##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K

|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2003
or


|[  ] |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|---- |  | ----------------------------------------------------------------------------------

For the transition period from  to


Commission file number: 0-27938

COLUMBIA BANCORP

(Exact name of registrant as specified in its charter)


|                         |  |                    
|------------------------ |  | -------------------
|                         |  | 93-1193156         
|Oregon                   |  | (I.R.S. Employer   
|(State of incorporation) |  | Identification No.)

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

Registrants telephone number: (541) 298-6649

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common stock,
no par value

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [  ]

The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of June 30, 2003, which is the last
business day of the registrants most recently completed second fiscal quarter,
was $116,304,117.

The number of shares outstanding of each of the issuers classes of common
equity as of the latest practicable date: 8,780,109 shares of no par value
common stock on February 17, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants proxy statement dated March 1, 2004 for the
2004 Annual Meeting of Shareholders (Proxy Statement) are incorporated by
reference in Part III hereof.





---

TABLE OF CONTENTS



|                                                |                                                                                               |  |  |  |  |  |  | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
|Part I                                         
|                                                | ITEM 1. DESCRIPTION OF BUSINESS                                                              
|                                                | ITEM 2. PROPERTIES                                                                           
|                                                | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                                | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|Part II                                        
|                                                | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS                
|                                                | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                                | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                                | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|                                                | ITEM 9A. CONTROLS AND PROCEDURES                                                             
|PART III                                       
|                                                | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                | ITEM 11. EXECUTIVE COMPENSATION AND REPORT OF COMPENSATION COMMITTEE                         
|                                                | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|                                                | ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                              
|PART IV                                        
|                                                | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|SIGNATURES                                     
|EXHIBIT 10.1                                   
|EXHIBIT 10.2                                   
|EXHIBIT 10.3                                   
|EXHIBIT 10.4                                   
|EXHIBIT 13.1                                   
|EXHIBIT 21.1                                   
|EXHIBIT 23.1                                   
|EXHIBIT 31.1                                   
|EXHIBIT 31.2                                   
|EXHIBIT 32.1                                   
|EXHIBIT 32.2                                   



---



##### Table of Contents



COLUMBIA BANCORP
FORM 10-K
TABLE OF CONTENTS

|                                                |  |                                                                                                                                                                            |    |      |       |  |  |  |  | 
|----------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | ----- |  |  |  |  | 
|                                                |  |                                                                                                                                                                            |    | PAGE |       |  |  | 
|                                                |  |                                                                                                                                                                            |    |      |       |  |  | 
|Disclosure Regarding Forward Looking Statements |  |                                                                                                                                                                            | 3  |     
|PART I                                          |  |                                                                                                                                                                            |    |      |       | 
|Item 1.                                         |  | Description of Business                                                                                                                                                    |    |      | 4-12  | 
|Item 2.                                         |  | Properties                                                                                                                                                                 |    |      | 13-14 | 
|Item 3.                                         |  | Legal Proceedings                                                                                                                                                          |    |      | 14    | 
|Item 4.                                         |  | Submission of Matters to a Vote of Security Holders                                                                                                                        |    |      | 14    | 
|PART II                                         |  |                                                                                                                                                                            |    |      |       | 
|Item 5.                                         |  | Market for Registrants Common Equity and Related Shareholder Matters                                                                                                      |    |      | 14-15 | 
|Item 6.                                         |  | Selected Financial Data                                                                                                                                                    |    |      | 15    | 
|Item 7.                                         |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations                                                                                      |    |      | 16-36 | 
|Item 7A                                         |  | Quantitative and Qualitative Disclosures about Market Risk                                                                                                                 |    |      | 37-38 | 
|Item 8.                                         |  | Financial Statements and Supplementary Data                                                                                                                                |    |      | 39-82 | 
|Item 9.                                         |  | Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure                                                                                       |    |      | 83    | 
|Item 9A                                         |  | Controls and Procedures                                                                                                                                                    |    |      | 83    | 
|PART III                                        |  |                                                                                                                                                                            |    |      |       | 
|                                                |  | (Items 11 through 14 are incorporated by reference from Columbia Bancorps
definitive proxy statement for the Annual Meeting of Shareholders to be held on
April 22, 2004) |    |      |       | 
|Item 10.                                        |  | Directors and Executive Officers of the Registrant                                                                                                                         |    |      | 83-84 | 
|Item 11                                         |  | Executive Compensation and Report of Compensation Committee                                                                                                                |    |      | 84    | 
|Item 12.                                        |  | Security Ownership of Certain Beneficial Owners and Management                                                                                                             |    |      | 84    | 
|Item 13.                                        |  | Certain Relationships and Related Transactions                                                                                                                             |    |      | 84    | 
|Item 14.                                        |  | Principal Accountant Fees and Services                                                                                                                                     |    |      | 84    | 
|PART IV                                         |  |                                                                                                                                                                            |    |      |       | 
|Item 15.                                        |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                                                                                           |    |      | 84-87 | 
|SIGNATURES                                      |  |                                                                                                                                                                            | 88 |     

2





---



##### Table of Contents






DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report, particularly including but not limited to the section
entitled Managements Discussion and Analysis of Financial Condition and
Results of Operations, contains a number of forward-looking statements about
our anticipated business, operations, financial performance and cash flows.
Statements in this report that relate to future plans, events and circumstances
are provided to describe managements intentions and expectations based on
currently available information, and readers should not construe these
statements as assurances or guarantees. As with any predictions, these
statements are inherently difficult to make with any degree of assurance, and
actual results may differ materially and adversely from managements
expectations described herein. Likewise, managements plans described in this
report may not come to pass because unforeseen events may force management to
deviate from its expressed intentions. Forward-looking statements often can be
identified by the use of predictive or prospective terms such as expect,
anticipate, believe, plan, intend, and words of similar construction or
meaning. Some of the events or circumstances that may cause our actual results
to deviate from managements expectations include the impact of competition and
local and regional economic factors upon our customer base, our deposits and
our loan portfolio; economic and regulatory limits on our ability to grow our
assets and manage our business; customer acceptance of our products and
services; interest rate fluctuations that may adversely impact our revenues and
expenses; and, the impact of impairment charges upon our intangible and other
assets. We also face risks associated with the geographic concentration of our
customers, our ability to maintain or expand our market share or net interest
margins, and competitive and economic issues that impact our ability to
implement our marketing and growth strategies. Other factors that may
adversely impact our performance are discussed in the section entitled
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Factors that May Affect Future Results of Operations, as well as
other disclosures we make from time to time in our other filings with the
Securities and Exchange Commission. Readers should be aware that these factors
are not an exhaustive list, and should not assume that these are the only
factors that may cause our actual results to differ from our expectations.
Readers also should note that forward-looking statements expressed in this
report are made as of the date this report is filed and management cannot
undertake to update those statements to reflect future events or circumstances.

3





---



##### Table of Contents






Part I




ITEM 1. DESCRIPTION OF BUSINESS

General

Columbia Bancorp (Columbia) is a financial holding company organized in
1996 under Oregon Law. Columbia is headquartered in The Dalles, Oregon, with
two wholly owned subsidiaries, Columbia River Bank (CRB) and Columbia Bancorp
Trust I. CRB is an 18 branch, state-chartered institution authorized to
provide banking services in Oregon and Washington. Columbia offers a broad
range of financial services to its customers, primarily small and medium sized
businesses, farmers, and individuals. Columbias 12 full-service branch
facilities and three limited-service branch facilities in Oregon serve the
northern and eastern Oregon communities of The Dalles (2), Hood River,
Pendleton and Hermiston, the central Oregon communities of Madras, Redmond, and
Bend (3), and the communities of McMinnville (3), Canby and Newberg in the
Willamette Valley. Columbias three south central Washington full-service
branches serve the communities of Goldendale, White Salmon and Kennewick.

As of December 31, 2003, Columbia had total assets of $584.14 million,
total deposits of $496.36 million, and shareholders equity of $57.80 million.
Columbias net income for the year ended December 31, 2003, was $9.83 million,
which was Columbias 17th consecutive year of increasingly higher net income.

From CRBs establishment in 1977 as a one-branch bank in The Dalles,
Oregon, Columbia has grown as a result of merger and acquisition activity, new
branch openings, the introduction of new business lines and the expansion and
cross-marketing of its existing products and community-bank lending expertise.
Collectively, these growth activities have enabled Columbia to diversify its
loan portfolio and operating risks over several market areas and local
economies, which can be defined geographically as central Oregon, Willamette
Valley Oregon, Mid-Columbia Oregon and south central Washington. This market
diversity in which Columbia operates poses both opportunities and challenges to
a community bank operating in varied local economies. Columbias approach to
meeting the challenge is to staff its branches and business groups with
managers who are established in their communities and have developed a loyal
customer following. Columbias senior management, in conjunction with branch
managers, review the operations of each branch to determine which products and
services are best suited to that geographic region. Management believes that
geographic diversity across a broad portion of the Pacific Northwest will limit
Columbias exposure to adverse market conditions in any one geographical region
or economic sector.

Columbia provides high quality financial products and services to
consumers and businesses. Our offerings include a broad range of deposit and
loan products and services including retail banking, mortgage loans, broker
dealer and commercial, agricultural and real estate lending.

In 2003, Columbia focused on strengthening market share by opening a new
branch in Kennewick, Washington and announcing two new branch locations in Bend
and Redmond, Oregon planned for 2004. The mortgage lending office in Newport,
Oregon has been closed due to insufficient loan volume necessary to meet
strategic financial goals. Columbia also initiated changes to the mortgage and
financial services divisions. The name Columbia River Bank Mortgage Group was
changed to Columbia River Bank Mortgage Team (Mortgage Team); CRB Financial
Services has become CRB Financial Services Team (Financial Services Team).
These changes create a shift in customer perception and provide value by
identifying employees as part of a team. The Mortgage Team has discontinued
the practice of growing the mortgage servicing asset by capitalizing the
service retained premiums. In addition, interest rate risk normally associated
with the mortgage lending pipeline has been reduced by locking mortgage rates
directly with potential investors, sometimes known as best efforts. Best
efforts involves the sale of mortgage loans to third party investors at a
committed loan rate and loan amount within a predetermined time period without
risk of a penalty for failure to deliver the locked mortgage loans.

Columbia has two reportable operating business segments, Community Banking
and Mortgage Banking. A summary of Columbias net revenue, earnings from
operations and assets for business segments is found in Note 23 to the
Consolidated Financial Statements in Item 8, which is incorporated herein by
reference. A discussion of various factors potentially affecting our
operations is set forth in Managements Discussion and Analysis of Financial
Condition and Results of Operations-Factors That

4





---



##### Table of Contents



May Affect Future Results of Operations,  in Item 7, which is incorporated
herein by reference.

Business Strategy

Columbias strategy is to remain a high performing financial institution,
which is defined as achieving performance levels in the top quartile of all
bank holding companies with assets between $500 million to $1 billion.
Performance statistics are presented quarterly in the Bank Holding Company
Performance Report as prepared by the Federal Reserve Bank. Columbia will
continue building on its position as a leading community-based provider of
financial services in Oregon and Washington while maintaining an close balance
of its goals and priorities with benefits to shareholders, customers and
employees. The components of Columbias business strategy are outlined below.

Successfully operate in small to medium sized communities.Columbia
believes the key to profitability is to maintain and open branches in small to
medium sized communities, which are defined by population levels between 20,000
to 150,000 in size. This strategy encompasses the following: (i) provide a
high level of service to the customer; (ii) staff branches with employees who
have established ties to the community; (iii) attract and retain a highly
skilled management team; and, (iv) allow branch personnel the flexibility to
emphasize products and services which best fit their local economy. In
addition, by decentralizing a portion of the management function to the branch
level, Columbia believes it can make business decisions regarding customers
more quickly and with added value than its major banking competitors. Columbia
believes it is able to profitably attract and retain customers by providing and
delivering products and services tailored to their individual needs, and by
delivering them with a high degree of personal attention. Management and the
Board of Directors will carefully review any exception to this strategy to
ensure it is complimentary to Columbias current and future strategic
initiatives.

Maintain high asset quality.Columbia seeks to maintain high asset quality
through a program that includes prompt and strict adherence to established
credit policies combined with training and supervision of lending officers.
Additionally, Columbia uses incentives to maintain high asset quality,
including tying a portion of its loan officers compensation to the quality of
the loans they originate. Columbia also believes that its commitment to hire
branch managers with long-term ties to their communities is of significant
assistance in determining the quality of loan transactions it receives. The
variety of economies in which Columbias branches are located increases the
diversification and, in Columbias opinion, the strength of the overall loan
portfolio.

Products and Services

Consumer Distribution Channels

Columbia offers a broad range of deposit and loan products and services
tailored to meet the banking requirements of consumers in Columbias market
areas. These include:

Retail Bank Products and Services.Columbias consumer deposit products
include numerous noninterest-bearing and interest-bearing demand accounts,
savings accounts, money market accounts, and certificates of deposit.
Management generally prices interest-bearing accounts based on competitive
market factors, a desire to manage certain types or maturities of deposit
liabilities and liquidity requirements. Columbia strives to establish customer
relations to attract core deposits in noninterest-bearing transactional
accounts, which reduces its cost of funds. Columbia provides loans to
individual borrowers for a variety of purposes, including secured and unsecured
personal loans, home equity, personal lines of credit and motor vehicle loans.

CRB Mortgage Team Products and Services.Columbia offers a complete
range of mortgage banking services including loans for single-family owner
occupied homes, construction to permanent financing packages and mortgages for
vacation and rental homes. Customers can choose between fixed, variable and
balloon rate options. Construction loans are available through the
conventional two-step process or through a construction to permanent basis.
Junior lien financing is also offered as a single product or in combination
with a first mortgage. An added benefit offered through the Mortgage Team is
the ability for customers to access alternative secondary market outlets not
normally available from other financial institutions.

CRB Financial Services Team Products and Services.Through arrangements
with Primevest Financial Services, Inc., (Primevest) a registered securities
broker-dealer, Financial Services Team

5





---



##### Table of Contents



offers a wide range of non-Federal Deposit Insurance Company (FDIC) insured
financial products and services to consumers. These include stocks, mutual
funds, traditional and Roth IRAs, SEPs, tax-sheltered annuities, life
insurance, and other financial products. Representatives also offer retirement
planning services. Columbia receives a portion of the commissions generated
from financial product sales.

Technology-Based Products and Services. Columbia uses both traditional
and new technology to support its focus on personal service. These include a
VISA credit and check card (debit card) program; ATMs at each of Columbias
full-service branches, including 15 on-site ATMs and five off-site ATMs; and, a
telephone banking service that allows customers to speak directly with a
customer service representative during normal banking hours or with 24-hour
telephone access to their accounts. In addition, Columbia, through its web
site, offers BankNet, an Internet banking service, which allows access to
account information as well as the ability to view checks and use other
services in an on-line environment.

Commercial Distribution Channels

Columbia has an experienced lending staff, who have special expertise in
small business, agricultural and real estate lending. Columbias loan officers
emphasize continuing contact with business customers after loans are made.
Columbia believes that its business customers appreciate the ongoing
relationship they develop with their local lending officer. Such
relationship-based banking is an important aspect of Columbias continuous
effort to maintain high asset quality.

Commercial Loans. Columbia offers customized loans including equipment
and inventory financing, operational lines of credit, SBA loans for qualified
businesses, and accounts receivable financing. A significant portion of
Columbias loan portfolio consists of commercial loans. For regulatory
reporting purposes, a portion of Columbias commercial loans are designated as
real estate loans because they are secured by real property, although these
loans may finance accounts receivable, equipment and inventory purchases, or
other commercial activities. Lending decisions are based on careful evaluation
of the financial strength, management, credit history of the borrower and the
quality and marketability of the collateral securing the loan. Commercial
loans secured by real property are generally limited to 75% of the value of the
collateral. Columbia often requires personal guarantees and relies on the
identification of secondary sources of repayment.

Agricultural Loans. Columbia provides loans including production lines of
credit, equipment financing, and term loans for capital improvements and other
business purposes to agricultural businesses. Agricultural loans are generally
secured by crops, equipment, and inventory, as well as real estate.
Agricultural lending can require significant follow-up time, as farmers request
budgeting assistance and other financial advice. Columbia employs two
agricultural loan consultants with decades of farm lending experience, to
assist its loan officers in loan processing and administration. Columbias
loan officers, many of whom are graduates of the Western Agricultural Banking
School in Pullman, Washington, make frequent visits to farming operation sites,
regularly attend agricultural lending programs and seminars, and actively
participate in growers associations and other agricultural-based
organizations.

Real Estate Loans. Real estate loans are available for the construction,
purchase, or refinance of commercial and rental properties. Columbia also
provides financing to high quality land developers, and speculative and
pre-sold financing to contractors. Borrowers can choose from a variety of
fixed and adjustable rate options and terms.

Columbias real estate loans are in large part loans to commercial
customers, farmers and ranchers and are secured by the properties used in their
businesses. The majority of these loans have a variable rate feature with
adjustment periods varying from one to five years. Insofar as payments on real
estate loans depend on the successful operation and management of the
businesses and properties securing the loans, repayment can be affected by
local real estate market and economic conditions. Fluctuating land values and
local economic conditions can make loans secured by real property difficult to
evaluate and monitor.

Government-Assisted Loan Programs.Columbias loan officers make loans to
small businesses and to farmers that are supported by guarantees issued by
various state and federal government agencies. Columbia is active in the SBA
7-A and 504 programs, and in similar programs offered by the Farm Services
Agency (formerly the Farmers Home Administration) and by Oregon Economic and

6





---



##### Table of Contents



Community Development Department. The government guarantees a portion of these
loans, which reduces risk in Columbias loan portfolio.

Services to Non-Profits and Public Entities.Columbia offers a general
array of loan products to borrowers in the non-profit and public entity sector,
including city and county governments, together with special programs, such as
jumbo CDs and low-cost loan programs. Columbia also offers consumer services
to nonprofit and public sector employees, such as Columbia VISA card enrollment
and direct deposit services.

For all of its loans, Columbia at all times seeks to maintain sound loan
underwriting standards with written loan policies, appropriate individual and
branch limits, and loan administration committee reviews. In the case of
particularly large loan commitments or loan participations, loans are reviewed
by a loan committee of CRBs Board of Directors. Underwriting standards are
designed to achieve a high-quality loan portfolio, compliance with lending
regulations and the desired mix of loan maturities and industry concentrations.
Management seeks to minimize credit losses by closely monitoring the financial
condition of its borrowers and the value of collateral.

Cash Management Services.Columbia also offers to business customers an
opportunity to meet additional banking needs online through its Internet
Business Solutions product. This online product gives business customers the
ability to process payroll, collections, wire transfers, and Electronic Funds
Transfer tax payments.

Deposit and Related Products.Columbias business deposit products
include basic, regular, and interest-bearing demand accounts, business money
market accounts and sweep accounts. Columbia also offers check verification
services to merchants allowing them the ability to determine, on a 24-hour
basis, whether a check drawn on an account has sufficient funds to cover the
amount drawn. In addition, Columbia offers a VISA merchant program for
business customers.

Investment Products.Columbias affiliation with Primevest allows it to
offer non-FDIC insured financial products and services to Columbias business
customers as well as to consumers through Financial Services Team. These
include insurance and annuity products, and employee retirement plan products
such as SEPs, IRAs and 401(k) plans.

Principal Markets of Operation

Columbia accepts deposits at its branches in Wasco, Hood River, Jefferson,
Deschutes, Clackamas, Yamhill and Umatilla Counties in Oregon and Klickitat and
Benton Counties in Washington. Columbia makes loans in all of these counties
and in adjacent counties including Sherman, Gilliam, and Crook counties in
Oregon and Skamania County in Washington. Many of its products and services,
including investment products through Financial Services Team and mortgages
through the Mortgage Team, are offered and sold throughout Oregon and south
central Washington. Columbias ability to increase its market share in the
communities it serves is driven by a marketing plan consisting of several key
components. A principal objective is to create and foster a sales culture in
each branch and department. Employees are trained to cross-sell, offering
appropriate products and services to existing customers and expanding business
relationships. Columbia regularly examines the desirability and profitability
of adding new products and services to those currently offered. Columbia also
promotes specific products through media advertising, but relies primarily on
referrals and direct contacts for new business. Columbia recognizes the
importance of community service and supports employee involvement in community
activities. This participation allows Columbia to make a contribution to the
communities it serves, which management believes increases Columbias
visibility in its markets and thereby increases business opportunities.

Columbia does business in many different small to medium sized
communities. Management believes the diverse assortment of customers,
communities, and economic sectors that Columbia serves are a source of
strength. In addition, as a community banking organization Columbia has
certain competitive advantages because of its local focus. However, Columbia
is also more reliant on the local economies in its market areas than are
super-regional and national banks.

7





---



##### Table of Contents



We include as an asset on our balance sheet a mortgage servicing asset
(MSA), which represents the estimated present value of our future income
relating to service retained premiums from mortgage loans sold. The MSA has
been steadily declining in value during the last three years as depressed
mortgage interest rates have encouraged borrowers to pay off or refinance
mortgages at a higherthan-expected rate, as shown below.

|                                          |  |      |           |      |  |      |            |   |  |   |           |  
|----------------------------------------- |  | ---- | --------- | ---- |  | ---- | ---------- | - |  | - | --------- | -
|MORTGAGE SERVICING ASSET RECONCILIATION   |  | 2003 |           | 2002 |  | 2001
|                                          |  |      |           |      |  |     
|Mortgage servicing asset (MSA), beginning |  | $    | 4,614,391 |      |  | $    | 6,196,801  |   |  | $ | 2,759,687 |  
|Add servicing retained premiums           |  |      | 1,935,108 |      |  |      | 2,227,511  |   |  |   | 4,750,197 |  
|Deduct MSA amortization                   |  |      | 2,000,050 | )    |  |      | (1,028,810 | ) |  |   | (395,354  | )
|Deduct MSA valuation adjustments          |  |      | (858,000  | )    |  |      | (2,781,111 | ) |  |   | (917,729  | )
|                                          |  |      |           |      |  |      |            |   |  |   |           |  
|Mortgage servicing asset, ending          |  | $    | 3,691,449 |      |  | $    | 4,614,391  |   |  |   | 6,196,801 |  
|                                          |  |      |           |      |  |      |            |   |  |   |           |  

Competition

Columbias competitors for deposits are banks, savings and loan
associations, credit unions, money market funds, issuers of corporate and
government securities, insurance companies, brokerage firms, mutual funds, and
other financial intermediaries. Columbias business model is to compete on the
basis of customer service and not solely on price. Columbia competes for
deposits by offering a variety of deposit accounts at rates generally
competitive with financial institutions in the area.

Columbias competition for loans comes principally from banks, savings and
loan associations, mortgage companies, finance companies, insurance companies,
credit unions, and other institutional lenders. A primary competitor for
agricultural loans is Farm Credit Services. Columbia competes for loan
originations through the level of interest rates and loan fees charged, its
array of commercial and mortgage loan products, and the efficiency and quality
of services provided to borrowers. Lending activity can also be affected by
the availability of lendable funds, local and national economic conditions,
current interest rate levels, and loan demand. As described above, Columbia
competes with larger commercial banks by emphasizing a community bank
orientation and personal service to customers.

A potential new source of competition is the array of on-line banking
services offered by traditional commercial banks and other financial service
providers, and by newly formed companies that use the Internet to advertise and
sell competing products. Columbia offers many on-line banking services to its
customers, but management believes that, for the foreseeable future, its
customers will continue to prefer the personal, locally-based services that it
offers.

Employees

As of December 31, 2003, Columbia had a total of 272 full-time equivalent
employees. This number of employees, which compares to 274 at December 31,
2002, has held steady, even though Columbia has grown its branch network, due
to increased efficiencies in administrative functions and expansion of
technology. None of the employees are subject to a collective bargaining
agreement. Columbia considers its relationships with its employees to be good.

Directors and Executive Officers

Information regarding Columbias executive officers and Board of Directors
is set forth in Directors and Executive Officers of the Registrant,  in Item
10, which is incorporated herein by reference.

Website Access to Reports

Columbia makes available all periodic and current reports, free of charge,
on its website as soon as reasonably practicable after such material is
electronically filed with, or furnished to the Securities and Exchange
Commission (SEC). Columbias website address is www.columbiabancorp.com.
The contents of the website are not incorporated into this report or into
Columbias other filings with the SEC.

8





---



##### Table of Contents



SUPERVISION AND REGULATION

General

Columbia is extensively regulated under federal and state law. These laws
and regulations are primarily intended to protect depositors, not shareholders.
The discussion below describes and summarizes certain statutes and
regulations. These descriptions and summaries are qualified in their entirety
by reference to the particular statute or regulation. Changes in applicable
laws or regulations may have a material effect on the business and prospects of
Columbia. The operations of Columbia may also be affected by changes in the
policies of banking and other government regulators. Columbia cannot
accurately predict the nature or extent of the effects on its business and
earnings that fiscal or monetary policies, or new federal or state laws, may
have in the future.

Gramm-Leach-Bliley Financial Services Modernization Act

In 1999 Congress passed the Gramm-Leach-Bliley Financial Services
Modernization Act (the FSMA). This new legislation repealed certain
provisions of the Glass-Steagall Act that had required the separation of the
banking, insurance and securities businesses. It also created a new business
structure known as a financial services holding company. Under this new law,
banks will have broader opportunities to affiliate with insurance and
securities companies. Banks could also become tempting acquisition targets, as
insurance and securities companies seek such affiliations themselves. The FSMA
may also encourage local jurisdictions to enact tighter bank privacy
provisions. The enactment and implementation of the FSMA will result in new
competitive challenges and opportunities for community banks in the coming
years.

Columbia is a financial services holding company under the FSMA and is
therefore subject to supervision of, and regulation by, the Board of Governors
of the Federal Reserve System (Federal Reserve). Columbia is examined by,
must file annual reports with, and provide the Federal Reserve with any
additional information as it may require. Financial holding companies are bank
holding companies that satisfy certain criteria and are permitted to engage in
activities that traditional bank holding companies are not.

Holding Company Bank Ownership. The Bank Holding Company Act of 1956
(the BHCA) requires every bank holding company to obtain the prior approval
of the Federal Reserve before (i) acquiring, directly or indirectly, ownership
or control of any voting shares of another bank or bank holding company if,
after such acquisition, it would own or control more than 5% of such shares,
(ii) acquiring all or substantially all of the assets of another bank or bank
holding company, or (iii) merging or consolidating with another bank or bank
holding company.

Holding Company Control of Nonbanks.With some exceptions, the BHCA also
prohibits a bank holding company from acquiring or retaining direct or indirect
ownership or control of more than 5% of the voting shares of any company which
is not a bank or bank holding company, or from engaging directly or indirectly
in activities other than those of banking, managing, or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain nonbank activities which, by statute or by Federal
Reserve regulation or order, have been identified as activities closely related
to the business of banking or of managing or controlling banks. In making this
determination, the Federal Reserve considers whether the performance of such
activities by a bank holding company can be expected to produce benefits to the
public such as greater convenience, increased competition, or gains in the
efficient use of resources, which can be expected to outweigh the risks of
possible adverse effects such as decreased or unfair competition, conflicts of
interest, or unsound banking practices. The Economic Growth and Regulatory
Reduction Act of 1996 amended the BHCA to eliminate the requirement that bank
holding companies seek prior Federal Reserve approval before engaging in
certain permissible nonbanking activities if the holding company is well
capitalized and meets certain other specific criteria.

Transactions with Affiliates.Subsidiary banks of a bank holding company
are subject to restrictions imposed by the Federal Reserve Act on extensions of
credit to the holding company or its subsidiaries, on investments in their
securities, and on the use of their securities as collateral for loans to any
borrower. These regulations and restrictions may limit Columbias ability to
obtain funds from CRB for its cash needs, including funds for payment of
dividends, interest, and operational expenses.

9





---



##### Table of Contents



Tying Arrangements.Under the Federal Reserve Act and certain regulations
of the Federal Reserve, a bank holding company and its subsidiaries are
prohibited from engaging in certain tying arrangements in connection with any
extension of credit, lease or sale of property, or furnishing of services. For
example, CRB may not generally require a customer to obtain other services from
it or from Columbia, and may not require that the customer promise not to
obtain other services from a competitor as a condition to an extension of
credit to the customer.

Federal and State Bank Regulation

General.CRB is an Oregon state-chartered bank with deposits insured by
the FDIC, and is subject to the supervision and regulation of the Oregon
Director of Banks and the FDIC. CRB is also subject to the supervision and
regulation of the Washington Department of Financial Institutions. These
agencies have the authority to prohibit banks from engaging in what they
believe constitute unsafe or unsound banking practices.

CRA.The Community Reinvestment Act (CRA) requires that, in connection
with examinations of financial institutions within their jurisdiction, the
Federal Reserve or the FDIC evaluate the records of financial institutions in
meeting the credit needs of their local communities, including low and moderate
income neighborhoods, consistent with the safe and sound operation of those
banks. These factors are also considered in evaluating mergers, acquisitions,
and applications to open a branch or facility.

Insider Credit Transactions.Banks are also subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
executive officers, directors, principal shareholders, or any related interests
of such persons. Extensions of credit (i) must be made on substantially the
same terms, including interest rates and collateral, and follow credit
underwriting procedures that are not less stringent than those prevailing at
the time for comparable transactions with persons not covered above and who are
not employees; and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features. Banks are also subject to certain
lending limits and restrictions on overdrafts to such persons. A violation of
these restrictions may result in the assessment of substantial civil monetary
penalties on the affected bank or any officer, director, employee, agent, or
other person participating in the conduct of the affairs of that bank; the
imposition of a cease and desist order; and other regulatory sanctions.

FDICIA.Under the Federal Deposit Insurance Corporation Improvement Act
(FDICIA), each federal banking agency has prescribed, by regulation,
noncapital safety and soundness standards for institutions under its authority.
These standards cover internal controls, information systems, and internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, compensation, fees and benefits, such other operational and
managerial standards as the agency determines to be appropriate, and standards
for asset quality, earnings and stock valuation. An institution which fails to
meet these standards must develop a plan acceptable to the agency, specifying
the steps that the institution will take to meet the standards. Failure to
submit or implement such a plan may subject the institution to regulatory
sanctions. Management believes that CRB meets all such standards and,
therefore, does not believe that these regulatory standards materially affect
Columbias business operations.

Interstate Banking and Branching

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(Interstate Act) permits nationwide interstate banking and branching under
certain circumstances. This legislation generally authorizes interstate
branching and relaxes federal law restrictions on interstate banking.
Currently, financial holding companies may purchase banks in any state, and
states may not prohibit such purchases. Additionally, banks are permitted to
merge with banks in other states as long as the home state of neither merging
bank has opted out. The Interstate Act requires regulators to consult with
community organizations before permitting an interstate institution to close a
branch in a low-income area.

Under recent FDIC regulations, banks are prohibited from using their
interstate branches primarily for deposit production. The FDIC has accordingly
implemented a loan-to-deposit ratio screen to ensure compliance with this
prohibition.

Oregon and Washington each enacted opting in legislation in accordance
with the Interstate Act

10





---



##### Table of Contents



provisions allowing banks to engage in interstate merger transactions subject
to certain aging requirements. In both states, branches may not be acquired
or opened separately in the home state by an out-of-state bank, but once an
out-of-state bank has acquired a bank within the state, either through merger
or acquisition of all or substantially all of the banks assets, the
out-of-state bank may open additional branches within the home state.

Deposit Insurance

The deposits of CRB are currently insured to a maximum of $100,000 per
depositor through the Bank Insurance Fund (BIF) administered by the FDIC.
CRB is required to pay semi-annual deposit insurance premium assessments to the
FDIC.

The FDICIA included provisions to reform the Federal Deposit Insurance
System, including the implementation of risk-based deposit insurance premiums.
The FDICIA also permits the FDIC to make special assessments on insured
depository institutions in amounts determined by the FDIC to be necessary to
give it adequate assessment income to repay amounts borrowed from the U.S.
Treasury and other sources, or for any other purpose the FDIC deems necessary.
The FDIC has implemented a risk-based insurance premium system under which
banks are assessed insurance premiums based on how much risk they present to
the BIF. Banks with higher levels of capital and a low degree of supervisory
concern are assessed lower premiums than banks with lower levels of capital or
a higher degree of supervisory concern.

Dividends

The principal source of Columbias cash revenues is dividends received
from its subsidiary. The payment of dividends is subject to government
regulation, in that regulatory authorities may prohibit banks and financial
holding companies from paying dividends which would constitute an unsafe or
unsound banking practice. In addition, a bank may not pay cash dividends if
that payment could reduce the amount of its capital below that necessary to
meet minimum applicable regulatory capital requirements. Also, under the
Oregon Bank Act, the Oregon Director of Banks may suspend the payment of
dividends if it is determined that the payment would cause a banks remaining
shareholders equity to be inadequate for the safe and sound operation of the
bank. Other than the laws and regulations noted above, which apply to all
banks and financial holding companies, neither Columbia nor CRB is currently
subject to any regulatory restrictions on their dividends.

Capital Adequacy

Federal bank regulatory agencies use capital adequacy guidelines in the
examination and regulation of financial holding companies and banks. If
capital falls below minimum guideline levels, the holding company or bank may
be denied approval to acquire or establish additional banks or nonbank
businesses or to open new facilities.

The FDIC and Federal Reserve use risk-based capital guidelines for banks
and financial holding companies. These are designed to make such capital
requirements more sensitive to differences in risk profiles among banks and
financial holding companies, to account for off-balance sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance sheet
items are assigned to broad risk categories, each with appropriate weights.
The resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items. The guidelines are minimums,
and the Federal Reserve has noted that financial holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of the
minimum. The current guidelines require all financial holding companies and
federally regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier I capital.

Tier I capital for financial holding companies includes common
shareholders equity, qualifying perpetual preferred stock (up to 25% of total
Tier I capital, if cumulative, although under a Federal Reserve Rule,
redeemable perpetual preferred stock may not be counted as Tier I capital
unless the redemption is subject to the prior approval of the Federal Reserve),
and minority interests in equity accounts of consolidated subsidiaries, less
intangibles. Tier II capital includes: (i) the allowance for loan losses of up
to 1.25% of risk-weighted assets; (ii) any qualifying perpetual preferred stock
which exceeds the amount which may be included in Tier I capital; (iii) hybrid
capital instruments; (iv) perpetual debt; (v) mandatory convertible securities;
and (vi) subordinated debt and intermediate term preferred stock of up

11





---



##### Table of Contents



to 50% of Tier I capital. Total capital is the sum of Tier I and Tier II
capital, less reciprocal holdings of other banking organizations, capital
instruments, and investments in unconsolidated subsidiaries.

The assets of banks and financial holding companies receive risk-weights
of 0%, 20%, 50%, and 100%. In addition, certain off-balance sheet items are
given credit conversion factors to convert them to asset equivalent amounts to
which an appropriate risk-weight will apply. These computations result in
total risk-weighted assets.

Most loans are assigned to the 100% risk category, except for first
mortgage loans fully secured by residential property which carry a 50% rating.
Most investment securities are assigned to the 20% category, except for
municipal or state revenue bonds which have a 50% risk-weight, and direct
obligations of, or obligations guaranteed by, the United States Treasury or
agencies of the federal government which have 0% risk-weight. In converting
off-balance sheet items, direct credit substitutes, including general
guarantees and standby letters of credit backing financial obligations, are
given a 100% conversion factor. Transaction related contingencies such as bid
bonds, other standby letters of credit and undrawn commitments, including
commercial credit lines with an initial maturity of more than one year, have a
50% conversion factor. Short-term, self-liquidating trade contingencies are
converted at 20%, and short-term commitments have a 0% factor.

The Federal Reserve also employs a leverage ratio, which is Tier I capital
as a percentage of total assets less intangibles, to be used as a supplement to
risk-based guidelines. The principal objective of the leverage ratio is to
constrain the maximum degree to which a financial holding company may leverage
its equity capital base. The Federal Reserve requires a minimum leverage ratio
of 3%. However, for all but the most highly rated financial holding companies
and for financial holding companies seeking to expand, the Federal Reserve
expects an additional cushion of at least 1% to 2%.

The FDICIA created a statutory framework of supervisory actions indexed to
the capital level of the individual institution. Under regulations adopted by
the FDIC, an institution is assigned to one of five capital categories
depending on its total risk-based capital ratio, Tier I risk-based capital
ratio, and leverage ratio, together with certain subjective factors.
Institutions which are deemed to be undercapitalized, depending on the
category to which they are assigned, are subject to certain mandatory
supervisory corrective actions.

Effects of Government Monetary Policy

The earnings and growth of Columbia are affected not only by general
economic conditions but also by the fiscal and monetary policies of the federal
government, particularly the Federal Reserve. The Federal Reserve can and does
implement national monetary policy for such purposes as curbing inflation and
combating recession, but its open market operations in U.S. government
securities, control of the discount rate applicable to borrowings from the
Federal Reserve, and establishment of reserve requirements against certain
deposits, influence the growth of bank loans, investments and deposits, and
also affect interest rates charged on loans or paid on deposits. The nature
and impact of future changes in monetary policies and their impact on Columbia
cannot be predicted with certainty.

Changes in Banking Laws and Regulations

The laws and regulations that affect banks and financial holding companies
frequently undergo significant changes at the federal and state levels. Bills
are introduced from time to time in the United States Congress that contain
proposals to alter the structure, regulation, and competitive relationships of
the nations financial institutions. Any changes in laws and regulations could
have the effect of increasing or decreasing the cost of doing business,
limiting or expanding permissible activities (including activities in the
insurance and securities fields), or affecting the competitive balance among
banks, savings associations, and other financial institutions. Such changes
could also reduce the extent of federal deposit insurance, broaden the powers
or the geographical range of operations of financial holding companies, alter
the extent to which banks could engage in securities activities, alter the
taxation of banks, financial holding companies and other financial services
organizations, and change the structure and jurisdiction of various financial
institution regulatory agencies. Management cannot anticipate or predict
specific ongoing changes in laws and regulations or the extent to which they
might affect its business.

12





---



##### Table of Contents






ITEM 2. PROPERTIES

Nine of Columbias facilities in Hood River, The Dalles, Redmond, Bend,
McMinnville, Madras, Hermiston and Pendleton Oregon, as well as its two
full-service branch facilities in White Salmon and Goldendale, Washington, are
housed in properties owned, free of all encumbrances, by Columbia. Columbia
leases the space for its Canby, Newberg and Kennewick branches, both
McMinnville and Bend limited-service branches in retirement communities, its
facility in The Dalles Safeway store and the Administration office located in
The Dalles. All of Columbias branches, except the Westside branch in The
Dalles, Oregon and its limited service branches, have drive-up facilities and
automated teller machines. The Mortgage Team operates from the second floor of
Columbias Bend branch; 1701 NE Third Street. The following sets forth certain
information regarding Columbias branch facilities.

|                                              |  |                            |  |        |  |           |  |          
|--------------------------------------------- |  | -------------------------- |  | ------ |  | --------- |  | ---------
|                                              |  |                            |  |        |  | Year      |  |          
|                                              |  |                            |  | Square |  | Opened or |  | Occupancy
|City and County                               |  | Address                    |  | Feet   |  | Acquired  |  | Status   
|                                              |  |                            |  |        |  |           |  |          
|Oregon Branches                               |  |                            |  |        |  |           |  |          
|The Dalles (Main Branch), Wasco County        |  | 316 East Third Street      |  | 8,000  |  | 1977      |  | Owned    
|The Dalles (Westside Branch),(1) Wasco County |  | 520 Mt. Hood Street        |  | 430    |  | 1986      |  | Leased   
|Hood River Branch, Hood River County          |  | 2650 Cascade Avenue        |  | 6,255  |  | 1993      |  | Owned    
|Madras Branch, Jefferson County               |  | 624 SW Fourth Street       |  | 7,400  |  | 1995      |  | Owned    
|Redmond Branch, Deschutes County              |  | 434 North Fifth Street     |  | 4,700  |  | 1995      |  | Owned    
|Bend Branch, Deschutes County                 |  | 1701 NE Third Street       |  | 8,306  |  | 1996      |  | Owned    
|Shevlin Center Branch,(2) Deschutes County    |  | 925 SW Emkay Drive         |  | 15,000 |  | 1999      |  | Owned    
|Bend Limited Facility, Deschutes County       |  | 1010 NE Purcell Blvd       |  | 80     |  | 2002      |  | Other(3) 
|Hermiston Branch, Umatilla County             |  | 1033 South Highway 395     |  | 4,700  |  | 1998      |  | Owned    
|Pendleton Branch, Umatilla County             |  | 2101 SW Court Place        |  | 4,700  |  | 1999      |  | Owned    
|McMinnville Branch,(2) Yamhill County         |  | 723 N Baker                |  | 9,600  |  | 1998      |  | Owned    
|McMinnville Limited Facility, Yamhill County  |  | 900 NW Hill Road           |  | 60     |  | 1998      |  | Other(3) 
|McMinnville Limited Facility, Yamhill County  |  | 300 NW Hillside Pkwy       |  | 60     |  | 2001      |  | Other(3) 
|Canby Branch, Clackamas County                |  | 223 NE 2nd Street          |  | 1,500  |  | 2001      |  | Leased   
|Newberg Branch, Yamhill County                |  | 901 N Brutscher St., Ste A |  | 3,900  |  | 1999      |  | Leased   

13





---



##### Table of Contents



|                                                |  |                                       |  |        |  |           |  |          
|----------------------------------------------- |  | ------------------------------------- |  | ------ |  | --------- |  | ---------
|                                                |  |                                       |  |        |  | Year      |  |          
|                                                |  |                                       |  | Square |  | Opened or |  | Occupancy
|City and County                                 |  | Address                               |  | Feet   |  | Acquired  |  | Status   
|                                                |  |                                       |  |        |  |           |  |          
|Washington Branches                             |  |                                       |  |        |  |           |  |          
|White Salmon Branch, Klickitat County           |  | 390 NE Tohomish Street                |  | 5,500  |  | 1996      |  | Owned    
|Goldendale Branch, Klickitat County             |  | 202 West Main Street                  |  | 6,105  |  | 1996      |  | Owned    
|Kennewick Branch, Benton CountyOther Facilities |  | 1408 N Louisiana Street
Suite 102-103 |  | 2,600  |  | 2003      |  | Leased   
|The Dalles, OR, Administration, Wasco County    |  | 401 E Third St, Suite 200             |  | 14,868 |  | 2002      |  | Leased   



---

|(1) |  | Leased space in a Safeway supermarket. Lease term
expires December 2005.                                   
|--- |  | -----------------------------------------------------------------------------------------------------------
|   
|(2) |  | Branch operations are located on the first floor. A
portion of the second floor is leased to other parties.
|   
|(3) |  | CRB has an agreement in place that does not require
financial payment for these limited-branch facilities. 

