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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 2000
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _____
Commission file number: 0-27938
COLUMBIA BANCORP
(Exact name of registrant as specified in its charter)
93-1193156
Oregon (I.R.S. Employer
(State of incorporation) Identification No.)
420 East Third Street, Suite 200
The Dalles, Oregon 97058
(Address of principal executive offices)
Registrant's telephone number: (541) 298-6649
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common stock,
no par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of February 15, 2001 was $50,634,392.
The number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: 8,038,198 shares of no par value
common stock on March 1, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement dated March 10, 2001 for the
2001 Annual Meeting of Shareholders ("Proxy Statement"), and the 2000 Annual
Report to Shareholders are incorporated by reference in Part II and III hereof.
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COLUMBIA BANCORP
FORM 10-K
TABLE OF CONTENTS
PAGE
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Disclosure Regarding Forward Looking Statements 3
PART I
Item 1. Business 3 - 15
Item 2. Properties 15 - 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
(Portions of Items 5, 6, 7 and 8 are incorporated by reference from
Columbia Bancorp's 2000 Annual Report to Shareholders)
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 18 - 34
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 34 - 35
Item 8. Financial Statements and Supplementary Data 36
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure 36
PART III
(Items 10 through 13 are incorporated by reference from Columbia Bancorp's
definitive proxy statement for the Annual Meeting of Shareholders to be
held on April 26, 2001)
Item 10. Directors, Executive Officers of the Registrant 37
Item 11 Executive Compensation and Report of Compensation Committee 37
Item 12. Security Ownership of Certain Beneficial Owners and Management 37
Item 13. Certain Relationships and Related Transactions 37
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 37 - 38
SIGNATURES 39 - 40
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This document includes forward-looking statements as defined in applicable
federal securities laws and regulations. Such forward-looking statements are
based on certain assumptions made by Columbia's management, information
currently available to management, and management's present beliefs about
Columbia's business and operations. All statements, other than statements of
historical fact in this document, including without limitation, statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" regarding Columbia's financial position, business
strategy, and plans and objectives of management of Columbia for future
operations, are forward-looking statements. Forward-looking statements can be
identified by words such as "believe," "estimate," "anticipate," "expect,"
"intend," "will," "may," "should," or other similar phrases or words. Although
Columbia believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Readers are therefore cautioned not to place undue
reliance on such forward-looking statements. Such factors as changed conditions,
incorrect assumptions or the materialization of a risk or uncertainty could
cause actual results to differ materially from results described in this
document as believed, anticipated, estimated, expected, or intended. Columbia
does not intend to update these forward-looking statements other than in its
quarterly and annual reports and other filings under applicable securities laws.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Columbia Bancorp ("Columbia") is a bank holding company headquartered in
The Dalles, Oregon, with one subsidiary, Columbia River Bank ("CRB"). CRB is a
13 branch, state-chartered institution authorized to provide banking services by
the states of Oregon and Washington. Columbia offers a broad range of financial
services to its customers, primarily small and medium sized businesses, farmers,
and individuals. Columbia's 11 Oregon branches serve the northern and eastern
Oregon communities of The Dalles, Hood River, Pendleton and Hermiston, the
central Oregon communities of Madras, Redmond, and Bend, and the communities of
McMinnville and Newberg in the Willamette Valley. Columbia's two south central
Washington branches serve the communities of Goldendale and White Salmon.
As of December 31, 2000, Columbia had total assets of $416.86 million,
total deposits of $346.43 million, and shareholders' equity of $41.33 million.
Columbia's net income for the year ended December 31, 2000, was $5.62 million,
which was Columbia's 13th consecutive year of increasingly higher net income.
For the year ended December 31, 2000, Columbia's return on average assets was
1.41% and return on average equity was 14.40%. Since the year ended December 31,
1995, Columbia has increased earnings by an average of 25.19% per year and
achieved an average return on average assets of 1.56%. During the same period,
Columbia has achieved an average return on average equity of 15.86% while
sustaining strong asset quality.
From its origins as a one-branch bank in The Dalles, Oregon, Columbia
has grown as a result of merger and acquisition activity, new branch openings,
the introduction of new business lines and the expansion and cross-marketing of
its existing products and community-bank lending expertise. In 1995, CRB merged
with Juniper Banking Company. In 1996, Columbia was formed as CRB's holding
company and Columbia acquired Washington-based Klickitat Valley Bank
("Klickitat"). 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 1998, CRB opened a new branch in Hermiston, Oregon and Columbia completed the
acquisition of Valley Community Bank ("VCB"). During 1999, CRB opened new
branches in Pendleton and Newberg, Oregon, and opened a second Bend, Oregon
branch. In April 2000, Columbia River BankNet, CRB's Internet-based banking
product, was introduced. Collectively, these growth and acquisition activities
have enabled Columbia to diversify its loan portfolio and its operating risks
over several market areas and local economies.
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The markets in which Columbia operates are economically diverse, and
therefore pose both opportunities and challenges to a community bank operating
in all of these economies. Columbia's approach to meeting the challenge is to
staff its branches and business groups with managers who are established in
their communities and have developed a loyal customer following. Columbia's
senior management, in conjunction with the branch managers, reviews the
operations of each branch to determine which products and services are best
suited to that geographic region. The diverse economies also provide
opportunities to limit Columbia's exposure to adverse market conditions in any
one economic sector.
BUSINESS STRATEGY
Columbia's strategy is to continue building on its position as a leading
community-based provider of financial services in Oregon and south central
Washington. The key to the success of this strategy, in Columbia's view, is to
continue to provide exceptional personal service to the communities it now
serves, and to successfully expand into new communities by identifying and
meeting their unique financial services needs. Columbia's target branch
locations are in non-metropolitan regions, where it aims to deliver prompt and
friendly personal banking services. The components of Columbia's business
strategy are outlined below.
Successfully operate in non-metropolitan regions. In direct contrast to
the present strategies of certain major regional banks, which have closed
branches and reduced service levels in Columbia's service areas, Columbia
believes that the key to profitably operating in non-metropolitan communities is
to: (i) provide a high level of service to the customer; (ii) staff branches
with employees who have established ties to the community; (iii) attract and
retain a highly skilled management team; and, (iv) allow branch personnel the
flexibility to emphasize products and services which best fit their local
economy. In addition, by decentralizing a portion of the management function to
the branch level, Columbia believes it can make business decisions regarding
customers more quickly and with more knowledge than its major banking
competitors. Columbia believes it is able to profitably attract and retain
customers by providing and delivering products and services tailored to their
individual needs, and by delivering them with a high degree of personal
attention.
Maintain high asset quality. Columbia seeks to maintain high asset
quality through a program that includes prompt and strict adherence to
established credit policies combined with training and supervision of lending
officers. Additionally, Columbia uses incentives to maintain high asset quality,
including tying a portion of its loan officers' compensation to the quality of
the loans they originate. Columbia also believes that its commitment to hire
branch managers with long term ties to their communities is of significant
assistance in determining the quality of loan transactions. The variety of
economies in which Columbia's branches are located increases the diversification
and, in Columbia's opinion, the strength of the overall loan portfolio.
Seize merger and acquisition opportunities. In 1995, CRB merged with
Juniper Banking Company ("Juniper") of central Oregon. In 1996 Columbia acquired
Klickitat Valley Bank of south central Washington, and in November 1998,
Columbia acquired McMinnville-based Valley Community Bancorp ("Valley"). After
these transactions, Columbia was able to provide the same or improved levels of
community banking products and services in these new market areas.
Continue to expand through new branches and new products. Columbia has
grown through the establishment of four new branches in the past three years. In
addition, Columbia's banking products, services and delivery channels are
designed to be responsive to the needs of local community businesses and
individual customers. For example, in the year 2000 Columbia recognized an
opportunity to provide Internet-based banking services to its customers with
Columbia River BankNet. BankNet allows customers access to banking services when
and where it is convenient to the customer. Columbia also offers investment
products and services through its affiliation with the Primevest Financial
Services, Inc. and LaSalle St. Securities, LLC, through which it offers stocks,
bonds, mutual funds, IRAs, retirement plans, and estate planning. Columbia's
products and services are designed to both increase its customer base and to
enhance cross-selling opportunities.
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GROWTH HISTORY
Columbia's Origins and Activities Through 1994. Columbia's subsidiary,
CRB, was incorporated and chartered in Oregon in 1976 and opened for business in
1977. CRB developed and grew as a one-branch community bank in The Dalles.
Several of Columbia's present senior executive officers, including its Chief
Executive Officer and President, have been with the company since the early
1980s. Collectively, Columbia's five-member senior management team has, on
average, over 23 years of banking experience, much of it gained through years of
service at CRB.
CRB's first branch expansion was a satellite branch facility that opened
in 1986 west of The Dalles' city center. Two years later, Columbia opened a
branch in the small Oregon community of Maupin. Management subsequently
determined that the Maupin branch was unprofitable, and the branch was closed in
May 1998.
In 1992 CRB purchased land adjacent to a newly established Wal-Mart
store in nearby Hood River, on which it built and opened its second branch
outside of The Dalles. The Hood River Branch opened for business in May 1993.
Activities in 1995. On January 1, 1995 CRB merged with Juniper, a
community bank in central Oregon with branches in Madras and Redmond, Oregon.
Following this merger, CRB's full service branches increased from three to five,
and its assets increased from $62 million to $92 million. CRB retained the
"Juniper Banking Company" name and added three experienced former Juniper
directors to its Board. Also, in 1995 CRB replaced its existing branch facility
in the western part of The Dalles with a branch facility in a newly built
Safeway supermarket west of The Dalles' downtown core. This branch takes
deposits, accepts loan applications, and offers other products and services;
however, it does not process loans on-site.
Activities in 1996. In early 1996, Columbia became CRB's holding
company. In June of 1996 Columbia acquired Klickitat, a south central Washington
community bank headquartered in Goldendale, Washington with a branch in White
Salmon. As CRB did with Juniper, Columbia retained the "Klickitat Valley Bank"
name, and added, during 1996 and 1997, four experienced former Klickitat
directors to the Columbia Board. Klickitat was a natural acquisition candidate
for Columbia. Klickitat's White Salmon branch was within a few miles of CRB's
Hood River branch across the Columbia River, and there were and are multiple
economic ties between these two communities. Klickitat was Goldendale's only
community bank, and this community's agriculture-based economy fit well with
CRB's lending expertise.
In late 1996 CRB opened its first branch in Bend, Oregon under the
"Juniper Banking Company" name. Bend's proximity to CRB's existing Redmond and
Madras branches, and Bend's economic growth and increasing population, made this
a natural branch extension for Columbia. Bend is the largest community in which
Columbia operates. Management believes that Bend's population growth, the
expansion and diversity of its economic base, and its strong home construction
market afford significant opportunities for growth.
Activities in 1997. In 1997, Columbia's growth came internally from
increased numbers of loans and deposits at its branches. Loan growth at the new
Bend branch was significant, with assets increasing 239% over the prior year,
from $3.3 million to $11.2 million. Further growth came from enhanced home
mortgage growth through Columbia's mortgage group, established in mid-1997.
Activities in 1998.
Secondary Common Stock Offering and Nasdaq Listing. During November
1998, Columbia registered 1,000,000 shares of common stock for sale to the
public at a price of $9 per share, for an aggregate offering price of
$9,000,000. All shares were sold, resulting in net proceeds of $8,126,115, after
deducting $873,885 for underwriting discounts and commissions, legal,
accounting, printing fees, and other offering expenses. Net proceeds were used
to implement Columbia's expansion plans, including the acquisition of Valley. In
connection with the offering, Columbia's common stock was listed on the Nasdaq
Stock Market, where trading commenced on November 6, 1998.
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Acquisition of Valley Community Bancorp. Columbia's most recent
acquisition-based expansion was its purchase of Valley on November 30, 1998 for
a cash purchase price of $15.10 million (the "Acquisition"). Subsequent to the
Acquisition, Valley was merged into Columbia Bancorp, and its subsidiaries,
including VCB, became wholly-owned subsidiaries of Columbia.
Columbia believes the economy in the McMinnville area affords it the
opportunity to leverage two of its core competencies: small business lending and
agricultural lending. Additionally, the acquisition became Columbia's first
entrance into Oregon's most populous region, the Willamette Valley. Management
believes there are significant future growth opportunities in McMinnville,
Newberg and surrounding communities.
Columbia operated VCB as a separate subsidiary under the "Valley
Community Bank" name until November 30, 1999 when it was merged into CRB.
Columbia's management believes the combination will lower overall costs in the
years ahead and will capitalize on synergistic marketing, advertising and
customer awareness issues.
Hermiston, Umatilla County, Oregon. Columbia opened a new branch in
Hermiston, Oregon in September of 1998. Hermiston, which has a population of
over 11,000, is 100 miles east of The Dalles. The branch offers full-service
community banking services, including loans to local commercial and
agricultural-based business.
Activities in 1999.
Pendleton, Umatilla County, Oregon. In January 1999 Columbia opened a
branch in Pendleton, which is 26 miles east of Hermiston and is the largest town
in eastern Oregon. Columbia hired a branch manager who has strong ties to the
Pendleton community and 25 years experience with one of Columbia's
super-regional bank competitors.
Shevlin Center Branch -- Bend, Deschutes County, Oregon. Columbia opened
a second branch in Bend, Oregon in the summer of 1999. The branch is located in
the western part of Bend in the upscale Shevlin Business Park, an office park
development. The additional branch in Bend was planned in order to take
advantage of growth opportunities and to leverage existing nearby operations.
