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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-23402
COLUMBIA BANCORP
(Exact name of registrant as specified in its charter)
MARYLAND 52-1545782
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10480 Little Patuxent Parkway
Columbia, Maryland 21044
(Address of principal executive offices) (zip code)
410-465-4800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
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 _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
[cover page 1 of 2 pages]
(1)
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State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
60 days prior to the date of this filing.
Common Stock, par value $0.01 per share:
Market value held by non-affiliates based on the
closing sales price at March 19, 1999 $65,706,228
State the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, par value $0.01 per share:
Shares outstanding at March 19, 1999 4,531,464
Documents Incorporated by Reference:
Portions of Annual Report to Stockholders for Fiscal Year
Ended December 31, 1998, incorporated by reference
into Part II.
Portions of Definitive Proxy Statement dated March 24, 1999,
incorporated by reference into Part III.
[cover page 2]
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TABLE OF CONTENTS
PART I PAGE
<S> <C>
Item 1 - Business.............................................................................................2
Item 2 - Properties...........................................................................................9
Item 3 - Legal Proceedings....................................................................................9
Item 4 - Submission of Matters to a Vote of Stockholders......................................................9
PART II
Item 5 - Market for Common Stock and Related Stockholder Matters.............................................10
Item 6 - Selected Financial Data.............................................................................10
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................................................10
Item 7a - Quantitative and Qualitative Disclosures About Market Risk.........................................10
Item 8 - Financial Statements and Supplementary Data ........................................................10
Columbia Bancorp and Subsidiary:
Independent Auditors' Report
Consolidated Statements of Condition as of
December 31, 1998 and 1997
Consolidated Statements of Income and Comprehensive Income
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...................................................................................................10
PART III
Item 10 - Directors and Executive Officers of the Registrant.................................................11
Item 11 - Executive Compensation.............................................................................12
Item 12 - Security Ownership of Certain Beneficial Owners and Management.....................................12
Item 13 - Certain Relationships and Related Transactions.....................................................12
PART IV
Item 14 - Exhibits and Reports on Form 8-K...................................................................12
Signatures...................................................................................................16
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(1)
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PART I
ITEM 1. BUSINESS
GENERAL
Columbia Bancorp (the "Company"), a bank holding company, was
incorporated in November, 1987, under the laws of Maryland and registered under
the Bank Holding Company Act of 1956, as amended. The Columbia Bank (the "Bank")
was organized by the Company as a Maryland trust company and commenced
operations in May, 1988. The Bank currently accounts for substantially all of
the Company's assets. The deposits of the Bank are insured by the Federal
Deposit Insurance Corporation ("FDIC"). The Bank is headquartered in Columbia,
Maryland and has nine branch locations in Howard County, Maryland; three branch
locations in Baltimore County, Maryland; and two branch locations in Baltimore
City, Maryland. The Bank also has three mortgage origination offices in Howard,
Montgomery and Baltimore Counties, Maryland. At December 31, 1998, the Company
had total assets of $427.3 million, total loans, net of unearned income, of
$274.4 million, total deposits of $339.3 million and stockholders' equity of
$38.4 million.
The Bank is an independent, community bank which seeks to provide
personal attention and professional financial services to its customers while
offering virtually all of the banking services of larger competitors. These
customers are primarily individuals and small- and medium-sized businesses. The
Bank's business philosophy includes offering informed and courteous service,
local and timely decision-making, flexible and reasonable operating procedures
and consistently-applied credit policies.
The executive offices of the Company and the principal office of the
Bank are located at 10480 Little Patuxent Parkway, Columbia, Maryland 21044,
telephone number (410) 465-4800.
SERVICES OF THE BANK
The Bank provides comprehensive and service-intensive commercial and
retail banking services to individuals and small- and medium-sized businesses.
The following types of services are offered by the Bank:
Commercial Services:
* Loans, including working capital loans and lines of credit, a
wide range of demand, term, and time loans, loans for real
estate acquisition, development and construction and
equipment, inventory and accounts receivable financing.
* Cash management, including automatic overnight investment of
funds.
* Certificates of deposit and other interest-bearing accounts.
* Direct deposit of payroll.
* Letters of credit.
(2)
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Retail Services:
* Transaction accounts, including checking and NOW accounts.
* Savings accounts.
* Certificates of deposit.
* Individual retirement accounts.
* 24-hour automated teller machines with access to major network
systems.
* 24-hour telephone banking.
* PC - Banking.
* Installment and home equity loans and lines of credit.
* Residential construction and first mortgage loans.
* VISA(R) credit and debit cards.
* Travelers checks, money orders and safe deposit boxes.
The Bank does not now exercise general trust powers.
LENDING ACTIVITIES
GENERAL. At December 31, 1998, the Company's loan portfolio, net of
unearned income, totaled $274.4 million, representing approximately 64.2% of its
total assets of $427.3 million. The categories of loans in the Company's
portfolio are commercial, real estate development and construction, residential
real estate mortgage, commercial real estate mortgage and consumer.
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
Company's loans by major categories as of December 31, 1998:
Amount Percent
----------------------
(dollars in thousands)
Commercial .................................. $ 49,841 18.1%
Real estate - development and construction(1) 111,868 40.7
Real estate - mortgage:
Residential ............................... 9,950 3.6
Commercial ................................ 16,280 5.9
Consumer:
Retail (2) ................................ 85,146 31.0
Credit card ............................... 1,694 .7
-------- -----
Total loans ................................. $274,779 100.0%
======== =====
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(1) At December 31, 1998, loans to individuals for the purchase of residential
building lots and the construction of primary personal residences
represented $16.7 million.
(2) Approximately $77.7 million were retail loans secured by the borrowers'
principal residences in the form of home equity lines of credit and second
mortgages.
(3)
<PAGE>
COMMERCIAL LOANS. The Company originates secured and unsecured loans
for business purposes. Commercial business loans are made to provide working
capital to businesses in the form of lines of credit which may be secured by
real estate, accounts receivable, inventory, equipment or other assets. At
December 31, 1998, $49.8 million or 18.1% of the Company's total loan portfolio
consisted of commercial business loans. The financial condition and cash flow of
commercial borrowers are closely monitored by the submission of corporate
financial statements, personal financial statements and income tax returns. The
frequency of submissions of required information depends upon the size and
complexity of the credit and the collateral which secures the loan. It is also
the Company's general policy to obtain personal guarantees from the principals
of the commercial loan borrowers.
REAL ESTATE DEVELOPMENT AND CONSTRUCTION LOANS. Real estate development
and construction loans constitute the largest portion of the Company's lending
activities, and consisted of the following at December 31, 1998:
Amount Percent
-----------------------
(dollars in thousands)
Residential construction (1) .. $ 50,812 45.4%
Residential land development .. 42,319 37.8
Residential land acquisition(2) 10,342 9.3
Commercial construction ....... 8,395 7.5
-------- -----
$111,868 100.0%
======== =====
- -----------
(1) Includes $14.1 million of loans to individuals for construction of primary
personal residences.
(2) Includes $2.6 million of loans to individuals for the purchase of
residential building lots.
The Company makes residential real estate development and construction
loans generally to provide interim financing on property during the development
and construction period. Borrowers include builders, developers and persons who
will ultimately occupy the single family dwelling. 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 December 31, 1998,
loans to individuals for the construction of primary personal residences
accounted for $14.1 million of the $50.8 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 $36.7 million of residential construction loans represented loans
to residential builders and developers. Approximately 69% of the units under
construction 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 December 31, 1998, totaling $42.3 million or 37.8% of the portfolio.
Generally, development loans are extended 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 eighteen 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.
(4)
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The Company has limited loan losses in this area of lending through
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.
RESIDENTIAL REAL ESTATE MORTGAGE LOANS. The Company originates
adjustable and fixed-rate residential mortgage loans in order to provide a full
range of products to its customers. Such mortgage loans are generally originated
under terms, conditions and documentation which permit their sale in the
secondary mortgage market. The Company's practice is to immediately sell
substantially all residential mortgage loans in the secondary market with
servicing released. At December 31, 1998, $10.0 million or 3.6% of the Company's
total loan portfolio consisted of residential mortgage loans.
For any loans retained by the Company, title insurance insuring the
priority of its mortgage lien, as well as fire and extended coverage casualty
insurance protecting the properties securing the loans are required. Borrowers
may be required to advance funds, with each monthly payment of principal and
interest, to a loan escrow account from which the Company makes disbursements
for items such as real estate taxes, hazard insurance premiums and mortgage
insurance premiums. The properties securing all of the Company's residential
mortgage loans are appraised by appraisers approved by the Company.
COMMERCIAL REAL ESTATE MORTGAGE LOANS. The Company also originates
mortgage loans secured by commercial real estate. At December 31, 1998, $16.3
million or 5.9% of the Company's total loan portfolio consisted of commercial
mortgage loans. Such loans are primarily secured by office condominiums, retail
buildings, warehouse and general purpose business space. Although terms and
amortization periods vary, the Company's commercial mortgages generally have
maturities of five years or less.
The Company seeks to reduce the risks associated with commercial
mortgage lending by generally lending in its market area, using conservative
loan-to-value ratios and obtaining periodic financial statements and tax returns
from borrowers to perform annual loan reviews. It is also the Company's general
policy to obtain personal guarantees from the principals of the borrowers.
CONSUMER LOANS. At December 31, 1998, $86.8 million or 31.7% of the
Company's total loan portfolio consisted of consumer loans. The Company offers a
variety of consumer loans in order to provide a full range of financial services
to its customers. The consumer loans offered by the Company primarily include
home equity loans and lines of credit and second mortgages.
Home equity loans and lines of credit are originated by the Company for
typically up to 90% of the appraised value, less the amount of any existing
prior liens on the property. Home equity loans have maximum terms of fifteen to
thirty years and the interest rates are generally adjustable. The Company
secures these loans with mortgages on the homes (typically a second mortgage).
The second mortgage loans originated by the Company have maximum terms ranging
from ten to thirty years. They carry a fixed rate of interest for the first five
years, repricing every five years thereafter at a predetermined spread to the
prime rate of interest.
POTENTIAL PROBLEM LOANS. There were no loans identified at December 31,
1998 with potential weaknesses which were not adversely classified.
(5)
<PAGE>
COMPETITION
While promotional activities emphasize the many advantages of dealing
with a locally-run institution closely attuned to the needs of its community,
the Company faces strong competition in all areas of its operations. This
competition comes from entities operating in the Baltimore-Washington
metropolitan area, which include offices of most of the largest banks in
Maryland. Its most direct competition for deposits comes from other commercial
banks, savings banks, savings and loan associations and credit unions operating
in the Baltimore/Washington marketplace. The Company also competes for deposits
with money market mutual funds and with larger banks for cash management
customers. The Company competes with banking entities, mortgage banking
companies, and other institutional lenders for loans. The competition for loans
varies from time to time depending on certain factors. These factors include,
among others, the general availability of lendable funds and credit, general and
local economic conditions, current interest rate levels, conditions in the
mortgage market and other factors which are not readily predictable.
INTERSTATE BANKING
Adequately capitalized bank holding companies, such as the Company, may
acquire control of banks in any state, although states may limit the eligibility
of banks to be acquired to those in existence for a period of time but no longer
than five years. No bank holding company may acquire more than 10% of the
nationwide insured deposits or more than 30% of deposits in any state; however,
states may waive the 30% limit. In addition, since June 1, 1997, banks have been
permitted to branch across state lines either by merging with banks in other
states or by establishing new branches in other states. The date relating to
interstate branching through mergers may be accelerated by any state, and such
mergers may be prohibited by any state. The provision relating to establishing
new branches in another state requires a state's specific approval. Maryland law
permits interstate branching both by mergers and establishing new branches. The
Company is unable to predict the ultimate impact of interstate banking
legislation on it or its competitors.
SUPERVISION AND REGULATION
BANK HOLDING COMPANY REGULATIONS. Bank holding companies and banks are
extensively regulated under both federal and state law. These laws and
regulations are intended primarily to protect depositors and not stockholders.
To the extent that the following information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to the particular
statutory and regulatory provisions. Any change in the applicable law or
regulation may have a material effect on the business and prospects of the
Company and the Bank.
The Company is a registered bank holding company subject to regulation
and examination by the Federal Reserve Board under the Bank Holding Company Act
of 1956, as amended (the "Act"). The Company is required to file with the
Federal Reserve Board quarterly and annual reports and any additional
information that may be required under the Act. The Act also requires every bank
holding company to obtain the prior approval of the Federal Reserve Board before
(i) acquiring all or substantially all of the assets of, or direct or indirect
ownership or control of, more than 5% of the outstanding voting stock of any
bank which is not already majority owned, or (ii) acquiring, or, merging or
consolidating with, any other bank holding company. The Federal Reserve Board
will not approve any acquisition, merger, or consolidation that would have a
substantially anti-competitive effect, unless the anti-competitive impact of the
proposed transaction is clearly outweighed by a greater public interest in
meeting the convenience and needs of the community to be served. The Federal
Reserve Board also considers capital adequacy and other financial and managerial
resources and future prospects of the companies and the banks concerned,
together with the convenience and needs of the community to be served, when
reviewing acquisitions, mergers or consolidations. The Act now further provides
that the Federal Reserve Board shall not approve any such acquisition of control
of any bank operating outside the bank holding company's principal state of
operations, unless such action is specifically authorized by the statutes of the
state in which the bank to be acquired is located.
Additionally, the Act prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any company which
is not a bank or bank holding company, or (ii) engaging directly or indirectly
in activities other than those of banking, managing or controlling banks, or
performing services for its subsidiaries unless such non-banking business is
determined by the Federal Reserve Board to be so closely related to banking or
managing or controlling banks as to be
(6)
<PAGE>
properly incident thereto. In making such determination, the Federal Reserve
Board is required to weigh the expected benefits to the public, such as greater
convenience, increased competition or gains in efficiency, against the possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices.
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies, designed to make regulatory capital requirements more
sensitive to differences in risk profile among banks and bank holding companies,
to account for off-balance-sheet exposure and to minimize disincentives for
holding liquid assets. Under these guidelines, assets and off-balance-sheet
items are assigned to broad risk categories. Failure to meet the capital
guidelines could subject a banking institution to a variety of enforcement
remedies available to federal regulatory authorities.
Bank holding companies currently are required to maintain a minimum
ratio of total capital to risk-weighted assets (including certain
off-balance-sheet activities, such as standby letters of credit) of 8.0%. At
least half of the total capital is required to be "Tier 1 capital," consisting
of common equity, retained earnings and a limited amount of perpetual preferred
stock, after subtracting goodwill and certain other intangible assets and making
various other adjustments. The remainder ("Tier 2 capital") may consist of (a)
the allowance for loan losses of up to 1.25% of risk-weighted assets, (b) excess
of qualifying perpetual preferred stock (c) hybrid capital instruments, (d)
perpetual debt, (e) mandatory convertible debt securities, and (f) a limited
amount of subordinated debt and intermediate-term preferred stock up to 50% of
Tier 1 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. Total capital is the sum of Tier 1 and Tier
2 capital less reciprocal holdings of other banking organizations' capital
instruments, investments in unconsolidated subsidiaries and any other deductions
as determined by the Federal Reserve Board (determined on a case by case basis
or as a matter of policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance-sheet items are given similar credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets. Most loans will be assigned to the 100% risk category,
except for performing first mortgage loans fully secured by certain residential
property, which carry a 50% risk rating. Most investment securities (including,
primarily, general obligation claims on states or other political subdivisions
of the United States) will be assigned to the 20% category, except for municipal
or state revenue bonds, which have a 50% risk-weight, and direct obligations of
the U.S. Treasury or obligations backed by the full faith and credit of the U.S.
Government, which have a 0% risk-weight. In converting off-balance-sheet items,
direct credit substitutes including general guarantees and standby letters of
credit backing financial obligations, are given a 100% conversion factor.
Transaction related contingencies such as bid bonds, standby letters of credit
backing non-financial obligations and commitments (including commercial credit
lines) with an initial maturity of more than one year have a 50% conversion
factor. Short-term commercial letters of credit are converted at 20% and certain
short-term or unconditionally cancelable commitments have a 0% factor.
The Company's management believes that the risk-weighting of assets
under these guidelines does not and will not have a material impact on the
Company's operations or on the operations of the Bank. As of December 31, 1998
and 1997, the Company's total risk-based capital ratios were 12.7% and 12.5%,
respectively, and its Tier 1 risk-based capital ratios were 11.5% and 11.3%,
respectively. In addition to the risk-based capital guidelines, the Federal
Reserve Board has adopted a minimum Tier 1 leverage ratio, under which a bank
holding company that has the highest regulatory examination rating and is not
contemplating significant growth or expansion must maintain a minimum level of
Tier 1 capital to average total consolidated assets of at least 3.0%. All other
bank holding companies are expected to maintain a Tier 1 leverage ratio of at
least 1.0% to 2.0% above the stated minimum. The Tier 1 leverage ratio assists
in the assessment of the capital adequacy of bank holding companies. Its
principal objective is to place a constraint on the maximum degree to which a
banking organization can leverage its equity capital base, even if it invests
primarily in assets with low risk-weights. As of December 31, 1998 and 1997, the
Company's Tier 1 leverage ratios were 9.0% and 9.3%, respectively.
The capital adequacy guidelines explicitly include a bank's exposure to
declines in the economic value of its capital due to changes in interest rates
as a factor that the banking agencies will consider in evaluating a bank's
capital
(7)
<PAGE>
adequacy. While the capital guidelines do not codify a measurement framework for
assessing the level of a bank's interest rate exposure, the measurement of
interest rate exposure using either a supervisory model, developed by the
federal bank agencies, or the bank's own internal model is a quantitative
factor, among other quantitative and qualitative factors, available for use by
examiners in determining the adequacy of an individual bank's capital for
interest rate risk. Other quantitative factors include the bank's historical
financial performance and its earnings exposure to interest rate movements.
Qualitative factors include the adequacy of the bank's internal interest rate
management. Establishment of an explicit supervisory threshold, defining a
"normal" level of interest rate risk exposure is expected at some future date.
BANK REGULATIONS. The Bank is a state-chartered bank subject to
supervision, regulation and examination by the Maryland Commissioner of
Financial Regulation and by the FDIC under the Federal Deposit Insurance Act.
Deposits, reserves, investments, loans, consumer law compliance, issuance of
securities, payment of dividends, establishment and closing of branches, mergers
and consolidations, changes in control, electronic funds transfer, community
reinvestment, management practices and other aspects of operations are subject
to regulation by the appropriate federal and state regulatory agencies. The Bank
is also subject to various regulatory requirements of the Federal Reserve Board
applicable to FDIC-insured banks, including disclosure requirements in
connection with personal and mortgage loans, interest on deposits and reserve
requirements. In addition, the Bank is subject to numerous federal, state and
local laws and regulations which set forth specific restrictions and procedural
requirements with respect to the extension of credit, credit practices, the
disclosure of credit terms and discrimination in credit transactions. Federal
regulatory agencies have broad powers to take prompt corrective action to
resolve problems at banking institutions, including (in certain cases) the
appointment of a conservator or receiver. The extent of these powers is
generally influenced by the level of capital at the institution.
The Bank is assessed by the FDIC with respect to its deposit insurance.
As a result of the acquisition of Fairview Federal Savings and Loan Association
("Fairview") in June 1992, approximately $126.1 million or 39.5% of the Bank's
average assessable deposit base is insured by the Savings Association Insurance
Fund (the "SAIF"). The remainder of the Bank's average assessable deposit base
is insured by the Bank Insurance Fund (the "BIF"). As of December 31, 1998, the
Company's FDIC insurance premium was 1.22 cents per $100 of BIF deposits and
6.10 cents per $100 of SAIF deposits.
In the liquidation or other resolution by any receiver of a bank
insured by the FDIC, the claims of depositors have priority over the general
claims of other creditors. Hence, in the event of the liquidation or other
resolution of a banking subsidiary of the Company, the general claims of the
Company as creditor of such banking subsidiary would be subordinate to the
claims of the depositors of such banking subsidiary, even if the claims of the
Company were not by their terms so subordinated.
As a consequence of the extensive regulation of the commercial banking
business in the United States, the business of the Company and the Bank are
particularly susceptible to changes in federal and state legislation and
regulations which may increase the cost of doing business.
GOVERNMENTAL MONETARY POLICIES AND ECONOMIC CONTROLS
The Company is affected by monetary policies of regulatory agencies,
including the Federal Reserve Board, which regulates the national money supply
in order to mitigate recessionary and inflationary pressures. Among the
techniques available to the Federal Reserve Board are engaging in open market
transactions in the United States Government securities, changing the discount
rate on bank borrowings, changing reserve requirements against bank deposits,
prohibiting the payment of interest on demand deposits, and imposing conditions
on time and savings deposits. These techniques are used in varying combinations
to influence the overall growth of bank loans, investments and deposits. Their
use may also affect interest rates charged on loans or paid on deposits. The
effect of governmental policies on the earnings of the Company cannot be
predicted. However, the Company's earnings will be impacted by movement in
interest rates, as discussed in "Management's Discussion and Analysis Market
Risk and Interest Rate Sensitivity" on pages 21 through 23 of the 1998 Annual
Report to Stockholders included in Exhibit 13.1 filed herewith.
(8)
<PAGE>
EMPLOYEES
At December 31, 1998, the Company and the Bank had 229 employees of
which 49 were officers, 197 were full-time employees and 32 were part-time
employees. The Company believes its employee relations are good.
ITEM 2. PROPERTIES
The principal offices of the Company and the Bank are located at 10480
Little Patuxent Parkway, Columbia, Howard County, Maryland.
At December 31, 1998, the Company owned two banking offices, one
drive-through facility and an office building. These properties had a book value
of $5.0 million at December 31, 1998, and the office building was producing
annual rental income of $181,000. The remaining twelve banking offices and three
mortgage origination offices open at December 31, 1998 were leased. The lease
for the principal office of the Bank expires in 2013 (after giving effect to all
renewal options), and annual rent is currently $232,000. Leases for the
remaining leased banking offices and mortgage origination offices expire from
1998 through 2037 (after giving effect to all renewal options), and aggregate
annual rent is currently $891,000. The Company anticipates leasing approximately
10,000 square feet in the near future to accommodate past and anticipated
growth, exclusive of branch growth.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to legal actions which are routine and incidental
to its business. In management's opinion, the outcome of these matters,
individually or in the aggregate, will not have a material adverse impact on the
results of operations or financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
No matter was submitted to a vote of stockholders during the fourth
quarter of the fiscal year covered by this report.
(9)
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by this Item is set forth by reference to the
information appearing under the captions "Dividends and Common Stock" on page 47
and "Recent Common Stock Prices" on page 53 of the 1998 Annual Report to
Stockholders included in Exhibit 13.1 filed herewith.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item as to the Company is incorporated
by reference to the information appearing under the caption "Selected Financial
Highlights" on page 8 of the 1998 Annual Report to Stockholders included in
Exhibit 13.1 filed herewith.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item as to the Company is incorporated
by reference to the information appearing under the caption "Management's
Discussion and Analysis" on pages 9 through 27 of the 1998 Annual Report to
Stockholders included in Exhibit 13.1 filed herewith.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding the market risk of the Company's financial
instruments, see "Management's Discussion and Analysis - Market Risk and
Interest Rate Sensitivity" on pages 21 through 23 of the 1998 Annual Report to
Stockholders included in Exhibit 13.1 filed herewith.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item as to the Company and
the Company's Independent Public Accountants' Report thereon is incorporated by
reference to the 1998 Annual Report to Stockholders included in Exhibit 13.1,
pages 28 through 51, filed herewith. The supplementary data required by this
Item as to the Company is incorporated by reference to the information appearing
under the caption "Selected Quarterly Financial Data" on page 52 of the 1998
Annual Report to Stockholders included in Exhibit 13.1 filed herewith.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in nor disagreements with accountants on
accounting and financial disclosure.
(10)
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to Directors of the Company is
incorporated by reference to the Company's Proxy Statement for the 1999 Annual
Meeting of Stockholders included in Exhibit 99.1 filed herewith.
The following information is supplied with respect to Mr. Bond and to
other named executive officers of the Company and the Bank who do not serve on
the Board of Directors. Each such officer serves at the pleasure of the Board
and is appointed annually. Each person's principal occupation for at least the
past five years has been to serve as an officer of the Company and/or the Bank.
"Age" is that as of March 15, 1999.
Position with the
Name Age Company and the Bank
---- --- --------------------
John M. Bond, Jr. 55 President, Chief Executive Officer and Treasurer of
the Company and the Bank.
Michael T. Galeone 50 Executive Vice President of the Bank.
Robert W. Locke 53 Executive Vice President of the Bank.
John A. Scaldara, Jr. 35 Executive Vice President, Chief Financial Officer
and Secretary of the Company and the Bank.
Mr. Bond has over 20 years of experience in the banking industry,
holding senior positions with the Bank, Chase Bank of Maryland and The First
National Bank of Maryland. Prior to returning to Maryland in 1978, Mr. Bond was
a Vice President with Citibank, N.A. in New York and a consultant with McKinsey
& Company. Mr. Bond is an active volunteer in his community, working with
various organizations involved in education, health and community development in
both Howard County and Baltimore. Mr. Bond is a graduate of Harvard College
(A.B.) and Columbia University (M.B.A. and J.D.). He has been admitted to the
New York State Bar.
Mr. Galeone directs the retail branch operations and consumer lending
activities of the Bank. He has in excess of 20 years of experience in the
consumer finance industry with the Bank and Household International Corporation.
Mr. Galeone is actively involved in civic and professional affairs, serving on
the Boards of Directors of the Economic Development Authority for Howard County
and the Howard County Chamber of Commerce. He is also a member of the Business
Advisory Council for the Howard County Board of Education, as well as several
other civic organizations. Mr. Galeone attended Temple University, Institute of
Technology.
Mr. Locke directs the commercial lending activities of the Bank. He has
20 years of experience in the commercial lending area with the Bank and the
former Maryland National Bank and The National Bank of Washington. Mr. Locke is
actively involved in civic and professional affairs, serving as Senior Vice
Chairman of the Baltimore County Chamber of Commerce and on the Board of
Directors of the Better Business Bureau. He is a graduate of Colgate University
(B.A.) and City College of New York (M.S.Ed).
Mr. Scaldara directs the accounting, finance, loan administration, cash
management and transaction processing activities of the Company. He has been a
Certified Public Accountant since 1985. Prior to joining the Company, Mr.
Scaldara held various staff accounting and consulting positions with KPMG LLP in
Baltimore. He is a graduate of Loyola College (B.A.) and is actively involved in
civic organizations, serving as a director of the Howard Hospital Foundation and
the James Rouse Entrepreneurial Fund. Mr. Scaldara has served as Secretary of
the Company and the Bank since January 14, 1991.
(11)
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the information appearing under the caption "Executive Compensation" in the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders included
in Exhibit 99.1 filed herewith.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the information appearing under the caption "Beneficial Ownership of Executive
Officers, Directors and Nominees" in the Company's Proxy Statement for the 1999
Annual Meeting of Stockholders included in Exhibit 99.1 filed herewith.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the information appearing under the caption "Certain Relationships and Related
Transactions" in the Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders included in Exhibit 99.1 filed herewith.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
(3.1) Form of Restated Articles of Incorporation of the
Company, restated as of December 31, 1995, previously
filed with the Commission as an Exhibit to, and
incorporated herein by reference from, the Company's
Annual Report on Form 10-KSB for fiscal year ended
December 31, 1995 (File No. 0-23402).
(3.2) Form of Restated By-Laws of the Company, restated as
of January 26, 1998, previously filed with the
Commission as an Exhibit to, and incorporated herein
by reference from, the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997
(File No. 0-23402).
(10.1) Form of the Company's 1987 Stock Option Plan, as
amended April 17, 1990, December 18, 1995, and
February 24, 1997, previously filed with the
Commission as an Exhibit to, and incorporated herein
by reference from, the Company's Annual Report on
Form 10-K for fiscal year ended December 31, 1996
(File No. 0-23402).
(10.1a) Amendment dated September 28, 1998 to the Company's
1987 Stock Option Plan (filed herein as Exhibit
10.1a).
(12)
<PAGE>
(10.2) Form of Incentive Stock Option Agreement for use
under the 1987 Stock Option Plan, as amended,
previously filed with the Commission as an Exhibit
to, and incorporated herein by reference from, the
Company's Registration Statement on Form S-8 filed
August 15, 1996 (Reg. No. 333-10231).
(10.3) Form of Non-Qualified Stock Option Agreement for use
under the 1987 Stock Option Plan, as amended
(previously filed with the Commission as an Exhibit
to, and incorporated herein by reference from, the
Company's Registration Statement on Form S-8 filed
August 15, 1996)(Reg. No. 333-10231).
(10.4) Form of the Company's 1990 Director Stock Option
Plan, as amended July 29, 1996 and February 24, 1997,
previously filed with the Commission as an Exhibit
to, and incorporated herein by reference from, the
Company's Annual Report on Form 10-K for fiscal year
ended December 31, 1996 (File No. 0-23402).
(10.5) Form of Employment Agreement dated February 26, 1996
with John M. Bond, Jr., previously filed with the
Commission as an Exhibit to, and incorporated herein
by reference from, the Company's Annual Report on
Form 10-KSB for fiscal year ended December 31, 1995
(File No. 0-23402).
