<PAGE>   1
 
   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1998
 
                                                 REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
 
                                COLUMBIA BANCORP
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                    <C>                                    <C>
               OREGON                                  6711                                93-1193156
   (STATE OR OTHER JURISDICTION OF         (PRIMARY STANDARD INDUSTRIAL                 (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)           CLASSIFICATION CODE NUMBER)              IDENTIFICATION NUMBER)
</TABLE>
 
   420 EAST THIRD STREET, SUITE 200, THE DALLES, OREGON 97058 (541) 298-6649
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                                TERRY L. COCHRAN
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                        420 EAST THIRD STREET, SUITE 200
                            THE DALLES, OREGON 97058
                                 (541) 298-6649
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
 
                          COPIES OF COMMUNICATIONS TO:
 
<TABLE>
<S>                                              <C>
           BENNETT H. GOLDSTEIN, ESQ.                         STEPHEN M. KLEIN, ESQ.
     BENNETT H. GOLDSTEIN, ATTORNEY AT LAW                    CARMEN L. SMITH, ESQ.
            2548 SW ST. HELENS COURT                             GRAHAM & DUNN PC
             PORTLAND, OREGON 97201                       1420 FIFTH AVENUE, 33RD FLOOR
                                                          SEATTLE, WASHINGTON 98101-2390
</TABLE>
 
 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
 
     If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box.  [ ]
 
     If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.  [ ]________
 
     If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]________
 
     If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]________
 
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.  [ ]
 
                        CALCULATION OF REGISTRATION FEE
 
<TABLE>
<S>                        <C>                     <C>                     <C>                     <C>
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
 TITLE OF EACH CLASS OF                               PROPOSED MAXIMUM        PROPOSED MAXIMUM
    SECURITIES TO BE            AMOUNT BEING         OFFERING PRICE PER      AGGREGATE OFFERING          AMOUNT OF
       REGISTERED              REGISTERED(1)              SHARE(2)                PRICE(2)            REGISTRATION FEE
-------------------------------------------------------------------------------------------------------------------------
Common Stock, no par
  value..................        1,150,000                 $10.00               $11,500,000              $3,392.50
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
 
(1) Includes 150,000 shares that may be purchased by the Underwriter to cover
    over-allotments, if any.
 
(2) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457(a) under the Securities Act of 1933, as amended ("1933
    Act").
 
     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE 1933
ACT, OR UNTIL THIS REGISTRATION STATEMENT BECOMES EFFECTIVE ON SUCH DATE AS THE
SECURITIES AND EXCHANGE COMMISSION, ACTING UNDER SECTION 8(a), MAY DETERMINE.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2
 
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
 
                 SUBJECT TO COMPLETION DATED SEPTEMBER 25, 1998
 
                                            SHARES
 
                                      LOGO
 
                                COLUMBIA BANCORP
                                  COMMON STOCK
 
     All of the shares of Common Stock, no par value (the "Common Stock"),
offered hereby ("the Offering") are being sold by Columbia Bancorp ("Columbia").
Prior to this Offering there has been a limited public market for the shares of
the Common Stock. It is currently anticipated that the offering price will be
between $          and $     per share of Common Stock. See "Underwriting" for a
discussion of the factors to be considered in determining the offering price.
The shares are currently quoted on the OTC Bulletin Board under the symbol
"CBBO." Columbia has applied to the Nasdaq Stock Market for listing of the
Common Stock on the Nasdaq National Market under the symbol "CBBO."
                            ------------------------
 
     FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS"
BEGINNING ON PAGE 8.
                            ------------------------
 
     THE SHARES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER
 OBLIGATIONS OF COLUMBIA AND ARE NOT INSURED BY THE BANK INSURANCE FUND OF THE
  FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY AND ARE
     SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
                            ------------------------
 
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
  EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY STATE
   SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY STATE SECURITIES COMMISSION PASSED
   ON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
                        CONTRARY IS A CRIMINAL OFFENSE.
 
<TABLE>
<S>                                 <C>                      <C>                      <C>
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
                                                                UNDERWRITING
                                                                DISCOUNT AND              PROCEEDS TO
                                      PRICE TO PUBLIC          COMMISSIONS(1)             COLUMBIA(2)
---------------------------------------------------------------------------------------------------------
Per Share.........................  $                        $                        $
---------------------------------------------------------------------------------------------------------
Total(3)..........................  $                        $                        $
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
</TABLE>
 
(1) Columbia has agreed to indemnify Pacific Crest Securities Inc. (the
    "Underwriter") against certain liabilities, including liabilities under the
    Securities Act of 1933, as amended. See "Underwriting."
 
(2) Before deducting expenses payable by Columbia estimated at $110,000.
 
(3) Columbia has granted to the Underwriter a 30-day option to purchase up to
                   additional shares of Common Stock on the same terms and
    conditions as set forth above solely to cover over-allotments, if any. See
    "Underwriting." If such option is exercised, the total Price to Public,
    Underwriting Discount and Commissions, and Proceeds to Columbia will be
    $          , $          , and $          , respectively.
 
     The shares of Common Stock are being offered by the Underwriter when, as
and if delivered to and accepted by the Underwriter and subject to certain
conditions. It is expected that delivery of the shares of Common Stock will be
made on or about                     , 1998.
 
                         PACIFIC CREST SECURITIES INC.
 
           The date of this Prospectus is                     , 1998.
<PAGE>   3
 
                             [MAP OF MARKET AREAS]
 
     CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF COLUMBIA'S COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING, AND SHORT-COVERING TRANSACTIONS IN
SUCH SECURITY, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
                                        2
<PAGE>   4
 
                               PROSPECTUS SUMMARY
 
     The following is a summary of information set forth in more detail
elsewhere in this Prospectus. Unless otherwise indicated, all information
contained in this Prospectus assumes that the Underwriter's over-allotment
option is not exercised. The number of shares and options outstanding and per
share amounts reflect Columbia's 2-for-1 stock split effective September 11,
1998. Unless otherwise indicated, "Columbia" in this Prospectus mean Columbia
and Columbia River Bank, its subsidiary, and references to the "Offering" mean
the offering of shares of Common Stock pursuant to this Prospectus. For further
definitions of certain terms used in this Prospectus, see "Glossary of Certain
Key Terms."
 
COLUMBIA BANCORP
 
     Columbia is a bank holding company headquartered in The Dalles, Oregon. It
is the parent corporation of Columbia River Bank ("CRB"), a nine-branch, full
service, community banking organization. Since 1993 Columbia has grown rapidly
through merger and acquisition activity and new branch openings. Columbia's
pending acquisition of Valley Community Bancorp ("Valley") is anticipated to
close by early 1999. According to information published by the State of Oregon,
if the acquisition of Valley had been completed as of June 30, 1998, Columbia
would rank as the 4th largest bank based in Oregon. See "Business -- Pending
Acquisition of Valley Community Bancorp."
 
     Columbia offers a broad range of financial services to its customers,
primarily small and medium sized businesses, farmers and individuals. Columbia's
seven Oregon branches serve the northern and eastern Oregon communities of The
Dalles, Hood River, and Hermiston, and the central Oregon communities of Madras,
Redmond, and Bend. Columbia's two south central Washington branches serve the
communities of Goldendale and White Salmon. Valley operates from McMinnville,
Oregon, 36 miles southwest of metropolitan Portland.
 
     As of June 30, 1998, Columbia had total assets of $253.11 million, total
deposits of $218.42 million, and shareholders' equity of $22.57 million.
Columbia's net income for the year ended December 31, 1997 was $3.89 million,
which was Columbia's tenth consecutive year of increasingly higher net income.
For the year ended December 31, 1997, Columbia's return on average assets was
1.77%, and its return on average equity was 19.55%.
 
     The markets in which Columbia operates are relatively economically diverse,
and therefore pose both opportunities and challenges to a community bank
operating in all of these economies. Columbia's approach to meeting the
challenge is to staff its branches and business groups with managers who are
established in their communities and have developed a loyal customer following.
Columbia's branches emphasize those products and services that are best suited
for the geographic region served by the branch. These diverse economies also
provide opportunities to limit Columbia's exposure to risks within any one
economic sector.
 
GROWTH HISTORY
 
     Columbia's subsidiary, CRB, was chartered in Oregon in 1976 as a one-branch
community bank in The Dalles, and has since grown as a result of merger and
acquisition activity, new branch openings, the introduction of new business
lines, and the expansion of its existing products and community bank lending
expertise. The majority of Columbia's growth has occurred since 1993, and is
marked by the following highlights:
 
     1993  - Opened first branch outside of The Dalles, in Hood River, Oregon
 
            - Completed first full year in which CRB offered investment products
              to customers through affiliation with Primevest Financial
              Services, Inc.
 
     1994  - Began and concluded negotiations to merge with Juniper Banking
             Company, which added branches in Madras and Redmond, Oregon, and
             increased assets by $31 million; merger effective January 1, 1995
 
     1995  - Opened branch in Safeway store in The Dalles
                                        3
<PAGE>   5
 
            - Introduced VISA check (debit) card
 
     1996  - Columbia became CRB's holding company
 
            - Introduced 24-hour telephone banking
 
            - Acquired Klickitat Valley Bank, which added branches in White
              Salmon and Goldendale, Washington and increased assets by $78
              million
 
            - Opened first branch in Bend, Oregon, the largest community in
              which Columbia operates
 
     1997  - Established a residential mortgage lending group in Bend, Oregon to
             enhance Columbia's mortgage business
 
            - Achieved 12-month increases in assets, loans, and deposits of 16%,
              31%, and 13%, respectively, all through internal growth
 
            - Introduced corporate sweep accounts for business customers
 
     1998  - Signed agreement to acquire Valley Community Bancorp, a
             McMinnville, Oregon community banking organization with $37 million
             in assets as of June 30, 1998
 
            - Opened branch in Hermiston, Oregon and announced plans to open a
              branch in Pendleton, Oregon and a second Bend, Oregon branch,
              which will include a business lending group.
 
            - From June 30, 1997 to June 30, 1998, assets increased by 15% and
              income increased 26% for the six-month period ended June 30, 1998
              compared to the six month period ended June 30, 1997
 
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,
accurate, and friendly personal banking services. The components of Columbia's
business strategy are outlined below:
 
     Successfully operate in non-metropolitan regions. In contrast to the
present strategies of certain major regional banks, which have closed branches
and reduced service levels in Columbia's identified communities, 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 CRB's management function
to the branch level, Columbia believes it can make business decisions regarding
customers more quickly and with more knowledge than its major banking
competitors. Columbia believes it is able to profitably attract and retain
customers by providing and delivering such products and services tailored to
their individual needs, and by delivering them with a high degree of personal
attention.
 
     Maintain high asset quality. Columbia seeks to maintain high asset quality
through a program that includes prompt and strict adherence to established
credit policies, training and supervision of lending officers, and periodic
professional independent loan review. 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. For the years ended December 31, 1995, 1996, 1997, and
for the six
 
                                        4
<PAGE>   6
 
months ended June 30, 1998, Columbia's net charge-offs (recoveries) to average
loans were (0.03)%, 0.29%, (0.04)%, and 0.26%, respectively.
 
     Seize merger and acquisition opportunities. In 1995, CRB merged with
Juniper Banking Company of central Oregon, and in 1996 Columbia acquired
Klickitat Valley Bank of south central Washington. After both transactions,
Columbia was able to provide the same or improved levels of community banking
products and services in these new market areas. In August 1998, Columbia
entered into a definitive agreement to acquire McMinnville-based Valley.
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 pending acquisition will be Columbia's
first entrance into Oregon's most populous region, the Willamette Valley.
Management believes there are significant future growth opportunities in
McMinnville and its surrounding communities.
 
     Continue to expand through new branches and new products. Columbia has
grown through the establishment of new branches in Hood River and Bend, Oregon
and more recently through the opening in September 1998 of a branch in
Hermiston, Oregon. Additional branches in central and eastern Oregon are planned
in order to take advantage of growth opportunities and to leverage existing
nearby operations. In addition, Columbia's banking products, including its loan
programs, and other services are designed to be responsive to the needs of local
community businesses and individual customers. For example, in 1997 Columbia
recognized an opportunity in rapidly growing central Oregon, and established a
mortgage lending group in Bend to originate and sell residential mortgages.
Columbia also offers investment products and services through its affiliation
with the Primevest Financial Services, Inc. brokerage organization, through
which it offers stocks, bonds, mutual funds, IRAs, retirement plans, and estate
planning. Columbia's products and services are designed to both increase its
customer base and to enhance cross-selling opportunities.
 
     Columbia maintains its administrative headquarters at 420 East Third
Street, Suite 200, The Dalles, Oregon 97058. Its telephone number at that
address is (541) 298-6649.
 
                                  THE OFFERING
 
<TABLE>
<S>                                            <C>
Common Stock offered by Columbia.............          shares(1)
Common Stock to be outstanding after the               shares(2)
  Offering...................................
Use of Proceeds..............................  To provide funds to finance Columbia's
                                               expansion plans (including the Valley
                                               acquisition, potential future acquisitions,
                                               and expansion of the branch network).
Proposed Nasdaq National Market symbol.......  CBBO
</TABLE>
 
---------------
(1) Excludes shares subject to the Underwriter's over-allotment option.
 
(2) Reflects all shares issued and outstanding as of September 14, 1998. Does
    not include an aggregate of 408,838 shares of Common Stock reserved for
    issuance under Columbia's stock incentive plan, 328,838 of which are subject
    to outstanding options as of September 14, 1998. See
    "Management -- Executive and Employee Compensation Plans."
 
                                        5
<PAGE>   7
 
--------------------------------------------------------------------------------
                SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
 
     The following table presents (1) summary historical financial data of
Columbia as of the dates and for the periods indicated and (2) summary pro forma
financial data giving effect to this Offering, the acquisition of Valley as
though the transaction had occurred immediately prior to January 1, 1997, with
respect to the Income Statement, and prior to June 30, 1998, with respect to the
Balance Sheet, and reclassification of Employee Stock Ownership Plan ("ESOP")
shareholders' equity subject to a put option. The summary pro forma financial
data are not necessarily indicative of operating results or financial position
that would have been achieved had these events been consummated on such dates
and should not be construed as representative of future operating results or
financial position. The summary historical and pro forma financial data should
be read in conjunction with the financial statements and related notes thereto
of Columbia and Valley, and with the "Pro Forma Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
 
                                                              AS OF AND FOR THE YEARS ENDED DECEMBER 31,
                                                  ------------------------------------------------------------------
                                                                                                             PRO
                                                                                                          FORMA,(1)
                                                                         ACTUAL                          AS ADJUSTED
                                                  ----------------------------------------------------   -----------
                                                    1993       1994       1995       1996       1997        1997
                                                  --------   --------   --------   --------   --------   -----------
                                                             (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                               <C>        <C>        <C>        <C>        <C>        <C>
INCOME STATEMENT DATA
 Interest income................................  $ 11,782   $ 12,220   $ 13,815   $ 15,385   $ 18,144    $ 21,136
 Interest expense...............................     3,993      3,999      5,216      5,746      6,270       7,353
                                                  --------   --------   --------   --------   --------    --------
 Net interest income............................     7,789      8,221      8,599      9,639     11,874      13,783
 Loan loss provision............................       158        203         88        246        581         620
                                                  --------   --------   --------   --------   --------    --------
 Net interest income after provision for loan
   losses.......................................     7,631      8,018      8,511      9,393     11,293      13,163
 Noninterest income.............................     1,298      1,486      1,552      1,799      2,481       2,753
 Noninterest expense............................     5,894      6,070      6,495      7,180      8,092       9,715
                                                  --------   --------   --------   --------   --------    --------
 Income before provision for income taxes.......     3,035      3,434      3,568      4,012      5,682       6,201
 Provision for income taxes.....................       962      1,098      1,079      1,285      1,795       2,147
                                                  --------   --------   --------   --------   --------    --------
       Net income...............................  $  2,073   $  2,336   $  2,489   $  2,727   $  3,887    $  4,054
                                                  ========   ========   ========   ========   ========    ========
DIVIDENDS
 Cash dividends declared and paid...............  $    451   $    472   $    555   $    882   $    842
 Ratio of dividends to net income...............     21.76%     20.21%     22.30%     32.37%     21.67%
Per Share Data(2)
 Basic earnings per common share................  $   0.31   $   0.35   $   0.37   $   0.41   $   0.57    $   0.52
 Diluted earnings per common share..............  $   0.31   $   0.35   $   0.36   $   0.40   $   0.56    $   0.51
 Book value per common share(3).................  $   2.08   $   2.32   $   2.56   $   2.83   $   3.29
 Weighted average shares outstanding:
   Basic........................................     6,596      6,688      6,693      6,732      6,801       7,801
   Diluted......................................     6,672      6,762      6,842      6,847      7,001       8,001
BALANCE SHEET DATA
 Investment securities..........................  $ 57,574   $ 56,229   $ 49,454   $ 51,484   $ 48,804
 Loans, net.....................................  $ 81,335   $ 90,070   $104,178   $118,228   $155,219
 Total assets...................................  $161,138   $162,202   $178,486   $200,302   $231,827
 Total deposits.................................  $145,425   $142,803   $158,874   $178,744   $201,568
 Shareholders' equity...........................  $ 13,409   $ 15,186   $ 16,617   $ 18,475   $ 21,557
Selected Ratios(4)
 Return on average assets.......................      1.38%      1.45%      1.46%      1.45%      1.77%
 Return on average equity.......................     16.35%     16.80%     15.91%     15.64%     19.55%
 Total loans to deposits........................     55.93%     63.07%     65.57%     66.14%     77.00%
 Net interest margin............................      5.69%      5.74%      5.67%      5.74%      6.15%
 Efficiency ratio(5)............................     64.86%     62.53%     63.98%     62.77%     56.37%
ASSETS QUALITY RATIOS
 Reserve for loans losses to:
   Ending total loans...........................      1.20%      1.05%      1.02%      0.83%      1.04%
   Nonperforming assets.........................    187.88%    500.00%    291.30%    384.17%    112.65%
 Nonperforming assets to ending total assets....      0.33%      0.12%      0.21%      0.04%      0.63%
 Net loan charge-offs (recoveries) to average
   loans........................................      0.01%      0.27%     (0.03)%     0.29%     (0.04)%
CAPITAL RATIOS
 Average shareholders' equity to average
   assets.......................................      8.46%      8.60%      9.19%      9.27%      9.04%
 Tier 1 capital ratio(6)........................     13.18%     14.55%     14.40%     14.20%     13.70%
 Total risk-based capital ratio(7)..............     14.16%     15.46%     15.20%     14.90%     14.70%
 Leverage ratio(8)..............................      8.32%      9.47%      9.90%      9.90%     10.60%
 
<CAPTION>
                                                    AS OF AND FOR THE SIX MONTHS
                                                           ENDED JUNE 30,
                                                  ---------------------------------
                                                                            PRO
                                                                         FORMA,(1)
                                                        ACTUAL          AS ADJUSTED
                                                  -------------------   -----------
                                                    1997       1998        1998
                                                  --------   --------   -----------
                                                  (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                               <C>        <C>        <C>
INCOME STATEMENT DATA
 Interest income................................  $  8,579   $  9,924    $ 11,504
 Interest expense...............................     3,029      3,415       4,011
                                                  --------   --------    --------
 Net interest income............................     5,550      6,509       7,493
 Loan loss provision............................       250        450         450
                                                  --------   --------    --------
 Net interest income after provision for loan
   losses.......................................     5,300      6,059       7,043
 Noninterest income.............................     1,037      2,077       2,210
 Noninterest expense............................     3,747      4,770       5,567
                                                  --------   --------    --------
 Income before provision for income taxes.......     2,590      3,366       3,686
 Provision for income taxes.....................       828      1,147       1,350
                                                  --------   --------    --------
       Net income...............................  $  1,762   $  2,219    $  2,336
                                                  ========   ========    ========
DIVIDENDS
 Cash dividends declared and paid...............  $    385   $    693
 Ratio of dividends to net income...............     21.86%     31.26%
Per Share Data(2)
 Basic earnings per common share................  $   0.26   $   0.32    $   0.30
 Diluted earnings per common share..............  $   0.26   $   0.31    $   0.29
 Book value per common share(3).................  $   3.03   $   3.40    $   4.30
 Weighted average shares outstanding:
   Basic........................................     6,787      6,917       7,917
   Diluted......................................     6,907      7,122       8,122
BALANCE SHEET DATA
 Investment securities..........................  $ 50,739   $ 47,316    $ 52,912
 Loans, net.....................................  $142,438   $172,979    $195,024
 Total assets...................................  $220,396   $253,110    $293,959
 Total deposits.................................  $193,781   $218,421    $249,239
 Shareholders' equity...........................  $ 19,818   $ 22,571    $ 34,113
Selected Ratios(4)
 Return on average assets.......................      1.70%      1.87%
 Return on average equity.......................     18.41%     20.12%
 Total loans to deposits........................     73.50%     79.20%
 Net interest margin............................      6.02%      6.12%
 Efficiency ratio(5)............................     56.89%     55.56%
ASSETS QUALITY RATIOS
 Reserve for loans losses to:
   Ending total loans...........................      0.91%      0.95%
   Nonperforming assets.........................    133.16%     88.90%
 Nonperforming assets to ending total assets....      0.45%      0.74%
 Net loan charge-offs (recoveries) to average
   loans........................................     (0.06)%     0.26%
CAPITAL RATIOS
 Average shareholders' equity to average
   assets.......................................      9.25%      9.30%
 Tier 1 capital ratio(6)........................     13.40%     13.26%
 Total risk-based capital ratio(7)..............     14.30%     14.14%
 Leverage ratio(8)..............................      9.90%     10.50%
</TABLE>
 
---------------
(1) For information regarding the pro forma adjustments made to Columbia's
    historical financial data, see "Pro Forma Financial Statements."
(2) Per share data reflects retroactive restatement for stock splits in 1998
    (3-for-2 and 2-for-1) and 1995 (3-for-1).
(3) Book value per common share has been computed exclusive of ESOP
    shareholders' equity and related shares subject to a put option.
(4) Annualized, where appropriate.
(5) Efficiency ratio is noninterest expense divided by the sum of net interest
    income plus noninterest income.
(6) Tier I capital divided by risk-weighted assets.
(7) Total capital divided by risk-weighted assets.
(8) Tier I capital divided by average total assets.
--------------------------------------------------------------------------------
 
                                        6
<PAGE>   8
 
                DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
 
     This Prospectus includes forward-looking statements that are based on the
current beliefs of Columbia's management as well as assumptions made by and
information currently available to Columbia's management. All statements other
than statements of historical facts included in this Prospectus, including
without limitation statements under "Prospectus Summary," "Risk Factors,"
"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. When used in this Prospectus, the
words "anticipate," "believe," "estimate," "expect," and "intend" and words or
phrases of similar meaning, as they relate to Columbia or its management, are
intended to identify forward-looking statements. 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.
Important factors that could cause actual results to differ materially from
Columbia's expectations ("cautionary statements") are disclosed under "Risk
Factors" and elsewhere in this Prospectus. Based upon changing conditions, if
any one or more of these risks or uncertainties materialize or if any underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected, or intended.
Columbia does not intend to update these forward-looking statements. All
subsequent written and oral forward-looking statements attributable to Columbia
or persons acting on its behalf are expressly qualified in their entirety by the
applicable cautionary statements.
 
                                        7
<PAGE>   9
 
                                  RISK FACTORS
 
     Prospective investors should carefully consider and evaluate all of the
information set forth in this Prospectus, including these Risk Factors. This
list of Risk Factors may not be exhaustive.
 
MANAGEMENT OF GROWTH
 
     Columbia has grown substantially since 1993 through merger and acquisition
activity, new branch openings, the introduction of new product lines, and
sustained increases in loans and deposits. Management expects the pace of growth
to continue through 1998 and into 1999 through a pending acquisition and
proposed new branch openings, which are described elsewhere in this Prospectus.
Such rapid growth has at times put high demands on Columbia's management, and
has required increased expenditures for new employees, enhanced training, office
space, and technology upgrades. Continued rapid growth will place further
demands on management, other personnel, computer and management systems, and
other parts of the Columbia organization, and may create problems of scale and
scope not faced when growth is more gradual. If not well managed, rapid growth
can adversely affect asset quality and earnings. There can be no assurance that
Columbia's management will successfully manage rapid increases in loans and
deposits, new branch openings, or future acquisitions, or that such growth will
result in an increase in earnings. See also "Risk Factors -- Completion and
Management of Valley Community Bancorp Acquisition."
 
POTENTIAL FUTURE ACQUISITIONS
 
     Columbia from time to time considers potential acquisitions as part of its
growth strategy. Any future acquisitions would create potential risks and
uncertainties, including the need to obtain regulatory approval, and the
possible issuance of additional shares of Common Stock to pay for potential
acquisitions, which could effectively dilute the percentage ownership interest
of current Columbia shareholders. Also, there are only a limited number of
suitable acquisition candidates within Columbia's existing or potential market
areas, and many of these candidates would also be attractive acquisition
candidates for other financial institutions. Columbia's ability to grow through
acquisition could therefore be significantly constrained. Further, acquisition
negotiations and evaluations require substantial time and attention by
Columbia's executive officers, which takes their time away from daily
management. Aside from the pending acquisition of Valley, Columbia has no
potential acquisition transactions under consideration at present. However,
Columbia is likely to actively consider additional growth through acquisitions
in the near future if appropriate opportunities arise.
 
COMPLETION AND MANAGEMENT OF VALLEY COMMUNITY BANCORP ACQUISITION
 
     Columbia has entered into a definitive agreement to acquire Valley. While
the closing of the Valley acquisition is anticipated by early 1999, it is
subject to certain conditions, including approval by banking regulators and
Valley's shareholders. No assurance can be given that the Valley acquisition
will occur. Also, managing Valley as part of the Columbia organization is
critical to the success of this transaction. While Columbia has experience in
managing growth through mergers and acquisitions, Valley is its first venture
into Oregon's Willamette Valley. Valley's business could decrease or stagnate if
Columbia does not effectively manage Valley as an integral part of the Columbia
organization. Unexpected employee departures, computer hardware or software
problems, the failure to maintain and improve customer service, or other
problems Columbia may not foresee, could affect Columbia's ability to realize
the benefits of the Valley acquisition. In addition, problems could arise with
the coordination of Valley's systems and procedures, including computer systems,
with Columbia's. Also, the Valley acquisition will occur while Columbia is
expanding on other fronts, including planned new branch openings in Pendleton
and Bend, Oregon. See "Risk Factors -- Management of Growth" and
"Business -- Pending Acquisition of Valley Community Bancorp."
 
     A change in bank control often causes deposit losses, although management
believes that such losses should be minimal because the Valley acquisition will
not result in a name or location change or significant changes in personnel.
Nevertheless, after the transaction Valley may lose loan or deposit customers,
and no assurance can be given that Valley's deposits will remain at present
levels. Such a decrease could reduce
 
                                        8
<PAGE>   10
 
Columbia's return on equity and cause Columbia to lose some of the anticipated
benefit of the Valley acquisition.
 
     The acquisition of Valley for cash, even after the application of the
Offering proceeds, will significantly reduce the capital ratios of Columbia. For
example, had the Valley acquisition been completed as of June 30, 1998, and
based upon anticipated net proceeds from the Offering, Columbia's ratio of Tier
I capital to average assets would have been reduced from 10.50% to 8.29%.
Although the post-acquisition pro forma ratio is substantially above the
regulatory minimum of 3.00%, and Columbia would still qualify as "well
capitalized," the reduction in the capital-to-asset ratio and other regulatory
capital ratios could limit Columbia's future growth or ability to pursue other
acquisitions. Also, the Valley acquisition will cause the recognition of a
significant amount of goodwill and a charge to operations of approximately
$614,000 per year in each of the 15 years following the acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
 
     If the Valley acquisition does not occur, Columbia will use the Offering
proceeds for other planned expansion purposes. Without the Valley acquisition,
however, Columbia may not be able to effectively utilize all of the proceeds
immediately, which could adversely affect its return on equity and earnings per
share. See "Use of Proceeds."
 
DEPENDENCE ON LOCAL ECONOMIES
 
     Columbia does business in several different non-metropolitan communities,
some of which are economically linked because of geographic proximity, while
other areas may be influenced by different economic variables. For example,
Columbia's markets in Redmond and Bend, and to some extent Madras, are part of a
sub-regional central Oregon economy. Economic activity in central Oregon is not
closely linked to Columbia's two south central Washington branches. The
different areas Columbia serves have diverse, and to some extent independent,
economic characteristics, strengths and weaknesses, although all of these depend
to various degrees on agriculture, small business, and construction.
 
     The areas served by Columbia include: (i) The Dalles and Hood River, which
depend on wheat, cherries, pears, apples, and other agricultural products, an
aluminum smelting facility and a variety of small business enterprises; (ii) the
central Oregon market, including Bend, Redmond and Madras, which benefits from
home construction and a growing service economy, resulting from rapid population
increases; (iii) the eastern Oregon market in Umatilla County, encompassing
Hermiston and Pendleton, which depends on wheat growing, cattle ranching, field
crops such as onions, hay, and potatoes, and a growing service and government
employment economy, (iv) the Klickitat County, Washington market, which has a
stable, dry-climate agricultural base, an aluminum smelting facility, and less
rapid population growth; and, (v) when the acquisition of Valley is completed,
Yamhill County, Oregon which has a diverse, wet-climate agricultural industry
and a diverse small business base. Given the varied economies of its market
areas, Columbia's management faces a challenge in effectively managing its
diverse loan portfolio.
 
     Columbia's performance would be vulnerable to a general economic downturn,
which would affect loan demand and the collectibility of existing loans. In
addition, weakness in one of Columbia's market areas, or in one economic sector
such as agriculture, could depress Columbia's overall earnings and financial
condition.
 
COMPETITION
 
     In recent years, competition for bank customers, the source of deposits and
loans, has greatly intensified. This competition comes from many sources,
including super-regional banks, such as Wells Fargo, Bank of America, and U.S.
Bank, which have well-established branches and significant market share in many
of the communities Columbia serves, and companies that offer bank-like products,
such as finance companies, investment banking and brokerage firms, and insurance
companies. Other competitors include credit unions, which can offer highly
competitive rates on loans and deposits because they receive tax advantages not
available to commercial banks; government-assisted farm credit programs that
offer competitive agricultural loans; other community banks, including start-up
banks, that can compete with Columbia for customers who
 
                                        9
<PAGE>   11
 
desire a high degree of personal service and technology-based financial
institutions offering on-line deposit, bill payment, and mortgage loan
application services.
 
     These competitors present different types of threats. For example, the
super-regionals have higher public visibility, and can spend more on advertising
and marketing than Columbia. The super-regionals can also make larger loans,
because single-borrower lending limits, which are set by law, increase with the
size of a bank's capital. Many of the super-regionals have the ability to retain
a substantial share of the market for bank customers in the same communities
Columbia serves, especially in larger communities such as Bend. Also, while the
super-regionals have for now largely reduced their presence as lenders in
smaller communities, they could in the future re-enter this arena and attempt to
win back loan and deposit customers by competing aggressively on price. Other
competition such as insurance companies, brokerage firms, and other non-bank
competitors are subject to less regulation than banks are, and therefore can be
more flexible in the products and services they offer.
 
     Other existing single or multi-branch community banks, or new community
bank start-ups, have marketing strategies similar to Columbia's. These other
community banks can open new branches in the communities Columbia serves,
competing directly for customers who want the high level of service community
banks offer. Other community banks also compete for the same management
personnel and the same potential acquisition and merger candidates in Oregon and
Washington. See "Risk Factors -- Competition Due to Technological Change" and
"Business -- Competition."
 
     Competition could also affect the outcome of the Valley acquisition.
McMinnville, Oregon is presently served by branches of five super-regional
banks, a credit union, a locally operated savings and loan, a mortgage company,
and a consumer-targeted brokerage firm. Valley's business could decrease as a
result of competition from such bank and non-bank competitors. There can be no
assurance that, because of competing products and services or other reasons,
Valley's loan and deposit customers will not go elsewhere as a result of such
continued competition. See "Risk Factors -- Completion and Management of Valley
Community Bancorp Acquisition."
 
COMPETITION DUE TO TECHNOLOGICAL CHANGE
 
     Changes in technology, mostly from the growing use of computers and
computer-based technology, pose competitive challenges to community banks such
as Columbia. Large banking institutions typically offer on-line banking and
other banking products and services over the Internet, including deposit
services and mortgage loans, and have the ability to devote significant
resources to developing and maintaining such technology-based services. Other
bank competitors, such as brokerage houses, also offer competitive services
on-line. Some new banking competitors offer all of their services on-line.
Customers who bank by computer or by telephone need never set foot in a bank
branch. Columbia's high service philosophy emphasizes face-to-face contact with
tellers, loan officers, and other bank employees. Columbia believes its personal
approach to banking is a source of strength, one that will remain popular in the
non-metropolitan communities which are its natural marketplace. However,
customer preferences may change, and the rapid growth of on-line banking could,
at some point, render Columbia's personal, branch-based approach obsolete.
Columbia plans to partially address this risk by offering some on-line banking
services to its customers within the next 18 months, and by continuing to
provide 24-hour telephone banking services. There is no assurance, however, that
these efforts will be successful in preventing the loss of customers to
competitors. See "Business -- Competition."
 
THE YEAR 2000 ISSUE
 
     All financial institutions, including Columbia, and the vendors that
provide them with technological products and services are potentially vulnerable
to the effects of the "Year 2000 Issue." Many computer software programs and
automated systems were designed to store calendar year data only for years
beginning with the digits "19." Consequently, for many such programs the entry
of the year "2000" will be read as "1900." If these programs and systems are not
re-coded, updated, or replaced prior to the Year 2000, this defect could cause
them to confuse data or fail entirely. In addition, many such programs and
systems will fail
 
                                       10
<PAGE>   12
 
to recognize that the Year 2000 is a leap year. The issue extends beyond
computer systems, since every device with an embedded microchip, such as ATMs,
elevators, and vaults, could be adversely affected. Columbia is addressing the
impact of the Year 2000 Issue through its current and pending plans and
procedures, including computer system upgrades. However, there can be no
assurance that the Year 2000 Issue will not have a material adverse effect on
Columbia's earnings, business, and return on equity. See "Business -- The Year
2000 Issue" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
 
CREDIT RISK
 
     Making loans is a key part of Columbia's business. This business requires
Columbia to take "credit risk," which is the risk of losing principal and
interest income because borrowers fail to repay loans. Columbia seeks to limit
this risk by following conservative underwriting practices and credit
guidelines, by taking collateral to secure repayment in most cases, and by
screening potential borrowers. However, collateral may not always assure
repayment, especially if it consists of depreciating assets such as automobiles
and equipment. For consumer loans, a job loss, illness, and other personal
factors can affect the borrower's financial stability and ability to repay.
Moreover, at any time there could be a downturn in the economy, the real estate
market or one or more agricultural sectors, or a rapid increase in interest
rates. These events could decrease collateral values, and could make it more
difficult for borrowers to repay. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
 
INTEREST RATE RISK
 
     Columbia's earnings are largely derived from net interest income, which is
interest income and fees earned on loans and investment income, less interest
expense paid on deposits and other borrowings. Interest rates are highly
sensitive to many factors beyond Columbia's control, including general economic
conditions and the policies of governmental and regulatory authorities. As
interest rates change, net interest income is affected. With fixed rate assets
(such as fixed rate loans) and liabilities (such as certificates of deposit),
the effect on net interest income depends significantly on the maturity of the
asset or liability. Although Columbia strives to minimize interest rate risk
through asset/liability management policies, often maturities are not balanced.
Further, while rates have remained stable in recent periods, an unanticipated
rapid decrease or increase in interest rates could have an adverse effect on the
spreads between the interest rates earned on assets and the rates of interest
paid on liabilities, and therefore on the level of net interest income. In
addition, growth in Columbia's real estate loan business could be especially
harmed if interest rates rise. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
 
DEPENDENCE ON KEY PERSONNEL
 
     Columbia's success depends heavily on the services of Terry L. Cochran, its
President and Chief Executive Officer, and on several other key executives who
have been instrumental in its growth. Columbia could be harmed if it lost the
services of any of these key executives. Except for Mr. Cochran, Columbia does
not maintain key person life insurance on these individuals. Columbia's rapid
growth has placed significant demands on Mr. Cochran's time, which is compounded
by the fact that he serves as President and Chief Executive Officer of both
Columbia and its banking subsidiary, CRB. Columbia may need to recruit
additional senior-level executives as its growth continues. However, the market
for suitable candidates for such positions is competitive. In addition, Columbia
may have difficulty attracting such candidates because these individuals may be
unwilling to relocate to a non-metropolitan city such as The Dalles. See
"Management."
 
LIMITED MARKET FOR THE COMMON STOCK
 
     The market for the Common Stock is limited. The Common Stock currently is
quoted on the OTC Bulletin Board under the symbol "CBBO" but is not actively
traded. Columbia has applied for approval to list its Common Stock on the Nasdaq
National Market under the "CBBO" symbol. Even with a Nasdaq listing, however, an
active public market may not develop or be maintained for the shares. Also, the
market price could be subject to significant fluctuations in response to
variations in Columbia's quarterly operating results, changes in the general
conditions of the banking industry, and other factors. In addition, the price of
the shares
 
                                       11
<PAGE>   13
 
may fluctuate substantially due to the effect of supply and demand in a limited
market. Even if an active market for the shares does develop, investors in the
Offering cannot be assured of being able to resell Common Stock purchased in the
Offering at or above the offering price. Certain sales of Common Stock by
affiliates and nonaffiliates may also affect the price of the shares. See
"Market Price of Common Stock" and "Shares Eligible for Future Sale."
 
SUPERVISION AND REGULATION
 
     Columbia is supervised and regulated by federal and state governments. The
primary concern of the regulators is to protect depositors, not shareholders.
These regulators include the Federal Deposit Insurance Corporation, which
insures bank deposits, the Board of Governors of the Federal Reserve System, and
state-level regulators in Oregon and Washington. Federal and state regulations
place banks at a competitive disadvantage, because other non-bank competitors,
such as finance companies, credit unions, mortgage banking companies, and
leasing companies, are not subject to similar regulatory review. Within its
regulatory environment, Columbia has so far been able to compete effectively in
its market areas. However, there is no assurance it will continue to do so.
Also, future changes in federal and state banking regulations could cause
Columbia's operating results and its ability to continue to compete effectively
to be adversely affected. See "Supervision and Regulation."
 
ANTI-TAKEOVER EFFECT OF ARTICLES OF INCORPORATION AND APPLICABLE LAW
 
     Columbia's Articles of Incorporation include anti-takeover provisions.
These are intended to make it difficult for a minority shareholder group or a
potential acquirer to gain control of Columbia. Some of these provisions include
staggered terms for directors, which make it difficult to replace the entire
Board, a three-fourths shareholder approval requirement for merger or
acquisition proposals that the Columbia Board of Directors does not support, and
a requirement that shareholders provide notice prior to bringing business before
an annual shareholder meeting. In addition, a three-fourths shareholder vote is
required to change these provisions.
 
     The Columbia Board can also issue shares of preferred stock and determine
the rights, including voting rights, of such shares without shareholder
approval. Columbia has no present plans to issue shares of preferred stock.
There are also state and federal laws which have direct and indirect
anti-takeover effects. Such anti-takeover provisions and laws could depress the
value of Columbia's Common Stock, make it difficult to sell, or both. These
provisions may also deter persons or companies from making an offer to purchase
Columbia. Shareholders sometimes see a significant stock price increase when an
offer is made to purchase a company. When such offers are discouraged,
shareholders lose the benefit of a potential stock price gain. Also, other
potential investors may view anti-takeover provisions with disfavor, and decline
to buy the stock. See "Description of Capital Stock -- Anti-Takeover
Provisions -- Columbia's Articles of Incorporation" and "Description of Capital
Stock -- Anti-Takeover Provisions -- Legislation."
 
                                       12
<PAGE>   14
 
                                USE OF PROCEEDS
 
     The net proceeds to Columbia from the sale of the Common Stock offered at
the public offering price of $     per share are estimated to be $
million (approximately $          million if the Underwriter's over-allotment
option is exercised in full) after deduction of underwriting discounts and
commissions and expenses payable by Columbia.
 
     Management expects to use the net proceeds of the Offering to fund its
pending expansion plans, including its planned branch openings in Pendleton and
Bend, Oregon, and its acquisition of Valley. In the unanticipated event the
Valley acquisition does not occur, the net proceeds will be used for Columbia's
other expansion projects , including other possible acquisitions and additional
branch openings. Prior to such use, the net proceeds will be invested in
short-term, investment-grade securities. Columbia has no agreements or
understandings, and is not presently engaged in discussions, relating to any
other possible acquisitions. See "Business -- Business Strategy" and "Risk
Factors -- Completion and Management of Valley Community Bancorp Acquisition."
 
