1
EXHIBIT 13.1
FINANCIAL REVIEW
Selected Financial Information 10
Management's Discussion and Analysis 11
Consolidated Balance Sheets 16
Consolidated Statements of Income and
Comprehensive Income 17
Consolidated Statements of Changes in
Stockholders' Equity 18
Consolidated Statements of Cash Flows 19
Notes to Consolidated Financial Statements 20
Independent Auditor's Report 34
Columbia Bancorp and Columbia River Bank
Executives and Other Vice Presidents 34
Columbia River Bank
Branch Managers and Branch Locations 35
Corporate and Shareholder Information 36
Board of Directors 37
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Financial Condition and Results of Operations
Selected Financial Data
YEARS ENDING DECEMBER 31,
(dollars in thousands) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
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 $ 1,999 $ 1,587 $ 842 $ 882 $ 555
Ratio of dividends declared
to net income 39.88% 33.64% 21.67% 32.37% 22.30%
Per Share Data
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
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(1) 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:
Nonperforming assets 553.45% 108.82% 112.65% 384.17% 291.30%
Ending total loans 1.32 1.13 1.04 0.83 1.02
Nonperforming assets to ending
total assets 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 1 capital ratio 10.20 10.90 13.70 14.20 14.40
Total risk-based capital ratio 11.30 11.90 14.70 14.90 15.20
Leverage ratio 8.30 8.90 10.60 9.90 9.90
(1) Interest earned on nontaxable securities has been computed on a 34% tax
equivalent basis.
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Management's Discussion and Analysis
Stock Price and Dividends
The common stock of Columbia Bancorp ("Columbia") trades on the Nasdaq National
Market under the symbol "CBBO". Beginning in January 1998, several brokerage
firms began serving as market makers for the stock and the stock became
available on the OTC Bulletin Board. Trading in Columbia's stock on Nasdaq
commenced on November 6, 1998. The respective high and low sale prices of
Columbia's common stock for the periods indicated are shown below. All prices
for the periods shown have been adjusted for all stock splits. Prices do not
include retail markups, markdowns, or commissions, and may not represent actual
transactions. As of February 3, 2000, Columbia's stock was held of record by
approximately 1,100 shareholders.
1999 1998
------------------------------ -------------------------------
Cash Dividend Cash Dividend
High Low Declared High Low Declared
- ----------------------------------------------------------------------------------
First Quarter $ 9.13 $ 8.25 $ 0.06 $12.00 $ 8.17 $ 0.05
Second Quarter $ 9.13 $ 7.44 $ 0.06 $11.63 $10.13 $ 0.05
Third Quarter $ 8.13 $ 6.25 $ 0.06 $10.75 $ 9.00 $ 0.06
Fourth Quarter $ 8.25 $ 6.25 $ 0.07 $ 9.37 $ 8.25 $ 0.06
Overview
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, Columbia River Bank
("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. 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 is to increase earning assets without
compromising its commitment to high asset quality.
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 12th 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
achieved an average return on average equity of 16.21% while sustaining high
asset quality.
Results of Operations
NET INTEREST INCOME
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%.
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ANALYSIS OF NET INTEREST INCOME
The following table presents information regarding yields on interest-earning
assets, expense on interest-bearing liabilities and net yields on
interest-earning assets for the period indicated.
Year Ended December 31, Increase Change
---------------------------------- -------------------- ---------------
(dollars in thousands) 1999 1998 1997 99-98 98-97 99-98 98-97
- ----------------------------------------------------------------------------------------------------------------------------
Interest and fee income(1) $ 27,400 $ 21,764 $ 18,522 $ 5,636 $ 3,242 25.90% 17.50%
Interest expense $ 8,568 $ 7,205 $ 6,270 $ 1,363 $ 935 18.92% 14.91%
Net interest income before
provision for loan loss(1) $ 18,832 $ 14,559 $ 12,252 $ 4,273 $ 2,307 29.35% 18.83%
Average interest earning assets $ 305,287 $ 235,277 $ 199,265 $ 70,010 $ 36,012 29.76% 18.07%
Average interest bearing liabilities $ 238,646 $ 181,400 $ 156,405 $ 57,246 $ 24,995 31.56% 15.98%
Average interest earning assets/
interest bearing liabilities 127.92% 129.70% 127.40% (1.78) 2.30
Average yields earned(1) 8.98% 9.25% 9.30% (0.27) (0.05)
Average rates paid 3.60% 3.97% 4.01% (0.37) (0.04)
Net interest spread(1) 5.38% 5.28% 5.29% 0.10 (0.01)
Net interest margin(1) 6.17% 6.19% 6.15% (0.02) 0.04
(1) Tax-exempt income has been subjected to a tax-equivalent basis at 34%.
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 the closure
of competitors' branches in Columbia's market areas, and the hiring of
additional senior lending personnel in strategic branch locations and
administrative capacities.
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.
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.
Years Ended December 31,
---------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
Outstanding loans at end of period,
net of unearned interest income $ 250,274 $ 208,932 $ 156,858 $ 119,223 $ 105,250
Net charge-offs (recoveries) $ 86 $ 669 $ (63) $ 324 $ (29)
Ratio of net loans charged-off
(recovered) to average
outstanding loans 0.04% 0.38% (0.04)% 0.29% (0.03)%
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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 from 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, 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 the 25.35% increase in 1999 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 of $4.34 million for the year ended December 31, 1998. 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.
INCOME TAXES
The provision for income taxes was $3.11 million in 1999, $2.45 million in 1998
and $1.80 million in 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 6.6% to
3.81% in 1997 as a result of surplus revenues received by the State of Oregon.
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 CRB.
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.
Columbia's net loan portfolio at December 31, 1999, includes loans secured by
real estate (53.47% of total), commercial loans (24.98% of total), agricultural
loans (15.50% of total) and consumer loans (7.77% of total). These percentages
are generally consistent with previous reporting periods. 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.
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
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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.
December 31, 1999
----------------------------------------------------
Variable Less Than One Year
(dollars in thousands) Rate One Year or Longer Total
- --------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------
Net position (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)
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,
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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.
An 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.
SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL
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.
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 At
December December Regulatory
31, 1999 31, 1998 Minimum
- --------------------------------------------------------------------
Tier 1 capital 10.2% 10.9% 4.0%
Total risk-based capital 11.3% 11.9% 8.0%
Leverage ratio 8.3% 8.9% 4.0%
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report 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, 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.
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Consolidated Balance Sheets
DECEMBER 31, 1999 1998
- ------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 23,796,174 $ 22,643,895
Interest-bearing deposits with other banks 912,838 30,575,012
Federal funds sold 680,024 12,554,775
------------- -------------
Total cash and cash equivalents 25,389,036 65,773,682
------------- -------------
Investment securities available-for-sale 41,111,041 29,466,769
Investment securities held-to-maturity 20,125,225 17,310,222
Restricted equity securities 1,096,800 1,117,200
------------- -------------
Total investment securities 62,333,066 47,894,191
------------- -------------
Loans held-for-sale 3,282,849 7,818,603
Loans, net of allowance for loan losses and
unearned loan fees 243,692,191 198,733,188
Property and equipment, net of accumulated
depreciation 12,008,224 8,190,068
Goodwill, net of amortization 8,646,341 9,274,963
Accrued interest receivable 2,902,601 2,487,122
Other real estate owned -- 280,800
Other assets 2,986,359 1,960,632
- ------------------------------------------------------------------------------------------
Total assets $ 361,240,667 $ 342,413,249
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 74,889,247 $ 67,408,747
Interest-bearing demand deposits 130,148,498 134,716,357
Savings accounts 27,326,830 27,969,402
Time certificates 78,545,214 65,585,883
------------- -------------
Total deposits 310,909,789 295,680,389
------------- -------------
Notes payable 10,870,318 9,734,095
Accrued interest payable and other liabilities 2,138,998 2,242,545
- ------------------------------------------------------------------------------------------
Total liabilities 323,919,105 307,657,029
- ------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 15)
STOCKHOLDERS' EQUITY
Common stock, no par value,
20,000,000 shares authorized, 8,010,522
issued and outstanding at December 31, 1999
(7,949,032 in 1998) 14,392,229 14,125,315
Additional paid-in capital 6,371,490 6,317,732
Retained earnings 17,272,137 14,257,975
Accumulated comprehensive income,
net of taxes (714,294) 55,198
- ------------------------------------------------------------------------------------------
Total stockholders' equity 37,321,562 34,756,220
- ------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 361,240,667 $ 342,413,249
==========================================================================================
See accompanying notes.
