| |X| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2004
| |_| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to
Commission file number: 0-23322
CASCADE
BANCORP
(Exact name of Registrant as specified in its charter)
| Oregon | 93-1034484 |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) |
| incorporation or organization) |
1100 NW Wall
Street
Bend, Oregon 97701
(Address of principal executive offices)
(Zip Code)
(541) 385-6205
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 16,714,506 shares of no par value Common Stock as of October 31, 2004.
CASCADE
BANCORP & SUBSIDIARY INDEX Page 3 Nine
months and three months ended September 30, 2004 and 2003 4 Condensed
Consolidated Statements of Changes in Stockholders’ Equity: 5 6 7 12 19 19 21 22 Item
1. FINANCIAL
STATEMENTS Condensed
Consolidated Balance Sheets September
30, 2004 and December 31, 2003 (Unaudited) See
accompanying notes. 3 Condensed
Consolidated Statements of Income Nine
Months and Three Months ended September 30, 2004 and 2003 (Unaudited) See
accompanying notes. 4 Condensed
Consolidated Statements of Changes in Stockholders’ Equity Nine
Months Ended September 30, 2004 and 2003 (Unaudited) See
accompanying notes. 5 Cascade
Bancorp & Subsidiary Condensed
Consolidated Statements of Cash Flows Nine
Months ended September 30, 2004 and 2003 (Unaudited) See
accompanying notes. 6 Cascade
Bancorp & Subsidiary Notes
to Condensed Consolidated Financial Statements September
30, 2004 (Unaudited) 1.
Basis
of Presentation The
accompanying interim condensed consolidated financial statements include the
accounts of Cascade Bancorp (Bancorp), a financial holding company, and its
wholly owned subsidiary, Bank of the Cascades (the Bank) (collectively, “the
Company”). All significant intercompany accounts and transactions have
been eliminated in consolidation. The
interim condensed consolidated financial statements have been prepared by
the Company without audit and in conformity with accounting principles generally
accepted in the United States for interim financial information. Accordingly,
certain financial information and footnotes have been omitted or condensed.
In the opinion of management, the condensed consolidated financial statements
include all necessary adjustments (which are of a normal and recurring nature)
for the fair presentation of the results of the interim periods presented.
In preparing the condensed consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheets and income
and expenses for the periods. Actual results could differ from those estimates. The
condensed consolidated balance sheet data as of December 31, 2003 was derived
from audited financial statements, but does not include all disclosures contained
in the Company’s 2003 Annual Report to Shareholders. The interim condensed
consolidated financial statements should be read in conjunction with the December
31, 2003 consolidated financial statements, including the notes thereto, included
in the Company’s 2003 Annual Report to Shareholders. All
issued and outstanding shares, weighted average shares and per share amounts
in the accompanying condensed consolidated financial statements have been
retroactively adjusted to reflect a five-for-four stock split that was declared
in March 2004. In addition, shares issued and outstanding reflect the approximately
773,000 shares issued in January 2004 to acquire Community Bank of Grants
Pass. Certain
amounts for 2003 have been reclassified to conform with the 2004 presentation. 2. Stock-Based
Compensation The
Company measures its stock-based compensation arrangements under the recognition
and measurement principles of Accounting Principles Board Opinion No. 25,
“Accounting for Stock issued to Employees”, (APB 25) and related
Interpretations. Accordingly, since the exercise price of each stock option,
which the Company has granted has been equal to the market value of the underlying
common stock on the date of grant, no compensation expense has been recognized.
The
following table illustrates the effects on net income and earnings per common
share if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting
for Stock Based Compensation as amended by SFAS No. 148,” Accounting
for Stock-Based Compensation – Transition and Disclosure,” to stock-based
employee compensation for the nine months and three months ended September
30, 2004 and 2003: 7
3. Investment Securities
Investment
securities at September 30, 2004 and December 31, 2003 consisted of the following: Management
of the Company does not believe that any of the above unrealized losses on
investment securities available-for-sale are other than temporary and, accordingly,
no impairment adjustments are necessary. 8 4. Loans
and Reserve for Loan Losses The
composition of the loan portfolio at September 30, 2004 and December 31, 2003
was as follows: Mortgage
real estate loans include mortgage loans held for sale of approximately $1,463,000
at September 30, 2004 and approximately $2,482,000 at December 31, 2003. Transactions
in the reserve for loan losses for the nine months ended September 30, 2004
and 2003 were as follows: 5. Non-Performing
Assets Risk
of nonpayment exists with respect to all loans, which could result in the
classification of such loans as non-performing. The following table presents
information with respect to non-performing assets at September 30, 2004 and
December 31, 2003: 9 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 non-accrual 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 non-accrual 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. Interest
income that was reversed and charged against income in 2004 and 2003 was immaterial. At
September 30, 2004, except as discussed above, there were no potential material
problem loans 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. 6. Mortgage
Servicing Rights At
September 30, 2004 and December 31, 2003, the Bank held servicing rights to
mortgage loans with principal balances of approximately $505,102,000 and $514,223,000,
respectively. Because these loans are sold to Fannie Mae, a U.S. government
sponsored enterprise, they are not included in loan balances in the accompanying
condensed consolidated balance sheets. The sales of these mortgage loans are
subject to specific underwriting documentation standards and requirements,
which may result in repurchase risk. However, as of September 30, 2004, management
is not aware of any material mortgage loans that will be subject to repurchase.
Other
assets in the accompanying condensed consolidated balance sheets include capitalized
mortgage servicing rights (MSRs) accounted for at the lower of origination
value less accumulated amortization, or current fair value. The carrying value
of MSRs was $4.8 million and $4.7 million at September 30, 2004 and December
31, 2003, respectively. The fair value of MSRs was approximately $5.1 million
and $5.2 million at September 30, 2004 and December 31, 2003, respectively.
