Columbia Bancorp (CBBO) 10-Q 2006 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2006

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from toto

Commission file number: 0-27938

COLUMBIA BANCORP

(Exact name of registrant as specified in its charter)

Oregon
(State of incorporation) 93-1193156
(I.R.S. Employer
Identification No.)

401 East Third Street, Suite 200
The Dalles, Oregon 97058
(Address of principal executive offices)

(541) 298-6649
(Registrant’s telephone number, including area code)

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. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero           Accelerated filerþ           Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

At April 28, 2006, there were 9,882,291 shares of common stock of Columbia Bancorp, no par value, outstanding.

COLUMBIA BANCORP

FORM 10-Q

March 31, 2006

Table of Contents

PART I. — FINANCIAL INFORMATION	3
ITEM 1. Financial Statements	3
Consolidated Financial Statements of Columbia Bancorp and Subsidiary	3
CONSOLIDATED BALANCE SHEETS	3
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME	4
CONSOLIDATED STATEMENTS OF CASH FLOWS	5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY	6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7
ITEM 2. Management’s Discussion and Analysis of Financial Condition andResults of Operations	12
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS	12
OVERVIEW	12
MATERIAL CHANGES IN FINANCIAL CONDITION	14
RESULTS OF OPERATIONS	21
LIQUIDITY AND CAPITAL RESOURCES	25
CRITICAL ACCOUNTING POLICIES	27
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	27
ITEM 4.Controls and Procedures	27
PART II. — OTHER INFORMATION	28
ITEM 1.Legal Proceedings	28
ITEM 1A.Risk Factors	28
ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds	28
ITEM 3.Defaults Upon Senior Securities	28
ITEM 4.Submission of Matters to a Vote of Security Holders	28
ITEM 5.Other Information	28
ITEM 6.Exhibits	28
SIGNATURES	29
EXHIBIT 10.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

2

PART I. — FINANCIAL INFORMATION

These consolidated financial statements should be read in conjunction with the financial statements, accompanying notes and other relevant information included in the Company’s report on Form 10-K for the year ended December 31, 2005, and the notes and other information included in this report.

ITEM 1. Financial Statements

Consolidated Financial Statements of Columbia Bancorp and Subsidiary

COLUMBIA BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2006			2005
ASSETS
CASH AND CASH EQUIVALENTS
Cash and due from banks	$	28,169,590		$	34,631,688
Interest bearing deposits with other banks		32,156,328			23,175,188
Federal funds sold		46,643,990			29,281,599
Total cash and cash equivalents		106,969,908		��	87,088,475
INVESTMENT SECURITIES
Debt securities available-for-sale, at fair value		17,146,412			17,233,060
Equity securities available-for-sale, at fair value		616,137			611,148
Debt securities held-to-maturity, at amortized cost, estimated fair value $15,704,844 and $16,749,021 at March 31, 2006 and December 31, 2005, respectively		15,574,063			16,497,131
Restricted equity securities		2,439,100			2,439,100
Total investment securities		35,775,712			36,780,439
LOANS
Loans held-for-sale		4,078,986			5,879,320
Loans, net of allowance for loan losses and unearned loan fees		669,773,585			671,806,637
Total loans		673,852,571			677,685,957
OTHER ASSETS
Property and equipment, net of accumulated depreciation		16,748,362			15,783,509
Accrued interest receivable		5,615,193			5,615,098
Goodwill		7,389,094			7,389,094
Other assets		10,361,849			10,896,746
Total other assets		40,114,498			39,684,447
TOTAL ASSETS	$	856,712,689		$	841,239,318
LIABILITIES AND SHAREHOLDERS’ EQUITY DEPOSITS
Non-interest bearing demand deposits	$	214,560,873		$	220,450,133
Interest bearing demand deposits		293,186,653			278,070,340
Savings accounts		42,666,378			41,127,626
Time certificates		172,183,490			168,174,061
Total deposits		722,597,394			707,822,160
OTHER LIABILITIES
Notes payable		43,291,774			45,690,951
Accrued interest payable and other liabilities		6,207,948			6,109,717
Junior subordinated debentures		4,124,000			4,124,000
Total other liabilities		53,623,722			55,924,668
TOTAL LIABILITIES		776,221,116			763,746,828
SHAREHOLDERS’ EQUITY
Common stock, no par value; 20,000,000 shares authorized, 9,879,847 issued and outstanding (8,965,408 at December 31, 2005)		53,401,587			33,425,084
Retained earnings		27,226,492			44,189,700
Accumulated other comprehensive loss, net of taxes		(136,506	)		(122,294	)
TOTAL SHAREHOLDERS’ EQUITY		80,491,573			77,492,490
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	856,712,689		$	841,239,318

See accompanying notes.

3

COLUMBIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended
	March 31,
	2006			2005
INTEREST INCOME
Interest and fees on loans	$	14,733,605		$	11,477,722
Interest on investments:
Taxable investment securities		215,154			176,897
Nontaxable investment securities		142,324			152,866
Other interest income		467,056			365,001
Total interest income		15,558,139			12,172,486
INTEREST EXPENSE
Interest on interest bearing deposit and savings accounts		1,556,722			740,958
Interest on time deposit accounts		1,702,745			1,407,687
Other borrowed funds		340,653			362,722
Total interest expense		3,600,120			2,511,367
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES		11,958,019			9,661,119
PROVISION FOR LOAN LOSSES		550,000			200,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		11,408,019			9,461,119
NON-INTEREST INCOME
Service charges and fees		1,130,430			1,172,816
Mortgage banking revenue		637,823			620,853
Financial services revenue		198,973			143,755
Credit card discounts and fees		106,325			112,986
Other non-interest income		245,209			253,049
Total non-interest income		2,318,760			2,303,459
NON-INTEREST EXPENSE
Salaries and employee benefits		4,577,036			3,687,098
Occupancy expense		866,499			797,324
Other non-interest expenses		2,332,393			2,086,808
Total non-interest expense		7,775,928			6,571,230
INCOME BEFORE PROVISION FOR INCOME TAXES		5,950,851			5,193,348
PROVISION FOR INCOME TAXES		2,228,594			1,880,725
NET INCOME		3,722,257			3,312,623
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES
Unrealized holding losses arising during the period		(24,421	)		(179,593	)
Increase in fair value of interest rate swap		10,209			—
Total other comprehensive loss, net of taxes		(14,212	)		(179,593	)
COMPREHENSIVE INCOME	$	3,708,045		$	3,133,030
Earnings per share of common stock(1)
Basic	$	0.38		$	0.34
Diluted	$	0.37		$	0.33
Weighted average common shares outstanding(1)
Basic		9,853,005			9,755,035
Diluted		10,115,420			10,015,094

See accompanying notes.

⁽¹⁾ Prior periods have been adjusted to reflect the 10% stock dividend, effective December 29, 2005

4

COLUMBIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended
	March 31,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	3,722,257		$	3,312,623
Adjustments to reconcile net income to net cash from operating activities:
(Gain) loss on sale or write-down of property and equipment		39,077			(4,443	)
Net (accretion) amortization of premiums and discounts on investment securities		(8,552	)		10,384
Depreciation on property and equipment		424,619			408,817
Amortization of mortgage servicing asset		—			116,972
Federal Home Loan Bank stock dividend		—			(9,900	)
Deferred income tax benefit		84,501			—
Provision for loan losses		550,000			200,000
Increase (decrease) in cash due to changes in assets/liabilities:
Accrued interest receivable		(95	)		(417,557	)
Proceeds from the sale of mortgage loans held-for-sale		17,568,221			13,886,220
Production of mortgage loans held-for-sale		(15,767,887	)		(15,556,628	)
Other assets		1,997,085			1,724,922
Accrued interest payable and other liabilities		(2,902,408	)		(1,484,911	)
NET CASH FROM OPERATING ACTIVITIES		5,706,818			2,186,499
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the maturity of available-for-sale securities		2,000,000			7,000,000
Proceeds from the maturity of held-to-maturity securities		918,020			663,870
Purchases of available-for-sale securities		(1,942,510	)		—
Purchases of equity securities		(5,459	)		—
Net change in loans made to customers		2,173,052			2,198,275
Investment in low-income housing tax credits		(33,000	)		—
Investment in state energy tax credits		(63,220	)		—
Proceeds from the sale of other real estate owned		—			104,443
Purchases of property and equipment		(1,428,549	)		(329,866	)
NET CASH FROM INVESTING ACTIVITIES		1,618,334			9,636,722
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in demand deposit and savings accounts		10,765,805			37,521,649
Net change in time deposits		4,009,429			(8,637,811	)
Net decrease in notes payable		(2,399,177	)		(1,468,876	)
Cash paid for dividends and fractional shares		(9,375	)		(797,761	)
Proceeds from stock options exercised		155,837			388,036
Cash retained from tax deductibility of stock options exercised		33,762			—
NET CASH FROM FINANCING ACTIVITIES		12,556,281			27,005,237
NET INCREASE IN CASH AND CASH EQUIVALENTS		19,881,433			38,828,458
CASH AND CASH EQUIVALENTS, beginning of period		87,088,475			57,978,799
CASH AND CASH EQUIVALENTS, end of period	$	106,969,908		$	96,807,257
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid in cash	$	3,758,904		$	2,557,886
Taxes paid in cash		135,000			2,072,000
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Change in unrealized loss on available-for-sale securities, net of taxes	$	(24,421	)	$	(179,593	)
Cash dividend declared and payable after quarter-end		889,186			800,069
Transfer of loans to other real estate owned		—			84,453

