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FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- ---
OF 1934
For the quarterly period ended June 30, 2002
-------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- ---
OF 1934
For the transition period from_________ to________
Commission file number 0-24302
COLUMBIA BANCORP
(exact name of registrant as specified in its charter)
Maryland 52-1545782
- --------------------------------------- -------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
incorporation or organization)
10480 Little Patuxent Parkway, Columbia, Maryland 21044
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(410) 465-4800
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 _____
------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 7,099,835 shares as of
August 6, 2002.
COLUMBIA BANCORP
CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Condition as of June 30, 2002
(unaudited) and December 31, 2001 3
Consolidated Statements of Income and Comprehensive Income for
the Three and Six Months Ended June 30, 2002 and 2001
(unaudited) 4
Consolidated Statements of Cash Flows for the Six Months Ended
March 31, 2002 and 2001 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
(2)
PART I ITEM 1. FINANCIAL STATEMENTS
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(dollars in thousands)
June 30, December 31,
2002 2001
------------------- ------------------
ASSETS (unaudited)
------
Cash and due from banks $ 41,580 $ 39,435
Interest bearing deposits with other banks 210 218
Federal funds sold 13,172 6,277
Investment securities (fair value $136,381 in 2002 and
$122,940 in 2001) 134,547 121,689
Securities available-for-sale 43,493 48,359
Residential mortgage loans originated for sale 8,223 11,411
Loan receivables:
Commercial 186,842 153,782
Real estate development and construction 207,872 174,091
Real estate mortgage:
Residential 13,074 15,648
Commercial 108,618 109,975
Retail, principally loans secured by home equity 148,102 146,379
Credit card 2,223 2,389
Other 425 463
-------- --------
Total loans 667,156 602,727
Less: Unearned income, net of origination costs 652 640
Allowance for credit losses 8,859 8,024
-------- --------
Loans, net 657,645 594,063
Other real estate owned 619 1,187
Property and equipment, net 9,786 10,400
Prepaid expenses and other assets 16,891 16,610
-------- --------
Total assets $926,166 $849,649
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest-bearing demand deposits $168,737 $145,844
Interest-bearing deposits 532,159 492,157
-------- --------
Total deposits 700,896 638,001
Short-term borrowings 125,927 117,352
Long-term borrowings 20,000 20,000
Accrued expenses and other liabilities 6,998 4,934
-------- --------
Total liabilities 853,821 780,287
-------- --------
Stockholders' equity
Common stock, $.01 par value per share;
authorized 10,000,000 shares; outstanding
7,099,135 and 7,105,238 shares, respectively 71 71
Additional paid-in-capital 47,382 47,520
Retained earnings 24,862 21,768
Accumulated other comprehensive income 30 3
-------- --------
Total stockholders' equity 72,345 69,362
-------- --------
Total liabilities and stockholders' equity $926,166 $849,649
======== ========
See accompanying notes to consolidated financial statements.
(3)
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For Three and Six Months Ended June 30, 2002 and 2001
(dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
-------------- ------------- ------------ -------------
2002 2001 2002 2001
-------------- ------------- ------------ -------------
(unaudited) (unaudited)
Interest income:
Loans $ 10,945 $ 11,994 $ 21,393 $ 24,597
Investment securities 2,250 2,408 4,437 5,435
Federal funds sold and interest-bearing
deposits with other banks 25 448 47 694
-------------- ------------ ------------ ------------
Total interest income 13,220 14,850 25,877 30,726
-------------- ------------ ------------ ------------
Interest expense:
Deposits 3,201 5,386 6,500 11,004
Borrowings 766 952 1,528 2,209
-------------- ------------ ------------ ------------
Total interest expense 3,967 6,338 8,028 13,213
-------------- ------------ ------------ ------------
Net interest income 9,253 8,512 17,849 17,513
Provision for credit losses 681 528 758 828
-------------- ------------ ------------ ------------
Net interest income after provision
for credit losses 8,572 7,984 17,091 16,685
-------------- ------------ ------------ ------------
Noninterest income:
Fees charged for services 870 723 1,731 1,343
Gains and fees on sales of mortgage loans, net of costs 336 260 798 393
Net income on other real estate owned 94 134 81 177
Other 340 313 656 685
-------------- ------------ ------------ ------------
Total noninterest income 1,640 1,430 3,266 2,598
-------------- ------------ ------------ ------------
Noninterest expense:
Salaries and employee benefits 3,726 3,303 7,278 6,818
Occupancy, net 832 861 1,678 1,749
Equipment 488 564 959 1,120
Data processing 365 316 724 606
Marketing 273 167 488 283
Cash management services 159 145 298 263
Professional fees (155) 208 10 477
Deposit insurance 44 45 89 90
Other 859 872 1,676 1,754
-------------- ------------ ------------ ------------
Total noninterest expense 6,591 6,481 13,200 13,160
-------------- ------------ ------------ ------------
Income before income taxes 3,621 2,933 7,157 6,123
Income tax provision 1,304 995 2,502 2,025
-------------- ------------ ------------ ------------
Net income 2,317 1,938 4,655 4,098
Other comprehensive income, net of tax - unrealized
gain on securities available-for-sale 185 63 27 549
-------------- ------------ ------------ ------------
Comprehensive income $ 2,502 $ 2,001 $ 4,682 $ 4,647
============== ============ ============ ============
Per common share data:
Net income: Basic $ 0.33 $ 0.27 $ 0.66 $ 0.57
Diluted 0.32 0.27 0.64 0.57
Cash dividends declared 0.11 0.10 0.22 0.20
============== ============ ============ ============
See accompanying notes to consolidated financial statements.
