COLUMBIA BANCORP - 10-Q Quarterly Report

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 September 30, 2004

¨	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 of

incorporation or organization)

(I.R.S. Employer

Identification No.)

7168 Columbia Gateway Drive, Columbia, Maryland 21046

(Address of principal executive offices)

(410) 423-8000

(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 ¨

Indicate by check mark whether the registrant is an accelerated filer. 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: 7,117,617 shares as of November 5, 2004.

COLUMBIA BANCORP

CONTENTS


			Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements:

		Consolidated Statements of Condition as of September 30, 2004 (unaudited) and December 31, 2003	3

		Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2004 and 2003 (unaudited)	4

		Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2004 and 2003 (unaudited)	5

		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003 (unaudited)	6

		Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		27

Item 4.	Controls and Procedures		27

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		28

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		28

Item 3.	Defaults Upon Senior Securities		28

Item 4.	Submission of Matters to a Vote of Security Holders		28

Item 5.	Other Information		28

Item 6.	Exhibits and Reports on Form 8-K		28

(2)

PART I ITEM 1. FINANCIAL STATEMENTS

COLUMBIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CONDITION

(dollars in thousands, except per share amounts)


	September 30, 2004			December 31, 2003
	*(unaudited)*
ASSETS
Cash and due from banks	$	37,959		$	35,846
Interest bearing deposits with other banks		206			205
Federal funds sold		36,409			3,292
Securities held-to-maturity (fair value $99,719 in 2004 and $78,028 in 2003)		99,295			77,344
Securities available-for-sale		51,159			56,433
Residential mortgage loans originated for sale		2,587			6,046
Loan receivables:
Real estate - development and construction		332,258			283,599
Commercial		229,589			221,374

Real estate - mortgage:
Residential		17,564			16,349
Commercial		158,585			143,723
Retail, principally loans secured by home equity		194,031			169,298
Other		4,056			1,504

Total loans		936,083			835,847
Less: Unearned income, net of origination costs		(83	)		(363	)
Allowance for credit losses		(11,514	)		(10,828	)

Loans, net		924,486			824,656
Property and equipment, net		6,910			7,332
Prepaid expenses and other assets		20,096			18,101

Total assets	$	1,179,107		$	1,029,255

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:
Noninterest-bearing demand deposits	$	246,092		$	206,323
Interest-bearing deposits		669,250			581,285

Total deposits		915,342			787,608
Short-term borrowings		141,031			128,844
Subordinated debentures		6,186			—
Long-term borrowings		20,000			20,000
Accrued expenses and other liabilities		6,448			7,354

Total liabilities		1,089,007			943,806

Stockholders’ equity
Common stock, $.01 par value per share; authorized 10,000,000 shares; outstanding 7,117,317 and 7,170,882 shares, respectively		71			72
Additional paid-in-capital		45,925			47,886
Retained earnings		43,956			37,561
Accumulated other comprehensive income (loss)		148			(70	)

Total stockholders’ equity		90,100			85,449

Total liabilities and stockholders’ equity	$	1,179,107		$	1,029,255

See accompanying notes to consolidated financial statements.

(3)

COLUMBIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

For the Three Months and Nine Months Ended September 30, 2004 and 2003

(dollars in thousands, except per share amounts)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2004		2003			2004		2003
	*(unaudited)*					*(unaudited)*
Interest income:
Loans	$	13,428	$	11,534		$	37,717	$	33,121
Investment securities		1,340		1,461			3,603		4,869
Federal funds sold and interest-bearing deposits with other banks		65		56			176		262

Total interest income		14,833		13,051			41,496		38,252

Interest expense:
Deposits		2,450		2,069			6,796		6,790
Borrowings		681		490			1,670		1,439

Total interest expense		3,131		2,559			8,466		8,229

Net interest income		11,702		10,492			33,030		30,023
Provision for credit losses		192		—			692		1,050

Net interest income after provision for credit losses		11,510		10,492			32,338		28,973

Noninterest income:
Fees charged for services		910		1,056			2,944		2,988
Gains and fees on sales of mortgage loans, net of costs		291		1,168			1,150		2,633
Income (expense) on other real estate owned, net		73		(21	)		59		20
Gain on sale of investment securities		—		28			—		28
Commissions earned on financial services sales		146		208			423		456
Other		294		298			747		990

Total noninterest income		1,714		2,737			5,323		7,115

Noninterest expense:
Salaries and employee benefits		4,114		4,315			12,066		12,150
Occupancy, net		918		973			2,838		2,818
Equipment		468		500			1,486		1,444
Data processing		525		563			1,575		1,457
Marketing		140		272			736		839
Cash management services		131		149			411		439
Professional fees		263		174			601		568
Deposit insurance		51		49			150		147
Other		1,059		854			2,839		2,521

Total noninterest expense		7,669		7,849			22,702		22,383

Income before income taxes		5,555		5,380			14,959		13,705
Income tax provision		2,037		1,937			5,347		4,934

Net income	$	3,518	$	3,443		$	9,612	$	8,771

Per common share data:
Net income: Basic	$	0.49	$	0.48		$	1.34	$	1.23
Diluted		0.48		0.47			1.30		1.19
Cash dividends declared		0.15		0.125			0.45		0.375

See accompanying notes to consolidated financial statements.

(4)

COLUMBIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2004 and 2003

(dollars in thousands)


	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balances at December 31, 2003	$	72		$	47,886		$	37,561		$	(70	)	$	85,449
Comprehensive income
Net income		—			—			9,612			—			9,612
Unrealized gain on securities available-for-sale		—			—			—			218			218

Total comprehensive income														9,830
Cash dividends declared on common stock		—			—			(3,217	)		—			(3,217	)
Exercise of options for 31,781 shares of common stock		—			456			—			—			456
Purchase of 85,346 shares of common stock		(1	)		(2,417	)		—			—			(2,418	)

Balances at September 30, 2004	$	71		$	45,925		$	43,956		$	148		$	90,100

Balances at December 31, 2002	$	71		$	47,439		$	29,408		$	5		$	76,923
Comprehensive income
Net income		—			—			8,771			—			8,771
Unrealized loss on securities available-for-sale		—			—			—			(182	)		(182	)

Total comprehensive income														8,589
Cash dividends declared on common stock		—			—			(2,673	)		—			(2,673	)
Exercise of options for 32,742 shares of common stock		—			293			—			—			293

Balances at September 30, 2003	$	71		$	47,732		$	35,506		$	(177	)	$	83,132

See accompanying notes to consolidated financial statements.