See accompanying notes.

5

COLUMBIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

										Accumulated
										Other			Total
				Common			Retained			Comprehensive			Shareholders’
	Shares			Stock			Earnings			Income (Loss)			Equity
BALANCE, December 31, 2004		8,839,151		$	32,140,776		$	33,816,489		$	(80,287	)	$	65,876,978
Stock options exercised		115,969			936,853			—			—			936,853
Income tax benefit from stock options exercised		—			410,137			—			—			410,137
Restricted stock granted		16,658			77,196			—			—			77,196
Stock repurchase		(6,370	)		(139,878	)		—			—			(139,878	)
Cash dividends paid		—			—			(2,409,376	)		—			(2,409,376	)
Cash dividends declared		—			—			(887,575	)		—			(887,575	)
Net income and comprehensive income		—			—			13,670,162			(42,007	)		13,628,155
BALANCE, December 31, 2005		8,965,408			33,425,084			44,189,700			(122,294	)		77,492,490
Stock options exercised		18,293			155,837			—			—			155,837
Income tax benefit from stock options exercised		—			33,762			—			—			33,762
10% stock dividend and cash paid for fractional shares		896,146			19,786,904			(19,795,632	)		—			(8,728	)
Cash dividends paid		—			—			(647	)		—			(647	)
Cash dividends declared		—			—			(889,186	)		—			(889,186	)
Net income and comprehensive income		—			—			3,722,257			(14,212	)		3,708,045
BALANCE, March 31, 2006		9,879,847		$	53,401,587		$	27,226,492		$	(136,506	)	$	80,491,573

See accompanying notes.

6

COLUMBIA BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of Presentation
	The interim consolidated financial statements include the accounts of Columbia Bancorp (“Columbia” or the “Company”), an Oregon corporation and a registered financial holding company, and its wholly-owned subsidiary Columbia River Bank (“CRB” or the “Bank”), after elimination of intercompany transactions and balances. CRB is an Oregon state-chartered bank, headquartered in The Dalles. Substantially all activity of Columbia is conducted through its subsidiary bank, CRB.
	The interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The financial information included in this interim report has been prepared by Management. Columbia’s annual report contains audited financial statements. All adjustments, including normal recurring accruals necessary for the fair presentation of results of operations for the interim periods included herein, have been made. Certain amounts for 2005 have been reclassified to conform to the 2006 presentation. The results of operations for the three months ended March 31, 2006, are not necessarily indicative of results to be anticipated for the year ending December 31, 2006.
2.	Management’s Estimates and Assumptions
	Various elements of Columbia’s accounting policies are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, Management has identified certain policies that due to the judgments, estimates and assumptions inherent in those policies are critical to an understanding of the consolidated financial statements. These policies and judgments, estimates and assumptions are described in greater detail in the Notes to the consolidated financial statements included in Columbia’s annual report on Form 10-K, filed March 14, 2006.
	Management believes the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of the consolidated financial statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in the results of operations or financial conditions.
3.	Stock-Based Payment
	In 1999, Columbia adopted a stock incentive plan that allows for grants of incentive stock options, nonstatutory stock options and other stock bonuses to both employees and directors. The plan was amended by the Board of Directors and ratified by the shareholders in 2002. Columbia issues new shares when options are exercised or when other stock bonuses are awarded. The plan authorized a total of 977,259 shares for stock awards. Option exercise prices for incentive stock options cannot be less than 100% of the fair market value of the shares on the date of grant and contractual terms cannot exceed ten years. For each stock option grant, the Board of Directors determines and approves option exercise prices, numbers of options granted, vesting periods and expiration periods.
	In 2002, Columbia entered into an employment agreement for a phantom stock grant with its chief executive officer (“CEO”). The CEO was granted 17,340 units at a price of $8.15, retroactively adjusted for stock dividends and splits, and exercisable after December 31, 2002. Upon exercise of the grant, the CEO receives a cash payment equal to the difference between the unit grant price and the common stock market price for each unit on the date of exercise. As of March 31, 2006, no units had been exercised. Columbia’s liability for the phantom stock grant totaled $239,292 and $241,546 at March 31, 2006 and December 31, 2005, respectively. The liability is remeasured at each reporting date based on the fair value of Columbia’s common stock; changes in the liability are recognized in current period earnings.

7

In 2005, Columbia established a restricted stock benefit program intended for senior management. The program was approved by the Board of Directors in accordance with the 1999 Stock Option Plan. During 2005, at the discretion of the Board of Directors, Columbia awarded 16,658 shares to senior management employees, 25% of which vested immediately and are not restricted. The remaining shares granted during 2005 are restricted based on continued employment and will vest equally over three years. Recipients of the restricted stock do not pay cash consideration to Columbia for the shares. Recipients also have the right to vote and receive dividends on restricted shares. Future compensation expense related to restricted stock will be recognized as the restricted shares vest based on the fair value of Columbia stock on the grant date.

On January 1, 2006, Columbia adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004) “Share-Based Payment” that requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors.

SFAS No. 123(R) supersedes Columbia’s previous accounting under the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” As permitted by SFAS No. 123, Columbia measured compensation cost for options granted prior to October 1, 2005, in accordance with Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Accordingly, no accounting recognition was given to these prior stock options granted at fair market value until they were exercised. Upon exercise, net proceeds, including tax benefits realized, were credited to equity.

SFAS No. 123(R) requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in Columbia’s consolidated statement of income.

The Company adopted SFAS No. 123(R) using the modified prospective transition method, which requires adoption as of January 1, 2006, the first day of Columbia’s 2006 fiscal year. In accordance with the modified prospective transition method, Columbia’s consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123(R). Stock-based compensation expense recognized under SFAS No. 123(R) for the quarter ended March 31, 2006 totaled $2,706 and related to currently vesting employee stock options that were granted in prior years. At March 31, 2006, unrecognized stock-based compensation totaled $299,262 and will be expensed over a weighted average period of 1.6 years based on an accelerated multiple-option approach. Unrecognized stock-based compensation at March 31, 2006 was comprised of $12,480 related to stock option grants and $286,782 related to restricted stock awards.

Stock option activity during the quarter ended March 31, 2006 was as follows:

					Weighted Average		Aggregate
	Number		Weighted Average		Remaining		Intrinsic Value
	of Shares		Exercise Price		Contractual Term		(in thousands)
Stock options outstanding, December 31, 2005		615,282	$	11.05
Granted		—		—
Exercised		18,637	$	8.37
Canceled		—		—
Stock options outstanding, March 31, 2006		596,645	$	11.14		6.43	$	6,645
Stock options exercisable, March 31, 2006		582,565	$	11.02		6.39	$	6,421

The total intrinsic value of options exercised during the quarter ended March 31, 2006 was $243,542.

