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 June 30, 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: 4,571,670 shares as of
August 12, 1998.
(1)
<PAGE>
COLUMBIA BANCORP
C O N T E N T S
<TABLE>
<CAPTION>
Page
----
<S><C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as of
June 30, 1998 (unaudited) and December 31, 1997 3
Consolidated Statements of Income for the Three Months and
Six Months Ended June 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
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>
June 30, December 31,
1998 1997
---------------- -----------------
(unaudited)
<S><C>
ASSETS
------
Cash and due from banks $ 15,778,637 $ 13,497,010
Federal funds sold 19,806,986 2,013,538
Investment securities ( fair value $72,346,183
in 1998 and $65,149,749 in 1997) 72,168,742 64,970,889
Securities available-for-sale 1,331,455 1,674,464
Residential mortgage loans originated-for-sale 11,632,143 6,557,090
Loans:
Commercial 38,530,322 37,518,405
Real estate development and construction 114,257,841 110,413,134
Real estate mortgage:
Residential 10,404,781 11,077,563
Commercial 19,814,714 21,146,275
Retail, principally residential equity
lines of credit 83,775,658 84,039,255
Credit card 1,615,825 1,639,070
--------------- ----------------
Total loans 268,399,141 265,833,702
Less: Unearned income, net of
origination costs 582,225 640,189
Allowance for credit losses 3,673,241 3,631,664
--------------- ----------------
Loans, net 264,143,675 261,561,849
Other real estate owned 4,071,822 4,621,873
Property and equipment, net 8,888,299 9,125,396
Prepaid expenses and other assets 10,658,257 9,429,002
--------------- ----------------
Total assets $ 408,480,016 $ 373,451,111
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest-bearing demand deposits $ 58,512,371 $ 56,584,646
Interest-bearing deposits 270,619,578 256,772,797
--------------- ----------------
Total deposits 329,131,949 313,357,443
Short-term borrowings 25,445,554 23,725,237
Long-term borrowings 15,000,000 -
Accrued expenses and other liabilities 2,125,306 1,983,617
--------------- ----------------
Total liabilities 371,702,809 339,066,297
--------------- ----------------
Stockholders' equity:
Commonstock, $.01 par value per share;
authorized 9,550,000 shares; outstanding
4,571,670 and 4,400,330 shares,
respectively 45,716 44,003
Additional paid in capital 23,696,461 22,918,578
Retained earnings 13,034,942 11,423,350
Accumulated other comprehensive income 88 (1,117)
--------------- ----------------
Total stockholders' equity 36,777,207 34,384,814
--------------- ----------------
Total liabilities and
stockholders' equity $ 408,480,016 $ 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 and Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
(unaudited) (unaudited)
<S><C>
Interest income:
Loans $ 6,945,989 $ 6,678,236 $ 13,968,507 $ 12,853,002
Investment securities 1,058,618 770,960 2,054,234 1,433,368
Federal funds sold 131,994 58,367 163,247 109,452
--------------- -------------- -------------- --------------
Total interest income 8,136,601 7,507,563 16,185,988 14,395,822
--------------- -------------- -------------- --------------
Interest expense:
Deposits 2,719,028 2,449,249 5,449,029 4,692,364
Borrowings 473,467 314,525 878,014 607,029
--------------- -------------- -------------- --------------
Total interest expense 3,192,495 2,763,774 6,327,043 5,299,393
--------------- -------------- -------------- --------------
Net interest income 4,944,106 4,743,789 9,858,945 9,096,429
Provision for credit losses 99,000 185,000 183,000 395,000
--------------- -------------- -------------- --------------
Net interest income after provision for
credit losses 4,845,106 4,558,789 9,675,945 8,701,429
--------------- -------------- -------------- --------------
Noninterest income:
Gains and fees on sales of mortgage loans 582,883 155,456 1,058,181 280,944
Fees charged for services 337,165 312,603 631,603 588,506
Other 185,677 146,120 389,737 307,720
--------------- -------------- -------------- --------------
Total noninterest income 1,105,725 614,179 2,079,521 1,177,170
--------------- -------------- -------------- --------------
Noninterest expense:
Salaries and employee benefits 2,200,119 1,743,590 4,494,232 3,346,462
Occupancy, net 441,389 341,897 920,747 662,646
