OREGON PACIFIC BANCORP - Annual Report: 2007 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
|
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the fiscal year ended: December 31,
2007
|
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
| For the transition period from ___________________ to ___________________ |
OREGON
PACIFIC BANCORP
(Exact Name of
Registrant as Specified in Its Charter)
|
Oregon
|
000-50165
|
71-0918151
|
||
|
(State
or other jurisdiction of incorporation or
organization)
|
(Commission
File
Number)
|
(I.R.S.
Employer Identification
Number)
|
1355
Highway 101, Florence, Oregon
(Address of
principal executive officers)
97439
(Zip
Code)
541-997-7121
(Registrant’s telephone
number, including area
code)
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
stock, no par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
one):
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer x
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes ¨ No x
The
number of shares outstanding of each of the issuer’s classes of common equity on
March 14, 2008, was 2,216,752 shares of no par value common stock.
OREGON
PACIFIC BANCORP
FORM
10-K
TABLE OF
CONTENTS
|
PAGE
|
|||
|
3
|
|||
|
|
|||
|
PART
I
|
|||
|
Item
1.
|
3-1111
|
||
|
Item
1A.
|
11-12
|
||
|
Item
1B.
|
12
|
||
|
Item
2.
|
13
|
||
|
Item
3.
|
13
|
||
|
Item
4.
|
13
|
||
|
PART
II
|
|||
|
Item
5.
|
13-15
|
||
|
Item
6.
|
15-16
|
||
|
Item
7.
|
17-33
|
||
|
Item
7A.
|
34
|
||
|
Item
8.
|
35-62
|
||
|
Item
9.
|
63
|
||
|
Item
9A(T).
|
63
|
||
|
Item
9B.
|
63
|
||
|
PART
III
|
|||
|
Item
10.
|
63-64
|
||
|
Item
11.
|
64-66
|
||
|
Item
12.
|
66-67
|
||
|
Item
13.
|
67
|
||
|
Item
14.
|
67-68
|
||
|
PART
IV
|
|||
| Item 15. | Exhibits, Financial Statement Schedules, and Reports on Form 8-K |
68-69
|
|
|
70-71
|
|||
|
72
|
|||
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This report contains a number of
forward looking statements about our anticipated business, operations, financial
performance and cash flows. Statements in this report that relate to
future plans, events and circumstances are provided to describe management's
intentions and expectations based on currently available information, and
readers should not construe these statements as assurances or
guarantees. As with any predictions, these statements are inherently
difficult to make with any degree of assurance, and actual results may differ
materially and adversely from management's expectations described
herein. Likewise, management's plans described in this report may not
come to pass because unforeseen events may force management to deviate from its
expressed intentions. Forward-looking statements often can be
identified by the use of predictive or prospective terms such as "expect,"
"anticipate," "believe," "plan," "intend," and words of similar construction or
meaning. Some of the events or circumstances that may cause our
actual results to deviate from management's expectations include the impact of
competition and local and regional economic factors upon our customer base, our
deposits and our loan portfolio; economic and regulatory limits on our ability
to grow our assets and manage our business; customer acceptance of our products;
interest rate fluctuations that may adversely impact our revenues and expenses;
and the impact of impairment charges upon our intangible and other
assets. Other factors that may adversely impact our performance are
discussed in this report as well as other disclosures we make from time to time
in our filings with the Securities and Exchange Commission or other federal
agencies. Readers also should note that forward-looking statements
expressed in this report are made as of the date of this report, and management
cannot undertake to update those statements to reflect future events or
circumstances.
GENERAL
Oregon Pacific Bancorp (“Bancorp”), an
Oregon Corporation and financial holding company, became the holding company of
Oregon Pacific Banking Co., dba Oregon Pacific Bank (the “Bank”) (collectively
“the Company”) effective January 1, 2003. The Company is
headquartered in Florence, Oregon.
The Bank is an Oregon banking
corporation organized under the Oregon Bank Act on December 17,
1979. The Bank is a full-service commercial bank that provides a
broad range of depository and lending services to commercial enterprises,
governmental entities and individuals from its main office and a full-service
Safeway store branch in Florence plus a branch in both Roseburg, and Coos Bay,
Oregon. Additional financial services provided by the Bank include
trust and asset management services and investment and brokerage
services.
The
Company operates through a two-tiered corporate structure. At the
holding company level the affairs of Bancorp are overseen by a Board of
Directors elected by the shareholders of Bancorp at the annual meeting of
shareholders. The business of the Bank is overseen by a Board of
Directors of the Bank, selected by the Board of Directors of Bancorp, the sole
owner of the Bank. Currently the respective members of the Board of
Directors of Bancorp and the Bank are identical.
BUSINESS
STRATEGY
The Company’s strategy is to build on
the Bank’s position as a leading community-based provider of financial services
in its service areas. The key to success of this strategy is to
continue to give exceptional personal service to customers by providing a high
level of service with prompt, accurate, and friendly banking services and by
supporting and participating in the activities of the communities
served. The Bank seeks to maintain high asset quality through strict
adherence to established credit policies, trained personnel, and periodic loan
reviews. The Bank’s primary marketing focus is on small to
medium-sized businesses and on professionals and individuals in Florence, Coos
Bay, Roseburg, and other coastal and inland regions in Oregon.
CONSUMER
PRODUCTS AND SERVICES
The Bank offers a broad range of
deposit and loan products and services tailored to meet the banking requirements
of its service areas. Some of these are detailed below.
Deposit Products. The
Bank’s consumer deposit products include several noninterest-bearing checking
account products priced at various levels, interest-bearing checking and savings
accounts, money market accounts, and certificates of deposit. These
accounts generally earn interest at rates established by management based on
competitive market factors and management’s desire to increase certain types or
maturities of deposit liabilities. The Bank strives to establish
customer relations to attract core deposits in noninterest-bearing transactional
accounts, which reduces its cost of funds.
Technology-Based Products and
Services. The Bank uses both traditional and new technology to
support its focus on personal service. The Bank offers on-line,
real-time Internet banking services through its dedicated website at
http://www.opbc.com. Additionally, the Bank offers “Banking on Call”,
an interactive voice response system through which customers can check account
balances and activity as well as initiate money transfers between their
accounts. Automated Teller Machines (ATMs) are located at each of the four
branch locations. Visa debit cards are also offered, providing customers with
free access to their deposit account balances at point of sale locations
throughout most of the world.
Consumer
Loans. Although the Bank does not actively solicit consumer
loans, the Bank provides loans to individual borrowers, as a convenience to
existing customers, for a variety of purposes including secured and unsecured
personal loans, home equity and personal lines of credit, and motor vehicle
loans.
Senior Customer
Services. Since a significant portion of the Bank’s consumer
market, especially in Florence, consists of senior citizens the Bank offers
several special products and programs aimed at this group. These
include a reduced cost checking account and other products targeted to the
senior market. The Bank also services customers living at Spruce
Point, an assisted living facility in Florence, via its mobile
branch.
Overdraft
Protection. Overdraft Protection is a service that provides
qualified customers with virtually automatic protection by establishing an
overdraft privilege amount. Each checking account usually receives an
Overdraft Protection amount of $300 or $500 based on the type of account and
other parameters. Once established, customers are permitted to
overdraw their checking account, up to their Overdraft Protection limit, with
each item being charged the Bank’s regular overdraft fee. Customers
repay the overdraft with their next deposit. Overdraft Protection is
designed to protect customers from the embarrassment of having checks declined
because of non-sufficient funds.
Investment
Products. Through an arrangement with a registered securities
broker-dealer, an investment and brokerage service department under the assumed
name “Oregon Pacific Financial Services” offers a wide range of financial products and
consulting services to consumers in Florence at 1365 Highway 101 and at its
Roseburg branch. Mutual funds, traditional and Roth IRAs, corporate
retirement accounts, tax deferred investments, and other retirement vehicles are
available.
Trust and Asset Management
Services. The Bank operates a full service trust department
located in Florence at 1365 Highway 101 and in Coos Bay. Also a trust
officer is available for appointments in Roseburg on a weekly
basis. The department functions as a trustee for irrevocable trusts,
agent for living trusts and estate settlement, or custodian for self-directed
IRAs.
Other
Services. Other services offered include safe deposit boxes in
Florence; letters of credit; travelers’ checks; direct deposit of payroll,
social security and dividend payments; and automatic payment of insurance
premiums and mortgage loans.
LENDING
ACTIVITIES
The Bank provides a broad range of real
estate and commercial lending services. Currently, the primary focus
of the Bank’s lending activities involves commercial loans, including loans to
professionals, real estate construction loans, and residential real estate
financing, both for its own loan portfolio and for resale in the secondary
market.
Mortgage
Loans. The Bank originates conventional residential mortgage
loans, mostly for sale in the secondary market. The Bank has mortgage loan
representation in Florence, Roseburg, and Coos Bay. The Bank believes
that its local decision-making, which allows for quick response to a mortgage
loan request, and sales of loans to the Federal Home Loan Mortgage Corporation
(Freddie Mac) that are serviced locally, provide personalized, quality service
to its customers.
Real Estate Construction
Loans. The Bank makes construction loans to individuals and
contractors to construct single-family primary residences or second homes and,
to a much lesser extent, small multi-family residential
projects.
4
These
loans generally have maturities of 6 to 12 months. Interest rates are
typically adjustable, although fixed-rate loans are also made under appropriate
conditions.
Construction financing generally is
considered to involve a higher degree of risk than long-term financing on
improved, occupied real estate. The risk of loss on construction
loans depends largely on the accuracy of the initial estimate of the property’s
value at completion of construction or development and the estimated cost
(including interest) of construction. If the estimate of construction
costs proves to be inaccurate, the Bank may be
required to advance funds beyond the amount originally committed to permit
completion of the project and to protect its security position. At or
prior to maturity of the loan, the Bank may also be confronted with a project
with insufficient value to ensure full repayment. The Bank’s
underwriting, monitoring and disbursement practices for construction financing
are intended to ensure that sufficient funds are available to complete the
construction projects. The Bank endeavors to limit its risk through
underwriting procedures requiring the use of only approved, qualified
appraisers, dealing only with qualified builders/borrowers, and closely
monitoring construction projects through completion and sale.
Commercial
Loans. The Bank offers customized loans to its commercial
customers including operatingl lines of credit, equipment, accounts receivable,
and inventory financing. Commercial real estate loans are available
for the construction, purchasing, and refinancing of commercial and rental
properties. A significant portion of the Bank’s loan portfolio
consists of commercial loans. Lending decisions are based on careful
evaluation of the financial strength, management, and credit history of the
borrower and the quality of the collateral securing the loan. The
Bank typically requires personal guarantees and secondary sources of
repayment. Most commercial loans are secured by real property,
although such loans may finance other commercial activities. Where
warranted by the borrower’s overall financial condition, loans may be made on an
unsecured basis.
For all of its loans, the Bank at all
times seeks to maintain sound loan underwriting standards with written loan
policies, appropriate individual limits, and loan committee
reviews. In the case of large loan commitments or loan
participations, loans are reviewed by the loan committee of the Board of
Directors. Underwriting standards are designed to achieve a
high-quality loan portfolio, compliance with lending regulations, and the
desired mix of loan maturities and industry
concentrations. Management seeks to minimize credit losses by closely
monitoring the financial condition of its borrowers and the value of
collateral.
MARKETING
The Bank’s ability to increase
its market share is driven by a marketing plan consisting of several key
components. A principal objective is to offer appropriate products
and services to existing customers and attempt to increase the business
relationships the Bank shares with these customers. The Bank
regularly examines the desirability and profitability of adding new products and
services to those currently offered. The Bank promotes specific
products by media advertising, but relies also on referrals and direct contacts
for new business. The Bank recognizes the importance of community
service and supports employee involvement in community
activities. This participation allows the Bank to make a contribution
to the communities it serves, which management believes increases its visibility
in its market area and thereby increases business opportunities.
COMPETITION
The market for banking services,
including deposit and loan products, is highly competitive. The
Bank’s competitors for deposits are commercial banks, savings and loan
associations, credit unions, money market funds, issuers of corporate and
government securities, insurance companies, brokerage firms, mutual funds, and
other financial service providers. These competitors may offer
deposit rates greater than the Bank can or is willing to offer. The
Bank competes for deposits by offering a variety of accounts at rates generally
competitive with financial institutions in its market areas.
The Bank’s competition for loans comes
principally from commercial banks, savings and loan associations, mortgage
companies, finance companies, insurance companies, credit unions, and other
institutional lenders. The Bank competes for loan originations
through the level of interest rates and loan fees charged, its array of
commercial and mortgage loan products, and the efficiency and quality of its
services to borrowers. Lending activity can also be affected by the
availability of lendable funds, local and national economic conditions, current
interest rate levels, and loan demand. The Bank competes with larger
commercial banks by emphasizing a community bank orientation and efficient
personal service to customers.
Another source of competition is the
array of online banking services offered by traditional commercial banks and
other financial service providers, and by newly formed companies that use the
Internet to advertise and sell competing products. The Bank has
online banking services on a real-time basis providing instant balances compared
to most financial providers having only nightly updates. Bank
management believes, however, that most of its customers will continue to want
the personal, locally-based services that it offers.
The Bank believes its philosophy of
offering financial services with a personal touch in conjunction with modern
technology enables it to compete effectively with other financial service
providers. The Bank’s lending officers and senior management have significant
experience in their respective marketplaces enabling them to maintain close
working relationships with their customers. Management believes that
this positions the Bank to succeed in spite of competitors potentially having
branches in more locations, larger lending capabilities due to their greater
size, or capabilities to provide other services, such as international banking
services, that the Bank does not provide.
EMPLOYEES
As of December 31, 2007, the Bank had
96 full-time equivalent employees, nearly unchanged from the prior year
end. None of the employees are represented by a collective bargaining
group. Management considers its relations with employees to be
good.
WEBSITE
ACCESS TO PUBLIC FILINGS
The Company began filing period and
other required reports with the Securities and Exchange Commission in
2003. These filings, including exhibits, may be accessed over the
Internet through the website maintained by the Securities and Exchange
Commission at http://www.sec.gov. There is no Internet access to the
Bank’s filings with the Federal Reserve Bank prior to 2003
available.
SUPERVISION
AND REGULATION
GENERAL
The Company is extensively regulated
under federal and state law. These laws and regulations are primarily intended
to protect depositors, not shareholders of Bancorp. The discussion below
describes and summarizes certain statutes and regulations. These descriptions
and summaries are qualified in their entirety by reference to the particular
statute or regulation. Any change in applicable laws or regulations may have a
material effect on the business and prospects of the Bank. The operations of the
Bank may also be affected by changes in the policies of banking and other
government regulators. Management cannot accurately predict the nature or extent
of the effects on its business and earnings that fiscal or monetary policies, or
new federal or state laws, including tax laws, may have in the
future.
FEDERAL
AND STATE BANK REGULATION
General. The Bank is an
Oregon state-chartered bank, with deposits insured by the Federal Deposit
Insurance Corporation ("FDIC”). The Bank is a Federal Reserve member
bank. Accordingly, the Bank files financial and other reports
periodically with, and is regularly examined by, the Oregon Director of Banks
(“Oregon Director”), FDIC, and the Federal Reserve.
CRA. The Community
Reinvestment Act (the "CRA") requires that, in connection with examinations of
financial institutions within their jurisdiction, the Federal Reserve or the
FDIC evaluate the record of the financial institutions in meeting the credit
needs of their local communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of those
banks.
Insider Credit Transactions.
Banks are also subject to certain restrictions imposed by the Federal Reserve
Act on extensions of credit to executive officers, directors, principal Bancorp
shareholders, or any related interests of such persons. Extensions of credit (i)
must be made on substantially the same terms, including interest rates and
collateral, and follow credit underwriting procedures that are not less
stringent than those prevailing at the time for comparable transactions with
persons not covered above and who are not employees; and (ii) must not involve
more than the normal risk of repayment or present other unfavorable features.
Banks are also subject to certain lending limits and restrictions on overdrafts
to such persons. A violation of these restrictions may result in the assessment
of substantial civil monetary penalties on the affected
bank
or any officer, director, employee, agent, or other person participating in the
conduct of the affairs of that bank, the imposition of a cease and desist order,
and other regulatory sanctions.
FDICIA. Under the Federal
Deposit Insurance Corporation Improvement Act (the "FDICIA"), each federal
banking agency has prescribed, by regulation, non-capital safety and soundness
standards for institutions under its authority. These standards cover internal
controls, information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, compensation, fees
and benefits, such other operational and managerial standards as the agency
determines to be appropriate, and standards for asset quality, earnings and
stock valuation. An institution which fails to meet these standards must develop
a plan acceptable to the agency, specifying the steps that the institution will
take to meet the standards. Failure to submit or implement such a plan may
subject the institution to regulatory sanctions. Management believes that the
Bank meets all such standards, and therefore, does not believe that these
regulatory standards materially affect the Bank’s business
operations.
INTERSTATE
BANKING LEGISLATION
Under the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Interstate Act"), bank
holding companies are permitted to acquire banks located in any state regardless
of the state law in effect at the time. The Interstate Act also
provides for the nationwide interstate branching of banks. Under the
Interstate Act, both national and state chartered banks, including Oregon, are
permitted to merge across state lines and thereby create interstate branch
networks.
BANK
HOLDING COMPANY REGULATION - FEDERAL REGULATIONS
As a bank holding company, Bancorp is
subject to the Bank Holding Company Act of 1956 (“BHCA”), as amended, which
places the Company under the supervision of the Board of Governors of the
Federal Reserve System (“FRB”). BHCA limits the business of bank
holding companies to owning or controlling banks and engaging in other
activities related to banking.
The Company must obtain the approval of
the FRB: (1) before acquiring direct or indirect ownership or control of any
voting shares of any bank if, after such acquisition, it would own or control,
directly or indirectly, more than 5% of the voting shares of such a bank; (2)
before merging or consolidating with another bank holding company; and (3)
before acquiring substantially all of the assets of any additional
banks. The Company is also required by the BHCA to file annual and
quarterly reports and such other reports as may be required from time to time by
the FRB. In addition, the FRB conducts periodic examinations of the
Company.
Under FRB policy, a bank holding
company is expected to act as a source of financial and managerial strength to,
and commit resources to support, each of its subsidiaries. Any
capital loans the Company makes to its subsidiary are subordinate to deposits
and to certain other indebtedness of the subsidiary. The Crime
Control Act of 1990 provides that, in the event of a bank holding company’s
bankruptcy, the bankruptcy trustee will assume any commitment the bank holding
company has made to a federal bank regulatory agency to maintain the capital of
a subsidiary and this obligation will be entitled to a priority of
payment.
Bancorp and its subsidiary are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, sale or lease of property or furnishing of
services. For example, with certain exceptions, neither Bancorp nor
its subsidiary may condition an extension of credit to a customer on either (1)
a requirement that the customer obtain additional services provided by it or (2)
an agreement by the customer to refrain from obtaining other services from a
competitor. The bank anti-tying rules do not apply to the non-bank
subsidiaries of a bank holding company.
The Change in Bank Control Act of 1978,
as amended, prohibits a person or group of persons from acquiring “control” of a
bank holding company unless the FRB has been given 60 days prior written notice
of the proposed acquisition, and within that time period, the FRB has not issued
a notice disapproving the proposed acquisition, or extended for up to another 30
days the period during which such a disapproval may be issued. An
acquisition may be made prior to the expiration of the disapproval period if the
FRB issues written notice of its intent not to disapprove the
action. Under a reputable presumption established by the FRB, the
acquisition of 10% or more of a class of voting stock of a bank holding company
with a class of securities registered under Section 12 of the Exchange Act
would, under the circumstances set forth in the presumption, constitute the
acquisition of control. In addition, any “company” would be required
to obtain the approval of the FRB under the BHCA before acquiring 25% (5% if the
“company” is a bank holding company) or more of the outstanding shares of
Bancorp, or obtain control over the Company.
BANK
HOLDING COMPANY REGULATION - STATE REGULATIONS
As corporations chartered under the
laws of the State of Oregon, the Company is subject to certain limitations and
restrictions under applicable Oregon corporate law. These include
limitations and restrictions relating to indemnification of directors,
distributions to shareholders, transactions involving directors, officers or
interested shareholders, maintenance of books, records, and minutes, and
observance of certain corporate formalities.
DEPOSIT
INSURANCE
The deposits of Oregon Pacific Bank
are insured by the Deposit Insurance Fund, as administered by the FDIC, to
prescribed limits for each depositor. The FDIC has established a
system for setting deposit insurance premiums based upon the risks a particular
bank poses to the insurance fund. The FDIC has established a risk-based system
assessment system to determine the deposit insurance assessment to be paid by
insured depository institutions based upon capital levels and supervisory
ratings assigned by the Bank’s primary federal regulator, and other risk
measures. The Bank’s had no insurance expense for 2007 after a
one-time credit from the FDIC to offset assessments in 2007. In
addition, all federally insured institutions are required to pay assessments to
the FDIC at an annual rate of insured deposits to fund interest payments on
bonds issued by the Financing Corporation, an agency of the federal government
established to recapitalize the predecessor to the Savings Association Insurance
Fund. These assessments cannot be offset with any one time credits and are
expected to continue until the Financing Corporation bonds mature by
2019. The Bank’s assessment for 2007 was $15,000.
REGULATORY
DIVIDEND RESTRICTIONS
The payment of dividends is subject to
government regulation, in that regulatory authorities may prohibit banks and
bank holding companies from paying dividends which would constitute an unsafe or
unsound banking practice. In addition, a bank may not pay cash dividends if that
payment could reduce the amount of its capital below that necessary to meet
minimum applicable regulatory capital requirements. Also, under the Oregon Bank
Act, the Oregon Director may suspend the payment of dividends if it is
determined that the payment would cause a bank's remaining stockholders’ equity
to be inadequate for the safe and sound operation of the bank. Other than the
laws and regulations noted above, which apply to all banks and bank holding
companies, the Company is not currently subject to any regulatory restrictions
on its dividends.
CAPITAL
ADEQUACY
Federal bank regulatory agencies use
capital adequacy guidelines in the examination and regulation of bank holding
companies and banks. If capital falls below minimum guideline levels, the
holding company or bank may be denied approval to acquire or establish
additional banks or non-bank businesses or to open new facilities.
The FDIC and Federal Reserve use
risk-based capital guidelines for banks and bank holding
companies. These are designed to make such capital requirements more
sensitive to differences in risk profiles among banks and bank holding
companies, to account for off-balance sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items. The guidelines are minimums, and the Federal
Reserve has noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios well in excess of the minimum. The
current guidelines require all bank holding companies and federally regulated
banks to maintain a minimum risk-based total capital ratio equal to 8%, of which
at least 4% must be Tier I capital.
Tier I capital for state member banks
includes common shareholders' equity, qualifying noncumulative perpetual
preferred stock, and minority interests in equity accounts of consolidated
subsidiaries, less certain intangible assets. Tier II capital includes: (i) the
allowance for loan losses of up to 1.25% of risk-weighted assets; (ii) any
qualifying perpetual preferred stock which exceeds the amount which may be
included in Tier I capital; (iii) hybrid capital instruments and equity-contract
notes; (iv) subordinated debt and intermediate-term preferred stock of up to 50%
of Tier I capital; (v) and unrealized holding gains on equity securities. Total
capital is the sum of Tier I and Tier II capital, less reciprocal holdings of
other banking organizations’ capital securities, and investments in
unconsolidated subsidiaries.
The assets of banks and bank holding
companies receive risk-weights of 0%, 20%, 50%, and 100%. In addition, certain
off-balance sheet items are given credit conversion factors to convert them to
asset equivalent amounts to which an appropriate risk-weight will apply. These
computations result in total risk-weighted assets.
Most loans are assigned to the 100%
risk category, except for first mortgage loans fully secured by residential
property, which carry a 50% rating. Most investment securities are assigned to
the 20% category, except for municipal or state revenue bonds, which have a 50%
risk-weight, and direct obligations of, or obligations guaranteed by, the United
States Treasury or agencies of the federal government, which have a 0%
risk-weight. In converting off-balance sheet items, direct credit substitutes,
including general guarantees and standby letters of credit backing financial
obligations, are given a 100% conversion factor. Transaction-related
contingencies such as bid bonds, other standby letters of credit and undrawn
commitments, including commercial credit lines with an initial maturity of more
than one year, have a 50% conversion factor. Short-term, self-liquidating trade
contingencies are converted at 20%, and short-term commitments have a 0%
factor.
The Federal Reserve also employs a
leverage ratio, which is Tier I capital as a percentage of total assets less
intangibles, to be used as a supplement to risk-based guidelines. The principal
objective of the leverage ratio is to constrain the maximum degree to which a
state member bank may leverage its equity capital base. The Federal Reserve
requires a minimum leverage ratio of 4% for banks not having a composite rating
of one under the uniform rating system of banks. However, for all but the most
highly rated state member banks, and for banks seeking to expand, the Federal
Reserve expects an additional cushion of at least 1% to 2%.
The FDICIA created a statutory
framework of supervisory actions indexed to the capital level of the individual
institution. Under regulations adopted by the FDIC, an institution is assigned
to one of five capital categories, depending on its total risk-based capital
ratio, Tier I risk-based capital ratio, and leverage ratio, together with
certain subjective factors. Institutions which are deemed to be
"undercapitalized" depending on the category to which they are assigned are
subject to certain mandatory supervisory corrective actions.
EFFECTS
OF GOVERNMENT MONETARY POLICY
The earnings and growth of the Bank are
affected not only by general economic conditions, but also by the fiscal and
monetary policies of the federal government, particularly the Federal Reserve.
The Federal Reserve can and does implement national monetary policy for such
purposes as curbing inflation and combating recession, but its open market
operations in U.S. government securities, control of the discount rate
applicable to borrowings from the Federal Reserve, and establishment of reserve
requirements against certain deposits influence the growth of bank loans,
investments and deposits, and also affect interest rates charged on loans or
paid on deposits. The nature and impact of future changes in monetary policies
and their impact on the Company cannot be predicted with certainty.
