U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from ------------to-----------
Commission file number 333-3442
ALBINA COMMUNITY BANCORP
(Exact Name of Registrant as Specified in Its Charter)
Oregon 93-1129061 (State or Other Jurisdiction of (I.R.S. Employer
Identification No.) Incorporation or Organization)
2002 N.E. Martin Luther King, Jr. Blvd., Portland, Oregon 97212 (Address of
Principal Executive Offices) (Zip Code)
Issuer's telephone number 503-287-7537
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of exchange on which registered
None
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
Check is there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [ X ]
State the issuer's revenues for the most recent fiscal year $861,362
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. (See definition of affiliate in Rule 12b-2 of the Exchange Act).
$2,984,700
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
At March 21, 1997, there were 192,560 shares of Class A Common Stock, no
par value, outstanding
Transitional Small Business Disclosure Format (check one): Yes X No
70065261.02
<PAGE>
PART I
Note: Items 1 through 6 of this Part I correspond to Items 6 through 11 of
Model B of Form 1-A.
Item 1. Description of Business.
The Company
Albina Community Bancorp (the "Company") is an Oregon business corporation
organized in 1993 by a group of concerned community and corporate citizens to
promote community development services in North and Northeast Portland, Oregon,
to benefit the low- and moderate-income residents and to support and finance
private-sector redevelopment projects in the area. The Company's activities are
focused on promoting investment and development in the Albina district through
its wholly-owned subsidiary community development bank, Albina Community Bank
(the "Bank"). The Company currently has no operations separate from the Bank.
Albina Community Bank
The Bank is a commercial bank organized under Oregon law, the deposits of
which are insured by the FDIC. The Bank's lending programs are focused on
residential loans for acquisition, rehabilitation, and home improvement,
including federally guaranteed loans. In addition, the Bank offers commercial
loans to small businesses, including inventory and working capital financing,
and loans guaranteed by the federal Small Business Administration. The Bank's
primary deposit base includes large time deposits by governmental entities,
corporations, socially responsible local citizens, and program-related
investors. The Bank conducts its business from its office located at 2002 N.E.
Martin Luther King, Jr. Blvd, Portland, Oregon.
Plan of Operation
Overview
The Company's business plan was created in consultation with Shorebank
Advisory Services, a subsidiary of South Shore Bancorp in Chicago, Illinois, the
parent holding company of South Shore Bank, one of the first community
development banks in the United States. Community development banks, as well as
other community development financial institutions, tailor specific loan
products to meet the needs of low-income and minority communities, and have been
innovators in the creation of non-standard transactions which have sometimes
been adopted by mainstream lending institutions. These institutions have also
been successful in promoting community revitalization by providing a presence
that is known and trusted within communities which have become disconnected from
the mainstream social and economic system. Moreover, these institutions provide
a wide array of services intended to build the capacity of borrowers and
community institutions and to promote revitalization efforts. The success of
these institutions is due in part to the focus of lending decisions on the
collective benefit to entire communities, rather than on the benefit to the
institution of discreet transactions.
The business plan is intended to implement the Company's stated mission of
promoting redevelopment and reinvestment in North/Northeast Portland, Oregon
(the "Target Area"), through credit assistance for renovation and rehabilitation
of existing residences, stimulation of the rehabilitation industry and small
business enterprises, and by attracting capital from outside investors.
The business plan calls for making credit available to residents of the
Target Area for acquisition and rehabilitation of residential properties, small
business financing, and consumer loans. The Bank participates with other
financial institutions in loans which exceed the Bank's lending limit, or which
are originated by other institutions and present opportunities for the Bank to
deploy its capital within the market area at an appropriate level of risk. Over
time it is expected that there be more emphasis on business development and
housing development within the Target Area. The Company believes that by
focusing its resources on a concentrated area, the perception of outside
investors and entrepreneurs will improve, attracting additional capital,
business development, and employment prospects.
70065261.02
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<PAGE>
Although the Company has no current plans to do so, it may consider
opportunities in the future to acquire one or more existing banks which may be
positioned to further the objectives of the Company, and may consider prudent
business opportunities outside the Target Area.
Capital Resources
The Company currently has no operations separate from the Bank. The Bank
commenced operations on December 19, 1995, following a private offering of the
Company's Class A Common Stock which raised approximately $4.75 million. In
addition, the Company filed a registration statement with the Securities and
Exchange Commission, which became effective on June 26, 1996, in connection with
the offering of 100,000 shares of the Company's Class A common stock at a price
per share of $10.00. The offering has not yet been completed, but is expected to
be completed in the second quarter of the current fiscal year.
The Company believes that proceeds of the public offering, together with
existing capital will satisfy the cash requirements of the Company for at least
the next six months of operation. It is anticipated that the Company's cash
requirements will not exceed $1.0 million during that period.
Credit Risk
The most significant risk to the Bank is that of losses resulting from
defaults on loans. The market area of the Company is concentrated in an
economically highly distressed part of the city of Portland, which area has
historically experienced high unemployment and low income levels. The financial
success of the Bank and the Company is dependent on the ability of borrowers to
make timely payments, and on the positive impact of community development
efforts on property values in the market area. Although the Bank has established
an allowance for possible loan losses, if its loss experience is high, the
charge to income to cover such losses could eliminate any profits of the
Company, and could jeopardize the Bank's capital and ongoing operations. As the
Bank may make loans which other commercial lenders have not made, or are
unwilling to make, the underwriting criteria utilized by the Bank, and the
credit risk assessment made by its management team, become particularly critical
to limiting potential loan losses.
Management believes it can limit such losses to an acceptable level by the
use of government guarantees when available, retaining adequate security for
loans, and by becoming more familiar with the borrowers and the Community than
other lenders have been able to do. As of December 31, 1996, the Bank had
experienced no losses as a result of defaults on loans.
Interest Rate Risk
It is the Bank's business to borrow funds from depositors and other
sources, and to lend those funds to borrowers or invest in interest-bearing
securities. Net interest income, the Bank's primary source of income, is
determined by the difference between the cost of deposits or other funds and the
interest earned on loans or investment securities. Consequently, the Bank could
suffer significant losses if its cost of funds were to rise and the additional
costs could not be passed on to borrowers. Similar interest rate risks apply if
the Bank invests in long-term fixed rate securities.
The Bank strives to ameliorate such risk in two ways: First, the Bank
offers loans with variable interest rates, which permit the Bank to increase the
interest rate, periodically, to reflect changes in the prevailing cost of funds.
The second way the Bank attempts to reduce the effects of interest rate
changes is to match, to the extent possible, the maturities of the
interest-bearing liabilities (such as time certificates of deposit) and
fixed-rate loans or investment securities (such as U.S. Treasury bonds) it has
purchased. In this way, as loans or investments are paid off or mature, a like
or similar amount of deposits also matures, and loans can be matched with
deposits to establish an acceptable interest rate spread over the maturity of
the loan. Although management strives to minimize risk through asset/liability
management policies, from time to time maturities may not be balanced. During
such periods, a rapid decrease or increase in interest rates could have an
adverse effect on the spreads between the interest rates earned on assets and
the rates of interest paid on liabilities, and therefore on the results of
operations of the Bank.
70065261.02
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<PAGE>
The following table sets forth an analysis of the sensitivity of the loan
portfolio to changes in interest rates.
