##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the fiscal year ended: December 31, 2007
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
file number: 0-27938
 COLUMBIA BANCORP
  Oregon
(State of incorporation)
    
    93-1193156
(I.R.S. Employer
Identification No.)
 
   Title of each class 
Common stock, no par value
    
    Name of each exchange on which registered
Nasdaq Global Select Market
  o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
    
    
    
    3PART I
    
    
    
    3ITEM 1 BUSINESS
    
    
    
    3ITEM 1A RISK FACTORS
    
    
    
    15ITEM 1B UNRESOLVED STAFF COMMENTS
    
    
    
    17ITEM 2 PROPERTIES
    
    
    
    18ITEM 3 LEGAL PROCEEDINGS
    
    
    
    20ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    
    20PART II
    
    
    
    20ITEM 5 MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
    
    
    
    20ITEM 6 SELECTED FINANCIAL DATA
    
    
    
    23ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    
    24ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    
    48ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    
    49ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
    
    
    
    83ITEM 9A. CONTROLS AND PROCEDURES
    
    
    
    83ITEM 9B OTHER INFORMATION
    
    
    
    84PART III
    
    
    
    84ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    
    84ITEM 11 EXECUTIVE COMPENSATION
    
    
    
    85ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED SHAREHOLDER MATTERS
    
    
    
    85ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    
    85ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    
    85PART IV
    
    
    
    85ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    
    85SIGNATURES
    
    
    
    88EXHIBIT 3.1.2EXHIBIT 13.1EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
 This Annual Report on Form 10-K contains various forward-looking statements that are intended to be
covered by the safe harbor provided by Section 21D of the Securities Exchange Act of 1933, as
amended. 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
I  Item 1A Risk Factors.
 Information presented in this report is accurate as of the date the report is 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.
 
 PART I
 
 ITEM 1 BUSINESS
 General
    3




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Oregon
    
    WashingtonCentral Oregon
    
    Bend
    
    Redmond(High Desert Region)
    
    MadrasColumbia Basin
    
    Hermiston
    
    
    
    Richland
    
    SunnysidePendleton
    
    
    
    Pasco
    
    YakimaColumbia River Gorge
    
    Hood River
    
    
    
    GoldendaleThe Dalles
    
    
    
    White SalmonWillamette Valley
    
    Canby
    
    McMinnville
    
    VancouverLake Oswego
    
    Newberg
   2007 Business Developments
    4




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Business Strategy
  5




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Stock
    
    Return on
    
    NetTicker
    
    Average
    
    Interest
    
    NPA /
    
    Allowance /
    
    NCO /Company Name
    
    Symbol
    
    Equity
    
    Margin(1)
    
    Assets(2)
    
    Loans(3)
    
    Loans(4)American West
Bancorporation
    
    AWBC
    
    
    3.36
    %
    
    
    5.09
    %
    
    
    1.90
    %
    
    
    1.42
    %
    
    
    0.93
    %Banner Corporation
    
    BANR
    
    
    10.07
    %
    
    
    3.99
    %
    
    
    0.98
    %
    
    
    1.20
    %
    
    
    0.08
    %Cascade Bancorp
    
    CACB
    
    
    10.92
    %
    
    
    5.19
    %
    
    
    N/A
    
    
    
    1.66
    %
    
    
    0.46
    %Cashmere Valley
Financial Corp
    
    CVYF
    
    
    15.13
    %
    
    
    3.21
    %
    
    
    N/A
    
    
    
    1.61
    %
    
    
    0.15
    %Columbia Banking
System, Inc.
    
    COLB
    
    
    11.19
    %
    
    
    4.19
    %
    
    
    0.46
    %
    
    
    1.16
    %
    
    
    0.02
    %Intermountain
Community Bancorp
    
    IMCB
    
    
    11.31
    %
    
    
    5.21
    %
    
    
    N/A
    
    
    
    1.53
    %
    
    
    0.27
    %Pacific Continental
Corporation
    
    PCBK
    
    
    12.55
    %
    
    
    5.16
    %
    
    
    N/A
    
    
    
    1.05
    %
    
    
    0.04
    %PremierWest Bancorp
    
    PRWT
    
    
    12.25
    %
    
    
    5.68
    %
    
    
    N/A
    
    
    
    1.12
    %
    
    
    0.03
    %Riverview Community
Bank
    
    RVSB
    
    
    11.88
    %
    
    
    5.01
    %
    
    
    0.14
    %
    
    
    1.31
    %
    
    
    0.05
    %West Coast Bancorp
    
    WCBO
    
    
    7.86
    %
    
    
    4.91
    %
    
    
    1.12
    %
    
    
    2.16
    %
    
    
    0.34
    %Columbia Bancorp
    
    CBBO
    
    
    14.96
    %
    
    
    5.61
    %
    
    
    1.00
    %
    
    
    1.27
    %
    
    
    0.43
    %Top 25% of Bank
Holding Companies
    
    
    
    
    
    
    13.19
    %
    
    
    3.42
    %
    
    
    0.86
    %
    
    
    1.07
    %
    
    
    0.08
    %
 
 (1)
    
    Tax equivalent net interest margin(2)
    
    Non-performing assets as a percentage of total assets(3)
    
    Allowance for loan losses as a percentage of total loans(4)
    
    Net loan charge-offs as a percentage of average gross loansN/A = performance measure not availableSource:
    
    SNL Data Source  Operate Successfully in Small to Medium Sized Communities 
 Maintain High Asset Quality 
 6




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Products and Services
 Consumer Distribution Channels
 Retail Bank Products and Services
 CRB Mortgage Team Products and Services
 CRB Financial Services Team Products and Services
 Technology-Based Products and Services
 Commercial Distribution Channels
   Commercial Loans
 7




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Agricultural Loans
 Real Estate Loans
  Government-Assisted Loan Programs
 Services to Non-Profits and Public Entities
 Deposit and Related Products
 8




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Cash Management Services
 Investment Products
 Principal Markets of Operation
    Competition
   9




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SUPERVISION AND REGULATION
 General
  Gramm-Leach-Bliley Financial Services Modernization Act
   Holding Company Bank Ownership
 Holding Company Control of Nonbanks
 Transactions with Affiliates
 10




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Tying Arrangements
 Federal and State Bank Regulation
 General
 Community Reinvestment Act (CRA)
 Insider Credit Transactions
 FDICIA
 Interstate Banking and Branching
   11




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Deposit Insurance
   Dividends
  Capital Adequacy
   12




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Effects of Government Monetary Policy
  13




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Sarbanes-Oxley Act of 2002
  Changes in Banking Laws and Regulations
  Employees
  Directors and Executive Officers
  Website Access to Reports
  14




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ITEM 1A RISK FACTORS
  Real Estate Loan Concentrations
 Adequacy of Loan Loss Allowance 
 Growth Management
 15




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Changes in Market Interest Rates 
 Liquidity
 Geographic Concentration 
 Regulation 
 16




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Nasdaq
Listing Qualifications
 Competition 
 Credit Risk 
  
 ITEM 1B UNRESOLVED STAFF COMMENTS
  17




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ITEM 2 PROPERTIES
   YearSquare
    
    Opened or
    
    OccupancyCity and County
    
    Address
    
    Feet
    
    Acquired
    
    StatusOregon BranchesThe Dalles (Main)
Wasco County
    
    316 East Third Street
    
    11,441
    
    1977
    
    OwnedThe Dalles (Cherry Heights)
Wasco County
    
    500 Cherry Heights Rd
    
    1,800
    
    2006
    
    OwnedHood River Branch
Hood River County
    
    2650 Cascade Avenue
    
    6,875
    
    1993
    
    OwnedMadras Branch
Jefferson County
    
    624 SW Fourth Street
    
    7,660
    
    1995
    
    OwnedRedmond Branch
Deschutes County
    
    434 North Fifth Street
    
    5,900
    
    1995
    
    OwnedSouth Redmond Branch
Deschutes County
    
    1502 SW Odem Medo Rd
    
    5,078
    
    2004
    
    LeasedBend Branch
Deschutes County
    
    1701 NE Third Street
    
    8,306
    
    1996
    
    OwnedShevlin Center
Branch(1)
Deschutes County
    
    925 SW Emkay Drive
    
    15,000
    
    1999
    
    OwnedWall Street Branch
Deschutes County
    
    1133 Wall Street
    
    12,421
    
    2004
    
    LeasedHermiston Branch
Umatilla County
    
    1033 South Highway 395
    
    4,700
    
    1998
    
    OwnedPendleton Branch
Umatilla County
    
    2101 SW Court Place
    
    4,700
    
    1999
    
    OwnedMcMinnville
Branch(1)
Yamhill County
    
    723 N Baker
    
    9,893
    
    1998
    
    OwnedCanby Branch
Clackamas County
    
    223 NE 2nd Street
    
    3,615
    
    2001
    
    LeasedNewberg Branch
Yamhill County
    
    901 N Brutscher St, Ste A
    
    3,900
    
    1999
    
    LeasedLake Oswego
Clackamas County
    
    5665 SW Meadows Rd.
    
    3,466
    
    2006
    
    Leased
 18




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YearSquare
    
    Opened or
    
    OccupancyCity and County
    
    Address
    
    Feet
    
    Acquired
    
    StatusWashington BranchesWhite Salmon Branch
Klickitat County
    
    390 NE Tohomish Street
    
    5,500
    
    1996
    
    OwnedGoldendale Branch
Klickitat County
    
    202 West Main Street
    
    6,105
    
    1996
    
    OwnedMeadow Springs Branch
Benton County
    
    139 Gage
    
    10,000
    
    2006
    
    LeasedPasco Branch
Franklin County
    
    4725 Road 68
    
    3,700
    
    2006
    
    OwnedYakima Branch
    
    501 W. Lincoln Ave,Yakima County
    
    Ste B
    
    2,341
    
    2006
    
    LeasedSunnyside Branch
    
    2640 Yakima Valley Hwy,Yakima County
    
    Ste 3
    
    1,653
    
    2006
    
    LeasedVancouver Branch (2)
    
    17800 SE Mill Plain Blvd.,Clark County
    
    Ste 100
    
    408
    
    2007
    
    LeasedOther FacilitiesThe Dalles Administration
Wasco County, OR
    
    401 E Third St, Suite 200
    
    22,199
    
    2002
    
    LeasedVancouver Administration (2)
    
    17800 SE Mill Plain Blvd.,Clark County, WA
    
    Ste 100
    
    6,237
    
    2007
    
    Leased
 
 (1)
    
    Branch operations are located on the first floor. The second floor is leased to
other parties.(2)
    
    Vancouver, WA facility houses both temporary branch and administrative operations. 19




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ITEM 3 LEGAL PROCEEDINGS
  Smith-Rattray Farms, et al., v. Columbia River Bank, et al.
  J.R. Simplot Company v. Smith-Rattray Farms, LLC, et al.
  
 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5 MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  20




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Table 1
 2007
    
    
    2006Stock Trading Range
    
    
    Cash Dividend
    
    
    Stock Trading Range
    
    
    Cash DividendHigh
    
    
    Low
    
    
    Declared
    
    
    High
    
    
    Low
    
    
    DeclaredFirst Quarter
    
    $
    25.29
    
    
    $
    22.86
    
    
    $
    0.10
    
    
    $
    23.88
    
    
    $
    20.06
    
    
    $
    0.09Second Quarter
    
    
    24.21
    
    
    
    19.28
    
    
    
    0.10
    
    
    
    27.45
    
    
    
    21.80
    
    
    
    0.10Third Quarter
    
    
    21.99
    
    
    
    17.62
    
    
    
    0.10
    
    
    
    26.00
    
    
    
    22.34
    
    
    
    0.10Fourth Quarter
    
    
    19.72
    
    
    
    16.31
    
    
    
    0.10
    
    
    
    28.05
    
    
    
    23.43
    
    
    
    0.10
 Securities authorized for issuance under equity compensation plans
  Number of securitiesremaining available forNumber of securities to be
    
    Weighted-average
    
    future issuance underissued upon exercise of
    
    exercise price of
    
    equity compensation plansoutstanding options,
    
    outstanding options,
    
    (excluding securitieswarrants and rights
    
    warrants and rights
    
    reflected in column(a))Table 2
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    
    
    
    $
   
    
    
    
    Equity compensation
plans not approved
by security holders
(1)
    
    
    444,594
    
    
    $
    11.96
    
    
    
    
 (1)
    
    On February 22, 2008, Columbia notified the Listing Qualifications department of
The Nasdaq Stock Market Inc. that during a review of its corporate, securities and compliance
issues it discovered evidence that may suggest that Columbia is presently not in compliance with
NASD Rule 4350(i)(1)(A), which requires that listed companies obtain shareholder approval prior to
entry into an equity compensation arrangement with its officers and/or directors. Specifically,
Columbia inadvertently issued equity compensation in excess of the number of shares authorized
under the Columbia Bancorp 1999 Stock Incentive Plan, as amended in 2002 (the Plan). Columbia
notified The Nasdaq Stock Market of this violation and the Nasdaq has
made a preliminary indication that it will not
delist our securities from the Nasdaq Global Select Market at this time, but instead will be
issuing a letter of reprimand to Columbia, which among other things
will require that the officers and
directors of Columbia have waived their right to vested and unvested restricted stock and to
exercise options granted in excess of those approved under the Plan pending a vote of Columbias
stockholders at the annual meeting to be held on April 24, 2008, on the approval of the excess
shares that were granted. If shareholder approval is not obtained, the officers and directors will
be deemed to have relinquished any right they have in such vested and unvested restricted stock and
options.
 21




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Performance Graph
  COLUMBIA BANCORP
 
 Sales of Unregistered Securities
  Purchases of Equity Securities
  22




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ITEM 6 SELECTED FINANCIAL DATA
  Table
3
 As of and for the Years Ended December 31,(dollars in thousands except per share data)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Income Statement DataInterest income
    
    $
    79,524
    
    
    $
    70,674
    
    
    $
    53,589
    
    
    $
    42,708
    
    
    $
    38,230Interest expense
    
    
    26,508
    
    
    
    18,002
    
    
    
    11,302
    
    
    
    7,328
    
    
    
    6,831Net interest income
    
    
    53,016
    
    
    
    52,672
    
    
    
    42,287
    
    
    
    35,380
    
    
    
    31,399Loan loss provision
    
    
    4,740
    
    
    
    2,900
    
    
    
    3,115
    
    
    
    2,760
    
    
    
    2,575Net income
    
    
    14,482
    
    
    
    15,775
    
    
    
    13,670
    
    
    
    10,735
    
    
    
    9,834Balance Sheet DataInvestment securities
    
    $
    34,182
    
    
    $
    37,704
    
    
    $
    36,780
    
    
    $
    45,398
    
    
    $
    31,682Total loans, net
    
    
    866,830
    
    
    
    801,871
    
    
    
    677,686
    
    
    
    574,125
    
    
    
    464,350Total assets
    
    
    1,042,708
    
    
    
    1,033,188
    
    
    
    841,239
    
    
    
    715,373
    
    
    
    584,136Total deposits
    
    
    922,893
    
    
    
    859,065
    
    
    
