FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- ----- OF 1934
For the quarterly period ended September 30, 1997
------------------
- ----- TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ____________ to ____________
Commission file number 0-24302
COLUMBIA BANCORP
(exact name of registrant as specified in its charter)
Maryland 52-1545782
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10480 Little Patuxent Parkway, Columbia, Maryland 21044
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(410) 465-4800
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 2,179,840 shares as of
November 11, 1997.
<PAGE>
COLUMBIA BANCORP
C O N T E N T S
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as of
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income for the Nine Months
and Three Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Stockholders' Equity for the Nine
Months Ended September 30, 1997 and the Years
Ended December 31, 1996 and 1995 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
(2)
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------- -----------------
(unaudited)
<S> <C>
ASSETS
------
Cash and due from banks $ 16,131,913 $ 17,753,174
Federal funds sold 4,843,578 3,477,436
Investment securities (fair value $60,833,984
in 1997 and $39,839,135 in 1996) 60,665,132 39,795,128
Securities available-for-sale 1,691,485 4,353,884
Residential mortgage loans originated-for-sale 3,078,022 1,551,408
Loans:
Commercial 34,425,094 30,517,140
Real estate development and construction 116,736,116 112,837,758
Real estate mortgage:
Residential 10,950,470 11,897,386
Commercial 20,939,064 14,470,139
Retail, principally residential equity
lines of credit 80,787,224 67,730,804
Credit card 1,519,071 1,543,175
------------- -------------
Total loans 265,357,039 238,996,402
Less: Unearned income, net of deferred
origination costs 711,203 1,121,326
Allowance for credit losses 3,624,445 3,292,754
------------- -------------
Loans, net 261,021,391 234,582,322
Other real estate owned 4,576,430 447,550
Property and equipment, net 8,826,518 7,683,598
Prepaid expenses and other assets 9,477,671 7,589,425
------------- -------------
Total assets $ 370,312,140 $ 317,233,925
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest-bearing demand deposits $ 47,229,799 $ 43,980,900
Interest-bearing deposits 246,847,988 210,658,986
------------- -------------
Total deposits 294,077,787 254,639,886
Short-term borrowings 41,331,150 30,127,073
Accrued expenses and other liabilities 1,514,916 1,492,127
------------- -------------
Total liabilities 336,923,853 286,259,086
------------- -------------
Stockholders' Equity:
Common stock, $.01 par value per share; authorized 9,550,000 shares;
outstanding 2,165,795 and 2,148,004 shares,
respectively 21,658 21,480
Additional paid in capital 22,725,880 22,598,578
Retained earnings 10,642,618 8,363,390
Net unrealized loss on securities
available-for-sale (1,869) (8,609)
------------- -------------
Total stockholders' equity 33,388,287 30,974,839
------------- -------------
Total liabilities and
stockholders' equity $ 370,312,140 $ 317,233,925
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
(3)
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Nine Months and Three Months Ended September 30, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------ -----------------------------
1997 1996 1997 1996
----------- ----------- ---------- ----------
<S> <C>
Interest income:
Loans $19,796,219 $17,205,776 $6,943,217 $5,956,311
Investment securities 2,309,836 1,408,011 876,468 524,574
Federal funds sold 160,629 305,807 51,177 59,168
----------- ----------- ---------- ----------
Total interest income 22,266,684 18,919,594 7,870,862 6,540,053
----------- ----------- ---------- ----------
Interest expense:
Deposits 7,306,006 5,893,572 2,613,642 2,012,822
Short-term borrowings 1,027,361 436,376 420,332 202,499
----------- ----------- ---------- ----------
Total interest expense 8,333,367 6,329,948 3,033,974 2,215,321
----------- ----------- ---------- ----------
Net interest income 13,933,317 12,589,646 4,836,888 4,324,732
Provision for credit losses 629,000 549,501 234,000 189,501
----------- ----------- ---------- ----------
Net interest income after
provision for credit losses 13,304,317 12,040,145 4,602,888 4,135,231
----------- ----------- ---------- ----------
Noninterest income:
Gains and fees on sales of mortgage loans 509,394 563,502 228,450 192,146
Fees charged for services 927,501 707,033 338,995 252,303
Other 442,084 238,257 134,364 74,245
----------- ----------- ---------- ----------