8

Unvested stock award activity during the quarter ended March 31, 2006 was as follows:

			Weighted Average
	Number		Grant Date
	of Shares		Fair Value
Unvested restricted stock awards, December 31, 2005		14,437	$	19.86
Granted		—		—
Vested		—		—
Forfeited		—		—
Unvested restricted stock awards, March 31, 2006		14,437	$	19.86

The following table presents the pro forma effect on net income and earnings per share if Columbia had applied the fair value recognition provisions of SFAS 123 in prior periods:

	Three Months Ended
	March 31, 2005
(dollars in thousands)
Net income, as reported	$	3,313
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects		(192	)
Pro forma net income	$	3,121
Earnings per share:(1)
Basic — as reported	$	0.34
Basic — pro forma		0.32
Diluted — as reported		0.33
Diluted — pro forma		0.31

⁽¹⁾ Adjusted to reflect the 10% stock dividend, effective December 29, 2005.

Columbia uses the Black-Scholes option-pricing model to value stock options. The Black-Scholes model requires the use of employee exercise behavior data and the use of a number of assumptions including volatility of Columbia’s stock price, dividend yield, weighted average risk-free interest rate, and weighted average expected life of the options.

The expected life of stock options represents the weighted average period that the stock options are expected to remain outstanding. It is based upon an analysis of the historical behavior of options holders, which Management believes is representative of future exercise behavior.

The expected volatility assumption is based on the historical daily price data of Columbia’s stock over a period equivalent to the weighted average expected life of the stock options. Management evaluated whether there were factors during that period which were unusual and which would distort the volatility figure if used to estimate future volatility and concluded that there were no such factors.

The risk-free interest rate assumption is based upon U.S. Treasury rates consistent with the term of Columbia’s stock options.

9

The estimated fair value of options granted during the three months ended March 31, 2005 was based on the following assumptions:

Dividend yield		1.82	%
Expected life	6 years
Expected volatilty		40.84	%
Risk-free rate		3.55	%

There were no options granted during the quarter ended March 31, 2006.

4.	Loans and Allowance for Loan Losses
	Loans are stated at the amount of unpaid principal, reduced by an allowance for loan losses and unearned loan fees. Interest on loans is calculated using the simple-interest method on daily balances of the principal amount outstanding. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield over the life of the related loan.
	The Bank does not accrue interest on loans for which full payment of principal and interest is not expected, or for which payment of principal or interest has been in default 90 days or more unless the loan is well-secured and in the process of collection. Non-accrual loans are considered impaired loans. Impaired loans are carried at the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price, or the fair value of collateral if the loan is collateral dependent. When the interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received or when the loan is removed from non-accrual status. Large groups of smaller balance, homogeneous loans may be collectively evaluated for impairment. Accordingly, the Bank may not separately identify individual consumer and residential loans for evaluation of impairment.
	Loans on non-accrual status at March 31, 2006 and December 31, 2005, were $2.81 million and $5.69 million, respectively. Loans to borrowers in the agricultural industry, totaling $2.44 million, comprised 86.83% of loans on non-accrual status at March 31, 2006. During the first quarter of 2006, the Bank refinanced two loans totaling $2.38 million for a potato industry agricultural borrower; both of these loans were on non-accrual status at December 31, 2005. In addition, during the first quarter of 2006 the Bank charged-off $476,151 of commercial loans to an agricultural borrower that were on non-accrual status loans at December 31, 2005.
	The allowance for loan losses represents an estimate of possible losses associated with the Bank’s loan portfolio and deposit account overdrafts. The estimate is based on evaluations of loan collectibility and prior loan loss experience. Evaluations consider factors such as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and current economic conditions that may affect the borrower’s ability to pay.
	Increases to the allowance for loan losses occur when amounts are expensed to the provision for loan losses or previously charged-off loans are recovered; decreases occur when uncollectible loans are charged-off.
	Various regulatory agencies, as a regular part of their examination process, review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgment of information available to them at the time of the examinations.

10

5.	Earnings Per Share
	Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if common shares from stock option grants were issued. Weighted average shares outstanding include common shares outstanding, unvested restricted shares and common share equivalents attributable to outstanding stock options.
	The weighted average number of shares and common share equivalent figures have been retroactively adjusted for all stock dividends or splits.
6.	Recently Issued Accounting Standards
	In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 requires retrospective application to prior-period financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effect or the cumulative effect of the change. SFAS No. 154 also redefines “restatement” as the revising of previously issued financial statements to reflect the correction of an error. This statement is effective for accounting changes and corrections or errors made in fiscal years beginning after December 15, 2005. Management does not believe that the adoption of SFAS No. 154 will have a material impact on the consolidated financial statements.
	In October 2005, the FASB issued FASB Staff Position (“FSP”) No. FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period,” which addresses the accounting for rental costs associated with operating leases that are incurred during a construction period. The FSP requires that rental costs during a construction period be recognized as rental expense, rather than capitalized. The guidance applies to periods beginning after December 15, 2005 and is not expected to have a significant impact on Columbia’s consolidated financial condition or results of operations.
	In November 2005, the FASB issued FSP Nos. FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and its Applications to Certain Investments.” The FSP provides guidance on determining when an investment is considered impaired, whether the impairment is other-than-temporary and the measurement of an impairment loss. The FSP also includes accounting considerations subsequent to recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance applies to periods beginning after December 15, 2005 and is not expected to have a significant impact on Columbia’s consolidated financial condition or results of operations.
	In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 155 simplifies the accounting for certain derivatives embedded in other financial instruments by allowing them to be accounted for as a whole if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. SFAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring in fiscal years beginning after September 15, 2006. Earlier adoption is permitted, provided the Company has not yet issued financial statements, including for interim periods, for that fiscal year. Management does not expect the adoption of SFAS 155 to have a material impact on the consolidated financial statements.
	In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets” which amends SFAS No. 140. SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS 156 is effective for fiscal years beginning after September 15, 2006. Management does not expect the adoption of SFAS 155 to have a material impact on the consolidated financial statements.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains various forward-looking statements that are intended to be covered by the safe harbor provided by the Private Securities Litigation Reform Act of 1995. These statements include statements about our present plans and intentions, about our strategy, growth, and deployment of resources, and about our expectations for future financial performance. Forward-looking statements use prospective language, including words like “may”, “will”, “should”, “expect”, “anticipate”, “estimate”, “continue”, “plans”, “intends”, or other similar terminology.

Because forward-looking statements are, in part, an attempt to project future events and explain current plans, they are subject to various risks and uncertainties that could cause our actions and our financial and operational results to differ materially from those projected in forward-looking statements. These risks and uncertainties include, without limitation, the risks described in Part II – Other Information Item 1A “Risk Factors.”

Information presented in this report is accurate as of the date the report was filed with the SEC. We do not undertake any duty to update our forward-looking statements or the factors that may cause us to deviate from them, except as required by law.

OVERVIEW

Columbia Bancorp (“Columbia”) is a financial holding company organized in 1996 under Oregon Law. Columbia’s common stock is traded on the NASDAQ Stock Market^TM under the symbol “CBBO”. Columbia’s wholly-owned subsidiary, Columbia River Bank (“CRB”, “the Bank”), is an Oregon state-chartered bank, headquartered in The Dalles, Oregon, through which substantially all business is conducted. CRB is a state chartered bank that offers a broad range of services to its customers, primarily small and medium sized businesses and individuals.

We have a network of twenty one branches at March 31, 2006. In Oregon, we operate fifteen full-service branch facilities and three limited-service branch facilities that serve the northern and eastern Oregon communities of The Dalles (3), Hood River, Pendleton and Hermiston, the central Oregon communities of Madras, Redmond (2), and Bend (4), and the communities of McMinnville (3), Canby and Newberg in the Willamette Valley. In Washington, we operate three full-service branches that serve the communities of Goldendale, White Salmon and Richland.

Our goal is to grow our earning assets while maintaining a high return on equity and strong asset quality. We expect to achieve this goal by emphasizing personalized, quality banking products and services for our customers; by hiring and retaining high performing, experienced branch and administrative personnel and by responding quickly to customer demand and growth opportunities. We intend to increase penetration in our existing markets and expand into new markets through suitable acquisitions and new branch openings.

At March 31, 2006 total assets were $856.71 million, total deposits were $722.60 million and total net loans, including loans held-for-sale, were $673.85 million.

Net income for the first quarter of 2006 totaled $3.72 million, or $0.37 per diluted common share, an increase of $409,634, $0.04 per diluted share, or 12.37%, compared to the first quarter of 2005.