     Columbia currently exceeds all regulatory capital requirements and
therefore is not required to raise additional capital to comply with such
requirements. After the Valley acquisition, Columbia expects to continue to
exceed all regulatory capital requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Capital" and
"Supervision and Regulation."
 
                                       13
<PAGE>   15
 
                                 CAPITALIZATION
 
     The following table sets forth, as of June 30, 1998, (i) the consolidated
capitalization of Columbia ("Actual"), (ii) the consolidated capitalization of
Columbia on an as adjusted basis giving effect to the Offering and application
of net proceeds therefrom and reclassification of ESOP shareholders' equity
subject to a put option ("As Adjusted"), and (iii) the consolidated
capitalization of Columbia on a pro forma as-adjusted basis giving effect to the
Valley acquisition, the Offering of an assumed 1,000,000 shares at a public
offering price estimated to be $10 per share and application of net proceeds
therefrom, and reclassification of ESOP shareholders' equity subject to a put
option ("Pro Forma As Adjusted"). See "Use of Proceeds." This table should be
read in conjunction with the historical and pro forma financial statements of
Columbia included elsewhere in this Prospectus.
 
<TABLE>
<CAPTION>
                                                                       JUNE 30, 1998
                                                           --------------------------------------
                                                                          AS         PRO FORMA(2)
                                                           ACTUAL     ADJUSTED(1)    AS ADJUSTED
                                                           -------    -----------    ------------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                        <C>        <C>            <C>
SHAREHOLDERS' EQUITY
Common stock, no par value 10,000,000 shares authorized;
  6,936,782 shares issued and outstanding, 7,936,782
  shares issued and outstanding, as adjusted(3)..........  $ 5,954      $15,144        $15,144
Additional paid-in capital...............................    6,318        6,318          6,318
Retained earnings........................................   12,657       12,657         12,657
Accumulated other comprehensive income, net of tax.......       (6)          (6)            (6)
Less employee stock ownership plan shares subject to put-
  option(4)..............................................   (2,352)          --             --
                                                           -------      -------        -------
Total shareholders' equity...............................  $22,571      $34,113        $34,113
                                                           =======      =======        =======
CAPITAL RATIOS(5)
Tier T capital ratio
  (Regulatory Minimum: 4.00%)............................    13.26%       17.97%         12.33%
Total risk-based capital ratio
  (Regulatory Minimum: 8.00%)............................    14.14%       18.85%         13.42%
Leverage Capital Ratio
  (Regulatory Minimum: 3.00%)............................    10.50%       14.38%          8.29%
</TABLE>
 
---------------
(1) Reports Columbia on a pro forma basis assuming the issuance of 1,000,000
    shares of common stock in the Offering with net estimated proceeds of $9.19
    million and the reclassification of ESOP shareholders' equity subject to a
    put option. See "Use of Proceeds."
 
(2) Reports Columbia on a pro forma basis assuming the issuance of 1,000,000
    shares of common stock in the Offering with net estimated proceeds of $9.19
    million, the acquisition of Valley for $15.10 million and the
    reclassification of ESOP shareholders' equity subject to a put option.
 
(3) Adjusted for all Columbia stock splits, including the 2-for-1 stock split
    effective September 11, 1998.
 
(4) "As Adjusted" and "Pro forma As Adjusted" amounts reflect reclassification
    of ESOP shareholders' equity subject to put option as a result of Columbia's
    assumed listing of the Common Stock on the Nasdaq National Market. See
    "Notes to Columbia's Consolidated Financial Statements" and "Notes to
    Columbia's Pro forma Financial Statements."
 
(5) Minimum ratios are established by Federal Deposit Insurance Corporation and
    Federal Reserve regulations. See "Supervision and Regulation."
 
                                       14
<PAGE>   16
 
                          MARKET PRICE OF COMMON STOCK
 
     There has been only a limited market for the Common Stock prior to this
Offering. The Common Stock is currently quoted on the OTC Bulletin Board.
Columbia has applied for approval to list the Common Stock on the Nasdaq
National Market under the symbol "CBBO."
 
     Through December 31, 1997, the Common Stock was not listed or quoted on any
exchange or quotation system, and Columbia endeavored to facilitate transactions
between shareholders and potential investors by keeping an informal record of
persons who had expressed an interest in buying or selling Common Stock, and by
acting as an intermediary between buyers and sellers. Columbia also kept
informal records as to transaction prices. Many transactions between buyers and
sellers occurred without Columbia's knowledge and involvement, and came to its
attention only after the fact when it was notified of a change in record
ownership. Consequently, the transaction price information for 1996 and 1997 is
based solely on prices which were reported to Columbia for specific transactions
by persons whose transactions came to its attention. The reported prices may not
represent all transactions in the shares traded for 1996 and 1997, and no
assurance can be given as to the accuracy of the reported prices, as the prices
were not independently verified.
 
     Beginning in January 1998, several brokerage firms began serving as market
makers for the Common Stock and stock price information for the Common Stock
became available on the OTC Bulletin Board. The transaction prices for 1998 were
obtained from the high and low prices listed on the OTC Bulletin Board, and do
not include private transactions, if any. All prices for the periods shown have
been adjusted for all stock dividends and stock splits, including the 2-for-1
stock split effective September 11, 1998. Prices do not include retail markups,
markdowns, or commissions, and may not represent actual transactions.
 
<TABLE>
<CAPTION>
                                                      HIGH      LOW
                                                     ------    ------
<S>                                                  <C>       <C>
1996(1)
  First Quarter....................................  $ 6.67    $ 6.17
  Second Quarter...................................  $ 6.67    $ 6.00
  Third Quarter....................................  $ 6.67    $ 4.50
  Fourth Quarter...................................  $ 5.42    $ 4.42
1997(1)
  First Quarter....................................  $ 5.67    $ 5.00
  Second Quarter...................................  $ 6.67    $ 5.17
  Third Quarter....................................  $ 7.33    $ 6.00
  Fourth Quarter...................................  $ 8.33    $ 6.67
1998(2)
  First Quarter....................................  $12.67    $ 8.17
  Second Quarter...................................  $12.38    $10.13
  Third Quarter....................................
  Fourth Quarter (through                , 1998)...
</TABLE>
 
---------------
(1) Based solely on prices reported to Columbia without independent
    verification.
 
(2) Based on prices quoted on the OTC Bulletin Board.
 
     On September 14, 1998, the Common Stock was held of record by 1,122
shareholders. On                     , 1998, the closing price of the Common
Stock was $          per share.
 
                                       15
<PAGE>   17
 
                                DIVIDEND POLICY
 
     Columbia's ability to pay expenses and make cash dividend payments to
shareholders depends on earnings generated by its subsidiary CRB. Oregon and
federal banking laws and regulations place restrictions on the payment of
dividends by a bank to its shareholders. See "Supervision and
Regulation -- Dividends." The Board of Directors' dividend policy is to review
Columbia's financial performance, capital adequacy, regulatory compliance, and
cash resources and, if such review is favorable, to declare and pay a cash
dividend to shareholders quarterly. Although Columbia expects to continue to pay
cash dividends, future dividends could be reduced or eliminated as a result of
these limitations or at the discretion of the Board of Directors.
 
     Since 1996, Columbia has declared and paid its shareholders the following
annual dividends, on a per share basis and as adjusted for subsequent stock
splits:
 
<TABLE>
<CAPTION>
                        YEAR                          AMOUNT
                        ----                          ------
<S>                                                   <C>
1996(1).............................................  $0.131
1997................................................  $0.124
1998(through June 30)(2)............................  $0.100
</TABLE>
 
---------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
    of Operations -- Shareholders' Equity"
 
(2) Excludes a cash dividend of $0.06 per share declared by Columbia's Board of
    Directors on September 17, 1998, payable on November 1, 1998, to
    shareholders of record as of October 15, 1998.
 
                                       16
<PAGE>   18
 
                    COLUMBIA PRO FORMA FINANCIAL STATEMENTS
 
     The following unaudited pro forma financial information of Columbia gives
effect to the acquisition of Valley, the receipt of the estimated net proceeds
from the Offering and the reclassification of ESOP shareholders' equity subject
to a put option. The pro forma balance sheet was prepared as if the Valley
acquisition had occurred prior to June 30, 1998. The pro forma statements of
income were prepared as if the Valley acquisition had occurred prior to the
beginning of the fiscal year presented.
 
     The pro forma balance sheet and statements of income are not necessarily
indicative of the consolidated financial position or results of operations as
they might have been had the Valley acquisition and the Offering actually
occurred and the ESOP shareholders' equity subject to a put option actually been
reclassified on the dates indicated. The pro forma balance sheet and statements
of income should be read in conjunction with the consolidated financial
statements of Columbia and the consolidated financial statements of Valley
included elsewhere in this Prospectus.
 
                    UNAUDITED PRO FORMA STATEMENT OF INCOME
                          YEAR ENDED DECEMBER 31, 1997
 
<TABLE>
<CAPTION>
                                                                HISTORICAL
                                                           ---------------------    PRO FORMA      PRO FORMA,
                                                           COLUMBIA     VALLEY     ADJUSTMENTS     AS ADJUSTED
                                                           ---------   ---------   -----------     -----------
                                                           (AUDITED)   (AUDITED)
                                                             (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                                        <C>         <C>         <C>             <C>
INTEREST INCOME
  Interest and fees on loans.............................   $14,764     $2,404        $            $   17,168
  Interest on investment securities
    Taxable investment securities........................     2,258        308                          2,566
    Nontaxable investment securities.....................       736         83                            819
  Federal funds sold.....................................       221        475         (281)(a)           415
  Other interest and dividend income.....................       165          3                            168
                                                            -------     ------        -----        ----------
         Total interest income...........................    18,144      3,273         (281)           21,136
                                                            -------     ------        -----        ----------
INTEREST EXPENSE
  Interest-bearing demand and savings deposits...........     3,314        796                          4,110
  Time deposits..........................................     2,772        287                          3,059
  Borrowed funds.........................................       184         --                            184
                                                            -------     ------        -----        ----------
         Total interest expense..........................     6,270      1,083           --             7,353
                                                            -------     ------        -----        ----------
         Net interest income.............................    11,874      2,190         (281)           13,783
PROVISION FOR LOAN LOSSES................................       581         39                            620
                                                            -------     ------        -----        ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......    11,293      2,151         (281)           13,163
                                                            -------     ------        -----        ----------
NONINTEREST INCOME
  Service charges and fees...............................     1,545        252                          1,797
  Credit card discounts and fees.........................       390         --                            390
  Financial services department..........................       231         --                            231
  Other noninterest income...............................       315         20                            335
                                                            -------     ------        -----        ----------
         Total noninterest income........................     2,481        272           --             2,753
                                                            -------     ------        -----        ----------
NONINTEREST EXPENSE
  Salaries and employee benefits.........................     4,463        595                          5,058
  Occupancy expense......................................       736        109                            845
  Credit card processing fees............................       254         --                            254
  Office supplies........................................       200         68                            268
  FDIC assessment........................................        20          3                             23
  Data processing expense................................       304        121                            425
  Other noninterest expense..............................     2,115        113                          2,228
  Goodwill amortization..................................        --         --          614(b)            614
                                                            -------     ------        -----        ----------
         Total noninterest expense.......................     8,092      1,009          614             9,715
                                                            -------     ------        -----        ----------
INCOME BEFORE INCOME TAXES...............................     5,682      1,414         (895)            6,201
PROVISION FOR INCOME TAXES...............................     1,795        448          (96)(c)         2,147
                                                            -------     ------        -----        ----------
NET INCOME...............................................   $ 3,887     $  966        $(799)       $    4,054
                                                            =======     ======        =====        ==========
EARNINGS PER SHARE OF COMMON STOCK
  Basic earnings per share...............................                                          $     0.52
                                                                                                   ==========
  Diluted earnings per share.............................                                          $     0.51
                                                                                                   ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
  Basic..................................................                                           7,800,970
                                                                                                   ==========
  Diluted................................................                                           8,001,403
                                                                                                   ==========
</TABLE>
 
                                       17
<PAGE>   19
 
                    UNAUDITED PRO FORMA STATEMENT OF INCOME
                         SIX MONTHS ENDED JUNE 30, 1998
 
<TABLE>
<CAPTION>
                                                            HISTORICAL
                                                    --------------------------     PRO FORMA     PRO FORMA,
                                                     COLUMBIA        VALLEY       ADJUSTMENTS    AS ADJUSTED
                                                     --------        ------       -----------    -----------
                                                    (UNAUDITED)    (UNAUDITED)
                                                        (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                                 <C>            <C>            <C>            <C>
INTEREST INCOME
  Interest and fees on loans......................    $8,417       $     1,210       $           $    9,627
  Interest on investment securities
    Taxable investment securities.................       863               131                          994
    Nontaxable investment securities..............       419                42                          461
  Federal funds sold..............................       225               337        (140)(a)          422
                                                      ------       -----------       -----       ----------
         Total interest income....................     9,924             1,720        (140)          11,504
                                                      ------       -----------       -----       ----------
INTEREST EXPENSE
  Interest-bearing demand and savings deposits....     1,720               397                        2,117
  Time deposits...................................     1,486               197                        1,683
  Borrowed funds..................................       209                 2                          211
                                                      ------       -----------       -----       ----------
         Total interest expense...................     3,415               596          --            4,011
                                                      ------       -----------       -----       ----------
      Net interest income.........................     6,509             1,124        (140)           7,493
PROVISION FOR LOAN LOSSES.........................       450                --                          450
                                                      ------       -----------       -----       ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
  LOSSES..........................................     6,059             1,124        (140)           7,043
                                                      ------       -----------       -----       ----------
NONINTEREST INCOME
  Service charges and fees........................       834               130                          964
  Credit card discounts and fees..................       185                --                          185
  Financial services department...................       155                --                          155
  Mortgage loan origination and processing........       324                --                          324
  Net gains on sale of loans......................       177                --                          177
  Other noninterest income........................       402                 3                          405
                                                      ------       -----------       -----       ----------
         Total noninterest income.................     2,077               133          --            2,210
                                                      ------       -----------       -----       ----------
NONINTEREST EXPENSE
  Salaries and employee benefits..................     2,714               290                        3,004
  Occupancy expense...............................       449                56                          505
  Credit card processing fees.....................       124                --                          124
  Office supplies.................................        79                36                          115
  FDIC assessment.................................        18                 2                           20
  Data processing expense.........................       183                52                          235
  Other noninterest expense.......................     1,203                54                        1,257
  Goodwill amortization...........................        --                --         307(b)           307
                                                      ------       -----------       -----       ----------
         Total noninterest expense................     4,770               490         307            5,567
                                                      ------       -----------       -----       ----------
INCOME BEFORE INCOME TAXES........................     3,366               767        (447)           3,686
PROVISION FOR INCOME TAXES........................     1,147               251         (48)(c)        1,350
                                                      ------       -----------       -----       ----------
NET INCOME........................................     2,219               516        (399)           2,336
OTHER COMPREHENSIVE INCOME
  Unrealized loss on available-for-sale
    securities....................................        19                (5)                          14
  Reclassification for gain included in net
    income........................................       (35)               --                          (35)
                                                      ------       -----------       -----       ----------
COMPREHENSIVE INCOME..............................    $2,203       $       511       $(399)      $    2,315
                                                      ======       ===========       =====       ==========
EARNINGS PER SHARE OF COMMON STOCK
  Basic earnings per share........................                                               $     0.30
                                                                                                 ==========
  Diluted earnings per share......................                                               $     0.29
                                                                                                 ==========
WEIGHTED AVERAGE COMMON
  SHARES OUTSTANDING
  Basic...........................................                                                7,916,582
                                                                                                 ==========
  Diluted.........................................                                                8,121,612
                                                                                                 ==========
</TABLE>
 
                                       18
<PAGE>   20
 
                       UNAUDITED PRO FORMA BALANCE SHEET
                                 JUNE 30, 1998
 
<TABLE>
<CAPTION>
                                             HISTORICAL
                                      -------------------------                               PRO FORMA,
                                       COLUMBIA       VALLEY      AS ADJUSTED    PRO FORMA    AS ADJUSTED
                                      -----------   -----------   -----------    ---------    -----------
                                      (UNAUDITED)   (UNAUDITED)
                                                            (DOLLARS IN THOUSANDS)
<S>                                   <C>           <C>           <C>            <C>          <C>
ASSETS
  Cash and due from banks...........   $ 18,551       $ 2,212       $            $     62(d)   $ 20,825
  Federal funds sold................      4,230         5,715         9,190(f)    (15,102)(e)     4,033
                                       --------       -------       -------      --------      --------
          Total cash and cash
            equivalents.............     22,781         7,927         9,190       (15,040)       24,858
  Investment securities
     available-for-sale.............     29,338         5,588                           8(g)     34,934
  Investment securities
     held-to-maturity...............     17,183            --                                    17,183
  Federal Home Loan Bank stock......        795            --                                       795
  Loans held-for-sale...............      7,990            --                                     7,990
  Loans, net of allowance for loan
     losses and unearned income.....    164,989        22,045                                   187,034
  Premises and equipment, net.......      5,223           607                         978(g)      6,808
  Accrued interest and other
     assets.........................      4,811           333                                     5,144
  Goodwill..........................         --            --                        (686)(g)
                                                                                    9,899(e)      9,213
                                       --------       -------       -------      --------      --------
          Total assets..............   $253,110       $36,602       $ 9,190      $ (4,841)     $293,959
                                       ========       =======       =======      ========      ========
LIABILITIES
  Deposits
     Demand deposits................   $ 48,927       $ 6,761       $            $             $ 55,688
     Interest-bearing demand
       deposits.....................     86,602        14,671                                   101,273
     Savings deposits...............     25,925         1,222                                    27,147
     Time deposits..................     56,967         8,164                                    65,131
                                       --------       -------       -------      --------      --------
          Total deposits............    218,421        30,818            --            --       249,239
  Borrowed funds....................      8,218           400                                     8,618
  Accrued interest and other
     liabilities....................      1,548           141                         300(g)      1,989
                                       --------       -------       -------      --------      --------
          Total liabilities.........    228,187        31,359            --           300       259,846
ESOP SHAREHOLDERS' EQUITY SUBJECT TO
  PUT OPTION........................      2,352            --        (2,352)(h)        --
                                       --------       -------       -------      --------      --------
SHAREHOLDERS' EQUITY
  Preferred stock...................         --           346                        (346)(d)        --
  Common stock......................      5,954           721         9,190(f)        408(d)
                                                                                   (1,129)(e)    15,144
  Additional paid-in capital........      6,318         1,455                      (1,455)(e)     6,318
  Retained earnings.................     12,657         2,614                      (2,614)(e)    12,657
  Accumulated other comprehensive
     income.........................         (6)            5                          (5)          (6)
  Less: ESOP shareholders' equity
     subject to put option..........     (2,352)           --         2,352(h)                       --
                                       --------       -------       -------      --------      --------
          Total shareholders'
            equity..................     22,571         5,141        11,542        (5,141)       34,113
                                       --------       -------       -------      --------      --------
          TOTAL LIABILITIES AND
            SHAREHOLDERS' EQUITY....   $253,110       $36,500       $ 9,190      $ (4,841)     $293,959
                                       ========       =======       =======      ========      ========
</TABLE>
 
                                       19
<PAGE>   21
 
                    NOTES TO PRO FORMA FINANCIAL STATEMENTS
 
(a) The amount represents estimated loss of earnings from funds used to acquire
    Valley, assuming such funds would have earned a rate equivalent to the
    average federal funds rate of approximately 5.5% earned by Columbia during
    the period of the pro forma income statements.
 
(b) The amounts represent amortization of $9.21 million in goodwill and related
    interest expense resulting from the Valley acquisition, assuming a 15-year
    amortization period.
 
(c) The estimated tax effect of the acquisition transactions described in Notes
    (a) and (b) have been computed at Columbia's effective tax rate of 34%. The
    amortization of goodwill described in Note (b) is not tax deductible.
 
(d) Prior to the acquisition, all outstanding preferred shares of Valley will be
    converted to common stock for $0.30 per share. This will result in an
    increase in outstanding common stock of $408,000 and an increase in cash of
    $62,000.
 
(e) Columbia will acquire all of Valley's outstanding common stock for $15.10
    million. The total acquisition price is to be paid from the liquidation of
    federal funds sold and investment securities.
 
(f) The acquisition of Valley by Columbia is not dependent upon the success of
    the Offering. For purposes of pro forma presentation, it is assumed Columbia
    will offer and sell 1,000,000 shares of Common Stock at a price of $10 per
    share. The assumed net Offering proceeds of $9.19 million will assist in the
    acquisition of Valley. It is currently anticipated that the Offering will be
    completed before the effective date of the Valley acquisition. In the event
    the Valley acquisition occurs first in time, Columbia anticipates that it
    will borrow sufficient funds to complete the acquisition and will repay any
    such borrowings immediately after the Offering with the offering proceeds.
    Any costs of borrowing are not expected to be material to Columbia.
    Accordingly, the pro forma financial statements do not include any such
    costs of borrowing.
 
(g) The acquisition of Valley will be accounted for using the purchase method of
    accounting under generally accepted accounting principles. Accordingly, the
    net assets of Valley have been adjusted to their approximate fair values as
    of June 30, 1998, for a combined increase in net assets of $686,000.
 
(h) Columbia has applied to the Nasdaq Stock Market for listing of its common
    stock on the Nasdaq National Market. The pro forma financial statements
    assume Columbia's application will be accepted and, as a result, ESOP
    shareholders' equity subject to put option will be reclassified to
    shareholders' equity. See "Notes to Columbia's Consolidated Financial
    Statements."
 
                                       20
<PAGE>   22
 
               COLUMBIA SELECTED HISTORICAL FINANCIAL INFORMATION
 
     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. The data for the six
months ended June 30, 1997 and 1998, are derived from unaudited consolidated
financial statements but, in the opinion of management, reflect all adjustments
necessary for a fair presentation of the data for these periods. Operating
results for the six months ended June 30, 1998, are not necessarily indicative
of the results that may be expected for the entire year ending December 31,
1998. 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 included in this Prospectus.
 
<TABLE>
<CAPTION>
                                                                                                            AS OF AND FOR THE
                                                      AS OF AND FOR THE YEARS ENDED DECEMBER 31,        SIX MONTHS ENDED JUNE 30,
                                                 ----------------------------------------------------   -------------------------
                                                   1993       1994       1995       1996       1997        1997          1998
                                                 --------   --------   --------   --------   --------   -----------   -----------
                                                                                                        (UNAUDITED)   (UNAUDITED)
                                                                     (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                              <C>        <C>        <C>        <C>        <C>        <C>           <C>
INCOME STATEMENT DATA
  Interest income.............................   $ 11,782   $ 12,220   $ 13,815   $ 15,385   $ 18,144    $  8,579      $  9,924
  Interest expense............................      3,993      3,999      5,216      5,746      6,270       3,029         3,415
                                                 --------   --------   --------   --------   --------    --------      --------
      Net interest income.....................      7,789      8,221      8,599      9,639     11,874       5,550         6,509
  Loan loss provision.........................        158        203         88        246        581         250           450
                                                 --------   --------   --------   --------   --------    --------      --------
  Net interest income after provision for loan
    losses....................................      7,631      8,018      8,511      9,393     11,293       5,300         6,059
  Noninterest income..........................      1,298      1,486      1,552      1,799      2,481       1,037         2,077
  Noninterest expense.........................      5,894      6,070      6,495      7,180      8,092       3,747         4,770
                                                 --------   --------   --------   --------   --------    --------      --------
  Income before provision for income taxes....      3,035      3,434      3,568      4,012      5,682       2,590         3,366
  Provision for income taxes..................        962      1,098      1,079      1,285      1,795         828         1,147
                                                 --------   --------   --------   --------   --------    --------      --------
      Net income..............................   $  2,073   $  2,336   $  2,489   $  2,727   $  3,887    $  1,762      $  2,219
                                                 ========   ========   ========   ========   ========    ========      ========
DIVIDENDS
  Cash dividends declared and paid............   $    451   $    472   $    555   $    882   $    842    $    385      $    693
  Ratio of dividends to net income............      21.76%     20.21%     22.30%     32.37%     21.67%      21.86%        31.26%
PER SHARE DATA(1)
  Basic earnings per common share.............   $   0.31   $   0.35   $   0.37   $   0.41   $   0.57    $   0.26      $   0.32
  Diluted earnings per common share...........   $   0.31   $   0.35   $   0.36   $   0.40   $   0.56    $   0.26      $   0.31
  Book value per common share(2)..............   $   2.08   $   2.32   $   2.56   $   2.83   $   3.29    $   3.03      $   3.40
  Weighted average shares outstanding
    Basic.....................................      6,596      6,688      6,693      6,732      6,801       6,787         6,917
    Diluted...................................      6,672      6,762      6,842      6,847      7,001       6,907         7,122
BALANCE SHEET DATA
  Investment securities.......................   $ 57,574   $ 56,229   $ 49,454   $ 51,484   $ 48,804    $ 50,739      $ 47,316
  Loans, net..................................   $ 81,335   $ 90,070   $104,178   $118,228   $155,219    $142,438      $172,979
  Total assets................................   $161,138   $162,202   $178,486   $200,302   $231,827    $220,396      $253,110
  Total deposits..............................   $145,425   $142,803   $158,874   $178,744   $201,568    $193,781      $218,421
  Shareholders' equity........................   $ 13,409   $ 15,186   $ 16,617   $ 18,475   $ 21,557    $ 19,818      $ 22,571
SELECTED RATIOS(3)
  Return on average assets....................       1.38%      1.45%      1.46%      1.45%      1.77%       1.70%         1.87%
  Return on average equity....................      16.35%     16.80%     15.91%     15.64%     19.55%      18.41%        20.12%
  Total loans to deposits.....................      55.93%     63.07%     65.57%     66.14%     77.00%      73.50%        79.20%
  Net interest margin.........................       5.69%      5.74%      5.67%      5.74%      6.15%       6.02%         6.12%
  Efficiency ratio(4).........................      64.86%     62.53%     63.98%     62.77%     56.37%      56.89%        55.56%
ASSET QUALITY RATIOS
  Reserve for loans losses to:
    Ending total loans........................       1.20%      1.05%      1.02%      0.83%      1.04%       0.91%         0.95%
    Nonperforming assets(5)...................     187.88%    500.00%    291.30%    384.17%    112.65%     133.16%        88.90%
  Nonperforming assets to ending total
    assets(5).................................       0.33%      0.12%      0.21%      0.04%      0.63%       0.45%         0.74%
  Net loan charge-offs (recoveries) to average
    loans.....................................       0.01%      0.27%     (0.03)%     0.29%     (0.04)%     (0.06)%        0.26%
CAPITAL RATIOS
  Average shareholders' equity to average
    assets....................................       8.46%      8.60%      9.19%      9.27%      9.04%       9.25%         9.30%
  Tier I capital ratio(6).....................      13.18%     14.55%     14.40%     14.20%     13.70%      13.40%        13.26%
        Total risk-based capital ratio(7).....      14.16%     15.46%     15.20%     14.90%     14.70%      14.30%        14.14%
  Leverage ratio(8)...........................       8.32%      9.47%      9.90%      9.90%     10.60%       9.90%        10.50%
</TABLE>
 
---------------
(1) Per share data reflects retroactive restatement for stock splits in 1998
    (3-for-2 and 2-for-1) and 1995 (3-for-1).
 
(2) Book value per common share has been computed excluding ESOP shareholders'
    equity and related shares subject to a put option.
 
(3) Annualized, where appropriate.
 
(4) Efficiency ratio is noninterest expense divided by the sum of net interest
    income plus noninterest income.
 
(5) Nonperforming assets consist of nonaccrual loans, loans contractually past
    due 70 days or more, and other real estate owned.
 
(6) Tier I capital divided by risk-weighted assets.
 
(7) Total capital divided by risk-weighted assets.
 
(8) Tier I capital divided by average total assets.
 
                                       21
<PAGE>   23
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations includes a discussion of certain significant business
trends and uncertainties as well as other forward-looking statements and is
intended to be read in conjunction with and is qualified in its entirety by
reference to the Consolidated Financial Statements of Columbia and notes thereto
included elsewhere in this Prospectus. For a discussion of important factors
that could cause actual results to differ materially from such forward-looking
statements, see "Risk Factors."
 
INTRODUCTION
 
     From its origins as a one-branch bank in The Dalles, Columbia has grown as
a result of merger and acquisition activity, new branch openings, the
introduction of new business lines, and the expansion and cross-marketing of its
existing products and community-bank lending expertise. In 1995, CRB merged with
Juniper Banking Company, and in 1996 Columbia was formed as CRB's holding
company. In 1996, Columbia acquired Washington-based Klickitat Valley Bank.
Further growth came from CRB's Hood River and Bend branch openings, and from the
expansion in 1997 of CRB's residential mortgage business. In August 1998,
Columbia signed an agreement to acquire Valley, and in September CRB opened a
new branch in Hermiston, Oregon. Columbia plans to open a new branch in
Pendleton, Oregon by early 1999, and to complete construction of a second Bend
branch, including facilities for a business lending group, by mid-1999.
According to information published by the State of Oregon, if the acquisition of
Valley had been completed as of June 30, 1998, Columbia would have ranked as the
4th largest bank based in Oregon. See "Business -- Pending Acquisition of Valley
Community Bancorp." Collectively, these growth and acquisition activities have
enabled Columbia to diversify its portfolio and its operating risk over several
market areas and local economies.
 
     Columbia's goal is to grow its earning assets while maintaining a high
return on equity and keeping asset quality high. The key to this, in Columbia's
view, is to emphasize personal, quality banking products and services for its
customers, to hire and retain competent branch management and administrative
personnel, and to respond quickly to customer demand and growth opportunities.
Columbia also intends to increase its market penetration in its existing
markets, and to expand into new markets through further suitable acquisitions
and through new branch openings. Columbia's success in achieving its goal to
increase earning assets without compromising its commitment to high asset
quality is demonstrated in the following table:
 
<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                  --------------------------------------------------    JUNE 30,
                                   1993      1994       1995       1996       1997        1998
                                  -------   -------   --------   --------   --------   ----------
                                                      (DOLLARS IN THOUSANDS)
<S>                               <C>       <C>       <C>        <C>        <C>        <C>
Outstanding loans at end of
  period, net of unearned
  interest income...............  $82,328   $91,024   $105,250   $119,223   $156,858    $174,644
Net charge-offs (recoveries)....  $     9   $   240   $    (29)  $    324   $    (63)   $    423
Ratio of net loans charged-off
  (recovered) to average
  outstanding loans.............     0.01%     0.27%     (0.03)%     0.29%     (0.04)%      0.26%
</TABLE>
 
     For the six months ended June 30, 1998, net income was $2.22 million, an
increase of 26.13% over net income of $1.76 million earned during the six months
ended June 30, 1997. Diluted earnings per share were $0.31 and $0.26 for the six
months ended June 30, 1998 and June 30, 1997, respectively. Annualized return on
average assets was 1.87% for the six months ended June 30, 1998, compared with
1.70% for the comparable six months in 1997. For the first six months of 1998,
annualized return on average equity was 20.12%, compared with 18.41% during the
first six months of 1997. The increase in earnings for the six months ended June
30, 1998, versus the comparable period in 1997 can be attributed to growth in
earning assets, deposits, fee income growth, increased customer activity at the
Bend branch (opened in late 1996), and greater operating efficiency.
 
                                       22
<PAGE>   24
 
     For the year ended December 31, 1997, net income was $3.89 million,
representing an increase of 42.49% over net income of $2.73 million earned
during the year ended December 31, 1996. Net income for 1996 was up 9.64% from
$2.49 million for the year ended December 31, 1995. Diluted earnings per share
were $0.56, $0.40, and $0.36 for the years ended December 31, 1997, 1996, and
1995, respectively. Return on average assets was 1.77% for the year ended
December 31, 1997, compared with 1.45% for the year ended December 31, 1996, and
1.46% in 1995. Return on average equity was 19.55% for the year ended December
31, 1997, compared with 15.64% for the year ended December 31, 1996, and 15.91%
for the year ended December 31, 1995.
 
     Return on average daily assets and equity and certain other ratios for the
periods indicated are presented below:
 
<TABLE>
<CAPTION>
                                                                                        SIX MONTHS ENDED
                                          YEARS ENDED DECEMBER 31,                          JUNE 30,
                          --------------------------------------------------------    --------------------
                            1993        1994        1995        1996        1997        1997        1998
                          --------    --------    --------    --------    --------    --------    --------
                                          (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                       <C>         <C>         <C>         <C>         <C>         <C>         <C>
Net income..............  $  2,073    $  2,336    $  2,489    $  2,727    $  3,887    $  1,762    $  2,219
Average assets..........   149,971     161,671     170,352     188,061     219,905     207,053     237,246
RETURN ON AVERAGE
  ASSETS................      1.38%       1.45%       1.46%       1.45%       1.77%       1.70%       1.87%
 
Net income..............  $  2,073    $  2,336    $  2,489    $  2,727    $  3,887    $  1,762    $  2,219
Average equity..........    12,681      13,910      15,649      17,440      19,875      19,147      22,061
RETURN ON AVERAGE
  EQUITY................     16.35%      16.80%      15.91%      15.64%      19.55%      18.41%      20.12%
 
Cash dividends declared
  and paid per share....  $   0.07    $   0.07    $   0.08    $   0.13    $   0.12    $   0.06    $   0.10
Basic earnings per
  common share..........      0.31        0.35        0.37        0.41        0.57        0.26        0.32
DIVIDEND PAYOUT RATIO...     21.76%      20.21%      22.30%      32.37%      21.67%      21.86%      31.26%
 
Average equity..........  $ 12,681    $ 13,910    $ 15,649    $ 17,440    $ 19,875    $ 19,147    $ 22,061
Average assets..........   149,971     161,671     170,352     188,061     219,905     207,053     237,246
AVERAGE EQUITY TO ASSET
  RATIO.................      8.46%       8.60%       9.19%       9.27%       9.04%       9.25%       9.30%
</TABLE>
 
                                       23
<PAGE>   25
 
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 levels of interest-earning assets and interest-bearing liabilities.
 
     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:
<TABLE>
<CAPTION>
 
                                       YEAR ENDED DECEMBER 31, 1996       YEAR ENDED DECEMBER 31, 1997
                                     --------------------------------   --------------------------------
                                                INTEREST     AVERAGE               INTEREST     AVERAGE
                                     AVERAGE    INCOME OR   YIELDS OR   AVERAGE    INCOME OR   YIELDS OR
                                     BALANCE     EXPENSE      RATES     BALANCE     EXPENSE      RATES
                                     --------   ---------   ---------   --------   ---------   ---------
                                                           (DOLLARS IN THOUSANDS)
<S>                                  <C>        <C>         <C>         <C>        <C>         <C>
Interest-earning assets:
  Loans............................  $111,841    $11,855      10.60%    $140,891    $14,764      10.48%
  Investment securities
    Taxable securities.............    34,781      2,074       5.96       36,826      2,296       6.24
    Nontaxable securities(2).......    14,964      1,168       7.80       15,112      1,114       7.37
  Interest-earning balances due
    from banks.....................     2,129         96       4.51        2,322        127       5.45
  Federal funds sold...............    11,182        589       5.27        4,114        221       5.38
                                     --------    -------      -----     --------    -------      -----
        Total interest-earning
          assets(1)................   174,897     15,782       9.02      199,265     18,522       9.30
  Cash and due from banks..........     7,976                             14,091
  Premises and equipment, net......     4,092                              5,096
  Loan loss allowance..............    (1,153)                            (1,315)
  Other assets.....................     2,249                              2,768
                                     --------                           --------
        Total assets...............  $188,061                           $219,905
                                     ========                           ========
Interest-bearing liabilities:
  Interest-bearing checking and
    savings accounts...............  $ 90,062    $ 2,967       3.29%    $102,005    $ 3,313       3.25%
  Time deposit and IRA accounts....    49,286      2,717       5.51       51,164      2,772       5.42
  Borrowed funds...................     1,073         62       5.66        3,236        185       5.68
                                     --------    -------      -----     --------    -------      -----
        Total interest-bearing
          liabilities..............   140,421      5,746       4.09      156,405      6,270       4.01
  Noninterest-bearing deposits.....    28,328                             38,299
  Other liabilities................     1,872                              5,326
                                     --------                           --------
        Total liabilities..........   170,621                            200,030
  Shareholders' equity.............    17,440                             19,875
                                     --------                           --------
        Total liabilities and
          shareholders' equity.....  $188,061                           $219,905
                                     ========                           ========
  Net interest income..............              $10,036                            $12,252
                                                 =======                            =======
Net interest spread................                            4.93%                              5.29%
                                                              =====                              =====
Average yield on average earning
  assets(2)........................                            9.02%                              9.30%
                                                              =====                              =====
Interest expense to average earning
  assets(1)........................                            3.29%                              3.15%
                                                              =====                              =====
Net interest margin(3).............                            5.74%                              6.15%
                                                              =====                              =====
 
<CAPTION>
                                             SIX MONTHS ENDED
                                             JUNE 30, 1998(4)
                                     --------------------------------
                                                INTEREST     AVERAGE
                                     AVERAGE    INCOME OR   YIELDS OR
                                     BALANCE     EXPENSE      RATES
                                     --------   ---------   ---------
                                          (DOLLARS IN THOUSANDS)
<S>                                  <C>        <C>         <C>
Interest-earning assets:
  Loans............................  $165,440    $ 8,417      10.18%
  Investment securities
    Taxable securities.............    31,434        925       5.89
    Nontaxable securities(2).......    16,576        636       7.67
  Interest-earning balances due
    from banks.....................     2,198         53       4.81
  Federal funds sold...............     4,058        110       5.44
                                     --------    -------      -----
        Total interest-earning
          assets(1)................   219,706     10,141       9.23
  Cash and due from banks..........    10,779
  Premises and equipment, net......     5,258
  Loan loss allowance..............    (1,857)
  Other assets.....................     3,360
                                     --------
        Total assets...............  $237,246
                                     ========
Interest-bearing liabilities:
  Interest-bearing checking and
    savings accounts...............  $107,837    $ 1,720       3.19%
  Time deposit and IRA accounts....    54,294      1,486       5.47
  Borrowed funds...................     7,591        209       5.52
                                     --------    -------      -----
        Total interest-bearing
          liabilities..............   169,722      3,415       4.02
  Noninterest-bearing deposits.....    42,069
  Other liabilities................     3,394
                                     --------
        Total liabilities..........   215,185
  Shareholders' equity.............    22,061
                                     --------
        Total liabilities and
          shareholders' equity.....  $237,246
                                     ========
  Net interest income..............              $ 6,726
                                                 =======
Net interest spread................                            5.21%
                                                              =====
Average yield on average earning
  assets(2)........................                            9.23%
                                                              =====
Interest expense to average earning
  assets(1)........................                            3.11%
                                                              =====
Net interest margin(3).............                            6.12%
                                                              =====
</TABLE>
 
---------------
(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.
 
(4) Average yields and rates for the six months ended June 30, 1998, have been
    annualized.
 
                                       24
<PAGE>   26
 
     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:
 
<TABLE>
<CAPTION>
                                                                                                             SIX MONTHS ENDED
                                                                                                                 JUNE 30,
                                                        1996 OVER 1995             1997 OVER 1996             1998 OVER 1997
                                                    -----------------------    -----------------------    -----------------------
                                                      INCREASE (DECREASE)        INCREASE (DECREASE)        INCREASE (DECREASE)
                                                            DUE TO                     DUE TO                     DUE TO
                                                    -----------------------    -----------------------    -----------------------
                                                                      NET                        NET                        NET
                                                    VOLUME   RATE    CHANGE    VOLUME   RATE    CHANGE    VOLUME   RATE    CHANGE
                                                    ------   -----   ------    ------   -----   ------    ------   -----   ------
                                                                               (DOLLARS IN THOUSANDS)
<S>                                                 <C>      <C>     <C>       <C>      <C>     <C>       <C>      <C>     <C>
Interest-earning assets:
  Loans...........................................  $1,613   $(370)  $1,243    $3,079   $(169)  $2,910    $1,828   $(272)  $1,556
  Investment securities
    Taxable securities............................    (261)    182      (79)      122     100      222      (186)    (37)    (223)
    Nontaxable securities.........................     140      29      169        12     (65)     (53)       33      28       61
  Balances due from banks.........................      33      15       48         8      22       30       (18)     (8)     (26)
  Federal funds sold..............................     232      14      246      (372)      4     (368)       (3)      1       (2)
                                                    ------   -----   ------    ------   -----   ------    ------   -----   ------
        Total*....................................   1,757    (130)   1,627     2,849    (108)   2,741     1,654    (288)   1,366
                                                    ------   -----   ------    ------   -----   ------    ------   -----   ------
Interest-bearing liabilities:
  Interest-bearing checking and savings
    accounts......................................     335     (56)     279       393     (47)     346       158     (36)     122
  Time deposits...................................     282      66      348       104     (49)      55        57      26       83
  Borrowed funds..................................     (94)     (4)     (98)      122       1      123       173       8      181
                                                    ------   -----   ------    ------   -----   ------    ------   -----   ------
        Total.....................................     523       6      529       619     (95)     524       388      (2)     386
                                                    ------   -----   ------    ------   -----   ------    ------   -----   ------
Net increase (decrease) in net interest income....  $1,234   $(136)  $1,098    $2,230   $ (13)  $2,217    $1,266   $(286)  $  980
                                                    ======   =====   ======    ======   =====   ======    ======   =====   ======
</TABLE>
 
---------------
* Tax-exempt income has been adjusted to a tax equivalent basis at a 34% rate.
 
