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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-23322
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CASCADE BANCORP
(Name of registrant as specified in its charter)
Oregon 93-1034484
(State of Incorporation) (I.R.S. Employer Identification #)
1100 NW Wall Street, Bend, Oregon 97701
(Address of principal executive offices) (Zip Code)
(541) 385-6205
(Registrant's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant: (1) 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. $112,455,302 AGGREGATE MARKET VALUE AS OF MARCH 10, 1998, BASED ON THE
AVERAGE BID AND ASKED PRICE.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date. 4,144,862 SHARES OF NO
PAR VALUE COMMON STOCK MARCH 10, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Part II incorporates information by reference from the issuer's Annual Report
to Shareholders for the fiscal year ended December 31, 1997. Part III is
incorporated by reference from the issuer's definitive proxy statement for the
annual meeting of shareholders to be held on April 27, 1998.
CASCADE BANCORP
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
PART I Page
Item 1. DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . .3
Item 2. DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . . . . . . . 21
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . 22
PART II
(Items 5, 7, and 8 are incorporated by reference from
Cascade Bancorp's 1997 Annual Report to Shareholders)
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . 22
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . 22
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION .. . . . . . . . . . . . . . 22
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK. . . . . . . . . .. . . . . . . . . . . . . . . . . 22
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . 22
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . 22
PART III
(Items 10 through 13 are incorporated by reference from
Cascade Bancorp's definitive proxy statement for the
annual meeting of shareholders to be held on April 27,
1998.)
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . 23
Item 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . 23
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . 23
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . 23
Index to Consolidated Financial Statements . . . . . . . . . . 25
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PART I
ITEM 1. DESCRIPTION OF BUSINESS
COMPANY
Cascade Bancorp (Bancorp) is a bank holding company formed in 1990 and
is headquartered in Bend, Oregon. Bancorp's wholly-owned subsidiaries are
Bank of the Cascades,(the " Bank"), a state chartered, federally- insured
commercial bank and Cascade Finance which is a consumer finance company,
(collectively, "the Company"). At December 31, 1997 the Company had total
consolidated assets of $243 million, net loans of $153 million, and deposits
of $211 million.
BANK
The Bank was chartered as a state bank in March 1976 and opened for
business in February 1977. The Bank serves individuals, small and
medium-sized businesses, and professionals located in and adjacent to the
communities of Bend, Redmond, Sunriver, Sisters and Prineville, in Deschutes
and Crook County, Oregon. Through its eight branches, the Bank offers a broad
range of commercial and personal banking services to its customers. The Bank
focuses its lending activities primarily on small to medium-sized businesses
in diversified industries. In addition, the Bank provides real estate
construction and development loans, municipal and industrial loans, consumer
loans, and originates and sells residential mortgage loans. The Bank's
headquarters is located in downtown Bend, Oregon. The headquarters includes
administrative offices, a mortgage lending office, and a separate data
processing and drive-up facility.
CASCADE FINANCE
Cascade Finance opened in January 1997 and is based in Bend, Oregon.
Cascade Finance offers consumer loans and retail lending programs which
provides the Company with the opportunity to broaden its market with
complimentary services.
BUSINESS STRATEGY
The Company's business strategy is to continue to grow while maintaining
high asset quality, and includes the following components:
/X/ Emphasizing customer service
/X/ Attracting and retaining core deposits
/X/ Targeting its lending programs to the local market
/X/ Originating and selling mortgage loans
/X/ Prudently managing credit quality and interest rate risk
/X/ Effectively cross selling products and services
/X/ Expanding the branch system as opportunities arise
EMPHASIZING CUSTOMER SERVICE. The Company differentiates itself in its
market by a culture in which customers are the highest priority in all aspects
of the Company's operations. Ongoing employee training focuses on customer
needs, responsiveness and courtesy to customers. Community and customer
feedback helps the Company monitor its service and products.
ATTRACTING AND RETAINING CORE DEPOSITS. The Company emphasizes the
development of core deposit relationships because such deposits provide a
stable source of funds for operations at a relatively low cost, and because
core deposit customers are more likely to purchase other banking services.
Core deposits include interest-bearing and non-interest bearing checking and
savings accounts. The Company's core deposits are approximately $190 million
at December 31, 1997.
TARGETING ITS LENDING PROGRAMS TO THE LOCAL MARKET. In addition to
commercial and consumer loans, the Company offers real estate construction and
development loans, municipal and industrial loans, and commercial
owner-occupied real estate loans. Through discussions with current and
prospective customers, the Bank designs specific loan products to serve small
and medium-sized businesses and professionals in its local market area. For
example, the Company has developed a construction/ permanent loan program
which management believes has generated significant additional lending
opportunities among local developers and contractors.
ORIGINATING AND SELLING MORTGAGE LOANS. The Bank actively markets its
mortgage loan origination services to real estate brokers, builders and
directly to borrowers. Management emphasizes the Bank's loan application
turnaround time and efficient loan processing. The Bank offers mortgage loans
which include construction loans, 15 year and 30 year fixed rate mortgage
loans and certain types of adjustable rate mortgages. Substantially all
mortgage loans which are originated are sold into the secondary market.
Management evaluates on an ongoing basis whether to sell originated mortgage
loans on a servicing released or servicing retained basis. At December 31,
1997, the Bank held servicing rights to approximately $174 million in mortgage
loans which have been sold into the secondary market. In March, 1998 the Bank
began direct servicing of these loans which were previously serviced by
another financial institution under contract with the Bank.
PRUDENTLY MANAGING CREDIT QUALITY AND INTEREST RATE RISK. The Bank has
implemented loan policies and underwriting practices which allows the Bank to
prudently manage credit risk. The Bank's risk management objectives are to
maintain an appropriate mix among core deposits and time deposits and to
provide adequate funding for the Bank's loan and investment activities. The
Bank does not use brokered deposits as a source of funds. The Bank retains,
for its loan portfolio, interim construction loans, selected fixed and
variable rate real estate loans, business and commercial credits, and consumer
loans. Fixed rate conventional mortgages are sold to lessen exposure to
interest rate risk. There can be no assurance, however, that the Bank's
strategies will continue to be successful.
EFFECTIVELY CROSS-SELLING PRODUCTS AND SERVICES. The Bank emphasizes
the development of long-term and mutually beneficial relationships with its
customers. The sale of more than one product or service to a customer is an
essential element of this strategy. In addition to a variety of loan
products, the Bank offers a broad range of deposit services, including
checking, savings, and money market accounts, time deposits and individual
retirement accounts. The Bank also provides credit cards, credit-related
insurance, cash management services, automatic teller machines, and safe
deposit boxes. Management intends to continue responding to market and
product opportunities as they occur.
EXPANDING THE BRANCH SYSTEM AS OPPORTUNITIES ARISE. Banks are permitted
to conduct business through branches after application to and approval of the
FDIC and the Director of the State of Oregon Department of Consumer and
Business Services, Division of Finance Corporate Securities, if they make
certain findings regarding the financial history and condition of the bank and
the appropriateness of the branch in the community to be served. The Bank's
management intends to continue to expand its branch system as appropriate
opportunities are identified.
EMPLOYEES
Bancorp has no employees other than its executive officers, who are also
employees of the Bank. As of December 31, 1997, the Bank had 153 full-time
equivalent employees and Cascade Finance had 3 full-time equivalent employees.
None of the employees of the Company are subject to a collective bargaining
agreement. The Company considers its relationships with its employees to be
good.
