<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number: 0-23322
CASCADE BANCORP
(Name of registrant as specified in its charter)
Oregon 93-1034484
(State of Incorporation) (IRS Employer Identification #)
1100 NW Wall Street, Bend, Oregon 97701
(Address of principal executive offices) (Zip Code)
(541) 385-6205
(Registrant's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. $58,721,498 AGGREGATE MARKET VALUE AS OF MARCH 2, 2000, BASED ON THE
AVERAGE BID AND ASKED PRICE.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. 6,871,759 SHARES OF
NO PAR VALUE COMMON STOCK ON MARCH 2, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III is incorporated by reference from the issuer's definitive proxy
statement for the annual meeting of shareholders to be held on April 24, 2000.
<PAGE>
CASCADE BANCORP
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I
Item 1. BUSINESS......................................................................................3
Item 2. PROPERTIES...................................................................................17
Item 3 LEGAL PROCEEDINGS............................................................................17
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................17
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................................................18
Item 6. SELECTED FINANCIAL DATA......................................................................19
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................................21
Item 7A . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................25
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................................26
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.......................................................................26
PART III
Item 10 through 13
Part III, items 10 through 13 are incorporated by reference from the Company's definitive
proxy statement issued in conjunction with the Company's Annual Meeting of Shareholders to
be held on April 24 2000. (Executive Officers, Compensation arrangements, Director and
Management Ownership; Related Party Transactions)
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.............................27
SIGNATURES.......................................................................................................28
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
COMPANY
Cascade Bancorp (Bancorp) is an Oregon chartered bank holding
Company formed in 1990 and headquartered in Bend, Oregon. Bancorp's principal
subsidiary is Bank of the Cascades (the Bank). Bancorp also operates Cascade
Bancorp Financial Services, Inc. a consumer finance business, (collectively, the
Company). At December 31, 1999 the Company had total consolidated assets of
approximately $348 million, net loans of $275 million and deposits of $285
million.
BANK OF THE CASCADES
The Bank was chartered as an Oregon State bank in March 1976 and
opened for business in February 1977. Bank of the Cascades is a community bank
offering the full range of financial services to its business and consumer
clients, including trust and investments. The Bank has a network of ten
branches, nine located in Central Oregon, and one in Salem, Oregon. An
additional branch is planned to open in Keizer, Oregon in mid-2000. In Deschutes
County, its largest market concentration, the Company is the market share leader
in customer deposits, holding over 28% share. It also is the market share leader
in construction and commercial real estate lending as well as in residential
mortgage origination and financing. Deschutes County is one of the fastest
growing regions of Oregon. The Bank's headquarters is located in downtown Bend,
Oregon.
The Bank offers a broad range of commercial and personal banking
services to its customers. Lending activities serve small to medium-sized
businesses and consumers. The Bank provides commercial real estate loans, real
estate construction and development loans, commercial and industrial loans as
well as consumer installment, line-of-credit, credit card, and home equity
loans. The Bank originates residential mortgage loans that are typically sold on
the secondary market. The Bank provides consumer and business deposit services
including checking, money market, and time deposit accounts and related payment
services such as cash management, lock box, internet banking and bill payment.
In addition, the Bank operates Cascade Finance, a consumer finance business
which predominately purchases used automobile installment contracts from local
dealerships and also offers direct consumer finance loans.
In mid-1999 the Company began offering Trust and Investment
services, initially in Central Oregon. Trust services focus on the personal
trust needs of existing and prospective clients by providing living and
testamentary trust, asset and financial management, and fiduciary services.
Investment services are provided by a licensed on-site broker through a
broker/dealer agent relationship.
CASCADE BANCORP FINANCIAL SERVICES
Cascade Bancorp Financial Services, Inc. was incorporated in 1999
to manage the existing consumer installment loans which were present in Cascade
Finance. Subsequent to the incorporation of Cascade Bancorp Financial Services,
Inc., the ongoing consumer finance operations of Cascade Finance became a
division of the Bank. Cascade Bancorp Financial Services opened in January 1997
and is headquartered in Bend, Oregon. The subsidiary currently holds and
services approximately $2.2 million in purchased dealer automobile installment
contracts.
3
<PAGE>
BUSINESS STRATEGY
- --------------------------------------------------------------------------------
o PROVIDE SHAREHOLDERS WITH EXCEPTIONAL VALUE BY DELIVERING THE BEST IN
COMMUNITY BANKING AND RELATED FINANCIAL SERVICES
- --------------------------------------------------------------------------------
Cascade Bancorp has established the following key performance
goals: 1) Consistently exceed 18% return on equity, 2) Consistently exceed 10%
growth in earnings per share, 3) Identify and prudently manage credit and
business risk and 4) Strive to profitably diversify revenue and continuously
seek efficiency improvements in all its activities. However, with the inherent
uncertainty of the future, there can be no assurance as to the ongoing
achievement of these goals.
Bank of the Cascades has a 23-year commitment to delivering the
best in hometown banking services to the Oregon communities it serves. Its
strategy is to profitably grow its business by attracting and retaining high
value relationship customers. This is accomplished by providing the best in
customer service while offering a broad array of products and financial
services. Because the Company is committed to providing customer convenience and
choice in delivery channels, it applies advances in technology and delivery
systems to the benefit of its customers. Such channels include traditional
branches, ATMs, Internet banking, and telephonic access.
In addition to targeting growth and increased market share in its
existing locations, the Company may also consider future expansion by de novo
branching where it identifies market opportunities (such as the expected new
branch in Keizer, Oregon in mid-2000). The Company may also consider making
selective business acquisitions to expand its market opportunities.
The Company's broad risk management objectives are to develop loan
policies and underwriting practices designed to prudently manage credit risk.
Funding policies are designed to maintain an appropriate volume and mix of core
deposits and time deposit balances to efficiently fund its loan and investment
activities. The Company may complement its local deposit gathering strategies
with wholesale funding from reliable counterparties such as the Federal Home
Loan Bank. The Company monitors its sensitivity to changing interest rates
primarily by utilizing simulation analysis in addition to traditional interest
rate gap calculations.
EMPLOYEES
Bancorp has no employees other than its executive officers, who
are also employees of the Bank. As of December 31, 1999, the Company had 205
full-time equivalent employees. None of the employees of the Company are subject
to a collective bargaining agreement. The Company considers its relationships
with its employees to be good.
COMPETITION
Commercial and consumer banking in Central Oregon, and in the
State of Oregon as a whole, is highly competitive. The Company competes
principally with other commercial banks, savings and loan associations, credit
unions, mortgage companies, and other financial service providers with respect
to the scope and type of services offered, interest rates paid on deposits and
pricing of loans, among other factors. Many of these competitors have greater
resources than the Company and therefore have larger lending capabilities and
may provide other services that the Company does not offer.
The Company competes for customers principally through its
commitment to customer service, the relative attractiveness of its products and
services, as well as by providing convenience in delivering those products and
services. The Company believes its hometown banking philosophy and its focus on
small and medium-sized businesses, professionals and consumers enables it to
compete effectively with other financial service providers. In addition, the
Company's lending officers and senior managers have significant experience in
their respective marketplaces. This enables them to maintain close working
relationships with their customers. To serve customers whose borrowing
requirements exceed its lending limits, the Bank may participate loans to other
financial institutions.
4
<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.
For most financial institutions, including the Company, the
primary component of earnings is net interest income. Net interest income is the
difference between interest income earned, principally from loans and investment
securities portfolio, and interest paid, principally on customer deposits and
borrowings. Changes in net interest income result from changes in volume, spread
and margin. Volume refers to the dollar level of interest-earning assets and
interest-bearing liabilities. Spread refers to the difference between the yield
on interest-earning assets and the cost of interest-bearing liabilities. Margin
refers to net interest income divided by interest-earning assets and is
influenced by the level and relative mix of interest-earning assets and
interest-bearing liabilities.
ANALYSIS OF CHANGES IN INTEREST DIFFERENTIAL
The following table shows the dollar amount of the increase
(decrease) in the Company's consolidated interest income and expense, and
attributes such variance to "volume" or "rate" changes. Variances that were
immaterial have been allocated equally between rate and volume categories.
(Dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999 OVER 1998 1998 OVER 1997
---------------------------------- -----------------------------------
AMOUNT OF CHANGE AMOUNT OF CHANGE
TOTAL ATTRIBUTED TO TOTAL ATTRIBUTED TO
INCREASE --------------------- INCREASE ---------------------
(DECREASE) VOLUME RATE (DECREASE) VOLUME RATE
---------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 6,283 $ 6,995 $ (712) $ 3,469 $ 3,446 $ 23
Taxable securities ........ (224) (67) (157) 110 273 (163)
Non-taxable securities .... 6 8 (2) (32) (31) (1)
Federal funds sold ........ (442) (456) 14 70 78 (8)
------- ------- ------- ------- ------- -------
Total interest income . 5,623 6,480 (857) 3,617 3,766 (149)
Interest expense:
Interest on deposits:
Interest bearing demand 224 63 161 435 535 (100)
Savings ............... 12 36 (24) 20 23 (3)
Time .................. 285 393 (108) 296 276 20
Other borrowings .......... 635 844 (209) (357) (413) 56
------- ------- ------- ------- ------- -------
Total interest expense 1,156 1,336 (180) 394 421 (27)
------- ------- ------- ------- ------- -------
Net interest spread .............. $ 4,467 $ 5,144 $ (677) $ 3,223 $ 3,345 $ (122)
======= ======= ======= ======= ======= =======
</TABLE>
5
<PAGE>
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID
The following table sets forth for 1999, 1998 and 1997 information
with regard to average balances of assets and liabilities, as well as total
dollar amounts of interest income from interest-earning assets and interest
expense on interest-bearing liabilities, resultant average yields or rates, net
interest income, net interest spread, net interest margin and the ratio of
average interest-earning assets to average interest-bearing liabilities for the
Company. (Dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------- ---------------------------- ----------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD OR AVERAGE INCOME/ YIELD OR AVERAGE INCOME/ YIELD OR
BALANCE EXPENSE RATES BALANCE EXPENSE RATES BALANCE EXPENSE RATES
--------- ----------------- --------- -------- --------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Taxable securities $ 38,880 $ 2,393 6.15% $ 39,954 $ 2,617 6.55% $ 35,898 $ 2,507 6.98%
Non-taxable securities (1) 1,209 48 3.97% 1,003 42 4.19% 1,751 74 4.23%
Federal funds sold 1,716 95 5.54% 10,107 537 5.31% 8,646 467 5.40%
Loans (2)(3)(4) 249,565 25,540 10.23% 182,280 19,257 10.56% 149,698 15,788 10.55%
--------- --------- --------- -------- -------- ---------
Total earning assets 291,370 28,076 9.64% 195,993 22,453 9.62% 165,911 195,993 9.61%
Reserve for loan losses (3,133) (2,264) (1,784)
Cash and due from banks 22,024 17,827 18,922
Premises and equipment, net 7,261 5,394 4,710
Other Assets 13,761 9,855 7,921
========= ========= ========
Total assets $ 331,283 $ 264,156 $ 225,762
========= ========= ========
LIABILITIES & STOCKHOLDER'S
EQUITY
Int. bearing demand deposits $ 122,519 $ 3,742 3.05% $ 120,530 $ 3,518 2.92% $ 102,484 $ 3,083 3.01%
Savings deposits 15,828 316 2.00% 14,086 304 2.16% 13,027 284 2.18%
Time deposits 33,254 1,579 4.75% 25,295 1,294 5.12% 19,846 998 5.03%
Other borrowings 13,160 700 5.32% 780 65 8.33% 6,269 422 6.73%
--------- --------- --------- -------- -------- ---------
Total interest bearing 184,761 6,337 3.43% 160,691 5,181 3.22% 141,626 4,787 3.38%
liabilities
Demand deposits 115,038 75,826 58,062
Other liabilities 3,465 2,263 1,755
--------- --------- --------
Total liabilities 303,264 238,780 201,443
Stockholders' equity 28,019 25,376 24,319
========= ========= ========
Total liabilities & equity $ 331,283 $ 264,156 $ 225,762 225,762
========= ========= ========
========= ======== =========
Net interest income $ 21,739 $17,272 $ 14,049
========= ======== =========
Net interest spread 6.21% 6.40% 6.23%
======== ========= =========
Net interest income to
earning assets 7.46% 7.40% 7.17%
======== ========= =========
</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
were insignificant for 1999, 1998 and 1997.
(3) Loan related fees included in the above yield calculations: $1,552,000 in
1999, $1,236,000 in 1998, and $1,012,000 in 1997.
(4) Includes mortgage loans held for sale.
6
<PAGE>
LOAN PORTFOLIO COMPOSITION
Interest earned on the loan portfolio is the primary source of income
for the Company. Net loans represent 79% of total assets as of December 31,
1999. Although the Company strives to serve the credit needs of its service
area, its primary concentration is in real estate related and commercial
credits. The Company makes substantially all of its loans to customers located
within the Company's service area. The Company has no loans defined as highly
leveraged transactions by the Federal Reserve Bank. The Company has no
significant agricultural loans.
The following table presents the composition of the Company's loan
portfolio, at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial ..................... $ 43,122 $ 31,280 $ 30,059 $ 22,485 $ 21,711
Real Estate:
Construction .......... 49,276 44,875 30,863 34,375 33,984
Mortgage .............. 41,082 36,671 23,396 19,774 24,750
Commercial ............ 111,578 70,524 52,356 42,391 31,019
Installment .................... 34,622 22,693 18,901 14,666 15,271
-------- -------- -------- -------- --------
279,680 206,043 155,575 133,691 126,735
Less:
Reserve for loan losses 3,525 2,636 2,048 1,691 1,651
Deferred loan fees .... 1,253 864 502 373 372
-------- -------- -------- -------- --------
4,778 3,500 2,550 2,064 2,023
-------- -------- -------- -------- --------
$274,902 $202,543 $153,025 $131,627 $124,712
======== ======== ======== ======== ========
</TABLE>
At December 31, 1999, the maturities of all loans by category were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
DUE AFTER
ONE, BUT
DUE WITHIN WITHIN FIVE DUE AFTER
LOAN CATEGORY ONE YEAR YEARS FIVE YEARS TOTAL
- ------------- ---------- ----------- ---------- -----
<S> <C> <C> <C> <C>
Commercial .......... $ 17,670 $ 19,120 $ 6,332 $ 43,122
Real Estate:
Construction 39,184 6,569 3,523 49,276
Mortgage ... 25,833 11,568 3,681 41,082
Commercial . 27,640 73,469 10,469 111,578
Installment ......... 5,760 24,199 4,663 34,622
-------- -------- -------- --------
$116,087 $134,925 $ 28,668 $279,680
======== ======== ======== ========
</TABLE>
Variable rate loans due after one year totaled $91,631 at December 31,
1999 and loans with predetermined or fixed rates due after one year totaled
$71,962 at December 31, 1999.
7
<PAGE>
LENDING AND CREDIT MANAGEMENT
Although a risk of nonpayment exists with respect to all loans, certain
specific types of risks are associated with different types of loans. Due to the
nature of the Company's customer base and the growth experienced in the
Company's market area, real estate is frequently a material component of
collateral for the Company's loans. The expected source of repayment of these
loans is generally the operations of the borrower's business or the obligor's
personal income. However, real estate collateral provides an additional measure
of security. Risks associated with real estate loans include fluctuating land
values, local economic conditions, changes in tax policies, and a concentration
of loans within the Bank's market area.
The Company has a comprehensive risk management process to control,
underwrite, monitor and manage credit risk in lending. The Company mitigates
risks on construction loans by generally lending funds to customers that have
been prequalified for long term financing and who are using experienced
contractors approved by the Company. Making the majority of commercial real
estate loans to owner-occupied users of the property mitigates, but does not
eliminate, commercial real estate risk.
The Company manages the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in prudent
lending activities. The following table presents information with respect to
non-performing assets (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans on non-accrual status ....... $582 $172 $ 43 $ 50 $ 45
Loans past due 90 days or more
But not on non-accrual status .. 40 -- 45 27 21
Other real estate owned ........... 40 409 9 -- --
---- ---- ---- ---- ----
Total non-performing assets ....... $662 $581 $ 97 $ 77 $ 66
==== ==== ==== ==== ====
Percentage of non-performing assets
to total assets ................ .19% .19% .04% .04% .04%
</TABLE>
The accrual of interest on a loan is discontinued when, in management's
judgment, the future collectibility of principal or interest is in doubt. Loans
placed on nonaccrual status may or may not be contractually past due at the time
of such determination, and may or may not be secured. When a loan is placed on
nonaccrual status, it is the Bank's policy to reverse, and charge against
current income, interest previously accrued but uncollected. Interest
subsequently collected on such loans is credited to loan principal if, in the
opinion of management, full collectibility of principal is doubtful. If interest
on nonaccrual loans had been accrued, such income would have been insignificant
for the periods presented.
At December 31, 1999, there were no potential problem loans, except as
discussed above, where known information about possible credit problems of the
borrower caused management to have serious doubts as to the ability of such
borrower to comply with the present loan repayment terms and which may result in
such loans being placed on a non-accrual basis.