(4)
COLUMBIA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2002 and 2001
(dollars in thousands)
Six Months Ended
June 30,
------------------------------
2002 2001
-------------- ------------
(unaudited)
Cash flows from operating activities:
Net income $ 4,655 $ 4,098
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 934 833
Amortization of loan fee income (579) (545)
Provision for credit losses 758 828
Provision for loss on other real estate owned 20 -
Gains and fees on sales of mortgage loans, net of costs (798) (393)
Loss on sales/disposals of other assets 4 -
Proceeds from sales of residential mortgage loans originated for sale 75,344 45,066
Disbursements for residential mortgage loans originated for sale (71,358) (51,216)
Loan fees deferred, net of origination costs 591 745
(Increase) decrease in prepaid expenses and other assets (143) 1,208
Increase in accrued expenses and other liabilities 2,064 3,867
-------- --------
Net cash provided by operating activities 11,492 4,491
-------- --------
Cash flows provided by (used in) investing activities:
Net increase in loans (55,816) (22,339)
Loan purchases (19,760) (20,591)
Loan sales 11,224 5,123
Purchases of investment securities (39,521) (33,010)
Purchases of securities available-for-sale (1,262) (25)
Proceeds from maturities and principal repayments of
investment securities 26,618 87,282
Proceeds from maturities and principal repayments of
securities available-for-sale 6,190 7,774
Addition to other real estate owned (14) (77)
Sales of other real estate owned 562 1,086
Purchases of property and equipment (294) (672)
Disposal of property and equipment - 25
Purchase of life insurance - (650)
Increase in cash surrender value of life insurance (158) (134)
-------- --------
Net cash (used in) provided by investing activities (72,231) 23,792
-------- --------
Cash flows provided by (used in) financing activities:
Net increase in deposits 62,895 13,163
Increase in short-term borrowings 8,575 129
Cash dividends distributed on common stock (1,561) (1,431)
Net proceeds from stock options exercised 20 65
Purchase of common stock (158) (259)
-------- --------
Net cash provided by financing activities 69,771 11,667
-------- --------
Net increase in cash and cash equivalents 9,032 39,950
Cash and cash equivalents at beginning of period 45,930 47,471
-------- --------
Cash and cash equivalents at end of period $ 54,962 $ 87,421
======== ========
Supplemental information:
Interest paid on deposits and borrowings $ 8,253 $ 18,733
Income taxes paid 2,795 1,700
Transfer of loans to other real estate owned - 31
======== ========
See accompanying notes to consolidated financial statements.
(5)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and for the three and six months
ended June 30, 2002 and 2001 is unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements for Columbia Bancorp
(the "Company") have been prepared in accordance with the instructions for Form
10-Q and, therefore, do not include all information and notes necessary for a
full presentation of financial condition, results of operations and cash flows
in conformity with accounting principles generally accepted in the United States
of America. The consolidated financial statements should be read in conjunction
with the audited financial statements included in the Company's 2001 Annual
Report on Form 10-K.
The consolidated financial statements include the accounts of the
Company's subsidiary, The Columbia Bank, and The Columbia Bank's wholly-owned
subsidiaries, McAlpine Enterprises, Inc., Columbia Leasing, Inc., Howard I, LLP
and Howard II, LLP (collectively, the "Bank"). All significant intercompany
balances and transactions have been eliminated.
The consolidated financial statements as of June 30, 2002 and for the
three and six months ended June 30, 2002 and 2001 are unaudited but include all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of financial position and results of
operations for those periods. The results of operations for the three and six
months ended June 30, 2002 are not necessarily indicative of the results that
will be achieved for the entire year.
Certain amounts for 2001 have been reclassified to conform to the 2002
presentation.
NOTE 2 - INVESTMENTS
The amortized cost and estimated fair values of investment securities and
securities available-for-sale at June 30, 2002 were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------
(dollars in thousands)
Investment securities:
Federal agency securities $ 127,820 $ 1,778 $ - $ 129,598
Mortgage-backed securities 4,686 56 - 4,742
Collateralized mortgage obligations 2,041 - - 2,041
---------------------------------------------------------------
Total $ 134,547 $ 1,834 $ - $ 136,381
===============================================================
Securities available-for-sale:
Federal agency securities $ 16,688 $ 619 $ - $ 17,307
Mortgage-backed securities 5,818 214 - 6,032
Trust preferred stocks 15,894 236 741 15,389
Other equity securities 1,073 - 317 756
Investment in Federal Home Loan
Bank stock 2,967 - - 2,967
Other securities 997 45 - 1,042
---------------------------------------------------------------
Total $ 43,437 $ 1,114 $ 1,058 $ 43,493
===============================================================
The amortized cost and estimated fair values of investment securities and
securities available-for-sale at December 31, 2001 were as follows:
(6)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------
(dollars in thousands)
Investment securities:
Federal agency securities $ 118,867 $ 1,493 $ 257 $ 120,103
Mortgage-backed securities 777 16 1 792
Collateralized mortgage obligations 2,045 - - 2,045
----------------------------------------------------------------
Total $ 121,689 $ 1,509 $ 258 $ 122,940
================================================================
Securities available-for-sale:
Federal agency securities $ 21,178 $ 682 $ - $ 21,860
Mortgage-backed securities 6,884 93 - 6,977
Trust preferred stocks 15,891 259 750 15,400
Other equity securities 1,113 1 313 801
Investment in Federal Home Loan
Bank stock 2,288 - - 2,288
Other securities 996 37 - 1,033
----------------------------------------------------------------
Total $ 48,350 $ 1,072 $ 1,063 $ 48,359
================================================================
NOTE 3 - PER SHARE DATA
Information relating to the calculations of earnings per common share
("EPS") is summarized as follows:
Three Months Ended June 30,
-----------------------------------------------------------------
2002 2001
------------------------------- ------------------------------
Basic Diluted Basic Diluted
------------------------------- ------------------------------
Net income $ 2,317 $ 2,317 $ 1,938 $ 1,938
Weighted average shares outstanding 7,098 7,098 7,156 7,156
Dilutive securities --- 176 --- 52
------------------------------- ------------------------------
Adjusted weighted average shares
used in EPS computation 7,098 7,274 7,156 7,208
=============================== ==============================
Net income per common share $ 0.33 $ 0.32 $ 0.27 $ 0.27
=============================== ==============================
Six Months Ended June 30,
-----------------------------------------------------------------
2002 2001
------------------------------- ------------------------------
Basic Diluted Basic Diluted
--------------- --------------- ------------------------------
Net income $ 4,655 $ 4,655 $ 4,098 $ 4,098
Weighted average shares outstanding 7,098 7,098 7,155 7,155
Dilutive securities 150 54
--- ---
------------------------------- ------------------------------
Adjusted weighted average shares
used in EPS computation 7,098 7,248 7,155 7,209
=============================== ==============================
Net income per common share $ 0.66 $ 0.64 $ 0.57 $ 0.57
=============================== ==============================
NOTE 4 - COMMITMENTS AND CONTINGENT LIABILITIES
The Company is party to financial instruments with off-balance-sheet
risk in the normal course of business in order to meet the financing needs of
customers. These financial instruments include commitments to extend credit,
standby letters of credit and mortgage loans sold with limited recourse.
