##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2006
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from to to
 Commission file number: 0-27938
 COLUMBIA BANCORP
  Oregon
(State of incorporation)
    
    93-1193156
(I.R.S. Employer
Identification No.)
 401 East Third Street, Suite 200
The Dalles, Oregon 97058
 (541) 298-6649
 þ o
  o þ o
 o þ




---



##### 



COLUMBIA BANCORP
 FORM 10-Q
 March 31, 2006
 Table of Contents
 PART I.  FINANCIAL INFORMATION
    
    
    3ITEM 1. Financial Statements
    
    
    3Consolidated Financial Statements of Columbia Bancorp and Subsidiary
    
    
    3CONSOLIDATED BALANCE SHEETS
    
    
    3CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
    
    
    4CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    5CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY
    
    
    6NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    12DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
    
    
    12OVERVIEW
    
    
    12MATERIAL CHANGES IN FINANCIAL CONDITION
    
    
    14RESULTS OF OPERATIONS
    
    
    21LIQUIDITY AND CAPITAL RESOURCES
    
    
    25CRITICAL ACCOUNTING POLICIES
    
    
    27ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27ITEM 4. Controls and Procedures
    
    
    27PART II.  OTHER INFORMATION
    
    
    28ITEM 1.Legal Proceedings
    
    
    28ITEM 1A.Risk Factors
    
    
    28ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28ITEM 3.Defaults Upon Senior Securities
    
    
    28ITEM 4.Submission of Matters to a Vote of Security Holders
    
    
    28ITEM 5.Other Information
    
    
    28ITEM 6. Exhibits
    
    
    28SIGNATURES
    
    
    29EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




---



##### Table of Contents



PART I.  FINANCIAL INFORMATION
  
 ITEM 1. Financial Statements
 
 Consolidated Financial Statements of Columbia Bancorp and Subsidiary
 COLUMBIA BANCORP AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 March 31,
    
    
    December 31,2006
    
    
    2005ASSETSCASH AND CASH EQUIVALENTSCash and due from banks
    
    $
    28,169,590
    
    
    $
    34,631,688Interest bearing deposits with
other banks
    
    
    32,156,328
    
    
    
    23,175,188Federal funds sold
    
    
    46,643,990
    
    
    
    29,281,599Total cash and cash
equivalents
    
    
    106,969,908
    
    
    
    87,088,475INVESTMENT SECURITIESDebt securities available-for-sale, at fair value
    
    
    17,146,412
    
    
    
    17,233,060Equity securities available-for-sale, at fair value
    
    
    616,137
    
    
    
    611,148Debt securities held-to-maturity, at amortized cost,
estimated fair value
$15,704,844 and $16,749,021
at March 31, 2006 and December 31, 2005, respectively
    
    
    15,574,063
    
    
    
    16,497,131Restricted equity securities
    
    
    2,439,100
    
    
    
    2,439,100Total investment securities
    
    
    35,775,712
    
    
    
    36,780,439LOANSLoans held-for-sale
    
    
    4,078,986
    
    
    
    5,879,320Loans, net of allowance for loan losses and unearned loan fees
    
    
    669,773,585
    
    
    
    671,806,637Total loans
    
    
    673,852,571
    
    
    
    677,685,957OTHER ASSETSProperty and equipment, net of accumulated depreciation
    
    
    16,748,362
    
    
    
    15,783,509Accrued interest receivable
    
    
    5,615,193
    
    
    
    5,615,098Goodwill
    
    
    7,389,094
    
    
    
    7,389,094Other assets
    
    
    10,361,849
    
    
    
    10,896,746Total other assets
    
    
    40,114,498
    
    
    
    39,684,447TOTAL ASSETS
    
    $
    856,712,689
    
    
    $
    841,239,318LIABILITIES AND SHAREHOLDERS EQUITY
DEPOSITSNon-interest bearing demand
deposits
    
    $
    214,560,873
    
    
    $
    220,450,133Interest bearing demand deposits
    
    
    293,186,653
    
    
    
    278,070,340Savings accounts
    
    
    42,666,378
    
    
    
    41,127,626Time certificates
    
    
    172,183,490
    
    
    
    168,174,061Total deposits
    
    
    722,597,394
    
    
    
    707,822,160OTHER LIABILITIESNotes payable
    
    
    43,291,774
    
    
    
    45,690,951Accrued interest payable and other liabilities
    
    
    6,207,948
    
    
    
    6,109,717Junior subordinated debentures
    
    
    4,124,000
    
    
    
    4,124,000Total other liabilities
    
    
    53,623,722
    
    
    
    55,924,668TOTAL LIABILITIES
    
    
    776,221,116
    
    
    
    763,746,828SHAREHOLDERS EQUITYCommon stock, no par value; 20,000,000 shares
authorized, 9,879,847 issued and outstanding
(8,965,408 at December 31,
2005)
    
    
    53,401,587
    
    
    
    33,425,084Retained earnings
    
    
    27,226,492
    
    
    
    44,189,700Accumulated other comprehensive loss, net of taxes
    
    
    (136,506
    )
    
    
    (122,294
    )TOTAL SHAREHOLDERS EQUITY
    
    
    80,491,573
    
    
    
    77,492,490TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    856,712,689
    
    
    $
    841,239,318
  3




---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 (Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005INTEREST INCOMEInterest and fees on loans
    