Bend is the largest city in central Oregon, and the largest single market area
in which Columbia operates. Columbia believes the second Bend branch will allow
opportunities for future growth, especially for business lending services.
Newberg Branch, Yamhill County, Oregon. Columbia opened its first branch
in Newberg, Oregon in November 1999. The branch operates in leased space in the
Columbia River Bank Building. The Newberg branch is Columbia's second branch in
Oregon's rapidly growing Willamette Valley.
Name Uniformity. Following the mergers and acquisitions involving
Juniper Banking Company, Klickitat and VCB, CRB for various periods of time
retained the use of these banks' names as assumed business names at select
branch facilities. However, eventually all of these assumed business names were
replaced with the "Columbia River Bank" name. In 1999 the last name transition
was complete when VCB merged into CRB, and the "Valley Community Bank" name was
retired. As of December 31, 1999 all of CRB's branches, including the most
recently opened branches, operate under the "Columbia River Bank" name.
Activities in 2000.
Columbia River BankNet. In April 2000 CRB introduced an Internet-based
delivery channel that allows customers the convenience to perform many banking
functions whenever and wherever they want. Accessed through CRB's web site at
www.columbiariverbank.com, BankNet services include: accessing a summary of
accounts and balances; interest detail on all accounts; account history;
transfer of funds between accounts; applying for loans; secure messaging; and
bill payment. Coupled with ATM and branch networks, and 24-hour telephone access
to account information, CRB continuously focuses on providing choices in banking
services, products and delivery channels to its clients.
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Data Processing Changes. In 2000, CRB took steps to reorganize its data
processing function. CRB previously had many of its data processing services
handled by a data processing company, Datatech of Oregon, Inc. ("Datatech"), of
which CRB owned 28.6% and five other community banks owned the remainder. In
September, CRB acquired all of the stock of Datatech and contracted with FISERV,
a nationwide bank services company, for day-to-day management of the operating
assets of Datatech. Management believes these moves will allow CRB greater
control and flexibility in data processing functions at a reduced cost.
CONSUMER PRODUCTS AND SERVICES
Columbia offers a broad range of deposit and loan products and services
tailored to meet the banking requirements of consumers in Columbia's market
areas. These include:
Deposit Products. Columbia's consumer deposit products include many
noninterest-bearing checking account products priced at various levels,
interest-bearing checking and savings accounts, money market accounts, and
certificates of deposit. These interest-bearing accounts generally earn
interest, or are priced, at rates established by management based on competitive
market factors and management's desire to increase certain types or maturities
of deposit liabilities. Columbia does not pay brokerage commissions to attract
deposits. It strives to establish customer relations to attract core deposits in
noninterest-bearing transactional accounts, which reduces its cost of funds.
Mortgage Loans. In August of 1997, Columbia created a division of CRB to
originate conventional and federally insured residential mortgage loans for sale
in the secondary market. The division, known as the "Columbia River Bank
Mortgage Group," has grown its business substantially since its inception. As of
December 31, 1997, the mortgage group had sold 60 loans valued at $6.44 million.
Between January 1, 1998 and December 31, 1998, an additional 1,064 loans valued
at $117.54 million were sold. And between January 1, 1999 and December 31, 1999,
1,179 loans valued at $130.21 million were sold. The group has benefited from a
number of factors, including strong demand for mortgages, especially in the Bend
area, a favorable interest rate environment, utilization of advanced software
for evaluating and processing mortgage applications, and an aggressive sales
culture. The mortgage group operates its primary retail loan operations from
branch facilities in Bend, Oregon, but offers its products at all of Columbia's
Oregon and Washington branches. It also offers mortgage loan products, brokerage
and servicing support for certain other Oregon banks. In 1999, approximately 60%
of Columbia's mortgage business was generated from its mortgage group and from
Columbia's branches. The remaining 40% is derived from relationships with
mortgage brokers and other community banks.
Investment Products. Through arrangements with Primevest Financial
Services, Inc., ("Primevest"), and LaSalle St. Securities, LLC, ("LaSalle"),
both registered securities broker-dealers, Columbia offers a wide range of
financial products and services to consumers. These include stocks, mutual
funds, traditional and Roth IRAs, SEPs, tax-sheltered annuities, life insurance,
and other financial products. Representatives also offer retirement planning
services. Columbia receives a portion of the commissions generated from
financial product sales.
Technology-Based Products and Services. Columbia uses both traditional
and new technology to support its focus on personal service. These include a
VISA credit and check card (debit card) program, ATMs at each of Columbia's
full-service branches, including nine drive-up ATMs, a telephone banking service
that allows customers to speak directly with a customer service representative
during normal banking hours, and 24-hour telephone access to their accounts. In
addition, Columbia, through its web site, offers BankNet, its Internet banking
service, allowing access to account information and services in an on-line,
real-time environment.
Consumer Loans. Columbia provides loans to individual borrowers for a
variety of purposes, including secured and unsecured personal loans, home equity
and personal lines of credit, and motor vehicle loans.
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Senior Customer Services. Since a significant portion of Columbia's
consumers are senior citizens, Columbia offers several special products,
programs and activities aimed at this group. These include a reduced rate
checking account product for seniors, and special trips to the Oregon coast, the
Pendleton Roundup, an annual rodeo event, and other places and events. In
addition, Columbia markets retirement planning products and investments to the
senior customer group through Primevest and LaSalle.
LOAN PRODUCTS FOR COMMERCIAL, AGRICULTURAL, AND OTHER BUSINESS CUSTOMERS
Columbia has an experienced lending staff, including special expertise
in small business and agricultural lending. Columbia's loan officers emphasize
continuing contact with business customers after loans are made. Columbia
believes that its business customers appreciate the ongoing relationship they
develop with their local lending officer. Such relationship-based banking is an
important aspect of Columbia's continuous effort to maintain high asset quality.
Commercial Loans. Columbia offers customized loans to its commercial
customers, including equipment and inventory financing, operational lines of
credit, SBA loans for qualified businesses, and accounts receivable financing. A
significant portion of Columbia's loan portfolio consists of commercial loans.
For regulatory reporting purposes, a portion of Columbia's commercial loans are
designated as real estate loans because they are secured by real property,
although these loans may finance accounts receivable, equipment and inventory
purchases, or other commercial activities. Lending decisions are based on
careful evaluation of the financial strength, management, and credit history of
the borrower and the quality of the collateral securing the loan. Commercial
loans secured by real property are generally limited to 75% of the value of the
collateral. Columbia typically requires personal guarantees and relies on the
identification of secondary sources of repayment.
Agricultural Loans. Columbia provides loans to agricultural businesses,
including production lines of credit, equipment financing, and term loans for
capital improvements and other business purposes. Agricultural loans are
generally secured by crops, equipment, and inventory, as well as real estate.
Agricultural lending can require significant follow-up time, as farmers request
budgeting assistance and other financial advice. Columbia employs both an
agricultural loan consultant with decades of farm lending experience, and an
experienced agricultural representative who is a full-time Columbia employee, to
assist its loan officers in loan processing and administration. Columbia's loan
officers, many of whom are graduates of the Western Agricultural School in
Pullman, Washington, make frequent visits to farming operation sites, attend
regular agricultural lending programs and seminars, and actively participate in
growers' associations and other agricultural-based organizations.
Real Estate Loans. Real estate loans are available for the construction,
purchasing, and refinancing of commercial and rental properties. Borrowers can
choose from a variety of fixed and adjustable rate options and terms.
Columbia's real estate loans are in large part loans to commercial
customers, farmers, and ranchers, and are secured by the properties used in
their businesses. The majority of these loans have a variable rate feature with
adjustment periods varying from one to five years. Columbia often requires a
government guaranty as additional collateral support. Insofar as payments on
real estate loans depend on the successful operation and management of the
businesses and properties securing the loans, repayment can be affected by local
real estate market and economic conditions. Fluctuating land values and local
economic conditions can make loans secured by real property difficult to
evaluate and monitor.
Government-Assisted Loan Programs. Columbia's loan officers make loans
to small businesses and to farmers that are supported by guarantees issued by
various state and federal government agencies. Columbia is active in the SBA 7-A
and 504 programs, and in similar programs offered by the Farm Services Agency
(formerly the Farmers Home Administration) and by Oregon's state government.
Columbia has utilized these programs to serve customers who are expanding their
operations, venturing into new product lines, or constructing special use real
estate. The government guarantees a portion of these loans, which reduces risk
in Columbia's loan portfolio.
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Services to Non-Profits and Public Entities. Columbia offers a general
array of loan products to borrowers in the non-profit and public entity sector,
including city and county governments, together with special programs, such as
jumbo CDs and low-cost loan programs. Columbia also offers consumer services to
nonprofit and public sector employees, such as Columbia VISA card enrollment and
direct deposit services.
For all of its loans, Columbia at all times seeks to maintain sound loan
underwriting standards with written loan policies, appropriate individual and
branch limits, and loan committee reviews. In the case of particularly large
loan commitments or loan participations, loans are reviewed by a loan committee
at the Board of Directors level of CRB. Underwriting standards are designed to
achieve a high-quality loan portfolio, compliance with lending regulations and
the desired mix of loan maturities and industry concentrations. Management seeks
to minimize credit losses by closely monitoring the financial condition of its
borrowers and the value of collateral.
OTHER PRODUCTS AND SERVICES FOR BUSINESS CUSTOMERS
Deposit and Related Products. Columbia's business deposit products
include basic, regular, and interest-bearing checking accounts, merchant VISA
programs, and business money market and sweep accounts. Columbia also offers
check verification services to merchants allowing them the ability to determine,
on a 24-hour basis, whether a check drawn on an account has sufficient funds to
cover the amount drawn.
Investment Products. Columbia's affiliation with Primevest and LaSalle
allows it to offer financial products and services to Columbia's business
customers as well as to consumers. These include insurance and annuity products,
and employee retirement plan products such as SEPs, IRAs and 401(k) plans.
Accounts Receivable Financing. Columbia offers its business customers
the opportunity to obtain financing for their businesses through an accounts
receivable financing program. Columbia offers this program in collaboration with
a third-party vendor specializing in accounts receivable management that
utilizes proprietary collection software. Under the program, Columbia purchases
accounts receivable at a discount on a daily basis and maintains customer cash
reserve balances to protect it from potential losses. Accounts receivable
collection is handled by Columbia using the vendor's proprietary software.
Columbia began offering this service in early 1998.
STAFF TRAINING AND EDUCATION -- COLUMBIA BANCORP UNIVERSITY
Columbia has several staff training and education programs. All new
employees undergo a two-day orientation program, during which they meet senior
management and become familiar with Columbia's history, customer service goals,
and culture. In 1997, Columbia established a formal, continuing education
program for employees under the name "Columbia Bancorp University." Under this
program, employees are encouraged to attend regular employment-related
educational programs consistent with the employee's career goals and needs. Many
of the programs are taught by Columbia's senior management and other experienced
in-house staff, although attendance at classes offered by banking schools and
associations is also encouraged. These activities are coordinated through
Columbia's full-time corporate training officer. Columbia's management believes
that such continuing training and education programs are important to
maintaining organizational cohesion and consistently high quality customer
service.
MARKETING
Columbia accepts deposits at its branches in Wasco, Hood River,
Jefferson, Deschutes, Yamhill and Umatilla Counties in Oregon and in Klickitat
County in Washington. Columbia makes loans in all of these counties and in
adjacent counties, including Sherman, Gilliam, and Crook counties in Oregon and
Skamania County in Washington. Many of its products and services, including
investment products and mortgages through Columbia's mortgage group, are offered
and sold throughout Oregon and south central Washington.
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Columbia's ability to increase its market share in the communities it
serves is driven by a marketing plan consisting of several key components. A
principal objective is to create and foster a sales culture in each office.
Employees are trained to cross-sell, offering appropriate products and services
to existing customers and attempting to increase the business relationships
Columbia shares with these customers. Columbia regularly examines the
desirability and profitability of adding new products and services to those
currently offered. Columbia also promotes specific products by media
advertising, but relies primarily on referrals and direct contacts for new
business. Columbia recognizes the importance of community service and supports
employee involvement in community activities. This participation allows Columbia
to make a contribution to the communities it serves, which management believes
increases Columbia's visibility in its markets and thereby increases business
opportunities.
Columbia does business in many different non-metropolitan communities.
Management believes the diverse assortment of customers, communities, and
economic sectors that Columbia serves is a source of strength. In addition, as a
community banking organization Columbia has certain competitive advantages
because of its local focus. However, Columbia is also more reliant on the local
economies in its market areas than are super-regional and national banks.
COMPETITION
The market for banking services, including deposit and loan products, is
highly competitive. The major commercial bank competitors are super-regional
institutions headquartered outside the state of Oregon. Deposits held by
super-regionals were approximately 56% of statewide commercial bank deposits as
of June 30, 2000, which is the most recent date for which this information is
available. These major banks have the advantage of offering their customers
services and statewide banking facilities that Columbia does not offer.
Columbia's competitors for deposits are commercial banks, savings and
loan associations, credit unions, money market funds, issuers of corporate and
government securities, insurance companies, brokerage firms, mutual funds, and
other financial intermediaries. These competitors may offer rates greater than
Columbia is willing to offer. Columbia competes for deposits by offering a
variety of deposit accounts at rates generally competitive with financial
institutions in the area.
