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