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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1999
[ ] 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
(Name of registrant as specified in its charter)
Oregon 93-1034484
(State of Incorporation) (IRS 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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, 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. [ ]
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. $58,721,498 AGGREGATE MARKET VALUE AS OF MARCH 2, 2000, 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. 6,871,759 SHARES OF
NO PAR VALUE COMMON STOCK ON MARCH 2, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III is incorporated by reference from the issuer's definitive proxy
statement for the annual meeting of shareholders to be held on April 24, 2000.
CASCADE BANCORP
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. BUSINESS......................................................................................3
Item 2. PROPERTIES...................................................................................17
Item 3 LEGAL PROCEEDINGS............................................................................17
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................17
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................................................18
Item 6. SELECTED FINANCIAL DATA......................................................................19
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................................21
Item 7A . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................25
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................................26
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.......................................................................26
PART III
Item 10 through 13
Part III, items 10 through 13 are incorporated by reference from the Company's definitive
proxy statement issued in conjunction with the Company's Annual Meeting of Shareholders to
be held on April 24 2000. (Executive Officers, Compensation arrangements, Director and
Management Ownership; Related Party Transactions)
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.............................27
SIGNATURES.......................................................................................................28
2
PART I
ITEM 1. BUSINESS
COMPANY
Cascade Bancorp (Bancorp) is an Oregon chartered bank holding
Company formed in 1990 and headquartered in Bend, Oregon. Bancorp's principal
subsidiary is Bank of the Cascades (the Bank). Bancorp also operates Cascade
Bancorp Financial Services, Inc. a consumer finance business, (collectively, the
Company). At December 31, 1999 the Company had total consolidated assets of
approximately $348 million, net loans of $275 million and deposits of $285
million.
BANK OF THE CASCADES
The Bank was chartered as an Oregon State bank in March 1976 and
opened for business in February 1977. Bank of the Cascades is a community bank
offering the full range of financial services to its business and consumer
clients, including trust and investments. The Bank has a network of ten
branches, nine located in Central Oregon, and one in Salem, Oregon. An
additional branch is planned to open in Keizer, Oregon in mid-2000. In Deschutes
County, its largest market concentration, the Company is the market share leader
in customer deposits, holding over 28% share. It also is the market share leader
in construction and commercial real estate lending as well as in residential
mortgage origination and financing. Deschutes County is one of the fastest
growing regions of Oregon. The Bank's headquarters is located in downtown Bend,
Oregon.
The Bank offers a broad range of commercial and personal banking
services to its customers. Lending activities serve small to medium-sized
businesses and consumers. The Bank provides commercial real estate loans, real
estate construction and development loans, commercial and industrial loans as
well as consumer installment, line-of-credit, credit card, and home equity
loans. The Bank originates residential mortgage loans that are typically sold on
the secondary market. The Bank provides consumer and business deposit services
including checking, money market, and time deposit accounts and related payment
services such as cash management, lock box, internet banking and bill payment.
In addition, the Bank operates Cascade Finance, a consumer finance business
which predominately purchases used automobile installment contracts from local
dealerships and also offers direct consumer finance loans.
In mid-1999 the Company began offering Trust and Investment
services, initially in Central Oregon. Trust services focus on the personal
trust needs of existing and prospective clients by providing living and
testamentary trust, asset and financial management, and fiduciary services.
Investment services are provided by a licensed on-site broker through a
broker/dealer agent relationship.
CASCADE BANCORP FINANCIAL SERVICES
Cascade Bancorp Financial Services, Inc. was incorporated in 1999
to manage the existing consumer installment loans which were present in Cascade
Finance. Subsequent to the incorporation of Cascade Bancorp Financial Services,
Inc., the ongoing consumer finance operations of Cascade Finance became a
division of the Bank. Cascade Bancorp Financial Services opened in January 1997
and is headquartered in Bend, Oregon. The subsidiary currently holds and
services approximately $2.2 million in purchased dealer automobile installment
contracts.
3
BUSINESS STRATEGY
- --------------------------------------------------------------------------------
o PROVIDE SHAREHOLDERS WITH EXCEPTIONAL VALUE BY DELIVERING THE BEST IN
COMMUNITY BANKING AND RELATED FINANCIAL SERVICES
- --------------------------------------------------------------------------------
Cascade Bancorp has established the following key performance
goals: 1) Consistently exceed 18% return on equity, 2) Consistently exceed 10%
growth in earnings per share, 3) Identify and prudently manage credit and
business risk and 4) Strive to profitably diversify revenue and continuously
seek efficiency improvements in all its activities. However, with the inherent
uncertainty of the future, there can be no assurance as to the ongoing
achievement of these goals.
Bank of the Cascades has a 23-year commitment to delivering the
best in hometown banking services to the Oregon communities it serves. Its
strategy is to profitably grow its business by attracting and retaining high
value relationship customers. This is accomplished by providing the best in
customer service while offering a broad array of products and financial
services. Because the Company is committed to providing customer convenience and
choice in delivery channels, it applies advances in technology and delivery
systems to the benefit of its customers. Such channels include traditional
branches, ATMs, Internet banking, and telephonic access.
In addition to targeting growth and increased market share in its
existing locations, the Company may also consider future expansion by de novo
branching where it identifies market opportunities (such as the expected new
branch in Keizer, Oregon in mid-2000). The Company may also consider making
selective business acquisitions to expand its market opportunities.
The Company's broad risk management objectives are to develop loan
policies and underwriting practices designed to prudently manage credit risk.
Funding policies are designed to maintain an appropriate volume and mix of core
deposits and time deposit balances to efficiently fund its loan and investment
activities. The Company may complement its local deposit gathering strategies
with wholesale funding from reliable counterparties such as the Federal Home
Loan Bank. The Company monitors its sensitivity to changing interest rates
primarily by utilizing simulation analysis in addition to traditional interest
rate gap calculations.
EMPLOYEES
Bancorp has no employees other than its executive officers, who
are also employees of the Bank. As of December 31, 1999, the Company had 205
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 and consumer banking in Central Oregon, and in the
State of Oregon as a whole, is highly competitive. The Company competes
principally with other commercial banks, savings and loan associations, credit
unions, mortgage companies, and other financial service providers 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 its
commitment to customer service, the relative attractiveness of its products and
services, as well as by providing convenience in delivering those products and
services. The Company believes its hometown banking philosophy and its focus on
small and medium-sized businesses, professionals and consumers enables it to
compete effectively with other financial service providers. In addition, the
Company's lending officers and senior managers have significant experience in
their respective marketplaces. This enables them to maintain close working
relationships with their customers. To serve customers whose borrowing
requirements exceed its lending limits, the Bank may participate loans to other
financial institutions.
4
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.
For most financial institutions, including the Company, the
primary component of earnings is net interest income. Net interest income is the
difference between interest income earned, principally from loans and investment
securities portfolio, and interest paid, principally on customer deposits and
borrowings. Changes in net interest income result from changes in volume, spread
and margin. Volume refers to the dollar level of interest-earning assets and
interest-bearing liabilities. Spread refers to the difference between the yield
on interest-earning assets and the cost of interest-bearing liabilities. Margin
refers to net interest income divided by interest-earning assets and is
influenced by the level and relative mix of interest-earning assets and
interest-bearing liabilities.