(10.5a) Amendment dated December 18, 1997 to the employment
agreement dated February 26, 1996 with John M. Bond,
Jr., previously filed with the Commission as an
Exhibit to, and incorporated herein by reference
from, the Company's Annual Report on Form 10-K for
fiscal year ended December 31, 1997 (File No.
0-23402).
(10.6) Form of Employment Agreement dated February 26, 1996
with Michael T. Galeone, previously filed with the
Commission as an Exhibit to, and incorporated herein
by reference from, the Company's Annual Report on
Form 10-KSB for fiscal year ended December 31, 1995
(File No. 0-23402).
(10.6a) Amendment dated December 16, 1997 to the employment
agreement dated February 26, 1996 with Michael T.
Galeone, previously filed with the Commission as an
Exhibit to, and incorporated herein by reference
from, the Company's Annual Report on Form 10-K for
fiscal year ended December 31, 1997 (File No.
0-23402).
(10.7) Form of Employment Agreement dated February 27, 1996
with Charles C. Holman, previously filed with the
Commission as an Exhibit to, and incorporated herein
by reference from, the Company's Annual Report on
Form 10-KSB for fiscal year ended December 31, 1995
(File No. 0-23402).
(10.7a) Amendment dated December 16, 1997 to the employment
agreement dated February 27, 1996 with Charles C.
Holman, previously filed with the Commission as an
Exhibit to, and incorporated herein by reference
from, the Company's Annual Report on Form 10-K for
fiscal year ended December 31, 1997 (File No.
0-23402).
(13)
<PAGE>
(10.8) Form of Employment Agreement dated February 26, 1996
with John A. Scaldara, Jr., previously filed with the
Commission as an Exhibit to, and incorporated herein
by reference from, the Company's Annual Report on
Form 10-KSB for fiscal year ended December 31, 1995
(File No. 0-23402).
(10.8a) Amendment dated December 16, 1997 to the employment
agreement dated February 26, 1996 with John A.
Scaldara, Jr. previously filed with the Commission as
an Exhibit to, and incorporated herein by reference
from, the Company's Annual Report on Form 10-KSB for
fiscal year ended December 31, 1997 (File No.
0-23402).
(10.9) Form of Employment Agreement dated February 26, 1999
with Robert W. Locke (filed herein as Exhibit 10.9).
(10.10) Deferred Compensation Plan dated September 27, 1996,
as amended December 30, 1996, and February 24, 1997,
including addendums thereto, previously filed with
the Commission as an Exhibit to, and incorporated
herein by reference from, the Company's Annual Report
on Form 10-K for fiscal year ended December 31, 1996,
(File No.
0-23402).
(10.11) Data Processing agreements by and between the Bank
and M&I Data Services, Inc., including addendums
thereto, previously filed with the Commission as an
Exhibit to, and incorporated herein by reference
from, the Company's Annual Report on Form 10-K for
fiscal year ended December 31, 1996 (File No.
0-23402).
(10.12) Form of the Company's 1997 Stock Option Plan,
previously filed with the Commission as an Exhibit
to, and incorporated herein by reference from, the
Company's Registration Statement on Form S-8 filed
July 29, 1997 (Reg. No. 333-10231).
(10.12a) Amendment dated September 26, 1998 to the Company's
1997 Stock Option Plan (filed herein as Exhibit
10.12a).
(13.1) 1998 Annual Report to Stockholders (filed herein as
Exhibit 13.1).
(21.1) List of Subsidiaries of the Company
<TABLE>
<CAPTION>
State of Percentage
Name Incorporation Owned by Ownership
---- ------------- -------- ---------
<S> <C> <C> <C>
The Columbia Maryland Columbia 100%
Bank Bancorp
McAlpine Maryland The Columbia 100%
Enterprises, Inc. Bank
Howard I, LLC Maryland The Columbia 100%
Bank
Howard II, LLC Maryland The Columbia 100%
Bank
</TABLE>
(14)
<PAGE>
(23.1) Consent of Independent Certified Public Accountants
(filed herein as Exhibit 23.1).
(27.1) Financial Data Schedule (filed herein as Exhibit
27.1).
(99.1) Notice of the 1999 Annual Meeting of Stockholders,
Proxy Statement for the 1999 Annual Meeting of
Stockholders and the 1999 Form of Proxy (filed herein
as Exhibit 99.1).
b. Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the quarter
ended December 31, 1998.
(15)
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Columbia Bancorp
(Registrant)
March 29, 1999 By: /S/
-----------------------------------
John M. Bond, Jr.
President, Chief Executive Officer and
Treasurer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Company and in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/S/ Chairman of the 3/29/99
- -------------------------- Board
James R. Moxley, Jr.
/S/ Vice Chairman of 3/29/99
- -------------------------- the Board
Herschel L. Langenthal
/S/ President, Chief 3/29/99
- -------------------------- Executive Officer and
John M. Bond, Jr. Treasurer
/S/ Secretary 3/29/99
- -------------------------- and Chief Financial
John A. Scaldara, Jr. Officer
/S/ Director 3/29/99
- --------------------------
Anand S. Bhasin
Director 3/29/99
- --------------------------
Garnett Y. Clark, Jr.
(16)
<PAGE>
Signature Title Date
- --------- ----- ----
/S/ Director 3/29/99
- --------------------------
Hugh F.Z. Cole, Jr.
/S/ Director 3/29/99
- --------------------------
G. William Floyd
Director 3/29/99
- --------------------------
Robert J. Gaw
/S/ Director 3/29/99
- --------------------------
William L. Hermann
/S/ Director 3/29/99
- --------------------------
Charles C. Holman
/S/ Director 3/29/99
- --------------------------
Harry L. Lundy, Jr.
Director 3/29/99
- --------------------------
Richard E. McCready
/S/ Director 3/29/99
- --------------------------
Mary S. Scrivener
/S/ Director 3/29/99
- --------------------------
Maurice M. Simpkins
/S/ Director 3/29/99
- --------------------------
Robert N. Smelkinson
/S/ Director 3/29/99
- --------------------------
Theodore G. Venetoulis
(17)
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Title of Exhibit
----------- ----------------
10.1a Amendment dated September 28, 1998 to the 1987 Stock Option
Plan.
10.9 Form of Employment Agreement dated February 26, 1999 with Robert
W. Locke.
10.12a Amendment dated September 28, 1998 to the 1997 Stock Option
Plan.
13.1 Annual Report to Stockholders for the year ended December 31,
1998.
23.1 Consent of Independent Certified Public Accountants.
27.1 Financial Data Schedule.
99.1 Notice of the 1999 Annual Meeting of Stockholders, Proxy
Statement for the 1999 Annual Meeting of Stockholders and the
1999 Form of Proxy.
(i)
AMENDMENT TO THE
COLUMBIA BANCORP 1987 STOCK OPTION PLAN
THIS AMENDMENT to the Columbia Bancorp 1987 Stock Option Plan (the
"Plan"), is adopted this 28th day of September, 1998 (the "Effective Date"), by
Columbia Bancorp (the "Corporation").
W I T N E S S E T H
WHEREAS, the Board of Directors of the Corporation has the authority to
amend the Plan; and
WHEREAS, the Board of Directors of the Corporation has duly adopted
resolutions to amend the Plan as set forth herein;
NOW, THEREFORE, the Plan is hereby amended by adding the following
after the last sentence of Section 5(c), effective as of the Effective Date with
respect to all options granted under the Plan, including but not limited to
options outstanding as of the Effective Date:
Notwithstanding the foregoing, if an unexercised option would become
exercisable pursuant to this Section 5(c) in connection with a merger,
consolidation, sale of substantially all of the assets, or any other
form of corporate reorganization in which the Corporation is not the
surviving entity, or a statutory share exchange in which the
Corporation is not the issuer, then such option shall be exercisable as
of the business day immediately preceding the effective date of the
transaction.
IN WITNESS WHEREOF, Columbia Bancorp has caused this Amendment to be
executed by its duly authorized officer.
ATTEST: COLUMBIA BANCORP
By: /s/ John A. Scaldara, Jr.
/s/ Jindy Noor -------------------------
- ---------------- John A. Scaldara, Jr.
Jindy Noor Corporate Secretary
September 29, 1998
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of February 26, 1999, between COLUMBIA
BANCORP, a Maryland corporation (the "Corporation"), THE COLUMBIA BANK, a
Maryland trust company and a principal subsidiary of the Corporation (the
"Bank"), and Robert W. Locke (the "Executive"). The Severance Agreement dated as
of February 26, 1996 and as amended December 16, 1997, between the Corporation,
the Bank and the Executive, is hereby terminated effective with the execution of
this Employment Agreement.
W I T N E S S E T H:
The Executive will serve as the Executive Vice President of the Bank
and possesses an intimate knowledge of the business and affairs of the
Corporation and the Bank (each, a "Company" and collectively, the "Companies").
The Companies recognize the Executive's contribution to the organization, growth
and success of the Companies and desire to enter into an employment agreement
with the Executive in order to assure to the Companies the benefits of the
Executive's expertise and knowledge. The Executive, in turn, desires to enter
into full-time employment with the Companies on the terms provided herein.
Accordingly, in consideration of the mutual covenants and
representations contained herein and the mutual benefits derived herefrom, the
parties hereto agree as follows:
1. Full-Time Employment of Executive.
1.1. Duties and Status.
(a) The Companies hereby engage the Executive as a
full-time executive employee for the period (the "Employment
Period") specified in paragraph 4.1, and the Executive accepts
such employment, on the terms and conditions set forth in this
Agreement. During the Employment Period, the Executive shall
exercise authority and perform executive duties as an Executive
Vice President of the Bank.
(b) During the Employment Period, the Executive shall (i)
not engage in consulting work or any trade or business for his own
account or for or on behalf of any other person, firm or
corporation which competes, conflicts or materially interferes
with the performance of his duties hereunder in any way and (ii)
accept such additional office or offices to which he may be
elected by the Board of Directors of either of the Companies,
provided that the performance of the duties of such office or
offices shall be consistent with the scope of the duties provided
for in paragraph 1.1(a).
(c) The Executive shall be required to perform the
services and duties provided for in paragraph 1.1(a) only at the
principal office of either of the
-1-
<PAGE>
Companies in Columbia, Maryland, or at such other locations
acceptable to the Executive. The Executive shall be entitled to
vacation, leave of absence, and leave for illness or temporary
disability in accordance with the policies to be established for
the Companies, which shall be similar to those commonly offered at
comparable banking institutions, and any leave on account of
illness or temporary disability shall not constitute a breach by
the Executive of his agreements hereunder.
1.2. Compensation and General Benefits. As compensation for his
services under this Agreement, the Executive shall be compensated as
follows:
(a) The Companies shall pay the Executive an annual salary
which is not less than the greater of (i) a base salary of
$125,500.00 per annum, or (ii) any subsequently established higher
annual base salary. Such salary shall be payable in periodic equal
installments which are no less frequent than monthly. Such salary
shall be subject to normal periodic review at least annually for
increases based on the salary policies of the Companies and
contributions to the enterprises.
(b) The Executive shall be entitled to participate in such
pension, profit sharing, stock incentive, stock option, stock
purchase, incentive, group and individual disability, group and
individual life, survivor income, sickness, accident, dental,
medical or health insurance and other plans of the Companies which
are in effect immediately prior to the effective date of this
Agreement or in any other or additional benefit programs, plans or
arrangements of the Companies which may be established by the
Companies, as and to the extent any such benefit programs, plans
or arrangements are or may from time to time be in effect, as
determined by the Companies and terms hereof. The Companies shall
neither (i) terminate or amend any benefit program, plan or
arrangement of the Companies pursuant to which the Executive, or
his dependents, beneficiaries or estate, is or shall be entitled
to benefits, nor (ii) terminate or amend any formula or method set
forth in any benefit program, plan or arrangement of the Companies
pursuant to which the amount and type of benefits to which the
Executive, or his dependents, beneficiaries or estate, is or shall
be entitled thereunder are determined, if such termination or
amendment would in any way modify or deprive the Executive, or his
dependents, beneficiaries or estate, of any benefits to which he,
or his dependents, beneficiaries or estate, is or shall be
entitled under any benefit program, plan or arrangement of the
Companies, unless (a) the Executive expressly consents in writing
to such termination or amendment or (B) the amendment is required
by law or regulation and the Companies shall, to the extent
necessary, provide, pay or provide for payment of amounts equal to
any benefits lost or reduced by such amendment. Throughout the
period of his employment hereunder, the Executive shall be
entitled to the receipt of any personal benefits from the
Companies at the Companies' expense including, but not limited to,
any other perquisites provided by the Companies to executives with
comparable authority or duties. The term "benefit programs, plans,
or arrangements of the Companies" as used in this Agreement refers
to the matters in this paragraph 1.2(b).
-2-
<PAGE>
2. Competition; Confidential Information. The Executive and the
Companies recognize that due to the nature of his association with the Companies
and of his engagements hereunder, and the relationship of the Executive to the
Companies, both in the past as an organizer and in the future hereunder, the
Executive has had access to and has acquired, will have access to and will
acquire, and has assisted in and may assist in developing, confidential and
proprietary information relating to the business and operations of the Companies
and their affiliates, including, without limiting the generality of the
foregoing, information with respect to its present and prospective systems,
customers, agents, accounts, deposits, loans, and sales and marketing methods.
The Executive acknowledges that such information has been and will continue to
be of central importance to the business of the Companies and their affiliates
and that disclosure of it to or its use by others could cause substantial loss
to the Companies. The Executive and the Companies also recognize that an
important part of the Executive's duties will be to develop good will for the
Companies and their affiliates through his personal contact with customers,
agents and others having business relationships with the Companies and their
affiliates, and that there is a danger that this good will, a proprietary asset
of the Companies and their affiliates, may follow the Executive if and when his
relationship with the Companies is terminated. The Executive accordingly agrees
as follows:
2.1. Non-Competition.
(a) During the Non-Competition Period, the Executive will
not, directly or indirectly, either individually or as owner,
partner, agent, employee, consultant or otherwise, except for the
account of and on behalf of the Corporation or its affiliates
("affiliates" is defined solely for purposes of this paragraph 2
as "Columbia Bancorp and its subsidiaries"), engage in any
activity competitive with the business of the Companies or their
affiliates, nor during the Non-Competition Period will he, in
competition with the Companies or their affiliates, solicit or
otherwise attempt to establish for himself or any other person,
firm or entity, any business relationships with any person, firm
or corporation which was, at any time during the Non-Competition
Period, (i) a state or national bank, (ii) a bank holding company,
or (iii) a direct or indirect subsidiary of a state or national
bank or a bank holding company, in each case which has its
principal operations located in Howard County, Maryland or within
a 15 mile radius of the principal office of the Corporation in
Columbia, Maryland, excepting both the City of Baltimore and
Washington, D.C.
(b) The Non-Competition Period shall commence on the date
of this Agreement and shall terminate on:
(i) The date of the termination of the Employment
Period; or
(ii) If the Executive resigns in circumstances other
than those described in paragraph 4.3(a)(ii), two years
after the date of such resignation; provided, however,
that if the Executive resigns during a Change in Control
Period in
-3-
<PAGE>
circumstances other than those described in paragraph
4.3(a)(ii), the Non-Competition Period shall terminate on
the date of such resignation; or
(iii) If the Executive is terminated for cause (as
defined in paragraph 4.3(b)), two years after the date of
such termination for cause.
(c) Nothing in this paragraph 2 shall be construed to
prevent the Executive from owning, as an investment, not more than
1% of a class of equity securities issued by any issuer and
publicly traded and registered under Section 12 of the Securities
Exchange Act of 1934.
2.2. Trade Secrets. The Executive will keep confidential any trade
secrets or confidential or proprietary information of the
Corporation and its affiliates which are now known to him or which
hereafter may become known to him as a result of his employment or
association with the Companies and shall not at any time directly
or indirectly disclose any such information to any person, firm or
corporation, or use the same in any way other than in connection
with the business of the Companies or their affiliates during and
at all times after the expiration of the Employment Period. For
purposes of this Agreement, "trade secrets or confidential or
proprietary information" means information unique to the Companies
or any of their affiliates which has a significant business
purpose and is not known or generally available from sources
outside the Companies or any of their affiliates or typical of
industry practice.
3. Companies' Remedies for Breach. It is recognized that damages
in the event of breach of paragraph 2 by the Executive would be difficult, if
not impossible, to ascertain, and it is therefore agreed that the Companies, in
addition to and without limiting any other remedy or right they may have, shall
have the right to an injunction or other equitable relief in any federal or
state court of competent jurisdiction in the State of Maryland, enjoining any
such breach, and the Executive hereby waives any and all defenses he may have on
the ground of lack of jurisdiction or competence of the court to grant such an
injunction or other equitable relief. The existence of this right shall not
preclude any other rights and remedies at law or in equity which the Companies
may have. In the event the Companies seek an injunction against the Executive
and lose, then the Companies shall be liable for damages and for any legal fees
incurred by the Executive in defending the action.
4. Employment Period.
4.1. Duration. The Employment Period shall commence on the date of
this Agreement (the "Effective Date") and shall continue until the
earlier of (i) the close of business on the date which is two
years after the date on which, during the Employment Period,
either of the Companies gives written notice of termination to the
Executive or the Executive gives written notice of termination to
either of the Companies, as applicable, but not later than the
close of business on May 12, 2010, (ii) termination of this
Agreement (as defined in paragraph 4.3(a)), (iii) death of the
-4-
<PAGE>
Executive, (iv) total disability of the Executive (as defined in
paragraph 4.3(c)), (v) resignation of the Executive in
circumstances other than those described under paragraph
4.3(a)(ii), or (vi) discharge of the Executive for cause (as
defined in paragraph 4.3(b)).
4.2. Payments after Employment Period.
(a) In the event of a termination of this Agreement under
paragraph 4.1(ii), the Companies shall pay to the Executive
and provide him with the following:
(i) During the remainder of the Employment Period
(determined without regard to paragraph 4.1(ii)), but not
less than one year following the occurrence of any event
of termination under paragraph 4.1(ii), the Companies
shall continue to pay the Executive his salary at the rate
and as required by paragraph 1.2(a) and in effect
immediately prior to the date of termination plus (in any
year after the first year) an annual bonus payable at the
time or times customary during the Employment Period,
which bonus shall be equivalent to a certain percentage of
his salary paid to him by the Companies for each such year
during the remainder of the Employment Period (determined
without regard to paragraph 4.1(ii) but with regard to
paragraphs 4.1(iii) and (iv)), such percentage to be equal
to the average of the percentage of his salary which his
annual bonus represented during each of the three years
immediately preceding termination of this Agreement.
(ii) During the remainder of the Employment Period
(determined without regard to paragraph 4.1(ii) but with
regard to paragraphs 4.1(iii) and (iv)), the Executive
shall continue to be treated as an executive (at the level
provided for in paragraph 1.1(a)) under all of the benefit
programs, plans or arrangements of the Companies described
in paragraph 1.2(b). In addition, the Executive shall
continue to be entitled to all benefits and service
credits for benefits under all of the benefit programs,
plans or arrangements of the Companies described in
paragraph 1.2(d) as if he were still employed during such
period under this Agreement.
(iii) If, despite the provisions of subparagraph (ii)
above, benefits, service credits, or the right to accrue
further benefits or service credits under any benefit
programs, plans or arrangements of the Companies described
in paragraph 1.2(b) shall not be payable or provided to
the Executive, or his dependents, beneficiaries and
estate, because he is not longer an employee of one or
both of the Companies, the Companies shall, to the extent
necessary, provide, pay or provide for payment of
equivalent benefits, service credits and rights to accrue
further benefits or service credits to or for the benefit
of the Executive, his dependents, beneficiaries and
estate.
-5-
<PAGE>
(b) In the event of a termination of this Agreement under
paragraph 4.1(ii), the Executive in his discretion may elect,
within 60 days after such termination, to be paid a lump sum
or other agreed severance allowance in lieu of termination
payments provided for in paragraph 4.2(a) in an amount of cash
which shall be negotiated and agreed upon in writing between
the Executive and the Companies. Among the forms which the
severance allowance may take, if negotiated and agreed upon in
writing between the Executive and the Companies, shall be
payment of equal installments to the Executive the present
value of which, computed at the time required by Section 4999
of the Internal Revenue Code of 1986 (the "Code"), is below
the threshold necessary to trigger applicability of Section
4999 of the Code which imposes a nondeductible excise tax on
any recipient of an "excess parachute payment" equal to 20% of
the amount of such payment. In the event that the Executive
makes an election pursuant to this paragraph 4.2(b), the
severance allowance shall represent the present fair market
value of the amount of salary, bonuses and all benefit
programs, plans and arrangements of the Companies which the
Executive would be entitled to during the Employment Period
(determined without regard to paragraph 4.1(iii)) under this
Agreement. Upon the date that the Companies and the Executive
enter into a written agreement providing for a severance
payment, the Companies' obligations to the Executive pursuant
to paragraph 4.2(a) shall terminate. In the event that the
Executive and the Companies are unable to negotiate a mutually
satisfactory agreement concerning the amount of a severance
payment pursuant to this paragraph 4.2(b), then the Executive
shall receive termination payments and benefits as provided in
paragraphs 4.2(a). Payments made under this paragraph 4.2(b)
shall continue notwithstanding the subsequent death or
disability of the Executive.
(c) In the event of a termination of this Agreement under
paragraph 4.1(iii), (i) the Companies shall pay the
Executive's estate an amount equal to six months' salary at
the rate and as required by paragraph 1.2(a) and in effect
immediately prior to the date of death, (ii) the Companies
shall continue benefits under the Companies' sickness,
accident or health insurance for a period of six months
following death of the Executive for those dependents and
beneficiaries of the Executive who were covered by such
programs, plans or arrangements at the date of the Executive's
death, and (iii) the Executive's dependents, beneficiaries and
estate, as the case may be, will receive such survivor and
other benefits as they may be entitled under the terms of the
benefit programs, plans, and arrangements described in
paragraph 1.2(b) which provide benefits upon death of the
Executive.
(d) In the event of a termination of this Agreement under
paragraph 4.1(iv), (i) the Companies shall pay the Executive
an amount equal to six months' salary at the rate and as
required by paragraph 1.2(a) and in effect immediately prior
to the date of total disability, (ii) the Companies shall
continue benefits under the
-6-
<PAGE>
Companies' sickness, accident and health insurance for two
years following the date of total disability for the Executive
and his dependents and beneficiaries who are covered by such
programs, plans and arrangements during the two-year period;
and (iii) the Executive, and his dependents, beneficiaries and
estate, as the case may be, will receive such benefits as they
may be entitled under the terms of the benefit programs,
plans, and arrangements described in paragraph 1.2(b) which
provided benefits upon total disability of the Executive.
(e) In the event of a termination of this Agreement under
paragraph 4.1(v) or (vi), the Executive, and his dependents,
beneficiaries and estate, as the case may be, will receive
such benefits as they may be entitled under the terms of the
benefit programs, plans, and arrangements of the Companies
described in paragraph 1.2(b) which provide benefits upon
retirement, resignation or discharge for cause, as the case
may be.
(f) The Executive shall not be required to mitigate the
amount of any payment provided for in this paragraph 4.2 by
seeking employment or otherwise, nor shall the amount of any
payment provided for in this paragraph 4.2 be reduced by any
compensation or remuneration earned by the Executive as the
result of employment by another employer, or self-employment,
or as a partner, after the date of termination or otherwise.
Any payment provided for in this paragraph 4.2 shall be deemed
"liquidated damages" rather than a "penalty."
4.3. Definitions. The following words shall have the specified
meanings when used in the paragraphs specified:
(a) In paragraphs 4.1(ii), 4.2(a) and (b) and 5, the term
"termination" means termination (i) by either of the Companies
of the employment of the Executive with either of the
Companies for any reason other than death or total disability
of the Executive or other than for cause, or (ii) by
resignation of the Executive due to a significant change in
the nature or scope of his authorities or duties from those
contemplated in paragraph 1.1, a reduction in total
compensation from that provided in paragraph 1.2, or the
breach by either of the Companies of any other provision of
this Agreement.
(b) In paragraphs 4.1(vi) and 4.3(a)(i), the term "cause"
means (i) substantiated fraud, or substantiated
misappropriation resulting in material damage to the property
or business of either of the Companies; conviction for
commission of a felony; (ii) continuance of either willful and
repeated failure or grossly negligent and repeated failure by
the Executive to perform his duties in compliance with this
Agreement after written notice to the Executive by the Board
of Directors specifying such failure, provided that such
"cause" shall have been found by a majority vote of the Board
of Directors of each of the Companies (who are not serving as
a designee of a person having an interest in excess of 25% of
-7-
<PAGE>
the outstanding stock of the Corporation) after at least 10
days' written notice to the Executive specifying the cause
proposed to be claimed and after an opportunity for the
Executive to be heard at meetings of such Board of Directors;
or (iii) a continued violation of paragraph 2 after written
notice to the Executive by the Board of Directors specifying
such violation and providing the Executive the opportunity to
cease such violation within 20 days from the date of receipt
by the Executive of such notice.
(c) In paragraphs 1.1(c), 4.1(iv), 4.2(d) and 4.3(a)(i),
the term "total disability" means total disability as defined
in the Companies' group and individual disability plans. If
there is no such plan, then "total disability" means total
disability as defined in the Executive's individual disability
policy, and if there is no such policy, as defined in the
group disability plan for the law firm of Piper & Marbury
L.L.P., 36 South Charles Street, Baltimore, Maryland 21201.
5. Payments for Termination or Resignation after a Change in
Control.
5.1. Definitions.
(a) A "Change in Control," as used in this Agreement,
shall be deemed to have occurred when:
(i) Any person (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder) is or becomes the beneficial
owner, directly or indirectly, of 25% or more of the voting equity
stock of the Corporation, or any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended, and the regulations promulgated thereunder) other than
the Corporation is or becomes the beneficial owner, directly or
indirectly, of 25% or more of the Common Stock of the Bank; or
(ii) Any person (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended, and
the regulations promulgated thereunder) gains control of the
election of a majority of the Board of Directors of the
Corporation, or any person (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended, and
the regulations promulgated thereunder) other than the Corporation
gains control of the election of a majority of the Board of
Directors of the Bank; or
(iii) Any person (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended, and
the regulations promulgated thereunder) gains control of the
management or policies of either of the Companies; or
-8-
<PAGE>
(iv) either of the Companies consolidates with, or merges
with or into, another entity (including a corporation, bank,
partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form
of entity not specifically listed herein) or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets, or another such entity
consolidates with, or merges with or into, such Company, in any
such event pursuant to a transaction in which the issued and
outstanding shares of the voting equity stock of such Company are
converted into or exchanged for cash, securities or other
property; or
(v) during any consecutive two-year period, individuals
who at the beginning of such period constituted the Board of
Directors of either Company (together with any directors who are
members of the Board of Directors on the date hereof and any new
directors whose election by such Board of Directors or whose
nomination for election by the stockholders of such Company was
approved by a vote of 66-2/3% of the directors then still in
office who were either directors at the beginning of such period
of whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the
Board of Directors of such Company then in office.
(b) A "Change in Control Period" shall mean the period
commencing 90 days before a Change in Control and ending 365 days
after such Change in Control.
5.2. Amount of Payments. Except as provided in paragraph 5.2(e),
and in lieu of amounts payable under paragraph 4, the Companies will
pay the Executive the following amounts in the following circumstances:
(a) (i) If the Executive is terminated by either of the
Companies in the circumstances described under paragraph
4.3(a)(i), or if the Executive resigns during a Change in Control
Period in the circumstances described under paragraph 4.3(a)(ii),
or if during a Change in Control Period the Executive resigns in
circumstances other than those described under paragraph
4.3(a)(ii) without having been offered an employment agreement the
terms of which are comparable to those of this Agreement, the
Companies will pay, or cause to be paid, to the Executive: (a) if
the Executive's termination or resignation occurs before the
Executive has attained the age of 63 years, an amount equal to two
times the sum of (i) the Executive's annual base salary
immediately before the Change in Control and (ii) the average of
the bonuses paid to the Executive over the past three years
(including years in which no bonus was awarded); or (b) if the
Executive's termination or resignation occurs on or after the
Executive has attained the age of 63 years, an amount equal to the
amount set forth in paragraph 5.2(a)(i)(a) multiplied by a
fraction, the numerator of which shall be 730 minus the number of
days which have passed since the Executive's 63rd birthday, and
the denominator of which shall be 730.
-9-
<PAGE>
(ii) Such payment shall be made in one lump sum
within 15 business days after the Executive's termination or
resignation.
(b) (i) If the Executive resigns during a Change in
Control Period in circumstances other than those described under
paragraph 4.3(a)(ii) after having been offered an employment
agreement the terms of which are comparable to those of this
Agreement, the Companies will pay, or cause to be paid, to the
Executive: (a) if the Executive's resignation occurs before the
Executive has attained the age of 64 years, an amount equal to the
sum of (i) the Executive's annual base salary immediately before
the Change in Control and (ii) the average of the bonuses paid to
the Executive over the past three years (including years in which
no bonus was awarded); or (b) if the Executive's resignation
occurs on or after the Executive has attained the age of 64 years,
an amount equal to the amount set forth in paragraph 5.2(b)(i)(a)
multiplied by a fraction, the numerator of which shall be 365
minus the number of days which have passed since the Executive's
64th birthday, and the denominator of which shall be 365.