COMPETITION
Commercial banking in Central Oregon is highly competitive with respect
to both loans and deposits. The Company competes principally with other
commercial banks, savings and loan associations, credit unions, mortgage
companies, and other financial institutions with respect to the scope and type
of services offered, interest rates paid on deposits and pricing of loans,
among other factors. Many of these competitors have greater resources than the
Company and therefore have larger lending capabilities and may provide other
services that the Company does not offer.
The Company competes for customers principally through the range and
quality of the services it provides. The Company believes its "Home-Town"
banking philosophy and its focus on small and medium-sized businesses and on
professionals enables it to compete effectively with other financial
institutions for the loans and deposits it seeks. To serve customers whose
borrowing requirements exceed its lending limits, the Company arranges
participations with other financial institutions.
Management believes the Company is able to compete effectively in its
market due to several factors. The Company's lending officers and senior
managers have significant experience in the Central Oregon area which enables
them to maintain close working relationships with their customers. In
addition, the Company emphasizes customer service in all aspects of its
operations, and management believes the Company is able to respond more
quickly to customer requests and market opportunities than its larger
competitors.
INTERSTATE BANKING LEGISLATION
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Act"), bank holding companies are permitted to acquire
banks located in any state regardless of the state law in effect at the time.
The Interstate Act also provides for the nationwide interstate branching of
banks. Under the Interstate Act, both national and state chartered banks,
including Oregon, are permitted to merge across state lines and thereby create
interstate branch networks.
SUPERVISION AND REGULATION
Bancorp and the Bank are extensively regulated under federal and Oregon
law. These laws and regulations are primarily intended to protect depositors
and the deposit insurance fund, not shareholders of the Company. To the
extent that the following information describes statutory or regulatory
provisions, it is qualified in its entirety by reference to the particular
statutory or regulatory provisions. Any change in applicable laws or
regulations may have a material effect on the business and prospects of the
Company. The operations of the Company may be affected by legislative changes
and by the policies of various regulatory authorities. Management is unable
to predict the nature or the extent of the effects on its business and
earnings that fiscal or monetary policies, economic control or new Federal or
State legislation may have in the future.
FEDERAL BANK HOLDING COMPANY REGULATION
The Company is a one-bank holding company within the meaning of the Bank
Holding Company Act (Act), and as such, it is subject to regulation,
supervision and examination by the Federal
Reserve Bank (FRB). The Company is required to file annual reports with the
FRB and to provide the FRB such additional information as the FRB may require.
The Act requires every bank holding company to obtain the prior approval
of the FRB before (1) acquiring, directly or indirectly, ownership or control
of any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (2) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(3) merging or consolidating with another bank holding company. The FRB will
not approve any acquisition, merger or consolidation that would have a
substantial anticompetitive result, unless the anticompetitive effects of the
proposed transaction are clearly outweighed by a greater public interest in
meeting
the convenience and needs of the community to be served. The FRB also
considers capital adequacy and other financial and managerial factors in
reviewing acquisitions or mergers.
With certain exceptions, the Act also prohibits a bank holding company
from acquiring or retaining direct or indirect ownership or control of more
than 5% of the voting shares of any company which is not a bank or bank
holding company, or from engaging directly or indirectly in activities other
than those of banking, managing or controlling banks, or providing services
for its subsidiaries. The principal exceptions to these prohibitions involve
certain non-bank activities which, by statute or by FRB regulation or order,
have been identified as activities closely related to the business of banking
or of managing or controlling banks. In making this determination, the FRB
considers whether the performance of such activities by a bank holding company
can be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency in resources, which
can be expected to outweigh the risks of possible adverse effects such as
decreased or unfair competition, conflicts of interest or unsound banking
practices.
FEDERAL AND STATE BANK REGULATION
The Bank, as a Federal Deposit Insurance Corporation (FDIC) insured bank
which is not a member of the Federal Reserve System, is subject to the
supervision and regulation of the State of Oregon Department of Consumer and
Business Services, Division of Finance and Corporate Securities, and to the
supervision and regulation of the FDIC. These agencies may prohibit the Bank
from engaging in what they believe constitute unsafe or unsound banking
practices.
The Community Reinvestment Act (CRA) requires that, in connection with
examinations of financial institutions within their jurisdiction, the FRB or
the FDIC evaluate the record of the financial institutions in meeting the
credit needs of their local communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of those banks.
These factors are also considered in evaluating mergers, acquisitions and
applications to open a branch or facility. The Bank's current CRA rating is
"Outstanding".
The Bank is also subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors,
principal stockholders or any related interest of such persons. Extensions of
credit (I) must be made on substantially the same terms, collateral and
following credit underwriting procedures that are not less stringent than
those prevailing at the time for comparable transactions with persons not
covered above, and (ii) must not involve more than the normal risk of
repayment or present other unfavorable features. The Bank is also subject to
certain lending limits and restrictions on overdrafts to such persons. A
violation of these restrictions may result in the assessment of substantial
civil monetary penalties on the Bank or any officer, director, employee, agent
or other person participating in the conduct of the affairs of the Bank, the
imposition of a cease and desist order, and other regulatory sanctions.
Under the Federal Deposit Insurance Corporation Improvement Act
(FDICIA), each Federal banking agency is required to prescribe, by regulation,
non-capital safety and soundness standards for institutions under its
authority. These standards are to cover internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, compensation, fees and benefits, such
other operational and managerial standards as the agency
determines to be appropriate, and standards for asset quality, earnings and
stock valuation. An institution which fails to meet these standards must
develop a plan acceptable to the agency, specifying the steps that the
institution will take to meet the standards. Failure to submit or implement
such a plan may subject the institution to regulatory sanctions. The Company
believes that the Bank already meets substantially all the standards which are
likely to be adopted, and therefore does not believe that the implementation
of these regulatory standards will materially affect the Company's business
operations.
DEPOSIT INSURANCE
As a member institution of the FDIC, the deposits of the Bank are
currently insured to a maximum of $100,000 per depositor through the Bank
Insurance Fund ("BIF"), and the Bank is required to pay semiannual deposit
insurance premium assessments to the FDIC.
The FDICIA included provisions to reform the Federal deposit insurance
system, including the implementation of risk-based deposit insurance premiums.
The FDICIA also permits the FDIC to make special assessments on insured
depository institutions in amounts determined by the FDIC to be necessary to
give it adequate assessment income to repay amounts borrowed from the U.S.
Treasury and other sources or for any other purpose the FDIC deems necessary.
Pursuant to the FDICIA, the FDIC implemented a transitional risk-based
insurance premium system on January 1, 1993. Generally, banks are assessed
insurance premiums according to how much risk they are deemed to present to
the BIF. Banks with higher levels of capital and involving a low degree of
supervisory concern are assessed lower premiums than banks with lower levels
of capital or involving a higher degree of supervisory concern.
On November 14, 1995, the FDIC Board of Directors voted to further
reduce the insurance premiums paid on deposits covered by BIF and to maintain
existing assessment rates for deposits covered by the Savings Association
Insurance Fund (SAIF). Effective for the first semiannual assessment period
of 1996, assessment rates were lowered by four cents per $100 of assessable
deposits for all risk categories, subject to the statutory requirement that
all institutions pay at least $2,000 annually for FDIC insurance. The
four-cent reduction in BIF rates utilizes the "adjustment" procedure
established by the FDIC Board to change rates within a five-cent range without
first having to seek public comment.