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 variance to "volume" or "rate" changes. Variances that were
immaterial have been allocated equally between rate and volume categories.
(Dollars in thousands):
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999 OVER 1998 1998 OVER 1997
---------------------------------- -----------------------------------
AMOUNT OF CHANGE AMOUNT OF CHANGE
TOTAL ATTRIBUTED TO TOTAL ATTRIBUTED TO
INCREASE --------------------- INCREASE ---------------------
(DECREASE) VOLUME RATE (DECREASE) VOLUME RATE
---------- --------- --------- ----------- --------- --------
Interest income:
Interest and fees on loans $ 6,283 $ 6,995 $ (712) $ 3,469 $ 3,446 $ 23
Taxable securities ........ (224) (67) (157) 110 273 (163)
Non-taxable securities .... 6 8 (2) (32) (31) (1)
Federal funds sold ........ (442) (456) 14 70 78 (8)
------- ------- ------- ------- ------- -------
Total interest income . 5,623 6,480 (857) 3,617 3,766 (149)
Interest expense:
Interest on deposits:
Interest bearing demand 224 63 161 435 535 (100)
Savings ............... 12 36 (24) 20 23 (3)
Time .................. 285 393 (108) 296 276 20
Other borrowings .......... 635 844 (209) (357) (413) 56
------- ------- ------- ------- ------- -------
Total interest expense 1,156 1,336 (180) 394 421 (27)
------- ------- ------- ------- ------- -------
Net interest spread .............. $ 4,467 $ 5,144 $ (677) $ 3,223 $ 3,345 $ (122)
======= ======= ======= ======= ======= =======
5
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID
The following table sets forth for 1999, 1998 and 1997 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):
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------- ---------------------------- ----------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD OR AVERAGE INCOME/ YIELD OR AVERAGE INCOME/ YIELD OR
BALANCE EXPENSE RATES BALANCE EXPENSE RATES BALANCE EXPENSE RATES
--------- ----------------- --------- -------- --------- -------- ------------------
ASSETS
Taxable securities $ 38,880 $ 2,393 6.15% $ 39,954 $ 2,617 6.55% $ 35,898 $ 2,507 6.98%
Non-taxable securities (1) 1,209 48 3.97% 1,003 42 4.19% 1,751 74 4.23%
Federal funds sold 1,716 95 5.54% 10,107 537 5.31% 8,646 467 5.40%
Loans (2)(3)(4) 249,565 25,540 10.23% 182,280 19,257 10.56% 149,698 15,788 10.55%
--------- --------- --------- -------- -------- ---------
Total earning assets 291,370 28,076 9.64% 195,993 22,453 9.62% 165,911 195,993 9.61%
Reserve for loan losses (3,133) (2,264) (1,784)
Cash and due from banks 22,024 17,827 18,922
Premises and equipment, net 7,261 5,394 4,710
Other Assets 13,761 9,855 7,921
========= ========= ========
Total assets $ 331,283 $ 264,156 $ 225,762
========= ========= ========
LIABILITIES & STOCKHOLDER'S
EQUITY
Int. bearing demand deposits $ 122,519 $ 3,742 3.05% $ 120,530 $ 3,518 2.92% $ 102,484 $ 3,083 3.01%
Savings deposits 15,828 316 2.00% 14,086 304 2.16% 13,027 284 2.18%
Time deposits 33,254 1,579 4.75% 25,295 1,294 5.12% 19,846 998 5.03%
Other borrowings 13,160 700 5.32% 780 65 8.33% 6,269 422 6.73%
--------- --------- --------- -------- -------- ---------
Total interest bearing 184,761 6,337 3.43% 160,691 5,181 3.22% 141,626 4,787 3.38%
liabilities
Demand deposits 115,038 75,826 58,062
Other liabilities 3,465 2,263 1,755
--------- --------- --------
Total liabilities 303,264 238,780 201,443
Stockholders' equity 28,019 25,376 24,319
========= ========= ========
Total liabilities & equity $ 331,283 $ 264,156 $ 225,762 225,762
========= ========= ========
========= ======== =========
Net interest income $ 21,739 $17,272 $ 14,049
========= ======== =========
Net interest spread 6.21% 6.40% 6.23%
======== ========= =========
Net interest income to
earning assets 7.46% 7.40% 7.17%
======== ========= =========
- ---------------------
(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
were insignificant for 1999, 1998 and 1997.
(3) Loan related fees included in the above yield calculations: $1,552,000 in
1999, $1,236,000 in 1998, and $1,012,000 in 1997.
(4) Includes mortgage loans held for sale.
6
LOAN PORTFOLIO COMPOSITION
Interest earned on the loan portfolio is the primary source of income
for the Company. Net loans represent 79% of total assets as of December 31,
1999. Although the Company strives to serve the credit needs of its service
area, its primary concentration is in real estate related and commercial
credits. The Company makes substantially all of its loans to customers located
within the Company's service area. 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,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Commercial ..................... $ 43,122 $ 31,280 $ 30,059 $ 22,485 $ 21,711
Real Estate:
Construction .......... 49,276 44,875 30,863 34,375 33,984
Mortgage .............. 41,082 36,671 23,396 19,774 24,750
Commercial ............ 111,578 70,524 52,356 42,391 31,019
Installment .................... 34,622 22,693 18,901 14,666 15,271
-------- -------- -------- -------- --------
279,680 206,043 155,575 133,691 126,735
Less:
Reserve for loan losses 3,525 2,636 2,048 1,691 1,651
Deferred loan fees .... 1,253 864 502 373 372
-------- -------- -------- -------- --------
4,778 3,500 2,550 2,064 2,023
-------- -------- -------- -------- --------
$274,902 $202,543 $153,025 $131,627 $124,712
======== ======== ======== ======== ========
At December 31, 1999, 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 .......... $ 17,670 $ 19,120 $ 6,332 $ 43,122
Real Estate:
Construction 39,184 6,569 3,523 49,276
Mortgage ... 25,833 11,568 3,681 41,082
Commercial . 27,640 73,469 10,469 111,578
Installment ......... 5,760 24,199 4,663 34,622
-------- -------- -------- --------
$116,087 $134,925 $ 28,668 $279,680
======== ======== ======== ========
Variable rate loans due after one year totaled $91,631 at December 31,
1999 and loans with predetermined or fixed rates due after one year totaled
$71,962 at December 31, 1999.
7
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 the obligor's
personal income. However, real estate collateral 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 has a comprehensive risk management process to control,
underwrite, monitor and manage credit risk in lending. 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. Making the majority of commercial real
estate loans to owner-occupied users of the property mitigates, but does not
eliminate, commercial real estate risk.
