's rapid
growth has placed significant demands on Mr. Cochran's time, which is compounded
by the fact that he serves as President and Chief Executive Officer of both
Columbia and its banking subsidiary, CRB. Columbia may need to recruit
additional senior-level executives as its growth continues. However, the market
for suitable candidates for such positions is competitive. In addition, Columbia
may have difficulty attracting such candidates because these individuals may be
unwilling to relocate to a non-metropolitan city such as The Dalles. See
"Management."

LIMITED MARKET FOR THE COMMON STOCK

The market for the Common Stock is limited. The Common Stock currently is
quoted on the OTC Bulletin Board under the symbol "CBBO" but is not actively
traded. Columbia has applied for approval to list its Common Stock on the Nasdaq
National Market under the "CBBO" symbol. Even with a Nasdaq listing, however, an
active public market may not develop or be maintained for the shares. Also, the
market price could be subject to significant fluctuations in response to
variations in Columbia's quarterly operating results, changes in the general
conditions of the banking industry, and other factors. In addition, the price of
the shares

11
<PAGE> 13

may fluctuate substantially due to the effect of supply and demand in a limited
market. Even if an active market for the shares does develop, investors in the
Offering cannot be assured of being able to resell Common Stock purchased in the
Offering at or above the offering price. Certain sales of Common Stock by
affiliates and nonaffiliates may also affect the price of the shares. See
"Market Price of Common Stock" and "Shares Eligible for Future Sale."

SUPERVISION AND REGULATION

Columbia is supervised and regulated by federal and state governments. The
primary concern of the regulators is to protect depositors, not shareholders.
These regulators include the Federal Deposit Insurance Corporation, which
insures bank deposits, the Board of Governors of the Federal Reserve System, and
state-level regulators in Oregon and Washington. Federal and state regulations
place banks at a competitive disadvantage, because other non-bank competitors,
such as finance companies, credit unions, mortgage banking companies, and
leasing companies, are not subject to similar regulatory review. Within its
regulatory environment, Columbia has so far been able to compete effectively in
its market areas. However, there is no assurance it will continue to do so.
Also, future changes in federal and state banking regulations could cause
Columbia's operating results and its ability to continue to compete effectively
to be adversely affected. See "Supervision and Regulation."

ANTI-TAKEOVER EFFECT OF ARTICLES OF INCORPORATION AND APPLICABLE LAW

Columbia's Articles of Incorporation include anti-takeover provisions.
These are intended to make it difficult for a minority shareholder group or a
potential acquirer to gain control of Columbia. Some of these provisions include
staggered terms for directors, which make it difficult to replace the entire
Board, a three-fourths shareholder approval requirement for merger or
acquisition proposals that the Columbia Board of Directors does not support, and
a requirement that shareholders provide notice prior to bringing business before
an annual shareholder meeting. In addition, a three-fourths shareholder vote is
required to change these provisions.

The Columbia Board can also issue shares of preferred stock and determine
the rights, including voting rights, of such shares without shareholder
approval. Columbia has no present plans to issue shares of preferred stock.
There are also state and federal laws which have direct and indirect
anti-takeover effects. Such anti-takeover provisions and laws could depress the
value of Columbia's Common Stock, make it difficult to sell, or both. These
provisions may also deter persons or companies from making an offer to purchase
Columbia. Shareholders sometimes see a significant stock price increase when an
offer is made to purchase a company. When such offers are discouraged,
shareholders lose the benefit of a potential stock price gain. Also, other
potential investors may view anti-takeover provisions with disfavor, and decline
to buy the stock. See "Description of Capital Stock -- Anti-Takeover
Provisions -- Columbia's Articles of Incorporation" and "Description of Capital
Stock -- Anti-Takeover Provisions -- Legislation."

12
<PAGE> 14

USE OF PROCEEDS

The net proceeds to Columbia from the sale of the Common Stock offered at
the public offering price of $ per share are estimated to be $
million (approximately $ million if the Underwriter's over-allotment
option is exercised in full) after deduction of underwriting discounts and
commissions and expenses payable by Columbia.

Management expects to use the net proceeds of the Offering to fund its
pending expansion plans, including its planned branch openings in Pendleton and
Bend, Oregon, and its acquisition of Valley. In the unanticipated event the
Valley acquisition does not occur, the net proceeds will be used for Columbia's
other expansion projects , including other possible acquisitions and additional
branch openings. Prior to such use, the net proceeds will be invested in
short-term, investment-grade securities. Columbia has no agreements or
understandings, and is not presently engaged in discussions, relating to any
other possible acquisitions. See "Business -- Business Strategy" and "Risk
Factors -- Completion and Management of Valley Community Bancorp Acquisition."

Columbia currently exceeds all regulatory capital requirements and
therefore is not required to raise additional capital to comply with such
requirements. After the Valley acquisition, Columbia expects to continue to
exceed all regulatory capital requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Capital" and
"Supervision and Regulation."

13
<PAGE> 15

CAPITALIZATION

The following table sets forth, as of June 30, 1998, (i) the consolidated
capitalization of Columbia ("Actual"), (ii) the consolidated capitalization of
Columbia on an as adjusted basis giving effect to the Offering and application
of net proceeds therefrom and reclassification of ESOP shareholders' equity
subject to a put option ("As Adjusted"), and (iii) the consolidated
capitalization of Columbia on a pro forma as-adjusted basis giving effect to the
Valley acquisition, the Offering of an assumed 1,000,000 shares at a public
offering price estimated to be $10 per share and application of net proceeds
therefrom, and reclassification of ESOP shareholders' equity subject to a put
option ("Pro Forma As Adjusted"). See "Use of Proceeds." This table should be
read in conjunction with the historical and pro forma financial statements of
Columbia included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------------------
AS PRO FORMA(2)
ACTUAL ADJUSTED(1) AS ADJUSTED
------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY
Common stock, no par value 10,000,000 shares authorized;
6,936,782 shares issued and outstanding, 7,936,782
shares issued and outstanding, as adjusted(3).......... $ 5,954 $15,144 $15,144
Additional paid-in capital............................... 6,318 6,318 6,318
Retained earnings........................................ 12,657 12,657 12,657
Accumulated other comprehensive income, net of tax....... (6) (6) (6)
Less employee stock ownership plan shares subject to put-
option(4).............................................. (2,352) -- --
------- ------- -------
Total shareholders' equity............................... $22,571 $34,113 $34,113
======= ======= =======
CAPITAL RATIOS(5)
Tier T capital ratio
(Regulatory Minimum: 4.00%)............................ 13.26% 17.97% 12.33%
Total risk-based capital ratio
(Regulatory Minimum: 8.00%)............................ 14.14% 18.85% 13.42%
Leverage Capital Ratio
(Regulatory Minimum: 3.00%)............................ 10.50% 14.38% 8.29%
</TABLE>

- ---------------
(1) Reports Columbia on a pro forma basis assuming the issuance of 1,000,000
shares of common stock in the Offering with net estimated proceeds of $9.19
million and the reclassification of ESOP shareholders' equity subject to a
put option. See "Use of Proceeds."

(2) Reports Columbia on a pro forma basis assuming the issuance of 1,000,000
shares of common stock in the Offering with net estimated proceeds of $9.19
million, the acquisition of Valley for $15.10 million and the
reclassification of ESOP shareholders' equity subject to a put option.

(3) Adjusted for all Columbia stock splits, including the 2-for-1 stock split
effective September 11, 1998.

(4) "As Adjusted" and "Pro forma As Adjusted" amounts reflect reclassification
of ESOP shareholders' equity subject to put option as a result of Columbia's
assumed listing of the Common Stock on the Nasdaq National Market. See
"Notes to Columbia's Consolidated Financial Statements" and "Notes to
Columbia's Pro forma Financial Statements."

(5) Minimum ratios are established by Federal Deposit Insurance Corporation and
Federal Reserve regulations. See "Supervision and Regulation."

14
<PAGE> 16

MARKET PRICE OF COMMON STOCK

There has been only a limited market for the Common Stock prior to this
Offering. The Common Stock is currently quoted on the OTC Bulletin Board.
Columbia has applied for approval to list the Common Stock on the Nasdaq
National Market under the symbol "CBBO."

Through December 31, 1997, the Common Stock was not listed or quoted on any
exchange or quotation system, and Columbia endeavored to facilitate transactions
between shareholders and potential investors by keeping an informal record of
persons who had expressed an interest in buying or selling Common Stock, and by
acting as an intermediary between buyers and sellers. Columbia also kept
informal records as to transaction prices. Many transactions between buyers and
sellers occurred without Columbia's knowledge and involvement, and came to its
attention only after the fact when it was notified of a change in record
ownership. Consequently, the transaction price information for 1996 and 1997 is
based solely on prices which were reported to Columbia for specific transactions
by persons whose transactions came to its attention. The reported prices may not
represent all transactions in the shares traded for 1996 and 1997, and no
assurance can be given as to the accuracy of the reported prices, as the prices
were not independently verified.

Beginning in January 1998, several brokerage firms began serving as market
makers for the Common Stock and stock price information for the Common Stock
became available on the OTC Bulletin Board. The transaction prices for 1998 were
obtained from the high and low prices listed on the OTC Bulletin Board, and do
not include private transactions, if any. All prices for the periods shown have
been adjusted for all stock dividends and stock splits, including the 2-for-1
stock split effective September 11, 1998. Prices do not include retail markups,
markdowns, or commissions, and may not represent actual transactions.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996(1)
First Quarter.................................... $ 6.67 $ 6.17
Second Quarter................................... $ 6.67 $ 6.00
Third Quarter.................................... $ 6.67 $ 4.50
Fourth Quarter................................... $ 5.42 $ 4.42
1997(1)
First Quarter.................................... $ 5.67 $ 5.00
Second Quarter................................... $ 6.67 $ 5.17
Third Quarter.................................... $ 7.33 $ 6.00
Fourth Quarter................................... $ 8.33 $ 6.67
1998(2)
First Quarter.................................... $12.67 $ 8.17
Second Quarter................................... $12.38 $10.13
Third Quarter....................................
Fourth Quarter (through , 1998)...
</TABLE>

- ---------------
(1) Based solely on prices reported to Columbia without independent
verification.

(2) Based on prices quoted on the OTC Bulletin Board.

On September 14, 1998, the Common Stock was held of record by 1,122
shareholders. On , 1998, the closing price of the Common
Stock was $ per share.

15
<PAGE> 17

DIVIDEND POLICY

Columbia's ability to pay expenses and make cash dividend payments to
shareholders depends on earnings generated by its subsidiary CRB. Oregon and
federal banking laws and regulations place restrictions on the payment of
dividends by a bank to its shareholders. See "Supervision and
Regulation -- Dividends." The Board of Directors' dividend policy is to review
Columbia's financial performance, capital adequacy, regulatory compliance, and
cash resources and, if such review is favorable, to declare and pay a cash
dividend to shareholders quarterly. Although Columbia expects to continue to pay
cash dividends, future dividends could be reduced or eliminated as a result of
these limitations or at the discretion of the Board of Directors.

Since 1996, Columbia has declared and paid its shareholders the following
annual dividends, on a per share basis and as adjusted for subsequent stock
splits:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1996(1)............................................. $0.131
1997................................................ $0.124
1998(through June 30)(2)............................ $0.100
</TABLE>

- ---------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Shareholders' Equity"

(2) Excludes a cash dividend of $0.06 per share declared by Columbia's Board of
Directors on September 17, 1998, payable on November 1, 1998, to
shareholders of record as of October 15, 1998.

16
<PAGE> 18

COLUMBIA PRO FORMA FINANCIAL STATEMENTS

The following unaudited pro forma financial information of Columbia gives
effect to the acquisition of Valley, the receipt of the estimated net proceeds
from the Offering and the reclassification of ESOP shareholders' equity subject
to a put option. The pro forma balance sheet was prepared as if the Valley
acquisition had occurred prior to June 30, 1998. The pro forma statements of
income were prepared as if the Valley acquisition had occurred prior to the
beginning of the fiscal year presented.

The pro forma balance sheet and statements of income are not necessarily
indicative of the consolidated financial position or results of operations as
they might have been had the Valley acquisition and the Offering actually
occurred and the ESOP shareholders' equity subject to a put option actually been
reclassified on the dates indicated. The pro forma balance sheet and statements
of income should be read in conjunction with the consolidated financial
statements of Columbia and the consolidated financial statements of Valley
included elsewhere in this Prospectus.

UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA PRO FORMA,
COLUMBIA VALLEY ADJUSTMENTS AS ADJUSTED
--------- --------- ----------- -----------
(AUDITED) (AUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............................. $14,764 $2,404 $ $ 17,168
Interest on investment securities
Taxable investment securities........................ 2,258 308 2,566
Nontaxable investment securities..................... 736 83 819
Federal funds sold..................................... 221 475 (281)(a) 415
Other interest and dividend income..................... 165 3 168
------- ------ ----- ----------
Total interest income........................... 18,144 3,273 (281) 21,136
------- ------ ----- ----------
INTEREST EXPENSE
Interest-bearing demand and savings deposits........... 3,314 796 4,110
Time deposits.......................................... 2,772 287 3,059
Borrowed funds......................................... 184 -- 184
------- ------ ----- ----------
Total interest expense.......................... 6,270 1,083 -- 7,353
------- ------ ----- ----------
Net interest income............................. 11,874 2,190 (281) 13,783
PROVISION FOR LOAN LOSSES................................ 581 39 620
------- ------ ----- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...... 11,293 2,151 (281) 13,163
------- ------ ----- ----------
NONINTEREST INCOME
Service charges and fees............................... 1,545 252 1,797
Credit card discounts and fees......................... 390 -- 390
Financial services department.......................... 231 -- 231
Other noninterest income............................... 315 20 335
------- ------ ----- ----------
Total noninterest income........................ 2,481 272 -- 2,753
------- ------ ----- ----------
NONINTEREST EXPENSE
Salaries and employee benefits......................... 4,463 595 5,058
Occupancy expense...................................... 736 109 845
Credit card processing fees............................ 254 -- 254
Office supplies........................................ 200 68 268
FDIC assessment........................................ 20 3 23
Data processing expense................................ 304 121 425
Other noninterest expense.............................. 2,115 113 2,228
Goodwill amortization.................................. -- -- 614(b) 614
------- ------ ----- ----------
Total noninterest expense....................... 8,092 1,009 614 9,715
------- ------ ----- ----------
INCOME BEFORE INCOME TAXES............................... 5,682 1,414 (895) 6,201
PROVISION FOR INCOME TAXES............................... 1,795 448 (96)(c) 2,147
------- ------ ----- ----------
NET INCOME............................................... $ 3,887 $ 966 $(799) $ 4,054
======= ====== ===== ==========
EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share............................... $ 0.52
==========
Diluted earnings per share............................. $ 0.51
==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic.................................................. 7,800,970
==========
Diluted................................................ 8,001,403
==========
</TABLE>

17
<PAGE> 19

UNAUDITED PRO FORMA STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1998

<TABLE>
<CAPTION>
HISTORICAL
-------------------------- PRO FORMA PRO FORMA,
COLUMBIA VALLEY ADJUSTMENTS AS ADJUSTED
-------- ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans...................... $8,417 $ 1,210 $ $ 9,627
Interest on investment securities
Taxable investment securities................. 863 131 994
Nontaxable investment securities.............. 419 42 461
Federal funds sold.............................. 225 337 (140)(a) 422
------ ----------- ----- ----------
Total interest income.................... 9,924 1,720 (140) 11,504
------ ----------- ----- ----------
INTEREST EXPENSE
Interest-bearing demand and savings deposits.... 1,720 397 2,117
Time deposits................................... 1,486 197 1,683
Borrowed funds.................................. 209 2 211
------ ----------- ----- ----------
Total interest expense................... 3,415 596 -- 4,011
------ ----------- ----- ----------
Net interest income......................... 6,509 1,124 (140) 7,493
PROVISION FOR LOAN LOSSES......................... 450 -- 450
------ ----------- ----- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES.......................................... 6,059 1,124 (140) 7,043
------ ----------- ----- ----------
NONINTEREST INCOME
Service charges and fees........................ 834 130 964
Credit card discounts and fees.................. 185 -- 185
Financial services department................... 155 -- 155
Mortgage loan origination and processing........ 324 -- 324
Net gains on sale of loans...................... 177 -- 177
Other noninterest income........................ 402 3 405
------ ----------- ----- ----------
Total noninterest income................. 2,077 133 -- 2,210
------ ----------- ----- ----------
NONINTEREST EXPENSE
Salaries and employee benefits.................. 2,714 290 3,004
Occupancy expense............................... 449 56 505
Credit card processing fees..................... 124 -- 124
Office supplies................................. 79 36 115
FDIC assessment................................. 18 2 20
Data processing expense......................... 183 52 235
Other noninterest expense....................... 1,203 54 1,257
Goodwill amortization........................... -- -- 307(b) 307
------ ----------- ----- ----------
Total noninterest expense................ 4,770 490 307 5,567
------ ----------- ----- ----------
INCOME BEFORE INCOME TAXES........................ 3,366 767 (447) 3,686
PROVISION FOR INCOME TAXES........................ 1,147 251 (48)(c) 1,350
------ ----------- ----- ----------
NET INCOME........................................ 2,219 516 (399) 2,336
OTHER COMPREHENSIVE INCOME
Unrealized loss on available-for-sale
securities.................................... 19 (5) 14
Reclassification for gain included in net
income........................................ (35) -- (35)
------ ----------- ----- ----------
COMPREHENSIVE INCOME.............................. $2,203 $ 511 $(399) $ 2,315
====== =========== ===== ==========
EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share........................ $ 0.30
==========
Diluted earnings per share...................... $ 0.29
==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
Basic........................................... 7,916,582
==========
Diluted......................................... 8,121,612
==========
</TABLE>

18
<PAGE> 20

UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1998

<TABLE>
<CAPTION>
HISTORICAL
------------------------- PRO FORMA,
COLUMBIA VALLEY AS ADJUSTED PRO FORMA AS ADJUSTED
----------- ----------- ----------- --------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks........... $ 18,551 $ 2,212 $ $ 62(d) $ 20,825
Federal funds sold................ 4,230 5,715 9,190(f) (15,102)(e) 4,033
-------- ------- ------- -------- --------
Total cash and cash
equivalents............. 22,781 7,927 9,190 (15,040) 24,858
Investment securities
available-for-sale............. 29,338 5,588 8(g) 34,934
Investment securities
held-to-maturity............... 17,183 -- 17,183
Federal Home Loan Bank stock...... 795 -- 795
Loans held-for-sale............... 7,990 -- 7,990
Loans, net of allowance for loan
losses and unearned income..... 164,989 22,045 187,034
Premises and equipment, net....... 5,223 607 978(g) 6,808
Accrued interest and other
assets......................... 4,811 333 5,144
Goodwill.......................... -- -- (686)(g)
9,899(e) 9,213
-------- ------- ------- -------- --------
Total assets.............. $253,110 $36,602 $ 9,190 $ (4,841) $293,959
======== ======= ======= ======== ========
LIABILITIES
Deposits
Demand deposits................ $ 48,927 $ 6,761 $ $ $ 55,688
Interest-bearing demand
deposits..................... 86,602 14,671 101,273
Savings deposits............... 25,925 1,222 27,147
Time deposits.................. 56,967 8,164 65,131
-------- ------- ------- -------- --------
Total deposits............ 218,421 30,818 -- -- 249,239
Borrowed funds.................... 8,218 400 8,618
Accrued interest and other
liabilities.................... 1,548 141 300(g) 1,989
-------- ------- ------- -------- --------
Total liabilities......... 228,187 31,359 -- 300 259,846
ESOP SHAREHOLDERS' EQUITY SUBJECT TO
PUT OPTION........................ 2,352 -- (2,352)(h) --
-------- ------- ------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock................... -- 346 (346)(d) --
Common stock...................... 5,954 721 9,190(f) 408(d)
(1,129)(e) 15,144
Additional paid-in capital........ 6,318 1,455 (1,455)(e) 6,318
Retained earnings................. 12,657 2,614 (2,614)(e) 12,657
Accumulated other comprehensive
income......................... (6) 5 (5) (6)
Less: ESOP shareholders' equity
subject to put option.......... (2,352) -- 2,352(h) --
-------- ------- ------- -------- --------
Total shareholders'
equity.................. 22,571 5,141 11,542 (5,141) 34,113
-------- ------- ------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.... $253,110 $36,500 $ 9,190 $ (4,841) $293,959
======== ======= ======= ======== ========
</TABLE>

19
<PAGE> 21

NOTES TO PRO FORMA FINANCIAL STATEMENTS

(a) The amount represents estimated loss of earnings from funds used to acquire
Valley, assuming such funds would have earned a rate equivalent to the
average federal funds rate of approximately 5.5% earned by Columbia during
the period of the pro forma income statements.

(b) The amounts represent amortization of $9.21 million in goodwill and related
interest expense resulting from the Valley acquisition, assuming a 15-year
amortization period.

(c) The estimated tax effect of the acquisition transactions described in Notes
(a) and (b) have been computed at Columbia's effective tax rate of 34%. The
amortization of goodwill described in Note (b) is not tax deductible.

(d) Prior to the acquisition, all outstanding preferred shares of Valley will be
converted to common stock for $0.30 per share. This will result in an
increase in outstanding common stock of $408,000 and an increase in cash of
$62,000.

(e) Columbia will acquire all of Valley's outstanding common stock for $15.10
million. The total acquisition price is to be paid from the liquidation of
federal funds sold and investment securities.

(f) The acquisition of Valley by Columbia is not dependent upon the success of
the Offering. For purposes of pro forma presentation, it is assumed Columbia
will offer and sell 1,000,000 shares of Common Stock at a price of $10 per
share. The assumed net Offering proceeds of $9.19 million will assist in the
acquisition of Valley. It is currently anticipated that the Offering will be
completed before the effective date of the Valley acquisition. In the event
the Valley acquisition occurs first in time, Columbia anticipates that it
will borrow sufficient funds to complete the acquisition and will repay any
such borrowings immediately after the Offering with the offering proceeds.
Any costs of borrowing are not expected to be material to Columbia.
Accordingly, the pro forma financial statements do not include any such
costs of borrowing.

(g) The acquisition of Valley will be accounted for using the purchase method of
accounting under generally accepted accounting principles. Accordingly, the
net assets of Valley have been adjusted to their approximate fair values as
of June 30, 1998, for a combined increase in net assets of $686,000.

(h) Columbia has applied to the Nasdaq Stock Market for listing of its common
stock on the Nasdaq National Market. The pro forma financial statements
assume Columbia's application will be accepted and, as a result, ESOP
shareholders' equity subject to put option will be reclassified to
shareholders' equity. See "Notes to Columbia's Consolidated Financial
Statements."

20
<PAGE> 22

COLUMBIA SELECTED HISTORICAL FINANCIAL INFORMATION

The following table sets forth certain information concerning the
consolidated financial condition, operating results, and key operating ratios
for Columbia at the dates and for the periods indicated. The data for the six
months ended June 30, 1997 and 1998, are derived from unaudited consolidated
financial statements but, in the opinion of management, reflect all adjustments
necessary for a fair presentation of the data for these periods. Operating
results for the six months ended June 30, 1998, are not necessarily indicative
of the results that may be expected for the entire year ending December 31,
1998. This information does not purport to be complete, and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Consolidated Financial Statements of
Columbia and Notes thereto included in this Prospectus.

<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income............................. $ 11,782 $ 12,220 $ 13,815 $ 15,385 $ 18,144 $ 8,579 $ 9,924
Interest expense............................ 3,993 3,999 5,216 5,746 6,270 3,029 3,415
-------- -------- -------- -------- -------- -------- --------
Net interest income..................... 7,789 8,221 8,599 9,639 11,874 5,550 6,509
Loan loss provision......................... 158 203 88 246 581 250 450
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for loan
losses.................................... 7,631 8,018 8,511 9,393 11,293 5,300 6,059
Noninterest income.......................... 1,298 1,486 1,552 1,799 2,481 1,037 2,077
Noninterest expense......................... 5,894 6,070 6,495 7,180 8,092 3,747 4,770
-------- -------- -------- -------- -------- -------- --------
Income before provision for income taxes.... 3,035 3,434 3,568 4,012 5,682 2,590 3,366
Provision for income taxes.................. 962 1,098 1,079 1,285 1,795 828 1,147
-------- -------- -------- -------- -------- -------- --------
Net income.............................. $ 2,073 $ 2,336 $ 2,489 $ 2,727 $ 3,887 $ 1,762 $ 2,219
======== ======== ======== ======== ======== ======== ========
DIVIDENDS
Cash dividends declared and paid............ $ 451 $ 472 $ 555 $ 882 $ 842 $ 385 $ 693
Ratio of dividends to net income............ 21.76% 20.21% 22.30% 32.37% 21.67% 21.86% 31.26%
PER SHARE DATA(1)
Basic earnings per common share............. $ 0.31 $ 0.35 $ 0.37 $ 0.41 $ 0.57 $ 0.26 $ 0.32
Diluted earnings per common share........... $ 0.31 $ 0.35 $ 0.36 $ 0.40 $ 0.56 $ 0.26 $ 0.31
Book value per common share(2).............. $ 2.08 $ 2.32 $ 2.56 $ 2.83 $ 3.29 $ 3.03 $ 3.40
Weighted average shares outstanding
Basic..................................... 6,596 6,688 6,693 6,732 6,801 6,787 6,917
Diluted................................... 6,672 6,762 6,842 6,847 7,001 6,907 7,122
BALANCE SHEET DATA
Investment securities....................... $ 57,574 $ 56,229 $ 49,454 $ 51,484 $ 48,804 $ 50,739 $ 47,316
Loans, net.................................. $ 81,335 $ 90,070 $104,178 $118,228 $155,219 $142,438 $172,979
Total assets................................ $161,138 $162,202 $178,486 $200,302 $231,827 $220,396 $253,110
Total deposits.............................. $145,425 $142,803 $158,874 $178,744 $201,568 $193,781 $218,421
Shareholders' equity........................ $ 13,409 $ 15,186 $ 16,617 $ 18,475 $ 21,557 $ 19,818 $ 22,571
SELECTED RATIOS(3)
Return on average assets.................... 1.38% 1.45% 1.46% 1.45% 1.77% 1.70% 1.87%
Return on average equity.................... 16.35% 16.80% 15.91% 15.64% 19.55% 18.41% 20.12%
Total loans to deposits..................... 55.93% 63.07% 65.57% 66.14% 77.00% 73.50% 79.20%
Net interest margin......................... 5.69% 5.74% 5.67% 5.74% 6.15% 6.02% 6.12%
Efficiency ratio(4)......................... 64.86% 62.53% 63.98% 62.77% 56.37% 56.89% 55.56%
ASSET QUALITY RATIOS
Reserve for loans losses to:
Ending total loans........................ 1.20% 1.05% 1.02% 0.83% 1.04% 0.91% 0.95%
Nonperforming assets(5)................... 187.88% 500.00% 291.30% 384.17% 112.65% 133.16% 88.90%
Nonperforming assets to ending total
assets(5)................................. 0.33% 0.12% 0.21% 0.04% 0.63% 0.45% 0.74%
Net loan charge-offs (recoveries) to average
loans..................................... 0.01% 0.27% (0.03)% 0.29% (0.04)% (0.06)% 0.26%
CAPITAL RATIOS
Average shareholders' equity to average
assets.................................... 8.46% 8.60% 9.19% 9.27% 9.04% 9.25% 9.30%
Tier I capital ratio(6)..................... 13.18% 14.55% 14.40% 14.20% 13.70% 13.40% 13.26%
Total risk-based capital ratio(7)..... 14.16% 15.46% 15.20% 14.90% 14.70% 14.30% 14.14%
Leverage ratio(8)........................... 8.32% 9.47% 9.90% 9.90% 10.60% 9.90% 10.50%
</TABLE>

- ---------------
(1) Per share data reflects retroactive restatement for stock splits in 1998
(3-for-2 and 2-for-1) and 1995 (3-for-1).

(2) Book value per common share has been computed excluding ESOP shareholders'
equity and related shares subject to a put option.

(3) Annualized, where appropriate.

(4) Efficiency ratio is noninterest expense divided by the sum of net interest
income plus noninterest income.

(5) Nonperforming assets consist of nonaccrual loans, loans contractually past
due 70 days or more, and other real estate owned.

(6) Tier I capital divided by risk-weighted assets.

(7) Total capital divided by risk-weighted assets.

(8) Tier I capital divided by average total assets.

21
<PAGE> 23

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations includes a discussion of certain significant business
trends and uncertainties as well as other forward-looking statements and is
intended to be read in conjunction with and is qualified in its entirety by
reference to the Consolidated Financial Statements of Columbia and notes thereto
included elsewhere in this Prospectus. For a discussion of important factors
that could cause actual results to differ materially from such forward-looking
statements, see "Risk Factors."

INTRODUCTION

From its origins as a one-branch bank in The Dalles, Columbia has grown as
a result of merger and acquisition activity, new branch openings, the
introduction of new business lines, and the expansion and cross-marketing of its
existing products and community-bank lending expertise. In 1995, CRB merged with
Juniper Banking Company, and in 1996 Columbia was formed as CRB's holding
company. In 1996, Columbia acquired Washington-based Klickitat Valley Bank.
Further growth came from CRB's Hood River and Bend branch openings, and from the
expansion in 1997 of CRB's residential mortgage business. In August 1998,
Columbia signed an agreement to acquire Valley, and in September CRB opened a
new branch in Hermiston, Oregon. Columbia plans to open a new branch in
Pendleton, Oregon by early 1999, and to complete construction of a second Bend
branch, including facilities for a business lending group, by mid-1999.
According to information published by the State of Oregon, if the acquisition of
Valley had been completed as of June 30, 1998, Columbia would have ranked as the
4th largest bank based in Oregon. See "Business -- Pending Acquisition of Valley
Community Bancorp." Collectively, these growth and acquisition activities have
enabled Columbia to diversify its portfolio and its operating risk over several
market areas and local economies.

Columbia's goal is to grow its earning assets while maintaining a high
return on equity and keeping asset quality high. The key to this, in Columbia's
view, is to emphasize personal, quality banking products and services for its
customers, to hire and retain competent branch management and administrative
personnel, and to respond quickly to customer demand and growth opportunities.
Columbia also intends to increase its market penetration in its existing
markets, and to expand into new markets through further suitable acquisitions
and through new branch openings. Columbia's success in achieving its goal to
increase earning assets without compromising its commitment to high asset
quality is demonstrated in the following table:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------- ------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding loans at end of
period, net of unearned
interest income............... $82,328 $91,024 $105,250 $119,223 $156,858 $174,644
Net charge-offs (recoveries).... $ 9 $ 240 $ (29) $ 324 $ (63) $ 423
Ratio of net loans charged-off
(recovered) to average
outstanding loans............. 0.01% 0.27% (0.03)% 0.29% (0.04)% 0.26%
</TABLE>

For the six months ended June 30, 1998, net income was $2.22 million, an
increase of 26.13% over net income of $1.76 million earned during the six months
ended June 30, 1997. Diluted earnings per share were $0.31 and $0.26 for the six
months ended June 30, 1998 and June 30, 1997, respectively. Annualized return on
average assets was 1.87% for the six months ended June 30, 1998, compared with
1.70% for the comparable six months in 1997. For the first six months of 1998,
annualized return on average equity was 20.12%, compared with 18.41% during the
first six months of 1997. The increase in earnings for the six months ended June
30, 1998, versus the comparable period in 1997 can be attributed to growth in
earning assets, deposits, fee income growth, increased customer activity at the
Bend branch (opened in late 1996), and greater operating efficiency.

22
<PAGE> 24

For the year ended December 31, 1997, net income was $3.89 million,
representing an increase of 42.49% over net income of $2.73 million earned
during the year ended December 31, 1996. Net income for 1996 was up 9.64% from
$2.49 million for the year ended December 31, 1995. Diluted earnings per share
were $0.56, $0.40, and $0.36 for the years ended December 31, 1997, 1996, and
1995, respectively. Return on average assets was 1.77% for the year ended
December 31, 1997, compared with 1.45% for the year ended December 31, 1996, and
1.46% in 1995. Return on average equity was 19.55% for the year ended December
31, 1997, compared with 15.64% for the year ended December 31, 1996, and 15.91%
for the year ended December 31, 1995.

Return on average daily assets and equity and certain other ratios for the
periods indicated are presented below:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $ 2,073 $ 2,336 $ 2,489 $ 2,727 $ 3,887 $ 1,762 $ 2,219
Average assets.......... 149,971 161,671 170,352 188,061 219,905 207,053 237,246
RETURN ON AVERAGE
ASSETS................ 1.38% 1.45% 1.46% 1.45% 1.77% 1.70% 1.87%

Net income.............. $ 2,073 $ 2,336 $ 2,489 $ 2,727 $ 3,887 $ 1,762 $ 2,219
Average equity.......... 12,681 13,910 15,649 17,440 19,875 19,147 22,061
RETURN ON AVERAGE
EQUITY................ 16.35% 16.80% 15.91% 15.64% 19.55% 18.41% 20.12%

Cash dividends declared
and paid per share.... $ 0.07 $ 0.07 $ 0.08 $ 0.13 $ 0.12 $ 0.06 $ 0.10
Basic earnings per
common share.......... 0.31 0.35 0.37 0.41 0.57 0.26 0.32
DIVIDEND PAYOUT RATIO... 21.76% 20.21% 22.30% 32.37% 21.67% 21.86% 31.26%

Average equity.......... $ 12,681 $ 13,910 $ 15,649 $ 17,440 $ 19,875 $ 19,147 $ 22,061
Average assets.......... 149,971 161,671 170,352 188,061 219,905 207,053 237,246
AVERAGE EQUITY TO ASSET
RATIO................. 8.46% 8.60% 9.19% 9.27% 9.04% 9.25% 9.30%
</TABLE>

23
<PAGE> 25

RESULTS OF OPERATIONS

NET INTEREST INCOME

For financial institutions, the primary component of earnings is net
interest income. Net interest income is the difference between interest income,
principally from loan and investment security 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. Net interest margin is the ratio of net interest
income to total average interest-earning assets and is influenced by the
relative levels of interest-earning assets and interest-bearing liabilities.

Average Balances and Average Rates Earned and Paid. The following table
shows average balances and interest income or interest expense, with the
resulting average yield or rates by category of earning assets or
interest-bearing liabilities:
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31, 1997
-------------------------------- --------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELDS OR AVERAGE INCOME OR YIELDS OR
BALANCE EXPENSE RATES BALANCE EXPENSE RATES
-------- --------- --------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans............................ $111,841 $11,855 10.60% $140,891 $14,764 10.48%
Investment securities
Taxable securities............. 34,781 2,074 5.96 36,826 2,296 6.24
Nontaxable securities(2)....... 14,964 1,168 7.80 15,112 1,114 7.37
Interest-earning balances due
from banks..................... 2,129 96 4.51 2,322 127 5.45
Federal funds sold............... 11,182 589 5.27 4,114 221 5.38
-------- ------- ----- -------- ------- -----
Total interest-earning
assets(1)................ 174,897 15,782 9.02 199,265 18,522 9.30
Cash and due from banks.......... 7,976 14,091
Premises and equipment, net...... 4,092 5,096
Loan loss allowance.............. (1,153) (1,315)
Other assets..................... 2,249 2,768
-------- --------
Total assets............... $188,061 $219,905
======== ========
Interest-bearing liabilities:
Interest-bearing checking and
savings accounts............... $ 90,062 $ 2,967 3.29% $102,005 $ 3,313 3.25%
Time deposit and IRA accounts.... 49,286 2,717 5.51 51,164 2,772 5.42
Borrowed funds................... 1,073 62 5.66 3,236 185 5.68
-------- ------- ----- -------- ------- -----
Total interest-bearing
liabilities.............. 140,421 5,746 4.09 156,405 6,270 4.01
Noninterest-bearing deposits..... 28,328 38,299
Other liabilities................ 1,872 5,326
-------- --------
Total liabilities.......... 170,621 200,030
Shareholders' equity............. 17,440 19,875
-------- --------
Total liabilities and
shareholders' equity..... $188,061 $219,905
======== ========
Net interest income.............. $10,036 $12,252
======= =======
Net interest spread................ 4.93% 5.29%
===== =====
Average yield on average earning
assets(2)........................ 9.02% 9.30%
===== =====
Interest expense to average earning
assets(1)........................ 3.29% 3.15%
===== =====
Net interest margin(3)............. 5.74% 6.15%
===== =====

<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998(4)
--------------------------------
INTEREST AVERAGE
AVERAGE INCOME OR YIELDS OR
BALANCE EXPENSE RATES
-------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Loans............................ $165,440 $ 8,417 10.18%
Investment securities
Taxable securities............. 31,434 925 5.89
Nontaxable securities(2)....... 16,576 636 7.67
Interest-earning balances due
from banks..................... 2,198 53 4.81
Federal funds sold............... 4,058 110 5.44
-------- ------- -----
Total interest-earning
assets(1)................ 219,706 10,141 9.23
Cash and due from banks.......... 10,779
Premises and equipment, net...... 5,258
Loan loss allowance.............. (1,857)
Other assets..................... 3,360
--------
Total assets............... $237,246
========
Interest-bearing liabilities:
Interest-bearing checking and
savings accounts............... $107,837 $ 1,720 3.19%
Time deposit and IRA accounts.... 54,294 1,486 5.47
Borrowed funds................... 7,591 209 5.52
-------- ------- -----
Total interest-bearing
liabilities.............. 169,722 3,415 4.02
Noninterest-bearing deposits..... 42,069
Other liabilities................ 3,394
--------
Total liabilities.......... 215,185
Shareholders' equity............. 22,061
--------
Total liabilities and
shareholders' equity..... $237,246
========
Net interest income.............. $ 6,726
=======
Net interest spread................ 5.21%
=====
Average yield on average earning
assets(2)........................ 9.23%
=====
Interest expense to average earning
assets(1)........................ 3.11%
=====
Net interest margin(3)............. 6.12%
=====
</TABLE>

- ---------------
(1) Nonaccrual loans are included in the average balance.

(2) Tax-exempt income has been adjusted to a tax-equivalent basis at 34%.

(3) Net interest margin is computed by dividing net interest income by total
average earning assets.

(4) Average yields and rates for the six months ended June 30, 1998, have been
annualized.

24
<PAGE> 26

Analysis of Changes in Interest Differential. The following table shows the
dollar amount of the increase (decrease) in Columbia's net interest income and
expense and attributes such dollar amounts to changes in volume as well as
changes in rates. Rate and volume variances have been allocated proportionally
between rate and volume changes:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 OVER 1995 1997 OVER 1996 1998 OVER 1997
----------------------- ----------------------- -----------------------
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO DUE TO
----------------------- ----------------------- -----------------------
NET NET NET
VOLUME RATE CHANGE VOLUME RATE CHANGE VOLUME RATE CHANGE
------ ----- ------ ------ ----- ------ ------ ----- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans........................................... $1,613 $(370) $1,243 $3,079 $(169) $2,910 $1,828 $(272) $1,556
Investment securities
Taxable securities............................ (261) 182 (79) 122 100 222 (186) (37) (223)
Nontaxable securities......................... 140 29 169 12 (65) (53) 33 28 61
Balances due from banks......................... 33 15 48 8 22 30 (18) (8) (26)
Federal funds sold.............................. 232 14 246 (372) 4 (368) (3) 1 (2)
------ ----- ------ ------ ----- ------ ------ ----- ------
Total*.................................... 1,757 (130) 1,627 2,849 (108) 2,741 1,654 (288) 1,366
------ ----- ------ ------ ----- ------ ------ ----- ------
Interest-bearing liabilities:
Interest-bearing checking and savings
accounts...................................... 335 (56) 279 393 (47) 346 158 (36) 122
Time deposits................................... 282 66 348 104 (49) 55 57 26 83
Borrowed funds.................................. (94) (4) (98) 122 1 123 173 8 181
------ ----- ------ ------ ----- ------ ------ ----- ------
Total..................................... 523 6 529 619 (95) 524 388 (2) 386
------ ----- ------ ------ ----- ------ ------ ----- ------
Net increase (decrease) in net interest income.... $1,234 $(136) $1,098 $2,230 $ (13) $2,217 $1,266 $(286) $ 980
====== ===== ====== ====== ===== ====== ====== ===== ======
</TABLE>

- ---------------
* Tax-exempt income has been adjusted to a tax equivalent basis at a 34% rate.

25
<PAGE> 27

SIX MONTHS ENDED JUNE 30, 1997 AND 1998

Net interest income for the six months ended June 30, 1998, was $6.51
million, an increase of $959,000 over the corresponding period in 1997. The
increase in net interest income is attributable to $1.35 million in income
earned from interest-earning assets, offset by $386,000 additional expense from
interest-bearing liabilities. Interest expense increased 12.75% to $3.42 million
for the first six months of 1998 compared to $3.03 million for the corresponding
period in 1997. The increase in interest expense was primarily a result of the
growth of interest-bearing checking and savings accounts and the cost of
borrowed funds.

Total interest-earning assets averaged $219.71 million for the six months
ended June 30, 1998, compared to $190.80 million for the corresponding period in
1997. Most of the increase was due to an increase in loans. Increases in the
loan portfolio are attributed to growth from the Columbia River Bank Mortgage
Group in Bend, Oregon which opened during the third quarter of 1997;
opportunities afforded by the banking industry's consolidation and closure of
branches in Columbia's market areas; and, the additional hiring of senior
lending personnel in strategic branch locations and administrative capacities.
The average yield on interest-earning assets, when adjusted to reflect the tax
benefits on certain types of investments, increased to 9.23% during the first
six months of 1998, compared to 9.20% for the corresponding period in 1997.

Interest-bearing liabilities averaged $169.72 million during the first six
months of 1998 compared to $151.35 million during the same period in 1997. The
average cost of these liabilities increased in the first six months of 1998 to
4.02% from 4.00% in the first six months of 1997. The average cost of
interest-bearing liabilities increased primarily as a result of time deposit
promotional programs initiated in 1998. Although further competitive pressure is
expected in expanding deposit relationships, management, as a matter of policy,
does not seek to attract high-priced, brokered deposits. In the near-term,
management does not anticipate Columbia's net interest margins will be
significantly impacted by competitive pressure for deposit accounts.

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

Net interest income for the year ended December 31, 1997 was $11.87
million, an increase of $2.23 million or 23.13% compared to net interest income
of $9.64 million in 1996, which was $1.04 million or 12.10% higher than the
$8.60 million reported in 1995. The overall tax-equivalent earning asset yield
was 9.30% in 1997 compared to 9.02% in 1996 and 8.98% in 1995. For the same
years, rates on interest-bearing liabilities were 4.01%, 4.09%, and 4.12%,
respectively. These results were primarily due to an increase in the volume of
earning assets and the growth of noninterest-bearing deposits. For the
three-year period 1995 through 1997, the average yield on earning assets
increased 0.32% while rates paid on interest-bearing liabilities decreased by
0.11%. Average loans increased 45.12% while average noninterest-bearing deposits
increased 56.98%.

Loans, which generally carry a higher yield than investment securities and
other earning assets, comprised 70.71% of average earning assets during 1997,
compared to 63.95% in 1996 and 61.56% in 1995. During the same periods, average
yields on loans were 10.48% in 1997, 10.60% in 1996, and 10.93% in 1995.
Investment securities comprised 26.06% of average earning assets in 1997, which
was down from 28.44% in 1996 and 33.41% in 1995. The decrease in the portfolio
of investment securities has provided funds for Columbia's strong loan growth.
Tax equivalent interest yields on investment securities have ranged from 6.57%
in 1997 to 6.52% in 1996 and 5.98% in 1995.

Interest cost, as a percentage of earning assets, decreased to 3.15% in
1997, compared to 3.29% in 1996 and 3.31% in 1995. Local competitive pricing
conditions and funding needs for Columbia's investments in loans have been the
primary determinants of rates paid for deposits during these three years.

PROVISION FOR LOAN LOSSES

The provision for loan losses represents charges made to earnings to
maintain an adequate allowance for loan losses. The allowance is maintained at
an amount believed to be sufficient to absorb losses in the loan portfolio.
Factors considered in establishing an appropriate allowance include a careful
assessment of the

26
<PAGE> 28

financial condition of the borrower; a realistic determination of the value and
adequacy of underlying collateral; the condition of the local economy and the
condition of the specific industry of the borrower; a comprehensive analysis of
the levels and trends of loan categories; and, a review of delinquent and
classified loans. Columbia applies a systematic process for determining the
adequacy of the allowance for loan losses, including an internal loan review
function and a quarterly analysis of the adequacy of the allowance. The
quarterly analysis includes determination of specific potential loss factors on
individual classified loans, historical potential loss factors derived from
actual net charge-off experience and trends in nonperforming loans, and
potential loss factors for other loan portfolio risks such as loan
concentrations, local economy, and the nature and volume of loans.