CHANGES
IN REGULATIONS
Sarbanes-Oxley Act of
2002. On July 30, 2002 the President signed into law the
Sarbanes-Oxley Act of 2002 (the "Act") implementing legislative reforms intended
to address corporate and accounting fraud. The Act applies to the
Company with securities registered under the Securities Exchange Act of
1934. Certain key features of the Act are:
-Certification
and Accountability. The Act requires
the chief executive officer and chief financial officer to certify the accuracy
of periodic reports filed with the SEC, subject to civil and criminal penalties
if they knowingly or willfully violate this certification
requirement.
-Enhanced
Financial Disclosures and Reporting Requirements. The legislation
accelerates the time frame for disclosures by public companies and insiders, and
the Company must more promptly disclose any material changes in its financial
condition or operations. Directors and executive officers must also
provide information for most changes in ownership in company securities within
two business days of the change.
-Audit
Committee Requirements. The Act expands
the responsibilities of company audit committees including oversight of the
Company's auditor. The Act also requires the independence of all
members.
-Management
Assessment of Internal Controls. The Act requires management to
assess the effectiveness of the internal control structure and procedures for
financial reporting. It further requires independent attestation of
that
9
assessment by auditors. As a non-accelerated filer, the Company
will not have to comply with the rules requiring independent attestation until
2008.
SEC
Regulations: Certification of Disclosure in Companies' Quarterly and
Annual Reports
As directed by Section 302(a) of the
Act, the SEC adopted rules to require an issuer's principal executive and
financial officers each to certify the financial and other information contained
in the issuer's quarterly and annual reports. The rules also require these
officers to certify that: they are responsible for establishing, maintaining and
regularly evaluating the effectiveness of the issuer's internal controls; they
have made certain disclosures to the issuer's auditors and the audit committee
of the board of directors about the issuer's internal controls; and they have
included information in the issuer's quarterly and annual reports about their
evaluation and whether there have been significant changes in the issuer's
internal controls or in other factors that could significantly affect internal
controls subsequent to the evaluation. In addition, the SEC has adopted rules
which require issuers to maintain, and regularly evaluate the effectiveness of,
disclosure controls and procedures designed to ensure that the information
required in reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported on a timely basis. The effective date of this
requirement was August 29, 2002. The Company has implemented procedures and
reporting tools to meet the requirements of the SEC certification
rules.
SEC
Regulations: Strengthening the SEC's Requirements Regarding Auditor
Independence
The SEC adopted amendments to its
existing requirements regarding auditor independence to enhance the independence
of accountants that audit and review financial statements and prepare
attestation reports filed with the Commission. The final rules recognize the
critical role played by audit committees in the financial reporting process and
the unique position of audit committees in assuring auditor independence.
Consistent with the direction of Section 208(a) of the Act, the SEC adopted
rules to: revise the Commission's regulations related to the non-audit services
that, if provided to an audit client, would impair an accounting firm's
independence; require that an issuer's audit committee pre-approve all audit and
non-audit services provided to the issuer by the auditor of an issuer's
financial statements; prohibit certain partners on the audit engagement team
from providing services to the issuer for more than five or seven consecutive
years, depending on the partner's involvement in the audit, except that certain
small accounting firms may be exempted from this requirement; prohibit an
accounting firm from auditing an issuer's financial statements if certain
members of management of that issuer had been members of the accounting firm's
audit engagement team within the one-year period preceding the commencement of
audit procedures; require that the auditor of an issuer's financial statements
report certain matters to the issuer's audit committee, including "critical"
accounting policies used by the issuer; and require disclosures to investors of
information related to audit and non-audit services provided by, and fees paid
to, the auditor of the issuer's financial statements. In addition, under the
final rules, an accountant would not be independent from an audit client if an
audit partner received compensation based on selling engagements to that client
for services other than audit, review and attest services. The rules were
effective May 6, 2003.
SEC
Regulations: Disclosure Required by Sections 406 and 407 of the
Act
The SEC adopted rules and amendments
requiring publicly traded companies to include two new types of disclosures in
their annual reports filed pursuant to the Securities Exchange Act of 1934.
First, the rules require a company to disclose whether it has at least one
"audit committee financial expert" serving on its audit committee, and if so,
the name of the expert and whether the expert is independent of
management. Second, the rules require a company to disclose whether
it has adopted a code of ethics that applies to the company's principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. A company which has not
adopted such a code must disclose this fact and explain why it has not done so.
A company also will be required to promptly disclose amendments to, and waivers
from, the code of ethics relating to any of those officers. Companies must
comply with the code of ethics disclosure requirements promulgated under Section
406 of the Act in their annual reports for fiscal years ending on or after July
15, 2003. They also must comply with the requirements regarding disclosure of
amendments to, and waivers from, their ethics codes on or after the date on
which they file their first annual report in which the code of ethics disclosure
is required. Companies similarly must comply with the audit committee financial
expert disclosure requirements promulgated under Section 407 of the
Sarbanes-Oxley Act in their annual reports for fiscal years ending on or after
July 15, 2003.
In 2003 the Company's Board of
Directors adopted a formal Code of Ethics to demonstrate to the public and
stockholders the importance the Board and management place on ethical conduct,
and to continue to set forth the expectations for the conduct of ethical
business practices.
USA Patriot Act. Following the
events of September 11, 2001, President Bush, on October 26, 2001, signed into
law the United and Strengthening America by Providing Appropriate Tools Required
to Intercept and Obstruct Terrorism Act of 2001. Also known as the "USA Patriot
Act," the law enhances the powers of the federal government and law enforcement
organizations to combat terrorism, organized crime, and money laundering. The
USA Patriot Act significantly amends and expands the application of the Bank
Secrecy Act, including enhanced measures regarding customer identity, new
suspicious activity reporting rules and enhanced anti-money laundering programs.
Under the Act, each financial institution is required to establish and maintain
anti-money laundering compliance and due diligence programs, which include, at a
minimum, the development of internal policies, procedures, and controls; the
designation of a compliance officer; an ongoing employee training program; and
an independent audit function to test programs.
ITEM
1A. RISK
FACTORS
Factors
That May Affect Future Results of Operations
The Company’s operations and financial
results are subject to various uncertainties, such as general economic
conditions, changes in market interest rates, intense competition, growth and
management, government regulation, and credit risk. In addition to
the other information contained in this report, the following risks may affect
the Company. If any of these risks occurs, its business, financial
condition or operating results could be adversely affected.
1. Growth and
Management. The Company’s financial performance and
profitability will depend on its ability to manage recent and possible future
growth. Although management believes that it can properly manage the
growth of the Company’s operations and assets, there can be no assurance that
unforeseen issues relating to such growth will not have adverse affects.
In addition, any future acquisitions and continued growth may present
operating and other problems that could have an adverse effect on the Company’s
business, financial condition and results of operations. Also the
unexpected loss of services of
any key management personnel, or
the inability to recruit and retain
qualified personnel in the future, could have an adverse effect on
the business. Accordingly, there can be no assurance that management
will be able to execute its growth strategy or maintain the current level of
profitability.
2. Interest Rate Risk and
Variations in Market Interest Rates. The Bank’s income
and cash flows depend to a great extent on the difference between the interest
rates earned on interest-earning assets such as loans and investment securities
and the interest rates paid on interest-bearing liabilities such as deposits and
borrowing. These rates are highly sensitive to many factors that are beyond the
Company’s control, including general economic conditions and the policies of
various governmental and regulatory agencies. Fluctuations in interest rates may
also affect the demand by customers for the Company’s products and services.
Significant fluctuations in interest rates could have a material adverse effect
on the Company’s business, financial condition, results of operations, or
liquidity.
3. Geographic
Factors. Economic conditions in the communities the Bank
serves could adversely affect its operations. As a result of the
community bank focus, results depend largely upon economic and business
conditions in the Bank’s service areas. Deterioration in economic and
business conditions in the market areas served could have a material adverse
impact on the quality of the Bank’s loan portfolio, and the demand for its
products and services, which in turn may have a material adverse effect on
results of operations. Also, a stall in the national economy and the
deflationary pressures in the global economy might further exacerbate local
economic conditions. The extent of the future impact of these events
on economic and business conditions cannot be predicted.
4. Regulation. The
Company and Bank are subject to government regulation that could limit or
restrict its activities, which in turn could adversely impact operations. The
financial services industry is regulated extensively. Federal and
state regulation is designed primarily to protect the deposit insurance funds
and consumers, and not to benefit shareholders. These regulations can
sometimes impose significant limitations on the Company’s
operations. In addition, these regulations are constantly evolving
and may change significantly over time. Significant new laws or
changes in existing laws or repeal of existing laws may cause the Company’s
results to differ materially. Further, federal monetary policy,
particularly as implemented through the Federal Reserve System, significantly
affects credit conditions.
5. Competition. Competition
may adversely affect Company performance. The financial services
business in the Bank’s market areas is highly competitive. It is
becoming increasingly competitive due to changes in regulation, technological
advances, and the accelerating pace of consolidation among financial services
providers. The Bank faces competition both in attracting deposits and
in making loans. The Bank competes for loans principally through the interest
rates and loan fees the Bank charges and the efficiency and quality of services
it provides. Increasing levels of competition
in the
banking and financial services businesses may reduce market share or cause the
prices charged for services to fall. Results may differ in future
periods depending upon the nature or level of competition.
6. Credit Risk. If a
significant number of borrowers, guarantors and related parties fail to perform
as required by the terms of their loans, the Bank will sustain
losses. A significant source of risk arises from the possibility that
losses will be sustained if a significant number of borrowers, guarantors and
related parties fail to perform in accordance with the terms of their
loans. The Bank has adopted underwriting and credit monitoring
procedures and credit policies, including the establishment and review of the
allowance for credit losses, that management believe are appropriate to minimize
this risk by assessing the likelihood of nonperformance, tracking loan
performance and diversifying the credit portfolio. These policies and
procedures, however, may not prevent unexpected losses that could materially
adversely affect results of operations.
7. Collateral
Risk. The market value of
real estate, particularly real estate held for
investment, can fluctuate significantly in a short period of time as a result of
market conditions in the geographic area in which the real estate is
located. If the value of the real estate serving as collateral for
the loan portfolio were to decline materially, a significant part of the Bank’s
loan portfolio could become under-collateralized. If the loans that
are collateralized by real estate become troubled during a time when
market conditions are declining or have declined, then, in
the event of foreclosure, the Bank may not be able to
realize the amount of collateral anticipated at the time of originating the
loan, which could have
a material adverse effect on
the provision for loan losses and
operating results and financial condition.
8. Internal Accounting
Controls. Management believes
the internal control system as currently documented and
functioning is adequate to
provide reasonable assurance over financial
reporting. Nevertheless, because of the inherent limitation in
administering a cost effective control system, misstatements due to error or
fraud may occur and not be detected. Breakdowns in internal controls
and procedures could occur in the future, and any such breakdowns could have an
adverse effect on the Company. See "Item 9A - Controls and Procedures" for
additional information.
9. Technology. The
financial services industry is undergoing rapid technological changes, with
frequent introductions of new technology-driven products and services. In
addition to improving the ability to serve customers, the effective use of
technology increases efficiency and enables financial institutions to reduce
costs. Future success will depend, in part, upon the Bank’s ability to address
the needs of its customers by using technology to provide products and services
that will satisfy customer demands for conveniences, as well as to create
additional efficiencies in operations. Many of the Bank’s competitors
have substantially greater resources to invest in technological improvements.
The Bank may not be able to effectively implement new technology-driven products
and services or be successful in marketing these products and services to its
customers.
The computer systems and network
infrastructure the Bank uses could be vulnerable to unforeseen problems. The
Bank’s operations are dependent upon its ability to protect the computer
equipment against damage from fire, power loss, telecommunications failure, or a
similar catastrophic event. Any damage or failure that causes an
interruption in operations could have an adverse effect on the Company’s
financial condition and results of operations. In addition,
operations are dependent upon the Bank’s ability to protect the computer systems
and network infrastructure against damage from physical break-ins, security
breaches and other disruptive problems caused by the Internet or other
users. Such computer break-ins and
other disruptions would jeopardize the
security of information stored in and transmitted through the computer systems
and network
infrastructure, which may result in significant liability to
the Company and deter potential customers. Although the Bank,
with the help of third-party service providers, intends to continue to implement
security technology and establish operational procedures to prevent such damage,
there can be no assurance that these security measures will be
successful.
Additional risks and uncertainties not
currently known or that management currently deems to be immaterial also may
materially and adversely affect the Company’s business operations. Any of these
risks could materially and adversely affect the Company’s business, financial
condition or results of operations.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2.
PROPERTIES
|
DATE
|
OWNED
(O)
|
|||||||
|
SQUARE
|
OPENED
OR
|
OR
|
||||||
|
LOCATION
|
ADDRESS
|
FEET
|
ACQUIRED
|
LEASED
(L)
|
||||
|
FULL SERVICE
BANKING OFFICES:
|
||||||||
|
Florence
(Main Branch)
|
1355
Highway 101
|
12,896
|
1980
|
O
|
||||
|
Florence
(Safeway Branch)
|
700
Highway 101
|
475
|
1995
|
L
|
||||
|
Roseburg
|
2555
NW Edenbower
|
9,731
|
2004
|
O
|
||||
|
Coos
Bay
|
915
S First Street
|
7,834
|
2003
|
O
|
||||
|
OTHER
OFFICES:
|
||||||||
|
Financial
Center
|
1365
Highway 101
|
16,937
|
2007
|
O
|
||||
The Company’s office is located in the
main branch of the Bank. The Financial Services building is west of the main
office and houses the loan center, trust and asset management and the brokerage
divisions. The lease for Florence’s Safeway branch includes multiple renewal
options. Land next to the Coos Bay property on which the customer
parking lot is located is leased. The Bank intends to purchase the
land at the end of the lease in 2012 for $360,000.
ITEM
3.
LEGAL
PROCEEDINGS
As of the date of filing of this Form
10-K the Company was not a party to any material legal
proceedings. Further, management is not aware of any threatened or
pending lawsuits or other proceedings against the Company which, if determined
adversely, would have a material effect on the business or financial position of
the Bank or Bancorp. The Company may from time to time become a party
to litigation in the ordinary course of business, such as debt collection
litigation or through an appearance as a creditor in a bankruptcy
case.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
The
Company did not submit any matter to the vote of stockholders during the fourth
quarter of 2007.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The shares of Bancorp’s common stock,
no par value, have been available for purchase and sale on the OTC Bulletin
Board of NASDAQ, under the symbol “OPBP,” since January 1,
2003. Prior to the formation of the Bancorp as the Bank’s holding
company, Oregon Pacific Banking Company’s stock was traded on the same system
under the symbol “OPBC.” At February 19, 2008, the stock was held of
record by approximately 443 shareholders which does not include beneficial
owners whose shares are held in record names of brokers.
The
following table sets forth the high and low sales information for the Company’s
stock for each calendar quarter of 2006 and 2007 and through February 29,
2008. The information was obtained from McAdams, Wright and Ragen,
Inc. or Wedbush Morgan Securities, Inc. and reflects inter-dealer prices,
without retail mark-up, mark-down or commissions, and may not represent actual
transactions.
|
COMMON STOCK
HIGH AND LOW CLOSING BID
|
|
|||||||||||
|
PERIOD
|
HIGH
PRICE
|
LOW
PRICE
|
CASH
DIVIDENDS
|
|||||||||
|
January
1 – March 31, 2006
|
$ | 12.75 | $ | 11.75 | $ | 0.06 | ||||||
|
April
1 – June 30, 2006
|
$ | 13.00 | $ | 11.55 | $ | 0.06 | ||||||
|
July
1 – September 30, 2006
|
$ | 12.75 | $ | 12.00 | $ | 0.07 | ||||||
|
October
1 – December 31, 2006
|
$ | 12.35 | $ | 12.00 | $ | 0.07 | ||||||
|
January
1 – March 31, 2007
|
$ | 12.50 | $ | 11.75 | $ | 0.07 | ||||||
|
April
1 – June 30, 2007
|
$ | 11.80 | $ | 11.00 | $ | 0.07 | ||||||
|
July
1 – September 30, 2007
|
$ | 11.85 | $ | 8.50 | $ | 0.07 | ||||||
|
October
1 – December 31, 2007
|
$ | 10.25 | $ | 9.05 | $ | 0.08 | ||||||
|
January
1 – February 29, 2008
|
$ | 11.95 | $ | 9.05 | $ | 0.08 | ||||||
Bancorp paid cash dividends of $0.29 and $0.26 per share for the years 2007 and
2006, respectively. Payment of dividends has been at the discretion
of the Company’s Board of Directors. Any future decision regarding dividends
will depend on future earnings, future capital needs, and the Company’s
operating financial condition, among other factors. Oregon law also
generally prohibits dividends where the effect of paying them would be, in the
judgment of the Board of Directors, to cause the Company to be unable to pay its
debts as they become due in the usual course of business and if the Company’s
total assets would not at least equal the sum of its total
liabilities.
In July 2007, Bancorp approved a stock
repurchase plan to repurchase up to $500,000 of stock. As of December 31, 2007,
the Company had repurchased 6,450 shares of stock under this plan, at a total
cost of $62,740 and an average price of $9.73 per share. The Company did not
repurchase any stock in 2006.
In August 2004, the Board of Directors
approved the Bancorp Amended Dividend Reinvestment Plan that permits the direct
purchase of additional shares of Bancorp Common Stock for cash in addition to
the automatic reinvestment of cash dividends. There were no shares
sold in 2007. During 2006, 83 shares were sold at an average price of $12.16 per
share as part of the Plan.
Stock
Performance Graph
The graph
presented below compares the cumulative total stockholder return on Oregon
Pacific Bancorp’s common stock to the cumulative total return of the NASDAQ
Composite and the Russell 2000 Index for the five plus years, which commenced
January 1, 2002 and ended February 28, 2007. The cumulative total stockholder
return assumes the investment of $100 in Oregon Pacific Bancorp’s common stock
and in each index on December 31, 2001 and assumes reinvestment of
dividends.
Oregon
Pacific Bancorp
Comparison
of Five-Year Cumulative Total Stockholder Return
|
12/31/02
|
12/31/03
|
12/31/04
|
12/31/05
|
12/31/06
|
12/31/07
|
02/29/08
|
||||||||||||||||||||||
|
OPBP
|
$ | 100.00 | $ | 97.72 | $ | 106.94 | $ | 176.32 | $ | 186.23 | $ | 141.37 | $ | 165.30 | ||||||||||||||
|
Nasdaq
|
$ | 100.00 | $ | 148.94 | $ | 160.89 | $ | 163.95 | $ | 179.56 | $ | 194.01 | $ | 168.87 | ||||||||||||||
|
Nasdaq
Bank Stocks
|
$ | 100.00 | $ | 129.93 | $ | 144.21 | $ | 137.97 | $ | 153.15 | $ | 119.35 | $ | 111.99 | ||||||||||||||
ITEM
6. SELECTED FINANCIAL DATA
The
following table sets forth certain information concerning the consolidated
financial condition, operating results, and key operating ratios for Oregon
Pacific Bancorp (or Oregon Pacific Bank, as noted) at the dates and for the
periods indicated. This information does not purport to be complete, and should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of Oregon Pacific Bancorp and Notes thereto.
|
AS
OF AND FOR THE YEARS ENDED DECEMBER 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
INCOME
STATEMENT DATA
|
||||||||||||||||||||
|
Interest
income
|
$ | 11,904,992 | $ | 11,735,462 | $ | 9,974,657 | $ | 7,808,911 | $ | 7,112,283 | ||||||||||
|
Interest
expense
|
3,669,794 | 3,278,853 | 2,282,774 | 1,483,995 | 1,554,368 | |||||||||||||||
|
Net
interest income
|
8,235,198 | 8,456,609 | 7,691,883 | 6,324,916 | 5,557,915 | |||||||||||||||
|
Loan
loss provision
|
120,000 | 26,000 | 215,000 | (355,000 | ) | 170,000 | ||||||||||||||
|
Net
interest income after provision for loan losses
|
8,115,198 | 8,430,609 | 7,476,883 | 6,679,916 | 5,387,915 | |||||||||||||||
|
Noninterest
income
|
2,722,285 | 2,738,291 | 2,794,163 | 2,407,276 | 2,449,301 | |||||||||||||||
|
Noninterest
expense
|
8,161,712 | 8,088,035 | 7,495,350 | 7,503,388 | 6,498,050 | |||||||||||||||
|
Income
before provision for income taxes
|
2,675,771 | 3,080,865 | 2,775,696 | 1,583,804 | 1,339,166 | |||||||||||||||
|
Provision
for income taxes
|
830,614 | 1,094,828 | 910,324 | 517,084 | 377,327 | |||||||||||||||
|
Net
income
|
$ | 1,845,157 | $ | 1,986,037 | $ | 1,865,372 | $ | 1,066,720 | $ | 961,839 | ||||||||||
|
AS
OF AND FOR THE YEARS ENDED DECEMBER 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
DIVIDENDS
|
||||||||||||||||||||
|
Cash
dividends declared and paid
|
$ | 638,589 | $ | 566,115 | $ | 472,727 | $ | 414,470 | $ | 365,701 | ||||||||||
|
Ratio
of dividends to net income
|
34.61 | % | 28.50 | % | 25.34 | % | 38.85 | % | 38.02 | % | ||||||||||
|
Cash
dividends per share
|
$ | 0.30 | $ | 0.26 | $ | 0.22 | $ | 0.19 | $ | 0.17 | ||||||||||
|
PER
SHARE DATA (1)
|
||||||||||||||||||||
|
Basic
earnings per common share
|
$ | 0.84 | $ | 0.91 | $ | 0.87 | $ | 0.49 | $ | 0.45 | ||||||||||
|
Diluted
earnings per common share
|
$ | 0.84 | $ | 0.91 | $ | 0.86 | $ | 0.49 | $ | 0.45 | ||||||||||
|
Book
value per common share
|
$ | 6.05 | $ | 5.44 | $ | 4.74 | $ | 4.14 | $ | 3.97 | ||||||||||
|
Weighted
average shares outstanding:
|
||||||||||||||||||||
|
Basic
|
2,203,790 | 2,178,967 | 2,154,932 | 2,178,531 | 2,155,100 | |||||||||||||||
|
Diluted
|
2,207,486 | 2,187,870 | 2,162,826 | 2,180,609 | 2,156,802 | |||||||||||||||
|
BALANCE
SHEET DATA
|
||||||||||||||||||||
|
Investment
securities
|
$ | 9,805,501 | $ | 11,320,448 | $ | 12,666,657 | $ | 16,444,519 | $ | 17,844,388 | ||||||||||
|
Loans,
net
|
$ | 121,746,444 | $ | 121,066,553 | $ | 117,985,801 | $ | 108,707,038 | $ | 82,722,328 | ||||||||||
|
Total
assets
|
$ | 152,604,340 | $ | 151,305,294 | $ | 150,441,005 | $ | 138,248,887 | $ | 120,676,292 | ||||||||||
|
Total
deposits
|
$ | 120,992,414 | $ | 120,610,770 | $ | 121,329,256 | $ | 111,060,721 | $ | 97,464,404 | ||||||||||
|
Stockholders'
equity
|
$ | 13,371,888 | $ | 11,900,833 | $ | 10,263,231 | $ | 8,892,297 | $ | 8,635,558 | ||||||||||
|
SELECTED
RATIOS
|
||||||||||||||||||||
|
Return
on average assets
|
1.20 | % | 1.27 | % | 1.27 | % | 0.80 | % | 0.83 | % | ||||||||||
|
Return
on average equity
|
14.58 | % | 18.03 | % | 21.62 | % | 12.00 | % | 11.21 | % | ||||||||||
|
Net
loans to deposits
|
100.62 | % | 100.38 | % | 97.24 | % | 97.24 | % | 97.88 | % | ||||||||||
|
Net
interest margin
|
5.95 | % | 5.91 | % | 5.42 | % | 5.25 | % | 5.34 | % | ||||||||||
|
Efficiency
ratio (1)
|
74.49 | % | 72.25 | % | 71.48 | % | 71.48 | % | 85.93 | % | ||||||||||
|
ASSET
QUALITY RATIOS
|
||||||||||||||||||||
|
Reserve
for loans losses to:
|
||||||||||||||||||||
|
Ending
total loans
|
1.58 | % | 1.51 | % | 1.53 | % | 1.47 | % | 1.49 | % | ||||||||||
|
Nonperforming
assets (2)
|
115.11 | % | 865.58 | % | 521.91 | % | 1451.33 | % | 13160.00 | % | ||||||||||
|
Non-performing
assets to ending total assets
|
1.12 | % | 0.14 | % | 0.24 | % | 0.08 | % | 0.00 | % | ||||||||||
|
Net
loan charge-offs to average loans
|
0.01 | % | 0.02 | % | 0.00 | % | -0.69 | % | 0.03 | % | ||||||||||
|
CAPITAL
RATIOS (BANK)
|
||||||||||||||||||||
|
Average
stockholders’ equity to average assets
|
10.90 | % | 9.67 | % | 9.19 | % | 9.53 | % | 7.44 | % | ||||||||||
|
Tier
I capital ratio (3)
|
12.9 | % | 11.9 | % | 11.0 | % | 10.5 | % | 12.6 | % | ||||||||||
|
Total
risk-based capital ratio (4)
|
14.1 | % | 13.2 | % | 12.3 | % | 11.8 | % | 13.9 | % | ||||||||||
|
Leverage
ratio (5)
|
11.1 | % | 10.1 | % | 9.3 | % | 8.9 | % | 10.2 | % | ||||||||||
___________________
|
(1)
|
Efficiency
ratio is noninterest expense divided by the sum of net interest income
plus noninterest income.
|
|
(2)
|
Nonperforming
assets consist of nonaccrual loans, loans contractually past due 90 days
or more, and other real estate
owned.
|
|
(3)
|
Tier
I capital divided by risk-weighted assets; federal minimum capital
requirements are 4%.
|
|
(4)
|
Total
capital divided by risk-weighted assets; federal minimum capital
requirements are 8%.
|
|
(5)
|
Tier
I capital divided by average total
assets.
|
|
ITEM
7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
Introduction
The following discussion should be read
together with Oregon Pacific Bancorp’s consolidated financial statements and
related notes which are included elsewhere in this Form 10-K.