(5)

COLUMBIA BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2004 and 2003

(dollars in thousands)


	Nine Months Ended September 30,
	2004			2003
	*(unaudited)*
Cash flows from operating activities:
Net income	$	9,612		$	8,771
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,441			1,327
Amortization of loan fee income		(2,049	)		(1,489	)
Provision for credit losses		692			1,050
Gains and fees on sales of mortgage loans, net of costs		(1,150	)		(2,633	)
Gain on sale of real estate owned		(73	)		—
Gain on sale of securities available-for-sale		—			(28	)
Losses on sales/disposals of other assets		7			6
Proceeds from sales of residential mortgage loans originated for sale		100,810			258,463
Disbursements for residential mortgage loans originated for sale		(96,201	)		(259,453	)
Loan fees deferred, net of origination costs		1,769			1,487
Increase in prepaid expenses and other assets		(1,657	)		(502	)
Decrease in accrued expenses and other liabilities		(899	)		(395	)

Net cash provided by operating activities		12,302			6,604

Cash flows provided by (used in) investing activities:
Net increase in loans		(120,382	)		(109,309	)
Loan purchases		(17,437	)		(29,687	)
Loan sales		37,327			7,386
Purchases of securities held-to-maturity		(82,932	)		(60,625	)
Purchases of securities available-for-sale		(2,663	)		(27,364	)
Proceeds from maturities and principal repayments of securities held-to-maturity		60,963			87,828
Proceeds from maturities and principal repayments of securities available-for-sale		8,076			8,544
Proceeds from sales of investment securities available-for-sale		—			777
Sales of other real estate owned		323			178
Purchases of property and equipment		(886	)		(1,913	)
Disposals of property and equipment		—			2
Increase in cash surrender value of life insurance		(195	)		(226	)

Net cash used in investing activities		(117,806	)		(124,409	)

Cash flows provided by (used in) financing activities:
Net increase in deposits		127,734			44,364
Increase (decrease) in short-term borrowings		12,187			(18,692	)
Proceeds from issuance of subordinated debentures		6,000			—
Cash dividends distributed on common stock		(3,224	)		(2,669	)
Purchases of common stock		(2,418	)		—
Net proceeds from stock options exercised		456			293

Net cash provided by financing activities		140,735			23,296

Net increase (decrease) in cash and cash equivalents		35,231			(94,509	)
Cash and cash equivalents at beginning of period		39,343			139,371

Cash and cash equivalents at end of period	$	74,574		$	44,862

Supplemental information:
Interest paid on deposits and borrowings	$	8,402		$	8,331
Income taxes paid		5,730			5,450
Transfer of loans to other real estate owned		250			—

See accompanying notes to consolidated financial statements.

(6)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the three months and nine months

ended September 30, 2004 and 2003 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 2003 Annual Report on Form 10-K, as amended.

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 September 30, 2004 and for the three months and nine months ended September 30, 2004 and 2003 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 months and nine months ended September 30, 2004 are not necessarily indicative of the results that will be achieved for the entire year.

Certain amounts for 2003 have been reclassified to conform to the 2004 presentation. These reclassifications have no effect on stockholders’ equity or net income as previously reported.

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for credit losses (the “Allowance”), other- than-temporary impairment of investment securities and deferred tax assets.

The Company uses the intrinsic value method to account for stock-based employee compensation plans. Under this method, compensation cost is recognized for awards of shares of common stock to employees only if the quoted market price of the stock at the grant date (or other measurement date, if later) is greater than the amount the employee must pay to acquire the stock. The following table summarizes the pro forma effect on net earnings and earnings per share of common stock using an optional fair value-based method, rather than the intrinsic value-based method, to account for stock-based compensation awarded.

(7)


	Three Months Ended September 30,				Nine Months Ended September 30,
*(dollars in thousands, except per share amounts)*	2004		2003		2004		2003
Net income, as reported	$	3,518	$	3,443	$	9,612	$	8,771
Stock-based employee compensation expense included in reported net earnings, net of related tax effects		—		—		—		—
Stock-based employee compensation expense determined under fair value-based method, net of related tax effects		81		59		244		178

Pro forma net income	$	3,437	$	3,384	$	9,368	$	8,593

Net income per common share:
Basic:
As reported	$	0.49	$	0.48	$	1.34	$	1.23
Pro forma		0.48		0.47		1.31		1.21
Diluted:
As reported		0.48		0.47		1.30		1.19
Pro forma		0.47		0.46		1.27		1.17

NOTE 2 - INVESTMENTS

The amortized cost and estimated fair values of securities held-to-maturity and securities available-for-sale at September 30, 2004 were as follows:


*(dollars in thousands)*	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Securities held-to-maturity:
Federal agency securities	$	96,661	$	464	$	(72	)	$	97,053
Mortgage-backed securities		621		32		—			653
Collateralized mortgage obligations		2,013		—		—			2,013

Total	$	99,295	$	496	$	(72	)	$	99,719

Securities available-for-sale:
Federal agency securities	$	1,000	$	27	$	—		$	1,027
Mortgage-backed securities		30,309		186		(115	)		30,380
Trust preferred stocks		15,909		143		(116	)		15,936
Investment in Federal Home Loan
Bank stock		2,576		—		—			2,576
Other equity securities		1,119		174		(53	)		1,240

Total	$	50,913	$	530	$	(284	)	$	51,159

(8)

The amortized cost and estimated fair values of securities held-to-maturity and securities available-for-sale at December 31, 2003 were as follows:


*(dollars in thousands)*	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Securities held-to-maturity:
Federal agency securities	$	73,865	$	688	$	(72	)	$	74,481
Mortgage-backed securities		3,479		68		—			3,547

Total	$	77,344	$	756	$	(72	)	$	78,028

Securities available-for-sale:
Federal agency securities	$	5,500	$	113	$	—		$	5,613
Mortgage-backed securities		31,298		130		(145	)		31,283
Trust preferred stocks		15,904		245		(322	)		15,827
Investment in Federal Home Loan
Bank stock		2,620		—		—			2,620
Other equity securities		1,119		53		(82	)		1,090

Total	$	56,441	$	541	$	(549	)	$	56,433

The table below shows the gross unrealized losses and fair value of securities that have been in a continuous unrealized loss position, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of September 30, 2004.


	Less Than 12 Months					12 Months or More					Total
*(dollars in thousands)*	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Federal agency securities	$	12,428	$	(72	)	$	—	$	—		$	12,428	$	(72	)
Mortgage-backed securities		5,983		(57	)		6,796		(58	)		12,779		(115	)
Trust preferred stocks		—		—			6,098		(116	)		6,098		(116	)

Total debt securities		18,411		(129	)		12,894		(174	)		31,305		(303	)
Equity securities		—		—			302		(53	)		302		(53	)

Total temporarily impaired securities	$	18,411	$	(129	)	$	13,196	$	(227	)	$	31,607	$	(356	)

The unrealized losses in the portfolio change as market rates change. The average lives of agency securities will be extended as rates increase since the call options on these securities will not be exercised. The value of those securities will, therefore, decline since the opportunity to reinvest at higher rates will be delayed. The mortgage-backed securities in an unrealized loss position are the pools that have low coupon rates and, as mortgage rates have risen somewhat, the prepayments or refinancing of the underlying mortgages has slowed. The trust preferred securities that are valued below book value have variable rates and reprice quarterly, which, theoretically, should limit the market value fluctuations of these instruments as rates change. The losses reflected are primarily due to current market conditions in which new issues of variable-rate trust preferred securities are priced at wider spreads than those in the Company’s portfolio. The reported losses will decline if the spreads for new issues decline. The unrealized loss in the equity securities reflects accumulated losses by a de novo bank during its start-up phase of operations. The loss has been steadily declining as the de novo bank’s earnings improve.

The unrealized gain or loss of the Company’s investment portfolio is primarily rate driven. The Company has the intent and the ability to hold all of the securities to maturity. The average life of the agency portfolio, which constitutes 65% of the total portfolio, is approximately 27.0 months, a relatively short portfolio by industry standards. Management has therefore determined that the unrealized losses in the investment portfolio are temporary.