Activity in MSRs for the nine months ended September 30, 2004 and 2003 was
as follows: (See MD&A – Non-Interest income). Changes
in the valuation allowance for MSRs for the nine months ended September 30,
2004 and 2003 were as follows: 7. Basic
and diluted earnings per common share The
Company’s basic earnings per common share is computed by dividing net
income by the weighted-average number of common shares outstanding during
the period. The Company’s diluted earnings per common share is computed
by dividing net income by the weighted-average number of common shares outstanding
plus the incremental shares arising from the dilutive effect of unexercised
“in the money” stock options. All share and per share amounts have
been retroactively adjusted to reflect the five-for-four stock split declared
in March, 2004. 10 The
numerators and denominators used in computing basic and diluted earnings per
common share for the nine months and three months ended September 30,
2004 and 2003 can be reconciled as follows: 8. Acquisition
of Community Bank of Grants Pass On
January 1, 2004 the Company completed its acquisition of Community Bank of
Grants Pass (CBGP). The results of CBGP’s operations have been included
in the condensed consolidated financial statements since that date. CBGP shareholders
received one share of the Company’s stock for each share of CBGP stock,
aggregating a total purchase price of approximately $11.7 million. The acquisition
was accounted for using the purchase method of accounting. The following table
summarizes the estimated fair value of assets acquired and liabilities assumed
at the date of acquisition (in thousands): Goodwill
represents the excess of the purchase price over the fair value of the net
assets acquired in connection with the Company’s acquisition of CBGP.
The goodwill is not amortized but the Company will periodically assess (at
least on an annual basis) whether events or changes in circumstances indicate
that the carrying amount of goodwill may be impaired. The core deposit intangible
asset is being amortized over the estimated average life of approximately
6 years under the straight-line method. 9. Recent
Accounting Pronouncements The
Financial Accounting Standards Board (FASB) recently issued a proposed statement,
Share-Based Payment, that addresses
the accounting for share-based payment transactions (for example, stock options
and awards of restricted stock) in which an employer receives employee-services
in exchange for equity securities of the company or liabilities that are based
on the fair value of the company’s equity securities. This proposal,
when finalized, would eliminate the use of APB 25 and generally would require
such transactions be accounted for using a fair-value based method and recording
compensation expense rather than optional pro forma disclosure of what expense
amounts might be. The proposal, when approved, would substantially amend SFAS
No. 123. Legislation has been introduced to substantially limit the FASB proposal.
Uncertainty continues as to whether the proposal will be finalized and the
FASB has recently announced some major proposed revisions to it. Currently,
the most recent announcements suggest that this guidance may become effective
for periods beginning after June 15, 2005 for public companies. Management
has not completed its review of the proposal or assessed its potential impact
on the Company. 11 MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
The
following discussion should be read in conjunction with the Company’s
unaudited condensed consolidated financial statements and the notes thereto
as of September 30, 2004 and the operating results for the nine and three
months then ended, included elsewhere in this report. Cautionary
Information Concerning Forward-Looking Statements The
following section contains forward-looking statements which are not historical
facts and pertain to our future operating results. These statements include,
but are not limited to, our plans, objectives, expectations and intentions
and are not statements of historical fact. When used in this report, the word
“expects,” “believes,” “anticipates” and other
similar expressions are intended to identify forward-looking statements, which
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those projected. Specific risks and uncertainties include,
but are not limited to, general business and economic conditions, changes
in interest rates including timing or relative degree of change, and competitive
uncertainties and contingencies, many of which are beyond our control. In
addition, these forward-looking statements are subject to assumptions with
respect to future business conditions, strategies and decisions, and such
assumptions are subject to change. Results
may differ materially from the results discussed due to changes in business
and economic conditions that negatively affect credit quality, which may be
exacerbated by our concentration of operations in the State of Oregon generally,
and the communities of Central Oregon, Salem/Keizer, Southern Oregon and Portland,
specifically. Likewise, competition or changes in interest rates could negatively
affect the net interest margin, as could other factors listed from time to
time in the Company’s SEC reports. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publish revised forward-looking
statements to reflect the occurrence of unanticipated events or circumstances
after the date hereof. Critical
Accounting Policies Critical
accounting policies are defined as those that are reflective of significant
judgments and uncertainties, and could potentially result in materially different
results under different assumptions and conditions. We believe that our most
critical accounting policies upon which our financial condition depends, and
which involve the most complex or subjective decisions or assessments are
as follows: Reserve
for Loan Losses: Arriving at an appropriate level
of reserve for loan losses involves a high degree of judgment. The Company’s
reserve for loan losses provides for probable losses based upon evaluations
of known and inherent risks in the loan portfolio. Management uses historical
information to assess the adequacy of the reserve for loan losses as well
as the prevailing business environment. The reserve may be affected by changing
economic conditions and various external factors, which may impact the portfolio
in ways currently unforeseen. The reserve is increased by provisions for loan
losses and by recoveries of loans previously charged-off and reduced by loans
charged-off. For a full discussion of the Company’s methodology of assessing
the adequacy of the reserve for loan losses, see Management’s Discussion
and Analysis of Financial Condition and Results of Operation in the Company’s
Annual Report on Form 10K. Mortgage
Servicing Rights (MSRs): Determination of the fair
value of MSRs requires the estimation of multiple interdependent variables,
the most impactful of which is mortgage prepayment speeds. Prepayment speeds
are estimates of the pace and magnitude of future mortgage payoff or refinance
behavior of customers whose loans are serviced by the Company. Errors in estimation
of prepayment speeds or other key servicing variables could subject MSRs to
impairment risk. At least quarterly, the Company engages a qualified third
party to provide an estimate of the fair value of MSRs using a discounted
cash flow model with assumptions and estimates based upon observable market-based
data and methodology common to the mortgage servicing market. Management believes
it applies reasonable assumptions under the circumstances, however, because
of possible volatility in the market price of MSRs, and the vagaries of any
relatively illiquid market, there can be no assurance that risk management
and existing accounting practices will result in the avoidance of possible
impairment charges in future periods. See also Management’s Discussion
and Analysis of Financial Condition and Results of Operation-Non-Interest
Income, and footnote 6 of the Condensed Consolidated Financial Statements. 12 Highlights
For The Third Quarter 2004 • Earnings:
Net Income of $4.1 million with Earnings per Share (diluted) at $.24.
EPS grew 19.2% (annualized) from the immediately preceding quarter;
8.3% above the same quarter of 2003. • New
Markets: The Portland office joins Southern Oregon in achieving
profitability less than one year from opening. • Record
Quarterly Loan Growth: Loans grew a record $62.3 million during
the quarter or 33.8% sequentially from the preceding quarter (annualized).