<TABLE>
<CAPTION>
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Half 2nd Half Full Year Years Beyond
REVOLVING 1997 1997 1997 1997 1998 1998 1999 2000-2001 Year 2001
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Fed Fund Sold 429,000
Fixed Rate Securities 547,000 499,000 501,000 1,000,000 503,000 1,000,000
Floating Rate 2,040,000
Securities
Total Securities 547,000 499,000 501,000 3,040,000 503,000 1,000,000
Fixed Rate Loans 25,000 12,000 200,000 200,000 505,000 1,010,000 2,603,000
Floating Rate Loans 2,422,000 400,000 400,000 400,000 415,000 3,000,000
Total Loans 2,422,000 425,000 400,000 400,000 427,000 200,000 200,000 3,505,000 1,010,000 2,603,000
Other Assets 1,698,000
Total Assets 2,851,000 425,000 947,000 899,000 928,000 3,240,000 703,000 3,505,000 1,010,000 5,301,000
LIABILITIES &
EQUITY
Non-Interest 986,000
Bearing DDA
Interest Bearing DDA 778,000
Savings 1,058,000
Money Market 1,973,000
Fixed Rate 1,046,000 409,000 409,000 409,000 181,000
CD's $100
Fixed Rate 2,470,000 600,000 600,000 828,000 495,000
CD's $100
Fixed Rate 1,000,000 600,000 2,300,000
Brokered CD's
Total Deposits 1,973,000 3,516,000 2,009,000 1,009,000 1,837,000 2,976,000 2,822,000
Other Liabilities 152,000
Equity 3,515,000
Total Liabilities & 1,973,000 3,516,000 2,009,000 1,009,000 1,873,000 2,976,000 6,489,000
Equity
</TABLE>
<TABLE>
<CAPTION>
(continued) REVOLVING TOTALS
===============================================
<S> <C> <C>
ASSETS
Fed Fund Sold 429,000 429,000
Fixed Rate Securities 4,050,000
Floating Rate 2,040,000
Securities
Total Securities 6,090,000
Fixed Rate Loans 4,555,000
Floating Rate Loans 2,422,000 7,037,000
Total Loans 2,422,000 11,592,000
Other Assets 1,698,000
Total Assets 2,851,000 19,809,000
LIABILITIES &
EQUITY
Non-Interest 986,000
Bearing DDA
Interest Bearing DDA 778,000
Savings 1,058,000
Money Market 1,973,000 l,973,000
Fixed Rate 2,454,000
CD's $100
Fixed Rate 4,993,000
CD's $100
Fixed Rate 3,900,000
Brokered CD's
Total Deposits 1,973,000 16,142,000
Other Liabilities 152,000
Equity 3,515,000
Total Liabilities & 1,973,000 19,809,000
Equity
</TABLE>
<TABLE>
<CAPTION>
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Half 2nd Half Full Year Years Beyond
REVOLVING 1997 1997 1997 1997 1998 1998 1999 2000-2001 Year 2001
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAP $ 878,000 (3,091,000) (1,062,000) (110,000) (909,000) 264,000 703,000 3,505,000 1,010,000 (1,188,000)
GAP/Total 4.4% -15.6% -5.4% -0.6% -4.6% 1.3% 3.5% 17.7% 5.1% -6.0%
Assets
Cumulative 878,000 (2,213,000) (3,275,000) (3,385,000)(4,294,000) (4,030,000) (3,327,000) 178,000 1,188,000 -
GAP $
Cum 4.4% -11.2% -16.5% -17.1% -21.7% -20.3% -16.8% 0.9% 6.0% 0.0%
GAP/Total
Assets
Rate Shock
- - $ Impact
if rates:
+1.00% 8,780 (22,130) (32,750) (33,850) (42,940) (40,300) (33,270) 1,780 11,880 -
(annualized)
- -1.00% (8,870) 22,130 32,750 33,850 42,940 40,300 33,270 (1,780) (11,880) -
(annualized)
</TABLE>
<TABLE>
<CAPTION>
(continued) REVOLVING TOTALS
======================================
<S> <C> <C>
GAP $ 878,000 -
GAP/Total 4.4%
Assets
Cumulative 878,000 -
GAP $
Cum 4.4% -
GAP/Total
Assets
Rate Shock
- - $ Impact
if rates:
+1.00% 8,780 -
(annualized)
- -1.00% (8,870) -
(annualized)
</TABLE>
70065261.02
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<PAGE>
Results of Recent Operations
The Company has no operations separate from the Bank. The Bank commenced
operations in December, 1995, and its activities have primarily consisted of
gathering deposits and writing loans, as well as installing internal operating
systems. At December 31, 1996, the Bank had total assets of approximately $19.8
million, total loans of approximately $11.3 million, and total deposits of $15.8
million. The Bank experienced a loss of $1.16 million for the year ended
December 31, 1996, primarily as a result of operating costs exceeding revenues
during the initial stages of operation. It is anticipated that as the deposits
and loans continue to grow, the rate of losses will decline, although various
factors, including adverse experience with credit risk and interest-rate risk,
discussed below, may nonetheless result in losses. Moreover, as lending officers
gain experience with lending in the Bank's target market, the level of loan
production will increase, and the operating expenses as a percent of revenue
will decline. It is not known, and cannot be accurately predicted at this time
if or when the Bank will achieve profitability. Typically, a new bank's
operating expenses will exceed operating revenue for the first two or three
years of operations.
Deposits
The following table sets forth the average deposit liabilities of and
the rates paid by the Bank for the year ended December 31, 1996:
Average Balance Average Rate Paid
Non interest-bearing demand $311,897 n/a
Interest-bearing demand 267,057 2.9%
Savings 1,220,393 4.4%
Time 5,898,973 5.3%
---------
Total deposits $7,698,320
Of the time deposits listed above, the deposits of $100,000 or more had
the following times remaining to maturity:
Balance at
December 31, 1996
Remaining maturity:
less than 3 months 2,470,292
3-6 months 914,588
6-12 months 1,113,665
over 12 months 495,000
----------
Total deposits $100,000 or more $4,993,545
==========
Loans
Interest earned on the loan and investment portfolios are the primary
source of income for the Bank. Net loans represent 57.2% of total assets as of
December 31, 1996. The Bank makes the majority of its loans to customers located
within the Bank's service area. The Bank has no loans defined as highly
leveraged transactions by the Federal Reserve Board, and has no loan charge-offs
as of December 31, 1996. The following table sets forth the composition of the
loan portfolio at December 31, 1996:
Commercial - lines of credit $2,482,743
Commercial - construction 401,016
Commercial - real estate 4,790,122
Residential Real Estate 3,578,624
Installment 335,518
Other 3,745
-----------
Total loans 11,591,768
Deferred loan fees, net (85,530)
Allowance for loan losses (172,590)
------------
Net loans $11,333,648
70065261.02
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<PAGE>
Investment Portfolio
The investment portfolio at December 31, 1996, had an aggregate book
value of $6,090,352, as follows:
US Government and Federal Agencies $3,046,499
Mortgage Backed Securities 3,043,853
Total Securities $6,090,352
Employees
As of December 31, 1996 the Bank had a total of 19 employees, of which
16 were permanent full-time, 2 were temporary full-time and 1 was temporary
part-time. The Company has no employes other than those of the Bank.
Supervision and Regulation
General
The Company and the Bank are extensively regulated under federal and
state law. These laws and regulations are intended to protect depositors, not
shareholders. 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 and the Bank. The operations of the Company and the Bank may be affected
by legislative changes and by the policies of various regulatory authorities.
The Company 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.
The Company, as a corporation organized under Oregon law, is subject to
certain limitations and restrictions of state law. Such limitations and
restrictions relate to such corporate matters as indemnification of directors,
distributions to shareholders, transactions with officers or directors, proper
maintenance of books and records, and procedural requirements with respect to
directors' and shareholders' meetings.
Federal Bank Holding Company Regulation
The Company is a bank holding company within the meaning of the Bank
Holding Company Act (the "BHCA"), and as such, it is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
System (the "Federal Reserve"). The Company is required to file annual reports
with the Federal Reserve and to provide the Federal Reserve such additional
information as the Federal Reserve may require.
The BHCA requires every bank holding company to obtain the prior
approval of the Federal Reserve before (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank holding
company, after such acquisition, if it would own or control more than 5% of such
shares (unless it already owns or controls the majority of such shares); (ii)
acquiring all or substantially all of the assets of another bank or bank holding
company; or (iii) merging or consolidating with another bank holding company.
The Federal Reserve will not approve any acquisition, merger or consolidation
that would have a substantial anti-competitive result, unless the
anti-competitive 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 Federal Reserve also considers capital adequacy and other
financial and managerial factors in reviewing acquisitions or mergers.
With certain exceptions, BHCA 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
70065261.02
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<PAGE>
certain non-bank activities which, by statute or by Federal Reserve 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
Federal Reserve 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. Community redevelopment entities are among the activities deemed
permissible by the Federal Reserve.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to the
bank holding company or its subsidiaries, on investments in their securities and
on the use of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit the Company's ability to obtain funds
from the Bank for its cash needs, including funds for payment of dividends,
interest and operating expenses. Further, under the Federal Reserve Act and
certain regulations of the Federal Reserve, a bank holding company and its
subsidiaries are prohibited from engaging in certain tying arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services. For example, the Bank may not generally require a customer to
obtain other services from the Bank or the Company, and may not require that the
customer promise not to obtain other services from a competitor, as a condition
to an extension of credit to the customer.
Federal and State Bank Regulation
The Bank, as a state chartered bank with deposits insured by the
Federal Deposit Insurance Corporation ("FDIC") that is not a member of the
Federal Reserve System, is subject to the supervision and regulation of the
Director of the Oregon Department of Consumer and Business Services,
administered through the Division of Finance and Corporate Securities (the
"Oregon Director"), 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.
As of July 1, 1989, Oregon has permitted out-of-state banking
institutions to acquire banks or holding companies that have been in existence
for a period of no fewer than three years. Generally, such acquisitions are
subject to the approval of the Federal Reserve Board and the Oregon Director. As
a result of 1993 Oregon legislation and 1995 federal law changes, Oregon banks
may merge with out-of-state national or state banks, and out-of-state national
and state banks may acquire Oregon branches or may merge with or acquire
branches of Oregon or federal savings associations. Initial acquisitions must
involve institutions which have been engaged in banking in Oregon for at least
three years, but once such an acquisition is made, the resulting bank may add
additional branches.
