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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, 2001

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.)

420 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. [    ]

     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 February 5, 2002 was $75,020,307.

     The number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date: 8,076,532 shares of no par value common stock on March 1, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant’s proxy statement dated March 11, 2002 for the 2002 Annual Meeting of Stockholders (“Proxy Statement”), and the 2001 Annual Report to Stockholders are incorporated by reference in Part II and III hereof.

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COLUMBIA BANCORP
FORM 10-K
TABLE OF CONTENTS

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

     Forward-looking statements with respect to the financial condition, results of operations and the business of Columbia are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in such statements. These include, without limitation, the impact of competition and interest rates on revenues and margins, and other risks and uncertainties, including statements relating to the year 2002, as may be detailed from time to time in Columbia’s public announcements and filings with the Securities and Exchange Commission (“SEC”). Forward-looking statements can be identified by the use of forward-looking terminology, such as “may”, “will”, “should”, “expect”, “anticipate”, “estimate”, “continue”, “plans”, “intends”, or other similar terminology. Columbia does not intend to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this press release, other than in its periodic filings with the SEC, or to reflect the occurrence of unanticipated events.

Part I

ITEM 1. DESCRIPTION OF BUSINESS

General

     Columbia Bancorp (“Columbia”) is a financial holding company headquartered in The Dalles, Oregon, with one subsidiary, Columbia River Bank (“CRB”). CRB is a 16 branch, state-chartered institution authorized to provide banking services by the states of 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 14 Oregon branches serve the northern and eastern Oregon communities of The Dalles, Hood River, Pendleton and Hermiston, the central Oregon communities of Madras, Redmond, and Bend, and the communities of McMinnville, Canby and Newberg in the Willamette Valley. Columbia’s two south central Washington branches serve the communities of Goldendale and White Salmon.

     As of December 31, 2001, Columbia had total assets of $482.21 million, total deposits of $394.64 million, and stockholders’ equity of $46.45 million. Columbia’s net income for the year ended December 31, 2001, was $7.37 million, which was Columbia’s 14th consecutive year of increasingly higher net income. For the year ended December 31, 2001, Columbia’s return on average assets was 1.64% and return on average equity was 16.76%. Since the year ended December 31, 1997, Columbia has increased earnings by an average of 17.74% per year and achieved an average return on average assets of 1.62%. During the same period, Columbia has achieved an average return on average equity of 16.31% while sustaining strong asset quality.

     From its origins 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. In 1995, CRB merged with Juniper Banking Company. In 1996, Columbia was formed as CRB’s holding company and Columbia acquired Washington-based Klickitat Valley Bank (“Klickitat”).

     In 1997, Columbia created a division of CRB to originate conventional residential mortgage loans for the primary purpose of selling to the secondary market. The division, known as the Columbia River Bank Mortgage Group (“Mortgage Group”), has grown its business substantially since its inception. The Mortgage Group operates its primary retail loan operations from branch facilities in Bend, Oregon, but also offers its products at all of Columbia’s Oregon and Washington branches. It also offers wholesale mortgage loan services directly to other Oregon banks. Further growth in 1997 came from CRB’s Bend branch opening.

     In 1998, CRB opened a new branch in Hermiston, Oregon and Columbia completed the acquisition of Valley Community Bank (“VCB”). During 1999, CRB opened new branches in Pendleton and Newberg, Oregon, and opened a second Bend, Oregon branch. In April 2000, Columbia River BankNet, CRB’s Internet-based banking product, was introduced. In 2001, CRB opened a new branch in Canby, Oregon and a limited banking facility located in a McMinnville, Oregon retirement community as well as a mortgage lending office in Newport, Oregon. Collectively, these growth and acquisition activities have enabled Columbia to diversify its loan portfolio and its

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operating risks over several market areas and local economies.

     The markets in which Columbia operates are economically diverse, and therefore pose both opportunities and challenges to a community bank operating in all of these economies. Columbia’s approach to meeting the challenge is to staff its branches and business groups with managers who are established in their communities and have developed a loyal customer following. Columbia’s senior management, in conjunction with the branch managers, reviews the operations of each branch to determine which products and services are best suited to that geographic region. The diverse economies also provide opportunities to limit Columbia’s exposure to adverse market conditions in any one economic sector.