The Deposit Insurance Funds Act of 1996 ("Funds Act") eliminated the
statutorily-imposed minimum assessment amount effective January 1, 1997. The
Funds Act also authorizes assessments on Bank Insurance Fund-assessable
deposits (such as, the Bank's deposits) and stipulates that the rate of
assessment must equal one-fifth the Financing Corporation assessment rate that
is applied to deposits assessable by the Savings Association Insurance Fund.
The Financing Corporation assessment rate for
Bank Insurance Fund-assessable deposits is 1.256 cents per $100 of deposits
per year. The Bank's FDIC insurance expense for 1997 was approximately
$20,000 and management anticipates that the FDIC insurance expense for 1998
will be approximately $30,000 based upon deposits held at December 31, 1997.
DIVIDENDS
The principal source of the Company's cash revenues have been provided
from dividends received from the Bank. The Oregon banking laws impose the
following limitations on the payment of dividends by Oregon state chartered
banks: (1) no dividends may be paid which would impair capital; (2) until the
surplus fund of a bank is equal to 50% of its capital, no dividends may be
declared unless there has been carried to the surplus account no less than one
fifth of its net profits for the dividend period; and (3) dividends are
payable only out of a bank's undivided profits.
In addition, the appropriate regulatory authorities are authorized to
prohibit banks and bank holding companies from paying dividends which would
constitute an unsafe or unsound banking practice. The Bank and the Company are
not currently subject to any regulatory restrictions on their dividends other
than those noted above.
CAPITAL ADEQUACY
The Federal bank regulatory agencies use capital adequacy guidelines in
their examination and regulation of bank holding companies and banks. If the
capital falls below the minimum levels established by these guidelines, the
bank holding company or bank may be denied approval to acquire or establish
additional banks or non-bank businesses or to open facilities.
The FRB and FDIC have adopted risk-based capital guidelines for banks
and bank holding companies. The risk-based capital guidelines are designed to
make regulatory capital requirements more sensitive to differences in risk
profile among banks and bank holding companies, to account for off-balance
sheet exposure and to minimize disincentives for holding liquid assets.
Assets and off-balance sheet items are assigned to broad risk categories, each
with appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items. The
guidelines are minimums, and the FRB has noted that bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of the
minimum. The current guidelines require all bank holding companies and
Federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital.
Tier 1 capital for bank holding companies includes common stockholders'
equity, qualifying perpetual preferred stock (up to 25% of total Tier 1
capital, if cumulative; under a FRB rule, redeemable perpetual preferred stock
may not be counted as Tier 1 capital unless the redemption is subject to the
prior approval of the FRB) and minority interests in equity accounts of
consolidated subsidiaries, less intangibles. Tier 2 capital includes: (I) the
allowance for loan losses of up to 1.25% of risk-weighted assets; (ii) any
qualifying perpetual preferred stock which exceeds the amount which may be
included in Tier 1 capital; (iii) hybrid capital instrument; (iv) perpetual
debt; (v) mandatory convertible securities and (vi) subordinated debt and
intermediate term preferred stock of up to 50% of Tier 1 capital. Total
capital is the sum of Tier 1 and Tier 2 capital less reciprocal holdings of
other banking organizations, capital instruments and investments in
unconsolidated subsidiaries.
Banks' and bank holding companies' assets are given risk-weights of 0%,
20%, 50% and 100%. In addition, certain off-balance sheet items are given
credit conversion factors to convert them to asset equivalent amounts to which
an appropriate risk-weight will apply. These computations result in the total
risk-weighted assets.
Loans are generally assigned to the 100% risk category, except for first
mortgage loans fully secured by residential property, which carry a 50%
rating. The Company's investment securities are mainly U.S. Government
sponsored agency obligations which are assigned to the 20% category, except
for municipal or state revenue bonds, which have a 50% risk-weight, and direct
obligations of or obligations fully guaranteed by the United States Treasury
or United States Government, which have 0% risk-weight. In converting
off-balance sheet items, direct credit substitutes, including general
guarantees and standby letters of credit backing financial obligations, are
given a 100% conversion factor. Transaction related contingencies such as bid
bonds, other standby letters of credit and undrawn commitments, including
commercial credit lines with an initial maturity of more than one year, have a
50% conversion factor. Short-term, self-liquidating trade contingencies are
converted at 20%, and short-term commitments have a 0% factor.
The FRB also has implemented a leverage ratio, which is Tier 1 capital
as a percentage of average total assets less intangibles, to be used as a
supplement to risk-based guidelines. The principal objective of the leverage
ratio is to place a constraint on the maximum degree to which a bank holding
company may leverage its equity capital base. The FRB requires a minimum
leverage ratio of 3%. However, for all but the most highly rated bank holding
companies and for bank holding companies seeking to expand, the FRB expects an
additional cushion of at least 1% to 2%.
As of December 31, 1997, the Company was in compliance with applicable
capital requirements, as shown in the following tables (dollars in thousands):
Risk Based Capital Ratios:
Amount Ratio
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Tier 1 capital . . . . . . . . . . . . . . $ 23,573 13.15%
Minimum Tier 1 capital requirement . . . . 7,173 4.00%
Total capital. . . . . . . . . . . . . . . 25,622 14.29%
Minimum total capital requirement. . . . . 14,346 8.00%
Risk Weighted Assets . . . . . . . . . . . $ 179,327 N/A
Leverage Ratio:
Amount Ratio
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Tier 1 capital . . . . . . . . . . . . . . $ 23,573 9.63%
Minimum leverage requirement . . . . . . . 7,341 3.00%
Average adjusted total assets. . . . . . . 244,704 N/A
The FDICIA also created a new statutory framework of supervisory actions
indexed to the capital level of the individual institution. Under regulations
adopted by the FDIC, an institution is assigned to one of five capital
categories depending on its total risk-based capital ratio, Tier 1 risk-based
capital ratio, and leverage ratio, together with certain subjective factors.
Institutions which are deemed to be "undercapitalized" depending on the
category to which they are assigned are subject to certain mandatory
supervisory corrective actions. Under the regulations, the Company is
considered "well capitalized."
MONETARY POLICY
The earnings of a bank holding company are affected by the policies of
regulatory authorities, including the FRB, in connection with the FRB's
regulation of the money supply. Various methods employed by the FRB are open
market operations in United States Government securities, changes in the
discount rate on member bank borrowings and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations
to influence overall growth and distribution of bank loans, investments and
deposits, and their use may also effect interest rates charged on loans or
paid on deposits. The monetary policies of the FRB have had a significant
effect on the operating results of commercial banks in the past and are
expected to continue to do so in the future.