    $
    14,733,605
    
    
    $
    11,477,722Interest on investments:Taxable investment securities
    
    
    215,154
    
    
    
    176,897Nontaxable investment securities
    
    
    142,324
    
    
    
    152,866Other interest income
    
    
    467,056
    
    
    
    365,001Total interest income
    
    
    15,558,139
    
    
    
    12,172,486INTEREST EXPENSEInterest on interest bearing deposit and savings accounts
    
    
    1,556,722
    
    
    
    740,958Interest on time deposit accounts
    
    
    1,702,745
    
    
    
    1,407,687Other borrowed funds
    
    
    340,653
    
    
    
    362,722Total interest expense
    
    
    3,600,120
    
    
    
    2,511,367NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES
    
    
    11,958,019
    
    
    
    9,661,119PROVISION FOR LOAN LOSSES
    
    
    550,000
    
    
    
    200,000NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
    
    11,408,019
    
    
    
    9,461,119NON-INTEREST INCOMEService charges and fees
    
    
    1,130,430
    
    
    
    1,172,816Mortgage banking revenue
    
    
    637,823
    
    
    
    620,853Financial services revenue
    
    
    198,973
    
    
    
    143,755Credit card discounts and fees
    
    
    106,325
    
    
    
    112,986Other non-interest income
    
    
    245,209
    
    
    
    253,049Total non-interest income
    
    
    2,318,760
    
    
    
    2,303,459NON-INTEREST EXPENSESalaries and employee benefits
    
    
    4,577,036
    
    
    
    3,687,098Occupancy expense
    
    
    866,499
    
    
    
    797,324Other non-interest expenses
    
    
    2,332,393
    
    
    
    2,086,808Total non-interest expense
    
    
    7,775,928
    
    
    
    6,571,230INCOME BEFORE PROVISION FOR INCOME TAXES
    
    
    5,950,851
    
    
    
    5,193,348PROVISION FOR INCOME TAXES
    
    
    2,228,594
    
    
    
    1,880,725NET INCOME
    
    
    3,722,257
    
    
    
    3,312,623OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXESUnrealized holding losses arising during the period
    
    
    (24,421
    )
    
    
    (179,593
    )Increase in fair value of interest rate swap
    
    
    10,209
    
    
    
    Total other comprehensive loss, net of taxes
    
    
    (14,212
    )
    
    
    (179,593
    )COMPREHENSIVE INCOME
    
    $
    3,708,045
    
    
    $
    3,133,030Earnings per share of common stock(1)Basic
    
    $
    0.38
    
    
    $
    0.34Diluted
    
    $
    0.37
    
    
    $
    0.33Weighted average common shares outstanding(1)Basic
    
    
    9,853,005
    
    
    
    9,755,035Diluted
    
    
    10,115,420
    
    
    
    10,015,094
  
 (1)
    
    Prior periods have been adjusted to reflect the 10% stock dividend, effective
December 29, 2005 4




---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    3,722,257
    
    
    $
    3,312,623Adjustments to reconcile net income to net cash from operating activities:(Gain) loss on sale or write-down of property and equipment
    
    
    39,077
    
    
    
    (4,443
    )Net (accretion) amortization of premiums and discounts on investment securities
    
    
    (8,552
    )
    
    
    10,384Depreciation on property and equipment
    
    
    424,619
    
    
    
    408,817Amortization of mortgage servicing asset
    
    
    
    
    
    
    116,972Federal Home Loan Bank stock dividend
    
    
    
    
    
    
    (9,900
    )Deferred income tax benefit
    
    
    84,501
    
    
    
    Provision for loan losses
    
    
    550,000
    
    
    
    200,000Increase (decrease) in cash due to changes in assets/liabilities:Accrued interest receivable
    
    
    (95
    )
    
    
    (417,557
    )Proceeds from the sale of mortgage loans held-for-sale
    
    
    17,568,221
    
    
    
    13,886,220Production of mortgage loans held-for-sale
    
    
    (15,767,887
    )
    
    
    (15,556,628
    )Other assets
    
    
    1,997,085
    
    
    
    1,724,922Accrued interest payable and other liabilities
    
    
    (2,902,408
    )
    
    
    (1,484,911
    )NET CASH FROM OPERATING ACTIVITIES
    
    
    5,706,818
    
    
    
    2,186,499CASH FLOWS FROM INVESTING ACTIVITIESProceeds from the maturity of available-for-sale securities
    
    
    2,000,000
    
    
    
    7,000,000Proceeds from the maturity of held-to-maturity securities
    
    
    918,020
    
    
    
    663,870Purchases of available-for-sale securities
    
    
    (1,942,510
    )
    
    
    Purchases of equity securities
    
    
    (5,459
    )
    
    
    Net change in loans made to customers
    
    
    2,173,052
    
    
    
    2,198,275Investment in low-income housing tax credits
    
    
    (33,000
    )
    
    
    Investment in state energy tax credits
    
    
    (63,220
    )
    
    
    Proceeds from the sale of other real estate owned
    
    
    
    
    
    
    104,443Purchases of property and equipment
    
    
    (1,428,549
    )
    
    
    (329,866
    )NET CASH FROM INVESTING ACTIVITIES
    
    
    1,618,334
    
    
    
    9,636,722CASH FLOWS FROM FINANCING ACTIVITIESNet change in demand deposit and savings accounts
    