Total noninterest income 1,878,979 1,508,792 701,809 518,694
----------- ----------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 5,220,359 4,299,426 1,873,897 1,457,324
Occupancy, net 1,020,690 808,919 358,044 285,899
Equipment 742,983 584,296 258,444 201,174
Marketing 461,488 377,903 110,729 119,384
Data processing 437,060 404,956 163,397 120,544
Cash management services 329,457 342,873 117,788 120,247
Professional fees 302,394 159,959 123,180 69,082
Deposit insurance premiums and assessments 80,799 681,990 28,475 551,676
Net expense (income) on other real estate
owned 166,784 11,040 147,688 (3,799)
Other 1,596,165 1,323,163 522,257 502,624
----------- ----------- ---------- ----------
Total noninterest expense 10,358,179 8,994,525 3,703,899 3,424,155
----------- ----------- ---------- ----------
Income before income taxes 4,825,117 4,554,412 1,600,798 1,229,770
Income tax expense 1,769,000 1,770,400 515,400 478,400
----------- ----------- ---------- ----------
Net income $ 3,056,117 $ 2,784,012 $1,085,398 $ 751,370
=========== =========== ========== ==========
Per common share data:
Net income $ 1.34 $ 1.23 $ 0.47 $ 0.33
Cash dividends declared 0.36 0.30 0.12 0.10
=========== =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
(4)
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Information for the nine months
ended September 30, 1997 is unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
Loss on
Additional Securities Total
Preferred Common Paid-in Retained Available- Stockholders'
Stock Stock Capital Earnings for-Sale Equity
----------- ---------- ------------- ------------- -------------- -----------------
<S> <C>
Balance at December 31, 1994 $ 4,500 $ 10,402 $ 14,211,591 $ 2,965,132 $ (318,548) $ 16,873,077
Cash dividends declared on
Series A preferred stock - - - (454,072) - (454,072)
Cash dividends declared on
common stock - - - (425,889) - (425,889)
Conversion of 444,000 shares of
Series A preferred stock, net of
cash in lieu of fractional shares (4,440) 4,144 170 - - (126)
Issuance of 685,903 shares of
common stock, net of costs
of issuance - 6,859 8,380,840 - - 8,387,699
Redemption for cash of 6,000
shares of Series A preferred
stock (60) - (62,940) - - (63,000)
Stock options exercised - 52 47,277 - - 47,329
Net income - - - 3,428,750 - 3,428,750
Change in net unrealized
loss on securities
available-for-sale - - - - 269,786 269,786
-------------------------------------------------------------------------------------------
Balance at December 31, 1995 - 21,457 22,576,938 5,513,921 (48,762) 28,063,554
Cash dividends declared on
common stock - - - (902,413) - (902,413)
Stock options exercised - 23 21,640 - - 21,663
Net income - - - 3,751,882 - 3,751,882
Change in net unrealized
loss on securities
available-for-sale - - - - 40,153 40,153
-------------------------------------------------------------------------------------------
Balance at December 31, 1996 - 21,480 22,598,578 8,363,390 (8,609) 30,974,839
Cash dividends declared on
common stock - - - (776,889) - (776,889)
Stock options exercised, net of
shares of common stock
surrendered as payment - 145 97,338 - - 97,483
Warrants exercised - 33 29,964 - - 29,997
Net income - - - 3,056,117 - 3,056,117
Change in net unrealized
loss on securities
available-for-sale - - - - 6,740 6,740
-------------------------------------------------------------------------------------------
Balance at September 30, 1997 $ - $ 21,658 $ 22,725,880 $ 10,642,618 $ (1,869) $ 33,388,287
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
(5)
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1997 1996
------------ ------------
(unaudited)
<S> <C>
Cash flows from operating activities:
Net income $ 3,056,117 $ 2,784,012
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 769,532 562,631
Proceeds from the sales of residential
mortgage loans originated-for-sale 33,500,901 36,145,605
Disbursements for residential mortgage loans
originated-for-sale (35,027,515) (36,004,001)
Provision for credit losses 629,000 549,501
Provision for losses on other real estate owned 46,000 9,000
Increase (decrease) in unearned income, net of
origination costs (410,123) 87,520
Equity in net loss of limited partnerships -- 87,390
Increase in prepaid expenses and other assets (875,310) (1,408,545)
Increase in accrued expenses and other liabilities 22,789 241,935
------------ ------------
Net cash provided by operating activities 1,711,391 3,055,048
------------ ------------
Cash flows provided by (used in) investing activities:
Loan disbursements in excess of principal repayments (28,661,823) (37,681,557)