CONSOLIDATED STATISTICAL INFORMATION
The following tables present certain financial and statistical
information with respect to the Company for the periods indicated. Most of
the information is required by Guide 3, "Statistical Disclosure by Bank
Holding Companies", by the Securities and Exchange Commission. At the
beginning of each table, information is presented as to the nature of data
disclosed in the table.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's consolidated financial statements and the accompanying notes
which are included in the Annual Report to Shareholders for the year ended
December 31, 1997 (in thousands, except per share data and ratios; unaudited):
Years ended December 31,
------------------------------------------
1997 1996 1995 1994 1993
INCOME STATEMENT DATA
Interest income $18,836 $15,812 $13,904 $10,081 $8,395
Interest expense 4,787 4,052 3,769 2,156 1,778
Net interest income 14,049 11,760 10,135 7,925 6,617
Loan loss provision 1,075 432 481 311 254
Net interest income after
loan loss provision 12,974 11,328 9,654 7,614 6,363
Noninterest income 4,310 4,020 3,099 2,443 3,062
Noninterest expense 9,379 8,113 7,144 6,294 5,734
Income before income taxes 7,905 7,235 5,609 3,763 3,691
Provision for income taxes 2,864 2,722 1,977 1,379 1,341
Net income $5,041 $4,513 $3,632 $2,384 $2,350
SHARE DATA
Basic earnings per common share (1) $1.18 $1.06 $0.85 $0.57 $0.77
Diluted earnings per common
share (1) $1.15 $1.04 $0.84 $0.56 $0.77
Book value per common share (1) $5.81 $5.65 $4.56 $3.55 $2.89
Cash dividends per common share (1) $0.45 - - - -
Ratio of dividends declared to
net income 39.13% - - - -
Basic weighted average shares of
common stock outstanding (1)(5) 4,255 4,266 4,266 4,182 3,042
Fully diluted weighted average
shares of common stock out-
standing (1)(5) 4,378 4,338 4,305 4,261 3,042
BALANCE SHEET DATA (AT PERIOD END)
Investment securities $44,400 $27,797 $13,368 $32,648 $18,532
Loans, net 153,025 131,627 124,711 96,927 72,844
Total assets 242,611 201,277 177,562 146,803 115,093
Total deposits 211,345 171,082 152,438 128,260 105,189
Total shareholders' equity (5) 24,236 23,572 19,040 14,811 8,793
SELECTED RATIOS
Return on average total assets 2.23% 2.39% 2.24% 1.78% 2.20%
Return on average total
shareholders' equity (5) 20.73% 21.04% 21.36% 16.98% 30.83%
Net interest spread 6.23% 6.11% 5.97% 5.96% 6.38%
Net interest margin 7.17% 7.09% 6.92% 6.71% 7.05%
Efficiency ratio (2) 51.09% 51.41% 53.28% 60.71% 59.24%
ASSET QUALITY RATIOS
Reserve for loan losses to
ending total loans 1.32% 1.26% 1.30% 1.18% 1.22%
Nonperforming assets to end-
ing total assets (3) 0.04% 0.04% 0.04% 0.00% 0.17%
Net loan charge-offs to
average loans 0.48% 0.28% 0.00% 0.08% 0.14%
CAPITAL RATIOS
Average shareholders' equity
to average assets (5) 10.77% 11.33% 10.47% 10.51% 7.29%
Leverage ratio (4) 9.63% 11.48% 10.64% 9.68% 7.60%
Total risk-based capital
ratio (4) 14.29% 16.51% 14.29% 14.69% 11.93%
- -----------------
(1) Adjusted to reflect 10% stock dividends declared in 1994, 1995 and 1996
and a two-for-one stock split in 1997.
(2) Efficiency ratio is noninterest expense divided by (net interest income +
noninterest income - non-recurring items).
(3) Nonperforming assets consist of nonaccrual loans and loans contractually
past due 90 days or more.
(4) Computed in accordance with FRB and FDIC guidelines.
(5) During 1997 the Board adopted a stock repurchase plan to buyback
approximately 2.5% of common stock. In addition, the Board adopted a plan
to repurchase up to an additional 2.5% of common stock during 1998.
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth the Company's unaudited data regarding
operations for each quarter of 1997, 1996 and 1995. This information, in the
opinion of management, includes all normal recurring adjustments necessary to
state fairly the information set forth therein (in thousands, except per share
amounts):
1997 Quarters Ended
------------------------------- ---------
Dec. 31 Sept. 30 June 30 Mar. 31
-------- -------- -------- --------
Interest income $ 5,230 $ 4,914 $ 4,599 $ 4,093
Interest expense 1,302 1,239 1,195 1,051
-------- -------- -------- --------
Net interest income 3,928 3,675 3,404 3,042
Loan loss provision 468 231 280 96
-------- -------- -------- --------
Net interest income after
loan loss provision 3,460 3,444 3,124 2,946
Noninterest income 1,135 1,217 1,026 932
Noninterest expense 2,671 2,398 2,164 2,146
-------- -------- -------- --------
Income before income taxes 1,924 2,263 1,986 1,732
Provision for income taxes 618 802 784 660
-------- -------- -------- --------
Net income $ 1,306 1,461 $ 1,202 $ 1,072
======== ======== ======== ========
Weighted average number of
shares outstanding (1) 4,214 4,269 4,269 4,266
Net income per share (1) $0.31 $0.34 $0.28 $0.25
1996 Quarters Ended
-----------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
-------- -------- -------- --------
Interest income $ 4,244 $ 4,103 $ 3,762 $ 3,703
Interest expense 1,072 1,054 969 957
-------- -------- -------- --------
Net interest income 3,172 3,049 2,793 2,746
Loan loss provision 137 147 66 82
-------- -------- -------- --------
Net interest income after
loan loss provision 3,035 2,902 2,727 2,664
Noninterest income 1,180 987 939 914
Noninterest expense 2,328 2,089 1,830 1,866
-------- -------- -------- --------
Income before income taxes 1,887 1,800 1,836 1,712
Provision for income taxes 712 677 690 643
-------- -------- -------- --------
Net income $ 1,175 1,123 1,146 1,069
======== ======== ======== ========
Weighted average number of
shares outstanding (1) 4,266 4,266 4,266 4,266
Basic earnings per share (1) $0.28 $0.26 $0.27 $0.25
Fully diluted weighted average
number of shares outstanding 4,343 4,346 4,346 4,346
Fully diluted earnings
per share (1) $0.27 $0.26 $0.26 $0.25
- ----------------------
(1) Adjusted to give retroactive effect to a two-for-one stock split declared
in July 1997 and 10% stock dividends declared in June 1996 and 1995.