The recorded values of loans actually removed from the consolidated balance
sheets are referred to as charge-offs and, after netting out recoveries on
previously charged-off assets, become net charge-offs. Columbia's policy is to
charge-off loans, when, in management's opinion, the loan or a portion thereof
is deemed uncollectible, although concerted efforts are made to maximize
recovery. Columbia's historical net loan losses or recoveries stem from
Columbia's underwriting and collection practices, the strength in the local
economy, and the quality of the loan portfolio. When a charge to the loan loss
provision is recorded, the amount is based on past charge-off experience, a
careful analysis of the current portfolio, and evaluation of future economic
trends in Columbia's market areas. Management will continue to closely monitor
the loan quality of new and existing relationships through stringent review and
evaluation procedures as well as making loan officers accountable for collection
efforts. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Loan Losses and Recoveries."

SIX MONTHS ENDED JUNE 30, 1997 AND 1998

For the six months ended June 30, 1998, management charged $450,000 to
Columbia's provision for loan losses. This was a $200,000 or 80.00% increase
over the provision for loan losses recorded during the first six months of 1997.
The increase in the provision for loan losses was necessary to accommodate the
growth in Columbia's loan portfolio, to establish a reserve for potential losses
consistent with revisions in Columbia's loan policy, and to replenish the
allowance for loan losses for charge-offs incurred during 1998.

During the first six months of 1998, loan charge-offs exceeded recoveries
by $423,000. During the six months ended June 30, 1997, Columbia's loan
recoveries actually exceeded charge-offs by $74,000. The increased loss
experience in 1998 was due principally to the recognition of a $206,000 loss
from a loan made at Columbia's Goldendale, Washington branch. This loan
originated and was subject to loan underwriting policies of Klickitat Valley
Bank prior to its acquisition by Columbia. All remaining net charge-offs
incurred by Columbia through the first six months of 1998 were smaller in amount
and generally distributed evenly among all other branch locations.

YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997

For the years ended December 31, 1995 through 1997, Columbia charged
$88,000, $246,000, and $581,000, respectively, to its provision for loan losses.
During this period, average outstanding loans grew 45.12% and the allowance for
loan losses kept pace by increasing 52.89% through charges to the provision for
loan losses. Because its historical ratio of net charge-offs to average
outstanding loans has been low and has not exceeded 0.30% for years ended 1993
through 1997, Columbia's provision for loan losses has primarily increased due
to strong loan demand and the resulting growth in its loan portfolio.

NONINTEREST INCOME

SIX MONTHS ENDED JUNE 30, 1997 AND 1998

Noninterest income is primarily derived from service charges and related
fees, as well as mortgage origination and processing fees. Such income increased
$1.04 million, or 100.35% for the six-month period ended June 30, 1998, compared
to the six months ended June 30, 1997. The principal reason for this increase
was income generated by Columbia's mortgage lending division, which was formed
in September of 1997, and

27
<PAGE> 29

which operates under the name "Columbia River Bank Mortgage Group." During the
first six months of 1998, this division generated $501,000 in income from
originating, processing, servicing, and selling mortgage loans. The increase was
also the result of increasing deposit volumes and related service fees. Service
charges were $834,000 for the six months ended June 30, 1998, compared to
$658,000 for the six months ended June 30, 1997. The remainder of the increase
in noninterest income is primarily attributable to improved revenues received
from credit card discounts and fees, investment fee income provided by
Columbia's financial services department, and other noninterest fees and
charges.

YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997

Total noninterest income increased through year-end 1997 from 1995. Over
this three-year period, noninterest income increased from $1.55 million in 1995,
to $1.80 million in 1996, and to $2.48 million in 1997. The increase is
principally due to service charges, including fees charged on deposit accounts.
In 1997, service charges were over 41% higher than in the previous year.
Management attributes this to the increase in customers served at all of
Columbia's branches. In addition, consistently strong performance in Columbia's
financial services department, which provides investment services to bank
customers, and its bank card business added to the 59.86% increase from 1995 to
1997 in overall noninterest income. Columbia does not actively trade or sell its
investment securities, and received no material income from such transactions
during the period from 1995 to 1997.

NONINTEREST EXPENSE

SIX MONTHS ENDED JUNE 30, 1997 AND 1998

Noninterest expenses consist principally of employees' salaries and
benefits, occupancy costs, data processing expenses, and other noninterest
expenses. A measure of Columbia's ability to contain noninterest expenses is the
efficiency ratio. This statistic is derived by dividing total noninterest
expense by total net interest income and noninterest income. For the six months
ended June 30, 1998, the ratio had improved to 55.56% compared to 56.89% for the
corresponding period of 1997. The efficiency ratio demonstrates management's
ability to monitor and control noninterest expense.

Noninterest expense increased $1.02 million, or 27.30%, to $4.77 million
for the six months ended June 30, 1998, compared to $3.75 million in the
corresponding period of 1997. This was due to an increase in staffing costs, as
well as increases in other key operating costs such as occupancy expense and
supplies, primarily relating to the formation and staffing of Columbia River
Bank Mortgage Group. Columbia's investments in new and expanded technology for
the mortgage group's operations, to support internal services, and to provide
additional technology-based products for CRB's customers also resulted in
expense increases.

Columbia's net occupancy expense is likely to increase in 1998 and 1999 due
to the planned opening of new branch facilities, including new branches in
Pendleton and Bend, Oregon, the commencement of operations at the new Hermiston
branch, and the pending acquisition of Valley.

YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

Noninterest expense was $8.09 million for the year ended December 31, 1997,
an increase from $7.18 million for the year ended December 31, 1996, and $6.50
million for the year ended December 31, 1995. The change was attributed
primarily to increases in salary and benefit expense, net occupancy expense, and
costs for data processing. In 1997, Columbia's total noninterest expense was
56.37% of net revenues, while in 1996 and 1995 it was 62.78% and 63.98%,
respectively, of net revenues.

Salary and benefit expense was $4.46 million in 1997, $3.97 million in
1996, and $3.61 million in 1995. As of December 31, 1997, Columbia had 133
full-time equivalent employees, which compares to 132 as of December 31, 1996,
and 104 as of December 31, 1995. The increase in this expense category was the
result of a full year of staffing Columbia's first branch office in Bend,
Oregon, which opened in late 1996, plus the expense of forming and staffing the
Columbia River Bank Mortgage Group. Another contributing factor was the normal
expense increases associated with maintaining an expanded employee base.

28
<PAGE> 30

Net occupancy expense consists of depreciation on premises and equipment,
maintenance and repair expenses, utilities, and related expenses. Columbia's net
occupancy expense increased steadily over the three-year period. This expense
category was $736,000 in 1997, an increase of $82,000, or 12.60%, over the
$654,000 reported in 1996. From 1995 to 1996, net occupancy expense increased by
$88,000, from $566,000 to $654,000, an increase of 15.55%. These increases
reflect the first full year of operation of the Bend, Oregon, branch and costs
relating to continued investment in Columbia's computer systems, which have been
upgraded throughout the organization.

FDIC insurance premiums are a function of outstanding deposit liabilities.
Insurance expense decreased nearly $156,000 or 48.46% in 1995 over the prior
year when Columbia received a premium refund from the FDIC after the Bank
Insurance Fund was recapitalized. Because the Bank Insurance Fund has since been
adequately capitalized, Columbia was required to make only nominal premium
payments in 1996 and 1997. For the three year period ended December 31, 1997,
Columbia was qualified to pay the lowest premium available for its deposit
insurance coverage.

Other noninterest expense increases arose from investments in technology
and data processing, and in new service delivery channels to enable Columbia to
continue its focus on efficient, personal service. Data processing expenses
increased 31.33% in 1997 over the previous year, which reflects both the growth
of Columbia's customer base and the integration of the data processing
operations of Klickitat with Columbia's operations.

One factor that will impact expenses in the immediate future is the Year
2000 Issue. Management has initiated an organization-wide program to prepare
Columbia's computer systems and applications for the year 2000. See
"Business -- The Year 2000 Issue." Testing and converting systems and
applications is expected to cost between $500,000 to $1 million over the next
three years, and could be higher. A significant portion of this expense,
however, is not likely to be incremental to Columbia, but will instead represent
the reassignment of existing personnel to address the problem. Further, Columbia
will, when possible, continue to use its existing technology resources,
including hardware, software and scheduled upgrades, to respond to the Year 2000
Issue. However, there can be no assurance that the expenses associated with the
Year 2000 Issue will not have a material adverse impact on Columbia. See
"Disclosure Regarding Forward-Looking Statements" and "Risk Factors -- The Year
2000 Issue."

INCOME TAXES

The provision for income taxes for the six-month period ended June 30,
1998, was $1.15 million representing an effective tax rate of 34.07%, compared
to $828,000 or 31.95% for the six-month period ended June 30, 1997.

The provision for income taxes was $1.80 million in 1997, $1.29 million in
1996, and $1.08 million in 1995. The provision resulted in effective combined
federal and state tax rates of 31.60% in 1997, 32.03% in 1996, and 30.24% in
1995. Effective tax rates differ from combined estimated statutory rates of 38%
principally due to the effects of nontaxable interest income which is recognized
for book but not for tax purposes. In addition, during 1995 Columbia's state
income tax rate was reduced 42.2% from 6.60% to 3.81% and 50% from 6.60% to
3.30% in 1998 as a result of surplus revenues received by the State of Oregon.

29
<PAGE> 31

FINANCIAL CONDITION

SUMMARY BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, INCREASE (DECREASE)
------------------------------ -----------------------------------------
1995 1996 1997 12/31/95-12/31/96 12/31/96-12/31/97
-------- -------- -------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold..... $ 6,273 $ 7,367 $ 2,834 $ 1,094 17.45% $ (4,533) 61.53%
Investments............ 49,454 51,484 48,804 2,030 4.11% (2,680) (5.21)%
Loans.................. 104,178 118,228 155,219 14,050 13.49% 36,991 31.29%
Other assets(1)........ 18,581 23,223 24,970 4,642 24.98% 1,747 7.53%
-------- -------- -------- ------- ----- -------- ------
Total assets..... $178,486 $200,302 $231,827 $21,816 12.22% $ 31,525 15.74%
======== ======== ======== ======= ========
LIABILITIES
Noninterest-bearing
deposits............. $ 28,290 $ 33,549 $ 46,377 $ 5,259 18.59% $ 12,828 38.24%
Interest-bearing
deposits............. 130,584 145,195 155,191 14,611 11.19% 9,996 6.88%
-------- -------- -------- ------- ----- -------- ------
Total deposits... 158,874 178,744 201,568 19,870 12.51% 22,824 12.77%
Other liabilities(2)..... 2,995 3,083 8,702 88 2.98% 5,619 182.23%
-------- -------- -------- ------- ----- -------- ------
Total
liabilities.... 161,869 181,827 210,270 19,958 12.33% 28,443 15.64%
SHAREHOLDERS' EQUITY..... 16,617 18,475 21,557 1,858 11.18% 3,082 16.68%
-------- -------- -------- ------- ----- -------- ------
Total liabilities
and
shareholders'
equity......... $178,486 $200,302 $231,827 $21,816 12.22% $ 31,525 15.74%
======== ======== ======== ======= ========

<CAPTION>
JUNE 30, INCREASE (DECREASE)
-------- -------------------
1998 12/31/97-6/30/98
-------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Federal funds sold..... $ 4,230 $ 1,396 49.25%
Investments............ 47,316 (1,488) (3.05)%
Loans.................. 172,979 17,760 11.44%
Other assets(1)........ 28,585 3,615 14.48%
-------- ------- -----
Total assets..... $253,110 $21,283 9.18%
======== =======
LIABILITIES
Noninterest-bearing
deposits............. $ 48,927 $ 2,550 5.50%
Interest-bearing
deposits............. 169,494 14,303 9.22%
-------- ------- -----
Total deposits... 218,421 16,853 8.36%
Other liabilities(2)..... 12,118 3,416 39.26%
-------- ------- -----
Total
liabilities.... 230,539 20,269 9.64%
SHAREHOLDERS' EQUITY..... 22,571 1,014 4.71%
-------- ------- -----
Total liabilities
and
shareholders'
equity......... $253,110 $21,283 9.18%
======== =======
</TABLE>

- ---------------
(1) Includes cash and due from banks, fixed assets, and accrued interest
receivable.

(2) Includes accrued interest payable and other liabilities.

30
<PAGE> 32

INVESTMENTS

At June 30, 1998, Columbia's portfolio of investment securities totaled
$47.32 million, a decrease of $1.48 million compared to its December 31, 1997,
securities portfolio of $48.80 million, representing a decrease of 3.05% from
the prior year-end. On June 30, 1998, investments in federal funds sold (an
overnight investment) were $4.23 million and investments in restricted stock
were $795,000. The balance of federal funds sold is influenced by cash demands,
customer deposit levels, loan activity, and other investment transactions.

A year-to-year comparison shows that Columbia's investment securities at
December 31, 1997, totaled $48.80 million, compared to $51.48 million at
December 31, 1996, and $49.45 million at December 31, 1995. This represents an
increase of 4.11% between 1995 and 1996, and a decrease of 5.21% between 1996
and 1997. Increases or decreases in the investment portfolio are primarily a
function of loan demand and changes in Columbia's deposit structure.

Columbia follows a financial accounting principle which requires that
investment securities be identified as held-to-maturity or available-for-sale.
Held-to-maturity securities are those that Columbia has the intent and ability
to hold until they mature or are called. Available-for-sale securities are those
that management may sell if liquidity requirements dictate or if alternative
investment opportunities arise. The mix of available-for-sale and
held-to-maturity investment securities is determined by management, based on
Columbia's asset-liability policy, management's assessment of the relative
liquidity of Columbia, and other factors.

At June 30, 1998, the investment portfolio, excluding restricted equity
securities, consisted of 62.00% available-for-sale securities and 38.00%
held-to-maturity securities. At December 31, 1997, Columbia's investment
portfolio, excluding restricted equity securities, consisted of 65.18%
available-for-sale securities and 34.82% held-to-maturity securities, and at
December 31, 1996, available-for-sale securities were 18.87% of the portfolio
and held-to-maturity securities were 79.83% of the portfolio. The change in mix
from 1996 to 1997 was primarily due to an adjustment in the accounting
classification of the investment portfolio of Klickitat Valley Bank after its
acquisition by Columbia in 1996. The present mix provides greater investment
flexibility by placing more of the portfolio in the available-for-sale category.
(See Note 2 to Columbia's Consolidated Financial Statements.)

At June 30, 1998, Columbia's investment portfolio had total net unrealized
gains of approximately $276,000. This compares to net unrealized gains of
approximately $371,000 at December 31, 1997, $46,000 at December 31, 1996, and
$263,000 at December 31, 1995. Unrealized gains and losses reflect changes in
market conditions and do not represent the amount of actual profits or losses
Columbia may ultimately realize. Actual realized gains and losses occur at the
time investment securities are sold or redeemed.

Federal funds sold are short term investments which mature on a daily
basis. Columbia invests in these instruments to provide for additional earnings
on excess available cash balances. Because of their short maturities, the
balance of federal funds sold fluctuates dramatically on a day-to-day basis. The
balance on any one day is influenced by cash demands, customer deposit levels,
loan activity, and other investment transactions. Investments in federal funds
sold totaled $4.23 million at June 30, 1998, compared to $2.83 million at
December 31, 1997, $7.37 million at December 31, 1996, and $6.27 million at
December 31, 1995.

31
<PAGE> 33

The following table provides the book value of Columbia's portfolio of
investment securities as of December 31, 1997 and June 30, 1998:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Investments available-for-sale:
U.S. Treasury securities............................ $ 3,214 $ 3,212
U.S. Government obligations......................... 26,943 25,422
Corporate debt securities........................... 853 704
Corporate equity securities......................... 300 300
------- -------
31,310 29,638
------- -------
Investments held-to-maturity:
Obligations of states and political subdivisions.... 16,571 16,752
Mortgage-backed securities.......................... 157 131
------- -------
16,728 16,883
------- -------
Restricted equity securities.......................... 766 795
------- -------
Total investment securities................. $48,804 $47,316
======= =======
</TABLE>

Investment securities at the dates indicated consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
--------------------------------- ---------------------------------
AMORTIZED APPROXIMATE % AMORTIZED APPROXIMATE %
COST MARKET VALUE YIELD* COST MARKET VALUE YIELD*
--------- ------------ ------ --------- ------------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasuries and
agencies:
One year or less......... $ 902 $ 904 5.81% $ 1,599 $ 1,599 5.47%
One to five years........ 3,215 3,196 5.97% 1,611 1,614 5.72%
U.S. Government agencies:
One year or less......... 1,814 1,814 5.47% 5,052 5,058 5.75%
One to five years........ 19,393 19,284 6.37% 17,333 17,321 6.35%
Five to ten years........ 5,331 5,304 7.01% 3,701 3,727 6.60%
Due after ten years...... 1,916 1,900 7.30% 1,000 994 7.51%
Obligations of states and
political subdivisions:
One year or less......... 2,659 2,674 5.77% 2,165 2,187 6.00%
One to five years........ 8,340 8,517 6.61% 6,887 7,051 7.29%
Five to ten years........ 3,952 3,966 7.40% 3,005 3,080 6.72%
Over ten years........... 400 400 7.74% 4,513 4,610 7.35%
Corporate and other debt
securities:
One year or less......... 1,852 1,861 5.83% 250 250 5.98%
One to five years........ 756 756 6.45% 603 603 6.45%
------- ------- ---- ------- ------- ----
Total debt
securities....... 50,530 50,576 6.49% 47,719 48,094 6.90%
Corporate equity
securities............... 300 300 300 300
Restricted equity
securities............... 672 672 766 766
------- ------- ------- -------
Total securities... $51,502 $51,548 $48,785 $49,160
======= ======= ======= =======

<CAPTION>
JUNE 30, 1998
---------------------------------
AMORTIZED APPROXIMATE %
COST MARKET VALUE YIELD*
--------- ------------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasuries and
agencies:
One year or less......... $ 899 $ 901 5.41%
One to five years........ 2,304 2,311 5.54%
U.S. Government agencies:
One year or less......... 2,557 2,553 5.56%
One to five years........ 21,197 21,156 6.22%
Five to ten years........ 1,817 1,843 5.93%
Due after ten years......
Obligations of states and
political subdivisions:
One year or less......... 2,324 2,336 5.68%
One to five years........ 6,999 7,157 7.23%
Five to ten years........ 2,431 2,481 6.87%
Over ten years........... 4,998 5,064 7.39%
Corporate and other debt
securities:
One year or less......... 704 704 6.20%
One to five years........ -- -- --
------- ------- ----
Total debt
securities....... 46,230 46,506 6.41%
Corporate equity
securities............... 300 300
Restricted equity
securities............... 795 795
------- -------
Total securities... $47,325 $47,601
======= =======
</TABLE>

- ---------------
* Weighted average yields are stated on a federal tax-equivalent basis at a 34%
rate, and have been annualized, where appropriate.

32
<PAGE> 34

LOANS

Columbia's loan policies and procedures establish the basic guidelines
governing its lending operations. Generally, the guidelines address the types of
loans that Columbia seeks, target markets, underwriting and collateral
requirements, terms, interest rate and yield considerations, and compliance with
laws and regulations. All loans or credit lines are subject to approval
procedures and amount limitations. These limitations apply to the borrower's
total outstanding indebtedness to Columbia, including the indebtedness of any
guarantor. The policies are reviewed and approved at least annually by the Board
of Directors of Columbia. Columbia supplements its own supervision of the loan
underwriting and approval process with periodic loan audits by outside
professionals experienced in loan review work.

Branch officers are charged with loan origination in compliance with
underwriting standards overseen by Columbia's loan administration department and
in conformity with established loan policies. On an annual basis, the Board of
Directors determines the lending authority of the President, who then delegates
lending authority to the Chief Lending Officer and other lending officers. Such
delegated authority may include authority related to loans, letters of credit,
overdrafts, uncollected funds, and such other authority as determined by the
Board or the President within the President's delegated authority.

The President has authority to approve loans up to a lending limit set by
the Board of Directors, which was $800,000 at June 30, 1998. All loans above the
lending limit of the President and up to $1 million are reviewed for approval by
an internal loan committee comprised of the Chief Lending Officer, the Loan
Administrator, and certain branch managers. Loans which exceed $1 million but
are less than pre-established lending limits must be conditionally approved by
an internal loan committee, and are subject to the approval of the Board's loan
committee up to pre-established lending limits. Minutes from Board loan
committee meetings are reviewed by the full Columbia Board at regularly
scheduled monthly meetings. The Board's loan committee consists of three outside
directors appointed by the Chairman of the Board. All loans above the lending
limit up to Columbia's statutory loan-to-one-borrower limitation (also known as
the legal lending limit) require approval of the full Board of Directors.
Columbia's unsecured legal lending limit was $3.60 million at June 30, 1998.
Columbia seldom makes loans approaching its unsecured legal lending limit.

Net outstanding loans totaled $172.98 million at June 30, 1998,
representing an increase of $17.76 million, or 11.44%, compared to $155.22
million at December 31, 1997. Loan commitments grew to $41.84 million as of June
30, 1998, representing an increase of $5.53 million over year-end 1997. Net
outstanding loans were $118.23 million at December 31, 1996, and $104.18 million
at December 31, 1995.

Columbia's net loan portfolio at June 30, 1998, includes loans secured by
real estate (57.82% of total), commercial loans (19.12% of total), agricultural
loans (14.71% of total), and consumer loans (8.94% of total). These percentages
are generally consistent with previous reporting periods. Loans secured by real
estate include loans made for purposes other than financing purchases of real
property, such as inventory financing and equipment purchases, where real
property serves as collateral for the loan.

33
<PAGE> 35

This table presents the composition of Columbia's loan portfolio at the
dates indicated:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 JUNE 30, 1998
--------------------- --------------------- ---------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial......................... $ 26,485 22.40% $ 28,464 18.34% $ 33,069 19.12%
Agricultural....................... 15,592 13.19% 20,511 13.21% 25,450 14.71%
Real estate secured loans:
Commercial property.............. 19,255 16.29% 29,319 18.89% 30,408 17.58%
Farmland......................... 5,610 4.75% 6,212 4.00% 6,360 3.68%
Construction..................... 4,613 3.90% 13,504 8.70% 18,852 10.90%
Residential...................... 31,489 26.63% 40,200 25.90% 42,487 24.56%
Home equity lines................ 1,555 1.31% 2,239 1.44% 1,897 1.10%
-------- ------ -------- ------ -------- ------
Total real estate........ 62,522 52.88% 91,474 58.93% 100,004 57.82%
Consumer........................... 13,776 11.65% 15,665 10.09% 15,470 8.94%
Other.............................. 1,148 0.97% 1,356 0.88% 1,334 0.77%
-------- ------ -------- ------ -------- ------
Total loans.............. 119,523 101.09% 157,470 101.45% 175,327 101.36%
Less deferred loan fees............ (300) (0.25)% (612) (0.39)% (682) (0.39)%
Less reserve for loan losses....... (995) (0.84)% (1,639) (1.06)% (1,666) (0.97)%
-------- ------ -------- ------ -------- ------
Loans receivable, net.... $118,228 100.00% $155,219 100.00% $172,979 100.00%
======== ====== ======== ====== ======== ======
</TABLE>

The following table shows the maturities and sensitivity of Columbia's
loans to changes in interest rates at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1998
---------------------------------------------------- ------------
DUE AFTER ONE DUE
DUE IN ONE YEAR THROUGH AFTER TOTAL DUE IN ONE
YEAR OR LESS FIVE YEARS FIVE YEARS LOANS YEAR OR LESS
------------ ------------- ---------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial loans....... $19,312 $ 6,098 $ 3,054 $ 28,464 $21,402
Agricultural loans..... 19,407 935 169 20,511 24,405
Real estate secured
loans:
Commercial
property........... 4,063 10,257 14,999 29,319 5,505
Farmland............. 1,549 2,709 1,954 6,212 1,399
Construction......... 9,957 2,769 778 13,504 14,856
Residential.......... 8,774 3,586 27,840 40,200 10,972
Home equity lines.... 2,086 124 29 2,239 1,776
------- ------- ------- -------- -------
Total real
estate
loans....... 26,429 19,445 45,600 91,474 34,508
Consumer............... 6,682 7,131 1,852 15,665 6,704
Other.................. 937 86 333 1,356 908
------- ------- ------- -------- -------
Total loans... $72,767 $33,695 $51,008 $157,470 $87,927
======= ======= ======= ======== =======
Loans with fixed
interest rates....... $ 80,654
Loans with floating
interest rates....... 76,816
--------
$157,470
========

<CAPTION>
JUNE 30, 1998
-------------------------------------
DUE AFTER ONE DUE
YEAR THROUGH AFTER TOTAL
FIVE YEARS FIVE YEARS LOANS
------------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial loans....... $ 7,785 $ 3,882 $ 33,069
Agricultural loans..... 927 118 25,450
Real estate secured
loans:
Commercial
property........... 11,851 13,052 30,408
Farmland............. 2,759 2,202 6,360
Construction......... 2,688 1,308 18,852
Residential.......... 3,792 27,723 42,487
Home equity lines.... 121 -- 1,897
------- ------- --------
Total real
estate
loans....... 21,211 44,285 100,004
Consumer............... 7,166 1,600 15,470
Other.................. 81 345 1,334
------- ------- --------
Total loans... $37,170 $50,230 $175,327
======= ======= ========
Loans with fixed
interest rates....... $ 94,513
Loans with floating
interest rates....... 80,814
--------
$175,327
========
</TABLE>

LOAN LOSSES AND RECOVERIES

The reserve for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the reserve for loan
losses when management believes that the collectibility of the principal or a
portion thereof is unlikely. The reserve 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

34
<PAGE> 36

collectibility of loans and prior loan loss experience. The evaluations take
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrower's ability to pay.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions, collection efforts and collateral
position, that the borrower's financial condition is such that collection of
interest is doubtful.

The following table shows Columbia's loan loss experience for the periods
indicated:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- ----------
1993 1994 1995 1996 1997 1998
------- ------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans outstanding at end of period,
net of unearned interest income... $82,328 $91,024 $105,250 $119,223 $156,858 $174,644
======= ======= ======== ======== ======== ========
Average loans outstanding for the
period............................ $78,919 $87,609 $ 97,087 $111,841 $140,891 $165,440
======= ======= ======== ======== ======== ========
Reserve for loan losses balance,
beginning of period............... $ 843 $ 992 $ 955 $ 1,072 $ 995 $ 1,639
------- ------- -------- -------- -------- --------
Loans charged off:
Commercial........................ (27) (193) (34) (30) (7) (86)
Real estate....................... -- -- -- -- -- (15)
Agriculture....................... -- (50) (14) (317) -- (277)
Installment loans................. (13) (19) (16) (21) (19) (65)
Credit card and related
accounts....................... -- (7) (55) (9) (14) (18)
------- ------- -------- -------- -------- --------
Total loans charged off... (40) (269) (119) (377) (40) (461)
------- ------- -------- -------- -------- --------
Recoveries:
Commercial........................ 18 19 107 26 21 10
Real estate....................... -- -- -- -- -- --
Agriculture....................... 2 1 7 7 80 23
Installment loans................. 11 4 31 20 1 1
Credit card and related
accounts....................... -- 5 3 -- 1 4
------- ------- -------- -------- -------- --------
Total recoveries.......... 31 29 148 53 103 38
------- ------- -------- -------- -------- --------
Net (charge-offs) recoveries........ (9) (240) 29 (324) 63 (423)
Provision charged to operations..... 158 203 88 247 581 450
------- ------- -------- -------- -------- --------
Reserve for loan losses balance, end
of period......................... $ 992 $ 955 $ 1,072 $ 995 $ 1,639 $ 1,666
======= ======= ======== ======== ======== ========
Ratio of net loans charged off
(recovered) to average loans
outstanding....................... 0.01% 0.27% (0.03)% 0.29% (0.04)% 0.26%
Ratio of reserve for loan losses to
loans at end of period............ 1.20% 1.05% 1.02% 0.83% 1.04% 0.95%
</TABLE>

Columbia's reserve for loan losses was $1.67 million and $1.32 million as
of June 30, 1998 and 1997, respectively. The reserve for loan losses was $1.64
million, $995,000, and $1.07 million at December 31, 1997, 1996, and 1995,
respectively.

The adequacy of the reserve for loan losses should be measured in the
context of several key ratios: (1) the ratio of the reserve to total outstanding
loans; (2) the ratio of total nonperforming loans to total loans; and, (3) the
ratio of net charge-offs (recoveries) to average loans outstanding. Since 1993,
Columbia's ratio of the reserve for loan losses to total loans has ranged from
0.83% to 1.20%. The amounts provided by these ratios have been sufficient to
fund Columbia's charge-offs, which have not been historically significant, and
to provide for potential losses as the loan portfolio has grown. From December
31, 1993 through June 30, 1998, nonperforming

35
<PAGE> 37

loans to total loans have ranged from a low of 0.09% to a high of 1.07%.
Finally, Columbia's historical ratio of net charge-offs (recoveries) to average
outstanding loans illustrates its favorable loan charge-off and recovery
experience. In two of the five years from 1993 to 1997, annual loan recoveries
have actually exceeded charge-offs. For the remaining three years between
December 31, 1993 and 1997, net charge-offs ranged from 0.01% to 0.29% of
average loans. Management believes Columbia's loan underwriting policies and its
loan officers' knowledge of their customers are significant contributors to
Columbia's success in limiting loan losses.

During the six months ended June 30, 1998, Columbia recognized $461,000 in
loan losses and $38,000 in recoveries. One large loss of $206,000, net of
recoveries, contributed significantly to this increase over the prior five
years. Although management worked with the borrower to establish a viable
repayment plan, the loan, which was identified by Columbia for its credit
weaknesses at the time Columbia acquired Klickitat Valley Bank, was ultimately
recognized as a loss. Other charge-offs recorded in 1998 were not as significant
and were consistent with Columbia's historical experience in view of the growth
in its loan portfolio. Management expects its current loan underwriting,
oversight and collection policies to promote high grant quality and limit loan
losses. These policies include aggressive action that has been recently taken to
limit credit losses by lowering lending authorities, when and if appropriate. As
part of these enhanced policies, Columbia has hired additional staff to support
credit administration functions. Therefore, management believes its charge-off
and recovery experience for the remainder of 1998 will be comparable to that of
prior years.

The following table presents information with respect to nonperforming
loans and other assets:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans on nonaccrual status -- greater than 70
days............................................. $ 51 $ 68 $ 308 $ 229 $ 1,041 $1,145
Loans past due -- greater than 90 days............. 20 118 60 30 414 13
Restructured loans................................. -- -- -- -- -- 716
------- ------- ------- ------- ------- ------
Total nonperforming loans................. 71 186 368 259 1,455 1,874
Other real estate owned............................ 457 5 -- -- -- --
------- ------- ------- ------- ------- ------
Total nonperforming assets................ $ 528 $ 191 $ 368 $ 259 $ 1,455 $1,874
======= ======= ======= ======= ======= ======
Allowance for loans losses......................... $ 992 $ 955 $ 1,072 $ 995 $ 1,639 $1,666
Ratio of total nonperforming assets to total
assets........................................... 0.33% 0.12% 0.21% 0.04% 0.63% 0.74%
Ratio of total nonperforming loans to total
loans............................................ 0.09% 0.20% 0.35% 0.21% 0.93% 1.07%
Ratio of allowance for loan losses to total
nonperforming assets............................. 187.88% 500.00% 291.30% 384.17% 112.65% 88.90%
</TABLE>

Columbia has adopted a policy for placement of loans on nonaccrual status
that is, in management's opinion, more stringent than that of most banks. Its
policy requires that all loans must be placed on nonaccrual status after they
become 70 days past due unless otherwise formally waived. This compares to what
management believes is an industry standard of 90 days. Further, Columbia may
place loans that are not contractually past due or that are deemed fully
collateralized on nonaccrual status to promote better oversight and review of
loan arrangements. Loans on nonaccrual status at June 30, 1998, totaled
approximately $1.15 million, compared to $1.04 million at December 31, 1997, and
$229,000 at the end of 1996.

In 1998, Columbia adopted procedures to identify and monitor loans that
have had their original terms restructured to accommodate borrowers' financial
needs. Loan revisions and modifications are commonly provided to meet the credit
needs of borrowers in weakened financial condition and to enhance ultimate
collection. As of June 30, 1998, Columbia identified eight loans totaling
$716,000 that had been classified as restructured. All of these loans are
currently performing in accordance with their restructured terms. However,
management will continue to monitor these loans for any changes or deterioration
in performance.

At both June 30, 1998 and December 31, 1997, Columbia had no assets in the
other real estate owned ("OREO") category, which represents assets held through
loan foreclosure or recovery activities.

36
<PAGE> 38

DEPOSITS

The following table sets forth the average balances of Columbia's
interest-bearing deposits, interest expense, and average rates paid for the
periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1996 1997 1998
----------------------------- ----------------------------- -----------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing checking......... $ 66,856 $2,238 3.35% $ 79,134 $2,645 3.34% $ 85,992 $1,420 3.30%
Savings........................... 26,986 842 3.12% 30,818 1,172 3.80% 25,292 421 3.33%
Time deposits..................... 45,506 2,604 5.72% 43,217 2,268 5.25% 50,847 1,365 5.37%
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total interest-bearing
deposits................ 139,348 $5,684 4.08% 153,169 $6,085 3.97% 162,131 $3,206 3.95%
====== ==== ====== ==== ====== ====
Total noninterest-bearing
deposits................ 28,328 38,299 42,069
-------- -------- --------
Total noninterest and
noninterest-bearing
deposits................ $167,676 $191,468 $204,200
======== ======== ========
</TABLE>

Total deposits increased from December 31, 1997, to June 30, 1998, by
$16.85 million, or 8.36%. Management attributes this increase to Columbia's
ongoing marketing efforts and to continued customer dissatisfaction as a result
of the perceived declining service levels provided by super-regional bank
competitors. Increases occurred in all four deposit categories:
noninterest-bearing deposits (5.50% increase), interest-bearing demand deposits
(1.29% increase), savings accounts (13.99% increase), and time deposits (21.35%
increase).

At December 31, 1997, total deposits were $201.57 million, an increase of
$22.82 million or 12.77%, from total deposits of $178.74 million at December 31,
1996. Total deposits in 1996 increased by 12.51% over 1995. Deposit growth in
1997 and 1998 was due to a combination of pricing strategies, increased
marketing, and increased emphasis on implementing a sales culture within the
branches. The growth in deposit accounts has primarily been in interest-bearing
and noninterest-bearing demand accounts. Noninterest-bearing demand deposits,
also called "core deposits," continued to be a significant portion of Columbia's
deposit base. To the extent Columbia can fund operations with core deposits, net
interest spread, which is the difference between interest income and interest
expense, will improve. At June 30, 1998, core deposits accounted for 22.40% of
total deposits, down slightly from 23.01% as of December 31, 1997.

Interest-bearing deposits consist of money market, savings, and time
certificate accounts. Interest-bearing account balances tend to grow or decline
as Columbia adjusts its pricing and product strategies based on market
conditions, including competing deposit products. At June 30, 1998, total
interest-bearing deposit accounts were $169.49 million, an increase of $14.30
million, or 9.22%, from December 31, 1997. For the one-year period June 30, 1997
to June 30, 1998, interest-bearing deposit accounts grew by 8.96%, from $155.56
million to $169.49 million. Increases were strong in all interest-bearing
deposit categories, including savings accounts, time deposits, and IRAs.
Interest-bearing demand accounts increased $12.83 million, or 17.66%, from
December 31, 1996 to 1997, and $12.26 million, or 20.29%, from 1995 to 1996. The
growth in these deposits has, in management's opinion, been helped by continued
customer perceptions of declining service levels provided by super-regional bank
competitors.

Columbia is not dependent on brokered deposits or high-priced time
deposits. At June 30, 1998, time certificates of deposits in excess of $100,000
totaled $12.24 million, or 5.60% of total outstanding deposits, compared to
$8.94 million, or 4.43%, of total outstanding deposits at December 31, 1997,
$12.21 million, or 6.83%, of total outstanding deposits at December 31, 1996,
and $13.94 million, or 8.77%, of total outstanding deposits at December 31,
1995.

37
<PAGE> 39

The following table sets forth, by time remaining to maturity, all time
certificates of deposit accounts outstanding at June 30, 1998:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Three months or less................................. $15,886
Over three through six months........................ 20,176
Over six months through twelve months................ 13,293
Over twelve months................................... 7,612
-------
$56,967
=======
</TABLE>

SHORT-TERM BORROWINGS

The following table sets forth certain information with respect to
Columbia's Federal Home Loan Bank of Seattle borrowings as of December 31, 1995,
1996, and 1997, and June 30, 1998.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997 1998
------ ------ ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Amount outstanding at end of period.................... $1,200 $ 600 $4,600 $7,300
Weighted average interest rate at end of period........ 5.42% 5.68% 5.89% 5.61%
Maximum amount outstanding at any month-end and during
the year............................................. $3,581 $1,200 $4,600 $7,600
Average amount outstanding during the period........... $2,341 $ 813 $2,781 $6,466
Average weighted interest rate during the period....... 6.15% 5.86% 5.80% 5.60%
</TABLE>

SHAREHOLDERS' EQUITY

Shareholders' equity increased $1.01 million during the first half of 1998.
Shareholders' equity at June 30, 1998, was $22.57 million compared to $21.56
million at December 31, 1997. This increase reflects net income and
comprehensive income of $2.20 million, $195,000 in exercised stock options, and
sales of common stock of $234,000. These additions to equity were partially
offset by an increase in ESOP shareholders' equity subject to put options of
$921,000 and cash dividends paid or declared of $694,000. The ESOP shareholders'
equity subject to put option have been reclassified as debt instruments since,
by law, Columbia must, if requested to do so, reacquire plan shares from
employee participants because shares of Columbia's stock have not been
marketable on an active stock market or market system. If Columbia's Common
Stock becomes listed on the Nasdaq National Market, the ESOP shareholders'
equity subject to put option will be reclassified to shareholders' equity.
Columbia has applied for listing on the Nasdaq National Market.

Dividends declared and paid were $0.12 per share in 1997, $0.13 per share
in 1996, and $0.08 per share in 1995. Dividends in 1996 exceeded those for 1997
as a result of a change in Columbia's dividend policy from annual to quarterly
payments and a special $.07 per share dividend paid to shareholders following
Columbia's acquisition of Klickitat Valley Bank in 1996.

ASSET-LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY

Columbia'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. Columbia's interest and
pricing strategies are driven by its asset-liability management analysis and by
local market conditions.

Columbia seeks to manage its assets and liabilities to generate a stable
level of earnings in response to changing interest rates and to manage its
interest rate risk. Columbia further strives to serve its communities and
customers through deployment of its resources on a corporate-wide basis so that
qualified loan demands may be funded wherever necessary in its branch banking
system. Asset/liability management involves managing the relationship between
interest rate sensitive assets and interest rate sensitive liabilities. If
assets

38
<PAGE> 40

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 June 30, 1998, and
the difference between them for the maturing or repricing periods indicated. The
amounts in the table are derived from Columbia's internal data, which varies
from amounts classified in its financial statements, and, although the
information may be useful as a general measure of interest rate risk, the data
could be significantly affected by external factors such as prepayments of loans
or early withdrawals of deposits. Each of these may greatly influence the timing
and extent of actual repricing of interest-earning assets and interest-bearing
liabilities.

<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------------------------
VARIABLE LESS THAN ONE YEAR
RATE ONE YEAR OR LONGER TOTAL
-------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Investments..................................... $ 6,350 $ 6,429 $ 27,192 $ 39,971
Loans........................................... 61,861 31,586 80,701 174,148
-------- -------- -------- --------
Total assets.......................... 68,211 38,015 107,893 214,119
LIABILITIES
Core deposits................................... 112,537 37,481 56,835 206,853
Jumbo CDs....................................... -- 11,995 245 12,240
Borrowings...................................... 7,918 -- 300 8,218
-------- -------- -------- --------
Total liabilities..................... 120,455 49,476 57,380 227,311
-------- -------- -------- --------
(52,244) (11,461) 50,513 (13,192)
-------- -------- -------- --------
Net cumulative position......................... $(52,244) $(63,705) $(13,192)
======== ======== ========
Cumulative Gap as a percent of assets........... (20.64)% (25.17)% (5.21)%
======== ======== ========
</TABLE>

The net cumulative Gap position is slightly negative since more liabilities
than assets appear to reprice during the next year. However, this exposure to
increasing rates is mitigated by "sticky" deposit rates (not expected to reprice
rapidly in increasing rate environment) and a higher than normal level of
short-term cash (not included in rate sensitive assets). In addition, Columbia's
asset rates change more than deposit rates, and management feels Columbia's
asset yields will change more than cost of funds when rates change.

Although the cumulative Gap position appears slightly negative as of June
30, 1998, management believes that Columbia is somewhat asset sensitive and has
relatively low interest rate risk. The net interest margin should increase
slightly when rates increase and shrink somewhat when rates fall. This interest
rate risk is driven by concentration of rate sensitive variable rate and
short-term commercial loans, one of Columbia's major business lines. Columbia
does have significant amounts of fixed rate loans to offset most of the impact
from repricing of short-term loans. However, there can be no assurance that
fluctuations in interest rates will not have a material adverse impact on
Columbia. See "Risk Factors -- Interest Rate Risk."

Columbia's sensitivity to gains or losses in future earnings due to
hypothetical decreases or increases in interest rates is as follows:

<TABLE>
<CAPTION>
INCREASE OR FINANCIAL IMPACT
DECREASE IN ON NET
INTEREST RATES INTEREST MARGIN
- -------------- ----------------
<S> <C>
1 % $419,000
2 % $837,000
</TABLE>

39
<PAGE> 41

LIQUIDITY

Columbia has adopted policies to maintain a relatively liquid position to
enable it to respond to changes in the financial environment and ensure
sufficient funds are available to meet customers' needs for borrowing and
deposit withdrawals. Generally, Columbia's major sources of liquidity are
customer deposits, sales and maturities of investment securities, the use of
federal funds markets, and net cash provided by operating activities. Scheduled
loan repayments are a relatively stable source of funds, while deposit inflows
and unscheduled loan prepayments, which are influenced by general interest rate
levels, interest rates available on other investments, competition, economic
conditions, and other factors, are not. Liquid asset balances include cash,
amounts due from other banks, federal funds sold, and securities
available-for-sale and securities held-to-maturity with maturities in the next
three months. At June 30, 1998, these liquid assets totaled $52 million or
20.71% of total assets as compared to $51 million or 21.98% of total assets at
December 31, 1997. Another source of liquidity is Columbia's ability to borrow
from the Federal Home Loan Bank of Seattle, of which Columbia is a member, and
other correspondent banks. At June 30, 1998, credit limits through these
institutions totaled approximately $50 million.

The analysis of liquidity also includes a review of the changes that appear
in the consolidated statements of cash flows for the first six months of 1998.
The statement of cash flows includes operating, investing, and financing
categories. Operating activities include net income of $2.22 million, which is
adjusted for noncash items and increases or decreases in cash due to changes in
certain assets and liabilities. Investing activities consist primarily of both
proceeds from and purchases of securities, and the impact of the net growth in
loans. Financing activities present the cash flows associated with deposit
accounts, and reflect dividends paid to shareholders.

At June 30, 1998, Columbia had outstanding commitments to make loans of
$41.84 million. Nearly all of these commitments represented unused portions of
credit lines available to consumers under credit card and other arrangements and
to businesses. Many of these credit lines will not be fully drawn upon and,
accordingly, the aggregate commitments do not necessarily represent future cash
requirements. Management believes that Columbia's sources of liquidity are more
than adequate to meet likely calls on outstanding commitments; however there can
be no assurance in this regard. See "Disclosure Regarding Forward-Loading
Statements," Risk Factors -- Management of Growth," and "Risk
Factors -- Competition."

CAPITAL

The Federal Reserve Board and the Federal Deposit Insurance Corporation
have established minimum requirements for capital adequacy for bank holding
companies and member banks. The requirements address both risk-based capital and
leveraged capital. The regulatory agencies may establish higher minimum
requirements if, for example, a corporation has previously received special
attention or has a high susceptibility to interest rate risk.