8
<PAGE>
RESERVE FOR LOAN LOSSES
The provision for loan losses charged to operating expense is based on
the Company's loan loss experience and such other factors which, in management's
judgement, should be considered in estimating possible loan losses. Management
monitors the loan portfolio to ensure that the reserve for loan losses is
adequate to cover outstanding loans on non-accrual status and any current loans
deemed to be in serious doubt of repayment according to each loan's repayment
plan. The following table summarizes the Company's reserve for loan losses and
charge-off and recovery activity for each of the last five years (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans outstanding at
End of period ............... $ 279,680 $ 206,043 $ 155,575 $ 133,691 $ 126,735
========= ========= ========= ========= =========
Average loans outstanding
During the period ........... $ 249,565 $ 182,280 $ 149,698 $ 137,798 $ 121,883
========= ========= ========= ========= =========
Reserve balance,
Beginning of period ......... $ 2,636 $ 2,048 $ 1,691 $ 1,651 $ 1,172
Recoveries:
Commercial .................. 9 2 16 2 70
Real Estate:
Construction ............. -- -- -- -- --
Mortgage ................. 4 1 2 -- --
Commercial ............... -- -- -- -- 1
Installment ................. 166 39 42 28 30
--------- --------- --------- --------- ---------
179 42 60 30 101
Loans charged off:
Commercial .................. (518) (254) (80) (212) (24)
Real Estate:
Construction ............. (65) -- -- -- --
Mortgage ................. (27) (91) (442) (50) --
Commercial ............... -- -- -- -- (2)
Installment ................. (790) (288) (256) (160) (77)
--------- --------- --------- --------- ---------
(1,399) (633) (778) (422) (103)
--------- --------- --------- --------- ---------
Net loans charged-off .......... (1,221) (591) (718) (392) (2)
Provision charged to operations 2,110 1,179 1,075 432 481
--------- --------- --------- --------- ---------
Reserve balance, end of period . $ 3,525 $ 2,636 $ 2,048 $ 1,691 $ 1,651
========= ========= ========= ========= =========
Ratio of net loans charged-off
to average loans outstanding .49% .32% .48% .28% .00%
========= ========= ========= ========= =========
Ratio of reserve for loan losses
to loans at end of period ... 1.26% 1.28% 1.32% 1.26% 1.30%
========= ========= ========= ========= =========
</TABLE>
9
<PAGE>
ALLOCATION OF RESERVE FOR LOAN LOSSES
The Company does not normally allocate the reserve for loan losses to
specific loan categories. An allocation to these major categories is made below
for presentation purposes. This allocation process does not necessarily measure
anticipated future credit losses; rather, it seeks to measure the Bank's
assessment at a point in time of perceived credit loss exposure and the impact
of current and anticipated economic conditions. A schedule dividing the reserve
for loan losses into allocated and unallocated categories is furnished below for
the end of each of the last five years (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
% OF LOANS % OF LOANS % OF LOANS
IN EACH IN EACH IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------- ------------ ------- ------------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Commercial .............. $ 283 15% $ 189 15% $ 188 20%
Real Estate:
Construction .......... 469 18 331 22 236 20
Mortgage .............. 202 15 199 18 81 15
Commercial ............ 384 40 221 34 245 33
Installment ............. 679 12 320 11 102 12
Unallocated ............. 1,508 -- 1,376 -- 1,196 --
------ --- ------ --- ------ ---
$3,525 100% $2,636 100% $2,048 100%
====== === ====== === ====== ===
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
--------------------------- ---------------------------
% OF LOANS IN % OF LOANS IN
EACH CATEGORY EACH CATEGORY
AMOUNT TO TOTAL LOANS AMOUNT TO TOTAL LOANS
-------- -------------- --------- --------------
<S> <C> <C> <C> <C>
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%
====== === ====== ===
</TABLE>
10
<PAGE>
INVESTMENT PORTFOLIO
The following table shows the carrying value of the Company's portfolio
of investments at December 31, 1999, 1998 and 1997 (dollars in thousands).
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
U.S. Treasury securities ...................... $ 2,016 $ 3,109 $ 3,083
Obligations of U.S. Government agencies ....... 15,282 26,849 38,339
Obligations of state and political subdivisions 1,067 1,410 1,030
Mortgage-backed securities .................... 9,768 14,891 --
Corporate debt securities ..................... -- 631 --
------- ------- -------
Total debt securities ................... 28,133 46,890 42,452
Federal Home Loan Bank stock .................. 1,676 1,529 1,416
Equity securities ............................. 2,003 2,532 532
------- ------- -------
Total investment securities .......... $31,812 $50,951 $44,400
======= ======= =======
</TABLE>
The following is a summary of the contractual maturities and weighted
average yields of investment securities at December 31, 1999 (dollars in
thousands):
<TABLE>
<CAPTION>
WEIGHTED
CARRYING AVERAGE
TYPE AND MATURITY VALUE YIELD (1)
- -------------------------------------- ------------------- ---------------
<S> <C> <C>
U.S. Treasury Securities
Due after 1 but within 5 years $ 2,016 6.68%
-------------------
Total U.S. Treasury Securities 6.68%
2,016
U.S. Government Agencies
Due after 1 but within 5 years 6.32%
15,282
-------------------
Total U.S. Government Agencies 6.32%
15,282
State and Political Subdivisions
Due within 1 year 3.92%
170
Due after 1 but within 5 years 4.73%
897
-------------------
Total State and Political Subdivisions 4.60%
1,067
Mortgage-Backed Securities 6.20%
9,768
-------------------
Total Debt Securities 6.24%
28,133
Equity securities 4.05%
3,679
-------------------
Total Securities $ 31,812 5.99%
=================== ===============
</TABLE>
(1) Yields on tax-exempt securities have not been stated on a tax equivalent
basis.
11
<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):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
DEPOSIT LIABILITIES AVERAGE AVERAGE AVERAGE
- ------------------- --------------------- -------------------- ---------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
PAID PAID PAID
---------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Demand............................ $ 115,038 N/A $ 75,826 N/A $ 58,062 N/A
Interest-bearing demand........... 122,519 3.05% 120,530 2.92% 102,484 3.01%
Savings........................... 15,828 2.00% 14,086 2.16% 13,027 2.18%
Time.............................. 33,254 4.75% 25,295 5.12% 19,846 5.03%
------------- ------------- -------------
Total Deposits................. $ 286,639 $ 235,737 $ 193,419
============= ============= =============
</TABLE>
As of December 31, 1999 the Company's time deposit liabilities had the
following times remaining to maturity (dollars in thousands):
<TABLE>
<CAPTION>
TIME DEPOSITS OF ALL OTHER
$100,000 OR MORE (1) TIME DEPOSITS (2)
------------------------------ ---------------------------
REMAINING TIME TO MATURITY AMOUNT PERCENT AMOUNT PERCENT
- -------------------------- ------------------------------ ---------------------------
<S> <C> <C> <C> <C>
3 months or less.................... $ 8,434 59.93% $ 9,697 38.80%
Over 3 months
Through 6 months................. 2,735 19.43% 6,310 25.33%
Over 6 months
Through 12 months................ 2,372 16.86% 6,043 24.26%
Over 12 months...................... 532 3.78% 2,864 11.61%
------------------------------ ---------------------------
Total......................... $ 14,073 100.00% $ 24,914 100.00%
============================== ===========================
</TABLE>
(1) Time deposits of $100,000 or more represent 4.93% of total deposits as of
December 31, 1999. (2) All other time deposits represent 8.73% of total
deposits as of December 31, 1999.
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
MAXIMUM
AMOUNT
AT PERIOD END 12/31/99 OUTSTANDING YEAR ENDED 12/31/99
-------------------------------- AT ANY ----------------------------
AMOUNT WEIGHTED MONTH-END AVERAGE WEIGHTED
OUTSTANDING AVG RATE 1999 BALANCE AVG RATE
---------------- ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
FHLB Borrowings $ 13,000 (1) 5.79% $ 19,400 $ 11,307 5.34%
Federal funds purchased 17,100 4.86% $ 17,100 1,850 5.21%
--------- --------
Total Short-term borrowings $ 30,100 5.26% $ 13,157 5.32%
</TABLE>
(1) Consists of $5,000,000 under the FHLB CMA Program and $8,000,000 under a
promissory note agreement due February 11, 2000.
12
<PAGE>
SUPERVISION AND REGULATION
Bancorp and the Bank are extensively regulated under federal and Oregon
law. These laws and regulations are primarily intended to protect depositors and
the deposit insurance fund, not shareholders of the Company. To the extent that
the following information describes statutory or regulatory provisions, it is
qualified in its entirety by reference to the particular statutory or regulatory
provisions. Any change in applicable laws or regulations may have a material
effect on the business and prospects of the Company. The operations of the
Company may be affected by legislative changes and by the policies of various
regulatory authorities. Management is unable to predict the nature or the extent
of the effects on its business and earnings that fiscal or monetary policies,
economic control or new Federal or State legislation may have in the future.
FEDERAL BANK HOLDING COMPANY REGULATION
The Company is a one-bank holding Company within the meaning of the
Bank Holding Company Act (Act), and as such, it is subject to regulation,
supervision and examination by the Federal Reserve Bank (FRB). The Company is
required to file annual reports with the FRB and to provide the FRB such
additional information as the FRB may require.
The Act requires every bank holding Company to obtain the prior
approval of the FRB before (1) acquiring, directly or indirectly, ownership or
control of any voting shares of another bank or bank holding Company if, after
such acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (2) acquiring all or
substantially all of the assets of another bank or bank holding Company; or (3)
merging or consolidating with another bank holding Company. The FRB will not
approve any acquisition, merger or consolidation that would have a substantial
anticompetitive result, unless the anticompetitive effects of the proposed
transaction are clearly outweighed by a greater public interest in meeting the
convenience and needs of the community to be served. The FRB also considers
capital adequacy and other financial and managerial factors in reviewing
acquisitions or mergers.
With certain exceptions, the Act also prohibits a bank holding Company
from acquiring or retaining direct or indirect ownership or control of more than
5% of the voting shares of any Company which is not a bank or bank holding
Company, or from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by FRB regulation or order, have been
identified as activities closely related to the business of banking or of
managing or controlling banks. In making this determination, the FRB considers
whether the performance of such activities by a bank holding Company can be
expected to produce benefits to the public such as greater convenience,
increased competition or gains in efficiency in resources, which can be expected
to outweigh the risks of possible adverse effects such as decreased or unfair
competition, conflicts of interest or unsound banking practices.
RECENT LEGISLATION - FINANCIAL HOLDING COMPANIES
On November 12, 1999 the Gramm-Leach-Bliley Act became law, repealing
the 1933 Glass-Steagall Act's separation of the commercial and investment
banking industries. The Gramm-Leach-Bliley Act expands the range of nonbanking
activities a bank holding company may engage in, while reserving existing
authority for bank holding companies to engage in activities that are closely
related to banking. The new legislation creates a new category of holding
company called a "Financial Holding Company," a subset of bank holding companies
that satisfy the following criteria:
1. all of the depository institution subsidiaries must be well
capitalized and well managed;
2. the holding company must file with the Federal Reserve Board a
declaration that it elects to
13
<PAGE>
be a financial holding company to engage in activities that would
not have been permissible before the Gramm-Leach-Bliley Act; and
3. all of the depository institution subsidiaries must have a
community Reinvestment Act rating of "satisfactory" or better.
Financial holding companies may engage in any activity that (i) is
financial in nature or incidental to such financial activity (ii) is
complementary to a financial activity and does not pose a substantial risk to
the safety and soundness of depository institutions or the financial system
generally. The Gramm-Leach-Bliley Act specifies certain activities that are
financial in nature. These activities include:
o acting as a principal, agent or broker for insurance;
o underwriting, dealing in or making a market in securities; and
o providing financial and investment advice.
The Federal Reserve Board and the Secretary of the Treasury have
authority to decide whether other activities are also financial in nature or
incidental to financial activity, taking into account changes in technology,
changes in the banking marketplace, competition for banking services and so on.
The Gramm-Leach-Bliley Act has only recently become law. Regulations of
the banking agencies implementing the legislative changes can be expected in the
near future. Except for the increase in competitive pressures faced by all
banking organizations that is a likely consequence of the Gramm-Leach-Bliley
Act, the legislation and implementing regulations are likely to have a more
immediate impact on large regional and national institutions than on community
based institutions engaged principally in traditional banking activities.
Because the legislation permits bank holding companies to engage in activities
previously prohibited altogether or severely restricted because of the risks
they posed to the banking system, implementing regulations can be expected to
impose strict and detailed prudential safeguards on affiliations among banking
and nonbanking companies in a holding company organization. Additionally,
because the legislation allows various affiliates within a single holding
company organization to serve a broader array of customers' financial goals,
including their banking, insurance and investment goals, implementing
regulations can be expected to impose strict safeguards on sharing of customer
information among affiliated entities within an organization. Bancorp will
evaluate the provisions of the Act and may elect to become a financial holding
company.
FEDERAL AND STATE BANK REGULATION
The Bank, as a Federal Deposit Insurance Corporation (FDIC) insured
bank which is not a member of the Federal Reserve System, is subject to the
supervision and regulation of the State of Oregon Department of Consumer and
Business Services, Division of Finance and Corporate Securities, and to the
supervision and regulation of the FDIC. These agencies may prohibit the Bank
from engaging in what they believe constitute unsafe or unsound banking
practices.
The Community Reinvestment Act (CRA) requires that, in connection with
examinations of financial institutions within their jurisdiction, the FRB or the
FDIC evaluate the record of the financial institutions in meeting the credit
needs of their local communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of those banks.
These factors are also considered in evaluating mergers, acquisitions and
applications to open a branch or facility. The Bank's current CRA rating is
"Outstanding".
The Bank is also subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors, principal
stockholders or any related interest of such persons. Extensions of credit (I)
must be made on substantially the same terms, collateral and following credit
underwriting procedures that are not less stringent than those prevailing at the
time for comparable transactions with persons not described above, and (ii) must
not involve more than the normal risk of
14
<PAGE>
repayment or present other unfavorable features. The Bank is also subject to
certain lending limits and restrictions on overdrafts to such persons. A
violation of these restrictions may result in the assessment of substantial
civil monetary penalties on the Bank or any officer, director, employee, agent
or other person participating in the conduct of the affairs of the Bank, the
imposition of a cease and desist order, and other regulatory sanctions.
Under the Federal Deposit Insurance Corporation Improvement Act
(FDICIA), each Federal banking agency is required to prescribe by regulation,
non-capital safety and soundness standards for institutions under its authority.
These standards are to cover internal controls, information systems and internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, compensation, fees and benefits, such other operational and
managerial standards as the agency determines to be appropriate, and standards
for asset quality, earnings and stock valuation. An institution, which fails to
meet these standards, must develop a plan acceptable to the agency, specifying
the steps that the institution will take to meet the standards. Failure to
submit or implement such a plan may subject the institution to regulatory
sanctions. The Company believes that the Bank already meets substantially all
the standards that are likely to be adopted, and therefore does not believe that
the implementation of these regulatory standards will materially affect the
Company's business operations.
INTERSTATE BANKING LEGISLATION
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Act"), bank holding companies are permitted to acquire
banks located in any state regardless of the state law in effect at the time.
The Interstate Act also provides for the nationwide interstate branching of
banks. Under the Interstate Act, both national and state chartered banks,
including Oregon, are permitted to merge across state lines and thereby create
interstate branch networks.
DEPOSIT INSURANCE
As a member institution of the FDIC, the deposits of the Bank are
currently insured to a maximum of $100,000 per depositor through the Bank
Insurance Fund ("BIF"), and the Bank is required to pay semiannual deposit
insurance premium assessments to the FDIC.
The Deposit Insurance Funds Act of 1996 ("Funds Act") eliminated the
statutorily-imposed minimum assessment amount, effective January 1, 1997. The
Funds Act also authorizes assessments on Bank Insurance Fund-assessable deposits
(such as, the Bank's deposits) and stipulates that the rate of assessment must
equal one-fifth the Financing Corporation assessment rate that is applied to
deposits assessable by the Savings Association Insurance Fund. The Financing
Corporation assessment rate for Bank Insurance Fund-assessable deposits is 1.296
cents per $100 of deposits per year. The Bank's FDIC insurance expense for 1999
was approximately $38,000.
REGULATORY DIVIDEND RESTRICTIONS
The principal source of Bancorp's cash revenues have been provided from
dividends received from the Bank. The Oregon banking laws impose the following
limitations on the payment of dividends by Oregon state chartered banks: (1) no
dividends may be paid which would impair capital; (2) until the surplus fund of
a bank is equal to 50% of its capital, no dividends may be declared unless there
has been carried to the surplus account no less than one fifth of its net
profits for the dividend period; and (3) dividends are payable only out of a
bank's undivided profits.
In addition, the appropriate regulatory authorities are authorized to
prohibit banks and bank holding companies from paying dividends, which would
constitute an unsafe or unsound banking practice. The Bank and Bancorp are not
currently subject to any regulatory restrictions on their dividends other than
those noted above.
REGULATORY CAPITAL
15
<PAGE>
The Federal bank regulatory agencies use capital adequacy guidelines in
their examination and regulation of bank holding companies and banks. If the
capital falls below the minimum levels established by these guidelines, the bank
holding company or bank may be denied approval to acquire or establish
additional banks or non-bank businesses or to open facilities. At December 31,
1999 the Company is considered "well capitalized" according to these regulatory
capital guidelines. See footnote 17 to the Financial Statements in this report.
The FRB and FDIC promulgate risk-based capital guidelines for banks and
bank holding companies. Risk-based capital guidelines are designed to make
capital requirements sensitive to differences in risk profile among banks and
bank holding companies, to account for off-balance sheet exposure and to
minimize disincentives for holding liquid assets. Assets and off-balance sheet
items are assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items. The guidelines are minimums,
and the FRB has noted that bank holding companies contemplating significant
expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios well in excess of the minimum. The current guidelines
require all bank holding companies and banks to maintain a minimum risk-based
total capital ratio equal to 8%, of which at least 4% must be Tier 1 capital.
Tier 1 capital for bank holding companies includes common stockholders'
equity, qualifying perpetual preferred stock (up to 25% of total Tier 1 capital,
if cumulative; under a FRB rule, redeemable perpetual preferred stock may not be
counted as Tier 1 capital unless the redemption is subject to the prior approval
of the FRB) and minority interests in equity accounts of consolidated
subsidiaries, less intangibles. Tier 2 capital includes: (I) the allowance for
loan losses of up to 1.25% of risk-weighted assets; (ii) any qualifying
perpetual preferred stock which exceeds the amount which may be included in Tier
1 capital; (iii) hybrid capital instrument; (iv) perpetual debt; (v) mandatory
convertible securities and (vi) subordinated debt and intermediate term
preferred stock of up to 50% of Tier 1 capital. Total capital is the sum of Tier
1 and Tier 2 capital less reciprocal holdings of other banking organizations,
capital instruments and investments in unconsolidated subsidiaries.
Banks' and bank holding companies' assets are given risk-weights of 0%,
20%, 50% and 100%. In addition, certain off-balance sheet items are given credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets.
Loans are generally assigned to the 100% risk category, except for
first mortgage loans fully secured by residential property, which carry a 50%
rating. The Company's investment securities, mainly U.S. Government sponsored
agency obligations, are assigned to the 20% category, except for municipal or
state revenue bonds, which have a 50% risk-weight, and direct obligations of or
obligations fully guaranteed by the United States Treasury or United States
Government, which have 0% risk-weight. Off-balance sheet items, direct credit
substitutes, including general guarantees and standby letters of credit backing
financial obligations, are given a 100% conversion factor. Transaction related
contingencies such as bid bonds, other standby letters of credit and undrawn
commitments, including commercial credit lines with an initial maturity of more
than one year, have a 50% conversion factor. Short-term, self-liquidating trade
contingencies are converted at 20%, and short-term commitments have a 0% factor.