Oregon Pacific Bancorp’s goal is to
continue to grow its earning assets and return on equity while keeping its asset
quality high. The key to this is to emphasize personalized, quality
banking products and services for its customers, to hire and retain competent
management and administrative personnel, and to respond quickly to customer
demand and growth opportunities. The Company also intends to continue expansion
into markets where opportunities exist due to mergers and acquisitions and to
increase its market penetration in its existing markets through the introduction
of new or existing financial services products.
For the year ended December 31, 2007,
consolidated net income was $1,845,000, representing a decrease of 7.09% from
net income of $1,986,000 earned during the year ended December 31,
2006. Net income for 2006 was up 6.47% from net income of $1,865,000
earned during the year ended December 31, 2005. Diluted earnings per share
were $0.84, $0.91, and $0.86 for the years ended December 31, 2007, 2006, and
2005, respectively. Return on average assets was 1.20% for the year
ended December 31, 2007, and 1.27% for both years ended December 31, 2006 and
2005. Return on average equity was 14.58% for the year ended December
31, 2007, compared with 18.03% for the year ended December 31, 2006, and 21.62%
for the year ended December 31, 2005. The decrease in earnings for
the year ended December 31, 2007 can be primarily attributed to increased rates
for customer deposits and increased loan loss provision, partially offset by
lower taxes.
Company assets grew from $151.31
million to $152.60 million, or 0.86% from year-end 2006 to 2007, and 0.57% from
December 31, 2005 to December 31, 2006 from $150.44 million. Most of the growth
was an increase in interest-bearing deposits in banks which grew $2.22 million
to $5.21 million from $2.99 million. Stockholders’ equity increased
in 2007 while the Company paid 34.61% of income as cash dividends to
stockholders. While the growth in equity has lowered the return on
average equity over the past three years, management believes the current level
of equity will allow for future growth opportunities.
Return on average daily assets and
equity and certain other ratios for the periods indicated are presented
below:
|
YEARS
ENDED DECEMBER 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(Dollars
in Thousands)
|
||||||||||||||||||||
|
Net
income
|
$ | 1,845 | $ | 1,986 | $ | 1,865 | $ | 1,067 | $ | 962 | ||||||||||
|
Average
assets
|
153,579 | $ | 156,117 | 147,429 | 134,102 | 115,436 | ||||||||||||||
|
RETURN
ON AVERAGE ASSETS
|
1.20 | % | 1.27 | % | 1.27 | % | 0.80 | % | 0.83 | % | ||||||||||
|
Net
income
|
$ | 1,845 | $ | 1,986 | $ | 1,865 | $ | 1,067 | $ | 962 | ||||||||||
|
Average
equity
|
12,657 | 11,015 | 8,628 | 8,889 | 8,578 | |||||||||||||||
|
RETURN
ON AVERAGE EQUITY
|
14.58 | % | 18.03 | % | 21.62 | % | 12.00 | % | 11.21 | % | ||||||||||
Critical
Accounting Policies and Estimates
This “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” as well as
disclosures included elsewhere in this Form 10-K, are based upon the audited
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses. On an ongoing basis, management evaluates the estimates
used, including the adequacy of the allowance for loan losses and contingencies
and litigation. Estimates are based upon historical experience, current economic
conditions, and other factors that management considers reasonable under the
circumstances. These estimates result in judgments regarding the
carrying values of assets and liabilities when these values are not readily
available from other sources as well as assessing and identifying the accounting
treatments of commitments and contingencies. Actual results may
differ from these estimates under different assumptions or
conditions. The following critical accounting policies involve the
more significant judgments and assumptions used in the preparation of the
consolidated financial statements.
The allowance for loan losses is
established to provide for probable loan losses based on evaluating known and
inherent risks in the loan portfolio. The adequacy of the allowance
is monitored on an ongoing basis and is based on management’s evaluation of
numerous factors. These factors include the quality of the current loan
portfolio, the trend in the loan portfolio’s risk ratings, current economic
conditions, loan concentrations, loan growth rates, past-due and non-performing
trends, evaluation of specific loss estimates for all significant problem loans,
historical charge-off and recovery experience, and other pertinent
information. As of December 31, 2007, approximately 88% of the Bank’s
loan portfolio is secured by real estate and a significant decline in real
estate values in Oregon would cause management to increase the allowance for
loan losses.
The Company estimates the value of its
mortgage servicing rights (“MSR”) on a quarterly basis using a
discounted cash flow model. The Bank stratifies its MSR's
based on the contractual maturity of the mortgage. The model estimates the
present value of the future net cash flows of the servicing portfolio based on
various factors, such as servicing costs, servicing income, expected prepayments
speeds, discount rate, and loan maturity. The effect of changes in market
interest rates on estimated rates of loan prepayments represents the predominant
risk characteristic underlying the MSR's portfolio. Comparison of the
carrying value is made to recent industry sales to ensure carrying value is not
more than a potential sales price.
Effective January 1, 2006, the
Bank adopted the provisions of Statement of Financial Accounting Standards
(“SFAS”) No. 123R, Share-Based Payment, a revision to the previously issued
guidance on accounting for stock options and other forms of equity-based
compensation. SFAS No. 123R requires companies to recognize in the
income statement the grant-date fair value of stock options and other
equity-based forms of compensation issued to employees over the employees’
requisite service period (generally the vesting period). The fair value of each
option grant is estimated as of the grant date using the Black-Scholes
option-pricing model. This involves assumptions calculated using management’s
best estimates at the time of the grant, which impacts the fair value of the
option calculated under the Black-Scholes methodology and, ultimately, the
expense that will be recognized over the life of the option. Additional
information is included in Note 1 of the “Notes to Consolidated Financial
Statements.”
Recent
Accounting Pronouncements
Recently issued accounting
pronouncements that could potentially impact the Bank are included in Note 1 of
the “Notes to Financial Statements” (Item 8).
RESULTS
OF OPERATIONS
Net
Interest Income/Net Interest Margin
Net interest income, before the
provision for loan loss, for the year ended December 31, 2007 was $8.24 million,
a decrease of 2.62% compared to net interest income of $8.46 million in 2006,
and an increase of 7.06% compared to net interest income of $7.69 million in
2005. The overall tax-equivalent earning asset yield was 8.57% in
2007 compared to 8.17% in 2006 and 7.08% in 2005. For the same years, rates on
interest-bearing liabilities were 3.54%, 3.04%, and 2.20%, respectively. The
increasing rates were primarily due to outside economic factors creating
pressure on interest yields and rates.
Total interest-earning assets averaged
$140.31 million for the year ended December 31, 2007, compared to $145.43
million for the corresponding period in 2006. The decrease was due to
real estate development loans coming to completion or lots being
sold. By year end, loan balances had grown slightly over the prior
year-end.
Interest-bearing liabilities averaged
$103.69 million for the year ended December 31, 2007 compared to $107.69 million
for the same period in 2006. With slower loan growth the Bank didn’t
attempt to match the soaring deposit rates, especially of certificates of
deposits for otherwise non-customers, which competition had
created.
Loans, which generally carry a higher
yield than investment securities and other earning assets, comprised 87.97% of
average earning assets during 2007, compared to 86.30% in 2006 and 85.91% in
2005. During the same periods, average yields on loans were 9.03% in
2007, 8.66% in 2006, and 7.47% in 2005. Investment securities plus
interest-bearing balances at banks comprised 12.03% of average earning assets in
2007, which was down from 13.70% in 2006 and 14.09% in 2005. Tax equivalent
interest yields on investment securities have ranged from 5.34% in 2007 to 5.21%
in 2006 and 5.25% in 2005.
Interest cost, as a percentage of
earning assets, increased to 2.61% in 2007, compared to 2.25% in 2006 and 1.66%
in 2005. Local competitive pricing conditions and funding needs for
the Bank’s investments in loans have been the primary determinants of rates paid
for deposits during these three years.
Average Balances and Average Rates
Earned and Paid. The following table shows average balances and interest
income or interest expense, with the resulting average yield or rates by
category of earning assets or interest-bearing liabilities:
|
YEAR
ENDED
DECEMBER
31, 2007
|
YEAR
ENDED
DECEMBER
31, 2006
|
YEAR
ENDED
DECEMBER
31, 2005
|
||||||||||||||||||||||||||||||||||
|
INTEREST
|
AVERAGE
|
INTEREST
|
AVERAGE
|
INTEREST
|
AVERAGE
|
|||||||||||||||||||||||||||||||
|
AVERAGE
|
INCOME
OR
|
YIELDS
OR
|
AVERAGE
|
INCOME
OR
|
YIELDS
OR
|
AVERAGE
|
INCOME
OR
|
YIELDS
OR
|
||||||||||||||||||||||||||||
|
BALANCE
|
EXPENSE
|
RATES
|
BALANCE
|
EXPENSE
|
RATES
|
BALANCE
|
EXPENSE
|
RATES
|
||||||||||||||||||||||||||||
|
(dollars
in thousands)
|
||||||||||||||||||||||||||||||||||||
|
Interest-earning
assets:
|
||||||||||||||||||||||||||||||||||||
|
Loans
(1),(3),(4)
|
$ | 123,432 | $ | 11,141 | 9.03 | % | $ | 125,504 | $ | 10,865 | 8.66 | % | $ | 118,404 | $ | 8,842 | 7.47 | % | ||||||||||||||||||
|
Investment
securities
|
||||||||||||||||||||||||||||||||||||
|
Taxable
securities
|
5,624 | 219 | 3.89 | % | 5,593 | 207 | 3.70 | % | 6,728 | 256 | 3.80 | % | ||||||||||||||||||||||||
|
Nontaxable securities (2)
|
5,126 | 345 | 6.73 | % | 6,524 | 424 | 6.50 | % | 7,154 | 473 | 6.61 | % | ||||||||||||||||||||||||
|
Interest-earning
balances due from banks
|
6,129 | 317 | 5.17 | % | 7,806 | 384 | 4.92 | % | 5,533 | 188 | 3.40 | % | ||||||||||||||||||||||||
|
Total
interest-earning assets
|
140,311 | 12,022 | 8.57 | % | 145,427 | 11,880 | 8.17 | % | 137,819 | 9,759 | 7.08 | % | ||||||||||||||||||||||||
|
Cash
and due from banks
|
4,047 | 3,901 | 4,680 | |||||||||||||||||||||||||||||||||
|
Premises
and equipment, net
|
7,957 | 6,781 | 5,100 | |||||||||||||||||||||||||||||||||
|
Other
real estate
|
- | - | - | |||||||||||||||||||||||||||||||||
|
Loan
loss allowance
|
(1,855 | ) | (1,868 | ) | (1,829 | ) | ||||||||||||||||||||||||||||||
|
Other
assets
|
3,119 | 1,876 | 1,659 | |||||||||||||||||||||||||||||||||
|
Total
assets
|
$ | 153,579 | $ | 156,117 | $ | 147,429 | ||||||||||||||||||||||||||||||
|
Interest-bearing
liabilities:
|
||||||||||||||||||||||||||||||||||||
|
Interest-bearing
checking and savings accounts
|
$ | 53,813 | $ | 1,298 | 2.41 | % | 60,248 | $ | 1,244 | 2.06 | % | $ | 61,360 | $ | 793 | 1.29 | % | |||||||||||||||||||
|
Time
deposit and IRA accounts
|
34,767 | 1,547 | 4.45 | % | 31,582 | 1,201 | 3.80 | % | 27,275 | 792 | 2.90 | % | ||||||||||||||||||||||||
|
Borrowed
funds
|
15,108 | 824 | 5.45 | % | 15,862 | 834 | 5.26 | % | 15,269 | 699 | 4.58 | % | ||||||||||||||||||||||||
|
Total
interest-bearing liabilities
|
103,688 | 3,669 | 3.54 | % | 107,692 | 3,279 | 3.04 | % | 103,904 | 2,284 | 2.20 | % | ||||||||||||||||||||||||
|
Noninterest-bearing
deposits
|
33,641 | 34,142 | 31,121 | |||||||||||||||||||||||||||||||||
|
Other
liabilities
|
3,593 | 3,268 | 3,776 | |||||||||||||||||||||||||||||||||
|
Total
liabilities
|
140,922 | 145,102 | 138,801 | |||||||||||||||||||||||||||||||||
|
Shareholders’
equity
|
12,657 | 11,015 | 8,628 | |||||||||||||||||||||||||||||||||
|
Total
liabilities and share-holders’ equity
|
$ | 153,579 | $ | 156,117 | $ | 147,429 | ||||||||||||||||||||||||||||||
|
Net
interest income
|
$ | 8,353 | $ | 8,601 | $ | 7,475 | ||||||||||||||||||||||||||||||
|
Net
interest spread
|
5.03 | % | 5.12 | % | 4.88 | % | ||||||||||||||||||||||||||||||
|
Net
interest expense to average earning assets
|
2.61 | % | 2.25 | % | 1.66 | % | ||||||||||||||||||||||||||||||
|
Net
interest margin
|
5.95 | % | 5.91 | % | 5.42 | % | ||||||||||||||||||||||||||||||
|
(1)
|
Includes
nonaccrual loans and mortgage loans held for
sale.
|
|
(2)
|
Tax-exempt
income has been adjusted to a tax-equivalent basis at
34%.
|
|
(3)
|
2005
excludes one-time interest repayment of $377,000 for a loan charged off in
1998 and recovered in 2005.
|
|
(4)
|
Interest
income on loans includes loan fees of $1,065,000, $1,158,000, and
$1,157,000, for 2007, 2006, and 2005,
respectively.
|
Analysis
of Changes in Interest Differential.
For financial institutions, the primary
component of earnings is net interest income. Net interest income is
the difference between interest income, principally from loan and investment
security portfolios, and interest expense on customer deposits and borrowed
funds. Changes in net interest income result from changes in
“volume,” “spread,” and “margin.” Volume refers to the dollar level of
interest-earning assets and interest-bearing liabilities. Spread
refers to the difference between the yield on interest-earning assets and the
cost of interest-bearing liabilities. Net interest margin is the ratio of net
interest income to total average interest-earning assets and is influenced by
the relative level of interest-earning assets and interest-bearing
liabilities.
The
following table shows the dollar amount of the increase (decrease) in the
Company’s net interest income and attributes such dollar amounts to changes in
volume as well as changes in rates. Rate and volume variances have been
allocated proportionally between rate and volume changes:
|
2007
OVER 2006
|
2006
OVER 2005
|
2005
OVER 2004
|
||||||||||||||||||||||||||||||||||
|
NET
|
NET
|
NET
|
||||||||||||||||||||||||||||||||||
|
(dollars
in thousands)
|
VOLUME
|
RATE
|
CHANGE
|
VOLUME
|
RATE
|
CHANGE
|
VOLUME
|
RATE
|
CHANGE
|
|||||||||||||||||||||||||||
|
Interest-earning
assets:
|
||||||||||||||||||||||||||||||||||||
|
Loans
|
$ | (179 | ) | $ | 455 | $ | 276 | $ | 574 | $ | 1,449 | $ | 2,023 | $ | 1,332 | $ | 536 | $ | 1,868 | |||||||||||||||||
|
Investment
securities:
|
||||||||||||||||||||||||||||||||||||
|
Taxable
securities
|
1 | 11 | 12 | (43 | ) | (6 | ) | (49 | ) | (84 | ) | (82 | ) | (166 | ) | |||||||||||||||||||||
|
Nontaxable
securities (1)
|
(91 | ) | 12 | (79 | ) | (42 | ) | (7 | ) | (48 | ) | 28 | (19 | ) | 9 | |||||||||||||||||||||
|
Interest-earning
balances due from
banks
|
(82 | ) | 15 | (67 | ) | 77 | 119 | 196 | (40 | ) | 122 | 82 | ||||||||||||||||||||||||
|
Total
|
(351 | ) | 493 | 142 | 566 | 1,555 | 2,121 | 1,236 | 557 | 1,793 | ||||||||||||||||||||||||||
|
Interest-bearing
liabilities:
|
||||||||||||||||||||||||||||||||||||
|
Interest-bearing
checking and savings accounts
|
(133 | ) | 187 | 54 | (14 | ) | 465 | 451 | 10 | 316 | 326 | |||||||||||||||||||||||||
|
Time
deposits
|
121 | 225 | 346 | 125 | 284 | 409 | 139 | 203 | 342 | |||||||||||||||||||||||||||
|
Borrowed
funds
|
(40 | ) | 30 | (10 | ) | 27 | 108 | 135 | 36 | 96 | 132 | |||||||||||||||||||||||||
|
Total
|
(52 | ) | 442 | 390 | 138 | 857 | 995 | 185 | 615 | 800 | ||||||||||||||||||||||||||
|
Net
increase (decrease) in net interest income
|
$ | (299 | ) | $ | 51 | $ | (248 | ) | $ | 428 | $ | 698 | $ | 1,126 | $ | 1,052 | $ | (59 | ) | $ | 993 | |||||||||||||||
(1) Tax-exempt income has been adjusted
to a tax-equivalent basis at 34%.
Provision
for Loan Losses
The provision for loan losses
represents charges made to earnings to maintain an adequate allowance for
probable incurred losses in the loan portfolio. Factors considered in
establishing an appropriate allowance include a careful assessment of the
financial condition of the borrower; a realistic determination of the value and
adequacy of underlying collateral; the condition of the local economy and the
condition of the specific industry of the borrower; a comprehensive analysis of
the levels and trends of loan categories; and an assessment of individual
problem loans. The Bank applies a systematic process for determining
the adequacy of the allowance for loan losses that included an internal loan
review function until late fourth quarter 2005 (the loan review function was
outsourced in January 2006) and a monthly analysis of the adequacy of the
allowance. Management believes the reserve for loan losses is
adequate to absorb potential losses on identified problem loans as well as
inherent losses at historical and expected levels.
The recorded values of loans actually
removed from the balance sheets are referred to as charge-offs and, after
netting out recoveries on previously charged-off assets, become net
charge-offs. The Bank’s policy is to charge off loans when, in
management’s opinion, the loan or a portion thereof is deemed uncollectible,
although concerted efforts are made to maximize recovery after the
charge-off. When a charge to the loan loss provision is recorded, the
amount is based on
past
charge-off experience, a careful analysis of the current portfolio, and an
evaluation of economic trends in the market area. Management will
continue to closely monitor the loan quality of new and existing relationships
through stringent review and evaluation.
For the year ended December 31, 2007
the Bank charged $120,000 to its provision for loan losses compared to $26,000
and $215,000 in 2006 and 2005. The increased provision in 2007 was
due to changing economic conditions and high concentrations of commercial real
estate construction loans while the large allowance provision in 2005 was due to
loan growth. The provision for 2006 was lower than 2005 due to the
lack of charge-offs and lower loan growth.
For the year ended December 31, 2007,
loan charge-offs exceeded recoveries by $16,000 as compared to $23,000 in
2006. All net charge-offs incurred by the Bank were small in amount
and generally were concentrated in the installment loan category.
Noninterest
Income
Total noninterest income has remained
fairly flat over the two-year period from 2005 to 2007 with a slight decrease of
2.57%. Noninterest income was $2.72 million in 2007, $2.74 million in
2006 and $2.79 million in 2005. Noninterest income is primarily derived
from mortgage loan sales and servicing fees, service charges and related fees,
trust fee income, and investment and brokerage service sales
commissions. The largest piece of noninterest income in 2007 is derived
from services charges. Over the past three years service charges have decreased
fairly significantly to $920,000 in 2007, from $972,000 in 2006, and $1.00
million in 2005. The decrease in 2007 reflects changes to the
Overdraft Protection service put into place in September of 2004 while
other deposit charges have remained fairly flat since the Bank offers many
demand deposit accounts with no related fees. Trust fee income increased to
$705,000 in 2007, from $683,000 in 2006, and $610,000 in 2005 which
reflects the growth in assets under management and the continuing acceptance of
the Bank’s trust services within its market areas. Other significant
noninterest income comes from the real estate mortgage
department. Most loans are sold in the secondary market with loan
servicing retained on many. Such income varied from $439,000 in 2007,
to $503,000 in 2006, and $655,000 in 2005. The decreases in mortgage
loan sales are largely a product of the mortgage rate environment that hit
forty-year lows in 2003 and created a buying or refinancing frenzy until such
activity came to an abrupt halt in late 2006. Investments sales
commissions showed the most significant growth in 2006 following the asset
purchase of the local LPL Investments office on January 3, 2006, with income
rising from $135,000 in 2005 to $413,000 in 2006. Assets managed have
continued to grow resulting in an increase of commissions to $432,000 in 2007
for a growth of 4.73%. “Other income” included an insurance
reimbursement received and recognized in 2005 for a litigation settlement
initially paid and expensed in 2004.
Noninterest
Expense
Noninterest expenses consist
principally of employees’ salaries and benefits, occupancy costs, data
processing expenses and other noninterest expenses. A measure of a
bank’s ability to contain noninterest expenses is the efficiency ratio,
calculated as total noninterest expenses divided by net interest income plus
noninterest income. For the year ended December 31, 2007, noninterest expenses
crept up as measured by the efficiency ratio of 74.49% compared to 72.25% and
71.48% for the years 2006 and 2005, respectively. This is primarily
due to the lack of growth in revenues in the depressed rural Oregon communities
we serve as expenses have remained fairly flat.
Total noninterest expense increased to
$8.16 million in 2007 compared to $8.09 million for year ended December 31, 2006
and $7.50 million for year ended December 31, 2005.
Salary and benefit expense, which
includes commissions and the employer-paid portion of payroll taxes, was $4.83
million in 2007, $4.90 million in 2006, and $4.56 million in 2005. For the years
ended December 31, 2007, Oregon Pacific Bank had an average of 92 full-time
equivalent employees which compares to average of 95 for 2006 and 89 for
2005. The decrease in 2007 expense represents the decreased headcount
offset by cost of living raises. As a result of the achievement of
company financial and operational goals, 2006 included increased incentive
compensation expense.
Occupancy expense consists of
depreciation of premises and equipment, maintenance and repair expenses,
utilities, and related expenses. This expense category was $861,000
in 2007, a decrease of $44,000 from $906,000 in 2006, which was an increase of
$21,000 over $885,000 in 2005. Several departments in Florence moved
into newly constructed facilities in April 2007 from leased facilities in 2006
and 2005.
Outside services expense consists of
telecommunication expense, directors’ fees, loan review fees, correspondent bank
charges, and fees for data processing and the internet, accountants’ fees, legal
services, Regulators’ examinations and
other
miscellaneous outside services. Outside services expense increased
from $672,000 in 2005 to $709,000 in 2006, an increase of $32,000 all of which
reflects the loan review function now outsourced. A further
increase in 2007 to $818,000 reflected increased data processing
costs.
Income
Taxes
The provision for income taxes was
$831,000 in 2007, $1.09 million in 2006, and $910,000 in 2005. The
provision for 2007 was reduced by $104,000 for a true-up of 2006 and amended
taxes for 2004 and 2005 to correct interest on tax-exempt loans. The
provision resulted in effective combined federal and state tax rates of 31% in
2007, 36% in 2006, and 33% in 2005. The effective tax rates differ
from combined estimated statutory rates of 40% principally due to the effects of
nontaxable interest income which is recognized as income for book, but not for
tax purposes. In 2005 the Company recognized a $48,000 income tax
benefit as a result of a corporate tax “kicker” credit from the State of
Oregon.
FINANCIAL
CONDITION
Total
assets increased just 0.86% to $152.6 million at December 31, 2007 compared to
$151.31 million at December 31, 2006. The increase in total assets
was driven by a small growth in loans. Growth in total assets was
primarily funded by a 12.36% increase in equity. While total deposits
increased by just 0.32%, certificates of deposit grew by 13.14% as depositors
searched for increased return. The growth in premises and equipment
reflects the construction of the new Financial Center next to the main office in
Florence. The decrease in other assets reflects a $1.22 million
receivable for the sale of the guaranteed portion of a Small Business
Administration loan sold in late December 2006.