The following reflects Columbia's various capital ratios at June 30, 1998,
and December 31, 1997, as compared to regulatory minimums:

<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT JUNE 30, 1998 REGULATORY MINIMUM
-------------------- ---------------- ------------------
<S> <C> <C> <C>
Tier I capital.......... 13.70% 13.26% 4.00%
Total risk-based
capital............... 14.70% 14.14% 8.00%
Leverage ratio.......... 10.60% 10.50% 3.00%
</TABLE>

40
<PAGE> 42

SUBSEQUENT EVENTS

Certain significant events which occurred or are planned to occur
subsequent to June 30, 1998, and which are discussed more fully elsewhere in
this Prospectus, are:

Acquisition of Valley. Columbia entered into a definitive agreement
effective August 3, 1998 to acquire Valley, a community bank holding company
with one bank branch in McMinnville, Oregon. See "Business -- Pending
Acquisition of Valley Community Bancorp."

Land Acquisition and Planned Construction of Second Bend, Oregon Branch. In
July, 1998 Columbia entered into an agreement for the purchase of land and the
construction of a second branch in Bend, Oregon. See "Business -- Present
Expansion Plans Through New Branch Openings -- Planned Branch Opening in Bend,
Oregon."

Opening of New Branches in Umatilla County, Oregon. Subsequent to June 30,
1998, Columbia began planning to open two new branches in Umatilla County,
Oregon. A branch in Hermiston, Oregon opened in September 1998. Management
anticipates an additional branch will be opened in Pendleton, Oregon in the
fourth quarter of 1998 or early in 1999. See "Business -- Present Expansion
Plans Through New Branch Openings -- Hermiston and Pendleton, Umatilla County,
Oregon."

2-for-1 Stock Split. Columbia's Board of Directors declared a 2-for-1 stock
split effective September 11, 1998 to shareholders of record on September 2,
1998.

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BUSINESS

INTRODUCTION

Columbia is a bank holding company headquartered in The Dalles, Oregon. Its
wholly-owned subsidiary, CRB, is a nine-branch, full service community banking
organization. According to information published by the State of Oregon, if the
acquisition of Valley had been completed as of June 30, 1998, Columbia would
have been ranked as the 4th largest bank based in Oregon as measured by total
pro forma assets of $293.96 million. Columbia offers a broad range of financial
services to its customers, primarily small and medium sized businesses, farmers,
and individuals. Columbia's seven Oregon branches serve the northern and eastern
Oregon communities of The Dalles, Hood River, and Hermiston and the central
Oregon communities of Madras, Redmond, and Bend. Columbia's two south central
Washington branches serve the communities of Goldendale and White Salmon. Valley
operates from one location in McMinnville, Oregon, 36 miles southwest of
metropolitan Portland.

As of June 30, 1998, Columbia had total assets of $253.11 million, total
deposits of $218.42 million, and shareholders' equity of $22.57 million.
Columbia's net income for the year ended December 31, 1997, was $3.89 million,
which was Columbia's tenth consecutive year of increasingly higher net income.
For the year ended December 31, 1997, Columbia's return on average assets was
1.77% and return on average equity was 19.55%. Since the year ended December 31,
1993, it has increased earnings by an average of 17.83% per year and increased
its return on average assets from 1.38% in 1993 to 1.77% in 1997. During the
same period, Columbia has achieved a return on average equity greater than
15.64% each year while sustaining high asset quality. Columbia has consistently
performed in the top quartile when comparing its return on average equity to its
national peer group comprising over 900 banks with assets of between $100 and
$300 million and multiple branches located in non-metropolitan areas.

The markets in which Columbia operates are relatively economically diverse,
and therefore pose both opportunities and challenges to a community bank
operating in all of these economies. Columbia's approach to meeting the
challenge is to staff its branches and business groups with managers who are
established in their communities and have developed a loyal customer following.
Columbia's senior management, in conjunction with the branch managers,
individually examines each branch to determine which products and services are
best suited for that geographic region. These diverse economies also provide
opportunities to limit Columbia's exposure to adverse market conditions in any
one economic sector.

BUSINESS STRATEGY

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community; (iii) attract and retain a highly skilled management team; and, (iv)
allow branch personnel the flexibility to emphasize products and services which
best fit their local economy. In addition, by decentralizing a portion of CRB's
management function to the branch level, Columbia believes it can make business
decisions regarding customers more quickly and with more knowledge than its
major banking competitors. Columbia believes it is able to profitably attract
and retain customers by providing and delivering such products and services
tailored to their individual needs, and by delivering them with a high degree of
personal attention.

Seize merger and acquisition opportunities. In 1995, CRB merged with
Juniper of central Oregon, and in 1996 Columbia acquired Klickitat of south
central Washington. After both transactions, Columbia was able to provide the
same or improved levels of community banking products and services in these new
market areas. In August 1998, Columbia entered into a definitive agreement to
acquire McMinnville-based Valley. Columbia believes the economy in the
McMinnville area affords it the opportunity to leverage two of its core
competencies: small business lending and agricultural lending. Additionally, the
pending acquisition will be Columbia's first entrance into Oregon's most
populous region, the Willamette Valley. Management believes there are
significant future growth opportunities in McMinnville and its surrounding
communities.

GROWTH HISTORY

Columbia's Origins and Activities Through 1994. Columbia's subsidiary, CRB,
was incorporated and chartered in Oregon in 1976 and opened for business in
1977. CRB developed and grew as a one-branch community bank in The Dalles.
Several of Columbia's present senior executive officers, including its Chief
Executive Officer and President, have been with CRB since the early 1980s.
Collectively, Columbia's five-member senior management team has over 113 years
of banking experience, much of it gained through years of service at CRB. See
"Management."

CRB's first branch expansion was a satellite branch facility which opened
in 1986 west of The Dalles' city center. Two years later, Columbia opened a
branch in the small Oregon community of Maupin. (Management subsequently
determined that the Maupin branch was unprofitable, and the branch was closed in
May 1998.)

In 1992 CRB purchased land adjacent to a newly established Wal-Mart store
in nearby Hood River, on which it built and opened its second branch outside of
The Dalles. The Hood River Branch opened for business in May 1993.

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Activities in 1995. On January 1, 1995 CRB merged with Juniper, a community
bank in central Oregon with branches in Madras and Redmond, Oregon. Following
this merger, CRB's full service branches increased from three to five, and its
assets increased from $62 million to $92 million. CRB retained the "Juniper
Banking Company" name and added three experienced former Juniper directors to
its Board. Also, in 1995 CRB replaced its existing branch facility in the
western part of The Dalles with a branch facility in a newly built Safeway
supermarket west of The Dalles' downtown core. This branch takes deposits,
accepts loan applications, and offers other products and services, however, it
does not process loans on-site.

Activities in 1996. In early 1996, Columbia became CRB's holding company.
In June of 1996 Columbia acquired Klickitat, a south central Washington
community bank headquartered in Goldendale, Washington and with a branch in
White Salmon. As CRB did with Juniper, Columbia retained the "Klickitat Valley
Bank" name, and added, during 1996 and 1997, four experienced former Klickitat
directors to the Columbia Board. Klickitat was a natural acquisition candidate
for Columbia. Klickitat's White Salmon branch was within a few miles of CRB's
Hood River branch across the Columbia River, and there were and are multiple
economic ties between these two communities. Klickitat Valley Bank was
Goldendale's only community bank, and this community's agriculture-based economy
fit well with CRB's lending expertise.

In late 1996 CRB opened its first branch in Bend, Oregon under the "Juniper
Banking Company" name. Bend's proximity to CRB's existing Redmond and Madras
branches, and Bend's economic growth and increasing population, made this a
natural branch extension for Columbia. Bend, with a population of over 34,000 as
of July 31, 1997, is the largest community in which Columbia operates.
Management believes that Bend's population growth, the expansion and diversity
of its economic base, and its strong home construction market affords
significant opportunities for growth.

Activities in 1997. In 1997, Columbia's growth came internally from
increased loans and deposits at its branches. Loan growth at the new Bend branch
was significant, with assets increasing 239% over the last year, from $3.3
million to $11.2 million. Further growth came from enhanced home mortgage growth
through Columbia's mortgage group, established in mid-1997, and discussed below.

PRESENT EXPANSION PLANS THROUGH NEW BRANCH OPENINGS

Hermiston and Pendleton, Umatilla County, Oregon. Columbia opened a new
branch in Hermiston, Oregon in September of 1998. Hermiston, which has a
population of over 11,000, is 100 miles east of The Dalles. Initial staffing at
the branch consists of four loan officers and three support personnel, many of
whom have roots in the Hermiston community. The new branch operates from 1,500
square feet of leased space south of downtown Hermiston. Columbia is in the
process of purchasing land for the construction of a permanent Hermiston branch.
The branch offers full-service community banking services, including loans to
local commercial and agricultural-based business. Prior to the formal opening of
the Hermiston facility as a full-service branch, Columbia's Hermiston loan
officers were developing loan business, and had generated $10.7 million in loans
and loan commitments as of September 10, 1998.

Columbia plans to open a branch in nearby Pendleton, which is 26 miles east
of Hermiston and is the largest town in eastern Oregon, with a population of
over 16,000. Columbia has hired a manager for the proposed new branch who has
strong ties to the Pendleton community and 25 years experience with one of
Columbia's super-regional bank competitors. Columbia plans to acquire either
land or an existing building in Pendleton for this branch. Management
anticipates that this branch will be opened during the fourth quarter of 1998 or
in early 1999.

Hermiston and Pendleton represent the major population bases of Umatilla
County in eastern Oregon. The area's climate supports cattle ranching, and field
crops such as wheat, onions, potatoes, and hay. In addition, there is a growing
service and small business economy in the region based on expanding government
employment and the recent construction of a Wal-Mart distribution center outside
of Hermiston. Management believes that the area's relative proximity to The
Dalles, its small town, rural-based atmosphere, and its economic prospects make
this expansion an ideal fit with Columbia's approach to service and its lending
expertise.

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Planned Branch Opening in Bend, Oregon. Columbia plans to open a second
branch in Bend, Oregon in the summer of 1999. Columbia has entered into a
binding earnest money agreement to purchase land in the western part of Bend in
the upscale Shevlin Business Park, an office park development. The purchase
price for the land is $516,000, and completion of the purchase depends on
several factors, including the approval of building plans for the construction
of the branch office. Columbia anticipates total cost for construction of a new
Bend branch will approximate $2.30 million, exclusive of land costs.

Bend is the largest city in central Oregon, and the largest single market
area in which Columbia operates. Columbia believes the second Bend branch will
allow opportunities for future growth, especially for business lending services.
When complete, the new facility will house a full-service branch plus a new
business lending group. See "Business -- Consumer Products and Services" and
"Business -- Loan Products for Commercial, Agricultural, and Other Business
Customers."

There can be no assurance that the planned branch openings described above
will be completed, or that Columbia will receive the anticipated benefit of such
openings. See "Disclosure Regarding Forward-Looking Statements" and "Risk
Factors -- Management of Growth."

PENDING ACQUISITION OF VALLEY COMMUNITY BANCORP

Columbia's most recent proposed acquisition-based expansion is its pending
purchase of Valley (the "Acquisition"). On August 3, 1998, Columbia and Valley
entered into an Agreement and Plan of Share Exchange under which Columbia shall
acquire 100% of Valley's common stock for a cash purchase price of $15.10
million.

Description of Valley. Valley is an Oregon bank holdingcompany which was
organized in 1984. Its wholly-owned Oregon bank subsidiary, Valley Community
Bank, was chartered in 1982, and is also a member of the Federal Reserve System.
Valley owns, and operates from, a 9,600 square foot, two-story building close to
downtown McMinnville, Oregon, which is 36 miles southwest of Portland in
Oregon's Willamette Valley. Valley has 14.5 full-time equivalent employees. Most
of its data processing work is handled by Datatech of Oregon, Inc., a data
processing company owned by several Oregon community banks, including Valley and
Columbia. See "Business -- The Year 2000 Issue."

Valley's loan and deposit business is largely concentrated in and around
McMinnville, a city of over 23,000 located in Yamhill County, Oregon. Despite
its proximity to Portland, Oregon's largest metropolitan area, McMinnville
maintains a small-town atmosphere and character. The diverse agricultural
economy of Yamhill County, with a population of over 79,000, produces wine
grapes, wheat, grass seed, nuts, berries, and nursery products. Valley's
customer base also includes small businesses, professionals, and a growing
population of retirees. Agricultural lending constituted 23.55% of Valley's loan
portfolio as of June 30, 1998. Other components of the loan portfolio as of that
date were real estate loans, 57.20%, commercial and industrial loans, 16.08%,
and consumer loans, 3.17%. On June 30, 1998, Valley had total deposits of $30.82
million and total assets of $36.60 million. For the five year period ending
December 31, 1997, Valley's return on assets exceeded 2% each year, and its
return on equity exceeded 20% each year. In the July 1998 issue of the American
Bankers Association Journal, Valley ranked 33rd in the country among banks with
less than $100 million in assets for its five-year return on assets performance
as of December 31, 1997.

The Acquisition Transaction. Columbia expects to complete the Acquisition
by early 1999. Closing is conditioned on approval from state and federal
regulatory authorities. Columbia does not believe any objections to the
Acquisition will be raised by these authorities. The Acquisition is also subject
to the satisfaction and accuracy of certain representations and warranties made
by the parties, the absence of litigation challenging the Acquisition, the
absence of any material adverse change in the operations and deposits of Valley,
and the affirmative vote of two-thirds of all shares of Valley common stock
entitled to be cast by Valley shareholders. The directors and executive officers
of Valley have agreed not to solicit offers for any transaction that would
interfere with the Acquisition. Under a termination fee provision, Columbia
could be liable to Valley, and Valley could be liable to Columbia, for a
termination fee if either party fails to complete the Acquisition for certain
specified reasons, including an intentional breach of various pre-closing

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obligations. The termination fee ranges from $150,000 to a maximum of $500,000,
plus costs, depending on the nature of the breach.

Columbia will account for the Acquisition by the purchase method of
accounting, under which assets and liabilities acquired or assumed will be
restated at fair value, and the excess of the purchase price over net assets
will be recorded as goodwill. Anticipated goodwill of approximately $9.21
million will be recognized when the transaction is completed and will be
amortized over 15 years. See "Unaudited Pro Forma Financial Statements."

Columbia and Valley After the Acquisition. When the Acquisition is
complete, Valley shall be a wholly-owned subsidiary of Columbia. Valley's
banking subsidiary, Valley Community Bank, shall continue in operation in the
same location. Columbia intends to operate Valley as a separate subsidiary and
to continue using the "Valley Community Bank" name for at least one year from
the Acquisition date. Columbia's management believes the Acquisition is an
excellent strategic fit for Columbia, and presents a favorable opportunity to
increase Columbia's value and to diversify its customer base and loan portfolio,
especially in agricultural lending. The Acquisition provides Columbia with its
first entry into the Willamette Valley. Valley is the only community bank
located in McMinnville, and its personal service focus is compatible with
Columbia's. Columbia believes it has the administrative capacity and growth
management experience to make Valley an effective part of the existing Columbia
organization. Aside from hiring additional loan officers to assist Valley in
increasing its level of loans or from replacing retiring personnel, Columbia
does not believe significant personnel increases will be required for Valley's
continued operation. After the absorption of nonrecurring conversion costs,
Columbia's long-term earnings should improve as a result of efficiencies from
spreading current administrative overhead over a larger asset base without
additional personnel.

There can be no assurance that the Acquisition will be consummated, that
Valley will be successfully integrated with the existing Columbia organization,
or that Columbia will receive the anticipated benefits of the Acquisition. See
"Disclosure Regarding Forward-Looking Statements," "Risk Factors -- Management
of Growth," and "Risk Factors -- Completion and Management of Valley Community
Bancorp Acquisition."

CONSUMER PRODUCTS AND SERVICES

Columbia offers a broad range of deposit and loan products and services
tailored to meet the banking requirements of consumers in Columbia's market
areas. These include:

Deposit Products. Columbia's consumer deposit products include many
noninterest-bearing checking account products priced at various levels,
interest-bearing checking and savings accounts, money market accounts, and
certificates of deposit. These accounts generally earn interest at rates
established by management based on competitive market factors and management's
desire to increase certain types or maturities of deposit liabilities.

Columbia does not pay brokerage commissions to attract deposits. It strives
to establish customer relations to attract core deposits in noninterest-bearing
transactional accounts, which reduces its cost of funds.

Mortgage Loans. In August of 1997, Columbia created a division of CRB to
originate conventional and federally insured residential mortgage loans for sale
in the secondary market. The division, now known as the "Columbia River Bank
Mortgage Group," has grown its business substantially since its inception. As of
December 31, 1997, the mortgage group had sold 60 loans valued at $6.44 million.
Between January 1, 1998 and July 31, 1998, an additional 527 loans valued at
$55.42 million were sold. The group has benefited from a number of factors,
including strong demand for mortgages, especially in the Bend area, a favorable
interest rate environment, utilization of advanced software for evaluating and
processing mortgage applications, and an aggressive sales culture. The mortgage
group operates its primary retail loan operations from branch facilities in
Bend, Oregon, but offers its products at all of CRB's Oregon and Washington
branches. It also offers wholesale and loan brokerage services throughout
Oregon, including some mortgage loan products and servicing support for certain
other Oregon banks. Approximately 60% of Columbia's mortgage business is
generated from its mortgage group and from Columbia's branches. The remaining
40% derives from relationships with mortgage brokers and other community banks.
The development of Columbia's mortgage

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business illustrates, in management's opinion, Columbia's flexible and
aggressive approach to identifying and seizing growth opportunities.

Investment Products. Through an arrangement with Primevest Financial
Services, Inc., ("Primevest"), a registered securities broker-dealer, Columbia
offers a wide range of financial products and services to consumers. A Primevest
Investment Center is maintained in Columbia's main branch in The Dalles. Ann
Marie Jelderks, a registered Primevest representative and a CRB Vice President,
markets stocks, mutual funds, traditional and Roth IRAs, SEPs, tax sheltered
annuities, life insurance, and other financial products to Columbia customers
and others in The Dalles and Hood River. Two other Primevest investment
consultants sell similar products in Columbia's central Oregon and south central
Washington territories. Primevest's representatives also offer retirement
planning services. Columbia receives a portion of the commissions generated by
financial product sales. Columbia plans to offer these products and services to
its new customer base in the Hermiston and planned Pendleton branches and, if
the acquisition is completed at Valley.

Technology-Based Products and Services. Columbia uses both traditional and
new technology to support its focus on personal service. These include a VISA
credit and check card (debit card) program, ATMs at each of Columbia's
full-service branches, including four drive-up ATMs, a telephone banking service
that allows customers to speak directly with a customer service representative
during normal banking hours, and 24-hour telephone access to their accounts. In
addition, Columbia has registered a CRB domain name for a planned Internet site,
and intends to begin offering on-line banking services within 18 months.

Consumer Loans. Columbia provides loans to individual borrowers for a
variety of purposes, including secured and unsecured personal loans, home equity
and personal lines of credit, and motor vehicle loans.

Senior Customer Services. Since a significant portion of Columbia's
consumer market consists of senior citizens, Columbia offers several special
products and programs aimed at this group. These include a reduced rate checking
account product for seniors, and special trips to the Oregon coast, the
Pendleton Roundup, an annual rodeo event, and other places and events. In
addition, Columbia's Primevest division markets retirement planning products and
investments to the senior customer group.

LOAN PRODUCTS FOR COMMERCIAL, AGRICULTURAL, AND OTHER BUSINESS CUSTOMERS

Columbia has an experienced lending staff, which includes loan officers
with special expertise in small business and agricultural lending. Columbia's
loan officers also emphasize continuing contact with the business customer after
the loan is made. Columbia believes that its business customers appreciate the
ongoing relationship they develop with their local lending officer. Such
relationship-based banking is an important aspect of Columbia's continual
efforts to maintain high asset quality.

Commercial Loans. Columbia offers customized loans to its commercial
customers, including equipment and inventory financing, operational lines of
credit, SBA loans for qualified businesses, and accounts receivable financing. A
significant portion of Columbia's loan portfolio consists of commercial loans.
(For regulatory reporting purposes, a portion of Columbia's commercial loans are
designated as real estate loans because they are secured by real property,
although the loans finance accounts receivable, equipment and inventory
purchases, and other commercial activities.) Lending decisions are based on
careful evaluation of the financial strength, management, and credit history of
the borrower and the quality of the collateral securing the loan. Commercial
loans secured by real property are limited to 75% of the value of the
collateral. Columbia typically requires personal guarantees and secondary
sources of repayment.

Agricultural Loans. Columbia provides loans to agricultural businesses,
including production lines of credit, equipment financing, and term loans for
capital improvements and other business purposes. Agricultural loans are
generally secured by crops, equipment, and inventory, as well as real estate.
Agricultural lending can require significant follow-up time, as farmers request
budgeting assistance and other financial advice. Columbia employs both an
agricultural loan consultant with decades of farm lending experience, and an
experienced agricultural representative who is a full-time Columbia employee, to
assist its regular loan officers with this process. Columbia's loan officers,
many of whom are graduates of the Western Agricultural School in Pullman,
Washington, make frequent visits to farming operation sites, attend regular
agricultural

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lending programs and seminars, and actively participate in growers' associations
and other agricultural-based organizations.

Real Estate Loans. Real estate loans are available for the construction,
purchasing, and refinancing of commercial and rental properties. Borrowers can
choose from a variety of fixed and adjustable rate options and terms. Real
estate loans reflected in the loan portfolio are in large part loans made to
commercial customers that are secured by owner-occupied real property.

Columbia's real estate loans are in large part loans to commercial
customers, farmers, and ranchers, which are secured by the properties used in
their businesses. The majority of these loans have a variable rate feature with
adjustment periods varying from one to five years. If loan repayment is
dependent on projected income, Columbia often requires a government guaranty as
additional collateral support. Insofar as payments on real estate loans depend
on the successful operation and management of the businesses and properties
securing the loans, repayment can be affected by local real estate market and
economic conditions. Fluctuating land values and local economic conditions can
make loans secured by real property difficult to evaluate and monitor. See "Risk
Factors -- Credit Risk" and "Risk Factors -- Dependence on Local Economies."

The following table sets forth certain information about Columbia's loan
portfolio as of September 2, 1998, classified by distribution among types of
borrowers. Management believes the distribution of Columbia's loan portfolio as
reported in this table is similar to its loan distribution of all other loans
equal to or greater than $200,000 at June 30, 1998, and December 31, 1997.

<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF
LOANS TOTAL LOANS
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Borrower classification for loans $200,000 or greater(1):
Agriculture, forestry, and fishing........................ $ 30,513 16.87%
Service................................................... 18,609 10.31
Retail trade.............................................. 12,214 6.75
Construction.............................................. 8,273 4.57
Manufacturing............................................. 5,517 3.05
Transportation and public utilities....................... 2,974 1.64
Finance, insurance, and real estate....................... 2,411 1.33
Wholesale trade........................................... 1,208 0.67
Public administration..................................... 585 0.32
All other loans less than $200,000.......................... 98,542 54.49
-------- ------
Total outstanding loans........................... $180,846 100.00%
======== ======
</TABLE>

- ---------------
(1) Based on SIC industry codes

Government-Assisted Loan Programs. Columbia's loan officers make loans to
small businesses and to farmers that are supported by guarantees issued by
various state and federal government agencies. Columbia is active in the SBA 7-A
and 504 programs, and in similar programs offered by the Farm Services Agency
(formerly the Farmers Home Administration) and by Oregon's state government.
Columbia has utilized these programs to serve customers who are expanding their
operations, venturing into new product lines, or constructing special use real
estate. The government guarantees a portion of these loans, which reduces risk
in Columbia's loan portfolio.

Services to Non-Profits and Public Entities. Columbia offers a general
array of loan products to borrowers in the non-profit and public entity sector,
including city and county governments, together with special programs, such as
jumbo CDs and low-cost loan programs. Columbia also offers consumer services to
nonprofit and public sector employees, such as Columbia VISA card enrollment and
direct deposit services.

Planned Business Lending Group in Bend. Columbia plans to open a second
branch facility in Bend, Oregon in 1999. In addition to housing a new
full-service branch, the facility will also contain a business

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lending group staffed by experienced commercial loan officers. This new lending
group will focus on developing lending opportunities in Bend's rapidly growing
small business sector.

For all of its loans, Columbia at all times seeks to maintain sound loan
underwriting standards with written loan policies, appropriate individual and
branch limits, and reviews by its Loan Committee. In the case of particularly
large loan commitments or loan participations, loans are reviewed by the loan
committee of the Board of Directors. 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 seeks
to minimize credit losses by closely monitoring the financial condition of its
borrowers and the value of collateral. See "Risk Factors -- Credit Risk."

OTHER PRODUCTS AND SERVICES FOR BUSINESS CUSTOMERS

Columbia offers additional banking and other products to its business
customers.

Deposit and Related Products. Columbia's business deposit products include
basic, regular, and interest-bearing checking accounts, merchant VISA and
MasterCard programs, and business money market and sweep accounts. Columbia also
offers check verification services to merchants allowing them the ability to
determine, on a 24-hour basis, whether a check drawn on a CRB account has
sufficient funds to cover the amount drawn.

Investment Products. Columbia's affiliation with Primevest allows it to
offer financial products and services to Columbia's business customers as well
as to consumers. These include insurance and annuity products, and employee
retirement plan products such as SEP-IRAs and 401(k) plans.

Accounts Receivable Purchasing. Columbia offers its business customers the
opportunity to obtain financing for their businesses through the sale of
accounts receivable. This program is offered by Columbia in collaboration with a
third-party vendor of accounts receivable management and collection software.
Under the program, Columbia purchases the accounts receivable for cash at a
discount, plus future charge sales on a daily basis. Accounts receivable
collection is handled by Columbia using the vendor's proprietary software.
Columbia began offering this service in early 1998.

STAFF TRAINING AND EDUCATION -- COLUMBIA BANCORP UNIVERSITY

Columbia has several staff training and education programs. All new
employees undergo a two-day orientation program, during which they meet senior
management and become familiar with Columbia's history, customer service goals,
and culture. In 1997, Columbia established a formal, continuing education
program for employees under the name "Columbia Bancorp University." Under this
program, employees are encouraged to attend regular employment-related
educational programs consistent with the employee's career goals and needs. Many
of the programs are taught by Columbia's senior management and other experienced
in-house staff, although attendance at classes offered by banking schools and
associations is also encouraged. These activities are coordinated through
Columbia's full-time corporate training officer. Columbia's management believes
that such continuing training and education programs are important to
maintaining organizational cohesion and consistently high quality customer
service.

MARKETING

Columbia accepts deposits at its branches in Wasco, Hood River, Jefferson,
Deschutes, and Umatilla Counties in Oregon and in Klickitat County in
Washington. Columbia makes loans in all of these counties and in adjacent
counties, including Sherman, Gilliam, and Crook counties in Oregon and Skamania
County in Washington. Many of its products and services, including investment
products through Primevest and mortgages through Columbia's mortgage group, are
offered and sold throughout Oregon and south central Washington.

Columbia's ability to increase its market share in the communities it
serves is driven by a marketing plan consisting of several key components. A
principal objective is to create and foster a sales culture in each office.
Employees are trained to cross-sell, offering appropriate products and services
to existing customers and

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attempting to increase the business relationships Columbia shares with these
customers. Columbia regularly examines the desirability and profitability of
adding new products and services to those currently offered. Columbia also
promotes specific products by media advertising, but relies primarily on
referrals and direct contacts for new business. Columbia recognizes the
importance of community service and supports employee involvement in community
activities. This participation allows Columbia to make a contribution to the
communities it serves, which management believes increases Columbia's visibility
in its markets and thereby increases business opportunities.

Columbia does business in many different non-metropolitan communities.
Management believes the diverse assortment of customers, communities, and
economic sectors that Columbia serves is a source of strength. In addition, as a
community bank Columbia has certain competitive advantages because of its local
focus. However, Columbia is also more reliant on the local economies in its
market areas than are super-regional and national banks. See "Risk
Factors -- Dependence on Local Economies."

Columbia plans to sharpen its market focus in 1998 by ceasing the use of
certain assumed business names. CRB had retained the use of the assumed business
names "Juniper Banking Company" and "Klickitat Valley Bank" after its merger
with Juniper and its acquisition of Klickitat. CRB will cease using these names
in the fourth quarter of 1998, after which all CRB branches will do business
under the "Columbia River Bank" name. Columbia believes this change will bring
additional cohesiveness to the Columbia organization and should enhance name
awareness. The change is supported by Columbia employees, and Columbia does not
anticipate any material negative customer reaction. In management's opinion the
costs entailed by the change, primarily printing costs and signage changes, will
not be material.

COMPETITION

The market for banking services, including deposit and loan products, is
highly competitive. The major commercial bank competitors are super-regional
institutions headquartered outside the state of Oregon. Deposits held by
super-regional financial institutions were approximately 67% of statewide
commercial bank deposits as of December 31, 1997. These major banks have the
advantage of offering their customers services and statewide banking facilities
that Columbia does not offer.

Columbia's competitors for deposits are commercial banks, savings and loan
associations, credit unions, money market funds, issuers of corporate and
government securities, insurance companies, brokerage firms, mutual funds, and
other financial intermediaires. These competitors may offer rates greater than
Columbia can or is willing to offer. Columbia competes for deposits by offering
a variety of deposit accounts at rates generally competitive with financial
institutions in the area.

Columbia's competition for loans comes principally from commercial banks,
savings and loan associations, mortgage companies, finance companies, insurance
companies, credit unions, and other institutional lenders. An important
competitor for agricultural loans is Farm Credit Services, formerly known as the
Production Credit Association. Columbia competes for loan originations through
the level of interest rates and loan fees charged, its array of commercial and
mortgage loan products, and the efficiency and quality of services provided to
borrowers. Lending activity can also be affected by the availability of lendable
funds, local and national economic conditions, current interest rate levels, and
loan demand. As described above, Columbia competes with the larger commercial
banks by emphasizing a community bank orientation and efficient personal service
to customers. See "Business -- Business Strategy."

Other single or multi-branch community banks, of which there are many in
Oregon and Washington, present a competitive threat. These other community banks
can open new branches in the communities Columbia serves, competing directly for
customers who desire the high level of service that a community bank can offer.
Therefore, these banks directly target the loan and deposit customers that
Columbia seeks. Other community banks also compete for the same management
personnel and the same potential acquisition and merger candidates that would be
of interest to Columbia. New community bank start-ups present similar
competitive threats.

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<PAGE> 52

A potential new source of competition is the array of on-line banking
services offered by traditional commercial banks and other financial service
providers, and by newly formed companies that use the Internet to advertise and
sell competing products. However, Columbia's management believes that for the
foreseeable future its customers will continue to want the personal,
locally-based services that it offers. Columbia also plans to begin offering
some on-line banking services to its customers within the next 18 months. See
"Risk Factors -- Competition Due to Technological Change."

THE YEAR 2000 ISSUE

The Year 2000 creates challenges with respect to the automated systems used
by financial institutions and other companies. Many software programs are not
able to recognize "2000" as a calendar year, since most programs and systems
were designed to store calendar years in the 1900s by assuming the "19" and
storing only the last two digits of the year. For example, these automated
systems would recognize a year stored as "00" as the year "1900," rather than as
the Year 2000. If these automated systems are not appropriately re-coded,
updated, or replaced before the Year 2000, they will likely confuse data, crash,
or fail in some manner. In addition, many software programs and automated
systems will fail to recognize the Year 2000 as a leap year. The issue is not
limited to computer systems. Year 2000 issues will potentially affect every
system that has an embedded microchip, such as automated teller machines,
elevators, and vaults.

The Year 2000 challenge raises special concerns for financial institutions,
since many transactions, such as interest accruals and payments, are date
sensitive. It also may affect the operations of third parties with whom Columbia
and its subsidiaries do business, including Columbia's vendors, suppliers,
regulators, utility companies, and customers. See "Risk Factors -- The Year 2000
Issue."

Columbia's State of Readiness. Columbia is committed to addressing these
Year 2000 challenges in a prompt and responsible manner and has dedicated
resources to do so. Management has completed an assessment of its automated
systems and has implemented a plan to resolve these issues, including purchasing
appropriate computer technology. Columbia's Year 2000 compliance plan ("Y2K
Plan") has five phases. These phases are (1) project management, (2) awareness,
(3) assessment, (4) testing, and (5) remediation and implementation. Columbia
has substantially completed phases (1) through (3), although appropriate
follow-up activities are continuing to occur, and Columbia is currently involved
in the testing phase of the Y2K Plan. Expected completion of phase 5 will be
June 30, 1999. However, Columbia will continue to monitor its systems for
compliance and state of readiness.

Project Management. Columbia has assigned primary responsibility for Year
2000 project management to CRB's Chief Administrative Officer. Columbia has also
formed a Year 2000 compliance committee, consisting of appropriate
representatives from its critical operational areas, to assist the Chief
Administrative Officer in implementing the Y2K Plan. In addition, Columbia
provides periodic reports to its Board of Directors in order to assist them in
overseeing Columbia's Year 2000 readiness.

Awareness. Columbia has completed several projects designed to promote
awareness of Year 2000 issues throughout its organization and its customer base.
These projects include mailing information brochures to deposit and loan
customers, providing training for lending officers, and other staff, and
assigning a compliance officer to answer customer questions and to respond to
vendor, customer, and shareholder inquiries. Additionally, Columbia's branch
personnel have hosted awareness seminars for their business customers and the
communities they serve.

Assessment. Assessment is the process of identifying all mission-critical
applications that could potentially be negatively affected by dates in the Year
2000 and beyond. Columbia's assessment phase is substantially complete. Systems
examined during this phase included telecommunications systems, account-
processing applications, and other software and hardware used in connection with
customer accounts. Columbia's operations, like those of many other companies,
are intertwined with the operations of certain of its business partners.
Accordingly, Columbia's operations could be materially affected if the
operations of those companies who provide Columbia with mission critical
applications, systems, and services are materially affected. For example,
Columbia depends upon vendors who provide it with equipment, technology, and
software in connection with its business operations. Failure of these software
vendors to achieve Year 2000

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<PAGE> 53

readiness could substantially affect the operations of Columbia. In addition,
lawsuits and other financial challenges materially affecting the financial
viability of these vendors could materially affect Columbia. In response to this
concern, Columbia has identified and contacted those vendors who provide
mission-critical applications. Columbia is assessing their Year 2000 compliance
efforts and will continue to monitor their progress as the Year 2000 approaches.

Testing. Updating and testing Columbia's mission-critical automated systems
is currently underway. All of these systems will be tested to verify that dates
in the Year 2000 are being appropriately recognized and processed. Testing of
Columbia's current mission-critical automated systems will be substantially
complete by the close of 1998. Testing of renovations and new systems will
continue throughout 1998 and 1999.

Remediation and Implementation. This phase involves obtaining and
implementing renovated software applications provided by vendors. As these
applications are received and implemented, Columbia will test them for Year 2000
compliance. This phase also involves upgrading and replacing automated systems
where appropriate. This activity will continue throughout 1998 and 1999.
Although this phase will be substantially complete before the end of 1999,
additional follow-up activities may take place in the Year 2000 and beyond.

Certain important data processing services, including overnight processing
of debits and credits, are provided to CRB by Datatech of Oregon, Inc.
("Datatech"), an Oregon corporation. Datatech is owned by CRB and six other
Oregon community banks, including Valley Community Bank, Valley's wholly-owned
bank subsidiary. Datatech provides data processing services only to its
shareholder-banks ("Datatech Banks"). As a provider of services that could be
negatively affected by the Year 2000 problem, and that could therefore have a
negative impact on CRB and Valley Community Bank, the Datatech Banks have taken
the following steps to address Datatech's Year 2000 readiness:

Project Management. Representatives of the Datatech Banks sit on Datatech's
Board of Directors, which oversees Datatech's Year 2000 efforts. Datatech makes
periodic reports to its Board of Directors in order to assist the Board in its
oversight process.

Assessment. The Datatech Banks assess Datatech's Year 2000 compliance
efforts on an ongoing basis. The Datatech Banks have requested Datatech to
prepare and submit a comprehensive action plan detailing Datatech's plans for
and progress toward addressing the Year 2000 problems, including Datatech's
progress in obtaining Year 2000 reports from its own vendors.

Testing. Datatech's Year 2000 compliance testing for its hardware and
software systems is ongoing. All of its mission-critical systems will be tested
to verify that dates in the year 2000 are being appropriately recognized and
processed. Testing of renovations and new systems will continue throughout 1998
and 1999.

Renovation and Implementation. Datatech expects to upgrade and replace
automated systems where appropriate. This activity will continue throughout 1998
and 1999. Although this phase will be substantially complete before the end of
1999, additional follow-up activities may take place in the Year 2000 and
beyond.

PROPERTIES

Five of Columbia's branch facilities in Hood River, The Dalles, Redmond,
Bend, and Madras, Oregon, as well as its two full-service branch facilities in
south central Washington, are housed in properties owned by Columbia. Columbia
leases the space for its in-store facility in the Safeway store in The Dalles.
Columbia has plans to double the size of the Hood River branch, from 4,000 to
8,000 square feet, and to renovate and add several hundred square feet to the
Redmond branch. The planned second branch in the Shevlin Business Park in West
Bend is in the development stage, and will be wholly owned by Columbia when
construction is complete. The new branch in Hermiston will initially occupy
leased space, and Columbia has purchased land in Hermiston on which it will
construct a permanent branch facility. See "Business -- Present Expansion Plans
Through New Branch Openings." All of Columbia's presently owned full-service
branches have drive-up facilities and automated teller machines. Columbia's
mortgage group operates from the second floor of Columbia's present Bend branch.

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<PAGE> 54

The following sets forth certain information regarding Columbia's branches.

<TABLE>
<CAPTION>
DATE
OPENED OR
CITY AND COUNTY ADDRESS SQUARE FEET ACQUIRED OCCUPANCY STATUS
--------------- ------- ----------- --------- ----------------
<S> <C> <C> <C> <C>
Oregon Branches
The Dalles (Main Branch), Wasco
County........................... 316 East Third Street 8,000 1977 Owned
The Dalles (Westside Branch), Wasco
County(1)........................ 520 Mt. Hood Street 430 1986 Leased
Hood River Branch, Hood River
County........................... 2650 Cascade Avenue 4,000 1993 Owned
Madras Branch, Jefferson County.... 624 SW Fourth Street 7,400 1995 Owned
Redmond Branch, Deschutes County... 434 North Fifth Street 4,000 1995 Owned
Bend Branch, Deschutes County...... 1701 NE Third Street 8,306 1996 Owned
Hermiston Branch, Umatilla
County(2)........................ 1055 South Highway 395 1,500 1998 Leased
Washington Branches
White Salmon Branch, Klickitat
County........................... 390 NE Tohomish Street 5,500 1996 Owned
Goldendale Branch, Klickitat
County........................... 202 West Main Street 6,105 1996 Owned
</TABLE>

- ---------------
(1) Leased space in a Safeway supermarket. Lease term expires September 2000.

(2) Leased on a month-to-month basis pending construction of new facility.

Columbia maintains its administrative offices in 1,900 square feet of
leased office space in The Dalles. This space is adequate presently but will not
be suitable over the longer term, and Columbia is presently searching for
permanent space in The Dalles for its administrative operations. Columbia is
committed to keeping its administrative headquarters in The Dalles. It intends
to purchase rather than lease space for this purpose.

EMPLOYEES

As of June 30, 1998, Columbia had a total of 158 full-time equivalent
employees. This number of employees, which compares to 133 at December 31, 1997,
has increased due to the addition of personnel to the Columbia River Bank
Mortgage Group and various other administrative functions. None of the employees
are subject to a collective bargaining agreement. Columbia considers its
relationships with its employees to be good.

LEGAL PROCEEDINGS

Columbia is from time-to-time a party to various legal actions arising in
the normal course of business, such as collection cases and the enforcement of
creditors' rights in bankruptcy proceedings. Management is not presently aware
of any material pending or threatened claims against Columbia.

SUPERVISION AND REGULATION

GENERAL

Columbia is extensively regulated under federal and state law. These laws
and regulations are primarily intended to protect depositors, not shareholders.
The discussion below describes and summarizes certain statutes and regulations.
These descriptions and summaries are qualified in their entirety by reference to
the particular statute or regulation. Changes in applicable laws or regulations
may have a material effect on the business and prospects of Columbia. The
operations of Columbia may also be affected by changes in the policies of
banking and other government regulators. Columbia cannot accurately predict the
nature or extent

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<PAGE> 55

of the effects on its business and earnings that fiscal or monetary policies, or
new federal or state laws, may have in the future.

FEDERAL BANK HOLDING COMPANY REGULATION

Columbia is a bank holding company as defined in the Bank Holding Company
Act of 1956, as amended (the "BHCA"), and is therefore subject to regulation,
supervision, and examination by the Federal Reserve. In general, the BHCA limits
the business of bank holding companies to owning or controlling banks and
engaging in other activities closely related to banking. Columbia must file
annual reports with the Federal Reserve and must provide it with such additional
information as it may require.

Holding Company Bank Ownership. The BHCA requires every bank holding
company to obtain the prior approval of the Federal Reserve before (i)
acquiring, directly or indirectly, ownership or control of any voting shares of
another bank or bank holding company if, after such acquisition, it would own or
control more than 5% of such shares, (ii) acquiring all or substantially all of
the assets of another bank or bank holding company, or (iii) merging or
consolidating with another bank or bank holding company.

Holding Company Control of Nonbanks. With some exceptions, the BHCA also
prohibits a bank holding company from acquiring or retaining direct or indirect
ownership or control of more than 5% of the voting shares of any company which
is not a bank or bank holding company, or from engaging directly or indirectly
in activities other than those of banking, managing, or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain nonbank activities which, by statute or by Federal
Reserve regulation or order, have been identified as activities closely related
to the business of banking or of managing or controlling banks. In making this
determination, the Federal Reserve considers whether the performance of such
activities by a bank holding company can be expected to produce benefits to the
public such as greater convenience, increased competition, or gains in the
efficient use of resources, which can be expected to outweigh the risks of
possible adverse effects such as decreased or unfair competition, conflicts of
interest, or unsound banking practices. The Economic Growth and Regulatory
Reduction Act of 1996 amended the BHCA to eliminate the requirement that bank
holding companies seek prior Federal Reserve approval before engaging in certain
permissible nonbanking activities if the holding company is well-capitalized and
meets certain other specific criteria.

Transactions with Affiliates. Subsidiary banks of a bank holding company
are subject to restrictions imposed by the Federal Reserve Act on extensions of
credit to the holding company or its subsidiaries, on investments in their
securities, and on the use of their securities as collateral for loans to any
borrower. These regulations and restrictions may limit Columbia's ability to
obtain funds from CRB for its cash needs, including funds for payment of
dividends, interest, and operational expenses.

Tying Arrangements. Under the Federal Reserve Act and certain regulations
of the Federal Reserve, a bank holding company and its subsidiaries are
prohibited from engaging in certain tying arrangements in connection with any
extension of credit, lease or sale of property, or furnishing of services. For
example, CRB may not generally require a customer to obtain other services from
it or from Columbia, and may not require that the customer promise not to obtain
other services from a competitor as a condition to an extension of credit to the
customer.

FEDERAL AND STATE BANK REGULATION

General. CRB is an Oregon stock bank with deposits insured by the Federal
Deposit Insurance Corporation ("FDIC"), and is subject to the supervision and
regulation of the Oregon Director of Banks, the Washington Department of
Financial Institutions, and the FDIC. These agencies have the authority to
prohibit banks from engaging in what they believe constitute unsafe or unsound
banking practices.

CRA. The Community Reinvestment Act (the "CRA") requires that, in
connection with examinations of financial institutions within their
jurisdiction, the Federal Reserve or the FDIC evaluates the record of the
financial institutions in meeting the credit needs of their local communities,
including low and moderate

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<PAGE> 56

income neighborhoods, consistent with the safe and sound operation of those
banks. These factors are also considered in evaluating mergers, acquisitions,
and applications to open a branch or facility.

Insider Credit Transactions. Banks are also subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to executive
officers, directors, principal shareholders, or any related interests of such
persons. Extensions of credit (i) must be made on substantially the same terms,
including interest rates and collateral, and follow credit underwriting
procedures that are not less stringent than those prevailing at the time for
comparable transactions with persons not covered above and who are not
employees; and (ii) must not involve more than the normal risk of repayment or
present other unfavorable features. Banks are also subject to certain lending
limits and restrictions on overdrafts to such persons. A violation of these
restrictions may result in the assessment of substantial civil monetary
penalties on the affected bank or any officer, director, employee, agent, or
other person participating in the conduct of the affairs of that bank, the
imposition of a cease and desist order, and other regulatory sanctions.

