Summary of COLUMBIA BANCORP \OR\

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains various forward-looking statements that are intended to be covered by the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements include statements about our present plans and intentions, about our strategy, growth, and deployment of resources, and about our expectations for future financial performance. Forward-looking statements sometimes are accompanied by prospective language, including words like "may," "will," "should," "expect," "anticipate," "estimate," "continue," "plans," "intends," or other similar terminology.
Because forward-looking statements are, in part, an attempt to project future events and explain current plans, they are subject to various risks and uncertainties, which could cause our actions and our financial and operational results to differ materially from those projected in forward-looking statements. These risks and uncertainties include, without limitation, the factors discussed in Part II - Section 1A - "Risk Factors." Information presented in this report is accurate as of the date the report is filed with the SEC. We do not undertake any duty to update our forward-looking statements or the factors that may cause us to deviate from them, except as required by law.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
"Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as disclosures included elsewhere in this Form 10-Q, are based upon consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, management evaluates the estimates used, including the adequacy of the allowance for loan losses, impairment of intangible assets, contingencies and litigation. Estimates are based upon historical experience, current economic conditions and other factors that management considers reasonable under the circumstances. These estimates result in judgments regarding the carrying values of assets and liabilities when these values are not readily available from other sources as well as assessing and identifying the accounting treatments of commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions. The following critical accounting policies involve the more significant judgments and assumptions used in the preparation of the consolidated financial statements.
Allowance for Loan Losses
Our allowance for loan losses represents our estimate of probable losses associated with our loan portfolio and deposit account overdrafts as of the reporting date. Management evaluates the amount of our allowance each quarter in a manner consistent with the Interagency Policy Statement issued by the Federal Financial Institutions Examination Council (FFIEC) and with FASB SFAS Nos. 5 and
114. In determining the level of the allowance, we estimate losses inherent in all loans and evaluate individual classified and non-performing loans to determine the amount, if any, necessary for a specific reserve. Certain loans have been stress tested for potential impairment whether or not currently performing according to terms; these loans may require a specific allocation based on historical loss rates and other subjective factors, to the extent that impairment is not identified. Loans not evaluated for impairment and not requiring a specific allocation because the loan is determined not to be impaired, are subject to a general allocation based on historical loss rates and other subjective factors. An important element in determining the adequacy of the allowance is an analysis of loans by loan risk rating categories. We regularly review our loan portfolio to evaluate the accuracy of risk ratings throughout the life of loans.