Loan interest income increased $3.26 million, or 28.37%, for the first quarter of 2006 compared to the first quarter of 2005. This increase was due to loan portfolio growth and a series of Federal Reserve rate increases during 2005 and 2006. Loan interest income increased $879,820, or 6.35%, for first quarter of 2006 compared to the fourth quarter of 2005. This increase was primarily the result Federal Reserve rate increases in December 2005 and January 2005.

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Interest earnings from our federal funds sold, which are overnight investments of excess funds, also benefited from Federal Reserve rate increases. Interest earnings on our federal funds sold increased $92,374, or 37.96%, for the first quarter of 2006 compared to the first quarter of 2005. During the first quarter of 2006, earnings on our federal funds sold decreased $37,178, or 9.97%, compared to the fourth quarter of 2005 because the average balance of our federal funds sold decreased.

Interest expense for the first quarter of 2006 increased $1.09 million, or 43.35%, compared to the first quarter of 2005. Compared to the fourth quarter of 2005, interest expense increased $389,436, or 12.13%, for the first quarter of 2006. As market interest rates have increased, we increased interest rates paid on our deposit accounts in order to attract and retain deposit customers; as a result, interest expense has increased.

Non-interest expense increased $1.20 million, or 18.33%, for the first quarter of 2006 compared to the first quarter of 2005. Compared to the fourth quarter of 2005, non-interest expense increased $303,590, or 4.06%, for the first quarter of 2006. The increases are primarily attributable to an increase in salaries and benefits associated with employees hired to staff our new branches and to fill new administration positions.

The following table presents an overview of our key financial performance indicators:

Key Financial Performance Indicators:
(dollars in thousands except per share data)

	As of and for the
	Three Months Ended
	March 31,
	2006			2005
Return on average assets		1.84	%		1.84	%
Return on average equity		19.01	%		19.89	%
Net interest margin, tax equivalent basis		6.37	%		5.82	%
Efficiency ratio		54.47	%		54.92	%
Net income	$	3,722		$	3,313
Total loans, gross(1)		684,123			582,984
Total assets		856,713			743,987
Deposits		722,597			635,827
Book value per common share	$	8.15		$	7.03
Tangible book value per common share		7.40			6.07

⁽¹⁾ Loans include portfolio and loans held for sales and exclude allowance for loan losses and uneamed loan fees.

In January, we opened our new Meadow Springs Branch in Richland, Washington. The 10,000 square foot facility serves as our flagship branch, serving all of the Tri-Cities area, which includes the Washington cities of Richland, Kennewick and Pasco. The branch houses a full service bank on the first floor and our Tri-Cites Business Banking Team on the second floor. In order to serve our retail customers more conveniently, the branch features a five lane vehicle drive-up including two drive-up ATMs.

Construction of our new Pasco Branch continued during first quarter of 2006. We expect to open the new branch during the second quarter. The 3,700 square foot branch will serve the northwestern Tri-Cities area and will focus on small business relationships and expanding our consumer product base. It will feature a four lane vehicle drive-up including two drive-up ATMs.

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In February, we completed construction and opened our new Cherry Heights Branch, which is located west of downtown The Dalles, Oregon. The branch expands our dominant presence in The Dalles by providing a more convenient banking alternative for our customers. It will feature a five lane vehicle drive-up including two drive-up ATMs and space available for lease to a drive-up coffee business.

In March, we announced plans to open new branches in Yakima and Sunnyside, Washington. Because the cities are located along the Interstate 82 corridor, the expansion will complement our existing presence in the Tri-Cities. The market area also fits our target demographic with populations of approximately 83,000 in Yakima, 15,000 in Sunnyside and 150,000 in the areas surrounding both cities. The new locations will increase and diversify our loan and deposit portfolios and provide geographic and economic diversification.

MATERIAL CHANGES IN FINANCIAL CONDITION

ASSETS

Our assets are comprised primarily of loans for which we receive interest and principal repayments from our customers, as well as operating cash and various investment securities.

Investment Securities

Our investment securities portfolio consists of bank-qualified municipal securities, debt issued by government agencies, mortgage-backed securities, equity securities and restricted equity securities. Investment securities totaled $35.78 million at March 31, 2006, a decrease of $1.74 million, or 4.65%, compared to March 31, 2005. Since March 31, 2005, $7.98 million of our securities matured, which was offset by our purchase of $6.24 million of other securities.

Qualifying securities may be pledged as collateral for public agency deposits or other borrowings. At March 31, 2006, $16.34 million, or 45.66%, of the portfolio was pledged, compared to $20.52 million, or 55.79%, at December 31, 2005, and $16.98 million, or 45.25%, at March 31, 2005.

Net unrealized losses on available-for-sale and equity securities totaled $351,110, or $219,619 net of tax, at March 31, 2006, compared to net unrealized losses of $307,883, or $195,197 net of tax, at December 31, 2005, and $301,039, or $190,889 net of tax at March 31, 2005. Increases in net unrealized losses are primarily attributable to market interest rate increases. Generally, as interest rates increase, the fair value of securities earning lower interest rates decreases. We currently have no plans to liquidate our available-for-sale securities.

Loans

Our loan portfolio reflects our efforts to diversify risk across a range of loan types and industries, and thereby complement the markets in which we do business. Loan products include construction, land development and real estate, commercial, consumer, agriculture and credit cards.

Our net loan portfolio (excluding loans held for sale) at March 31, 2006 was $669.77 million, a decrease of $2.03 million, or 0.30%, over December 31, 2005, and an increase of $100.65 million, or 17.68%, over March 31, 2005. Consistent with our historical trends, loan growth was flat during the first quarter of 2006 due to agricultural loan repayments and the seasonal slowdown in real estate construction. In addition, we have followed a disciplined loan growth strategy that focuses on high credit quality and profitable loans. As a result, we turned down several long-term fixed rate loans that were inconsistent with our asset-liability strategy.

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As of March 31, 2006, construction, land development and commercial real estate loans comprised 69% of our loan portfolio, compared to 70% as of December 31, 2005 and 68% as of March 31, 2005. We believe this concentration is consistent with our Pacific Northwest community bank peers; however, we are subject to fluctuations in the real estate development markets, as well as to the more widespread economic effects of fluctuating or changing interest rates. In addition, some loans classified as real estate loans, because the borrowings are collateralized by real estate, are used for other purposes such as inventory financing and equipment purchases.

In addition, we participate in non-real estate agricultural lending, which comprises approximately 12% of our total loan portfolio. We employ loan officers who have developed a high level of expertise in underwriting and monitoring agriculture loans. Traditionally, agriculture lending has been neglected due to its unique challenges. We address these challenges by hiring experienced agricultural lenders and consultants, by diversifying our agricultural loan portfolio across numerous commodity types and by maintaining Preferred Lender Status with the Farm Service Agency. This status allows us to participate in Farm Loan Government Guarantee Programs, which provide guarantees of up to 90% on qualified loans. Approximately 13% of our agricultural loans are guaranteed through this program; however, these guarantees are limited and loans under this program are not without credit risk.

We originate and fund single-family mortgage loans that are usually committed for sale to mortgage investors and held for less than thirty days. Mortgage loans held for sale are reported as a component of “Loans held-for-sale” on our balance sheet. At March 31, 2006, mortgage loans held for sale totaled $2.67 million compared to $1.67 million and $4.19 million at December 31, 2005 and March 31, 2005, respectively. At March 31, 2006, one mortgage loan totaling $198,600 had been held for sale longer than thirty days. This loan was sold in April 2006. During the first quarter of 2006, we originated 193 mortgage loans, compared to 152 loans originated during the first quarter of 2005.

At March 31, 2006 and December 31, 2005, loans held-for-sale also included one Columbia River Capital Team loan totaling $1.40 million. We expect to complete the sale of this loan during the second quarter of 2006. Columbia River Capital Team is an alliance with D&L Capital Funding, Inc., an independent commercial real estate loan originator that provides us with greater access to the commercial and multifamily real estate segments. Columbia River Capital Team occasionally sells the commercial real estate loans that it originates. Sometimes these loans are not sold until construction is completed. Due to the somewhat limited market for commercial real estate loans and construction timing issues, these loans are typically held longer than mortgage loans held for sale.