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID
The following table represents the Company's average balance sheets as well as
certain rates earned and rates paid for the years ended December 31, 1997,
1996 and 1995 (dollars in thousands):
Year ended December 31, 1997
---------------------------------
Interest Average
Average Income/ Yield or
Balance Expense Rates
--------- --------- -------
Assets
Taxable securities $ 35,898 $ 2,507 6.98%
Non-taxable securities (1) 1,751 74 4.23%
Federal funds sold 8,646 467 5.40%
Loans (2)(3)(4) 149,698 15,788 10.55%
--------- ---------
Total earning assets/interest income 195,993 18,836 9.61%
Reserve for loan losses (1,784)
Cash and due from banks 18,922
Premises and equipment, net 4,710
Accrued interest and other assets 7,921
---------
Total assets $ 225,762
=========
Liabilities and Stockholders' Equity
Interest bearing demand deposits $ 102,484 $ 3,083 3.01%
Savings deposits 13,027 284 2.18%
Time deposits 19,846 998 5.03%
Other borrowings 6,269 422 6.73%
--------- --------
Total interest bearing liabilities/
interest expense 141,626 4,787 3.38%
Demand deposits 58,062
Other liabilities 1,755
---------
Total liabilities 201,443
Stockholder's equity 24,319
---------
Total liabilities and stockholders'
equity $ 225,762
==========
---------
Net interest income $ 14,049
=========
Net interest spread 6.23%
=======
Net interest income to earning assets 7.17%
=======
Year ended December 31, 1996
---------------------------------
Interest Average
Average Income/ Yield or
Balance Expense Rates
--------- --------- -------
Assets
Taxable securities $ 18,717 $ 1,273 6.80%
Non-taxable securities (1) 2,155 94 4.36%
Federal funds sold 7,241 381 5.26%
Loans (2)(3)(4) 137,798 14,064 10.21%
--------- ---------
Total earning assets/interest income 165,911 15,812 9.53%
Reserve for loan losses (1,764)
Cash and due from banks 14,530
Premises and equipment, net 3,810
Accrued interest and other assets 6,729
---------
Total assets $ 189,216
=========
Liabilities and Stockholders' Equity
Interest bearing demand deposits $ 83,154 $ 2,530 3.04%
Savings deposits 12,975 286 2.20%
Time deposits 17,235 873 5.07%
Other borrowings 5,173 363 7.02%
--------- --------
Total interest bearing liabilities/
interest expense 118,537 4,052 3.42%
Demand deposits 46,886
Other liabilities 2,348
---------
Total liabilities 167,771
Stockholder's equity 21,445
---------
Total liabilities and stockholders'
equity $ 189,216
=========
---------
Net interest income $ 11,760
=========
Net interest spread 6.11%
=======
Net interest income to earning assets 7.09%
=======
Year ended December 31, 1995
---------------------------------
Interest Average
Average Income/ Yield or
Balance Expense Rates
--------- --------- -------
Assets
Taxable securities $ 18,964 $ 1,227 6.47%
Non-taxable securities (1) 2,876 122 4.24%
Federal funds sold 2,812 155 5.51%
Loans (2)(3)(4) 121,883 12,400 10.17%
--------- ---------
Total earning assets/interest income 146,535 13,904 9.49%
Reserve for loan losses (1,417)
Cash and due from banks 10,447
Premises and equipment, net 3,337
Accrued interest and other assets 3,476
---------
Total assets $ 162,378
=========
Liabilities and Stockholders' Equity
Interest bearing demand deposits $ 73,426 $ 2,384 3.25%
Savings deposits 13,227 304 2.30%
Time deposits 13,506 621 4.60%
Other borrowings 6,892 460 6.67%
--------- --------
Total interest bearing liabilities/
interest expense 107,051 3,769 3.52%
Demand deposits 36,353
Other liabilities 1,967
---------
Total liabilities 145,371
Stockholder's equity 17,007
---------
Total liabilities and stockholders'
equity $ 162,378
=========
---------
Net interest income $ 10,135
=========
Net interest spread 5.97%
=======
Net interest income to earning assets 6.92%
=======
- ----------------
(1) Yields on tax-exempt securities have not been stated on a tax-equivalent
basis.
(2) Average non-accrual loans included in the computation of average loans was
insignificant for 1997, 1996 and 1995.
(3) Loan related fees recognized during the period and included in the yield
calculation totaled approximately $1,012,000 in 1997, $780,000 in 1996
and $849,000 in 1995.
(4) Includes mortgage loans held for sale.
ANALYSIS OF CHANGES IN INTEREST DIFFERENTIAL
The following table shows the dollar amount of the increase (decrease) in the
Company's consolidated interest income and expense and attributes such dollar
amounts to changes in volume as well as changes in rates. Rate/volume
variances which were immaterial have been allocated equally between rate and
volume changes (dollars in thousands).
Year ended December 31,
-----------------------------------------------------------------
1997 over 1996 1996 over 1995
----------------------------- ------------------------------
Total Amount of Change Total Amount of Change
Increase Attributed to Increase Attributed to
(Decrease) Volume Rate (Decrease) Volume Rate
---------- -------- -------- ---------- ------- -------
Interest income:
Interest and fees on loans $ 1,724 $ 1,235 $ 489 $ 1,664 $ 1,617 $ 47
Taxable securities 1,234 1,184 50 46 (16) 62
Non-taxable securities (20) (18) (2) (28) (31) 3
Federal funds sold 86 75 11 226 238 (12)
---------- -------- -------- ---------- ------- -------
3,024 2,476 548 1,908 1,808 100
Interest expense:
Interest on deposits:
Interest bearing demand 553 583 (30) 146 308 (162)
Savings (2) 1 (3) (18) (6) (12)
Time deposits 125 131 (6) 252 181 71
Other borrowings 59 76 (17) (97) (118) 21
---------- -------- -------- ---------- ------- -------
Total interest expense 735 791 (56) 283 365 (82)
---------- -------- -------- ---------- ------- -------
Net interest spread $ 2,289 $ 1,685 $ 604 $ 1,625 $ 1,443 $ 182
---------- -------- -------- ---------- ------- ------
---------- -------- -------- ---------- ------- ------
Interest Rate Sensitivity Table
Set forth below is a table showing the interest rate sensitivity of the
Company's assets and liabilities over various repricing periods and maturities,
as of December 31, 1997. Maturities are based on contractual terms and
repricing amounts are based on actual historical experiences (dollars in
thousands):
After 90 After
days one year After
Within within within five
90 days one year five years years Total
--------- --------- ---------- --------- ---------
INTEREST EARNING ASSETS:
Investments & fed funds sold $ 11,508 $ 9,085 $ 28,393 $ 3,914 $ 52,900
Loans 70,810 25,738 53,031 5,996 155,575
--------- --------- ---------- --------- ---------
Total interest earning assets $ 82,318 $ 34,823 $ 81,424 $ 9,910 $ 208,475
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
INTEREST BEARING LIABILITIES:
Interest-bearing demand deposits $ 46,234 $ 36,217 $ 29,030 $ - $ 111,481
Savings deposits - - 5,164 7,906 13,070
Time deposits 6,768 11,888 2,898 40 21,594
--------- --------- ---------- --------- ---------
Total interest bearing deposits 53,002 48,105 37,092 7,946 146,145
--------- --------- ---------- --------- ---------
Other borrowings - - - - 5,000
Total interest bearing liabilities $ 53,002 $ 53,105 $ 37,092 $ 7,946 $ 151,145
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Interest rate sensitivity gap $ 29,316 $ (18,282) $ 44,332 $ 1,964 57,330
Interest rate gap as a percentage
of total interest earning assets 14.06% (8.77%) 21.26% 0.94% 27.50%
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Cumulative interest rate sensitivity gap $ 29,316 $ 11,034 $ 55,366 $ 57,330 $ 57,330
Cumulative interest rate gap as a percentage
of total interest earning assets 14.06% 5.30% 26.56% 27.50% N/A
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
The Company's profitability, like most financial institutions, depends
to a large extent upon its net interest income, which is the difference
between the interest earned on assets (loans and investments), versus the
interest expense paid on its labilities (deposits and borrowings). The
Company's historical business activity tends to originate loans with
maturities and repricing terms which are shorter than those of deposit
relationships. These maturity and repricing differences create a natural
interest rate risk profile whereby the Company will tend to generate higher
earnings should market interest rates rise and lower earnings should interest
rates fall.
The Company analyzes this risk by simulation modeling and by traditional
interest rate gap analysis. Both methods provide an indication of risk for a
given change in interest rates. These methods of analyses are dependent on
assumptions and estimations that management believes reasonable, although the
actual results may vary substantially.
The Bank's simulation analysis forecasts net interest income and
earnings given unchanged interest rates (stable rate scenario). The model
then estimates a percent change from the stable rate scenario in the event of
rising and falling market interest rates over one and two year time horizons.
The simulation model estimates that in the event of a 1.5 percent reduction in
market interest rates, earnings could be adversely impacted up to
approximately 11.2 percent, while a similar increase in market rates would
have a favorable impact of approximately 16.0 percent. Because of
uncertainties as to the extent of refinance activity, competitive loan pricing
spreads, product volumes and mix, and other unexpected changes in economic
behavior related to movements in market rates, no assurance can be made that
simulation results are reliable indicators of earnings under such conditions.
