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 March 31, 1998
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: 2,285,131 shares as of
May 12, 1998.
(1)
<PAGE>
COLUMBIA BANCORP
C O N T E N T S
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S><C>
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as of
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Stockholders' Equity for the Three
Months Ended March 31, 1998 and the Years
Ended December 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
(2)
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------------- -----------------
(unaudited)
<S><C>
ASSETS
Cash and due from banks $ 16,648,181 $ 13,497,010
Federal funds sold 4,947,848 2,013,538
Investment securities (fair value $69,268,230
in 1998 and $65,149,749 in 1997) 69,037,369 64,970,889
Securities available-for-sale 1,332,650 1,674,464
Residential mortgage loans originated-for-sale 15,171,035 6,557,090
Loans:
Commercial 37,005,483 37,518,405
Real estate development and construction 113,341,627 110,413,134
Real estate mortgage:
Residential 10,295,548 11,077,563
Commercial 20,908,554 21,146,275
Retail, principally residential equity
lines of credit 82,233,374 84,039,255
Credit card 1,570,035 1,639,070
---------------- -----------------
Total loans 265,354,621 265,833,702
Less: Unearned income, net of
origination costs 682,487 640,189
Allowance for credit losses 3,678,044 3,631,664
---------------- -----------------
Loans, net 260,994,090 261,561,849
Other real estate owned 4,403,745 4,621,873
Property and equipment, net 9,001,121 9,125,396
Prepaid expenses and other assets 9,982,258 9,429,002
---------------- -----------------
Total assets $391,518,297 $373,451,111
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 54,248,390 $ 56,584,646
Interest-bearing deposits 266,916,409 256,772,797
---------------- -----------------
Total deposits 321,164,799 313,357,443
Short-term borrowings 32,508,015 23,725,237
Accrued expenses and other liabilities 2,513,563 1,983,617
---------------- -----------------
Total liabilities 356,186,377 339,066,297
---------------- -----------------
Stockholders' equity:
Common stock, $.01 par value per share; authorized 9,550,000 shares;
outstanding 2,220,254 and 2,200,165 shares, respectively 22,203 22,002
Additional paid in capital 23,100,986 22,918,578
Retained earnings 12,208,387 11,445,351
Accumulated other comprehensive income 344 (1,117)
---------------- -----------------
Total stockholders' equity 35,331,920 34,384,814
---------------- -----------------
Total liabilities and
stockholders' equity $391,518,297 $373,451,111
================ =================
</TABLE>
See accompanying notes to consolidated financial statements.
(3)
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1998 1997
-------------- ---------------
<S><C>
Interest income:
Loans $7,022,518 $6,174,766
Investment securities 995,616 662,408
Federal funds sold 31,253 51,085
-------------- ---------------
Total interest income 8,049,387 6,888,259
-------------- ---------------
Interest expense:
Deposits 2,730,001 2,243,115
Short-term borrowings 404,547 292,504
-------------- ---------------
Total interest expense 3,134,548 2,535,619
-------------- ---------------
Net interest income 4,914,839 4,352,640
Provision for credit losses 84,000 210,000
-------------- ---------------
Net interest income after
provision for credit losses 4,830,839 4,142,640
-------------- ---------------
Noninterest income:
Gains and fees on sales of mortgage loans 475,298 125,488
Fees charged for services 294,438 275,903
Other 204,060 161,600
-------------- ---------------
Total noninterest income 973,796 562,991
-------------- ---------------
Noninterest expense:
Salaries and employee benefits 2,294,113 1,602,872
Occupancy, net 479,358 320,749
Equipment 286,384 236,294
Marketing 167,752 159,672
Data processing 180,693 132,729
Cash management services 71,470 91,450
Professional fees 80,850 51,238
Deposit insurance premiums and
assessments 30,570 25,038
Net expense on other real estate owned 2,664 23,686
Other 540,910 471,249
-------------- ---------------
Total noninterest expense 4,134,764 3,114,977
-------------- ---------------
Income before income taxes 1,669,871 1,590,654
Income tax expense 596,000 619,100
-------------- ---------------
Net income 1,073,871 971,554
Other comprehensive income, net of tax:
Unrealized gains on securities available-
for-sale arising during period 1,461 2,861