(7)
The Company applies the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. A summary
of the financial instruments at June 30, 2002 whose contract amounts represent
potential credit risk is as follows:
June 30,
2002
-----------------------
(dollars in thousands)
Commitments to extend credit (a) $305,242
Standby letters of credit 18,243
_____________
(a) Includes unused lines of credit totaling $266.2 million regardless of
whether fee paid and whether adverse change clauses exist. The amount
also includes commitments to extend new credit totaling $39.0 million.
NOTE 5 - NEW ACCOUNTING STANDARDS
In July 2001, the FASB issued SFAS No. 141, "Business Combinations"
("SFAS No 141"), and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS
No. 142"). SFAS No. 141 requires that all business combinations be accounted for
under a single method, the purchase method. Use of the pooling-of-interests
method no longer is permitted. SFAS No. 141 requires that the purchase method be
used for business combinations initiated after June 30, 2001. SFAS No. 142
requires that goodwill no longer be amortized to earnings, but instead be
reviewed for impairment. The amortization of goodwill ceases upon adoption of
SFAS No. 142 on January 1, 2002. As of June 30, 2002, the Company does not have
any goodwill or other intangible assets to be reviewed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD - LOOKING STATEMENTS
In addition to historical information, this quarterly report contains
forward-looking statements, which are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected in the
forward-looking statements. Important factors that might cause such a difference
include, but are not limited to, those discussed in this section. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly revise or update these forward-looking statements to
reflect events or circumstances that arise after the date hereof.
THE COMPANY
Columbia Bancorp was formed November 16, 1987 and is a Maryland
chartered bank holding company. The Company holds all of the issued and
outstanding shares of common stock of the Bank. The Bank is a Maryland trust
company that engages in general commercial banking operations. The Bank provides
a full range of financial services to individuals, businesses and organizations
through 23 branch banking offices, as well as mortgage and commercial loan
origination offices and 24 Automated Teller Machines. The Company is scheduled
to open a new branch office in September 2002 in West Friendship, Maryland.
Deposits in the Bank are insured by the Federal Deposit Insurance Corporation.
The Company considers its core market area to be the communities in the
Baltimore/Washington Corridor and adjacent areas of central Maryland.
REVIEW OF FINANCIAL CONDITION
Liquidity
Liquidity describes the ability of the Company to meet financial
obligations, including lending commitments and contingencies, that arise during
the normal course of business. Liquidity is primarily needed to meet the
borrowing and deposit withdrawal requirements of the customers of the Company,
as well as to meet current and planned expenditures.
The borrowing requirements of customers include commitments to extend
credit and unused availability of lines of credit, which totaled $305.2 million
at June 30, 2002. Historically, many of the commitments expire without being
fully drawn; therefore, the total commitment amounts do not necessarily
represent future cash requirements. Commitments for real estate development and
(8)
construction, which totaled $134.8 million, or 44.2% of the $305.2 million,
generally turn over rapidly, satisfying cash requirements with principal
repayments from sales of the properties financed. Available credit lines
represent the unused portion of lines of credit previously extended and
available to the customer so long as there is no violation of any contractual
condition. Available commercial lines totaled $75.5 million, or 24.7%, of the
$305.2 million, at June 30, 2002 and generally do not extend for more than 12
months. Commitments to extend new commercial credit totaled $20.2 million at
June 30, 2002, or 6.6% of the total commitments and available lines. At June 30,
2002, available home equity lines totaled $63.6 million. Home equity credit
lines generally extend for a period of 15 years and are reviewed annually.
Customer withdrawals are also a principal use of liquidity, but are
generally mitigated by growth in customer funding sources, such as deposits and
short-term borrowings in the form of commercial paper and securities sold under
repurchase agreements. While balances may fluctuate up and down in any given
period, historically the Company has experienced a steady increase in total
customer funding sources. Fluctuations may be influenced by the rates paid,
general consumer confidence and the overall economic environment. The Company
has several large depository relationships with title companies which may
experience a higher degree of volatility with regard to outstanding balances,
especially during periods of significant refinancing activity as experienced in
the past year. In addition, month-end balances for these relationships tend to
be inflated, as compared to balances throughout the month. At June 30, 2002,
three of the largest title company relationships accounted for $41.4 million, or
5.0% of the total customer funding of $826.8 million.
The Company's primary source of liquidity ("financing activities" as
used in the Consolidated Statements of Cash Flows) is funding provided by its
customers in the form of deposits, and by short-term borrowings in the form of
commercial paper and securities sold under repurchase agreements. At June 30,
2002, total customer funding was $826.8 million. Core deposits, defined as all
deposits except certificates of deposit of $100,000 or more, totaled $629.7
million, or 76.2% of total customer funding. Additional internal sources of
liquidity include maturities and likely calls in the Company's investment
portfolio as well as the Company's overnight investment in federal funds sold.
Securities scheduled to mature and likely to be called in one year, based on
interest rates at June 30, 2002, totaled $96.8 million and federal funds sold
were $13.2 million on June 30, 2002.
The Company also has the ability to utilize established credit as an
additional source of liquidity. The Bank, as a member of the Federal Home Loan
Bank ("FHLB"), has an approved credit line of $120.7 million, equal to 14% of
total assets as reported on the most recent regulatory report. Collateral must
be pledged to the FHLB before advances can be obtained. The Bank had sufficient
collateral at June 30, 2002 to borrow up to $154.6 million; however, borrowings
above the approved credit limit of $120.7 million require special approval of
the FHLB. At June 30, 2002, outstanding advances from the FHLB totaled $20.0
million. The Bank also has an established borrowing capacity at the Federal
Reserve Bank ("FRB"). At June 30, 2002, the Bank had pledged sufficient
collateral to borrow up to $79.4 million from the FRB; no balances were
outstanding on that date.