The Community Reinvestment Act (the "CRA") requires that, in connection
with examinations of financial institutions within their jurisdiction, the
Federal Reserve or the FDIC evaluates 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 provisions of
the CRA may be enforced by private citizens and interest groups as well as
federal banking regulators, who conduct regular CRA examinations. A satisfactory
rating means the Bank has adequately met the needs of the community, consistent
with safe and sound banking practices. Although the Bank has not yet been
subjected to a CRA examination, it is anticipated that the Bank will
consistently receive more than satisfactory ratings on its CRA performance, as a
result of its particular focus on meeting such credit needs.
The Bank is also subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors, principal
shareholders or any related interest of such persons. Extensions of credit (i)
must be made on substantially the same terms, including interest rates and
collateral as, 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 who are not employees, 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.
70065261.02
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<PAGE>
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 have been or 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 an FDIC member institution, the deposits of the Bank are currently
insured to a maximum of $100,000 per depositor through the Bank Insurance Fund
("BIF"), administered by the FDIC. The Bank is required to pay semi-annual
deposit insurance premium assessments to the FDIC.
The FDICIA includes 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, under this system, banks are
assessed insurance premiums according to how much risk they are deemed to
present to BIF. Banks with higher levels of capital and 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. The premium range
is from $.00, for the highest-rated institutions (subject to a statutory minimum
assessment of $2,000) to $.27 per $100 of domestic deposits. The Bank's current
FDIC premium rate is $.01 per $100 of domestic deposits.
Dividends
The principal source of the Company's cash revenues is dividends
received from the Bank. Under the Oregon Bank Act, the Bank is subject to
restrictions on its payment of cash dividends to the Company. The Bank may not
pay cash dividends if that payment would reduce the amount of its capital below
that necessary to meet minimum applicable regulatory capital requirements. In
addition, the amount of the dividend may not be greater than its net undivided
profits then on hand, after first deducting (i) all losses; (ii) all bad debts,
unless the debts are well-secured, (a) on which interest for a period of one
year is past due and unpaid, and (b) upon which final judgment has been
obtained, but for more than one year the judgment has been unsatisfied and
interest has not been paid; (iii) all assets or depreciation charged off as
required by the Oregon Director; and (iv) all accrued expenses, interest and
taxes of the Bank.
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. However, the Bank is currently unable to pay dividends
to the Company as a result of the lack of retained earnings. It is not known
when, if ever, the Bank will be able to pay such "upstream" dividends.
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 FDIC and Federal Reserve 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
70065261.02
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<PAGE>
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 Federal Reserve 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 shareholders'
equity, qualifying perpetual preferred stock (up to 25% of total Tier 1 capital,
if cumulative; under a Federal Reserve rule, redeemable perpetual preferred
stock may not be counted as Tier 1 capital unless the redemption is subject to
the prior approval of the Federal Reserve) and minority interests in equity
accounts of consolidated subsidiaries, less intangibles except as described
above. 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.
Most loans are assigned to the 100% risk category, except for first
mortgage loans fully secured by residential property, which carry a 50% rating.
Most investment securities 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 guaranteed by the United States Treasury or United
States Government agencies, 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 100% conversion
factor. The 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 Federal Reserve also has implemented a leverage ratio, which is
Tier 1 capital as a percentage of 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 Federal Reserve 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 Federal
Reserve expects an additional cushion of at least 1% to 2%.
For bank holding companies with less than $150 million in consolidated
assets, the guidelines are applied on a bank-only basis unless the holding
company is engaged in a non-bank activity involving significant leverage or has
a significant amount of outstanding debt that is held by the general public. As
of December 31, 1996, the Company was in compliance with applicable capital
requirements.
The FDICIA also created a 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. The Company does not anticipate that these regulations will
have any material effect on the Bank.
Under Oregon law, shares of the Bank may be assessable under certain
circumstances. If the capital of the Bank becomes impaired, shareholders of the
Bank (i.e. the Company) may be required to contribute additional capital.
Shareholders of the Company would not be called upon for such a contribution.
70065261.02
-8-
<PAGE>
Effects of Government Monetary Policy
The earnings and growth of the Bank, and its existing and future
activities, are affected not only by general economic conditions, but also by
the fiscal and monetary policies of the federal government, particularly the
Federal Reserve. The Federal Reserve can and does implement national monetary
policy for such purposes as curbing inflation and combating recession, but its
open market operations in U.S. government securities, control of the discount
rate applicable to borrowings from the Federal Reserve, and establishment of
reserve requirements against certain deposits, influence growth of bank loans,
investments and deposits, and also affect interest rates charged on loans or
paid on deposits. The nature and impact of future changes in monetary policies
and their impact on the Company cannot be predicted with certainty.
Changing Regulatory Structure of the Banking Industry
The laws and regulations affecting banks and bank holding companies are
currently undergoing significant changes. Bills are now pending or expected to
be introduced in the United States Congress that contain proposals for altering
the structure, regulation, and competitive relationships of the nation's
financial institutions. If enacted into law, these bills could have the effect
of increasing or decreasing the cost of doing business, limiting or expanding
permissible activities (including activities in the insurance and securities
fields), or affecting the competitive balance among banks, savings associations,
and other financial institutions. Some of these bills would reduce the extent of
federal deposit insurance, broaden the powers or the geographical range of
operations of bank holding companies, modify interstate branching restrictions
applicable to banks, regulate bank involvement in derivative securities
activities, and realign the structure and jurisdiction of various financial
institution regulatory agencies. Whether or in what form any such legislation
may be adopted or the extent to which the business of the Company might be
affected thereby cannot be predicted with certainty.
Of particular note is legislation which has been recently been enacted
by Congress, as referred to above, permitting interstate banking and branching,
which would allow banks to expand nationwide through acquisition, consolidation
or merger. Under this law, an adequately capitalized bank holding company may
acquire banks in any state if permitted by state law. In addition, banks may
acquire branches of out-of-state banks through merger followed by conversion of
the acquired bank branches into branches of the resulting bank. Further, banks
may establish and operate branches in any state subject to the restrictions of
applicable state law. Under Oregon law, an out-of-state bank or bank holding
company may merge with or acquire an Oregon state-chartered bank or bank holding
company if the Oregon bank, or in the case of a bank holding company, the
subsidiary bank, has been in existence for a minimum of three years, and the law
of the state in which the acquiring bank in located permits such merger.
70065261.02
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<PAGE>
Item 2. Description of Property.
The Company currently maintains its executive offices at the offices of
the Bank at 2002 N.E. Martin Luther King Jr. Boulevard, Portland, Oregon. The
office comprises 5,357 square feet of space in a mixed-use development pursuant
to a lease agreement, dated May 6, 1996, which lease is for a term of 10 years
at a monthly cost to the Bank of $4,595. It is anticipated that such space will
be adequate for the Company's needs including the needs of the Bank.
Item 3. Directors, Executive Officers and Significant Employees.
The following table sets forth certain information as to the directors,
executive officers and significant employees as of March , 1997.
<TABLE>
<CAPTION>
Name Age Position Principal Occupation
<S> <C> <C> <C>
Roger S. Ahlbrandt 54 Director of Company Dean, Portland State University School
and Bank of Business
James R. Bradshaw 38 Director of Bank Investment Banker, Pacific Crest
Securities Inc.
Graham C. Bryce 54 Director of Bank Real Estate Investor
Bernard V. Foster 53 Director of Company Publisher, The Skanner Newspapers
Ted K. Gilbert 44 Director of Company Real Estate Developer
Avel Louise Gordly 48 Director of Company State Representative
Michael C. Henderson 49 Chairman of the Board of President, PacifiCorp Financial
Company and Bank Services
Sheila D. Holden 41 Director of Company District Manager, PacifiCorp
Deborah E. Kennedy 43 Director of Company Managing Director, Cole & Weber
Deborah Saweuyer-Parks 42 Director of Bank President and CEO, Oregon
Corporation of Affordable Housing
Howard M. Shapiro 64 Vice Chairman of the Board Consultant
of Company and Bank
Leon C. Smith 48 Director, President, Banker
Chief Executive Officer of
Company and Bank
Ralph E. Wiita 47 Executive Vice President, Banker
Chief Financial Officer,
and Secretary of Company,
and the Bank
Jeana M. Woolley 43 Director of Company Consultant
</TABLE>
The executive officers are Leon C. Smith, President and Chief Executive
Officer, and Ralph E. Wiita, Executive Vice President, Chief Financial Officer
and Secretary of the Company and the Bank. No director or executive officer of
the Company or the Bank has a direct family relationship with another director
or executive officer of the Company or the Bank.
