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FORM 10-K
[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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 (Registrants telephone number) |
DOCUMENTS INCORPORATED BY REFERENCE
Part III is incorporated by reference from the issuers definitive proxy statement for the annual meeting of shareholders to be held on April 25, 2005.
CASCADE BANCORP
FORM 10-K
ANNUAL REPORT
TABLE OF
CONTENTS
PART I |
||||||||||
Page | ||||||||||
Item
1. |
Business |
3 | ||||||||
Item
2. |
Properties |
9 | ||||||||
Item
3. |
Legal proceedings |
10 | ||||||||
Item
4. |
Submission of Matters to a Vote of Security Holders |
10 | ||||||||
PART II |
||||||||||
Item
5. |
Market for Registrants Common Equity and Related Stockholder Matters |
11 | ||||||||
Item
6. |
Selected Financial Data |
11 | ||||||||
Item
7. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
15 | ||||||||
Item
7A. |
Quantitative and Qualitative Disclosures about Market Risk |
30 | ||||||||
Item
8. |
Financial Statements and Supplementary Data |
34 | ||||||||
Item
9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
66 | ||||||||
Item
9A. |
Controls and Procedures |
66 | ||||||||
Item
9B. |
Other Information |
66 | ||||||||
PART III |
||||||||||
Item
10. |
Directors and Executive Officers of the Registrant |
67 | ||||||||
Item
11. |
Executive Compensation |
67 | ||||||||
Item
12. |
Security Ownership of Certain Beneficial Owners and Management |
67 | ||||||||
Item
13. |
Certain Relationships and Related Transactions |
67 | ||||||||
Item
14. |
Principal Accountant Fees and Services |
67 | ||||||||
PART IV |
||||||||||
Item
15. |
Exhibits and Financial Statement Schedules |
67 | ||||||||
Signatures |
68 |
PART I
ITEM 1. BUSINESS
Company
Bank of the Cascades
Employees
3
Business Strategy
Risk Management
Factors That May Affect Future Results
Competition
4
Geographic Concentration
Effects of Government Monetary Policy
SUPERVISION AND REGULATION
Federal Bank Holding Company Regulation
5
The Sarbanes-Oxley Act of 2002
USA Patriot Act
Financial Modernization Act
|
All of the depository institution subsidiaries must be well capitalized and well managed; |
|
The holding company must file a declaration with the Federal Reserve Board that it elects to be a financial holding company to engage in activities that would not have been permissible before the Gramm-Leach-Bliley Act; and |
|
All of the depository institution subsidiaries must have a Community Reinvestment Act rating of satisfactory or better. |
|
Acting as a principal, agent or broker for insurance; |
|
Underwriting, dealing in or making a market in securities; and |
|
Providing financial and investment advice. |
6
Federal and State Bank Regulation
Interstate Banking Legislation
Deposit Insurance
7
Regulatory Capital
8
State Regulations Concerning Cash Dividends
Check 21
ITEM 2. | PROPERTIES |
9
ITEM 3. | LEGAL PROCEEDINGS |
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
10
PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
First Quarter
|
Second Quarter
|
Third Quarter
|
Fourth Quarter
|
|||||
---|---|---|---|---|---|---|---|---|
2004 |
||||||||
High |
$18.78 | $20.00 | $19.65 | $22.44 | ||||
Low |
$15.42 | $15.48 | $16.96 | $18.53 | ||||
2003 |
||||||||
High |
$12.33 | $14.79 | $15.08 | $13.86 | ||||
Low |
$11.19 | $11.60 | $13.40 | $14.32 |
First Quarter
|
Second Quarter
|
Third Quarter
|
Fourth Quarter
|
|||||
---|---|---|---|---|---|---|---|---|
Per Share
|
Per Share
|
Per Share
|
Per Share
|
|||||
2005 |
$ .08 | N/A | N/A | N/A | ||||
2004 |
$ .06 | $ .06 | $ .07 | $ .07 | ||||
2003 |
$ .06 | $ .06 | $ .06 | $ .06 |
ITEM 6. | SELECTED FINANCIAL DATA |
Cautionary Information Concerning Forward-Looking Statements
11
Critical Accounting Policies
Years ended December 31, |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
2001 |
2000 |
|||||||||||||||||||
Balance
Sheet Data (at period end) |
|||||||||||||||||||||||
Investment
securities |
$ | 47,069 | $ | 34,270 | $ | 28,571 | $ | 25,885 | $ | 24,293 | |||||||||||||
Loans,
gross |
862,708 | 589,491 | 500,924 | 423,172 | 358,674 | ||||||||||||||||||
Total
assets |
1,004,809 | 734,712 | 578,359 | 488,753 | 423,293 | ||||||||||||||||||
Total
deposits |
851,397 | 651,154 | 501,962 | 425,258 | 358,198 | ||||||||||||||||||
Non-interest
bearing deposits |
340,652 | 245,378 | 209,524 | 162,676 | 128,249 | ||||||||||||||||||
Core Deposits
(1) |
824,814 | 635,177 | 483,505 | 391,443 | 333,150 | ||||||||||||||||||
Total
shareholders equity (2) |
86,432 | 61,756 | 51,188 | 41,680 | 34,981 |
12
Years
ended December 31,
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004
|
2003
|
2002
|
2001
|
2000
|
||||||||||||||||
Income
Statement Data |
||||||||||||||||||||
Interest
income |
$ | 50,911 | $ | 40,835 | $ | 37,897 | $ | 38,298 | $ | 35,523 | ||||||||||
Interest
expense |
4,903 | 4,003 | 4,657 | 8,771 | 9,959 | |||||||||||||||
Net
interest income |
46,008 | 36,832 | 33,240 | 29,527 | 25,564 | |||||||||||||||
Loan
loss provision |
3,650 | 2,695 | 2,680 | 3,690 | 2,751 | |||||||||||||||
Net
interest income after loan loss provision |
42,358 | 34,137 | 30,560 | 25,837 | 22,813 | |||||||||||||||
Non-interest
income |
12,940 | 13,400 | 9,663 | 7,829 | 5,983 | |||||||||||||||
Non-interest
expenses |
29,577 | 24,854 | 21,023 | 19,313 | 16,794 | |||||||||||||||
Income
before income taxes |
25,721 | 22,683 | 19,200 | 14,353 | 12,002 | |||||||||||||||
Provision
for income taxes |
9,713 | 8,728 | 7,485 | 5,671 | 4,683 | |||||||||||||||
Net
income |
$ | 16,008 | $ | 13,955 | $ | 11,715 | $ | 8,682 | $ | 7,319 | ||||||||||
Share
Data (2) |
||||||||||||||||||||
Basic
earnings per common share |
$ | 0.96 | $ | 0.89 | $ | 0.75 | $ | 0.56 | $ | 0.47 | ||||||||||
Diluted
earnings per common share |
$ | 0.93 | $ | 0.86 | $ | 0.73 | $ | 0.55 | $ | 0.47 | ||||||||||
Book
value per common share |
$ | 5.14 | $ | 3.69 | $ | 3.27 | $ | 2.68 | $ | 2.26 | ||||||||||
Tangible
book value per common share |
$ | 4.73 | $ | 3.69 | $ | 3.27 | $ | 2.68 | $ | 2.26 | ||||||||||
Cash
dividends declared per common share |
$ | 0.26 | $ | 0.26 | $ | 0.21 | $ | 0.17 | $ | 0.14 | ||||||||||
Ratio
of dividends declared to net income |
26.66 | % | 28.86 | % | 27.68 | % | 30.48 | % | 30.07 | % | ||||||||||
Basic
Average shares outstanding |
16,669 | 15,730 | 15,593 | 15,504 | 15,473 | |||||||||||||||
Fully
Diluted average shares outstanding |
17,299 | 16,249 | 16,089 | 15,844 | 15,721 | |||||||||||||||
Key
Ratios |
||||||||||||||||||||
Return
on average total shareholders equity (book) |
20.39 | % | 25.07 | % | 25.62 | % | 22.92 | % | 23.27 | % | ||||||||||
Return
on average total shareholders equity (tangible) (3) |
22.40 | % | 25.07 | % | 25.62 | % | 22.92 | % | 23.27 | % | ||||||||||
Return
on average total assets |
1.83 | % | 2.13 | % | 2.20 | % | 1.88 | % | 1.86 | % | ||||||||||
Net
interest spread |
5.35 | % | 5.62 | % | 6.17 | % | 5.88 | % | 5.78 | % | ||||||||||
Net
interest margin |
5.74 | % | 6.03 | % | 6.75 | % | 7.02 | % | 7.21 | % | ||||||||||
Total
revenue (net int inc + non int inc) |
$ | 58,948 | $ | 50,232 | $ | 42,903 | $ | 37,356 | $ | 31,331 | ||||||||||
Efficiency
ratio (4) |
50.18 | % | 49.48 | % | 49.00 | % | 51.70 | % | 52.91 | % | ||||||||||
Asset
Quality Ratios |
||||||||||||||||||||
Loan
loss reserve |
$ | 12,412 | $ | 9,399 | $ | 7,669 | $ | 6,555 | $ | 5,020 | ||||||||||
Reserve
to ending total loans |
1.44 | % | 1.59 | % | 1.53 | % | 1.55 | % | 1.40 | % | ||||||||||
Non-performing assets (5) |
$ | 483 | $ | 56 | $ | 1,505 | $ | 2,486 | $ | 684 | ||||||||||
Non-performing assets to total assets |
0.05 | % | 0.01 | % | 0.26 | % | 0.51 | % | 0.16 | % | ||||||||||
Delinquent
>30 days to total loans |
0.02 | % | 0.04 | % | 0.17 | % | 0.43 | % | 0.57 | % | ||||||||||
Net
Charge offs |
$ | 991 | $ | 966 | $ | 1,566 | $ | 2,155 | $ | 1,256 | ||||||||||
Net
loan charge-offs (annualized) |
0.13 | % | 0.18 | % | 0.34 | % | 0.55 | % | 0.39 | % | ||||||||||
Mortgage
Activity |
||||||||||||||||||||
Mortgage
Originations |
$ | 141,407 | $ | 304,691 | $ | 224,308 | $ | 164,436 | $ | 77,108 | ||||||||||
Total
Servicing Portfolio (sold loans) |
$ | 502,390 | $ | 514,223 | $ | 453,536 | $ | 375,051 | $ | 285,548 | ||||||||||
Capitalized
Mortgage Servicing Rights (MSRs) |
$ | 4,663 | $ | 4,688 | $ | 4,071 | $ | 3,603 | $ | 3,019 | ||||||||||
Capital
Ratios |
||||||||||||||||||||
Average
shareholders equity to average assets |
9.00 | % | 8.51 | % | 8.60 | % | 8.20 | % | 7.99 | % | ||||||||||
Leverage
ratio (6) |
10.11 | % | 8.55 | % | 8.88 | % | 8.58 | % | 8.27 | % | ||||||||||
Total
risk-based capital ratio (6) |
11.40 | % | 11.21 | % | 11.24 | % | 10.92 | % | 10.64 | % |
13
(1) | Core deposits include all demand, interest bearing demand, savings plus time deposits of amounts less than $100,000. |
(2) | Adjusted to reflect a 20% (6:5) stock split declared in May 2001, a 50% (3:2) stock split declared in May 2002 and a 25% (5:4) stock split declared in March 2004. |
(3) | Excludes goodwill, core deposit intangible and other identifiable intangible assets, related to acquisition of Community Bank of Grants Pass. |
(4) | Efficiency ratio is noninterest expense divided by (net interest income + noninterest income). |
(5) | Nonperforming assets consist of loans contractually past due 90 days or more, nonaccrual loans and other real estate owned. |
(6) | Computed in accordance with FRB and FDIC guidelines. |
14
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
HIGHLIGHTS AND SUMMARY OF PERFORMANCE
Overview & Business Strategy
Compound Annual Growth |
1 year |
3 year |
5 year |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Earnings Per
Share Growth |
7.7 | % | 18.0 | % | 20.2 | % | ||||||||
Net Income
Growth |
14.7 | % | 22.7 | % | 20.8 | % | ||||||||
Loan
Growth |
46.3 | % | 26.7 | % | 27.4 | % | ||||||||
Deposit
Growth |
30.8 | % | 25.4 | % | 24.0 | % |
Key Performance Indicators
15
Highlights 2004 Financial Performance
|
Record Net Income at $4.6 million, up 29.6% vs. year ago quarter |
|
Earnings Per Share (diluted) at $.26, up 21.9% vs. year ago quarter |
|
Net Interest Margin 5.69%, vs. 5.76% prior quarter and 5.73% year ago quarter |
|
Record Net Income up 14.7% to $16.0 million |
|
Earnings Per Share (diluted) up 7.7% to $.93 |
|
Loans and Deposits up 46.4% and 30.8.%, respectively, for the year |
|
Return on Equity 20.4% for the year; above 20% ten years running |
Loan growth and credit quality
Deposit growth
16
Non-interest income and expense
RESULTS OF OPERATIONS Years ended December 31, 2004, 2003, and 2002
Net Interest Income/Net Interest Margin
17
18
Average Balances and Average Rates Earned and Paid
Year
ended December 31, 2004 |
Year
ended December 31, 2003 |
Year
ended December 31, 2002 |
||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average Balance |
Interest Income/ Expense |
Average Yield or Rate |
Average Balance |
Interest Income/ Expense |
Average Yield or Rate |
Average Balance |
Interest Income/ Expense |
Average Yield or Rate |
||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||
Taxable
securities |
$ | 34,503 | $ | 1,093 | 3.17 | % | $ | 27,094 | $ | 1,019 | 3.76 | % | $ | 26,236 | $ | 1,031 | 3.93 | % | ||||||||||||||
Non-taxable
securities (1) |
3,606 | 92 | 2.55 | % | 2,369 | 66 | 2.79 | % | 854 | 37 | 4.33 | % | ||||||||||||||||||||
Interest
bearing balances from Federal Home Loan Bank |
14,555 | 194 | 1.33 | % | 23,098 | 214 | 0.93 | % | 15 | | | |||||||||||||||||||||
Federal
funds sold |
8,710 | 111 | 1.27 | % | 11,775 | 116 | 0.99 | % | 5,412 | 85 | 1.57 | % | ||||||||||||||||||||
Federal
Home Loan Bank stock |
2,390 | 63 | 2.64 | % | 2,240 | 121 | 5.40 | % | 2,093 | 121 | 5.78 | % | ||||||||||||||||||||
Loans
(2)(3) |
737,421 | 49,358 | 6.69 | % | 544,440 | 39,299 | 7.22 | % | 457,906 | 36,623 | 8.00 | % | ||||||||||||||||||||
Total
earning assets |
801,185 | 50,911 | 6.35 | % | 611,016 | 40,835 | 6.68 | % | 492,516 | 37,897 | 7.69 | % | ||||||||||||||||||||
Reserve
for loan losses |
(10,943 | ) | (8,415 | ) | (7,275 | ) | ||||||||||||||||||||||||||
Cash
and due from banks |
47,620 | 23,062 | 21,631 | |||||||||||||||||||||||||||||
Premises
and equipment, net |
18,659 | 11,540 | 9,453 | |||||||||||||||||||||||||||||
Other
Assets |
15,929 | 16,979 | 15,499 | |||||||||||||||||||||||||||||
Total
assets |
$ | 872,450 | $ | 654,182 | $ | 531,824 | ||||||||||||||||||||||||||
Liabilities & Stockholders Equity |
||||||||||||||||||||||||||||||||
Int.