Loan purchases (4,245,078) (3,656,380)
Loan sales 2,155,421 6,114,100
Purchases of investment securities (26,969,340) (22,477,035)
Proceeds from maturities and principal repayments
of investment securities 6,121,183 11,284,266
Proceeds from maturities and principal repayments of
securities available-for-sale 2,690,939 5,225,960
Additions to other real estate owned (272,725) --
Sales of other real estate owned 160,782 80,145
Purchases of property and equipment (1,963,093) (1,234,070)
Sales of property and equipment 64,517 25,064
Proceeds from investments in limited partnerships -- 363,001
Increase in cash surrender value of life insurance (1,022,262) --
Other, net (17,600) --
------------ ------------
Net cash used in investing activities (51,959,079) (41,956,506)
------------ ------------
Cash flows provided by (used in) financing activities:
Net increase in deposits 39,437,901 25,188,573
Increase in short-term borrowings 11,204,077 5,390,799
Cash dividends distributed on common stock (776,889) (644,529)
Proceeds from exercise of stock options and warrants 127,480 14,563
------------ ------------
Net cash provided by financing activities 49,992,569 29,949,406
------------ ------------
Net decrease in cash and cash equivalents (255,119) (8,952,052)
Cash and cash equivalents at beginning of period 21,230,610 28,092,049
------------ ------------
Cash and cash equivalents at end of period $ 20,975,491 $ 19,139,997
============ ============
Supplemental information:
Interest paid on deposits and short-term borrowings $ 8,288,501 $ 6,406,855
Income taxes paid 1,975,000 2,414,750
Transfer of loans to other real estate owned 4,062,937 --
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
(6)
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and for the nine months
ended September 30, 1997 and 1996 is unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements for Columbia Bancorp
(the "Company") have been prepared in accordance with the instructions for Form
10-Q and, therefore, do not include all information and notes necessary for a
fair presentation of financial condition, results of operations and cash flows
in conformity with generally accepted accounting principles. The consolidated
financial statements should be read in conjunction with the audited financial
statements included in the Company's 1996 Annual Report on Form 10-K.
The consolidated financial statements include the accounts of the
Company's subsidiary, The Columbia Bank, and its wholly-owned subsidiaries,
McAlpine Enterprises, Inc. and Howard I, LLP (collectively, the "Bank"). All
significant intercompany balances and transactions have been eliminated.
The consolidated financial statements as of September 30, 1997 and for
the nine months ended September 30, 1997 and 1996 are unaudited but include all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of financial position and results of
operations for those periods. The Consolidated Statements of Income for the
three and nine months ended September 30, 1997 are not necessarily indicative of
the results that will be achieved for the entire year.
NOTE 2 - PER SHARE DATA
Net income per common share is based upon the weighted average number
of common shares outstanding during the periods, adjusted by any outstanding
stock options, warrants, and other instruments determined to be common stock
equivalents. The total weighted average number of shares outstanding for the
nine months ended September 30, 1997 and September 30, 1996 were 2,283,187 and
2,257,105, respectively.
NOTE 3 - COMMITMENTS AND CONTINGENT LIABILITIES
The Company is party to financial instruments with off-balance-sheet
risk in the normal course of business in order to meet the financing needs of
customers. These financial instruments include commitments to extend credit,
standby letters of credit and mortgage loans sold with limited recourse.
The Company applies the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. A summary
of the financial instruments at September 30, 1997 whose contract amounts
represent potential credit risk is as follows:
September 30,
1997
- --------------------------------------------------------------------------
(in thousands)
Commitments to extend credit(1) $117,852
Standby letters of credit 14,987
Limited recourse on mortgage loans sold 5,643
- ----------
(1) Includes unused lines of credit totalling $116.5 million regardless of
whether fee paid and whether adverse change clauses exist. The amount
also includes commitments to extend new credit totalling $1.4 million.