In 1999, Columbia purchased 156,723 square feet of bare land in the
Columbia River Center in The Dalles for future branch or administrative
operations expansion. Columbia also purchased bare land in 1995, adjacent to
the Hood River Branch, for the purpose of future parking expansion. After the
completion of the parking expansion in 2001, Columbia partitioned the land and
currently has 13,068 square feet listed for sale. In 2003, Columbia closed its
mortgage lending office in Newport, Oregon due to the declining volume of
mortgage transactions generated through that office.




ITEM 3. LEGAL PROCEEDINGS

Management is not presently aware of any pending or threatened claims
against Columbia that, if determined adversely to Columbia, would have a
material affect on its operations or performance. In the normal course of its
business, Columbia is a party to various debtor-creditor legal actions, none of
which, individually or in the aggregate, are presently material to Columbias
business, operations or financial condition. These include cases filed as a
plaintiff in collection and foreclosure cases, and the enforcement of
creditors rights in bankruptcy proceedings.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of securities holders of Columbia
during the quarter ended December 31, 2003.




Part II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The common stock of Columbia Bancorp trades on the NASDAQ National Market
under the symbol CBBO. Trading in Columbias stock on NASDAQ commenced on
November 6, 1998. The respective high and low sale prices of Columbias common
stock for the periods indicated are shown below. All prices for the periods
shown have been adjusted for subsequent stock splits. Prices do not include
retail markups, markdowns, or commissions, and may not represent actual
transactions. Columbia has paid dividends on its common stock on a quarterly
basis. The table below also sets forth dividends declared per share of common
stock for the periods indicated. As of February 17, 2004 Columbia had
8,780,109 shares issued and outstanding, which were held by approximately 2,863
shareholders of record.

14





---



##### Table of Contents



Table 1

|               |  |                     |       |               |  |          |       |                     |  |     |      |          |  |   |       |  |  |   |       |  |  |   |      | 
|-------------- |  | ------------------- | ----- | ------------- |  | -------- | ----- | ------------------- |  | --- | ---- | -------- |  | - | ----- |  |  | - | ----- |  |  | - | ---- | 
|               |  | 2003 (1)            |       | 2002 (1)     
|               |  |                     |       |              
|               |  | Stock Trading Range |       |               |  |          |       | Stock Trading Range |  |     |      |         
|               |  |                     |       | Cash Dividend |  |          |       | Cash Dividend      
|               |  | High                |       | Low           |  | Declared |       | High                |  | Low |      | Declared
|               |  |                     |       |               |  |          |       |                     |  |     |      |         
|First Quarter  |  | $                   | 15.23 |               |  | $        | 13.00 |                     |  | $   | 0.07 |          |  | $ | 10.36 |  |  | $ | 9.15  |  |  | $ | 0.07 | 
|Second Quarter |  |                     | 16.05 |               |  |          | 12.75 |                     |  |     | 0.08 |          |  |   | 11.95 |  |  |   | 9.96  |  |  |   | 0.07 | 
|Third Quarter  |  |                     | 14.98 |               |  |          | 13.10 |                     |  |     | 0.08 |          |  |   | 12.65 |  |  |   | 9.91  |  |  |   | 0.07 | 
|Fourth Quarter |  |                     | 17.53 |               |  |          | 14.40 |                     |  |     | 0.09 |          |  |   | 13.68 |  |  |   | 10.68 |  |  |   | 0.07 | 

(1)  Prior periods have been adjusted to reflect the 10% stock dividend, effective May 1, 2003.

Sales of Unregistered Securities

Columbia had no recent sales of unregistered securities during the fourth
quarter of 2003.




ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain information concerning the
consolidated financial condition, operating results, and key operating ratios
for Columbia at the dates and for the periods indicated. This information does
not purport to be complete, and should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of
Operations, and the Consolidated Financial Statements of Columbia and Notes
thereto.

Table 2

|                                                     |                                      |      |                                            |         |   |      |      |         |   |      |      |         |   |  |      |         |   |  |      |         |  
|---------------------------------------------------- | ------------------------------------ | ---- | ------------------------------------------ | ------- | - | ---- | ---- | ------- | - | ---- | ---- | ------- | - |  | ---- | ------- | - |  | ---- | ------- | -
|                                                     |                                      |      | As of and For the Years Ended December 31,
|                                                     |                                      |      |                                           
|(dollars in thousands except dollars per share data) |                                      | 2003 |                                            | 2002    |   | 2001 |      | 2000    |   | 1999
|                                                     |                                      |      |                                            |         |   |      |      |         |   |     
|Income Statement Data                                |                                      |      |                                            |         |   |      |      |         |   |      |      |         |   |  |      |         |   |  |      |        
|                                                     | Interest income                      |      | $                                          | 38,230  |   |      | $    | 37,616  |   |      | $    | 35,078  |   |  | $    | 33,367  |   |  | $    | 26,883  |  
|                                                     | Interest expense                     |      |                                            | 6,831   |   |      |      | 7,782   |   |      |      | 11,583  |   |  |      | 12,256  |   |  |      | 8,568   |  
|                                                     |                                      |      |                                            |         |   |      |      |         |   |      |      |         |   |  |      |         |   |  |      |        
|                                                     | Net interest income                  |      |                                            | 31,399  |   |      |      | 29,834  |   |      |      | 23,495  |   |  |      | 21,111  |   |  |      | 18,315  |  
|                                                     | Loan loss provision                  |      |                                            | 2,575   |   |      |      | 1,800   |   |      |      | 1,450   |   |  |      | 1,697   |   |  |      | 1,005   |  
|                                                     | Net income                           |      |                                            | 9,834   |   |      |      | 9,381   |   |      |      | 7,374   |   |  |      | 5,624   |   |  |      | 5,013   |  
|Balance Sheet Data                                   |                                      |      |                                            |         |   |      |      |         |   |      |      |         |   |  |      |         |   |  |      |        
|                                                     | Investment securities                |      | $                                          | 31,682  |   |      | $    | 36,048  |   |      | $    | 43,532  |   |  | $    | 60,544  |   |  | $    | 62,333  |  
|                                                     | Total loans, net                     |      |                                            | 464,350 |   |      |      | 432,687 |   |      |      | 380,283 |   |  |      | 299,881 |   |  |      | 246,975 |  
|                                                     | Total assets                         |      |                                            | 584,136 |   |      |      | 544,326 |   |      |      | 482,207 |   |  |      | 416,859 |   |  |      | 361,241 |  
|                                                     | Total deposits                       |      |                                            | 496,358 |   |      |      | 458,624 |   |      |      | 394,636 |   |  |      | 346,427 |   |  |      | 310,910 |  
|                                                     | Shareholders equity                 |      |                                            | 57,804  |   |      |      | 50,190  |   |      |      | 46,445  |   |  |      | 41,326  |   |  |      | 37,322  |  
|Per Share Data                                       |                                      |      |                                            |         |   |      |      |         |   |      |      |         |   |  |      |         |   |  |      |        
|Earnings per common share                            |                                      |      |                                            |         |   |      |      |         |   |      |      |         |   |  |      |         |   |  |      |        
|                                                     | Basic earnings per common share (1)  |      | $                                          | 1.13    |   |      | $    | 1.05    |   |      | $    | 0.83    |   |  | $    | 0.63    |   |  | $    | 0.57    |  
|                                                     | Diluted earnings per common share(1) |      |                                            | 1.09    |   |      |      | 1.03    |   |      |      | 0.81    |   |  |      | 0.63    |   |  |      | 0.56    |  
|Cash dividends declared per common share (1)         |                                      |      | 0.32                                       |         |   |      | 0.28 |         |   |      | 0.28 |         |   |  | 0.25 |         |   |  | 0.22 |        
|Book value per common share(1)                       |                                      |      | 6.61                                       |         |   |      | 5.80 |         |   |      | 5.25 |         |   |  | 4.68 |         |   |  | 4.24 |        
|Capital Ratios                                       |                                      |      |                                            |         |   |      |      |         |   |      |      |         |   |  |      |         |   |  |      |        
|                                                     | Tier I capital ratio (2)             |      |                                            | 10.46   | % |      |      | 9.71    | % |      |      | 9.36    | % |  |      | 9.78    | % |  |      | 10.17   | %
|                                                     | Total risk-based capital ratio (3)   |      |                                            | 11.71   | % |      |      | 10.96   | % |      |      | 10.61   | % |  |      | 11.03   | % |  |      | 11.32   | %
|                                                     | Leverage ratio(4)                    |      |                                            | 9.19    | % |      |      | 8.57    | % |      |      | 8.61    | % |  |      | 8.14    | % |  |      | 8.26    | %
|Financial Ratios                                     |                                      |      |                                            |         |   |      |      |         |   |      |      |         |   |  |      |         |   |  |      |        
|                                                     | Return on average assets             |      |                                            | 1.71    | % |      |      | 1.80    | % |      |      | 1.64    | % |  |      | 1.41    | % |  |      | 1.44    | %
|                                                     | Return on average equity             |      |                                            | 18.25   | % |      |      | 18.80   | % |      |      | 16.76   | % |  |      | 14.40   | % |  |      | 13.90   | %

(1)  Prior periods have been adjusted to reflect the 10% stock dividend, effective May 1, 2003.

(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.

15





---



##### Table of Contents






ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion should be read in conjunction with Columbia
Bancorps (Columbia) audited consolidated financial statements and the notes
thereto as of December 31, 2003 and 2002 and for each of the three years in the
period ended December 31, 2003 included elsewhere in this report.

Columbia is a financial holding company which conducts operations
principally through its wholly-owned subsidiary, Columbia River Bank (CRB).
CRB is a state chartered bank which offers a broad range of services to its
customers, primarily small and medium sized businesses, farmers, and
individuals. CRB has a network of 18 branches, 12 full-service branch
facilities and three limited-service branch facilities in Oregon serve the
northern and eastern Oregon communities of The Dalles (2), Hood River,
Pendleton and Hermiston, the central Oregon communities of Madras, Redmond, and
Bend (3), and the communities of McMinnville (3), Canby and Newberg in the
Willamette Valley. Columbias three south central Washington full-service
branches serve the communities of Goldendale, White Salmon and Kennewick.

On December 19, 2002, Columbia formed Columbia Bancorp Trust I (Trust),
a wholly-owned Delaware statutory business trust, for purposes of issuing Trust
Preferred Securities. The Trust issued $4.0 million of trust-preferred
securities at a floating rate indexed to the 90 day LIBOR with a margin of
3.30%. These securities are considered to be Tier I for regulatory capital
purposes.

Managements goal is to grow Columbias earning assets while maintaining a
high return on equity and high asset quality. The key to this, in managements
view, is to emphasize personalized, quality banking products and services for
its customers, to hire and retain competent branch and administrative
personnel, and to respond quickly to customer demand and growth opportunities.
Management also intends to increase Columbias penetration in our existing
markets, and to expand into new markets through suitable acquisitions and new
branch openings.

As of December 31, 2003, Columbia had total assets of $584.14 million,
total deposits of $496.36 million and shareholders equity of $57.80 million.
As of December 31, 2002 and 2001, total assets were $544.33 million and $482.21
million; total deposits were $458.62 million and $394.64 million, and
shareholders equity were $50.19 million and $46.45 million, respectively.
Columbias net income for years ended December 31, 2003, 2002 and 2001, was
$9.83 million, $9.38 million and $7.37 million, respectively. Columbias year
2003 net income represents the seventeenth consecutive year of increasing net
income. For the year ended December 31, 2003, Columbias return on average
assets was 1.71% and return on average equity was 18.25%, as compared to 2002
and 2001, where return on average assets were 1.80% and 1.64% and return on
average equity were 18.80% and 16.76%, respectively.

16





---



##### Table of Contents



Return on average daily assets and equity and certain other ratios for the
periods indicated are presented below:

Table 3

|                                 |  |                          |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|-------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                 |  | Years Ended December 31,
|                                 |  |                         
|(dollars in thousands)           |  | 2003                     |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                 |  |                          |         |      |  |      |         |      |  |     
|Net income                       |  | $                        | 9,834   |      |  | $    | 9,381   |      |  | $    | 7,374   |   |  | $ | 5,624   |   |  | $ | 5,013   |  
|Average assets                   |  |                          | 573,934 |      |  |      | 521,537 |      |  |      | 450,262 |   |  |   | 398,422 |   |  |   | 347,003 |  
|RETURN ON AVERAGE ASSETS         |  |                          | 1.71    | %    |  |      | 1.80    | %    |  |      | 1.64    | % |  |   | 1.41    | % |  |   | 1.44    | %
|Net income                       |  | $                        | 9,834   |      |  | $    | 9,381   |      |  | $    | 7,374   |   |  | $ | 5,624   |   |  | $ | 5,013   |  
|Average equity                   |  |                          | 53,898  |      |  |      | 49,905  |      |  |      | 43,990  |   |  |   | 39,062  |   |  |   | 36,075  |  
|RETURN ON AVERAGE EQUITY         |  |                          | 18.25   | %    |  |      | 18.80   | %    |  |      | 16.76   | % |  |   | 14.40   | % |  |   | 13.90   | %
|Cash dividends declared and paid |  | $                        | 2,819   |      |  | $    | 2,580   |      |  | $    | 2,570   |   |  | $ | 2,326   |   |  | $ | 1,999   |  
|Net income                       |  |                          | 9,834   |      |  |      | 9,381   |      |  |      | 7,374   |   |  |   | 5,624   |   |  |   | 5,013   |  
|PAYOUT RATIO                     |  |                          | 28.66   | %    |  |      | 27.50   | %    |  |      | 34.85   | % |  |   | 41.36   | % |  |   | 39.88   | %
|Average equity                   |  | $                        | 53,898  |      |  | $    | 49,905  |      |  | $    | 43,990  |   |  | $ | 39,062  |   |  | $ | 36,075  |  
|Average assets                   |  |                          | 573,934 |      |  |      | 521,537 |      |  |      | 450,262 |   |  |   | 398,422 |   |  |   | 347,003 |  
|AVERAGE EQUITY TO ASSET RATIO    |  |                          | 9.39    | %    |  |      | 9.13    | %    |  |      | 9.77    | % |  |   | 9.80    | % |  |   | 10.40   | %

Critical accounting policies and estimates

The Managements Discussion and Analysis of Financial Condition and
Results of Operations, as well as disclosures included elsewhere in this Form
10-K, are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. On an ongoing basis,
management evaluates the estimates used, including the adequacy of the
allowance for loan and lease losses, impairment of intangible assets, and
contingencies and litigation. Estimates are based upon historical experience,
current economic conditions and other factors that management considers
reasonable under the circumstances. These estimates result in judgments
regarding the carrying values of assets and liabilities when these values are
not readily available from other sources as well as assessing and identifying
the accounting treatments of commitments and contingencies. Actual results may
differ from these estimates under different assumptions or conditions. The
following critical accounting policies involve the more significant judgments
and assumptions used in the preparation of the consolidated financial
statements.

The allowance for loan and lease losses is established to absorb known and
inherent losses attributable to loans and leases outstanding and related
off-balance-sheet commitments. The adequacy of the allowance is monitored on an
ongoing basis and is based on managements evaluation of numerous factors.
These factors include the quality of the current loan portfolio, the trend in
the loan portfolios risk ratings, current economic conditions, loan
concentrations, loan growth rates, past-due and nonperforming trends,
evaluation of specific loss estimates for all significant problem loans,
historical charge-off and recovery experience and other pertinent information.
Approximately 63% of Columbias gross loan portfolio is secured by real estate
and a significant depreciation in real estate values in Oregon and Washington
would cause management to increase the allowance for loan and lease losses.

During 2003 and prior years, Columbia capitalized service retained
mortgage premiums which resulted in recognition of a mortgage servicing asset
(MSA) and a corresponding recognition of servicing income. The MSA has
been valued on a quarterly basis by a qualified, third party with access and
knowledge of current servicing portfolio values in the market place.. The
techniques used in valuing the MSA incorporate assumptions relative to
prevailing conditions in the secondary servicing market. These assumptions
have been dependent upon near term transactions and include prepayment speed
forecasts, market discount rates, earning rates, servicing costs, acquisition
costs and ancillary income. A calculated
decrease in the value of the MSA is recorded as a valuation write-down
adjustment. However, actual fair

17





---



##### Table of Contents



values may differ from the measured valuation
due to limitations in available third-party market quotations and potential
changes in the underlying assumptions. Mortgage servicing assets have been
amortized over the expected life of the outstanding net servicing income. The
expected life of the outstanding net servicing income that is generated from
the MSA can vary from managements estimates due to interest rate volatility
and changing prepayment speeds. Prepayment speeds in excess of managements
estimates could negatively impact the recorded value of the MSA.

Columbia initiated a strategic shift in the fourth quarter of 2003 and
discontinued the practice of capitalizing service retained mortgage premiums.
Columbia River Bank Mortgage Team (Mortgage Team) now originates mortgage
loans which are sold exclusively on a brokerage basis with mortgage servicing
released. . This means the existing MSA balance will not increase as a result
of additional mortgage loan activity in which mortgage premiums are retained. .
This strategy will continue into 2004 with a focus on producing quality loans,
providing competitive loan products, and selling service released mortgage
premiums in the secondary servicing market. Management believes this will
reduce interest rate risk associated with the MSA.. Any future decision to
sell the MSA will be dependent upon the movement of interest rates. A rise in
interest rates in 2004 will likely improve the value of the MSA and provide
management with the ability to examine sale options.

At December 31, 2003, Columbia had approximately $7.4 million in goodwill
as a result of business combinations. Columbia adopted Statement of Financial
Accounting Standards (SFAS) No. 142 on January 1, 2002. Annual and periodic
analyses of the fair value of recorded goodwill for impairment will involve
judgment on the part of management.

Columbia applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for
its stock option plans. Accordingly, compensation costs are recognized as the
difference between the exercise price of each option and the market price of
Columbias stock at the date of each grant. Had compensation cost for
Columbias 2003, 2002, and 2001 grants for stock-based compensation plans been
determined consistent with SFAS No. 123, its net income and earnings per common
share for December 31, 2003, 2002, and 2001, would approximate the pro forma
amounts below.

Table 4

|                                             |             |      |   |       |  |      |   |       |  |  |   |       | 
|-------------------------------------------- | ----------- | ---- | - | ----- |  | ---- | - | ----- |  |  | - | ----- | 
|(dollars in thousands except per share data) |             | 2003 |   | 2002  |  | 2001
|                                             |             |      |   |       |  |     
|Net income:                                  |             |      |   |       |  |      |   |       |  |  |   |      
|                                             | As reported |      | $ | 9,834 |  |      | $ | 9,381 |  |  | $ | 7,374 | 
|                                             | Pro forma   |      | $ | 9,657 |  |      | $ | 8,570 |  |  | $ | 6,823 | 
|Basic earnings per common share(1):          |             |      |   |       |  |      |   |       |  |  |   |      
|                                             | As reported |      | $ | 1.13  |  |      | $ | 1.05  |  |  | $ | 0.83  | 
|                                             | Pro forma   |      | $ | 1.11  |  |      | $ | 0.96  |  |  | $ | 0.77  | 
|Diluted earnings per common share(1):        |             |      |   |       |  |      |   |       |  |  |   |      
|                                             | As reported |      | $ | 1.09  |  |      | $ | 1.03  |  |  | $ | 0.81  | 
|                                             | Pro forma   |      | $ | 1.07  |  |      | $ | 0.94  |  |  | $ | 0.75  | 

(1)  Prior periods have been adjusted to reflect the 10% stock dividend, effective May
1, 2003.

The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions for
December 31, 2003, 2002 and 2001:

Table 5

|                      |  |      |       |      |  |      |       |   |  |  |       |  
|--------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                      |  | 2003 |       | 2002 |  | 2001
|                      |  |      |       |      |  |     
|Dividend yield        |  |      | 2.14  | %    |  |      | 2.14  | % |  |  | 3.00  | %
|Expected life (years) |  |      | 6.00  |      |  |      | 6.00  |   |  |  | 3.32  |  
|Expected volatility   |  |      | 43.71 | %    |  |      | 45.25 | % |  |  | 29.77 | %
|Risk-free rate        |  |      | 3.02  | %    |  |      | 2.08  | % |  |  | 3.74  | %

18





---



##### Table of Contents



The effects of applying SFAS No. 123 in the pro forma disclosure are not
indicative of future amounts. Additionally, there can be no assurance that the
Public Accounting Oversight Board (PCAOB), the accounting standard setting
organization for public companies, will not issue new pronouncements that will
change the accounting for stock-based compensation plans in the future.

Columbia may become party to various legal proceedings. These matters have
a high degree of uncertainty associated with them. There can be no assurance
that the ultimate outcome will not differ materially from Columbias assessment
of them. There can also be no assurance that all matters that may be brought
against Columbia are known to them at any point in time.

Results of Operations

Net Interest Income

For financial institutions, the primary component of earnings is net
interest income. Net interest income is the difference between interest
income, principally from loan and investment security portfolios, and interest
expense, principally on customer deposits and bank borrowings from other
sources, such as trust preferred securities. Changes in net interest income
result from changes in volume, spread and margin. Volume refers to the dollar
level of interest-earning assets and interest-bearing liabilities. Spread
refers to the difference between the yield on interest-earning assets and the
cost of interest-bearing liabilities. Net interest margin is the ratio of net
interest income to total average interest-earning assets and is influenced by
the relative level of interest-earning assets and interest-bearing liabilities.

Average Balances and Average Rates Earned and Paid.The following table
shows average balances and interest income or interest expense, with the
resulting average yield or rates by category of earning assets or
interest-bearing liabilities:

Table 6



|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |   |      |      |      | 
|---------------------------------------------- | --------------------------- | ---------------------------------------------- | ------------------------- | ------------------------------------------ | ------- | ---------------------------- | ------- | ---------------------------- | ------ | --------- | ------ | ------- | ---- | --------- | ---- | --------- | ------- | -------- | ------- | ------- | ------ | ----- | ------ | - | ---- | ---- | ---- | 
|                                               |                             |                                                |                           |                                            |         | Year Ended December 31, 2003 |         | Year Ended December 31, 2002
|                                               |                             |                                                |                           |                                            |         |                              |         |                             
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        | Interest  |        | Average |      |           |      |           |         | Interest |         | Average
|                                               |                             |                                                |                           |                                            |         | Average                      |         | Income or                    |        | Yields or |        | Average |      | Income or |      | Yields or
|(dollars in thousands)                         |                             | Balance                                        |                           | Expense                                    |         | Rates                        |         | Balance                      |        | Expense   |        | Rates  
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |        
|Interest-earning assets:                       |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|                                               |                             | Loans (1)                                      |                           | $                                          | 456,137 |                              |         | $                            | 36,496 |           |        |         | 8.00 | %         |      | $         | 419,608 |          |         | $       | 35,334 |       |        |   | 8.42 | %   
|                                               |                             | Investment securities                          |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |   |      |     
|                                               |                             |                                                | Taxable securities        |                                            |         | 17,033                       |         |                              |        | 514       |        |         |      | 3.02      |      |           |         | 18,822   |         |         |        | 1,035 |        |   |      | 5.58 |     
|                                               |                             |                                                | Nontaxable securities (2) |                                            |         | 15,662                       |         |                              |        | 1,150     |        |         |      | 7.34      |      |           |         | 17,191   |         |         |        | 1,223 |        |   |      | 7.12 |     
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|                                               |                             |                                                |                           | Total investment securities (2)            |         |                              | 32,695  |                              |        |           | 1,664  |         |      |           | 5.09 |           |         |          | 36,013  |         |        |       | 2,258  |   |      |      | 6.31 | 
|                                               |                             | Interest-earning balances due
from banks       |                           |                                            | 13,444  |                              |         |                              | 286    |           |        |         | 2.13 |           |      |           | 10,781  |          |         |         | 340    |       |        |   | 3.02 |     
|                                               |                             | Federal funds sold                             |                           |                                            | 21,663  |                              |         |                              | 205    |           |        |         | 0.95 |           |      |           | 6,465   |          |         |         | 99     |       |        |   | 1.53 |     
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|                                               |                             |                                                |                           | Total interest-earning
assets (3)          |         |                              | 523,939 |                              |        |           | 38,651 |         |      |           | 7.37 |           |         |          | 472,867 |         |        |       | 38,031 |   |      |      | 8.04 | 
|                                               | Non-interest earning assets |                                                |                           | 49,995                                     |         |                              |         |                              |        |           |        |         |      |           |      | 48,670    |         |          |         |         |        |       |        |   |     
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|                                               |                             |                                                |                           | Total assets                               |         | $                            | 573,934 |                              |        |           |        |         |      |           |      |           |         | $        | 521,537 |         |        |       |        |   |      |      |      | 
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|Interest-bearing liabilities:                  |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|                                               |                             | Interest-bearing checking and
savings accounts |                           | $                                          | 219,682 |                              |         | $                            | 1,597  |           |        |         | 0.73 | %         |      | $         | 189,356 |          |         | $       | 1,732  |       |        |   | 0.92 | %   
|                                               |                             | Time deposit & IRAs                            |                           |                                            | 128,719 |                              |         |                              | 4,023  |           |        |         | 3.13 |           |      |           | 128,731 |          |         |         | 4,696  |       |        |   | 3.54 |     
|                                               |                             | Borrowed funds                                 |                           |                                            | 29,212  |                              |         |                              | 1,211  |           |        |         | 4.15 |           |      |           | 35,343  |          |         |         | 1,354  |       |        |   | 3.83 |     
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|                                               |                             |                                                |                           | Total interest-bearing liabilities         |         |                              | 377,613 |                              |        |           | 6,831  |         |      |           | 1.81 |           |         |          | 353,430 |         |        |       | 7,782  |   |      |      | 2.19 | 
|                                               |                             | Noninterest-bearing deposits                   |                           |                                            | 138,931 |                              |         |                              |        |           |        |         |      |           |      |           | 114,652 |          |         |         |        |       |        |   |      |     
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|                                               |                             |                                                |                           | Total deposits and borrowed funds          |         |                              | 516,544 |                              |        |           |        |         |      |           |      |           |         |          | 468,082 |         |        |       |        |   |      |      |      | 
|                                               |                             | Other liabilities                              |                           |                                            | 3,492   |                              |         |                              |        |           |        |         |      |           |      |           | 3,550   |          |         |         |        |       |        |   |      |     
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|                                               |                             |                                                |                           | Total liabilities                          |         |                              | 520,036 |                              |        |           |        |         |      |           |      |           |         |          | 471,632 |         |        |       |        |   |      |      |      | 
|                                               |                             | Shareholders equity                           |                           |                                            | 53,898  |                              |         |                              |        |           |        |         |      |           |      |           | 49,905  |          |         |         |        |       |        |   |      |     
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|                                               |                             |                                                |                           | Total liabilities and
shareholders equity |         | $                            | 573,934 |                              |        |           |        |         |      |           |      |           |         | $        | 521,537 |         |        |       |        |   |      |      |      | 
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|Net interest income (taxable equivalent
basis) |                             |                                                |                           |                                            |         | $                            | 31,820  |                              |        |           |        |         |      |           |      |           |         | $        | 30,249  |         |        |       |        |  
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|Net interest income (as reported)              |                             |                                                |                           |                                            |         | $                            | 31,399  |                              |        |           |        |         |      |           |      |           |         | $        | 29,834  |         |        |       |        |  
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|Average yield on average earning
assets (1)    |                             |                                                |                           |                                            |         |                              |         |                              |        |           | 7.37   | %       |      |           |      |           |         |          |         |         |        |       | 8.04   | %
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|Interest expense to average earning
assets     |                             |                                                |                           |                                            |         |                              |         |                              |        |           | 1.30   | %       |      |           |      |           |         |          |         |         |        |       | 1.64   | %
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|Net interest margin (3)                        |                             |                                                |                           |                                            |         |                              |         |                              |        |           | 6.07   | %       |      |           |      |           |         |          |         |         |        |       | 6.40   | %
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  
|Net interest spread                            |                             |                                                |                           |                                            |         |                              |         |                              |        |           | 5.56   | %       |      |           |      |           |         |          |         |         |        |       | 5.85   | %
|                                               |                             |                                                |                           |                                            |         |                              |         |                              |        |           |        |         |      |           |      |           |         |          |         |         |        |       |        |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |         |      |      |      | 
|---------------------------------------------- | --------------------------- | ---------------------------------------------- | ------------------------- | ------------------------------------------ | ------- | ---------------------------- | ------- | --------- | ------ | --------- | ------ | ------- | ---- | ---- | ---- | 
|                                               |                             |                                                |                           |                                            |         | Year Ended December 31, 2001
|                                               |                             |                                                |                           |                                            |         |                             
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        | Interest  |        | Average
|                                               |                             |                                                |                           |                                            |         | Average                      |         | Income or |        | Yields or
|(dollars in thousands)                         |                             | Balance                                        |                           | Expense                                    |         | Rates                       
|                                               |                             |                                                |                           |                                            |         |                             
|Interest-earning assets:                       |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|                                               |                             | Loans (1)                                      |                           | $                                          | 348,239 |                              |         | $         | 32,135 |           |        |         | 9.23 | %   
|                                               |                             | Investment securities                          |                           |                                            |         |                              |         |           |        |           |        |         |      |     
|                                               |                             |                                                | Taxable securities        |                                            |         | 29,049                       |         |           |        | 1,615     |        |         |      | 5.56 |     
|                                               |                             |                                                | Nontaxable securities (2) |                                            |         | 18,375                       |         |           |        | 1,320     |        |         |      | 7.18 |     
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|                                               |                             |                                                |                           | Total investment securities (2)            |         |                              | 47,424  |           |        |           | 2,935  |         |      |      | 6.19 | 
|                                               |                             | Interest-earning balances due
from banks       |                           |                                            | 7,560   |                              |         |           | 417    |           |        |         | 5.52 |     
|                                               |                             | Federal funds sold                             |                           |                                            | 1,101   |                              |         |           | 40     |           |        |         | 3.64 |     
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|                                               |                             |                                                |                           | Total interest-earning
assets (3)          |         |                              | 404,324 |           |        |           | 35,527 |         |      |      | 8.79 | 
|                                               | Non-interest earning assets |                                                |                           | 45,938                                     |         |                              |         |           |        |           |        |         |     
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|                                               |                             |                                                |                           | Total assets                               |         | $                            | 450,262 |           |        |           |        |         |      |      |      | 
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|Interest-bearing liabilities:                  |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|                                               |                             | Interest-bearing checking and
savings accounts |                           | $                                          | 158,286 |                              |         | $         | 3,318  |           |        |         | 2.10 | %   
|                                               |                             | Time deposit & IRAs                            |                           |                                            | 118,758 |                              |         |           | 6,386  |           |        |         | 5.38 |     
|                                               |                             | Borrowed funds                                 |                           |                                            | 34,238  |                              |         |           | 1,880  |           |        |         | 5.49 |     
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|                                               |                             |                                                |                           | Total interest-bearing liabilities         |         |                              | 311,282 |           |        |           | 11,584 |         |      |      | 3.72 | 
|                                               |                             | Noninterest-bearing deposits                   |                           |                                            | 91,731  |                              |         |           |        |           |        |         |      |     
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|                                               |                             |                                                |                           | Total deposits and borrowed funds          |         |                              | 403,013 |           |        |           |        |         |      |      |      | 
|                                               |                             | Other liabilities                              |                           |                                            | 3,259   |                              |         |           |        |           |        |         |      |     
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|                                               |                             |                                                |                           | Total liabilities                          |         |                              | 406,272 |           |        |           |        |         |      |      |      | 
|                                               |                             | Shareholders equity                           |                           |                                            | 43,990  |                              |         |           |        |           |        |         |      |     
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|                                               |                             |                                                |                           | Total liabilities and
shareholders equity |         | $                            | 450,262 |           |        |           |        |         |      |      |      | 
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|Net interest income (taxable equivalent
basis) |                             |                                                |                           |                                            |         | $                            | 23,943  |           |        |           |        |        
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|Net interest income (as reported)              |                             |                                                |                           |                                            |         | $                            | 23,495  |           |        |           |        |        
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|Average yield on average earning
assets (1)    |                             |                                                |                           |                                            |         |                              |         |           |        |           | 8.79   | %      
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|Interest expense to average earning
assets     |                             |                                                |                           |                                            |         |                              |         |           |        |           | 2.87   | %      
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|Net interest margin (3)                        |                             |                                                |                           |                                            |         |                              |         |           |        |           | 5.92   | %      
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        
|Net interest spread                            |                             |                                                |                           |                                            |         |                              |         |           |        |           | 5.07   | %      
|                                               |                             |                                                |                           |                                            |         |                              |         |           |        |           |        |        



---

|(1) |  | Nonaccrual 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 36.6% rat for 2003
and at a 34% rate for 2002 and 2001. 
|   
|(3) |  | Net interest margin is computed by dividing net interest income (taxable equivalent
basis) by total average earning assets.

19





---



##### Table of Contents



Analysis of Changes in Interest Differential.The following table shows
the dollar amount of the increase (decrease) in Columbias net interest income
and expense and attributes such dollar amounts to changes in volume as well as
changes in rates. Rate and volume variances have been allocated proportionally
between rate and volume changes:

Table 7

|                                               |                                                |                       |       |       |                            |        |                            |        |                            |        |       |        |      |        |       |       |      |        |       |        |     |        |       |        |      |        |       |       |      |       |        |        |      |        |       |        |      |       |  
|---------------------------------------------- | ---------------------------------------------- | --------------------- | ----- | ----- | -------------------------- | ------ | -------------------------- | ------ | -------------------------- | ------ | ----- | ------ | ---- | ------ | ----- | ----- | ---- | ------ | ----- | ------ | --- | ------ | ----- | ------ | ---- | ------ | ----- | ----- | ---- | ----- | ------ | ------ | ---- | ------ | ----- | ------ | ---- | ----- | -
|                                               |                                                |                       |       |       | 2003 over 2002             |        | 2002 over 2001             |        | 2001 over 2000            
|                                               |                                                |                       |       |       |                            |        |                            |        |                           
|                                               |                                                |                       |       |       | Increase (Decrease) due to |        | Increase (Decrease) due to |        | Increase (Decrease) due to
|                                               |                                                |                       |       |       |                            |        |                            |        |                           
|                                               |                                                |                       |       |       |                            |        |                            |        |                            |        |       |        | Net  |        |       |       |      |        |       |        |     |        | Net   |        |      |        |       |       |      |       |        |        | Net 
|(dollars in thousands)                         |                                                | Volume                |       | Rate  |                            | Change |                            | Volume |                            | Rate   |       | Change |      | Volume |       | Rate  |      | Change
|                                               |                                                |                       |       |       |                            |        |                            |        |                            |        |       |        |      |        |       |       |      |       
|Interest-earning assets:                       |                                                |                       |       |       |                            |        |                            |        |                            |        |       |        |      |        |       |       |      |        |       |        |     |        |       |        |      |        |       |       |      |       |        |        |      |        |       |       
|                                               | Loans                                          |                       | $     | 3,073 |                            |        | $                          | (1,911 | )                          |        | $     | 1,162  |      |        | $     | 6,595 |      |        | $     | (3,396 | )   |        | $     | 3,199  |      |        | $     | 6,153 |      |       | $      | (3,490 | )    |        | $     | 2,663  |     
|                                               | Investment securities                          |                       |       |       |                            |        |                            |        |                            |        |       |        |      |        |       |       |      |        |       |        |     |        |       |        |      |        |       |       |      |       |        |        |      |        |       |        |      |       |  
|                                               |                                                | Taxable securities    |       |       | (85                        | )      |                            |        | (436                       | )      |       |        | (521 | )      |       |       | (568 | )      |       |        | (12 | )      |       |        | (580 | )      |       |       | (686 | )     |        |        | (102 | )      |       |        | (788 | )    
|                                               |                                                | Nontaxable securities |       |       | (63                        | )      |                            |        | (15                        | )      |       |        | (78  | )      |       |       | (56  | )      |       |        | (7  | )      |       |        | (63  | )      |       |       | (820 | )     |        |        | 784  |        |       |        | (36  | )    
|                                               | Balances due from banks                        |                       |       | 79    |                            |        |                            | (134   | )                          |        |       | (55    | )    |        |       | 178   |      |        |       | (255   | )   |        |       | (77    | )    |        |       | 734   |      |       |        | (792   | )    |        |       | (58    | )   
|                                               | Federal funds sold                             |                       |       | 232   |                            |        |                            | (126   | )                          |        |       | 106    |      |        |       | 195   |      |        |       | (136   | )   |        |       | 59     |      |        |       | (40   | )    |       |        | (30    | )    |        |       | (70    | )   
|                                               |                                                |                       |       |       |                            |        |                            |        |                            |        |       |        |      |        |       |       |      |        |       |        |     |        |       |        |      |        |       |       |      |       |        |        |      |        |       |       
|                                               |                                                |                       | Total |       |                            | 3,236  |                            |        |                            | (2,622 | )     |        |      | 614    |       |       |      | 6,344  |       |        |     | (3,806 | )     |        |      | 2,538  |       |       |      | 5,341 |        |        |      | (3,630 | )     |        |      | 1,711 |  
|                                               |                                                |                       |       |       |                            |        |                            |        |                            |        |       |        |      |        |       |       |      |        |       |        |     |        |       |        |      |        |       |       |      |       |        |        |      |        |       |       
|Interest-bearing liabilities:                  |                                                |                       |       |       |                            |        |                            |        |                            |        |       |        |      |        |       |       |      |        |       |        |     |        |       |        |      |        |       |       |      |       |        |        |      |        |       |       
|                                               | Interest-bearing checking
and savings accounts |                       |       | 377   |                            |        |                            | (512   | )                          |        |       | (135   | )    |        |       | 659   |      |        |       | (2,244 | )   |        |       | (1,585 | )    |        |       | 152   |      |       |        | (1,890 | )    |        |       | (1,738 | )   
|                                               | Time deposits                                  |                       |       | (139  | )                          |        |                            | (534   | )                          |        |       | (673   | )    |        |       | 540   |      |        |       | (2,230 | )   |        |       | (1,690 | )    |        |       | 1,102 |      |       |        | (443   | )    |        |       | 659    |     
|                                               | Borrowed funds                                 |                       |       | (235  | )                          |        |                            | 92     |                            |        |       | (143   | )    |        |       | 60    |      |        |       | (586   | )   |        |       | (526   | )    |        |       | 618   |      |       |        | (212   | )    |        |       | 406    |     
|                                               |                                                |                       |       |       |                            |        |                            |        |                            |        |       |        |      |        |       |       |      |        |       |        |     |        |       |        |      |        |       |       |      |       |        |        |      |        |       |       
|                                               |                                                |                       | Total |       |                            | 3      |                            |        |                            | (954   | )     |        |      | (951   | )     |       |      | 1,259  |       |        |     | (5,060 | )     |        |      | (3,801 | )     |       |      | 1,872 |        |        |      | (2,545 | )     |        |      | (673  | )
|                                               |                                                |                       |       |       |                            |        |                            |        |                            |        |       |        |      |        |       |       |      |        |       |        |     |        |       |        |      |        |       |       |      |       |        |        |      |        |       |       
|Net increase (decrease) in
net interest income |                                                | $                     | 3,233 |       |                            | $      | (1,668                     | )      |                            | $      | 1,565 |        |      | $      | 5,085 |       |      | $      | 1,254 |        |     | $      | 6,339 |        |      | $      | 3,469 |       |      | $     | (1,085 | )      |      | $      | 2,384 |       
|                                               |                                                |                       |       |       |                            |        |                            |        |                            |        |       |        |      |        |       |       |      |        |       |        |     |        |       |        |      |        |       |       |      |       |        |        |      |        |       |       

Net interest income on a tax equivalent basis, before provision for loan
losses, for the year ended December 31, 2003 was $31.82 million, an increase of
5.19% compared to net interest income of $30.25 million in 2002, an increase of
26.34% compared to net interest income of $23.94 million in 2001. The overall
tax-equivalent earning asset yield was 7.37% in 2003 compared to 8.04% in 2002
and 8.79% in 2001. For the same years, rates on interest-bearing liabilities
were 1.81%, 2.19% and 3.72%, respectively. Net interest spread in 2003 was
5.56%, in 2002 it was 5.85% and in 2001 it was 5.07%. The net interest spread
for year 2003, decreased 29 basis points over year 2002, due in large part to
the effect of falling interest rates lowering yields on earning assets and a
reduced ability to parallel reductions in deposit rates.

Total interest-earning assets averaged $523.94 million for the year ended
December 31, 2003, compared to $472.87 million and $404.32 million for the
corresponding periods in 2002 and 2001. Most of the increase occurred in the
loan category. Increases in the loan portfolio are attributed to favorable
interest rates and the execution of Columbias strategy to provide personal,
quality banking products and services, to hire experienced lending personnel in
strategic branch locations and administrative support staff, and to emphasize
marketing strategies.

Average loans, which generally carry a higher yield than investment
securities and other earning assets, comprised 87.06% of average earning assets
during 2003, compared to 88.74% in 2002 and 86.13% in 2001. During the same
periods, average yields on loans were 8.00% in 2003, 8.42% in 2002, and 9.23%
in 2001. Average investment securities comprised 6.24% of average earning
assets in 2003, which was down from 7.62% in 2002 and 11.73% in 2001. Tax
equivalent interest yields on investment securities were 4.95% for 2003, 6.31%
in 2002 and 6.19% in 2001.

Interest-bearing liabilities averaged $377.61 million for the year ended
December 31, 2003, $353.43 million during the same period in 2002 and $311.28
million during the same period in 2001. Interest cost, as a percentage of
earning assets, decreased to 1.30% in 2003, compared to 1.64% in 2002 and 2.87%
in 2001. The decline in interest cost as a percentage of earning assets
resulted from falling interest rates during the previous three years ending
2003. Deposit rates are near historical low levels.

