<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
(MARK ONE)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
--------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number: 0-23322
-----------
CASCADE BANCORP
(Exact name of Registrant as specified in its charter)
Oregon 93-1034484
(State of Incorporation) (I.R.S. Employer Identification No.)
1100 NW Wall Street
Bend, Oregon 97701
(Address of principal executive offices)
(Zip Code)
(541) 385-6205
(Registrant's telephone number, including area code)
----------------------
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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 6,230,362 shares of no par
value Common Stock on July 31, 1998. --------------------------
- ------------------------------------
<PAGE>
CASCADE BANCORP AND SUBSIDIARIES
FORM 10-Q
QUARTERLY REPORT
JUNE 30, 1998
INDEX
PART I: FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Condensed Consolidated Balance Sheets
as of June 30, 1998 and December 31, 1997. . . . . .. . . . . . . . . . .3
Condensed Consolidated Statements of Income
for the six months and three months ended June 30, 1998 and 1997. . . . .4
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the six months ended June 30, 1998 and 1997.5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1998 and 1997. . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . .11
PART II: OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 14
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(Unaudited)
1998 1997
------------ ------------
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 22,723,891 $ 21,053,706
Federal funds sold 9,300,000 8,500,000
------------ ------------
Total cash and cash equivalents 32,023,891 29,553,706
Investment securities available-for-sale 33,889,925 41,953,637
Investment securities held-to-maturity 2,321,122 2,445,957
Loans, net 176,234,203 153,024,926
Mortgage loans held for sale 2,348,547 1,876,186
Premises and equipment, net 5,392,203 5,057,388
Accrued interest and other assets 10,462,985 8,699,681
------------ ------------
Total assets $262,672,876 $242,611,481
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 79,580,504 $ 65,199,160
Interest bearing demand 116,550,922 111,481,437
Savings 13,630,556 13,070,325
Time deposits 25,213,131 21,593,851
------------ ------------
Total deposits 234,975,113 211,344,773
Other borrowings - 5,000,000
Accrued interest and other liabilities 2,527,597 2,030,284
------------ ------------
Total liabilities 237,502,710 218,375,057
Stockholders'equity:
Common stock, no par value;
10,000,000 shares authorized;
6,229,362 issued and outstanding
(6,258,357-1997) 9,638,237 10,365,015
Retained earnings 15,291,962 13,568,644
Accumulated other comprehensive income 239,967 302,765
------------ ------------
Total stockholders' equity 25,170,166 24,236,424
------------ ------------
Total liabilities and stockholders'
equity $262,672,876 $242,611,481
============ ============
See accompanying notes.
3
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $8,884,618 $7,383,223 $4,660,307 $3,884,444
Taxable interest on investments 1,312,036 1,125,559 619,876 657,920
Nontaxable interest on investments 20,521 41,613 8,804 20,495
Interest on federal funds sold 125,441 141,325 64,530 41,100
---------- ---------- ---------- ----------
Total interest income 10,342,616 8,691,720 5,353,517 4,603,959
Interest expense:
Deposits:
Interest bearing demand 1,661,867 1,384,780 839,430 723,035
Savings 145,596 136,273 73,848 69,790
Time 593,971 479,193 313,011 247,914
Other borrowings 52,708 245,722 12,280 159,752
--------- ---------- --------- ----------
Total interest expense 2,454,142 2,245,968 1,238,569 1,200,491
--------- ---------- --------- ----------
Net interest income 7,888,474 6,445,752 4,114,948 3,403,468
Loan loss provision 368,319 375,861 284,458 279,783
--------- ---------- --------- ----------
Net interest income after loan loss provision 7,520,155 6,069,891 3,830,490 3,123,685
Noninterest income:
Service charges on deposit accounts 961,871 870,418 493,010 446,707