Capital Resources
Total stockholders' equity was $72.3 million at June 30, 2002,
representing an increase of $3.0 million or 4.3% from December 31, 2001. The
growth of stockholders' equity in the first six months of 2002 was primarily
attributable to the earnings of the Company of $4.7 million less dividends
declared on common stock of $1.6 million and plus $27,000 in accumulated other
comprehensive income, resulting from an increase in market value of securities
available-for-sale. Capital was also reduced by $158,000 as the Company
repurchased and retired 10,000 shares of its common stock at an average price of
$15.82. Pursuant to the Company's stock repurchase program approved in October
2000, the Company was authorized to repurchase up to 500,000 shares; as of June
30,2002, the Company has purchased a total of 86,450 shares under this program.
The excess of the purchase price over the par value of shares repurchased is
applied to reduce additional paid-in capital.
Dividends declared for the first six months of 2002 were $1,561,000, or
$.22 per share, compared to $1,431,000, or $.20 per share in 2001.
(9)
The following table summarizes the Company's risk-based capital
ratios:
Columbia Bancorp Minimum
-------------------------------------
June 30, December 31, Regulatory
2002 2001 Requirements
----------------------------------------------------------------------------------------------
Risk-based capital ratios:
Tier 1 capital 9.43% 9.92% 4.00%
Total capital 10.59 11.07 8.00
Tier 1 leverage ratio 8.24 8.42 4.00
Market Risk and Interest Rate Sensitivity
The Company's interest rate risk represents the level of exposure it
has to fluctuations in interest rates and is primarily measured as the change in
earnings and the theoretical market value of equity that results from changes in
interest rates. The Asset/Liability Management Committee of the Board of
Directors (the "ALCO") oversees the Company's management of interest rate risk.
The objective of the management of interest rate risk is to optimize net
interest income during periods of volatile as well as stable interest rates
while maintaining a balance between the maturity and repricing characteristics
of assets and liabilities that is consistent with the Company's liquidity, asset
and earnings growth, and capital adequacy goals. Critical to the management of
this process is the ALCO's interest rate program, designed to manage interest
rate sensitivity (gap management) and balance sheet mix and pricing (spread
management). Gap management represents those actions taken to measure and
monitor rate sensitive assets and rate sensitive liabilities. Spread management
requires managing investments, loans, and funding sources to achieve an
acceptable spread between the Company's return on its earning assets and its
cost of funds.
One tool used by the Company to assess and manage its interest rate
risk is the gap analysis. The gap analysis, summarized in the following table,
measures the mismatch in repricing between interest-sensitive assets and
interest-sensitive liabilities and provides a general indication of the interest
sensitivity of the balance sheet at a specified point in time. By limiting the
size of the gap position, the Company can limit the net interest income at risk
arising from repricing imbalances. The following table summarizes the
anticipated maturities or repricing of the Company's interest-earning assets and
interest-bearing liabilities as of June 30, 2002 and the Company's interest
sensitivity gap position at that date. The Company's cumulative sensitivity gap
through twelve months is a positive 9.1%. A positive sensitivity gap for any
time period indicates that more interest-earning assets will mature or reprice
during that time period than interest-bearing liabilities. The Company's goal is
generally to maintain a reasonably balanced cumulative interest sensitivity gap
position for the period of one year or less in order to mitigate the impact of
changes in interest rates on liquidity, interest margins and corresponding
operating results. During periods of falling interest rates, a short-term
positive interest sensitivity gap position would generally result in a decrease
in net interest income, and during periods of rising interest rates, a
short-term positive interest sensitivity gap position would generally result in
an increase in net interest income (assuming all earning assets and
interest-bearing liabilities are affected by a rate change equally and
simultaneously).
After One
One Year Through After
Or Less Three Years Three Years Total
---------------------------------------------------------------------
(dollars in thousands)
Federal funds sold and interest-
bearing deposits with banks $ 13,382 $ - $ - $ 13,382
Investment securities and
securities available-for-sale 100,377 62,592 15,071 178,040
Loans, exclusive of nonaccrual loans 413,449 76,626 184,178 674,253
---------------------------------------------------------------------
Interest-earning assets 527,208 139,218 199,249 865,675
---------------------------------------------------------------------
Interest-bearing deposits 317,394 169,568 45,197 532,159
Other borrowings 125,927 20,000 - 145,927
---------------------------------------------------------------------
Interest-bearing liabilities 443,321 189,568 45,197 678,086
---------------------------------------------------------------------
Interest sensitivity gap $ 83,887 $ (50,350) $ 154,052 $ 187,589
=====================================================================
Cumulative interest sensitivity gap $ 83,887 $ 33,537 $ 187,589
===================================================
Cumulative interest sensitivity
gap as a % of total assets 9.06% 3.62% 20.25%
===================================================
(10)
The analysis provided in the table above includes the following
significant assumptions: Fixed-rate loans are scheduled by contractual maturity
and variable-rate loans are scheduled by repricing date. Variable-rate loans
that have reached a pre-established interest rate floor are classified as
fixed-rate loans and reprice according to contractual maturity. Investments
other than mortgage-backed securities are scheduled according to the earlier of
contractual maturity date or most likely call date, given current interest
rates. Mortgage-backed securities are scheduled according to estimated maturity
based upon the most recent monthly prepayment factors, which may change.
Residential mortgage loans originated for sale are scheduled based on their
expected sale dates, generally 14 to 30 days after settlement. Projected runoff
of deposits that do not have a contractual maturity date, such as NOW, savings
and money market accounts, was computed based upon the most recently proposed
decay rate assumptions set forth by the Federal Financial Institutions
Examination Council ("FFIEC"). Penalty-free certificates of deposit are
scheduled by stated maturity date. If rates begin to increase, a portion these
certificates may reprice prior to contractual maturity. Long-term advances from
the FHLB are scheduled according to their conversion option date.
The Company also uses a computer simulation analysis to assess and
manage its interest rate risk. The simulation analysis assumes an immediate,
parallel shift of 200 basis points in the Treasury Yield Curve. During 2001, as
market rates approached historically low levels, the Company adjusted the
assumptions used in the simulation process to incorporate interest rate floors
for certain deposit products, recognizing the practical concept that rates on
interest bearing products would not reprice below a certain point. As a result,
the downward shift in interest rates for interest-bearing liabilities was not
equal to the full 200 basis points that was applied in the upward shift. The
analysis measures the potential change in earnings and in the market value of
portfolio equity over a one-year time horizon and captures optionality factors
such as call features imbedded in investment and loan portfolio contracts.