The following table presents CRB’s loan portfolio composition by loan type:

Loans:
(dollars in thousands)

	March 31, 2006						December 31, 2005						March 31, 2005
				Percent of						Percent of						Percent of
	Dollar Amount			Total			Dollar Amount			Total			Dollar Amount			Total
Commercial loans	$	105,109			16	%	$	101,261			15	%	$	99,338			17	%
Agricultural loans		82,363			12	%		84,271			12	%		71,384			12	%
Real estate loans		295,378			44	%		291,285			43	%		255,212			45	%
Real estate loans — construction		175,594			25	%		184,331			27	%		130,811			23	%
Consumer loans		13,201			2	%		13,775			2	%		14,259			2	%
Other loans		8,399			1	%		7,923			1	%		7,791			1	%
		680,044						682,846						578,795
Allowance for loan losses		(8,866	)		-1	%		(9,526	)		-1	%		(8,249	)		-1	%
Unearned loan fees		(1,404	)		0	%		(1,513	)		0	%		(1,421	)		0	%
Loans, net of allowance for loan losses, unearned loan fees and loans held for sale		669,774						671,807						569,125
Loans held for sale		4,079			1	%		5,879			1	%		4,188			1	%
Total loans	$	673,853			100	%	$	677,686			100	%	$	573,313			100	%

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Non-performing Assets

Non-performing assets consist of loans on non-accrual status, delinquent loans past due greater than 90 days, troubled debt restructured loans and other real estate owned (“OREO”). We do not accrue interest on loans for which full payment of principal and interest is not expected, or for which payment of principal or interest has been in default 90 days or more, unless the loan is well-secured and in the process of collection. Troubled debt restructured loans are those for which the interest rate, principal balance, collateral support or payment schedules were modified from original terms, beyond what is ordinarily available in the marketplace, to accommodate a borrower’s weakened financial condition. OREO represents assets held through loan foreclosure or recovery activities.

The following table presents information about our non-performing assets:

Non-performing Assets:
(dollars in thousands)

	March 31, 2006			December 31, 2005			March 31, 2005
Loans on non-accrual status	$	2,808		$	5,688		$	705
Delinquent loans on accrual status		—			—			—
Troubled debt restructured loans		36			40			—
Total non-performing loans		2,844			5,728			705
Other real estate owned		—			—			84
Total non-performing assets	$	2,844		$	5,728		$	789
Allowance for loan losses	$	8,866		$	9,526		$	8,249
Ratio of total non-performing assets to total assets		0.33	%		0.68	%		0.11	%
Ratio of total non-performing loans to total loans		0.41	%		0.92	%		0.12	%
Ratio of allowance for loan losses to total non-performing assets		311.71	%		166.30	%		1044.49	%

During the first quarter of 2006, the balance of non-performing assets decreased $2.88 million from December 31, 2005. The decrease is primarily attributable to loans of a potato industry agricultural borrower that we refinanced during the quarter. As a result of the refinance, we improved our collateral position by securing additional real estate and agricultural equipment.

At March 31, 2006, commercial and agricultural loans to three different agricultural borrowers, totaling $2.22 million, comprised 78.00% of non-performing assets, all of which had been on non-accrual status at December 31, 2005. We charged-off $476,151 of principal related to one of these loans during the first quarter of 2006. We believe the current collateral value is sufficient to support the remaining principal balances of these loans.

Allowance for Loan Losses

Our allowance for loan losses represents an estimate of possible losses associated with our loan portfolio and deposit account overdrafts as of the reporting date. The allowance is calculated based on a systematic approach each quarter consistent with the Interagency Policy Statement issued by the Federal Financial Institutions Examination Council (FFIEC). Our methodology for calculating the allowance for loan losses takes into consideration all loans in our portfolio using the following three factors:

• Loss allocation to groups of loans by internal risk grade

• Loss allocation by loan type

• Loss allocation by historical loss percentage

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Adversely classified and impaired loans are assigned a higher loss percentage than non-classified loans. Historically, deposit overdraft losses have been minimal. We also review current regional and national economic conditions and trends, economic circumstances that may affect our borrowers individually and collectively, and various other factors that we consider appropriate for allocation to specific loans or loan categories.

When a loan, or a portion of a loan, is determined to be uncollectible, it is “charged-off,” which means it is removed from the balance sheet and the reduction is charged against the allowance for loan losses. Deposit account overdraft charge-offs are accounted for in the same manner.

Increases to the allowance occur when we expense amounts to the loan loss provision or when we recover previously charged-off loans. Decreases occur when we charge-off loans that are deemed uncollectible. We determine the appropriateness and amount of these charges by assessing the risk potential in our portfolio on an ongoing basis.

The following table presents activity in the allowance for loan losses:

Allowance for Loan Loss:
(dollars in thousands)

	Three Months Ended
	March 31,
	2006			2005
Balance at beginning of period	$	9,526		$	8,184
Charge-offs:
Commercial		485			22
Real estate		—			8
Agriculture		42			23
Consumer loans		—			45
Credit card and related accounts		43			24
Demand deposit overdrafts		—			30
Total charge-offs		570			152
Recoveries:
Commercial		18			3
Real estate		—			—
Agriculture		25			4
Consumer loans		6			6
Credit card and related accounts		1			3
Demand deposit overdrafts		—			1
Total recoveries		50			17
Provision for loan losses		550			200
Reclassify liability for credit losses on off-balance-sheet financial instruments		(690	)		—
Balance at end of period	$	8,866		$	8,249

During the quarter ended March 31, 2006, we reclassified our liability for credit losses from off-balance-sheet financial instruments. The liability represents our estimate of possible losses associated with off-balance-sheet financial instruments, which consist of commitments to extend credit, commitments under credit card arrangements, and commercial and standby letters of credit. We had previously included the liability as a component of the allowance for loan losses. Following the reclassification, the liability is included as a component of “Accrued interest payable and other liabilities” on our balance sheet.

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During the quarter ended March 31, 2006, we charged-off a portion of two loans to a potato industry agricultural borrower after an updated evaluation of the borrower’s collateral. As a result of this and other smaller charge-offs, we recorded $550,000 in provision for loan losses for the quarter ended March 31, 2006.

As a percentage of average loans outstanding at year-end (including loans held for sale), our allowance for loan losses has ranged between 0.83% and 1.50% over the 10-year period from 1996 to 2005, averaging 1.28% on an annual basis. At March 31, 2006, our allowance for loan losses, excluding the reclassified liability for off-balance-sheet commitments, was 1.30% of outstanding loans, including loans held for sale. If we had not reclassified the liability for off-balance-sheet commitments, our allowance would have been 1.40% of outstanding loans.

For the quarter ended March 31, 2006, net charge-offs were approximately 0.08% of average gross loans, or 0.30% on an annualized basis. Our net charge-offs as a percentage of average gross loans at year-end has averaged 0.22% during the last ten years and 0.28% during the last five years.

LIABILITIES

Our liabilities primarily consist of our obligations to repay customer deposits on demand (“demand deposits”) or at a stated time in the future (“time deposits”), interest accrued on customer deposits, notes payable and obligations to pay interest and principal on the “junior subordinated debentures”.

Deposits

We offer various deposit accounts, including non-interest bearing checking and interest bearing checking, savings, money market and certificates of deposit. The accounts vary as to terms, with principal differences being minimum balances required, length of time the funds must remain on deposit, interest rate and deposit or withdrawal options. Deposits are our primary source for funding loan growth. In order to minimize our interest expense, our goal is to maximize our non-interest bearing demand deposits relative to other deposits and borrowings.

At March 31, 2006, our deposits totaled $722.60 million, an increase of $14.78 million, or 2.09%, over December 31, 2005 and an increase of $86.77 million, or 13.65%, over March 31, 2005. Historically, our deposit growth remains fairly flat during the first quarter and accelerates during the remainder of the year.

Deposit account growth during the first quarter of 2006 occurred primarily in interest bearing demand accounts. Since the beginning of the year, interest bearing demand accounts have increased $15.12 million, or 5.44%, which is the result of a special money market account promotion.

Non-interest bearing demand deposits decreased $5.89 million since December 31, 2005.

During the first quarter of 2006, time certificates of deposit increased $4.01 million. Several factors contributed to the time certificate deposit increases. First, the Bank added $5.38 million of public agency certificates of deposit, net of maturities. Second, brokered certificates of deposit increased $4.23 million, net of $8.98 million of maturities. Finally, increases in time certificates of deposit were offset by two direct certificates of deposit totaling $7.50 million that matured without renewing due to customer price sensitivity; both of these certificates of deposit were categorized as wholesale liabilities.