    
    10,765,805
    
    
    
    37,521,649Net change in time deposits
    
    
    4,009,429
    
    
    
    (8,637,811
    )Net decrease in notes payable
    
    
    (2,399,177
    )
    
    
    (1,468,876
    )Cash paid for dividends and fractional shares
    
    
    (9,375
    )
    
    
    (797,761
    )Proceeds from stock options exercised
    
    
    155,837
    
    
    
    388,036Cash retained from tax deductibility of stock options exercised
    
    
    33,762
    
    
    
    NET CASH FROM FINANCING ACTIVITIES
    
    
    12,556,281
    
    
    
    27,005,237NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    19,881,433
    
    
    
    38,828,458CASH AND CASH EQUIVALENTS, beginning of period
    
    
    87,088,475
    
    
    
    57,978,799CASH AND CASH EQUIVALENTS, end of period
    
    $
    106,969,908
    
    
    $
    96,807,257SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONInterest paid in cash
    
    $
    3,758,904
    
    
    $
    2,557,886Taxes paid in cash
    
    
    135,000
    
    
    
    2,072,000SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIESChange in unrealized loss on available-for-sale securities, net of taxes
    
    $
    (24,421
    )
    
    $
    (179,593
    )Cash dividend declared and payable after quarter-end
    
    
    889,186
    
    
    
    800,069Transfer of loans to other real estate owned
    
    
    
    
    
    
    84,453
  5




---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 (Unaudited)
 AccumulatedOther
    
    
    TotalCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Stock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBALANCE, December 31, 2004
    
    
    8,839,151
    
    
    $
    32,140,776
    
    
    $
    33,816,489
    
    
    $
    (80,287
    )
    
    $
    65,876,978Stock options exercised
    
    
    115,969
    
    
    
    936,853
    
    
    
    
    
    
    
    
    
    
    
    936,853Income tax benefit from
stock options exercised
    
    
    
    
    
    
    410,137
    
    
    
    
    
    
    
    
    
    
    
    410,137Restricted stock granted
    
    
    16,658
    
    
    
    77,196
    
    
    
    
    
    
    
    
    
    
    
    77,196Stock repurchase
    
    
    (6,370
    )
    
    
    (139,878
    )
    
    
    
    
    
    
    
    
    
    
    (139,878
    )Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    (2,409,376
    )
    
    
    
    
    
    
    (2,409,376
    )Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    (887,575
    )
    
    
    
    
    
    
    (887,575
    )Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    13,670,162
    
    
    
    (42,007
    )
    
    
    13,628,155BALANCE, December 31, 2005
    
    
    8,965,408
    
    
    
    33,425,084
    
    
    
    44,189,700
    
    
    
    (122,294
    )
    
    
    77,492,490Stock options exercised
    
    
    18,293
    
    
    
    155,837
    
    
    
    
    
    
    
    
    
    
    
    155,837Income tax benefit from
stock options exercised
    
    
    
    
    
    
    33,762
    
    
    
    
    
    
    
    
    
    
    
    33,76210% stock dividend and cash paid
for fractional shares
    
    
    896,146
    
    
    
    19,786,904
    
    
    
    (19,795,632
    )
    
    
    
    
    
    
    (8,728
    )Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    (647
    )
    
    
    
    
    
    
    (647
    )Cash dividends declared
    
    
    
    
    
    
    
    
    
    
    (889,186
    )
    
    
    
    
    
    
    (889,186
    )Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    3,722,257
    
    
    
    (14,212
    )
    
    
    3,708,045BALANCE, March 31, 2006
    
    
    9,879,847
    
    
    $
    53,401,587
    
    
    $
    27,226,492
    
    
    $
    (136,506
    )
    
    $
    80,491,573
  6




---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARY
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    Basis of PresentationThe interim consolidated financial statements include the accounts of Columbia Bancorp
(Columbia or the Company), an Oregon corporation and a registered financial holding
company, and its wholly-owned subsidiary Columbia River Bank (CRB or the Bank), after
elimination of intercompany transactions and balances. CRB is an Oregon state-chartered bank,
headquartered in The Dalles. Substantially all activity of Columbia is conducted through its
subsidiary bank, CRB.The interim financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information.
Accordingly, they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete financial
statements. The financial information included in this interim report has been prepared by
Management. Columbias annual report contains audited financial statements. All adjustments,
including normal recurring accruals necessary for the fair presentation of results of
operations for the interim periods included herein, have been made. Certain amounts for 2005
have been reclassified to conform to the 2006 presentation. The results of operations for the
three months ended March 31, 2006, are not necessarily indicative of results to be anticipated
for the year ending December 31, 2006.2.
    
    Managements Estimates and AssumptionsVarious elements of Columbias accounting policies are inherently subject to estimation
techniques, valuation assumptions and other subjective assessments. In particular, Management
has identified certain policies that due to the judgments, estimates and assumptions inherent
in those policies are critical to an understanding of the consolidated financial statements.
These policies and judgments, estimates and assumptions are described in greater detail in the
Notes to the consolidated financial statements included in Columbias annual report on Form
10-K, filed March 14, 2006.Management believes the judgments, estimates and assumptions used in the preparation of the
consolidated financial statements are appropriate given the factual circumstances at the time.
However, given the sensitivity of the consolidated financial statements to these critical
accounting policies, the use of other judgments, estimates and assumptions could result in
material differences in the results of operations or financial conditions.3.
    