Mortgage loan origination and processing fees 942,740 488,250 517,418 261,186
Gains (losses) on sales of mortgage loans 72,600 140,381 90,687 77,151
Other income 731,267 512,754 390,613 267,466
---------- ---------- ---------- ----------
Total noninterest income 2,708,478 2,011,803 1,491,728 1,052,510
Noninterest expense:
Salaries and employee benefits 3,297,957 2,301,785 1,700,027 1,125,836
Net occupancy & equipment 840,915 735,234 451,177 386,250
Other expenses 1,730,875 1,326,702 895,230 678,450
---------- ---------- ---------- ----------
Total noninterest expense 5,869,747 4,363,721 3,046,434 2,190,536
---------- ---------- ---------- ----------
Income before income taxes 4,358,886 3,717,973 2,275,784 1,985,659
Provision for income taxes 1,640,541 1,444,719 836,660 783,727
---------- ---------- ---------- ----------
Net income $2,718,345 $2,273,254 $1,439,124 $1,201,932
========== ========== ========== ==========
Basic net income per common share $ 0.44 $ 0.36 $ 0.23 $ 0.19
========== ========== ========== ==========
Diluted net income per common share $ 0.42 $ 0.34 $ 0.22 $ 0.18
========== ========== ========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE RETAINED COMPREHENSIVE COMMON STOCKHOLDERS'
INCOME EARNINGS INCOME STOCK EQUITY
------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ - $ 10,442,535 $ 71,097 $ 13,058,417 $ 23,572,049
Comprehensive Income:
Net Income 2,273,254 2,273,254 - - 2,273,254
Other comprehensive income, net of tax
Unrealized gains on securities
available-for-sale 10,175 - 10,175 - 10,175
-------------
Comprehensive income $ 2,283,429
=============
Cash dividend declared in January 1997 (1,066,485) - - (1,066,484)
($0.17 per common share)
------------ ------------ ----------- -------------
Balance at June 30, 1997 $ 11,649,304 $ 81,272 $ 13,058,417 $ 24,788,993
============ ============ =========== =============
Balance at December 31, 1997 $ - $ 13,568,644 $ 302,765 $ 10,365,015 $ 24,236,424
Comprehensive Income:
Net Income 2,718,345 2,718,345 - - 2,718,345
Other comprehensive income, net of tax
Unrealized gains (losses)on securities
available-for-sale (62,798) - (62,798) - (62,798)
-------------
Comprehensive income $ 2,655,547
=============
Cash dividend declared in January 1998
($0.08 per common share) (496,966) - - (496,966)
Cash dividend declared in May 1998
($0.08 per common share) (498,061) - - (498,061)
Repurchase of common stock - - (759,879) (759,879)
(41,064 shares)
Stock options exercised (12,069) - - 33,101 33,101
------------ ------------ ---------- ------------
Balance at June 30, 1998 $ 15,291,962 $ 239,967 $9,638,237 $ 25,170,166
============ ============ ========== ============
</TABLE>
See accompanying notes.
5
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 1,450,153 $ 572,344
Investing activities:
Purchases of investment securities
available-for-sale - (22,495,000)
Proceeds from maturities and calls of
investment securities available-for-sale 7,985,000 13,010,469
Purchases of investment securities
held-to-maturity (56,100) (55,400)
Proceeds from maturities and calls of
investment securities held-to-maturity 174,873 269,797
Net increase in loans (23,504,996) (16,577,727)
Purchases of premises and equipments, net (487,280) (655,944)
------------- ------------
Net cash used in investing activities (15,888,503) (26,503,805)
Financing activities:
Net increase in deposits 23,630,340 21,479,107
Cash dividends paid (995,027) (1,066,484)
Repurchases of stock (759,879) -
Proceeds from issuance of stock 33,101 -
Net increase (decrease) in other borrowings (5,000,000) 1,000,000
------------- ------------
Net cash provided by financing activities 16,908,535 21,412,622
------------- ------------
Net increase (decrease) in cash and cash equivalents 2,470,185 (4,518,839)
Cash and cash equivalents at beginning of period 29,553,706 28,892,608
------------- ------------
Cash and cash equivalents at end of period $ 32,023,891 $ 24,373,769
============ =============
</TABLE>
See accompanying notes.