FDICIA. Under the Federal Deposit Insurance Corporation Improvement Act
(the "FDICIA"), each federal banking agency has prescribed, by regulation,
noncapital safety and soundness standards for institutions under its authority.
These standards cover internal controls, information systems, and internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits, such other operational and managerial
standards as the agency determines to be appropriate, and standards for asset
quality, earnings and stock valuation. An institution which fails to meet these
standards must develop a plan acceptable to the agency, specifying the steps
that the institution will take to meet the standards. Failure to submit or
implement such a plan may subject the institution to regulatory sanctions.
Management believes that CRB meets all such standards, and therefore, does not
believe that these regulatory standards materially affect Columbia's business
operations.

INTERSTATE BANKING AND BRANCHING

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act") permits nationwide interstate banking and branching under
certain circumstances. This legislation generally authorizes interstate
branching and relaxes federal law restrictions on interstate banking. Currently,
bank holding companies may purchase banks in any state, and states may not
prohibit such purchases. Additionally, banks are permitted to merge with banks
in other states as long as the home state of neither merging bank has opted out.
The Interstate Act requires regulators to consult with community organizations
before permitting an interstate institution to close a branch in a low-income
area.

Under recent FDIC regulations, banks are prohibited from using their
interstate branches primarily for deposit production. The FDIC has accordingly
implemented a loan-to-deposit ratio screen to ensure compliance with this
prohibition.

Oregon and Washington each enacted "opting in" legislation in accordance
with the Interstate Act provisions allowing banks to engage in interstate merger
transactions subject to certain "aging" requirements. In both states, branches
may not be acquired or opened separately in the home state by an out-of-state
bank, but once an out-of-state bank has acquired a bank within the state, either
through merger or acquisition of all or substantially all of the bank's assets,
the out-of-state bank may open additional branches within the home state.

DEPOSIT INSURANCE

The deposits of CRB are currently insured to a maximum of $100,000 per
depositor through the Bank Insurance Fund ("BIF") administered by the FDIC. CRB
is required to pay semi-annual deposit insurance premium assessments to the
FDIC.

The FDICIA included provisions to reform the Federal Deposit Insurance
System, including the implementation of risk-based deposit insurance premiums.
The FDICIA also permits the FDIC to make special assessments on insured
depository institutions in amounts determined by the FDIC to be necessary to
give it adequate assessment income to repay amounts borrowed from the U.S.
Treasury and other sources, or

55
<PAGE> 57

for any other purpose the FDIC deems necessary. The FDIC has implemented a
risk-based insurance premium system under which banks are assessed insurance
premiums based on how much risk they present to the BIF. Banks with higher
levels of capital and a low degree of supervisory concern are assessed lower
premiums than banks with lower levels of capital or a higher degree of
supervisory concern.

DIVIDENDS

The principal source of Columbia's cash revenues is dividends received from
CRB. The payment of dividends is subject to government regulation, in that
regulatory authorities may prohibit banks and bank holding companies from paying
dividends which would constitute an unsafe or unsound banking practice. In
addition, a bank may not pay cash dividends if that payment could reduce the
amount of its capital below that necessary to meet minimum applicable regulatory
capital requirements. Also, under the Oregon Bank Act, the Oregon Director of
Banks may suspend the payment of dividends if it is determined that the payment
would cause the bank's remaining stockholders' equity to be inadequate for the
safe and sound operation of the bank. Other than the laws and regulations noted
above, which apply to all banks and bank holding companies, neither Columbia nor
CRB are currently subject to any regulatory restrictions on their dividends.

Columbia River Bank has been paying regular dividends to Columbia, which
has in turn been paying regular dividends to its shareholders. No assurances can
be given that dividends will continue to be paid. See "Dividend Policy."

CAPITAL ADEQUACY

Federal bank regulatory agencies use capital adequacy guidelines in the
examination and regulation of bank holding companies and banks. If capital falls
below minimum guideline levels, the holding company or bank may be denied
approval to acquire or establish additional banks or nonbank businesses or to
open new facilities.

The FDIC and Federal Reserve use risk-based capital guidelines for banks
and bank holding companies. These are designed to make such capital requirements
more sensitive to differences in risk profiles among banks and bank holding
companies, to account for off-balance sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items. The guidelines are minimums, and the Federal
Reserve has noted that bank holding companies contemplating significant
expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios well in excess of the minimum. The current guidelines
require all bank holding companies and federally regulated banks to maintain a
minimum risk-based total capital ratio equal to 8%, of which at least 4% must be
Tier I capital.

Tier I capital for bank holding companies includes common shareholders'
equity, qualifying perpetual preferred stock (up to 25% of total Tier I capital,
if cumulative, although under a Federal Reserve Rule, redeemable perpetual
preferred stock may not be counted as Tier I capital unless the redemption is
subject to the prior approval of the Federal Reserve), and minority interests in
equity accounts of consolidated subsidiaries, less intangibles, except as
described above. Tier II capital includes: (i) the allowance for loan losses of
up to 1.25% of risk-weighted assets; (ii) any qualifying perpetual preferred
stock which exceeds the amount which may be included in Tier I capital; (iii)
hybrid capital instruments; (iv) perpetual debt; (v) mandatory convertible
securities; and (vi) subordinated debt and intermediate term preferred stock of
up to 50% of Tier I capital. Total capital is the sum of Tier I and Tier II
capital, less reciprocal holdings of other banking organizations, capital
instruments, and investments in unconsolidated subsidiaries.

The assets of banks and bank holding companies receive risk-weights of 0%,
20%, 50%, and 100%. In addition, certain off-balance sheet items are given
credit conversion factors to convert them to asset equivalent amounts to which
an appropriate risk-weight will apply. These computations result in total
risk-weighted assets.

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<PAGE> 58

Most loans are assigned to the 100% risk category, except for first
mortgage loans fully secured by residential property, which carry a 50% rating.
Most investment securities are assigned to the 20% category, except for
municipal or state revenue bonds, which have a 50% risk-weight, and direct
obligations of, or obligations guaranteed by, the United States Treasury or
agencies of the federal government, which have 0% risk-weight. In converting
off-balance sheet items, direct credit substitutes, including general guarantees
and standby letters of credit backing financial obligations, are given a 100%
conversion factor. Transaction related contingencies such as bid bonds, other
standby letters of credit and undrawn commitments, including commercial credit
lines with an initial maturity of more than one year, have a 50% conversion
factor. Short-term, self-liquidating trade contingencies are converted at 20%,
and short-term commitments have a 0% factor.

The Federal Reserve also employs a leverage ratio, which is Tier I capital
as a percentage of total assets less intangibles, to be used as a supplement to
risk-based guidelines. The principal objective of the leverage ratio is to
constrain the maximum degree to which a bank holding company may leverage its
equity capital base. The Federal Reserve requires a minimum leverage ratio of
3%. However, for all but the most highly rated bank holding companies, and for
bank holding companies seeking to expand, the Federal Reserve expects an
additional cushion of at least 1% to 2%.

The FDICIA created a statutory framework of supervisory actions indexed to
the capital level of the individual institution. Under regulations adopted by
the FDIC, an institution is assigned to one of five capital categories,
depending on its total risk-based capital ratio, Tier I risk-based capital
ratio, and leverage ratio, together with certain subjective factors.
Institutions which are deemed to be "undercapitalized" depending on the category
to which they are assigned are subject to certain mandatory supervisory
corrective actions. Columbia does not believe that these regulations have any
material effect on its operations.

EFFECTS OF GOVERNMENT MONETARY POLICY

The earnings and growth of Columbia are affected not only by general
economic conditions, but also by the fiscal and monetary policies of the federal
government, particularly the Federal Reserve. The Federal Reserve can and does
implement national monetary policy for such purposes as curbing inflation and
combating recession, but its open market operations in U.S. government
securities, control of the discount rate applicable to borrowings from the
Federal Reserve, and establishment of reserve requirements against certain
deposits, influence the growth of bank loans, investments and deposits, and also
affect interest rates charged on loans or paid on deposits. The nature and
impact of future changes in monetary policies and their impact on Columbia
cannot be predicted with certainty.

CHANGES IN BANKING LAWS AND REGULATIONS

The laws and regulations that affect banks and bank holding companies are
currently undergoing significant changes. Bills are now pending or expected to
be introduced in the United States Congress that contain proposals to alter the
structure, regulation, and competitive relationships of the nation's financial
institutions. If enacted into law, these bills could have the effect of
increasing or decreasing the cost of doing business, limiting or expanding
permissible activities (including activities in the insurance and securities
fields), or affecting the competitive balance among banks, savings associations,
and other financial institutions. Some of these bills would reduce the extent of
federal deposit insurance, broaden the powers or the geographical range of
operations of bank holding companies, alter the extent to which banks could
engage in securities activities, and change the structure and jurisdiction of
various financial institution regulatory agencies. Whether or in what form such
legislation may be adopted, or the extent to which the business of Columbia
might be affected thereby, cannot be predicted with certainty.

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MANAGEMENT

For purposes of this Section, the term "Columbia Bancorp" is used to refer
exclusively to the holding company, and does not include its subsidiary CRB.

DIRECTORS

The following table sets forth summary information about the directors of
Columbia Bancorp and CRB. Directors serve staggered terms. There are three
groups of directors, and at each annual meeting, members of one of the groups,
on a rotating basis, are elected for a three-year term. Columbia Bancorp's
Articles of Incorporation permit no more than twelve directors. (Each Columbia
Bancorp director also serves on the CRB Board).

<TABLE>
<CAPTION>
NAME AGE POSITION TERM EXPIRES
---- --- -------- ------------
<S> <C> <C> <C>
Stephen D. Martin............. 54 Chairman of the Board of 2000
Columbia Bancorp and CRB
Donald T. Mitchell............ 53 Vice-Chairman of the 1999
Board of Columbia
Bancorp and CRB
Terry L. Cochran.............. 54 Director, President, and 2001
Chief Executive Officer
of Columbia Bancorp and
CRB
Robert L.R. Bailey............ 57 Director 1999
Charles F. Beardsley.......... 58 Director 2001
William A. Booth.............. 57 Director 2001
Dennis Carver................. 49 Director 1999
Ted M. Freeman................ 72 Director 1999
Jane F. Lee................... 46 Director 2000
Jean McKinney................. 59 Director 2000
James B. Roberson............. 64 Director 2001
Greg Walden................... 41 Director 2000
</TABLE>

The business experience of each of the directors for the past five years is
described below.

STEPHEN D. MARTIN has been a director of Columbia Bancorp since its
formation, and has served as Chairman of the Board of Columbia Bancorp since
that time. Mr. Martin has been a director of CRB since 1977 and has served as
Chairman of the CRB Board since April 1995. He is the chief executive officer of
Steve Martin Management Company, a hospitality management company based in
Cannon Beach, Oregon. Mr. Martin is also the co-owner and operator of the
Stephanie Inn, the Surfsand Resort, the Haystack Motel, and the Wayfarer
Restaurant, all in Cannon Beach, Oregon.

DONALD T. MITCHELL has been a director of Columbia Bancorp since its
formation. He was a director of Juniper for six years and became a director of
CRB following the merger between CRB and Juniper. Since 1982, he has been a
partner in Lacy Forest Products, a lumber brokerage firm headquartered in
Redmond, Oregon.

TERRY L. COCHRAN has been a director of Columbia Bancorp and its President
and Chief Executive Officer since its formation, and has been President and
Chief Executive Officer and a director of CRB since 1981. After Columbia Bancorp
acquired Klickitat, he also served as President and Chief Executive Officer of
that subsidiary until its merger with CRB in March 1997. He holds an A.A. degree
from Yakima Valley College, a B.A. degree in Business Administration from
Washington State University, and is a graduate of the Pacific Coast Banking
School at the University of Washington.

ROBERT L.R. BAILEY has been a director of Columbia Bancorp since its
formation. Mr. Bailey has been a director of CRB since 1977 and served as
Chairman of the CRB Board from 1981 to 1995. Since 1985

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<PAGE> 60

Mr. Bailey has been the president and general manager of Orchard View Farms,
Inc., a fruit growing and packing company headquartered in The Dalles, Oregon.

CHARLES F. BEARDSLEY has served as a director of Columbia Bancorp since its
formation, and as a director of CRB since April 1994. Since 1972 Mr. Beardsley
has been a principal owner of Hershner & Bell Realty, a real estate brokerage
firm, and of Hershner & Bell-Farrell Agency, an insurance agency, both in Hood
River, Oregon. He also served as Mayor of the City of Hood River for six years.

WILLIAM A. BOOTH has served as a director of Columbia Bancorp since its
formation, and as a director of CRB since 1977. Since 1968 Mr. Booth has been a
principal owner in Booth & Kelly Insurance & Real Estate, a real estate and
insurance agency in The Dalles, Oregon.

DENNIS CARVER was elected to the Columbia Bancorp Board at the 1997 annual
meeting. He had been a director of Klickitat since 1984. He has worked as a
chiropractor in Goldendale, Washington, since 1973, and presently runs the
Goldendale Chiropractic Clinic.

TED M. FREEMAN was a director of Juniper for eight years, and served as
Chairman of its Board for a number of years prior to its merger with CRB, and
became a director of CRB following the merger. Prior to his retirement in 1993,
Mr. Freeman managed a seed, fertilizer, and grain business for 35 years.

JANE F. LEE was elected to the Columbia Bancorp Board at the 1997 annual
meeting. She had been a director of Klickitat since 1987. She has worked in
cattle ranching and hay operations since 1972, and is the President of the
Washington State Association of Cattle Women. She also serves as a Commissioner
of Fire District #7 in Goldendale, Washington.

JEAN MCKINNEY has been a director of Columbia Bancorp since its formation,
and has been a director of CRB since April 1994. Ms. McKinney has served for
over 20 years as president and business manager of McKinney Ranches, Inc., a
grain farming business in Wasco, Oregon.

JAMES B. ROBERSON was elected to the Columbia Bancorp Board at the 1998
annual meeting. He had been a director of Klickitat since 1977, and became a
director of CRB in 1996 following Klickitat's acquisition by Columbia Bancorp in
that year. Prior to his retirement in 1996, Mr. Roberson was an optometrist in
the Bingen/White Salmon, Washington area for 34 years.

GREG WALDEN has been a director of Columbia Bancorp since its formation,
and has been a director of CRB since April 1994. Since 1986, he has served as
president of Columbia Gorge Broadcasters, Inc., in Hood River, Oregon. From 1989
to 1995 he served as an Oregon state representative, and from 1995 to 1997 as a
state senator in the Oregon legislature.

EXECUTIVE OFFICERS

The following table sets forth summary information about the executive
officers of Columbia Bancorp and CRB.

<TABLE>
<CAPTION>
YEARS OF
NAME AGE POSITION BANKING EXPERIENCE
---- --- -------- ------------------
<S> <C> <C> <C>
Terry L. Cochran................... 54 President and Chief Executive 32
Officer of Columbia Bancorp and CRB
Richard J. Croghan................. 44 Executive Vice President and Chief 28
Administrative Officer of CRB and
Secretary of Columbia Bancorp
James C. McCall.................... 52 Executive Vice President and Chief 29
Lending Officer of CRB
Craig J. Ortega.................... 42 Executive Vice President and Head 18
of Community Banking of CRB
Neal T. McLaughlin................. 30 Executive Vice President and Chief 6
Financial Officer of Columbia
Bancorp and CRB
</TABLE>

59
<PAGE> 61

The business experience of each of the executive officers for the past five
years is described below.

RICHARD J. CROGHAN is Executive Vice President and Chief Administrative
Officer of CRB, a position he has held since July 1997. He has served as
Secretary of Columbia Bancorp since its formation in 1995. He served as CRB's
Chief Financial Officer from September 1981 to July 1997, was a director of CRB
from 1984 until 1995, and served as Columbia Bancorp's Chief Financial Officer
from its formation in 1995 to July 1997. He holds an A.S. degree in Business
from Central Oregon Community College, and is a graduate of the Bank
Administration Institute Banking School at the University of Wisconsin. He is a
past Board member of the Oregon Bankers Association and past-president of the
Oregon chapter of the American Institute of Bankers. Mr. Croghan has 28 years of
banking experience.

JAMES C. MCCALL is Executive Vice President and Chief Lending Officer of
CRB. He has been employed by CRB since April 1982, and has served as Chief
Lending Officer since November 1988. He holds a B.S. degree in Business from
Oregon State University, and is a 1993 graduate of the Pacific Coast Banking
School at the University of Washington. Mr. McCall has 29 years of banking
experience. He presently is a director of Network of Oregon Affordable Housing,
and is past Chairman of the Oregon Bankers Association Lending Committee.

CRAIG J. ORTEGA is Executive Vice President and Head of Community Banking
of CRB, a position held since July of 1997. Prior to that, he was manager of
CRB's Hood River branch. Mr. Ortega has been with CRB for five years, and has 18
years of banking experience. He attended Blue Mountain Community College and
holds a B.S. degree in Business Administration from Eastern Oregon State
College, and is a graduate of the Pacific Coast Banking School at the University
of Washington.

NEAL T. MCLAUGHLIN has been an Executive Vice President and the Chief
Financial Officer of CRB since July of 1997, and also serves as Columbia
Bancorp's Chief Financial Officer. Mr. McLaughlin started his banking career
with Juniper, and joined CRB after the merger between CRB and Juniper in 1995.
Since joining CRB, he has served in a number of positions, most recently as Vice
President and Controller. He holds a B.S. degree in Accounting from the
University of Oregon, and is also a Certified Public Accountant in the state of
Oregon. Mr. McLaughlin has 6 years of banking experience. He is a graduate of
the Northwest Intermediate Banking School and the Northwest Intermediate
Commercial Lending School, and has attended the Pacific Coast Banking School at
the University of Washington. Mr. McLaughlin is a member of the Financial
Officers/Investment Committee of the Oregon Bankers Association.

COMMITTEES OF THE BOARD OF DIRECTORS

CRB's Board of Directors has five committees: the Executive Committee, the
Audit/Examination Committee, the Human Resources Committee, the Loan Committee,
and the Investment/Asset-Liability Committee. (The Columbia Bancorp Board does
not presently have any committees.)

The present members of the CRB Executive Committee are William A. Booth,
Terry L. Cochran, Stephen D. Martin, Jean McKinney, Donald T. Mitchell, James B.
Roberson, and Greg Walden. This Committee acts for the CRB Board on matters
requiring prompt action, serves as the Board's Nominating Committee, and
recommends long range planning activities to the full CRB Board. It also
evaluates the Chief Executive Officer, recommending appropriate compensation,
benefits, and employment contracts.

The present members of the CRB Audit/Examination Committee are Greg Walden,
Chairperson, Jane F. Lee and Donald T. Mitchell. Richard J. Croghan, a CRB
Executive Vice President but not a CRB Board member, also serves on this
Committee. This Committee reviews the scope of internal and external audit
activities and the results of CRB's annual audit.

The present members of the CRB Human Resources Committee are Jean McKinney,
Chairperson, Robert L.R. Bailey and Charles F. Beardsley. Charla Herman, a CRB
Assistant Vice President, who serves as

60
<PAGE> 62

CRB's Director of Human Resources but is not a CRB Board member, also serves on
this Committee. This Committee provides oversight of CRB's ESOP, 401(k), and
stock option plans, and reviews and makes recommendations on corporate
compensation and personnel policies.

The present members of the CRB Loan Committee are William A. Booth,
Chairperson, Charles F. Beardsley and James B. Roberson. James C. McCall, a CRB
Executive Vice President but not a CRB Board member, also serves on this
Committee. This Committee reviews the loan portfolio for safety and soundness,
monitors concentrations in industry and loan type, and oversees the loan policy
of CRB.

The present members of the CRB Investment/Asset-Liability Committee are
James B. Roberson, Chairperson, Dennis Carver and Ted M. Freeman. Neal T.
McLaughlin, a CRB Executive Vice President but not a CRB Board member, also
serves on this Committee. This Committee establishes, updates, and monitors
policies related to asset, liability, liquidity, interest rate management, and
investments. It also interviews and recommends securities advisors and brokers.

SENIOR MANAGEMENT PLANNING, TRAINING, AND CONTINUITY

The entire Columbia Bancorp and CRB Boards meet annually for a
comprehensive review of Columbia Bancorp's and CRB's overall strategic plans,
including growth goals. These annual strategic planning meetings last from one
to three days, and are usually facilitated by an outside consultant with
specific bank management expertise. Further, each new outside director is
strongly encouraged to attend several day-long educational sessions at a
"Director's College" sponsored by the Oregon Bankers Association. All present
outside Columbia directors have attended the Director's College. In addition,
Columbia Bancorp's directors annually evaluate each other's performance against
a number of criteria, including the director's attendance at timely and relevant
bank-related conferences and the effective presentation to the entire Board of
the materials presented at such conferences. These measures are intended to
promote the strength, expertise and continuity of the Columbia Bancorp Board as
a whole.

Senior executives of CRB meet regularly as a group, both formally and
informally, to exchange ideas and discuss issues affecting the Columbia
organization. CRB has in place a written plan specifying the procedures to be
followed for interim management in the event CRB's Chief Executive Officer is
unable to perform the CEO's duties. Management intends to take additional steps,
including the possible addition of senior-level personnel, in order to help
assure that Columbia has sufficient management depth to effectively manage CRB's
anticipated growth.

DIRECTOR COMPENSATION

The CRB Chairman is paid an attendance fee of $1,000 for each regular
monthly meeting of the CRB Board. Each other CRB director is paid an attendance
fee of $700 for each regular monthly meeting of the CRB Board. Each CRB director
also receives $100 for each meeting attended of any committee of the Board to
which the director belongs. Columbia Bancorp does not pay any separate
attendance fees to its directors. Directors are also eligible for awards of
stock options under Columbia Bancorp's Stock Incentive Plan. See "Management
Executive and Employee Compensation Plans -- Stock Incentive Plan."

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<PAGE> 63

EXECUTIVE COMPENSATION

The following table sets forth, for the three years ended December 31,
1997, all compensation paid by CRB to Terry L. Cochran. No other director or
executive officer of CRB received salary and bonus during this period in excess
of $100,000. None of the three present executive officers of Columbia Bancorp,
including Mr. Cochran, receive separate compensation from the holding company.

<TABLE>
<CAPTION>
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION AWARDS COMPENSATION
--------------------------------------------- ------------------------ ------------
SECURITIES
OTHER UNDERLYING
NAME AND ANNUAL OPTIONS
POSITION YEAR SALARY BONUS COMPENSATION(1) ESOP(2) GRANTED
-------- ---- -------- ------- ---------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Terry L. Cochran.......... 1997 $126,875(3) $57,304 $ -- $11,277 6,000 shares(4) $1,600(6)
President and CEO 1996 $ 93,634(3) $31,788 $2,000 $12,542 -- $1,500(6)
1995 $ 90,180(3) $52,017 $4,800 $11,049 13,500 shares(5) $1,362(6)
</TABLE>

- ---------------
(1) Consists of Directors fees.
(2) As of December 31, 1997, CRB's ESOP held 44,643 shares of Common Stock for
the account of Mr. Cochran, with an estimated market value of $372,028 plus
uninvested cash of $13,065. All of the shares described are vested, and
dividends are payable to the account of Mr. Cochran under the ESOP.
(3) Includes monthly auto allowance of $500 in 1995 and 1996, and $700 beginning
in May 1997.
(4) The exercise price for the options is $5.59 per share. The options are
immediately exercisable and expire in August 2007. The exercise price has
been restated for subsequent stock splits.
(5) The exercise price for the options is $3.34 per share. The options are
immediately exercisable and expire in June 2005. The exercise price has been
restated for subsequent stock splits.
(6) Annual 401(k) employer contribution.

The following table sets forth information regarding option exercises
during 1997 by the executive officer named in the compensation table shown
above. There were no options to purchase Common Stock granted to this executive
officer in 1996.

<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES
------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------------- ------------ ------------ -------------------------- -------------------------
<S> <C> <C> <C> <C>
Terry L. Cochran............. 3,600 $22,788 17,500/0 $74,000/$0
</TABLE>

- ---------------
(1) On December 31, 1997, the closing price of the Common Stock was $8.33, as
adjusted for subsequent stock splits. For purposes of the foregoing table,
stock options with an exercise price less than that amount are considered to
be "in-the-money" and are considered to have a value equal to the difference
between this amount and the exercise price of the stock option multiplied by
the number of shares covered by the stock option.

The following sets forth certain information regarding options granted in
1997 to the executive officer named in the compensation table shown above:

<TABLE>
<CAPTION>
OPTION GRANTS IN 1997
-----------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------------------------------------------- ---------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(#) YEAR ($/SH) DATE 5%($) 10%($)
---- ----------- ---------- -------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Terry L. Cochran.......................... 6,000 4.65% $5.59 August 11, 2007 $21,120 $53,460
</TABLE>

62
<PAGE> 64

EMPLOYMENT AND CHANGE OF CONTROL AGREEMENT

Columbia Bancorp and Terry L. Cochran, Columbia Bancorp's President and
Chief Executive Officer, are parties to an employment agreement of May 1, 1998.
Under the agreement, upon a change of control of Columbia Bancorp, such as its
acquisition by or merger with another company, Mr. Cochran has the right to
terminate his employment within 90 days and to receive certain payments and
benefits, including yearly retirements benefits under a Deferred Compensation
Agreement between Mr. Cochran and Columbia Bancorp. The employment agreement
also contains noncompetition provisions which restrict Mr. Cochran from
competing with Columbia Bancorp for one year following his termination of
employment under certain conditions.

EXECUTIVE AND EMPLOYEE COMPENSATION PLANS

401(k) Plan. Under CRB's 401(k) Plan, officers and employees of CRB may
elect to defer up to 10% of their compensation. CRB makes matching contributions
to the accounts of these officers and employees equal to 25 percent of the first
four percent of compensation that an officer or employee elects to defer,
subject to limitations under the Internal Revenue Code of 1986. Amounts
contributed or deferred are distributed to employees upon retirement, permanent
disability, death, termination of employment, or the occurrences of conditions
constituting extraordinary hardship.

ESOP. CRB has an Employee Stock Ownership Plan (the "ESOP"). All employees
of CRB who have been credited with at least 1,000 hours of service in the prior
year, and have attained age 20, including officers, are eligible to participate
in the ESOP. The sole source of funding for the ESOP is contributions made by
CRB. Contributions made by participants are not permitted. Assets of the ESOP
are used primarily to purchase shares of Common Stock. The ESOP may not purchase
Common Stock for a price in excess of its fair market value, as determined by an
appraisal of the fair market value of the Common Stock commissioned from an
independent appraiser by the ESOP Trustees and CRB. For the period ended June
30, 1998, the ESOP appraisal of the fair market value of the Common Stock, on a
marketable minority basis, was $10.25 per share as adjusted for a subsequent
2-for-1 stock split. As of September 14, 1998, the ESOP held 282,066 shares of
Common Stock and $34,145 in cash. At that date, 122 employees of CRB were
participants in the ESOP.

Incentive Cash Compensation. CRB has adopted an incentive cash compensation
program under which CRB employees at all levels can receive incentive
compensation, limited to a fixed percentage of base compensation, for helping
CRB achieve certain goals and objectives. For example, branch managers and loan
officers are eligible for cash compensation based on increases in branch income,
loan and deposit growth, maintenance of asset quality, and the cross-selling of
CRB products and services. Non-officer employees are graded and rewarded based
on the delivery of quality customer service, as determined by the employee's
supervisor, and on branch income growth. Most new CRB employees become eligible
to participate in the program within a short time after beginning employment.

Stock Incentive Plan. Since 1993 Columbia has utilized a stock incentive
plan (the "Incentive Plan") administered by the Columbia Bancorp Board to
advance Columbia Bancorp's business interests. The Incentive Plan enables
Columbia Bancorp and CRB to attract and retain qualified and talented employees
and Board members by offering them an opportunity to participate in the growth
and ownership of Columbia Bancorp. Stock options may be granted under the
Incentive Plan at the discretion of and with the approval of the Columbia
Bancorp Board. Columbia Bancorp and CRB employees are eligible to receive
incentive stock options, which are intended to qualify for favorable tax
treatment, and which must have an exercise price equal to not less than the fair
market value of the Common Stock on the date of grant. In addition, employees
and directors of Columbia Bancorp and CRB are eligible for nonstatutory stock
options, which do not qualify for favorable tax treatment, and which may have an
exercise price set at the discretion of the Columbia Bancorp Board. The option
exercise price for nonstatutory stock options may be either greater or less than
the fair market value of the Common Stock on the date of grant, although in
practice the Columbia Bancorp Board has always set the exercise price for such
options at fair market value. Options vest and are exercisable in accordance
with the terms set in the individual grant. In most cases the option vests
immediately and is

63
<PAGE> 65

exercisable within 10 years of the date of grant. The Incentive Plan also allows
the Columbia Bancorp Board to offer other forms of stock-related incentives,
such as stock appreciation rights and stock bonuses. However, apart from grants
of 200 shares of Common Stock to each of two retiring outside Directors in 1998,
the Board has never approved any such incentives other than stock options.

During 1997 options covering a total of 129,000 shares of Common Stock were
granted to CRB employees, and options covering a total of 78,000 shares of
Common Stock were granted to non-employee members of Columbia Bancorp's and CRBs
Board. Between January 1, 1998 and September 14, 1998 options covering a total
of 3,000 shares of Common Stock were granted to CRB employees, and a total of
400 shares of Common Stock were granted to two retiring non-employee members of
Columbia Bancorp's Board. Adjusted for stock splits, an aggregate of no more
than 600,000 shares of Common Stock may be issued under the Incentive Plan. As
of September 14, 1998, a total of 520,000 shares of Common Stock had been either
issued or committed for issuance through options under the current Incentive
Plan, leaving a total of 80,000 shares of Common Stock available for future
issuance. No options have been or will be granted to any Columbia employee or
Board member in connection with the Offering. All of the above information
reflects stock splits through September 14, 1998.

CERTAIN TRANSACTIONS

Some of the directors and officers of Columbia and members of their
immediate families and firms, and corporations with which they are associated,
have been parties to transactions with Columbia, including borrowings and
investments in time deposits. All such loans and investments in time deposits
have been made in the ordinary course of business, have been made on
substantially the same terms, including interest rates paid or charged and
collateral required, as those prevailing at the time for comparable transactions
with unaffiliated persons, and did not involve more than the normal risk of
collectibility or present other unfavorable features. As of June 30, 1998, the
aggregate outstanding amount of all loans to officers and directors was
approximately $2.54 million, which represented approximately 11.26% of
Columbia's consolidated shareholders' equity at that date. All such loans are
currently in good standing, and are being paid in accordance with their terms.

Robert L.R. Bailey, a director of Columbia and CRB, and Orchard View Farms,
a company controlled by Mr. Bailey, as well as Dry Hollow Limited Partnership, a
partnership for which Mr. Bailey is the general partner, borrowed sums from CRB
in excess of $60,000 in the aggregate under revolving and nonrevolving lines of
credit and a Visa card. As of June 30, 1998, the total balance due by Mr. Bailey
from these borrowings was $1.45 million.

Stephen D. Martin, a director of Columbia and CRB, and various enterprises
owned or controlled by him, borrowed sums from CRB in excess of $60,000 in the
aggregate under term loans, a revolving line of credit, and a Visa card. As of
June 30, 1998, the total balance due by Mr. Martin from these borrowings was
$563,000.

Charles F. Beardsley, a director of Columbia and CRB, borrowed sums from
CRB in excess of $60,000 in the aggregate under term loans, a revolving line of
credit, and a Visa card. As of June 30, 1998, the balance due by Mr. Beardsley
from these borrowings was $105,000.

Terry L. Cochran, the Chief Executive Officer and President and a director
of Columbia and CRB, borrowed sums from CRB in excess of $60,000 in the
aggregate under revolving lines of credit and a Visa card. As of June 30, 1998,
the total balance due by Mr. Cochran from these borrowings was $128,000.

Dennis Carver, a director of Columbia and CRB, borrowed sums from CRB in
excess of $60,000 in the aggregate under term loans. As of June 30, 1998, the
total balance due by Mr. Carver from these borrowings was $181,000.

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<PAGE> 66

PRINCIPAL SHAREHOLDERS

The following table sets forth information regarding the beneficial
ownership of Common Stock as of September 14, 1998, and as adjusted to reflect
the sale of an assumed 1,000,000 shares of Common Stock offered hereby, with
respect to (i) each person known by Columbia to beneficially own more than 5% of
the outstanding shares of Common Stock, (ii) each person who is a director or
executive officer of Columbia, and (iii) all directors and executive officers of
Columbia as a group. Each beneficial owner has the sole power to vote and to
dispose of all shares of Common Stock owned by such beneficial owner.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(1)
------------------------ ----------------------
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE SHARES PERCENTAGE
------------------------ ---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
BENEFICIAL OWNERS OF MORE THAN 5% OF OUTSTANDING
COMMON STOCK
George Layman.................................... 515,048 7.4 515,048 6.5
DIRECTORS AND EXECUTIVE OFFICERS OF COLUMBIA
Robert L.R. Bailey (2)........................... 259,418 3.7% 259,418 3.3%
Charles F. Beardsley (3)......................... 41,828 (*) 41,828 (*)
William A. Booth (4)............................. 90,174 1.3 90,174 1.1
Dennis Carver (5)................................ 38,938 (*) 38,938 (*)
Terry L. Cochran (6)............................. 344,894 5.0 344,894 4.3
Richard J. Croghan (7)........................... 122,136 1.8 122,136 1.5
Ted M. Freeman (8)............................... 16,350 (*) 16,350 (*)
Jane F. Lee (9).................................. 16,910 (*) 16,910 (*)
James C. McCall (10)............................. 42,488 (*) 42,488 (*)
Jean McKinney (11)............................... 18,708 (*) 18,708 (*)
Neal T. McLaughlin (12).......................... 6,748 (*) 6,748 (*)
Stephen D. Martin (13)........................... 89,438 1.3 89,438 1.1
Donald T. Mitchell (14).......................... 35,012 (*) 35,012 (*)
Craig J. Ortega (15)............................. 17,812 (*) 17,812 (*)
James B. Roberson................................ 59,294 (*) 59,294 (*)
Greg Walden (16)................................. 15,962 (*) 15,962 (*)
ALL DIRECTORS AND EXECUTIVE OFFICERS OF COLUMBIA AS
A GROUP
(16 persons)..................................... 1,216,110 17.5 1,216,110 15.3
</TABLE>

- ---------------
* Less than 1%

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares. Shares of common Stock subject to
options currently exercisable, or exercisable within 60 days after
September 14, 1998, are deemed outstanding for the purpose of computing the
percentage ownership interest of the person holding such options, but are
not deemed outstanding for the purpose of computing the percentage
ownership for any other person. Applicable percentage ownership is based on
aggregate shares outstanding as of September 14, 1998, together with the
applicable options of such shareholder.

(2) Includes 43,064 shares owned by his spouse, 30,000 shares in a family
partnership, 16,800 shares in a pension trust, 20,000 shares held in a
foundation, and 15,000 shares covered by stock options.

(3) Includes 14,414 shares held in trust, 12,414 shares held in spouse's trust,
and 15,000 covered by stock options.

(4) Includes 15,000 shares covered by stock options.

(5) Includes 16,816 shares jointly owned with his spouse, 14,260 shares in an
IRA, 3,406 shares held as custodian for his children, and 4,000 shares
covered by stock options.

65
<PAGE> 67

(6) Includes 123,948 shares owned by his spouse, 44,294 shares held through the
ESOP, and 17,500 shares covered by stock options.

(7) Includes 26,036 shares held through the ESOP and 15,000 shares covered by
stock options.

(8) Includes 3,550 shares jointly owned with his spouse, 800 shares in a family
trust, and 12,000 shares covered by stock options.

(9) Includes 6,000 shares covered by stock options.

(10) Includes 2,970 shares jointly owned with spouse, 22,980 shares held through
the ESOP, and 13,752 shares covered by stock options.

(11) Includes 900 shares owned by her son, 1,230 shares in an IRA, and 10,770
shares covered by stock options.

(12) Includes 914 shares held through the ESOP and 3,900 shares covered by stock
options.

(13) Includes 6,938 shares owned by his daughter and 6,000 shares covered by
stock options.

(14) Includes 6,000 shares jointly owned with his spouse, 14,012 shares in a
pension plan, and 15,000 shares covered by stock options.

(15) Includes 584 shares held in an IRA, 404 shares held in his spouse's IRA,
7,128 shares held as custodian for his children, 1,296 shares held through
the ESOP and 8,400 shares covered by stock options.

(16) Includes 2,634 shares jointly owned with his spouse, 1,242 in an IRA, 1,286
in his spouse's IRA, and 10,800 covered by stock options.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, Columbia will have shares of Common Stock
outstanding. The shares sold in the Offering ( shares if the
Underwriter's over-allotment option is exercised in full) will be freely
tradable on the public market without restriction or further registration under
the Securities Act, except to the extent that such shares are held by an
affiliate of Columbia. The holders of shares have entered into
agreements (the "Lock-Up Agreements") with the Underwriter not to offer, sell,
or otherwise dispose of any equity securities of Columbia for 180 days after the
date of this Prospectus (the "Lock-Up Period") without the prior written consent
of the Underwriter. The Underwriter may, in its sole discretion, at any time
without notice, release all or any part of the shares subject to the Lock-Up
Agreements during the Lock-Up Period.

In general, Rule 144, as currently in effect, provides that any person who
has beneficially owned shares of an SEC-regulated company for at least one year,
including an "affiliate" (as defined in Rule 144), is entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of
(i) the average weekly trading volume during the four calendar weeks preceding
the sale or (ii) 1% of the shares of the Columbia's common stock then
outstanding. Sales under Rule 144 are subject to certain manner of sale
restrictions, notice requirements, and the availability of current public
information concerning Columbia. A person who is not an affiliate of Columbia,
and who has not been an affiliate within three months prior to the sale,
generally may sell shares without regard to the limitations of Rule 144 provided
that the person has held such shares for a period of at least two years.

Any employee, director, or officer of Columbia who holds shares purchased
under a written compensation plan or contract (including options) entered into
prior to the Offering is entitled to rely on the resale provisions of Rule 701,
which permit nonaffiliates to sell such shares without having to comply with the
public information, holding period, volume limitations, or notice requirements
of Rule 144. For a description of options outstanding under Columbia's
compensation plans, see "Management -- Executives and Employee Compensation
Plans."

There has been only a limited market for the Common Stock prior to the
Offering, and no prediction can be made of the effect, if any, that the sale or
availability for sale of shares of Common Stock will have on its market price.
Sales of substantial amounts of such shares in the public market could adversely
affect the market price of the Common Stock. See "Risk Factors -- Limited Market
for the Common Stock."
66
<PAGE> 68

DESCRIPTION OF CAPITAL STOCK

The Articles of Incorporation of Columbia authorize the issuance of up to
10 million shares of Common Stock with no par value. As of September 14, 1998,
there were 6,940,682 shares of Common Stock issued and outstanding held by a
total of 1,122 shareholders. Subject to the rights of holders of any preferred
stock which may be outstanding, holders of Common Stock are entitled to receive
dividends if and when declared by the Columbia Board from any funds legally
available for such purpose. Each outstanding share of Common Stock has the same
relative rights and preferences as each other share of Common Stock, including
the rights to the net assets of the corporation upon liquidation. Each share is
entitled to one vote on matters submitted to a vote of shareholders. Holders of
Common Stock are not entitled to preemptive rights and may not cumulate votes in
the election of directors. The election of candidates to the Columbia Board and
most other corporate matters subject to shareholder approval require the
approval of a simple majority of all votes entitled to be cast on the matter.
Certain other matters require a supermajority (75%) vote. See "Description of
Capital Stock -- Anti-Takeover Provisions -- Columbia's Articles of
Incorporation."

Columbia's Articles also authorize the issuance of preferred stock, and
permit the Columbia Board to determine the price, rights, preferences,
privileges, and restrictions, including voting rights, of preferred stock
without any vote or action by Columbia's shareholders. Columbia has never issued
preferred stock, and presently has no plans to do so.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Under the Oregon Business Corporation Act, a corporation's Articles of
Incorporation may provide for the limitation of liability of directors and
indemnification of directors and officers under some circumstances. In
accordance with Oregon law, Columbia's Articles of Incorporation provide that
directors are not personally liable to the corporation or its shareholders for
monetary damages for conduct as a director, except for (i) any breach of a
director's duty of loyalty to the corporation or its shareholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; (iii) any unlawful distributions to directors; (iv) any
transaction from which the director received an improper or illegal personal
benefit; or (v) any act or omission for which the elimination of liability is
not permitted under the Oregon Business Corporation Act.

Columbia's Articles allow it to indemnify any person who is or was a party,
or is threatened to be made a party, to any civil, administrative, or criminal
proceeding by reason of the fact that the person is or was a director or officer
of Columbia or any of its subsidiaries, is or was a fiduciary under the Employee
Retirement Income Security Act of 1974 with respect to any employee benefit plan
of Columbia or its subsidiaries, or is or was serving at Columbia's request as a
director, officer, partner, agent, or employee of another corporation or entity.
The indemnification may include expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement, actually and reasonably incurred by that
person. Indemnification is available if (i) the person acted in good faith; (ii)
the person reasonably believed the conduct was in the corporation's best
interests, or at least was not opposed to its best interests; and (iii) in the
case of a criminal proceeding, the person had no reasonable cause to believe the
conduct was unlawful. In addition, a person who is wholly successful, on the
merits or otherwise, in the defense of a proceeding in which the person was a
party because the person was a director, is entitled to indemnification for
expenses actually and reasonably incurred by the person in connection with the
proceeding.

ANTI-TAKEOVER PROVISIONS -- LEGISLATION

Columbia is subject to the Oregon Business Corporation Act, ORS 60.001
through 60.992, which includes a number of provisions affecting shareholders'
rights. One such provision is contained in ORS 60.357, under which corporate
directors, when evaluating a proposed tender or exchange offer, merger,
acquisition, or similar proposal, "may, in determining what they believe to be
in the best interests of the corporation, give due consideration to the social,
legal, and economic effects on employees, customers, and suppliers of the
corporation and on the communities and geographical areas in which the
corporation and its subsidiaries operate, the economy of the state and nation,
the long-term as well as short-term interests of the corporation

67
<PAGE> 69

and its shareholders, including the possibility that these interests may be best
served by the continued independence of the corporation and other relevant
factors." This statute permits the Board of Columbia, when evaluating a proposal
for the merger, consolidation, or sale of Columbia, to consider the interests of
groups or constituents other than Columbia's shareholders.

Columbia 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. "Business combination transactions" include (i) a merger or
plan of share exchange; (ii) any sale, lease, mortgage, or other disposition of
corporate assets where the assets have an aggregate market value of 10% or more
of the aggregate market value of the corporation's assets or outstanding capital
stock; and (iii) certain transactions that result in the issuance of capital
stock of, or loans by, the corporation to the Interested Shareholder. These
restrictions do not apply if (i) the Interested Shareholder, as a result of the
acquisition, owns at least 85% of the outstanding voting stock of the
corporation (excluding shares owned by directors who are also officers, and
certain employee benefit plans), (ii) prior to the completion of the acquisition
the Board of Directors approves either the business combination transaction or
the acquisition; or (iii) after the completion of the acquisition the Board of
Directors and the holders of at least two-thirds of the outstanding voting stock
of the corporation (excluding shares owned by the Interested Shareholder)
approve the business combination transaction. A corporation may provide in its
articles of incorporation or bylaws that the OBCA does not apply to its shares.
Columbia has not adopted such a provision and does not presently plan to do so.

