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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, 1999
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number: 0-27938
COLUMBIA BANCORP
(Exact name of registrant as specified in its charter)
Oregon 93-1193156
(State of incorporation) (I.R.S. Employer
Identification No.)
420 East Third Street, Suite 200
The Dalles, Oregon 97058
(Address of principal executive offices)
Registrant's telephone number: (541) 298-6649
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common stock, no par value
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 the 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. [ ]
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 February 15, 2000 was $45,378,145.
The number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: 8,012,822 shares of no par value
common stock on March 1, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement dated March 10, 2000 for the
2000 Annual Meeting of Shareholders ("Proxy Statement"), and the 1999 Annual
Report to Shareholders are incorporated by reference in Part II and III hereof.
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COLUMBIA BANCORP
FORM 10-K
TABLE OF CONTENTS
PAGE
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Disclosure Regarding Forward Looking Statements 3
PART I
Item 1. Business 3 - 15
Item 2. Properties 15 - 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
(Portions of Items 5, 6, 7 and 8 are incorporated by reference from
Columbia Bancorp's 1999 Annual Report to Shareholders)
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18 - 33
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 33 - 34
Item 8. Financial Statements and Supplementary Data 34
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 35
PART III
(Items 10 through 13 are incorporated by reference from Columbia
Bancorp's definitive proxy statement for the Annual Meeting
of Shareholders to be held on April 25, 2000)
Item 10. Directors, Executive Officers of the Registrant 35
Item 11 Executive Compensation and Report of Compensation Committee 35
Item 12. Security Ownership of Certain Beneficial Owners and Management 35
Item 13. Certain Relationships and Related Transactions 35
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 35 - 36
SIGNATURES 37 - 38
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This document includes forward-looking statements as defined in applicable
federal securities laws and regulations. Such forward-looking statements are
based on certain assumptions made by Columbia's management, information
currently available to management, and management's present beliefs about
Columbia's business and operations. All statements, other than statements of
historical fact in this document, including without limitation, statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" regarding Columbia's financial position, business
strategy, and plans and objectives of management of Columbia for future
operations, are forward-looking statements. Forward-looking statements can be
identified by words such as "believe," "estimate," "anticipate," "expect,"
"intend," "will," "may," "should," or other similar phrases or words. Although
Columbia believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Readers are therefore cautioned not to place undue
reliance on such forward-looking statements. Such factors as changed conditions,
incorrect assumptions or the materialization of a risk or uncertainty could
cause actual results to differ materially from results described in this
document as believed, anticipated, estimated, expected, or intended. Columbia
does not intend to update these forward-looking statements other than in
Columbia's quarterly and annual reports and other filings under applicable
securities laws.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Columbia Bancorp ("Columbia") is a bank holding company headquartered in
The Dalles, Oregon. Its subsidiaries include Columbia River Bank ("CRB") and
Valley Community Mortgage Services, Inc. CRB is a 13 branch, state-chartered
institution authorized to provide banking services by the States of Oregon and
Washington. Columbia offers a broad range of financial services to its
customers, primarily small and medium sized businesses, farmers, and
individuals. Columbia's 11 Oregon branches serve the northern and eastern Oregon
communities of The Dalles, Hood River, Pendleton and Hermiston, the central
Oregon communities of Madras, Redmond, and Bend, and the communities of
McMinnville and Newberg in the Willamette Valley. Columbia's two south central
Washington branches serve the communities of Goldendale and White Salmon.
As of December 31, 1999, Columbia had total assets of $361.24 million,
total deposits of $310.91 million, and shareholders' equity of $37.32 million.
Columbia's net income for the year ended December 31, 1999, was $5.01 million,
which was Columbia's twelfth consecutive year of increasingly higher net income.
For the year ended December 31, 1999, Columbia's return on average assets was
1.44% and return on average equity was 13.90%. Since the year ended December 31,
1994, it has increased earnings by an average of 22.90% per year and achieved an
average return on average assets of 1.57%. During the same period, Columbia has
achieved an average return on average equity of 16.21%.
From its origins as a one-branch community bank in The Dalles, Columbia
has grown as a result of merger and acquisition activity, new branch openings,
the introduction of new business lines, and the expansion and cross-marketing of
its existing products and community-bank lending expertise. In 1995, CRB merged
with Juniper Banking Company. In 1996, Columbia was formed as CRB's holding
company and Columbia acquired Washington-based Klickitat Valley Bank. Further
growth came from CRB's Hood River and Bend branch openings and from the
expansion in 1997 of CRB's residential mortgage business. In September 1998, CRB
opened a new branch in Hermiston, Oregon and in November, Columbia acquired
Valley Community Bank ("VCB"). In 1999, CRB opened a new branch in Pendleton,
Oregon in January, completed construction of a second Bend branch in August, and
opened its first branch in Newberg, Oregon in November. Collectively, these
growth and acquisition activities have enabled Columbia to diversify its loan
portfolio and its operating risks over several market areas and local economies.
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The markets in which Columbia operates are relatively economically
diverse, and therefore pose both opportunities and challenges to a community
bank operating in all of these economies. Columbia's approach to meeting the
challenge is to staff its branches and business groups with managers who are
established in their communities and have developed a loyal customer following.
Columbia's senior management, in conjunction with the branch managers, reviews
the operations of each branch to determine which products and services are best
suited for that geographic region. The diverse economies also provide
opportunities to limit Columbia's exposure to adverse market conditions in any
one economic sector.
BUSINESS STRATEGY
Columbia's strategy is to continue building on its position as a leading
community-based provider of financial services in Oregon and south central
Washington. The key to the success of this strategy, in Columbia's view, is to
continue to provide exceptional personal service to the communities it now
serves, and to successfully expand into new communities by identifying and
meeting their unique financial services needs. Columbia's target branch
locations are in non-metropolitan regions, where it aims to deliver prompt and
friendly personal banking services. The components of Columbia's business
strategy are outlined below.
Successfully operate in non-metropolitan regions. In direct contrast to
the present strategies of certain major regional banks, which have closed
branches and reduced service levels in Columbia's service areas, Columbia
believes that the key to profitably operating in non-metropolitan communities is
to: (i) provide a high level of service to the customer; (ii) staff branches
with employees who have established ties to the community; (iii) attract and
retain a highly skilled management team; and, (iv) allow branch personnel the
flexibility to emphasize products and services which best fit their local
economy. In addition, by decentralizing a portion of the management function to
the branch level, Columbia believes it can make business decisions regarding
customers more quickly and with more knowledge than its major banking
competitors. Columbia believes it is able to profitably attract and retain
customers by providing and delivering such products and services tailored to
their individual needs, and by delivering them with a high degree of personal
attention.
Maintain high asset quality. Columbia seeks to maintain high asset
quality through a program that includes prompt and strict adherence to
established credit policies, training and supervision of lending officers.
Additionally, Columbia uses incentives to maintain high asset quality, including
tying a portion of its loan officers' compensation to the quality of the loans
they originate. Columbia also believes that its commitment to hire branch
managers with long term ties to their communities is of significant assistance
in determining the quality of loan transactions. The variety of economies in
which Columbia's branches are located increases the diversification and, in
Columbia's opinion, the strength of the overall loan portfolio.
Seize merger and acquisition opportunities. In 1995, CRB merged with
Juniper Banking Company ("Juniper") of central Oregon. In 1996 Columbia acquired
Klickitat Valley Bank of south central Washington, and in November 1998,
Columbia acquired McMinnville-based VCB. After these transactions, Columbia was
able to provide the same or improved levels of community banking products and
services in these new market areas.
Continue to expand through new branches and new products. Columbia has
grown through the establishment of new branches including, in 1999, branches in
Pendleton, Newberg and a second branch in Bend. In addition, Columbia's banking
products, including its loan programs, and other services are designed to be
responsive to the needs of local community businesses and individual customers.
For example, in 1997 Columbia recognized an opportunity in rapidly growing
central Oregon, and established a mortgage lending group in Bend to originate
and sell residential mortgages. Columbia also offers investment products and
services through its affiliation with the Primevest Financial Services, Inc.
brokerage organization, through which it offers stocks, bonds, mutual funds,
IRAs, retirement plans, and estate planning. Columbia's products and services
are designed to both increase its customer base and to enhance cross-selling
opportunities.
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GROWTH HISTORY
Columbia's Origins and Activities Through 1994. Columbia's subsidiary,
CRB, was incorporated and chartered in Oregon in 1976 and opened for business in
1977. CRB developed and grew as a one-branch community bank in The Dalles.
Several of Columbia's present senior executive officers, including its Chief
Executive Officer and President, have been with the company since the early
1980s. Collectively, Columbia's five-member senior management team has, on
average, over 22 years of banking experience, much of it gained through years of
service at CRB.
CRB's first branch expansion was a satellite branch facility that opened
in 1986 west of The Dalles' city center. Two years later, Columbia opened a
branch in the small Oregon community of Maupin. (Management subsequently
determined that the Maupin branch was unprofitable, and the branch was closed in
May 1998.)
In 1992 CRB purchased land adjacent to a newly established Wal-Mart
store in nearby Hood River, on which it built and opened its second branch
outside of The Dalles. The Hood River Branch opened for business in May 1993.
Activities in 1995. On January 1, 1995 CRB merged with Juniper, a
community bank in central Oregon with branches in Madras and Redmond, Oregon.
Following this merger, CRB's full service branches increased from three to five,
and its assets increased from $62 million to $92 million. CRB retained the
"Juniper Banking Company" name and added three experienced former Juniper
directors to its Board. Also, in 1995 CRB replaced its existing branch facility
in the western part of The Dalles with a branch facility in a newly built
Safeway supermarket west of The Dalles' downtown core. This branch takes
deposits, accepts loan applications, and offers other products and services,
however, it does not process loans on-site.
Activities in 1996. In early 1996, Columbia became CRB's holding
company. In June of 1996 Columbia acquired Klickitat Valley Bank ("Klickitat"),
a south central Washington community bank headquartered in Goldendale,
Washington with a branch in White Salmon. As CRB did with Juniper, Columbia
retained the "Klickitat Valley Bank" name, and added, during 1996 and 1997, four
experienced former Klickitat directors to the Columbia Board. Klickitat was a
natural acquisition candidate for Columbia. Klickitat's White Salmon branch was
within a few miles of CRB's Hood River branch across the Columbia River, and
there were and are multiple economic ties between these two communities.
Klickitat Valley Bank was Goldendale's only community bank, and this community's
agriculture-based economy fit well with CRB's lending expertise.
In late 1996 CRB opened its first branch in Bend, Oregon under the
"Juniper Banking Company" name. Bend's proximity to CRB's existing Redmond and
Madras branches, and Bend's economic growth and increasing population, made this
a natural branch extension for Columbia. Bend is the largest community in which
Columbia operates. Management believes that Bend's population growth, the
expansion and diversity of its economic base, and its strong home construction
market afford significant opportunities for growth.
Activities in 1997. In 1997, Columbia's growth came internally from
increased loans and deposits at its branches. Loan growth at the new Bend branch
was significant, with assets increasing 239% over the prior year, from $3.3
million to $11.2 million. Further growth came from enhanced home mortgage growth
through Columbia's mortgage group, established in mid-1997.
Activities in 1998.
Secondary Common Stock Offering and Nasdaq Listing. During November
1998, Columbia registered 1,000,000 shares of common stock for sale to the
public at a price of $9 per share, for an aggregate offering price of
$9,000,000. All shares were sold, resulting in net proceeds of $8,126,115, after
deducting $873,885 for underwriting discounts and commissions, legal,
accounting, printing fees, and other offering expenses. Net proceeds were used
to implement Columbia's expansion plans, including the acquisition of Valley
Community Bancorp ("Valley"). In connection with the offering, Columbia's common
stock was listed on the Nasdaq Stock Market, where trading commenced on November
6, 1998.
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Acquisition of Valley Community Bancorp. Columbia's most recent
acquisition-based expansion was its purchase of Valley on November 30, 1998 for
a cash purchase price of $15.10 million (the "Acquisition"). Subsequent to the
Acquisition, Valley was merged into Columbia Bancorp, and its subsidiaries,
including VCB, became wholly-owned subsidiaries of Columbia.
Columbia believes the economy in the McMinnville area affords it the
opportunity to leverage two of its core competencies: small business lending and
agricultural lending. Additionally, the acquisition became Columbia's first
entrance into Oregon's most populous region, the Willamette Valley. Management
believes there are significant future growth opportunities in McMinnville,
Newberg and surrounding communities.
Columbia operated VCB as a separate subsidiary under the "Valley
Community Bank" name until November 30, 1999 when it was merged into CRB.
Columbia's management believes the combination will lower overall costs in the
years ahead and capitalize on synergistic marketing, advertising and customer
awareness issues.
Hermiston, Umatilla County, Oregon. Columbia opened a new branch in
Hermiston, Oregon in September of 1998. Hermiston, which has a population of
over 11,000, is 100 miles east of The Dalles. The new branch operates from 1,500
square feet of leased space south of downtown Hermiston. A permanent Hermiston
branch is under construction and will be finished in late first quarter 2000.