Columbia's competition for loans comes principally from commercial
banks, savings and loan associations, mortgage companies, finance companies,
insurance companies, credit unions, and other institutional lenders. An
important competitor for agricultural loans is Farm Credit Services, formerly
known as the Production Credit Association. Columbia competes for loan
originations through the level of interest rates and loan fees charged, its
array of commercial and mortgage loan products, and the efficiency and quality
of services provided to borrowers. Lending activity can also be affected by the
availability of lendable funds, local and national economic conditions, current
interest rate levels, and loan demand. As described above, Columbia competes
with the larger commercial banks by emphasizing a community bank orientation and
efficient personal service to customers.
Competition from other single or multi-branch community banks, of which
there are many in Oregon and Washington, presents a special competitive threat.
These other community banks can open new branches in the communities Columbia
serves, competing directly for customers who desire the high level of service
that a community bank can offer. Therefore, these banks directly target the loan
and deposit customers that Columbia seeks. Other community banks also compete
for the same management personnel and the same potential acquisition and merger
candidates that would be of interest to Columbia. New community bank start-ups
present similar competitive threats.
A potential new source of competition is the array of on-line banking
services offered by traditional commercial banks and other financial service
providers, and by newly formed companies that use the Internet to advertise and
sell competing products. Columbia offers many on-line banking services to its
customers, and management believes that, for the foreseeable future, its
customers will continue to prefer the personal, locally-based services that it
offers.
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SUPERVISION AND REGULATION
GENERAL
Columbia is extensively regulated under federal and state law. These
laws and regulations are primarily intended to protect depositors, not
shareholders. The discussion below describes and summarizes certain statutes and
regulations. These descriptions and summaries are qualified in their entirety by
reference to the particular statute or regulation. Changes in applicable laws or
regulations may have a material effect on the business and prospects of
Columbia. The operations of Columbia may also be affected by changes in the
policies of banking and other government regulators. Columbia cannot accurately
predict the nature or extent of the effects on its business and earnings that
fiscal or monetary policies, or new federal or state laws, may have in the
future.
FEDERAL BANK HOLDING COMPANY REGULATION
Columbia is a bank holding company as defined in the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and is therefore subject to
regulation, supervision, and examination by the Federal Reserve. In general, the
BHCA limits the business of bank holding companies to owning or controlling
banks and engaging in other activities closely related to banking. Columbia must
file annual reports with the Federal Reserve and must provide it with such
additional information as it may require.
Holding Company Bank Ownership. The BHCA requires every bank holding
company to obtain the prior approval of the Federal Reserve before (i)
acquiring, directly or indirectly, ownership or control of any voting shares of
another bank or bank holding company if, after such acquisition, it would own or
control more than 5% of such shares, (ii) acquiring all or substantially all of
the assets of another bank or bank holding company, or (iii) merging or
consolidating with another bank or bank holding company.
Holding Company Control of Nonbanks. With some exceptions, the BHCA also
prohibits a bank holding company from acquiring or retaining direct or indirect
ownership or control of more than 5% of the voting shares of any company which
is not a bank or bank holding company, or from engaging directly or indirectly
in activities other than those of banking, managing, or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain nonbank activities which, by statute or by Federal
Reserve regulation or order, have been identified as activities closely related
to the business of banking or of managing or controlling banks. In making this
determination, the Federal Reserve considers whether the performance of such
activities by a bank holding company can be expected to produce benefits to the
public such as greater convenience, increased competition, or gains in the
efficient use of resources, which can be expected to outweigh the risks of
possible adverse effects such as decreased or unfair competition, conflicts of
interest, or unsound banking practices. The Economic Growth and Regulatory
Reduction Act of 1996 amended the BHCA to eliminate the requirement that bank
holding companies seek prior Federal Reserve approval before engaging in certain
permissible nonbanking activities if the holding company is well-capitalized and
meets certain other specific criteria.
Transactions with Affiliates. Subsidiary banks of a bank holding company
are subject to restrictions imposed by the Federal Reserve Act on extensions of
credit to the holding company or its subsidiaries, on investments in their
securities, and on the use of their securities as collateral for loans to any
borrower. These regulations and restrictions may limit Columbia's ability to
obtain funds from CRB for its cash needs, including funds for payment of
dividends, interest, and operational expenses.
Tying Arrangements. Under the Federal Reserve Act and certain
regulations of the Federal Reserve, a bank holding company and its subsidiaries
are prohibited from engaging in certain tying arrangements in connection with
any extension of credit, lease or sale of property, or furnishing of services.
For example, CRB may not generally require a customer to obtain other services
from it or from Columbia, and may not require that the customer promise not to
obtain other services from a competitor as a condition to an extension of credit
to the customer.
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GRAMM-LEACH-BLILEY FINANCIAL SERVICES MODERNIZATION ACT
In 1999 Congress passed the Gramm-Leach-Bliley Financial Services
Modernization Act (the "FSMA"). This new legislation repealed certain provisions
of the Glass-Steagall Act that had required the separation of the banking,
insurance and securities businesses. It also created a new business structure
known as a financial services holding company. Under this new law, banks will
have broader opportunities to affiliate with insurance and securities companies.
Banks could also become tempting acquisition targets, as insurance and
securities companies seek such affiliations themselves. The FMSA may also
encourage local jurisdictions to enact tighter bank privacy provisions. The
enactment and implementation of the FMSA will result in new competitive
challenges and opportunities for community banks in the coming years.
FEDERAL AND STATE BANK REGULATION
General. CRB is an Oregon stock bank with deposits insured by the
Federal Deposit Insurance Corporation ("FDIC"), and is subject to the
supervision and regulation of the Oregon Director of Banks and the FDIC. CRB is
also subject to the supervision and regulation the Washington Department of
Financial Institutions. These agencies have the authority to prohibit banks from
engaging in what they believe constitute unsafe or unsound banking practices.
CRA. The Community Reinvestment Act (the "CRA") requires that, in
connection with examinations of financial institutions within their
jurisdiction, the Federal Reserve or the FDIC evaluates the record of the
financial institutions in meeting the credit needs of their local communities,
including low and moderate income neighborhoods, consistent with the safe and
sound operation of those banks. These factors are also considered in evaluating
mergers, acquisitions, and applications to open a branch or facility.
Insider Credit Transactions. Banks are also subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
executive officers, directors, principal shareholders, or any related interests
of such persons. Extensions of credit (i) must be made on substantially the same
terms, including interest rates and collateral, and follow credit underwriting
procedures that are not less stringent than those prevailing at the time for
comparable transactions with persons not covered above and who are not
employees; and (ii) must not involve more than the normal risk of repayment or
present other unfavorable features. Banks are also subject to certain lending
limits and restrictions on overdrafts to such persons. A violation of these
restrictions may result in the assessment of substantial civil monetary
penalties on the affected bank or any officer, director, employee, agent, or
other person participating in the conduct of the affairs of that bank, the
imposition of a cease and desist order, and other regulatory sanctions.
FDICIA. Under the Federal Deposit Insurance Corporation Improvement Act
(the "FDICIA"), each federal banking agency has prescribed, by regulation,
noncapital safety and soundness standards for institutions under its authority.
These standards cover internal controls, information systems, and internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits, such other operational and managerial
standards as the agency determines to be appropriate, and standards for asset
quality, earnings and stock valuation. An institution which fails to meet these
standards must develop a plan acceptable to the agency, specifying the steps
that the institution will take to meet the standards. Failure to submit or
implement such a plan may subject the institution to regulatory sanctions.
Management believes that CRB meets all such standards, and therefore, does not
believe that these regulatory standards materially affect Columbia's business
operations.
INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act") permits nationwide interstate banking and branching under
certain circumstances. This legislation generally authorizes interstate
branching and relaxes federal law restrictions on interstate banking. Currently,
bank holding companies may purchase banks in any state, and states may not
prohibit such purchases. Additionally, banks are permitted to merge with banks
in other states as long as the home state of neither merging bank has opted out.
The Interstate Act
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requires regulators to consult with community organizations before permitting an
interstate institution to close a branch in a low-income area.
Under recent FDIC regulations, banks are prohibited from using their
interstate branches primarily for deposit production. The FDIC has accordingly
implemented a loan-to-deposit ratio screen to ensure compliance with this
prohibition.
Oregon and Washington each enacted "opting in" legislation in accordance
with the Interstate Act provisions allowing banks to engage in interstate merger
transactions subject to certain "aging" requirements. In both states, branches
may not be acquired or opened separately in the home state by an out-of-state
bank, but once an out-of-state bank has acquired a bank within the state, either
through merger or acquisition of all or substantially all of the bank's assets,
the out-of-state bank may open additional branches within the home state.
DEPOSIT INSURANCE
The deposits of CRB are currently insured to a maximum of $100,000 per
depositor through the Bank Insurance Fund ("BIF") administered by the FDIC. CRB
is required to pay semi-annual deposit insurance premium assessments to the
FDIC.
The FDICIA included provisions to reform the Federal Deposit Insurance
System, including the implementation of risk-based deposit insurance premiums.
The FDICIA also permits the FDIC to make special assessments on insured
depository institutions in amounts determined by the FDIC to be necessary to
give it adequate assessment income to repay amounts borrowed from the U.S.
Treasury and other sources, or for any other purpose the FDIC deems necessary.
The FDIC has implemented a risk-based insurance premium system under which banks
are assessed insurance premiums based on how much risk they present to the BIF.
Banks with higher levels of capital and a low degree of supervisory concern are
assessed lower premiums than banks with lower levels of capital or a higher
degree of supervisory concern.
DIVIDENDS
The principal source of Columbia's cash revenues is dividends received
from its subsidiary. The payment of dividends is subject to government
regulation, in that regulatory authorities may prohibit banks and bank holding
companies from paying dividends which would constitute an unsafe or unsound
banking practice. In addition, a bank may not pay cash dividends if that payment
could reduce the amount of its capital below that necessary to meet minimum
applicable regulatory capital requirements. Also, under the Oregon Bank Act, the
Oregon Director of Banks may suspend the payment of dividends if it is
determined that the payment would cause a bank's remaining stockholders' equity
to be inadequate for the safe and sound operation of the bank. Other than the
laws and regulations noted above, which apply to all banks and bank holding
companies, neither Columbia nor CRB is currently subject to any regulatory
restrictions on their dividends.
CAPITAL ADEQUACY
Federal bank regulatory agencies use capital adequacy guidelines in the
examination and regulation of bank holding companies and banks. If capital falls
below minimum guideline levels, the holding company or bank may be denied
approval to acquire or establish additional banks or nonbank businesses or to
open new facilities.
The FDIC and Federal Reserve use risk-based capital guidelines for banks
and bank holding companies. These are designed to make such capital requirements
more sensitive to differences in risk profiles among banks and bank holding
companies, to account for off-balance sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items. The guidelines are minimums, and the Federal
Reserve has noted that bank holding companies contemplating significant
expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios well in excess of the minimum. The current guidelines
require all bank holding companies and federally
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regulated banks to maintain a minimum risk-based total capital ratio equal to
8%, of which at least 4% must be Tier I capital.
Tier I capital for bank holding companies includes common shareholders'
equity, qualifying perpetual preferred stock (up to 25% of total Tier I capital,
if cumulative, although under a Federal Reserve Rule, redeemable perpetual
preferred stock may not be counted as Tier I capital unless the redemption is
subject to the prior approval of the Federal Reserve), and minority interests in
equity accounts of consolidated subsidiaries, less intangibles, except as
described above. Tier II capital includes: (i) the allowance for loan losses of
up to 1.25% of risk-weighted assets; (ii) any qualifying perpetual preferred
stock which exceeds the amount which may be included in Tier I capital; (iii)
hybrid capital instruments; (iv) perpetual debt; (v) mandatory convertible
securities; and (vi) subordinated debt and intermediate term preferred stock of
up to 50% of Tier I capital. Total capital is the sum of Tier I and Tier II
capital, less reciprocal holdings of other banking organizations, capital
instruments, and investments in unconsolidated subsidiaries.
The assets of banks and bank holding companies receive risk-weights of
0%, 20%, 50%, and 100%. In addition, certain off-balance sheet items are given
credit conversion factors to convert them to asset equivalent amounts to which
an appropriate risk-weight will apply. These computations result in total
risk-weighted assets.
Most loans are assigned to the 100% risk category, except for first
mortgage loans fully secured by residential property, which carry a 50% rating.
Most investment securities are assigned to the 20% category, except for
municipal or state revenue bonds, which have a 50% risk-weight, and direct
obligations of, or obligations guaranteed by, the United States Treasury or
agencies of the federal government, which have 0% risk-weight. In converting
off-balance sheet items, direct credit substitutes, including general guarantees
and standby letters of credit backing financial obligations, are given a 100%
conversion factor. Transaction related contingencies such as bid bonds, other
standby letters of credit and undrawn commitments, including commercial credit
lines with an initial maturity of more than one year, have a 50% conversion
factor. Short-term, self-liquidating trade contingencies are converted at 20%,
and short-term commitments have a 0% factor.
The Federal Reserve also employs a leverage ratio, which is Tier I
capital as a percentage of total assets less intangibles, to be used as a
supplement to risk-based guidelines. The principal objective of the leverage
ratio is to constrain the maximum degree to which a bank holding company may
leverage its equity capital base. The Federal Reserve requires a minimum
leverage ratio of 3%. However, for all but the most highly rated bank holding
companies, and for bank holding companies seeking to expand, the Federal Reserve
expects an additional cushion of at least 1% to 2%.
The FDICIA created a statutory framework of supervisory actions indexed
to the capital level of the individual institution. Under regulations adopted by
the FDIC, an institution is assigned to one of five capital categories,
depending on its total risk-based capital ratio, Tier I risk-based capital
ratio, and leverage ratio, together with certain subjective factors.