In addition, the provisions of ORS 60.801 to 60.816, known as the Oregon
Control Share Act (the "OCSA"), also apply to Columbia. In brief, this statute
provides that a person or persons who acquire no less than 20% of the voting
shares of a corporation in a "control share acquisition," as defined in the
statute, lose the right to vote the shares unless such voting rights are
restored through a majority vote of the remaining shareholders. A person (the
"Acquiring Person") who acquires voting stock of an Oregon corporation in a
transaction which results in such Acquiring Person holding, more than 20%,
33 1/3%, or 50% of the total voting power of the corporation (a "Control Share
Acquisition") cannot vote such shares ("Control Shares") unless voting rights
are accorded to the Control Shares by the holders of a majority of the
outstanding voting shares, excluding such Control Shares and shares held by
insiders. The vote is required at the time an Acquiring Person's holdings exceed
20% of the total voting power of a company, and again at the time the Acquiring
Person's holding exceed 33 1/3% and 50%, respectively. "Acquiring Person" is
broadly defined to include persons acting as a group. The Acquiring Person may,
but is not required to, submit to Columbia an "Acquiring Person Statement"
setting forth certain information about the Acquiring Person and its plans with
respect to Columbia. The Acquiring Person Statement may also request that
Columbia call a special meeting of shareholders to determine whether the Control
Shares will be allowed to retain voting rights. If the Acquiring Person does not
request a special meeting of shareholders, the issue of voting rights of Control
Shares will be considered at the next annual meeting or special meeting of
shareholders that is held more than 60 days after the date of the Control Share
Acquisition. If the Acquiring Person's Control Shares are accorded voting rights
and represent a majority or more of all voting power, shareholders who vote
against restoring such voting rights are entitled to the appraised "fair value"
of their shares, which may not be less than the highest price paid per share by
the Acquiring Person for the Control Shares.

The OCSA and the OBCA effectively encourage any potential acquirer to
negotiate with Columbia's Board of Directors, and discourage certain potential
acquirers unwilling to comply with their provisions. A corporation may provide
in its articles of incorporation or bylaws that these laws shall not apply to
its shares. Columbia has not adopted such provisions and does not currently
intend to do so. These laws may make Columbia less attractive for takeover, and
shareholders, therefore, may not benefit from a rise in the price of the Common
Stock that could result from a takeover. The limitations of these laws are in
addition to regulatory restrictions on acquisitions of the stock of banks and
bank holding companies under the BHCA. See "Supervision and
Regulation -- Federal Bank Holding Company Regulation."

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<PAGE> 70

Finally, Columbia is subject to the reporting requirements of, and its
common stock is registered under, the Securities Exchange Act of 1934, as
amended (the "1934 Act"). Any person who acquires Common Stock and, after giving
effect to such acquisition, holds more than 5% of the outstanding shares of
Common Stock, is required to report such acquisition to the Securities and
Exchange Commission (the "SEC") under Section 13 of the 1934 Act. Therefore, a
person intending to acquire control of Columbia will be obligated to make such
intentions public, even prior to being required to report such transactions to
the Federal Reserve under the BHCA. See "Supervision and Regulation."

ANTI-TAKEOVER PROVISIONS -- COLUMBIA'S ARTICLES OF INCORPORATION

In addition to the laws discussed above, Columbia's Articles of
Incorporation contain provisions that could make the acquisition of Columbia
through a tender offer, proxy contest, or merger difficult for a potential
suitor opposed by the Board. These provisions are: (i) staggered terms for
directors; (ii) a prohibition against shareholder removal of a director except
for "cause," including breaches of a director's duty of loyalty to the
corporation and acts or omission not taken in good faith; (iii) a super majority
(75%) voting share approval requirement for a merger or acquisition proposal
which has not been approved by a majority of Columbia's directors; and (iv) a
requirement that shareholders wishing to bring a matter for a vote before an
annual shareholders' meeting provide prior notice and other information to
Columbia. There is also a supermajority (75%) voting share approval requirement
for any amendments to these provisions.

Columbia's Articles also authorize the issuance of voting preferred stock.
This authorization, although useful as a financing tool, could potentially be
used by management to make more difficult uninvited attempts to acquire control
of Columbia. For example, Columbia could issue preferred stock to dilute the
ownership interest of a substantial shareholder, increasing the consideration
necessary to effect an acquisition, or selling authorized but unissued shares to
a friendly third party. The rights of the holders of Common Stock may be subject
to, and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The issuance of preferred stock could
effectively delay, defer, or prevent a change of control of Columbia without
further action by the shareholders, and may adversely affect the voting and
other rights of the holders of Common Stock.

TRANSFER AGENT AND CERTIFICATES

The transfer agent and registrar of the Common Stock is Norwest Bank
Minnesota, N.A., P.O. Box 64874, St. Paul, MN, 55164-0874. The telephone numbers
of the transfer agent are (612) 450-4064 and (800) 468-9716. The telecopy number
of the transfer agent is (612) 450-4163.

UNDERWRITING

The Underwriter has agreed, subject to the terms and conditions set forth
in the Underwriting Agreement, to purchase from Columbia all of the Common Stock
offered through this Prospectus. The Underwriting Agreement provides that the
obligation of the Underwriter to purchase the shares of Common Stock offered
hereby is subject to the approval of certain legal matters by counsel and
various other conditions. The Underwriting Agreement also provides that the
Underwriter is committed to purchase all of the shares of the Common Stock
offered hereby, if any are purchased (except for any shares that may be
purchased through exercise of the Underwriter's over-allotment option, which may
be exercised by the Underwriter in whole or in part in its discretion).

Columbia has been advised by the Underwriter that the Underwriter proposes
to offer the shares of Common Stock to the public at the public offering price
set forth on the cover of this Prospectus and to certain dealers at such price,
less a concession not in excess of $ per share. After the Offering, the
public offering price and other selling terms may be changed by the Underwriter.
The Common Stock is offered subject to receipt and acceptance by the
Underwriter, and to certain other conditions, including the right to reject
orders in whole or in part.

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<PAGE> 71

Prior to the Offering, there has been only a limited public market for the
Common Stock. Accordingly, the public offering price has been determined by
negotiation between Columbia and the Underwriter. Among the factors considered
in determining the public offering price were the recent bid prices quoted by
market makers in the Common Stock, Columbia's present and historical results of
operations, Columbia's current financial condition, estimates of the business
potential and prospects of Columbia, economic conditions in Columbia's market
area, the experience of Columbia's management, the economics of the industry in
general, the general condition of the equity markets at the time of the
Offering, and other relevant factors. There can be no assurance that an active
trading market will develop for the Common Stock, that purchasers in the
offering will be able to sell their shares at or above the Offering price, or as
to the price at which the Common Stock may trade in the public market from
time-to-time subsequent to the Offering.

Columbia has granted the Underwriter an option, exercisable during the
30-day period after the date of this Prospectus, to purchase up to ________
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less underwriting discounts and commissions. The
Underwriter may exercise this option solely to cover over-allotments, if any,
incurred in connection with the sale of shares of Common Stock offered through
this Prospectus.

The Underwriting Agreement provides that Columbia has agreed to indemnify
the Underwriter against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriter may be
required to make in respect thereof.

Certain of Columbia's executive officers and directors, together with the
one Columbia shareholder who owns more than 5% of Columbia's Common Stock, have
agreed that, for a period ending 180 days after the day on which the
Registration Statement becomes effective by order of the SEC, they will not,
without the prior written consent of the Underwriter, directly or indirectly
offer for sale, sell, contract to sell or grant any option to sell (including,
without limitation, any short sale), pledge, establish an open "put-equivalent
position" within the meaning of Rule 16a-1(h) under the Exchange Act, transfer,
assign or otherwise dispose of any shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock, or any option,
warrant or other right to acquire such shares, or publicly announce the
intention to do any of the foregoing.

During and after the offering the Underwriter may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock. Syndicate share positions involve the
sale by the Underwriter of a greater number of shares of Common Stock than they
are required to purchase from Columbia in the offering. The Underwriter also may
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of the Common Stock sold in the Offering for
their account may be reclaimed by the syndicate if such securities are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain, or otherwise affect the market price of the
Common Stock, which may be higher than the price that might otherwise prevail in
the open market, and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.

The Underwriter has advised Columbia that the Underwriter does not intend
to confirm sales of Common Stock offered by this Prospectus to any accounts over
which it exercises discretionary authority. In addition, the Underwriter is
subject to NASD Rule 2720(1), under which no NASD member may execute in a
discretionary account any sale of Common Stock offered by this Prospectus
without the prior written approval of the customer.

Columbia has applied for approval to list the Common Stock on the Nasdaq
National Market under the symbol "CBBO."

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<PAGE> 72

The foregoing is a brief summary of the Underwriting Agreement and does not
purport to be a complete statement of its terms and conditions. A copy of the
form of Underwriting Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. See "Available Information."

EXPERTS

The Consolidated Financial Statements of Columbia as of December 31, 1997,
1996, and 1995, and for each of the years then ended, and the Consolidated
Financial Statements of Valley as December 31, 1997, 1996, and 1995, and for
each of the years then ended, which are included in this Prospectus and in the
Registration Statement, have been included in reliance upon the reports of Moss
Adams LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of Moss Adams LLP as experts in accounting and auditing.

LEGAL MATTERS

The validity of the Common Stock offered by this Prospectus will be passed
upon for Columbia by its outside counsel, Bennett H. Goldstein, Attorney at Law,
Portland, Oregon. Certain legal matters will be passed upon for the Underwriter
by the law firm of Graham & Dunn PC, Seattle, Washington.

AVAILABLE INFORMATION

Columbia is a reporting company under the Exchange Act. It files quarterly
and annual reports and other information with the SEC. Columbia has also filed a
Form S-1 registration statement (the "Registration Statement") with the SEC
under the Securities Act in connection with the Offering. This Prospectus is
part of the Registration Statement, but it does not contain all of the
information contained in the Registration Statement, such as exhibits.
Statements and summaries in this Prospectus about the contents of a contract or
other document are not necessarily complete. All such statements and summaries
are qualified in their entirety by reference to the copy of the contract or
document filed as an exhibit to the Registration Statement.

A copy of the Registration Statement may be examined free of charge at the
SEC's principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of the Registration
Statement or any part of it may be obtained from the Public Reference Section of
the SEC upon payment of certain fees prescribed by the Commission. Copies of
such materials may also be obtained from the website that the SEC maintains at
http://www.sec.gov. In addition, copies of quarterly and annual reports and
other filings with the SEC made by Columbia may be examined or obtained in the
same manner.

For further information about Columbia, please see the Registration
Statement and the reports, proxy statements, and other information filed by
Columbia with the Commission.

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<PAGE> 73

GLOSSARY OF CERTAIN KEY TERMS

<TABLE>
<CAPTION>
<S> <C>
"Board" Board of Directors.
"BHCA" The Bank Holding Company Act of 1956, as amended.
"BIF" The Bank Insurance Fund.
"Columbia" Columbia Bancorp, an Oregon corporation and registered bank
holding company. Columbia is the parent corporation of
Columbia River Bank, referred to herein as "CRB." Unless
otherwise noted, the discussions of and references in this
Prospectus to Columbia and Columbia's activities, financial
condition, and business include Columbia's subsidiary CRB.
"Columbia Bancorp" is used in the Section entitled
"Management" to refer to the holding company only and does
not include CRB.
"Common Stock" The shares of common stock of Columbia, no par value,
described in this Prospectus.
"CRA" The Community Reinvestment Act.
"CRB" Columbia River Bank, an Oregon state-chartered banking
corporation and the wholly-owned subsidiary of Columbia.
"Datatech" Datatech of Oregon, Inc., an Oregon business corporation.
"Datatech Banks" The Oregon community banks that are the shareholders of
Datatech, including CRB and Valley Community Bank.
"ESOP" Columbia's Employee Stock Ownership Plan.
"FDIC" The Federal Deposit Insurance Corporation.
"FDICIA" The Federal Deposit Insurance Corporation Improvement Act.
"Federal Reserve" The Board of Governors of the Federal Reserve System.
"Interstate Act" The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994.
"Juniper" Juniper Banking Company, an Oregon state-chartered banking
corporation with which CRB merged effective January 1, 1995.
"Klickitat" Klickitat Valley Bank, a Washington state-chartered banking
corporation acquired by Columbia in 1996.
"NASD" National Association of Securities Dealers.
"ORS" Oregon Revised Statutes.
"Offering" The offering of shares of Common Stock
as described in this Prospectus.
"Primevest" Primevest Financial Services, Inc., a registered securities
broker-dealer.
"Prospectus" This Prospectus, which describes the Offering.
"Registration Statement" The Registration Statement on Form S-1, of which this
Prospectus forms a part, filed with the SEC by Columbia
under the 1933 Act, for the purpose of registering the
Common Stock described in this Prospectus.
"SEC" The United States Securities and Exchange Commission.
"Valley" Valley Community Bancorp, an Oregon business corporation and
registered bank holding company. Valley is the parent
corporation of Valley Community Bank, an Oregon
state-chartered banking corporation with its principal
office in McMinnville, Oregon. Unless otherwise noted, the
discussions of and references in this Prospectus to Valley
and Valley's activities, financial condition, and business
include Valley Community Bank.
"Valley Community" An Oregon state-chartered banking corporation and the
wholly-owned subsidiary of Valley.
</TABLE>

72
<PAGE> 74

<TABLE>
<S> <C>
"Underwriter" Pacific Crest Securities Inc., the sole underwriter of the Offering.
"Y2K" The Year 2000.
"1933 Act" The Securities Act of 1933, as amended, and the rules and
regulations issued thereunder.
"1934 Act" The Securities Exchange Act of 1934, as amended, and the rules and
regulations issued thereunder.
</TABLE>

73
<PAGE> 75

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COLUMBIA BANCORP
Independent Auditor's Report................................ F-1
Consolidated Financial Statements
Balance sheets............................................ F-2
Statements of income...................................... F-3
Statements of changes in stockholders' equity............. F-5
Statements of cash flows.................................. F-6
Notes to consolidated financial statements................ F-7

VALLEY COMMUNITY BANCORP
Independent Auditor's Report................................ F-24
Consolidated Financial Statements
Balance sheets............................................ F-25
Statements of income...................................... F-26
Statements of changes in stockholders' equity............. F-27
Statements of cash flows.................................. F-28
Notes to financial statements............................. F-29
</TABLE>

74
<PAGE> 76

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Columbia Bancorp and Subsidiary

We have audited the accompanying consolidated balance sheets of Columbia
Bancorp and Subsidiary as of December 31, 1996 and 1997, and the related
statements of income, changes in stockholders' equity, and cash flows for the
years ended December 31, 1995, 1996, and 1997. 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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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, 1996 and 1997, and the results of its
operations and cash flows for the years ended December 31, 1995, 1996, and 1997,
in conformity with generally accepted accounting principles.

Moss Adams LLP
Portland, Oregon
January 23, 1998,
except for Note 20, as to which the
date is September 12, 1998

F-1
<PAGE> 77

COLUMBIA BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks................................... $ 16,030 $ 16,878 $ 18,551
Federal funds sold........................................ 7,367 2,834 4,230
-------- -------- --------
Total cash and cash equivalents................. 23,397 19,712 22,781
-------- -------- --------
Investment securities available-for-sale.................. 9,714 31,310 29,338
Investment securities held-to-maturity.................... 41,098 16,728 17,183
Restricted equity securities.............................. 672 766 795
-------- -------- --------
Total investment securities..................... 51,484 48,804 47,316
-------- -------- --------
Loans held-for-sale....................................... -- 2,714 7,990
Loans, net of allowance for loan losses and unearned loan
fees.................................................... 118,228 152,505 164,989
Property and equipment, net of depreciation............... 4,881 5,257 5,223
Accrued interest receivable............................... 1,948 2,185 2,697
Other assets.............................................. 364 650 2,114
-------- -------- --------
Total assets.................................... $200,302 $231,827 $253,110
======== ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits..................... $ 33,549 $ 46,377 $ 48,927
Interest-bearing demand deposits........................ 72,671 85,503 86,602
Savings accounts........................................ 22,833 22,744 25,925
Time certificates and IRA accounts...................... 49,691 46,944 56,967
-------- -------- --------
Total deposits.................................. 178,744 201,568 218,421
Notes payable............................................. 600 5,264 8,218
Accrued interest payable and other liabilities............ 1,425 2,008 1,548
-------- -------- --------
Total liabilities............................... 180,769 208,840 228,187
-------- -------- --------
Employee stock ownership plan shares subject to put
option.................................................. 1,058 1,430 2,352
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares authorized
with 2,254,841, 2,288,451 and 3,468,391 issued and
outstanding in 1996, 1997, and 1998, respectively.... 5,139 5,528 5,954
Additional paid-in capital.............................. 6,318 6,318 6,318
Retained earnings....................................... 8,087 11,131 12,657
Accumulated other comprehensive income, net of tax...... (11) 10 (6)
Less employee stock ownership plan shares subject to put
option............................................... (1,058) (1,430) (2,352)
-------- -------- --------
Total stockholders' equity...................... 18,475 21,557 22,571
-------- -------- --------
Total liabilities and stockholders' equity...... $200,302 $231,827 $253,110
======== ======== ========
</TABLE>

See independent auditor's report and accompanying notes.

F-2
<PAGE> 78

COLUMBIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------- --------------------------
1995 1996 1997 1997 1998
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans......... $10,612 $11,855 $14,764 $6,860 $8,417
Interest on investments:
Taxable investment securities... 2,118 2,094 2,258 1,205 863
Nontaxable investment
securities.................... 659 771 736 379 419
Interest on federal funds sold..... 343 589 221 112 110
Other interest and dividend
income.......................... 83 76 165 23 115
------- ------- ------- ------ ------
Total interest income...... 13,815 15,385 18,144 8,579 9,924
------- ------- ------- ------ ------
INTEREST EXPENSE
Interest on interest-bearing
deposit and savings accounts.... 2,688 2,967 3,314 1,597 1,720
Interest on time deposit
accounts........................ 2,369 2,718 2,772 1,403 1,486
Other borrowed funds............... 159 61 184 29 209
------- ------- ------- ------ ------
Total interest expense..... 5,216 5,746 6,270 3,029 3,415
------- ------- ------- ------ ------
Net interest income before
provision for loan
losses................... 8,599 9,639 11,874 5,550 6,509
PROVISION FOR LOAN LOSSES............ 88 246 581 250 450
------- ------- ------- ------ ------
Net interest income after
provision for loan
losses................... 8,511 9,393 11,293 5,300 6,059
------- ------- ------- ------ ------
NONINTEREST INCOME
Service charges and fees........... 998 1,093 1,545 658 834
Credit card discounts and fees..... 223 288 390 146 185
Financial services department
income.......................... 106 159 231 115 155
Mortgage loan origination
processing...................... -- -- -- -- 324
Net gain on sale of loans.......... -- -- -- -- 177
Other noninterest income........... 225 259 315 118 402
------- ------- ------- ------ ------
Total noninterest income... 1,552 1,799 2,481 1,037 2,077
------- ------- ------- ------ ------
</TABLE>

See independent auditor's report and accompanying notes.

F-3
<PAGE> 79

COLUMBIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------- -------------------------
1995 1996 1997 1997 1998
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NONINTEREST EXPENSES
Salaries and employee benefits....... $ 3,611 $ 3,965 $ 4,463 $1,997 $2,714
Occupancy expense.................... 566 653 736 372 449
Credit card processing fees.......... 162 214 254 106 124
Office supplies...................... 181 165 200 86 79
FDIC assessment...................... 166 6 20 12 18
Data processing expense.............. 233 232 304 131 183
Other noninterest expenses........... 1,576 1,945 2,115 1,043 1,203
------- ------- ------- ------ ------
Total noninterest expenses... 6,495 7,180 8,092 3,747 4,770
------- ------- ------- ------ ------
INCOME BEFORE PROVISION FOR INCOME
TAXES................................ 3,568 4,012 5,682 2,590 3,366
PROVISION FOR INCOME TAXES............. 1,079 1,285 1,795 828 1,147
------- ------- ------- ------ ------
NET INCOME............................. $ 2,489 $ 2,727 $ 3,887 1,762 2,219
======= ======= ======= ------ ------
OTHER COMPREHENSIVE INCOME
Unrealized gain on available-for-sale
securities, net of tax............ (102) 19
Reclassification for gain included in
net income........................ -- (35)
------ ------
Other comprehensive income... (102) (16)
------ ------
COMPREHENSIVE INCOME................... $1,660 $2,203
====== ======
BASIC EARNINGS PER SHARE OF COMMON
STOCK................................ $ 0.37 $ 0.40 $ 0.57 $ 0.26 $ 0.32
======= ======= ======= ====== ======
DILUTED EARNINGS PER SHARE OF COMMON
STOCK................................ $ 0.36 $ 0.40 $ 0.55 $ 0.26 $ 0.31
======= ======= ======= ====== ======
</TABLE>

See independent auditor's report and accompanying notes.

F-4
<PAGE> 80

COLUMBIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ESOP
ACCUMULATED SHARES
COMMON STOCK ADDITIONAL OTHER SUBJECT TOTAL
---------------- PAID-IN RETAINED COMPREHENSIVE TO PUT STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME OPTION EQUITY
------ ------ ---------- -------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1994.................. 743 $4,954 $4,797 $ 5,750 $(315) $ (505) $14,681
Cash dividends....................... -- -- (555) -- -- (555)
Stock options exercised.............. 7 20 52 -- -- -- 72
3 for 1 stock split.................. 1,488 -- -- -- -- -- --
Changes in unrealized loss on
available-for-sale securities, net
of tax............................. -- -- -- -- 291 -- 291
Changes in ESOP shares subject to put
option............................. -- -- -- -- -- (361) (361)
Net income and comprehensive
income............................. -- -- -- 2,489 -- -- 2,489
------ ------ ------ ------- ----- ------- -------
BALANCE,
December 31, 1995.................. 2,238 4,974 4,849 7,684 (24) (866) 16,617
Stock options exercised.............. 10 66 28 -- -- -- 94
Sale of common stock................. 7 99 -- -- -- -- 99
Transfer to surplus.................. -- -- 1,441 (1,441) -- -- --
Changes in unrealized loss on
available-for-sale securities, net
of tax............................. -- -- -- -- 12 -- 12
Changes in ESOP shares subject to put
option............................. -- -- -- -- -- (192) (192)
Cash dividends....................... -- -- -- (702) -- -- (702)
Cash dividends declared.............. -- -- -- (180) -- -- (180)
Net income and comprehensive
income............................. -- -- -- 2,727 -- -- 2,727
------ ------ ------ ------- ----- ------- -------
BALANCE,
December 31, 1996.................. 2,255 5,139 6,318 8,088 (12) (1,058) 18,475
Stock options exercised.............. 21 214 -- -- -- -- 214
Sale of common stock................. 12 175 -- -- -- -- 175
Changes in unrealized loss on
available-for-sale securities, net
of tax............................. -- -- -- -- (2) -- (2)
Gain on securities transferred from
held-to-maturity to
available-for-sale................. -- -- -- -- 22 -- 22
Changes in ESOP shares subject to put
option............................. -- -- -- -- -- (372) (372)
Cash dividends....................... -- -- -- (613) -- -- (613)
Cash dividends declared.............. -- -- -- (229) -- -- (229)
Net income and comprehensive
income............................. -- -- -- 3,887 -- -- 3,887
------ ------ ------ ------- ----- ------- -------
BALANCE,
December 31, 1997.................. 2,288 5,528 6,318 11,133 8 (1,430) 21,557
Stock options exercised.............. 16 195 -- -- -- -- 195
Sale of common stock................. 9 235 -- -- -- -- 235
3 for 2 stock split.................. 1,155 (4) -- -- -- -- (4)
Changes in ESOP shares subject to put
option............................. -- -- -- -- -- (921) (921)
Cash dividend declared............... -- -- -- (693) -- -- (693)
Net income and comprehensive
income............................. -- -- -- 2,219 (17) -- 2,202
------ ------ ------ ------- ----- ------- -------
BALANCE,
June 30, 1998 (Unaudited).......... 3,468 $5,954 $6,318 $12,659 $ (9) $(2,351) $22,571
====== ====== ====== ======= ===== ======= =======
</TABLE>

See independent auditor's report and accompanying notes.
F-5
<PAGE> 81

COLUMBIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------------
1995 1996 1997 1997 1998
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 2,489 $ 2,727 $ 3,887 $ 1,762 $ 2,219
Adjustments to reconcile net income to net cash from
operating activities:
Amortization of premiums and discounts of investment
securities............................................ 6 -- 30 -- --
(Gain) loss on write-down of property and equipment..... 24 -- (1) -- --
Loss on sale of available-for-sale securities........... -- -- 4 -- --
(Gain) loss on call of held-to-maturity investment
securities............................................ 10 -- 7 -- (35)
Depreciation............................................ 322 380 449 226 241
Federal Home Loan Bank stock dividend................... (38) (49) (53) (12) (29)
Benefit for deferred income taxes....................... (96) (168) (278) -- (144)
Provision for loan losses............................... 88 246 581 250 450
Increase (decrease) in cash due to changes in certain
assets and liabilities:
Accrued interest receivable............................. (142) (132) (237) (586) (512)
Other assets............................................ (100) 478 (8) (30) (1,464)
Accrued interest payable and other liabilities.......... 158 272 533 268 (455)
-------- -------- -------- -------- --------
Net cash from operating activities................. 2,721 3,754 4,914 1,878 271
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of available-for-sale securities... 1,351 -- 1,647 -- 3,086
Proceeds from the maturity of available-for-sale
securities.............................................. 7,589 4,718 12,517 1,200 11,724
Proceeds from the maturity of held-to-maturity
securities.............................................. 11,913 14,795 3,576 3,400 592
Purchases of held-to-maturity securities.................. (12,226) (15,266) (4,534) (2,898) (741)
Purchases of available-for-sale securities................ (1,349) (6,769) (10,454) (1,375) (13,000)
Purchases of restricted equity securities................. (33) -- (41) -- --
Net change in loans made to customers..................... (14,195) (14,296) (37,571) (24,460) (18,209)
Proceeds from the sale of property and equipment.......... -- 40 -- -- --
Payments made for purchase of property and equipment...... (449) (1,446) (822) (283) (193)
-------- -------- -------- -------- --------
Net cash from investing activities................. (7,399) (18,224) (35,682) (24,416) (16,741)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in demand deposit and savings accounts......... 3,775 18,144 25,570 11,448 6,829
Net change in time deposits and IRA accounts.............. 12,296 1,725 (2,746) 3,589 10,022
Borrowings of long-term debt.............................. 600 -- 663 3,600 2,700
Repayments of long-term debt.............................. (1,281) (600) -- -- --
Net decrease in federal funds purchased................... (1,500) -- -- -- --
Dividends paid............................................ (555) (702) (793) (385) (693)
Proceeds from stock options exercised and purchases of
common stock............................................ 71 193 389 236 426
Net increase (decrease) in short-term borrowings.......... (164) 224 4,000 (322) 255
-------- -------- -------- -------- --------
Net cash from financing activities................. 13,242 18,984 27,083 18,166 19,539
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.......................................... 8,564 4,514 (3,685) (4,372) 3,069
CASH AND CASH EQUIVALENTS, beginning of period.............. 10,319 18,883 23,397 23,397 19,712
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 18,883 $ 23,397 $ 19,712 $ 19,025 $ 22,781
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid in cash..................................... $ 5,088 $ 5,677 $ 6,250 $ 2,992 $ 3,419
======== ======== ======== ======== ========
Taxes paid in cash........................................ $ 1,210 $ 1,459 $ 2,069 $ 435 $ 645
======== ======== ======== ======== ========
SCHEDULE OF NONCASH ACTIVITIES
Unrealized gain on securities transferred from
held-to-maturity to available-for-sale, net of tax...... $ -- $ -- $ 24 $ -- $ --
======== ======== ======== ======== ========
Change in unrealized loss on available-for-sale
securities, net of tax.................................. $ 292 $ 12 $ (2) $ (102) $ (16)
======== ======== ======== ======== ========
Cash dividend declared and payable after year-end......... $ -- $ 180 $ 228 $ -- $ --
======== ======== ======== ======== ========
</TABLE>

See independent auditor's report and accompanying notes.

F-6
<PAGE> 82

COLUMBIA BANCORP AND SUBSIDIARY

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
executory in nature and the required shareholder and regulatory approvals had
been obtained prior to December 31, 1995, the accompanying consolidated
financial statements have been accounted for in a manner similar to a
pooling-of-interests and prepared to reflect the change in reporting entity as
of December 31, 1995. Substantially all activity of Bancorp is conducted through
its subsidiary bank and all significant intercompany accounts and transactions
have been eliminated in the preparation of the consolidated financial
statements.

In June 1996, Columbia Bancorp acquired Klickitat Valley Bank (Klickitat),
a community bank headquartered in Goldendale, Washington, with branch operations
in White Salmon, Washington. The business combination was accomplished through
the exchange of 8.5 shares of Bancorp common stock for each share of Klickitat
common stock. The transaction was 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.

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.
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, 1996 and 1997, 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.

F-7
<PAGE> 83
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.

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
examinations.

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, 1996, the Bank held no mortgage loans for
sale. At December 31, 1997, mortgage loans held-for-sale were carried at cost
which approximated market.

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-

F-8
<PAGE> 84
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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, 1996 and 1997.

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 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 rates for similar types of borrowing arrangements.

Long-term debt -- The fair value of the Bank's long-term debt is 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.

F-9
<PAGE> 85
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 continue to
measure compensation using the intrinsic value approach under Accounting
Principles Board (APB) Opinion No. 25, the former standard. If the former
standard for measurement were elected, SFAS No. 123 requires supplemental
disclosure to show any significant effects of using the new measurement
criteria. The Bank has elected to continue using the measurement prescribed by
APB Opinion No. 25, and accordingly, this pronouncement has had no effect on the
Bank's financial position or results of operations.

UNAUDITED INTERIM FINANCIAL DATA -- The interim financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management all adjustments,
including normal recurring accruals necessary for fair presentation of results
of operations for the interim periods included herein, have been made. The
results of operations for the six months ended June 30, 1998, are not
necessarily indicative of results to be anticipated for the year ending December
31, 1998.

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.

F-10
<PAGE> 86
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 -- INVESTMENT SECURITIES

The book value and approximate market values of investment securities at
December 31, 1996 and 1997, are summarized as follows (in thousands):

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Available-for-sale securities:
U.S. Treasury securities....................... $ 1,799 $ 5 $ (2) $ 1,802
Obligation of U.S. government agencies......... 7,181 18 (40) 7,159
Corporate debt securities...................... 451 2 -- 453
Corporate equity securities.................... 300 -- -- 300
------- ---- ----- -------
$ 9,731 $ 25 $ (42) $ 9,714
======= ==== ===== =======
Held-to-maturity securities:
U.S. Treasury securities....................... $ 2,319 $ - $ (21) $ 2,298
Obligation of U.S. government agencies......... 20,821 538 (664) 20,695
Corporate debt securities...................... 2,157 8 (1) 2,164
Mortgage-backed securities..................... 450 3 (6) 447
Municipal securities........................... 15,351 224 (19) 15,556
------- ---- ----- -------
$41,098 $773 $(711) $41,160
======= ==== ===== =======
DECEMBER 31, 1997
Available-for-sale securities:
U.S. Treasury securities....................... $ 3,211 $ 6 $ (3) $ 3,214
Obligation of U.S. government agencies......... 26,930 72 (59) 26,943
Corporate debt securities...................... 854 -- (1) 853
Corporate equity securities.................... 300 -- -- 300
------- ---- ----- -------
$31,295 $ 78 $ (63) $31,310
======= ==== ===== =======
Held-to-maturity securities:
Mortgage-backed securities..................... $ 157 $ 1 $ (3) $ 155
Municipal securities........................... 16,571 356 -- 16,927
------- ---- ----- -------
$16,728 $357 $ (3) $17,082
======= ==== ===== =======
</TABLE>

F-11
<PAGE> 87
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of investment securities at
December 31, 1997, by contractual maturity, are shown below (in thousands).
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 $ 6,850 $ 2,220 $ 2,243
Due after one year through five years............... 19,434 19,439 6,988 7,150
Due after five years through ten years.............. 3,700 3,727 3,005 3,079
Due after ten years................................. 1,000 994 4,515 4,610
------- ------- ------- -------
30,994 31,010 16,728 17,082
Corporate equity securities......................... 300 300 -- --
------- ------- ------- -------
$31,294 $31,310 $16,728 $17,082
======= ======= ======= =======
</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 acquisition of Bancorp 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 $25,243,000 and an estimated market value of $25,206,000.
Recognition of the market value of the transferred investment securities
resulted in an after tax adjustment to stockholders' equity at December 31,
1997, of $22,000.

As of December 31, 1996 and 1997, investment securities with a book value
of $3,283,000 and $5,337,000, 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
(in thousands):

<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Federal Home Loan Bank stock................................ $669 $756
Federal Agriculture Mortgage Corporation stock.............. 3 10
---- ----
$672 $766
==== ====
</TABLE>

F-12
<PAGE> 88
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 -- LOANS

The composition of loan balances is summarized as follows (in thousands):

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Commercial............................................. $ 32,686 $ 38,013
Agriculture............................................ 16,014 22,365
Real estate............................................ 55,287 75,003
Consumer............................................... 13,837 17,385
Credit card and other loans............................ 1,699 1,990
-------- --------
119,523 154,756
Less: Allowance for loan losses........................ (995) (1,639)
Unearned loan fees................................ (300) (612)
-------- --------
$118,228 $152,505
======== ========
</TABLE>

Impairment of loans having recorded investments of $229,000 at December 31,
1996, and $1,041,000 at December 31, 1997, have been recognized in conformity
with SFAS No. 114 "Accounting by Creditors for Impairment of a Loan" as amended
by SFAS No. 118 "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures." 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 $268,000 during 1996 and
$462,000 during 1997. The total allowance for loan losses related to these loans
at December 31, 1996 and 1997, was approximately $34,000 and $221,000,
respectively. Had the impaired loans performed according to their original
terms, additional interest income of $11,000 and $59,000 would have been
recognized in 1996 and 1997, 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 (in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
BALANCE, beginning of year............................... $ 954 $1,071 $ 995
Provision for loan losses................................ 88 246 581
Loans charged-off........................................ (118) (391) (40)
Recoveries............................................... 147 69 103
------ ------ ------
BALANCE, end of year..................................... $1,071 $ 995 $1,639
====== ====== ======
</TABLE>

NOTE 6 -- PROPERTY AND EQUIPMENT

The major classifications of property and equipment are summarized as
follows (in thousands):

<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Land........................................................ $1,049 $1,049
Buildings and improvements.................................. 4,030 4,134
Furniture and equipment..................................... 2,220 2,918
------ ------
7,299 8,101
Less accumulated depreciation............................... (2,418) (2,844)
------ ------
$4,881 $5,257
====== ======
</TABLE>

F-13
<PAGE> 89
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- TIME DEPOSITS

Time certificates of deposit of $100,000 and over, aggregated $12,205,000
and $8,938,000 at December 31, 1996 and 1997, respectively.

At December 31, 1997, the scheduled maturities for all time deposits are as
follows (in thousands):

<TABLE>
<S> <C>
1998........................................................ $35,841
1999........................................................ 4,102
2000........................................................ 1,723
2001........................................................ 693
2002 and thereafter......................................... 493
-------
$42,852
=======
</TABLE>

NOTE 8 -- INCOME TAXES

The provision for income taxes consisted of the following (in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current tax provision
Federal........................................ $1,092 $1,280 $1,901
State.......................................... 83 173 172
------ ------ ------
1,175 1,453 2,073
Deferred tax benefit
Federal........................................ (85) (143) (252)
State.......................................... (11) (25) (26)
------ ------ ------
(96) (168) (278)
------ ------ ------
$1,079 $1,285 $1,795
====== ====== ======
</TABLE>

The components of the deferred tax benefit consisted of the following (in
thousands):

<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Loan loss provision not deductible for tax......... $ (32) $ (93) $(236)
Difference between book and tax recognition of
deferred loan fees............................... 18 34 --
Difference between book and tax depreciation
methods.......................................... 11 (7) 37
Difference between accrual and cash basis tax
reporting........................................ (102) (71) (58)
Deferred compensation expense...................... (6) (51) (43)
Other differences.................................. 15 20 22
----- ----- -----
Deferred tax benefit............................... $ (96) $(168) $(278)
===== ===== =====
</TABLE>

F-14
<PAGE> 90
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 -- INCOME TAXES (CONTINUED)
The net deferred tax asset in the accompanying consolidated balance sheets
consisted of the following (in thousands):

<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................. $ 200 $ 437
Deferred compensation..................................... 59 102
----- -----
259 539
----- -----
Deferred tax liabilities:
Accumulated depreciation.................................. (22) (58)
Conversion to accrual basis tax reporting................. (134) (76)
Federal Home Loan Bank stock dividends.................... (28) (51)
----- -----
(184) (185)
----- -----
Net deferred tax assets..................................... $ 75 $ 354
===== =====
</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 (dollars in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Federal income taxes at statutory rate........... $1,213 $1,364 $1,931
State income tax expense, net of federal income
tax benefit.................................... 48 174 126
Effect of nontaxable interest income............. (216) (221) (220)
Other............................................ 34 (32) (42)
------ ------ ------
$1,079 $1,285 $1,795
====== ====== ======
30% 32% 32%
====== ====== ======
</TABLE>

NOTE 9 -- TRANSACTIONS WITH RELATED PARTIES

F-15
<PAGE> 91
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 -- TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
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 (in thousands):

<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
BALANCE, beginning of year................................ $1,535 $ 2,967
Loans made................................................ 1,787 634
Loans repaid.............................................. (355) (1,303)
------ -------
BALANCE, end of year...................................... $2,967 $ 2,298
====== =======
</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 by 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, 1995, 1996, and 1997, the Bank
recorded data processing expenses paid to Datatech in the amount of $206,000,
$195,000, and $304,000. As of December 31, 1997, Columbia's recorded investment
in Datatech was $33,000.

The Bank has a prime rate, unsecured operating line of credit to Datatech
for $80,000. The outstanding principal balance was $23,000 at December 31, 1997,
and $74,000 at December 31, 1996. Interest income of $4,000 was realized by
Columbia in 1996 and 1997.

NOTE 10 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

In the normal course of business to meet the financing needs of its
customers, the Bank is a party to financial instruments with off-balance-sheet
risk. These financial instruments include commitments to extend credit and the
issuance of letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the balance sheets. 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,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit........................... $23,809 $31,314
Undisbursed credit card lines of credit................ 3,696 4,707
Commercial and standby letters of credit............... 179 287
------- -------
$27,684 $36,308
======= =======
</TABLE>

F-16
<PAGE> 92
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
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
Bancorp's financial instruments at December 31, 1996 and 1997:

<TABLE>
<CAPTION>
1996 1997
--------------------- ---------------------
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....................... $ 16,030 $ 16,030 $ 16,878 $ 16,878
Federal funds sold............................ $ 7,367 $ 7,367 $ 2,834 $ 2,834
Securities available-for-sale................. $ 9,714 $ 9,714 $ 31,310 $ 31,310
Securities held-to-maturity................... $ 41,098 $ 41,160 $ 16,728 $ 17,082
Restricted equity securities.................. $ 672 $ 672 $ 766 $ 766
Loans held-for-sale........................... $ -- $ -- $ 2,714 $ 2,714
Loans, net of allowance for loan losses and
unearned loan fees......................... $118,228 $118,234 $152,505 $149,981
Financial liabilities:
Demand and savings deposits................... $129,053 $129,053 $154,624 $154,624
Time deposits and IRA accounts................ $ 49,691 $ 49,717 $ 46,944 $ 46,894
Notes payable................................. $ 600 $ 600 $ 5,264 $ 5,264
</TABLE>

While estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Bank to have
disposed of such items at December 31, 1996 and 1997, the estimated fair values
would necessarily have been achieved at that date, since market values may
differ depending on various circumstances. The estimated fair values at December
31, 1996 and 1997, 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

F-17
<PAGE> 93
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12 -- CONCENTRATIONS OF CREDIT RISK (CONTINUED)
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 Directors' loan committee.

NOTE 13 -- COMMITMENTS AND CONTINGENCIES

OPERATING LEASE COMMITMENTS -- 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 (in thousands):

Rental expense for all operating leases was $21,000, $28,000, and $45,000
for the periods ended December 31, 1995, 1996, and 1997, 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
position or results of operations.

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, 1996 and 1997, the
Bank had borrowings outstanding with the FHLB of $600,000 and $4,600,000,
respectively. The promissory notes mature in 1998 and 2001 and carry interest
rates from 5.35% to 6.00%, respectively.

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. No balances were outstanding in 1996. As of December 31, 1997, the
Bank had $664,000 outstanding under this program.

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 300,000 shares of the Bancorp's common
stock. As of December 31, 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.

F-18
<PAGE> 94
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15 -- STOCK OPTION PLANS (CONTINUED)
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:
Inventive stock options................................... (6,656) $ (8.83)
Nonstatutory stock options................................ (3,500) $(10.00)
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 No. 123, the Bank's net
income, and net income per common share for December 31, 1997, would approximate
the pro forma amounts 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 (in thousands)................................... $3,887 $3,669
Basic earnings per common share............................. $ 0.57 $ 0.54
Diluted earnings per common share........................... $ 0.55 $ 0.52
</TABLE>

F-19
<PAGE> 95
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 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, 1995, 1996, and 1997,
Columbia contributed $150,000, $163,000, and $223,000, respectively, to the
plan.

Bancorp accounts for its ESOP in accordance with Statement of Position
93-6, "Employer's Accounting for Employee Stock Ownership Plans." The ESOP's
assets as of December 31, 1996 and 1997, were as follows:

<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Allocated shares................................. 73,741 85,400
======= =======
Cash on hand..................................... $64,000 $13,000
======= =======
</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, 1995, 1996, and 1997, Columbia contributed $17,000, $22,000, and $31,000,
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, 1995, 1996, and 1997, additional compensation of
$293,000, $159,000, and $429,000, respectively, was paid to eligible employees.

During 1996, 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 1998.

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 $161,000 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.

F-20
<PAGE> 96
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The employer contribution was $108,000 and $111,000 for the years ended December
31, 1995 and 1996, respectively.

During 1996, Klickitat entered into both employment and retirement
agreements with its chief executive officer. Klickitat's chief executive retired
on December 31, 1996, and pursuant to the agreement, will be paid in three
annual installments of $60,000. For the year ended December 31, 1996, Klickitat
recorded a liability of $180,000 as its obligation for current services pursuant
to the retirement plan.

NOTE 17 -- EARNINGS PER SHARE

In 1997, the FASB issued 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, 1995, 1996, and 1997, 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, 1995, 1996, and 1997 (in thousands except per share amounts):

<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
1995
Basic earnings per share
Income available to common shareholders.................. $2,489 6,692 $0.37
=====
Effect of dilutive securities
Outstanding common stock options......................... 150
------ -----
Income available to common shareholders plus assumed
conversions........................................... $2,489 6,842 $0.36
====== ===== =====
1996
Basic earnings per share
Income available to common shareholders.................. $2,727 6,732 $0.40
=====
Effect of dilutive securities
Outstanding common stock options......................... 114
------ -----
Income available to common shareholders plus assumed
conversions........................................... $2,727 6,846 $0.40
====== ===== =====
1997
Basic earnings per share
Income available to common shareholders.................. $3,887 6,800 $0.57
=====
Effect of dilutive securities
Outstanding common stock options......................... 198
------ -----
Income available to common shareholders plus assumed
conversions........................................... $3,887 6,998 $0.55
====== ===== =====
</TABLE>

F-21
<PAGE> 97
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 18 -- PARENT COMPANY FINANCIAL INFORMATION

Condensed financial information for Columbia Bancorp (unconsolidated parent
company only) is as follows (in thousands):

<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
ASSETS
Cash...................................................... $ 240 $ 186
Investment securities..................................... 300 300
Investment in subsidiaries................................ 18,999 22,561
Other assets.............................................. 174 169
------- -------
Total assets...................................... $19,713 $23,216
======= =======
LIABILITIES
Dividend payable.......................................... $ 180 $ 229
------- -------
Total liabilities................................. 180 229
------- -------
EMPLOYEE STOCK OWNERSHIP PLAN
SHARES SUBJECT TO PUT OPTION.............................. 1,058 1,430
------- -------
STOCKHOLDERS' EQUITY
Common stock.............................................. 5,139 5,528
Additional paid-in capital................................ 6,318 6,318
Retained earnings......................................... 8,087 11,131
Unrealized (loss) gain on available-for-sale investment
securities............................................. (11) 10
Less employee stock ownership plan shares subject to put
option................................................. (1,058) (1,430)
------- -------
Total stockholders' equity........................ 18,475 21,557
------- -------
Total liabilities and stockholders' equity........ $19,713 $23,216
======= =======
REVENUES
Equity in undistributed earnings of subsidiary bank....... $ 1,526 $ 3,541
Dividends................................................. 1,388 468
EXPENSES
Administrative expenses................................... (187) (122)
------- -------
Net income........................................... $ 2,727 $ 3,887
======= =======
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 2,727 $ 3,887
Adjustments to reconcile net income to net cash from
operating activities:
Equity in undistributed earnings of subsidiary bank.... (1,526) (3,541)
Changes in other assets and liabilities................ (36) 4
------- -------
Net cash from operating activities................... 1,165 350
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid....................................... (702) (793)
Proceeds from stock options exercised and purchases of
common stock........................................... 193 389
------- -------
Net cash from financing activities................... (509) (404)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of land.......................................... (117) --
Purchase of held-to-maturity securities................... (300) --
------- -------
Net cash from investing activities................... (417) --
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.......................................... 239 (54)
CASH AND CASH EQUIVALENTS, beginning of year................ 1 240
------- -------
CASH AND CASH EQUIVALENTS, end of year...................... $ 240 $ 186
======= =======
</TABLE>

F-22
<PAGE> 98
COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 18 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
SCHEDULE OF NONCASH ACTIVITIES
Change in unrealized loss on available-for-sale
securities, net of tax................................. $ 12 $ (2)
======= =======
Unrealized gain on securities transferred from
held-to-maturity to available-for-sale, net of tax..... $ -- $ 24
======= =======
Cash dividend declared payable after year end............. $ 180 $ 228
======= =======
</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 a bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, banks must meet specific capital
guidelines that involve quantitative measures of a bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. A bank's capital amounts and 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 banks to maintain minimum amounts and ratios (set forth in the table on
the following page) 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 and 1996, that
Bancorp and the Bank meet all capital adequacy requirements to which it is
subject.