At year end 1997, the Company's one year cumulative interest rate gap
analysis indicates that rate sensitive assets maturing or available for
repricing within one-year exceeded rate sensitive liabilities by approximately
$11.0 million. A year earlier, rate sensitive assets exceeded maturing or
available for repricing rate sensitive liabilities by $12.3 million. It is
the Company's policy to manage interest rate risk to maximize long term
profitability under the range of likely interest rate scenarios. The Board of
Directors oversees implementation of strategies to control interest rate risk.
LOAN PORTFOLIO
Interest earned on the loan portfolio is the primary source of income
for the Company. Net loans represent 63% of total assets as of December 31,
1997. Although the Company strives to serve the credit needs of its service
area, its primary focus is on real estate related and commercial credits. The
Company makes substantially all of its loans to customers located within the
Company's service areas. The Company has no loans defined as highly leveraged
transactions by the Federal Reserve Bank. The
Company has no significant agricultural loans.
The following table presents the composition of the Company's loan
portfolio, at the dates indicated (dollars in thousands):
December 31,
--------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Commercial $ 30,059 $ 22,485 $ 21,711 $ 20,114 $ 17,929
Real Estate:
Construction 30,863 34,375 33,984 22,259 18,237
Mortgage 23,396 19,774 24,750 18,656 12,222
Commercial 52,356 42,391 31,019 25,054 16,456
Installment 18,901 14,666 15,271 13,333 11,220
------- ------- ------- ------- -------
155,575 133,691 126,735 99,416 76,064
Less:
Reserve for
loan losses 2,048 1,691 1,651 1,172 930
Deferred loan fees 502 373 372 325 200
------- ------- ------- ------- -------
2,550 2,064 2,023 1,497 1,130
------- ------- ------- ------- -------
$153,025 $131,627 $124,712 $ 97,919 $ 74,934
======= ======== ======== ======== ========
At December 31, 1997, the maturities of all loans by category were as
follows (dollars in thousands):
Due after
one, but
Due within within five Due after
Loan Category one year years five years Total
- - -------------------- ---------- ----------- ----------- ----------
Commercial $ 24,520 $ 5,470 $ 69 $ 30,059
Real Estate:
Construction 25,636 4,205 1,022 30,863
Mortgage 20,119 1,541 1,736 23,396
Commercial 19,804 31,946 606 52,356
Installment 6,469 9,869 2,563 18,901
---------- ---------- ---------- ----------
$ 96,548 $ 53,031 $ 5,996 $ 155,575
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Variable rate loans due after one year totaled $33,800 at December 31,
1997 and loans with predetermined or fixed rates due after one year totaled
$25,227 at December 31, 1997.
LENDING AND CREDIT MANAGEMENT
Although a risk of nonpayment exists with respect to all loans, certain
specific types of risks are associated with different types of loans. Due to
the nature of the Company's customer base and the growth experienced in the
Company's market area, real estate is frequently a material component of
collateral for the Company's loans. The expected source of repayment of these
loans is generally the operations of the borrower's business or personal
income; however, real estate provides an additional measure of security.
Risks associated with real estate loans include fluctuating land values, local
economic conditions, changes in tax policies, and a concentration of loans
within the Bank's market area.
The Company mitigates risks on construction loans by generally lending
funds to customers that have been prequalified for long term financing and who
are using experienced contractors approved by the Company. The commercial
real estate risk is further mitigated by making the majority of commercial
real estate loans to owner-occupied users of the property.
The Company manages the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in
prudent lending activities. The following table presents information with
respect to non-performing assets (dollars in thousands):
December 31,
-------------------------------------
1997 1996 1995 1994 1993
----- ------ ------ ------ ------
Loans on non-accrual status $ 43 $ 50 $ 45 $ - $ 128
Loans past due 90 days
or more but not on
non-accrual status 45 27 21 4 64
Other real estate owned 9 - - - -
----- ----- ----- ------ ------
Total non-performing assets $ 97 $ 77 $ 66 $ 4 $ 192
===== ===== ===== ====== ======
Percentage of non-performing
assets to total assets .04% .04% .04% .00% .17%
The accrual of interest on a loan is discontinued when, in management's
judgment, the future collectibility of principal or interest is in doubt.
Loans placed on nonaccrual status may or may not be contractually past due at
the time of such determination, and may or may not be secured. When a loan is
placed on nonaccrual status, it is the Bank's policy to reverse, and charge
against current income, interest previously accrued but uncollected. Interest
subsequently collected on such loans is credited to loan principal if, in the
opinion of management, full collectibility of principal is doubtful. If
interest on nonaccrual loans had been accrued, such income was insignificant
for the periods presented.
At December 31, 1997, there were no potential problem loans, except as
discussed above, where known information about possible credit problems of the
borrower caused management to have serious doubts as to the ability of such
borrower to comply with the present loan repayment terms and which may result
in such loans being placed on a non-accrual basis.
ALLOCATION OF RESERVE FOR LOAN LOSSES
The Company does not normally allocate the reserve for loan losses to
specific loan categories. An allocation to these major categories is made
below for presentation purposes. This allocation process does not necessarily
measure anticipated future credit losses; rather, it seeks to measure the Bank's
assessment at a point in time of perceived credit loss exposure and the impact
of current and anticipated economic conditions. A schedule dividing the reserve
for loan losses into allocated and unallocated categories is furnished below
for the end of each of the last five years (dollars in thousands):
December 31,
---------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
Percentage Percentage Percentage
of loans in of loans in of loans in
each each each
category to category to category to
Amount total loans Amount total loans Amount total loans
------ ----------- ------ ------------ ------ -----------
Commercial $ 188 20% $ 145 17% $ 153 17%
Real Estate:
Construction 236 20 227 26 218 27
Mortgage 81 15 78 15 80 20
Commercial 245 33 186 32 148 24
Installment 102 12 92 10 94 12
Unallocated 1,196 - 963 - 958 -
----- ----------- ------ ------------ ------ -----------
$2,048 100% $1,691 100% $1,651 100%
===== =========== ====== ============ ====== ===========
December 31,
------------------------------------------
1994 1993
-------------------- --------------------
Percentage Percentage
of loans in of loans in
each each
category to category to
Amount total loans Amount total loans
------ ----------- ------ ------------
Commercial $ 120 20% $ 173 23%
Real Estate:
Construction 123 22 100 24
Mortgage 83 19 38 16
Commercial 126 25 82 22
Installment 86 14 82 15
Unallocated 634 - 455 -
----- ----------- ------ ------------
$1,172 100% $ 930 100%
===== =========== ====== ============
RESERVE FOR LOAN LOSSES
The provision for loan losses charged to operating expense is based on the
Company's loan loss experience and such other factors which, in management's
judgement, should be considered in estimating possible loan losses.