bearing demand deposits |
$ | 376,424 | 3,241 | 0.86 | % | $ | 281,438 | 2,449 | 0.87 | % | $ | 195,526 | 2,278 | 1.17 | % | |||||||||||||||||
Savings
deposits |
33,928 | 117 | 0.34 | % | 26,888 | 109 | 0.41 | % | 21,421 | 146 | 0.68 | % | ||||||||||||||||||||
Time
deposits |
53,001 | 806 | 1.52 | % | 47,973 | 898 | 1.87 | % | 62,287 | 1,666 | 2.67 | % | ||||||||||||||||||||
Other
borrowings |
25,686 | 739 | 2.88 | % | 20,424 | 547 | 2.68 | % | 26,606 | 567 | 2.13 | % | ||||||||||||||||||||
Total
interest bearing liabilities |
489,039 | 4,903 | 1.00 | % | 376,723 | 4,003 | 1.06 | % | 305,742 | 4,657 | 1.52 | % | ||||||||||||||||||||
Demand
deposits |
295,108 | 213,639 | 173,105 | |||||||||||||||||||||||||||||
Other
liabilities |
9,790 | 8,164 | 7,250 | |||||||||||||||||||||||||||||
Total
liabilities |
793,937 | 598,526 | 486,097 | |||||||||||||||||||||||||||||
Stockholders equity |
78,513 | 55,656 | 45,727 | |||||||||||||||||||||||||||||
Total
liabilities & equity |
$ | 872,450 | $ | 654,182 | $ | 531,824 | ||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Net
interest income |
$ | 46,008 | $ | 36,832 | $ | 33,240 | ||||||||||||||||||||||||||
Net
interest spread |
5.35 | % | 5.62 | % | 6.17 | % | ||||||||||||||||||||||||||
Net
interest income to earning assets |
5.74 | % | 6.03 | % | 6.75 | % |
(1) | Yields on tax-exempt securities have not been stated on a tax-equivalent basis. |
(2) | Loan related fees included in the above yield calculations: $2,190,000 in 2004, $1,885,000 in 2003, and $1,493,000 in 2002. |
(3) | Includes mortgage loans held for sale. |
19
Analysis of Changes in Interest Income and Expense
Year
ended December 31,
|
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004
over 2003
|
2003
over 2002
|
|||||||||||||||||||||||
Amount
of Change Attributed to |
Amount
of Change Attributed to |
|||||||||||||||||||||||
Total Increase (Decrease) |
Volume
|
Rate
|
Total Increase (Decrease) |
Volume
|
Rate
|
|||||||||||||||||||
Interest
income: |
||||||||||||||||||||||||
Interest
and fees on loans |
10,059 | $ | 13,930 | $ | (3,871 | ) | $ | 2,676 | $ | 6,921 | $ | (4,245 | ) | |||||||||||
Taxable
securities |
74 | 279 | (205 | ) | (12 | ) | 40 | (52 | ) | |||||||||||||||
Non-taxable
securities |
26 | 34 | (8 | ) | 29 | 66 | (37 | ) | ||||||||||||||||
Interest
bearing balances due from FHLB |
(20 | ) | (79 | ) | 59 | 214 | 214 | | ||||||||||||||||
Federal
Home Loan Bank stock |
(58 | ) | 8 | (66 | ) | 31 | 100 | (69 | ) | |||||||||||||||
Federal
funds sold |
(5 | ) | (30 | ) | 25 | 31 | 100 | (69 | ) | |||||||||||||||
Total
interest income |
10,076 | 14,142 | (4,066 | ) | 2,938 | 7,341 | (4,403 | ) | ||||||||||||||||
Interest
expense: |
||||||||||||||||||||||||
Interest
on deposits: |
||||||||||||||||||||||||
Interest
bearing demand |
792 | 827 | (35 | ) | 171 | 1,003 | (832 | ) | ||||||||||||||||
Savings |
8 | 29 | (21 | ) | (37 | ) | 37 | (74 | ) | |||||||||||||||
Time |
(92 | ) | 94 | (186 | ) | (768 | ) | (383 | ) | (385 | ) | |||||||||||||
Other
borrowings |
192 | 141 | 51 | (20 | ) | (132 | ) | 112 | ||||||||||||||||
Total
interest expense |
900 | 1,090 | (190 | ) | (654 | ) | 525 | (1,179 | ) | |||||||||||||||
Net
interest income |
9,176 | $ | 13,052 | $ | (3,876 | ) | $ | 3,592 | $ | 6,816 | $ | (3,224 | ) |
Non-interest Income
Home Mortgage Originations and Mortgage Related Revenue
20
on the outstanding balances for providing this service. Such revenues are included in the above mortgage banking results. Mortgages serviced for Fannie Mae totaled $502.4 million at December 31, 2004 and $514.2 million at December 31, 2003, upon which were recorded related Mortgage Servicing Rights (MSRs) of approximately $4.7 million for each of these years.
Non-interest Expenses
Income Taxes
FINANCIAL CONDITION
Loan Portfolio Composition
21
December 31, |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
2001 |
2000 |
|||||||||||||||||||
Commercial |
$ | 253,041 | $ | 142,766 | $ | 106,751 | $ | 74,498 | $ | 56,707 | |||||||||||||
Real
Estate: |
|||||||||||||||||||||||
Construction/lot |
179,932 | 123,892 | 105,584 | 97,430 | 72,241 | ||||||||||||||||||
Mortgage |
52,737 | 46,140 | 43,004 | 44,054 | 43,387 | ||||||||||||||||||
Commercial |
339,788 | 244,203 | 208,540 | 165,206 | 144,337 | ||||||||||||||||||
Consumer |
37,209 | 32,490 | 37,045 | 41,984 | 42,002 | ||||||||||||||||||
862,708 | 589,491 | 500,924 | 423,172 | 358,674 | |||||||||||||||||||
Less: |
|||||||||||||||||||||||
Reserve for
loan losses |
12,412 | 9,399 | 7,669 | 6,555 | 5,020 | ||||||||||||||||||
Deferred loan
fees |
3,149 | 2,290 | 1,752 | 1,467 | 1,116 | ||||||||||||||||||
15,561 | 11,689 | 9,421 | 8,022 | 6,136 | |||||||||||||||||||
$ | 847,147 | $ | 577,801 | $ | 491,503 | $ | 415,150 | $ | 352,538 |
Loan Category |
Due within one year |
Due after one, but within five years |
Due after five years |
Total |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Commercial |
$ | 102,567 | $ | 118,511 | $ | 31,963 | $ | 253,041 | ||||||||||
Real
Estate: |
||||||||||||||||||
Construction/lot |
85,700 | 94,232 | | 179,932 | ||||||||||||||
Mortgage |
8,488 | 9,648 | 34,601 | 52,737 | ||||||||||||||
Commercial |
15,125 | 58,722 | 265,941 | 339,788 | ||||||||||||||
Consumer |
6,665 | 16,125 | 14,419 | 37,209 | ||||||||||||||
$ | 197,547 | $ | 281,036 | $ | 384,125 | $ | 862,708 |
Real Estate Loan Concentration
22
2004 |
% of total CRE |
2003 |
% of total CRE |
2002 |
% of total CRE |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Commercial Real Estate: |
||||||||||||||||||||||||||
Owner
occupied |
$ | 185,688 | 55 | % | $ | 136,389 | 56 | % | $ | 128,699 | 62 | % | ||||||||||||||
Non-owner
occupied |
154,100 | 45 | % | 107,814 | 44 | % | 79,841 | 38 | % | |||||||||||||||||
$ | 339,788 | 100 | % | $ | 244,203 | 100 | % | $ | 208,540 | 100 | % |
2004 |
% of total Const. |
2003 |
% of total Const. |
2002 |
% of total Const. |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Real Estate Construction/lot loans: |
||||||||||||||||||||||||||
Residential
construction to homeowner |
$ | 48,247 | 27 | % | $ | 56,881 | 46 | % | $ | 48,401 | 46 | % | ||||||||||||||
Commercial
construction |
75,065 | 42 | % | 26,631 | 21 | % | 24,374 | 23 | % | |||||||||||||||||
Residential
speculative construction developer/builder |
56,620 | 31 | % | 40,380 | 33 | % | 32,809 | 31 | % | |||||||||||||||||
$ | 179,932 | 100 | % | $ | 123,892 | 100 | % | $ | 105,584 | 100 | % |
Lending and Credit Management
23
Reserve for Loan Losses
Loan Loss Provision
Allocation of Reserve for Loan Losses
24
2004 |
2003 |
|||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Reserve for loan losses |
Allocated reserve as a % of loan category |
Loan category as a % of total loans |
Reserve for loan losses |
Allocated reserve as a % of loan category |
Loan category as a % of total loans |
|||||||||||||||||||||||
Commercial |
$ | 3,740 | 1.48 | % | 29.33 | % | $ | 1,977 | 1.38 | % | 24.22 | % | ||||||||||||||||
Real
Estate: |
||||||||||||||||||||||||||||
Construction/lot |
1,643 | 0.91 | % | 20.86 | % | 1,183 | 0.95 | % | 21.02 | % | ||||||||||||||||||
Mortgage |
572 | 1.08 | % | 6.11 | % | 581 | 1.26 | % | 7.83 | % | ||||||||||||||||||
Commercial |
2,268 | 0.67 | % | 39.39 | % | 2,133 | 0.87 | % | 41.43 | % | ||||||||||||||||||
Consumer |
1,518 | 4.08 | % | 4.31 | % | 1,144 | 3.52 | % | 5.51 | % | ||||||||||||||||||
Committed/unfunded (1) |
2,077 | | | 1,372 | | | ||||||||||||||||||||||
Unallocated |
603 | | | 1,009 | | | ||||||||||||||||||||||
Total reserve
for loan losses |
$ | 12,421 | 1.44 | % | 100.00 | % | $ | 9,399 | 1.59 | % | 100.00 | % |
2002 |
2001 |
|||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Reserve for loan losses |
Allocated reserve as a % of loan category |
Loan category as a % of total loans |
Reserve for loan losses |
Allocated reserve as a % of loan category |
Loan category as a % of total loans |
|||||||||||||||||||||||
Commercial |
$ | 1,198 | 1.12 | % | 21.31 | % | $ | 978 | 1.31 | % | 17.60 | % | ||||||||||||||||
Real
Estate: |
||||||||||||||||||||||||||||
Construction/lot |
1,154 | 1.09 | % | 21.08 | % | 766 | 0.79 | % | 23.02 | % | ||||||||||||||||||
Mortgage |
250 | 0.58 | % | 8.58 | % | 532 | 1.21 | % | 10.41 | % | ||||||||||||||||||
Commercial |
1,653 | 0.79 | % | 41.63 | % | 1,238 | 0.75 | % | 39.04 | % | ||||||||||||||||||
Consumer |
2,198 | 5.93 | % | 7.40 | % | 2,129 | 5.07 | % | 9.92 | % | ||||||||||||||||||
Committed/unfunded (1) |
639 | | | 589 | | | ||||||||||||||||||||||
Unallocated |
577 | | | 323 | | | ||||||||||||||||||||||
Total reserve
for loan losses |
$ | 7,669 | 1.53 | % | 100.00 | % | $ | 6,555 | 1.55 | % | 100.00 | % |
2000 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Reserve for loan losses |
Allocated reserve as a % of loan category |
Loan category as a % of total loans |
|||||||||||||
Commercial |
$ | 777 | 1.37 | % | 15.81 | % | |||||||||
Real
Estate: |
|||||||||||||||
Construction/lot |
837 | 1.16 | % | 20.14 | % | ||||||||||
Mortgage |
261 | 0.60 | % | 12.10 | % | ||||||||||
Commercial |
833 | 0.58 | % | 40.24 | % | ||||||||||
Consumer |
1,493 | 3.55 | % | 11.71 | % | ||||||||||
Committed/unfunded (1) |
370 | | | ||||||||||||
Unallocated |
449 | | | ||||||||||||
Total reserve
for loan losses |
$ | 5,020 | 1.40 | % | 100.00 | % |
(1) | The Company currently classifies reserves for commitments in the loan loss reserve in accordance with industry practice of other banks in its peer group. At some point in the future management anticipates that the Company will reclassify such amounts as other liabilities. |
25
Year ended December 31, |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
2001 |
2000 |
|||||||||||||||||||
Loans
outstanding at end of period |
$ | 862,708 | $ | 589,491 | $ | 500,924 | $ | 423,172 | $ | 358,674 | |||||||||||||
Average loans
outstanding during the period |
$ | 737,421 | $ | 544,440 | $ | 457,906 | $ | 394,432 | $ | 322,153 | |||||||||||||
Reserve
balance, beginning of period |
$ | 9,399 | $ | 7,669 | $ | 6,555 | $ | 5,020 | $ | 3,525 | |||||||||||||
Recoveries: |
|||||||||||||||||||||||
Commercial |
202 | 173 | 33 | 91 | 12 | ||||||||||||||||||
Real
Estate: |
|||||||||||||||||||||||
Construction |
| | | | 1 | ||||||||||||||||||
Mortgage |
9 | 18 | 41 | 30 | | ||||||||||||||||||
Commercial |
| 138 | 145 | | | ||||||||||||||||||
Consumer |
217 | 179 | 285 | 212 | 201 | ||||||||||||||||||
428 | 508 | 504 | 333 | 214 | |||||||||||||||||||
Loans charged
off: |
|||||||||||||||||||||||
Commercial |
(363 | ) | (371 | ) | (215 | ) | (518 | ) | (158 | ) | |||||||||||||
Real
Estate: |
|||||||||||||||||||||||
Construction |
(151 | ) | | | | | |||||||||||||||||
Mortgage |
| (106 | ) | (253 | ) | (72 | ) | (15 | ) | ||||||||||||||
Commercial |
(17 | ) | | (166 | ) | (145 | ) | | |||||||||||||||
Consumer |
(887 | ) | (996 | ) | (1,436 | ) | (1,753 | ) | (1,297 | ) | |||||||||||||
(1,420 | ) | (1,473 | ) | (2,070 | ) | (2,488 | ) | (1,470 | ) | ||||||||||||||
Net loans
charged-off |
(992 | ) | (965 | ) | (1,566 | ) | (2,155 | ) | (1,256 | ) | |||||||||||||
Provision
charged to operations |
3,650 | 2,695 | 2,680 | 3,690 | 2,751 | ||||||||||||||||||
Reserves
acquired from CBGP |
354 | | | | | ||||||||||||||||||
Reserve
balance, end of period |
$ | 12,412 | $ | 9,399 | $ | 7,669 | $ | 6,555 | $ | 5,020 | |||||||||||||
Ratio of net
loans charged-off to average loans outstanding |
.13 | % | .18 | % | .34 | % | .55 | % | .39 | % | |||||||||||||
Ratio of
reserve for loan losses to loans at end of period |
1.44 | % | 1.59 | % | 1.53 | % | 1.55 | % | 1.40 | % |
December 31, |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
2001 |
2000 |
|||||||||||||||||||
Loans on
non-accrual status |
$ | 483 | $ | 56 | $ | 971 | $ | 2,430 | $ | 621 | |||||||||||||
Loans past
due 90 days or more but not on non-accrual status |
| | 203 | 56 | 63 | ||||||||||||||||||
Other real
estate owned |
| | 331 | | | ||||||||||||||||||
Total
non-performing assets |
$ | 483 | $ | 56 | $ | 1,505 | $ | 2,486 | $ | 684 | |||||||||||||
Percentage of
non-performing assets to total assets |
.05 | % | .01 | % | .26 | % | .51 | % | .16 | % |
26
Investment Portfolio
December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
U.S. Agency
mortgage-backed securities |
$ | 29,525 | $ | 25,193 | $ | 19,459 | |||||||||
U.S.
