<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended: December 31, 1996
--------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to _________
Commission file number: 0-23322
-------------------------
CASCADE BANCORP
(Name of small business issuer in its charter)
Oregon 93-1034484
(State of Incorporation) (I.R.S. Employer Identification #)
1100 NW Wall Street, Bend, Oregon 97701
(Address of issuer's principal executive offices) (Zip Code)
(541) 385-6205
(Issuer's telephone number)
--------------------------
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
(Title of Class)
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 if there is no disclosure of delinquent filers in response 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. [ ____ ]
State issuer's revenues for its most recent fiscal year. $19,892,803.
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. $61,322,801 AGGREGATE MARKET VALUE AS OF MARCH 12, 1997, BASED ON THE
AVERAGE BID AND ASKED PRICE.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 2,132,967 SHARES OF NO PAR VALUE
COMMON STOCK ON MARCH 12, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Part II incorporates information by reference from the issuer's Annual Report to
Shareholders for the fiscal year ended December 31, 1996. Part III is
incorporated by reference from the issuer's definitive proxy statement for the
annual meeting of shareholders to be held on April 21, 1997.
Transitional Small Business Disclosure Format (check one): Yes ; No X
----- -----
<PAGE>
CASCADE BANCORP
FORM 10-KSB
ANNUAL REPORT
TABLE OF CONTENTS
PART I PAGE
Item 1. DESCRIPTION OF BUSINESS..............................................3
Item 2. DESCRIPTION OF PROPERTY.............................................19
Item 3. LEGAL PROCEEDINGS...................................................19
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................19
PART II
(Items 5, 6 and 7 are incorporated by reference from Cascade Bancorp's
1996 Annual Report to Shareholders)
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................................20
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION................................................20
Item 7. FINANCIAL STATEMENTS................................................20
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................................................20
PART III
(Items 9 through 12 are incorporated by reference from Cascade
Bancorp's definitive proxy statement for the annual meeting of
shareholders to be held on April 21, 1997.)
Item 9. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT.................................................21
Item 10. EXECUTIVE COMPENSATION..............................................21
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......21
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................21
Item 13. EXHIBITS AND REPORTS ON FORM 8-K....................................21
Index to Consolidated Financial Statements .........................23
SIGNATURES....................................................................24
2
<PAGE>
PART I
ITEM 1. BUSINESS
COMPANY
Cascade Bancorp (the "Company") is a bank holding company formed in 1990
and headquartered in Bend, Oregon. At the present time, the Company is engaged
predominately in commercial banking activities through its subsidiary, Bank of
the Cascades, (the "Bank"), a state chartered, FDIC insured commercial bank. At
December 31, 1996 the Company had total consolidated assets of $201 million, net
loans of $132 million, and deposits of $171 million. In January 1997, the
Company opened its first non-bank subsidiary, Cascade Finance. Cascade Finance
will offer consumer loans and retail lending programs which will provide the
Company with the opportunity to broaden its market with complimentary services.
BANK
The Bank was chartered as a state bank in March 1976 and opened for
business in February 1977. The Bank serves individuals, small and medium-sized
businesses, and professionals located in and adjacent to the communities of
Bend, Redmond, Sunriver, Sisters and Prineville, in Deschutes and Crook County,
Oregon. Through its eight branches, the Bank offers a broad range of commercial
and personal banking services to its customers. The Bank focuses its lending
activities primarily on small to medium-sized businesses in diversified
industries. In addition, the Bank provides real estate construction and
development loans, municipal and industrial loans, consumer loans, and
originates and sells residential mortgage loans. The Bank's headquarters is
located in downtown Bend, Oregon. The headquarters includes administrative
offices, a mortgage lending office, and a separate data processing and drive-up
facility.
BUSINESS STRATEGY
The Bank's business strategy is to continue to grow while maintaining high
asset quality, and includes the following components:
/X/ Emphasizing customer service
/X/ Attracting and retaining core deposits
/X/ Targeting its lending programs to the local market
/X/ Originating and selling mortgage loans
/X/ Prudently managing credit quality and interest rate risk
/X/ Effectively cross selling products and services
/X/ Expanding the branch system as opportunities arise
EMPHASIZING CUSTOMER SERVICE. The Bank differentiates itself in its market
by a culture in which customers are the highest priority in all aspects of the
Company's operations. Ongoing employee training focuses on customer needs,
responsiveness and courtesy to customers. Community and customer feedback helps
the Bank monitor its service and products.
ATTRACTING AND RETAINING CORE DEPOSITS. The Bank emphasizes the
development of core deposit relationships because such deposits provide a stable
source of funds for operations at a relatively low cost, and because core
deposit customers are more likely to purchase other banking services. Core
deposits include interest-bearing and non-interest bearing checking and savings
accounts. The Bank's core deposits are approximately $153 million at December
31, 1996.
3
<PAGE>
TARGETING ITS LENDING PROGRAMS TO THE LOCAL MARKET. In addition to
commercial and consumer loans, the Bank offers real estate construction and
development loans, municipal and industrial loans, and commercial owner-occupied
real estate loans. Through discussions with current and prospective customers,
the Bank designs specific loan products to serve small and medium-sized
businesses and professionals in its local market area. For example, the Bank
has developed a construction/permanent loan program which management believes
has generated significant additional lending opportunities among local
developers and contractors.
ORIGINATING AND SELLING MORTGAGE LOANS. The Bank actively markets its
mortgage loan origination services to real estate brokers, builders and directly
to borrowers. Management emphasizes the Bank's loan application turnaround time
and efficient loan processing. The Bank offers mortgage loans which include
construction loans, 15 year and 30 year fixed rate mortgage loans and certain
types of adjustable rate mortgages. Substantially all mortgage loans which are
originated are sold into the secondary market. Management evaluates on an
ongoing basis whether to sell originated mortgage loans on a servicing released
or servicing retained baisis. At December 31, 1996, the Bank held servicing
rights to approximately $143 million in mortgage loans which have been sold into
the secondary market and which are currently being serviced by another financial
institution under contract with the Bank.
PRUDENTLY MANAGING CREDIT QUALITY AND INTEREST RATE RISK. The Bank has
implemented loan policies and underwriting practices which allows the Bank to
prudently manage credit risk. The Bank's risk management objectives are to
maintain an appropriate mix among core deposits and time deposits and to provide
adequate funding for the Bank's loan and investment activities. The Bank does
not use brokered deposits as a source of funds. The Bank retains, for its loan
portfolio, interim construction loans, selected variable rate real estate loans,
business and commercial credits, and consumer loans. Fixed rate conventional
mortgages are sold to lessen exposure to interest rate risk. There can be no
assurance, however, that the Bank's strategies will continue to be successful.
EFFECTIVELY CROSS-SELLING PRODUCTS AND SERVICES. The Bank emphasizes the
development of long-term and mutually beneficial relationships with its
customers. The sale of more than one product or service to a customer is an
essential element of this strategy. In addition to a variety of loan products,
the Bank offers a broad range of deposit services, including checking, savings,
and money market accounts, time deposits and individual retirement accounts.
The Bank also provides credit cards, credit-related insurance, cash management
services, automatic teller machines, and safe deposit boxes. Management intends
to continue responding to market and product opportunities as they occur in the
areas the Bank serves.
EXPANDING THE BRANCH SYSTEM AS OPPORTUNITIES ARISE. Banks are permitted to
conduct business through branches after application to and approval of the FDIC
and the Director of the State of Oregon Department of Consumer and Business
Services, Division of Finance Corporate Securities, if they make certain
findings regarding the financial history and condition of the bank and the
appropriateness of the branch in the community to be served. The Bank's
management intends to continue to expand its branch system as appropriate
opportunities are identified.
EMPLOYEES
Cascade Bancorp has no employees other than its executive officers, who are
also employees of Bank of the Cascades. As of December 31, 1996, the Bank had
133 full-time equivalent employees. None of the employees of the Company or the
Bank are subject to a collective bargaining agreement. The Company and Bank
considers its relationships with its employees to be good.
COMPETITION
Commercial banking in Central Oregon is highly competitive with respect to
both loans and deposits. The Bank competes principally with other commercial
banks, savings and loan associations, credit unions, mortgage companies, and
other financial institutions with respect to the scope and type of services
offered, interest rates paid on deposits and pricing of loans, among other
factors. Many of these competitors have greater resources than the Bank and
therefore have larger lending capabilities and provide other services that the
Bank does not offer.
4
<PAGE>
The Bank competes for customers principally through the range and quality
of the services it provides. The Bank believes its "Home-Town" banking
philosophy and its focus on small and medium-sized businesses and on
professionals enables it to compete effectively with other financial
institutions for the loans and deposits it seeks. To serve customers whose
borrowing requirements exceed its lending limits, the Bank arranges
participations with other financial institutions.
Management believes the Bank is able to compete effectively in its market
due to several factors. The Bank's lending officers and senior managers have
significant experience in the Central Oregon area which enables them to maintain
close working relationships with their customers. In addition, the Bank
emphasizes customer service in all aspects of its operations, and management
believes the Bank is able to respond more quickly to customer requests and
market opportunities than its larger competitors.
INTERSTATE BANKING LEGISLATION
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Act"), bank holding companies are permitted to acquire
banks located in any state regardless of the state law in effect at the time.
The Interstate Act also provides for the nationwide interstate branching of
banks. Under the Interstate Act, both national and state chartered banks will
be permitted to merge across state lines (and thereby create interstate
branches) commencing June 1, 1997. Under the provisions of the Interstate Act,
states are permitted to "opt-out" of the interstate branching authority by
taking appropriate legislative action prior to the commencement date. States
may also "opt-in" early (i.e. prior to June 1, 1997) to the interstate branching
provisions. Effective February 27, 1995, the State of Oregon decided to
"opt-in" to the interstate branching provisions.
SUPERVISION AND REGULATION
The Company and the Bank are extensively regulated under Federal and State
law. These laws and regulations are intended to protect depositors, not
stockholders. 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. Management is unable to predict the nature or the extent of the
effects on its business and earnings that fiscal or monetary policies, economic
control or new Federal or State legislation may have in the future.
FEDERAL BANK HOLDING COMPANY REGULATION
The Company is a one-bank holding company within the meaning of the Bank
Holding Company Act (Act), and as such, it is subject to regulation, supervision
and examination by the Federal Reserve Bank (FRB). The Company is required to
file annual reports with the FRB and to provide the FRB such additional
information as the FRB may require.
The Act requires every bank holding company to obtain the prior approval of
the FRB before (1) acquiring, directly or indirectly, ownership or control of
any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (2) acquiring all or
substantially all of the assets of another bank or bank holding company; or (3)
merging or consolidating with another bank holding company. The FRB will not
approve any acquisition, merger or consolidation that would have a substantial
anticompetitive result, unless the anticompetitive effects of the proposed
transaction are clearly outweighed by a greater public interest in meeting the
convenience and needs of the community to be served. The FRB also considers
capital adequacy and other financial and managerial factors in reviewing
acquisitions or mergers.
With certain exceptions, the Act also prohibits a bank holding company from
acquiring or retaining direct or indirect ownership or control of more than 5%
of the voting shares of any company which is not a bank or bank holding company,
or from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by FRB regulation or order, have been
identified as activities closely
5
<PAGE>
related to the business of banking or of managing or controlling banks. In
making this determination, the FRB considers whether the performance of such
activities by a bank holding company can be expected to produce benefits to the
public such as greater convenience, increased competition or gains in efficiency
in resources, which can be expected to outweigh the risks of possible adverse
effects such as decreased or unfair competition, conflicts of interest or
unsound banking practices.
FEDERAL AND STATE BANK REGULATION
The Bank, as a Federal Deposit Insurance Corporation (FDIC) insured bank
which is not a member of the Federal Reserve System, is subject to the
supervision and regulation of the State of Oregon Department of Consumer and
Business Services, Division of Finance and Corporate Securities, and to the
supervision and regulation of the FDIC. These agencies may prohibit the Bank
from engaging in what they believe constitute unsafe or unsound banking
practices.
The Community Reinvestment Act (CRA) requires that, in connection with
examinations of financial institutions within their jurisdiction, the FRB or the
FDIC evaluate the record of the financial institutions in meeting the credit
needs of their local communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of those banks.
These factors are also considered in evaluating mergers, acquisitions and
applications to open a branch or facility. The Bank's current CRA rating is
"Outstanding".
The Bank is also subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors, principal
stockholders or any related interest of such persons. Extensions of credit (i)
must be made on substantially the same terms, collateral and following credit
underwriting procedures that are not less stringent than those prevailing at the
time for comparable transactions with persons not covered above, and (ii) must
not involve more than the normal risk of repayment or present other unfavorable
features. The Bank is also subject to certain lending limits and restrictions
on overdrafts to such persons. A violation of these restrictions may result in
the assessment of substantial civil monetary penalties on the Bank or any
officer, director, employee, agent or other person participating in the conduct
of the affairs of the Bank, the imposition of a cease and desist order, and
other regulatory sanctions.