(9)

NOTE 3 - PER SHARE DATA

Information relating to the calculations of earnings per common share (“EPS”) is summarized as follows:


	Three Months Ended September 30,
	2004				2003
*(dollars in thousands, except per share data)*	Basic		Diluted		Basic		Diluted
Net income	$	3,518	$	3,518	$	3,443	$	3,443

Weighted average shares outstanding		7,128		7,128		7,138		7,138
Dilutive securities		—		223		—		250

Adjusted weighted average shares used in EPS computation		7,128		7,351		7,138		7,388

Net income per common share	$	0.49	$	0.48	$	0.48	$	0.47


	Nine Months Ended September 30,
	2004				2003
*(dollars in thousands, except per share data)*	Basic		Diluted		Basic		Diluted
Net income	$	9,612	$	9,612	$	8,771	$	8,771

Weighted average shares outstanding		7,160		7,160		7,124		7,124
Dilutive securities		—		238		—		231

Adjusted weighted average shares used in EPS computation		7,160		7,398		7,124		7,355

Net income per common share	$	1.34	$	1.30	$	1.23	$	1.19

Antidilutive stock options excluded from the computation of earnings per share were 89,414 and 89,690 for the three months and nine months ended September 30, 2004. There were no antidilutive stock options excluded from the calculation of earnings per share for the three months or nine months ended September 30, 2003.

(10)

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. 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 September 30, 2004 whose contract amounts represent potential credit risk is as follows:


*(dollars in thousands)*	September 30, 2004
Commitments to extend credit (a)	$	553,763
Standby letters of credit		28,144

(a)

Includes all unused lines of credit totaling $491.0 million regardless of whether all fees are paid and whether adverse change clauses exist. The amount also includes commitments to extend new credit totaling $62.8 million.

NOTE 5 - NEW ACCOUNTING STANDARDS

In January 2003, the Financial Accounting Standards Board (the “FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“Interpretation No. 46”), which explains identification of variable interest entities and the assessment of whether to consolidate those entities. FIN 46 Revised (“FIN 46R”), issued in December 2003, replaces FIN 46. FIN 46R requires public entities to apply FIN 46 or FIN 46R to all entities that are considered variable interest entities in practice and under the FASB literature that was applied before the issuance of FIN 46 by the end of the first reporting period that ends after December 15, 2003. For any variable interest entities (“VIE”) that must be consolidated under FIN 46R, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the statement of condition and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. FIN 46R requires deconsolidation and re-characterization of the underlying consolidated debt obligation from the trust preferred securities obligation to the junior subordinated debenture obligation that exists between a company and its statutory trusts. In June 2004, the Company issued trust preferred securities through a wholly-owned statutory trust formed for that purpose. In accordance with FIN 46R, the statutory trust has not been consolidated with the holding company.

In November 2003, the Emerging Issues Task Force (“EITF”) of the FASB issued EITF Abstract 03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments” (“EITF 03-1”) effective for fiscal years ending after December 15, 2003. This abstract provides guidelines on the meaning of other-than-temporary impairment and its application to investments, in addition to requiring quantitative and qualitative disclosures in the financial statements. These disclosures have been included in note 2. In March 2004, the EITF issued a Consensus on Issue 03-1 (the “Consensus”) requiring that the provisions of EITF 03-1 be applied to cost-method investments for annual periods ending after June 30, 2004. The Consensus also requires several additional disclosures for cost-method investments. The recognition and measurement guidelines provided by the Consensus were scheduled to take effect in reporting periods beginning after June 15, 2004. The FASB has approved issuing a staff position, however, to delay the effective date for the requirement to record the impairment losses under EITF 03-1. The Company has implemented the guidelines of this Consensus (see note 2). Management does not anticipate that the adoption of the Consensus will have any impact on the Company’s financial statements.

(11)

In December 2003, the Accounting Standards Executive Committee (“AcSEC”) issued Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (“SOP 03-3”). SOP 03-3 is effective for loans acquired in fiscal years beginning after December 15, 2004. The SOP addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. The SOP does not apply to loans originated by the Bank. The Company is evaluating the requirements of implementation and plans to adopt the provisions beginning January 1, 2005.

In December 2003, The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was passed by Congress and signed into law. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that is at least actuarially equivalent to Medicare. At the same time, the FASB issued FASB Staff Position 106-1 (“FSP 106-1”) regarding accounting and disclosure requirements related to the act, which is effective for financial statements of fiscal years ending after December 7, 2003. FSP 106-1 provides that the sponsor of a post-retirement health care plan that provides a prescription drug benefit may make a one-time election to defer accounting for the effects of the Act. The Company does not currently have a post-retirement health care plan.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD – LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements included in this Quarterly Report on Form 10-Q, other than statements that are purely historical, are forward-looking statements. Statements that include the use of terminology such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “estimates” and similar expressions also identify forward-looking statements. The forward-looking statements are based on Columbia Bancorp’s current intent, belief and expectations. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to:

Part I - Note 2. Investments

•

Statement regarding anticipated changes in the fair market value of securities in relation to market rates.

Part I - Item 2. Liquidity

•

Statement regarding future cash requirements of commitments to extend credit.

•

Statement regarding the anticipation that the Company will continue to experience long-term growth in customer funding sources.

•

Statement regarding volatility of title company account balances.

Part I - Item 2. Market Risk and Interest Rate Sensitivity

•

Statements regarding challenges facing management in terms of interest rates and overall management of the net interest margin.

Part I - Item 2. Material Changes in Financial Condition

•

Statement regarding the possibility that potential problem loans could be reclassified in the future as nonperforming or impaired loans.

Part II – Item 1. Legal Proceedings

•

Statement regarding the impact on the Company of routine legal proceedings.

These statements and other forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that are difficult to predict. Actual results may differ materially from these forward-looking statements because of interest rate fluctuations, a deterioration of economic conditions in the Baltimore/Washington metropolitan area, a downturn in the real estate market, losses from impaired loans, an increase in nonperforming assets, potential exposure to environmental laws, changes in federal and state bank laws and regulations, the highly competitive nature of the banking industry,

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a loss of key personnel, changes in accounting standards and other risks described in the Company’s filings with the Securities and Exchange Commission. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Past results of operations may not be indicative of future results. Columbia Bancorp undertakes no obligation to update or revise the information contained in this Quarterly Report whether as a result of new information, future events or circumstances or otherwise.

THE COMPANY

Columbia Bancorp (the “Company”) 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 Columbia Bank (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 24 branch banking offices, as well as mortgage and commercial loan origination offices and 31 Automated Teller Machines. 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

Loan Portfolio Composition

The following table sets forth the Company’s loans by major categories as of September 30, 2004:


*(dollars in thousands)*	Amount		Percent
Real estate – development and construction	$	332,258	35.5	%
Commercial		229,589	24.5
Real estate – mortgage:
Residential		17,564	1.9
Commercial		158,585	16.9
Retail (a)		194,031	20.7
Other		4,056	0.5

Total loans	$	936,083	100.0	%

(a)

Includes $187.6 million in retail loans secured by the borrowers’ principal residences in the form of second mortgages and home equity lines of credit.

Real estate development and construction loans constitute the largest portion of the Company’s lending activities, totaling $332.2 million at September 30, 2004. 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.