Compared to a year ago, total loans are higher by $238.3 million or
42.4%. • Record
Quarterly Deposit Growth: Total Deposits increased by a record $72.2
million or 37.7% sequentially from the preceding quarter (annualized).
Compared to a year ago, total deposits are higher by $196.4 million
or 30.6%. • Positive
Credit Quality: Loan portfolio credit quality continued strong with
delinquencies only .12% of total loans; net charge-offs at .11% (annualized). Financial
Performance for the Third Quarter: The
Company announced strong third quarter earnings performance and record loan
and deposit growth. Earnings Per Share (diluted) for the third quarter of
2004 was $0.24, up 19.2% (annualized) from the immediately preceding quarter
of $.23 (note that the earlier quarter included a non-recurring increase of
$.01 relating to a valuation adjustment of mortgage servicing rights (MSR)).
Earnings progress is the result of higher net interest income generated by
solid loan and deposit growth in both existing and new markets. The Company’s
net income for the quarter ended September 30, 2004 was $4.1 million or 15.0%
above the year-ago quarter. Return on equity was 20.5% and return on assets
was 1.81% for the third quarter of 2004. New
Market Initiatives - Southern Oregon and Portland Update: The
following table describes the financial progress in new markets since our
entry in mid-2003: The
Company is deploying a “community banking” strategy in the Southern
Oregon market, similar to its successful approach in Central Oregon. In Portland,
the Company has a niche strategy focused on the banking needs of small-to-medium
sized commercial and professional businesses and individuals in the metro
area. Continued success in new markets is dependent upon achievement of loan
and deposit growth goals, credit quality, revenue generation and other factors. 13 Loan
Growth and Credit Quality: At
September 30, 2004, total loans had grown to $800.6 million, up 42.4% compared
to a year ago. Loan growth for the third quarter was a record $62.3 million
or a 33.8% annualized sequential increase from the prior quarter. New loans
generated in the new markets of Portland and Southern Oregon contributed $48.5
million to this quarter’s loan growth. Meanwhile, annualized sequential
loan growth in both the Company’s Central Oregon and Salem markets increased
at a double digit pace. The
Company’s loan credit quality profile remained strong with delinquent
loans greater than 30 days past due at only .12% of total loans, while net
loan charge-offs for the quarter were $0.2 million or only .11% (annualized)
of total loans, consistent with recent quarters. In concert with its strong
loan growth, the Company added $1.2 million to its Reserve for Loan Losses
during the current quarter compared to $.9 million for the preceding quarter
and $.7 million in the year ago quarter. The Reserve for Loan Losses at quarter
end stood at a prudent 1.49% of total loans, consistent with prior periods
and at a level appropriate to current circumstances and prevailing economic
conditions. Deposit
Growth: At
September 30, 2004, deposits were $837.9 million, up 30.6% or $196.4 million
from a year ago, and up sequentially by $72.2 million or 37.7% (annualized)
from the prior quarter. This record deposit growth was virtually all in core
customer deposits (checking and money market accounts), while changes in time
deposits balances were negligible. New market growth accounted for $39 million
of the increase from the immediately preceding quarter, while a strong seasonal
increase in deposits was evident in the Central Oregon market. Illustrating
the success of the Company’s attractive cash management services, the
compound rate of growth in business related deposits has exceeded 40% during
the past three years. Business related deposits now average over 50% of total
deposits, compared to 33% three years ago. Non-interest bearing deposits continue
at the highest levels in the industry, at over 40% of total deposits. Net
Interest Margin: The
Company’s third quarter net
interest margin (NIM) was up modestly at 5.76% compared to 5.72% for the prior
quarter and 5.63% for the third quarter of 2003. The net interest margin will
likely range between 5.60% and 5.80% over the next 12 to 18 months assuming
interest rates follow the financial markets expected gradual path to modestly
higher rates. The Company has a modest sensitivity to higher rates which is
mitigated by its strong core deposit base and its growing portfolio of floating
rate loans. Floating rate loans have risen from 32% to 40% of total loans
over the past three years. Over that horizon, fixed rate loans have declined
from 31% to 17%, while periodically adjustable loans (typically 3 to 5 year
re-pricing) have increased from 37% to 43%. The Company could be adversely
affected in the event of an unexpected dramatic decline in interest rates,
as its loan yields would compress against an already low cost of funds. The
margin can also be affected by competitive factors including aggressive price
offerings on loans or deposits. Please see cautionary “Forward Looking
Statements” below as well as the Company’s Form 10K annual report
for further information on interest rate risk. Non-Interest
Income and Expense: Non-interest
income for the third quarter was lower by $.3 million or 9.6% compared to
the immediately preceding quarter. This decline is primarily the result of
a positive non-recurring mortgage servicing rights valuation adjustment of
$.3 million in the immediately preceding quarter. As expected, total non-interest
income was down 16.5% from the third quarter of 2003 due to lower mortgage
origination volume and revenue. The year ago period marked the peak of the
nationwide mortgage origination boom. Compared to the year ago period, banking
service fee revenues were higher by 9.3%, the result of higher volumes of
customer banking transactions and utilization of overdraft protection products. As
mentioned above, residential mortgage revenues continue below the record-setting
pace of 2003. The Company originated $33.3 million in residential mortgages
during the quarter ended September 30, 2004, compared to $101.6 million for
the year ago quarter and $44.1 million for the immediately preceding quarter.