(7)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity
---------
Liquidity describes the ability of the Company to meet financial
obligations, including lending commitments and contingencies, that arise during
the normal course of business. Liquidity is primarily needed to meet the
borrowing and deposit withdrawal requirements of the customers of the Company,
as well as to meet current and planned expenditures.
The Company's major sources of liquidity ("financing activities" as
used in the Consolidated Statements of Cash Flows) are the Bank's deposit base
and stockholders' equity. At September 30, 1997, total deposits were $294.1
million. Core deposits, defined as all deposits except certificates of deposit
of $100,000 or more, totalled $277.7 million or 94.4% of total deposits.
Stockholders' equity totalled $33.4 million at September 30, 1997. Also, the
Bank has established a credit line with the Federal Home Loan Bank of Atlanta
("FHLB") as an additional source of liquidity. At September 30, 1997,
outstanding advances from the FHLB totalled $18.5 million. Collateral must be
pledged to the FHLB before advances can be obtained. At September 30, 1997 the
Company's approved credit limit with the FHLB was $45.0 million. However, the
Company had collateral sufficient to borrow up to $57.9 million. Borrowings
above the approved credit limit require special approval. In addition, liquidity
is also provided through the Company's portfolio of cash, interest-bearing
deposits in other banks, and federal funds sold. Such assets totalled $21.0
million or 5.7% of total assets at September 30, 1997.
Capital Resources
-----------------
The Federal Reserve Board has adopted risk-based guidelines for bank
holding companies. As of September 30, 1997, the minimum ratio of capital to
risk-weighted assets (including certain off-balance-sheet items, such as standby
letters of credit) was 8.0%. At least half of the total capital must be
comprised of common equity, retained earnings and a limited amount of perpetual
preferred stock, after subtracting goodwill and making certain other adjustments
("Tier 1 capital"). The remainder may consist of perpetual debt, mandatory
convertible debt securities, a limited amount of subordinated debt, other
preferred stock and limited amounts of credit loss reserves ("Tier 2 capital").
The maximum amount of supplementary capital elements that qualifies as Tier 2
capital is limited to 100% of Tier 1 capital, net of goodwill and certain other
intangible assets. The Federal Reserve Board also has adopted a minimum leverage
ratio (Tier 1 capital to assets) of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. The
rule indicates that the minimum leverage ratio should be at least 1.0% to 2.0%
higher for holding companies that do not have the highest rating or that are
undertaking major expansion programs. Failure to meet the capital guidelines
could subject a banking institution to a variety of enforcement remedies
available to federal bank regulatory agencies.
The following table summarizes the Company's capital ratios:
Minimum
Columbia Bancorp Regulatory
September 30, 1997 Requirements
----------------------------------------------------------------
Risk-based capital ratios:
Tier 1 capital 10.97% 4.00%
Total capital 12.17 8.00
Tier 1 capital leverage ratios 9.26 3.00
(8)
<PAGE>
MATERIAL CHANGES IN FINANCIAL CONDITION
---------------------------------------
Cash and Due from Banks
- -----------------------
Cash and due from banks represents cash on hand, cash on deposit with
other banks and cash items in the process of collection. As a result of the
Company's cash management services provided to large, sophisticated corporate
customers, which includes processing coin and currency transactions for, and
checks received by, retail customers, the Company's cash balances may fluctuate
more widely on a daily basis and may be higher than industry averages for banks
of a similar asset size.
Loans
- -----
At September 30, 1997, the Company's loan portfolio, net of unearned
income, totaled $264.6 million, or 71.5% of its total assets of $370.3 million.
The categories of loans in the Company's portfolio are commercial, real estate
development and construction, residential and commercial mortgages and consumer.
Since December 31, 1996, total loans have increased $26.4 million, or
11.0%. Growth in retail loans of $13.1 million, representing principally
residential equity lines of credit and second mortgages, accounted for most of
the increase. The remainder of the change was comprised of increases of $6.5
million in commercial mortgages, $3.9 million in real estate development and
construction and $3.9 million in commercial loans.