                                       25
<PAGE>   27
 
     SIX MONTHS ENDED JUNE 30, 1997 AND 1998
 
     Net interest income for the six months ended June 30, 1998, was $6.51
million, an increase of $959,000 over the corresponding period in 1997. The
increase in net interest income is attributable to $1.35 million in income
earned from interest-earning assets, offset by $386,000 additional expense from
interest-bearing liabilities. Interest expense increased 12.75% to $3.42 million
for the first six months of 1998 compared to $3.03 million for the corresponding
period in 1997. The increase in interest expense was primarily a result of the
growth of interest-bearing checking and savings accounts and the cost of
borrowed funds.
 
     Total interest-earning assets averaged $219.71 million for the six months
ended June 30, 1998, compared to $190.80 million for the corresponding period in
1997. Most of the increase was due to an increase in loans. Increases in the
loan portfolio are attributed to growth from the Columbia River Bank Mortgage
Group in Bend, Oregon which opened during the third quarter of 1997;
opportunities afforded by the banking industry's consolidation and closure of
branches in Columbia's market areas; and, the additional hiring of senior
lending personnel in strategic branch locations and administrative capacities.
The average yield on interest-earning assets, when adjusted to reflect the tax
benefits on certain types of investments, increased to 9.23% during the first
six months of 1998, compared to 9.20% for the corresponding period in 1997.
 
     Interest-bearing liabilities averaged $169.72 million during the first six
months of 1998 compared to $151.35 million during the same period in 1997. The
average cost of these liabilities increased in the first six months of 1998 to
4.02% from 4.00% in the first six months of 1997. The average cost of
interest-bearing liabilities increased primarily as a result of time deposit
promotional programs initiated in 1998. Although further competitive pressure is
expected in expanding deposit relationships, management, as a matter of policy,
does not seek to attract high-priced, brokered deposits. In the near-term,
management does not anticipate Columbia's net interest margins will be
significantly impacted by competitive pressure for deposit accounts.
 
     YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
 
     Net interest income for the year ended December 31, 1997 was $11.87
million, an increase of $2.23 million or 23.13% compared to net interest income
of $9.64 million in 1996, which was $1.04 million or 12.10% higher than the
$8.60 million reported in 1995. The overall tax-equivalent earning asset yield
was 9.30% in 1997 compared to 9.02% in 1996 and 8.98% in 1995. For the same
years, rates on interest-bearing liabilities were 4.01%, 4.09%, and 4.12%,
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 1995 through 1997, the average yield on earning assets
increased 0.32% while rates paid on interest-bearing liabilities decreased by
0.11%. Average loans increased 45.12% while average noninterest-bearing deposits
increased 56.98%.
 
     Loans, which generally carry a higher yield than investment securities and
other earning assets, comprised 70.71% of average earning assets during 1997,
compared to 63.95% in 1996 and 61.56% in 1995. During the same periods, average
yields on loans were 10.48% in 1997, 10.60% in 1996, and 10.93% in 1995.
Investment securities comprised 26.06% of average earning assets in 1997, which
was down from 28.44% in 1996 and 33.41% in 1995. The decrease in the portfolio
of investment securities has provided funds for Columbia's strong loan growth.
Tax equivalent interest yields on investment securities have ranged from 6.57%
in 1997 to 6.52% in 1996 and 5.98% in 1995.
 
     Interest cost, as a percentage of earning assets, decreased to 3.15% in
1997, compared to 3.29% in 1996 and 3.31% in 1995. 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
 
                                       26
<PAGE>   28
 
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, local economy, and the nature and volume of loans.
 
     The recorded values of loans actually removed from the consolidated balance
sheets are referred to as charge-offs and, after netting out recoveries on
previously charged-off assets, become net charge-offs. Columbia's policy is to
charge-off loans, when, in management's opinion, the loan or a portion thereof
is deemed uncollectible, although concerted efforts are made to maximize
recovery. Columbia's historical net loan losses or recoveries stem from
Columbia's underwriting and collection practices, the strength in the local
economy, and the quality of the loan portfolio. 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 evaluation of future 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 as well as making loan officers accountable for collection
efforts. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Loan Losses and Recoveries."
 
     SIX MONTHS ENDED JUNE 30, 1997 AND 1998
 
     For the six months ended June 30, 1998, management charged $450,000 to
Columbia's provision for loan losses. This was a $200,000 or 80.00% increase
over the provision for loan losses recorded during the first six months of 1997.
The increase in the provision for loan losses was necessary to accommodate the
growth in Columbia's loan portfolio, to establish a reserve for potential losses
consistent with revisions in Columbia's loan policy, and to replenish the
allowance for loan losses for charge-offs incurred during 1998.
 
     During the first six months of 1998, loan charge-offs exceeded recoveries
by $423,000. During the six months ended June 30, 1997, Columbia's loan
recoveries actually exceeded charge-offs by $74,000. The increased loss
experience in 1998 was due principally to the recognition of a $206,000 loss
from a loan made at Columbia's Goldendale, Washington branch. This loan
originated and was subject to loan underwriting policies of Klickitat Valley
Bank prior to its acquisition by Columbia. All remaining net charge-offs
incurred by Columbia through the first six months of 1998 were smaller in amount
and generally distributed evenly among all other branch locations.
 
     YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
 
     For the years ended December 31, 1995 through 1997, Columbia charged
$88,000, $246,000, and $581,000, respectively, to its provision for loan losses.
During this period, average outstanding loans grew 45.12% and the allowance for
loan losses kept pace by increasing 52.89% through charges to the provision for
loan losses. Because its historical ratio of net charge-offs to average
outstanding loans has been low and has not exceeded 0.30% for years ended 1993
through 1997, Columbia's provision for loan losses has primarily increased due
to strong loan demand and the resulting growth in its loan portfolio.
 
NONINTEREST INCOME
 
     SIX MONTHS ENDED JUNE 30, 1997 AND 1998
 
     Noninterest income is primarily derived from service charges and related
fees, as well as mortgage origination and processing fees. Such income increased
$1.04 million, or 100.35% for the six-month period ended June 30, 1998, compared
to the six months ended June 30, 1997. The principal reason for this increase
was income generated by Columbia's mortgage lending division, which was formed
in September of 1997, and
 
                                       27
<PAGE>   29
 
which operates under the name "Columbia River Bank Mortgage Group." During the
first six months of 1998, this division generated $501,000 in income from
originating, processing, servicing, and selling mortgage loans. The increase was
also the result of increasing deposit volumes and related service fees. Service
charges were $834,000 for the six months ended June 30, 1998, compared to
$658,000 for the six months ended June 30, 1997. 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.
 
     YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
 
     Total noninterest income increased through year-end 1997 from 1995. Over
this three-year period, noninterest income increased from $1.55 million in 1995,
to $1.80 million in 1996, and to $2.48 million in 1997. The increase is
principally due to service charges, including fees charged on deposit accounts.
In 1997, service charges were over 41% higher than in the previous year.
Management attributes this to the increase in customers served at all of
Columbia's branches. In addition, consistently strong performance in Columbia's
financial services department, which provides investment services to bank
customers, and its bank card business added to the 59.86% increase from 1995 to
1997 in overall noninterest income. Columbia does not actively trade or sell its
investment securities, and received no material income from such transactions
during the period from 1995 to 1997.
 
NONINTEREST EXPENSE
 
     SIX MONTHS ENDED JUNE 30, 1997 AND 1998
 
     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. This statistic is derived by dividing total noninterest
expense by total net interest income and noninterest income. For the six months
ended June 30, 1998, the ratio had improved to 55.56% compared to 56.89% for the
corresponding period of 1997. The efficiency ratio demonstrates management's
ability to monitor and control noninterest expense.
 
     Noninterest expense increased $1.02 million, or 27.30%, to $4.77 million
for the six months ended June 30, 1998, compared to $3.75 million in the
corresponding period of 1997. This was due to an increase in staffing costs, as
well as increases in other key operating costs such as occupancy expense and
supplies, primarily relating to the formation and staffing of Columbia River
Bank Mortgage Group. Columbia's investments in new and expanded technology for
the mortgage group's operations, to support internal services, and to provide
additional technology-based products for CRB's customers also resulted in
expense increases.
 
     Columbia's net occupancy expense is likely to increase in 1998 and 1999 due
to the planned opening of new branch facilities, including new branches in
Pendleton and Bend, Oregon, the commencement of operations at the new Hermiston
branch, and the pending acquisition of Valley.
 
     YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
 
     Noninterest expense was $8.09 million for the year ended December 31, 1997,
an increase from $7.18 million for the year ended December 31, 1996, and $6.50
million for the year ended December 31, 1995. The change was attributed
primarily to increases in salary and benefit expense, net occupancy expense, and
costs for data processing. In 1997, Columbia's total noninterest expense was
56.37% of net revenues, while in 1996 and 1995 it was 62.78% and 63.98%,
respectively, of net revenues.
 
     Salary and benefit expense was $4.46 million in 1997, $3.97 million in
1996, and $3.61 million in 1995. As of December 31, 1997, Columbia had 133
full-time equivalent employees, which compares to 132 as of December 31, 1996,
and 104 as of December 31, 1995. The increase in this expense category was the
result of a full year of staffing Columbia's first branch office in Bend,
Oregon, which opened in late 1996, plus the expense of forming and staffing the
Columbia River Bank Mortgage Group. Another contributing factor was the normal
expense increases associated with maintaining an expanded employee base.
 
                                       28
<PAGE>   30
 
     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 $736,000 in 1997, an increase of $82,000, or 12.60%, over the
$654,000 reported in 1996. From 1995 to 1996, net occupancy expense increased by
$88,000, from $566,000 to $654,000, an increase of 15.55%. These increases
reflect the first full year of operation of the Bend, Oregon, branch and costs
relating to continued investment in Columbia's computer systems, which have been
upgraded throughout the organization.
 
     FDIC insurance premiums are a function of outstanding deposit liabilities.
Insurance expense decreased nearly $156,000 or 48.46% in 1995 over the prior
year when Columbia received a premium refund from the FDIC after the Bank
Insurance Fund was recapitalized. Because the Bank Insurance Fund has since been
adequately capitalized, Columbia was required to make only nominal premium
payments in 1996 and 1997. For the three year period ended December 31, 1997,
Columbia was qualified to pay the lowest premium available for its deposit
insurance coverage.
 
     Other noninterest expense increases arose from investments in technology
and data processing, and in new service delivery channels to enable Columbia to
continue its focus on efficient, personal service. Data processing expenses
increased 31.33% in 1997 over the previous year, which reflects both the growth
of Columbia's customer base and the integration of the data processing
operations of Klickitat with Columbia's operations.
 
     One factor that will impact expenses in the immediate future is the Year
2000 Issue. Management has initiated an organization-wide program to prepare
Columbia's computer systems and applications for the year 2000. See
"Business -- The Year 2000 Issue." Testing and converting systems and
applications is expected to cost between $500,000 to $1 million over the next
three years, and could be higher. A significant portion of this expense,
however, is not likely to be incremental to Columbia, but will instead represent
the reassignment of existing personnel to address the problem. Further, Columbia
will, when possible, continue to use its existing technology resources,
including hardware, software and scheduled upgrades, to respond to the Year 2000
Issue. However, there can be no assurance that the expenses associated with the
Year 2000 Issue will not have a material adverse impact on Columbia. See
"Disclosure Regarding Forward-Looking Statements" and "Risk Factors -- The Year
2000 Issue."
 
INCOME TAXES
 
     The provision for income taxes for the six-month period ended June 30,
1998, was $1.15 million representing an effective tax rate of 34.07%, compared
to $828,000 or 31.95% for the six-month period ended June 30, 1997.
 
     The provision for income taxes was $1.80 million in 1997, $1.29 million in
1996, and $1.08 million in 1995. The provision resulted in effective combined
federal and state tax rates of 31.60% in 1997, 32.03% in 1996, and 30.24% in
1995. Effective tax rates differ from combined estimated statutory rates of 38%
principally due to the effects of nontaxable interest income which is recognized
for book but not for tax purposes. In addition, during 1995 Columbia's state
income tax rate was reduced 42.2% from 6.60% to 3.81% and 50% from 6.60% to
3.30% in 1998 as a result of surplus revenues received by the State of Oregon.
 
                                       29
<PAGE>   31
 
FINANCIAL CONDITION
 
                             SUMMARY BALANCE SHEETS
<TABLE>
<CAPTION>
                                    DECEMBER 31,                       INCREASE (DECREASE)
                           ------------------------------   -----------------------------------------
                             1995       1996       1997      12/31/95-12/31/96     12/31/96-12/31/97
                           --------   --------   --------   -------------------   -------------------
                                                     (DOLLARS IN THOUSANDS)
<S>                        <C>        <C>        <C>        <C>        <C>        <C>        <C>
ASSETS
  Federal funds sold.....  $  6,273   $  7,367   $  2,834   $ 1,094     17.45%    $ (4,533)    61.53%
  Investments............    49,454     51,484     48,804     2,030      4.11%      (2,680)    (5.21)%
  Loans..................   104,178    118,228    155,219    14,050     13.49%      36,991     31.29%
  Other assets(1)........    18,581     23,223     24,970     4,642     24.98%       1,747      7.53%
                           --------   --------   --------   -------     -----     --------    ------
        Total assets.....  $178,486   $200,302   $231,827   $21,816     12.22%    $ 31,525     15.74%
                           ========   ========   ========   =======               ========
LIABILITIES
  Noninterest-bearing
    deposits.............  $ 28,290   $ 33,549   $ 46,377   $ 5,259     18.59%    $ 12,828     38.24%
  Interest-bearing
    deposits.............   130,584    145,195    155,191    14,611     11.19%       9,996      6.88%
                           --------   --------   --------   -------     -----     --------    ------
        Total deposits...   158,874    178,744    201,568    19,870     12.51%      22,824     12.77%
Other liabilities(2).....     2,995      3,083      8,702        88      2.98%       5,619    182.23%
                           --------   --------   --------   -------     -----     --------    ------
        Total
          liabilities....   161,869    181,827    210,270    19,958     12.33%      28,443     15.64%
SHAREHOLDERS' EQUITY.....    16,617     18,475     21,557     1,858     11.18%       3,082     16.68%
                           --------   --------   --------   -------     -----     --------    ------
        Total liabilities
          and
          shareholders'
          equity.........  $178,486   $200,302   $231,827   $21,816     12.22%    $ 31,525     15.74%
                           ========   ========   ========   =======               ========
 
<CAPTION>
                           JUNE 30,   INCREASE (DECREASE)
                           --------   -------------------
                             1998      12/31/97-6/30/98
                           --------   -------------------
                               (DOLLARS IN THOUSANDS)
<S>                        <C>        <C>        <C>
ASSETS
  Federal funds sold.....  $  4,230   $ 1,396     49.25%
  Investments............    47,316    (1,488)    (3.05)%
  Loans..................   172,979    17,760     11.44%
  Other assets(1)........    28,585     3,615     14.48%
                           --------   -------     -----
        Total assets.....  $253,110   $21,283      9.18%
                           ========   =======
LIABILITIES
  Noninterest-bearing
    deposits.............  $ 48,927   $ 2,550      5.50%
  Interest-bearing
    deposits.............   169,494    14,303      9.22%
                           --------   -------     -----
        Total deposits...   218,421    16,853      8.36%
Other liabilities(2).....    12,118     3,416     39.26%
                           --------   -------     -----
        Total
          liabilities....   230,539    20,269      9.64%
SHAREHOLDERS' EQUITY.....    22,571     1,014      4.71%
                           --------   -------     -----
        Total liabilities
          and
          shareholders'
          equity.........  $253,110   $21,283      9.18%
                           ========   =======
</TABLE>
 
---------------
(1) Includes cash and due from banks, fixed assets, and accrued interest
    receivable.
 
(2) Includes accrued interest payable and other liabilities.
 
                                       30
<PAGE>   32
 
INVESTMENTS
 
     At June 30, 1998, Columbia's portfolio of investment securities totaled
$47.32 million, a decrease of $1.48 million compared to its December 31, 1997,
securities portfolio of $48.80 million, representing a decrease of 3.05% from
the prior year-end. On June 30, 1998, investments in federal funds sold (an
overnight investment) were $4.23 million and investments in restricted stock
were $795,000. The balance of federal funds sold is influenced by cash demands,
customer deposit levels, loan activity, and other investment transactions.
 
     A year-to-year comparison shows that Columbia's investment securities at
December 31, 1997, totaled $48.80 million, compared to $51.48 million at
December 31, 1996, and $49.45 million at December 31, 1995. This represents an
increase of 4.11% between 1995 and 1996, and a decrease of 5.21% between 1996
and 1997. Increases or decreases in the investment portfolio are primarily a
function of loan demand and changes in Columbia's deposit structure.
 
     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 June 30, 1998, the investment portfolio, excluding restricted equity
securities, consisted of 62.00% available-for-sale securities and 38.00%
held-to-maturity securities. At December 31, 1997, Columbia's investment
portfolio, excluding restricted equity securities, consisted of 65.18%
available-for-sale securities and 34.82% held-to-maturity securities, and at
December 31, 1996, available-for-sale securities were 18.87% of the portfolio
and held-to-maturity securities were 79.83% of the portfolio. The change in mix
from 1996 to 1997 was primarily due to an adjustment in the accounting
classification of the investment portfolio of Klickitat Valley Bank after its
acquisition by Columbia in 1996. The present mix provides greater investment
flexibility by placing more of the portfolio in the available-for-sale category.
(See Note 2 to Columbia's Consolidated Financial Statements.)
 
     At June 30, 1998, Columbia's investment portfolio had total net unrealized
gains of approximately $276,000. This compares to net unrealized gains of
approximately $371,000 at December 31, 1997, $46,000 at December 31, 1996, and
$263,000 at December 31, 1995. 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 $4.23 million at June 30, 1998, compared to $2.83 million at
December 31, 1997, $7.37 million at December 31, 1996, and $6.27 million at
December 31, 1995.
 
                                       31
<PAGE>   33
 
     The following table provides the book value of Columbia's portfolio of
investment securities as of December 31, 1997 and June 30, 1998:
 
<TABLE>
<CAPTION>
                                                        DECEMBER 31,    JUNE 30,
                                                            1997          1998
                                                        ------------    --------
                                                         (DOLLARS IN THOUSANDS)
<S>                                                     <C>             <C>
Investments available-for-sale:
  U.S. Treasury securities............................    $ 3,214       $ 3,212
  U.S. Government obligations.........................     26,943        25,422
  Corporate debt securities...........................        853           704
  Corporate equity securities.........................        300           300
                                                          -------       -------
                                                           31,310        29,638
                                                          -------       -------
Investments held-to-maturity:
  Obligations of states and political subdivisions....     16,571        16,752
  Mortgage-backed securities..........................        157           131
                                                          -------       -------
                                                           16,728        16,883
                                                          -------       -------
Restricted equity securities..........................        766           795
                                                          -------       -------
          Total investment securities.................    $48,804       $47,316
                                                          =======       =======
</TABLE>
 
     Investment securities at the dates indicated consisted of the following:
<TABLE>
<CAPTION>
                                     DECEMBER 31, 1996                   DECEMBER 31, 1997
                             ---------------------------------   ---------------------------------
                             AMORTIZED   APPROXIMATE      %      AMORTIZED   APPROXIMATE      %
                               COST      MARKET VALUE   YIELD*     COST      MARKET VALUE   YIELD*
                             ---------   ------------   ------   ---------   ------------   ------
                                                    (DOLLARS IN THOUSANDS)
<S>                          <C>         <C>            <C>      <C>         <C>            <C>
U.S. Treasuries and
  agencies:
  One year or less.........   $   902      $   904       5.81%    $ 1,599      $ 1,599       5.47%
  One to five years........     3,215        3,196       5.97%      1,611        1,614       5.72%
U.S. Government agencies:
  One year or less.........     1,814        1,814       5.47%      5,052        5,058       5.75%
  One to five years........    19,393       19,284       6.37%     17,333       17,321       6.35%
  Five to ten years........     5,331        5,304       7.01%      3,701        3,727       6.60%
  Due after ten years......     1,916        1,900       7.30%      1,000          994       7.51%
Obligations of states and
  political subdivisions:
  One year or less.........     2,659        2,674       5.77%      2,165        2,187       6.00%
  One to five years........     8,340        8,517       6.61%      6,887        7,051       7.29%
  Five to ten years........     3,952        3,966       7.40%      3,005        3,080       6.72%
  Over ten years...........       400          400       7.74%      4,513        4,610       7.35%
Corporate and other debt
  securities:
  One year or less.........     1,852        1,861       5.83%        250          250       5.98%
  One to five years........       756          756       6.45%        603          603       6.45%
                              -------      -------       ----     -------      -------       ----
        Total debt
          securities.......    50,530       50,576       6.49%     47,719       48,094       6.90%
Corporate equity
  securities...............       300          300                    300          300
Restricted equity
  securities...............       672          672                    766          766
                              -------      -------                -------      -------
        Total securities...   $51,502      $51,548                $48,785      $49,160
                              =======      =======                =======      =======
 
<CAPTION>
                                       JUNE 30, 1998
                             ---------------------------------
                             AMORTIZED   APPROXIMATE      %
                               COST      MARKET VALUE   YIELD*
                             ---------   ------------   ------
                                  (DOLLARS IN THOUSANDS)
<S>                          <C>         <C>            <C>
U.S. Treasuries and
  agencies:
  One year or less.........   $   899      $   901       5.41%
  One to five years........     2,304        2,311       5.54%
U.S. Government agencies:
  One year or less.........     2,557        2,553       5.56%
  One to five years........    21,197       21,156       6.22%
  Five to ten years........     1,817        1,843       5.93%
  Due after ten years......
Obligations of states and
  political subdivisions:
  One year or less.........     2,324        2,336       5.68%
  One to five years........     6,999        7,157       7.23%
  Five to ten years........     2,431        2,481       6.87%
  Over ten years...........     4,998        5,064       7.39%
Corporate and other debt
  securities:
  One year or less.........       704          704       6.20%
  One to five years........        --           --         --
                              -------      -------       ----
        Total debt
          securities.......    46,230       46,506       6.41%
Corporate equity
  securities...............       300          300
Restricted equity
  securities...............       795          795
                              -------      -------
        Total securities...   $47,325      $47,601
                              =======      =======
</TABLE>
 
---------------
* Weighted average yields are stated on a federal tax-equivalent basis at a 34%
  rate, and have been annualized, where appropriate.
 
                                       32
<PAGE>   34
 
LOANS
 
     Columbia's loan policies and procedures establish the basic guidelines
governing its lending operations. Generally, the guidelines address the types of
loans that Columbia seeks, target markets, underwriting and collateral
requirements, terms, interest rate and yield considerations, and compliance with
laws and regulations. All loans or credit lines are subject to approval
procedures and amount limitations. These limitations apply to the borrower's
total outstanding indebtedness to Columbia, including the indebtedness of any
guarantor. The policies are reviewed and approved at least annually by the Board
of Directors of Columbia. Columbia supplements its own supervision of the loan
underwriting and approval process with periodic loan audits by outside
professionals experienced in loan review work.
 
     Branch officers are charged with loan origination in compliance with
underwriting standards overseen by Columbia's 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, which was $800,000 at June 30, 1998. All loans above the
lending limit of the President and up to $1 million are reviewed for approval by
an internal loan committee comprised of the Chief Lending Officer, the Loan
Administrator, and certain branch managers. Loans which exceed $1 million 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 Columbia Board at regularly
scheduled monthly meetings. The Board's loan committee consists of three outside
directors appointed by the Chairman of the Board. 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 $3.60 million at June 30, 1998.
Columbia seldom makes loans approaching its unsecured legal lending limit.
 
     Net outstanding loans totaled $172.98 million at June 30, 1998,
representing an increase of $17.76 million, or 11.44%, compared to $155.22
million at December 31, 1997. Loan commitments grew to $41.84 million as of June
30, 1998, representing an increase of $5.53 million over year-end 1997. Net
outstanding loans were $118.23 million at December 31, 1996, and $104.18 million
at December 31, 1995.
 
     Columbia's net loan portfolio at June 30, 1998, includes loans secured by
real estate (57.82% of total), commercial loans (19.12% of total), agricultural
loans (14.71% of total), and consumer loans (8.94% 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.
 
                                       33
<PAGE>   35
 
     This table presents the composition of Columbia's loan portfolio at the
dates indicated:
 
<TABLE>
<CAPTION>
                                       DECEMBER 31, 1996       DECEMBER 31, 1997         JUNE 30, 1998
                                     ---------------------   ---------------------   ---------------------
                                      AMOUNT    PERCENTAGE    AMOUNT    PERCENTAGE    AMOUNT    PERCENTAGE
                                     --------   ----------   --------   ----------   --------   ----------
                                                            (DOLLARS IN THOUSANDS)
<S>                                  <C>        <C>          <C>        <C>          <C>        <C>
Commercial.........................  $ 26,485      22.40%    $ 28,464      18.34%    $ 33,069      19.12%
Agricultural.......................    15,592      13.19%      20,511      13.21%      25,450      14.71%
Real estate secured loans:
  Commercial property..............    19,255      16.29%      29,319      18.89%      30,408      17.58%
  Farmland.........................     5,610       4.75%       6,212       4.00%       6,360       3.68%
  Construction.....................     4,613       3.90%      13,504       8.70%      18,852      10.90%
  Residential......................    31,489      26.63%      40,200      25.90%      42,487      24.56%
  Home equity lines................     1,555       1.31%       2,239       1.44%       1,897       1.10%
                                     --------     ------     --------     ------     --------     ------
          Total real estate........    62,522      52.88%      91,474      58.93%     100,004      57.82%
Consumer...........................    13,776      11.65%      15,665      10.09%      15,470       8.94%
Other..............................     1,148       0.97%       1,356       0.88%       1,334       0.77%
                                     --------     ------     --------     ------     --------     ------
          Total loans..............   119,523     101.09%     157,470     101.45%     175,327     101.36%
Less deferred loan fees............      (300)     (0.25)%       (612)     (0.39)%       (682)     (0.39)%
Less reserve for loan losses.......      (995)     (0.84)%     (1,639)     (1.06)%     (1,666)     (0.97)%
                                     --------     ------     --------     ------     --------     ------
          Loans receivable, net....  $118,228     100.00%    $155,219     100.00%    $172,979     100.00%
                                     ========     ======     ========     ======     ========     ======
</TABLE>
 
     The following table shows the maturities and sensitivity of Columbia's
loans to changes in interest rates at the dates indicated:
<TABLE>
<CAPTION>
                                          DECEMBER 31, 1997                     JUNE 30, 1998
                         ----------------------------------------------------   ------------
                                        DUE AFTER ONE      DUE
                          DUE IN ONE    YEAR THROUGH      AFTER       TOTAL      DUE IN ONE
                         YEAR OR LESS    FIVE YEARS     FIVE YEARS    LOANS     YEAR OR LESS
                         ------------   -------------   ----------   --------   ------------
                                               (DOLLARS IN THOUSANDS)
<S>                      <C>            <C>             <C>          <C>        <C>
Commercial loans.......    $19,312         $ 6,098       $ 3,054     $ 28,464     $21,402
Agricultural loans.....     19,407             935           169       20,511      24,405
Real estate secured
  loans:
  Commercial
    property...........      4,063          10,257        14,999       29,319       5,505
  Farmland.............      1,549           2,709         1,954        6,212       1,399
  Construction.........      9,957           2,769           778       13,504      14,856
  Residential..........      8,774           3,586        27,840       40,200      10,972
  Home equity lines....      2,086             124            29        2,239       1,776
                           -------         -------       -------     --------     -------
         Total real
           estate
           loans.......     26,429          19,445        45,600       91,474      34,508
Consumer...............      6,682           7,131         1,852       15,665       6,704
Other..................        937              86           333        1,356         908
                           -------         -------       -------     --------     -------
         Total loans...    $72,767         $33,695       $51,008     $157,470     $87,927
                           =======         =======       =======     ========     =======
Loans with fixed
  interest rates.......                                              $ 80,654
Loans with floating
  interest rates.......                                                76,816
                                                                     --------
                                                                     $157,470
                                                                     ========
 
<CAPTION>
                                   JUNE 30, 1998
                         -------------------------------------
                         DUE AFTER ONE      DUE
                         YEAR THROUGH      AFTER       TOTAL
                          FIVE YEARS     FIVE YEARS    LOANS
                         -------------   ----------   --------
                                (DOLLARS IN THOUSANDS)
<S>                      <C>             <C>          <C>
Commercial loans.......     $ 7,785       $ 3,882     $ 33,069
Agricultural loans.....         927           118       25,450
Real estate secured
  loans:
  Commercial
    property...........      11,851        13,052       30,408
  Farmland.............       2,759         2,202        6,360
  Construction.........       2,688         1,308       18,852
  Residential..........       3,792        27,723       42,487
  Home equity lines....         121            --        1,897
                            -------       -------     --------
         Total real
           estate
           loans.......      21,211        44,285      100,004
Consumer...............       7,166         1,600       15,470
Other..................          81           345        1,334
                            -------       -------     --------
         Total loans...     $37,170       $50,230     $175,327
                            =======       =======     ========
Loans with fixed
  interest rates.......                               $ 94,513
Loans with floating
  interest rates.......                                 80,814
                                                      --------
                                                      $175,327
                                                      ========
</TABLE>
 
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
 
                                       34
<PAGE>   36
 
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.
 
     The following table shows Columbia's loan loss experience for the periods
indicated:
 
<TABLE>
<CAPTION>
                                                                                           SIX MONTHS
                                                                                             ENDED
                                                   YEARS ENDED DECEMBER 31,                 JUNE 30,
                                      --------------------------------------------------   ----------
                                       1993      1994       1995       1996       1997        1998
                                      -------   -------   --------   --------   --------   ----------
                                                          (DOLLARS IN THOUSANDS)
<S>                                   <C>       <C>       <C>        <C>        <C>        <C>
Loans outstanding at end of period,
  net of unearned interest income...  $82,328   $91,024   $105,250   $119,223   $156,858    $174,644
                                      =======   =======   ========   ========   ========    ========
Average loans outstanding for the
  period............................  $78,919   $87,609   $ 97,087   $111,841   $140,891    $165,440
                                      =======   =======   ========   ========   ========    ========
Reserve for loan losses balance,
  beginning of period...............  $   843   $   992   $    955   $  1,072   $    995    $  1,639
                                      -------   -------   --------   --------   --------    --------
Loans charged off:
  Commercial........................      (27)     (193)       (34)       (30)        (7)        (86)
  Real estate.......................       --        --         --         --         --         (15)
  Agriculture.......................       --       (50)       (14)      (317)        --        (277)
  Installment loans.................      (13)      (19)       (16)       (21)       (19)        (65)
  Credit card and related
     accounts.......................       --        (7)       (55)        (9)       (14)        (18)
                                      -------   -------   --------   --------   --------    --------
          Total loans charged off...      (40)     (269)      (119)      (377)       (40)       (461)
                                      -------   -------   --------   --------   --------    --------
Recoveries:
  Commercial........................       18        19        107         26         21          10
  Real estate.......................       --        --         --         --         --          --
  Agriculture.......................        2         1          7          7         80          23
  Installment loans.................       11         4         31         20          1           1
  Credit card and related
     accounts.......................       --         5          3         --          1           4
                                      -------   -------   --------   --------   --------    --------
          Total recoveries..........       31        29        148         53        103          38
                                      -------   -------   --------   --------   --------    --------
Net (charge-offs) recoveries........       (9)     (240)        29       (324)        63        (423)
Provision charged to operations.....      158       203         88        247        581         450
                                      -------   -------   --------   --------   --------    --------
Reserve for loan losses balance, end
  of period.........................  $   992   $   955   $  1,072   $    995   $  1,639    $  1,666
                                      =======   =======   ========   ========   ========    ========
Ratio of net loans charged off
  (recovered) to average loans
  outstanding.......................    0.01%     0.27%      (0.03)%    0.29%      (0.04)%      0.26%
Ratio of reserve for loan losses to
  loans at end of period............    1.20%     1.05%      1.02%      0.83%      1.04%        0.95%
</TABLE>
 
     Columbia's reserve for loan losses was $1.67 million and $1.32 million as
of June 30, 1998 and 1997, respectively. The reserve for loan losses was $1.64
million, $995,000, and $1.07 million at December 31, 1997, 1996, and 1995,
respectively.
 
     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 1993,
Columbia's ratio of the reserve for loan losses to total loans has ranged from
0.83% to 1.20%. 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. From December
31, 1993 through June 30, 1998, nonperforming
 
                                       35
<PAGE>   37
 
loans to total loans have ranged from a low of 0.09% to a high of 1.07%.
Finally, Columbia's historical ratio of net charge-offs (recoveries) to average
outstanding loans illustrates its favorable loan charge-off and recovery
experience. In two of the five years from 1993 to 1997, annual loan recoveries
have actually exceeded charge-offs. For the remaining three years between
December 31, 1993 and 1997, net charge-offs ranged from 0.01% to 0.29% 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 six months ended June 30, 1998, Columbia recognized $461,000 in
loan losses and $38,000 in recoveries. One large loss of $206,000, net of
recoveries, contributed significantly to this increase over the prior five
years. Although management worked with the borrower to establish a viable
repayment plan, the loan, which was identified by Columbia for its credit
weaknesses at the time Columbia acquired Klickitat Valley Bank, was ultimately
recognized as a loss. Other charge-offs recorded in 1998 were not as significant
and were consistent with Columbia's historical experience in view of the growth
in its loan portfolio. Management expects its current loan underwriting,
oversight and collection policies to promote high grant quality and limit loan
losses. These policies include aggressive action that has been recently taken to
limit credit losses by lowering lending authorities, when and if appropriate. As
part of these enhanced policies, Columbia has hired additional staff to support
credit administration functions. Therefore, management believes its charge-off
and recovery experience for the remainder of 1998 will be comparable to that of
prior years.
 
     The following table presents information with respect to nonperforming
loans and other assets:
 
<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                     -----------------------------------------------   JUNE 30,
                                                      1993      1994      1995      1996      1997       1998
                                                     -------   -------   -------   -------   -------   --------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                                  <C>       <C>       <C>       <C>       <C>       <C>
Loans on nonaccrual status -- greater than 70
  days.............................................  $    51   $    68   $   308   $   229   $ 1,041    $1,145
Loans past due -- greater than 90 days.............       20       118        60        30       414        13
Restructured loans.................................       --        --        --        --        --       716
                                                     -------   -------   -------   -------   -------    ------
         Total nonperforming loans.................       71       186       368       259     1,455     1,874
Other real estate owned............................      457         5        --        --        --        --
                                                     -------   -------   -------   -------   -------    ------
         Total nonperforming assets................  $   528   $   191   $   368   $   259   $ 1,455    $1,874
                                                     =======   =======   =======   =======   =======    ======
Allowance for loans losses.........................  $   992   $   955   $ 1,072   $   995   $ 1,639    $1,666
Ratio of total nonperforming assets to total
  assets...........................................     0.33%     0.12%     0.21%     0.04%     0.63%     0.74%
Ratio of total nonperforming loans to total
  loans............................................     0.09%     0.20%     0.35%     0.21%     0.93%     1.07%
Ratio of allowance for loan losses to total
  nonperforming assets.............................   187.88%   500.00%   291.30%   384.17%   112.65%    88.90%
</TABLE>
 
     Columbia has adopted a policy for placement of loans on nonaccrual status
that is, in management's opinion, more stringent than that of most banks. Its
policy requires that all loans must be placed on nonaccrual status after they
become 70 days past due unless otherwise formally waived. This compares to what
management believes is an industry standard of 90 days. 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, 1998, totaled
approximately $1.15 million, compared to $1.04 million at December 31, 1997, and
$229,000 at the end of 1996.
 
     In 1998, Columbia adopted procedures to identify and monitor loans that
have had their original terms restructured to accommodate borrowers' financial
needs. Loan revisions and modifications are commonly provided to meet the credit
needs of borrowers in weakened financial condition and to enhance ultimate
collection. As of June 30, 1998, Columbia identified eight loans totaling
$716,000 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 both June 30, 1998 and December 31, 1997, Columbia had no assets in the
other real estate owned ("OREO") category, which represents assets held through
loan foreclosure or recovery activities.
 
                                       36
<PAGE>   38
 
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:
 
<TABLE>
<CAPTION>
                                       YEAR ENDED DECEMBER 31,         YEAR ENDED DECEMBER 31,        SIX MONTHS ENDED JUNE 30,
                                                1996                            1997                            1998
                                    -----------------------------   -----------------------------   -----------------------------
                                    AVERAGE    INTEREST   AVERAGE   AVERAGE    INTEREST   AVERAGE   AVERAGE    INTEREST   AVERAGE
                                    BALANCE    EXPENSE     RATE     BALANCE    EXPENSE     RATE     BALANCE    EXPENSE     RATE
                                    --------   --------   -------   --------   --------   -------   --------   --------   -------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                 <C>        <C>        <C>       <C>        <C>        <C>       <C>        <C>        <C>
Interest-bearing checking.........  $ 66,856    $2,238     3.35%    $ 79,134    $2,645     3.34%    $ 85,992    $1,420     3.30%
Savings...........................    26,986       842     3.12%      30,818     1,172     3.80%      25,292       421     3.33%
Time deposits.....................    45,506     2,604     5.72%      43,217     2,268     5.25%      50,847     1,365     5.37%
                                    --------    ------     ----     --------    ------     ----     --------    ------     ----
        Total interest-bearing
          deposits................   139,348    $5,684     4.08%     153,169    $6,085     3.97%     162,131    $3,206     3.95%
                                                ======     ====                 ======     ====                 ======     ====
        Total noninterest-bearing
          deposits................    28,328                          38,299                          42,069
                                    --------                        --------                        --------
        Total noninterest and
          noninterest-bearing
          deposits................  $167,676                        $191,468                        $204,200
                                    ========                        ========                        ========
</TABLE>
 
     Total deposits increased from December 31, 1997, to June 30, 1998, by
$16.85 million, or 8.36%. Management attributes this increase to Columbia's
ongoing marketing efforts and to continued customer dissatisfaction as a result
of the perceived declining service levels provided by super-regional bank
competitors. Increases occurred in all four deposit categories:
noninterest-bearing deposits (5.50% increase), interest-bearing demand deposits
(1.29% increase), savings accounts (13.99% increase), and time deposits (21.35%
increase).
 
     At December 31, 1997, total deposits were $201.57 million, an increase of
$22.82 million or 12.77%, from total deposits of $178.74 million at December 31,
1996. Total deposits in 1996 increased by 12.51% over 1995. Deposit growth in
1997 and 1998 was due to a combination of pricing strategies, increased
marketing, and increased emphasis on implementing a sales culture within the
branches. The growth in deposit accounts has primarily been in interest-bearing
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 June 30, 1998, core deposits accounted for 22.40% of
total deposits, down slightly from 23.01% as of December 31, 1997.
 
     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 June 30, 1998, total
interest-bearing deposit accounts were $169.49 million, an increase of $14.30
million, or 9.22%, from December 31, 1997. For the one-year period June 30, 1997
to June 30, 1998, interest-bearing deposit accounts grew by 8.96%, from $155.56
million to $169.49 million. Increases were strong in all interest-bearing
deposit categories, including savings accounts, time deposits, and IRAs.
Interest-bearing demand accounts increased $12.83 million, or 17.66%, from
December 31, 1996 to 1997, and $12.26 million, or 20.29%, from 1995 to 1996. The
growth in these deposits has, in management's opinion, been helped by continued
customer perceptions of declining service levels provided by super-regional bank
competitors.
 
     Columbia is not dependent on brokered deposits or high-priced time
deposits. At June 30, 1998, time certificates of deposits in excess of $100,000
totaled $12.24 million, or 5.60% of total outstanding deposits, compared to
$8.94 million, or 4.43%, of total outstanding deposits at December 31, 1997,
$12.21 million, or 6.83%, of total outstanding deposits at December 31, 1996,
and $13.94 million, or 8.77%, of total outstanding deposits at December 31,
1995.
 