6
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements include the
accounts of Cascade Bancorp (Bancorp), a bank holding company, and its
wholly-owned subsidiaries, Bank of the Cascades (the Bank) and Cascade
Finance, (collectively, "the Company"). The Bank is an Oregon state-chartered,
federally insured commercial bank and Cascade Finance is a consumer finance
company. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The interim condensed consolidated financial statements are unaudited,
but include all adjustments, consisting of only normal accruals, which the
Company considers necessary for a fair presentation of the results of
operations for such interim periods. In preparing the condensed 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 balance sheets and income and expenses for the periods. Actual results
could differ from those estimates.
The balance sheet data as of December 31, 1997 was derived from audited
financial statements, but does not include all disclosures contained in the
Company's 1997 Annual Report to Shareholders.
The interim condensed consolidated financial statements should be read in
conjunction with the December 31, 1997 consolidated financial statements,
including the notes thereto, included in the Company's 1997 Annual Report to
Shareholders.
Certain amounts for 1997 have been reclassified to conform with the 1998
presentation.
2. INVESTMENT SECURITIES
Investment securities at June 30, 1998 and December 31, 1997 consisted
of the following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
JUNE 30, 1998 COST GAINS LOSSES FAIR VALUE
- ------------------------------ ------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Available-for-Sale
- ------------------
U.S. Government agencies...... $ 29,979,393 $ 267,632 $ - $ 30,247,025
U.S. Treasury securities...... 2,991,601 80,299 - 3,071,900
Equity securities............. 531,887 39,113 - 571,000
------------ --------- --------- ------------
$ 33,502,881 387,044 $ - $ 33,889,925
Held-to-Maturity
- ----------------
Obligations of state and
Political subdivisions..... $ 848,859 $ 12,052 $ 898 $ 860,013
Other......................... 1,472,263 - - 1,472,263
------------ --------- --------- ------------
$ 2,321,122 $ 12,052 $ 898 $ 2,332,276
============ ========= ========= ============
7
<PAGE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1997 COST GAINS LOSSES FAIR VALUE
- ------------------------------ ------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Available-for-Sale
- ------------------
U.S. Government agencies...... $ 37,945,376 $ 393,249 $ - $ 38,338,625
U.S. Treasury securities...... 2,988,043 95,082 - 3,083,125
Equity securities............. 531,887 - - 531,887
------------ --------- --------- ------------
$ 41,465,306 488,331 $ - $ 41,953,637
Held-to-Maturity
- ----------------
Obligations of state and
Political subdivisions..... $ 1,029,793 $ 7,018 $ - $ 1,036,811
Other......................... 1,416,164 - - 1,416,164
------------ --------- --------- ------------
$ 2,445,957 $ 7,018 $ - $ 2,452,975
============ ========= ========= ============
</TABLE>
3. LOANS AND RESERVE FOR LOAN LOSSES
The composition of the loan portfolio at June 30, 1998 and December 31,
1997 was as follows:
1998 1997
----------- ------------
Commercial.................... $ 32,333,368 $ 30,058,992
Real Estate:
Construction............... 40,713,616 30,862,916
Mortgage................... 24,619,861 23,395,618
Commercial................. 55,624,418 52,356,507
Installment................... 25,999,624 18,901,259
------------ ------------
179,290,887 155,575,292
Less:
Reserve for loan losses.... 2,333,191 2,048,561
Deferred loan fees......... 723,493 501,805
------------ ------------
3,056,684 2,550,366
------------ ------------
Loans, net ................... $176,234,203 $153,024,926
============ ============
Mortgage loans held for sale of $2,348,547 and $1,876,186 at June 30,
1998 and December 31, 1997, respectively, represent real estate mortgage
loans. These loans are recorded at cost which approximates market.
Transactions in the reserve for loan losses for the six months ended
June 30, 1998 and 1997 were as follows:
1998 1997
----------- ------------
Balance at beginning of period... $ 2,048,561 $ 1,691,260
Provisions charged to operations. 368,319 375,861
Loans charged off................ (139,725) (187,274)
Recoveries of loans previously
charged off.................... 56,036 37,553
------------ ------------
Balance at end of period......... $ 2,333,191 $ 1,917,400
============ ============
The reserve for loan losses represents management's recognition of the
assumed risks of extending credit and the quality of the existing loan
portfolio. The reserve is maintained at a level considered adequate to
provide for potential loan losses based on management's assessment of various
factors affecting the portfolio. Such factors include loss experience, review
of problem loans, current economic conditions, and an overall evaluation of
the quality, risk characteristics and concentration of loans in the portfolio.