Management monitors the loan portfolio to ensure that the reserve for loan
losses is adequate to cover outstanding loans on non-accrual status and any
current loans deemed to be in serious doubt of repayment according to each
loan's repayment plan. The following table summarizes the Company's reserve
for loan losses and charge-off and recovery activity for each of the last
five years (dollars in thousands):
Year ended December 31,
-------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
Loans outstanding at
end of period $ 155,575 $ 133,691 $ 126,735 $ 99,416 $ 76,064
Average loans outstanding
during the period $ 149,698 $ 137,798 $ 121,883 $ 86,072 $ 70,080
Reserve balance,
beginning of period $ 1,691 $ 1,651 $ 1,172 $ 930 $ 771
Recoveries:
Commercial 16 2 70 22 5
Real Estate:
Construction - - - - -
Mortgage 2 - - - -
Commercial - - 1 - -
Installment 42 28 30 4 3
-------- --------- --------- --------- ---------
60 30 101 26 8
Loans charged off:
Commercial (80) (212) (24) (53) (48)
Real Estate:
Construction - - - - -
Mortgage (442) (50) - - (3)
Commercial - - (2) - -
Installment (256) (160) (77) (42) (53)
-------- --------- --------- --------- ---------
(778) (422) (103) (95) (104)
-------- --------- --------- --------- ---------
Net loans charged-off (718) (392) (2) (69) (96)
Provision charged to
operations 1,075 432 481 311 254
-------- --------- --------- --------- ---------
Reserve balance,
end of period $ 2,048 $ 1,691 $ 1,651 $ 1,172 $ 930
Ratio of net loans
charged-off to average
loans outstanding .48% .28% .00% .08% .14%
======= ======= ====== ====== ======
Ratio of reserve for loan
losses to loans at end
of period 1.32% 1.26% 1.30% 1.18% 1.22%
======= ======= ====== ====== ======
INVESTMENT PORTFOLIO
The following table shows the carrying value of the Company's portfolio
of investments at December 31, 1997, 1996 and 1995 (dollars in thousands).
See Notes 1 and 3 of Notes to Consolidated Financial Statements for more
information about investment securities at December 31, 1997 and 1996.
December 31,
------------------------------------
1997 1996 1995
-------- -------- --------
U.S. Treasury securities $ 3,083 $ 4,009 $ 4,558
U.S. Government and
agency securities 38,339 20,468 5,408
Obligations of state and
political subdivisions 1,030 2,013 2,190
-------- -------- --------
Total debt securities 42,452 26,490 12,156
Federal Home Loan Bank stock 1,416 1,307 1,212
Equity Securities 532 - -
--------- -------- --------
Total investment securities $ 44,400 $ 27,797 $13,368
========= ======== ========
The following is a summary of the contractual maturities and weighted
average yields of investment securities at December 31, 1997 (dollars in
thousands):
Due in Due after one year Due five years
One year or less through five years through ten years
-------------------- ------------------- ------------------
Weighted Weighted Weighted
Carrying average Carrying average Carrying average
value yield (1) value yield (1) value yield (1)
------- ----------- -------- -------- ------- ----------
Available-for-sale
- ------------------
U.S. Treasury securities $ - - $ 3,083 6.51% $ - -
U.S. Government agencies - - 36,326 6.67% 2,013 7.30%
------- -------- -------
- 39,409 2,013
Held-to-maturity
- ----------------
Obligations of state and
political subdivisions 40 4.60% 990 5.01% - -
Federal Home Loan Bank stock (2) - - - - 1,416 5.98%
Equity Securities (2) - - - - 532 -
------- -------- -------
40 990 1,948
------- -------- -------
Total $ 40 4.60% $ 40,399 6.61% $ 3,961 7.05%
======= ====== ======== ===== ======= ======
- -------------------
(1) Yields on tax-exempt securities have not been stated on a tax equivalent
basis.
(2) No stated maturity.
DEPOSIT LIABILITIES AND TIME DEPOSIT MATURITIES
The following table summarizes the average amount of, and the average rate
paid on, each of the deposit categories for the periods shown (dollars in
thousands):
Years ended December 31,
---------------------------------------------------------------
1997 1996 1995
DEPOSIT LIABILITIES Average Average Average
--------------- --------------------- ---------------------
Rate Rate Rate
Amount Paid Amount Paid Amount Paid
--------------- ------------------- ---------------------
Demand $ 58,062 N/A $ 46,886 N/A $ 36,353 N/A
Interest-bearing
demand 102,484 3.01% 83,154 3.04% 73,426 3.25%
Savings 13,027 2.18% 12,975 2.20% 13,227 2.30%
Time 19,846 5.03% 17,235 5.07% 13,506 4.60%
--------- --------- ---------
Total Deposits $ 193,419 $ 160,250 $ 136,512
--------- --------- ---------
--------- --------- ---------
As of December 31, 1997 the Company's time deposit liabilities had the
following times remaining to maturity (dollars in thousands):
Time deposits of All other
$100,000 or more (1) Time deposits (2)
---------------------- -----------------------
Remaining time to maturity Amount Percent Amount Percent
- - ------------------------ ---------------------- -----------------------
3 months or less.......... $ 1,425 38.35% $ 5,348 29.91%
Over 3 months
through 6 months........ 810 21.80% 4,941 27.64%
Over 6 months
through 12 months....... 1,376 37.03% 4,756 26.60%
Over 12 months............ 105 2.82% 2,833 15.85%
---------------------- -----------------------
Total.................. $ 3,716 100.00% $ 17,878 100.00%
---------------------- -----------------------
---------------------- -----------------------
- ----------------
(1) Time deposits of $100,000 or more represent 1.76% of total deposits as of
December 31, 1997.
(2) All other time deposits represent 8.46% of total deposits as of December
31, 1997.
ITEM 2. PROPERTY
MAIN OFFICE. The Bank's Main Office opened in September of 1990 and is
located at 1100 N. W. Wall Street, Bend, Oregon, and consists of approximately
15,000 square feet. The building is owned by the Bank and is situated on
leased land. The ground lease term is for 30 years and commenced June 1,
1989. There are ten renewal options of five years each. Monthly rental is
$4,600 per month with adjustments every five years by mutual agreement of
landlord and tenant. The main branch and administrative offices occupy the
main floor, and the mortgage lending office occupies approximately 2,400
square feet on the second floor. An expansion of approximately 6,000 square
feet for bank operations, training and human resources was completed in 1996.
A separate data processing and drive-up facility is also located on site.
THIRD & REVERE BRANCH. The Bank's original Main Office was located at
1700 N. E. Third Street, Bend, Oregon. The building now serves as a branch of
the Bank and provides approximately 4,800 square feet of space. The building
is owned by the Bank and is situated on leased land. The ground lease is for
50 years and commenced in August 1976. Currently the monthly rental is
$4,280. The monthly rental amount is subject to change every five years based
upon a percentage of the increase in appraised value of the property.
SOUTH BEND BRANCH. The South Bend Branch opened in March 1979 and
consists of approximately 2,500 square feet. The building is owned by the
Bank and is situated on leased land. The lease terms extend through November
2028. Currently the monthly rental is $2,908. The monthly rental amount is
subject to change every three years by a percentage equal to the
increase/decrease in the consumer price index.
SUNRIVER BRANCH. The Sunriver Branch opened in April 1980 and is
located at the Sunriver Mall, Sunriver, Oregon. Construction was completed on
a new free standing branch building of 2,330 square feet in September, 1997
and is near the previously existing branch. The new lease term extends
through 2012 (subject to seven options to extend of five years each). The
monthly rental is $1,836. The monthly rental amount is subject to change
every five years based on any percentage increase in the real market
value of the premises. The previously existing lease was canceled as a
condition of the new building lease.
SISTERS BRANCH. The Sisters Branch commenced operations in November
1985 when the Bank purchased the branch from another financial institution.
The branch is located at 175 S. E. Main, Sisters, Oregon and consists of
approximately 2,200 square feet. The building and land are owned by the Bank.