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,
-------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Loans on non-accrual status ....... $582 $172 $ 43 $ 50 $ 45
Loans past due 90 days or more
But not on non-accrual status .. 40 -- 45 27 21
Other real estate owned ........... 40 409 9 -- --
---- ---- ---- ---- ----
Total non-performing assets ....... $662 $581 $ 97 $ 77 $ 66
==== ==== ==== ==== ====
Percentage of non-performing assets
to total assets ................ .19% .19% .04% .04% .04%
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 would have been insignificant
for the periods presented.
At December 31, 1999, 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.
8
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,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Loans outstanding at
End of period ............... $ 279,680 $ 206,043 $ 155,575 $ 133,691 $ 126,735
========= ========= ========= ========= =========
Average loans outstanding
During the period ........... $ 249,565 $ 182,280 $ 149,698 $ 137,798 $ 121,883
========= ========= ========= ========= =========
Reserve balance,
Beginning of period ......... $ 2,636 $ 2,048 $ 1,691 $ 1,651 $ 1,172
Recoveries:
Commercial .................. 9 2 16 2 70
Real Estate:
Construction ............. -- -- -- -- --
Mortgage ................. 4 1 2 -- --
Commercial ............... -- -- -- -- 1
Installment ................. 166 39 42 28 30
--------- --------- --------- --------- ---------
179 42 60 30 101
Loans charged off:
Commercial .................. (518) (254) (80) (212) (24)
Real Estate:
Construction ............. (65) -- -- -- --
Mortgage ................. (27) (91) (442) (50) --
Commercial ............... -- -- -- -- (2)
Installment ................. (790) (288) (256) (160) (77)
--------- --------- --------- --------- ---------
(1,399) (633) (778) (422) (103)
--------- --------- --------- --------- ---------
Net loans charged-off .......... (1,221) (591) (718) (392) (2)
Provision charged to operations 2,110 1,179 1,075 432 481
--------- --------- --------- --------- ---------
Reserve balance, end of period . $ 3,525 $ 2,636 $ 2,048 $ 1,691 $ 1,651
========= ========= ========= ========= =========
Ratio of net loans charged-off
to average loans outstanding .49% .32% .48% .28% .00%
========= ========= ========= ========= =========
Ratio of reserve for loan losses
to loans at end of period ... 1.26% 1.28% 1.32% 1.26% 1.30%
========= ========= ========= ========= =========
9
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,
-------------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
% OF LOANS % OF LOANS % OF LOANS
IN EACH IN EACH IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------- ------------ ------- ------------ ------ -------------
Commercial .............. $ 283 15% $ 189 15% $ 188 20%
Real Estate:
Construction .......... 469 18 331 22 236 20
Mortgage .............. 202 15 199 18 81 15
Commercial ............ 384 40 221 34 245 33
Installment ............. 679 12 320 11 102 12
Unallocated ............. 1,508 -- 1,376 -- 1,196 --
------ --- ------ --- ------ ---
$3,525 100% $2,636 100% $2,048 100%
====== === ====== === ====== ===
DECEMBER 31,
1996 1995
--------------------------- ---------------------------
% OF LOANS IN % OF LOANS IN
EACH CATEGORY EACH CATEGORY
AMOUNT TO TOTAL LOANS AMOUNT TO TOTAL LOANS
-------- -------------- --------- --------------
Commercial .............. $ 145 17% $ 153 17%
Real Estate:
Construction .......... 227 26 218 27
Mortgage .............. 78 15 80 20
Commercial ............ 186 32 148 24
Installment ............. 92 10 94 12
Unallocated ............. 963 -- 958 --
------ --- ------ ---
$1,691 100% $1,651 100%
====== === ====== ===
10
INVESTMENT PORTFOLIO
The following table shows the carrying value of the Company's portfolio
of investments at December 31, 1999, 1998 and 1997 (dollars in thousands).
DECEMBER 31,
-----------------------------
1999 1998 1997
------ ------ ------
U.S. Treasury securities ...................... $ 2,016 $ 3,109 $ 3,083
Obligations of U.S. Government agencies ....... 15,282 26,849 38,339
Obligations of state and political subdivisions 1,067 1,410 1,030
Mortgage-backed securities .................... 9,768 14,891 --
Corporate debt securities ..................... -- 631 --
------- ------- -------
Total debt securities ................... 28,133 46,890 42,452
Federal Home Loan Bank stock .................. 1,676 1,529 1,416
Equity securities ............................. 2,003 2,532 532
------- ------- -------
Total investment securities .......... $31,812 $50,951 $44,400
======= ======= =======
The following is a summary of the contractual maturities and weighted
average yields of investment securities at December 31, 1999 (dollars in
thousands):
WEIGHTED
CARRYING AVERAGE
TYPE AND MATURITY VALUE YIELD (1)
- -------------------------------------- ------------------- ---------------
U.S. Treasury Securities
Due after 1 but within 5 years $ 2,016 6.68%
-------------------
Total U.S. Treasury Securities 6.68%
2,016
U.S. Government Agencies
Due after 1 but within 5 years 6.32%
15,282
-------------------
Total U.S. Government Agencies 6.32%
15,282
State and Political Subdivisions
Due within 1 year 3.92%
170
Due after 1 but within 5 years 4.73%
897
-------------------
Total State and Political Subdivisions 4.60%
1,067
Mortgage-Backed Securities 6.20%
9,768
-------------------
Total Debt Securities 6.24%
28,133
Equity securities 4.05%
3,679
-------------------
Total Securities $ 31,812 5.99%
=================== ===============
(1) Yields on tax-exempt securities have not been stated on a tax equivalent
basis.
11
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,
1999 1998 1997
DEPOSIT LIABILITIES AVERAGE AVERAGE AVERAGE
- ------------------- --------------------- -------------------- ---------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
PAID PAID PAID
---------------------- -------------------- ---------------------
Demand............................ $ 115,038 N/A $ 75,826 N/A $ 58,062 N/A
Interest-bearing demand........... 122,519 3.05% 120,530 2.92% 102,484 3.01%
Savings........................... 15,828 2.00% 14,086 2.16% 13,027 2.18%
Time.............................. 33,254 4.75% 25,295 5.12% 19,846 5.03%
------------- ------------- -------------
Total Deposits................. $ 286,639 $ 235,737 $ 193,419
============= ============= =============
As of December 31, 1999 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.................... $ 8,434 59.93% $ 9,697 38.80%
Over 3 months
Through 6 months................. 2,735 19.43% 6,310 25.33%
Over 6 months
Through 12 months................ 2,372 16.86% 6,043 24.26%
Over 12 months...................... 532 3.78% 2,864 11.61%
------------------------------ ---------------------------
Total......................... $ 14,073 100.00% $ 24,914 100.00%
============================== ===========================
(1) Time deposits of $100,000 or more represent 4.93% of total deposits as of
December 31, 1999. (2) All other time deposits represent 8.73% of total
deposits as of December 31, 1999.