Government and agency securities |
10,584 | 3,135 | 6,216 | ||||||||||||
Obligations
of state and political subdivisions |
4,686 | 3,458 | 790 | ||||||||||||
Total debt
securities |
44,795 | 31,786 | 26,465 | ||||||||||||
Mutual
fund |
369 | 352 | 346 | ||||||||||||
Equity
securities |
1,905 | 2,133 | 1,760 | ||||||||||||
Total
investment securities |
$ | 47,069 | $ | 34,271 | $ | 28,571 |
Type and maturity |
Carrying Value |
Weighted Average Yield (1) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
U.S. Agency
mortgage-backed securities |
||||||||||
Due after 1
but within 5 years |
$ | 1,940 | 3.59 | % | ||||||
Due after 10
years |
27,585 | 4.07 | % | |||||||
Total U.S.
Agency mortgage-backed securities |
29,525 | 4.04 | % | |||||||
U.S.
Government and Agency Securities |
||||||||||
Due after 1
but within 5 years |
10,584 | 3.72 | % | |||||||
Total U.S.
Government and Agency Securities |
10,584 | 3.72 | % | |||||||
State and
Political Subdivisions (1) |
||||||||||
Due after 1
but within 5 years |
3,593 | 3.71 | % | |||||||
Due after 5
but within 10 years |
1,093 | 6.25 | % | |||||||
Total State
and Political Subdivisions |
4,686 | 4.30 | % | |||||||
Total debt
securities |
44,795 | 3.99 | % | |||||||
Mutual
fund |
369 | 4.44 | % | |||||||
Equity
securities |
1,905 | 1.63 | % | |||||||
Total
Securities |
$ | 47,069 | 3.99 | % |
(1) | Yields on tax-exempt securities have not been stated on a tax equivalent basis. |
27
Bank-Owned Life Insurance
Deposit Liabilities and Time Deposit Maturities
Years
ended December 31,
|
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004
Average
|
2003
Average
|
2002
Average
|
|||||||||||||||||||||||
Deposit
Liabilities
|
Amount
|
Rate Paid |
Amount
|
Rate Paid |
Amount
|
Rate Paid |
|||||||||||||||||||
Demand |
$ | 295,108 | N/A | $ | 213,639 | N/A | $ | 173,105 | N/A | ||||||||||||||||
Interest-bearing demand |
376,424 | 0.86 | % | 281,438 | 0.87 | % | 195,526 | 1.17 | % | ||||||||||||||||
Savings |
33,928 | 0.34 | % | 26,888 | 0.41 | % | 21,421 | 0.68 | % | ||||||||||||||||
Time |
53,001 | 1.52 | % | 47,973 | 1.87 | % | 62,287 | 2.67 | % | ||||||||||||||||
Total
Deposits |
$ | 758,461 | $ | 569,938 | $ | 452,339 |
Time
deposits of $100,000 or more (1) |
All
other Time deposits (2) |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Remaining
time to maturity
|
Amount
|
Percent
|
Amount
|
Percent
|
||||||||||||
3
months or less |
$ | 5,815 | 21.87 | % | $ | 8,403 | 26.35 | % | ||||||||
Over
3 months through 6 months |
4,340 | 16.33 | 7,271 | 22.80 | ||||||||||||
Over
6 months through 12 months |
8,506 | 32.00 | 7,750 | 24.30 | ||||||||||||
Over
12 months |
7,922 | 29.80 | 8,466 | 26.55 | ||||||||||||
Total |
$ | 26,583 | 100.00 | % | $ | 31,890 | 100.00 | % |
(1) | Time deposits of $100,000 or more represent 3.12% of total deposits as of December 31, 2004. |
(2) | All other time deposits represent 3.75% of total deposits as of December 31, 2004. |
28
LIQUIDITY AND SOURCES OF FUNDS
JUNIOR SUBORDINATED DEBENTURES AND OTHER BORROWINGS
29
CAPITAL RESOURCES
CONTRACTUAL OBLIGATIONS
Payments
Due by Period
|
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total
|
Less
Than 1 Year |
1
to 3 Years
|
3
to 5 Years
|
More
Than 5 Years |
|||||||||||||
Time
deposits of $100,000 and over |
$ | 26,583 | $ | 18,661 | $ | 5,110 | $ | 2,812 | $ | | |||||||
Federal
Home Loan Bank advances |
29,700 | 4,000 | 7,000 | 17,000 | 1,700 | ||||||||||||
Junior
subordinated debentures |
20,000 | | | | 20,000 | ||||||||||||
Operating
leases |
9,991 | 1,210 | 2,058 | 1,647 | 5,076 | ||||||||||||
Total
contractual obligations |
$ | 86,274 | $ | 23,871 | $ | 14,168 | $ | 21,459 | $ | 26,776 |
OFF-BALANCE SHEET ARRANGEMENTS
Commitments
to extend credit |
$ | 296,914 | ||||
Commitments
under credit card lines of credit |
18,893 | |||||
Standby
letters of credit |
9,010 |
INFLATION
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk and Asset and Liability Management
30
Actual Market Rates at December 2004 |
Estimated Rates at December 2006 |
Declining Rates at December 2006 |
Rising Rates at December 2006 |
|||||
---|---|---|---|---|---|---|---|---|
Federal
Funds Rate |
2.25% | 4.00% | 0.25% | 8.25% | ||||
Prime
Rate |
5.25% | 7.00% | 3.25% | 10.75% | ||||
Treasury
Yield Curve Spread 10-year to 3 month |
2.05% Unchanged Over Horizon Period |
2.05% increasing to 2.25% |
2.05% flattening to 2.00% |
2.05% flattening to .50% |
Stable
Rate Scenario compared to:
|
First Twelve
Month Average % Change in Pro-forma Earnings |
Second Twelve
Month Average % Change in Pro-forma Earnings |
24th
Month % Change in Pro-forma Earnings |
|||
---|---|---|---|---|---|---|
Estimated
Rate Scenario |
0.00% | 3.45% | 5.49% | |||
Rising
Rate Scenario |
0.00% | 6.59% | 9.46% | |||
Declining
Rate Scenario |
(3.42%) | (14.53%) | (18.34%) |
31
32
Interest Rate Gap Table
Within 90 days |
After 90 days within one year |
After one year within five years |
After five years |
Total |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
INTEREST
EARNING ASSETS: |
||||||||||||||||||||||
Investments
& fed funds sold |
$ | 13,935 | $ | | $ | 16,117 | $ | 30,952 | $ | 61,004 | ||||||||||||
Interest
bearing balances with FHLB |
3,041 | | | | 3,041 | |||||||||||||||||
Loans |
375,674 | 76,608 | 352,024 | 58,402 | 862,708 | |||||||||||||||||
Total
interest earning assets |
$ | 392,650 | $ | 76,608 | $ | 368,141 | $ | 89,354 | $ | 926,753 | ||||||||||||
INTEREST
BEARING LIABILITIES: |
||||||||||||||||||||||
Interest-bearing demand deposits |
$ | 332,445 | $ | 83,111 | $ | | $ | | $ | 415,556 | ||||||||||||
Savings
deposits |
18,358 | 18,358 | | | 36,715 | |||||||||||||||||
Time
deposits |
14,218 | 27,866 | 16,354 | 35 | 58,473 | |||||||||||||||||
Total
interest bearing deposits |
365,020 | 129,335 | 16,354 | 35 | 510,744 | |||||||||||||||||
Junior
subordinated debentures |
20,000 | | | | 20,000 | |||||||||||||||||
Other
borrowings |
6,865 | | 28,000 | 1,669 | 36,534 | |||||||||||||||||
Total
interest bearing liabilities |
$ | 391,885 | $ | 129,335 | $ | 44,354 | $ | 1,704 | $ | 567,278 | ||||||||||||
Interest rate
sensitivity gap |
$ | 765 | $ | (52,727 | ) | $ | 323,787 | $ | 87,650 | $ | 359,475 | |||||||||||
Cumulative
interest rate sensitivity gap |
$ | 765 | $ | (51,962 | ) | $ | 271,825 | $ | 359,475 | $ | 359,475 | |||||||||||
Interest rate
gap as a percentage of total interest earning assets |
0.08 | % | (5.69 | )% | 34.94 | % | 9.46 | % | 38.79 | % | ||||||||||||
Cumulative
interest rate gap as a percentage of total earning assets |
0.08 | % | (5.61 | )% | 29.33 | % | 38.79 | % | 38.79 | % |
33
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Page |
||||||
---|---|---|---|---|---|---|
Report of
Independent Registered Public Accounting Firm on Internal Control over Financial Reporting |
35 | |||||
Report of
Independent Registered Public Accounting Firm |
36 | |||||
Consolidated
Balance Sheets at December 31, 2004 and 2003 |
37 | |||||
For the Years
Ended December 31, 2004, 2003 and 2002: |
||||||
Consolidated
Statements of Income |
38 | |||||
Consolidated
Statements of Changes in Stockholders Equity |
39 | |||||
Consolidated
Statements of Cash Flows |
41 | |||||
Notes to
Consolidated Financial Statements |
42 |
34
REPORT OF SYMONDS, EVANS & COMPANY, P.C.,
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Bancorp maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also in our opinion, Bancorp maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.
We have also audited, in accordance with the standards of the PCAOB, the
consolidated balance sheets of Bancorp as of December 31, 2004 and 2003, 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, 2004, and our report dated January 13, 2005
expressed an unqualified opinion on those consolidated financial statements.
Portland, Oregon
January 27, 2005
35
REPORT OF SYMONDS, EVANS & COMPANY, P.C.,
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cascade Bancorp and subsidiary as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States.
Portland, Oregon
January 13, 2005
36
CASCADE BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER
31, 2004 AND 2003
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
ASSETS |
||||||||||
Cash and cash
equivalents: |
||||||||||
Cash and due
from banks |
$ | 34,915,710 | $ | 34,930,921 | ||||||
Interest
bearing deposits with Federal Home Loan Bank |
3,040,978 | 38,789,177 | ||||||||
Federal funds
sold |
13,935,467 | 14,800,000 | ||||||||
Total cash
and cash equivalents |
51,892,155 | 88,520,098 | ||||||||
Investment
securities available-for-sale |
45,110,418 | 33,609,058 | ||||||||
Investment
securities held-to-maturity, estimated fair value of $1,999,026 ($716,221 in 2003) |
1,958,736 | 661,686 | ||||||||
Federal Home
Loan Bank stock |
2,571,600 | 2,295,600 | ||||||||
Loans,
net |
847,147,231 | 577,801,194 | ||||||||
Premises and
equipment, net |
21,755,058 | 13,828,138 | ||||||||
Bank-owned
life insurance |
14,065,927 | 8,558,250 | ||||||||
Accrued
interest and other assets |
20,307,765 | 9,437,920 | ||||||||
Total
assets |
$ | 1,004,808,890 | $ | 734,711,944 | ||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||
Liabilities: |
||||||||||
Deposits: |
||||||||||
Demand |
$ | 340,652,463 | $ | 245,378,530 | ||||||
Interest
bearing demand |
415,556,155 | 332,792,532 | ||||||||
Savings |
36,715,012 | 28,715,391 | ||||||||
Time |
58,472,916 | 44,268,539 | ||||||||
Total
deposits |
851,396,546 | 651,154,992 | ||||||||
Junior
subordinated debentures |
20,000,000 | | ||||||||
Other
borrowings |
36,533,475 | 13,864,605 | ||||||||
Accrued
interest and other liabilities |
10,446,424 | 7,936,653 | ||||||||
Total
liabilities |
918,376,445 | 672,956,250 | ||||||||
Stockholders equity: |
||||||||||
Common stock,
no par value; 20,000,000 shares authorized; 16,738,627 shares issued and outstanding (15,776,594 in 2003) |
32,078,798 | 19,147,285 | ||||||||
Retained
earnings |
53,706,929 | 42,100,708 | ||||||||
Unearned
compensation on restricted stock |
(155,925 | ) | (280,665 | ) | ||||||
Accumulated
other comprehensive income |
802,643 | 788,366 | ||||||||
Total
stockholders equity |
86,432,445 | 61,755,694 | ||||||||
Total
liabilities and stockholders equity |
$ | 1,004,808,890 | $ | 734,711,944 |
See accompanying notes.