The branch offers full-service community banking services, including loans to
local commercial and agricultural-based business.
Activities in 1999.
Pendleton, Umatilla County, Oregon. In January 1999 Columbia opened a
branch in Pendleton, which is 26 miles east of Hermiston and is the largest town
in eastern Oregon. Columbia hired a manager for the new branch who has strong
ties to the Pendleton community and 25 years experience with one of Columbia's
super-regional bank competitors. Columbia currently operates out of leased
facilities. A permanent branch facility is under construction and will be
completed in late first quarter 2000.
Shevlin Center Branch - Bend, Deschutes County, Oregon. Columbia opened
a second branch in Bend, Oregon in the summer of 1999. The branch is located in
the western part of Bend in the upscale Shevlin Business Park, an office park
development. The additional branch in Bend was planned in order to take
advantage of growth opportunities and to leverage existing nearby operations.
Bend is the largest city in central Oregon, and the largest single market area
in which Columbia operates. Columbia believes the second Bend branch will allow
opportunities for future growth, especially for business lending services.
Newberg Branch, Yamhill County, Oregon. Columbia opened its first branch
in Newberg, Oregon in November 1999. Currently operating from temporary
facilities, the branch will move into leased space in the Columbia River Bank
Building in early second quarter of 2000. The Newberg branch is Columbia's
second branch in Oregon's fast growing Willamette Valley.
All three branches opened in 1999 allow Columbia to leverage certain
promotional and advertising costs due to their proximity to existing Columbia
communities. All three are located in Oregon counties with population growth
rates that exceeded the State average of 13.1% for the period from 1990 to 1999.
Name Uniformity. Following the mergers and acquisitions involving
Juniper Banking Company, Klickitat Valley Bank and Valley Community Bank, CRB
for various lengths of time retained the use of these banks' names as assumed
business names at select branch facilities. However, eventually all of these
assumed business names were replaced with the "Columbia River Bank" name. In
1999 the last name transition was complete when VCB merged into CRB, and the
"Valley Community Bank" name was retired. As of December 31, 1999 all of CRB's
branches, including the most recently opened branches, operate under the
"Columbia River Bank" name.
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CONSUMER PRODUCTS AND SERVICES
Columbia offers a broad range of deposit and loan products and services
tailored to meet the banking requirements of consumers in Columbia's market
areas. These include:
Deposit Products. Columbia's consumer deposit products include many
noninterest-bearing checking account products priced at various levels,
interest-bearing checking and savings accounts, money market accounts, and
certificates of deposit. These interest-bearing accounts generally earn
interest, or are priced, at rates established by management based on competitive
market factors and management's desire to increase certain types or maturities
of deposit liabilities. Columbia does not pay brokerage commissions to attract
deposits. It strives to establish customer relations to attract core deposits in
noninterest-bearing transactional accounts, which reduces its cost of funds.
Mortgage Loans. In August of 1997, Columbia created a division of CRB to
originate conventional and federally insured residential mortgage loans for sale
in the secondary market. The division, known as the "Columbia River Bank
Mortgage Group," has grown its business substantially since its inception. As of
December 31, 1997, the mortgage group had sold 60 loans valued at $6.44 million.
Between January 1, 1998 and December 31, 1998, an additional 1,064 loans valued
at $117.54 million were sold. And between January 1, 1999 and December 31, 1999,
1,179 loans valued at $130.21 million were sold. The group has benefited from a
number of factors, including strong demand for mortgages, especially in the Bend
area, a favorable interest rate environment, utilization of advanced software
for evaluating and processing mortgage applications, and an aggressive sales
culture. The mortgage group operates its primary retail loan operations from
branch facilities in Bend, Oregon, but offers its products at all of Columbia's
Oregon and Washington branches. It also offers mortgage loan products, brokerage
and servicing support for certain other Oregon banks. In 1999, approximately 60%
of Columbia's mortgage business was generated from its mortgage group and from
Columbia's branches. The remaining 40% derive from relationships with mortgage
brokers and other community banks.
Investment Products. Through an arrangement with Primevest Financial
Services, Inc., ("Primevest"), a registered securities broker-dealer, Columbia
offers a wide range of financial products and services to consumers. These
include stocks, mutual funds, traditional and Roth IRAs, SEPs, tax-sheltered
annuities, life insurance, and other financial products. Primevest's
representatives also offer retirement planning services. Columbia receives a
portion of the commissions generated by financial product sales.
Technology-Based Products and Services. Columbia uses both traditional
and new technology to support its focus on personal service. These include a
VISA credit and check card (debit card) program, ATMs at each of Columbia's
full-service branches, including six drive-up ATMs, and a telephone banking
service that allows customers to speak directly with a customer service
representative during normal banking hours, and 24-hour telephone access to
their accounts. In addition, Columbia, through its website, intends to begin
offering BankNet, its internet banking service, by early second quarter 2000.
Consumer Loans. Columbia provides loans to individual borrowers for a
variety of purposes, including secured and unsecured personal loans, home equity
and personal lines of credit, and motor vehicle loans.
Senior Customer Services. Since a significant portion of Columbia's
consumer market consists of senior citizens, Columbia offers several special
products and programs aimed at this group. These include a reduced rate checking
account product for seniors, and special trips to the Oregon coast, the
Pendleton Roundup, an annual rodeo event, and other places and events. In
addition, Columbia's Primevest division markets retirement planning products and
investments to the senior customer group.
LOAN PRODUCTS FOR COMMERCIAL, AGRICULTURAL, AND OTHER BUSINESS CUSTOMERS
Columbia has an experienced lending staff, including special expertise
in small business and agricultural lending. Columbia's loan officers emphasize
continuing contact with business customers after loans are made. Columbia
believes that its business customers appreciate the ongoing relationship they
develop with their local
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lending officer. Such relationship-based banking is an important aspect of
Columbia's continuous effort to maintain high asset quality.
Commercial Loans. Columbia offers customized loans to its commercial
customers, including equipment and inventory financing, operational lines of
credit, SBA loans for qualified businesses, and accounts receivable financing. A
significant portion of Columbia's loan portfolio consists of commercial loans.
(For regulatory reporting purposes, a portion of Columbia's commercial loans are
designated as real estate loans because they are secured by real property,
although these loans may finance accounts receivable, equipment and inventory
purchases, or other commercial activities.) Lending decisions are based on
careful evaluation of the financial strength, management, and credit history of
the borrower and the quality of the collateral securing the loan. Commercial
loans secured by real property are generally limited to 75% of the value of the
collateral. Columbia typically requires personal guarantees and relies on the
identification of secondary sources of repayment.
Agricultural Loans. Columbia provides loans to agricultural businesses,
including production lines of credit, equipment financing, and term loans for
capital improvements and other business purposes. Agricultural loans are
generally secured by crops, equipment, and inventory, as well as real estate.
Agricultural lending can require significant follow-up time, as farmers request
budgeting assistance and other financial advice. Columbia employs both an
agricultural loan consultant with decades of farm lending experience, and an
experienced agricultural representative who is a full-time Columbia employee, to
assist its loan officers in loan processing and administration. Columbia's loan
officers, many of whom are graduates of the Western Agricultural School in
Pullman, Washington, make frequent visits to farming operation sites, attend
regular agricultural lending programs and seminars, and actively participate in
growers' associations and other agricultural-based organizations.
Real Estate Loans. Real estate loans are available for the construction,
purchasing, and refinancing of commercial and rental properties. Borrowers can
choose from a variety of fixed and adjustable rate options and terms.
Columbia's real estate loans are in large part loans to commercial
customers, farmers, and ranchers, which are secured by the properties used in
their businesses. The majority of these loans have a variable rate feature with
adjustment periods varying from one to five years. Columbia often requires a
government guaranty as additional collateral support. Insofar as payments on
real estate loans depend on the successful operation and management of the
businesses and properties securing the loans, repayment can be affected by local
real estate market and economic conditions. Fluctuating land values and local
economic conditions can make loans secured by real property difficult to
evaluate and monitor.
Government-Assisted Loan Programs. Columbia's loan officers make loans
to small businesses and to farmers that are supported by guarantees issued by
various state and federal government agencies. Columbia is active in the SBA 7-A
and 504 programs, and in similar programs offered by the Farm Services Agency
(formerly the Farmers Home Administration) and by Oregon's state government.
Columbia has utilized these programs to serve customers who are expanding their
operations, venturing into new product lines, or constructing special use real
estate. The government guarantees a portion of these loans, which reduces risk
in Columbia's loan portfolio.
Services to Non-Profits and Public Entities. Columbia offers a general
array of loan products to borrowers in the non-profit and public entity sector,
including city and county governments, together with special programs, such as
jumbo CDs and low-cost loan programs. Columbia also offers consumer services to
nonprofit and public sector employees, such as Columbia VISA card enrollment and
direct deposit services.
For all of its loans, Columbia at all times seeks to maintain sound loan
underwriting standards with written loan policies, appropriate individual and
branch limits, and loan committee reviews. In the case of particularly large
loan commitments or loan participations, loans are reviewed by a loan committee
at the Board of Directors level of CRB. Underwriting standards are designed to
achieve a high-quality loan portfolio, compliance with lending regulations and
the desired mix of loan maturities and industry concentrations. Management seeks
to minimize credit losses by closely monitoring the financial condition of its
borrowers and the value of collateral.
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OTHER PRODUCTS AND SERVICES FOR BUSINESS CUSTOMERS
Deposit and Related Products. Columbia's business deposit products
include basic, regular, and interest-bearing checking accounts, merchant VISA
and MasterCard programs, and business money market and sweep accounts. Columbia
also offers check verification services to merchants allowing them the ability
to determine, on a 24-hour basis, whether a check drawn on an account has
sufficient funds to cover the amount drawn.
Investment Products. Columbia's affiliation with Primevest allows it to
offer financial products and services to Columbia's business customers as well
as to consumers. These include insurance and annuity products, and employee
retirement plan products such as SEPs, IRAs and 401(k) plans.
Accounts Receivable Financing. Columbia offers its business customers
the opportunity to obtain financing for their businesses through an accounts
receivable financing program. Columbia offers this program in collaboration with
a third-party vendor specializing in accounts receivable management that
utilizes proprietary collection software. Under the program, Columbia purchases
accounts receivable at a discount on a daily basis and maintains customer cash
reserve balances to protect it from potential losses. Accounts receivable
collection is handled by Columbia using the vendor's proprietary software.
Columbia began offering this service in early 1998.
STAFF TRAINING AND EDUCATION - COLUMBIA BANCORP UNIVERSITY
Columbia has several staff training and education programs. All new
employees undergo a two-day orientation program, during which they meet senior
management and become familiar with Columbia's history, customer service goals,
and culture. In 1997, Columbia established a formal, continuing education
program for employees under the name "Columbia Bancorp University." Under this
program, employees are encouraged to attend regular employment-related
educational programs consistent with the employee's career goals and needs. Many
of the programs are taught by Columbia's senior management and other experienced
in-house staff, although attendance at classes offered by banking schools and
associations is also encouraged. These activities are coordinated through
Columbia's full-time corporate training officer. Columbia's management believes
that such continuing training and education programs are important to
maintaining organizational cohesion and consistently high quality customer
service.
MARKETING
Columbia accepts deposits at its branches in Wasco, Hood River,
Jefferson, Deschutes, Yamhill and Umatilla Counties in Oregon and in Klickitat
County in Washington. Columbia makes loans in all of these counties and in
adjacent counties, including Sherman, Gilliam, and Crook counties in Oregon and
Skamania County in Washington. Many of its products and services, including
investment products through Primevest and mortgages through Columbia's mortgage
group, are offered and sold throughout Oregon and south central Washington.
Columbia's ability to increase its market share in the communities it
serves is driven by a marketing plan consisting of several key components. A
principal objective is to create and foster a sales culture in each office.
Employees are trained to cross-sell, offering appropriate products and services
to existing customers and attempting to increase the business relationships
Columbia shares with these customers. Columbia regularly examines the
desirability and profitability of adding new products and services to those
currently offered. Columbia also promotes specific products by media
advertising, but relies primarily on referrals and direct contacts for new
business. Columbia recognizes the importance of community service and supports
employee involvement in community activities. This participation allows Columbia
to make a contribution to the communities it serves, which management believes
increases Columbia's visibility in its markets and thereby increases business
opportunities.
Columbia does business in many different non-metropolitan communities.
Management believes the diverse assortment of customers, communities, and
economic sectors that Columbia serves is a source of strength. In addition, as a
community banking organization Columbia has certain competitive advantages
because of its local
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focus. However, Columbia is also more reliant on the local economies in its
market areas than are super-regional and national banks.
COMPETITION
The market for banking services, including deposit and loan products, is
highly competitive. The major commercial bank competitors are super-regional
institutions headquartered outside the state of Oregon. Deposits held by
super-regionals were approximately 59% of statewide commercial bank deposits as
of June 30, 1999, which is the most recent date for which this information is
available. These major banks have the advantage of offering their customers
services and statewide banking facilities that Columbia does not offer.