SHORT-TERM BORROWINGS
MAXIMUM
AMOUNT
AT PERIOD END 12/31/99 OUTSTANDING YEAR ENDED 12/31/99
-------------------------------- AT ANY ----------------------------
AMOUNT WEIGHTED MONTH-END AVERAGE WEIGHTED
OUTSTANDING AVG RATE 1999 BALANCE AVG RATE
---------------- ------------ --------------- ------------ ------------
FHLB Borrowings $ 13,000 (1) 5.79% $ 19,400 $ 11,307 5.34%
Federal funds purchased 17,100 4.86% $ 17,100 1,850 5.21%
--------- --------
Total Short-term borrowings $ 30,100 5.26% $ 13,157 5.32%
(1) Consists of $5,000,000 under the FHLB CMA Program and $8,000,000 under a
promissory note agreement due February 11, 2000.
12
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.
RECENT LEGISLATION - FINANCIAL HOLDING COMPANIES
On November 12, 1999 the Gramm-Leach-Bliley Act became law, repealing
the 1933 Glass-Steagall Act's separation of the commercial and investment
banking industries. The Gramm-Leach-Bliley Act expands the range of nonbanking
activities a bank holding company may engage in, while reserving existing
authority for bank holding companies to engage in activities that are closely
related to banking. The new legislation creates a new category of holding
company called a "Financial Holding Company," a subset of bank holding companies
that satisfy the following criteria:
1. all of the depository institution subsidiaries must be well
capitalized and well managed;
2. the holding company must file with the Federal Reserve Board a
declaration that it elects to
13
be a financial holding company to engage in activities that would
not have been permissible before the Gramm-Leach-Bliley Act; and
3. all of the depository institution subsidiaries must have a
community Reinvestment Act rating of "satisfactory" or better.
Financial holding companies may engage in any activity that (i) is
financial in nature or incidental to such financial activity (ii) is
complementary to a financial activity and does not pose a substantial risk to
the safety and soundness of depository institutions or the financial system
generally. The Gramm-Leach-Bliley Act specifies certain activities that are
financial in nature. These activities include:
o acting as a principal, agent or broker for insurance;
o underwriting, dealing in or making a market in securities; and
o providing financial and investment advice.
The Federal Reserve Board and the Secretary of the Treasury have
authority to decide whether other activities are also financial in nature or
incidental to financial activity, taking into account changes in technology,
changes in the banking marketplace, competition for banking services and so on.
The Gramm-Leach-Bliley Act has only recently become law. Regulations of
the banking agencies implementing the legislative changes can be expected in the
near future. Except for the increase in competitive pressures faced by all
banking organizations that is a likely consequence of the Gramm-Leach-Bliley
Act, the legislation and implementing regulations are likely to have a more
immediate impact on large regional and national institutions than on community
based institutions engaged principally in traditional banking activities.
Because the legislation permits bank holding companies to engage in activities
previously prohibited altogether or severely restricted because of the risks
they posed to the banking system, implementing regulations can be expected to
impose strict and detailed prudential safeguards on affiliations among banking
and nonbanking companies in a holding company organization. Additionally,
because the legislation allows various affiliates within a single holding
company organization to serve a broader array of customers' financial goals,
including their banking, insurance and investment goals, implementing
regulations can be expected to impose strict safeguards on sharing of customer
information among affiliated entities within an organization. Bancorp will
evaluate the provisions of the Act and may elect to become a financial holding
company.
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 described above, and (ii) must
not involve more than the normal risk of
14
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 that 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.
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.
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 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 1.296
cents per $100 of deposits per year. The Bank's FDIC insurance expense for 1999
was approximately $38,000.
REGULATORY DIVIDEND RESTRICTIONS
The principal source of Bancorp'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 Bancorp are not
currently subject to any regulatory restrictions on their dividends other than
those noted above.
REGULATORY CAPITAL
15
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. At December 31,
1999 the Company is considered "well capitalized" according to these regulatory
capital guidelines. See footnote 17 to the Financial Statements in this report.
The FRB and FDIC promulgate risk-based capital guidelines for banks and
bank holding companies. Risk-based capital guidelines are designed to make
capital requirements 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 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, mainly U.S. Government sponsored
agency obligations, 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. 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%.
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
16
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 that are deemed "undercapitalized", depending on the
category to which they are assigned, are subject to certain mandatory
supervisory corrective actions.
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 affect interest rates charged on loans or paid
on deposits. The monetary policies of the FRB have had a significant affect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future.
ITEM 2. PROPERTIES
At December 31, 1999, the Company conducted banking services in ten
locations. Nine throughout Central Oregon and one in Salem, Oregon. All offices
are free standing buildings except one location, which is leased space in a
supermarket. The main office/administrative center and three other branch
buildings are owned and are situated on leased land. The Bank owns land and
building at two branch locations. The Bank leases land and building at two
branch locations. All leases include multiple renewal options. The Bank owns
property in the Old Mill district of Bend for a possible future branch, or
combination branch/operations facility. Cascade Finance is housed in separate
leased retail space in Bend, Oregon. In addition to the above, the Bank
purchased land in Keizer, Oregon and intends to build a branch on the site to
open in mid-2000.
The Bank's Main Office and Administrative Center is located at 1100 NW
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 $4,738 per month with adjustments every
five years by mutual agreement of landlord and tenant. The main bank branch
occupies the ground floor. Mortgage lending, administrative and operational
functions occupy approximately 8,400 square feet. A separate data processing and
drive-up facility is also located on site. In 1999 the Bank acquired a 3,000 sq
ft adjacent building for future expansion of administrative functions for
$295,000. Certain other operations are located in an adjacent building subject
to a short-term lease agreement.
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.
17
PART II
ITEM 5. MARKET FOR CASCADE BANCORP'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Cascade Bancorp common stock trades on The NASDAQ Small Cap Market tier
of The NASDAQ Stock Market under the symbol CACB. The primary market makers are:
Dain Rauscher Wessels Inc., Ragen MacKenzie, D.A. Davidson & Co., Pacific Crest
Securities, Black & Company Inc., Herzog, Heine, Geduld, Inc., and Keefe,
Bruyette & Woods, Inc.
The high and low sales prices shown below are retroactively adjusted
for stock dividends and splits and are based on actual trade statistical
information provided by The NASDAQ Stock Market for the periods indicated.
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
1999
High $16.71 $16.36 $16.88 $15.13
Low $14.89 $13.64 $12.88 $11.25
1998
High $20.61 $20.00 $20.85 $18.41
Low $15.75 $16.06 $13.75 $14.89
The Company declared a 10% stock dividend in June 1999 and a
three-for-two stock split in June 1998. The Company announced the establishment
of regular quarterly cash dividends in 1997. The dividends declared and paid
listed below have been retroactively adjusted for past stock dividends and stock
splits.
DIVIDENDS DECLARED AND PAID
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
PER SHARE PER SHARE PER SHARE PER SHARE
------------- -------------- ------------- --------------
2000 $.08 N/A N/A N/A
1999 $.08 $.08 $.08 $.08
1998 $.07 $.08 $.08 $.08
At February 29, 2000, the Company had 6,871,759 shares of common stock
outstanding held by approximately 2,700 shareholders of record.