Under the Federal Deposit Insurance Corporation Improvement Act (FDICIA),
each Federal banking agency is required to prescribe, by regulation, non-capital
safety and soundness standards for institutions under its authority. These
standards are to cover internal controls, information systems and internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits, such other operational and managerial
standards as the agency determines to be appropriate, and standards for asset
quality, earnings and stock valuation. An institution which fails to meet these
standards must develop a plan acceptable to the agency, specifying the steps
that the institution will take to meet the standards. Failure to submit or
implement such a plan may subject the institution to regulatory sanctions. The
Company believes that the Bank already meets substantially all the standards
which are likely to be adopted, and therefore does not believe that the
implementation of these regulatory standards will materially affect the
Company's business operations.
DEPOSIT INSURANCE
As a member institution of the FDIC, the deposits of the Bank are currently
insured to a maximum of $100,000 per depositor through the Bank Insurance Fund
("BIF"), and the Bank is required to pay semiannual deposit insurance premium
assessments to the FDIC.
The FDICIA included provisions to reform the Federal deposit insurance
system, including the implementation of risk-based deposit insurance premiums.
The FDICIA also permits the FDIC to make special assessments on insured
depository institutions in amounts determined by the FDIC to be necessary to
give it adequate assessment income to repay amounts borrowed from the U.S.
Treasury and other sources or for any other purpose the FDIC deems necessary.
Pursuant to the FDICIA, the FDIC implemented a transitional risk-based insurance
premium system on January 1, 1993. Generally, banks are assessed insurance
premiums according to how much risk they are deemed to present to the BIF.
Banks with higher levels of capital and involving a low degree of supervisory
concern are assessed lower premiums than banks with lower levels of capital or
involving a higher degree of supervisory concern.
6
<PAGE>
On November 14, 1995, the FDIC Board of Directors voted to further reduce
the insurance premiums paid on deposits covered by BIF and to maintain existing
assessment rates for deposits covered by the Savings Association Insurance Fund
(SAIF). Effective for the first semiannual assessment period of 1996,
assessment rates were lowered by four cents per $100 of assessable deposits for
all risk categories, subject to the statutory requirement that all institutions
pay at least $2,000 annually for FDIC insurance. The four-cent reduction in BIF
rates utilizes the "adjustment" procedure established by the FDIC Board to
change rates within a five-cent range without first having to seek public
comment. As a result of the changes in the FDIC's deposit insurance structure,
management believes the Bank's FDIC insurance premiums in 1997 will primarily
consist of the annual minimum requirement.
DIVIDENDS
The principal source of the Company's cash revenues have been provided from
dividends received from the Bank. The Oregon banking laws impose the following
limitations on the payment of dividends by Oregon state chartered banks: (1) no
dividends may be paid which would impair capital; (2) until the surplus fund of
a bank is equal to 50% of its capital, no dividends may be declared unless there
has been carried to the surplus account no less than one fifth of its net
profits for the dividend period; and (3) dividends are payable only out of a
bank's undivided profits.
In addition, the appropriate regulatory authorities are authorized to
prohibit banks and bank holding companies from paying dividends which would
constitute an unsafe or unsound banking practice. The Bank and the Company are
not currently subject to any regulatory restrictions on their dividends other
than those noted above.
CAPITAL ADEQUACY
The Federal bank regulatory agencies use capital adequacy guidelines in
their examination and regulation of bank holding companies and banks. If the
capital falls below the minimum levels established by these guidelines, the bank
holding company or bank may be denied approval to acquire or establish
additional banks or non-bank businesses or to open facilities.
The FRB and FDIC have adopted risk-based capital guidelines for banks and
bank holding companies. The risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, to account for off-balance sheet
exposure and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items. The
guidelines are minimums, and the FRB has noted that bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of the
minimum. The current guidelines require all bank holding companies and
Federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital.
Tier 1 capital for bank holding companies includes common stockholders'
equity, qualifying perpetual preferred stock (up to 25% of total Tier 1 capital,
if cumulative; under a FRB rule, redeemable perpetual preferred stock may not be
counted as Tier 1 capital unless the redemption is subject to the prior approval
of the FRB) and minority interests in equity accounts of consolidated
subsidiaries, less intangibles. Tier 2 capital includes: (i) the allowance for
loan losses of up to 1.25% of risk-weighted assets; (ii) any qualifying
perpetual preferred stock which exceeds the amount which may be included in Tier
1 capital; (iii) hybrid capital instrument; (iv) perpetual debt; (v) mandatory
convertible securities and (vi) subordinated debt and intermediate term
preferred stock of up to 50% of Tier 1 capital. Total capital is the sum of
Tier 1 and Tier 2 capital less reciprocal holdings of other banking
organizations, capital instruments and investments in unconsolidated
subsidiaries.
Banks' and bank holding companies' assets are given risk-weights of 0%,
20%, 50% and 100%. In addition, certain off-balance sheet items are given
credit conversion factors to convert them to asset equivalent amounts to which
an appropriate risk-weight will apply. These computations result in the total
risk-weighted assets.
7
<PAGE>
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 a 100%
conversion factor. Transaction related contingencies such as bid bonds, other
standby letters of credit and undrawn commitments, including commercial credit
lines with an initial maturity of more than one year, have a 50% conversion
factor. Short-term, self-liquidating trade contingencies are converted at 20%,
and short-term commitments have a 0% factor.
The FRB also has implemented a leverage ratio, which is Tier 1 capital as a
percentage of average total assets less intangibles, to be used as a supplement
to risk-based guidelines. The principal objective of the leverage ratio is to
place a constraint on the maximum degree to which a bank holding company may
leverage its equity capital base. The FRB requires a minimum leverage ratio of
3%. However, for all but the most highly rated bank holding companies and for
bank holding companies seeking to expand, the FRB expects an additional cushion
of at least 1% to 2%.
As of December 31, 1996, the Company was in compliance with applicable
capital requirements, as shown in the following tables (dollars in thousands):
Risk Based Capital Ratios: Amount Ratio
---------- --------
Tier 1 capital . . . . . . . . . . . . . . . . . $ 23,190 15.39%
Minimum Tier 1 capital requirement . . . . . . . 6,027 4.00%
Total capital. . . . . . . . . . . . . . . . . . 24,881 16.51%
Minimum total capital requirement. . . . . . . . 12,054 8.00%
Risk-adjusted assets . . . . . . . . . . . . . . $ 150,678 N/A
Leverage Ratio:
Tier 1 Capital . . . . . . . . . . . . . . . . . $ 23,190 11.48%
Minimum leverage requirement . . . . . . . . . . 6,062 3.00%
Average adjusted total assets. . . . . . . . . . $ 202,053 N/A
The FDICIA also created a new statutory framework of supervisory actions
indexed to the capital level of the individual institution. Under regulations
adopted by the FDIC, an institution is assigned to one of five capital
categories depending on its total risk-based capital ratio, Tier 1 risk-based
capital ratio, and leverage ratio, together with certain subjective factors.
Institutions which are deemed to be "undercapitalized" depending on the category
to which they are assigned are subject to certain mandatory supervisory
corrective actions. Under the regulations, the Company is considered "well
capitalized."
MONETARY POLICY
The earnings of a bank holding company are affected by the policies of
regulatory authorities, including the FRB, in connection with the FRB's
regulation of the money supply. Various methods employed by the FRB are open
market operations in United States Government securities, changes in the
discount rate on member bank borrowings and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use may also effect interest rates charged on loans or paid
on deposits. The monetary policies of the FRB have had a significant effect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future.
8
<PAGE>
CONSOLIDATED STATISTICAL INFORMATION
The following tables present certain financial and statistical information
with respect to the Company for the periods indicated. Most of the information
is required by Guide 3, "Statistical Disclosure by Bank Holding Companies", by
the Securities and Exchange Commission. At the beginning of each table,
information is presented as to the nature of data disclosed in the table.
RETURN ON EQUITY AND ASSETS
The following table sets forth the Company's return on average assets and
equity for the years ended December 31, 1996 and 1995 (dollars in thousands):
Year ended December 31,
-----------------------
1996 1995
--------- ---------
Net income . . . . . . . . . . . . . . . . . . . $ 4,513 $ 3,632
Average total assets . . . . . . . . . . . . . . 189,216 162,378
Return on average total assets . . . . . . . . . 2.39% 2.24%
Net Income . . . . . . . . . . . . . . . . . . . $ 4,513 $ 3,632
Average equity . . . . . . . . . . . . . . . . . 21,445 17,007
Return on average equity . . . . . . . . . . . . 21.04% 21.36%
Average equity . . . . . . . . . . . . . . . . . $ 21,445 $ 17,007
Average total assets . . . . . . . . . . . . . . 189,216 162,378
Average equity to assets ratio . . . . . . . . . 11.33% 10.47%
9
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth the Company's unaudited data regarding
operations for each quarter of 1996 and 1995. This information, in the opinion
of management, includes all normal recurring adjustments necessary to state
fairly the information set forth therein (in thousands, except per share
amounts):
1996 Quarters Ended
--------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
------- -------- -------- --------
Interest income $ 4,244 $ 4,103 $ 3,762 $ 3,703
Interest expense 1,072 1,054 969 957
-------- -------- -------- --------
Net interest income 3,172 3,049 2,793 2,746
Loan loss provision 137 147 66 82
-------- -------- -------- --------
Net interest income after
loan loss provision 3,035 2,902 2,727 2,664
Noninterest income 1,196 1,002 954 929
Noninterest expense 2,344 2,104 1,845 1,881
-------- -------- -------- --------
Income before income taxes 1,887 1,800 1,836 1,712
Provision for income taxes 712 677 690 643
-------- -------- -------- --------
Net income $ 1,175 $ 1,123 $ 1,146 $ 1,069
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number
of shares outstanding (1) 2,133 2,133 2,133 2,133
Net income per share (1) $0.55 $0.53 $0.54 $0.50
1995 Quarters Ended
--------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
-------- -------- -------- --------
Interest income $ 3,830 $ 3,656 $ 3,408 $ 3,010
Interest expense 975 985 984 825
-------- -------- -------- --------
Net interest income 2,855 2,671 2,424 2,185
Loan loss provision 141 101 182 57
-------- -------- -------- --------
Net interest income after
loan loss provision 2,714 2,570 2,242 2,128
Noninterest income 1,046 839 814 467
Noninterest expense 2,153 1,898 1,626 1,534
-------- -------- -------- --------
Income before income taxes 1,607 1,511 1,430 1,061
Provision for income taxes (2) 482 564 528 403
-------- -------- -------- --------
Net income $ 1,125 $ 947 $ 902 $ 658
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number
of shares outstanding (1) 2,133 2,133 2,133 2,133
Net income per share (1) $0.53 $0.44 $0.42 $0.31
___________________
(1) Adjusted to give retroactive effect to 10% stock dividends declared in June
1996 and 1995.
(2) During the quarter ended December 31, 1995 the Company recognized a
one-time state income tax credit of approximately $120,000.
10
<PAGE>
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID
The following table presents the Company's average balance sheets as well
as certain rates earned and rates paid for the years ended December 31, 1996 and
1995 (dollars in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1996 Year ended December 31, 1995
----------------------------------- ---------------------------------
Interest Average Interest Average
Average Income/ Yield or Average Income/ Yield or
Balance Expense Rates Balance Expense Rates
--------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Taxable securities $ 18,717 $ 1,273 6.80% $ 18,964 $ 1,227 6.47%
Non-taxable securities (1) 2,155 94 4.36% 2,876 122 4.24%
Federal funds sold 7,241 381 5.26% 2,812 155 5.51%
Loans (2)(3)(4) 137,798 14,064 10.21% 121,883 12,400 10.17%
--------- -------- --------- --------
Total earning assets/interest income 165,911 15,812 9.53% 146,535 13,904 9.49%
Reserve for loan losses (1,764) (1,417)
Cash and due from banks 14,530 10,447
Premises and equipment, net 3,810 3,337
Accrued interest and other assets 6,729 3,476
--------- ---------
Total assets $ 189,216 $ 162,378
--------- ---------
--------- ---------
Liabilities and Stockholders' Equity
Interest bearing demand deposits $ 83,154 $ 2,530 3.04% $ 73,426 $ 2,384 3.25%
Savings deposits 12,975 286 2.20% 13,227 304 2.30%
Time deposits 17,235 873 5.07% 13,506 621 4.60%
Other borrowings 5,173 363 7.02% 6,892 460 6.67%
--------- -------- --------- --------
Total interest bearing
liabilities/interest expense 118,537 4,052 3.42% 107,051 3,769 3.52%
Demand deposits 46,886 36,353
Other liabilities 2,348 1,967
--------- ---------
Total liabilities 167,771 145,371
Stockholders' equity 21,445 17,007
--------- ---------
Total liabilities and stockholders' equity $ 189,216 $ 162,378
--------- ---------
--------- ---------
--------- ---------
Net interest income $ 11,760 $ 10,135
--------- ---------
--------- ---------
Net interest spread 6.11% 5.97%
------ -------
------ -------
Net interest income to earning assets 7.09% 6.92%
------ -------
------ -------
</TABLE>
_____________________
(1) Yields on tax-exempt securities have not been stated on a tax-equivalent
basis.
(2) Average non-accrual loans included in the computation of average loans was
insignificant for 1996 and 1995.
(3) Loan related fees recognized during the period and included in the yield
calculation totalled approximately $780,000 in 1996 and $849,000 in 1995.