Institutions which are deemed to be "undercapitalized" depending on the category
to which they are assigned are subject to certain mandatory supervisory
corrective actions. Columbia does not believe that these regulations have any
material effect on its operations.
EFFECTS OF GOVERNMENT MONETARY POLICY
The earnings and growth of Columbia are affected not only by general
economic conditions, but also by the fiscal and monetary policies of the federal
government, particularly the Federal Reserve. The Federal Reserve can and does
implement national monetary policy for such purposes as curbing inflation and
combating recession, but its open market operations in U.S. government
securities, control of the discount rate applicable to borrowings from the
Federal Reserve, and establishment of reserve requirements against certain
deposits, influence the growth of bank loans, investments and deposits, and also
affect interest rates charged on loans or paid on deposits. The nature and
impact of future changes in monetary policies and their impact on Columbia
cannot be predicted with certainty.
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CHANGES IN BANKING LAWS AND REGULATIONS
The laws and regulations that affect banks and bank holding companies
frequently undergo significant changes at the federal and state levels. Bills
are introduced from time to time in the United States Congress that contain
proposals to alter the structure, regulation, and competitive relationships of
the nation's financial institutions. Any changes in laws and regulations could
have the effect of increasing or decreasing the cost of doing business, limiting
or expanding permissible activities (including activities in the insurance and
securities fields), or affecting the competitive balance among banks, savings
associations, and other financial institutions. Such changes could also reduce
the extent of federal deposit insurance, broaden the powers or the geographical
range of operations of bank holding companies, alter the extent to which banks
could engage in securities activities, alter the taxation of banks, bank holding
companies and other financial services organizations, and change the structure
and jurisdiction of various financial institution regulatory agencies. Such
ongoing changes in laws and regulations, and the extent to which the business of
Columbia might be affected thereby, cannot be predicted with certainty.
ITEM 2. PROPERTIES
Nine of Columbia's facilities in Hood River, The Dalles, Redmond, Bend,
McMinnville and Madras, Hermiston and Pendleton Oregon, as well as its two
full-service branch facilities in south central Washington, are housed in
properties owned by Columbia. Columbia leases the space for its Newberg branch,
as well as its in-store facility in the Safeway store in The Dalles. All of
Columbia's presently owned full-service branches have drive-up facilities and
automated teller machines. Columbia's mortgage group operates from the second
floor of Columbia's Bend branch, as well as leased office space in The Dalles.
The following sets forth certain information regarding Columbia's branch
facilities.
Date
Square Opened or Occupancy
City and County Address Feet Acquired Status
- --------------- ------- ------ ---------- ---------
Oregon Branches
The Dalles (Main Branch), Wasco County 316 East Third Street 8,000 1977 Owned
The Dalles (Westside Branch), Wasco County(1) 520 Mt. Hood Street 430 1986 Leased
Hood River Branch, Hood River County 2650 Cascade Avenue 6,255 1993 Owned
Madras Branch, Jefferson County 624 SW Fourth Street 7,400 1995 Owned
Redmond Branch, Deschutes County 434 North Fifth Street 4,700 1995 Owned
Bend Branch, Deschutes County 1701 NE Third Street 8,306 1996 Owned
Shevlin Center Branch,(2) Deschutes County 925 SW Emkay Drive 15,000 1996 Owned
Hermiston Branch, Umatilla County 1033 South Highway 395 4,700 1998 Owned
Pendleton Branch, Umatilla County 2101 SW Court Place 4,700 1999 Owned
McMinnville Branch,(2) Yamhill County 723 N Baker 9,600 1998 Owned
Newberg Branch, Yamhill County 901 N Brutscher St., Suite A 3,900 1999 Leased
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Date
Square Opened or Occupancy
City and County Address Feet Acquired Status
- --------------- ------- ---- --------- ---------
Washington Branches
White Salmon Branch, Klickitat County 390 NE Tohomish Street 5,500 1996 Owned
Goldendale Branch, Klickitat County 202 West Main Street 6,105 1996 Owned
- --------------------
(1) Leased space in a Safeway supermarket. Lease term expires December 2005.
(2) Branch operations are located on the first floor. The second floor is
leased to other parties.
Columbia maintains its administrative offices in leased office space in
The Dalles. This space is adequate presently but will not be suitable over the
longer term. Columbia purchased property in the Columbia River Center in The
Dalles for future branch or administrative operations expansion. Columbia is
committed to keeping its administrative headquarters in The Dalles.
EMPLOYEES
As of December 31, 2000, Columbia had a total of 242 full-time
equivalent employees. This number of employees, which compares to 217 at
December 31, 1999, has increased due to increased staffing in branch and
administrative functions. None of the employees are subject to a collective
bargaining agreement. Columbia considers its relationships with its employees to
be good.
ITEM 3. LEGAL PROCEEDINGS
Management is not presently aware of any pending or threatened claims
against Columbia that would have a material affect on Columbia's operations or
performance. In the normal course of its business, Columbia is a party to
various debtor-creditor legal actions. These include cases filed as a plaintiff
in collection and foreclosure cases, and the enforcement of creditors' rights in
bankruptcy proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of securities holders of Columbia
during the quarter ended December 31, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The information called for by this item is contained in Columbia's
Annual Report to Shareholders for the year ended December 31, 2000, portions of
which are attached hereto as Exhibit 13.1.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain information concerning the
consolidated financial condition, operating results, and key operating ratios
for Columbia at the dates and for the periods indicated. This information does
not purport to be complete, and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the Consolidated Financial Statements of Columbia and Notes thereto.
(DOLLARS IN THOUSANDS EXCEPT AS OF AND FOR THE YEARS ENDED DECEMBER 31,
PER SHARE DATA) --------------------------------------------------------------
2000 1999 1998 1997 1996
--------- -------- -------- --------- --------
INCOME STATEMENT DATA
Interest income $ 33,367 $ 26,883 $ 21,328 $ 18,144 $ 15,385
Interest expense 12,256 8,568 7,205 6,270 5,746
--------- -------- ------- --------- --------
Net interest income 21,111 18,315 14,123 11,874 9,639
Loan loss provision 1,697 1,005 1,000 581 246
--------- -------- ------- --------- --------
Net interest income after
provision for loan losses 19,414 17,310 13,123 11,293 9,393
Noninterest income 6,978 5,784 4,678 2,481 1,799
Noninterest expense 17,463 14,976 10,633 8,092 7,180
--------- -------- ------- --------- --------
Income before provision for
income taxes 8,929 8,118 7,168 5,682 4,012
Provision for income taxes 3,305 3,105 2,450 1,795 1,285
--------- -------- ------- --------- --------
Net income $ 5,624 $ 5,013 $ 4,718 $ 3,887 $ 2,727
========= ======== ======= ========= ========
DIVIDENDS
Cash dividends declared $ 2,326 $ 1,999 $ 1,587 $ 842 $ 882
Ratio of dividends declared to net income 41.36% 39.88% 33.64% 21.67% 32.37%
PER SHARE DATA(1)
Earnings Per Share
Basic earnings per common share $ 0.70 $ 0.63 $ 0.67 $ 0.57 $ 0.41
Diluted earnings per common share $ 0.70 $ 0.62 $ 0.65 $ 0.55 $ 0.40
Cash Earnings Per Share
Basic earnings per common share $ 0.78 $ 0.71 $ 0.68 $ 0.57 $ 0.41
Diluted earnings per common share $ 0.77 $ 0.70 $ 0.66 $ 0.55 $ 0.40
Book value per common share $ 5.15 $ 4.66 $ 4.37 $ 3.35 $ 2.89
Weighted average shares outstanding
Basic 8,017 7,985 7,066 6,813 6,732
Diluted 8,080 8,090 7,238 7,013 6,847
BALANCE SHEET DATA
Investment securities $ 60,544 $ 62,333 $ 47,894 $ 48,804 $ 51,484
Loans, net $ 299,881 $246,975 $206,552 $ 155,219 $118,228
Total assets $ 416,859 $361,241 $342,413 $ 231,827 $200,302
Total deposits $ 346,427 $310,910 $295,680 $ 201,568 $178,744
Shareholders' equity $ 41,326 $ 37,322 $ 34,756 $ 22,987 $ 19,533
KEY FINANCIAL RATIOS
Return on average assets 1.41% 1.44% 1.83% 1.77% 1.45%
Return on average equity 14.40% 13.90% 18.10% 18.37% 14.91%
Total loans to total deposits 86.56% 79.44% 69.86% 77.00% 66.14%
Net interest margin 6.05% 6.17% 6.19% 6.15% 5.74%
Efficiency ratio 62.17% 62.14% 56.56% 56.37% 62.77%
Cash efficiency ratio 59.93% 59.53% 56.28% 56.37% 62.77%
ASSET QUALITY RATIOS
Reserve for loans losses to:
Nonperforming assets(2) 355.95% 553.45% 108.82% 112.65% 384.17%
Ending total loans 1.50% 1.32% 1.13% 1.04% 0.83%
Nonperforming assets to ending total assets 0.31% 0.16% 0.64% 0.63% 0.04%
Net loan charge-offs (recoveries)
to average loans 0.14% 0.04% 0.38% (0.04)% 0.29%
CAPITAL RATIOS
Average shareholders' equity to
average assets 9.80% 10.40% 10.12% 9.62% 9.73%
Tier I capital ratio(3) 9.80% 10.20% 10.90% 13.70% 14.20%
Total risk-based capital ratio(4) 11.00% 11.30% 11.90% 14.70% 14.90%
Leverage ratio(5) 8.10% 8.30% 8.90% 10.60% 9.90%
(1) Per share data reflects retroactive restatement for stock splits in 1998
(3-for-2 and 2-for-1).
(2) Nonperforming assets consist of nonaccrual loans, loans contractually past
due 90 days or more, and other real estate owned.
(3) Tier I capital divided by risk-weighted assets.
(4) Total capital divided by risk-weighted assets.
(5) Tier I capital divided by average total assets.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
From its origins as a one-branch bank in The Dalles, Oregon, Columbia
has grown as a result of merger and acquisition activity, new branch openings,
the introduction of new business lines and the expansion and cross-marketing of
its existing products and community-bank lending expertise. In 1995, CRB merged
with Juniper Banking Company. In 1996, Columbia was formed as CRB's holding
company, and Columbia acquired Washington-based Klickitat Valley Bank. Further
growth came from CRB's Hood River and Bend branch openings, and from the
expansion in 1997 of CRB's residential mortgage business. In 1998, CRB opened a
new branch in Hermiston, Oregon and Columbia completed the acquisition of Valley
Community Bank. During 1999, CRB opened new branches in Pendleton and Newberg,
Oregon, and opened a second Bend, Oregon branch. In April, 2000 Columbia River
BankNet, CRB's Internet-based banking product, was introduced. 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 strong. 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 strong asset quality.
For the year ended December 31, 2000, net income was $5.62 million,
representing an increase of 12.18% over net income of $5.01 million earned
during the year ended December 31, 1999. Net income for 1999 was up 6.26% over
net income of $4.72 million earned during the year ended December 31, 1998. Net
income for 1998 was up 21.39% from $3.89 million for the year ended December 31,
1997. Cash basis diluted earnings per share were $0.77, $0.70, and $0.66 for the
years ended December 31, 2000, 1999, and 1998, respectively. Return on average
assets was 1.41% for the year ended December 31, 2000, compared with 1.44% for
the year ended December 31, 1999, and 1.83% in 1998. Return on average equity
was 14.40% for the year ended December 31, 2000, compared with 13.90% for the
year ended December 31, 1999, and 18.10% for the year ended December 31, 1998.
The increase in earnings for the year ended December 31, 2000, versus the
comparable period in 1999 can be attributed to growth in earning assets,
deposits, fee income, and increased customer activity in new markets.
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Return on average daily assets and equity and certain other ratios for
the periods indicated are presented below:
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER
SHARE DATA)
Net income $ 5,624 $ 5,013 $ 4,718 $ 3,887 $ 2,727
Average assets 398,422 347,003 257,664 219,905 188,061
RETURN ON AVERAGE ASSETS 1.41% 1.44% 1.83% 1.77% 1.45%
Net income $ 5,624 $ 5,013 $ 4,718 $ 3,887 $ 2,727
Average equity 39,062 36,075 26,069 21,157 18,292
RETURN ON AVERAGE EQUITY 14.40% 13.90% 18.10% 18.37% 14.91%
Cash dividends declared and paid per share $ 0.29 $ 0.25 $ 0.22 $ 0.12 $ 0.13
Basic earnings per common share 0.70 0.63 0.67 0.57 0.41
DIVIDEND PAYOUT RATIO 41.36% 39.88% 33.64% 21.67% 32.37%
Average equity $ 39,062 $ 36,075 $ 26,069 $ 21,157 $ 18,292
Average assets 398,422 347,003 257,664 219,905 188,061
AVERAGE EQUITY TO ASSET RATIO 9.80% 10.40% 10.12% 9.62% 9.73%
RESULTS OF OPERATIONS
NET INTEREST INCOME
For financial institutions, the primary component of earnings is net
interest income. Net interest income is the difference between interest income,
principally from loan and investment security portfolios, and interest expense,
principally on customer deposits. Changes in net interest income result from
changes in "volume," "spread," and "margin." Volume refers to the dollar level
of interest-earning assets and interest-bearing liabilities. Spread refers to
the difference between the yield on interest-earning assets and the cost of
interest-bearing liabilities. Net interest margin is the ratio of net interest
income to total average interest-earning assets and is influenced by the
relative level of interest-earning assets and interest-bearing liabilities.