Columbia's competitors for deposits are commercial banks, savings and
loan associations, credit unions, money market funds, issuers of corporate and
government securities, insurance companies, brokerage firms, mutual funds, and
other financial intermediaries. These competitors may offer rates greater than
Columbia can or is willing to offer. Columbia competes for deposits by offering
a variety of deposit accounts at rates generally competitive with financial
institutions in the area.
Columbia's competition for loans comes principally from commercial
banks, savings and loan associations, mortgage companies, finance companies,
insurance companies, credit unions, and other institutional lenders. An
important competitor for agricultural loans is Farm Credit Services, formerly
known as the Production Credit Association. Columbia competes for loan
originations through the level of interest rates and loan fees charged, its
array of commercial and mortgage loan products, and the efficiency and quality
of services provided to borrowers. Lending activity can also be affected by the
availability of lendable funds, local and national economic conditions, current
interest rate levels, and loan demand. As described above, Columbia competes
with the larger commercial banks by emphasizing a community bank orientation and
efficient personal service to customers.
Competition from other single or multi-branch community banks, of which
there are many in Oregon and Washington, presents a special competitive threat.
These other community banks can open new branches in the communities Columbia
serves, competing directly for customers who desire the high level of service
that a community bank can offer. Therefore, these banks directly target the loan
and deposit customers that Columbia seeks. Other community banks also compete
for the same management personnel and the same potential acquisition and merger
candidates that would be of interest to Columbia. New community bank start-ups
present similar competitive threats.
A potential new source of competition is the array of on-line banking
services offered by traditional commercial banks and other financial service
providers, and by newly formed companies that use the Internet to advertise and
sell competing products. However, Columbia's management believes that for the
foreseeable future its customers will continue to want the personal,
locally-based services that it offers. Columbia also plans to begin offering
some on-line banking services to its customers within the next three months.
THE YEAR 2000 ISSUE
To meet the challenges posed by our computer-reliant world, Columbia
made Y2K a top priority in 1999. Hardware, software and vendor issues were
assessed. Systems and services were tested and renovations were completed. Total
costs incurred by Columbia directly attributable to Y2K issues exceeded $500,000
and included costs for continuing technology upgrades, contingency planning,
system testing and personnel training. Preparations for Y2K accelerated some
planed technology upgrades and delayed others. This preparedness exercise,
coupled with a three-year technology plan implemented in 1999 provides clear
direction for Columbia's use of technology. Management feels that Columbia is
now better prepared than ever to meet the banking business needs of our
customers today and well into the future.
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SUPERVISION AND REGULATION
GENERAL
Columbia is extensively regulated under federal and state law. These
laws and regulations are primarily intended to protect depositors, not
shareholders. The discussion below describes and summarizes certain statutes and
regulations. These descriptions and summaries are qualified in their entirety by
reference to the particular statute or regulation. Changes in applicable laws or
regulations may have a material effect on the business and prospects of
Columbia. The operations of Columbia may also be affected by changes in the
policies of banking and other government regulators. Columbia cannot accurately
predict the nature or extent of the effects on its business and earnings that
fiscal or monetary policies, or new federal or state laws, may have in the
future.
FEDERAL BANK HOLDING COMPANY REGULATION
Columbia is a bank holding company as defined in the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and is therefore subject to
regulation, supervision, and examination by the Federal Reserve. In general, the
BHCA limits the business of bank holding companies to owning or controlling
banks and engaging in other activities closely related to banking. Columbia must
file annual reports with the Federal Reserve and must provide it with such
additional information as it may require.
Holding Company Bank Ownership. The BHCA requires every bank holding
company to obtain the prior approval of the Federal Reserve before (i)
acquiring, directly or indirectly, ownership or control of any voting shares of
another bank or bank holding company if, after such acquisition, it would own or
control more than 5% of such shares, (ii) acquiring all or substantially all of
the assets of another bank or bank holding company, or (iii) merging or
consolidating with another bank or bank holding company.
Holding Company Control of Nonbanks. With some exceptions, the BHCA also
prohibits a bank holding company from acquiring or retaining direct or indirect
ownership or control of more than 5% of the voting shares of any company which
is not a bank or bank holding company, or from engaging directly or indirectly
in activities other than those of banking, managing, or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain nonbank activities which, by statute or by Federal
Reserve regulation or order, have been identified as activities closely related
to the business of banking or of managing or controlling banks. In making this
determination, the Federal Reserve considers whether the performance of such
activities by a bank holding company can be expected to produce benefits to the
public such as greater convenience, increased competition, or gains in the
efficient use of resources, which can be expected to outweigh the risks of
possible adverse effects such as decreased or unfair competition, conflicts of
interest, or unsound banking practices. The Economic Growth and Regulatory
Reduction Act of 1996 amended the BHCA to eliminate the requirement that bank
holding companies seek prior Federal Reserve approval before engaging in certain
permissible nonbanking activities if the holding company is well-capitalized and
meets certain other specific criteria.
Transactions with Affiliates. Subsidiary banks of a bank holding company
are subject to restrictions imposed by the Federal Reserve Act on extensions of
credit to the holding company or its subsidiaries, on investments in their
securities, and on the use of their securities as collateral for loans to any
borrower. These regulations and restrictions may limit Columbia's ability to
obtain funds from CRB for its cash needs, including funds for payment of
dividends, interest, and operational expenses.
Tying Arrangements. Under the Federal Reserve Act and certain
regulations of the Federal Reserve, a bank holding company and its subsidiaries
are prohibited from engaging in certain tying arrangements in connection with
any extension of credit, lease or sale of property, or furnishing of services.
For example, CRB may not generally require a customer to obtain other services
from it or from Columbia, and may not require that the customer promise not to
obtain other services from a competitor as a condition to an extension of credit
to the customer.
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GRAMM-LEACH-BLILEY FINANCIAL SERVICES MODERNIZATION ACT
In 1999 Congress passed the Gramm-Leach-Bliley Financial Services
Modernization Act (the "FSMA"). This new legislation repealed certain provisions
of the Glass-Steagall Act that had required the separation of the banking,
insurance and securities businesses. It also created a new business structure
known as a financial services holding company. Under this new law, banks will
have broader opportunities to affiliate with insurance and securities companies.
Banks could also become tempting acquisition targets, as insurance and
securities companies seek such affiliations themselves. The FMSA may also
encourage local jurisdictions to enact tighter bank privacy provisions. The
enactment and implementation of the FMSA will result in new competitive
challenges and opportunities for community banks in the coming years.
FEDERAL AND STATE BANK REGULATION
General. CRB is an Oregon stock bank with deposits insured by the
Federal Deposit Insurance Corporation ("FDIC"), and is subject to the
supervision and regulation of the Oregon Director of Banks and the FDIC. CRB is
also subject to the supervision and regulation the Washington Department of
Financial Institutions. These agencies have the authority to prohibit banks from
engaging in what they believe constitute unsafe or unsound banking practices.
CRA. The Community Reinvestment Act (the "CRA") requires that, in
connection with examinations of financial institutions within their
jurisdiction, the Federal Reserve or the FDIC evaluates the record of the
financial institutions in meeting the credit needs of their local communities,
including low and moderate income neighborhoods, consistent with the safe and
sound operation of those banks. These factors are also considered in evaluating
mergers, acquisitions, and applications to open a branch or facility.
Insider Credit Transactions. Banks are also subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
executive officers, directors, principal shareholders, or any related interests
of such persons. Extensions of credit (i) must be made on substantially the same
terms, including interest rates and collateral, and follow credit underwriting
procedures that are not less stringent than those prevailing at the time for
comparable transactions with persons not covered above and who are not
employees; and (ii) must not involve more than the normal risk of repayment or
present other unfavorable features. Banks are also subject to certain lending
limits and restrictions on overdrafts to such persons. A violation of these
restrictions may result in the assessment of substantial civil monetary
penalties on the affected bank or any officer, director, employee, agent, or
other person participating in the conduct of the affairs of that bank, the
imposition of a cease and desist order, and other regulatory sanctions.
FDICIA. Under the Federal Deposit Insurance Corporation Improvement Act
(the "FDICIA"), each federal banking agency has prescribed, by regulation,
noncapital safety and soundness standards for institutions under its authority.
These standards cover internal controls, information systems, and internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits, such other operational and managerial
standards as the agency determines to be appropriate, and standards for asset
quality, earnings and stock valuation. An institution which fails to meet these
standards must develop a plan acceptable to the agency, specifying the steps
that the institution will take to meet the standards. Failure to submit or
implement such a plan may subject the institution to regulatory sanctions.
Management believes that CRB meets all such standards, and therefore, does not
believe that these regulatory standards materially affect Columbia's business
operations.
INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act") permits nationwide interstate banking and branching under
certain circumstances. This legislation generally authorizes interstate
branching and relaxes federal law restrictions on interstate banking. Currently,
bank holding companies may purchase banks in any state, and states may not
prohibit such purchases. Additionally, banks are permitted to merge with banks
in other states as long as the home state of neither merging bank has opted out.
The Interstate Act
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requires regulators to consult with community organizations before permitting an
interstate institution to close a branch in a low-income area.
Under recent FDIC regulations, banks are prohibited from using their
interstate branches primarily for deposit production. The FDIC has accordingly
implemented a loan-to-deposit ratio screen to ensure compliance with this
prohibition.
Oregon and Washington each enacted "opting in" legislation in accordance
with the Interstate Act provisions allowing banks to engage in interstate merger
transactions subject to certain "aging" requirements. In both states, branches
may not be acquired or opened separately in the home state by an out-of-state
bank, but once an out-of-state bank has acquired a bank within the state, either
through merger or acquisition of all or substantially all of the bank's assets,
the out-of-state bank may open additional branches within the home state.
DEPOSIT INSURANCE
The deposits of CRB are currently insured to a maximum of $100,000 per
depositor through the Bank Insurance Fund ("BIF") administered by the FDIC. CRB
is required to pay semi-annual deposit insurance premium assessments to the
FDIC.
The FDICIA included provisions to reform the Federal Deposit Insurance
System, including the implementation of risk-based deposit insurance premiums.
The FDICIA also permits the FDIC to make special assessments on insured
depository institutions in amounts determined by the FDIC to be necessary to
give it adequate assessment income to repay amounts borrowed from the U.S.
Treasury and other sources, or for any other purpose the FDIC deems necessary.
The FDIC has implemented a risk-based insurance premium system under which banks
are assessed insurance premiums based on how much risk they present to the BIF.
Banks with higher levels of capital and a low degree of supervisory concern are
assessed lower premiums than banks with lower levels of capital or a higher
degree of supervisory concern.
DIVIDENDS
The principal source of Columbia's cash revenues is dividends received
from its subsidiary. The payment of dividends is subject to government
regulation, in that regulatory authorities may prohibit banks and bank holding
companies from paying dividends which would constitute an unsafe or unsound
banking practice. In addition, a bank may not pay cash dividends if that payment
could reduce the amount of its capital below that necessary to meet minimum
applicable regulatory capital requirements. Also, under the Oregon Bank Act, the
Oregon Director of Banks may suspend the payment of dividends if it is
determined that the payment would cause a bank's remaining stockholders' equity
to be inadequate for the safe and sound operation of the bank. Other than the
laws and regulations noted above, which apply to all banks and bank holding
companies, neither Columbia nor CRB is currently subject to any regulatory
restrictions on their dividends.
CAPITAL ADEQUACY
Federal bank regulatory agencies use capital adequacy guidelines in the
examination and regulation of bank holding companies and banks. If capital falls
below minimum guideline levels, the holding company or bank may be denied
approval to acquire or establish additional banks or nonbank businesses or to
open new facilities.
The FDIC and Federal Reserve use risk-based capital guidelines for banks
and bank holding companies. These are designed to make such capital requirements
more sensitive to differences in risk profiles among banks and bank holding
companies, to account for off-balance sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items. The guidelines are minimums, and the Federal
Reserve has noted that bank holding companies contemplating significant
expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios well in excess of the minimum. The current guidelines
require all bank holding companies and federally
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regulated banks to maintain a minimum risk-based total capital ratio equal to
8%, of which at least 4% must be Tier I capital.
Tier I capital for bank holding companies includes common shareholders'
equity, qualifying perpetual preferred stock (up to 25% of total Tier I capital,
if cumulative, although under a Federal Reserve Rule, redeemable perpetual
preferred stock may not be counted as Tier I capital unless the redemption is
subject to the prior approval of the Federal Reserve), and minority interests in
equity accounts of consolidated subsidiaries, less intangibles, except as
described above. Tier II capital includes: (i) the allowance for loan losses of
up to 1.25% of risk-weighted assets; (ii) any qualifying perpetual preferred
stock which exceeds the amount which may be included in Tier I capital; (iii)
hybrid capital instruments; (iv) perpetual debt; (v) mandatory convertible
securities; and (vi) subordinated debt and intermediate term preferred stock of
up to 50% of Tier I capital. Total capital is the sum of Tier I and Tier II
capital, less reciprocal holdings of other banking organizations, capital
instruments, and investments in unconsolidated subsidiaries.