(ii) Such payment shall be made in one lump sum
within 15 business days after the Executive's resignation.
(c) Except as provided in paragraph 5.2(e), if the
Executive is terminated by the Companies or resigns as described
in paragraph 5.2(a), or resigns as described in paragraph 5.2(b),
the Executive shall continue to receive all health, life, and
disability insurance benefits available to him pursuant to
paragraph 1.2(b) of this Agreement immediately before such
termination or resignation. The Executive shall continue to
receive such benefits until the earliest of (a) such time as the
Executive shall have been receiving substantially similar
insurance benefits for six months under subsequent employment, (b)
24 months after the date of a termination or resignation described
in paragraph 5.2(a) or 12 months after the date of a resignation
described in paragraph 5.2(b), or (c) such date as the Executive
shall have attained the age of 65 years.
(d) All options granted to the Executive under the
Corporation's stock option award arrangements providing for the
granting of options to acquire common stock to founders, directors
and key employees shall immediately become fully vested in the
event of a Change in Control.
(e) The Executive is to receive no payments under
paragraph 5.2(a) or (b) and no benefits under paragraph 5.2(c) if
the Executive is terminated during a Change in Control Period
after having already attained the age of 65 years, or if the
Executive is terminated by either of the Companies during a Change
in Control Period upon the death or total disability of the
Executive or for cause. In an instance of death or total
disability of the Executive, however, the Executive and his
dependents, beneficiaries
-10-
<PAGE>
and estate shall receive any benefits payable to them under
paragraphs 4.2 (c) and 4.2 (d).
(f) Notwithstanding the foregoing, in the event that any
of the amounts payable to the Executive under paragraph 5.2 would,
if made, cause the Executive to have tax under Section 4999 of the
Code, the Executive may elect, at his discretion, to reduce the
amount payable to him under paragraph 5.2(a) or (b) by an amount
such that the aggregate after-tax amounts the Executive will
receive under paragraph 5.2 will be equal to the aggregate
after-tax amounts the Executive would receive without the
reduction he elected (i.e., the aggregate amounts after the
application of the tax under Section 4999 of the Code and other
taxes)."
6. Legal Costs. If (i) either of the Companies shall fail to
pay or provide for payment of any amounts required to be paid or provided for
hereunder at any time, (ii) the Executive desires to consult with or retain
counsel as to any possible breach by the Companies of this Agreement or as to
any of his rights under this Agreement, or (iii) the Executive desires to retain
counsel to review or negotiate the terms of this Agreement prior to the
effective date of this Agreement, the Executive shall be entitled to consult
with counsel, and the Companies agree to pay the reasonable fees and expenses of
independent counsel for the Executive in reviewing or negotiating this
Agreement, advising him or in bringing any proceedings, or in defending any
proceedings, involving the Executive's rights under this Agreement, such right
to reimbursement to be immediate upon the presentment by Executive of written
billings for such reasonable fees and expenses. The Executive shall be entitled
to receive interest (at the prime rate of interest established from time to time
at The First National Bank of Maryland) on any payments of such expenses, or any
other payments under this Agreement, that are overdue.
7. Notices. Any notice, requests, demands and other
communications provided for by this Agreement shall be sufficient if in writing
and if sent by registered or certified mail/return receipt to the Executive at
the last address he has filed in writing with either of the Companies or, in the
case of either of the Companies, at its principal executive offices.
8. Binding Agreement. This Agreement shall be effective as of
the date hereof and shall be binding upon and inure to the benefit of the
Executive, his executors, administrators and personal representatives. The
rights and obligations of the Corporation and of the Bank under this Agreement
shall inure to the benefit of and shall be binding upon the Companies, and shall
be transferred to and be binding upon any successor of either of the Companies
including, but not limited to, any successor of either of the Companies pursuant
to a merger, conversion, consolidation, or transfer of assets; provided, that
this Agreement may not be assigned by either of the Companies without the
consent of the Executive, and in the case of a successor by transfer of all or
substantially all of the assets of either of the Companies, or any other
successor in which either of the Companies does not cease to exist by operation
of the transaction in question as a matter of law, neither of the Companies
shall be relieved of its obligations hereunder; provided further, that in the
case of dissolution and winding up of the business of either of the Companies,
this Agreement and the obligations hereunder shall be
-11-
<PAGE>
binding upon the trustee of either of the Companies' assets. It is recognized
that, as parent and subsidiary, the Companies are closely related and that all
provisions for compensation and benefits hereunder refer to compensation and
benefits from the Bank and the Corporation in the aggregate. The Bank and the
Corporation shall be free, without violating this Agreement, to provide salary
and other benefits from either of them in their full discretion, provided that
in the aggregate such salary and benefits comply with this Agreement; provided,
however, that all stock options and provisions for compensation measured by the
performance of stock shall relate to the Corporation's capital stock. The
Companies shall be jointly and severally liable to the Executive for all of the
obligations of either of them under this Agreement and any violation by either
the Bank or the Corporation of any of its obligations hereunder shall be deemed
to be a violation by the other of them. Any legal finding that either the Bank
or the Corporation is not legally required to fulfill any of its obligations
under this Agreement shall not be deemed to relieve the other of them from
fulfilling such obligations.
9. Entire Agreement. This Agreement constitutes the entire
understanding of the Executive and the Companies with respect to the subject
matter hereof and supersedes any and all prior understandings, written or oral,
including any prior employment agreements between the Companies and the
Executive. This Agreement may not be changed, modified, or discharged orally,
but only by an instrument in writing signed by the parties. This Agreement shall
be governed by the laws of the State of Maryland and the invalidity or
unenforceability of any provisions hereof shall in no way affect the validity or
enforceability of any other provision.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement on March 23, 1999.
ATTEST: COLUMBIA BANCORP
/S/ Jindy Noor /S/ John M. Bond, Jr.
- ----------------------------- -------------------------------------
John M. Bond, Jr.
President and Chief Executive Officer
ATTEST: THE COLUMBIA BANK
/S/ Jindy Noor /S/ John M. Bond, Jr.
- ----------------------------- -------------------------------------
John M. Bond, Jr.
President and Chief Executive Officer
WITNESS:
/S/ Jindy Noor /S/ Robert W. Locke
- ----------------------------- -------------------------------------
Robert W. Locke
-12-
AMENDMENT TO THE
COLUMBIA BANCORP 1997 STOCK OPTION PLAN
THIS AMENDMENT to the Columbia Bancorp 1997 Stock Option Plan (the
"Plan"), is adopted this 28th day of September, 1998 (the "Effective Date"), by
Columbia Bancorp (the "Corporation").
W I T N E S S E T H
WHEREAS, the Board of Directors of the Corporation has the authority to
amend the Plan; and
WHEREAS, the Board of Directors of the Corporation has duly adopted
resolutions to amend the Plan as set forth herein;
NOW, THEREFORE, the Plan is hereby amended by adding the following
after the last sentence of Section 5(c), effective as of the Effective Date with
respect to all options granted under the Plan, including but not limited to
options outstanding as of the Effective Date:
Notwithstanding the foregoing, if an unexercised option would become
exercisable pursuant to this Section 5(c) in connection with a merger,
consolidation, sale of substantially all of the assets, or any other
form of corporate reorganization in which the Corporation is not the
surviving entity, or a statutory share exchange in which the
Corporation is not the issuer, then such option shall be exercisable as
of the business day immediately preceding the effective date of the
transaction.
IN WITNESS WHEREOF, Columbia Bancorp has caused this Amendment to be
executed by its duly authorized officer.
ATTEST: COLUMBIA BANCORP
By: /s/ John A. Scaldara, Jr.
/s/ Jindy Noor --------------------------
- ---------------- John A. Scaldara, Jr.
Jindy Noor Corporate Secretary
September 29, 1998
[COLUMBIA BANCORP LOGO APPEARS HERE]
COLUMBIA BANCORP
1998 ANNUAL REPORT
<PAGE>
[COLUMBIA BANCORP LOGO APPEARS HERE]
Columbia Bancorp Corporate Profile
Columbia Bancorp and Subsidiary
COLUMBIA BANCORP IS A BANK HOLDING COMPANY WHOSE SUBSIDIARY, THE COLUMBIA BANK,
COMMENCED OPERATIONS IN 1988.
o HEADQUARTERED IN COLUMBIA, MARYLAND, THE COLUMBIA BANK IS THE LARGEST
COMMUNITY BANK IN HOWARD COUNTY, ONE OF THE WEALTHIEST COUNTIES IN THE UNITED
STATES.
o IN LITTLE MORE THAN A DECADE, THE BANK HAS RISEN TO THIRD IN MARKET SHARE IN
ITS HOME MARKET, HOWARD COUNTY, AND IS WORKING HARD TO CLOSE THE GAP WITH THE
TWO MARKET LEADERS, ALLIED IRISH (FIRST NATIONAL BANK OF MARYLAND) AND
BANKAMERICA (NATIONSBANK).
o THE BANK IS COMMITTED TO EXPANSION BY INTRODUCING ITS UNIQUE AND SUCCESSFUL
STYLE OF BANKING TO OTHER COMMUNITIES IN THE BALTIMORE-WASHINGTON CORRIDOR.
<PAGE>
[COLUMBIA BANCORP LOGO APPEARS HERE]
MARKET AREA
Columbia Bancorp and Subsidiary
Howard County
Columbia Town Center
Columbia Town Center Residential Mortgage and Commercial Lending Offices
Ellicott City
Ellicott City Acquisition, Development and Construction Office
Harmony Hall
Harper's Choice
Long Gate
Oakland Mills
River Hill
Vantage House
Wilde Lake
Montgomery County
Olney Residential Lending Office
Baltimore City
Cross Keys
Roland Park Place
Baltimore County
Blakehurst
Edenwald
Heaver Plaza-Lutherville
Heaver Plaza Commercial Lending Office
Heaver Plaza Residential Mortgage Lending Office
[TWO MAPS APPEAR HERE DEPICTING THE FOLLOWING LOCATIONS:]
Banking Offices of The Columbia Bank
Residential Mortgage Lending Offices
Commercial Lending Offices
Acquisition, Development and Construction Lending Offices
Home Market Area
Target Area
2
<PAGE>
[COLUMBIA BANCORP LOGO APPEARS HERE]
FINANCIAL HIGHLIGHTS
Columbia Bancorp and Subsidiary
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets $427,335 $373,451 $317,234 $263,025 $224,208
Loans, net of unearned income 274,413 265,194 237,875 190,691 162,253
Deposits 339,336 313,357 254,640 218,162 189,463
Stockholders' equity 38,354 34,385 30,975 28,064 16,873
Net income 4,746 4,168 3,752 3,429 2,416
- -----------------------------------------------------------------------------------------------------------
Per Share Data (a):
Net income per common share:
Basic $ 1.05 $ .96 $ .87 $ 1.03 $ .90
Diluted 1.03 .91 .83 .90 .79
Tangible book value per common share 8.39 7.77 7.15 6.46 5.81
Dividends declared:
Common .29 .25 .21 .13 .07
Preferred -- -- -- 1.30 1.20
- -----------------------------------------------------------------------------------------------------------
Return on average assets 1.18% 1.21% 1.34% 1.42% 1.13%
Return on average stockholders' equity 12.94 12.78 12.71 15.60 15.01
Nonperforming assets and past-due
loans to total assets 1.66 1.41 1.37 .49 1.29
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Per common share data for 1997, 1996, 1995 and 1994 have been adjusted to
reflect the two-for-one stock split-up in the form of a 100% stock dividend
paid in June 1998.
TANGIBLE BOOK VALUE PER
COMMON SHARE
1994 1995 1996 1997 1998
- ---- ---- ---- ---- ----
5.81 6.46 7.15 7.77 8.39
NET INCOME
($ in thousands)
1994 1995 1996 1997 1998
- ---- ---- ---- ---- ----
2,416 3,429 3,752 4,168 4,746
LOANS, NET OF
UNEARNED
INCOME
($ in millions)
1994 1995 1996 1997 1998
- ---- ---- ---- ---- ----
162.3 190.7 237.9 265.2 274.4
DEPOSITS
($ in millions)
1994 1995 1996 1997 1998
- ---- ---- ---- ---- ----
189.5 218.2 254.6 313.4 339.3
TOTAL ASSETS
($ in millions)
1994 1995 1996 1997 1998
- ---- ---- ---- ---- ----
224.2 263.0 317.2 373.5 427.3
3
<PAGE>
[COLUMBIA BANCORP LOGO APPEARS HERE]
REPORT TO SHAREHOLDERS
Columbia Bancorp and Subsidiary
AS THE MILLENNIUM APPROACHES, Columbia Bancorp is still benefiting from the
business strategy which was initiated by its founders more than a decade ago.
Our mission remains the same: to become the premier community banking
institution in the Baltimore-Washington Corridor by providing fully competitive
banking services in a convenient, local, user-friendly format, emphasizing
superior customer service.
During 1998, Columbia Bancorp began to reap the benefits of its rapid
expansion in 1997. The three full-service branches opened during 1997, as well
as the significant expansion of our mortgage banking business that same year,
contributed to our continued rapid growth and record profitability. Striking an
appropriate balance between profitability and growth continues to be a primary
goal as we seek to maximize shareholder value.
1998: Performance Highlights
Continued Rapid Growth
o At December 31, 1998, total assets reached a record $427.3 million,
representing a 14.4% annual increase.
o Since its founding in 1987, Columbia Bancorp assets have grown at a 32%
compound annual rate.
Record Profitability
o Net income increased 13.9% to $4.7 million, reaching a record level for the
seventh consecutive year.
o Return on assets and return on equity were 1.2% and 12.9%, respectively, both
exceeding peer group (defined as publicly traded commercial banks in Maryland,
Virginia, Pennsylvania and the District of Columbia with assets less than $1.0
billion) averages.
Strong Asset Quality
o Net loan losses decreased to .12% as a percent of average loans outstanding,
below our peer group average of .13%.
o While our ratio of nonperforming assets and past due loans to total assets of
1.66% remained above our peer group average, the difference reflected primarily
two problems in our residential development and construction lending portfolio,
involving residential real estate loans for which substantial recovery is
anticipated. Such problems occur from time-to-time in the normal course of our
residential development and construction lending business.
o Our allowance for credit losses increased to 1.45% of loans outstanding, net
of unearned income, as compared to 1.25% for our peer group.
Increased Shareholder Value
o Diluted earnings per common share increased 13.2% from $0.91 for 1997 to $1.03
for 1998.
o Tangible book value per common share reached $8.39, as compared to $7.77 at
period end 1997.
o Our quarterly common stock dividend was increased in December 1998 to $.08 per
share from $.07 per share, representing a compound annual growth rate of 43%
since our first dividend in 1994.
o In November 1998, we initiated a share repurchase program under which we may
acquire up to 400,000 shares of our common stock, in an effort to enhance
shareholder value.
4
<PAGE>
[COLUMBIA BANCORP LOGO APPEARS HERE]
REPORT TO SHAREHOLDERS
Columbia Bancorp and Subsidiary
- ------------------------------------------------
COLUMBIA BANCORP VS. PEER BANKS
COMPARATIVE RATIOS
- ------------------------------------------------
Year Ended December 31, 1998
Peer
Columbia Banks*
- ------------------------------------------------
Performance:
Return on average assets 1.18% 1.18%
Return on average equity 12.94 11.65
Net interest margin 5.48 4.56
Efficiency ratio 65.93 63.78
Capital:
Year-end capital to year-end
risk-weighted assets:
Tier 1 11.49% 13.19%
Total 12.68 14.44
- ------------------------------------------------
*Publicly traded commercial banks in Maryland, Pennsylvania, Virginia and the
District of Columbia with total assets less than $1 billion.
1998: Strengthening Market Position
Increasing Share of Excellent Market
Our performance continues to be enhanced by the strength of our home market,
Howard County, Maryland. Demographic statistics for Howard County suggest that
our market will continue to offer dynamic growth opportunities. For example,
Howard County enjoys the highest median household income in Maryland at $68,800.
- ------------------------------------------------
HOWARD COUNTY
MARKET DEMOGRAPHICS
- ------------------------------------------------
Howard
County Maryland U.S.
- ------------------------------------------------
Population
Projected Growth
(2000-2015) 22% 12% 13%
Households
Projected Growth
(2000-2015) 28% 17% 12%
Median Household
Income $68,800 $48,900 $37,000
Unemployment Rate
(12/98) 2.0% 3.5% 4.0%
- ------------------------------------------------
Source: Maryland Office of Planning; Howard County Economic Development
Authority; U.S. Bureau of Census.
During 1998, Columbia Bancorp increased its deposit market share in Howard
County to 14%. This increase was particularly gratifying in light of the intense
competition encountered from major regional banks who are also focusing on this
attractive market.
- ---------------------------------------------------------
HOWARD COUNTY
DEPOSIT MARKET SHARE
- ---------------------------------------------------------
Percent of Total Deposits as of June 30, 1998
Allied Irish (First National Bank of Maryland) 23%
BankAmerica (NationsBank) 17%
Columbia Bancorp 14%
First Union 7%
Commercial and Farmers Bank 6%
Citizens National Bank 5%
Sun Trust (Crestar) 5%
- ---------------------------------------------------------
Source: FDIC
New Expansion Initiatives
In 1998, the three full-service branches opened during 1997 in Howard County
brought in an average of $1.3 million in new deposits per month. As these
branches mature we will continue to strengthen our market position as the number
one community bank in Howard County.
5
<PAGE>
[COLUMBIA BANCORP LOGO APPEARS HERE]
REPORT TO SHAREHOLDERS
Columbia Bancorp and Subsidiary
[PHOTO OF HERSCHEL L. LANGENTHAL, VICE CHAIRMAN, JAMES R. MOXLEY, JR. CHAIRMAN,
JOHN M. BOND, JR., PRESIDENT AND CHIEF EXECUTIVE OFFICER APPEARS HERE]
During October 1998, we relocated our Oakland Mills Branch as a part of the
renovation of that Columbia Village Center. With our new freestanding,
full-service banking facility, we are better able to service the banking needs
of the Oakland Mills market area. We now operate seven branches in Columbia.
In December 1998, we opened our fifth retirement community branch at Edenwald
in Towson, Maryland. These five small, low-overhead facilities have proved to be
excellent sources of low cost core deposits. By delivering responsive, courteous
service, we have gained the confidence of residents in these communities and
have again proven the worth of our personalized style of banking.
As a result of the expansion of our residential mortgage lending initiatives
in 1997, we were able to originate in excess of $168 million in first mortgages
for sale into the secondary market during 1998. Fee income, net of commission
expense, from sales of first mortgages during 1998 grew by 256% as compared to
1997, reaching $1.3 million. This increase was a major factor in our overall 57%
increase in noninterest income for 1998 as compared to 1997.
Growth in commercial lending activity during 1998 was particularly
gratifying. Commercial loans grew by 13% and were the most rapidly growing
portion of our total loan portfolio. This growth was the result of a decade of
market development activities and was achieved in the face of intense
competition with regard to both pricing and credit terms. Throughout the period,
we remained cautious and maintained conservative underwriting standards, but
were, nonetheless, able to achieve excellent growth in our commercial loan
portfolio because of the strength of our customer relationships and market
penetration.
Technology Initiatives and Year 2000
During 1998, we continued to make significant investments in our core
operating systems, including a new operating system for our mortgage division
and further enhancements to the wide-area network linking all of our facilities.
Working with our technology partners, including M&I Data Services, Inc. and
IBM, we are on schedule to accomplish all Year 2000 upgrade requirements.
Moreover, contingency plans are in place to respond to unexpected problems which
may arise outside of the control of our institution, but which may directly or
indirectly affect us.
Future Directions
Columbia Bancorp has proven the soundness of the strategic plan chosen in
1987 by its founders. Today, we are well on our way to becoming the premier
community banking institution in the Baltimore-Washington Corridor.
Our home market of Howard County and similar contiguous submarkets continue
to offer outstanding opportunities for growth. Moreover, consolidation of the
banking industry in Maryland, particularly among community banks, will continue
to provide opportunities for expansion through acquisition.
Blessed with such excellent prospects for future expansion, we will continue
to strive for an optimal balance between growth and profitability. By so doing,
we intend to maximize long-term shareholder value.
6
<PAGE>
[COLUMBIA BANCORP LOGO APPEARS HERE]
TABLE OF CONTENTS
Columbia Bancorp and Subsidiary
- ------------------------------------------------------------------------------
Selected Financial Highlights 8
- ------------------------------------------------------------------------------
Management's Discussion and Analysis 9
- ------------------------------------------------------------------------------
Independent Auditors' Report 28
- ------------------------------------------------------------------------------
Consolidated Statements of Condition 29
- ------------------------------------------------------------------------------
Consolidated Statements of Income and Comprehensive Income 30
- ------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity 31
- ------------------------------------------------------------------------------
Consolidated Statements of Cash Flows 32
- ------------------------------------------------------------------------------
Notes to Consolidated Financial Statements 34
- ------------------------------------------------------------------------------
Selected Quarterly Financial Data 52
- ------------------------------------------------------------------------------
Recent Common Stock Prices and Stock Performance Graph 53
- ------------------------------------------------------------------------------
Directors and Officers 54
- ------------------------------------------------------------------------------
Corporate Information 56
- ------------------------------------------------------------------------------
7
<PAGE>
[COLUMBIA BANCORP LOGO APPEARS HERE]
SELECTED FINANCIAL HIGHLIGHTS
Columbia Bancorp and Subsidiary
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Income Statement Data:
Interest income $ 32,928 $ 30,194 $ 25,822 $ 22,210 $ 17,031
Interest expense 13,018 11,473 8,769 7,892 5,705
-------------------------------------------------------
Net interest income 19,910 18,721 17,053 14,318 11,326
Provision for credit losses 659 663 621 559 242
-------------------------------------------------------
Net interest income after
provision for credit losses 19,251 18,058 16,432 13,759 11,084
Noninterest income 3,424 2,182 1,788 1,300 1,504
Noninterest expense 15,384 13,722 12,081 9,472 8,649
-------------------------------------------------------
Income before income taxes 7,291 6,518 6,139 5,587 3,939
Income taxes 2,545 2,350 2,387 2,158 1,523
-------------------------------------------------------
Net income $ 4,746 $ 4,168 $ 3,752 $ 3,429 $ 2,416
=======================================================
Consolidated Balance Sheet Data, at year-end:
Assets $427,335 $373,451 $317,234 $263,025 $224,208
Loans, net of unearned income 274,413 265,194 237,875 190,691 162,253
Deposits 339,336 313,357 254,640 218,162 189,463
Stockholders' equity 38,354 34,385 30,975 28,064 16,873
Per Share Data (a):
Number of shares of Common Stock
outstanding, at year-end (in thousands) 4,562 4,400 4,296 4,292 2,080
Net income:
Basic $ 1.05 $ .96 $ .87 $ 1.03 $ .90
Diluted 1.03 .91 .83 .90 .79
Cash dividends declared:
Common .29 .25 .21 .13 .07
Preferred -- -- -- 1.30 1.20
Tangible book value, at year-end 8.39 7.77 7.15 6.46 5.81
Performance and Capital Ratios:
Return on average assets 1.18% 1.21% 1.34% 1.42% 1.13%
Return on average stockholders' equity 12.94 12.78 12.71 15.60 15.01
Net interest margin (b) 5.48 5.99 6.60 6.46 5.90
Average stockholders' equity to
average total assets 9.09 9.44 10.53 9.07 7.53
Year-end capital to year-end
risk-weighted assets:
Tier 1 11.49 11.31 11.91 12.97 9.28
Total 12.68 12.51 13.16 14.12 10.56
Year-end Tier 1 leverage ratio 9.00 9.25 10.11 10.67 7.39
Cash dividends declared to net income 27.88 26.05 24.05 25.66 28.38
Asset Quality Ratios:
Allowance for credit losses, at year-end, to:
Total loans, net of unearned income 1.45% 1.37% 1.38% 1.54% 1.59%
Nonperforming and past-due loans 129.66 548.35 84.23 245.72 222.62
Net charge-offs to average total
loans, net of unearned income .12 .13 .12 .12 .02
Nonperforming and past-due loans to total
loans, net of unearned income, at year-end 1.11 .25 1.64 .63 .71
Nonperforming assets and past-due
loans to total assets, at year-end 1.66 1.41 1.37 .49 1.29
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Per common share data for 1997, 1996, 1995 and 1994 have been adjusted to
reflect the two-for-one stock split-up in the form of a 100% stock dividend paid
in June 1998.
(b) Net interest margin is the ratio of net interest income, determined on a
fully-taxable equivalent basis, to total average interest-earning assets.
8
<PAGE>
[COLUMBIA BANCORP LOGO APPEARS HERE]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Columbia Bancorp and Subsidiary
GENERAL
Columbia Bancorp (the "Company") was formed November 16, 1987 and is a
Maryland chartered bank holding company. The Company holds all of the issued and
outstanding shares of common stock of The Columbia Bank (the "Bank"). The Bank
is a Maryland trust company which engages in general commercial banking
operations. The Bank provides a full range of financial services to individuals,
businesses and organizations through fourteen branch banking offices, three
mortgage loan origination offices and fourteen Automated Teller Machines
("ATMs"). Deposits in the Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC"). The Company considers its home market area to be
Howard County, Maryland, with extension of business throughout the contiguous
counties comprising central Maryland.
FORWARD - LOOKING STATEMENTS
In addition to historical information, this annual report contains
forward-looking statements, which are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected in the
forward-looking statements. Important factors that might cause such a difference
include, but are not limited to, those discussed in this section. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly revise or update these forward-looking statements to
reflect events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission, including the
Quarterly Reports on Form 10-Q to be filed by the Company in 1999.
OVERVIEW
Net income for 1998 increased for the seventh consecutive year to a record
level of $4.7 million, producing a 13.9% increase over the $4.2 million reported
in 1997. This represents diluted net income per share of $1.03 for 1998,
compared to $.91 for 1997, adjusted to reflect the two-for-one stock split-up in
the form of a 100% stock dividend paid in June 1998. Return on average assets
and return on average equity for 1998 were 1.18% and 12.94% respectively, and
tangible book value per share increased to $8.39 at December 31, 1998 from $7.77
at December 31, 1997.
Total assets increased 14.4% in 1998 to $427.3 million, loans grew to $274.4
million and deposits increased to $339.3 million.
The discussion which follows provides further detailed analysis regarding the
Company's financial condition and results of operations. It is intended to
assist readers in their analysis of the accompanying consolidated financial
statements and notes thereto.
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
Net interest income, the amount by which interest income on interest-earning
assets exceeds interest expense on interest-bearing liabilities, is the most
significant component of the Company's earnings. Net interest income is a
function of several factors, including changes in the volume and mix of
interest-earning assets and funding sources, and market interest rates. While
management policies influence these factors, external forces, including customer
needs and demands, competition, the economic policies of the federal government
and the monetary policies of the Federal Reserve Board, are also important.
9
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
The following table sets forth, for the periods indicated, information
regarding the average balances of interest-earning assets and interest-bearing
liabilities, the amount of interest income and interest expense and the
resulting yields on average interest-earning assets and rates paid on average
interest-bearing liabilities. Average balances are also provided for
noninterest-earning assets and noninterest-bearing liabilities.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) BALANCES (a) INTEREST RATE BALANCES (a) INTEREST RATE BALANCES (a) INTEREST RATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans, net of unearned
income (b) (c) $281,668 $ 27,789 9.87% $256,949 $ 26,786 10.42% $215,348 $ 23,447 10.89%
Investment securities
and securities
available-for-sale (c) 74,454 4,766 6.40 55,974 3,440 6.15 35,714 2,000 5.60
Federal funds sold 13,577 712 5.24 3,113 193 6.20 7,194 375 5.21
---------------------- ---------------------- -----------------------
Total interest-earning
assets 369,699 33,267 9.00 316,036 30,419 9.63 258,256 25,822 10.00
------ ------ ------
Noninterest-earning assets:
Cash and due from banks 14,311 13,642 12,856
Property and
equipment, net 8,890 8,547 7,085
Other assets 14,216 10,914 5,366
Less allowance for
credit losses (3,776) (3,513) (3,211)
-------- -------- --------
Total assets $403,340 $345,626 $280,352
======== ======== ========
</TABLE>
(a) Average balances are calculated as the average of month-end balances.
(b) Average loan balances include first mortgage loans originated for sale and
nonaccrual loans. Interest income on loans includes amortized loan fees,
net of costs, of $1.7 million, $2.0 million, and $2.4 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
(c) Interest on tax exempt loans and securities is presented on a fully-taxable
equivalent basis.