At September 30, 2004, $229.6 million, or 24.5%, of the Company’s total loan portfolio consisted of commercial business loans. The commercial loan portfolio includes secured and unsecured term loans and lines of credit extended to small and mid-sized local businesses. The Company’s lending policy requires that each loan be evaluated for the adequacy of the repayment sources at the time of approval. The Company closely monitors the financial condition and cash flow of commercial borrowers, in part by reviewing 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. Collateral is generally required to provide the Company with an additional source of repayment in the event of default by a commercial borrower. The collateral requirements, including the amount and type of the collateral, varies from loan to loan depending on the financial strength of the borrower, but generally may include accounts receivable, inventory, equipment or other assets. It is also the Company’s general policy to obtain personal guarantees from the principals of the commercial loan borrowers.

The Company distributes its commercial loan portfolio over a wide range of industries. The largest industry represented by the Company’s commercial borrowers is professional and financial services, which comprises 16.8% of the total commercial loan portfolio. This diverse group includes a broad range of businesses, including law firms, accounting firms, engineering services, computer programming and armored car services. Companies engaged in real estate development and construction represent 11.7% of the total commercial loan portfolio, while the next 10.7% of the portfolio is comprised of businesses involved in real estate management and leasing. No other industry accounted for more than 10% of the total commercial loan portfolio at September 30, 2004.

The Company also originates mortgage loans secured by commercial real estate. At September 30, 2004, $158.6 million, or 16.9% of the Company’s total loan portfolio, consisted of commercial mortgage loans. Such loans generally involve investment properties secured by office buildings, retail buildings, warehouse and general-purpose business space. At September 30, 2004, $94.9 million, or 59.8%, of the commercial mortgage portfolio was comprised of loans secured by investment property. Loans secured by owner occupied property accounted for $63.7 million, or 40.2%, of total commercial mortgage loans at September 30, 2004. Although terms and amortization periods vary, the Company’s commercial mortgages generally have maturities or repricing opportunities of seven years or less.

The Company seeks to reduce the risks associated with commercial mortgage lending by generally lending in its market area, using conservative loan-to-value ratios (typically 75% to 80%) and obtaining periodic financial statements and tax returns from borrowers to perform annual loan reviews. It is also the Company’s general policy to obtain personal guarantees from the principals of the borrowers and to underwrite the business entity from a cash flow perspective.

At September 30, 2004, $194.0 million, or 20.7%, of the Company’s total loan portfolio consisted of retail loans. The Company offers a variety of retail loans to its customers; however, outstanding balances are primarily concentrated in home equity lines of credit and second mortgage loans, which totaled $168.1 million and $19.5 million, respectively, at September 30, 2004.

Home equity lines of credit are originated by the Company for typically up to 90% of the appraised value, less the amount of any existing prior liens on the property. Home equity loans have 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 terms ranging from ten to thirty years. They generally carry a fixed rate of interest for the entire term or 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. Properties securing new home equity lines of credit and second mortgage and home equity loans are appraised by a combination of internal and external appraisers.

The Company originates adjustable and fixed-rate residential mortgage loans in order to provide a full range of products to its customers. The Company generally offers mortgage loans under terms, conditions and documentation that permit their sale in the secondary mortgage market. The Company’s practice is to immediately sell substantially all residential mortgage loans in the secondary market with servicing released. At September 30, 2004, $17.6 million, or 1.9%, of the Company’s total loan portfolio consisted of residential mortgage loans.

For any mortgage loans retained by the Company, title insurance insuring the priority of its mortgage lien, as well as general liability, fire and extended coverage casualty insurance protecting the properties securing the loans are required. The Company may require borrowers to advance funds, with each monthly payment of principal and interest, to a loan escrow account from which the Company makes disbursements for items such as real estate taxes, hazard insurance premiums and mortgage insurance premiums. Outside appraisers approved by the Company appraise the properties securing all of the residential mortgage loans originated by the Company.

At September 30, 2004, other loans totaled $4.1 million, consisting primarily of unscheduled overdrafts of the Company’s retail and commercial customers.

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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 the unused portion of lines of credit (collectively “commitments”), which totaled $553.8 million at September 30, 2004. 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 construction, which totaled $287.1 million, or 51.8% of the $553.8 million, are generally short-term and turn over rapidly, satisfying cash requirements with principal repayments from sales of the properties financed. Commercial commitments totaled $125.8 million, or 22.7% of the $553.8 million, at September 30, 2004 and generally do not extend for more than 12 months. At September 30, 2004, available home equity lines totaled $128.2 million. Home equity credit lines generally extend for a period of 15 years and are reviewed annually. Commitments to extend credit for residential mortgage loans totaled $9.4 million at September 30, 2004.

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 in deposit and short-term borrowing balances 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 that may experience a higher degree of volatility with regard to outstanding balances, especially during periods of significant mortgage refinancing activity, as experienced in 2003, 2002 and 2001. In addition, month-end balances for these relationships tend to be inflated, as compared to balances throughout the month. At December 31, 2002, total title company relationships accounted for $106.4 million, or 12.1% of the total customer funding of $878.5 million. Mortgage refinancing activity began to decline during the fourth quarter of 2003. As a result, at December 31, 2003, total title company relationships accounted for $57.2 million, or 6.4% of the total customer funding of $887.9 million. At September 30, 2004, these accounts had increased to $98.6 million, or 9.4% of the total customer funding of $1.1 billion. The Company expects these title company balances to remain volatile during 2004.

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; although, as noted above, this source of liquidity is subject to extreme volatility. At September 30, 2004, total customer funding was $1.1 billion. Core deposits, defined as all deposits except certificates of deposit of $100,000 or more, totaled $857.4 million, or 81.4% 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 September 30, 2004, totaled $17.4 million, and federal funds sold and interest-bearing deposits with banks were $36.6 million.

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 of Atlanta (the “FHLB”), has an approved credit line equal to 20% 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 pledged collateral to the FHLB at September 30, 2004 sufficient to permit borrowing of up to $149.0 million. The Bank had additional collateral available to pledge to the FHLB at September 30, 2004 sufficient to permit total borrowing of up to $196.4 million. At September 30, 2004 outstanding advances from the FHLB totaled $20.0 million. The Bank also has an established borrowing capacity at the Federal Reserve Bank (the “FRB”). At September 30, 2004, the Bank had pledged sufficient collateral to borrow up to $46.9 million from the FRB; no balances were outstanding on that date.

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Capital Resources

Total stockholders’ equity was $90.1 million at September 30, 2004, representing an increase of $4.7 million or 5.4% from December 31, 2003. The growth of stockholders’ equity in the first nine months of 2004 was primarily attributable to the earnings of the Company of $9.6 million less dividends declared on common stock of $3.2 million and $2.4 million used to purchase 85,346 shares of the Company’s common stock. Capital was increased by $456,000 as a result of stock options exercised during the first nine months of 2004. The remaining $218,000 increase from December 31, 2003 represents the change in accumulated other comprehensive income resulting from an increase in the fair value of securities available-for-sale. Dividends declared for the first nine months of 2004 were $3.2 million, or $.45 per share, compared to $2.7 million, or $.375 per share, in 2003.

The following table summarizes the Company’s risk-based capital ratios:


	Columbia Bancorp				Minimum Regulatory Requirements
	September 30, 2004		December 31, 2003		Minimum Regulatory Requirements
Risk-based capital ratios:
Tier 1 capital	9.23	%	9.28	%	4.00	%
Total capital	10.35		10.45		8.00
Tier 1 leverage ratio	8.51		8.43		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.

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 September 30, 2004 and the Company’s interest sensitivity gap position at that date. The Company’s cumulative sensitivity gap through twelve months is a positive 6.34%. 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).