This branch added a drive-up ATM in 1997.
REDMOND BRANCH. The Redmond Branch opened in June of 1992 and consists
of approximately 3,800 square feet. The land and building are leased. The
lease term extends to 2022. The current monthly rental is $3,271 and is
subject to change every five years with a 3 percent per year escalation
clause.
PRINEVILLE BRANCH. The Prineville Branch was acquired in April 1994
from the Resolution Trust Corporation. The Branch is located at 103 W. Third
Street, Prineville, Oregon and consists of approximately 2,014 square feet.
The building and land are owned by the Bank.
EAST BEND BRANCH. The East Bend Branch opened in December, 1995 and is
located in the Safeway Supermarket. The Bank leases 600 square feet of floor
space. The lease term extends through 2000 with two options to extend the
term by five years each. The current monthly rental is $2,750. Monthly
rental is subject to change every five years by a percentage equal to the
increase/decrease in the consumer price index.
CASCADE FINANCE. Cascade Finance opened in January, 1997 and currently
rents space in the administrative offices of the Bank for $750 per month.
Cascade Finance anticipates moving to a new leased location in April, 1998.
The new facility is located at 2650 N.E. Highway 20, Suite B, Bend, Oregon
and consists of 774 square feet of floor space. The lease term extends
through 2002 with one five year term. The monthly rent will be $986 subject
to change annually by 3 percent of the minimum rent.
In the opinion of management all of the Bank's properties are adequately
insured.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time a party to various legal actions
arising in the normal course of business. Management believes that there is
no threatened or pending proceedings against the Company, which, if determined
adversely, would have a material effect on the business or financial
position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information called for by this item is located on page 8 of the
Company's Annual Report to Shareholders for the year ended December 31, 1997,
and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The five year selected financial data called for by this item is located
on page 10 of this annual report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information called for by this item is located on pages 5, 6 and 7
of the Company's Annual Report to Shareholders for the year ended December 31,
1997, and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information called for by this item is located under Interest Rate
Sensitivity and Loan Portfolio in Part 1 of this annual report on Form 10-K
and can be located on pages 14 and 15.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is located on pages 11 through
28 of the Company's Annual Report to Shareholders for the year ended December
31, 1997, and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information called for by this item is located on pages 2, 3 and 8
of the Company's definitive proxy statement for the annual meeting of
shareholders to be held on April 27, 1998, and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is located on page 4 and 5 of
the Company's definitive proxy statement for the annual meeting of
shareholders to be held on April 27, 1998, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is located on page 1 of the
Company's definitive proxy statement for the annual meeting of shareholders to
be held on April 27, 1998, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is located on page 8 of the
Company's definitive proxy statement for the annual meeting of shareholders to
be held on April 27, 1998, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on
Form 10-K.
(1) The financial statements required in this Annual Report are listed
in the accompanying Index to Consolidated Financial Statements,
and are incorporated herein by reference.
(2) Financial Statement Schedules.
All financial statement schedules are omitted since the required
information is not present or not present in amounts sufficient to
require submission of the schedule or because the information
required is included in the consolidated financial statements or
notes thereto.
(3) Exhibits.
3.1 ARTICLES OF INCORPORATION. As amended, filed as exhibit 3.1
to registrant's Form 10-Q report for the quarter ended June
30, 1997, and incorporated herein by reference.
3.2 BYLAWS. As amended, filed as exhibit 3.2 to registrant's
Form 10-QSB report for the quarter ended March 31, 1995, and
incorporated herein by reference.
10.1 REGISTRANT'S 1994 INCENTIVE STOCK OPTION PLAN. Filed as an
exhibit to registrant's Registration Statement on Form
10-SB, filed in January, 1994, and incorporated herein by
reference.
10.2 INCENTIVE STOCK OPTION PLAN LETTER AGREEMENT. Entered into
between registrant and certain employees pursuant to
registrant's 1994 Incentive Stock Option Plan. Filed as an
exhibit to registrant's Registration Statement on Form
10-SB, filed in January, 1994, and incorporated herein by
reference.
10.3 SALARY CONTINUATION AGREEMENT. Between Roger J. Shields and
registrant. Filed as an exhibit to registrant's
Registration Statement on Form 10-SB, filed in January,
1994, and incorporated herein by reference.
10.4 MATERIAL CONTRACT. Advances, Security and Deposit
Agreement, dated November 18, 1991, between Bank of the
Cascades and the Federal Home Loan Bank of Seattle. Filed
as Exhibit 10.4 to registrant's Form 10-KSB filed December
31, 1994, and incorporated herein by reference.
10.5 DEFERRED COMPENSATION PLANS. Established for the Board,
certain key executives and managers during the fourth
quarter ended December 31, 1995. Filed as exhibit 10.5 to
registrant's Form 10-KSB filed December 31, 1995, and
incorporated herein by reference.
11.1 EARNINGS PER SHARE COMPUTATION. The information called for
by this item is located on page 22 of the Company's Annual
Report to Shareholders for the year ended December 31, 1997,
and is incorporated herein by reference.
13.1 1997 Annual Report to Shareholders. Portions of the
registrant's annual report to shareholders are incorporated
by reference as noted above. With the exception of the
portions specifically incorporated herein by reference, the
1997 Annual Report to Shareholders is not deemed filed as
part of this Form 10-K, Annual Report.
21.1 SUBSIDIARIES OF REGISTRANT. Filed as Exhibit 21.1 to
registrant's Form 10-KSB for the year ended December 31,
1996, and incorporated herein by reference.
23.1 CONSENT OF INDEPENDENT AUDITORS; SYMONDS, EVANS & LARSON,
P.C.
27.1 FINANCIAL DATA SCHEDULE.
(b) REPORTS ON FORM 8-K. The Company did not file any reports on Form
8-K during the last quarter of the fiscal year ended December 31, 1997.
CASCADE BANCORP
Index to Consolidated Financial Statements
(Item 13(a))
Annual
Report to
Shareholders
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . 10
Consolidated Balance Sheets at December 31, 1997 and 1996. . . . . . . 11
For the Years Ended December 31, 1997, 1996 and 1995:
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . 12
Consolidated Statements of Changes in Stockholders' Equity. . . . . . 13
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . 14
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 15-28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CASCADE BANCORP CASCADE BANCORP
/s/ Roger J. Shields /s/ Patricia L. Moss
- ------------------------- ---------------------------
Roger J. Shields Patricia L. Moss
President Chief Financial Officer
March 16, 1998 March 16, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Jerry E. Andres March 16, 1998
- ------------------------------------- ----------------------------
Jerry E. Andres, Director Date
/s/ Gary L. Capps March 16, 1998
- ------------------------------------- ----------------------------
Gary L. Capps, Director Date
/s/ Gary L. Hoffman March 16, 1998
- ------------------------------------- ----------------------------
Gary L. Hoffman, Director Date
/s/ Patricia L. Moss March 16, 1998
- ------------------------------------- ----------------------------
Patricia L. Moss, Director/ Date
Executive Vice President
/s/ James E. Petersen March 16, 1998
- ------------------------------------- ----------------------------
James E. Petersen, Director/ Date
Assistant Secretary
/s/ Roger J. Shields March 16, 1999
- ------------------------------------- ----------------------------
Roger J. Shields, Director/President Date
/s/ Jacob M. Wolfe March 16, 1998
- ------------------------------------- ----------------------------
Jacob M. Wolfe, Director Date
Form 10-K, December 31, 1997