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CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 22,494,529 $ 17,938,902 $ 14,764,313
Interest on investments:
Taxable investment securities 2,194,632 1,719,464 2,257,934
Nontaxable investment securities 1,002,837 847,508 735,421
Interest on federal funds sold 829,137 492,361 221,167
Other interest and dividend income 362,171 329,615 164,685
- -----------------------------------------------------------------------------------------------------------------------
Total interest income 26,883,306 21,327,850 18,143,520
- -----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on interest-bearing deposit
and savings accounts 4,147,874 3,570,752 3,313,451
Interest on time deposit accounts 3,886,563 3,195,414 2,771,986
Other borrowed funds 533,800 438,588 183,637
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense 8,568,237 7,204,754 6,269,074
- -----------------------------------------------------------------------------------------------------------------------
Net interest income before
provision for loan losses 18,315,069 14,123,096 11,874,446
- -----------------------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 1,005,000 1,000,000 581,000
Net interest income after
provision for loan losses 17,310,069 13,123,096 11,293,446
- -----------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges and fees 2,186,953 1,744,620 1,545,174
Credit card discounts and fees 550,812 420,577 389,965
Financial services department income 377,332 311,925 230,405
Mortgage servicing revenues 1,105,753 681,558 --
Gain on loan sales, net of discounts 147,906 197,154 --
Mortgage loan origination income 598,456 726,538 118,818
Other noninterest income 816,408 595,446 196,361
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest income 5,783,620 4,677,818 2,480,723
- -----------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Salaries and employee benefits 8,043,843 6,014,344 4,463,483
Occupancy expense 1,188,923 948,287 735,858
Data processing expense 566,113 364,431 304,456
Credit card processing fees 405,075 282,041 254,299
Office supplies 240,943 200,439 199,930
FDIC assessment 36,491 24,042 19,749
Other noninterest expenses 4,493,722 2,799,578 2,114,509
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 14,975,110 10,633,162 8,092,284
- -----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 8,118,579 7,167,752 5,681,885
- -----------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 3,105,356 2,449,899 1,795,476
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME 5,013,223 4,717,853 3,886,409
=======================================================================================================================
OTHER COMPREHENSIVE INCOME
Unrealized gain on available-for-sale securities, net of
taxes and reclassification adjustment to net income (769,492) 45,106 21,324
=======================================================================================================================
COMPREHENSIVE INCOME $ 4,243,731 $ 4,762,959 $ 3,907,733
=======================================================================================================================
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 0.63 $ 0.67 $ 0.57
=======================================================================================================================
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 0.62 $ 0.65 $ 0.55
=======================================================================================================================
See accompanying notes.
17
10
Consolidated Statements of Changes
in Stockholders' Equity
Accumulated
Common Stock Additional Compre- Total
-------------------------- Paid-In Retained hensive Stockholders'
Shares Amount Capital Earnings Income Equity
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1996 2,254,841 $ 5,139,218 $ 6,317,732 $ 8,087,264 $ (11,232) $ 19,532,982
Stock options exercised 21,415 214,001 -- -- -- 214,001
Sale of common stock 12,195 174,999 -- -- -- 174,999
Cash dividends -- -- -- (613,384) -- (613,384)
Cash dividends declared -- -- -- (228,845) -- (228,845)
Net income and
comprehensive income -- -- -- 3,886,409 21,324 3,907,733
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1997 2,288,451 $ 5,528,218 $ 6,317,732 $ 11,131,444 $ 10,092 $ 22,987,486
Stock options exercised 26,110 236,607 -- -- -- 236,607
Sale of common stock 1,009,375 8,360,490 -- -- -- 8,360,490
3 for 2 stock split and cash
paid for fractional shares 1,154,755 -- -- (4,037) -- (4,037)
2 for 1 stock split 3,470,341 -- -- -- -- --
Cash dividends -- -- -- (1,110,343) -- (1,110,343)
Cash dividends declared -- -- -- (476,942) -- (476,942)
Net income and
comprehensive income -- -- -- 4,717,853 45,106 4,762,959
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1998 7,949,032 $ 14,125,315 $ 6,317,732 $ 14,257,975 $ 55,198 $ 34,756,220
Stock options exercised 61,490 266,914 -- -- -- 266,914
Income tax benefit from
stock options exercised -- -- 53,758 -- -- 53,758
Cash dividends -- -- -- (1,438,324) -- (1,438,324)
Cash dividends declared -- -- -- (560,737) -- (560,737)
Net income and
comprehensive income -- -- -- 5,013,223 (769,492) 4,243,731
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1999 8,010,522 $ 14,392,229 $ 6,371,490 $ 17,272,137 $ (714,294) $ 37,321,562
==================================================================================================================================
See accompanying notes
18
11
Consolidated Statements of Cash Flows
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,013,223 $ 4,717,853 $ 3,886,409
Adjustments to reconcile net income to net
cash from operating activities:
Amortization of premiums and discounts 43,171 (8,385) 30,775
Loss (gain) on write-down of property, equipment and OREO 41,450 (10,393) (1,576)
Loss (gain) on sale of available-for-sale securities (8,566) (142,320) 4,940
Loss (gain) on call of held-to-maturity securities 793 (15,003) 7,583
Depreciation and amortization 1,328,275 552,955 449,048
Federal Home Loan Bank stock dividend (79,700) (59,600) (53,000)
Benefit for deferred income taxes (147,344) (186,665) (278,770)
Provision for loan losses 1,005,000 1,000,000 581,000
Increase (decrease) in cash due to changes in certain assets
and liabilities:
Proceeds from the sale of loans 134,746,355 112,433,596 6,440,000
Production of loans held-for-sale (130,210,601) (117,538,534) (9,153,665)
Accrued interest receivable (415,479) (76,406) (237,100)
Other assets (506,152) (865,964) (8,756)
Accrued interest payable and other liabilities (133,584) (946,616) 533,915
- ------------------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 10,676,841 (1,145,482) 2,200,803
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of available-for-sale securities 9,706,623 16,220,625 1,647,406
Proceeds from the maturity of available-for-sale securities 1,565,000 7,665,000 12,517,460
Proceeds from the maturity of held-to-maturity securities 3,473,381 2,524,291 3,576,370
Purchases of held-to-maturity securities (6,304,797) (3,097,129) (4,534,473)
Purchases of available-for-sale securities (24,076,603) (15,995,790) (10,454,096)
Net change in restricted equity securities 100,100 -- (41,000)
Net change in loans made to customers (46,123,083) (27,489,520) (34,858,003)
Cash paid, net of cash received from acquisition -- (709,364) --
Proceeds from the sale of property, equipment and OREO 398,430 10,393 --
Payments made for purchase of property and equipment (4,517,809) (1,847,077) (822,715)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash from investing activities (65,778,758) (22,718,571) (32,969,051)
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in demand deposit and savings accounts 2,270,069 43,715,064 24,253,865
Net change in time deposit accounts 12,959,331 15,860,017 (1,429,579)
Proceeds from public stock offering, net of expenses -- 8,126,115 --
Borrowings of long-term debt -- 402,471 663,824
Repayments of long-term debt (794,367) -- --
Fractional share payments -- (4,037) --
Dividends paid (1,915,266) (1,339,189) (793,772)
Proceeds from stock options exercised and purchases
of common stock 266,914 470,982 389,000
Net increase in short term borrowings 1,930,590 2,693,811 4,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 14,717,271 69,925,234 27,083,338
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (40,384,646) 46,061,181 (3,684,910)
CASH AND CASH EQUIVALENTS, beginning of year 65,773,682 19,712,501 23,397,411
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year 25,389,036 $ 65,773,682 $ 19,712,501
==============================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid in cash $ 8,464,322 $ 7,270,325 $ 6,250,774
==============================================================================================================================
Taxes paid in cash $ 2,930,000 $ 2,582,783 $ 2,069,541
==============================================================================================================================
SCHEDULE OF NONCASH ACTIVITIES
Unrealized gain on securities transferred from
held-to-maturity to available-for-sale, net of tax $ -- $ -- $ 23,991
==============================================================================================================================
Change in unrealized gain (loss) on available-for-sale
securities, net of tax $ (769,492) $ 45,106 $ (2,667)
==============================================================================================================================
Cash dividend declared and payable after year-end $ 560,737 $ 476,942 $ 228,845
==============================================================================================================================
Transfers of loans to other real estate owned $ 159,080 $ 280,800 $ --
==============================================================================================================================
See accompanying notes
19
12
Notes to Consolidated Financial Statements
Note 1 -- Organization and Summary of Significant Accounting Policies
ORGANIZATION AND NATURE OF OPERATIONS -- Columbia Bancorp ("Columbia") was
incorporated on October 3, 1995 and became the holding company of Columbia River
Bank ("CRB" or "Bank") effective January 1, 1996.