    707,822
    
    
    
    606,944
    
    
    
    496,358Notes payable
    
    
    6,278
    
    
    
    70,014
    
    
    
    45,691
    
    
    
    34,889
    
    
    
    21,983Shareholders equity
    
    
    102,238
    
    
    
    91,018
    
    
    
    77,492
    
    
    
    65,877
    
    
    
    57,804Per Share DataEarnings per common shareBasic earnings per common share(1)
    
    $
    1.45
    
    
    $
    1.60
    
    
    $
    1.39
    
    
    $
    1.11
    
    
    $
    1.03Diluted earnings per common share(1)
    
    
    1.42
    
    
    
    1.55
    
    
    
    1.36
    
    
    
    1.08
    
    
    
    0.99Cash dividends declared per common share (1)
    
    
    0.40
    
    
    
    0.39
    
    
    
    0.33
    
    
    
    0.32
    
    
    
    0.28Book value per common share(1)
    
    
    10.18
    
    
    
    9.12
    
    
    
    7.86
    
    
    
    6.78
    
    
    
    6.01Capital RatiosTier I capital ratio (2)
    
    
    10.51
    %
    
    
    10.11
    %
    
    
    9.70
    %
    
    
    9.80
    %
    
    
    10.46
    %Total risk-based capital ratio (3)
    
    
    11.76
    
    
    
    11.36
    
    
    
    10.95
    
    
    
    11.05
    
    
    
    11.71Leverage ratio(4)
    
    
    9.75
    
    
    
    8.54
    
    
    
    9.77
    
    
    
    8.74
    
    
    
    9.19Financial RatiosReturn on average assets
    
    
    1.43
    %
    
    
    1.79
    %
    
    
    1.77
    %
    
    
    1.64
    %
    
    
    1.71
    %Return on average equity
    
    
    14.96
    
    
    
    18.72
    
    
    
    19.01
    
    
    
    17.50
    
    
    
    18.25
 
 (1)
    
    Prior periods have been adjusted to reflect 10% stock dividend effective December 29, 2005(2)
    
    Tier I capital divided by risk-weighted assets.(3)
    
    Total regulatory capital divided by risk-weighted assets.(4)
    
    Tier I capital divided by average total assets. 23




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ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 This section contains forward-looking statements and should be read after considering Disclosure
Regarding Forward-Looking Statements at the beginning of this document, as well as the Risk
Factors in Item 1A of this document. The following discussion should also be read in conjunction
with our audited consolidated financial statements and accompanying notes as of December 31, 2007
and 2006 and for each of the three years ended December 31, 2007, 2006 and 2005, included elsewhere
in this report.
 Critical Accounting Estimates
    Overview
   24




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Table
4
 (dollars in thousands except per share data)
    
    2007
    
    2006
    
    2005Total assets
    
    $
    1,042,708
    
    
    $
    1,033,188
    
    
    $
    841,239Total loans, gross (1)
    
    
    879,064
    
    
    
    813,443
    
    
    
    688,724Total deposits
    
    
    922,893
    
    
    
    859,065
    
    
    
    707,822Net income
    
    
    14,482
    
    
    
    15,775
    
    
    
    13,670Earnings per diluted common share
    
    
    1.42
    
    
    
    1.55
    
    
    
    1.36Return on average assets
    
    
    1.43
    %
    
    
    1.79
    %
    
    
    1.77
    %Return on average equity
    
    
    14.96
    %
    
    
    18.72
    %
    
    
    19.01
    %Average equity to average assets ratio
    
    
    9.55
    %
    
    
    9.56
    %
    
    
    9.32
    %Net interest margin, tax equivalent basis
    
    
    5.61
    %
    
    
    6.44
    %
    
    
    5.95
    %Efficiency ratio
    
    
    56.49
    %
    
    
    55.00
    %
    
    
    53.67
    %Cash dividend payout ratio
    
    
    27.71
    %
    
    
    24.56
    %
    
    
    24.12
    %
 
 (1)
    
    Loans include portfolio and loans held-for-sale and exclude allowance for loan
losses and unearned loan fees. Financial Highlights
 2007 compared to 2006
 
    
    Demand for real estate construction and development loans during the first half of 2007
contributed to gross loan growth of 8%.
    
    Deposits grew 7% primarily due to promotionally priced certificate of deposit offerings
and higher wholesale deposit borrowings.
    
    Net interest income increased 1% primarily due to the net effect of volume increases in
loans and time deposits. Net interest margin decreased from 6.44% to 5.61% as a result of
Fed Funds rate cuts, promotionally priced deposit products and an increase in wholesale
borrowings.
    
    Provision for loan losses increased 63% to provide for the effect of an agricultural loan
charge-off during the first half of 2007 and for the real estate downturn that began during
the second half of 2007.
    
    Occupancy expense increased 21% due to the opening of a joint branch and administration
facility in Vancouver, Washington and due to a full year of expenses associated with
branches opened during 2006.
    
    Other non-interest expense increased 13% due to legal and other costs associated with a
charged-off agricultural loan, as well as higher software licensing expense and consulting
fees.
 25




---



##### Table of Contents



2006 compared to 2005
 
    
    New branches in Richland, Pasco, Yakima and Sunnyside, Washington contributed $45.95
million in loan growth and $43.17 million in deposit growth, as well as increases in net
interest income and non-interest expenses.
    
    Loan growth of 18% from our new and existing branches, combined with Federal Reserve
interest rate increases, increased loan interest income 33%.
    
    Net interest margin increased from 5.95% to 6.44% due to the effect of rising interest
rates. The positive effect of rising interest rates on our variable rate loan portfolio
outpaced the negative effect from our borrowings and deposit accounts.
    
    Salaries and benefits increased 24% primarily due to employees hired to staff new branch
and administrative positions, annual merit increases and market salary adjustments.
  
    
    State of Oregon corporate kicker tax benefit of $328,250 contributed earnings of $0.03
per diluted share.
    
    Gain from sale of the mortgage servicing asset of $560,588 contributed earnings of $0.04
per diluted share, net of income tax.
    
    Collection of $336,000 in non-accrual interest associated with 2004 contributed earnings
of $0.02 per diluted share, net of income tax.
 Operational Highlights
    26




---



##### Table of Contents



Results of Operations
 Net Interest Income
  Average Balances and Average Rates Earned and Paid
 Table
5
 Year Ended December 31, 2007
    
    
    Year Ended December 31, 2006
    
    
    Year Ended December 31, 2005Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income or
    
    
    Yields or
    
    
    Average
    
    
    Income or
    
    
    Yields or
    
    
    Average
    
    
    Income or
    
    
    Yields or(dollars in thousands)
    
    Balance
    
    
    Expense
    
    
    Rates
    
    
    Balance
    
    
    Expense
    
    
    Rates
    
    
    Balance
    
    
    Expense
    
    
    RatesInterest earning
assets:Loans (1)
    
    $
    859,483
    
    
    $
    75,104
    
    
    
    8.74
    %
    
    $
    744,067
    
    
    $
    67,027
    
    
    
    9.01
    %
    
    $
    623,656
    
    
    $
    50,572
    
    
    
    8.11
    %Investment
securitiesTaxable securities
    
    
    22,839
    
    
    
    1,103
    
    
    
    4.83
    
    
    
    23,463
    
    
    
    993
    
    
    
    4.23
    
    
    
    23,921
    
    
    
    746
    
    
    
    3.12Nontaxable
securities
(2)
    
    
    10,530
    
    
    
    742
    
    
    
    7.05
    
    
    
    11,849
    
    
    
    844
    
    
    
    7.12
    
    
    
    12,941
    
    
    
    905
    
    
    
    6.99Total investment
securities
    
    
    33,369
    
    
    
    1,845
    
    
    
    5.53
    
    
    
    35,312
    
    
    
    1,837
    
    
    
    5.20
    
    
    
    36,862
    
    
    
    1,651
    
    
    
    4.48Interest earning
balances due from
banks
    
    
    17,390
    
    
    
    849
    
    
    
    4.88
    
    
    
    14,563
    
    
    
    689
    
    
    
    4.73
    
    
    
    17,699
    
    
    
    496
    
    
    
    2.80Federal funds sold
    
    
    39,772
    
    
    
    1,985
    
    
    
    4.99
    
    
    
    28,394
    
    
    
    1,416
    
    
    
    4.99
    
    
    
    37,615
    
    
    
    1,177
    
    
    
    3.13Total interest
earning assets
    
    
    950,014
    
    
    
    79,783
    
    
    
    8.40
    
    
    
    822,336
    
    
    
    70,969
    
    
    
    8.63
    
    
    
    715,832
    
    
    
    53,896
    
    
    
    7.53Nonearning assets
    
    
    63,424
    
    
    
    
    
    
    
    
    
    
    
    58,745
    
    
    
    
    
    
    
    
    
    
    
    55,820Total assets
    
    $
    1,013,438
    
    
    
    
    
    
    
    
    
    
    $
    881,081
    
    
    
    
    
    
    
    
    
    
    $
    771,652Interest bearing
liabilities:Interest bearing
demand and
savings accounts
    
    $
    335,262
    
    
    $
    8,842
    
    
    
    2.64
    %
    
    $
    320,481
    
    
    $
    6,931
    
    
    
    2.16
    %
    
    $
    287,504
    
    
    $
    4,051
    
    
    
    1.41
    %Time deposits and
IRAs
    
    
    338,524
    
    
    
    16,616
    
    
    
    4.91
    
    
    
    219,084
    
    
    
    9,407
    
    
    
    4.29
    
    
    
    174,495
    
    
    
    5,893
    
    
    
    3.38Borrowed funds
    
    
    19,717
    
    
    
    1,050
    
    
    
    5.33
    
    
    
    33,746
    
    
    
    1,664
    
    
    
    4.93
    
    
    
    33,652
    
    
    
    1,358
    
    
    
    4.04Total interest
bearing liabilities
    
    
    693,503
    
    
    
    26,508
    
    
    
    3.82
    
    
    
    573,311
    
    
    
    18,002
    
    
    
    3.14
    
    
    
    495,651
    
    
    
    11,302
    
    
    
    2.28Non-interest
bearing deposits
    
    
    220,325
    
    
    
    
    
    
    
    
    
    
    
    219,526
    
    
    
    
    
    
    
    
    
    
    
    198,316Total
deposits
and
borrowed
funds
    
    
    913,828
    
    
    
    
    
    
    
    
    
    
    
    792,837
    
    
    
    
    
    
    
    
    
    
    
    693,967Other liabilities
    
    
    2,820
    
    
    
    
    
    
    
    
    
    
    
    3,986
    
    
    
    
    
    
    
    
    
    
    
    5,766Total liabilities
    
    
    916,648
    
    
    
    
    
    
    
    
    
    
    
    796,823
    
    
    
    
    
    
    
    
    
    
    
    699,733Shareholders equity
    
    
    96,790
    
    
    
    
    
    
    
    
    
    
    
    84,258
    
    
    
    
    
    
    
    
    
    
    
    71,919Total liabilities
and
shareholders equity
    
    $
    1,013,438
    
    
    
    
    
    
    
    
    
    
    $
    881,081
    
    
    
    
    
    
    
    
    
    
    $
    771,652Net interest income
(tax equivalent)
    
    
    
    
    
    $
    53,275
    
    
    
    
    
    
    
    
    
    
    $
    52,967
    
    
    
    
    
    
    
    
    
    
    $
    42,594Net interest income
(as reported)
    
    
    
    
    
    $
    53,016
    
    
    
    
    
    
    
    
    
    
    $
    52,671
    
    
    
    
    
    
    
    
    
    
    $
    42,287Average yield on
average earning
assets
    
    
    
    
    
    
    
    
    
    
    8.40
    %
    
    
    
    
    
    
    
    
    
    
    8.63
    %
    
    
    
    
    
    
    
    
    
    
    7.53
    %Interest expense to
average earning
assets
    
    
    
    
    
    
    
    
    
    
    2.79
    %
    
    
    
    
    
    
    
    
    
    
    2.19
    %
    
    
    
    
    
    
    
    
    
    
    1.58
    %Net interest margin(3)
    
    
    
    
    
    
    
    
    
    
    5.61
    %
    
    
    
    
    
    
    
    
    
    
    6.44
    %
    
    
    
    
    
    
    
    
    
    
    5.95
    %Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.58
    %
    
    
    
    
    
    
    
    
    
    
    5.49
    %
    
    
    
    
    
    
    
    
    
    
    5.25
    %
 
 (1)
    
    Non-accrual loans and loans held for sale are included in the average balance.(2)
    
    Tax-exempt income has been adjusted to a tax-equivalent basis at a rate of 35%(3)
    
    Net interest margin is computed by dividing net interest income (taxable equivalent basis) by
total average interest earning assets.  27




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##### Table of Contents



Analysis of Changes in Interest Differential
 Table
6
 2007 over 2006
    
    
    2006 over 2005
    
    
    2005 over 2004Increase (Decrease) due to
    
    
    Increase (Decrease) due to
    
    
    Increase (Decrease) due toNet
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    Net(dollars in thousands)
    
    Volume
    
    
    Rate
    
    
    Change
    
    
    Volume
    
    
    Rate
    
    
    Change
    
    
    Volume
    
    
    Rate
    
    
    ChangeInterest earning assets:Loans
    
    $
    10,412
    
    
    $
    (2,335
    )
    
    $
    8,077
    
    
    $
    9,772
    
    
    $
    6,683
    
    
    $
    16,455
    
    
    $
    5,971
    
    
    $
    3,361
    
    
    $
    9,332Investment securitiesTaxable securities
    
    
    (27
    )
    
    
    137
    
    
    
    110
    
    
    
    (14
    )
    
    
    261
    
    
    
    247
    
    
    
    182
    
    
    
    129
    
    
    
    311Nontaxable securities
    
    
    (60
    )
    
    
    (6
    )
    
    
    (66
    )
    
    
    (59
    )
    
    
    10
    
    
    
    (49
    )
    
    
    (20
    )
    
    
    1
    
    
    
    (19
    )Balances due from banks
    
    
    134
    
    
    
    26
    
    
    
    160
    
    
    
    (88
    )
    
    
    281
    
    
    
    193
    
    
    
    102
    
    
    
    179
    
    
    
    281Federal funds sold
    
    
    569
    
    
    
    
    
    
    
    569
    
    
    
    (288
    )
    
    
    527
    
    
    
    239
    
    
    
    341
    
    
    
    635
    
    
    
    976Total
    
    
    11,028
    
    
    
    (2,178
    )
    
    
    8,850
    
    
    
    9,323
    
    
    
    7,762
    
    
    
    17,085
    
    
    
    6,576
    
    
    
    4,305
    
    
    
    10,881Interest bearing liabilities:Interest bearing demand
and savings accounts
    
    
    311
    
    
    
    1,600
    
    
    
    1,911
    
    
    
    468
    
    
    
    2,412
    
    
    
    2,880
    
    
    
    364
    
    
    
    2,211
    
    
    
    2,575Time deposits
    
    
    5,116
    
    
    
    2,093
    
    
    
    7,209
    
    
    
    1,512
    
    
    
    2,002
    
    
    
    3,514
    
    
    
    489
    
    
    
    850
    
    
    
    1,339Borrowed funds
    
    
    (692
    )
    
    
    78
    
    
    
    (614
    )
    
    
    5
    
    
    
    301
    
    
    
    306
    
    
    
    (150
    )
    
    
    210
    
    
    
    60Total
    
    
    4,735
    
    
    
    3,771
    
    
    
    8,506
    
    
    
    1,985
    
    
    
    4,715
    
    
    
    6,700
    
    
    
    703
    
    
    
    3,271
    
    
    
    3,974Net increase (decrease) in
net interest income
    
    $
    6,293
    
    
    $
    (5,949
    )
    
    $
    344
    
    
    $
    7,338
    
    
    $
    3,047
    
    
    $
    10,385
    
    
    $
    5,873
    
    
    $
    1,034
    
    
    $
    6,907
   28




---



##### Table of Contents



Provision for Loan Losses
   Non-interest Income
    
    
    Service charges and fees decreased primarily as a result of overdraft protection changes
we made to comply with new regulations.
    