37
CASCADE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS
ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest and
dividend income: |
||||||||||||||
Interest and
fees on loans |
$ | 49,357,692 | $ | 39,299,069 | $ | 36,622,537 | ||||||||
Taxable
interest on investment securities |
1,092,709 | 1,018,475 | 1,021,769 | |||||||||||
Nontaxable
interest on investment securities |
92,330 | 65,815 | 36,710 | |||||||||||
Interest on
interest bearing deposits with Federal Home Loan Bank |
194,116 | 214,027 | 794 | |||||||||||
Interest on
federal funds sold |
111,509 | 116,405 | 85,595 | |||||||||||
Dividends on
Federal Home Loan Bank stock |
62,600 | 121,392 | 129,300 | |||||||||||
Total
interest and dividend income |
50,910,956 | 40,835,183 | 37,896,705 | |||||||||||
Interest
expense: |
||||||||||||||
Deposits: |
||||||||||||||
Interest
bearing demand |
3,240,683 | 2,448,717 | 2,277,794 | |||||||||||
Savings |
117,188 | 109,453 | 146,545 | |||||||||||
Time |
806,101 | 898,014 | 1,665,889 | |||||||||||
Junior
subordinated debentures and other borrowings |
738,651 | 546,935 | 567,135 | |||||||||||
Total
interest expense |
4,902,623 | 4,003,119 | 4,657,363 | |||||||||||
Net interest
income |
46,008,333 | 36,832,064 | 33,239,342 | |||||||||||
Loan loss
provision |
3,650,000 | 2,695,000 | 2,680,000 | |||||||||||
Net interest
income after loan loss provision |
42,358,333 | 34,137,064 | 30,559,342 | |||||||||||
Noninterest
income: |
||||||||||||||
Service
charges on deposit accounts, net |
6,747,052 | 6,035,350 | 4,268,990 | |||||||||||
Mortgage
banking income, net |
2,361,815 | 4,114,738 | 2,721,753 | |||||||||||
Gains on
sales of investment securities available-for-sale |
181,720 | 236,435 | 152,746 | |||||||||||
Card issuer
and merchant service fees, net |
2,004,018 | 1,692,456 | 1,439,868 | |||||||||||
Earnings on
bank-owned life insurance |
655,755 | 412,817 | 410,686 | |||||||||||
Other |
989,316 | 908,604 | 669,167 | |||||||||||
Total
noninterest income |
12,939,676 | 13,400,400 | 9,663,210 | |||||||||||
Noninterest
expenses: |
||||||||||||||
Salaries and
employee benefits |
17,907,486 | 15,730,367 | 12,625,971 | |||||||||||
Equipment |
1,241,961 | 1,017,960 | 890,318 | |||||||||||
Occupancy |
2,182,666 | 1,901,901 | 1,477,050 | |||||||||||
Supplies |
433,447 | 392,405 | 316,077 | |||||||||||
Communications |
862,614 | 681,661 | 621,435 | |||||||||||
Advertising |
738,032 | 408,424 | 464,654 | |||||||||||
Other |
6,211,153 | 4,721,858 | 4,627,012 | |||||||||||
Total
noninterest expenses |
29,577,359 | 24,854,576 | 21,022,517 | |||||||||||
Income before
income taxes |
25,720,650 | 22,682,888 | 19,200,035 | |||||||||||
Provision for
income taxes |
9,713,000 | 8,728,000 | 7,485,000 | |||||||||||
Net
income |
$ | 16,007,650 | $ | 13,954,888 | $ | 11,715,035 | ||||||||
Basic
earnings per common share |
$ | .96 | $ | .89 | $ | .75 | ||||||||
Diluted
earnings per common share |
$ | .93 | $ | .86 | $ | .73 |
See accompanying notes.
38
CASCADE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
Number of shares |
Comprehensive income |
Common stock |
Retained earnings |
Unearned compensation on restricted stock |
Accumulated other comprehensive income |
Total stockholders equity |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balances
at December 31, 2001 |
15,514,363 | $ | 17,859,283 | $ | 23,701,571 | $ | | $ | 119,216 | $ | 41,680,070 | ||||||||||||
Comprehensive
income: |
|||||||||||||||||||||||
Net
income |
| $ | 11,715,035 | | 11,715,035 | | | 11,715,035 | |||||||||||||||
Other
comprehensive income unrealized gains on investment securities
available-for-sale of approximately $737,000 (net of income taxes of approximately
$453,000), net of reclassification adjustment for net
gains on sales of investment securities available-for-sale included in
net income of approximately $94,000 (net of income taxes of approximately
$59,000) |
| 643,196 | | | | 643,196 | 643,196 | ||||||||||||||||
Total
comprehensive income |
| $ | 12,358,231 | | | | | | |||||||||||||||
Cash
dividends paid (aggregating $.21 per share) |
| | (3,244,385 | ) | | | (3,244,385 | ) | |||||||||||||||
Stock
options exercised |
127,685 | 393,799 | | | | 393,799 | |||||||||||||||||
Balances
at December 31, 2002 |
15,642,048 | 18,253,082 | 32,172,221 | | 762,412 | 51,187,715 | |||||||||||||||||
Comprehensive
income: |
|||||||||||||||||||||||
Net
income |
| $ | 13,954,888 | | 13,954,888 | | | 13,954,888 | |||||||||||||||
Other
comprehensive income unrealized gains on investment securities
available-for-sale of approximately $172,000 (net of income taxes of approximately
$107,000), net of reclassification adjustment for net
gains on sales of investment securities available-for-sale included in
net income of approximately $146,000 (net of income taxes of approximately
$91,000) |
| 25,954 | | | | 25,954 | 25,954 | ||||||||||||||||
Total
comprehensive income |
| $ | 13,980,842 | | | | | | |||||||||||||||
Fair
value of restricted stock grants |
| 311,850 | | (311,850 | ) | | | ||||||||||||||||
Amortization
of unearned compensation on restricted stock |
| | | 31,185 | | 31,185 | |||||||||||||||||
Cash
dividends paid (aggregating $.26 per share) |
| | (4,026,401 | ) | | | (4,026,401 | ) | |||||||||||||||
Stock
options exercised |
134,546 | 576,609 | | | | 576,609 | |||||||||||||||||
Tax
benefit from non-qualified stock options exercised |
| 5,744 | | | | 5,744 | |||||||||||||||||
Balances
at December 31, 2003 |
15,776,594 | $ | 19,147,285 | $ | 42,100,708 | $ | (280,665 | ) | $ | 788,366 | $ | 61,755,694 |
39
See accompanying notes.
CASCADE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY (continued)
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
Number of shares |
Comprehensive income |
Common stock |
Retained earnings |
Unearned compensation on restricted stock |
Accumulated other comprehensive income |
Total stockholders equity |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balances
at December 31, 2003 |
15,776,594 | $ | 19,147,285 | $ | 42,107,708 | $ | (280,665 | ) | $ | 788,366 | $ | 61,755,694 | |||||||||||
Comprehensive
income: |
|||||||||||||||||||||||
Net
income |
| $ | 16,007,650 | | 16,007,650 | | | 16,007,650 | |||||||||||||||
Other
comprehensive income unrealized gains on investment securities
available-for-sale of approximately $127,000 (net of income taxes of approximately
$78,000), net of reclassification adjustment for net
gains on sales of investment securities available-for-sale included in
net income of approximately $113,000 (net of income taxes of approximately
$69,000) |
14,277 | 14,277 | 14,277 | ||||||||||||||||||||
Total
comprehensive income |
| $ | 16,021,927 | | | | | | |||||||||||||||
Common
stock issued in conjunction with acquisition |
772,752 | 11,699,399 | | | | 11,699,399 | |||||||||||||||||
Amortization
of unearned compensation on restricted stock |
| | | 124,740 | | 124,740 | |||||||||||||||||
Cash
dividends paid (aggregating $.26 per share) |
| | (4,401,429 | ) | | | (4,401,429 | ) | |||||||||||||||
Stock
options exercised |
189,281 | 812,375 | | | | 812,375 | |||||||||||||||||
Tax
benefit from non-qualified stock options exercised |
| 419,739 | | | | 419,739 | |||||||||||||||||
Balances
at December 31, 2004 |
16,738,627 | $ | 32,078,798 | $ | 53,706,929 | $ | (155,925 | ) | $ | 802,643 | $ | 86,432,445 |
40
See accompanying notes.
CASCADE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows
from operating activities: |
||||||||||||||
Net
income |
$ | 16,007,650 | $ | 13,954,888 | $ | 11,715,035 | ||||||||
Adjustments
to reconcile net income to net cash provided by operating activities: |
||||||||||||||
Depreciation
and amortization |
3,296,552 | 3,426,792 | 2,322,473 | |||||||||||
Loan loss
provision |
3,650,000 | 2,695,000 | 2,680,000 | |||||||||||
Provision
(credit) for deferred income taxes |
905,000 | (1,028,000 | ) | (1,000 | ) | |||||||||
Discounts on
sales of mortgage loans, net |
368,213 | 694,125 | 1,118,756 | |||||||||||
Gains on
sales of investment securities available-for-sale, net |
(181,720 | ) | (236,435 | ) | (152,746 | ) | ||||||||
Dividends on
Federal Home Loan Bank stock |
(62,600 | ) | (121,392 | ) | (129,300 | ) | ||||||||
Deferred
benefit plan expenses |
1,087,000 | 681,000 | 625,000 | |||||||||||
Amortization
of unearned compensation on restricted stock |
124,740 | 31,185 | | |||||||||||
Increase in
accrued interest and other assets |
(7,283,393 | ) | (3,041,233 | ) | (2,881,285 | ) | ||||||||
Increase in
accrued interest and other liabilities |
366,024 | 46,285 | 118,955 | |||||||||||
Originations
of mortgage loans |
(141,406,975 | ) | (304,691,027 | ) | (224,307,826 | ) | ||||||||
Proceeds from
sales of mortgage loans |
140,296,007 | 305,699,939 | 223,323,026 | |||||||||||
Net cash
provided by operating activities |
17,166,498 | 18,111,127 | 14,431,088 | |||||||||||
Cash flows
from investing activities: |
||||||||||||||
Purchases of
investment securities available-for-sale |
(20,477,804 | ) | (16,963,356 | ) | (15,328,195 | ) | ||||||||
Purchases of
investment securities held-to-maturity |
(1,300,000 | ) | | | ||||||||||
Proceeds from
maturities, calls and prepayments of investment securities available-for-sale |
8,625,150 | 10,989,640 | 13,268,711 | |||||||||||
Proceeds from
sales of investment securities available-for-sale |
404,573 | 427,835 | 410,483 | |||||||||||
Proceeds from
maturities and calls of investment securities held-to-maturity |
| 124,479 | 152,768 | |||||||||||
Purchase of
Federal Home Loan Bank stock |
(162,200 | ) | | | ||||||||||
Loan
originations, net |
(235,911,282 | ) | (90,695,692 | ) | (79,167,608 | ) | ||||||||
Cash acquired
in acquisition of Community Bank of Grants Pass |
10,192,199 | | | |||||||||||
Purchases of
premises and equipment, net |
(7,856,186 | ) | (4,750,406 | ) | (1,540,411 | ) | ||||||||
Purchases of
bank-owned life insurance |
(4,925,000 | ) | (320,000 | ) | (187,000 | ) | ||||||||
Net cash used
in investing activities |
(251,410,550 | ) | (101,187,500 | ) | (82,391,252 | ) | ||||||||
Cash flows
from financing activities: |
||||||||||||||
Net increase
in deposits |
158,116,554 | 149,192,734 | 76,704,629 | |||||||||||
Proceeds from
issuance of junior subordinated debentures |
20,000,000 | | | |||||||||||
Net increase
(decrease) in other borrowings |
22,668,870 | (4,135,395 | ) | 2,650,000 | ||||||||||
Cash
dividends paid |
(4,401,429 | ) | (4,026,401 | ) | (3,244,385 | ) | ||||||||
Stock options
exercised |
812,375 | 576,609 | 393,799 | |||||||||||
Tax benefit
from non-qualified stock options exercised |
419,739 | 5,744 | | |||||||||||
Net cash
provided by financing activities |
197,616,109 | 141,613,291 | 76,504,043 | |||||||||||
Net increase
(decrease) in cash and cash equivalents |
(36,627,943 | ) | 58,536,918 | 8,543,879 | ||||||||||
Cash and cash
equivalents at beginning of year |
88,520,098 | 29,983,180 | 21,439,301 | |||||||||||
Cash and cash
equivalents at end of year |
$ | 51,892,155 | $ | 88,520,098 | $ | 29,983,180 |
See accompanying notes.
41
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2004
1. | Basis of presentation and summary of significant accounting policies |
The accompanying consolidated financial statements include the accounts of Cascade Bancorp (Bancorp), a financial holding company, and its wholly-owned subsidiary, Bank of the Cascades (the Bank) (collectively, the Company). All significant intercompany accounts and transactions have been eliminated in consolidation.
All share and per share information in the accompanying consolidated financial statements have been adjusted to give retroactive effect to a 5-for-4 stock split in 2004 and a 2-for-1 stock split in 2002.
Certain amounts in 2003 and 2002 have been reclassified to conform with the 2004 presentation.
Description of business
The Bank conducts a general banking business, primarily operating in one business segment, and currently operates branches throughout Central Oregon; the Salem/Keizer, Oregon area and Southern Oregon and has a business banking office in Portland, Oregon. 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 and safe deposit facilities. Additionally, the Bank originates and sells mortgage loans into the secondary market and offers trust and investment services.
Method of accounting
The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States 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, interest bearing deposits with Federal Home Loan Bank (FHLB) and federal funds sold. Generally, any interest bearing deposits are invested for a maximum of 90 days. Federal funds are generally 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.
Supplemental disclosures of cash flow information
For the periods reported, noncash transactions resulted from stock splits; unrealized gains on investment securities available-for-sale, net of income taxes, as disclosed in the accompanying consolidated statements of changes in stockholders equity; the net capitalization of originated mortgage-servicing rights, as disclosed in Note 6; and common stock issued in conjunction with the acquisition of Community Bank of Grants Pass (CBGP), as disclosed in Note 11.
During 2004, 2003 and 2002, the Bank paid approximately $4,765,000, $4,069,000 and $4,775,000, respectively, in interest expense.
42
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
During 2004, 2003 and 2002, the Company made income tax payments of approximately $10,750,000, $9,225,000 and $7,830,000, respectively.
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 during 2004, 2003 or 2002.
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.
Management determines the appropriate classification of securities at the time of purchase.
Gains and losses on the sales of available-for-sale securities are determined using the specific-identification method. Premiums and discounts on available-for-sale securities are recognized in interest income using the interest method generally 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. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery of fair value. The related write-downs would be included in earnings as realized losses. Management believes that all unrealized losses on investment securities at December 31, 2004 and 2003 are temporary.
FHLB stock
The Banks investment in FHLB stock is carried at cost, 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. At December 31, 2004, the Bank met its minimum required investment. 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 the FHLB.
Loans
Loans are stated at the amount of unpaid principal, reduced by the reserve for loan losses and deferred loan fees.
Interest income on all loans is accrued as earned on the simple interest method. The accrual of interest on loans is discontinued when, in managements opinion, the borrower may be unable to make 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.
Reserve for loan losses
The reserve for loan losses represents managements recognition of the assumed risks of extending credit. The reserve is established to absorb known and inherent losses in the loan portfolio and related commitments to loan as of the balance sheet date. The reserve is maintained at a level considered adequate to provide for potential loan
43
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
losses based on managements assessment of various factors affecting 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 following describes the Companys methodology for assessing the appropriate level of the reserve for loan losses. For this purpose, loans and related commitments to loan may be analyzed and reserves categorized into the allocated reserve, specifically identified reserves for impaired loans or the unallocated reserve.