Real estate development and construction loans constitute the largest
portion of the Company's lending activities, accounting for $116.7 million or
44.1% of the total loan portfolio. The real estate development and construction
portfolio consisted of the following at September 30, 1997:
Amount Percent
- ----------------------------------------------------------------------------
(dollars in thousands)
Residential construction (1) $ 55,549 47.6%
Commercial construction 2,237 1.9
Residential land development 47,806 41.0
Residential land acquisition (2) 11,144 9.5
---------- -----------
$ 116,736 100.0%
========== ===========
- ----------
(1) Includes $14.9 million of loans to individuals for construction of their
primary personal residence.
(2) Includes $2.6 million of loans to individuals for the purchase of
residential building lots.
The real estate development and construction loan portfolio primarily
represents loans for the construction of single family dwellings. At September
30, 1997, loans to individuals for the construction of their primary personal
residences accounted for $14.9 million of the $55.5 million residential
construction portfolio. These loans are typically secured by the property under
construction, frequently include additional collateral, such as a second
mortgage on the borrower's present home, and commonly have maturities of six to
twelve months. The remaining $40.6 million of residential construction loans
represented loans to residential builders and developers. Approximately 52% of
these loans were for the construction of residential homes for which a binding
sales contract existed and the prospective buyers had been pre-qualified for
permanent mortgage financing by either third-party lenders, mortgage companies
or other financial institutions, or the Company. To date, permanent mortgage
loan financing has primarily been provided by third-party lenders. The Company
attempts to obtain the permanent mortgage loan under terms, conditions and
documentation standards which permit the sale of the mortgage loan in the
secondary mortgage loan market. The Company's practice is to immediately sell
substantially all residential mortgage loans in the secondary market with
servicing released.
Loans for the development of residential land represented the second
largest component of the real estate development and construction loan portfolio
at September 30, 1997. Generally, development loans are
(9)
<PAGE>
extended only when evidence is provided that the lots under development will be
sold to builders satisfactory to the Company.
The Company makes residential real estate development and
construction loans generally to provide interim financing on property during the
construction period. These loans are typically made for 80% or less of the
appraised value of the property. Residential real estate development and
construction loan funds are disbursed periodically as pre-specified stages of
completion are attained based upon site inspections. Interest rates on these
loans are usually adjustable.
The Company has limited losses in this area of lending through the
monitoring of development and construction loans with on-site inspections and
control of disbursements on loans in process. Development and construction loans
are secured by the properties under development or construction and personal
guarantees are typically obtained. Further, to assure that reliance is not
placed solely upon the value of the underlying collateral, the Company considers
the financial condition and reputation of the borrower and any guarantors, the
amount of the borrower's equity in the project, independent appraisals, cost
estimates and pre-construction sales information.
The following table provides information concerning nonperforming
assets and past-due loans.
September 30, December 31, September 30,
1997 1996 1996
- --------------------------------------------------------------------------------
(dollars in thousands)
Nonaccrual loans (1) $ 504 $3,851 $3,720
Other real estate owned 4,576 448 --
------ ------ ------
Total nonperforming assets $5,080 $4,299 $3,720
====== ====== ======
Loans past-due 90 days or more $ 115 $ 59 $ 143
====== ====== ======
- ----------
(1) Loans are placed in nonaccrual status when they are past-due 90
days as to either principal or interest or when, in the opinion of
management, the collection of all principal and interest is in
doubt. Management may grant a waiver from nonaccrual status for a
90-day past-due loan which is both well secured and in the process
of collection. A loan remains in nonaccrual status until the loan
is current as to payment of both principal and interest and the
borrower demonstrates the ability to pay and remain current.
The largest component of nonperforming assets at September 30, 1997 was
the Company's portfolio of other real estate owned totalling $4.6 million. At
September 30, 1997, other real estate owned consisted primarily of a residential
development project which included 108 single family detached building lots and
122 townhouse building lots in various stages of completion located in Calvert
County, Maryland, with a carrying value of $3.1 million. Also included in other
real estate owned was a partially completed condominium building containing 24
residential condominium units with a carrying value of $873,000, four commercial
condominium units with a carrying value of $279,000, and two unimproved building
pad sites for the construction of residential condominium units with a carrying
value of $304,000. All properties are currently being marketed for sale. As of
November 11, 1997, ten of the 24 residential condominium units were under
contract of sale.
