<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: March 31, 1999
--------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number: 0-23322
-----------
CASCADE BANCORP
(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. 6,224,992 shares of no par
value Common Stock on April 30, 1999. --------------------------
- -------------------------------------
<PAGE>
CASCADE BANCORP AND SUBSIDIARIES
FORM 10-Q
QUARTERLY REPORT
MARCH 31, 1999
INDEX
PART I: FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Condensed Consolidated Balance Sheets
as of March 31, 1999 and December 31, 1998. . . . . . . . . . . . . . . .3
Condensed Consolidated Statements of Income
for the three months ended March 31, 1999 and 1998. . . . . . . . . . . .4
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 1999 and 1998. . . . . . . . . . . .5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 1998. . . . . . . . . . . .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 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 15
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(Unaudited)
1999 1998
------------ ------------
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 20,450,817 $ 18,388,900
Federal funds sold 3,050,000 8,450,000
------------ ------------
Total cash and cash equivalents 23,500,817 26,838,900
Investment securities available-for-sale 44,072,739 48,012,491
Investment securities held-to-maturity 2,966,760 2,938,489
Loans, net 224,691,814 202,543,262
Mortgage loans held for sale 1,586,410 2,119,642
Premises and equipment, net 7,069,470 5,984,501
Accrued interest and other assets 12,623,390 12,337,131
------------ ------------
Total assets $316,511,400 $300,774,416
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $109,245,872 $115,532,163
Interest bearing demand 118,295,243 109,580,561
Savings 16,007,497 14,940,897
Time deposits 32,046,538 30,809,110
------------ ------------
Total deposits 275,595,150 270,862,731
Borrowings from Federal Home Loan Bank 11,000,000 -
Accrued interest and other liabilities 3,377,742 2,990,003
------------ ------------
Total liabilities 289,972,892 273,852,734
Stockholders'equity:
Common stock, no par value;
10,000,000 shares authorized;
6,224,999 issued and outstanding
(6,226,082-1998) 8,963,019 9,545,545
Retained earnings 17,512,668 17,218,415
Accumulated other comprehensive income 62,821 157,722
------------ ------------
Total stockholders' equity 26,538,508 26,921,682
------------ ------------
Total liabilities and stockholders'
equity $316,511,400 $300,774,416
============ ============
See accompanying notes.
3
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
1999 1998
----------- -----------
Interest income:
Interest and fees on loans $ 5,525,432 $ 4,224,311
Taxable interest on investments 721,825 692,160
Nontaxable interest on investments 14,409 11,717
Interest on federal funds sold 18,768 60,911
---------- ----------
Total interest income 6,280,434 4,989,099
Interest expense:
Deposits:
Interest bearing demand 846,978 822,437
Savings 73,636 71,748
Time 387,262 280,960
Fed funds purchased 23,871 -
Other borrowings 103,080 40,428
---------- ----------
Total interest expense 1,434,827 1,215,573
---------- ----------
Net interest income 4,845,607 3,773,526
Loan loss provision 371,562 83,861
---------- ----------
Net interest income after loan loss provision 4,474,045 3,689,665
Noninterest income:
Service charges on deposit accounts 566,882 468,861
Mortgage loan origination and processing fees 364,784 425,322
Gains (losses) on sales of mortgage loans (52,874) (18,087)
Other income 500,216 340,654
---------- ----------
Total noninterest income 1,379,008 1,216,750
Noninterest expense:
Salaries and employee benefits 2,060,479 1,597,930
Net occupancy & equipment 545,195 389,738
Other expenses 988,023 835,645
---------- ----------
Total noninterest expense 3,593,697 2,823,313
---------- ----------
Income before income taxes 2,259,356 2,083,102
Provision for income taxes 843,015 803,881
---------- ----------
Net income $1,416,341 $1,279,221
========== ==========
Earnings per common share:
Basic $ 0.23 $ 0.21
Diluted $ 0.22 $ 0.20
See accompanying notes.
4
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(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, 1997 $ 13,568,644 $ 302,765 $10,365,015 $ 24,236,424
Comprehensive Income:
Net Income $ 1,279,221 1,279,221 - - 1,279,221
Other comprehensive income, net of tax
Unrealized gains on securities
available-for-sale 37,366 - 37,366 - 37,366
-----------
Comprehensive income $ 1,316,587
===========
Cash dividend declared in January 1998 (496,966) - - (496,966)
($0.08 per common share)
Repurchases of common stock - - (759,879) (759,879)
(41,064 shares)
------------ ------------ ----------- -------------
Balance at March 31, 1998 $ 14,350,899 $ 340,131 $9,605,136 $ 24,296,166
============ ============ =========== =============
Balance at December 31, 1998 $ 17,218,415 $ 157,722 $9,545,545 $ 26,921,682
Comprehensive Income:
Net Income $ 1,416,341 1,416,341 - - 1,416,341
Other comprehensive income, net of tax
Unrealized gains on securities
available-for-sale (94,901) - (94,901) - (94,901)
-----------
Comprehensive income $ 1,321,440
===========
Cash dividend declared in January 1999 (561,459) - - (561,459)
($0.09 per common share)
Cash dividend declared in March 1999 (560,629) - - (560,629)
($0.08 per common share)
Repurchases of common stock - - (809,552) (809,552)
(49,400 shares)
Stock options exercised (48,317) - - 227,026 227,026
------------ ------------ ------------ ------------
Balance at March 31, 1999 $ 17,512,668 $ 62,821 $ 8,963,019 $26,538,508
============ ============ ============ ============
</TABLE>
See accompanying notes.