The allocated portion of the reserve is calculated by applying loss factors to outstanding loan balances and related commitments to loan segregated by differing risk categories. Loss factors are based on historical loss experience, adjusted for current economic trends, portfolio concentrations and other conditions affecting the portfolio.
Impaired loans are either specifically allocated for in the reserve for loan losses or reflected as a partial charge-off of the loan balance. 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. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price or the fair value of the loans underlying collateral or related guaranty. Since a significant portion of the Banks loans are collateralized by real estate, the Bank primarily measures impairment based on the fair value of the underlying collateral or related guaranty. In certain other cases, impairment is measured based on the present value of expected future cash flows discounted at the loans effective interest rate. Smaller balance homogeneous loans (typically installment loans) are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual installment loans for impairment disclosures. Generally, the Bank evaluates a loan for impairment when a loan is determined to be adversely risk rated.
The unallocated portion of the reserve is based upon managements evaluation of various factors that are not directly measured in the determination of the allocated and specific reserves. Such factors include uncertainties in economic conditions, uncertainty in identifying triggering events that directly correlate to subsequent loss rates, risk factors that have not yet manifested themselves in loss allocation factors and historical loss experience data that may not precisely correspond to the current portfolio. Also, loss data representing a complete economic cycle is not available for all sections of the loan portfolio. Accordingly, the unallocated reserve helps to minimize the risk related to the margin of imprecision inherent in the estimation of allocated loan losses. Due to the subjectivity involved in the determination of the unallocated portion of the reserve for loan losses, the relationship of the unallocated component to the total reserve for loan losses may fluctuate from period to period.
The Company currently classifies reserves for commitments to loan in the loan loss reserve in accordance with the industry practice of other banks in its peer group. At some point in the future management anticipates that the Company will reclassify such amounts as other liabilities.
Various regulatory agencies, as an integral part of their examination process, periodically review the Banks reserve for loan losses. Such agencies may require the Bank to recognize additions to the reserve in the future based on their judgment of the information available to them at the time of their examinations.
Mortgage servicing rights
Mortgage servicing rights (MSRs) are measured by allocating the carrying value of loans between the assets sold and interest retained, based upon the relative estimated fair value at date of sale. MSRs are capitalized at their allocated carrying value and amortized in proportion to, and over the period of, estimated future net servicing revenue. Impairment of MSRs is assessed based on the estimated fair value of servicing rights. Fair value is estimated using discounted cash flows of servicing revenue less servicing costs taking into consideration market estimates of prepayments as applied to underlying loan type, note rate and term. Impairment adjustments, if any, are recorded through a valuation allowance.
44
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Fees earned for servicing mortgage loans are reported as income when the related mortgage loan payments are received. The Company classifies MSRs as accrued interest and other assets in the accompanying consolidated balance sheets.
Premises and equipment
Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is computed on the straight-line method 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. Holding costs, subsequent write-downs to net realizable value, if any, or any disposition gains or losses are included in noninterest income and expenses. Other real estate was insignificant at December 31, 2004 and 2003.
Goodwill and other intangible assets
Goodwill and other intangible assets represent the excess of the purchase price and related costs over the fair value of net assets acquired in business combinations under the purchase method of accounting. As of December 31, 2004, the carrying value of goodwill and other intangible assets that arose from the acquisition of CBGP totaled approximately $6.9 million, of which approximately $6.4 million represents goodwill, and is included in accrued interest and other assets in the accompanying 2004 consolidated balance sheet. The amounts of goodwill and other intangible assets were not significant at December 31, 2003.
In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, goodwill cannot be amortized; however, it must be tested for impairment at least annually. This impairment test is calculated at the reporting unit level by comparing the estimated fair value of the reporting unit with its net book value, including goodwill. An impairment loss will be recorded for any goodwill that is determined to be impaired. Goodwill would be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Differences in the identification of reporting units and the use of valuation techniques could result in materially different evaluations of impairment.
The Company performed its annual impairment test for goodwill during the third quarter of 2004. For purposes of this test, the Company identified a single reporting unit. The fair value of the reporting unit was determined by using the quoted market price of the Companys common stock as of the impairment testing date. The Company determined that the fair value of its single reporting unit was significantly in excess of the reporting units carrying value. Accordingly, based on the results of valuation testing performed, in the opinion of management, the Company has not experienced any such impairment loss as of and for the year ended December 31, 2004.
Other intangible assets include core deposit intangibles and other identifiable finite-life intangible assets which are being amortized over their estimated useful lives primarily under the straight-line method.
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 (credit) for income taxes.
45
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Trust assets
Assets of the Banks trust department, other than cash on deposit at the Bank, are not included in the accompanying consolidated financial statements because they are not assets of the Bank.
Recently issued accounting standards
The Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) is currently considering EITF Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF Issue 03-1 provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless: (i) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment; and (ii) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other-than-temporary, then an impairment loss should be recognized equal to the difference between the investments cost and its fair value. Certain disclosure requirements of EITF Issue 03-1 were adopted in 2003 and the Company began presenting the new disclosure requirements in its consolidated financial statements for the year ended December 31, 2003, as applicable. The recognition and measurement provisions were initially effective for other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. However, in September 2004, the effective date of these provisions was delayed until the finalization of a FASB Staff Position to provide additional implementation guidance.
In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS 123R), Share-Based Payment. SFAS 123R establishes standards for the accounting for transactions in which an entity (i) exchanges its equity instruments for goods or services, or (ii) incurs liabilities in exchange for goods or services that are based on the fair value of the entitys equity instruments or that may be settled by the issuance of the equity instruments. SFAS 123R will replace SFAS No. 123, Accounting for Stock-Based Compensation, and will supersede Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations (collectively APB 25). SFAS 123R will eliminate the ability to account for stock-based compensation using APB 25 and requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the date of the grant.
SFAS 123R is effective for the Company beginning on July 1, 2005. The Company will transition to fair value based accounting for stock-based compensation using a modified version of prospective application (modified prospective application). Under modified prospective application, as it is applicable to the Company, SFAS 123R applies to new awards and to awards modified, repurchased, or cancelled after July 1, 2005. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered (generally referring to non-vested awards) that are outstanding as of July 1, 2005, must be recognized as the remaining requisite service is rendered during the period of and/or the periods after the adoption of SFAS 123R. The attribution of compensation cost for those earlier awards will be based on the same method and on the same grant-date fair values previously determined for the pro forma disclosures required for companies that did not adopt the fair value accounting method for stock-based employee compensation. Based on the stock-based compensation awards outstanding as of December 31, 2004 for which the requisite service is not expected to be fully rendered prior to July 1, 2005, the Company expects to recognize additional pre-tax, quarterly compensation cost of approximately $111,000 beginning in the third quarter of 2005 as a result of the adoption of SFAS 123R. Future levels of compensation cost recognized related to stock-based compensation awards (including the aforementioned expected costs during the period of adoption) may be impacted by new awards and/or modifications, repurchases and cancellations of existing awards before and after the adoption of this standard.
Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 105, Application of Accounting Principles to Loan Commitments, summarizes the views of the staff of the SEC regarding the application of
46
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
accounting principles generally accepted in the United States to loan
commitments accounted for as derivative instruments. SAB No. 105 provides that the fair value of recorded loan commitments that are accounted for as
derivatives under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, should not incorporate the expected future
cash flows related to the associated servicing of the future loan. In addition, SAB No. 105 requires registrants to disclose their accounting policy
for loan commitments. The provisions of SAB No. 105 must be applied to loan commitments accounted for as derivatives that are entered into after March
31, 2004. The adoption of this accounting standard did not have a material impact on the Companys 2004 consolidated financial
statements.
The American Institute of Certified Public Accountants Statement of Position (SOP) No. 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, addresses accounting for differences between the contractual cash flows of certain loans and debt securities and the cash flows expected to be collected when loans or debt securities are acquired in a transfer and those cash flow differences are attributable, at least in part, to credit quality. As such, SOP No. 03-3 applies to loans and debt securities acquired individually, in pools or as part of a business combination and does not apply to originated loans. The application of SOP No. 03-3 limits the interest income including accretion of purchase price discounts that may be recognized for certain loans and debt securities. Additionally, SOP No. 03-3 does not allow the excess of contractual cash flows over cash flows expected to be collected to be recognized as an adjustment of yield, loss accrual or valuation allowance, such as the reserve for loan losses. SOP No. 03-3 requires that increases in expected cash flows subsequent to the initial investment be recognized prospectively through an adjustment of the yield on the loan or debt security over its remaining life. Decreases in expected cash flows should be recognized as impairment. In the case of loans acquired in a business combination where the loans show signs of credit deterioration, SOP No. 03-3 represents a significant change from current purchase accounting practice, whereby the acquirees reserve for loan losses is typically added to the acquirers reserve for loan losses. SOP No. 03-3 is effective for loans and debt securities acquired by the Company beginning January 1, 2005. The adoption of this new standard is not presently expected to have a material impact on the Companys consolidated financial statements.
Stock-based compensation
The Company currently measures its stock-based compensation arrangements under the recognition and measurement principles of APB No. 25. Accordingly, since the exercise price of each stock option which the Company has granted has been equal to the market value of the underlying common stock on the date of grant, no compensation expense has been recognized. SFAS No. 123, as amended by SFAS No. 148, requires pro forma disclosures of net income and earnings per share for companies not adopting its fair value accounting method for stock-based employee compensation. The following table illustrates the effects on net income and earnings per common share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation:
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net income,
as reported |
$ | 16,007,650 | $ | 13,954,888 | $ | 11,715,035 | ||||||||
Deduct: Total
stock-based compensation expense determined under fair value based method for all awards, net of related income tax effects |
(604,578 | ) | (541,294 | ) | (523,797 | ) | ||||||||
Pro forma net
income |
$ | 15,403,072 | $ | 13,413,594 | $ | 11,191,238 | ||||||||
Earnings per
common share: |
||||||||||||||
Basic
as reported |
$ | .96 | $ | .89 | $ | .75 | ||||||||
Basic
pro forma |
.92 | .85 | .72 | |||||||||||
Diluted
as reported |
.93 | .86 | .73 | |||||||||||
Diluted
pro forma |
.89 | .83 | .70 |
47
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The effect of applying SFAS No. 123 to stock options granted in the years ended December 31, 2004, 2003 and 2002 resulted in an estimated weighted-average grant date fair value of $6.38, $4.51 and $2.87, respectively. The Company used the Black-Scholes option-pricing model with the following weighted-average assumptions to value options granted for the years ended December 31, 2004, 2003 and 2002:
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dividend
yield |
1.6 | % | 2.3 | % | 1.9 | % | ||||||||
Estimated
volatility |
43.6 | % | 47.8 | % | 34.2 | % | ||||||||
Risk-free
interest rate |
3.1 | % | 3.0 | % | 2.9 | % | ||||||||
Estimated
option lives |
6
years |
5
years |
5
years |
2. | Cash and due from banks |
By regulation, the Bank must meet reserve requirements as established by the Federal Reserve Bank (FRB) in the form of deposits and/or cash. Accordingly, the Bank held average reserves of approximately $12,818,000 and $5,119,000 at December 31, 2004 and 2003, respectively.
3. | Investment securities |
Investment securities at December 31, 2004 and 2003 consisted of the following:
Amortized cost |
Gross unrealized gains |
Gross unrealized losses |
Estimated fair value |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
||||||||||||||||||
Available-for-sale |
||||||||||||||||||
U.S. Agency
mortgage-backed securities |
$ | 29,255,143 | $ | 308,044 | $ | 38,129 | $ | 29,525,058 | ||||||||||
U.S.
Government and agency securities |
10,498,229 | 101,633 | 15,774 | 10,584,088 | ||||||||||||||
Obligations
of state and political subdivisions |
2,741,738 | 6,069 | 20,505 | 2,727,302 | ||||||||||||||
Equity
securities |
957,478 | 947,627 | | 1,905,105 | ||||||||||||||
Mutual
fund |
356,838 | 12,027 | | 368,865 | ||||||||||||||
$ | 43,809,426 | $ | 1,375,400 | $ | 74,408 | $ | 45,110,418 | |||||||||||
Held-to-maturity |
||||||||||||||||||
Obligations
of state and political subdivisions |
$ | 1,958,736 | $ | 43,393 | $ | 3,103 | $ | 1,999,026 | ||||||||||
2003 |
||||||||||||||||||
Available-for-sale |
||||||||||||||||||
U.S. Agency
mortgage-backed securities |
$ | 25,075,018 | $ | 174,776 | $ | 56,525 | $ | 25,193,269 | ||||||||||
U.S.
Government and agency securities |
3,000,000 | 135,151 | | 3,135,151 | ||||||||||||||
Obligations
of state and political subdivisions |
2,800,665 | 8,260 | 13,476 | 2,795,449 | ||||||||||||||
Equity
securities |
1,120,492 | 1,012,373 | | 2,132,865 | ||||||||||||||
Mutual
fund |
341,324 | 11,000 | | 352,324 | ||||||||||||||
$ | 32,337,499 | $ | 1,341,560 | $ | 70,001 | $ | 33,609,058 | |||||||||||
Held-to-maturity |
||||||||||||||||||
Obligations
of state and political subdivisions |
$ | 661,686 | $ | 54,535 | $ | | $ | 716,221 |
48
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Management of the Company does not believe that any of the above gross unrealized losses on investment securities are other-than-temporary and, accordingly, no impairment adjustments are necessary.
The amortized cost and estimated fair value of investment securities at December 31, 2004, 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.
Amortized cost |
Estimated fair value |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Available-for-sale |
||||||||||
Due after one
year through five years |
$ | 14,983,343 | $ | 15,047,137 | ||||||
Due after
five years through ten years |
200,000 | 204,353 | ||||||||
Due after ten
years |
27,311,767 | 27,584,958 | ||||||||
Equity
securities |
957,478 | 1,905,105 | ||||||||
Mutual
fund |
356,838 | 368,865 | ||||||||
$ | 43,809,426 | $ | 45,110,418 | |||||||
Held-to-maturity |
||||||||||
Due after one
year through five years |
$ | 1,070,215 | $ | 1,084,879 | ||||||
Due after
five years through ten years |
888,521 | 914,147 | ||||||||
$ | 1,958,736 | $ | 1,999,026 |
Investment securities with a carrying value of approximately $43,427,000 and $31,487,000 at December 31, 2004 and 2003, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.
The Company had no gross realized losses on sales of investment securities during the years ended December 31, 2004, 2003 and 2002. Gross realized gains on sales of investment securities during the years ended December 31, 2004, 2003 and 2002 are as disclosed in the accompanying consolidated statements of income.