70065261.02
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<PAGE>
Business Experience of Directors and Executive Officers
The following sets forth the business experience of the directors and
executive officers for the past five years:
Roger S. Ahlbrandt is Dean of Portland State University School of
Business Administration, a position he has held since 1993. Prior to that time,
Dr. Ahlbrandt was a professor and Associate Dean of the Graduate School of
Business at the University of Pittsburgh, positions he held from 1982 to 1993.
Dr. Ahlbrandt has extensive experience in housing and economic development, and
is a member of the Advisory Committee of the Neighborhood Partnership Fund of
the Oregon Community Foundation. He also serves as a director for ESCO
Corporation and the Ellwood Group, Inc., steel and heavy equipment
manufacturers.
James R. Bradshaw, is a Vice President at Pacific Crest Securities
Inc., a Portland-based investment banking firm, where he has been employed since
1992 as an investment research analyst focusing on financial institutions. Prior
to joining Pacific Crest Securities, Mr. Bradshaw was a senior bank examiner for
the State of California and was also a consultant involved in the liquidation of
a failed California thrift.
Graham C. Bryce has served as President of QG Investment Company, a
real estate investment company, since 1986. Mr. Bryce has extensive prior
experience in the banking and financial services industry, holding positions as
an officer at Mellon Bank, Wells Fargo Bank and Orbanco Financial Services. He
also served as a director of Sprouse-Reitz Stores, Inc., which was liquidated in
bankruptcy in 1994. Mr. Bryce holds a Masters degree in Finance from
Northwestern University.
Bernard V. Foster is owner and publisher of The Skanner Newspapers and
is President of the West Coast Black Publishers Association, representing 22
newspapers in 18 markets throughout western United States. Mr. Foster is
actively involved in many community organizations and activities which serve the
needs of the minority youth and disadvantaged of the Portland area, including
sponsorship of the Northeast Neighborhood Fun Run, The Skanner Music Awards,
Thanksgiving and Christmas food drives, and the annual Minority Business
Enterprise Awards. Mr. Foster is also a member of the Metropolitan
Exposition-Recreation Commission, a regional policy-making board.
Ted K. Gilbert serves as President of Baron Equities and Resources,
Inc., a firm specializing in real estate acquisition and development, and has
been actively involved in real estate investment and management since 1973. Mr.
Gilbert also has experience in creating affordable and low income housing, with
an emphasis on north and northeast Portland's inner city neighborhoods. He is
Chairman of HOST Development, Inc., a non-profit developer of affordable home
ownership.
Avel Louise Gordly has served as an elected State Representative since
1991. For more than 20 years she has been active in community and social
programs, serving as Program Director for the Portland Housing of Umoja (1991)
and Associate Executive Secretary (Director) of the Pacific Northwest Region
American Friends Service Committee in the Portland, Oregon office (1987-1990).
Michael C. Henderson is President and Chief Operating Officer of
PacifiCorp Holdings Company, a subsidiary of PacifiCorp which controls all of
the non-utility operations of PacifiCorp, a position he has held since 1995.
Prior to that time, he served, from 1991 to 1995, as President and Chief
Executive Officer of PacifiCorp Financial Services, one of the non-utility
subsidiaries, a $1.3 billion diversified financial services company with
investments in aviation, real estate, computer leasing and manufacturing, and
middle-market loan and lease portfolios. Mr. Henderson is a Certified Public
Accountant and a Certified Management Consultant, and has more than 16 years of
experience as a partner in a major accounting firm. He is active in, and has
served on the boards of, several community organizations. Mr. Henderson
currently serves as Chairman of the Board of Directors of the Company and the
Bank.
Sheila D. Holden has been employed by PacifiCorp since 1985, and
currently serves a district manager of community relations for Pacific Power &
Light Company, a subsidiary of PacifiCorp, a position she has held since 1991.
She has been actively involved in organizations which assist low-income
residents with energy-related issues.
70065261.02
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<PAGE>
Deborah E. Kennedy is Managing Director of Cole & Weber, a Portland
advertising agency. Prior to joining Cole & Weber in 1990, Ms. Kennedy was
Director of Tourism for the State of Oregon for 3 years, and previously
International Advertising Manager for Nike, Inc. She is a member of the board of
directors of the Northwest Business Committee for the Arts and the Oregon
Independent College Foundation. Ms. Kennedy is also the founder of Cycle Oregon,
an annual 450-mile bicycle tour of rural Oregon.
Deborah Saweuyer-Parks is the President and Chief Operating Officer of
the Oregon Corporation for Affordable Housing, a position she has held since its
formation in July, 1993. Prior to the formation of the OCAH, she served as the
Low-Income Tax Credit Program Manager for the Oregon Housing and Community
Services Department. Ms. Saweuyer-Parks graduated from the University of Oregon
and has taken graduate courses toward her MBA at the College of William and
Mary.
Howard M. Shapiro is an independent business consultant specializing in
management, marketing, fund raising and organizational restructuring. Mr.
Shapiro holds a degree in Business Administration, and serves on the boards of
several charitable and community organizations.
Leon C. Smith is President and Chief Executive officer of the Company
and the Bank. Prior to joining the Company in January, 1994, Mr. Smith was a
Senior Vice President for Bank of Boston, Connecticut, a position he held from
1992 to 1994, and was previously Chief Executive Officer of Emerald City Bank in
Seattle, Washington from 1991 to 1992. Mr. Smith has also had extensive
experience with community organizations and development lending projects. He
holds an MBA from the University of Chicago and a law degree from Northwestern
University.
Ralph E. Wiita is Executive Vice President, Chief Financial Officer and
Secretary of the Company and of the Bank. Mr. Wiita joined the Bank in August,
1996. From 1994 to 1996 Mr. Wiita was President and CEO of Visalia Community
Bank, a $135 million full service commercial bank in Central California. While
at Visalia Community Bank he led the bank to significant market share in the
Hispanic community and won a national award for the bank's accomplishments in
low-to-moderate income lending. From 1992-1994 Mr. Wiita was Executive Vice
President and Chief Financial Officers at Visalia. Before moving to California,
Mr. Wiita spent 12 years with Security Pacific Bank, most recently as Senior
Vice President and Chief Financial Officer at Security Pacific Bank of Oregon.
Mr. Wiita holds a MBA from Michigan State University and a BS from the
University of Michigan.
Jeana M. Woolley is President and principal of JM Woolley & Associates,
a planning and development consulting firm she has owned and operated since
1991. Ms. Woolley has over 20 years of experience in publicand private-sector
organizations, including management positions in technology and real estate
businesses. Ms. Woolley also serves as the Chairperson and Trustee of the
Northeast Portland Development Trust, the Company's largest shareholder.
Involvement in Certain Legal Proceedings
Leon C. Smith, President and Chief Executive Officer of the Company
served twenty-two months as President and Chief Executive Officer of Emerald
City Bank, a Washington state bank, which failed in 1993 approximately eight
months after Mr. Smith had left the bank. Mr. Smith had been appointed at a time
when the bank was already a very troubled institution and was subject to an
FDIC-imposed consent decree. During Mr. Smith's tenure, the bank significantly
decreased its operating losses, increased the loan portfolio, and decreased the
level of classified assets. Despite Mr. Smith's success in restoring the
institution's balance sheet, the lack of necessary additional capital resulted
in the failure of the bank and the appointment of the FDIC as receiver.
Graham C. Bryce, director of the Bank, served from 1990 to 1994 as a
director of the Sprouse, Inc. ("Sprouse"), an operator of retail variety stores.
Sprouse filed for protection under chapter 11 of the Federal Bankruptcy Code in
1992, and again in 1993. Sprouse was liquidated in a proceeding under Chapter 7
of the Bankruptcy Code in 1994.
70065261.02
-12-
<PAGE>
Item 4. Remuneration of Directors and Officers.
The following sets forth the aggregate remuneration of the highest paid
executive officer during the past fiscal year. No other executive officers
received in excess of $100,000 in 1996. Directors do not receive compensation
for service or for participation in meetings of the board of directors.
Capacity in which
Name of Individual Remuneration was received Aggregate Remuneration
Leon C. Smith President, Chief Executive Officer $125,000
Employment Agreements
As of February 1, 1994, the Company and Leon C. Smith entered into an
employment agreement, pursuant to which Mr. Smith has served as President and
Chief Executive Officer of the Company and the Bank. The initial agreement was
for a term of two years, and was extended for one year at the Company's option.
The Company and Mr. Smith are currently negotiating an additional extention, or
a new agreement, the terms of which have not yet been determined. Until a new
agreement is reached, Mr. Smith will continue to serve under the existing
agreement, which provides for an annual salary of $125,000. The agreement
further provides for severance pay of $125,000 in the event his employment is
terminated as a result of a change of control of the Company by reason of
merger, acquisition or otherwise.
Item 5. Security Ownership of Management and Certain Securityholders.