Equipment 297,672 248,245 584,056 484,539
Marketing 130,081 191,087 297,833 350,759
Data processing 203,026 140,934 383,719 273,663
Cash management services 92,161 120,219 163,631 211,669
Professional fees 65,089 127,976 145,939 179,214
Deposit insurance premiums and assessments 31,873 27,286 62,443 52,324
Net expense (income) on other real estate
owned (10,817) (4,590) (8,153) 19,096
Other 707,676 602,659 1,248,586 1,073,908
--------------- -------------- -------------- --------------
Total noninterest expense 4,158,269 3,539,303 8,293,033 6,654,280
--------------- -------------- -------------- --------------
Income before income taxes 1,792,562 1,633,665 3,462,433 3,224,319
Income tax expense 617,000 634,500 1,213,000 1,253,600
--------------- -------------- -------------- --------------
Net income 1,175,562 999,165 2,249,433 1,970,719
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities
available-for-sale (losses) (256) 2,288 1,205 5,149
--------------- -------------- -------------- --------------
Comprehensive income $ 1,175,306 $ 1,001,453 $ 2,250,638 $ 1,975,868
=============== ============== ============== ==============
Per common share data:
Net income: Basic $ 0.26 $ 0.23 $ 0.50 $ 0.46
Diluted 0.25 0.22 0.49 0.43
Cash dividends declared $ 0.07 $ 0.06 $ 0.14 $ 0.12
=============== ============== ============== ==============
</TABLE>
(4)
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,1998 and 1997
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------------
1998 1997
--------------- -----------------
(unaudited)
<S><C>
Cash flows from operating activities:
Net income $ 2,249,433 $ 1,970,719
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 554,925 492,219
Provision for credit losses 183,000 395,000
Provision for losses on other real estate owned 30,000 -
Gains on sales of loans (1,058,181) (280,944)
Proceeds from the sales of residential
mortgage loans originated-for-sale 70,035,421 18,605,298
Disbursements for residential mortgage loans
originated-for-sale (74,052,293) (19,458,717)
Decrease in unearned income, net of
origination costs (57,964) (257,096)
Increase in prepaid expenses and other assets (1,126,171) (1,164,340)
Increase in accrued expenses and other liabilities 132,507 767,040
--------------- -----------------
Net cash provided by (used in) operating activities (3,109,323) 1,069,179
--------------- -----------------
Cash flows provided by (used in) investing activities:
Loan disbursements in excess of principal repayments (6,913,830) (21,175,235)
Loan purchases (1,293,588) (642,725)
Loan sales 5,166,982 1,527,829
Purchases of investment securities (19,592,415) (17,981,700)
Purchases of investment securities available-for-sale (157,400) (17,600)
Proceeds from maturities and principal repayments
of investment securities 12,412,439 3,378,188
Proceeds from maturities and principal repayments of
securities available-for-sale 500,907 1,159,289
Additions to other real estate owned (673,469) (90,080)
Sales of other real estate owned 1,527,094 160,782
Purchases of property and equipment (335,507) (1,575,749)
Increase in cash surrender value of life insurance (102,575) (971,476)
--------------- -----------------
Net cash used in investing activities (9,461,362) (36,228,477)
--------------- -----------------
Cash flows provided by (used in) financing activities:
Net increase in deposits 15,774,506 34,070,804
Increase in short-term borrowings 1,720,317 1,048,542
Increase in long-term borrowings 15,000,000 -
Cash dividends distributed on common stock (627,802) (516,602)
Net proceeds from stock options exercised
and common stock exchanged 778,739 73,230
--------------- -----------------
Net cash provided by financing activities 32,645,760 34,675,974
--------------- -----------------
Net increase (decrease) in cash and cash equivalents 20,075,075 (483,324)
Cash and cash equivalents at beginning of period 15,510,548 21,230,610
--------------- -----------------
Cash and cash equivalents at end of period $ 35,585,623 $ 20,747,286
=============== =================
Supplemental information:
Interest paid on deposits and borrowings $ 6,260,913 $ 5,281,712
Income taxes paid 1,290,000 1,300,000
Transfer of loans to other real estate owned 333,574 942,130
=============== =================
</TABLE>
See accompanying notes to consolidated financial statements.