    Stock-Based PaymentIn 1999, Columbia adopted a stock incentive plan that allows for grants of incentive stock
options, nonstatutory stock options and other stock bonuses to both employees and directors.
The plan was amended by the Board of Directors and ratified by the shareholders in 2002.
Columbia issues new shares when options are exercised or when other stock bonuses are awarded.
The plan authorized a total of 977,259 shares for stock awards. Option exercise prices for
incentive stock options cannot be less than 100% of the fair market value of the shares on the
date of grant and contractual terms cannot exceed ten years. For each stock option grant, the
Board of Directors determines and approves option exercise prices, numbers of options granted,
vesting periods and expiration periods.In 2002, Columbia entered into an employment agreement for a phantom stock grant
with its chief executive officer (CEO). The CEO was granted 17,340 units at a price
 of $8.15, retroactively adjusted for stock dividends and splits, and exercisable after
December 31, 2002. Upon exercise of the grant, the CEO receives a cash
payment equal to the difference between the unit grant price and the common stock market price for each unit on the
date of exercise. As of March 31, 2006, no units had been
exercised. Columbias
liability for the phantom stock grant totaled $239,292 and $241,546 at March 31, 2006 and
December 31, 2005, respectively. The liability is remeasured at each reporting date based
on the fair value of Columbias common stock; changes in the liability are recognized in
current period earnings.
 7




---



##### Table of Contents



In 2005, Columbia established a restricted stock benefit program intended for senior
management. The program was approved by the Board of Directors in accordance with the 1999
Stock Option Plan. During 2005, at the discretion of the Board of Directors, Columbia awarded
16,658 shares to senior management employees, 25% of which vested immediately and are not
restricted. The remaining shares granted during 2005 are restricted based on continued
employment and will vest equally over three years. Recipients of the restricted stock do not
pay cash consideration to Columbia for the shares. Recipients also
have the right to vote and receive dividends on restricted shares. Future compensation
expense related to restricted stock will be recognized as the restricted shares vest based on
the fair value of Columbia stock on the grant date.
      Weighted Average
    
    
    AggregateNumber
    
    
    Weighted Average
    
    
    Remaining
    
    
    Intrinsic Valueof Shares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    (in thousands)Stock options outstanding, December 31, 2005
    
    
    615,282
    
    
    $
    11.05Granted
    
    
    
    
    
    
    Exercised
    
    
    18,637
    
    
    $
    8.37Canceled
    
    
    
    
    
    
    Stock options outstanding, March 31, 2006
    
    
    596,645
    
    
    $
    11.14
    
    
    
    6.43
    
    
    $
    6,645Stock options exercisable, March 31, 2006
    
    
    582,565
    
    
    $
    11.02
    
    
    
    6.39
    
    
    $
    6,421
  8




---



##### Table of Contents



Weighted AverageNumber
    
    
    Grant Dateof Shares
    
    
    Fair ValueUnvested restricted stock awards, December 31, 2005
    
    
    14,437
    
    
    $
    19.86Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Unvested restricted stock awards, March 31, 2006
    
    
    14,437
    
    
    $
    19.86
  Three Months EndedMarch 31, 2005(dollars in thousands)Net income, as reported
    
    $
    3,313Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all awards,
net of related tax effects
    
    
    (192
    )Pro forma net income
    
    $
    3,121Earnings per share: (1)Basic  as reported
    
    $
    0.34Basic  pro forma
    
    
    0.32Diluted  as reported
    
    
    0.33Diluted  pro forma
    
    
    0.31
 
 (1)
    
    Adjusted to reflect the 10% stock dividend, effective December 29, 2005.
     9




---



##### Table of Contents



Dividend yield
    
    
    1.82
    %Expected life
    
    6 yearsExpected volatilty
    
    
    40.84
    %Risk-free rate
    
    
    3.55
    %
  4.
    
    Loans and Allowance for Loan LossesLoans are stated at the amount of unpaid principal, reduced by an allowance for loan losses
and unearned loan fees. Interest on loans is calculated using the simple-interest method on
daily balances of the principal amount outstanding. Loan origination fees and certain direct
origination costs are capitalized and recognized as an adjustment of the yield over the life
of the related loan.The Bank does not accrue interest on loans for which full payment of principal and interest is
not expected, or for which payment of principal or interest has been in default 90 days or
more unless the loan is well-secured and in the process of collection. Non-accrual loans are
considered impaired loans. 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 collateral if the loan is collateral dependent. When the interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received or when the loan is removed from
non-accrual status. Large groups of smaller balance, homogeneous loans may be collectively
evaluated for impairment. Accordingly, the Bank may not separately identify individual
consumer and residential loans for evaluation of impairment.Loans on non-accrual status at March 31, 2006 and December 31, 2005, were $2.81 million and
$5.69 million, respectively. Loans to borrowers in the agricultural industry, totaling $2.44
million, comprised 86.83% of loans on non-accrual status at March 31, 2006. During the first
quarter of 2006, the Bank refinanced two loans totaling $2.38 million for a potato industry
agricultural borrower; both of these loans were on non-accrual status at December 31, 2005.
In addition, during the first quarter of 2006 the Bank charged-off $476,151 of commercial
loans to an agricultural borrower that were on non-accrual status loans at December 31, 2005.The allowance for loan losses represents an estimate of possible losses associated with the
Banks loan portfolio and deposit account overdrafts. The estimate is based on evaluations of
loan collectibility and prior loan loss experience. Evaluations consider factors such 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.Increases to the allowance for loan losses occur when amounts are expensed to the provision
for loan losses or previously charged-off loans are recovered; decreases occur when
uncollectible loans are charged-off.Various regulatory agencies, as a regular part of their examination process, review the Banks
allowance 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 the
examinations.
 10




---



##### Table of Contents



5.
    
