Columbia Bancorp Produces Record Profits in 2004; Net Income Rose 9% t

Columbia Bancorp Produces Record Profits in 2004; Net Income Rose 9% to $10.7 Million or $1.19 Per Diluted Share

    Business Editors

    THE DALLES, Ore.--(BUSINESS WIRE)--Jan. 26, 2005--Columbia Bancorp (Nasdaq: CBBO), the financial holding company for Columbia River Bank, today reported 24% growth in net loans, 22% growth in deposits, and a 9% increase in net income for 2004, fueled by strong demand for business loans and new initiatives to attract deposits. For the year, net income increased to $10.7 million, or $1.19 per diluted share, from $9.8 million, or $1.09 per diluted share, in 2003. During the fourth quarter, Columbia's net income increased 20% to $3.5 million, or $0.39 per diluted share, compared to $2.9 million, or $0.32 per diluted share, in the fourth quarter of 2003.
    Strong loan and deposit growth along with improving efficiencies offset mild interest margin compression and declining mortgage production. "Fortunately, fast paced growth in both Bend, Oregon, and the Tri-Cities (Pasco, Richland, Kennewick) area in Washington, coupled with increasing market share gains by our team members throughout our system countered the decline in mortgage activity and contributed to a record year," said Roger Christensen, President and Chief Executive Officer. "While mortgage originations dropped by 69% and mortgage origination fees fell by $1.4 million during 2004, business lending continues to be robust in many of our markets."
    "Growth in earnings during the fourth quarter elevated regulatory capital, which is vital to our growth strategy for 2005. Just as important is the growth in earning assets, which increased our net interest income in 2004 offsetting the effects from net interest margin compression. The 2004 fourth quarter net interest spread was off 31 basis points at 5.06%, and fourth quarter net interest margin compressed 25 basis points to 5.60%, compared to the fourth quarter of 2003," said Greg Spear, Chief Financial Officer. "As expected, net interest margin for the year contracted moderately, coming in at 5.95%, down 11 basis points from a year ago. Our efficiencies in 2004 continued to improve, despite the increased regulatory burden from Sarbanes-Oxley legislation and the on-going expenses associated with branch expansion."

    FINANCIAL HIGHLIGHTS

--	2004 Return on Equity (ROE) was 17.50%; 4Q04 ROE was 21.62%
--	2004 Return on Assets (ROA) was 1.64%; 4Q04 ROA was 1.93%
--	2004 Net Interest Margin (NIM) was 5.95%; 4Q04 NIM was 5.60%
--	2004 Efficiency Ratio was 54.86%; 4Q04 Efficiency Ratio was 53.70%

    INCOME STATEMENT PERFORMANCE

    Revenue (net interest income plus non-interest income) grew 8% in 2004 to $43.7 million compared to $40.3 million in 2003. Fourth quarter revenue was up 20% to $12.1 million compared to $10.0 million in the fourth quarter a year ago. "The sale of the property located in The Dalles, Oregon, generated a fourth quarter gain of $632,000," said Spear. "Before the gain on sale of property, our pre-tax income was $16.3 million, which represents a 9% increase over our 2003 pre-tax income net of the $457,000 gain on the sale of securities, of $14.9 million."
    Net interest income before provision for loan losses grew 13% to $35.4 million in 2004, with a 12% increase in interest income and a 7% rise in interest expense. In the fourth quarter, net interest income grew 17% to $9.3 million compared to $7.9 million in the fourth quarter of 2003. Net interest margin on a tax equivalent basis was 5.95% for the entire year and 5.60% for the fourth quarter of 2004, compared to 6.06% and 5.85% in the respective periods of 2003.
    The provision for loan losses was $2.8 million in 2004 compared to $2.6 million in 2003, reflecting the growth of the loan portfolio. Non-interest income totaled $8.3 million in 2004 compared to $8.9 million in 2003. Fourth quarter non-interest income increased to $2.8 million from $2.1 million, largely due to the sale of property located in The Dalles, Oregon.
    "Overhead expenses grew moderately in 2004, reflecting the franchise expansion with new offices opening in Bend and Redmond, Oregon, during the year, and an increase in marketing and promotional expenditures," said Craig Ortega, Chief Operating Officer. "In addition, hard costs associated with the compliance of Sarbanes-Oxley legislation totaled nearly $90,000 in the fourth quarter and does not include the estimated 3,500 hours required of our staff to accomplish compliance with this major piece of legislation. We anticipate additional costs and time commitments in 2005 for on-going compliance efforts." Non-interest expense was $24.0 million, up 7% from $22.4 million in 2003. For the fourth quarter of 2004, non-interest expense was $6.4 million, up 20% from $5.4 million in the fourth quarter of 2003.
    "Operating efficiencies improved this year reflecting the growth in our branch network and careful cost control efforts," said Ortega. The efficiency ratio in 2004 improved 57 basis points to 54.86% compared to 55.43% in 2003. In the fourth quarter of 2004, the efficiency ratio was 53.70% compared to 53.31% for the fourth quarter of 2003. The efficiency ratio, calculated by dividing non-interest expense by net interest income and non-interest income, measures overhead costs as a percentage of total revenues.