The table
below provides abbreviated balance sheets at the end of the respective years
indicating the changes that have occurred in the major asset classifications of
the Company over the prior year:
|
DECEMBER 31,
|
INCREASE
(DECREASE)
|
INCREASE
(DECREASE)
|
||||||||||||||||||||||||||
|
(dollars
in thousands)
|
2007
|
2006
|
2005
|
12/31/06 TO 12/31/07
|
12/31/05 TO 12/31/06
|
|||||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||||||||||
|
Loans,
net of allowance for loan losses and deferred loan fees
(1)
|
$ | 122,450 | $ | 121,219 | $ | 119,337 | $ | 1,231 | 1.02 | % | $ | 1,882 | 1.58 | % | ||||||||||||||
|
Investments
|
9,806 | 11,320 | 12,667 | (1,514 | ) | (13.37 | ) | (1,347 | ) | (10.63 | ) | |||||||||||||||||
|
Interest-bearing
deposits
|
||||||||||||||||||||||||||||
|
in
banks
|
5,205 | 2,986 | 5,916 | 2,219 | 74.31 | (2,930 | ) | (49.53 | ) | |||||||||||||||||||
|
Other
assets (2)
|
15,143 | 15,780 | 12,521 | (637 | ) | (4.04 | ) | 3,259 | 26.03 | |||||||||||||||||||
|
Total
assets
|
$ | 152,604 | $ | 151,305 | $ | 150,441 | $ | 1,299 | 0.86 | % | $ | 864 | 0.57 | % | ||||||||||||||
|
LIABILITIES
AND EQUITY
|
||||||||||||||||||||||||||||
|
Noninterest-bearing
|
||||||||||||||||||||||||||||
|
deposits
|
$ | 32,726 | $ | 32,942 | $ | 29,669 | $ | (216 | ) | (0.66 | )% | $ | 3,273 | 11.03 | % | |||||||||||||
|
Interest-bearing
deposits
|
88,266 | 87,669 | 91,660 | 597 | 0.68 | (3,991 | ) | (4.35 | ) | |||||||||||||||||||
|
Total
deposits
|
120,992 | 120,611 | 121,329 | 381 | 0.32 | (718 | ) | (0.59 | ) | |||||||||||||||||||
|
Other
liabilities (3)
|
18,240 | 18,793 | 18,849 | (553 | ) | (2.94 | ) | (56 | ) | (0.30 | ) | |||||||||||||||||
|
Total
liabilities
|
139,232 | 139,404 | 140,178 | (172 | ) | (0.12 | ) | (774 | ) | (0.55 | ) | |||||||||||||||||
|
Total
equity
|
13,372 | 11,901 | 10,263 | 1,471 | 12.36 | 1,638 | 15.96 | |||||||||||||||||||||
|
Total
liabilities and equity
|
$ | 152,604 | $ | 151,305 | $ | 150,441 | $ | 1,299 | 0.86 | % | $ | 864 | 0.57 | % | ||||||||||||||
|
(1)
|
Includes
loans held-for-sale.
|
|
(2)
|
Includes
cash and due from banks (non-interest bearing), fixed assets, and accrued
interest receivable.
|
|
(3)
|
Includes
accrued interest payable and other
liabilities.
|
Investments
A year-to-year comparison shows that
Oregon Pacific Bank’s investment portfolio at December 31, 2007 totaled $9.81
million, compared to $11.32 million at December 31, 2006, and $12.67 million at
December 31, 2005. This represents a decrease of 13.38% and between
2006 and 2007 and 10.63% between 2005 and 2006. Increases or
decreases in the investment portfolio are primarily a function of loan demand
and changes in Oregon Pacific Bank’s deposit structure.
The Bank identifies its investment
securities as available-for-sale. Available-for-sale securities are
those that management may sell if liquidity requirements dictate or if
alternative investment opportunities arise. The mix of
available-for-sale investment securities is determined by management, based on
the Bank’s asset-liability policy, management’s assessment of the relative
liquidity of the Bank, and other factors.
At December 31, 2007, Oregon Pacific
Bank’s investment portfolio had total net unrealized gains, net of taxes, of
approximately $46,000. This compares to unrealized gains of
approximately $5,000 at December 31, 2006, and $28,000 at December 31,
2005. Unrealized gains and losses reflect changes in market
conditions and do not represent the amount of actual profits or losses the Bank
may ultimately realize. Actual realized gains and losses occur at the
time investment securities are sold or redeemed.
Interest-bearing deposits in banks are
short-term investments held primarily at the FHLB or bank certificates of
deposit. The Bank invests in these instruments to provide for
additional earnings on excess available cash balances. Because of
their liquid nature, balances at the FHLB fluctuate dramatically on a day-to-day
basis. The balance on any one day is influenced by cash demands,
customer deposit levels, loan activity, and other investment
transactions. Interest-bearing deposit accounts totaled $5.21 million
at December 31, 2007, compared to $2.99 million at December 31, 2006, and
$5.92 million at December 31, 2005.
The following table provides the
carrying value of Oregon Pacific Bank’s portfolio of investment securities as of
December 31, 2007, 2006, and 2005, respectively:
|
DECEMBER
31,
|
||||||||||||
|
(dollars
in thousands)
|
2007
|
2006
|
2005
|
|||||||||
|
Investments
available-for-sale:
|
||||||||||||
|
U.S.
Treasury and agencies
|
$ | 4,027 | $ | 3,949 | $ | 3,924 | ||||||
|
State
and political subdivisions
|
4,313 | 5,893 | 6,994 | |||||||||
|
Corporate
debt securities
|
442 | 455 | 726 | |||||||||
|
Mortgage
backed securities
|
- | - | - | |||||||||
| 8,782 | 10,297 | 11,644 | ||||||||||
|
Restricted
equity securities
|
1,024 | 1,023 | 1,023 | |||||||||
|
Total
investment securities
|
$ | 9,806 | $ | 11,320 | $ | 12,667 | ||||||
Investment
securities at the dates indicated consisted of the following:
|
DECEMBER
31,
|
DECEMBER
31,
|
DECEMBER
31,
|
||||||||||||||||||||||||||||||||||
|
2007
|
2006
|
2005
|
||||||||||||||||||||||||||||||||||
|
(dollars
in thousands)
|
WEIGHTED
|
WEIGHTED
|
WEIGHTED
|
|||||||||||||||||||||||||||||||||
|
TYPE
AND MATURITY
|
AMORTIZED
|
MARKET
|
AVERAGE
|
AMORTIZED
|
MARKET
|
AVERAGE
|
AMORTIZED
|
MARKET
|
AVERAGE
|
|||||||||||||||||||||||||||
|
COST
|
VALUE
|
YIELD
|
COST
|
VALUE
|
YIELD
|
COST
|
VALUE
|
YIELD
|
||||||||||||||||||||||||||||
|
U.S.
Treasury and agencies
|
||||||||||||||||||||||||||||||||||||
|
Due
within one year
|
$ | 1,000 | $ | 997 | 3.75 | % | $ | 2,000 | $ | 1,979 | 3.38 | % | $ | - | $ | - | ||||||||||||||||||||
|
Due
after one but within five years
|
- | - | 2,000 | 1,970 | 4.05 | % | 4,000 | 3,924 | 3.71 | % | ||||||||||||||||||||||||||
|
Due
after five but within ten years
|
1,000 | 1,005 | 5.60 | % | - | - | - | - | ||||||||||||||||||||||||||||
|
Due
after ten years
|
2,011 | 2,025 | 5.70 | % | - | - | - | - | ||||||||||||||||||||||||||||
|
Total
U.S. Treasury and agencies
|
4,011 | 4,027 | 5.19 | % | 4,000 | 3,949 | 3.71 | % | 4,000 | 3,924 | 3.71 | % | ||||||||||||||||||||||||
|
State
and political subdivisions:
|
||||||||||||||||||||||||||||||||||||
|
Due
within one year
|
760 | 762 | 4.81 | % | 1,925 | 1,930 | 7.30 | % | 1,044 | 1,053 | 6.55 | % | ||||||||||||||||||||||||
|
Due
after one but within five years
|
2,154 | 2,189 | 6.26 | % | 2,509 | 2,535 | 6.29 | % | 3,910 | 3,979 | 6.61 | % | ||||||||||||||||||||||||
|
Due
after five but within ten years
|
968 | 995 | 6.32 | % | 1,404 | 1,428 | 6.22 | % | 1,931 | 1,962 | 6.20 | % | ||||||||||||||||||||||||
|
Due
after ten years
|
371 | 367 | 5.75 | % | - | - | - | - | ||||||||||||||||||||||||||||
|
Total
state and political subdivisions (1)
|
4,253 | 4,313 | 5.97 | % | 5,838 | 5,893 | 6.61 | % | 6,885 | 6,994 | 6.49 | % | ||||||||||||||||||||||||
|
Corporate
debt securities:
|
||||||||||||||||||||||||||||||||||||
|
Due
within one year
|
442 | 442 | 6.84 | % | - | - | 250 | 250 | 6.69 | % | ||||||||||||||||||||||||||
|
Due
after one but within five years
|
- | - | 452 | 455 | 6.84 | % | 461 | 476 | 6.84 | % | ||||||||||||||||||||||||||
|
Total
corporate notes
|
442 | 442 | 6.84 | % | 452 | 455 | 6.84 | % | 711 | 726 | 6.77 | % | ||||||||||||||||||||||||
|
Mortgage
backed securities
|
- | - | - | - | - | - | ||||||||||||||||||||||||||||||
|
Restricted
equity securities
|
1,024 | 1,024 | 1,023 | 1,023 | 1,023 | 1,023 | ||||||||||||||||||||||||||||||
|
Total
investment securities (1)
|
$ | 9,730 | $ | 9,806 | 5.65 | % | $ | 11,313 | $ | 11,320 | 5.00 | % | $ | 12,619 | $ | 12,667 | 5.10 | % | ||||||||||||||||||
(1) Weighted
average yield on state and political subdivisions has been computed on a 34%
tax-equivalent basis.
The Bank does not own bonds of a single
issuer whose aggregate market value or book exceeds 10% of equity except for
those which are issued by quasi-governmental agencies.
Loans
The
Bank’s loan policies and procedures establish the basic guidelines governing its
lending operations. Generally, the guidelines address the types of
loans that the Bank seeks, target markets, underwriting and collateral
requirements, terms, interest rate and yield considerations, and compliance with
laws and regulations. All loans or credit lines are subject to
approval procedures and amount limitations. These limitations apply
to the borrower’s total outstanding indebtedness to Oregon Pacific Bank,
including the indebtedness of any guarantor. The policies are
reviewed and approved at least annually by the Board of Directors of the
Bank.
Bank
officers are charged with loan origination in compliance with underwriting
standards overseen by the loan administration function and in conformity with
established loan policies. Periodically, the Board of Directors
determines the lending authority of the President and other lending
officers. Such delegated authority may include authority related to
loans, letters of credit, overdrafts, uncollected funds, and such other
authority as determined by the Board or the President within the President’s
delegated authority.
The
President or Chief Credit Officer has authority to approve loans up to a lending
limit set by the Board of Directors. All loans above that lending
limit and up to a certain limit are reviewed for approval by the executive loan
committee, which currently includes the President, the Chief Credit Officer, and
four senior loan officers. All loans above the lending limit up to
Oregon Pacific Bank’s statutory loan-to-one-borrower limitation (also known as
the legal lending
limit)
require approval of at least four members of the Board of
Directors. Oregon Pacific Bank’s unsecured legal lending limit was
$2,839,000 at December 31, 2007.
Net
outstanding loans, excluding loans held-for-sale, totaled $121.75 million at
December 31, 2007, representing an increase of $680,000, or 0.56% compared
to $121.07 million as of December 31, 2006. Loan commitments
decreased to $23.21 million as of December 31, 2007, representing a decrease of
$1.66 million from year-end 2006. Net outstanding loans, excluding
loans held-for-sale, were $117.99 million at December 31, 2005.
Oregon
Pacific Bank’s net loan portfolio, excluding loans held for sale, at December
31, 2007, includes loans secured by real estate (88.57% of total), commercial
loans (10.56% of total), and consumer loans and overdraft accounts (2.15% of
total). These percentages are generally consistent with previous
reporting periods. Loans secured by real estate include loans made
for purposes other than financing purchases of real property, such as inventory
financing and equipment purchases, where real property serves as collateral for
the loan.
This
table presents the composition of Oregon Pacific Bank’s loan portfolio by
collateral at the dates indicated:
|
DECEMBER
31, 2007
|
DECEMBER
31, 2006
|
DECEMBER
31, 2005
|
||||||||||||||||||||||
|
(dollars
in thousands)
|
$
|
%
|
$
|
%
|
$
|
%
|
||||||||||||||||||
|
Real
estate
|
$ | 108,458 | 88.57 | % | $ | 102,562 | 84.61 | % | $ | 103,847 | 87.02 | % | ||||||||||||
|
Commercial
|
12,935 | 10.56 | 17,287 | 14.26 | 13,928 | 11.67 | ||||||||||||||||||
|
Installment
|
1,993 | 1.63 | 2,322 | 1.92 | 2,082 | 1.74 | ||||||||||||||||||
|
Other
|
642 | 0.52 | 1,120 | 0.92 | 479 | 0.40 | ||||||||||||||||||
|
Loans
held-for-sale
|
704 | 0.57 | 152 | 0.13 | 1,351 | 1.13 | ||||||||||||||||||
|
Total
|
124,732 | 101.86 | 123,443 | 101.83 | 121,687 | 101.97 | ||||||||||||||||||
|
Less
allowance for loan losses
|
(1,965 | ) | (1.60 | ) | (1,861 | ) | (1.54 | ) | (1,858 | ) | (1.56 | ) | ||||||||||||
|
Less
deferred loan fees
|
(317 | ) | (0.26 | ) | (363 | ) | (0.30 | ) | (492 | ) | (0.41 | ) | ||||||||||||
|
Loans
receivable, net
|
$ | 122,450 | 100.00 | % | $ | 121,219 | 100.00 | % | $ | 119,337 | 100.00 | % | ||||||||||||
The
following table shows the loan maturities at the dates indicated:
|
DECEMBER
31, 2007
|
DECEMBER
31, 2006
|
|||||||||||||||||||||||||||||||
|
DUE
AFTER
|
DUE
|
DUE
AFTER
|
DUE
|
|||||||||||||||||||||||||||||
|
DUE
IN
|
ONE
YEAR
|
AFTER
|
DUE
IN
|
ONE
YEAR
|
AFTER
|
|||||||||||||||||||||||||||
|
ONE
YEAR
|
THROUGH
|
FIVE
|
TOTAL
|
ONE
YEAR
|
THROUGH
|
FIVE
|
TOTAL
|
|||||||||||||||||||||||||
|
(dollars
in thousands)
|
OR
LESS
|
FIVE
YEARS
|
YEARS
|
LOANS
|
OR
LESS
|
FIVE
YEARS
|
YEARS
|
LOANS
|
||||||||||||||||||||||||
|
LOAN
CATEGORY
|
||||||||||||||||||||||||||||||||
|
Real
estate – mortgage(includes loans held-for-sale)
|
$ | 3,521 | $ | 8,230 | $ | 14,150 | $ | 25,901 | $ | 1,116 | $ | 11,872 | $ | 17,055 | $ | 30,043 | ||||||||||||||||
|
Real
estate – construction
|
25,042 | 4,186 | 1,050 | 30,278 | 23,192 | 1,782 | 15 | 24,989 | ||||||||||||||||||||||||
|
Real
estate – other
|
5,224 | 5,119 | 42,640 | 52,983 | 2,020 | 2,615 | 43,047 | 47,682 | ||||||||||||||||||||||||
|
Installment
|
668 | 683 | 642 | 1,993 | 665 | 862 | 795 | 2,322 | ||||||||||||||||||||||||
|
Commercial
|
5,378 | 5,887 | 1,670 | 12,935 | 9,472 | 5,281 | 2,534 | 17,287 | ||||||||||||||||||||||||
|
Other
|
599 | 23 | 20 | 642 | 621 | 499 | 1,120 | |||||||||||||||||||||||||
|
Total
loans by maturity
|
$ | 40,432 | $ | 24,128 | $ | 60,172 | $ | 124,732 | $ | 37,086 | $ | 22,911 | $ | 63,446 | $ | 123,443 | ||||||||||||||||
|
Loans
with fixed interest rates
|
$ | 16,114 | $ | 11,592 | ||||||||||||||||||||||||||||
|
Loans
with variable interest rates
|
108,618 | 111,851 | ||||||||||||||||||||||||||||||
| $ | 124,732 | $ | 123,443 | |||||||||||||||||||||||||||||
Allowance
for Loan Losses
The allowance for loan losses is
established through a provision for loan losses charged to
expenses. Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal or a portion
thereof is unlikely. The allowance for loan losses is maintained at
an appropriate level believed adequate to absorb probable losses incurred in the
loan portfolio. The allowance is intended to cover only those losses that both
are probable and estimable. Management’s evaluation of the adequacy of the
allowance is an estimate based on reviews of individual loans, groups of
homogeneous loans, assessments of the impact of current and anticipated economic
conditions on the portfolio and historical loss experience. When determining the
level of the allowance, management ensures that the overall allowance
appropriately reflects a margin for the imprecision inherent in estimating
expected credit losses.
The quality of the loan portfolio is
reviewed on an on-going basis. A combination of detailed credit assessments by
credit officers, historic loss trends, and economic and business environment
factors are analyzed when determining the allowance for loan losses. Provisions
for loan losses are based on current loans outstanding, inherent risk, mix of
loans and expected losses. A detailed loan loss evaluation is performed
quarterly on individual loans with the highest risk. Management
follows the progress of the economy and how it might affect borrowers in both
the near and the intermediate term. A formalized and disciplined independent
loan review program is established to evaluate loan administration, credit
quality and compliance with corporate loan standards. This program includes
reviews of new loans and regular reviews of problem loan reports, delinquencies
and charge-offs.
The change in the allowance is due
primarily to the softening of the real estate market and the Bank’s
concentrations in Construction and Land Development loans, an increase in past
due rates, and the amount of loans on non-accrual at December 31, 2007. The
Company believes that the allowance for credit losses appropriately covers
probable and estimable losses in the portfolio based upon the information
available. This assessment is based on loan growth, concentrations within the
portfolio, detailed review of individual loans and groups of homogenous loans,
historical loan-losses, and economic trends. The adequacy of the allowance
cannot be determined with absolute precision and may be subject to change in
future periods. In addition, bank regulatory authorities, as part of their
periodic examinations of the Bank, may require additional charges to the
provision for loan losses in future periods if the results of their review
warrant it.
The
following table shows Oregon Pacific Bank’s loan loss experience for the periods
indicated:
|
YEARS ENDED DECEMBER 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(dollars
in thousands)
|
||||||||||||||||||||
|
Loans
and loans held-for-sale at year-end
|
$ | 124,732 | $ | 123,443 | $ | 121,687 | $ | 111,872 | $ | 88,530 | ||||||||||
|
Average
loans and loans held-for-sale
|
$ | 123,432 | $ | 125,504 | $ | 118,404 | $ | 99,411 | $ | 83,634 | ||||||||||
|
Allowance
for loan losses, beginning of year
|
$ | 1,861 | $ | 1,858 | $ | 1,640 | $ | 1,316 | $ | 1,173 | ||||||||||
|
Loans
charged off:
|
||||||||||||||||||||
|
Commercial
and other
|
(7 | ) | - | - | (31 | ) | (31 | ) | ||||||||||||
|
Real
estate
|
- | - | - | - | - | |||||||||||||||
|
Installment
& open end
|
(13 | ) | (23 | ) | (2 | ) | (10 | ) | (3 | ) | ||||||||||
|
Total
loans charged off
|
(20 | ) | (23 | ) | (2 | ) | (41 | ) | (34 | ) | ||||||||||
|
Recoveries:
|
||||||||||||||||||||
|
Commercial
and other
|
- | - | 1 | 720 | - | |||||||||||||||
|
Real
estate
|
- | - | - | - | - | |||||||||||||||
|
Installment
|
4 | - | 4 | - | 7 | |||||||||||||||
|
Total
recoveries
|
4 | - | 5 | 720 | 7 | |||||||||||||||
|
Net
(charge-offs) recoveries
|
(16 | ) | (23 | ) | 3 | 679 | (27 | ) | ||||||||||||
|
Provision
for loan losses
|
120 | 26 | 215 | (355 | ) | 170 | ||||||||||||||
|
Allowance
for loan losses, at year-end
|
$ | 1,965 | $ | 1,861 | $ | 1,858 | $ | 1,640 | $ | 1,316 | ||||||||||
|
Ratio
of net loans charged off (recovered) to average loans
outstanding
|
0.01 | % | 0.02 | % | 0.00 | % | -0.69 | % | 0.03 | % | ||||||||||
|
Ratio
of allowance for loan losses to loans at year-end
|
1.58 | % | 1.51 | % | 1.53 | % | 1.4 | %7 | 1.49 | % | ||||||||||
The
adequacy of the allowance for loan losses should be measured in the context of
several key ratios: (1) the ratio of the allowance to total outstanding loans;
(2) the ratio of total nonperforming loans to total loans; and, (3) the ratio of
net charge-offs (recoveries) to average loans outstanding. Since
2003, Oregon Pacific Bank’s ratio of the allowance for loan losses to total
loans has ranged from 1.47% to 1.58%. The amounts provided by these
ratios have been sufficient to fund the Bank’s charge-offs, which have not been
historically significant, and to provide for probable losses based upon year-end
analyses conducted by management. These ratios have also been
consistent with the level of nonperforming loans to total loans. From
December 31, 2003 through December 31, 2007, nonperforming loans to total loans
have ranged from a low of 0.00% in 2003 to a high of 1.37% in
2007. The Bank’s historical ratio of net charge-offs (recoveries) to
average outstanding loans illustrates its recent favorable loan charge-off and
recovery experience. For the years ended December 31, 2003, 2005,
2006 and 2007, net charge-offs ranged from 0.00% to 0.03% of average loans while
2004 experienced a net recovery of 0.69%. Management believes the
Bank’s loan underwriting policies and its loan officers’ knowledge of their
customers are significant contributors to the Bank’s success in limiting loan
losses.
During the year ended December 31,
2007, Oregon Pacific Bank recognized $20,000 in loan losses and $4,000 in
recoveries. Charge-offs recorded in 2007 were consistent with the
Bank’s historical loss experience.
The following table presents
information with respect to nonperforming loans and other assets:
|
DECEMBER
31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(dollars
in thousands)
|
||||||||||||||||||||
|
Nonperforming
loans:
|
||||||||||||||||||||
|
Loans
past due 90 days or more
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
|
Nonaccrual
loans
|
1,707 | 215 | 356 | 113 | - | |||||||||||||||
|
Restructured
loans
|
- | - | - | - | - | |||||||||||||||
| 1,707 | 215 | 356 | 113 | - | ||||||||||||||||
|
Other
real estate owned
|
- | - | - | - | 10 | |||||||||||||||
| $ | 1,707 | $ | 215 | $ | 356 | $ | 113 | $ | 10 | |||||||||||
|
Allowance
for loan losses
|
$ | 1,965 | $ | 1,861 | $ | 1,858 | $ | 1,640 | $ | 1,316 | ||||||||||
|
Ratio
of total nonperforming assets to total assets
|
1.12 | % | 0.14 | % | 0.24 | % | 0.08 | % | 0.01 | % | ||||||||||
|
Ratio
of total nonperforming loans to total loans
|
1.37 | % | 0.18 | % | 0.29 | % | 0.09 | % | 0.00 | % | ||||||||||
|
Ratio
of allowance for loan losses to total nonperforming assets
|
115.11 | % | 865.58 | % | 521.91 | % | 1451.33 | % | 13160.00 | % | ||||||||||
Oregon Pacific Bank has adopted a
policy for placement of loans on nonaccrual status after they become 90 days
past due unless documented factors mitigate such placement. Further, the Bank
may place loans that are not contractually past due or that are deemed fully
collateralized on nonaccrual status to promote better oversight and review of
loan arrangements. There were $1.71 million of loans on nonaccrual status at
December 31, 2007, compared to $215,000 and $356,000 at December 31, 2006 and
2005, respectively.
At December 31, 2007, 2006, and 2005,
the Bank had no amount in the other real estate owned (“OREO”) category, which
represents real assets held through loan foreclosure or recovery
activities.
Deposits
At December 31, 2007, total deposits
were $120.99 million, an increase of 0.32% or $382,000 over December 31,
2006. Total deposits in 2006 decreased by 0.01% from
2005. Noninterest bearing demand deposit accounts continue to be a
significant portion of Oregon Pacific Bank’s deposit base; to the extent the
Bank can fund operations with noninterest deposits, net interest spread, which
is the difference between interest income and interest expense, will
improve. Noninterest deposits for 2007 averaged 27.52% of total
deposits, up from 27.10% in 2006, and 25.99% in 2005.
The
following table sets forth the average balances of the Bank’s interest-bearing
deposits, interest expense, and average rates paid for the periods
indicated:
|
YEAR
ENDED
|
YEAR
ENDED
|
YEAR
ENDED
|
||||||||||||||||||||||
|
DECEMBER 31, 2007
|
DECEMBER 31, 2006
|
DECEMBER 31, 2005
|
||||||||||||||||||||||
|
AVERAGE
|
AVERAGE
|
AVERAGE
|
AVERAGE
|
AVERAGE
|
AVERAGE
|
|||||||||||||||||||
|
BALANCE
|
RATE
|
BALANCE
|
RATE
|
BALANCE
|
RATE
|
|||||||||||||||||||
|
(dollars
in thousands)
|
||||||||||||||||||||||||
|
Interest-bearing
checking and savings accounts
|
$ | 53,813 | 2.41 | % | $ | 60,248 | 2.06 | % | $ | 61,360 | 1.29 | % | ||||||||||||
|
Time
deposits
|
34,767 | 4.45 | 31,582 | 3.80 | 27,275 | 2.90 | ||||||||||||||||||
|
Total
interest-bearing deposits
|
88,580 | 3.21 | 91,830 | 2.66 | 88,635 | 1.79 | ||||||||||||||||||
|
Total
noninterest-bearing deposits
|
33,641 | 34,142 | 31,121 | |||||||||||||||||||||
|
Total
interest and non-interest-bearing deposits
|
$ | 122,221 | 2.33 | % | $ | 125,972 | 1.94 | % | $ | 119,756 | 1.32 | % | ||||||||||||
Interest-bearing deposits consist of
money market, savings, and time certificate accounts as well as interest-bearing
checking or the Bank’s “Ultimate” accounts. Interest-bearing account
balances tend to grow or decline as the Bank adjusts its pricing and product
strategies based on market conditions, including competing deposit
products. At December 31, 2007, total interest-bearing deposit
accounts were $88.27 million, a decrease of $402,000, or 0.46%, from December
31, 2006. Interest-bearing deposit accounts decreased $3.99 million, or 4.36%,
from December 31, 2005 to 2006. The Bank has been facing strong
competition for both deposit dollars and deposit rates.