It is important to note that the table represents the static gap position for interest sensitive assets and liabilities at September 30, 2004. The table does not give effect to prepayments or extensions of loans as a result of changes in general market rates. Moreover, while the table does indicate the opportunities to reprice assets and liabilities within certain time frames, it does not account for timing differences that occur during periods of repricing. For example, changes to deposit rates tend to lag in a rising rate environment and lead in a falling rate environment.

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*(dollars in thousands)*	One Year Or Less			After One Through Three Years			After Three Years			Total
Federal funds sold and interest- bearing deposits with banks	$	36,615		$	—		$	—		$	36,615
Securities held-to-maturity and securities available-for-sale		17,446			83,230			49,778			150,454
Loans, exclusive of nonaccrual loans		679,447			58,566			199,939			937,952

Interest-earning assets		733,508			141,796			249,717			1,125,021

Interest-bearing deposits		517,756			136,152			15,342			669,250
Other borrowings		141,031			—			26,186			167,217

Interest-bearing liabilities		658,787			136,152			41,528			836,467

Interest sensitivity gap	$	74,721		$	5,644		$	208,189		$	288,554

Cumulative interest sensitivity gap	$	74,721		$	80,365		$	288,554

Cumulative interest sensitivity gap as a % of total assets		6.34	%		6.82	%		24.47	%

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. Fixed rate investments are scheduled according to contractual maturity, while variable rate securities are shown based on the next repricing date. 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. Second mortgage loans and home equity lines of credit are classified as one year or less, as these loans are expected to reprice within one year. Deposits that do not have a contractual maturity date, such as NOW, savings and money market accounts, are assumed to reprice or runoff in one year or less, given that interest rates are expected to rise. Penalty-free certificates of deposit are scheduled by stated maturity date. If rates begin to increase, a portion of these certificates may reprice prior to contractual maturity. Long-term advances from the FHLB are scheduled according to their maturity dates.

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. The Company also recognized that for evaluating interest rate risk in the current rate environment, a downward shift of 200 basis points is not practical. As a result, the simulation applied a 100 basis point shift downward

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and the upward shift remained at 200 basis points. The analysis measures the potential change in earnings and in the market value of portfolio equity over a one-year time horizon, captures optionality factors such as call features imbedded in investment and loan portfolio contracts, and includes assumptions as to the timing and magnitude of movements in interest rates associated with the Company’s funding sources not fixed in price.

During 2004, the Company further refined the loan data used in the simulation process. In prior periods, variable rate loans that had reached a pre-established interest rate floor were classified as fixed-rate loans, and, therefore, in an upward shock the income stream did not change. The simulation model can now identify at what point the interest rate of each of these loans will begin to float as rates rise, increasing the income earned on these loans accordingly. The result of this data refinement was an increase in net interest income in a 200 basis point upward shift of 9.4% for the June 30, 2004 data, as compared to the projection for the same period last year of 4.3%, representing an increase in net interest income over the next 12 months of approximately $4.5 million, compared to a $1.9 million increase in the prior year forecast. The economic value of equity, the difference between the change in assets and the change in liabilities, improved to –4.7% compared to –12.3% in the prior year forecast. In a 100 basis point decline in rates, net interest income is projected to fall 7.7%, or approximately $3.7 million, and the economic value of equity is projected to decline 7.0% based on June 30, 2004 data.

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.

Loans and Nonperforming Assets:

The table below presents a breakdown of loan balances:


*(dollars in thousands)*	September 30, 2004		December 31, 2003		Change		Annualized % Change
Real estate – development and and construction	$	332,258	$	283,599	$	48,659	22.9	%
Commercial		229,589		221,374		8,215	5.0
Real estate – mortgage:
Residential		17,564		16,349		1,215	9.9
Commercial		158,585		143,723		14,862	13.8
Retail		194,031		169,298		24,733	19.5
Other		4,056		1,504		2,552	226.7

Total loans	$	936,083	$	835,847	$	100,236	16.0	%

The strong loan growth experienced during 2003 continued through the first nine months of 2004, as total loans increased $100.2 million from December 31, 2003 to September 30, 2004, or 16.0% if presented on an annualized basis. This increase was supported primarily by the real estate development and construction

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loan portfolio and the retail loan portfolio, which demonstrated growth on an annualized basis of 22.9% and 19.5%, respectively. Real estate development and construction loans constitute the largest portion of the Company’s lending activities, totaling $332.3 million, or 35.5%, of the total loan portfolio at September 30, 2004. This category is comprised of loans for the construction of residential and commercial properties, including loans to individuals for construction of primary personal residences, and loans for the acquisition and development of land. Land acquisition loans generally represent loans for the acquisition of real estate to be developed into finished lots or for construction purposes. Loan balances are classified as land acquisition until the development or construction phase of the loan begins. Total real estate development and construction increased $48.7 million from December 31, 2003 to September 30, 2004. The growth in this portfolio has been supported by continued low interest rates through most of the nine month period ended September 30, 2004, and by a strong housing market in the Company’s primary lending area.

Commercial mortgages grew by $14.9 million since December 31, 2003, due primarily to the origination of five new loans with balances at September 30, 2004 of between $2.2 million and $5.0 million, accumulating to approximately $17.6 million. Total balances on commercial mortgage loans originated in 2004 exceeded $30 million at September 30, 2004. Retail loans, comprised principally of second mortgage loans and home equity lines of credit, increased $24.7 million, or 19.5%, from December 31, 2003 to September 30, 2004.

The Company believes that the continued strong loan growth exhibited by the loan portfolio in the nine months ended September 30, 2004 was the result of healthy market conditions in the Bank’s primary lending area, continued low interest rates and successful business development efforts.

The following table provides information concerning nonperforming assets and past-due loans:


*(dollars in thousands)*	September 30, 2004		December 31, 2003		September 30, 2003
Nonaccrual loans (a)	$	635	$	892	$	974
Other real estate owned		—		—		—

Total nonperforming assets	$	635	$	892	$	974

Accruing loans past-due 90 days or more	$	22	$	72	$	127

(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.

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At September 30, 2004, nonaccrual loans totaled $635,000, comprised primarily of five commercial relationships with loans totaling $563,000 million, of which $510,000 was guaranteed by the Small Business Administration. Also included in nonaccrual loans were five consumer loans carried at a total of $28,000 and one residential mortgage loan carried at $44,000.

Potential problem loans consist of loans that are currently performing in accordance with contractual terms but for which management has concerns about the ability of the obligor to continue to comply with repayment terms because of the obligor’s potential operating or financial difficulties. At September 30, 2004, loans of this type that are not included in the above table of nonperforming and past-due loans amounted to approximately $10.2 million, of which $797,000 is guaranteed by the Small Business Administration. The majority of the loans classified as potential problem loans represent commercial loan relationships. The largest of these relationships is a commercial loan totaling $3.6 million that is secured by real estate with an appraised value in excess of the carrying value of the loan. Another commercial loan included in potential problem loans is carried at $2.9 million and is secured by land with an appraised value well in excess of the carrying value of the loan. Depending on changes in the economy and other future events, these loans and others not presently identified as problem loans could be reclassified as nonperforming or impaired loans in the future.

A loan is determined to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. A loan is not considered impaired during a period of delay in payment if the Company expects to collect all amounts due, including past-due interest. The Company generally considers a period of delay in payment to include delinquency up to 90 days.