The following table presents the composition of our deposits:

Deposits:
(dollars in thousands)

	March 31, 2006					December 31, 2005					March 31, 2005
			Percent of					Percent of					Percent of
	Dollar Amount		Total			Dollar Amount		Total			Dollar Amount		Total
Non-interest bearing deposits	$	214,561		30	%	$	220,450		31	%	$	187,787		29	%
Interest bearing deposits		293,187		41	%		278,070		39	%		233,050		37	%
Savings deposits		42,666		6	%		41,128		6	%		36,272		6	%
Time certificates		172,183		23	%		168,174		24	%		178,718		28	%
Total deposits	$	722,597		100	%	$	707,822		100	%	$	635,827		100	%

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Wholesale liabilities include all funding sources obtained outside the retail branch network and consist of brokered certificates of deposit, direct certificates of deposit, correspondent borrowings and advances from Federal Home Loan Bank (“FHLB”). Brokered certificates of deposit are obtained through intermediary brokers that sell the certificates on the open market. Direct certificates of deposit are obtained through a proprietary network that solicits deposits from other financial institutions or from public entities. FHLB advances are separately classified as borrowings and reported as a component of “Notes payable” on our balance sheet.

We utilize wholesale liabilities to manage interest rate risk and as a source of funding for loan growth. At March 31, 2006, brokered certificates of deposit totaled $35.87 million, with maturities ranging between two months and four years; brokered certificates of deposit totaled $31.64 million at December 31, 2005 and $41.56 million at March 31, 2005. Direct certificates of deposit totaled $4.03 million at March 31, 2006, with maturities ranging from one month to two years; direct certificates of deposit totaled $9.72 million at December 31, 2005 and $19.77 million at March 31, 2005.

During the first quarter, we continued to emphasize deposit gathering efforts at the retail branch level in order to fund loan growth. If loan growth outpaces retail deposit growth, we will utilize wholesale sources.

Notes Payable

Borrowings from Federal Home Loan Bank (“FHLB”) comprise the majority of our notes payable. At March 31, 2006, FHLB borrowings totaled $43.23 million, a decrease of $1.61 million from the December 31, 2005 balance of $44.84 million, and an increase of $10.55 million as compared to $32.68 million at March 31, 2005. We also use lines of credit at correspondent banks to purchase federal funds for short-term funding. We had no federal funds purchased at March 31, 2006, December 31, 2005 and March 31, 2005. Other notes payable consisted of a Treasury Tax and Loan note payable for $63,762 at March 31, 2006, $850,000 at December 31, 2005, and $742,801 at March 31, 2005. We will continue to allow notes payable to mature without renewing if deposit growth meets or exceeds loan growth.

The following table presents FHLB balances and interest rates:

FHLB Borrowings:
(dollars in thousands)

	March 31,			December 31,			March 31,
	2006			2005			2005
Amount outstanding at end of period	$	43,228		$	44,841		$	32,678
Weighted average interest rate at end of period		4.11	%		4.09	%		3.39	%
Maximum amount outstanding at any month-end and during the year	$	43,228		$	44,841		$	33,836
Average amount outstanding during the period	$	23,888		$	34,380		$	32,882
Average weighted interest rate during the period		3.93	%		3.64	%		2.89	%

Off-Balance Sheet Items – Commitments/Letters of Credit

In the normal course of business to meet the financing needs of our customers, we are party to financial instruments with off-balance-sheet risk. These financial instruments include commitments to extend credit, the issuance of letters of credit and interest rate swaps. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on our balance sheet.

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Our potential exposure to credit loss for commitments to extend credit and for letters of credit is limited to the contractual amount of those instruments, and would be triggered in the event of nonperformance by the other party. When extending off-balance sheet commitments and conditional obligations, we follow the same credit policies established for our on-balance-sheet instruments.

We may or may not require collateral or other security to support financial instruments with credit risk, depending on our loan underwriting guidelines.

The following table presents a comparison of contract commitment amounts:

Commitments:
(dollars in thousands)

	March 31, 2006		December 31, 2005		March 31, 2005
Financial instruments whose contract amounts contain credit risk:
Commitments to extend credit	$	215,846	$	200,916	$	157,970
Undisbursed credit card lines of credit		20,587		19,582		18,949
Commercial and standby letters of credit		2,374		2,309		2,243
	$	238,807	$	222,807	$	179,162

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn, total commitment amounts do not necessarily represent future cash requirements.

The amount of collateral obtained to secure a loan or commitment, if deemed necessary, is based on our credit evaluation of the borrower. The majority of commitments are secured by real estate or other types of qualifying collateral. Types of collateral vary, but may include accounts receivable, inventory, property and equipment, and income-producing properties. Less than 10% of our commitments are unsecured. Lending commitments are distributed across all loan categories at levels roughly proportionate to concentrations in the loan portfolio.

Letters of credit are conditional commitments that we issue to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit parallels the risk involved in extending loans to customers. When considered necessary, we hold deposits, marketable securities, real estate or other assets as collateral for letters of credit.

We offer an overdraft protection product that allows certain types of deposit products to become overdrawn up to a set dollar limit before checks will be returned. At March 31, 2006, commitments to extend credit for overdrafts totaled $10.23 million, which represents our estimated total exposure if virtually every customer utilized the full amount of this protection at one time. However, the year-to-date average usage outstanding is much lower than this commitment, totaling approximately $215,000, or 2.10% of the total exposure at March 31, 2006 and approximately $236,000, or 2.26% of the total exposure at March 31, 2005.

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Derivative Instruments-Interest Rate Swap

In January 2003, in connection with the issuance of $4.00 million of floating-rate trust preferred securities by Columbia Bancorp Trust I, we entered into an interest rate swap agreement (“swap”) with an unrelated third party. The swap expires in January 2008. Under the terms of the swap, we pay interest at a rate of 3.27% on a notional amount of $4.00 million and we then receive interest at the 90-day London Inter-Bank Offered Rate (“LIBOR”) on the same amount. The swap effectively converts interest payments on the $4.00 million trust preferred securities from a variable interest rate of 90-day LIBOR plus 3.30% to a fixed interest rate of 6.57% until January 2008. In January 2008, we have the option to prepay the trust preferred securities. We have classified the swap agreement as a cash flow hedge in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The purpose of the swap was to mitigate variability in our cash flows by establishing a fixed interest payment during the initial five years of the trust preferred securities.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income, our primary source of operating income, is the difference between interest income, principally from our loan and investment security portfolios, and interest expense, principally on our customer deposits and bank borrowings from other sources, such as trust preferred securities. Like most financial institutions, our net interest income increases as we are able to charge higher interest rates on loans while paying relatively lower interest rates on deposits and other borrowings.

Our relationship pricing strategy, whereby we selectively offer higher rates to certain customers, combined with our success at gathering low cost deposits, has minimized increases in our overall cost of funds.

Net interest income increased $2.30 million, or 23.77%, for the first quarter of 2006 compared to the first quarter of 2005. The year-over-year increase in net interest income is primarily due to growth of our loan portfolio and interest rate increases on variable rate loans following a series of Federal Reserve interest rate increases during 2005 and 2006.

Net interest income increased $465,964, or 4.05%, for the first quarter of 2006, compared to the fourth quarter of 2005. The quarter-over-quarter increase in net interest income is primarily attributable to two Federal Reserve interest rate increases in December 2005 and January 2006, which resulted in higher interest rates on our variable rate loans that re-priced during the quarter.

Net interest margin (net interest income as a percentage of average earning assets) measures how well a bank manages its asset and liability pricing and duration. Our tax equivalent net interest margin for the first quarter of 2006 was 6.37%, compared to 6.06% for the fourth quarter of 2005, and 5.82% for the first quarter of 2005.