The assets of banks and bank holding companies receive risk-weights of
0%, 20%, 50%, and 100%. In addition, certain off-balance sheet items are given
credit conversion factors to convert them to asset equivalent amounts to which
an appropriate risk-weight will apply. These computations result in total
risk-weighted assets.
Most loans are assigned to the 100% risk category, except for first
mortgage loans fully secured by residential property, which carry a 50% rating.
Most investment securities are assigned to the 20% category, except for
municipal or state revenue bonds, which have a 50% risk-weight, and direct
obligations of, or obligations guaranteed by, the United States Treasury or
agencies of the federal government, which have 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, other
standby letters of credit and undrawn commitments, including commercial credit
lines with an initial maturity of more than one year, have a 50% conversion
factor. Short-term, self-liquidating trade contingencies are converted at 20%,
and short-term commitments have a 0% factor.
The Federal Reserve also employs a leverage ratio, which is Tier I
capital as a percentage of total assets less intangibles, to be used as a
supplement to risk-based guidelines. The principal objective of the leverage
ratio is to constrain the maximum degree to which a bank holding company may
leverage its equity capital base. The Federal Reserve requires a minimum
leverage ratio of 3%. However, for all but the most highly rated bank holding
companies, and for bank holding companies seeking to expand, the Federal Reserve
expects an additional cushion of at least 1% to 2%.
The FDICIA created a statutory framework of supervisory actions indexed
to the capital level of the individual institution. Under regulations adopted by
the FDIC, an institution is assigned to one of five capital categories,
depending on its total risk-based capital ratio, Tier I risk-based capital
ratio, and leverage ratio, together with certain subjective factors.
Institutions which are deemed to be "undercapitalized" depending on the category
to which they are assigned are subject to certain mandatory supervisory
corrective actions. Columbia does not believe that these regulations have any
material effect on its operations.
EFFECTS OF GOVERNMENT MONETARY POLICY
The earnings and growth of Columbia are affected not only by general
economic conditions, but also by the fiscal and monetary policies of the federal
government, particularly the Federal Reserve. The Federal Reserve can and does
implement national monetary policy for such purposes as curbing inflation and
combating recession, but its open market operations in U.S. government
securities, control of the discount rate applicable to borrowings from the
Federal Reserve, and establishment of reserve requirements against certain
deposits, influence the growth of bank loans, investments and deposits, and also
affect interest rates charged on loans or paid on deposits. The nature and
impact of future changes in monetary policies and their impact on Columbia
cannot be predicted with certainty.
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CHANGES IN BANKING LAWS AND REGULATIONS
The laws and regulations that affect banks and bank holding companies
are currently undergoing significant changes. Bills may be introduced in the
United States Congress that contain proposals to alter the structure,
regulation, and competitive relationships of the nation's financial
institutions. If enacted into law, these bills could have the effect of
increasing or decreasing the cost of doing business, limiting or expanding
permissible activities (including activities in the insurance and securities
fields), or affecting the competitive balance among banks, savings associations,
and other financial institutions. Some of these bills could reduce the extent of
federal deposit insurance, broaden the powers or the geographical range of
operations of bank holding companies, alter the extent to which banks could
engage in securities activities, and change the structure and jurisdiction of
various financial institution regulatory agencies. Whether or in what form such
legislation may be adopted, or the extent to which the business of Columbia
might be affected thereby, cannot be predicted with certainty.
ITEM 2. PROPERTIES
........Seven of Columbia's facilities in Hood River, The Dalles, Redmond, Bend,
McMinnville and Madras, Oregon, as well as its two full-service branch
facilities in south central Washington, are housed in properties owned by
Columbia. Columbia leases the space for its in-store facility in the Safeway
store in The Dalles. The new branches in Hermiston and Pendleton presently
occupy leased space, but early in 2000 will be moving into Columbia owned
facilities. The Newberg branch is currently located in a temporary trailer with
plans to move into leased space early in 2000. All of Columbia's presently owned
full-service branches have drive-up facilities and automated teller machines.
Columbia's mortgage group operates from the second floor of Columbia's present
Bend branch, as well as leased office space in The Dalles. The following sets
forth certain information regarding Columbia's branch facilities.
Date
Opened
Square or Occupancy
City and County Address Feet Acquired Status
- --------------- ------- ------- -------- ----------
Oregon Branches
The Dalles (Main Branch), Wasco County 316 East Third Street 8,000 1977 Owned
The Dalles (Westside Branch), Wasco County(1) 520 Mt. Hood Street 430 1986 Leased
Hood River Branch, Hood River County 2650 Cascade Avenue 6,255 1993 Owned
Madras Branch, Jefferson County 624 SW Fourth Street 7,400 1995 Owned
Redmond Branch, Deschutes County 434 North Fifth Street 4,700 1995 Owned
Bend Branch, Deschutes County 1701 NE Third Street 8,306 1996 Owned
Shevlin Center Branch,(2) Deschutes County 925 SW Emkay Drive 15,000 1996 Owned
Hermiston Branch, Umatilla County(3) 1055 South Highway 395 1,500 1998 Leased
Pendleton Branch, Umatilla County(3) 16 SE Court Avenue 1,776 1999 Leased
McMinnville Branch, Yamhill County 723 N Baker 9,600 1998 Owned
Newberg Branch, Yamhill County 901 N Brutscher St. 720 1999 Leased
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Date
Opened
Square or Occupancy
City and County Address Feet Acquired Status
- --------------- ------- ------- -------- ----------
Washington Branches
White Salmon Branch, Klickitat County 390 NE Tohomish Street 5,500 1996 Owned
Goldendale Branch, Klickitat County 202 West Main Street 6,105 1996 Owned
- --------------------
(1) Leased space in a Safeway supermarket. Lease term expires September 2000.
(2) Branch operations are located on the first floor (7,500 square feet). The
second floor is leased to other parties.
(3) Leased on a month-to-month basis pending construction of new facility.
Columbia maintains its administrative offices in 1,900 square feet of
leased office space in The Dalles. This space is adequate presently but will not
be suitable over the longer term. Columbia purchased property in the Columbia
River Center in The Dalles for future branch or administrative operations
expansion. Columbia is committed to keeping its administrative headquarters in
The Dalles
EMPLOYEES
As of December 31, 1999, Columbia had a total of 217 full-time
equivalent employees. This number of employees, which compares to 187 at
December 31, 1998, has increased due to the opening of three branches in 1999,
as well as increased staffing in other branch and administrative functions. None
of the employees are subject to a collective bargaining agreement. Columbia
considers its relationships with its employees to be good.
ITEM 3. LEGAL PROCEEDINGS
Columbia is from time-to-time a party to various legal actions arising
in the normal course of business, such as collection cases and the enforcement
of creditors' rights in bankruptcy proceedings. Management is not presently
aware of any material pending or threatened claims against Columbia.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of securities holders of Columbia
during the quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The information called for by this item is contained in Columbia's
Annual Report to Shareholders for the year ended December 31, 1999, portions of
which are attached hereto as Exhibit 13.1.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain information concerning the
consolidated financial condition, operating results, and key operating ratios
for Columbia at the dates and for the periods indicated. This information does
not purport to be complete, and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the Consolidated Financial Statements of Columbia and Notes thereto.
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands except per share data)
INCOME STATEMENT DATA
Interest income $ 26,883 $ 21,328 $ 18,144 $ 15,385 $ 13,815
Interest expense 8,568 7,205 6,270 5,746 5,216
-------- -------- -------- -------- --------
Net interest income 18,315 14,123 11,874 9,639 8,599
Loan loss provision 1,005 1,000 581 246 88
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 17,310 13,123 11,293 9,393 8,511
Noninterest income 5,784 4,678 2,481 1,799 1,552
Noninterest expense 14,976 10,633 8,092 7,180 6,495
-------- -------- -------- -------- --------
Income before provision for
income taxes 8,118 7,168 5,682 4,012 3,568
Provision for income taxes 3,105 2,450 1,795 1,285 1,079
-------- -------- -------- -------- --------
Net income $ 5,013 $ 4,718 $ 3,887 $ 2,727 $ 2,489
======== ======== ======== ======== ========
DIVIDENDS
Cash dividends declared and paid $ 1,999 $ 1,587 $ 842 $ 882 $ 555
Ratio of dividends to net income 39.88% 33.64% 21.67% 32.37% 22.30%
PER SHARE DATA(1)
Earnings Per Share
Basic earnings per common share $ 0.63 $ 0.67 $ 0.57 $ 0.41 $ 0.37
Diluted earnings per common share $ 0.62 $ 0.65 $ 0.55 $ 0.40 $ 0.36
Cash Earnings Per Share
Basic earnings per common share $ 0.71 $ 0.68 $ 0.57 $ 0.41 $ 0.37
Diluted earnings per common share $ 0.70 $ 0.66 $ 0.55 $ 0.40 $ 0.36
Book value per common share $ 4.66 $ 4.37 $ 3.35 $ 2.89 $ 2.60
Weighted average shares outstanding
Basic 7,985 7,066 6,813 6,732 6,693
Diluted 8,090 7,238 7,013 6,847 6,842
BALANCE SHEET DATA
Investment securities $ 62,333 $ 47,894 $ 48,804 $ 51,484 $ 49,454
Loans, net $246,975 $206,551 $155,219 $118,228 $104,178
Total assets $361,241 $342,413 $231,827 $200,302 $178,486
Total deposits $310,910 $295,680 $201,568 $178,744 $158,874
Shareholders' equity $ 37,322 $ 34,756 $ 22,987 $ 19,533 $ 17,484
SELECTED RATIOS
Return on average assets 1.44% 1.83% 1.77% 1.45% 1.46%
Return on average equity 13.90% 18.10% 18.37% 14.91% 15.45%
Total loans to deposits 79.44% 69.86% 77.00% 66.14% 65.57%
Net interest margin 6.17% 6.19% 6.15% 5.74% 5.67%
Efficiency ratio 62.14% 56.56% 56.37% 62.77% 63.98%
Cash efficiency ratio 59.53% 56.28% 56.37% 62.77% 63.98%
ASSET QUALITY RATIOS
Reserve for loans losses to:
Ending total loans 1.32% 1.13% 1.04% 0.83% 1.02%
Nonperforming assets(2) 553.45% 108.82% 112.65% 384.17% 291.30%
Nonperforming assets to ending
total assets(2) 0.16% 0.64% 0.63% 0.04% 0.21%
Net loan charge-offs(recoveries)
to average loans 0.04% 0.38% (0.04)% 0.29% (0.03)%
CAPITAL RATIOS
Average shareholders' equity to
average assets 10.40% 10.12% 9.62% 9.73% 9.48%
Tier I capital ratio(3) 10.20% 10.90% 13.70% 14.20% 14.40%
Total risk-based capital ratio(4) 11.30% 11.90% 14.70% 14.90% 15.20%
Leverage ratio(5) 8.30% 8.90% 10.60% 9.90% 9.90%
(1) Per share data reflects retroactive restatement for stock splits in 1998
(3-for-2 and 2-for-1) and 1995 (3-for-1).
(2) Nonperforming assets consist of nonaccrual loans, loans contractually past
due 90 days or more, and other real estate owned.
(3) Tier I capital divided by risk-weighted assets.
(4) Total capital divided by risk-weighted assets.
(5) Tier I capital divided by average total assets.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
From its origins as a one-branch bank in The Dalles, Columbia has grown
as a result of merger and acquisition activity, new branch openings, the
introduction of new business lines, and the expansion and cross-marketing of its
existing products and community-bank lending expertise. In 1995, CRB merged with
Juniper Banking Company, and in 1996 Columbia was formed as CRB's holding
company. In 1996, Columbia acquired Washington-based Klickitat Valley Bank.
Further growth came from CRB's Hood River and Bend branch openings, and from the
expansion in 1997 of CRB's residential mortgage business. In November 1998,
Columbia acquired Valley Community Bank, and in September CRB opened a new
branch in Hermiston, Oregon. In 1999, CRB opened a new branch in Pendleton,
Oregon in January, completed construction and opened a second Bend branch in
August, and opened its first branch in Newberg, Oregon in November.
Collectively, these growth and acquisition activities have enabled Columbia to
diversify its portfolio and its operating risk over several market areas and
local economies.
Columbia's goal is to grow its earning assets while maintaining a high
return on equity and keeping asset quality high. The key to this, in Columbia's
view, is to emphasize personal, quality banking products and services for its
customers, to hire and retain competent branch management and administrative
personnel, and to respond quickly to customer demand and growth opportunities.
Columbia also intends to increase its market penetration in its existing
markets, and to expand into new markets through further suitable acquisitions
and through new branch openings. Columbia's goal continues to be to increase
earning assets without compromising its commitment to high asset quality.