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Our methodology for estimating inherent losses in the portfolio takes into consideration all loans in our portfolio, segmented by industry type and risk rating, and utilizes a number of subjective factors in addition to historical loss rates. Subjective factors include: the economic outlook on both a national and regional level; the volume and severity of non-performing loans; the nature, value and estimated liquidity of collateral securing the loans; trends in loan growth; concentrations with individual and interrelated borrowers, industries and geographic regions; and competitive issues that impact loan underwriting. Increases to the allowance occur when we expense amounts to the provision for loan losses or when we recover previously charged-off loans or overdrafts. We reduce the allowance when we charge-off loans or overdrafts that are deemed uncollectible, although we do not necessarily cease collection activities when a loan is charged-off. We determine the appropriateness and amount of these charges by assessing the risk potential in our portfolio on an ongoing basis. Loan charge-offs do not result in the recognition of additional expense, unless the amount of a loan charge-off exceeds the loss amount previously provided for in the allowance for loan losses.
On loans of either a larger size or troubled industry classification, we also may perform an individual risk analysis on specific performing loans. This individual analysis may include factors such as an updated review of the value of the collateral securing the loan, the geographic location of the loan, the expected or potential cash flows from the borrowers operations, the relative strength and liquidity of the guarantors and the past payment performance on the loan. If existing collateral appraisals or evaluations are, in our opinion, dated or stale, we will typically obtain new appraisals or evaluations and these new values will be used to evaluate the risk of the loan and resulting provision for loan losses. Furthermore, in cases where the cash flow or liquidity of the borrower has been eliminated or there is an absence of guarantor strength, we may deem the loan to be totally collateral dependent. In such cases, if the analysis of the net realizable value of the loan collateral is determined to be deficient, that deficiency is charged-off.
The liability for off-balance-sheet financial instruments represents our best estimate of probable losses associated with off-balance-sheet financial instruments, which consist of commitments to extend credit, commitments under credit card arrangements, and commercial and standby letters of credit. The liability is included as a component of "Accrued interest payable and other liabilities" on our balance sheet.
We evaluate the adequacy of the liability for credit losses from off-balance-sheet financial instruments based upon reviews of individual credit facilities, current economic conditions, the risk characteristics of the various categories of commitments and other relevant factors. The liability is based on estimates, which are evaluated on a regular basis, and, as adjustments become necessary, they are reported in earnings in the periods in which they become known.
Approximately 75%, or $585.71 million, of our loan portfolio is secured by real estate collateral. Within the total balance of loans secured by real estate, certain loans are designated as construction credits. Of these, $66.76 million is secured by commercial property under construction (office buildings, warehouse, commercial lot pads, etc.) and $151.99 million is secured by residential property under construction (residential subdivisions, 1-4 family dwellings, homes under construction by developers, etc.). We are actively monitoring residential and commercial real estate values in all of our market regions. The residential markets have declined significantly in our Central Oregon and Portland-Vancouver metropolitan markets. Some of our more rural eastern Oregon and Washington markets have remained stable or experienced only minor declines. Although commercial real estate markets are also softening, only Central Oregon has demonstrated significant distress at this time. In addition, due to the downturn in national and regional real estate sales, a number of our residential real estate construction and acquisition and development customers have been unable to sell existing inventories in the normal course of business and the repayment of these loans is now solely dependent on the liquidation of the collateral. Many of the loans of this nature were written down to their estimated fair market value less estimated costs to sell, resulting in significant charge-offs during the year ended December 31, 2008 and continuing into the first half of 2009.

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Income Taxes
We estimate tax expense based on the amount we expect to owe various taxing authorities in the current and future periods for transactions arising during the current period. Accrued and/or refundable income tax represent the net estimated amount due or to be received from taxing authorities. In estimating accrued taxes and refundable taxes, we assess the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory, judicial and regulatory guidance in the context of our tax position. The determination of our ability to fully utilize our deferred tax assets requires significant judgment, the use of estimates and the interpretation of complex tax laws. During the three month period ended June 30, 2009, we determined that it is not "more likely than not" that we would be able to fully recognize our net deferred tax assets. Therefore, we established a valuation allowance to reduce our net deferred tax assets to zero.
OVERVIEW
Columbia Bancorp ("Columbia") is a bank holding company organized in 1996 under Oregon Law. Columbia's common stock is traded on the Nasdaq Global Select Market under the symbol "CBBO." Columbia's wholly-owned subsidiary, Columbia River Bank ("CRB" or the "Bank"), is an Oregon state-chartered bank, headquartered in The Dalles, Oregon, through which substantially all business is conducted. CRB offers a broad range of services to its customers, primarily small and medium sized businesses and individuals.
We have a network of 21 full-service branches throughout Oregon and Washington. In Oregon, we operate 14 branches. These branches serve the northern and eastern Oregon communities of The Dalles, Hood River, Pendleton and Hermiston, the central Oregon communities of Madras, Redmond, and Bend, and the Willamette Valley communities of McMinnville, Canby and Newberg. In Washington, we operate seven branches. These branches serve the communities of Goldendale, White Salmon, Pasco, Yakima, Sunnyside, Richland and Vancouver. Strategic Initiatives:
During the second quarter of 2009, we completed the previously announced plan to relocate our operations center from Vancouver, Washington to The Dalles, Oregon and additional staff reductions, including two executive officer positions. Combined with other restructuring and staff reductions late in 2008, these reductions are expected to yield annual salary savings of approximately $3.00 million.
A primary business strategy has been a continuing focus on improving credit quality and resolving non-performing assets. During the second quarter we added two additional experienced problem credit officers to our Special Assets Team and realigned the Special Asset and Real Estate Risk Management teams to better facilitate the sale of foreclosed bank owned properties. One benefit of this realignment is to provide assistance to borrowers who want to sell troubled real estate collateral prior to the bank taking possession of such property. This strategy provides one more method to work out of troubled situations instead of foreclosure. At the end of the second quarter we made a strategic decision to engage a dedicated real estate broker responsible for coordinating the marketing efforts of our other real estate owned. The agreement with the broker was finalized in July 2009.