20





---



##### Table of Contents



Provision for Loan Losses

The provision for loan losses represents charges made to earnings to
maintain an adequate allowance for loan losses. The allowance is maintained at
an amount management believes to be sufficient to absorb losses in the loan
portfolio. Factors considered in establishing an appropriate allowance include
a careful assessment of the financial condition of the borrower; a realistic
determination of the value and adequacy of underlying collateral; the condition
of the local economy and the condition of the specific industry of the
borrower; a comprehensive analysis of the levels and trends of loan categories;
and, a review of delinquent and classified loans. Columbia applies a
systematic process for determining the adequacy of the allowance for loan
losses, including an internal loan review function and a quarterly analysis of
the adequacy of the allowance. The quarterly analysis includes determination
of specific potential loss factors on individual classified loans, historical
potential loss factors derived from actual net charge-off experience and trends
in nonperforming loans, and potential loss factors for other loan portfolio
risks such as loan concentrations, the condition of the local economy, and the
nature and volume of loans. For the year ended December 31, 2003 the allowance
for loan losses totaled $6.61 million, compared to $6.42 million at December
31, 2002, and $5.31 million at December 31, 2001. This represents an increase
of 3.05% between 2002 and 2003 and an increase of 20.80% between 2001 and 2002.
A more detailed review of the loan loss provision and allowance for loan
losses is presented in Table 13.

The recorded values of loans actually removed from the consolidated
balance sheets are referred to as charge-offs and, after netting out recoveries
on previously charged-off loans, become net charge-offs. Columbias policy is
to charge off loans when, in managements opinion, the loan or a portion
thereof is deemed uncollectible, although concerted efforts are made to
maximize recovery after the charge-off. When a provision for loan loss is
recorded, the amount is based on past charge-off experience, a careful analysis
of the current portfolio, and an evaluation of economic trends in Columbias
market areas. Management will continue to closely monitor the loan quality of
new and existing relationships through stringent review and evaluation
procedures and by making loan officers accountable for collection efforts.

For the year ended December 31, 2003, loan charge-offs exceeded recoveries
by $2.38 million as compared to 2002 and 2001, when loan charge-offs exceeded
recoveries by $695,024 and $716,226, respectively. The increase in loan losses
is primarily attributable to the write-down of $1.46 million which is real
estate secured. Columbia is working with legal counsel in pursuing a government
guarantee, which also supported the outstanding loan balance. The likelihood
of success in receiving funds pursuant to the government guarantee is currently
not known. Since this guarantee is in dispute, a $1.46 million charge-off was
taken to reduce the loan balance to $1.36 million as determined by a
re-appraisal of the real estate that secures the loan. Information currently
available to management indicates the carrying value of this loan approximates
the fair value of collateral and any additional losses relating to this loan
are expected to be negligible. Columbia believes this write-down is an unusual
or infrequent occurrence.

Noninterest Income

Total noninterest income declined 6.99% from year 2001 through year 2002,
but increased 4.36% from year 2002 through 2003. During the prior three years,
noninterest income changed from $9.19 million in 2001, to $8.55 million in
2002, and to $8.92 million in 2003. Noninterest income is primarily comprised
of five categories; service charges and fees, Mortgage Team net revenues,
credit card discounts and fees, CRB Financial Services Team (Financial
Services Team) revenues, and other noninterest income. Each of the categories
increased during the prior three years, except for Mortgage Team revenues and
other noninterest income. Mortgage Team net revenues declined $2.07 million
from 2001 to 2002, but increased $238,000 from 2002 to 2003. The increase in
Mortgage Team net revenues during 2003 was due to lower amortization expense
and valuation write-downs of CRBs mortgage servicing asset. Management
attributes this to a slow down in the prepayment rates in mortgage loans
serviced due in large part to the slight increase in the mortgage rate
environment. Service charges and fees were $4.31 million for the year 2003,
compared to $4.09 million for the year 2002, and $3.01 million for the year
2001. The growth in service charges and fees were attributable to growth in
deposits and the implementation of an overdraft protection product known as
bounce. The bounce product allows demand deposit customers to overdraw their
accounts within a pre-established limit for a fee. The remainder of the
increases in noninterest income is primarily attributable to improved revenues
and growth received from credit card discounts and fees, financial services fee
income and net gains on the sale of investment securities.

21





---



##### Table of Contents



Noninterest Expense

Noninterest expenses consist principally of salaries and benefits,
occupancy costs, data processing expenses and other noninterest expenses. A
measure of Columbias ability to control noninterest expenses is the efficiency
ratio. For the year ended December 31, 2003, the efficiency ratio was 55.43%,
as compared to 57.26% in 2002 and 60.20% in 2001. The efficiency ratio
reflects an improving trend due to growth in revenue from the net interest
income and efforts by management to monitor and control overhead expenses.

Noninterest expense for 2003 was $22.35 million, as compared to $21.98
million for 2002 and $19.49 million for 2001. The changes in noninterest
expense are primarily the result of an increase in occupancy expense, and other
noninterest expenses. The additional increases relate primarily to costs
associated with growth in operations and continued investment in technology and
communication systems.

Income Taxes

The provision for income taxes was $5.56 million in 2003, $5.22 million in
2002 and $4.38 million in 2001. The provision resulted in effective combined
federal and state tax rates of 36.14% in 2003, 35.77% in 2002, and 37.25% in
2001. The effective tax rates differ from combined estimated statutory rates
of 38% principally due to the effects of nontaxable interest income, which is
recognized for accounting purposes but not for tax purposes.

|        |  |                       
|------- |  | ----------------------
|Table 8 |  | Summary Balance Sheets

|                       |                              |                                            |        |              |         |                     |        |          |         |   |        |          |         |          |       |        |        |          |  |  |  |  |       |        |      |   |       |        |        |  |  |  |  |  |      |        |       |  
|---------------------- | ---------------------------- | ------------------------------------------ | ------ | ------------ | ------- | ------------------- | ------ | -------- | ------- | - | ------ | -------- | ------- | -------- | ----- | ------ | ------ | -------- |  |  |  |  | ----- | ------ | ---- | - | ----- | ------ | ------ |  |  |  |  |  | ---- | ------ | ----- | -
|                       |                              |                                            |        | December 31, |         | Increase (Decrease)
|                       |                              |                                            |        |              |         |                    
|(dollars in thousands) |                              | 2003                                       |        | 2002         |         | 2001                |        | 12/31/02 |         |  |        | 12/31/03 |         | 12/31/01 |       |       |        | 12/31/02
|                       |                              |                                            |        |              |         |                     |        |          |         |  
|ASSETS                 |                              |                                            |        |              |         |                     |        |          |         |   |        |          |         |          |       |        |        |          |  |  |  |  |       |        |      |   |       |        |        |  |  |  |  |  |      |       
|                       | Federal funds sold           |                                            | $      | 14,956       |         |                     | $      | 3,735    |         |   | $      | 1,525    |         |          | $     | 11,221 |        |          |  |  |  |  |       | 300.43 | %    |   | $     | 2,210  |        |  |  |  |  |  |      | 144.92 | %    
|                       | Investments                  |                                            |        | 31,682       |         |                     |        | 36,048   |         |   |        | 43,532   |         |          |       | (4,366 | )      |          |  |  |  |  |       | (12.11 | )    |   |       | (7,484 | )      |  |  |  |  |  |      | (17.19 | )    
|                       | Total loans, net             |                                            |        | 464,350      |         |                     |        | 432,687  |         |   |        | 380,283  |         |          |       | 31,663 |        |          |  |  |  |  |       | 7.32   |      |   |       | 52,404 |        |  |  |  |  |  |      | 13.78  |      
|                       | Other assets (1)             |                                            |        | 73,148       |         |                     |        | 71,856   |         |   |        | 56,867   |         |          |       | 1,292  |        |          |  |  |  |  |       | 1.80   |      |   |       | 14,989 |        |  |  |  |  |  |      | 26.36  |      
|                       |                              |                                            |        |              |         |                     |        |          |         |   |        |          |         |          |       |        |        |          |  |  |  |  |       |        |      |   |       |        |        |  |  |  |  |  |      |       
|                       |                              | Total assets                               |        | $            | 584,136 |                     |        | $        | 544,326 |   |        | $        | 482,207 |          |       | $      | 39,810 |          |  |  |  |  |       |        | 7.31 | % |       | $      | 62,119 |  |  |  |  |  |      |        | 12.88 | %
|                       |                              |                                            |        |              |         |                     |        |          |         |   |        |          |         |          |       |        |        |          |  |  |  |  |       |        |      |   |       |        |        |  |  |  |  |  |      |       
|LIABILITIES            |                              |                                            |        |              |         |                     |        |          |         |   |        |          |         |          |       |        |        |          |  |  |  |  |       |        |      |   |       |        |        |  |  |  |  |  |      |       
|                       | Noninterest-bearing
deposits |                                            | $      | 150,425      |         |                     | $      | 131,831  |         |   | $      | 108,522  |         |          | $     | 18,594 |        |          |  |  |  |  |       | 14.10  | %    |   | $     | 23,309 |        |  |  |  |  |  |      | 21.48  | %    
|                       | Interest-bearing deposits    |                                            |        | 345,933      |         |                     |        | 326,793  |         |   |        | 286,113  |         |          |       | 19,140 |        |          |  |  |  |  |       | 5.86   |      |   |       | 40,680 |        |  |  |  |  |  |      | 14.22  |      
|                       |                              |                                            |        |              |         |                     |        |          |         |   |        |          |         |          |       |        |        |          |  |  |  |  |       |        |      |   |       |        |        |  |  |  |  |  |      |       
|                       |                              | Total deposits                             |        |              | 496,358 |                     |        |          | 458,624 |   |        |          | 394,635 |          |       |        | 37,734 |          |  |  |  |  |       |        | 8.23 |   |       |        | 63,989 |  |  |  |  |  |      |        | 16.21 |  
|                       | Other liabilities (2)        |                                            |        | 29,974       |         |                     |        | 35,512   |         |   |        | 41,127   |         |          |       | (5,538 | )      |          |  |  |  |  |       | (15.59 | )    |   |       | (5,615 | )      |  |  |  |  |  |      | (13.65 | )    
|                       |                              |                                            |        |              |         |                     |        |          |         |   |        |          |         |          |       |        |        |          |  |  |  |  |       |        |      |   |       |        |        |  |  |  |  |  |      |       
|                       |                              | Total liabilities                          |        |              | 526,332 |                     |        |          | 494,136 |   |        |          | 435,762 |          |       |        | 32,196 |          |  |  |  |  |       |        | 6.52 |   |       |        | 58,374 |  |  |  |  |  |      |        | 13.40 |  
|SHAREHOLDERS
EQUITY   |                              |                                            | 57,804 |              |         |                     | 50,190 |          |         |   | 46,445 |          |         |          | 7,614 |        |        |          |  |  |  |  | 15.17 |        |      |   | 3,745 |        |        |  |  |  |  |  | 8.06 |       
|                       |                              |                                            |        |              |         |                     |        |          |         |   |        |          |         |          |       |        |        |          |  |  |  |  |       |        |      |   |       |        |        |  |  |  |  |  |      |       
|                       |                              | Total liabilities and
shareholders equity |        | $            | 584,136 |                     |        | $        | 544,326 |   |        | $        | 482,207 |          |       | $      | 39,810 |          |  |  |  |  |       |        | 7.31 | % |       | $      | 62,119 |  |  |  |  |  |      |        | 12.88 | %
|                       |                              |                                            |        |              |         |                     |        |          |         |   |        |          |         |          |       |        |        |          |  |  |  |  |       |        |      |   |       |        |        |  |  |  |  |  |      |       

(1)  Includes cash and due from banks, property and equipment, and accrued interest receivable.

(2)  Includes accrued interest payable and other liabilities.

22





---



##### Table of Contents



Financial Condition
Investments

A year-to-year comparison shows that Columbias investment securities at
December 31, 2003, totaled $31.68 million, compared to $36.05 million at
December 31, 2002, and $43.53 million at December 31, 2001. This represents a
decrease of 12.11% between 2002 and 2003 and a decrease of 17.19% between 2001
and 2002. The decrease in the investment portfolio is primarily a function of
call provisions that were being exercised during the prior two years of falling
interest rates. For the years ended December 31, 2003, 2002 and 2001, no
single investment security held by Columbia equaled or exceeded 10% of it
consolidated shareholders equity. On December 31, 2003, investments in
federal funds sold (an overnight investment) were $14.96 million and
investments in restricted stock were $2.84 million. The balance of federal
funds sold is influenced by cash demands, customer deposit levels, loan
activity, and other investment transactions.

Columbia follows a financial accounting principle which requires that
investment securities be identified as held-to-maturity or available-for-sale.
Held-to-maturity securities are those that Columbia has the intent and ability
to hold until they mature or are called. Available-for-sale securities are
those that management may sell if liquidity requirements dictate or if
alternative investment opportunities arise. Management determines the mix of
available-for-sale and held-to-maturity investment securitiesbased on the
Board of Directors asset-liability policy, managements assessment of the
relative liquidity of Columbia, and other factors.

At December 31, 2003, the investment portfolio, excluding restricted
equity securities, consisted of 48.11% available-for-sale securities and 51.89%
held-to-maturity securities. At December 31, 2002, the portfolio consisted of
44.23% available-for-sale securities and 55.77% held-to-maturity securities.
At December 31, 2001, Columbias investment portfolio, excluding restricted
equity securities, consisted of 45.36% available-for-sale securities and 54.64%
held-to-maturity securities.

At December 31, 2003, Columbias investment portfolio had total net
unrealized gains of approximately $961,000. This compares to net unrealized
gains of approximately $1.10 million at December 31, 2002 and net unrealized
gains of $707,000 at December 31, 2001. Unrealized gains and losses reflect
changes in market conditions and do not represent the amount of actual profits
or losses. Actual realized gains and losses occur at the time investment
securities are sold or called.

Federal funds sold are short-term investments that mature on a daily
basis. Columbia invests in these instruments to provide for additional
earnings on excess available cash balances. Because of their short maturities,
the balance of federal funds sold fluctuates dramatically on a day-to-day
basis. The balance on any one-day is influenced by cash demands, customer
deposit levels, loan activity and other investment transactions. Investments
in federal funds sold totaled $14.96 million at December 31, 2003, compared to
$3.74 million at December 31, 2002, and $1.53 million at December 31, 2001.

23





---



##### Table of Contents



The following table provides the carrying value of Columbias portfolio of
investment securities as of December 31, 2003, 2002, and 2001, respectively.

Table 9

|                                |                                                  |                             |        |              |        |              |        |              |        |  |        |        |        | 
|------------------------------- | ------------------------------------------------ | --------------------------- | ------ | ------------ | ------ | ------------ | ------ | ------------ | ------ |  | ------ | ------ | ------ | 
|                                |                                                  |                             |        | December 31, |        | December 31, |        | December 31,
|(dollars in thousands)          |                                                  | 2003                        |        | 2002         |        | 2001        
|                                |                                                  |                             |        |              |        |             
|Investments available-for-sale: |                                                  |                             |        |              |        |              |        |              |        |  |        |       
|                                | U.S. Government obligations                      |                             | $      | 13,004       |        |              | $      | 11,644       |        |  | $      | 14,208 |       
|                                | Municipal securities                             |                             |        | 793          |        |              |        | 1,727        |        |  |        | 1,997  |       
|                                | Corporate equity securities                      |                             |        | 79           |        |              |        | 113          |        |  |        | 300    |       
|                                | Corporate debt securities                        |                             |        |             |        |              |        | 1,266        |        |  |        | 1,281  |       
|                                | U.S. Treasury securities                         |                             |        |             |        |              |        |             |        |  |        | 1,016  |       
|                                |                                                  |                             |        |              |        |              |        |              |        |  |        |       
|                                |                                                  |                             | 13,876 |              |        |              | 14,750 |              |        |  | 18,802 |       
|                                |                                                  |                             |        |              |        |              |        |              |        |  |        |       
|Investments held-to-maturity:   |                                                  |                             |        |              |        |              |        |              |        |  |        |       
|                                | Obligations of states and political subdivisions |                             |        | 13,016       |        |              |        | 14,748       |        |  |        | 15,742 |       
|                                | Mortgage-backed securities                       |                             |        | 1,867        |        |              |        | 3,770        |        |  |        | 6,916  |       
|                                | U.S. Government obligations                      |                             |        | 81           |        |              |        | 82           |        |  |        |       |       
|                                |                                                  |                             |        |              |        |              |        |              |        |  |        |       
|                                |                                                  |                             | 14,964 |              |        |              | 18,600 |              |        |  | 22,658 |       
|                                |                                                  |                             |        |              |        |              |        |              |        |  |        |       
|Restricted equity securities    |                                                  |                             | 2,842  |              |        |              | 2,698  |              |        |  | 2,072  |       
|                                |                                                  |                             |        |              |        |              |        |              |        |  |        |       
|                                |                                                  | Total investment securities |        | $            | 31,682 |              |        | $            | 36,048 |  |        | $      | 43,532 | 
|                                |                                                  |                             |        |              |        |              |        |              |        |  |        |       

The maturities of investment securities, segmented by amortized cost,
estimated fair value, and tax equivalent yields, were as follows as of the
dates indicated:

Table 10

|                                                  |                   |                       |       |                   |        |                   |       |                   |        |            |  |           |      |      |       |            |        |           |       |        |        |  |  |      |      |   |       |        |        |  |       |        |        |  |  |      |      |  
|------------------------------------------------- | ----------------- | --------------------- | ----- | ----------------- | ------ | ----------------- | ----- | ----------------- | ------ | ---------- |  | --------- | ---- | ---- | ----- | ---------- | ------ | --------- | ----- | ------ | ------ |  |  | ---- | ---- | - | ----- | ------ | ------ |  | ----- | ------ | ------ |  |  | ---- | ---- | -
|                                                  |                   |                       |       | December 31, 2003 |        | December 31, 2002 |       | December 31, 2001
|                                                  |                   |                       |       |                   |        |                   |       |                  
|                                                  |                   |                       |       | Amortized         |        | 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. Treasuries and
agencies:                     |                   |                       |       |                   |        |                   |       |                   |        |            |  |           |      |      |       |            |        |           |       |        |        |  |  |      |      |   |       |        |        |  |       |        |        |  |  |     
|                                                  | One year or less  |                       | $     |                  |        |                   | $     |                  |        |            |  |          |      |      | $     |           |        |           | $     |       |        |  |  |     |      |   | $     | 1,004  |        |  | $     | 1,016  |        |  |  | 1.88 | %   
|U.S. Government
agencies:                         |                   |                       |       |                   |        |                   |       |                   |        |            |  |           |      |      |       |            |        |           |       |        |        |  |  |      |      |   |       |        |        |  |       |        |        |  |  |     
|                                                  | One year or less  |                       |       | 8,402             |        |                   |       | 8,458             |        |            |  | 2.27      | %    |      |       | 9,809      |        |           |       | 10,034 |        |  |  | 2.98 | %    |   |       | 7,479  |        |  |       | 7,592  |        |  |  | 3.80 | %   
|                                                  | One to five years |                       |       | 6,526             |        |                   |       | 6,555             |        |            |  | 2.67      | %    |      |       | 5,461      |        |           |       | 5,530  |        |  |  | 2.50 | %    |   |       | 11,808 |        |  |       | 12,127 |        |  |  | 4.11 | %   
|                                                  | Five to ten years |                       |       |                  |        |                   |       |                  |        |            |  |          |      |      |       |           |        |           |       |       |        |  |  |     |      |   |       | 1,428  |        |  |       | 1,433  |        |  |  | 5.87 | %   
|Obligations of states
and political
subdivisions: |                   |                       |       |                   |        |                   |       |                   |        |            |  |           |      |      |       |            |        |           |       |        |        |  |  |      |      |   |       |        |        |  |       |        |        |  |  |     
|                                                  | One year or less  |                       |       | 865               |        |                   |       | 873               |        |            |  | 5.02      | %    |      |       | 2,212      |        |           |       | 2,250  |        |  |  | 3.38 | %    |   |       | 1,260  |        |  |       | 1,281  |        |  |  | 3.39 | %   
|                                                  | One to five years |                       |       | 2,292             |        |                   |       | 2,418             |        |            |  | 3.82      | %    |      |       | 3,421      |        |           |       | 3,574  |        |  |  | 3.89 | %    |   |       | 5,133  |        |  |       | 5,257  |        |  |  | 5.18 | %   
|                                                  | Five to ten years |                       |       | 9,169             |        |                   |       | 9,816             |        |            |  | 5.83      | %    |      |       | 8,228      |        |           |       | 8,684  |        |  |  | 6.04 | %    |   |       | 4,299  |        |  |       | 4,336  |        |  |  | 6.87 | %   
|                                                  | Over ten years    |                       |       | 1,430             |        |                   |       | 1,520             |        |            |  | 6.37      | %    |      |       | 2,613      |        |           |       | 2,738  |        |  |  | 6.40 | %    |   |       | 6,993  |        |  |       | 7,022  |        |  |  | 7.23 | %   
|Corporate and other debt
securities:              |                   |                       |       |                   |        |                   |       |                   |        |            |  |           |      |      |       |            |        |           |       |        |        |  |  |      |      |   |       |        |        |  |       |        |        |  |  |     
|                                                  | One to five years |                       |       |                  |        |                   |       |                  |        |            |  |          |      |      |       | 1,229      |        |           |       | 1,266  |        |  |  | 2.57 | %    |   |       | 1,234  |        |  |       | 1,281  |        |  |  | 4.25 | %   
|                                                  |                   |                       |       |                   |        |                   |       |                   |        |            |  |           |      |      |       |            |        |           |       |        |        |  |  |      |      |   |       |        |        |  |       |        |        |  |  |     
|                                                  |                   | Total debt securities |       |                   | 28,684 |                   |       |                   | 29,640 |            |  |           | 3.96 | %    |       |            | 32,973 |           |       |        | 34,076 |  |  |      | 4.06 | % |       |        | 40,638 |  |       |        | 41,345 |  |  |      | 4.99 | %
|Corporate equity securities                       |                   |                       | 75    |                   |        |                   | 79    |                   |        |            |  |           |      |      | 113   |            |        |           | 113   |        |        |  |  |      |      |   | 300   |        |        |  | 300   |        |        |  |  |     
|Restricted equity securities                      |                   |                       | 2,843 |                   |        |                   | 2,843 |                   |        |            |  |           |      |      | 2,698 |            |        |           | 2,698 |        |        |  |  |      |      |   | 2,072 |        |        |  | 2,072 |        |        |  |  |     
|                                                  |                   |                       |       |                   |        |                   |       |                   |        |            |  |           |      |      |       |            |        |           |       |        |        |  |  |      |      |   |       |        |        |  |       |        |        |  |  |     
|                                                  |                   | Total securities      |       | $                 | 31,602 |                   |       | $                 | 32,562 |            |  |           |      |      |       | $          | 35,784 |           |       | $      | 36,887 |  |  |      |      |   |       | $      | 43,010 |  |       | $      | 43,717 |  |  |      |      |  
|                                                  |                   |                       |       |                   |        |                   |       |                   |        |            |  |           |      |      |       |            |        |           |       |        |        |  |  |      |      |   |       |        |        |  |       |        |        |  |  |     

(1)  Weighted average yields are stated on a federal tax equivalent basis at a 36.6% rate for 2003 and at a 34% rate for 2002 and 2001,
and have been annualized, where appropriate.

24





---



##### Table of Contents



Loans

Columbias loan policies and procedures establish the basic guidelines
governing its lending operations. Generally, the guidelines address the types
of loans that it seeks, target markets, underwriting and collateral
requirements, terms, interest rate and yield considerations, and compliance
with laws and regulations. All loans or credit lines are subject to approval
procedures and amount limitations. These limitations apply to the borrowers
total outstanding indebtedness to CRB, including the indebtedness of any
guarantor. The policies are reviewed and approved by the Board of Directors of
CRB.

Bank officers are charged with loan origination in compliance with
underwriting standards overseen by the loan administration department and in
conformity with established loan policies. On an annual basis, the Board of
Directors determines the lending authority of the President and the Chief
Credit Officer, who then delegate lending authority to other lending officers.
Such delegated authority may include authority related to loans, letters of
credit, overdrafts, uncollected funds, and such other authority as determined
by the Board, the President or Chief Credit Officer within their delegated
authority.

The Chief Credit Officer has the authority to approve loans up to a
lending limit as set by the Board of Directors. All loans above the lending
limit of the Chief Credit Officer, and up to a certain limit, are reviewed for
approval by the President or Chief Operating Officer. Loans, which exceed this
limit, are subject to review and approval by the Boards Loan Committee. All
loans approved by the Board Loan Committee are reviewed by the full Board at
regularly scheduled meetings. Columbias unsecured legal lending limit was
$8.85 million and its real estate secured lending limit was $14.74 million at
December 31, 2003. Columbia seldom makes loans for an amount approaching its
legal lending limits.

Net outstanding loans totaled $464.35 million at December 31, 2003,
representing an increase of $31.66 million, or 7.32% compared to $432.69
million at December 31, 2002. Loan commitments grew to $182.03 million as of
December 31, 2003, representing an increase of $15.22 million, or 9.12% over
year-end 2002.

Columbias net loan portfolio at December 31, 2003, includes loans secured
by real estate 63.74%, commercial loans 18.67%, agricultural loans 13.88%,
consumer and other loans 5.46%, deferred loan fees (0.32%) and reserve for loan
loss (1.43%). The largest category is concentrated in real estate loans. This
is primarily due to the significant growth of mortgage and commercial real
estate loan activity. Residential mortgage loans usually are temporarily
financed on the balance sheet before being sold to the secondary market. Some
commercial loans are secured by real estate, but are used for purposes other
than financing the purchase of real property, such as inventory financing and
equipment purchases, where real property serves as collateral for the loan.

The following table presents the composition of Columbias loan portfolio,
excluding mortgage loans held for sale, at the dates indicated:

Table 11



|                               |                     |                   |         |                   |         |                   |        |                   |        |        |         |            |         |  |        |       |        |   |         |        |         |  |        |       |        |  
|------------------------------ | ------------------- | ----------------- | ------- | ----------------- | ------- | ----------------- | ------ | ----------------- | ------ | ------ | ------- | ---------- | ------- |  | ------ | ----- | ------ | - | ------- | ------ | ------- |  | ------ | ----- | ------ | -
|                               |                     |                   |         | December 31, 2003 |         | December 31, 2002 |        | December 31, 2001
|                               |                     |                   |         |                   |         |                   |        |                  
|(dollars in thousands)         |                     | Amount            |         | Percentage        |         | Amount            |        | Percentage        |        | Amount |         | Percentage
|                               |                     |                   |         |                   |         |                   |        |                   |        |        |         |           
|Commercial                     |                     | $                 | 86,163  |                   |         |                   | 18.67  | %                 |        | $      | 69,882  |            |         |  | 16.48  | %     |        | $ | 64,163  |        |         |  | 17.76  | %    
|Agricultural                   |                     |                   | 64,059  |                   |         |                   | 13.88  | %                 |        |        | 61,770  |            |         |  | 14.57  | %     |        |   | 54,934  |        |         |  | 15.20  | %    
|Real estate secured loans:     |                     |                   |         |                   |         |                   |        |                   |        |        |         |            |         |  |        |       |        |   |         |        |         |  |        |      
|                               | Commercial property |                   |         | 125,359           |         |                   |        | 27.16             | %      |        |         | 100,918    |         |  |        | 23.81 | %      |   |         | 80,092 |         |  |        | 22.17 | %     
|                               | Farmland            |                   |         | 42,301            |         |                   |        | 9.17              | %      |        |         | 35,748     |         |  |        | 8.43  | %      |   |         | 25,292 |         |  |        | 7.00  | %     
|                               | Construction        |                   |         | 87,427            |         |                   |        | 18.94             | %      |        |         | 91,036     |         |  |        | 21.47 | %      |   |         | 70,474 |         |  |        | 19.50 | %     
|                               | Residential         |                   |         | 34,295            |         |                   |        | 7.43              | %      |        |         | 42,688     |         |  |        | 10.07 | %      |   |         | 44,512 |         |  |        | 12.32 | %     
|                               | Home equity lines   |                   |         | 4,799             |         |                   |        | 1.04              | %      |        |         | 2,102      |         |  |        | 0.50  | %      |   |         | 3,309  |         |  |        | 0.92  | %     
|                               |                     |                   |         |                   |         |                   |        |                   |        |        |         |            |         |  |        |       |        |   |         |        |         |  |        |      
|                               |                     | Total real estate |         |                   | 294,181 |                   |        |                   | 63.74  | %      |         |            | 272,492 |  |        |       | 64.28  | % |         |        | 223,679 |  |        |       | 61.91  | %
|Consumer                       |                     |                   | 18,242  |                   |         |                   | 3.95   | %                 |        |        | 20,937  |            |         |  | 4.94   | %     |        |   | 19,802  |        |         |  | 5.48   | %    
|Other                          |                     |                   | 6,975   |                   |         |                   | 1.51   | %                 |        |        | 6,499   |            |         |  | 1.53   | %     |        |   | 5,251   |        |         |  | 1.45   | %    
|                               |                     |                   |         |                   |         |                   |        |                   |        |        |         |            |         |  |        |       |        |   |         |        |         |  |        |      
|                               |                     | Total loans       |         |                   | 469,620 |                   |        |                   | 101.75 | %      |         |            | 431,580 |  |        |       | 101.80 | % |         |        | 367,829 |  |        |       | 101.80 | %
|                               |                     |                   |         |                   |         |                   |        |                   |        |        |         |            |         |  |        |       |        |   |         |        |         |  |        |      
|Less unearned loan fees        |                     |                   | (1,450  | )                 |         |                   | (0.32  | )%                |        |        | (1,245  | )          |         |  | (0.29  | )%    |        |   | (1,194  | )      |         |  | (0.33  | )%   
|Less allowance for loan losses |                     |                   | (6,612  | )                 |         |                   | (1.43  | )%                |        |        | (6,417  | )          |         |  | (1.51  | )%    |        |   | (5,312  | )      |         |  | (1.47  | )%   
|                               |                     |                   |         |                   |         |                   |        |                   |        |        |         |            |         |  |        |       |        |   |         |        |         |  |        |      
|Loans receivable, net          |                     | $                 | 461,558 |                   |         |                   | 100.00 | %                 |        | $      | 423,918 |            |         |  | 100.00 | %     |        | $ | 361,323 |        |         |  | 100.00 | %    
|                               |                     |                   |         |                   |         |                   |        |                   |        |        |         |            |         |  |        |       |        |   |         |        |         |  |        |      
|Volume change from prior year  |                     |                   |         |                   |         |                   | 8.88   | %                 |        |        |         |            |         |  | 17.32  | %     |        |   |         |        |         |  | 20.49  | %    
|                               |                     |                   |         |                   |         |                   |        |                   |        |        |         |            |         |  |        |       |        |   |         |        |         |  |        |      

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                               |                     |                   |         |                   |         |                   |        |            |        |   |         |        |         |  |        |       |        |  
|------------------------------ | ------------------- | ----------------- | ------- | ----------------- | ------- | ----------------- | ------ | ---------- | ------ | - | ------- | ------ | ------- |  | ------ | ----- | ------ | -
|                               |                     |                   |         | December 31, 2000 |         | December 31, 1999
|                               |                     |                   |         |                   |         |                  
|(dollars in thousands)         |                     | Amount            |         | Percentage        |         | Amount            |        | Percentage
|                               |                     |                   |         |                   |         |                   |        |           
|Commercial                     |                     | $                 | 70,790  |                   |         |                   | 23.61  | %          |        | $ | 60,869  |        |         |  | 23.61  | %    
|Agricultural                   |                     |                   | 44,299  |                   |         |                   | 14.77  | %          |        |   | 37,775  |        |         |  | 14.77  | %    
|Real estate secured loans:     |                     |                   |         |                   |         |                   |        |            |        |   |         |        |         |  |        |      
|                               | Commercial property |                   |         | 58,411            |         |                   |        | 19.48      | %      |   |         | 43,469 |         |  |        | 19.48 | %     
|                               | Farmland            |                   |         | 20,723            |         |                   |        | 6.91       | %      |   |         | 13,270 |         |  |        | 6.91  | %     
|                               | Construction        |                   |         | 41,374            |         |                   |        | 13.80      | %      |   |         | 33,780 |         |  |        | 13.80 | %     
|                               | Residential         |                   |         | 45,612            |         |                   |        | 15.21      | %      |   |         | 36,768 |         |  |        | 15.21 | %     
|                               | Home equity lines   |                   |         | 3,393             |         |                   |        | 1.13       | %      |   |         | 3,027  |         |  |        | 1.13  | %     
|                               |                     |                   |         |                   |         |                   |        |            |        |   |         |        |         |  |        |      
|                               |                     | Total real estate |         |                   | 169,513 |                   |        |            | 56.53  | % |         |        | 130,314 |  |        |       | 56.53  | %
|Consumer                       |                     |                   | 19,195  |                   |         |                   | 6.40   | %          |        |   | 18,086  |        |         |  | 6.40   | %    
|Other                          |                     |                   | 1,690   |                   |         |                   | 0.56   | %          |        |   | 827     |        |         |  | 0.56   | %    
|                               |                     |                   |         |                   |         |                   |        |            |        |   |         |        |         |  |        |      
|                               |                     | Total loans       |         |                   | 305,487 |                   |        |            | 101.87 | % |         |        | 247,871 |  |        |       | 101.87 | %
|                               |                     |                   |         |                   |         |                   |        |            |        |   |         |        |         |  |        |      
|Less unearned loan fees        |                     |                   | (1,028  | )                 |         |                   | (0.34  | )%         |        |   | (891    | )      |         |  | (0.34  | )%   
|Less allowance for loan losses |                     |                   | (4,578  | )                 |         |                   | (1.53  | )%         |        |   | (3,298  | )      |         |  | (1.53  | )%   
|                               |                     |                   |         |                   |         |                   |        |            |        |   |         |        |         |  |        |      
|Loans receivable, net          |                     | $                 | 299,881 |                   |         |                   | 100.00 | %          |        | $ | 243,682 |        |         |  | 100.00 | %    
|                               |                     |                   |         |                   |         |                   |        |            |        |   |         |        |         |  |        |      
|Volume change from prior year  |                     |                   |         |                   |         |                   | 23.06  | %          |        |   |         |        |         |  | 22.62  | %    
|                               |                     |                   |         |                   |         |                   |        |            |        |   |         |        |         |  |        |      

25





---



##### Table of Contents



The following table sets forth Columbias loan portfolio maturities,
excluding mortgage loans held for sale, on fixed rate loans and repricing dates
on variable loans, for the periods indicated:

Table 12

|                                   |                     |                         |        |                   |         |            |        |          |         |       |        |        |         |   |         |         |         | 
|---------------------------------- | ------------------- | ----------------------- | ------ | ----------------- | ------- | ---------- | ------ | -------- | ------- | ----- | ------ | ------ | ------- | - | ------- | ------- | ------- | 
|                                   |                     |                         |        | December 31, 2003
|                                   |                     |                         |        |                  
|                                   |                     |                         |        |                   |         |            |        | One year |         |       |        |        |         |   |         |        
|                                   |                     |                         |        | One year          |         | through    |        | After    |         | Total
|(dollars in thousands)             |                     | or less                 |        | five years        |         | five years |        | loans   
|                                   |                     |                         |        |                   |         |            |        |         
|Commercial loans                   |                     | $                       | 46,734 |                   |         | $          | 27,829 |          |         | $     | 11,600 |        |         | $ | 86,163  |        
|Agricultural loans                 |                     |                         | 52,050 |                   |         |            | 10,806 |          |         |       | 1,203  |        |         |   | 64,059  |        
|Real estate secured loans:         |                     |                         |        |                   |         |            |        |          |         |       |        |        |         |   |         |        
|                                   | Commercial property |                         |        | 33,266            |         |            |        | 37,078   |         |       |        | 55,015 |         |   |         | 125,359 |        
|                                   | Farmland            |                         |        | 7,228             |         |            |        | 12,573   |         |       |        | 22,500 |         |   |         | 42,301  |        
|                                   | Construction        |                         |        | 79,510            |         |            |        | 6,632    |         |       |        | 1,285  |         |   |         | 87,427  |        
|                                   | Residential         |                         |        | 9,937             |         |            |        | 6,291    |         |       |        | 18,067 |         |   |         | 34,295  |        
|                                   | Home equity lines   |                         |        | 2,430             |         |            |        | 428      |         |       |        | 1,941  |         |   |         | 4,799   |        
|                                   |                     |                         |        |                   |         |            |        |          |         |       |        |        |         |   |         |        
|                                   |                     | Total real estate loans |        |                   | 132,371 |            |        |          | 63,002  |       |        |        | 98,808  |   |         |         | 294,181 | 
|Consumer                           |                     |                         | 4,618  |                   |         |            | 11,697 |          |         |       | 1,927  |        |         |   | 18,242  |        
|Other                              |                     |                         | 5,741  |                   |         |            | 47     |          |         |       | 1,187  |        |         |   | 6,975   |        
|                                   |                     |                         |        |                   |         |            |        |          |         |       |        |        |         |   |         |        
|                                   |                     | Total loans             |        | $                 | 241,514 |            |        | $        | 113,381 |       |        | $      | 114,725 |   |         | $       | 469,620 | 
|                                   |                     |                         |        |                   |         |            |        |          |         |       |        |        |         |   |         |        
|Loans with fixed interest rates    |                     |                         |        |                   |         |            |        |          |         |       |        |        |         | $ | 331,423 |        
|Loans with floating interest rates |                     |                         |        |                   |         |            |        |          |         |       |        |        |         |   | 138,197 |        
|                                   |                     |                         |        |                   |         |            |        |          |         |       |        |        |         |   |         |        
|                                   |                     |                         |        |                   |         |            |        |          |         |       |        |        |         | $ | 469,620 |        
|                                   |                     |                         |        |                   |         |            |        |          |         |       |        |        |         |   |         |        

Allowance for Loan and Lease Losses

The reserve for loan losses is established through a provision for loan
losses charged to expense based on an overall assessment of Columbias credit
portfolio and on the quality of individual loans within that portfolio. The
reserve is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience.
Management charges loans against the reserve when they determine that the
principal or a portion thereof may be uncollectible. Accrual of interest is
discontinued on a loan when management believes, after considering economic and
business conditions, collection efforts and collateral position that the
borrowers financial condition is such that collection of interest is doubtful.

Columbia follows guidance from the Interagency Policy Statement issued by
the Federal Financial Institutions Examination Council (FFIEC) regarding
Allowance for Loan and Lease Losses Methodologies. On a quarterly basis,
management determines the appropriate allowance for loan and lease losses using
the following three methodologies:



| |  |  | Loss allocation to groups of loans by internal risk grade
| | - |  | ---------------------------------------------------------
|
| |  |  | Loss allocation by loan type                             
|
| |  |  | Loss allocation by historical loss percentage            

Managements determination of the adequacy of the reserve is based on an
assessment of the risk in the portfolio given the conditions at the time. This
assessment consists of certain loans and leases being evaluated on an
individual basis, as well as all loans being categorized based on common credit
risk attributes and as a group. The adequacy of the allowance is monitored on
an ongoing basis and is based on managements evaluation of numerous factors.
These factors include the quality of the current loan
portfolio, the trend in the loan portfolios risk ratings, current economic
conditions, loan concentrations, loan growth rates, past-due and non-performing
trends, evaluations of specific loss estimates for all

26





---



##### Table of Contents



significant problem
loans, historical charge-off and recovery experience and other pertinent
information.