The reserve is increased by provisions charged to operations and reduced by
loans charged-off, net of recoveries.
8
<PAGE>
The Bank manages the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in
prudent lending activities.
Although a risk of nonpayment exists with respect to all loans, certain
specific types of risks are associated with different types of loans. Due to
the nature of the Bank's customer base and the growth experienced in the
Bank's market area, real estate is frequently a material component of
collateral for the Bank's loans. The expected source of repayment of these
loans is generally the operations of the borrower's business or personal
income; however, real estate provides an additional measure of security.
Risks associated with real estate loans include fluctuating land values, local
economic conditions, changes in tax policies, and a concentration of loans
within the Bank's market area.
The Bank mitigates risks on construction loans by generally lending funds
to customers that have been prequalified for long term financing and who are
using experienced contractors approved by the Bank. The commercial real
estate risk is further mitigated by making the majority of commercial real
estate loans to owner-occupied users of the property.
The following table presents information with respect to non-performing
assets at June 30, 1998 and December 31, 1997 (dollars in thousands):
1998 1997
------ ------
Loans on non-accrual status........... $ 827 $ 43
Loans past due 90 days or more
but non on non-accrual status...... - 45
Other real estate owned............... 9 9
------ ------
Total non-performing assets........... $ 836 $ 97
====== ======
Percentage of non-performing assets
to total assets.................... .32% .04%
The accrual of interest on a loan is discontinued when, in management's
judgment, the future collectibility of principal or interest is in doubt.
Loans placed on nonaccrual status may or may not be contractually past due at
the time of such determination, and may or may not be secured. When a loan is
placed on nonaccrual status, it is the Bank's policy to reverse, and charge
against current income, interest previously accrued but uncollected. Interest
subsequently collected on such loans is credited to loan principal if, in the
opinion of management, full collectibility of principal is doubtful. If
interest on nonaccrual loans had been accrued, such income would have been
insignificant for the six months ended June 30, 1998 and 1997.
At June 30, 1998, except as discussed above, there were no potential
problem loans, except as discussed above, where known information about
possible credit problems of the borrower caused management to have serious
doubts as to the ability of such borrower to comply with the present loan
repayment terms and which may result in such loans being placed on a
non-accrual basis.
4. MORTGAGE SERVICING RIGHTS
At June 30, 1998 and December 31, 1997, the Bank held servicing rights
to approximately $205,368,000 and $174,294,000, respectively, in mortgage
loans which have been sold to the Federal National Mortgage Association.
Effective March, 1998 these mortgage loans are being serviced by the Bank.
The sale of these mortgage loans are subject to technical underwriting
exceptions and related repurchase risks. Such risks are considered in the
determination of the reserve for loan losses. Beginning effective January 1,
1996 the Bank began prospectively recognizing as separate assets the rights to
service mortgage loans which are acquired through loan origination activities.
Other assets in the accompanying condensed consolidated balance sheets as of
June 30, 1998 and December 31, 1997 include approximately $1,778,000 and
approximately $1,270,000, respectively, for the capitalized mortgage servicing
rights.
9
<PAGE>
The fair value of the capitalized mortgage servicing rights was
determined based on estimates of the present value of expected future cash
flows and comparisons to current market transactions involving mortgage
servicing rights with similar portfolio characteristics. The predominant risk
characteristics of the underlying loans used to stratify the capitalized
mortgage servicing rights for purposes of measuring impairment are note rates,
terms and interest methods (i.e., fixed and variable).
5. OTHER BORROWINGS
At December 31, 1997 the Bank had $5 million in borrowings from the
Federal Home Loan Bank of Seattle (FHLB). In January 1998, the Bank paid-off
its borrowings with the FHLB.