The following table sets forth as of March 21, 1997, the shares of
Common Stock beneficially owned by all of the directors, nominees for election
as directors, and executive officers of the Company. As of that date there were
192,560 shares of the Company's Common Stock issued and outstanding. All shares
are held directly unless otherwise indicated.
Number of Shares
Name Beneficially Owned Percent of Class
Roger S. Ahlbrandt 1,000 *
James R. Bradshaw 150 *
Graham C. Bryce 1,000 *
Bernard V. Foster 3,000 1.6
Ted K. Gilbert 7,500 3.9
Avel Louise Gordly 20 *
Michael C. Henderson 2,500 1.3
Sheila D. Holden 100 *
Deborah Saweuyer-Parks 100 *
Howard M. Shapiro 7,500 3.9
Leon C. Smith 2,000 1.0
Ralph E. Wiita -0- *
Jeana M. Woolley 100 *
All Officers and Directors
as a Group 24,970 13.1%
------------ -----
- ---------------------------------
* less than 1.0%
(1) The business address of all directors and officers is 2002 N.E. Martin
Luther King, Jr. Blvd., Portland, Oregon 97212.
70065261.02
-13-
<PAGE>
Item 6. Interest of Management and Others in Certain Transactions.
Various of the directors and officers of the Company and companies or
firms in which they had an interest were customers of and had transactions with
the Company during 1996 in the ordinary course of business. Additional
transactions are expected to take place in the ordinary course of business in
the future. All outstanding loans and commitments included in such transactions
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not, in the opinion of management, involve more than
normal risks of collectibility nor present other unfavorable features.
PART II. OTHER INFORMATION
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
There is currently no active public market for the Common Stock, and
[transactions in the Common Stock have been sporadic]. Accordingly, there is no
reliable source of information regarding current market prices. The Company does
not intend to apply to any national or regional stock exchange, or to any
inter-dealer quotation system, for listing of the Common Stock.
The Company does not have, nor intend to establish, a cash dividend
policy with respect to the Common Stock. Notwithstanding such dividends as may
be declared and payable on any or all series of Preferred Stock outstanding, it
is anticipated that net income from the operations of the Bank will be retained
for use by the Bank as working capital to further the objectives of the Company.
Further, as the Company is dependent on dividends from the Bank for income, the
availability of funds with which to make dividends to Company shareholders is
limited by regulatory constraints on dividends by the Bank.
Item 2. Legal Proceedings.
None.
Item 3. Changes in and Disagreements with Accountants.
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
Not applicable.
Item 5. Compliance with Section 16(a) of the Exchange Act.
Not applicable.
Item 6. Reports on Form 8-K.
None.
70065261.02
-14-
<PAGE>
PART F/S
Independent Auditors' Report
The Board of Directors
Albina Community Bancorp:
We have audited the accompanying consolidated balance sheets of Albina Community
Bancorp and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 Albina Community
Bancorp and subsidiary as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
March 7, 1997
70065261.02
-15-
<PAGE>
<TABLE>
<CAPTION>
ALBINA COMMUNITY BANCORP
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
------ ---- ----
<S> <C> <C> <C>
Cash and cash equivalents:
Cash and due from banks $1,108,442 223,457
Federal funds sold 429,000 2,100,000
------- ---------
Total cash and cash equivalents 1,537,442 2,323,457
Investment securities held to maturity (note 2) - 3,380,443
Investment securities available for sale (notes 2 and 13) 6,090,352 -
Loans, net (notes 3, 4 and 10) 11,333,648 -
Premises and equipment (note 5) 689,801 146,277
Other assets 175,251 25,056
------- --------
Total assets $19,826,494 5,875,233
========== =========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
<S> <C> <C>
Liabilities:
Demand, noninterest-bearing 688,689 500
Demand, interest-bearing 778,432 -
Savings accounts 1,057,809 -
Money market accounts 1,972,870 -
Time deposits (note 6) 11,346,410 1,173,000
---------- ---------
Total deposits 15,844,210 1,173,500
Other liabilities 423,716 133,733
------- -------
Total liabilities 16,267,926 1,307,233
---------- ---------
Shareholders' equity (note 8):
Preferred stock, authorized 1,000,000 shares, without par value; 29,388
shares issued and outstanding at December 31, 1996 and 1995:
Series A, 1%; $1.00 per share liquidation preference;
non-cumulative; 20,000 shares designated, 16,300 shares
issued and outstanding at December 31, 1996 and 1995 2,236,058 2,236,058
Series B, $1.00 per share liquidation preference;
non-cumulative; 10,000 shares designated 8,518 shares
issued and outstanding at December 31, 1996 and 1995 851,800 851,800
Series C, 10%, $100.00 per share liquidation preference;
non-cumulative; convertible; 10,000 shares designated,
4,570 shares issued and outstanding at December 31,
1996 and 1995 457,000 457,000
Common stock:
Class A, without par value; authorized 3,000,000 shares;
191,210 and 165,670 shares issued and outstanding at
December 31, 1996 and 1995, respectively 1,839,532 1,656,700
Class B, without par value; authorized 1,000,000 shares;
none issued or outstanding at Decembr 31, 1996 and 1995 - -
Accumulated deficit ($1,309,491 and $612,614 allocable to Series A
and B preferred stock and $488,513 and $20,944 allocable to
common stock at December 31, 1996 and 1995, respectively) (1,798,004) (633,558)
Unrealized loss on available for sale securities (27,818) -
------- -------
Total shareholders' equity 3,558,568 4,568,000
--------- ---------
Total liabilities and shareholders' equity $19,826,494 5,875,233
========== =========
See accompanying notes to consolidated financial statements.
</TABLE>
70065261.02
-16-
<PAGE>
<TABLE>
<CAPTION>
ALBINA COMMUNITY BANCORP
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1996 and 1995
1996 1995
---- ----
<S> <C> <C>
Interest income:
Loans $434,879 -
Investment securities - taxable 217,498 4,845
Federal funds sold 156,643 8,721
Stock subscriptions - 27,383
------- ------
Total interest income 809,020 40,949
------- ------
Interest expense:
Deposits:
Demand accounts 7,636 -
Savings accounts 8,134 -
Money market accounts 45,857 -
Time deposits (note 6) 313,025 2,069
------- -----
Total interest expense 374,652 2,069
------- -----
Net interest income 434,368 38,880
Provisions for loan losses (note 4) 172,590 -
------- -----
Net interest income after provision for
loan losses 261,778 38,880
------- ------
Other income:
Service charges on deposit accounts 6,636 -
Gain on sale of mortgage loans 13,384 -
Sold real estate loan fees 7,918 -
Other 24,404 -
------ ------
Total other income 52,342 -
------ ------
Other expense:
Salaries and employee benefits 939,910 210,516
Occupancy and equipment 134,000 6,390
Professional fees 88,896 84,329
Promotion and advertising 86,812 -
Data processing 65,762 -
Other 163,186 67,410
------- ------
Total other expense 1,478,566 368,645
--------- -------
Loss before provision for income taxes (1,164,446) (329,765)
Provision for income taxes (note 9) - -
----------- -------
Net loss $(1,164,446) (329,765)
========= =======
Common shares outstanding 191,210 165,670
======= =======
Net loss per share $(6.74) (47.77)
===== ======
See accompanying notes to consolidated financial statements.
</TABLE>
70065261.02
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<PAGE>
<TABLE>
<CAPTION>
ALBINA COMMUNITY BANCORP
AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1996 and 1995
Preferred stock Common stock
Unrealized
Number of Number of Contributed Accumulated loss on
shares Amount shares Amount capital deficit securities Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 - $ - - $ - 331,646 (303,793) - 27,853
Contributed capital - - - - 324,412 - - 324,412
Proceeds from sale of stock
(note 8) 29,388 3,544,858 165,670 1,656,700 (656,058) - - 4,545,500
Net loss - - - - - (329,765) - (329,765)
--------- ------------ ---------- ---------- ---------- ------- ------------ -----------
Balance, December 31, 1995 29,388 3,544,858 165,670 1,656,700 - (633,558) - 4,568,000
Proceeds from sale of stock
(note 8) - - 25,540 182,832 - - - 182,832
Net loss - - - - - (1,164,446) - (1,164,446)
Unrealized loss on securities - - - - - - (27,818) (27,818)
--------- ------------ ---------- ------------ ---------- ----------- -------- --------
Balance, December 31, 1996 29,388 3,544,858 191,210 1,839,532 - (1,798,004) (27,818) 3,558,568
======= ========= ======= ========= ========== ==+======= ====== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
70065261.02
-18-
<PAGE>
<TABLE>
<CAPTION>
ALBINA COMMUNITY BANCORP
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1996 and 1995
<S> <C> <C>
1996 1995
---- ----
Cash flows from operating activities:
Net loss $(1,164,446) (329,765)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 48,879 -
Provision for loan losses 172,590 -
Accretion of discount on investment securities
held to maturity (119,556)
Increase in other assets (150,195) (25,056)
Increase in other liabilities 289,983 119,542
------- -------
Net cash used in operating activities (922,745) (235,279)
-------- --------
Cash flows from investing activities:
Purchase of investment securities (8,101,294) (3,380,443)
Proceeds freom sales of investment securities
available for sale 1,983,123 -
Proceeds from maturities of investment securities
held to maturity 3,500,000
Additions to premises and equipment (592,403) (146,277)
Increase in loans (11,506,238) -
---------- ---------
Net cash used in investing activities (14,716,812) (3,526,720)
---------- ---------
Cash flows from financing activities:
Net increase in deposit liabilities 14,670,710 1,173,500
Proceeds from contributed capital - 324,412
Proceeds from stock issuance 182,832 4,545,500
---------- ---------
Net cash provided by financing activities 14,853,542 6,043,412
---------- ---------
Net (decrease) increase in cash and cash
equivalents (786,015) 2,281,413
Cash and cash equivalents at beginning of year 2,323,457 42,044
--------- ---------
Cash and cash equivalents at end of year $ 1,537,442 2,323,457
=============== =========
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 340,470 -
Income taxes - -
Supplemental disclosures of investing activities:
Unrealized loss on investment securities available
for sale (27,818) -
See accompanying notes to consolidated financial statements.