Consequently, this expected decline in volumes and margins have caused mortgage
revenue to decrease as a percentage of total revenue. For the current quarter,
gross mortgage revenue was 2.8% of the Company’s non-interest income
versus 10.2% for the year ago quarter. At September 30, 2004, the Company
serviced $505.1 million in mortgage loans on behalf of its customers, representing
approximately 4,100 mortgage loans. The Company’s related Mortgage servicing
rights (MSR) had an amortized cost (book value) of $4.8 million compared to
a fair (market) value of approximately $5.1 million. Thus, there was no MSR
valuation adjustment for the current quarter. For the immediately preceding
quarter, the Company recorded a positive valuation adjustment of $.3 million
pretax, adding about $.01 per share to earnings. At September 30, 2004, expressed
as a percentage of loans serviced, MSR at amortized cost (book value) was
.94% of serviced mortgage loans, while fair value was approximately 1.03%
of serviced mortgages. Fair value was estimated at 1.13% at June 30, 2004,
and 0.82% a year ago. 14 Non-interest
expense for the third quarter of 2004 was 12.7% or $.8 million above the year
ago quarter. The overall expense increase is primarily attributable to increased
staffing costs from expanding into new markets. About 59% of the year-over-year
expense increase is attributable to incremental costs incurred in these new
markets (including expenses related to the operations of Community Bank of
Grants Pass). Excluding costs incurred in new markets, the Company’s
core expenses were approximately 5.6% higher than a year ago. RESULTS
OF OPERATIONS – Nine Months and Three Months
ended September 30, 2004 and 2003 Net
Interest Income Net
interest income increased 21.3% for the nine months and increased 29.1% for
the quarter ended September 30, 2004 as compared to the same periods in 2003,
primarily due to higher loan volumes. During the third quarter of 2004, yields
earned on loans and investments stood at 6.33% compared to 6.27% in the prior
quarter, down from 6.23% a year earlier. Meanwhile the average overall cost
of funds for the quarter ended September 30, 2004 was at 0.58% versus 0.56%
in the prior quarter and 0.62% a year ago. The Company’s reported NIM
was 5.76% for the third quarter ended September 30, 2004 compared to 5.63%
in the same period a year ago. As
a result of higher loan volume, total interest income increased approximately
$6,103,000 or (20.1%) for the nine months ended and increased $2,907,000 (or
28.2%) for the quarter ended September 30, 2004 as compared to the same periods
in 2003. Increased volumes of interest bearing deposits caused total interest
expense to increase approximately $303,000 (or 10.1%) for the nine months
and increase $196,000 (or 19.8%) for the quarter ended September 30, 2004
as compared to the same periods in 2003. The
net interest margin is a key indicator of profitability in the banking industry,
reflecting the difference between rates earned on loans and investments compared
to the cost of funds supporting these assets. As market interest rates have
declined over the past several years, the banking industry in general has
experienced margin compression, as banks have seen lower loan yields on both
new and refinanced loans. At the same time, funding costs are already at low
levels. The net interest margin will likely range between 5.60% and 5.80%
over the next 12 to 18 months assuming interest rates follow the financial
markets expected gradual path to modestly higher rates. In addition, the margins
earned in competitive new markets may be narrower than those earned in its
existing markets, and may tend to narrow the margin in the future. Forecasting
the net interest margin is difficult, as unforeseen changes can occur in interest
rates, the economy, or shape of the yield curve. In addition, customer and
competitor behavior are difficult to predict and can affect yields on loans
and rates on deposits. Please see the Company’s Annual Report on Form
10K for further information on interest rate risk. 15 Average
Balances and Average Rates Earned and Paid The
following table sets forth for the quarter ended September 30, 2004 and 2003
information with regard to average balances of assets and liabilities, as
well as total dollar amounts of interest income from interest-earning assets
and interest expense on interest-bearing liabilities, resultant average yields
or rates, net interest income, net interest spread, net interest margin and
the ratio of average interest-earning assets to average interest-bearing liabilities
for the Company: (Dollars in thousands) Analysis
of Changes in Interest Income and Expense The
following table shows the dollar amount of increase (decrease) in the Company’s
consolidated interest income and expense for the quarter ended September 30,
2004, and attributes such variance to “volume” or “rate”
changes. Variances that were immaterial have been allocated equally between
rate and volume categories. (Dollars in thousands): 16 Loan
Loss Provision At
September 30, 2004, the reserve for loan losses was 1.48% of total loans,
as compared to 1.60% at year end year end 2003 and 1.59% at September 30,
2003. The loan loss provision was $1,200,000 in the third quarter of 2004
compared to $675,000 for the year earlier period, reflective of rapid loan
growth during the quarter. Provision expense is determined by the Company’s
ongoing analytical and evaluative assessment of the adequacy of the loan loss
reserve. This assessment reflects a continued sound credit quality profile,
with low delinquent loans, modest net loan charge-offs and stable non-performing
assets. At this date, management believes that its reserve for loan losses
is at an appropriate level under current circumstances and prevailing economic
conditions. Noninterest
Income Noninterest
income decreased 1.0% for the nine months and decreased 16.5% for the quarter
ended September 30, 2004 as compared to the same periods in 2003, primarily
due to the expected decline in mortgage revenues (detailed below), partially
offset by increases in service fee income and other income. Service fee income
increased 12.8% for the nine months and increased 9.3% for the quarter ended
September 30, 2004 compared to the year ago periods. Theses increases are
primarily a result of higher volumes of customer banking transactions including
strong customer acceptance and utilization of our overdraft protection product. The
headwind of higher interest rates has caused residential mortgage activity
and revenue to decline from the record-setting pace of 2003. The Company originated
$33.3 million in residential mortgages during the quarter ended September
30, 2004, compared to $101.6 million for the year ago quarter and $44.1 million
for the immediately preceding quarter. As expected, declining volumes and
narrower margins have caused mortgage revenue to fall as a percent of total
revenue. For the current quarter, mortgage revenue was 2.8% of the Company’s
non-interest income versus 10.2% for the year ago quarter. Of the mortgage
originations in 2004, approximately 80% were sold to FNMA servicing retained,
while the remaining 20% were sold to other investors servicing released. Generally
accepted accounting principles call for MSR to be carried at the lower of
amortized cost (book value) or fair value. At September 30, 2004, the Company
serviced $505.1 million in mortgage loans on behalf of its customers, representing
approximately 4,100 mortgage loans. The Company’s related Mortgage servicing
rights (MSR) had a cost (book) basis of $4.8 million compared to a fair (market)
value of approximately $5.1 million. Thus, there was no MSR valuation adjustment
for the current quarter. For the immediately preceding quarter, the Company
recorded a positive valuation adjustment of $.3 million pretax, adding about
$.01 per share to earnings. At September 30, 2004, expressed as a percentage
of loans serviced, MSR amortized cost (book value) basis was .94% of serviced
mortgage loans, while fair value was approximately 1.03% of serviced mortgages.