18
ITEM 6. 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 this Annual Report on Form 10-K, (in thousands, except per
share data and ratios; unaudited):
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ----------- ---------- -------- --------
INCOME STATEMENT DATA
Interest income .................................. $ 28,076 $ 22,453 $ 18,836 $ 15,812 $ 13,904
Interest expense ................................. 6,337 5,181 4,787 4,052 3,769
Net interest income .............................. 21,739 17,272 14,049 11,760 10,135
Loan loss provision .............................. 2,110 1,179 1,075 432 481
Noninterest income ............................... 5,409 5,713 4,310 4,020 3,099
Noninterest expense ............................. 15,027 12,548 9,379 8,113 7,144
Income before income taxes ....................... 10,011 9,257 7,905 7,235 5,609
Provision for income taxes ....................... 3,773 3,491 2,864 2,722 1,977
Net income ....................................... $ 6,238 $ 5,766 $ 5,041 $ 4,513 $ 3,632
SHARE DATA
Basic earnings per common share(1) ............... $ 0.91 $ 0.84 $ 0.72 $ 0.64 $ 0.52
Diluted earnings per common share(1) ............. $ 0.89 $ 0.82 $ 0.70 $ 0.63 $ 0.51
Book value per common share(1) ................... $ 4.31 $ 3.93 $ 3.52 $ 3.43 $ 2.76
Cash dividends per common share(1) ............... $ 0.32 $ 0.31 $ 0.27 -- --
Ratio of dividends declared to netincome ......... 35.19% 36.72% 37.99% -- --
Basic Weighted shares outstanding(1)(5) .......... 6,859 6,850 7,021 7,039 7,039
Diluted weighted shares outstanding(1)(5) ........ 7,021 7,065 7,224 7,158 7,104
BALANCE SHEET DATA (AT PERIOD END)
Investment securities ............................ $ 31,812 $ 50,951 $ 44,400 $ 27,797 $ 13,368
Loans, net ....................................... 274,902 202,543 153,025 131,627 124,711
Total assets ..................................... 347,904 300,774 242,611 201,277 177,562
Total deposits ................................... 285,313 270,863 211,345 171,082 152,438
Total shareholders' equity (5) ................... 29,571 26,922 24,236 23,572 19,040
SELECTED RATIOS
Return on average total shareholders' equity(5) .. 22.26% 22.72% 20.73% 21.04% 21.36%
Return on average total assets ................... 1.88% 2.18% 2.23% 2.39% 2.24%
Net interest spread .............................. 6.21% 6.40% 6.23% 6.11% 5.97%
Net interest margin .............................. 7.46% 7.40% 7.17% 7.09% 6.92%
Efficiency ratio (2) ............................. 55.35% 54.59% 51.09% 51.41% 53.28%
ASSET QUALITY RATIOS
Reserve for loan losses to ending total loans .... 1.26% 1.28% 1.32% 1.26% 1.30%
Nonperforming assets to ending total assets (3) .. 0.19% 0.19% 0.04% 0.04% 0.04%
Net loan charge-offs to average loans ............ 0.49% 0.32% 0.48% 0.28% 0.00%
CAPITAL RATIOS
Average shareholders' equity to average assets (5) 8.46% 9.61% 10.77% 11.33% 10.47%
Leverage ratio (4) ............................... 8.37% 8.99% 9.63% 11.48% 10.64%
Total risk-based capital ratio (4) ............... 11.09% 12.47% 14.29% 16.51% 14.29%
(1) Adjusted to reflect 10% stock dividends declared in 1995 and 1996, a
two-for-one stock split in 1997, a three-for-two stock in 1998, and 10%
stock dividend in 1999.
(2) Efficiency ratio is noninterest expense divided by (net interest income +
noninterest income).
(3) Nonperforming assets consist of nonaccrual loans, loans contractually past
due 90 days or more and other real estate owned.
(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 beginning in 1998.
19
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth the Company's unaudited data regarding
operations for each quarter of 1999 and 1998. 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):
1999 QUARTERS ENDED
------------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MAR. 31
------- -------- ------- -------
Interest income $ 7,477 $ 7,328 $ 6,991 $ 6,280
Interest expense 1,767 1,573 1,562 1,435
---------- ---------- ---------- ---------
Net interest income 5,710 5,755 5,429 4,845
Loan loss provision 455 549 734 371
---------- ---------- ---------- ---------
Net interest income after loan loss provision 5,255 5,206 4,695 4,474
Noninterest income 1,378 1,282 1,370 1,379
Noninterest expense 3,948 3,864 3,621 3,594
---------- ---------- ---------- ---------
Income before income taxes 2,685 2,624 2,444 2,259
Provision for income taxes 1,017 976 937 843
---------- ---------- ---------- ---------
Net income $ 1,668 $ 1,648 $ 1,507 $ 1,416
========== ========== ========== =========
Weighted average number
of shares outstanding (1) 6,867 6,862 6,848 6,859
Basic earnings per share (1) $0.24 $0.24 $0.22 $0.21
Fully diluted weighted average
Number of shares outstanding (1) 6,975 6,998 6,986 7,025
Fully diluted earnings per share (1) $0.24 $0.24 $0.22 $0.19
1998 QUARTERS ENDED
------------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MAR. 31
------- -------- ------- -------
Interest income $ 6,218 $ 5,892 $ 5,354 $ 4,989
Interest expense 1,374 1,352 1,239 1,216
---------- ---------- ---------- ---------
Net interest income 4,844 4,540 4,115 3,773
Loan loss provision 503 308 284 84
---------- ---------- ---------- ---------
Net interest income after loan loss provision 4,341 4,232 3,831 3,689
Noninterest income 1,504 1,501 1,491 1,217
Noninterest expense 3,447 3,231 3,047 2,823
---------- ---------- ---------- ---------
Income before income taxes 2,398 2,502 2,275 2,083
Provision for income taxes 885 967 836 804
---------- ---------- ---------- ---------
Net income $ 1,513 $ 1,535 $ 1,439 $ 1,279
========== ========== ========== =========
Weighted average number
of shares outstanding (1) 6,850 6,853 6,845 6,851
Basic earnings per share (1) $0.22 $0.22 $0.21 $0.19
Fully diluted weighted average
Number of shares outstanding (1) 6,409 6,427 6,431 6,440
Fully diluted earnings per share (1) $0.21 $0.22 $0.20 $0.19
- -------------------
(1) Adjusted to give retroactive effect to a 10% stock dividend declared in
June 1999 and a three-for-two stock split declared in June 1998.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's audited consolidated financial statements and the notes thereto as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 included elsewhere in this report.
When used in the following discussion, 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, and 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.
HIGHLIGHTS
The Company's 1999 net income was $6.2 million, up 8.2% from the $5.8
million earned in 1998. Net income in 1998 represented a 14.4% increase from
1997's net income of $5.0 million. During the reported periods, progressively
higher earnings have led to improved earnings per share and strong return on
equity. Diluted earnings per share reached $.89 in 1999 compared to $.82 in 1998
and $.70 in 1997, while return on equity was 22.3% in 1999 compared to 22.7% in
1998 and 20.7% in 1997.