The FRB also has implemented a leverage ratio, which is Tier 1 capital
as a percentage of average total assets less intangibles, to be used as a
supplement to risk-based guidelines. The principal objective of the leverage
ratio is to place a constraint on the maximum degree to which a bank holding
Company may leverage its equity capital base. The FRB requires a minimum
leverage ratio of 3%. However, for all but the most highly rated bank holding
companies and for bank holding companies seeking to expand, the FRB expects an
additional cushion of at least 1% to 2%.
The FDICIA also created a new statutory framework of supervisory
actions indexed to the capital level of the individual institution. Under
regulations adopted by the FDIC, an institution is assigned to one of
16
<PAGE>
five capital categories depending on its total risk-based capital ratio, Tier 1
risk-based capital ratio, and leverage ratio, together with certain subjective
factors. Institutions that are deemed "undercapitalized", depending on the
category to which they are assigned, are subject to certain mandatory
supervisory corrective actions.
MONETARY POLICY
The earnings of a bank holding company are affected by the policies of
regulatory authorities, including the FRB, in connection with the FRB's
regulation of the money supply. Various methods employed by the FRB are open
market operations in United States Government securities, changes in the
discount rate on member bank borrowings and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans or paid
on deposits. The monetary policies of the FRB have had a significant affect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future.
ITEM 2. PROPERTIES
At December 31, 1999, the Company conducted banking services in ten
locations. Nine throughout Central Oregon and one in Salem, Oregon. All offices
are free standing buildings except one location, which is leased space in a
supermarket. The main office/administrative center and three other branch
buildings are owned and are situated on leased land. The Bank owns land and
building at two branch locations. The Bank leases land and building at two
branch locations. All leases include multiple renewal options. The Bank owns
property in the Old Mill district of Bend for a possible future branch, or
combination branch/operations facility. Cascade Finance is housed in separate
leased retail space in Bend, Oregon. In addition to the above, the Bank
purchased land in Keizer, Oregon and intends to build a branch on the site to
open in mid-2000.
The Bank's Main Office and Administrative Center is located at 1100 NW
Wall Street, Bend, Oregon, and consists of approximately 15,000 square feet. The
building is owned by the Bank and is situated on leased land. The ground lease
term is for 30 years and commenced June 1, 1989. There are ten renewal options
of five years each. Monthly rental is $4,738 per month with adjustments every
five years by mutual agreement of landlord and tenant. The main bank branch
occupies the ground floor. Mortgage lending, administrative and operational
functions occupy approximately 8,400 square feet. A separate data processing and
drive-up facility is also located on site. In 1999 the Bank acquired a 3,000 sq
ft adjacent building for future expansion of administrative functions for
$295,000. Certain other operations are located in an adjacent building subject
to a short-term lease agreement.
In the opinion of management all of the Bank's properties are
adequately insured.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time a party to various legal actions
arising in the normal course of business. Management believes that there is no
threatened or pending proceedings against the Company, which, if determined
adversely, would have a material effect on the business or financial position of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
<PAGE>
PART II
ITEM 5. MARKET FOR CASCADE BANCORP'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Cascade Bancorp common stock trades on The NASDAQ Small Cap Market tier
of The NASDAQ Stock Market under the symbol CACB. The primary market makers are:
Dain Rauscher Wessels Inc., Ragen MacKenzie, D.A. Davidson & Co., Pacific Crest
Securities, Black & Company Inc., Herzog, Heine, Geduld, Inc., and Keefe,
Bruyette & Woods, Inc.
The high and low sales prices shown below are retroactively adjusted
for stock dividends and splits and are based on actual trade statistical
information provided by The NASDAQ Stock Market for the periods indicated.
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1999
High $16.71 $16.36 $16.88 $15.13
Low $14.89 $13.64 $12.88 $11.25
1998
High $20.61 $20.00 $20.85 $18.41
Low $15.75 $16.06 $13.75 $14.89
</TABLE>
The Company declared a 10% stock dividend in June 1999 and a
three-for-two stock split in June 1998. The Company announced the establishment
of regular quarterly cash dividends in 1997. The dividends declared and paid
listed below have been retroactively adjusted for past stock dividends and stock
splits.
DIVIDENDS DECLARED AND PAID
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
PER SHARE PER SHARE PER SHARE PER SHARE
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
2000 $.08 N/A N/A N/A
1999 $.08 $.08 $.08 $.08
1998 $.07 $.08 $.08 $.08
</TABLE>
At February 29, 2000, the Company had 6,871,759 shares of common stock
outstanding held by approximately 2,700 shareholders of record.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the Company's consolidated financial statements and the accompanying notes
which are included in this Annual Report on Form 10-K, (in thousands, except per
share data and ratios; unaudited):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income .................................. $ 28,076 $ 22,453 $ 18,836 $ 15,812 $ 13,904
Interest expense ................................. 6,337 5,181 4,787 4,052 3,769
Net interest income .............................. 21,739 17,272 14,049 11,760 10,135
Loan loss provision .............................. 2,110 1,179 1,075 432 481
Noninterest income ............................... 5,409 5,713 4,310 4,020 3,099
Noninterest expense ............................. 15,027 12,548 9,379 8,113 7,144
Income before income taxes ....................... 10,011 9,257 7,905 7,235 5,609
Provision for income taxes ....................... 3,773 3,491 2,864 2,722 1,977
Net income ....................................... $ 6,238 $ 5,766 $ 5,041 $ 4,513 $ 3,632
SHARE DATA
Basic earnings per common share(1) ............... $ 0.91 $ 0.84 $ 0.72 $ 0.64 $ 0.52
Diluted earnings per common share(1) ............. $ 0.89 $ 0.82 $ 0.70 $ 0.63 $ 0.51
Book value per common share(1) ................... $ 4.31 $ 3.93 $ 3.52 $ 3.43 $ 2.76
Cash dividends per common share(1) ............... $ 0.32 $ 0.31 $ 0.27 -- --
Ratio of dividends declared to netincome ......... 35.19% 36.72% 37.99% -- --
Basic Weighted shares outstanding(1)(5) .......... 6,859 6,850 7,021 7,039 7,039
Diluted weighted shares outstanding(1)(5) ........ 7,021 7,065 7,224 7,158 7,104
BALANCE SHEET DATA (AT PERIOD END)
Investment securities ............................ $ 31,812 $ 50,951 $ 44,400 $ 27,797 $ 13,368
Loans, net ....................................... 274,902 202,543 153,025 131,627 124,711
Total assets ..................................... 347,904 300,774 242,611 201,277 177,562
Total deposits ................................... 285,313 270,863 211,345 171,082 152,438
Total shareholders' equity (5) ................... 29,571 26,922 24,236 23,572 19,040
SELECTED RATIOS
Return on average total shareholders' equity(5) .. 22.26% 22.72% 20.73% 21.04% 21.36%
Return on average total assets ................... 1.88% 2.18% 2.23% 2.39% 2.24%
Net interest spread .............................. 6.21% 6.40% 6.23% 6.11% 5.97%
Net interest margin .............................. 7.46% 7.40% 7.17% 7.09% 6.92%
Efficiency ratio (2) ............................. 55.35% 54.59% 51.09% 51.41% 53.28%
ASSET QUALITY RATIOS
Reserve for loan losses to ending total loans .... 1.26% 1.28% 1.32% 1.26% 1.30%
Nonperforming assets to ending total assets (3) .. 0.19% 0.19% 0.04% 0.04% 0.04%
Net loan charge-offs to average loans ............ 0.49% 0.32% 0.48% 0.28% 0.00%
CAPITAL RATIOS
Average shareholders' equity to average assets (5) 8.46% 9.61% 10.77% 11.33% 10.47%
Leverage ratio (4) ............................... 8.37% 8.99% 9.63% 11.48% 10.64%
Total risk-based capital ratio (4) ............... 11.09% 12.47% 14.29% 16.51% 14.29%
</TABLE>
(1) Adjusted to reflect 10% stock dividends declared in 1995 and 1996, a
two-for-one stock split in 1997, a three-for-two stock in 1998, and 10%
stock dividend in 1999.
(2) Efficiency ratio is noninterest expense divided by (net interest income +
noninterest income).
(3) Nonperforming assets consist of nonaccrual loans, loans contractually past
due 90 days or more and other real estate owned.
(4) Computed in accordance with FRB and FDIC guidelines.
(5) During 1997 the Board adopted a stock repurchase plan to buyback
approximately 2.5% of common stock. In addition, the Board adopted a plan
to repurchase up to an additional 2.5% of common stock beginning in 1998.
19
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth the Company's unaudited data regarding
operations for each quarter of 1999 and 1998. This information, in the opinion
of management, includes all normal recurring adjustments necessary to state
fairly the information set forth therein (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1999 QUARTERS ENDED
------------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MAR. 31
------- -------- ------- -------
<S> <C> <C> <C> <C>
Interest income $ 7,477 $ 7,328 $ 6,991 $ 6,280
Interest expense 1,767 1,573 1,562 1,435
---------- ---------- ---------- ---------
Net interest income 5,710 5,755 5,429 4,845
Loan loss provision 455 549 734 371
---------- ---------- ---------- ---------
Net interest income after loan loss provision 5,255 5,206 4,695 4,474
Noninterest income 1,378 1,282 1,370 1,379
Noninterest expense 3,948 3,864 3,621 3,594
---------- ---------- ---------- ---------
Income before income taxes 2,685 2,624 2,444 2,259
Provision for income taxes 1,017 976 937 843
---------- ---------- ---------- ---------
Net income $ 1,668 $ 1,648 $ 1,507 $ 1,416
========== ========== ========== =========
Weighted average number
of shares outstanding (1) 6,867 6,862 6,848 6,859
Basic earnings per share (1) $0.24 $0.24 $0.22 $0.21
Fully diluted weighted average
Number of shares outstanding (1) 6,975 6,998 6,986 7,025
Fully diluted earnings per share (1) $0.24 $0.24 $0.22 $0.19
</TABLE>
<TABLE>
<CAPTION>
1998 QUARTERS ENDED
------------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MAR. 31
------- -------- ------- -------
<S> <C> <C> <C> <C>
Interest income $ 6,218 $ 5,892 $ 5,354 $ 4,989
Interest expense 1,374 1,352 1,239 1,216
---------- ---------- ---------- ---------
Net interest income 4,844 4,540 4,115 3,773
Loan loss provision 503 308 284 84
---------- ---------- ---------- ---------
Net interest income after loan loss provision 4,341 4,232 3,831 3,689
Noninterest income 1,504 1,501 1,491 1,217
Noninterest expense 3,447 3,231 3,047 2,823
---------- ---------- ---------- ---------
Income before income taxes 2,398 2,502 2,275 2,083
Provision for income taxes 885 967 836 804
---------- ---------- ---------- ---------
Net income $ 1,513 $ 1,535 $ 1,439 $ 1,279
========== ========== ========== =========
Weighted average number
of shares outstanding (1) 6,850 6,853 6,845 6,851
Basic earnings per share (1) $0.22 $0.22 $0.21 $0.19
Fully diluted weighted average
Number of shares outstanding (1) 6,409 6,427 6,431 6,440
Fully diluted earnings per share (1) $0.21 $0.22 $0.20 $0.19
</TABLE>
- -------------------
(1) Adjusted to give retroactive effect to a 10% stock dividend declared in
June 1999 and a three-for-two stock split declared in June 1998.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's audited consolidated financial statements and the notes thereto as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999 included elsewhere in this report.
When used in the following discussion, the word "expects," "believes,"
"anticipates" and other similar expressions are intended to identify
forward-looking statements, which are made pursuant to the safe harbor
provisions of the private securities litigation reform act of 1995. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Specific
risks and uncertainties include, but are not limited to, general business and
economic conditions, and other factors listed from time to time in the Company's
SEC reports. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publish revised forward-looking statements to
reflect the occurrence of unanticipated events or circumstances after the date
hereof.
HIGHLIGHTS
The Company's 1999 net income was $6.2 million, up 8.2% from the $5.8
million earned in 1998. Net income in 1998 represented a 14.4% increase from
1997's net income of $5.0 million. During the reported periods, progressively
higher earnings have led to improved earnings per share and strong return on
equity. Diluted earnings per share reached $.89 in 1999 compared to $.82 in 1998
and $.70 in 1997, while return on equity was 22.3% in 1999 compared to 22.7% in
1998 and 20.7% in 1997.
Increased earnings in 1999 were primarily due to a $73.6 million or
35.7% increase in the Company's loan portfolio with a resulting increase in net
interest income. Investment portfolio securities declined by $19.1 million in
1999 due to a combination of maturities, calls and sales within the portfolio.
The 1999 net growth in earning assets in 1999 was funded by expansion in
customer deposit balances augmented by Federal Home Loan Bank and other
wholesale borrowings. Similarly, 1998 earnings improved because of strong growth
in the loan portfolio funded by a solid increase in deposit balances.
Trends in non-interest income and expense continue to be affected by
rapid growth in customers and higher account transaction volumes, as well as
costs incurred in new business locations. In 1999, however, total non-interest
income declined by 5.3% or $305,000 due to reduced revenue in residential
mortgage banking activities owing to the higher interest rate environment. In
contrast, during the lower interest rate climate in 1998, mortgage origination
and sale activity had contributed to a 29% increase in non-interest income
compared to 1997. The rate of growth in non-interest expenses moderated to 19.8%
in 1999 from a 32.2% increase in 1998. This moderation occurred despite the
Company incurring start up costs for two new branch locations and upgrading of
computer and online banking capacity during the year.
The Company opened two new branch banking offices in the first quarter
of 1999, bringing total branch locations to ten. The Bank entered the Salem,
Oregon market with a full service branch office and opened a second branch in
Redmond, Oregon. The Redmond office reached breakeven financial performance late
in 1999, and the Salem office is meeting internal projections as to financial
performance. Management generally targets new branches to achieve profitability
within two to three years, however there can be no assurance that future
profitability will be achieved.
Other highlights include the opening of a Bank Trust Department in July
1999. Trust services will focus on the personal trust needs of existing and
prospective clients by providing living and testamentary trust, asset and
financial management, and fiduciary services. At the same time an on-site office
of Raymond James Financial Services opened to provide convenient stock brokerage
and investment services to Bank customers.
21
<PAGE>
The Company anticipates opening a new branch banking office in Keizer,
Oregon in mid-2000, bringing total branch locations to eleven. The opening of
this branch is not expected to be material to the financial results of the
Company in 2000.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
NET INTEREST INCOME
In 1999, net interest income increased 25.9% to $21.7 million compared
to 1998, as growth in loan volumes generated higher interest income. Similarly,
strong loan growth in 1998 drove an increase in net interest income of 22.9% to
$17.3 million compared to 1997. In 1999 Interest from loans and investment
activities increased $5.6 million compared to the year earlier. This followed a
1998 increase in interest income of $3.6 million compared to 1997. Increased
earning assets at year-end 1999 were funded by a year over year growth in
deposits of $14.5 million and borrowings of $30.1 million. Although the Bank's
loan growth in 1999 was partially funded by the use of higher cost borrowed
funds, the increase in interest income related to higher loan volumes exceeded
the higher cost of such borrowing. In 1998, year-end customer deposits grew
$59.5 million, approximately the same dollar growth as was experienced by the
loan portfolio that year.
The Company's net interest margin expanded from 7.17% in 1997, to 7.40%
in 1998 and 7.46% in 1999. Yields on earning assets in 1997, 1998 and 1999 were
9.61%, 9.62% and 9.64%, respectively. Average rates paid on deposits and
borrowings increased from 3.22% in 1998 to 3.43% in 1999. In mid-1999 the
Federal Reserve embarked on a process of engineering higher market interest
rates. It is anticipated that this will have the effect of increasing the
Company's cost of funds into 2000. While the Bank has historically maintained a
net interest margin well above peer banks and anticipates this to continue, the
Company's future net interest margin is likely to be lower from the peak margins
experienced during the past two years.
LOAN LOSS PROVISION
The loan loss provision increased during the periods presented to keep
pace with loan growth. Loan loss provision for 1999 was $2.1 compared to $1.2
million in 1998 and $1.1 million in 1997. The Bank's ratio of reserve for loan
losses to total loans was 1.26% at December 31, 1999 as compared to 1.28% at
December 31, 1998. Management believes the reserve for loan losses is adequate
to absorb potential losses on identified nonperforming assets as well as general
losses at historical and expected levels.
NONINTEREST INCOME
During the periods reported, the Company has experienced steady
increases in service fee income as it has increased its market share of business
and consumer accounts. However, overall noninterest income in 1999 was down
slightly from 1998 due to volatility in mortgage banking revenues resulting from
the increasing interest rate environment that developed during 1999. Total
noninterest income decreased 5.3% to $5.4 million in 1999 compared to $5.7
million in the prior year. In contrast, 1998 noninterest income was up 29.3%
compared to 1997.
Specifically, 1999 mortgage loan origination and processing fees
decreased to $1.3 million in 1999 from $1.8 million the prior year. In the lower
interest rate climate of 1998, residential mortgage loan origination and
processing fees were $1.8 million, up from $1.1 million in 1997. Residential
mortgage origination volumes totaled $98 million in 1999, $147 million in 1998
and $84 million in 1997. The general level and direction of interest rates
directly influence the volume and profitability of mortgage banking. Therefore
there can be no assurance as to the amount of origination fees and gains on
sales of residential mortgage loans in the future. The Bank commenced in-house
servicing of residential mortgage loans in March 1998. Serviced loans are bank
originated residential mortgages that have been sold to FNMA. The mortgages were
previously sub-serviced by another financial institution. Primarily due to
building volumes of serviced loans, 1999 mortgage servicing fees increased to
$640,000 compared to $492,000 in 1998 and $223,000 in 1997. Related mortgage
servicing rights are amortized in proportion to estimated net servicing income.
In the event of rapid customer
22
<PAGE>
refinancing or prepayment activity, market valuation of capitalized mortgage
servicing rights could be impaired. Capitalized mortgage servicing rights
totaled approximately $2.8 million at year-end 1999 compared to $2.3 million at
year end 1998 and $1.3 million at year end 1997.