For the year ended December 31, 1999, net income was $5.01 million,
representing an increase of 6.26% over net income of $4.72 million earned during
the year ended December 31, 1998. Net income for 1998 was up 21.39% over net
income of $3.89 million earned during the year ended December 31, 1997. Net
income for 1997 was up 42.49% from $2.73 million for the year ended December 31,
1996. Cash basis diluted earnings per share were $0.70 $0.66, and $0.55 for the
years ended December 31, 1999, 1998, and 1997, respectively. Return on average
assets was 1.44% for the year ended December 31, 1999, compared with 1.83% for
the year ended December 31, 1998, and 1.77% in 1997. Return on average equity
was 13.90% for the year ended December 31, 1999, compared with 18.10% for the
year ended December 31, 1998, and 18.37% for the year ended December 31, 1997.
The increase in earnings for the year ended December 31, 1999, versus the
comparable period in 1998 can be attributed to growth in earning assets,
deposits, fee income growth, and increased customer activity in new markets.
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Return on average daily assets and equity and certain other ratios for
the periods indicated are presented below:
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands except per share data)
Net income $ 5,013 $ 4,718 $ 3,887 $ 2,727 $ 2,489
Average assets 347,003 257,664 219,905 188,061 170,352
RETURN ON AVERAGE ASSETS 1.44% 1.83% 1.77% 1.45% 1.46%
Net income $ 5,013 $ 4,718 $ 3,887 $ 2,727 $ 2,489
Average equity 36,075 26,069 21,157 18,292 16,114
RETURN ON AVERAGE EQUITY 13.90% 18.10% 18.37% 14.91% 15.45%
Cash dividends declared and paid per share $ 0.25 $ 0.22 $ 0.12 $ 0.13 $ 0.08
Basic earnings per common share 0.63 0.67 0.57 0.41 0.37
DIVIDEND PAYOUT RATIO 39.88% 33.64% 21.67% 32.37% 22.30%
Average equity $ 36,075 $ 26,069 $ 21,157 $ 18,292 $ 16,144
Average assets 347,003 257,664 219,905 188,061 170,352
AVERAGE EQUITY TO ASSET RATIO 10.40% 10.12% 9.62% 9.73% 9.48%
RESULTS OF OPERATIONS
NET INTEREST INCOME
For financial institutions, the primary component of earnings is net
interest income. Net interest income is the difference between interest income,
principally from loan and investment security portfolios, and interest expense,
principally on customer deposits. Changes in net interest income result from
changes in "volume," "spread," and "margin." Volume refers to the dollar level
of interest-earning assets and interest-bearing liabilities. Spread refers to
the difference between the yield on interest-earning assets and the cost of
interest-bearing liabilities. Net interest margin is the ratio of net interest
income to total average interest-earning assets and is influenced by the
relative level of interest-earning assets and interest-bearing liabilities.
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20
Average Balances and Average Rates Earned and Paid. The following table
shows average balances and interest income or interest expense, with the
resulting average yield or rates by category of earning assets or
interest-bearing liabilities:
Year Ended December 31, 1999 Year Ended December 31, 1998 Year Ended December 31, 1997
----------------------------- ---------------------------- -------------------------------
Average Average
Interest Yields Interest Yields Interest Average
Average Income or or Average Income or or Average Income or Yields or
Balance Expense Rates Balance Expense Rates Balance Expense Rates
--------- --------- ------- --------- --------- ------- --------- --------- ---------
(dollars in thousands)
Interest-earning assets:
Loans(2) $222,276 $22,495 10.12% $175,588 $17,939 10.22% $140,891 $14,764 10.48%
Investment securities
Taxable securities 38,434 2,195 5.71 31,686 1,890 5.97 36,826 2,296 6.24
Nontaxable securities(1) 20,895 1,519 7.27 16,819 1,284 7.63 15,112 1,114 7.37
Interest-earning balances due
from banks 6,533 362 5.54 3,142 159 5.05 2,322 127 5.45
Federal funds sold 17,149 829 4.83 8,042 492 6.12 4,114 221 5.38
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-earning
assets(3) 305,287 27,400 8.98 235,277 21,764 9.25 199,265 18,522 9.30
Cash and due from banks 18,505 14,663 14,091
Premises and equipment, net 9,738 5,545 5,096
Loan loss allowance (2,961) (1,917) (1,315)
Other assets 16,434 4,096 2,768
------- ------ --------
Total assets $347,003 $257,664 $219,905
======== ======== ========
Interest-bearing liabilities:
Interest-bearing checking and
savings accounts $153,609 $ 4,148 2.70% $115,101 $3,571 3.10% $102,005 $3,313 3.25%
Time deposit & IRAs 75,619 3,886 5.14 58,370 3,195 5.47 51,164 2,772 5.42
Borrowed Funds 9,418 534 5.67 7,929 439 5.53 3,236 185 5.68
-------- ------- ----- -------- ------- ----- -------- ------- -----
Total interest-bearing
liabilities 238,646 8,568 3.60 181,400 7,205 3.97 156,405 6,270 4.01
Noninterest-bearing deposits 70,000 48,983 38,299
Other liabilities 2,282 1,212 4,044
-------- -------- --------
Total liabilities 310,928 231,595 198,748
Shareholders' equity 36,075 26,069 21,157
-------- -------- --------
Total liabilities and
shareholders' equity $347,003 $257,664 $219,905
======== ======== ========
Net interest income $18,832 $14,559 $12,252
======= ======= =======
Net interest spread 5.38% 5.28% 5.29%
===== ===== =====
Average yield on average earning
assets(1) 8.98% 9.25% 9.30%
===== ===== =====
Interest expense to average
earning assets 2.81% 3.06% 3.15%
===== ===== =====
Net interest margin(3) 6.17% 6.19% 6.15%
===== ===== =====
- ----------------
(1) Tax-exempt income has been adjusted to a tax-equivalent basis at 34%.
(2) Nonaccural loans are included in the average balance.
(3) Net interest margin is computed by dividing net interest income by total
average earning assets.
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21
Analysis of Changes in Interest Differential. The following table shows
the dollar amount of the increase (decrease) in Columbia's net interest income
and expense and attributes such dollar amounts to changes in volume as well as
changes in rates. Rate and volume variances have been allocated proportionally
between rate and volume changes:
1999 OVER 1998 1998 OVER 1997 1997 OVER 1996
---------------------------- ------------------------------- -------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
---------------------------- ------------------------------- -------------------------------
NET NET NET
VOLUME RATE CHANGE VOLUME RATE CHANGE VOLUME RATE CHANGE
------ ----- ------ ------- ----- ------- ------- ----- -------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans $4,770 $(214) $4,556 $ 3,636 $(461) $ 3,175 $ 3,079 $(169) $ 2,910
Investment securities
Taxable securities 403 (98) 305 (321) (85) (406) 122 100 222
Nontaxable securities 311 (76) 235 126 44 170 12 (65) (53)
Balances due from banks 170 33 203 45 (13) 32 8 22 30
Federal funds sold 558 (221) 337 211 60 271 (372) 4 (368)
------ ----- ------ ------- ----- ------- ------- ----- -------
Total 6,212 (576) 5,636 3,697 (455) 3,242 2,849 (108) 2,741
------ ----- ------ ------- ----- ------- ------- ----- -------
Interest-bearing liabilities:
Interest-bearing checking
and savings accounts 1,195 (618) 577 426 (168) 258 393 (47) 346
Time deposits 944 (253) 691 390 33 423 104 (49) 55
Borrowed funds 82 13 95 265 (11) 254 122 1 123
------ ----- ------ ------- ----- ------- ------- ----- -------
Total 2,221 (858) 1,363 1,081 (146) 935 619 (95) 524
------ ----- ------ ------- ----- ------- ------- ----- -------
Net increase (decrease) in
net interest income $3,991 $ 282 $4,273 $ 2,616 $(309) $ 2,307 $ 2,230 $ (13) $ 2,217
====== ===== ====== ======= ===== ======= ======= ===== =======
Net interest income, before provision for loan loss, for the year ended
December 31, 1999 was $18.32 million, an increase of 29.68% compared to net
interest income of $14.12 million in 1998, an increase of 18.94% compared to net
interest income of $11.87 million in 1997. The overall tax-equivalent earning
asset yield was 8.98% in 1999 compared to 9.25% in 1998 and 9.30% in 1997. For
the same years, rates on interest-bearing liabilities were 3.60%, 3.97%, and
4.01%, respectively. These results were primarily due to an increase in the
volume of earning assets and the growth of noninterest-bearing deposits. For the
three-year period 1997 through 1999, the average yield on earning assets
decreased 0.32% while rates paid on interest-bearing liabilities decreased by
0.41%. Average loans increased 57.76% while average noninterest-bearing deposits
increased 82.77%.
Total interest-earning assets averaged $305.29 million for the year
ended December 31, 1999, compared to $235.28 million for the corresponding
period in 1998. Most of the increase was due to an increase in loans. Increases
in the loan portfolio are attributed to the acquisition of Valley Community
Bank, opportunities afforded by the banking industry's consolidation and closure
of competitors' branches in Columbia's market areas, and the hiring of
additional senior lending personnel in strategic locations.
Interest-bearing liabilities averaged $238.65 million for the year ended
December 31, 1999 compared to $181.40 million during the same period in 1998.
Although further competitive pressure is expected in expanding deposit
relationships, management, as a matter of policy, does not seek to attract
high-priced, brokered deposits. In the near-term, management does not anticipate
Columbia's net interest margins will be significantly impacted by competitive
pressure for deposit accounts.
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22
Loans, which generally carry a higher yield than investment securities
and other earning assets, comprised 72.81% of average earning assets during
1999, compared to 74.63% in 1998 and 70.71% in 1997. During the same periods,
average yields on loans were 10.12% in 1999, 10.22% in 1998, and 10.48% in 1997.
Investment securities comprised 19.43% of average earning assets in 1999, which
was down from 20.62% in 1998 and 26.06% in 1997. Tax equivalent interest yields
on investment securities have ranged from 6.27% in 1999 to 6.54% in 1998 and
6.57% in 1997.
Interest cost, as a percentage of earning assets, decreased to 2.81% in
1999, compared to 3.06% in 1998 and 3.15% in 1997. Local competitive pricing
conditions and funding needs for Columbia's investments in loans have been the
primary determinants of rates paid for deposits during these three years.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents charges made to earnings to
maintain an adequate allowance for loan losses. The allowance is maintained at
an amount believed to be sufficient to absorb losses in the loan portfolio.
Factors considered in establishing an appropriate allowance include a careful
assessment of the financial condition of the borrower; a realistic determination
of the value and adequacy of underlying collateral; the condition of the local
economy and the condition of the specific industry of the borrower; a
comprehensive analysis of the levels and trends of loan categories; and a review
of delinquent and classified loans. Columbia applies a systematic process for
determining the adequacy of the allowance for loan losses, including an internal
loan review function and a quarterly analysis of the adequacy of the allowance.
The quarterly analysis includes determination of specific potential loss factors
on individual classified loans, historical potential loss factors derived from
actual net charge-off experience and trends in nonperforming loans, and
potential loss factors for other loan portfolio risks such as loan
concentrations, the condition of the local economy, and the nature and volume of
loans.
The recorded values of loans actually removed from the consolidated
balance sheets are referred to as charge-offs and, after netting out recoveries
on previously charged-off assets, become net charge-offs. Columbia's policy is
to charge off loans when, in management's opinion, the loan or a portion thereof
is deemed uncollectible, although concerted efforts are made to maximize
recovery after the charge-off. When a charge to the loan loss provision is
recorded, the amount is based on past charge-off experience, a careful analysis
of the current portfolio, and an evaluation of economic trends in Columbia's
market areas. Management will continue to closely monitor the loan quality of
new and existing relationships through stringent review and evaluation
procedures and by making loan officers accountable for collection efforts.
For the years ended December 31, 1999 through 1997, Columbia charged
$1.01 million, $1.00 million and $581,000 respectively, to its provision for
loan losses. The 72.12% increase in 1998 over the provision for loan losses
recorded in 1997 was necessary to accommodate the growth in Columbia's loan
portfolio, to establish a reserve for potential losses consistent with revisions
in Columbia's loan policy, and to replenish the allowance for loan losses for
charge-offs incurred during 1998. During the last three years, average
outstanding loans grew 57.76% and the allowance for loan losses kept pace by
increasing 101.29% through charges to the provision for loan losses. Columbia's
increase in the provision for loan losses has primarily been a function of
strong loan demand and the resulting growth in the loan portfolio.
For the year ended December 31, 1999, loan charge-offs exceeded
recoveries by $86,000 as compared to 1998, when loan charge-offs exceeded
recoveries by $669,000. Nearly one-third of the loss experienced in 1998 was due
to a loss from one loan. All remaining net charge-offs incurred by Columbia were
smaller in amount and generally distributed evenly among all other branch
locations.
NONINTEREST INCOME
Total noninterest income increased through year-end 1999 over 1998 and
1997. Over this three-year period, noninterest income has increased from $2.48
million in 1997, to $4.68 million in 1998, and to $5.78 million in 1999.