Increased earnings in 1999 were primarily due to a $73.6 million or
35.7% increase in the Company's loan portfolio with a resulting increase in net
interest income. Investment portfolio securities declined by $19.1 million in
1999 due to a combination of maturities, calls and sales within the portfolio.
The 1999 net growth in earning assets in 1999 was funded by expansion in
customer deposit balances augmented by Federal Home Loan Bank and other
wholesale borrowings. Similarly, 1998 earnings improved because of strong growth
in the loan portfolio funded by a solid increase in deposit balances.
Trends in non-interest income and expense continue to be affected by
rapid growth in customers and higher account transaction volumes, as well as
costs incurred in new business locations. In 1999, however, total non-interest
income declined by 5.3% or $305,000 due to reduced revenue in residential
mortgage banking activities owing to the higher interest rate environment. In
contrast, during the lower interest rate climate in 1998, mortgage origination
and sale activity had contributed to a 29% increase in non-interest income
compared to 1997. The rate of growth in non-interest expenses moderated to 19.8%
in 1999 from a 32.2% increase in 1998. This moderation occurred despite the
Company incurring start up costs for two new branch locations and upgrading of
computer and online banking capacity during the year.
The Company opened two new branch banking offices in the first quarter
of 1999, bringing total branch locations to ten. The Bank entered the Salem,
Oregon market with a full service branch office and opened a second branch in
Redmond, Oregon. The Redmond office reached breakeven financial performance late
in 1999, and the Salem office is meeting internal projections as to financial
performance. Management generally targets new branches to achieve profitability
within two to three years, however there can be no assurance that future
profitability will be achieved.
Other highlights include the opening of a Bank Trust Department in July
1999. Trust services will focus on the personal trust needs of existing and
prospective clients by providing living and testamentary trust, asset and
financial management, and fiduciary services. At the same time an on-site office
of Raymond James Financial Services opened to provide convenient stock brokerage
and investment services to Bank customers.
21
The Company anticipates opening a new branch banking office in Keizer,
Oregon in mid-2000, bringing total branch locations to eleven. The opening of
this branch is not expected to be material to the financial results of the
Company in 2000.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
NET INTEREST INCOME
In 1999, net interest income increased 25.9% to $21.7 million compared
to 1998, as growth in loan volumes generated higher interest income. Similarly,
strong loan growth in 1998 drove an increase in net interest income of 22.9% to
$17.3 million compared to 1997. In 1999 Interest from loans and investment
activities increased $5.6 million compared to the year earlier. This followed a
1998 increase in interest income of $3.6 million compared to 1997. Increased
earning assets at year-end 1999 were funded by a year over year growth in
deposits of $14.5 million and borrowings of $30.1 million. Although the Bank's
loan growth in 1999 was partially funded by the use of higher cost borrowed
funds, the increase in interest income related to higher loan volumes exceeded
the higher cost of such borrowing. In 1998, year-end customer deposits grew
$59.5 million, approximately the same dollar growth as was experienced by the
loan portfolio that year.
The Company's net interest margin expanded from 7.17% in 1997, to 7.40%
in 1998 and 7.46% in 1999. Yields on earning assets in 1997, 1998 and 1999 were
9.61%, 9.62% and 9.64%, respectively. Average rates paid on deposits and
borrowings increased from 3.22% in 1998 to 3.43% in 1999. In mid-1999 the
Federal Reserve embarked on a process of engineering higher market interest
rates. It is anticipated that this will have the effect of increasing the
Company's cost of funds into 2000. While the Bank has historically maintained a
net interest margin well above peer banks and anticipates this to continue, the
Company's future net interest margin is likely to be lower from the peak margins
experienced during the past two years.
LOAN LOSS PROVISION
The loan loss provision increased during the periods presented to keep
pace with loan growth. Loan loss provision for 1999 was $2.1 compared to $1.2
million in 1998 and $1.1 million in 1997. The Bank's ratio of reserve for loan
losses to total loans was 1.26% at December 31, 1999 as compared to 1.28% at
December 31, 1998. Management believes the reserve for loan losses is adequate
to absorb potential losses on identified nonperforming assets as well as general
losses at historical and expected levels.
NONINTEREST INCOME
During the periods reported, the Company has experienced steady
increases in service fee income as it has increased its market share of business
and consumer accounts. However, overall noninterest income in 1999 was down
slightly from 1998 due to volatility in mortgage banking revenues resulting from
the increasing interest rate environment that developed during 1999. Total
noninterest income decreased 5.3% to $5.4 million in 1999 compared to $5.7
million in the prior year. In contrast, 1998 noninterest income was up 29.3%
compared to 1997.
Specifically, 1999 mortgage loan origination and processing fees
decreased to $1.3 million in 1999 from $1.8 million the prior year. In the lower
interest rate climate of 1998, residential mortgage loan origination and
processing fees were $1.8 million, up from $1.1 million in 1997. Residential
mortgage origination volumes totaled $98 million in 1999, $147 million in 1998
and $84 million in 1997. The general level and direction of interest rates
directly influence the volume and profitability of mortgage banking. Therefore
there can be no assurance as to the amount of origination fees and gains on
sales of residential mortgage loans in the future. The Bank commenced in-house
servicing of residential mortgage loans in March 1998. Serviced loans are bank
originated residential mortgages that have been sold to FNMA. The mortgages were
previously sub-serviced by another financial institution. Primarily due to
building volumes of serviced loans, 1999 mortgage servicing fees increased to
$640,000 compared to $492,000 in 1998 and $223,000 in 1997. Related mortgage
servicing rights are amortized in proportion to estimated net servicing income.
In the event of rapid customer
22
refinancing or prepayment activity, market valuation of capitalized mortgage
servicing rights could be impaired. Capitalized mortgage servicing rights
totaled approximately $2.8 million at year-end 1999 compared to $2.3 million at
year end 1998 and $1.3 million at year end 1997.
NONINTEREST EXPENSE
Total 1999 noninterest expense was $15.0 million, an increase of $2.5
million or 19.8% from 1998. This was compared to an increase of 32.2% in 1998
over 1997. Salaries and benefits increased $1.5 million in 1999. Approximately
half of this increase resulted from additional staffing for new endeavors
including the start-up of two new branch locations and a Trust Department. In
addition, volume related additions to staff occurred in operations,
administration and data processing activities. The general level of compensation
increased along with higher costs for benefits including healthcare and payroll
taxes. Similarly, rapid growth in business volumes was the primary factor in the
1998 increase in salary and benefits of $1.9 million from 1997 levels. It is
anticipated that human resources will increase in 2000 primarily due to staff
additions for the expected new branch office in Keizer, Oregon. Other categories
of expenses grew in both 1999 and 1998 in tandem with business expansion,
including occupancy, equipment, supplies and communications costs. INCOME TAXES
The provision for income taxes increased between the periods presented
primarily as a result of higher pre-tax income. The effective tax rate in 1997
was lower than other years due to a state income tax rebate.