5
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Net cash provided (used) by operating activities $ 1,978,998 $ (1,980,333)
Investing activities:
Proceeds from maturities and calls of
investment securities available-for-sale 3,754,859 3,000,000
Purchases of investment securities
held-to-maturity (29,800) (28,500)
Net increase in loans (22,572,988) (8,842,014)
Purchases of premises and equipments, net (1,057,586) (332,938)
------------- ------------
Net cash used in investing activities (19,905,515) (6,203,452)
Financing activities:
Net increase in deposits 4,732,419 11,178,665
Cash dividends (561,459) (496,966)
Repurchases of stock (809,552) (759,879)
Proceeds from issuance of stock 227,026 -
Net increase (decrease) in other borrowings 11,000,000 (5,000,000)
------------- ------------
Net cash provided by financing activities 14,588,434 4,921,820
------------- ------------
Net decrease in cash and cash equivalents (3,338,083) (3,261,965)
Cash and cash equivalents at beginning of period 26,838,900 29,553,706
------------- ------------
Cash and cash equivalents at end of period $ 23,500,817 $ 26,291,741
============= =============
</TABLE>
See accompanying notes.
6
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(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, 1998 was derived from audited
financial statements, but does not include all disclosures contained in the
Company's 1998 Annual Report to Shareholders.
The interim condensed consolidated financial statements should be read in
conjunction with the December 31, 1998 consolidated financial statements,
including the notes thereto, included in the Company's 1998 Annual Report to
Shareholders.
Certain amounts for 1998 have been reclassified to conform with the 1999
presentation.
2. INVESTMENT SECURITIES
Investment securities at March 31, 1999 and December 31, 1998 consisted
of the following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
MARCH 31, 1999 COST GAINS LOSSES FAIR VALUE
- ------------------------------ ------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Available-for-Sale
- ------------------
U.S. Government and
Agency securitiess......... $ 26,537,544 $ 205,383 $ 4,147 $ 26,738,780
Mortgage-backed securities.... 12,277,765 28,551 38,382 12,267,934
U.S. Treasury securities...... 1,996,986 85,514 - 2,082,500
Equity securities............. 2,527,843 - 174,854 2,352,989
Corporate debt securities.. 631,278 - 742 630,536
------------ --------- --------- ------------
$ 43,971,416 319,448 $ 218,125 $ 44,072,739
============ ========= ========= ============
Held-to-Maturity
- ----------------
Obligations of state and
political subdivisions..... $ 1,407,996 $ 19,061 $ 3,694 $ 1,423,363
Other......................... 1,558,764 - - 1,558,764
------------ --------- --------- ------------
$ 2,966,760 $ 19,061 $ 3,694 $ 2,982,127
============ ========= ========= ============
7
<PAGE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1998 COST GAINS LOSSES FAIR VALUE
- ------------------------------ ------------ --------- --------- ------------
<S> <C> <C> <C> <C>
Available-for-Sale
- ------------------
U.S. Government and
Agency securitiess......... $ 26,538,402 $ 318,438 $ 7,350 $ 26,849,490
Mortgage-backed securities.... 15,064,132 29,777 202,794 14,891,115
U.S. Treasury securities...... 2,995,217 113,783 - 3,109,000
Equity securities............. 2,529,512 2,724 - 2,532,236
Corporate debt securities.. 632,505 - 1,855 630,650
------------ --------- --------- ------------
$ 47,759,768 464,722 $ 211,999 $ 48,012,491
============ ========= ========= ============
Held-to-Maturity
- ----------------
Obligations of state and
political subdivisions..... $ 1,409,525 $ 17,393 $ 3,555 $ 1,423,363
Other......................... 1,528,964 - - 1,528,964
------------ --------- --------- ------------
$ 2,938,489 $ 17,393 $ 3,555 $ 2,952,327
============ ========= ========= ============
</TABLE>
3. LOANS AND RESERVE FOR LOAN LOSSES
The composition of the loan portfolio at March 31, 1999 and December 31,
1998 was as follows:
1999 1998
----------- ------------
Commercial.................... $ 34,338,354 $ 31,279,762
Real Estate:
Construction............... 51,601,200 44,874,991
Mortgage................... 40,880,399 36,670,954
Commercial................. 74,538,106 70,524,183
Installment................... 27,193,923 22,693,633
------------ ------------
228,551,982 206,043,523
Less:
Reserve for loan losses.... 2,858,209 2,635,820
Deferred loan fees......... 1,001,959 864,441
------------ ------------
3,860,168 3,500,261
------------ ------------
Loans, net ................... $224,691,814 $202,543,262
============ ============
Mortgage loans held for sale of $1,586,410 and $2,119,642 at
March 31, 1999 and December 31, 1998, respectively, represent real estate
mortgage loans. These loans are recorded at cost which approximates
market.