                                       37
<PAGE>   39
 
     The following table sets forth, by time remaining to maturity, all time
certificates of deposit accounts outstanding at June 30, 1998:
 
<TABLE>
<CAPTION>
                                                         (IN THOUSANDS)
<S>                                                      <C>
  Three months or less.................................     $15,886
  Over three through six months........................      20,176
  Over six months through twelve months................      13,293
  Over twelve months...................................       7,612
                                                            -------
                                                            $56,967
                                                            =======
</TABLE>
 
SHORT-TERM BORROWINGS
 
     The following table sets forth certain information with respect to
Columbia's Federal Home Loan Bank of Seattle borrowings as of December 31, 1995,
1996, and 1997, and June 30, 1998.
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                         --------------------------    JUNE 30,
                                                          1995      1996      1997       1998
                                                         ------    ------    ------    --------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                                      <C>       <C>       <C>       <C>
Amount outstanding at end of period....................  $1,200    $  600    $4,600     $7,300
Weighted average interest rate at end of period........    5.42%     5.68%     5.89%      5.61%
Maximum amount outstanding at any month-end and during
  the year.............................................  $3,581    $1,200    $4,600     $7,600
Average amount outstanding during the period...........  $2,341    $  813    $2,781     $6,466
Average weighted interest rate during the period.......    6.15%     5.86%     5.80%      5.60%
</TABLE>
 
SHAREHOLDERS' EQUITY
 
     Shareholders' equity increased $1.01 million during the first half of 1998.
Shareholders' equity at June 30, 1998, was $22.57 million compared to $21.56
million at December 31, 1997. This increase reflects net income and
comprehensive income of $2.20 million, $195,000 in exercised stock options, and
sales of common stock of $234,000. These additions to equity were partially
offset by an increase in ESOP shareholders' equity subject to put options of
$921,000 and cash dividends paid or declared of $694,000. The ESOP shareholders'
equity subject to put option have been reclassified as debt instruments since,
by law, Columbia must, if requested to do so, reacquire plan shares from
employee participants because shares of Columbia's stock have not been
marketable on an active stock market or market system. If Columbia's Common
Stock becomes listed on the Nasdaq National Market, the ESOP shareholders'
equity subject to put option will be reclassified to shareholders' equity.
Columbia has applied for listing on the Nasdaq National Market.
 
     Dividends declared and paid were $0.12 per share in 1997, $0.13 per share
in 1996, and $0.08 per share in 1995. Dividends in 1996 exceeded those for 1997
as a result of a change in Columbia's dividend policy from annual to quarterly
payments and a special $.07 per share dividend paid to shareholders following
Columbia's acquisition of Klickitat Valley Bank in 1996.
 
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
 
                                       38
<PAGE>   40
 
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 June 30, 1998, 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.
 
<TABLE>
<CAPTION>
                                                                  JUNE 30, 1998
                                                  ----------------------------------------------
                                                  VARIABLE    LESS THAN    ONE YEAR
                                                    RATE      ONE YEAR     OR LONGER     TOTAL
                                                  --------    ---------    ---------    --------
                                                              (DOLLARS IN THOUSANDS)
<S>                                               <C>         <C>          <C>          <C>
ASSETS
Investments.....................................  $  6,350    $  6,429     $ 27,192     $ 39,971
Loans...........................................    61,861      31,586       80,701      174,148
                                                  --------    --------     --------     --------
          Total assets..........................    68,211      38,015      107,893      214,119
LIABILITIES
Core deposits...................................   112,537      37,481       56,835      206,853
Jumbo CDs.......................................        --      11,995          245       12,240
Borrowings......................................     7,918          --          300        8,218
                                                  --------    --------     --------     --------
          Total liabilities.....................   120,455      49,476       57,380      227,311
                                                  --------    --------     --------     --------
                                                   (52,244)    (11,461)      50,513      (13,192)
                                                  --------    --------     --------     --------
Net cumulative position.........................  $(52,244)   $(63,705)    $(13,192)
                                                  ========    ========     ========
Cumulative Gap as a percent of assets...........    (20.64)%    (25.17)%      (5.21)%
                                                  ========    ========     ========
</TABLE>
 
     The net cumulative Gap position is slightly negative since more liabilities
than assets appear to reprice during the next year. However, this exposure to
increasing rates is mitigated by "sticky" deposit rates (not expected to reprice
rapidly in increasing rate environment) and a higher than normal level of
short-term cash (not included in rate sensitive assets). In addition, 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.
 
     Although the cumulative Gap position appears slightly negative as of June
30, 1998, management believes that Columbia is somewhat asset sensitive and has
relatively low interest rate risk. 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. See "Risk Factors -- Interest Rate Risk."
 
     Columbia's sensitivity to gains or losses in future earnings due to
hypothetical decreases or increases in interest rates is as follows:
 
<TABLE>
<CAPTION>
 INCREASE OR     FINANCIAL IMPACT
 DECREASE IN          ON NET
INTEREST RATES   INTEREST MARGIN
--------------   ----------------
<S>              <C>
   1   %             $419,000
   2   %             $837,000
</TABLE>
 
                                       39
<PAGE>   41
 
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 June 30, 1998, these liquid assets totaled $52 million or
20.71% of total assets as compared to $51 million or 21.98% of total assets at
December 31, 1997. Another source of liquidity is Columbia's ability to borrow
from the Federal Home Loan Bank of Seattle, of which Columbia is a member, and
other correspondent banks. At June 30, 1998, credit limits through these
institutions totaled approximately $50 million.
 
     The analysis of liquidity also includes a review of the changes that appear
in the consolidated statements of cash flows for the first six months of 1998.
The statement of cash flows includes operating, investing, and financing
categories. Operating activities include net income of $2.22 million, which is
adjusted for noncash 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 June 30, 1998, Columbia had outstanding commitments to make loans of
$41.84 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; however there can
be no assurance in this regard. See "Disclosure Regarding Forward-Loading
Statements," Risk Factors -- Management of Growth," and "Risk
Factors -- Competition."
 
CAPITAL
 
     The Federal Reserve Board and the Federal Deposit Insurance Corporation
have established minimum requirements for capital adequacy for bank holding
companies and member banks. The requirements address both risk-based capital and
leveraged capital. The regulatory agencies may establish higher minimum
requirements if, for example, a corporation has previously received special
attention or has a high susceptibility to interest rate risk.
 
     The following reflects Columbia's various capital ratios at June 30, 1998,
and December 31, 1997, as compared to regulatory minimums:
 
<TABLE>
<CAPTION>
                          AT DECEMBER 31, 1997    AT JUNE 30, 1998    REGULATORY MINIMUM
                          --------------------    ----------------    ------------------
<S>                       <C>                     <C>                 <C>
Tier I capital..........         13.70%                13.26%               4.00%
Total risk-based
  capital...............         14.70%                14.14%               8.00%
Leverage ratio..........         10.60%                10.50%               3.00%
</TABLE>
 
                                       40
<PAGE>   42
 
SUBSEQUENT EVENTS
 
     Certain significant events which occurred or are planned to occur
subsequent to June 30, 1998, and which are discussed more fully elsewhere in
this Prospectus, are:
 
     Acquisition of Valley. Columbia entered into a definitive agreement
effective August 3, 1998 to acquire Valley, a community bank holding company
with one bank branch in McMinnville, Oregon. See "Business -- Pending
Acquisition of Valley Community Bancorp."
 
     Land Acquisition and Planned Construction of Second Bend, Oregon Branch. In
July, 1998 Columbia entered into an agreement for the purchase of land and the
construction of a second branch in Bend, Oregon. See "Business -- Present
Expansion Plans Through New Branch Openings -- Planned Branch Opening in Bend,
Oregon."
 
     Opening of New Branches in Umatilla County, Oregon. Subsequent to June 30,
1998, Columbia began planning to open two new branches in Umatilla County,
Oregon. A branch in Hermiston, Oregon opened in September 1998. Management
anticipates an additional branch will be opened in Pendleton, Oregon in the
fourth quarter of 1998 or early in 1999. See "Business -- Present Expansion
Plans Through New Branch Openings -- Hermiston and Pendleton, Umatilla County,
Oregon."
 
     2-for-1 Stock Split. Columbia's Board of Directors declared a 2-for-1 stock
split effective September 11, 1998 to shareholders of record on September 2,
1998.
 
                                       41
<PAGE>   43
 
                                    BUSINESS
 
INTRODUCTION
 
     Columbia is a bank holding company headquartered in The Dalles, Oregon. Its
wholly-owned subsidiary, CRB, is a nine-branch, full service community banking
organization. According to information published by the State of Oregon, if the
acquisition of Valley had been completed as of June 30, 1998, Columbia would
have been ranked as the 4th largest bank based in Oregon as measured by total
pro forma assets of $293.96 million. Columbia offers a broad range of financial
services to its customers, primarily small and medium sized businesses, farmers,
and individuals. Columbia's seven Oregon branches serve the northern and eastern
Oregon communities of The Dalles, Hood River, and Hermiston and the central
Oregon communities of Madras, Redmond, and Bend. Columbia's two south central
Washington branches serve the communities of Goldendale and White Salmon. Valley
operates from one location in McMinnville, Oregon, 36 miles southwest of
metropolitan Portland.
 
     As of June 30, 1998, Columbia had total assets of $253.11 million, total
deposits of $218.42 million, and shareholders' equity of $22.57 million.
Columbia's net income for the year ended December 31, 1997, was $3.89 million,
which was Columbia's tenth consecutive year of increasingly higher net income.
For the year ended December 31, 1997, Columbia's return on average assets was
1.77% and return on average equity was 19.55%. Since the year ended December 31,
1993, it has increased earnings by an average of 17.83% per year and increased
its return on average assets from 1.38% in 1993 to 1.77% in 1997. During the
same period, Columbia has achieved a return on average equity greater than
15.64% each year while sustaining high asset quality. Columbia has consistently
performed in the top quartile when comparing its return on average equity to its
national peer group comprising over 900 banks with assets of between $100 and
$300 million and multiple branches located in non-metropolitan areas.
 
     From its origins as a one-branch bank in The Dalles, Columbia has grown as
a result of merger and acquisition activity, new branch openings, the
introduction of new business lines, and the expansion and cross-marketing of its
existing products. In 1995 CRB merged with Juniper Banking Company ("Juniper"),
and in 1996 Columbia acquired Washington-based Klickitat Valley Bank
("Klickitat"). Further growth came from its Hood River and Bend branch openings,
and from the expansion in 1997 of home mortgage services. In 1998, Columbia
signed an agreement to acquire Valley, opened a new branch in Hermiston, Oregon,
and announced the planned opening of a branch in Pendleton, Oregon in late 1998
or early 1999 and of a second branch and business lending group in Bend, Oregon
in 1999.
 
     The markets in which Columbia operates are relatively economically diverse,
and therefore pose both opportunities and challenges to a community bank
operating in all of these economies. Columbia's approach to meeting the
challenge is to staff its branches and business groups with managers who are
established in their communities and have developed a loyal customer following.
Columbia's senior management, in conjunction with the branch managers,
individually examines each branch to determine which products and services are
best suited for that geographic region. These 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,
accurate, and friendly personal banking services. The components of Columbia's
business strategy are outlined below:
 
     Successfully operate in non-metropolitan regions. In contrast to the
present strategies of certain major regional banks, which have closed branches
and reduced service levels in Columbia's identified communities, 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
 
                                       42
<PAGE>   44
 
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 CRB's
management function to the branch level, Columbia believes it can make business
decisions regarding customers more quickly and with more knowledge than its
major banking competitors. Columbia believes it is able to profitably attract
and retain customers by providing and delivering such products and services
tailored to their individual needs, and by delivering them with a high degree of
personal attention.
 
     Maintain high asset quality. Columbia seeks to maintain high asset quality
through a program that includes prompt and strict adherence to established
credit policies, training and supervision of lending officers, and periodic
professional independent loan review. 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. For the years ended December 31, 1995, 1996, 1997, and
for the six months ended June 30, 1998, Columbia's net charge-offs (recoveries)
to average loans were (0.03)%, 0.29%, (0.04)%, and 0.26%, respectively.
 
     Seize merger and acquisition opportunities. In 1995, CRB merged with
Juniper of central Oregon, and in 1996 Columbia acquired Klickitat of south
central Washington. After both transactions, Columbia was able to provide the
same or improved levels of community banking products and services in these new
market areas. In August 1998, Columbia entered into a definitive agreement to
acquire McMinnville-based Valley. 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
pending acquisition will be Columbia's first entrance into Oregon's most
populous region, the Willamette Valley. Management believes there are
significant future growth opportunities in McMinnville and its surrounding
communities.
 
     Continue to expand through new branches and new products. Columbia has
grown through the establishment of new branches in Hood River and Bend, Oregon
and more recently through the opening in September 1998 of a branch in
Hermiston, Oregon. Additional branches in central and eastern Oregon are planned
in order to take advantage of growth opportunities and to leverage existing
nearby operations. In addition, Columbia's banking products, including its loan
programs, and other services are designed to be responsive to the needs of local
community businesses and individual customers. For example, in 1997 Columbia
recognized an opportunity in rapidly growing central Oregon, and established a
mortgage lending group in Bend to originate and sell residential mortgages.
Columbia also offers investment products and services through its affiliation
with the Primevest Financial Services, Inc. brokerage organization, through
which it offers stocks, bonds, mutual funds, IRAs, retirement plans, and estate
planning. Columbia's products and services are designed to both increase its
customer base and to enhance cross-selling opportunities.
 
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 CRB since the early 1980s.
Collectively, Columbia's five-member senior management team has over 113 years
of banking experience, much of it gained through years of service at CRB. See
"Management."
 
     CRB's first branch expansion was a satellite branch facility which 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.
 
                                       43
<PAGE>   45
 
     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 and with a branch in
White Salmon. As CRB did with Juniper, Columbia retained the "Klickitat Valley
Bank" name, and added, during 1996 and 1997, four experienced former Klickitat
directors to the Columbia Board. Klickitat was a natural acquisition candidate
for Columbia. Klickitat's White Salmon branch was within a few miles of CRB's
Hood River branch across the Columbia River, and there were and are multiple
economic ties between these two communities. Klickitat Valley Bank was
Goldendale's only community bank, and this community's agriculture-based economy
fit well with CRB's lending expertise.
 
     In late 1996 CRB opened its first branch in Bend, Oregon under the "Juniper
Banking Company" name. Bend's proximity to CRB's existing Redmond and Madras
branches, and Bend's economic growth and increasing population, made this a
natural branch extension for Columbia. Bend, with a population of over 34,000 as
of July 31, 1997, 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 affords
significant opportunities for growth.
 
     Activities in 1997. In 1997, Columbia's growth came internally from
increased loans and deposits at its branches. Loan growth at the new Bend branch
was significant, with assets increasing 239% over the last 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, and discussed below.
 
PRESENT EXPANSION PLANS THROUGH NEW BRANCH OPENINGS
 
     Hermiston and Pendleton, 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. Initial staffing at
the branch consists of four loan officers and three support personnel, many of
whom have roots in the Hermiston community. The new branch operates from 1,500
square feet of leased space south of downtown Hermiston. Columbia is in the
process of purchasing land for the construction of a permanent Hermiston branch.
The branch offers full-service community banking services, including loans to
local commercial and agricultural-based business. Prior to the formal opening of
the Hermiston facility as a full-service branch, Columbia's Hermiston loan
officers were developing loan business, and had generated $10.7 million in loans
and loan commitments as of September 10, 1998.
 
     Columbia plans to open a branch in nearby Pendleton, which is 26 miles east
of Hermiston and is the largest town in eastern Oregon, with a population of
over 16,000. Columbia has hired a manager for the proposed new branch who has
strong ties to the Pendleton community and 25 years experience with one of
Columbia's super-regional bank competitors. Columbia plans to acquire either
land or an existing building in Pendleton for this branch. Management
anticipates that this branch will be opened during the fourth quarter of 1998 or
in early 1999.
 
     Hermiston and Pendleton represent the major population bases of Umatilla
County in eastern Oregon. The area's climate supports cattle ranching, and field
crops such as wheat, onions, potatoes, and hay. In addition, there is a growing
service and small business economy in the region based on expanding government
employment and the recent construction of a Wal-Mart distribution center outside
of Hermiston. Management believes that the area's relative proximity to The
Dalles, its small town, rural-based atmosphere, and its economic prospects make
this expansion an ideal fit with Columbia's approach to service and its lending
expertise.
 
                                       44
<PAGE>   46
 
     Planned Branch Opening in Bend, Oregon. Columbia plans to open a second
branch in Bend, Oregon in the summer of 1999. Columbia has entered into a
binding earnest money agreement to purchase land in the western part of Bend in
the upscale Shevlin Business Park, an office park development. The purchase
price for the land is $516,000, and completion of the purchase depends on
several factors, including the approval of building plans for the construction
of the branch office. Columbia anticipates total cost for construction of a new
Bend branch will approximate $2.30 million, exclusive of land costs.
 
     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.
When complete, the new facility will house a full-service branch plus a new
business lending group. See "Business -- Consumer Products and Services" and
"Business -- Loan Products for Commercial, Agricultural, and Other Business
Customers."
 
     There can be no assurance that the planned branch openings described above
will be completed, or that Columbia will receive the anticipated benefit of such
openings. See "Disclosure Regarding Forward-Looking Statements" and "Risk
Factors -- Management of Growth."
 
PENDING ACQUISITION OF VALLEY COMMUNITY BANCORP
 
     Columbia's most recent proposed acquisition-based expansion is its pending
purchase of Valley (the "Acquisition"). On August 3, 1998, Columbia and Valley
entered into an Agreement and Plan of Share Exchange under which Columbia shall
acquire 100% of Valley's common stock for a cash purchase price of $15.10
million.
 
     Description of Valley. Valley is an Oregon bank holdingcompany which was
organized in 1984. Its wholly-owned Oregon bank subsidiary, Valley Community
Bank, was chartered in 1982, and is also a member of the Federal Reserve System.
Valley owns, and operates from, a 9,600 square foot, two-story building close to
downtown McMinnville, Oregon, which is 36 miles southwest of Portland in
Oregon's Willamette Valley. Valley has 14.5 full-time equivalent employees. Most
of its data processing work is handled by Datatech of Oregon, Inc., a data
processing company owned by several Oregon community banks, including Valley and
Columbia. See "Business -- The Year 2000 Issue."
 
     Valley's loan and deposit business is largely concentrated in and around
McMinnville, a city of over 23,000 located in Yamhill County, Oregon. Despite
its proximity to Portland, Oregon's largest metropolitan area, McMinnville
maintains a small-town atmosphere and character. The diverse agricultural
economy of Yamhill County, with a population of over 79,000, produces wine
grapes, wheat, grass seed, nuts, berries, and nursery products. Valley's
customer base also includes small businesses, professionals, and a growing
population of retirees. Agricultural lending constituted 23.55% of Valley's loan
portfolio as of June 30, 1998. Other components of the loan portfolio as of that
date were real estate loans, 57.20%, commercial and industrial loans, 16.08%,
and consumer loans, 3.17%. On June 30, 1998, Valley had total deposits of $30.82
million and total assets of $36.60 million. For the five year period ending
December 31, 1997, Valley's return on assets exceeded 2% each year, and its
return on equity exceeded 20% each year. In the July 1998 issue of the American
Bankers Association Journal, Valley ranked 33rd in the country among banks with
less than $100 million in assets for its five-year return on assets performance
as of December 31, 1997.
 
     The Acquisition Transaction. Columbia expects to complete the Acquisition
by early 1999. Closing is conditioned on approval from state and federal
regulatory authorities. Columbia does not believe any objections to the
Acquisition will be raised by these authorities. The Acquisition is also subject
to the satisfaction and accuracy of certain representations and warranties made
by the parties, the absence of litigation challenging the Acquisition, the
absence of any material adverse change in the operations and deposits of Valley,
and the affirmative vote of two-thirds of all shares of Valley common stock
entitled to be cast by Valley shareholders. The directors and executive officers
of Valley have agreed not to solicit offers for any transaction that would
interfere with the Acquisition. Under a termination fee provision, Columbia
could be liable to Valley, and Valley could be liable to Columbia, for a
termination fee if either party fails to complete the Acquisition for certain
specified reasons, including an intentional breach of various pre-closing
 
                                       45
<PAGE>   47
 
obligations. The termination fee ranges from $150,000 to a maximum of $500,000,
plus costs, depending on the nature of the breach.
 
     Columbia will account for the Acquisition by the purchase method of
accounting, under which assets and liabilities acquired or assumed will be
restated at fair value, and the excess of the purchase price over net assets
will be recorded as goodwill. Anticipated goodwill of approximately $9.21
million will be recognized when the transaction is completed and will be
amortized over 15 years. See "Unaudited Pro Forma Financial Statements."
 
     Columbia and Valley After the Acquisition. When the Acquisition is
complete, Valley shall be a wholly-owned subsidiary of Columbia. Valley's
banking subsidiary, Valley Community Bank, shall continue in operation in the
same location. Columbia intends to operate Valley as a separate subsidiary and
to continue using the "Valley Community Bank" name for at least one year from
the Acquisition date. Columbia's management believes the Acquisition is an
excellent strategic fit for Columbia, and presents a favorable opportunity to
increase Columbia's value and to diversify its customer base and loan portfolio,
especially in agricultural lending. The Acquisition provides Columbia with its
first entry into the Willamette Valley. Valley is the only community bank
located in McMinnville, and its personal service focus is compatible with
Columbia's. Columbia believes it has the administrative capacity and growth
management experience to make Valley an effective part of the existing Columbia
organization. Aside from hiring additional loan officers to assist Valley in
increasing its level of loans or from replacing retiring personnel, Columbia
does not believe significant personnel increases will be required for Valley's
continued operation. After the absorption of nonrecurring conversion costs,
Columbia's long-term earnings should improve as a result of efficiencies from
spreading current administrative overhead over a larger asset base without
additional personnel.
 
     There can be no assurance that the Acquisition will be consummated, that
Valley will be successfully integrated with the existing Columbia organization,
or that Columbia will receive the anticipated benefits of the Acquisition. See
"Disclosure Regarding Forward-Looking Statements," "Risk Factors -- Management
of Growth," and "Risk Factors -- Completion and Management of Valley Community
Bancorp Acquisition."
 
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 accounts generally earn interest 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, now 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 July 31, 1998, an additional 527 loans valued at
$55.42 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 CRB's Oregon and Washington
branches. It also offers wholesale and loan brokerage services throughout
Oregon, including some mortgage loan products and servicing support for certain
other Oregon banks. Approximately 60% of Columbia's mortgage business is
generated from its mortgage group and from Columbia's branches. The remaining
40% derives from relationships with mortgage brokers and other community banks.
The development of Columbia's mortgage
 
                                       46
<PAGE>   48
 
business illustrates, in management's opinion, Columbia's flexible and
aggressive approach to identifying and seizing growth opportunities.
 
     Investment Products. Through an arrangement with Primevest Financial
Services, Inc., ("Primevest"), a registered securities broker-dealer, Columbia
offers a wide range of financial products and services to consumers. A Primevest
Investment Center is maintained in Columbia's main branch in The Dalles. Ann
Marie Jelderks, a registered Primevest representative and a CRB Vice President,
markets stocks, mutual funds, traditional and Roth IRAs, SEPs, tax sheltered
annuities, life insurance, and other financial products to Columbia customers
and others in The Dalles and Hood River. Two other Primevest investment
consultants sell similar products in Columbia's central Oregon and south central
Washington territories. Primevest's representatives also offer retirement
planning services. Columbia receives a portion of the commissions generated by
financial product sales. Columbia plans to offer these products and services to
its new customer base in the Hermiston and planned Pendleton branches and, if
the acquisition is completed at Valley.
 
     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 four 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 has registered a CRB domain name for a planned Internet site,
and intends to begin offering on-line banking services within 18 months.
 
     Consumer Loans. Columbia provides loans to individual borrowers for a
variety of purposes, including secured and unsecured personal loans, home equity
and personal lines of credit, and motor vehicle loans.
 
     Senior Customer Services. Since a significant portion of Columbia's
consumer market consists of senior citizens, Columbia offers several special
products and programs aimed at this group. These include a reduced rate checking
account product for seniors, and special trips to the Oregon coast, the
Pendleton Roundup, an annual rodeo event, and other places and events. In
addition, Columbia's Primevest division markets retirement planning products and
investments to the senior customer group.
 
LOAN PRODUCTS FOR COMMERCIAL, AGRICULTURAL, AND OTHER BUSINESS CUSTOMERS
 
     Columbia has an experienced lending staff, which includes loan officers
with special expertise in small business and agricultural lending. Columbia's
loan officers also emphasize continuing contact with the business customer after
the loan is 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 continual
efforts 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 the loans finance accounts receivable, equipment and inventory
purchases, and 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 limited to 75% of the value of the
collateral. Columbia typically requires personal guarantees and 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 regular loan officers with this process. 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
 
                                       47
<PAGE>   49
 
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. Real
estate loans reflected in the loan portfolio are in large part loans made to
commercial customers that are secured by owner-occupied real property.
 
     Columbia's real estate loans are in large part loans to commercial
customers, farmers, and ranchers, which are secured by the properties used in
their businesses. The majority of these loans have a variable rate feature with
adjustment periods varying from one to five years. If loan repayment is
dependent on projected income, 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. See "Risk
Factors -- Credit Risk" and "Risk Factors -- Dependence on Local Economies."
 
     The following table sets forth certain information about Columbia's loan
portfolio as of September 2, 1998, classified by distribution among types of
borrowers. Management believes the distribution of Columbia's loan portfolio as
reported in this table is similar to its loan distribution of all other loans
equal to or greater than $200,000 at June 30, 1998, and December 31, 1997.
 
<TABLE>
<CAPTION>
                                                              OUTSTANDING   PERCENT OF
                                                                 LOANS      TOTAL LOANS
                                                              -----------   -----------
                                                               (DOLLARS IN THOUSANDS)
<S>                                                           <C>           <C>
Borrower classification for loans $200,000 or greater(1):
  Agriculture, forestry, and fishing........................   $ 30,513        16.87%
  Service...................................................     18,609        10.31
  Retail trade..............................................     12,214         6.75
  Construction..............................................      8,273         4.57
  Manufacturing.............................................      5,517         3.05
  Transportation and public utilities.......................      2,974         1.64
  Finance, insurance, and real estate.......................      2,411         1.33
  Wholesale trade...........................................      1,208         0.67
  Public administration.....................................        585         0.32
All other loans less than $200,000..........................     98,542        54.49
                                                               --------       ------
          Total outstanding loans...........................   $180,846       100.00%
                                                               ========       ======
</TABLE>
 
---------------
(1) Based on SIC industry codes
 
     Government-Assisted Loan Programs. Columbia's loan officers make loans to
small businesses and to farmers that are supported by guarantees issued by
various state and federal government agencies. Columbia is active in the SBA 7-A
and 504 programs, and in similar programs offered by the Farm Services Agency
(formerly the Farmers Home Administration) and by Oregon's state government.
Columbia has utilized these programs to serve customers who are expanding their
operations, venturing into new product lines, or constructing special use real
estate. The government guarantees a portion of these loans, which reduces risk
in Columbia's loan portfolio.
 
     Services to Non-Profits and Public Entities. Columbia offers a general
array of loan products to borrowers in the non-profit and public entity sector,
including city and county governments, together with special programs, such as
jumbo CDs and low-cost loan programs. Columbia also offers consumer services to
nonprofit and public sector employees, such as Columbia VISA card enrollment and
direct deposit services.
 
     Planned Business Lending Group in Bend. Columbia plans to open a second
branch facility in Bend, Oregon in 1999. In addition to housing a new
full-service branch, the facility will also contain a business
 
                                       48
<PAGE>   50
 
lending group staffed by experienced commercial loan officers. This new lending
group will focus on developing lending opportunities in Bend's rapidly growing
small business sector.
 
     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 reviews by its Loan Committee. In the case of particularly
large loan commitments or loan participations, loans are reviewed by the loan
committee of the Board of Directors. 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. See "Risk Factors -- Credit Risk."
 
OTHER PRODUCTS AND SERVICES FOR BUSINESS CUSTOMERS
 
     Columbia offers additional banking and other products to its business
customers.
 
     Deposit and Related Products. Columbia's business deposit products include
basic, regular, and interest-bearing checking accounts, merchant VISA and
MasterCard programs, and business money market and sweep accounts. Columbia also
offers check verification services to merchants allowing them the ability to
determine, on a 24-hour basis, whether a check drawn on a CRB account has
sufficient funds to cover the amount drawn.
 
     Investment Products. Columbia's affiliation with Primevest allows it to
offer financial products and services to Columbia's business customers as well
as to consumers. These include insurance and annuity products, and employee
retirement plan products such as SEP-IRAs and 401(k) plans.
 
     Accounts Receivable Purchasing. Columbia offers its business customers the
opportunity to obtain financing for their businesses through the sale of
accounts receivable. This program is offered by Columbia in collaboration with a
third-party vendor of accounts receivable management and collection software.
Under the program, Columbia purchases the accounts receivable for cash at a
discount, plus future charge sales on a daily basis. 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, and Umatilla Counties in Oregon and in Klickitat County in
Washington. Columbia makes loans in all of these counties and in adjacent
counties, including Sherman, Gilliam, and Crook counties in Oregon and Skamania
County in Washington. Many of its products and services, including investment
products through Primevest and mortgages through Columbia's mortgage group, are
offered and sold throughout Oregon and south central Washington.
 
     Columbia's ability to increase its market share in the communities it
serves is driven by a marketing plan consisting of several key components. A
principal objective is to create and foster a sales culture in each office.
Employees are trained to cross-sell, offering appropriate products and services
to existing customers and
 
                                       49
<PAGE>   51
 
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 bank 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. See "Risk
Factors -- Dependence on Local Economies."
 
     Columbia plans to sharpen its market focus in 1998 by ceasing the use of
certain assumed business names. CRB had retained the use of the assumed business
names "Juniper Banking Company" and "Klickitat Valley Bank" after its merger
with Juniper and its acquisition of Klickitat. CRB will cease using these names
in the fourth quarter of 1998, after which all CRB branches will do business
under the "Columbia River Bank" name. Columbia believes this change will bring
additional cohesiveness to the Columbia organization and should enhance name
awareness. The change is supported by Columbia employees, and Columbia does not
anticipate any material negative customer reaction. In management's opinion the
costs entailed by the change, primarily printing costs and signage changes, will
not be material.
 
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-regional financial institutions were approximately 67% of statewide
commercial bank deposits as of December 31, 1997. 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 intermediaires. These competitors may offer rates greater than
Columbia can or is willing to offer. Columbia competes for deposits by offering
a variety of deposit accounts at rates generally competitive with financial
institutions in the area.
 
     Columbia's competition for loans comes principally from commercial banks,
savings and loan associations, mortgage companies, finance companies, insurance
companies, credit unions, and other institutional lenders. An important
competitor for agricultural loans is Farm Credit Services, formerly known as the
Production Credit Association. Columbia competes for loan originations through
the level of interest rates and loan fees charged, its array of commercial and
mortgage loan products, and the efficiency and quality of services provided to
borrowers. Lending activity can also be affected by the availability of lendable
funds, local and national economic conditions, current interest rate levels, and
loan demand. As described above, Columbia competes with the larger commercial
banks by emphasizing a community bank orientation and efficient personal service
to customers. See "Business -- Business Strategy."
 
     Other single or multi-branch community banks, of which there are many in
Oregon and Washington, present a 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.
 
                                       50
<PAGE>   52
 
     A potential new source of competition is the array of on-line banking
services offered by traditional commercial banks and other financial service
providers, and by newly formed companies that use the Internet to advertise and
sell competing products. However, Columbia's management believes that for the
foreseeable future its customers will continue to want the personal,
locally-based services that it offers. Columbia also plans to begin offering
some on-line banking services to its customers within the next 18 months. See
"Risk Factors -- Competition Due to Technological Change."
 
THE YEAR 2000 ISSUE
 
     The Year 2000 creates challenges with respect to the automated systems used
by financial institutions and other companies. Many software programs are not
able to recognize "2000" as a calendar year, since most programs and systems
were designed to store calendar years in the 1900s by assuming the "19" and
storing only the last two digits of the year. For example, these automated
systems would recognize a year stored as "00" as the year "1900," rather than as
the Year 2000. If these automated systems are not appropriately re-coded,
updated, or replaced before the Year 2000, they will likely confuse data, crash,
or fail in some manner. In addition, many software programs and automated
systems will fail to recognize the Year 2000 as a leap year. The issue is not
limited to computer systems. Year 2000 issues will potentially affect every
system that has an embedded microchip, such as automated teller machines,
elevators, and vaults.
 
     The Year 2000 challenge raises special concerns for financial institutions,
since many transactions, such as interest accruals and payments, are date
sensitive. It also may affect the operations of third parties with whom Columbia
and its subsidiaries do business, including Columbia's vendors, suppliers,
regulators, utility companies, and customers. See "Risk Factors -- The Year 2000
Issue."
 
     Columbia's State of Readiness. Columbia is committed to addressing these
Year 2000 challenges in a prompt and responsible manner and has dedicated
resources to do so. Management has completed an assessment of its automated
systems and has implemented a plan to resolve these issues, including purchasing
appropriate computer technology. Columbia's Year 2000 compliance plan ("Y2K
Plan") has five phases. These phases are (1) project management, (2) awareness,
(3) assessment, (4) testing, and (5) remediation and implementation. Columbia
has substantially completed phases (1) through (3), although appropriate
follow-up activities are continuing to occur, and Columbia is currently involved
in the testing phase of the Y2K Plan. Expected completion of phase 5 will be
June 30, 1999. However, Columbia will continue to monitor its systems for
compliance and state of readiness.
 
     Project Management. Columbia has assigned primary responsibility for Year
2000 project management to CRB's Chief Administrative Officer. Columbia has also
formed a Year 2000 compliance committee, consisting of appropriate
representatives from its critical operational areas, to assist the Chief
Administrative Officer in implementing the Y2K Plan. In addition, Columbia
provides periodic reports to its Board of Directors in order to assist them in
overseeing Columbia's Year 2000 readiness.
 
     Awareness. Columbia has completed several projects designed to promote
awareness of Year 2000 issues throughout its organization and its customer base.
These projects include mailing information brochures to deposit and loan
customers, providing training for lending officers, and other staff, and
assigning a compliance officer to answer customer questions and to respond to
vendor, customer, and shareholder inquiries. Additionally, Columbia's branch
personnel have hosted awareness seminars for their business customers and the
communities they serve.
 
     Assessment. Assessment is the process of identifying all mission-critical
applications that could potentially be negatively affected by dates in the Year
2000 and beyond. Columbia's assessment phase is substantially complete. Systems
examined during this phase included telecommunications systems, account-
processing applications, and other software and hardware used in connection with
customer accounts. Columbia's operations, like those of many other companies,
are intertwined with the operations of certain of its business partners.
Accordingly, Columbia's operations could be materially affected if the
operations of those companies who provide Columbia with mission critical
applications, systems, and services are materially affected. For example,
Columbia depends upon vendors who provide it with equipment, technology, and
software in connection with its business operations. Failure of these software
vendors to achieve Year 2000
 
                                       51
<PAGE>   53
 
readiness could substantially affect the operations of Columbia. In addition,
lawsuits and other financial challenges materially affecting the financial
viability of these vendors could materially affect Columbia. In response to this
concern, Columbia has identified and contacted those vendors who provide
mission-critical applications. Columbia is assessing their Year 2000 compliance
efforts and will continue to monitor their progress as the Year 2000 approaches.
 
     Testing. Updating and testing Columbia's mission-critical automated systems
is currently underway. All of these systems will be tested to verify that dates
in the Year 2000 are being appropriately recognized and processed. Testing of
Columbia's current mission-critical automated systems will be substantially
complete by the close of 1998. Testing of renovations and new systems will
continue throughout 1998 and 1999.
 
     Remediation and Implementation. This phase involves obtaining and
implementing renovated software applications provided by vendors. As these
applications are received and implemented, Columbia will test them for Year 2000
compliance. This phase also involves upgrading and replacing automated systems
where appropriate. This activity will continue throughout 1998 and 1999.
Although this phase will be substantially complete before the end of 1999,
additional follow-up activities may take place in the Year 2000 and beyond.
 
     Certain important data processing services, including overnight processing
of debits and credits, are provided to CRB by Datatech of Oregon, Inc.
("Datatech"), an Oregon corporation. Datatech is owned by CRB and six other
Oregon community banks, including Valley Community Bank, Valley's wholly-owned
bank subsidiary. Datatech provides data processing services only to its
shareholder-banks ("Datatech Banks"). As a provider of services that could be
negatively affected by the Year 2000 problem, and that could therefore have a
negative impact on CRB and Valley Community Bank, the Datatech Banks have taken
the following steps to address Datatech's Year 2000 readiness:
 
     Project Management. Representatives of the Datatech Banks sit on Datatech's
Board of Directors, which oversees Datatech's Year 2000 efforts. Datatech makes
periodic reports to its Board of Directors in order to assist the Board in its
oversight process.
 
     Assessment. The Datatech Banks assess Datatech's Year 2000 compliance
efforts on an ongoing basis. The Datatech Banks have requested Datatech to
prepare and submit a comprehensive action plan detailing Datatech's plans for
and progress toward addressing the Year 2000 problems, including Datatech's
progress in obtaining Year 2000 reports from its own vendors.
 
     Testing. Datatech's Year 2000 compliance testing for its hardware and
software systems is ongoing. All of its mission-critical systems will be tested
to verify that dates in the year 2000 are being appropriately recognized and
processed. Testing of renovations and new systems will continue throughout 1998
and 1999.
 
     Renovation and Implementation. Datatech expects to upgrade and replace
automated systems where appropriate. This activity will continue throughout 1998
and 1999. Although this phase will be substantially complete before the end of
1999, additional follow-up activities may take place in the Year 2000 and
beyond.
 
PROPERTIES
 
     Five of Columbia's branch facilities in Hood River, The Dalles, Redmond,
Bend, and Madras, Oregon, as well as its two full-service branch facilities in
south central Washington, are housed in properties owned by Columbia. Columbia
leases the space for its in-store facility in the Safeway store in The Dalles.
Columbia has plans to double the size of the Hood River branch, from 4,000 to
8,000 square feet, and to renovate and add several hundred square feet to the
Redmond branch. The planned second branch in the Shevlin Business Park in West
Bend is in the development stage, and will be wholly owned by Columbia when
construction is complete. The new branch in Hermiston will initially occupy
leased space, and Columbia has purchased land in Hermiston on which it will
construct a permanent branch facility. See "Business -- Present Expansion Plans
Through New Branch Openings." All of Columbia's presently owned full-service
branches have drive-up facilities and automated teller machines. Columbia's
mortgage group operates from the second floor of Columbia's present Bend branch.
 
                                       52
<PAGE>   54
 
     The following sets forth certain information regarding Columbia's branches.
 
<TABLE>
<CAPTION>
                                                                              DATE
                                                                            OPENED OR
          CITY AND COUNTY                   ADDRESS           SQUARE FEET   ACQUIRED    OCCUPANCY STATUS
          ---------------                   -------           -----------   ---------   ----------------
<S>                                  <C>                      <C>           <C>         <C>
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         4,000        1993            Owned
Madras Branch, Jefferson County....  624 SW Fourth Street        7,400        1995            Owned
Redmond Branch, Deschutes County...  434 North Fifth Street      4,000        1995            Owned
Bend Branch, Deschutes County......  1701 NE Third Street        8,306        1996            Owned
Hermiston Branch, Umatilla
  County(2)........................  1055 South Highway 395      1,500        1998           Leased
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
</TABLE>
 
---------------
(1) Leased space in a Safeway supermarket. Lease term expires September 2000.
 
(2) Leased on a month-to-month basis pending construction of new facility.
 
     Columbia maintains its administrative offices in 1,900 square feet of
leased office space in The Dalles. This space is adequate presently but will not
be suitable over the longer term, and Columbia is presently searching for
permanent space in The Dalles for its administrative operations. Columbia is
committed to keeping its administrative headquarters in The Dalles. It intends
to purchase rather than lease space for this purpose.
 
EMPLOYEES
 
     As of June 30, 1998, Columbia had a total of 158 full-time equivalent
employees. This number of employees, which compares to 133 at December 31, 1997,
has increased due to the addition of personnel to the Columbia River Bank
Mortgage Group and various other administrative functions. None of the employees
are subject to a collective bargaining agreement. Columbia considers its
relationships with its employees to be good.
 
LEGAL PROCEEDINGS
 
     Columbia is from time-to-time a party to various legal actions arising in
the normal course of business, such as collection cases and the enforcement of
creditors' rights in bankruptcy proceedings. Management is not presently aware
of any material pending or threatened claims against Columbia.
 
                           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
 
                                       53
<PAGE>   55
 
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.
 