Business Strategy

     Columbia’s strategy is to continue building on its position as a leading community-based provider of financial services in Oregon and south central Washington. The key to the success of this strategy, in Columbia’s view, is to continue to provide exceptional personal service to the communities it now serves, and to successfully expand into new communities by identifying and meeting their unique financial services needs. Columbia’s target branch locations are in non-metropolitan regions, where it aims to deliver prompt and friendly personal banking services. The components of Columbia’s business strategy are outlined below.

     Successfully operate in non-metropolitan regions. In direct contrast to the present strategies of certain major regional banks which have closed branches and reduced service levels in Columbia’s service areas, Columbia believes that the key to profitably operating in non-metropolitan communities is to: (i) provide a high level of service to the customer; (ii) staff branches with employees who have established ties to the community; (iii) attract and retain a highly skilled management team; and, (iv) allow branch personnel the flexibility to emphasize products and services which best fit their local economy. In addition, by decentralizing a portion of the management function to the branch level, Columbia believes it can make business decisions regarding customers more quickly and with more knowledge than its major banking competitors. Columbia believes it is able to profitably attract and retain customers by providing and delivering products and services tailored to their individual needs, and by delivering them with a high degree of personal attention.

     Maintain high asset quality. Columbia seeks to maintain high asset quality through a program that includes prompt and strict adherence to established credit policies 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. 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.

     Merger and acquisition opportunities. In 1995, CRB merged with Juniper Banking Company (“Juniper”) of central Oregon. In 1996 Columbia acquired Klickitat Valley Bank of south central Washington, and in November 1998, Columbia acquired McMinnville-based Valley Community Bancorp (“Valley”). After these transactions, Columbia was able to provide the same or improved levels of community banking products and services in these new market areas.

     Continue to expand through new branches and new products. Columbia has grown through the establishment of five new branches in the past three years. In addition, Columbia’s banking products, services and delivery channels are designed to be responsive to the needs of local community businesses and individual customers. For example, in the year 2001 Columbia expanded its services in the Willamette Valley by opening a new branch in Canby, Oregon and a limited banking facility located in a McMinnville, Oregon retirement community. In addition, Columbia recognized an opportunity to provide additional mortgage lending services by opening a mortgage lending office in Newport, Oregon. Columbia’s products and services are designed to both increase its customer base and to enhance cross-selling opportunities.

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Growth History

     Columbia’s Origins and Activities Through 1994. Columbia’s subsidiary, CRB, was incorporated and chartered in Oregon in 1976 and opened for business in 1977. CRB developed and grew as a one-branch community bank in The Dalles. Collectively, Columbia’s five-member senior management team has, on average, over 21 years of banking experience, much of it gained through years of service at CRB.

     CRB’s first branch expansion was a satellite branch facility that opened in 1986 west of The Dalles’ city center. Two years later, Columbia opened a branch in the small Oregon community of Maupin. Management subsequently determined that the Maupin branch was unprofitable, and the branch was closed in May 1998.

     In 1992 CRB purchased land adjacent to a newly established Wal-Mart store in nearby Hood River, on which it built and opened its second branch outside of The Dalles. The Hood River Branch opened for business in May 1993.

     Activities in 1995. On January 1, 1995 CRB merged with Juniper, a community bank in central Oregon with branches in Madras and Redmond, Oregon. Following this merger, CRB’s full service branches increased from three to five, and its assets increased from $62 million to $92 million. CRB retained the “Juniper Banking Company” name and added three experienced former Juniper directors to its Board. Also, in 1995 CRB replaced its existing branch facility in the western part of The Dalles with a branch facility in a newly built Safeway supermarket west of The Dalles’ downtown core. This branch takes deposits, accepts loan applications, and offers other products and services; however, it does not process loans on-site.

     Activities in 1996. In early 1996, Columbia became CRB’s holding company. In June of 1996 Columbia acquired Klickitat, a south central Washington community bank headquartered in Goldendale, Washington with a branch in White Salmon. As CRB did with Juniper, Columbia retained the “Klickitat Valley Bank” name, and added, during 1996 and 1997, four experienced former Klickitat directors to the Columbia Board. Klickitat was a natural acquisition candidate for Columbia. Klickitat’s White Salmon branch was within a few miles of CRB’s Hood River branch across the Columbia River, and there were and are multiple economic ties between these two communities. Klickitat was Goldendale’s only community bank, and this community’s agriculture-based economy fit well with CRB’s lending expertise.