6. NET INCOME PER COMMON SHARE
The Company's basic net income per common share is computed by dividing
net income by the weighted-average number of common shares outstanding during
the period. The Company's diluted net income per common share is calculated
by dividing net income by the weighted-average number of common shares
outstanding plus dilative common shares related to stock options. The
weighted average number of common shares outstanding used to compute basic net
income per common share, was approximately 6,226,000 for the six-months and
6,223,000 for the three-months ended June 30, 1998. The weighted average
number of common shares outstanding used to compute diluted net income per
common share, was approximately 6,436,000 for the six-months and 6,431,000 for
the three-months ended June 30, 1998. All share and per share amounts in the
accompanying financial statements have been adjusted to retroactively reflect
a three-for-two stock split declared in June 1998 and a two-for-one stock
split declared in June 1997.
7. ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income" was issued. This statement established
requirements for disclosure of comprehensive income and its components
(revenues, expenses, gains, and losses) and became effective for financial
statements beginning in 1998. Accordingly, unrealized gains and losses on
investment securities available-for-sale are included in other comprehensive
income as disclosed in the accompanying statements of changes in stockholder's
equity.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" was issued. SFAS No. 131 requires publicly-held
companies to report financial and other information about key revenue-
producing segments of the entity for which such information is available and
is utilized by the chief operating decision maker. Specific information to be
reported for individual segments includes profit or loss, certain revenue and
expense items and total assets. A reconciliation of segment financial
information to amounts reported in the financial statements will be required.
SFAS No. 131 becomes retroactively effective for financial statements for
annual periods ending after December 15, 1997 and it has not yet been
determined whether the Company will be required to make any additional
disclosure.
In June 1998, SFAS No. 132, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No.132 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. As of
June 30, 1998 the Company has no significant derivative instruments or
hedging activities.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's unaudited condensed consolidated financial statements and the notes
thereto for the six-month and three-month periods ended June 30, 1998 and 1997
included in this report.
The following discussion includes certain forward-looking statements.
Those statements may involve a number of risks and uncertainties, which could
cause actual results to differ materially from the expectation stated,
including the following: slower than expected growth in the Company's
business, deterioration of business conditions generally or specifically in
the banking industry, regulatory changes involving banking, competitive
factors, and general market conditions.
RESULTS OF OPERATIONS - Six months and three months ended June 30, 1998
OVERVIEW
The Company reported net income of $2,718,000, or $.44 basic net income
per common share, for the six months ended June 30, 1998, compared to net
income of approximately $2,273,000, or $.36 basic net income per common share,
for the same period in 1997. This represents an increase in net income of
19.6 percent. Net income for the quarter ended June 30, 1998 was
approximately $1,439,000, or $.23 basic net income per common share, compared
to net income of approximately $1,202,000, or $.19 basic net income per common
share, for the same period in 1997, up 19.7 percent. The increases in
earnings during the periods presented were primarily due to the expansion of
the Company's interest-earning assets and increased net interest income. At
June 30, 1998, interest earning assets increased 18.5 percent as compared to
June 30, 1997.
NET INTEREST INCOME
Net interest income increased 22.4 percent for the six months and 20.9
percent for the three months ended June 30, 1998 as compared to the same
periods in 1997. These net increases resulted from higher earning asset
volumes generating increased interest income which exceeded the increase in
interest expense.
Total interest income increased approximately $1,650,900 (or 19.0%) for
the six months and $754,600 (or 16.4%) for the three months ended June 30,
1998 as compared to the same periods in 1997. The increase for the six months
ended June 30, 1998 was primarily the result of an increase in the volume of
loans and investment securities available-for-sale. The increase during the
second quarter ended June 30, 1998 was primarily due to an increased volume of
loans.
Total interest expense increased approximately $208,200 (or 9.3%) for
the six months and $43,100 (or 3.6%) for the three month ended June 30, 1998
as compared to the same periods in 1997. These increases for both the six-month
and three-month periods were primarily due to increased volume in interest
bearing demand deposits, savings and time deposits partially offset by a
decrease in other borrowings.