Noninterest income is primarily derived from service charges and related fees,
as well as mortgage origination and processing fees. Such income increased $1.11
million, or 23.64% for the year ended December 31,
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1999, compared to the year ended December 31, 1998. The principal reason for
this increase was income generated by Columbia's mortgage lending division,
which was formed in September of 1997, and which operates under the name
"Columbia River Bank Mortgage Group." For the year ended 1999, this division
generated $1.85 million in income from originating, processing, servicing, and
selling mortgage loans. The increase was also the result of increasing deposit
volumes and related service fees. Service charges were $2.19 million for the
year ended December 31, 1999, compared to $1.74 million for the year ended
December 31, 1998, and $1.55 million for the year ended December 31, 1997.
Management attributes this 25.35% increase to the increase in customers served
at all of Columbia's branches. The remainder of the increase in noninterest
income is primarily attributable to improved revenues received from credit card
discounts and fees, investment fee income provided by Columbia's financial
services department and other noninterest fees and charges.
NONINTEREST EXPENSE
Noninterest expenses consist principally of employees' salaries and
benefits, occupancy costs, data processing expenses and other noninterest
expenses. A measure of Columbia's ability to contain noninterest expenses is the
efficiency ratio. For the year ended December 31, 1999, the cash basis
efficiency ratio had slipped to 59.53% compared to 56.28% for the corresponding
period of 1998. The decline in the efficiency ratio primarily reflects increased
expenses.
Noninterest expense was $14.98 million for the year ended December 31, 1999,
an increase from $10.63 million for the year ended December 31, 1998, and $8.09
million for the year ended December 31, 1997. This was due to an increase in
staffing costs, as well as increases in other key operating costs such as
occupancy expense, data processing expenses and other noninterest expense. The
additional expenses related primarily to costs associated with the opening of
three branches in 1999 as well as one-time non-recurring charges in 1999 for Y2K
compliance, a technology study and the combination of the two subsidiary banks.
In 1999, Columbia's total noninterest expense was 62.14% of net revenues, while
in 1998 and 1997 it was 56.56% and 56.37%, respectively, of net revenues.
Salary and benefit expense was $8.04 million in 1999, $6.01 million in
1998, and $4.46 million in 1997. As of December 31, 1999, Columbia had 217
full-time equivalent employees, which compares to 187 as of December 31, 1998
and 133 as of December 31, 1997. The increase in this expense category was the
result of additional staffing in the new Newberg, Hermiston and Pendleton
branches and the normal expense increases associated with maintaining an
expanded employee base.
Net occupancy expense consists of depreciation on premises and
equipment, maintenance and repair expenses, utilities, and related expenses.
Columbia's net occupancy expense increased steadily over the three-year period.
This expense category was $1.19 million in 1999, an increase of $241,000, or
25.38%, over the $948,000 reported in 1998. From 1997 to 1999, net occupancy
expense increased by $454,000, from $736,000 to $1.19 million, an increase of
61.57%. These increases reflect the operation of the five additional branches
and the formation in 1997 of the Columbia River Bank Mortgage Group. This also
reflects the costs relating to continued investment in Columbia's computer
systems, which have been upgraded throughout the organization.
FDIC insurance premiums are a function of outstanding deposit
liabilities. Because the Bank Insurance Fund has since been adequately
capitalized, Columbia was required to make only nominal premium payments in
1999, 1998 and 1997. For the three-year period ended December 31, 1999, Columbia
paid the lowest premium available for its deposit insurance coverage.
Other noninterest expense increases arose from investments in technology
and data processing, and in new service delivery channels to enable Columbia to
continue its focus on efficient, personal service. Data processing expenses
increased 55.34% in 1999 over the previous year, which reflects both the growth
of Columbia's customer and account base and ongoing upgrades to the data
processing operations.
INCOME TAXES
The provision for income taxes was $3.11 million in 1999, $2.45 million
in 1998 and $1.80 million in
23
24
1997. The provision resulted in effective combined federal and state tax rates
of 38.25% in 1999, 34.18% in 1998, and 31.60% in 1997. The growth of the
effective tax rate in 1999 is primarily due to the effect of nondeductible
goodwill amortization. The effective tax rates differ from combined estimated
statutory rates of 38% principally due to the effects of nontaxable interest
income which is recognized for book, but not for tax purposes. In addition,
Columbia's state income tax rate was reduced from 6.60% to 3.81% in 1997 as a
result of surplus revenues received by the State of Oregon.
FINANCIAL CONDITION
SUMMARY BALANCE SHEETS
DECEMBER 31, INCREASE (DECREASE)
-------------------------------- --------------------------------------------
1999 1998 1997 12/31/98 - 12/31/99 12/31/97 - 12/31/98
-------- -------- -------- ------------------- --------------------
(dollars in thousands)
ASSETS
Federal funds sold $ 680 $ 12,555 $ 2,834 $(11,875) -94.58% $ 9,721 343.01%
Investments 62,333 47,894 48,804 14,439 30.15% (910) -1.86%
Loans 246,975 206,551 155,219 40,424 19.57% 51,332 33.07%
Other assets(1) 51,253 75,413 24,970 (24,160) -32.04% 50,443 202.01%
-------- -------- -------- -------- ---------
Total assets $361,241 $342,413 $231,827 $ 18,828 5.50% $ 110,586 47.70%
======== ======== ======== ======== =========
LIABILITIES
Noninterest-bearing
deposits $ 74,889 $ 67,409 $ 46,377 $ 7,480 11.10% $ 21,032 45.35%
Interest-bearing deposits 236,021 228,271 155,191 7,750 3.40% 73,080 47.09%
-------- -------- -------- -------- ---------
Total deposits 310,910 295,680 201,568 15,230 5.15% 94,112 46.69%
Other liabilities(2) 13,009 11,977 7,272 1,032 8.62% 4,705 64.70%
-------- -------- -------- -------- ---------
Total liabilities 323,919 307,657 208,840 16,262 5.29% 98,817 47.32%
SHAREHOLDERS'
EQUITY 37,322 34,756 22,987 2,566 7.38% 11,769 51.20%
-------- -------- -------- -------- ---------
Total liabilities and
shareholder's equity $361,241 $342,413 $231,827 $ 18,828 5.50% $ 110,586 47.70%
======== ======== ======== ======== =========
(1) Includes cash and due from banks, fixed assets, and accrued interest
receivable.
(2) Includes accrued interest payable and other liabilities.
INVESTMENTS
A year-to-year comparison shows that Columbia's investment securities at
December 31, 1999, totaled $62.33 million, compared to $47.89 million at
December 31, 1998, and $48.80 million at December 31, 1997. This represents an
increase of 30.15% between 1998 and 1999 and a decrease of 1.86% between 1997
and 1998. Increases or decreases in the investment portfolio are primarily a
function of loan demand and changes in Columbia's deposit structure. On December
31, 1999, investments in federal funds sold (an overnight investment) were
$680,000 and investments in restricted stock were $1.10 million. The balance of
federal funds sold is influenced by cash demands, customer deposit levels, loan
activity, and other investment transactions.
Columbia follows a financial accounting principle which requires that
investment securities be identified as held-to-maturity or available-for-sale.
Held-to-maturity securities are those that Columbia has the intent and ability
to hold until they mature or are called. Available-for-sale securities are those
that management may sell if liquidity requirements dictate or if alternative
investment opportunities arise. The mix of available-for-sale and
held-to-maturity investment securities is determined by management, based on
Columbia's asset-liability policy,
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management's assessment of the relative liquidity of Columbia, and other
factors.
At December 31, 1999, the investment portfolio, excluding restricted
equity securities, consisted of 67.14% available-for-sale securities and 32.86%
held-to-maturity securities. At December 31, 1998, the portfolio consisted of
62.99% available-for-sale securities and 37.01% held-to-maturity securities. At
December 31, 1997, Columbia's investment portfolio, excluding restricted equity
securities, consisted of 65.18% available-for-sale securities and 34.82%
held-to-maturity securities. The present mix provides investment flexibility by
placing more of the portfolio in the available-for-sale category.
At December 31, 1999, Columbia's investment portfolio had total net
unrealized losses of approximately $1.58 million. This compares to net
unrealized gains of approximately $574,000 at December 31, 1998, and $371,000 at
December 31, 1997. Unrealized gains and losses reflect changes in market
conditions and do not represent the amount of actual profits or losses Columbia
may ultimately realize. Actual realized gains and losses occur at the time
investment securities are sold or redeemed.
Federal funds sold are short term investments which mature on a daily
basis. Columbia invests in these instruments to provide for additional earnings
on excess available cash balances. Because of their short maturities, the
balance of federal funds sold fluctuates dramatically on a day-to-day basis. The
balance on any one day is influenced by cash demands, customer deposit levels,
loan activity and other investment transactions. Investments in federal funds
sold totaled $680,000 at December 31, 1999, compared to $12.55 million at
December 31, 1998, and $2.83 million at December 31, 1997.
The following table provides the carrying value of Columbia's portfolio
of investment securities as of December 31, 1999, 1998, and 1997, respectively.
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------
1999 1998 1997
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Investments available-for-sale:
U.S. Treasury securities $ 1,610 $ 3,199 $ 3,214
U.S. Government obligations 36,205 23,168 26,943
Corporate debt securities 532 605 853
Corporate equity securities 300 300 300
Municipal securities 2,464 2,195 --
-------- -------- --------
41,111 29,467 31,310
-------- -------- --------
Investments held-to-maturity:
Obligations of states and political subdivisions 17,586 16,336 16,571
Mortgage-backed securities 2,539 974 157
-------- -------- --------
20,125 17,310 16,728
-------- -------- --------
Restricted equity securities 1,097 1,117 766
-------- -------- --------
Total investment securities $ 62,333 $ 47,894 $ 48,804
======== ======== ========
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Investment securities at the dates indicated consisted of the following:
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------ ------------------------------ -----------------------------
APPROX- APPROX- APPROX-
IMATE IMATE IMATE
AMORTIZED MARKET % AMORTIZED MARKET % AMORTIZED MARKET %
COST VALUE YIELD* COST VALUE YIELD* COST VALUE YIELD*
-------- -------- ------ --------- -------- ------ --------- -------- ------
(IN THOUSANDS)
U.S. Treasuries and
agencies:
One year or less $ 600 $ 601 5.67% $ 558 $ 553 5.34% $ 1,599 $ 1,599 5.47%
One to five years 1,031 1,009 6.21% 2,603 2,646 4.80% 1,611 1,614 5.72%
U.S. Government
agencies:
One year or less 628 619 6.42% 1,190 1,181 5.95% 5,052 5,058 5.75%
One to five years 38,079 37,105 6.76% 20,377 20,465 5.94% 17,333 17,321 6.35%
Five to ten years 995 1,000 5.47% 2,499 2,494 5.94% 3,701 3,727 6.60%
Due after ten years -- -- 0.00% -- -- 0.00% 1,000 994 7.51%
Obligations of states and
political subdivisions:
One year or less 2,304 2,324 8.81% 2,820 2,822 4.57% 2,165 2,187 6.00%
One to five years 6,350 6,337 7.20% 7,167 7,379 6.93% 6,887 7,051 7.29%
Five to ten years 3,493 3,365 7.78% 2,887 2,952 6.56% 3,005 3,080 6.72%
Over ten years 7,927 7,489 8.14% 5,655 5,838 6.95% 4,513 4,610 7.35%
Corporate and other
debt securities:
One year or less -- -- 0.00% 605 605 6.37% 250 250 5.98%
One to five years 557 532 7.19% -- -- 0.00% 603 603 6.45%
-------- -------- ---- -------- -------- ---- -------- -------- ----
Total debt securities 61,964 60,381 7.07% 46,361 46,935 6.11% 47,719 48,094 6.90%
Corporate equity securities 300 300 300 300 300 300
Restricted equity securities 1,097 1,097 816 816 766 766
-------- -------- -------- -------- -------- -------
Total securities $ 63,361 $ 61,778 $ 47,477 $ 48,051 $ 48,785 $49,160
======== ======== ======== ======== ======== =======
* Weighted average yields are stated on a federal tax-equivalent basis at a
34% rate, and have been annualized, where appropriate.
LOANS
Columbia's loan policies and procedures establish the basic guidelines
governing its lending operations. Generally, the guidelines address the types of
loans that Columbia seeks, target markets, underwriting and collateral
requirements, terms, interest rate and yield considerations, and compliance with
laws and regulations. All loans or credit lines are subject to approval
procedures and amount limitations. These limitations apply to the borrower's
total outstanding indebtedness to Columbia, including the indebtedness of any
guarantor. The policies are reviewed and approved at least annually by the Board
of Directors of Columbia. Columbia supplements its own supervision of the loan
underwriting and approval process with periodic loan audits by outside
professionals experienced in loan review work.