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Financial Overview:
The following table presents an overview of our key financial performance
indicators:
Key Financial Performance Indicators:
(dollars in thousands except per share data)

                                       As of and for the                                   As of and for the
                                  Three Months Ended June 30,                          Six Months Ended June 30,
                                                                 %                                                    %
                              2009              2008          Change            2009               2008            Change
Return on average
assets                           -8.81 %         -0.08 %                           -5.69 %             0.19 %
Return on average
equity                         -148.91 %         -0.80 %                          -90.06 %             1.98 %
Average equity to
average assets                    5.92 %          9.65 %                            6.32 %             9.83 %
Net interest margin,
tax equivalent basis              2.74 %          4.57 %                            2.71 %             4.86 %
Efficiency ratio                118.82 %         65.84 %                          120.10 %            66.70 %

Net income (loss)          $   (23,281 )       $  (205 )        11257 %      $   (30,183 )      $     1,013          -3080 %
Earnings (loss) per
diluted common share       $     (2.31 )       $ (0.02 )        11450 %      $     (3.00 )      $      0.10          -3100 %
Total gross loans (1)                                                        $   799,563        $   942,610            -15 %
Total assets                                                                 $ 1,067,934        $ 1,109,324             -4 %
Deposits                                                                     $   992,696        $   939,410              6 %

Book value per common
share                                                                        $      4.48        $     10.14            -56 %
Tangible book value
per common share                                                             $      4.48        $      9.41            -52 %

(1) Includes loan portfolio and loans held-for-sale and excludes allowance for loan losses and unearned loan fees.

The decrease noted in earnings per share was primarily due to an increase in the provision for loan losses, the valuation allowance recorded against deferred tax assets, the effect of net interest margin compression and increases in non-interest expenses related to the increase in FDIC premiums.
Significant items as of and for the three months ended June 30, 2009 were as follows:
� Rebalanced assets and liabilities. In part as a result of our strategic plan to re-balance our assets and liabilities and focus closely upon our asset quality, gross loans decreased by $64.44 million from December 31, 2008, as we exited certain market sectors and customer relationships, and either reclassified troubled loans to other real estate owned ("OREO") or charged-off loans against our allowance for loan losses. Gross loans decreased $36.75 million or 4% from March 31, 2009 for the same reasons.

� Non-performing assets ("NPAs") of $122.65 million, or 11% of total assets. Non-accrual loans comprised $111.31 million, or 91%, of NPAs. The remaining balance of $11.30 million, or 9%, was comprised of properties held as OREO. Of the non-accrual loans, $65.61 million, or 59% of the total are loans secured by residential real estate construction properties, $7.77 million or 7% are loans secured by residential home loans, $17.45 million or 16% are loans secured by commercial real estate, $11.85 million, or 11% are loans secured by agricultural farmland, and the remaining $8.63 million, or 7% are loans secured by other miscellaneous asset types.

� Loan loss provision of $14.40 million. Our provision for loan losses increased $4.70 million, or 48%, compared to $9.70 million recognized during the first quarter of 2009, as we continue to experience declining asset quality concentrated in our Central Oregon and Willamette Valley markets. Our second quarter loan loss provision increased by $8.75 million, or 155%, compared to the second quarter of 2008. Continuing declines in asset quality are primarily attributable to the general deterioration of credit quality indicators in our residential construction portfolio.

� Repaid $28.57 million of brokered deposits and borrowings. We paid off higher-cost wholesale borrowings and deposits using available liquid assets and retail deposits gathered over the last several months, and have concentrated heavily on maintaining retail deposits. During the quarter, deposits increased $55.49 million primarily due to non-branch deposits obtained from online rate listing services.