Transactions in the reserve for loan losses for the three months ended
March 31, 1999 and 1998 were as follows:
1999 1998
----------- ------------
Balance at beginning of period... $ 2,635,820 $ 2,048,561
Provisions charged to operations. 371,562 83,861
Loans charged off................ (194,107) (51,131)
Recoveries of loans previously
charged off.................... 44,934 19,680
------------ ------------
Balance at end of period......... $ 2,858,209 $ 2,100,971
============ ============
8
<PAGE>
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.
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 March 31, 1999 and December 31, 1998 (dollars in thousands):
1999 1998
------ ------
Loans on non-accrual status........... $ 264 $ 172
Loans past due 90 days or more
but non on non-accrual status...... 52 -
Other real estate owned............... 409 409
------ ------
Total non-performing assets........... $ 725 $ 581
====== ======
Percentage of non-performing assets
to total assets.................... .23% .19%
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 three months ended March 31, 1999 and 1998.
At March 31, 1999, 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.
9
<PAGE>
4. MORTGAGE SERVICING RIGHTS
At March 31, 1999 and December 31, 1998, the Bank held
servicing rights to approximately $245,981,000 and $232,916,000,
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 March 31, 1999 and December 31, 1998 include
approximately $2,509,000 and approximately $2,291,000,
respectively, for the capitalized mortgage servicing rights.
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
The Bank participates in the Cash Management Advance Program
(the Program) with the FHLB. Under the Program, the Bank may
borrow up to a maximum of approximately $12,068,000 with interest
at the FHLB's cash management rate. Borrowings outstanding under
the Program are collateralized by a blanket pledge agreement on
the FHLB stock, any funds on deposit with the FHLB, investment
securities and loans. As of March 31, 1999, the Bank had
$11,000,000 in borrowings outstanding from the FHLB, which bore
interest at a fixed rate of 5.275%. As of March 31, 1998, there
were no borrowings outstanding from the FHLB.
6. EARNINGS PER COMMON SHARE
The Company?s basic earnings per common share are computed
by dividing net income by the weighted- average number of common
shares outstanding during the period. The Company?s diluted
earnings per common share are computed by dividing net income by
the weighted-average number of common shares outstanding plus
dilutive common shares related to stock options. 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.
As of March 31, 1999, approximately 46,000 shares remain
authorized for possible repurchase under the Company's stock
repurchase plan.
7. ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1998, Statement of Financial Accounting Standards
(SFAS) No. 133, ?Accounting for Derivative Instruments and
Hedging Activities? was issued. SFAS No. 133 is effective for
all fiscal quarters of all fiscal years beginning after June 15,
1999, and establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. As of
March 31, 1999 the Company had no derivative instruments or
hedging activities.
In October 1998, SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained After the Securitization of Mortgage
Loans Held for Sale by a Mortgage Banking Enterprise," (SFAS 134)
was issued. SFAS 134 was effective beginning the first fiscal
quarter after December 15, 1998. As of March 31, 1999, the
Company had not entered into any transaction for which SFAS 134
would apply.
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 three-month periods
ended March 31, 1999 and 1998, included in this report.
When used in the following discussion, the word "expects,"
"believes," "anticipates" and other similar expressions are
intended to identify forward-looking statements, which are made
pursuant to the safe harbor provisions of the private securities
litigation reform act of 1995. Such forward-looking statements
are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected.
Specific risks and uncertainties include, but are not limited to,
general business and economic conditions, and other factors
listed from time to time in the Company's SEC reports. Readers
are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publish revised
forward-looking statements to reflect the occurrence of
unanticipated events or circumstances after the date hereof.
HIGHLIGHTS
The Company reported net income of approximately $1,416,000,
or $.23 basic net income per common share, for the first quarter
of 1999, compared to net income of approximately $1,279,000, or
$.21 basic net income per common share, for the same period in
1998. This represents an increase in net income of 10.7 percent.
The increase in earnings was primarily due to the expansion of
the Company's interest-earning assets and resulting increase in
net interest income.