LOAN LOSS PROVISION
The loan loss provision decreased $7,542 for the six months and
increased $4,675 for the three months ended June 30, 1998 as compared to the
same periods in 1997. Management believes the current loan loss provision
maintains the reserve for loan losses at an appropriate level. The Bank's
ratio of reserve for loan losses to total loans was 1.30 percent at June 30,
1998 compared to 1.32 percent at December 31, 1997.
NONINTEREST INCOME
Total noninterest income increased 34.6 percent for the six months and
41.7 percent for the three months ended June 30, 1998 as compared to the same
periods in 1997. The increase for the six month period was primarily due to
an increase in service income, mortgage loan origination and processing fees
and other income, which were
11
<PAGE>
partially offset by a decrease in gains on sales of mortgage loans. The
increase for the quarter ended June 30, 1998 was a result of increases in all
categories with the primary increase in mortgage loan origination and
processing fees.
The increase in service charge income for both periods was primarily due
to an increase in the volume of deposit activity during the periods presented.
Increases in mortgage loan origination and processing fees for the six months
and three months ended June 30, 1998 were primarily due to increased mortgage
loan originations in conjunction with a favorable interest rate environment.
The slight decrease in net gains on sales of mortgage loans for the six months
ended June 30, 1998 was primarily attributable to an acceleration of mortgage
servicing rights amortization expense, related to recent higher refinance
activity within the Bank's portfolio of serviced mortgage loans.
NONINTEREST EXPENSE
Total noninterest expense increased 34.5 percent for the six months and
39.1 percent for the three months ended June 30, 1998 as compared to the same
periods in 1997. These increases were primarily the result of increased
personnel and operating expenses due to continued growth of the Company.
INCOME TAXES
Income tax expense increased between the periods presented primarily as
a result of higher pre-tax income.
FINANCIAL CONDITION
The Company's total assets increased 8.3 percent to $262.7 million at
June 30, 1998 compared to $242.6 million at December 31, 1997, primarily due
to increases in net loans, which were offset in part by a decrease in
investment securities available-for-sale. The higher total assets were funded
primarily by an increase in deposits, which also compensated for the payoff of
a $5 million FHLB term borrowing. Loan demand was strong with total loans
increasing 15.2 percent to $179.3 million at June 30, 1998 compared to $155.6
million at December 31, 1997. Deposits increased 11.2 percent to $235.0
million at June 30, 1998 compared to $211.3 million at December 31, 1997. All
categories of deposits increased in the period. One of the contributing
factors to the Company's increased deposits is that the Bank emphasizes the
development of core deposit relationships. Such deposits provide a stable
source of funds for operations at a relatively low cost. Also, core deposit
customers are more likely to purchase other banking services. Core deposits
include demand, interest bearing demand and savings deposits. The Bank's core
deposits aggregated approximately $209.8 million at June 30, 1998.
YEAR 2000 DISCLOSURE
The Company has completed an assessment of the Year 2000 issue,
considering the risk that date fields in existing computer applications might
fail to recognize the year 2000 and therefore create erroneous results. Based
upon the results of our assessment, management believes that the Company is
well prepared to respond to the issue and run successfully in the year 2000
and beyond.
The Company currently has formalized plans in place to address all
potential issues that may arise as a result of the date change. We are
currently testing and obtaining certifications on all hardware, software, and
environmental systems. We have also required certifications from all major
vendors to ensure that their systems are Year 2000 compliant. Prior to
January 1, 1999, all of the Company's systems will be formally tested for the
ability to process information with dates beyond December 31, 1999.
A Year 2000 Contingency Plan is in development which addresses critical
and non-critical applications. For each non-critical software package it
details how the job can be accomplished if the software is not operational.
Critical applications will rely on the above described testing program to
ensure they are Year 2000 compatible. The Contingency Plan will prescribe
alternate processes should critical applications fail; such processes will be
augmented by the Company's existing Recovery Plan which enables it to function
under unusual circumstances.