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114") and
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--Income
Recognition Disclosures" ("SFAS No. 118"), a loan is determined to be impaired
when, based on current information and events, it is probable that the Company
will be unable to collect all amounts due according to the contractual terms of
the loan agreement. A loan is not considered impaired during a period of delay
in payment if the Company expects to collect all amounts due, including interest
past-due. The Company generally considers a period of delay in payment to
include delinquency up to 90 days.
(10)
<PAGE>
SFAS No. 114 does not apply to larger groups of smaller-balance
homogeneous loans such as consumer installment, residential first and second
mortgage loans and credit card loans. These loans are collectively evaluated for
impairment. The Company's impaired loans are therefore comprised primarily of
commercial loans, including commercial mortgage loans, and real estate
development and construction loans. In addition, impaired loans are generally
loans which management has placed in nonaccrual status since loans are generally
placed in nonaccrual status on the earlier of the date that management
determines that the collection of principal and/or interest is in doubt or the
date that principal or interest is 90 days or more past-due. A loan may be
removed from impaired status if it has a demonstrated period of performance of
at least six months and if management believes that it is probable that all
amounts will be collected in accordance with the contractual terms of the loan
agreement.
Impaired loans at September 30, 1997 totalled $896,000 and were all
collateral dependent loans. Collateral dependent loans are measured based on the
fair value of the collateral. There were no impaired loans at September 30, 1997
with an allocated valuation allowance. An impaired loan is charged-off when the
loan, or a portion thereof, is considered uncollectible.
At September 30, 1997, management had identified two loans totalling
approximately $306,000 which, while not adversely classified, had exhibited
potential weaknesses. These weaknesses may at some future date result in a
reduced likelihood of repayment. One of these loans, totalling $262,000, is
secured by residential real estate. These loans are subject to an increased
level of monitoring by management in accordance with the Company's established
credit policies and procedures.
(11)
<PAGE>
Allowance for Credit Losses
- ---------------------------
The Company provides for credit losses through the establishment of an
allowance for credit losses (the "Allowance") by provisions charged against
earnings. Based upon management's evaluation, monthly provisions are made to
maintain the Allowance at a level adequate to absorb potential losses within the
loan portfolio. The factors used by management in determining the adequacy of
the Allowance include the historical relationships among loans outstanding;
credit loss experience and the current level of the Allowance; a continuing
evaluation of nonperforming loans and loans classified by management as having
potential for future deterioration taking into consideration collateral value
and the financial strength of the borrower and guarantors; and a continuing
evaluation of the present and future economic environment. Regular review of the
loan portfolio's quality is conducted by the Company's staff. In addition,
independent consultants, bank regulatory agencies and independent accountants
periodically review the loan portfolio. At September 30, 1997 the Allowance was
1.37% of total loans, net of unearned income. The Allowance at September 30,
1997 is considered by management to be sufficient to address the possible risks
in the loan portfolio given current conditions and information.
The changes in the Allowance are presented in the following table.
Nine months ended September 30,
-------------------------------
1997 1996
- --------------------------------------------------------------------------------
(dollars in thousands)
Allowance for credit losses -
beginning of period $ 3,293 $ 2,929
Provision for credit losses 629 550
Charge-offs (336) (108)
Recoveries 38 30
------- -------
Allowance for credit losses -
end of period $ 3,624 $ 3,401
======= =======
Allowance as a percentage of loans
receivable, net of unearned income 1.37% 1.51%
Allowance as a percentage of nonperforming
loans and loans past-due 90 days or more (1) 585.46% 88.00%
======= =======
- ----------
(1) There is no direct relationship between the size of the
Allowance and the related provision for credit losses, and the
nonperforming and past-due loans. Accordingly, the ratio of
Allowance to nonperforming and past-due loans may tend to
fluctuate significantly.