10
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) BALANCES (a) INTEREST RATE BALANCES (a) INTEREST RATE BALANCES (a) INTEREST RATE
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and
Stockholders' Equity
Interest-bearing liabilities:
NOW accounts $ 35,768 $ 539 1.51% $ 29,474 $ 609 2.07% $ 25,479 $ 521 2.04%
Savings accounts 45,660 1,439 3.15 45,415 1,560 3.43 44,022 1,420 3.22
Money market accounts 40,499 1,263 3.12 39,149 1,229 3.14 34,860 1,098 3.15
Certificates of deposit 147,789 7,797 5.28 122,737 6,696 5.46 92,125 5,010 5.44
Short-term borrowings 28,438 1,376 4.84 27,654 1,379 4.99 15,974 720 4.51
Long-term borrowings 11,052 604 5.47 -- -- -- -- -- --
-------------------- ------------------- ---------------------
Total interest-bearing
liabilities 309,206 13,018 4.21 264,429 11,473 4.34 212,460 8,769 4.13
------ ---- ------ ---- ----- ----
Noninterest-bearing
liabilities:
Noninterest-bearing
deposits 55,863 46,876 36,785
Other liabilities 1,594 1,701 1,595
Stockholders' equity 36,677 32,620 29,512
------ ------ ------
Total liabilities and
stockholders' equity $403,340 $345,626 $280,352
======== ======== ========
Net interest income $ 20,249 $ 18,946 $ 17,053
======== ======== ========
Net interest spread 4.79% 5.29% 5.87%
==== ==== ====
Net interest margin 5.48% 5.99% 6.60%
==== ==== ====
</TABLE>
(a) Average balances are calculated as the average of month-end balances.
(b) Average loan balances include first mortgage loans originated for sale and
nonaccrual loans. Interest income on loans includes amortized loan fees,
net of costs, of $1.7 million, $2.0 million, and $2.4 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
(c) Interest on tax exempt loans and securities is presented on a fully-taxable
equivalent basis.
Net interest income on a tax equivalent basis increased to $20.2 million for
the year ended December 31, 1998, compared to $18.9 million for 1997. The
increase in net interest income during 1998 was primarily the result of growth
in average interest-earning assets during 1998 of $53.7 million or 17.0%. While
net interest income increased in 1998, the net interest margin (representing net
interest income, on a fully-taxable equivalent basis, divided by average
interest-earning assets) declined from 5.99% during 1997 to 5.48% during 1998.
The decline reflected the impact of competitive forces on loan and deposit
pricing and changes in the mix of interest-earning assets and funding sources.
The following table and the related discussions of interest income and
interest expense provide further analysis of the increases in net interest
income during 1998 and 1997.
11
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1998 OVER 1997 1997 OVER 1996
- -------------------------------------------------------------------------------------------------------
DUE TO CHANGE IN DUE TO CHANGE IN
INCREASE ---------------- INCREASE -------------------
(DOLLARS IN THOUSANDS) (DECREASE) VOLUME RATE (DECREASE) VOLUME RATE
- -------------------------------------------------------------------------------------------------------
Interest income:
Loans (a) $ 1,003 $ 2,473 $(1,470) $ 3,339 $ 4,384 $(1,045)
Investment securities and
securities available-for-sale (a) 1,326 1,181 145 1,440 1,228 212
Federal funds sold 519 553 (34) (182) (243) 61
--------------------------------------------------------------
Total 2,848 4,207 (1,359) 4,597 5,369 (772)
--------------------------------------------------------------
Interest expense:
Deposits 944 1,235 (291) 2,045 1,707 338
Borrowings 601 680 (79) 659 575 84
--------------------------------------------------------------
Total 1,545 1,915 (370) 2,704 2,282 422
--------------------------------------------------------------
Net interest income $ 1,303 $ 2,292 $ (989) $ 1,893 $ 3,087 $(1,194)
--------------------------------------------------------------
</TABLE>
(A) Interest on tax exempt loans and securities is presented on a fully-taxable
equivalent basis.
(B) The change in interest income and expense due to both rate and volume has
been allocated to rate and volume changes in proportion to the absolute
dollar amounts of the change in each.
INTEREST INCOME
Interest income on a tax equivalent basis increased $2.8 million or 9.4% in
1998 as compared to 1997, primarily as a result of an increase in the average
balance of loans and investment securities outstanding in 1998 as compared to
1997. Average loans outstanding, net of unearned income, increased $24.7 million
or 9.6% during 1998 and reflected growth in the Company's retail and commercial
loan portfolios. Average investment securities and securities available-for-sale
increased $18.5 million or 33.0% during 1998 as compared to 1997 as a result of
increased investments in U.S. Treasury securities and other debt securities.
The increase in interest income due to average balances was mitigated by a
decrease in the yield on interest-earning assets from 9.63% in 1997 to 9.00% in
1998. Specifically, the yield on loans decreased to 9.87% in 1998, compared to
10.42% in 1997. This decrease was the result of competitive pricing pressures
and a decrease in the prime rate of interest of 75 basis points in the fourth
quarter, which impacted the Company's variable loan portfolio. In addition,
loans, the Company's highest yielding asset, on average declined as a percentage
of interest-earning assets from 81.3% in 1997 to 76.2% in 1998.
Interest income on a tax equivalent basis increased $4.6 million or 17.8% in
1997 as compared to 1996, also primarily as a result of an increase in the
average balance of loans outstanding. Average loans outstanding, net of unearned
income, increased $41.6 million or 19.3% during 1997 and reflected growth in the
Company's consumer, commercial and residential development and construction
portfolios. Average investment securities and securities available-for-sale
increased $20.3 million or 56.7% compared to 1996 as a result of increased
investments in U.S. Treasury securities.
INTEREST EXPENSE
Interest expense increased $1.5 million or 13.5% in 1998 as compared to 1997.
This increase reflected growth in deposits and borrowings. Specifically, average
interest-bearing deposits and borrowings increased $32.9 million and $11.8
million, respectively, during 1998. The increase in interest expense due to
average balances was mitigated by a decrease in the rate on interest-bearing
liabilities from 4.34% in 1997 to 4.21% in 1998. Specifically, the cost of
interest-bearing deposits decreased from 4.27% in 1997 to 4.10% in 1998 as
deposits were repriced in response to a decline in the interest rate environment
during the fourth quarter of 1998.
Interest expense increased $2.7 million in 1997 as compared to 1996,
reflecting growth in deposits and borrowings combined with an increase in the
cost of funds. Average interest-bearing deposits and short-term borrowings
increased $40.3 million and $11.7 million, respectively, in 1997, as compared to
1996. Also, the cost of interest-bearing funds increased from 4.1% in 1996 to
4.3% in 1997, reflecting a higher interest rate environment as well as
competitive pricing pressure.
12
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
PROVISION AND ALLOWANCE FOR LOAN 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 monthly evaluation, provisions are made to
maintain the Allowance at a level adequate to absorb potential losses within the
loan portfolio. The provision for credit losses was $659,000 for the year ended
1998 as compared with $663,000 and $621,000 for the years ended 1997 and 1996,
respectively.
The factors considered 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 as having potential for future
deterioration taking into consideration collateral value and the financial
strength of the borrowers 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, bank supervisory
authorities and independent consultants and accountants periodically review the
loan portfolio. At December 31, 1998 the Allowance was 1.45% of total loans, net
of unearned income. The Allowance at December 31, 1998 is considered by
management to be sufficient to address the credit risk in the current loan
portfolio.
The following table presents certain information regarding the Allowance for
the years ended December 31:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
Allowance at beginning of year $3,632 $3,293 $2,929 $2,578 $2,366
Less losses charged-off:
Commercial -- 4 -- 72 --
Real estate -- 23 240 23 37
Retail 331 272 39 140 57
Credit cards 13 66 29 23 32
-----------------------------------------------
Total losses charged-off 344 365 308 258 126
-----------------------------------------------
Recoveries of losses previously charged-off:
Commercial 1 -- 4 -- 5
Real estate 2 20 38 25 55
Retail 8 13 9 22 33
Credit cards 7 8 -- 3 3
-----------------------------------------------
Total recoveries 18 41 51 50 96
-----------------------------------------------
Net losses charged-off 326 324 257 208 30
Provision for credit losses 659 663 621 559 242
-----------------------------------------------
Allowance at end of year $3,965 $3,632 $3,293 $2,929 $2,578
-----------------------------------------------
Ratio of allowance to nonperforming
and past-due loans (a) 129.66% 548.35% 84.23% 245.72% 222.62%
-----------------------------------------------
Ratio of allowance to loans, net of
unearned income 1.45% 1.37% 1.38% 1.54% 1.59%
-----------------------------------------------
</TABLE>
(a) There is no direct relationship between the size of the allowance (and the
related provision for credit losses) and nonperforming and past-due loans.
Accordingly, the ratio of allowance to nonperforming and past-due loans may
tend to fluctuate significantly.
A breakdown of the Allowance is provided in the table below; however,
management does not believe that the Allowance can be segregated by category
with any precision that would be useful. The breakdown of the Allowance is based
primarily on those factors discussed previously in evaluating the adequacy of
the Allowance as a whole. Since all of those factors are subject to change, the
breakdown is not necessarily indicative of the category of potential future
credit losses.
13
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
The following table presents the allocation of the allowance at December 31
among the various loan categories.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(dollars in thousands) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------
Commercial $ 626 $ 526 $ 566 $ 350 $ 362
Real estate 1,767 1,448 1,946 1,201 816
Consumer 413 337 275 207 185
Unallocated 1,159 1,321 506 1,171 1,215
-----------------------------------------------
$3,965 $3,632 $3,293 $2,929 $2,578
-----------------------------------------------
The table below provides a percentage breakdown of the loan portfolio by
category to total loans, net of unearned income at December 31.
- -----------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------
Commercial 18.2% 14.1% 12.8% 15.3% 15.2%
Real estate 50.0 53.5 58.2 58.1 59.2
Consumer 31.8 32.4 29.0 26.6 25.6
-----------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
-----------------------------------------------
</TABLE>
NONINTEREST INCOME
Noninterest income, comprised primarily of gains and fees recognized on the
sales of residential mortgage loans and fees charged for services, totalled $3.4
million for 1998, which represented an increase of $1.2 million, or 56.9%, as
compared to 1997.
Gains and fees on sales of residential mortgage loans increased $912,000
during 1998, and corresponded to a 206% increase in the volume of residential
mortgage loans sold, from $51.9 million in 1997 to $159.0 million in 1998. A
favorable interest rate environment as well as continued expansion of mortgage
banking activities contributed to the increase in the volume of residential
mortgage loans sold. Service fee income increased by $153,000 in 1998, led
largely by increased fees collected for use of the Company's ATMs by account
holders of other financial institutions. Other noninterest income included an
additional $100,000 in 1998 from earnings on official checks processed through a
third-party servicer. Higher outstanding balances carried with the servicer,
resulting primarily from increased mortgage banking activity, produced higher
income for the year.
Noninterest income increased $394,000 during 1997 as compared to 1996. The
growth in noninterest income during 1997 was primarily driven by an increase in
fees charged for services of $262,000, reflecting expansion of the Company's
deposit base. Recognition of the increase in cash surrender value on life
insurance contracts, covering certain executive officers, of $201,000 during
1997 also contributed to the growth in noninterest income.
NONINTEREST EXPENSE
Noninterest expense primarily consists of costs associated with personnel,
occupancy and equipment, data processing and marketing. The Company's
noninterest expense for 1998 totalled $15.4 million, representing an increase of
$1.7 million or 12.1% over 1997.
Salaries and employee benefits, the largest component of noninterest expense,
increased from $6.8 million during 1997 to $7.7 million during 1998. The
increase was primarily attributable to higher staffing levels attained in the
latter half of 1997 as part of corporate expansion efforts during 1997 and in
anticipation of increased activity in 1998. While the number of employees on
staff at December 31, 1998 remained essentially unchanged as compared to
December 31, 1997, the number of average full-time equivalents
14
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
employed during the year increased from 190 in 1997 to 213 in 1998, accounting
for approximately $675,000 in additional costs. Costs associated with salaries
and employee benefits increased further as a result of normal equity and merit
pay increases awarded during the year. Salaries as a percentage of total
operating income (net interest income plus noninterest income) remained
relatively constant, measuring 33.2% for 1998 as compared to 32.6% in 1997.
Occupancy and equipment expenses, recorded net of rental income, grew
$644,000, or 26.2%, during 1998. The increase was attributable to the
recognition of a full year's costs associated with branch expansion initiatives
completed in 1997, as well as to the ongoing expenses necessary to keep pace
with rapid technological advances. Data processing costs also increased $182,000
due to a larger customer base and the addition of PC banking in mid-1997 to the
Bank's product line of available services.
These increases in salaries and benefits, occupancy and equipment and data
processing were mitigated by moderate decreases in marketing, cash management
services, professional fees and net expense on other real estate owned.
Noninterest expense for 1997 totalled $13.7 million and represented an
increase over 1996 of 13.6% or $1.6 million. The increase was primarily driven
by continued corporate expansion. Expansion initiatives during 1997 included the
addition of three full-service branch facilities and the expansion of the
Company's mortgage banking operations. As a result, salaries and benefits
increased from $5.7 million in 1996 to $6.8 million during 1997. The Company
employed a total of 227 employees at December 31, 1997 versus 185 employees at
December 31, 1996. In addition, the Company incurred an increase in occupancy
and equipment expenses of $546,000 during 1997 as a result of the expansion of
its branch network.
Growth in noninterest expense during 1997 was mitigated by a decline in the
Company's FDIC insurance premium of $575,000. The decline reflected the $486,000
special, one-time FDIC assessment levied in 1996 to recapitalize the Savings
Association Insurance Fund.
INCOME TAXES
Income tax expense was $2.5 million in 1998 and $2.4 million in 1997 and
1996. The 1998 effective tax rate was 34.9%, down from 36.1% for 1997 and 38.9%
for 1996. The decrease from 1996 to 1998 was the result of changes in state tax
laws which now permit, on a fully phased-in basis, the exclusion of interest
income on U.S. Treasury securities and certain other debt obligations. The
changes in state tax laws, however, now subject the Company, on a fully
phased-in basis, to personal property taxes, which are included in other
noninterest expense.
REVIEW OF 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 process of collection. As a result of the Company's cash
management services provided to large, sophisticated corporate customers (which
includes cash concentration activities and processing coin and currency
transactions), cash balances may be higher than industry averages for banks of a
similar asset size.
ANALYSIS OF INVESTMENTS
The investment portfolio consists of investment securities and securities
available-for-sale. Investment securities are those securities that the Company
has the positive intent and ability to hold to maturity and are carried at
amortized cost. Securities available-for-sale are those securities which the
Company intends to hold for an indefinite period of time but not necessarily
until maturity. These securities are carried at fair value and may be sold as
part of an asset/liability management strategy, liquidity management, interest
rate risk management, regulatory capital management or other similar factors.
15
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
The components of the investment portfolio at December 31 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
SECURITIES SECURITIES SECURITIES
INVESTMENT AVAILABLE- INVESTMENT AVAILABLE- INVESTMENT AVAILABLE-
(DOLLARS IN THOUSANDS) SECURITIES FOR-SALE SECURITIES FOR-SALE SECURITIES FOR-SALE
- ----------------------------------------------------------------------------------------------------------------------
U. S. Treasury securities $53,978 $ -- $62,952 $ -- $36,968 $ --
Collateralized mortgage
obligations and mortgage-backed
securities (a) 802 6 504 7 1,312 173
Securities of U.S. Government
sponsored agencies 19,002 -- 1,515 499 1,515 2,531
Trust preferred stock -- 9,103 -- -- -- --
Municipal securities -- -- -- 200 -- 700
Investment in Federal Home
Loan Bank Stock -- 1,125 -- 968 -- 950
----------------------------------------------------------------------------------
$73,782 $10,234 $64,971 $ 1,674 $39,795 $ 4,354
----------------------------------------------------------------------------------
</TABLE>
(a) The entire balance is issued and guaranteed by U.S. Government sponsored
agencies.
The investment portfolio increased $17.4 million from December 31, 1997 to
December 31, 1998. The increase represented purchases of U.S. Treasury
securities, with maturities of two years, totalling $15.0 million, purchases of
trust preferred stock totalling $9.3 million and purchases of agency securities
totalling $22.8 million. Maturities and repayments of U.S. Treasury securities
and agency securities totalled $29.8 million during 1998. There were no
securities sold during 1998, 1997 or 1996.
The amortized cost, estimated fair values and weighted average yield of debt
securities at December 31, 1998, by maturities, are shown below. Mortgage-backed
securities are categorized by their estimated maturities based upon the most
recent monthly prepayment factors, which may change. All other debt securities
are categorized based on contractual maturities.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES SECURITIES AVAILABLE-FOR-SALE
- -------------------------------------------------------------------------------------------------------------------- CURRENT
UNREALIZED UNREALIZED WEIGHTED
AMORTIZED --------------- ESTIMATED AMORTIZED ------------- ESTIMATED AVERAGE
(DOLLARS IN THOUSANDS) COST GAINS LOSSES FAIR VALUE COST GAINS LOSSES FAIR VALUE YIELD(a)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities:
Due one year or less $38,985 $ 241 $-- $39,226 $-- $-- $-- $-- 6.63%
Due after one
through five years 14,993 162 -- 15,155 -- -- -- -- 6.16
Trust preferred stock:
Due after ten years -- -- -- -- 9,152 15 64 9,103 7.35
Mortgage-backed
securities:
Due after one
through five years -- -- -- -- 5 1 -- 6 8.10
Due after ten years 802 2 3 801 -- -- -- -- 6.11
Securities of U.S.
Government
sponsored agencies:
Due after one
through five years 19,002 124 -- 19,126 -- -- -- -- 6.02
-----------------------------------------------------------------------------------------------
$73,782 $ 529 $ 3 $74,308 $ 9,157 $ 16 $64 $ 9,109 6.72%
-----------------------------------------------------------------------------------------------
</TABLE>
(a) Tax equivalent weighted yield.
16
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
ANALYSIS OF LOANS
The table below represents a breakdown of loan balances of the Company at
December 31.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
Commercial $ 49,841 $ 37,519 $ 30,517 $ 29,275 $ 24,819
Real estate-development and construction (a) 111,868 110,413 112,838 89,877 72,857
Real estate-mortgage:
Residential 9,950 11,078 11,897 12,726 13,383
Commercial 16,280 21,146 14,470 9,108 10,251
Consumer:
Retail (b) 85,146 84,039 67,731 49,225 40,354
Credit card 1,694 1,639 1,543 1,527 1,432
----------------------------------------------------
Total loans $274,779 $265,834 $238,996 $191,738 $163,096
----------------------------------------------------
</TABLE>
(a) At December 31, 1998, 1997, 1996, 1995, and 1994 loans to individuals for
constructing primary personal residences represented $14,119, $15,895,
$10,780, $16,071 and $18,631, respectively.
(b) Primarily loans secured by the borrowers' principal residences in the form
of home equity lines of credit and second mortgages.
During 1998, the Company faced accelerated consumer refinancing activity and
intense competition for new loans with regard to pricing and credit terms.
Throughout this period, management believes it remained cautious and maintained
conservative underwriting standards. As a result, however, loan growth during
1998 was considerably less than during prior years. Specifically, total loans
increased $8.9 million during the year ended December 31, 1998, representing a
3.4% increase. Commercial loans, inclusive of commercial mortgages, exhibited
the strongest growth during 1998, increasing $7.5 million as compared to
December 31, 1997. Real estate development and construct
ion loans and retail
loans, primarily second mortgages and home equity lines of credit, increased
$1.5 million and $1.1 million, respectively, and reflected refinancing activity
and intensified competition. These increases were mitigated by a decrease in
residential mortgage loans of $1.1 million.
The following table summarizes the Company's exposure resulting from loan
concentrations in its loan portfolio. Loan concentrations result when loans are
made to a number of borrowers engaged in similar activities which may be
similarly impacted by economic or other conditions. This table presents the
Company's credit concentration to borrowers involved in residential real estate
development and/or construction as of December 31, 1998. There were no other
loan concentrations exceeding 10% of gross loans as of December 31, 1998.
TOTAL
(DOLLARS IN THOUSANDS) PRINCIPAL
- ------------------------------------------------------------------------------
Loans receivable $ 97,987
Unused credit lines 62,236
Letters of credit (a) 14,714
--------
$174,937
========
(a) Includes letters of credit totalling $6,115 which are secured by cash.
The following table shows the contractual maturities and interest rate
sensitivities of loans of the Company at December 31, 1998, exclusive of
nonaccrual loans totalling $3.0 million. Some loans may include contractual
installment payments which are not reflected in the table until final maturity.
In addition, the Company's experience indicates that a significant number of
loans will be extended or repaid prior to contractual maturity. Consequently,
the table is not intended to be a forecast of future cash repayments.
17
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
<TABLE>
<CAPTION>
MATURING
-----------------------------------------------------------------------------------
IN ONE YEAR OR LESS AFTER 1 THROUGH 5 YEARS AFTER 5 YEARS
- --------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) FIXED VARIABLE FIXED VARIABLE FIXED VARIABLE TOTAL
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 1,241 $ 31,292 $ 8,146 $ 7,513 $ 1,071 $ 484 $ 49,747
Real estate-construction 14,532 93,028 976 656 -- -- 109,192
Real estate-mortgage 2,092 946 4,896 9,050 7,556 1,646 26,186
Consumer 7,411 2,306 9,074 4,159 7,178 56,531 86,659
-----------------------------------------------------------------------------------
$ 25,276 $127,572 $ 23,092 $ 21,378 $ 15,805 $ 58,661 $271,784
-----------------------------------------------------------------------------------
</TABLE>
The following table provides information concerning nonperforming assets and
past-due loans at December 31.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------
Nonperforming loans:
Nonaccrual loans (a) $2,995 $ 599 $3,851 $1,051 $ 679
Other real estate owned 4,043 4,622 448 89 1,731
---------------------------------------------
Total nonperforming assets $7,038 $5,221 $4,299 $1,140 $2,410
---------------------------------------------
Loans past-due 90 days or more $ 63 $ 63 $ 59 $ 141 $ 479
---------------------------------------------
</TABLE>
(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 interest and/or principal 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 December 31, 1998 was the
Company's portfolio of other real estate owned totalling $4.0 million. At
December 31, 1998 other real estate owned included the following properties:
o A residential development project consisting of 78 single family and 121
townhouse building lots with a carrying value of $3.8 million. The Company has
entered into a contract with an independent third-party contractor to manage
the completion of development work. In addition, 52 single family and 60
townhouse lots are under contract of sale with a takedown schedule which runs
through March 2001. The remaining lots are being marketed for sale.
o A construction project consisting of a 24 unit residential condominium
building with a carrying value of $129,000. At December 31, 1998, 21 of the 24
units had been sold. The remaining three units are under contract of sale,
with anticipated settlements prior to March 31, 1999.
o A construction project consisting of one residential condominium building pad
site with a carrying value of $158,000. The property is currently under
contract of sale.
Nonaccrual loans totalled $3.0 million at December 31, 1998 and consisted
primarily of a single residential construction relationship totalling $2.2
million, which was paid subsequent to December 31, 1998 with full recovery of
principal and interest and substantial recovery of collection expenses.
Nonaccrual loans also included five other residential development and
construction loans totalling $513,000, a commercial loan carried at $56,000 and
seven home equity lines of credit and second mortgages totalling $125,000.
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.
18
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"), the
Company measures impaired loans (i) at the present value of expected future cash
flows discounted at the loan's effective interest rate; (ii) at the observable
market price; or (iii) at the fair value of the collateral if the loan is
collateral dependent. If the measure of the impaired loan is less than the
recorded investment in the loan, an impairment is recognized through a valuation
allowance and corresponding provision for credit losses.
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 interest and/or principal is in doubt or the date that principal
or interest is 90 days or more past-due.
Impaired loans at December 31, 1998 totalled $2.8 million. All of these
impaired loans were on nonaccrual status at December 31, 1998 and all were
collateral dependent loans. Collateral dependent loans are measured based on the
fair value of the collateral. There were no impaired loans at December 31, 1998
with an allocated valuation allowance. An impaired loan is charged-off when the
loan, or a portion thereof, is considered uncollectible.
OTHER EARNING ASSETS
Residential mortgage loans originated for sale increased from $6.6 million at
December 31, 1997 to $17.4 million at December 31, 1998. This growth was due to
increased mortgage banking activity, representing a combination of the expansion
of mortgage banking capabilities by the Company as well as a favorable interest
rate environment. Federal funds sold increased $15.1 million as compared to
December 31, 1997, totalling $17.1 million at December 31, 1998, as the growth
in deposits and borrowings outpaced the growth in loans and investments.
DEPOSIT ANALYSIS
The following table sets forth the average deposit balances and average rates
paid on deposits during the years ended December 31.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) BALANCE RATE BALANCE RATE BALANCE RATE
- ---------------------------------------------------------------------------------------------------------------
Total noninterest-bearing deposits $ 55,863 --% $ 46,876 --% $ 36,785 --%
Interest-bearing deposits:
NOW accounts 35,768 1.51 29,474 2.07 25,479 2.04
Savings accounts 45,660 3.15 45,415 3.43 44,022 3.22
Money market accounts 40,499 3.12 39,149 3.14 34,860 3.15
Certificates of deposit 147,789 5.28 122,737 5.46 92,125 5.44
-------------------------------------------------------------------
Total interest-bearing deposits 269,716 4.10 236,775 4.27 196,486 4.10
-------------------------------------------------------------------
Total deposits $325,579 3.39% $283,651 3.56% $233,271 3.45%
-------------------------------------------------------------------
</TABLE>
Total deposits increased $26.0 million during the year ended December 31,
1998. The aggregate growth in deposits during 1998 was primarily attributable to
growth in certificates of deposit totalling $8.8 million and growth in NOW
accounts totalling $11.9 million. This growth was the product of the continued
penetration of the Bank's market, especially considering the recent branch
expansion in 1997. As a result of the continued penetration of its core market,
Howard County, Maryland, the Bank's market share (defined as total deposits in
the Bank's Howard County branches divided by total deposits in all financial
institutions in Howard County and based on data collected by the FDIC as of June
30th of each year) grew from 13% at June 30, 1997 to 14% at June 30, 1998.
19
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
The following table provides the maturities of certificates of deposit of the
Company in amounts of $100,000 or more at December 31. The Company had no
brokered deposits as of December 31, 1998, 1997 or 1996.
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------------------
Maturing in:
3 months or less $10,019 $ 5,864 $ 4,336
Over 3 months through 6 months 6,663 3,629 2,659
Over 6 months through 12 months 7,218 5,681 2,728
Over 12 months 2,657 3,823 2,427
-----------------------------------
$26,557 $18,997 $12,150
-----------------------------------
SHORT-TERM BORROWINGS
Short-term borrowings consist of short-term promissory notes issued to
certain qualified investors and borrowings from the Federal Home Loan Bank of
Atlanta ("FHLB"). The short-term promissory notes are in the form of commercial
paper, reprice daily and have maturities of 270 days or less. Short-term
borrowings from the FHLB outstanding during 1998, 1997 and 1996 repriced daily,
had maturities of one year or less and could have been prepaid without penalty.
The table below presents certain information with respect to short-term
borrowings at December 31:
- --------------------------------------------------------------------------------
(dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Amount outstanding at year-end:
Short-term promissory notes $27,012 $20,725 $12,127
Borrowings from FHLB -- 3,000 18,000
Weighted average interest rate at year-end:
Short-term promissory notes 4.4% 5.1% 4.8%
Borrowings from FHLB -- 6.5 6.7
Maximum outstanding at any month-end:
Short-term promissory notes $29,573 $22,831 $15,369
Borrowings from FHLB 17,500 18,500 18,000
Average outstanding:
Short-term promissory notes 24,357 18,177 12,090
Borrowings from FHLB 4,081 9,477 3,884
Weighted average interest rate during the year:
Short-term promissory notes 4.7% 4.8% 4.4%
Borrowings from FHLB 5.6 5.3 4.8
LONG-TERM BORROWINGS
At December 31, 1998, the Company had three long-term advances from the FHLB
totalling $20 million, with fixed rates of interest ranging from 4.64% To 5.51%.
The advances are scheduled to mature in 2008, but all carry conversion options
which allow the FHLB to convert the fixed interest rate of each advance to a
three month LIBOR-based floating rate on specified dates in 2003. If the FHLB
elects to convert an advance, the company has the option of terminating the
advance at that time, without penalty.
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 source of liquidity ("financing activities" as used in
the Consolidated Statements of Cash Flows) is its deposit base. At December 31,
1998, total deposits were $339.3 million. Core deposits, defined as all deposits
except certificates of deposit of $100,000 or more, totalled $312.8 million or
92.2%
20
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
of total deposits. Also, the Bank, as a member of the FHLB, has the ability to
utilize established credit as an additional source of liquidity. Collateral must
be pledged to the FHLB before advances can be obtained. At December 31, 1998,
outstanding advances from the FHLB totalled $20.0 million. The Bank's approved
credit line was $45.0 million. However, the Bank had sufficient collateral to
borrow up to $93.6 million. Borrowings above the approved credit limit require
special approval of the FHLB. In addition, liquidity is provided by the
Company's overnight investment in federal funds sold. At December 31, 1998,
federal funds sold totalled $17.1 million.