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, the Washington Department of
Financial Institutions, and the FDIC. 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
 
                                       54
<PAGE>   56
 
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 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
 
                                       55
<PAGE>   57
 
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
CRB. 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 the 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 are currently subject to any regulatory restrictions on their dividends.
 
     Columbia River Bank has been paying regular dividends to Columbia, which
has in turn been paying regular dividends to its shareholders. No assurances can
be given that dividends will continue to be paid. See "Dividend Policy."
 
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 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.
 
                                       56
<PAGE>   58
 
     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.
 
CHANGES IN BANKING LAWS AND REGULATIONS
 
     The laws and regulations that affect banks and bank holding companies are
currently undergoing significant changes. Bills are now pending or expected to
be introduced in the United States Congress that contain proposals to alter the
structure, regulation, and competitive relationships of the nation's financial
institutions. If enacted into law, these bills could have the effect of
increasing or decreasing the cost of doing business, limiting or expanding
permissible activities (including activities in the insurance and securities
fields), or affecting the competitive balance among banks, savings associations,
and other financial institutions. Some of these bills would reduce the extent of
federal deposit insurance, broaden the powers or the geographical range of
operations of bank holding companies, alter the extent to which banks could
engage in securities activities, and change the structure and jurisdiction of
various financial institution regulatory agencies. Whether or in what form such
legislation may be adopted, or the extent to which the business of Columbia
might be affected thereby, cannot be predicted with certainty.
 
                                       57
<PAGE>   59
 
                                   MANAGEMENT
 
     For purposes of this Section, the term "Columbia Bancorp" is used to refer
exclusively to the holding company, and does not include its subsidiary CRB.
 
DIRECTORS
 
     The following table sets forth summary information about the directors of
Columbia Bancorp and CRB. Directors serve staggered terms. There are three
groups of directors, and at each annual meeting, members of one of the groups,
on a rotating basis, are elected for a three-year term. Columbia Bancorp's
Articles of Incorporation permit no more than twelve directors. (Each Columbia
Bancorp director also serves on the CRB Board).
 
<TABLE>
<CAPTION>
             NAME               AGE           POSITION          TERM EXPIRES
             ----               ---           --------          ------------
<S>                             <C>   <C>                       <C>
Stephen D. Martin.............  54    Chairman of the Board of      2000
                                      Columbia Bancorp and CRB
Donald T. Mitchell............  53    Vice-Chairman of the          1999
                                      Board of Columbia
                                      Bancorp and CRB
Terry L. Cochran..............  54    Director, President, and      2001
                                      Chief Executive Officer
                                      of Columbia Bancorp and
                                      CRB
Robert L.R. Bailey............  57    Director                      1999
Charles F. Beardsley..........  58    Director                      2001
William A. Booth..............  57    Director                      2001
Dennis Carver.................  49    Director                      1999
Ted M. Freeman................  72    Director                      1999
Jane F. Lee...................  46    Director                      2000
Jean McKinney.................  59    Director                      2000
James B. Roberson.............  64    Director                      2001
Greg Walden...................  41    Director                      2000
</TABLE>
 
     The business experience of each of the directors for the past five years is
described below.
 
     STEPHEN D. MARTIN has been a director of Columbia Bancorp since its
formation, and has served as Chairman of the Board of Columbia Bancorp since
that time. Mr. Martin has been a director of CRB since 1977 and has served as
Chairman of the CRB Board since April 1995. He is the chief executive officer of
Steve Martin Management Company, a hospitality management company based in
Cannon Beach, Oregon. Mr. Martin is also the co-owner and operator of the
Stephanie Inn, the Surfsand Resort, the Haystack Motel, and the Wayfarer
Restaurant, all in Cannon Beach, Oregon.
 
     DONALD T. MITCHELL has been a director of Columbia Bancorp since its
formation. He was a director of Juniper for six years and became a director of
CRB following the merger between CRB and Juniper. Since 1982, he has been a
partner in Lacy Forest Products, a lumber brokerage firm headquartered in
Redmond, Oregon.
 
     TERRY L. COCHRAN has been a director of Columbia Bancorp and its President
and Chief Executive Officer since its formation, and has been President and
Chief Executive Officer and a director of CRB since 1981. After Columbia Bancorp
acquired Klickitat, he also served as President and Chief Executive Officer of
that subsidiary until its merger with CRB in March 1997. He holds an A.A. degree
from Yakima Valley College, a B.A. degree in Business Administration from
Washington State University, and is a graduate of the Pacific Coast Banking
School at the University of Washington.
 
     ROBERT L.R. BAILEY has been a director of Columbia Bancorp since its
formation. Mr. Bailey has been a director of CRB since 1977 and served as
Chairman of the CRB Board from 1981 to 1995. Since 1985
 
                                       58
<PAGE>   60
 
Mr. Bailey has been the president and general manager of Orchard View Farms,
Inc., a fruit growing and packing company headquartered in The Dalles, Oregon.
 
     CHARLES F. BEARDSLEY has served as a director of Columbia Bancorp since its
formation, and as a director of CRB since April 1994. Since 1972 Mr. Beardsley
has been a principal owner of Hershner & Bell Realty, a real estate brokerage
firm, and of Hershner & Bell-Farrell Agency, an insurance agency, both in Hood
River, Oregon. He also served as Mayor of the City of Hood River for six years.
 
     WILLIAM A. BOOTH has served as a director of Columbia Bancorp since its
formation, and as a director of CRB since 1977. Since 1968 Mr. Booth has been a
principal owner in Booth & Kelly Insurance & Real Estate, a real estate and
insurance agency in The Dalles, Oregon.
 
     DENNIS CARVER was elected to the Columbia Bancorp Board at the 1997 annual
meeting. He had been a director of Klickitat since 1984. He has worked as a
chiropractor in Goldendale, Washington, since 1973, and presently runs the
Goldendale Chiropractic Clinic.
 
     TED M. FREEMAN was a director of Juniper for eight years, and served as
Chairman of its Board for a number of years prior to its merger with CRB, and
became a director of CRB following the merger. Prior to his retirement in 1993,
Mr. Freeman managed a seed, fertilizer, and grain business for 35 years.
 
     JANE F. LEE was elected to the Columbia Bancorp Board at the 1997 annual
meeting. She had been a director of Klickitat since 1987. She has worked in
cattle ranching and hay operations since 1972, and is the President of the
Washington State Association of Cattle Women. She also serves as a Commissioner
of Fire District #7 in Goldendale, Washington.
 
     JEAN MCKINNEY has been a director of Columbia Bancorp since its formation,
and has been a director of CRB since April 1994. Ms. McKinney has served for
over 20 years as president and business manager of McKinney Ranches, Inc., a
grain farming business in Wasco, Oregon.
 
     JAMES B. ROBERSON was elected to the Columbia Bancorp Board at the 1998
annual meeting. He had been a director of Klickitat since 1977, and became a
director of CRB in 1996 following Klickitat's acquisition by Columbia Bancorp in
that year. Prior to his retirement in 1996, Mr. Roberson was an optometrist in
the Bingen/White Salmon, Washington area for 34 years.
 
     GREG WALDEN has been a director of Columbia Bancorp since its formation,
and has been a director of CRB since April 1994. Since 1986, he has served as
president of Columbia Gorge Broadcasters, Inc., in Hood River, Oregon. From 1989
to 1995 he served as an Oregon state representative, and from 1995 to 1997 as a
state senator in the Oregon legislature.
 
EXECUTIVE OFFICERS
 
     The following table sets forth summary information about the executive
officers of Columbia Bancorp and CRB.
 
<TABLE>
<CAPTION>
                                                                                     YEARS OF
               NAME                  AGE                POSITION                BANKING EXPERIENCE
               ----                  ---                --------                ------------------
<S>                                  <C>   <C>                                  <C>
Terry L. Cochran...................  54    President and Chief Executive                32
                                           Officer of Columbia Bancorp and CRB
Richard J. Croghan.................  44    Executive Vice President and Chief           28
                                           Administrative Officer of CRB and
                                           Secretary of Columbia Bancorp
James C. McCall....................  52    Executive Vice President and Chief           29
                                           Lending Officer of CRB
Craig J. Ortega....................  42    Executive Vice President and Head            18
                                           of Community Banking of CRB
Neal T. McLaughlin.................  30    Executive Vice President and Chief            6
                                           Financial Officer of Columbia
                                           Bancorp and CRB
</TABLE>
 
                                       59
<PAGE>   61
 
     The business experience of each of the executive officers for the past five
years is described below.
 
     TERRY L. COCHRAN has been a director of Columbia Bancorp and its President
and Chief Executive Officer since its formation, and has been President and
Chief Executive Officer and a director of CRB since 1981. See "Management --
Directors" for more information about Mr. Cochran.
 
     RICHARD J. CROGHAN is Executive Vice President and Chief Administrative
Officer of CRB, a position he has held since July 1997. He has served as
Secretary of Columbia Bancorp since its formation in 1995. He served as CRB's
Chief Financial Officer from September 1981 to July 1997, was a director of CRB
from 1984 until 1995, and served as Columbia Bancorp's Chief Financial Officer
from its formation in 1995 to July 1997. He holds an A.S. degree in Business
from Central Oregon Community College, and is a graduate of the Bank
Administration Institute Banking School at the University of Wisconsin. He is a
past Board member of the Oregon Bankers Association and past-president of the
Oregon chapter of the American Institute of Bankers. Mr. Croghan has 28 years of
banking experience.
 
     JAMES C. MCCALL is Executive Vice President and Chief Lending Officer of
CRB. He has been employed by CRB since April 1982, and has served as Chief
Lending Officer since November 1988. He holds a B.S. degree in Business from
Oregon State University, and is a 1993 graduate of the Pacific Coast Banking
School at the University of Washington. Mr. McCall has 29 years of banking
experience. He presently is a director of Network of Oregon Affordable Housing,
and is past Chairman of the Oregon Bankers Association Lending Committee.
 
     CRAIG J. ORTEGA is Executive Vice President and Head of Community Banking
of CRB, a position held since July of 1997. Prior to that, he was manager of
CRB's Hood River branch. Mr. Ortega has been with CRB for five years, and has 18
years of banking experience. He attended Blue Mountain Community College and
holds a B.S. degree in Business Administration from Eastern Oregon State
College, and is a graduate of the Pacific Coast Banking School at the University
of Washington.
 
     NEAL T. MCLAUGHLIN has been an Executive Vice President and the Chief
Financial Officer of CRB since July of 1997, and also serves as Columbia
Bancorp's Chief Financial Officer. Mr. McLaughlin started his banking career
with Juniper, and joined CRB after the merger between CRB and Juniper in 1995.
Since joining CRB, he has served in a number of positions, most recently as Vice
President and Controller. He holds a B.S. degree in Accounting from the
University of Oregon, and is also a Certified Public Accountant in the state of
Oregon. Mr. McLaughlin has 6 years of banking experience. He is a graduate of
the Northwest Intermediate Banking School and the Northwest Intermediate
Commercial Lending School, and has attended the Pacific Coast Banking School at
the University of Washington. Mr. McLaughlin is a member of the Financial
Officers/Investment Committee of the Oregon Bankers Association.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
     CRB's Board of Directors has five committees: the Executive Committee, the
Audit/Examination Committee, the Human Resources Committee, the Loan Committee,
and the Investment/Asset-Liability Committee. (The Columbia Bancorp Board does
not presently have any committees.)
 
     The present members of the CRB Executive Committee are William A. Booth,
Terry L. Cochran, Stephen D. Martin, Jean McKinney, Donald T. Mitchell, James B.
Roberson, and Greg Walden. This Committee acts for the CRB Board on matters
requiring prompt action, serves as the Board's Nominating Committee, and
recommends long range planning activities to the full CRB Board. It also
evaluates the Chief Executive Officer, recommending appropriate compensation,
benefits, and employment contracts.
 
     The present members of the CRB Audit/Examination Committee are Greg Walden,
Chairperson, Jane F. Lee and Donald T. Mitchell. Richard J. Croghan, a CRB
Executive Vice President but not a CRB Board member, also serves on this
Committee. This Committee reviews the scope of internal and external audit
activities and the results of CRB's annual audit.
 
     The present members of the CRB Human Resources Committee are Jean McKinney,
Chairperson, Robert L.R. Bailey and Charles F. Beardsley. Charla Herman, a CRB
Assistant Vice President, who serves as
 
                                       60
<PAGE>   62
 
CRB's Director of Human Resources but is not a CRB Board member, also serves on
this Committee. This Committee provides oversight of CRB's ESOP, 401(k), and
stock option plans, and reviews and makes recommendations on corporate
compensation and personnel policies.
 
     The present members of the CRB Loan Committee are William A. Booth,
Chairperson, Charles F. Beardsley and James B. Roberson. James C. McCall, a CRB
Executive Vice President but not a CRB Board member, also serves on this
Committee. This Committee reviews the loan portfolio for safety and soundness,
monitors concentrations in industry and loan type, and oversees the loan policy
of CRB.
 
     The present members of the CRB Investment/Asset-Liability Committee are
James B. Roberson, Chairperson, Dennis Carver and Ted M. Freeman. Neal T.
McLaughlin, a CRB Executive Vice President but not a CRB Board member, also
serves on this Committee. This Committee establishes, updates, and monitors
policies related to asset, liability, liquidity, interest rate management, and
investments. It also interviews and recommends securities advisors and brokers.
 
SENIOR MANAGEMENT PLANNING, TRAINING, AND CONTINUITY
 
     The entire Columbia Bancorp and CRB Boards meet annually for a
comprehensive review of Columbia Bancorp's and CRB's overall strategic plans,
including growth goals. These annual strategic planning meetings last from one
to three days, and are usually facilitated by an outside consultant with
specific bank management expertise. Further, each new outside director is
strongly encouraged to attend several day-long educational sessions at a
"Director's College" sponsored by the Oregon Bankers Association. All present
outside Columbia directors have attended the Director's College. In addition,
Columbia Bancorp's directors annually evaluate each other's performance against
a number of criteria, including the director's attendance at timely and relevant
bank-related conferences and the effective presentation to the entire Board of
the materials presented at such conferences. These measures are intended to
promote the strength, expertise and continuity of the Columbia Bancorp Board as
a whole.
 
     Senior executives of CRB meet regularly as a group, both formally and
informally, to exchange ideas and discuss issues affecting the Columbia
organization. CRB has in place a written plan specifying the procedures to be
followed for interim management in the event CRB's Chief Executive Officer is
unable to perform the CEO's duties. Management intends to take additional steps,
including the possible addition of senior-level personnel, in order to help
assure that Columbia has sufficient management depth to effectively manage CRB's
anticipated growth.
 
DIRECTOR COMPENSATION
 
     The CRB Chairman is paid an attendance fee of $1,000 for each regular
monthly meeting of the CRB Board. Each other CRB director is paid an attendance
fee of $700 for each regular monthly meeting of the CRB Board. Each CRB director
also receives $100 for each meeting attended of any committee of the Board to
which the director belongs. Columbia Bancorp does not pay any separate
attendance fees to its directors. Directors are also eligible for awards of
stock options under Columbia Bancorp's Stock Incentive Plan. See "Management
Executive and Employee Compensation Plans -- Stock Incentive Plan."
 
                                       61
<PAGE>   63
 
EXECUTIVE COMPENSATION
 
     The following table sets forth, for the three years ended December 31,
1997, all compensation paid by CRB to Terry L. Cochran. No other director or
executive officer of CRB received salary and bonus during this period in excess
of $100,000. None of the three present executive officers of Columbia Bancorp,
including Mr. Cochran, receive separate compensation from the holding company.
 
<TABLE>
<CAPTION>
                                                                                   LONG-TERM             ALL OTHER
                                         ANNUAL COMPENSATION                  COMPENSATION AWARDS       COMPENSATION
                            ---------------------------------------------   ------------------------    ------------
                                                                                        SECURITIES
                                                              OTHER                     UNDERLYING
         NAME AND                                             ANNUAL                      OPTIONS
         POSITION           YEAR    SALARY      BONUS    COMPENSATION(1)    ESOP(2)       GRANTED
         --------           ----   --------    -------   ----------------   --------   -------------
<S>                         <C>    <C>         <C>       <C>                <C>        <C>              <C>
Terry L. Cochran..........  1997   $126,875(3) $57,304        $   --        $11,277     6,000 shares(4)    $1,600(6)
  President and CEO         1996   $ 93,634(3) $31,788        $2,000        $12,542               --       $1,500(6)
                            1995   $ 90,180(3) $52,017        $4,800        $11,049    13,500 shares(5)    $1,362(6)
</TABLE>
 
---------------
(1) Consists of Directors fees.
(2) As of December 31, 1997, CRB's ESOP held 44,643 shares of Common Stock for
    the account of Mr. Cochran, with an estimated market value of $372,028 plus
    uninvested cash of $13,065. All of the shares described are vested, and
    dividends are payable to the account of Mr. Cochran under the ESOP.
(3) Includes monthly auto allowance of $500 in 1995 and 1996, and $700 beginning
    in May 1997.
(4) The exercise price for the options is $5.59 per share. The options are
    immediately exercisable and expire in August 2007. The exercise price has
    been restated for subsequent stock splits.
(5) The exercise price for the options is $3.34 per share. The options are
    immediately exercisable and expire in June 2005. The exercise price has been
    restated for subsequent stock splits.
(6) Annual 401(k) employer contribution.
 
     The following table sets forth information regarding option exercises
during 1997 by the executive officer named in the compensation table shown
above. There were no options to purchase Common Stock granted to this executive
officer in 1996.
 
<TABLE>
<CAPTION>
                                                                         FISCAL YEAR-END OPTION VALUES
                                                             ------------------------------------------------------
                                                                NUMBER OF SECURITIES        VALUE OF UNEXERCISED
                                  SHARES                       UNDERLYING UNEXERCISED       IN-THE-MONEY OPTIONS
                               ACQUIRED ON       VALUE       OPTIONS AT FISCAL YEAR-END     AT FISCAL YEAR-END(1)
            NAME               EXERCISE(#)    REALIZED($)    EXERCISABLE/UNEXERCISABLE    EXERCISABLE/UNEXERCISABLE
-----------------------------  ------------   ------------   --------------------------   -------------------------
<S>                            <C>            <C>            <C>                          <C>
Terry L. Cochran.............      3,600        $22,788               17,500/0                   $74,000/$0
</TABLE>
 
---------------
(1) On December 31, 1997, the closing price of the Common Stock was $8.33, as
    adjusted for subsequent stock splits. For purposes of the foregoing table,
    stock options with an exercise price less than that amount are considered to
    be "in-the-money" and are considered to have a value equal to the difference
    between this amount and the exercise price of the stock option multiplied by
    the number of shares covered by the stock option.
 
     The following sets forth certain information regarding options granted in
1997 to the executive officer named in the compensation table shown above:
 
<TABLE>
<CAPTION>
                                                                        OPTION GRANTS IN 1997
                                            -----------------------------------------------------------------------------
                                                                                                    POTENTIAL REALIZABLE
                                                                                                      VALUE AT ASSUMED
                                                                                                       ANNUAL RATES OF
                                                                                                            STOCK
                                                                                                     PRICE APPRECIATION
                                                              INDIVIDUAL GRANTS                        FOR OPTION TERM
                                            -----------------------------------------------------   ---------------------
                                                          % OF TOTAL
                                             NUMBER OF     OPTIONS
                                            SECURITIES    GRANTED TO   EXERCISE
                                            UNDERLYING    EMPLOYEES    OR BASE
                                              OPTIONS     IN FISCAL     PRICE       EXPIRATION
                   NAME                     GRANTED(#)       YEAR       ($/SH)         DATE           5%($)      10%($)
                   ----                     -----------   ----------   --------   ---------------   ---------   ---------
<S>                                         <C>           <C>          <C>        <C>               <C>         <C>
Terry L. Cochran..........................     6,000         4.65%      $5.59     August 11, 2007    $21,120     $53,460
</TABLE>
 
                                       62
<PAGE>   64
 
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENT
 
     Columbia Bancorp and Terry L. Cochran, Columbia Bancorp's President and
Chief Executive Officer, are parties to an employment agreement of May 1, 1998.
Under the agreement, upon a change of control of Columbia Bancorp, such as its
acquisition by or merger with another company, Mr. Cochran has the right to
terminate his employment within 90 days and to receive certain payments and
benefits, including yearly retirements benefits under a Deferred Compensation
Agreement between Mr. Cochran and Columbia Bancorp. The employment agreement
also contains noncompetition provisions which restrict Mr. Cochran from
competing with Columbia Bancorp for one year following his termination of
employment under certain conditions.
 
EXECUTIVE AND EMPLOYEE COMPENSATION PLANS
 
     401(k) Plan. Under CRB's 401(k) Plan, officers and employees of CRB may
elect to defer up to 10% of their compensation. CRB makes matching contributions
to the accounts of these officers and employees equal to 25 percent of the first
four percent of compensation that an officer or employee elects to defer,
subject to limitations under the Internal Revenue Code of 1986. Amounts
contributed or deferred are distributed to employees upon retirement, permanent
disability, death, termination of employment, or the occurrences of conditions
constituting extraordinary hardship.
 
     ESOP. CRB has an Employee Stock Ownership Plan (the "ESOP"). All employees
of CRB who have been credited with at least 1,000 hours of service in the prior
year, and have attained age 20, including officers, are eligible to participate
in the ESOP. The sole source of funding for the ESOP is contributions made by
CRB. Contributions made by participants are not permitted. Assets of the ESOP
are used primarily to purchase shares of Common Stock. The ESOP may not purchase
Common Stock for a price in excess of its fair market value, as determined by an
appraisal of the fair market value of the Common Stock commissioned from an
independent appraiser by the ESOP Trustees and CRB. For the period ended June
30, 1998, the ESOP appraisal of the fair market value of the Common Stock, on a
marketable minority basis, was $10.25 per share as adjusted for a subsequent
2-for-1 stock split. As of September 14, 1998, the ESOP held 282,066 shares of
Common Stock and $34,145 in cash. At that date, 122 employees of CRB were
participants in the ESOP.
 
     Incentive Cash Compensation. CRB has adopted an incentive cash compensation
program under which CRB employees at all levels can receive incentive
compensation, limited to a fixed percentage of base compensation, for helping
CRB achieve certain goals and objectives. For example, branch managers and loan
officers are eligible for cash compensation based on increases in branch income,
loan and deposit growth, maintenance of asset quality, and the cross-selling of
CRB products and services. Non-officer employees are graded and rewarded based
on the delivery of quality customer service, as determined by the employee's
supervisor, and on branch income growth. Most new CRB employees become eligible
to participate in the program within a short time after beginning employment.
 
     Stock Incentive Plan. Since 1993 Columbia has utilized a stock incentive
plan (the "Incentive Plan") administered by the Columbia Bancorp Board to
advance Columbia Bancorp's business interests. The Incentive Plan enables
Columbia Bancorp and CRB to attract and retain qualified and talented employees
and Board members by offering them an opportunity to participate in the growth
and ownership of Columbia Bancorp. Stock options may be granted under the
Incentive Plan at the discretion of and with the approval of the Columbia
Bancorp Board. Columbia Bancorp and CRB employees are eligible to receive
incentive stock options, which are intended to qualify for favorable tax
treatment, and which must have an exercise price equal to not less than the fair
market value of the Common Stock on the date of grant. In addition, employees
and directors of Columbia Bancorp and CRB are eligible for nonstatutory stock
options, which do not qualify for favorable tax treatment, and which may have an
exercise price set at the discretion of the Columbia Bancorp Board. The option
exercise price for nonstatutory stock options may be either greater or less than
the fair market value of the Common Stock on the date of grant, although in
practice the Columbia Bancorp Board has always set the exercise price for such
options at fair market value. Options vest and are exercisable in accordance
with the terms set in the individual grant. In most cases the option vests
immediately and is
 
                                       63
<PAGE>   65
 
exercisable within 10 years of the date of grant. The Incentive Plan also allows
the Columbia Bancorp Board to offer other forms of stock-related incentives,
such as stock appreciation rights and stock bonuses. However, apart from grants
of 200 shares of Common Stock to each of two retiring outside Directors in 1998,
the Board has never approved any such incentives other than stock options.
 
     During 1997 options covering a total of 129,000 shares of Common Stock were
granted to CRB employees, and options covering a total of 78,000 shares of
Common Stock were granted to non-employee members of Columbia Bancorp's and CRBs
Board. Between January 1, 1998 and September 14, 1998 options covering a total
of 3,000 shares of Common Stock were granted to CRB employees, and a total of
400 shares of Common Stock were granted to two retiring non-employee members of
Columbia Bancorp's Board. Adjusted for stock splits, an aggregate of no more
than 600,000 shares of Common Stock may be issued under the Incentive Plan. As
of September 14, 1998, a total of 520,000 shares of Common Stock had been either
issued or committed for issuance through options under the current Incentive
Plan, leaving a total of 80,000 shares of Common Stock available for future
issuance. No options have been or will be granted to any Columbia employee or
Board member in connection with the Offering. All of the above information
reflects stock splits through September 14, 1998.
 
                              CERTAIN TRANSACTIONS
 
     Some of the directors and officers of Columbia and members of their
immediate families and firms, and corporations with which they are associated,
have been parties to transactions with Columbia, including borrowings and
investments in time deposits. All such loans and investments in time deposits
have been made in the ordinary course of business, have been made on
substantially the same terms, including interest rates paid or charged and
collateral required, as those prevailing at the time for comparable transactions
with unaffiliated persons, and did not involve more than the normal risk of
collectibility or present other unfavorable features. As of June 30, 1998, the
aggregate outstanding amount of all loans to officers and directors was
approximately $2.54 million, which represented approximately 11.26% of
Columbia's consolidated shareholders' equity at that date. All such loans are
currently in good standing, and are being paid in accordance with their terms.
 
     Robert L.R. Bailey, a director of Columbia and CRB, and Orchard View Farms,
a company controlled by Mr. Bailey, as well as Dry Hollow Limited Partnership, a
partnership for which Mr. Bailey is the general partner, borrowed sums from CRB
in excess of $60,000 in the aggregate under revolving and nonrevolving lines of
credit and a Visa card. As of June 30, 1998, the total balance due by Mr. Bailey
from these borrowings was $1.45 million.
 
     Stephen D. Martin, a director of Columbia and CRB, and various enterprises
owned or controlled by him, borrowed sums from CRB in excess of $60,000 in the
aggregate under term loans, a revolving line of credit, and a Visa card. As of
June 30, 1998, the total balance due by Mr. Martin from these borrowings was
$563,000.
 
     Charles F. Beardsley, a director of Columbia and CRB, borrowed sums from
CRB in excess of $60,000 in the aggregate under term loans, a revolving line of
credit, and a Visa card. As of June 30, 1998, the balance due by Mr. Beardsley
from these borrowings was $105,000.
 
     Terry L. Cochran, the Chief Executive Officer and President and a director
of Columbia and CRB, borrowed sums from CRB in excess of $60,000 in the
aggregate under revolving lines of credit and a Visa card. As of June 30, 1998,
the total balance due by Mr. Cochran from these borrowings was $128,000.
 
     Dennis Carver, a director of Columbia and CRB, borrowed sums from CRB in
excess of $60,000 in the aggregate under term loans. As of June 30, 1998, the
total balance due by Mr. Carver from these borrowings was $181,000.
 
                                       64
<PAGE>   66
 
                             PRINCIPAL SHAREHOLDERS
 
     The following table sets forth information regarding the beneficial
ownership of Common Stock as of September 14, 1998, and as adjusted to reflect
the sale of an assumed 1,000,000 shares of Common Stock offered hereby, with
respect to (i) each person known by Columbia to beneficially own more than 5% of
the outstanding shares of Common Stock, (ii) each person who is a director or
executive officer of Columbia, and (iii) all directors and executive officers of
Columbia as a group. Each beneficial owner has the sole power to vote and to
dispose of all shares of Common Stock owned by such beneficial owner.
 
<TABLE>
<CAPTION>
                                                       BENEFICIAL OWNERSHIP       BENEFICIAL OWNERSHIP
                                                     PRIOR TO THE OFFERING(1)    AFTER THE OFFERING(1)
                                                     ------------------------    ----------------------
             NAME OF BENEFICIAL OWNER                  SHARES     PERCENTAGE      SHARES     PERCENTAGE
             ------------------------                ----------   -----------    ---------   ----------
<S>                                                  <C>          <C>            <C>         <C>
BENEFICIAL OWNERS OF MORE THAN 5% OF OUTSTANDING
  COMMON STOCK
  George Layman....................................    515,048        7.4          515,048       6.5
DIRECTORS AND EXECUTIVE OFFICERS OF COLUMBIA
  Robert L.R. Bailey (2)...........................    259,418        3.7%         259,418       3.3%
  Charles F. Beardsley (3).........................     41,828         (*)          41,828        (*)
  William A. Booth (4).............................     90,174        1.3           90,174       1.1
  Dennis Carver (5)................................     38,938         (*)          38,938        (*)
  Terry L. Cochran (6).............................    344,894        5.0          344,894       4.3
  Richard J. Croghan (7)...........................    122,136        1.8          122,136       1.5
  Ted M. Freeman (8)...............................     16,350         (*)          16,350        (*)
  Jane F. Lee (9)..................................     16,910         (*)          16,910        (*)
  James C. McCall (10).............................     42,488         (*)          42,488        (*)
  Jean McKinney (11)...............................     18,708         (*)          18,708        (*)
  Neal T. McLaughlin (12)..........................      6,748         (*)           6,748        (*)
  Stephen D. Martin (13)...........................     89,438        1.3           89,438       1.1
  Donald T. Mitchell (14)..........................     35,012         (*)          35,012        (*)
  Craig J. Ortega (15).............................     17,812         (*)          17,812        (*)
  James B. Roberson................................     59,294         (*)          59,294        (*)
  Greg Walden (16).................................     15,962         (*)          15,962        (*)
ALL DIRECTORS AND EXECUTIVE OFFICERS OF COLUMBIA AS
  A GROUP
  (16 persons).....................................  1,216,110       17.5        1,216,110      15.3
</TABLE>
 
---------------
  *  Less than 1%
 
 (1) Beneficial ownership is determined in accordance with the rules of the
     Securities and Exchange Commission, based on factors including voting and
     investment power with respect to shares. Shares of common Stock subject to
     options currently exercisable, or exercisable within 60 days after
     September 14, 1998, are deemed outstanding for the purpose of computing the
     percentage ownership interest of the person holding such options, but are
     not deemed outstanding for the purpose of computing the percentage
     ownership for any other person. Applicable percentage ownership is based on
     aggregate shares outstanding as of September 14, 1998, together with the
     applicable options of such shareholder.
 
 (2) Includes 43,064 shares owned by his spouse, 30,000 shares in a family
     partnership, 16,800 shares in a pension trust, 20,000 shares held in a
     foundation, and 15,000 shares covered by stock options.
 
 (3) Includes 14,414 shares held in trust, 12,414 shares held in spouse's trust,
     and 15,000 covered by stock options.
 
 (4) Includes 15,000 shares covered by stock options.
 
 (5) Includes 16,816 shares jointly owned with his spouse, 14,260 shares in an
     IRA, 3,406 shares held as custodian for his children, and 4,000 shares
     covered by stock options.
 
                                       65
<PAGE>   67
 
 (6) Includes 123,948 shares owned by his spouse, 44,294 shares held through the
     ESOP, and 17,500 shares covered by stock options.
 
 (7) Includes 26,036 shares held through the ESOP and 15,000 shares covered by
     stock options.
 
 (8) Includes 3,550 shares jointly owned with his spouse, 800 shares in a family
     trust, and 12,000 shares covered by stock options.
 
 (9) Includes 6,000 shares covered by stock options.
 
(10) Includes 2,970 shares jointly owned with spouse, 22,980 shares held through
     the ESOP, and 13,752 shares covered by stock options.
 
(11) Includes 900 shares owned by her son, 1,230 shares in an IRA, and 10,770
     shares covered by stock options.
 
(12) Includes 914 shares held through the ESOP and 3,900 shares covered by stock
     options.
 
(13) Includes 6,938 shares owned by his daughter and 6,000 shares covered by
     stock options.
 
(14) Includes 6,000 shares jointly owned with his spouse, 14,012 shares in a
     pension plan, and 15,000 shares covered by stock options.
 
(15) Includes 584 shares held in an IRA, 404 shares held in his spouse's IRA,
     7,128 shares held as custodian for his children, 1,296 shares held through
     the ESOP and 8,400 shares covered by stock options.
 
(16) Includes 2,634 shares jointly owned with his spouse, 1,242 in an IRA, 1,286
     in his spouse's IRA, and 10,800 covered by stock options.
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
     Upon completion of the Offering, Columbia will have shares of Common Stock
outstanding. The           shares sold in the Offering (        shares if the
Underwriter's over-allotment option is exercised in full) will be freely
tradable on the public market without restriction or further registration under
the Securities Act, except to the extent that such shares are held by an
affiliate of Columbia. The holders of         shares have entered into
agreements (the "Lock-Up Agreements") with the Underwriter not to offer, sell,
or otherwise dispose of any equity securities of Columbia for 180 days after the
date of this Prospectus (the "Lock-Up Period") without the prior written consent
of the Underwriter. The Underwriter may, in its sole discretion, at any time
without notice, release all or any part of the shares subject to the Lock-Up
Agreements during the Lock-Up Period.
 
     In general, Rule 144, as currently in effect, provides that any person who
has beneficially owned shares of an SEC-regulated company for at least one year,
including an "affiliate" (as defined in Rule 144), is entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of
(i) the average weekly trading volume during the four calendar weeks preceding
the sale or (ii) 1% of the shares of the Columbia's common stock then
outstanding. Sales under Rule 144 are subject to certain manner of sale
restrictions, notice requirements, and the availability of current public
information concerning Columbia. A person who is not an affiliate of Columbia,
and who has not been an affiliate within three months prior to the sale,
generally may sell shares without regard to the limitations of Rule 144 provided
that the person has held such shares for a period of at least two years.
 
     Any employee, director, or officer of Columbia who holds shares purchased
under a written compensation plan or contract (including options) entered into
prior to the Offering is entitled to rely on the resale provisions of Rule 701,
which permit nonaffiliates to sell such shares without having to comply with the
public information, holding period, volume limitations, or notice requirements
of Rule 144. For a description of options outstanding under Columbia's
compensation plans, see "Management -- Executives and Employee Compensation
Plans."
 
     There has been only a limited market for the Common Stock prior to the
Offering, and no prediction can be made of the effect, if any, that the sale or
availability for sale of shares of Common Stock will have on its market price.
Sales of substantial amounts of such shares in the public market could adversely
affect the market price of the Common Stock. See "Risk Factors -- Limited Market
for the Common Stock."
                                       66
<PAGE>   68
 
                          DESCRIPTION OF CAPITAL STOCK
 
     The Articles of Incorporation of Columbia authorize the issuance of up to
10 million shares of Common Stock with no par value. As of September 14, 1998,
there were 6,940,682 shares of Common Stock issued and outstanding held by a
total of 1,122 shareholders. Subject to the rights of holders of any preferred
stock which may be outstanding, holders of Common Stock are entitled to receive
dividends if and when declared by the Columbia Board from any funds legally
available for such purpose. Each outstanding share of Common Stock has the same
relative rights and preferences as each other share of Common Stock, including
the rights to the net assets of the corporation upon liquidation. Each share is
entitled to one vote on matters submitted to a vote of shareholders. Holders of
Common Stock are not entitled to preemptive rights and may not cumulate votes in
the election of directors. The election of candidates to the Columbia Board and
most other corporate matters subject to shareholder approval require the
approval of a simple majority of all votes entitled to be cast on the matter.
Certain other matters require a supermajority (75%) vote. See "Description of
Capital Stock -- Anti-Takeover Provisions -- Columbia's Articles of
Incorporation."
 
     Columbia's Articles also authorize the issuance of preferred stock, and
permit the Columbia Board to determine the price, rights, preferences,
privileges, and restrictions, including voting rights, of preferred stock
without any vote or action by Columbia's shareholders. Columbia has never issued
preferred stock, and presently has no plans to do so.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION
 
     Under the Oregon Business Corporation Act, a corporation's Articles of
Incorporation may provide for the limitation of liability of directors and
indemnification of directors and officers under some circumstances. In
accordance with Oregon law, Columbia's Articles of Incorporation provide that
directors are not personally liable to the corporation or its shareholders for
monetary damages for conduct as a director, except for (i) any breach of a
director's duty of loyalty to the corporation or its shareholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; (iii) any unlawful distributions to directors; (iv) any
transaction from which the director received an improper or illegal personal
benefit; or (v) any act or omission for which the elimination of liability is
not permitted under the Oregon Business Corporation Act.
 
     Columbia's Articles allow it to indemnify any person who is or was a party,
or is threatened to be made a party, to any civil, administrative, or criminal
proceeding by reason of the fact that the person is or was a director or officer
of Columbia or any of its subsidiaries, is or was a fiduciary under the Employee
Retirement Income Security Act of 1974 with respect to any employee benefit plan
of Columbia or its subsidiaries, or is or was serving at Columbia's request as a
director, officer, partner, agent, or employee of another corporation or entity.
The indemnification may include expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement, actually and reasonably incurred by that
person. Indemnification is available if (i) the person acted in good faith; (ii)
the person reasonably believed the conduct was in the corporation's best
interests, or at least was not opposed to its best interests; and (iii) in the
case of a criminal proceeding, the person had no reasonable cause to believe the
conduct was unlawful. In addition, a person who is wholly successful, on the
merits or otherwise, in the defense of a proceeding in which the person was a
party because the person was a director, is entitled to indemnification for
expenses actually and reasonably incurred by the person in connection with the
proceeding.
 
ANTI-TAKEOVER PROVISIONS -- LEGISLATION
 
     Columbia is subject to the Oregon Business Corporation Act, ORS 60.001
through 60.992, which includes a number of provisions affecting shareholders'
rights. One such provision is contained in ORS 60.357, under which corporate
directors, when evaluating a proposed tender or exchange offer, merger,
acquisition, or similar proposal, "may, in determining what they believe to be
in the best interests of the corporation, give due consideration to the social,
legal, and economic effects on employees, customers, and suppliers of the
corporation and on the communities and geographical areas in which the
corporation and its subsidiaries operate, the economy of the state and nation,
the long-term as well as short-term interests of the corporation
 
                                       67
<PAGE>   69
 
and its shareholders, including the possibility that these interests may be best
served by the continued independence of the corporation and other relevant
factors." This statute permits the Board of Columbia, when evaluating a proposal
for the merger, consolidation, or sale of Columbia, to consider the interests of
groups or constituents other than Columbia's shareholders.
 
     Columbia is also subject to the Oregon Business Combination Act (the
"OBCA"). The OBCA generally provides that if a person (an "Interested
Shareholder") acquires voting stock of an Oregon corporation in a transaction
resulting in such person owning 15% or more of the total voting stock of such
corporation, then the corporation and the Interested Shareholder may not engage
in certain business combination transactions for three years following the date
of such acquisition. "Business combination transactions" include (i) a merger or
plan of share exchange; (ii) any sale, lease, mortgage, or other disposition of
corporate assets where the assets have an aggregate market value of 10% or more
of the aggregate market value of the corporation's assets or outstanding capital
stock; and (iii) certain transactions that result in the issuance of capital
stock of, or loans by, the corporation to the Interested Shareholder. These
restrictions do not apply if (i) the Interested Shareholder, as a result of the
acquisition, owns at least 85% of the outstanding voting stock of the
corporation (excluding shares owned by directors who are also officers, and
certain employee benefit plans), (ii) prior to the completion of the acquisition
the Board of Directors approves either the business combination transaction or
the acquisition; or (iii) after the completion of the acquisition the Board of
Directors and the holders of at least two-thirds of the outstanding voting stock
of the corporation (excluding shares owned by the Interested Shareholder)
approve the business combination transaction. A corporation may provide in its
articles of incorporation or bylaws that the OBCA does not apply to its shares.
Columbia has not adopted such a provision and does not presently plan to do so.
 
