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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended June 30, 2003

For the transition period from          to

Commission file number 0-27938

COLUMBIA BANCORP

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

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YESx   NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

YESx   NO o

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     8,728,713 shares of common stock as of August 6, 2003

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DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

     Forward-looking statements with respect to the financial condition, results of operations and the business of Columbia are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in such statements. These include, without limitation, the impact of competition and interest rates on revenues and margins, and other risks and uncertainties, including statements relating to the year 2003, as may be detailed from time to time in Columbia’s public announcements and filings with the Securities and Exchange Commission (“SEC”). Forward-looking statements can be identified by the use of forward-looking terminology, such as “may”, “will”, “should”, “expect”, “anticipate”, “estimate”, “continue”, “plans”, “intends”, or other similar terminology. Columbia does not intend to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10Q, other than in its periodic filings with the SEC, or to reflect the occurrence of unanticipated events.

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COLUMBIA BANCORP

FORM 10-Q

June 30, 2003

INDEX

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COLUMBIA BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

See accompanying notes.

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COLUMBIA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)

See accompanying notes.

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COLUMBIA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

See accompanying notes.

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COLUMBIA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)

See accompanying notes.

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COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.

Principles of Consolidation

	The interim consolidated financial statements include the accounts of Columbia Bancorp, a financial holding company (“Columbia”), and its two wholly-owned subsidiaries Columbia River Bank (“CRB”) and Columbia Bancorp Trust I (the “Trust”), after elimination of intercompany transactions and balances. CRB is an Oregon state-chartered bank, headquartered in The Dalles, Oregon. The Trust, a wholly owned Delaware statutory business trust, was established in December 2002, for the purpose of issuing guaranteed undivided beneficial interests in junior subordinated debentures (Trust preferred securities). During December 2002, the Trust issued $4.00 million in Trust Preferred Securities. Substantially all activity of Columbia is conducted through its subsidiary bank, CRB.
	The interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The financial information included in this interim report has been prepared by management. Columbia’s annual report contains audited financial statements. All adjustments, including normal recurring accruals necessary for the fair presentation of results of operations for the interim periods included herein, have been made. The results of operations for the six months ended June 30, 2003 are not necessarily indicative of results to be anticipated for the year ending December 31, 2003.

2.

Management’s Estimates and Assumptions

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Significant estimations made by management primarily involve the calculation of the allowance for loan losses and valuation of the mortgage-servicing asset.

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3.

Stock Options

Columbia applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option plans. Accordingly, compensation costs are recognized as the difference between the exercise price of each option and the market price of Columbia’s stock at the date of each grant. Had compensation cost for Columbia’s grants for stock-based compensation plans been determined consistent with SFAS No. 123, “Accounting for Stock-Based Compensation,” its net income and earnings per common share for the three and six month periods ended June 30, 2003 and 2002, would approximate the pro forma amounts below.

4.

Loans and Allowance for Loan Losses

	The composition of the loan portfolio was as follows:

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     Changes in the allowance for loan losses were as follows for the six months ended:

	Columbia has adopted a policy for placement of loans on nonaccrual status after they become 90 days past due unless otherwise formally approved by the Loan Committee. 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 June 30, 2003 and December 31, 2002 were $2.86 million, and $742,137, respectively. The increase in loans on nonaccrual status during the quarter ending June 30, 2003 is attributable primarily to a single loan in the amount of $1.36 million, which is real estate secured. Columbia is working with legal counsel in pursuing a government guarantee, which also supported the outstanding loan balance. The likelihood of success in receiving funds pursuant to the government guarantee is currently not known. Since this guarantee is in dispute, a $1.46 million charge-off was taken to reduce the loan balance to $1.36 million as determined from a recent re-appraisal of the real estate that secures the loan. Information currently available to management indicates the carrying value of this loan approximates fair value and any additional losses relating to this loan are expected to be negligible.
	At June 30, 2003 and December 31, 2002, Columbia identified an insignificant amount of loans on which the interest rate or payment schedules were modified from original terms to accommodate borrowers’ weakened financial positions.
	At June 30, 2003, Columbia had $36,200 in other real estate owned (“OREO”), which represents assets held through loan foreclosure or recovery activities. There was no OREO or other repossessed assets at December 31, 2002. These amounts are included in “other assets” on the balance sheet.

5.

Mortgage Servicing Asset

As of June 30, 2003, the book value of CRB’s mortgage servicing asset was $3.73 million. The mortgage servicing asset multiple as a percent of total loans serviced at June 30, 2003 was 0.78% as compared to 0.94% at December 31, 2002. The reduction in the mortgage servicing asset multiple is due to an impairment adjustment recognized during the first half of 2003, which resulted in a reduction of the mortgage servicing asset by $1,075,000 on a before-tax basis.

6.