CRB is a state-chartered banking institution authorized to provide banking
services by the States of Oregon and Washington. With its administrative
headquarters in The Dalles, Oregon, CRB operates branch facilities in The
Dalles, Hood River, Hermiston, Pendleton, McMinnville, Newberg, Madras, Redmond
and Bend, Oregon. In Washington, it operates branches in Goldendale and White
Salmon.
Substantially all activity of Columbia is conducted through its subsidiary bank,
CRB, which, along with Columbia, is subject to the regulations of certain
federal and state agencies and undergo periodic examinations by those regulatory
authorities. All significant intercompany accounts and transactions between
Columbia and its subsidiaries have been eliminated in the preparation of the
consolidated financial statements.
BUSINESS ACQUISITION AND EXPANSION ACTIVITY -- In 1997, CRB began operation of a
mortgage banking division, Columbia River Bank Mortgage Group (the "Mortgage
Group"), which is headquartered in Bend, Oregon. The Mortgage Group has an
office in The Dalles, Oregon and provides services to all commercial banking
branches of CRB.
As further discussed in Note 2, Columbia acquired Valley Community Bancorp and
its subsidiaries, Valley Community Bank ("VCB"), and Valley Community Mortgage
Services, Inc., in November 1998. VCB was a state-chartered institution
authorized to provide banking services from its single office location in
McMinnville, Oregon. In 1999, VCB was merged into CRB and CRB replaced the
"Valley Community Bank" name with "Columbia River Bank."
In 1999, Columbia opened new CRB branches in Bend, Pendleton and Newberg,
Oregon. With these new branch openings, Columbia's operations as of December 31,
1999, include 11 bank branches and two mortgage banking division offices in
Oregon and two bank branches in Southwest Washington.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS -- In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates. Significant estimations made by
management primarily involve the calculation of the allowance for loan losses.
INVESTMENT SECURITIES -- Columbia is required to specifically identify its
investment securities as "held-to-maturity," "available-for-sale," or "trading
accounts." Accordingly, management has determined that all investment securities
held at December 31, 1999 and 1998, are either "available-for-sale" or
"held-to-maturity" and conform to the following accounting policies:
Securities held-to-maturity -- Bonds, notes, and debentures for which Columbia
has the intent and ability to hold to maturity are reported at cost, adjusted
for premiums and discounts that are recognized in interest income using the
interest method over the period to maturity.
Securities available-for-sale -- Available-for-sale securities consist of bonds,
notes, debentures, and certain equity securities not classified as
held-to-maturity securities. Securities are generally classified as
available-for-sale if the instrument may be sold in response to such factors as:
(1) changes in market interest rates and related changes in the prepayment risk,
(2) needs for liquidity, (3) changes in the availability of and the yield on
alternative instruments, and (4) changes in funding sources and terms.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as other comprehensive income and carried as accumulated
comprehensive income or loss within stockholders' equity until realized. Fair
values for these investment securities are based on quoted market prices. Gains
and losses on the sale of available-for-sale securities are determined using the
specific-identification method.
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary result in write-downs
of the individual securities to their fair value. The related write-downs
would be included in earnings as realized losses. Premiums and discounts are
recognized in interest income using the effective interest method over the
period to maturity.
RESTRICTED EQUITY SECURITIES -- Columbia's equity investments in the Federal
Home Loan Bank, Federal Agriculture Mortgage Corporation and Federal Reserve
Bank stock are classified as restricted equity securities since ownership of
these instruments is restricted and they do not have an active market. As
restricted equity securities, these investments are carried at cost.
LOANS, NET OF ALLOWANCE FOR LOAN LOSSES AND UNEARNED INCOME -- Loans are stated
at the amount of unpaid principal, reduced by an allowance for loan losses and
unearned income. Interest on loans is calculated by using the simple-interest
method on daily balances of the principal amount outstanding. The allowance for
loan losses is established through a provision for loan losses charged to
expenses. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance 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. Various regulatory agencies, as a regular part of their
examination process, periodically review the Bank's reserve for loan losses.
Such agencies may require the Bank to recognize additions to the allowance based
on their judgment of information available to them at the time of examinations.
20
13
Impaired loans are carried at the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's market price, or
the fair value of the collateral if the loan is collateral dependent. Accrual of
interest is discontinued on impaired loans 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. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to the
extent cash payments are received.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.
LOANS HELD-FOR-SALE -- Mortgage loans held-for-sale are carried at the lower of
cost or estimated market value. Market value is determined on an aggregate loan
basis. At December 31, 1999 and 1998, mortgage loans held-for-sale were carried
at cost which approximated market.
LOAN SERVICING -- The cost of mortgage servicing rights is amortized in
proportion to, and over the period of estimated net servicing revenues.
Impairment of mortgage servicing rights is assessed based on the fair value of
those rights. Fair values are estimated using discounted cash flows based on
current market interest rates. The amount of impairment recognized is the amount
by which the capitalized mortgage servicing rights exceed fair value.
Rights to future interest income from serviced loans that exceeds contractually
specified servicing fees are classified as interest-only strips and accounted
for as debt securities that are available-for-sale.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed by the straight-line and
accelerated methods over the estimated useful lives of the assets, which range
from three to seven years for furniture and equipment and 31 1/2 years for
building premises.
OTHER REAL ESTATE -- Other real estate, acquired through foreclosure or deeds in
lieu of foreclosure, is carried at the lower of cost or estimated net realizable
value. When property is acquired, any excess of the loan balance over its
estimated net realizable value is charged to the reserve for loan losses.
Subsequent write-downs to net realizable value, if any, or any disposition gains
or losses are included in noninterest income and expense.
GOODWILL -- Goodwill represents the excess of cost over the fair value of net
assets acquired from the purchase of Valley Community Bancorp (see Note 2), and
is being amortized by the straight-line method over a 15-year period.
INCOME TAXES -- Deferred income tax assets and liabilities are determined
based on the tax effects of the differences between the book and tax bases of
the various balance sheet assets and liabilities. Deferred tax assets and
liabilities are reflected at currently enacted income tax rates applicable to
the period in which the deferred tax assets or liabilities are expected to be
realized or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes.
ADVERTISING -- Advertising costs are charged to expense during the year in which
they are incurred. Advertising expenses were $278,834, $248,239, and $144,057
for the years ended December 31, 1999, 1998 and 1997, respectively.
STATEMENT OF CASH FLOWS -- Cash equivalents are generally all short-term
investments with a maturity of three months or less. Cash and cash equivalents
normally include cash on hand, amounts due from banks and federal funds sold.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS -- Columbia holds no derivative
financial instruments. However, in the ordinary course of business, the Bank has
entered into off-balance-sheet financial instruments consisting of commitments
to extend credit, commitments under credit card arrangements, commercial letters
of credit and standby letters of credit. These financial instruments are
recorded in the financial statements when they are funded or related fees are
incurred or received.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The following methods and assumptions
were used by Columbia in estimating fair values of financial instruments as
disclosed herein:
Cash and cash equivalents -- The carrying amounts of cash and short-term
instruments approximate their fair value.