As of the most recent notifications from their regulatory agencies,
Columbia and the Bank were categorized as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as adequately
capitalized, Bancorp and the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table on the
following page. There are no conditions or events since that notification that
management believes have changed the institutions' category.

The actual capital amounts and ratios are also presented in the following
table (dollars in thousands).

<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
---------------- ----------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
[Greater [Greater
than or than or
equal equal
to] to]
Total capital to risk-weighted assets $19,532 14.2% $11,014 8.0% $13,768 10.0%
[Greater
than or [Greater
equal than or
to] equal
Tier I capital to risk-weighted assets $19,544 14.2% $ 5,507 4.0% $ 8,260 to] 6.0%
[Greater
than or [Greater
equal than or
to] equal
Tier I capital to average assets $19,544 9.9% $ 7,927 4.0% $ 9,908 to] 5.0%
AS OF DECEMBER 31, 1997:
[Greater [Greater
than or than or
equal equal
to] to]
Total capital to risk-weighted assets $22,987 13.7% $13,420 8.0% $16,775 10.0%
[Greater
than or [Greater
equal than or
to] equal
Tier I capital to risk-weighted assets $22,977 13.7% $ 6,710 4.0% $10,065 to] 6.0%
[Greater
than or [Greater
equal than or
to] equal
Tier I capital to average assets $22,977 10.6% $ 8,640 4.0% $10,801 to] 5.0%
</TABLE>

NOTE 20 -- SUBSEQUENT EVENTS (UNAUDITED)

During 1998, Bancorp approved and completed a 3-for-2 and a 2-for-1 stock
split. Earnings per share amounts contained herein reflect the effects of these
transactions.
F-23
<PAGE> 99

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Valley Community Bancorp and Subsidiaries

We have audited the accompanying consolidated balance sheet of Valley
Community Bancorp and Subsidiaries as of December 31, 1997, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of Valley Community Bancorp's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit 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 audit provides 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 Valley
Community Bancorp and Subsidiaries as of December 31, 1997, and the results of
its operations and cash flows for the year then ended, in conformity with
generally accepted accounting principles.

Moss Adams LLP

Portland, Oregon
August 24, 1998

F-24
<PAGE> 100

VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Cash and due from banks..................................... $ 2,144 $ 2,212
Federal funds sold.......................................... 13,135 5,715
------- -------
Total cash and cash equivalents................... 15,279 7,927
------- -------
Investment securities available-for-sale.................... 3,292 2,704
Investment securities held-to-maturity...................... 2,939 2,600
Restricted equity securities................................ 278 284
------- -------
Total investment securities....................... 6,509 5,588
------- -------
Loans, net of allowance for loan losses and unearned loan
fees...................................................... 21,745 22,045
Property and equipment, net of depreciation................. 630 607
Accrued interest receivable................................. 226 216
Other assets................................................ 157 117
------- -------
Total assets...................................... $44,546 $36,500
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits....................... $ 6,641 $ 6,761
Interest-bearing demand deposits.......................... 25,382 14,671
Savings accounts.......................................... 989 1,222
Time certificates and IRA accounts........................ 6,767 8,164
------- -------
Total deposits.................................... 39,779 30,818
Federal Home Loan Bank borrowing............................ -- 400
Accrued interest payable and other liabilities.............. 96 141
------- -------
Total liabilities................................. 39,875 31,359
------- -------
CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 500,000 shares authorized,
205,800 shares issued and outstanding.................. 346 346
Common stock, $1 par value, 2,000,000 shares authorized
with 700,675 and 720,675 issued and outstanding in 1997
and 1998, respectively................................. 701 721
Surplus................................................... 1,390 1,455
Retained earnings......................................... 2,224 2,614
Accumulated comprehensive income, net of tax.............. 10 5
------- -------
Total stockholders' equity........................ 4,671 5,141
------- -------
Total liabilities and stockholders' equity........ $44,546 $36,500
======= =======
</TABLE>

See independent auditor's report and accompanying notes.

F-25
<PAGE> 101

VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ----------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans......................... $2,404 $1,163 $1,210
Interest on investments:
Taxable investment securities................... 308 162 131
Nontaxable investment securities................ 83 42 42
Interest on federal funds sold..................... 475 107 337
Other interest and dividend income................. 3 -- --
------ ------ ------
Total interest income...................... 3,273 1,474 1,720
------ ------ ------
INTEREST EXPENSE
Interest on interest-bearing deposit and savings
accounts........................................ 796 294 397
Interest on time deposit accounts and IRA
accounts........................................ 287 139 197
Borrowed funds..................................... -- -- 2
------ ------ ------
Total interest expense..................... 1,083 433 596
------ ------ ------
Net interest income before provision for loan
losses..................................... 2,190 1,041 1,124
PROVISION FOR LOAN LOSSES............................ 39 18 --
------ ------ ------
Net interest income after provision for loan
losses..................................... 2,151 1,023 1,124
------ ------ ------
NONINTEREST INCOME
Service charges and fees........................... 252 119 130
Other noninterest income........................... 20 11 3
------ ------ ------
Total noninterest income................... 272 130 133
------ ------ ------
NONINTEREST EXPENSES
Salaries and employee benefits..................... 595 277 290
Occupancy expense.................................. 109 54 56
Office supplies.................................... 68 35 36
FDIC assessment.................................... 3 1 2
Data processing expense............................ 121 62 52
Other noninterest expenses......................... 113 60 54
------ ------ ------
Total noninterest expenses................. 1,009 489 490
------ ------ ------
INCOME BEFORE PROVISION FOR INCOME TAXES............. 1,414 664 767
PROVISION FOR INCOME TAXES........................... 448 227 251
------ ------ ------
NET INCOME........................................... $ 966 437 516
======
OTHER COMPREHENSIVE INCOME
Unrealized loss on available-for-sale securities... (2) (5)
------ ------
COMPREHENSIVE INCOME................................. $ 435 $ 511
====== ======
BASIC EARNINGS PER SHARE OF COMMON STOCK............. $ 1.35 $ 0.62 $ 0.69
====== ====== ======
DILUTED EARNINGS PER SHARE OF COMMON STOCK........... $ 1.04 $ 0.47 $ 0.57
====== ====== ======
</TABLE>

See independent auditor's report and accompanying notes.

F-26
<PAGE> 102

VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMULATED
PREFERRED STOCK COMMON STOCK OTHER
--------------- --------------- RETAINED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT SURPLUS EARNINGS INCOME TOTAL
------ ------ ------ ------ ------- -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1996..................... 206 $346 701 $701 $1,390 $1,360 $ 6 $3,803
Dividends paid.......................... -- -- -- -- -- (102) -- (102)
Changes in unrealized gain on
available-for-sale securities, net of
tax................................... -- -- -- -- -- -- 4 4
Net income and comprehensive income..... -- -- -- -- -- 966 -- 966
--- ---- --- ---- ------ ------ --- ------
BALANCE,
December 31, 1997..................... 206 346 701 701 1,390 2,224 10 4,671
Stock issued............................ -- -- 20 20 65 -- -- 85
Dividends paid.......................... -- -- -- -- -- (126) -- (126)
Net income and comprehensive income..... -- -- -- -- -- 516 (5) 511
--- ---- --- ---- ------ ------ --- ------
BALANCE,
June 30, 1998 (Unaudited)............. 206 $346 721 $721 $1,455 $2,614 $ 5 $5,141
=== ==== === ==== ====== ====== === ======
</TABLE>

See independent auditor's report and accompanying notes.

F-27
<PAGE> 103

VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, --------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................... $ 966 $ 437 $ 516
Adjustments to reconcile net income to net cash from
operating activities:
Amortization of premiums and discounts of
investment securities........................... (3) -- --
Gain on sale of available-for-sale securities..... (4) (3) --
Depreciation...................................... 36 16 23
Federal Home Loan Bank stock dividend............. (12) (3) (7)
Deferred income taxes............................. 2 -- --
Provision for loan losses......................... 39 18 --
Increase (decrease) in cash due to changes in certain
assets and liabilities:
Accrued interest receivable....................... (4) (18) 10
Other assets...................................... (69) 13 40
Accrued interest payable and other liabilities.... (109) 35 147
------- ------- --------
Net cash from operating activities........... 842 495 729
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale and maturity of
available-for-sale securities..................... 1,480 632 584
Proceeds from the maturity of held-to-maturity
securities........................................ 450 350 339
Purchases of held-to-maturity securities............. (342) (120) --
Purchases of available-for-sale securities........... (1,052) (500) --
Purchase of Federal Home Loan Bank stock............. (19) (9) --
Net change in loans made to customers................ (2,213) (2,694) (402)
Payments made for purchase of property and
equipment......................................... (112) (25) --
------- ------- --------
Net cash from investing activities........... (1,808) (2,366) 521
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in demand deposit and savings accounts.... 5,473 6,775 (10,163)
Net change in time deposits and IRA accounts......... 5,934 242 1,397
Proceeds from exercise of stock options.............. -- -- 85
Dividends paid....................................... (103) (103) (126)
Borrowings from Federal Home Loan Bank............... -- -- 400
------- ------- --------
Net cash from financing activities........... 11,304 6,914 (8,407)
------- ------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS..................................... 10,338 5,043 (7,157)
CASH AND CASH EQUIVALENTS, beginning of year........... 4,941 4,941 15,084
------- ------- --------
CASH AND CASH EQUIVALENTS, end of year................. $15,279 $ 9,984 $ 7,927
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid in cash................................ $ 1,078 $ 426 $ 585
======= ======= ========
Taxes paid in cash................................... $ 570 $ 171 $ 216
======= ======= ========
SCHEDULE OF NONCASH ACTIVITIES
Change in unrealized loss on available-for-sale
securities, net of tax............................ $ 4 $ (2) $ 5
======= ======= ========
</TABLE>

See independent auditor's report and accompanying notes.

F-28
<PAGE> 104

VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND NATURE OF OPERATIONS -- The consolidated financial
statements include the accounts of Valley Community Bancorp (Bancorp) and its
wholly-owned subsidiaries, Valley Community Mortgage Services, Valley Community
Bank (Bank), and the Bank's wholly-owned subsidiary, Valley Community Financial
Services, Inc. The majority of operations are conducted through the Bank. During
the period ending December 31, 1997, Valley Community Mortgage Services, Inc.,
and Valley Community Financial Services, Inc., were substantially inactive. All
significant intercompany accounts and transactions have been eliminated in the
preparation of the consolidated financial statements.

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, are either "available-for-sale" or "held-to-maturity"
and conform to the following accounting policies:

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 security's
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 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.

RESTRICTED EQUITY SECURITIES -- The Bank's equity investments in the
Federal Home Loan Bank and Federal Reserve Bank 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 -- 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,

F-29
<PAGE> 105
VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 examinations.

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.

PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed by the straight-line method
over the estimated useful lives of the assets, which range from 3 to 7 years for
furniture and equipment and up to 40 years for building premises.

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.

F-30
<PAGE> 106
VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.

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.

RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (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. With adoption, unrealized gain or loss on
available-for-sale securities has been recognized as a component of
comprehensive income.

Other issued but not yet required FASB statements are not currently
applicable to Bancorp's operations.

F-31
<PAGE> 107
VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 -- INVESTMENT SECURITIES

The book value and approximate market values of investment securities at
December 31, 1997, are summarized as follows (in thousands):

The amortized cost and estimated market value of investment securities at
December 31, 1997, by contractual maturity, are shown below (in thousands).
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................................. $ 508 $ 508 $ 694 $ 693
Due after one year through five years................... 2,769 2,784 1,552 1,563
Due after five years through ten years.................. -- -- 693 687
------ ------ ------ ------
$3,277 $3,292 $2,939 $2,943
====== ====== ====== ======
</TABLE>

As of December 31, 1997, investment securities with a book value of
$1,898,000 have been pledged to secure treasury, tax and loan account, and
Federal Reserve discount window borrowings.

NOTE 3 -- RESTRICTED EQUITY SECURITIES

The composition of restricted equity securities at December 31, 1997, is
summarized as follows (in thousands):

<TABLE>
<S> <C>
Federal Home Loan Bank stock................................ $170
Federal Reserve Bank stock.................................. 108
----
$278
====
</TABLE>

F-32
<PAGE> 108
VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 -- LOANS

The composition of loan balances at December 31, 1997, is summarized as
follows (in thousands):

<TABLE>
<S> <C>
Commercial................................................. $ 3,560
Agriculture................................................ 5,215
Real estate................................................ 12,666
Consumer................................................... 669
Credit card and other loans................................ 34
-------
22,144
Less: Allowance for loan losses............................ (278)
Unearned loan fees................................... (121)
-------
$21,745
=======
</TABLE>

Impairment of loans having recorded investments of $45,000 at December 31,
1997, have been recognized in conformity with SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan" as amended by SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosures." 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, and interest income foregone on impaired loans was immaterial
during 1997.

NOTE 5 -- ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses at December 31, 1997, were as
follows (in thousands):

<TABLE>
<S> <C>
BALANCE, beginning of year.................................. $238
Provision for loan losses................................... 39
Recoveries.................................................. 1
----
BALANCE, end of year........................................ $278
====
</TABLE>

NOTE 6 -- PROPERTY AND EQUIPMENT

The major classifications of property and equipment at December 31, 1997,
are summarized as follows (in thousands):

<TABLE>
<S> <C>
Land........................................................ $ 214
Buildings and improvements.................................. 549
Furniture and equipment..................................... 363
------
1,126
Less accumulated depreciation............................... (496)
------
$ 630
======
</TABLE>

NOTE 7 -- TIME DEPOSITS

Time certificates of deposit of $100,000 and over, aggregated $1,063,000 at
December 31, 1997.

F-33
<PAGE> 109
VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- TIME DEPOSITS (CONTINUED)
At December 31, 1997, the scheduled maturities for all time deposits are as
follows (in thousands):

<TABLE>
<S> <C>
1998........................................................ $5,433
1999 -- 2001................................................ 1,057
2002 and thereafter......................................... 277
------
$6,767
======
</TABLE>

NOTE 8 -- INCOME TAXES

The provision for income taxes for the year ended December 31, 1997,
consisted of the following (in thousands):

<TABLE>
<S> <C>
Current tax provision
Federal................................................... $399
State..................................................... 51
Deferred tax.............................................. (2)
----
$448
====
</TABLE>

The components of the deferred tax benefit at December 31, 1997, consisted
of the following (in thousands):

<TABLE>
<S> <C>
Loan loss provision not deductible for tax.................. $15
Difference between accrual and cash basis tax reporting..... (17)
---
Deferred tax benefit........................................ $(2)
===
</TABLE>

The net deferred tax asset in the accompanying consolidated balance sheet
consisted of the following at December 31, 1997, (in thousands):

<TABLE>
<S> <C>
Deferred tax assets:
Allowance for loan losses................................. $106
Deferred compensation..................................... 67
----
173
----
Deferred tax liabilities:
Conversion to accrual basis tax reporting................. (96)
Federal Home Loan Bank stock dividends.................... (92)
----
(188)
----
Net deferred tax liabilities................................ $(15)
====
</TABLE>

As of December 31, 1997, Valley Community Bancorp and Subsidiaries had net
operating carryforwards available to offset future income taxes in the
approximate amount of $533,000 subject to an annual limitation of $89,000 which
may be used any one year. The net operating loss expires in full in 2003.

F-34
<PAGE> 110
VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 -- INCOME TAXES (CONTINUED)
A reconciliation between the statutory federal income tax rate and the
effective tax rate at December 31, 1997, is as follows (dollars in thousands):

<TABLE>
<S> <C>
Federal income taxes at statutory rate...................... $ 481
State income tax expense, net of federal income tax
benefit................................................... 35
Effect of nontaxable interest income........................ (28)
Effect of cash basis reporting.............................. 4
Other....................................................... (44)
------
$ 448
======
31.68%
======
</TABLE>

NOTE 9 -- TRANSACTIONS WITH RELATED PARTIES

Certain directors, executive officers, and principal stockholders are
customers of and have had banking transactions with the Bank, and the Bank
expects to have such transactions in the future. All loans and commitments to
loan included in such transactions were made in compliance with applicable laws
on substantially the same terms (including interest rates and collateral) as
those prevailing at the time for comparable transactions with other persons and
do not involve more than the normal risk of collectibility or present any other
unfavorable features. The amount of loans outstanding to directors, executive
officers, principal stockholders, and companies with which they are associated
at December 31, 1997, was as follows (in thousands):

<TABLE>
<S> <C>
Balance, beginning of year.................................. $ 569
Loans made.................................................. 608
Loans repaid................................................ (413)
-----
Balance, end of year........................................ $ 764
=====
</TABLE>

Valley Community Bank 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.
Valley's investment in Datatech is accounted for by the cost method. Under this
accounting method, Valley recognizes income from its investment as dividends are
distributed. Dividends received in excess of earnings subsequent to Valley's
investment are considered a return of investment and are recorded as reductions
of cost of the investment. For the year ended December 31, 1997, the Bank
recorded data processing expenses paid to Datatech in the amount of $88,000. As
of December 31, 1997, Valley's recorded investment in Datatech was $33,000.

The Bank has a prime rate, unsecured loan to Datatech with an outstanding
principal balance of $23,000 at December 31, 1997. Interest income of $2,000 was
realized by the Bank in 1997.

NOTE 10 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

F-35
<PAGE> 111
VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
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.

Contract amounts at December 31, 1997, are as follows (in thousands):

<TABLE>
<S> <C>
Financial instruments whose contract amounts represent
credit risk:
Commitments to extend credit.............................. $3,400
Commercial and standby letters of credit.................. 50
------
$3,450
======
</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.

NOTE 11 -- FAIR VALUES OF FINANCIAL INSTRUMENTS

The following table estimates fair value and the related carrying values of
the Bancorp's financial instruments at December 31, 1997:

<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Financial assets:
Cash and due from banks....................... $ 2,144 $ 2,144
Federal funds sold............................ $13,135 $13,135
Securities available-for-sale................. $ 3,277 $ 3,292
Securities held-to-maturity................... $ 2,939 $ 2,943
Restricted equity securities.................. $ 278 $ 278
Loans, net of allowance for loan losses
and unearned loan fees..................... $21,745 $21,900
Financial liabilities:
Demand and savings deposits................... $33,012 $33,012
Time deposits and IRA accounts................ $ 6,767 $ 6,800
</TABLE>

While estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Bancorp to have
disposed of such items at December 31, 1997, the estimated fair

F-36
<PAGE> 112
VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11 -- FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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, should not necessarily be considered to apply at subsequent
dates.

In addition, other assets and liabilities of Bancorp 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 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.

NOTE 13 -- CONTINGENCIES

NOTE 14 -- STOCKHOLDERS' EQUITY -- PREFERRED STOCK

Bancorp has issued and outstanding 205,800 shares of Series A, cumulative,
convertible, no par value preferred stock. The preferred stock, issued in 1988,
provides for voting rights, cumulative dividends at a rate of $.09 a share, and
common stock conversion rights at a rate of $.30 per share.

NOTE 15 -- STOCK OPTION PLAN

During 1986, Bancorp adopted a Nonqualified Stock Option Plan (the plan)
for the benefit of officers and employees of the Bank. Under the plan, which was
terminated in 1996, options were reserved for the purchase of 50,000 shares of
common stock. During 1994, options for the purchase of 20,000 shares at a
weighted average exercise price of $4.25 were granted under the plan. As of
December 31, 1997, these options remained outstanding and exercisable.

NOTE 16 -- EMPLOYEE BENEFIT PLANS

The Bank has a 401(k) profit sharing plan. All permanent employees are
eligible to participate once they meet the age and length of employment
requirements. For the year ended December 31, 1997, the Bank contributed $23,000
to the 401(k) profit sharing plan.

During 1996, the Bank entered into a deferred compensation agreement with
its president and chief executive officer. The agreement provides for deferral
of a bonus payment for services during 1996 and 1997, in addition, the deferral
of a portion of the president's monthly salary and entire bonus for any year
subsequent to 1997. The deferred compensation amount will be paid out upon (1)
termination of employment, (2) failure to meet specific operating ratios, or (3)
a change in control of the Bank.

F-37
<PAGE> 113
VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 17 -- EARNINGS PER SHARE

In 1997, the FASB issued 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 Bancorp's stock option plans.

The following table illustrates the computations of basic and diluted
earnings per share for the year ended December 31, 1997 (in thousands except per
share amounts):

<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net income............................................. $966
Less: preferred stock dividends........................ (19)
----
BASIC EARNINGS PER SHARE
Income available to common stockholders................ 947 701 $1.35
---- ---- =====
EFFECT OF DILUTIVE SECURITIES
Options................................................ 20
Convertible preferred stock............................ 19 206
---- ----
DILUTED EARNINGS PER SHARE
Income available to common stockholders plus assumed
conversions.......................................... $966 927 $1.04
==== ==== =====
</TABLE>

F-38
<PAGE> 114
VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 18 -- PARENT COMPANY FINANCIAL INFORMATION

Condensed financial information for Valley Community Bancorp
(unconsolidated parent company only) is as follows (in thousands):

<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................. $ 16
Investment in subsidiaries................................ 4,670
------
Total assets...................................... $4,686
======
LIABILITIES
Deferred compensation liability........................... $ 10
------
Total liabilities................................. 10
------
STOCKHOLDERS' EQUITY
Preferred stock........................................... 346
Common stock.............................................. 701
Surplus................................................... 1,390
Retained earnings......................................... 2,224
Unrealized gain on available-for-sale investment
securities............................................. 15
------
Total stockholders' equity........................ 4,676
------
Total liabilities and stockholders' equity........ $4,686
======
REVENUES
Equity in undistributed earnings of subsidiary bank....... $ 867
Dividends................................................. 100
Interest.................................................. 1
EXPENSES
Administrative expenses................................... (2)
------
Net income........................................ $ 966
======
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 966
Adjustments to reconcile net income to net cash from
operating activities:
Equity in undistributed earnings of subsidiary bank.... (867)
Change in liabilities.................................. 10
------
Net cash from operating activities................ 109
------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid....................................... (102)
------
Net cash from financing activities................ (102)
------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 7
CASH AND CASH EQUIVALENTS, beginning of year................ 9
------
CASH AND CASH EQUIVALENTS, end of year...................... $ 16
======
SCHEDULE OF NONCASH ACTIVITIES
Change in unrealized loss on available-for-sale
securities, net of tax................................. $ 9
======
</TABLE>

NOTE 19 -- REGULATORY MATTERS

F-39
<PAGE> 115
VALLEY COMMUNITY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 19 -- REGULATORY MATTERS (CONTINUED)
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, must meet specific capital guidelines that involve
quantitative measures of a bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. A
bank's capital amounts and 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 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 Bancorp and the
Bank meet all capital adequacy requirements to which they are subject.

As of the most recent notifications from their regulatory agencies, Bancorp
and the Bank were categorized as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as adequately capitalized,
Bancorp and the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table below. There are no
conditions or events since that notification that management believes have
changed the institutions' category.

The actual capital amounts and ratios as of December 31, 1997, are also
presented in the following table (dollars in thousands):

NOTE 20 -- SUBSEQUENT EVENTS

On August 3, 1998, the Bancorp and Columbia Bancorp (Columbia), a bank
holding company for Columbia River Bank headquartered in The Dalles, Oregon,
entered into a definitive agreement whereby Columbia will acquire all of the
outstanding common stock of Bancorp for $15,101,542 or $16.30 per common share.
Immediately preceding the acquisition, all outstanding preferred stock of
Bancorp will be converted to common shares for $.30 per share and, effective at
the time of acquisition, Bancorp will recognize a liability and expense of
approximately $300,000 relating to its obligation under a deferred compensation
agreement with Valley Community Bank's president (see Note 16). The acquisition
of Bancorp by Columbia is expected to be completed in the fourth quarter of 1998
or early 1999.

F-40
<PAGE> 116

- ------------------------------------------------------
- ------------------------------------------------------

NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY COLUMBIA OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF COLUMBIA SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Summary Historical and Pro Forma
Financial Data...................... 6
Disclosure Regarding Forward-Looking
Statements.......................... 7
Risk Factors.......................... 8
Use of Proceeds....................... 13
Capitalization........................ 14
Market Price of Common Stock.......... 15
Dividend Policy....................... 16
Columbia Pro Forma Financial
Statements.......................... 17
Columbia Selected Historical Financial
Information......................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 42
Supervision and Regulation............ 53
Management............................ 58
Certain Transactions.................. 64
Principal Shareholders................ 65
Shares Eligible for Future Sale....... 66
Description of Capital Stock.......... 67
Underwriting.......................... 69
Experts............................... 71
Legal Matters......................... 71
Available Information................. 71
Glossary of Certain Key Terms......... 72
Index to Financial Statements......... 74
</TABLE>

------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES

LOGO

COLUMBIA BANCORP
COMMON STOCK
------------------------

PROSPECTUS
------------------------

PACIFIC CREST SECURITIES INC.
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 117

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the Common Stock offered hereby.

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $3,392.50
NASD Filing Fee............................................. $1,650.00
Nasdaq Listing Fee.......................................... $ *
Printing and Engraving Expenses............................. $ *
Legal Fees and Expenses..................................... $ *
Accounting Fees and Expenses................................ $ *
Blue Sky Fees and Expenses (including fees of counsel)...... $ *
Transfer Agent and Registrar Fee............................ $ *
Miscellaneous Expenses...................................... $ *
---------
Total............................................. $ *
=========
</TABLE>

- ---------------
* To be filed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The Registrant has not sold any securities within the past three years
which were not registered under the 1933 Act.

II-1
<PAGE> 118

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The exhibits are listed on the accompanying "Exhibit Index."

(b) Financial Statement Schedules.

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

II-2
<PAGE> 119

SIGNATURES

Pursuant to the requirements of the 1933 Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of The Dalles, State of
Oregon on September 24, 1998.

COLUMBIA BANCORP

By: /s/ TERRY L. COCHRAN
------------------------------------
Terry L. Cochran,
President and Chief Executive
Officer

POWER OF ATTORNEY

Each person whose individual signature appears below hereby authorizes and
appoints Terry L. Cochran, President and Chief Executive Officer, Neal T.
McLaughlin, Chief Financial Officer, and Richard J. Croghan, Secretary, and each
of them, with full power of substitution and full power to act without the
other, as his/her true and lawful attorney-in-fact and agent to act in his/her
name, place, and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file any and all
amendments to this Registration Statement, including any and all post-effective
amendments.

Pursuant to the requirements of the 1933 Act, this Power of Attorney has
been signed by the following persons in the capacities indicated, on the 24th
day of September 1998.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>

/s/ TERRY L. COCHRAN President and Chief Executive Officer
- -------------------------------------------- (Principal Executive Officer)
Terry L. Cochran

/s/ NEAL T. MCLAUGHLIN Executive Vice President and Chief Financial
- -------------------------------------------- Officer (Principal Financial and Accounting
Neal T. McLaughlin Officer)

/s/ ROBERT L.R. BAILEY Director
- --------------------------------------------
Robert L.R. Bailey

/s/ CHARLES F. BEARDSLEY Director
- --------------------------------------------
Charles F. Beardsley

/s/ WILLIAM A. BOOTH Director
- --------------------------------------------
William A. Booth

/s/ DENNIS CARVER Director
- --------------------------------------------
Dennis Carver

/s/ TED M. FREEMAN Director
- --------------------------------------------
Ted M. Freeman

/s/ JANE F. LEE Director
- --------------------------------------------
Jane F. Lee
</TABLE>

II-3
<PAGE> 120

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ STEPHEN D. MARTIN Chairman
- --------------------------------------------
Stephen D. Martin

/s/ JEAN MCKINNEY Director
- --------------------------------------------
Jean McKinney

/s/ DONALD T. MITCHELL Vice-Chairman
- --------------------------------------------
Donald T. Mitchell

/s/ JAMES B. ROBERSON Director
- --------------------------------------------
James B. Roberson

/s/ GREG WALDEN Director
- --------------------------------------------
Greg Walden
</TABLE>

II-4
<PAGE> 121

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation(1)
3.2 Amendment to Articles of Incorporation
3.3 Bylaws(1)
5.1 Opinion of Bennett H. Goldstein*
10.1 Agreement and Plan of Share Exchange of August 3, 1998,
between Columbia, Valley and Valley Community Bancorp
10.2 1998 Employment Agreement between Terry L. Cochran and
Columbia
10.3 1998 Deferred Compensation Agreement between Terry L.
Cochran and Columbia
21 Subsidiaries of Columbia
23.1 Consent of Bennett H. Goldstein (included in Exhibit 5.1)*
23.2 Consent of Moss Adams LLP
27.1 Financial Data Schedule for the year ended December 31, 1997
27.2 Financial Data Schedule for the six-month period ended June
30, 1998
</TABLE>

- ---------------
* To be filed by amendment.

(1) Filed as an exhibit to Columbia's Annual Report on Form 10-KSB for the year
ended December 31, 1995 and incorporated herein by reference.

<PAGE> 1
EXHIBIT 3.2

[SEAL(STATE OF OREGON)]Phone: (503) 986-2200
Fax: (503) 378-4381 ARTICLES OF AMENDMENT--BUSINESS/
PROFESSIONAL/NONPROFIT
- --------------------------------------------------------------------------------
Secretary of State Check the appropriate box below:
Corporation Division
255 Capitol St. NE. Suite 151 / / BUSINESS/PROFESSIONAL CORPORATION
Salem, OR 97310-1327 (Complete only 1,2,3,4,6,7)

/ / NONPROFIT CORPORATION
(Complete only 1,2,3,5,6,7)
Registry Number: 480168-85

Attach Additional Sheet if Necessary
Please Type or Print Legibly, in Black Ink

- --------------------------------------------------------------------------------
1) NAME OF CORPORATION PRIOR TO AMENDMENT Columbia Bankcorp

2) STATE THE ARTICLE NUMBER(S) AND SET FORTH THE ARTICLE(S) AS IT IS AMENDED TO
READ. (Attach a separate sheet if necessary.)

See attached.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
3) THE AMENDMENT WAS ADOPTED ON: April 29, 1997
(if more than one amendment was adopted, Identify the date of adoption of
each amendment.)

- --------------------------------------------------------------------------------

BUSINESS/PROFESSIONAL CORPORATION ONLY

4) CHECK THE APPROPRIATE STATEMENT

/X/ Shareholder action was required to adopt the amendment(s). The vote was as
follows.

Class or Number of Number of Number of Number of
series of shares votes entitled votes cast votes cast
shares outstanding to be cast FOR AGAINST
- --------------------------------------------------------------------------------
common 2,255,641 2,255,641 1,655,992 168,681
- --------------------------------------------------------------------------------

/ / Shareholder action was not required to adopt the amendment(s). The
amendment(s) was adopted by the board of directors without shareholder
action.

/ / The corporation has not issued any shares of stock. Shareholder action was
not to adopt the amendment(s). The amendment(s) was adopted by the
incorportors or by the board of directors.

NONPROFIT CORPORATION ONLY

5) CHECK THE APPROPRIATE STATEMENT

/ / Membership approval was not required. The amendment(s) was approved by a
sufficient vote of the board of directors or incorporators.

/ / Membership approval was required. The membership vote was as follows:

Classes Number of Number of Number of Number of
entitled members entitled votes entitled votes cast votes cast
to vote to vote to be cast FOR AGAINST
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

6) EXECUTION

Printed Name Signature Title

Bennett H. Goldstein, Esq. /s/ Attorney for Corporation
- ------------------------------- --------------- -----------------------------

- --------------------------------------------------------------------------------

7) CONTACT NAME DAYTIME PHONE NUMBER

Bennett H. Goldstein, Esq. (503) 294-0940
- ------------------------------------- ----------------------------------

FEES
Make check for $10 payable to
"Corporation Division"

NOTE: Filing fees may be paid
with VISA or Mastercard. The
card number and expiration
date should be submitted on a
separate sheet for your
protection.

CR113 (Rev 5/96)
<PAGE> 2
ATTACHMENT TO FORM CR113

Columbia Bancorp

Registry No. 480168-85

By a vote of the shareholders taken on April 29, 1997, Article II, Section
(1) of the Articles of Incorporation of Columbia Bancorp was amended as follows:

Prior to Amendment:

"(1) The Corporation is authorized to issue 4,000,000 shares of Common
Stock."

After Amendment:

"(1) The Corporation is authorized to issue 10,000,000 shares of Common
Stock."

<PAGE> 1
EXHIBIT 10.1

AGREEMENT AND PLAN OF SHARE EXCHANGE

PARTIES: COLUMBIA BANCORP ("Bancorp")

VALLEY COMMUNITY BANCORP ("VCB")

VALLEY COMMUNITY BANK ("Bank")

DATE: August 3, 1998

RECITALS

A. Bancorp is an Oregon corporation and bank holding company, and is the
parent corporation of Columbia River Bank, an Oregon stock bank. Bancorp's
principal office is at 420 East Third Street, The Dalles, Oregon 97058.

B. VCB is an Oregon corporation and bank holding company, and is the
parent corporation of Valley Community Bank (the "Bank"), an Oregon stock bank.
The principal place of business of VCB and the Bank is at 723 North Baker
Street, McMinnville, Oregon 97128-0807.

C. As of June 30, 1998 there were 720,675 issued and outstanding shares
of common stock of VCB (the "VCB Common Stock") held by 310 shareholders of
record, and 205,800 issued and outstanding shares of preferred stock of VCB (the
"VCB Preferred Stock") held by three shareholders of record.

D. VCB is the sole owner and holder of 906,475 shares of the common
stock of the Bank (the "Bank Stock"), which is 100% of the issued and
outstanding shares of the Bank. VCB is also the sole owner and holder of 100% of
the issued and outstanding shares of Valley Community Mortgage Services, Inc.,
an Oregon corporation. The Bank is the sole owner and holder of 100% of the
issued and outstanding shares of Valley Community Financial Services, Inc., an
Oregon corporation.

E. Pursuant to ORS 60.484, the Board of Directors of Bancorp, of VCB and
of the Bank have concluded that the acquisition of VCB by Bancorp under the
terms set forth in this Agreement (the "Agreement") is in the best interests of
the shareholders of Bancorp and of VCB.

NOW, THEREFORE, THE PARTIES AGREE:

1. THE ACQUISITION AND SHARE EXCHANGE.

1.1 Acquisition of Shares Through Share Exchange. Subject to the terms
and conditions of the Agreement and of applicable law, on the Effective Date as
defined herein Bancorp shall acquire 100% of the shares of the VCB Common Stock
issued and outstanding on the Effective Date for an aggregate purchase price of
$15,101,542.50 payable in cash at closing (the "Acquisition"). The Acquisition
shall constitute a share exchange within the meaning of ORS 60.484, and the
Agreement shall constitute a plan of share exchange.

1.2 Conversion of Preferred Stock. Prior to the Effective Date, and as a
condition to the Acquisition, all holders of the VCB Preferred Stock shall have
converted 100% of the issued and outstanding VCB Preferred Stock to VCB Common
Stock, and VCB shall have received the conversion price of $.30 per share of VCB
Preferred Stock.

1.3 Effective Date. The Acquisition shall become effective (the
"Effective Date") on the date of the filing of Articles of Share Exchange with
the Secretary of State of the State of Oregon pursuant to ORS 60.494. The
Effective Date shall occur as soon as practicable after the Closing Date as
defined in Section 2.1 of the Agreement.

1.4 Effect of Acquisition. On the Effective Date, VCB shall become a
wholly owned subsidiary of

<PAGE> 2
Bancorp, and Bancorp shall be the sole shareholder of VCB.

1.5 Bank Charter; Articles and Bylaws of Bank and VCB. The Charter of
the Bank in effect immediately prior to the Effective Date shall be the Charter
of the Bank on the Effective Date. The Articles of Incorporation and Bylaws of
VCB and of the Bank in effect immediately prior to the Effective Date shall be
the Articles of Incorporation and Bylaws of VCB and of the Bank on the Effective
Date.

1.6 Officers - VCB and Bank. All officers of VCB and of the Bank serving
immediately prior to the Effective Date shall be the officers of VCB and of the
Bank on the Effective Date, all of whom shall continue in office until their
respective successors are duly qualified and appointed.

1.7 Directors - VCB and Bank. Except as otherwise provided herein, all
directors of VCB and of the Bank serving immediately prior to the Effective Date
shall be the directors of VCB and of the Bank on the Effective Date, all of whom
shall continue in office until their respective successors are duly qualified
and elected as provided in the Articles of Incorporation and Bylaws of VCB and
of the Bank; provided, that promptly after the Effective Date the number of
director positions on the Board of Directors of the Bank shall be reduced to no
more than seven (7), and the director positions shall be filled at a special
Bank shareholder meeting called for that purpose.

1.8 Special VCB Stockholders' Meeting. VCB's Board of Directors shall,
in accordance with its Articles of Incorporation, Bylaws and applicable law:

1.8.1 Hold a special meeting (the "VCB Special Meeting") of VCB
stockholders for the purpose of considering and taking action upon the
Acquisition. The Special Meeting shall be scheduled as soon as practicable after
the date of the Agreement;

1.8.2 Include in the proxy statement for the Special Meeting (the
"VCB Proxy Statement") a statement that the Board of Directors of VCB recommends
that stockholders vote in favor of the Acquisition; and

1.8.3 Use its best efforts to obtain the requisite approval of
the Acquisition by the stockholders of VCB.

1.9 Dissenters' Rights. Any VCB stockholder who properly exercises the
stockholder's dissenters' rights under ORS 60.511, et seq. shall be entitled to
receive for the stockholder's shares the value of such shares in accordance with
applicable law.

2. CLOSING.

2.1 Closing Date. Subject to the satisfaction or waiver of all
conditions set forth in Section 8 of the Agreement, the closing of the
Acquisition (the "Closing") shall occur on a date (the "Closing Date") not later
than thirty (30) business days after the Acquisition has been approved by all
relevant regulatory authorities and all required waiting periods have elapsed.
Notwithstanding the foregoing, the Closing Date shall not be earlier than
September 1, 1998 or later than January 1, 1999 unless (i) the January 1, 1999
date is extended by a written amendment to the Agreement, or (ii) the effective
date of any required final approval of a regulatory authority has not occurred
as of January 1, 1999, in which event the Closing Date shall be automatically
extended beyond January 1, 1999 to a date which is as soon as practicable
following the effective date of such approval.

2.2 Actions to Take Place at Closing. At the Closing, (a) Bancorp, VCB
and the Bank shall execute and deliver the closing certificates of executive
officers, opinions, agreements and other documents required of each of them
under the Agreement; (b) Bancorp shall have deposited the amount of
$15,101,542.50 into a designated account of a payment agent ("Payment Agent"),
acceptable to the parties and paid by Bancorp, with instructions to pay the
appropriate amounts under the Agreement to each VBC shareholder; and (c) the VCB
shareholders shall, upon surrender by each of them to the Payment Agent of all
such shareholder's certificates representing shares of VCB stock held of record
(or upon delivery of an appropriate affidavit of loss and at the

<PAGE> 3
discretion of Bancorp either a bond or an undertaking of indemnity if any such
certificates have been lost, stolen, or destroyed), be entitled to receive cash,
without interest, in the amount to which each of them are entitled.

2.3 Time and Place of Closing. The Closing shall take place at the head
office of Bancorp, 420 East Third Street, The Dalles, Oregon commencing at 9:00
a.m., or at such other date, time and place agreed to by the parties.

3. REPRESENTATIONS AND WARRANTIES OF VCB AND OF THE BANK

VCB and the Bank each represent and warrant that the following are true
as of the date of the Agreement, except as described in any Schedule referred to
below and attached hereto.

3.1 Organization. VCB and the Bank are duly organized, validly existing
and in good standing under the laws of the states of their organization and
under applicable federal law, and have all requisite corporate power and
authority to own and operate their properties and assets, to lease the leased
properties used in their businesses, and to carry on their businesses as now
conducted. VCB and the Bank own or possess all charters, franchises, licenses,
permits, branch certificates, consents, approvals, waivers and other
authorizations, governmental or otherwise, which are necessary for them to
conduct their businesses as now conducted, none of which will lapse or be
adversely affected by reason of the consummation of the transactions
contemplated by the Agreement. VCB and the Bank are duly qualified and licensed
to do business and are in good standing in every jurisdiction in which such
qualification or license is required or where the failure to be so qualified or
licensed could result in liability or adversely affect the business or
operations of VCB or the Bank in any material respect.

3.2 Articles of Incorporation and Bylaws. The copies of the Articles of
Incorporation, as amended, and the Bylaws, as amended, of VCB and the Bank
delivered to Bancorp are true, correct and complete copies thereof. Neither VCB
nor the Bank are in material violation of any provision of their Articles of
Incorporation or Bylaws. The minute books of VCB and the Bank which have been or
will be made available for inspection by Bancorp contain minutes of all meetings
and consents in lieu of meetings of the Board of Directors (and any committee
thereof) and of the stockholders of each of them, all of which are accurate in
all material respects.

3.3 Execution and Performance of Agreement. VCB and the Bank have all
requisite corporate power and authority to execute and deliver the Agreement and
to consummate the transactions contemplated by the Agreement. The execution and
delivery of the Agreement, compliance with its terms and the consummation of the
transactions contemplated by the Agreement have been duly and validly authorized
by the Board of Directors of VCB and the Bank, and no other corporate actions of
either of them are necessary to authorize the Agreement or to consummate the
transactions contemplated, other than the approval of the Acquisition by VCB's
stockholders.

3.4 Binding Obligation. The Agreement has been duly and validly executed
and delivered by VCB and the Bank and constitutes the valid, legal and binding
agreement of each enforceable in accordance with its terms.

3.5 Corporate Structure. VCB and the Bank are not owned or controlled,
directly or indirectly, by a bank holding company or by any other corporation or
entity, other than VCB's ownership of the Bank. VCB and the Bank do not own or
control, directly or indirectly, any shares of capital stock of any other
corporation or entity, other than (i) VCB's ownership of 100% of the shares of
the Bank, (ii) VCB's ownership of 100% of Valley Community Mortgage Services,
Inc., an Oregon corporation, (iii) the Bank's ownership of 100% of the issued
and outstanding shares of Valley Community Financial Services, Inc., an Oregon
corporation, (iv) shares held in a fiduciary or custodial capacity in the
ordinary course of business, (v) shares acquired in partial or full satisfaction
of any debts owed to VCB or the Bank, and (vi) the shares described in the
attached Schedule 3.5.

3.6 Capital Structure of the Bank. The authorized capital stock of the
Bank consists of 2,000,000 shares of common stock, par value of $1.00 per share,
of which 906,475 shares were issued and outstanding as of July 6, 1998. All of
the Bank Stock has been duly authorized and validly issued in compliance with
applicable law

<PAGE> 4
including, without limitation, federal and state securities laws, and are fully
paid and nonassessable. None of the Bank Stock has been issued in violation of
the preemptive rights of any stockholder. No Bank Stock shall be issued between
the date of the Agreement and the Effective Date.