19
20
Average Balances and Average Rates Earned and Paid. The following table
shows average balances and interest income or interest expense, with the
resulting average yield or rates by category of earning assets or
interest-bearing liabilities:
Year Ended December 31, 2000 Year Ended December 31, 1999 Year Ended December 31, 1998
------------------------------- ------------------------------- ------------------------------
Interest Average Interest Average Interest Average
Average Income or Yields or Average Income or Yields or Average Income or Yields or
Balance Expense Rates Balance Expense Rates Balance Expense Rates
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(dollars in thousands)
Interest-earning assets:
Loans(1) $ 288,058 $ 29,473 10.23% $ 222,276 $ 22,495 10.12% $ 175,588 $ 17,939 10.22%
Investment securities
Taxable securities 40,641 2,403 5.91 38,434 2,195 5.71 31,686 1,890 5.97
Nontaxable securities(2) 19,157 1,374 7.17 20,895 1,519 7.27 16,819 1,284 7.63
Interest-earning balances due
from banks 7,221 474 6.58 6,533 362 5.54 3,142 159 5.05
Federal funds sold 1,729 110 6.35 17,149 829 4.83 8,042 492 6.12
--------- --------- ---- --------- --------- ----- --------- --------- -----
Total interest-earning
assets(3) 356,806 33,834 9.48 305,287 27,400 8.98 235,277 21,764 9.25
Cash and due from banks 16,785 18,505 14,663
Premises and equipment, net 13,407 9,738 5,545
Loan loss allowance (4,074) (2,961) (1,917)
Other assets 15,498 16,434 4,096
--------- --------- ---------
Total assets $ 398,422 $ 347,003 $ 257,664
--------- --------- ---------
Interest-bearing liabilities:
Interest-bearing checking and
savings accounts $ 153,540 $ 5,056 3.29% $ 153,609 $ 4,148 2.70% $ 115,101 $ 3,571 3.10%
Time deposit & IRAs 99,657 5,727 5.75 75,619 3,886 5.14 58,370 3,195 5.47
Borrowed Funds 24,123 1,473 6.11 9,418 534 5.67 7,929 439 5.53
--------- --------- ---- --------- --------- ----- --------- --------- -----
Total interest-bearing
liabilities 277,320 12,256 4.42 238,646 8,568 3.60 181,400 7,205 3.97
Noninterest-bearing deposits 79,895 70,000 48,983
Other liabilities 2,145 2,282 1,212
--------- --------- ---------
Total liabilities 359,360 310,928 231,595
Shareholders' equity 39,062 36,075 26,069
--------- --------- ---------
Total liabilities and
shareholders' equity $ 398,422 $ 347,003 $ 257,664
========= ========= =========
Net interest income $ 21,578 $ 18,832 $ 14,559
========= ========= =========
Net interest spread 5.06% 5.38% 5.28%
==== ===== =====
Average yield on average earning
assets(1) 9.48% 8.98% 9.25%
==== ===== =====
Interest expense to average earning
assets 3.44% 2.81% 3.06%
==== ===== =====
Net interest margin(3) 6.05% 6.17% 6.19%
==== ===== =====
- ----------------------
(1) Nonaccrual loans are included in the average balance.
(2) Tax-exempt income has been adjusted to a tax-equivalent basis at 34%.
(3) Net interest margin is computed by dividing net interest income by total
average earning assets.
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21
Analysis of Changes in Interest Differential. The following table shows
the dollar amount of the increase (decrease) in Columbia's net interest income
and expense and attributes such dollar amounts to changes in volume as well as
changes in rates. Rate and volume variances have been allocated proportionally
between rate and volume changes:
2000 OVER 1999 1999 OVER 1998 1998 OVER 1997
----------------------------- ---------------------------- -----------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
----------------------------- ---------------------------- -----------------------------
NET NET NET
VOLUME RATE CHANGE VOLUME RATE CHANGE VOLUME RATE CHANGE
------- ------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans $ 6,657 $ 321 $ 6,978 $ 4,770 $ (214) $ 4,556 $ 3,636 $ (461) $ 3,175
Investment securities
Taxable securities 126 82 208 403 (98) 305 (321) (85) (406)
Nontaxable securities (126) (19) (145) 311 (76) 235 126 44 170
Balances due from banks 38 74 112 170 33 203 45 (13) 32
Federal funds sold (745) 26 (719) 558 (221) 337 211 60 271
------- ------- ------- ------- ------- ------- ------- ------- -------
Total 5,950 484 6,434 6,212 (576) 5,636 3,697 (455) 3,242
------- ------- ------- ------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Interest-bearing checking
and savings accounts (2) 910 908 1,195 (618) 577 426 (168) 258
Time deposits 1,236 605 1,841 944 (253) 691 390 33 423
Borrowed funds 833 106 939 82 13 95 265 (11) 254
------- ------- ------- ------- ------- ------- ------- ------- -------
Total 2,067 1,621 3,688 2,221 (858) 1,363 1,081 (146) 935
------- ------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in
net interest income $ 3,883 $(1,137) $ 2,746 $ 3,991 $ 282 $ 4,273 $ 2,616 $ (309) $ 2,307
======= ======= ======= ======= ======= ======= ======= ======= =======
Net interest income, before provision for loan loss, for the year ended
December 31, 2000 was $21.11 million, an increase of 15.26% compared to net
interest income of $18.32 million in 1999, an increase of 29.68% compared to net
interest income of $14.12 million in 1998. The overall tax-equivalent earning
asset yield was 9.48% in 2000 compared to 8.98% in 1999 and 9.25% in 1998. For
the same years, rates on interest-bearing liabilities were 4.42%, 3.60%, and
3.97%, 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 1998 through 2000, the average yield on earning assets
increased 0.23% while rates paid on interest-bearing liabilities increased by
0.45%. Average loans increased 64.05% while average noninterest-bearing deposits
increased 63.11%.
Total interest-earning assets averaged $356.81 million for the year
ended December 31, 2000, compared to $305.29 million for the corresponding
period in 1999. Most of the increase was due to an increase in loans. Increases
in the loan portfolio are attributed to execution of Columbia's strategy to
provide personal, quality banking products and services for its customers and
the hiring of additional lending personnel in strategic branch and
administrative capacities.
Interest-bearing liabilities averaged $277.32 million for the year ended
December 31, 2000 compared to $238.65 million during the same period in 1999.
Although further competitive pressure is expected in expanding deposit
relationships, management does not generally seek to attract high-priced,
brokered deposits.
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22
Loans, which generally carry a higher yield than investment securities
and other earning assets, comprised 80.73% of average earning assets during
2000, compared to 72.81% in 1999 and 74.63% in 1998. During the same periods,
average yields on loans were 10.23% in 2000, 10.12% in 1999, and 10.22% in 1998.
Investment securities comprised 16.76% of average earning assets in 2000, which
was down from 19.43% in 1999 and 20.62% in 1998. Tax equivalent interest yields
on investment securities have ranged from 6.32% in 2000 to 6.27% in 1999 and
6.54% in 1998.
Interest cost, as a percentage of earning assets, increased to 3.44% in
2000, compared to 2.81% in 1999 and 3.06% in 1998. Local competitive pricing
conditions and funding needs for Columbia's investments in loans have been the
primary determinants of rates paid for deposits during these three years.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents charges made to earnings to
maintain an adequate allowance for loan losses. The allowance is maintained at
an amount believed to be sufficient to absorb losses in the loan portfolio.
Factors considered in establishing an appropriate allowance include a careful
assessment of the financial condition of the borrower; a realistic determination
of the value and adequacy of underlying collateral; the condition of the local
economy and the condition of the specific industry of the borrower; a
comprehensive analysis of the levels and trends of loan categories; and a review
of delinquent and classified loans. Columbia applies a systematic process for
determining the adequacy of the allowance for loan losses, including an internal
loan review function and a quarterly analysis of the adequacy of the allowance.
The quarterly analysis includes determination of specific potential loss factors
on individual classified loans, historical potential loss factors derived from
actual net charge-off experience and trends in nonperforming loans, and
potential loss factors for other loan portfolio risks such as loan
concentrations, the condition of the local economy, and the nature and volume of
loans.
The recorded values of loans actually removed from the consolidated
balance sheets are referred to as charge-offs and, after netting out recoveries
on previously charged-off loans, become net charge-offs. Columbia's policy is to
charge off loans when, in management's opinion, the loan or a portion thereof is
deemed uncollectible, although concerted efforts are made to maximize recovery
after the charge-off. When a charge to the loan loss provision is recorded, the
amount is based on past charge-off experience, a careful analysis of the current
portfolio, and an evaluation of economic trends in Columbia's market areas.
Management will continue to closely monitor the loan quality of new and existing
relationships through stringent review and evaluation procedures and by making
loan officers accountable for collection efforts.
For the years ended December 31, 2000 through 1998, Columbia charged
$1.70 million, $1.01 million and $1.00 million respectively, to its provision
for loan losses. The 68.86% increase in 2000 over the provision for loan losses
recorded in 1999 was necessary to accommodate the growth in Columbia's loan
portfolio, to establish a reserve for potential losses consistent with
Columbia's loan policy, and to replenish the allowance for loan losses for
charge-offs incurred during 2000. During the last three years, average
outstanding loans grew 64.05% and the allowance for loan losses kept pace by
increasing 92.33% through charges to the provision for loan losses. Columbia's
increase in the provision for loan losses has primarily been a function of
strong loan demand and the resulting growth in the loan portfolio.
For the year ended December 31, 2000, loan charge-offs exceeded
recoveries by $418,000 as compared to 1999, when loan charge-offs exceeded
recoveries by $86,000. Nearly one-half of the loss experienced in 2000 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 2000 from 1998.
During this three-year period, noninterest income has increased from $4.68
million in 1998, to $5.78 million in 1999, to $6.98 million in 2000. Noninterest
income is primarily derived from service charges and related fees, as well as
mortgage origination and processing fees. Such income increased $1.20 million,
or 20.65% for the year ended December 31, 2000, compared
22
23
to the year ended December 31, 1999. The increase, in part, was the result of
increasing deposit volumes and related service fees. Service charges were $2.60
million for the year ended December 31, 2000, compared to $2.19 million for the
year ended December 31, 1999, and $1.74 million for the year ended December 31,
1998. Management attributes this 18.72% increase to the increase in customers
served at all CRB branches. The increase in noninterest income was also a result
of income generated by Columbia's mortgage lending division, which operates
under the name "Columbia River Bank Mortgage Group." For the year ended 2000,
this division generated $2.31 million in revenue from originating, processing,
servicing, and selling mortgage loans. 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, 2000, the cash basis
efficiency ratio had slipped to 59.93% compared to 59.53% for the corresponding
period of 1999. The decline in the efficiency ratio primarily reflects increased
expenses.
Noninterest expense was $17.46 million for the year ended December 31,
2000 an increase of $2.49 million from the year ended December 31, 1999. This
was due to an increase in staffing costs, occupancy expense, and other
noninterest expense. The additional increases related primarily to costs
associated with growth in operations, continuing investments in technology and
communication systems, and the introduction of Columbia River BankNet, CRB's
Internet banking product. Data processing costs decreased during the year, as
CRB acquired the remaining 71.4% of Datatech of Oregon, Inc and entered into a
servicing agreement with FISERV for data processing services. Management
believes these actions allow the company more control over data processing
systems with less cost. In 2000, Columbia's total noninterest expense was 62.17%
of net revenues, while in 1999 and 1998 it was 62.14% and 56.56%, respectively,
of net revenues.
Salary and benefit expense was $9.65 million in 2000, $8.04 million in
1999, and $6.01 million in 1998. As of December 31, 2000, Columbia had 242
full-time equivalent employees, which compares to 217 as of December 31, 1999
and 187 as of December 31, 1998. The increase in this expense category was the
result of normal expense increases associated with maintaining an expanded
employee base.
Net occupancy expense consists of depreciation on premises and
equipment, maintenance and repair expenses, utilities, and related expenses.
Columbia's net occupancy expense increased steadily over the three-year period.
This expense category was $1.61 million in 2000, an increase of $420,000, or
35.30%, over the $1.19 million reported in 1999. From 1998 to 2000, net
occupancy expense increased by $661,000, from $948,000 to $1.61 million, an
increase of 69.68%. These increases reflect the operation of the five additional
branches and the expansion of mortgage operations. This also reflects the costs
relating to continued investment in Columbia's technology infrastructure, which
has been upgraded throughout the organization.
Other noninterest expense increased 10.57% or $438,000 as compared to
1999. Nearly a quarter of the increase is attributable to increased advertising
costs, which grew nearly $106,000, or 38.00%, as compared to 1999. The remaining
increases arose from normal cost increases from expanded operations.
INCOME TAXES
The provision for income taxes was $3.30 million in 2000, $3.11 million
in 1999 and $2.45 million in 1998. The provision resulted in effective combined
federal and state tax rates of 37.01% in 2000, 38.25% in 1999, and 34.18% in
1998. 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.