Fair value was estimated at 1.13% at June 30, 2004, and 0.82% a year ago.
17 Noninterest
Expense Noninterest
expense increased 19.6% for the nine months and 12.7% for the quarter ended
September 30, 2004 compared to the same periods in 2003. The 2003 periods
did not include expenses attributable to the ongoing operations of Community
Bank of Grants Pass acquisition January, 2004 and incremental expense of operating
banking offices in the new Portland & Southern Oregon markets. Overall
expense increases include staff costs in new markets and activities to meet
growing business volumes and support for new markets. Income
Taxes Income
tax expense increased between the periods presented primarily as a result
of higher pre-tax income. FINANCIAL
CONDITION Assets
continued to increase in the third quarter of 2004 with total assets increasing
31.9% to $969.0 million at September 30, 2004 compared to $734.7 million at
December 31, 2003. Approximately one quarter of the growth resulted from the
acquisition of CBGP. Net loans outstanding increased 36.5% to $788.7 million
at September 30, 2004 as compared to $577.8 million at December 31, 2003,
including approximately $36 million arising from CBGP. Loan growth during
the quarter was primarily funded by increased deposits, borrowings and use
of available cash and cash equivalents. The investment portfolio increased
21.6% to $41.7 million from $34.3 at year end 2003. Deposits increased $186.8
million to $837.9 million, including approximately $42 million attributable
to CBGP. The
Company had no material off balance sheet derivative financial instruments
as of September 30, 2004 and December 31, 2003. LIQUIDITY
AND SOURCES OF FUNDS The
objective of liquidity management is to maintain ample cash flows to meet
obligations for depositor withdrawals, fund the borrowing needs of loan customers,
and to fund ongoing operations. Core relationship deposits are the primary
source of the Bank’s liquidity. As such, the Bank focuses on deposit
relationships with local business and consumer clients who maintain multiple
accounts and services at the Bank. Management views such deposits as the foundation
of its long-term liquidity because it believes such core deposits are more
stable and less sensitive to changing interest rates and other economic factors
compared to large time deposits or wholesale purchased funds. The Bank’s
customer relationship strategy has resulted in a relatively higher percentage
of its deposits being held in checking and money market accounts, and a lesser
percentage in time deposits. The Bank has no brokered deposits at this time.
A
further source of funds is borrowings from reliable counterparties. The Bank
utilizes its investment securities and certain loan portfolio types to provide
collateral to support its borrowing needs. Policy
requires the analysis and testing of liquidity to ensure ample cash flow is
available under a range of circumstances. Management believes that its focus
on core relationship deposits coupled with access to borrowing through reliable
counterparties provides reasonable and prudent assurance that ample liquidity
is available. However, depositor or counterparty behavior could change in
response to competition, economic or market situations including relative
returns available in stock or bond markets or other unforeseen circumstances,
which could have liquidity implications that may require different strategic
or operational actions to fund the Bank. The
Bank’s primary counterparty for borrowing purposes is the Federal Home
Loan Bank (FHLB). At September 30, 2004 the FHLB had extended the Bank a secured
line of credit of $131.2 million that may be accessed for short or long-term
borrowings given sufficient qualifying collateral. The Bank also had $17.9
million in short term borrowing availability from the Federal Reserve Bank
(FRB) that requires specific qualifying collateral. During the second quarter
of 2004, the Bank changed its Treasury Tax & Loan (TT&L) election
from a collector to investor designation, enabling Federal tax receipts to
be held at the Bank within $12.0 million collateral limits and subject to
periodic call by the Treasury. In addition, the Bank maintained unsecured
lines of credit totaling $26.0 million for the purchase
of funds on a short-term basis from several commercial bank counterparties.
At September 30, 2004 the Bank had aggregate remaining available borrowing
sources totaling $148.5 million, given sufficient collateral. 18 Liquidity
may be affected by the Bank’s routine commitments to extend credit. Historically
a significant portion of such commitments (such as lines of credit) have expired
or terminated without funding. In addition, over 1/3 of total commitments
pertain to various construction projects. Under the terms of such construction
commitments, completion of specified project benchmarks must be certified
before funds may be drawn. At September 30, 2004 the Bank had approximately
$284.7 million in outstanding commitments to extend credit, compared to approximately
$199.5 million at year-end 2003. Management believes that the Bank’s
available resources will be sufficient to fund its commitments in the normal
course of business. Borrowings At
September 30, 2004 the Bank had a total of approximately $29.7 million in
long-term borrowings from FHLB with maturities ranging from 2005 to 2013,
bearing a weighted-average interest rate of 3.31%. In addition, at September
30, 2004, the Bank had approximately $8.9 million in short-term TT&L borrowings.
At December 31, 2003, the Bank had a total of $13.9 million in long-term borrowings
from FHLB bearing a weighted-average interest rate of 2.98%. See “Liquidity
and Sources of Funds” section on page 18 for further discussion. CAPITAL
RESOURCES The
Company’s total stockholders’ equity at September 30, 2004 was $82.3
million, an increase of $20.5 million from December 31, 2003. The increase
was the net result of issuance of stock related to CBGP acquisition plus earnings
of $11.5 million for the nine months ended September 30, 2004, less cash dividends
to shareholders of $3.2 million during the same period. In addition, at September
30, 2004 the Company had accumulated other comprehensive income of approximately
$.7 million. Regulatory
“Adequately Capitalized” Designation: As
part of its oversight of banks and holding companies, the FDIC and FRB promulgate
risk-based capital classifications for banks and holding companies. In October
2004 the Company became aware of a required adjustment to its 2004 capital
ratios relating to undisbursed loan commitments. After the adjustment, the
Company remained “well capitalized” as of March 31, 2004. However,
the Company’s risk-based capital designation was adjusted from “well
capitalized” to “adequately capitalized” as of June 30, 2004
and September 30, 2004. Management does not believe that the “adequately
capitalized” designation will have a material adverse effect on the Company’s
operations, growth prospects or profitability. At March 31, 2004, June 30,
2004 and September 30, 2004, the Company’s Tier 1 ratios were 8.90%,
8.29% and 8.16%, respectively. The regulatory minimum to be “adequately
capitalized” and “well capitalized” for Tier 1 capital is 4%
and 6%, respectively. At March 31, 2004, June 30, 2004 and September 30, 2004,
the Company’s total risked-based capital ratios were 10.20%, 9.57% and
9.45%, respectively. The regulatory minimum to be “adequately capitalized”
and “well capitalized” for total capital is 8% and 10%, respectively. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market
risk is the risk of loss from adverse changes in market prices and rates.