(4) Includes mortgage loans held for sale.
11
<PAGE>
ANALYSIS OF CHANGES IN INTEREST DIFFERENTIAL
The following table shows the dollar amount of the increase (decrease) in
the Company's consolidated interest income and expense and attributes such
dollar amounts to changes in volume as well as changes in rates. Rate/volume
variances which were immaterial have been allocated equally between rate and
volume changes (dollars in thousands).
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------
1996 over 1995 1995 over 1994
------------------------------------ ------------------------------------
Amount of Change Amount of Change
Total Attributed to Total Attributed to
Increase --------------------- Increase ---------------------
(Decrease) Volume Rate (Decrease) Volume Rate
--------- -------- ------ --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 1,664 $ 1,617 $ 47 $ 4,213 $ 3,526 $ 687
Taxable securities 46 (16) 62 (447) (449) 2
Non-taxable securities (28) (31) 3 (58) (50) (8)
Federal funds sold 226 238 (12) 35 (21) 56
--------- -------- ------ --------- -------- -------
Total interest income 1,908 1,808 100 3,743 3,006 737
Interest expense:
Interest on deposits:
Interest bearing demand 146 308 (162) 1,137 597 540
Savings (18) (6) (12) (95) (108) 13
Time deposits 252 181 71 159 7 152
Other borrowings (97) (118) 21 411 348 63
--------- -------- ------ --------- -------- -------
Total interest expense 283 365 (82) 1,612 844 768
--------- -------- ------ --------- -------- -------
Net interest spread $ 1,625 $ 1,443 $ 182 $ 2,131 $ 2,162 $ (31)
--------- -------- ------ --------- -------- -------
--------- -------- ------ --------- -------- -------
</TABLE>
12
<PAGE>
INTEREST RATE SENSITIVITY TABLE
Set forth below is a table showing the interest rate sensitivity of the
Company's assets and liabilities over various repricing periods and maturities,
as of December 31, 1996. Maturities are based on contractual terms and
repricing amounts are based on actual historical experiences (dollars in
thousands):
<TABLE>
<CAPTION>
After 90 After
days one year After
Within within within five
90 days one year five years years Total
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Investments & fed funds sold $ 12,462 $ 9,272 $ 12,152 $ 3,236 $ 37,122
Loans 26,179 35,842 44,223 27,447 133,691
--------- --------- ---------- --------- ---------
Total interest earning assets $ 38,641 $ 45,114 $ 56,375 $ 30,683 $ 170,813
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
INTEREST BEARING LIABILITIES:
Interest-bearing demand deposits $ 33,032 $ 23,598 $ 24,552 $ 7,963 $ 89,145
Savings deposits - - 4,156 8,355 12,511
Time deposits 5,358 9,473 3,081 30 17,942
--------- --------- ---------- --------- ---------
Total interest bearing deposits 38,390 33,071 31,789 16,348 119,598
--------- --------- ---------- --------- ---------
Other borrowings - - 5,000 - 5,000
Total interest bearing liabilities $ 38,390 $ 33,071 $ 36,789 $ 16,348 $ 124,598
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Interest rate sensitivity gap $ 251 $ 12,043 $ 19,586 $ 14,335 46,215
Interest rate gap as a percentage
of total interest earning assets 0.15% 7.05% 11.47% 8.39% 27.06%
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Cumulative interest rate sensitivity gap $ 251 $ 12,294 $ 31,880 $ 46,215 $ 46,215
Cumulative interest rate gap as a percentage
of total interest earning assets 0.15% 7.20% 18.66% 27.06% N/A
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
</TABLE>
13
<PAGE>
LOAN PORTFOLIO
Interest earned on the loan portfolio is the primary source of income for
the Bank. Net loans represent 65% of total assets as of December 31, 1996.
Although the Bank strives to serve the credit needs of its service area, its
primary focus is on real estate related and commercial credits. The Bank makes
substantially all of its loans to customers located within the Bank's service
areas. The Bank has no loans defined as highly leveraged transactions by the
Federal Reserve Bank. The Bank has no significant agricultural loans. The
following table presents the composition of the Bank's loan portfolio, at the
dates indicated (dollars in thousands):
December 31,
-------------------------
1996 1995
---------- ----------
Commercial. . . . . . . . . . . . $ 22,485 $ 21,711
Real Estate:
Construction. . . . . . . . . 34,375 33,984
Mortgage. . . . . . . . . . . 19,774 24,750
Commercial. . . . . . . . . . 42,391 31,019
Installment . . . . . . . . . . . 14,666 15,271
-------- --------
133,691 126,735
Less:
Reserve for loan losses . . . 1,691 1,651
Deferred loan fees. . . . . . 373 372
-------- --------
2,064 2,023
-------- --------
$ 131,627 $ 124,712
-------- --------
-------- --------
At December 31, 1996, the maturities of all loans by category were as
follows (dollars in thousands):
Due after
one, but
Due within within five Due after
Loan Category one year years five years Total
- -------------------- ---------- ----------- ----------- ----------
Commercial. . . . . $ 13,133 $ 8,540 $ 812 $ 22,485
Real Estate:
Construction . . 28,469 3,599 2,307 34,375
Mortgage. . . . 7,841 11,214 719 19,774
Commercial. . . 6,712 12,740 22,938 42,390
Installment . . . . 5,866 8,130 671 14,667
---------- ---------- ---------- ----------
$ 62,021 $ 44,223 $ 27,447 $ 133,691
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Variable rate loans due after one year totaled $44,349 at December 31, 1996
and loans with predetermined or fixed rates due after one year totaled $27,321
at December 31, 1996.
LENDING AND CREDIT MANAGEMENT
Although a risk of nonpayment exists with respect to all loans, certain
specific types of risks are associated with different types of loans. Due to
the nature of the Bank's customer base and the growth experienced in the Bank's
market area, real estate is frequently a material component of collateral for
the Bank's loans. The expected source of repayment of these loans is generally
the operations of the borrower's business or personal income; however, real
estate provides an additional measure of security. Risks associated with real
estate loans include fluctuating land values, local economic conditions, changes
in tax policies, and a concentration of loans within the Bank's market area.
14
<PAGE>
The Bank mitigates risks on construction loans by generally lending funds
to customers that have been prequalified for long term financing and who are
using experienced contractors approved by the Bank. The commercial real estate
risk is further mitigated by making the majority of commercial real estate loans
to owner-occupied users of the property.
The Bank manages the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in prudent
lending activities. The following table presents information with respect to
non-performing assets (dollars in thousands):
December 31,
-----------------
1996 1995
----- -----
Loans on non-accrual status . . . . . . . . . . . . . $ 50 $ 45
Loans past due 90 days or more
but not on non-accrual status . . . . . . . . . . 27 21
Other real estate owned . . . . . . . . . . . . . . . - -
----- -----
Total non-performing assets . . . . . . . . . . . . . $ 77 $ 66
----- -----
----- -----
Percentage of non-performing assets
to total assets . . . . . . . . . . . . . . . . . .04% .04%
The accrual of interest on a loan is discontinued when, in management's
judgment, the future collectibility of principal or interest is in doubt. Loans
placed on nonaccrual status may or may not be contractually past due at the time
of such determination, and may or may not be secured. When a loan is placed on
nonaccrual status, it is the Bank's policy to reverse, and charge against
current income, interest previously accrued but uncollected. Interest
subsequently collected on such loans is credited to loan principal if, in the
opinion of management, full collectibility of principal is doubtful. If
interest on nonaccrual loans had been accrued, such income was insignificant in
1996 and 1995.
At December 31, 1996, there were no potential problem loans, except as
discussed above, where known information about possible credit problems of the
borrower caused management to have serious doubts as to the ability of such
borrower to comply with the present loan repayment terms and which may result in
such loans being placed on a non-accrual basis.
ALLOCATION OF RESERVE FOR LOAN LOSSES
The Bank does not normally allocate the reserve for loan losses to specific
loan categories. An allocation to these major categories is made below for
presentation purposes. This allocation process does not necessarily measure
anticipated future credit losses; rather, it seeks to measure the Bank's
assessment at a point in time of perceived credit loss exposure and the impact
of current and anticipated economic conditions. A schedule dividing the reserve
for loan losses into allocated and unallocated categories is furnished on the
following page (dollars in thousands):
December 31,
--------------------------------------------------------
1996 1995
------------------------ ------------------------
Percentage of Percentage of
loans in each loans in each
category to category to
Amount total loans Amount total loans
-------- ------------- -------- -------------
Commercial . . . . . $ 145 17% $ 153 17%
Real Estate:
Construction . . . 227 26 218 27
Mortgage . . . . . 78 15 80 20
Commercial . . . . 186 32 148 24
Installment . . . . 92 10 94 12
Unallocated . . . . 963 - 958 -
-------- ------------- -------- -------------
$ 1,691 100% $ 1,651 100%
-------- ------------- -------- -------------
-------- ------------- -------- -------------
15
<PAGE>
RESERVE FOR LOAN LOSSES
The provision for loan losses charged to operating expense is based on the
Bank's loan loss experience and such other factors which, in management's
judgement, deserve recognition in estimating possible loan losses. Management
monitors the loan portfolio to ensure that the reserve for loan losses is
adequate to cover outstanding loans on non-accrual status and any current loans
deemed to be in serious doubt of repayment according to each loan's repayment
plan. The following table summarizes the Bank's reserve for loan losses and
charge-off and recovery activity (dollars in thousands):
Year ended December 31,
----------------------
1996 1995
---------- ----------
Loans outstanding at
end of period . . . . . . . . . . . . . . . $ 133,691 $ 126,735
---------- ----------
---------- ----------
Average loans outstanding
during the period . . . . . . . . . . . . . $ 137,798 $ 121,883
---------- ----------
---------- ----------
Reserve balance,
beginning of period . . . . . . . . . . . . $ 1,651 $ 1,172
Recoveries:
Commercial. . . . . . . . . . . . . . . . . 2 70
Real Estate:
Construction . . . . . . . . . . . . . . - -
Mortgage . . . . . . . . . . . . . . . . - -
Commercial . . . . . . . . . . . . . . . - 1
Installment . . . . . . . . . . . . . . . . 28 30
---------- ----------
30 101
Loans charged off:
Commercial. . . . . . . . . . . . . . . . . (212) (24)
Real Estate:
Construction . . . . . . . . . . . . . . - -
Mortgage . . . . . . . . . . . . . . . . (50) -
Commercial . . . . . . . . . . . . . . . - (2)
Installment. . . . . . . . . . . . . . . . (160) (77)
---------- ----------
(422) (103)
---------- ----------
Net loans charged-off. . . . . . . . . . . . . (392) (2)
Provision charged to operations. . . . . . . . 432 481
---------- ----------
Reserve balance, end of period . . . . . . . . $ 1,691 $ 1,651
---------- ----------
---------- ----------
Ratio of net loans charged-off
to average loans outstanding. . . . . . . . 28% .00%
---------- ----------
---------- ----------
Ratio of reserve for loan losses
to loans at end of period . . . . . . . . . 1.26% 1.30%
---------- ----------
---------- ----------
16
<PAGE>
INVESTMENT PORTFOLIO
The following table shows the carrying value of the Bank's portfolio of
investments at December 31, 1996 and 1995 (dollars in thousands). See Notes 1
and 3 of Notes to Consolidated Financial Statements for more information about
investment securities at December 31, 1996 and 1995.
December 31,
----------------------
1996 1995
---------- ---------
U.S. Treasury securities. . . . . . . . . . . . . . $ 4,009 $ 4,558
U.S. Government and agency securities . . . . . . . 20,468 5,408
Obligations of state and political subdivisions . . 2,013 2,190
---------- ---------
Total debt securities . . . . . . . . . . . . . . 26,490 12,156
Federal Home Loan Bank stock. . . . . . . . . . . . 1,307 1,212
---------- ---------
Total investment securities . . . . . . . . . . $ 27,797 $ 13,368
---------- ---------
---------- ---------
The following is a summary of the contractual maturities and weighted
average yields of investment securities at December 31, 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
Due in Due after one year Due five years
one year or less through five years through ten years
---------------- ------------------ -----------------
Weighted Weighted Weighted
Carrying average Carrying average Carrying average
value yield (1) value yield (1) value yield (1)
------------ ----------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities ......... $ 3,010 6.05% $ 999 6.61% $ - -
U.S. Government agencies ......... 2,503 6.01% 16,036 7.05% 1,929 7.30%
------------- ------------ ----------
5,513 17,035 1,929
HELD-TO-MATURITY
Obligations of state and 889 4.04% 1,124 5.08% - 5.35%
political subdivisions .......... - - - - 1,307 5.98%
------------- ------------ ----------
Federal Home Loan Bank stock (2).. 889 1,124 1,307
------------- ------------ ----------
Total $ 6,402 5.75% $ 18,159 6.91% $ 3,236 6.77%
------------ ----------- ------------ ---------- --------- ---------
------------ ----------- ------------ ---------- --------- ---------
</TABLE>
(1) Yields on tax-exempt securities have not been stated on a tax equivalent
basis.
(2) No stated maturity.