     In addition, the provisions of ORS 60.801 to 60.816, known as the Oregon
Control Share Act (the "OCSA"), also apply to Columbia. In brief, this statute
provides that a person or persons who acquire no less than 20% of the voting
shares of a corporation in a "control share acquisition," as defined in the
statute, lose the right to vote the shares unless such voting rights are
restored through a majority vote of the remaining shareholders. A person (the
"Acquiring Person") who acquires voting stock of an Oregon corporation in a
transaction which results in such Acquiring Person holding, more than 20%,
33 1/3%, or 50% of the total voting power of the corporation (a "Control Share
Acquisition") cannot vote such shares ("Control Shares") unless voting rights
are accorded to the Control Shares by the holders of a majority of the
outstanding voting shares, excluding such Control Shares and shares held by
insiders. The vote is required at the time an Acquiring Person's holdings exceed
20% of the total voting power of a company, and again at the time the Acquiring
Person's holding exceed 33 1/3% and 50%, respectively. "Acquiring Person" is
broadly defined to include persons acting as a group. The Acquiring Person may,
but is not required to, submit to Columbia an "Acquiring Person Statement"
setting forth certain information about the Acquiring Person and its plans with
respect to Columbia. The Acquiring Person Statement may also request that
Columbia call a special meeting of shareholders to determine whether the Control
Shares will be allowed to retain voting rights. If the Acquiring Person does not
request a special meeting of shareholders, the issue of voting rights of Control
Shares will be considered at the next annual meeting or special meeting of
shareholders that is held more than 60 days after the date of the Control Share
Acquisition. If the Acquiring Person's Control Shares are accorded voting rights
and represent a majority or more of all voting power, shareholders who vote
against restoring such voting rights are entitled to the appraised "fair value"
of their shares, which may not be less than the highest price paid per share by
the Acquiring Person for the Control Shares.
 
     The OCSA and the OBCA effectively encourage any potential acquirer to
negotiate with Columbia's Board of Directors, and discourage certain potential
acquirers unwilling to comply with their provisions. A corporation may provide
in its articles of incorporation or bylaws that these laws shall not apply to
its shares. Columbia has not adopted such provisions and does not currently
intend to do so. These laws may make Columbia less attractive for takeover, and
shareholders, therefore, may not benefit from a rise in the price of the Common
Stock that could result from a takeover. The limitations of these laws are in
addition to regulatory restrictions on acquisitions of the stock of banks and
bank holding companies under the BHCA. See "Supervision and
Regulation -- Federal Bank Holding Company Regulation."
 
                                       68
<PAGE>   70
 
     Finally, Columbia is subject to the reporting requirements of, and its
common stock is registered under, the Securities Exchange Act of 1934, as
amended (the "1934 Act"). Any person who acquires Common Stock and, after giving
effect to such acquisition, holds more than 5% of the outstanding shares of
Common Stock, is required to report such acquisition to the Securities and
Exchange Commission (the "SEC") under Section 13 of the 1934 Act. Therefore, a
person intending to acquire control of Columbia will be obligated to make such
intentions public, even prior to being required to report such transactions to
the Federal Reserve under the BHCA. See "Supervision and Regulation."
 
ANTI-TAKEOVER PROVISIONS -- COLUMBIA'S ARTICLES OF INCORPORATION
 
     In addition to the laws discussed above, Columbia's Articles of
Incorporation contain provisions that could make the acquisition of Columbia
through a tender offer, proxy contest, or merger difficult for a potential
suitor opposed by the Board. These provisions are: (i) staggered terms for
directors; (ii) a prohibition against shareholder removal of a director except
for "cause," including breaches of a director's duty of loyalty to the
corporation and acts or omission not taken in good faith; (iii) a super majority
(75%) voting share approval requirement for a merger or acquisition proposal
which has not been approved by a majority of Columbia's directors; and (iv) a
requirement that shareholders wishing to bring a matter for a vote before an
annual shareholders' meeting provide prior notice and other information to
Columbia. There is also a supermajority (75%) voting share approval requirement
for any amendments to these provisions.
 
     Columbia's Articles also authorize the issuance of voting preferred stock.
This authorization, although useful as a financing tool, could potentially be
used by management to make more difficult uninvited attempts to acquire control
of Columbia. For example, Columbia could issue preferred stock to dilute the
ownership interest of a substantial shareholder, increasing the consideration
necessary to effect an acquisition, or selling authorized but unissued shares to
a friendly third party. The rights of the holders of Common Stock may be subject
to, and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The issuance of preferred stock could
effectively delay, defer, or prevent a change of control of Columbia without
further action by the shareholders, and may adversely affect the voting and
other rights of the holders of Common Stock.
 
TRANSFER AGENT AND CERTIFICATES
 
     The transfer agent and registrar of the Common Stock is Norwest Bank
Minnesota, N.A., P.O. Box 64874, St. Paul, MN, 55164-0874. The telephone numbers
of the transfer agent are (612) 450-4064 and (800) 468-9716. The telecopy number
of the transfer agent is (612) 450-4163.
 
                                  UNDERWRITING
 
     The Underwriter has agreed, subject to the terms and conditions set forth
in the Underwriting Agreement, to purchase from Columbia all of the Common Stock
offered through this Prospectus. The Underwriting Agreement provides that the
obligation of the Underwriter to purchase the shares of Common Stock offered
hereby is subject to the approval of certain legal matters by counsel and
various other conditions. The Underwriting Agreement also provides that the
Underwriter is committed to purchase all of the shares of the Common Stock
offered hereby, if any are purchased (except for any shares that may be
purchased through exercise of the Underwriter's over-allotment option, which may
be exercised by the Underwriter in whole or in part in its discretion).
 
     Columbia has been advised by the Underwriter that the Underwriter proposes
to offer the shares of Common Stock to the public at the public offering price
set forth on the cover of this Prospectus and to certain dealers at such price,
less a concession not in excess of $    per share. After the Offering, the
public offering price and other selling terms may be changed by the Underwriter.
The Common Stock is offered subject to receipt and acceptance by the
Underwriter, and to certain other conditions, including the right to reject
orders in whole or in part.
 
                                       69
<PAGE>   71
 
     Prior to the Offering, there has been only a limited public market for the
Common Stock. Accordingly, the public offering price has been determined by
negotiation between Columbia and the Underwriter. Among the factors considered
in determining the public offering price were the recent bid prices quoted by
market makers in the Common Stock, Columbia's present and historical results of
operations, Columbia's current financial condition, estimates of the business
potential and prospects of Columbia, economic conditions in Columbia's market
area, the experience of Columbia's management, the economics of the industry in
general, the general condition of the equity markets at the time of the
Offering, and other relevant factors. There can be no assurance that an active
trading market will develop for the Common Stock, that purchasers in the
offering will be able to sell their shares at or above the Offering price, or as
to the price at which the Common Stock may trade in the public market from
time-to-time subsequent to the Offering.
 
     Columbia has granted the Underwriter an option, exercisable during the
30-day period after the date of this Prospectus, to purchase up to ________
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus, less underwriting discounts and commissions. The
Underwriter may exercise this option solely to cover over-allotments, if any,
incurred in connection with the sale of shares of Common Stock offered through
this Prospectus.
 
     The Underwriting Agreement provides that Columbia has agreed to indemnify
the Underwriter against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriter may be
required to make in respect thereof.
 
     Certain of Columbia's executive officers and directors, together with the
one Columbia shareholder who owns more than 5% of Columbia's Common Stock, have
agreed that, for a period ending 180 days after the day on which the
Registration Statement becomes effective by order of the SEC, they will not,
without the prior written consent of the Underwriter, directly or indirectly
offer for sale, sell, contract to sell or grant any option to sell (including,
without limitation, any short sale), pledge, establish an open "put-equivalent
position" within the meaning of Rule 16a-1(h) under the Exchange Act, transfer,
assign or otherwise dispose of any shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock, or any option,
warrant or other right to acquire such shares, or publicly announce the
intention to do any of the foregoing.
 
     During and after the offering the Underwriter may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock. Syndicate share positions involve the
sale by the Underwriter of a greater number of shares of Common Stock than they
are required to purchase from Columbia in the offering. The Underwriter also may
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of the Common Stock sold in the Offering for
their account may be reclaimed by the syndicate if such securities are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain, or otherwise affect the market price of the
Common Stock, which may be higher than the price that might otherwise prevail in
the open market, and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
 
     The Underwriter has advised Columbia that the Underwriter does not intend
to confirm sales of Common Stock offered by this Prospectus to any accounts over
which it exercises discretionary authority. In addition, the Underwriter is
subject to NASD Rule 2720(1), under which no NASD member may execute in a
discretionary account any sale of Common Stock offered by this Prospectus
without the prior written approval of the customer.
 
     Columbia has applied for approval to list the Common Stock on the Nasdaq
National Market under the symbol "CBBO."
 
                                       70
<PAGE>   72
 
     The foregoing is a brief summary of the Underwriting Agreement and does not
purport to be a complete statement of its terms and conditions. A copy of the
form of Underwriting Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. See "Available Information."
 
                                    EXPERTS
 
     The Consolidated Financial Statements of Columbia as of December 31, 1997,
1996, and 1995, and for each of the years then ended, and the Consolidated
Financial Statements of Valley as December 31, 1997, 1996, and 1995, and for
each of the years then ended, which are included in this Prospectus and in the
Registration Statement, have been included in reliance upon the reports of Moss
Adams LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of Moss Adams LLP as experts in accounting and auditing.
 
                                 LEGAL MATTERS
 
     The validity of the Common Stock offered by this Prospectus will be passed
upon for Columbia by its outside counsel, Bennett H. Goldstein, Attorney at Law,
Portland, Oregon. Certain legal matters will be passed upon for the Underwriter
by the law firm of Graham & Dunn PC, Seattle, Washington.
 
                             AVAILABLE INFORMATION
 
     Columbia is a reporting company under the Exchange Act. It files quarterly
and annual reports and other information with the SEC. Columbia has also filed a
Form S-1 registration statement (the "Registration Statement") with the SEC
under the Securities Act in connection with the Offering. This Prospectus is
part of the Registration Statement, but it does not contain all of the
information contained in the Registration Statement, such as exhibits.
Statements and summaries in this Prospectus about the contents of a contract or
other document are not necessarily complete. All such statements and summaries
are qualified in their entirety by reference to the copy of the contract or
document filed as an exhibit to the Registration Statement.
 
     A copy of the Registration Statement may be examined free of charge at the
SEC's principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of the Registration
Statement or any part of it may be obtained from the Public Reference Section of
the SEC upon payment of certain fees prescribed by the Commission. Copies of
such materials may also be obtained from the website that the SEC maintains at
http://www.sec.gov. In addition, copies of quarterly and annual reports and
other filings with the SEC made by Columbia may be examined or obtained in the
same manner.
 
     For further information about Columbia, please see the Registration
Statement and the reports, proxy statements, and other information filed by
Columbia with the Commission.
 
                                       71
<PAGE>   73
 
                         GLOSSARY OF CERTAIN KEY TERMS
 
<TABLE>
<CAPTION>
<S>                           <C>
"Board"                       Board of Directors.
"BHCA"                        The Bank Holding Company Act of 1956, as amended.
"BIF"                         The Bank Insurance Fund.
"Columbia"                    Columbia Bancorp, an Oregon corporation and registered bank
                              holding company. Columbia is the parent corporation of
                              Columbia River Bank, referred to herein as "CRB." Unless
                              otherwise noted, the discussions of and references in this
                              Prospectus to Columbia and Columbia's activities, financial
                              condition, and business include Columbia's subsidiary CRB.
                              "Columbia Bancorp" is used in the Section entitled
                              "Management" to refer to the holding company only and does
                              not include CRB.
"Common Stock"                The shares of common stock of Columbia, no par value,
                              described in this Prospectus.
"CRA"                         The Community Reinvestment Act.
"CRB"                         Columbia River Bank, an Oregon state-chartered banking
                              corporation and the wholly-owned subsidiary of Columbia.
"Datatech"                    Datatech of Oregon, Inc., an Oregon business corporation.
"Datatech Banks"              The Oregon community banks that are the shareholders of
                              Datatech, including CRB and Valley Community Bank.
"ESOP"                        Columbia's Employee Stock Ownership Plan.
"FDIC"                        The Federal Deposit Insurance Corporation.
"FDICIA"                      The Federal Deposit Insurance Corporation Improvement Act.
"Federal Reserve"             The Board of Governors of the Federal Reserve System.
"Interstate Act"              The Riegle-Neal Interstate Banking and Branching Efficiency
                              Act of 1994.
"Juniper"                     Juniper Banking Company, an Oregon state-chartered banking
                              corporation with which CRB merged effective January 1, 1995.
"Klickitat"                   Klickitat Valley Bank, a Washington state-chartered banking
                              corporation acquired by Columbia in 1996.
"NASD"                        National Association of Securities Dealers.
"ORS"                         Oregon Revised Statutes.
"Offering"                    The offering of                     shares of Common Stock
                              as described in this Prospectus.
"Primevest"                   Primevest Financial Services, Inc., a registered securities
                              broker-dealer.
"Prospectus"                  This Prospectus, which describes the Offering.
"Registration Statement"      The Registration Statement on Form S-1, of which this
                              Prospectus forms a part, filed with the SEC by Columbia
                              under the 1933 Act, for the purpose of registering the
                              Common Stock described in this Prospectus.
"SEC"                         The United States Securities and Exchange Commission.
"Valley"                      Valley Community Bancorp, an Oregon business corporation and
                              registered bank holding company. Valley is the parent
                              corporation of Valley Community Bank, an Oregon
                              state-chartered banking corporation with its principal
                              office in McMinnville, Oregon. Unless otherwise noted, the
                              discussions of and references in this Prospectus to Valley
                              and Valley's activities, financial condition, and business
                              include Valley Community Bank.
"Valley Community"            An Oregon state-chartered banking corporation and the
                              wholly-owned subsidiary of Valley.
</TABLE>
 
                                       72
<PAGE>   74
 
<TABLE>
<S>                           <C>
"Underwriter"                 Pacific Crest Securities Inc., the sole underwriter of the Offering.
"Y2K"                         The Year 2000.
"1933 Act"                    The Securities Act of 1933, as amended, and the rules and
                              regulations issued thereunder.
"1934 Act"                    The Securities Exchange Act of 1934, as amended, and the rules and
                              regulations issued thereunder.
</TABLE>
 
                                       73
<PAGE>   75
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
COLUMBIA BANCORP
Independent Auditor's Report................................   F-1
Consolidated Financial Statements
  Balance sheets............................................   F-2
  Statements of income......................................   F-3
  Statements of changes in stockholders' equity.............   F-5
  Statements of cash flows..................................   F-6
  Notes to consolidated financial statements................   F-7
 
VALLEY COMMUNITY BANCORP
Independent Auditor's Report................................  F-24
Consolidated Financial Statements
  Balance sheets............................................  F-25
  Statements of income......................................  F-26
  Statements of changes in stockholders' equity.............  F-27
  Statements of cash flows..................................  F-28
  Notes to financial statements.............................  F-29
</TABLE>
 
                                       74
<PAGE>   76
 
                          INDEPENDENT AUDITOR'S REPORT
 
To the Board of Directors
Columbia Bancorp and Subsidiary
 
     We have audited the accompanying consolidated balance sheets of Columbia
Bancorp and Subsidiary as of December 31, 1996 and 1997, and the related
statements of income, changes in stockholders' equity, and cash flows for the
years ended December 31, 1995, 1996, and 1997. These financial statements are
the responsibility of Columbia Bancorp's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Columbia
Bancorp and Subsidiary as of December 31, 1996 and 1997, and the results of its
operations and cash flows for the years ended December 31, 1995, 1996, and 1997,
in conformity with generally accepted accounting principles.
 
Moss Adams LLP
Portland, Oregon
January 23, 1998,
except for Note 20, as to which the
date is September 12, 1998
 
                                       F-1
<PAGE>   77
 
                        COLUMBIA BANCORP AND SUBSIDIARY
 
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                            --------------------     JUNE 30,
                                                              1996        1997         1998
                                                            --------    --------    -----------
                                                                                    (UNAUDITED)
<S>                                                         <C>         <C>         <C>
Cash and due from banks...................................  $ 16,030    $ 16,878     $ 18,551
Federal funds sold........................................     7,367       2,834        4,230
                                                            --------    --------     --------
          Total cash and cash equivalents.................    23,397      19,712       22,781
                                                            --------    --------     --------
Investment securities available-for-sale..................     9,714      31,310       29,338
Investment securities held-to-maturity....................    41,098      16,728       17,183
Restricted equity securities..............................       672         766          795
                                                            --------    --------     --------
          Total investment securities.....................    51,484      48,804       47,316
                                                            --------    --------     --------
Loans held-for-sale.......................................        --       2,714        7,990
Loans, net of allowance for loan losses and unearned loan
  fees....................................................   118,228     152,505      164,989
Property and equipment, net of depreciation...............     4,881       5,257        5,223
Accrued interest receivable...............................     1,948       2,185        2,697
Other assets..............................................       364         650        2,114
                                                            --------    --------     --------
          Total assets....................................  $200,302    $231,827     $253,110
                                                            ========    ========     ========
 
                             LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
  Noninterest-bearing demand deposits.....................  $ 33,549    $ 46,377     $ 48,927
  Interest-bearing demand deposits........................    72,671      85,503       86,602
  Savings accounts........................................    22,833      22,744       25,925
  Time certificates and IRA accounts......................    49,691      46,944       56,967
                                                            --------    --------     --------
          Total deposits..................................   178,744     201,568      218,421
Notes payable.............................................       600       5,264        8,218
Accrued interest payable and other liabilities............     1,425       2,008        1,548
                                                            --------    --------     --------
          Total liabilities...............................   180,769     208,840      228,187
                                                            --------    --------     --------
Employee stock ownership plan shares subject to put
  option..................................................     1,058       1,430        2,352
                                                            --------    --------     --------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY
  Common stock, no par value, 10,000,000 shares authorized
     with 2,254,841, 2,288,451 and 3,468,391 issued and
     outstanding in 1996, 1997, and 1998, respectively....     5,139       5,528        5,954
  Additional paid-in capital..............................     6,318       6,318        6,318
  Retained earnings.......................................     8,087      11,131       12,657
  Accumulated other comprehensive income, net of tax......       (11)         10           (6)
  Less employee stock ownership plan shares subject to put
     option...............................................    (1,058)     (1,430)      (2,352)
                                                            --------    --------     --------
          Total stockholders' equity......................    18,475      21,557       22,571
                                                            --------    --------     --------
          Total liabilities and stockholders' equity......  $200,302    $231,827     $253,110
                                                            ========    ========     ========
</TABLE>
 
            See independent auditor's report and accompanying notes.
 
                                       F-2
<PAGE>   78
 
                        COLUMBIA BANCORP AND SUBSIDIARY
 
                       CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                         YEARS ENDED DECEMBER 31,       SIX MONTHS ENDED JUNE 30,
                                       -----------------------------    --------------------------
                                        1995       1996       1997         1997           1998
                                       -------    -------    -------    -----------    -----------
                                                                        (UNAUDITED)    (UNAUDITED)
<S>                                    <C>        <C>        <C>        <C>            <C>
INTEREST INCOME
  Interest and fees on loans.........  $10,612    $11,855    $14,764      $6,860         $8,417
  Interest on investments:
     Taxable investment securities...    2,118      2,094      2,258       1,205            863
     Nontaxable investment
       securities....................      659        771        736         379            419
  Interest on federal funds sold.....      343        589        221         112            110
  Other interest and dividend
     income..........................       83         76        165          23            115
                                       -------    -------    -------      ------         ------
          Total interest income......   13,815     15,385     18,144       8,579          9,924
                                       -------    -------    -------      ------         ------
INTEREST EXPENSE
  Interest on interest-bearing
     deposit and savings accounts....    2,688      2,967      3,314       1,597          1,720
  Interest on time deposit
     accounts........................    2,369      2,718      2,772       1,403          1,486
  Other borrowed funds...............      159         61        184          29            209
                                       -------    -------    -------      ------         ------
          Total interest expense.....    5,216      5,746      6,270       3,029          3,415
                                       -------    -------    -------      ------         ------
          Net interest income before
            provision for loan
            losses...................    8,599      9,639     11,874       5,550          6,509
PROVISION FOR LOAN LOSSES............       88        246        581         250            450
                                       -------    -------    -------      ------         ------
          Net interest income after
            provision for loan
            losses...................    8,511      9,393     11,293       5,300          6,059
                                       -------    -------    -------      ------         ------
NONINTEREST INCOME
  Service charges and fees...........      998      1,093      1,545         658            834
  Credit card discounts and fees.....      223        288        390         146            185
  Financial services department
     income..........................      106        159        231         115            155
  Mortgage loan origination
     processing......................       --         --         --          --            324
  Net gain on sale of loans..........       --         --         --          --            177
  Other noninterest income...........      225        259        315         118            402
                                       -------    -------    -------      ------         ------
          Total noninterest income...    1,552      1,799      2,481       1,037          2,077
                                       -------    -------    -------      ------         ------
</TABLE>
 
            See independent auditor's report and accompanying notes.
 
                                       F-3
<PAGE>   79
 
                        COLUMBIA BANCORP AND SUBSIDIARY
 
                       CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                           YEARS ENDED DECEMBER 31,       SIX MONTHS ENDED JUNE 30,
                                         -----------------------------    -------------------------
                                          1995       1996       1997         1997          1998
                                         -------    -------    -------    -----------   -----------
                                                                          (UNAUDITED)   (UNAUDITED)
<S>                                      <C>        <C>        <C>        <C>           <C>
NONINTEREST EXPENSES
  Salaries and employee benefits.......  $ 3,611    $ 3,965    $ 4,463      $1,997        $2,714
  Occupancy expense....................      566        653        736         372           449
  Credit card processing fees..........      162        214        254         106           124
  Office supplies......................      181        165        200          86            79
  FDIC assessment......................      166          6         20          12            18
  Data processing expense..............      233        232        304         131           183
  Other noninterest expenses...........    1,576      1,945      2,115       1,043         1,203
                                         -------    -------    -------      ------        ------
          Total noninterest expenses...    6,495      7,180      8,092       3,747         4,770
                                         -------    -------    -------      ------        ------
INCOME BEFORE PROVISION FOR INCOME
  TAXES................................    3,568      4,012      5,682       2,590         3,366
PROVISION FOR INCOME TAXES.............    1,079      1,285      1,795         828         1,147
                                         -------    -------    -------      ------        ------
NET INCOME.............................  $ 2,489    $ 2,727    $ 3,887       1,762         2,219
                                         =======    =======    =======      ------        ------
OTHER COMPREHENSIVE INCOME
  Unrealized gain on available-for-sale
     securities, net of tax............                                       (102)           19
  Reclassification for gain included in
     net income........................                                         --           (35)
                                                                            ------        ------
          Other comprehensive income...                                       (102)          (16)
                                                                            ------        ------
COMPREHENSIVE INCOME...................                                     $1,660        $2,203
                                                                            ======        ======
BASIC EARNINGS PER SHARE OF COMMON
  STOCK................................  $  0.37    $  0.40    $  0.57      $ 0.26        $ 0.32
                                         =======    =======    =======      ======        ======
DILUTED EARNINGS PER SHARE OF COMMON
  STOCK................................  $  0.36    $  0.40    $  0.55      $ 0.26        $ 0.31
                                         =======    =======    =======      ======        ======
</TABLE>
 
            See independent auditor's report and accompanying notes.
 
                                       F-4
<PAGE>   80
 
                        COLUMBIA BANCORP AND SUBSIDIARY
 
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                                       ESOP
                                                                                      ACCUMULATED     SHARES
                                         COMMON STOCK      ADDITIONAL                    OTHER        SUBJECT        TOTAL
                                       ----------------     PAID-IN      RETAINED    COMPREHENSIVE    TO PUT     STOCKHOLDERS'
                                       SHARES    AMOUNT     CAPITAL      EARNINGS       INCOME        OPTION        EQUITY
                                       ------    ------    ----------    --------    -------------    -------    -------------
<S>                                    <C>       <C>       <C>           <C>         <C>              <C>        <C>
BALANCE,
  December 31, 1994..................     743    $4,954      $4,797      $ 5,750         $(315)       $  (505)      $14,681
Cash dividends.......................      --                    --         (555)           --             --          (555)
Stock options exercised..............       7        20          52           --            --             --            72
3 for 1 stock split..................   1,488        --          --           --            --             --            --
Changes in unrealized loss on
  available-for-sale securities, net
  of tax.............................      --        --          --           --           291             --           291
Changes in ESOP shares subject to put
  option.............................      --        --          --           --            --           (361)         (361)
Net income and comprehensive
  income.............................      --        --          --        2,489            --             --         2,489
                                       ------    ------      ------      -------         -----        -------       -------
BALANCE,
  December 31, 1995..................   2,238     4,974       4,849        7,684           (24)          (866)       16,617
Stock options exercised..............      10        66          28           --            --             --            94
Sale of common stock.................       7        99          --           --            --             --            99
Transfer to surplus..................      --        --       1,441       (1,441)           --             --            --
Changes in unrealized loss on
  available-for-sale securities, net
  of tax.............................      --        --          --           --            12             --            12
Changes in ESOP shares subject to put
  option.............................      --        --          --           --            --           (192)         (192)
Cash dividends.......................      --        --          --         (702)           --             --          (702)
Cash dividends declared..............      --        --          --         (180)           --             --          (180)
Net income and comprehensive
  income.............................      --        --          --        2,727            --             --         2,727
                                       ------    ------      ------      -------         -----        -------       -------
BALANCE,
  December 31, 1996..................   2,255     5,139       6,318        8,088           (12)        (1,058)       18,475
Stock options exercised..............      21       214          --           --            --             --           214
Sale of common stock.................      12       175          --           --            --             --           175
Changes in unrealized loss on
  available-for-sale securities, net
  of tax.............................      --        --          --           --            (2)            --            (2)
Gain on securities transferred from
  held-to-maturity to
  available-for-sale.................      --        --          --           --            22             --            22
Changes in ESOP shares subject to put
  option.............................      --        --          --           --            --           (372)         (372)
Cash dividends.......................      --        --          --         (613)           --             --          (613)
Cash dividends declared..............      --        --          --         (229)           --             --          (229)
Net income and comprehensive
  income.............................      --        --          --        3,887            --             --         3,887
                                       ------    ------      ------      -------         -----        -------       -------
BALANCE,
  December 31, 1997..................   2,288     5,528       6,318       11,133             8         (1,430)       21,557
Stock options exercised..............      16       195          --           --            --             --           195
Sale of common stock.................       9       235          --           --            --             --           235
3 for 2 stock split..................   1,155        (4)         --           --            --             --            (4)
Changes in ESOP shares subject to put
  option.............................      --        --          --           --            --           (921)         (921)
Cash dividend declared...............      --        --          --         (693)           --             --          (693)
Net income and comprehensive
  income.............................      --        --          --        2,219           (17)            --         2,202
                                       ------    ------      ------      -------         -----        -------       -------
BALANCE,
  June 30, 1998 (Unaudited)..........   3,468    $5,954      $6,318      $12,659         $  (9)       $(2,351)      $22,571
                                       ======    ======      ======      =======         =====        =======       =======
</TABLE>
 
            See independent auditor's report and accompanying notes.
                                       F-5
<PAGE>   81
 
                        COLUMBIA BANCORP AND SUBSIDIARY
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                                   SIX MONTHS ENDED
                                                                 YEARS ENDED DECEMBER 31,              JUNE 30,
                                                              ------------------------------   -------------------------
                                                                1995       1996       1997        1997          1998
                                                              --------   --------   --------   -----------   -----------
                                                                                               (UNAUDITED)   (UNAUDITED)
<S>                                                           <C>        <C>        <C>        <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income................................................  $  2,489   $  2,727   $  3,887    $  1,762      $  2,219
  Adjustments to reconcile net income to net cash from
    operating activities:
    Amortization of premiums and discounts of investment
      securities............................................         6         --         30          --            --
    (Gain) loss on write-down of property and equipment.....        24         --         (1)         --            --
    Loss on sale of available-for-sale securities...........        --         --          4          --            --
    (Gain) loss on call of held-to-maturity investment
      securities............................................        10         --          7          --           (35)
    Depreciation............................................       322        380        449         226           241
    Federal Home Loan Bank stock dividend...................       (38)       (49)       (53)        (12)          (29)
    Benefit for deferred income taxes.......................       (96)      (168)      (278)         --          (144)
    Provision for loan losses...............................        88        246        581         250           450
  Increase (decrease) in cash due to changes in certain
    assets and liabilities:
    Accrued interest receivable.............................      (142)      (132)      (237)       (586)         (512)
    Other assets............................................      (100)       478         (8)        (30)       (1,464)
    Accrued interest payable and other liabilities..........       158        272        533         268          (455)
                                                              --------   --------   --------    --------      --------
         Net cash from operating activities.................     2,721      3,754      4,914       1,878           271
                                                              --------   --------   --------    --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from the sale of available-for-sale securities...     1,351         --      1,647          --         3,086
  Proceeds from the maturity of available-for-sale
    securities..............................................     7,589      4,718     12,517       1,200        11,724
  Proceeds from the maturity of held-to-maturity
    securities..............................................    11,913     14,795      3,576       3,400           592
  Purchases of held-to-maturity securities..................   (12,226)   (15,266)    (4,534)     (2,898)         (741)
  Purchases of available-for-sale securities................    (1,349)    (6,769)   (10,454)     (1,375)      (13,000)
  Purchases of restricted equity securities.................       (33)        --        (41)         --            --
  Net change in loans made to customers.....................   (14,195)   (14,296)   (37,571)    (24,460)      (18,209)
  Proceeds from the sale of property and equipment..........        --         40         --          --            --
  Payments made for purchase of property and equipment......      (449)    (1,446)      (822)       (283)         (193)
                                                              --------   --------   --------    --------      --------
         Net cash from investing activities.................    (7,399)   (18,224)   (35,682)    (24,416)      (16,741)
                                                              --------   --------   --------    --------      --------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net change in demand deposit and savings accounts.........     3,775     18,144     25,570      11,448         6,829
  Net change in time deposits and IRA accounts..............    12,296      1,725     (2,746)      3,589        10,022
  Borrowings of long-term debt..............................       600         --        663       3,600         2,700
  Repayments of long-term debt..............................    (1,281)      (600)        --          --            --
  Net decrease in federal funds purchased...................    (1,500)        --         --          --            --
  Dividends paid............................................      (555)      (702)      (793)       (385)         (693)
  Proceeds from stock options exercised and purchases of
    common stock............................................        71        193        389         236           426
  Net increase (decrease) in short-term borrowings..........      (164)       224      4,000        (322)          255
                                                              --------   --------   --------    --------      --------
         Net cash from financing activities.................    13,242     18,984     27,083      18,166        19,539
                                                              --------   --------   --------    --------      --------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS..........................................     8,564      4,514     (3,685)     (4,372)        3,069
CASH AND CASH EQUIVALENTS, beginning of period..............    10,319     18,883     23,397      23,397        19,712
                                                              --------   --------   --------    --------      --------
CASH AND CASH EQUIVALENTS, end of period....................  $ 18,883   $ 23,397   $ 19,712    $ 19,025      $ 22,781
                                                              ========   ========   ========    ========      ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Interest paid in cash.....................................  $  5,088   $  5,677   $  6,250    $  2,992      $  3,419
                                                              ========   ========   ========    ========      ========
  Taxes paid in cash........................................  $  1,210   $  1,459   $  2,069    $    435      $    645
                                                              ========   ========   ========    ========      ========
SCHEDULE OF NONCASH ACTIVITIES
  Unrealized gain on securities transferred from
    held-to-maturity to available-for-sale, net of tax......  $     --   $     --   $     24    $     --      $     --
                                                              ========   ========   ========    ========      ========
  Change in unrealized loss on available-for-sale
    securities, net of tax..................................  $    292   $     12   $     (2)   $   (102)     $    (16)
                                                              ========   ========   ========    ========      ========
  Cash dividend declared and payable after year-end.........  $     --   $    180   $    228    $     --      $     --
                                                              ========   ========   ========    ========      ========
</TABLE>
 
            See independent auditor's report and accompanying notes.
 
                                       F-6
<PAGE>   82
 
                        COLUMBIA BANCORP AND SUBSIDIARY
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     ORGANIZATION AND NATURE OF OPERATIONS -- Columbia Bancorp (Bancorp) was
incorporated on October 3, 1995, and became the holding company of Columbia
River Banking Company (Columbia or Bank) through merger. The merger was approved
by a statutory majority of the stockholders of the Bank at a special meeting of
shareholders on December 21, 1995. Approval from all of the Bank's regulatory
agencies was also received in December 1995. The effective date of the merger
was January 1, 1996, and the transaction was consummated on January 13, 1996, on
which date Bancorp acquired 100% of the common stock of Columbia, and the
shareholders of Columbia became shareholders of Bancorp under a one-for-one
exchange of shares. Since the consummation on January 13, 1996, was essentially
executory in nature and the required shareholder and regulatory approvals had
been obtained prior to December 31, 1995, the accompanying consolidated
financial statements have been accounted for in a manner similar to a
pooling-of-interests and prepared to reflect the change in reporting entity as
of December 31, 1995. Substantially all activity of Bancorp is conducted through
its subsidiary bank and all significant intercompany accounts and transactions
have been eliminated in the preparation of the consolidated financial
statements.
 
     In June 1996, Columbia Bancorp acquired Klickitat Valley Bank (Klickitat),
a community bank headquartered in Goldendale, Washington, with branch operations
in White Salmon, Washington. The business combination was accomplished through
the exchange of 8.5 shares of Bancorp common stock for each share of Klickitat
common stock. The transaction was accounted for as a pooling-of-interests and,
accordingly, the assets, liabilities, and stockholders' equities, and results of
operations of the separate entities have been combined for 1995, 1996, and 1997
as though the entities had been combined as of the beginning of 1995.
 
     Bancorp's subsidiary bank is a state-chartered institution authorized to
provide banking services by the states of Oregon and Washington. With its
administrative headquarters in The Dalles, Oregon, the Bank operates as Columbia
River Banking Company through branch facilities in The Dalles, Hood River, and
Maupin, Oregon; as Juniper Banking Company (an assumed name acquired as a result
of a 1994 merger transaction) through branches in Madras, Redmond, and Bend,
Oregon; and, as Klickitat Valley Bank through branches in Goldendale and White
Salmon, Washington. In 1997, the Bank also commenced operations of a mortgage
banking division, Columbia Mortgage Group, which is headquartered in Bend,
Oregon, and provides services to all commercial banking branches of the Bank.
Bancorp and the Bank are subject to the regulations of certain Federal and State
agencies and undergo periodic examinations by those regulatory authorities.
 
     MANAGEMENT'S ESTIMATES AND ASSUMPTIONS -- In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates. Significant estimations made by
management primarily involve the calculation of the allowance for loan losses.
 
     INVESTMENT SECURITIES -- The Bank is required to specifically identify its
investment securities as "held-to-maturity," "available-for-sale," or "trading
accounts." Accordingly, management has determined that all investment securities
held at December 31, 1996 and 1997, are either "available-for-sale" or "held-to-
maturity" and conform to the following accounting policies:
 
     Securities held-to-maturity -- Bonds, notes, and debentures for which the
Bank has the intent and ability to hold to maturity are reported at cost,
adjusted for premiums and discounts that are recognized in interest income using
the interest method over the period to maturity.
 
     Securities available-for-sale -- Available-for-sale securities consist of
bonds, notes, debentures, and certain equity securities not classified as
held-to-maturity securities. Securities are generally classified as
available-for-sale if the instrument may be sold in response to such factors as:
(1) changes in market interest
 
                                       F-7
<PAGE>   83
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
rates and related changes in the prepayment risk, (2) needs for liquidity, (3)
changes in the availability of and the yield on alternative instruments, and (4)
changes in funding sources and terms. Unrealized holding gains and losses, net
of tax, on available-for-sale securities are reported as a net amount in a
separate component of equity until realized. Fair values for these investment
securities are based on quoted market prices. Gains and losses on the sale of
available-for-sale securities are determined using the specific-identification
method.
 
     Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary
result in write-downs of the individual securities to their fair value. The
related write-downs would be included in earnings as realized losses. Premiums
and discounts are recognized in interest income using the effective interest
method over the period to maturity.
 
     RESTRICTED EQUITY SECURITIES -- The Bank's equity investments in the
Federal Home Loan Bank and Federal Agriculture Mortgage Corporation are
classified as restricted equity securities since ownership of these instruments
is restricted and they do not have an active market. As restricted equity
securities, these investments are carried at cost.
 
     LOANS, NET OF ALLOWANCE FOR LOAN LOSSES AND UNEARNED INCOME -- Loans are
stated at the amount of unpaid principal, reduced by an allowance for loan
losses and unearned income. Interest on loans is calculated by using the
simple-interest method on daily balances of the principal amount outstanding.
The allowance for loan losses is established through a provision for loan losses
charged to expenses. Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrower's
ability to pay. Various regulatory agencies, as a regular part of their
examination process, periodically review the Bank's reserve for loan losses.
Such agencies may require the Bank to recognize additions to the allowance based
on their judgment of information available to them at the time of their
examinations.
 
     Impaired loans are carried at the present value of expected future cash
flows discounted at the loan's effective interest rate, the loan's market price,
or the fair value of the collateral if the loan is collateral dependent. Accrual
of interest is discontinued on impaired loans when management believes, after
considering economic and business conditions, collection efforts, and collateral
position, that the borrower's financial condition is such that collection of
interest is doubtful. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to the
extent cash payments are received. Loan origination fees and certain direct
origination costs are capitalized and recognized as an adjustment of the yield
of the related loan.
 
     LOANS HELD-FOR-SALE -- Mortgage loans held-for-sale are carried at the
lower of cost or estimated market value. Market value is determined on an
aggregate loan basis. At December 31, 1996, the Bank held no mortgage loans for
sale. At December 31, 1997, mortgage loans held-for-sale were carried at cost
which approximated market.
 
     PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed by the straight-line and
accelerated methods over the estimated useful lives of the assets, which range
from 5 to 7 years for furniture and equipment and 31 1/2 years for building
premises.
 
     OTHER REAL ESTATE -- Other real estate, acquired through foreclosure or
deeds in lieu of foreclosure, is carried at the lower of cost or estimated net
realizable value. When property is acquired, any excess of the loan balance over
its estimated net realizable value is charged to the reserve for loan losses.
Subsequent write-
 
                                       F-8
<PAGE>   84
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
downs to net realizable value, if any, or any disposition gains or losses are
included in noninterest income and expense. The Bank had no other real estate at
December 31, 1996 and 1997.
 
     INCOME TAXES -- Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
 
     STATEMENT OF CASH FLOWS -- Cash equivalents are generally all short-term
investments with a maturity of three months or less. Cash and cash equivalents
normally include cash on hand, amounts due from banks, and federal funds sold.
 
     OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS -- The Bank holds no derivative
financial instruments. However, in the ordinary course of business, the Bank has
entered into off-balance-sheet financial instruments consisting of commitments
to extend credit, commitments under credit card arrangements, commercial letters
of credit, and standby letters of credit. However, such financial instruments
are recorded in the financial statements when they are funded or related fees
are incurred or received.
 
     FAIR VALUE OF FINANCIAL INSTRUMENTS -- The following methods and
assumptions were used by the Bank in estimating fair values of financial
instruments as disclosed herein:
 
     Cash and cash equivalents -- The carrying amounts of cash and short-term
instruments approximate their fair value.
 
     Held-to-maturity and available-for-sale securities -- Fair values for
investment securities, excluding restricted equity securities, are based on
quoted market prices. The carrying values of restricted equity securities
approximate fair values.
 
     Loans receivable -- For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on carrying
values. Fair values for certain mortgage loans (for example, one-to-four family
residential), credit card loans, and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. Fair values for
commercial real estate and commercial loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values for impaired
loans are estimated using discounted cash flow analyses or underlying collateral
values, where applicable.
 
     Deposit liabilities -- The fair values disclosed for demand deposits are,
by definition, equal to the amount payable on demand at the reporting date (that
is, their carrying amounts). The carrying amounts of variable-rate, fixed-term
money market accounts and certificates of deposit (CDs) approximate their fair
values at the reporting date. Fair values for fixed-rate CDs are estimated using
a discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.
 
     Short-term borrowings -- The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings maturing
within 90 days approximate their fair values. Fair values of other short-term
borrowings are estimated using discounted cash flow analyses based on the Bank's
current incremental borrowing rates for similar types of borrowing arrangements.
 
     Long-term debt -- The fair value of the Bank's long-term debt is estimated
using discounted cash flow analyses based on the Bank's current incremental
borrowing rates for similar types of borrowing arrangements.
 
     Accrued interest -- The carrying amounts of accrued interest approximate
their fair values.
 
                                       F-9
<PAGE>   85
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
     Off-balance-sheet instruments -- The Bank's off-balance-sheet instruments
include unfunded commitments to extend credit and standby letters of credit. The
fair value of these instruments is not considered practicable to estimate
because of the lack of quoted market prices and the inability to estimate fair
value without incurring excessive costs.
 
     ADVERTISING -- Advertising costs are charged to expense during the year in
which they are incurred.
 
     STOCK OPTIONS -- In October 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation." This new standard defines a fair
value based method of accounting for an employee stock option or similar equity
instrument. This statement gives entities a choice of recognizing related
compensation expense by adopting the new fair value method or to continue to
measure compensation using the intrinsic value approach under Accounting
Principles Board (APB) Opinion No. 25, the former standard. If the former
standard for measurement were elected, SFAS No. 123 requires supplemental
disclosure to show any significant effects of using the new measurement
criteria. The Bank has elected to continue using the measurement prescribed by
APB Opinion No. 25, and accordingly, this pronouncement has had no effect on the
Bank's financial position or results of operations.
 