FINANCIAL CONDITION
The Company continued to experience strong growth in 1999 in
conjunction with the economic performance of the communities it serves. Total
assets increased 15.7% to $347.9 million at December 31, 1999 compared to $300.8
million at December 31, 1998. Growth in total assets was funded by a $14.4
million increase in deposits and a $30.1 increase in borrowings at period end.
Higher borrowings were a consequence of loan growth exceeding the increase in
total deposits during the year. In the continuing strong economic environment in
the markets served by the Company, the loan portfolio was up 35.7% to $280.0
million at year-end 1999, $73.6 million higher than a year earlier. Loan growth
was concentrated in the commercial real estate portfolio up $41.1 million or
58.2%. This increase in part resulted from the Bank's tailored lending programs
for owner occupied business ventures, whereby the Bank primarily relies on cash
flow from the business for loan repayment, but takes commercial real estate
properties as an additional level of security.
The investment portfolio declined to $31.8 million at year-end 1999
compared to $51.0 million at year-end 1998. This reduction of investment
securities resulted from a combination of maturities, calls, and sales within
the portfolio. The cash proceeds from the declining investment portfolio were
re-deployed to support the funding of increased loan volumes.
Total deposits at year end 1999 were $285.3 million, an increase of
$14.5 million or 5.3% compared to year-end 1998. Deposits averaged $286.6
million for the full year 1999, up 21.6% or $50.9 million from the prior year
average. Comparative year-end changes in deposit composition include interest
bearing demand up $13.9 million or 12.7%, time deposits up $8.2 million or
26.5%, and non-interest bearing demand down $8.3 million or 7.2%.
The Company had no off balance sheet derivative financial instruments
as of December 31, 1999 and 1998.
23
INFLATION
The general rate of inflation over the past two years, as measured by
the Consumer Price Index, has not changed significantly, and management does not
consider the effects of inflation on the Company's financial position and
earnings to be material.
LIQUIDITY
The Company analyzes and manages its liquidity to ensure the
availability of sufficient funds to meet depositor withdrawals as well as to
fund borrowing needs of its loan customers. The Bank's stable deposit base is
the foundation of its long-term liquidity since these funds are not subject to
significant volatility as a result of changing interest rates and other economic
factors. A further source of liquidity is the Bank's ability to borrow funds
from a variety of reliable sources.
At December 31, 1999 the Bank maintained five unsecured lines of credit
totaling $18.0 million for the purchase of funds on a short-term basis. The Bank
is also a member of the Federal Home Loan Bank (FHLB) which provides a secured
line of credit of $34.5 million that may be accessed for short or long-term
borrowings. The Bank also had $23.7 million short term borrowing availability
from the Federal Reserve System that requires specific qualifying collateral. At
December 31, 1999 the Bank had outstanding short-term borrowings totaling $30.1
million, with aggregate remaining available borrowings of $46.1 million.
At December 31, 1999 the Bank had approximately $114 million in
outstanding commitments to extend credit. Historically a significant portion of
the commitments will expire or terminate without funding. In addition,
approximately 26% 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. Management
believes that the Bank's available resources will be sufficient to fund its
commitments in the normal course of business.
CAPITAL RESOURCES
The Company's total stockholders' equity at December 31, 1999 was $29.6
million, an increase of $2.6 million from December 31, 1998. 1999 equity was
increased by earnings of $6.2 million for the year less cash dividends paid to
shareholders of $2.2 million. In addition, during 1999, the Company repurchased
61,990 shares of its common stock outstanding pursuant to a Board of Directors
authorized program. This had the effect of reducing equity by $.9 million during
the year. At year end 1999, net unrealized gains (losses) on investment
securities available-for-sale decreased to ($.6) million from $.2 million a year
earlier.
24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK AND ASSET AND LIABILITY MANAGEMENT
It is the Company's Asset and Liability management 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. The Company may take steps to alter
its net sensitivity position by offering deposit and/or loan structures that
tend to mitigate its risk profile. In addition, the Company may acquire
investment securities, interest rate swaps or other hedging instruments with
repricing characteristics that tend to moderate interest rate risk. Because of
the volatility of market rates and uncertainties described above there can be no
assurance of the effectiveness of management programs to achieve its risk
management objectives.
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 liabilities (deposits and borrowings). The Company's
historical business activity had tended to originate loans with maturities and
repricing terms which are shorter than those of deposit relationships. These
maturity and repricing differences had tended to create an interest rate risk
profile whereby the Company would tend to generate higher earnings should market
interest rates rise and lower earnings should interest rates fall. However, the
past years' strong loan growth coupled with increased short-term borrowings has
moderated the Company's historic interest rate risk profile. At year-end 1999
the Company's future net interest income was proportionately less adversely
impacted by markedly lower interest rates than a year ago, but is not favorably
affected by markedly higher rates, as was the case in the past.
The Company analyzes interest rate risk by simulation modeling and by
traditional interest rate gap analysis. While both methods provide an indication
of risk for a given change in interest rates, it is management's opinion that
simulation is the more effective tool for asset and liability management. The
Bank's simulation analysis forecasts net interest income and earnings given an
unchanged interest rate scenario. The model then estimates a percentage change
in earnings from the unchanged rate scenario under various circumstances of
gradually rising and declining market interest rates over one and two year time
horizons. The following table defines extremes in market interest rates used in
the model for rapidly rising and rapidly declining interest rate scenarios.
These market rate extremes are reached gradually over the 2-year simulation
horizon.
----------------------------------------------------------------------------
Unchanged Rates Rising Rates Declining Rates
- --------------------------------------------------------------------------------------------------------
Federal Funds Rate 5.75% 11.00% 2.00%
- --------------------------------------------------------------------------------------------------------
Prime Rate 8.75% 14.00% 5.00%
- --------------------------------------------------------------------------------------------------------
The following table presents percentage change in earnings per the
simulation model under the above-described scenarios of gradually rising and
gradually declining interest rates as of year-end 1999.
Estimated percentage increase/(decrease) in earnings compared to
"unchanged" rate scenario:
-----------------------------------------------------------------
First twelve Months Second twelve Months
- ----------------------------------------------------------------------------------------------------
Rising Rate Scenario (8.30%) (12.90%)
- ----------------------------------------------------------------------------------------------------
Declining Rate Scenario (4.40%) (17.60%)
- ----------------------------------------------------------------------------------------------------
The above results are only indicative of the Company's possible range
of interest rate risk exposure under various scenarios. The results do not
encompass all possible changes in market rates, nor do the results include
possible changes in volumes, pricing or portfolio management tactics which may
enable management to moderate the effect of such interest rate changes.