    Earnings Per ShareBasic earnings per share is calculated by dividing net income by the weighted average number
of common shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if common shares from stock option grants were issued.
Weighted average shares outstanding include common shares outstanding, unvested restricted shares and common share equivalents attributable to outstanding stock options.The weighted average number of shares and common share equivalent figures have been
retroactively adjusted for all stock dividends or splits.6.
    
    Recently Issued Accounting StandardsIn May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS
No. 154 requires retrospective application to prior-period financial statements of changes in
accounting principle, unless it is impracticable to determine either the period-specific
effect or the cumulative effect of the change. SFAS No. 154 also redefines restatement as
the revising of previously issued financial statements to reflect the correction of an error.
This statement is effective for accounting changes and corrections or errors made in fiscal
years beginning after December 15, 2005. Management does not believe that the adoption of
SFAS No. 154 will have a material impact on the consolidated financial statements.In October 2005, the FASB issued FASB Staff Position (FSP) No. FAS 13-1, Accounting for
Rental Costs Incurred during a Construction Period, which addresses the accounting for rental
costs associated with operating leases that are incurred during a construction period. The
FSP requires that rental costs during a construction period be recognized as rental expense,
rather than capitalized. The guidance applies to periods beginning after December 15, 2005
and is not expected to have a significant impact on Columbias consolidated financial
condition or results of operations.In November 2005, the FASB issued FSP Nos. FAS 115-1 and FAS 124-1, The Meaning of
Other-Than-Temporary Impairment and its Applications to Certain Investments. The FSP provides
guidance on determining when an investment is considered impaired, whether the impairment is
other-than-temporary and the measurement of an impairment loss. The FSP also includes
accounting considerations subsequent to recognition of an other-than-temporary impairment and
requires certain disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. The guidance applies to periods beginning after December
15, 2005 and is not expected to have a significant impact on Columbias consolidated financial
condition or results of operations.In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. SFAS 155 simplifies the accounting for certain derivatives
embedded in other financial instruments by allowing them to be accounted for as a whole if the
holder elects to account for the whole instrument on a fair value basis. SFAS 155 also
clarifies and amends certain other provisions of SFAS 133 and SFAS 140. SFAS 155 is effective
for all financial instruments acquired, issued or subject to a remeasurement event occurring
in fiscal years beginning after September 15, 2006. Earlier adoption is permitted, provided
the Company has not yet issued financial statements, including for interim periods, for that
fiscal year. Management does not expect the adoption of SFAS 155 to have a material impact on
the consolidated financial statements.In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets
which amends SFAS No. 140. SFAS 156 requires that all separately recognized servicing assets
and servicing liabilities be initially measured at fair value, if practicable. The statement
permits, but does not require, the subsequent measurement of servicing assets
and servicing liabilities at fair value. SFAS 156 is effective for fiscal years beginning
after September 15, 2006. Management does not expect the adoption of SFAS 155 to have a
material impact on the consolidated financial statements.
 11




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 
 DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
 This Quarterly Report on Form 10-Q contains various forward-looking statements that are intended to
be covered by the safe harbor provided by the Private Securities Litigation Reform Act of 1995.
These statements include statements about our present plans and intentions, about our strategy,
growth, and deployment of resources, and about our expectations for future financial performance.
Forward-looking statements use prospective language, including words like may, will, should,
expect, anticipate, estimate, continue, plans, intends, or other similar terminology.
 Because forward-looking statements are, in part, an attempt to project future events and explain
current plans, they are subject to various risks and uncertainties that could cause our actions and
our financial and operational results to differ materially from those projected in forward-looking
statements. These risks and uncertainties include, without limitation, the risks described in Part
II  Other Information Item 1A Risk Factors.
 Information presented in this report is accurate as of the date the report was filed with the SEC.
We do not undertake any duty to update our forward-looking statements or the factors that may cause
us to deviate from them, except as required by law.
 
 OVERVIEW
 TM
      12




---



##### Table of Contents



Key
Financial Performance Indicators:
 As of and for theThree Months EndedMarch 31,2006
    
    2005Return on average assets
    
    
    1.84
    %
    
    
    1.84
    %Return on average equity
    
    
    19.01
    %
    
    
    19.89
    %Net interest margin, tax equivalent basis
    
    
    6.37
    %
    
    
    5.82
    %Efficiency ratio
    
    
    54.47
    %
    
    
    54.92
    %Net income
    
    $
    3,722
    
    
    $
    3,313Total loans, gross (1)
    
    
    684,123
    
    
    
    582,984Total assets
    
    
    856,713
    
    
    
    743,987Deposits
    
    
    722,597
    
    
    
    635,827Book value per common share
    
    $
    8.15
    
    
    $
    7.03Tangible book value per common share
    
    
    7.40
    
    
    