4. | Loans |
Loans at December 31, 2004 and 2003 consisted of the following:
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Commercial |
$ | 253,041,395 | $ | 142,765,505 | ||||||
Real
estate: |
||||||||||
Construction/lot |
179,932,290 | 123,892,102 | ||||||||
Mortgage |
52,737,011 | 46,140,163 | ||||||||
Commercial |
339,787,916 | 244,203,103 | ||||||||
Consumer |
37,209,298 | 32,489,742 | ||||||||
862,707,910 | 589,490,615 | |||||||||
Less: |
||||||||||
Reserve for
loan losses |
12,411,568 | 9,398,584 | ||||||||
Deferred loan
fees |
3,149,111 | 2,290,837 | ||||||||
15,560,679 | 11,689,421 | |||||||||
Loans,
net |
$ | 847,147,231 | $ | 577,801,194 |
49
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Included in mortgage loans as of December 31, 2004 and 2003 were approximately $3,225,000 and $2,482,000, respectively, in mortgage loans held for sale.
A substantial portion of the Banks loans are collateralized by real estate in four major markets (Central Oregon, Salem/Keizer, Southern Oregon and Portland), and, accordingly, the ultimate collectibility of a substantial portion of the Banks loan portfolio is susceptible to changes in the local market conditions in such markets.
In the normal course of business, the Bank participates portions of loans to third parties in order to extend the Banks lending capability or to mitigate risk. At December 31, 2004 and 2003, the portion of these loans participated to third parties (which are not included in the accompanying consolidated financial statements) totaled approximately $24,630,000 and $11,901,000, respectively.
5. | Reserve for loan losses |
Transactions in the reserve for loan losses for the years ended December 31, 2004, 2003 and 2002 were as follows:
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at
beginning of year |
$ | 9,398,584 | $ | 7,669,145 | $ | 6,555,256 | ||||||||
Loan loss
provision |
3,650,000 | 2,695,000 | 2,680,000 | |||||||||||
Loans
charged-off |
(1,419,726 | ) | (1,473,867 | ) | (2,070,590 | ) | ||||||||
Recoveries of
loans previously charged-off |
428,291 | 508,306 | 504,479 | |||||||||||
Reserve
acquired from CBGP |
354,419 | | | |||||||||||
Balance at
end of year |
$ | 12,411,568 | $ | 9,398,584 | $ | 7,669,145 |
Loans on nonaccrual status at December 31, 2004 and 2003 were approximately $483,000 and $56,000, respectively. Interest income, which would have been realized on such nonaccrual loans outstanding at year-end, if they had remained current, was insignificant for the years ended December 31, 2004, 2003 and 2002. Loans contractually past due 90 days or more on which the Company continued to accrue interest at December 31, 2004 and 2003 were insignificant.
At December 31, 2004 and 2003, impaired loans and any related specific valuation allowances were insignificant. The average recorded investment in impaired loans was insignificant for the years ended December 31, 2004 and 2003. Interest income recognized on impaired loans for the years ended December 31, 2004, 2003 and 2002 was insignificant.
6. | Mortgage banking activities |
The Bank sells a predominant share of the mortgage loans it originates into the secondary market. However, it has retained the right to service sold loans with principal balances totaling approximately $502 million, $514 million and $454 million as of December 31, 2004, 2003, and 2002, respectively. These balances are not included in the accompanying consolidated balance sheets. The sales of these mortgage loans are subject to technical underwriting exceptions and related repurchase risks. However, as of December 31, 2004 and 2003, management is not aware of any mortgage loans which will have to be repurchased.
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, 2004 and 2003, mortgage loans held for sale were carried at cost, which approximated estimated market value.
50
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Transactions in the Companys MSRs for the years ended December 31, 2004, 2003 and 2002 were as follows:
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at
beginning of year |
$ | 4,688,445 | $ | 4,071,370 | $ | 3,602,536 | ||||||||
Additions |
1,269,752 | 3,096,576 | 2,311,094 | |||||||||||
Amortization |
(1,619,839 | ) | (2,504,501 | ) | (1,492,260 | ) | ||||||||
Impairment
adjustments |
325,000 | 25,000 | (350,000 | ) | ||||||||||
Balance at
end of year |
$ | 4,663,358 | $ | 4,688,445 | $ | 4,071,370 |
At both December 31, 2004 and 2003, the fair value of the Companys MSRs was approximately $5.2 million. The key assumptions used in estimating the fair value of MSRs at December 31, 2004 include weighted-average mortgage prepayment rates (PSA) of approximately 257% for the first year, 228% for the second year and 199% thereafter (301%, 237% and 196%, respectively, in 2003). A 9% discount rate was also applied.
Changes in the valuation allowance for MSRs for the years ended December 31, 2004, 2003 and 2002 were as follows:
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at
beginning of year |
$ | 325,000 | $ | 350,000 | $ | | ||||||||
Impairment
adjustments |
(325,000 | ) | (25,000 | ) | 350,000 | |||||||||
Balance at
end of year |
$ | | $ | 325,000 | $ | 350,000 |
The Company analyzes its MSRs by underlying loan type and interest rate (primarily fixed and adjustable). The estimated fair values are obtained through an independent third-party valuation, utilizing future cash flows which incorporate numerous assumptions including servicing income, servicing costs, market discount rates, prepayment speeds, default rates and other market-driven data. Accordingly, changes in such assumptions could significantly effect the estimated fair values of the Companys MSRs.
Mortgage banking income, net, consisted of the following for the years ended December 31, 2004, 2003 and 2002:
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Origination
and processing fees |
$ | 1,593,520 | $ | 3,389,614 | $ | 2,723,600 | ||||||||
Gains on
sales of mortgage loans, net |
766,078 | 1,976,242 | 804,098 | |||||||||||
Servicing
fees |
1,297,057 | 1,228,383 | 1,036,315 | |||||||||||
Amortization
and impairment adjustments |
(1,294,840 | ) | (2,479,501 | ) | (1,842,260 | ) | ||||||||
Mortgage
banking income, net |
$ | 2,361,815 | $ | 4,114,738 | $ | 2,721,753 |
7. | Premises and equipment |
Premises and equipment at December 31, 2004 and 2003 consisted of the following:
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Land |
$ | 3,299,900 | $ | 1,853,299 | ||||||
Buildings and
leasehold improvements |
17,479,550 | 8,915,544 | ||||||||
Furniture and
equipment |
8,732,684 | 7,258,844 | ||||||||
29,512,134 | 18,027,687 | |||||||||
Less
accumulated depreciation and amortization |
8,134,068 | 6,872,548 | ||||||||
21,378,066 | 11,155,139 | |||||||||
Construction
in progress |
376,992 | 2,672,999 | ||||||||
Premises and
equipment, net |
$ | 21,755,058 | $ | 13,828,138 |
51
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. | Time deposits |
Time deposits in excess of $100,000 aggregated approximately $26,583,000 and $15,977,000 at December 31, 2004 and 2003, respectively.
At December 31, 2004, the scheduled annual maturities of all time deposits were approximately as follows:
2005 |
$ | 39,639,000 | ||||
2006 |
9,822,000 | |||||
2007 |
5,222,000 | |||||
2008 |
1,171,000 | |||||
2009 |
2,619,000 | |||||
$ | 58,473,000 |
9. | Junior subordinated debentures |
On December 15, 2004 the Company established a subsidiary grantor trust (Cascade Bancorp Trust I) (the Trust), which issued $20 million of trust preferred securities (the TPS). The TPS are subordinated to any other borrowings of the Company and are due and payable on March 15, 2035. The TPS pay quarterly interest at the 3-month London Inter-Bank Offered Rate (LIBOR) plus 1.80%. The Trust used the proceeds received from the issuance of the TPS to purchase $20 million of junior subordinated debentures (the Debentures) of the Company. The Debentures were issued with substantially the same terms as the TPS and are the sole assets of the Trust. The Companys obligations under the Debentures and related agreements, taken together, constitute a full and irrevocable guarantee by the Company of the obligations of the Trust. The TPS are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the Indenture related to the Debentures. The TPS may be called by the Company at par at any time subsequent to March 15, 2010, and may be redeemed earlier upon the occurrence of certain events that impact the income tax or the regulatory capital treatment of the TPS. Upon establishment of the Trust, the Company also purchased a 3% minority interest in the Trust totaling $619,000, which is included in other assets in Bancorps condensed balance sheet at December 31, 2004 (see Note 20). Management believes that as of December 31, 2004, the TPS meet applicable regulatory guidelines to qualify as Tier 1 capital.
10. | Borrowings |
The Bank participates in the FHLBs Cash Management Advance Program (the Program). As of December 31, 2004, the Bank had approximately $29.7 million ($13.9 million at December 31, 2003) in borrowings outstanding from the FHLB under the Program with fixed interest at rates ranging from 2.87% to 3.57%. All outstanding borrowings with the FHLB are collateralized by a blanket pledge agreement on the Banks FHLB stock, any funds on deposit with the FHLB, investment securities and loans. As of December 31, 2004, the Bank had remaining available borrowings from the FHLB of approximately $120.7 million. To fully utilize the Banks available borrowings from the FHLB, the Bank would be required to purchase additional FHLB stock of approximately $3.4 million.
The Bank also has approximately $24.8 million in available short-term borrowings from the FRB, collateralized by certain of the Banks loans. The FRB funds available include participation in the Treasury Tax and Loan program of the federal government. Access to this funding source is limited to $7.0 million and is fully at the discretion of the U.S. Treasury. As of December 31, 2004, the Bank had approximately $6.8 million in borrowings outstanding from the FRB. The Bank had no borrowings outstanding from the FRB at December 31, 2003. As an additional source of liquidity, the Bank has federal fund borrowing agreements with correspondent banks aggregating approximately $26.0 million at December 31, 2004.
52
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At December 31, 2004, the contractual maturities of the Banks FHLB borrowings outstanding were approximately as follows:
2005 |
$ | 4,000,000 | ||||
2006 |
| |||||
2007 |
7,000,000 | |||||
2008 |
13,000,000 | |||||
2009 |
| |||||
Thereafter |
5,700,000 | |||||
$ | 29,700,000 |
11. | Acquisition of Community Bank of Grants Pass |
On January 1, 2004, the Company completed its acquisition of CBGP to complement its expansion into Southern Oregon. CBGP shareholders received one share of the Companys common stock for each share of CBGP common stock (772,752 shares), aggregating a total purchase price of approximately $11.7 million. The common stock issued was valued at $14.16 per share, representing an average of closing market prices for one week before and after the date the acquisition terms were agreed to and announced. The cost of this acquisition also included the fair value of stock options exchanged of approximately $.8 million. Upon completion of this acquisition, CBGP was merged into the Bank. Accordingly, CBGPs results of operations have been included in the consolidated financial statements effective January 1, 2004. The pro forma comparative combined results of operations of the Company and CBGP as if the acquisition had occurred at the beginning of 2003 were not significant to the accompanying consolidated financial statements. The acquisition was accounted for using the purchase method of accounting.
The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the date of acquisition (dollars in thousands):
Cash and cash
equivalents |
$ | 10,244 | ||||
Loans,
net |
36,342 | |||||
Premises and
equipment, net |
1,335 | |||||
Core deposit
intangible |
580 | |||||
Goodwill |
6,352 | |||||
Other
assets |
95 | |||||
Total assets
acquired |
54,948 | |||||
Deposits |
42,125 | |||||
Deferred tax
liability |
530 | |||||
Other
liabilities |
593 | |||||
Total
liabilities assumed |
43,248 | |||||
Total
purchase price |
$ | 11,700 |
12. | Commitments, guarantees and contingencies |
In the ordinary 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 financial 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 financial instruments reflect the extent of the Banks involvement in these particular classes of financial instruments. As of December 31, 2004 and 2003, the Bank had no commitments to extend credit at below-market interest rates and held no significant derivative financial instruments.
53
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Banks exposure to credit loss for commitments to extend credit, commitments under credit card lines of credit and standby letters of credit is represented by the contractual amount of these instruments. The Company uses the same credit policies in underwriting and offering commitments and conditional obligations as it does for on-balance sheet instruments.
A summary of the Banks off-balance sheet financial instruments at December 31, 2004 and 2003 is approximately as follows:
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Commitments
to extend credit |
$ | 296,914,000 | $ | 176,919,000 | ||||||
Commitments
under credit card lines of credit |
18,893,000 | 16,985,000 | ||||||||
Standby
letters of credit |
9,010,000 | 5,617,000 | ||||||||
Total
off-balance sheet financial instruments |
$ | 324,817,000 | $ | 199,521,000 |
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the 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 customers 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 managements 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, residential real estate and income-producing commercial properties.
Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. These guarantees are primarily issued to support public and private borrowing arrangements. In the event the customer does not perform in accordance with the terms of the agreement with the third-party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment were funded, the Company would be entitled to seek recovery from the customer. The Companys policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those involved in extending loans to customers. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers.
The Company considers the fees collected in connection with the issuance of standby letters of credit to be representative of the fair value of its obligations undertaken in issuing the guarantees. In accordance with applicable accounting standards related to guarantees, the Company defers fees collected in connection with the issuance of standby letters of credit. The fees are then recognized in income proportionately over the life of the standby letter of credit agreement. At both December 31, 2004 and 2003, the Companys deferred standby letter of credit fees, which represent the fair value of the Companys potential obligations under the standby letter of credit guarantees, were insignificant to the accompanying consolidated financial statements. The Company also has certain lending commitments for conforming residential mortgage loans to be sold into the secondary market which are considered derivative instruments under the guidelines of SFAS No. 133, as amended by SFAS No. 149. However, in the opinion of management, such derivative amounts are not significant, and, therefore, no derivative assets or liabilities are recorded in the accompanying consolidated financial statements.
54
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Bank leases certain land and facilities under operating leases, some of which include renewal options and escalation clauses. At December 31, 2004, the aggregate minimum rental commitments under operating leases that have initial or remaining non-cancelable lease terms in excess of one year were approximately as follows:
2005 |
$ | 1,210,000 | ||||
2006 |
1,046,000 | |||||
2007 |
1,012,000 | |||||
2008 |
938,000 | |||||
2009 |
709,000 | |||||
Thereafter |
5,076,000 | |||||
Total minimum
payments |
$ | 9,991,000 |
Total rental expense was approximately $1,166,000, $1,032,000 and $701,000 in 2004, 2003 and 2002, respectively.
The Company has entered into employment contracts and benefit plans with certain executive officers and members of the Companys Board of Directors (the Board) that allow for payments (or accelerated payments) contingent upon a change in control of the Company.
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 Companys consolidated financial statements as of and for the year ended December 31, 2004.