The following table shows Columbias loan loss experience for the periods
indicated:

Table 13

|                                                                  |                                  |                         |         |                          |        |      |         |      |      |      |         |      |      |   |         |      |      |   |         |     |      |  
|----------------------------------------------------------------- | -------------------------------- | ----------------------- | ------- | ------------------------ | ------ | ---- | ------- | ---- | ---- | ---- | ------- | ---- | ---- | - | ------- | ---- | ---- | - | ------- | --- | ---- | -
|                                                                  |                                  |                         |         | Years Ended December 31,
|(dollars in thousands)                                            |                                  | 2003                    |         | 2002                     |        | 2001 |         | 2000 |      | 1999
|                                                                  |                                  |                         |         |                          |        |      |         |      |      |     
|Loans outstanding at end of period, net of
unearned loan fees (1) |                                  | $                       | 470,962 |                          |        | $    | 439,104 |      |      | $    | 385,595 |      |      | $ | 304,459 |      |      | $ | 250,274 |    
|                                                                  |                                  |                         |         |                          |        |      |         |      |      |      |         |      |      |   |         |      |      |   |         |    
|Average loans outstanding for the period (1)                      |                                  | $                       | 456,137 |                          |        | $    | 419,608 |      |      | $    | 348,239 |      |      | $ | 288,058 |      |      | $ | 222,276 |    
|                                                                  |                                  |                         |         |                          |        |      |         |      |      |      |         |      |      |   |         |      |      |   |         |    
|Reserve for loan losses balance, beginning of year                |                                  | $                       | 6,417   |                          |        | $    | 5,312   |      |      | $    | 4,578   |      |      | $ | 3,298   |      |      | $ | 2,380   |    
|                                                                  |                                  |                         |         |                          |        |      |         |      |      |      |         |      |      |   |         |      |      |   |         |    
|Loans charged off:                                                |                                  |                         |         |                          |        |      |         |      |      |      |         |      |      |   |         |      |      |   |         |    
|                                                                  | Commercial                       |                         |         | (417                     | )      |      |         | (319 | )    |      |         | (587 | )    |   |         | (139 | )    |   |         | (41 | )   
|                                                                  | Real estate                      |                         |         | (1,569                   | )      |      |         | (197 | )    |      |         | (56  | )    |   |         | (14  | )    |   |         | (15 | )   
|                                                                  | Real estate construction         |                         |         |                         |        |      |         | (58  | )    |      |         |     |      |   |         |     |      |   |         |    |     
|                                                                  | Agriculture                      |                         |         | (40                      | )      |      |         | (15  | )    |      |         | (79  | )    |   |         | (256 | )    |   |         | (26 | )   
|                                                                  | Consumer loans                   |                         |         | (412                     | )      |      |         | (206 | )    |      |         | (20  | )    |   |         | (8   | )    |   |         | (57 | )   
|                                                                  | Credit card and related accounts |                         |         | (96                      | )      |      |         | (91  | )    |      |         | (57  | )    |   |         | (42  | )    |   |         | (43 | )   
|                                                                  |                                  |                         |         |                          |        |      |         |      |      |      |         |      |      |   |         |      |      |   |         |    
|                                                                  |                                  | Total loans charged off |         |                          | (2,534 | )    |         |      | (886 | )    |         |      | (799 | ) |         |      | (459 | ) |         |     | (182 | )
|                                                                  |                                  |                         |         |                          |        |      |         |      |      |      |         |      |      |   |         |      |      |   |         |    
|Recoveries:                                                       |                                  |                         |         |                          |        |      |         |      |      |      |         |      |      |   |         |      |      |   |         |    
|                                                                  | Commercial                       |                         |         | 50                       |        |      |         | 97   |      |      |         | 71   |      |   |         | 6    |      |   |         | 32  |     
|                                                                  | Real estate                      |                         |         | 35                       |        |      |         |     |      |      |         | 1    |      |   |         |     |      |   |         |    |     
|                                                                  | Real estate construction         |                         |         |                         |        |      |         | 6    |      |      |         |     |      |   |         |     |      |   |         |    |     
|                                                                  | Agriculture                      |                         |         | 28                       |        |      |         | 11   |      |      |         |     |      |   |         | 30   |      |   |         | 48  |     
|                                                                  | Consumer loans                   |                         |         | 31                       |        |      |         | 72   |      |      |         | 5    |      |   |         | 3    |      |   |         | 3   |     
|                                                                  | Credit card and related accounts |                         |         | 10                       |        |      |         | 5    |      |      |         | 6    |      |   |         | 3    |      |   |         | 12  |     
|                                                                  |                                  |                         |         |                          |        |      |         |      |      |      |         |      |      |   |         |      |      |   |         |    
|                                                                  |                                  | Total recoveries        |         |                          | 154    |      |         |      | 191  |      |         |      | 83   |   |         |      | 42   |   |         |     | 95   |  
|                                                                  |                                  |                         |         |                          |        |      |         |      |      |      |         |      |      |   |         |      |      |   |         |    
|Net charge offs                                                   |                                  |                         | (2,380  | )                        |        |      | (695    | )    |      |      | (716    | )    |      |   | (417    | )    |      |   | (87     | )  
|Provision charged to operations                                   |                                  |                         | 2,575   |                          |        |      | 1,800   |      |      |      | 1,450   |      |      |   | 1,697   |      |      |   | 1,005   |    
|                                                                  |                                  |                         |         |                          |        |      |         |      |      |      |         |      |      |   |         |      |      |   |         |    
|Allowance for loan losses balance, end of period                  |                                  | $                       | 6,612   |                          |        | $    | 6,417   |      |      | $    | 5,312   |      |      | $ | 4,578   |      |      | $ | 3,298   |    
|                                                                  |                                  |                         |         |                          |        |      |         |      |      |      |         |      |      |   |         |      |      |   |         |    
|Ratio of net loans charged-off to
average loans outstanding       |                                  |                         | 0.52    | %                        |        |      | 0.17    | %    |      |      | 0.21    | %    |      |   | 0.14    | %    |      |   | 0.04    | %  
|Ratio of allowance for loan losses to loans at
end of period      |                                  |                         | 1.40    | %                        |        |      | 1.46    | %    |      |      | 1.38    | %    |      |   | 1.50    | %    |      |   | 1.32    | %  

(1)  Includes loans held-for-sale.

The adequacy of the reserve for loan losses should be measured in the
context of several key ratios: (1) the ratio of the reserve to total
outstanding loans; (2) the ratio of total nonperforming loans to total loans;
and, (3) the ratio of net charge-offs to average loans outstanding. Since
1999, Columbias ratio of the reserve for loan losses to total loans has ranged
from 1.32% to 1.50%. The amounts provided by these ratios have been sufficient
to fund Columbias charge-offs, which have not been historically significant,
and to provide for potential losses as the loan portfolio has grown. These
ratios have also been consistent with the level of nonperforming loans to total
loans. From December 31, 1999 through December 31, 2003, nonperforming loans
to total loans have ranged from a low of 0.18% to a high of
0.71%. This experience tracks with changes in the ratio of the reserve for
loan losses to total loans and with the actual balances maintained in the
reserve account. Finally, Columbias historical ratio of net charge-offs to
average outstanding loans illustrates its favorable loan charge-off and
recovery experience. From December 31, 1999 through December 31, 2003, net
charge-offs ranged from 0.04% to 0.52% of average loans. Management believes
Columbias loan underwriting policies and its loan officers knowledge of their
customers are significant contributors to Columbias success in limiting loan
losses.

During the year ended December 31, 2003, Columbia recognized $2.53
million in loan losses and $154,034 in recoveries for a net charge-off of $2.38
million. The increase in loan losses is primarily

27





---



##### Table of Contents



attributable to the
write-down of $1.46 million on a single real estate secured loan; the amount of
the write-down represents the principal amount of the loan less the appraised
value of the related collateral. Columbia is working with legal counsel in
pursing a government guarantee, which also supported the outstanding loan
balance. The likelihood of success in receiving funds pursuant to the
government guarantee is currently not known. Information currently available
to management suggests that the carrying value of this loan approximates the
fair value of collateral and any additional losses relating to this loan are
expected to be negligible. Management believes this write-down is an unusual
or infrequent occurrence. Aside from this single loan, net charge-offs were
consistent with Columbias historical experience in view of the growth in its
loan portfolio.

The following table presents information with respect to nonperforming
loans and other assets:

Table 14

|                                                                             |                            |      |              |       |  |      |        |      |  |      |        |       |  |   |        |       |  |   |        |     | 
|---------------------------------------------------------------------------- | -------------------------- | ---- | ------------ | ----- |  | ---- | ------ | ---- |  | ---- | ------ | ----- |  | - | ------ | ----- |  | - | ------ | --- | 
|                                                                             |                            |      | December 31,
|(dollars in thousands)                                                       |                            | 2003 |              | 2002  |  | 2001 |        | 2000 |  | 1999
|                                                                             |                            |      |              |       |  |      |        |      |  |     
|Loans on nonaccrual status                                                   |                            | $    | 3,292        |       |  | $    | 742    |      |  | $    | 890    |       |  | $ | 1,163  |       |  | $ | 394    |    
|Loans past due  greater than 90 days                                        |                            |      |             |       |  |      | 5      |      |  |      |       |       |  |   | 7      |       |  |   |       |    
|Restructured loans                                                           |                            |      | 10           |       |  |      | 25     |      |  |      | 113    |       |  |   | 116    |       |  |   | 202    |    
|                                                                             |                            |      |              |       |  |      |        |      |  |      |        |       |  |   |        |       |  |   |        |    
|                                                                             | Total nonperforming loans  |      |              | 3,302 |  |      |        | 772  |  |      |        | 1,003 |  |   |        | 1,286 |  |   |        | 596 | 
|Other real estate owned                                                      |                            |      | 42           |       |  |      |       |      |  |      | 349    |       |  |   |       |       |  |   |       |    
|                                                                             |                            |      |              |       |  |      |        |      |  |      |        |       |  |   |        |       |  |   |        |    
|                                                                             | Total nonperforming assets |      | $            | 3,344 |  |      | $      | 772  |  |      | $      | 1,352 |  |   | $      | 1,286 |  |   | $      | 596 | 
|                                                                             |                            |      |              |       |  |      |        |      |  |      |        |       |  |   |        |       |  |   |        |    
|Allowance for loans losses                                                   |                            | $    | 6,612        |       |  | $    | 6,417  |      |  | $    | 5,312  |       |  | $ | 4,578  |       |  | $ | 3,298  |    
|Ratio of total nonperforming assets to
total assets                          |                            |      | 0.57         | %     |  |      | 0.14   | %    |  |      | 0.28   | %     |  |   | 0.31   | %     |  |   | 0.16   | %  
|Ratio of total nonperforming loans to
total loans, net of unearned loan fees |                            |      | 0.71         | %     |  |      | 0.18   | %    |  |      | 0.26   | %     |  |   | 0.43   | %     |  |   | 0.24   | %  
|Ratio of reserve for loan losses to
total nonperforming assets               |                            |      | 197.74       | %     |  |      | 830.73 | %    |  |      | 392.82 | %     |  |   | 355.95 | %     |  |   | 553.45 | %  

Columbia has adopted a policy for placement of loans on nonaccrual status
after they become 90 days past due unless an exception is made to the policy.
Further, management may place loans that are not contractually past due or that
are deemed fully collateralized on nonaccrual status to promote better
oversight and review of loan arrangements. Loans on nonaccrual status at
December 31, 2003 totaled approximately $3,292,000 compared to $742,000 at
December 31, 2002 and $890,000 at December 31, 2001. The increase in
nonaccrual loans is attributable to the single real estate secured loan for
$1.36 million, mentioned above.

Management has adopted procedures to identify and monitor loans that have
had their original terms restructured to accommodate borrowers financial
needs. Loan revisions and modifications are provided to meet the credit needs
of borrowers in weakened financial condition and to enhance ultimate
collection. As of December 31, 2003, loans that had been classified as
restructured were insignificant and were performing in accordance with their
restructured terms. However, management will continue to monitor restructured
loans for any changes or deterioration in performance.

At December 31, 2002, 2000, and 1999 Columbia had no assets in the other
real estate owned (OREO) category. There was $41,500 in OREO at December 31,
2003 and $349,000 at December 31, 2001, which represents assets acquired
through loan foreclosure or recovery activities.

28





---



##### Table of Contents



Deposits

The following table sets forth composition of Columbias deposit balances
for the dates indicated:

Table 15

|                                    |                                                         |        |                   |            |                   |        |                   |            |   |        |         |            |  |  |       |        |   |   |         |         |  |  |       |        |  
|----------------------------------- | ------------------------------------------------------- | ------ | ----------------- | ---------- | ----------------- | ------ | ----------------- | ---------- | - | ------ | ------- | ---------- |  |  | ----- | ------ | - | - | ------- | ------- |  |  | ----- | ------ | -
|                                    |                                                         |        | December 31, 2003 |            | December 31, 2002 |        | December 31, 2001
|                                    |                                                         |        |                   |            |                   |        |                  
|(dollars in thousands)              |                                                         | Amount |                   | Percentage |                   | Amount |                   | Percentage |   | Amount |         | Percentage
|                                    |                                                         |        |                   |            |                   |        |                   |            |   |        |         |           
|Interest-bearing demand deposits    |                                                         | $      | 187,452           |            |                   |        | 37.76             | %          |   | $      | 182,341 |            |  |  | 39.76 | %      |   | $ | 136,968 |         |  |  | 34.71 | %     
|Savings deposits                    |                                                         |        | 35,733            |            |                   |        | 7.20              |            |   |        | 32,940  |            |  |  | 7.18  |        |   |   | 32,237  |         |  |  | 8.17  |       
|Time deposits less than $100,000    |                                                         |        | 84,414            |            |                   |        | 17.01             |            |   |        | 66,766  |            |  |  | 14.56 |        |   |   | 79,451  |         |  |  | 20.13 |       
|Time deposits greater than $100,000 |                                                         |        | 38,334            |            |                   |        | 7.72              |            |   |        | 44,746  |            |  |  | 9.76  |        |   |   | 37,458  |         |  |  | 9.49  |       
|                                    |                                                         |        |                   |            |                   |        |                   |            |   |        |         |            |  |  |       |        |   |   |         |         |  |  |       |       
|                                    | Total interest-bearing
deposits                         |        |                   | 345,933    |                   |        |                   | 69.69      |   |        |         | 326,793    |  |  |       | 71.26  |   |   |         | 286,114 |  |  |       | 72.50  |  
|                                    | Total noninterest-bearing
deposits                      |        |                   | 150,425    |                   |        |                   | 30.31      |   |        |         | 131,831    |  |  |       | 28.74  |   |   |         | 108,522 |  |  |       | 27.50  |  
|                                    |                                                         |        |                   |            |                   |        |                   |            |   |        |         |            |  |  |       |        |   |   |         |         |  |  |       |       
|                                    | Total
interest-bearing and
noninterest-bearing
deposits |        | $                 | 496,358    |                   |        |                   | 100.00     | % |        | $       | 458,624    |  |  |       | 100.00 | % |   | $       | 394,636 |  |  |       | 100.00 | %
|                                    |                                                         |        |                   |            |                   |        |                   |            |   |        |         |            |  |  |       |        |   |   |         |         |  |  |       |       

At December 31, 2003, total deposits were $496.36 million, an increase of
$37.73 million or 8.23%, from total deposits of $458.62 million at December 31,
2002. The total deposits at December 31, 2002 of $458.62 million represent an
increase of $63.99 million or $16.21%, from total deposits of $394.64 million
at December 31, 2001. Deposit growth in 2003, 2002 and 2001 was due to a
combination of pricing strategies, increased marketing and emphasis on the
sales culture within the branches. The growth in deposit accounts in 2003 has
primarily been in noninterest-bearing and time deposits less than $100,000
accounts. To the extent Columbia can fund operations with noninterest-bearing
demand deposits, net interest spread, which is the difference between interest
income and interest expense, will improve. At December 31, 2003, core
deposits, which consist of all demand deposit accounts, savings accounts and
certificates of deposit less than $100,000, accounted for 92.28% of total
deposits, up from 90.24% as of December 31, 2002.

Interest-bearing deposits consist of money market, savings, and time
certificate accounts. Interest-bearing account balances tend to grow or
decline as Columbia adjusts its pricing and product strategies based on market
conditions, including competing deposit products. At December 31, 2003, total
interest-bearing deposit accounts were $345.93 million, an increase of $19.14
million, or 5.86%, from December 31, 2002. Increases in interest-bearing,
savings and time deposits less than $100,000 accounts offset a decline in time
deposits in excess of $100,000 accounts. Interest-bearing demand accounts
increased $5.11 million, or 2.80%, from December 31, 2002 to 2003, after
increasing $45.37 million, or 33.13%, from 2001 to 2002.

29





---



##### Table of Contents

\

Columbia does utilize brokered deposits as a source for funding future
loan growth. In most cases, brokered deposit accounts are purchased with a
long-term maturity of two to seven years. Brokered deposits are included in
totals for time deposits less than $100,000 and totaled $26.17 million and
$16.18 million as of December 31, 2003 and 2002, respectively. At December 31,
2003, time certificates of deposits in excess of $100,000 totaled $38.33
million, or 7.72% of total outstanding deposits, compared to $44.75 million, or
9.76%, of total outstanding deposits at December 31, 2002, and $37.46 million,
or 9.49%, of total outstanding deposits at December 31, 2001. The following
table sets forth, by time remaining to maturity, all time certificates of
deposit accounts outstanding at December 31, 2003:

Table 16

|                                      |  |                    |        |                       |  |       |        |  |  |   |         | 
|------------------------------------- |  | ------------------ | ------ | --------------------- |  | ----- | ------ |  |  | - | ------- | 
|                                      |  | Time Deposits      |        | Time Deposits         |  |       |        | 
|(dollars in thousands)                |  | less than $100,000 |        | greater than $100,000 |  | Total
|                                      |  |                    |        |                       |  |      
|Three months or less                  |  | $                  | 15,303 |                       |  | $     | 9,706  |  |  | $ | 25,009  | 
|Over three through six months         |  |                    | 13,337 |                       |  |       | 6,483  |  |  |   | 19,820  | 
|Over six months through twelve months |  |                    | 18,437 |                       |  |       | 5,605  |  |  |   | 24,042  | 
|Over twelve months through five years |  |                    | 35,143 |                       |  |       | 16,426 |  |  |   | 51,569  | 
|Over five years                       |  |                    | 2,194  |                       |  |       | 114    |  |  |   | 2,308   | 
|                                      |  |                    |        |                       |  |       |        |  |  |   |         | 
|                                      |  | $                  | 84,414 |                       |  | $     | 38,334 |  |  | $ | 122,748 | 
|                                      |  |                    |        |                       |  |       |        |  |  |   |         | 

Long-Term and Short-Term Borrowings

The following table sets forth certain information with respect to
Columbias Federal Home Loan Bank of Seattle borrowings.

Table 17

|                                                            |  |              |        |      |  |      |        |   |  |   |        |  
|----------------------------------------------------------- |  | ------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                            |  | December 31,
|                                                            |  |             
|(dollars in thousands)                                      |  | 2003         |        | 2002 |  | 2001
|                                                            |  |              |        |      |  |     
|Amount outstanding at end of period                         |  | $            | 21,133 |      |  | $    | 26,285 |   |  | $ | 35,454 |  
|Weighted-average interest rate at end of
period             |  |              | 3.49   | %    |  |      | 4.16   | % |  |   | 4.00   | %
|Maximum amount outstanding at any
month-end during the year |  | $            | 27,372 |      |  | $    | 50,622 |   |  | $ | 39,172 |  
|Average amount outstanding during the
period                |  | $            | 23,672 |      |  | $    | 28,673 |   |  | $ | 32,626 |  
|Weighted-average interest rate during
the period            |  |              | 3.90   | %    |  |      | 4.05   | % |  |   | 5.26   | %

Short-tem borrowings from Treasury, Tax and Loan totaled $850,000,
$850,000 and $451,000 at December 31, 2003, 2002 and 2001, respectively.

Trust Preferred Securities

In December 2002, Columbia issued $4 million in unsecured subordinated
debentures to its wholly-owned subsidiary, Columbia Bancorp Trust I. The
interest payments on the subordinated debentures are intended to pass-through
Columbia Bancorp Trust I to the beneficial owners of the Columbia Bancorp Trust
I (Trust Preferred Securities). The subordinated debentures and trust
preferred securities have identical rate, terms and conditions -  variable rates
tied to the 90 day LIBOR with a margin of 3.30% and 30 year maturities. The
Trust Preferred Securities are considered Tier I capital for regulatory
purposes. Management entered into this transaction in order to repurchase
328,422 shares of common stock at a price of $12.25 in November 2002 and
maintain regulatory capital within the well-capitalized category as defined
by the Banks regulators.

30





---



##### Table of Contents



Shareholders Equity and Regulatory Capital

Shareholders equity increased $7.61 million during 2003. Shareholders
equity at December 31, 2003 was $57.80 million compared to $50.19 million at
December 31, 2002. This increase reflects net income other and comprehensive
income of $9.69 million and $783,000 in exercised stock options. These
additions to equity were partially offset by cash dividends paid or declared of
$2.82 million.

During 2003, Columbias Board of Directors authorized a program to
repurchase shares of Columbias common stock valued at up to $1.6 million.
Columbia has authorized the repurchase program because the Board of Directors
believes in the long-term value of Columbias stock, and that such repurchase
constitutes a sound investment use of Columbias funds. During 2003, Columbia
repurchased 16,700 shares valued at $247,995. Management expects repurchases to
continue from time to time until June 30, 2004.

The Federal Reserve Board and the Federal Deposit Insurance Corporation
have established minimum requirements for capital adequacy for financial
holding companies and member banks. The requirements address both risk-based
capital and leveraged capital. The regulatory agencies may establish higher
minimum requirements if, for example, a corporation has previously received
special attention or has a high susceptibility to interest rate risk. The
following reflects Columbias various capital ratios at December 31, 2003, and
December 31, 2002, as compared to regulatory minimums for capital adequacy
purposes:

Table 18

|                         |  |                   |       |                   |  |                    |       |   |  |  |      |  
|------------------------ |  | ----------------- | ----- | ----------------- |  | ------------------ | ----- | - |  |  | ---- | -
|                         |  | December 31, 2003 |       | December 31, 2002 |  | Regulatory Minimum
|                         |  |                   |       |                   |  |                   
|Tier I capital           |  |                   | 10.46 | %                 |  |                    | 9.71  | % |  |  | 4.00 | %
|Total risk-based capital |  |                   | 11.71 | %                 |  |                    | 10.96 | % |  |  | 8.00 | %
|Leverage ratio           |  |                   | 9.19  | %                 |  |                    | 8.57  | % |  |  | 4.00 | %

Liquidity and Capital Resources

Columbias management has adopted policies to help maintain liquidity so
that we may respond to changes in the financial environment and ensure
sufficient funds are available to meet our anticipated cash demands, which
ordinarily come from customers needs for borrowing and deposit withdrawals.
Generally, Columbias major sources of liquidity are customer deposits, sales
and maturities of investment securities, and net cash provided by operating
activities. From time to time, Columbia also may draw upon credit lines with
the Federal Home Loan Bank of Seattle and correspondent banks, as well as
brokered certificates of deposit. Scheduled loan repayments are a relatively
stable source of funds, while deposit inflows and unscheduled loan prepayments
are not as stable because they are influenced by general interest rate levels,
competing interest rates available on other investments, market competition,
economic conditions and other factors. Liquid asset balances include cash,
amounts due from other banks, federal funds sold and securities
available-for-sale and securities held-to-maturity with maturities occurring
within three months. At December 31, 2003 these liquid assets totaled $50.66
million or 8.67% of total assets, as compared to $44.54 million or 8.18% of
total assets at December 31, 2002. The total liquid assets of $44.54 million
or 8.18% of total assets as of December 31, 2002 compare to $41.47 million or
8.61% of total assets at December 31, 2001. As of December 31, 2003 and 2002,
unused and available lines of credit totaled $72.95 million and $44.68 million,
respectively. Liquidity was stable during the year 2003 as a result of steady
deposit growth.

The analysis of liquidity also includes a review of the changes that
appear in the consolidated statements of cash flows for the year ended December
31, 2003. The statement of cash flows includes operating, investing, and
financing categories. Operating activities include net income of $9.83
million, which is adjusted for non-cash items and increases or decreases in
cash due to changes in certain assets and liabilities. Investing activities
consist primarily of both proceeds from and purchases of securities and the
impact of the net growth in loans. Financing activities present the cash flows
associated with deposit accounts and reflect various transactions with
shareholders.

31





---



##### Table of Contents



At December 31, 2003, Columbia had outstanding unfunded lending
commitments of $182.03 million. Nearly all of these commitments represented
unused portions of commitments to extend credit to businesses, credit lines
available to consumers under credit card and other arrangements and commercial
and standby letters of credit. Many of these credit lines will not be fully
drawn upon and, accordingly, the aggregate commitments do not necessarily
represent future cash requirements. Management believes that Columbias
sources of liquidity are sufficient to meet likely calls on outstanding
commitments, although there can be no assurance in this regard.

Business Segment Information

Columbia derives revenues from two primary business segments, community
banking and mortgage banking. The following table presents financial
information about each of these business segments for the three most recent
fiscal years.

Table 19

|                                                     |  |           |         |          |  |              |        |   |  |   |         | 
|---------------------------------------------------- |  | --------- | ------- | -------- |  | ------------ | ------ | - |  | - | ------- | 
|                                                     |  | Community |         | Mortgage |  |              |        |  
|(dollars in thousands)                               |  | Banking   |         | Banking  |  | Consolidated
|                                                     |  |           |         |          |  |             
|December 31, 2003                                    |  |           |         |          |  |              |        |   |  |   |         | 
|Net interest income before provision for
loan losses |  | $         | 30,998  |          |  | $            | 401    |   |  | $ | 31,399  | 
|Noninterest income                                   |  |           | 3,808   |          |  |              | 5,116  |   |  |   | 8,924   | 
|Amortization of the mortgage servicing asset         |  |           |        |          |  |              | 2,000  |   |  |   | 2,000   | 
|Impairment of mortgage servicing asset               |  |           |        |          |  |              | 858    |   |  |   | 858     | 
|Salaries and benefits                                |  |           | 10,812  |          |  |              | 2,244  |   |  |   | 13,056  | 
|Occupancy expense, excluding depreciation            |  |           | 749     |          |  |              | 157    |   |  |   | 906     | 
|Depreciation                                         |  |           | 1,250   |          |  |              | 91     |   |  |   | 1,341   | 
|Other noninterest expenses                           |  |           | 6,541   |          |  |              | 506    |   |  |   | 7,047   | 
|Income before provision for income taxes             |  |           | 15,737  |          |  |              | (339   | ) |  |   | 15,398  | 
|Total assets                                         |  | $         | 575,463 |          |  | $            | 8,673  |   |  | $ | 584,136 | 
|December 31, 2002                                    |  |           |         |          |  |              |        |   |  |   |         | 
|Net interest income before provision for
loan losses |  | $         | 29,417  |          |  | $            | 417    |   |  | $ | 29,834  | 
|Noninterest income                                   |  |           | 2,780   |          |  |              | 5,771  |   |  |   | 8,551   | 
|Amortization of the mortgage servicing asset         |  |           |        |          |  |              | 1,029  |   |  |   | 1,029   | 
|Impairment of mortgage servicing asset               |  |           |        |          |  |              | 2,781  |   |  |   | 2,781   | 
|Salaries and benefits                                |  |           | 10,310  |          |  |              | 2,750  |   |  |   | 13,060  | 
|Occupancy expense, excluding depreciation            |  |           | 668     |          |  |              | 151    |   |  |   | 819     | 
|Depreciation                                         |  |           | 1,141   |          |  |              | 98     |   |  |   | 1,239   | 
|Other noninterest expenses                           |  |           | 4,195   |          |  |              | 657    |   |  |   | 4,852   | 
|Income before provision for income taxes             |  |           | 15,883  |          |  |              | (1,278 | ) |  |   | 14,605  | 
|Total assets                                         |  | $         | 526,202 |          |  | $            | 18,124 |   |  | $ | 544,326 | 
|December 31, 2001                                    |  |           |         |          |  |              |        |   |  |   |         | 
|Net interest income before provision for
loan losses |  | $         | 22,639  |          |  | $            | 856    |   |  | $ | 23,495  | 
|Noninterest income                                   |  |           | 3,558   |          |  |              | 5,636  |   |  |   | 9,194   | 
|Amortization of the mortgage servicing asset         |  |           |        |          |  |              | 395    |   |  |   | 395     | 
|Impairment of mortgage servicing asset               |  |           |        |          |  |              | 918    |   |  |   | 918     | 
|Salaries and benefits                                |  |           | 8,689   |          |  |              | 2,733  |   |  |   | 11,422  | 
|Occupancy expense, excluding depreciation            |  |           | 576     |          |  |              | 115    |   |  |   | 691     | 
|Depreciation                                         |  |           | 1,065   |          |  |              | 74     |   |  |   | 1,139   | 
|Goodwill amortization                                |  |           | 629     |          |  |              |       |   |  |   | 629     | 
|Other noninterest expenses                           |  |           | 5,918   |          |  |              | 455    |   |  |   | 6,373   | 
|Income before provision for income taxes             |  |           | 9,949   |          |  |              | 1,802  |   |  |   | 11,751  | 
|Total assets                                         |  | $         | 452,260 |          |  | $            | 29,947 |   |  | $ | 482,207 | 

32





---



##### Table of Contents



The Mortgage Team has decreased total assets over the last year to $8.67
million at year end 2003. Assets were $18.12 million and $29.95 million for
years ending 2002 and 2001, respectively. Assets of the Mortgage Team are
primarily comprised of real estate loans in the portfolio, real estate loans
held for sale, mortgage servicing asset, accrued interest receivable, and
furniture and equipment. The mortgage servicing asset as of December 31, 2003,
2002 and 2001, was valued at $3.69 million, $4.61 million and $6.20 million,
respectively. CRB uses a qualified independent third party to value the
mortgage service asset (MSA) in accordance with Statement of Accounting
Standard (SFAS) 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. A qualified independent third
party measures the MSA using information obtained from knowledge of the
secondary servicing market and assesses current transaction values between
willing parties. The techniques used in valuing the MSA incorporate
assumptions relative to prevailing conditions in the secondary servicing
market. The assumptions used for valuing the MSA are gathered from near term
transactions and include prepayment speed forecasts, market discount rates,
earning rates, servicing costs, acquisition costs and ancillary income. The
mortgage servicing asset is amortized in proportion to and over the period of
the estimated life of the net servicing income.

In 2003, the Mortgage Team recorded a loss before income taxes of
$339,000. A loss for the year ended December 31, 2002 was $1.28 million;
income of $1.80 million was recognized in 2001. The Mortgage Teams earnings
in 2003 and 2002 were negatively impacted by higher mortgage servicing asset
amortization and valuation write-downs. This was caused by the prevailing low
mortgage interest rate environment present during the last three years, which
motivated a record number of borrowers to refinance their mortgage loans.
Because borrowers refinance their mortgage loans or pay them off early,
amortization expense is adjusted to properly match the estimated period of the
outstanding net servicing income. In addition, the mortgage servicing asset is
periodically valued based on a fair value assessment as measured by a qualified
and independent entity with access and knowledge of current servicing portfolio
transaction values. During the previous three years ending December 31, 2003,
net valuation write-downs were assessed upon the mortgage servicing asset,
resulting in corresponding charges to the income statement in the amounts of
$917,729, $2.78 million and $858,000, respectively.

Inflation

At this time, Management does not consider the long-term effects of
inflation , as measured by the Consumer Price Index, will be material to
Columbias financial position and results of operations.

Off-Balance Sheet Arrangements

In the normal course of business, Columbia utilizes financial instruments
with off-balance sheet risk to meet the financing needs of its customers,
including loan commitments to extend credit, commercial letters of credit,
standby letters of credit, unused portions of VISA credit cards, and
commitments to fund mortgage loans.

The increase in off-balance sheet items has occurred during the last three
years as a result of growth in the loan portfolio. The table below sets forth
the distribution of Columbias contingent liabilities by off-balance sheet
type. Commitments to extend credit increased primarily due to growth and
expansion of commercial real estate construction lending from our Deschutes
County trade area.

Table 20

|                                         |  |             |         |      |  |      |         |  |  |   |         | 
|---------------------------------------- |  | ----------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                         |  | December 31
|                                         |  |            
|(dollars in thousands)                   |  | 2003        |         | 2002 |  | 2001
|                                         |  |             |         |      |  |     
|Commitments to extend credit             |  | $           | 162,232 |      |  | $    | 148,938 |  |  | $ | 119,551 | 
|Undisbursed credit card lines of credit  |  |             | 17,333  |      |  |      | 15,220  |  |  |   | 12,489  | 
|Commercial and standby letters of
credit |  |             | 2,466   |      |  |      | 2,654   |  |  |   | 1,866   | 
|                                         |  |             |         |      |  |      |         |  |  |   |         | 
|Total                                    |  | $           | 182,031 |      |  | $    | 166,812 |  |  | $ | 133,906 | 
|                                         |  |             |         |      |  |      |         |  |  |   |         | 

33





---



##### Table of Contents



Contractual Obligations

Columbias contractual obligations include notes due to the Federal Home
Loan Bank and treasury tax and loan program with the Federal Reserve, trust
preferred securities, operating leases, deferred compensation and salary
continuation plans. Detailed below is a schedule of Columbias current
contractual obligations by maturity and/or payment due:

Table 21

|                               |                                |       |                       |        |  |           |           |           |  |         |       |          |  |   |       |       |           |   |             |       |  |   |     |   | 
|------------------------------ | ------------------------------ | ----- | --------------------- | ------ |  | --------- | --------- | --------- |  | ------- | ----- | -------- |  | - | ----- | ----- | --------- | - | ----------- | ----- |  | - | --- | - | 
|                               |                                |       | Payment due by Period
|                               |                                |       |                      
|                               |                                |       |                       |        |  |           | Less than |           |  |         |       |          |  |   |       |       | More than |   | Unspecified
|(dollars in thousands)         |                                | Total |                       | 1 year |  | 1-3 years |           | 3-5 years |  | 5 years |       | maturity
|                               |                                |       |                       |        |  |           |           |           |  |         |       |         
|Long-term debt obligations     |                                |       |                       |        |  |           |           |           |  |         |       |          |  |   |       |       |           |   |             |       |  |   |     |  
|                               | Federal Home Loan Bank notes   |       | $                     | 21,133 |  |           | $         | 5,921     |  |         | $     | 6,750    |  |   | $     | 7,680 |           |   | $           | 782   |  |   | $   |  | 
|                               | Trust preferred securities (1) |       |                       | 4,000  |  |           |           |          |  |         |       |         |  |   |       |      |           |   |             | 4,000 |  |   |     |  | 
|                               | Treasury tax and loan note     |       |                       | 850    |  |           |           | 850       |  |         |       |         |  |   |       |      |           |   |             |      |  |   |     |  | 
|Operating lease obligations    |                                |       | 2,116                 |        |  |           | 285       |           |  |         | 498   |          |  |   | 478   |       |           |   | 855         |       |  |   |    |  
|Other long term liabilities(2) |                                |       | 652                   |        |  |           |          |           |  |         |      |          |  |   |      |       |           |   |            |       |  |   | 652 |  
|                               |                                |       |                       |        |  |           |           |           |  |         |       |          |  |   |       |       |           |   |             |       |  |   |     |  
|Total                          |                                | $     | 28,751                |        |  | $         | 7,056     |           |  | $       | 7,248 |          |  | $ | 8,158 |       |           | $ | 5,637       |       |  | $ | 652 |  
|                               |                                |       |                       |        |  |           |           |           |  |         |       |          |  |   |       |       |           |   |             |       |  |   |     |  

(1)  Columbia has the right to redeem trust preferred securities on or after January 7, 2008.

(2)  Amount includes deferred compensation and salary continuation plan benefit obligations.

Derivative Management

The Mortgage Team has accepted loan applications that often did not fund
and close for 30 to 60 days. During this time, the loan has been considered to
be in the open mortgage pipeline. Once the loan was either funded or closed,
it was then removed from the open mortgage pipeline. The loans that comprise
the open mortgage pipeline have been price-locked to the borrower; therefore,
interest rate fluctuations may result in gains and/or losses from the sale of
loans to the secondary market. The risk of price fluctuations to the open
mortgage pipeline is managed by the use of derivative-forward contracts and put
options. The underlying securities of the derivatives are mortgage-backed
securities, which generally correspond with the composition of the open
mortgage pipeline. The structure of the derivatives is intended to serve as a
hedge against the impact of rising and falling interest rates. The gain or
loss on the hedged item attributable to the hedged risk is recognized in
earnings in the same period, as required by Statement of Financial Standards
(SFAS) 133, Accounting for Derivative Instruments and Hedging Activities.
However, during the fourth quarter of 2003, the Mortgage Team discontinued the
practice of using derivative instruments to hedge the open mortgage pipeline.
Therefore, as of December 31, 2003, there were no outstanding derivatives in
use for managing interest rate risk in the pipeline. The Mortgage Team
instituted a new practice of locking mortgage loan applicants using a method
known as best efforts. The method of selling best efforts involves the
sale of mortgage loans to third party investors at a committed loan rate and
loan amount within a predetermined time period without risk of a penalty for
failure to deliver the locked mortgage loans. The benefit to Columbia is that
it shifts the interest rate risk to the investor and eliminates the need to use
derivatives for managing interest rate risk, but it does have the effect of
lowering the amount of service release mortgage premium income. Management
determined it is in Columbias best interests to accept the lower income for a
reduction in interest rate risk exposure. This strategy will be evaluated on a
periodic basis and may change as information becomes available and or personnel
are hired with specialized skills to effectively manage the interest rate risk
exposure from secondary marketing activity.

Recently Issued Accounting Standards

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

34





---



##### Table of Contents



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. Columbias management does not expect that the
application of the provisions of this statement will have a material impact on
Columbias consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. This interpretation clarifies
the application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, and requires existing unconsolidated variable interest entities to
be consolidated by their primary beneficiaries if the entities do not
effectively disperse risks among parties involved. This interpretation explains
how to identify variable interest entities and how an enterprise assesses its
interests in a variable interest entity to decide whether to consolidate that
entity. In December 2003, FASB made revisions and delayed implementation of
certain provisions of FIN 46. As a public entity that is not a Small Business
Issuer, Columbia is now required to apply FIN 46 to all unconsolidated
variable interest entities no later than March 31, 2004, with the exception of
unconsolidated special-purpose entities, which had an implementation deadline
of December 31, 2003. Special-purpose entities for this provision are expected
to include entities whose activities are primarily related to securitizations
or other forms of asset-backed financings or single-lessee leasing
arrangements. Columbias management does not expect that the application of the
provisions of this interpretation will have a material impact on Columbias
consolidated financial statements.

Factors That May Affect Future Results of Operations

Our past experience may not be indicative of future performance, and as
noted elsewhere in this report, management has included forward-looking
statements about our business, plans and prospects that are subject to change.
In addition to the other risks or uncertainties contained in this report, the
following risks may affect our operating results, financial condition and cash
flows. If any of these risks occur, either alone or in combination with other
factors, our business, financial condition or operating results could be
adversely affected. Moreover, readers should note that this is not an
exhaustive list of the risks we face; some risks are unknown or not
quantifiable, and other risks that we currently perceive as immaterial may
ultimately prove more significant than we expect. You should therefore not
construe our statements about plans, predictions or expectations to be
assurances of performance or promises to take a given course of action.

Adequacy of Loan Loss Allowance.We have established a reserve for
probable losses management expects in connection with loans in our credit
portfolio. This allowance reflects managements estimates of the collectibility
of certain identified loans, as well as an overall risk assessment of our total
loans outstanding. Managements determination of the amount of our loan loss
allowance is highly subjective; although management personnel apply criteria
such as risk ratings and historical loss rates, these factors may not be
adequate predictors of future loan performance. Accordingly, we cannot offer
assurances that managements estimates ultimately will prove correct or that
the loan loss allowance will be sufficient to protect against losses that
ultimately may occur. If our loan loss allowance proves to be inadequate, we
may suffer unexpected charges to income, which would adversely impact our
results of operations and financial condition. Moreover, bank regulators
frequently monitor banks loan loss allowances, and if regulators were to
determine that our allowance is inadequate, they may require us to increase the
allowance, which also would adversely impact our revenues and financial
condition.

Valuation of the Mortgage Servicing Asset.We include on our balance
sheet an asset that is largely influenced by the net present value of expected
net servicing income, which is generated from mortgages originated and sold in
the secondary market. This valuation reflects certain assumptions about net
service fee income, servicing costs, prospective interest rates, real estate
markets, rates of debt
retirement, and other factors relating to the length of time during which
those revenues can be expected to continue. The estimates and assumptions used
in valuing the mortgage servicing asset are determined by a qualified
independent third party. The qualified independent third party measures the
value of the mortgage service asset based on assumptions influenced by current
market conditions and near term transactions, which are likely to cause the
value of the mortgage servicing asset to fluctuate. Therefore, potential
valuation adjustments, which are charged against or credited to current income,
may have a material adverse impact on revenues for the periods in which
adjustments occur.

35





---



##### Table of Contents



Growth and Management.Our financial performance and profitability will
depend on our ability to manage recent and possible future growth. Although
management believes that it has substantially integrated the business and
operations of past acquisitions, there can be no assurance that unforeseen
issues relating to the acquisitions will not adversely affect us. In addition,
any future acquisitions and continued growth may present operating and other
problems that could have an adverse effect on our business, financial condition
and results of operations. Accordingly, there can be no assurance that we will
be able to execute our growth strategy or maintain the level of profitability
that we have experienced.

Changes in Market Interest Rates.Our earnings are impacted by changing
interest rates. Changes in interest rates affect the demand for new loans, the
credit profile of existing loans, the rates received on loans and securities,
and rates paid on deposits and borrowings. The relationship between the rates
received on loans and securities and the rates paid on deposits and borrowings
is known as interest rate spread. Given our current volume and mix of
interest-bearing liabilities and interest-earning assets, our interest rate
spread could be expected to increase during times of rapidly rising interest
rates and, conversely, to decline during times of falling interest rates.
However, due to the fact that approximately one-third of Columbias loans are
on rate floors it will take approximately an 120 basis point rise in market
rates before the net interest spread will improve. Exposure to interest rate
risk is managed by monitoring the re-pricing frequency of CRBs rate-sensitive
assets and rate-sensitive liabilities over any given period. Although we
believe our current level of interest rate sensitivity is reasonable,
significant fluctuations in interest rates may have an adverse affect on our
business, financial condition and results of operations.

Geographic Concentration.Substantially all of our business is derived
from a nine-county area in central, north-central and northeastern Oregon and
south-central Washington. These areas are not extensively populated, and rely
primarily upon the agricultural, electrical power generation and transportation
markets for their economic success. While management has planned Columbias
expansion strategy in part as a means to diversify the geographic concentration
of our business, our business is and will remain sensitive to economic factors
that relate to these industries and local and regional business conditions. As
a result, local or regional economic downturns, or downturns that
disproportionately affect one or more of our regions key industries, may have
a more pronounced effect upon our business than they might on an institution
that is a less geographically concentrated. The extent of the future impact of
these events on economic and business conditions cannot be predicted; however,
prolonged or acute fluctuations could have a material and adverse impact upon
our results of operation and financial condition.

Regulation.We are subject to government regulation that could limit or
restrict our activities, which in turn could adversely impact our operations.
The financial services industry is regulated extensively. Federal and state
regulation is designed primarily to protect the deposit insurance funds and
consumers, and not to benefit our shareholders. These regulations can
sometimes impose significant limitations on our operations. In addition, these
regulations are constantly evolving and may change significantly over time.
Significant new laws or changes in existing laws or repeal of existing laws may
cause our results to differ materially. Further, federal monetary policy,
particularly as implemented through the Federal Reserve System, can
significantly affect credit conditions for us.

Competition.Competition may adversely affect our performance. The
financial services business in our market areas is highly competitive. It is
becoming increasingly competitive due to changes in regulation, technological
advances, and the accelerating pace of consolidation among financial services
providers. We face competition both in attracting deposits and in making
loans. We compete for loans principally through the interest rates and loan
fees we charge and the efficiency and quality of services we provide.
Increasing levels of competition in the banking and financial services
industries may reduce our market share or cause the prices we charge for our
services to fall. Our results may differ in future periods depending upon the
nature or level of competition.

Credit Risk.A source of risk arises from the possibility that losses
will be sustained if a significant number of our borrowers, guarantors and
related parties fail to perform in accordance with the terms of their loans.
We have adopted underwriting and credit monitoring procedures and credit
policies, including the establishment and review of the allowance for credit
losses, that management believes are appropriate to minimize this risk by
assessing the likelihood of nonperformance, tracking loan performance and
diversifying our credit portfolio. These policies and procedures, however, may
not prevent unexpected losses that could materially affect our results of
operations.