    Mortgage banking revenue increased due to an increase in the volume of loan originations.
    
    In order to balance our loans and deposits and add liquidity during 2006, we sold $6.62
million of commercial real estate loans at a gain of $133,640.
    
    In 2005, we recognized $560,588 from gain on the sale of our mortgage servicing asset.
 29




---



##### Table of Contents



Non-interest Expense
   
    
    Occupancy expense increased 21% due to the opening of a joint branch and administration
facility in Vancouver, Washington and due to a full year of expenses associated branches
opened during 2006.
    
    Other non-interest expense increased 13% primarily due to legal fees and other costs
associated with a charged-off agricultural loan, as well as higher software licensing
expense and consulting fees.
  
    
    Higher salary and benefits expenses: We hired employees to staff new branches and new
administrative positions. As of December 31, 2006, full-time equivalent employees (FTE)
totaled 362 compared to 312 as of December 31, 2005, a 16% increase. In addition, salaries
for existing FTE increased due to annual merit increases and market salary adjustments.
    
    Higher occupancy costs and other non-interest expenses related to the incremental costs
of new branches opened during 2006.
  Income Taxes
    30




---



##### Table of Contents



Financial Condition
 Table
7
 Summary Balance Sheets
 December 31,
    
    
    Increase (Decrease)(dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005
    
    
    12/31/06  12/31/07
    
    
    12/31/05  12/31/06ASSETSFederal funds sold
    
    $
    49,100
    
    
    $
    58,930
    
    
    $
    29,282
    
    
    $
    (9,830
    )
    
    
    -17
    %
    
    $
    29,648
    
    
    
    101
    %Investments
    
    
    34,182
    
    
    
    37,704
    
    
    
    36,780
    
    
    
    (3,522
    )
    
    
    -9
    
    
    
    924
    
    
    
    3Total loans, net
    
    
    866,830
    
    
    
    801,871
    
    
    
    677,686
    
    
    
    64,959
    
    
    
    8
    
    
    
    124,185
    
    
    
    18Other assets (1)
    
    
    92,596
    
    
    
    134,683
    
    
    
    97,491
    
    
    
    (42,087
    )
    
    
    -31
    
    
    
    37,192
    
    
    
    38Total assets
    
    $
    1,042,708
    
    
    $
    1,033,188
    
    
    $
    841,239
    
    
    $
    9,520
    
    
    
    1
    %
    
    $
    191,949
    
    
    
    23
    %LIABILITIESNon-interest bearing
deposits
    
    $
    224,092
    
    
    $
    235,037
    
    
    $
    220,450
    
    
    $
    (10,945
    )
    
    
    -5
    %
    
    $
    14,587
    
    
    
    7
    %Interest bearing deposits
    
    
    698,801
    
    
    
    624,028
    
    
    
    487,372
    
    
    
    74,773
    
    
    
    12
    
    
    
    136,656
    
    
    
    28Total deposits
    
    
    922,893
    
    
    
    859,065
    
    
    
    707,822
    
    
    
    63,828
    
    
    
    7
    
    
    
    151,243
    
    
    
    21Other liabilities (2)
    
    
    17,577
    
    
    
    83,105
    
    
    
    55,925
    
    
    
    (65,528
    )
    
    
    -79
    
    
    
    27,180
    
    
    
    49Total liabilities
    
    
    940,470
    
    
    
    942,170
    
    
    
    763,747
    
    
    
    (1,700
    )
    
    
    
    
    
    
    178,423
    
    
    
    23SHAREHOLDERS EQUITY
    
    
    102,238
    
    
    
    91,018
    
    
    
    77,492
    
    
    
    11,220
    
    
    
    12
    
    
    
    13,526
    
    
    
    17Total liabilities and
shareholders equity
    
    $
    1,042,708
    
    
    $
    1,033,188
    
    
    $
    841,239
    
    
    $
    9,520
    
    
    
    1
    %
    
    $
    191,949
    
    
    
    23
    %
 
 (1)
    
    Includes cash and due from banks, property and equipment, accrued interest receivable and
intangible goodwill.(2)
    
    Includes notes payable, accrued interest payable and other liabilities. Cash and Cash Equivalents
  31




---



##### Table of Contents



Investments
  Table
8
 2007
    
    
    2006
    
    
    2005
    
    
    2004(dollars in thousands)
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentInvestments available-for-sale:U.S. Government obligations
    
    $
    19,419
    
    
    
    57
    %
    
    $
    19,827
    
    
    
    53
    %
    
    $
    16,680
    
    
    
    45
    %
    
    $
    23,899
    
    
    
    53
    %Obligations of states and political
subdivisions
    
    
    208
    
    
    
    1
    
    
    
    361
    
    
    
    1
    
    
    
    553
    
    
    
    1
    
    
    
    674
    
    
    
    2Equity securities
    
    
    1,147
    
    
    
    3
    
    
    
    638
    
    
    
    2
    
    
    
    611
    
    
    
    2
    
    
    
    606
    
    
    
    120,774
    
    
    
    61
    
    
    
    20,826
    
    
    
    56
    
    
    
    17,844
    
    
    
    48
    
    
    
    25,179
    
    
    
    56Investments held-to-maturity:Obligations of states and political
subdivisions
    
    
    8,798
    
    
    
    26
    
    
    
    11,230
    
    
    
    30
    
    
    
    12,053
    
    
    
    33
    
    
    
    12,535
    
    
    
    28Mortgage-backed securities
    
    
    2,171
    
    
    
    6
    
    
    
    3,129
    
    
    
    8
    
    
    
    4,363
    
    
    
    12
    
    
    
    5,174
    
    
    
    11U.S. Government obligations
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    81
    
    
    
    
    
    
    
    81
    
    
    
    10,969
    
    
    
    32
    
    
    
    14,439
    
    
    
    38
    
    
    
    16,497
    
    
    
    45
    
    
    
    17,790
    
    
    
    39Restricted equity securities
    
    
    2,439
    
    
    
    7
    
    
    
    2,439
    
    
    
    6
    
    
    
    2,439
    
    
    
    7
    
    
    
    2,429
    
    
    
    5Total investment securities
    
    $
    34,182
    
    
    
    100
    %
    
    $
    37,704
    
    
    
    100
    %
    
    $
    36,780
    
    
    
    100
    %
    
    $
    45,398
    
    
    
    100
    %
    Table
9
 December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005Amortized
    
    
    Estimated
    
    
    %
    
    
    Amortized
    
    
    Estimated
    
    
    %
    
    
    Amortized
    
    
    Estimated
    
    
    %(dollars in thousands)
    
    Cost
    
    
    Fair Value
    
    
    Yield(1)
    
    
    Cost
    
    
    Fair Value
    
    
    Yield(1)
    
    
    Cost
    
    
    Fair Value
    
    
    Yield(1)U.S. Government
obligations:One year or less
    
    $
    8,996
    
    
    $
    8,990
    
    
    
    4.49
    %
    
    $
    5,861
    
    
    $
    5,795
    
    
    
    5.15
    %
    
    $
    6,000
    
    
    $
    5,926
    
    
    
    4.60
    %One to five years
    
    
    6,301
    
    
    
    6,347
    
    
    
    4.57
    
    
    
    14,225
    
    
    
    14,110
    
    
    
    5.15
    
    
    
    11,096
    
    
    
    10,836
    
    
    
    4.72Five to ten years
    
    
    4,000
    
    
    
    4,080
    
    
    
    4.77
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Over ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities:One year or less
    
    
    363
    
    
    
    361
    
    
    
    4.28
    
    
    
    1,312
    
    
    
    1,301
    
    
    
    5.50
    
    
    
    2,347
    
    
    
    2,333
    
    
    
    5.30One to five years
    
    
    1,261
    
    
    
    1,255
    
    
    
    4.25
    
    
    
    1,507
    
    
    
    1,480
    
    
    
    4.49
    
    
    
    1,568
    
    
    
    1,557
    
    
    
    4.55Five to ten years
    
    
    243
    
    
    
    242
    
    
    
    5.14
    
    
    
    203
    
    
    
    198
    
    
    
    5.02
    
    
    
    441
    
    
    
    434
    
    
    
    4.09Over ten years
    
    
    304
    
    
    
    306
    
    
    
    5.82
    
    
    
    107
    
    
    
    104
    
    
    
    4.87
    
    
    
    7
    
    
    
    7
    
    
    
    6.50Obligations of states and
political subdivisions:One year or less
    
    
    495
    
    
    
    501
    
    
    
    5.60
    
    
    
    281
    
    
    
    282
    
    
    
    5.78
    
    
    
    1,171
    
    
    
    1,173
    
    
    
    5.17One to five years
    
    
    5,639
    
    
    
    5,729
    
    
    
    6.31
    
    
    
    3,830
    
    
    
    3,857
    
    
    
    6.06
    
    
    
    3,031
    
    
    
    3,081
    
    
    
    6.27Five to ten years
    
    
    2,869
    
    
    
    2,896
    
    
    
    6.74
    
    
    
    7,474
    
    
    
    7,597
    
    
    
    6.06
    
    
    
    7,943
    
    
    
    8,198
    
    
    
    6.16Over ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    449
    
    
    
    437
    
    
    
    6.89Total debt securities
    
    
    30,471
    
    
    
    30,707
    
    
    
    5.11
    %
    
    
    34,800
    
    
    
    34,724
    
    
    
    5.47
    %
    
    
    34,053
    
    
    
    33,982
    
    
    
    5.32
    %Equity securities
    
    
    1,161
    
    
    
    1,147
    
    
    
    
    
    
    
    619
    
    
    
    638
    
    
    
    
    
    
    
    596
    
    
    
    611Restricted equity securities
    
    
    2,439
    
    
    
    2,439
    
    
    
    
    
    
    
    2,439
    
    
    
    2,439
    
    
    
    
    
    
    
    2,439
    
    
    
    2,439Total securities
    
    $
    34,071
    
    
    $
    34,293
    
    
    
    
    
    
    $
    37,858
    
    
    $
    37,801
    
    
    
    
    
    
    $
    37,088
    
    
    $
    37,032
 
 (1)
    
    Weighted average yields are stated on a federal tax equivalent basis at a rate of
35% and have been annualized, where appropriate.  32




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##### Table of Contents



Loans
   Table
10
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(dollars in thousands)
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageCommercial
    
    $
    129,018
    
    
    
    15
    %
    
    $
    136,582
    
    
    
    17
    %
    
    $
    101,261
    
    
    
    15
    %
    
    $
    93,618
    
    
    
    16
    %
    
    $
    86,163
    
    
    
    19
    %Agricultural
    
    
    70,095
    
    
    
    8
    
    
    
    86,218
    
    
    
    11
    
    
    
    84,271
    
    
    
    12
    
    
    
    79,224
    
    
    
    14
    
    
    
    64,059
    
    
    
    14Real estate secured loans:Commercial property
    
    
    241,544
    
    
    
    28
    
    
    
    243,391
    
    
    
    31
    
    
    
    199,065
    
    
    
    30
    
    
    
    156,175
    
    
    
    27
    
    
    
    125,359
    
    
    
    27Farmland
    
    
    48,739
    
    
    
    6
    
    
    
    44,178
    
    
    
    5
    
    
    
    46,518
    
    
    
    7
    
    
    
    50,585
    
    
    
    9
    
    
    
    42,301
    
    
    
    9Construction
    
    
    294,398
    
    
    
    34
    
    
    
    212,826
    
    
    
    27
    
    
    
    184,331
    
    
    
    27
    
    
    
    139,415
    
    
    
    25
    
    
    
    87,427
    
    
    
    19Residential
    
    
    41,149
    
    
    
    5
    
    
    
    46,547
    
    
    
    6
    
    
    
    30,955
    
    
    
    5
    
    
    
    29,584
    
    
    
    5
    
    
    
    34,295
    
    
    
    7Home equity lines
    
    
    23,144
    
    
    
    3
    
    
    
    13,410
    
    
    
    2
    
    
    
    14,747
    
    
    
    2
    
    
    
    10,701
    
    
    
    2
    
    
    
    4,799
    
    
    
    1Total real estate
    
    
    648,974
    
    
    
    76
    
    
    
    560,352
    
    
    
    71
    
    
    
    475,616
    
    
    
    71
    
    
    
    386,460
    
    
    
    68
    
    
    
    294,181
    
    
    
    63Consumer
    
    
    11,630
    
    
    
    1
    
    
    
    12,541
    
    
    
    1
    
    
    
    13,775
    
    
    
    2
    
    
    
    14,386
    
    
    
    2
    
    
    
    18,242
    
    
    
    4Other
    
    
    11,208
    
    
    
    1
    
    
    
    10,212
    
    
    
    1
    
    
    
    7,923
    
    
    
    1
    
    
    
    7,660
    
    
    
    1
    
    
    
    6,975
    
    
    
    1Total gross loans
    
    
    870,925
    
    
    
    101
    
    
    
    805,905
    
    
    
    101
    
    
    
    682,846
    
    
    
    101
    
    
    
    581,348
    
    
    
    101
    
    
    
    469,620
    
    
    
    101Less unearned loan fees
    
    
    (1,060
    )
    
    
    
    
    
    
    (1,428
    )
    
    
    
    
    
    
    (1,513
    )
    
    
    
    
    
    
    (1,556
    )
    
    
    
    
    
    
    (1,450
    )
    
    
    Less allowance for loan losses
    
    
    (11,174
    )
    
    
    (1
    )
    
    
    (10,143
    )
    
    
    (1
    )
    
    
    (9,526
    )
    
    
    (1
    )
    
    
    (8,184
    )
    
    
    (1
    )
    
    
    (6,612
    )
    
    
    (1
    )Loans receivable, net
    
    $
    858,691
    
    
    
    100
    %
    
    $
    794,334
    
    
    
    100
    %
    
    $
    671,807
    
    
    
    100
    %
    
    $
    571,608
    
    
    
    100
    %
    
    $
    461,558
    
    
    
    100
    %Volume change from prior year
    
    
    
    
    
    
    8
    %
    
    
    
    
    
    
    18
    %
    
    
    
    
    
    
    18
    %
    
    
    
    
    
    
    24
    %
    
    
    
    
    
    
    9
    %
   
    
    New branches in Yakima, Sunnyside and Pasco, Washington along with our expanded Meadow
Springs branch in Richland, Washington contributed $45.95 million in loan growth.
    