Impaired loans at September 30, 2004 totaled $563,000, of which $36,000 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 September 30, 2004, specific reserves assigned to impaired loans totaled $18,000. 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 evaluation, provisions are made to maintain the Allowance as a best estimate of inherent losses within the portfolio. The provision for credit loss was $192,000 and $692,000 for the three months and nine months ended September 30, 2004. The provision for credit loss was $1.1 million for the corresponding nine month period in 2003; there was no provision necessary during the three months ended September 30, 2003.

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 and commercial real estate 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

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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 actual loss history. 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 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.

At September 30, 2004, the Allowance was 1.23% of total loans, net of unearned income. The Allowance at September 30, 2004 is considered by management to be sufficient to address the credit losses inherent in the current loan portfolio. The changes in the Allowance are presented in the following table.


	Nine Months Ended September 30,
*(dollars in thousands)*	2004			2003
Allowance for credit losses - beginning of period	$	10,828		$	8,839
Provision for credit losses		692			1,050
Charge-offs		(250	)		(457	)
Recoveries		244			1,127

Allowance for credit losses – end of period	$	11,514		$	10,559

Allowance as a percentage of loans receivable, net of unearned income		1.23	%		1.32	%

Allowance as a percentage of nonperforming loans and loans past-due 90 days or more (a)		1,807.54	%		959.03	%

(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.

The Company uses the same factors to evaluate financial instruments with off-balance-sheet risk as it does for on-balance-sheet-risk. As of September 30, 2004, the reserve for losses associated with financial instruments with off-balance-sheet risk totaled $85,000. This reserve, like the Allowance, is reviewed regularly.

Prepaid Expenses and Other Assets:

Prepaid expenses and other assets includes an investment in unconsolidated entities totaling $1.1 million of which $820,000 represents a 20% investment in Delmarva Data Processing Center, Inc., as previously disclosed on the Current Report on Form 8-K dated February 11, 2004.

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Long-term Debt:

In June 2004, the Company issued subordinated debt to Columbia Bancorp Statutory Trust (the “Trust”) in the amount of $6.2 million. The Trust was formed for the purpose of issuing $6.0 million in Trust Preferred Securities and is a wholly-owned subsidiary of the Company. In accordance with FIN46R, the Trust has not been consolidated with the Company, and its financial position and results of operation are not included in the financial statements presented herein.

The Floating Rate Trust Securities issued by the Trust accrue interest at a variable rate of interest. The interest rate resets quarterly at a rate equal to LIBOR plus a pre-determined spread.

RESULTS OF OPERATIONS

The Company reported earnings for the nine months ended September 30, 2004 of $9.6 million, or $1.30 per diluted common share, compared to $8.8 million, or $1.19 per diluted share, for the same period in 2003, representing an increase of 9.6%.

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 nine months ended September 30, 2004 was 1.19%, compared to 1.21% for the corresponding period in 2003. 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 nine months ended September 30, 2004 was 14.50%, compared to 14.63% for the corresponding period in 2003.

Net Interest Income

Three Months Ended September 30, 2004:

Net interest income on a tax equivalent basis was $12.0 million for the three months ended September 30, 2004 as compared to $10.6 million for the three months ended September 30, 2003, an increase of $1.4 million, or 12.8%. The quarter-to-quarter increase was due largely to growth in average earning assets, mitigated by increased average balances in interest-bearing liabilities. The growth in average earning assets outpaced the growth in average interest-bearing liabilities as average earning assets increased $119.7 million, or 12.5%, and average interest-bearing liabilities increased $69.0 million, or 9.4%. In particular, average loans, the Company’s most profitable earning asset, increased $122.1 million, or 18.5%, for the three months ended September 30, 2004 as compared to the same period in 2003.

The net interest margin for the three months ended September 30, 2004 was 4.41%, compared to 4.39% for the same period in 2003. The yield on earning assets was 5.57% on average earning assets of $1.1 billion for the third quarter of 2004, compared to 5.45% on average earning assets of $959.2 million for the third quarter of 2003. The improvement in the yield on earning assets in 2004 was driven by higher yields on average loans during the quarter. These higher yields were largely the result of three increases in short term market interest rates, totaling 75 basis points, since June 30, 2004. In particular, the yield on average loans increased from 5.77% for the three months ended September 30, 2003 to 5.89% for the three months ended September 30, 2004. The rate paid on interest-bearing liabilities increased from 1.38% to 1.55% during the same period.

Interest income on a tax equivalent basis totaled $15.1 million for the three months ended September 30, 2004, compared to $13.2 million for the same period in 2003, an increase of $1.9 million, or 14.6%. Interest income on loans increased by $2.0 million, as average loans grew from $796.7 million at September 30, 2003 to $918.8 million at September 30, 2004, an increase of $122.1 million, or 18.5%, for the three months ended September 30, 2004 as compared to the same period in 2003. Average securities held-to-maturity and securities available-for-sale increased slightly from $139.2 million for the quarter ended September 30, 2003 to $140.1 million for the quarter ended September 30, 2004, while average federal funds sold decreased $3.3 million during the same period.

The increase in average earning assets was accompanied by an increase in the yields on earning assets, which improved from 5.45% from the quarter ended September 30, 2003 to 5.57% for the quarter ended September 30, 2004. Specifically, the yield on average loans increased from 5.77% to 5.89% and the yield on average federal funds sold increased from 0.95% to 1.29% for the three months ended September 30, 2004 as compared to the same period in 2003. The yield on average securities held-to-maturity and securities available-for-sale decreased to 4.07% in 2004, as compared to 4.34% in 2003.

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Interest expense increased $572,000 during the third quarter of 2004 as compared to the same period of 2003, due to an increase in average interest-bearing liabilities of $69.0 million, or 9.4%. Specifically, average interest-bearing deposits increased $81.7 million, or 14.1%, from the quarter ended September 30, 2003 to the same period in 2004. The growth in average deposits was fueled by an increase average certificates of deposit of $81.3 million from quarter to quarter. Average short-term borrowings declined from quarter to quarter, from $137.0 million at September 30, 2003 to $118.1 at September 30, 2004.

The average rate on interest-bearing liabilities increased 17 basis points from period to period to 1.55% at September 30, 2004, although there was significant variation within the portfolio. Short-term borrowings, which are sensitive to recent increases in short-term market rates, (a total of 75 basis points since June 30, 2004) reflected an increase in rates of 60 basis points, from 0.57% for the quarter ended September 30, 2003 to 1.17% for the same period for 2004. In contrast, certificates of deposit, which do not yet reflect the impact of the recent short-term rate increases, experienced a decline in rates, from 2.62% for the quarter ended September 30, 2003 to 2.42% during the quarter ended September 30, 2004 as compared to 2003.

Nine Months Ended September 30, 2004:

In the first nine months of 2004, net interest income on a tax-equivalent basis rose $3.5 million, from $30.4 million in 2003 to $33.8 million in 2004, as loans, the Company’s most profitable earning asset, continued to grow. At the same time, the cost of interest-bearing liabilities has continued to decline with the downward repricing of almost all deposit categories. Average loans, net of unearned income, grew $143.4 million, or 19.3%, for the nine months ended September 30, 2004 as compared to the same period in 2003. The increased interest income recognized as a result of the growth in the loan portfolio was sufficient to mitigate the effect of lower yields on earning assets during 2004 as compared to the same period in 2003, which slightly outpaced the declines of interest rates on interest-bearing liabilities. Most notably, the weighted average yield on loans decreased 23 basis points, from 6.00% for the nine months ended September 30, 2003 to 5.77% for the comparable period in 2004. The weighted average rate on interest-bearing liabilities decreased nine basis points during the nine month period, from 1.56% in 2003 as compared to 1.47% in 2004. As a result, the net interest margin for the first nine months of 2004 decreased only two basis points, from 4.41% in 2003 to 4.39% in 2004.