    6.07
 
 (1)
    
    Loans include portfolio and loans held for sales and exclude allowance for loan losses and uneamed loan fees.   13




---



##### Table of Contents



MATERIAL CHANGES IN FINANCIAL CONDITION
 ASSETS
  Investment Securities
    Loans
   14




---



##### Table of Contents



Loans:
 March 31, 2006
    
    
    December 31, 2005
    
    
    March 31, 2005Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofDollar Amount
    
    
    Total
    
    
    Dollar Amount
    
    
    Total
    
    
    Dollar Amount
    
    
    TotalCommercial loans
    
    $
    105,109
    
    
    
    16
    %
    
    $
    101,261
    
    
    
    15
    %
    
    $
    99,338
    
    
    
    17
    %Agricultural loans
    
    
    82,363
    
    
    
    12
    %
    
    
    84,271
    
    
    
    12
    %
    
    
    71,384
    
    
    
    12
    %Real estate loans
    
    
    295,378
    
    
    
    44
    %
    
    
    291,285
    
    
    
    43
    %
    
    
    255,212
    
    
    
    45
    %Real estate loans  construction
    
    
    175,594
    
    
    
    25
    %
    
    
    184,331
    
    
    
    27
    %
    
    
    130,811
    
    
    
    23
    %Consumer loans
    
    
    13,201
    
    
    
    2
    %
    
    
    13,775
    
    
    
    2
    %
    
    
    14,259
    
    
    
    2
    %Other loans
    
    
    8,399
    
    
    
    1
    %
    
    
    7,923
    
    
    
    1
    %
    
    
    7,791
    
    
    
    1
    %680,044
    
    
    
    
    
    
    
    682,846
    
    
    
    
    
    
    
    578,795Allowance for loan losses
    
    
    (8,866
    )
    
    
    -1
    %
    
    
    (9,526
    )
    
    
    -1
    %
    
    
    (8,249
    )
    
    
    -1
    %Unearned loan fees
    
    
    (1,404
    )
    
    
    0
    %
    
    
    (1,513
    )
    
    
    0
    %
    
    
    (1,421
    )
    
    
    0
    %Loans, net of allowance for loan
losses, unearned loan fees
and loans held for sale
    
    
    669,774
    
    
    
    
    
    
    
    671,807
    
    
    
    
    
    
    
    569,125Loans held for sale
    
    
    4,079
    
    
    
    1
    %
    
    
    5,879
    
    
    
    1
    %
    
    
    4,188
    
    
    
    1
    %Total loans
    
    $
    673,853
    
    
    
    100
    %
    
    $
    677,686
    
    
    
    100
    %
    
    $
    573,313
    
    
    
    100
    %
 15




---



##### Table of Contents



Non-performing Assets
   Non-performing Assets:
 March 31, 2006
    
    
    December 31, 2005
    
    
    March 31, 2005Loans on non-accrual status
    
    $
    2,808
    
    
    $
    5,688
    
    
    $
    705Delinquent loans on accrual status
    
    
    
    
    
    
    
    
    
    
    Troubled debt restructured loans
    
    
    36
    
    
    
    40
    
    
    
    Total non-performing loans
    
    
    2,844
    
    
    
    5,728
    
    
    
    705Other real estate owned
    
    
    
    
    
    
    
    
    
    
    84Total non-performing assets
    
    $
    2,844
    
    
    $
    5,728
    
    
    $
    789Allowance for loan losses
    
    $
    8,866
    
    
    $
    9,526
    
    
    $
    8,249Ratio of total non-performing
assets to total assets
    
    
    0.33
    %
    
    
    0.68
    %
    
    
    0.11
    %Ratio of total non-performing
loans to total loans
    
    
    0.41
    %
    
    
    0.92
    %
    
    
    0.12
    %Ratio of allowance for loan losses
to total non-performing assets
    
    
    311.71
    %
    
    
    166.30
    %
    
    
    1044.49
    %
   Allowance for Loan Losses
  
    
    Loss allocation to groups of loans by internal risk grade
    
    Loss allocation by loan type
    
    Loss allocation by historical loss percentage
 16




---



##### Table of Contents



Allowance for Loan Loss:
 Three Months EndedMarch 31,2006
    
    
    2005Balance at beginning of period
    
    $
    9,526
    
    
    $
    8,184Charge-offs:Commercial
    
    
    485
    
    
    
    22Real estate
    
    
    
    
    
    
    8Agriculture
    
    
    42
    
    
    
    23Consumer loans
    
    
    
    
    
    
    45Credit card and related accounts
    
    
    43
    
    
    
    24Demand deposit overdrafts
    
    
    
    
    
    
    30Total charge-offs
    
    
    570
    
    
    
    152Recoveries:Commercial
    
    
    18
    
    
    
    3Real estate
    
    
    
    
    
    
    Agriculture
    
    
    25
    
    
    
    4Consumer loans
    
    
    6
    
    
    
    6Credit card and related accounts
    
    
    1
    
    
    
    3Demand deposit overdrafts
    
    
    
    
    
    
    1Total recoveries
    
    
    50
    
    
    
    17Provision for loan losses
    
    
    550
    
    
    
    200Reclassify liability for credit losses
on off-balance-sheet financial
instruments
    
    
    (690
    )
    