NONINTEREST EXPENSE
Total 1999 noninterest expense was $15.0 million, an increase of $2.5
million or 19.8% from 1998. This was compared to an increase of 32.2% in 1998
over 1997. Salaries and benefits increased $1.5 million in 1999. Approximately
half of this increase resulted from additional staffing for new endeavors
including the start-up of two new branch locations and a Trust Department. In
addition, volume related additions to staff occurred in operations,
administration and data processing activities. The general level of compensation
increased along with higher costs for benefits including healthcare and payroll
taxes. Similarly, rapid growth in business volumes was the primary factor in the
1998 increase in salary and benefits of $1.9 million from 1997 levels. It is
anticipated that human resources will increase in 2000 primarily due to staff
additions for the expected new branch office in Keizer, Oregon. Other categories
of expenses grew in both 1999 and 1998 in tandem with business expansion,
including occupancy, equipment, supplies and communications costs. INCOME TAXES
The provision for income taxes increased between the periods presented
primarily as a result of higher pre-tax income. The effective tax rate in 1997
was lower than other years due to a state income tax rebate.
FINANCIAL CONDITION
The Company continued to experience strong growth in 1999 in
conjunction with the economic performance of the communities it serves. Total
assets increased 15.7% to $347.9 million at December 31, 1999 compared to $300.8
million at December 31, 1998. Growth in total assets was funded by a $14.4
million increase in deposits and a $30.1 increase in borrowings at period end.
Higher borrowings were a consequence of loan growth exceeding the increase in
total deposits during the year. In the continuing strong economic environment in
the markets served by the Company, the loan portfolio was up 35.7% to $280.0
million at year-end 1999, $73.6 million higher than a year earlier. Loan growth
was concentrated in the commercial real estate portfolio up $41.1 million or
58.2%. This increase in part resulted from the Bank's tailored lending programs
for owner occupied business ventures, whereby the Bank primarily relies on cash
flow from the business for loan repayment, but takes commercial real estate
properties as an additional level of security.
The investment portfolio declined to $31.8 million at year-end 1999
compared to $51.0 million at year-end 1998. This reduction of investment
securities resulted from a combination of maturities, calls, and sales within
the portfolio. The cash proceeds from the declining investment portfolio were
re-deployed to support the funding of increased loan volumes.
Total deposits at year end 1999 were $285.3 million, an increase of
$14.5 million or 5.3% compared to year-end 1998. Deposits averaged $286.6
million for the full year 1999, up 21.6% or $50.9 million from the prior year
average. Comparative year-end changes in deposit composition include interest
bearing demand up $13.9 million or 12.7%, time deposits up $8.2 million or
26.5%, and non-interest bearing demand down $8.3 million or 7.2%.
The Company had no off balance sheet derivative financial instruments
as of December 31, 1999 and 1998.
23
<PAGE>
INFLATION
The general rate of inflation over the past two years, as measured by
the Consumer Price Index, has not changed significantly, and management does not
consider the effects of inflation on the Company's financial position and
earnings to be material.
LIQUIDITY
The Company analyzes and manages its liquidity to ensure the
availability of sufficient funds to meet depositor withdrawals as well as to
fund borrowing needs of its loan customers. The Bank's stable deposit base is
the foundation of its long-term liquidity since these funds are not subject to
significant volatility as a result of changing interest rates and other economic
factors. A further source of liquidity is the Bank's ability to borrow funds
from a variety of reliable sources.
At December 31, 1999 the Bank maintained five unsecured lines of credit
totaling $18.0 million for the purchase of funds on a short-term basis. The Bank
is also a member of the Federal Home Loan Bank (FHLB) which provides a secured
line of credit of $34.5 million that may be accessed for short or long-term
borrowings. The Bank also had $23.7 million short term borrowing availability
from the Federal Reserve System that requires specific qualifying collateral. At
December 31, 1999 the Bank had outstanding short-term borrowings totaling $30.1
million, with aggregate remaining available borrowings of $46.1 million.
At December 31, 1999 the Bank had approximately $114 million in
outstanding commitments to extend credit. Historically a significant portion of
the commitments will expire or terminate without funding. In addition,
approximately 26% of total commitments pertain to various construction projects.
Under the terms of such construction commitments, completion of specified
project benchmarks must be certified before funds may be drawn. Management
believes that the Bank's available resources will be sufficient to fund its
commitments in the normal course of business.
CAPITAL RESOURCES
The Company's total stockholders' equity at December 31, 1999 was $29.6
million, an increase of $2.6 million from December 31, 1998. 1999 equity was
increased by earnings of $6.2 million for the year less cash dividends paid to
shareholders of $2.2 million. In addition, during 1999, the Company repurchased
61,990 shares of its common stock outstanding pursuant to a Board of Directors
authorized program. This had the effect of reducing equity by $.9 million during
the year. At year end 1999, net unrealized gains (losses) on investment
securities available-for-sale decreased to ($.6) million from $.2 million a year
earlier.
24
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK AND ASSET AND LIABILITY MANAGEMENT
It is the Company's Asset and Liability management policy to manage
interest rate risk to maximize long term profitability under the range of likely
interest rate scenarios. The Board of Directors oversees implementation of
strategies to control interest rate risk. The Company may take steps to alter
its net sensitivity position by offering deposit and/or loan structures that
tend to mitigate its risk profile. In addition, the Company may acquire
investment securities, interest rate swaps or other hedging instruments with
repricing characteristics that tend to moderate interest rate risk. Because of
the volatility of market rates and uncertainties described above there can be no
assurance of the effectiveness of management programs to achieve its risk
management objectives.
The Company's profitability, like most financial institutions, depends
to a large extent upon its net interest income, which is the difference between
the interest earned on assets (loans and investments), versus the interest
expense paid on its liabilities (deposits and borrowings). The Company's
historical business activity had tended to originate loans with maturities and
repricing terms which are shorter than those of deposit relationships. These
maturity and repricing differences had tended to create an interest rate risk
profile whereby the Company would tend to generate higher earnings should market
interest rates rise and lower earnings should interest rates fall. However, the
past years' strong loan growth coupled with increased short-term borrowings has
moderated the Company's historic interest rate risk profile. At year-end 1999
the Company's future net interest income was proportionately less adversely
impacted by markedly lower interest rates than a year ago, but is not favorably
affected by markedly higher rates, as was the case in the past.
The Company analyzes interest rate risk by simulation modeling and by
traditional interest rate gap analysis. While both methods provide an indication
of risk for a given change in interest rates, it is management's opinion that
simulation is the more effective tool for asset and liability management. The
Bank's simulation analysis forecasts net interest income and earnings given an
unchanged interest rate scenario. The model then estimates a percentage change
in earnings from the unchanged rate scenario under various circumstances of
gradually rising and declining market interest rates over one and two year time
horizons. The following table defines extremes in market interest rates used in
the model for rapidly rising and rapidly declining interest rate scenarios.
These market rate extremes are reached gradually over the 2-year simulation
horizon.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Unchanged Rates Rising Rates Declining Rates
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Funds Rate 5.75% 11.00% 2.00%
- --------------------------------------------------------------------------------------------------------
Prime Rate 8.75% 14.00% 5.00%
- --------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents percentage change in earnings per the
simulation model under the above-described scenarios of gradually rising and
gradually declining interest rates as of year-end 1999.
Estimated percentage increase/(decrease) in earnings compared to
"unchanged" rate scenario:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
First twelve Months Second twelve Months
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Rising Rate Scenario (8.30%) (12.90%)
- ----------------------------------------------------------------------------------------------------
Declining Rate Scenario (4.40%) (17.60%)
- ----------------------------------------------------------------------------------------------------
</TABLE>
The above results are only indicative of the Company's possible range
of interest rate risk exposure under various scenarios. The results do not
encompass all possible changes in market rates, nor do the results include
possible changes in volumes, pricing or portfolio management tactics which may
enable management to moderate the effect of such interest rate changes.
25
<PAGE>
Simulations are dependent on assumptions and estimations that
management believes are reasonable, although the actual results may vary
substantially, and there can be no assurance that simulation results are
reliable indicators of future earnings under such conditions. This is, in part,
because of the nature and uncertainties inherent in simulating future events
including: 1) no presumption of changes in asset and liability strategies in
response to changing circumstances; 2) errors in assumptions within the model;
3) uncertainties as to customer behavior in response to changing circumstance;
4) unexpected absolute and relative loan and deposit volume changes; 5)
unexpected absolute and relative loan and deposit pricing levels; 6) unexpected
behavior by competitors; 7) other unanticipated events impacting volatility in
market conditions and interest rates.
At year-end 1999, the Company's one-year cumulative interest rate gap
analysis indicates that rate sensitive liabilities maturing or available for
repricing within one-year exceeded rate sensitive assets by approximately $62.8
million. A year earlier, rate sensitive assets exceeded maturing or available
for repricing rate sensitive liabilities by $13.9 million.
INTEREST RATE GAP TABLE
Set forth below is a table showing the interest rate sensitivity Gap of
the Company's assets and liabilities over various repricing periods and
maturities, as of December 31, 1999. Maturities are based on contractual terms
and repricing amounts are based on actual historical experiences (dollars in
thousands):
<TABLE>
<CAPTION>
AFTER 90 AFTER
WITHIN DAYS ONE YEAR AFTER
90 WITHIN WITHIN FIVE
DAYS ONE YEAR FIVE YEARS YEARS TOTAL
------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Investments & fed funds sold ......... $ -- $ 3,560 $ 28,252 $ -- $ 31,812
Loans ................................ 65,269 50,818 134,925 28,668 279,680
--------- --------- --------- --------- ---------
Total interest earning assets .... $ 65,269 $ 54,378 $ 163,177 $ 28,668 $ 311,492
========= ========= ========= ========= =========
INTEREST BEARING LIABILITIES:
Interest-bearing demand deposits ..... $ 66,469 $ 50,326 $ 6,654 $ -- $ 123,449
Savings deposits ..................... -- -- 6,634 9,054 15,688
Time deposits ........................ 18,101 17,460 3,426 -- 38,987
--------- --------- --------- --------- ---------
Total interest bearing deposits .. 84,570 67,786 16,714 9,054 178,124
Other borrowings ..................... 30,100 -- -- -- 30,100
--------- --------- --------- --------- ---------
Total interest bearing liabilities $ 114,670 $ 67,786 $ 16,714 $ 9,054 $ 208,224
========= ========= ========= ========= =========
Interest rate sensitivity gap .............. $ (49,401) $ (13,408) $ 146,463 $ 19,614 $ 103,268
Interest rate gap as a percentage
Of total interest earning assets ..... (15.86%) (4.30%) 47.02% 6.29% 33.15%
========= ========= ========= ========= =========
Cumulative interest rate sensitivity gap ... $ (49,401) $ (62,809) $ 83,654 $ 103,268 $ 103,268
Cumulative interest rate gap as a
Percentage of total earning assets ... (15.86%) (20.16%) 26.86% 33.15% N/A
========= ========= ========= ========= =========
</TABLE>
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For financial statements, see Index to Consolidated Financial
Statements on page 27.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Part III is incorporated by reference from the Company's definitive
proxy statement issued in conjunction with the Company's Annual Meeting of
Shareholders to be held April 24, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The financial statements required in this Annual Report are
listed in the accompanying Index to Consolidated Financial
Statements on page 29.
(2) Financial Statement Schedules.
All financial statement schedules are omitted because they are
not applicable or not required, or because the required
information is included in the consolidated financial
statements or the notes thereto.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
last quarter of the fiscal year ended December 31, 1999.
(c) Exhibits.
The list of exhibits has been intentionally omitted. Upon
written request, we will provide to you, without charge, a
copy of the list of exhibits as filed with the Securities and
Exchange Commission. Additionally, we will furnish you with a
copy of any exhibit upon written request. Written requests to
obtain a list of exhibits or any exhibit should be sent to
Bank of the Cascades, 1100 NW Wall Street, Bend, Oregon 97701,
Attention: Investor Relations.
27
<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 CASCADE BANCORP
/s/ PATRICIA L. MOSS /s/ GREGORY D. NEWTON
- ------------------------------------- ------------------------------------
Patricia L. Moss Gregory D. Newton
President/Chief Executive Officer Senior Vice President/
Chief Financial Officer
Date: February 21, 2000 Date: February 21, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ JERRY E. ANDRES FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
Jerry E. Andres, Director Date
/s/ GARY L. CAPPS FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
Gary L. Capps, Director/Chairman Date
/s/ GARY L. HOFFMAN FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
Gary L. Hoffman, Director/Vice Chairman Date
/s/ PATRICIA L. MOSS FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
Patricia L. Moss, Director/President/CEO Date
/s/ RYAN R. PATRICK FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
Ryan R. Patrick, Director Date
/s/ JAMES E. PETERSEN FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
James E. Petersen, Director/ Date
Assistant Secretary
/s/ ROGER J. SHIELDS FEBRUARY 21, 2000
- ------------------------------------- ------------------------------------
Roger J. Shields, Director Date
28
<PAGE>
CASCADE BANCORP
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(ITEM 14(A))
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors..........................................................................................30
Consolidated Balance Sheets at
December 31, 1999 and 1998........................................................................................31
For the Years Ended December 31, 1999, 1998 and 1997:
Consolidated Statements of Income.................................................................................32
Consolidated Statements of Changes in Stockholders' Equity........................................................33
Consolidated Statements of Cash Flows.............................................................................34
Notes to Consolidated Financial Statements..............................................................................35
</TABLE>
<PAGE>
REPORT OF SYMONDS, EVANS & LARSON, P.C.,
INDEPENDENT AUDITORS
To the Board of Directors and
Stockholders of Cascade Bancorp
We have audited the accompanying consolidated balance sheets of Cascade Bancorp
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cascade Bancorp and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/ SYMONDS, EVANS & LARSON, P.C.
- ---------------------------------
Portland, Oregon
January 14, 2000
30
<PAGE>
CASCADE BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks ............................. $ 19,420,537 $ 18,696,221
Federal funds sold .................................. -- 8,450,000
------------- -------------
Total cash and cash equivalents ................. 19,420,537 27,146,221
Investment securities available-for-sale ............... 29,069,224 48,012,491
Investment securities held-to-maturity, estimated fair
value of $2,740,062 ($2,952,327 in 1998) ............ 2,742,794 2,938,489
Loans, net ............................................. 274,902,232 202,543,262
Mortgage loans held for sale ........................... 422,999 2,119,642
Premises and equipment, net ............................ 7,958,439 5,984,501
Accrued interest and other assets ...................... 13,387,798 12,029,810
------------- -------------
Total assets .................................... $ 347,904,023 $ 300,774,416
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand ............................................ $ 107,188,433 $ 115,532,163
Interest bearing demand ........................... 123,448,962 109,580,561
Savings ........................................... 15,688,114 14,940,897
Time .............................................. 38,987,032 30,809,110
------------- -------------
Total deposits .................................. 285,312,541 270,862,731
Federal Home Loan Bank borrowings ................... 13,000,000 --
Federal funds purchased ............................. 17,100,000 --
Accrued interest and other liabilities .............. 2,919,984 2,990,003
------------- -------------
Total liabilities ............................... 318,332,525 273,852,734
Commitments and contingencies (Notes 1, 4, 9, 15 and 16)
Stockholders' equity:
Common stock, no par value; 10,000,000 shares
authorized; 6,862,234 shares issued and outstanding
(6,226,082 in 1998) ............................... 17,728,564 9,545,545
Retained earnings ................................... 12,465,355 17,218,415
Accumulated other comprehensive income (loss) ....... (622,421) 157,722
------------- -------------
Total stockholders' equity ...................... 29,571,498 26,921,682
------------- -------------
Total liabilities and stockholders' equity ...... $ 347,904,023 $ 300,774,416
============= =============
</TABLE>
See accompanying notes.
31
<PAGE>
CASCADE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans ........................ $ 25,540,073 $ 19,256,895 $ 15,788,357
Taxable interest on investment securities ......... 2,246,594 2,504,127 2,402,987
Nontaxable interest on investment securities ...... 47,718 41,518 73,646
Interest on federal funds sold .................... 94,577 537,271 467,300
Dividends on Federal Home Loan Bank stock ......... 147,200 112,800 103,300
------------ ------------ ------------
Total interest and dividend income . 28,076,162 22,452,611 18,835,590
Interest expense:
Deposits:
Interest bearing demand ......................... 3,742,079 3,518,361 3,082,614
Savings ......................................... 315,848 303,702 284,093
Time ............................................ 1,579,061 1,293,588 998,334
Federal Home Loan Bank borrowings ................. 603,529 47,757 398,367
Federal funds purchased ........................... 96,432 17,449 23,105
------------ ------------ ------------
Total interest expense ............. 6,336,949 5,180,857 4,786,513
------------ ------------ ------------
Net interest income .................................. 21,739,213 17,271,754 14,049,077
Loan loss provision .................................. 2,110,138 1,179,399 1,075,109
------------ ------------ ------------
Net interest income after loan loss provision ........ 19,629,075 16,092,355 12,973,968
Noninterest income:
Service charges on deposit accounts ............... 2,354,816 1,947,138 1,810,072
Mortgage loan origination and processing fees ..... 1,269,191 1,788,001 1,092,786
Gains (losses) on sales of mortgage loans, net .... (334,070) 198,129 399,947
Losses on sales of investment securities available-
for-sale ........................................ (10,619) -- --
Mortgage loan servicing fees, net ................. 639,998 492,402 223,086
Merchant bankcard fees, net ....................... 300,502 300,348 324,625
Other ............................................. 1,188,713 987,202 568,787
------------ ------------ ------------
Total noninterest income ........... 5,408,531 5,713,220 4,419,303
Noninterest expenses:
Salaries and employee benefits .................... 8,560,000 7,045,542 5,175,149
Equipment ......................................... 1,271,237 1,092,319 898,156
Occupancy ......................................... 1,000,747 793,219 668,023
Supplies .......................................... 527,004 393,344 284,756
Third-party account services ...................... 488,281 409,217 293,071
Communications .................................... 438,371 382,498 305,428
Advertising ....................................... 212,225 352,955 269,236
Other ............................................. 2,528,780 2,079,041 1,594,611
------------ ------------ ------------
Total noninterest expenses ......... 15,026,645 12,548,135 9,488,430
------------ ------------ ------------
Income before income taxes ........................... 10,010,961 9,257,440 7,904,841
Provision for income taxes ........................... 3,772,500 3,491,400 2,863,700
------------ ------------ ------------
Net income ........................................... $ 6,238,461 $ 5,766,040 $ 5,041,141
============ ============ ============
Basic earnings per common share $ .91 $ .84 $ .72
============ ============ ============
Diluted earnings per common share $ .89 $ .82 $ .70
============ ============ ============
</TABLE>
See accompanying notes.