Interest income on a tax equivalent basis increased $3.7 million as a result of an increase in average loans, mitigated by a decrease in interest rates during the nine months ended September 30, 2004, as compared to the same period in 2003. Average loans, net of unearned income, increased from $742.4 million for the nine months ended September 30, 2003 to $885.8 million in 2004, an increase of $143.4 million, or 19.3%. The percentage of average loans also increased during 2004 as compared to 2003, from 80.7% of total earning assets for the nine months ended September 30, 2003 to 86.0% in 2004. The weighted average yield on loans decreased during the period, however, from 6.00% for the nine months ended September 30, 2003 to 5.77% for the same period in 2004. During the nine months ended September 30, 2004, securities held-to-maturity and securities available-for-sale decreased $25.4 million, and average federal funds sold and interest-bearing deposits with banks decreased $8.4 million, as compared to the nine months ended September 30, 2003. The average taxable-equivalent yield on interest-earning assets decreased during the period, from 5.61% for the nine months ended September 30, 2003 to 5.49% for the same period in 2004.

Interest expense increased slightly in 2004, from $8.2 million for the nine months ended September 30, 2003 to $8.5 million for the same period in 2004. Average interest-bearing liabilities increased $64.9 million, or 9.2%, from $703.6 million for the nine months ended September 30, 2003 to $768.5 million for the same period in 2004. Most notably, average certificates of deposit increased $64.8 million, or 23.4%, for the nine months ended September 30, 2004 as compared to 2003. During the same period, rate decreases in almost all customer-funding products resulted in a decline in the rate paid on interest-bearing liabilities from 1.56% for the nine months ended September 30, 2003 to 1.47% for the nine months ended September 30, 2004.

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The following table provides further analysis of the changes in net interest income:


	Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003									Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003
	Increase (Decrease)			Increase (Decrease) Due to (a)						Increase (Decrease)			Increase (Decrease) Due to (a)
*(dollars in thousands)*	Increase (Decrease)			Rate			Volume			Increase (Decrease)			Rate			Volume
Interest income:
Loans (b) (c)	$	4,910		$	(1,320	)	$	6,230		$	2,005		$	201		$	1,804
Securities held-to-maturity and securities available-for-sale		(1,121	)		(297	)		(824	)		(86	)		(96	)		10
Federal funds sold and interest- bearing deposits with banks		(86	)		(19	)		(67	)		9			18			(9	)

Total interest income		3,703			(1,636	)		5,339			1,928			123			1,805

Interest expense:
Deposits		5			(1,243	)		1,248			381			(126	)		507
Borrowings		232			158			74			191			139			52

Total interest expense		237			(1,085	)		1,322			572			13			559

Net interest income	$	3,466		$	(551	)	$	4,017		$	1,356		$	110		$	1,246

(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. Tax-exempt interest income is a non-GAAP financial measure as defined in Securities and Exchange Commission (“SEC”) Regulation G of the Code of Federal Regulation (“Regulation G”) and Item 10 of SEC Regulation S-K of the Securities Act of 1933 (“Regulation S-K”). Management believes that this measure is a more consistent indicator of operating performance than GAAP-based interest income.

The following tables set 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.


	Nine Months Ended September 30, 2004								Nine Months Ended September 30, 2003
*(dollars in thousands)*	Average Balances (a)			Interest			Rate		Average Balances (a)			Interest			Rate
*Assets*
Interest-earning assets:
Loans, net of unearned income (b) (c)	$	885,795		$	38,242		5.77	%	$	742,442		$	33,332		6.00	%
Securities held-to-maturity and securities available-for-sale (c)		121,973			3,889		4.26	%		147,375			5,010		4.55	%
Federal funds sold and interest- bearing deposits with banks		22,354			176		1.05	%		30,745			262		1.14	%

Total interest-earning assets		1,030,122			42,307		5.49	%		920,562			38,604		5.61	%

Noninterest-earning assets:
Cash and due from banks		32,703								30,599
Property and equipment, net		7,110								7,376
Other assets		18,676								16,558
Less: allowance for credit losses		(11,157	)							(9,413	)

Total assets	$	1,077,454							$	965,682

*Liabilities and Stockholders’ Equity*
Interest-bearing liabilities:
NOW accounts	$	88,257		$	94		0.14	%	$	90,228		$	88		0.13	%
Savings accounts		86,151			167		0.26	%		85,417			317		0.50	%
Money market accounts		112,843			402		0.48	%		111,240			570		0.69	%
Certificates of deposit		341,462			6,133		2.40	%		276,680			5,816		2.81	%
Short-term borrowings		117,538			797		0.90	%		120,011			639		0.70	%
Long-term borrowings		22,230			873		5.25	%		20,000			799		5.34	%

Total interest-bearing liabilities		768,481			8,466		1.47	%		703,576			8,229		1.56	%

Noninterest-bearing liabilities:
Noninterest-bearing deposits		213,725								170,472
Other liabilities		6,693								11,466
Stockholders’ equity		88,555								80,168

Total liabilities and stockholders’ equity	$	1,077,454							$	965,682

Net interest income – tax equivalent (d)					33,841								30,375
Tax equivalent adjustment to interest income					(811	)							(352	)

Net interest income				$	33,030							$	30,023

Net interest spread – tax equivalent (d)							4.02	%							4.05	%

Net interest margin – tax equivalent (d)							4.39	%							4.41	%

(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 $2.0 million and $1.5 million for the nine months ended September 30, 2004 and 2003, respectively.

(c)

Interest is presented on a taxable equivalent basis, adjusted for items exempt from federal tax.

(d)

Net interest income, net interest spread and net interest margin are presented on a tax equivalent basis. These are non-GAAP measures as defined in SEC Regulation G and Item 10 of SEC Regulation S-K. Management believes that these values are better indicators of operating performance than GAAP-based measures and better tools for managing net interest income.