Held-to-maturity and available-for-sale securities -- Fair values for investment
securities, excluding restricted equity securities, are based on quoted market
prices. The carrying values of restricted equity securities approximate fair
values.
Loans receivable -- For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
Fair values for certain mortgage loans (for example, one-to-four family
residential), credit card loans, and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. Fair values for
commercial real estate and commercial loans are estimated using discounted
cash flow analyses, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flow analyses or underlying
collateral values, where applicable.
Deposit liabilities -- The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date (that
is, their carrying amounts). The carrying amounts of variable-rate, fixed-term
money market accounts and certificates of deposit (CDs) approximate their fair
values at the reporting date. Fair values for fixed-rate CDs are estimated using
a discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.
Short-term borrowings -- The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
maturing within 90 days approximate their fair values. Fair values of other
short-term borrowings are estimated using discounted cash flow analyses based on
the Bank's current incremental borrowing rates for similar types of borrowing
arrangements.
21
14
Long-term debt -- The fair values of the Bank's long-term debt is estimated
using discounted cash flow analyses based on the Bank's current incremental
borrowing rates for similar types of borrowing arrangements.
Accrued interest -- The carrying amounts of accrued interest approximate their
fair values.
Off-balance-sheet instruments -- The Bank's off-balance-sheet instruments
include unfunded commitments to extend credit and standby letters of credit. The
fair value of these instruments is not considered practicable to estimate
because of the lack of quoted market prices and the inability to estimate fair
value without incurring excessive costs.
STOCK OPTIONS -- Columbia applies Accounting Principles Board Opinion 25 and
related interpretations in accounting for its stock option plans. Accordingly,
compensation costs are recognized as the difference between the exercise price
of each option and the market price of Columbia's stock at the date of each
grant. No compensation costs were recognized in 1999, 1998 and 1997,
respectively. Had compensation for Columbia's stock option plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of Statement of Financial Accounting Standards
(SFAS) No. 123, net income would have been affected as described in Note 17.
RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1999, the Financial Accounting
Standards Board (FASB) issued SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that Columbia recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. SFAS No. 133, as amended
by SFAS No. 137, shall be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. Management believes this accounting standard will
have no effect on the financial condition and results of operations of Columbia
and the Bank.
Other issued but not yet required FASB statements are not currently applicable
to Columbia's operations. Management believes these pronouncements will have no
material effect upon Columbia's financial position or results of operation.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1998 and
1997 financial statements to conform with current year presentations.
Note 2 -- Acquisition of Valley Community Bancorp
Effective November 30, 1998, Columbia completed its acquisition of Valley
Community Bancorp and its wholly-owned subsidiaries, VCB and Valley Community
Mortgage Services, Inc., headquartered in McMinnville, Oregon. As consideration
for the acquisition, Columbia paid $15.1 million in exchange for all of the
outstanding common and preferred stock held by shareholders of Valley Community
Bancorp. Following the acquisition, Valley Community Bancorp was effectively
dissolved and its subsidiaries became direct subsidiaries of Columbia. As of
December 31, 1998, substantially all activity was conducted through VCB. Valley
Community Mortgage Services, Inc., was not engaged in any business activities in
1998 or 1999.
The business combination was accounted for as a purchase for accounting
purposes. Accordingly, under generally accepted accounting principles, the
assets and liabilities of Valley Community Bancorp were recorded by Columbia at
their respective fair market values as of the effective date of the acquisition.
As a result, goodwill, which is the excess of the purchase price over the net
fair value of the assets acquired and liabilities assumed, was recorded at
$9,327,348. Amortization of goodwill over a 15-year period will result in a
charge to earnings of approximately $629,000 per year. The following summa-
rizes the fair values of the assets acquired and liabilities assumed as of the
November 30, 1998, acquisition date.
(in thousands)
- ----------------------------------------------
Cash and due from banks $14,334
Investment securities 5,863
Restricted equity securities 292
Loans, net 20,020
Premises and equipment, net 1,587
Accrued interest and other assets 472
Goodwill 9,327
- ----------------------------------------------
Total assets $51,895
==============================================
Deposits $34,537
Notes payable 1,374
Accrued interest and
other liabilities 882
- ----------------------------------------------
Total liabilities 36,793
Cash paid for acquisition 15,102
- ----------------------------------------------
Total liabilities assumed
and cash paid for acquisition $51,895
==============================================
The financial statements for the year ended December 31, 1998, include the
operations of VCB from November 30, 1998 to December 31, 1998. The following
information presents the pro forma results of operations for the years ended
December 31, 1998 and 1997, as though the acquisition had occurred on January
1, 1997. The pro forma results do not necessarily indicate the actual result
that would have been obtained nor are they necessarily indicative of the
future operations of the combined companies.
22
15
Years Ended
December 31,
-------------------------
Unaudited Pro Forma
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
Net interest income before provision for loan loss $ 16,137 $ 13,783
Net income $ 5,446 $ 4,054
Earnings per common share:
Basic $ 0.80 $ 0.52
Diluted $ 0.78 $ 0.51
Note 3 -- Investment Securities
The book value and approximate market values of Columbia's investment securities
at December 31, 1999 and 1998, are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
Available-for-sale securities:
U.S. Treasury securities $ 1,630,825 $ 1,701 $ (22,405) $ 1,610,121
Obligations of U.S. government agencies 37,162,723 1,343 (959,218) 36,204,848
Corporate debt securities 557,334 -- (25,162) 532,172
Corporate equity securities 300,000 -- -- 300,000
Municipal securities 2,488,684 1,931 (26,715) 2,463,900
- ----------------------------------------------------------------------------------------------------------------
$ 42,139,566 $ 4,975 $ (1,033,500) $ 41,111,041
================================================================================================================
Held-to-maturity securities:
Mortgage-backed securities $ 2,538,993 $ 405 $ (20,108) $ 2,519,290
Municipal securities 17,586,232 30,999 (565,409) 17,051,822
- ----------------------------------------------------------------------------------------------------------------
$ 20,125,225 $ 31,404 $ (585,517) $ 19,571,112
================================================================================================================
DECEMBER 31, 1998
Available-for-sale securities:
U.S. Treasury securities $ 3,160,162 $ 38,507 $ -- $ 3,198,669
Obligations of U.S. government agencies 23,092,877 91,876 (16,546) 23,168,207
Corporate debt securities 604,896 230 (93) 605,033
Corporate equity securities 300,000 -- -- 300,000
Municipal securities 2,193,373 1,487 -- 2,194,860
- ----------------------------------------------------------------------------------------------------------------
$ 29,351,308 $ 132,100 $ (16,639) $ 29,466,769
================================================================================================================
Held-to-maturity securities:
Mortgage-backed securities $ 973,836 $ 792 $ (2,148) $ 972,480
Municipal securities 16,336,386 472,033 (12,207) 16,796,212
- ----------------------------------------------------------------------------------------------------------------
$ 17,310,222 $ 472,825 $ (14,355) $ 17,768,692
================================================================================================================
23
16
The amortized cost and estimated market value of investment securities at
December 31, 1999, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Available-for-Sale Held-to-Maturity
--------------------------- ---------------------------
Cost Market Cost Market
- ------------------------------------------------------------------------------------------------------
Due in one year or less $ 1,049,819 $ 1,051,808 $ 2,481,745 $ 2,492,921
Due after one year through five years 40,150,936 39,131,425 5,866,926 5,851,742
Due after five years through ten years 638,811 627,808 3,849,595 3,737,273
Due after ten years -- -- 7,926,959 7,489,176
- ------------------------------------------------------------------------------------------------------
41,839,566 40,811,041 20,125,225 19,571,112
Corporate equity securities 300,000 300,000 -- --
- ------------------------------------------------------------------------------------------------------
$42,139,566 $41,111,041 $20,125,225 $19,571,112
======================================================================================================
For the purpose of the maturity table, mortgage-backed securities, which are not
due at a single maturity date, have been allocated over maturity groupings based
on the weighted-average contractual maturities of underlying collateral.
Mortgage-backed securities mature earlier than their weighted-average
contractual maturities because of principal prepayments.
As of December 31, 1999 and 1998, investment securities with a book value of
$11,715,839 and $8,092,616, respectively, have been pledged to secure public
and other deposits, as required by law.