32
<PAGE>
CASCADE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
NUMBER OTHER TOTAL
OF COMPREHENSIVE COMMON RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES INCOME (LOSS) STOCK EARNINGS INCOME (LOSS) EQUITY
--------- ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ............ 2,132,967 $ 13,058,417 $ 10,442,535 $ 71,097 $ 23,572,049
Comprehensive income:
Net income ........................... -- $ 5,041,141 -- 5,041,141 -- 5,041,141
Other comprehensive income -
unrealized gains on securities
available-for-sale (net of income
taxes of approximately $143,000) ... -- 231,668 -- -- 231,668 231,668
------------
Comprehensive income .................... -- $ 5,272,809 -- -- -- --
============
Cash dividends paid (aggregating
$.27 per share) ...................... -- -- (1,915,032) -- (1,915,032)
Two-for-one stock split ................. 2,132,967 -- -- -- --
Stock options exercised ................. 24,936 100,000 -- -- 100,000
Repurchases of common stock ............. (118,632) (2,793,402) -- -- (2,793,402)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 ............ 4,172,238 10,365,015 13,568,644 302,765 24,236,424
Comprehensive income:
Net income ........................... -- $ 5,766,040 -- 5,766,040 -- 5,766,040
Other comprehensive loss -
unrealized losses on securities
available-for-sale (net of income
taxes of approximately $91,000) .... -- (145,043) -- -- (145,043) (145,043)
------------
Comprehensive income .................... -- $ 5,620,997 -- -- -- --
============
Cash dividends paid (aggregating
$.31 per share) ...................... -- -- (2,116,269) -- (2,116,269)
Three-for-two stock split ............... 2,086,119 -- -- -- --
Stock options exercised ................. 14,669 42,473 -- -- 42,473
Repurchases of common stock ............. (46,944) (861,943) -- -- (861,943)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 ............ 6,226,082 9,545,545 17,218,415 157,722 26,921,682
Comprehensive income:
Net income ........................... -- $ 6,238,461 -- 6,238,461 -- 6,238,461
Other comprehensive loss -
unrealized losses on securities
available-for-sale (net of income
taxes of approximately $476,000) net
of reclassification adjustment for
net losses on sales of investment
securities available-for-sale
included in net income (net of
income taxes of approximately $4,000) -- (780,143) -- -- (780,143) (780,143)
------------
Comprehensive income .................... -- $ 5,458,318 -- -- --
============
Cash dividends paid (aggregating
$.32 per share) ...................... -- -- (2,220,508) -- (2,220,508)
M10% stock dividend .................... 622,608 8,771,013 (8,771,013) -- --
Stock options exercised ................. 75,534 317,738 -- -- 317,738
Repurchases of common stock ............. (61,990) (905,732) -- -- (905,732)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 ............ 6,862,234 $ 17,728,564 $ 12,465,355 $ (622,421) $ 29,571,498
========= ============ ============ ============ ============
</TABLE>
See accompanying notes.
33
<PAGE>
CASCADE BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 6,238,461 $ 5,766,040 $ 5,041,141
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................... 1,672,716 1,478,815 715,253
Loan loss provision ................................ 2,110,138 1,179,399 1,075,109
Provision (credit) for deferred income taxes ....... (57,000) 27,000 279,000
Discounts on sales of mortgage loans, net .......... 881,988 822,870 295,053
Losses on sales of investment
securities available-for-sale ..................... 10,619 -- --
Dividends on Federal Home Loan Bank stock .......... (147,200) (112,800) (103,300)
Deferred benefit plan expenses ..................... 399,000 396,000 270,000
Increase in accrued interest and other assets ...... (1,591,469) (3,192,241) (775,802)
Increase (decrease) in accrued
interest and other liabilities(355,019) ........... 563,719 137,854
Originations of mortgage loans ..................... (97,715,204) (146,507,292) (84,860,279)
Proceeds from sales of mortgage loans .............. 94,927,939 145,440,966 83,299,690
------------- ------------- -------------
Net cash provided by operating activities 6,374,969 5,862,476 5,373,719
Cash flows from investing activities:
Purchases of investment securities available-for-sale .. (2,079,833) (21,957,636) (41,026,887)
Purchases of investment securities held-to-maturity .... -- (563,903) (5,400)
Proceeds from maturities and calls of investment
securities available-for-sale ........................ 15,131,540 15,663,174 23,923,471
Proceeds from sales of investment securities
available-for-sale ................................... 4,624,315 -- --
Proceeds from maturities and calls of investment
securities held-to-maturity .......................... 342,895 184,171 982,950
Other loan originations, net ........................... (70,867,188) (50,697,735) (22,473,293)
Purchases of premises and equipment, net ............... (2,961,632) (1,782,254) (1,491,887)
Purchases of life insurance contracts .................. (103,000) (1,423,900) (130,000)
Surrender of life insurance contracts .................. 70,942 49,066 111,457
------------- ------------- -------------
Net cash used in investing activities ... (55,841,961) (60,529,017) (40,109,589)
Cash flows from financing activities:
Net increase in deposits ............................... 14,449,810 59,517,958 40,262,679
Net increase in federal funds purchased ................ 17,100,000 -- --
Net increase in Federal Home Loan Bank borrowings ...... 13,000,000 -- --
Stock options exercised ................................ 317,738 42,473 100,000
Repurchases of common stock ............................ (905,732) (861,943) (2,793,402)
Cash dividends paid .................................... (2,220,508) (2,116,269) (1,915,032)
Repayment of long-term debt ............................ -- (5,000,000) --
------------- ------------- -------------
Net cash provided by financing activities 41,741,308 51,582,219 35,654,245
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ...... (7,725,684) (3,084,322) 918,375
Cash and cash equivalents at beginning of the year ........ 27,146,221 30,230,543 29,312,168
------------- ------------- -------------
Cash and cash equivalents at end of the year .............. $ 19,420,537 $ 27,146,221 $ 30,230,543
============= ============= =============
</TABLE>
See accompanying notes.
34
<PAGE>
CASCADE BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 subsidiaries, Bank of the Cascades (the Bank) and Cascade
Bancorp Financial Services, Inc. (formerly Cascade Finance)
(collectively, "the Company"). Cascade Bancorp Financial Services, Inc.
was incorporated in 1999 to manage the existing consumer installment
loans which were present in Cascade Finance. Subsequent to the
incorporation of Cascade Bancorp Financial Services, Inc., the ongoing
consumer finance operations of Cascade Finance became a division of the
Bank. All significant intercompany accounts and transactions have been
eliminated in consolidation.
DESCRIPTION OF BUSINESS
The Bank conducts a general banking business and primarily operates in
one business segment. Its activities include the usual lending and
deposit functions of a commercial bank: commercial, real estate,
installment, credit card and mortgage loans; checking, money market, time
deposit and savings accounts; internet banking and bill payment;
automated teller machines (ATMs) and safe deposit facilities. The Bank
also originates and sells mortgage loans into the secondary market.
The Bank, doing business as Cascade Finance, purchases used automobile
installment contracts from local dealerships in addition to direct
consumer finance loans.
METHOD OF ACCOUNTING
The Company prepares its consolidated financial statements in conformity
with generally accepted accounting principles and prevailing practices
within the banking industry. The Company 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.
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.
The Bank maintains balances in correspondent bank accounts which, at
times, may exceed federally insured limits. Management believes that its
risk of loss associated with such balances is minimal due to the
financial strength of the correspondent banks. The Bank has not
experienced any losses in such accounts.
35
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During 1999, 1998 and 1997, noncash transactions resulted from 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 1999, 1998 and 1997,
noncash investing activities resulted from the net capitalization of
approximately $547,000, $1,021,000 and $695,000, respectively, in
originated mortgage servicing rights.
During 1999, 1998 and 1997, the Bank paid approximately $6,302,000,
$5,138,000 and $4,747,000, 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. The Company had no trading
securities as of December 31, 1999 or 1998.
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 other comprehensive income
or loss, net of income taxes.
Gains or losses on the sale of available-for-sale securities are
determined using the specific-identification method. Gross losses on
sales of investment securities available-for-sale during 1999 were
$10,619. The income tax benefit applicable to these losses was
approximately $4,000. Premiums and discounts on available-for-sale
securities are recognized in interest income using the interest method
over the period to maturity.
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. Management believes that all unrealized losses on
investment securities as of December 31, 1999 and 1998 are temporary.
FEDERAL HOME LOAN BANK STOCK
The Bank invests in Federal Home Loan Bank (FHLB) stock which is carried
at par value, which approximates fair value. As a member of the FHLB
system, the Bank is required to maintain a minimum level of investment in
FHLB stock based on specific percentages of its outstanding mortgages,
total assets or FHLB advances. The Bank may request redemption at par
value of any FHLB stock in excess of the minimum required investment.
Stock redemptions are at the discretion of FHLB.
36
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
LOANS
Loans are stated at the amount of unpaid principal, reduced by any
deferred loan fees and reserve 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.
The Bank 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. The Bank 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.
Generally, the Bank evaluates a loan for impairment when it is placed on
nonaccrual status. All of the Bank's impaired loans at December 31, 1999
and 1998 were on nonaccrual status.
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 the 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, 1999 and 1998, mortgage loans held for sale were
carried at cost, which approximated estimated market value.
37
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
At December 31, 1999, 1998 and 1997, the Bank held servicing rights to
approximately $268,792,000, $232,916,000 and $174,294,000, respectively,
in mortgage loans which have been sold into the secondary market. Such
mortgage loans are not included in the accompanying balance sheets.
Beginning in March 1998, the Bank began in-house servicing of these
mortgage loans. Previously, such mortgage loans were sub-serviced by
another financial institution. The sale of these mortgage loans is
subject to technical underwriting exceptions and related repurchase
risks. Such risks are considered in the determination of the reserve for
loan losses.
During the years ended December 31, 1999, 1998 and 1997, the Bank
capitalized approximately $1,154,000, $1,620,000 and $836,000,
respectively, in mortgage servicing rights. The capitalized mortgage
servicing rights are being amortized in proportion to, and over the
period of, estimated net servicing income. During the years ended
December 31, 1999, 1998 and 1997, the amortization of the capitalized
mortgage servicing rights totaled approximately $607,000, $599,000 and
$141,000, respectively. The net amount of capitalized mortgage servicing
rights at December 31, 1999 and 1998 (approximately $2,838,000 and
$2,291,000, respectively) is included in accrued interest and other
assets in the accompanying consolidated balance sheets.
The fair value (which approximates the carrying amount) of the
capitalized mortgage servicing rights at December 31, 1999 and 1998 was
determined by management 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,
interest types (i.e., fixed and variable) and loan types. Each strata is
then discounted to reflect the present value of the expected future cash
flows utilizing current market assumptions including discount rates,
prepayment speeds and delinquency rates.
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 in depreciation and
amortization 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, and any
disposition gains or losses, are included in noninterest income and
expenses. Other real estate at December 31, 1999 and 1998 totaled
approximately $40,000 and $409,000, respectively.
38
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
STOCKHOLDERS' EQUITY
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, 1999, approximately $6,825,000 was available for the payment
of dividends to Bancorp without prior regulatory approval.
In June 1999, the Company declared a 10% stock dividend; in June 1998,
the Company declared a three-for-two stock split; and in June 1997, the
Company declared a two-for-one stock split. Basic and diluted earnings
per common share (see Note 11), cash dividends per share and the stock
option plan information (see Note 14) have been adjusted to give
retroactive effect to the stock dividend and stock splits.
During 1999, 1998 and 1997, the Company repurchased shares of its common
stock. As of December 31, 1999, approximately 43,000 shares remain
authorized for possible repurchase under the Company's stock repurchase
plan.
In January 2000, the Company declared a $.08 per share cash dividend
which totaled approximately $549,000 and is payable to stockholders of
record as of January 25, 2000.
ADVERTISING
Advertising costs are generally charged to expense during the year in
which they are incurred.
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective
Date of FASB Statement 133" (SFAS 137), an amendment of SFAS 133, which
establishes accounting and reporting standards for derivative instruments
and hedging activities and requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. SFAS 133, as amended by SFAS
137, is effective for all quarterly and annual financial statements of
fiscal years beginning after June 15, 2000. The Company had no
significant derivatives as of December 31, 1999, nor does the Company
engage in any hedging activities. Accordingly, the Company does not
anticipate that the adoption of SFAS 133, as amended by SFAS 137, will
have a material effect on its consolidated financial position or results
of operations.
In October 1998, SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained After the Securitization of Mortgage Loans Held for Sale by a
Mortgage Banking Enterprise" (SFAS 134), was issued. SFAS 134 was
effective in 1999 and had no effect on the accompanying consolidated
financial statements.
39
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECLASSIFICATIONS
Certain amounts in 1998 and 1997 have been reclassified to conform with
the 1999 presentation.
2. CASH AND DUE FROM BANKS
The Bank is required to maintain an average reserve balance
(approximately $1,846,000 and $1,050,000 at December 31, 1999 and 1998,
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.
3. INVESTMENT SECURITIES
Investment securities at December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1999
AVAILABLE-FOR-SALE
U.S. Government and
agency securities ...... $15,538,091 $ -- $ 255,820 $15,282,271
Mortgage-backed securities 10,009,453 -- 240,969 9,768,484
U.S. Treasury securities . 1,997,742 17,878 -- 2,015,620
Equity securities ........ 2,527,843 -- 524,994 2,002,849
----------- ----------- ----------- -----------
$30,073,129 $ 17,878 $ 1,021,783 $29,069,224
=========== =========== =========== ===========
HELD-TO-MATURITY
Obligations of state and
political subdivisions . $ 1,066,694 $ 5,243 $ 7,975 $ 1,063,962
FHLB stock ............... 1,676,100 -- -- 1,676,100
----------- ----------- ----------- -----------
$ 2,742,794 $ 5,243 $ 7,975 $ 2,740,062
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1998
AVAILABLE-FOR-SALE
U.S. Government and
agency securities ...... $26,538,402 $ 318,438 $ 7,350 $26,849,490
Mortgage-backed securities 15,064,132 29,777 202,794 14,891,115
U.S. Treasury securities . 2,995,217 113,783 -- 3,109,000
Equity securities ........ 2,529,512 2,724 -- 2,532,236
Corporate debt securities 632,505 -- 1,855 630,650
----------- ----------- ----------- -----------
$47,759,768 $ 464,722 $ 211,999 $48,012,491
=========== =========== =========== ===========
HELD-TO-MATURITY
Obligations of state and
political subdivisions . $ 1,409,525 $ 17,393 $ 3,555 $ 1,423,363
FHLB stock ............... 1,528,964 -- -- 1,528,964
----------- ----------- ----------- -----------
$ 2,938,489 $ 17,393 $ 3,555 $ 2,952,327
=========== =========== =========== ===========
</TABLE>
40
<PAGE>
3. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated fair value of investment securities at
December 31, 1999, 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.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
------------ ------------
<S> <C> <C>
AVAILABLE-FOR-SALE
Due after one year through five years $17,535,833 $17,297,891
Mortgage-backed securities .......... 10,009,453 9,768,484
Equity securities ................... 2,527,843 2,002,849
----------- -----------
$30,073,129 $29,069,224
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ------------
<S> <C> <C>
HELD-TO-MATURITY
Due in one year or less ............. $ 169,974 $ 169,533
Due after one year through five years 896,720 894,429
FHLB stock .......................... 1,676,100 1,676,100
---------- ----------
$2,742,794 $2,740,062
========== ==========
</TABLE>
Investment securities with a carrying value of approximately $13,690,000
and $12,861,000 at December 31, 1999 and 1998, respectively, were pledged
to secure public deposits and for other purposes as required or permitted
by law.
4. LOANS
Loans at December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Commercial .............. $ 43,122,090 $ 31,279,762
Real estate:
Construction .......... 49,275,932 44,874,991
Mortgage .............. 41,082,475 36,670,954
Commercial ............ 111,577,500 70,524,183
Installment ............. 34,622,137 22,693,633
------------ ------------
279,680,134 206,043,523
Less:
Reserve for loan losses 3,525,185 2,635,820
Deferred loan fees .... 1,252,717 864,441
------------ ------------
4,777,902 3,500,261
------------ ------------
Loans, net .............. $274,902,232 $202,543,262
============ ============
</TABLE>
41
<PAGE>
4. LOANS (CONTINUED)
The Bank has nine branches located in central Oregon and one branch
located in Salem, Oregon. The result of doing business in these
geographic areas has been growth in loan demand. A substantial portion of
the Bank's loans are collateralized by real estate in these geographic
areas 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 third parties in order to extend the Bank's lending capability or to
mitigate risk. At December 31, 1999 and 1998, the portion of these loans
participated to third parties (which are not included in the accompanying
consolidated financial statements) totaled approximately $2,529,000 and
$2,015,000, respectively.
Also in the normal course of business, the Bank finances qualified
construction projects. The majority of residential 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, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Balance at beginning of year . $ 2,635,820 $ 2,048,561 $ 1,691,260
Loan loss provision .......... 2,110,138 1,179,399 1,075,109
Loans charged-off ............ (1,399,142) (634,077) (777,505)
Recoveries of loans previously
charged-off ................ 178,369 41,937 59,697
----------- ----------- -----------
Balance at end of year ....... $ 3,525,185 $ 2,635,820 $ 2,048,561
=========== =========== ===========
</TABLE>
Impaired loans as of December 31, 1999, 1998 and 1997 and for each of the
three years in the period ended December 31, 1999 were not significant to
the accompanying consolidated financial statements. In addition, loans
past due 90 days or more and still accruing interest at December 31, 1999
and 1998 were not significant to the accompanying consolidated financial
statements.
6. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land ......................................... $ 1,116,498 $ 184,600
Buildings and leasehold improvements ......... 6,296,418 5,452,177
Furniture and equipment ...................... 6,124,845 5,085,815
----------- -----------
13,537,761 10,722,592
Less accumulated depreciation and amortization 5,579,322 4,738,091
----------- -----------
$ 7,958,439 $ 5,984,501
=========== ===========
</TABLE>
42
<PAGE>
7. TIME CERTIFICATES OF DEPOSIT
Time certificates of deposit in excess of $100,000 aggregated
approximately $14,073,000 and $9,310,000 at December 31, 1999 and 1998,
respectively. Interest expense on time certificates of deposit in excess
of $100,000 was approximately $432,000, $307,000 and $169,000 in 1999,
1998 and 1997, respectively.