36





---



##### Table of Contents






ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk Management

In the banking industry, a major risk involves changing interest rates,
which can have a significant impact on Columbias profitability. Columbia
manages its exposure to changes in interest rates through asset and liability
management activities within the guidelines established by its Asset Liability
Committee (ALCO). ALCO has the responsibility for approving and ensuring
compliance with asset-liability management policies, including interest rate
risk exposure, capital position, liquidity management and the investment
portfolio. Reports prepared by ALCO are provided to the Board of Directors on
a regular basis.

Asset-liability management simulation models are used to measure interest
rate risk. The models quantify interest rate risk through simulating forecasted
net interest income and economic value of equity over a 12-month time horizon
under various rate scenarios. The economic value of equity is defined as the
difference between the market value of current assets less the market value
liabilities. By measuring the change in the present value of equity under
different rate scenarios, management is able to identify interest rate risk
that may not be evident in simulating changes in the forecasted net interest
income.

Table 21 below shows the simulated percentage change in forecasted net
interest income and the economic value of equity based on changes in the
interest rate environment. The change in interest rates assumes an immediate,
parallel and sustained shift in the base interest rate forecast. Through these
simulations, management estimates the impact on net interest income and present
value of equity based on a 100 and 200 basis point upward and downward gradual
change of market interest rates over a one-year period. The analysis did not
allow rates to fall below zero.

Table 22

|                         |  |                 |       |                  |  |  |       |  
|------------------------ |  | --------------- | ----- | ---------------- |  |  | ----- | -
|                         |  | Percent Change  |       | Percent Change  
|                         |  | in Net Interest |       | in Present Value
|Change in Interest Rates |  | Income          |       | of Equity       
|                         |  |                 |       |                 
|-200 Basis points        |  |                 | -1.85 | %                |  |  | 0.87  | %
|-100 Basis points        |  |                 | -0.03 | %                |  |  | -0.07 | %
|+100 Basis points        |  |                 | 1.99  | %                |  |  | 1.19  | %
|+200 Basis points        |  |                 | 6.26  | %                |  |  | 3.76  | %

As illustrated in the above table, our balance sheet is currently asset
sensitive, meaning that interest-earning assets mature or reprice more quickly
than interest-bearing liabilities in a given period. Therefore, according to
the model, net interest income should increase slightly when rates increase and
shrink somewhat when rates fall. This is primarily a result of the
concentration of variable rate and short-term commercial loans in Columbias
portfolio.

The simulation model does not take into account future management actions
that could be undertaken, should a change occur in actual market interest
rates. Also, certain assumptions underlie modeling simulation results and these
assumptions may have significant impact on the results. These include
assumptions regarding the level of interest rates and balance changes of
deposit products that do not have stated maturities. These assumptions have
been developed through a combination of industry standards and expected pricing
behavior in the future. The model also includes assumptions about changes in
the composition or mix of the balance sheet. The results derived from the
simulation model could vary significantly due to external factors such as
changes in prepayment assumptions, early withdrawals of deposits and unforeseen
competitive factors.

Mortgage Servicing Asset

The Mortgage Team has recorded a mortgage-servicing asset (MSA) that
contains risk due to loan prepayments. The value of the MSA will likely
decline when interest rates fall due to an increase in loan prepayments. The
MSA is measured on a quarterly basis by a qualified independent entity with
access and knowledge of current servicing transaction values between willing
parties. The techniques used in valuing the MSA incorporate assumptions
relative to prevailing conditions in the secondary servicing market. The
assumptions used for valuing the MSA are gathered from near term transactions
and include prepayment speed forecasts, market discount rates, earning rates,
servicing costs, acquisition

37





---



##### Table of Contents



costs and ancillary income. A decrease in the
value of the MSA is recorded as a valuation write-down
adjustment. However, actual fair values may differ from the measured
valuation due to limitations in available third-party market quotations and
assumptions.

The value of the mortgage servicing asset is interest rate sensitive and
may require quarterly valuation adjustments during 2004 if mortgage interest
rates decline further from levels experienced during 2003. However, if
mortgage rates were to increase in 2004, management would expect the mortgage
servicing asset value to stabilize and may in some instances be increased. In
this instance, the monthly mortgage servicing asset amortization expense would
be adjusted to meet the expected remaining life of the outstanding net
servicing income.

38





---



##### Table of Contents






ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Selected Quarterly Financial Data (unaudited)

The following tables set forth Columbias unaudited consolidated financial data
regarding operations for each quarter of 2003 and 2002. This information, in
the opinion of management, includes all normal and recurring adjustments, to
fairly state the information contained in the tables. Certain amounts
previously reported have been classified to conform with current presentation.
These reclassifications had no net impact on the results of operations.

Table 23

|                                     |                                               |                     |   |                               |       |         |   |         |       |        |   |       |       |  |   |       |       |  |   |        |        | 
|------------------------------------ | --------------------------------------------- | ------------------- | - | ----------------------------- | ----- | ------- | - | ------- | ----- | ------ | - | ----- | ----- |  | - | ----- | ----- |  | - | ------ | ------ | 
|                                     |                                               |                     |   | 2003 Quarterly Financial Data
|                                     |                                               |                     |   |                              
|                                     |                                               |                     |   | First                         |       | Second  |   | Third   |       | Fourth |   |       |       | 
|(In thousands except per share data) |                                               | Quarter             |   | Quarter                       |       | Quarter |   | Quarter |       | Total 
|                                     |                                               |                     |   |                               |       |         |   |         |       |       
|Income Statement Data                |                                               |                     |   |                               |       |         |   |         |       |        |   |       |       |  |   |       |       |  |   |       
|                                     | Interest income                               |                     | $ | 9,396                         |       |         | $ | 9,583   |       |        | $ | 9,737 |       |  | $ | 9,514 |       |  | $ | 38,230 |       
|                                     | Interest expense                              |                     |   | 1,770                         |       |         |   | 1,776   |       |        |   | 1,703 |       |  |   | 1,582 |       |  |   | 6,831  |       
|                                     |                                               |                     |   |                               |       |         |   |         |       |        |   |       |       |  |   |       |       |  |   |       
|                                     |                                               | Net interest income |   |                               | 7,626 |         |   |         | 7,807 |        |   |       | 8,034 |  |   |       | 7,932 |  |   |        | 31,399 | 
|                                     | Loan loss provision                           |                     |   | 300                           |       |         |   | 1,700   |       |        |   | 400   |       |  |   | 175   |       |  |   | 2,575  |       
|                                     |                                               |                     |   |                               |       |         |   |         |       |        |   |       |       |  |   |       |       |  |   |       
|                                     | Net interest income after
Loan loss provision |                     |   | 7,326                         |       |         |   | 6,107   |       |        |   | 7,634 |       |  |   | 7,757 |       |  |   | 28,824 |       
|                                     | Noninterest income                            |                     |   | 2,000                         |       |         |   | 1,971   |       |        |   | 2,843 |       |  |   | 2,110 |       |  |   | 8,924  |       
|                                     | Noninterest expense                           |                     |   | 5,588                         |       |         |   | 5,758   |       |        |   | 5,651 |       |  |   | 5,353 |       |  |   | 22,350 |       
|                                     |                                               |                     |   |                               |       |         |   |         |       |        |   |       |       |  |   |       |       |  |   |       
|                                     | Income before provision for
income taxes      |                     |   | 3,738                         |       |         |   | 2,320   |       |        |   | 4,826 |       |  |   | 4,514 |       |  |   | 15,398 |       
|                                     | Provision for income taxes                    |                     |   | 1,348                         |       |         |   | 849     |       |        |   | 1,767 |       |  |   | 1,600 |       |  |   | 5,564  |       
|                                     |                                               |                     |   |                               |       |         |   |         |       |        |   |       |       |  |   |       |       |  |   |       
|                                     |                                               | Net income          |   | $                             | 2,390 |         |   | $       | 1,471 |        |   | $     | 3,059 |  |   | $     | 2,914 |  |   | $      | 9,834  | 
|                                     |                                               |                     |   |                               |       |         |   |         |       |        |   |       |       |  |   |       |       |  |   |       
|Earnings Per Share                   |                                               |                     |   |                               |       |         |   |         |       |        |   |       |       |  |   |       |       |  |   |       
|                                     | Basic earnings per common share (1)           |                     | $ | 0.27                          |       |         | $ | 0.17    |       |        | $ | 0.35  |       |  | $ | 0.33  |       |  | $ | 1.13   |       
|                                     | Diluted earnings per common share (1)         |                     | $ | 0.26                          |       |         | $ | 0.16    |       |        | $ | 0.34  |       |  | $ | 0.32  |       |  | $ | 1.09   |       

|                      |                                               |                     |   |                               |       |         |   |         |       |         |   |       |       |  |   |       |       |  |   |        |        | 
|--------------------- | --------------------------------------------- | ------------------- | - | ----------------------------- | ----- | ------- | - | ------- | ----- | ------- | - | ----- | ----- |  | - | ----- | ----- |  | - | ------ | ------ | 
|                      |                                               |                     |   | 2002 Quarterly Financial Data
|                      |                                               |                     |   |                              
|                      |                                               |                     |   | First                         |       | Second  |   | Third   |       | Fourth  |   |       |       | 
|                      |                                               |                     |   | Quarter                       |       | Quarter |   | Quarter |       | Quarter |   | Total
|                      |                                               |                     |   |                               |       |         |   |         |       |         |   |      
|Income Statement Data |                                               |                     |   |                               |       |         |   |         |       |         |   |       |       |  |   |       |       |  |   |       
|                      | Interest income                               |                     | $ | 8,587                         |       |         | $ | 9,439   |       |         | $ | 9,841 |       |  | $ | 9,749 |       |  | $ | 37,616 |       
|                      | Interest expense                              |                     |   | 1,790                         |       |         |   | 2,029   |       |         |   | 2,090 |       |  |   | 1,873 |       |  |   | 7,782  |       
|                      |                                               |                     |   |                               |       |         |   |         |       |         |   |       |       |  |   |       |       |  |   |       
|                      |                                               | Net interest income |   |                               | 6,797 |         |   |         | 7,410 |         |   |       | 7,751 |  |   |       | 7,876 |  |   |        | 29,834 | 
|                      | Loan loss provision                           |                     |   | 400                           |       |         |   | 700     |       |         |   | 600   |       |  |   | 100   |       |  |   | 1,800  |       
|                      |                                               |                     |   |                               |       |         |   |         |       |         |   |       |       |  |   |       |       |  |   |       
|                      | Net interest income after
Loan loss provision |                     |   | 6,397                         |       |         |   | 6,710   |       |         |   | 7,151 |       |  |   | 7,776 |       |  |   | 28,034 |       
|                      | Noninterest income                            |                     |   | 2,094                         |       |         |   | 2,760   |       |         |   | 2,236 |       |  |   | 1,461 |       |  |   | 8,551  |       
|                      | Noninterest expense                           |                     |   | 5,091                         |       |         |   | 5,695   |       |         |   | 5,525 |       |  |   | 5,669 |       |  |   | 21,980 |       
|                      |                                               |                     |   |                               |       |         |   |         |       |         |   |       |       |  |   |       |       |  |   |       
|                      | Income before provision for
income taxes      |                     |   | 3,400                         |       |         |   | 3,775   |       |         |   | 3,862 |       |  |   | 3,568 |       |  |   | 14,605 |       
|                      | Provision for income taxes                    |                     |   | 1,219                         |       |         |   | 1,353   |       |         |   | 1,338 |       |  |   | 1,314 |       |  |   | 5,224  |       
|                      |                                               |                     |   |                               |       |         |   |         |       |         |   |       |       |  |   |       |       |  |   |       
|                      |                                               | Net income          |   | $                             | 2,181 |         |   | $       | 2,422 |         |   | $     | 2,524 |  |   | $     | 2,254 |  |   | $      | 9,381  | 
|                      |                                               |                     |   |                               |       |         |   |         |       |         |   |       |       |  |   |       |       |  |   |       
|Earnings Per Share    |                                               |                     |   |                               |       |         |   |         |       |         |   |       |       |  |   |       |       |  |   |       
|                      | Basic earnings per common share (1)           |                     | $ | 0.25                          |       |         | $ | 0.27    |       |         | $ | 0.28  |       |  | $ | 0.25  |       |  | $ | 1.05   |       
|                      | Diluted earnings per common share (1)         |                     | $ | 0.24                          |       |         | $ | 0.26    |       |         | $ | 0.27  |       |  | $ | 0.25  |       |  | $ | 1.03   |       

(1)  Prior periods have been adjusted to reflect the 10% stock dividend, effective May 1, 2003.

Additional information called for by this item is contained in Columbia
Bancorps Annual Report to Shareholders for the year ended December 31, 2003,
and is incorporated herein by reference.

39





---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Shareholders
Columbia Bancorp and Subsidiaries

We have audited the accompanying consolidated balance sheets of Columbia
Bancorp and Subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of income and comprehensive income, changes in
shareholders equity, and cash flows for each of the three years in the period
ended December 31, 2003. These consolidated financial statements are the
responsibility of Columbia Bancorps management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Columbia Bancorp
and Subsidiaries as of December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America.

(-s- Moss Adams LLP)
Portland, Oregon
January 9, 2004





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS

|                          |                                                                                   |                                 |             |              |             |      |             |             |             | 
|------------------------- | --------------------------------------------------------------------------------- | ------------------------------- | ----------- | ------------ | ----------- | ---- | ----------- | ----------- | ----------- | 
|                          |                                                                                   |                                 |             | December 31,
|                          |                                                                                   |                                 |             |             
|                          |                                                                                   |                                 |             | 2003         |             | 2002
|                          |                                                                                   |                                 |             |              |             |     
|CASH AND CASH EQUIVALENTS |                                                                                   |                                 |             |              |             |      |             |            
|                          | Cash and due from banks                                                           |                                 | $           | 33,809,732   |             |      | $           | 28,414,139  |            
|                          | Interest-bearing deposits with banks                                              |                                 |             | 5,100,513    |             |      |             | 8,551,980   |            
|                          | Federal funds sold                                                                |                                 |             | 14,955,948   |             |      |             | 3,735,416   |            
|                          |                                                                                   |                                 |             |              |             |      |             |            
|                          |                                                                                   | Total cash and cash equivalents |             |              | 53,866,193  |      |             |             | 40,701,535  | 
|                          |                                                                                   |                                 |             |              |             |      |             |            
|INVESTMENT SECURITIES     |                                                                                   |                                 |             |              |             |      |             |            
|                          | Investment securities available-for-sale                                          |                                 |             | 13,875,646   |             |      |             | 14,749,694  |            
|                          | Investment securities held-to-maturity                                            |                                 |             | 14,963,728   |             |      |             | 18,600,335  |            
|                          | Restricted equity securities                                                      |                                 |             | 2,843,100    |             |      |             | 2,698,200   |            
|                          |                                                                                   |                                 |             |              |             |      |             |            
|                          |                                                                                   | Total investment securities     |             |              | 31,682,474  |      |             |             | 36,048,229  | 
|                          |                                                                                   |                                 |             |              |             |      |             |            
|LOANS                     |                                                                                   |                                 |             |              |             |      |             |            
|                          | Loans held-for-sale                                                               |                                 |             | 2,792,384    |             |      |             | 8,769,777   |            
|                          | Loans, net of allowance for loan losses
and unearned loan fees                    |                                 |             | 461,557,765  |             |      |             | 423,917,555 |            
|                          |                                                                                   |                                 |             |              |             |      |             |            
|                          |                                                                                   | Total loans                     |             |              | 464,350,149 |      |             |             | 432,687,332 | 
|                          |                                                                                   |                                 |             |              |             |      |             |            
|OTHER ASSETS              |                                                                                   |                                 |             |              |             |      |             |            
|                          | Property and equipment, net of accumulated
depreciation                           |                                 |             | 13,766,909   |             |      |             | 14,183,851  |            
|                          | Accrued interest receivable                                                       |                                 |             | 3,769,527    |             |      |             | 3,895,237   |            
|                          | Goodwill                                                                          |                                 |             | 7,389,094    |             |      |             | 7,389,094   |            
|                          | Mortgage servicing asset, net of accumulated
amortization and valuation allowance |                                 |             | 3,691,449    |             |      |             | 4,614,391   |            
|                          | Other assets                                                                      |                                 |             | 5,619,839    |             |      |             | 4,806,315   |            
|                          |                                                                                   |                                 |             |              |             |      |             |            
|                          |                                                                                   | Total other assets              |             |              | 34,236,818  |      |             |             | 34,888,888  | 
|                          |                                                                                   |                                 |             |              |             |      |             |            
|TOTAL ASSETS              |                                                                                   | $                               | 584,135,634 |              |             | $    | 544,325,984 |            
|                          |                                                                                   |                                 |             |              |             |      |             |            

41



---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS EQUITY

|                                           |                                                                                                                                                             |                            |             |              |             |      |             |             |             | 
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----------- | ------------ | ----------- | ---- | ----------- | ----------- | ----------- | 
|                                           |                                                                                                                                                             |                            |             | December 31,
|                                           |                                                                                                                                                             |                            |             |             
|                                           |                                                                                                                                                             |                            |             | 2003         |             | 2002
|                                           |                                                                                                                                                             |                            |             |              |             |     
|DEPOSITS                                   |                                                                                                                                                             |                            |             |              |             |      |             |            
|                                           | Noninterest-bearing demand deposits                                                                                                                         |                            | $           | 150,425,062  |             |      | $           | 131,830,974 |            
|                                           | Interest-bearing demand deposits                                                                                                                            |                            |             | 187,452,543  |             |      |             | 182,340,665 |            
|                                           | Savings accounts                                                                                                                                            |                            |             | 35,732,611   |             |      |             | 32,939,990  |            
|                                           | Time certificates                                                                                                                                           |                            |             | 122,747,824  |             |      |             | 111,512,375 |            
|                                           |                                                                                                                                                             |                            |             |              |             |      |             |            
|                                           |                                                                                                                                                             | Total deposits             |             |              | 496,358,040 |      |             |             | 458,624,004 | 
|                                           |                                                                                                                                                             |                            |             |              |             |      |             |            
|OTHER LIABILITIES                          |                                                                                                                                                             |                            |             |              |             |      |             |            
|                                           | Notes payable                                                                                                                                               |                            |             | 21,983,465   |             |      |             | 27,134,946  |            
|                                           | Accrued interest payable and other liabilities                                                                                                              |                            |             | 3,989,665    |             |      |             | 4,376,653   |            
|                                           | Guaranteed undivided beneficial interest in
Junior Subordinated Deferrable Interest
Debentures (Trust Preferred Securities)
at fair value                   |                            |             | 4,000,000    |             |      |             | 4,000,000   |            
|                                           |                                                                                                                                                             |                            |             |              |             |      |             |            
|                                           |                                                                                                                                                             | Total other liabilities    |             |              | 29,973,130  |      |             |             | 35,511,599  | 
|                                           |                                                                                                                                                             |                            |             |              |             |      |             |            
|                                           |                                                                                                                                                             | Total liabilities          |             |              | 526,331,170 |      |             |             | 494,135,603 | 
|                                           |                                                                                                                                                             |                            |             |              |             |      |             |            
|COMMITMENTS AND CONTINGENCIES (Note 19)    |                                                                                                                                                             |                            |             |              |             |      |             |            
|SHAREHOLDERS EQUITY                       |                                                                                                                                                             |                            |             |              |             |      |             |            
|                                           | Common stock, no par value, 20,000,000 shares
authorized; 8,750,582 and 8,648,618 shares
issued and outstanding at December 31, 2003
and 2002, respectively |                            |             | 31,520,099   |             |      |             | 17,841,700  |            
|                                           | Retained earnings                                                                                                                                           |                            |             | 26,252,366   |             |      |             | 32,174,431  |            
|                                           | Accumulated comprehensive income, net of taxes                                                                                                              |                            |             | 31,999       |             |      |             | 174,250     |            
|                                           |                                                                                                                                                             |                            |             |              |             |      |             |            
|                                           |                                                                                                                                                             | Total shareholders equity |             |              | 57,804,464  |      |             |             | 50,190,381  | 
|                                           |                                                                                                                                                             |                            |             |              |             |      |             |            
|TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY |                                                                                                                                                             | $                          | 584,135,634 |              |             | $    | 544,325,984 |            
|                                           |                                                                                                                                                             |                            |             |              |             |      |             |            

See accompanying notes.

42



---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

|                                                     |                                                                  |                                  |                          |            |                          |            |            |            |           |            |            |            |           |            | 
|---------------------------------------------------- | ---------------------------------------------------------------- | -------------------------------- | ------------------------ | ---------- | ------------------------ | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | ---------- | --------- | ---------- | 
|                                                     |                                                                  |                                  |                          |            | Years Ended December 31,
|                                                     |                                                                  |                                  |                          |            |                         
|                                                     |                                                                  |                                  |                          |            | 2003                     |            | 2002       |            | 2001     
|                                                     |                                                                  |                                  |                          |            |                          |            |            |            |          
|INTEREST INCOME                                      |                                                                  |                                  |                          |            |                          |            |            |            |           |            |            |           
|                                                     | Interest and fees on loans                                       |                                  | $                        | 36,496,259 |                          |            | $          | 35,334,245 |           |            | $          | 32,134,970 |          
|                                                     | Interest on investments:                                         |                                  |                          |            |                          |            |            |            |           |            |            |            |          
|                                                     |                                                                  | Taxable investment securities    |                          |            | 514,195                  |            |            |            | 1,035,059 |            |            |            | 1,614,918 |           
|                                                     |                                                                  | Nontaxable investment securities |                          |            | 729,022                  |            |            |            | 807,504   |            |            |            | 871,172   |           
|                                                     | Interest on federal funds sold                                   |                                  |                          | 205,367    |                          |            |            | 99,071     |           |            |            | 40,038     |          
|                                                     | Other interest and dividend income                               |                                  |                          | 285,276    |                          |            |            | 340,172    |           |            |            | 417,221    |          
|                                                     |                                                                  |                                  |                          |            |                          |            |            |            |           |            |            |            |          
|                                                     |                                                                  |                                  | Total interest income    |            |                          | 38,230,119 |            |            |           | 37,616,051 |            |            |           | 35,078,319 | 
|                                                     |                                                                  |                                  |                          |            |                          |            |            |            |           |            |            |            |          
|INTEREST EXPENSE                                     |                                                                  |                                  |                          |            |                          |            |            |            |           |            |            |           
|                                                     | Interest on interest-bearing demand deposit
and savings accounts |                                  |                          | 1,596,639  |                          |            |            | 1,732,050  |           |            |            | 3,317,933  |          
|                                                     | Interest on time certificates                                    |                                  |                          | 4,023,348  |                          |            |            | 4,695,641  |           |            |            | 6,385,589  |          
|                                                     | Other borrowed funds                                             |                                  |                          | 1,210,653  |                          |            |            | 1,354,438  |           |            |            | 1,879,647  |          
|                                                     |                                                                  |                                  |                          |            |                          |            |            |            |           |            |            |            |          
|                                                     |                                                                  |                                  | Total interest expense   |            |                          | 6,830,640  |            |            |           | 7,782,129  |            |            |           | 11,583,169 | 
|                                                     |                                                                  |                                  |                          |            |                          |            |            |            |           |            |            |            |          
|NET INTEREST INCOME BEFORE PROVISION
FOR LOAN LOSSES |                                                                  |                                  | 31,399,479               |            |                          |            | 29,833,922 |            |           |            | 23,495,150 |           
|PROVISION FOR LOAN LOSSES                            |                                                                  |                                  | 2,575,000                |            |                          |            | 1,800,000  |            |           |            | 1,450,000  |           
|                                                     |                                                                  |                                  |                          |            |                          |            |            |            |           |            |            |            |          
|NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES  |                                                                  |                                  | 28,824,479               |            |                          |            | 28,033,922 |            |           |            | 22,045,150 |           
|                                                     |                                                                  |                                  |                          |            |                          |            |            |            |           |            |            |            |          
|NONINTEREST INCOME                                   |                                                                  |                                  |                          |            |                          |            |            |            |           |            |            |           
|                                                     | Service charges and fees                                         |                                  |                          | 4,307,634  |                          |            |            | 4,089,240  |           |            |            | 3,013,734  |          
|                                                     | Mortgage Team net revenues                                       |                                  |                          | 2,431,672  |                          |            |            | 2,193,314  |           |            |            | 4,263,441  |          
|                                                     | Credit card discounts and fees                                   |                                  |                          | 436,953    |                          |            |            | 419,762    |           |            |            | 357,729    |          
|                                                     | CRB Financial Services Team revenues                             |                                  |                          | 579,388    |                          |            |            | 559,968    |           |            |            | 467,791    |          
|                                                     | Net gain on sale or call of investment securities                |                                  |                          | 462,249    |                          |            |            | 295,822    |           |            |            | 27,530     |          
|                                                     | Other noninterest income                                         |                                  |                          | 705,881    |                          |            |            | 993,041    |           |            |            | 1,063,602  |          
|                                                     |                                                                  |                                  |                          |            |                          |            |            |            |           |            |            |            |          
|                                                     |                                                                  |                                  | Total noninterest income |            |                          | 8,923,777  |            |            |           | 8,551,147  |            |            |           | 9,193,827  | 
|                                                     |                                                                  |                                  |                          |            |                          |            |            |            |           |            |            |            |          

43





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

|                                           |                                               |                                                              |                                                 |                           |          |                          |            |            |          |          |            |            |         |         |            | 
|------------------------------------------ | --------------------------------------------- | ------------------------------------------------------------ | ----------------------------------------------- | ------------------------- | -------- | ------------------------ | ---------- | ---------- | -------- | -------- | ---------- | ---------- | ------- | ------- | ---------- | 
|                                           |                                               |                                                              |                                                 |                           |          | Years Ended December 31,
|                                           |                                               |                                                              |                                                 |                           |          |                         
|                                           |                                               |                                                              |                                                 |                           |          | 2003                     |            | 2002       |          | 2001    
|                                           |                                               |                                                              |                                                 |                           |          |                          |            |            |          |         
|NONINTEREST EXPENSE                        |                                               |                                                              |                                                 |                           |          |                          |            |            |          |          |            |           
|                                           | Salaries and employee benefits                |                                                              | $                                               | 13,055,840                |          |                          | $          | 13,059,535 |          |          | $          | 11,421,966 |        
|                                           | Occupancy expense                             |                                                              |                                                 | 2,247,309                 |          |                          |            | 2,058,065  |          |          |            | 1,830,346  |        
|                                           | Item and statement processing                 |                                                              |                                                 | 777,594                   |          |                          |            | 760,156    |          |          |            | 676,890    |        
|                                           | Goodwill amortization                         |                                                              |                                                 |                          |          |                          |            |           |          |          |            | 628,623    |        
|                                           | Data processing expense                       |                                                              |                                                 | 352,743                   |          |                          |            | 370,889    |          |          |            | 301,878    |        
|                                           | Other noninterest expense                     |                                                              |                                                 | 5,916,665                 |          |                          |            | 5,731,822  |          |          |            | 4,628,745  |        
|                                           |                                               |                                                              |                                                 |                           |          |                          |            |            |          |          |            |            |        
|                                           |                                               |                                                              |                                                 | Total noninterest expense |          |                          | 22,350,151 |            |          |          | 21,980,467 |            |         |         | 19,488,448 | 
|                                           |                                               |                                                              |                                                 |                           |          |                          |            |            |          |          |            |            |        
|INCOME BEFORE PROVISION FOR
INCOME TAXES   |                                               |                                                              | 15,398,105                                      |                           |          |                          | 14,604,602 |            |          |          | 11,750,529 |           
|PROVISION FOR INCOME TAXES                 |                                               |                                                              | 5,564,309                                       |                           |          |                          | 5,223,497  |            |          |          | 4,376,812  |           
|                                           |                                               |                                                              |                                                 |                           |          |                          |            |            |          |          |            |            |        
|NET INCOME                                 |                                               |                                                              | 9,833,796                                       |                           |          |                          | 9,381,105  |            |          |          | 7,373,717  |           
|                                           |                                               |                                                              |                                                 |                           |          |                          |            |            |          |          |            |            |        
|OTHER COMPREHENSIVE INCOME (LOSS)          |                                               |                                                              |                                                 |                           |          |                          |            |            |          |          |            |           
|                                           | Unrealized gains (losses) on securities:      |                                                              |                                                 |                           |          |                          |            |            |          |          |            |            |        
|                                           |                                               | Unrealized holding gains arising during the
period           |                                                 |                           | 173,809  |                          |            |            | 30,473   |          |            |            | 440,769 |        
|                                           |                                               | Reclassification adjustment for gains
included in net income |                                                 |                           | (295,839 | )                        |            |            | (194,011 | )        |            |            | (18,064 | )      
|                                           | Reduction in fair value of interest-rate swap |                                                              |                                                 | (20,221                   | )        |                          |            |           |          |          |            |           |        
|                                           |                                               |                                                              |                                                 |                           |          |                          |            |            |          |          |            |            |        
|                                           |                                               |                                                              | Other comprehensive income (loss),
net of taxes |                           |          | (142,251                 | )          |            |          | (163,538 | )          |            |         | 422,705 |           
|                                           |                                               |                                                              |                                                 |                           |          |                          |            |            |          |          |            |            |        
|COMPREHENSIVE INCOME                       |                                               | $                                                            | 9,691,545                                       |                           |          | $                        | 9,217,567  |            |          | $        | 7,796,422  |           
|                                           |                                               |                                                              |                                                 |                           |          |                          |            |            |          |          |            |            |        
|BASIC EARNINGS PER SHARE OF COMMON
STOCK   |                                               | $                                                            | 1.13                                            |                           |          | $                        | 1.05       |            |          | $        | 0.83       |           
|                                           |                                               |                                                              |                                                 |                           |          |                          |            |            |          |          |            |            |        
|DILUTED EARNINGS PER SHARE OF
COMMON STOCK |                                               | $                                                            | 1.09                                            |                           |          | $                        | 1.03       |            |          | $        | 0.81       |           
|                                           |                                               |                                                              |                                                 |                           |          |                          |            |            |          |          |            |            |        

See accompanying notes.

44



---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

|                           |                                                        |  |              |          |          |   |            |            |               |   |            |             |   |   |             |          |   |   |            |            |  
|-------------------------- | ------------------------------------------------------ |  | ------------ | -------- | -------- | - | ---------- | ---------- | ------------- | - | ---------- | ----------- | - | - | ----------- | -------- | - | - | ---------- | ---------- | -
|                           |                                                        |  |              |          |          |   |            |            |               |   |            |             |   |   | Accumulated |          |   |   |           
|                           |                                                        |  | Common Stock |          |          |   |            |            | Comprehensive |   | Total     
|                           |                                                        |  |              |          | Retained |   | Income     |            | Stockholders
|                           |                                                        |  | Shares       |          | Amount   |   | Earnings   |            | (Loss)        |   | Equity    
|                           |                                                        |  |              |          |          |   |            |            |               |   |           
|BALANCE, December 31, 2000 |                                                        |  | 8,029,422    |          |          | $ | 20,841,164 |            |               | $ | 20,569,918 |             |   | $ | (84,917     | )        |   | $ | 41,326,165 |           
|                           | Stock options exercised                                |  |              | 57,656   |          |   |            | 307,455    |               |   |            |            |   |   |             |         |   |   |            | 307,455    |  
|                           | Income tax benefit from stock options
exercised        |  |              |         |          |   |            | 12,478     |               |   |            |            |   |   |             |         |   |   |            | 12,478     |  
|                           | Repurchase of common stock                             |  |              | (50,000  | )        |   |            | (427,503   | )             |   |            |            |   |   |             |         |   |   |            | (427,503   | )
|                           | Cash dividends paid                                    |  |              |         |          |   |            |           |               |   |            | (1,927,227  | ) |   |             |         |   |   |            | (1,927,227 | )
|                           | Cash dividends declared                                |  |              |         |          |   |            |           |               |   |            | (642,858    | ) |   |             |         |   |   |            | (642,858   | )
|                           | Net income and comprehensive income                    |  |              |         |          |   |            |           |               |   |            | 7,373,717   |   |   |             | 422,705  |   |   |            | 7,796,422  |  
|                           |                                                        |  |              |          |          |   |            |            |               |   |            |             |   |   |             |          |   |   |            |           
|BALANCE, December 31, 2001 |                                                        |  | 8,037,078    |          |          |   | 20,733,594 |            |               |   | 25,373,550 |             |   |   | 337,788     |          |   |   | 46,444,932 |           
|                           | Stock options exercised                                |  |              | 153,724  |          |   |            | 1,008,572  |               |   |            |            |   |   |             |         |   |   |            | 1,008,572  |  
|                           | Income tax benefit from stock options
exercised        |  |              |         |          |   |            | 122,704    |               |   |            |            |   |   |             |         |   |   |            | 122,704    |  
|                           | Repurchase of common stock                             |  |              | (328,422 | )        |   |            | (4,023,170 | )             |   |            |            |   |   |             |         |   |   |            | (4,023,170 | )
|                           | Cash dividends paid                                    |  |              |         |          |   |            |           |               |   |            | (1,951,234  | ) |   |             |         |   |   |            | (1,951,234 | )
|                           | Cash dividends declared                                |  |              |         |          |   |            |           |               |   |            | (628,990    | ) |   |             |         |   |   |            | (628,990   | )
|                           | Net income and comprehensive income                    |  |              |         |          |   |            |           |               |   |            | 9,381,105   |   |   |             | (163,538 | ) |   |            | 9,217,567  |  
|                           |                                                        |  |              |          |          |   |            |            |               |   |            |             |   |   |             |          |   |   |            |           
|BALANCE, December 31, 2002 |                                                        |  | 7,862,380    |          |          |   | 17,841,700 |            |               |   | 32,174,431 |             |   |   | 174,250     |          |   |   | 50,190,381 |           
|                           | Stock options exercised                                |  |              | 113,015  |          |   |            | 782,637    |               |   |            |            |   |   |             |         |   |   |            | 782,637    |  
|                           | Income tax benefit from stock options
exercised        |  |              |         |          |   |            | 212,242    |               |   |            |            |   |   |             |         |   |   |            | 212,242    |  
|                           | 10% stock dividend and cash paid for
fractional shares |  |              | 791,887  |          |   |            | 12,931,515 |               |   |            | (12,937,194 | ) |   |             |         |   |   |            | (5,679     | )
|                           | Repurchase of common stock                             |  |              | (16,700  | )        |   |            | (247,995   | )             |   |            |            |   |   |             |         |   |   |            | (247,995   | )
|                           | Cash dividends paid                                    |  |              |         |          |   |            |           |               |   |            | (2,031,115  | ) |   |             |         |   |   |            | (2,031,115 | )
|                           | Cash dividends declared                                |  |              |         |          |   |            |           |               |   |            | (787,552    | ) |   |             |         |   |   |            | (787,552   | )
|                           | Net income and comprehensive income                    |  |              |         |          |   |            |           |               |   |            | 9,833,796   |   |   |             | (142,251 | ) |   |            | 9,691,545  |  
|                           |                                                        |  |              |          |          |   |            |            |               |   |            |             |   |   |             |          |   |   |            |           
|BALANCE, December 31, 2003 |                                                        |  | 8,750,582    |          |          | $ | 31,520,099 |            |               | $ | 26,252,366 |             |   | $ | 31,999      |          |   | $ | 57,804,464 |           
|                           |                                                        |  |              |          |          |   |            |            |               |   |            |             |   |   |             |          |   |   |            |           

See accompanying notes.

45



---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                     |                                                                               |                                                                                |                                |                                    |              |                          |             |             |              |           |             |             |              |           |             |  
|------------------------------------ | ----------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------ | ---------------------------------- | ------------ | ------------------------ | ----------- | ----------- | ------------ | --------- | ----------- | ----------- | ------------ | --------- | ----------- | -
|                                     |                                                                               |                                                                                |                                |                                    |              | Years Ended December 31,
|                                     |                                                                               |                                                                                |                                |                                    |              |                         
|                                     |                                                                               |                                                                                |                                |                                    |              | 2003                     |             | 2002        |              | 2001     
|                                     |                                                                               |                                                                                |                                |                                    |              |                          |             |             |              |          
|CASH FLOWS FROM OPERATING ACTIVITIES |                                                                               |                                                                                |                                |                                    |              |                          |             |             |              |           |             |            
|                                     | Net income                                                                    |                                                                                | $                              | 9,833,796                          |              |                          | $           | 9,381,105   |              |           | $           | 7,373,717   |             
|                                     | Adjustments to reconcile net income to net cash from
operating activities:    |                                                                                |                                |                                    |              |                          |             |             |              |           |             |             |             
|                                     |                                                                               | Amortization of premiums and discounts on investment
securities                |                                |                                    | 16,113       |                          |             |             | 65,407       |           |             |             | 36,135       |          
|                                     |                                                                               | Net gain on sale or call of investment securities                              |                                |                                    | (462,249     | )                        |             |             | (295,822     | )         |             |             | (27,530      | )        
|                                     |                                                                               | Federal Home Loan Bank stock dividend                                          |                                |                                    | (144,900     | )                        |             |             | (157,700     | )         |             |             | (123,200     | )        
|                                     |                                                                               | Loss on sale or write-down of property, equipment,
and other real estate owned |                                |                                    | 118,196      |                          |             |             | 55,395       |           |             |             | 776          |          
|                                     |                                                                               | Depreciation and amortization:                                                 |                                |                                    |              |                          |             |             |              |           |             |             |              |          
|                                     |                                                                               |                                                                                | Property, equipment, and other |                                    |              | 1,351,158                |             |             |              | 1,238,839 |             |             |              | 1,767,999 |            
|                                     |                                                                               |                                                                                | Mortgage servicing asset       |                                    |              | 2,000,050                |             |             |              | 1,028,810 |             |             |              | 395,354   |            
|                                     |                                                                               | Impairment of mortgage servicing asset                                         |                                |                                    | 858,000      |                          |             |             | 2,781,111    |           |             |             | 917,729      |          
|                                     |                                                                               | Deferred income tax (benefit) expense                                          |                                |                                    | (828,758     | )                        |             |             | (692,556     | )         |             |             | 1,262,560    |          
|                                     |                                                                               | Provision for loan losses                                                      |                                |                                    | 2,575,000    |                          |             |             | 1,800,000    |           |             |             | 1,450,000    |          
|                                     | Increase (decrease) in cash due to changes in certain
assets and liabilities: |                                                                                |                                |                                    |              |                          |             |             |              |           |             |             |             
|                                     |                                                                               | Proceeds from the sale of mortgage loans held-for-sale                         |                                |                                    | 236,753,057  |                          |             |             | 239,365,825  |           |             |             | 318,259,993  |          
|                                     |                                                                               | Production of mortgage loans held-for-sale                                     |                                |                                    | (230,775,664 | )                        |             |             | (229,175,623 | )         |             |             | (331,901,669 | )        
|                                     |                                                                               | Accrued interest receivable                                                    |                                |                                    | 125,710      |                          |             |             | (409,704     | )         |             |             | 506,507      |          
|                                     |                                                                               | Mortgage servicing asset                                                       |                                |                                    | (1,935,108   | )                        |             |             | (2,227,511   | )         |             |             | (4,750,197   | )        
|                                     |                                                                               | Other assets                                                                   |                                |                                    | (781,711     | )                        |             |             | (326,919     | )         |             |             | (1,919,090   | )        
|                                     |                                                                               | Accrued interest payable and other liabilities                                 |                                |                                    | 537,802      |                          |             |             | 2,865,950    |           |             |             | 2,335,012    |          
|                                     |                                                                               |                                                                                |                                |                                    |              |                          |             |             |              |           |             |             |             
|                                     |                                                                               |                                                                                |                                | Net cash from operating activities |              |                          | 19,240,492  |             |              |           | 25,296,607  |             |              |           | (4,415,904  | )
|                                     |                                                                               |                                                                                |                                |                                    |              |                          |             |             |              |           |             |             |             
|CASH FLOWS FROM INVESTING ACTIVITIES |                                                                               |                                                                                |                                |                                    |              |                          |             |             |              |           |             |            
|                                     | Proceeds from the sale of available-for-sale securities                       |                                                                                |                                | 5,670,252                          |              |                          |             | 300,000     |              |           |             | 18,315,428  |             
|                                     | Proceeds from the maturity of available-for-sale securities                   |                                                                                |                                | 19,030,000                         |              |                          |             | 7,300,000   |              |           |             | 2,895,000   |             
|                                     | Purchases of available-for-sale securities                                    |                                                                                |                                | (23,533,877                        | )            |                          |             | (4,000,000  | )            |           |             |            |             
|                                     | Proceeds from the maturity or call of held-to-maturity
securities             |                                                                                |                                | 4,954,467                          |              |                          |             | 4,077,273   |              |           |             | 2,330,603   |             
|                                     | Purchases of held-to-maturity securities                                      |                                                                                |                                | (1,347,865                         | )            |                          |             | (81,579     | )            |           |             | (5,484,218  | )           
|                                     | Purchase of restricted equity securities                                      |                                                                                |                                |                                   |              |                          |             | (468,200    | )            |           |             | (311,500    | )           
|                                     | Proceeds from sale of restricted equity securities                            |                                                                                |                                |                                   |              |                          |             | 487,013     |              |           |             |            |             
|                                     | Net change in loans made to customers                                         |                                                                                |                                | (40,319,910                        | )            |                          |             | (64,947,534 | )            |           |             | (68,850,433 | )           
|                                     | Investment in low-income housing tax credits                                  |                                                                                |                                |                                   |              |                          |             | (10,000     | )            |           |             |            |             
|                                     | Investment in bank-owned life insurance                                       |                                                                                |                                |                                   |              |                          |             |            |              |           |             | (3,174,000  | )           
|                                     | Proceeds from the sale of property and equipment                              |                                                                                |                                |                                   |              |                          |             | 25,269      |              |           |             |            |             
|                                     | Proceeds from the sale of other real estate owned                             |                                                                                |                                | 63,174                             |              |                          |             | 876,690     |              |           |             | 290,187     |             
|                                     | Payments made for purchase of property and equipment                          |                                                                                |                                | (1,042,699                         | )            |                          |             | (1,589,572  | )            |           |             | (1,151,825  | )           
|                                     |                                                                               |                                                                                |                                |                                    |              |                          |             |             |              |           |             |             |             
|                                     |                                                                               |                                                                                |                                | Net cash from investing activities |              |                          | (36,526,458 | )           |              |           | (58,030,640 | )           |              |           | (55,140,758 | )
|                                     |                                                                               |                                                                                |                                |                                    |              |                          |             |             |              |           |             |             |             

46





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                      |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |            |            | 
|--------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ---------------------------------- | ---------- | ------------------------ | ---------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                                                                      |                                                                                  |                                    |            | Years Ended December 31,
|                                                                      |                                                                                  |                                    |            |                         
|                                                                      |                                                                                  |                                    |            | 2003                     |            | 2002 |            | 2001      
|                                                                      |                                                                                  |                                    |            |                          |            |      |            |           
|CASH FLOWS FROM FINANCING ACTIVITIES                                  |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |           
|                                                                      | Net change in demand deposit and savings accounts                                |                                    | $          | 26,498,587               |            |      | $          | 66,596,197 |            |   | $          | 29,183,436 |           
|                                                                      | Net change in time certificates                                                  |                                    |            | 11,235,449               |            |      |            | (5,396,585 | )          |   |            | 19,024,644 |           
|                                                                      | Net increase (decrease) in notes payable                                         |                                    |            | (5,151,481               | )          |      |            | (8,769,596 | )          |   |            | 9,535,318  |           
|                                                                      | Proceeds from issuance of subordinated debentures                                |                                    |            |                         |            |      |            | 4,000,000  |            |   |            |           |           
|                                                                      | Dividends paid and cash paid for fractional shares                               |                                    |            | (2,666,573               | )          |      |            | (2,593,588 | )          |   |            | (2,569,581 | )         
|                                                                      | Proceeds from the exercise of stock options                                      |                                    |            | 782,637                  |            |      |            | 1,008,572  |            |   |            | 307,455    |           
|                                                                      | Repurchase of common stock                                                       |                                    |            | (247,995                 | )          |      |            | (4,023,170 | )          |   |            | (427,503   | )         
|                                                                      |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |            |           
|                                                                      |                                                                                  | Net cash from financing activities |            |                          | 30,450,624 |      |            |            | 50,821,830 |   |            |            | 55,053,769 | 
|                                                                      |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |            |           
|NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS                  |                                                                                  |                                    | 13,164,658 |                          |            |      | 18,087,797 |            |            |   | (4,502,893 | )         
|CASH AND CASH EQUIVALENTS, beginning of year                          |                                                                                  |                                    | 40,701,535 |                          |            |      | 22,613,738 |            |            |   | 27,116,631 |           
|                                                                      |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |            |           
|CASH AND CASH EQUIVALENTS, end of year                                |                                                                                  | $                                  | 53,866,193 |                          |            | $    | 40,701,535 |            |            | $ | 22,613,738 |           
|                                                                      |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |            |           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                      |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |           
|                                                                      | Interest paid in cash                                                            |                                    | $          | 6,728,204                |            |      | $          | 7,784,590  |            |   | $          | 11,705,699 |           
|                                                                      |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |            |           
|                                                                      | Taxes paid in cash                                                               |                                    | $          | 6,027,000                |            |      | $          | 5,919,000  |            |   | $          | 2,906,000  |           
|                                                                      |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |            |           
|SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |           
|                                                                      | Change in unrealized gain or loss on available-for-sale
securities, net of taxes |                                    | $          | (122,030                 | )          |      | $          | (163,538   | )          |   | $          | 422,705    |           
|                                                                      |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |            |           
|                                                                      | Change in fair value of interest-rate swap                                       |                                    | $          | (20,221                  | )          |      | $          |           |            |   | $          |           |           
|                                                                      |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |            |           
|                                                                      | Cash dividend declared and payable after year-end                                |                                    | $          | 787,552                  |            |      | $          | 628,990    |            |   | $          | 642,858    |           
|                                                                      |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |            |           
|                                                                      | Transfers of loans to other real estate owned                                    |                                    | $          | 104,700                  |            |      | $          | 553,100    |            |   | $          | 640,176    |           
|                                                                      |                                                                                  |                                    |            |                          |            |      |            |            |            |   |            |            |           

47





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and nature of operations- Columbia Bancorp (Columbia) was
incorporated on October 3, 1995, and became the holding company of Columbia
River Bank (the Bank) effective January 1, 1996. The Bank is a state-chartered
financial institution authorized to provide banking services in the states of
Oregon and Washington. With its administrative headquarters in The Dalles,
Oregon, the Bank operates 18 branch facilities, 15 in Wasco, Hood River,
Deschutes, Clackamas, Jefferson, Umatilla, and Yamhill counties in Oregon, and
three branches in Benton and Klickitat counties in Washington. The Bank
operates a mortgage banking division, the Mortgage Team, which provides
services to all banking branches of the Bank. In December 2002, Columbia formed
Columbia Bancorp Trust I, a wholly-owned Delaware statutory business trust, for
purposes of issuing guaranteed undivided beneficial interests in junior
subordinated debentures (Trust Preferred Securities). During December 2002, the
Trust issued $4 million in Trust Preferred Securities. Substantially all
activity of Columbia is conducted through its subsidiary bank. The Bank, along
with Columbia, is subject to the regulations of certain federal and state
agencies and undergoes periodic examinations by those regulatory authorities.