25
Simulations are dependent on assumptions and estimations that
management believes are reasonable, although the actual results may vary
substantially, and there can be no assurance that simulation results are
reliable indicators of future earnings under such conditions. This is, in part,
because of the nature and uncertainties inherent in simulating future events
including: 1) no presumption of changes in asset and liability strategies in
response to changing circumstances; 2) errors in assumptions within the model;
3) uncertainties as to customer behavior in response to changing circumstance;
4) unexpected absolute and relative loan and deposit volume changes; 5)
unexpected absolute and relative loan and deposit pricing levels; 6) unexpected
behavior by competitors; 7) other unanticipated events impacting volatility in
market conditions and interest rates.
At year-end 1999, the Company's one-year cumulative interest rate gap
analysis indicates that rate sensitive liabilities maturing or available for
repricing within one-year exceeded rate sensitive assets by approximately $62.8
million. A year earlier, rate sensitive assets exceeded maturing or available
for repricing rate sensitive liabilities by $13.9 million.
INTEREST RATE GAP TABLE
Set forth below is a table showing the interest rate sensitivity Gap of
the Company's assets and liabilities over various repricing periods and
maturities, as of December 31, 1999. Maturities are based on contractual terms
and repricing amounts are based on actual historical experiences (dollars in
thousands):
AFTER 90 AFTER
WITHIN DAYS ONE YEAR AFTER
90 WITHIN WITHIN FIVE
DAYS ONE YEAR FIVE YEARS YEARS TOTAL
------- -------- ---------- ------- --------
INTEREST EARNING ASSETS:
Investments & fed funds sold ......... $ -- $ 3,560 $ 28,252 $ -- $ 31,812
Loans ................................ 65,269 50,818 134,925 28,668 279,680
--------- --------- --------- --------- ---------
Total interest earning assets .... $ 65,269 $ 54,378 $ 163,177 $ 28,668 $ 311,492
========= ========= ========= ========= =========
INTEREST BEARING LIABILITIES:
Interest-bearing demand deposits ..... $ 66,469 $ 50,326 $ 6,654 $ -- $ 123,449
Savings deposits ..................... -- -- 6,634 9,054 15,688
Time deposits ........................ 18,101 17,460 3,426 -- 38,987
--------- --------- --------- --------- ---------
Total interest bearing deposits .. 84,570 67,786 16,714 9,054 178,124
Other borrowings ..................... 30,100 -- -- -- 30,100
--------- --------- --------- --------- ---------
Total interest bearing liabilities $ 114,670 $ 67,786 $ 16,714 $ 9,054 $ 208,224
========= ========= ========= ========= =========
Interest rate sensitivity gap .............. $ (49,401) $ (13,408) $ 146,463 $ 19,614 $ 103,268
Interest rate gap as a percentage
Of total interest earning assets ..... (15.86%) (4.30%) 47.02% 6.29% 33.15%
========= ========= ========= ========= =========
Cumulative interest rate sensitivity gap ... $ (49,401) $ (62,809) $ 83,654 $ 103,268 $ 103,268
Cumulative interest rate gap as a
Percentage of total earning assets ... (15.86%) (20.16%) 26.86% 33.15% N/A
========= ========= ========= ========= =========
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For financial statements, see Index to Consolidated Financial
Statements on page 27.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Part III is incorporated by reference from the Company's definitive
proxy statement issued in conjunction with the Company's Annual Meeting of
Shareholders to be held April 24, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The financial statements required in this Annual Report are
listed in the accompanying Index to Consolidated Financial
Statements on page 29.
(2) Financial Statement Schedules.
All financial statement schedules are omitted because they are
not applicable or not required, or because the required
information is included in the consolidated financial
statements or the notes thereto.
(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, 1999.
(c) Exhibits.
The list of exhibits has been intentionally omitted. Upon
written request, we will provide to you, without charge, a
copy of the list of exhibits as filed with the Securities and
Exchange Commission. Additionally, we will furnish you with a
copy of any exhibit upon written request. Written requests to
obtain a list of exhibits or any exhibit should be sent to
Bank of the Cascades, 1100 NW Wall Street, Bend, Oregon 97701,
Attention: Investor Relations.
27
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/ PATRICIA L. MOSS /s/ GREGORY D. NEWTON
- ------------------------------------- ------------------------------------
Patricia L. Moss Gregory D. Newton
President/Chief Executive Officer Senior Vice President/
Chief Financial Officer
Date: February 21, 2000 Date: February 21, 2000
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 FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
Jerry E. Andres, Director Date
/s/ GARY L. CAPPS FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
Gary L. Capps, Director/Chairman Date
/s/ GARY L. HOFFMAN FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
Gary L. Hoffman, Director/Vice Chairman Date
/s/ PATRICIA L. MOSS FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
Patricia L. Moss, Director/President/CEO Date
/s/ RYAN R. PATRICK FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
Ryan R. Patrick, Director Date
/s/ JAMES E. PETERSEN FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
James E. Petersen, Director/ Date
Assistant Secretary
/s/ ROGER J. SHIELDS FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
Roger J. Shields, Director Date
28
CASCADE BANCORP
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(ITEM 14(A))
PAGE
----
Report of Independent Auditors..........................................................................................30
Consolidated Balance Sheets at
December 31, 1999 and 1998........................................................................................31
For the Years Ended December 31, 1999, 1998 and 1997:
Consolidated Statements of Income.................................................................................32
Consolidated Statements of Changes in Stockholders' Equity........................................................33
Consolidated Statements of Cash Flows.............................................................................34
Notes to Consolidated Financial Statements..............................................................................35
REPORT OF SYMONDS, EVANS & LARSON, P.C.,
INDEPENDENT AUDITORS
To the Board of Directors and
Stockholders of Cascade Bancorp
We have audited the accompanying consolidated balance sheets of Cascade Bancorp
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cascade Bancorp and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/ SYMONDS, EVANS & LARSON, P.C.
- ---------------------------------
Portland, Oregon
January 14, 2000
30
CASCADE BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
---------- ----------
ASSETS
Cash and cash equivalents:
Cash and due from banks ............................. $ 19,420,537 $ 18,696,221
Federal funds sold .................................. -- 8,450,000
------------- -------------
Total cash and cash equivalents ................. 19,420,537 27,146,221
Investment securities available-for-sale ............... 29,069,224 48,012,491
Investment securities held-to-maturity, estimated fair
value of $2,740,062 ($2,952,327 in 1998) ............ 2,742,794 2,938,489
Loans, net ............................................. 274,902,232 202,543,262
Mortgage loans held for sale ........................... 422,999 2,119,642
Premises and equipment, net ............................ 7,958,439 5,984,501
Accrued interest and other assets ...................... 13,387,798 12,029,810
------------- -------------
Total assets .................................... $ 347,904,023 $ 300,774,416
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand ............................................ $ 107,188,433 $ 115,532,163
Interest bearing demand ........................... 123,448,962 109,580,561
Savings ........................................... 15,688,114 14,940,897
Time .............................................. 38,987,032 30,809,110
------------- -------------
Total deposits .................................. 285,312,541 270,862,731
Federal Home Loan Bank borrowings ................... 13,000,000 --
Federal funds purchased .............................