    Continued strong demand for construction and commercial real estate loans throughout our
market areas added $55.57 million to loan growth during 2006, excluding new branch
activity.
    
    Commercial loans increased $35.32 million due to a focus on commercial and industrial
lending and two large commercial loans added in the fourth quarter of 2006.
  33




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##### Table of Contents



Table
11
 December 31, 2007Less than
    
    
    3 months-
    
    
    
    
    
    
    
    
    
    
    Over
    
    
    Total(dollars in thousands)
    
    3 months
    
    
    1 year
    
    
    1-5 years
    
    
    5-10 years
    
    
    10 years
    
    
    loansCommercial loans
    
    $
    29,490
    
    
    $
    41,655
    
    
    $
    33,912
    
    
    $
    21,486
    
    
    $
    2,475
    
    
    $
    129,018Agricultural loans
    
    
    24,976
    
    
    
    19,961
    
    
    
    22,684
    
    
    
    2,350
    
    
    
    124
    
    
    
    70,095Real estate secured loans:Commercial property
    
    
    16,538
    
    
    
    14,993
    
    
    
    20,965
    
    
    
    88,132
    
    
    
    100,916
    
    
    
    241,544Farmland
    
    
    4,344
    
    
    
    4,873
    
    
    
    6,628
    
    
    
    7,938
    
    
    
    24,956
    
    
    
    48,739Construction
    
    
    136,349
    
    
    
    120,600
    
    
    
    27,867
    
    
    
    5,371
    
    
    
    4,211
    
    
    
    294,398Residential
    
    
    2,153
    
    
    
    18,248
    
    
    
    8,426
    
    
    
    5,433
    
    
    
    6,889
    
    
    
    41,149Home equity lines
    
    
    267
    
    
    
    9,232
    
    
    
    1,477
    
    
    
    188
    
    
    
    11,980
    
    
    
    23,144Total real estate loans
    
    
    159,651
    
    
    
    167,946
    
    
    
    65,363
    
    
    
    107,062
    
    
    
    148,952
    
    
    
    648,974Consumer
    
    
    549
    
    
    
    913
    
    
    
    8,304
    
    
    
    1,555
    
    
    
    309
    
    
    
    11,630Other
    
    
    7,433
    
    
    
    282
    
    
    
    548
    
    
    
    114
    
    
    
    2,831
    
    
    
    11,208Total loans
    
    $
    222,099
    
    
    $
    230,757
    
    
    $
    130,811
    
    
    $
    132,567
    
    
    $
    154,691
    
    
    $
    870,925
 Loans with fixed interest rates
    
    $
    127,283Loans with variable interest rates  daily reprice
    
    
    471,672Loans with variable interest rates  other than daily reprice
    
    
    271,970Total loans
    
    $
    870,925Loans with rate floors
    
    $
    550,477Loans with variable interest rates  daily reprice  on or under rate floors
    
    
    174,608Loans with variable interest rates  other than daily reprice  on or under rate floors
    
    
    63,573
  34




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##### Table of Contents



Allowance for Loan and Lease Losses
    35




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##### Table of Contents



Table 12
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofloans in
    
    
    
    
    
    
    loans in
    
    
    
    
    
    
    loans in
    
    
    
    
    
    
    loans in
    
    
    
    
    
    
    loans ineach
    
    
    
    
    
    
    each
    
    
    
    
    
    
    each
    
    
    
    
    
    
    each
    
    
    
    
    
    
    eachcategory to
    
    
    
    
    
    
    category to
    
    
    
    
    
    
    category to
    
    
    
    
    
    
    category to
    
    
    
    
    
    
    category to(dollars in thousands)
    
    Amount
    
    
    total loans
    
    
    Amount
    
    
    total loans
    
    
    Amount
    
    
    total loans
    
    
    Amount
    
    
    total loans
    
    
    Amount
    
    
    total loansCommercial
    
    $
    1,454
    
    
    
    15
    %
    
    $
    1,784
    
    
    
    17
    %
    
    $
    1,064
    
    
    
    15
    %
    
    $
    1,438
    
    
    
    16
    %
    
    $
    1,355
    
    
    
    18
    %Agricultural
    
    
    1,609
    
    
    
    8
    
    
    
    3,161
    
    
    
    11
    
    
    
    3,281
    
    
    
    12
    
    
    
    2,396
    
    
    
    14
    
    
    
    1,430
    
    
    
    14Real estate
    
    
    6,240
    
    
    
    75
    
    
    
    2,979
    
    
    
    70
    
    
    
    2,344
    
    
    
    70
    
    
    
    3,083
    
    
    
    67
    
    
    
    2,621
    
    
    
    63Consumer
    
    
    342
    
    
    
    1
    
    
    
    464
    
    
    
    1
    
    
    
    478
    
    
    
    2
    
    
    
    454
    
    
    
    2
    
    
    
    450
    
    
    
    4Other
    
    
    103
    
    
    
    1
    
    
    
    104
    
    
    
    1
    
    
    
    129
    
    
    
    1
    
    
    
    25
    
    
    
    1
    
    
    
    24
    
    
    
    1Off-balance-sheet
financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    587
    
    
    
    
    
    
    
    443
    
    
    
    
    
    
    
    380
    
    
    
    Unallocated
    
    
    1,426
    
    
    
    
    
    
    
    1,651
    
    
    
    
    
    
    
    1,643
    
    
    
    
    
    
    
    345
    
    
    
    
    
    
    
    352
    
    
    
    Total allowance for
loan losses
    
    $
    11,174
    
    
    
    100
    %
    
    $
    10,143
    
    
    
    100
    %
    
    $
    9,526
    
    
    
    100
    %
    
    $
    8,184
    
    
    
    100
    %
    
    $
    6,612
    
    
    
    100
    %
  36




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##### Table of Contents



Table 13
 (dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Gross loans outstanding at end of year (1)
    
    $
    879,064
    
    
    $
    813,443
    
    
    $
    688,725
    
    
    $
    583,865
    
    
    $
    472,412Average loans outstanding for the year (1)
    
    $
    860,783
    
    
    $
    745,578
    
    
    $
    625,038
    
    
    $
    546,600
    
    
    $
    457,465Allowance for loan losses balance, beginning of year
    
    $
    10,143
    
    
    $
    9,526
    
    
    $
    8,184
    
    
    $
    6,612
    
    
    $
    6,417Loans charged off:Commercial
    
    
    (205
    )
    
    
    (655
    )
    
    
    (1,261
    )
    
    
    (762
    )
    
    
    (417
    )Real estate
    
    
    (85
    )
    
    
    (24
    )
    
    
    (168
    )
    
    
    (116
    )
    
    
    (1,569
    )Real estate construction
    
    
    (113
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Agriculture
    
    
    (3,253
    )
    
    
    (893
    )
    
    
    (156
    )
    
    
    (80
    )
    
    
    (40
    )Consumer loans
    
    
    (13
    )
    
    
    (6
    )
    
    
    (111
    )
    
    
    (198
    )
    
    
    (412
    )Consumer overdrafts
    
    
    (306
    )
    
    
    (274
    )
    
    
    (165
    )
    
    
    
    
    
    
    Credit card and related accounts
    
    
    (43
    )
    
    
    (79
    )
    
    
    (101
    )
    
    
    (135
    )
    
    
    (96
    )Total loans charged off
    
    
    (4,018
    )
    
    
    (1,931
    )
    
    
    (1,962
    )
    
    
    (1,291
    )
    
    
    (2,534
    )Recoveries:Commercial
    
    
    48
    
    
    
    112
    
    
    
    79
    
    
    
    67
    
    
    
    50Real estate
    
    
    
    
    
    
    35
    
    
    
    9
    
    
    
    8
    
    
    
    35Real estate construction
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Agriculture
    
    
    
    
    
    
    162
    
    
    
    5
    
    
    
    4
    
    
    
    28Consumer loans
    
    
    28
    
    
    
    19
    
    
    
    32
    
    
    
    13
    
    
    
    31Consumer overdrafts
    
    
    223
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    Credit card and related accounts
    
    
    9
    
    
    
    10
    
    
    
    4
    
    
    
    11
    
    
    
    10Total recoveries
    
    
    309
    
    
    
    338
    
    
    
    189
    
    
    
    103
    
    
    
    154Net charge-offs
    
    
    (3,709
    )
    
    
    (1,593
    )
    
    
    (1,773
    )
    
    
    (1,188
    )
    
    
    (2,380
    )Provision for loan losses
    
    
    4,740
    
    
    
    2,900
    
    
    
    3,115
    
    
    
    2,760
    
    
    
    2,575Reclassify liability for off-balance-sheet
financial insturment credit losses
    
    
    
    
    
    
    (690
    )
    
    
    
    
    
    
    
    
    
    
    Allowance for loan losses balance, end of year
    
    $
    11,174
    
    
    $
    10,143
    
    
    $
    9,526
    
    
    $
    8,184
    
    
    $
    6,612Liability for off-balance-sheet financial instruments,
beginning of year
    
    $
    763
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Reclassify from allowance for loan losses
    
    
    
    
    
    
    690
    
    
    
    
    
    
    
    
    
    
    
    Increase charged to other non-interest expense
    
    
    85
    
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    Liability for off-balance-sheet financial instruments,
end of year
    
    $
    848
    
    
    $
    763
    
    
    $
    
    
    
    $
    
    
    
    $
    Total allowance for credit losses (2)
    
    $
    12,022
    
    
    $
    10,906
    
    
    $
    9,526
    
    
    $
    8,184
    
    
    $
    6,612Ratio of net loans charged off to
average loans outstanding
    
    
    0.43
    %
    
    
    0.21
    %
    
    
    0.28
    %
    
    
    0.22
    %
    
    
    0.52
    %Ratio of allowance for credit losses to loans at
end of period
    
    
    1.37
    %
    
    
    1.34
    %
    
    
    1.38
    %
    
    
    1.40
    %
    
    
    1.40
    %
 
 (1)
    
    Includes loans held-for-sale and excludes allowance for loan losses and unearned fees.(2)
    
    Allowance for loan losses and liability for off-balance-sheet financial instruments. 37




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##### Table of Contents



Non-performing Assets
  38




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##### Table of Contents



Table 14
 (dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Loans on non-accrual status
    
    $
    9,865
    
    
    $
    4,939
    
    
    $
    5,688
    
    
    $
    4,217
    
    
    $
    3,292Loans past due  greater than 90 days
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructured loans
    
    
    84
    
    
    
    52
    
    
    
    40
    
    
    
    
    
    
    
    10Total non-performing loans
    
    
    9,949
    
    
    
    4,991
    
    
    
    5,728
    
    
    
    4,217
    
    
    
    3,302Other real estate owned
    
    
    516
    
    
    
    203
    
    
    
    
    
    
    
    100
    
    
    
    42Repossessed other assets
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-performing
assets
    
    $
    10,470
    
    
    $
    5,194
    
    
    $
    5,728
    
    
    $
    4,317
    
    
    $
    3,344Allowance for loan losses
    
    $
    11,174
    
    
    $
    10,143
    
    
    $
    9,526
    
    
    $
    8,184
    
    
    $
    6,612Ratio of total non-performing assets to
total assets
    
    
    1.00
    %
    
    
    0.50
    %
    
    
    0.68
    %
    
    
    0.60
    %
    
    
    0.57
    %Ratio of total non-performing loans to
total gross loans
    
    
    1.13
    %
    
    
    0.61
    %
    
    
    0.83
    %
    
    
    0.72
    %
    
    
    0.70
    %Ratio of reserve for loan losses to
total non-performing assets
    
    
    106.73
    %
    
    
    195.28
    %
    
    
    166.30
    %
    
    
    189.57
    %
    
    
    197.74
    %
    39




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Deposits
    Table 15
 2007
    
    
    2006
    
    
    2005(dollars in thousands)
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageInterest bearing demand deposits
    
    $
    303,235
    
    
    
    33
    %
    
    $
    313,433
    
    
    
    37
    %
    
    $
    278,070
    
    
    
    39
    %Savings deposits
    
    
    35,784
    
    
    
    4
    
    
    
    35,456
    
    
    
    4
    
    
    
    41,128
    
    
    
    6Time certificates less than $100,000
    
    
    264,042
    
    
    
    29
    
    
    
    196,648
    
    
    
    23
    
    
    
    73,508
    
    
    
    11Time certificates greater than $100,000
    
    
    95,740
    
    
    
    10
    
    
    
    78,491
    
    
    
    9
    
    
    
    94,666
    
    
    
    13Total interest bearing deposits
    
    
    698,801
    
    
    
    76
    
    
    
    624,028
    
    
    
    73
    
    
    
    487,372
    
    
    
    69Non-interest bearing deposits
    
    
    224,092
    
    
    
    24
    
    
    
    235,037
    
    
    
    27
    
    
    
    220,450
    
    
    
    31Total deposits
    
    $
    922,893
    
    
    
    100
    %
    
    $
    859,065
    
    
    
    100
    %
    
    $
    707,822
    
    
    
    100
    %
  
    
    Retail time certificates increased $30.67 million primarily due to promotionally priced
certificate of deposit offerings.
    
    Wholesale deposits increased $54.80 million to support loan growth during the first half
of 2007.
    
    Deposit growth was offset by a $37.00 million overnight deposit from year-end 2006
withdrawn at the beginning of 2007.
  
    
    New branches in Yakima, Sunnyside and Pasco, Washington, along with our expanded Meadow
Springs branch in Richland, Washington, contributed $43.17 million to deposit growth.
    
    In order to support loan growth, we added wholesale liabilities totaling $75.09 million,
net of maturities.
    
    We raised $47.97 million of retail time deposits by offering special pricing terms. Time
deposit growth supplemented the modest growth of core retail deposits.
    