Segment Information

Columbia operates two primary segments — the community banking segment and the mortgage banking segment. The community banking segment consists of Columbia’s subsidiary, CRB, which operates 15 bank branches in Oregon and three branches in Washington. CRB offers loan, investment, and deposit products to its customers who range from individuals to medium-sized agricultural and commercial companies. The mortgage banking segment consists of Columbia Mortgage Group, headquartered in Bend, Oregon, with eleven office locations in Oregon. Columbia Mortgage Group offers a full range of mortgage lending services and products to its clients.

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	Financial information that Columbia’s management uses to evaluate the reportable segments and the reconciliation to Columbia’s consolidated financial statements are summarized as follows:

7.

Earnings Per Share

	Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if common shares were issued pursuant to the exercise of options under stock option plans. Weighted average shares outstanding consist of common shares outstanding and common stock equivalents attributable to outstanding stock options.
	The weighted average number of shares and common share equivalents have been retroactively adjusted for all stock dividends or splits.

8.

Recently Issued Accounting Standards

In June 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This statement establishes standards regarding classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires financial instruments within the scope of this statement to be classified as liabilities (or an asset in some circumstances). Many of these financial instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. For financial instruments created before the issuance date of this statement and still existing at the beginning of the interim period of adoption, transition is achieved by reporting the cumulative effect of a change in an accounting principle by initially measuring the financial instruments at fair value. Columbia’s management does not expect that the application of the provisions of this statement will have a material impact on Columbia’s consolidated financial statements.

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In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective for contracts entered into or modified after June 30, 2003, except for hedging relationships designated after June 30, 2003. The provisions of this statement relating to Statement 133 Implementation Issues, that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. Columbia’s management does not expect that the application of the provisions of this statement will have a material impact on Columbia’s consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” This interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. This interpretation explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. This interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that is acquired before February 1, 2003. The Interpretation applies to public enterprises as of the beginning of the applicable interim or annual period, and it applies to nonpublic enterprises as of the end of the applicable annual period. Columbia’s management does not expect that the application of the provisions of this interpretation will have a material impact on Columbia’s consolidated financial statements.

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

OVERVIEW

     Second quarter-to-date and year-to-date, 2003 highlights for Columbia Bancorp (“Columbia”) are as follows:

     Columbia reported net income of $3.86 million, or $0.43 per diluted share for the six months ended June 30, 2003 and $1.47 million, or $0.16 per diluted share for the quarter ended June 30, 2003. This represented a 16.11% decrease and 39.26% decrease, respectively, in net income, as compared to $4.60 million, or $0.50 per diluted share for the six months ended June 30, 2002 and $2.42 million, or $0.26 per diluted share for the quarter ended June 30, 2002.

     The net income contributed to shareholders’ equity during the first six months of 2003 was offset, in part, by declared dividends of $1.33 million. A first quarter 2003 dividend of $0.08 per share was

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paid May 1, 2003 to shareholders of record as of April 15, 2003. On April 23, 2003, Columbia announced a 10% stock dividend payable May 15, 2003 to shareholders of record as of May 1, 2003. In addition, on June 19, 2003, Columbia’s Board of Directors declared a second quarter dividend of $0.08 per share payable August 1, 2003 to shareholders of record as of July 15, 2003. With the payment of the declared dividend, approximately 35% of Columbia’s year-to-date earnings will have been returned to shareholders, the remainder being retained to fund the continued growth of Columbia.

     The book value of the mortgage-servicing asset as of the quarter ended June 30, 2003 was $3.73 million on $481.27 million in mortgage loans serviced by Columbia, compared to $5.72 million on $481.48 million for the same period ended June 30, 2002, which is a decrease of $205,852 or 0.04%. The mortgage-servicing asset to total loans serviced multiple as of the end of the second quarter 2003 was 0.78%, as compared to a 0.94% multiple as of December 31, 2002.

     The open mortgage pipeline as of June 30, 2003, consisted of $48.10 million in locked loans. These loans were covered by hedging instruments that included $40.00 million in forward call options. The purpose of hedging the open mortgage pipeline is to reduce the risk of exposure to interest rate volatility. The unrealized gain on mortgage loans within the pipeline was $119,890 and the unrealized loss on the derivative contracts was ($30,625), for a net open hedge position of $89,265 as of June 27, 2003.

MATERIAL CHANGES IN FINANCIAL CONDITION

     Changes in the balance sheet for the six months ended June 30, 2003 include an increase in total assets, primarily in loans, interest-bearing deposits with other banks and federal funds, and an increase in total liabilities, primarily in total deposits.

     At June 30, 2003, total assets increased 6.43%, or approximately $34.98 million, over total assets at December 31, 2002. Major components of the change in total assets since December 31, 2002 were as follows:

	•		$16.01 million increase in cash and cash equivalents
	•		$1.86 million increase in investment securities available-for-sale
	•		$2.81 million decrease in investment securities held-to-maturity
	•		$5.28 million decrease in loans held-for-sale
	•		$25.15 million increase in net loans