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FINANCIAL CONDITION
SUMMARY BALANCE SHEETS
DECEMBER 31, INCREASE (DECREASE)
-------------------------------- -------------------------------------------
(DOLLARS IN THOUSANDS) 2000 1999 1998 12/31/99 - 12/31/00 12/31/98 - 12/31/99
-------- -------- -------- ------------------- -------------------
ASSETS
Federal funds sold $ 1,141 $ 680 $ 12,555 $ 461 67.79% $(11,875) -94.58%
Investments 60,544 62,333 47,894 (1,789) -2.87% 14,439 30.15%
Loans 299,881 246,975 206,551 52,906 21.42% 40,424 19.57%
Other assets(1) 55,293 51,253 75,413 4,040 7.88% (24,160) -32.04%
-------- -------- -------- -------- --------
Total assets $416,859 $361,241 $342,413 $ 55,618 15.40% $ 18,828 5.50%
======== ======== ======== ======== ========
LIABILITIES
Noninterest-bearing
deposits $ 87,824 $ 74,889 $ 67,409 $ 12,935 17.27% $ 7,480 11.10%
Interest-bearing deposits 258,603 236,021 228,271 22,582 9.57% 7,750 3.40%
-------- -------- -------- -------- --------
Total deposits 346,427 310,910 295,680 35,517 11.42% 15,230 5.15%
Other liabilities(2) 29,106 13,009 11,977 16,097 123.74% 1,032 8.62%
-------- -------- -------- -------- --------
Total liabilities 375,533 323,919 307,657 51,614 15.93% 16,262 5.29%
SHAREHOLDERS' EQUITY 41,326 37,322 34,756 4,004 10.73% 2,566 7.38%
-------- -------- -------- -------- --------
Total liabilities and
shareholder's equity $416,859 $361,241 $342,413 $ 55,618 15.40% $ 18,828 5.50%
======== ======== ======== ======== ========
(1) Includes cash and due from banks, property and equipment, and accrued
interest receivable.
(2) Includes accrued interest payable and other liabilities.
INVESTMENTS
A year-to-year comparison shows that Columbia's investment securities at
December 31, 2000, totaled $60.54 million, compared to $62.33 million at
December 31, 1999, and $47.89 million at December 31, 1998. This represents a
decrease of 2.87% between 1999 and 2000 and an increase of 30.15% between 1998
and 1999. Increases or decreases in the investment portfolio are primarily a
function of loan demand and changes in Columbia's deposit structure. On December
31, 2000, investments in federal funds sold (an overnight investment) were $1.14
million and investments in restricted stock were $1.64 million. The balance of
federal funds sold is influenced by cash demands, customer deposit levels, loan
activity, and other investment transactions.
Columbia follows a financial accounting principle which requires that
investment securities be identified as held-to-maturity or available-for-sale.
Held-to-maturity securities are those that Columbia has the intent and ability
to hold until they mature or are called. Available-for-sale securities are those
that management may sell if liquidity requirements dictate or if alternative
investment opportunities arise. The mix of available-for-sale and
held-to-maturity investment securities is determined by management, based on
Columbia's asset-liability policy, management's assessment of the relative
liquidity of Columbia, and other factors.
At December 31, 2000, the investment portfolio, excluding restricted
equity securities, consisted of 65.05% available-for-sale securities and 32.23%
held-to-maturity securities. At December 31, 1999, the portfolio consisted of
67.14% available-for-sale securities and 32.68% held-to-maturity securities. At
December 31, 1998, Columbia's investment portfolio, excluding restricted equity
securities, consisted of 62.99% available-for-sale securities and 37.01%
held-to-maturity securities. The present mix provides investment flexibility by
placing more of the
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portfolio in the available-for-sale category.
At December 31, 2000, Columbia's investment portfolio had total net
unrealized gains of approximately $5,000. This compares to net unrealized losses
of approximately $1.58 million at December 31, 1999 and net unrealized gains of
$574,000 at December 31, 1998. Unrealized gains and losses reflect changes in
market conditions and do not represent the amount of actual profits or losses
Columbia may ultimately realize. Actual realized gains and losses occur at the
time investment securities are sold or redeemed.
Federal funds sold are short term investments which mature on a daily
basis. Columbia invests in these instruments to provide for additional earnings
on excess available cash balances. Because of their short maturities, the
balance of federal funds sold fluctuates dramatically on a day-to-day basis. The
balance on any one day is influenced by cash demands, customer deposit levels,
loan activity and other investment transactions. Investments in federal funds
sold totaled $1.14 million at December 31, 2000, compared to $680,000 at
December 31, 1999, and $12.55 million at December 31, 1998.
The following table provides the carrying value of Columbia's portfolio
of investment securities as of December 31, 2000, 1999, and 1998, respectively.
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------
2000 1999 1998
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Investments available-for-sale:
U.S. Treasury securities $ 1,015 $ 1,610 $ 3,199
U.S. Government obligations 34,532 36,205 23,168
Corporate debt securities 1,230 532 605
Corporate equity securities 300 300 300
Municipal securities 2,311 2,464 2,195
------- ------- -------
39,388 41,111 29,467
------- ------- -------
Investments held-to-maturity:
Obligations of states and political subdivisions 16,328 17,586 16,336
Mortgage-backed securities 3,190 2,539 974
------- ------- -------
19,518 20,125 17,310
------- ------- -------
Restricted equity securities 1,638 1,097 1,117
------- ------- -------
Total investment securities $60,544 $62,333 $47,894
======= ======= =======
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Investment securities at the dates indicated consisted of the following:
DECEMBER 31, 2000 DECEMBER 31, 1999
-------------------------------- --------------------------------
AMORTIZED ESTIMATED % AMORTIZED ESTIMATED %
COST FAIR VALUE YIELD* COST FAIR VALUE YIELD*
--------- ---------- ------ --------- ---------- ------
(IN THOUSANDS)
U.S. Treasuries and agencies:
One year or less $ -- $ -- 0.00% $ 600 $ 601 5.67%
One to five years 1,018 1,015 5.41% 1,031 1,009 6.21%
U.S. Government agencies:
One year or less 2,913 2,902 6.18% 628 619 6.42%
One to five years 32,913 32,813 6.03% 38,079 37,105 6.76%
Five to ten years 2,004 2,002 6.20% 995 1,000 5.47%
Obligations of states and political subdivisions:
One year or less 1,210 1,215 6.42% 2,304 2,324 8.81%
One to five years 5,294 5,342 6.56% 6,350 6,337 7.20%
Five to ten years 4,418 4,418 6.82% 3,493 3,365 7.78%
Over ten years 7,695 7,772 7.16% 7,927 7,489 8.14%
Corporate and other debt securities:
One year or less -- -- 0.00% -- -- 0.00%
One to five years 1,239 1,230 6.74% 557 532 7.19%
------- ------- ---- ------- ------- ----
Total debt securities 58,704 58,709 6.31% 61,964 60,381 7.07%
Corporate equity securities 300 300 300 300
Restricted equity securities 1,638 1,638 1,097 1,097
------- ------- ---- ------- -------
Total securities $60,642 $60,647 $63,361 $61,778
======= ======= ======= =======
DECEMBER 31, 1998
---------------------------------
AMORTIZED ESTIMATED %
COST FAIR VALUE YIELD*
--------- ---------- ------
(IN THOUSANDS)
U.S. Treasuries and agencies:
One year or less $ 558 $ 553 5.34%
One to five years 2,603 2,646 4.80%
U.S. Government agencies:
One year or less 1,190 1,181 5.95%
One to five years 20,377 20,465 5.94%
Five to ten years 2,499 2,494 5.94%
Obligations of states and political subdivisions:
One year or less 2,820 2,822 4.57%
One to five years 7,167 7,379 6.93%
Five to ten years 2,887 2,952 6.56%
Over ten years 5,655 5,838 6.95%
Corporate and other debt securities:
One year or less 605 605 6.37%
One to five years -- -- 0.00%
------- ------- ----
Total debt securities 46,361 46,935 6.11%
Corporate equity securities 300 300
Restricted equity securities 816 816
------- -------
Total securities $47,477 $48,051
======= =======
* Weighted average yields are stated on a federal tax-equivalent basis at a 34%
rate, and have been annualized, where appropriate.
LOANS
Columbia's loan policies and procedures establish the basic guidelines
governing its lending operations. Generally, the guidelines address the types of
loans that it 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 CRB, including the indebtedness of any guarantor. The policies
are reviewed and approved at least annually by the Board of Directors of CRB.
Bank officers are charged with loan origination in compliance with
underwriting standards overseen by the loan administration department and in
conformity with established loan policies. On an annual basis, the Board of
Directors determines the lending authority of the President, who then delegates
lending authority to the Chief Lending Officer and other lending officers. Such
delegated authority may include authority related to loans, letters of credit,
overdrafts, uncollected funds, and such other authority as determined by the
Board or the President within the President's delegated authority.
The President has authority to approve loans up to a lending limit set
by the Board of Directors. All loans above the lending limit of the President
and up to a certain limit are reviewed for approval by an internal loan
committee. Loans which exceed this limit but are less than pre-established
lending limits must be conditionally approved by an internal loan committee, and
are subject to the approval of the Board's loan committee up to pre-established
lending limits. Minutes from Board loan committee meetings are reviewed by the
full Board at regularly
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scheduled monthly meetings. All loans above the lending limit up to Columbia's
statutory loan-to-one-borrower limitation (also known as the legal lending
limit) require approval of the full Board of Directors. Columbia's unsecured
legal lending limit was $6.87 million at December 31, 2000. Columbia seldom
makes loans approaching its unsecured legal lending limit.
Net outstanding loans totaled $299.88 at December 31, 2000, representing
an increase of $52.90 million, or 21.42% compared to $246.98 million as of
December 31, 1999. Loan commitments grew to $102.41 million as of December 31,
2000, representing an increase of $19.72 million over year-end 1999. Net
outstanding loans were $206.55 million at December 31, 1998.
CRB's net loan portfolio at December 31, 2000, includes loans secured by
real estate (55.74% of total), commercial loans (24.03% of total), agricultural
loans (15.04% of total) and consumer loans (6.52% 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.
This table presents the composition of Columbia's loan portfolio at the
dates indicated:
DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------ ------------------------ ------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
--------- ---------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
Commercial $ 70,790 23.61% $ 60,869 24.65% $ 41,275 16.71%
Agricultural 44,299 14.77% 37,775 15.30% 34,604 14.01%
Real estate secured loans:
Commercial property 58,411 19.48% 43,469 17.59% 41,089 16.64%
Farmland 20,723 6.91% 13,270 5.37% 8,603 3.48%
Construction 41,374 13.80% 33,780 13.68% 20,048 8.12%
Residential 45,612 15.21% 40,051 16.22% 43,919 17.78%
Home equity lines 3,393 1.13% 3,027 1.23% 2,675 1.08%
--------- ------ --------- ------ --------- ------
Total real estate 169,513 56.53% 133,597 54.09% 116,334 47.10%
Consumer 19,195 6.40% 18,096 7.33% 16,569 6.71%
Other 1,690 0.56% 827 0.33% 933 0.38%
--------- ------ --------- ------ --------- ------
Total loans 305,487 101.87% 251,164 101.70% 209,715 84.91%
Less deferred loan fees (1,028) (0.34)% (891) (0.36)% (784) (0.38)%
Less reserve for loan losses (4,578) (1.53)% (3,298) (1.34)% (2,380) (1.15)%
--------- ------ --------- ------ --------- ------
Loans receivable, net $ 299,881 100.00% $ 246,975 100.00% $ 206,551 83.63%
========= ====== ========= ====== ========= ======
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The following table shows the maturities and sensitivity of Columbia's
loans to changes in interest rates at the dates indicated:
DECEMBER 31, 2000
-----------------------------------------------------------------------------
DUE AFTER ONE DUE
DUE IN ONE YEAR THROUGH AFTER TOTAL
(DOLLARS IN THOUSANDS) YEAR OR LESS FIVE YEARS FIVE YEARS LOANS
------------ ------------- ---------- --------
Commercial loans $ 35,978 $ 22,070 $ 12,742 $ 70,790
Agricultural loans 37,978 5,182 1,139 44,299
Real estate secured loans:
Commercial property 6,092 30,927 21,392 58,411
Farmland 4,892 4,867 10,964 20,723
Construction 31,864 5,353 4,157 41,374
Residential 10,738 10,509 24,365 45,612
Home equity lines 3,194 113 86 3,393
-------- -------- -------- --------
Total real estate loans 56,780 51,769 60,964 169,513
Consumer 9,043 8,157 1,995 19,195
Other 718 208 764 1,690
-------- -------- -------- --------
Total loans $140,497 $ 87,386 $ 77,604 $305,487
======== ======== ======== ========
Loans with fixed interest rates $137,098
Loans with floating interest rates 168,389
========
$305,487
========
DECEMBER 31, 1999
----------------------------------------------------------------------------
DUE AFTER ONE DUE
DUE IN ONE YEAR THROUGH AFTER TOTAL
(DOLLARS IN THOUSANDS) YEAR OR LESS FIVE YEARS FIVE YEARS LOANS
------------ ------------- ---------- --------
Commercial loans $ 31,220 $ 18,225 $ 11,424 $ 60,869
Agricultural loans 32,257 4,637 881 37,775
Real estate secured loans:
Commercial property 8,943 17,513 17,013 43,469
Farmland 3,155 4,783 5,332 13,270
Construction 27,279 2,508 3,993 33,780
Residential 11,061 5,966 23,024 40,051
Home equity lines 2,905 122 -- 3,027
-------- -------- -------- --------
Total real estate loans 53,343 30,892 49,362 133,597
Consumer 9,049 7,163 1,884 18,096
Other 474 118 235 827
-------- -------- -------- --------
Total loans $126,343 $ 61,035 $ 63,786 $251,164
======== ======== ======== ========
Loans with fixed interest rates $119,579
Loans with floating interest rates 131,585
========
$251,164
========
LOAN LOSSES AND RECOVERIES
The reserve for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the reserve for loan
losses when management believes that the collectibility of the principal or a
portion thereof is unlikely. The reserve is an amount that management believes
will be adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans and current economic conditions that
may affect the borrower's ability to pay. Accrual of interest is discontinued on
a loan when management believes, after considering economic and business
conditions, collection efforts and collateral position, that the borrower's
financial condition is such that collection of interest is doubtful.