(5)
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and for the six months ended
June 30, 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.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 established standards for the way
public business enterprises are to report information about operating segments
in annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial statements issued to
shareholders. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. Management intends to adopt its provisions
during 1998.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. It is effective for all
fiscal quarters or fiscal years beginning after June 15, 1999. Initial
application of the Statement should be as of the beginning of an entity's fiscal
quarter. On that date, hedging relationships must be designated anew and
documented pursuant to the provisions of SFAS No. 133. Earlier application is
encouraged, but is permitted only as of the beginning of any fiscal quarter that
begins after issuance of SFAS No. 133. It should not be applied retroactively to
financial statements of prior periods. Management is currently evaluating SFAS
No. 133 to determine its impact and to determine when management will adopt the
provisions of SFAS No. 133.
The consolidated financial statements as of June 30, 1998 and for the
three months and six months ended June 30, 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 Statement of
Income for the six months ended June 30, 1998 is not necessarily indicative of
the results that will be achieved for the entire year.
(6)
<PAGE>
NOTE 2 - PER SHARE DATA
Information relating to the calculations of earnings per common share
is summarized as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------
1998 1997
-----------------------------------------------------------
Basic Diluted Basic Diluted
-------------- -------------- ------------- ---------------
<S><C>
Net income $2,249,433 $2,249,433 $1,970,719 $1,970,719
===========================================================
Weighted average shares outstanding (a) 4,486,031 4,486,031 4,299,546 4,299,546
Dilutive securities (a) - 109,892 - 257,426
-----------------------------------------------------------
Adjusted weighted average shares used in EPS
computation (a) 4,486,031 4,595,923 4,299,546 4,556,972
===========================================================
Net income per common share $ 0.50 $ 0.49 $ 0.46 $ 0.43
===========================================================
<CAPTION>
Three Months Ended June 30,
-----------------------------------------------------------
1998 1997
-----------------------------------------------------------
Basic Diluted Basic Diluted
-------------- -------------- ------------- ---------------
<S><C>
Net Income $1,175,562 $1,175,562 $ 999,165 $ 999,165
===========================================================
Weighted average shares outstanding (a) 4,548,573 4,548,573 4,302,618 4,302,618
Dilutive securities (a) - 118,084 - 254,750
-----------------------------------------------------------
Adjusted weighted average shares used in EPS
computation (a) 4,548,573 4,666,657 4,302,618 4,557,368
===========================================================
Net income per common share $ 0.26 $ 0.25 $ 0.23 $ 0.22
===========================================================
</TABLE>
- ----------------
(a) Weighted average shares outstanding and dilutive securities have been
adjusted to reflect the two-for-one stock split-up in the form of a 100%
stock dividend paid in June 1998.
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 June 30, 1998 whose contract amounts represent
potential credit risk is as follows:
June 30,
1998
------------------------------------------------------------------
(in thousands)
Commitments to extend credit (a) $156,459
Standby letters of credit 15,418
Limited recourse on mortgage loans sold 354
- --------------
(a) Includes unused lines of credit totalling $150.7 million regardless of
whether fee paid and whether adverse change clauses exist. The amount also
includes commitments to extend new credit totalling $5.8 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 June 30, 1998, total deposits were $329.1 million.
Core deposits, defined as all deposits except certificates of deposit of
$100,000 or more, totalled $310.9 million or 94.5% of total deposits.
Stockholders' equity totalled $36.8 million at June 30, 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 June 30, 1998, outstanding advances from
the FHLB totalled $15.0 million. Collateral must be pledged to the FHLB before
advances can be obtained. At June 30, 1998 the Company's approved credit limit
with the FHLB was $45.0 million. However, the Company had collateral sufficient
to borrow up to $81.9 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 $35.6 million or 8.7% of total assets
at June 30, 1998.
Capital Resources
-----------------
The Federal Reserve Board has adopted risk-based guidelines for bank
holding companies. As of June 30, 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
June 30, 1998 Requirements
--------------------------------------------------------------------
Risk-based capital ratios:
Tier 1 capital 11.98% 4.00%
Total capital 13.18 8.00
Tier 1 capital leverage ratios 9.28 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 June 30, 1998, the Company's loan portfolio, net of unearned income,
totalled $267.8 million, or 65.6% of its total assets of $408.5 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 increased $2.6 million, or 1.0%.
Real estate development and construction loans increased $3.8 million, or 3.5%
since December 31, 1997. This was partially offset, however, by a decrease of
$1.3 million in commercial mortgage loans, resulting from refinancing activity.