13. | Income taxes |
The provision (credit) for income taxes for the years ended December 31, 2004, 2003 and 2002 was approximately as follows:
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current: |
||||||||||||||
Federal |
$ | 7,144,000 | $ | 8,282,000 | $ | 6,242,000 | ||||||||
State |
1,664,000 | 1,474,000 | 1,244,000 | |||||||||||
8,808,000 | 9,756,000 | 7,486,000 | ||||||||||||
Deferred |
905,000 | (1,028,000 | ) | (1,000 | ) | |||||||||
Provision for
income taxes |
$ | 9,713,000 | $ | 8,728,000 | $ | 7,485,000 |
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, 2004, 2003 and 2002 were approximately as follows:
2004 |
2003 |
2002 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Expected
federal income tax provision at statutory rates |
$ | 9,002,000 | $ | 7,939,000 | $ | 6,720,000 | ||||||||
State income
taxes, net of federal effect |
1,082,000 | 958,000 | 809,000 | |||||||||||
Effect of
nontaxable interest income, net |
(321,000 | ) | (228,000 | ) | (202,000 | ) | ||||||||
Other,
net |
(50,000 | ) | 59,000 | 158,000 | ||||||||||
Provision for
income taxes |
$ | 9,713,000 | $ | 8,728,000 | $ | 7,485,000 |
55
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The components of the net deferred tax assets and liabilities at December 31, 2004 and 2003 were approximately as follows:
2004 |
2003 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Deferred tax
assets: |
||||||||||
Reserve for
loan losses |
$ | 4,597,000 | $ | 3,235,000 | ||||||
Deferred
benefit plan expenses, net |
1,261,000 | 838,000 | ||||||||
Other |
334,000 | 299,000 | ||||||||
Total
deferred tax assets |
6,192,000 | 4,372,000 | ||||||||
Deferred tax
liabilities: |
||||||||||
Accumulated
depreciation |
838,000 | 476,000 | ||||||||
Deferred loan
income |
554,000 | 130,000 | ||||||||
Mortgage
servicing rights |
1,839,000 | 1,838,000 | ||||||||
Purchased
intangibles related to CBGP |
556,000 | | ||||||||
FHLB stock
dividends |
505,000 | 474,000 | ||||||||
Net
unrealized gains on investment securities |
492,000 | 483,000 | ||||||||
Other |
45,000 | 504,000 | ||||||||
Total
deferred tax liabilities |
4,829,000 | 3,905,000 | ||||||||
Net deferred
tax assets |
$ | 1,363,000 | $ | 467,000 |
Management believes, based upon the Companys historical performance, 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.
14. | Basic and diluted earnings per common share |
The Companys basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. The Companys 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 and restricted stock.
56
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The numerators and denominators used in computing basic and diluted earnings per common share for the years ended December 31, 2004, 2003 and 2002 can be reconciled as follows:
Net income (numerator) |
Weighted-average Shares (denominator) |
Per-share amount |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
||||||||||||||
Basic
earnings per common share Income available to common stockholders |
$ | 16,007,650 | 16,668,787 | $ | .96 | |||||||||
Effect of
stock options and restricted stock |
| 630,203 | ||||||||||||
Diluted
earnings per common share |
$ | 16,007,650 | 17,298,990 | $ | .93 | |||||||||
2003 |
||||||||||||||
Basic
earnings per common share Income available to common stockholders |
$ | 13,954,888 | 15,729,808 | $ | .89 | |||||||||
Effect of
stock options and restricted stock |
| 518,734 | ||||||||||||
Diluted
earnings per common share |
$ | 13,954,888 | 16,248,542 | $ | .86 | |||||||||
2002 |
||||||||||||||
Basic
earnings per common share Income available to common stockholders |
$ | 11,715,035 | 15,592,906 | $ | .75 | |||||||||
Effect of
stock options |
| 495,691 | ||||||||||||
Diluted
earnings per common share |
$ | 11,715,035 | 16,088,597 | $ | .73 |
15. | Transactions with related parties |
Certain 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 Banks 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 officers and directors of the Bank for the years ended December 31, 2004 and 2003 was approximately as follows:
2004 | 2003 | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
|
|
|
||||||
Balance
at beginning of year |
$ | 1,631,000 | $
1,487,000 |
||||||
Additions |
1,176,000 | 1,201,000 |
|||||||
Repayments |
(777,000 | ) | (1,057,000 |
) | |||||
Retirement
of Board member |
(860,000 | ) |
|
||||||
Balance
at end of year |
$ | 1,170,000 |
$ 1,631,000 |
16. | 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 the Companys contributions related to the Plan are at the discretion of the Board, not to exceed the amount deductible for federal income tax purposes.
57
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Employees have the option to receive a portion of the Companys contributions to the Plan in cash. Employees vest in the Companys contributions to the Plan over a period of five years. The total amounts charged to operations under the Plan were approximately $1,481,000, $1,338,000 and $1,229,000 for the years ended December 31, 2004, 2003 and 2002, respectively.
Other benefit plans
The Bank has deferred compensation plans for the Board and certain key executives and managers, a salary continuation plan, and (beginning in 2004) a supplemental executive retirement (SERP) 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 and SERP plans for certain key executives and the fee continuation plan for the Board provides specified benefits to the participants upon termination or change of control. The benefits are subject to certain vesting requirements and vested amounts are generally payable upon termination or change of control 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. These plans also include death benefit provisions for certain participants. Effective in 2004, the fee continuation plan was discontinued for future members of the Board.
To assist in the funding of these plans, the Bank has purchased bank-owned life insurance policies on the majority of the participants. The cash surrender value of these policies at December 31, 2004 and 2003 was approximately $14,066,000 and $8,558,000, respectively. As of December 31, 2004 and 2003, the liabilities related to the deferred compensation plans included in accrued interest and other liabilities in the accompanying consolidated balance sheets totaled approximately $2,552,000 and $2,085,000, respectively. The amount of expense charged to operations in 2004, 2003 and 2002 related to the deferred compensation plans was approximately $476,000, $481,000 and $439,000, respectively. As of December 31, 2004 and 2003, the liabilities related to the salary continuation, SERP and fee continuation plans included in accrued interest and other liabilities in the accompanying consolidated balance sheets totaled approximately $1,973,000 and $1,410,000, respectively. The amount of expense charged to operations in 2004, 2003 and 2002 for the salary continuation, SERP and fee continuation plans was approximately $611,000, $200,000 and $186,000, respectively. For financial reporting purposes, such expense amounts have not been adjusted for income earned on the bank-owned life insurance policies.
17. | Stock-based compensation plans |
Under the Companys stock-based compensation plans approved by shareholders, the Company may grant Incentive Stock Options (ISOs), Non-qualified Stock Options (NSOs) and/or restricted stock to key employees and directors. These stock-based compensation plans were established to reward employees and directors who contribute to the success and profitability of the Company and to give such employees and directors a proprietary interest in the Company, thereby enhancing their personal interest in the Companys continued success. These plans also assist the Company in attracting and retaining key employees and qualified corporate directors.
The stock-based compensation plans prescribe various terms and conditions for the granting of stock-based compensation and the total number of shares authorized for this purpose. For ISOs, the option strike price must be no less than 100% of stock price at the grant date; and for NSOs, the option strike price can be no less than 85% of stock price at the grant date and all grants to date have been at 100%. Restricted stock must be at fair market value on grant date. At December 31, 2004, 395,778 shares reserved under the stock-based compensation plans were available for future grant. Restricted stock grants are limited to 30% of the shares available under the stock-based compensation plans. Generally, options become exercisable in varying amounts based on years of employee service and vesting schedules. All options expire after a period of ten years from date of grant.
58
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Activity related to the stock-based compensation plans for the years ended December 31, 2004, 2003 and 2002 was as follows:
2004
|
2003
|
2002
|
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Options outstanding |
Weighted- average exercise price |
Options outstanding |
Weighted- average exercise price |
Options outstanding |
Weighted- average exercise price |
||||||||||||||||||||
Balance
at beginning of year |
1,017,801 | $ | 6.90 | 967,552 | $ | 5.61 | 930,502 | $ | 4.70 | ||||||||||||||||
Granted |
218,140 | 12.25 | 203,832 | 11.38 | 176,250 | 8.64 | |||||||||||||||||||
Forfeited |
(15,909 | ) | 12.58 | (19,037 | ) | 8.00 | (11,515 | ) | 6.75 | ||||||||||||||||
Exercised |
(189,281 | ) | 4.36 | (134,546 | ) | 4.29 | (127,685 | ) | 3.09 | ||||||||||||||||
Balance
at end of year |
1,030,751 | $ | 8.33 | 1,017,801 | $ | 6.90 | 967,552 | $ | 5.61 |
Information regarding the number, weighted-average exercise price and weighted-average remaining contractual life of options by range of exercise price at December 31, 2004 is as follows:
Options
outstanding
|
Exercisable
options
|
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exercise
price range
|
Number of options |
Weighted- average exercise price |
Weighted- average remaining contractual life (years) |
Number
of options |
Weighted- average exercise price |
|||||||||||||||
Under
$5.00 |
181,900 | $ | 2.99 | 1.9 | 181,900 | $ | 2.99 | |||||||||||||
$5.01
$8.00 |
387,362 | 6.53 | 4.6 | 384,491 | 6.54 | |||||||||||||||
$8.01
$12.00 |
327,015 | 10.21 | 7.6 | 187,119 | 9.46 | |||||||||||||||
$12.01
$16.20 |
134,474 | 16.16 | 9.1 | 24,962 | 16.20 | |||||||||||||||
|
1,030,751 | $ | 8.33 | 5.8 | 778,472 | $ | 6.72 |
Exercisable options as of December 31, 2003 and 2002 totaled 837,543 and 867,860, respectively.
In addition, during 2003, the Company granted 18,750 shares of restricted stock at a market value of $16.63 per share (approximately $312,000). The restricted stock is scheduled to vest on the fifth anniversary of the date of grant, or sooner, if certain performance criteria is met. The restricted stock is reported as unearned compensation on restricted stock in the accompanying consolidated balance sheets at December 31, 2004 and 2003. The unearned compensation on restricted stock is being amortized to expense on a straight-line basis over the expected vesting period of approximately 2.5 years.
18. | Estimated fair value of financial instruments |
The following disclosures are made in accordance with the provisions of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, 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 value 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
59
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
value amounts for items which are not defined as financial instruments but
which may have significant value. 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, 2004 and 2003.
Because SFAS No. 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.
The Company uses 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. |
FHLB stock: The carrying amount approximates the estimated fair value. |
Loans: The estimated fair value of loans is calculated by discounting the contractual cash flows of the loans using December 31, 2004 and 2003 origination rates. The resulting amounts are adjusted to estimate the effect of changes in the credit quality of borrowers since the loans were originated. |
Bank-owned life insurance: The carrying amount approximates the estimated fair value of these instruments. |
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. At the reporting date, the estimated fair value of time deposits is calculated by discounting the scheduled cash flows using the December 31, 2004 and 2003 rates offered on those instruments. |
Junior subordinated debentures and other borrowings: The fair value of the Banks junior subordinated debentures and other borrowings are estimated using discounted cash flow analyses based on the Banks current incremental borrowing rates for similar types of borrowing arrangements. |
The estimated fair values of the Companys significant on-balance sheet financial instruments at December 31, 2004 and 2003 were approximately as follows:
2004 |
2003 |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Carrying value |
Estimated fair value |
Carrying value |
Estimated fair value |
||||||||||||||||
Financial
assets: |
|||||||||||||||||||
Cash and cash
equivalents |
$ | 51,892,155 | $ | 51,892,000 | $ | 88,520,098 | $ | 88,520,000 | |||||||||||
Investment
securities: |
|||||||||||||||||||
Available-for-sale |
45,110,418 | 45,110,000 | 33,609,058 | 33,609,000 | |||||||||||||||
Held-to-maturity |
1,958,736 | 1,999,000 | 661,686 | 716,000 | |||||||||||||||
FHLB
stock |
2,571,600 | 2,572,000 | 2,295,600 | 2,296,000 | |||||||||||||||
Loans,
net |
847,147,231 | 854,559,000 | 577,801,194 | 589,602,000 | |||||||||||||||
Bank-owned
life insurance |
14,065,927 | 14,066,000 | 8,558,250 | 8,558,000 | |||||||||||||||
Financial
liabilities: |
|||||||||||||||||||
Deposits |
851,396,546 | 851,547,000 | 651,154,992 | 651,589,000 | |||||||||||||||
Junior
subordinated debentures and other borrowings |
56,533,475 | 56,539,000 | 13,864,605 | 13,480,000 |
60
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
19. | 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 Companys 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 Companys and the Banks 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 tables below) of Tier 1 capital to average assets and Tier 1 and total capital to risk-weighted assets (all as defined in the regulations). Management believes that as of December 31, 2004 and 2003, the Company and the Bank met or exceeded all relevant capital adequacy requirements. 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. For the regulatory reporting periods ended June 30, 2004 and September 30, 2004, the Company was categorized as adequately capitalized, as its risk-based capital ratios were less than the required minimum to be categorized as well capitalized. In addition, for the regulatory reporting periods ended March 31, 2004, June 30, 2004, and September 30, 2004, the Bank was categorized as adequately capitalized. However, the issuance of the TPS in December 2004 (see Note 9) brought the Companys and the Banks regulatory capital categorization to well capitalized as of December 31, 2004.
The Companys actual and required capital amounts and ratios are presented in the following table (dollars in thousands):
Actual |
Regulatory minimum to be adequately capitalized |
Regulatory minimum to be well capitalized under prompt corrective action provisions |
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
||||||||||||||||||||||
December
31, 2004: |
|||||||||||||||||||||||||||
Tier 1
capital (to average assets) |
$ | 98,274 | 10.1 | % | $ | 38,867 | 4.0 | % | $ | 48,584 | 5.0 | % | |||||||||||||||
Tier 1
capital (to risk-weighted assets) |
98,274 | 10.1 | 38,866 | 4.0 | 58,299 | 6.0 | |||||||||||||||||||||
Total
capital (to risk-weighted assets) |
110,855 | 11.4 | 77,731 | 8.0 | 97,164 | 10.0 | |||||||||||||||||||||
December
31, 2003: |
|||||||||||||||||||||||||||
Tier 1
capital (to average assets) |
60,498 | 8.6 | % | 28,298 | 4.0 | % | 35,372 | 5.0 | % | ||||||||||||||||||
Tier 1
capital (to risk-weighted assets) |
60,498 | 9.0 | 24,486 | 4.0 | 36,729 | 6.0 | |||||||||||||||||||||
Total
capital (to risk-weighted assets) |
69,370 | 10.3 | 48,971 | 8.0 | 61,214 | 10.0 |
61
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Banks actual and required capital amounts and ratios are presented in the following table (dollars in thousands):
Actual |
Regulatory minimum to be adequately capitalized |
Regulatory minimum to be well capitalized under prompt corrective action provisions |
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
||||||||||||||||||||||
December
31, 2004: |
|||||||||||||||||||||||||||
Tier 1
capital (to average assets) |
$ | 96,484 | 10.0 | % | $ | 38,788 | 4.0 | % | $ | 48,485 | 5.0 | % | |||||||||||||||
Tier 1
capital (to risk-weighted assets) |
96,484 | 9.9 | 38,815 | 4.0 | 58,222 | 6.0 | |||||||||||||||||||||
Total
capital (to risk-weighted assets) |
108,622 | 11.2 | 77,629 | 8.0 | 97,037 | 10.0 | |||||||||||||||||||||
December
31, 2003: |
|||||||||||||||||||||||||||
Tier 1
capital (to average assets) |
58,809 | 8.3 | 28,207 | 4.0 | 35,258 | 5.0 | |||||||||||||||||||||
Tier 1
capital (to risk-weighted assets) |
58,809 | 8.8 | 24,414 | 4.0 | 36,622 | 6.0 | |||||||||||||||||||||
Total
capital (to risk-weighted assets) |
66,465 | 10.0 | 48,829 | 8.0 | 61,036 | 10.0 |
The Companys and the Banks ratios for Tier 1 capital to risk-weighted assets and total capital to risk-weighted assets as of December 31, 2003 have been adjusted in the above tables to retroactively reflect changes to the methodology to calculate risk-weighted assets which were made in 2004.