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The following table presents a comparison of average balances and interest rates:

Net Interest Income Average Balances and Rates:

(dollars in thousands)

	Three Months Ended March 31,							Three Months Ended March 31,
	Average Balances							Average Yields/Costs Tax Equivalent
	2006		2005		Change			2006			2005			Change
Taxable securities	$	23,127	$	26,415	$	(3,288	)		3.77	%		2.72	%		1.05	%
Nontaxable securities		12,473		13,173		(700	)		7.12	%		7.13	%		-0.01	%
Interest bearing deposits		13,115		20,657		(7,542	)		4.06	%		2.39	%		1.67	%
Federal funds sold		31,087		40,474		(9,387	)		4.38	%		2.44	%		1.94	%
Loans		686,339		578,409		107,930			8.71	%		8.05	%		0.66	%
Interest-earning assets		766,141		679,128		87,013			8.28	%		7.32	%		0.96	%
Nonearning assets		53,031		51,894		1,137
Total assets	$	819,172	$	731,022	$	88,150
Savings & interest bearing deposits	$	325,503	$	268,352	$	57,151			1.94	%		1.12	%		0.82	%
Time certificates		175,747		179,866		(4,119	)		3.93	%		3.17	%		0.76	%
Borrowed funds		29,935		38,160		(8,225	)		4.62	%		3.85	%		0.77	%
Interest bearing liabilities		531,185		486,378		44,807			2.75	%		2.09	%		0.66	%
Non-interest bearing demand deposits		206,098		174,241		31,857
Other liabilities		2,499		2,855		(356	)
Shareholders’ equity		79,390		67,548		11,842
Total liabilities and shareholders’ equity	$	819,172	$	731,022	$	88,150

During the last several years, we have positioned our balance sheet to be asset sensitive, meaning that the assets reprice, or adjust to market rates, more frequently than the liabilities. As a result, the series of increases in the Federal Reserve discount rate since August 2004 contributed to our increasing net interest margin and net interest income. Increases in net interest income were partially offset by the rising cost of funds due to short-term interest rate increases and competitive pricing pressures.

Approximately 59% of our variable rate loan portfolio will re-price during the next three months. If interest rates continue to rise, interest income on these re-priced loans will increase. We expect our net interest margin will remain stable or compress slightly due to the continued competitive pressures on our deposit interest rates and resulting increase in our cost of funds.

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Non-Interest Income

Non-interest income is comprised of service charges and fees, credit card discounts, financial services revenues, mortgage banking revenues and gains from the sale of loans, securities and other assets. Mortgage banking revenues include service release premiums, revenues from the origination and sale of mortgage loans and net revenues from mortgage servicing activities, which we discontinued in 2005. Financial services income is derived from the sale of investments and financial planning services to our customers.

The following table presents the balances and percentage changes in non-interest income:

Non-Interest Income:
(dollars in thousands)

	Three Months Ended
	March 31,
	2006		2005		% change
Service charges and fees	$	1,130	$	1,173		-4	%
Credit card discounts and fees		106		113		-6	%
Financial services revenue		199		144		38	%
Mortgage servicing, net		—		89		-100	%
Mortgage loan origination income		390		326		20	%
Service release premium		218		161		35	%
Gain on mortgage sales		30		45		-33	%
Other non-interest Income		246		252		-2	%
Total non-interest Income	$	2,319	$	2,303		1	%

Total non-interest income for the first quarter of 2006 increased $15,301, or 0.66%, compared to the first quarter of 2005. This slight increase represents the net effect of several factors:

• Service charges and fees decreased $42,386 due to decreases in NSF and account analysis fees.

• Financial services revenue increased $55,218 following the hiring of a new representative for our Meadow Springs Branch and also due to an overall increase in sales by existing representatives.

• Mortgage revenues increased $16,970 primarily due to an increase in the volume of loans originated. We originated 193 loans during the first quarter of 2006, compared to 152 loans originated during the first quarter of 2005.

Provision for Loan Losses

Our provision for loan losses represents an expense against current period income that allows us to establish an adequate allowance for loan losses and deposit account overdrafts. Charges to the provision for loan losses result from our ongoing analysis of possible losses in our loan portfolio.

During the first quarter of 2006, we charged $550,000 to the provision for loan losses primarily as a result of charge-offs totaling $476,151 from commercial loans related to an agricultural borrower. We charged-off $300,000 of these loans in the fourth quarter of 2005, but we determined that additional charge-offs were necessary after an updated evaluation of the borrowers’ collateral. We believe the current collateral value is sufficient to support the remaining principal balances of these loans.

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Non-Interest Expense

Non-interest expense consists of salaries and benefits, occupancy costs and various other non-interest expenses.

The following table presents the components of and changes in non-interest expense:

Non-Interest Expense:
(dollars in thousands)

	Three Months Ended
	March 31,
	2006		2005		% change
Salaries and employee benefits	$	4,577	$	3,687		24	%
Occupancy expense		866		797		9	%
Advertising expense		152		59		158	%
Electronic connection fees		106		65		63	%
Consulting fees		57		82		-30	%
Software licensing		81		103		-21	%
Other non-interest expense		1,937		1,778		9	%
Total non-interest expense	$	7,776	$	6,571		18	%

For the first quarter of 2006, total non-interest expense increased $1.20 million, or 18.34%, compared to the first quarter of 2005. This is the result of higher employee salaries and benefits, increases in incentive compensation accruals, and increases in occupancy expenses.

As we continue to out-perform our strategic plan, we expect the trend of higher salary, benefit and incentive compensation expenses to continue. For the first quarter of 2006, total salary and benefit expense, excluding incentive compensation, increased $560,434, or 18.22%, compared to the first quarter of 2005. This increase is due mainly to the hiring of additional full-time equivalent employees (FTE) for branch expansion and new administration support staff positions. At March 31, 2006, we had 331 FTEs, compared to 299 at March 31, 2005, a 10.70% increase. During the first quarter of 2006, incentive compensation expense increased $329,504, or 53.99%, compared to the first quarter of 2005.

Occupancy expense for the first quarter of 2006 increased $69,175, or 8.68%, compared to the first quarter of 2005. This was primarily due to an increase in branch lease and rent expense related to the opening of the new Cherry Heights branch in The Dalles, Oregon, the new Meadow Springs Branch in Kennewick, Washington and the expansion of our Administrative offices located in downtown The Dalles.

Other non-interest expense increased $245,586, or 11.77%, for the first quarter of 2006 compared to the first quarter of 2005. Advertising expenses and electronic connection fees increased as a result of branch expansion. These increases were offset by reductions in consulting fees and software licensing expense. During the first quarter of 2005, we incurred significant costs to update our disaster recovery and business continuity plans and to comply with the Community Reinvestment Act and the Sarbanes-Oxley Act of 2002.

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The efficiency ratio, which measures overhead costs as a percentage of total revenues, is an important measure of productivity in the banking industry. Because increases in non-interest expense outpaced income growth, our efficiency ratio increased to 54.47% for the first quarter of 2006, compared to 53.94% for the fourth quarter of 2005 and 54.92% for the first quarter of 2005. Although our investments in branch expansion and administration resources will contribute to our long-term growth, we expect our efficiency ratio will increase in the short-term.

LIQUIDITY AND CAPITAL RESOURCES

Shareholders’ Equity

At March 31, 2006, shareholders’ equity totaled $80.49 million, compared to $77.49 million at December 31, 2005, an increase of 3.87%, and $68.75 million at March 31, 2005, an increase of 17.08%. The 2006 year-to-date change is primarily attributable to first quarter net income totaling $3.72 million, which was partially offset by dividends declared or paid of $889,833.

During the first quarter of 2006, the Board of Directors declared a dividend of $0.09 per share, payable April 28, 2006 to shareholders of record as of April 13, 2006. Based on cash dividends paid and declared in 2006, approximately 23.91% of our year-to-date earnings will have been returned to shareholders, with the remainder being retained in the form of shareholders’ equity for the purpose of leveraging future balance sheet growth.

Liquidity

We have adopted policies to address our liquidity requirements, particularly with respect to customers’ needs for borrowing and deposit withdrawals. Our main sources of liquidity are customer deposits; sales and maturities of investment securities; the use of federal funds; brokered certificates of deposit; and net cash provided by operating activities. Scheduled loan repayments are a relatively stable source of funds, whereas deposit inflows and unscheduled loan prepayments are variable and often influenced by general interest rate levels, competing interest rates available on alternative investments, market competition, economic conditions and other factors.