    BALANCE SHEET PERFORMANCE

    The loan portfolio grew 24% to $583.8 million at December 31, 2004, compared to $472.4 million at December 31, 2003. "The two fastest growing markets we served in 2004, were Bend, Oregon, and Kennewick, Washington, which were driven by demand for commercial, real estate construction and agricultural loans," said Shane Correa, Chief Banking Officer. "While loan growth is historically flat in the fourth quarter, we continued to generate growth by adding $5.6 million to the loan portfolio." Total assets grew 22% to $715.4 million at December 31, 2004, compared to $584.1 million a year earlier.
    The carrying value of the mortgage servicing asset at December 31, 2004, was $2.2 million, which represents 65 basis points of serviced mortgage loans. "In 2004, we reduced the mortgage servicing asset by more than $1.5 million, and over the past five years, it has dropped by more than $8 million through a combination of valuation write-downs and amortization. Given a rising interest rate environment, we believe there is a low probability for future valuation write-downs. When market conditions warrant, we anticipate selling the servicing asset," said Christensen.
    Total deposits increased 22% to $606.9 million at December 31, 2004, compared to $496.4 million a year earlier. In the second half of the year, management initiated a strategy to build deposits by targeting business relationships and enhancing competitive rates. Core deposits (excluding time certificates) increased 12% to $419.6 million and time certificates grew 53% to $187.4 million at the end of 2004 compared to $373.6 million and $122.7 million respectively a year ago. Although time certificates increased, the interest rate expense on interest-bearing liabilities increased only 27 basis points in the fourth quarter and dropped 9 basis points during the year.
    Shareholders' equity increased 14% to $65.9 million, or $7.45 per share, at December 31, 2004, compared to $57.8 million, or $6.61 per share, at December 31, 2003. Tangible book value per share at December 31, 2004, was $6.37 compared to $5.34 at December 31, 2003.
    "Asset quality at the end of 2004 reflected non-performing assets (NPA) at 0.60% of total assets," said Britt Thomas, Chief Credit Officer. Total non-performing assets at the end of the year were $4.3 million compared to $5.3 million, or 0.74% of total assets at September 30, 2004, and $3.3 million, or 0.57% of total assets a year ago. "As discussed last quarter, 72% of the non-performing portfolio is a single $3.1 million loan that, in our view, has an adequate source for repayment. The $1.4 million piece of property located in Central Oregon, which had been in other real estate owned at the end of the third quarter, was sold in the fourth quarter with a small gain of $39,000."
    Net charge-offs in the fourth quarter totaled $86,000, or 0.01% of gross loans at December 31, 2004, compared to $167,000 or 0.04% of gross loans for the same quarter of 2003. In 2004, net charge-offs totaled $1.2 million, or 0.20% of gross loans, compared to $2.4 million, or 0.50% of gross loans a year ago. The allowance for loan loss was $8.2 million, or 1.40% of gross loans at year-end, as compared to $6.6 million, or 1.40% at December 31, 2003.