The Company’s market risk arises principally from interest rate risk
in its lending, deposit and borrowing activities. Management actively monitors
and manages its interest rate risk exposure. Management considers interest
rate risk to be a significant market risk, which could have the largest material
effect on the Company’s financial condition and results of operations.
There
has not been any material change in the market risk disclosure contained in
the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2003. CONTROLS
AND PROCEDURES Evaluation
of Disclosure Controls and Procedures Our
Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness
of our disclosure controls and procedures (as such term is defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended)
as of a date within 90 days prior to the filing date of this quarterly report
(the “Evaluation Date”). Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of the Evaluation
Date, our disclosure controls and procedures are effective in alerting them
on a timely basis to material information relating to the Company required
to be included in our reports filed or submitted under the Securities Exchange
Act of 1934, as amended. 19 Changes
in Internal Controls Since
the Evaluation Date, there have not been any significant changes in our internal
controls or in other factors that could significantly affect such controls. 20 Exhibits
and Reports on Form 8-K (a) Exhibits 31.1 Certification
of Chief Executive Officer 31.2 Certification
of Chief Financial Officer
32 Certification
Pursuant to Section 906
(b) Reports
on Form 8-K The
Company filed a report on Form 8-K on October 12, 2004 in regards to release
of the Company’s third quarter 2004 earnings. 21 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized. CASCADE
BANCORP
(Registrant)
Date
11/3/04 By /s/
Patricia L. Moss
Patricia
L. Moss, President & CEO Date 11/3/04 By /s/
Gregory D. Newton
Gregory
D. Newton, EVP/Chief 22
FORM 10-Q
QUARTERLY REPORT
SEPTEMBER 30, 2004
ASSETS
September
30,
2004
December
31,
2003
Cash
and cash equivalents:
Cash
and due from banks
$
29,497,471
$
34,930,921
Interest
bearing deposits with Federal Home Loan Bank
28,016,003
38,789,177
Federal
funds sold
26,250,000
14,800,000
Total
cash and cash equivalents
83,763,474
88,520,098
Investment
securities available-for-sale
41,039,722
33,609,058
Investment
securities held-to-maturity
659,474
661,686
Federal
Home Loan Bank stock
2,409,400
2,295,600
Loans,
net
788,677,687
577,801,194
Premises
and equipment, net
21,459,993
13,828,138
Accrued
interest and other assets
31,011,220
17,996,170
Total
assets
$
969,020,970
$
734,711,944
LIABILITIES
& STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand
$
362,387,891
$
245,378,530
Interest
bearing demand
388,317,967
332,792,532
Savings
35,804,739
28,715,391
Time
51,394,633
44,268,539
Total
deposits
837,905,230
651,154,992
Borrowings
38,575,205
13,864,605
Accrued
interest and other liabilities
10,247,000
7,936,653
Total
liabilities
886,727,435
672,956,250
Stockholders’
equity:
Common
stock, no par value;
20,000,000
shares authorized;
16,710,670
issued and outstanding (15,776,593 in 2003)
31,507,284
19,147,285
Retained
earnings
50,323,207
42,100,708
Unearned
compensation on restricted stock
(187,110
)
(280,665
)
Accumulated
other comprehensive income
650,154
788,366
Total
stockholders’ equity
82,293,535
61,755,694
Total
liabilities and stockholders’ equity
$
969,020,970
$
734,711,944
Nine months
ended
September 30,
Three
months ended
September 30,
2004
2003
2004
2003
Interest
income:
Interest
and fees on loans
$
35,309,564
$
29,184,134
$
12,827,118
$
9,894,326
Taxable
interest on investments
766,080
781,046
306,641
222,788
Nontaxable
interest on investments
65,067
44,126
21,689
21,073
Interest
on federal funds sold
73,384
83,760
13,778
39,562
Interest
on interest bearing deposits
with
Federal Home Loan Bank
121,043
107,019
32,580
107,019
Dividends
on Federal Home Loan Bank stock
62,842
94,757
19,654
29,633
Total
interest income
36,397,980
30,294,842
13,221,460
10,314,401
Interest
expense:
Deposits:
Interest
bearing demand
2,235,313
1,771,281
783,666
640,660
Savings
86,015
84,036
30,445
24,321
Time
572,059
713,451
189,474
210,803
Borrowings
413,538
434,795
186,557
118,018
Total
interest expense
3,306,925
3,003,563
1,190,142
993,802
Net
interest income
33,091,055
27,291,279
12,031,318
9,320,599
Loan
loss provision
2,750,000
2,075,000
1,200,000
675,000
Net
interest income after loan loss provision
30,341,055
25,216,279
10,831,318
8,645,599
Noninterest
income:
Service
charges on deposit accounts
5,048,211
4,473,939
1,702,250
1,556,755
Mortgage
loan origination and processing fees
1,232,216
2,900,442
369,993
1,094,375
Gains
on sales of mortgage loans, net
560,617
1,840,551
120,246
771,357
Mortgage
loan servicing fees (net of
amortization
of mortgage servicing rights and
impairment,
if any)
52,258
(1,721,347
)
(57,704
)
(526,885
)
Gain
on sale of investment securities
available-for-sale
181,720
59,873
—
59,873
Other
income
2,680,432
2,299,934
1,010,385
809,619
Total
noninterest income
9,755,454
9,853,392
3,145,170
3,765,094
Noninterest
expense:
Salaries
and employee benefits
13,210,885
11,546,862