At December 31, 1999, the scheduled annual maturities of all time
certificates of deposit were approximately as follows:
<TABLE>
<S> <C>
2000 $ 35,591,000
2001 2,156,000
2002 921,000
2003 209,000
2004 110,000
-------------
$ 38,987,000
</TABLE>
8. BORROWING AGREEMENTS
The Bank participates in the Cash Management Advance Program (the
Program) with the FHLB, which is subject to annual renewal in October
2000. As of December 31, 1999, the Bank had $5,000,000 in borrowings
outstanding from the FHLB under the Program with interest at 5.70%. In
addition, as of December 31, 1999, the Bank had $8,000,000 in borrowings
outstanding from the FHLB under a promissory note agreement, which are
due in February 2000 and bear interest at a fixed rate of 5.84%. As of
December 31, 1999, the Bank had remaining available borrowings from the
FHLB of approximately $21,517,000.
All outstanding borrowings with the FHLB are collateralized by a blanket
pledge agreement on the Bank's FHLB stock, any funds on deposit with the
FHLB, investment securities and loans. As of December 31, 1998, there
were no borrowings outstanding from the FHLB.
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 contractual amounts of
these instruments reflect the extent of the Bank's involvement in these
particular classes of financial instruments. As of December 31, 1999 and
1998, the Bank held no derivative 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.
43
<PAGE>
9. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (CONTINUED)
A summary of the Bank's off-balance sheet financial instruments at
December 31, 1999 and 1998 is approximately as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Commitments to extend credit ................ $ 97,280,000 $ 65,858,000
Commitments under credit card lines of credit 15,954,000 10,889,000
Standby letters of credit ................... 1,051,000 785,000
------------ ------------
Total off-balance sheet financial instruments $114,285,000 $ 77,532,000
============ ============
</TABLE>
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 fees. 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.
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 (credit) for income taxes for the years ended December 31,
1999, 1998 and 1997 was approximately as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal ................ $ 3,166,000 $ 2,851,400 $ 2,280,700
State .................. 663,500 613,000 304,000
----------- ----------- -----------
3,829,500 3,464,400 2,584,700
Deferred ................. (57,000) 27,000 279,000
----------- ----------- -----------
Provision for income taxes $ 3,772,500 $ 3,491,400 $ 2,863,700
=========== =========== ===========
</TABLE>
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, 1999, 1998 and 1997 were
approximately as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Expected federal income tax at statutory
rate of 34% ........................... $ 3,403,700 $ 3,147,500 $ 2,687,600
Effect of nontaxable interest income, net (24,600) (26,700) (43,000)
State income taxes, net of federal effect 437,900 404,700 200,400
Other, net .............................. (44,500) (34,100) 18,700
----------- ----------- -----------
Provision for income taxes .............. $ 3,772,500 $ 3,491,400 $ 2,863,700
=========== =========== ===========
</TABLE>
44
<PAGE>
10. INCOME TAXES (CONTINUED)
The components of the net deferred tax assets (liabilities) at December
31, 1999 and 1998 were approximately as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Assets:
Loan loss provision .......................... $1,063,000 $ 838,000
Net unrealized losses on investment securities 381,000 --
Deferred compensation expense ................ 558,000 405,000
Deferred life insurance expense ................ 149,000 121,000
Other ........................................ 239,000 145,000
---------- ----------
Total deferred tax assets ............... 2,390,000 1,509,000
Liabilities:
Deferred loan fees ........................... 288,000 236,000
Mortgage servicing rights .................... 1,090,000 880,000
FHLB stock dividends ......................... 275,000 218,000
Net unrealized gains on investment securities .. -- 95,000
Earnings on life insurance policies .......... 416,000 292,000
Other ........................................ 45,000 45,000
---------- ----------
Total deferred tax liabilities .......... 2,114,000 1,766,000
---------- ----------
Net deferred tax assets (liabilities) .. $ 276,000 $ (257,000)
========== ==========
</TABLE>
Management believes, primarily based upon the Company's historical
performance, that the net deferred tax assets will be recognized in the
normal course of operations and, accordingly, management has not reduced
net deferred tax assets by a valuation allowance.
The Company made income tax payments of approximately $4,165,000,
$3,267,000 and $2,520,000 during 1999, 1998 and 1997, respectively.
11. BASIC AND DILUTED EARNINGS PER COMMON SHARE
The Company's basic earnings per common share is computed by dividing net
income by the weighted-average number of common shares outstanding during
the period. The Company's diluted earnings per common share is computed
by dividing net income by the weighted-average number of common shares
outstanding plus dilutive common shares related to stock options.
45
<PAGE>
11. BASIC AND DILUTED EARNINGS PER COMMON SHARE (CONTINUED)
The numerators and denominators used in computing basic and diluted
earnings per common share for the years ended December 31, 1999, 1998 and
1997 can be reconciled as follows:
<TABLE>
<CAPTION>
NET
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ----------
<S> <C> <C> <C>
1999
Basic earnings per common share -
Income available to common stockholders $ 6,238,461 6,858,681 $ .91
Effect of assumed conversion of stock options - 161,951
-------------- ------------- -------
Diluted earnings per common share $ 6,238,461 7,020,632 $ .89
============== ============= =======
1998
Basic earnings per common share -
Income available to common stockholders $ 5,766,040 6,849,835 $ .84
Effect of assumed conversion of stock options - 215,398
-------------- ------------- ------
Diluted earnings per common share $ 5,766,040 7,065,233 $ .82
============== ============= =======
1997
Basic earnings per common share -
Income available to common stockholders $ 5,041,141 7,021,310 $ .72
Effect of assumed conversion of stock options - 203,106
-------------- ------------- -------
Diluted earnings per common share $ 5,041,141 7,224,416 $ .70
============== ============= =======
</TABLE>
The above computations have not been adjusted to reflect the issuance of
additional stock options in January 2000 (see Note 14).
12. 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, 1999 was as follows:
<TABLE>
<S> <C>
Balance at December 31, 1998 $ 1,678,306
Additions 2,851,766
Repayments (3,194,498)
-----------
Balance at December 31, 1999 $ 1,335,574
===========
</TABLE>
46
<PAGE>
13. BENEFIT PLANS
401(K) PROFIT SHARING PLAN
The Company maintains a 401(k) profit sharing plan (the Plan) that covers
substantially all full-time employees. Employees may make voluntary
tax-deferred contributions to the Plan, and employer contributions
related to the Plan are at the discretion of the Board, not to exceed the
amount deductible for federal income tax purposes. Employees have the
option to receive a portion of the employer's contribution in cash.
Employees vest in the employer contributions which are contributed into
the Plan over a period of five years. The total amounts charged to
operations under the Plan were approximately $811,000, $755,000 and
$628,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
OTHER BENEFIT PLANS
The Bank has deferred compensation plans for members of the Board of
Directors (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 substantially all
of 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, 1999 and 1998 was
approximately $6,157,000 and $5,632,000, respectively, and is included in
accrued interest and other assets in the accompanying consolidated
balance sheets.
As of December 31, 1999 and 1998, the liabilities related to the deferred
compensation plans included in the accompanying consolidated balance
sheets totaled approximately $693,000 and $509,000, respectively. The
amount of expense charged to operations in 1999, 1998 and 1997 related to
the deferred compensation plans was approximately $184,000, $182,000 and
$122,000, respectively. As of December 31, 1999 and 1998, the liabilities
related to the salary continuation and fee continuation plans included in
the accompanying consolidated balance sheets totaled approximately
$761,000 and $546,000, respectively. The amount of expense charged to
operations in 1999, 1998 and 1997 for the salary continuation and fee
continuation plans was approximately $215,000, $214,000 and $147,000,
respectively. For financial reporting purposes, such expense amounts have
not been adjusted for income
47
<PAGE>
13. BENEFIT PLANS (CONTINUED)
earned on the life insurance policies. The net amount of income earned
(net of related policy load charges, mortality costs and surrender
charges incurred) on the life insurance policies which was included in
other noninterest income in 1999, 1998 and 1997 was approximately
$246,000, $196,000 and $123,000, respectively.
14. STOCK OPTION PLAN
Under the Company'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 the
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.
SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS 123)
requires companies, such as Bancorp, that use the intrinsic value method
to account for employee stock options to provide pro forma disclosures of
the net income and earnings per share effect of applying the fair
value-based method of accounting for stock options. The effect of
applying the fair value-based method to stock options granted in the
years ended December 31, 1999, 1998 and 1997 resulted in an estimated
weighted-average grant date fair value of $5.34, $5.72 and $2.32,
respectively. Had compensation cost been determined based on the fair
value of the options at the date of grant, the Company's pro forma net
income, pro forma basic earnings per common share and pro forma diluted
earnings per common share would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income As reported $ 6,238,461 $ 5,766,040 $ 5,041,141
Pro forma 6,072,449 5,553,108 4,905,554
Basic earnings per common share As reported $ .91 $ .84 $ .72
Pro forma .89 .81 .70
Diluted earnings per common share As reported $ .89 $ .82 $ .70
Pro forma .86 .79 .68
</TABLE>
The Company used the Black-Scholes option-pricing model with the
following weighted-average assumptions to value options granted:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------- --------------
<S> <C> <C> <C>
Dividend yield 2.0% 1.6% 1.6%
Expected volatility 33.3% 36.3% 35.8%
Risk-free interest rate 6.3% 4.6% 5.8%
Expected option lives 5 years 5 years 5 years
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, the proforma effects for 1999, 1998 and 1997 may not
be representative of the effects on reported results in future years.
48
<PAGE>
14. STOCK OPTION PLAN (CONTINUED)
At December 31, 1999, 209,965 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, 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
OPTIONS AVERAGE OPTIONS AVERAGE OPTIONS AVERAGE
OUT- EXERCISE OUT- EXERCISE OUT- EXERCISE
STANDING PRICE STANDING PRICE STANDING PRICE
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 354,913 $ 7.06 296,970 $ 4.32 242,827 $ 3.04
Granted .................... 64,900 16.14 75,898 16.97 100,237 6.76
Forfeited .................. (28,212) 14.57 (1,819) 11.29 (4,950) 6.59
Exercised .................. (75,534) 4.21 (16,136) 2.64 (41,144) 2.43
-------- -------
Balance at end of year ..... 316,067 $ 8.94 354,913 $ 7.06 296,970 $ 4.32
======= ====== ======= ====== ======= ======
</TABLE>
Information regarding the number, weighted-average exercise price and
weighted-average remaining contractual life of options by range of
exercise price at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING EXERCISABLE OPTIONS
----------------------------------- ---------------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
EXERCISE NUMBER OF EXERCISE CONTRACTUAL NUMBER OF EXERCISE
PRICE RANGE OPTIONS PRICE LIFE (YEARS) OPTIONS PRICE
- ----------- --------- -------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
$ 2.28 57,534 $ 2.28 4 57,534 $ 2.28
3.32 38,926 3.32 5 38,926 3.32
4.62 36,299 4.62 6 36,299 4.62
6.59 62,040 6.59 7 59,136 6.59
11.06 3,300 11.06 7 - 11.06
16.97 59,393 16.97 8 48,010 16.97
16.14 58,575 16.14 9 33,440 16.14
------ ------
316,067 $ 8.94 6.7 273,345 $ 7.95
======= ======= === ======= =======
</TABLE>
Exercisable options as of December 31, 1998 and 1997 totaled 324,751 and
280,883, respectively.
In January 2000, ISOs for an additional 74,000 shares were granted at
$12.50 per share, subject to the Company meeting certain performance
standards in 2000.
49
<PAGE>
15. 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,
1999, 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:
<TABLE>
<S> <C>
2000 $ 443,000
2001 452,000
2002 438,000
2003 424,000
2004 437,000
Thereafter 4,545,000
---------
Total minimum payments $ 6,739,000
===========
</TABLE>
Total rental expense was approximately $426,000, $286,000 and $236,000 in
1999, 1998 and 1997, 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 the Company's consolidated financial position
or results of operations at December 31, 1999.
16. 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, the Company
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 the Company 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 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 non-capitalized
mortgage loan servicing rights. The Company does not believe that it
would be practicable to estimate a representational fair value for these
types of items as of December 31, 1999 and 1998.
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 the Company.
50
<PAGE>
16. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The Company 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, 1999 and
1998 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, 1999 and
1998 rates offered on these instruments.
FEDERAL FUNDS PURCHASED: The carrying amount approximates the
estimated fair value due to the short-term nature of these
borrowings.
FHLB BORROWINGS: The carrying amount approximates the estimated fair
value due to the short-term nature of these borrowings.
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 that these fees approximate
$730,000 and $500,000 as of December 31, 1999 and 1998, respectively.
The estimated fair values of the Company's significant on-balance sheet
financial instruments at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
--------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents .. $ 19,420,537 $ 19,421,000 $ 27,146,221 $ 27,146,000
Investment securities:
Available-for-sale ...... 29,069,224 29,069,000 48,012,491 48,012,000
Held-to-maturity ........ 2,742,794 2,740,000 2,938,489 2,952,000
Loans, net (including mort-
gage loans held for sale) 275,325,231 274,307,000 204,662,904 207,758,000
Financial liabilities:
Deposits ................... 285,312,541 285,310,000 270,862,731 270,960,000
FHLB borrowings ............ 13,000,000 13,000,000 -- --
Federal funds purchased .... 17,100,000 17,100,000 -- --
</TABLE>
51
<PAGE>
17. REGULATORY MATTERS
The Company 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 the Company's
consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Company 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. The Company 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 the Company and the Bank to maintain minimum amounts and
ratios (set forth in the table below) of Tier 1 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, 1999, the Company and the Bank meet or
exceed all relevant capital adequacy requirements.
As of December 31, 1999, the most recent notifications from the Federal
Reserve Bank and the Federal Deposit Insurance Corporation categorized
the Company and the Bank as well capitalized under the regulatory
framework for prompt correction action. To be categorized as well
capitalized, the Company 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 the Company's or the
Bank's regulatory capital categorization.
The Company's actual and required capital amounts and ratios are
presented in the following table (dollars in thousands):
<TABLE>
<CAPTION>
REGULATORY MINIMUM
TO BE "WELL CAPITALIZED"
REGULATORY MINIMUM TO BE UNDER PROMPT CORRECTIVE
ACTUAL "ADEQUATELY CAPITALIZED" ACTION PROVISIONS
------------------- ------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999:
Tier 1 capital
(to average assets) $ 29,340 8.4% $ 14,027 4.0% $ 17,534 5.0%
Tier 1 capital
(to risk-weighted assets) 29,340 9.9 11,854 4.0 17,781 6.0
Total capital
(to risk-weighted assets) 32,866 11.1 23,708 8.0 29,635 10.0
December 31, 1998:
Tier 1 capital
(to average assets) 26,391 9.0 11,740 4.0 14,676 5.0
Tier 1 capital
(to risk-weighted assets) 26,391 11.3 9,312 4.0 13,968 6.0
Total capital
(to risk-weighted assets) 29,027 12.5 18,624 8.0 23,281 10.0
</TABLE>
52
<PAGE>
17. REGULATORY MATTERS (CONTINUED)
The Bank's actual and required capital amounts and ratios are presented
in the following table (dollars in thousands):
<TABLE>
<CAPTION>
REGULATORY MINIMUM
TO BE "WELL CAPITALIZED"
REGULATORY MINIMUM TO BE UNDER PROMPT CORRECTIVE
ACTUAL "ADEQUATELY CAPITALIZED" ACTION PROVISIONS
------------------- ------------------------ -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999:
Tier 1 capital
(to average assets) $ 26,626 7.7% $ 13,905 4.0% $ 17,382 5.0%
Tier 1 capital
(to risk-weighted assets) 26,626 9.1 11,662 4.0 17,493 6.0
Total capital
(to risk-weighted assets) 30,149 10.3 23,324 8.0 29,155 10.0
December 31, 1998:
Tier 1 capital
(to average assets) 22,347 7.7 11,627 4.0 14,534 5.0
Tier 1 capital
(to risk-weighted assets) 22,347 9.7 9,244 4.0 13,865 6.0
Total capital
(to risk-weighted assets) 24,879 10.8 18,488 8.0 23,109 10.0
</TABLE>
18. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for Cascade Bancorp (Parent Company only)
is presented as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents .................... $ 283,025 $ 574,438
Due from Cascade Finance ..................... 375,000 1,900,000
Investment securities available-for-sale ..... 2,002,849 2,532,236
Investment in subsidiaries ................... 27,720,558 23,808,005
Other assets ................................. 315,066 110,672
----------- -----------
Total assets ............................. $30,696,498 $28,925,351
=========== ===========
Liabilities:
Accrued liabilities .......................... $ -- $ 103,669
Due to the Bank .............................. 1,125,000 1,900,000
----------- -----------
Total liabilities ........................ 1,125,000 2,003,669
Stockholders' equity ............................ 29,571,498 26,921,682
----------- -----------
Total liabilities and stockholders' equity $30,696,498 $28,925,351
=========== ===========
</TABLE>
53
<PAGE>
18. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Interest and dividend income ................ $ 135,053 $ 19,323 $ --
Expenses:
Administrative ........................... 59,058 102,000 34,893
Interest ................................. 102,488 -- --
Other .................................... 96,022 119,525 --
----------- ----------- -----------
Total expenses ....................... 257,568 221,525 34,893
----------- ----------- -----------
Loss before income tax benefit and equity in
undistributed net earnings of subsidiaries (122,515) (202,202) (34,893)
Income tax benefit .......................... 46,500 74,462 13,957
----------- ----------- -----------
Loss before equity in undistributed net
earnings of subsidiaries ................. (76,015) (127,740) (20,936)
Equity in undistributed net earnings
of subsidiaries .......................... 6,314,476 5,893,780 5,062,077
----------- ----------- -----------
Net income .................................. $ 6,238,461 $ 5,766,040 $ 5,041,141
=========== =========== ===========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 6,238,461 $ 5,766,040 $ 5,041,141
Adjustments to reconcile net income to
net cash used by operating activities:
Undistributed net earnings of subsidiaries .................. (6,314,476) (5,893,780) (5,062,077)
Increase in other assets .................................... (3,227) (110,672) --
Increase (decrease) in accrued liabilities .................. (103,669) 103,669 --
----------- ----------- -----------
Net cash used by operating activities ..................... (182,911) (134,743) (20,936)
Cash flows used by investing activities -
purchases of investment securities available-
for-sale ........................................................ -- (1,997,625) (531,887)
</TABLE>
54
<PAGE>
18. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Investments in Cascade Finance ............ $ -- $ (500,000) $ (500,000)
Cash dividends paid ....................... (2,220,508) (2,116,269) (1,915,032)
Dividends from the Bank ................... 1,950,000 2,100,000 8,993,078
Stock options exercised ................... 317,738 42,473 100,000
Repurchases of stock ...................... (905,732) (861,943) (2,793,402)
Decrease (increase) in due from
Cascade Finance ........................ 1,525,000 (1,900,000) --
Increase (decrease) in due to the Bank .... (775,000) 1,900,000 --
----------- ----------- -----------
Net cash provided (used) by
financing activities .............. (108,502) (1,335,739) 3,884,644
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents ....................... (291,413) (3,468,107) 3,331,821
Cash and cash equivalents at beginning of year 574,438 4,042,545 710,724
----------- ----------- -----------
Cash and cash equivalents at end of year ..... $ 283,025 $ 574,438 $ 4,042,545
=========== =========== ===========
</TABLE>
These financial statements have not been reviewed for accuracy
or relevance by the Federal Deposit Insurance Corporation.