    LOOKING AHEAD

    "We are proud of the strong record of growth we have established over the past five years and believe there are excellent opportunities to further build our franchise. Our Meadow Springs Branch located in Richland, Washington, will open later this year and will replace our temporary branch located in Kennewick, Washington. The investments we are making in infrastructure, training, technology and communities are fundamental to our strategy and will continue to make our organization one of the best places to work and bank, as well as a top-performing financial institution for shareholders," said Christensen.

    EARNINGS TELECONFERENCE AND WEBCAST

    Columbia will conduct a teleconference and webcast on Wednesday, January 26, 2005, at 12:00 noon Pacific Time (3:00 p.m. Eastern Time) when management, led by Roger Christensen, will discuss 2004's results. To participate in the call, dial 1-888-339-2688. The conference ID number to access the call is 24369769. The live Webcast can be heard by going to Columbia Bancorp's Web Site, www.columbiabancorp.com under the Investor Relations section and clicking on Presentations/Webcast.
    The call replay will be available starting two hours after the completion of the live call, until January 31, 2005. To listen to the replay, dial 1-888-286-8010 and use access code 67243393. In addition, the Webcast will be archived on Columbia Bancorp's Website.

    ABOUT COLUMBIA BANCORP

    Columbia Bancorp (www.columbiabancorp.com) is the financial holding company for Columbia River Bank, which operates 20 branches located in The Dalles (2), Hood River, Bend (4), Madras, Redmond (2), Pendleton, Hermiston, McMinnville (3), Canby and Newberg, Oregon, and in Goldendale, White Salmon and Kennewick, Washington. Columbia River Bank also provides mortgage-lending services through CRB Mortgage Team and brokerage services through CRB Financial Services Team.

    FORWARD LOOKING STATEMENTS

    Forward-looking statements about the financial condition, results of operations, plans and business of Columbia are subject to various risks and uncertainties that could cause actual results to differ materially from those set forth in this release. These include, without limitation, changes in the overall economic condition and interest rate markets that would impact our interest rate margins and our operating expenses; our ability accurately to assess the value of intangible assets and to monitor loan quality and loan loss reserve adequacy; our ability timely to collect non-performing loans or to realize on the underlying collateral; the impact of competition on revenues and margins and on our expansion strategy, Columbia's ability to open and generate growth from new branches, achieve resolution on non-performing assets, and other risks and uncertainties, including statements relating to the year 2004, some of which are described from time to time in our public announcements and filings with the Securities and Exchange Commission ("SEC"). Some forward-looking statements can be identified by the use of forward-looking terminology, such as "believe", "will", "should", "expect", "anticipate", "estimate", "continue", "plans", "hope", or other similar terminology. Forward-looking statements offered in this release are accurate only as of the date released, and we do not intend to update these forward-looking statements to reflect subsequent events or circumstances.

INCOME STATEMENT (Unaudited) (In thousands, except Three Months Twelve Months per share data and Ended % Ended % ratios) December 31, Change December 31, Change --------------- ------ ---------------- ------ 2004 2003 2004 2003 ------- ------ ------- ------- Interest income $11,541 $9,514 21% $42,708 $38,230 12% Interest expense 2,280 1,582 44% 7,328 6,831 7% ------- ------ ------- ------- Net interest income before provision for loan losses 9,261 7,932 17% 35,380 31,399 13% Provision for loan losses 120 175 -31% 2,760 2,575 7% ------- ------ ------- ------- Net interest income after provision for loan losses 9,141 7,757 18% 32,620 28,824 13%