     In late 1996 CRB opened its first branch in Bend, Oregon under the “Juniper Banking Company” name. Bend’s proximity to CRB’s existing Redmond and Madras branches, and Bend’s economic growth and increasing population, made this a natural branch extension for Columbia. Bend is the largest community in which Columbia operates. Management believes that Bend’s population growth, the expansion and diversity of its economic base, and its strong home construction market afford significant opportunities for growth.

     Activities in 1997. In 1997, Columbia’s growth came internally from increased numbers of loans and deposits at its branches. Loan growth at the new Bend branch was significant, with assets increasing 239% over the prior year, from $3.3 million to $11.2 million. Further growth came from enhanced home mortgage growth through Columbia’s Mortgage Group, established in mid-1997.

     Activities in 1998.

     Secondary Common Stock Offering and Nasdaq Listing. During November 1998, Columbia registered 1,000,000 shares of common stock for sale to the public at a price of $9 per share, for an aggregate offering price of $9,000,000. All shares were sold, resulting in net proceeds of $8,126,115, after deducting $873,885 for underwriting discounts and commissions, legal, accounting, printing fees, and other offering expenses. Net proceeds were used to implement Columbia’s expansion plans, including the acquisition of Valley. In connection with the offering, Columbia’s common stock was listed on the Nasdaq Stock Market, where trading commenced on November 6, 1998.

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     Acquisition of Valley Community Bancorp. Columbia’s most recent acquisition-based expansion was its purchase of Valley on November 30, 1998 for a cash purchase price of $15.10 million (the “Acquisition”). Subsequent to the Acquisition, Valley was merged into Columbia Bancorp, and its subsidiaries, including VCB, became wholly-owned subsidiaries of Columbia.

     Columbia believes the economy in the McMinnville area affords it the opportunity to leverage two of its core competencies: small business lending and agricultural lending. Additionally, the acquisition became Columbia’s first entrance into Oregon’s most populous region, the Willamette Valley. Management believes there are significant future growth opportunities in McMinnville, Newberg and surrounding communities.

     Columbia operated VCB as a separate subsidiary under the “Valley Community Bank” name until November 30, 1999 when it was merged into CRB. Columbia’s management believes the combination will lower overall costs in the years ahead and will capitalize on synergistic marketing, advertising and customer awareness issues.

     Hermiston, Umatilla County, Oregon. Columbia opened a new branch in Hermiston, Oregon in September of 1998. Hermiston, which has a population of over 11,000, is 100 miles east of The Dalles. The branch offers full-service community banking services, including loans to local commercial and agricultural-based business.

     Activities in 1999.

     Pendleton, Umatilla County, Oregon. In January 1999 Columbia opened a branch in Pendleton, which is 26 miles east of Hermiston and is the largest town in eastern Oregon. Columbia hired a branch manager who has strong ties to the Pendleton community and 25 years experience with one of Columbia’s super-regional bank competitors.

     Shevlin Center Branch — Bend, Deschutes County, Oregon. Columbia opened a second branch in Bend, Oregon in the summer of 1999. The branch is located in the western part of Bend in the upscale Shevlin Business Park, an office park development. The additional branch in Bend was planned in order to take advantage of growth opportunities and to leverage existing nearby operations. Bend is the largest city in central Oregon, and the largest single market area in which Columbia operates. Columbia believes the second Bend branch will allow opportunities for future growth, especially for business lending services.

     Newberg Branch, Yamhill County, Oregon. Columbia opened its first branch in Newberg, Oregon in November 1999. The branch operates in leased space in the Columbia River Bank Building. The Newberg branch is Columbia’s second branch in Oregon’s rapidly growing Willamette Valley.

     Name Uniformity. Following the mergers and acquisitions involving Juniper Banking Company, Klickitat and VCB, CRB for various periods of time retained the use of these banks’ names as assumed business names at select branch facilities. However, eventually all of these assumed business names were replaced with the “Columbia River Bank” name. In 1999 the last name transition was complete when VCB merged into CRB, and the “Valley Community Bank” name was retired. As of December 31, 1999 all of CRB’s branches, including the most recently opened branches, operate under the “Columbia River Bank” name.

     Activities in 2000.

     Columbia River BankNet. In April 2000 CRB introduced an Internet-based delivery channel that allows customers the convenience of performing many banking functions whenever and wherever they want. Accessed through CRB’s web site at www.columbiariverbank.com, BankNet services include: accessing a summary of accounts and balances, interest detail on all accounts, account history, transfer of funds between accounts, applying for loans, secure messaging, and bill payment. Coupled with ATM and branch networks, and 24-hour telephone access to account information, CRB continuously focuses on providing choices in banking services, products and delivery channels to its clients.