    
    Balance at end of period
    
    $
    8,866
    
    
    $
    8,249
  17




---



##### Table of Contents



LIABILITIES
  Deposits
       Deposits:
 March 31, 2006
    
    
    December 31, 2005
    
    
    March 31, 2005Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofDollar Amount
    
    
    Total
    
    
    Dollar Amount
    
    
    Total
    
    
    Dollar Amount
    
    
    TotalNon-interest bearing deposits
    
    $
    214,561
    
    
    
    30
    %
    
    $
    220,450
    
    
    
    31
    %
    
    $
    187,787
    
    
    
    29
    %Interest bearing deposits
    
    
    293,187
    
    
    
    41
    %
    
    
    278,070
    
    
    
    39
    %
    
    
    233,050
    
    
    
    37
    %Savings deposits
    
    
    42,666
    
    
    
    6
    %
    
    
    41,128
    
    
    
    6
    %
    
    
    36,272
    
    
    
    6
    %Time certificates
    
    
    172,183
    
    
    
    23
    %
    
    
    168,174
    
    
    
    24
    %
    
    
    178,718
    
    
    
    28
    %Total deposits
    
    $
    722,597
    
    
    
    100
    %
    
    $
    707,822
    
    
    
    100
    %
    
    $
    635,827
    
    
    
    100
    %
 18




---



##### Table of Contents



Notes Payable
   FHLB
Borrowings:
 March 31,
    
    
    December 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2005Amount outstanding at end of period
    
    $
    43,228
    
    
    $
    44,841
    
    
    $
    32,678Weighted average interest rate at end of
period
    
    
    4.11
    %
    
    
    4.09
    %
    
    
    3.39
    %Maximum amount outstanding at any
month-end and during the year
    
    $
    43,228
    
    
    $
    44,841
    
    
    $
    33,836Average amount outstanding during the
period
    
    $
    23,888
    
    
    $
    34,380
    
    
    $
    32,882Average
weighted interest rate during the period
    
    
    3.93
    %
    
    
    3.64
    %
    
    
    2.89
    %
 Off-Balance Sheet Items  Commitments/Letters of Credit
  19




---



##### Table of Contents



Commitments:
 March 31, 2006
    
    
    December 31, 2005
    
    
    March 31, 2005Financial instruments whose contract amounts
contain credit risk:Commitments to extend credit
    
    $
    215,846
    
    
    $
    200,916
    
    
    $
    157,970Undisbursed credit card lines of credit
    
    
    20,587
    
    
    
    19,582
    
    
    
    18,949Commercial and standby letters of credit
    
    
    2,374
    
    
    
    2,309
    
    
    
    2,243$
    238,807
    
    
    $
    222,807
    
    
    $
    179,162
     20




---



##### Table of Contents



Derivative Instruments-Interest Rate Swap
  
 RESULTS OF OPERATIONS
 Net Interest Income
      21




---



##### Table of Contents



Net
Interest Income Average Balances and Rates:
 Three Months Ended March 31,
    
    
    Three Months Ended March 31,Average Balances
    
    
    Average Yields/Costs Tax Equivalent2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeTaxable securities
    
    $
    23,127
    
    
    $
    26,415
    
    
    $
    (3,288
    )
    
    
    3.77
    %
    
    
    2.72
    %
    
    
    1.05
    %Nontaxable securities
    
    
    12,473
    
    
    
    13,173
    
    
    
    (700
    )
    
    
    7.12
    %
    
    
    7.13
    %
    
    
    -0.01
    %Interest bearing deposits
    
    
    13,115
    
    
    
    20,657
    
    
    
    (7,542
    )
    
    
    4.06
    %
    
    
    2.39
    %
    
    
    1.67
    %Federal funds sold
    
    
    31,087
    
    
    
    40,474
    
    
    
    (9,387
    )
    
    
    4.38
    %
    
    
    2.44
    %
    
    
    1.94
    %Loans
    
    
    686,339
    
    
    
    578,409
    
    
    
    107,930
    
    
    
    8.71
    %
    
    
    8.05
    %
    
    
    0.66
    %Interest-earning assets
    
    
    766,141
    
    
    
    679,128
    
    
    
    87,013
    
    
    
    8.28
    %
    
    
    7.32
    %
    
    
    0.96
    %Nonearning assets
    
    
    53,031
    
    
    
    51,894
    
    
    
    1,137Total assets
    
    $
    819,172
    
    
    $
    731,022
    
    
    $
    88,150Savings & interest bearing deposits
    
    $
    325,503
    
    
    $
    268,352
    
    
    $
    57,151
    
    
    
    1.94
    %
    
    
    1.12
    %
    
    
    0.82
    %Time certificates
    
    
    175,747
    
    
    
    179,866
    
    
    
    (4,119
    )
    
    
    3.93
    %
    
    
    3.17
    %
    
    
    0.76
    %Borrowed funds
    
    
    29,935
    
    
    
    38,160
    
    
    
    (8,225
    )
    
    
    4.62
    %
    
    
    3.85
    %
    
    
    0.77
    %Interest bearing liabilities
    
    
    531,185
    
    
    
    486,378
    
    
    
    44,807
    
    
    
    2.75
    %
    
    
    2.09
    %
    
    
    0.66
    %Non-interest bearing demand deposits
    
    
    206,098
    
    
    
    174,241
    
    
    
    31,857Other liabilities
    
    
    2,499
    
    
    