Note 4 -- Restricted Equity Securities
The composition of restricted equity securities is summarized as follows:
1999 1998
- ----------------------------------------------------------------------------
Federal Home Loan Bank stock $1,087,400 $ 999,800
Federal Agriculture Mortgage Corporation stock 9,400 9,400
Federal Reserve Bank stock -- 108,000
- ----------------------------------------------------------------------------
$1,096,800 $1,117,200
============================================================================
Note 5 -- Loans
The loan portfolio consists of the following:
1999 1998
- -----------------------------------------------------
Commercial $ 60,868,875 $ 41,274,990
Agriculture 37,775,087 34,603,691
Real estate 130,313,434 108,516,555
Consumer 18,096,432 16,568,629
Other loans 827,362 933,494
- -----------------------------------------------------
247,881,190 201,897,359
Less:
Allowance for
loan losses (3,298,460) (2,380,220)
Unearned loan
fees (890,539) (783,951)
- -----------------------------------------------------
$ 243,692,191 $ 198,733,188
=====================================================
Impairment of loans having recorded investments of $595,329 at December 31,
1999, and $1,906,757 at December 31, 1998, have been recognized by the Bank.
CRB's average investment in impaired loans, measured on the basis of the present
value of expected future cash flows discounted at the loans' effective interest
rate, was $640,697 during 1999 and $2,020,428 during 1998. The total allowance
for loan losses related to these loans at December 31, 1999 and 1998 was
approximately $75,000, and $293,000, respectively. Had the impaired loans per-
formed according to their original terms, additional interest income of
$43,156, $113,298, and $58,533 would have been recognized in 1999, 1998 and
1997, respectively. No interest income has been recognized on impaired loans
during the period of impairment.
24
17
Note 6 -- Allowance for Loan Losses
Changes in the allowance for loan losses were as follows:
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
BALANCE, beginning of year $ 2,380,220 $ 1,638,633 $ 994,576
Acquired with acquisition of Valley Community Bancorp -- 410,540 --
Provision for loan losses 1,005,000 1,000,000 581,000
Loans charged-off (182,366) (766,632) (40,144)
Loan recoveries 95,606 97,679 103,201
- -------------------------------------------------------------------------------------------------------
BALANCE, end of year $ 3,298,460 $ 2,380,220 $ 1,638,633
=======================================================================================================
Note 7 -- Loan Servicing
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
mortgage loans serviced for others was $89,650,772 and $44,530,731 at December
31, 1999 and 1998, respectively.
Mortgage servicing rights of $932,724 and $667,961 were capitalized in 1999 and
1998, respectively. Amortization of mortgage servicing rights was $96,896 and
$20,119 for the years ended December 31, 1999 and 1998, respectively.
Note 8 -- Property and Equipment
The major classifications of property and equipment are summarized as follows:
1999 1998
- ----------------------------------------------------
Land $ 3,529,909 $ 2,019,606
Construction
in progress 727,565 710,410
Buildings and
improvements 7,808,056 5,632,191
Furniture and
equipment 4,517,450 3,702,965
- ----------------------------------------------------
16,582,980 12,065,172
Less accumulated
depreciation (4,574,756) (3,875,104)
- ----------------------------------------------------
$ 12,008,224 $ 8,190,068
====================================================
Note 9 -- Time Deposits
Time certificates of deposit of $100,000 and over, aggregated $19,177,862 and
$10,878,017 at December 31, 1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities for all time deposits are as
follows:
2000 $68,048,952
2001 7,026,336
2002 1,466,935
2003 783,370
2004 and thereafter 1,221,621
- ---------------------------------------------------
$78,545,214
===================================================
25
18
Note 10 -- Income Taxes
The provision for income taxes consists of the following:
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
Current tax provision
Federal $ 2,716,807 $ 2,225,178 $ 1,901,578
State 535,893 411,386 172,668
- --------------------------------------------------------------------------------------------------------------
3,252,700 2,636,564 2,074,246
- --------------------------------------------------------------------------------------------------------------
Deferred tax benefit
Federal (131,834) (165,276) (252,657)
State (15,510) (21,389) (26,113)
- --------------------------------------------------------------------------------------------------------------
(147,344) (186,665) (278,770)
- --------------------------------------------------------------------------------------------------------------
$ 3,105,356 $ 2,449,899 $ 1,795,476
==============================================================================================================
The components of the deferred tax benefit consist of the following:
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
Loan loss provision not deductible for tax $ (321,941) $ (127,122) $ (236,640)
Difference between book and tax depreciation methods 6,270 38,698 36,577
Difference between accrual and cash basis tax reporting (17,406) (102,083) (58,547)
Deferred compensation expense 119,491 7,233 (43,025)
Difference between book and tax recognition of
Federal Home Loan Bank stock dividends 30,400 22,979 22,865
Other differences 35,842 (26,370) --
- --------------------------------------------------------------------------------------------------------------
Deferred tax benefit $ (147,344) $ (186,665) $ (278,770)
==============================================================================================================
The net deferred tax asset in the accompanying consolidated balance sheets
consists of the following:
1999 1998
- --------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 1,047,250 $ 725,309
Net operating loss carryforward 27,524 61,471
Deferred compensation 101,641 221,132
- --------------------------------------------------------------------------------------------------------------
1,176,415 1,007,912
- --------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation (587,293) (581,023)
Conversion to accrual basis tax reporting (45,564) (62,970)
Federal Home Loan Bank stock dividends (122,897) (92,497)
Other (14,941) (13,046)
- --------------------------------------------------------------------------------------------------------------
(770,695) (749,536)
- --------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 405,720 $ 258,376
==============================================================================================================
Management believes, based upon Columbia's historical performance, that the
deferred tax asset will be realized in the normal course of operations and,
accordingly, management has not reduced deferred tax assets by a valuation
allowance.
As a result of Columbia's acquisition of Valley Community Bancorp, Columbia
recorded an additional net deferred tax liability of $281,460 at November 30,
1998.
The tax provision differs from the federal statutory rate of 34% due principally
to the effect of tax exemptions for interest received on municipal investments.
The 1997 provision for income taxes reflects a reduction in the state income tax
rate from 6.6% to 3.8%.
26
19
A reconciliation between the statutory federal income tax rate and the effective
tax rate is as follows:
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Federal income taxes at statutory rate $ 2,886,086 $ 2,437,036 $ 1,931,841
State income tax expense, net of federal income tax benefit 340,773 271,503 126,501
Effect of nontaxable interest income (305,873) (255,867) (220,901)
Effect of nondeductible goodwill amortization 213,732 -- --
Other (29,362) (2,773) (41,965)
- ---------------------------------------------------------------------------------------------------------------
$ 3,105,356 $ 2,449,899 $ 1,795,476
===============================================================================================================
38% 34% 32%
===============================================================================================================
Note 11 -- Transactions with Related Parties
Certain directors, executive officers and principal stockholders are customers
of and have had banking transactions with the Bank, and the Bank expects to have
such transactions in the future. All loans and commitments to loan included in
such transactions were made in compliance with applicable laws on substantially
the same terms (including interest rates and collateral) as those prevailing at
the time for comparable transactions with other persons and do not involve more
than the normal risk of collectibility or present any other unfavorable
features. The amount of loans outstanding to directors, executive officers,
principal stockholders, and companies with which they are associated was as
follows:
1999 1998
- ---------------------------------------------------------------------
BALANCE, beginning
of year $ 2,821,788 $ 2,297,536
Acquired with Valley
Community Bancorp -- 798,564
Loans made 214,305 972,945
Loans repaid and
reclassified (1,345,589) (1,247,257)
- ---------------------------------------------------------------------
BALANCE, end of year $ 1,690,504 $ 2,821,788
=====================================================================
Columbia has a 28.6% shareholder interest in Datatech of Oregon, Inc.
("Datatech"), a bank service corporation functioning as a data processing
facility for the Bank and five other community banks in Oregon. The investment
in Datatech is accounted for by the cost method. Under this accounting method,
Columbia recognizes income from its investment as dividends are distributed.