4,488,475
4,361,794
Net
occupancy and equipment
2,508,811
2,091,243
833,689
761,444
Other
expenses
5,972,849
4,494,061
2,135,622
1,495,425
Total
noninterest expense
21,692,545
18,132,166
7,457,786
6,618,663
Income
before income taxes
18,403,964
16,937,505
6,518,702
5,792,030
Provision
for income taxes
6,950,051
6,497,697
2,395,562
2,206,918
Net income
$
11,453,913
$
10,439,808
$
4,123,140
$
3,585,112
Basic earnings
per common share
$
0.69
$
0.66
$
0.25
$
0.23
Diluted
earnings per common share
$
0.66
$
0.64
$
0.24
$
0.22
Comprehensive
income
Common
stock
Retained
earnings
Unearned
compensation
on restricted
stock
Accumulated
other
comprehensive
income (loss)
Total
stockholders’
equity
Balance
at December 31, 2002
$
18,253,082
$
32,172,221
$
—
$
762,412
$
51,187,715
Comprehensive
income:
Net
income
$
10,439,808
—
10,439,808
—
—
10,439,808
Other
comprehensive income, net of tax:
Unrealized
gains on securities available-for-sale,
net
of reclassification adjustment for net gains on
sales
of investment securities available-for-sale
included
in net income of approximately $37,000
(net
of income taxes of approximately $23,000)
9,259
—
—
—
9,259
9,259
Comprehensive
income
$
10,449,067
Cash
dividends paid
—
(3,017,301
)
—
—
(3,017,301
)
Stock
options exercised (122,446 shares)
551,344
—
—
—
551,344
Balance
at September 30, 2003
$
18,804,426
$
39,594,728
$
—
$
771,671
$
59,170,825
Balance
at December 31, 2003
$
19,147,285
$
42,100,708
$
(280,665
)
$
788,366
$
61,755,694
Comprehensive
income:
Net
income
$
11,453,913
—
11,453,913
—
—
11,453,913
Other
comprehensive loss, net of tax:
Unrealized
losses on securities available-for-sale,
net
of reclassification adjustment for net gains on
sales
of investment securities available-for-sale
included
in net income of approximately $113,000
(net
of income taxes of approximately $69,000)
(138,212
)
——
—
—
(138,212
)
(138,212
)
Comprehensive
income
$
11,315,701
Amortization
of unearned compensation on restricted stock
—
—
93,555
—
93,555
Issuance
of stock to acquire Community Bank of Grants Pass (772,752)
11,699,399
—
—
—
11,699,399
Cash
dividends paid
—
(3,231,414
)
—
—
(3,231,414
)
Stock
options exercised (161,316 shares)
655,562
—
—
—
655,562
Tax
benefit from non-qualified stock options exercised
5,038
—
—
—
5,038
Balance
at September 30, 2004
$
31,507,284
$
50,323,207
$
(187,110
)
$
650,154
$
82,293,535
Nine months ended September 30,
2004
2003
Net
cash provided by operating activities
$
14,791,451
$
9,889,903
Investing
activities:
Proceeds
from maturities, calls and prepayments of
investment
securities available-for-sale
6,676,723
11,248,931
Purchases
of investment securities available-for-sale
(14,683,124
)
(17,041,921
)
Proceeds
from maturities and calls of investment
securities
held-to-maturity
—
124,479
Proceeds
from sale of investment securities available-for-sale
222,853
45,082
Net
increase in loans
(176,723,876
)
(62,209,878
)
Purchase
of Community Bank of Grants Pass assets, net
10,192,199
—
Purchases
of premises and equipment, net
(7,197,874
)
(3,160,491
)
Purchases
of life insurance contracts
(4,800,000
)
—
Net
cash used in investing activities
(186,313,099
)
(70,993,798
)
Financing
activities:
Net
increase in deposits
144,625,238
139,517,180
Cash
dividends paid
(3,231,414
)
(3,017,301
)
Proceeds
from issuance of common stock
655,562
551,344
Net
increase (decrease) in other borrowings
24,710,600
(4,086,469
)
Tax
benefit from non-qualified stock options exercised
5,038
—
Net
cash provided by financing activities
166,765,024
132,964,754
Net increase
(decrease) in cash and cash equivalents
(4,756,624
)
71,860,859
Cash and
cash equivalents at beginning of period
88,520,098
29,983,180
Cash and
cash equivalents at end of period
$
83,763,474
$
101,844,039
Nine months
ended
September 30,
Three
months ended
September 30,
2004
2003
2004
2003
Net
income - as reported
$
11,453,913
$
10,439,808
$
4,123,140
$
3,585,112
Deduct:
Total stock-based employee
compensation
expense determined under
fair
value based methods for all awards,
net
of related income tax effects
(452,701
)
(400,803
)
(155,577
)
(140,491
)
Pro forma
net income
$
11,001,212
$
10,039,005
$
3,967,563
$
3,444,621
Earnings
per common share:
Basic
- as reported
$
0.69
$
0.66
$
0.25
$
0.23
Basic
- pro forma
$
0.66
$
0.64
$
0.24
$
0.22
Diluted
- as reported
$
0.66
$
0.64
$
0.24
$
0.22
Diluted
- pro forma
$
0.64
$
0.62
$
0.23
$
0.21
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Estimated
fair value
9/30/2004
Available-for-sale
U.S. Agency
mortgage-backed secrities
$
28,025,649
$
250,200
$
46,680
$
28,229,169
U.S. Government
and agency securities
5,500,000
94,291
14,691
5,579,600
Obligations
of state and political subdivisions
2,756,470
6,813
11,833
2,751,450
Equity
securities
3,355,355
757,482
—
4,112,837
Mutual
fund
353,614
13,052
—
366,666
$
39,991,088
$
1,121,838
$
73,204
$
41,039,722
Held-to-maturity
Obligations
of state and political subdivisions
$
659,474
$
45,177
$
—
$
704,651
12/31/2003
Available-for-sale
U.S. Agency
mortgage-backed secrities
$
25,075,018
$
174,776
$
56,525
$
25,193,269
U.S. Government
and agency securities
3,000,000
135,151
—
3,135,151
Obligations
of state and political subdivisions
2,800,665