Certificates of deposit are another
interest-bearing deposit with a stated maturity typically at higher interest
rates. At December 31, 2007, time certificates of deposit in excess
of $100,000 totaled $18.04 million, or 14.91% of total outstanding deposits,
compared to $16.54 million, or 13.72%, of total outstanding deposits at December
31, 2006, and $15.71 million, or 12.95%, of total outstanding deposits at
December 31, 2005.
The
following table sets forth, by time remaining to maturity, all time certificates
of deposit accounts outstanding at December 31, 2007:
|
(dollars
in thousands)
|
||||
|
2008
|
$ | 30,595 | ||
|
2009
|
2,406 | |||
|
2010
|
838 | |||
|
2011
|
1,109 | |||
|
2012
|
1,400 | |||
| $ | 36,348 | |||
The following table sets forth, by time
remaining to maturity, all time certificates of deposit accounts in excess of
$100,000 outstanding at December 31, 2007:
|
(dollars
in thousands)
|
||||
|
Due
in less than 3 months
|
$ | 5,348 | ||
|
Due
in more than 3 and less than 6 months
|
5,371 | |||
|
Due
in more than 6 and less than 12 months
|
4,122 | |||
|
Due
in more than 12 months
|
3,198 | |||
| $ | 18,039 | |||
Other
Borrowings
The following table sets forth certain
information with respect to the Bank’s Federal Home Loan Bank of Seattle
(“FHLB”) borrowings:
|
DECEMBER
31,
|
||||||||||||
|
(dollars
in thousands)
|
2007
|
2006
|
2005
|
|||||||||
|
Amount
outstanding at year-end
|
$ | 10,503 | $ | 11,158 | $ | 11,413 | ||||||
|
Weighted
average interest rate at year-end
|
4.45 | % | 4.37 | % | 4.13 | % | ||||||
|
Maximum
amount outstanding at any month-end during the year
|
$ | 11,539 | $ | 12,608 | $ | 12,754 | ||||||
|
Daily
average amount outstanding during the year
|
$ | 10,770 | $ | 11,419 | $ | 11,145 | ||||||
|
Weighted
average interest rate during the period
|
4.40 | % | 4.29 | % | 4.03 | % | ||||||
In addition to FHLB borrowings, the
Bank owes $215,000 payable over the next two years from the asset acquisition in
January 2006.
Trust
Preferred Securities
In December 2003, Bancorp issued $4.12
million of unsecured junior subordinated deferrable interest debentures to its
wholly-owned subsidiary, Oregon Pacific Statutory Trust I (“Trust”), which has
since been deconsolidated in accordance with FASB Interpretation (“FIN”) No.
46R. Interest payments on the subordinated debentures are intended to
pass through the Trust to the beneficial owners of the Trust, in the form of
dividend payments on trust preferred securities. The subordinated
debentures and trust preferred securities have identical interest rates, terms
and conditions – variable interest at 90 day LIBOR plus 2.85% with 30 year
maturities. Trust Preferred Securities for holding companies are
considered Tier II capital for regulatory purposes with a limit of 50% of Tier I
capital.
In accordance with FIN 46R, Bancorp
deconsolidated the Trust as of March 31, 2004. As a result, $4.12
million of junior subordinated debentures are reflected on the consolidated
balance sheet under the caption “Junior Subordinated Debentures.” The
$124,000 investment in the Trust is recognized, which is included under the
caption “other Assets” in the consolidated balance sheet.
Stockholders’
Equity
Consolidated
stockholders’ equity at December 31, 2007 was $13.37 million, an increase of
$1.47 million from December 31, 2006. 2007 equity was increased by
earnings of $1.85 million for the year less cash dividends paid to shareholders
of $458,000. At year-end 2007, net unrealized gains on investment
securities available-for-sale were $46,000, up $41,000 from year-end
2006. In 2007, 6,450 shares of stock were repurchased at a cost of
$62,740 and an average price of $9.73 per share.
Liquidity
and Cash Flow
Oregon
Pacific Bank has adopted policies to maintain a relatively liquid position to
enable it to respond to changes in the financial environment and ensure
sufficient funds are available to meet customers’ needs for borrowing and
deposit
withdrawals. Generally,
the Bank’s major sources of liquidity are customer
deposits, sales and maturities of investment securities, the use of federal
funds markets, and net cash provided by operating
activities. Scheduled loan repayments are a relatively stable source
of funds, while deposit inflows and unscheduled loan prepayments, which are
influenced by general interest rate levels, interest rates available on other
investments, competition, economic conditions, and other factors, are
not. Liquid asset balances include cash, amounts due from other banks
including the FHLB, securities available-for-sale, and loans
held-for-sale. At December 31, 2007, these liquid assets totaled
$18.76 million or 12.29% of total assets as compared to $17.91 million or 11.84%
of total assets at December 31, 2006. Other sources of liquidity are
the ability to borrow from the Federal Home Loan Bank of Seattle and other
correspondent banks, national deposits, brokered deposits, and the sale of the
guaranteed portion of Small Business Administration loans.
The analysis of liquidity also
includes a review of the changes that appear in the statements of cash flows for
the year ended December 31, 2007. The statement of cash flows
includes operating, investing and financing categories. Operating
activities include net income of $1.85 million, which is adjusted for non-cash
items and increases or decreases in cash due to changes in certain assets and
liabilities. Investing activities consist primarily of both proceeds
from and purchases of securities and the impact of the net growth in
loans. Financing activities present the cash flows associated with
deposit accounts, and reflect dividends paid to shareholders.
At December 31, 2007, the Bank had
outstanding commitments to make loans of $23.21 million. Nearly all
of these commitments represented unused portions of credit lines available to
business and mortgage loan customers. Many
of these outstanding commitments to extend
credit will not be fully drawn upon and, accordingly, the aggregate commitments
do not necessarily represent future cash requirements. Management
believes that the Bank’s sources of liquidity are more than adequate to meet
likely calls on outstanding commitments, although there can be no assurance in
this regard.
Capital
The Federal Reserve Board and Federal
Deposit Insurance Corporation have established minimum requirements for capital
adequacy for financial institutions that they oversee. The
requirements address both risk-based capital and leveraged
capital. The regulatory agencies may establish higher minimum
requirements if, for example, a bank has previously received special attention
or has a high susceptibility to interest rate risk.
The Bank was in compliance with the
regulatory requirements for well-capitalized institutions at December 31, 2007
and December 31, 2006. The following reflects the Bank’s various
capital ratios compared to regulatory minimums for capital adequacy
purposes:
|
AT
|
AT
|
|||||||||||
|
DECEMBER
31,
|
DECEMBER
31,
|
REGULATORY
|
||||||||||
|
2007
|
2006
|
MINIMUM
|
||||||||||
|
Tier
1 capital
|
12.9 | % | 11.9 | % | 4.0 | % | ||||||
|
Total
risk-based capital
|
14.1 | % | 13.2 | % | 8.0 | % | ||||||
|
Leverage
ratio
|
11.1 | % | 10.1 | % | 4.0 | % | ||||||
In December 2003 the Company issued
$4,000,000 in trust preferred capital securities through a wholly-owned
subsidiary organization that was formed for that purpose. The Company
then invested the net proceeds of the security sales in the Bank as additional
paid-in capital to support the Bank’s future growth. All of the $4
million of capital invested by the Company in the Bank is treated as Tier 1
capital of the Bank.
The Company is committed to managing
capital for maximum shareholder benefit and maintaining strong protection for
depositors and creditors. The Company manages capital to maintain
adequate capital ratios and levels in accordance with external regulations and
capital guidelines established by the Board of Directors.
Off-Balance
Sheet Arrangements
In the
normal course of business, the Bank utilizes financial instruments with
off-balance sheet risk to meet the financing needs of its customers including
loan commitments to extend credit, checking lines of credit, commercial letters
of credit, and standby letters of credit.
The table
below sets forth the distribution of the Bank’s contingent liabilities by
off-balance sheet type:
|
December
31,
|
||||||||||||
|
(dollars
in thousands)
|
2007
|
2006
|
2005
|
|||||||||
|
Commitments
to extend credit
|
$ | 21,713 | $ | 23,105 | $ | 21,636 | ||||||
|
Undisbursed
checking lines of credit
|
592 | 537 | 518 | |||||||||
|
Commercial
and standby letters of credit
|
903 | 1,226 | 563 | |||||||||
|
Total
|
$ | 23,208 | $ | 24,868 | $ | 22,717 | ||||||
Contractual
Obligations
The Company’s contractual obligations
include notes to the Federal Home Loan Bank, Trust Preferred Securities,
operating leases, and deferred compensation plans. Detailed below is
a schedule of contractual obligations by maturity and/or payment due
date:
|
Payment
due by Period
|
||||||||||||||||||||||||
|
Less
than
|
More
than
|
Unspecified
|
||||||||||||||||||||||
|
(dollars
in thousands)
|
Total
|
1
year
|
1-3
years
|
3-5
years
|
5
years
|
maturity
|
||||||||||||||||||
|
Long-term
debt obligations
|
||||||||||||||||||||||||
|
Federal
Home Loan Bank notes
|
$ | 10,503 | $ | - | $ | 5,000 | $ | 4,100 | $ | 1,403 | $ | - | ||||||||||||
|
Other
debt
|
214 | 107 | 107 | - | - | - | ||||||||||||||||||
|
Floating
rate Junior Subordinated Deferrable Interest Debentures (Trust Preferred
Securities) (1)
|
4,124 | - | - | - | 4,124 | - | ||||||||||||||||||
|
Operating
lease obligations (2)
|
597 | 68 | 117 | 412 | - | - | ||||||||||||||||||
|
Other
long term liabilities (3)
|
2,449 | 132 | 266 | 266 | 1,121 | 664 | ||||||||||||||||||
|
Total
|
$ | 17,887 | $ | 307 | $ | 5,490 | $ | 4,778 | $ | 6,648 | $ | 664 | ||||||||||||
(1) The
Company has the right to redeem trust preferred securities on or after December
17, 2008
(2) Amount
includes a mandatory purchase option for leased property
(3) Amount
includes deferred compensation
|
ITEM
7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Asset-Liability
Management and Interest Rate Sensitivity
Oregon
Pacific Bank’s results of operations depend substantially on its net interest
income. Interest income and interest expense are affected by general
economic conditions and by competition in the marketplace. The Bank’s
interest and pricing strategies are driven by its asset-liability management
analysis and by local market conditions.
The Bank seeks to manage its assets and
liabilities to generate a stable level of earnings in response to changing
interest rates and to manage its interest rate risk. Asset/liability management
involves managing the relationship between interest rate sensitive assets and
interest rate sensitive liabilities. If assets and liabilities do not
mature or reprice simultaneously, and in equal amounts, the potential for
exposure to interest rate risk exists, and an interest rate “gap” is said to be
present. Asset and liability management strategies have resulted in a
negative 0-3 month “gap” of 5.7% and a negative 4-12 month “gap” of 1.1% as of
December 31, 2007 as shown in the table below.
|
Estimated
Maturity or Repricing Within
|
||||||||||||||||||||||||
|
0-3
|
4-12
|
1-5 | 5-15 |
More
than
|
||||||||||||||||||||
|
months
|
months
|
years
|
years
|
15
years
|
Total
|
|||||||||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||||||||||
|
Interest
Earning Assets:
|
||||||||||||||||||||||||
|
Loans
|
$ | 47,352 | $ | 23,330 | $ | 48,872 | $ | 4,520 | $ | 658 | $ | 124,732 | ||||||||||||
|
Investment
securities
|
898 | 3,158 | 3,825 | 901 | - | 8,782 | ||||||||||||||||||
|
Restricted
equity securities
|
1,024 | - | - | - | - | 1,024 | ||||||||||||||||||
|
Interest-bearing
deposits in banks
|
5,205 | - | - | - | - | 5,205 | ||||||||||||||||||
|
Total
interest earning assets
|
$ | 54,479 | $ | 26,488 | $ | 52,697 | $ | 5,421 | $ | 658 | $ | 139,743 | ||||||||||||
|
Interest
Bearing Liabilities:
|
||||||||||||||||||||||||
|
Total
interest-bearing demand deposits
|
$ | 51,918 | $ | - | $ | - | $ | - | $ | - | $ | 51,918 | ||||||||||||
|
Time
certificates
|
10,577 | 20,018 | 5,753 | - | - | 36,348 | ||||||||||||||||||
|
FHLB
borrowings
|
- | - | 9,100 | 1,403 | - | 10,503 | ||||||||||||||||||
|
Total
interest bearing liabilities
|
$ | 62,495 | $ | 20,018 | $ | 14,853 | $ | 1,403 | $ | - | $ | 98,769 | ||||||||||||
|
Rate
sensitivity gap
|
||||||||||||||||||||||||
|
Amount
|
$ | (8,016 | ) | $ | 6,470 | $ | 37,844 | $ | 4,018 | $ | 658 | |||||||||||||
|
Cumulative
rate sensitivity gap
|
$ | (8,016 | ) | $ | (1,546 | ) | $ | 36,298 | $ | 40,316 | $ | 40,974 | ||||||||||||
|
As
a percentage of total interest earning assets
|
-5.7 | % | -1.1 | % | 26.0 | % | 28.9 | % | 29.3 | % | ||||||||||||||
Rising and falling interest rate
environments can have various effects on a bank’s net interest income, depending
on the interest rate gap, the relative changes in interest rates that occur when
assets and liabilities are repriced, unscheduled repayments of loans, early
withdrawals of deposits, and other factors. The Bank does not use
derivatives including forward and futures contracts, options, or swaps to manage
its market and interest rate risks.
Impact
of Inflation and Changing Prices
The
majority of a financial institution’s assets and liabilities are monetary in
nature. Changes in interest rates affect the financial condition of a financial
institution to a greater degree than inflation. Although interest rates are
determined in large measure by changes in the general level of inflation, they
do not change at the same rate or in the same magnitude, but rather react in
correlation to changes in expected rate of inflation and to changes in monetary
and fiscal policy. The Company’s ability to react to changes in interest rates
has a significant impact on financial results. As discussed previously,
management attempts to control interest rate sensitivity in order to protect
against wide interest rate fluctuations.
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Oregon
Pacific Bancorp and Subsidiaries
We have
audited the accompanying consolidated balance sheets of Oregon Pacific Bancorp
and Subsidiaries as of December 31, 2007 and 2006, and the related consolidated
statements of income and comprehensive income, changes in stockholders’ equity,
and cash flows for each of the years in the three-year period ended December 31,
2007. These consolidated financial statements are the responsibility of Oregon
Pacific Bancorp’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. 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 Oregon Pacific Bancorp and
Subsidiaries as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2007, in conformity with accounting principles generally
accepted in the United States of America.
Portland,
Oregon
March 28,
2008
OREGON
PACIFIC BANCORP AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$ | 4,065,903 | $ | 4,473,047 | ||||
|
Interest-bearing
deposits in banks
|
5,205,115 | 2,986,418 | ||||||
|
Available-for-sale
securities, at fair value
|
8,781,951 | 10,297,348 | ||||||
|
Restricted
equity securities
|
1,023,550 | 1,023,100 | ||||||
|
Loans
held-for-sale
|
703,609 | 152,095 | ||||||
|
Loans,
net of allowance for loan losses and deferred loan fees
|
121,746,444 | 121,066,553 | ||||||
|
Premises
and equipment, net of accumulated depreciation and
amortization
|
8,070,927 | 6,986,301 | ||||||
|
Intangible
assets, net
|
294,400 | 377,200 | ||||||
|
Accrued
interest receivable and other assets
|
2,712,441 | 3,943,232 | ||||||
|
TOTAL
ASSETS
|
$ | 152,604,340 | $ | 151,305,294 | ||||
|
LIABILITIES
|
||||||||
|
Deposits:
|
||||||||
|
Demand
deposits
|
$ | 32,725,916 | $ | 32,942,095 | ||||
|
Interest-bearing
demand deposits
|
38,306,339 | 39,953,529 | ||||||
|
Savings
deposits
|
13,612,313 | 15,588,636 | ||||||
|
Time
certificate accounts:
|
||||||||
|
$100,000
or more
|
18,038,790 | 16,543,011 | ||||||
|
Other
|
18,309,056 | 15,583,499 | ||||||
| 36,347,846 | 32,126,510 | |||||||
|
Total
deposits
|
120,992,414 | 120,610,770 | ||||||
|
Federal
Home Loan Bank borrowings and other debt
|
10,717,472 | 11,479,806 | ||||||
|
Floating
rate Junior Subordinated Deferrable Interest Debentures (Trust Preferred
Securities)
|
4,124,000 | 4,124,000 | ||||||
|
Deferred
compensation liability
|
2,448,634 | 2,294,717 | ||||||
|
Accrued
interest payable and other liabilities
|
949,932 | 895,168 | ||||||
|
Total
liabilities
|
139,232,452 | 139,404,461 | ||||||
|
COMMITMENTS
AND CONTINGENCIES (Note 13)
|
||||||||
|
STOCKHOLDERS’
EQUITY
|
||||||||
|
Common
stock, no par value, 10,000,000 shares authorized; 2,211,865 and 2,187,349
issued and outstanding at December 31, 2007 and 2006,
respectively
|
5,323,827 | 5,100,037 | ||||||
|
Undivided
profits
|
8,002,555 | 6,795,987 | ||||||
|
Accumulated
other comprehensive income, net of tax
|
45,506 | 4,809 | ||||||
|
Total
stockholders’ equity
|
13,371,888 | 11,900,833 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 152,604,340 | $ | 151,305,294 | ||||
OREGON
PACIFIC BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
Years Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
INTEREST
INCOME
|
||||||||||||
|
Interest
and fees on loans
|
$ | 11,140,954 | $ | 10,864,957 | $ | 9,219,199 | ||||||
|
Interest
on investment securities:
|
||||||||||||
|
U.S.
Treasury and agencies
|
167,405 | 148,500 | 162,717 | |||||||||
|
State
and political subdivisions
|
228,460 | 289,416 | 319,707 | |||||||||
|
Corporate
and other investments
|
51,278 | 48,879 | 85,254 | |||||||||
|
Interest
on deposits in banks
|
316,895 | 383,710 | 187,780 | |||||||||
|
Total
interest income
|
11,904,992 | 11,735,462 | 9,974,657 | |||||||||
|
INTEREST
EXPENSE
|
||||||||||||
|
Interest-bearing
demand deposits
|
1,185,042 | 1,135,934 | 693,478 | |||||||||
|
Savings
deposits
|
112,707 | 107,787 | 99,072 | |||||||||
|
Time
certificate accounts
|
1,547,224 | 1,200,799 | 791,570 | |||||||||
|
Other
borrowings
|
824,821 | 834,333 | 698,654 | |||||||||
|
Total
interest expense
|
3,669,794 | 3,278,853 | 2,282,774 | |||||||||
|
Net
interest income before provision for loan losses
|
8,235,198 | 8,456,609 | 7,691,883 | |||||||||
|
PROVISION
FOR LOAN LOSSES
|
120,000 | 26,000 | 215,000 | |||||||||
|
Net
interest income after provision for loan losses
|
8,115,198 | 8,430,609 | 7,476,883 | |||||||||
|
NONINTEREST
INCOME
|
||||||||||||
|
Service
charges and fees
|
919,737 | 972,355 | 1,002,645 | |||||||||
|
Trust
fee income
|
704,662 | 683,308 | 610,120 | |||||||||
|
Mortgage
loan sales and servicing fees
|
439,339 | 503,438 | 654,750 | |||||||||
|
Investment
sales commissions
|
432,497 | 412,956 | 134,601 | |||||||||
|
Other
income
|
226,050 | 166,234 | 392,047 | |||||||||
|
Total
noninterest income
|
2,722,285 | 2,738,291 | 2,794,163 | |||||||||
|
NONINTEREST
EXPENSE
|
||||||||||||
|
Salaries
and benefits
|
4,829,347 | 4,896,190 | 4,561,979 | |||||||||
|
Occupancy
|
861,498 | 905,881 | 884,645 | |||||||||
|
Outside
services
|
818,119 | 709,472 | 672,400 | |||||||||
|
Securities
and trust department expenses
|
341,924 | 308,153 | 197,860 | |||||||||
|
Supplies
|
187,968 | 175,403 | 177,447 | |||||||||
|
Postage
and freight
|
114,025 | 106,400 | 99,877 | |||||||||
|
Advertising
|
82,617 | 87,318 | 106,532 | |||||||||
|
Loan
and collection expense
|
60,476 | 107,757 | 61,996 | |||||||||
|
Other
expenses
|
865,738 | 791,461 | 732,614 | |||||||||
|
Total
noninterest expense
|
8,161,712 | 8,088,035 | 7,495,350 | |||||||||
The
accompanying notes are an integral part of these financial
statements
OREGON
PACIFIC BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
Years
Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
INCOME
BEFORE PROVISION FOR INCOME TAXES
|
$ | 2,675,771 | $ | 3,080,865 | $ | 2,775,696 | ||||||
|
PROVISION
FOR INCOME TAXES
|
830,614 | 1,094,828 | 910,324 | |||||||||
|
NET
INCOME
|
1,845,157 | 1,986,037 | 1,865,372 | |||||||||
|
OTHER
COMPREHENSIVE INCOME (LOSS)
|
||||||||||||
|
Unrealized
gain (loss) on available-for-sale securities, net of tax
|
40,697 | (23,629 | ) | (182,277 | ) | |||||||
|
Total
other comprehensive income (loss)
|
40,697 | (23,629 | ) | (182,277 | ) | |||||||
|
COMPREHENSIVE
INCOME
|
$ | 1,885,854 | $ | 1,962,408 | $ | 1,683,095 | ||||||
|
BASIC
EARNINGS PER SHARE
|
$ | 0.84 | $ | 0.91 | $ | 0.87 | ||||||
|
DILUTED
EARNINGS PER SHARE
|
$ | 0.84 | $ | 0.91 | $ | 0.86 | ||||||
The
accompanying notes are an integral part of these financial
statements
OREGON
PACIFIC BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
Accumulated
|
||||||||||||||||||||
|
Other
|
Total
|
|||||||||||||||||||
|
Common
Stock
|
Undivided
|
Comprehensive
|
Stockholders’
|
|||||||||||||||||
|
Shares
|
Amount
|
Profits
|
Income
|
Equity
|
||||||||||||||||
|
BALANCE,
December 31, 2004
|
2,148,616 | $ | 4,698,162 | $ | 3,983,420 | $ | 210,715 | $ | 8,892,297 | |||||||||||
|
Shares
acquired in stock repurchase plan
|
(4,300 | ) | (31,610 | ) | - | - | (31,610 | ) | ||||||||||||
|
Sale
of nonregistered stock
|
1,081 | 11,003 | - | - | 11,003 | |||||||||||||||
|
Exercise
of stock options
|
1,538 | 9,997 | - | - | 9,997 | |||||||||||||||
|
Cash
dividends paid
|
- | - | (301,551 | ) | - | (301,551 | ) | |||||||||||||
|
Dividends
reinvested in stock
|
19,071 | 171,176 | (171,176 | ) | - | - | ||||||||||||||
|
Net
income and comprehensive income
|
- | - | 1,865,372 | (182,277 | ) | 1,683,095 | ||||||||||||||
|
BALANCE,
December 31, 2005
|
2,166,006 | $ | 4,858,728 | $ | 5,376,065 | $ | 28,438 | $ | 10,263,231 | |||||||||||
|
Bonuses
paid in stock
|
1,686 | 20,000 | - | - | 20,000 | |||||||||||||||
|
Sale
of nonregistered stock
|
83 | 1,009 | - | - | 1,009 | |||||||||||||||
|
Exercise
of stock options
|
4,212 | 22,500 | - | - | 22,500 | |||||||||||||||
|
Stock-based
compensation
|
- | 15,251 | - | - | 15,251 | |||||||||||||||
|
Cash
dividends paid
|
- | - | (383,566 | ) | - | (383,566 | ) | |||||||||||||
|
Dividends
reinvested in stock
|
15,362 | 182,549 | (182,549 | ) | - | - | ||||||||||||||
|
Net
income and comprehensive income
|
- | - | 1,986,037 | (23,629 | ) | 1,962,408 | ||||||||||||||
|
BALANCE,
December 31, 2006
|
2,187,349 | $ | 5,100,037 | $ | 6,795,987 | $ | 4,809 | $ | 11,900,833 | |||||||||||
|
Exercise
of stock options
|
14,833 | 105,002 | - | - | 105,002 | |||||||||||||||
|
Shares
acquired in stock repurchase plan
|
(6,450 | ) | (62,740 | ) | - | - | (62,740 | ) | ||||||||||||
|
Stock-based
compensation
|
- | 638 | - | - | 638 | |||||||||||||||
|
Cash
dividends paid
|
- | - | (457,699 | ) | - | (457,699 | ) | |||||||||||||
|
Dividends
reinvested in stock
|
16,133 | 180,890 | (180,890 | ) | - | - | ||||||||||||||
|
Net
income and comprehensive income
|
- | - | 1,845,157 | 40,697 | 1,885,854 | |||||||||||||||
|
BALANCE,
December 31, 2007
|
2,211,865 | $ | 5,323,827 | $ | 8,002,555 | $ | 45,506 | $ | 13,371,888 | |||||||||||
The
accompanying notes are an integral part of these financial
statements
OREGON
PACIFIC BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Years Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
|
Net
income
|
$ | 1,845,157 | $ | 1,986,037 | $ | 1,865,372 | ||||||
|
Adjustments
to reconcile net income to net cash from operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
654,185 | 583,128 | 486,448 | |||||||||
|
Provision
for loan losses
|
120,000 | 26,000 | 215,000 | |||||||||
|
Deferred
income taxes
|
(196,205 | ) | (266,875 | ) | (333,870 | ) | ||||||
|
Federal
Home Loan Bank stock dividends
|
- | - | (3,000 | ) | ||||||||
|
Stock-based
compensation
|
638 | 15,251 | - | |||||||||
|
Bonuses
paid in stock
|
- | 20,000 | - | |||||||||
|
Net
realized loss on available-for-sale securities
|
- | - | 12,885 | |||||||||
|
Proceeds
from sales of mortgage loans held-for-sale
|
8,620,039 | 11,234,061 | 23,485,959 | |||||||||
|
Production
of mortgage loans held-for-sale
|
(9,171,553 | ) | (10,035,346 | ) | (23,820,682 | ) | ||||||
|
Loss
(gain) on dispositions of premises, equipment, and other real estate
owned
|
32,454 | (9,415 | ) | (3,215 | ) | |||||||
|
Net
decrease (increase) in accrued interest receivable and other
assets
|
1,399,254 | (1,390,743 | ) | (137,016 | ) | |||||||
|
Net
increase (decrease) in accrued interest payable and other
liabilities
|
208,681 | (121,827 | ) | 1,007,649 | ||||||||
|
Net
cash from operating activities
|
3,512,650 | 2,040,271 | 2,775,530 | |||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
|
Proceeds
from sales of available-for-sale securities
|
- | - | 2,606,751 | |||||||||
|
Proceeds
from maturities and calls of available-for-sale securities
|
4,955,000 | 1,295,000 | 844,200 | |||||||||
|
Purchases
of available-for-sale securities
|
(3,382,388 | ) | - | - | ||||||||
|
Purchases
of restricted equity securities
|
(450 | ) | - | - | ||||||||
|
Net
(increase) decrease in interest-bearing deposits in banks
|
(2,218,697 | ) | 2,929,806 | (5,042,418 | ) | |||||||
|
Net
increase in loans
|
(799,891 | ) | (3,106,752 | ) | (9,493,763 | ) | ||||||
|
Purchases
of premises and equipment
|
(1,689,771 | ) | (2,241,988 | ) | (517,971 | ) | ||||||
|
Proceeds
from sales of premises, equipment, and other real estate
owned
|
12,530 | 9,415 | 3,750 | |||||||||
|
Purchase
of brokerage firm assets
|
- | (138,000 | ) | - | ||||||||
|
Net
cash from investing activities
|
(3,123,667 | ) | (1,252,519 | ) | (11,599,451 | ) | ||||||
The
accompanying notes are an integral part of these financial
statements
OREGON
PACIFIC BANCORP AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Years Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
|
Net
(decrease) increase in demand and savings deposit accounts
|
$ | (3,839,692 | ) | $ | (86,204 | ) | $ | 426,804 | ||||
|
Net
increase (decrease) in time deposits
|
4,221,336 | (632,282 | ) | 9,841,731 | ||||||||
|
Proceeds
from borrowing and other debt
|
3,000,000 | 2,200,000 | 5,000,000 | |||||||||
|
Repayments
of borrowing
|
(3,655,000 | ) | (2,455,000 | ) | (5,455,000 | ) | ||||||
|
Repayment
of debt from purchase of brokerage firm
|
(107,334 | ) | - | - | ||||||||
|
Cash
dividends paid
|
(457,699 | ) | (383,566 | ) | (301,551 | ) | ||||||
|
Shares
acquired in stock repurchase plan
|
(62,740 | ) | - | (31,610 | ) | |||||||
|
Proceeds
from stock options exercised
|
105,002 | 22,500 | 9,997 | |||||||||
|
Proceeds
from issuance of nonregistered common stock
|
- | 1,009 | 11,003 | |||||||||
|
Net
cash from financing activities
|
(796,127 | ) | (1,333,543 | ) | 9,501,374 | |||||||
|
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(407,144 | ) | (545,791 | ) | 677,453 | |||||||
|
CASH
AND CASH EQUIVALENTS, beginning of year
|
4,473,047 | 5,018,838 | 4,341,385 | |||||||||
|
CASH
AND CASH EQUIVALENTS, end of year
|
$ | 4,065,903 | $ | 4,473,047 | $ | 5,018,838 | ||||||
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
||||||||||||
|
Cash
paid for interest
|
$ | 3,633,445 | $ | 3,182,328 | $ | 2,199,648 | ||||||
|
Cash
paid for income taxes
|
$ | 1,145,394 | $ | 1,472,706 | $ | 1,284,696 | ||||||
|
SUPPLEMENTAL
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
|
||||||||||||
|
Cash
dividends reinvested in stock
|
$ | 180,890 | $ | 182,549 | $ | 171,176 | ||||||
|
Unrealized
loss on available-for-sale securities, net of tax
|
$ | 40,697 | $ | (23,629 | ) | $ | (182,277 | ) | ||||
The
accompanying notes are an integral part of these financial
statements
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE
1
|
–
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Organization – Oregon Pacific
Bancorp (Bancorp or the Company) was incorporated on January 1, 2003, and became
the holding company of Oregon Pacific Banking Co. (the Bank) effective
January 1, 2003. The Bank is a state-chartered institution authorized to
provide banking services by the State of Oregon from its headquarters in
Florence, Oregon. Full-service banking products are offered to the Bank’s
customers who live primarily in Lane, Douglas, and Coos counties and on the
central Oregon coast. In December 2002, Bancorp formed Oregon Pacific Statutory
Trust I (the Trust), a wholly-owned Connecticut statutory business trust, for
purposes of issuing guaranteed undivided beneficial interests in Junior
Subordinated Deferrable Interest Debentures (Trust Preferred Securities). The
Bank and Bancorp are subject to the regulations of certain federal and state
agencies and undergo periodic examinations by those regulatory
authorities.