    We received a $37.00 million temporary overnight deposit on the last business day of
2006.
  40




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Table 16
 2007 Averages
    
    
    2006 Averages
    
    
    2005 Averages(dollars in thousands)
    
    Amount
    
    
    Rate Paid
    
    
    Amount
    
    
    Rate Paid
    
    
    Amount
    
    
    Rate PaidNon-interest bearing deposits
    
    $
    220,325
    
    
    
    N/A
    
    
    $
    219,526
    
    
    
    N/A
    
    
    $
    198,316
    
    
    
    N/AInterest bearing demand deposits
    
    
    299,257
    
    
    
    2.83
    %
    
    
    280,691
    
    
    
    2.31
    %
    
    
    248,544
    
    
    
    1.50
    %Savings deposits
    
    
    36,005
    
    
    
    1.06
    
    
    
    39,790
    
    
    
    1.10
    
    
    
    38,960
    
    
    
    0.84Time certificates
    
    
    338,524
    
    
    
    4.91
    
    
    
    219,084
    
    
    
    4.29
    
    
    
    174,495
    
    
    
    3.38Total deposits
    
    $
    894,111
    
    
    
    
    
    
    $
    759,091
    
    
    
    
    
    
    $
    660,315
    41




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Table 17
 (dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005Brokered certificates of deposit
    
    $
    144,467
    
    
    $
    89,325
    
    
    $
    31,644Direct certificates of deposit
    
    
    4,339
    
    
    
    5,508
    
    
    
    9,715Mutual fund money market deposits
    
    
    23,547
    
    
    
    18,423
    
    
    
    Out-of-market public funds
    
    
    4,081
    
    
    
    8,382
    
    
    
    $
    176,434
    
    
    $
    121,638
    
    
    $
    41,359
    Table 18
 Time Certificates
    
    
    Time Certificates(dollars in thousands)
    
    less than $100,000
    
    
    greater than $100,000
    
    
    TotalThree months or less
    
    $
    52,892
    
    
    $
    32,909
    
    
    $
    85,801Over three through six months
    
    
    36,774
    
    
    
    24,976
    
    
    
    61,750Over six months through twelve months
    
    
    70,187
    
    
    
    21,737
    
    
    
    91,924Over twelve months through five years
    
    
    104,008
    
    
    
    16,118
    
    
    
    120,126Over five years
    
    
    181
    
    
    
    
    
    
    
    181$
    264,042
    
    
    $
    95,740
    
    
    $
    359,782
 Long-Term and Short-Term Borrowings
   42




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Table 19
 (dollars in thousands)
    
    2007
    

2006
    

2005Amount outstanding at end of period
    
    $
    5,428
    
    
    $
    69,387
    
    
    $
    44,841Weighted-average interest rate at end of
period
    
    
    3.36
    %
    
    
    5.21
    %
    
    
    4.09
    %Maximum amount outstanding at any
month-end during the year
    
    $
    46,658
    
    
    $
    70,001
    
    
    $
    44,841Average amount outstanding during the period
    
    $
    15,246
    
    
    $
    27,603
    
    
    $
    34,380Weighted-average interest rate during the period
    
    
    4.29
    %
    
    
    4.33
    %
    
    
    3.64
    %
 Trust Preferred Securities
  Shareholders Equity and Regulatory Capital
    43




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Table 20
 Maximum DollarTotal Number of
    
    
    Value of SharesTotal Number of
    
    
    
    
    
    
    Shares Purchased
    
    
    Remaining to beShares
    
    
    Average Price
    
    
    as Part of Publicly
    
    
    Purchased UnderPurchased
    
    
    Paid per Share
    
    
    Announced Plans(1)
    
    
    the Plans(1)October 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    1,500,000November 2006(2)
    
    
    1,136
    
    
    
    27.35
    
    
    
    
    
    
    
    1,500,000December 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500,000Three months ended
December 31, 2006
    
    
    1,136
    
    
    
    27.35
    
    
    
    
    
    
    
    1,500,000Twelve months ended
December 31, 2006
    
    
    1,136
    
    
    $
    27.35
    
    
    
    
    
    
    $
    1,500,000July 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    1,500,000August 2007(3)
    
    
    696
    
    
    
    18.79
    
    
    
    
    
    
    
    1,500,000September 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500,000Three months ended
September 30, 2007
    
    
    696
    
    
    
    18.79
    
    
    
    
    
    
    
    1,500,000October 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500,000November 2007(4)
    
    
    24,393
    
    
    
    17.60
    
    
    
    23,442
    
    
    
    1,000,370December 2007
    
    
    4,889
    
    
    
    17.64
    
    
    
    4,889
    
    
    
    1,000,370Three months ended
December 31, 2007
    
    
    29,282
    
    
    
    17.61
    
    
    
    28,331
    
    
    
    1,000,370Twelve months ended
December 31, 2007
    
    
    29,978
    
    
    $
    17.64
    
    
    
    28,331
    
    
    $
    1,000,370
 
 (1)
    
    Plan announced in June 2006 to repurchase up to
$1.50 million of common stock through June 30, 2007.  In June 2007,
the plan was renewed to allow purchases of up to $1.50 million of
common stock through June 30, 2008.(2)
    
    Includes 1,136 shares purchased pursuant to vesting of stock awards.(3)
    
    Includes 696 shares purchased pursuant to vesting of stock awards.(4)
    
    Includes 951 shares purchased pursuant to vesting of stock awards.   Table 21
 2007
    
    2006
    
    Regulatory MinimumTier I capital
    
    
    10.51
    %
    
    
    10.11
    %
    
    
    4.00
    %Total risk-based capital
    
    
    11.76
    %
    
    
    11.36
    %
    
    
    8.00
    %Leverage ratio
    
    
    9.75
    %
    
    
    8.54
    %
    
    
    4.00
    %
 44




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Liquidity and Capital Resources
         Inflation
  45




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Off-Balance Sheet Arrangements
    Table 22
 (dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005Commitments to extend credit
    
    $
    229,716
    
    
    $
    236,582
    
    
    $
    195,626Commitments to originate loans held-for-sale
    
    
    7,170
    
    
    
    8,723
    
    
    
    5,290Undisbursed credit card lines of credit
    
    
    24,618
    
    
    
    21,265
    
    
    
    19,582Commercial and standby letters of credit
    
    
    3,200
    
    
    
    3,504
    
    
    
    2,309Total
    
    $
    264,704
    
    
    $
    270,074
    
    
    $
    222,807
 Contractual Obligations
  Table 23
 Payment due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More than 5
    
    
    Unspecified(dollars in thousands)
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    years
    
    
    maturityLong-term debt obligationsFederal Home Loan Bank notes
    
    $
    5,428
    
    
    $
    4,140
    
    
    $
    752
    
    
    $
    
    
    
    $
    536
    
    
    $
    Trust preferred securities (1)
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    Treasury Tax and Loan note
    
    
    850
    
    
    
    850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    10,680
    
    
    
    1,213
    
    
    
    2,255
    
    
    
    2,002
    
    
    
    5,210
    
    
    
    Other long term liabilities(2)
    
    
    1,941
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,941Total
    
    $
    22,899
    
    
    $
    6,203
    
    
    $
    3,007
    
    
    $
    2,002
    
    
    $
    9,746
    
    
    $
    1,941
 
 (1)
    
    Columbia has the right to redeem trust preferred securities on or after January 7,
2008. This commitment excludes $124 of initial trust capitalization. Subsequent to December 31,
2007, Columbia exercised its right to redeem the securities on January 7, 2008.(2)
    
    Amount includes deferred compensation and salary continuation plan benefit
obligations. 46




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Recently Issued Accounting Standards
    , .
   47




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk Management
    Table 24
 Percent Change
    
    Percent Changein Net Interest
    
    in Present ValueChange in Interest Rates
    
    Income
    
    of Equity-200 Basis points
    
    
    -14.18
    %
    
    
    -4.58
    %-100 Basis points
    
    
    -7.74
    %
    
    
    -2.33
    %+100 Basis points
    
    
    6.60
    %
    
    
    1.49
    %+200 Basis points
    
    
    13.54
    %
    
    
    3.01
    %
   48




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ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Selected Quarterly Financial Data (unaudited)
 Table 25
 2007 Quarterly Financial DataFirst
    
    
    Second
    
    
    Third
    
    
    Fourth(In thousands except per share data)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    TotalIncome Statement DataInterest income
    
    $
    18,923
    
    
    $
    20,495
    
    
    $
    20,412
    
    
    $
    19,694
    
    
    $
    79,524Interest expense
    
    
    6,010
    
    
    
    7,101
    
    
    
    6,872
    
    
    
    6,525
    
    
    
    26,508Net interest income
    
    
    12,913
    
    
    
    13,394
    
    
    
    13,540
    
    
    
    13,169
    
    
    
    53,016Loan loss provision
    
    
    1,025
    
    
    
    2,325
    
    
    
    800
    
    
    
    590
    
    
    
    4,740Net interest income after
loan loss provision
    
    
    11,888
    
    
    
    11,069
    
    
    
    12,740
    
    
    
    12,579
    
    
    
    48,276Non-interest income
    
    
    2,646
    
    
    
    2,778
    
    
    
    2,555
    
    
    
    2,861
    
    
    
    10,840Non-interest expense
    
    
    9,014
    
    
    
    9,024
    
    
    
    9,166
    
    
    
    8,870
    
    
    
    36,074Income before provision for
income taxes
    
    
    5,520
    
    
    
    4,823
    
    
    
    6,129
    
    
    
    6,570
    
    
    
    23,042Provision for income taxes
    
    
    2,067
    
    
    
    1,817
    
    
    
    2,252
    
    
    
    2,424
    
    
    
    8,560Net income
    
    $
    3,453
    
    
    $
    3,006
    
    
    $
    3,877
    
    
    $
    4,146
    
    
    $
    14,482Earnings Per ShareBasic earnings per common share
    
    $
    0.35
    
    
    $
    0.30
    
    
    $
    0.39
    
    
    $
    0.41
    
    
    $
    1.45Diluted earnings per common share
    
    $
    0.34
    
    
    $
    0.30
    
    
    $
    0.38
    
    
    $
    0.41
    
    
    $
    1.42
 2006 Quarterly Financial DataFirst
    
    
    Second
    
    
    Third
    
    
    Fourth(In thousands except per share data)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    TotalIncome Statement DataInterest income
    
    $
    15,558
    
    
    $
    16,634
    
    
    $
    18,919
    
    
    $
    19,563
    
    
    $
    70,674Interest expense
    
    
    3,600
    
    
    
    3,861
    
    
    
    5,007
    
    
    
    5,534
    
    
    
    18,002Net interest income
    
    
    11,958
    
    
    
    12,773
    
    
    
    13,912
    
    
    
    14,029
    
    
    
    52,672Loan loss provision
    
    
    550
    
    
    
    1,270
    
    
    
    330
    
    
    
    750
    
    
    
    2,900Net interest income after
loan loss provision
    
    
    11,408
    
    
    
    11,503
    
    
    
    13,582
    
    
    
    13,279
    
    
    
    49,772Non-interest income
    
    
    2,319
    
    
    
    2,390
    
    
    
    2,636
    
    
    
    2,476
    
    
    
    9,821Non-interest expense
    
    
    7,776
    
    
    
    8,127
    
    
    
    9,341
    
    
    
    9,129
    
    
    
    34,373Income before provision for
income taxes
    
    
    5,951
    
    
    
    5,766
    
    
    
    6,877
    
    
    
    6,626
    
    
    
    25,220Provision for income taxes
    
    
    2,229
    
    
    
    2,159
    
    
    
    2,634
    
    
    
    2,423
    
    
    
    9,445Net income
    
    $
    3,722
    
    
    $
    3,607
    
    
    $
    4,243
    
    
    $
    4,203
    
    
    $
    15,775Earnings Per ShareBasic earnings per common share
    
    $
    0.38
    
    
    $
    0.36
    
    
    $
    0.43
    
    
    $
    0.42
    
    
    $
    1.60Diluted earnings per common share
    
    $
    0.37
    
    
    $
    0.36
    
    
    $
    0.42
    
    
    $
    0.41
    
    
    $
    1.55
 49




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50




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51




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COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
 December 31,2007
    
    
    2006ASSETSCASH AND CASH EQUIVALENTSCash and due from banks
    
    $
    30,667,066
    
    
    $
    38,141,448Interest bearing deposits with banks
    
    
    12,457,082
    
    
    
    51,443,094Federal funds sold
    
    
    49,099,652
    
    
    
    58,930,213Total cash and cash equivalents
    
    
    92,223,800
    
    
    
    148,514,755INVESTMENT SECURITIESDebt securities available-for-sale, at fair value
    
    
    19,626,384
    
    
    
    20,187,330Equity securities available-for-sale, at fair value
    
    
    1,147,488
    
    
    
    637,829Debt securities held-to-maturity, at amortized cost,
estimated fair value $11,081,097, and $14,536,822 at
December 31, 2007 and 2006, respectively
    
    
    10,969,311
    
    
    
    14,439,764Restricted equity securities
    
    
    2,439,100
    
    
    
    2,439,100Total investment securities
    
    
    34,182,283
    
    
    
    37,704,023LOANSLoans held-for-sale
    
    
    8,138,971
    
    
    
    7,537,832Loans, net of allowance for loan losses and unearned loan fees
    
    
    858,691,380
    
    
    
    794,333,285Total loans
    
    
    866,830,351
    
    
    
    801,871,117OTHER ASSETSProperty and equipment, net of accumulated depreciation
    
    
    21,500,300
    
    
    
    18,088,776Accrued interest receivable
    
    
    6,786,048
    
    
    
    6,517,903Goodwill
    
    
    7,389,094
    
    
    
    7,389,094Other assets
    
    
    13,795,753
    
    
    
    13,102,162Total other assets
    
    
    49,471,195
    
    
    
    45,097,935TOTAL ASSETS
    
    $
    1,042,707,629
    
    
    $
    1,033,187,830LIABILITIES AND SHAREHOLDERS EQUITYDEPOSITSNon-interest bearing demand deposits
    
    $
    224,091,709
    
    
    $
    235,036,954Interest bearing demand deposits
    
    
    303,234,920
    
    
    
    313,432,917Savings accounts
    
    
    35,783,821
    
    
    
    35,455,947Time certificates
    
    
    359,782,460
    
    
    
    275,139,670Total deposits
    
    
    922,892,910
    
    
    
    859,065,488OTHER LIABILITIESNotes payable
    
    
    6,277,959
    
    
    
    70,014,313Accrued interest payable and other liabilities
    
    
    7,174,928
    
    
    
    8,966,368Junior subordinated debentures
    
    
    4,124,000
    
    
    
    4,124,000Total other liabilities
    
    
    17,576,887
    
    
    
    83,104,681Total liabilities
    
    
    940,469,797
    
    
    
    942,170,169COMMITMENTS AND CONTINGENCIES (Note 16)SHAREHOLDERS EQUITYCommon stock, no par value, 20,000,000 shares authorized;
10,043,572, and 9,979,537 shares issued and outstanding
at December 31, 2007 and 2006, respectively
    
    
    55,393,110
    
    
    
    54,767,348Retained earnings
    
    
    46,764,304
    
    
    
    36,295,441Accumulated other comprehensive income (loss), net of taxes
    
    
    80,418
    
    
    
    (45,128
    )Total shareholders equity
    
    
    102,237,832
    
    
    
    91,017,661TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    1,042,707,629
    
    
    $
    1,033,187,830
  52




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COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 Years Ended December 31,2007
    
    
    2006
    
    
    2005INTEREST INCOMEInterest and fees on loans
    
    $
    75,104,128
    
    
    $
    67,027,115
    
    
    $
    50,571,586Interest on investments:Taxable investment securities
    
    
    1,102,856
    
    
    
    993,258
    
    
    
    746,378Nontaxable investment securities
    
    
    482,592
    
    
    
    548,389
    
    
    
    597,220Interest on federal funds sold
    
    
    1,984,829
    
    
    
    1,416,362
    
    
    
    1,177,151Other interest and dividend income
    
    
    849,197
    
    
    
    688,660
    
    
    
    496,144Total interest income
    
    
    79,523,602
    
    
    