8,260
13,476
2,795,449
Equity
securities
1,120,492
1,012,373
—
2,132,865
Mutual
fund
341,324
11,000
—
352,324
$
32,337,499
$
1,341,560
$
70,001
$
33,609,058
Held-to-maturity
Obligations
of state and political subdivisions
$
661,686
$
54,535
$
—
$
716,221
September
30,
2004
% of
gross
loans December
31,
2003
% of
gross
loans
Commercial
$
239,426,213
30
%
$
142,765,505
24
%
Real Estate:
Construction/lot
160,629,675
20
%
123,892,102
21
%
Mortgage
49,435,861
6
%
46,140,163
8
%
Commercial
317,098,477
39
%
244,203,103
41
%
Consumer
36,856,995
5
%
32,489,742
6
%
Loans,
gross
803,447,221
100
%
589,490,615
100
%
Less:
Reserve
for loan losses
11,900,394
9,398,584
Deferred
loan fees
2,869,140
2,290,837
14,769,534
11,689,421
Loans,
net
$
788,677,687
$
577,801,194
Nine months ended
September 30,
2004
2003
Balance
at beginning of period
$
9,398,584
$
7,669,145
Increase
due to acquisition of Community Bank of Grants Pass
354,420
—
Loan loss
provision
2,750,000
2,075,000
Recoveries
338,395
379,593
Loans charged
off
(941,005
)
(1,162,976
)
Balance
at end of period
$
11,900,394
$
8,960,762
September
30,
2004
December
31,
2003
Loans
on non-accrual status
$
43,630
$
56,240
Loans past
due 90 days or more
but
not on non-accrual status
—
—
Other real
estate owned
—
—
Total non-performing
assets
$
43,630
$
56,240
Percentage
of non-performing assets
to
total assets
0.00
%
0.01
%
Nine months ended
September 30,
2004
2003
Balance
at beginning of period
$
4,688,445
$
4,071,370
Additions
976,305
2,737,227
Amortization
(1,241,997
)
(2,095,604
)
Impairment
adjustments
325,000
(525,000
)
Balance
at end of period
$
4,747,753
$
4,187,993
Nine
months ended
September 30,
2004
2003
Balance
at beginning of period
$
325,000
$
—
Impairment
adjustments
(325,000
)
525,000
Balance
at end of period
$
—
$
525,000
Nine months
ended
September 30,
Three
months ended
September 30,
2004
2003
2004
2003
Net
income
$
11,453,913
$
10,439,808
$
4,123,140
$
3,585,112
Weighted-average
shares outstanding - basic
16,651,256
15,716,789
16,705,240
15,750,938
Basic net
income per common share
$
0.69
$
0.66
$
0.25
$
0.23
Incremental
shares arising from the dilutive
effect
of “in the money” stock options
626,401
501,448
597,943
544,663
Weighted-average
shares outstanding - diluted
17,277,657
16,218,237
17,303,183
16,295,601
Diluted
net income per common share
$
0.66
$
0.64
$
0.24
$
0.22
Cash
& cash equivalents
$
10,244
Loans,
net
36,342
Premises
and equipment, net
1,335
Core
deposit intangible
580
Goodwill
6,352
Other
assets
95
Total
assets acquired
54,948
Deposits
42,125
Deferred
tax liability
530
Other
liabilities
593
Total
liabilities assumed
43,248
Total
purchase price
$
11,700
Southern
Oregon & Portland Combined
(dollars
in 000‘s)
Sept ‘03
Dec ‘03
Mar ‘04
Jun ‘04
Sep ‘04
% of CACB
9/30/04
Loans
6,159
27,286
106,634
146,869
195,348
24.3%
Deposits
3,614
13,266
74,998
99,428
137,530
16.5%
Beginning
in Mar ‘04 amounts include $36 million in Loans and $42 million in
Deposits from the Jan ‘04 acquisition of Community Bank of Grants
Pass
For the
quarter ended September 30,
2004
2003
Average
Balance
Interest
Income/
Expense
Average
Yield or
Rates
Average
Balance
Interest
Income/
Expense
Average
Yield or
Rates
Assets
Taxable
securities
$
35,455
$
307
3.44%
$
28,856
$
223
3.07%
Non-taxable
securities (1)
3,371
22
2.59%
3,407
21
2.45%
Federal
funds sold
3,798
14
1.46%
17,528
39
0.88%
Due
from Federal Home Loan Bank
8,814
32
1.44%
49,293
107
0.86%
Federal
Home Loan Bank stock
2,390
19
3.15%
2,240
30
5.31%
Loans
(2)(3)(4)
774,314
12,827
6.57%
555,987
9,894
7.06%
Total
earning assets
828,142
13,221
6.33%
657,311
10,314
6.23%
Reserve
for loan losses
(11,257
)
(8,655
)
Cash
and due from banks
36,039
25,297
Premises
and equipment, net
21,233
12,010
Accrued
interest and other assets
31,598
16,900
Total assets
$
905,755
$
702,863
Liabilities
and Stockholders’ Equity
Interest
bearing demand deposits
$
379,766
784
0.82%
$
313,125
640
0.81%
Savings
deposits
35,226
30
0.34%
28,153
24
0.34%
Time
deposits
50,671
189
1.48%
46,735
211
1.79%
Other
borrowings
30,617
187
2.42%
16,296
118
2.87%
Total
interest bearing liabilities
496,280
1,190
0.95%
404,309
993
0.97%
Demand
deposits
319,646
232,650
Other
liabilities
10,012
8,493
Total liabilities
825,938
645,452
Stockholders’
equity
79,817
57,411
Total liabilities
and stockholders’ equity
$
905,755
$
702,863
Net interest
income
$
12,031
$
9,321
Net interest
spread
5.38%
5.25%
Net interest
income to earning assets
5.76%
5.63%
(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 the periods presented.
(3)
Loan related
fees collected and included in the yield calculation totalled approximately
$530,000 in 2004 and $492,000 in 2003.
(4)
Includes
mortgage loans held for sale.
2004
compared to 2003
Total
Increase
(Decrease)
Amount
of Change Attributed to
Volume
Rate
Interest
income:
Interest
and fees on loans
$
2,933
$
3,885
$
(952
)
Investments
and other
(26
)
(65
)
39
Total
interest income
2,907
3,820
(913
)
Interest
expense:
Interest
on deposits:
Interest
bearing demand
144
136
8
Savings
6
6
--
Time
deposits
(22
)
18
(40
)
Other
borrowings
69
104
(35
)
Total
interest expense
197
264
(67
)
Net interest
income
$
2,710
$
3,556
$
(846
)
Financial Officer