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� Higher FDIC premiums. FDIC premiums and state assessments totaled $1.41 million for the three months ended June 30, 2009, an increase of $1.25 million, in comparison to the same period in 2008. The increase is a result of increases in premium assessments imposed by the FDIC, which is based on our voluntary participation in the Treasury Liability Guarantee Program ("TLGP") and the FDIC's rates applicable to banks in our regulatory classification as of March 31, 2009. In addition, premiums increased due to a special assessment assessed on all financial institutions during the quarter totaling 0.05% of total assets, or approximately $496,000. The special assessment is intended to re-build the federal financial institutions insurance fund following the rise in financial institution failures in 2008 and the first quarter of 2009.

� Reduced salaries and employee benefits. Salaries and employee benefits decreased 9%, or $457,000, for the three months ended June 30, 2009 in comparison to the same period in 2008. Contributing to the decrease was the cost cutting measure to discontinue the 401(k) match along with the overall reduction in full-time equivalents ("FTE"). FTEs have decreased by 93, or 22%, from 407 FTEs as of June 30, 2008 to 314 FTE's as of June 30, 2009. We have made strategic efforts to reduce our salary and benefit expense, while maintaining high quality customer service; as such many of the FTE reductions were made in areas not affecting our service delivery. Included in the decrease in FTE's were two executive positions, eliminated as part of a strategic re-alignment. As we continue to actively manage our growing non-performing asset portfolio, we expect to hire additional employees and experts to assist where necessary. These additional resources may offset a portion of our previously expected savings.

� Net interest margin lower due to interest rate cuts and higher levels of non-accrual loans. Compared to the three months ended June 30, 2008, our net interest margin decreased for the three months ended June 30, 2009. The decrease is primarily attributable to the impact of Federal Funds rate cuts since June 30, 2008, the effect of reversing previously recognized interest on loans placed on non-accrual status along with the loss of interest on existing non-accrual loans, and the shift from higher yielding loans to lower yielding cash and liquid investments. During the three months ended June 30, 2009, approximately $2.66 million of interest income was not recognized for loans on non-accrual status. This resulted in a 109 basis point reduction in our net interest margin for the three months ended June 30, 2009. During the six months ended June 30, 2009, approximately $4.20 million of interest income was not recognized for loans on non-accrual status. This resulted in an 85 basis point reduction in our net interest margin for the six months ended June 30, 2009.

� Established valuation allowance against deferred tax assets. During the second quarter of 2009, we recognized a valuation allowance against previously recognized deferred tax assets totaling $12.00 million, bringing our net deferred tax assets to zero. Recognition of the valuation allowance resulted primarily from significant losses incurred during 2008 and the first half of 2009.

RESULTS OF OPERATIONS
Net Income (Loss)
Net loss for the three months ended June 30, 2009 totaled $23.28 million, or $2.31 per share, which represents a decrease of $16.38 million from a net loss of $6.90 million, or $0.69 per share, for the three months ended March 31, 2009, and a decrease of $23.08 million from a net loss of $205,000 for the three months ended June 30, 2008.
For the six months ended June 30, 2009, net loss totaled $30.18 million, or $3.00 per share, which represents a decrease of $31.19 million from net income of $1.01 million, or $0.10 per share, for the same period in 2008. Net losses for the second quarter of 2009 are primarily related to $14.40 million of provision for loan losses and the establishment of $12.00 million valuation allowance against deferred tax assets.