Real estate development and construction loans constitute the largest
portion of the Company's lending activities, and consisted of the following at
June 30, 1998:
Amount Percent
------------------------------------------------------
(dollars in thousands)
Residential construction (a) $ 50,081 43.8%
Residential land development 48,220 42.2
Residential land acquisition (b) 9,587 8.4
Commercial construction 6,370 5.6
-------- -----
$114,258 100.0%
======== =====
- -----------
(a) Includes $12.4 million of loans to individuals for construction of their
primary personal residence.
(b) Includes $2.7 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. 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.
Residential construction loans constitute the largest component of the
real estate development and construction loan portfolio, representing primarily
loans for the construction of single family dwellings. At June 30, 1998, loans
to individuals for the construction of primary personal residences accounted for
$12.4 million of the $50.1 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 $37.7 million of residential construction loans represented loans to
residential builders and developers. Approximately 34.5% 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
(9)
<PAGE>
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 June
30, 1998, totalling $48.2 million or 42.2% 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.
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.
June 30, December 31, June 30,
1998 1997 1997
--------------------------------------------------------------
(dollars in thousands)
Nonaccrual loans (a) $2,053 $ 599 $3,431
Other real estate owned 4,072 4,622 1,319
------ ------ ------
Total nonperforming assets $6,125 $5,221 $4,750
====== ====== ======
Loans past-due 90 days or more $ 27 $ 63 $ 102
====== ====== ======
- ------------------
(a) 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 June 30, 1998 was the
Company's portfolio of other real estate owned totalling $4.1 million. At June
30, 1998, other real estate owned included a land development project consisting
of 214 residential building lots with a carrying value of $3.3 million net of
participations sold, a 24 unit residential condominium construction project with
13 remaining units and a carrying value of $551,000 net of participations sold,
one residential condominium building site with a carrying value of $158,000 and
certain other properties acquired in satisfaction of loans. The land development
project is being completed under the direction of the Company. Currently, 139
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 11 units are under contract of
sale and are scheduled for settlement during 1998. The remaining units are being
marketed for sale. The condominium building site is under contract of sale for
settlement in 1998.
Nonaccrual loans totalled $2.1 million at June 30, 1998 and consisted
primarily of a residential construction loan totalling $1.1 million, a land
acquisition loan totalling $369,000, and an acquisition and construction loan
totalling $109,000. The residential construction loan was sold at auction
subsequent to June 30, 1998, with settlement expected in September 1998. The
Company anticipates recovery of all principal, interest and expenses.
(10)
<PAGE>
Impaired loans at June 30, 1998 totalled $2.1 million and represented
$1.7 million in residential construction and commercial nonaccrual loans and
$400,000 in residential construction loans which have demonstrated weaknesses in
the past. All impaired loans were collateral dependent loans, which are measured
based on the fair value of the collateral. There were no impaired loans at June
30, 1998 with an allocated valuation allowance. An impaired loan is charged-off
when the loan, or a portion thereof, is considered uncollectible.
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 June 30, 1998 the Allowance was 1.37%
of total loans, net of unearned income. The Allowance at June 30, 1998 is
considered by management to be appropriate in consideration of the possible
risks in the loan portfolio given current conditions and information.
The changes in the Allowance are presented in the following table.
Six months ended June 30,
-------------------------
1998 1997
---------------------------------------------------------------------
(dollars in thousands)
Allowance for credit losses -
beginning of period $ 3,632 $3,293
Provision for credit losses 183 395
Charge-offs (150) (188)
Recoveries 8 14
------- ------
Allowance for credit losses -
end of period $ 3,673 $3,514
======= ======
Allowance as a percentage of loans
receivable, net of unearned income 1.37% 1.37%
Allowance as a percentage of nonperforming
loans and loans past-due 90 days or more (a) 176.59% 99.43%
======= ======
- --------------
(a) 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.
(11)
<PAGE>
RESULTS OF OPERATIONS
---------------------
The Company reported net income of $1.2 million and $2.2 million for
the three months and six months ended June 30, 1998, representing diluted net
income per share of $.25 and $.49, respectively. Net income was $1.0 million and
$2.0 million for the corresponding periods in 1997, representing diluted net
income per share of $.22 and $.43, respectively.
Net Interest Income
- -------------------
Net interest income totalled $4.9 million and $9.9 million for the
three months and six months ended June 30, 1998, respectively, as compared to
$4.7 million and $9.1 million for the same periods 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 and six
months ended June 30, 1998, as compared to the same periods in 1997. Average
loans outstanding, net of unearned income, increased $26.9 million or 10.6%, and
$32.2 million or 13.1% for the three months and six months ended June 30, 1998,
respectively, as compared to the same periods 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 $18.3 million and $19.4 million for the three and
six months ended June 30, 1998, respectively, as compared to the same periods in
1997, primarily as a result of increased investments in U.S. Treasury
securities.