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     Data Processing Changes. In 2000, CRB took steps to reorganize its data processing function. CRB previously had many of its data processing services handled by a data processing company, Datatech of Oregon, Inc. (“Datatech”), of which CRB owned 28.6% and five other community banks owned the remainder. In September 2000, CRB acquired all of the stock of Datatech and contracted with FISERV, a nationwide bank services company, for day-to-day management of the operating asset. In December 2000, CRB dissolved Datatech. Management believes these moves will allow CRB greater control and flexibility in data processing functions at a reduced cost.

     Activities in 2001.

     Canby Branch, Clackamas County, Oregon. Columbia opened its first branch in Canby, Oregon in September 2001. The branch currently operates in 1,500 square feet of leased space in the Holly Mall while construction is being completed on a new facility in the Canby Station. Canby has a population of 13,500. The Canby branch is Columbia’s third branch in Oregon’s rapidly growing Willamette Valley.

     McMinnville Limited Banking Facility, Yamhill County, Oregon. Columbia opened a second limited banking facility in a McMinnville, Oregon retirement community in September 2001. This facility brings the banking convenience to many residents of the retirement community. Columbia’s other limited banking facility is also in a McMinnville, Oregon retirement community.

     Mortgage Lending Expansion. Columbia expanded its mortgage lending services by opening a mortgage lending office in Newport, Oregon. This office operates in 1,900 square feet of leased space in the Whalers Village mini shopping mall. The mortgage lending office is Columbia’s first office on the Oregon coast.

Consumer Products and Services

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

     Deposit Products. Columbia’s consumer deposit products include many noninterest-bearing checking account products priced at various levels, interest-bearing checking and savings accounts, money market accounts, and certificates of deposit. These interest-bearing accounts generally earn interest or are priced at rates established by management based on competitive market factors and management’s desire to increase certain types or maturities of deposit liabilities. Columbia strives to establish customer relations to attract core deposits in noninterest-bearing transactional accounts, which reduces its cost of funds.

     Real Estate Mortgage Loans. Real estate loans are available for construction, purchase and refinancing of residential owner occupied and non-owner occupied properties. Borrowers can choose from a variety of fixed and adjustable rate options and terms.

     Investment Products. Through arrangements with Primevest Financial Services, Inc., (“Primevest”) a registered securities broker-dealer, Columbia offers a wide range of 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 13 drive-up ATMs and four off-site ATMs, a telephone banking service that allows customers to speak directly with a customer service representative during normal banking hours, and 24-hour telephone access to their accounts. In addition, Columbia, through its web site, offers BankNet, its Internet banking service, allowing access to account information and services in an on-line, real-time environment.

     Consumer Loans. Columbia provides loans to individual borrowers for a variety of purposes, including secured and unsecured personal loans, home equity and personal lines of credit, and motor vehicle loans.

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     Senior Customer Services. Since a significant portion of Columbia’s consumers are senior citizens, Columbia offers a reduced rate checking account product. In addition, Columbia markets retirement planning products and investments to the senior customer group through Primevest.

Loan Products for Commercial, Agricultural, and Other Business Customers

     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 to its commercial customers 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, and credit history of the borrower and the quality of the collateral securing the loan. Commercial loans secured by real property are generally limited to 75% of the value of the collateral. Columbia typically 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 both an agricultural loan consultant with decades of farm lending experience and an experienced agricultural representative, who is a full-time Columbia employee, to assist its loan officers in loan processing and administration. Columbia’s loan officers, many of whom are graduates of the Western Agricultural School in Pullman, Washington, make frequent visits to farming operation sites, attend regular agricultural lending programs and seminars, and actively participate in growers’ associations and other agricultural-based organizations.

     Real Estate Loans. Real estate loans are available for the construction, purchasing, and refinancing of commercial and rental properties. Borrowers can choose from a variety of fixed and adjustable rate options and terms.

     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. Columbia often requires a government guaranty as additional collateral support. Insofar as payments on real estate loans depend on the successful operation and management of the businesses and properties securing the loans, repayment can be affected by local real estate market and economic conditions. Fluctuating land values and local economic conditions can make loans secured by real property difficult to evaluate and monitor.