Bank officers are charged with loan origination in compliance with
underwriting standards overseen by the loan administration department and in
conformity with established loan policies. On an annual basis, the Board of
Directors determines the lending authority of the President, who then delegates
lending authority to the Chief Lending Officer and other lending officers. Such
delegated authority may include authority related to loans, letters of credit,
overdrafts, uncollected funds, and such other authority as determined by the
Board or the President within the President's delegated authority.
The President has authority to approve loans up to a lending limit set
by the Board of Directors. All loans above the lending limit of the President
and up to a certain limit are reviewed for approval by an internal loan
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committee. Loans which exceed this limit but are less than pre-established
lending limits must be conditionally approved by an internal loan committee, and
are subject to the approval of the Board's loan committee up to pre-established
lending limits. Minutes from Board loan committee meetings are reviewed by the
full Board at regularly scheduled monthly meetings. All loans above the lending
limit up to Columbia's statutory loan-to-one - borrower limitation (also known
as the legal lending limit) require approval of the full Board of Directors.
Columbia's unsecured legal lending limit was $4.89 million at December 31, 1999.
Columbia seldom makes loans approaching its unsecured legal lending limit.
Net outstanding loans totaled $246.98 at December 31, 1999, representing
an increase of $40.43 million, or 19.57% compared to $206.55 million as of
December 31, 1998. Loan commitments grew to $82.69 million as of December 31,
1999, representing an increase of $25.03 million over year-end 1998. Net
outstanding loans were $155.22 million at December 31, 1997, and $118.23 million
at December 31, 1996.
Columbia's net loan portfolio at December 31, 1999, includes loans
secured by real estate (54.09% of total), commercial loans (24.65% of total),
agricultural loans (15.30% of total) and consumer loans (7.66% of total). Loans
secured by real estate include loans made for purposes other than financing
purchases of real property, such as inventory financing and equipment purchases,
where real property serves as collateral for the loan.
This table presents the composition of Columbia's loan portfolio at the
dates indicated:
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ---------------------- ----------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
--------- ---------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
Commercial $ 60,869 24.65% $ 41,275 19.98% $ 28,464 18.34%
Agricultural 37,775 15.30% 34,604 16.75% 20,511 13.21%
Real estate secured loans:
Commercial property 43,469 17.59% 41,089 19.89% 29,319 18.89%
Farmland 13,270 5.37% 8,603 4.17% 6,212 4.00%
Construction 33,780 13.68% 20,048 9.71% 13,504 8.70%
Residential 40,051 16.22% 43,919 21.26% 40,200 25.90%
Home equity lines 3,027 1.23% 2,675 1.30% 2,239 1.44%
--------- ------ --------- ------ --------- ------
Total real estate 133,597 54.09% 116,334 56.32% 91,474 58.93%
Consumer 18,096 7.33% 16,569 8.02% 15,665 10.09%
Other 827 0.33% 933 0.45% 1,356 0.88%
--------- ------ --------- ------ --------- ------
Total loans 251,164 101.70% 209,715 101.53% 157,470 101.45%
Less deferred loan fees (891) (0.36)% (784) (0.38)% (612) (0.39)%
Less reserve for loan losses (3,298) (1.34)% (2,380) (1.15)% (1,639) (1.06)%
--------- ------ --------- ------ --------- ------
Loans receivable, net $ 246,975 100.00% $ 206,551 100.00% $ 155,219 100.00%
========= ====== ========= ====== ========= ======
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The following table shows the maturities and sensitivity of Columbia's
loans to changes in interest rates at the dates indicated:
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------------------------- ---------------------------------------------
DUE AFTER DUE AFTER
DUE IN ONE YEAR DUE DUE IN ONE YEAR DUE
ONE YEAR THROUGH AFTER TOTAL ONE YEAR THROUGH AFTER TOTAL
OR LESS FIVE YEARS FIVE YEARS LOANS OR LESS FIVE YEARS FIVE YEARS LOANS
-------- ---------- ---------- -------- -------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
Commercial loans $ 31,220 $18,225 $11,424 $ 60,869 $ 25,827 $10,347 $ 5,101 41,275
Agricultural loans 32,257 4,637 881 37,775 31,499 2,714 391 34,604
Real estate secured loans:
Commercial property 8,943 17,513 17,013 43,469 10,725 13,603 16,761 41,089
Farmland 3,155 4,783 5,332 13,270 1,862 3,872 2,869 8,603
Construction 27,279 2,508 3,993 33,780 16,421 2,878 749 20,048
Residential 11,061 5,966 23,024 40,051 13,472 4,463 25,984 43,919
Home equity lines 2,905 122 -- 3,027 2,553 122 -- 2,675
-------- ------- ------- -------- -------- ------- ------- --------
Total real estate loans 53,343 30,892 49,362 133,597 45,033 24,938 46,363 116,334
Consumer 9,049 7,163 1,884 18,096 7,334 7,710 1,525 16,569
Other 474 118 235 827 734 52 147 933
-------- ------- ------- -------- -------- ------- ------- --------
Total loans $126,343 $61,035 $63,786 $251,164 $110,427 $45,761 $53,527 $209,715
======== ======= ======= ======== ======== ======= ======= ========
Loans with fixed interest rates $119,579 $107,388
Loans with floating interest rates 131,585 102,327
======== ========
$251,164 $209,715
======== ========
LOAN LOSSES AND RECOVERIES
The reserve for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the reserve for loan
losses when management believes that the collectibility of the principal or a
portion thereof is unlikely. The reserve is an amount that management believes
will be adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors 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. Accrual of interest is discontinued on
a loan when management believes, after considering economic and business
conditions, collection efforts and collateral position, that the borrower's
financial condition is such that collection of interest is doubtful.
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29
The following table shows Columbia's loan loss experience for the
periods indicated:
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Loans outstanding at end of period, net of
unearned interest income $246,990 $208,932 $156,858 $119,223 $105,250
======== ======== ======== ======== ========
Average loans outstanding for the period $222,276 $175,588 $140,891 $111,841 $ 97,087
======== ======== ======== ======== ========
Reserve for loan losses balance, beginning of year $ 2,380 $ 1,639 $ 995 $ 1,072 $ 955
-------- -------- -------- -------- --------
Loans charged off:
Commercial (41) (219) (7) (30) (34)
Real estate (15) (51) -- -- --
Agriculture (26) (369) -- (317) (14)
Installment loans (57) (77) (19) (21) (16)
Credit card and related accounts (43) (51) (14) (9) (55)
-------- -------- -------- -------- --------
Total loans charged off (182) (767) (40) (377) (119)
-------- -------- -------- -------- --------
Recoveries:
Commercial 32 40 21 26 107
Real estate -- -- -- -- --
Agriculture 48 49 80 7 7
Installment loans 3 1 1 20 31
Credit card and related accounts 12 8 1 -- 3
-------- -------- -------- -------- --------
Total recoveries 95 98 103 53 148
-------- -------- -------- -------- --------
Net (charge-offs) recoveries (87) (669) 63 (324) 29
Provision charged to operations 1,005 1,000 581 247 88
-------- -------- -------- -------- --------
Acquisition of Valley Community Bancorp 410
-------- -------- -------- -------- --------
Reserve for loan losses balance, end of period $ 3,298 $ 2,380 $ 1,639 $ 995 $ 1,072
======== ======== ======== ======== ========
Ratio of net loans charged off (recovered) to
average loans outstanding 0.04% 0.38% (0.04)% 0.29% (0.03)%
Ratio of reserve for loan losses to loans at
end of period 1.32% 1.13% 1.04% 0.83% 1.02%
The adequacy of the reserve for loan losses should be measured in the
context of several key ratios: (1) the ratio of the reserve to total outstanding
loans; (2) the ratio of total nonperforming loans to total loans; and, (3) the
ratio of net charge-offs (recoveries) to average loans outstanding. Since 1995,
Columbia's ratio of the reserve for loan losses to total loans has ranged from
0.83% to 1.32%. The amounts provided by these ratios have been sufficient to
fund Columbia's charge-offs, which have not been historically significant, and
to provide for potential losses as the loan portfolio has grown. These ratios
have also been consistent with the level of nonperforming loans to total loans.
From December 31, 1995 through December 31, 1999, nonperforming loans to total
loans have ranged from a low of 0.21% to a high of .93%. This experience tracks
with changes in the ratio of the reserve for loan losses to total loans and with
the actual balances maintained in the reserve account. Finally, Columbia's
historical ratio of net charge-offs (recoveries) to average outstanding loans
illustrates its favorable loan charge-off and recovery experience. In two of the
five years from 1995 to 1999, annual loan recoveries have actually exceeded
charge-offs. For the remaining three years between December 31, 1995 and 1999,
net charge-offs ranged from 0.04% to 0.38% of average loans. Management believes
Columbia's loan underwriting policies and its loan officers' knowledge of their
customers are significant contributors to Columbia's success in limiting loan
losses.
During the year ended December 31, 1999, Columbia recognized $182,000 in
loan losses and $95,000 in recoveries. Charge-offs recorded in 1999 were
consistent with Columbia's historical experience in view of the growth in its
loan portfolio.
29
30
The following table presents information with respect to nonperforming
loans and other assets:
DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Loans on nonaccrual status $ 394 $ 1,082 $ 1,041 $ 229 $ 308
Loans past due - greater than 90 days -- -- 414 30 60
Restructured loans 202 825 -- -- --
-------- -------- -------- -------- --------
Total nonperforming loans 596 1,907 1,455 259 368
Other real estate owned -- 281 -- -- --
-------- -------- -------- -------- --------
Total nonperforming assets $ 596 $ 2,188 $ 1,455 $ 259 $ 368
======== ======== ======== ======== ========
Allowance for loans losses $ 3,298 $ 2,380 $ 1,639 $ 995 $ 1,072
Ratio of total nonperforming assets to
total assets 0.16% 0.64% 0.63% 0.04% 0.21%
Ratio of total nonperforming loans to
total loans 0.24% 0.91% 0.93% 0.21% 0.35%
Ratio of allowance for loan losses to
total nonperforming assets 553.45% 108.82% 112.65% 384.17% 291.30%
Columbia has adopted a policy for placement of loans on nonaccrual
status after they become 90 days past due unless otherwise formally waived.
Further, Columbia may place loans that are not contractually past due or that
are deemed fully collateralized on nonaccrual status to promote better oversight
and review of loan arrangements. Loans on nonaccrual status at December 31, 1999
totaled approximately $394,000, compared to $1.08 million at December 31, 1998
and $1.04 at the end of 1997.
In 1998, Columbia adopted procedures to identify and monitor loans that
have had their original terms restructured to accommodate borrowers' financial
needs. Loan revisions and modifications are commonly provided to meet the credit
needs of borrowers in weakened financial condition and to enhance ultimate
collection. As of December 31, 1999, Columbia identified loans totaling $202,000
that had been classified as restructured. All of these loans are currently
performing in accordance with their restructured terms. However, management will
continue to monitor these loans for any changes or deterioration in performance.
At December 31, 1999, Columbia had no assets in the other real estate
owned ("OREO") category, which represents assets held through loan foreclosure
or recovery activities. There was $281,000 in OREO at December 31, 1998, none in
1997.
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DEPOSITS
The following table sets forth the average balances of Columbia's
interest-bearing deposits, interest expense, and average rates paid for the
periods indicated:
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1997
------------------------------ ------------------------------ -----------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
Interest-bearing checking $128,207 $3,563 2.78% $ 92,669 $2,962 3.20% $ 79,134 $2,645 3.34%
Savings 29,395 821 2.79% 26,252 855 3.26% 30,818 1,172 3.80%
Time deposits 71,626 3,650 5.10% 54,550 2,949 5.41% 43,217 2,268 5.25%
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total interest-bearing
deposits 229,228 $8,034 3.51% 173,471 $6,766 3.90% 153,169 $6,085 3.97%
====== ==== ====== ==== ====== ====
Total noninterest-bearing
deposits 70,000 48,983 38,299
-------- -------- --------
Total interest-bearing and
noninterest-bearing
deposits $299,228 $222,454 $191,468
======== ======== ========
At December 31, 1999, total deposits were $310.91 million, an increase
of $15.23 million or 5.15%, from total deposits of $295.68 million at December
31, 1998. Total deposits in 1998 increased by 49.69% over 1997. Deposit growth
in 1997 and 1998 was due to a combination of pricing strategies, increased
marketing, and increased emphasis on implementing a sales culture within the
branches, as well as the acquisition of VCB. The growth in deposit accounts in
1999 has primarily been in time deposits and noninterest-bearing demand
accounts. Noninterest-bearing demand deposits, also called "core deposits,"
continued to be a significant portion of Columbia's deposit base. To the extent
Columbia can fund operations with core deposits, net interest spread, which is
the difference between interest income and interest expense, will improve. At
December 31, 1999, core deposits accounted for 24.09% of total deposits, up from
22.80% as of December 31, 1998.