Liquidity is determined by the aggregate of cash and due from banks; interest bearing deposits with other banks; held-to-maturity securities maturing within three months that are not pledged; and available-for-sale securities not pledged minus vault cash. Measurable liquid assets totaled $105.35 million at March 31, 2006, as compared to $94.71 million at March 31, 2005. Our liquidity was relatively stable during the first quarter of 2006, although we did add, net of maturities, $4.23 million of brokered deposits and $5.38 million of public fund deposits in part to support anticipated loan growth and also to replace two certificates of deposit totaling $7.50 million that matured. Historically, our liquidity has decreased during the second and third quarters due to loan growth. We will continue to rely on retail branch deposit growth and, when necessary, we will utilize wholesale sources to meet our liquidity needs.

Our statement of cash flows reports the net changes in our cash and cash equivalents during the quarter. Net cash from operating activities increased $3.52 million, or 161.00%, for the first quarter of 2006 compared to the first quarter of 2005. This was the result of the increase in net income and timing differences in the receipt and payment of accrued income and accrued expenses.

Due to several factors, net cash from investing activities decreased $8.02 million, or 83.21%, for the first quarter of 2006 compared to the first quarter of 2005. First, investment securities that matured during first quarter of 2006 decreased $4.75 million compared to the first quarter of 2005. Second, during the first quarter of 2006, we purchased $1.95 million of investment securities to collateralize additional public fund deposits, whereas we had no purchases during the first quarter of 2005. Finally, due to significant branch expansion, property and equipment purchases increased $1.10 million for the first quarter of 2006 compared to the first quarter of 2005.

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Net cash from financing activities decreased $14.45 million, or 53.50%, for the first quarter of 2006 compared to the first quarter of 2005. The decrease was the result of a decrease in the growth of demand and savings deposits for the first quarter of 2006 compared to the first quarter of 2005. The overall decrease was partially offset by a $12.65 million increase in time deposit growth for the first quarter of 2006 compared to the first quarter of 2005.

Capital Requirements and Ratios

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

The following table presents Columbia’s capital ratios as compared to regulatory minimums:

Capital Ratios:

				Well-			March 31, 2006			December 31, 2005
	Minimum			Capitalized			Actual Ratio			Actual Ratio
Tier 1 risk-based capital		4.00	%		6.00	%		10.36	%		9.41	%
Total risk-based capital		8.00	%		10.00	%		11.54	%		10.66	%
Leverage ratio		4.00	%		5.00	%		9.53	%		8.91	%

We intend to remain “well-capitalized” by regulatory definition. Regulatory capital levels historically decrease during the second and third quarters as loan demand increases. We intend to use our excess capital for continued cash dividends, stock repurchases and we will also consider retiring a portion of, or all of, the trust preferred securities at the first available prepay date in December 2007.

Stock Repurchase Plan

On May 24, 2005, the Board of Directors renewed a plan to repurchase shares of Columbia’s common stock. The Board believes the repurchases constitute a sound investment and use of our shareholders’ equity to reduce excess capital. Any stock repurchases would be made on the open market pursuant to Securities Exchange Act Rule 10b-18 at the sole discretion of Management. The repurchase plan authorizes us to repurchase common stock in an amount up to $1.00 million until the expiration date, June 30, 2006, or sooner if the maximum authorized amount of shares is repurchased prior to that date. Management determines the timing, price and number of the shares of common stock repurchased. During the quarter ended March 31, 2006, we did not repurchase any stock under the stock repurchase plan.

Trust Preferred Securities

In December 2002, Columbia formed Columbia Bancorp Trust I (“Trust”), a Delaware statutory business trust, for the purpose of issuing guaranteed undivided beneficial interests in junior subordinated debentures (“trust preferred securities”). In 2002, the Trust issued $4.00 million in trust preferred securities. The $4.00 million in debentures issued through the Trust continue to qualify as Tier 1 capital under guidance issued by the Board of Governors of the Federal Reserve System.

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CRITICAL ACCOUNTING POLICIES

The “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as disclosures included elsewhere in this Form 10-Q, are based upon consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires Management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, Management evaluates the estimates used, including the adequacy of the allowance for loan losses, impairment of intangible assets, and contingencies and litigation. Estimates are based upon historical experience, current economic conditions and other factors that Management considers reasonable under the circumstances. These estimates result in judgments regarding the carrying values of assets and liabilities when these values are not readily available from other sources as well as assessing and identifying the accounting treatments of commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions. The following critical accounting policies involve the more significant judgments and assumptions used in the preparation of the consolidated financial statements.

The allowance for loan losses represents an estimate of possible losses associated with the Bank’s loan portfolio and deposit account overdrafts. On an ongoing basis, we evaluate the adequacy of the allowance based on numerous factors. These factors include the quality of the current loan portfolio, the trend in the loan portfolio’s risk ratings, current economic conditions, loan concentrations, loan growth rates, past-due and non-performing loan trends, evaluation of specific loss estimates for all significant problem loans, historical charge-off and recovery experience and other pertinent information. Approximately 69% of our loan portfolio is secured by real estate; a significant decrease in real estate values in Oregon and Washington may result in an increase to the allowance for loan losses.

At March 31, 2006, our goodwill totaled $7.39 million as a result of business combinations. We follow SFAS No. 142 that requires us to evaluate goodwill for impairment not less than annually and to write down the goodwill if the business unit associated with the goodwill cannot sustain the value attributed to it. Our evaluation of the fair value of goodwill involves a substantial amount of judgment.

We may become party to various legal proceedings. These matters have a high degree of uncertainty associated with them. There can be no assurance that the ultimate outcome will not differ materially from the assessment of them. There can also be no assurance that all matters that may be brought against us are known to us at any point in time.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to Columbia’s market risk position from the information provided under the caption “Quantitative and Qualitative Disclosures about Market Risk” on page 44 of Columbia’s Form 10-K filed with the SEC on March 14, 2006, covering the fiscal year ended December 31, 2005.

ITEM 4.Controls and Procedures

Columbia’s Management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, to the best of their knowledge, as of the end of the period covered by this quarterly report, the disclosure controls and procedures are effective in ensuring all material information required to be filed in this quarterly report has been made known to them in a timely fashion.

There were no changes in Columbia’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are likely to materially affect, Columbia’s internal control over financial reporting.

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PART II. — OTHER INFORMATION

ITEM 1.Legal Proceedings

During the normal course of its business, Columbia is a party to various debtor-creditor legal actions, which individually or in the aggregate, could be material to Columbia’s business, operations or financial condition. These include cases filed as a plaintiff in collection and foreclosure cases, and the enforcement of creditors’ rights in bankruptcy proceedings. Management is presently aware of no legal proceedings that would have a material adverse impact on Columbia’s business, operations or financial condition.

ITEM 1A.Risk Factors

There have been no material changes to Columbia’s risk factors previously disclosed under the caption “Risk Factors” on page 14 of Columbia’s Form 10-K filed with the SEC on March 14, 2006, covering the fiscal year ended December 31, 2005.

ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3.Defaults Upon Senior Securities

None.

ITEM 4.Submission of Matters to a Vote of Security Holders

None.

ITEM 5.Other Information

None.

ITEM 6.Exhibits

(a)	Exhibits
		3.1.1	Articles of Incorporation of Columbia Bancorp (Incorporated herein by reference to Exhibit 3(i) to Columbia’s form 10-Q for the period ended June 30, 1999).
		3.1.2	Bylaws of Columbia Bancorp (Incorporated herein by reference to Exhibit 15.5 to Columbia’s Form 10-KSB for the year ended December 31, 1998).
		4.1	Indenture dated as of December 19, 2002 between Columbia Bancorp, as Issuer, and Wells Fargo Bank, N.A., as Trustee, relating to Floating Rate Junior Subordinated Debt Securities due 2033.*
		4.2	Form of Floating Rate Junior subordinated Debt Security due 2033.*
		10.1	Employment agreement of April 1, 2006 between James C. McCall and Columbia River Bank
		31.1	Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
		31.2	Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).
		32.1	Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
		32.2	Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

* Incorporated by reference to Columbia Bancorp’s Form 10-K for the year ended December 31, 2005, filed with the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COLUMBIA BANCORP
Dated: May 9, 2006	/s/ Roger L. Christensen
	Roger L. Christensen
	President & Chief Executive Officer
Dated: May 9, 2006
	/s/ Greg B. Spear
	Greg B. Spear
	Executive Vice President & Chief
	Financial Officer

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