Measured based on March 31, 2002 data, the simulation analysis reflects a 4.0%
drop in net interest earnings and an 8.2% increase in economic value of equity
if rates fall 200 basis points and a 1.6% increase in net interest income and a
20.4% drop in economic value of equity with a 200 basis point increase in rates.
Both of the above tools used to assess interest rate risk have
strengths and weaknesses. Because the gap analysis reflects a static position at
a single point in time, it is limited in quantifying the total impact of market
rate changes which do not affect all earning assets and interest-bearing
liabilities equally or simultaneously. In addition, gap reports depict the
existing structure, excluding exposure arising from new business. While the
simulation process is a powerful tool in analyzing interest rate sensitivity,
many of the assumptions used in the process are highly qualitative and
subjective and are subject to the risk that past historical activity may not
generate accurate predictions of the future. Both measurement tools, however,
provide a comprehensive evaluation of the Company's exposure to changes in
interest rates, enabling management to control the volatility of earnings.
Material Changes in Financial Condition
Cash and Due from Banks:
Cash and due from banks represents cash on hand, cash on deposit with
other banks and cash items in the process of collection. As a result of the
Company's cash management services provided to large, sophisticated corporate
customers (which includes cash concentration activities and processing coin and
currency transactions), the Company's cash balances may fluctuate more widely on
a daily basis and may be higher than industry averages for banks of a similar
asset size.
Residential Mortgage Loans Originated for Sale:
The outstanding balance of mortgage loans originated for sale decreased
$3.2 million, from $11.4 million at December 31, 2001 to $8.2 million at June
30, 2002, as refinancing activity, while still strong, subsided somewhat since
the end of the year.
Loans and Nonperforming Assets:
At June 30, 2002, the Company's loan portfolio, net of unearned income,
totaled $666.5 million, or 72.0% of its total assets of $926.2 million. The most
significant categories of loans in the Company's portfolio are commercial loans,
real estate development and construction, residential and commercial mortgages
and consumer.
(11)
Since December 31, 2001, total loans increased $64.4 million, or 10.7%.
Real estate development and construction loans and commercial loans rose $33.8
million and $33.1 million, respectively, since December 31, 2001, while other
loans declined $2.5 million.
Commercial loans constitute the largest portion of the Company's loan
portfolio. Commercial business loans are made to provide working capital to
businesses in the form of lines of credit which may be secured by real estate,
accounts receivable, inventory, equipment or other assets. Commercial mortgages
are typically secured by office condominiums, retail buildings, warehouse and
general purpose space, and generally have maturities of five years or less. At
June 30, 2002, commercial loans totaled $186.8 million, or 28.0% of total loans,
and commercial mortgages totaled $108.6 million, or 16.3% of total loans. The
financial condition and cash flow of commercial borrowers are monitored by the
submission of corporate financial statements, personal financial statements and
income tax returns. The frequency of submissions of required information depends
upon the size and complexity of the credit and the collateral that secures the
loan. It is also the Company's general policy to obtain personal guarantees from
the principals of the commercial loan borrowers.
Real estate development and construction loans constitute the second
largest portion of the Company's lending activities, totaling $207.9 million at
June 30, 2002. A breakdown by type follows:
Amount Percent
- ----------------------------------------------------------------------------------------------------
(dollars in thousands)
Residential construction (a) $ 78,446 37.7 %
Residential land development 70,398 33.9 %
Residential land acquisition (b) 12,473 6.0 %
Commercial land acquisition 12,116 5.8 %
Commercial construction 34,439 16.6 %
---------------- ----------------
$ 207,872 100.0 %
================ ================
______________
(a) Includes $24.7 million of loans to individuals for construction of primary
personal residences.
(b) Includes $4.8 million of loans to individuals for the purchase of
residential building lots.
The Company makes residential real estate development and construction
loans generally to provide interim financing on property during the development
and construction period. Borrowers include builders, developers and persons who
will ultimately occupy the single-family dwellings. Residential real estate
development and construction loan funds are disbursed periodically as
pre-specified stages of completion are attained based upon site inspections.
Interest rates on these loans are usually adjustable. The Company has limited
loan losses in this area of lending through monitoring of development and
construction loans with on-site inspections and control of disbursements on
loans in process. Development and construction loans are secured by the
properties under development or construction and personal guarantees are
typically obtained. Further, to assure that reliance is not placed solely upon
the value of the underlying collateral, the Company considers the financial
condition and reputation of the borrower and any guarantors, the amount of the
borrower's equity in the project, independent appraisals, cost estimates and
pre-construction sales information.
Retail loans, principally loans secured by home equity, represent the
third largest component of the Company's loan portfolio, totaling $148.1
million, or 22.2% of the Company's total loan portfolio, at June 30, 2002. Of
this amount, $133.4 million was comprised of second mortgage loans and home
equity lines of credit. Such loans are typically originated for up to 90% of the
appraised value of the property, less the amount of any prior liens on the
property. Home equity lines of credit have maximum terms of fifteen to thirty
years and the interest rates are generally adjustable. The Company secures these
loans with mortgages on the homes (typically a second mortgage). The second
mortgage loans originated by the Company have maximum terms ranging from ten to
thirty years. They generally carry a fixed rate of interest for the first five
years, repricing every five years thereafter at a predetermined spread to the
prime rate of interest.
(12)
The following table provides information concerning nonperforming assets
and past-due loans:
June 30, December 31, June 30,
2002 2001 2001
-------------------------------------------------------
(dollars in thousands)
Nonaccrual loans (a) $ 1,126 $ 3,230 $ 4,228
Restructured loans - - 254
Other real estate owned 619 1,187 2,018
-------------------------------------------------------
Total nonperforming assets $ 1,745 $ 4,417 $ 6,500
=======================================================
Accruing loans past-due 90 days or more $ 242 $ 819 $ 472
=======================================================
___________________
(a) Loans are placed in nonaccrual status when they are past-due 90 days
as to either principal or interest or when, in the opinion of
management, the collection of all interest and/or principal is in
doubt. Management may grant a waiver from nonaccrual status for a
90-day past-due loan that is both well secured and in the process of
collection. A loan remains in nonaccrual status until the loan is
current as to payment of both principal and interest and the
borrower demonstrates the ability to pay and remain current.