MARKET RISK AND INTEREST RATE SENSITIVITY
The market risk associated with financial instruments and derivative
financial and commodity instruments is the risk of loss from adverse changes in
market prices and rates. The Company's market risk arises primarily from
interest rate risk inherent in its lending, investment and deposit taking
activities. Interest rate risk is the exposure of the Company's earnings and
capital arising from changes in interest rates. The Company's profitability is
affected by fluctuations in interest rates. A sudden and substantial change in
interest rates may adversely impact the Company's earnings to the extent that
the interest rates borne by assets and liabilities do not change at the same
speed, to the same degree, or on the same basis. In addition, as rates change,
the fair value of assets and liabilities, and correspondingly, the Company's
capital, change. Given the potential exposure, management actively monitors and
manages its interest rate risk.
The Asset/Liability Management Committee of the Board of Directors (the
"ALCO") oversees the Company's management of interest rate risk. The objective
of the management of interest rate risk is to optimize net interest income
during periods of volatile as well as stable interest rates while maintaining a
balance between the maturity and repricing characteristics of assets and
liabilities that is consistent with the Company's liquidity, asset and earnings
growth, and capital adequacy goals. Critical to the managment of this process is
the ALCO's interest rate program, designed to manage interest rate sensitivity
(gap management) and balance sheet mix and pricing (spread management). Gap
management represents those actions taken to measure and monitor rate sensitive
assets and rate sensitive liabilities. Spread management requires managing
investments, loans, and funding sources to achieve an acceptable spread between
the Company's return on its earning assets and its cost of funds.
Currently, the Company does not believe that the use of derivative financial
or commodity instruments and hedging strategies is appropriate in the management
of its interest rate risk. Since the Company is not exposed to significant
market risk from trading activities, does not utilize hedging strategies and/or
off-balance-sheet management strategies, and does not have an asset and
liability structure with meaningful optionability (i.e., assets and liabilities
which may prepay or extend given changes in interest rates), the ALCO relies
primarily on analyses of the Company's interest sensitivity gap position (i.e.,
interest-earning assets less interest-bearing liabilities) and internal budgets
to assess interest rate risk exposure.
The following table summarizes the anticipated maturities or repricing of the
Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1998 and the Company's interest sensitivity gap. A positive
sensitivity gap for any time period indicates that more interest-earning assets
will mature or reprice during that time period than interest-bearing
liabilities. The Company's goal is generally to maintain a reasonably balanced
cumulative interest sensitivity gap position for the period of one year or less
in order to mitigate the impact of changes in interest rates on liquidity,
interest margins and corresponding operating results. During periods of rising
interest rates, a short-term positive interest sensitivity gap position would
generally result in an increase in net interest income, and during periods of
falling interest rates, a short-term positive interest sensitivity gap position
would generally result in a decrease in net interest income.
The Company has managed its interest rate risk primarily through the
origination of variable rate loans. At December 31, 1998, $220.2 million of the
total loan portfolio, or 80.2%, represented variable rate loans. Of this amount,
$215.8 million were loans tied to the prime rate of interest, which generally
reprice either immediately upon the change in the prime rate of interest or
during the month following a change. As the following table indicates, the
strategy of emphasizing variable rate lending results in a positive cumulative
interest sensitivity gap for all periods. While the Company believes its
cumulative interest sensitivity gap position is currently at a satisfactory
level, the positive interest sensitivity gap position, coupled with the decline
21
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
in the prime rate of 75 basis points during the fourth quarter of 1998, put
additional downward pressure on the Company's net interest margin during the
fourth quarter and will continue to do so until liabilities have been
substantially repriced (i.e. when certificate accounts mature). There can be no
assurances that the Company will maintain the current interest sensitivity gap
position. Future movement of interest rates up or down is an uncertainty and
could impact the earnings of the Company.
It is important to note that the table represents the static gap position for
interest sensitive assets and liabilities at December 31, 1998. The table does
not give effect to prepayments or extensions of loans as a result of changes in
general market rates. And, while the table does indicate the opportunities to
reprice assets and liabilities within certain time frames, it does not account
for timing differences which occur during periods of repricing. For example,
changes to deposit rates tend to lag in a rising rate environment and lead in a
falling rate environment. Also, the table does not account for the core deposit
relationship with customers which might suggest that the balances of NOW,
savings, and money market accounts totalling $128.9 million are less sensitive
than interest-bearing liabilities maturing in three months or less.
<TABLE>
<CAPTION>
INTEREST SENSITIVITY PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
AFTER 3
THROUGH AFTER 1 AFTER 2
LESS THAN 12 THROUGH THROUGH
(DOLLARS IN THOUSANDS) 3 MONTHS WAR (a) MONTHS WAR (a) 2 YEARS WAR (a) 3 YEARS WAR (a)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 17,099 5.0% $ -- --% $ -- --% $ -- --%
Investment securities 11,999 6.4 30,986 6.3 29,995 6.0 -- --
Securities available-for-sale 7,213 6.2 -- -- -- -- 6 8.1
Residential mortgages
originated for sale 17,387 6.6 -- -- -- -- -- --
Loans (b):
Commercial 39,547 8.9 983 9.1 1,278 9.3 1,120 9.1
Real estate - development
and construction 100,806 9.2 7,410 8.6 754 9.6 222 9.1
Real estate - mortgage:
Residential 577 8.5 1,901 8.1 418 7.5 976 9.3
Commercial 9,904 9.4 1,199 7.3 1,199 9.0 65 9.0
Retail 44,735 8.4 3,823 9.0 5,812 9.2 7,174 9.3
Credit card -- -- 1,695 14.9 -- -- -- --
-------------------------------------------------------------------------------------------
Total interest-earning assets 249,267 8.3 47,997 7.3 39,456 6.8 9,563 9.3
-------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
NOW accounts 43,268 1.2 -- -- -- -- -- --
Savings accounts 45,415 2.7 -- -- -- -- -- --
Money market accounts 40,183 3.1 -- -- -- -- -- --
Certificates of deposit 56,817 4.9 65,027 5.2 23,942 5.6 2,182 5.2
Short-term borrowings 27,012 4.4 -- -- -- -- -- --
Long-term borrowings -- -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 212,695 3.3 65,027 5.2 23,942 5.6 2,182 5.2
-------------------------------------------------------------------------------------------
Interest sensitivity gap $ 36,572 $ (17,030) $ 15,514 $ 7,381
-------------------------------------------------------------------------------------------
Cumulative interest
sensitivity gap $ 36,572 $ 19,542 $ 35,056 $ 42,437
-------------------------------------------------------------------------------------------
Cumulative interest
sensitivity gap ratio 8.6% 4.6% 8.2% 9.9%
-------------------------------------------------------------------------------------------
</TABLE>
(a) Weighted average rate at December 31, 1998, presented on a fully-taxable
equivalent basis.
(b) Loans receivable are stated before deducting unearned income and allowance
for credit losses. The balance also excludes nonaccrual loans totalling
$3.0 million.
22
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
<TABLE>
<CAPTION>
INTEREST SENSITIVITY PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
AFTER 3 AFTER 4
THROUGH THROUGH AFTER FAIR
(DOLLARS IN THOUSANDS) 4 YEARS WAR (a) 5 YEARS WAR (a) 5 YEARS WAR (a) TOTAL WAR (a) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ -- --% $ -- --% $ -- --% $ 17,099 5.0% $ 17,099
Investment securities -- -- -- -- 802 6.8 73,782 6.2 74,308
Securities available-for-sale -- -- 3,015 8.3 -- -- 10,234 6.8 10,234
Residential mortgages
originated for sale -- -- -- -- -- -- 17,387 6.6 17,387
Loans (b):
Commercial 2,972 8.8 2,777 9.0 1,070 8.2 49,747 8.9 50,040
Real estate - development
and construction -- -- -- -- -- -- 109,192 9.2 109,462
Real estate - mortgage:
Residential 174 8.2 300 8.1 5,560 8.2 9,906 8.3 10,828
Commercial 70 9.0 1,849 9.0 1,994 8.7 16,280 9.1 16,378
Retail 9,241 9.1 6,618 9.0 7,561 8.4 84,964 8.7 84,374
Credit card -- -- -- -- -- -- 1,695 14.9 1,697
-----------------------------------------------------------------------------------------------
Total interest-earning assets 12,457 9.0 14,559 8.8 16,987 8.3 390,286 8.1 391,807
-----------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
NOW accounts -- -- -- -- -- -- 43,268 1.2 43,268
Savings accounts -- -- -- -- -- -- 45,415 2.7 45,415
Money market accounts -- -- -- -- -- -- -- 40,183 3.1 40,183
Certificates of deposit 968 5.7 1,162 4.9 -- -- 150,098 5.2 151,910
Short-term borrowings -- -- -- -- -- -- 27,012 4.4 27,012
Long-term borrowings -- -- 20,000 5.3 -- -- 20,000 5.3 20,058
-----------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 968 5.7 21,162 5.3 -- -- 325,976 4.0 327,846
------------------------------------------------------------------------------------------------
Interest sensitivity gap $ 11,489 $ (6,603) $16,987 $ 64,310
----------------------------------------------------------------------------
Cumulative interest
sensitivity gap $ 53,926 $ 47,323 $64,310
------------------------------------------------------
Cumulative interest
sensitivity gap ratio 12.6% 11.1% 15.0%
------------------------------------------------------
</TABLE>
(a) Weighted average rate at December 31, 1998, presented on a fully-taxable
equivalent basis.
(b) Loans receivable are stated before deducting unearned income and allowance
for credit losses. The balance also excludes nonaccrual loans totalling
$3.0 million.
The analysis provided in the table above includes the following significant
assumptions: Fixed-rate loans and investments other than mortgage-backed
securities are scheduled by contractual maturity, and variable-rate loans and
investments other than mortgage-backed securities are scheduled by repricing
date. Mortgage-backed securities are scheduled according to estimated maturity
based upon the most recent monthly prepayment factors, which may change.
Residential mortgage loans originated for sale are scheduled based on their
expected sale dates, generally 10 to 14 days after settlement. Due to their
liquid nature, the entire balance of NOW, savings and money market accounts is
assumed to be immediately sensitive. Long-term advances from the FHLB are
scheduled according to their conversion option date.
CAPITAL RESOURCES AND ADEQUACY
Total stockholders' equity was $38.4 million at December 31, 1998,
representing an increase of $4.0 million or 11.5% from December 31, 1997. The
growth of stockholders' equity during 1998 was primarily
23
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
attributable to the earnings of the Company of $4.7 million less cash dividends
declared on common stock of $1.3 million. The exercise of stock options and
warrants contributed approximately $770,000 to total stockholders' equity. In
addition, in November 1998, the Board of Directors of the Company approved a
stock repurchase program which authorized the repurchase of up to 400,000 shares
of the Company's common stock, subject to applicable laws and regulations.
Through December 31, 1998, the Company had repurchased and retired 12,000 shares
at prices ranging from $15.88 to $16.75 which reduced total stockholders' equity
by $196,000.
The Federal Reserve Board has adopted risk-based guidelines for bank holding
companies. As of December 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 certain other intangibles and
making various 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 average assets) of
3.0% 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 tables below present the Company's capital position relative to its
various minimum statutory and regulatory capital requirements at December 31,
1998.
<TABLE>
<CAPTION>
TIER 1 LEVERAGE RATIO
- ----------------------------------------------------------------------------------------------------------------------
PERCENT OF
(DOLLARS IN THOUSANDS) AMOUNT AVERAGE ASSETS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 capital (a) $ 38,282 9.0%
Tier 1 leverage ratio requirement 12,767 3.0
---------------------------
Excess $ 25,515 6.0%
---------------------------
Quarterly average total assets $425,555
--------
RISK-BASED CAPITAL RATIO
- ----------------------------------------------------------------------------------------------------------------------
PERCENT OF
RISK-WEIGHTED
(DOLLARS IN THOUSANDS) AMOUNT ASSETS
- ----------------------------------------------------------------------------------------------------------------------
Tier 1 capital (a) $ 38,282 11.5%
Risk-based Tier 1 capital requirement 13,323 4.0
---------------------------
Excess $ 24,959 7.5%
---------------------------
Tier 1 capital (a) $ 38,282 11.5%
Tier 2 capital (b) 3,965 1.2
---------------------------
Total risk-based capital 42,247 12.7
Risk-based capital requirements 26,647 8.0
---------------------------
Excess $ 15,600 4.7%
---------------------------
Risk-weighted assets $333,084
--------
(a) TIer 1 Capital is comprised of the following at December 31, 1998
GAAP capital $38,354
Less intangible assets (101)
Add unrealized losses on securities available-for-sale, net of taxes 29
-------
$38,282
-------
</TABLE>
(b) Tier 2 capital is comprised of the allowance for credit losses, limited to
1.25% of risk-weighted assets.
24
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
YEAR 2000 READINESS DISCLOSURE
The following information represents "Year 2000 Readiness Disclosure" in
conformance with the Year 2000 Information and Readiness Disclosure Act of 1998
(Public Law 105-271, 112 Stat. 2386) enacted on October 19, 1998.
The Company, like all businesses, faces a very real challenge regarding the
use of technology subsequent to the turn of the century. Specifically, many of
today's computer programs are not capable of properly recognizing years after
1999. If left uncorrected, the programs could fail or provide inaccurate
results. This Year 2000 issue is critically important to the Company, as well as
many other businesses, given the significant reliance on computers and related
software ("IT Systems") and other equipment which contain embedded
microcontrollers ("Non-IT Systems"), such as elevators, HVAC systems and
machinery.
In 1997, the Company adopted a Year 2000 Action Plan (the "Plan"). The Plan
identifies the process by which the Company will address Year 2000 issues. The
process is systematic and includes the following phases: awareness, assessment,
renovation, validation, and implementation. Senior management is responsible for
implementation of the Plan and reports progress on a regular basis to the Board
of Directors. Substantial completion of the Company's Year 2000 efforts was
accomplished by December 31, 1998.
As of the date of this report, the Company has completed the assessment phase
of the Plan and is in various stages of the renovation, validation and
implementation phases. Specifically, IT Systems and Non-IT Systems
(collectively, "Systems") have been inventoried and evaluated for Year 2000
compliance. Systems which are not yet Year 2000 compliant are in the process of
either renovation or replacement. In addition, all Systems have been risk-rated
in order to identify those which are "mission critical" to the ongoing operation
of the Company. Since the Company relies heavily on independent third-party
technology companies to provide the bulk of its Systems' support and service, it
is working closely with these service providers to ensure each has adopted plans
to address Year 2000 issues and is progressing in accordance with their plan.
The Company has no internally developed software nor any unique hardware which
require customized renovation.
Identified below are several of the "mission critical" Systems and their
current status:
o Data processing - The Company's data processing is provided by a large
national service bureau which provides similar services to over 700 banks
across the country. The vendor has adopted a formal plan to address Year 2000
issues. Management is closely monitoring the vendor's progress. In October
1998, the Company converted to the vendor's data processing platform system
which utilizes a four digit date field. The platform system is expected to be
Year 2000 compliant essentially in its current form. The vendor is in the
process of testing and certifying the system as Year 2000 compliant and
anticipates completing such in February 1999.
o Transaction processing - The Company processes transactions on-site and
transmits the related information to its data processing service provider
daily. Hardware associated directly with this process has been confirmed Year
2000 compliant and software currently in use has been renovated to process
utilizing a four digit date. Management expects completion of testing and
validation prior to March 31, 1999.
o Internal wide-area network - The Company utilizes a wide-area network to
provide connectivity among its various locations and to allow employees
access to internal information. An assessment of hardware utilized throughout
the network has been completed and all hardware identified as not Year 2000
compliant has been scheduled for replacement in the normal course of business
prior to June 30, 1999. Management expects completion of testing and
validation prior to March 31, 1999.
o Federal Reserve - The Company interfaces on a daily basis with the Federal
Reserve to settle balances owed and balances due based upon activity. The
Federal Reserve has completed renovation of the software used in this process
and the first phase of on-site testing has been completed. Additional testing
is scheduled for completion prior to March 31, 1999.
25
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
o Telecommunications and Utilities - The Company's ability to electronically
transmit and receive data to and from its data processing service provider
and others is entirely dependent upon its local and long distance phone
companies. In addition, all of the Company's facilities are supplied power by
the local gas and electric company. As of the date of this report, the phone
companies and the utilities have responded to the Company's inquiries
indicating that they are addressing the issues involved and expect compliance
by mid-year 1999.
o Product and Services Automated Delivery Channels - These devices include
primarily the Company's Automated Teller Machine Network, Telephone Banking
system and Home Banking (personal computer) software. Upgrades to these
devices necessary to become Year 2000 compliant have been completed and
confirmed compliant.
o Non-IT Systems - The bulk of the Year 2000 concerns regarding Non-IT Systems
relate to the Company's banking and office facilities, whether owned or
leased. Systems involved include primarily heating and air conditioning
units, elevators and security systems, including but not limited to burglar
and fire alarms, video cameras, time locks, etc. The Company is currently
working with third-party vendors and landlords to confirm that all applicable
Non-IT Systems will function without interruption with the turn of the
century.
Through December 31, 1998, the costs incurred by the Company related to Year
2000 efforts have been incurred primarily in the normal course of business with
ordinary upgrade of IT Systems in order to maintain pace with technological
advances. Costs associated with the replacement and/or upgrade of systems
specifically as a result of Year 2000 have totalled $78,000 to date and are
primarily related to the upgrade of ATMs and the replacement of Telephone
Banking systems. Because the Company has neither customized software nor
hardware, no programming costs have been incurred. As the Company continues to
pursue Year 2000 compliance, total costs could range to $200,000, much of which
will be capitalized in the normal course of business with the continued
purchases of advanced technology.
While the risks associated with the Company's Year 2000 efforts are numerous,
the Company believes that the "most reasonably likely worst case scenario"
involves temporary interruption of telecommunication or utility services.
Recognizing the possibility of a disruption in telecommunication services, the
Company has developed a contingency plan which will require the delivery of
critical transaction data in paper form to its data processing service provider
in Milwaukee, Wisconsin. The Company's data processing service provider has the
capability to capture and process the data and produce the required reports
accordingly. In addition, the Company will process in an off-line mode and
employ the standard off-line procedures for security purposes. In the event that
utility services are unavailable, the Company will close facilities that are not
functional and will open at a minimum its Ellicott City, MD facility which is
supported by a diesel generator. The facility is centrally located within the
Company's branch network and also houses the Company's data processing
department which supports various critical functions.
Given the progress to date and additional available resources, it is unlikely
that the Company's data processing platform system will not be Year 2000
compliant upon the turn of the century. Regardless, the Company has developed a
contingency plan which primarily involves manual processing and posting of
transaction activity based upon year-end information downloaded and saved
immediately prior to December 31, 1999.
In addition to recognizing and addressing Year 2000 issues associated with
the Company's internal IT and Non-IT systems, the Company recognizes that Year
2000 may have a potential operational and/or financial impact on commercial
customers and, correspondingly, their ability to meet their financial
obligations to the Company. In response, the Company has incorporated procedures
to evaluate the potential impact of Year 2000 on commercial customers and the
manner in which they are addressing the issues. These procedures have been
applied in the Company's underwriting practices and also have been expanded to
include large corporate depositors of the Company in order to mitigate potential
liquidity risk. To further mitigate risk, the Company has attempted to keep all
customers informed of its Year 2000 efforts through information provided in a
special Year 2000 brochure mailed to all customers, the Company's customer
newsletter and information available through the Company's internet site.
26
<PAGE>
(LOGO)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Columbia Bancorp and Subsidiary
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board ("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 condition 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. While the Company has not
completed its analysis of SFAS No. 133 and has not made a decision regarding
timing of adoption, management does not believe that adoption will have a
material effect on the financial position or results of operations of the
Company based on its current use of derivative instruments.
27
<PAGE>
(LOGO)
INDEPENDENT AUDITORS' REPORT
Columbia Bancorp and Subsidiary
The Board of Directors and Stockholders
Columbia Bancorp:
We have audited the consolidated statements of condition of Columbia Bancorp
and subsidiary as of December 31, 1998 and 1997 and the related consolidated
statements of income and comprehensive income, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Columbia
Bancorp and subsidiary as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
January 21, 1999
Baltimore, MD
28
<PAGE>
(LOGO)
CONSOLIDATED STATEMENTS OF CONDITION
Columbia Bancorp and Subsidiary
December 31, 1998 and 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS) 1998 1997
- -------------------------------------------------------------------------------------
ASSETS
Cash and due from banks (note 2) $ 15,430 $ 13,497
Federal funds sold 17,099 2,014
Investment securities--fair value $74,308 in 1998
and $65,150 in 1997 (note 3) 73,782 64,971
Securities available-for-sale (note 3) 10,234 1,674
Residential mortgage loans originated for sale 17,387 6,557
Loans (notes 4 and 5):
Commercial 49,841 37,519
Real estate - development and construction 111,868 110,413
Real estate - mortgage:
Residential 9,950 11,078
Commercial 16,280 21,146
Retail, principally residential equity lines of credit 85,146 84,039
Credit card 1,694 1,639
--------------------
Total loans 274,779 265,834
Less:
Unearned income, net of origination costs 366 640
Allowance for credit losses 3,965 3,632
--------------------
Loans, net 270,448 261,562
Other real estate owned (notes 4 and 6) 4,043 4,622
Property and equipment, net (note 7) 8,616 9,125
Prepaid expenses and other assets (notes 8 and 13) 10,296 9,429
--------------------
Total assets $427,335 $373,451
--------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 60,372 $ 56,584
Interest-bearing deposits:
Savings and checking 128,866 115,443
Certificates of deposit:
Under $100,000 123,541 122,333
$100,000 and over 26,557 18,997
--------------------
Total deposits 339,336 313,357
Short-term borrowings (note 14) 27,012 23,725
Long-term borrowings (note 15) 20,000 --
Accrued expenses and other liabilities 2,633 1,984
--------------------
Total liabilities 388,981 339,066
--------------------
Stockholders' equity (notes 11, 12, 17 and 18):
Common stock, $.01 par value per share; authorized
9,550,000 shares; outstanding 4,561,650 and 4,400,330
shares at December 31, 1998 and 1997, respectively 46 44
Additional paid-in capital 23,491 22,919
Retained earnings 14,846 11,423
Accumulated other comprehensive income (29) (1)
--------------------
Total stockholders' equity 38,354 34,385
Commitments and contingent liabilities (notes 9 and 10)
--------------------
Total liabilities and stockholders' equity $427,335 $373,451
--------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
29
<PAGE>
(LOGO)
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
Columbia Bancorp and Subsidiary
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS EXCEPT PER-SHARE DATA) 1998 1997 1996
- --------------------------------------------------------------------------------------------
Interest income:
Loans $ 27,768 $ 26,742 $ 23,447
Federal funds sold 712 193 375
Investment securities 4,448 3,259 2,000
--------------------------------
Total interest income 32,928 30,194 25,822
--------------------------------
Interest expense:
Deposits 11,195 10,094 8,049
Borrowings 1,823 1,379 720
--------------------------------
Total interest expense 13,018 11,473 8,769
--------------------------------
Net interest income 19,910 18,721 17,053
Provision for credit losses 659 663 621
--------------------------------
Net interest income after provision
for credit losses 19,251 18,058 16,432
--------------------------------
Noninterest income:
Fees charged for services 1,380 1,227 965
Gains and fees on sales of mortgage loans, net of costs 1,268 356 483
Other 776 599 340
--------------------------------
Total noninterest income 3,424 2,182 1,788
--------------------------------
Noninterest expense:
Salaries and employee benefits 7,749 6,815 5,743
Occupancy, net (notes 9 and 16) 1,885 1,420 1,104
Equipment 1,217 1,038 808
Data processing 780 598 573
Marketing 540 544 479
Cash management services 338 413 473
Professional fees 361 392 274
Net expense (income) on other real estate
owned (note 6) (38) 134 11
Deposit insurance 126 112 687
Stationery and supplies 369 324 261
Postage 244 209 189
Equity in net loss of limited partnerships -- -- 87
Other 1,813 1,723 1,392
--------------------------------
Total noninterest expense 15,384 13,722 12,081
--------------------------------
Income before income taxes 7,291 6,518 6,139
Income tax provision (note 13) 2,545 2,350 2,387
--------------------------------
Net income 4,746 4,168 3,752
Other comprehensive income net of tax-
unrealized gain (loss) on securities
available-for-sale (28) 7 40
--------------------------------
Comprehensive income $ 4,718 $ 4,175 $ 3,792
--------------------------------
Net income per common share:
Basic $ 1.05 $ .96 $ .87
Diluted 1.03 .91 .83
--------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
30
<PAGE>
(LOGO)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Columbia Bancorp and Subsidiary
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
(DOLLARS IN THOUSANDS) STOCK CAPITAL EARNINGS INCOME EQUITY
- -------------------------------------------------------------------------------------------------------
Balance December 31, 1995,
as previously reported $ 21 $ 22,577 $ 5,514 $ (48) $ 28,064
Two-for-one common
stock split-up (note 1) 22 -- (22) -- --
-----------------------------------------------------------------
Balance December 31, 1995,
as adjusted 43 22,577 5,492 (48) 28,064
Cash dividends declared
on common stock -- -- (903) -- (903)
Exercise of options for
4,502 shares of common stock -- 22 -- -- 22
Net income -- -- 3,752 -- 3,752
Other comprehensive
income items -- -- -- 40 40
-----------------------------------------------------------------
Balance December 31, 1996 43 22,599 8,341 (8) 30,975
Cash dividends declared
on common stock -- -- (1,086) -- (1,086)
Exercise of options for
139,236 shares of common stock 1 636 -- -- 637
Exercise of warrants for
15,800 shares of common stock -- 72 -- -- 72
Common stock exchanged
(25,346 shares) -- (744) -- -- (744)
Tax benefit of
nonqualified stock
options exercised -- 356 -- -- 356
Net income -- -- 4,168 -- 4,168
Other comprehensive
income items -- -- -- 7 7
-----------------------------------------------------------------
Balance December 31, 1997 44 22,919 11,423 (1) 34,385
Cash dividends declared
on common stock -- -- (1,323) -- (1,323)
Exercise of options for
37,320 shares of common stock 1 151 -- -- 152
Exercise of warrants for
136,000 shares of common stock 1 617 -- -- 618
Purchase of 12,000 shares
of common stock -- (196) -- -- (196)
Net income -- -- 4,746 -- 4,746
Other comprehensive
income items -- -- -- (28) (28)
-----------------------------------------------------------------
Balance December 31, 1998 $ 46 $ 23,491 $ 14,846 $ (29) $ 38,354
-----------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
31
<PAGE>
(LOGO)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Columbia Bancorp and Subsidiary
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 4,746 $ 4,168 $ 3,752
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,126 1,049 781
Amortization of loan fee income (1,681) (2,017) (2,391)
Provision for credit losses 659 663 621
Provision for losses on other real estate owned 30 46 9
Gains and fees on sales of mortgage loans,
net of costs (1,268) (356) (483)
Gains on sales of other assets (15) (16) (4)
Equity in net loss of limited partnerships -- -- 87
Proceeds from sales of residential
mortgage loans originated for sale 158,988 51,863 47,871
Disbursements for residential mortgage
loans originated for sale (168,550) (56,513) (47,894)
Loan fees deferred, net of origination costs 1,407 1,535 2,464
Increase in prepaid expenses and other assets (642) (420) (1,097)
Increase (decrease) in accrued expenses
and other liabilities 591 441 (51)
-----------------------------------
Net cash provided by (used in)
operating activities (4,609) 443 3,665
-----------------------------------
Cash flows provided by (used in) investing activities:
Loan disbursements in excess of
principal repayments (12,959) (28,850) (52,748)
Loan purchases (4,459) (5,408) (5,329)
Loan sales 7,814 3,021 10,096
Purchases of investment securities (37,829) (35,957) (28,468)
Purchases of securities available-for-sale (9,309) (18) --
Proceeds from maturities and principal
repayments of investment securities 29,056 10,812 13,458
Proceeds from maturities and principal
repayments of securities available-for-sale 702 2,709 6,285
Additions to other real estate owned (1,770) (430) --
Sales of other real estate owned 2,653 273 80
Proceeds from investments in limited partnerships -- -- 363
Purchases of property and equipment (754) (2,489) (1,907)
Disposals of property and equipment 112 2 35
Purchase of life insurance -- (895) (2,835)
Increase in cash surrender value of life insurance (204) (178) (25)
-----------------------------------
Net cash used in investing activities (26,947) (57,408) (60,995)
-----------------------------------
</TABLE>
(CONTINUED)
32
<PAGE>
(LOGO)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Columbia Bancorp and Subsidiary
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------------------
Cash flows provided by (used in)
financing activities:
Net increase in deposits $ 25,979 $ 58,717 $ 36,478
Increase (decrease) in short-term borrowings 3,287 (6,402) 14,828
Increase in long-term borrowings 20,000 -- --
Cash dividends distributed on common stock (1,266) (1,035) (859)
Net proceeds (disbursements) from stock options
and warrants exercised and common
stock exchanged 770 (35) 22
Purchase of common stock (196) -- --
--------------------------------
Net cash provided by financing activities 48,574 51,245 50,469
--------------------------------
Net increase (decrease) in cash and
cash equivalents 17,018 (5,720) (6,861)
Cash and cash equivalents at beginning of year 15,511 21,231 28,092
--------------------------------
Cash and cash equivalents at end of year $ 32,529 $ 15,511 $ 21,231
--------------------------------
Supplemental information:
Interest paid on deposits and borrowings $ 12,808 $ 11,389 $ 8,748
Income taxes paid 2,845 2,165 2,910
Transfers of loans to other real estate owned 334 4,063 448
--------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
33
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Columbia Bancorp and Subsidiary
December 31, 1998, 1997 and 1996
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Columbia Bancorp and subsidiary (the
"Company") conform to generally accepted accounting principles. The following is
a description of the more significant of these policies:
ORGANIZATION
The Company was formed November 16, 1987 and is a Maryland corporation
chartered as a bank holding company. The Company holds all the issued and
outstanding shares of common stock of The Columbia Bank (the "Bank"). The Bank
is a Maryland trust company which engages in general commercial banking
operations. Deposits in the Bank are insured by the Federal Deposit Insurance
Corporation.