    70,673,784
    
    
    
    53,588,479INTEREST EXPENSEInterest on interest bearing demand deposit
and savings accounts
    
    
    8,841,941
    
    
    
    6,931,301
    
    
    
    4,050,872Interest on time certificates
    
    
    16,616,063
    
    
    
    9,406,782
    
    
    
    5,892,640Other borrowed funds
    
    
    1,050,046
    
    
    
    1,664,267
    
    
    
    1,358,034Total interest expense
    
    
    26,508,050
    
    
    
    18,002,350
    
    
    
    11,301,546NET INTEREST INCOME BEFORE PROVISION
FOR LOAN LOSSES
    
    
    53,015,552
    
    
    
    52,671,434
    
    
    
    42,286,933PROVISION FOR LOAN LOSSES
    
    
    4,740,000
    
    
    
    2,900,000
    
    
    
    3,115,000NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
    
    
    48,275,552
    
    
    
    49,771,434
    
    
    
    39,171,933NON-INTEREST INCOMEService charges and fees
    
    
    4,404,498
    
    
    
    4,316,134
    
    
    
    4,733,439Mortgage banking revenue
    
    
    3,802,743
    
    
    
    3,175,893
    
    
    
    2,746,571Financial services revenue
    
    
    1,055,863
    
    
    
    870,787
    
    
    
    612,702Credit card discounts and fees
    
    
    561,496
    
    
    
    493,122
    
    
    
    484,310Net loss on sale or call of investment securities
    
    
    (6,236
    )
    
    
    (46
    )
    
    
    (1,422
    )Gain on sale of mortgage servicing asset
    
    
    
    
    
    
    
    
    
    
    560,588Other non-interest income
    
    
    1,021,800
    
    
    
    965,345
    
    
    
    1,052,233Total non-interest income
    
    
    10,840,164
    
    
    
    9,821,235
    
    
    
    10,188,421NON-INTEREST EXPENSESalaries and employee benefits
    
    
    20,426,717
    
    
    
    20,503,987
    
    
    
    16,529,743Occupancy expense
    
    
    4,697,444
    
    
    
    3,897,303
    
    
    
    3,124,787Item and statement processing
    
    
    812,731
    
    
    
    904,713
    
    
    
    771,003Advertising
    
    
    846,350
    
    
    
    805,381
    
    
    
    677,881Data processing expense
    
    
    576,968
    
    
    
    577,067
    
    
    
    461,526Other non-interest expense
    
    
    8,713,566
    
    
    
    7,684,201
    
    
    
    6,596,421Total non-interest expense
    
    
    36,073,776
    
    
    
    34,372,652
    
    
    
    28,161,361INCOME BEFORE PROVISION FOR
INCOME TAXES
    
    
    23,041,940
    
    
    
    25,220,017
    
    
    
    21,198,993PROVISION FOR INCOME TAXES
    
    
    8,560,080
    
    
    
    9,444,897
    
    
    
    7,528,831NET INCOME
    
    
    14,481,860
    
    
    
    15,775,120
    
    
    
    13,670,162OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXESUnrealized gains (losses) on securities:Unrealized holding gains (losses) arising during the period
    
    
    158,575
    
    
    
    100,383
    
    
    
    (143,729
    )Reclassification adjustment for losses included in
net income
    
    
    3,919
    
    
    
    
    
    
    
    901(Decrease) increase in fair value of interest rate swap
    
    
    (36,948
    )
    
    
    (23,217
    )
    
    
    100,821Other comprehensive income (loss), net of taxes
    
    
    125,546
    
    
    
    77,166
    
    
    
    (42,007
    )COMPREHENSIVE INCOME
    
    $
    14,607,406
    
    
    $
    15,852,286
    
    
    $
    13,628,155BASIC EARNINGS PER SHARE OF COMMON
STOCK
    
    $
    1.45
    
    
    $
    1.60
    
    
    $
    1.39DILUTED EARNINGS PER SHARE OF
COMMON STOCK
    
    $
    1.42
    
    
    $
    1.55
    
    
    $
    1.36
  53




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COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 AccumulatedOther
    
    
    TotalCommon Stock
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Amount
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    410,137Stock awards granted
    
    
    16,658
    
    
    
    77,196
    
    
    
    
    
    
    
    
    
    
    
    77,196Repurchase of common stock
    
    
    (6,370
    )
    
    
    (139,878
    )
    
    
    
    
    
    
    
    
    
    
    (139,878
    )Cash dividends, $0.36 per common share
    
    
    
    
    
    
    
    
    
    
    (3,296,951
    )
    
    
    
    
    
    
    (3,296,951
    )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-based compensation expense
    
    
    
    
    
    
    294,216
    
    
    
    
    
    
    
    
    
    
    
    294,216Stock options exercised and
stock awards granted
    
    
    119,119
    
    
    
    807,878
    
    
    
    
    
    
    
    
    
    
    
    807,878Excess tax benefit from stock-based
compensation expense
    
    
    
    
    
    
    484,336
    
    
    
    
    
    
    
    
    
    
    
    484,336Repurchase of common stock
    
    
    (1,136
    )
    
    
    (31,070
    )
    
    
    
    
    
    
    
    
    
    
    (31,070
    )10% stock dividend and cash paid
for fractional shares
    
    
    896,146
    
    
    
    19,786,904
    
    
    
    (19,795,632
    )
    
    
    
    
    
    
    (8,728
    )Cash dividends, $0.39 per common share
    
    
    
    
    
    
    
    
    
    
    (3,873,747
    )
    
    
    
    
    
    
    (3,873,747
    )Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    15,775,120
    
    
    
    77,166
    
    
    
    15,852,286BALANCE, December 31, 2006
    
    
    9,979,537
    
    
    
    54,767,348
    
    
    
    36,295,441
    
    
    
    (45,128
    )
    
    
    91,017,661Stock-based compensation expense
    
    
    
    
    
    
    358,624
    
    
    
    
    
    
    
    
    
    
    
    358,624Stock options exercised and
stock awards granted
    
    
    94,013
    
    
    
    610,519
    
    
    
    
    
    
    
    
    
    
    
    610,519Excess tax benefit from stock-based
compensation expense
    
    
    
    
    
    
    185,342
    
    
    
    
    
    
    
    
    
    
    
    185,342Repurchase of common stock
    
    
    (29,978
    )
    
    
    (528,723
    )
    
    
    
    
    
    
    
    
    
    
    (528,723
    )Cash dividends, $0.40 per common share
    
    
    
    
    
    
    
    
    
    
    (4,012,997
    )
    
    
    
    
    
    
    (4,012,997
    )Net income and comprehensive income
    
    
    
    
    
    
    
    
    
    
    14,481,860
    
    
    
    125,546
    
    
    
    14,607,406BALANCE, December 31, 2007
    
    
    10,043,572
    
    
    $
    55,393,110
    
    
    $
    46,764,304
    
    
    $
    80,418
    
    
    $
    102,237,832
  54




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##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    14,481,860
    
    
    $
    15,775,120
    
    
    $
    13,670,162Adjustments to reconcile net income to net cash from
operating activities:Net (accretion) amortization of premiums and discounts on
investment securities
    
    
    (57,923
    )
    
    
    (44,477
    )
    
    
    45,676Net loss on sale or call of investment securities
    
    
    6,236
    
    
    
    46
    
    
    
    1,422Gain on sale of mortgage servicing asset
    
    
    
    
    
    
    
    
    
    
    (560,588
    )(Gain) loss on sale of loans
    
    
    704,823
    
    
    
    (133,640
    )
    
    
    Federal Home Loan Bank stock dividend
    
    
    
    
    
    
    
    
    
    
    (9,900
    )Net loss on sale or write-down of property, equipment
and other real estate owned
    
    
    49,485
    
    
    
    189,797
    
    
    
    34,308Depreciation and amortization:Property, equipment and other
    
    
    2,531,659
    
    
    
    2,028,782
    
    
    
    1,728,331Mortgage servicing asset
    
    
    
    
    
    
    
    
    
    
    116,972Loss from limited partnerships
    
    
    119,216
    
    
    
    29,550
    
    
    
    88,702Stock-based compensation expense
    
    
    358,624
    
    
    
    344,849
    
    
    
    169,785Excess tax benefit from stock-based compensation expense
    
    
    (185,342
    )
    
    
    (484,336
    )
    
    
    Deferred income tax benefit
    
    
    (598,021
    )
    
    
    (429,130
    )
    
    
    (1,861,826
    )Provision for loan losses
    
    
    4,740,000
    
    
    
    2,900,000
    
    
    
    3,115,000Provision for losses from off-balance sheet financial instruments
    
    
    85,000
    
    
    
    73,000
    
    
    
    Increase (decrease) in cash due to changes in certain assets
and liabilities:Proceeds from the sale of mortgage loans held-for-sale
    
    
    141,375,688
    
    
    
    100,016,040
    
    
    
    81,388,318Production of mortgage loans held-for-sale
    
    
    (142,681,650
    )
    
    
    (101,674,552
    )
    
    
    (84,750,456
    )Accrued interest receivable
    
    
    (268,145
    )
    
    
    (902,805
    )
    
    
    (1,507,292
    )Other assets
    
    
    (510,245
    )
    
    
    1,642,377
    
    
    
    611,374Accrued interest payable and other liabilities
    
    
    (1,439,778
    )
    
    
    62,575
    
    
    
    2,326,300Net cash provided by operating activities
    
    
    18,711,487
    
    
    
    19,393,196
    
    
    
    14,606,288CASH FLOWS FROM INVESTING ACTIVITIESProceeds from the sale of available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    100,000Proceeds from the maturity and call of available-for-sale securities
    
    
    8,935,000
    
    
    
    6,185,000
    
    
    
    9,000,000Purchases of available-for-sale securities
    
    
    (8,554,397
    )
    
    
    (8,953,633
    )
    
    
    (1,936,264
    )Proceeds from the maturity or call of held-to-maturity securities
    
    
    3,660,637
    
    
    
    2,248,847
    
    
    
    3,624,719Purchases of held-to-maturity securities
    
    
    (202,623
    )
    
    
    (205,907
    )
    
    
    (2,414,220
    )Net change in loans made to customers
    
    
    (69,645,746
    )
    
    
    (131,429,100
    )
    
    
    (103,398,240
    )Proceeds from sale of loans
    
    
    
    
    
    
    6,623,242
    
    
    
    Investment in low-income housing tax credits
    
    
    (225,379
    )
    
    
    (143,000
    )
    
    
    (109,750
    )Investment in state tax credits
    
    
    (124,683
    )
    
    
    (261,197
    )
    
    
    (190,815
    )Proceeds from the sale of mortgage servicing asset
    
    
    
    
    
    
    
    
    
    
    2,606,270Proceeds from the sale of property and equipment
    
    
    36,680
    
    
    
    
    
    
    
    770,222Proceeds from the sale of other real estate owned
    
    
    200,127
    
    
    
    
    
    
    
    188,896Proceeds from the sale of repossessed assets
    
    
    27,179
    
    
    
    
    
    
    
    Purchase of employee residence under relocation benefit
    
    
    
    
    
    
    (613,211
    )
    
    
    Proceeds from sale of employee residence under relocation benefit
    
    
    513,649
    
    
    
    
    
    
    
    Payments made for purchase of property and equipment
    
    
    (5,975,929
    )
    
    
    (4,473,695
    )
    
    
    (3,009,489
    )Net cash used in investing activities
    
    
    (71,355,485
    )
    
    
    (131,022,654
    )
    
    
    (94,768,671
    )CASH FLOWS FROM FINANCING ACTIVITIESNet change in demand deposit and savings accounts
    
    
    (20,815,368
    )
    
    
    44,277,719
    
    
    
    120,060,627Net change in time certificates
    
    
    84,642,790
    
    
    
    106,965,609
    
    
    
    (19,182,030
    )Net borrowings from (repayments of) short-term notes payable
    
    
    (49,777,093
    )
    
    
    29,777,093
    
    
    
    20,000,030Repayments of long-term borrowings
    
    
    (13,959,261
    )
    
    
    (5,453,731
    )
    
    
    (9,198,643
    )Dividends paid and cash paid for fractional shares
    
    
    (4,005,163
    )
    
    
    (3,772,096
    )
    
    
    (3,204,900
    )Proceeds from stock options exercised
    
    
    610,519
    
    
    
    807,878
    
    
    
    936,853Excess tax benefit from stock-based compensation expense
    
    
    185,342
    
    
    
    484,336
    
    
    
    Repurchase of common stock
    
    
    (528,723
    )
    
    
    (31,070
    )
    
    
    (139,878
    )Net cash provided by (used in) financing activities
    
    
    (3,646,957
    )
    
    
    173,055,738
    
    
    
    109,272,059NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (56,290,955
    )
    
    
    61,426,280
    
    
    
    29,109,676CASH AND CASH EQUIVALENTS, beginning of year
    
    
    148,514,755
    
    
    
    87,088,475
    
    
    
    57,978,799CASH AND CASH EQUIVALENTS, end of year
    
    $
    92,223,800
    
    
    $
    148,514,755
    
    
    $
    87,088,475
 55




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##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2007
    
    
    2006
    
    
    2005SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONInterest paid in cash
    
    $
    20,470,027
    
    
    $
    17,933,603
    
    
    $
    11,490,935Taxes paid in cash
    
    $
    8,800,000
    
    
    $
    9,125,000
    
    
    $
    9,326,000SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIESChange in unrealized gain or loss on available-for-sale
securities, net of tax
    
    $
    162,494
    
    
    $
    100,383
    
    
    $
    (142,828
    )Change in fair value of interest-rate swap, net of tax
    
    $
    (36,948
    )
    
    $
    (23,217
    )
    
    $
    100,821Cash dividend declared and payable after year-end
    
    $
    1,005,788
    
    
    $
    997,954
    
    
    $
    887,575Transfers of loans to other real estate owned
    
    $
    547,651
    
    
    $
    202,850
    
    
    $
    84,453Reclassify liability for off-balance-sheet financial instrument
credit losses
    
    $
    
    
    
    $
    690,000
    
    
    $
    
  56




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##### Table of Contents



NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization and nature of operations
    Managements estimates and assumptions
 Cash and cash equivalents
 Investment securities
 Securities held-to-maturity
 Securities available-for-sale
 57




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##### Table of Contents



Restricted equity securities
 Loans held-for-sale
 Loans, net of allowance for loan losses and unearned loan fees
     Property and equipment 1 2
 58




---



##### Table of Contents



Goodwill
 Investment in limited partnerships
 Other real estate owned
 Income taxes
  59




---



##### Table of Contents



Advertising
 Earnings per share
 Share-based payment
  Off-balance-sheet financial instruments
 Derivative financial instruments
  60




---



##### Table of Contents



Fair value of financial instruments
 Held-to-maturity, available-for-sale, equity securities and restricted equity securities
 Loans receivable
 Deposit liabilities
 Short-term borrowings
 Long-term debt
 Off-balance-sheet instruments
 Recently issued accounting standards
 61