All significant intercompany accounts and transactions between Columbia and its
subsidiaries have been eliminated in the preparation of the consolidated
financial statements.

Managements estimates and assumptions- Preparation of the consolidated
financial statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance
sheet, and revenues and expenses for the period. Actual results could differ
significantly from those estimates. Significant estimations made by management
primarily involve the calculation of the allowance for loan losses and the
valuation of the mortgage servicing asset.

Cash and cash equivalents- Cash and cash equivalents normally include cash on
hand, amounts due from banks, and federal funds sold. Cash and due from banks
include amounts the Bank is required to maintain to meet certain average
reserve and compensating balance requirements of the Federal Reserve. As of
December 31, 2003 and 2002, the Bank had no reserve requirement to be
maintained at the Federal Reserve; however, total clearing balance requirements
at December 31, 2003 and 2002, were $400,000.

Investment securities- Columbia is required to specifically identify its
investment securities as held-to-maturity, available-for-sale, or trading
accounts. Accordingly, management has determined that all investment
securities held at December 31, 2003 and 2002, are either held-to-maturity or
available-for-sale and conform to the following accounting policies:

Securities held-to-maturity- Bonds, notes, and debentures for which Columbia
has the intent and ability to hold to maturity are reported at cost, adjusted
for premiums and discounts that are recognized in interest income, using the
interest method over the period to maturity.

48





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (continued)

Securities available-for-sale- Available-for-sale securities consist of bonds,
notes, debentures, and certain equity securities not classified as
held-to-maturity securities. Securities are generally classified as
available-for-sale if the instrument may be sold in response to such factors as
(1) changes in market interest rates and related changes in the prepayment
risk, (2) needs for liquidity, (3) changes in the availability of and the yield
on alternative instruments, and (4) changes in funding sources and terms.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as other comprehensive income and carried as
accumulated comprehensive income or loss within shareholders equity until
realized. Fair values for these investment securities are based on quoted
market prices. Gains and losses on the sale of available-for-sale securities
are determined using the specific-identification method.

Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary
result in write-downs of the individual securities to their fair value. The
related write-downs are included in earnings as realized losses. Premiums and
discounts are recognized in interest income using the effective interest method
over the period to maturity.

Restricted equity securities- Columbias equity investments in the Federal
Home Loan Bank and the Federal Agriculture Mortgage Corporation are classified
as restricted equity securities since ownership of these instruments is
restricted and they do not have an active market. These investments are carried
at cost.

Loans held-for-sale- Mortgage loans held-for-sale are carried at the lower of
cost or estimated fair market value. Fair market value is determined on an
aggregate loan basis. At December 31, 2003 and 2002, mortgage loans
held-for-sale were carried at cost which approximated fair market value.

Loans, net of allowance for loan losses and unearned loan fees- Loans are
stated at the amount of unpaid principal, reduced by an allowance for loan
losses and unearned loan fees. Interest on loans is calculated using the
simple-interest method on daily balances of the principal amount outstanding.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield over the life of the related loan.

The Bank does not accrue interest on loans for which payment in full of
principal and interest is not expected, or which payment of principal or
interest has been in default 90 days or more, unless the loan is well-secured
and in the process of collection. Nonaccrual loans are considered impaired
loans. Each impaired loan is carried at the present value of expected future
cash flows discounted at the loans effective interest rate, the loans market
price, or the fair value of collateral if the loan is collateral dependent.
When interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received or when the loan is removed from nonaccrual status. Large groups of
smaller balance, homogeneous loans may be collectively evaluated for
impairment. Accordingly, the Bank may not separately identify individual
consumer and residential loans for evaluation of impairment.

49





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (continued)

The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality, review
of specific problem loans, and current economic conditions that may affect the
borrowers ability to pay. Various regulatory agencies, as a regular part of
their examination process, periodically review the Banks allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgment of information available to them at the time
of the examinations.

Property and equipment- Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed by the straight-line and
accelerated methods over the estimated useful lives of the assets, which range
from 3 to 7 years for furniture and equipment, and 31-1/2 years for building
premises.

Goodwill- Goodwill represents the excess of cost over the fair value of net
assets acquired from the purchase of Valley Community Bancorp in 1998, and was
amortized by the straight-line method over a 15-year period until December 31,
2001. Under Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, the Bank ceased amortization of
goodwill effective January 1, 2002, completed its initial assessment of
goodwill impairment in March 2002, and has completed the annual assessment each
December thereafter. Goodwill impairment is deemed to exist if the net book
value of a reporting unit exceeds its estimated fair value. Columbias
reporting units are generally consistent with the operating segments identified
in Note 23  Segment Information. Neither the initial or annual assessments
have identified impairment of goodwill such that the net book value of the
reporting unit exceeded its estimated fair value.

The following summarizes the effects of adoption of SFAS No. 142 for the years
ended December 31, 2003, 2002, and 2001 (in thousands, except per share data):

|                               |          |   |       |      |      |   |       |      |  |   |       |      | 
|------------------------------ | -------- | - | ----- | ---- | ---- | - | ----- | ---- |  | - | ----- | ---- | 
|                               |          |   | 2003  |      | 2002 |   | 2001 
|                               |          |   |       |      |      |   |      
|Reported net income            |          | $ | 9,834 |      |      | $ | 9,381 |      |  | $ | 7,374 |     
|Add back goodwill amortization |          |   |      |      |      |   |      |      |  |   | 629   |     
|                               |          |   |       |      |      |   |       |      |  |   |       |     
|Adjusted net income            |          | $ | 9,834 |      |      | $ | 9,381 |      |  | $ | 8,003 |     
|                               |          |   |       |      |      |   |       |      |  |   |       |     
|Basic earnings per share:      |          |   |       |      |      |   |       |      |  |   |       |     
|                               | Reported |   | $     | 1.13 |      |   | $     | 1.05 |  |   | $     | 0.83 | 
|                               | Adjusted |   | $     | 1.13 |      |   | $     | 1.05 |  |   | $     | 0.91 | 
|Diluted earnings per share:    |          |   |       |      |      |   |       |      |  |   |       |     
|                               | Reported |   | $     | 1.09 |      |   | $     | 1.03 |  |   | $     | 0.81 | 
|                               | Adjusted |   | $     | 1.09 |      |   | $     | 1.03 |  |   | $     | 0.88 | 

50





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (continued)

Mortgage servicing asset, net of amortization and valuation allowance-
Mortgage servicing rights retained are measured by allocating the carrying
value of the loans between the assets sold and the interest retained, based on
the relative fair value at the date of sale. Mortgage servicing rights retained
are capitalized and included with the mortgage servicing asset (MSA) at their
allocated carrying value and amortized in proportion to, and over the period
of, estimated future net servicing revenues. Impairment of the mortgage
servicing asset is assessed based on the fair value of those rights. Fair
values are estimated using discounted cash flows of servicing revenues less
servicing costs based on current market interest rates, inflation rates, and
industry prepayment rates in accordance with SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. The amount of a valuation allowance recognized is the amount by
which the capitalized mortgage servicing asset exceeds the calculated fair
value.

Investment in a limited partnership- Columbia has a 10% interest in a limited
partnership that owns and operates affordable housing projects. Investment in
these projects serves as an element of Columbias compliance with the Community
Reinvestment Act, and Columbia receives tax benefits in the form of deductions
for operating losses and tax credits. The tax credits may be used to reduce
taxes currently payable or may be carried back one year or forward 20 years to
recapture or reduce taxes. Columbia uses the equity method in accounting for
its interest in the partnerships operating results; tax credits are recorded
in the years they become available to reduce income taxes.

Other real estate owned- Other real estate, acquired through foreclosure or
deeds in lieu of foreclosure, is carried at the lower of cost or estimated net
realizable value. When property is acquired, any excess of the loan balance
over its estimated net realizable value is charged to the allowance for loan
losses. Subsequent write-downs to net realizable value, if any, or any
disposition gains or losses are included in noninterest income and expense. At
December 31, 2003, the Bank held $41,500 in other real estate owned. The Bank
held no other real estate owned as of December 31, 2002.

Income taxes- Deferred income tax assets and liabilities are determined based
on the tax effects of the differences between the book and tax bases of the
various balance sheet assets and liabilities. Deferred tax assets and
liabilities are reflected at currently enacted income tax rates applicable to
the period in which the deferred tax assets or liabilities are expected to be
realized or settled. As changes in tax laws or rates are enacted, deferred
income tax assets and liabilities are adjusted through the provision for income
taxes.

Advertising- Advertising costs are charged to expense during the year in which
they are incurred. Advertising expenses include promotional expenses such as
public relations costs and donations, and were $536,871, $500,086, and $549,735
for the years ended December 31, 2003, 2002, and 2001, respectively.

Earnings per share- Basic earnings per share is computed by dividing net
income available to shareholders by the weighted-average number of common
shares outstanding during the period, after giving retroactive effect to stock
dividends and splits. Diluted earnings per share is computed similar to basic
earnings per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if dilutive
potential common shares had been issued. Included in the denominator is the
dilutive effect of stock options computed under the treasury stock method.

51





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (continued)

Stock options- Columbia applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its stock option plan using the intrinsic value-based method.
Accordingly, compensation costs are recognized as the difference between the
exercise price of each option and the market price of Columbias stock at the
date of each grant. Had compensation cost for Columbias 2003, 2002, and 2001
grants under its stock-based compensation plan been determined consistent with
the fair value-based method defined in SFAS No. 123, Accounting for
Stock-Based Compensation, its net income and earnings per common share for
December 31, 2003, 2002, and 2001, would approximate the pro forma amounts
shown below (in thousands, except per share data).

|                            |             |  |      |       |      |  |      |       |  |  |   |       | 
|--------------------------- | ----------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                            |             |  | 2003 |       | 2002 |  | 2001
|                            |             |  |      |       |      |  |     
|Net income:                 |             |  |      |       |      |  |      |       |  |  |   |      
|                            | As reported |  | $    | 9,834 |      |  | $    | 9,381 |  |  | $ | 7,374 | 
|                            | Pro forma   |  | $    | 9,657 |      |  | $    | 8,570 |  |  | $ | 6,823 | 
|Basic earnings per share:   |             |  |      |       |      |  |      |       |  |  |   |      
|                            | As reported |  | $    | 1.13  |      |  | $    | 1.05  |  |  | $ | 0.83  | 
|                            | Pro forma   |  | $    | 1.11  |      |  | $    | 0.96  |  |  | $ | 0.77  | 
|Diluted earnings per share: |             |  |      |       |      |  |      |       |  |  |   |      
|                            | As reported |  | $    | 1.09  |      |  | $    | 1.03  |  |  | $ | 0.81  | 
|                            | Pro forma   |  | $    | 1.07  |      |  | $    | 0.94  |  |  | $ | 0.75  | 

The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions for
December 31, 2003, 2002, and 2001:

|                      |  |      |       |      |  |      |       |   |  |  |       |  
|--------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                      |  | 2003 |       | 2002 |  | 2001
|                      |  |      |       |      |  |     
|Dividend yield        |  |      | 2.14  | %    |  |      | 2.14  | % |  |  | 3.00  | %
|Expected life (years) |  |      | 6.00  |      |  |      | 6.00  |   |  |  | 3.32  |  
|Expected volatility   |  |      | 43.71 | %    |  |      | 45.25 | % |  |  | 29.77 | %
|Risk-free rate        |  |      | 3.02  | %    |  |      | 2.08  | % |  |  | 3.74  | %

The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.

Off-balance-sheet financial instruments- In the ordinary course of business,
the Bank enters into off-balance-sheet financial instruments consisting of
commitments to extend credit, commitments under credit card arrangements,
commercial letters of credit, and standby letters of credit. These financial
instruments are recorded in the consolidated financial statements when they are
funded or related fees are incurred or received.

52





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (continued)

Derivative financial instruments- Columbia has adopted SFAS No. 133,
Accounting for Derivatives and Hedging Activities, and SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities,
an Amendment of FASB Statement No. 133. All derivative instruments, including
certain derivative instruments embedded in other contracts, are recognized in
the consolidated balance sheets at fair value. SFAS No. 133 requires that the
accounting for gains or losses from changes in the derivative instruments fair
value is contingent upon whether the derivative instrument qualifies as a hedge
under the accounting standard. On the date Columbia enters into a derivative
contract, Columbia designates the derivative instrument as (1) a hedge of the
fair value of a recognized asset or liability or of an unrecognized firm
commitment (fair value hedge), (2) a hedge of a forecasted transaction or of
the variability of cash flows to be received or paid related to a recognized
asset or liability (cash flow hedge), or (3) a hedge for trading, customer
accommodation, or not qualifying for hedge accounting (free-standing derivative
instruments). For a fair value hedge, changes in the fair value of the
derivative instrument and changes in the fair value of the hedged asset or
liability, or of an unrecognized firm commitment attributable to the hedged
risk are recorded in current period net income. For a cash flow hedge, changes
in the fair value of the derivative instrument to the extent that it is
effective are recorded in other comprehensive income, net of tax, within
shareholders equity and subsequently reclassified to net income in the same
period(s) that the hedged transaction impacts net income. For free-standing
derivative instruments, changes in the fair values are reported in current
period net income. Columbia formally documents the relationship between hedging
instruments and hedged items, as well as the risk management objective and
strategy for undertaking any hedge transaction. This process includes linking
all derivative instruments that are designated as fair value or cash flow
hedges to specific assets and liabilities on the balance sheet or to specific
forecasted transactions. Columbia has historically used forward sales contract
derivatives as a strategy to mitigate the risk associated with interest rate
volatility and currently uses an interest-rate swap to mitigate the variability
of interest payments on the Trust Preferred Securities. Columbia also formally
assesses both at the inception of the hedge and on an ongoing basis, whether
the derivative instruments used are highly effective in offsetting changes in
fair values or cash flows of hedged items.

Fair value of financial instruments- The following methods and assumptions
were used by Columbia in estimating fair values of financial instruments as
disclosed herein:

Held-to-maturity, available-for-sale, and restricted equity securities- Fair
values for investment securities, excluding restricted equity securities, are
based on quoted market prices. The carrying values of restricted equity
securities approximate fair values.

Loans receivable- For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
Fair values for certain mortgage loans (for example, one-to-four family
residential), credit card loans, and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. Fair values for
commercial real estate and commercial loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values for impaired
loans are estimated using a discounted cash flow analysis or underlying
collateral values, where applicable.

53





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (continued)

Deposit liabilities- The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date (that
is, their carrying amounts). The carrying amounts of variable-rate money market
accounts and fixed-term certificates of deposit (CDs) approximate their fair
values at the reporting date. Fair values for fixed-rate CDs are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.

Short-term borrowings- The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
maturing within 90 days approximate their fair values. Fair values of other
short-term borrowings are estimated using discounted cash flow analyses based
on the Banks current incremental borrowing rates for similar types of
borrowing arrangements.

Long-term debt- The fair value of the Banks long-term debt is estimated using
a discounted cash flow analysis based on the Banks current incremental
borrowing rates for similar types of borrowing arrangements.

Off-balance-sheet instruments- The Banks off-balance-sheet instruments
include unfunded commitments to extend credit and standby letters of credit.
The fair value of these instruments is not considered practicable to estimate
because of the lack of quoted market prices and the inability to estimate fair
value without incurring excessive costs.

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

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. Columbias management does not expect that the
application of the provisions of this statement will have a material impact on
Columbias consolidated financial statements.

54





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (continued)

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation
of Variable Interest Entities. This interpretation clarifies the application
of Accounting Research Bulletin No. 51, Consolidated Financial Statements,
and requires existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not effectively
disperse risks among parties involved. This interpretation explains how to
identify variable interest entities and how an enterprise assesses its
interests in a variable interest entity to decide whether to consolidate that
entity. In December 2003, FASB made revisions and delayed implementation of
certain provisions of FIN 46. As a public entity that is not a Small Business
Issuer, Columbia is now required to apply FIN 46 to all unconsolidated
variable interest entities no later than March 31, 2004, with the exception of
unconsolidated special-purpose entities, which had an implementation deadline
of December 31, 2003. Special-purpose entities for this provision are expected
to include entities whose activities are primarily related to securitizations
or other forms of asset-backed financings or single-lessee leasing
arrangements. Columbias management does not expect that the application of the
provisions of this interpretation will have a material impact on Columbias
consolidated financial statements.

Reclassifications- Certain reclassifications have been made to the 2002 and
2001 consolidated financial statements to conform with current year
presentations.

NOTE 2 - INVESTMENT SECURITIES

The amortized cost and estimated fair values of Columbias investment
securities at December 31, 2003 and 2002, are summarized as follows:

|                               |                                         |   |            |            |            |   |            |         |       |   |           |        |   |   |            |            | 
|------------------------------ | --------------------------------------- | - | ---------- | ---------- | ---------- | - | ---------- | ------- | ----- | - | --------- | ------ | - | - | ---------- | ---------- | 
|                               |                                         |   |            |            |            |   | Gross      |         | Gross |   | Estimated
|                               |                                         |   | Amortized  |            | Unrealized |   | Unrealized |         | Fair 
|                               |                                         |   | Cost       |            | Gains      |   | Losses     |         | Value
|                               |                                         |   |            |            |            |   |            |         |      
|December 31, 2003:             |                                         |   |            |            |            |   |            |         |       |   |           |        |   |   |            |           
|Available-for-sale securities: |                                         |   |            |            |            |   |            |         |       |   |           |        |   |   |            |           
|                               | Obligations
of U.S. government agencies |   | $          | 12,980,989 |            |   | $          | 24,165  |       |   | $         | (1,250 | ) |   | $          | 13,003,904 | 
|                               | Corporate equity securities             |   |            | 75,000     |            |   |            | 3,750   |       |   |           |       |   |   |            | 78,750     | 
|                               | Municipal securities                    |   |            | 739,455    |            |   |            | 53,537  |       |   |           |       |   |   |            | 792,992    | 
|                               |                                         |   |            |            |            |   |            |         |       |   |           |        |   |   |            |            | 
|                               |                                         | $ | 13,795,444 |            |            | $ | 81,452     |         |       | $ | (1,250    | )      |   | $ | 13,875,646 |           
|                               |                                         |   |            |            |            |   |            |         |       |   |           |        |   |   |            |            | 
|Held-to-maturity securities:   |                                         |   |            |            |            |   |            |         |       |   |           |        |   |   |            |           
|                               | Mortgage-backed
securities              |   | $          | 1,866,412  |            |   | $          | 62,116  |       |   | $         |       |   |   | $          | 1,928,528  | 
|                               | Municipal securities                    |   |            | 13,016,058 |            |   |            | 818,153 |       |   |           | (539   | ) |   |            | 13,833,672 | 
|                               | Obligations
of U.S. government agencies |   |            | 81,258     |            |   |            |        |       |   |           |       |   |   |            | 81,258     | 
|                               |                                         |   |            |            |            |   |            |         |       |   |           |        |   |   |            |            | 
|                               |                                         | $ | 14,963,728 |            |            | $ | 880,269    |         |       | $ | (539      | )      |   | $ | 15,843,458 |           
|                               |                                         |   |            |            |            |   |            |         |       |   |           |        |   |   |            |            | 

55





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - INVESTMENT SECURITIES- (continued)

|                               |                                         |   |            |            |            |   |            |         |       |   |           |      |   |   |            |            | 
|------------------------------ | --------------------------------------- | - | ---------- | ---------- | ---------- | - | ---------- | ------- | ----- | - | --------- | ---- | - | - | ---------- | ---------- | 
|                               |                                         |   |            |            |            |   | Gross      |         | Gross |   | Estimated
|                               |                                         |   | Amortized  |            | Unrealized |   | Unrealized |         | Fair 
|                               |                                         |   | Cost       |            | Gains      |   | Losses     |         | Value
|                               |                                         |   |            |            |            |   |            |         |      
|December 31, 2002:             |                                         |   |            |            |            |   |            |         |       |   |           |      |   |   |            |           
|Available-for-sale securities: |                                         |   |            |            |            |   |            |         |       |   |           |      |   |   |            |           
|                               | Obligations
of U.S. government agencies |   | $          | 11,499,888 |            |   | $          | 143,700 |       |   | $         |     |   |   | $          | 11,643,588 | 
|                               | Corporate debt securities               |   |            | 1,228,919  |            |   |            | 37,253  |       |   |           |     |   |   |            | 1,266,172  | 
|                               | Corporate equity securities             |   |            | 112,987    |            |   |            |        |       |   |           |     |   |   |            | 112,987    | 
|                               | Municipal securities                    |   |            | 1,643,884  |            |   |            | 83,063  |       |   |           |     |   |   |            | 1,726,947  | 
|                               |                                         |   |            |            |            |   |            |         |       |   |           |      |   |   |            |            | 
|                               |                                         | $ | 14,485,678 |            |            | $ | 264,016    |         |       | $ |          |      |   | $ | 14,749,694 |           
|                               |                                         |   |            |            |            |   |            |         |       |   |           |      |   |   |            |            | 
|Held-to-maturity securities:   |                                         |   |            |            |            |   |            |         |       |   |           |      |   |   |            |           
|                               | Mortgage-backed
securities              |   | $          | 3,770,306  |            |   | $          | 149,815 |       |   | $         |     |   |   | $          | 3,920,121  | 
|                               | Municipal securities                    |   |            | 14,748,450 |            |   |            | 689,734 |       |   |           | (536 | ) |   |            | 15,437,648 | 
|                               | Obligations
of U.S. government agencies |   |            | 81,579     |            |   |            |        |       |   |           |     |   |   |            | 81,579     | 
|                               |                                         |   |            |            |            |   |            |         |       |   |           |      |   |   |            |            | 
|                               |                                         | $ | 18,600,335 |            |            | $ | 839,549    |         |       | $ | (536      | )    |   | $ | 19,439,348 |           
|                               |                                         |   |            |            |            |   |            |         |       |   |           |      |   |   |            |            | 

The following table presents the gross unrealized losses and fair value of the
Banks investment securities, aggregated by investment category and length of
time that individual securities have been in a continuous unrealized loss
position, at December 31, 2003:

|                                        |  |                     |           |                   |  |            |        |        |  |            |        |            |  |   |      |   |  |            |           |  |  |   |        |  
|--------------------------------------- |  | ------------------- | --------- | ----------------- |  | ---------- | ------ | ------ |  | ---------- | ------ | ---------- |  | - | ---- | - |  | ---------- | --------- |  |  | - | ------ | -
|                                        |  | Less than 12 months |           | 12 months or more |  | Total     
|                                        |  |                     |           |                   |  |           
|                                        |  |                     |           |                   |  | Unrealized |        |        |  |            |        | Unrealized |  |   |      |   |  | Unrealized
|                                        |  | Fair Value          |           | Losses            |  | Fair Value |        | Losses |  | Fair Value |        | Losses    
|                                        |  |                     |           |                   |  |            |        |        |  |            |        |           
|Obligations
of U.S. government agencies |  | $                   | 1,998,750 |                   |  | $          | (1,250 | )      |  | $          |       |            |  | $ |     |   |  | $          | 1,998,750 |  |  | $ | (1,250 | )
|Municipal securities                    |  |                     |          |                   |  |            |       |        |  |            | 65,098 |            |  |   | (539 | ) |  |            | 65,098    |  |  |   | (539   | )
|                                        |  |                     |           |                   |  |            |        |        |  |            |        |            |  |   |      |   |  |            |           |  |  |   |        |  
|                                        |  | $                   | 1,998,750 |                   |  | $          | (1,250 | )      |  | $          | 65,098 |            |  | $ | (539 | ) |  | $          | 2,063,848 |  |  | $ | (1,789 | )
|                                        |  |                     |           |                   |  |            |        |        |  |            |        |            |  |   |      |   |  |            |           |  |  |   |        |  

56





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - INVESTMENT SECURITIES- (continued)

The amortized cost and estimated fair value of investment securities at
December 31, 2003, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.

|                                       |  |                    |            |                  |  |           |            |       |  |   |            |           |  |   |            | 
|-------------------------------------- |  | ------------------ | ---------- | ---------------- |  | --------- | ---------- | ----- |  | - | ---------- | --------- |  | - | ---------- | 
|                                       |  | Available-For-Sale |            | Held-To-Maturity
|                                       |  |                    |            |                 
|                                       |  |                    |            |                  |  | Estimated |            |       |  |   |            | Estimated
|                                       |  | Amortized          |            | Fair             |  | Amortized |            | Fair 
|                                       |  | Cost               |            | Value            |  | Cost      |            | Value
|                                       |  |                    |            |                  |  |           |            |      
|Due in one year or less                |  | $                  | 7,107,096  |                  |  | $         | 7,113,569  |       |  | $ | 2,160,255  |           |  | $ | 2,216,759  | 
|Due after one year through
five years  |  |                    | 6,613,348  |                  |  |           | 6,683,327  |       |  |   | 2,203,885  |           |  |   | 2,290,416  | 
|Due after five years through
ten years |  |                    |           |                  |  |           |           |       |  |   | 9,169,430  |           |  |   | 9,816,017  | 
|Due after ten years                    |  |                    |           |                  |  |           |           |       |  |   | 1,430,158  |           |  |   | 1,520,266  | 
|                                       |  |                    |            |                  |  |           |            |       |  |   |            |           |  |   |            | 
|                                       |  |                    | 13,720,444 |                  |  |           | 13,796,896 |       |  |   | 14,963,728 |           |  |   | 15,843,458 | 
|Corporate equity securities            |  |                    | 75,000     |                  |  |           | 78,750     |       |  |   |           |           |  |   |           | 
|                                       |  |                    |            |                  |  |           |            |       |  |   |            |           |  |   |            | 
|                                       |  | $                  | 13,795,444 |                  |  | $         | 13,875,646 |       |  | $ | 14,963,728 |           |  | $ | 15,843,458 | 
|                                       |  |                    |            |                  |  |           |            |       |  |   |            |           |  |   |            | 

For the purpose of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity groupings
based on the weighted-average contractual maturities of underlying collateral.
Mortgage-backed securities may mature earlier than their weighted-average
contractual maturities because of principal prepayments.

As of December 31, 2003 and 2002, investment securities with an amortized cost
of $14,042,333 and $15,270,194, respectively, have been pledged to secure notes
payable at the Federal Home Loan and Federal Reserve banks and public or other
deposits, as required by law.

NOTE 3 - RESTRICTED EQUITY SECURITIES

The composition of restricted equity securities is as follows:

|                                               |  |      |           |      |  |   |           | 
|---------------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                               |  | 2003 |           | 2002
|                                               |  |      |           |     
|Federal Home Loan Bank stock                   |  | $    | 2,833,700 |      |  | $ | 2,688,800 | 
|Federal Agriculture Mortgage Corporation stock |  |      | 9,400     |      |  |   | 9,400     | 
|                                               |  |      |           |      |  |   |           | 
|                                               |  | $    | 2,843,100 |      |  | $ | 2,698,200 | 
|                                               |  |      |           |      |  |   |           | 

57





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES

The loan portfolio consists of the following:

|                               |  |      |             |      |  |   |             |  
|------------------------------ |  | ---- | ----------- | ---- |  | - | ----------- | -
|                               |  | 2003 |             | 2002
|                               |  |      |             |     
|Commercial                     |  | $    | 86,163,437  |      |  | $ | 69,881,954  |  
|Agriculture                    |  |      | 64,058,572  |      |  |   | 61,770,202  |  
|Real estate                    |  |      | 206,754,240 |      |  |   | 181,456,664 |  
|Real estate  construction     |  |      | 87,426,996  |      |  |   | 91,035,925  |  
|Consumer                       |  |      | 18,241,447  |      |  |   | 20,936,603  |  
|Credit card and other loans    |  |      | 6,975,262   |      |  |   | 6,497,855   |  
|                               |  |      |             |      |  |   |             |  
|                               |  |      | 469,619,954 |      |  |   | 431,579,203 |  
|Less allowance for loan losses |  |      | (6,612,308  | )    |  |   | (6,416,691  | )
|Less unearned loan fees        |  |      | (1,449,881  | )    |  |   | (1,244,957  | )
|                               |  |      |             |      |  |   |             |  
|                               |  | $    | 461,557,765 |      |  | $ | 423,917,555 |  
|                               |  |      |             |      |  |   |             |  

Impaired loans had a recorded investment of $3,292,632 and $742,049 at December
31, 2003 and 2002, respectively. The Banks average investment in impaired
loans, measured on the basis of the present value of expected future cash flows
discounted at the loans effective interest rates, was approximately $4,024,000
and $1,076,000 during 2003 and 2002, respectively. The total allowance for loan
losses related to these loans at December 31, 2003 and 2002, was approximately
$1,111,000 and $253,000, respectively. Had the impaired loans performed
according to their original terms, additional interest income of $589,125,
$215,663, and $209,415 would have been recognized in 2003, 2002, and 2001,
respectively. No interest income has been recognized on impaired loans during
the period of impairment.

Changes in the allowance for loan losses were as follows:

|                           |  |      |            |      |  |      |           |   |  |   |           |  
|-------------------------- |  | ---- | ---------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                           |  | 2003 |            | 2002 |  | 2001
|                           |  |      |            |      |  |     
|BALANCE, beginning of year |  | $    | 6,416,691  |      |  | $    | 5,311,715 |   |  | $ | 4,577,941 |  
|Provision for loan losses  |  |      | 2,575,000  |      |  |      | 1,800,000 |   |  |   | 1,450,000 |  
|Loans charged off          |  |      | (2,533,417 | )    |  |      | (886,156  | ) |  |   | (799,583  | )
|Loan recoveries            |  |      | 154,034    |      |  |      | 191,132   |   |  |   | 83,357    |  
|                           |  |      |            |      |  |      |           |   |  |   |           |  
|BALANCE, end of year       |  | $    | 6,612,308  |      |  | $    | 6,416,691 |   |  | $ | 5,311,715 |  
|                           |  |      |            |      |  |      |           |   |  |   |           |  

58





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - MORTGAGE SERVICING AND LENDING ACTIVITIES

Mortgages serviced for others, which totaled $444.6 million and $488.5 million
at December 31, 2003 and 2002, respectively, are not included in the
accompanying consolidated balance sheets. However, a mortgage servicing asset
(MSA) relating to this portfolio is recorded by the Bank as an asset based on
calculations using a discounted cash flow model, which incorporates the
expected life of the loans, estimated costs to service the loans, servicing
fees to be received, and other factors, in accordance with SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. The key assumptions, segmented by interest rate tranches, used
to value the MSA at December 31, 2003, were as follows:

|                                                           |  |           |             |               |  |           |             |      |  |   |            |   |  |            |            |  
|---------------------------------------------------------- |  | --------- | ----------- | ------------- |  | --------- | ----------- | ---- |  | - | ---------- | - |  | ---------- | ---------- | -
|                                                           |  |           |             |               |  |           |             |      |  |   |            |   |  | Adjustable
|                                                           |  | < = 6.00% |             | 6.01%  7.00% |  | > = 7.01% |             | Rate
|                                                           |  |           |             |               |  |           |             |     
|Unpaid principal balance                                   |  | $         | 213,668,053 |               |  | $         | 133,778,637 |      |  | $ | 67,798,600 |   |  | $          | 29,403,964 |  
|Number of loans                                            |  |           | 1,656       |               |  |           | 1,180       |      |  |   | 706        |   |  |            | 247        |  
|Weighted-average term to maturity
(months)                 |  |           | 235         |               |  |           | 280         |      |  |   | 312        |   |  |            | 72         |  
|Estimated loan life (months)                               |  |           | 89          |               |  |           | 57          |      |  |   | 38         |   |  |            | 27         |  
|Servicing cost per loan per month,
net of ancillary income |  | $         | 25          |               |  | $         | 25          |      |  | $ | 25         |   |  | $          | 40         |  
|Discount rate                                              |  |           | 10%  13    | %             |  |           | 9.5%  13   | %    |  |   | 12.5       | % |  |            | 12.5       | %

The changes in the balance of the MSA were as follows:

|                                                   |  |      |            |      |  |      |            |   |  |   |           |  
|-------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | --------- | -
|                                                   |  | 2003 |            | 2002 |  | 2001
|                                                   |  |      |            |      |  |     
|MSA balance, beginning of year                     |  | $    | 4,614,391  |      |  | $    | 6,196,801  |   |  | $ | 2,759,687 |  
|Additions for capitalized servicing
right premiums |  |      | 1,935,108  |      |  |      | 2,227,511  |   |  |   | 4,750,197 |  
|Amortization of MSA                                |  |      | (2,000,050 | )    |  |      | (1,028,810 | ) |  |   | (395,354  | )
|Valuation allowance adjustments                    |  |      | (858,000   | )    |  |      | (2,781,111 | ) |  |   | (917,729  | )
|                                                   |  |      |            |      |  |      |            |   |  |   |           |  
|                                                   |  | $    | 3,691,449  |      |  | $    | 4,614,391  |   |  | $ | 6,196,801 |  
|                                                   |  |      |            |      |  |      |            |   |  |   |           |  

59





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - MORTGAGE SERVICING AND LENDING ACTIVITIES- (continued)

The valuation allowance provides for adjustments to the cost basis of the total
mortgage servicing assets to estimated fair value. The fair value adjustment is
recorded as an adjustment to the income of the Mortgage Team net revenues when
recognized. Mortgage Team net revenues consisted of the following:

|                                                    |                            |   |           |           |      |   |            |           |  |   |            |           | 
|--------------------------------------------------- | -------------------------- | - | --------- | --------- | ---- | - | ---------- | --------- |  | - | ---------- | --------- | 
|                                                    |                            |   | 2003      |           | 2002 |   | 2001      
|                                                    |                            |   |           |           |      |   |           
|Mortgage loan origination and
processing fee income |                            | $ | 2,337,879 |           |      | $ | 2,513,005  |           |  | $ | 1,662,268  |          
|Loan servicing fees                                 |                            |   | 1,193,393 |           |      |   | 1,163,815  |           |  |   | 631,440    |          
|Net mortgage servicing income
(expense)             |                            |   | (924,092  | )         |      |   | (1,582,410 | )         |  |   | 3,445,995  |          
|Gain (loss) on loan sales                           |                            |   | (288,909  | )         |      |   | 1,353,772  |           |  |   | (222,371   | )        
|Servicing release premium                           |                            |   | 253,607   |           |      |   | 461,982    |           |  |   |           |          
|Hedge expense                                       |                            |   | (140,206  | )         |      |   | (1,720,539 | )         |  |   | (1,253,891 | )        
|Other                                               |                            |   |          |           |      |   | 3,689      |           |  |   |           |          
|                                                    |                            |   |           |           |      |   |            |           |  |   |            |          
|                                                    | Mortgage Team net revenues |   | $         | 2,431,672 |      |   | $          | 2,193,314 |  |   | $          | 4,263,441 | 
|                                                    |                            |   |           |           |      |   |            |           |  |   |            |          

NOTE 6 - PROPERTY AND EQUIPMENT

The major classifications of property and equipment are summarized as follows:

|                              |                                                         |   |            |            |      |   |            |            | 
|----------------------------- | ------------------------------------------------------- | - | ---------- | ---------- | ---- | - | ---------- | ---------- | 
|                              |                                                         |   | 2003       |            | 2002
|                              |                                                         |   |            |            |     
|Land                          |                                                         | $ | 3,468,310  |            |      | $ | 3,491,377  |           
|Construction in progress      |                                                         |   | 355,759    |            |      |   | 145,741    |           
|Buildings and improvements    |                                                         |   | 10,171,670 |            |      |   | 10,153,556 |           
|Furniture and equipment       |                                                         |   | 6,730,885  |            |      |   | 6,521,588  |           
|                              |                                                         |   |            |            |      |   |            |           
|                              | Total property and equipment                            |   |            | 20,726,624 |      |   |            | 20,312,262 | 
|Less accumulated depreciation |                                                         |   | (6,959,715 | )          |      |   | (6,128,411 | )         
|                              |                                                         |   |            |            |      |   |            |           
|                              | Property and equipment, net of
accumulated depreciation |   | $          | 13,766,909 |      |   | $          | 14,183,851 | 
|                              |                                                         |   |            |            |      |   |            |           

For certain bank branch facilities, Columbia leases office space to third
parties. Minimum future rental income from noncancellable leases for the next
five years beginning in 2004 is approximately $94,000, $94,000, $80,000,
$74,000, and $74,000. Minimum lease rental income for the year 2009 and
thereafter is approximately $80,000.

60



---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - TIME CERTIFICATES

Time certificates of deposit of $100,000 and over, aggregated $38,333,812 and
$44,746,175 at December 31, 2003 and 2002, respectively. Brokered time
certificates had an aggregate carrying value of $26,170,676 and $16,179,793 at
December 31, 2003 and 2002, respectively.

At December 31, 2003, the scheduled maturities for all time certificates are as
follows:

|                          |  |            |  |  |   |             | 
|------------------------- |  | ---------- |  |  | - | ----------- | 
|Years ending December 31, |  | 2004       |  |  | $ | 68,870,645  | 
|                          |  | 2005       |  |  |   | 22,224,563  | 
|                          |  | 2006       |  |  |   | 15,344,435  | 
|                          |  | 2007       |  |  |   | 7,344,686   | 
|                          |  | 2008       |  |  |   | 6,654,821   | 
|                          |  | Thereafter |  |  |   | 2,308,674   | 
|                          |  |            |  |  |   |             | 
|                          |  |            |  |  | $ | 122,747,824 | 
|                          |  |            |  |  |   |             | 

NOTE 8 - LINES OF CREDIT AND BORROWED FUNDS

The Bank has federal funds line of credit agreements with five financial
institutions and the Federal Reserve Bank of San Francisco. Maximum aggregate
borrowings available under these lines totaled $31.4 million, with available
line of credit funds reduced by other borrowings. These lines support
short-term liquidity and cannot be used for more than 1 to 15 consecutive
business days, depending on the lending institution. At December 31, 2003 and
2002, there were no borrowings outstanding under these agreements.