The Bank provides comprehensive and service-intensive commercial and retail
banking services to individuals and small and medium-sized businesses. Services
offered by the Bank include a variety of loans and a broad spectrum of
commercial and consumer financial services.
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and judgements that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for credit losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for credit losses and other real estate owned, management prepares fair value
analyses and obtains independent appraisals as necessary. Management believes
that the allowance for credit losses is sufficient to address the risks in the
current loan portfolio. While management uses available information to recognize
losses on loans and other real estate owned, future additions to the allowances
may be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination processes,
periodically review the Bank's allowances for credit losses and other real
estate owned. Such agencies may require the Bank to recognize additions to the
allowances based on their judgments about information available to them at the
time of their examinations.
All significant intercompany accounts and transactions have been eliminated
in the consolidated financial statements.
Certain amounts for 1997 and 1996 have been reclassified to conform to the
presentation for 1998.
INVESTMENT SECURITIES
The Company classifies its securities as trading securities, investment
securities or securities available-for-sale. The Company has no trading
securities. Investment securities are debt securities which the Company has the
intent and ability to hold until maturity. All other securities are classified
as securities available-for-sale. Investment securities are recorded at cost,
adjusted for amortization of premium and accretion of discount. Securities
available-for-sale are recorded at their fair value and unrealized holding gains
or losses, net of the related tax effect, are excluded from earnings and
reported as an item of other comprehensive income until realized. Transfers of
securities between categories are recorded at fair value on the date of the
transfer. The accumulated unrealized holding gains or losses on debt securities
at the time of a transfer from securities available-for-sale to investment
securities are amortized into earnings over the remaining life of the security
as an adjustment to yield.
A decline in the market value of any security which is deemed other than
temporary is charged to earnings, resulting in a new cost basis for the
security. Gains and losses on sales of securities are determined on a specific
identification basis; purchases and sales of securities are recognized on a
trade-date basis.
34
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
FEDERAL FUNDS SOLD
Federal funds sold are carried at cost which approximates market and are
generally sold for one-day periods.
RESIDENTIAL MORTGAGE LOANS ORIGINATED FOR SALE
Residential mortgage loans originated for sale are carried at the lower of
cost or the committed sale price, determined on an individual basis.
LOANS RECEIVABLE
Loans are stated at the amount of unpaid principal reduced by unearned income
and the allowance for credit losses. Unearned income consists of commitment and
origination fees, net of origination costs. 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 interest and/or principal
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.
A loan is considered 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.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"), the
Company measures impaired loans (i) at the present value of expected cash flows
discounted at the loan's effective interest rate; (ii) at the observable market
price; or (iii) at the fair value of the collateral if the loan is collateral
dependent. If the measure of the impaired loan is less than the recorded
investment in the loan, an impairment is recognized through a valuation
allowance and corresponding provision for credit losses.
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. The Company recognizes interest
income for impaired loans consistent with its method for nonaccrual loans.
Specifically, interest payments received are normally applied to principal.
The Company provides for credit losses through the establishment of an
allowance for credit losses by provisions charged against earnings. The factors
considered by management in determining the adequacy of the allowance for losses
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 as having the potential for further
deterioration taking into consideration collateral value and the financial
strength of the borrowers and guarantors; and a continuing evaluation of the
present and future economic environment. The allocated valuation allowance, if
any, is included in the Company's allowance for credit losses. An impaired loan
is charged-off when the loan, or a portion thereof, is considered uncollectible.
REAL ESTATE PROPERTIES ACQUIRED IN SATISFACTION OF LOANS
Real estate properties acquired in satisfaction of loans are reported in
other real estate owned and are recorded at the lower of cost or estimated fair
value on their acquisition dates and at the lower of such initial amount or
estimated fair value less selling costs thereafter. Subsequent write-downs are
included in noninterest expense, along with operating income and expenses of
such properties, and gains or losses realized upon disposition.
35
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are charged to operating expenses.
Depreciation generally is computed on the straight-line basis over the estimated
useful lives of the assets. Leasehold improvements are generally amortized over
the lesser of the terms of the related leases or the lives of the assets.
Maintenance and repairs are expensed as incurred.
Any gain or loss on the sale of an asset is treated as an adjustment to the
basis of its replacement, if traded in, or as an income or expense item if sold.
Leases are accounted for as operating leases since none meet the criteria for
capitalization.
INCOME TAXES
The Company and its subsidiary file a consolidated federal income tax return.
Deferred income taxes are recognized for the tax consequences of temporary
differences between financial statement carrying amounts and the tax bases of
assets and liabilities based on enacted tax rates expected to be in effect when
such amounts are realized or settled. However, deferred tax assets are
recognized only to the extent that it is more likely than not that they will be
realized based upon consideration of available evidence, including tax planning
strategies and other factors.
PER SHARE DATA AND NET INCOME PER COMMON SHARE
In May 1998, the Board of Directors declared a two-for-one stock split-up in
the form of a 100% stock dividend which was distributed to stockholders in June
1998. Share and per share data presented in the consolidated financial
statements and notes thereto have been adjusted, where appropriate, to give
retroactive effect to this distribution.
Basic earnings per share ("EPS") is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding.
Diluted EPS is computed after adjusting the numerator and denominator of the
basic EPS computation for the effects of all potentially dilutive common shares
outstanding during the period. The dilutive effects of options and warrants,
discussed in notes 11 and 12, and their equivalents are computed using the
treasury stock method.
Information relating to the calculations of earnings per common share is
summarized as follows for the years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income used in EPS
computation $4,745,523 $4,745,523 $4,167,531 $4,167,531 $3,751,882 $3,751,882
----------------------------------------------------------------------------------
Weighted average
shares outstanding 4,529,052 4,529,052 4,325,512 4,325,512 4,294,132 4,294,132
Dilutive securities -- 98,872 -- 259,686 -- 225,792
----------------------------------------------------------------------------------
Adjusted weighted average shares
used in EPS computation 4,529,052 4,627,924 4,325,512 4,585,198 4,294,132 4,519,924
----------------------------------------------------------------------------------
Net income per common share $ 1.05 $ 1.03 $ .96 $ .91 $ .87 $ .83
----------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
STOCK-BASED COMPENSATION
The Company uses the intrinsic value method to account for stock-based
employee compensation plans. Under this method, compensation cost is recognized
for awards of shares of common stock to employees only if the quoted market
price of the stock at the grant date (or other measurement date, if later) is
greater than the amount the employee must pay to acquire the stock. Information
concerning the pro forma effects of using an optional fair value-based method to
account for stock-based employee compensation plans is provided in note 11.
STATEMENTS OF CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows, cash and cash
equivalents include cash and due from banks and federal funds sold.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This Statement establishes standards for reporting and
presentation of comprehensive income and its components in financial statements.
Comprehensive income includes all changes in stockholders' equity during a
period, except those relating to investments by and distributions to
stockholders. The Company's comprehensive income consists of net earnings and
unrealized gains and losses on securities available-for-sale and is presented in
the statements of income and comprehensive income. Accumulated other
comprehensive income is displayed as a separate component of stockholders'
equity. The Statement requires additional disclosures in the consolidated
financial statements but does not affect the Company's financial position or
results of operations.
NOTE 2 RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required by the Federal Reserve System to maintain certain cash
reserve balances based principally on deposit liabilities. At December 31, 1998
and 1997, the required reserve balances were $5,810,000 and $3,310,000,
respectively.
The Bank is also required to maintain a compensating balance with the
servicer of its credit card operation. The balance is calculated periodically
based upon activity. At December 31, 1998 and 1997, the required compensating
balances were $113,040 and $110,440, respectively.
NOTE 3 INVESTMENT SECURITIES AND SECURITIES AVAILABLE-FOR-SALE
The amortized cost and estimated fair values of investment securities and
securities available-for-sale at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
(DOLLARS IN THOUSANDS) COST GAINS LOSSES FAIR VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities:
U. S. Treasury securities $53,978 $403 $-- $54,381
Federal agency securities 19,002 124 -- 19,126
Mortgage-backed securities 802 2 3 801
------------------------------------------------
Total $73,782 $529 $ 3 $74,308
------------------------------------------------
Securities available-for-sale:
Trust preferred stock $ 9,152 $ 15 $64 $ 9,103
Mortgage-backed securities 5 1 -- 6
Investment in Federal Home Loan
Bank stock 1,125 -- -- 1,125
------------------------------------------------
Total $10,282 $ 16 $64 $10,234
------------------------------------------------
</TABLE>
37
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
The amortized cost and estimated fair values of investment securities and
securities available-for-sale at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
(DOLLARS IN THOUSANDS) COST GAINS LOSSES FAIR VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities:
U. S. Treasury securities $62,952 $202 $ 3 $63,151
Federal agency securities 1,515 -- 16 1,499
Collateralized mortgage obligations 504 -- 4 500
------------------------------------------------
Total $64,971 $202 $23 $65,150
------------------------------------------------
Securities available-for-sale:
Federal agency securities $ 500 $-- $ 1 $ 499
Mortgage-backed securities 7 -- -- 7
Municipal securities 200 -- -- 200
Investment in Federal Home Loan
Bank stock 968 -- -- 968
------------------------------------------------
Total $ 1,675 $-- $ 1 $ 1,674
------------------------------------------------
</TABLE>
The Company is required to maintain an investment in the stock of the Federal
Home Loan Bank of Atlanta ("FHLB") in an amount equal to at least 1% of the
unpaid balance of the Company's residential mortgage loans, .3% of its total
assets or 5% of its outstanding advances from the FHLB, whichever is greater.
The amortized cost and estimated fair values of nonequity investment
securities and securities available-for-sale at December 31, 1998 and 1997, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities as borrowers may have the right to call or prepay
obligations with or without penalties.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
(DOLLARS IN THOUSANDS) COST FAIR VALUE COST FAIR VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities:
Due in one year or less $42,985 $43,226 $28,504 $28,541
Due after one year through five years 29,995 30,281 35,963 36,109
Collateralized mortgage obligations
and mortgage-backed securities 802 801 504 500
------------------------------------------------
Total $73,782 $74,308 $64,971 $65,150
------------------------------------------------
Securities available-for-sale:
Due in one year or less $ -- $ -- $ 700 $ 699
Due after ten years 9,152 9,103 -- --
Mortgage-backed securities 5 6 7 7
------------------------------------------------
Total $ 9,157 $ 9,109 $ 707 $ 706
------------------------------------------------
</TABLE>
There were no sales of investment securities or securities available-for-sale
during 1998 or 1997. At December 31, 1998, investment securities and securities
available-for-sale with an aggregate book value and fair value of $16,289,000
and $16,433,000, respectively, were pledged as collateral, primarily for FHLB
borrowings.
38
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
NOTE 4 NONPERFORMING ASSETS, IMPAIRED LOANS AND ALLOWANCE FOR CREDIT LOSSES
Nonperforming assets and loans past-due 90 days or more but not in nonaccrual
status were as follows at December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $2,995 $ 599
Other real estate owned 4,043 4,622
---------------------------------
Total nonperforming assets $7,038 $5,221
---------------------------------
Loans past-due 90 days or more $ 63 $ 63
---------------------------------
</TABLE>
At December 31, 1998, other real estate owned included a land development
project consisting of 199 residential building lots with a carrying value of
$3.8 million, 3 units in a residential condominium building with a carrying
value of $129,000, and a residential condominium building site with a carrying
value of $158,000. The land development project is being completed under the
direction of the Company. At December 31, 1998, 112 lots were under contract,
for settlement through March 2001, and the remainder of the project is being
marketed for sale. The residential condominium units and building site were also
under contracts of sale at December 31, 1998.
At December 31, 1998, nonaccrual loans consisted primarily of a single
residential construction relationship totalling $2.2 million, which was paid
subsequent to December 31, 1998 with full recovery of principal and interest and
substantial recovery of collection expenses. Nonaccrual loans also included five
other residential development and construction loans totalling $513,000, a
commercial loan carried at $56,000 and seven home equity lines of credit and
second mortgages totalling $125,000.
Impaired loans totalled $2.8 million and $443,000 at December 31, 1998 and
1997, respectively, and were all collateral dependent loans. There were no
impaired loans at December 31, 1998 or 1997 with an allocated valuation
allowance.
The average recorded investment in impaired loans, the amounts of income
recognized, and the amounts of income recognized on a cash basis were as follows
during the years ended December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average recorded investment in impaired loans $846 $285 $1,345
Interest income recognized during impairment -- -- 54
Interest income recognized on a cash basis during impairment -- 3 52
-------------------------------------
</TABLE>
An analysis of the allowance for credit losses is summarized as follows for
the years ended December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $3,632 $3,293 $2,929
Provision charged to expense 659 663 621
Charge-offs (344) (365) (308)
Recoveries 18 41 51
-----------------------------------------------
Balance at end of year $3,965 $3,632 $3,293
-----------------------------------------------
Ratio of allowance to loans, net of unearned income 1.45% 1.37% 1.38%
-----------------------------------------------
</TABLE>
39
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
NOTE 5 RELATED PARTY TRANSACTIONS
The Bank has made loans to certain of its executive officers and directors.
These loans were made on substantially the same terms, including interest rate
and collateral requirements, as those prevailing at the time for comparable
transactions with unrelated customers. The following schedule summarizes changes
in amounts of loans outstanding to executive officers and directors for the
years ended December 31:
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------------------
Balance at beginning of year $ 3,415 $2,258 $2,597
Additions 1,838 2,750 2,984
Repayments (2,022) (1,593) (3,323)
--------------------------------------
Balance at end of year $ 3,231 $3,415 $2,258
--------------------------------------
NOTE 6 OTHER REAL ESTATE OWNED
Net expense (income) on other real estate owned is summarized as follows for
the years ended December 31:
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------------------
Net gain on sales $(167) $ (49) $ (1)
Operating expenses 99 137 3
Provision for losses 30 46 9
--------------------------------------
Net expense (income) $ (38) $134 $11
--------------------------------------
Interest capitalized on a construction project carried in other real estate
owned totalled $156,000 in 1998. No interest was capitalized in 1997 or 1996.
NOTE 7 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------
Land $ 2,070 $ 2,070
Buildings and leasehold improvements 5,869 5,714
Furniture and equipment 5,219 4,834
Software 466 377
Automobiles 70 104
---------------------------
13,694 13,099
Less accumulated depreciation and amortization 5,078 3,974
---------------------------
$ 8,616 $ 9,125
---------------------------
40
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
NOTE 8 PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consisted of the following at December 31:
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------
Accrued interest receivable $ 3,016 $2,857
Net deferred tax asset 1,674 1,518
Cash surrender value of life insurance 4,138 3,934
Other 1,468 1,120
---------------------------
$10,296 $9,429
---------------------------
NOTE 9 COMMITMENTS AND CONTINGENT LIABILITIES
The Company occupies office space under lease agreements expiring at various
dates to 2017. A summary of the noncancellable payments due under these leases
is as follows at December 31, 1998 (in thousands):
1999 $1,000
2000 970
2001 850
2002 721
2003 545
After 2003 3,841
------
$7,927
------
The lease amounts represent minimum rentals, excluding property taxes,
operating expenses or percentage rent which the Company may be obligated to pay.
Rental expense was $1,123,000, $844,000 and $622,000 in 1998, 1997, and 1996,
respectively.
The Company utilizes a third party servicer to provide data processing
services under terms of an agreement which expires in October 2004. Data
processing costs are based upon account and transaction volume and currently
approximate $70,000 monthly.
The Company is also party to legal actions which are routine and incidental
to its business. In management's opinion, the outcome of these matters will not
have a material effect on the financial statements of the Company.
NOTE 10 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK
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, available
credit lines and standby letters of credit.
41
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
Credit risk is the possibility of sustaining a loss in the event of
nonperformance by the other party to commitments to extend credit and standby
letters of credit. The Company's exposure to credit risk is represented by the
contractual amounts of those financial instruments. 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 with
off-balance-sheet credit risk at December 31 is as follows:
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------
Commitments to extend credit and available
credit lines:
Commercial $ 29,008 $ 28,126
Real estate - development and construction 96,183 95,467
Real estate - residential mortgage 5,038 1,015
Retail, principally home equity lines of credit 37,803 32,814
Credit card 5,937 6,841
----------------------------
173,969 164,263
Standby letters of credit 15,519 14,588
Limited recourse on mortgage loans sold 4,156 5,766
----------------------------
$193,644 $184,617
----------------------------
The Company evaluates the creditworthiness of each customer on an individual
basis. The amount of collateral obtained, if deemed necessary, upon the
extension of credit is based on management's evaluation of the counterparty.
Collateral obtained varies but may include: accounts receivable; inventory;
property, plant and equipment; deposits held in financial institutions; other
marketable securities; residential real estate; and, income producing commercial
properties.
Commitments to extend credit are agreements to extend credit to a customer so
long as there is no violation of any contractual condition. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Historically, many of the commercial and retail
commitments expire without being fully drawn, and the total commitment amounts
therefore do not necessarily represent future cash requirements. Real estate
development and construction commitments represent advances to be made based on
established draw schedules. Due to the short-term nature and rapid turnover of
the real estate development and construction portfolio, cash requirements are
generally satisfied by principal repayments from sales of properties being
financed. Most of the loans resulting from these commitments are variable rate
loans.
Available credit lines represent the unused portion of lines of credit
previously extended and available to the customer so long as there is no
violation of any contractual condition. Credit lines generally have fixed
expiration dates or other termination clauses. Since many of the credit lines
are expected to expire without being fully drawn, the available amounts do not
necessarily represent future cash requirements. Available commercial credit
lines generally do not extend for more than 12 months. Available development and
construction credit lines generally do not extend for more than 24 months.
Second mortgages and home equity credit lines generally extend for a period of
15 years and are reviewed annually. The majority of loans related to commercial
and home equity lines of credit carry variable rates of interest.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. It is not likely that the letters of
credit will be called because they principally guarantee the completion of
development and construction work to be funded, subsequent to inspection, by
scheduled loan advances issued by the Company on related loans.
Limited recourse on mortgage loans sold relates to contractual provisions
under which the Company may be required to repurchase loans sold in the normal
course of business which fail to perform in accordance with the provisions of
the related mortgages during a specified period (generally the first six months
or less). Management believes these arrangements represent insignificant
exposure to the Company.
42
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
A concentration of credit risk exists with borrowers whose principal
occupation is residential real estate development and/or construction. Loans,
unused credit lines, and letters of credit to such borrowers totalled
approximately $98.0 million, $62.2 million and $14.7 million, respectively, at
December 31, 1998. Generally, these extensions of credit are secured by the real
estate under development and/or construction. Management believes that its
underwriting practices, specifically collateral requirements, mitigate the
Company's exposure.
NOTE 11 EMPLOYEE BENEFITS
PROFIT SHARING PLAN
Retirement benefits are provided to employees meeting certain age and service
eligibility requirements through a profit sharing plan with a cash or deferral
arrangement qualifying under Section 401(k) of the Internal Revenue Code, as
amended. Matching contributions made to the plan by the Company totalled
$181,000 in 1998, $151,000 in 1997 and $130,000 in 1996.
DEFERRED COMPENSATION PLAN
The Company has a nonqualified deferred compensation arrangement for selected
senior officers. Amounts paid under this plan will be partially or fully
recovered through single premium life insurance policies purchased on the lives
of the participants. The Company's matching contribution and interest credited
to participant accounts totalled $45,000 in 1998, $83,000 in 1997 and $32,000 in
1996.
STOCK OPTION PLANS
The Company has stock option award arrangements which provide for the
granting of options to acquire common stock to directors and key employees.
Option prices are equal to or greater than the market price of the common stock
at the date of the grant. Employee options are not exercisable prior to one year
from the date of grant. Thereafter, employee options are generally exercisable
to the extent of 25%, 50%, 75% and 100% after one, two, three and four years,
respectively, from the date of grant. Director options may be exercised at any
time after the date of grant. Options expire ten years after the date of grant.
Information with respect to stock options is as follows for the years ended
December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 193,200 $ 6.57 299,658 $ 4.74 304,160 $4.75
Exercised (37,320) 4.58 (139,236) 4.58 (4,502) 4.81
Granted 118,350 16.89 32,800 14.81 -- --
Forfeited (2,732) 16.40 (22) 4.55 -- --
--------------------------------------------------------------
Outstanding at
end of year 271,498 $11.24 193,200 $ 6.57 299,658 $4.74
--------------------------------------------------------------
</TABLE>
43
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
A summary of information about stock options outstanding at December 31, 1998
is as follows:
OPTIONS
OUTSTANDING
- -----------------------------------------------------------------------
WEIGHTED OPTIONS
AVERAGE EXERCISABLE
EXERCISE REMAINING -----------
PRICE SHARES LIFE (YEARS) SHARES
- -----------------------------------------------------------------------
$ 4.55 56,452 2.9 56,452
4.83 40,160 4.8 40,160
5.00 9,440 5.0 9,440
6.25 1,210 1.2 1,210
6.82 15,686 .6 15,686
11.00 12,000 8.2 3,000
16.88 103,000 9.1 16,000
17.00 33,550 9.5 19,900
-----------------------------------------
271,498 6.3 161,848
-----------------------------------------
At December 31, 1998, 1997 and 1996, options to purchase 161,848, 160,400 and
289,618 shares of the Company's common stock, respectively, were exercisable at
weighted average prices of $7.74, $4.89 and $4.74, respectively.
The per share weighted average fair value of options granted during 1998 and
1997 were $7.68 and $6.76, respectively. These values were estimated using the
Black-Scholes option pricing model and the following assumptions:
- -----------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------
Dividend yield 1.65% 1.75%
Expected volatility 35.93% 36.79%
Risk-free interest rate 5.60% 5.49%
Expected lives 10 years 10 years
The option prices were equal to the market prices of the common stock at the
date of grant for all options granted in 1998 and 1997, and accordingly, no
compensation expense related to options was recognized. If the Company had
applied a fair value-based method to recognize compensation cost for the options
granted, net income and net income per common share would have been changed to
the following pro forma amounts for the years ended December 31:
- --------------------------------------------------------------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA) 1998 1997
- --------------------------------------------------------------------------
Net income $4,521 $4,156
------------------------
Net income per common share:
Basic $ 1.00 $ .96
Diluted .98 .91
------------------------
NOTE 12 WARRANTS
Warrants to acquire 136,000 shares of common stock at $4.55 per share were
outstanding and exercisable at December 31, 1997. These warrants were exercised
during 1998.
44
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
NOTE 13 INCOME TAXES
The provision for income taxes was composed of the following for the years
ended December 31:
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------------------------------
Current:
Federal $2,458 $2,182 $2,265
State 243 479 497
---------------------------------------
2,701 2,661 2,762
Deferred:
Federal (129) (255) (308)
State (27) (56) (67)
---------------------------------------
(156) (311) (375)
---------------------------------------
$2,545 $2,350 $2,387
---------------------------------------
The types of temporary differences that give rise to significant portions of
the net deferred tax asset were as follows at December 31:
- ------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------
Deferred tax assets:
Allowance for credit losses $1,412 $1,290
Deferred compensation 133 156
Deposits 80 59
Other 87 51
------------------------
Total deferred tax assets 1,712 1,556
Deferred tax liabilities -
Federal Home Loan Bank stock dividends 38 38
------------------------
Net deferred tax asset (included in prepaid
expenses and other assets) $1,674 $1,518
------------------------
A reconciliation between the provision for income taxes and the amount
computed by multiplying income before income taxes by the federal income tax
rate of 34% is as follows for the years ended December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at federal statutory rate $2,479 $2,216 $2,087
State income taxes, net of federal income tax benefit 143 279 284
Other (77) (145) 16
-------------------------------------
$2,545 $2,350 $2,387
-------------------------------------
</TABLE>
45
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
NOTE 14 SHORT-TERM BORROWINGS
Short-term borrowings consist of short-term promissory notes issued to
certain qualified investors and borrowings from the FHLB. The short-term
promissory notes are in the form of commercial paper, reprice daily and have
maturities of 270 days or less. Short-term borrowings from the FHLB reprice
daily, have maturities of one year or less and may be prepaid without penalty.
Information with respect to short-term borrowings at December 31 is as follows:
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------------------
Amount outstanding at year-end:
Short-term promissory notes $27,012 $20,725 $12,127
Borrowings from FHLB -- 3,000 18,000
Weighted average interest rate at year-end:
Short-term promissory notes 4.4% 5.1% 4.8%
Borrowings from FHLB -- 6.5 6.7
Maximum outstanding at any month-end:
Short-term promissory notes $29,573 $22,831 $15,369
Borrowings from FHLB 17,500 18,500 18,000
Average outstanding:
Short-term promissory notes 24,357 18,177 12,090
Borrowings from FHLB 4,081 9,477 3,884
Weighted average interest rate during the year:
Short-term promissory notes 4.7% 4.8% 4.4%
Borrowings from FHLB 5.6 5.3 4.8
NOTE 15 LONG-TERM BORROWINGS
At December 31, 1998, the Company had three long-term advances from the FHLB
totalling $20 million, with fixed rates of interest ranging from 4.64% to 5.51%.
The advances are scheduled to mature in 2008, but all carry conversion options
which allow the FHLB to convert the fixed interest rate of each advance to a
three month LIBOR-based floating rate on specified dates in 2003. If the FHLB
elects to convert an advance, the Company has the option of terminating the
advance at that time, without penalty.
NOTE 16 NET OCCUPANCY EXPENSE
Net occupancy expense is comprised of the following for the years ended
December 31:
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------------------
Occupancy expense $2,074 $1,599 $1,272
Rental income (189) (179) (168)
----------------------------------------
Net occupancy expense $1,885 $1,420 $1,104
----------------------------------------
46
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
NOTE 17 DIVIDENDS AND COMMON STOCK
As a depository institution whose deposits are insured by the FDIC, the Bank
may not pay dividends or distribute any of its capital assets while it remains
in default on any assessment due the FDIC. The Bank currently is not in default
under any of its obligations to the FDIC. As a commercial bank under the
Maryland Financial Institution Law, the Bank may declare cash dividends from
undivided profits or, with the prior approval of the Commissioner of Financial
Regulation, out of surplus in excess of 100% of its required capital stock, and
after providing for due or accrued expenses, losses, interest and taxes.
The Company and the Bank, in declaring and paying dividends, are also limited
insofar as minimum capital requirements of regulatory authorities must be
maintained. The Company and the Bank comply with such capital requirements.
Dividends declared per share on the Company's common stock were $.29, $.25
and $.21 for the years ended December 31, 1998, 1997 and 1996, respectively.
As further described in note 1, all per share amounts have been restated to
reflect the two-for-one stock split-up in the form of a 100% stock dividend paid
in June 1998.
On December 22, 1998, the Board of Directors of the Bank authorized a cash
dividend of $365,000 to be paid to the Company on January 15, 1999. In addition,
on December 22, 1998, the Board of Directors of the Company declared an $.08 per
share cash dividend to shareholders of common stock of record on January 4,
1999, payable January 15, 1999.
At December 31, 1998, the Company was authorized to repurchase up to 388,000
shares of the Company's common stock, pursuant to the Company's stock repurchase
program approved in November 1998. During the year ended December 31, 1998, the
Company repurchased and retired 12,000 shares at an average price of $16.31 per
share.
NOTE 18 REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting procedures. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined) to risk-weighted assets (as
defined), and of Tier 1 capital to average assets (as defined). Management
believes, as of December 31, 1998, that the Bank meets all capital adequacy
requirements to which it is subject. As of December 31, 1998, the most recent
notification from the FDIC categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes would change the Bank's
category.
47
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
Regulatory capital amounts and ratios for the Company and the Bank are as
follows:
<TABLE>
<CAPTION>
MINIMUM TO BE WELL
REQUIREMENTS CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISION
- ------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998
Total capital (to risk-weighted assets):
Consolidated $42,247 12.7% $26,647 8.0% $33,308 10.0%
The Columbia Bank 40,030 12.0 26,656 8.0 33,319 10.0
Tier 1 capital (to risk-weighted assets):
Consolidated 38,282 11.5 13,323 4.0 19,985 6.0
The Columbia Bank 36,067 10.8 13,328 4.0 19,991 6.0
Tier 1 capital (to average assets):
Consolidated 38,282 9.0 17,022 4.0 21,278 5.0
The Columbia Bank 36,067 8.5 16,979 4.0 21,224 5.0
December 31, 1997
Total capital (to risk-weighted assets):
Consolidated $37,834 12.5% $24,202 8.0% $30,252 10.0%
The Columbia Bank 36,094 12.0 24,165 8.0 30,206 10.0
Tier 1 capital (to risk-weighted assets):
Consolidated 34,202 11.3 12,101 4.0 18,151 6.0
The Columbia Bank 32,462 10.8 12,082 4.0 18,124 6.0
Tier 1 capital (to average assets):
Consolidated 34,202 9.3 14,789 4.0 18,486 5.0
The Columbia Bank 32,462 8.9 14,649 4.0 18,312 5.0
---------------------------------------------------------
</TABLE>
NOTE 19 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument.