     UNAUDITED INTERIM FINANCIAL DATA -- The interim financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management all adjustments,
including normal recurring accruals necessary for 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, 1998, are not
necessarily indicative of results to be anticipated for the year ending December
31, 1998.
 
     RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1997, the FASB issued SFAS
No. 130 "Reporting Comprehensive Income" which the Bank is required to adopt for
years beginning after December 15, 1997. This statement establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general purpose financial
statements. When adopted, the unrealized gain or loss on available-for-sale
securities will be recognized as a component of comprehensive income.
 
     Other issued but not yet required FASB statements are not currently
applicable to the Bank's operations.
 
     RECLASSIFICATIONS -- Certain reclassifications have been made to the 1996
and 1995 financial statements to conform with current year presentations.
 
                                      F-10
<PAGE>   86
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2 -- INVESTMENT SECURITIES
 
     The book value and approximate market values of investment securities at
December 31, 1996 and 1997, are summarized as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                  GROSS         GROSS       ESTIMATED
                                                   AMORTIZED    UNREALIZED    UNREALIZED     MARKET
                                                     COST         GAINS         LOSSES        VALUE
                                                   ---------    ----------    ----------    ---------
<S>                                                <C>          <C>           <C>           <C>
DECEMBER 31, 1996
Available-for-sale securities:
  U.S. Treasury securities.......................   $ 1,799        $  5         $  (2)       $ 1,802
  Obligation of U.S. government agencies.........     7,181          18           (40)         7,159
  Corporate debt securities......................       451           2            --            453
  Corporate equity securities....................       300          --            --            300
                                                    -------        ----         -----        -------
                                                    $ 9,731        $ 25         $ (42)       $ 9,714
                                                    =======        ====         =====        =======
Held-to-maturity securities:
  U.S. Treasury securities.......................   $ 2,319        $  -         $ (21)       $ 2,298
  Obligation of U.S. government agencies.........    20,821         538          (664)        20,695
  Corporate debt securities......................     2,157           8            (1)         2,164
  Mortgage-backed securities.....................       450           3            (6)           447
  Municipal securities...........................    15,351         224           (19)        15,556
                                                    -------        ----         -----        -------
                                                    $41,098        $773         $(711)       $41,160
                                                    =======        ====         =====        =======
DECEMBER 31, 1997
Available-for-sale securities:
  U.S. Treasury securities.......................   $ 3,211        $  6         $  (3)       $ 3,214
  Obligation of U.S. government agencies.........    26,930          72           (59)        26,943
  Corporate debt securities......................       854          --            (1)           853
  Corporate equity securities....................       300          --            --            300
                                                    -------        ----         -----        -------
                                                    $31,295        $ 78         $ (63)       $31,310
                                                    =======        ====         =====        =======
Held-to-maturity securities:
  Mortgage-backed securities.....................   $   157        $  1         $  (3)       $   155
  Municipal securities...........................    16,571         356            --         16,927
                                                    -------        ----         -----        -------
                                                    $16,728        $357         $  (3)       $17,082
                                                    =======        ====         =====        =======
</TABLE>
 
                                      F-11
<PAGE>   87
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)
     The amortized cost and estimated market value of investment securities at
December 31, 1997, by contractual maturity, are shown below (in thousands).
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
 
<TABLE>
<CAPTION>
                                                      AVAILABLE-FOR-SALE     HELD-TO-MATURITY
                                                      ------------------    ------------------
                                                       COST      MARKET      COST      MARKET
                                                      -------    -------    -------    -------
<S>                                                   <C>        <C>        <C>        <C>
Due in one year or less.............................  $ 6,860    $ 6,850    $ 2,220    $ 2,243
Due after one year through five years...............   19,434     19,439      6,988      7,150
Due after five years through ten years..............    3,700      3,727      3,005      3,079
Due after ten years.................................    1,000        994      4,515      4,610
                                                      -------    -------    -------    -------
                                                       30,994     31,010     16,728     17,082
Corporate equity securities.........................      300        300         --         --
                                                      -------    -------    -------    -------
                                                      $31,294    $31,310    $16,728    $17,082
                                                      =======    =======    =======    =======
</TABLE>
 
     For the purpose of the maturity table, mortgage-backed securities, which
are not due at a single maturity date, have been allocated over maturity
groupings based on the weighted-average contractual maturities of underlying
collateral. Mortgage-backed securities mature earlier than their
weighted-average contractual maturities because of principal prepayments.
 
     Effective with the acquisition of Bancorp and Klickitat Valley Bank (see
Note 1), the Bank reclassified certain investments in debt securities, held by
Klickitat, from held-to-maturity to available-for-sale to maintain its existing
interest rate risk position and credit risk policy as permitted by financial
accounting standards. At the time of transfer, the investment securities had an
amortized cost of $25,243,000 and an estimated market value of $25,206,000.
Recognition of the market value of the transferred investment securities
resulted in an after tax adjustment to stockholders' equity at December 31,
1997, of $22,000.
 
     As of December 31, 1996 and 1997, investment securities with a book value
of $3,283,000 and $5,337,000, respectively, have been pledged to secure public
deposits as required by law.
 
NOTE 3 -- RESTRICTED EQUITY SECURITIES
 
     The composition of restricted equity securities is summarized as follows
(in thousands):
 
<TABLE>
<CAPTION>
                                                              1996    1997
                                                              ----    ----
<S>                                                           <C>     <C>
Federal Home Loan Bank stock................................  $669    $756
Federal Agriculture Mortgage Corporation stock..............     3      10
                                                              ----    ----
                                                              $672    $766
                                                              ====    ====
</TABLE>
 
                                      F-12
<PAGE>   88
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 4 -- LOANS
 
     The composition of loan balances is summarized as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                           1996        1997
                                                         --------    --------
<S>                                                      <C>         <C>
Commercial.............................................  $ 32,686    $ 38,013
Agriculture............................................    16,014      22,365
Real estate............................................    55,287      75,003
Consumer...............................................    13,837      17,385
Credit card and other loans............................     1,699       1,990
                                                         --------    --------
                                                          119,523     154,756
Less: Allowance for loan losses........................      (995)     (1,639)
     Unearned loan fees................................      (300)       (612)
                                                         --------    --------
                                                         $118,228    $152,505
                                                         ========    ========
</TABLE>
 
     Impairment of loans having recorded investments of $229,000 at December 31,
1996, and $1,041,000 at December 31, 1997, have been recognized in conformity
with SFAS No. 114 "Accounting by Creditors for Impairment of a Loan" as amended
by SFAS No. 118 "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures." The Bank's average investment in impaired loans,
measured on the basis of the present value of expected future cash flows
discounted at the loan's effective interest rate, was $268,000 during 1996 and
$462,000 during 1997. The total allowance for loan losses related to these loans
at December 31, 1996 and 1997, was approximately $34,000 and $221,000,
respectively. Had the impaired loans performed according to their original
terms, additional interest income of $11,000 and $59,000 would have been
recognized in 1996 and 1997, respectively. No interest income has been
recognized on impaired loans during the period of impairment.
 
NOTE 5 -- ALLOWANCE FOR LOAN LOSSES
 
     Changes in the allowance for loan losses were as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                            1995      1996      1997
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
BALANCE, beginning of year...............................  $  954    $1,071    $  995
Provision for loan losses................................      88       246       581
Loans charged-off........................................    (118)     (391)      (40)
Recoveries...............................................     147        69       103
                                                           ------    ------    ------
BALANCE, end of year.....................................  $1,071    $  995    $1,639
                                                           ======    ======    ======
</TABLE>
 
NOTE 6 -- PROPERTY AND EQUIPMENT
 
     The major classifications of property and equipment are summarized as
follows (in thousands):
 
<TABLE>
<CAPTION>
                                                               1996      1997
                                                              ------    ------
<S>                                                           <C>       <C>
Land........................................................  $1,049    $1,049
Buildings and improvements..................................   4,030     4,134
Furniture and equipment.....................................   2,220     2,918
                                                              ------    ------
                                                               7,299     8,101
Less accumulated depreciation...............................  (2,418)   (2,844)
                                                              ------    ------
                                                              $4,881    $5,257
                                                              ======    ======
</TABLE>
 
                                      F-13
<PAGE>   89
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 7 -- TIME DEPOSITS
 
     Time certificates of deposit of $100,000 and over, aggregated $12,205,000
and $8,938,000 at December 31, 1996 and 1997, respectively.
 
     At December 31, 1997, the scheduled maturities for all time deposits are as
follows (in thousands):
 
<TABLE>
<S>                                                           <C>
1998........................................................  $35,841
1999........................................................    4,102
2000........................................................    1,723
2001........................................................      693
2002 and thereafter.........................................      493
                                                              -------
                                                              $42,852
                                                              =======
</TABLE>
 
NOTE 8 -- INCOME TAXES
 
     The provision for income taxes consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                    1995      1996      1997
                                                   ------    ------    ------
<S>                                                <C>       <C>       <C>
Current tax provision
  Federal........................................  $1,092    $1,280    $1,901
  State..........................................      83       173       172
                                                   ------    ------    ------
                                                    1,175     1,453     2,073
Deferred tax benefit
  Federal........................................     (85)     (143)     (252)
  State..........................................     (11)      (25)      (26)
                                                   ------    ------    ------
                                                      (96)     (168)     (278)
                                                   ------    ------    ------
                                                   $1,079    $1,285    $1,795
                                                   ======    ======    ======
</TABLE>
 
     The components of the deferred tax benefit consisted of the following (in
thousands):
 
<TABLE>
<CAPTION>
                                                     1995     1996     1997
                                                     -----    -----    -----
<S>                                                  <C>      <C>      <C>
Loan loss provision not deductible for tax.........  $ (32)   $ (93)   $(236)
Difference between book and tax recognition of
  deferred loan fees...............................     18       34       --
Difference between book and tax depreciation
  methods..........................................     11       (7)      37
Difference between accrual and cash basis tax
  reporting........................................   (102)     (71)     (58)
Deferred compensation expense......................     (6)     (51)     (43)
Other differences..................................     15       20       22
                                                     -----    -----    -----
Deferred tax benefit...............................  $ (96)   $(168)   $(278)
                                                     =====    =====    =====
</TABLE>
 
                                      F-14
<PAGE>   90
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 8 -- INCOME TAXES (CONTINUED)
     The net deferred tax asset in the accompanying consolidated balance sheets
consisted of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                              1996     1997
                                                              -----    -----
<S>                                                           <C>      <C>
Deferred tax assets:
  Allowance for loan losses.................................  $ 200    $ 437
  Deferred compensation.....................................     59      102
                                                              -----    -----
                                                                259      539
                                                              -----    -----
Deferred tax liabilities:
  Accumulated depreciation..................................    (22)     (58)
  Conversion to accrual basis tax reporting.................   (134)     (76)
  Federal Home Loan Bank stock dividends....................    (28)     (51)
                                                              -----    -----
                                                               (184)    (185)
                                                              -----    -----
Net deferred tax assets.....................................  $  75    $ 354
                                                              =====    =====
</TABLE>
 
     Management believes, based upon the Bank's historical performance, the
deferred tax asset will be realized in the normal course of operations and,
accordingly, management has not reduced deferred tax assets by a valuation
allowance.
 
     The tax provision differs from the federal statutory rate of 34% due
principally to the effect of tax exemptions for interest received on municipal
investments. The 1997 provision for income taxes reflects a reduction in the
state income tax rate from 6.6% to 3.8%.
 
     A reconciliation between the statutory federal income tax rate and the
effective tax rate is as follows (dollars in thousands):
 
<TABLE>
<CAPTION>
                                                    1995      1996      1997
                                                   ------    ------    ------
<S>                                                <C>       <C>       <C>
Federal income taxes at statutory rate...........  $1,213    $1,364    $1,931
State income tax expense, net of federal income
  tax benefit....................................      48       174       126
Effect of nontaxable interest income.............    (216)     (221)     (220)
Other............................................      34       (32)      (42)
                                                   ------    ------    ------
                                                   $1,079    $1,285    $1,795
                                                   ======    ======    ======
                                                       30%       32%       32%
                                                   ======    ======    ======
</TABLE>
 
NOTE 9 -- TRANSACTIONS WITH RELATED PARTIES
 
     Certain directors, executive officers, and principal stockholders are
customers of and have had banking transactions with the Bank, and the Bank
expects to have such transactions in the future. All loans and commitments to
loan included in such transactions were made in compliance with applicable laws
on substantially the same terms (including interest rates and collateral) as
those prevailing at the time for comparable transactions with other persons and
do not involve more than the normal risk of collectibility or
 
                                      F-15
<PAGE>   91
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 9 -- TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
present any other unfavorable features. The amount of loans outstanding to
directors, executive officers, principal stockholders, and companies with which
they are associated was as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                             1996      1997
                                                            ------    -------
<S>                                                         <C>       <C>
BALANCE, beginning of year................................  $1,535    $ 2,967
Loans made................................................   1,787        634
Loans repaid..............................................    (355)    (1,303)
                                                            ------    -------
BALANCE, end of year......................................  $2,967    $ 2,298
                                                            ======    =======
</TABLE>
 
     Columbia has a 14.3% shareholder interest in Datatech of Oregon, Inc.
(Datatech), a bank service corporation functioning as a data processing facility
for the Bank and six other community banks in Oregon. Columbia's investment in
Datatech is accounted for by the cost method. Under this accounting method,
Columbia recognizes income from its investment as dividends are distributed.
Dividends received in excess of earnings subsequent to Columbia's investment are
considered a return of investment and are recorded as reductions of cost of the
investment. For the periods ended December 31, 1995, 1996, and 1997, the Bank
recorded data processing expenses paid to Datatech in the amount of $206,000,
$195,000, and $304,000. As of December 31, 1997, Columbia's recorded investment
in Datatech was $33,000.
 
     The Bank has a prime rate, unsecured operating line of credit to Datatech
for $80,000. The outstanding principal balance was $23,000 at December 31, 1997,
and $74,000 at December 31, 1996. Interest income of $4,000 was realized by
Columbia in 1996 and 1997.
 
NOTE 10 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
 
     In the normal course of business to meet the financing needs of its
customers, the Bank is a party to financial instruments with off-balance-sheet
risk. These financial instruments include commitments to extend credit and the
issuance of letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the balance sheets. The contract amounts of those instruments reflect the extent
of involvement the Bank has in particular classes of financial instruments.
 
     The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
letters of credit written is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
 
     Unless noted otherwise, the Bank does not require collateral or other
security to support financial instruments with credit risk.
 
<TABLE>
<CAPTION>
                                                            CONTRACT AMOUNTS
                                                              DECEMBER 31,
                                                           ------------------
                                                            1996       1997
                                                           -------    -------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Financial instruments whose contract amounts
  represent credit risk:
  Commitments to extend credit...........................  $23,809    $31,314
  Undisbursed credit card lines of credit................    3,696      4,707
  Commercial and standby letters of credit...............      179        287
                                                           -------    -------
                                                           $27,684    $36,308
                                                           =======    =======
</TABLE>
 
     Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without
 
                                      F-16
<PAGE>   92
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 10 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The amount of collateral obtained, if deemed necessary
by the Bank upon extension of credit, is based on management's credit evaluation
of the counterparty. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income-producing properties.
 
     Letters of credit written are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third-party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Bank holds cash, marketable
securities, or real estate as collateral supporting those commitments for which
collateral is deemed necessary.
 
NOTE 11 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
 
     The following table estimates fair value and the related carrying values of
Bancorp's financial instruments at December 31, 1996 and 1997:
 
<TABLE>
<CAPTION>
                                                          1996                     1997
                                                  ---------------------    ---------------------
                                                              ESTIMATED                ESTIMATED
                                                  CARRYING      FAIR       CARRYING      FAIR
                                                   AMOUNT       VALUE       AMOUNT       VALUE
                                                  --------    ---------    --------    ---------
                                                     (IN THOUSANDS)           (IN THOUSANDS)
<S>                                               <C>         <C>          <C>         <C>
Financial assets:
  Cash and due from banks.......................  $ 16,030    $ 16,030     $ 16,878    $ 16,878
  Federal funds sold............................  $  7,367    $  7,367     $  2,834    $  2,834
  Securities available-for-sale.................  $  9,714    $  9,714     $ 31,310    $ 31,310
  Securities held-to-maturity...................  $ 41,098    $ 41,160     $ 16,728    $ 17,082
  Restricted equity securities..................  $    672    $    672     $    766    $    766
  Loans held-for-sale...........................  $     --    $     --     $  2,714    $  2,714
  Loans, net of allowance for loan losses and
     unearned loan fees.........................  $118,228    $118,234     $152,505    $149,981
Financial liabilities:
  Demand and savings deposits...................  $129,053    $129,053     $154,624    $154,624
  Time deposits and IRA accounts................  $ 49,691    $ 49,717     $ 46,944    $ 46,894
  Notes payable.................................  $    600    $    600     $  5,264    $  5,264
</TABLE>
 
     While estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Bank to have
disposed of such items at December 31, 1996 and 1997, the estimated fair values
would necessarily have been achieved at that date, since market values may
differ depending on various circumstances. The estimated fair values at December
31, 1996 and 1997, should not necessarily be considered to apply at subsequent
dates.
 
     In addition, other assets and liabilities of the Bank that are not defined
as financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not recognized
in the financial statements nevertheless may have value but are not included in
the above disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the earnings potential of loan servicing rights,
the trained work force, customer goodwill, and similar items.
 
NOTE 12 -- CONCENTRATIONS OF CREDIT RISK
 
     All of the Bank's loans, commitments, and commercial and standby letters of
credit have been granted to customers in the Bank's market area. The majority of
such customers are also depositors of the Bank. Investments in state and
municipal securities are not significantly concentrated within any one region of
the
 
                                      F-17
<PAGE>   93
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 12 -- CONCENTRATIONS OF CREDIT RISK (CONTINUED)
United States. The concentrations of credit by type of loan are set forth in
Note 4. The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Commercial and standby letters of credit were
granted primarily to commercial borrowers as of December 31, 1997. The Bank's
loan policy does not allow the extension of credit to any single borrower or
group of related borrowers in excess of $1,000,000 without approval from the
Board of Directors' loan committee.
 
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
 
     OPERATING LEASE COMMITMENTS -- As of December 31, 1997, the Bank leased
certain properties. The approximate annual commitment for rentals under these
noncancellable operating leases is summarized as follows (in thousands):
 
<TABLE>
<S>                                                     <C>
1998..................................................  $ 44
1999..................................................    44
2000..................................................    20
                                                        ----
                                                        $108
                                                        ====
</TABLE>
 
     Rental expense for all operating leases was $21,000, $28,000, and $45,000
for the periods ended December 31, 1995, 1996, and 1997, respectively.
 
     LEGAL CONTINGENCIES -- The Bank may become a defendant in certain claims
and legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, there are no current matters
expected to have a material adverse effect on the consolidated financial
position or results of operations.
 
NOTE 14 -- NOTES PAYABLE
 
     The Bank is a member of the Federal Home Loan Bank (FHLB) of Seattle. As a
member, the Bank has entered into an "Advances, Security and Deposit Agreement"
which provides a credit arrangement with FHLB. Borrowings under the credit
arrangement are collateralized by the Bank's FHLB stock as well as deposits or
other instruments which may be pledged. As of December 31, 1996 and 1997, the
Bank had borrowings outstanding with the FHLB of $600,000 and $4,600,000,
respectively. The promissory notes mature in 1998 and 2001 and carry interest
rates from 5.35% to 6.00%, respectively.
 
     The Bank also participates in the U.S. Treasury Department's Treasury
Investment Program which facilitates the acceptance and processing of federal
tax deposits. Under this program, the Bank is authorized to accumulate daily tax
payments, up to authorized limits, and deploy the funds in short-term
investments. In exchange, the Bank is required to issue a fully collateralized
demand note to the Treasury and pay interest at the federal funds rate minus 25
basis points. No balances were outstanding in 1996. As of December 31, 1997, the
Bank had $664,000 outstanding under this program.
 
NOTE 15 -- STOCK OPTION PLANS
 
     During 1993, Columbia adopted a Stock Incentive Plan (the plan) for the
benefit of its employees and Board members. Under the plan as amended in 1996,
options were reserved for the purchase of 300,000 shares of the Bancorp's common
stock. As of December 31, 1997, the amount of shares reserved under the plan was
27,800. The plan allows for the granting of both incentive stock options and
nonstatutory stock options. The option price for incentive stock options is
determined by the Board of Directors and cannot be less than 100% of the fair
market value of the shares on the date of grant. The incentive stock options
expire ten years from the date of grant. The option price and duration of
options for nonstatutory stock options is determined by the Board of Directors.
 
                                      F-18
<PAGE>   94
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 15 -- STOCK OPTION PLANS (CONTINUED)
     The following summarizes options available and outstanding under this plan
as of December 31, 1997:
 
<TABLE>
<CAPTION>
                                                                         WEIGHTED
                                                              NUMBER     AVERAGE
                                                                OF       EXERCISE
                                                              OPTIONS     PRICE
                                                              -------    --------
<S>                                                           <C>        <C>
Options under grant -- December 31, 1994....................   24,100    $  6.33
Options granted in 1995:
  Incentive stock options...................................   45,000    $ 10.00
  Nonstatutory stock options................................   27,000    $ 10.00
Options exercised in 1995:
  Incentive stock options...................................   (5,800)   $ (8.29)
  Nonstatutory stock options................................   (1,000)   $ (7.80)
Options expired or forfeited in 1995........................     (600)   $ (6.33)
                                                              -------
Options under grant and exercisable -- December 31, 1995....   88,700    $  9.00
Options exercised in 1996:
  Inventive stock options...................................   (6,656)   $ (8.83)
  Nonstatutory stock options................................   (3,500)   $(10.00)
Options expired or forfeited in 1996........................   (1,200)   $ (9.00)
                                                              -------
Options under grant and exercisable -- December 31, 1996....   77,344    $  9.10
Options granted in 1997:
  Incentive stock options...................................   43,000    $ 16.75
  Nonstatutory stock options................................   26,000    $ 16.75
Options exercised in 1997:
  Incentive stock options...................................  (17,415)   $ (8.44)
  Nonstatutory stock options................................   (4,000)   $(16.75)
Options expired or forfeited in 1997........................       --    $    --
                                                              -------
Options under grant and exercisable -- December 31, 1997....  124,929    $ 13.17
                                                              =======
Options reserved -- December 31, 1997.......................   27,800
                                                              =======
</TABLE>
 
     Had compensation cost for the Bank's 1997 grants for stock-based
compensation plans been determined consistent with SFAS No. 123, the Bank's net
income, and net income per common share for December 31, 1997, would approximate
the pro forma amounts below. The disclosure requirements of SFAS No. 123 were
not material to the 1996 consolidated financial statements.
 
     The fair value of each option granted during 1997 is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions: (1) dividend yield of 2.09%, (2) expected volatility of 32.57%, (3)
risk-free rate of 6.36%; and (4) expected life of 3.75 years.
 
     The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated.
 
<TABLE>
<CAPTION>
                                                                     1997
                                                              ------------------
                                                                 AS        PRO
                                                              REPORTED    FORMA
                                                              --------    ------
<S>                                                           <C>         <C>
Net income (in thousands)...................................   $3,887     $3,669
Basic earnings per common share.............................   $ 0.57     $ 0.54
Diluted earnings per common share...........................   $ 0.55     $ 0.52
</TABLE>
 
                                      F-19
<PAGE>   95
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 16 -- EMPLOYEE BENEFIT PLANS
 
     In January 1988, Columbia adopted an Employee Stock Ownership Plan. The
plan allows participation by all employees over the age of 20 who have also met
minimum service requirements. Contributions to the plan are at the discretion of
the Board of Directors and are used to purchase shares of Bancorp's common
stock. Employees are not permitted to contribute individually to the plan but
vest in their proportionate share of the plan interest after six years of
participation. For the periods ending December 31, 1995, 1996, and 1997,
Columbia contributed $150,000, $163,000, and $223,000, respectively, to the
plan.
 
     Bancorp accounts for its ESOP in accordance with Statement of Position
93-6, "Employer's Accounting for Employee Stock Ownership Plans." The ESOP's
assets as of December 31, 1996 and 1997, were as follows:
 
<TABLE>
<CAPTION>
                                                    1996       1997
                                                   -------    -------
<S>                                                <C>        <C>
Allocated shares.................................   73,741     85,400
                                                   =======    =======
Cash on hand.....................................  $64,000    $13,000
                                                   =======    =======
</TABLE>
 
     The Bank is required to provide a "put option" to any participant who
receives a stock distribution, if this stock is not readily tradable on an
established market. This "put option" allows the participant to sell the stock
to the Bank for its fair market value during a stipulated period of time.
Accordingly, employee stock ownership plan shares subject to the put option are
classified outside of permanent equity on the basis of fair market value
determined by an independent appraisal.
 
     Columbia has also adopted a 401(k) Savings Investment Plan which allows
employees to defer certain amounts of compensation for income tax purposes under
Section 401(k) of the Internal Revenue Code. Essentially, all full-time
employees over the age of 20 and meeting length of service requirements are
eligible to participate in the plan. Employees may elect to defer and
contribute, within statutory limits, up to 10% of their annual compensation into
the plan. Their contributions and those of Columbia, which are limited to 25% of
employee contributions up to 4% of total participant compensation, are invested
by plan trustees in employee designated funds. For the periods ending December
31, 1995, 1996, and 1997, Columbia contributed $17,000, $22,000, and $31,000,
respectively, to the plan.
 
     Columbia has also established an employee bonus program which provides
eligible participants additional compensation based upon the achievement of
annual return on asset targets established by the Board of Directors. For the
periods ending December 31, 1995, 1996, and 1997, additional compensation of
$293,000, $159,000, and $429,000, respectively, was paid to eligible employees.
 
     During 1996, Columbia entered into both employment and retirement
agreements with its chief executive officer. The employment agreement provides
for the executive's salary and customary benefits until termination of the
agreement in May 1998.
 
     The retirement agreement provides annual post-retirement compensation for a
seven-year period after the chief executive's retirement. A portion of
Columbia's obligation under the agreement has been funded with a $120,000
interest-earning investment and will be paid in annual installments of $26,000
plus interest earned on invested funds. For the year ended December 31, 1997,
Columbia recorded a liability of $161,000 as its obligation for current services
pursuant to the retirement plan. In the event employment of the chief executive
officer is terminated prior to expiration of the agreements, all salary and
benefits accrued as of the termination date and all retirement payments provided
in the retirement agreement will be paid to the executive.
 
     Klickitat maintained a profit sharing plan covering substantially all
employees. The plan provided for a discretionary employer contribution each
year. Klickitat's maximum profit sharing contribution was 15% of taxable
compensation for the year, limited to $150,000. There were no employer or
employee contributions to this plan in 1997 when it was terminated and all
covered employees became eligible under Columbia's plan.
 
                                      F-20
<PAGE>   96
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 16 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The employer contribution was $108,000 and $111,000 for the years ended December
31, 1995 and 1996, respectively.
 
     During 1996, Klickitat entered into both employment and retirement
agreements with its chief executive officer. Klickitat's chief executive retired
on December 31, 1996, and pursuant to the agreement, will be paid in three
annual installments of $60,000. For the year ended December 31, 1996, Klickitat
recorded a liability of $180,000 as its obligation for current services pursuant
to the retirement plan.
 
NOTE 17 -- EARNINGS PER SHARE
 
     In 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which is
effective for financial statements issued for periods ending after December 15,
1997. SFAS No. 128 replaced standards for computing and presenting earnings per
share and requires a dual presentation of basic and diluted earnings per share.
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the year. Diluted earnings per share reflect the potential
dilution that could occur if common shares were issued pursuant to the exercise
of options under Columbia's stock option plans. Comparative earnings per share
data for the years ended December 31, 1995, 1996, and 1997, have been restated
to conform with the current year presentation. The following table illustrates
the computations of basic and diluted earnings per share for the years ended
December 31, 1995, 1996, and 1997 (in thousands except per share amounts):
 
<TABLE>
<CAPTION>
                                                               INCOME         SHARES       PER SHARE
                                                             (NUMERATOR)   (DENOMINATOR)    AMOUNT
                                                             -----------   -------------   ---------
<S>                                                          <C>           <C>             <C>
1995
Basic earnings per share
  Income available to common shareholders..................    $2,489          6,692         $0.37
                                                                                             =====
Effect of dilutive securities
  Outstanding common stock options.........................                      150
                                                               ------          -----
  Income available to common shareholders plus assumed
     conversions...........................................    $2,489          6,842         $0.36
                                                               ======          =====         =====
1996
Basic earnings per share
  Income available to common shareholders..................    $2,727          6,732         $0.40
                                                                                             =====
Effect of dilutive securities
  Outstanding common stock options.........................                      114
                                                               ------          -----
  Income available to common shareholders plus assumed
     conversions...........................................    $2,727          6,846         $0.40
                                                               ======          =====         =====
1997
Basic earnings per share
  Income available to common shareholders..................    $3,887          6,800         $0.57
                                                                                             =====
Effect of dilutive securities
  Outstanding common stock options.........................                      198
                                                               ------          -----
  Income available to common shareholders plus assumed
     conversions...........................................    $3,887          6,998         $0.55
                                                               ======          =====         =====
</TABLE>
 
                                      F-21
<PAGE>   97
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 18 -- PARENT COMPANY FINANCIAL INFORMATION
 
     Condensed financial information for Columbia Bancorp (unconsolidated parent
company only) is as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                               1996       1997
                                                              -------    -------
<S>                                                           <C>        <C>
ASSETS
  Cash......................................................  $   240    $   186
  Investment securities.....................................      300        300
  Investment in subsidiaries................................   18,999     22,561
  Other assets..............................................      174        169
                                                              -------    -------
          Total assets......................................  $19,713    $23,216
                                                              =======    =======
LIABILITIES
  Dividend payable..........................................  $   180    $   229
                                                              -------    -------
          Total liabilities.................................      180        229
                                                              -------    -------
EMPLOYEE STOCK OWNERSHIP PLAN
  SHARES SUBJECT TO PUT OPTION..............................    1,058      1,430
                                                              -------    -------
STOCKHOLDERS' EQUITY
  Common stock..............................................    5,139      5,528
  Additional paid-in capital................................    6,318      6,318
  Retained earnings.........................................    8,087     11,131
  Unrealized (loss) gain on available-for-sale investment
     securities.............................................      (11)        10
  Less employee stock ownership plan shares subject to put
     option.................................................   (1,058)    (1,430)
                                                              -------    -------
          Total stockholders' equity........................   18,475     21,557
                                                              -------    -------
          Total liabilities and stockholders' equity........  $19,713    $23,216
                                                              =======    =======
REVENUES
  Equity in undistributed earnings of subsidiary bank.......  $ 1,526    $ 3,541
  Dividends.................................................    1,388        468
EXPENSES
  Administrative expenses...................................     (187)      (122)
                                                              -------    -------
       Net income...........................................  $ 2,727    $ 3,887
                                                              =======    =======
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income................................................  $ 2,727    $ 3,887
  Adjustments to reconcile net income to net cash from
     operating activities:
     Equity in undistributed earnings of subsidiary bank....   (1,526)    (3,541)
     Changes in other assets and liabilities................      (36)         4
                                                              -------    -------
       Net cash from operating activities...................    1,165        350
                                                              -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES
  Cash dividends paid.......................................     (702)      (793)
  Proceeds from stock options exercised and purchases of
     common stock...........................................      193        389
                                                              -------    -------
       Net cash from financing activities...................     (509)      (404)
                                                              -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of land..........................................     (117)        --
  Purchase of held-to-maturity securities...................     (300)        --
                                                              -------    -------
       Net cash from investing activities...................     (417)        --
                                                              -------    -------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS..........................................      239        (54)
CASH AND CASH EQUIVALENTS, beginning of year................        1        240
                                                              -------    -------
CASH AND CASH EQUIVALENTS, end of year......................  $   240    $   186
                                                              =======    =======
</TABLE>
 
                                      F-22
<PAGE>   98
                        COLUMBIA BANCORP AND SUBSIDIARY
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 18 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
 
<TABLE>
<CAPTION>
                                                               1996       1997
                                                              -------    -------
<S>                                                           <C>        <C>
SCHEDULE OF NONCASH ACTIVITIES
  Change in unrealized loss on available-for-sale
     securities, net of tax.................................  $    12    $    (2)
                                                              =======    =======
  Unrealized gain on securities transferred from
     held-to-maturity to available-for-sale, net of tax.....  $    --    $    24
                                                              =======    =======
  Cash dividend declared payable after year end.............  $   180    $   228
                                                              =======    =======
</TABLE>
 
NOTE 19 -- REGULATORY MATTERS
 
     Banks are subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on a bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, banks must meet specific capital
guidelines that involve quantitative measures of a bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. A bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
 
     Quantitative measures established by regulation to ensure capital adequacy
require banks to maintain minimum amounts and ratios (set forth in the table on
the following page) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital to average assets
(as defined). Management believes, as of December 31, 1997 and 1996, that
Bancorp and the Bank meet all capital adequacy requirements to which it is
subject.
 
     As of the most recent notifications from their regulatory agencies,
Columbia and the Bank were categorized as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as adequately
capitalized, Bancorp and the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table on the
following page. There are no conditions or events since that notification that
management believes have changed the institutions' category.
 
     The actual capital amounts and ratios are also presented in the following
table (dollars in thousands).
 
<TABLE>
<CAPTION>
                                                                                           TO BE WELL
                                                                                       CAPITALIZED UNDER
                                                                     FOR CAPITAL       PROMPT CORRECTIVE
                                                   ACTUAL         ADEQUACY PURPOSES    ACTION PROVISIONS
                                              ----------------    -----------------    ------------------
                                              AMOUNT     RATIO    AMOUNT     RATIO     AMOUNT      RATIO
                                              -------    -----    -------    ------    -------    -------
<S>                                           <C>        <C>      <C>        <C>       <C>        <C>
AS OF DECEMBER 31, 1996:
                                                                             [Greater             [Greater
                                                                             than or              than or
                                                                              equal                 equal
                                                                                to]                   to]
Total capital to risk-weighted assets         $19,532    14.2%    $11,014      8.0%    $13,768      10.0%
                                                                             [Greater
                                                                             than or              [Greater
                                                                              equal               than or
                                                                                to]                 equal
Tier I capital to risk-weighted assets        $19,544    14.2%    $ 5,507      4.0%    $ 8,260    to] 6.0%
                                                                             [Greater
                                                                             than or              [Greater
                                                                              equal               than or
                                                                                to]                 equal
Tier I capital to average assets              $19,544     9.9%    $ 7,927      4.0%    $ 9,908    to] 5.0%
AS OF DECEMBER 31, 1997:
                                                                             [Greater             [Greater
                                                                             than or              than or
                                                                              equal                 equal
                                                                                to]                   to]
Total capital to risk-weighted assets         $22,987    13.7%    $13,420      8.0%    $16,775      10.0%
                                                                             [Greater
                                                                             than or              [Greater
                                                                              equal               than or
                                                                                to]                 equal
Tier I capital to risk-weighted assets        $22,977    13.7%    $ 6,710      4.0%    $10,065    to] 6.0%
                                                                             [Greater
                                                                             than or              [Greater
                                                                              equal               than or
                                                                                to]                 equal
Tier I capital to average assets              $22,977    10.6%    $ 8,640      4.0%    $10,801    to] 5.0%
</TABLE>
 
NOTE 20 -- SUBSEQUENT EVENTS (UNAUDITED)
 
     During 1998, Bancorp approved and completed a 3-for-2 and a 2-for-1 stock
split. Earnings per share amounts contained herein reflect the effects of these
transactions.
                                      F-23
<PAGE>   99
 
                          INDEPENDENT AUDITOR'S REPORT
 
To the Board of Directors
Valley Community Bancorp and Subsidiaries
 
     We have audited the accompanying consolidated balance sheet of Valley
Community Bancorp and Subsidiaries as of December 31, 1997, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of Valley Community Bancorp's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
 
     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Valley
Community Bancorp and Subsidiaries as of December 31, 1997, and the results of
its operations and cash flows for the year then ended, in conformity with
generally accepted accounting principles.
 
Moss Adams LLP
 
Portland, Oregon
August 24, 1998
 
                                      F-24
<PAGE>   100
 
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,     JUNE 30,
                                                                  1997           1998
                                                              ------------    -----------
                                                                              (UNAUDITED)
<S>                                                           <C>             <C>
Cash and due from banks.....................................    $ 2,144         $ 2,212
Federal funds sold..........................................     13,135           5,715
                                                                -------         -------
          Total cash and cash equivalents...................     15,279           7,927
                                                                -------         -------
Investment securities available-for-sale....................      3,292           2,704
Investment securities held-to-maturity......................      2,939           2,600
Restricted equity securities................................        278             284
                                                                -------         -------
          Total investment securities.......................      6,509           5,588
                                                                -------         -------
Loans, net of allowance for loan losses and unearned loan
  fees......................................................     21,745          22,045
Property and equipment, net of depreciation.................        630             607
Accrued interest receivable.................................        226             216
Other assets................................................        157             117
                                                                -------         -------
          Total assets......................................    $44,546         $36,500
                                                                =======         =======
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
  Noninterest-bearing demand deposits.......................    $ 6,641         $ 6,761
  Interest-bearing demand deposits..........................     25,382          14,671
  Savings accounts..........................................        989           1,222
  Time certificates and IRA accounts........................      6,767           8,164
                                                                -------         -------
          Total deposits....................................     39,779          30,818
Federal Home Loan Bank borrowing............................         --             400
Accrued interest payable and other liabilities..............         96             141
                                                                -------         -------
          Total liabilities.................................     39,875          31,359
                                                                -------         -------
CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY
  Preferred stock, no par value, 500,000 shares authorized,
     205,800 shares issued and outstanding..................        346             346
  Common stock, $1 par value, 2,000,000 shares authorized
     with 700,675 and 720,675 issued and outstanding in 1997
     and 1998, respectively.................................        701             721
  Surplus...................................................      1,390           1,455
  Retained earnings.........................................      2,224           2,614
  Accumulated comprehensive income, net of tax..............         10               5
                                                                -------         -------
          Total stockholders' equity........................      4,671           5,141
                                                                -------         -------
          Total liabilities and stockholders' equity........    $44,546         $36,500
                                                                =======         =======
</TABLE>
 
            See independent auditor's report and accompanying notes.
 
                                      F-25
<PAGE>   101
 
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                        YEAR ENDED      SIX MONTHS ENDED JUNE 30,
                                                       DECEMBER 31,    ----------------------------
                                                           1997           1997             1998
                                                       ------------    -----------      -----------
                                                                       (UNAUDITED)      (UNAUDITED)
<S>                                                    <C>             <C>              <C>
INTEREST INCOME
  Interest and fees on loans.........................     $2,404         $1,163           $1,210
  Interest on investments:
     Taxable investment securities...................        308            162              131
     Nontaxable investment securities................         83             42               42
  Interest on federal funds sold.....................        475            107              337
  Other interest and dividend income.................          3             --               --
                                                          ------         ------           ------
          Total interest income......................      3,273          1,474            1,720
                                                          ------         ------           ------
INTEREST EXPENSE
  Interest on interest-bearing deposit and savings
     accounts........................................        796            294              397
  Interest on time deposit accounts and IRA
     accounts........................................        287            139              197
  Borrowed funds.....................................         --             --                2
                                                          ------         ------           ------
          Total interest expense.....................      1,083            433              596
                                                          ------         ------           ------
       Net interest income before provision for loan
          losses.....................................      2,190          1,041            1,124
PROVISION FOR LOAN LOSSES............................         39             18               --
                                                          ------         ------           ------
       Net interest income after provision for loan
          losses.....................................      2,151          1,023            1,124
                                                          ------         ------           ------
NONINTEREST INCOME
  Service charges and fees...........................        252            119              130
  Other noninterest income...........................         20             11                3
                                                          ------         ------           ------
          Total noninterest income...................        272            130              133
                                                          ------         ------           ------
NONINTEREST EXPENSES
  Salaries and employee benefits.....................        595            277              290
  Occupancy expense..................................        109             54               56
  Office supplies....................................         68             35               36
  FDIC assessment....................................          3              1                2
  Data processing expense............................        121             62               52
  Other noninterest expenses.........................        113             60               54
                                                          ------         ------           ------
          Total noninterest expenses.................      1,009            489              490
                                                          ------         ------           ------
INCOME BEFORE PROVISION FOR INCOME TAXES.............      1,414            664              767
PROVISION FOR INCOME TAXES...........................        448            227              251
                                                          ------         ------           ------
NET INCOME...........................................     $  966            437              516
                                                          ======
OTHER COMPREHENSIVE INCOME
  Unrealized loss on available-for-sale securities...                        (2)              (5)
                                                                         ------           ------
COMPREHENSIVE INCOME.................................                    $  435           $  511
                                                                         ======           ======
BASIC EARNINGS PER SHARE OF COMMON STOCK.............     $ 1.35         $ 0.62           $ 0.69
                                                          ======         ======           ======
DILUTED EARNINGS PER SHARE OF COMMON STOCK...........     $ 1.04         $ 0.47           $ 0.57
                                                          ======         ======           ======
</TABLE>
 
            See independent auditor's report and accompanying notes.
 