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The following table shows Columbia's loan loss experience for the
periods indicated:
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Loans outstanding at end of period, net of
unearned interest income $ 304,459 $ 250,274 $ 208,932 $ 156,858 $ 119,223
========= ========= ========= ========= =========
Average loans outstanding for the period $ 288,058 $ 222,276 $ 175,588 $ 140,891 $ 111,841
========= ========= ========= ========= =========
Reserve for loan losses balance, beginning of year $ 3,298 $ 2,380 $ 1,639 $ 995 $ 1,072
--------- --------- --------- --------- ---------
Loans charged off:
Commercial (139) (41) (219) (7) (30)
Real estate (14) (15) (51) -- --
Agriculture (256) (26) (369) -- (317)
Installment loans (8) (57) (77) (19) (21)
Credit card and related accounts (42) (43) (51) (14) (9)
--------- --------- --------- --------- ---------
Total loans charged off (459) (182) (767) (40) (377)
--------- --------- --------- --------- ---------
Recoveries:
Commercial 6 32 40 21 26
Real estate -- -- -- -- --
Agriculture 30 48 49 80 7
Installment loans 3 3 1 1 20
Credit card and related accounts 3 12 8 1 --
--------- --------- --------- --------- ---------
Total recoveries 42 95 98 103 53
--------- --------- --------- --------- ---------
Net (charge-offs) recoveries (417) (87) (669) 63 (324)
Provision charged to operations 1,697 1,005 1,000 581 247
--------- --------- --------- --------- ---------
Acquisition of Valley Community Bancorp 410
--------- --------- --------- --------- ---------
Reserve for loan losses balance, end of period $ 4,578 $ 3,298 $ 2,380 $ 1,639 $ 995
========= ========= ========= ========= =========
Ratio of net loans charged off (recovered) to
average loans outstanding 0.14% 0.04% 0.38% (0.04)% 0.29%
Ratio of reserve for loan losses to loans at
end of period 1.50% 1.32% 1.13% 1.04% 0.83%
The adequacy of the reserve for loan losses should be measured in the
context of several key ratios: (1) the ratio of the reserve to total outstanding
loans; (2) the ratio of total nonperforming loans to total loans; and, (3) the
ratio of net charge-offs (recoveries) to average loans outstanding. Since 1996,
Columbia's ratio of the reserve for loan losses to total loans has ranged from
0.83% to 1.50%. The amounts provided by these ratios have been sufficient to
fund Columbia's charge-offs, which have not been historically significant, and
to provide for potential losses as the loan portfolio has grown. These ratios
have also been consistent with the level of nonperforming loans to total loans.
From December 31, 1996 through December 31, 2000, nonperforming loans to total
loans have ranged from a low of 0.21% to a high of .93%. This experience tracks
with changes in the ratio of the reserve for loan losses to total loans and with
the actual balances maintained in the reserve account. Finally, Columbia's
historical ratio of net charge-offs (recoveries) to average outstanding loans
illustrates its favorable loan charge-off and recovery experience. In one of the
five years from 1996 to 2000, annual loan recoveries actually exceeded
charge-offs. For the remaining four years between December 31, 1996 and 2000,
net charge-offs ranged from 0.04% to 0.38% of average loans. Management believes
Columbia's loan underwriting policies and its loan officers' knowledge of their
customers are significant contributors to Columbia's success in limiting loan
losses.
During the year ended December 31, 2000, Columbia recognized $459,000 in
loan losses and $42,000 in recoveries. Charge-offs recorded in 2000 were
consistent with Columbia's historical experience in view of the growth in its
loan portfolio.
29
30
The following table presents information with respect to nonperforming
loans and other assets:
DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
Loans on nonaccrual status $1,163 $ 394 $1,082 $1,041 $ 229
Loans past due - greater than 90 days 7 -- -- 414 30
Restructured loans 116 202 825 -- --
------ ------ ------ ------ ------
Total nonperforming loans 1,286 596 1,907 1,455 259
Other real estate owned -- -- 281 -- --
------ ------ ------ ------ ------
Total nonperforming assets $1,286 $ 596 $2,188 $1,455 $ 259
====== ====== ====== ====== ======
Allowance for loans losses $4,578 $3,298 $2,380 $1,639 $ 995
Ratio of total nonperforming assets to
total assets 0.31% 0.16% 0.64% 0.63% 0.04%
Ratio of total nonperforming loans to
total loans 0.43% 0.24% 0.91% 0.93% 0.21%
Ratio of allowance for loan losses to
total nonperforming assets 355.95% 553.45% 108.82% 112.65% 384.17%
Columbia has adopted a policy for placement of loans on nonaccrual
status after they become 90 days past due unless otherwise formally waived.
Further, Columbia may place loans that are not contractually past due or that
are deemed fully collateralized on nonaccrual status to promote better oversight
and review of loan arrangements. Loans on nonaccrual status at December 31, 2000
totaled approximately $1.16 million compared to $394,000 at December 31, 1999
and $1.08 at the end of 1998.
In 1998, Columbia adopted procedures to identify and monitor loans that
have had their original terms restructured to accommodate borrowers' financial
needs. Loan revisions and modifications are provided to meet the credit needs of
borrowers in weakened financial condition and to enhance ultimate collection. As
of December 31, 1999, Columbia identified loans totaling $116,000 that had been
classified as restructured. All of these loans are currently performing in
accordance with their restructured terms. However, management will continue to
monitor these loans for any changes or deterioration in performance.
At December 31, 2000, Columbia had no assets in the other real estate
owned ("OREO") category, which represents assets held through loan foreclosure
or recovery activities. There was no OREO at December 31, 1999, and $281,000 in
OREO at December 31, 1998.
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DEPOSITS
The following table sets forth the average balances of Columbia's
interest-bearing deposits, interest expense, and average rates paid for the
periods indicated:
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
2000 1999
---------------------------------------- ---------------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- -------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
Interest-bearing checking $130,819 $ 4,419 3.38% $128,207 $ 3,563 2.78%
Savings 26,534 861 3.24% 29,395 821 2.79%
Time deposits 95,845 5,503 5.74% 71,626 3,650 5.10%
-------- -------- -------- -------- -------- -------
Total interest-bearing
deposits 253,198 $ 10,783 4.26% 229,228 $ 8,034 3.51%
======== ======== ======== =======
Total noninterest-bearing
deposits 79,895 70,000
-------- -------
Total interest-bearing and
noninterest-bearing deposits $333,093 $299,228
======== ========
YEAR ENDED DECEMBER 31,
1998
----------------------------------------
AVERAGE INTEREST AVERAGE
BALANCE EXPENSE RATE
------- -------- -------
(DOLLARS IN THOUSANDS)
Interest-bearing checking $ 92,669 $ 2,962 3.20%
Savings 26,252 855 3.26%
Time deposits 54,550 2,949 5.41%
-------- -------- -------
Total interest-bearing
deposits 173,471 $ 6,766 3.90%
======== =======
Total noninterest-bearing
deposits 48,983
--------
Total interest-bearing and
noninterest-bearing deposits $222,454
========
At December 31, 2000, total deposits were $346.43 million, an increase
of $35.52 million or 11.42%, from total deposits of $310.91 million at December
31, 1999. Total deposits in 1999 increased by 5.15% over 1998. Deposit growth in
1999 and 2000 was due to a combination of pricing strategies, increased
marketing, and increased emphasis on implementing a sales culture within the
branches. The growth in deposit accounts in 2000 has primarily been in time
deposits and noninterest-bearing demand accounts. Noninterest-bearing demand
deposits, also called "core deposits," continued to be a significant portion of
Columbia's deposit base. To the extent Columbia can fund operations with core
deposits, net interest spread, which is the difference between interest income
and interest expense, will improve. At December 31, 2000, core deposits
accounted for 25.35% of total deposits, up from 24.09% as of December 31, 1999.
Interest-bearing deposits consist of money market, savings, and time
certificate accounts. Interest-bearing account balances tend to grow or decline
as Columbia adjusts its pricing and product strategies based on market
conditions, including competing deposit products. At December 31, 2000, total
interest-bearing deposit accounts were $258.60 million, an increase of $22.58
million, or 9.57%, from December 31, 1999. Increases in time deposits and in
interest-bearing deposits offset a decline in savings accounts. Interest-bearing
demand accounts increased $3.32 million, or 2.55%, from December 31, 1999 to
2000, after increasing $4.57 million, or 3.39%, from 1998 to 1999.
Columbia is not dependent on brokered deposits or high-priced time
deposits. At December 31, 2000, time certificates of deposits in excess of
$100,000 totaled $27.40 million, or 7.91% of total outstanding deposits,
compared to $19.18 million, or 6.17%, of total outstanding deposits at December
31, 1999, and $10.88 million, or 3.68%, of total outstanding deposits at
December 31, 1998. The following table sets forth, by time remaining to
maturity, all time certificates of deposit accounts outstanding at December 31,
2000:
(IN THOUSANDS)
Three months or less $ 34,301
Over three through six months 21,633
Over six months through twelve months 27,424
Over twelve months 14,526
----------
$ 97,884
==========
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SHORT-TERM BORROWINGS
The following table sets forth certain information with respect to
Columbia's Federal Home Loan Bank of Seattle borrowings.
DECEMBER 31,
---------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Amount outstanding at end of period $25,520 $10,598 $ 7,300 $ 4,600 $ 600
Weighted average interest rate at end of
period 6.39% 5.83% 5.41% 5.89% 5.68%
Maximum amount outstanding at any
month-end and during the year $29,053 $10,605 $ 7,600 $ 4,600 $ 1,200
Average amount outstanding during the
period $22,490 $ 8,801 $ 6,933 $ 2,781 $ 813
Average weighted interest rate during
the period 6.34% 5.33% 5.53% 5.80% 5.86%
SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL
Shareholders' equity increased $4.01 million during 2000. Shareholders'
equity at December 31, 2000 was $41.33 million compared to $37.32 million at
December 31, 1999. This increase reflects net income and comprehensive income of
$6.25 million and $70,000 in exercised stock options. These additions to equity
were partially offset by cash dividends paid or declared of $2.33 million.
Dividends declared and paid were $0.29 per share in 2000, $0.25 per
share in 1999, and $0.22 per share in 1998.
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, 2000, and December
31, 1999, as compared to regulatory minimums for capital adequacy purposes:
AT DECEMBER 31, 2000 AT DECEMBER 31, 1999 REGULATORY MINIMUM
-------------------- -------------------- ------------------
Tier I capital 9.80% 10.20% 4.00%
Total risk-based capital 11.00% 11.30% 8.00%
Leverage ratio 8.10% 8.30% 4.00%
LIQUIDITY
Columbia has adopted policies to maintain a relatively liquid position
to enable it to respond to changes in the financial environment and ensure
sufficient funds are available to meet customers' needs for borrowing and
deposit withdrawals. Generally, Columbia's major sources of liquidity are
customer deposits, sales and maturities of investment securities, the use of
federal funds markets and net cash provided by operating activities. Scheduled
loan repayments are a relatively stable source of funds, while deposit inflows
and unscheduled loan prepayments, which are influenced by general interest rate
levels, interest rates available on other investments, competition, economic
conditions, and other factors, are not. Liquid asset balances include cash,
amounts due from other banks, federal funds sold, and securities
available-for-sale and securities held-to-maturity with maturities in the next
three months. At December 31, 2000, these liquid assets totaled $66.04 million
or 15.87% of total assets as compared to $67.04 million or 18.56% of total
assets at December 31, 1999. Another source of liquidity is provided by CRB's
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. The statement of cash flows includes
operating, investing and financing categories. Operating activities
32
33
include net income of $5.62 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, 2000, CRB had outstanding commitments to make loans of
$102.41 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.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
In addition to the other information contained in this report, the
following risks may affect Columbia. If any of these risks occurs, our business,
financial condition or operating results could be adversely affected.
Growth and Management. Our financial performance and profitability will
depend on our ability to manage recent and possible future growth. Although
management believes that it has substantially integrated the business and
operations of recent acquisitions, there can be no assurance that unforeseen
issues relating to the acquisitions will not adversely affect us. In addition,
any future acquisitions and continued growth may present operating and other
problems that could have an adverse effect on our business, financial condition
and results of operations. Accordingly, there can be no assurance that we will
be able to execute our growth strategy or maintain the level of profitability
that we have recently experienced.
Changes in Market Interest Rates. Our earnings are impacted by changing
interest rates. Changes in interest rates impact the demand for new loans, the
credit profile of existing loans, the rates received on loans and securities and
rates paid on deposits and borrowings. The relationship between the rates
received on loans and securities and the rates paid on deposits and borrowings
is known as interest rate spread. Given our current volume and mix of
interest-bearing liabilities and interest-earning assets, our interest rate
spread could be expected to increase during times of rising interest rates and,
conversely, to decline during times of falling interest rates. The 50 basis
point decrease in the target Fed Funds rate by the Federal Reserve announced
January 3, 2001 and the additional 50 basis point decrease announced January 31,
2001, may result in a basis point drop in Columbia's interest rate spread. With
any further declines in interest rates, our ability to proportionately decrease
the rates on our deposit sources may not be possible due to competitive
pressures. This may result in a larger decrease in our interest rate spread.