CASH AND DUE FROM BANKS
The carrying amount of cash and due from banks is a reasonable estimate of
fair value.
FEDERAL FUNDS SOLD
The carrying amount of federal funds sold is a reasonable estimate of fair
value.
INVESTMENT SECURITIES AND SECURITIES AVAILABLE-FOR-SALE
The fair values of securities held as investment and securities
available-for-sale are based upon quoted market prices or dealer quotes.
RESIDENTIAL MORTGAGE LOANS ORIGINATED FOR SALE
The carrying amounts of residential mortgage loans originated for sale are
reasonable estimates of fair value.
48
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
LOANS RECEIVABLE
The fair value of loans receivable is estimated by discounting future cash
flows using current rates for which similar loans would be made to borrowers
with similar credit history.
DEPOSIT LIABILITIES
The fair value of demand deposits and savings accounts is the amount payable
on demand at December 31, 1998. The fair value of fixed maturity certificates of
deposit is estimated using the rates currently offered for deposits of similar
remaining maturities.
SHORT-TERM BORROWINGS
The carrying amount of short-term borrowings is a reasonable estimate of fair
value.
LONG-TERM BORROWINGS
The fair value of long-term FHLB advances is estimated by discounting the
value of contractual cash flows using rates currently offered for advances with
similar terms and remaining maturities.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND FINANCIAL
GUARANTEES WRITTEN
The Company charges fees for commitments to extend credit. Interest rates on
commitments to extend credit are normally committed for periods of less than one
month. Fees charged on standby letters of credit and other financial guarantees
are deemed to be immaterial and these guarantees are expected to be settled at
face amount or expire unused. It is impractical to assign any fair value to
these commitments.
The estimated fair values of the Company's financial instruments at December
31 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
(DOLLARS IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 15,430 $ 15,430 $ 13,497 $ 13,497
Federal funds 17,099 17,099 2,014 2,014
Investment securities and
securities available-for-sale 84,016 84,542 66,645 66,824
Residential mortgage loans
originated for sale 17,387 17,387 6,557 6,557
Loans receivable, net of unearned
income 274,413 265,194
Less allowance for credit losses 3,965 3,632
-------- -------
Loans, net 270,448 272,941 261,562 264,498
Financial liabilities:
Deposits 339,336 341,148 313,357 313,641
Short-term borrowings 27,012 27,012 23,725 23,725
Long-term borrowings 20,000 20,058 -- --
------------------------------------------------
</TABLE>
49
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
NOTE 20 FINANCIAL INFORMATION OF PARENT COMPANY
The following is financial information of Columbia Bancorp at and for the
years ended December 31, (parent company only):
BALANCE SHEETS
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------
Assets:
Cash and temporary investments $27,648 $21,956
Investment in The Columbia Bank 36,168 33,001
Other assets 1,949 696
----------------------------
$65,765 $55,653
----------------------------
Liabilities and Stockholders' Equity:
Short-term borrowings $27,012 $20,725
Other liabilities 399 543
Stockholders' equity 38,354 34,385
----------------------------
$65,765 $55,653
----------------------------
STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------------------
Income:
Interest income $1,222 $ 970 $ 614
Dividend income from subsidiary 1,323 1,086 902
Management fees from subsidiary 120 120 120
----------------------------------
2,665 2,176 1,636
----------------------------------
Expenses:
Interest expense on short-term borrowings 1,146 898 532
Director fees 104 86 83
Other expenses 275 248 273
----------------------------------
1,525 1,232 888
----------------------------------
Income before income tax benefit and equity
in undistributed net income of
The Columbia Bank 1,140 944 748
Income tax benefit 62 48 59
----------------------------------
Income before equity in undistributed
net income of The Columbia Bank 1,202 992 807
Equity in undistributed net income
of The Columbia Bank 3,544 3,176 2,945
----------------------------------
Net income $4,746 $4,168 $3,752
----------------------------------
50
<PAGE>
(LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Columbia Bancorp and Subsidiary
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income before undistributed net
income of The Columbia Bank $ 1,202 $ 992 $ 807
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization 11 13 14
Increase (decrease) in other liabilities (200) 176 (113)
Decrease (increase) in other assets (916) (561) 210
--------------------------------
Net cash provided by operating activities 97 620 918
--------------------------------
Cash flows provided by (used in) financing activities:
Increase (decrease) in short-term borrowings 6,287 8,598 (3,173)
Cash dividend distributed on common stock (1,266) (1,035) (859)
Purchase of 12,000 shares of common stock (196) -- --
Net proceeds (disbursements) from stock options and
warrants exercised and common stock exchanged 770 (35) 22
--------------------------------
Net cash provided by (used in) financing activities 5,595 7,528 (4,010)
--------------------------------
Net increase (decrease) in cash
and temporary investments 5,692 8,148 (3,092)
Cash and temporary investments at beginning of year 21,956 13,808 16,900
--------------------------------
Cash and temporary investments at end of year $ 27,648 $ 21,956 $ 13,808
--------------------------------
</TABLE>
51
<PAGE>
(LOGO)
SELECTED QUARTERLY FINANCIAL DATA
Columbia Bancorp and Subsidiary
A summary of selected quarterly financial data for the years ended December
31 is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
1998:
Interest income $8,049 $8,137 $8,522 $8,220
Net interest income 4,915 4,944 5,143 4,908
Provision for credit losses 84 99 334 142
Income before income taxes 1,670 1,793 1,988 1,840
Net income 1,074 1,176 1,291 1,205
Net income per common share:
Basic $ 0.24 $ 0.26 $ 0.28 $ 0.27
Diluted 0.24 0.25 0.28 0.26
1997:
Interest income $6,888 $7,508 $7,871 $7,927
Net interest income 4,353 4,744 4,837 4,787
Provision for credit losses 210 185 234 34
Income before income taxes 1,591 1,634 1,601 1,692
Net income 972 999 1,085 1,112
Net income per common share (a):
Basic $ 0.23 $ 0.23 $ 0.25 $ 0.25
Diluted 0.21 0.22 0.24 0.24
</TABLE>
(A) PER COMMON SHARE AMOUNTS FOR 1997 HAVE BEEN REVISED TO REFLECT THE
TWO-FOR-ONE STOCK SPLIT-UP IN THE FORM OF A 100% STOCK DIVIDEND PAID IN JUNE
1998.
52
<PAGE>
(LOGO)
RECENT COMMON STOCK PRICES AND
STOCK PERFORMANCE GRAPH
Columbia Bancorp and Subsidiary
RECENT COMMON STOCK PRICES
The Company's Common Stock is traded on the National Association of
Securities Dealers' Automated Quotation System ("Nasdaq") National Market tier
of The Nasdaq Stock Market(SM) under the symbol "CBMD".
The following table presents high and low sale prices and dividends per share
of the Company's Common Stock for the periods indicated.
- -----------------------------------------------------------------------
DIVIDENDS
LOW HIGH DECLARED
- -----------------------------------------------------------------------
1998:
Fourth quarter $12.38 $17.13 $.08
Third quarter 14.00 18.50 .07
Second quarter 17.13 18.50 .07
First quarter 15.75 18.38 .07
1997:
Fourth quarter $13.75 $19.25 $.07
Third quarter 11.63 14.63 .06
Second quarter 10.63 11.94 .06
First quarter 10.38 11.57 .06
As of December 31, 1998 there were 337 common stockholders of record holding
an aggregate of 4,561,650 shares. The Company believes there to be in excess of
2,000 beneficial owners of the Company's Common Stock.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Company's
Common Stock during the five years ended December 31, 1998 with that of a broad
market index (Nasdaq, U.S. Companies) and an industry peer group index (publicly
traded commercial banks in Maryland, Pennsylvania, Virginia and the District of
Columbia with total assets less than $1 billion). The graph assumes $100 was
invested on December 31, 1993 in the Company's Common Stock and in each of the
indices and assumes reinvestment of dividends.
FIVE YEAR CUMULATIVE TOTAL RETURN
(A Chart appears here. See the table below for plot points.)
Index Value
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C> <C> <C>
Columbia Bancorp 100 147.54 191.44 241.06 392.91 399.87
NASDAQ - Total US 100 97.75 138.26 170.01 208.58 293.21
CBMD Peer Group 100 109.44 121.44 141.67 231.66 226.56
</TABLE>
53
<PAGE>
(LOGO)
DIRECTORS AND OFFICERS
Columbia Bancorp and Subsidiary
COLUMBIA BANCORP
DIRECTORS
James R. Moxley, Jr.
Chairman
Columbia Bancorp
President
Security Development Corp.
Herschel L. Langenthal
Vice Chairman
Columbia Bancorp
Managing Partner
Langenmyer Co.
Anand S. Bhasin
President
Gemini Ventures Corp.
John M. Bond, Jr.
President and Chief Executive Officer
Columbia Bancorp
Garnett Y. Clark, Jr.
President
GYC Group Ltd.
Hugh F.Z. Cole, Jr.
Partner
Brantly Development Group, Inc.
G. William Floyd
General Partner
Venture Associates
Robert J. Gaw
Retired President
Ryland Mortgage Co.
William L. Hermann
President
William L. Hermann, Inc.
Charles C. Holman
Retired Executive Vice President
The Columbia Bank
Harry L. Lundy, Jr.
President
Williamsburg Group L.L.C.
Richard E. McCready
Chairman
Eastern Sales and Marketing
Mary S. Scrivener
Maurice M. Simpkins
Vice President
The Ryland Group
Robert N. Smelkinson
Retired Chairman
Smelkinson Sysco
Theodore G. Venetoulis
Publisher/Political Consultant
DIRECTORS EMERITUS
James Clark, Jr.
Retired President
Maryland State Senate
Mary T. Gould
Osborne A. Payne
President
Broadway-Payne, Inc.
Patricia T. Rouse
Vice President and Secretary
The Enterprise Foundation
THE COLUMBIA BANK
SENIOR OFFICERS
John M. Bond, Jr.
President and
Chief Executive Officer
Michael T. Galeone
Executive Vice President
Robert W. Locke, III
Executive Vice President
John A. Scaldara, Jr.
Executive Vice President,
Chief Financial Officer
and Secretary
Robert E. Dael
Senior Vice President
Andrea K. Griesmar
Senior Vice President
Adelbert D. Karfonta
Senior Vice President
Scott C. Nicholson
Senior Vice President
Melissa M. Quirk
Senior Vice President
54
<PAGE>
THE COLUMBIA BANK
ADVISORY BOARD
Columbia
Randolph W. Brinton
Senior Vice President
Ferris, Baker Watts, Inc.
Edward J. Brody
President
Brody Truck Rental, Inc.
Edward J. Brush
President
Fountainhead Title Group
Dwight A. Burrill, Ph.D.
Retired President
Howard Community College
Ryland O. Chapman, III
Headmaster
Glenelg Country School
C. Joan Cochran
Realtor
Long & Foster Realtors
Robert E. Cook
Owner
Laurel Hardware Co., Inc.
Steve Dubin
Chief Financial Officer
Martek Biosciences Corp.
Joel D. Fedder
President
The Fedder Company
John W. Garrison
Senior Partner
Garrison, Mathieson,
Cosgray & Falk
William M. Ginder
Retired
Vice Chairman
Crown Central Petroleum Corp.
Dr. Lenneal J. Henderson
Professor
University of Baltimore
Richard V. Hoenes
Vice President
Cromwell Farms
Stanley M. Levy
Retired
Administrative Law Judge
Donald C. Miller
Retired
Miller Chevrolet
William H. Munn
President
BGE Home Products & Services
S. Zeke Orlinsky
Publisher
Patuxent Publishing Co.
H. Canfield Pitts, II
Resident Manager
Merrill Lynch Pierce
Fenner &Smith, Inc.
Samuel A. Rittenhouse
Retired Manager
Electric Engineering
BGE
Doris Stromberg Thompson
Retired
Newspaper Editor
John L. Troutman
President
Troutman Company
E. David Walter, Jr.
Vice President
Ferris, Baker Watts, Inc.
Johannes Willenpart
Past President
Austronic Security
Systems, Inc.
THE COLUMBIA BANK
ADVISORY BOARD
Baltimore County
Albert H. Dudley, III, M.D.
Orthopedic Surgeon
Four East Madison
Orthopedics Associates, Inc.
Carol J. Glusman
Administrator
Pathology Associates
Laboratories, Inc.
Edmund F. Haile, P.E.
Chairman
Daft McCune Walker, Inc.
Lawrence E. Holder, M.D.
F.A.C.R.
Chief
Division of Nuclear Medicine
University of Maryland
Hospital
John J. Kent, Jr.
Chief Operating Officer
Sheppard & Enoch Pratt
Hospital
Douglas L. Miller, Sr.
President
C&D Corporation, Inc.
55
<PAGE>
(LOGO)
CORPORATE INFORMATION
Columbia Bancorp and Subsidiary
BRANCH LOCATIONS
BLAKEHURST
1055 W. Joppa Road
Towson, MD 21204
Phone: (410) 494-6148
COLUMBIA TOWN CENTER
10480 Little Patuxent Parkway
Columbia, MD 21044
Phone: (410) 730-5000
CROSS KEYS
5100 Falls Road, Suite 96
Baltimore, MD 21210
Phone: (410) 433-1990
EDENWALD
800 Southerly Road
Baltimore, MD 21286
Phone: (410) 821-5699
ELLICOTT CITY
9151 Baltimore National Pike
Ellicott City, MD 21042
Phone: (410) 465-4800
HARMONY HALL
6336 Cedar Lane
Columbia, MD 21044
Phone: (410) 531-1933
HARPER'S CHOICE
5485 Harper's Farm Road
Columbia, MD 21044
Phone: (410) 730-5085
HEAVER PLAZA
1301 York Road
Lutherville, MD 21093
Phone: (410) 296-0490
LONG GATE
4450 Long Gate Parkway
Ellicott City, MD 21042
Phone: (410) 203-2345
OAKLAND MILLS
5880 Robert Oliver Place
Columbia, MD 21045
Phone: (410) 992-9411
RIVER HILL
6030 Daybreak Circle
Clarkesville, MD 21029
Phone: (410) 531-7000
ROLAND PARK PLACE
830 West 40th Street
Baltimore, MD 21211
Phone: (410) 366-1314
VANTAGE HOUSE
5400 Vantage Point Road
Columbia, MD 21044
Phone: (410) 740-4066
WILDE LAKE
10451 Twin Rivers Road
Columbia, MD 21044
Phone: (410) 884-6800
MORTGAGE LENDING OFFICES
COLUMBIA TOWN CENTER
10480 Little Patuxent Parkway
Columbia, MD 21044
Phone: (410) 730-5000
HEAVER PLAZA
1301 York Road
Lutherville, MD 21093
Phone: (410) 296-0490
OLNEY
18200 Georgia Avenue
Olney, MD 20832
Phone: (301) 924-9240
ANNUAL MEETING
The Annual Meeting of
Stockholders will be held on
Tuesday, April 27, 1999 at
5:30 p.m. at:
Turf Valley Resort
and Conference Center
2700 Turf Valley Road
Ellicott City, MD 21042
TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Attn: Investor Relations
Phone: 1-800-368-5948
INDEPENDENT AUDITORS
KPMG LLP
111 S. Calvert Street
Baltimore, MD 21202
GENERAL COUNSEL
Piper & Marbury L.L.P.
36 S. Charles Street
Baltimore, MD 21201
CORPORATE HEADQUARTERS
10480 Little Patuxent Parkway
Columbia, MD 21044
Phone: (410) 465-4800
Fax: (410) 750-0105
Internet:
http://www.columbank.com
STOCK EXCHANGE LISTING
The Common Stock of Columbia Bancorp is traded on the Nasdaq National Market
tier of the Nasdaq Stock Market(SM) under the symbol "CBMD."
ADDITIONAL INFORMATION
A copy of Columbia Bancorp's annual report to the SEC on Form 10-K may be
obtained without charge upon written request to:
Columbia Bancorp
9151 Baltimore National Pike
Ellicott City, MD 21042
Attention: John A. Scaldara, Jr.
E-mail: [email protected]
56
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Columbia Bancorp:
We consent to the incorporation by reference in the registration statement (No.
333-10231) on Form S-8 of Columbia Bancorp of our report dated January 21, 1999,
relating to the consolidated statements of condition of Columbia Bancorp and
subsidiary as of December 31, 1998 and 1997, and the related consolidated
statements of income and comprehensive income, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1998,
which report appears in the December 31, 1998 annual report on Form 10-K of
Columbia Bancorp.
/s/ KPMG LLP
KPMG LLP
Baltimore, Maryland
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 15,430
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 17,099
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,234
<INVESTMENTS-CARRYING> 73,782
<INVESTMENTS-MARKET> 74,308
<LOANS> 274,779
<ALLOWANCE> (3,965)
<TOTAL-ASSETS> 427,335
<DEPOSITS> 339,336
<SHORT-TERM> 27,012
<LIABILITIES-OTHER> 2,633
<LONG-TERM> 20,000
0
0
<COMMON> 46
<OTHER-SE> 38,308
<TOTAL-LIABILITIES-AND-EQUITY> 427,335
<INTEREST-LOAN> 27,768
<INTEREST-INVEST> 4,448
<INTEREST-OTHER> 712
<INTEREST-TOTAL> 39,928
<INTEREST-DEPOSIT> 11,195
<INTEREST-EXPENSE> 13,018
<INTEREST-INCOME-NET> 19,910
<LOAN-LOSSES> 659
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 15,384
<INCOME-PRETAX> 7,291
<INCOME-PRE-EXTRAORDINARY> 4,746
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,746
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 5.48
<LOANS-NON> 2,995
<LOANS-PAST> 63
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (3,632)
<CHARGE-OFFS> 344
<RECOVERIES> 18
<ALLOWANCE-CLOSE> (3,965)
<ALLOWANCE-DOMESTIC> (3,965)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
[logo]
COLUMBIA BANCORP
10480 LITTLE PATUXENT PARKWAY
COLUMBIA, MARYLAND 21044
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 1999
Notice is hereby given that the Annual Meeting of Stockholders of
Columbia Bancorp will be held at the Turf Valley Resort and Conference Center,
2700 Turf Valley Road, Ellicott City, Maryland 21042 on Tuesday, April 27, 1999,
at 5:30 p.m. for the following purposes:
1. To elect seven directors to serve until their terms of office
expire and until their successors are duly elected and qualified.
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March
10, 1999 as the record date for the determination of stockholders entitled to
notice of and to vote at the meeting or any adjournments or postponements
thereof.
Your Proxy is enclosed. You are encouraged to complete, date,
sign and return promptly the Proxy in the envelope provided even though you may
plan to attend the meeting. No postage is necessary for mailing in the United
States. Returning the Proxy will not limit your right to vote in person or to
attend the Annual Meeting, but will insure your representation if you cannot
attend. If you attend the meeting, you may revoke your Proxy and vote in person.
By Order of the Board of Directors
JOHN A. SCALDARA, JR.
Corporate Secretary
Columbia, Maryland
March 24, 1999
<PAGE>
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished on or about March 24, 1999 to
stockholders of Columbia Bancorp (the "Company") in connection with the
solicitation of proxies by the Company's Board of Directors to be used at the
annual meeting of stockholders described in the accompanying notice and at any
adjournments or postponements thereof. The purposes of the meeting are set forth
in the accompanying notice of annual meeting of stockholders.
PROXIES AND VOTING
The accompanying proxy is solicited by the Board of Directors of the
Company. The Board of Directors has selected Herschel L. Langenthal and John A.
Scaldara, Jr., or either of them, to act as proxies with full power of
substitution. Any stockholder executing a proxy has the power to revoke the
proxy at any time before it is voted. This right of revocation is not limited or
subject to compliance with any formal procedure. Any stockholder may attend the
meeting and vote in person whether or not he or she has previously given a
proxy.
The record date for stockholders entitled to notice of and to vote at
the annual meeting was the close of business on March 10, 1999. At that date
there were outstanding and entitled to vote 4,537,420 shares of Common Stock,
par value $.01 per share, of the Company. In the election of directors each
share is entitled to one vote for each director to be elected; however,
cumulative voting is not permitted. For all matters except the election of
directors, each share is entitled to one vote.
The cost of solicitation of proxies and preparation of proxy materials
will be borne by the Company. The solicitation of proxies will generally be by
mail and by directors, officers and employees of the Company and its subsidiary,
The Columbia Bank (the "Bank"), without additional compensation to them. In some
instances solicitation may be made by telephone or telegraph, the costs of which
will be borne by the Company. The Company may also reimburse brokers,
custodians, nominees and other fiduciaries for reasonable out-of-pocket and
clerical expenses for forwarding proxy materials to principals.
The Annual Report of the Company, including financial statements for the
fiscal year ended December 31, 1998, has been mailed to all stockholders with
this Proxy Statement.
PROPOSAL 1 - ELECTION OF DIRECTORS
The charter and by-laws of the Company provide that the directors shall
be classified into three classes as equal in number as possible, with each
director serving a three-year term.
Directors are elected by a plurality of the votes cast by the holders of
shares of Common Stock present in person or represented by proxy at the meeting
with a quorum present. Abstentions and broker non-votes are not considered to be
votes cast.
1
<PAGE>
NOMINEES
Unless otherwise indicated in the enclosed proxy, the persons named in
such proxy intend to nominate and vote for the election of the following seven
nominees for the office of director of the Company, to serve as directors for
three years or until their respective successors have been duly elected and
qualified. All such nominees are currently serving as directors, with the
exception of James R. Moxley, III. The Board of Directors is not aware that any
nominee named herein will be unable or unwilling to accept nomination or
election. Should any nominee for the office of director become unable to accept
nomination or election, the persons named in the proxy will vote for the
election of such other persons, if any, as the Board of Directors may recommend.
The names and ages (as of March 10, 1999) of persons nominated by the
Board of Directors, their principal occupations and business experience for the
past five years, and certain other information are set forth below. Unless
otherwise noted, each has served as a director of the Company and the Bank since
inception of the Company in 1987 and the Bank in 1988.
<TABLE>
<CAPTION>
NAME OF NOMINEE INFORMATION REGARDING NOMINEE
- --------------- -----------------------------
NOMINEES FOR DIRECTORS TO BE ELECTED AT THE 1999 ANNUAL MEETING
TO SERVE UNTIL THE 2002 ANNUAL MEETING (CLASS III)
<S> <C>
John M. Bond, Jr. Mr. Bond, Jr. is 55 years old and has served as a director and
President, Chief Executive Officer, and Treasurer
of the Company and the Bank since inception.
William L. Hermann Mr. Hermann is 57 years old and is President of William L.
Hermann, Inc., a financial management company. Mr. Hermann
served as General Manager of the Glenmore office of the Bank
until December 1997. He has served as a director of the
Company and the Bank since June 1989.
Charles C. Holman Mr. Holman is 65 years old. Since June, 1992 and until his
retirement effective December 31, 1998, Mr. Holman served as
Executive Vice President of the Bank and was responsible for
the Bank's acquisition, development and construction loan
portfolio. Mr. Holman has been involved in the banking and
real estate industries over the past 30+ years. He is a
graduate of the University of Baltimore and is a resident of
Baltimore County, Maryland. Mr. Holman has served as a
director of the Company and the Bank since December, 1998.
Harry L. Lundy, Jr. Mr. Lundy is 58 years old. He is President and owner of
Williamsburg Group, LLC, Williamsburg Builders, Inc. and
Hallmark Builders, Inc. He is Executive Vice President and
owner of Patriot Homes, Inc. Each of the aforementioned
companies is a residential construction company.
James R. Moxley, III Mr. Moxley, III is 38 years old. He is Vice President of SDC
Group, a real estate development company. Prior to this, Mr.
Moxley served as an Associate Attorney with a prominent law
firm in Baltimore, Maryland. He is a graduate of Duke
University and is a resident of Howard County, Maryland. Mr.
Moxley, III has not previously served in any capacity with the
Bank or the Company. He is the son of Mr. Moxley, Jr. Mr.
Moxley, III currently guarantees a credit facility with the
2
<PAGE>
Bank, along with Mr. Moxley, Jr. and others. As of March 10,
1999, the outstanding balance of the loan was $1,747,563.
Mary S. Scrivener Mrs. Scrivener is 61 years old. She is Secretary of Calvert
General Contractors, a commercial construction company.
Theodore G. Venetoulis Mr. Venetoulis is 64 years old. He is a former Baltimore
County Executive, the County's senior elected official, and has
been publisher of the Orioles Gazette and political analyst for
WBAL-TV in Baltimore, Maryland.
</TABLE>
CONTINUING DIRECTORS
The following information is provided with respect to directors who will
continue to serve as directors of the Company until the expiration of their
terms at the times indicated. Unless otherwise noted, each has served as a
director of the Company and the Bank since inception of the Company in 1987 and
the Bank in 1988.
<TABLE>
<CAPTION>
NAME OF DIRECTOR INFORMATION REGARDING DIRECTOR
- ---------------- ------------------------------
DIRECTORS TO SERVE UNTIL THE 2000 ANNUAL MEETING (CLASS I)
<S> <C>
Anand S. Bhasin Mr. Bhasin is 61 years old. He is President of Gemini
Ventures Corporation, an international trading company. Mr.
Bhasin has served as a director of the Company since November,
1990 and the Bank since April, 1992.
Garnett Y. Clark, Jr. Mr. Clark is 56 years old. He is President of GYC Group Ltd.,
a building and development company. He is also President of
Clark & Associates Realtors, Inc.
Robert J. Gaw Mr. Gaw is 65 years old. He is the retired President of Ryland
Mortgage Company and is a founding director of The Ryland
Group, Inc., a residential homebuilder and mortgage finance
company.
Maurice M. Simpkins Mr. Simpkins is 53 years old. He is Vice President for Public
Affairs at The Ryland Group, Inc., a residential homebuilder
and mortgage finance company, and has been with Ryland since
1971. Mr. Simpkins has served as a director of the Company and
Bank since April, 1997.
Robert N. Smelkinson Mr. Smelkinson is 69 years old. He is the retired Chairman of
Smelkinson Sysco, a distribution company.
<CAPTION>
DIRECTORS TO SERVE UNTIL THE 2001 ANNUAL MEETING (CLASS II)
<S> <C>
Hugh F.Z. Cole, Jr. Mr. Cole is 57 years old. He is Chairman and CFO of Brantly
Development Group, Inc., a real estate development company.
Mr. Cole has served as a director of the Company and Bank since
July, 1988.
G. William Floyd Mr. Floyd is 67 years old. He is a general partner of
Venture Associates, a commercial real estate investment firm.
3
<PAGE>
Herschel L. Langenthal Mr. Langenthal is 70 years old. He is the managing
partner of Langenmyer Company, an investment company. Mr.
Langenthal is also Vice-Chairman of the Company.
Richard E. McCready Mr. McCready is 65 years old. He is Chairman and CEO of
Eastern Sales and Marketing, a food brokerage company.
James R. Moxley, Jr. Mr. Moxley is 68 years old. He is President of Security
Development Corporation, a real estate development company.
Mr. Moxley is also Chairman of the Company and is the father of
Mr. Moxley, III.
</TABLE>
DIRECTORS EMERITUS
Mr. J. Clark, Jr., Mr. Payne, Ms. Gould and Ms. Rouse currently serve as
Directors Emeritus of the Company and the Bank. As a Director Emeritus, each is
eligible to receive compensation and perquisites offered to directors generally
and may participate in discussion at Board meetings of the Company and the Bank,
but may not vote and may not be counted for purposes of determining a quorum.
Terms for Mr. Clark, Jr., Ms. Gould and Ms. Rouse expire in April, 2000.
Mr. Payne's term expires in April, 1999.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held eleven meetings during 1998. Directors Floyd
and McCready attended fewer than 75% of the sum of the total number of Company
meetings of the Board of Directors and of committees of the Board of Directors
on which each served during 1998.
The Board of Directors has seven standing committees. The committees are
the Executive; Acquisition, Development and Construction ("ADC"); Audit;
Asset/Liability Management ("ALM"); Community Reinvestment Act ("CRA") Advisory;
Marketing; and Personnel, Compensation and Stock Option ("PCSO") committees. The
Board of Directors has not established a nominating committee. The functions
customarily attributable to a nominating committee are performed by the PCSO
Committee and the Board of Directors as a whole. In addition, the Board of
Directors, from time to time, establishes special committees which have a
limited duration. Directors are appointed to each committee, except the
Executive Committee, for a one-year term. Directors are appointed to the
Executive Committee on a rotational basis with terms ranging from three months
to one year. The Chairman and Vice-Chairman of the Board of Directors are
ex-officio members of all committees, with the exception of the Audit Committee.
The President is an ex-officio member of all committees except the Audit and
PCSO committees.