(12)
<PAGE>
RESULTS OF OPERATIONS
---------------------
The Company reported net income of $1.1 million and $3.1 million for
the three months and nine months ended September 30, 1997, representing net
income per share of $.47 and $1.34, respectively. Net income was $751,000 and
$2.8 million for the corresponding periods in 1996, representing net income per
share of $.33 and $1.23, respectively.
Net Interest Income
- -------------------
Net interest income totalled $13.9 million for the nine months ended
September 30, 1997, as compared to $12.6 million for the same period in 1996.
Improvement in net interest income was primarily the result of continued growth
in the loan portfolio, as average loans, net of unearned income, increased $43.5
million, or 20.8%, during the nine months ended September 30, 1997 as compared
to the same period in 1996. Growth in net interest income was mitigated by a
decrease in the net interest margin from 6.68% for the nine months ended
September 30, 1996 to 6.01% for the nine months ended September 30, 1997, which
resulted from competitive pressure on both loan and deposit pricing and a larger
nonaccrual loan portfolio on average. This fluctuation in net interest margin
was consistent in the three months ended September 30, 1997.
The following table provides further analysis of the increase in net
interest income:
Nine months ended September 30, 1997
compared to the nine months ended
September 30, 1996
- --------------------------------------------------------------------------------
Increase/(Decrease)
due to (1):
Increase -------------------
(Decrease) Rate Volume
--------------------------------
(in thousands)
Interest income:
Loans $ 2,590 (387) 2,977
Investment securities and
securities available-for-sale 902 69 833
Federal funds sold (145) 3 (148)
------- ------- -------
Total interest income 3,347 (315) 3,662
------- ------- -------
Interest expense:
Deposits 1,412 206 1,206
Short-term borrowings 591 44 547
------- ------- -------
Total interest expense 2,003 250 1,753
------- ------- -------
Net interest income $ 1,344 (565) 1,909
======= ======= =======
- ----------
(1) The changes in interest income and interest expense due to
both rate and volume have been allocated to rate and volume
changes in proportion to the absolute dollar amounts of the
change in each.
(13)
<PAGE>
Noninterest Income
- ------------------
Noninterest income totalled $702,000 for the three months ended
September 30, 1997 as compared to $519,000 for the corresponding period in 1996,
and $1.9 million for the nine months ended September 30, 1997 as compared to
$1.5 million for the same period in 1996. Growth in noninterest income primarily
reflected increases in fees charged for services of $87,000 and $220,000 for the
three months and nine months ended September 30, 1997 as compared to the same
periods in 1996. The increases resulted from an increasing deposit account base
as well as improved business activity associated with the Company's cash
management services. A second component of the growth in noninterest income was
an increase in the cash surrender value of life insurance policies taken on key
officers (excluding insurance purchases) of $56,000 and $180,000 for the three
months and nine months ended September 30, 1997.
Noninterest Expense
- -------------------
Noninterest expense for the three months and nine months ended
September 30, 1997 increased $280,000 or 8.1% and $1.4 million or 15.2% over the
corresponding periods in 1996. The increase in noninterest expense corresponded
with increased business activity, including related expansion. Specifically,
salaries and employee benefits increased $417,000 and $921,000 during the three
month and nine month periods ended September 30, 1997 as compared to the same
periods in 1996 and primarily represented the net addition of 29 employees since
September 30, 1996. Growth in the employee base has been necessary to
accommodate increased business activity, including the addition of two
full-service branch facilities. A third full-service branch facility is
scheduled to open in mid-November, 1997. Occupancy costs increased $72,000 and
$212,000 during the three months and nine months ended September 30, 1997 as
compared to 1996 as a result of these expansion efforts. In addition, equipment
costs increased $57,000 and $158,000 during the three months and nine months
ended September 30, 1997 as compared to 1996, also reflecting general expansion.
Professional fees increased $54,000 and $142,000 for the three months
and nine months ended September 30, 1997, as compared to the same period in
1996, reflecting legal fees and collection efforts related primarily to
nonperforming assets. Net expense on other real estate owned increased $151,000
and $156,000 over the corresponding periods in 1996 as a result of marketing,
operating and disposal costs related to four projects transferred to other real
estate owned during the year.