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##### Table of Contents



, .
   Reclassifications
 62




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##### Table of Contents



NOTE 2 SHARE-BASED COMPENSATION
   Stock Options
       2005Dividend yield
    
    
    1.82%Expected life
    
    6 yearsExpected volatilty
    
    
    40.84%Risk-free rate
    
    
    2.05% - 3.91%Weighted-average grant date fair value per option
    
    
    $6.67
 63




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##### Table of Contents



Weighted Average
    
    
    AggregateNumber
    
    
    Weighted Average
    
    
    Remaining
    
    
    Intrinsic Valueof Shares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    (in thousands)Stock options outstanding, December 31, 2006
    
    
    513,768
    
    
    $
    11.62Granted
    
    
    
    
    
    
    Exercised
    
    
    (67,909
    )
    
    
    9.32Forfeited or expired
    
    
    (1,265
    )
    
    
    16.03Stock options outstanding, December 31, 2007
    
    
    444,594
    
    
    $
    11.96
    
    
    
    4.95
    
    
    $
    2,220Stock options exercisable, December 31, 2007
    
    
    438,434
    
    
    $
    11.91
    
    
    
    4.93
    
    
    $
    2,216
  Stock Awards
   Weighted AverageNumber
    
    Grant Dateof Shares
    
    Fair ValueUnvested stock awards, December 31, 2006
    
    
    22,825
    
    
    $
    21.98Granted
    
    
    29,900
    
    
    
    20.62Vested
    
    
    (13,063
    )
    
    
    21.08Forfeited
    
    
    (6,610
    )
    
    
    21.31Unvested stock awards, December 31, 2007
    
    
    33,052
    
    
    $
    21.24
  64




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##### Table of Contents



Phantom Stock
   2007
    
    
    2006
    
    
    2005Share-Based
    
    
    Recognized
    
    
    Share-Based
    
    
    Recognized
    
    
    Share-Based
    
    
    RecognizedCompensation
    
    
    Tax Benefits
    
    
    Compensation
    
    
    Tax Benefits
    
    
    Compensation
    
    
    Tax BenefitsStock awards
    
    $
    348,706
    
    
    $
    129,544
    
    
    $
    273,089
    
    
    $
    102,272
    
    
    $
    95,594
    
    
    $
    34,987Stock options
    
    
    9,918
    
    
    
    3,685
    
    
    
    21,126
    
    
    
    7,912
    
    
    
    
    
    
    
    Phantom stock
    
    
    
    
    
    
    
    
    
    
    50,634
    
    
    
    18,962
    
    
    
    74,191
    
    
    
    27,154$
    358,624
    
    
    $
    133,229
    
    
    $
    344,849
    
    
    $
    129,146
    
    
    $
    169,785
    
    
    $
    62,141
  (dollars in thousands except per share data)
    
    2005Net income, as reported
    
    $
    13,670Deduct: Total stock-based employee compensation expense
determined under fair value methods for all awards,
net of related tax effects
    
    
    (508
    )Pro forma net income
    
    $
    13,162Earnings per share:Basic  as reported
    
    $
    1.39Basic  pro forma
    
    
    1.34Diluted  as reported
    
    
    1.36Diluted  pro forma
    
    
    1.31
 65




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NOTE 3 INVESTMENT SECURITIES
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2007:Debt securities available-for-sale:Obligations of U.S.
government agencies
    
    $
    19,296,799
    
    
    $
    135,263
    
    
    $
    (13,833
    )
    
    $
    19,418,229Municipal securities
    
    
    205,123
    
    
    
    3,032
    
    
    
    
    
    
    
    208,155$
    19,501,922
    
    
    $
    138,295
    
    
    $
    (13,833
    )
    
    $
    19,626,384Equity securities available-for-sale
    
    $
    1,161,182
    
    
    $
    
    
    
    $
    (13,694
    )
    
    $
    1,147,488Debt securities held-to-maturity:Mortgage-backed securities
    
    $
    2,170,764
    
    
    $
    14,738
    
    
    $
    (21,879
    )
    
    $
    2,163,623Municipal securities
    
    
    8,798,547
    
    
    
    147,372
    
    
    
    (28,445
    )
    
    
    8,917,474$
    10,969,311
    
    
    $
    162,110
    
    
    $
    (50,324
    )
    
    $
    11,081,097
 Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2006:Debt securities available-for-sale:Obligations of U.S.
government agencies
    
    $
    20,005,620
    
    
    $
    15,474
    
    
    $
    (194,364
    )
    
    $
    19,826,730Municipal securities
    
    
    355,243
    
    
    
    5,357
    
    
    
    
    
    
    
    360,600$
    20,360,863
    
    
    $
    20,831
    
    
    $
    (194,364
    )
    
    $
    20,187,330Equity securities available-for-sale
    
    $
    618,718
    
    
    $
    29,250
    
    
    $
    (10,139
    )
    
    $
    637,829Debt securities held-to-maturity:Mortgage-backed
securities
    
    $
    3,129,384
    
    
    $
    10,381
    
    
    $
    (57,249
    )
    
    $
    3,082,516Municipal securities
    
    
    11,230,085
    
    
    
    179,829
    
    
    
    (34,440
    )
    
    
    11,375,474Obligations of U.S.
government agencies
    
    
    80,295
    
    
    
    
    
    
    
    (1,463
    )
    
    
    78,832$
    14,439,764
    
    
    $
    190,210
    
    
    $
    (93,152
    )
    
    $
    14,536,822
 66




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2007
    
    
    2006Federal Home Loan Bank of Seattle stock
    
    $
    2,429,700
    
    
    $
    2,429,700Federal Agriculture Mortgage Corporation stock
    
    
    9,400
    
    
    
    9,400$
    2,439,100
    
    
    $
    2,439,100
  Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesObligations of U.S.
government agencies
    
    $
    
    
    
    $
    
    
    
    $
    4,973,730
    
    
    $
    13,833
    
    
    $
    4,973,730
    
    
    $
    13,833Mortgage-backed securities
    
    
    13,512
    
    
    
    32
    
    
    
    1,623,858
    
    
    
    21,847
    
    
    
    1,637,370
    
    
    
    21,879Municipal securities
    
    
    
    
    
    
    
    
    
    
    1,523,902
    
    
    
    28,445
    
    
    
    1,523,902
    
    
    
    28,445Equity securities
    
    
    
    
    
    
    
    
    
    
    1,133,794
    
    
    
    13,694
    
    
    
    1,133,794
    
    
    
    13,694$
    13,512
    
    
    $
    32
    
    
    $
    9,255,284
    
    
    $
    77,819
    
    
    $
    9,268,796
    
    
    $
    77,851
      67




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##### Table of Contents



Available-for-Sale
    
    
    Held-to-MaturityEstimated
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    9,200,640
    
    
    $
    9,198,477
    
    
    $
    653,437
    
    
    $
    653,068Due in one year through
five years
    
    
    6,301,282
    
    
    
    6,347,594
    
    
    
    6,899,455
    
    
    
    6,983,910Due in five years through
ten years
    
    
    4,000,000
    
    
    
    4,080,313
    
    
    
    3,112,390
    
    
    
    3,138,400Due after ten years
    
    
    
    
    
    
    
    
    
    
    304,029
    
    
    
    305,719Debt securities
    
    
    19,501,922
    
    
    
    19,626,384
    
    
    
    10,969,311
    
    
    
    11,081,097Equity securities
    
    
    1,161,182
    
    
    
    1,147,488
    
    
    
    
    
    
    
    $
    20,663,104
    
    
    $
    20,773,872
    
    
    $
    10,969,311
    
    
    $
    11,081,097
   68




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NOTE 4 LOANS AND ALLOWANCE FOR LOAN LOSSES
  2007
    
    
    2006Commercial
    
    $
    129,018,049
    
    
    $
    136,582,138Agriculture
    
    
    70,095,363
    
    
    
    86,217,945Real estate
    
    
    354,576,120
    
    
    
    347,525,929Real estate  construction
    
    
    294,397,845
    
    
    
    212,825,973Consumer
    
    
    11,630,205
    
    
    
    12,540,381Credit card and other loans
    
    
    11,207,851
    
    
    
    10,212,287870,925,433
    
    
    
    805,904,653Less allowance for loan losses
    
    
    (11,174,199
    )
    
    
    (10,143,338
    )Less unearned loan fees
    
    
    (1,059,854
    )
    
    
    (1,428,030
    )Loans, net of allowance for loan losses
and unearned loan fees
    
    $
    858,691,380
    
    
    $
    794,333,285
      2007
    
    
    2006
    
    
    2005BALANCE, beginning of year
    
    $
    10,143,338
    
    
    $
    9,525,524
    
    
    $
    8,184,488Provision for loan losses
    
    
    4,740,000
    
    
    
    2,900,000
    
    
    
    3,115,000Loans charged off
    
    
    (4,018,226
    )
    
    
    (1,930,859
    )
    
    
    (1,963,225
    )Loan recoveries
    
    
    309,087
    
    
    
    338,673
    
    
    
    189,261Reclassify liability for off-balance-sheet
financial instrument credit losses
    
    
    
    
    
    
    (690,000
    )
    
    
    BALANCE, end of year
    
    $
    11,174,199
    
    
    $
    10,143,338
    
    
    $
    9,525,524
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##### Table of Contents



NOTE 5 PROPERTY AND EQUIPMENT
  2007
    
    
    2006Land
    
    $
    5,660,500
    
    
    $
    3,876,794Construction in progress
    
    
    1,777,450
    
    
    
    554,918Buildings and improvements
    
    
    13,768,208
    
    
    
    13,053,216Furniture and equipment
    
    
    13,005,984
    
    
    
    10,885,212Total property and equipment
    
    
    34,212,142
    
    
    
    28,370,140Less accumulated depreciation
    
    
    (12,711,842
    )
    
    
    (10,281,364
    )Property and equipment, net of
accumulated depreciation
    
    $
    21,500,300
    
    
    $
    18,088,776
  2008
    
    $
    138,1512009
    
    
    99,9012010
    
    
    7,938Total
    
    $
    245,990
 NOTE 6 TIME CERTIFICATES
   Years ending December 31,
    
    2008
    
    
    
    
    
    $
    239,475,0442009
    
    
    
    
    
    
    106,538,5322010
    
    
    
    
    
    
    9,823,1292011
    
    
    
    
    
    
    1,298,3422012
    
    
    
    
    
    
    2,466,716Thereafter
    
    
    
    
    
    
    180,697$
    359,782,460
 70




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##### Table of Contents



NOTE 7 LINES OF CREDIT AND BORROWED FUNDS
    December 31, 2007
    
    
    December 31, 2006Weighted-
    
    
    
    
    
    
    
    
    
    
    Weighted-Maturity
    
    
    Average
    
    
    
    
    
    
    Maturity
    
    
    AverageAmount
    
    Year
    
    
    Interest Rate
    
    
    Amount
    
    
    Year
    
    
    Interest Rate$4,989,958
    
    
    2008
    
    
    
    3.93
    %
    
    $
    61,500,000
    
    
    
    2007
    
    
    
    5.45
    %751,613
    
    
    2009
    
    
    
    2.81
    %
    
    
    5,929,957
    
    
    
    2008
    
    
    
    3.25
    %536,388
    
    
    2013
    
    
    
    5.47
    %
    
    
    1,351,613
    
    
    
    2009
    
    
    
    2.81
    %605,650
    
    
    
    2013
    
    
    
    5.47
    %$5,427,959
    
    
    
    
    
    
    3.36
    %
    
    $
    69,387,220
    
    
    
    
    
    
    
    5.21
    %
  NOTE 8 JUNIOR SUBORDINATED DEBENTURES


71



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NOTE 9 INTEREST-RATE SWAP


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NOTE 10 INCOME TAXES
  2007
    
    
    2006
    
    
    2005Current tax expense:Federal
    
    $
    8,062,483
    
    
    $
    8,682,850
    
    
    $
    8,489,103State
    
    
    1,095,618
    
    
    
    1,191,177
    
    
    
    901,5549,158,101
    
    
    
    9,874,027
    
    
    
    9,390,657Deferred tax (benefit) expense:Federal
    
    
    (503,597
    )
    
    
    (361,373
    )
    
    
    (1,567,853
    )State
    
    
    (94,424
    )
    
    
    (67,757
    )
    
    
    (293,973
    )(598,021
    )
    
    
    (429,130
    )
    
    
    (1,861,826
    )Provision for income taxes
    
    $
    8,560,080
    
    
    $
    9,444,897
    
    
    $
    7,528,831
  2007
    
    
    2006Deferred tax assets:Allowance for credit losses
    
    $
    4,676,635
    
    
    $
    4,209,846Deferred compensation
    
    
    754,954
    
    
    
    599,811Purchased state tax credits
    
    
    348,964
    
    
    
    466,217Accrued bankcard rewards
    
    
    110,931
    
    
    
    Stock-based compensation
    
    
    45,871
    
    
    
    8,034Unrealized losses on investment securities
    
    
    
    
    
    
    59,6075,937,355
    
    
    
    5,343,515Deferred tax liabilities:Accumulated depreciation
    
    
    (897,436
    )
    
    
    (912,663
    )Federal Home Loan Bank stock dividends
    
    
    (356,851
    )
    
    
    (354,099
    )Prepaid expenses
    
    
    (348,320
    )
    
    
    (219,472
    )Unrealized gains on investment securities
    
    
    (43,089
    )
    
    
    Unrealized gains on interest rate swap
    
    
    (8,111
    )
    
    
    (31,237
    )Other
    
    
    (82,584
    )
    
    
    (26,278
    )(1,736,391
    )
    
    
    (1,543,749
    )Net deferred tax asset
    
    $
    4,200,964
    
    
    $
    3,799,766


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2007
    
    
    2006
    
    
    2005Federal income taxes at statutory rate
    
    $
    8,064,679
    
    
    $
    8,827,006
    
    
    $
    7,419,648State income tax expense, net of
federal income tax benefit
    
    
    864,127
    
    
    
    857,884
    
    
    
    529,228Tax-exempt interest income
    
    
    (149,872
    )
    
    
    (175,077
    )
    
    
    (126,688
    )Purchased state tax credits
    
    
    (100,243
    )
    
    
    (94,718
    )
    
    
    (69,303
    )Increase in cash surrender value of
life insurance policies
    
    
    (91,552
    )
    
    
    (87,855
    )
    
    
    (85,008
    )Other
    
    
    (27,059
    )
    
    
    117,657
    
    
    
    (139,046
    )Provision for income taxes
    
    $
    8,560,080
    
    
    $
    9,444,897
    
    
    $
    7,528,831Effective tax rate
    
    
    37.15
    %
    
    
    37.45
    %
    
    
    35.52
    %
 NOTE 11 EARNINGS PER SHARE
  2007
    
    
    2006
    
    
    2005Income available to common shareholders
    
    $
    14,481,860
    
    
    $
    15,775,120
    
    
    $
    13,670,162Basic earnings per share:Weighted-average common shares
outstanding
    
    
    9,982,386
    
    
    
    9,889,978
    
    
    
    9,802,876Basic earnings per share
    
    $
    1.45
    
    
    $
    1.60
    
    
    $
    1.39Diluted earnings per share:Weighted-average common shares
outstanding
    
    
    9,982,386
    
    
    