Although we believe our current level of interest rate sensitivity is
reasonable, significant fluctuations in interest rates may have an adverse
effect on our business, financial condition and results of operations.
Geographic Factors. Economic conditions in the communities we serve
could adversely affect our operations. As a result of community bank focus, our
results depend largely upon economic and business conditions in our service
areas. A deterioration in economic and business conditions in our market areas,
particularly in the agricultural and real estate industries on which some of
these areas depend, could have a material adverse impact on the quality of our
loan portfolio, and the demand for our products and services, which in turn may
have a material adverse effect on our results of operations. Further, a downturn
in the national economy might further exacerbate local economic conditions. The
extent of the future impact of these events on economic and business conditions
cannot be predicted.
Regulation. We are subject to government regulation that could limit or
restrict our activities, which in turn could adversely impact our operations.
The financial services industry is regulated extensively. Federal and state
regulation is designed primarily to protect the deposit insurance funds and
consumers, and not to benefit our shareholders. These regulations can sometimes
impose significant limitations on our operations. In addition, these regulations
are constantly evolving and may change significantly over time. Significant new
laws or changes in existing laws or repeal of existing laws may cause our
results to differ materially. Further, federal monetary policy, particularly as
implemented through the Federal Reserve System, significantly affects credit
conditions for us.
33
34
Competition. Competition may adversely affect our performance. The
financial services business in our market areas is highly competitive. It is
becoming increasingly competitive due to changes in regulation, technological
advances, and the accelerating pace of consolidation among financial services
providers. We face competition both in attracting deposits and in making loans.
We compete for loans principally through the interest rates and loan fees we
charge and the efficiency and quality of services we provide. Increasing levels
of competition in the banking and financial services businesses may reduce our
market share or cause the prices we charge for our services to fall. Our results
may differ in future periods depending upon the nature or level of competition.
Credit Risk. If a significant number of borrowers, guarantors and
related parties fail to perform as required by the terms of their loans, we will
sustain losses. A significant source of risk arises from the possibility that
losses will be sustained if a significant number of our borrowers, guarantors
and related parties fail to perform in accordance with the terms of their loans.
We have adopted underwriting and credit monitoring procedures and credit
policies, including the establishment and review of the allowance for credit
losses, that management believes are appropriate to minimize this risk by
assessing the likelihood of nonperformance, tracking loan performance and
diversifying our credit portfolio. These policies and procedures, however, may
not prevent unexpected losses that could materially adversely affect our results
of operations.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET-LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
Columbia's results of operations depend substantially on its net
interest income. Interest income and interest expense are affected by general
economic conditions and by competition in the marketplace. Columbia's interest
and pricing strategies are driven by its asset-liability management analysis and
by local market conditions.
Columbia seeks to manage its assets and liabilities to generate a stable
level of earnings in response to changing interest rates and to manage its
interest rate risk. Columbia further strives to serve its communities and
customers through deployment of its resources on a corporate-wide basis so that
qualified loan demands may be funded wherever necessary in its branch banking
system. Asset/liability management involves managing the relationship between
interest rate sensitive assets and interest rate sensitive liabilities. If
assets and liabilities do not mature or reprice simultaneously, and in equal
amounts, the potential for exposure to interest rate risk exists, and an
interest rate "gap" is said to be present.
Rising and falling interest rate environments can have various effects
on a bank's net interest income, depending on the interest rate gap, the
relative changes in interest rates that occur when assets and liabilities are
repriced, unscheduled repayments of loans, early withdrawals of deposits and
other factors.
The following table sets forth the dollar amount of maturing
interest-earning assets and interest-bearing liabilities at December 31, 2000,
and the difference between them for the maturing or repricing periods indicated.
The amounts in the table are derived from Columbia's internal data, which varies
from amounts classified in its financial statements, and, although the
information may be useful as a general measure of interest rate risk, the data
could be significantly affected by external factors such as prepayments of loans
or early withdrawals of deposits. Each of these may greatly influence the timing
and extent of actual repricing of interest-earning assets and interest-bearing
liabilities.
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35
DECEMBER 31, 2000
------------------------------------------------------------------------------------
IMMEDIATE LESS THAN MONTHS MONTHS OVER
REPRICING 3 MONTHS 3 - 6 6 - 12 12 MONTHS TOTAL
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Liquid Investments $ 3,309 $ 435 $ 758 $ 1,516 $ 40,109 $ 46,127
Other Investments -- -- 347 694 18,641 19,682
Loans 106,542 22,765 4,621 8,901 157,052 299,881
--------- --------- --------- --------- --------- ---------
Total assets 109,851 23,200 5,726 11,111 215,802 365,690
LIABILITIES
Core deposits 177,212 28,075 17,237 17,237 79,263 319,024
Jumbo CDs -- 13,351 8,570 2,143 3,339 27,403
Borrowings 849 11,000 300 13,000 1,220 26,369
--------- --------- --------- --------- --------- ---------
Total liabilities 178,061 52,426 26,107 32,380 83,822 372,796
--------- --------- --------- --------- --------- ---------
Net position (68,210) (29,226) (20,381) (21,269) 131,980 $ (7,106)
--------- --------- --------- --------- --------- =========
Net cumulative position $ (68,210) $ (97,436) $(117,817) $(139,086) $ (7,106)
========= ========= ========= ========= =========
Cumulative Gap as a percent of assets (16.36)% (23.37)% (28.26)% (33.37)% (1.70)%
--------- --------- --------- --------- ---------
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 an 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% $420,000
1% $210,000
-1% ($280,000)
-2% ($716,000)
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ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
2000 QUARTERLY FINANCIAL DATA
---------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -------
INCOME STATEMENT DATA
Interest income $ 7,525 $ 8,165 $ 8,720 $ 8,957 $33,367
Interest expense 2,631 3,066 3,292 3,267 12,256
------- ------- ------- ------- -------
Net interest income 4,894 5,099 5,428 5,690 21,111
Loan loss provision 399 454 464 380 1,697
------- ------- ------- ------- -------
Net interest income after
provision for loan losses 4,495 4,645 4,964 5,310 19,414
Noninterest income 1,378 1,751 1,874 1,975 6,978
Noninterest expense 3,806 4,268 4,572 4,817 17,463
------- ------- ------- ------- -------
Income before provision for
income taxes 2,067 2,128 2,266 2,468 8,929
Provision for income taxes 791 778 847 889 3,305
------- ------- ------- ------- -------
Net income $ 1,276 $ 1,350 $ 1,419 $ 1,579 $ 5,624
======= ======= ======= ======= =======
Earnings Per Share
Basic earnings per common share $ 0.16 $ 0.17 $ 0.18 $ 0.20 $ 0.70
Diluted earnings per common share $ 0.16 $ 0.17 $ 0.18 $ 0.20 $ 0.70
1999 QUARTERLY FINANCIAL DATA
---------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -------
INCOME STATEMENT DATA
Interest income $ 6,169 $ 6,587 $ 7,012 $ 7,115 $26,883
Interest expense 2,040 2,092 2,148 2,288 8,568
------- ------- ------- ------- -------
Net interest income 4,129 4,495 4,864 4,827 18,315
Loan loss provision 350 335 170 150 1,005
------- ------- ------- ------- -------
Net interest income after
provision for loan losses 3,779 4,160 4,694 4,677 17,310
Noninterest income 1,359 1,453 1,403 1,568 5,783
Noninterest expense 3,444 3,731 3,753 4,047 14,975
------- ------- ------- ------- -------
Income before provision for
income taxes 1,694 1,882 2,344 2,198 8,118
Provision for income taxes 595 724 937 849 3,105
------- ------- ------- ------- -------
Net income $ 1,099 $ 1,158 $ 1,407 $ 1,349 $ 5,013
======= ======= ======= ======= =======
Earnings Per Share
Basic earnings per common share $ 0.14 $ 0.15 $ 0.18 $ 0.17 $ 0.63
Diluted earnings per common share $ 0.14 $ 0.14 $ 0.17 $ 0.17 $ 0.62
Additional information called for by this item is contained in Columbia
Bancorp's Annual Report to Shareholders for the year ended December 31, 2000,
and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is contained in Columbia's
definitive proxy statement for the annual meeting of shareholders to be held
April 26, 2001, and is incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION AND REPORT OF COMPENSATION COMMITTEE
The information called for by this item is contained in Columbia's
definitive proxy statement for the annual meeting of shareholders to be held
April 26, 2001, and is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is contained in Columbia's
definitive proxy statement for the Annual Meeting of Shareholders to be held
April 26, 2001, and is incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is contained in Columbia's
definitive proxy statement for the Annual Meeting of Shareholders to be held
April 26, 2001, and is incorporated herein by reference.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits.
Pursuant to Item 601 of Regulation S-K, the following exhibits are
attached hereto or are incorporated herein by reference.
(Note: The per share earnings computation statement required by Item
601(b)(11) of Regulation S-K is contained in Note 20 to the Consolidated
Financial Statements included in Columbia's 2000 Annual Report to Shareholders.
A copy of this 2000 Annual Report is attached hereto as an exhibit.)
1. Articles of Incorporation and Bylaws. (Regulation S-K, Item 601,
Exhibit Table Item (3)). Columbia's Articles of Incorporation, as
amended, are attached as Exhibit 3 (i) to Columbia's Form 10-Q for
the period ended June 30, 1999 and incorporated herein by reference.
Columbia's Bylaws are attached as Exhibit 15.5 to Columbia's Annual
Report on Form 10-KSB for the year ended December 31, 1998 and
incorporated herein by reference.
2. Material Contracts. (Regulation S-K, Item 601, Exhibit Table Item
(10)).
10.1 Employment Agreement of January 25, 2001 between Roger
Christensen and Columbia Bancorp, a copy of which is attached
hereto.
10.2 Deferred Compensation Agreement of April 1, 2000 between Neal
T. McLaughlin and Columbia Bancorp, a copy of which is attached
hereto.
10.3 Employment Agreement of April 1, 1999 between Terry L. Cochran
and Columbia Bancorp, a copy of which is attached as Exhibit 10.1 to
Columbia's
37
38
Annual Report on Form 10-K for the year ended December 31, 1999 and
incorporated herein by reference.
10.4 Deferred Compensation Agreement of April 1, 1999 between Terry
L. Cochran and Columbia Bancorp, a copy of which is attached as
Exhibit 10.2 to Columbia's Annual Report on Form 10-K for the year
ended December 31, 1999 and incorporated herein by reference.
10.5 Columbia Bancorp Restated Employee Stock Ownership Plan and
Trust Agreement (1999 Restatement), a copy of which is attached as
Exhibit 10.4 to Columbia's Annual Report on Form 10-K for the year
ended December 31, 1999 and incorporated herein by reference.
3. Annual Report to Shareholders. (Regulation S-K, Item 601, Exhibit
Table Item (13)). A copy of Columbia's 2000 Annual Report to Shareholders is
attached hereto.
4. List of Subsidiaries. (Regulation S-K, Item 601, Exhibit Table Item
(21)). Attached hereto is a list of Columbia's subsidiaries as of December 31,
2000.
5. Financial Data Schedule. (Regulation S-K, Item 601, Exhibit Table
Item (27)). Columbia's Financial Data Schedule is attached hereto.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the year ended December 31,
2000.
Upon written request to Columbia's Chief Financial Officer, Neal T.
McLaughlin, P.O. Box 1050, The Dalles, Oregon 97058 a copy of any exhibit
referenced herein will be provided to the requesting party upon payment of
Columbia's reasonable copying expense of $.25 per page.
38
39
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
COLUMBIA BANCORP
DATED: March 15, 2001 By: /s/
--------------------------------------------
Terry L. Cochran, President & C.E.O.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR
DATED: March 15, 2001 By /s/
---------------------------------------------
Terry L. Cochran, President, C.E.O., and
Director
CHIEF FINANCIAL OFFICER
DATED: March 15, 2001 By /s/
---------------------------------------------
Neal T. McLaughlin: Chief Financial Officer
and Chief Accounting Officer -- Columbia and
CRB
DIRECTORS:
DATED: March 15, 2001 By /s/
---------------------------------------------
Donald T. Mitchell, Director and Chairman
DATED: March 15, 2001 By /s/
---------------------------------------------
William A. Booth, Director
DATED: March 15, 2001 By /s/
---------------------------------------------
Robert L. R. Bailey, Director
DATED: March 15, 2001 By /s/
---------------------------------------------
Charles F. Beardsley, Director
DATED: March 15, 2001 By /s/
---------------------------------------------
Richard E. Betz, Director
DATED: March 15, 2001 By /s/
---------------------------------------------
Dennis L. Carver, Director
39
40
SIGNATURES
(Continued)
DATED: March 15, 2001 By /s/
---------------------------------------------
James J. Doran, Director
DATED: March 15, 2001 By /s/
---------------------------------------------
Ward Eason, Director
DATED: March 15, 2001 By /s/
---------------------------------------------
Jane F. Lee, Director
DATED: March 15, 2001 By /s/
---------------------------------------------
Jean S. McKinney, Director
DATED: March 15, 2001 By /s/
---------------------------------------------
James B. Roberson, Director
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EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
10.1 Employment Agreement of January 25, 2001 between Roger
Christensen and Columbia Bancorp.
10.2 Deferred Compensation Agreement of April 1, 1999 between
Neal T. McLaughlin and Columbia Bancorp.
13.1 2000 Annual Report to Shareholders.
21.1 Columbia's subsidiaries as of December 31, 2000.
27.1 Financial Data Schedule.
41