At June 30, 2002, nonaccrual loans totaled $1.1 million, including four
commercial relationships with loans totaling $584,000, of which $558,000 is
guaranteed by the Small Business Administration; a commercial mortgage loan
carried at $183,000; seven commercial loans with balances totaling $291,000; and
four consumer loans carried at a total of $68,000.
At June 30, 2002, other real estate owned totaled $619,000 and consisted
entirely of a residential development project, representing the Company's 75%
ownership interest. The Company entered into a contract with a third party
contractor to manage the completion of the development work, which was
substantially complete at June 30, 2002. As of that date, the remaining 30
townhouse lots were under contract of sale with a residential builder with a
takedown schedule that extended through September 2003.
Impaired loans at June 30, 2002 totaled $1.1 million, of which $281,000
were collateral dependent loans. Collateral dependent loans are measured based
on the fair value of the collateral. Impaired loans that are not collateral
dependent are measured at the present value of expected future cash flows using
the loans' effective interest rates. At June 30, 2002, specific reserves
assigned to impaired loans totaled $69,000. An impaired loan is charged off when
the loan, or a portion thereof, is considered uncollectible.
Allowance for Credit Losses:
The Company provides for credit losses through the establishment of an
allowance for credit losses (the "Allowance") by provisions charged against
earnings. Based upon management's monthly evaluation, provisions are made to
maintain the Allowance at a level adequate to absorb potential losses within the
loan portfolio. The Allowance consists of three elements: (1) specific reserves
for individual credits; (2) general reserves for types or portfolios of loans
based on historical loan loss experience, judgmentally adjusted for current
conditions and credit risk concentrations; and (3) unallocated reserves.
Combined specific reserves and general reserves by loan type are considered
allocated reserves. All outstanding loans are considered in evaluating the
adequacy of the Allowance. The Allowance does not provide for estimated losses
stemming from uncollectible interest because the Company generally requires all
accrued but unpaid interest to be reversed once a loan is placed on nonaccrual
status.
The process of establishing the Allowance with respect to the Company's
commercial loan portfolios begins when a loan officer initially assigns each
loan a risk grade, using established credit criteria. Risk grades are reviewed
and validated annually by an independent consulting firm, as well as
periodically by the Company's internal credit review function. Management
reviews, on a quarterly basis, current conditions that affect various lines of
business and may warrant adjustments to historical loss experience in
determining the required Allowance. Adjustment factors that are considered
include: the level and trends in past-due and nonaccrual loans; trends in loan
volume; effects of any changes in lending policies and procedures or
underwriting standards; and the experience and depth of lending management.
Historical factors by product type are adjusted each quarter based on
management's seasoned judgment. Management also evaluates credit risk
concentrations, including trends in large dollar exposures to related borrowers,
and industry concentrations. All nonaccrual loans in the commercial and real
estate (construction and non-residential mortgage) portfolios, as well as other
loans
(13)
in the portfolios identified as having the potential for further deterioration,
are analyzed individually to confirm the appropriate risk grading and accrual
status and to determine the need for a specific reserve.
Retail and residential mortgage loans are segregated into homogeneous
pools with similar risk characteristics. Trends and current conditions in retail
and residential mortgage pools are analyzed and historical loss experience is
adjusted accordingly. Adjustment factors for the retail and residential mortgage
portfolios are consistent with those for the commercial portfolios.
The unallocated portion of the Allowance is intended to provide for losses
that are not identified when establishing the specific and general portions of
the Allowance. The Company has risk management practices designed to ensure
timely identification of changes in loan risk profiles; however, undetected
losses may exist inherently within the loan portfolios. The judgmental aspects
involved in applying the risk grading criteria, analyzing the quality of
individual loans and assessing collateral values can also contribute to
undetected, but probable, losses. At June 30, 2002, the Allowance was 1.33% of
total loans, net of unearned income. The Allowance at June 30, 2002 is
considered by management to be sufficient to address the credit risk in the
current loan portfolio. The changes in the Allowance are presented in the
following table.
Six Months Ended June 30,
--------------------------
2002 2001
------------ -------------
(dollars in thousands)
Allowance for credit losses -
beginning of period $ 8,024 $ 7,026
Provision for credit losses 758 828
Charge-offs (286) (300)
Recoveries 363 113
--------------------------
Allowance for credit losses -
end of period $ 8,859 $ 7,667
==========================
Allowance as a percentage of loans
receivable, net of unearned income 1.33% 1.33%
==========================
Allowance as a percentage of nonperforming
loans and loans past-due 90 days or more (a) 647.6% 154.8%
==========================
__________________
(a) There is no direct relationship between the size of the Allowance
(and the related provision for credit losses) and nonperforming and
past-due loans. Accordingly, the ratio of Allowance to nonperforming
and past-due loans may tend to fluctuate significantly.
RESULTS OF OPERATIONS
The Company reported earnings for the six months ended June 30,2002 of
$4.66 million, or $.64 per diluted common share, compared to $4.10 million, or
$.57 per diluted share, for the same period in 2001, representing an increase of
13.6%.
Return on average assets and return on average equity are key measures of
a bank's performance. Return on average assets, the product of net income
divided by total average assets, measures how effectively the Company utilizes
its assets to produce income. The Company's return on average assets for the six
months ended June 30, 2002 was 1.09%, compared to 1.02% for the corresponding
period in 2001. Return on average equity, the product of net income divided by
average equity, measures how effectively the Company invests its capital to
produce income. Return on average equity for the six months ended June 30, 2002
was 13.25%, compared to 12.48% for the corresponding period in 2001.