All
significant intercompany accounts and transactions between Bancorp and its
subsidiaries have been eliminated in the preparation of the consolidated
financial statements.
Management’s estimates and
assumptions – In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the consolidated
balance sheets, and revenues and expenses for the reporting period. Estimates
and assumptions made by management primarily involve the valuation of the
allowance for loan losses, other real estate owned, and mortgage servicing
assets. Actual results could differ significantly from those
estimates.
Cash and cash equivalents –
Cash and cash equivalents normally include cash on hand, amounts due from banks,
and federal funds sold. Cash and due from banks include amounts the Bank is
required to maintain to meet certain average reserve and compensating balance
requirements of the Federal Reserve Bank. As of December 31, 2007 and 2006, the
Bank had no reserve requirements to be maintained at the Federal Reserve Bank
and total clearing balance requirements at both December 31, 2007 and 2006 were
$100,000.
Investment securities – The
Bank is required, under generally accepted accounting principles, to
specifically identify its investment securities as “trading,”
“available-for-sale,” or “held-to-maturity.” Accordingly, management has
determined that all investment securities held at December 31, 2007 and 2006,
are available-for-sale.
Available-for-sale
securities consist of bonds, notes, debentures, and certain equity securities.
Securities classified as available-for-sale may be sold in response to such
factors as (1) changes in market interest rates and related changes in the
security’s prepayment risk, (2) needs for liquidity, (3) changes in the
availability of and the yield on alternative instruments, and (4) changes in
funding sources and terms. Gains and losses on the sale of available-for-sale
securities are determined using the specific-identification method. Unrealized
holding gains and losses, net of tax, on available-for-sale securities are
reported as a net amount in a separate component of equity until realized. Fair
values for investment securities are based on quoted market prices.
Declines
in the fair value of individual available-for-sale securities below their cost
that are other than temporary, result in write-downs of the individual
securities to their fair value. The related write-downs would be included in
earnings as realized losses. Premiums and discounts are recognized in interest
income using the interest method over the period to maturity or call
date.
As a
member of the Federal Home Loan Bank System, the Bank is required to maintain an
investment in the capital stock of the Federal Home Loan Bank. The “restricted
equity securities” investment is carried at cost. At December 31, 2007 and
2006, Federal Home Loan Bank stock totaled $1,024,000 and $1,023,000,
respectively.
Loans held-for-sale – Mortgage
loans originated and intended for sale in the secondary market are carried at
the lower of cost or estimated market value in the aggregate. Net unrealized
losses, if any, are recognized through a valuation allowance established by
charges to income. All loans are sold without recourse.
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1
|
–
|
ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES –
(continued)
|
Loan servicing – The Bank sells mortgage loans primarily on a servicing-retained basis. The cost of mortgage servicing rights is amortized in proportion to, and over the period of, estimated servicing revenues. Impairment of the mortgage servicing asset is based on the fair value of those rights. Fair values are estimated using discounted cash flows based on current market interest rates and prepayment rates. Loan servicing income is recorded when earned.
Loans, net of allowance for loan
losses and unearned loan fee income – Loans are stated at the amount of
unpaid principal, reduced by an allowance for loan losses and unearned loan fee
income. Interest on loans is calculated by the simple-interest method on daily
balances of the principal amount outstanding. Loan origination fees and certain
direct origination costs are capitalized and recognized as an adjustment of the
yield over the life of the related loan.
The Bank
does not accrue interest on loans for which payment in full of principal and
interest is not expected, or which payment of principal or interest has been in
default 90 days or more, unless the loan is well-secured and in the process of
collection. Nonaccrual loans are considered impaired loans. Impaired loans are
carried at the present value of expected future cash flows discounted at the
loan’s effective interest rate, the loan’s market price, or the fair value of
collateral if the loan is collateral dependent. When interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest income is
subsequently recognized only to the extent cash payments are received or when
the loan is removed from nonaccrual status. Large groups of smaller balance,
homogeneous loans are collectively evaluated for impairment. Accordingly, the
Bank does not separately identify individual consumer and residential loans for
evaluation of impairment.
The
allowance for loan losses is established through a provision charged to expense.
Loans are charged against the allowance when management believes that the
collectibility of principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb possible losses on existing loans
that may become uncollectible, based on evaluations of the collectibility of
loans and prior loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions that may affect the borrower’s ability to pay. Various regulatory
agencies, as a regular part of their examination process, periodically review
the Bank’s allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgment of information
available to them at the time of their examinations.
Premises and equipment –
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets, which range from 2 to 30
years.
Intangible assets – Intangible
assets with definite useful lives are amortized to their estimated residual
values over their respective estimated useful lives, and also reviewed for
impairment. Intangible assets are comprised of customer lists and a
non-compete agreement acquired in the acquisition of the assets of Coast
Investment Advisors, Inc., the local Florence branch of LPL Financial Services,
Inc. Amortization of customer lists is included in other non-interest
expense in the consolidated statement of income. The amortization of
the non-compete agreement will begin at the end of a three-year employment
contract.
In
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, management reviews long-lived and intangible assets any time
that a change in circumstance indicates that the carrying amount of these assets
may not be recoverable. Recoverability of these assets is determined by
comparing the carrying value of the asset to the forecasted undiscounted cash
flows of the operation associated with the asset. There were no
impairments at December 31, 2007 that required a write-down of the
asset.
Other real estate owned – Real
estate acquired by the Bank in satisfaction of debt is carried at the lower of
cost or estimated net realizable value. When property is acquired, any excess of
the loan balance over its estimated net
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1
|
–
|
ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES –
(continued)
|
realizable
value is charged to the allowance for loan losses. Subsequent write-downs to net
realizable value, if any, or any disposition gains or losses are included in
noninterest income and expense.
Income taxes – Deferred tax
assets and liabilities are determined based on the tax effects of the
differences between the book and tax bases of the various balance sheet assets
and liabilities. Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes. The Company also recognizes
interest accrued and penalties related to unrecognized tax benefits in income
tax expense. During the years ended December 31, 2007 and 2006, the
Company recognized no interest and penalties in income tax expense. The
Company files consolidated income tax returns in the U.S. federal jurisdiction
and in Oregon. The Company is no longer subject to U.S. federal and Oregon
income tax examinations by tax authorities for years before 2004.
Comprehensive income –
Comprehensive income consists of net income and other comprehensive income.
Other comprehensive income consists of unrealized gains and losses on securities
available-for-sale, which are also recognized as a separate component of
stockholders’ equity.
Earnings per share – Basic
earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the year. Diluted earnings per share reflect the potential
dilution that could occur if common shares were issued pursuant to the exercise
of options under the Bank’s stock option plans.
Off-balance sheet financial
instruments – The Bank holds no derivative financial instruments.
However, in the ordinary course of business, the Bank enters into off-balance
sheet financial instruments consisting of commitments to extend credit as well
as commercial letters of credit and standby letters of credit. Such financial
instruments are recorded in the consolidated financial statements when they are
funded or related fees are incurred or received.
Fair value of financial
instruments – The following methods and assumptions were used by the Bank
in estimating fair values of financial instruments as disclosed
herein:
Cash and cash equivalents –
The carrying amounts of cash and short-term instruments approximate their fair
value.
Available-for-sale securities
– Fair values for available-for-sale investment securities are based on quoted
market prices. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Restricted equity securities
– The carrying values of restricted equity securities approximate fair
values.
Loans receivable – For
variable rate loans that reprice frequently and have no significant change in
credit risk, fair values are based on carrying values. Fair values for
fixed-rate loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow analyses or underlying collateral values, where
applicable.Loans
held-for-sale – Fair value represents the anticipated proceeds from sale
of the loans.Deposit
liabilities – The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date (that
is, their carrying amounts). The carrying amounts of variable rate, fixed-term
money market accounts, and certificates of deposit (CDs) approximate their fair
values at the reporting date. Fair
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1
|
–
|
ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES –
(continued)
|
values
for fixed-rate CDs are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.Federal Home Loan Bank borrowings
– The fair values of the Bank’s borrowings from the Federal Home Loan
Bank are estimated using discounted cash flow analyses based on the Bank’s
current incremental borrowing rates for similar borrowing arrangements.Accrued interest – The
carrying amounts of accrued interest receivable and payable approximate their
fair values.
Off-balance sheet instruments
– The Bank’s off-balance sheet instruments include unfunded commitments to
extend credit and standby letters of credit. The fair value of these instruments
is not considered practicable to estimate because of the lack of quoted market
prices and the inability to estimate fair value without incurring excessive
costs.
Advertising – Advertising
costs are charged to expense during the year in which they are
incurred.
Stock-based compensation – The
Company maintains a stock incentive plan. This plan, which is
described more fully in Note 14, was presented to and approved by the Company’s
shareholders in 2003. On January 1, 2006, the Company adopted the
fair value recognition provisions of SFAS 123(R) Share-Based Payment (“SFAS
123(R)”).
Prior to
January 1, 2006, the Company accounted for share-based payments under the
recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to
Employees (“APB 25”), and related Interpretations, as permitted by SFAS
123, Accounting for
Stock-Based Compensation. In accordance with APB 25, no
compensation cost was required to be recognized for options granted that had an
exercise price equal to the market value of the underlying common stock on the
date of grant.
The
Company adopted SFAS 123(R) using the modified-prospective-transition
method. Under that transition method, compensation cost recognized in
2007 and 2006 includes: (a) compensation cost for all share-based payments
granted prior to, but not yet
vested as of January 1, 2006, based on the grant date fair value estimated
in accordance with the original provisions of SFAS 123, and
(b) compensation cost for all share-based payments granted subsequent to
December 31, 2005, based on the grant-date fair value estimated in
accordance with the provisions of SFAS 123(R). The fair value of each
option grant is estimated as of the grant date using the Black-Scholes
option-pricing model based on the following assumptions. Expected volatility is
based on the historical volatility of the price of the Company’s stock for a
period consistent with the expected life of the options. The Company uses
historical data to estimate option exercise and employee termination rates
within the valuation model. The expected term of options represents the period
of time that stock options are expected to be outstanding and is estimated based
on historical exercise and forfeiture activity. Expected dividends are estimated
based on the Company’s recent historical practice of paying dividends. The
risk-free rate of return for periods within the contractual life of the option
was based on the U.S. Treasury yield curve in effect at the time of the
grant.
Recently issued accounting
pronouncements – In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. The
Statement provides enhanced guidance for measuring assets and liabilities using
fair value and applies whenever other standards require or permit assets or
liabilities to be measured at fair value. Statement No. 157 also requires
expanded disclosure of items that are measured at fair value, the information
used to measure fair value, and the effect of fair value measurements on
earnings. The Statement is effective for financial statements issued for fiscal
years beginning after November 15, 2007 and will not have a significant impact
on the Company’s consolidated financial condition or results of
operations.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—Including an Amendment of FASB Statement No.
115. SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair
value. Unrealized gains and losses on items for which the fair value
option has been elected will be recognized in earnings at each subsequent
reporting date.
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1
|
–
|
ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES –
(continued)
|
SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and is will not have a significant impact on the Company’s consolidated financial condition or results of operations.
In
December 2007, FASB issued SFAS No. 141 (revised), Business Combinations.
SFAS No. 141(R) establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any noncontrolling interest in the
acquiree and the goodwill acquired. SFAS No. 141(R) also establishes
disclosure requirements to enable the evaluation of the nature and financial
effects of the business combination. This statement applies prospectively to
business combinations for which the acquisition date is on or after
January 1, 2009. Accordingly, the Company will apply SFAS 141(R) to
business combinations occurring on or after January 1, 2009.
Reclassifications – Certain
reclassifications have been made to the 2006 and 2005 financial statements to
conform to current year presentations.
NOTE
2 – INVESTMENT
SECURITIES
The
amortized cost and estimated fair value of available-for-sale securities are as
follows:
|
Gross
|
Gross
|
|||||||||||||||||||
|
Unrealized
|
Unrealized
|
|||||||||||||||||||
|
Gross
|
Losses
|
Losses
|
Estimated
|
|||||||||||||||||
|
Amortized
|
Unrealized
|
Less
than
|
More
than
|
Fair
|
||||||||||||||||
|
Cost
|
Gains
|
12
Months
|
12
Months
|
Value
|
||||||||||||||||
|
December
31, 2007:
|
||||||||||||||||||||
|
U.S.
Treasury and agencies
|
$ | 4,010,910 | $ | 18,750 | $ | - | $ | (2,813 | ) | $ | 4,026,847 | |||||||||
|
State
and political subdivisions
|
4,253,537 | 63,487 | (3,913 | ) | (261 | ) | 4,312,850 | |||||||||||||
|
Corporate
notes
|
441,660 | 594 | - | - | 442,254 | |||||||||||||||
| $ | 8,706,107 | $ | 82,831 | $ | (3,913 | ) | $ | (3,074 | ) | $ | 8,781,951 | |||||||||
|
December
31, 2006:
|
||||||||||||||||||||
|
U.S.
Treasury and agencies
|
$ | 4,000,000 | $ | - | $ | - | $ | (50,937 | ) | $ | 3,949,063 | |||||||||
|
State
and political subdivisions
|
5,837,779 | 65,221 | (2,210 | ) | (7,946 | ) | 5,892,844 | |||||||||||||
|
Corporate
notes
|
451,554 | 3,887 | - | - | 455,441 | |||||||||||||||
| $ | 10,289,333 | $ | 69,108 | $ | (2,210 | ) | $ | (58,883 | ) | $ | 10,297,348 | |||||||||
The
investment securities shown above currently have fair values less than amortized
costs and, therefore, contain unrealized losses. The Bank has evaluated these
securities and has determined that the decline in value is temporary and is
related to the change in market interest rates since purchase. The decline in
value is not related to any company or industry-specific event. There are three
investment securities with unrealized losses. The Bank anticipates full recovery
of amortized costs with respect to these securities, at maturity or sooner in
the event of a more favorable market interest rate environment.
The
amortized cost and estimated fair value of available-for-sale securities at
December 31, 2007, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 2
|
–
|
INVESTMENT SECURITIES –
(continued)
|
|
Available-for-Sale
|
||||||||
|
Securities
|
||||||||
|
Estimated
|
||||||||
|
Amortized
|
Market
|
|||||||
|
Cost
|
Value
|
|||||||
|
Due
in one year or less
|
$ | 2,201,897 | $ | 2,201,130 | ||||
|
Due
after one year through three years
|
1,194,198 | 1,213,051 | ||||||
|
Due
after three years through five years
|
959,785 | 975,823 | ||||||
|
Due
after five years through ten years
|
1,967,884 | 1,999,426 | ||||||
|
Thereafter
|
2,382,343 | 2,392,521 | ||||||
| $ | 8,706,107 | $ | 8,781,951 | |||||
At
December 31, 2007 and 2006, investment securities with an amortized cost of
$7,469,056 and $8,354,383 and market values of $7,528,429 and $8,354,717,
respectively, were pledged to secure deposits of public funds and for other
purposes as required or permitted by law.
The Bank,
as a member of the Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB)
systems, is required to maintain investments in restricted equity securities of
the FHLB and FRB. FHLB and FRB stocks are not actively traded but are redeemable
at their current book values of $1,023,550 and $1,023,100 at December 31, 2007
and 2006, respectively.
|
NOTE
3
|
–
|
LOANS
AND ALLOWANCE FOR LOAN LOSSES
|
The
composition of the loan portfolio is summarized as follows:
|
2007
|
2006
|
|||||||
|
Commercial
|
$ | 97,381,490 | $ | 94,899,657 | ||||
|
Real
estate
|
19,804,208 | 20,684,978 | ||||||
|
Installment
|
6,814,836 | 7,670,400 | ||||||
|
Overdrafts
|
28,459 | 36,279 | ||||||
|
Total
loans
|
124,028,993 | 123,291,314 | ||||||
|
Less
allowance for loan losses
|
(1,965,102 | ) | (1,861,221 | ) | ||||
|
Less
deferred loan fees
|
(317,447 | ) | (363,540 | ) | ||||
|
Loans,
net of allowance for loan losses and deferred loan fees
|
$ | 121,746,444 | $ | 121,066,553 | ||||
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 3
|
–
|
LOANS AND ALLOWANCE FOR LOAN
LOSSES– (continued)
|
The
following is an analysis of the changes in the allowance for loan
losses:
|
2007
|
2006
|
2005
|
||||||||||
|
Balance,
beginning of year
|
$ | 1,861,221 | $ | 1,858,185 | $ | 1,640,060 | ||||||
|
Provision
for loan losses
|
120,000 | 26,000 | 215,000 | |||||||||
|
Loans
charged off
|
(19,949 | ) | (23,114 | ) | (2,023 | ) | ||||||
|
Loan
recoveries
|
3,830 | 150 | 5,148 | |||||||||
|
Balance,
end of year
|
$ | 1,965,102 | $ | 1,861,221 | $ | 1,858,185 | ||||||
A
substantial portion of the Bank’s loans are collateralized by real estate in the
geographic areas it serves and, accordingly, the ultimate collectibility of a
substantial portion of the Bank’s loan portfolio is susceptible to changes in
the local market conditions.
In the
normal course of business, the Bank participates portions of loans to third
parties in order to extend the Bank’s lending capability or to mitigate risk. At
December 31, 2007 and 2006, the portion of these loans participated to third
parties (which are not included in the accompanying consolidated financial
statements) totaled $2,434,864 and $3,287,466, respectively.
Impaired
loans having recorded investments of $1,706,876 and $215,471 at December 31,
2007 and 2006, respectively, have been recognized. The average recorded
investment in impaired loans during 2007 and 2006 was $580,399 and $197,040,
respectively. The total allowance for loan losses allocated to these loans
was $91,628 and $107,735 at December 31, 2007 and 2006, respectively.
Interest income recognized for cash payments received on impaired loans in 2007,
2006, and 2005, was not material to the consolidated financial statements. In
addition, no loans past due 90 days or more were still accruing interest at
December 31, 2007 and 2006.
|
NOTE
4
|
–
|
LOAN
SERVICING
|
The
balance of the Bank’s recorded investment in mortgage servicing assets (MSA) is
as follows:
|
2007
|
2006
|
|||||||
|
Balance,
beginning of year
|
$ | 763,203 | $ | 808,709 | ||||
|
Gain
on sale
|
69,829 | 80,533 | ||||||
|
Amortization
|
(130,728 | ) | (126,039 | ) | ||||
|
Balance,
end of year
|
$ | 702,304 | $ | 763,203 | ||||
Loans
serviced for the Federal Home Loan Mortgage Corporation are not included in the
accompanying consolidated balance sheets. The unpaid principal balances of
serviced loans at December 31, 2007 and 2006 were $89,959,644 and $94,474,592,
respectively.
Amortization
expense totaled $130,728, $126,039, and $193,247 for the years ended December
31, 2007, 2006, and 2005, respectively.
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE
5
|
–
|
PREMISES
AND EQUIPMENT
|
Premises
and equipment consist of the following:
|
2007
|
2006
|
|||||||
|
Land
|
$ | 1,502,333 | $ | 1,247,314 | ||||
|
Building
and improvements
|
6,880,146 | 3,937,739 | ||||||
|
Construction
in progress
|
37,469 | 2,003,495 | ||||||
|
Furniture
and equipment
|
3,183,926 | 3,202,630 | ||||||
|
Leasehold
improvements
|
52,986 | 143,862 | ||||||
|
Total
premises and equipment
|
11,656,860 | 10,535,040 | ||||||
|
Less
accumulated depreciation and amortization
|
(3,585,933 | ) | (3,548,739 | ) | ||||
|
Premises
and equipment, net of accumulated depreciation and
amortization
|
$ | 8,070,927 | $ | 6,986,301 | ||||
The Bank
completed its financial center on the campus of the main branch in Florence in
late spring 2007. Interest capitalized in 2007 and 2006 was $22,142
and $13,489, respectively.
Depreciation
expense for the years ended December 31, 2007, 2006, and 2005, was $560,161,
$488,501, and $473,216, respectively.
|
NOTE
6
|
–
|
INTANGIBLE
ASSETS
|
The
following table summarizes the changes in the Bank’s intangible assets for the
year ended December 31, 2007.
|
2007
|
2006
|
|||||||
|
Balance,
beginning of year
|
$ | 377,200 | $ | - | ||||
|
Additions
|
- | 460,000 | ||||||
|
Amortization
|
(82,800 | ) | (82,800 | ) | ||||
|
Balance,
end of year
|
$ | 294,400 | $ | 377,200 | ||||
Acquired
intangible assets are related to the acquisition of the assets of the local LPL
Financial, Inc. brokerage in Florence, Oregon.
|
NOTE
7
|
–
|
TIME
CERTIFICATES
|
Time
certificates of deposit of $100,000 and over aggregated $18,038,790 and
$15,583,499 at December 31, 2007 and 2006, respectively.