    9,889,978
    
    
    
    9,802,876Net effect of dilutive stock options and
awards  based on the treasury stock
method using average market price
    
    
    191,469
    
    
    
    261,229
    
    
    
    243,888Weighted-average common shares
outstanding and common stock
equivalents
    
    
    10,173,855
    
    
    
    10,151,207
    
    
    
    10,046,764Diluted earnings per share
    
    $
    1.42
    
    
    $
    1.55
    
    
    $
    1.36


74



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NOTE 12 EMPLOYEE BENEFIT PLANS AND AGREEMENTS
 Employee stock ownership plan (ESOP)
  2007
    
    
    2006Allocated shares, retroactively adjusted
for stock dividends and splits
    
    
    250,892
    
    
    
    272,324Cash on hand
    
    $
    142,461
    
    
    $
    20,561
 4 01(k) Savings Investment Plan
 Incentive Compensation Program
 Executive Officer Salary Continuation, Deferred Compensation and Split-Dollar Life Insurance Plans


75



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NOTE 13 TRANSACTIONS WITH RELATED PARTIES
   2007
    
    
    2006BALANCE, beginning of year
    
    $
    6,774,706
    
    
    $
    7,685,690New loans and advances
    
    
    3,169,626
    
    
    
    5,334,894Loans repaid
    
    
    (2,974,311
    )
    
    
    (6,245,878
    )Reclassification (1)
    
    
    (6,102
    )
    
    
    BALANCE, end of year
    
    $
    6,963,919
    
    
    $
    6,774,706
 
 (1)
    
    A former executive officer who was considered a related party at December 31, 2006 was no
longer so classified as of December 31, 2007.  NOTE 14 CONCENTRATIONS OF CREDIT RISK
   NOTE 15 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK


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Contract AmountsDecember 31,2007
    
    
    2006Financial instruments whose contract amounts contain credit risk:Commitments to extend credit
    
    $
    229,716,385
    
    
    $
    236,581,830Commitments to originate loans held-for-sale
    
    
    7,170,020
    
    
    
    8,722,984Undisbursed credit card lines of credit
    
    
    24,617,572
    
    
    
    21,265,491Commercial and standby letters of credit
    
    
    3,200,412
    
    
    
    3,503,903$
    264,704,389
    
    
    $
    270,074,208


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NOTE 16 COMMITMENTS AND CONTINGENCIES
 Operating lease commitments
 Years ending December 31,
    
    2008
    
    $
    1,213,4512009
    
    
    1,135,9092010
    
    
    1,119,2002011
    
    
    1,126,2762012
    
    
    876,017Thereafter
    
    
    5,209,446$
    10,680,299
  Legal contingencies


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##### Table of Contents



NOTE 17 PARENT COMPANY FINANCIAL INFORMATION
  December 31,2007
    
    
    2006ASSETSCash
    
    $
    5,769,302
    
    
    $
    4,980,880Investment security available-for-sale
    
    
    61,875
    
    
    
    104,250Investment security held-to-maturity
    
    
    
    
    
    
    80,294Investment in subsidiary Bank
    
    
    101,225,749
    
    
    
    90,946,963Interest rate swap
    
    
    20,850
    
    
    
    80,924Other assets
    
    
    530,593
    
    
    
    569,306TOTAL ASSETS
    
    $
    107,608,369
    
    
    $
    96,762,617LIABILITIESJunior subordinated debentures
    
    $
    4,124,000
    
    
    $
    4,124,000Dividend payable
    
    
    1,005,788
    
    
    
    997,954Deferred compensation plan liability
    
    
    
    
    
    
    13,851Employee benefits
    
    
    147,714
    
    
    
    449,300Deferred tax liability
    
    
    
    
    
    
    25,910Interest and other payables
    
    
    93,035
    
    
    
    133,941Total liabilities
    
    
    5,370,537
    
    
    
    5,744,956SHAREHOLDERS EQUITYCommon stock
    
    
    55,393,110
    
    
    
    54,767,348Retained earnings
    
    
    46,764,304
    
    
    
    36,295,441Accumulated other comprehensive income (loss), net of tax
    
    
    80,418
    
    
    
    (45,128
    )Total shareholders equity
    
    
    102,237,832
    
    
    
    91,017,661TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    107,608,369
    
    
    $
    96,762,617


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Years Ended December 31,2007
    
    
    2006
    
    
    2005INCOMEEquity in undistributed earnings of subsidiary
    
    $
    9,633,406
    
    
    $
    11,513,148
    
    
    $
    10,263,758Dividends
    
    
    6,300,000
    
    
    
    5,732,000
    
    
    
    4,611,000Other
    
    
    108,583
    
    
    
    97,045
    
    
    
    27,324Total income
    
    
    16,041,989
    
    
    
    17,342,193
    
    
    
    14,902,082EXPENSESAdministrative and other expenses
    
    
    (2,418,124
    )
    
    
    (2,447,209
    )
    
    
    (1,764,397
    )Income before income tax benefit
    
    
    13,623,865
    
    
    
    14,894,984
    
    
    
    13,137,685Income tax benefit
    
    
    857,995
    
    
    
    880,136
    
    
    
    532,477Net income
    
    $
    14,481,860
    
    
    $
    15,775,120
    
    
    $
    13,670,162
 Years Ended December 31,2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    14,481,860
    
    
    $
    15,775,120
    
    
    $
    13,670,162Adjustments to reconcile net income to net cash from
operating activities:Equity in undistributed earnings of subsidiary
    
    
    (9,633,406
    )
    
    
    (11,513,148
    )
    
    
    (10,263,758
    )Depreciation of property and equipment
    
    
    38,729
    
    
    
    23,265
    
    
    
    7,789Stock-based compensation
    
    
    87,059
    
    
    
    113,196
    
    
    
    Excess tax benefit from stock-based
compensation expense
    
    
    
    
    
    
    (33,078
    )
    
    
    Changes in other assets and liabilities
    
    
    (285,609
    )
    
    
    2,294,364
    
    
    
    (192,889
    )Net cash from operating activities
    
    
    4,688,633
    
    
    
    6,659,719
    
    
    
    3,221,304CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sale of property and equipment
    
    
    28,500
    
    
    
    
    
    
    
    Proceeds from maturity of held-to-maturity security
    
    
    80,000
    
    
    
    
    
    
    
    Payments made for purchase of property and equipment
    
    
    (85,344
    )
    
    
    (150,606
    )
    
    
    Net cash from investing activities
    
    
    23,156
    
    
    
    (150,606
    )
    
    
    CASH FLOWS FROM FINANCING ACTIVITIESDividends paid and cash paid for fractional shares
    
    
    (4,005,163
    )
    
    
    (3,772,096
    )
    
    
    (3,204,900
    )Repurchase of common stock
    
    
    (528,723
    )
    
    
    (31,070
    )
    
    
    (139,878
    )Excess tax benefit from stock-based
compensation expense
    
    
    
    
    
    
    33,078
    
    
    
    Proceeds from the exercise of stock options
    
    
    610,519
    
    
    
    807,878
    
    
    
    936,853Net cash from financing activities
    
    
    (3,923,367
    )
    
    
    (2,962,210
    )
    
    
    (2,407,925
    )NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS
    
    
    788,422
    
    
    
    3,546,903
    
    
    
    813,379CASH AND CASH EQUIVALENTS, beginning of year
    
    
    4,980,880
    
    
    
    1,433,977
    
    
    
    620,598CASH AND CASH EQUIVALENTS, end of year
    
    $
    5,769,302
    
    
    $
    4,980,880
    
    
    $
    1,433,977SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIESChange in unrealized loss or gain on available-for-sale
securities, net of tax
    
    $
    (162,494
    )
    
    $
    100,383
    
    
    $
    (142,828
    )Change in fair value of interest-rate swap, net of tax
    
    $
    (36,948
    )
    
    $
    (23,217
    )
    
    $
    100,821Cash dividend declared and payable after year-end
    
    $
    1,005,788
    
    
    $
    997,954
    
    
    $
    887,575


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NOTE 18 REGULATORY MATTERS
    To Be Well-Capitalized UnderFor Capital
    
    Prompt CorrectiveAs of December 31, 2007
    
    Actual
    
    Adequacy Purposes
    
    Action Provisions(dollars in thousands)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal capital to risk-weighted assets:Columbia Bancorp
    
    $
    110,508
    
    
    
    11.76
    %
    
    $
    75,202
    
    
    
    38
    %
    
    
    N/A
    
    
    
    N/AColumbia River Bank
    
    $
    105,496
    
    
    
    11.23
    %
    
    $
    75,127
    
    
    
    38
    %
    
    $
    93,909
    
    
    
    310
    %Tier 1 capital to risk-weighted assets:Columbia Bancorp
    
    $
    98,772
    
    
    
    10.51
    %
    
    $
    37,601
    
    
    
    34
    %
    
    
    N/A
    
    
    
    N/AColumbia River Bank
    
    $
    93,760
    
    
    
    9.98
    %
    
    $
    37,563
    
    
    
    34
    %
    
    $
    56,345
    
    
    
    36
    %Tier 1 capital to average assets:Columbia Bancorp
    
    $
    98,772
    
    
    
    9.75
    %
    
    $
    40,521
    
    
    
    34
    %
    
    
    N/A
    
    
    
    N/AColumbia River Bank
    
    $
    93,760
    
    
    
    9.26
    %
    
    $
    40,495
    
    
    
    34
    %
    
    $
    40,495
    
    
    
    35
    %
 To Be Well-Capitalized UnderFor Capital
    
    Prompt CorrectiveAs of December 31, 2006
    
    Actual
    
    Adequacy Purposes
    
    Action Provisions(dollars in thousands)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal capital to risk-weighted assets:Columbia Bancorp
    
    $
    98,647
    
    
    
    11.36
    %
    
    $
    69,460
    
    
    
    38
    %
    
    
    N/A
    
    
    
    N/AColumbia River Bank
    
    $
    94,516
    
    
    
    10.89
    %
    
    $
    69,410
    
    
    
    38
    %
    
    $
    86,763
    
    
    
    310
    %Tier 1 capital to risk-weighted assets:Columbia Bancorp
    
    $
    87,776
    
    
    
    10.11
    %
    
    $
    34,730
    
    
    
    34
    %
    
    
    N/A
    
    
    
    N/AColumbia River Bank
    
    $
    83,671
    
    
    
    9.64
    %
    
    $
    34,705
    
    
    
    34
    %
    
    $
    52,058
    
    
    
    36
    %Tier 1 capital to average assets:Columbia Bancorp
    
    $
    87,776
    
    
    
    8.54
    %
    
    $
    41,106
    
    
    
    34
    %
    
    
    N/A
    
    
    
    N/AColumbia River Bank
    
    $
    83,671
    
    
    
    8.95
    %
    
    $
    37,375
    
    
    
    34
    %
    
    $
    46,719
    
    
    
    35
    %


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NOTE 19 FAIR VALUES OF FINANCIAL INSTRUMENTS
  2007
    
    2006Estimated
    
    
    
    
    
    EstimatedCarrying
    
    Fair
    
    Carrying
    
    Fair(dollars in thousands)
    
    Amount
    
    Value
    
    Amount
    
    ValueFinancial assets:Cash and due from banks
    
    $
    30,667
    
    
    $
    30,667
    
    
    $
    38,141
    
    
    $
    38,141Interest-bearing deposits with banks
    
    
    12,457
    
    
    
    12,457
    
    
    
    51,443
    
    
    
    51,443Federal funds sold
    
    
    49,100
    
    
    
    49,100
    
    
    
    58,930
    
    
    
    58,930Investment securities available-for-sale
    
    
    20,774
    
    
    
    20,774
    
    
    
    20,825
    
    
    
    20,825Investment securities held-to-maturity
    
    
    10,969
    
    
    
    11,081
    
    
    
    14,440
    
    
    
    14,537Restricted equity securities
    
    
    2,439
    
    
    
    2,439
    
    
    
    2,439
    
    
    
    2,439Loans held-for-sale
    
    
    8,139
    
    
    
    8,139
    
    
    
    7,538
    
    
    
    7,538Loans, net of allowance for loan losses
and unearned loan fees
    
    
    858,691
    
    
    
    878,956
    
    
    
    794,333
    
    
    
    745,652Interest rate swap
    
    
    21
    
    
    
    21
    
    
    
    80
    
    
    
    80Financial liabilities:Demand and savings deposits
    
    $
    563,110
    
    
    $
    563,110
    
    
    $
    583,926
    
    
    $
    583,926Time certificates
    
    
    359,782
    
    
    
    361,653
    
    
    
    275,140
    
    
    
    275,134Notes payable
    
    
    6,278
    
    
    
    6,278
    
    
    
    70,014
    
    
    
    69,844Junior subordinated debentures
    
    
    4,124
    
    
    
    4,124
    
    
    
    4,124
    
    
    
    4,124


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ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Managements Report on the Internal Control Over Financial Reporting
   
    
    Address the maintenance of reasonably detailed records and data that accurately and
fairly reflect the transactions and dispositions of Columbias assets;
    
    Provide reasonable assurance that transactions are recorded as necessary to allow the
preparation of financial statements in accordance with GAAP and that our receipts and
expenditures are being made with proper authorizations of Columbias management and
directors; and
    
    Provide reasonable assurance regarding the timely prevention or detection of
unauthorized transactions, acquisitions, expenditures or the use or disposition of
Columbias assets that could have a material effect on the consolidated financial
statements.


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ITEM 9B OTHER INFORMATION
  
 PART III
 
 ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
   Directors:
 
 Executive Officers:


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Code of Ethics
  
 Audit Committee
  
 ITEM 11 EXECUTIVE COMPENSATION
  
 ITEM 12
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS
  
 ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
  
 PART IV
 
 ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES


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+
    
    Management contract, compensation plan or arrangement.


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SIGNATURES
  COLUMBIA BANCORPBy:
    
    /s/ Roger L. ChristensenRoger L. ChristensenPresident and Chief Executive Officer
  Signatures
    
    Titles/s/ Roger L. Christensen
    
    President and Chief Executive Officer and DirectorRoger L. Christensen
    
    (Principal
Executive Officer)/s/ Greg B. Spear
    
    Vice Chair and Chief Financial OfficerGreg B. Spear
    
    (Principal
Financial Officer)/s/ Staci L. Coburn
    
    Principal Accounting OfficerStaci L. Coburn/s/ Richard E. Betz
    
    Director and ChairmanRichard E. Betz/s/ Charles F. Beardsley
    
    DirectorCharles F. Beardsley/s/ William A. Booth
    
    DirectorWilliam A. Booth/s/ Lori R. Boyd
    
    DirectorLori R. Boyd/s/ Dennis L. Carver
    
    DirectorDennis L. Carver/s/ Terry L Cochran
    
    DirectorTerry L Cochran/s/ James J. Doran
    
    DirectorJames J. Doran/s/ Jean S. McKinney
    
    DirectorJean S. McKinney/s/ Donald T. Mitchell
    
    DirectorDonald T. Mitchell
 88