Non-interest income: Service charges and fees 1,215 1,120 8% 4,658 4,308 8% Credit card discounts and fees 116 118 -2% 465 437 6% CRB Financial Services Team revenues 125 147 -15% 520 579 -10% Mortgage servicing, net 2 269 -99% (533) 269 -298% Gain on sale of mortgage loans 30 (210) 114% 196 (429) 146% Mortgage loan origination income 213 403 -47% 928 2,338 -60% Gain/loss from "called" bond - - 0% (7) 5 -240% Gain from sale of securities - - 0% - 457 -100% Gain from sale of loans 6 52 -88% 101 52 94% Other non-interest income 1,090 211 417% 1,984 908 119% ------- ------ ------- ------- Total non-interest income 2,797 2,110 33% 8,312 8,924 -7%

Non-interest expense: Salaries and employee benefits 3,626 2,915 24% 13,403 13,056 3% Occupancy expense 756 551 37% 2,654 2,247 18% Data processing 134 93 44% 513 353 45% Other non-interest expense 1,897 1,794 6% 7,401 6,694 11% ------- ------ ------- ------- Total non-interest expense 6,413 5,353 20% 23,971 22,350 7% ------- ------ ------- -------

Income before provision for income taxes 5,525 4,514 22% 16,961 15,398 10% Provision for income taxes 2,020 1,600 26% 6,226 5,564 12% ------- ------ ------- ------- Net income $ 3,505 $2,914 20% $10,735 $ 9,834 9% ======= ====== ======= =======

Earnings per common share Basic $ 0.40 $ 0.33 20% $ 1.22 $ 1.13 8% Diluted 0.39 0.32 20% 1.19 1.09 9% Cumulative dividend per common share 0.09 0.09 0% 0.36 0.32 13%

Weighted average shares outstanding Basic 8,821 8,740 8,795 8,717 Diluted 9,091 9,019 9,042 8,994 Actual shares outstanding 8,839 8,751 8,839 8,751

Quarter Ended Year to Date December 31, December 31, ---------------- ----------------- RATIOS 2004 2003 2004 2003 ------- ------ ------- ------- Interest rate yield on interest-earning assets, tax equivalent 6.97% 7.01% 7.16% 7.37% Interest rate expense on interest-bearing liabilities 1.91% 1.64% 1.72% 1.81% Interest rate spread 5.06% 5.37% 5.45% 5.56% Net interest margin, tax equivalent 5.60% 5.85% 5.95% 6.06% Efficiency ratio (1) 53.70% 53.31% 54.86% 55.43% Return on average assets 1.93% 1.94% 1.64% 1.71% Return on average equity 21.62% 20.21% 17.50% 18.25% Average equity / average assets 8.95% 9.61% 9.35% 9.39%

(1) Non-interest expense divided by net interest income and non-interest income.

BALANCE SHEET (Unaudited) (In thousands, except per share data) Annual % ASSETS Dec. 31, 2004 Dec. 31, 2003 Change ------------- ------------- -------- Cash and cash equivalents $ 57,979 $ 53,866 8% Investment securities 45,398 31,682 43% Loans: Commercial loans 93,618 86,163 9% Agricultural loans 79,224 64,059 24% Real estate loans 247,045 206,754 19% Real estate loans - construction 139,415 87,427 59% Consumer loans 14,386 18,242 -21% Other loans 7,660 6,975 10% ----------- ----------- Gross loans, excluding loans held for sale 581,348 469,620 24%

Loans held for sale 2,517 2,792 -10% ----------- ----------- Total gross loans 583,865 472,412 24%

Unearned loan fees (1,556) (1,450) 7% Allowance for loan losses (8,184) (6,612) 24% ----------- ----------- Net loans 574,125 464,350 24%

Property and equipment, net 15,223 13,767 11% Goodwill 7,389 7,389 0% Mortgage servicing asset, net 2,163 3,691 -41% Other assets 13,096 9,391 39% ----------- ----------- Total assets $ 715,373 $ 584,136 22% =========== ===========

LIABILITIES Deposits: Non-interest bearing demand deposits $ 172,422 $ 150,425 15% Interest bearing demand deposits 211,240 187,452 13% Savings accounts 35,926 35,733 1% Time certificates 187,356 122,748 53% ----------- ----------- Total deposits 606,944 496,358 22%