Net Interest Income
The net interest margin (representing net interest income, on a fully
tax-equivalent basis, divided by average interest-earning assets) declined from
4.71% for the six months ended June 30, 2001 to 4.48% for the same period in
2002. This decrease of 23 basis points was the result of the unprecedented
decline in interest rates during 2001. Specifically, the targeted short-term
interest rate, as established by the FRB, decreased 475 basis points over the
course of eleven adjustments during the year, which resulted in a decline in the
prime rate of interest from 9.50% on January 1, 2001 to 4.75% at December
(14)
31, 2001 and at June 30, 2002. Net interest income on a tax-equivalent basis,
however, increased $350,000, from $17.63 million for the six months ended June
30, 2001 to $17.99 million for the same period in 2002. This increase was the
result of both volume increases and the falling rates on the portfolio of
certificates of deposit as maturing certificates repriced at lower levels. The
following table provides further analysis of net interest income:
Six Months Ended June 30, 2002
Compared to the Six Months Ended
June 30, 2001
----------------------------------------------
Increase/(Decrease)
Increase Due to (a)
------------------------------
(Decrease) Rate Volume
----------------------------------------------
(dollars in thousands)
Interest income:
Loans (b)(c) $ (3,181) $ (5,993) $ 2,812
Investment securities and securities
available-for-sale (c) (998) (1,254) 256
Federal funds sold and interest-
bearing deposits with banks (647) (289) (358)
----------------------------------------------
Total interest income (4,826) (7,536) 2,710
----------------------------------------------
Interest expense:
Deposits (4,504) (4,095) (409)
Borrowings (681) (1,291) 610
----------------------------------------------
Total interest expense (5,185) (5,386) 201
----------------------------------------------
Net interest income $ 359 $ (2,150) $ 2,509
==============================================
______________________
(a) The change in interest income and interest expense due to both rate
and volume has been allocated to rate and volume changes in
proportion to the absolute dollar amounts of the change in each.
(b) Includes interest on loans originated for sale.
(c) Interest on tax-exempt loans and securities is presented on a
taxable equivalent basis, adjusted for items exempt from federal
tax.
Interest income decreased $4.8 million primarily as a result of the
decrease in rates; the decline was mitigated by an increase in average
interest-earning assets of $54.0 million, or 7.1%, during the six months ended
June 30, 2002, compared to the same period in 2001. The prime contributor to
this increase in earning assets was loan growth, as average loans increased from
$559.6 million for the six months ended June 30, 2001 to $628.9 million in 2002,
a 12.4% increase. The average taxable-equivalent yield on interest-earning
assets, however, decreased from 8.23% for the six months ended June 30, 2001 to
6.48% for the same period in 2002.
Interest expense declined $5.2 million. Rate decreases in all
customer-funding products resulted in a decline in the rate paid on
interest-bearing liabilities from 4.34% for the six months ended June 30, 2001
to 2.52% for the same period in 2002. However, average interest-bearing
liabilities increased from $614.3 million for the six months ended June 30, 2002
to $642.8 million for the same period in 2002, an increase of $28.5 million, or
4.6%. This growth was primarily in short-term borrowings, which includes
customer funding in the form of commercial paper and repurchase agreements as
well as overnight borrowings from the FHLB. This growth in interest-bearing
funds somewhat mitigated the effect of the rate decreases.
Net interest income for the six months ended June 30, 2002 was also
affected by a change in the mix of interest-earning assets as loans, the
Company's highest yielding assets, on average increased as a percentage of
interest-earning assets from 74.1% for the six months ended June 30, 2001 to
77.7% for the same period in 2002. A change in the mix of interest-bearing
liabilities was also a factor, as average certificates of deposit, the Company's
highest-paying deposit product, fell from 44.4% of average interest-bearing
liabilities for the six months ended June 30, 2001 to 41.4% for the same period
of 2002.
The following table sets forth, for the periods indicated, information
regarding the average balances of interest-earning assets and interest-bearing
liabilities, the amount of interest income and interest expense and the
resulting yields on average interest-earning assets and rates paid on average
interest-bearing liabilities. Average balances are also provided for
noninterest-earning assets and noninterest-bearing liabilities.
(15)
Six Months Ended Six Months Ended
June 30, 2002 June 30, 2001
-------------------------------------- -------------------------------------
Average Average
Balances (a) Interest Rate Balances (a) Interest Rate
-------------------------------------- -------------------------------------
(dollars in thousands)
Assets
Interest-earning assets:
Loans, net of unearned income (b) (c) $ 628,889 $ 21,490 6.89% $ 559,564 $24,671 8.89%
Investment securities and securities
available-for-sale 174,996 4,476 5.16% 166,854 5,480 6.62%
Federal funds sold and interest-
bearing deposits with banks 5,655 47 1.68% 29,080 688 4.77%
-------------------------- -------------------------
Total interest-earning assets 809,540 26,013 6.48% 755,498 30,839 8.23%
--------------------- ---------------------
Noninterest-earning assets:
Cash and due from banks 31,837 31,538
Property and equipment, net 10,116 11,173
Other assets 17,035 18,732
Less: allowance for credit losses (8,377) (7,241)
------------ ------------
Total assets $ 860,151 $ 809,700
============ ============
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW accounts $ 70,348 84 0.24% $ 61,021 172 0.57%
Savings accounts 69,996 389 1.12% 63,480 701 2.23%
Money market accounts 95,270 736 1.56% 116,631 2,015 3.48%
Certificates of deposit 266,345 5,291 4.01% 272,517 8,116 6.01%
Short-term borrowings 120,835 998 1.67% 80,699 1,687 4.22%
Long-term borrowings 20,000 530 5.34% 20,000 522 5.26%
-------------------------- -------------------------
Total interest-bearing liabilities 642,794 8,028 2.52% 614,348 13,213 4.34%
---------------------
Noninterest-bearing liabilities:
Noninterest-bearing deposits 141,540 120,470
Other liabilities 4,954 8,646
Stockholders' equity 70,863 66,236
------------ --------------
Total liabilities and
stockholders' equity $ 860,151 $ 809,700
============ ==============
Net interest income $ 17,985 $17,626
========= ==========
Net interest spread 3.96% 3.89%
===== =====
Net interest margin 4.48% 4.71%
===== =====
(a) Average balances are calculated as the daily average balances.
(b) Average loan balances include first mortgage loans originated for sale and
nonaccrual loans. Interest income on loans includes amortized loan fees,
net of costs, of $579,000 and $545,000 for the six months ended June 30,
2002 and 2001, respectively.