-------------- ---------------
Comprehensive income $1,075,332 $ 974,415
============== ===============
Per common share data:
Net income: Basic $ 0.49 $ 0.45
Diluted 0.46 0.43
Cash dividends declared $ 0.14 $ 0.12
============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
(4)
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Information for the three months
ended March 31, 1998 is unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders'
Stock Capital Earnings Income Equity
------------- ----------------- ------------------ ---------------- -----------------
<S><C>
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
Other comprehensive income - - - 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 - - (1,085,570) - (1,085,570)
Stock options exercised 775 708,295 - - 709,070
Common stock exchanged (253) (744,597) - - (744,850)
Tax benefit of nonqualified
stock options exercised - 356,302 - - 356,302
Net income - - 4,167,531 - 4,167,531
Other comprehensive income - - - 7,492 7,492
------------- ----------------- ------------------ ---------------- -----------------
Balance at December 31, 1997 22,002 22,918,578 11,445,351 (1,117) 34,384,814
Cash dividends declared on
common stock - - (310,835) - (310,835)
Stock options exercised 201 182,408 - - 182,609
Net income - - 1,073,871 - 1,073,871
Other comprehensive income - - - 1,461 1,461
------------- ----------------- ------------------ ---------------- -----------------
Balance at March 31, 1998 $ 22,203 23,100,986 12,208,387 344 35,331,920
============= ================= ================== ================ =================
</TABLE>
See accompanying notes to consolidated financial statements.
(5)
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1998 1997
--------------- -----------------
(unaudited)
<S><C>
Cash flows from operating activities:
Net income $ 1,073,871 $ 971,554
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 277,655 223,581
Provision for credit losses 84,000 210,000
Provision for losses on other real estate owned 15,000 -
Gains on sales of loans (475,298) (125,488)
Proceeds from the sales of residential
mortgage loans originated-for-sale 31,985,534 8,567,185
Disbursements for residential mortgage loans
originated-for-sale (40,124,181) (8,436,604)
Increase (decrease) in unearned income, net of
origination costs 42,298 (281,379)
Decrease (increase) in prepaid expenses and other assets (500,373) 648,737
Increase (decrease) in accrued expenses and other
liabilities 527,330 (346,465)
--------------- -----------------
Net cash provided by (used in) operating activities (7,094,164) 1,431,121
--------------- -----------------
Cash flows provided by (used in) investing activities:
Loan disbursements in excess of principal repayments (3,558,938) (6,253,106)
Loan purchases (385,688) (547,797)
Loan sales 4,100,272 582,980
Purchases of investment securities (9,256,870) (8,992,230)
Purchases of investment securities available-for-sale (157,400) (17,600)
Proceeds from maturities and principal repayments
of investment securities 5,199,071 1,665,327
Proceeds from maturities and principal repayments of
securities available-for-sale 500,238 1,107,362
Additions to other real estate owned (155,431) -
Sales of other real estate owned 644,374 -
Purchases of property and equipment (161,963) (676,714)
Increase in cash surrender value of life insurance (52,544) (36,205)
--------------- -----------------
Net cash used in investing activities (3,284,879) (13,167,983)
--------------- -----------------
Cash flows provided by (used in) financing activities:
Net increase in deposits 7,807,356 24,389,533
Increase (decrease) in short-term borrowings 8,782,778 (12,977,234)
Cash dividends distributed on common stock (308,219) (257,759)
Proceeds from stock options exercised 182,609 3,099
--------------- -----------------
Net cash provided by financing activities 16,464,524 11,157,639
--------------- -----------------
Net decrease in cash and cash equivalents 6,085,481 (579,223)
Cash and cash equivalents at beginning of period 15,510,548 21,230,610
--------------- -----------------
Cash and cash equivalents at end of period $ 21,596,029 $ 20,651,387
=============== =================
Supplemental information:
Interest paid on deposits and short-term borrowings $ 3,198,297 $ 2,620,545
Income taxes paid 125,000 --
Transfer of loans to other real estate owned 285,815 942,130
=============== =================
See accompanying notes to consolidated financial statements.