</TABLE>
70065261.02
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<PAGE>
ALBINA COMMUNITY BANCORP
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) Nature of Business and Summary of Significant Accounting Policies
(a) Organization of Company
Albina Community Bancorp (the Company) was incorporated on August 18,
1993 as an Oregon bank holding company, in connection with PacifiCorp's
(a Northwest Portland electric utility holding company) settlement of
certain ratepayer litigation. This settlement provided for a
contributed cash grant in the amount of approximately $2 million (plus
interest) for the investigation and implementation of a community
development financial institution. The Company was formed to organize,
through the investment of the grant from a community trust (Northeast
Portland Community Development Trust, "the Trust"), a Federal Deposit
Insurance Corporation insured state chartered community development
bank (the Bank) and, at a later time, a real estate development company
(the Development Company). The Company will conduct business through
these two wholly owned subsidiaries.
Prior to 1996, the Company was in the development stage and activities
were focused primarily on organizing its subsidiaries, developing
business strategies and market analyses, preparing applications for and
obtaining regulatory approval, raising capital, recruiting personnel,
and opening its first branch office.
In November of 1995, the Company received conditional regulatory
approvals to commence banking operations which were dependent upon the
completion of capital raising efforts. On December 15, 1995, the
Company completed its initial capital raising efforts and invested $4.5
million into Albina Community Bank (the Bank). On December 19, 1995,
after receiving approval for Federal Deposit Insurance Corporation
insurance, the Bank opened its Portland, Oregon office. The Bank plans
to specialize in home mortgages and small business loans primarily to
moderate and lower income residents in North and Northeast Portland.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Albina Community Bancorp (the Company), a bank holding company, and
its wholly-owned subsidiary, the Bank. Significant intercompany
accounts and transactions have been eliminated in consolidation.
(c) Basis of Financial Statement Preparation
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the date of the balance sheet and revenues and expenses for the
period. Actual results could differ significantly from those estimates.
Estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan
losses. In connection with the determination of the allowance for loan
losses, management obtains independent appraisals for significant
properties.
The Bank is located in Multnomah County of Oregon. A large portion of
the Bank's assets are loans, which are collateralized by real estate in
this geographic area and, accordingly, the ultimate collectibility of
this portion of the Bank's loan portfolio is susceptible to changes in
the local market conditions. However, the loan portfolio is diversified
and management believes there is no concentration of loans exceeding
10% for any particular industry. It is management's opinion that the
allowance for losses on loans is adequate to absorb known and inherent
risks in the loan portfolio. While management uses available
information to recognize losses on loans, future additions to the
reserve may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their
examination processes, periodically review the Bank's allowance for
losses on loans. Such agencies may require the banks to recognize
additions to the reserve based on their judgments about information
available to them at the time of their examinations.
70065261.02
-20-
<PAGE>
ALBINA COMMUNITY BANCORP
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(d) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and Federal funds sold.
Generally, Federal funds are sold for one-day periods.
(e) Investment Securities
Investment securities are classified as either available for sale or
held to maturity. Investment securities purchased are recorded as of
their trade date. Investment securities held to maturity are stated at
cost, adjusted for amortization of premiums and accretion of discounts.
Securities available for sale are stated at market value. Accretion of
discounts and amortization of premiums arising at acquisition of
investment securities are included in income using methods
approximating the interest method. Realized gains or losses on sales of
investment securities available for sale, if any, are determined based
on the specific identification method. Net unrealized gain or loss on
securities available for sale are included, net of tax, as a component
of shareholders' equity.
(f) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization is charged to expense
using the straight-line method over the estimated useful lives of the
assets, which is five to ten years for furniture, equipment, and
software and the lesser of twenty years or the life of the lease for
leasehold improvements.
(g) Income Recognition
Interest is accrued on a level yield basis. The accrual of interest on
loans is discounted when, in management's judgment, the future
collectibility of interest or principal is in serious doubt. Loans are
generally placed on non-accrual status when they are ninety days past
due.
Loan origination and commitment fees, net of certain direct loan
origination costs, are recognized over the life of the related loan as
an adjustment of yield.
(h) Income Taxes
The Company accounts for income taxes using the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and for
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(i) Reclassifications
Certain reclassifications have been made to the 1995 consolidated
financial statements to present them in conformity with the 1996
consolidated financial statements.
(j) Net Income Per Share
Net income per share is based on the weighted average number of common
shares outstanding during each year. The weighted average number of
common shares outstanding were 172,746 and 6,903 at December 31, 1996
and 1995, respectively.
70065261.02
-21-
<PAGE>
ALBINA COMMUNITY BANCORP
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(k) Allowance for Loan Losses
The allowance for loan losses represents management's recognition of
the assumed risks of extending credit and its evaluation of the quality
of the loan portfolio. The allowance is maintained at a level
considered adequate to provide for potential loan losses based on
management's assessment of various factors affecting the loan
portfolio, including a review of problem loans, business conditions,
loss experience and an overall evaluation of the quality of the
portfolio. The allowance is increased by provisions charged to
operations and reduced by loans charged off, net of recoveries.
Regulatory examiners may require the banks to recognize additions to
the allowances based upon their judgments about information available
to them at the time of their examination. Uncollectible interest on
loans is charged off or an allowance established by a charge to income
equal to all interest previously accrued and interest is subsequently
recognized only to the extent cash payments are received until
delinquent interest is paid in full and, in management's judgment, the
borrower's ability to make periodic interest and principal payments is
back to normal, in which case the loan is returned to accrual status.
The Company adopted Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan", as amended by
SFAS No. 118 (collectively referred to as SFAS No. 114) on January 1,
1995. SFAS No. 114 requires entities to measure certain impaired loans
based on the present value of future cash flows discounted at the
loan's effective interest rate, or at the loan's market value or the
fair value of collateral if the loan is secured. A loan is considered
impaired when, based on current information and events, it is probable
that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement, including scheduled
interest payments. If the measurement of the impaired loans is less
than the recorded investment in the loan, impairment is recognized by
creating or adjusting an existing allocation of the allowance for loan
losses. All loans have been evaluated for collectibility under the
provisions of these statements.
(Continued)
70065261.02
-22-
<PAGE>
ALBINA COMMUNITY BANCORP
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(2) Investment Securities
The amortized costs, estimated market values, unrealized gains and
unrealized losses of investment securities at December 31, 1996 and
1995 are summarized as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Unrealized Unrealized market
cost gains losses value
<S> <C> <C> <C> <C>
1996:
Available for sale:
U.S. Government and
Federal agencies $ 3,046,859 1,232 (1,592) 3,046,499
Mortgage-backed securities 3,071,311 -__ (27,458) 3,043,853
----------- ------- ------ -----------
Total available for sale $ 6,118,170 1,232 (29,050) 6,090,352
- ----- =========== ======= ====== ===========
1995:
Held to maturity:
U.S. Government 3,380,443 -__ -__ 3,380,443
----------- ------- ------- -----------
Total held to maturity $ 3,380,443 -__ -__ 3,380,443
- ----- =========== ======= ======= ===========
</TABLE>
Proceeds from sales of available for sale securities for the year ended
December 31, 1996 were $1,983,123. Gross realized gains on sales of
securities available for sale for year ended December 31, 1996 were $1,463
and gross realized losses were $259. There were no sales of investment
securities in 1995.