20. | Parent company financial information |
Condensed financial information for Bancorp (Parent company only) is presented as follows:
CONDENSED BALANCE SHEETS
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
||||||||||
Assets: |
|||||||||||
Cash and cash
equivalents |
$ | 732,615 | $ | 443,417 | |||||||
Investment
securities available-for-sale |
1,905,105 | 2,122,865 | |||||||||
Investment in
subsidiary |
104,054,991 | 59,438,689 | |||||||||
Other
assets |
758,831 | 135,425 | |||||||||
Total
assets |
$ | 107,451,542 | $ | 62,140,396 | |||||||
Liabilities
and stockholders equity: |
|||||||||||
Junior
subordinated debentures |
$ | 20,000,000 | $ | | |||||||
Other
liabilities |
1,019,097 | 384,702 | |||||||||
Stockholders equity |
86,432,445 | 61,755,694 | |||||||||
Total
liabilities and stockholders equity |
$ | 107,451,542 | $ | 62,140,396 |
62
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
CONDENSED STATEMENTS OF INCOME
Years ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
Income: |
|||||||||||||||
Interest and
other dividend income |
$ | 22,438 | $ | 24,838 | $ | 21,141 | |||||||||
Gains on
sales of investment securities available-for-sale |
181,720 | 236,435 | 152,746 | ||||||||||||
Total
income |
204,158 | 261,273 | 173,887 | ||||||||||||
Expenses: |
|||||||||||||||
Administrative |
220,170 | 171,150 | 130,260 | ||||||||||||
Interest |
40,000 | | | ||||||||||||
Other |
274,368 | 76,738 | 93,073 | ||||||||||||
Total
expenses |
534,538 | 247,888 | 223,333 | ||||||||||||
Net income
(loss) before credit (provision) for income taxes, dividends from the Bank and equity in undistributed net earnings of subsidiary |
(330,380 | ) | 13,385 | (49,446 | ) | ||||||||||
Credit
(provision) for income taxes |
125,545 | (5,000 | ) | 16,000 | |||||||||||
Net income
(loss) before dividends from the Bank and equity in undistributed net earnings of subsidiary |
(204,835 | ) | 8,385 | (33,446 | ) | ||||||||||
Dividends
from the Bank |
3,350,000 | 3,225,000 | 2,975,000 | ||||||||||||
Equity in
undistributed net earnings of subsidiary |
12,862,485 | 10,721,503 | 8,773,481 | ||||||||||||
Net
income |
$ | 16,007,650 | $ | 13,954,888 | $ | 11,715,035 |
63
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 |
2003 |
2002 |
|||||||||||||
Cash flows
from operating activities: |
|||||||||||||||
Net
income |
$ | 16,007,650 | $ | 13,954,888 | $ | 11,715,035 | |||||||||
Adjustments
to reconcile net income to net cash provided by operating activities: |
|||||||||||||||
Dividends
from the Bank |
3,350,000 | 3,225,000 | 2,975,000 | ||||||||||||
Equity in
undistributed net earnings of subsidiary |
(16,212,485 | ) | (13,946,503 | ) | (11,741,304 | ) | |||||||||
Gains on
sales of investment securities available-for-sale |
(181,720 | ) | (236,435 | ) | (152,746 | ) | |||||||||
Increase in
other assets |
(623,406 | ) | (5,041 | ) | (5,493 | ) | |||||||||
Increase in
other liabilities |
659,000 | | | ||||||||||||
Net cash
provided by operating activities |
2,999,039 | 2,991,909 | 2,790,492 | ||||||||||||
Cash flows
from investing activities: |
|||||||||||||||
Investment in
subsidiary |
(20,000,000 | ) | | | |||||||||||
Proceeds from
sales of investment securities available-for-sale |
404,573 | 427,835 | 410,483 | ||||||||||||
Purchase of
investment securities available-for-sale |
(69,839 | ) | (66,785 | ) | | ||||||||||
Net cash
provided (used) by investing activities |
(19,665,266 | ) | 361,050 | 410,483 | |||||||||||
Cash flows
from financing activities: |
|||||||||||||||
Cash
dividends paid |
(4,401,429 | ) | (4,026,401 | ) | (3,244,385 | ) | |||||||||
Net proceeds
from issuance of junior subordinated debentures |
20,000,000 | | | ||||||||||||
Amortization
of unearned compensation on restricted stock |
124,740 | 31,185 | | ||||||||||||
Stock options
exercised and related tax benefits |
1,232,114 | 582,353 | 393,799 | ||||||||||||
Net cash
provided (used) in financing activities |
16,955,425 | (3,412,863 | ) | (2,850,586 | ) | ||||||||||
Net increase
(decrease) in cash and cash equivalents |
289,198 | (59,904 | ) | 350,389 | |||||||||||
Cash and cash
equivalents at beginning of year |
443,417 | 503,321 | 152,932 | ||||||||||||
Cash and cash
equivalents at end of year |
$ | 732,615 | $ | 443,417 | $ | 503,321 |
64
CASCADE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
21. | Selected quarterly financial data (unaudited) |
The following table sets forth the Companys unaudited data regarding operations for each quarter of 2004 and 2003. This information, in the opinion of management, includes all normal recurring adjustments necessary to fairly state the information set forth therein (in thousands, except per share amounts):
2004 |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fourth Quarter |
Third Quarter |
Second Quarter |
First Quarter |
||||||||||||||||
Interest and
dividend income |
$ | 14,513 | $ | 13,221 | $ | 11,981 | $ | 11,196 | |||||||||||
Interest
expense |
1,596 | 1,190 | 1,057 | 1,060 | |||||||||||||||
Net interest
income |
12,917 | 12,031 | 10,924 | 10,136 | |||||||||||||||
Loan loss
provision |
900 | 1,200 | 900 | 650 | |||||||||||||||
Net interest
income after loan loss provision |
12,017 | 10,831 | 10,024 | 9,486 | |||||||||||||||
Noninterest
income |
3,184 | 3,145 | 3,481 | 3,130 | |||||||||||||||
Noninterest
expenses |
7,884 | 7,457 | 7,254 | 6,982 | |||||||||||||||
Income before
income taxes |
7,317 | 6,519 | 6,251 | 5,634 | |||||||||||||||
Provision for
income taxes |
2,763 | 2,396 | 2,323 | 2,231 | |||||||||||||||
Net
income |
$ | 4,554 | $ | 4,123 | $ | 3,928 | $ | 3,403 | |||||||||||
Basic
earnings per common share |
$ | 0.27 | $ | 0.25 | $ | 0.24 | $ | 0.21 | |||||||||||
Fully diluted
earnings per common share |
$ | 0.26 | $ | 0.24 | $ | 0.23 | $ | 0.20 |
2003 |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fourth Quarter |
Third Quarter |
Second Quarter |
First Quarter |
||||||||||||||||
Interest and
dividend income |
$ | 10,540 | $ | 10,315 | $ | 10,134 | $ | 9,846 | |||||||||||
Interest
expense |
999 | 994 | 1,005 | 1,005 | |||||||||||||||
Net interest
income |
9,541 | 9,321 | 9,129 | 8,841 | |||||||||||||||
Loan loss
provision |
620 | 675 | 700 | 700 | |||||||||||||||
Net interest
income after loan loss provision |
8,921 | 8,646 | 8,429 | 8,141 | |||||||||||||||
Noninterest
income |
3,547 | 3,765 | 3,287 | 2,801 | |||||||||||||||
Noninterest
expenses |
6,722 | 6,619 | 5,796 | 5,717 | |||||||||||||||
Income before
income taxes |
5,746 | 5,792 | 5,920 | 5,225 | |||||||||||||||
Provision for
income taxes |
2,231 | 2,207 | 2,296 | 1,994 | |||||||||||||||
Net
income |
$ | 3,515 | $ | 3,585 | $ | 3,624 | $ | 3,231 | |||||||||||
Basic
earnings per common share (1) |
$ | 0.22 | $ | 0.22 | $ | 0.23 | $ | 0.21 | |||||||||||
Fully diluted
earnings per common share (1) |
$ | 0.22 | $ | 0.22 | $ | 0.22 | $ | 0.20 |
(1) | Adjusted to give retroactive effect to a five-for-four stock split declared in June 2004. |
These financial statements have not been reviewed or confirmed for
accuracy
or relevance by the Federal Deposit Insurance Corporation.
65
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Changes in Internal Controls
Managements Report on Internal Control Over Financial Reporting
ITEM 9B. | OTHER INFORMATION |
66
PART III
PART IV
ITEM 15. | 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 34. |
(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 filed a report on Form 8-K on October 12, 2004 in regards to release of the Companys fourth quarter and year-end, 2004 earnings. |
The Company filed a report on Form 8-K on December 17, 2004 in regards to the announcement of a Trust Preferred Issuance of $20 million. |
(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. |
67
SIGNATURES
CASCADE BANCORP | CASCADE BANCORP | ||
/s/ Patricia L. Moss | /s/ Gregory D. Newton | ||
Patricia L. Moss | Gregory D. Newton | ||
President/Chief Executive Officer | Executive Vice President/Chief Financial Officer | ||
Date: 2/25/05 | Date: 2/25/05 |
/s/
Jerol E. Andres Jerol E. Andres, Director |
2/25/05 Date |
||||||
/s/
Gary L. Capps Gary L. Capps, Director/Chairman |
2/25/05 Date |
||||||
/s/
Gary L. Hoffman Gary L. Hoffman, Director/Vice Chairman |
2/25/05 Date |
||||||
/s/
Henry H. Hewitt Henry H. Hewitt, Director |
2/25/05 Date |
||||||
/s/
Patricia L. Moss Patricia L. Moss, Director/President/CEO |
2/25/05 Date |
||||||
/s/
Ryan R. Patrick Ryan R. Patrick, Director |
2/25/05 Date |
||||||
/s/
James E. Petersen James E. Petersen, Director/Assistant Secretary |
2/25/05 Date |
68
EXHIBITS INDEX
3.1 |
Articles of Incorporation. As amended, filed as exhibit 3.1 to registrants Form 10-Q report for the quarter ended June 30, 1997, and incorporated herein by reference. | |
3.2 |
Bylaws. As amended and restated, filed as exhibit 3.2 to registrants Form 10-K Annual Report for the fiscal year ended December 31, 2000, and is incorporated herein by reference. | |
10.1 |
Registrants 1994 Incentive Stock Option Plan. Filed as an exhibit to registrants Registration Statement on Form 10-SB, filed in January 1994, and incorporated herein by reference. | |
10.2 |
Incentive Stock Option Plan Letter Agreement. Entered into between registrant and certain employees pursuant to registrants 1994 Incentive Stock Option Plan. Filed as an exhibit to registrants Registration Statement on Form 10-SB, filed in January, 1994, and incorporated herein by reference. | |
10.3 |
Deferred Compensation Plans. Established for the Board, certain key executives and managers during the fourth quarter ended December 31, 1995. Filed as exhibit 10.5 to registrants Form 10-KSB filed December 31, 1995, and incorporated herein by reference. | |
10.4 |
2002 Equity Incentive Plan. Filed as an exhibit to the registrants filing on Form S-8/A, as filed with the Securities and Exchange Commission on April 23, 2003, and incorporated herein by reference. | |
11.1 |
Earnings per Share Computation. The information called for by this item is located on page 57 of this Form 10-K Annual Report, and is incorporated herein by reference. | |
21.1 |
Subsidiaries of registrant. | |
23.1 |
Consent of Symonds, Evans & Company, P.C., Independent Accountants. | |
31.1 |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.0 |
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Exhibit 21.1
Cascade Bancorp List of Subsidiaries
Name of Organization |
State of Incorporation |
|
Bank of the Cascades |
Oregon | |
Cascade Bancorp Financial Services,
Inc. |
Oregon | |
(Inactive) |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement (Form S-8) pertaining to the Cascade Bancorp 2002 Equity Incentive Plan of our report dated January 13, 2005, with respect to the consolidated financial statements of Cascade Bancorp and subsidiary (collectively, Cascade Bancorp), and our report dated January 27, 2005, with respect to Cascade Bancorp managements assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Cascade Bancorp, included in this Annual Report (Form 10-K) for the year ended December 31, 2004.
/s/ Symonds, Evans & Company, P.C.
Portland, Oregon
March 11, 2005
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Patricia L. Moss, Chief Executive Officer, certify that:
1) | I have reviewed this annual report on Form 10-K of Cascade Bancorp; |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4) | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchanges Act Rules 13a-15(f) and 15d15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: 2/25/05 |
/s/ Patricia L. Moss | ||
Patricia L. Moss Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Gregory D. Newton, Chief Financial Officer, certify that:
1) | I have reviewed this annual report on Form 10-K of Cascade Bancorp; |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4) | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchanges Act Rules 13a-15(f) and 15d15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5) | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: 2/25/05 |
/s/ Gregory D. Newton |
|
Gregory D. Newton | ||
Chief Financial Officer |
Exhibit 32
Certification Required by 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
This certification is given by the undersigned Chief Executive Officer and Chief Financial Officer of Cascade Bancorp (the registrant) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Each of the undersigned hereby certifies, with respect to the registrants annual report of Form 10-K for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the Report), that:
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
/s/ Patricia L. Moss | |
Patricia L. Moss President and Chief Executive Officer |
/s/ Gregory D. Newton | ||
Gregory D. Newton Executive Vice President and Chief Executive Officer |
Dated: 2/25/05