(6)
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and for the three months
ended March 31, 1998 and 1997 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 1997 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.
Effective January 1, 1998, management adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. It requires all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed in
equal prominence with other financial statements. It requires that an enterprise
display an amount representing total comprehensive income for each period. It
does not require per share amounts of comprehensive income to be disclosed. The
adoption of the provisions of SFAS No. 130 did not have a material impact on the
financial condition or results of operations of the Company.
The consolidated financial statements as of March 31, 1998 and for the
three months ended March 31, 1998 and 1997 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 months ended March 31, 1998 are not necessarily indicative of the results
that will be achieved for the entire year.
NOTE 2 - PER SHARE DATA
Information relating to the calculations of earnings per common share
is summarized as follows:
Three Months Ended March 31,
-----------------------------------------------------------
1998 1997
-----------------------------------------------------------
Basic Diluted Basic Diluted
-------------- -------------- ------------- ---------------
Net Income $1,073,871 $1,073,871 $ 971,554 $ 971,554
============== ============== ============= ===============
Weighted average shares outstanding 2,211,395 2,211,395 2,148,218 2,148,218
Dilutive securities -- 101,610 -- 130,066
-------------- -------------- ------------- ---------------
Adjusted weighted average shares used in EPS
computation 2,211,395 2,313,005 2,148,218 2,278,284
============== ============== ============= ===============
Net income per common share $ 0.49 $ 0.46 $ 0.45 $ 0.43
============== ============== ============= ===============
(7)
<PAGE>
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 March 31, 1998 whose contract amounts represent
potential credit risk is as follows:
March 31,
1998
-------------------------------------------------------------------
(in thousands)
Commitments to extend credit (1) $131,643
Standby letters of credit 15,377
Limited recourse on mortgage loans sold 469
--------------------------
(1) Includes unused lines of credit totalling $130.2 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.
(8)
<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 March 31, 1998, total deposits were $321.2 million.
Core deposits, defined as all deposits except certificates of deposit of
$100,000 or more, totalled $305.2 million or 95.0% of total deposits.
Stockholders' equity totalled $35.3 million at March 31, 1998. Also, the Bank
has established a credit line with the Federal Home Loan Bank of Atlanta
("FHLB") as an additional source of liquidity. At March 31, 1998, outstanding
advances from the FHLB totalled $11.5 million. Collateral must be pledged to the
FHLB before advances can be obtained. At March 31, 1998 the Company's approved
credit limit with the FHLB was $45.0 million. However, the Company had
collateral sufficient to borrow up to $83.1 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 $21.6 million or 5.5%
of total assets at March 31, 1998.
Capital Resources
-----------------
The Federal Reserve Board has adopted risk-based guidelines for bank
holding companies. As of March 31, 1998, 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
March 31, 1998 Requirements
- ---------------------------------- ------------------------- -----------------
Risk-based capital ratios:
Tier 1 capital 11.52% 4.00%
Total capital 12.72 8.00
Tier 1 capital leverage ratios 9.21 3.00
(9)
<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 March 31, 1998, the Company's loan portfolio, net of unearned
income, totalled $264.7 million, or 67.6% of its total assets of $391.5 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, 1997, total loans decreased $479,000, or .2%. Real
estate development and construction loans increased $2.9 million, or 2.6% since
December 31, 1997. This was partially offset, however, by decreases of $1.8
million in equity lines of credit and second mortgages and $782,000 in
residential first mortgages, resulting primarily from heavy refinancing
activity.
Real estate development and construction loans constitute the largest
portion of the Company's lending activities, and consisted of the following at
March 31, 1998:
Amount Percent
-----------------------------------------------------------------
(dollars in thousands)
Residential land development $ 52,880 46.7%
Residential construction (1) 47,639 42.0
Residential land acquisition (2) 8,474 7.5
Commercial construction 4,349 3.8
------- ---------
$113,342 100.0%
======== =========
--------------------
(1) Includes $9.7 million of loans to individuals for construction
of their primary personal residence.
(2) Includes $2.4 million of loans to individuals for the purchase
of residential building lots.