The Executive Committee held forty-four meetings during 1998. The
Executive Committee currently consists of Directors Bond, Jr., Cole, Gaw,
Hermann, Holman, Langenthal (Chairman) and Moxley, Jr. The Committee is
responsible for evaluating and approving credits exceeding the lending authority
of officers of the Bank; reviewing on a regular basis financial information,
operational statistics, loan delinquencies and potential problem loans; and
taking other actions as may be required in the absence of the full Board of
Directors.
The ADC Committee held four meetings during 1998. The ADC Committee
consists of Directors Bond, Jr., G. Clark (Chairman), Holman, Langenthal, Lundy,
Moxley, Jr. and Simpkins. The Committee is responsible for monitoring business
development strategies and market trends specific to the Company's acquisition,
development and construction loan portfolio.
4
<PAGE>
The Audit Committee held one meeting during 1998. The Audit Committee
consists of Directors Bhasin, Cole (Chairman), Floyd, Hermann and Venetoulis.
The Committee is responsible for overseeing the Company's internal accounting
controls; recommending to the Board of Directors the selection of the Company's
independent auditors; reviewing the annual audit plan, annual report and results
of the independent audit; reviewing supervisory examination reports; and
initiating other special reviews when deemed necessary.
The ALM Committee held three meetings during 1998. The ALM Committee
consists of Directors Bhasin, Bond, Jr., Gaw (Chairman), Hermann, Langenthal,
Moxley, Jr. and Scrivener. The Committee monitors quarterly operating results,
liquidity, asset mix, interest rate risk, loan pricing and deposit rate policies
of the Company. In addition, the Committee directs the investment strategies of
the Company and makes recommendations of such to the Board of Directors when
strategies are outside its approval authority.
The CRA Advisory Committee held six meetings during 1998. The CRA
Advisory Committee consists of Directors Bhasin, Bond, Jr., Langenthal, Moxley,
Jr., Simpkins (Chairman) and Venetoulis. The Committee provides oversight and
guidance to the development of CRA programs and affordable housing initiatives
of the Company. This includes providing mortgage financing conduits for
low-to-moderate income housing, fair lending policies for minorities,
encouragement for first-time homebuyers, and education to the community to
foster affordable housing opportunities.
The PCSO Committee held three meetings during 1998. The PCSO Committee
consists of Directors Gaw, Langenthal, Lundy, McCready, Moxley, Jr., Simpkins,
Smelkinson (Chairman) and Venetoulis. The Committee oversees the compensation of
all employees, except the compensation of the President and directors; reviews
the compensation of the President and directors, and makes recommendations
regarding changes to such to the Board of Directors for approval; monitors
personnel related matters of the Company; reviews and authorizes employee
related benefit plans; and administers the Company's Stock Option Programs.
Effective January 1, 1999, the Board of Directors established the
Marketing Committee, consisting of Directors Bond, Jr., G. Clark, Gaw,
Langenthal, Lundy, Moxley, Jr., Smelkinson and Venetoulis (Chairman). The
Committee is responsible for monitoring the overall business development
strategies and marketing efforts of the Company.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company and the Bank will receive $150 and
stock options to purchase thirty shares of Common Stock of the Company for each
Board and committee meeting attended during 1999. Chairpersons of committees,
other than directors Langenthal and Moxley, Jr., will receive $250 for each
committee meeting attended during 1999. Directors Moxley, Jr. and Langenthal,
serving in the capacities of Chairman and Vice-Chairman of the Company,
respectively, will receive annual fees of $29,000 and $27,000, respectively, in
addition to fees paid and stock options granted for meeting attendance. These
amounts are unchanged from those received during 1998. The Chairman and
Vice-Chairman are also eligible for a bonus to be awarded at the discretion of
the Board of Directors, although no bonus was awarded for 1998. On January 21,
1999, Directors Moxley, Jr. and Langenthal were granted stock options to
purchase 5,000 and 3,000 shares, respectively, of Common Stock of the Company at
$16.875 per share, the then current market price. Total director fees paid by
the Company and the Bank for 1998 service were $152,473, inclusive of annual
fees paid the Chairman and Vice-Chairman. In addition, on December 31, 1998,
stock options to purchase 15,350 shares of common stock at $17.00 per share, the
then current market price, were granted to directors for meeting attendance
during 1998.
5
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Act") requires that the Company's directors and executive officers, and persons
who own more than 10% of a registered class of the Company's equity securities,
file with the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of change in ownership of Common Stock of the Company. The
same persons are also required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms that they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, and written representations that no other
reports were required during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to the Company's executive
officers, directors and greater than 10% beneficial owners were complied with,
except that Director Lundy inadvertently failed to file a report (representing a
transaction) required by Section 16(a) of the Act on a timely basis.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has made loans to certain of its executive officers, directors
and related parties. These loans were made on substantially the same terms,
including interest rate and collateral requirements, as those prevailing at the
time for comparable transactions with unrelated customers and did not involve
more than the normal risk of collectibility or present other unfavorable
features. At December 31, 1998, these loans totaled $3.2 million, or
approximately 8.4% of the total equity capital of the Bank.
PRINCIPAL BENEFICIAL OWNERS OF THE COMPANY'S COMMON STOCK
CERTAIN BENEFICIAL OWNERS
No persons were known by the Company to own beneficially, directly or
indirectly, more than 5% of the Company's Common Stock outstanding on December
31, 1998, except as follows:
<TABLE>
<CAPTION>
Name and Address Shares Beneficially Stock Percentage
of Stockholders Owned Options of Class
--------------- ----- ------- --------
<S> <C> <C> <C>
John M. Bond, Jr. 204,790 (a) 23,962 (b) 5.01%
The Columbia Bank
10480 Little Patuxent Pkwy.
Columbia, MD 21044
</TABLE>
(a) Includes 81,934 shares of Common Stock held by the Company's 401(k) Plan
and Trust on December 31, 1998 for which Mr. Bond, Jr. serves as a trustee.
Beneficial ownership of such shares is expressly disclaimed, except as to
17,759 shares held for the account of Mr. Bond, Jr.
(b) Represents the number of shares of Common Stock subject to stock options
currently exercisable.
6
<PAGE>
BENEFICIAL OWNERSHIP OF EXECUTIVE OFFICERS, DIRECTORS AND NOMINEES
The following table lists the number of shares of Common Stock of the
Company beneficially owned by directors and named Executive Officers of the
Company and the Bank, directly or indirectly, as of March 10, 1999. All shares
and stock options reported herein have been adjusted to reflect the payment of
the 2-for-1 common stock split-up in the form of a 100% stock dividend effective
June 19, 1998.
<TABLE>
<CAPTION>
Shares of % of
Common Stock Stock Options (1) Class
------------ ----------------- -----
<S> <C> <C> <C>
CONTINUING DIRECTORS:
Anand S. Bhasin (2) 46,698 2,153 1.08
Garnett Y. Clark, Jr 39,707 4,131 *
Hugh F.Z. Cole, Jr. (3) 43,217 3,605 1.03
G. William Floyd 28,196 225 *
Robert J. Gaw 58,586 1,300 1.32
Herschel L. Langenthal (4) 92,274 15,793 2.37
Richard E. McCready 45,628 2,569 1.06
James R. Moxley, Jr 46,208 21,904 1.49
Maurice M. Simpkins 11,174 875 *
Robert N. Smelkinson 117,908 4,704 2.70
DIRECTOR NOMINEES:
John M. Bond, Jr. (5)(6) 204,790 23,962 5.01
William L. Hermann (7) 53,960 800 1.21
Charles C. Holman (8) 9,162 15,500 *
Harry L. Lundy, Jr. (9) 110,386 3,050 2.50
James R. Moxley, III (10) 8,433 -- *
Mary S. Scrivener 50,159 2,699 1.16
Theodore G. Venetoulis (11) 26,120 3,201 *
EXECUTIVE OFFICERS:
Michael T. Galeone 3,712 19,000 *
Robert W. Locke (12) 26,491 8,100 *
John A. Scaldara, Jr. (13)(14) 84,778 19,000 2.28
========= ========= =====
All directors and executive
officers (20 persons) (15) 1,025,653 152,571 25.12%
========= ========= =====
Company totals 4,537,420 186,628
========= =======
</TABLE>
* Less than 1%
(1) Represents the number of shares of Common Stock subject to stock options
currently exercisable.
(2) Includes 4,088 shares of Common Stock owned by Mr. Bhasin's children.
(3) Includes 2,742 shares of Common Stock for which Mr. Cole is a trustee.
(4) Includes 23,424 shares of Common Stock for which Mr. Langenthal is a
trustee and 33,390 shares of Common Stock owned by two partnerships and a
corporation of which Mr. Langenthal owns an interest.
(5) Includes 45,230 shares of Common Stock and 2,962 stock options for which
Mr. Bond, Jr. is a co-trustee and a remainder beneficiary.
(6) Includes 81,934 shares of Common Stock held by the Company's 401(k) Plan
and Trust on December 31, 1998 for which Mr. Bond, Jr. serves as a trustee.
Beneficial ownership of such shares is expressly disclaimed, except as to
17,759 shares held for the account of Mr. Bond, Jr.
(7) Includes 4,728 shares of Common Stock owned by a corporation of which Mr.
Hermann owns an interest.
7
<PAGE>
(8) Includes 1,685 shares of Common Stock held for the account of Mr. Holman in
the Company's 401(k) Plan and Trust.
(9) Includes 47,029 shares of Common Stock for which Mr. Lundy is a trustee and
60,674 shares of Common Stock owned by a corporation and a limited
partnership of which Mr. Lundy owns an interest.
(10) Includes 2,604 shares of Common Stock owned by Mr. Moxley, III's children.
(11) Includes 25,978 shares of Common Stock held by a trust; the beneficial
ownership of such shares is expressly disclaimed.
(12) Includes 2,379 shares of Common Stock held for the account of Mr. Locke in
the Company's 401(k) Plan and Trust.
(13) Includes 312 shares of Common Stock for which Mr. Scaldara is trustee.
(14) Includes 81,934 shares of Common Stock held by the Company's 401(k) Plan
and Trust on December 31, 1998 for which Mr. Scaldara serves as a trustee.
Beneficial ownership of such shares is expressly disclaimed, except as to
8,124 shares held for the account of Mr. Scaldara.
(15) Includes 81,934 shares of Common Stock held by the Company's 401(k) Plan
and Trust for which Mr. Bond, Jr. and Mr. Scaldara are trustees.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report is submitted by the Personnel, Compensation and
Stock Option Committee of the Board of Directors (the "Committee"). The report
addresses the executive compensation policies of the Bank and the Company
(collectively, the "Company") for 1998.
The Committee establishes the compensation of senior officers of the
Company with the exception of Mr. Bond, Jr., the President and Chief Executive
Officer. Mr. Bond, Jr.'s compensation is established by the Board of Directors
of the Company based upon data provided by and recommendations of the Committee.
The Board of Directors also establishes the compensation of the Chairman and
Vice Chairman of the Board of Directors based on the recommendations of the
Committee. In addition, the Committee generally reviews all personnel related
issues, including salary administration related to all other employees, and
administers the Company's 1997 Stock Option Plan, 401(k) Plan and Trust, and
Deferred Compensation Plan. The overall goal of the Committee is the
establishment and administration of compensation policies directly related to
attainment of corporate operational and financial goals which provide the
ability to attract, motivate, reward and retain qualified senior officers.
The Company utilizes an internal salary administration plan for the
basis of its analysis of compensation levels throughout the Company, including
senior officers. The plan includes job descriptions for all positions and rates
the overall responsibility of each position based on characteristics including,
job knowledge, problem-solving, accountability, human relations, communications,
supervision of others and marketing. Each position is assigned to a salary grade
based on level of overall responsibility. Salary ranges for each salary grade
are developed based on market information available for similar positions at
financial institutions both in the communities where the Company does business
and outside the Company's market area. These results are updated annually by the
Company's human resources staff using current market data which reflects
marketplace changes, inflation, and, if applicable, corporate performance. This
information is considered by the Committee.
The individual components of the Company's compensation program include:
(a) BASE SALARY. Base salary levels are established for senior officers
primarily based upon evaluation of the historical performance, degree of
responsibility, level of experience and number
8
<PAGE>
of years with the Company. In addition, the Committee considers
compensation data available through various surveys, including the
Sheshunoff Bank Executive and Director Compensation Survey, SNL Executive
Compensation Review, Bank Administration Institute Bank Cash Compensation
and Key Executive Compensation Surveys, Chesapeake Human Resources
Association Annual Benefits and Compensation Survey, and Starkey & Beall
Regional Financial Industry Salary Survey.
With respect to the base salary of $225,000 granted to Mr. Bond, Jr. for
the year 1998, the Committee took into account the Company's performance
during 1997 and survey information referred to above. Particular emphasis
was placed on Mr. Bond, Jr.'s individual performance, including his
leadership role through a period of continued aggressive growth.
(b) ANNUAL INCENTIVES/BONUSES. Bonuses are generally granted senior officers
based on the extent to which the Company achieves annual performance
objectives, as established by the Board of Directors. Such performance
objectives include net income, earnings per share and return on equity
goals. Bonuses may also be awarded to other officers and employees based on
recommendations by supervisors.
(c) STOCK OPTION AWARDS. The Committee believes that the granting of stock
options is the most appropriate form of long term compensation for senior
officers, since awards of equity encourage ownership in the success of the
Company. Stock option grants are discretionary and are limited by the terms
and conditions of the Company's 1987 Stock Option Plan, as amended, and the
1997 Stock Option Plan.
Section 162(m) of the Internal Revenue Code of 1986, as amended,
provides with certain exceptions, for an annual $1,000,000 limitation on the
deduction that an employer may claim for compensation of certain executives. In
light of the current level of compensation for the Company's named executive
officers, the Committee has not adopted a policy with respect to the foregoing
deductibility limit, but will adopt such a policy should it become relevant.
R. Smelkinson, Chairman R. McCready
R. Gaw J. Moxley, Jr.
H. Langenthal M. Simpkins
H. Lundy T. Venetoulis
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The table below provides the aggregate balance at December 31, 1998 of
loans in excess of $60,000 issued by the Bank to members of the Compensation
Committee and/or their affiliates. These loans were made in the ordinary course
of business, made on substantially the same terms, including interest rate and
collateral requirements, as those prevailing at the time for comparable
transactions with unrelated customers and did not involve more than a normal
risk of collectibility or present other unfavorable features.
<TABLE>
<CAPTION>
Aggregate Loan
Balance at December 31, 1998
----------------------------
<S> <C>
James R. Moxley, Jr. $1,903,792
</TABLE>
9
<PAGE>
SUMMARY COMPENSATION TABLE
The table below presents a summary of compensation for the last three
fiscal years of the chief executive officer of the Company and the other most
highly paid executive officers of the Company and the Bank (collectively, the
"Executive Officers") whose total annual salary and bonus exceeded $100,000
during the year ended December 31, 1998.
<TABLE>
<CAPTION>
Annual Compensation (a) Shares of Common
Name and ------------------------ Stock Underlying All Other
Principal Position Year Salary Bonus Options Awarded Compensation(b)
- ------------------ ---- ------ ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
John M. Bond, Jr 1998 $225,000 $ -- 40,000 $ 17,198
President and CEO 1997 215,000 -- -- 16,857
1996 200,000 -- -- 19,464
Michael T. Galeone 1998 $160,000 $ 15,000 8,000 $ 12,332
Executive Vice President 1997 154,000 -- -- 8,368
1996 148,000 -- -- 4,213
Charles C. Holman 1998 $157,000 $ -- 8,000 $ 12,109
Executive Vice President 1997 152,000 -- -- 12,138
1996 144,000 -- -- 10,801
Robert W. Locke 1998 $115,500 $ 7,500 8,000 $ 8,994
Executive Vice President 1997 109,000 -- -- 8,967
1996 106,000 -- -- 9,071
John A. Scaldara, Jr 1998 $130,000 $ -- 8,000 $ 10,073
Executive Vice President, 1997 120,000 -- 6,000 9,722
Chief Financial Officer 1996 100,000 -- -- 9,361
and Corporate Secretary
</TABLE>
(a) No officer named above received any perquisites and other personal
benefits the aggregate amount of which exceeded the lesser of $50,000 or
10% of the total annual salary and bonus reported for 1998 for such
officer in the Summary Compensation Table.
(b) Represents discretionary matching contributions made by the Company and
allocated forfeitures resulting from employee terminations as determined
under terms of the Company's 401(k) Plan and Trust. All employees
participating in the Company's 401(k) Plan and Trust receive matching
contributions and forfeitures on equivalent terms. Also includes
discretionary matching contributions made by the Bank as determined
under terms of the Bank's Deferred Compensation Plan.
OPTION GRANTS IN LAST FISCAL YEAR
The table below provides analysis of all individual grants of stock
options made during the year ended December 31, 1998 to the Executive Officers:
10
<PAGE>
<TABLE>
<CAPTION>
Percent of
Number of Total Options
Securities Granted to
Underlying Employees in Exercise or Grant Date
Name Options Granted (b) Fiscal Year Base Price Expiration Date Value (a)
- ---- ------------------- ----------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C>
John M. Bond, Jr. 40,000 46.0% $16.875 January 26, 2008 $309,200
Michael T. Galeone 8,000 9.2% $16.875 January 20, 2008 $ 62,320
Charles C. Holman 8,000 9.2% $16.875 January 20, 2008 $ 62,320
Robert W. Locke 8,000 9.2% $16.875 January 20, 2008 $ 62,320
John A. Scaldara, Jr. 8,000 9.2% $16.875 January 20, 2008 $ 62,320
</TABLE>
(a) Estimated using the Black-Scholes option pricing model and the following
assumptions:
Dividend yield 1.65%
Expected volatility 36.02%
Risk free interest rate (average) 5.70%
Expected life 10 years
(b) The stock options granted become vested to the extent of 25% after one year
from the date of grant, 50% after two years from the date of grant, 75%
after three years from the date of grant and 100% after four years from the
date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The table below provides an analysis of aggregated stock options
exercised during 1998 and outstanding stock options as of December 31, 1998 for
the Executive Officers. There were no adjustments or amendments to the exercise
price of stock options previously awarded to any Executive Officer during 1998.
<TABLE>
<CAPTION>
Shares of
Common Stock Underlying Value of Unexercised
Unexercised Options In-The-Money
Shares of Common at Fiscal Year-End Options at Fiscal Year-End
Stock Acquired Value --------------------------- --------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John M. Bond, Jr -- $ -- 11,000 40,000 $133,925 $ 5,000
Michael T. Galeone -- $ -- 17,000 8,000 $204,434 $ 1,000
Charles C. Holman -- $ -- 13,500 8,000 $167,443 $ 1,000
Robert W. Locke 6,500 $ 74,458 6,000 8,000 $ 69,277 $ 1,000
John A. Scaldara, Jr -- $ -- 15,500 12,500 $179,188 $ 28,000
</TABLE>
RETIREMENT PLANS AND SUPPLEMENTAL COMPENSATION ARRANGEMENTS
Executive Officers, like other employees of the Company, or its
subsidiaries, are eligible to participate in the Columbia Bancorp 401(k) Plan
and Trust adopted January 1, 1989 (the "401(k) Plan"). Under terms of the 401(k)
Plan, eligible employees may defer a portion of their total compensation on a
pretax basis. In order to be eligible to participate in the 401(k) Plan, an
employee must have completed one year of service in which 1,000 hours were
worked. The maximum percentage of total compensation
11
<PAGE>
eligible for deferral and the voluntary matching employer contribution are
established annually by the Board of Directors of the Company and are currently
15% and 50%, respectively. An employee is vested in the matching employer
contribution as follows: (i) 20% after three years of service, (ii) 40% after
four years of service, (iii) 60% after five years of service, (iv) 80% after six
years of service and (v) 100% after seven years of service. Employees can direct
the investment of their contribution and the matching employer contribution into
any one or more of seven investment options which include a Bank money market
account, five mutual funds managed by Fidelity Investments, or Common Stock of
the Company.
The vested portion of matching employer contributions made to the 401(k)
Plan during 1998 for each of the Executive Officers was $5,000.
Effective September 27, 1996, the Bank also established a nonqualified
deferred compensation arrangement (the "Deferred Compensation Plan") for
selected senior officers, including the named Executive Officers, of the Bank
and the Company or subsidiaries thereof (the "Senior Officers"). The Deferred
Compensation Plan provides supplemental retirement benefits for the Senior
Officers restricted from receiving further benefits under the 401(k) Plan as a
result of the limitations on pretax contributions imposed by the Internal
Revenue Code. Under the Deferred Compensation Plan, Senior Officers can continue
to make pretax contributions in excess of the IRS limits imposed on the 401(k)
Plan and receive matching employer contributions identical to what they would
have received in the 401(k) Plan if there were no IRS limitations. The maximum
amount that a Senior Officer may defer under the Deferred Compensation Plan,
when added to that deferred under the 401(k) Plan cannot exceed the maximum
percentage compensation deferral (currently 15%) as established by the Board of
Directors. Senior Officers may select a combination of two investment options
for their contributions and matching employer contributions. Contributions and
matching employer contributions may be calculated based on (i) the Bank's prime
rate of interest in effect as of December 15 of the preceding year, (ii) the
performance of the Company's Common Stock, as if contributions and matching
employer contributions were used to purchase shares of the Company's Common
Stock and dividends were reinvested, or (iii) a combination of (i) and (ii).
The vested portion of the matching employer contributions made to the
Deferred Compensation Plan during 1998 for Executive Officers were as follows:
Mr. Bond, Jr., $11,852; Mr. Galeone, $6,986; Mr. Holman, $6,763; Mr. Locke,
$3,649; and Mr. Scaldara, Jr., $4,727.
The Deferred Compensation Plan may also provide for payment of a death
benefit in the event that a Senior Officer dies while in active service. At
January 1, 1999, the death benefit for each of the Executive Officers was as
follows: Mr. Bond, Jr., $870,000; Mr. Scaldara, Jr., $700,000; Mr. Galeone,
$640,000; and Mr. Locke, $290,000. Mr. Holman retired on December 31, 1998 and
is no longer eligible for death benefits under the Deferred Compensation Plan.
In order to partially offset the costs associated with the Deferred
Compensation Plan, the Bank has purchased life insurance contracts on the lives
of the participating Senior Officers, with the Bank as beneficiary.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
The Company and the Bank entered into an employment agreement dated
February 26, 1996 with John M. Bond, Jr. (the "Agreement"). The terms of the
Agreement continue until the earlier of (i) the close of business on the date
which is three years after the date on which either party provides written
notice of termination, other than for "cause", as defined in the Agreement, but
no later than the close of business on the sixty-fifth birthday of Mr. Bond,
Jr., or (ii) the date on which Mr. Bond, Jr.'s employment is otherwise
terminated pursuant to the provisions of the Agreement. Under terms of the
Agreement, Mr. Bond, Jr. serves as President and Chief Executive Officer of the
Companies with a minimum annual base compensation of $230,625, which is subject
to normal periodic review, at least annually, for increases
12
<PAGE>
based on the salary policies of the Companies and Mr. Bond, Jr.'s contributions
to the Companies. Mr. Bond, Jr. is also entitled to participate in all incentive
and benefit programs offered by the Companies. If Mr. Bond, Jr.'s employment is
terminated, other than for "cause", the Companies are required to continue to
provide benefits to him and pay his salary for a predetermined period plus,
under certain circumstances, pay an annual bonus as determined in accordance
with the terms of the Agreement. The Agreement also contains a non-competition
provision which prohibits Mr. Bond, Jr., during his employment with the
Companies, or for a period of three years following voluntary resignation or
termination for "cause", from directly or indirectly engaging in activities
competitive with the business of the Companies.
The Agreement also provides that in the event of (i) termination, other
than for "cause", (ii) resignation due to a significant change in the nature or
scope of authority and duties, or (iii) resignation as a result of not having
been offered a new employment agreement with similar terms, 90 days prior to, or
within one year after, any "change in control" (as defined in the Agreement) of
the Companies, Mr. Bond, Jr., within 15 days of termination, will be paid a lump
sum payment equal to three times the sum of his annual base compensation and the
average of the bonuses paid to him over the past three years. In the event of
voluntary resignation 90 days prior to, or within one year after, any "change in
control" of the Companies, Mr. Bond, Jr., within 15 days of resignation, will be
paid a lump sum payment equal to the sum of his annual base salary and the
average of the bonuses paid to him over the past three years. Any payments made
in connection with a "change in control" of the Companies after Mr. Bond, Jr.
reaches 62 years of age will be pro-rated to age 65.
Messrs. Galeone, Locke and Scaldara also have employment agreements
specifying minimum annual base compensation of $164,000, $125,500 and $140,000,
respectively. The other terms of these agreements are similar to those of the
Agreement, except that the duration is a two-year continuous period and the lump
sum payment payable in the event of (i) termination other than for "cause", (ii)
resignation due to a significant change in the nature and scope of authorities
and duties, or (iii) resignation as a result of not having been offered a new
employment agreement with similar terms, 90 days prior to, or within one year
after, any "change in control" of the Companies is equal to two times the sum of
the applicable officer's base annual compensation and the average of such
officer's bonuses for the past three years. In addition, any payments made in
connection with a "change in control" of the Companies after reaching 63 years
of age will be pro-rated to age 65.
The Company's 1987 Stock Option Plan, as amended, 1990 Stock Option
Plan, 1997 Stock Option Plan, 401(k) Plan, and the Bank's Deferred Compensation
Plan all provide that in the event of a "change in control" (as defined by each
of the plans), all amounts not fully vested become immediately 100% vested.
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the cumulative total return on the
Company's Common Stock during the five years ended December 31, 1998 with that
of a broad market index (Nasdaq, U.S. Companies) and an industry peer group
index (publicly traded commercial banks in Maryland, Pennsylvania, Virginia and
the District of Columbia with total assets of less than $1 billion). The graph
assumes $100 was invested on December 31, 1993 in the Company's Common Stock and
in each of the indices and assumes reinvestment of dividends.
13
<PAGE>
[graph appears here]
Index Data:
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Columbia Bancorp 100.00 147.54 191.44 241.06 392.91 399.87
Nasdaq, Total US 100.00 97.75 138.26 170.01 208.58 293.21
CBMD Peer Group 100.00 109.44 121.44 141.67 231.66 226.56
</TABLE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected KPMG LLP, independent
public accountants, to audit the Company's financial statements for the year
ending December 31, 1999. KPMG LLP has performed the annual audits of the
Company since its inception. Representatives of KPMG LLP plan to attend the
Annual Meeting and will be available to answer appropriate questions. The
representatives will have the opportunity to make a statement at the meeting if
they so desire.
OTHER MATTERS
The Board of Directors of the Company knows of no matters to be
presented for action at the Annual Meeting other than those mentioned above;
however, if any other matters properly come before the Annual Meeting, it is
intended that the persons named in the accompanying proxy will vote on such
other matters in accordance with their judgment of the best interests of the
Company. Other than the election of directors, each matter to be submitted to
the stockholders requires the affirmative vote of a majority of all the shares
voted at the meeting or a majority of all the shares outstanding and entitled to
be voted. Abstentions and broker non-votes are treated as shares not voted.
14
<PAGE>
STOCKHOLDER PROPOSALS
All stockholder proposals intended to be presented at the 2000 Annual
Meeting of Stockholders must be received by the Company not later than November
25, 1999 for inclusion in the Company's proxy statement and proxy relating to
that meeting. If a stockholder intends to present a stockholder proposal at the
2000 Annual Meeting in a manner other than the inclusion of the proposal in the
Company's proxy statement and proxy relating to that meeting, unless the
stockholder notifies the Company of such intention by February 25, 2000, the
proxy holders named by the Company may exercise their discretionary voting
authority on the matter in accordance with their best judgement.
REPORT ON FORM 10-K
The Annual Report on Form 10-K and applicable exhibits are available to
stockholders free of charge upon written request. Requests should be sent to
Columbia Bancorp, 10480 Little Patuxent Parkway, Columbia, Maryland 21044,
Attention: John A. Scaldara, Jr. (E-mail: [email protected]).
By Order of the Board of Directors
John A. Scaldara, Jr.
Corporate Secretary
March 24, 1999
15
<PAGE>
REVOCABLE PROXY
COLUMBIA BANCORP
[ ] PLEASE MARK VOTES AS IN THIS EXAMPLE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Columbia Bancorp hereby appoints Herschel L.
Langenthal and John A. Scaldara, Jr., or either of them, the lawful attorneys
and proxies of the undersigned, with several powers of substitution, to vote all
shares of Common Stock of Columbia Bancorp which the undersigned is entitled to
vote at the Annual Meeting of Stockholders to be held April 27, 1999, and at any
and all adjournments and postponements thereof. Any and all proxies heretofore
given are hereby revoked.
Please be sure to sign and date this Proxy in the box below.
For All
For Withhold Except
1. Election of Directors [ ] [ ] [ ]
J. Bond, Jr., W. Hermann, C. Holman, H. Lundy, Jr., J. Moxley, III, M.
Scrivener, T. Venetoulis
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK "FOR
ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
- -----------------------------------------------
2.In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1 AND IN THE BEST JUDGMENT OF THE PROXY HOLDERS ON ALL OTHER
MATTERS.
Please sign exactly as your name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
16