    2,855
    
    
    
    (356
    )Shareholders equity
    
    
    79,390
    
    
    
    67,548
    
    
    
    11,842Total liabilities and shareholders equity
    
    $
    819,172
    
    
    $
    731,022
    
    
    $
    88,150
   22




---



##### Table of Contents



Non-Interest Income
   Non-Interest Income:
 Three Months EndedMarch 31,2006
    
    
    2005
    
    
    % changeService charges and fees
    
    $
    1,130
    
    
    $
    1,173
    
    
    
    -4
    %Credit card discounts and fees
    
    
    106
    
    
    
    113
    
    
    
    -6
    %Financial services revenue
    
    
    199
    
    
    
    144
    
    
    
    38
    %Mortgage servicing, net
    
    
    
    
    
    
    89
    
    
    
    -100
    %Mortgage loan origination income
    
    
    390
    
    
    
    326
    
    
    
    20
    %Service release premium
    
    
    218
    
    
    
    161
    
    
    
    35
    %Gain on mortgage sales
    
    
    30
    
    
    
    45
    
    
    
    -33
    %Other non-interest Income
    
    
    246
    
    
    
    252
    
    
    
    -2
    %Total non-interest Income
    
    $
    2,319
    
    
    $
    2,303
    
    
    
    1
    %
  
    
    Service charges and fees decreased $42,386 due to decreases in NSF and account
analysis fees.
    
    Financial services revenue increased $55,218 following the hiring of a new
representative for our Meadow Springs Branch and also due to an overall increase in sales by
existing representatives.
    
    Mortgage revenues increased $16,970 primarily due to an increase in the volume
of loans originated. We originated 193 loans during the first quarter of 2006, compared to
152 loans originated during the first quarter of 2005.
 Provision for Loan Losses
   23




---



##### Table of Contents



Non-Interest Expense
   Non-Interest Expense:
 Three Months EndedMarch 31,2006
    
    
    2005
    
    
    % changeSalaries and employee benefits
    
    $
    4,577
    
    
    $
    3,687
    
    
    
    24
    %Occupancy expense
    
    
    866
    
    
    
    797
    
    
    
    9
    %Advertising expense
    
    
    152
    
    
    
    59
    
    
    
    158
    %Electronic connection fees
    
    
    106
    
    
    
    65
    
    
    
    63
    %Consulting fees
    
    
    57
    
    
    
    82
    
    
    
    -30
    %Software licensing
    
    
    81
    
    
    
    103
    
    
    
    -21
    %Other non-interest expense
    
    
    1,937
    
    
    
    1,778
    
    
    
    9
    %Total non-interest expense
    
    $
    7,776
    
    
    $
    6,571
    
    
    
    18
    %
     24




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Shareholders Equity
   Liquidity
     25




---



##### Table of Contents



Capital Requirements and Ratios
   Capital Ratios:
 Well-
    
    
    March 31, 2006
    
    
    December 31, 2005Minimum
    
    
    Capitalized
    
    
    Actual Ratio
    
    
    Actual RatioTier 1 risk-based capital
    
    
    4.00
    %
    
    
    6.00
    %
    
    
    10.36
    %
    
    
    9.41
    %Total risk-based capital
    
    
    8.00
    %
    
    
    10.00
    %
    
    
    11.54
    %
    
    
    10.66
    %Leverage ratio
    
    
    4.00
    %
    
    
    5.00
    %
    
    
    9.53
    %
    
    
    8.91
    %
  Stock Repurchase Plan
  Trust Preferred Securities
  26




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
     
 ITEM 3 . Quantitative and Qualitative Disclosures about Market Risk
  
 ITEM 4. Controls and Procedures
   27




---



##### Table of Contents



PART II.  OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 3. Defaults Upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  
 ITEM 5. Other Information
  
 ITEM 6. Exhibits
 (a)
    
    Exhibits3.1.1
    
    
    Articles of Incorporation of Columbia Bancorp (Incorporated herein by reference
to Exhibit 3(i) to Columbias form 10-Q for the period ended June 30, 1999).3.1.2
    
    
    Bylaws of Columbia Bancorp (Incorporated herein by reference to Exhibit 15.5 to
Columbias Form 10-KSB for the year ended December 31, 1998).4.1
    
    
    Indenture dated as of December 19, 2002 between Columbia Bancorp, as Issuer, and
Wells Fargo Bank, N.A., as Trustee, relating to Floating Rate Junior Subordinated Debt
Securities due 2033.*4.2
    
    
    Form of Floating Rate Junior subordinated Debt Security due 2033.*10.1
    
    
    Employment agreement of April 1, 2006 between James C. McCall and Columbia River
Bank31.1
    
    
    Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule
15d-14(a).31.2
    
    
    Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule
15d-14(a).32.1
    
    
    Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule
15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.32.2
    
    
    Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule
15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
 
 *
    
    Incorporated by reference to Columbia Bancorps Form 10-K for the year ended December 31, 2005,
filed with the Securities and Exchange Commission. 28




---



##### Table of Contents



SIGNATURES
  COLUMBIA BANCORPDated: May 9, 2006
    
    /s/ Roger L. ChristensenRoger L. ChristensenPresident & Chief Executive OfficerDated: May 9, 2006/s/ Greg B. SpearGreg B. SpearExecutive Vice President & ChiefFinancial Officer
 29