     Government-Assisted Loan Programs. Columbia’s loan officers make loans to small businesses and to farmers that are supported by guarantees issued by various state and federal government agencies. Columbia is active in the SBA 7-A and 504 programs, and in similar programs offered by the Farm Services Agency (formerly the Farmers Home Administration) and by Oregon’s state government. Columbia has utilized these programs to serve customers who are expanding their operations, venturing into new product lines, or constructing special use real estate. The government guarantees a portion of these loans, which reduces risk in Columbia’s loan portfolio.

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

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     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 committee reviews. In the case of particularly large loan commitments or loan participations, loans are reviewed by a loan committee at the Board of Directors level of CRB. 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.

Other Products and Services for Business Customers

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

     Investment Products. Columbia’s affiliation with Primevest allows it to offer financial products and services to Columbia’s business customers as well as to consumers. These include insurance and annuity products, and employee retirement plan products such as SEPs, IRAs and 401(k) plans.

     Staff Training and Education — Web-Based Training

     Columbia has several staff training and education programs. All new employees undergo a one-day orientation program during which they meet senior management and become familiar with Columbia’s history, customer service goals, and culture. In 2001, Columbia established a web-based continuing education program with a third party vendor for employees. Under this program, employees are given a curriculum and asked to complete employment-related educational courses on a regular basis consistent with the employee’s career goals and needs. In addition, employees are encouraged to attend classes offered by banking schools and associations. Columbia’s management believes that such continuing training and education programs are important to maintaining organizational cohesion and consistently high quality customer service.

Marketing

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

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     Columbia does business in many different non-metropolitan communities. Management believes the diverse assortment of customers, communities, and economic sectors that Columbia serves is a source of strength. In addition, as a community 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.

Competition

     The market for banking services, including deposit and loan products, is highly competitive. The major commercial bank competitors are super-regional institutions headquartered outside the state of Oregon. Deposits held by super-regionals were approximately 61.64% of statewide commercial bank deposits as of June 30, 2001, which is the most recent date for which this information is available. These major banks have the advantage of offering their customers services and statewide banking facilities that Columbia does not offer.

     Columbia’s competitors for deposits are commercial banks, savings and loan associations, credit unions, money market funds, issuers of corporate and government securities, insurance companies, brokerage firms, mutual funds, and other financial intermediaries. These competitors may offer rates greater than Columbia is willing to offer. Columbia competes for deposits by offering a variety of deposit accounts at rates generally competitive with financial institutions in the area.

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

     Competition from other single or multi-branch community banks, of which there are many in Oregon and Washington, presents a special competitive threat. These other community banks can open new branches in the communities Columbia serves, competing directly for customers who desire the high level of service that a community bank can offer. Therefore, these banks directly target the loan and deposit customers that Columbia seeks. Other community banks also compete for the same management personnel and the same potential acquisition and merger candidates that would be of interest to Columbia. New community bank start-ups present similar competitive threats.

     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, and management believes that, for the foreseeable future, its customers will continue to prefer the personal, locally based services that it offers.

SUPERVISION AND REGULATION

General

     Columbia is extensively regulated under federal and state law. These laws and regulations are primarily intended to protect depositors, not stockholders. 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.

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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.

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

Federal and State Bank Regulation

     General. CRB is an Oregon stock bank with deposits insured by the Federal Deposit Insurance Corporation (“FDIC”), and is subject to the supervision and regulation of the Oregon Director of Banks and the FDIC. CRB is also subject to the supervision and regulation the Washington Department of Financial Institutions. These agencies

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have the authority to prohibit banks from engaging in what they believe constitute unsafe or unsound banking practices.

     CRA. The Community Reinvestment Act (the “CRA”) requires that, in connection with examinations of financial institutions within their jurisdiction, the Federal Reserve or the FDIC evaluates the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate 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 stockholders, or any related interests of such persons. Extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, and follow credit underwriting procedures that are not less stringent than those prevailing at the time for comparable transactions with persons not covered above and who are not employees; and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. Banks are also subject to certain lending limits and restrictions on overdrafts to such persons. A violation of these restrictions may result in the assessment of substantial civil monetary penalties on the affected bank or any officer, director, employee, agent, or other person participating in the conduct of the affairs of that bank; the imposition of a cease and desist order; and other regulatory sanctions.