Dividends received in excess of earnings are considered as a return of
investment and are recorded as reductions of cost of the investment. For the
periods ended December 31, 1999, 1998, and 1997, Bancorp recorded data
processing expenses paid to Datatech in the amount of $530,424, $361,782 and
$304,456, respectively. Columbia also had prime rate, unsecured loans to
Datatech of $106,978 at December 31, 1999, and $167,323 at December 31, 1998. As
of December 31, 1999, Columbia's recorded investment in Datatech was $66,507.
Note 12 -- Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business to meet the financing needs of its customers,
the Bank is a party to financial instruments with off-balance-sheet risk. These
financial instruments include commitments to extend credit and the issuance of
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the state-
ment of financial position. The contract amounts of those instruments reflect
the extent of involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and letters
of credit written is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as they do for on-balance-sheet instruments.
Unless noted otherwise, the Bank does not require collateral or other security
to support financial instruments with credit risk.
Contract Amounts
December 31,
---------------------------
1999 1998
- -------------------------------------------------------
Financial instruments
whose contract amounts
represent credit risk:
Commitments to
extend credit $74,100,106 $50,735,130
Undisbursed credit
card lines of credit 7,703,902 6,329,831
Commercial and
standby letters
of credit 889,019 597,797
- -------------------------------------------------------
$82,693,027 $57,662,758
=======================================================
27
20
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, total commitment amounts do not necessarily represent
future cash requirements. The amount of collateral obtained, if deemed necessary
by the Bank upon an extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies but may include accounts
receivable, inventory, property and equipment, and income-producing properties.
Letters of credit written are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third-party. Those guarantees are
primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Bank holds cash,
marketable securities or real estate as collateral supporting those
commitments for which collateral is deemed necessary.
Note 13 -- Fair Values of Financial Instruments
The following table estimates fair value and the related carrying values of
Columbia's financial instruments at December 31, 1999 and 1998.
1999 1998
- ------------------------------------------------------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
- ------------------------------------------------------------------------------------------------
Financial assets:
Cash and due from banks $ 23,796 $ 23,796 $ 22,644 $ 22,644
Interest-bearing deposits with other banks 913 913 30,575 30,575
Federal funds sold 680 680 12,555 12,555
Securities available-for-sale 41,111 41,111 29,467 29,467
Securities held-to-maturity 20,125 19,571 17,310 17,769
Restricted equity securities 1,097 1,097 1,117 1,117
Loans held-for-sale 3,283 3,283 7,819 7,819
Loans, net of allowance for loan
losses and unearned loan fees 243,692 243,086 198,733 204,334
Accrued interest receivable 2,903 2,903 2,487 2,487
Financial liabilities:
Demand and savings deposits $232,365 $232,365 $230,095 $230,095
Time deposits 78,545 78,528 65,586 65,416
Notes payable 10,870 10,870 9,734 9,734
Accrued interest payable 427 427 323 323
While estimates of fair value are based on management's judgment of the most
appropriate factors, there is no assurance that were Columbia to have disposed
of such items at December 31, 1999 and 1998, the estimated fair values would
necessarily have been achieved at that date, since market values may differ
depending on various circumstances. The estimated fair values at December 31,
1999 and 1998, should not necessarily be considered to apply at subsequent
dates.
In addition, other assets and liabilities of Columbia that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not recognized
in the financial statements nevertheless may have value but are not included in
the above disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the earnings potential of loan servicing rights,
the trained work force, customer goodwill and similar items.
Note 14 -- Concentrations of Credit Risk
All of the Bank's loans, commitments and commercial and standby letters of
credit have been granted to customers in the Bank's market areas. The majority
of such customers are also depositors of the Bank. Investments in state and
municipal securities are not significantly concentrated within any one region of
the United States. The concentrations of credit by type of loan are set forth in
Note 5. The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Commercial and standby letters of credit were
granted primarily to commercial borrowers as of December 31, 1999. The Bank's
loan policies do not allow the extension of credit to any single borrower or
group of related borrowers in excess of $1,000,000 without approval from the
Bank's respective loan committees.
28
21
Note 15 -- Commitments and Contingencies
OPERATING LEASE COMMITMENTS -- As of December 31, 1999, Bancorp leased certain
properties. The annual commitment for rentals under these noncancellable
operating leases expires in 2000 and is not material to the consolidated
financial statements.
Rental expense for all operating leases was $106,106, $65,457, and $44,510 for
the years ended December 31, 1999, 1998, and 1997, respectively.
LEGAL CONTINGENCIES -- Columbia may become a defendant in certain claims and
legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, there are no matters
presently known to Columbia that are expected to have a material adverse effect
on the consolidated financial condition of Columbia.
Y2K MATTER -- Because of the unprecedented nature of the Y2K issue, its effects,
if any, may not be identified until a future date. Management cannot assure that
the Company has identified all Y2K issues, that the Company's remediation
efforts has been successful in whole or in part, or that parties with whom the
Company does business will not be significantly impacted by Y2K issues.
Note 16 -- Notes Payable
The Bank is a member of the Federal Home Loan Bank ("FHLB") of Seattle. As a
members, the Bank has entered into "Advances, Security and Deposit Agreements"
which provide a credit arrangement from FHLB. Borrowings under the credit
arrangement are collateralized by the Bank's FHLB stock as well as deposits or
other instruments, which may be pledged. As of December 31, 1999 and 1998, the
Bank had borrowings outstanding with the FHLB of $10,598,390 and $8,667,800,
respectively. The promissory notes mature in 2000, 2001, 2008, and 2013 and
carry interest rates ranging from 5.32% to 6.12%.
CRB also participates in the U.S. Treasury Department's Treasury Investment
Program, which facilitates the acceptance and processing of federal tax
deposits. Under this program, CRB is authorized to accumulate daily tax
payments, up to authorized limits, and deploy the funds in short-term
investments. In exchange, CRB is required to issue a fully collateralized demand
note to the Treasury and pay interest at the federal funds rate minus 25 basis
points. As of December 31, 1999 and 1998, the Bank had $271,928 and $1,066,295,
respectively, outstanding under this program.
Note 17 -- Stock Incentive Plans
Columbia maintains a stock incentive plan originally adopted by CRB in 1993
prior to Columbia's formation. The plan, most recently amended in February 1999,
and ratified by the shareholders in April 1999, allows for the granting of both
incentive stock options and nonstatutory stock options. The option price for
incentive stock options is determined by Columbia's Board of Directors and can-
not be less than 100% of the fair market value of the shares on the date of
grant. The incentive stock options expire ten years from the date of grant. The
option price and duration of options for nonstatutory stock options is also
determined by the Board of Directors.
The following, adjusted for stock splits and dividends, summarizes options
available and outstanding under this plan.
Weighted
Number Average
Of Exercise
Options Price
- ----------------------------------------------------------------------
Options under grant and exercisable --
December 31, 1996 232,032 $ 3.03
Options granted in 1997:
Incentive stock options 129,000 $ 5.58
Nonstatutory stock options 78,000 $ 5.58
Options exercised in 1997:
Incentive stock options (52,244) $ 2.81
Nonstatutory stock options (12,000) $ 5.58
Options expired or
forfeited in 1997 (1,800) $ 3.34
- ------------------------------------------------------
Options under grant and exercisable --
December 31, 1997 372,988 $ 4.39
Options granted in 1998:
Incentive stock options 5,000 $ 10.50
Gifted shares in 1998 400 $ --
Options exercised in 1998:
Incentive stock options (31,000) $ 3.84
Nonstatutory stock options (24,900) $ 4.72
- ------------------------------------------------------
Options under grant and exercisable --
December 31, 1998 322,488 $ 4.53
Options granted in 1999:
Incentive stock options 3,000 $ 7.83
Nonstatutory stock options 4,000 $ 7.75
Gifted shares in 1999 400 $ --
Options exercised in 1999:
Incentive stock options (26,690) $ 4.70
Nonstatutory stock options (34,800) $ 4.07
Options expired or forfeited in 1999 (900) $ --
- ------------------------------------------------------
Options under grant and exercisable --
December 31, 1999 267,498 $ 4.65
======================================================
Options reserved -- December 31, 1999 170,420
======================================================
29
22
On January 3, 2000, options covering a total of 142,600 shares of Columbia's
common stock were granted to directors and employees of Columbia. Under the
1999 plan, an aggregate of no more than 4% of the issued and outstanding
shares of Columbia common stock is available for award or grant. At December 31,
1999, 4% of the issued and outstanding shares amounted to 320,420 shares of
common stock. Subsequent to the January 3 option grant, a total of 150,000
shares of common stock had been either issued or committed for issuance under
the Incentive Plan, leaving a total of 170,420 shares of common stock available
for awards or grants.