<PAGE>
Exhibit 3.2
AMENDMENT OF THE BY-LAWS OF
CASCADE BANCORP
ARTICLE II
DIRECTORS
SECTION 2. Number of classification and nominations 2nd paragraph, 1st sentence
The Board of Directors shall consist of 8 members who shall serve until their
successors shall be elected and qualified.
"There shall be (3) classes of directors to be known as Class A, Class B, and
Class C, respectively, with two (2) directors in Class A, three (3) directors in
Class B, and three (3) directors in Class C."
Amended November 15, 1999
<PAGE>
AMENDMENT OF THE BY-LAWS OF
CASCADE BANCORP
ARTICLE II
DIRECTORS
SECTION 2. Number of classification and nominations 2nd paragraph, 1st sentence
The Board of Directors shall consist of 9 members who shall serve until their
successors shall be elected and qualified.
"There shall be (3) classes of directors to be known as Class A, Class B, and
Class C, respectively, with three (3) directors in Class A, three (3) directors
in Class B, and three (3) directors in Class C."
Amended August 17, 1998
<PAGE>
AMENDMENT OF THE BY-LAWS OF
CASCADE BANCORP
ARTICLE II
DIRECTORS
SECTION 2. Number of classification and nominations 2nd paragraph, 1st sentence
The Board of Directors shall consist of 8 members who shall serve until their
successors shall be elected and qualified.
"There shall be (3) classes of directors to be known as Class A, Class B, and
Class C, respectively, with three (3) directors in Class A, three (3) directors
in Class B, and two (2) directors in Class C."
Amended August 21, 1995
<PAGE>
AMENDMENT OF THE BY-LAWS OF
CASCADE BANCORP
ARTICLE II
DIRECTORS
SECTION 15. Directors Mandatory Retirement Age
"No person who is age 70 or older may serve on the Board of Directors of the
Corporation; provided, however, that a director who turns age 70 during his or
her term as director may continue to hold office until the expiration of such
director's term; provided further that this Section 15 shall not apply to
persons who were both age 70 and a director of the Corporation as of June 1,
1995."
Amended May 15, 1995
<PAGE>
AMENDMENT OF THE BY-LAWS OF
CASCADE BANCORP
ARTICLE I
SECTION 1. ANNUAL MEETINGS
The annual meeting of the shareholders shall be held within 120 days of the
end of the Corporation's fiscal year, the date, time and place of which shall be
specified annually by the Board of Directors. At the annual meeting the
shareholders shall elect directors, consider reports of the affairs of the
Corporation and transact such other business as may properly be brought before
the meeting.
Amended March 20, 1995
<PAGE>
AMENDMENT OF THE BY-LAWS OF
CASCADE BANCORP
ARTICLE II
DIRECTORS
SECTION 2. Number of classification and nominations 2nd paragraph, 1st sentence
The Board of Directors shall consist of (9) members who shall serve until their
successors shall be elected and qualified.
"There shall be (3) classes of directors to be known as Class A, Class B, and
Class C, respectively, with three (3) directors in Class A, three (3) directors
in Class B, and three (3) directors in Class C."
Amended March 8, 1993
<PAGE>
AMENDMENT OF THE BY-LAWS OF
CASCADE BANCORP
ARTICLE II
DIRECTORS
SECTION 2. Number of classification and nominations 2nd paragraph, 1st sentence
"There shall be (3) classes of directors to be known as Class A, Class B, and
Class C, respectively, with two (2) directors in Class A, two (2) directors in
Class B, and three (3) directors in Class C."
Amended April 4, 1991
<PAGE>
BYLAWS
OF
CASCADE BANCORP
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ARTICLE I. SHAREHOLDERS: MEETING AND VOTING
<S> <C>
Section 1. ANNUAL MEETINGS........................................................................1
Section 2. SPECIAL MEETINGS ......................................................................1
Section 3. NOTICE OF MEETINGS.....................................................................2
(a)(1) Annual Meetings........................................................................2
(2) Special Meetings ......................................................................2
(b).............................................................................................3
(c).............................................................................................3
Section 4. VOTING RIGHTS..........................................................................3
Section 5. QUORUM.................................................................................3
(a).............................................................................................3
(b).............................................................................................4
(c).............................................................................................4
Section 6. VOTING OF SHARES CERTAIN HOLDERS.......................................................4
(a).............................................................................................4
(b).............................................................................................4
(c).............................................................................................5
Section 7. PROXIES................................................................................5
Section 8. STOCKHOLDER LISTS......................................................................5
ARTICLE II. DIRECTORS
Section 1. POWERS.................................................................................6
Section 2. NUMBER CLASSIFICATION AND NOMINATIONS..................................................6
Section 3. VACANCIES..............................................................................7
(a).............................................................................................7
(b).............................................................................................7
(c).............................................................................................8
(d).............................................................................................8
Section 4. REMOVAL OF DIRECTORS...................................................................8
Section 5. ANNUAL MEETING OF DIRECTORS............................................................8
Section 6. SPECIAL MEETINGS.......................................................................8
Section 7. QUORUM AND VOTE........................................................................9
Section 8. COMPENSATION...........................................................................9
Section 9. DUTIES AND EMPLOYMENT..................................................................9
Section 10. INVESTMENTS............................................................................9
Section 11. OTHER DUTIES OF DIRECTORS.............................................................10
<PAGE>
Section 12. TRANSACTIONS WITH DIRECTORS...........................................................10
(a)............................................................................................10
(b)............................................................................................11
(c)............................................................................................11
(d)............................................................................................11
Section 13. OFFICIAL COMMUNICATIONS FROM REGULATORY AGENCIES......................................11
Section 14. CHAIRMAN OF THE BOARD.................................................................12
ARTICLE III. OFFICERS
Section 1. OFFICERS..............................................................................12
Section 2. TERM OF OFFICE........................................................................12
Section 3. DUTIES OF PRESIDENT...................................................................13
Section 4. DUTIES OF VICE PRESIDENT..............................................................13
Section 5. DUTIES OF SECRETARY...................................................................13
Section 6. ASSISTANTS............................................................................13
ARTICLE IV. COMMITTEES
Section 1. COMMITTEES............................................................................14
Section 2. AUTHORITY OF COMMITTEE................................................................14
(a)............................................................................................14
(b)............................................................................................14
(c)............................................................................................14
(d)............................................................................................14
(e)............................................................................................14
(f)............................................................................................15
(g)............................................................................................15
(h)............................................................................................15
Section 3. ABOLITION OF COMMITTEES...............................................................15
ARTICLE V. CORPORATE RECORDS
Section 1. INSPECTION............................................................................15
Section 2. BYLAWS................................................................................16
Section 3. CHECKS, DRAFTS, ETC...................................................................16
Section 4. EXECUTION OF DOCUMENTS................................................................16
ARTICLE VI. CERTIFICATES AND TRANSFER OF SHARES
Section 1. SHARES OF STOCK.......................................................................17
Section 2. STOCK CERTIFICATES....................................................................17
Section 3. STOCK TRANSFERABLE ONLY UPON BOOKS....................................................18
Section 4. LOST CERTIFICATE......................................................................19
Section 5. TRANSFER AGENTS AND REGISTRARS........................................................19
Section 6. CLOSING STOCK TRANSFER BOOKS..........................................................19
<PAGE>
ARTICLE VII. INDEMNIFICATION
Section 1. AUTHORITY TO INDEMNIFY................................................................20
(a)............................................................................................20
(1)...................................................................................20
(2)...................................................................................20
(3)...................................................................................20
(b)............................................................................................21
(1)...................................................................................21
(2)...................................................................................21
(c)............................................................................................21
Section 2. MANDATORY INDEMNIFICATION.............................................................21
Section 3. ADVANCE FOR EXPENSES..................................................................22
(a)............................................................................................22
(1)...................................................................................22
(2)...................................................................................22
(b)............................................................................................22
Section 4. COURT-ORDERED INDEMNIFICATION.........................................................22
(a)............................................................................................23
(b)............................................................................................23
Section 5. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION....................................23
(a)............................................................................................24
(b)............................................................................................24
(c)............................................................................................24
(d)............................................................................................24
Section 6. INSURANCE.............................................................................25
Section 7. INDEMNIFICATION PROVISIONS NOT EXCLUSIVE..............................................25
ARTICLE VIII. GENERAL PROVISIONS
Section 1. SEAL..................................................................................26
Section 2. AMENDMENT OF BYLAWS...................................................................26
(a)............................................................................................26
(b)............................................................................................26
Section 3. WAIVER OF NOTICE......................................................................26
Section 4. MEETINGS BY TELEPHONE CONFERENCE......................................................26
Section 5. ACTION WITHOUT A MEETING..............................................................27
Section 6. LIABILITY OF OFFICERS FOR DISALLOWED EXPENSES.........................................27
</TABLE>
<PAGE>
BYLAWS
OF
CASCADE BANCORP
ARTICLE I
SHAREHOLDERS: MEETING AND VOTING
Section 1. ANNUAL MEETINGS
The annual meeting of the shareholders shall be held in March on such date
and at such time and place as is specified by the Board of Directors. At the
annual meeting the shareholders shall elect directors, consider reports of the
affairs of the corporation and transact such other business as may properly be
brought before the meeting.
Section 2. SPECIAL MEETINGS
Special meetings of shareholders may be called by the President or by a
resolution of the Board of Directors! or upon the written request of
shareholders of at least ten percent (10%) of all votes entitled to be cast on
any issue proposed to be considered at the special meeting. All special meetings
shall be held in the state of Oregon. No business other than that specified in
said notice shall be transacted at any special meeting, unless all shareholders
of the corporation are present either in person or by proxy, and not less than
two-thirds (2/3) of all stock shall consent thereto.
Page 1. BYLAWS
<PAGE>
Section 3. NOTICE OF MEETINGS
(a) (1) ANNUAL MEETINGS. Written or printed notice stating the place,
date, day and hour of the annual meeting shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or persons calling the meeting, to each shareholder of record
entitled to vote at the meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, addressed to the shareholder
at his address as it appears on the stock transfer books of the corporation,
with postage thereon prepaid.
(2) SPECIAL MEETINGS. Written or printed notice stating the place, day and
hour, and purpose or purposes of each special meeting shall be delivered not
less than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the President, the
Secretary, or the officer or persons calling the meeting, to each shareholder of
record entitled to vote at the meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid.
Page 2. BYLAWS
<PAGE>
(b) When a meeting is adjourned for thirty (30) days or more, or when a
predetermination of the persons entitled to receive notice of the reconvening of
an adjourned meeting is required by law, notice of the reconvening of an
adjourned meeting shall be given as for an original meeting. In all other cases
no notice of the adjournment or of the business to be transacted at the
reconvening of the adjourned meeting need be given other than by announcement at
the meeting at which such adjournment is taken.
(c) The presence of any shareholder, either in person or by proxy, at any
meeting of the shareholders shall constitute a waiver of notice of such meeting.
Section 4. VOTING RIGHTS
At all meetings of the shareholders each shareholder shall be entitled to
one vote for each share of stock standing in his name at the time of such
meeting.
Section 5. QUORUM
(a) At any meeting of the shareholders, the holders of a majority of the
shares entitled to vote being present in person or represented by proxy shall
constitute a quorum for the transaction of business. The shareholders present at
a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Page 3. BYLAWS
<PAGE>
(b) In the absence of a quorum, a majority of those present in person or
represented by proxy may adjourn the meeting from time to time until a quorum
shall attend. Any business which might have been transacted at the original
meeting may be transacted at the adjourned meeting if a quorum exists.
(c) The vote of a majority of the shareholders present either in person or
by proxy and entitled to vote at any duly authorized meeting shall decide any
question unless the vote of a greater number is required by law or the Articles
of Incorporation.
Section 6. VOTING OF SHARES BY CERTAIN HOLDERS
(a) Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
(b) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted
by such receiver without the transfer thereof into his name if authority so
to do be contained in an appropriate order of the court by which such
receiver was appointed.
Page 4. BYLAWS
<PAGE>
(c) A shareholder whose shares are pledged shall be entitled to vote such
shares until his shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred
unless there is an agreement to the contrary.
Section 7. PROXIES
Every shareholder entitled to vote or to execute any waiver or consent may
do so either in person or by written proxy duly executed and filed with the
Secretary of the corporation. No proxy shall be valid after eleven (11) months
from the date of its execution, unless otherwise provided in the proxy.
Section 8. STOCKHOLDER LISTS
After fixing a record date for a meeting, the officer or agent having
charge of the transfer books of the corporation shall prepare an alphabetical
list of the names of all its shareholders who are entitled to notice of a
shareholders' meeting. The list must be arranged by voting group, and within
each voting group, by class or series of shares, and show the address of and
number of shares held by each shareholder. The shareholders' list shall be
available for inspection by any shareholder, beginning two (2) business days
after notice of the meeting is given for which the list was prepared and
continuing through the meeting, at the corporation's principal office or at a
place identified in
Page 5. BYLAWS
<PAGE>
the meeting notice in the city where the meeting will be held. The corporation
shall make the shareholders' list available at the meeting, and any shareholder,
the shareholder's agent or attorney will be entitled to inspect the list at Any
time during the meeting or any adjournment.
ARTICLE II
DIRECTORS
Section 1. POWERS
The business of this corporation shall be managed by the Board of
Directors.
Section 2. NUMBER CLASSIFICATION AND NOMINATIONS
The Board of Directors shall consist of seven (7) members, who shall serve
until their successors shall be elected and qualified.
There shall be three (3) classes of directors to be known as Class A, Class
B and Class C, respectively, with three (3) directors in Class A, two (2)
directors in Class B and two (2) directors in Class C. The term of office of the
initial Class A directors shall expire at the first annual meeting following
their election; the term of office of the initial Class B directors shall expire
at the second annual meeting following their election; and the term of office of
the initial Class C directors shall expire at the third annual meeting following
their election. At each annual meeting thereafter a number of directors equal to
the number
Page 6. BYLAWS
<PAGE>
of directors in the class whose terms expire at the time of such meeting shall
be elected to hold office for a term of three years. At any meeting of
shareholders, the nomination of candidates for directors shall not be allowed
from the floor. Any shareholder owning outstanding capital stock of the
corporation on the record date for a particular meeting may nominate a candidate
or candidates for director by serving written notice on the corporation of such
nomination not less than ten (10) days prior to the scheduled date of the
shareholder meeting at which directors are to be elected. Such notice shall
contain the name(s) of the nominee and information as to the nominee's
background and experience that would qualify the nominee to serve as a director.
Section 3. VACANCIES
(a) A vacancy in the Board of Directors shall exist upon the death,
resignation or removal of any director. Vacancies in the Board of Directors may
be filled by a majority of the remaining directors. Each director so elected
shall hold office for the balance of the unexpired term of his predecessor and
until his qualified successor is elected and accepts office.
(b) Any directorship to be filled by reason of an increase in the
authorized number of directors may be filled by an affirmative vote of the
majority of the directors at that time in office. The first such additional
director
Page 7. BYLAWS
<PAGE>
shall serve in Class B and the second such director shall serve in Class C.
Thereafter any additional directors elected by reason of an increase in the
authorized number shall be allocated evenly among all three classes of directors
starting with Class A.
(c) The shareholders may at any time elect a director to fill any vacancy
not filled by the Board of Directors.
(d) If the Board of Directors accepts the resignation of a director
tendered to take effect at a future time, a successor may be elected to take
office when the resignation becomes effective.
Section 4. REMOVAL OF DIRECTORS
All or any number of the directors may be removed from office with or
without cause by a majority vote of the shareholders at a special meeting called
for that purpose.
Section 5. ANNUAL DIRECTORS' MEETING
Within one week following the annual shareholders' meeting the Directors
shall meet for the purpose of organization and election of executive officers
hereinafter specified.
Section 6. SPECIAL MEETINGS
Special meetings of the Board of Directors may be held from time to time
upon the call of the President, Vice President or Secretary or upon call of not
less than one-half of the duly elected, qualified and acting directors. Notice
Page 8. BYLAWS
<PAGE>
of such meeting shall be given by the person or persons calling same, by mail
not later than two (2) days before the time for such meeting, or in person not
later than twenty-four hours before the time fixed for such meeting. The
presence or consent of any director shall constitute a waiver of the notice of
such meeting.
Section 7. QUORUM AND VOTE
A majority of the Board as it exists at any time shall constitute a quorum
for the transaction of business. Less than a quorum may adjourn until the next
meeting.
Section 8. COMPENSATION
By resolution of the Board of Directors, the directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors, and
may be paid a fixed sum for attendance at each meeting of the Board of
Directors, or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
Section 9. DUTIES AND EMPLOYMENT
The Board of Directors shall authorize the employment and prescribe the
duties of all officers of the corporation.
Section 10. INVESTMENTS
The funds of the corporation shall be invested pursuant to law and in such
manner and upon such security as the Board of Directors may determine.
Page 9. BYLAWS
<PAGE>
Section 11. OTHER DUTIES OF DIRECTORS
The Board of Directors shall have power to establish rules and regulations
and fix the hours for the transaction of business, prescribe the form of books
or accounts to be used, and the general or particular manner in which the
business and affairs of the corporation shall be conducted. The manner of
conducting business and all books, accounts, and records shall conform to the
provisions of the law, and to the rules, regulations, and instructions issued by
any applicable federal or state agency having the authority to regulate the
corporation.
Section 12. TRANSACTIONS WITH DIRECTORS
(a) Any contract or other transaction or determination between the
corporation and one or more of the directors or between the corporation and
another party in which one or more of the directors are interested, shall be
valid, notwithstanding the presence or participation of such director or
directors in a meeting of the Board of Directors which acts upon or in reference
to such contract, transaction or determination, if the fact of such interest
shall be disclosed or known to the Board of Directors and it shall authorize or
approve such contract, transaction or determination by a vote of a majority of
the disinterested directors present and entitled to vote.