The Company provides interim residential real estate development and
construction loans to builders, developers and persons who will ultimately
occupy the single family dwellings. Loans for the development of residential
land represented the largest component of the real estate development and
construction loan portfolio at March 31, 1998, totalling $52.9 million or 46.7%
of the portfolio. Generally, development loans are extended only when evidence
is provided that the lots under development will be or have been sold to
builders satisfactory to the Company. These loans are generally extended for a
period of time sufficient to allow for the clearing and grading of the land and
the installation of water, sewer and roads, typically a minimum of 18 months to
three years. In addition, residential land development loans generally carry a
loan to value ratio not to exceed 75% of the value of the project as completed.
Residential construction loans constitute the second largest component
of the real estate development and construction loan portfolio, representing
primarily loans for the construction of single family dwellings. At March 31,
1998, loans to individuals for the construction of primary personal residences
accounted for $9.7 million of the $47.6 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 $37.9 million of residential construction loans represented loans
to residential builders and developers. Approximately 54% 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
(10)
<PAGE>
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.
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 loan 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.
March 31, December 31, March 31,
1998 1997 1997
-----------------------------------------------------------------------------
(dollars in thousands)
Nonaccrual loans (1) $ 1,708 $ 599 $ 3,867
Other real estate owned 4,404 4,622 1,390
-------- -------- --------
Total nonperforming assets $ 6,112 $ 5,221 $ 5,257
======== ======== ========
Loans past-due 90 days or more $ 152 $ 63 $ 133
======== ======== ========
---------------------
(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 March 31, 1998 was the
Company's portfolio of other real estate owned totalling $4.4 million. At March
31, 1998, other real estate owned included a land development project consisting
of 228 residential building lots with a carrying value of $3.0 million net of
participations sold, a 24 unit residential condominium construction project with
18 remaining units and a carrying value of $752,000 net of participations sold,
two residential condominium building sites with a carrying value of $304,000 and
certain other properties acquired in satisfaction of loans. The land development
project is being completed under the direction of the Company. Currently, 141
lots are under contract of sale for settlement through July 2000, and the
remainder of the project is being marketed for sale. Construction of the
residential condominium project is complete and 7 units are under contract of
sale and are scheduled for settlement in the second quarter of 1998. The
remaining units are being marketed for sale. The condominium building sites are
under contract of sale for settlement in 1998.
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.
(11)
<PAGE>
Large groups of smaller-balance homogeneous loans such as consumer
installment, residential first and second mortgage loans and credit card 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 March 31, 1998 totalled $1.8 million 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 March 31, 1998
with an allocated valuation allowance. An impaired loan is charged-off when the
loan, or a portion thereof, is considered uncollectible.
At March 31, 1998, management had identified two loans totalling
approximately $1.0 million which, while not adversely classified, had exhibited
potential weaknesses. These weaknesses may at some future date result in a
reduced likelihood of repayment. These loans are subject to an increased level
of monitoring by management in accordance with the Company's established credit
policies and procedures.
(12)
<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 March 31, 1998 the Allowance was
1.39% of total loans, net of unearned income. The Allowance at March 31, 1998 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.
Three months ended March 31,
----------------------------------
1998 1997
- -------------------------------------------------------------------------------
(dollars in thousands)
Allowance for credit losses--
beginning of period $ 3,632 $ 3,293
Provision for credit losses 84 210
Charge-offs (43) (123)
Recoveries 5 8
-------- --------
Allowance for credit losses--
end of period $ 3,678 $ 3,388
======== ========
Allowance as a percentage of loans
receivable, net of unearned income 1.39% 1.39%
Allowance as a percentage of nonperforming
loans and loans past-due 90 days or more (1) 197.74% 84.70%
======== ========
- ----------------------
(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.
(13)
<PAGE>
Results of Operations
---------------------
The Company reported net income of $1.1 million for the three months
ended March 31, 1998, representing diluted net income per share of $.46. Net
income was $972,000 for the corresponding period in 1997, representing diluted
net income per share of $.43.