At
December 31, 2007, the scheduled maturities for all time deposits are as
follows:
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 7
|
–
|
TIME CERTIFICATES –
(continued)
|
|
Year
ending December 31,
|
2008
|
$ | 30,594,786 | ||
|
2009
|
2,405,632 | ||||
|
2010
|
838,126 | ||||
|
2011
|
1,109,436 | ||||
|
2012
|
1,399,866 | ||||
| $ | 36,347,846 |
|
NOTE
8
|
–
|
SHORT-TERM
BORROWINGS AND FEDERAL HOME LOAN BANK
BORROWINGS
|
The Bank
is a member of and has entered into credit arrangements with the FHLB. The Bank
participates in the Cash Management Advance program and also has fixed and
adjustable rate promissory notes with the FHLB. Borrowings under the credit
arrangements are collateralized by mortgage loans or other instruments which may
be pledged. Borrowings available to the Bank under all FHLB credit arrangements
are limited to the lesser of 20% of the Bank’s total assets or collateral
availability.
The Cash
Management Advance program advances are due on demand, or if no demand is made,
in one year. No borrowings were outstanding under the Cash Management Advance
program at December 31, 2007 and 2006.
FHLB
promissory notes outstanding at December 31, 2007 and 2006 were $10,502,806 and
$11,157,806, respectively. These notes may be prepaid in whole or in part, with
payment of a prepayment fee.
A
promissory note in the amount of $214,666 was outstanding at December 31, 2007
resulting from the January 2006 purchase of the assets of the local LPL
brokerage office for $322,000 less a $107,334 principal payment made in January
2007.
The
following summarizes the Bank’s outstanding obligation and repayment terms to
the FHLB as of December 31, 2007:
|
Range
of
|
|||||||||
|
Interest
|
|||||||||
|
Rates
|
Amount
|
||||||||
|
Years
ending December
31,
2008
|
|
- | $ | - | |||||
|
2009
|
3.13 | % | 1,000,000 | ||||||
|
2010
|
4.31 - 4.61 | % | 4,000,000 | ||||||
|
2011
|
5.04 | % | 600,000 | ||||||
|
2012
|
4.45 - 5.02 | % | 3,500,000 | ||||||
|
Thereafter
|
3.27 - 5.12 | % | 1,402,806 | ||||||
| $ | 10,502,806 | ||||||||
FHLB
advances are collateralized as provided for in the advance, pledge and security
agreements with the FHLB, by certain qualifying loans in the amount of $12.7
million and $13.4 million at December 31, 2007 and 2006,
respectively. At December 31, 2007 the Company had additional
borrowing capacity available of $15.9 million at the FHLB.
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE
9
|
–
|
INCOME
TAXES
|
The
provision for income taxes consists of the following:
|
2007
|
2006
|
2005
|
||||||||||
|
Current
expense:
|
||||||||||||
|
Federal
|
$ | 817,338 | $ | 1,119,271 | $ | 1,093,801 | ||||||
|
State
|
209,481 | 242,432 | 150,393 | |||||||||
| 1,026,819 | 1,361,703 | 1,244,194 | ||||||||||
|
Deferred
expense (benefit):
|
||||||||||||
|
Federal
|
(162,657 | ) | (221,244 | ) | (276,783 | ) | ||||||
|
State
|
(33,548 | ) | (45,631 | ) | (57,087 | ) | ||||||
| (196,205 | ) | (266,875 | ) | (333,870 | ) | |||||||
|
Provision
for income taxes
|
$ | 830,614 | $ | 1,094,828 | $ | 910,324 | ||||||
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, (“FIN 48”) on January 1, 2007. The Company believes that its
income tax filing positions taken or expected to be taken in its tax returns
would more likely than not be sustained upon audit by the taxing authorities and
does not anticipate any adjustments that would result in a material adverse
impact on the Company's financial condition, results of operations, or cash
flow. Therefore, no reserves for uncertain income tax positions have been
recorded pursuant to FIN 48. In addition, the Company did not record a
cumulative effect adjustment related to the adoption of
FIN 48.
Deferred
income taxes represent the tax effect of differences in timing between financial
income and taxable income, principally related to the provision for loan losses,
deferred compensation, mortgage servicing rights, and recognition of
depreciation expense. Deferred income taxes, according to the timing differences
which caused them, were as follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Accounting
provision for loan losses less than provision for income
taxes
|
$ | 46,320 | $ | 10,036 | $ | 82,990 | ||||||
|
Accounting
depreciation in excess of tax depreciation
|
73,189 | 47,494 | 8,900 | |||||||||
|
Deferred
compensation
|
||||||||||||
|
Federal
Home Loan Bank
|
56,085 | 176,146 | 245,324 | |||||||||
|
stock
dividends
|
(7,955 | ) | (292 | ) | (1,190 | ) | ||||||
|
Mortgage
servicing rights
|
23,507 | 17,565 | 1,053 | |||||||||
|
Vacation
accrual
|
1,544 | - | - | |||||||||
|
Loans
held-for-sale
|
(576 | ) | 576 | (7,955 | ) | |||||||
|
Other
differences
|
4,091 | 15,350 | 4,748 | |||||||||
|
Net
deferred income taxes
|
$ | 196,205 | $ | 266,875 | $ | 333,870 | ||||||
The
provision for income taxes differs from the federal statutory rate of 34% due
principally to the effect of tax exemptions for interest received on municipal
investments.
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE
9
|
–
|
INCOME
TAXES (continued)
|
The net
deferred tax assets in the accompanying consolidated balance sheets include the
following components:
|
2007
|
2006
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Allowance
for loan losses
|
$ | 391,581 | $ | 345,261 | ||||
|
Deferred
compensation
|
952,423 | 896,338 | ||||||
|
Vacation
accrual
|
19,300 | 17,756 | ||||||
|
Loans
held-for-sale
|
- | 576 | ||||||
|
Other
|
24,718 | 20,628 | ||||||
| 1,388,022 | 1,280,559 | |||||||
|
Deferred
tax liabilities:
|
||||||||
|
Mortgage
servicing rights
|
(271,090 | ) | (294,596 | ) | ||||
|
Accumulated
depreciation
|
(99,343 | ) | (172,532 | ) | ||||
|
Federal
Home Loan Bank stock dividends
|
(143,678 | ) | (135,724 | ) | ||||
| (514,111 | ) | (602,852 | ) | |||||
|
Net
deferred tax assets
|
$ | 873,911 | $ | 677,707 | ||||
Management
believes, based upon the Bank’s historical performance, the net deferred tax
assets will be realized in the normal course of operations and, accordingly,
management has not reduced the net deferred tax assets by a valuation
allowance.
Reconciliation
between the statutory federal income tax rate and the effective tax rate is as
follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Federal
income taxes at statutory rate
|
$ | 909,762 | $ | 1,047,494 | $ | 943,737 | ||||||
|
State
income tax expense, net of federal income tax benefit
|
116,557 | 134,202 | 77,455 | |||||||||
|
Effect
of nontaxable interest income
|
(113,020 | ) | (92,237 | ) | (104,879 | ) | ||||||
|
Amended
taxes for prior years
|
(104,257 | ) | - | - | ||||||||
|
Other
|
21,572 | 5,369 | (5,989 | ) | ||||||||
| $ | 830,614 | $ | 1,094,828 | $ | 910,324 | |||||||
|
Effective
tax rate
|
31 | % | 36 | % | 33 | % | ||||||
NOTE
10 –
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the
normal course of business, the Bank is a party to financial instruments with
off-balance sheet risk to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve elements of credit and interest rate risk
similar to the amounts recognized in the accompanying consolidated balance
sheets. The contract or notional amounts of those instruments reflect the extent
of the Bank’s involvement in particular classes of financial
instruments.
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10
– FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK – (continued)
The
Bank’s exposure to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit and standby letters
of credit is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet
instruments.
Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. While most commercial letters of credit are not utilized, a
significant portion of such utilization is on an immediate payment
basis.
The Bank
evaluates each customer’s creditworthiness on a case-by-case basis. The amount
of collateral obtained, if it is deemed necessary by the Bank upon extension of
credit, is based on management’s credit evaluation of the counterparty.
Collateral held varies but may include cash, accounts receivable, premises and
equipment, and income-producing commercial properties.
Commercial
and standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Bank holds cash, marketable
securities, or real estate as collateral supporting those commitments for which
collateral is deemed necessary.
A summary
of the notional amounts of the Bank’s financial instruments with off-balance
sheet risk at December 31, 2007, were as follows:
|
Commitments
to extend credit
|
$ | 22,305,146 | ||
|
Commercial
and standby letters of credit
|
902,530 | |||
| $ | 23,207,676 |
Additionally,
the Bank sells real estate loans to the Federal Home Loan Mortgage Corporation
(see Note 3). The Federal Home Loan Mortgage Corporation has the right to reject
a loan that it has previously purchased and require the seller to repurchase the
loan in the event of fraud or material misstatement of fact in the loan
application.
|
NOTE
11
|
–
|
CONCENTRATIONS
OF CREDIT RISK
|
All of
the Bank’s loans, commitments, and commercial and standby letters of credit have
been granted to customers in the Bank’s market area. Nearly all such customers
are depositors of the Bank. Investments in state and municipal securities
involve government entities throughout the United States. Concentrations of
credit by type of loan are set forth in Note 3. The distribution of commitments
to extend credit approximates the distribution of loans outstanding. Commercial
and standby letters of credit were granted primarily to commercial borrowers as
of December 31, 2007. The Bank’s loan policy does not allow the extension of
credit to any single borrower or group of related borrowers in excess of the
Bank’s legal lending limit, which is generally 15% of aggregate common stock and
the allowance for loan losses.
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE
12
|
–
|
FAIR
VALUES OF FINANCIAL INSTRUMENTS
|
The
following table estimates fair value and the related carrying values of the
Bank’s financial instruments:
|
2007
|
2006
|
|||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
|
Amount
|
Value
|
Amount
|
Value
|
|||||||||||||
|
Financial
assets:
|
||||||||||||||||
|
Cash
and cash equivalents
|
$ | 4,065,903 | $ | 4,065,903 | $ | 4,473,047 | $ | 4,473,047 | ||||||||
|
Interest-bearing
deposits in banks
|
$ | 5,205,115 | $ | 5,205,115 | $ | 2,986,418 | $ | 2,986,418 | ||||||||
|
Available-for-sale
securities
|
$ | 8,781,951 | $ | 8,781,951 | $ | 10,297,348 | $ | 10,297,348 | ||||||||
|
Restricted
equity securities
|
$ | 1,023,550 | $ | 1,023,550 | $ | 1,023,100 | $ | 1,023,100 | ||||||||
|
Loans
held-for-sale
|
$ | 703,609 | $ | 708,411 | $ | 152,095 | $ | 152,095 | ||||||||
|
Loans,
net of allowance for loan losses and deferred loan fees
|
$ | 121,746,444 | $ | 121,687,505 | $ | 121,066,553 | $ | 120,999,298 | ||||||||
|
Financial
liabilities:
|
||||||||||||||||
|
Demand
deposits, interest- bearing demand deposits, and savings
deposits
|
$ | 84,644,568 | $ | 84,644,568 | $ | 88,484,260 | $ | 88,532,134 | ||||||||
|
Time
certificate accounts
|
$ | 36,347,846 | $ | 36,277,742 | $ | 32,126,510 | $ | 32,245,113 | ||||||||
|
Federal
Home Loan Bank borrowings and other debt
|
$ | 10,717,472 | $ | 10,713,113 | $ | 11,479,806 | $ | 11,759,600 | ||||||||
|
Floating
rate Junior Subordinated Deferrable Interest Debentures (Trust Preferred
Securities)
|
$ | 4,124,000 | $ | 4,124,000 | $ | 4,124,000 | $ | 4,124,000 | ||||||||
While
estimates of fair value are based on management’s judgment of the most
appropriate factors, there is no assurance that were the Bank to have disposed
of such items at December 31, 2007 and 2006, the estimated fair values would
necessarily have been achieved at that date, since market values may differ
depending on various circumstances. The estimated fair values at December 31,
2007 and 2006 should not necessarily be considered to apply at subsequent
dates.
In
addition, other assets and liabilities of the Bank that are not defined as
financial instruments are not included in the above disclosures, such as
premises and equipment. Also, nonfinancial instruments typically not recognized
in the consolidated financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the trained work force,
customer goodwill, and similar items.
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE
13
|
–
|
COMMITMENTS
AND CONTINGENCIES
|
Operating lease commitments –
The Bank leases certain branch premises and equipment. Future minimum lease
payments for all noncancellable operating leases are as follows:
|
Years
ending December 31,
|
2008
|
$ | 67,681 | ||
|
2009
|
64,606 | ||||
|
2010
|
52,214 | ||||
|
2011
|
33,000 | ||||
|
2012
|
379,250 | ||||
|
Thereafter
|
- | ||||
| $ | 596,751 |
Total rental expense was
$109,583, $179,390, and $167,263 in 2007, 2006, and 2005,
respectively.
Legal contingencies – In the
ordinary course of business, the Bank is a party to various debtor-creditor
legal actions, none of which individually or in the aggregate, are presently
material to the Bank’s business, operations, or financial condition. These
include cases filed as a plaintiff in collection and foreclosure cases, and the
enforcement of creditors’ rights in bankruptcy proceedings.
Bancorp
is not currently involved in any material litigation or legal proceeding, and is
not aware of any potential material litigation or proceeding threatened against
it.
|
NOTE
14
|
–
|
STOCK-BASED
COMPENSATION
|
Bancorp
has a stock incentive plan which was approved by its stockholders during 2003.
The plan provides that 214,035 shares of Bancorp’s common stock will be reserved
for the granting of incentive stock options and non-statutory stock options to
key employees. The purchase price of optioned shares is not to be less than the
fair market value at the time the options are granted. In addition, the plan
allows for the Board to grant stock appreciation rights or bonus rights, award
bonus grants of stock, and award other types of stock-based incentives as may be
allowable by law. For options granted in January 2006 vest 50%
annually over two years. Options granted in March 2006 vest in five
equal annual installments on the anniversary of the grant beginning March 17,
2008. All have a two-year exercise period. Vesting is
immediate if there is a change of control, at retirement at age 60 or later, or
upon death if 50 percent had been exercisable.
As of
December 31, 2007, the Company had 6,204 nonvested options outstanding and there
was $13,200 of total unrecognized compensation cost related to these nonvested
options. This cost is expected to be recognized on a straight-line basis, over
the weighted-average vesting period of 3.9 years, through December 31,
2011. A summary of option activity under the plan as of December 31,
2007, and changes during the year then ended is presented below:
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – STOCK-BASED COMPENSATION
– (continued)
|
Weighted-
|
||||||||||||||||
|
Weighted-
|
Average
|
|||||||||||||||
|
Average
|
Remaining
|
Aggregate
|
||||||||||||||
|
Exercise
|
Contractual
|
Intrinsic
|
||||||||||||||
|
Options
|
Shares
|
Price
|
Term
|
Value
|
||||||||||||
|
Outstanding
at January 1, 2007
|
34,272 | $ | 8.83 | |||||||||||||
|
Granted
|
- | $ | - | |||||||||||||
|
Exercised
|
(14,833 | ) | $ | 7.08 | ||||||||||||
|
Forfeited
or expired
|
(2,110 | ) | $ | 11.85 | ||||||||||||
|
Outstanding
at December 31, 2007
|
17,329 | $ | 9.95 | 2.91 | $ | 15,039 | ||||||||||
|
Vested
at December 31, 2007
|
11,125 | $ | 8.90 | 1.69 | $ | 15,039 | ||||||||||
|
Exercisable
at December 31, 2007
|
6,357 | $ | 6.68 | 1.39 | $ | 15,039 | ||||||||||
The
weighted-average grant-date fair value of options granted during the years 2006
and 2005 was $1.91 and $1.36, respectively. No options were granted
in 2007. The total intrinsic value of options exercised during the
years ended December 31, 2007, 2006, and 2005 was $69,015, $50,315 and $7,690,
respectively.
The fair
value of each option granted was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions for December
31:
|
2006
|
2005
|
|||||||
|
Dividend
Yield
|
2.00 | % | 2.44 | % | ||||
|
Expected
life (years)
|
3 ~
5.5
|
7.5 | ||||||
|
Expected
volatility
|
15.20 | % | 14.39 | % | ||||
|
Risk-free
rate
|
4.70 | % | 4.50 | % | ||||
No
options were granted in 2007.
|
NOTE
15
|
–
|
PROFIT
SHARING, DEFERRED COMPENSATION, AND INCENTIVE
PLANS
|
Effective
January 1, 1998, the Bank adopted a Simple Retirement Plan which covers
substantially all employees once minimum length of employment criteria has been
met. Contributions to the plan totaled $90,935, $84,765, and $77,248 during
2007, 2006, and 2005, respectively.
The Bank
has established a nonqualified deferred compensation and an incentive plan for a
group of key management employees. The Bank may, but is not required to, award
incentive compensation, which is credited to Incentive Contribution Accounts
maintained for each of these participants. Participants are also allowed to
elect to defer a portion of their compensation. For the years ended December 31,
2007, 2006, and 2005, the Bank recorded expenses of $279,336, $275,834, and
$178,007, respectively, to fund the program.
In 2007
the Bank established a nonqualified Director Non-Employee Deferred Compensation
Plan. Directors may elect to defer all or a portion of their directors’ fees
and/or bonuses into a common stock account or interest-bearing
account. Amounts deferred to the common stock account are credited
with the number of whole shares of Common Stock that could be purchased at the
weighted average of the last 1% of stock sales. At December 31, 2007,
the Bank’s liability under the plan was $19,000.
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE
16
|
–
|
EARNINGS
PER SHARE
|
The
following table illustrates the computations of basic and diluted earnings per
common share for the years ended December 31:
|
Income
|
Shares
|
Per
Share
|
||||||||||
|
(Numerator)
|
(Denominator)
|
Amount
|
||||||||||
|
2007
|
||||||||||||
|
Basic
earnings per common share:
|
||||||||||||
|
Income
available to common stockholders
|
$ | 1,845,157 | 2,203,790 | $ | 0.84 | |||||||
|
Effect
of dilutive securities:
|
||||||||||||
|
Outstanding
common stock options
|
- | 3,696 | ||||||||||
|
Income
available to common stock- holders plus assumed
conversions
|
$ | 1,845,157 | 2,207,486 | $ | 0.84 | |||||||
|
2006
|
||||||||||||
|
Basic
earnings per common share:
|
||||||||||||
|
Income
available to common stockholders
|
$ | 1,986,037 | 2,178,967 | $ | 0.91 | |||||||
|
Effect
of dilutive securities:
|
||||||||||||
|
Outstanding
common stock options
|
- | 8,903 | ||||||||||
|
Income
available to common stock- holders plus assumed
conversions
|
$ | 1,986,037 | 2,187,870 | $ | 0.91 | |||||||
|
2005
|
||||||||||||
|
Basic
earnings per common share:
|
||||||||||||
|
Income
available to common stockholders
|
$ | 1,865,372 | 2,154,932 | $ | 0.87 | |||||||
|
Effect
of dilutive securities:
|
||||||||||||
|
Outstanding
common stock options
|
- | 7,894 | ||||||||||
|
Income
available to common stock- holders plus assumed
conversions
|
$ | 1,865,372 | 2,162,826 | $ | 0.86 | |||||||
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE
17
|
–
|
TRANSACTIONS
WITH RELATED PARTIES
|
Certain
directors, executive officers, and principal stockholders are customers of and
have had banking transactions with the Bank in the ordinary course of business,
and the Bank expects to have such transactions in the future. All loans and
commitments to loan included in such transactions were made in compliance with
applicable laws on substantially the same terms (including interest rates and
collateral) as those prevailing at the time for comparable transactions with
other persons and, in the opinion of the management of the Bank, do not involve
more than the normal risk of collectibility or present any other unfavorable
features. Transactions with directors, executive officers, principal
stockholders, and companies with which they are associated as of December 31,
2007 and 2006, and for the years then ended were as follows:
|
2007
|
2006
|
|||||||
|
Loans
outstanding, beginning of year
|
$ | 3,428,851 | $ | 2,147,265 | ||||
|
Additions
|
1,407,004 | 2,157,599 | ||||||
|
Repayments
|
(1,393,553 | ) | (876,013 | ) | ||||
|
Loans
outstanding, end of year
|
$ | 3,442,302 | $ | 3,428,851 | ||||
|
NOTE
18
|
–
|
REGULATORY
MATTERS
|
Bancorp
and the Bank are subject to various regulatory capital requirements administered
by federal and state banking agencies. Failure to meet minimum requirements can
initiate certain mandatory – and possibly additional discretionary – actions by
regulators that, if undertaken, could have a direct material effect on Bancorp’s
and the Bank’s financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, banks must meet specific
capital guidelines that involve quantitative measures of Bancorp’s and the
Bank’s assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. Capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require Bancorp
and the Bank to maintain minimum amounts and ratios (set forth in the following
table) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (a defined), and of Tier 1 capital to average assets (as
defined). Management believes, as of December 31, 2007, that Bancorp and the
Bank meet all capital adequacy requirements to which they are
subject.
As of the
most recent notifications from their regulatory agencies, Bancorp and the Bank
were categorized as well-capitalized under the regulatory framework for prompt
corrective action. To be categorized as adequately capitalized, Bancorp and the
Bank must maintain minimum total risk-based capital, Tier 1 risk-based capital,
and Tier 1 leverage capital ratios as set forth in the following table. There
are no conditions or events since that notification that management believes may
have changed Bancorp’s and the Bank’s category.
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE
18
|
–
|
REGULATORY
MATTERS – (continued)
|
Bancorp’s
and the Bank’s capital ratios are substantially equivalent. Actual capital
amounts for the Bank are presented in the following table:
|
To
Be Well-
|
||||||||||||||||||
|
Capitalized
Under
|
||||||||||||||||||
|
For
Capital
|
Prompt
Corrective
|
|||||||||||||||||
|
Actual
|
Adequacy Purposes
|
Action Provisions
|
||||||||||||||||
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||
|
As
of December 31, 2007:
|
||||||||||||||||||
|
(in
thousands)
|
||||||||||||||||||
|
Total
capital to risk-weighted assets
|
$ | 18,615 | 14.1 | % | $ | 10,539 |
>8.0%
|
$ | 13,174 |
>10.0%
|
||||||||
|
Tier
1 capital to risk-weighted assets
|
$ | 16,964 | 12.9 | % | $ | 5,268 |
>4.0%
|
$ | 7,902 |
>6.0%
|
||||||||
|
Tier
1 capital to average assets
|
$ | 16,964 | 11.1 | % | $ | 6,098 |
>4.0%
|
$ | 7,622 |
>5.0%
|
||||||||
|
As
of December 31, 2006:
|
||||||||||||||||||
|
(in
thousands)
|
||||||||||||||||||
|
Total
capital to risk-weighted assets
|
$ | 17,110 | 13.2 | % | $ | 10,381 |
>8.0%
|
$ | 12,976 |
>10.0%
|
||||||||
|
Tier
1 capital to risk-weighted assets
|
$ | 15,485 | 11.9 | % | $ | 5,190 |
>4.0%
|
$ | 7,786 |
>6.0%
|
||||||||
|
Tier
1 capital to average assets
|
$ | 15,485 | 10.1 | % | $ | 6,133 |
>4.0%
|
$ | 7,666 |
>5.0%
|
||||||||
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE
19
|
–
|
TRUST
PREFERRED SECURITIES
|
At
December 31, 2007, Bancorp had a wholly-owned trust (Trust) that was formed to
issue trust preferred securities and related common securities of the Trust. As
a result of adoption of FIN 46R, Bancorp deconsolidated the Trust as of January
1, 2004. The junior subordinated debentures were reflected as long-term debt in
the consolidated balance sheets.
Oregon
Pacific Statutory Trust 1 is a wholly-owned Connecticut statutory business trust
subsidiary which issued $4,000,000 of guaranteed undivided beneficial interests
in Bancorp’s floating rate Junior Subordinated Deferrable Interest Debentures
(Trust Preferred Securities). These debentures qualify as Tier 1 capital under
regulatory guidelines. All common securities of the Trust are owned by Bancorp.
The proceeds from the issuance of the common securities and the Trust Preferred
Securities were used by the Trust to purchase $4,124,000 of subordinated
deferrable interest debentures of Bancorp. The debentures, which represent the
sole asset of the Trust, possess the same terms as the Trust Preferred
Securities and accrue interest at a rate of the three-month London Interbank
Offered Rate (LIBOR) plus 2.85% per annum which changes
quarterly. The rate throughout 2007 varied between 7.84% and 8.54%
and in 2006 varied between 7.35% and 8.24%. The accrued interest on the
debentures is paid to the Trust by Bancorp, and the Trust in turn distributes
the interest income as dividends on the Trust Preferred Securities. Interest
payments are deferrable at the discretion of Bancorp for the first five years.
As of December 31, 2007, all interest payments to the Trust and all dividend
payments by the Trust were current.
In
conjunction with the issuance of the Trust Preferred Securities, Bancorp entered
into contractual arrangements which, taken collectively, fully and
unconditionally guarantee payment of (1) accrued and unpaid distributions
required to be paid on the Trust Preferred Securities, (2) the redemption price
with respect to any Trust Preferred Securities called for redemption by the
Trust, and (3) payments due upon a voluntary or involuntary dissolution, winding
up, or liquidation of the Trust. The Trust Preferred Securities are mandatorily
redeemable upon maturity of the debentures on December 17, 2033, or upon earlier
redemption as provided in the indenture. Bancorp has the right to redeem the
debentures purchased by the Trust in whole or in part, on or after December 17,
2008. As specified in the indenture, if the debentures are redeemed prior to
maturity, the redemption price will be the principal amount and any accrued but
unpaid interest. For the years ended December 31, 2007, 2006, and 2005,
Bancorp’s interest expense related to the Trust Preferred Securities amounted to
$335,491, $322,053, and $248,963, respectively.