The increase in noninterest expense was mitigated by decreases of
$523,000 and $601,000 in deposit insurance premiums and assessments for the
three months and nine months ended September 30, 1997. These decreases were
primarily the result of the special one-time deposit insurance assessment of
$487,000 pre-tax recorded by the Company in September, 1996, as mandated by
Congress in an effort to recapitalize the SAIF. Subsequent to this charge and
effective October 1, 1996, the Company's FDIC insurance premium associated with
deposits insured by the SAIF fell from 23 cents per $100 of deposits to zero.
Also effective October 1, 1996, the Company began paying a Financing Corporation
("FICO") assessment. As of September 30, 1997, this assessment was 1.26 cents
per $100 of BIF deposits and 6.32 cents per $100 of SAIF deposits.
Tax Expense
- -----------
The Company's effective tax rate declined from 38.9% for the nine
months ended September 30, 1996 to 36.7% for the nine months ended September 30,
1997 as the result of changes in state tax laws. The effect of the change for
1997 was recorded in the third quarter.
(14)
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
----------------------------------
Earnings per Share
- ------------------
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share,"
which is effective for the financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and replaces the presentation of primary
EPS with a presentation of basic EPS. It requires dual presentation of basic and
diluted EPS on the face of the consolidated statement of income and the
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Earlier
application is not permitted but disclosure of pro forma EPS amounts computed
using the standards established by SFAS No. 128 is permitted in the notes to
financial statements for periods ending prior to the effective date. Management
believes the adoption of the provisions of this statement will not have a
significant effect on the Company's EPS.
Reporting Comprehensive Income
- ------------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" (SFAS No. 130). SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. It does not, however, specify when to recognize or
how to measure items that make up comprehensive income. SFAS No. 130 is
effective for both interim and annual periods beginning after December 15, 1997.
Earlier application is permitted. Comparative financial statements provided for
earlier periods are required to be reclassified to reflect the provisions of
this statement. Management has not determined when it will adopt the provisions
of SFAS No. 130 but believes that it will not have a material effect on the
financial condition or results of operations of the Company.
(15)
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On September 29, 1997, the Board of Directors of the Company
declared a $.12 per share cash dividend to common stockholders of
record on October 15, 1997, payable October 27, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K are set
forth below.
Exhibit No. Reference
----------- ---------
27.0 Financial Data Schedule Page 18
(b) Reports on Form 8-K
None
(16)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLUMBIA BANCORP
PRINCIPAL EXECUTIVE OFFICER:
November 13, 1997 John M. Bond, Jr.
____________________ ____________________________
Date President and
Chief Executive Officer
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:
November 13, 1997 John A. Scaldara, Jr.
____________________ ____________________________
Date Executive Vice President,
Corporate Secretary and
Chief Financial Officer
(17)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,131,913
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,843,578
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,691,485
<INVESTMENTS-CARRYING> 60,665,132
<INVESTMENTS-MARKET> 60,833,984
<LOANS> 267,723,858
<ALLOWANCE> (3,624,445)
<TOTAL-ASSETS> 370,312,140
<DEPOSITS> 294,077,787
<SHORT-TERM> 41,331,150
<LIABILITIES-OTHER> 1,514,916
<LONG-TERM> 0
0
0
<COMMON> 21,658
<OTHER-SE> 33,366,629
<TOTAL-LIABILITIES-AND-EQUITY> 370,312,140
<INTEREST-LOAN> 19,796,219
<INTEREST-INVEST> 2,309,836
<INTEREST-OTHER> 160,629
<INTEREST-TOTAL> 22,266,684
<INTEREST-DEPOSIT> 7,306,006
<INTEREST-EXPENSE> 8,333,367
<INTEREST-INCOME-NET> 13,933,317
<LOAN-LOSSES> 629,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,358,179
<INCOME-PRETAX> 4,825,117
<INCOME-PRE-EXTRAORDINARY> 4,825,117
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,056,117
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
<YIELD-ACTUAL> 6.01
<LOANS-NON> 503,727
<LOANS-PAST> 115,295
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 305,884
<ALLOWANCE-OPEN> (3,292,754)
<CHARGE-OFFS> 335,766
<RECOVERIES> 38,457
<ALLOWANCE-CLOSE> (3,624,445)
<ALLOWANCE-DOMESTIC> (3,624,445)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