The increase in net interest income due to increases in average earning
assets was mitigated by higher average balances in deposits and borrowings.
Average interest-bearing deposits outstanding during the three months and six
months ended June 30, 1998 increased $34.7 million or 14.9% and $38.1 million or
16.9%, respectively, as compared to the same periods in 1997, while average
borrowings increased $8.4 million or 32.2% and $8.1 million or 32.6%.
Furthermore, the net interest margin declined from 6.13% and 6.12% for the three
months and six months ended June 30, 1997, respectively, to 5.50% and 5.60% for
the same periods in 1998. The decline in the net interest margin was the result
of competitive pressure on loan pricing, which has caused the yield on loans to
decrease from 10.54% for the six months ended June 30, 1997 to 10.08% for the
same period in 1998. In addition, loans, the Company's highest yielding asset,
on average declined as a percentage of interest-earning assets from 82.1% for
the six months ended June 30, 1997 to 78.6% for the same period in 1998.
(12)
<PAGE>
The following table provides further analysis of the increase in net interest
income:
Six months ended June 30, 1998
compared to the six months ended
June 30, 1997
----------------------------------
Increase/(Decrease)
due to (a):
Increase --------------------
(Decrease) Rate Volume
----------------------------------
(in thousands)
Interest income:
Loans (b) $1,115 $(580) $1,695
Investment securities and
securities available-for-sale 621 17 604
Federal funds sold 54 (1) 55
------ ----- ------
Total interest income 1,790 (564) 2,354
------ ----- ------
Interest expense:
Deposits 757 11 746
Borrowings 271 11 260
------ ----- ------
Total interest expense 1,028 22 1,006
------ ----- ------
Net interest income $ 762 $(586) $1,348
====== ===== ======
(a) 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.
(b) Includes interest on loans orginated for sale.
Noninterest Income
- ------------------
Noninterest income totalled $1.1 million and $2.1 million for the three
months and six months ended June 30, 1998, respectively, as compared to $614,000
and $1.1 million for the corresponding periods in 1997. Growth in noninterest
income primarily reflected an increase in gains on sales of mortgage loans
originated for sale of $427,000 and $777,000 for the three months and six months
ended June 30, 1998, respectively, as compared to the same periods in 1997. The
increase was a result of higher loan sale volume, as total loans sold increased
from $10.0 million and $18.6 million during the three months and six months
ended June 30, 1997, respectively, to $38.0 million and $70.0 million for the
same periods in 1998.
Noninterest Expense
- -------------------
Noninterest expense increased $619,000 or 17.5% and $1.6 million or
24.6% for the three months and six months ended June 30, 1998, respectively,
over the corresponding periods in 1997. The increase in noninterest expense
corresponded with an increase in business activity, including related expansion.
Specifically, salaries and employee benefits increased $457,000 and $1.1 million
during the three months and six months ended June 30, 1998, respectively, as
compared to the same periods in 1997 and primarily represented the net addition
of 14 employees since June 30, 1997. Growth in the employee base has been
necessary to accommodate increased business activity, including the addition of
two full-service branch facilities in June and November of 1997. Occupancy costs
increased $99,000 and $258,000, equipment costs increased $49,000 and $100,000
and data processing increased $62,000 and $110,000 for the three months and six
months ended June 30, 1998, respectively, as compared to 1997, also as a result
of these expansion efforts.
(13)
<PAGE>
Tax Expense
- -----------
The Company's effective tax rate declined from 38.9% for the six months
ended June 30, 1997 to 35.0% for the six months ended June 30, 1998 as the
result of changes in state tax laws. The effect of the change in 1997 was
recorded in the third quarter.
Year 2000 Action Plan
- ---------------------
In 1997, the Company adopted a Year 2000 Action Plan (the "Plan"). The
Plan identifies the process of which the Company will address Year 2000 related
issues. It also establishes a committee, lead by senior management, assigned the
responsibility to complete the Year 2000 preparations, with a targeted
completion date of December 31, 1998. The plan includes several phases as
follows: awareness, assessment; renovation; validation; and implementation.