Net Interest Income
- -------------------
Net interest income totalled $4.9 million for the three months ended
March 31, 1998, as compared to $4.4 million for the same period in 1997.
Improvement in net interest income was primarily the result of an increase in
the average balance of loans and investment securities outstanding during the
three months ended March 31,1998 as compared to the same period in 1997. Average
loans outstanding, net of unearned income, increased $38.8 million or 16.2% for
the three months ended March 31,1998 as compared to the same period in 1997,
representing growth in the Company's commercial and second mortgage portfolios,
as well as in loans originated for sale. Average investment securities and
securities available-for-sale increased $20.5 million over March 31, 1997 as a
result of increased investments in U.S. Treasury securities.
The increase in net interest income due to average earning assets was
mitigated by higher average balances in deposits and short-term borrowings.
Average deposits outstanding during the three months ending March 31, 1998
increased $41.5 million or 19.0% as compared to the same period in 1997, while
average short-term borrowings increased $7.7 million or 33.2%. Furthermore, the
net interest margin declined from 6.05% for the three months ended March 31,
1997 to 5.71% for the same period in 1998. The decline in the net interest
margin was the result of competitive pressure on both loan and deposit pricing.
The following table provides further analysis of the increase in net
interest income:
Three months ended March 31, 1998
compared to the three months ended
March 31, 1997
- --------------------------------------------------------------------------------
Increase/(Decrease)
due to (2):
Increase -------------------------
(Decrease) Rate Volume
--------------------------------------
(in thousands)
Interest income:
Loans (1)(3) $ 845 (105) 950
Investment securities and
securities available-for-sale(1) 331 14 317
Federal funds sold (20) -- (20)
------ ---- -----
Total interest income 1,156 (91) 1,247
------ ---- -----
Interest expense:
Deposits 487 23 464
Short-term borrowings 112 19 93
------ ---- -----
Total interest expense 599 42 557
------ ---- -----
Net interest income $ 557 (133) 690
====== ==== =====
(1) Interest on tax exempt loans and securities is presented on a fully-taxable
equivalent basis.
(2) 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.
(3) Includes interest on loans originated for sale.
(14)
<PAGE>
Noninterest Income
- ------------------
Noninterest income totalled $974,000 for the three months ended March
31, 1998 as compared to $563,000 for the corresponding period in 1997. Growth in
noninterest income primarily reflected an increase in gains on sales of mortgage
loans originated for sale of $350,000 for the three months ended March 31, 1998
as compared to the same period in 1997. The increase was a result of higher loan
sale volume, as total loans sold increased from $8.6 million during the three
months ended March 31, 1997 to $32.0 million for the same period in 1998. 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 $59,000 for the three months ended March 31, 1998, as
compared to $40,000 for the same period in 1997.
Noninterest Expense
- -------------------
Noninterest expense for the three months ended March 31, 1998 increased
$1.0 million or 32.7% over the corresponding period in 1997. The increase in
noninterest expense corresponded with increased business activity, including
related expansion. Specifically, salaries and employee benefits increased
$691,000 during the three month period ended March 31, 1998 as compared to the
same period in 1997 and primarily represented the net addition of 27 employees
since March 31, 1997. Growth in the employee base has been necessary to
accommodate increased business activity, including the addition of three
full-service branch facilities. Occupancy costs and equipment costs increased
$159,000 and $50,000, respectively, during the three months ended March 31, 1998
as compared to 1997, also as a result of these expansion efforts.
Tax Expense
- -----------
The Company's effective tax rate declined from 38.9% for the three
months ended March 31, 1997 to 35.7% for the three months ended March 31, 1998
as the result of changes in state tax laws. The effect of the change in 1997 was
recorded in the third quarter.
(15)
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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 March 23, 1998 the Board of Directors of the Company declared
a $.14 per share cash dividend to common stockholders of record
on April 13, 1998, payable April 24, 1998.
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:
May 13, 1998 John M. Bond, Jr.
__________________ __________________________________
Date President and
Chief Executive Officer
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:
May 13, 1998 John A. Scaldara, Jr.
__________________ __________________________________
Date Executive Vice President,
Corporate Secretary and
Chief Financial Officer
(17)
</TABLE>