Borrowings 39,014 25,983 50% Other liabilities 3,538 3,991 -11% ----------- ----------- Total liabilities 649,496 526,332 23%

Shareholders' equity 65,877 57,804 14% ----------- ----------- Total liabilities and shareholders' equity $ 715,373 $ 584,136 22% =========== ===========

Book value per common share $ 7.45 $ 6.61 13% Tangible book value per common share (1) $ 6.37 $ 5.34 19%

(1) Total common equity, less goodwill and other intangible assets, divided by actual shares outstanding.

ADDITIONAL FINANCIAL INFORMATION (Unaudited) (In thousands, except quantities and ratios)

NON-PERFORMING ASSETS Dec. 31, Dec. 31, 2004 2003 --------- --------- Delinquent loans on non- accrual status $ 4,217 $ 3,292 Delinquent loans on accrual status - - Restructured loans - 10 -------- -------- Total non-performing loans 4,217 3,302 Other real estate owned 100 42 -------- -------- Total non-performing assets $ 4,317 $ 3,344 ======== ========

Total non-performing assets / total assets 0.60% 0.57%

Quarter Ended Year to Date ------------------- ------------------- ALLOWANCE FOR LOAN LOSSES Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2004 2003 2004 2003 --------- --------- --------- --------- Balance at beginning of period $ 8,150 $ 6,604 $ 6,612 $ 6,417 Provision for loan losses 120 175 2,760 2,575 Recoveries 42 58 103 154 Charge offs (128) (225) (1,291) (2,534) -------- -------- -------- -------- Balance at end of period $ 8,184 $ 6,612 $ 8,184 $ 6,612 ======== ======== ======== ========

Allowance for loan losses / gross loans and loans held for sale 1.40% 1.40% Non-performing loans / allowance for loan losses 51.53% 49.94%

Quarter Ended Year to Date ------------------- ------------------- OPERATING PERFORMANCE Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2004 2003 2004 2003 --------- --------- --------- --------- Average interest-earning assets $663,785 $543,727 $601,058 $523,939 Average gross loans and loans held for sale 582,410 463,729 544,945 457,348 Average assets 721,022 595,282 655,674 573,934 Average interest-bearing liabilities 473,769 383,289 426,773 377,613 Average interest-bearing deposits 434,605 355,489 388,680 348,401 Average deposits 613,728 506,421 552,633 487,332 Average liabilities 656,519 538,080 594,341 520,036 Average equity 64,504 57,202 61,333 53,898

Quarter Ended ------------------- MORTGAGE SERVICING Dec. 31, Dec. 31, 2004 2003 --------- --------- Mortgage servicing asset, net $ 2,163 $ 3,691 Mortgage loans serviced $333,742 $444,649 Mortgage loans serviced number (quantity) 2,989 3,756 Mortgage loans produced (quantity) 126 1,713 Mortgage servicing asset multiple 0.65% 0.83%

MSA RECONCILIATION 2004 2003 2002 2001 -------- -------- -------- -------- Mortgage servicing asset (MSA), beginning $ 3,691 $ 4,614 $ 6,197 $ 2,760 Add servicing retained premiums 93 1,935 2,227 4,750 Deduct MSA amortization (1,621) (2,000) (1,029) (395) Deduct MSA valuation adjustments - (858) (2,781) (918) -------- -------- -------- -------- Mortgage servicing asset, ending $ 2,163 $ 3,691 $ 4,614 $ 6,197 ======== ======== ======== ========

--30--APG/se*

CONTACT: Columbia Bancorp Roger L. Christensen, 541-298-6633 rchristensen@columbiabancorp.com or Greg B. Spear, 541-298-6612 gspear@columbiabancorp.com

KEYWORD: OREGON INDUSTRY KEYWORD: BANKING EARNINGS CONFERENCE CALLS SOURCE: Columbia Bancorp

Copyright Business Wire 2005