Interest-bearing deposits consist of money market, savings, and time
certificate accounts. Interest-bearing account balances tend to grow or decline
as Columbia adjusts its pricing and product strategies based on market
conditions, including competing deposit products. At December 31, 1999, total
interest-bearing deposit accounts were $236.02 million, an increase of $7.75
million, or 3.39%, from December 31, 1998. Increases in time deposits offset
declines in interest-bearing deposit and savings accounts. Interest-bearing
demand accounts decreased $4.57 million, or 3.39%, from December 31, 1998 to
1999, after increasing $49.21 million, or 57.56%, from 1997 to 1998. Overall
growth in deposits has, in management's opinion, been helped by continued
customer perceptions of declining service levels provided by super-regional bank
competitors.
Columbia is not dependent on brokered deposits or high-priced time
deposits. At December 31, 1999, time certificates of deposits in excess of
$100,000 totaled $19.18 million, or 6.17% of total outstanding deposits,
compared to $10.88 million, or 3.68%, of total outstanding deposits at December
31, 1998, and $8.94 million, or 4.43%, of total outstanding deposits at December
31, 1997. The following table sets forth, by time remaining to maturity, all
time certificates of deposit accounts outstanding at December 31, 1999:
(IN THOUSANDS)
Three months or less $29,222
Over three through six months 20,049
Over six months through twelve months 18,776
Over twelve months 10,498
-------
$78,545
=======
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SHORT-TERM BORROWINGS
The following table sets forth certain information with respect to
Columbia's Federal Home Loan Bank of Seattle borrowings.
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
Amount outstanding at end of period $ 10,598 $7,300 $4,600 $ 600 $1,200
Weighted average interest rate at end of
period 5.83% 5.41% 5.89% 5.68% 5.42%
Maximum amount outstanding at any
month-end and during the year $ 10,605 $7,600 $4,600 $1,200 $3,581
Average amount outstanding during the
period $ 8,801 $6,933 $2,781 $ 813 $2,341
Average weighted interest rate during
the period 5.33% 5.53% 5.80% 5.86% 6.15%
SHAREHOLDERS' EQUITY
Shareholders' equity increased $2.57 million during 1999. Shareholders'
equity at December 31, 1999 was $37.32 million compared to $34.76 million at
December 31, 1998. This increase reflects net income and comprehensive income of
$4.24 million and $267,000 in exercised stock options. These additions to equity
were partially offset by cash dividends paid or declared of $2.00 million.
Dividends declared and paid were $0.25 per share in 1999, $0.22 per
share in 1998, and $0.12 per share in 1997.
LIQUIDITY
Columbia has adopted policies to maintain a relatively liquid position
to enable it to respond to changes in the financial environment and ensure
sufficient funds are available to meet customers' needs for borrowing and
deposit withdrawals. Generally, Columbia's major sources of liquidity are
customer deposits, sales and maturities of investment securities, the use of
federal funds markets, and net cash provided by operating activities. Scheduled
loan repayments are a relatively stable source of funds, while deposit inflows
and unscheduled loan prepayments, which are influenced by general interest rate
levels, interest rates available on other investments, competition, economic
conditions, and other factors, are not. Liquid asset balances include cash,
amounts due from other banks, federal funds sold, and securities
available-for-sale and securities held-to-maturity with maturities in the next
three months. At December 31, 1999, these liquid assets totaled $67.04 million
or 18.56% of total assets as compared to $95.88 million or 28.00% of total
assets at December 31, 1998. Another source of liquidity is the ability to
borrow from the Federal Home Loan Bank of Seattle and other correspondent banks.
The analysis of liquidity also includes a review of the changes that
appear in the consolidated statements of cash flows for the year ended December
31, 1999. The statement of cash flows includes operating, investing and
financing categories. Operating activities include net income of $5.01 million,
which is adjusted for non-cash items and increases or decreases in cash due to
changes in certain assets and liabilities. Investing activities consist
primarily of both proceeds from and purchases of securities, and the impact of
the net growth in loans. Financing activities present the cash flows associated
with deposit accounts, and reflect dividends paid to shareholders.
At December 31, 1999, Columbia had outstanding commitments to make loans
of $82.69 million. Nearly all of these commitments represented unused portions
of credit lines available to consumers under credit card and other arrangements
and to businesses. Many of these credit lines will not be fully drawn upon and,
accordingly, the aggregate commitments do not necessarily represent future cash
requirements. Management believes that Columbia's sources of liquidity are more
than adequate to meet likely calls on outstanding commitments, although there
can be no assurance in this regard.
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33
CAPITAL
The Federal Reserve Board and the Federal Deposit Insurance Corporation
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 reflects Columbia's various capital ratios at December 31,
1999, and December 31, 1998, as compared to regulatory minimums for capital
adequacy purposes:
AT DECEMBER 31, 1999 AT DECEMBER 31, 1998 REGULATORY MINIMUM
-------------------- -------------------- ------------------
Tier 1 capital 10.20% 10.90% 4.00%
Total risk-based capital 11.30% 11.90% 8.00%
Leverage ratio 8.30% 8.90% 4.00%
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET-LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
Columbia's results of operations depend substantially on its net
interest income. Interest income and interest expense are affected by general
economic conditions and by competition in the marketplace. Columbia's interest
and pricing strategies are driven by its asset-liability management analysis and
by local market conditions.
Columbia seeks to manage its assets and liabilities to generate a stable
level of earnings in response to changing interest rates and to manage its
interest rate risk. Columbia further strives to serve its communities and
customers through deployment of its resources on a corporate-wide basis so that
qualified loan demands may be funded wherever necessary in its branch banking
system. Asset/liability management involves managing the relationship between
interest rate sensitive assets and interest rate sensitive liabilities. If
assets and liabilities do not mature or reprice simultaneously, and in equal
amounts, the potential for exposure to interest rate risk exists, and an
interest rate "gap" is said to be present.
Rising and falling interest rate environments can have various effects
on a bank's net interest income, depending on the interest rate gap, the
relative changes in interest rates that occur when assets and liabilities are
repriced, unscheduled repayments of loans, early withdrawals of deposits, and
other factors.
The following table sets forth the dollar amount of maturing
interest-earning assets and interest-bearing liabilities at December 31, 1999
and the difference between them for the maturing or repricing periods indicated.
The amounts in the table are derived from Columbia's internal data, which varies
from amounts classified in its financial statements, and, although the
information may be useful as a general measure of interest rate risk, the data
could be significantly affected by external factors such as prepayments of loans
or early withdrawals of deposits. Each of these may greatly influence the timing
and extent of actual repricing of interest-earning assets and interest-bearing
liabilities.
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34
DECEMBER 31, 1999
---------------------------------------------------
VARIABLE LESS THAN ONE YEAR
RATE ONE YEAR OR LONGER TOTAL
--------- --------- --------- ---------
(dollars in thousands)
ASSETS
Investments $ 1,592 $ 2,611 $ 64,991 $ 69,194
Loans 101,102 32,438 113,435 246,975
--------- --------- --------- ---------
Total assets 102,694 35,049 178,426 316,169
LIABILITIES
Core deposits 170,288 52,689 70,326 293,303
Jumbo CDs -- 17,687 1,296 18,983
Borrowings 9,272 -- 1,598 10,870
--------- --------- --------- ---------
Total liabilities 179,560 70,376 73,220 323,156
--------- --------- --------- ---------
(76,866) (35,327) 105,206 $ (6,987)
--------- --------- --------- =========
Net cumulative position $ (76,866) $(112,193) $ (6,987)
========= ========= =========
Cumulative Gap as a percent of assets (21.28)% (31.06)% (1.93)%
========= ========= =========
The net cumulative gap position is somewhat negative since more
liabilities than assets reprice during the next year. This exposure to
increasing rates is currently exaggerated by "sticky" deposit rates (not
expected to reprice rapidly in increasing rate environment). However, Columbia's
asset rates change more than deposit rates, and management feels Columbia's
asset yields will change more than cost of funds when rates change.
Management believes that Columbia has relatively low interest rate risk
that is somewhat asset-sensitive. The net interest margin should increase
slightly when rates increase and shrink somewhat when rates fall. This interest
rate risk is driven by concentration of rate sensitive variable rate and
short-term commercial loans, one of Columbia's major business lines. Columbia
does have significant amounts of fixed rate loans to offset most of the impact
from repricing of short-term loans. However, there can be no assurance that
fluctuations in interest rates will not have a material adverse impact on
Columbia.
Columbia's sensitivity to gains or losses in future earnings due to
hypothetical decreases or increases in interest rates is as follows:
INCREASE OR FINANCIAL IMPACT
DECREASE IN ON NET
INTEREST RATES INTEREST MARGIN
-------------- -------------------
2% $ 1,014,000
1% $ 507,000
-1% $ (507,000)
-2% $(1,014,000)
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is contained in Columbia
Bancorp's Annual Report to Shareholders for the year ended December 31, 1999,
and is incorporated herein by reference.
34
35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is contained in Columbia's
definitive proxy statement for the annual meeting of shareholders to be held
April 25, 2000, and is incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION AND REPORT OF COMPENSATION COMMITTEE
The information called for by this item is contained in Columbia's
definitive proxy statement for the annual meeting of shareholders to be held
April 25, 2000, and is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is contained in Columbia's
definitive proxy statement for the Annual Meeting of Shareholders to be held
April 25, 2000, and is incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is contained in Columbia's
definitive proxy statement for the Annual Meeting of Shareholders to be held
April 25, 2000, and is incorporated herein by reference.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits.
Pursuant to Item 601 of Regulation S-K, the following exhibits are
attached hereto or are incorporated herein by reference.
(Note: The per share earnings computation statement required by Item
601(b)(11) of Regulation S-K is contained in Note 19 to the Consolidated
Financial Statements included in Columbia's 1999 Annual Report to Shareholders.
A copy of this 1999 Annual Report is attached hereto as an exhibit.)
1. Articles of Incorporation and Bylaws. (Regulation S-K, Item 601,
Exhibit Table Item (3)). Columbia's Articles of Incorporation,
as amended, are attached as Exhibit 3(i) to Columbia's Form 10-Q
for the period ended June 30, 1999 and incorporated herein by
reference. Columbia's Bylaws are attached as Exhibit 15.5 to
Columbia's Annual Report on Form 10-KSB for the year ended
December 31, 1998 and incorporated herein by reference.
2. Material Contracts. (Regulation S-K, Item 601, Exhibit Table
Item (10)).
10.1 Employment Agreement of April 1, 1999 between Terry L.
Cochran and Columbia Bancorp, a copy of which is attached
hereto.
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36
10.2 Deferred Compensation Agreement of April 1, 1999 between
Terry L. Cochran and Columbia Bancorp, a copy of which is
attached hereto.
10.3 Employment Agreement of July 20, 1999 between Roger
Christensen and Columbia Bancorp, a copy of which is
attached hereto.
10.4 Columbia Bancorp Restated Employee Stock Ownership Plan
and Trust Agreement (1999 Restatement).
3. Annual Report to Shareholders. (Regulation S-K, Item 601,
Exhibit Table Item (13)). A copy of Columbia's 1999 Annual
Report to Shareholders is attached hereto.
4. List of Subsidiaries. (Regulation S-K, Item 601, Exhibit Table
Item (21)). Attached hereto is a list of Columbia's subsidiaries
as of December 31, 1999.
5. Financial Data Schedule. (Regulation S-K, Item 601, Exhibit
Table Item (27)). Columbia's Financial Data Schedule is attached
hereto.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the year ended December 31,
1999.
Upon written request to Columbia's Chief Financial Officer, Neal T.
McLaughlin, P.O. Box 1050, The Dalles, Oregon 97058 a copy of any exhibit
referenced herein will be provided to the requesting party upon payment of
Columbia's reasonable copying expense of $.25 per page.
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37
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
BANCORP
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Terry L. Cochran, President & C.E.O.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Terry L. Cochran, President, C.E.O.,
and Director
CHIEF FINANCIAL OFFICER
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Neal T. McLaughlin: Chief Financial
Officer and Chief Accounting Officer
- Columbia and CRB
DIRECTORS:
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Don T. Mitchell, Director and
Chairman
DATED: March , 2000 By: /s/
--------------- ------------------------------------
William A. Booth, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Robert L. R. Bailey, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Charles F. Beardsley, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Richard E. Betz, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Dennis L. Carver, Director
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38
SIGNATURES
(Continued)
DATED: March , 2000 By: /s/
--------------- ------------------------------------
James J. Doran, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Ward Eason, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Jane F. Lee, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
Jean S. McKinney, Director
DATED: March , 2000 By: /s/
--------------- ------------------------------------
James B. Roberson, Director
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EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
10.1 Employment Agreement of April 1, 1999 between Terry L. Cochran
and Columbia Bancorp.
10.2 Deferred Compensation Agreement of April 1, 1999 between Terry L.
Cochran and Columbia Bancorp.
10.3 Employment Agreement of July 20, 1999 between Roger Christensen
and Columbia Bancorp.
10.4 Columbia Bancorp Restated Employee Stock Ownership Plan and Trust
Agreement (1999 Restatement).
13.1 1999 Annual Report to Shareholders.
21.1 Columbia's subsidiaries as of December 31, 1999.
27.1 Financial Data Schedule.
39