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	Three Months Ended September 30, 2004								Three Months Ended September 30, 2003
*(dollars in thousands)*	Average Balances (a)			Interest			Rate		Average Balances (a)			Interest			Rate
*Assets*
Interest-earning assets:
Loans, net of unearned income (b) (c)	$	918,790		$	13,597		5.89	%	$	796,685		$	11,592		5.77	%
Investment securities and securities available-for-sale (c)		140,143			1,435		4.07	%		139,201			1,521		4.34	%
Federal funds sold and interest- bearing deposits with banks		20,056			65		1.29	%		23,355			56		0.95	%

Total interest-earning assets		1,078,989			15,097		5.57	%		959,241			13,169		5.45	%

Noninterest-earning assets:
Cash and due from banks		32,983								29,824
Property and equipment, net		6,969								7,848
Other assets		19,364								16,795
Less: allowance for credit losses		(11,382	)							(9,956	)

Total assets	$	1,126,923							$	1,003,752

*Liabilities and Stockholders’ Equity*
Interest-bearing liabilities:
NOW accounts	$	89,532		$	34		0.15	%	$	92,491		$	23		0.10	%

Savings accounts		87,754			56		0.25	%		88,099			60		0.27	%
Money market accounts		120,784			159		0.52	%		117,067			133		0.45	%
Certificates of deposit		361,653			2,201		2.42	%		280,345			1,853		2.62	%
Short-term borrowings		118,077			346		1.16	%		137,021			198		0.57	%
Long-term borrowings		26,186			335		5.09	%		20,000			292		5.79	%

Total interest-bearing liabilities		803,986			3,131		1.55	%		735,023			2,559		1.38	%

Noninterest-bearing liabilities:
Noninterest-bearing deposits		228,429								182,221
Other liabilities		4,778								4,006
Stockholders’ equity		89,730								82,502

Total liabilities and stockholders’ equity	$	1,126,923							$	1,003,752

Net interest income – tax equivalent (d)					11,966								10,610
Tax equivalent adjustment to interest income					(264	)							(118	)

Net interest income				$	11,702							$	10,492

Net interest spread – tax equivalent (d)							4.02	%							4.07	%

Net interest margin – tax equivalent (d)							4.41	%							4.39	%

(a)

Average balances are calculated as the daily average balances.

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(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 $815,000 and $537,000 for the three months ended September 30, 2004 and 2003, respectively.

(c)

Interest is presented on a taxable equivalent basis, adjusted for items exempt from federal tax.

(d)

Noninterest Income

Noninterest income totaled $1.7 million for the quarter ended September 30, 2004, as compared to $2.7 million for the same period in 2003, a decrease of $1.0 million, or 37.4%. This variance from quarter to quarter was primarily the result of lower gains and fees on sales of mortgage loans, which decreased $877,000 as compared to the three months ended September 30, 2004. The Company had anticipated a reduction in revenue from mortgage loan sales corresponding to decreased mortgage origination activity associated with a significant decline in mortgage refinancing.

Noninterest income totaled $5.3 million for the nine months ended September 30, 2004, as compared to $7.1 million for the corresponding period in 2003. The $1.8 million decrease in noninterest income during the first nine months of 2004 as compared to the same period of 2003 was due primarily to a decline in revenue on mortgage loan sales of $1.5 million, which resulted from decreased mortgage origination activity

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associated with a significant decline in mortgage refinancing. Adding to the period-to-period variance was approximately $200,000 in one-time loan collateral release fees and prepayment penalties that were recognized as income in the first half of 2003.

Noninterest Expense

Noninterest expense decreased $180,000, or 2.3% for the quarter ended September 30, 2004 as compared to the same period in 2003, as the Company continued to effectively leverage its overhead. Salaries and benefits, the largest component of noninterest expense, decreased $200,000, or 4.7%, primarily due to the reduction in the liability for the Company’s Deferred Compensation Plan as a result of the decline in the price of the Company’s common stock during the period. Marketing expense decreased $132,000, or 48.9%, while professional fees increased $89,000, or 51.1%, during the three months ended September 30, 2004 as compared to the same period in 2003 due to increased costs associated Sarbanes Oxley compliance. Other noninterest expenses increased $205,000, or 16.9%, during the third quarter of 2004 as compared to the same quarter of 2003, due in part to a $60,000 loss resulting from a branch robbery. In addition, credits were received in the third quarter of 2003 related to the final resolution of the sale of the Company’s portfolio of VISA loans, as well as in relation to a personal property tax audit.

Noninterest expense increased only $300,000, or 1.4%, for the nine months ended September 30, 2004, as compared to the same period in 2003. Salaries and benefits, the largest category of noninterest expense, remained relatively flat as compared to the nine months ended September 30, 2003 due to the reduction in the liability for the Company’s Deferred Compensation Plan as a result of the decline in the price of the Company’s common stock during the period. Other noninterest expenses increased $318,000, or 12.6%, due to a $60,000 loss resulting from a branch robbery and increased business development expenses in the nine months ended September 30, 2004 as compared to the same period in 2003. In addition, credits were received in the third quarter of 2003 related to the final resolution of the sale of the Company’s portfolio of VISA loans, as well as in relation to a personal property tax audit. Data processing increased $118,000 in 2004 as compared to the same period in 2003 due to increased costs associated with internet banking and technology upgrades. Marketing expenses decreased $103,000 during the nine months ended September as compared to the same period in 2003.

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.

ITEM 4. CONTROLS AND PROCEDURES

Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our internal disclosure controls and procedures as of September 30, 2004. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required in this Quarterly Report on Form 10-Q has been appropriately recorded, processed, summarized and reported. Based on that evaluation, our principal executive and financial officers have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

On September 17, 2004, the Company converted to and commenced the use of a new core banking processing system, which included an integrated general ledger/accounting system. In connection with this implementation, certain internal control and accounting processes were modified. Management believes that the modifications to these processes maintained or enhanced the level and quality of our internal controls and no corrective actions with regard to significant deficiencies and material weaknesses have been needed. Our management, including our principal executive and principal financial officers, has evaluated any changes in our internal control over financial reporting that occurred during the three months ended September 30, 2004, and has concluded that there was no change that occurred during the three months ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

(27)

PART II

ITEM 1. LEGAL PROCEEDINGS

The Company is party to legal actions that are routine and incidental to its business. In management’s opinion, the outcome of these matters, individually and in the aggregate, will not have a material adverse impact on the results of operations or financial position of the Company.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES


Period	Total Shares Purchased (1)	Average Price Paid per Share		Total Shares Purchased as Part of Publicly Announced Program	Maximum # of Shares that May Yet Be Purchased Under the Program (1)
July 1 – July 31, 2004	—	$	—	—	357,954
August 1 – August 31, 2004	24,800		27.50	24,800	333,154
September 1 – September 30, 2004	4,950		29.14	4,950	328,204

	29,750	$	27.77	29,750	328,204

(1)

All share purchases were made pursuant to the Stock Repurchase Plan announced in October 2000, authorizing the purchase of up to 500,000 shares of the Company’s Common Stock. The plan has no expiration date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

On September 28, 2004, the Board of Directors of the Company declared a $.15 per share cash dividend to common stockholders of record on October 13, 2004, payable October 25, 2004.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits


(31.1)		Rule 13a-14(a) Certification by the Principal Executive Officer

(31.2)		Rule 13a-14(a) Certification by the Principal Financial Officer

(32.1)		Certification by the Principal Executive Officer of the periodic financial reports, required by Section 906 of the Sarbanes-Oxley Act of 2002.

(32.2)		Certification by the Principal Financial Officer of the periodic financial reports, required by Section 906 of the Sarbanes-Oxley Act of 2002.

(b)

Reports on Form 8-K

On October 6, 2004, the Company furnished information pursuant to Item 5.02(d) of Form 8-K, reporting the election of James J. Winn, Jr. as a Director.

On October 27, 2004, the Company furnished information pursuant to Item 2.02 of Form 8-K, reporting third quarter 2004 financial results.

(28)

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:

November 8, 2004 Date				/s/ John M. Bond, Jr.
November 8, 2004 Date				John M. Bond, Jr.
				Chairman and Chief Executive Officer

				PRINCIPAL FINANCIAL AND
				ACCOUNTING OFFICER:

November 8, 2004 Date				/s/ John A. Scaldara, Jr.
November 8, 2004 Date				John A. Scaldara, Jr.
				President,
				Chief Operating Officer and
				Chief Financial Officer

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