Approximate investment portfolio maturities at December 31, 1996 are as
follows:
Estimated
Amortized market
cost value
One year or less $ 1,553,806 1,548,826
After one year through five years 1,499,238 1,497,673
After five years through ten years 3,065,126 3,043,853
------------ ------------
Total $ 6,118,170 6,090,352
- ----- ============ ============
Actual maturities for mortgage-backed securities may differ from
contractual maturities as borrowers have the right to prepay their
obligations.
The carrying value of securities pledged to secure a line of credit and
public deposits as required or permitted by law and securities sold under
agreements to repurchase at December 31, 1996 total $1,050,952, all of
which relate to U.S. Government and Federal agency securities.
(Continued)
70065261.02
-23-
<PAGE>
ALBINA COMMUNITY BANCORP
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) Loans
Major categories of loans at December 31, 1996 included in the portfolio
are as follows:
Commercial - lines of credit $ 2,482,743
Commercial - construction 401,016
Commercial - real estate 4,790,122
Residential - real estate 3,578,624
Installment 335,518
Other 3,745
--------------
Total loans 11,591,768
Deferred loan fees, net (85,530)
Allowance for loan losses (172,590)
Net loans $ 11,333,648
- ----- ==============
Approximate loan portfolio maturities on fixed rate loans and repricing on
variable rate loans at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Within One to After
one year five years five years Total
<S> <C> <C> <C> <C>
Commercial - lines of credit $ 1,790,559 567,899 124,285 2,482,743
Commercial - construction 401,016 - - 401,016
Commercial - real estate 220,728 757,282 3,812,112 4,790,122
Residential - real estate 1,614,818 389,787 1,574,019 3,578,624
Installment 42,600 200,103 92,815 335,518
Other 3,745 - - 3,745
----------- ----------- ----------- -----------
$ 4,073,466 1,915,071 5,603,231 11,591,768
- ----- =========== =========== =========== ===========
There were no impaired loans or loans on nonaccrual status as of December
31, 1996.
(4) Allowance for Loan Losses
</TABLE>
Transactions in the allowance for loan losses for the year ended December
31, 1996 were as follows:
Balance, beginning of year $ -
Provision for loan losses 172,590
----------
Balance, end of year $ 172,590
- ----- ==========
(Continued)
70065261.02
-24-
<PAGE>
ALBINA COMMUNITY BANCORP
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) Premises and Equipment
The composition of premises and equipment at December 31, 1996 and 1995 are
as follows:
1996 1995
---- ----
Leasehold improvements $ 347,141 -
Furniture and equipment 346,118 106,050
Software 45,421 40,226
---------- ----------
738,680 146,276
Less accumulated depreciation 48,879 -__
---------- ----------
$ 689,801 146,276
- --------- ======= ==========
(6) Time Deposits
Time certificates of deposit in excess of $100,000 aggregated to
approximately $4,993,545 and $500,000 at December 31, 1996 and 1995,
respectively. Interest expense on these certificates amounted to
approximately $147,481 and $955 for the years ended December 31, 1996 and
1995, respectively.
(7) Contributed Capital
In accordance with the terms of the Funding Pledge Agreement dated June 12,
1991, the $2 million contributed grant, as discussed in note 1, consisted
of a $1,792,554 absolute grant and an additional fund-raising challenge
grant of $316,333 to raise additional capital from third party investors
($1 of this challenge grant would be available for each $3 of third party
funds contributed). These grants were set aside in a fund (the Settlement
Fund) to be used as needed for the investigation and implementation of a
community development financial institution.
Payments and funding requests have been made from the Settlement Fund to
assist in the formation of the Company as well as to obtain necessary
regulatory approvals, raise capital, and recruit senior officers. Interest
accumulates on the Settlement Fund balance monthly. At December 31, 1994,
the remaining balance of the Settlement Fund (original contributed grant
plus interest less expenditures and funding requests) was $1,875,070.
Although the Company may have requested funding from the Settlement Fund,
the Settlement Fund balance, including the accumulated interest income, was
never controlled by the Company and therefore it is not recorded in the
accompanying financial statements. In December 1993, a non-profit, limited
life charitable trust (the Trust) was formed to receive the balance of the
Settlement Fund remaining upon the capitalization and authorization of the
Company to carry on business through the Bank. On December 15, 1995, the
Settlement Fund balance was transferred to the Trust for investment in the
Company and substantially all of the balance of the Settlement Fund
($1,630,000) and amounts previously contributed to the Company from the
Settlement Fund ($656,058) were used to purchase shares of the Company's
Series A 1% preferred stock. (See note 8.)
(8) Shareholders' Equity
Through December 15, 1995, all organization and pre-opening costs and
expenses were being paid from proceeds of the Settlement Fund.
To be entitled to the balance of the Settlement Fund, meet the $316,333
challenge grant, and raise capital for the funding of the Bank, the Company
commenced a private placement offering (the Offering) consisting of up to
500,000 shares of Class A common stock of the Company at a price of $10 per
share. Closing of the Offering was conditioned on the Company raising a
minimum of $4.5 million in total capital, including subscriptions pursuant
to the Offering or any other offering or source of funds and funds to be
received from the Settlement Trust in connection with the issuance of the
Series A preferred stock. In addition, closing of the Offering was
contingent on receipt by the Company of regulatory approvals from the
Oregon Division of Finance and Corporate Securities, the Federal Deposit
Insurance Corporation and the Board of Governors of the Federal Reserve
System. On December 15, 1995, $2,965,500 was raised from the private
placement to investors in common and preferred stock. In addition,
preferred stock was issued to the Trust in exchange for $1,630,000 in cash
and $656,058 of earlier advances from the Settlement Fund which had been
recorded as contributed capital. Expenses associated with the offerings of
all shares issued, totaling approximately $50,000 were netted against the
proceeds of the Series A preferred stock shares. The Company then invested
$4,500,000 in the Bank as described in note 1. In November of 1995, the
Bank received all required regulatory approvals.
70065261.02
-25-
<PAGE>
ALBINA COMMUNITY BANCORP
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The authorized capital stock consists of 5,000,000 shares divided into
4,000,000 shares of common stock and 1,000,000 shares of preferred stock:
(a) Preferred Stock
The Company is currently authorized to issue up to 1,000,000 shares of
preferred stock. The Board of Directors of the Company has the authority to
issue preferred stock in one or more series, and to designate the
preferences, limitations and relative rights of the shares of any such
series. The Board of Directors also has the authority to determine the
liquidation and dividend rights on any preferred stock that may be issued,
including the priority of such rights over the liquidation and dividend
rights of holders of the common stock.
There are 20,000 shares of preferred stock designated as Series A 1%
preferred stock (Series A Preferred) with a liquidation preference of $1.00
per share, and liquidation participation rights at ten times the amount
distributable on liquidation with respect to the common stock up to a
maximum of $100 per share. The Series A Preferred thus fully participates
(after the $1.00 liquidation preference) with the Series B Preferred and
the common stock in any gain or loss in shareholder equity if the amount to
which the Series A Preferred would be entitled upon liquidation is less
than $100 per share. This stock is entitled to a non-cumulative annual
dividend of $1 per share, when and as declared by the Board of Directors,
which must be paid in any year in which a cash dividend on the common stock
is declared. Series A Preferred has the right to elect directors
representing 25% of the total number of directors to be elected. Holders of
the Series A Preferred will have no other voting rights except for matters
which directly affect the rights of that class of stock.
10,000 shares of preferred stock are designated as Series B 1% non-voting
preferred stock (Series B Preferred). These shares are identical to the
Series A Preferred except that the Series B Preferred has no voting rights
with respect to the election of the Board of Directors, and has no other
voting rights, except as required by law.
10,000 shares of preferred stock are designated as Series C 10% non-voting
convertible preferred stock (Series C Preferred). The Series C Preferred is
on even parity with the Series A and Series B Preferred with respect to
dividend rights, however there is a $100.00 per share liquidation
preference for the Series C Preferred. The Series C Preferred is entitled
to a non-cumulative annual dividend of $10.00 per share, when and as
declared by the Board of Directors, which must be paid in any year in which
a cash dividend on the common stock is declared. The Series C Preferred is
convertible at the option of the holder into common stock at the rate of
ten shares of Class A common stock for each share of Series C Preferred up
to a maximum of 4.99% of the shares of Class A common stock outstanding at
the time of conversion. Any shares of common stock in excess of 4.99% of
Class A common stock issued upon the conversion of Series C Preferred would
be shares of Class B non-voting common stock. The Series C Preferred has no
voting rights except as required by law. Under certain circumstances, the
holders of the Series C Preferred are entitled to have such shares (of the
Class A common stock into which such shares are exchanged) registered under
applicable securities law for resale.