Had compensation cost for Columbia's 1999, 1998, and 1997, grants for
stock-based compensation plans been determined consistent with SFAS No. 123, its
net income and net income per common share for December 31, 1999, 1998, and
1997, would approximate the pro forma amounts below.
1999
-------------------------
As Pro
Reported Forma
- ----------------------------------------------------------------------
Net income $ 5,013 $ 5,002
Basic earnings per
common share $ 0.63 $ 0.63
Diluted earnings per
common share $ 0.62 $ 0.62
1998
-------------------------
As Pro
Reported Forma
- ----------------------------------------------------------------------
Net income $ 4,718 $ 4,512
Basic earnings per
common share $ 0.67 $ 0.64
Diluted earnings per
common share $ 0.65 $ 0.62
1997
-------------------------
As Pro
Reported Forma
- ----------------------------------------------------------------------
Net income $ 3,886 $ 3,669
Basic earnings per
common share $ 0.57 $ 0.54
Diluted earnings per
common share $ 0.55 $ 0.52
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions for
December 31, 1999, 1998, and 1997, respectively: (1) dividend yield of 3.38%,
2.08%, and 2.09%, (2) expected volatility of 39.68%, 34.89%, and 32.57%, (3)
risk-free rate of 6.39%, 4.55%, and 6.36%, and (4) expected life of 4.25, 3.92,
and 3.75 years.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated.
Note 18 -- Employee Benefit Plans
Columbia maintains an Employee Stock Ownership Plan ("ESOP") for the benefit of
its employees. The ESOP allows participation by all employees over the age of 20
who have also met minimum service requirements. Contributions to the ESOP are at
the discretion of the Board of Directors and are used to purchase shares of
Columbia's common stock. Employees are not permitted to contribute individually
to the ESOP, but vest in their proportionate share of the ESOP interest after
six years of participation. For the periods ending December 31, 1999, 1998, and
1997, Columbia contributed $230,000, $230,000 and $222,966, respectively, to the
ESOP.
The ESOP's assets as of December 31, 1999 and 1998, were as follows:
1999 1998
- -------------------------------------------------
Allocated shares 309,884 284,766
=================================================
Cash on hand $ (167) $ 19,588
=================================================
Columbia has also adopted a 401(k) Savings Investment Plan which allows
employees to defer certain amounts of compensation for income tax purposes under
Section 401(k) of the Internal Revenue Code. Essentially, all full-time
employees over the age of 20 and meeting length of service requirements are
eligible to participate in the plan. Employees may elect to defer and
contribute, within statutory limits, up to 10% of their annual compensation into
the plan. Their contributions and those of Columbia, which are limited to 25% of
employee contributions up to 6% of total participant compensation, are invested
by plan trustees in employee designated funds. For the periods ending December
31, 1999, 1998, and 1997, Columbia contributed approximately $51,000, $45,000
and $31,000, respectively, to the Plan.
Columbia has established an employee bonus program, which provides eligible
participants additional compensation based upon the achievement of certain
company goals. For the periods ending December 31, 1999, 1998, and 1997,
additional compensation of $695,611, $636,169, and $428,890, respectively, was
paid to eligible employees.
Beginning 1996 and as later amended, Columbia entered into both employment and
retirement agreements with its chief executive officer. The employment agreement
provides for the executive's salary and customary benefits until termination
of the agreement in May 2001. The retirement agreement provides annual
post-retirement compensation for a seven-year period after the chief exec-
utive's retirement. A portion of Columbia's obligation under the agreement has
been funded with a $120,000 interest-earning investment and will be paid in
annual installments of $48,000 plus interest earned on invested funds. For the
year ended December 31, 1999, Columbia recorded a liability of $229,611 as its
obligation for current services pursuant to the retirement plan. In the event
employment of the chief executive officer is terminated prior to expiration of
the agreements, all salary and benefits accrued as of the termination date and
all retirement payments provided in the retirement agreement will be paid to the
executive.
30
23
Note 19 -- Earnings Per Share
In 1997, the FASB issued a new accounting standard for computing and presenting
earnings per share which requires a dual presentation of basic and diluted
earnings per share. Basic earnings per share excludes dilution and is computed
by dividing income available to common stockholders by the weighted average
number of common shares outstanding for the year. Diluted earnings per share
reflect the potential dilution that could occur if common shares were issued
pursuant to the exercise of options under existing stock option plans. The
following table illustrates the computations of basic and diluted earnings per
share for the years ended December 31, 1999, 1998, and 1997.
Income Shares Per Share
(Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------
1999
Basic earnings per share
Income available to common shareholders $5,013,223 7,985,227 $ 0.63
==========
Effect of dilutive securities
Outstanding common stock options -- 104,733
Income available to common
shareholders plus assumed conversions $5,013,223 8,089,960 $ 0.62
===========================================================================================
1998
Basic earnings per share
Income available to common shareholders $4,717,853 7,066,229 $ 0.67
==========
Effect of dilutive securities
Outstanding common stock options -- 172,236
Income available to common
shareholders plus assumed conversions $4,717,853 7,238,465 $ 0.65
===========================================================================================
1997
Basic earnings per share
Income available to common shareholders $3,886,409 6,813,264 $ 0.57
==========
Effect of dilutive securities
Outstanding common stock options -- 200,225
Income available to common
shareholders plus assumed conversions $3,886,409 7,013,489 $ 0.55
===========================================================================================
Note 20 -- Parent Company Financial Information
Condensed financial information for Columbia Bancorp (unconsolidated parent
company only) is as follows:
1999 1998
- ---------------------------------------------------------------------------------------------------------
ASSETS
Cash $ 239,449 $ 180,369
Investment securities 300,000 300,000
Investment in subsidiaries 37,264,503 34,790,266
Other assets 150,248 281,411
- ---------------------------------------------------------------------------------------------------------
Total assets $ 37,954,200 $ 35,552,046
=========================================================================================================
LIABILITIES
Dividend payable $ 560,737 $ 476,942
Deferred compensation -- 318,884
Income tax payable 71,901 --
- ---------------------------------------------------------------------------------------------------------
Total liabilities $ 632,638 $ 795,826
- ---------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock $ 14,392,229 $ 14,125,315
Additional paid-in capital 6,371,490 6,317,732
Retained earnings 17,272,137 14,257,975
Unrealized (loss) gain on available-for-sale investment securities (714,294) 55,198
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 37,321,562 34,756,220
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 37,954,200 $ 35,552,046
=========================================================================================================
31
24
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
REVENUES
Equity in undistributed (excess distribution of) earnings
of subsidiary banks $ 3,255,598 $ (3,098,692) $ 3,541,345
Dividends 2,250,000 7,975,000 468,956
EXPENSES
Administrative expenses (492,375) (158,455) (123,892)
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 5,013,223 $ 4,717,853 $ 3,886,409
=============================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,013,223 $ 4,717,853 $ 3,886,409
Adjustments to reconcile net income to net cash from
operating activities:
Excess distribution of (equity in undistributed)
earnings of subsidiary bank (3,255,598) 3,098,692 (3,541,345)
Changes in other assets and liabilities (527,135) (7,513) 5,584
- -----------------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 1,230,490 7,809,032 350,648
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public stock offering, net of costs $ -- $ 8,126,115 $ --
Cash dividends and fractional share payments (1,438,324) (1,343,226) (793,772)
Proceeds from stock options exercised and purchases
of common stock 266,914 470,982 389,000
- -----------------------------------------------------------------------------------------------------------------------------
Net cash from financing activities (1,171,410) 7,253,871 (404,772)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition of Valley Community Bancorp
and subsidiaries $ -- $(15,068,552) $ --
- -----------------------------------------------------------------------------------------------------------------------------
Net cash from investing activities -- (15,068,552) --
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 59,080 (5,649) (54,124)
CASH AND CASH EQUIVALENTS, beginning of year 180,369 186,018 240,142
- -----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 239,449 $ 180,369 $ 186,018
=============================================================================================================================
SCHEDULE OF NONCASH ACTIVITIES
Change in unrealized (loss) gain on available-for-sale securities,
net of tax $ (769,492) $ 45,106 $ 21,324
=============================================================================================================================
Unrealized gain on securities transferred from held-to-maturity
to available-for-sale, net of taxes $ -- $ -- $ 23,991
=============================================================================================================================
Cash dividend payable $ 560,737 $ 476,942 $ 228,845
=============================================================================================================================
Note 21 -- Regulatory Matters
Columbia and CRB are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on a bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, banks must
meet specific capital guidelines that involve quantitative measures of the
bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. Capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Columbia and the Bank to maintain minimum amounts and ratios (set forth
in the table on the following page) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to
average assets (as
32
25
defined). Management believes, as of December 31, 1999, that Columbia and CRB
meet all capital adequacy requirements to which they are subject.