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE
20
|
–
|
PARENT
COMPANY FINANCIAL INFORMATION
|
Condensed
financial information for Oregon Pacific Bancorp (parent company only) is
presented as follows:
CONDENSED
BALANCE SHEETS
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$ | 12,354 | $ | 6,606 | ||||
|
Investment
in subsidiaries
|
17,498,024 | 15,990,546 | ||||||
|
Other
assets
|
19,167 | 40,998 | ||||||
|
TOTAL
ASSETS
|
$ | 17,529,545 | $ | 16,038,150 | ||||
|
LIABILITIES
|
||||||||
|
Junior
subordinated debentures
|
$ | 4,124,000 | $ | 4,124,000 | ||||
|
Other
Liabilities
|
33,657 | 13,317 | ||||||
|
Total
liabilities
|
4,157,657 | 4,137,317 | ||||||
|
STOCKHOLDERS’
EQUITY
|
13,371,888 | 11,900,833 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 17,529,545 | $ | 16,038,150 | ||||
CONDENSED
STATEMENTS OF INCOME
|
Years
Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Income
|
$ | - | $ | - | $ | - | ||||||
|
Expenses
|
||||||||||||
|
Interest
|
335,491 | 322,053 | 248,963 | |||||||||
|
Other
|
73,902 | 43,930 | 47,104 | |||||||||
|
Total
expenses
|
409,393 | 365,983 | 296,067 | |||||||||
|
Net
loss before credit for income taxes, dividends from Bank and equity in
undistributed net earnings of subsidiaries
|
(409,393 | ) | (365,983 | ) | (296,067 | ) | ||||||
|
Income
tax benefit
|
(157,027 | ) | (140,377 | ) | (108,925 | ) | ||||||
|
Net
Loss before dividends from the Bank and equity in undistributed net
earnings of subsidiaries
|
(252,366 | ) | (225,606 | ) | (187,142 | ) | ||||||
|
Dividends
from the Bank
|
631,380 | 489,107 | 527,166 | |||||||||
|
Equity
in undistributed net earnings of subsidiaries
|
1,466,143 | 1,722,536 | 1,525,348 | |||||||||
|
Net
income
|
$ | 1,845,157 | $ | 1,986,037 | $ | 1,865,372 | ||||||
OREGON
PACIFIC BANCORP AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE
20
|
–
|
PARENT
COMPANY FINANCIAL INFORMATION –
(continued)
|
CONDENSED
STATEMENTS OF CASH FLOWS
|
Years Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
|
Net
income
|
$ | 1,845,157 | $ | 1,986,037 | $ | 1,865,372 | ||||||
|
Adjustments
to reconcile net income to net cash
|
||||||||||||
|
Equity
in undistributed earnings of subsidiaries
|
(1,466,143 | ) | (1,722,536 | ) | (1,525,348 | ) | ||||||
|
Changes
in other assets and liabilities
|
42,171 | 24,206 | 4,459 | |||||||||
|
Bonuses
paid in stock
|
- | 20,000 | - | |||||||||
|
Net
cash from operating activities
|
421,185 | 307,707 | 344,483 | |||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
|
Cash
dividends paid
|
(457,699 | ) | (383,566 | ) | (301,551 | ) | ||||||
|
Repurchase
of common stock
|
(62,740 | ) | - | (31,610 | ) | |||||||
|
Proceeds
from stock options exercised
|
105,002 | 22,500 | 9,997 | |||||||||
|
Proceeds
from issuance of common stock
|
- | 1,009 | 11,003 | |||||||||
|
Net
cash from financing activities
|
(415,437 | ) | (360,057 | ) | (312,161 | ) | ||||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
5,748 | (52,350 | ) | 32,322 | ||||||||
|
|
||||||||||||
|
CASH
AND CASH EQUIVALENTS, beginning of year
|
6,606 | 58,956 | 26,634 | |||||||||
|
CASH
AND CASH EQUIVALENTS, end of year
|
$ | 12,354 | $ | 6,606 | $ | 58,956 | ||||||
NOTE
21 – SUBSEQUENT EVENTS
On
January 3, 2008, the Company announced a plan to deregister the Company’s common
stock under the Securities Exchange Act of 1934, as amended, and, therefore,
terminate its obligations to file reports with the Securities and Exchange
Commission. A Special Meeting of shareholders was held on March 13,
2008 at which time the shareholders approved amendments to its Articles of
Incorporation effecting a reverse stock split of 1 for 500, whereby shareholders
owning less than 500 shares of Company common stock on the record date of
January 4, 2008 receive cash at the pre-split rate of $13.00 per share. Shares
then forward split at 500 shares for 1 share.
On
January 15, 2008, the Bancorp Board of Directors authorized a cash dividend of
$.08 per share payable on February 15, 2008, to stockholders of record on
January 31, 2008.
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
ITEM
9A (T).
|
CONTROLS
AND PROCEDURES
|
The Company maintains disclosure
controls and procedures that are designed to ensure that information required to
be disclosed in the Company’s reports in compliance with the Exchange Act, is
recorded, processed, summarized, and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to the Company’s Management, including its Chief Executive Officer
and its Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of “disclosure
controls and procedures” in Rule 13a-14(c) promulgated under the Exchange
Act. As of December 31, 2007, the Company carried out an evaluation,
under the supervision and with the participation of the Company’s Management,
including the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures. Based on the foregoing, the Company’s Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure
controls and procedures were effective.
There have been no changes in the
company’s internal control over financial reporting during the quarter ended
December 31, 2007 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting. The internal control process
has been designed under our supervision to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the
Company’s financial statements for external reporting purposes in accordance
with accounting principles generally accepted in the United States of
America. Under the supervision and with the participation of
management, the Company conducted an assessment of the effectiveness of internal
control over financial reporting as of December 31, 2007, utilizing the
framework established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on this assessment, management has determined
that the Company’s internal control over financial reporting as of
December 31, 2007 is effective.
Because of the 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.
This
annual report does not include an attestation report of the Company's
independent registered public accounting firm regarding internal control over
financial reporting. The Company's registered public accounting firm was not
required to issue an attestation on its internal controls over financial
reporting pursuant to temporary rules of the Securities and Exchange Commission
that permit the Company to provide only management’s report in this annual
report.
|
ITEM
9B.
|
OTHER
INFORMATION
|
None.
PART
III
|
ITEM
10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE
REGISTRANT
|
The Company has a separately designated
standing Audit Committee as defined in Section 3(a)(58)(A) of the Securities
Exchange Act of 1934. The Audit Committee is composed of
directors who are independent from management and free from any relationship
that, in the opinion of the directors, would interfere with their independent
exercise of judgment. The Audit Committee is primarily concerned with
the effectiveness of audits of the Company by its internal auditor and the
independent auditors on accounting matters and internal controls; advising the
Board on the scope of audits; reviewing the Company’s annual financial
statements and the accounting
standards
and principles followed; and appointment of independent auditors. The
members of the Audit Committee are Richard L. Yecny (Chair), Patricia Benetti,
Doug Feldkamp, Robert R. King, and Marteen L. Wick.
The Company’s Board of Directors has
determined that Richard L. Yecny, a member of the Company’s Audit Committee, is
an audit committee financial expert as defined by Item 401(h) of Regulation S-K
of the Exchange Act and is independent within the meaning of Item 7(d)(3)(iv) of
Schedule 14A of the Securities Exchange Act of 1934.
The Company has adopted a written code
of ethics within the meaning of Item 406 of Regulation S-K that applies to its
executive officers, including its Chief Executive Officer, Chief Operating
Officer, and Chief Financial Officer. A copy of the code of ethics is
available on the Company’s website, www.opbc.com.
Any additional information called for
by this item is contained in the Company’s definitive proxy statement for the
annual meeting of shareholders to be held on June 17, 2008, and is incorporated
herein by reference.
|
DIRECTOR'S
COMPENSATION TABLE
|
||||||||||||||||
|
Name
|
Year
|
Fees
earned ($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Total
($)
|
||||||||||||
|
All
non-employee directors
|
||||||||||||||||
|
Patricia
Benetti
|
2006, 2007 | 10,800 | 0 | (1) | 10,800 | |||||||||||
|
Lydia
G. Brackney
|
2006, 2007 | 10,800 | 0 | (1) | 10,800 | |||||||||||
|
A.J.
Brauer
|
2006, 2007 | 10,800 | 0 | (1) | 10,800 | |||||||||||
|
Doug
Feldkamp
|
2006, 2007 | 10,800 | 0 | (1) | 10,800 | |||||||||||
|
Thomas
K. Grove
|
2006, 2007 | 10,800 | 0 | (1) | 10,800 | |||||||||||
|
Robert
R. King
|
2006, 2007 | 10,800 | 0 | (1) | 10,800 | |||||||||||
|
Jon
Thompson
|
2006, 2007 | 10,800 | 0 | (1) | 10,800 | |||||||||||
|
Marteen
L. Wick
|
2006, 2007 | 10,800 | 0 | (1) | 10,800 | |||||||||||
|
Richard
L. Yecny
|
2006, 2007 | 10,800 | 0 | (1) | 10,800 | |||||||||||
|
(1) The
minimum performance threshold was not met that would have paid under the
incentive plan.
|
||||||||||||||||
During 2006 and 2007, directors
received $900 per month each as compensation for serving as a
director. Directors are also eligible for a discretionary annual
performance bonus. On January 16, 2007, the Company adopted the 2006
Non-Employee Director Deferred Compensation Plan. The plan is
designed to provide directors with the elective opportunity to defer up to 100%
of their director fees. Under the plan $18,600 was deferred in
2007.
|
ITEM
11.
|
EXECUTIVE COMPENSATION
|
The following Summary Compensation
Table for 2007 sets forth certain information regarding the compensation paid in
2007 and 2006 to the Bank’s President and Chief Officer, James P. Clark; the
Executive Vice president and Chief Financial Officer, Joanne Forsberg; the
Executive Vice President and Chief Credit Officer, Ronald S. Green; and the
Executive Vice President and Chief Operating Officer Don Mabry.
|
SUMMARY
COMPENSATION TABLE
|
||||||||||||||||||||||||||||||
|
Name
and Principal Position
|
Year
|
Salary
($)
(1)
|
Bonus
($)
(2)
|
Option
Awards
($)
(3)
|
Non-Equity
Incentive
Plan
Compensation
($)
(4)
|
Change
in Pension
Value
and Nonqualified
Deferred
Compensation
Earnings
($)
(5)
|
All
Other
Compensation
($)
(6)
|
Total ($)
|
||||||||||||||||||||||
|
James
Clark, President & CEO
|
2007
|
130,000 | (7) | 16,020 | - | 64,108 | 1,182 | 13,942 | 225,252 | |||||||||||||||||||||
|
2006
|
110,000 | - | 8,060 | 11,496 | 141 | 20,166 | 149,863 | |||||||||||||||||||||||
|
Joanne
Forsberg, EVP & Chief Financial Officer
|
2007
|
92,906 | - | 0 | 10,346 | 15,663 | - | 118,915 | ||||||||||||||||||||||
|
2006
|
90,200 | - | 3,224 | 11,496 | 12,737 | - | 117,657 | |||||||||||||||||||||||
|
Ronald
S. Green, EVP & Chief Credit Officer
|
2007
|
46,694 | (8) | 5,000 | - | - | - | - | 51,694 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||
|
Don
Mabry, EVP & Chief Operating Officer
|
2007
|
95,584 | - | 0 | 10,346 | 15,022 | - | 120,952 | ||||||||||||||||||||||
|
2006
|
92,800 | - | 3,224 | 11,496 | 12,218 | - | 119,738 | |||||||||||||||||||||||
|
(1)
|
Salary
amounts are presented in the year earned and may include amounts deferred
under the nonqualified deferred compensation plan and the deferred Simple
IRA plan.
|
|
(2)
|
Mr.
Green’s amount represents a signing
bonus.
|
|
(3)
|
The
amounts in this column reflect the aggregate grant date fair value under
FAS 123(R) of awards made during 2006. The assumptions used in
calculating the amounts are discussed in Note 14 to our financial
statements for the year ended December 31,
2007.
|
|
(4)
|
Amount
earned under the non-equity incentive bonus on achievement of first target
bonus level.
|
|
(5)
|
Represents
the change in value of our deferred compensation plan other than amounts
deferred by participant.
|
|
(6)
|
Amounts
listed in this column are those that individually exceed
$10,000. For 2007 amounts for Mr. Clark represent a Simple Plan
match, club dues, usage of a company car, and life insurance premiums
exceeding $50,000.
|
|
(7)
|
Effective
January 1, 2007, Mr. Clark was promoted to President and Chief Executive
Officer of Oregon Pacific Bank and Oregon Pacific Bancorp. In
2006 Mr. Clark served as Executive Vice President and Chief Credit Officer
of the Bank.
|
|
(8)
|
Mr.
Green was hired on July 17, 2007 as Executive Vice President and Chief
Credit Officer.
|
Incentive stock options to the named executive
officers were awarded under our 2003 Stock Incentive Plan which authorizes both
stock options and other forms of stock-based compensation. No
options were granted in 2007. Options granted in January 2006 vest
50% annually over two years. Options granted in March vest in five
equal annual installments on the anniversary of the grant beginning March 17,
2008. Vesting is immediate if there is a change of control, at
retirement at age 60 or later, or upon death if 50 percent had been
exercisable. The 2003 Plan provides for an aggregate of 214,035
shares of the Company’s common stock to be granted to key employees or board
members, of which 179,062 shares are available for
awards. The Company has not granted any stock awards other
than options.
The following table sets forth
certain information regarding options outstanding to named executive officers at
year-end:
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
||||||||||||||||||||
|
Option
Awards
|
||||||||||||||||||||
|
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of Securities
Underlying
Unexercised
Unearned
Options (#)
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
|||||||||||||||
|
James
Clark
|
- | 4,220 | - | 11.85 | (1 | ) | ||||||||||||||
|
Joanne
Forsberg
|
1,557 | (2) | - | - | 4.61 |
1/1/2011
|
||||||||||||||
| 690 | - | - | 7.25 |
2/14/2009
|
||||||||||||||||
| - | 422 | - | 11.85 |
1/17/2010
|
||||||||||||||||
| - | 1,266 | - | 11.85 | (1 | ) | |||||||||||||||
|
Ronald
Green
|
- | - | - | - | ||||||||||||||||
|
Don
Mabry
|
1,351 | - | - | 7.40 |
3/17/2008
|
|||||||||||||||
| 1,379 | - | - | 7.25 |
2/14/2009
|
||||||||||||||||
| - | 844 | - | 11.85 |
1/17/2010
|
||||||||||||||||
| - | 844 | - | 11.85 | (1 | ) | |||||||||||||||
(1) Options
vest in five equal annual installments on each anniversary of the date of grant
beginning 3/17/08 and each group has a two-year exercise period with the last
installment expiring on 3/17/14.
(2) These
stock options were previously awarded under the Bank’s 1994 Incentive Stock
Option Plan with a five-year vesting period and an additional five-year exercise
period.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The following table sets forth certain
information as of February 29, 2008 with respect to the beneficial ownership of
the outstanding common stock by: (i) each of the directors and our executive
officers; and (ii) our directors as a group.
|
Beneficially
|
Percent
|
||||||||
|
Beneficial Owner
|
Owned
|
of Class
|
|||||||
|
Patricia
Benetti
|
(1)
|
4,041 | 0.2 | % | |||||
|
Lydia
G. Brackney
|
(2)
|
4,375 | 0.2 | % | |||||
|
A.J.
Brauer
|
(3)
|
133,996 | 6.0 | % | |||||
|
James
P. Clark, CEO & Pres.
|
(4)
|
507 | ** | ||||||
|
Doug
Feldkamp
|
(5)
|
9,553 | 0.4 | % | |||||
|
Thomas
K. Grove
|
(6)
|
112,653 | 5.1 | % | |||||
|
Robert
R. King
|
(7)
|
138,914 | 6.3 | % | |||||
|
Jon
Thompson
|
(8)
|
5,906 | 0.3 | % | |||||
|
Marteen
L. Wick
|
(9)
|
4,888 | 0.2 | % | |||||
|
Richard
L. Yecny
|
(10)
|
5,378 | 0.2 | % | |||||
|
Joanne
Forsberg, CFO
|
(11)
|
9,309 | 0.4 | % | |||||
|
Ronald
S. Green, CCO
|
(12)
|
1,000 | ** | ||||||
|
Don
Mabry, COO
|
(13)
|
5,098 | 0.2 | % | |||||
|
All
directors and executive officers as a group (13 persons)
|
435,618 | 19.6 | % | ||||||
|
**
Less than 0.1%
|
|||||||||
(1) All
shares are owned jointly with Ms. Benetti’s husband, Joe Benetti.
(2) All
shares are owned individually.
(3) All
shares are owned jointly with Dr. Brauer’s wife, Catherine Brauer.
(4) All
shares are owned jointly with Mr. Clark’s spouse, Paige Clark.
(5) Includes 4,337 shares owned by Umpqua
Dairy Products Company which Mr. Feldkamp has voting power.
(6) Includes
66,947 shares jointly owned with Mr. Grove’s spouse, Sharon Grove, 20,311 shares
held solely by Mr. Grove’s Individual Retirement Account, and 13,793 stock
options which are exercisable. It also includes 11,602 shares
beneficially owned solely by Mr. Grove’s spouse, of which Mr. Grove disclaims
beneficial ownership.
(7) Includes
96,029 shares held jointly with Mr. King’s wife, Kay King. Also
includes 41,746 shares, 13,915 of those shares each owned by sisters Bonnie
Dodson, Joanne Daily, and Marilyn Davis to which Mr. King has voting
power. Also includes 784 shares of the R. Justin King Trust, 144
shares held by Kay King as custodian for Will Ryan Pennington, and 211 shares
held by Kay King as custodian for Dana Pennington all of which Mr. King
disclaims beneficial ownership.
(8) All
shares are owned jointly with Mr. Thompson’s wife, Pamela Thompson.
(9) All shares are owned jointly with Ms.
Wick’s husband, John Wick.
(10) All
shares are held in an Individual Retirement Account.
(11) Includes
4,230 shares jointly owned with Ms. Forsberg’s spouse, David Forsberg, 2,410
shares held solely by Ms. Forsberg’s Individual Retirement Account, and 2,669
stock options which are exercisable within 60 days.
(12) Includes
1,000 shares held solely by Mr. Green’s Individual Retirement
Account.
(13) Includes
37 shares owned individually, 2,331 shares held solely by Mr. Mabry’s Individual
Retirement Account, and 2,730 stock options which are exercisable within 60
days.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
|
During the 2007 fiscal year, the Bank
entered into banking-related transactions in the ordinary course of business
with certain executive officers, directors and principal shareholders of the
Company (including certain executive officers of the Bank), members of their
immediate families and corporations or organizations with which they are
affiliated. It is expected that similar transactions will be entered
into in the future. Loans to such persons have been made on
substantially the same terms, including the interest rate charged and collateral
required, as those prevailing at the time for comparable transactions with
persons not affiliated with the Company or the Bank. These loans have
been, and are presently, subject to no more than the normal risk of
collectibility and present no other unfavorable features. The amount
of loans to directors, executive officers and principal shareholders of the
Company (including certain executive officers of the Bank) and their associates
as a group at December 31, 2007, was $3,442,302. As of the date of
this filing, all of these loans were performing loans.
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES
|
Audit Fees
The Company paid Moss Adams LLP
$97,048 in 2007 for professional services rendered in connection with
the audit of the Company’s financial statements and for the review of the
Company's annual report to the SEC on Form 10-K and the Company’s quarterly
financial statements for the first three quarters of 2007 and other
fees. Set forth below is certain information concerning aggregate
fees billed for professional services rendered during fiscal year 2007 and 2006
by the Company's auditors for those respective years. The aggregate fees
included in the Audit category were fees billed for the fiscal years for the
audit of the Company's annual financial statements and the review of the
Company's quarterly financial statements. The aggregate fees included in each of
the other categories were fees billed in the fiscal
years.
|
2007
|
2006
|
|||||||
|
Audit
fees
|
$ | 78,261 | $ | 73,015 | ||||
|
Tax-Related
Fees
|
- | - | ||||||
|
All
Other Fees
|
$ | 18,264 | $ | 20,097 | ||||
All
Other Fees
The
Company paid Moss Adams LLP $18,264 for all other services rendered to the
Company and its subsidiaries during 2007. The Audit Committee considered whether
the provision of these services by Moss Adams LLP is compatible with maintaining
Moss Adams LLP's independence. (Moss Adams LLP performed no information systems
design or implementation services for the Bank in 2007.)
The firm of Davis, McCulloch &
Holloway PC was paid $11,821 and $12,102 for tax work in 2007 and 2006,
respectively. Other fees paid to them for services rendered were
$11,652 in 2007 and $10,189 for 2006 which includes verification that loan
underwriting meets guidelines for mortgages sold to a third party.
|
|
PART
IV
|
|
ITEM
15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
|
(a)
Exhibits.
The following documents are filed as
part of this Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 2007.
Report of Independent Registered Public
Accounting Firm
Consolidated Balance Sheets for the
Years Ended December 31, 2007 and 2006
Consolidated Statements of Income and
Comprehensive Income for the Years Ended December 31, 2007, 2006, and
2005
Consolidated Statements of Changes in
Shareholders' Equity for the Years Ended December 31, 2007, 2006, and
2005
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2007, 2006, and 2005
Notes to Consolidated Financial
Statements
(Note: The per share earnings
computation statement required by Item 601(b)(11) of Regulation S-K is contained
in Note 15 of the consolidated financial statements contained in Part II, Item 8
of this Form 10-K, and is hereby incorporated herein by this
reference.)
The
following documents are either being filed with, or incorporated by reference
into, this Form 10-K for the year ended December 31, 2007 filed with the
Securities and Exchange Commission.
3.1 Articles
of Incorporation of Oregon Pacific Bancorp (incorporated herein by reference to
Exhibit 3(i) to Oregon Pacific Bancorp’s Form 10-K for the year ended December
31, 2002 filed with the Securities and Exchange Commission on March 31,
2003.)
3.2 Bylaws
of Oregon Pacific Bancorp (incorporated herein by reference to Exhibit 3(ii) to
Oregon Pacific Bancorp’s Form 10-K for the year ended December 31, 2002 filed
with the Securities and Exchange Commission on March 31, 2003.)
10.1 2003
Stock Incentive Plan (incorporated herein by reference to Exhibit 1 to Oregon
Pacific Bancorp’s Form DEF14A filed with the Securities and Exchange Commission
on March 23, 2003.)
10.2 Oregon
Pacific Bank Deferred Compensation and Incentive Plan (incorporated herein by
reference to Exhibit 10(ii) to Oregon Pacific Bancorp’s Form 10-K for the year
ended December 31, 2003 filed with the Securities and Exchange Commission on
March 30, 2004.
14. Code
of Ethics (incorporated herein by reference to Exhibit 14 to Oregon Pacific
Bancorp’s Form 10-K for the year ended December 31, 2003 filed with the
Securities and Exchange Commission on March 30, 2004.)
21. List
of Subsidiaries.
31.1 Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) and
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification
of Chief Financial Officer pursuant to Rule 13a-14(d) or Rule 15d-14(d) and
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Chief
Executive Officer certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Chief
Financial Officer certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports
Filed on Form 8-K
Current Report on 8-K filed on February
9, 2007 containing Regulation F-D disclosure relating to the Company’s fourth
quarter and fiscal year earnings release.
(c) Exhibits.
The exhibits to be filed with this Form
10-K are set forth under Item (a) above.
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
DATED: March
28, 2008
|
OREGON
PACIFIC BANCORP
|
|||
|
By:
|
/s/ James P.
Clark
|
|||
|
James
P. Clark
|
||||
|
President, Chief Executive
Officer and Director
|
||||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
|
DATED: March
28, 2008
|
Principal Executive Officer and Director: | ||
|
By:
|
/s/ James P.
Clark
|
||
|
James
P. Clark
|
|||
|
President,
Chief Executive Officer and Director
|
|||
| Principal Financial and Accounting Officer: | |||
|
By:
|
/s/ Joanne A. Forsberg
|
||
|
Joanne
Forsberg
|
|||
|
Secretary
and Chief Financial Officer
|
|||
| Directors: | |||
| /s/ Robert R. King | |||
| Robert R. King, Chairman of the Board | |||
| /s/ Marteen L. Wick | |||
| Marteen L. Wick, Vice Chairman of the Board | |||
|
/s/ Patricia Benetti
|
||
|
Patricia
Benetti, Director
|
||
|
/s/ Lydia G. Brackney
|
||
|
Lydia
G. Brackney, Director
|
||
|
/s/ A. J. Brauer
|
||
|
A.
J. Brauer, Director
|
||
|
/s/ Douglas B. Feldkamp
|
||
|
Douglas
B. Feldkamp, Director
|
||
|
/s/ Thomas K.
Grove
|
||
|
Thomas
K. Grove, Director
|
||
|
/s/ Jon Thompson
|
||
|
Jon
Thompson, Director
|
||
|
/s/ Richard L. Yecny
|
||
|
Richard
L. Yecny, Director
|
EXHIBIT
INDEX
|
1.
|
Exhibits
Attached.
|
||
|
The
following exhibits are attached to this Form 10-K.
|
|||
|
EXHIBITS
|
PAGE
|
||
|
21.
|
List
of Subsidiaries
|
73
|
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
74
|
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
75
|
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
76
|
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
77
|
72