17
<PAGE>
DEPOSIT LIABILITIES AND TIME DEPOSIT MATURITIES
The following table summarizes the average amount of, and the average rate
paid on, each of the deposit categories for the periods shown (dollars in
thousands):
Years ended December 31,
----------------------------------------------------------
1996 1995
DEPOSIT LIABILITIES Average Average
---------------------------- --------------------------
Amount Rate Paid Amount Rate Paid
---------------------------- --------------------------
Demand............ $ 46,886 N/A $ 36,353 N/A
Interest-bearing
demand........... 83,154 3.04% 73,426 3.25%
Savings........... 12,975 2.20% 13,227 2.30%
Time.............. 17,235 5.07% 13,506 4.60%
-------- --------
Total Deposits.. $ 160,250 $ 136,512
-------- --------
-------- --------
As of December 31, 1996 the Bank's time deposit liabilities had the following
times remaining to maturity (dollars in thousands):
Time deposits of All other
$100,000 or more (1) Time deposits (2)
---------------------- -----------------------
Remaining time to maturity Amount Percent Amount Percent
- -------------------------- ---------------------- -----------------------
3 months or less.......... $ 800 33.35% $ 4,558 29.33%
Over 3 months
through 6 months........ 413 17.22% 4,525 29.11%
Over 6 months
through 12 months....... 1,080 45.01% 3,455 22.23%
Over 12 months............ 106 4.42% 3,005 19.33%
---------------------- -----------------------
Total.................. $ 2,399 100.00% $ 15,543 100.00%
---------------------- -----------------------
---------------------- -----------------------
- ---------------
(1) Time deposits of $100,000 or more represent 1.50% of total deposits as of
December 31, 1996.
(2) All other time deposits represent 9.70% of total deposits as of
December 31, 1996.
18
<PAGE>
ITEM 2. PROPERTY
MAIN OFFICE. The Bank's Main Office opened in September of 1990 and is
located at 1100 N. W. Wall Street, Bend, Oregon, and consists of approximately
15,000 square feet. The building is owned by the Bank, however, the land on
which the buildings are situated is leased. The ground lease term is for 30
years and commenced June 1, 1989. There are ten renewal options of five years
each. Monthly rental is $4,600 per month with adjustments every five years by
mutual agreement of landlord and tenant. The main branch and administrative
offices occupy the main floor, and the mortgage lending office occupies
approximately 2,400 square feet on the second floor. An expansion of
approximately 6,000 square feet for bank operations, training and human
resources was completed in 1996. A separate data processing and drive-up
facility is also located on site.
THIRD & REVERE BRANCH. The Bank's original Main Office was located at 1700
N. E. Third Street, Bend, Oregon. The building now serves as a branch of the
Bank and provides approximately 4,800 square feet of space. The building is
owned by the Bank, however, the land on which it is situated is leased. The
ground lease is for 50 years and commenced in August 1976. Currently the
monthly rental is $4,280. The monthly rental amount is subject to change every
five years based upon a percentage of the increase in appraised value of the
property.
SOUTH BEND BRANCH. The South Bend Branch opened in March 1979 and consists
of approximately 2,500 square feet. The building is owned by the Bank, however,
the land on which the building is situated is leased. The lease terms extend
through November 2028. Currently the monthly rental is $2,908. The monthly
rental amount is subject to change every three years by a percentage equal to
the increase/decrease in the consumer price index.
SUNRIVER BRANCH. The Sunriver Branch opened in April 1980 and is located
at the Sunriver Mall, Sunriver, Oregon, and consists of approximately 1,816
square feet. The land and building are leased by the Bank. The current lease
extends through 1999. Currently the monthly rental is $3,700. Construction is
underway on a free standing building of approximately 2,400 square feet near the
existing branch. The new lease term will extend through 2012 (subject to seven
options to extend of five years each). The monthly rental is $1,836. The
monthly rental amount is subject to change every five years based on any
percentage increase in the real market value of the premises. The old lease was
cancelled as a condition of the new lease.
SISTERS BRANCH. The Sisters Branch commenced operations in November 1985
when the Bank purchased the branch from another financial institution. The
branch is located at 175 S. E. Main, Sisters, Oregon and consists of
approximately 2,200 square feet. The building and land are owned by the Bank.
REDMOND BRANCH. The Redmond Branch opened in June of 1992 and consists of
approximately 3,800 square feet. The land and building are leased. The lease
term extends to 2022. The current monthly rental is $2,614 and is subject to
change every five years with a 3 percent per year escalation clause.
PRINEVILLE BRANCH. The Prineville Branch was acquired in April 1994 from
the Resolution Trust Corporation. The Branch is located at 103 W. Third Street,
Prineville, Oregon and consists of approximately 2,014 square feet. The
building and land are owned by the Bank.
EAST BEND BRANCH. The East Bend Branch opened in December, 1995 and is
located in the Safeway Supermarket. The Bank leases 600 square feet of floor
space. The lease term extends through 2000 with two options to extend the term
by five years each. The current monthly rental is $2,750. Monthly rental is
subject to change every five years by a percentage equal to the
increase/decrease in the consumer price index.
In the opinion of management all of the Bank's properties are adequately
insured.
ITEM 3. LEGAL PROCEEDINGS
The Bank is from time to time a party to various legal actions arising in
the normal course of business. Management believes that there is no threatened
or pending proceedings against the Company or Bank, which, if determined
adversely, would have a material effect on the business or financial position of
the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
19
<PAGE>
PART II
The information called for by items 5, 6, and 7 of Part II is included in
Cascade Bancorp's Annual Report to Shareholders for the year ended December 31,
1996, and is incorporated herein by reference as follows:
CASCADE BANCORP
ANNUAL REPORT
TO SHAREHOLDERS
PAGE NO.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS....................... 6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 4-6
ITEM 7. FINANCIAL STATEMENTS........................................... 8-22
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
20
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
The information called for by this item is located on pages 2, 3 and 7
of Cascade Bancorp's definitive proxy statement for the annual meeting
of shareholders to be held on April 21, 1997, and is incorporated
herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information called for by this item is located on page 4 and 5 of
Cascade Bancorp's definitive proxy statement for the annual meeting of
shareholders to be held on April 21, 1997, and is incorporated herein
by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is located on page 1 of
Cascade Bancorp's definitive proxy statement for the annual meeting of
shareholders to be held on April 21, 1997, and is incorporated herein
by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is located on page 7 of
Cascade Bancorp's definitive proxy statement for the annual meeting of
shareholders to be held on April 21, 1997, and is incorporated herein
by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on
Form-10KSB. The financial statements required in this Annual Report
are listed in the accompanying Index to Consolidated Financial
Statements, and are incorporated herein by reference.
3.1 ARTICLES OF INCORPORATION. Filed as an exhibit to
registrant's Registration Statement on Form 10-SB, filed in
January, 1994, and incorporated herein by reference.
3.2 BYLAWS. As amended, filed as exhibit 3.1 to registrant's
Form 10-QSB report for the quarter ended March 31, 1995,
and incorporated herein by reference.
10.1 REGISTRANT'S 1994 INCENTIVE STOCK OPTION PLAN. Filed as an
exhibit to registrant's Registration Statement on Form
10-SB, filed in January, 1994, and incorporated herein by
reference.
10.2 INCENTIVE STOCK OPTION PLAN LETTER AGREEMENT. Entered into
between registrant and certain employees pursuant to
registrant's 1994 Incentive Stock Option Plan. Filed as an
exhibit to registrant's Registration Statement on Form
10-SB, filed in January, 1994, and incorporated herein by
reference.
10.3 SALARY CONTINUATION AGREEMENT. Between Roger J. Shields and
registrant. Filed as an exhibit to registrant's
Registration Statement on Form 10-SB, filed in January,
1994, and incorporated herein by reference.
21
<PAGE>
10.4 MATERIAL CONTRACT. Advances, Security and Deposit
Agreement, dated November 18, 1991, between Bank of the
Cascades and the Federal Home Loan Bank of Seattle. Filed
as Exhibit 10.4 to registrant's Form 10-KSB filed December
31, 1994, and incorporated herein by reference.
10.5 DEFERRED COMPENSATION PLANS. Established for the Board,
certain key executives and managers during the fourth
quarter ended December 31, 1995. Filed as exhibit 10.5 to
registrant's Form 10-KSB filed December 31, 1995, and
incorporated herein by reference.
13.1 1996 ANNUAL REPORT TO SHAREHOLDERS. Portions of the
registrant's annual report to shareholders are incorporated
by reference as noted above. With the exception of the
portions specifically incorporated herein by reference, the
1996 Annual Report to Shareholders is not deemed filed as
part of this Form 10-KSB, Annual Report.
21.1 SUBSIDIARIES OF REGISTRANT.
23.1 CONSENT OF INDEPENDENT AUDITORS; SYMONDS, EVANS & LARSON,
P.C.
(b) REPORTS ON FORM 8-K. Cascade Bancorp did not file any reports on Form
8-K during the last quarter of the fiscal year ended December 31,
1996.
22
<PAGE>
CASCADE BANCORP
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(ITEM 13(a))
ANNUAL
REPORT TO
SHAREHOLDERS
Report of Independent Auditors..................................... 7
Consolidated Balance Sheets at
December 31, 1996 and 1995..................................... 8
For the Years Ended December 31, 1996 and 1995:
Consolidated Statements of Income.............................. 9
Consolidated Statements of Changes in Stockholders' Equity..... 10
Consolidated Statements of Cash Flows.......................... 11
Notes to Consolidated Financial Statements......................... 12-22
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CASCADE BANCORP
DATED: March 17 , 1997 By /s/ Roger J. Shields
------------------------------------------
Roger J. Shields, President
CASCADE BANCORP
DATED: March 18 , 1997 By /s/ Patricia L. Moss
------------------------------------------
Patricia L. Moss, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
DATED: March 17 , 1997 By /s/ Jerry E. Andres
------------------------------------------
Jerry E. Andres, Director
DATED: March 17 , 1997 By /s/ Gary L. Capps
------------------------------------------
Gary L. Capps, Director
DATED: March 17 , 1997 By /s/ Gary L. Hoffman
------------------------------------------
Gary L. Hoffman, Director
DATED: March 18 , 1997 By /s/ Patricia L. Moss
------------------------------------------
Patricia L. Moss, Director/Executive Vice
Pesident
DATED: March 17 , 1997 By /s/ Roger J. Shields
------------------------------------------
Roger J. Shields, Director/President
DATED: March 17 , 1997 By /s/ Jacob M. Wolfe
------------------------------------------
Jacob M. Wolfe, Director
24
<PAGE>
EXHIBIT INDEX
EXHIBIT
INDEX DESCRIPTION OF EXHIBIT
13.1 Portions of the 1996 Annual Report to Shareholders which are
incorporated by reference in this Form 10-KSB.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
27 Financial Data Schedule (for SEC use only).
<PAGE>
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
The following discussion should be read in conjunction with Bancorp's
audited consolidated financial statements and the notes thereto for the years
ended December 31, 1996 and 1995 included in this annual report to shareholders.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income increased 16.0 percent in 1996 as compared to 1995.
This change resulted from a $1,908,000 increase in interest income in
conjunction with a $282,000 increase in interest expense. The increase in net
interest income was primarily the result of an increase in the volume of loans.
Average loans in 1996 were approximately $137,798,000 as compared to
$121,883,000 in 1995. Accordingly, interest and fees on loans increased 13.4
percent in 1996 as compared to 1995. Total interest expense increased 7.5
percent in 1996 as compared to 1995 primarily due to increased volume in
interest bearing demand and time deposits, partially offset by a decrease in
interest expense on savings accounts and other borrowings. During the periods
presented, Bancorp utilized both short-term and long-term Federal Home Loan Bank
borrowings to help fund loan demand.
LOAN LOSS PROVISION
The loan loss provision decreased during 1996 as compared to 1995 primarily
due to a decrease in the volume of loan growth. The Bank's ratio of reserve for
loan losses to total loans was 1.27 percent at December 31, 1996 as compared to
1.30 percent at December 31, 1995. Management believes the current loan loss
provision maintains the reserve for loan losses at an appropriate level.
NON-INTEREST INCOME
Non-interest income increased 28.9 percent in 1996 as compared to 1995 due
to increases in all categories of non-interest income.
The increase in service charge income during 1996 was primarily due to an
increase in the volume of deposit activity during the periods presented. The
increase in mortgage loan origination and processing fees was primarily due to
increased mortgage loan originations in conjunction with a more stable interest
rate environment. The increase in gains on sales of mortgage loans is primarily
due to an increase in mortgage loan activity and the implementation of Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65" (SFAS 122). SFAS 122 required
Bancorp to begin recognizing originated mortgage servicing rights for loan
origination activities subsequent to December 31, 1995. The net amount of
capitalized mortgage servicing rights recognized in 1996 was approximately
$575,000. Because the income related to residential mortgage loan activity is
so dependent upon interest rates, there can be no assurance that income on
mortgage related transactions will continue to significantly contribute to
Bancorp's future income. The net increase in other income was primarily
attributable to an increase in the income earned on life insurance policies of
approximately $170,000.
NON-INTEREST EXPENSE
Total non-interest expense increased 13.4 percent in 1996 as compared to
1995. The overall increase was primarily attributed to Bancorp's increased size
and activity levels.