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

Interstate Banking and Branching

     The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”) permits nationwide interstate banking and branching under certain circumstances. This legislation generally authorizes interstate branching and relaxes federal law restrictions on interstate banking. Currently, 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 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

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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 stockholders’ equity to be inadequate for the safe and sound operation of the bank. Other than the laws and regulations noted above, which apply to all banks and 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 stockholders’ equity, qualifying perpetual preferred stock (up to 25% of total Tier I capital, if cumulative, although under a Federal Reserve Rule, redeemable perpetual preferred stock may not be counted as Tier I capital unless the redemption is subject to the prior approval of the Federal Reserve), and minority interests in equity accounts of consolidated subsidiaries, less intangibles, except as described above. Tier II capital includes: (i) the allowance for loan losses of up to 1.25% of risk-weighted assets; (ii) any qualifying perpetual preferred stock which exceeds the amount which may be included in Tier I capital; (iii) hybrid capital instruments; (iv) perpetual debt; (v) mandatory convertible securities; and (vi) subordinated debt and intermediate term preferred stock of up to 50% of Tier I capital. Total capital is the sum of Tier I and Tier II capital, less reciprocal holdings of other banking organizations, capital instruments, and investments in unconsolidated subsidiaries.

     The assets of banks and 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.

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     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. Columbia does not believe that these regulations have any material effect on its operations.

Effects of Government Monetary Policy

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

Changes in Banking Laws and Regulations

     The laws and regulations that affect banks and 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. Such ongoing changes in laws and regulations, and the extent to which the business of Columbia might be affected thereby, cannot be predicted with certainty.

ITEM 2. PROPERTIES

     Nine of Columbia’s facilities in Hood River, The Dalles, Redmond, Bend, McMinnville and Madras, Hermiston and Pendleton Oregon, as well as its two full-service branch facilities in south central Washington, are housed in properties owned by Columbia. Columbia leases the space for its Canby and Newberg branches, both McMinnville branches in retirement communities, as well as its in-store facility in the Safeway store in The Dalles.

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All of Columbia’s presently owned full-service branches have drive-up facilities and automated teller machines. Columbia’s Mortgage Group operates from the second floor of Columbia’s Bend branch, as well as leased office space in The Dalles. The following sets forth certain information regarding Columbia’s branch facilities.

     Columbia maintains its administrative offices in leased office space in The Dalles, and is currently nearing the completion of a renovation project on newly leased space across the street from its current offices. This space will allow for all of the administrative staff to be accommodated in the same location. Columbia purchased property in the Columbia River Center in The Dalles for future branch or administrative operations expansion. Columbia is committed to keeping its administrative headquarters in The Dalles.

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Employees

     As of December 31, 2001, Columbia had a total of 273 full-time equivalent employees. This number of employees, which compares to 242 at December 31, 2000, has increased due to increased staffing in branch, administrative functions, and expansion of the Mortgage Group. None of the employees are subject to a collective bargaining agreement. Columbia considers its relationships with its employees to be good.

ITEM 3. LEGAL PROCEEDINGS

     Management is not presently aware of any pending or threatened claims against Columbia that 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. 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, 2001.

Part II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The information called for by this item is contained in Columbia’s Annual Report to Stockholders for the year ended December 31, 2001, portions of which are attached hereto as Exhibit 13.1.

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.

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

Introduction

     From its origins 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. In 1995, Columbia River Bank (“CRB”) merged with Juniper Banking Company. In 1996, Columbia was formed as CRB’s holding company, and Columbia acquired Washington-based Klickitat Valley Bank. In 1998, CRB opened a new branch in Hermiston, Oregon and Columbia completed the acquisition of Valley Community Bank. During 1999, CRB opened new branches in Pendleton, Oregon and Newberg, Oregon, and opened a second Bend branch. In April 2000 Columbia River BankNet, CRB’s Internet based banking product, was introduced, and in September, CRB completed its acquisition of Datatech of Oregon, Inc., a bank data processing company. In 2001, the Canby, Oregon branch and a limited banking facility located in a McMinnville, Oregon retirement community, as well as a mortgage lending office in Newport, Oregon were opened. Collectively, these growth and acquisition activities have enabled Columbia to diversify its portfolio and its operating risk over several market areas and local economies.

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

     As of December 31, 2001, Columbia had total assets of $482.21 million, total deposits of $394.64 million, and stockholders’ equity of $46.45 million. Columbia’s net income for the year ended December 31, 2001, was $7.37 million, which was Columbia’s 14th consecutive year of increasing net income. For the year ended December 31, 2001, Columbia’s return on average assets was 1.64% and return on average equity was 16.76%. During the past five years, Columbia has achieved an average return on average equity of 16.31% and an average return on average assets of 1.62%.

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

Results of Operations

Net Interest Income

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

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