12
<PAGE>
The Company has established a plan to detect and modify effected system
applications and anticipates that the cost of addressing the issue will not be
material to its future operating results or financial condition. Expenditures
related to Year 2000 totals approximately $25,000 to date. Although management
believes that it has addressed the major areas with respect to Year 2000
compliance, there can be no assurances that the Company will not be impacted
by Year 2000 complications.
LIQUIDITY
The Company analyzes and manages its liquidity to ensure the
availability of sufficient funds to meet depositor withdrawals as well as to
fund borrowing needs of its loan customers. The Bank's stable deposit base is
the foundation of it's long-term liquidity since these funds are not subject
to significant volatility as a result of changing interest rates and other
economic factors. A further source of liquidity is the Bank's ability to
borrow funds from a variety of reliable counter parties. In addition, the Bank
has substantial available-for-sale investment securities which could be
liquidated to provide a tertiary source of liquidity. The Bank is also a
member of the Federal Home Loan Bank, Seattle, Washington, which provides
secured borrowings and other funding opportunities for liquidity purposes.
Management believes that the Bank's existing sources of liquidity will
enable the Bank to fund its requirements in the normal course of business.
CAPITAL RESOURCES
During the six months ended June 30, 1998, the Company's total capital
increased to $25.2 million, or 9.6 percent of total assets. The increase was
primarily due to the Company's net income of $2,718,345 for the six months
ended June 30, 1998. This increase to capital was partially offset by the
payment of cash dividends declared in 1998, totaling $995,027, the payment of
$759,879 for shares repurchased under the stock repurchase plan (41,064
shares), and the net change in unrealized gains on investment securities
available-for-sale of ($62,798).
In September 1997, the Company announced the establishment of a stock
repurchase plan. The plan authorized management to repurchase up to 2.5
percent of the Company's shares of common stock through the open market or in
privately negotiated transactions in accordance with all applicable State and
Federal laws and regulations. Repurchase was completed in November, 1997. In
December 1997, the Board of Directors approved a program to repurchase an
additional 2.5 percent of the Company's common stock outstanding during 1998.
As of June 30, 1998 41,064 of these shares had been repurchased.
At June 30, 1998, the Company's Tier 1 and total risked-based capital
ratios under the Federal Reserve Board's ("FRB") risk-based capital guidelines
were approximately 12.0% and 13.1%, respectively. The FRB's minimum risk-based
capital ratio guidelines for Tier 1 and total capital are 4% and 8%,
respectively.
13
<PAGE>
PART II - OTHER INFORMATION
----------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) April 27, 1998, Annual Meeting
(b) Need not be completed
(c) The following matters were voted on at the Annual Meeting of
Shareholders held on April 27, 1998:
1. The re-election of three directors:
Number Number Total
of Votes(1) of Votes(1) Number of
Director "FOR" WITHHELD" Votes (1)
---------------- ----------- ----------- ----------
Gary L. Hoffman 5,291,410 37,811 5,329,221
Patricia L. Moss 5,329,131 90 5,329,221
L.A. Swarens 5,329,131 90 5,329,221
(1) Retroactively restated for three-for-two stock split
declared in June 1998.
(d) None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits were required to be filed for the quarter ended
June 30, 1998.
(b) REPORTS ON FORM 8-K. The Company did not file any reports
on Form 8-K during the second quarter ended June 30, 1998.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASCADE BANCORP
-----------------------------------------
(Registrant)
Date 8/12/98 By /s/ Roger J. Shields
----------------- -----------------------------------------
Roger J. Shields, President
Date 8/12/98 By /s/ Patricia L. Moss
----------------- -----------------------------------------
Patricia L. Moss,Executive Vice President
Form 10-Q, June 30, 1998
15
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,723,891
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<LOANS> 179,290,887
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<DEPOSITS> 234,975,113
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0
0
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<LOAN-LOSSES> 368,319
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<EXPENSE-OTHER> 5,869,747
<INCOME-PRETAX> 4,358,886
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<NET-INCOME> 2,718,345
<EPS-PRIMARY> .44
<EPS-DILUTED> .42
<YIELD-ACTUAL> 0
<LOANS-NON> 827
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