The Bank is a member of the Federal Home Loan Bank (FHLB) of Seattle and has
entered into credit arrangement with the FHLB under which authorized borrowings
are collateralized by the Banks FHLB stock as well as loans or other
instruments which may be pledged. As of December 31, 2003 and 2002, the Bank
had total borrowings outstanding with the FHLB of $21,133,465 and $26,284,946,
respectively, with no outstanding advances under the Cash Management Advance
program. Interest rates for borrowings under the Cash Management Advance
agreement fluctuate daily at market rates for each borrowing. Interest rates on
notes outstanding range from 1.18% to 6.08%. The Bank had $41,545,535 available
for additional borrowings at December 31, 2003.Maximum borrowings available
from the FHLB for notes payable, lines of credit, and the Cash Management
Advance agreement totaled $62,679,000 at December 31, 2003.

61





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LINES OF CREDIT AND BORROWED FUNDS- (continued)

The Bank had outstanding notes from the FHLB at December 31, 2003 and 2002, as
follows:

|                  |            |                   |  |      |  |          |      |          |  |           |      |      |  |          |            |          |  |  |      |           |  |  |      |  
|----------------- | ---------- | ----------------- |  | ---- |  | -------- | ---- | -------- |  | --------- | ---- | ---- |  | -------- | ---------- | -------- |  |  | ---- | --------- |  |  | ---- | -
|December 31, 2003 |            | December 31, 2002
|                  |            |                  
|                  |            |                   |  |      |  |          |      |          |  | Weighted- |      |      |  |          |            |          |  |  |      | Weighted-
|                  |            |                   |  |      |  |          |      |          |  | Average   |      |      |  |          |            |          |  |  |      | Average  
|                  |            |                   |  |      |  | Maturity |      | Interest |  |           |      |      |  | Maturity |            | Interest
|Amount            |            |                   |  | Year |  | Rate     |      | Amount   |  | Year      |      | Rate
|                  |            |                   |  |      |  |          |      |          |  |           |      |     
|$                 | 5,921,147  |                   |  |      |  |          | 2004 |          |  |           | 2.22 | %    |  | $        | 10,728,495 |          |  |  | 2003 |           |  |  | 3.94 | %
|                  | 3,750,000  |                   |  |      |  |          | 2005 |          |  |           | 3.17 | %    |  |          | 3,254,480  |          |  |  | 2004 |           |  |  | 4.47 | %
|                  | 3,000,000  |                   |  |      |  |          | 2006 |          |  |           | 2.70 | %    |  |          | 3,750,000  |          |  |  | 2005 |           |  |  | 3.17 | %
|                  | 6,500,000  |                   |  |      |  |          | 2007 |          |  |           | 4.78 | %    |  |          | 1,000,000  |          |  |  | 2006 |           |  |  | 4.65 | %
|                  | 1,180,334  |                   |  |      |  |          | 2008 |          |  |           | 3.63 | %    |  |          | 6,500,000  |          |  |  | 2007 |           |  |  | 4.78 | %
|                  | 781,984    |                   |  |      |  |          | 2013 |          |  |           | 5.47 | %    |  |          | 220,334    |          |  |  | 2008 |           |  |  | 6.08 | %
|                  |            |                   |  |      |  |          |      |          |  |           |      |      |  |          | 831,637    |          |  |  | 2013 |           |  |  | 5.47 | %
|                  |            |                   |  |      |  |          |      |          |  |           |      |      |  |          |            |          |  |  |      |           |  |  |      |  
|$                 | 21,133,465 |                   |  |      |  |          |      |          |  |           | 3.44 | %    |  | $        | 26,284,946 |          |  |  |      |           |  |  | 4.20 | %
|                  |            |                   |  |      |  |          |      |          |  |           |      |      |  |          |            |          |  |  |      |           |  |  |      |  

The Bank also participates in the U.S. Treasury Departments Treasury
Investment Program, which facilitates the acceptance and processing of federal
tax deposits. Under this program, the Bank is authorized to accumulate daily
tax payments up to authorized limits, and deploy the funds in short-term
investments. In exchange, the Bank is required to issue a fully collateralized
demand note to the U.S. Treasury and pay interest at the federal funds rate
minus 25 basis points. As of December 31, 2003 and 2002, the Bank had $850,000
outstanding under this program.

NOTE 9 - TRUST PREFERRED SECURITIES

In December 2002, Columbia formed a wholly-owned Delaware statutory business
trust subsidiary, Columbia Bancorp Trust I (the Trust), which issued $4,000,000
of guaranteed undivided beneficial interests in Columbias Junior Subordinated
Deferrable Interest Debentures (Trust Preferred Securities). These debentures
qualify as Tier 1 capital under Federal Reserve Board guidelines. All of the
common securities of the Trust are owned by Columbia. The proceeds from the
issuance of the common securities and the Trust Preferred Securities were used
by the Trust to purchase $4,124,000 of junior subordinated debentures of
Columbia. The debentures which represent the sole asset of the Trust, accrue
and pay distributions quarterly at a variable rate of 90-day LIBOR plus 3.3%
per annum of the stated liquidation value of $1,000 per capital security.
Columbia has entered into contractual arrangements which, taken collectively,
fully and unconditionally guarantee payment of: (1) accrued and unpaid
distributions required to be paid on the Trust Preferred Securities, (2) the
redemption price with respect to any Trust Preferred Securities called for
redemption by the Trust, and (3) payments due upon a

62





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - TRUST PREFERRED SECURITIES- (continued)

voluntary or involuntary dissolution, winding up or liquidation of the Trust.
The Trust Preferred Securities are mandatorily redeemable upon maturity of the
debentures on January 7, 2033, or upon earlier redemption as provided in the
indenture. Columbia has the right to redeem the debentures purchased by the
Trust in whole or in part, on or after January 7, 2008. As specified in the
indenture, if the debentures are redeemed prior to maturity, the redemption
price will be the principal amount and any accrued but unpaid interest. For the
years ended December 31, 2003 and 2002, Columbia paid interest expense related
to the Trust Preferred Securities of $187,162 and $6,803, respectively.

NOTE 10 - INTEREST-RATE SWAP

During January 2003, in connection with the issuance of $4,000,000 of
floating-rate Trust Preferred Securities described in Note 9, Columbia entered
into an interest-rate swap agreement with an unrelated third party. Under the
terms of the agreement, which expires in January 2008, Columbia will pay 3.27%
on a notional amount of $4,000,000 and receive credit for the 90-day LIBOR rate
on the same amount. The effect of this transaction was the conversion of the
$4,000,000 trust preferred issuance from a floating rate at 90-day LIBOR plus
330 basis points to a fixed rate of 6.57% for five years, the point at which
Columbia has the option to call the Trust Preferred Securities. Columbia has
classified the swap agreement as a cash flow hedge in accordance with SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. For the
period ended December 31, 2003, the hedge has been highly effective in
achieving offsetting cash flows attributable to the hedged risk.

NOTE 11 - INCOME TAXES

The provision for income taxes consists of the following:

|                                |         |                            |           |           |           |      |           |           |           |  |           |           |           | 
|------------------------------- | ------- | -------------------------- | --------- | --------- | --------- | ---- | --------- | --------- | --------- |  | --------- | --------- | --------- | 
|                                |         |                            |           | 2003      |           | 2002 |           | 2001     
|                                |         |                            |           |           |           |      |           |          
|Current tax provision:          |         |                            |           |           |           |      |           |           |           |  |           |          
|                                | Federal |                            | $         | 5,077,462 |           |      | $         | 4,989,761 |           |  | $         | 2,597,008 |          
|                                | State   |                            |           | 1,015,005 |           |      |           | 926,292   |           |  |           | 517,244   |          
|                                |         |                            |           |           |           |      |           |           |           |  |           |           |          
|                                |         |                            | 6,092,467 |           |           |      | 5,916,053 |           |           |  | 3,114,252 |          
|                                |         |                            |           |           |           |      |           |           |           |  |           |           |          
|Deferred tax (benefit) expense: |         |                            |           |           |           |      |           |           |           |  |           |          
|                                | Federal |                            |           | (479,137  | )         |      |           | (613,200  | )         |  |           | 1,117,892 |          
|                                | State   |                            |           | (49,021   | )         |      |           | (79,356   | )         |  |           | 144,668   |          
|                                |         |                            |           |           |           |      |           |           |           |  |           |           |          
|                                |         |                            | (528,158  | )         |           |      | (692,556  | )         |           |  | 1,262,560 |          
|                                |         |                            |           |           |           |      |           |           |           |  |           |           |          
|                                |         | Provision for income taxes |           | $         | 5,564,309 |      |           | $         | 5,223,497 |  |           | $         | 4,376,812 | 
|                                |         |                            |           |           |           |      |           |           |           |  |           |           |          

63





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - INCOME TAXES- (continued)

The components of the deferred income tax (benefit) expense consist of the
following:

|                                                                                      |                                       |   |          |          |      |   |          |          |   |   |           |           | 
|------------------------------------------------------------------------------------- | ------------------------------------- | - | -------- | -------- | ---- | - | -------- | -------- | - | - | --------- | --------- | 
|                                                                                      |                                       |   | 2003     |          | 2002 |   | 2001    
|                                                                                      |                                       |   |          |          |      |   |         
|Mortgage servicing rights                                                             |                                       | $ | (350,718 | )        |      | $ | (601,316 | )        |   | $ | 1,306,104 |          
|Loan loss provision not deductible
for tax                                            |                                       |   | (141,778 | )        |      |   | (371,906 | )        |   |   | (275,426  | )        
|Difference between book and tax
depreciation methods                                  |                                       |   | (117,890 | )        |      |   | 217,179  |          |   |   | 195,279   |          
|Difference between accrual and
cash basis tax reporting                               |                                       |   |         |          |      |   |         |          |   |   | (17,406   | )        
|Deferred compensation                                                                 |                                       |   | (53,472  | )        |      |   | (22,933  | )        |   |   | 7,083     |          
|Difference between book and tax
recognition of Federal Home
Loan Bank stock dividends |                                       |   | 54,957   |          |      |   | 60,031   |          |   |   | 46,926    |          
|Cash surrender value greater than
investment in life insurance policies               |                                       |   | 55,186   |          |      |   | 101,584  |          |   |   |          |          
|Other differences                                                                     |                                       |   | 25,557   |          |      |   | (75,195  | )        |   |   |          |          
|                                                                                      |                                       |   |          |          |      |   |          |          |   |   |           |          
|                                                                                      | Deferred income tax (benefit)
expense |   | $        | (528,158 | )    |   | $        | (692,556 | ) |   | $         | 1,262,560 | 
|                                                                                      |                                       |   |          |          |      |   |          |          |   |   |           |          

The net deferred tax asset (liability) consists of the following:

|                          |                                                           |                                    |            |            |        |      |            |            |          |  
|------------------------- | --------------------------------------------------------- | ---------------------------------- | ---------- | ---------- | ------ | ---- | ---------- | ---------- | -------- | -
|                          |                                                           |                                    |            | 2003       |        | 2002
|                          |                                                           |                                    |            |            |        |     
|Deferred tax assets:      |                                                           |                                    |            |            |        |      |            |           
|                          | Allowance for loan losses                                 |                                    | $          | 2,355,307  |        |      | $          | 2,213,529  |         
|                          | Purchased state tax credits                               |                                    |            | 300,600    |        |      |            |           |         
|                          | Deferred compensation                                     |                                    |            | 198,201    |        |      |            | 144,729    |         
|                          | Other                                                     |                                    |            | 49,638     |        |      |            | 75,195     |         
|                          |                                                           |                                    |            |            |        |      |            |            |         
|                          |                                                           |                                    | 2,903,746  |            |        |      | 2,433,453  |           
|                          |                                                           |                                    |            |            |        |      |            |            |         
|Deferred tax liabilities: |                                                           |                                    |            |            |        |      |            |           
|                          | Mortgage servicing rights                                 |                                    |            | (1,402,751 | )      |      |            | (1,753,469 | )       
|                          | Accumulated depreciation                                  |                                    |            | (959,847   | )      |      |            | (1,077,737 | )       
|                          | Cash surrender value greater than life insurance
policies |                                    |            | (156,770   | )      |      |            | (101,584   | )       
|                          | Federal Home Loan Bank stock dividends                    |                                    |            | (321,511   | )      |      |            | (266,554   | )       
|                          |                                                           |                                    |            |            |        |      |            |            |         
|                          |                                                           |                                    | (2,840,879 | )          |        |      | (3,199,344 | )         
|                          |                                                           |                                    |            |            |        |      |            |            |         
|                          |                                                           | Net deferred tax asset (liability) |            | $          | 62,867 |      |            | $          | (765,891 | )
|                          |                                                           |                                    |            |            |        |      |            |            |         

64





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - INCOME TAXES- (continued)

Management believes, based upon Columbias historical performance, that the
deferred tax assets will be realized in the normal course of operations and,
accordingly, management has not reduced deferred tax assets by a valuation
allowance.

The tax provision differs from the combined federal and state statutory rate of
38.6% due principally to the effect of tax exemptions for interest received on
municipal investments and the amortization of nondeductible goodwill for tax
purposes.

A reconciliation between the combined federal and state income tax rate and the
effective tax rate is as follows:

|                                                            |  |      |           |      |  |      |           |   |  |   |           |  
|----------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                                            |  | 2003 |           | 2002 |  | 2001
|                                                            |  |      |           |      |  |     
|Federal income taxes at statutory rate                      |  | $    | 5,234,876 |      |  | $    | 4,965,565 |   |  | $ | 3,995,180 |  
|State income tax expense, net of
federal income tax benefit |  |      | 534,522   |      |  |      | 549,190   |   |  |   | 474,257   |  
|Effect of nontaxable interest income                        |  |      | (236,035  | )    |  |      | (257,239  | ) |  |   | (263,510  | )
|Effect of nondeductible goodwill
amortization               |  |      |          |      |  |      |          |   |  |   | 213,732   |  
|Other                                                       |  |      | 30,946    |      |  |      | (34,019   | ) |  |   | (42,847   | )
|                                                            |  |      |           |      |  |      |           |   |  |   |           |  
|                                                            |  | $    | 5,564,309 |      |  | $    | 5,223,497 |   |  | $ | 4,376,812 |  
|                                                            |  |      |           |      |  |      |           |   |  |   |           |  
|                                                            |  |      | 36        | %    |  |      | 36        | % |  |   | 37        | %
|                                                            |  |      |           |      |  |      |           |   |  |   |           |  

65





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - EARNINGS PER SHARE

Basic earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average number of common
shares outstanding for the year, retroactively adjusted for stock dividends and
splits. Diluted earnings per share reflect the potential dilution that could
occur if common shares were issued pursuant to the exercise of options under
existing stock option plans. The following table illustrates the computations
of basic and diluted earnings per share for the years ended December 31, 2003,
2002, and 2001.

|                                                                                                     |                                         |   |           |           |      |   |           |           |  |   |           |           | 
|---------------------------------------------------------------------------------------------------- | --------------------------------------- | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                                                                                                     |                                         |   | 2003      |           | 2002 |   | 2001     
|                                                                                                     |                                         |   |           |           |      |   |          
|Basic earnings per share:                                                                            |                                         |   |           |           |      |   |           |           |  |   |           |          
|                                                                                                     | Income available to common shareholders |   | $         | 9,833,796 |      |   | $         | 9,381,105 |  |   | $         | 7,373,717 | 
|                                                                                                     |                                         |   |           |           |      |   |           |           |  |   |           |           | 
|Weighted-average common shares outstanding                                                           |                                         |   | 8,716,572 |           |      |   | 8,900,643 |           |  |   | 8,836,431 |          
|                                                                                                     |                                         |   |           |           |      |   |           |           |  |   |           |           | 
|Basic earnings per share                                                                             |                                         | $ | 1.13      |           |      | $ | 1.05      |           |  | $ | 0.83      |          
|                                                                                                     |                                         |   |           |           |      |   |           |           |  |   |           |           | 
|Diluted earnings per share:                                                                          |                                         |   |           |           |      |   |           |           |  |   |           |          
|                                                                                                     | Income available to common shareholders |   | $         | 9,833,796 |      |   | $         | 9,381,105 |  |   | $         | 7,373,717 | 
|                                                                                                     |                                         |   |           |           |      |   |           |           |  |   |           |           | 
|Weighted-average common shares outstanding                                                           |                                         |   | 8,716,572 |           |      |   | 8,900,643 |           |  |   | 8,836,431 |          
|Net effect of dilutive stock options  based
on the treasury stock method using
average market price |                                         |   | 277,899   |           |      |   | 232,094   |           |  |   | 231,862   |          
|                                                                                                     |                                         |   |           |           |      |   |           |           |  |   |           |           | 
|Weighted-average common shares
outstanding and common stock
equivalents                              |                                         |   | 8,994,471 |           |      |   | 9,132,737 |           |  |   | 9,068,293 |          
|                                                                                                     |                                         |   |           |           |      |   |           |           |  |   |           |           | 
|Diluted earnings per share                                                                           |                                         | $ | 1.09      |           |      | $ | 1.03      |           |  | $ | 0.81      |          
|                                                                                                     |                                         |   |           |           |      |   |           |           |  |   |           |           | 

Outstanding common stock options excluded from diluted earnings per share
because their impact on the calculation would have been antidilutive totaled
20,000, 160,000, and 3,000 at December 31, 2003, 2002, and 2001, respectively.

66





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - STOCK OPTION PLAN

Columbia maintains a stock incentive plan originally adopted by the Bank in
1993 prior to Columbias formation. The plan, most recently amended in January
2002 and ratified by the shareholders in April 2002, allows for the granting of
both incentive and nonstatutory stock options. The option price for incentive
stock options cannot be less than 100% of the fair market value of the shares
on the date of grant. The stock options expire ten years from the date of
grant. The option price, number of shares granted recipients, and duration for
the plan stock options are determined and approved by the Board of Directors.

The following summarizes options available and outstanding under this plan,
retroactively adjusted for stock dividends and splits.

|                                                        |                            |  |         |          |           |  |           |          |          |  |         |         |         |   |           |       |           |  |   |      | 
|------------------------------------------------------- | -------------------------- |  | ------- | -------- | --------- |  | --------- | -------- | -------- |  | ------- | ------- | ------- | - | --------- | ----- | --------- |  | - | ---- | 
|                                                        |                            |  |         |          |           |  |           |          |          |  |         |         |         |   | Weighted- |       | Weighted-
|                                                        |                            |  |         |          |           |  |           |          |          |  | Non-    |         | Average |   | Average  
|                                                        |                            |  | Total   |          | Incentive |  | statutory |          | Exercise |  | Fair   
|                                                        |                            |  | Options |          | Options   |  | Options   |          | Price    |  | Value  
|                                                        |                            |  |         |          |           |  |           |          |          |  |        
|Options under grant and exercisable -
December 31, 2000 |                            |  | 404,908 |          |           |  | 326,401   |          |          |  | 78,507  |         |         | $ | 5.07      |       |           |  |   |     
|Options granted in 2001:                                |                            |  |         |          |           |  |           |          |          |  |         |         |         |   |           |       |           |  |   |     
|                                                        | Incentive stock options    |  |         | 297,825  |           |  |           | 297,825  |          |  |         |        |         |   | $         | 7.50  |           |  | $ | 1.39 | 
|                                                        | Nonstatutory stock options |  |         | 61,202   |           |  |           |         |          |  |         | 61,202  |         |   | $         | 8.43  |           |  | $ | 1.19 | 
|Gifted shares in 2001                                   |                            |  | 440     |          |           |  |          |          |          |  | 440     |         |         | $ |          |       |           |  |   |     
|Options exercised in 2001:                              |                            |  |         |          |           |  |           |          |          |  |         |         |         |   |           |       |           |  |   |     
|                                                        | Incentive stock options    |  |         | (43,735  | )         |  |           | (43,735  | )        |  |         |        |         |   | $         | 4.80  |           |  |   |      | 
|                                                        | Nonstatutory stock options |  |         | (19,687  | )         |  |           |         |          |  |         | (19,687 | )       |   | $         | 4.96  |           |  |   |      | 
|Options expired or forfeited in 2001                    |                            |  | (2,750  | )        |           |  | (1,650    | )        |          |  | (1,100  | )       |         | $ | 6.71      |       |           |  |   |     
|                                                        |                            |  |         |          |           |  |           |          |          |  |         |         |         |   |           |       |           |  |   |     
|Options under grant and exercisable -
December 31, 2001 |                            |  | 698,203 |          |           |  | 578,841   |          |          |  | 119,362 |         |         | $ | 6.43      |       |           |  |   |     
|Options granted in 2002:                                |                            |  |         |          |           |  |           |          |          |  |         |         |         |   |           |       |           |  |   |     
|                                                        | Incentive stock options    |  |         | 168,677  |           |  |           | 168,677  |          |  |         |        |         |   | $         | 13.45 |           |  | $ | 4.97 | 
|                                                        | Nonstatutory stock options |  |         | 15,400   |           |  |           |         |          |  |         | 15,400  |         |   | $         | 10.65 |           |  | $ | 4.08 | 
|Options exercised in 2002:                              |                            |  |         |          |           |  |           |          |          |  |         |         |         |   |           |       |           |  |   |     
|                                                        | Incentive stock options    |  |         | (137,093 | )         |  |           | (137,093 | )        |  |         |        |         |   | $         | 5.79  |           |  |   |      | 
|                                                        | Nonstatutory stock options |  |         | (32,003  | )         |  |           |         |          |  |         | (32,003 | )       |   | $         | 6.71  |           |  |   |      | 
|Options expired or forfeited in 2002                    |                            |  | (5,940  | )        |           |  | (5,940    | )        |          |  |        |         |         | $ | 6.53      |       |           |  |   |     
|                                                        |                            |  |         |          |           |  |           |          |          |  |         |         |         |   |           |       |           |  |   |     
|Options under grant and exercisable -
December 31, 2002 |                            |  | 707,244 |          |           |  | 604,485   |          |          |  | 102,759 |         |         | $ | 8.21      |       |           |  |   |     

67





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - STOCK OPTION PLAN- (continued)

|                                                        |                            |  |         |         |           |  |           |         |          |  |         |         |         |   |           |       |           |  |   |      | 
|------------------------------------------------------- | -------------------------- |  | ------- | ------- | --------- |  | --------- | ------- | -------- |  | ------- | ------- | ------- | - | --------- | ----- | --------- |  | - | ---- | 
|                                                        |                            |  |         |         |           |  |           |         |          |  |         |         |         |   | Weighted- |       | Weighted-
|                                                        |                            |  |         |         |           |  |           |         |          |  | Non-    |         | Average |   | Average  
|                                                        |                            |  | Total   |         | Incentive |  | statutory |         | Exercise |  | Fair   
|                                                        |                            |  | Options |         | Options   |  | Options   |         | Price    |  | Value  
|                                                        |                            |  |         |         |           |  |           |         |          |  |        
|Options granted in 2003:                                |                            |  |         |         |           |  |           |         |          |  |         |         |         |   |           |       |           |  |   |     
|                                                        | Incentive stock options    |  |         | 30,432  |           |  |           | 30,432  |          |  |         |        |         |   | $         | 13.64 |           |  | $ | 5.05 | 
|                                                        | Nonstatutory stock options |  |         | 26,167  |           |  |           |        |          |  |         | 26,167  |         |   | $         | 16.19 |           |  | $ | 6.02 | 
|Options exercised in 2003:                              |                            |  |         |         |           |  |           |         |          |  |         |         |         |   |           |       |           |  |   |     
|                                                        | Incentive stock options    |  |         | (98,082 | )         |  |           | (98,082 | )        |  |         |        |         |   | $         | 6.37  |           |  |   |      | 
|                                                        | Nonstatutory stock options |  |         | (20,894 | )         |  |           |        |          |  |         | (20,894 | )       |   | $         | 7.56  |           |  |   |      | 
|Options expired or forfeited in 2003                    |                            |  | (5,990  | )       |           |  | (5,990    | )       |          |  |        |         |         | $ | 12.91     |       |           |  |   |     
|                                                        |                            |  |         |         |           |  |           |         |          |  |         |         |         |   |           |       |           |  |   |     
|Options
under grant and exercisable 
December 31, 2003 |                            |  | 638,877 |         |           |  | 530,845   |         |          |  | 108,032 |         |         | $ | 9.06      |       |           |  |   |     
|                                                        |                            |  |         |         |           |  |           |         |          |  |         |         |         |   |           |       |           |  |   |     
|Options reserved  December 31, 2003                    |                            |  | 236,181 |         |           |  |           |         |          |  |         |         |         |   |           |       |           |  |   |     
|                                                        |                            |  |         |         |           |  |           |         |          |  |         |         |         |   |           |       |           |  |   |     

68





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - STOCK OPTION PLAN- (continued)

The following table summarizes information regarding stock options outstanding
at December 31, 2003, under Columbias stock option plan:

|                        |       |                            |  |                 |  |                  |         |           |  |                 |     |                  |  |            |       |           |  |  |         |  |  |  |     | 
|----------------------- | ----- | -------------------------- |  | --------------- |  | ---------------- | ------- | --------- |  | --------------- | --- | ---------------- |  | ---------- | ----- | --------- |  |  | ------- |  |  |  | --- | 
|Incentive Stock Options |       | Nonstatutory Stock Options
|                        |       |                           
|                        |       |                            |  |                 |  | Number           |         | Average   |  |                 |     |                  |  | Number     |       | Average  
|                        |       |                            |  |                 |  | of Options       |         | Remaining |  |                 |     |                  |  | of Options |       | Remaining
|Exercise                |       |                            |  | Outstanding     |  | Contractual Life |         | Exercise  |  | Outstanding     |     | Contractual Life
|Price                   |       |                            |  | and Exercisable |  | (in years)       |         | Price     |  | and Exercisable |     | (in years)      
|                        |       |                            |  |                 |  |                  |         |           |  |                 |     |                 
|$                       | 3.04  |                            |  |                 |  |                  | 23,847  |           |  |                 | 1.5 |                  |  | $          | 3.04  |           |  |  | 14,850  |  |  |  | 1.5 | 
|$                       | 5.08  |                            |  |                 |  |                  | 50,369  |           |  |                 | 3.6 |                  |  | $          | 5.08  |           |  |  | 13,202  |  |  |  | 3.6 | 
|$                       | 10.45 |                            |  |                 |  |                  | 3,300   |           |  |                 | 4.3 |                  |  | $          | 6.25  |           |  |  | 3,657   |  |  |  | 6.0 | 
|$                       | 7.27  |                            |  |                 |  |                  | 1,100   |           |  |                 | 5.4 |                  |  | $          | 6.59  |           |  |  | 5,197   |  |  |  | 7.1 | 
|$                       | 7.05  |                            |  |                 |  |                  | 2,200   |           |  |                 | 5.4 |                  |  | $          | 8.96  |           |  |  | 37,642  |  |  |  | 8.0 | 
|$                       | 6.25  |                            |  |                 |  |                  | 67,508  |           |  |                 | 6.0 |                  |  | $          | 10.65 |           |  |  | 9,817   |  |  |  | 8.6 | 
|$                       | 6.59  |                            |  |                 |  |                  | 104,679 |           |  |                 | 7.1 |                  |  | $          | 13.64 |           |  |  | 3,667   |  |  |  | 9.0 | 
|$                       | 7.50  |                            |  |                 |  |                  | 1,650   |           |  |                 | 7.5 |                  |  | $          | 16.61 |           |  |  | 20,000  |  |  |  | 9.9 | 
|$                       | 8.96  |                            |  |                 |  |                  | 97,962  |           |  |                 | 8.0 |                  |  |            |       |           |  |  |         |  |  |  |     | 
|$                       | 10.09 |                            |  |                 |  |                  | 2,145   |           |  |                 | 8.2 |                  |  |            |       |           |  |  |         |  |  |  |     | 
|$                       | 10.36 |                            |  |                 |  |                  | 2,200   |           |  |                 | 8.3 |                  |  |            |       |           |  |  |         |  |  |  |     | 
|$                       | 13.55 |                            |  |                 |  |                  | 144,003 |           |  |                 | 9.0 |                  |  |            |       |           |  |  |         |  |  |  |     | 
|$                       | 13.64 |                            |  |                 |  |                  | 27,132  |           |  |                 | 9.0 |                  |  |            |       |           |  |  |         |  |  |  |     | 
|$                       | 13.54 |                            |  |                 |  |                  | 550     |           |  |                 | 9.1 |                  |  |            |       |           |  |  |         |  |  |  |     | 
|$                       | 13.77 |                            |  |                 |  |                  | 2,200   |           |  |                 | 9.2 |                  |  |            |       |           |  |  |         |  |  |  |     | 
|                        |       |                            |  |                 |  |                  |         |           |  |                 |     |                  |  |            |       |           |  |  |         |  |  |  |     | 
|                        |       |                            |  |                 |  |                  | 530,845 |           |  |                 |     |                  |  |            |       |           |  |  | 108,032 |  |  |  |     | 
|                        |       |                            |  |                 |  |                  |         |           |  |                 |     |                  |  |            |       |           |  |  |         |  |  |  |     | 

Under the 2002 amended stock option plan, an aggregate of no more than 10% of
the issued and outstanding shares of Columbias common stock is available for
award or grant. As of December 31, 2003, this percentage applied to Columbias
issued and outstanding common stock represented 875,058 shares.

69





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - EMPLOYEE BENEFIT PLANS AND AGREEMENTS

Columbia has established an employee stock ownership plan (ESOP) for the
benefit of its employees. The ESOP allows participation by all employees over
the age of 20 who have also met minimum service requirements. Contributions to
the ESOP are at the discretion of the Board of Directors and are used to
purchase shares of Columbias common stock. Employees are not permitted to
contribute individually to the ESOP but vest in their proportionate share of
the ESOP interest through six years of participation. The allocated shares in
the ESOP are considered outstanding for purposes of calculating earnings per
share. For the years ending December 31, 2003, 2002, and 2001, Columbia
contributed $100,000, $100,000, and $280,000, respectively, to the ESOP.

The ESOPs assets as of December 31 were as follows:

|                                                                        |  |      |         |      |  |   |         | 
|----------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                                                        |  | 2003 |         | 2002
|                                                                        |  |      |         |     
|Allocated shares, retroactively adjusted
for stock dividends and splits |  |      | 344,217 |      |  |   | 397,590 | 
|                                                                        |  |      |         |      |  |   |         | 
|Cash on hand                                                            |  | $    | 23,090  |      |  | $ | 36,151  | 
|                                                                        |  |      |         |      |  |   |         | 

Columbia has also adopted a 401(k) savings investment plan which allows
employees to defer certain amounts of compensation for income tax purposes
under Section 401(k) of the Internal Revenue Code. Essentially, all employees
over the age of 18 are eligible to participate in the plan. Employees may elect
to defer and contribute up to the statutory limits. Their contributions and
those of Columbia, which are limited to 100% of employee contributions up to 4%
of total participant compensation, are invested by plan trustees in
employee-designated funds. For the years ending December 31, 2003, 2002, and
2001, Columbia contributed approximately $451,000, $456,000, and $128,000,
respectively, to the plan.

Columbia has established an employee incentive compensation program which
provides eligible participants additional compensation based upon the
achievement of certain Bank goals. For the years ending December 31, 2003,
2002, and 2001, additional compensation of approximately $1,371,000,
$2,227,000, and $1,302,000, respectively, was paid to eligible employees
pursuant to this program.

Columbia entered into both employment and retirement agreements, beginning in
1996 and later amended, with its former chief executive officer. The employment
agreement provided for the former chief executive officers salary and
customary benefits until the agreement terminated upon retirement in May 2001.
The retirement agreement provides annual post-retirement compensation for a
seven-year period after the former chief executive officers retirement.
Columbias obligation under the agreement was partially funded with a $120,000
interest-earning investment and is being paid in annual installments of $48,000
plus interest earned on the $120,000 of invested funds. At December 31, 2003,
Columbia had a liability recorded of approximately $207,000 as its obligation
for past services pursuant to the retirement agreement.

70





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - EMPLOYEE BENEFIT PLANS AND AGREEMENTS- (continued)

During 2001, Columbia purchased bank-owned life insurance (BOLI) to support
life insurance, salary continuation, and deferred compensation benefits for
certain key employees. As of December 31, 2003 and 2002, Columbia recognized a
salary continuation liability of $226,405 and $121,076, respectively, and an
elective deferred compensation liability of $87,842 and $19,353, respectively,
pursuant to these benefit plans. Payments under the salary continuation
component commence when the respective key employee reaches the age of 62 and
the economic value of the insurance coverage allocated to the employees estate
is then reported as taxable income to that employee. As of December 31, 2003
and 2002, the cash surrender value of the BOLI was $3,540,222 and $3,394,999,
respectively.

During 2002, Columbia entered into an employment agreement for a phantom stock
grant with the chief executive officer (CEO). The CEO received 15,764 units at
a price of $8.96, retroactively adjusted for stock dividends and splits, and
exercisable any time after December 31, 2002. Upon exercise of the grant, the
CEO will receive a cash payment equal to the difference between the unit grant
price and the common stock price for each unit on the date of exercise. As of
December 31, 2003, no units have been exercised. Columbia has recognized a
liability and a corresponding charge to salaries and employee benefits for the
phantom stock grant in the amount of $130,626 and $73,231 as of December 31,
2003 and 2002, respectively.

NOTE 15 - TRANSACTIONS WITH RELATED PARTIES

Certain directors, executive officers, and principal stockholders are customers
of and have had banking transactions with the Bank, and the Bank expects to
have such transactions in the future. All loans and commitments to loan
included in such transactions were made in compliance with applicable laws on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and do
not involve more than the normal risk of collectibility or present any other
unfavorable features. The amount of loans outstanding to directors, executive
officers, principal shareholders, and companies with which they are associated
was as follows:

|                           |  |      |            |      |  |   |            |  
|-------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | -
|                           |  | 2003 |            | 2002
|                           |  |      |            |     
|BALANCE, beginning of year |  | $    | 11,082,369 |      |  | $ | 7,107,507  |  
|Loans made                 |  |      | 1,112,282  |      |  |   | 6,227,476  |  
|Loans repaid               |  |      | (1,842,487 | )    |  |   | (2,252,614 | )
|                           |  |      |            |      |  |   |            |  
|BALANCE, end of year       |  | $    | 10,352,164 |      |  | $ | 11,082,369 |  
|                           |  |      |            |      |  |   |            |  

71





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - CONCENTRATIONS OF CREDIT RISK

All of the Banks loans, commitments, and commercial and standby letters of
credit have been granted to customers in the Banks market areas. The majority
of such customers are also depositors of the Bank. Investments in state and
municipal securities are not significantly concentrated within any one region
of the United States. The concentrations of credit by type of loan are set
forth in Note 4. The distribution of commitments to extend credit approximates
the distribution of loans outstanding. Commercial and standby letters of credit
were granted primarily to commercial borrowers as of December 31, 2003. The
Banks loan policies do not allow the extension of credit to any single
borrower or group of related borrowers in excess of $1,250,000 without approval
from either the Banks loan committee, president, or chief credit officer.

NOTE 17 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

In the normal course of business to meet the financing needs of its customers,
the Bank is a party to financial instruments with off-balance-sheet risk. These
financial instruments include commitments to extend credit and the issuance of
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amounts recognized in the
consolidated balance sheets. The contract amounts of those instruments reflect
the extent of involvement the Bank has in particular classes of financial
instruments.

The Banks exposure to credit loss, in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and letters
of credit written, is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.

The Bank may or may not require collateral or other security to support
financial instruments with credit risk, depending on its loan underwriting
guidelines.

|                                                                  |                                          |   |                  |             |      |   |             |             | 
|----------------------------------------------------------------- | ---------------------------------------- | - | ---------------- | ----------- | ---- | - | ----------- | ----------- | 
|                                                                  |                                          |   | Contract Amounts
|                                                                  |                                          |   | December 31,    
|                                                                  |                                          |   |                 
|                                                                  |                                          |   | 2003             |             | 2002
|                                                                  |                                          |   |                  |             |     
|Financial instruments whose contract amounts
contain credit risk: |                                          |   |                  |             |      |   |             |            
|                                                                  | Commitments to extend credit             |   | $                | 162,232,037 |      |   | $           | 148,938,344 | 
|                                                                  | Undisbursed credit card lines of credit  |   |                  | 17,332,801  |      |   |             | 15,219,916  | 
|                                                                  | Commercial and standby letters of credit |   |                  | 2,466,414   |      |   |             | 2,654,194   | 
|                                                                  |                                          |   |                  |             |      |   |             |             | 
|                                                                  |                                          | $ | 182,031,252      |             |      | $ | 166,812,454 |            
|                                                                  |                                          |   |                  |             |      |   |             |             | 

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, total commitment amounts do not necessarily represent
future cash requirements. The amount of collateral obtained, if deemed
necessary by the Bank upon an extension of credit, is based on managements
credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property and equipment, and income-producing
properties.

72





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK- (continued)

Letters of credit written are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Bank holds cash,
marketable securities, or real estate as collateral supporting those
commitments for which collateral is deemed necessary.

NOTE 18 - RISK MANAGEMENT ACTIVITIES

During the fourth quarter of 2003, the Bank discontinued its practice of
entering into derivative financial instruments to mitigate the risk that a
change in interest rates might result in a decline in the value of the Mortgage
Teams committed loan pipeline and adversely impact revenues. The Mortgage Team
has continued to generate mortgage loans for sale; however, loans produced are
sold on a best efforts basis. The overall consideration received for best
efforts sales generally results in less revenue on a per loan basis. The
execution of best efforts results in a loan commitment to an investor 30 to 60
days prior to funding. Under best efforts, interest rate risk is shifted away
from the Bank and onto the investor.

Prior to the recent change, the Banks policy required a hedge using forward
contracts for the sale of mortgage-backed securities or using purchase/sale
option contracts, designated as fair value hedges, when the pipeline of
committed fixed-rate conforming loans aggregated certain dollar thresholds. The
hedge transactions were entered into to protect the Banks mortgage loan
pipeline from interest rate risks that might arise from suddenly increasing or
falling rates during the loan origination period through delivery to
third-party purchases. To mitigate this risk, the Bank anticipated potential
interest rate changes and factors that influenced pipeline fallout, which
represented the percentage of loans that were not expected to close, in
calculating the amount of derivative instruments to execute.

There were no forward sales or option contracts outstanding as of December 31,
2003. As of December 31, 2002, forward sales and option contracts to sell
mortgage-backed securities were $27,000,000 in maturities of up to two months.
Derivative instruments as of December 31, 2002 and 2001, had an unrealized loss
of $322,248 and an unrealized gain of $120,969, respectively, each recognized
in the consolidated statements of income and comprehensive income. The
mortgage-backed securities that were to be delivered under these contracts were
fixed-rate and generally corresponded with the composition of the Banks
committed loan pipeline. Changes in the fair value of the mortgage loan
commitments and forward sales contracts have been recognized in Mortgage Team
net revenues in the consolidated statements of income and comprehensive
income.

In a falling interest rate environment, the Bank expected to recognize a loss
on the derivative instrument and a gain on the sale of funded loans from the
committed loan pipeline. The effectiveness of the Banks hedging activities
was measured by assessing the net losses and gains on derivative instruments
realized, unrealized premiums and discounts on loan sales, and yield spread
premium payments on mortgage loans sold.

73





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - RISK MANAGEMENT ACTIVITIES- (continued)

The hedge ineffectiveness aggregated to losses of $429,115, $366,767, and
$1,476,262 for each of the years in the three-year period ended December 31,
2003. Hedge ineffectiveness resulted from the Banks decision to subsidize loan
pricing in order to increase its mortgage servicing asset volume. Revenues from
servicing rights premiums were not considered in the measure of effectiveness.
The ineffectiveness from hedging activities, along with the servicing retained
premiums, servicing release premiums, servicing income, and other servicing
expenses, are included in Mortgage Team net revenues in the consolidated
statements of income and comprehensive income.

As of December 31, 2003 and 2002, the Bank had short-term rate and point
commitments amounting to $3,800,000 and $27,000,000, respectively, to fund
fixed-rate mortgage loan applications in process. Substantially all of these
commitments are for periods of 60 days or less. After funding and sale of the
mortgage loans, the Banks exposure to credit loss in the event of
nonperformance by the mortgagor is limited. Prior to sale of the loan, the Bank
has potential exposure to credit loss in the event of nonperformance by the
counterparty. The Bank manages this credit risk by selecting only well
established, financially strong counterparties.

NOTE 19 - COMMITMENTS AND CONTINGENCIES

Operating lease commitments- As of December 31, 2003, Columbia leased certain
properties. Future minimum lease commitments are as follows:

|                          |  |            |  |  |   |           | 
|------------------------- |  | ---------- |  |  | - | --------- | 
|Years ending December 31, |  | 2004       |  |  | $ | 285,000   | 
|                          |  | 2005       |  |  |   | 261,000   | 
|                          |  | 2006       |  |  |   | 237,000   | 
|                          |  | 2007       |  |  |   | 238,000   | 
|                          |  | 2008       |  |  |   | 240,000   | 
|                          |  | Thereafter |  |  |   | 855,000   | 
|                          |  |            |  |  |   |           | 
|                          |  |            |  |  | $ | 2,116,000 | 
|                          |  |            |  |  |   |           | 

Rental expense for all operating leases was $328,721, $261,972, and $166,189
for the years ended December 31, 2003, 2002, and 2001, respectively.

Legal contingencies- Columbia may become a defendant in certain claims and
legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, there are no matters
presently known to Columbia that are expected to have a material adverse effect
on the consolidated financial condition of Columbia.