                                      F-26
<PAGE>   102
 
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                                    ACCUMULATED
                                          PREFERRED STOCK    COMMON STOCK                              OTHER
                                          ---------------   ---------------             RETAINED   COMPREHENSIVE
                                          SHARES   AMOUNT   SHARES   AMOUNT   SURPLUS   EARNINGS      INCOME       TOTAL
                                          ------   ------   ------   ------   -------   --------   -------------   ------
<S>                                       <C>      <C>      <C>      <C>      <C>       <C>        <C>             <C>
BALANCE,
  December 31, 1996.....................   206      $346     701      $701    $1,390     $1,360         $ 6        $3,803
Dividends paid..........................    --        --      --        --        --       (102)         --          (102)
Changes in unrealized gain on
  available-for-sale securities, net of
  tax...................................    --        --      --        --        --         --           4             4
Net income and comprehensive income.....    --        --      --        --        --        966          --           966
                                           ---      ----     ---      ----    ------     ------         ---        ------
BALANCE,
  December 31, 1997.....................   206       346     701       701     1,390      2,224          10         4,671
Stock issued............................    --        --      20        20        65         --          --            85
Dividends paid..........................    --        --      --        --        --       (126)         --          (126)
Net income and comprehensive income.....    --        --      --        --        --        516          (5)          511
                                           ---      ----     ---      ----    ------     ------         ---        ------
BALANCE,
  June 30, 1998 (Unaudited).............   206      $346     721      $721    $1,455     $2,614         $ 5        $5,141
                                           ===      ====     ===      ====    ======     ======         ===        ======
</TABLE>
 
            See independent auditor's report and accompanying notes.
 
                                      F-27
<PAGE>   103
 
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                          YEAR ENDED     SIX MONTHS ENDED JUNE 30,
                                                         DECEMBER 31,    --------------------------
                                                             1997           1997           1998
                                                         ------------    -----------    -----------
                                                                         (UNAUDITED)    (UNAUDITED)
<S>                                                      <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income...........................................    $   966         $   437       $    516
  Adjustments to reconcile net income to net cash from
     operating activities:
     Amortization of premiums and discounts of
       investment securities...........................         (3)             --             --
     Gain on sale of available-for-sale securities.....         (4)             (3)            --
     Depreciation......................................         36              16             23
     Federal Home Loan Bank stock dividend.............        (12)             (3)            (7)
     Deferred income taxes.............................          2              --             --
     Provision for loan losses.........................         39              18             --
  Increase (decrease) in cash due to changes in certain
     assets and liabilities:
     Accrued interest receivable.......................         (4)            (18)            10
     Other assets......................................        (69)             13             40
     Accrued interest payable and other liabilities....       (109)             35            147
                                                           -------         -------       --------
          Net cash from operating activities...........        842             495            729
                                                           -------         -------       --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from the sale and maturity of
     available-for-sale securities.....................      1,480             632            584
  Proceeds from the maturity of held-to-maturity
     securities........................................        450             350            339
  Purchases of held-to-maturity securities.............       (342)           (120)            --
  Purchases of available-for-sale securities...........     (1,052)           (500)            --
  Purchase of Federal Home Loan Bank stock.............        (19)             (9)            --
  Net change in loans made to customers................     (2,213)         (2,694)          (402)
  Payments made for purchase of property and
     equipment.........................................       (112)            (25)            --
                                                           -------         -------       --------
          Net cash from investing activities...........     (1,808)         (2,366)           521
                                                           -------         -------       --------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net change in demand deposit and savings accounts....      5,473           6,775        (10,163)
  Net change in time deposits and IRA accounts.........      5,934             242          1,397
  Proceeds from exercise of stock options..............         --              --             85
  Dividends paid.......................................       (103)           (103)          (126)
  Borrowings from Federal Home Loan Bank...............         --              --            400
                                                           -------         -------       --------
          Net cash from financing activities...........     11,304           6,914         (8,407)
                                                           -------         -------       --------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS.....................................     10,338           5,043         (7,157)
CASH AND CASH EQUIVALENTS, beginning of year...........      4,941           4,941         15,084
                                                           -------         -------       --------
CASH AND CASH EQUIVALENTS, end of year.................    $15,279         $ 9,984       $  7,927
                                                           =======         =======       ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION
  Interest paid in cash................................    $ 1,078         $   426       $    585
                                                           =======         =======       ========
  Taxes paid in cash...................................    $   570         $   171       $    216
                                                           =======         =======       ========
SCHEDULE OF NONCASH ACTIVITIES
  Change in unrealized loss on available-for-sale
     securities, net of tax............................    $     4         $    (2)      $      5
                                                           =======         =======       ========
</TABLE>
 
            See independent auditor's report and accompanying notes.
 
                                      F-28
<PAGE>   104
 
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     ORGANIZATION AND NATURE OF OPERATIONS -- The consolidated financial
statements include the accounts of Valley Community Bancorp (Bancorp) and its
wholly-owned subsidiaries, Valley Community Mortgage Services, Valley Community
Bank (Bank), and the Bank's wholly-owned subsidiary, Valley Community Financial
Services, Inc. The majority of operations are conducted through the Bank. During
the period ending December 31, 1997, Valley Community Mortgage Services, Inc.,
and Valley Community Financial Services, Inc., were substantially inactive. All
significant intercompany accounts and transactions have been eliminated in the
preparation of the consolidated financial statements.
 
     MANAGEMENT'S ESTIMATES AND ASSUMPTIONS -- In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates. Significant estimations made by
management primarily involve the calculation of the allowance for loan losses.
 
     INVESTMENT SECURITIES -- The Bank is required to specifically identify its
investment securities as "held-to-maturity," "available-for-sale," or "trading
accounts." Accordingly, management has determined that all investment securities
held at December 31, 1997, are either "available-for-sale" or "held-to-maturity"
and conform to the following accounting policies:
 
     Securities held-to-maturity -- Bonds, notes, and debentures for which the
Bank has the intent and ability to hold to maturity are reported at cost,
adjusted for premiums and discounts that are recognized in interest income using
the interest method over the period to maturity.
 
     Securities available-for-sale -- Available-for-sale securities consist of
bonds, notes, debentures, and certain equity securities not classified as
held-to-maturity securities. Securities are generally classified as
available-for-sale if the instrument may be sold in response to such factors as:
(1) changes in market interest rates and related changes in the security's
prepayment risk, (2) needs for liquidity, (3) changes in the availability of and
the yield on alternative instruments, and (4) changes in funding sources and
terms. Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of equity until
realized. Fair values for investment securities are based on quoted market
prices. Gains and losses on the sale of available-for-sale securities are
determined using the specific-identification method.
 
     Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary,
result in write-downs of the individual securities to their fair value. The
related write-downs would be included in earnings as realized losses. Premiums
and discounts are recognized in interest income using the effective interest
method over the period to maturity.
 
     RESTRICTED EQUITY SECURITIES -- The Bank's equity investments in the
Federal Home Loan Bank and Federal Reserve Bank are classified as restricted
equity securities since ownership of these instruments is restricted and they do
not have an active market. As restricted equity securities, these investments
are carried at cost.
 
     LOANS, NET OF ALLOWANCE FOR LOAN LOSSES -- Loans are stated at the amount
of unpaid principal, reduced by an allowance for loan losses and unearned
income. Interest on loans is calculated by using the simple-interest method on
daily balances of the principal amount outstanding. The allowance for loan
losses is established through a provision for loan losses charged to expenses.
Loans are charged against the allowance for loan losses when management believes
that the collectibility of the principal is unlikely. The allowance is an amount
that management believes will be adequate to absorb possible losses on existing
loans that may become uncollectible, based on evaluations of the collectibility
of loans and prior loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan portfolio,
 
                                      F-29
<PAGE>   105
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
overall portfolio quality, review of specific problem loans, and current
economic conditions that may affect the borrower's ability to pay. Various
regulatory agencies, as a regular part of their examination process,
periodically review the Bank's reserve for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on their judgment
of information available to them at the time of their examinations.
 
     Impaired loans are carried at the present value of expected future cash
flows discounted at the loan's effective interest rate, the loan's market price,
or the fair value of the collateral, if the loan is collateral dependent.
Accrual of interest is discontinued on impaired loans when management believes,
after considering economic and business conditions, collection efforts, and
collateral position, that the borrower's financial condition is such that
collection of interest is doubtful. When interest accrual is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently recognized
only to the extent cash payments are received. Loan origination fees and certain
direct origination costs are capitalized and recognized as an adjustment of the
yield of the related loan.
 
     PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed by the straight-line method
over the estimated useful lives of the assets, which range from 3 to 7 years for
furniture and equipment and up to 40 years for building premises.
 
     INCOME TAXES -- Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
 
     STATEMENT OF CASH FLOWS -- Cash equivalents are generally all short-term
investments with a maturity of three months or less. Cash and cash equivalents
normally include cash on hand, amounts due from banks, and federal funds sold.
 
     OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS -- The Bank holds no derivative
financial instruments. However, in the ordinary course of business, the Bank has
entered into off-balance-sheet financial instruments consisting of commitments
to extend credit, commitments under credit card arrangements, commercial letters
of credit, and standby letters of credit. However, such financial instruments
are recorded in the financial statements when they are funded or related fees
are incurred or received.
 
     FAIR VALUE OF FINANCIAL INSTRUMENTS -- The following methods and
assumptions were used by the Bank in estimating fair values of financial
instruments as disclosed herein:
 
     Cash and cash equivalents -- The carrying amounts of cash and short-term
instruments approximate their fair value.
 
     Held-to-maturity and available-for-sale securities -- Fair values for
investment securities, excluding restricted equity securities, are based on
quoted market prices. The carrying values of restricted equity securities
approximate fair values.
 
     Loans receivable -- For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on carrying
values. Fair values for certain mortgage loans (for example, one-to-four family
residential), credit card loans, and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. Fair values for
commercial real estate and commercial loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values for impaired
loans are estimated using discounted cash flow analyses or underlying collateral
values, where applicable.
 
                                      F-30
<PAGE>   106
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
     Deposit liabilities -- The fair values disclosed for demand deposits are,
by definition, equal to the amount payable on demand at the reporting date (that
is, their carrying amounts). The carrying amounts of variable-rate, fixed-term
money market accounts and certificates of deposit (CDs) approximate their fair
values at the reporting date. Fair values for fixed-rate CDs are estimated using
a discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.
 
     Short-term borrowings -- The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings maturing
within 90 days approximate their fair values. Fair values of other short-term
borrowings are estimated using discounted cash flow analyses based on the Bank's
current incremental borrowing rates for similar types of borrowing arrangements.
 
     Long-term debt -- The fair values of the Bank's long-term debt are
estimated using discounted cash flow analyses based on the Bank's current
incremental borrowing rates for similar types of borrowing arrangements.
 
     Accrued interest -- The carrying amounts of accrued interest approximate
their fair values.
 
     Off-balance-sheet instruments -- The Bank's off-balance-sheet instruments
include unfunded commitments to extend credit and standby letters of credit. The
fair value of these instruments is not considered practicable to estimate
because of the lack of quoted market prices and the inability to estimate fair
value without incurring excessive costs.
 
     ADVERTISING -- Advertising costs are charged to expense during the year in
which they are incurred.
 
     UNAUDITED INTERIM FINANCIAL DATA -- The interim financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management all adjustments,
including normal recurring accruals necessary for 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, 1998, are not
necessarily indicative of results to be anticipated for the year ending December
31, 1998.
 
     RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 130 "Reporting Comprehensive Income" which the Bank is
required to adopt for years beginning after December 15, 1997. This statement
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of general
purpose financial statements. With adoption, unrealized gain or loss on
available-for-sale securities has been recognized as a component of
comprehensive income.
 
     Other issued but not yet required FASB statements are not currently
applicable to Bancorp's operations.
 
                                      F-31
<PAGE>   107
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2 -- INVESTMENT SECURITIES
 
     The book value and approximate market values of investment securities at
December 31, 1997, are summarized as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                  GROSS         GROSS       ESTIMATED
                                                   AMORTIZED    UNREALIZED    UNREALIZED     MARKET
                                                     COST         GAINS         LOSSES        VALUE
                                                   ---------    ----------    ----------    ---------
<S>                                                <C>          <C>           <C>           <C>
DECEMBER 31, 1997
Available-for-sale securities:
  U.S. Treasury securities.......................   $3,277         $14           $ (1)       $3,292
                                                    ======         ===           ====        ======
Held-to-maturity securities:
  U.S. Treasuries and agencies...................   $  894         $ 6           $ (4)       $  904
  State and municipal securities.................    2,045           9             (7)        2,061
                                                    ------         ---           ----        ------
                                                    $2,939         $15           $(11)       $2,965
                                                    ======         ===           ====        ======
</TABLE>
 
     The amortized cost and estimated market value of investment securities at
December 31, 1997, by contractual maturity, are shown below (in thousands).
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
 
<TABLE>
<CAPTION>
                                                          AVAILABLE-FOR-SALE    HELD-TO-MATURITY
                                                          ------------------    ----------------
                                                           COST      MARKET      COST     MARKET
                                                          -------    -------    ------    ------
<S>                                                       <C>        <C>        <C>       <C>
Due in one year or less.................................  $  508     $  508     $  694    $  693
Due after one year through five years...................   2,769      2,784      1,552     1,563
Due after five years through ten years..................      --         --        693       687
                                                          ------     ------     ------    ------
                                                          $3,277     $3,292     $2,939    $2,943
                                                          ======     ======     ======    ======
</TABLE>
 
     As of December 31, 1997, investment securities with a book value of
$1,898,000 have been pledged to secure treasury, tax and loan account, and
Federal Reserve discount window borrowings.
 
NOTE 3 -- RESTRICTED EQUITY SECURITIES
 
     The composition of restricted equity securities at December 31, 1997, is
summarized as follows (in thousands):
 
<TABLE>
<S>                                                           <C>
Federal Home Loan Bank stock................................  $170
Federal Reserve Bank stock..................................   108
                                                              ----
                                                              $278
                                                              ====
</TABLE>
 
                                      F-32
<PAGE>   108
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 4 -- LOANS
 
     The composition of loan balances at December 31, 1997, is summarized as
follows (in thousands):
 
<TABLE>
<S>                                                          <C>
Commercial.................................................  $ 3,560
Agriculture................................................    5,215
Real estate................................................   12,666
Consumer...................................................      669
Credit card and other loans................................       34
                                                             -------
                                                              22,144
Less: Allowance for loan losses............................     (278)
      Unearned loan fees...................................     (121)
                                                             -------
                                                             $21,745
                                                             =======
</TABLE>
 
     Impairment of loans having recorded investments of $45,000 at December 31,
1997, have been recognized in conformity with SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan" as amended by SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosures." The
Bank's average investment in impaired loans, measured on the basis of the
present value of expected future cash flows discounted at the loan's effective
interest rate, and interest income foregone on impaired loans was immaterial
during 1997.
 
NOTE 5 -- ALLOWANCE FOR LOAN LOSSES
 
     Changes in the allowance for loan losses at December 31, 1997, were as
follows (in thousands):
 
<TABLE>
<S>                                                           <C>
BALANCE, beginning of year..................................  $238
Provision for loan losses...................................    39
Recoveries..................................................     1
                                                              ----
BALANCE, end of year........................................  $278
                                                              ====
</TABLE>
 
NOTE 6 -- PROPERTY AND EQUIPMENT
 
     The major classifications of property and equipment at December 31, 1997,
are summarized as follows (in thousands):
 
<TABLE>
<S>                                                           <C>
Land........................................................  $  214
Buildings and improvements..................................     549
Furniture and equipment.....................................     363
                                                              ------
                                                               1,126
Less accumulated depreciation...............................    (496)
                                                              ------
                                                              $  630
                                                              ======
</TABLE>
 
NOTE 7 -- TIME DEPOSITS
 
     Time certificates of deposit of $100,000 and over, aggregated $1,063,000 at
December 31, 1997.
 
                                      F-33
<PAGE>   109
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 7 -- TIME DEPOSITS (CONTINUED)
     At December 31, 1997, the scheduled maturities for all time deposits are as
follows (in thousands):
 
<TABLE>
<S>                                                           <C>
1998........................................................  $5,433
1999 -- 2001................................................   1,057
2002 and thereafter.........................................     277
                                                              ------
                                                              $6,767
                                                              ======
</TABLE>
 
NOTE 8 -- INCOME TAXES
 
     The provision for income taxes for the year ended December 31, 1997,
consisted of the following (in thousands):
 
<TABLE>
<S>                                                           <C>
Current tax provision
  Federal...................................................  $399
  State.....................................................    51
  Deferred tax..............................................    (2)
                                                              ----
                                                              $448
                                                              ====
</TABLE>
 
     The components of the deferred tax benefit at December 31, 1997, consisted
of the following (in thousands):
 
<TABLE>
<S>                                                           <C>
Loan loss provision not deductible for tax..................  $15
Difference between accrual and cash basis tax reporting.....  (17)
                                                              ---
Deferred tax benefit........................................  $(2)
                                                              ===
</TABLE>
 
     The net deferred tax asset in the accompanying consolidated balance sheet
consisted of the following at December 31, 1997, (in thousands):
 
<TABLE>
<S>                                                           <C>
Deferred tax assets:
  Allowance for loan losses.................................  $106
  Deferred compensation.....................................    67
                                                              ----
                                                               173
                                                              ----
Deferred tax liabilities:
  Conversion to accrual basis tax reporting.................   (96)
  Federal Home Loan Bank stock dividends....................   (92)
                                                              ----
                                                              (188)
                                                              ----
Net deferred tax liabilities................................  $(15)
                                                              ====
</TABLE>
 
     Management believes, based upon the Bank's historical performance, the
deferred tax asset will be realized in the normal course of operations and,
accordingly, management has not reduced deferred tax assets by a valuation
allowance.
 
     As of December 31, 1997, Valley Community Bancorp and Subsidiaries had net
operating carryforwards available to offset future income taxes in the
approximate amount of $533,000 subject to an annual limitation of $89,000 which
may be used any one year. The net operating loss expires in full in 2003.
 
     The tax provision differs from the federal statutory rate of 34% due
principally to the effect of tax exemptions for interest received on municipal
investments. The 1997 provision for income taxes reflects a reduction in the
state income tax rate from 6.6% to 3.8%.
 
                                      F-34
<PAGE>   110
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 8 -- INCOME TAXES (CONTINUED)
     A reconciliation between the statutory federal income tax rate and the
effective tax rate at December 31, 1997, is as follows (dollars in thousands):
 
<TABLE>
<S>                                                           <C>
Federal income taxes at statutory rate......................  $  481
State income tax expense, net of federal income tax
  benefit...................................................      35
Effect of nontaxable interest income........................     (28)
Effect of cash basis reporting..............................       4
Other.......................................................     (44)
                                                              ------
                                                              $  448
                                                              ======
                                                               31.68%
                                                              ======
</TABLE>
 
NOTE 9 -- TRANSACTIONS WITH RELATED PARTIES
 
     Certain directors, executive officers, and principal stockholders are
customers of and have had banking transactions with the Bank, and the Bank
expects to have such transactions in the future. All loans and commitments to
loan included in such transactions were made in compliance with applicable laws
on substantially the same terms (including interest rates and collateral) as
those prevailing at the time for comparable transactions with other persons and
do not involve more than the normal risk of collectibility or present any other
unfavorable features. The amount of loans outstanding to directors, executive
officers, principal stockholders, and companies with which they are associated
at December 31, 1997, was as follows (in thousands):
 
<TABLE>
<S>                                                           <C>
Balance, beginning of year..................................  $ 569
Loans made..................................................    608
Loans repaid................................................   (413)
                                                              -----
Balance, end of year........................................  $ 764
                                                              =====
</TABLE>
 
     Valley Community Bank has a 14.3% shareholder interest in Datatech of
Oregon, Inc. (Datatech), a bank service corporation functioning as a data
processing facility for the Bank and six other community banks in Oregon.
Valley's investment in Datatech is accounted for by the cost method. Under this
accounting method, Valley recognizes income from its investment as dividends are
distributed. Dividends received in excess of earnings subsequent to Valley's
investment are considered a return of investment and are recorded as reductions
of cost of the investment. For the year ended December 31, 1997, the Bank
recorded data processing expenses paid to Datatech in the amount of $88,000. As
of December 31, 1997, Valley's recorded investment in Datatech was $33,000.
 
     The Bank has a prime rate, unsecured loan to Datatech with an outstanding
principal balance of $23,000 at December 31, 1997. Interest income of $2,000 was
realized by the Bank in 1997.
 
NOTE 10 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
 
     In the normal course of business to meet the financing needs of its
customers, the Bank is a party to financial instruments with off-balance-sheet
risk. These financial instruments include commitments to extend credit and the
issuance of letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the balance sheets. The contract amounts of those instruments reflect the extent
of involvement the Bank has in particular classes of financial instruments.
 
     The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
letters of credit written is represented by the contractual
 
                                      F-35
<PAGE>   111
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 10 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
amount of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
 
     Unless noted otherwise, the Bank does not require collateral or other
security to support financial instruments with credit risk.
 
     Contract amounts at December 31, 1997, are as follows (in thousands):
 
<TABLE>
<S>                                                           <C>
Financial instruments whose contract amounts represent
  credit risk:
  Commitments to extend credit..............................  $3,400
  Commercial and standby letters of credit..................      50
                                                              ------
                                                              $3,450
                                                              ======
</TABLE>
 
     Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies but may include accounts
receivable, inventory, property and equipment, and income-producing properties.
 
     Letters of credit written are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third-party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Bank holds cash, marketable
securities, or real estate as collateral supporting those commitments for which
collateral is deemed necessary.
 
NOTE 11 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
 
     The following table estimates fair value and the related carrying values of
the Bancorp's financial instruments at December 31, 1997:
 
<TABLE>
<CAPTION>
                                                              ESTIMATED
                                                  CARRYING      FAIR
                                                   AMOUNT       VALUE
                                                  --------    ---------
                                                     (IN THOUSANDS)
<S>                                               <C>         <C>
Financial assets:
  Cash and due from banks.......................  $ 2,144      $ 2,144
  Federal funds sold............................  $13,135      $13,135
  Securities available-for-sale.................  $ 3,277      $ 3,292
  Securities held-to-maturity...................  $ 2,939      $ 2,943
  Restricted equity securities..................  $   278      $   278
  Loans, net of allowance for loan losses
     and unearned loan fees.....................  $21,745      $21,900
Financial liabilities:
  Demand and savings deposits...................  $33,012      $33,012
  Time deposits and IRA accounts................  $ 6,767      $ 6,800
</TABLE>
 
     While estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Bancorp to have
disposed of such items at December 31, 1997, the estimated fair
 
                                      F-36
<PAGE>   112
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 11 -- FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
values would necessarily have been achieved at that date, since market values
may differ depending on various circumstances. The estimated fair values at
December 31, 1997, should not necessarily be considered to apply at subsequent
dates.
 
     In addition, other assets and liabilities of Bancorp that are not defined
as financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not recognized
in the financial statements nevertheless may have value but are not included in
the above disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the earnings potential of loan servicing rights,
the trained work force, customer goodwill, and similar items.
 
NOTE 12 -- CONCENTRATIONS OF CREDIT RISK
 
     All of the Bank's loans, commitments, and commercial and standby letters of
credit have been granted to customers in the Bank's market area. The majority of
such customers are also depositors of the Bank. Investments in state and
municipal securities are not significantly concentrated within any one region of
the United States. The concentrations of credit by type of loan are set forth in
Note 4. The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Commercial and standby letters of credit were
granted primarily to commercial borrowers as of December 31, 1997.
 
NOTE 13 -- CONTINGENCIES
 
     LEGAL CONTINGENCIES -- The Bank may become a defendant in certain claims
and legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, there are no current matters
expected to have a material adverse effect on the consolidated financial
position or results of operations.
 
NOTE 14 -- STOCKHOLDERS' EQUITY -- PREFERRED STOCK
 
     Bancorp has issued and outstanding 205,800 shares of Series A, cumulative,
convertible, no par value preferred stock. The preferred stock, issued in 1988,
provides for voting rights, cumulative dividends at a rate of $.09 a share, and
common stock conversion rights at a rate of $.30 per share.
 
NOTE 15 -- STOCK OPTION PLAN
 
     During 1986, Bancorp adopted a Nonqualified Stock Option Plan (the plan)
for the benefit of officers and employees of the Bank. Under the plan, which was
terminated in 1996, options were reserved for the purchase of 50,000 shares of
common stock. During 1994, options for the purchase of 20,000 shares at a
weighted average exercise price of $4.25 were granted under the plan. As of
December 31, 1997, these options remained outstanding and exercisable.
 
NOTE 16 -- EMPLOYEE BENEFIT PLANS
 
     The Bank has a 401(k) profit sharing plan. All permanent employees are
eligible to participate once they meet the age and length of employment
requirements. For the year ended December 31, 1997, the Bank contributed $23,000
to the 401(k) profit sharing plan.
 
     During 1996, the Bank entered into a deferred compensation agreement with
its president and chief executive officer. The agreement provides for deferral
of a bonus payment for services during 1996 and 1997, in addition, the deferral
of a portion of the president's monthly salary and entire bonus for any year
subsequent to 1997. The deferred compensation amount will be paid out upon (1)
termination of employment, (2) failure to meet specific operating ratios, or (3)
a change in control of the Bank.
 
                                      F-37
<PAGE>   113
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 17 -- EARNINGS PER SHARE
 
     In 1997, the FASB issued SFAS No. 128, "Earnings Per Share" which is
effective for financial statements issued for periods ending after December 15,
1997. SFAS No. 128 replaced standards for computing and presenting earnings per
share and requires a dual presentation of basic and diluted earnings per share.
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the year. Diluted earnings per share reflect the potential
dilution that could occur if common shares were issued pursuant to the exercise
of options under Bancorp's stock option plans.
 
     The following table illustrates the computations of basic and diluted
earnings per share for the year ended December 31, 1997 (in thousands except per
share amounts):
 
<TABLE>
<CAPTION>
                                                           INCOME          SHARES        PER SHARE
                                                         (NUMERATOR)    (DENOMINATOR)     AMOUNT
                                                         -----------    -------------    ---------
<S>                                                      <C>            <C>              <C>
Net income.............................................     $966
Less: preferred stock dividends........................      (19)
                                                            ----
BASIC EARNINGS PER SHARE
Income available to common stockholders................      947             701           $1.35
                                                            ----            ----           =====
EFFECT OF DILUTIVE SECURITIES
Options................................................                       20
Convertible preferred stock............................       19             206
                                                            ----            ----
DILUTED EARNINGS PER SHARE
Income available to common stockholders plus assumed
  conversions..........................................     $966             927           $1.04
                                                            ====            ====           =====
</TABLE>
 
                                      F-38
<PAGE>   114
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 18 -- PARENT COMPANY FINANCIAL INFORMATION
 
     Condensed financial information for Valley Community Bancorp
(unconsolidated parent company only) is as follows (in thousands):
 
<TABLE>
<S>                                                           <C>
ASSETS
  Cash and cash equivalents.................................  $   16
  Investment in subsidiaries................................   4,670
                                                              ------
          Total assets......................................  $4,686
                                                              ======
LIABILITIES
  Deferred compensation liability...........................  $   10
                                                              ------
          Total liabilities.................................      10
                                                              ------
STOCKHOLDERS' EQUITY
  Preferred stock...........................................     346
  Common stock..............................................     701
  Surplus...................................................   1,390
  Retained earnings.........................................   2,224
  Unrealized gain on available-for-sale investment
     securities.............................................      15
                                                              ------
          Total stockholders' equity........................   4,676
                                                              ------
          Total liabilities and stockholders' equity........  $4,686
                                                              ======
REVENUES
  Equity in undistributed earnings of subsidiary bank.......  $  867
  Dividends.................................................     100
  Interest..................................................       1
EXPENSES
  Administrative expenses...................................      (2)
                                                              ------
          Net income........................................  $  966
                                                              ======
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income................................................  $  966
  Adjustments to reconcile net income to net cash from
     operating activities:
     Equity in undistributed earnings of subsidiary bank....    (867)
     Change in liabilities..................................      10
                                                              ------
          Net cash from operating activities................     109
                                                              ------
CASH FLOWS FROM FINANCING ACTIVITIES
  Cash dividends paid.......................................    (102)
                                                              ------
          Net cash from financing activities................    (102)
                                                              ------
NET INCREASE IN CASH AND CASH EQUIVALENTS...................       7
CASH AND CASH EQUIVALENTS, beginning of year................       9
                                                              ------
CASH AND CASH EQUIVALENTS, end of year......................  $   16
                                                              ======
SCHEDULE OF NONCASH ACTIVITIES
  Change in unrealized loss on available-for-sale
     securities, net of tax.................................  $    9
                                                              ======
</TABLE>
 
NOTE 19 -- REGULATORY MATTERS
 
     Banks are subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on a bank's
financial
 
                                      F-39
<PAGE>   115
                   VALLEY COMMUNITY BANCORP AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 19 -- REGULATORY MATTERS (CONTINUED)
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, must meet specific capital guidelines that involve
quantitative measures of a bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. A
bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
 
     Quantitative measures established by regulation to ensure capital adequacy
require banks to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets (as
defined). Management believes, as of December 31, 1997, that Bancorp and the
Bank meet all capital adequacy requirements to which they are subject.
 
     As of the most recent notifications from their regulatory agencies, Bancorp
and the Bank were categorized as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as adequately capitalized,
Bancorp and the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table below. There are no
conditions or events since that notification that management believes have
changed the institutions' category.
 
     The actual capital amounts and ratios as of December 31, 1997, are also
presented in the following table (dollars in thousands):
 
<TABLE>
<CAPTION>
                                                                                   TO BE WELL
                                                                               CAPITALIZED UNDER
                                                             FOR CAPITAL       PROMPT CORRECTIVE
                                           ACTUAL         ADEQUACY PURPOSES    ACTION PROVISIONS
                                       ---------------    -----------------    ------------------
                                       AMOUNT    RATIO    AMOUNT     RATIO     AMOUNT      RATIO
                                       ------    -----    -------    ------    -------    -------
<S>                                    <C>       <C>      <C>        <C>       <C>        <C>
                                                                      [Greater             [Greater
                                                                     than or              than or
Total capital to risk-weighted                                       equal to]            equal to]
  assets.............................  $4,929    19.6%    $2,013      8.0%     $2,517      10.0%
                                                                      [Greater             [Greater
                                                                     than or              than or
Tier I capital to risk-weighted                                      equal to]            equal to]
  assets.............................  $4,651    18.4%    $1,007      4.0%     $1,510     6.0%
                                                                      [Greater             [Greater
                                                                     than or              than or
                                                                     equal to]            equal to]
Tier I capital to average assets.....  $4,651    10.3%    $1,802      4.0%     $2,253     5.0%
</TABLE>
 
NOTE 20 -- SUBSEQUENT EVENTS
 
     On August 3, 1998, the Bancorp and Columbia Bancorp (Columbia), a bank
holding company for Columbia River Bank headquartered in The Dalles, Oregon,
entered into a definitive agreement whereby Columbia will acquire all of the
outstanding common stock of Bancorp for $15,101,542 or $16.30 per common share.
Immediately preceding the acquisition, all outstanding preferred stock of
Bancorp will be converted to common shares for $.30 per share and, effective at
the time of acquisition, Bancorp will recognize a liability and expense of
approximately $300,000 relating to its obligation under a deferred compensation
agreement with Valley Community Bank's president (see Note 16). The acquisition
of Bancorp by Columbia is expected to be completed in the fourth quarter of 1998
or early 1999.
 
                                      F-40
<PAGE>   116
 
------------------------------------------------------
------------------------------------------------------
 
  NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY COLUMBIA OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF COLUMBIA SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
 
                            ------------------------
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
Prospectus Summary....................     3
Summary Historical and Pro Forma
  Financial Data......................     6
Disclosure Regarding Forward-Looking
  Statements..........................     7
Risk Factors..........................     8
Use of Proceeds.......................    13
Capitalization........................    14
Market Price of Common Stock..........    15
Dividend Policy.......................    16
Columbia Pro Forma Financial
  Statements..........................    17
Columbia Selected Historical Financial
  Information.........................    21
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations.......................    22
Business..............................    42
Supervision and Regulation............    53
Management............................    58
Certain Transactions..................    64
Principal Shareholders................    65
Shares Eligible for Future Sale.......    66
Description of Capital Stock..........    67
Underwriting..........................    69
Experts...............................    71
Legal Matters.........................    71
Available Information.................    71
Glossary of Certain Key Terms.........    72
Index to Financial Statements.........    74
</TABLE>
 
                            ------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
                                            SHARES
 
                                      LOGO
 
                                COLUMBIA BANCORP
                                  COMMON STOCK
                            ------------------------
 
                                   PROSPECTUS
                            ------------------------
 
                         PACIFIC CREST SECURITIES INC.
                                           , 1998
------------------------------------------------------
------------------------------------------------------
<PAGE>   117
 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
     The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the Common Stock offered hereby.
 
<TABLE>
<S>                                                           <C>
Securities and Exchange Commission Registration Fee.........  $3,392.50
NASD Filing Fee.............................................  $1,650.00
Nasdaq Listing Fee..........................................  $       *
Printing and Engraving Expenses.............................  $       *
Legal Fees and Expenses.....................................  $       *
Accounting Fees and Expenses................................  $       *
Blue Sky Fees and Expenses (including fees of counsel)......  $       *
Transfer Agent and Registrar Fee............................  $       *
Miscellaneous Expenses......................................  $       *
                                                              ---------
          Total.............................................  $       *
                                                              =========
</TABLE>
 
---------------
* To be filed by amendment.
 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
     Under the Oregon Business Corporation Act, a corporation's Articles of
Incorporation may provide for the limitation of liability of directors and
indemnification of directors and officers under some circumstances. In
accordance with Oregon law, Columbia's Articles of Incorporation provide that
directors are not personally liable to the corporation or its shareholders for
monetary damages for conduct as a director, except for (i) any breach of a
director's duty of loyalty to the corporation or its shareholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; (iii) any unlawful distributions to directors; (iv) any
transaction from which the director received an improper or illegal personal
benefit; or (v) any act or omission for which the elimination of liability is
not permitted under the Oregon Business Corporation Act.
 
     Columbia's Articles allow it to indemnify any person who is or was a party,
or is threatened to be made a party, to any civil, administrative, or criminal
proceeding by reason of the fact that the person is or was a director or officer
of Columbia or any of its subsidiaries, is or was a fiduciary under the Employee
Retirement Income Security Act of 1974 with respect to any employee benefit plan
of Columbia or its subsidiaries, or is or was serving at Columbia's request as a
director, officer, partner, agent, or employee of another corporation or entity.
The indemnification may include expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement, actually and reasonably incurred by that
person. Indemnification is available if (i) the person acted in good faith; (ii)
the person reasonably believed the conduct was in the corporation's best
interests, or at least was not opposed to its best interests; and (iii) in the
case of a criminal proceeding, the person had no reasonable cause to believe the
conduct was unlawful. In addition, a person who is wholly successful, on the
merits or otherwise, in the defense of a proceeding in which the person was a
party because the person was a director, is entitled to indemnification for
expenses actually and reasonably incurred by the person in connection with the
proceeding.
 
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
 
     The Registrant has not sold any securities within the past three years
which were not registered under the 1933 Act.
 
                                      II-1
<PAGE>   118
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
     (a) The exhibits are listed on the accompanying "Exhibit Index."
 
     (b) Financial Statement Schedules.
 
ITEM 17. UNDERTAKINGS
 
     (a) The undersigned Registrant hereby undertakes that:
 
          (1) For purposes of determining any liability under the Securities Act
     of 1933, the information omitted from the form of prospectus filed as part
     of this registration statement in reliance upon Rule 430A and contained in
     a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
     (4) or 497(h) under the Securities Act shall be deemed to be part of this
     registration statement as of the time it was declared effective.
 
          (2) For the purpose of determining any liability under the Securities
     Act of 1933, each post-effective amendment that contains a form of
     prospectus shall be deemed to be a new registration statement relating to
     the securities offered therein, and the offering of such securities at that
     time shall be deemed to be the initial bona fide offering thereof.
 
     (b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
 
                                      II-2
<PAGE>   119
 
                                   SIGNATURES
 
     Pursuant to the requirements of the 1933 Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of The Dalles, State of
Oregon on September 24, 1998.
 
                                          COLUMBIA BANCORP
 
                                          By: /s/ TERRY L. COCHRAN
                                            ------------------------------------
                                            Terry L. Cochran,
                                            President and Chief Executive
                                              Officer
 
                               POWER OF ATTORNEY
 
     Each person whose individual signature appears below hereby authorizes and
appoints Terry L. Cochran, President and Chief Executive Officer, Neal T.
McLaughlin, Chief Financial Officer, and Richard J. Croghan, Secretary, and each
of them, with full power of substitution and full power to act without the
other, as his/her true and lawful attorney-in-fact and agent to act in his/her
name, place, and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file any and all
amendments to this Registration Statement, including any and all post-effective
amendments.
 
     Pursuant to the requirements of the 1933 Act, this Power of Attorney has
been signed by the following persons in the capacities indicated, on the 24th
day of September 1998.
 
<TABLE>
<CAPTION>
                 SIGNATURE                                            TITLE
                 ---------                                            -----
<S>                                                <C>
 
/s/ TERRY L. COCHRAN                               President and Chief Executive Officer
--------------------------------------------       (Principal Executive Officer)
Terry L. Cochran
 
/s/ NEAL T. MCLAUGHLIN                             Executive Vice President and Chief Financial
--------------------------------------------       Officer (Principal Financial and Accounting
Neal T. McLaughlin                                 Officer)
 
/s/ ROBERT L.R. BAILEY                             Director
--------------------------------------------
Robert L.R. Bailey
 
/s/ CHARLES F. BEARDSLEY                           Director
--------------------------------------------
Charles F. Beardsley
 
/s/ WILLIAM A. BOOTH                               Director
--------------------------------------------
William A. Booth
 
/s/ DENNIS CARVER                                  Director
--------------------------------------------
Dennis Carver
 
/s/ TED M. FREEMAN                                 Director
--------------------------------------------
Ted M. Freeman
 
/s/ JANE F. LEE                                    Director
--------------------------------------------
Jane F. Lee
</TABLE>
 
                                      II-3
<PAGE>   120
 
<TABLE>
<CAPTION>
                 SIGNATURE                                            TITLE
                 ---------                                            -----
<S>                                                <C>
/s/ STEPHEN D. MARTIN                              Chairman
--------------------------------------------
Stephen D. Martin
 
/s/ JEAN MCKINNEY                                  Director
--------------------------------------------
Jean McKinney
 
/s/ DONALD T. MITCHELL                             Vice-Chairman
--------------------------------------------
Donald T. Mitchell
 
/s/ JAMES B. ROBERSON                              Director
--------------------------------------------
James B. Roberson
 
/s/ GREG WALDEN                                    Director
--------------------------------------------
Greg Walden
</TABLE>
 
                                      II-4
<PAGE>   121
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
    EXHIBIT
      NO.                        DESCRIPTION OF EXHIBIT
    -------                      ----------------------
    <S>       <C>
     1.1      Form of Underwriting Agreement*
     3.1      Articles of Incorporation(1)
     3.2      Amendment to Articles of Incorporation
     3.3      Bylaws(1)
     5.1      Opinion of Bennett H. Goldstein*
    10.1      Agreement and Plan of Share Exchange of August 3, 1998,
              between Columbia, Valley and Valley Community Bancorp
    10.2      1998 Employment Agreement between Terry L. Cochran and
              Columbia
    10.3      1998 Deferred Compensation Agreement between Terry L.
              Cochran and Columbia
    21        Subsidiaries of Columbia
    23.1      Consent of Bennett H. Goldstein (included in Exhibit 5.1)*
    23.2      Consent of Moss Adams LLP
    27.1      Financial Data Schedule for the year ended December 31, 1997
    27.2      Financial Data Schedule for the six-month period ended June
              30, 1998
</TABLE>
 
---------------
 *  To be filed by amendment.
 
(1) Filed as an exhibit to Columbia's Annual Report on Form 10-KSB for the year
    ended December 31, 1995 and incorporated herein by reference.