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Net Interest Income
Net interest income, our primary source of operating income, is the difference between interest income and interest expense. Interest income is earned primarily from our loan and investment security portfolios. Interest expense results primarily from customer deposits and borrowings from other sources, including Federal Home Loan Bank advances and wholesale deposits. Like most financial institutions, our net interest income increases when we are able to charge higher interest rates on loans while paying relatively lower interest rates on deposits and other borrowings.
The following table presents a comparison of average balances and interest rates:
Net Interest Income Average Balances and Rates:
(dollars in thousands)

                                       Three Months Ended June 30,                             Three Months Ended June 30,
                                            Average Balances                               Average Yields/Costs Tax Equivalent
                                2009               2008             Change              2009                  2008            Change
Taxable securities           $    34,324        $    21,067        $  13,257                2.43 %                4.70 %        -2.27 %
Nontaxable securities
(1)                                5,677              8,776           (3,099 )              5.50 %                6.96 %        -1.46 %
Interest bearing
deposits                          44,892             18,720           26,172                0.11 %                2.44 %        -2.33 %
Federal funds sold                79,522             22,783           56,739                0.28 %                2.02 %        -1.74 %
Loans (2) (3)                    824,217            921,096          (96,879 )              5.80 %                7.04 %        -1.24 %

Interest earning assets          988,632            992,442           (3,810 )              4.98 %                6.79 %        -1.81 %

Non-earning assets                71,405             70,611              794


Total assets                 $ 1,060,037        $ 1,063,053        $  (3,016 )


Savings & interest
bearing deposits             $   309,462        $   368,791        $ (59,329 )              1.41 %                1.82 %        -0.41 %
Time certificates                469,978            330,215          139,763                3.64 %                4.25 %        -0.61 %
Borrowed funds                    23,428             47,545          (24,117 )              3.03 %                2.72 %         0.31 %

Interest bearing
liabilities                      802,868            746,551           56,317                2.76 %                2.95 %        -0.19 %

Non-interest bearing
demand deposits                  184,201            207,741          (23,540 )
Other liabilities                 10,258              6,126            4,132
Shareholders' equity              62,710            102,635          (39,925 )

Total liabilities and
shareholders' equity         $ 1,060,037        $ 1,063,053        $  (3,016 )




                                         Six Months Ended June 30,                              Six Months Ended June 30,
                                             Average Balances                              Average Yields/Costs Tax Equivalent
                                 2009               2008             Change             2009                 2008            Change
Taxable securities            $    33,198        $    22,038        $  11,160               2.49 %              4.69 %         -2.20 %
Nontaxable securities               6,091              8,889           (2,798 )             6.93 %              7.00 %         -0.07 %
Interest bearing
deposits                           42,251             19,033           23,218               0.15 %              2.82 %         -2.67 %
Federal funds sold                 79,644             24,241           55,403               0.26 %              2.62 %         -2.36 %
Loans                             839,931            906,410          (66,479 )             5.84 %              7.51 %         -1.67 %

Interest-earning assets         1,001,115            980,611           20,504               5.02 %              7.23 %         -2.21 %

Nonearning assets                  68,424             66,506            1,918


Total assets                  $ 1,069,539        $ 1,047,117        $  22,422


Savings & interest
bearing deposits              $   308,206        $   357,431        $ (49,225 )             1.50 %              1.96 %         -0.46 %
Time certificates                 469,924            342,402          127,522               3.82 %              4.50 %         -0.68 %
Borrowed funds                     27,144             31,423           (4,279 )             2.96 %              2.77 %          0.19 %

Interest bearing
liabilities                       805,274            731,256           74,018               2.90 %              3.19 %         -0.29 %

Non-interest bearing
demand deposits                   188,563            206,710          (18,147 )
Other liabilities                   8,120              6,195            1,925
Shareholders' equity               67,582            102,956          (35,374 )

Total liabilities and
shareholders' equity          $ 1,069,539        $ 1,047,117        $  22,422

(1) In calculation of average yield, tax-exempt income has been adjusted to a tax-equivelant basis at a rate of 35%.

(2) Non-accrual loans and loans held-for-sale are included in the average balance.

(3) Loan fee income is included in interest income and in calculation of average yield, three months and six months ended June 30; 2009, $106, $127; 2008, $489, $835.

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Net interest margin (net interest income as a percentage of average earning assets) measures how well a bank manages its asset and liability pricing and duration, but is also subject to fluctuations in the volume of earning assets, particularly during economic times in which loan performance deteriorates on a widespread basis. Our tax equivalent net interest margin measured 2.74% and 2.71% for the three and six months ended June 30, 2009, respectively, compared . . .