<PAGE>
INCOME TAXES
The provision for income taxes increased between the periods presented
primarily as a result of higher pre-tax income.
FINANCIAL CONDITION
Bancorp continued to experience strong growth in 1996 with total assets
increasing 13.4 percent to $201.3 million at December 31, 1996 compared to
$177.6 million at December 31, 1995. This growth was primarily due to increases
in loans and investments which were funded primarily by increases in deposits.
Because deposit growth exceeded loan demand in 1996, Bancorp increased its net
investment in available-for -sale securities by approximately $14.5 million in
1996. Loan demand continued to be steady in 1996 with total loans increasing
5.5 percent to $133.7 million at December 31, 1996 compared to $126.7 million at
December 31, 1995. Deposits increased 12.2 percent to $171.1 million at
December 31, 1996 compared to $152.4 million at December 31, 1995.
Bancorp has no derivative financial instruments as of December 31, 1996 and
1995.
CASCADE FINANCE
In January, 1997, Bancorp contributed $250,000 in capital to Cascade
Finance, Bancorp's first non-bank subsidiary. In addition, during February,
1997 Bancorp transferred an additional $250,000 in capital to Cascade Finance.
Cascade Finance began operations in January, 1997 and management does not
anticipate that the activity in Cascade Finance will have a material impact on
Bancorp's consolidated financial condition or results of operation.
LIQUIDITY
Liquidity enables the Bank to meet the withdrawals of its depositors and
the borrowing needs of its loan customers. The Bank maintains its liquidity
position through maintenance of cash resources and a stable core deposit base.
Short-term deposits have continued to grow and federal funds are sold whenever
excesses are available. The Bank's primary source of funds is consumer deposits
and commercial accounts. This is a significant factor to the Bank's long-term
liquidity structure since these funds are not subject to significant movements
as a result of changing interest rates and other economic factors. A further
source of liquidity is the Bank's ability to borrow funds. At December 31, 1996
the Bank maintained six unsecured lines of credit totaling $14.5 million for the
purchase of funds on an overnight basis. The Bank is also a member of the
Federal Home Loan Bank (FHLB) which provides a secured line of credit in the
amount of $9.6 million, and other funding opportunities for liquidity and
asset/liability matching. At December 31, 1996 and 1995 the Bank had long-term
borrowings of $5.0 million from the FHLB. Interest rates charged on the
agreements are determined by market factors but are generally 1 to 2 percent
higher than the federal funds rate.
At December 31, 1996, the Bank had approximately $49.6 million in
outstanding commitments to extend credit. Management anticipates that some of
these commitments are expected to expire or terminate without funding.
Management believes that the Bank's existing sources of liquidity will enable
the Bank to fund its requirements in the normal course of business.
CAPITAL RESOURCES
Bancorp's total stockholders' equity at December 31, 1996 was $23,572,000,
which was an increase of $4,532,000 from December 31, 1995. The net increase
resulted from 1996 net income of $4,513,000 and the increase in unrealized gains
on investment securities available-for-sale, net of income taxes, of $19,000.
Banking regulations require that banks maintain a minimum level of risk
based capital. The calculation of risk based capital weights balance sheet and
off-balance sheet items for their inherent risk. Regulations require an overall
minimum capital adequacy of 8.00 percent and a minimum "Tier 1 Capital Ratio" of
4.00 percent. At December 31, 1996, Bancorp had a Risk Based Capital Adequacy
of 16.5 percent and Tier 1 Capital Adequacy of 15.4 percent. This was compared
to 14.3 percent and 13.1 percent for Risk Based Capital and Tier 1 Capital at
December 31, 1995.
<PAGE>
INTEREST RATE RISK
Rate sensitive assets maturing or available for repricing within a one-year
period of time exceeded rate sensitive liabilities by approximately $11.8
million at December 31, 1996. Approximately $6 million in rate sensative assets
due comprised of callable investment securities. Rate sensitive liabilities
maturing or available for repricing within a one-year period of time
approximated rate sensitive assets at December 31, 1995. Interest sensitivity
relates to the effect of changing interest rates on net interest income.
Interest-earning assets which have interest rates tied to an index, such as
prime rate, or which mature in relatively short periods of time are considered
interest rate sensitive. Interest-bearing liabilities where the interest rate
can be repriced in a discretionary manner or which mature in short periods of
time are also considered interest rate sensitive. The differences between the
amounts of interest sensitive assets and interest sensitive liabilities measured
at various time periods, are referred to as sensitivity gaps. As rates change,
these gaps will cause either a beneficial or adverse effect on net interest
income. A negative gap represents a beneficial effect on net interest income if
rates were to fall and an adverse effect if rates were to rise. Conversely, a
positive gap would have a beneficial effect on net interest income in a rising
rate environment and a negative effect if rates fell.
Due to the uncertainty of changing interest rates, the Bank's strategy is
to maintain a relatively balanced gap in its interest-earning assets and
interest-bearing deposits within a one year period. In the event interest rates
rise, the Bank's strategy is to increase its asset sensitivity predominantly
through variable asset pricing.
INFLATION
The general rate of inflation over the past two years, as measured by the
Consumer Price Index, has not changed significantly, and management does not
consider the effects of inflation on Bancorp's financial position and earnings
to be material.
DEPOSIT INSURANCE
As a member institution of the FDIC, the deposits of the Bank are currently
insured to a maximum of $100,000 per depositor through the Bank Insurance Fund
("BIF"), and the Bank is required to pay semiannual deposit insurance premium
assessments to the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
included provisions to reform the Federal deposit insurance system, including
the implementation of risk-based deposit insurance premiums. The FDICIA also
permits the FDIC to make special assessments on insured depository institutions
in amounts determined by the FDIC to be necessary to give it adequate assessment
income to repay amounts borrowed from the U.S. Treasury and other sources or for
any other purpose the FDIC deems necessary. Pursuant to the FDICIA, the FDIC
implemented a transitional risk-based insurance premium system on January 1,
1993. Generally, banks are assessed insurance premiums according to how much
risk they are deemed to present to the BIF. Banks with higher levels of capital
and involving a low degree of supervisory concern are assessed lower premiums
than banks with lower levels of capital or involving a higher degree of
supervisory concern.
Effective for the first semiannual assessment period of 1996, assessment
rates were lowered by four cents per $100 of assessable deposits for all risk
categories, subject to the statutory requirement that all institutions pay at
least $2,000 annually for FDIC insurance. The reduction in BIF rates utilizes
the "adjustment" procedure established by the FDIC Board to change rates within
a five-cent range without first having to seek public comment.
During 1996 the Bank also paid a one-time deposit insurance assessment, of
approximately $49,000, for recapitalization of the federal insurance fund for
savings and loans. This assessment was based on the Bank's deposits at the
Prineville branch which were acquired from the Resolution Trust Corporation in
1994. It is anticipated that the Bank's FDIC deposit insurance assessments for
1997 will primarily consist of the annual minimum requirement of $2,000.
<PAGE>
MARKET INFORMATION
Cascade Bancorp common stock trades on The Nasdaq SmallCap Market tier of
The Nasdaq Stock Market under the symbol CACB. The primary market makers are:
Pacific Crest Securities, Black & Company Inc., and Herzog, Heine, Geduld, Inc.
The high and low sales prices shown below are retroactively adjusted for
stock dividends and are based on actual trade statistical information provided
by The Nasdaq Stock Market for the periods indicated.
1996 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
---- ----------- ----------- ----------- -----------
High $ 18.03 $ 18.86 $ 22.00 $ 22.83
Low 15.45 16.97 18.75 19.92
1995
----
High $ 12.27 $ 14.09 $ 14.32 $ 17.27
Low 10.91 10.91 11.53 13.64
Bancorp declared 10% stock dividends in June 1996 and 1995. Bancorp also
declared and paid a $.50 per share cash dividend for all shareholders of record
as of January 22, 1997.
As of February 11, 1997 management estimates that there were approximately
1,500 common stockholders of record of Bancorp stock.
<PAGE>
[HEADING]
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Stockholders of Cascade Bancorp
We have audited the accompanying consolidated balance sheets of Cascade Bancorp
and subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' 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 consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cascade Bancorp and
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.
As discussed in Note 1 to the consolidated financial statements, during 1996 the
Company changed its method of accounting for originated mortgage servicing
rights.
SYMONDS, EVANS & LARSON, P.C.
Portland, Oregon
January 24, 1997
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS 1996 1995
------------ ------------
Cash and cash equivalents:
Cash and due from banks $19,567,608 $14,012,461
Federal funds sold 9,325,000 13,100,000
------------ ------------
Total cash and cash equivalents 28,892,608 27,112,461
Investment securities available-for-sale 24,476,627 9,965,676
Investment securities held-to-maturity, estimated
fair value of $3,320,502 ($3,418,706 in 1995) 3,320,207 3,402,179
Loans, net1 31,626,742 124,711,355
Mortgage loans held for sale 610,650 3,009,584
Premises and equipment, net 4,280,754 3,467,085
Accrued interest and other assets 8,068,985 5,893,932
------------ ------------
Total assets $201,276,573 $177,562,272
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $51,484,370 $43,692,451
Interest bearing demand 89,144,726 80,186,924
Savings 12,511,495 13,149,653
Time 17,941,503 15,409,039
------------ ------------
Total deposits 171,082,094 152,438,067
Accrued interest and other liabilities 1,622,430 1,084,250
Long-term debt 5,000,000 5,000,000
------------ ------------
Total liabilities 177,704,524 158,522,317
Commitments and contingencies
(Notes 1, 4, 9, 14 and 15)
Stockholders' equity:
Common stock, no par value; 10,000,000 shares
authorized; 2,132,967 shares issued and
outstanding (1,939,061 in 1995) 13,058,417 9,253,012
Retained earnings 10,442,535 9,734,936
Net unrealized gains on investment securities
available-for-sale, net of income taxes 71,097 52,007
------------ ------------
Total stockholders' equity 23,572,049 19,039,955
------------ ------------
Total liabilities and stockholders' equity $201,276,573 $177,562,272
------------ ------------
------------ ------------
See accompanying notes.
2
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996 and 1995
1996 1995
------------ ------------
Interest income:
Interest and fees on loans $ 14,063,738 $ 12,399,845
Taxable interest on investment securities 1,177,535 1,160,082
Nontaxable interest on investment securities 94,143 121,889
Interest on federal funds sold 381,567 155,669
Dividends on Federal Home Loan Bank stock 95,100 66,700
------------ ------------
Total interest income 15,812,083 13,904,185
Interest expense:
Deposits:
Interest bearing demand 2,529,619 2,384,073
Savings 285,762 304,480
Time 872,806 620,797
Federal Home Loan Bank borrowings 357,105 386,888
Federal funds purchased 6,260 73,303
------------ ------------
Total interest expense 4,051,552 3,769,541
------------ ------------
Net interest income 11,760,531 10,134,644
Loan loss provision 432,141 480,779
------------ ------------
Net interest income after loan loss provision 11,328,390 9,653,865
Noninterest income:
Service charges on deposit accounts 1,551,146 1,374,019
Mortgage loan origination and processing fees 1,051,381 772,115
Gains on sales of mortgage loans, net 521,564 429,186
Mortgage loan servicing fees, net 197,424 182,250
Merchant bankcard fees, net 262,914 217,357
Realized losses on sales of investment
securities available-for-sale - (173,937)
Other 496,291 365,483
------------ ------------
Total noninterest income 4,080,720 3,166,473
Noninterest expense:
Salaries and employee benefits 4,412,356 3,864,590
Equipment 724,954 755,336
Occupancy 623,385 583,562
Supplies 274,363 239,593
Communications 272,086 223,276
Third-party account services 240,202 91,217
Advertising 229,366 198,123
Deposit insurance premiums and assessments 75,033 155,548
Other 1,322,461 1,099,718
------------ ------------
Total noninterest expense 8,174,206 7,210,963
------------ ------------
Income before income taxes 7,234,904 5,609,375
Provision for income taxes 2,721,900 1,977,100
------------ ------------
Net income $ 4,513,004 $ 3,632,275
------------ ------------
------------ ------------
Net income per common share $ 2.12 $ 1.70
------------ ------------
------------ ------------
See accompanying notes.