3.7 Capital Structure of VCB. The authorized capital stock of VCB
consists of (i) 2,000,000 shares of common stock, par value of $1.00 per share,
of which 720,675 shares were issued and outstanding as of June 30, 1998, and
(ii) 500,000 shares of preferred stock, par value of $1.00 per share, of which
205,800 shares were issued and outstanding as of June 30, 1998. All of the
foregoing shares have been duly authorized and validly issued in compliance with
applicable law including, without limitation, federal and state securities laws,
and are fully paid and nonassessable. None of the foregoing shares have been
issued in violation of the preemptive rights of any stockholder. No shares of
VCB stock shall be issued between the date of the Agreement and the Effective
Date, other than the issuance of shares of VCB Common Stock upon the conversion
of VCB Preferred Stock.

3.8 Consents and Approvals. Except for the applications and approvals
required by the Federal Reserve Bank and any other state or federal governmental
agency that may have or assert jurisdiction over the transaction or the actions
contemplated herein, no consents, approvals or authorizations of any public body
or regulatory agency are necessary for the consummation of the Acquisition and
the other transactions provided under the Agreement.

3.9 No Violations. Subject to compliance with the regulatory approvals
described in Section 3.8 of the Agreement, neither the execution and delivery of
the Agreement nor the consummation of the transactions contemplated hereby, nor
compliance by VCB and the Bank with any of the provisions hereof will (i)
conflict with or result in any breach of any provision of their respective
Articles of Incorporation or Bylaws, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, lease, agreement or other instrument or obligation of VCB or the Bank
or by which either of them or any of their properties or assets may be bound, or
(iii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to VCB or the Bank, or any of their properties or assets.

3.10 Books and Records. The books and records of VCB and the Bank
accurately reflect the transactions to which they are parties or by which their
assets and properties are subject or bound. Such books and records have been
properly kept and maintained, are in compliance in all material respects with
all legal regulatory and accounting requirements applicable to them, and have
been maintained on a consistent basis in accordance with generally accepted
accounting principles applicable to VCB and the Bank.

3.11 Financial Statements. VCB and the Bank have delivered to Bancorp
true copies of their balance sheets, statements of income, statements of changes
in financial position, and statements of changes in stockholders' equity, and
all notes thereto, for each of the calendar and fiscal years 1994, 1995, 1996
and 1997, and shall deliver the same for the first two quarters of the 1998
fiscal and calendar year as soon as practicable after the full execution of the
Agreement and in any event no later than August 15, 1998. All of the foregoing
(the "Financial Statements"), except as disclosed in Schedule 3.11, (i) are in
accordance with the books and records of VCB and the Bank, (ii) fairly present
the financial position, results of operation, changes in financial position and
stockholders' equity of VCB and the Bank for the periods covered thereby, (iii)
have been prepared and maintained in accordance with generally accepted
accounting principles ("GAAP") on a consistent basis, and (iv) reflect all
material liabilities, contingent or otherwise, of each of them for the periods
covered thereby, except for liabilities not required to be reflected thereon
under GAAP. Neither VCB nor the Bank party have been notified by any regulatory
authority that such authority regards the Financial Statements as deficient in
any material respect.

3.12 Proxy Statements and Other Materials. VCB has delivered to Bancorp
copies of all of VCB's reports and communications to its shareholders since
January 1, 1995, including all proxy statements, financial reports and notices
of meetings. Any proxy statements or other materials communicated to the
shareholders of VCB in connection with the Agreement shall comply in all
material respects with applicable law, and shall not on the date of their
distribution contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not false

<PAGE> 5
or misleading, except those statements or omissions in the proxy statement that
may be made in reliance on information provided by Bancorp.

3.13 Policies and Procedures. VCB and the Bank have delivered to Bancorp
or made available for inspection all manuals, booklets and other materials that
set forth the policies and procedures of VCB and the Bank. All actual policies
and procedures of VCB and the Bank are substantially as represented in such
materials.

3.14 Collective Bargaining Agreements. Neither VCB nor the Bank is a
party to or bound by any collective bargaining agreements with respect to any
employees. There has not been, nor to the knowledge of VCB or the Bank was there
or is there threatened, any strike, slowdown, picketing or work stoppage by any
union or other organized group of employees against VCB or the Bank or any of
their premises, any material dispute regarding wages, hours or conditions of
employment, or any other labor dispute or other occurrence, event or condition
of a similar character within five (5) years prior to June 1, 1998 that had or
is expected to have a materially detrimental effect on VCB's or the Bank's
operations. Neither VCB nor the Bank is aware of any attempts to organize a
collective bargaining unit to represent any employee groups of the Bank.

3.15 Employee Benefit Plans. Neither VCB nor the Bank has (i) any
liability, (ii) any funding deficiency, or (iii) any funding waivers outstanding
or applied for to the Pension Benefit Guaranty Corporation or to the IRS with
respect to any pension plan qualified under Section 401 of the Internal Revenue
Code. The value of accrued vested benefits with respect to any such pension plan
do not exceed the value of the total assets of such plan. All "Employee Benefit
Plans," as defined in Section 3(3) of ERISA that cover one or more employees
employed by either VCB or the Bank ("Employee Benefit Plans") comply in all
material respects with ERISA and, where applicable, for tax-qualified or
tax-favored treatment, with the Internal Revenue Code. Neither the Employee
Benefit Plans nor any trustee or administrator thereof has engaged in a
"prohibited transaction" within Section 406 of ERISA or, where applicable,
Section 4975 of the Internal Revenue Code for which no exemption is applicable,
nor have there been any "reportable events" within Section 4043 of ERISA which
are required to be reported but were not timely reported. There is not and has
not been any violation of the Consolidated Omnibus Budget Reconciliation Act of
1986. Neither VCB nor the Bank has contributed to, is not obligated to
contribute to, and has not been a sponsor of a multi-employer plan. VCB and the
Bank have made available to Bancorp true, complete and accurate copies (or, with
respect to oral arrangements, accurate written summaries) of all pension,
retirement, stock purchase, stock bonus, stock ownership, stock option,
performance share, stock appreciation right, phantom stock, savings and
profit-sharing plans; any employment, deferred compensation, incentive
compensation, bonus, consulting and group insurance contracts; any other
incentive, welfare, life insurance, death or survivor's benefit, health
insurance, sickness, disability, medical, surgical, hospital, severance, layoff
and vacation plans, contracts or arrangements; and employee benefit plans or
agreements sponsored, maintained or contributed to by VCB and the Bank for
employees of the Bank.

3.16 Employment Contracts. Except for the contracts described in
Schedule 3.16, there are no employment contracts, deferred compensation
agreements or other arrangements (including, without limitation, contracts or
arrangements providing for severance or termination pay or benefits or increased
or accelerated compensation in the event of a merger, acquisition,
consolidation, reorganization or change of control with respect to VCB or the
Bank or any other event affecting the ownership, control or management of either
VCB or the Bank) with any officer, director, employee, consultant or stockholder
of VCB or the Bank. VCB and the Bank shall be responsible for the payment of all
sums that may be due a terminated employee of VCB or the Bank pursuant to an
employment contract or otherwise prior to the Effective Date.

3.17 Insurance. VCB and the Bank carry insurance with reputable
insurers, including Bankers Blanket Bond Coverage, in such amounts as are
reasonable and are consistent with typical and reasonable industry practices.
All such policies of insurance are in full force and effect, and no notice of
cancellation has been received. Both of them have delivered to Bancorp a list of
all policies of insurance currently in force. All such policies (or policies
affording equivalent coverage) will be maintained in effect through the
Effective Date.

3.18 Properties. VCB and the Bank own or lease all property upon which
their continued business

<PAGE> 6
operations are dependent. With respect to properties owned, each possesses good
and marketable title to and owns, free of any encumbrance (other than liens for
taxes not yet due and statutory rights of redemption with respect to properties
acquired through foreclosure and encumbrances of record as of the date of the
Agreement), all such real, personal and intangible properties and other assets.
The leases pursuant to which each lease real or personal property are valid and
effective in accordance with their respective terms, and there is not, under any
such lease, any existing default or any event that, with the giving of notice or
lapse of time or otherwise, would constitute a default. The real and personal
property leased by each is free from any adverse claim that would materially
interfere with the business or operations of VCB or the Bank.

3.19 Hazardous Wastes. To their best knowledge and belief, the
properties owned by VCB and the Bank are in good condition, free from any
defects (including asbestos and toxic materials) that would materially interfere
with the continued use thereof in the conduct of each party's normal operations.
Without limiting the foregoing and to the best knowledge of the directors and
officers of the parties, neither VCB nor the Bank, nor any other person having
an interest in any property which VCB or the Bank owns, or has owned (the
"Property"), has engaged in the generation, use, manufacture, treatment,
transportation, storage (in tanks or otherwise), or disposal of hazardous
material on or from any Property. Individually or in the aggregate, there has
been no: (i) presence, use, generation, handling, treatment, storage, release,
threatened release, migration or disposal of hazardous material in violation of
applicable law; (ii) condition that could result in any use, ownership or
transfer restriction; or (iii) condition of nuisance on or from any Property,
any of which individually or collectively would have a material adverse effect
on the business, assets, earnings, operation or condition (financial or
otherwise) of VCB or the Bank. Neither VCB nor the Bank have received notice of,
or has reason to know of, a condition that could give rise to any private or
governmental suit, claim, action, proceeding or investigation against either of
them any such other person or such Property as a result of any of the foregoing
events. For the purpose of this Section, "Hazardous Material" means any
chemical, substance, material, object, condition or waste harmful to human
health or safety or to the environment due to its radioactivity, ignitability,
corrosivity, reactivity, explosivity, toxicity, carcinogenicity, infectiousness
or other harmful or potentially harmful properties or effects, including without
limitation, petroleum or petroleum products, and all of those chemical
substances, materials, objects, conditions, wastes or combinations of them that
are now or become listed, defined or regulated in any manner by federal, state
or local law based, directly or indirectly upon such properties or effects, but
excluding such amounts commonly stored and used in routine cleaning and
maintenance.

3.20 Tax Matters. Except as disclosed in Schedule 3.20 all tax returns
required to be filed by or on behalf of VCB and the Bank have been timely filed
with the appropriate governmental agencies in all jurisdictions in which such
returns are required to be filed. All returns filed are complete, accurate and
properly reflect the taxes of each for the periods covered thereby. All taxes
shown on filed returns have been timely paid. As of the date of the Agreement,
there is no audit, examination, deficiency or refund litigation or tax claim or
any notice of assessment or proposed assessment by any taxing authority, or to
the best knowledge and belief of VCB and the Bank any other matter in
controversy with respect to any taxes that might result in a determination
adverse to VCB or the Bank. All taxes, assessments, interest, additions,
deficiencies, fees, penalties and other governmental charges or impositions due
with respect to completed and settled examinations or concluded litigation have
been property accrued or paid. The tax returns for VCB and the Bank will be
subject to review by Bancorp's accountants. Any unpaid taxes, interest or
penalties shall be paid or accrued by VCB or the Bank prior to the Effective
Date. Neither VCB nor the Bank have executed an extension or waiver of any
statute of limitations on the assessment or collection of any tax due that is
currently in effect. All applicable withholding taxes, Social Security taxes,
unemployment insurance, Workers Compensation premiums and other withholdings due
or payable by VCB or the Bank have been withheld, accounted for and paid as
required by law.

3.21 Compliance with Law. Neither VCB nor the Bank are in violation of
any applicable law or ordinance or any order, rule or regulation of any
governmental agency, in any material respect, and are not in default with
respect to any order, writ, injunction or decree of any court, or in default
under any order, license, regulation or demand of any governmental agency, any
of which violations or defaults might have a materially adverse effect on the
business or properties of either of them. Neither VCB nor the Bank have received
any claim or notice of violation with respect thereto, except as disclosed in
any Schedule to the Agreement.

<PAGE> 7
3.22 Compliance with Lending Laws and Regulations. Without limiting any
other representation or warranty contained herein, VCB and the Bank represent
and warrant to Bancorp based upon their best knowledge and belief that:

a. The conduct by VCB and the Bank of their business and the
operation by each of the properties or other assets owned or leased by them do
not violate or infringe any domestic or foreign laws, statutes, ordinances,
rules or regulations, the enforcement of which individually or in the aggregate
would materially and adversely affect either of them. Specifically, but without
limiting any other representations or warranty herein, each of VCB and the Bank
are in compliance in all material respects with every local, state or federal
law or ordinance and any regulation or order issued thereunder now in effect and
applicable to either governing or pertaining to Fair Housing Anti-Redlining,
Equal Credit Opportunity, Truth-in-Lending, Real Estate Settlement procedures,
Fair Credit reporting, and every other prohibition against unlawful
discrimination in residential lending or governing consumer credit including,
but not limited to, the Community Reinvestment Act, the Consumer Credit
Protection Act, Truth-in-Lending Act (and Regulation Z promulgated by the
Federal Reserve Board), the Real Estate Settlement Procedures Act of 1974 and
the Home Mortgage Disclosure Act. All loans, leases, contracts and accounts
receivable, security agreements, guarantees and recourse agreements of each held
in their portfolio or as sold into the secondary market represent and are valid
and binding obligations of their respective parties and debtors enforceable in
accordance with their respective terms, except for defenses, offsets or
counterclaims arising from applicable bankruptcy, insolvency, moratorium,
marshalling or other similar laws and equitable principles relating to the
rights of creditors; each of them is based upon a valid binding and enforceable
contract or commitment, each of which has been executed and delivered in full
compliance in form and substance with any and all federal, state or local laws
applicable to each party or to the other party or parties to the contracts or
commitments, including without limitation the Truth-in-Lending Act, Regulations
Z and U of the Federal Reserve Board, laws and regulations providing for
non-discriminatory practices in the granting of loans or credit, applicable
usury laws and laws imposing lending limits; and all such contracts or
commitments have been administered in full compliance with all applicable
federal, state or local laws or regulations. All Uniform Commercial Code filings
or filings of trust deeds, mortgages or of liens or other security interest
documentation that are required by any applicable federal, state or local
government laws and regulations to perfect security interests referred to in any
and all of such documents or other security agreements have been made, all
security interests under such deeds, documents or security agreements have been
perfected, and all contracts have been entered into or assumed in full
compliance with all applicable material, legal or regulatory requirements.

b. All loan files of the Bank are complete and accurate in all
material respects and have been maintained in accordance with good banking and
business practices.

c. All notices of default, foreclosure proceedings or
repossession proceedings against any real or personal property collateral have
been issued, initiated and conducted by the Bank in full compliance with all
applicable federal, state or local laws and regulations, and the Bank has not
incurred since the date of the most recent Financial Statement (as defined in
Section 3.11), and does not expect to incur, any loss or impairment of any
security interest or any exposure to meritorious lawsuits or other proceedings
of the types or amounts that are not customary for financial institutions in the
business in which the Bank is presently engaged.

d. Neither VCB nor the Bank are in violation of any applicable
servicing agreement or other requirements of the Federal Housing Administration,
the Veterans Administration, Federal National Mortgage Association, Government
National Mortgage Association, Federal Home Loan Mortgage Corporation, Small
Business Administration, the Farmers Home Administration, the Federal Home Loan
Bank or any private mortgage insurer that insured or guaranteed any loans owned
by either of them or as to which either has sold to other investors, the effect
of which violation would materially and adversely affect the business assets,
earnings, operations or condition (financial or otherwise) of VCB or the Bank on
a consolidated basis. Further, with respect to such loans neither VCB nor the
Bank has done or failed to do or cause to be done or omitted to be done any act,
the effect of which act or omission impairs or invalidates (i) any FHA insurance
or commitments of the FHA to insure; (ii) any Veterans Administration guarantee
or commitment of the Veterans Administration to guarantee; (iii) any Small
Business Association guarantees or commitments of the Small Business
Administration guarantee; (iv) any guarantee or commitment of the Farmers Home
Administration or the Federal Home Loan Bank; (v) any private

<PAGE> 8
mortgage insurance or commitment of any private mortgage insurer to insure; (vi)
any title insurance policy; (vii) any hazard insurance policy or (viii) any
flood insurance policy required by the National Flood Insurance Act of 1968 as
amended, which would materially and adversely affect the business assets
earnings, operation or condition (financial or otherwise) of VCB or the Bank on
a consolidated basis.

e. Neither VCB nor the Bank is or was, as one of its principal
activities, knowingly engaged in the business of extending credit for the
purpose of purchasing or carrying any margin stock.

3.23 Specific Lending and Business Matters. Without limiting any other
representation or warranty contained herein, VCB and the Bank represent and
warrant to Bancorp based upon their best knowledge and belief that:

a. Except for loans or leases paid off or sold in the ordinary
course of business, each loan or lease reflected as an asset in the Bank's
financial statements of June 30, 1998, or made or acquired since the date of the
financial statements, is the valid, legal and binding obligation of the obligor
of such loan or lease, enforceable according to its terms. All secured loans are
secured by valid, perfected and subsisting liens. No loan or lease having an
unpaid balance of principal and interest in excess of $50,000.00 is subject to
any asserted defenses, offsets or counterclaims.

b. The Bank's loan loss reserves are and through the Effective
Date will be adequate to absorb all reasonably anticipated loan losses of the
Bank, taking into account the size and character of its loan portfolio, current
and reasonably foreseeable economic conditions, and all other relevant factors.
Since January 1, 1998 no facts have come to the attention of Bank management
that would cause the Bank to restate in any material way the level of such
reserves for possible credit losses. All loans classified as "doubtful,"
"substandard" or "loss" by an examiner of any state or federal regulatory
agency, or charged off the books of the Bank will be so classified or charged
off prior to the Effective Date. At the time of Closing, the percentage of
reserves in relation to total loans shall not be less than the percentage of
reserves in relation to total loans as of June 30, 1998. The Bank Board of
Directors reviews the adequacy of the loan loss reserves at least once a
quarter. Except as previously disclosed to Bancorp, the timing and methodology
used to evaluate the adequacy of the Bank's loan loss reserves has not been
disapproved or commented on by any state or federal regulatory agency.

c. The Bank has no obligation or liability of any nature, whether
absolute, accrued or contingent, that is material, or that would be material if
combined with all similar obligations or liabilities, except for those disclosed
in the Financial Statements. There exists no set of circumstances resulting from
transactions entered into by the Bank, or events affecting the Bank, or from any
action which the Bank has failed to take, that could reasonably be expected to
result in any such obligation or liability, except as expressly disclosed in the
Financial Statements.

d. Since January 1, 1998 the Bank has (i) conducted its business
in a manner consistent with its past practices, (ii) administered its loan and
investment portfolios in accordance with ordinary and prudent business and
banking practices, (iii) has not lengthened the average maturity of its loan and
investment portfolios to any material extent, and (iv) has not, (except in the
ordinary course of business and consistent with its past practices), to any
material extent, reduced the percentage of its aggregate investment portfolio in
relation to total assets.

e. There are no legal or administrative proceedings of any kind,
including arbitrations or mediations, pending or threatened against the Bank.
There exists no judgment, order or decree against the Bank entered by any court,
arbitrator or government agency that may result in any material adverse change
in the business, results of operations, financial condition or prospects of the
Bank.

f. All contracts creating an obligation or liability on the part
of the Bank or VCB in the sum of $10,000 per contract, excluding deposit
liabilities, loans, loan agreements, loan commitments under which it has
advanced or is obligated to advance funds, security agreements, agreements to
resell or repurchase securities, and agreements to sell or purchase securities
in the ordinary course of business, are disclosed and described in the

<PAGE> 9
attached Schedule 3.23(f). Except for those contracts listed on Schedule 3.23(f)
and the Bank's obligations under the Agreement, the Bank is not a party to any
such contract, nor is VCB. Neither the Bank nor VCB are in breach of any
material term of any contract to which they are a party, nor does there exist
any event or circumstance of which they are aware which would give rise to a
default under any such contract with the passage of time, which would cause a
material adverse impact to the Bank. All contracts to which the Bank or VCB is a
party are (i) valid, binding and enforceable, and (ii) (except for contracts
with Datatech of Oregon, Inc. and an ATM-related contract) are cancelable upon
not more than 30 days notice without penalty to the Bank or VCB. All off-balance
sheet risks, such as letters of credit, unfunded loan commitments and
guaranties, have been disclosed by the Bank and VCB to Bancorp.

g. The Bank is in substantial compliance with the Community
Reinvestment Act of 1977 and the regulations promulgated thereunder
(collectively, the "CRA"). The Bank has not been advised of the existence of any
fact or circumstance, or set thereof, which if true would, in the Bank's
reasonable opinion, cause it to fail to be in substantial compliance with the
CRA or to have its current CRA rating lowered. Any change in the current CRA
rating of the Bank which would prevent the consummation of the Acquisition shall
be a material adverse change under the Agreement.

3.24 Absence of Certain Changes. Since January 1, 1998 there has not
been:

a. any material adverse change in the assets, earnings, business,
operations, prospects or financial condition of the Bank, and no fact or
condition exists as of the date of the Agreement that it has reason to believe
could result in any such material adverse change at any time after the date of
the Agreement;

b. the creation of any liability by or on behalf of the Bank,
other than liabilities incurred in the ordinary course of its business
consistent with its past practices, which has or could have a materially adverse
effect on the business or financial condition of the Bank;

c. any damage, destruction or loss not covered by insurance which
materially or adversely affects the business or financial condition of the Bank;

d. the creation of any unusual liability or commitment by or on
behalf of the Bank, or the making of any unusual acquisition or purchase by or
on behalf of the Bank;

e. the declaration, setting aside or payment of any dividend or
other distribution by the Bank, with the exception of regular dividends paid in
accordance with the Bank's usual policies and procedures consistent with past
practices;

f. the repurchase or redemption by the Bank of any of its capital
stock;

g. any transaction entered into by the Bank that has resulted or
will result in the transfer of assets of the Bank for other than their full or
fair consideration, or in a manner which is not in the ordinary course of its
business consistent with its past practices;

h. aggregate capital expenditures by the Bank for depreciable
assets exceeding $10,000;

i. a change in the accounting methods or practices used by the
Bank, or a revaluation of any of its assets or liabilities;

j. any special or extraordinary bonus or remuneration paid to any
officer, director or employee of the Bank, or any increase, or agreement to
increase, the compensation or benefits of any employee, except for increases
made in the ordinary course of its business consistent with its past practices,
or except as otherwise disclosed in the Agreement.

3.25 Regulatory Matters. Except as disclosed in Schedule 3.25, VCB and
the Bank, to their best

<PAGE> 10
knowledge and belief as determined after reasonable and diligent inquiry, have
effected all registrations and filed all reports, applications, statements and
other required filings, together with any amendments thereto (collectively, the
"Filings") that either was required to effect or file with all governmental or
regulatory authorities or agencies having jurisdiction over their operations.
Without limiting the generality of the foregoing, VCB (or its predecessor) has
timely filed all required reports pursuant to the Securities Exchange Act of
1934 and the rules and regulations promulgated thereunder. VCB and the Bank have
provided originals or true copies of all Filings to Bancorp. Such Filings were
and are, to the best knowledge and belief of VCB and the Bank, in compliance
with applicable law when filed, and no delinquencies or deficiencies have been
asserted by any regulatory authority with respect thereto. The deposits held by
the Bank are insured by the Federal Deposit Insurance Corporation pursuant to
the provisions of the Federal Deposit Insurance Act (subject to statutory limits
on such insurance), and all assessments required under the Federal Deposit
Insurance Act have been paid.

3.26 Agreements with Bank Regulators. Except as disclosed in Schedule
3.26, neither VCB nor the Bank are not, nor have not been within the last 18
months, a party to or subject to any written order, decree, memorandum of
understanding, commitment letter, undertaking, extraordinary supervisory letter
or any similar agreement or directive with or from any state or federal agency
or authority charged with supervising or regulating depository institutions or
the insurance of deposits therein, except for such agreements or directives
issued in the ordinary course of business to depository institutions in general.
Neither VCB nor the Bank have been advised within the last 18 months that any
such state or federal agency or authority is considering issuing or requiring
such agreement or directive, or is considering the possibility or
appropriateness of doing so.

3.27 Transactions with Affiliates. Except as disclosed in Schedule 3.27,
which schedule discloses each transaction separately, none of the officers,
directors or beneficial holders of five percent or more of the shares of VCB or
the Bank, and no person who is "controlled" (as that term is defined in the
Financial Institutions Regulatory and Interest Rate Control Act of 1978 or by
Section 405 of the Securities Act of 1933) by either of them has any ongoing
transaction or has agreed to enter into any transaction (excluding deposits)
with VCB or the Bank in an amount or value greater than (i) $15,000.00 for a
single transaction, or (ii) $25,000.00 in total for all transactions per
officer, director or beneficial holder. None of such officers, directors,
holders or other persons has any ownership interest in any business, corporate
or otherwise, that is a party to, or in any property that is the subject of,
business arrangements or relationships of any kind with VCB or the Bank. Any
extensions of credit by VCB or the Bank to such officers, directors, holders,
and other persons, or to any business, corporate or otherwise, or with respect
to any property in which such officers, directors, holders and other persons
have a material financial interest, previously have been disclosed in writing to
Bancorp and all loans to such persons are fully performing in accordance with
their terms, which terms are no more favorable than those available to
unaffiliated parties made at or about the same time by VCB or the Bank.

3.28 No Fees. Except for as disclosed in Schedule 3.28, there exist no
claims for brokerage commissions, finder's fees, or similar compensation payable
by VCB or the Bank arising out of or due to any act of VCB or the Bank in
connection with the transactions described in the Agreement or the negotiations
which occurred prior to the date of the Agreement.

3.29 Certain Subsidiaries. Neither Valley Community Mortgage Services,
an Oregon corporation wholly owned by VCB, nor Valley Community Financial
Services, an Oregon corporation wholly owned by the Bank, are engaged in any
business activity of any kind. In addition, neither corporation owns or controls
any material assets or property, and neither will engage in any business
activity from and after the date of the Agreement without Bancorp's prior
consent in writing.

3.30 Further Assurances. VCB and the Bank shall use their best efforts
to promptly to do or cause to be done all things necessary or appropriate under
applicable laws and regulations to consummate the transactions contemplated by
the Agreement.

3.31 Completeness of Warranties and Representations. VCB and the Bank
acknowledge and agree that all representations, warranties and covenants
contained in the Agreement are being relied on by Bancorp and are material
inducements to Bancorp to enter into and perform the Agreement. No
representation, warranty, covenant

<PAGE> 11
or other statement of any kind contained herein, and no materials delivered by
VCB or the Bank to Bancorp pursuant to the Agreement, contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they are made, not false or misleading.

4. REPRESENTATIONS AND WARRANTIES OF BANCORP.

4.1 Execution and Performance of Agreement. Bancorp has all requisite
corporate power and authority to execute and deliver the Agreement and to
consummate the transactions contemplated by the Agreement. The execution and
delivery of the Agreement, compliance with its terms and the consummation of the
transactions contemplated by the Agreement have been duly and validly authorized
by the Board of Directors of Bancorp, and no other corporate action of Bancorp
is necessary to authorize the Agreement or to consummate the transactions
contemplated.

4.2 Binding Obligation. The Agreement has been duly and validly executed
and delivered by Bancorp and constitutes the valid, legal and binding agreement
of it enforceable in accordance with its terms.

4.3 Legal and Administrative Proceedings. There are no legal or
administrative proceedings of any kind, including arbitrations or mediations,
pending or threatened against Bancorp, and there exists no judgment, order or
decree against Bancorp entered by any court, arbitrator or government agency,
that would preclude Bancorp's performance of its obligations under the
Agreement.

4.4 Consents and Approvals. Except for the applications and approvals
required by the Federal Reserve Bank and any other state or federal governmental
agency that may have or assert jurisdiction over the transaction or the actions
contemplated herein, no consents, approvals or authorizations of any public body
or regulatory agency are necessary for the consummation of the Acquisition and
the other transactions provided under the Agreement.

4.5 No Violations. Subject to compliance with all required regulatory
approvals, neither the execution and delivery of the Agreement nor the
consummation of the transactions contemplated hereby, nor compliance by Bancorp
with any of the provisions hereof will (i) conflict with or result in any breach
of any provision of its Articles of Incorporation or Bylaws; (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, lease, agreement or other instrument or
obligation of Bancorp or by which any of its properties or assets may be bound;
or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Bancorp, or any of its properties or assets.

4.6 No Fees. Except for as disclosed in Schedule 4.6, there exist no
claims for brokerage commissions, finder's fees, or similar compensation payable
by VCB or the Bank arising out of or due to any act of Bancorp in connection
with the transactions described in the Agreement or the negotiations which
occurred prior to the date of the Agreement.

4.7 Further Assurances. Bancorp shall use its best efforts to promptly
do or cause to be done all things necessary or appropriate under applicable laws
and regulations to consummate the transactions contemplated by the Agreement.

4.8 Completeness of Warranties and Representations. Bancorp acknowledges
and agrees that all representations, warranties and covenants contained in the
Agreement are being relied on by VCB and the Bank and are material inducements
to VCB and the Bank to enter into and perform the Agreement. No representation,

<PAGE> 12
warranty, covenant or other statement of any kind contained herein, and no
materials delivered by Bancorp to VCB or the Bank pursuant to the Agreement,
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they are made, not false or misleading.

5. COVENANTS AND PRE-CLOSING ACTIVITIES -- VCB AND THE BANK

From the date of the Agreement until the Effective Date, VCB and the
Bank, together with their officers, directors, employees, agents, and
representatives, hereby covenant and agree as follows:

5.1 Attorneys' Fees of VCB Counsel. VCB shall reach agreement with its
counsel that the attorneys' fees relating to the Acquisition chargeable to VCB
for attorney fee time (including time for paralegals and other personnel of VCB'
attorneys) incurred from and after June 1, 1998 shall not exceed $30,000.

5.2 Regulatory Applications and Approvals. VCB and the Bank, as soon as
reasonably practicable after the date of the Agreement, shall prepare and file
with all governmental agencies that may have or assert jurisdiction over the
transaction or the actions contemplated herein all necessary applications they
are required to file for approval to effect the Acquisition, and such other
documents, instruments, and notices as may be necessary or desirable for VCB and
the Bank to obtain the approval of the applicable governmental agencies. Bancorp
shall provide VCB and the Bank with such information concerning itself, its
directors, officers, and stockholders and such other matters as may be necessary
or advisable in connection with the preparation, filing, or submission of any
required application made by or on behalf of VCB and the Bank to any
governmental body in connection with the Acquisition and other transactions,
applications, or filings contemplated by the Agreement. Bancorp and its
accountants and attorneys shall have the right to review, prior to submission to
any regulatory agencies, all information pertaining to the parties that will be
included in any such applications, filings, or other submissions. VCB and the
Bank will promptly furnish to Bancorp copies of all written communications
received from any governmental agency regarding the transactions contemplated by
the Agreement.

5.3 Rights of Access. Subject to the confidentiality agreement of July
1, 1998 between Bancorp and VCB (the "Confidentiality Agreement"), VCB and the
Bank shall give Bancorp and its representatives including, but not limited to,
its accountants, attorneys, investment bankers, and other advisors, reasonable
access during normal business hours to all its properties, documents, contracts,
books, records, reports (including reports of examination by regulatory agencies
and the replies thereto unless disclosure of such materials to Bancorp is
prohibited by law), and such additional information with respect to their
business affairs, operations, and properties as Bancorp may request. Bancorp and
its accountants shall have the right to consult with the accountants of VCB and
the Bank and to review their work papers, including, without limitation, all
supporting data and documents relative to the preparation of the Financial
Statements and tax returns of VCB and the Bank.

5.4 Interim Tax and Accounting Matters. All deductions and adjustments
taken on the 1997 federal and state income and other tax returns or filings of
VCB are or will be consistent with prior practices, and will not include
unsupported, doubtful, or unlawful deductions or adjustments. Accountants for
Bancorp shall be entitled to review and approve unfiled VCB returns or
amendments thereto, if any, prior to filling. Any objection to VCB's returns or
amendments shall be in writing and shall state the basis for the objection.

VCB shall pay, accrue or otherwise provide for the payment of all
taxes due by VCB, including without limitation income, personal property and
excise taxes, interest and penalties. VCB shall not execute an extension or
waiver of any statute of limitations on the assessment or collection of any tax
due that is currently in effect. All applicable withholding taxes, Social
Security taxes, unemployment insurance, workers compensation premiums and other
withholding will be properly withheld, accounted for and paid or accrued as
required by law.

Expenses incurred by VCB, either paid or unpaid, for goods
purchased and services rendered or to be rendered as of the date of the
Agreement will be properly reflected on VCB's books in accordance with generally
accepted accounting principles applied on a consistent basis. During the period
between the date of the Agreement

<PAGE> 13
and the Effective Date, VCB will pay promptly upon receipt of billings all
accounts payable, including professional fees for legal and accounting services,
shall pay all bills promptly consistent with past practices and shall not cause
them to be deferred until after the Effective Date. All obligations of VCB which
are incurred prior to or on the Effective Date shall be paid, accrued, or
otherwise reserved for payment even though the obligation is not recognized for
payment on the financial statements of VCB until a check is issued in payment.

5.5 Corporate Records, Loans, Contracts and Other Documents. VCB and the
Bank shall:

a. Furnish to Bancorp copies of minutes of all meetings of the
Board of Directors of VCB and the Bank, together with committees thereof, the
Bank's Loan Committee, and Executive or Senior Management Committees and
stockholders held after the date of the Agreement; provided, that minutes or
documents relating to the negotiation and performance of the Agreement
reasonably and in good faith deemed confidential or privileged are excluded from
this requirement;

b. Report to Bancorp on at least a monthly basis and otherwise
from time to time as it may request, regarding any loan for which more than
$15,000 (including principal, unpaid interest, fees and costs) is due as of the
report date which VCB or the Bank has substantial doubts regarding its
collectability or has determined is uncollectible, any loan whose terms are
renegotiated or extended because of substantial concerns regarding its
collectability, any loan that becomes more than 60 days past due; any adverse
developments concerning the Bank's OREO; and any non-ordinary losses that, in
the Bank's opinion after reasonable inquiry, may be likely to occur on any loan
of the Bank.

c. Promptly inform Bancorp of any investment, credit or
operational loss (such as an overdraft, check kite or robbery) exceeding $2,500
individually or $5,000 in the aggregate.

5.6 Financial Statements and Call Reports. VCB and the Bank shall:

a. Promptly provide Bancorp with copies of their monthly and
quarterly financial statements, their quarterly Consolidated Reports of Income
and Condition for Banks ("Call Reports") for the months and quarterly period
ending between the date of the Agreement and the Effective Date, and such other
reports as are normally produced in the ordinary course of their business. Such
financial statements and Call Reports shall be in accordance with the books and
records of VCB and the Bank, shall present fairly the financial position and
results of operations of VCB and the Bank, shall be prepared in accordance with
GAAP applied on a consistent basis, shall be in accordance with all applicable
regulatory reporting requirements, and shall be certified to such effect by the
Chief Executive Officer or President of VCB and the Bank.

b. Promptly provide Bancorp with copies of each report filed by
VCB and the Bank with any regulatory agency having jurisdiction over their
activities, including but not limited to the Federal Deposit Insurance
Corporation, the Federal Reserve Bank and the Securities and Exchange
Commission.

c. Select one or more persons as their designated representative
to meet, consult, and confer on a regular basis with representatives of Bancorp
regarding the general condition and the ongoing operations of VCB and the Bank.

d. Promptly notify Bancorp of any material change in the normal
course of business or in the operation of the properties of VCB and the Bank;
any governmental inquiries, complaints, investigations or forthcoming hearings
or communications indicating that the same may be contemplated; the institution
or the threat of any litigation involving VCB or the Bank (including lender
liability claims but excluding routine claims or defenses asserted by a debtor
in a routine collection or bankruptcy case), and thereafter keep Bancorp fully
informed of such events. Without limiting the foregoing, VCB and the Bank will
from time to time and as may be appropriate to insure that the schedules and
other information provided to Bancorp will remain at all times accurate and
complete, to and including the Effective Date, promptly supplement and revise
the schedules and information. Notwithstanding anything to the contrary
contained herein, supplementation of such schedules following the execution of
the Agreement shall not be deemed a modification of the representations or
warranties of VCB and the Bank contained herein.

<PAGE> 14
5.7 Certain Prohibited Transactions. From and after the date of the
Agreement, without the prior written consent of Bancorp neither VCB nor the Bank
shall:

a. Declare or pay any cash dividends or property dividends;

b. With respect to the securities of VCB or the Bank, declare or
distribute any stock dividend, authorize a stock split, authorize, issue, sell
or make any distribution of shares or other securities, grant any right, option
or warrant to acquire any shares of capital stock or any other of its
securities, or pledge or encumber any shares of its stock or any other of its
securities, except for those transactions required under Section 1.2 of the
Agreement;

c. Merge into or with, consolidate with, be acquired or
controlled by, or (except in the ordinary course of business) sell its assets or
transfer its liabilities (or portions thereof) to any other bank, savings and
loan association, bank or savings and loan holding company, other financial
institution, corporation, person or entity or enter into any other transaction,
or agree to effect any such transactions not in the ordinary course of their
business, or engage in any discussions concerning such possible transactions,
solicit offers of interest to engage in any such transactions, or engage in
those activities described and prohibited in Section 5.10;

d. Make any direct or indirect redemption, purchase, or other
acquisition of any of the shares of VCB or the Bank, or any other shares of
capital stock;

e. Subject any of their properties or assets to any lien, claim,
charge, option, or encumbrance, except in the ordinary course of business;

f. Increase the rate of compensation of any employee or enter
into any agreement to increase the rate of compensation of any employee except
for increases with respect to employees in the ordinary course of business
consistent with past practices;

g. Create or modify any existing pension or profit-sharing plan,
bonus, incentive compensation, deferred compensation, death benefit, health,
welfare, retirement or employee stock option plan or the level of benefits under
any such existing plan, or increase or decrease any severance or termination pay
benefit or other fringe benefit, except as required by law;

h. Enter into any severance agreement and, except in the ordinary
course of business and subject to any other provision of the Agreement, enter
into any employment or personal services contract with any person or firm,
provided further that Bancorp's approval shall be required for any such
agreement or contract having a value in excess of $10,000, except that Bancorp's
prior approval shall not be required for the hiring of Bank clerical personnel,
in the Bank's ordinary course of business consistent with past practices, on an
at-will employment basis without a written contract;

i. Amend their Articles of Incorporation or Bylaws or change the
number of authorized shares of capital stock;

j. Make any capital expenditure in excess of $5,000 per project
or $10,000 in the aggregate, other than pursuant to binding commitments existing
on the date of the Agreement and other expenditures necessary to maintain
existing properties in good repair;

k. Sell, transfer, encumber or securitize any mortgage, trust
deed, security interest, notes or other assets having a value in excess of
$25,000 per asset, except in the ordinary course of business consistent with the
Bank's past practices; provided further that any such prospective sale or
transfer shall first be offered to Bancorp and its subsidiary Columbia River
Bank;

l. Make application to open or close any branches;

<PAGE> 15
m. Materially change lending policies, asset and liability
management policies, investment policies, or other credit, personnel or
operations policies and procedures, except as required by law;

n. Enter into or modify any agreement or arrangements (except for
renewals of previously disclosed indebtedness) that alone or together with all
similar arrangements exceeds $25,000, with any director or officer of VCB or the
Bank, any person who owns more than five percent (5%) of the outstanding capital
stock of VCB or the Bank, or any business or entity in which such director,
officer or beneficial owner has an ownership interest in excess of ten percent
(10%);

o. Purchase or sell additional loans or loan participations from
or to another lender except in the ordinary course of business consistent with
the Bank's past practices; provided that the prospective sale of any such
participation shall first be offered to Bancorp and its subsidiary Columbia
River Bank, and provided further that prospective purchases of any such
participation having a value of over $100,000 per participation shall be subject
to Bancorp's prior written approval.

p. Materially alter the Bank's loan portfolio with respect to
mix, yield or structure;

q. Alter or amend the indemnification provisions applicable to
directors and officers in the articles, bylaws or other operative documents or
agreements of VCB and the Bank, except as required by law;

r. Enter into arrangements or agreements to do any of the
foregoing.

5.8 Preservation of Business. Until the Effective Date, VCB and the Bank
shall:

a. Carry on their business and manage their assets, properties,
and affairs diligently and substantially in the same manner as before,
consistent with past and prudent banking practices;

b. Take no action to substantially change the percentage which
the aggregate investment portfolio bears to the total assets of the Bank or to
change the average maturity of the investment portfolio or of any significant
category thereof to any material extent, except in the ordinary course of
business consistent with past practices;

c. Perform in all material respects all their obligations under
material agreements, contracts, leases, and documents relating to its business;

d. Exert their best efforts to comply in all respects with all
statutes, laws, ordinances, rules, and regulations applicable and material to
the conduct of their business;

e. Continue in effect their present insurance coverage on all
properties, assets, business, directors and personnel;

f. Use their best efforts to preserve their business
organization, to retain their employees, and to preserve their relationships
with customers and others having business dealings with them;

g. Exert their best efforts to not do anything, or fail to do
anything, that will cause a breach of or default in any contract, agreement,
commitment, or obligation to which they are a party or by which they may be
bound;

h. Maintain directors' and officers' liability insurance at a
level of coverage at least equal to the level of coverage in place as of January
1, 1998.

5.9 Continuing Accuracy of Representations and Warranties. From the date
of the Agreement until the Effective Date, VCB and the Bank shall take all
actions necessary to maintain the accuracy of all of their representations and
warranties and shall refrain from taking any action that would cause any of
their representations

<PAGE> 16
or warranties to be inaccurate at any time during this period.

5.10 No Solicitation of Offers or Negotiations with Others. Neither VCB
nor the Bank, nor any of their respective directors, officers, employees,
representatives, agents, or other persons employed by, affiliated with, or
controlled by them or either of them, shall, directly or indirectly, encourage,
solicit or initiate or begin negotiations with, or provide any information
(financial or otherwise) regarding Bancorp, VCB or the Bank or the terms of the
Agreement, to any person, corporation, bank holding company, financial
institution, entity, or group for the purpose of soliciting a possible merger,
consolidation, acquisition, change in control, reorganization, sale of
substantial assets or transfer of deposits (or portions thereof) not in the
ordinary course of business, sale of shares of capital stock or similar
transactions of VCB or the Bank, or engage in those activities described in
Section 5.7. VCB and the Bank will promptly communicate to Bancorp the terms of
any unsolicited proposal, inquiry, or other solicitation that they receive with
respect to any of the transactions identified or contemplated herein. VCB and
the Bank shall use their best efforts to cause their officers, directors, and
the others described in this Section to comply with the provisions of this
Section and Section 5.7. The foregoing provisions shall not preclude (i)
communications from VCB to its stockholders prior to any meeting of stockholders
which are previously approved by Bancorp regarding the general terms or status
of the Agreement, (ii) the informal response by an employee of VCB or the Bank
approved by Bancorp to questions asked by a VCB stockholder regarding this
transaction, or (iii) responding to unsolicited inquiries regarding the
acquisition of VCB or the Bank through a share exchange or otherwise in order
for the VCB or Bank boards of directors to comply with their respective
fiduciary obligations.

5.11 Supplements. From time to time prior to Closing, VCB and the Bank
shall promptly supplement or amend the Schedules delivered in connection
herewith with respect to any matter hereinafter arising which if existing,
occurring, or known at the date of the Agreement would have been required to be
set forth or described in such Schedules or which is necessary to correct any
information in such Schedules that has been rendered inaccurate or misleading.

5.12 Closing Financial Statement. VCB and the Bank shall deliver to
Bancorp as soon as available, but not less than five days prior to the Effective
Date, the financial statements of VCB and the Bank as of the end of the calendar
month immediately preceding the Effective Date (the "Closing Financial
Statement") if the Effective Date is on or after the 15th day of the month in
which the Effective Date occurs, and as of the end of the second calendar month
immediately preceding the Effective Date if the Effective Date is prior to the
15th day of the month in which the Effective Date occurs. The Closing Financial
Statement shall contain a balance sheet, statement of income, and statement of
changes in stockholders equity substantially in the form set forth in the
quarterly financial statement of VCB and the Bank for the period ended December
31, 1997. At the time of its delivery, the Closing Financial Statement shall be
in accordance with the books and records of VCB and the Bank, present fairly the
financial position and results of operations of VCB and the Bank, be prepared in
accordance with generally accepted accounting principles applied on a consistent
basis, and be certified to such effect by the President of VCB and the Bank. The
person executing the Certificate shall not be individually liable for any error
in the Closing Financial Statement except for actual fraud. As soon as
practicable thereafter, Bancorp's accountants shall review the Closing Financial
Statement.