As of the most recent notifications from their regulatory agencies, Columbia and
CRB were categorized as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as adequately capitalized, Columbia
and CRB must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the table below. There are no conditions or
events since these notifications that management believes have changed the
institutions' category.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------------------------------------------------------------
(in thousands) Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1999
COLUMBIA BANCORP
Total capital to risk-weighted assets $32,539 11.3% $23,036 >=8.0% $28,796 >=10.0%
Tier 1 capital to risk-weighted assets 29,241 10.2 11,467 >=4.0 17,201 >=6.0
Tier 1 capital to average assets 29,241 8.3 14,092 >=4.0 17,615 >=5.0
AS OF DECEMBER 31, 1999
COLUMBIA RIVER BANK
Total capital to risk-weighted assets $32,481 11.0% $23,623 >=8.0% $29,528 >=10.0%
Tier 1 capital to risk-weighted assets 29,183 9.8 11,911 >=4.0 17,867 >=6.0
Tier 1 capital to average assets 29,183 8.3 14,064 >=4.0 17,580 >=5.0
AS OF DECEMBER 31, 1998
COLUMBIA BANCORP
Total capital to risk-weighted assets $27,588 11.9% $18,544 >=8.0% $23,180 >=10.0%
Tier 1 capital to risk-weighted assets 25,207 10.9 9,272 >=4.0 13,908 >=6.0
Tier 1 capital to average assets 25,207 8.9 11,283 >=4.0 14,104 >=5.0
AS OF DECEMBER 31, 1998
COLUMBIA RIVER BANK
Total capital to risk-weighted assets $22,852 11.3% $16,186 >=8.0% $20,232 >=10.0%
Tier 1 capital to risk-weighted assets 20,882 10.3 8,093 >=4.0 12,139 >=6.0
Tier 1 capital to average assets 20,882 7.7 10,860 >=4.0 13,575 >=5.0
AS OF DECEMBER 31, 1998
VALLEY COMMUNITY BANK
Total capital to risk-weighted assets $ 4,812 16.6% $ 2,320 >=8.0% $ 2,900 >=10.0%
Tier 1 capital to risk-weighted assets 4,449 15.3 1,160 >=4.0 1,740 >=6.0
Tier 1 capital to average assets 4,449 8.9 1,993 >=4.0 2,491 >=5.0
- ----------------------------------------------------------------------------------------------------------------------------
Note 22 -- Stock Offering
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 used in
connection with Columbia's expansion plans included the acquisition of Valley
Community Bancorp as of November 30, 1998 (see Note 2). Pending such use, the
net proceeds were invested in short-term, investment-grade securities.
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26
Independent Auditor's Report
TO THE BOARD OF DIRECTORS
COLUMBIA BANCORP
We have audited the accompanying consolidated balance sheets of Columbia Bancorp
and Subsidiaries as of December 31, 1999 and 1998, and the related statements of
income and comprehensive income, changes in stockholders' equity, and cash flows
for the years ended December 31, 1999, 1998 and 1997. These financial statements
are the responsibility of Columbia Bancorp's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Columbia Bancorp and
Subsidiaries as of December 31, 1999 and 1998, and the results of its operations
and cash flows for the three-year periods ended December 31, 1999, in conformity
with generally accepted accounting principles.
/s/ MOSS ADAMS LLP
- -------------------------------
Portland, Oregon
January 25, 2000
Columbia Bancorp and Columbia River Bank
Executives and Other Vice Presidents
EXECUTIVE OFFICERS
TERRY L. COCHRAN
President and CEO, Columbia Bancorp
ROGER L. CHRISTENSEN
Chief Operating Officer, Columbia Bancorp
CRAIG J. ORTEGA
President and CEO, Columbia River Bank
JAMES C. MCCALL
Chief Lending Officer
NEAL T. MCLAUGHLIN
Chief Financial Officer
OTHER CORPORATE VICE PRESIDENTS
TOM C. BOURDAGE
Vice President/Marketing
RICHARD J. CROGHAN
Vice President
PHILIP S. HAMILTON
Vice President/Mortgage Group Manager
CHARLA L. HERMAN
Vice President/Human Resource Director
ANN MARIE JELDERKS
Vice President/Investment Executive
DAVE V. KINSER
Vice President/Assistant Manager
The Dalles
BRITT W. THOMAS
Vice President/Loan Administrator
PATTY A. WEISS
Vice President/Senior Operations Officer
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Columbia River Bank
Branch Managers and Branch Locations
RICK A. ANDERSEN
Vice President and Manager
McMinnville Branch
GERALD "HAP" P. COOLEY
Vice President and Manager [MAP]
Pendleton Branch
JAMES "MARSHALL" CORNETT
Vice President and Manager
Hood River Branch
R. SHANE CORREA
Vice President and Manager
Hermiston Branch
LINDA J. CREAGER
Vice President and Manager
White Salmon Branch
BOB J. FICKER
Vice President and Manager
Newberg Branch
I. NORMAN GLOVER
Senior Vice President and Manager
Goldendale Branch
GARY W. HERTEL
Senior Vice President and Manager
The Dalles Branch
PETE R. MCCABE
Vice President and Manager
Madras Branch
SANDI K. OLSON
Assistant Vice President and Manager
Westside Branch
KYLE E. SAGER
Vice President and Manager
Redmond Branch
MICHAEL F. TESTERMAN
Vice President and Manager
Bend Branch
PHILLIP L. WAGGONER
Assistant Vice President and Manager
Shevlin Center Branch
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Corporate and Shareholder Information
ANNUAL MEETING
The annual meeting of shareholders is scheduled for 6:30 pm, Pacific Time, April
25, 2000, at Columbia Gorge Discovery Center, 5000 Discovery Drive, The Dalles,
Oregon.
FINANCIAL INFORMATION
Copies of financial reports are available upon request and without charge.
Quarterly financial information is available in press release format. To receive
the above information, you can dial our Fax On Demand Service at 1-800-683-0074
or write the address or call the phone number below and these will be provided.
Financial reports, press releases and the annual report are also available on
the Internet at the following address: www.columbiabancorp.com.
Investor Relations Columbia Bancorp
PO Box 1050
The Dalles, Oregon 97058
541-298-6649
TRANSFER AGENT
Shareholder Services
Norwest Bank Minnesota, NA
PO Box 64854
St. Paul, Minnesota 55164-0854
1-800-468-9716
OUTSIDE LEGAL COUNSEL
Bennett H. Goldstein
Attorney At Law
2548 SW St. Helens Court
Portland, Oregon 97201
INDEPENDENT AUDITORS
Moss Adams LLP
222 SW Columbia, Suite 400
Portland, Oregon 97201
STOCK TRADING MARKET
Columbia Bancorp common stock is quoted on the NASDAQ National Market under the
symbol "CBBO."
WEB SITE
Visit us online at www.columbiabancorp.com or
www.columbiariverbank.com
Member FDIC
[LOGO] Equal Housing Opportunity
This statement has not been reviewed, or confirmed for accuracy or relevance by
the Federal Deposit Insurance Corporation.
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