3
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Net
unrealized
gains (losses)
on investment
securities
Number available-for- Total
of Common Retained sale, net of stockholders'
shares stock earnings income taxes equity
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 1,762,783 $ 7,093,607 $ 8,262,066 $ (544,738) $ 14,810,935
Net change in unrealized gains (losses)
on investment securities available-for-
sale, net of income taxes of $365,700 - - - 596,745 596,745
10% stock dividend declared
in June 1995 176,278 2,159,405 (2,159,405) - -
Net income - - 3,632,275 - 3,632,275
--------- ------------ ------------ ------------ ------------
Balance at December 31, 1995 1,939,061 9,253,012 9,734,936 52,007 19,039,955
Net change in unrealized gains (losses)
on investment securities available-for-
sale, net of income taxes of $11,800 - - - 19,090 19,090
10% stock dividend declared
in June 1996 193,906 3,805,405 (3,805,405) - -
Net income - - 4,513,004 - 4,513,004
--------- ------------ ------------ ------------ ------------
Balance at December 31, 1996 2,132,967 $ 13,058,417 $ 10,442,535 $ 71,097 $ 23,572,049
--------- ------------ ------------ ------------ ------------
--------- ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes
4
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995
1996 1995
------------ -----------
Cash flows from operating activities:
Net income $ 4,513,004 $3,632,275
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 694,005 675,639
Loan loss provision 432,141 480,779
Provision for deferred income taxes 527,000 145,000
Losses (gains) on sales of mortgage
loans, net 53,436 (429,186)
Realized losses on sales of investment
securities available-for-sale - 173,937
Dividends on Federal Home Loan Bank stock (95,100) (66,700)
Deferred benefit plan expenses 271,000 125,000
Increase in accrued interest and other assets (2,163,666) (232,630)
Increase in accrued interest and other
liabilities 267,180 127,059
Originations of mortgage loans (87,996,351) (63,695,364)
Proceeds from sales of mortgage loans 90,208,110 62,107,191
------------ -----------
Net cash provided by operating activities 6,710,759 3,043,000
Cash flows from investing activities:
Purchases of investment securities
available-for-sale (23,838,205) -
Proceeds from maturities and calls of investment
securities available-for-sale 9,320,018 11,100,987
Proceeds from sales of investment securities
available-for-sale - 7,798,750
Purchases of investment securities
held-to-maturity (1,073,016) (212,000)
Proceeds from maturities and calls of investment
securities held-to-maturity 1,383,215 1,380,961
Other loan originations, net (7,347,528) (28,265,172)
Purchases of premises and equipment, net (1,404,123) (712,568)
Purchases of life insurance contracts (615,000) (3,111,500)
------------ -----------
Net cash used in investing activities (23,574,639) (12,020,542)
Cash flows from financing activities:
Net increase in deposits 18,644,027 24,178,424
Net decrease in short-term borrowings - (2,900,000)
Proceeds from issuance of long-term debt - 5,000,000
------------ -----------
Net cash provided by financing activities 18,644,027 26,278,424
------------ -----------
Net increase in cash and cash equivalents 1,780,147 17,300,882
Cash and cash equivalents at beginning of the year 27,112,461 9,811,579
------------ -----------
Cash and cash equivalents at end of the year $ 28,892,608 $27,112,461
------------ -----------
------------ -----------
See accompanying notes
5
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Cascade Bancorp (Bancorp), a bank holding company, and its wholly-owned
subsidiary, Bank of the Cascades (the Bank). All significant intercompany
accounts and transactions have been eliminated in consolidation.
DESCRIPTION OF BUSINESS
The Bank conducts a general banking business. Its activities include the
usual deposit functions of a commercial bank: commercial, real estate,
installment, credit card and mortgage loans; checking and savings accounts;
automated teller machines (ATM's); collection and escrow services; and safe
deposit facilities. The Bank also originates and sells mortgage loans into
the secondary market.
In January 1997, Bancorp formed Cascade Finance as a wholly-owned
subsidiary and capitalized Cascade Finance with a cash investment of
$250,000.
METHOD OF ACCOUNTING
Bancorp prepares its consolidated financial statements in conformity with
generally accepted accounting principles and prevailing practices within
the banking industry. Bancorp utilizes the accrual method of accounting
which recognizes income when earned and expenses when incurred. The
preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements, and the reported amounts of
income and expenses during the reporting periods. Actual results could
differ from those estimates.
6
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During 1996 and 1995, noncash transactions resulted from changes in the net
unrealized gains (losses) on investment securities available-for-sale, net
of income taxes, as disclosed in the accompanying consolidated statements
of changes in stockholders' equity. In addition, during 1996, noncash
investing activities resulted from the capitalization and net gains of
approximately $575,000 recognized in connection with originated mortgage
servicing rights.
During 1996 and 1995, the Bank paid approximately $4,032,000 and
$3,731,000, respectively, in interest expense.
INVESTMENT SECURITIES
Investment securities that management has the positive intent and ability
to hold to maturity are classified as held-to-maturity securities and
reported at cost, adjusted for premiums and discounts that are recognized
in interest income using the interest method over the period to maturity.
Investment securities that are purchased and held principally for the
purpose of selling them in the near term are classified as trading
securities and are reported at fair value, with unrealized gains and losses
included in noninterest income.
Investment securities that are not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and are reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of
stockholders' equity, net of tax.
Gains or losses on the sale of available-for-sale securities are determined
using the specific-identification method. Premiums and discounts on
available-for-sale securities are recognized in interest income using the
interest method over the period to maturity.
7
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Declines in the fair value of individual held-to-maturity and available-
for-sale securities below their cost that are other than temporary would
result in write-downs of the individual securities to their fair value.
The related write-downs would be included in earnings as realized losses.
LOANS, NET
Loans are stated at the amount of unpaid principal, reduced by any deferred
loan fees and reserves for loan losses. The reserve for loan losses
represents management's recognition of the assumed risks of extending
credit and the quality of the existing loan portfolio. The reserve is
maintained at a level considered adequate to provide for potential loan
losses based on management's assessment of various factors affecting the
portfolio. Such factors include loss experience; review of problem loans;
underlying collateral values; current economic conditions; and an overall
evaluation of the quality, risk characteristics, and concentration of loans
in the portfolio. The reserve is based on estimates, and ultimate losses
may vary from the current estimates. These estimates are reviewed
periodically, and, as adjustments become necessary, they are reported in
earnings in the periods in which they become known. The reserve is
increased by provisions charged to operations and reduced by loans charged-
off, net of recoveries.
Bancorp considers loans to be impaired when management believes that it is
probable that all amounts due will not be collected according to the
contractual terms. An impaired loan must be valued using the present value
of expected future cash flows discounted at the loan's effective interest
rate, the loan's observable market price, or the fair value of the loan's
underlying collateral. Bancorp primarily measures impairment on all large
balance nonaccrual loans (typically commercial and commercial real estate
loans) based on the fair value of the underlying collateral. In certain
other cases, impairment is measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate.
Amounts deemed impaired are either specifically allocated for in the
reserve for loan losses or reflected as a partial charge-off of the loan
balance. Smaller balance homogeneous loans (typically installment loans)
are collectively evaluated for impairment as described above. Generally,
Bancorp evaluates a loan for impairment when it is placed on nonaccrual
status. All of the Bank's impaired loans at December 31, 1996 and 1995
were on nonaccrual status.
8
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to
the extent cash payments are received.
Loan origination and commitment fees, net of certain direct loan
origination costs, are generally recognized as an adjustment of the yield
of the related loan.
Interest income on all loans is accrued as earned on the simple interest
method.
Various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's reserve for loan losses. Such
agencies may require the Bank to recognize additions to the reserve based
on their judgment of information available to them at the time of their
examinations.
MORTGAGE LOANS
Mortgage loans held for sale are carried at the lower of cost or estimated
market value. Market value is determined on an aggregate loan basis. At
December 31, 1996 and 1995, mortgage loans held for sale were carried at
cost, which approximated estimated market value.
At December 31, 1996 and 1995, the Bank held servicing rights to
approximately $143,008,000 and $123,574,000, respectively, in mortgage
loans which have been sold into the secondary market. These mortgage loans
are being serviced for the Bank by another financial institution under a
subservicing agreement and are not included in the accompanying
consolidated balance sheets. The sale of these mortgage loans are subject
to technical underwriting exceptions and related repurchase risks. Such
risks are considered in the determination of the reserve for loan losses.
Effective January 1, 1996, Bancorp prospectively adopted Statement of
Financial Accounting Standards (SFAS) No. 122, "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65" (SFAS 122). SFAS
122 requires the Bank to recognize as separate assets the rights to service
mortgage loans which are acquired through loan origination activities
subsequent to December 31, 1995.
9
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
During the year ended December 31, 1996, the Bank capitalized approximately
$600,000 in mortgage servicing rights in accordance with SFAS 122. The
capitalized mortgage servicing rights are being amortized in proportion to,
and over the period of, estimated net servicing income. During the year
ended December 31, 1996, the amortization of the capitalized mortgage
servicing rights totaled approximately $25,000. The net amount of
capitalized mortgage servicing rights at December 31, 1996 (approximately
$575,000) is included in other assets in the accompanying consolidated
balance sheet.
The fair value (which approximates the carrying amount) of the capitalized
mortgage servicing rights at December 31, 1996 was determined based on
comparisons to current market transactions involving mortgage servicing
rights with similar portfolio characteristics and estimates of the net
present value of expected future cash flows. The predominant risk
characteristics of the underlying loans used to stratify the capitalized
mortgage servicing rights for purposes of measuring impairment include, but
are not limited to, interest rates, loan type, interest methods (i.e.,
fixed and variable), etc. Each strata is then discounted to reflect the
present value of the expected future cash flows utilizing current market
assumptions regarding discount rates, prepayment speeds, delinquency rates,
etc. Impairment, if any, related to mortgage servicing rights is
recognized through a valuation allowance. No valuation allowance was
required for the year ended December 31, 1996.
In June 1996, SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (SFAS 125) was issued.
SFAS 125 supersedes SFAS 122 and also establishes standards for when
transfers of financial assets (e.g., loan participations), including those
with continuing involvement by the transferor, should be considered a sale.
SFAS 125 also establishes standards for when a liability should be
considered extinguished. SFAS 125 is generally effective for transfers of
assets and extinguishments of liabilities after December 31, 1996, applied
prospectively. Earlier adoption or retroactive application of SFAS 125 is
not permitted. In addition, in December 1996, SFAS No. 127 was issued
which deferred the effective date of certain provisions of SFAS 125 for one
year. Management believes that the effect of adopting SFAS 125, as it
relates to originated mortgage servicing rights, will not be significantly
different than under the provisions of SFAS 122. Management believes that
the effect of adopting the other provisions of SFAS 125 on Bancorp's
financial condition will be dependent primarily on the control provisions
of its future loan participation agreements.
10
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization on premises and equipment
is computed on straight-line and accelerated methods over the shorter of
the estimated useful lives of the assets or terms of the leases.
Amortization of leasehold improvements is included with depreciation
expense in the accompanying consolidated financial statements.
OTHER REAL ESTATE
Other real estate, acquired through foreclosure or deeds in lieu of
foreclosure, is carried at the lower of cost or estimated net realizable
value. When the property is acquired, any excess of the loan balance over
the estimated net realizable value is charged to the reserve for loan
losses. Subsequent write-downs to net realizable value, if any, or any
disposition gains or losses are included in noninterest income and expense.
Other real estate was not significant at December 31, 1996 and 1995.
STOCKHOLDERS' EQUITY
Net income per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period.
The weighted average number of common shares outstanding used to compute
net income per common share was 2,132,967 for 1996 and 1995. Net income
per common share, weighted average number of common shares outstanding and
the stock option plan information (see Note 13) have been adjusted to give
retroactive effect to stock dividends.
The Bank, as a state-chartered bank, is prohibited from declaring or paying
any dividend in an amount greater than undivided profits. At December 31,
1996, approximately $8,790,000 was available for the payment of dividends
to Bancorp with prior regulatory approval.
In June 1996 and 1995, Bancorp declared 10% stock dividends.
In January 1997, Bancorp declared a $.50 per share cash dividend which
totaled $1,066,484 and was payable to stockholders of record as of
January 22, 1997.
11
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
ADVERTISING
Advertising costs are generally charged to expense during the year in which
they are incurred.
PREMIUM ON BRANCH ACQUISITION
A $525,000 premium related to the acquisition of a branch in 1994 is being
amortized on a straight-line basis over 7 years.
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
OTHER RECENTLY ADOPTED ACCOUNTING STANDARDS
Effective January 1, 1996 Bancorp adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" (SFAS 121) and SFAS No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123).
SFAS 121 addresses the accounting for the impairment of long-lived assets,
such as premises and equipment, certain identifiable intangibles and
goodwill related to those assets. Long-lived assets and certain
identifiable intangibles are to be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment loss is recognized when the sum of
the future cash flows expected from the use of the asset and its eventual
disposition (undiscounted and without interest charges) is less than the
carrying amount of the asset. SFAS 121 also requires that long-lived
assets and identifiable intangibles, except for assets of a discontinued
operation held for disposal, be accounted for at the lower of cost or fair
value less cost to sell. Bancorp's adoption of SFAS 121 did not have a
material effect on Bancorp's financial condition or results of operations.
12
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SFAS 123 prescribes accounting and reporting standards for all stock-based
compensation plans, including employee stock options, restricted stock and
stock appreciation rights. SFAS 123 defines a "fair value-based method" of
accounting for employee stock options and encourages all entities to adopt
that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure
compensation for those plans using the "intrinsic value-based method" under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (Opinion 25). Substantially all of Bancorp's stock options have
no intrinsic value at grant date, and under Opinion 25, no compensation
cost is recognized for them. SFAS 123 requires that an employer's
financial statements include certain disclosures about stock-based
compensation arrangements regardless of the method used to account for
them. In addition, SFAS 123 is applicable only to options granted
subsequent to December 31, 1994. Bancorp has elected to continue to apply
the accounting provisions of Opinion 25 and, if significant, disclose pro
forma amounts that reflect the difference between compensation cost, if
any, included in net income and the related cost measured by the fair
value-based method, including tax effects, that would have been recognized
in the income statement if the fair value-based method had been used. As
discussed in Note 13, such pro forma amounts were not materially different
than the amounts reported in the accompanying consolidated financial
statements.