The Company relies heavily upon its third party service bureau to
provide its data processing services. The Company has reviewed the Year 2000
plan established by its data processing service bureau and regularly evaluates
the progress being made. In addition, the Company is working with other vendors
to ensure timely completion of the Year 2000 project.
Costs associated with the Year 2000 project will primarily include
costs incurred to upgrade existing software and hardware not currently Year 2000
compliant. The Company estimates that these costs will be incurred in the normal
course of business as software and hardware is ordinarily upgraded to keep pace
with technological advances.
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
(14)
<PAGE>
ITEM 5. OTHER INFORMATION
On May 27, 1998, the Board of Directors of the Company declared a
two-for-one stock split-up in the form of a 100% stock dividend,
payable on June 19, 1998 to common stockholders of record on June 9,
1998.
On June 22, 1998, the Board of Directors of the Company declared a $.07
per share cash dividend to common stockholders of record on July 10,
1998, payable July 22, 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 17
(b) Reports on Form 8-K
None
(15)
<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:
August 13, 1998 John M. Bond, Jr.
____________________ ______________________
Date President and
Chief Executive Officer
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:
August 13, 1998 John A. Scaldara, Jr.
____________________ ______________________
Date Executive Vice President,
Corporate Secretary and
Chief Financial Officer
(16)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 15,778,637
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 19,806,986
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,331,455
<INVESTMENTS-CARRYING> 72,168,742
<INVESTMENTS-MARKET> 72,346,183
<LOANS> 279,449,059
<ALLOWANCE> (3,673,241)
<TOTAL-ASSETS> 408,480,016
<DEPOSITS> 329,131,949
<SHORT-TERM> 25,445,554
<LIABILITIES-OTHER> 2,125,306
<LONG-TERM> 15,000,000
0
0
<COMMON> 45,716
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<INTEREST-DEPOSIT> 5,449,029
<INTEREST-EXPENSE> 6,327,043
<INTEREST-INCOME-NET> 9,858,945
<LOAN-LOSSES> 183,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,293,033
<INCOME-PRETAX> 3,462,433
<INCOME-PRE-EXTRAORDINARY> 3,462,433
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,249,433
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.49
<YIELD-ACTUAL> 5.60
<LOANS-NON> 2,053,097
<LOANS-PAST> 26,589
<LOANS-TROUBLED> 0
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<ALLOWANCE-CLOSE> (3,673,241)
<ALLOWANCE-DOMESTIC> (3,673,241)
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<ALLOWANCE-UNALLOCATED> 0
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<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
Restated to reflect the two-for-one stock split-up in the form of a 100% stock
dividend paid in June 1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
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<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,781,217
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,220,610
<INVESTMENTS-CARRYING> 54,412,355
<INVESTMENTS-MARKET> 54,471,141
<LOANS> 259,967,027
<ALLOWANCE> (3,514,334)
<TOTAL-ASSETS> 354,652,807
<DEPOSITS> 288,710,690
<SHORT-TERM> 31,175,615
<LIABILITIES-OTHER> 2,259,167
<LONG-TERM> 0
0
0
<COMMON> 43,198
<OTHER-SE> 32,467,137
<TOTAL-LIABILITIES-AND-EQUITY> 354,652,807
<INTEREST-LOAN> 12,853,002
<INTEREST-INVEST> 1,433,368
<INTEREST-OTHER> 109,452
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<INTEREST-DEPOSIT> 4,692,364
<INTEREST-EXPENSE> 5,299,393
<INTEREST-INCOME-NET> 9,096,429
<LOAN-LOSSES> 395,000
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<EXPENSE-OTHER> 6,654,280
<INCOME-PRETAX> 3,224,319
<INCOME-PRE-EXTRAORDINARY> 3,224,319
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<CHANGES> 0
<NET-INCOME> 1,970,719
<EPS-PRIMARY> .46
<EPS-DILUTED> .43
<YIELD-ACTUAL> 6.09
<LOANS-NON> 3,431,573
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<ALLOWANCE-CLOSE> (3,514,333)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
Restated to reflect the two-for-one stock split-up in the form of a 100% stock
dividend paid in June 1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,131,913
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<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
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0
0
<COMMON> 43,316
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<INTEREST-EXPENSE> 8,333,367
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<EPS-PRIMARY> .71
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<LEGEND>
Restated to reflect the two-for-one stock split-up in the form of a 100% stock
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</LEGEND>
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<S> <C>
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<LEGEND>
Restated to reflect the two-for-one stock split-up in the form of a 100% stock
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</LEGEND>
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