74





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 - PARENT COMPANY FINANCIAL INFORMATION

Condensed financial information for Columbia Bancorp (unconsolidated parent
company only) is as follows:

|                                           |                                                    |                            |            |              |            |      |            |            |            | 
|------------------------------------------ | -------------------------------------------------- | -------------------------- | ---------- | ------------ | ---------- | ---- | ---------- | ---------- | ---------- | 
|                                           |                                                    |                            |            | December 31,
|                                           |                                                    |                            |            |             
|                                           |                                                    |                            |            | 2003         |            | 2002
|                                           |                                                    |                            |            |              |            |     
|ASSETS                                     |                                                    |                            |            |              |            |      |            |           
|                                           | Cash                                               |                            | $          | 1,018,312    |            |      | $          | 863,808    |           
|                                           | Investment security held-to-maturity               |                            |            | 81,258       |            |      |            | 81,579     |           
|                                           | Corporate equity securities                        |                            |            | 78,750       |            |      |            | 112,987    |           
|                                           | Investment in subsidiary Bank                      |                            |            | 60,341,388   |            |      |            | 53,254,732 |           
|                                           | Investment in Columbia Bancorp Trust I             |                            |            | 125,410      |            |      |            | 124,000    |           
|                                           | Deferred tax asset                                 |                            |            | 333,855      |            |      |            | 122,704    |           
|                                           | Other assets                                       |                            |            | 1,139,640    |            |      |            | 677,409    |           
|                                           |                                                    |                            |            |              |            |      |            |            |           
|TOTAL ASSETS                               |                                                    | $                          | 63,118,613 |              |            | $    | 55,237,219 |           
|                                           |                                                    |                            |            |              |            |      |            |            |           
|LIABILITIES                                |                                                    |                            |            |              |            |      |            |           
|                                           | Junior Subordinated Deferrable Interest Debentures |                            | $          | 4,124,000    |            |      | $          | 4,124,000  |           
|                                           | Interest-rate swap liability                       |                            |            | 20,221       |            |      |            |           |           
|                                           | Dividend payable                                   |                            |            | 787,552      |            |      |            | 628,990    |           
|                                           | Deferred compensation plan liability               |                            |            | 181,686      |            |      |            | 143,496    |           
|                                           | Employee benefit withholding                       |                            |            | 135,530      |            |      |            | 143,800    |           
|                                           | Interest and other payables                        |                            |            | 65,160       |            |      |            | 6,552      |           
|                                           |                                                    |                            |            |              |            |      |            |            |           
|                                           |                                                    | Total liabilities          |            |              | 5,314,149  |      |            |            | 5,046,838  | 
|                                           |                                                    |                            |            |              |            |      |            |            |           
|SHAREHOLDERS EQUITY                       |                                                    |                            |            |              |            |      |            |           
|                                           | Common stock                                       |                            |            | 31,520,099   |            |      |            | 17,841,700 |           
|                                           | Retained earnings                                  |                            |            | 26,252,366   |            |      |            | 32,174,431 |           
|                                           | Accumulated comprehensive income,
net of tax       |                            |            | 31,999       |            |      |            | 174,250    |           
|                                           |                                                    |                            |            |              |            |      |            |            |           
|                                           |                                                    | Total shareholders equity |            |              | 57,804,464 |      |            |            | 50,190,381 | 
|                                           |                                                    |                            |            |              |            |      |            |            |           
|TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY |                                                    | $                          | 63,118,613 |              |            | $    | 55,237,219 |           
|                                           |                                                    |                            |            |              |            |      |            |            |           

75





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 - PARENT COMPANY FINANCIAL INFORMATION- (continued)

|                                     |                                                                            |                                                  |                                    |           |                          |           |      |           |            |           |   |           |            |           | 
|------------------------------------ | -------------------------------------------------------------------------- | ------------------------------------------------ | ---------------------------------- | --------- | ------------------------ | --------- | ---- | --------- | ---------- | --------- | - | --------- | ---------- | --------- | 
|                                     |                                                                            |                                                  |                                    |           | Years Ended December 31,
|                                     |                                                                            |                                                  |                                    |           |                         
|                                     |                                                                            |                                                  |                                    |           | 2003                     |           | 2002 |           | 2001      
|                                     |                                                                            |                                                  |                                    |           |                          |           |      |           |           
|REVENUES                             |                                                                            |                                                  |                                    |           |                          |           |      |           |            |           |   |          
|                                     | Equity in undistributed earnings
of subsidiaries                           |                                                  | $                                  | 7,213,593 |                          |           | $    | 7,208,039 |            |           | $ | 4,592,787 |           
|                                     | Dividends                                                                  |                                                  |                                    | 2,909,603 |                          |           |      | 2,500,000 |            |           |   | 3,150,000 |           
|                                     | Other                                                                      |                                                  |                                    | 449,502   |                          |           |      | 314,403   |            |           |   |          |           
|EXPENSES                             |                                                                            |                                                  |                                    |           |                          |           |      |           |            |           |   |          
|                                     | Administrative and other expenses                                          |                                                  |                                    | (738,902  | )                        |           |      | (641,337  | )          |           |   | (369,070  | )         
|                                     |                                                                            |                                                  |                                    |           |                          |           |      |           |            |           |   |           |           
|                                     |                                                                            |                                                  | Net income                         |           | $                        | 9,833,796 |      |           | $          | 9,381,105 |   |           | $          | 7,373,717 | 
|                                     |                                                                            |                                                  |                                    |           |                          |           |      |           |            |           |   |           |           
|CASH FLOWS FROM OPERATING ACTIVITIES |                                                                            |                                                  |                                    |           |                          |           |      |           |            |           |   |          
|                                     | Net income                                                                 |                                                  | $                                  | 9,833,796 |                          |           | $    | 9,381,105 |            |           | $ | 7,373,717 |           
|                                     | Adjustments to reconcile net
income to net cash from
operating activities: |                                                  |                                    |           |                          |           |      |           |            |           |   |           |           
|                                     |                                                                            | Equity in undistributed earnings of subsidiaries |                                    |           | (7,213,593               | )         |      |           | (7,208,039 | )         |   |           | (4,592,787 | )        
|                                     |                                                                            | Gain on sale of corporate equity securities      |                                    |           | (457,265                 | )         |      |           | (294,133   | )         |   |           |           |          
|                                     |                                                                            | Loss on write-down of land                       |                                    |           | 23,067                   |           |      |           |           |           |   |           |           |          
|                                     |                                                                            | Changes in other assets and liabilities          |                                    |           | (394,822                 | )         |      |           | (156,406   | )         |   |           | (272,887   | )        
|                                     |                                                                            |                                                  |                                    |           |                          |           |      |           |            |           |   |           |           
|                                     |                                                                            |                                                  | Net cash from operating activities |           |                          | 1,791,183 |      |           |            | 1,722,527 |   |           |            | 2,508,043 | 
|                                     |                                                                            |                                                  |                                    |           |                          |           |      |           |            |           |   |           |           

76





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 - PARENT COMPANY FINANCIAL INFORMATION- (continued)

|                                                                      |  |                                                                                |                                    |   |                          |            |         |   |            |            |          |   |            |            |  
|--------------------------------------------------------------------- |  | ------------------------------------------------------------------------------ | ---------------------------------- | - | ------------------------ | ---------- | ------- | - | ---------- | ---------- | -------- | - | ---------- | ---------- | -
|                                                                      |  |                                                                                |                                    |   | Years Ended December 31,
|                                                                      |  |                                                                                |                                    |   |                         
|                                                                      |  |                                                                                |                                    |   | 2003                     |            | 2002    |   | 2001      
|                                                                      |  |                                                                                |                                    |   |                          |            |         |   |           
|CASH FLOWS FROM INVESTING ACTIVITIES                                  |  |                                                                                |                                    |   |                          |            |         |   |            |            |          |  
|                                                                      |  | Investment in Columbia Bancorp
Trust I                                         |                                    | $ |                         |            |         | $ | (124,000   | )          |          | $ |           |           
|                                                                      |  | Purchase of corporate equity
securities                                        |                                    |   | (75,000                  | )          |         |   |           |            |          |   |           |           
|                                                                      |  | Proceeds from sale of corporate
equity securities                              |                                    |   | 570,252                  |            |         |   | 481,146    |            |          |   |           |           
|                                                                      |  | Purchase of held-to-maturity
security                                          |                                    |   |                         |            |         |   | (81,579    | )          |          |   |           |           
|                                                                      |  |                                                                                |                                    |   |                          |            |         |   |            |            |          |   |            |           
|                                                                      |  |                                                                                | Net cash from investing activities |   |                          | 495,252    |         |   |            | 275,567    |          |   |            |           |  
|                                                                      |  |                                                                                |                                    |   |                          |            |         |   |            |            |          |   |            |           
|CASH FLOWS FROM FINANCING ACTIVITIES                                  |  |                                                                                |                                    |   |                          |            |         |   |            |            |          |  
|                                                                      |  | Dividends paid and cash paid for
fractional shares                             |                                    |   | (2,666,573               | )          |         |   | (2,593,588 | )          |          |   | (2,569,581 | )         
|                                                                      |  | Repurchase of common stock                                                     |                                    |   | (247,995                 | )          |         |   | (4,023,170 | )          |          |   | (427,503   | )         
|                                                                      |  | Proceeds from issuance of Junior
Subordinated Deferrable Interest
Debentures   |                                    |   |                         |            |         |   | 4,124,000  |            |          |   |           |           
|                                                                      |  | Proceeds from the exercise of
stock options                                    |                                    |   | 782,637                  |            |         |   | 1,008,572  |            |          |   | 307,455    |           
|                                                                      |  |                                                                                |                                    |   |                          |            |         |   |            |            |          |   |            |           
|                                                                      |  |                                                                                | Net cash from financing activities |   |                          | (2,131,931 | )       |   |            | (1,484,186 | )        |   |            | (2,689,629 | )
|                                                                      |  |                                                                                |                                    |   |                          |            |         |   |            |            |          |   |            |           
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  |  |                                                                                | 154,504                            |   |                          |            | 513,908 |   |            |            | (181,586 | )
|CASH AND CASH EQUIVALENTS, Beginning of year                          |  |                                                                                | 863,808                            |   |                          |            | 349,900 |   |            |            | 531,486  |  
|                                                                      |  |                                                                                |                                    |   |                          |            |         |   |            |            |          |   |            |           
|CASH AND CASH EQUIVALENTS, End of year                                |  | $                                                                              | 1,018,312                          |   |                          | $          | 863,808 |   |            | $          | 349,900  |  
|                                                                      |  |                                                                                |                                    |   |                          |            |         |   |            |            |          |   |            |           
|SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES |  |                                                                                |                                    |   |                          |            |         |   |            |            |          |  
|                                                                      |  | Change in unrealized loss or gain on
available-for-sale securities, net of tax |                                    | $ | (122,030                 | )          |         | $ | (163,538   | )          |          | $ | 422,705    |           
|                                                                      |  |                                                                                |                                    |   |                          |            |         |   |            |            |          |   |            |           
|                                                                      |  | Change in fair value of interest-rate swap                                     |                                    | $ | (20,221                  | )          |         |   |           |            |          | $ |           |           
|                                                                      |  |                                                                                |                                    |   |                          |            |         |   |            |            |          |   |            |           
|                                                                      |  | Cash dividend payable                                                          |                                    | $ | 787,552                  |            |         | $ | 628,990    |            |          | $ | 642,858    |           
|                                                                      |  |                                                                                |                                    |   |                          |            |         |   |            |            |          |   |            |           

77





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21 - REGULATORY MATTERS

Columbia and the Bank are subject to various regulatory capital requirements
administered by federal and state banking agencies. Failure to meet minimum
requirements can initiate certain mandatory  and possibly additional
discretionary  actions by regulators that, if undertaken, could have a direct
material effect on a banks financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, banks
must meet specific capital guidelines that involve quantitative measures of the
banks assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. Capital amounts and classification are
also subject to qualitative judgments by the regulators about components,
risk-weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require Columbia and the Bank to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier 1 capital to average assets
(as defined). Management believes, as of December 31, 2003, that Columbia and
the Bank meet all capital adequacy requirements to which they are subject.

As of the most recent notifications from their regulatory agencies, Columbia
and the Bank were categorized as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as adequately
capitalized, Columbia and the Bank must maintain minimum total risk-based
capital, Tier 1 risk-based capital, and Tier 1 leverage capital ratios as set
forth in the table below. There are no conditions or events since that
notification that management believes may have changed the institutions
category.

|                        |                                          |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  |                   |        |  |  |  |     |  
|----------------------- | ---------------------------------------- | ------------------- |  | ------ | ------ | ----------------- |  | ----------------- | ---- | ----- |  | ----------- | ------ | ----------------- |  |  | -- | - |  | ----------------- | ------ |  |  |  | --- | -
|                        |                                          |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  | To Be Well-      
|                        |                                          |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  | Capitalized Under
|                        |                                          |                     |  |        |        |                   |  |                   |      |       |  | For Capital |        | Prompt Corrective
|                        |                                          |                     |  | Actual |        | Adequacy Purposes |  | Action Provisions
|                        |                                          |                     |  |        |        |                   |  |                  
|                        |                                          |                     |  | Amount |        | Ratio             |  | Amount            |      | Ratio |  | Amount      |        | Ratio            
|                        |                                          |                     |  |        |        |                   |  |                   |      |       |  |             |        |                  
|As of December 31, 2003 |                                          |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  |                   |        |  |  | 
|(dollars in thousands)  |                                          |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  |                   |        |  |  | 
|                        | Total capital to risk-
weighted assets:  |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  |                   |        |  |  |  |    
|                        |                                          | Columbia Bancorp    |  | $      | 60,431 |                   |  |                   | 11.7 | %     |  | $           | 41,285 |                   |  |  | 38 | % |  |                   | N/A    |  |  |  | N/A |  
|                        |                                          | Columbia River Bank |  | $      | 58,968 |                   |  |                   | 11.5 | %     |  | $           | 41,164 |                   |  |  | 38 | % |  | $                 | 51,455 |  |  |  | 310 | %
|                        | Tier 1 capital to risk-
weighted assets: |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  |                   |        |  |  |  |    
|                        |                                          | Columbia Bancorp    |  | $      | 53,997 |                   |  |                   | 10.5 | %     |  | $           | 20,649 |                   |  |  | 34 | % |  |                   | N/A    |  |  |  | N/A |  
|                        |                                          | Columbia River Bank |  | $      | 52,534 |                   |  |                   | 10.2 | %     |  | $           | 20,581 |                   |  |  | 34 | % |  | $                 | 30,872 |  |  |  | 36  | %
|                        | Tier 1 capital to average
assets:        |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  |                   |        |  |  |  |    
|                        |                                          | Columbia Bancorp    |  | $      | 53,997 |                   |  |                   | 9.2  | %     |  | $           | 23,501 |                   |  |  | 34 | % |  |                   | N/A    |  |  |  | N/A |  
|                        |                                          | Columbia River Bank |  | $      | 52,534 |                   |  |                   | 9.0  | %     |  | $           | 23,453 |                   |  |  | 34 | % |  | $                 | 29,316 |  |  |  | 35  | %

78



---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21 - REGULATORY MATTERS- (continued)

|                        |                                          |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  |                   |        |  |  |  |     |  
|----------------------- | ---------------------------------------- | ------------------- |  | ------ | ------ | ----------------- |  | ----------------- | ---- | ----- |  | ----------- | ------ | ----------------- |  |  | -- | - |  | ----------------- | ------ |  |  |  | --- | -
|                        |                                          |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  | To Be Well-      
|                        |                                          |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  | Capitalized Under
|                        |                                          |                     |  |        |        |                   |  |                   |      |       |  | For Capital |        | Prompt Corrective
|                        |                                          |                     |  | Actual |        | Adequacy Purposes |  | Action Provisions
|                        |                                          |                     |  |        |        |                   |  |                  
|                        |                                          |                     |  | Amount |        | Ratio             |  | Amount            |      | Ratio |  | Amount      |        | Ratio            
|                        |                                          |                     |  |        |        |                   |  |                   |      |       |  |             |        |                  
|As of December 31, 2002 |                                          |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  |                   |        |  |  | 
|(dollars in thousands)  |                                          |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  |                   |        |  |  | 
|                        | Total capital to risk-
weighted assets:  |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  |                   |        |  |  |  |    
|                        |                                          | Columbia Bancorp    |  | $      | 52,116 |                   |  |                   | 11.0 | %     |  | $           | 38,041 |                   |  |  | 38 | % |  |                   | N/A    |  |  |  | N/A |  
|                        |                                          | Columbia River Bank |  | $      | 51,168 |                   |  |                   | 10.8 | %     |  | $           | 37,996 |                   |  |  | 38 | % |  | $                 | 47,458 |  |  |  | 310 | %
|                        | Tier 1 capital to risk-
weighted assets: |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  |                   |        |  |  |  |    
|                        |                                          | Columbia Bancorp    |  | $      | 46,166 |                   |  |                   | 9.7  | %     |  | $           | 19,020 |                   |  |  | 34 | % |  |                   | N/A    |  |  |  | N/A |  
|                        |                                          | Columbia River Bank |  | $      | 45,230 |                   |  |                   | 9.5  | %     |  | $           | 18,983 |                   |  |  | 34 | % |  | $                 | 28,475 |  |  |  | 36  | %
|                        | Tier 1 capital to average
assets:        |                     |  |        |        |                   |  |                   |      |       |  |             |        |                   |  |  |    |   |  |                   |        |  |  |  |    
|                        |                                          | Columbia Bancorp    |  | $      | 46,166 |                   |  |                   | 8.6  | %     |  | $           | 21,558 |                   |  |  | 34 | % |  |                   | N/A    |  |  |  | N/A |  
|                        |                                          | Columbia River Bank |  | $      | 45,230 |                   |  |                   | 8.4  | %     |  | $           | 21,518 |                   |  |  | 34 | % |  | $                 | 26,898 |  |  |  | 35  | %

79



---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22 - FAIR VALUES OF FINANCIAL INSTRUMENTS

The following table estimates fair values and the related carrying values of
Columbias financial instruments (in thousands):

|                       |                                                                |  |          |         |       |  |           |         |       |  |   |         |           |  |   |         | 
|---------------------- | -------------------------------------------------------------- |  | -------- | ------- | ----- |  | --------- | ------- | ----- |  | - | ------- | --------- |  | - | ------- | 
|                       |                                                                |  | 2003     |         | 2002 
|                       |                                                                |  |          |         |      
|                       |                                                                |  |          |         |       |  | Estimated |         |       |  |   |         | Estimated
|                       |                                                                |  | Carrying |         | Fair  |  | Carrying  |         | Fair 
|                       |                                                                |  | Amount   |         | Value |  | Amount    |         | Value
|                       |                                                                |  |          |         |       |  |           |         |      
|Financial assets:      |                                                                |  |          |         |       |  |           |         |       |  |   |         |           |  |   |        
|                       | Cash and due from banks                                        |  | $        | 33,810  |       |  | $         | 33,810  |       |  | $ | 28,414  |           |  | $ | 28,414  | 
|                       | Interest-bearing deposits with banks                           |  | $        | 5,101   |       |  | $         | 5,101   |       |  | $ | 8,552   |           |  | $ | 8,552   | 
|                       | Federal funds sold                                             |  | $        | 14,956  |       |  | $         | 14,956  |       |  | $ | 3,735   |           |  | $ | 3,735   | 
|                       | Investment securities available-for-sale                       |  | $        | 13,876  |       |  | $         | 13,876  |       |  | $ | 14,750  |           |  | $ | 14,750  | 
|                       | Investment securities held-to-maturity                         |  | $        | 14,964  |       |  | $         | 15,843  |       |  | $ | 18,600  |           |  | $ | 19,439  | 
|                       | Restricted equity securities                                   |  | $        | 2,843   |       |  | $         | 2,843   |       |  | $ | 2,698   |           |  | $ | 2,698   | 
|                       | Loans held-for-sale                                            |  | $        | 2,792   |       |  | $         | 2,792   |       |  | $ | 8,770   |           |  | $ | 8,770   | 
|                       | Loans, net of allowance for loan losses
and unearned loan fees |  | $        | 461,558 |       |  | $         | 465,772 |       |  | $ | 423,918 |           |  | $ | 423,918 | 
|                       | Mortgage servicing asset                                       |  | $        | 3,691   |       |  | $         | 3,691   |       |  | $ | 4,614   |           |  | $ | 4,614   | 
|Financial liabilities: |                                                                |  |          |         |       |  |           |         |       |  |   |         |           |  |   |        
|                       | Demand and savings deposits                                    |  | $        | 373,610 |       |  | $         | 373,610 |       |  | $ | 347,112 |           |  | $ | 347,112 | 
|                       | Time certificates                                              |  | $        | 122,748 |       |  | $         | 126,048 |       |  | $ | 111,512 |           |  | $ | 113,642 | 
|                       | Notes payable                                                  |  | $        | 21,983  |       |  | $         | 22,345  |       |  | $ | 27,135  |           |  | $ | 27,999  | 
|                       | Junior Subordinated Deferrable
Interest Debentures             |  | $        | 4,000   |       |  | $         | 4,000   |       |  | $ | 4,000   |           |  | $ | 4,000   | 

While estimates of fair value are based on managements judgment of the most
appropriate factors, there is no assurance that were Columbia to dispose of
such items at December 31, 2003 and 2002, the estimated fair values would
necessarily be achieved at that date, since market values may differ depending
on various circumstances. The estimated fair values at December 31, 2003 and
2002, should not necessarily be relied upon at subsequent dates.

In addition, other assets and liabilities of Columbia that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not recognized
in the consolidated financial statements nevertheless may have value but are
not included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the trained work force, customer goodwill, and similar
items.

80





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23 - SEGMENT INFORMATION

Columbia operates two primary segments, the community banking segment and the
mortgage banking segment. The community banking segment consists of Columbias
subsidiary, Columbia River Bank, which operates 18 branch facilities in Oregon
and Washington. The Bank offers loan, investment, and deposit products to its
customers who range from individuals to medium-size agricultural and commercial
companies. The mortgage banking segment consists of the Mortgage Team, with
administrative offices in Bend, Oregon, and an additional eight offices in
Oregon. The Mortgage Team offers a full range of mortgage lending services and
products to its clients.

In 2002, management evaluated the internal controls and accounting processes of
the Mortgage Team. As a result of this evaluation, certain activities were
reclassified for internal financial statement purposes, thus affecting account
level detail of the internal segment reporting process. Due to the overall
volume and nature of transactions that impact secondary marketing activities,
management determined it to be impracticable and of minimal benefit to restate
prior periods for these account reclassification changes. The overall
performance of the Bank and the overall composition of the reportable segments
remain unchanged as a result of these internal segment reporting process
changes.

Financial information that Columbias management uses to evaluate the
reportable segments and the reconciliation to Columbias consolidated results
are summarized as follows (in thousands):

|                                                     |  |           |         |          |  |              |       |   |  |   |         | 
|---------------------------------------------------- |  | --------- | ------- | -------- |  | ------------ | ----- | - |  | - | ------- | 
|                                                     |  | Community |         | Mortgage |  |              |       |  
|                                                     |  | Banking   |         | Banking  |  | Consolidated
|                                                     |  |           |         |          |  |             
|December 31, 2003                                    |  |           |         |          |  |              |       |   |  |   |         | 
|Net interest income before provision for
loan losses |  | $         | 30,998  |          |  | $            | 401   |   |  | $ | 31,399  | 
|Noninterest income                                   |  | $         | 3,808   |          |  | $            | 5,116 |   |  | $ | 8,924   | 
|Mortgage servicing asset amortization                |  | $         |        |          |  | $            | 2,000 |   |  | $ | 2,000   | 
|Impairment of mortgage servicing rights              |  | $         |        |          |  | $            | 858   |   |  | $ | 858     | 
|Salaries and benefits                                |  | $         | 10,812  |          |  | $            | 2,244 |   |  | $ | 13,056  | 
|Occupancy expense, excluding depreciation            |  | $         | 749     |          |  | $            | 157   |   |  | $ | 906     | 
|Depreciation and amortization                        |  | $         | 1,260   |          |  | $            | 91    |   |  | $ | 1,351   | 
|Income (loss) before provision for income
taxes      |  | $         | 15,737  |          |  | $            | (339  | ) |  | $ | 15,398  | 
|Goodwill                                             |  | $         | 7,389   |          |  | $            |      |   |  | $ | 7,389   | 
|Total assets                                         |  | $         | 575,463 |          |  | $            | 8,673 |   |  | $ | 584,136 | 

81





---



##### Table of Contents



COLUMBIA BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23 - SEGMENT INFORMATION- (continued)

|                                                     |  |           |         |          |  |              |        |   |  |   |         | 
|---------------------------------------------------- |  | --------- | ------- | -------- |  | ------------ | ------ | - |  | - | ------- | 
|                                                     |  | Community |         | Mortgage |  |              |        |  
|                                                     |  | Banking   |         | Banking  |  | Consolidated
|                                                     |  |           |         |          |  |             
|December 31, 2002                                    |  |           |         |          |  |              |        |   |  |   |         | 
|Net interest income before provision for
loan losses |  | $         | 29,417  |          |  | $            | 417    |   |  | $ | 29,834  | 
|Noninterest income                                   |  | $         | 2,780   |          |  | $            | 5,771  |   |  | $ | 8,551   | 
|Mortgage servicing asset amortization                |  | $         |        |          |  | $            | 1,029  |   |  | $ | 1,029   | 
|Impairment of mortgage servicing rights              |  | $         |        |          |  | $            | 2,781  |   |  | $ | 2,781   | 
|Salaries and benefits                                |  | $         | 10,310  |          |  | $            | 2,750  |   |  | $ | 13,060  | 
|Occupancy expense, excluding depreciation            |  | $         | 668     |          |  | $            | 151    |   |  | $ | 819     | 
|Depreciation and amortization                        |  | $         | 1,141   |          |  | $            | 98     |   |  | $ | 1,239   | 
|Income (loss) before provision for income
taxes      |  | $         | 15,883  |          |  | $            | (1,278 | ) |  | $ | 14,605  | 
|Goodwill                                             |  | $         | 7,389   |          |  | $            |       |   |  | $ | 7,389   | 
|Total assets                                         |  | $         | 526,202 |          |  | $            | 18,124 |   |  | $ | 544,326 | 
|December 31, 2001                                    |  |           |         |          |  |              |        |   |  |   |         | 
|Net interest income before provision for
loan losses |  | $         | 22,639  |          |  | $            | 856    |   |  | $ | 23,495  | 
|Noninterest income                                   |  | $         | 3,558   |          |  | $            | 5,636  |   |  | $ | 9,194   | 
|Mortgage servicing asset amortization                |  | $         |        |          |  | $            | 395    |   |  | $ | 395     | 
|Impairment of mortgage servicing rights              |  | $         |        |          |  | $            | 918    |   |  | $ | 918     | 
|Salaries and benefits                                |  | $         | 8,689   |          |  | $            | 2,733  |   |  | $ | 11,422  | 
|Occupancy expense, excluding depreciation            |  | $         | 576     |          |  | $            | 115    |   |  | $ | 691     | 
|Depreciation and amortization                        |  | $         | 1,065   |          |  | $            | 74     |   |  | $ | 1,139   | 
|Goodwill amortization                                |  | $         | 629     |          |  | $            |       |   |  | $ | 629     | 
|Income before provision for income taxes             |  | $         | 9,949   |          |  | $            | 1,802  |   |  | $ | 11,751  | 
|Goodwill                                             |  | $         | 7,389   |          |  | $            |       |   |  | $ | 7,389   | 
|Total assets                                         |  | $         | 452,260 |          |  | $            | 29,947 |   |  | $ | 482,207 | 

The mortgage banking segment receives an intercompany cost-of-funds allocation,
based on the average outstanding balance of the mortgage banking loans. This
allocation is eliminated in consolidation; however, it appears as interest
income for the community banking segment and interest expense in the mortgage
banking segment in the tables above. For the years ended December 31, 2003,
2002, and 2001, the allocation was approximately $332,000, $950,000, and
$882,000, respectively.

82





---



##### Table of Contents






ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes in or disagreements with accountants regarding
accounting and financial disclosure matters during the year ended December 31,
2003.




ITEM 9A. CONTROLS AND PROCEDURES

As of the end of the fiscal year covered by this report, management has
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures. Our principal executive and financial officers
supervised and participated in this evaluation. Based upon this evaluation our
principal executive and financial officers each conclude that our disclosure
controls and procedures are effective in timely alerting them to material
information required to be include in our periodic SEC reports. The design of
any system of controls is based in part upon various assumptions about the
likelihood of future events, and there can be no assurance that any of our
plans, products or procedures will succeed in achieving their intended goals
under future conditions. In addition, there have been no significant changes
in our internal controls, or in other factors that could significantly affect
our internal controls subsequent to our most recent evaluation, including any
corrective actions with regard to significant deficiencies or material
weaknesses.




PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding directors of Columbia who are standing for
reelection is set forth under Election of Directors in Columbias Notice of
Annual Meeting of Shareowners and Proxy Statement to be filed within 120 days
after Columbias year end of December 31, 2003 (the Proxy Statement), which
information is incorporated herein by reference.

The names of the directors and executive officers of Columbia and their
employer and principal occupation as of the date hereof are set forth below.

Directors:

Donald T. Mitchell, Chairman, Lumber Broker, Retired
Robert L.R. Bailey, Orchard View Farms, Owner
Charles F. Beardsley, Hershner & Bell Real Estate & Insurance, Owner
Richard E. Betz, Royal Columbia Farms, Inc, Bud-Rich Potato, Inc, Owner
William A. Booth, Booth & Kelly Real Estate & Insurance, Owner
Dennis L. Carver, Goldendale Chiropractic Clinic, Chiropractor/Owner
Roger L. Christensen, Columbia Bancorp and Columbia River Bank, President & Chief Executive Officer
Terry L. Cochran, Banker, Retired
Jim J. Doran, Jim Doran Chevrolet Oldsmobile, Jim Doran Dodge Chrysler, Owner
Jean S. McKinney, McKinney Ranch, Owner

Executive Officers:

Roger L. Christensen, Columbia Bancorp & Columbia River Bank, President & Chief Executive Officer
R. Shane Correa, Columbia River Bank, Executive Vice President & Regional President
James C. McCall, Columbia River Bank, Executive Vice President & Chief Operating Officer
Craig J. Ortega, Columbia River Bank, Executive Vice President & Head of Community Banking
Greg B. Spear, Columbia Bancorp & Columbia River Bank, Executive Vice President & Chief Financial Officer
Britt W. Thomas, Columbia River Bank, Executive Vice President & Chief Credit Officer

Code of Ethics

83



---



##### Table of Contents



Columbia has adopted a code of business conduct and ethics for directors,
officers (including Columbias principal executive officer, principal financial
officer and controller) and financial personnel, known as the Code of Ethics
Policy. The Code of Ethics Policy is available on Columbias website at
www.columbiabancorp.com. Shareholders may request a free copy of the Code of
Ethics Policy from:

|                        
|------------------------
|Columbia Bancorp        
|Attn: Investor Relations
|P.O. Box 1050           
|The Dalles OR 97058     
|541.298.6649            




ITEM 11. EXECUTIVE COMPENSATION AND REPORT OF COMPENSATION COMMITTEE

Information regarding Columbias compensation of its named executive
officers is set forth under Executive Compensation in the Proxy Statement,
which information is incorporated herein by reference. Information regarding
Columbias compensation of its directors is set forth under Director
Compensation in the Proxy Statement, which information is incorporated herein
by reference.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding security ownership of certain beneficial owners,
directors and executive officers is set forth under Security Ownership of
Certain Beneficial Owners and Mangement in the Proxy Statement, which
information is incorporated herein by reference.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions is
set forth under Certain Relationships and Related Transactions in the Proxy
Statement, which information is incorporated herein by reference.




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding principal auditor fees and services is set forth
under Principal Auditor Fees and Services, in the Proxy Statement, which
information is incorporated herein by reference.




PART IV




ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Exhibits.

The following documents are filed as part of this report and are
incorporated herein by reference from the Registrants 2003 Annual Report, and
are being filed with the Securities and Exchange Commission as part of Columbia
Bancorps Form 10-K for the year ended December 31, 2003.



| | (i)   |  | Independent Auditors Report                                                                                     
| | ----- |  | ----------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | Consolidated Balance Sheets for the Years Ended December 31,
2003 and 2002                                      
|
| | (iii) |  | Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 2003, 2002, and 2001
|
| | (iv)  |  | Consolidated Statements of Changes in Shareholders Equity
for the Years Ended December 31, 2003, 2002, and 2001
|
| | (v)   |  | Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000                      
|
| | (vi)  |  | Notes to Consolidated Financial Statements                                                                      

84



---



##### Table of Contents



The following documents are not included in this 2003 Annual Report, but
are either being filed with, or incorporated by reference into, Columbia
Bancorps Form 10-K for the year ended December 31, 2003 filed with the
Securities and Exchange Commission

|       |  |                                                                                                                                                                                                                                     
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1    |  | Articles of Incorporation of Columbia Bancorp (Incorporated herein by reference to Exhibit 3(i) to Columbias form
10-Q for the period ended June 30, 1999.)                                                                        
|       |  |                                                                                                                                                                                                                                     
|3.2    |  | Bylaws of Columbia Bancorp (Incorporated herein by reference to Exhibit 15.5 to Columbias Form 10-KSB for the year
ended December 31, 1998.)                                                                                       
|       |  |                                                                                                                                                                                                                                     
|4.1    |  | Indenture dated as of December 19, 2002 between Columbia Bancorp, as Issuer, and Wells Fargo Bank, N.A., as Trustee,
relating to Floating Rate Junior Subordinated Debt Securities due 2033.*                                       
|       |  |                                                                                                                                                                                                                                     
|4.2    |  | Form of Floating Rate Junior Subordinated Debt Security due 2033.**                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                     
|10.1+  |  | Employment Agreement of April 25, 2003 between Roger Christensen and Columbia Bancorp.*                                                                                                                                             
|       |  |                                                                                                                                                                                                                                     
|10.2+  |  | Employment Agreement of April 15, 2003 between James McCall and Columbia River Bank.*                                                                                                                                               
|       |  |                                                                                                                                                                                                                                     
|10.3+  |  | Employment Agreement of April 15, 2003 between Craig Ortega and Columbia River Bank.*                                                                                                                                               
|       |  |                                                                                                                                                                                                                                     
|10.4+  |  | Employment Agreement of April 15, 2003 between Britt Thomas and Columbia River Bank.*                                                                                                                                               
|       |  |                                                                                                                                                                                                                                     
|10.5+  |  | Deferred Compensation Agreement of April 1, 1999 between Terry L. Cochran and Columbia Bancorp. (Incorporated herein
by reference to Exhibit 10.2 to Columbias Annual Report on Form 10-K for the year ended December 31, 1999.)   
|       |  |                                                                                                                                                                                                                                     
|10.6+  |  | Columbia Bancorp Restated Employee Stock Ownership Plan and Trust Agreement (1999 Restatement). (Incorporated herein
by reference to Exhibit 10.2 to Columbias Annual Report on Form 10-K for the year ended December 31, 1999.)   
|       |  |                                                                                                                                                                                                                                     
|10.7+  |  | Executive Salary Continuation Agreement between Columbia River Bank and Roger L. Christensen. (Incorporated herein by
reference to Exhibit 10.2 to Columbias Periodic Report on Form 10-Q for the period ended September 30, 2002.)
|       |  |                                                                                                                                                                                                                                     
|10.8+  |  | Executive Bonus Deferral Agreement between Columbia River Bank and
Roger L. Christensen. (Incorporated herein by reference to Exhibit
10.2 to Columbias Periodic Report on Form 10-Q for the period
ended September 30, 2002.)     
|       |  |                                                                                                                                                                                                                                     
|10.9+  |  | Split Dollar Agreement between Columbia River Bank and Roger L.
Christensen. (Incorporated herein by reference to Exhibit 10.3 to
Columbias Periodic Report on Form 10-Q for the period ended
September 20, 2002.)                 
|       |  |                                                                                                                                                                                                                                     
|10.10+ |  | Phantom Stock Agreement between Columbia Bancorp and Roger L.
Christensen. (Incorporated herein by reference to Exhibit 10.4 to
Columbias Periodic Report on Form 10-Q for the period ended
September 30, 2002.)                   
|       |  |                                                                                                                                                                                                                                     
|10.11+ |  | Executive Salary Continuation Agreement between Columbia River Bank
and James C. McCall. (Incorporated herein by reference to Exhibit
10.11 to Columbias Annual Report on Form 10-K for the period ended
December 31, 2002.)       
|       |  |                                                                                                                                                                                                                                     
|10.12+ |  | Executive Bonus Deferral Agreement between Columbia River Bank and
James C. McCall. (Incorporated herein by reference to Exhibit 10.12
to Columbias Annual Report on Form 10-K for the period ended
December 31, 2002.)            

85





---



##### Table of Contents



|       |  |                                                                                                                                                                                                                                 
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.13+ |  | Split Dollar Agreement between Columbia River Bank and James C.
McCall. (Incorporated herein by reference to Exhibit 10.13 to
Columbias Annual Report on Form 10-K for the period ended December
31, 2002.)                    
|       |  |                                                                                                                                                                                                                                 
|10.14+ |  | Executive Salary Continuation Agreement between Columbia River Bank
and Craig J. Ortega. (Incorporated herein by reference to Exhibit
10.14 to Columbias Annual Report on Form 10-K for the period ended
December 31, 2002.)   
|       |  |                                                                                                                                                                                                                                 
|10.15+ |  | Executive Bonus Deferral Agreement between Columbia River Bank and
Craig J. Ortega. (Incorporated herein by reference to Exhibit 10.15
to Columbias Annual Report on Form 10-K for the period ended
December 31, 2002.)        
|       |  |                                                                                                                                                                                                                                 
|10.16+ |  | Split Dollar Agreement between Columbia River Bank and Craig J.
Ortega. (Incorporated herein by reference to Exhibit 10.16 to
Columbias Annual Report on Form 10-K for the period ended December
31, 2002.)                    
|       |  |                                                                                                                                                                                                                                 
|10.17+ |  | Executive Salary Continuation Agreement between Columbia River Bank
and Britt W. Thomas. (Incorporated herein by reference to Exhibit
10.17 to Columbias Annual Report on Form 10-K for the period ended
December 31, 2002.)   
|       |  |                                                                                                                                                                                                                                 
|10.18+ |  | Executive Bonus Deferral Agreement between Columbia River Bank and
Britt W. Thomas. (Incorporated herein by reference to Exhibit 10.18
to Columbias Annual Report on Form 10-K for the period ended
December 31, 2002.)        
|       |  |                                                                                                                                                                                                                                 
|10.19+ |  | Split Dollar Agreement between Columbia River Bank and Britt W.
Thomas. (Incorporated herein by reference to Exhibit 10.19 to
Columbias Annual Report on Form 10-K for the period ended December
31, 2002.)                    
|       |  |                                                                                                                                                                                                                                 
|10.20+ |  | Executive Salary Continuation Agreement between Columbia River Bank
and Greg B. Spear. (Incorporated herein by reference to Exhibit
10.20 to Columbias Annual Report on Form 10-K for the period ended
December 31, 2002.)     
|       |  |                                                                                                                                                                                                                                 
|10.21+ |  | Executive Bonus Deferral Agreement between Columbia River Bank and
Greg B. Spear. (Incorporated herein by reference to Exhibit 10.21
to Columbias Annual Report on Form 10-K for the period ended
December 31, 2002.)          
|       |  |                                                                                                                                                                                                                                 
|10.22+ |  | Split Dollar Agreement between Columbia River Bank and Greg B.
Spear. (Incorporated herein by reference to Exhibit 10.22 to
Columbias Annual Report on Form 10-K for the period ended December
31, 2002.)                      
|       |  |                                                                                                                                                                                                                                 
|10.23+ |  | Employment Agreement between R. Shane Correa and Columbia River
Bank dated May 15, 2003. (Incorporated herein by reference to
Exhibit 10.1 to Columbias quarterly report on Form 10-Q for the
period ended September 30, 2003.)
|       |  |                                                                                                                                                                                                                                 
|13.1   |  | Annual Report to Shareholders for the Year Ended December 31, 2003.*                                                                                                                                                            
|       |  |                                                                                                                                                                                                                                 
|21.1   |  | List of Subsidiaries.*                                                                                                                                                                                                          
|       |  |                                                                                                                                                                                                                                 
|23.1   |  | Consent of Moss Adams, LLP.*                                                                                                                                                                                                    
|       |  |                                                                                                                                                                                                                                 
|31.1   |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of
2002.*                                                                                       

86





---



##### Table of Contents



|     |  |                                                                                                                                                          
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of
2002.*                
|     |  |                                                                                                                                                          
|32.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(b)
or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. 1350.*
|     |  |                                                                                                                                                          
|32.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(b)
or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. 1350.*

+ Management contract, plan or arrangement.

*Included as an exhibit to Columbia Bancorps Form 10-K for the year ended
December 31, 2003 filed with the Securities and Exchange Commission.

**Incorporated by reference to Exhibit A as contained in Exhibit 4.1 of this
Report.

(b) Reports filed on Form 8-K

Current Report on Form 8-K filed on October 23, 2003 containing Regulation
FD disclosure relating to Columbias third quarter earnings release.

Current Report on Form 8-K filed on January 28, 2004 containing Regulation
FD disclosure relating to Columbias fourth quarter and fiscal year earnings
release.

87





---



##### Table of Contents






SIGNATURES

In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.

COLUMBIA BANCORP

DATED:     February 27, 2004     By: Roger L. Christensen, President & C.E.O - Columbia and CRB

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR

DATED:     February 27, 2004            By: Roger L. Christensen, President & C.E.O - Columbia and CRB

CHIEF FINANCIAL OFFICER

DATED:     February 27, 2004            By: Greg B. Spear, Chief Financial Officer and                                                                           Chief
Accounting Officer - Columbia and CRB

DIRECTORS:

DATED:     February 27, 2004            By: Donald T. Mitchell, Director and Chairman

DATED:     February 27, 2004            By: Robert L. R. Bailey, Director

DATED:     February 27, 2004            By: Charles F. Beardsley, Director

DATED:     February 27, 2004            By: Richard E. Betz, Director

DATED:     February 27, 2004            By: William A. Booth, Director

DATED:     February 27, 2004            By: Dennis L. Carver, Director

DATED:     February 27, 2004            By: Terry, L. Cochran, Director

DATED:     February 27, 2004            By: James J. Doran, Director

DATED:     February 27, 2004            By: Jean S. McKinney, Director

88