RECLASSIFICATIONS
Certain amounts in 1995 have been reclassified to conform with the 1996
presentation.
2. CASH AND DUE FROM BANKS
The Bank is required to maintain an average reserve balance ($3,570,000 and
$2,129,000 at December 31, 1996 and 1995, respectively) with the Federal
Reserve Bank or maintain such reserve balance in the form of cash. This
requirement was met by holding cash and maintaining an average reserve
balance with the Federal Reserve Bank in excess of this amount.
13
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
3. INVESTMENT SECURITIES
Investment securities at December 31, 1996 and 1995 consisted of the
following:
Gross Gross Estimated
Amortized unrealized unrealized fair
1996 cost gains losses value
- ---- ------------- ---------- ---------- -------------
AVAILABLE FOR SALE
U.S. Government and
agency securities $ 20,372,543 $ 95,022 $ - $ 20,467,565
U.S. Treasury securities 3,989,347 19,715 - 4,009,062
------------- ---------- ---------- -------------
$ 24,361,890 $ 114,737 $ - $ 24,476,627
------------- ---------- ---------- -------------
------------- ---------- ---------- -------------
HELD-TO-MATURITY
Obligations of state and
political subdivisions $ 2,012,743 $ 3,103 $ 2,808 $ 2,013,038
Federal Home Loan
Bank stock 1,307,464 - - 1,307,464
------------- ---------- ---------- -------------
$ 3,320,207 $ 3,103 $ 2,808 $ 3,320,502
------------- ---------- ---------- -------------
------------- ---------- ---------- -------------
1995
- ----
AVAILABLE-FOR-SALE
U.S. Government and
agency securities $ 5,394,386 $ 13,828 $ - $ 5,408,214
U.S. Treasury securities 4,487,408 70,054 - 4,557,462
------------- ---------- ---------- -------------
$ 9,881,794 $ 83,882 $ - $ 9,965,676
------------- ---------- ---------- -------------
------------- ---------- ---------- -------------
HELD-TO-MATURITY
Obligations of state and
political subdivisions $ 2,189,815 $ 16,527 $ - $ 2,206,342
Federal Home Loan
Bank stock 1,212,364 - - 1,212,364
------------- ---------- ---------- -------------
$ 3,402,179 $ 16,527 $ - $ 3,418,706
------------- ---------- ---------- -------------
------------- ---------- ---------- -------------
14
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
3. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated fair value of investment securities at
December 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
Estimated
Amortized fair
cost value
------------ ------------
AVAILABLE-FOR-SALE
Due in one year or less $ 5,503,045 $ 5,512,188
Due after one year through five years 16,947,736 17,034,864
Due after five years through ten years 1,911,109 1,929,575
------------ ------------
$ 24,361,890 $ 24,476,627
------------ ------------
------------ ------------
HELD-TO-MATURITY
Due in one year or less $ 889,028 $ 890,786
Due after one year through five years 1,123,779 1,122,252
Federal Home Loan Bank stock 1,307,400 1,307,464
------------ ------------
$ 3,320,207 $ 3,320,502
------------ ------------
------------ ------------
Investment securities with a carrying value of approximately $11,519,000
and $9,966,000 at December 31, 1996 and 1995, respectively, were pledged to
secure public deposits and for other purposes as required or permitted by
law.
4. LOANS, NET
Loans, net at December 31, 1996 and 1995 consisted of the following:
1996 1995
------------ ------------
Commercial $ 22,485,269 $ 21,710,608
Real estate:
Construction 34,375,243 33,983,778
Mortgage 19,774,232 24,749,955
Commercial 42,390,479 31,018,825
Installment 14,665,629 15,271,595
------------ ------------
133,690,852 126,734,761
Less:
Reserve for loan losses 1,691,260 1,651,352
Deferred loan fees 372,850 372,054
------------ ------------
2,064,110 2,023,406
------------ ------------
Loans, net $131,626,742 $124,711,355
------------ ------------
------------ ------------
15
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
4. LOANS, NET (CONTINUED)
The Bank's branches are located in Deschutes County and Crook County,
Oregon. The result of doing business in this geographic region has been
growth in loan demand. A substantial portion of the Bank's loans are
collateralized by real estate in this geographic area and, accordingly, the
ultimate collectibility of a substantial portion of the Bank's loan
portfolio is susceptible to changes in the local market conditions.
In the normal course of business, the Bank participates portions of loans
to other financial institutions in order to extend the Bank's lending
capability or to mitigate risk. At December 31, 1996 and 1995, the portion
of these loans participated to other banks (which are not included in the
accompanying consolidated financial statements) totaled approximately
$8,043,000 and $7,100,000, respectively. The Bank also purchases
participated loans from other financial institutions that have similar
lending philosophies and guidelines as the Bank. The amount of loan
participations purchased from other banks at December 31, 1996 and 1995
totaled approximately $479,000 and $517,000, respectively.
Also in the normal course of business, the Bank also finances qualified
construction projects. The majority of these construction loans are sold
into the secondary market subsequent to completion of the projects.
5. RESERVE FOR LOAN LOSSES
Transactions in the reserve for loan losses for the years ended
December 31, 1996 and 1995 were as follows:
1996 1995
------------ ------------
Balance at beginning of year $ 1,651,352 $ 1,172,238
Loan loss provision 432,141 480,779
Loans charged-off (422,170) (103,371)
Recoveries of loans previously charged-off 29,937 101,706
------------ ------------
Balance at end of year $ 1,691,260 $ 1,651,352
------------ ------------
------------ ------------
Impaired loans as of and for the years ended December 31, 1996 and 1995
were not significant. Loans past due 90 days or more and still accruing
interest were approximately $27,000 and $21,000 at December 31, 1996 and
1995, respectively.
16
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
6. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1996 and 1995 consisted of the
following:
1996 1995
----------- -----------
Land $ 184,600 $ 184,600
Buildings and leasehold improvements 3,915,909 3,049,126
Furniture and equipment 3,588,484 3,140,621
----------- -----------
7,688,993 6,374,347
Less accumulated depreciation and amortization 3,408,239 2,907,262
----------- -----------
$ 4,280,754 $ 3,467,085
----------- -----------
----------- -----------
7. TIME CERTIFICATES OF DEPOSIT
Time certificates of deposit in excess of $100,000 aggregated approximately
$2,399,000 and $3,220,000 at December 31, 1996 and 1995, respectively. The
related interest expense on time certificates of deposit in excess of
$100,000 was approximately $176,000 and $135,000 in 1996 and 1995,
respectively.
At December 31, 1996, the scheduled annual maturities of all time
certificates of deposit are approximately as follows:
1997 $ 14,831,000
1998 1,846,000
1999 907,000
2000 164,000
2001 164,000
Thereafter 30,000
------------
$ 17,942,000
------------
------------
8. BORROWINGS
At December 31, 1996, the Bank had an agreement with Federal Home Loan Bank
of Seattle (FHLB) which allows it to borrow up to approximately $9,600,000.
In addition, at December 31, 1996 and 1995, the Bank had $5,000,000 in
long-term borrowings from FHLB which are due in May 1998 and bear interest
at a fixed rate of 6.96%. The borrowings are collateralized by a blanket
pledge agreement on FHLB stock, any funds on deposit with FHLB, investment
securities, and loans.
17
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
9. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the normal course of business, the Bank is a party to financial
instruments with off-balance-sheet risk to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit, commitments under credit card lines of credit and standby letters
of credit. These instruments involve, to varying degrees, elements of
credit and interest-rate risk in excess of amounts recognized in the
accompanying consolidated balance sheets. The contract amounts of these
instruments reflect the extent of the Bank's involvement in these
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
commitments under credit card lines of credit and standby letters of
credit, is represented by the contractual amount of those instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
A summary of the Bank's off-balance sheet financial instruments at December
31, 1996 and 1995 is approximately as follows:
1996 1995
------------ ------------
Commitments to extend credit $ 46,183,000 $ 30,895,000
Commitments under credit card lines of credit 3,460,000 1,605,000
Standby letters of credit 918,000 347,000
------------ ------------
Total off-balance sheet financial instruments $ 50,561,000 $ 32,847,000
------------ ------------
------------ ------------
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if it is deemed necessary by the Bank upon
extension of credit, is based on management's credit evaluation of the
counterparty. The Bank typically does not obtain collateral related to
credit card commitments. Collateral held for other commitments varies but
may include accounts receivable, inventory, property and equipment, and
income-producing commercial properties.
18
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
9. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (CONTINUED)
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These guarantees
are primarily issued to support public and private borrowing arrangements.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers.
Collateral held, if required, varies as specified above.
10. INCOME TAXES
The provision for income taxes for the years ended December 31, 1996 and
1995 was approximately as follows:
1996 1995
------------ ------------
Current $ 2,194,900 $ 1,832,100
Deferred 527,000 145,000
------------ ------------
Provision for income taxes $ 2,721,900 $ 1,977,100
------------ ------------
------------ ------------
The provision for income taxes results in effective tax rates which are
different than the federal income tax statutory rate. The nature of the
differences for the years ended December 31, 1996 and 1995 was
approximately as follows:
1996 1995
------------ ------------
Expected federal income tax at statutory
rate of 34% $ 2,459,900 $ 1,907,200
Effect of nontaxable interest income, net (55,600) (48,800)
State income taxes, net of federal effect 316,100 122,700
Other, net 1,500 (4,000)
------------ ------------
Provision for income taxes $ 2,721,900 $ 1,977,100
------------ ------------
------------ ------------
The components of the net deferred tax assets, which are included in other
assets in the accompanying consolidated balance sheets at December 31, 1996
and 1995, were approximately as follows:
1996 1995
------------ ------------
Assets:
Loan loss provision $ 551,000 $ 535,000
Deferred compensation expense 150,000 48,000
Deferred loan fees - 143,000
Other 55,000 25,000
Total deferred tax assets 756,000 751,000
19
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
10. INCOME TAXES (CONTINUED)
1996 1995
------------ ------------
Liabilities:
Deferred loan fees $ 178,000 $ -
Mortgage servicing rights 222,000 -
Federal Home Loan Bank stock dividends 134,000 98,000
Net unrealized gains on investment securities
available-for-sale 44,000 32,000
Interest earned on life insurance policies 87,000 11,000
Other 45,000 37,000
------------ ------------
Total deferred tax liabilities 710,000 178,000
------------ ------------
Net deferred tax assets $ 46,000 $ 573,000
------------ ------------
------------ ------------
Bancorp made income tax payments of approximately $2,680,000 and $2,234,000
during 1996 and 1995, respectively.
11. TRANSACTIONS WITH RELATED PARTIES
Some of the officers and directors (and the companies with which they are
associated) are customers of, and have had banking transactions with, the
Bank in the ordinary course of the Bank's business. In addition, the Bank
expects to continue to have such banking transactions in the future. All
loans and commitments to loan to such parties are generally made on the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons. In the opinion of
management, these transactions do not involve more than the normal risk of
collectibility or present any other unfavorable features.
An analysis of activity with respect to loans to directors and officers of
the Bank for the year ended December 31, 1996 was as follows:
Balance at December 31, 1995 $ 1,751,387
Additions 2,160,996
Repayments (2,232,758)
------------
Balance at December 31, 1996 $ 1,679,625
------------
------------
20
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
12. BENEFIT PLANS
PROFIT SHARING PLAN
The Bank maintains a profit sharing plan (the Plan) that covers
substantially all full-time employees. Contributions to the Plan are at
the discretion of Bancorp's Board of Directors (the Board) and are not to
exceed the amount deductible for federal income tax purposes.
Contributions to the Plan which were charged to operations were
approximately $578,000 and $468,000 for the years ended December 31, 1996
and 1995, respectively.
OTHER BENEFIT PLANS
During the fourth quarter of 1995, the Bank established deferred
compensation plans for the Board and certain key executives and managers, a
salary continuation plan for certain key executives, and a fee continuation
plan for the Board.
In accordance with the provisions of the deferred compensation plans,
participants can elect to defer portions of their annual compensation or
fees. The deferred amounts generally vest as deferred. The deferred
compensation plus interest is generally payable upon termination in either
a lump sum or monthly installments.
The salary continuation plan for certain key executives and the fee
continuation plan for the Board provide defined benefits to the
participants upon termination. The defined benefits for the key executives
and the Board are for periods of fifteen years and ten years, respectively.
The benefits are subject to certain vesting requirements, and vested
amounts are generally payable upon termination in either a lump sum or
monthly installments.
The Bank annually expenses amounts sufficient to accrue for the present
value of the benefits payable to the participants under these plans.
The plans also include death benefit provisions for certain participants.
To assist in the funding of the plans, the Bank has purchased life
insurance policies on the majority of the participants. The cash surrender
value of these policies at December 31, 1996 and 1995 was approximately
$3,913,000 and $3,136,000, respectively, and is included in other assets in
the accompanying consolidated balance sheets.