(b) Common Stock
The authorized common stock consists of 3,000,000 shares without par value
of Class A voting common stock and 1,000,000 shares without par value of
Class B non-voting common stock. None of the Class B non-voting common
stock is outstanding. Shares of the common stock each have the same rights
to the assets of the Company upon liquidation, subject to any liquidation
preference of preferred stock which may be outstanding. There are no
preemptive rights to acquire additional securities that the Company may
issue. The holders of common stock are entitled to receive dividends, if
any, as may be declared by the Board of Directors. Rights to receive
dividends on the common stock are subject to the prior rights of shares of
preferred stock then outstanding.
Each share of the Class A common stock is entitled to one vote on all
matters presented for shareholder vote, including the election of
directors, subject to special voting rights of the holders of the Series A
preferred stock. Shareholders do not have the right to accumulate votes in
the election of the directors.
Shares of Class B common stock have no voting rights other than as required
by law, but are otherwise in all respects identical to shares of Class A
common stock.
70065261.02
-26-
<PAGE>
ALBINA COMMUNITY BANCORP
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) Regulatory Matters
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Company must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Company's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in
the following table) of total and Tier 1 capital (as defined in the
regulations) to risk weighted assets (as defined) and Tier 1 capital to
average assets (as defined). Management believes, as of December 31, 1996,
that the Company meets all capital adequacy requirements to which it is
subject.
The Company's actual capital amounts and ratios are presented in the
following table:
<TABLE>
<CAPTION>
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996:
Total capital (to risk
weighted assets) $ 3,681,000 33.5% $ 880,960 8.0% $1,101,200 10.0%
Tier 1 capital (to risk
weighted assets) 3,543,000 32.3 440,480 4.0 660,720 6.0
Tier 1 capital (to
average assets) 3,543,000 20.5 692,560 4.0 865,700 5.0
</TABLE>
The Bank, as a state-chartered bank with deposits insured by the Federal
Deposit Insurance Corporation (FDIC) that are not members of the Federal
Reserve System, is subject to the supervision and regulation of the
Director of the Oregon Department of Consumer and Business Services,
administrated through the Division of Finance and Corporate Securities
(Oregon Director), and to the supervision and regulation of the FDIC.
The Bank, as a state-chartered bank, is prohibited from declaring or paying
any dividends in an amount greater than undivided profits. At December 31,
1996 and 1995, the Bank had no undivided profits available for payment of
dividends.
(10) Income Taxes
At December 31, 1996 and 1995, the Company has deferred tax assets of
approximately $690,000 and $241,000, respectively, resulting primarily from
capitalized operating costs and net operating loss carryovers for tax
purposes and has recorded a valuation allowance for all such deferred tax
assets. The Company has no provision for income taxes for the years ended
December 31, 1996 and 1995. The Federal and state net operating loss
carryovers at December 31, 1996 are approximately $1,223,000 which expire
in years 2010 and 2011. The Company's expected tax expense using the U.S.
Federal statutory rate differs from the actual rate due to the increase in
the Company's valuation allowance.
70065261.02
-27-
<PAGE>
(11) Transactions with Related Parties
Some of the Directors, executive officers and principal shareholders of the
Company, and the companies with which they are associated, are customers of
and have had banking transactions with the Company in the ordinary course
of business, and the Company expects to have such transactions in the
future. All loans and commitments to loan included in such transactions
were made on substantially the same terms (including interest rates and
collateral) as those prevailing at the time for comparable transactions
with other persons and, in the opinion of the management of the Company, do
not involve more than the normal risk of collectibility or present any
other unfavorable features.
During the year ended December 31, 1996, new loans to related parties
totaled $2,297, which is also the amount outstanding to such related
parties at December 31, 1996. There was no related party lending activity
in 1995.
PacifiCorp provided office space, utilities and certain furniture at no
cost to the Company during 1995.
(12) Commitments
The Bank is leasing its branch under an operating lease. The approximate
future minimum rental payments under this lease are as follows:
Years ending December 31:
1997 $ 55,140
1998 55,140
1999 55,140
2000 55,140
2001 55,140
Thereafter 794,935
------------
$ 1,070,635
Rental expense for all operating leases was approximately $46,426 and
$2,000 for the years ended December 31, 1996 and 1995, respectively.
(13) Line of Credit
The Bank has a $500,000 short-term line of credit with its correspondent
bank. This facility will allow the Bank to borrow up to 80% of the value of
U.S. Treasury securities pledged as collateral. Securities with a carrying
value of $547,889 were pledged at December 31, 1995. The line of credit was
unsecured at December 31, 1996. There was no outstanding balance as of
December 31, 1996.
(14) Fair Value of Financial Instruments
Financial instruments have been construed to generally mean cash or a
contract that implies an obligation to deliver cash or another financial
instrument to another entity. The fair value of cash equivalents at
December 31, 1996 and 1995 approximate the carrying value due to the
short-term nature of these instruments. The fair value of investment
securities available for sale at December 31, 1996 approximate the carrying
value as these securities are stated based on quoted market prices. The
estimated fair values of investment securities held to maturity at December
31, 1995 approximate the fair value as these securities were purchased near
the end of the period. The fair value of loans and deposits at December 31,
1996 and 1995 approximate fair value as the majority of these instruments
were issued toward the latter part of the period and as the Bank has not
significantly changed the rate at which it offers deposits or the rates at
which it currently lends.
The Bank did not hold any derivative financial instruments in its
investment portfolio at or during the year ended December 31, 1996 and
1995.
70065261.02
-28-
<PAGE>
PART III
Item 1. Index to Exhibits
Exhibit
2.1 Articles of Incorporation of Albina Community Bancorp,
incorporated by reference to Exhibit 2.1 to the registration
statement on Form SB-1 (file number 333-3442) declared
effective June 27, 1996.
2.2 Bylaws of Albina Community Bancorp, incorporated by reference
to Exhibit 2.2 to the registration statement on Form SB-1
(file number 333-3442) declared effective June 27, 1996.
6.1 Employment Contract of Leon C. Smith, incorporated by
reference to Exhibit 6.1 to the registration statement on Form
SB-1 (file number 333-3442) declared effective June 27, 1996.
6.2 Lease Agreement, dated May 6, 1996, relating to the Bank's
offices at 2002 N.E. Martin Luther King, Jr. Blvd., Portland,
Oregon, incorporated by reference to Exhibit 6.4 to the
registration statement on Form SB-1 (file number 333-3442)
declared effective June 27, 1996.
27 Financial Data Schedule
70065261.02
-29-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALBINA COMMUNITY BANCORP
By: /s/ Leon C. Smith
Leon C. Smith
President and Chief Executive Officer
Date: March 27, 1997
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates stated:
/s/ Ralph E. Wiita Ralph E. Wiita, Vice President and Chief Financial
Officer (Chief Accounting Officer) Date: March 28, 1997
/s/ Michael C. Henderson /s/ Howard M. Shapiro
Michael C. Henderson, Director, Chairman Howard M. Shapiro, Director,
Date: March 28, 1997 Vice-Chairman
Date: March 28, 1997
/s/ Roger S. Ahlbrandt /s/ Bernard V. Foster
Roger S. Ahlbrandt, Director Bernard V. Foster, Director
Date: March 28, 1997 Date: March 28, 1997
Ted K. Gilbert, Director Avel Louise Gordly, Director
Date: March , 1997 Date: March , 1997
Sheila D. Holden, Director Deborah E. Kennedy, Director
Date: March , 1997 Date: March , 1997
/s/ Jeana M. Woolley /s/ Leon C. Smith
Jeana M. Woolley, Director Leon C. Smith, Director
Date: March 28, 1997 Date: March 27, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,108,442
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 429,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,090,352
<INVESTMENTS-CARRYING> 3,380,443
<INVESTMENTS-MARKET> 3,380,443
<LOANS> 11,591,768
<ALLOWANCE> 172,590
<TOTAL-ASSETS> 19,826,494
<DEPOSITS> 15,844,210
<SHORT-TERM> 0
<LIABILITIES-OTHER> 423,716
<LONG-TERM> 0
0
3,544,858
<COMMON> 1,839,532
<OTHER-SE> (1,798,004)
<TOTAL-LIABILITIES-AND-EQUITY> 19,826,494
<INTEREST-LOAN> 434,879
<INTEREST-INVEST> 217,498
<INTEREST-OTHER> 156,643
<INTEREST-TOTAL> 809,020
<INTEREST-DEPOSIT> 374,652
<INTEREST-EXPENSE> 374,652
<INTEREST-INCOME-NET> 434,368
<LOAN-LOSSES> 172,590
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,478,566
<INCOME-PRETAX> (1,164,446)
<INCOME-PRE-EXTRAORDINARY> (1,164,446)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,164,446)
<EPS-PRIMARY> (6.74)
<EPS-DILUTED> 0
<YIELD-ACTUAL> .023
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
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<RECOVERIES> 0
<ALLOWANCE-CLOSE> 172,590
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 172,590
</TABLE>