Page 10. BYLAWS
<PAGE>
(b) A director or directors interested in a contract, transaction or
determination may be counted in determining whether a quorum is present at any
meeting, but shall not be entitled to vote on such contract, transaction or
determination and shall not be counted in determining the number of directors
constituting the majority necessary to carry such vote.
(c) If not authorized or approved by a majority of the disinterested
directors as provided above, such contract, transaction or determination shall
nevertheless be valid if ratified or approved by a vote of the shareholders.
Such interested director or directors shall not be disqualified from voting as
shareholders for ratification or approval of such contract, transaction or
determination.
(d) This section shall not invalidate any contract, transaction or
determination which would otherwise be valid under applicable law.
Section 13. OFFICIAL COMMUNICATIONS FROM REGULATORY AGENCIES
Every official communication directed by any regulatory agency to the
corporation or to any officer of the corporation relating to an investigation or
examination conducted by such agency or containing suggestions or
recommendations as to the conduct of the business of the corporation, shall be
submitted by the officer receiving it to the Board of Directors at the next
meeting of the Board and duly noted in
Page 11. BYLAWS
<PAGE>
the minutes of the meeting of the Board in the manner prescribed by the agency.
The record of the meeting shall also show any action taken by the Board in
response to the communication. The communication, or the record of the meeting
referring to the communication, shall be signed by each director present at the
meeting at which the communication is received.
Section 14. CHAIRMAN OF THE BOARD
The Board of Directors shall elect from among them a Chairman, who shall
not be an officer of the corporation, and a Vice-Chairman who may be an officer
of the corporation. The Chairman, and in his absence, the Vice-Chairman, shall
preside at all meetings of the Board.
ARTICLE III
OFFICERS
Section 1. OFFICERS
The officers of this corporation shall be a President; one or more Vice
Presidents; a Secretary, Assistant Secretary; and such other officers as may be
appointed by the Board of Directors from time to time.
Section 2. TERM OF OFFICE
Any vacancies occurring in any of the said offices shall be filled by the
Board of Directors. All officers shall be appointed to hold their offices at
the pleasure of the Board of Directors.
Page 12. BYLAWS
<PAGE>
Section 3. DUTIES OF PRESIDENT
It shall be the duty of the President to preside at all meetings of the
shareholders. He shall be the chief executive officer of the corporation and
shall perform all such other duties as the Board of Directors may from time to
time prescribe, or as may be required by law.
Section 4. DUTIES OF VICE PRESIDENT
The Vice President shall perform the duties of the President in case of his
absence, disqualification, or inability, and such other duties as the Board of
Directors may prescribe from time to time, or as may be required by law.
Section 5. DUTIES OF SECRETARY
The Secretary shall keep a complete record of the proceedings of all
shareholders' and directors' meetings. He shall have the custody of the
corporate seal and shall attest the signature of the corporation and affix the
seal when required to do so in the usual course of business and pursuant to law.
He shall perform all such other duties as the Board of Directors may from time
to time prescribe, or as may be required by law.
Section 6. ASSISTANTS
The Board of Directors may appoint or authorize the appointment of
assistants to any officer. Such assistants
Page 13. BYLAWS
<PAGE>
may exercise the power of such officer and shall perform such duties as are
prescribed by the Board of Directors.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES
The Board of Directors may, by resolution adopted by a majority of the
number of directors fixed by the Bylaws, appoint such committees as the Board
may determine. These committees shall in each case consist of not less than two
(2) directors and shall have such powers and duties as shall from time to time
be prescribed by the Board of Directors.
Section 2. AUTHORITY OF COMMITTEES
The committees established by the Board of Directors, to the extent
provided by resolution, shall have and may exercise all the authority of the
Board in the management of the corporation, but no committee shall have the
authority of the Board to:
(a) Authorize distributions;
(b) Approve or propose to shareholders actions that require approval by
the shareholders;
(c) Fill vacancies on the Board of Directors or on any of its committees;
(d) Amend articles of incorporation;
(e) Adopt, amend or repeal the Bylaws;
Page 14. BYLAWS
<PAGE>
(f) Approve a plan of merger not requiring shareholder approval;
(g) Authorize or approve reacquisition of shares, except according to a
formula or method prescribed by the Board of Directors; or
(h) Authorize or approve the issuance or sale or contract for sale of
shares, or determine the designation and relative rights, preferences and
limitations of a class or series of shares, except that the Board of Directors
may authorize a committee or a senior executive officer of the corporation to do
so within limits specifically prescribed by the Board of Directors.
Section 3. ABOLITION OF COMMITTEES
Any committee established by the Board of Directors may, by resolution
adopted by a majority of the number of directors fixed by the Bylaws, be
abolished at any time by the Board for any reason and the committee's functions
delegated elsewhere. Any member of any committee shall hold office on such
committee solely at the pleasure of the Board of Directors.
ARTICLE V
CORPORATE RECORDS
Section 1. INSPECTION
The Board of Directors, from time to time, shall determine whether and to
what extent and at what times and
Page 15. BYLAWS
<PAGE>
places and under what conditions and regulations the accounts and books of the
corporation or any of them, except the stock book, shall be opened to the
inspection of the shareholders, and no shareholder shall have any right to
inspect the books or documents of the corporation except as conferred by
statute, or as authorized by the Board of Directors.
Section 2. BYLAWS
The original or a copy of the Bylaws and any amendments thereto, certified
by the Secretary, shall be open to inspection by the shareholders and directors
in the manner and to the extent required by law.
Section 3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness, issued in the name or payable to the corporation,
shall be signed or endorsed by such person or persons and in such manner as
shall be determined from time to time by resolution of the Board of Directors.
But before the corporation shall be liable upon any obligation that does not
arise in the ordinary course of business as a current transaction, the same must
be authorized by a resolution of the Board of Directors.
Section 4. EXECUTION OF DOCUMENTS
The Board of Directors may, except as otherwise provided in the Bylaws,
authorize any officer or agent to enter into any contract or execute any
instrument in the name of and on
Page 16. BYLAWS
<PAGE>
behalf of the corporation. Such authority may be general or confined to specific
instances. Unless so authorized by the Board of Directors, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or engagement, or to pledge its credit, or to render it liable for any
purpose or for any amount.
ARTICLE VI
CERTIFICATES AND TRANSFER OF SHARES
Section 1. SHARES OF STOCK
The shares of stock shall be represented by stock certificates, signed by
the President or Vice President, and Secretary or Assistant Secretary, with the
corporate seal affixed. Each stock certificate shall state upon the face thereof
that it is transferable only on the books of the corporation.
Section 2. STOCK CERTIFICATES
Certificates of stock shall be numbered and registered in the order in
which they are issued. All certificates shall be issued in consecutive order and
the name and address of the person owning the shares therein represented, the
number of shares represented thereby and the date of the issuance thereof shall
be entered upon the stock records of the Corporation. All certificates exchanged
or returned to the corporation shall be marked "cancelled", the date of
cancellation shall be noted thereon by the Secretary and the
Page 17. BYLAWS
<PAGE>
certificate shall thereupon be retained in the stock records of the Corporation.
Section 3. STOCK TRANSFERABLE ONLY UPON BOOKS
The shares of stock of this corporation shall be transferable and
assignable only upon the books of the corporation. No new stock certificate
shall be issued until the old certificate has been properly assigned,
transferred, and surrendered for cancellation.
As a condition to the transfer of shares in the stock transfer books of the
corporation, the corporation shall have the right to demand from any shareholder
requesting a transfer sufficient evidence to the corporation to assure itself
that the shareholder requesting the transfer has complied with all prior notice
requirements, if any, imposed by regulatory agencies which supervise the
corporation. In particular, but without limitation, the corporation can, as a
condition to transfer, require sufficient evidence to indicate to its
satisfaction shareholder compliance, if applicable, with the prior notification
requirements of the Change in Bank Control Act of 1978 and the Bank Holding
Company Act of 1956, as amended.
Before the corporation purchases or redeems any shares of its common stock,
the appropriate officer(s) of the corporation shall, if applicable, have the
corporation comply with the prior notice requirements regarding certain
Page 18. BYLAWS
<PAGE>
purchases or redemptions as set forth in Regulation Y at 12 C.F.R. 225.4, which
requires the corporation to provide at least sixty (60) days' prior notice, if
generally, any purchase or redemption of its equity securities equals or exceeds
ten percent (10%) of the corporation's consolidated net worth.
Section 4. LOST CERTIFICATE
If any certificate is accidently destroyed or lost, the Secretary may upon
satisfactory proof of such destruction or loss, and the receipt of satisfactory
indemnity from the shareholder, authorize the issuance of a new certificate.
Section 5. TRANSFER AGENTS AND REGISTRARS
The Board of Directors may from time to time appoint one or more specific
transfer agents and one or more registrars for the shares of the corporation who
shall have such powers and duties as the Board of Directors shall specify.
Section 6. CLOSING STOCK TRANSFER BOOKS
The Board of Directors may close the transfer books for a period not
exceeding sixty (60) days nor less than ten (10) days preceding any annual or
special meeting of the shareholders or the day appointed for the payment of a
dividend.
Page 19. BYLAWS
<PAGE>
ARTICLE VII
INDEMNIFICATION
Section 1. AUTHORITY TO INDEMNIFY
(a) Except as provided below, the corporation shall indemnify an individual
made a party to a proceeding because the individual is or was a director or
officer against liability incurred in the proceeding if:
(1) The conduct of the individual was in good faith;
(2) The individual reasonably believed that the individual's conduct
was in the best interest of the corporation, or at least not
opposed to its best interests; and
(3) In the case of any criminal proceeding, the individual had no
reasonable cause to believe the individual's conduct was
unlawful. A director's or officer's conduct with respect to an
employee benefit plan for a purpose the director or officer
reasonably believed to be in the interests of the participants in
and beneficiaries of the plan is conduct that satisfies the
requirement of paragraph (2) above. The termination of a
proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent is not, of itself,
determinative that the director or officer did not meet
Page 20. BYLAWS
<PAGE>
the standard of conduct described in this paragraph (a) above.
(b) The corporation may not indemnify a director or officer:
(1) In connection with a proceeding by or in the right of the
corporation in which the director or officer was adjudged liable
to the corporation; or
(2) In connection with any other proceeding charging improper
personal benefit to the director or officer in which the director
or officer was adjudged liable on the basis that personal benefit
was improperly received by the director or officer.
(c) Indemnification permitted under this Section 1 in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
Section 2. MANDATORY INDEMNIFICATION
The corporation shall indemnify a director or officer who was wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which the director or officer was a party because of being a director or officer
of the corporation against reasonable expenses incurred by the director or
officer in connection with the proceeding.
Page 21. BYLAWS
<PAGE>
Section 3. ADVANCE FOR EXPENSES
(a) The corporation may pay for or reimburse the reasonable expenses
incurred by a director or officer who is a party to a proceeding in advance of
final disposition of the proceeding if:
(1) The director or officer furnishes the corporation a written
affirmation of the director's or officer's good faith belief that
the director or officer has met the standard of conduct described
in Section 1 above; and
(2) The director or officer furnishes the corporation a written
undertaking, executed personally or on the director's or
officer's behalf, to repay the advance if it is ultimately
determined that the director or officer did not meet the standard
of conduct.
(b) The undertaking must be an unlimited general, obligation of the
director or officer but need not be secured and may be accepted without
reference to financial ability to make repayment.
Section 4. COURT-ORDERED INDEMNIFICATION
A director or officer of the corporation who is a party to a proceeding may
apply for indemnification to the court conducting the proceeding or to another
court of competent jurisdiction. On receipt of an application, the court after
Page 22. BYLAWS
<PAGE>
giving any notice the court considers necessary may order indemnification if it
determines:
(a) The director or officer is entitled to mandatory indemnification as
provided by Section 2 above, in which case the court shall also order the
corporation to pay the director's or officer's reasonable expenses incurred to
obtain court-ordered indemnification; or
(b) The director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not the
director or officer met the standard of conduct set forth in Section 1 above or
was adjudged liable as described in Section 1, whether the liability is based on
a judgment, settlement or proposed settlement or otherwise.
Section 5. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION
The corporation may not indemnify a director or officer unless authorized
in the specific case after a determination has been made that indemnification of
the director or officer is permissible in the circumstances because the director
or officer has met the standard of conduct set forth in Section 1 above.
A determination that indemnification of a director or officer is
permissible shall be made:
Page 23. BYLAWS
<PAGE>
(a) By the Board of Directors by a majority vote of a quorum consisting of
directors not at the time parties to the proceeding;
(b) If a quorum cannot be obtained under paragraph (a) above, by a majority
vote of a committee duly designated by the Board of Directors consisting solely
of two or more directors not at the time parties to the proceeding. However,
directors who are parties to the proceeding may participate in designation of
the committee;
(c) By special legal counsel selected by the Board of directors or its
committee in the manner prescribed in paragraph (a) or (b) above, if a quorum of
the Board of Directors cannot be obtained under paragraph (a) above and a
committee cannot be designated under paragraph (b) above, the special legal
counsel shall be selected by majority vote of the full Board of Directors,
including directors who are parties to the proceeding; or
(d) By the shareholders.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, expect that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under paragraph (c)
above to select counsel.
Page 24. BYLAWS
<PAGE>
Section 6. INSURANCE
The corporation may purchase and maintain insurance on behalf of an
individual against liability asserted against or incurred by the individual who
is or was a director or officer of the corporation or who, while a director or
officer of the corporation, is or was serving at the request of the corporation
as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise. The corporation may purchase and maintain the
insurance even if the corporation has no power to indemnify the individual
against the same liability under Section 1 or 2 above.
Section 7. INDEMNIFICATION PROVISIONS NOT EXCLUSIVE
The indemnification and provisions for advancement of expenses provided in
this Article VII shall not be deemed exclusive of any other rights to which
directors may be entitled under the corporation's articles of incorporation or
these Bylaws, any agreement, general or specific action of the Board of
Directors, vote or shareholders or otherwise, and shall continue as to a person
who has ceased to be a director and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Page 25. BYLAWS
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
Section 1. SEAL
The corporate seal shall be circular in form, and shall have inscribed
thereon the name of the corporation and the state of its incorporation.
Section 2. AMENDMENT OF BYLAWS
(a) Except as otherwise provided by law, the Board of Directors may amend
or repeal these Bylaws or adopt new Bylaws by vote of a majority of their
number.
(b) Whenever an amendment of new Bylaws is adopted, it shall be copied in
the minute book with the original Bylaws in the appropriate place. If any bylaw
is repealed, the fact of repeal and the date on which the repeal occurred shall
be stated in such book and place.
Section 3. WAIVER OF NOTICE
Whenever any notice to any shareholder or director is required by law, the
Articles of Incorporation or the Bylaws, a waiver of notice in writing signed at
any time by the person entitled to notice shall be equivalent to the giving of
the notice.
Section 4. MEETINGS BY TELEPHONE CONFERENCE
Page 26. BYLAWS
<PAGE>
The Board of Directors or any committee designated by the Board may hold
any meeting of the Board or committee by means of conference telephone or
similar communications equipment that allows all persons participating in the
meeting to hear each other. Participation in such a meeting constitutes presence
in person at the meeting.
Section 5. ACTION WITHOUT A MEETING
Any action which the law, the Articles of Incorporation or the Bylaws
require or permit the shareholders or directors to take at a meeting may be
taken without a meeting only if a consent in writing setting forth the action so
taken is signed by all of the shareholders or directors entitled to vote on the
matter. The consent, which shall have the same effect as a unanimous vote of the
shareholders or directors shall be filed in the records of minutes of the
corporation.
Section 6. LIABILITY OF OFFICERS FOR DISALLOWED EXPENSES
Any payments to an officer of the corporation such as salary, commission,
bonus, interest, rent or entertainment expense incurred by him which shall be
disallowed in whole or in part as a deductible expense by the Internal Revenue
Service, shall be reimbursed by such officer of the corporation to the
corporation to the full extent of such disallowance. It shall be the duty of the
directors, as a Board, to enforce payment by the officer. Subject to the
determination of the directors, proportionate amounts may be
Page 27. BYLAWS
<PAGE>
withheld from his future compensation payments until the amount owed to the
corporation has been recovered.
ADOPTED this 22nd day of June, 1990.
/s/ Patricia L. Moss
-----------------------------,
Secretary
Page 28. BYLAWS
<PAGE>
Exhibit 21.1
Cascade Bancorp List of Subsidiaries
<TABLE>
<CAPTION>
NAMES STATE OF INCORPORATION DOES BUSINESS
<S> <C> <C>
Bank of the Cascades Oregon N/A
Cascade Bancorp Financial Services, Inc. Oregon N/A
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We 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 14, 2000, with respect to the consolidated financial statements of
Cascade Bancorp and subsidiaries included in the Annual Report (Form 10-K) for
the year ended December 31, 1999.
/s/ Symonds, Evans & Larson, P.C.
March 22, 2000
Portland, Oregon
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 19,420,537
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,069,224
<INVESTMENTS-CARRYING> 2,742,794
<INVESTMENTS-MARKET> 2,740,062
<LOANS> 279,680,134
<ALLOWANCE> 3,525,185
<TOTAL-ASSETS> 347,904,023
<DEPOSITS> 285,312,541
<SHORT-TERM> 30,100,000
<LIABILITIES-OTHER> 2,919,984
<LONG-TERM> 0
0
0
<COMMON> 17,728,564
<OTHER-SE> 11,842,934
<TOTAL-LIABILITIES-AND-EQUITY> 29,571,498
<INTEREST-LOAN> 25,540,073
<INTEREST-INVEST> 2,441,512
<INTEREST-OTHER> 94,577
<INTEREST-TOTAL> 28,076,162
<INTEREST-DEPOSIT> 5,636,988
<INTEREST-EXPENSE> 6,336,949
<INTEREST-INCOME-NET> 21,739,213
<LOAN-LOSSES> 2,110,138
<SECURITIES-GAINS> (10,619)
<EXPENSE-OTHER> 15,026,645
<INCOME-PRETAX> 10,010,961
<INCOME-PRE-EXTRAORDINARY> 10,010,961
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,238,461
<EPS-BASIC> .91
<EPS-DILUTED> .89
<YIELD-ACTUAL> 0
<LOANS-NON> 582,000
<LOANS-PAST> 40,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,635,820
<CHARGE-OFFS> (1,399,142)
<RECOVERIES> 178,369
<ALLOWANCE-CLOSE> 3,525,185
<ALLOWANCE-DOMESTIC> 3,525,185
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