5a. COVENANTS AND PRE-CLOSING ACTIVITIES - BANCORP

From the date of the Agreement until the Effective Date, Bancorp,
together with its officers, directors, employees, agents, and representatives,
hereby covenants and agrees as follows:

5a.1 Regulatory Applications and Approvals. As soon as reasonably
practicable after the date of the Agreement, Bancorp shall prepare and file with
the Federal Reserve Bank, and with any other governmental agency that may have
or assert jurisdiction over the transaction or the actions contemplated herein,
appropriate applications for approval to effect the Acquisition, and such other
documents, instruments, and notices as may be necessary or desirable to obtain
the approval of the applicable governmental agencies. VCB and the Bank shall
provide Bancorp with such information concerning themselves, their directors,
officers, and stockholders and such other matters as may be necessary or
advisable in connection with the preparation, filing, or submission of any
application made by or on behalf of Bancorp to any governmental body in
connection with the Acquisition and other transactions,

<PAGE> 17
applications, or filings contemplated by the Agreement. VCB and the Bank and
their accountants and attorneys shall have the right to review, prior to
submission to any regulatory agencies, all information pertaining to the parties
that will be included in any such applications, filings, or other submissions.
Bancorp will promptly furnish to VCB and the Bank copies of all written
communications received from any governmental agency regarding the transactions
contemplated by the Agreement.

5a.2 Financial Warranty. Bancorp represents and warrants that it has
adequate liquidity to provide the funds necessary to consummate the transactions
contemplated under this Agreement without dependence on any external sources of
funds or financing. Notwithstanding the foregoing, Bancorp may, at its sole
discretion, obtain the amount of the required funds through a private placement,
public offering or other method.

6. MUTUAL PRE-CLOSING COVENANTS.

6.1 Best Efforts. Subject to the terms of the Agreement and fiduciary
obligations under applicable law, the parties to the Agreement shall use their
best efforts to effectuate the transactions set forth herein and to fulfill the
conditions to their respective obligations under the Agreement. In particular,
and without limitation, the parties shall use their best efforts to cause the
Closing to occur at the earliest possible time.

6.2 Confidentiality. In addition to the obligations set forth in the
Confidentiality Agreement, each party shall use all information that it obtains
from the other pursuant to the Agreement (excluding information that is a matter
of public record) solely for the effectuation of the transactions contemplated
by the Agreement and for other purposes consistent with the intent of the
Agreement. No party to the Agreement shall use any of such information for any
other purpose including, without limitation, to the competitive detriment of any
other party. Each party shall maintain as confidential all information it
receives from any other party and shall upon the expiration or termination of
the Agreement promptly return all documentation provided by any other party or
made available by third parties. Each party may disclose such information to its
attorneys, accountants, investment bankers, tax advisors, other advisors and
consultants.

6.3 Further Assurances. Each party shall use its best efforts to
promptly take or cause to be taken all actions and to do or cause to be done all
things necessary, proper, or advisable under applicable laws and regulations to
consummate the transactions contemplated by the Agreement. If any further action
is necessary or desirable to carry out the purposes of the Agreement after
Closing, the proper officers and directors of each party shall take all such
necessary actions.

6.4. Failure to Reasonably Fulfill Conditions. In the event that any
party reasonably determines that a condition to its obligation to consummate the
transactions contemplated hereby cannot be or is not likely to be fulfilled on
or prior to Closing, and that such condition will not be waived by a party whose
waiver of the condition would be required to consummate the Acquisition, such
party shall promptly notify all other parties to the Agreement.

6.5 Public Announcements. Except as may be required by law, no party to
the Agreement shall disclose any information to the public regarding the terms
of the Agreement without the prior written approval of all parties. All parties
to the Agreement shall cooperate in the development and distribution of news
releases and other communications to stockholders of VCB and Bancorp, and of
other public disclosures with respect to the Agreement or any of the
transactions contemplated hereby.

6.6. Preparation of VCB Proxy Statement. The parties shall cooperate in
the preparation of the VCB Proxy Statement. In particular, Bancorp and VCB shall
(i) provide each other with all necessary or appropriate information for
inclusion in the VCB Proxy Statement to ensure that the VCB Proxy Statement
satisfies all applicable requirements of state and federal securities laws, (ii)
continually supplement such information as necessary or appropriate through and
including the date of the VCB Special Meeting, and (iii) promptly provide notice
to the other if at any time prior to the VCB Special Meeting any information
provided by the party for inclusion in the VCB Proxy Statement becomes incorrect
or incomplete in any material respect, and promptly provide the information
needed to correct such inaccuracy or omission. VCB shall provide Bancorp with a

<PAGE> 18
reasonable opportunity to review and comment on the VCB Proxy Statement prior to
its mailing to VCB stockholders, and VCB shall not include therein or omit
therefrom any information over the reasonable objection of Bancorp or its
counsel.

7. EMPLOYEES.

7.1 Employees. Employees of VCB and the Bank who are employed
immediately prior to the Effective Date shall be the employees of the Bank on
the Effective Date, all of whom shall continue such employment on the same terms
and conditions as existed prior to the Effective Date. The Acquisition shall
effect no modifications to the terms of any employment agreement to which the
Bank is a party existing prior to the Effective Date.

7.2 Employee Benefits. The Acquisition shall effect no modifications to
(i) the terms of any employee benefit plans of VCB or the Bank, including stock
incentive and stock option plans, existing prior to the Effective Date, or (ii)
the health care coverage for Bank employees in effect prior to the Effective
Date. Nothing in the Agreement shall preclude or restrict Bancorp or its
affiliates, including the Bank, from modifying such employee benefit plans and
coverage in the ordinary course of business after the Effective Date.

8. CONDITIONS PRECEDENT.

The obligation of the parties to effect the transactions contemplated by
the Agreement shall be subject to the satisfaction or waiver of each of the
following conditions on or before the Effective Date. Each of the following
conditions constitute conditions to Closing.

8.1 Completion of Due Diligence; Financial Statement Audit. The
satisfactory completion of Bancorp's due diligence investigation (other than the
independent financial statement audit described below) of VCB and the Bank
within thirty (30) days from the date of the Agreement; provided, that neither
VCB nor the Bank shall refuse reasonable requests for information from Bancorp
after thirty (30) days from the date of the Agreement. Bancorp hereby
acknowledges that Bancorp's due diligence investigation was substantially
completed prior to the date of the Agreement. Any condition, event or
circumstance uncovered as a result of Bancorp's due diligence investigation
after the date of the Agreement shall be deemed a non-fulfillment of a condition
to Closing only if such condition, event or circumstance (i) significantly and
detrimentally impacts the economic value to Bancorp of the Acquisition, and (ii)
is not cured (if curable) within thirty (30) days notice to VCB and the Bank of
such condition, event or circumstance. In addition, Bancorp may at its option
and as part of its due diligence request an independent audit of the financial
statements of VCB and the Bank, and VCB and the Bank shall fully cooperate with
such audit. Such audit shall (i) reveal no material deviation from the unaudited
statements subject to audit, and (ii) shall be completed and approved by Bancorp
in writing within five (5) business days after Bancorp's recept of the audit
results. Bancorp and VCB shall equally share the cost of such independent audit.

8.2 Stockholder Approval. The Agreement and the Acquisition shall have
been duly and validly authorized, approved and adopted at the VCB Special
Meeting, duly and properly called for such purpose, by the holders of not less
than two-thirds of the then outstanding shares of stock of VCB which are
entitled to vote on the matter. The notice for the Special Meeting shall be
accompanied by the VCB Proxy Statement in form and substance reasonably
satisfactory to the parties and their attorneys.

8.3 Regulatory Approvals and Consents. Orders, consents, and approvals,
in form and substance satisfactory to the parties, shall have been entered by
the Federal Reserve Bank, the Federal Deposit Insurance Corporation, and such
other regulatory authorities having jurisdiction over the parties and the
transactions contemplated hereby, granting the authority necessary for
consummation of the transactions contemplated by the Agreement; all other
requirements prescribed by law or by the rules and regulations of any other
regulatory authority having jurisdiction over such transactions shall have been
satisfied; all other consents necessary for the consummation of the transactions
contemplated by the Agreement shall have been received; and the parties shall
have received evidence satisfactory to them of the satisfaction of the foregoing
conditions. No order, consent or approval shall contain any term, provision,
requirement or condition that is unusually burdensome to any party.

<PAGE> 19
8.4 Opinion of Counsel - VCB. Bancorp shall have received from counsel
for VCB an opinion dated as of the Effective Date, in form and substance
satisfactory to Bancorp and its counsel, to the effect that:

a. VCB and its corporate subsidiaries are corporations, and the
Bank is an Oregon stock bank, all of which are duly organized, validly existing
and in good standing under the laws of the State of Oregon and have all
requisite corporate power and authority to own, lease and operate their
properties and assets and carry on their business in the manner being conducted
on the Effective Date;

b. VCB and the Bank have all requisite corporate power and
authority to execute, deliver and perform their obligations under the Agreement;
the execution, delivery and performance of the Agreement and the consummation of
the transactions contemplated thereby have been duly authorized by all requisite
corporate action on the part of VCB and the Bank; and the Agreement has been
duly executed and delivered by VCB and the Bank and constitutes the legal, valid
and binding obligation of VCB and the Bank enforceable in accordance with its
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles, considerations of public
policy, orders or other actions of state or federal regulatory authorities or
agencies, and except for nonmaterial breaches or breaches waived by Bancorp;

c. The Agreement and the obligations to be performed thereunder
are not in conflict with the articles and bylaws of VCB or the Bank.

8.5 Opinion of Counsel - Bancorp. VCB shall have received from counsel
for Bancorp an opinion dated as of the Effective Date, in form and substance
satisfactory to VCB and its counsel, to the effect that:

a. Bancorp is a corporation duly organized, validly existing and
in good standing under the laws of the State of Oregon;

b. Bancorp has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Agreement; the execution,
delivery and performance of the Agreement and the consummation of the
transactions contemplated thereby have been duly authorized by all requisite
corporate action on the part of Bancorp; and the Agreement has been duly
executed and delivered by Bancorp and constitutes the legal, valid and binding
obligation of Bancorp enforceable in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles, considerations of public policy, orders or other actions
of state or federal regulatory authorities or agencies, and except for
nonmaterial breaches or breaches waived by VCB;

c. The Agreement and the obligations to be performed thereunder
are not in conflict with the articles and bylaws of Bancorp.

8.6 Documents. The form and substance of all certificates, instruments,
opinions, and other documents delivered to the parties under the Agreement shall
be reasonably satisfactory in form and substance to the parties and their
counsel.

8.7 No Litigation. The absence of any material suit, action or
proceeding (made or threatened) against any party or any of their directors or
officers seeking to challenge, restrain, enjoin or otherwise affect the
Agreement or the transactions contemplated by the Agreement; seeking to
materially restrict the rights of the parties or the operation of the business
of VCB or Bancorp after the consummation of the Agreement; or seeking to subject
the parties hereto or any of their officers or directors to any liability, fine,
forfeiture or penalty on the grounds that the parties hereto or their directors
or officers have violated or will violate their fiduciary duties or will violate
any applicable laws or regulations in connection with the transactions
contemplated by the Agreement.

8.8 Receipt of Fairness or Valuation Opinions. The parties shall have
received, reviewed and approved one or more written opinions, issued by a
reputable financial analyst, bank stock appraiser or investment banker with
substantial experience in valuing transactions such as those contemplated by the
Agreement, to the effect that the Acquisition is fair to the stockholders of VCB
or otherwise represents a fair valuation of the stock of

<PAGE> 20
VCB. Such opinions shall be supplemented and updated by the same or a similarly
qualified financial analyst, bank stock appraiser or investment banker as of the
date of the Proxy Statement if the date of the Proxy Statement is three (3)
months or more later than the date of the most recent fairness opinion. It shall
be a condition to Closing that such opinion, supplement or update does not
disclose a material adverse change in or to any initial opinion or the data
supporting it.

8.9 Covenants. Each party has performed in all material respects their
respective obligations under the Agreement and each party shall not have
breached in any material respect any of its covenants or obligations under the
Agreement, except for obligations or breaches that have been waived.

8.10 Representations and Warranties. The representations and warranties
of the parties contained in the Agreement shall be true and correct in all
material respects at and as of the Effective Date, as if made at and as of such
time, except for representations and warranties that specifically relate to an
earlier date, which shall be true and correct in all material respects as of
such date.

8.11 Closing Certificates. Each party shall deliver at Closing a
Certificate, dated as of the Closing Date, and signed and verified by the Chief
Executive Officer or President of the party, certifying in such detail as any
other party and its counsel may reasonably request, that to the best of the
signator's knowledge after reasonable inquiry the conditions specified in this
Section 8 have been fulfilled and are true and complete on and as of the Closing
Date. The person executing the Certificate shall not be personally liable for
any error in the Certificate except for actual fraud.

8.12 No Material Adverse Change. There shall not have occurred after the
date of the Agreement any material adverse change in the assets, earnings,
business, operations, prospects, or financial condition of VCB or the Bank.

8.13 Other Business Combinations, Etc. Neither VCB nor the Bank shall
have entered into any agreement, letter of intent, understanding or other
arrangement pursuant to which either of them would (i) merge, consolidate with,
effect a business combination with, sell any substantial part of their assets or
acquire a significant part of the shares or assets of any other person or entity
(financial or otherwise), or (ii) adopt any "poison pill" or other type of
anti-takeover arrangement, any shareholder rights provision or any "Golden
Parachute" or similar program (other than as described in Schedule 3.16) which
would have the effect of materially decreasing the value of VCB or the Bank or
decreasing the benefits to Bancorp of proceeding with the transactions set forth
in the Agreement.

8.14 Accounting Matters. There shall have been no change in required or
permitted accounting principles applicable to VCB or the Bank between June 1,
1998 and the Effective Date that has a material adverse effect on their
financial condition, earnings or capital.

8.15 Financial Statements. Not less than five days prior to the
Effective Date, VCB and the Bank shall have delivered to Bancorp the Closing
Financial Statement described in and consistent with the provisions of Section
5.12, which shall have been certified and reviewed in accordance with Section
5.12, and the accountants for Bancorp shall have approved the Closing Financial
Statement for compliance with GAAP and conformance with all applicable
conditions to Closing.

8.16 Stock Transactions by VCB and Affiliates. Other than as provided in
Section 1.2, there shall have been no sales, transfers or other transactions of
or involving shares of VCB held by officers or directors of VCB, beneficial
holders of five percent or more of the shares of VCB, and persons "controlled"
(as that term is defined in the Financial Institutions Regulatory and Interest
Rate Control Act of 1978 or by Section 405 of the Securities Act of 1933) by
VCB, including without limitation sales, transfers or other transactions in
violation of any state or federal securities laws or regulations.

8.17 Attorneys' Fees of VCB Counsel. As of the Effective Date the
attorneys' fees relating to the Acquisition chargeable to VCB or the Bank for
attorney fee time (including time for paralegals and other personnel

<PAGE> 21
of VCB' attorneys) incurred from and after June 1, 1998 shall not have exceeded
$30,000. If Bancorp determines prior to Closing that such fees have exceeded or
will exceed $30,000, the difference between $30,000 and actual fees shall be
deducted from the Acquisition purchase price provided in Section 1.1.

8.18 Professionals' Fees of VCB. As of the Effective Date the fees for
professionals other than attorneys, including without limitation fees for one or
more fairness opinions and fees of accountants (other than accountants' fees an
independent financial statement audit, which fees shall not exceed $25,000),
relating to the Acquisition chargeable to VCB incurred from and after June 1,
1998 shall not have exceeded $20,000. If Bancorp determines prior to Closing
that such fees have exceeded or will exceed $20,000, the difference between
$20,000 and actual fees shall be deducted from the Acquisition purchase price
provided in Section 1.1.

8.19 Deposit of Funds. Cash in an amount sufficient to fund the payments
to be made to stockholders of VCB shall have been placed in a designated deposit
account with the Payment Agent with instructions to pay the appropriate amount
to each VCB stockholder.

8.20 Non-Competition Commitments. VCB and the Bank shall use their best
efforts to obtain enforceable non-competition commitments, in form and substance
reasonably acceptable to Bancorp, from key executive employees at Bancorp's
reasonable request and from all present members of the boards of directors of
VCB and the Bank.

9. TERMINATION AND AMENDMENT.

9.1 Termination. Prior to the Effective Date, the Agreement may be
terminated and the Acquisition abandoned at any time notwithstanding approval by
the stockholders of VCB and by any of the applicable regulatory authorities:

9.1.1 Through written consent of the Board of Directors of
Bancorp and VCB;

9.1.2 By Bancorp or VCB if the Effective Date shall not have
occurred within the time provided under the Agreement, unless the Boards of
Directors of Bancorp and VCB have agreed to extend the time in which the
Acquisition may be consummated;

9.1.3 By Bancorp or VCB if any court of competent jurisdiction or
any governmental agency has issued an order, decree, or ruling or taken any
other action restraining, enjoining, or otherwise prohibiting the Acquisition
and such order, decree, ruling, or other action shall have become final and
nonappealable;

9.1.4 By Bancorp or VCB if the conditions to Closing set forth in
Section 8 have failed to be satisfied in any material respect and such failure
has not been either cured (if curable) or waived on or before the Effective
Date;

9.1.5 Upon the final disapproval by any of the Federal Reserve
Bank, the Federal Deposit Insurance Corporation or any other regulatory
authority whose approval is required, in whole or in part, of the transactions
contemplated by the Agreement.

9.2 Amendment. The Agreement may not be amended except by a subsequent
written agreement signed by all parties hereto. The Agreement may be amended by
action of the Boards of Directors of Bancorp and VCB at any time before approval
of the Acquisition by the stockholders of VCB. Such amendment must be in writing
signed on behalf of all the parties hereto by a duly authorized officer thereof.

10. MISCELLANEOUS.

10.1. Governing Law. Each and every portion of the Agreement is
contractual and not a mere recital, and all recitals shall be deemed
incorporated into the Agreement. The Agreement shall be governed by and
interpreted according to Oregon law and any applicable federal law.

<PAGE> 22
10.2. Integration. The Agreement, including all Schedules and Exhibits,
and the Confidentiality Agreement, contain 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. The Agreement supersedes all prior oral and written
agreements and understandings of the parties, except for the Confidentiality
Agreement, with respect to the subject matter of the Agreement.

10.3. Counterparts. The Agreement may be signed in several counterparts.
The signature of one party on any counterpart shall bind such party just as if
all parties had signed that counterpart. Each counterpart shall be considered an
original. All counterparts of the Agreement shall together constitute one
original document.

10.4 Expenses. All expenses of the Acquisition, including without
limitation attorneys' fees, accountants' fees, application, filing and other
fees necessary to obtain regulatory approval, fees for a competitive analysis,
publication costs and printing and mailing costs, shall be paid by the party
incurring such expenses.

10.5 Termination Fee and Costs. Under the circumstances described below,
a party shall be entitled to recover (i) a termination fee to compensate the
party for its expenses and effort taken to enter into and attempt to consummate
the transactions contemplated under the Agreement, plus (ii) the party's
reasonable out-of-pocket expenses, including without limitation attorney's and
accountant's fees, fees for fairness opinions, other professional fees, and
incidental costs and expenses (the "Costs"), relating to the party's efforts to
consummate the transactions contemplated under the Agreement.

a. VCB and the Bank shall be entitled to recover from Bancorp a
termination fee of $500,000.00 plus their Costs if Bancorp fails to close
because of (i) a breach of the financial warranty in Section 5a.2 of the
Agreement, or (ii) an intentional breach without good cause of any other
obligation of Bancorp under the Agreement.

b. Bancorp shall be entitled to recover from VCB and the Bank a
termination fee of $500,000.00 plus its Costs if VCB and the Bank fail to close
because of (i) a breach of Sections 5.7(c), 5.10 or 8.13 of the Agreement, or
(ii) an intentional breach without good cause of any other obligation of VCB or
the Bank under the Agreement.

c. VCB shall be entitled to recover from Bancorp a termination
fee of $150,000.00 plus its Costs if VCB elects not to close because Bancorp has
breached a material representation, warranty, term, covenant or condition to
closing (other than as specified in Section 10.5(a)); provided that such breach
(i) significantly and detrimentally impacts the economic value of the
Acquisition to VCB or its shareholders, and (ii) is not cured (if curable)
within thirty (30) days notice to Bancorp of such breach.

d. Bancorp shall be entitled to recover from VCB and the Bank a
termination fee of $150,000.00 plus its Costs if Bancorp elects not to close
because either VCB and the Bank have breached a material representation,
warranty, term, covenant or condition to closing (other than as specified in
Section 10.5(b)); provided that such breach (i) significantly and detrimentally
impacts the economic value to Bancorp of the Acquisition, and (ii) is not cured
(if curable) within thirty (30) days notice to VCB and the Bank of such breach.

10.6 Attorneys' Fees and Costs. If a suit or action is instituted to
enforce any term of the Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and costs at any hearing, any trial, on
appeal, and on any petition for review or other trial court or appellate
proceeding. In addition, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and costs incurred by in enforcing its rights under
the Agreement in connection with any nonjudicial action or the exercise of
nonjudicial remedies, in any bankruptcy case, proceeding or motion (including
motions for relief from stay), and in any administrative, arbitrative, mediation

<PAGE> 23
or dispute resolution process or proceeding.

10.7 Notices. All notices, requests, claims, demands and other
communications made pursuant to the Agreement shall be in writing and shall be
deemed made when either delivered in person or sent by certified or registered
mail, return receipt requested, as follows:

(i) To Bancorp:

Columbia Bancorp
420 East Third Street
The Dalles, OR 97058-9030
Attention: Terry L. Cochran

with a copy to:

Bennett H. Goldstein, Esq.
2548 SW St. Helens Court
Portland, OR 97201

(ii) To VCB:

Valley Community Bancorp
723 North Baker Street
McMinnville, OR 97128-0807
Attention: Bruce G. Bryant
with a copy to:

David G. Bristol, Esq.
Miller Nash
111 SW 5th Avenue, Suite 3500
Portland, OR 97204-3699

10.8 Survival of Representations and Warranties. The representations and
warranties of VCB and the Bank shall survive the Closing.

10.9 Fiduciary Duties. All obligations of the parties herein, including
without limitation VCB's and the Bank's obligations under Section 5.10, shall be
subject to and performed in accordance with the fiduciary duties of the
directors of Bancorp, VCB and the Bank; provided, however, that the obligations
set forth in Section 10.5 shall remain in full force and effect even though the
board of directors of the party on whom such obligations are imposed acts in
accordance with its fiduciary duties in acting or failing to act so as to give
rise to such obligations. Any action or failure to act of the directors of any
party that is contrary to the obligations of the parties under the Agreement
shall be taken only if the directors determine, in the exercise of their good
faith judgment and after receiving the advice of counsel, that the fiduciary
duties of the directors require such action or failure to act.

10.10 Parties in Interest. The Agreement is binding on and shall inure
to the benefit of the parties and their successors and assigns, provided, that
neither the Agreement nor any rights, interests or obligations hereunder may be
assigned by any party without the consent of all other parties hereto. Nothing
in the Agreement shall confer, or is intended to confer, either expressly or by
implication, any rights or remedies under or by reason of the Agreement upon any
person not a party hereto, except for provision which expressly and by their
terms are intended to benefit third party beneficiaries.

10.11 Representations and Warranties. The representations and warranties
of each party hereto contained herein shall not be deemed to be waived by any
investigation made by any other party.

<PAGE> 24
10.12 Remedies. Except for claims based upon actual fraud of the parties
or their representatives, or as provided in Section 10.5 of the Agreement, the
only remedy available to any party hereunder is for specific performance.

10.13 Best Efforts. If any party is required to use its best efforts
under the Agreement, such party shall diligently and in good faith use such
efforts as are commercially reasonable.

10.14 Employment Contract with Bruce G. Bryant. Bancorp and Bruce G.
Bryant ("Bryant") have entered into a letter of understanding for the
post-Closing employment of Bryant in the position of President of the Bank.
Bancorp and Bryant shall reduce such understanding to a contract of employment
(the "Bryant Employment Contract") to take effect on the Effective Date subject
to the consummation of the Acquisition. The parties to the Bryant Employment
Contact shall be the Bank and Bryant. At Bancorp's request prior to Closing, the
Board of Directors of the Bank shall authorize the Bank to execute the Bryant
Employment Contact. The Bank's performance under this Section shall not be a
condition to Closing.

10.15 Items on Schedules. Any item of information provided in a schedule
attached hereto shall, if the item of information is responsive to more than one
schedule, be deemed automatically incorporated into all schedules to which it is
responsive.

COLUMBIA BANCORP

______________________________
Board Chairman

______________________________
CEO and President

VALLEY COMMUNITY BANCORP VALLEY COMMUNITY BANK

______________________________ ______________________________
Board Chairman Board Chairman

______________________________ ______________________________
CEO and President CEO and President

AGREEMENT AND PLAN OF SHARE EXCHANGE

SCHEDULES

Schedule 3.5

1. Valley Community Bank holds a one-seventh interest in Datatech of
Oregon, Inc., an Oregon corporation that provides data processing services for
financial institutions. The interest was valued at $34,800.33 as of June 30,
1998.

Schedule 3.11

1. Footnotes to financial statements were prepared by management and may
not be in compliance with GAAP.

Schedule 3.16

<PAGE> 25
1. June 15, 1998 contract between VCB and Bruce G. Bryant.

2. Deferred compensation agreement between VCB and Bruce G. Bryant of
December 1, 1996.

Schedule 3.20

1. None.

Schedule 3.23(f)

1. Datatech of Oregon, Inc. contract for data processing services.

2. Deluxe Data contract for ATM switch services, $1,000 monthly, expires
February 2002.

3. Potential contract with VISA Merchant Service provider (negotiations
pending). Initial expense of approximately $3,000.

4. Fairness opinion expense -- $15,000.

5. Items in Schedule 3.16.

6. Legal expenses for Acquisition, including professional fees incurred
prior to June 1, 1998 in the sum of approximately $28,000. The foregoing are not
reflected in the Bank's most recent financial statements.

Schedule 3.25

1. None.

Schedule 3.26

1. None.

Schedule 3.27

Transactions disclosed on June 30, 1998 Quarterly Banking Call Report
and summarized as follows:

1. $120,778.08 affiliate loan secured by first deed of trust on
duplexes.

2. $142,500.00 director loan secured by first deed of trust on personal
residence.

3. $600,000.00 director loan secured by first deed of trust on
commercial property.

4. $8,327.47 loan secured by vehicle and director guarantee.

Schedule 3.28

1. Acquisition costs payable to PaineWebber of approximately $1,000 for
out-of pocket costs.

Schedule 4.6

1. None.

<PAGE> 1
EXHIBIT 10.2

1998 EMPLOYMENT AGREEMENT

This Employment Agreement (the "Agreement") is made and entered into
this 1st day of May, 1998 by and between Columbia Bancorp, an Oregon corporation
("Bancorp") and Terry L. Cochran ("Employee").

RECITALS

(1) Bancorp is an Oregon corporation and is the holding company of
Columbia River Banking Company (the "Bank"), a state-chartered Oregon financial
institution with its principal office in The Dalles, Oregon.

(2) Bancorp desires to employ Employee as President and Chief Executive
Officer of Bancorp and of the Bank.

Now, therefore, it is agreed:

1. Relationship and Duties.

1.1 Bancorp shall employ Employee as an officer of Bancorp with the
title of President and Chief Executive Officer to perform such services and
duties as the Board of Directors of Bancorp (the "Bancorp Board") may designate
from time to time. Subject to the terms and conditions hereof, employee shall
perform such duties and exercise such authority as are customarily performed and
exercised by persons holding such office, subject to the general direction of
the Bancorp Board. Such services and duties shall be exercised in good faith and
in accordance with standards of reasonable business judgment.

1.2 Employee shall serve on the Bancorp Board and on such committees
established by the Bancorp Board to which Employee may be appointed.

1.3 Subject to Section 1.7 of the Agreement, Employee shall also be
employed to serve as an officer of the Bank with the title of President and
Chief Executive Officer to perform such services and duties as the Board of
Directors of the Bank (the "Bank Board") may designate from time to time.
Subject to the terms and conditions hereof, employee shall perform such duties
and exercise such authority as are customarily performed and exercised by
persons holding such office, subject to the general direction of the Bank Board.
Such services and duties shall be exercised in good faith and in accordance with
standards of reasonable business judgment.

1.4 Employee shall serve on the Bank Board and on such committees
established by the Bank Board to which Employee may be appointed.

1.5 Employee shall devote his full time, attention and efforts to the
diligent performance of his duties as an officer and director of Bancorp and of
the Bank. Employee will not accept employment with any other individual,
corporation, partnership, governmental authority or any other entity, or engage
in any other venture for profit which Bancorp may consider to be in conflict
with Bancorp's or the Bank's best interests or to be in competition with
Bancorp's or the Bank's business, or which may interfere in any way with
Employee's performance of his duties hereunder. Any exceptions to the above
conditions must be approved by the Bancorp Board in writing.

1.6 Nothing in the Agreement shall prohibit Employee from serving on the
board of directors of any profit or non-profit corporation not in direct
competition with Bancorp or the Bank or with any other subsidiary, sister or
affiliated corporation of Bancorp. In addition, Employee may own stock in any
other corporation whether or not the stock is publicly traded; provided, that if
such corporation operates a business in competition with Bancorp Employee may
not own more than five percent (5%) of the outstanding shares of such
corporation.

1.7 Nothing in the Agreement shall prohibit Bancorp from modifying,
adding to or otherwise

Page 1 - 1998 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)

<PAGE> 2
changing Employee's duties as a full-time employee during the term of the
Agreement. In particular, and without limitation, Bancorp may in its discretion
direct Employee to (i) cease work as President and Chief Executive Officer of
the Bank and devote 100% of his efforts to serving as President and Chief
Executive Officer of Bancorp, (ii) allocate his efforts on behalf of Bancorp and
of the Bank in a manner determined by the Bancorp Board, or (iii) undertake
special projects on behalf of Bancorp, the Bank or both. Any such modifications,
additions to or changes in Employee's duties shall not be deemed a termination
of Employee's employment under the Agreement. Notwithstanding the foregoing,
Employee shall retain the title of President and Chief Executive Officer of
Bancorp during the term of the Agreement.

2. Term of Employment.

2.1 The initial term of employment under the Agreement shall be two
years beginning May 15, 1998 and ending May 14, 2000.

2.2 Employee's term of employment under the Agreement may be extended
for successive one-year terms after May 14, 2000 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:

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

Page 2 - 1998 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)

<PAGE> 3
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 1, 1998 between the parties (the "DC Agreement") or any
successor agreement thereto.

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 $145,000 in equal
bimonthly installments, subject to any deductions required by law, for the
period beginning May 15, 1998 and ending December 31, 1998. For the period
beginning January 1, 1999 and ending December 31, 1999, Employee's annual base
salary shall be $150,000.

4.2 On or before the 30th day of April, 1999, Bancorp shall determine
Employee's annual base salary for the calendar year beginning January 1, 2000.
If Employee's term of employment under the Agreement has been extended, on the
30th day of April, 2000, 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, 1998, the Bancorp Board shall determine the
amount of and the formulas and methods for establishing Employee's performance
bonus for the 1998 calendar year, subject to any deductions required by law.
Further, in December, 1998 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.

Page 3 - 1998 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)

<PAGE> 4
6. Vacations and Leaves.

6.1 Employee shall be entitled to an annual paid vacation of thirty-five
(35) business days per year for the 1998 calendar year and forty-two (42)
business days per year for the 1999 calendar year. If the Agreement is not
renewed or extended beyond May 14, 2000, Employee shall be entitled to paid
vacation of twenty (20) business days for the period beginning January 1, 2000
and ending May 14, 2000. The timing of vacations shall be scheduled in a
reasonable manner by Employee. Employee shall not be entitled to receive any
additional compensation from Bancorp on account of his failure to take a
vacation, and may not accumulate unused vacation time from one calendar year to
the next.

6.2 In addition to paid vacations, Employee shall be entitled, without
loss of pay, to absent himself voluntarily from the performance of his
employment with Bancorp and the Bank for such additional periods of time and for
such valid and legitimate reasons as the Bancorp Board in its discretion may
determine.

6.3 The Bancorp Board may grant Employee a leave or leaves of absence,
with or without pay, at such time or times and upon such terms and conditions as
the Bancorp Board, in its discretion, may determine.

6.4 In each calendar year Employee shall be absent from Bancorp and the
Bank for one period of two consecutive weeks. Such period may include vacation,
leave, sick leave, attendance at seminars or conventions, or any combination
thereof.

7. Retirement From Full-Time Employment.

7.1 If Employee's employment is not otherwise terminated prior thereto,
Employee's last day of employment under the Agreement or any extensions thereof
shall be deemed Employee's date of retirement (the "Retirement Date"), after
which Employee shall be deemed retired from employment by Bancorp. From and
after the Retirement Date, the Agreement shall be of no further force and
effect, and the relationship between Employee and Bancorp shall be governed
exclusively by the DC Agreement.

7.2 If Employee's employment is terminated hereunder prior to the
Retirement Date, Employee's right to payment and benefits under the Agreement
and under the DC Agreement shall be determined in accordance with Section 3 and
Section 8 of the Agreement and under the DC Agreement. Such termination of
employment shall not invalidate the DC Agreement.

7.3 Employee's retirement shall not constitute Employee's tender of
resignation as a Board member or Board committee member of the Board of
Directors of Bancorp or any of its subsidiaries. From and after the Retirement
Date Employee may serve in such positions on the same terms and conditions as
other such members and in accordance with applicable bylaws.

8. Change of Control.

8.1 Employee's rights on termination of employment under Section 3 of
the Agreement, as well as all other rights of Employee under the Agreement and
the DC Agreement or otherwise, shall survive a change of control of Bancorp.

8.2 If a change of control of Bancorp occurs prior to the Retirement
Date, Employee shall have ninety (90) days following the date such change of
control becomes effective to elect to terminate Employee's employment without
cause. If Employee so elects to terminate, Employee shall receive all payments
and benefits due to Employee on termination under the Agreement and under the DC
Agreement. Such payments and benefits shall include, without limitation, the
deferred compensation payments provided under Section 1 of the DC Agreement.

8.3 Employee shall be entitled to the payments and benefits provided
under this Section 8

Page 4 - 1998 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)

<PAGE> 5
whether or not Employee opposed or favored the change in control. Employee's
rights under this Section are in addition to, and not in lieu of, Employee's
rights under Section 7 of the Agreement and under the DC Agreement.

8.4 The following items shall be due and payable immediately at
Employee's election in the event that a change of control occurs:

8.4.1 Nonforfeitable deferred compensation;

8.4.2 Long-term performance plan objective payments, if any,
shall be declared accomplished and earned based upon performance up to the date
of the change of control.

8.5 If Employee is a participant in a restricted stock plan or share
option plan, and such plan is terminated involuntarily as a result of the change
of control, all stock and options shall be declared fully vested and shall be
paid, awarded or otherwise distributed. With respect to any unexercised options
under any stock option plan, such options may be exercised within the period
provided in such plan. Effective as of the date of the change of control, any
holding period established for stock paid as bonus or other compensation shall
be deemed terminated, except as otherwise provided by law.

8.6 As used in this Section, "control" shall mean the acquisition of
twenty-five percent (25%) or more of the voting securities of Bancorp by any
person, or persons acting as a group within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, or to such acquisition of a percentage between
ten percent (10%) and twenty-five percent (25%) if the Board or the Comptroller
of the Currency, the FDIC, or the Federal Reserve Bank have made a determination
that such acquisition constitutes or will constitute control of Bancorp. The
term "person" refers to an individual, corporation, Bank, bank holding company,
or other entity, but excludes any Employee Stock Ownership Plan established for
the benefit of employees of Bancorp or any of its subsidiaries.

9. Post Termination Covenants.

9.1 If Employee terminates his employment without cause, or if
Employee's employment is terminated by Bancorp for cause, then for one year from
the date of such termination Employee will not, without the prior written
consent of Bancorp:

9.1.1 Undertake full or part-time work, either as an employee or
as a consultant, for another financial institution if such work is to be done,
in whole or in part, in or from an office or other work site in Wasco, Hood
River, Jefferson, Deschutes, Sherman or Gilliam Counties, Oregon or in Klickitat
County, Washington; or

9.1.2 Hire for any financial institution or other employer
(including himself) any employee of Bancorp, the Bank or any other subsidiary of
Bancorp, or directly or indirectly cause such an employee to leave his or her
employment to work for another employer, if such employee is to work in or from
an office or other work site in Wasco, Hood River, Jefferson, Deschutes, Sherman
or Gilliam Counties, Oregon or in Klickitat County, Washington.

9.2 The covenants in this Section do not apply if Employee terminates
his employment for cause, or if Employee's employment is terminated by Bancorp
without cause.

10. Miscellaneous.

10.1 Employee's retirement from employment under the Agreement on the
Retirement Date shall not be deemed a retirement or general termination under
any provision of Bancorp's 1996 Stock Incentive Plan or under any 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.

Page 5 - 1998 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)

<PAGE> 6
10.2 Each and every portion of the Agreement is contractual and not a
mere recital, and all recitals shall be deemed incorporated into the Agreement.
The Agreement shall be governed by and interpreted according to Oregon law and
any applicable federal law. The Agreement may not be amended except by a
subsequent written agreement signed by all parties hereto.

10.3 The Agreement contains the entire understanding and agreement of
the parties with respect to the parties' relationship, and all prior
negotiations, discussions or understandings, oral or written, are hereby
integrated herein. No prior negotiations, discussions or agreements not
contained herein or in such documents shall be binding or enforceable against
the parties.

10.4 The Agreement may be signed in several counterparts. The signature
of one party on any counterpart shall bind such party just as if all parties had
signed that counterpart. Each counterpart shall be considered an original. All
counterparts of the Agreement shall together constitute one original document.

10.5 Employee's rights under the Agreement are in addition to Employee's
rights under the Deferred Compensation Agreement of May 1, 1998 between the
parties or any successor agreement thereto.

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.

10.7 Any waiver by any party hereto of any provision of the Agreement,
or of any breach thereof, shall not constitute a waiver of any other provision
or of any other breach. If any provision, paragraph or subparagraph herein shall
be deemed invalid, illegal or unenforceable in any respect, the validity and
enforceability of the remaining provisions, paragraphs and subparagraphs shall
not be affected.

10.8 Any dispute, controversy, claim or difference concerning or arising
from the Agreement or the rights or performance of either party under the
Agreement, including disputes about the interpretation or construction of the
Agreement, shall be settled through binding arbitration in the State of Oregon
and in accordance with the rules of the American Arbitration Association. A
judgment upon the award rendered in such arbitration may be entered in any court
of competent jurisdiction.

10.9 The Agreement supersedes and replaces the Employment Agreement
between Employee and Bancorp of May 1, 1997, and the latter agreement shall be
deemed null and void as of May 1, 1998.

______________________________________
Employee

COLUMBIA BANCORP

By:____________________________________
Chairman

Page 6 - 1998 EMPLOYMENT AGREEMENT (Columbia Bancorp - Terry L. Cochran)

<PAGE> 1
EXHIBIT 10.3

1998 DEFERRED COMPENSATION AGREEMENT

This 1998 Deferred Compensation Agreement (the "Agreement") is made and
entered into this 1st day of May, 1998 by and between Columbia Bancorp, an
Oregon corporation ("Bancorp") and Terry L. Cochran ("Employee").

RECITALS

(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, 2000 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, 2006, 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 has been or shall be
replaced upon maturity as required from time to time to fulfill the terms of the
Agreement, 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 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, 2006, 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, 1998 where such term has not been
extended; (ii) the effective date of termination of Employee's employment by
Bancorp or by

Page 1- 1998 DEFERRED COMPENSATION AGREEMENT (Columbia Bancorp - Terry L.
Cochran)

<PAGE> 2
Employee, with or without cause; or (iii) 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, 2006, Bancorp shall provide
Employee with all medical, dental, disability, vision and life insurance which
Bancorp or the Bank provides to full-time employees.

2. Change of Control.

2.1 If there is a change of control of Bancorp on or at any time prior
to May 15, 2006, 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 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 any provision of Bancorp's 1996 Stock Incentive Plan or under
any 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

Page 2- 1998 DEFERRED COMPENSATION AGREEMENT (Columbia Bancorp - Terry L.
Cochran)

<PAGE> 3
except by a subsequent written agreement signed by all parties hereto.

4.3 The Agreement contains the entire understanding and agreement of the
parties with respect to the parties' relationship, and all prior negotiations,
discussions or understandings, oral or written, are hereby integrated herein. No
prior negotiations, discussions or agreements not contained herein or in such
documents shall be binding or enforceable against the parties.

4.4 The Agreement shall be effective and binding upon the parties as of
and from and after May 1, 1998 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, 1998 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 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 date
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 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.

Page 3- 1998 DEFERRED COMPENSATION AGREEMENT (Columbia Bancorp - Terry L.
Cochran)

<PAGE> 4
4.10 The Agreement supersedes and replaces the Deferred Compensation
Agreement between Employee and Bancorp of May 1, 1997, and the latter agreement
shall be deemed null and void as of May 1, 1998.

______________________________________
Terry L. Cochran

COLUMBIA BANCORP

By:____________________________________
Chairman

Page 4- 1998 DEFERRED COMPENSATION AGREEMENT (Columbia Bancorp - Terry L.
Cochran)

<PAGE> 1
EXHIBIT 21

SUBSIDIARY OF COLUMBIA AND ASSUMED BUSINESS NAMES

Columbia Bancorp has one wholly-owned subsidiary, Columbia River Bank.
Columbia River Bank does business 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.

<PAGE> 1
[MOSS ADAMS LLP LETTERHEAD]

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in this registration statement of our report dated January
23, 1998, relating to the consolidated financial statements of Columbia Bancorp
and subsidiaries, and to the reference to us under the caption "Experts" in the
Prospectus.

MOSS ADAMS LLP

Portland, Oregon
September 24, 1998

<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
CONSOLIDATED FINANCIAL STATEMENTS, DECEMBER 31, 1997.
</LEGEND>
<RESTATED>
<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> 16,728
<INVESTMENTS-MARKET> 17,082
<LOANS> 155,219
<ALLOWANCE> 1,639
<TOTAL-ASSETS> 231,827
<DEPOSITS> 201,568
<SHORT-TERM> 664
<LIABILITIES-OTHER> 3,438
<LONG-TERM> 4,600
0
0
<COMMON> 5,528
<OTHER-SE> 16,029
<TOTAL-LIABILITIES-AND-EQUITY> 231,827
<INTEREST-LOAN> 14,764
<INTEREST-INVEST> 2,994
<INTEREST-OTHER> 386
<INTEREST-TOTAL> 18,144
<INTEREST-DEPOSIT> 6,086
<INTEREST-EXPENSE> 6,270
<INTEREST-INCOME-NET> 11,874
<LOAN-LOSSES> 581
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,092
<INCOME-PRETAX> 5,682
<INCOME-PRE-EXTRAORDINARY> 3,887
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,887
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.55
<YIELD-ACTUAL> 5.96
<LOANS-NON> 1,041
<LOANS-PAST> 414
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 461
<ALLOWANCE-OPEN> 995
<CHARGE-OFFS> 40
<RECOVERIES> 103
<ALLOWANCE-CLOSE> 1,639
<ALLOWANCE-DOMESTIC> 1,639
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>

<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS, JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 18,551
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,230
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,338
<INVESTMENTS-CARRYING> 17,183
<INVESTMENTS-MARKET> 17,169
<LOANS> 172,979
<ALLOWANCE> 1,666
<TOTAL-ASSETS> 253,110
<DEPOSITS> 218,421
<SHORT-TERM> 918
<LIABILITIES-OTHER> 3,900
<LONG-TERM> 7,300
0
0
<COMMON> 5,954
<OTHER-SE> 16,617
<TOTAL-LIABILITIES-AND-EQUITY> 253,110
<INTEREST-LOAN> 8,417
<INTEREST-INVEST> 1,282
<INTEREST-OTHER> 225
<INTEREST-TOTAL> 9,924
<INTEREST-DEPOSIT> 3,206
<INTEREST-EXPENSE> 3,415
<INTEREST-INCOME-NET> 6,509
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,770
<INCOME-PRETAX> 3,366
<INCOME-PRE-EXTRAORDINARY> 2,219
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,219
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.31
<YIELD-ACTUAL> 5.93
<LOANS-NON> 1,145
<LOANS-PAST> 13
<LOANS-TROUBLED> 716
<LOANS-PROBLEM> 200
<ALLOWANCE-OPEN> 1,639
<CHARGE-OFFS> 461
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 1,666
<ALLOWANCE-DOMESTIC> 1,666
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>