21
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
12. BENEFIT PLANS (CONTINUED)
The amount of expense charged to operations in 1996 and 1995 related to the
deferred compensation plans was approximately $111,000 and $100,000,
respectively. The amount of expense charged to operations in 1996 and 1995
for the salary continuation and fee continuation plans was approximately
$160,000 and $25,000, respectively. For financial reporting purposes, such
expense amounts have not been reduced for income earned on the life
insurance policies. The amount of income earned on the life insurance
policies which was included in other income in 1996 and 1995 was
approximately $198,000 and $28,000, respectively.
13. STOCK OPTION PLAN
Under Bancorp's Stock Option Plan, it may grant Incentive Stock Options
(ISOs) and Non-qualified Stock Options (NSOs) to key employees.
The option price of ISOs is the fair market value at the date of grant, and
the option price of NSOs is to be at a price not less than 85% of fair
market value at the date of grant. Generally, options become exercisable
in varying amounts based on years of employee service, commencing one year
from the date of grant. All options expire after a period of ten years.
During 1996, Bancorp adopted SFAS 123 (see Note 1). The effect of applying
the fair value-based method of SFAS 123 to stock options granted in the
years ended December 31, 1996 and 1995 resulted in an estimated weighted-
average grant date fair value of $5.10 and $4.70, respectively. These
amounts did not result in amounts of pro forma net income or net income per
share that were materially different from amounts reported in the
consolidated financial statements for each year; therefore, such pro forma
information is not presented herein. Because SFAS 123 is applicable only
to options granted subsequent to December 31, 1994, the proforma effect for
1996 and 1995 may not be representative of the effects on reported results
in future years. Bancorp used the Black-Scholes option pricing model and
assumed risk-free interest rates of approximately 6%, an expected life of
five years, an expected volatility of approximately 30%, and a 2.4% annual
dividend on Bancorp's stock in calculating the fair value of the stock
options in both 1996 and 1995.
22
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
13. STOCK OPTION PLAN (CONTINUED)
At December 31, 1996, 126,066 shares reserved under the Stock Option Plan
were available for future grant. Activity related to the Stock Option Plan
for the years ended December 31, 1996 and 1995 was as follows:
1996 1995
--------------------- ---------------------
Weighted- Weighted-
average average
Options exercise Options exercise
outstanding price outstanding price
----------- --------- ----------- ---------
Balance at beginning of year 58,020 $ 8.58 39,930 $ 7.51
Granted 17,819 15.23 18,695 10.95
Forfeited (2,255) 14.08 (605) 10.95
--------- --------
Balance at end of year 73,584 $ 10.03 58,020 $ 8.58
--------- -------- --------- --------
--------- -------- --------- --------
Exercisable options as of December 31, 1996 and 1995 totaled 68,789 and
49,332, respectively.
Information regarding the number, weighted-average exercise price and
remaining contractual life of options by range of exercise price at
December 31, 1996 is as follows:
Options outstanding Exercisable options
----------------------- --------------------
Weighted-
Weighted- average Weighted-
average remaining average
Number of exercise contractual Number of exercise
Exercise price range options price life (years) options price
- -------------------- --------- -------- ------------ --------- ---------
$7.51 39,930 $ 7.51 7 37,268 $ 7.51
$10.95 17,484 10.95 8 16,396 10.95
$15.23 16,170 15.23 9 15,125 15.23
--------- ---------
73,584 $ 10.03 7.7 68,789 $ 10.03
--------- -------- ------------ --------- ---------
--------- -------- ------------ --------- ---------
23
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
14. COMMITMENTS AND CONTINGENCIES
The Bank leases certain land and facilities under operating leases, some of
which include renewal options and escalation clauses. At December 31,
1996, the aggregate minimum
rental commitments under operating leases that have initial or remaining
noncancelable lease terms in excess of one year were approximately as
follows:
1997 $ 213,000
1998 202,000
1999 191,000
2000 166,000
2001 134,000
Thereafter 2,981,000
------------
Total minimum payments $ 3,887,000
------------
------------
Total rental expense was approximately $240,000 and $213,000 in 1996 and
1995, respectively.
In the ordinary course of business, the Bank becomes involved in various
litigation arising from normal banking activities. In the opinion of
management, the ultimate disposition of these actions will not have a
material adverse effect on Bancorp's financial position or results of
operations at December 31, 1996.
15. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosures are made in accordance with the provisions of
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" (SFAS
107), which requires the disclosure of fair value information about
financial instruments where it is practicable to estimate that value.
In cases where quoted market values are not available, Bancorp primarily
uses present value techniques to estimate the fair values of its financial
instruments. Valuation methods require considerable judgment, and the
resulting estimates of fair value can be significantly affected by the
assumptions made and methods used. Accordingly, the estimates provided
herein do not necessarily indicate amounts which could be realized in a
current market exchange.
In addition, as Bancorp normally intends to hold the majority of its
financial instruments until maturity, it does not expect to realize many
of the estimated amounts disclosed. The
24
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
15. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
disclosures also do not include estimated fair value amounts for items
which are not defined as financial instruments, but which have significant
value. These include such off-balance sheet items as core deposit
intangibles and mortgage loan servicing rights originated prior to
Bancorp's adoption of SFAS 122. Bancorp does not believe that it would be
practicable to estimate a representational fair value for these types of
items as of December 31, 1996 and 1995.
Because SFAS 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements, any aggregation
of the fair value amounts presented would not represent the underlying
value of Bancorp.
Bancorp used the following methods and assumptions to estimate the fair
value of its financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount approximates the
estimated fair value of these instruments.
INVESTMENT SECURITIES: The market value of investment securities,
which is based on quoted market values or the market values for
comparable securities, represents estimated fair value.
LOANS: The estimated fair value of loans is calculated by discounting
the contractual cash flows of the loans using December 31, 1996 and
1995 origination rates. The resulting amounts are adjusted to
estimate the effect of changes in the credit quality of borrowers
since the loans were originated.
DEPOSITS: The estimated fair value of demand deposits, consisting of
checking, savings and certain interest bearing demand deposit
accounts, is represented by the amounts payable on demand. The
estimated fair value of certificates of deposit is calculated by
discounting the scheduled cash flows using the December 31, 1996 and
1995 rates offered on these instruments.
LONG-TERM DEBT: The estimated fair value of long-term debt is
calculated by discounting the scheduled cash flows using quoted rates
from FHLB as of December 31, 1996 and 1995.
25
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
15. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: The estimated fair value of
off-balance sheet financial instruments (primarily commitments to
extend credit) is determined based on fees currently charged for
similar commitments. Management estimates these fees to approximate
$346,000 and $230,000 as of December 31, 1996 and 1995, respectively.
The estimated fair values of Bancorp's significant on-balance sheet
financial instruments at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------------
Carrying Estimated Carrying Estimated
value fair value value fair value
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 28,892,608 $ 28,893,000 $ 27,112,461 $ 27,112,000
Investment securities:
Available-for-sale 24,476,627 24,477,000 9,965,676 9,966,000
Held-to-maturity 3,320,207 3,321,000 3,402,179 3,419,000
Loans, net (including mort-
gage loans held for sale) 132,237,392 132,565,000 127,720,939 127,668,000
Financial liabilities:
Deposits 171,082,094 171,270,000 152,438,067 152,424,000
Long-term debt 5,000,000 5,046,000 5,000,000 5,146,000
</TABLE>
16. REGULATORY MATTERS
Bancorp and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could
have a direct material effect on Bancorp's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, Bancorp and the Bank must meet specific
capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. Bancorp and the Bank's capital amounts
and classification 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 Bancorp and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of Tier 1
26
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
16. REGULATORY MATTERS (CONTINUED)
capital (as defined in the regulations) to average assets (as defined), and
Tier 1 and total capital (as defined) to risk-weighted assets (as defined).
Management believes that as of December 31, 1996, Bancorp and the Bank meet
or exceed all relevant capital adequacy requirements.
As of December 31, 1996, the most recent notification from the Federal
Reserve Bank and the Federal Deposit Insurance Corporation categorized
Bancorp and the Bank as well capitalized under the regulatory framework for
prompt correction action. To be categorized as well capitalized, Bancorp
and the Bank must maintain minimum total risk-based, Tier 1 risk-based, and
Tier 1 leverage ratios as set forth in the table. There are no conditions
or events since the notifications from the regulators that management
believes would change Bancorp's or the Bank's regulatory capital
categorization.
Bancorp's actual capital amounts and ratios are also presented in the
following table (dollars in thousands):
<TABLE>
<CAPTION>
To be well capitalized
For capital under prompt correc-
Actual adequacy purposes tive action provisions
------------------- -------------------- ----------------------
December 31, 1996: Amount Ratio Amount Ratio Amount Ratio
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Tier 1 capital (to average assets) $ 23,190 11.5% $ 8,082 4.0% $ 10,103 5%
Tier 1 capital
(to risk-weighted assets) 23,190 15.4 6,027 4.0 9,041 6
Total capital
(to risk-weighted assets) 24,881 16.5 12,054 8.0 15,068 10
December 31, 1995:
Tier 1 capital (to average assets) 18,586 10.6 6,987 4.0 8,734 5
Tier 1 capital
(to risk-weighted assets) 18,586 13.1 5,663 4.0 8,494 6
Total capital
(to risk-weighted assets) 20,237 14.3 11,326 8.0 14,157 10
</TABLE>
27
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
17. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for Cascade Bancorp (Parent Company only)
is presented as follows:
CONDENSED BALANCE SHEETS
December 31,
-------------------------------
1996 1995
-------------- --------------
Assets:
Cash, deposited with Bank $ 710,724 $ 716,067
Due from Bank - 6,962
Investment in Bank 22,861,325 18,316,926
-------------- --------------
Total assets $ 23,572,049 $ 19,039,955
-------------- --------------
-------------- --------------
Stockholders' equity $ 23,572,049 $ 19,039,955
-------------- --------------
-------------- --------------
CONDENSED STATEMENTS OF OPERATIONS
Years ended December 31,
-------------------------------
1996 1995
-------------- --------------
Expenses:
Administrative $ 20,514 $ 13,701
Amortization - 3,706
-------------- --------------
Total expenses 20,514 17,407
-------------- --------------
Loss before income taxes and equity
in undistributed earnings of Bank (20,514) (17,407)
Income tax benefit 8,209 6,962
-------------- --------------
Loss before equity in undistributed
earnings of Bank (12,305) (10,445)
Equity in undistributed earnings of Bank 4,525,309 3,642,720
-------------- --------------
Net income $ 4,513,004 $ 3,632,275
-------------- --------------
-------------- --------------
28
<PAGE>
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
17. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31,
-------------------------------
1996 1995
-------------- --------------
Operating activities:
Net income $ 4,513,004 $ 3,632,275
Adjustments to reconcile net income
to net cash used by operating
activities:
Undistributed earnings of Bank (4,525,309) (3,642,720)
Decrease in other assets - 3,706
-------------- --------------
Net cash used by operating
activities (12,305) (6,739)
Financing activities -
Decrease in due from Bank 6,962 5,048
-------------- --------------
Net decrease in cash (5,343) (1,691)
Cash at beginning of year 716,067 717,758
-------------- --------------
Cash at end of year $ 710,724 $ 716,067
-------------- --------------
-------------- --------------
These financial statements have not been reviewed for accuracy
or relevance by the Federal Deposit Insurance Corporation.
29
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE SMALL BUSINESS ISSUER
1. Bank of the Cascades - Incorporated in the State of Oregon
2. Cascade Finance - Incorporated in the State of Oregon
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-KSB)
of Cascade Bancorp of our report dated January 24, 1997, included in the 1996
Annual Report to Shareholders of Cascade Bancorp.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the Cascade Bancorp Incentive Stock Option Plan of our
report dated January 24, 1997, with respect to the consolidated financial
statements of Cascade Bancorp incorporated by reference in the Annual Report
(Form 10-KSB) for the year ended December 31, 1996.
SYMONDS, EVANS & LARSON, P.C.
Portland, Oregon
March 20, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,547
<INT-BEARING-DEPOSITS> 21
<FED-FUNDS-SOLD> 9,325
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,393
<INVESTMENTS-CARRYING> 3,320
<INVESTMENTS-MARKET> 3,321
<LOANS> 133,691
<ALLOWANCE> 1,691
<TOTAL-ASSETS> 201,277
<DEPOSITS> 171,082
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,622
<LONG-TERM> 5,000
0
0
<COMMON> 13,058
<OTHER-SE> 10,514
<TOTAL-LIABILITIES-AND-EQUITY> 201,277
<INTEREST-LOAN> 14,064
<INTEREST-INVEST> 1,367
<INTEREST-OTHER> 381
<INTEREST-TOTAL> 15,812
<INTEREST-DEPOSIT> 3,688
<INTEREST-EXPENSE> 4,052
<INTEREST-INCOME-NET> 11,760
<LOAN-LOSSES> 432
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,174
<INCOME-PRETAX> 7,235
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,513
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.12
<YIELD-ACTUAL> 9.79
<LOANS-NON> 50
<LOANS-PAST> 27
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,651
<CHARGE-OFFS> 422
<RECOVERIES> 30
<ALLOWANCE-CLOSE> 1,691
<ALLOWANCE-DOMESTIC> 728
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 963
</TABLE>