(c) Interest on tax-exempt loans is presented on a taxable equivalent basis,
adjusted for items exempt from federal tax.
In the second quarter of 2002, net interest income on a tax-equivalent
basis rose $759,000, from $8.6 million in 2001 to $9.3 million in 2002, as the
cost of interest-bearing liabilities continued to decline with the downward
repricing of the certificate of deposit portfolio. Average earning assets grew
$65.0 million, or 8.5%, from $760.9 million for the three months ended June 30,
2001 to $825.9 million for the same period in 2002. Average interest-bearing
liabilities grew only $37.9 million, or 6.1%, from $617.1 million to $655.0
million. The net interest margin was basically unchanged for the second quarter
at 4.53% in 2002 and 4.52% in 2001.
Noninterest Income
Noninterest income totaled $3.3 million for the six months ended June
30, 2002, as compared to $2.6 million for the corresponding period in 2001. The
$668,000 increase in noninterest income during the first six months of 2002 as
compared to the same period of 2001 was due to an increase in fees charged for
services of $388,000 and gains on sales of mortgage loans, net of costs, of
$405,000. Fees charged for services increased due to continued business
development and significantly reduced earnings credit provided to commercial
customers, the effect of which reduces the amount of fees covered by
compensating balances and increases the amount of fees paid. Net gains on the
sales of mortgage loans rose due to a $30.3 million or 67.2% increase in the
volume of loans sold.
(16)
For the three months ended June 30, noninterest income rose $210,000,
or 14.7%, from $1,430,000 in 2001 to 1,640,000 in 2002, also the result of
increases in fees charged for services and gains on sales of mortgage loans.
Noninterest Expense
Noninterest expense increased $40,000 or .03% for the six months ended
June 30, 2002, as compared to the same period in 2001. A significant decline of
$467,000 in professional fees was the result of the settlement of a legal matter
involving the Bank, which is more fully discussed in Part II, Item 1 of this
Quarterly Report on Form 10-Q under the heading of "Legal Proceedings," and a
recovery of legal expenses totaling $118,000 associated with prior foreclosure
actions. Other decreases included occupancy and equipment costs of $71,000 and
$161,000, respectively, the result of closing an office and of restructuring
technical support for the computer network. Marketing and data processing costs
increased as the Bank added new and/or enhanced products and services and as
transaction volumes increased. Salaries and benefits, the largest component of
noninterest expense, rose $460,000, or 6.8%, which was primarily the result of
an increase in deferred compensation plan costs. The plan is an unfunded plan
partially offering a phantom stock account as one of two investment options. As
a result of an increase in the price of the Company's common stock, from $16.40
at December 31, 2001 to $23.61 at June 30, 2002, an additional accrual of
$355,000 was necessary for the six months ended June 30, 2002.
Noninterest expense rose $110,000, or 1.7%, for the three months ended
June 30, 2002, as compared to the same period in 2001. The increase of $423,000
in salaries and benefits, primarily from the increased deferred compensation
plan costs discussed above, was partly offset by the reduction in professional
fees resulting from the recovery of $307,000 associated with the settlement of
litigation and the collection of foreclosure expenses.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding the market risk of the Company's financial
instruments, see "Market Risk and Interest Rate Sensitivity" in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
PART II
ITEM 1. LEGAL PROCEEDINGS
Effective February 14, 2002, the parties to the class action
interpleader lawsuit (The Columbia Bank vs. Network 1 Financial Corporation,
et.al., Civil Action No. WMN-00-CV1002 in the United States District Court for
the District of Maryland, Northern Division), described more fully in the Form
10-Q dated March 31, 2000 and subsequent filings in Forms 10-Q and 10-K, entered
into a binding settlement agreement. Effective April 24, 2002, the parties
dismissed, with prejudice, all claims and counter claims. Also during April
2002, the Bank received $150,000, representing refunds that it paid to persons
who had their accounts debited, and $189,000, representing partial reimbursement
for its attorney's fees and expenses.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
(17)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held May 30, 2002, the
following directors were elected based upon the identified voting statistics to
serve a three-year term expiring upon the date of the Company's 2005 Annual
Meeting or until their respective successors are duly elected and qualified.
Votes Cast
For Withheld Total
--- -------- -----
John M. Bond, Jr. 5,802,723 32,264 5,834,987
William L. Hermann 5,795,138 39,849 5,834,987
Charles C. Holman 5,800,887 34,100 5,834,987
Winfield M. Kelly, Jr. 5,771,925 63,062 5,834,987
Harry L. Lundy, Jr. 5,801,671 33,316 5,834,987
James R. Moxley, III 5,784,068 50,919 5,834,987
Mary S. Scrivener 5,805,991 28,996 5,834,987
Theodore G. Venetoulis 5,792,604 42,383 5,834,987
The following are those directors of the Company who will continue to
serve as directors until the expiration of their terms upon the date of the
Company's Annual Meeting in their respective class years or until their
respective successors are duly elected and qualified.
Class of 2003 Class of 2004
------------- -------------
Anand S. Bhasin Hugh F.Z. Cole, Jr.
Robert R. Bowie, Jr. G. William Floyd
Garnett Y. Clark, Jr. Herschel L. Langenthal
Kenneth H. Michael Richard E. McCready
Maurice M. Simpkins James R. Moxley, Jr.
Robert M. Smelkinson Vincent D. Palumbo
Lawrence A. Shulman
ITEM 5. OTHER INFORMATION
On June 25, 2002, the Board of Directors of the Company declared a $.11
per share cash dividend to common stockholders of record on July 15, 2002,
payable July 26, 2002.
Certification of the periodic financial reports, required by Section 906
of the Sarbanes-Oxley Act of 2002, have been provided to the Securities and
Exchange Commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None.
(b) Reports on Form 8-K
None.
(18)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLUMBIA BANCORP
PRINCIPAL EXECUTIVE OFFICER:
August 13, 2002 /s/ John M. Bond
- ------------------- ----------------------------
Date John M. Bond, Jr.
President and
Chief Executive Officer
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:
August 13, 2002 /s/ John A. Scaldara, Jr.
- ------------------- ----------------------------
Date John A. Scaldara, Jr.
Executive Vice President,
Corporate Secretary and
Chief Financial Officer
(19)