The Company opened two new branch banking offices in the
first quarter of 1999, bringing total branch locations to ten.
The Bank entered the Salem, Oregon market with a full service
branch office and opened a second branch in Redmond, Oregon. The
new branch offices are not expected to be material to the
financial results of the Company in 1999.
In April, 1999 the Company announced its plans to offer
Trust and Investment services in mid 1999, initially in Central
Oregon. Trust services will focus on the personal trust needs of
existing and prospective clients by providing living and
testamentary trust, asset and financial management, and fiduciary
services. Retail investment services, including stock brokerage,
mutual fund and fixed income services, are expected to be
provided by a licensed on-site broker through a broker/dealer
agent relationship. In addition, the Company has opened a Loan
Production Office (LPO) in suburban Portland, targeting small to
medium sized businesses and commercial real estate lending in
that rapidly growing market. These activities are not expected
to be material to the financial results of the Company in 1999.
Management anticipates break-even financial results for these
activities within one to three years, however there can be no
assurance that future profitability will be achieved.
RESULTS OF OPERATIONS - Three months ended March 31, 1999 and 1998
NET INTEREST INCOME
Net interest income increased 28.4% for three months ended
March 31, 1999 as compared to the same period in 1998. The net
increase resulted from higher earning asset volumes generating
increased interest income, which exceeded the increase in
interest expense.
Total interest income increased approximately $1,291,000 (or
25.9%) for the three months ended March 31, 1999 as compared to
the same period in 1998, primarily due to an increase in the
volume of loans. Compared to a year earlier, the yield on earning
assets fell 19 basis points to 9.39% for the quarter. This was
the result of generally lower market interest rates impacting
yields on adjustable and newly originated loans. Total interest
expense increased approximately $219,000 (or 18.0%) for the three
months ended March 31, 1999 as compared to the same period in
1998, primarily due to increased volume in time deposits and
other borrowings. The above factors combined with higher
noninterest expenses resulted in Return on Assets declining to
1.87% from 2.08% a year earlier.
11
<PAGE>
LOAN LOSS PROVISION
The loan loss provision increased during the first quarter
ended March 31, 1999 to keep pace with loan growth. The Bank's
ratio of reserve for loan losses to total loans was 1.26% at
March 31, 1999 as compared to 1.28% at March 31, 1998.
Management believes the reserve for loan losses is adequate to
absorb potential losses on identified nonperforming assets as
well as general losses at historical and expected levels.
NONINTEREST INCOME
Total noninterest income increased 13.3% for the three
months ended March 31, 1999 as compared to the same period in
1998. Service charge income increased primarily due to an
increase in the volume of deposit activity during the periods
presented. Other income increased primarily due to increased
loan servicing income related to the commencement of in-house
servicing in March, 1998. These increases were offset by a
decrease in mortgage loan origination and processing fees and an
increase in losses on sales of mortgage loans. The decrease in
mortgage related income is primarily due to a reduction in
refinance activity due to higher mortgage market rates.
NONINTEREST EXPENSE
Total noninterest expense increased 27.3 percent for the
three months ended March 31, 1999 as compared to the same period
in 1998. All areas of noninterest expense increased as a result
of increased personnel and operating expense due to continued
growth in the Company, including start up costs and staffing of
new branches.
INCOME TAXES
The provision for income taxes increased between the periods
presented primarily as a result of higher pre-tax income.
FINANCIAL CONDITION
The Company continued to experience growth in the first
quarter of 1999 with total assets increasing 5.2% to $316.5
million at March 31, 1999 compared to $300.8 million at December
31, 1998. This increase is primarily due to increases in net
loans and premises and equipment, which were offset in part by a
decrease in cash and cash equivalents and investment securities
available-for-sale. The higher total assets were funded
primarily by an increase in deposits and other borrowings. Total
loans outstanding increased 10.9 percent to $228.6 million at
March 31, 1999 as compared to $206.0 million at December 31,
1998. Deposits increased 1.7 percent to $275.6 million at March
31, 1999 compared to $270.9 million at December 31, 1998.
Because loan demand exceeded deposit growth, the Company
increased its borrowings from the Federal Home Loan Bank by $11.0
million. Interest bearing deposits continued to grow while there
was a slight seasonal decrease in demand deposits.
The Company had no off balance sheet derivative financial
instruments as of March 31, 1999 and December 31, 1998.
CAPITAL RESOURCES
The Company?s total stockholders equity at March 31, 1999
was $26.5 million, a decrease of $.4 million from December 31,
1998. The decrease was the net result of earnings of $1.4
million for the three months ended March 31, 1999 less cash
dividends to shareholders of $1.1 million during the first
quarter of 1999. In addition, during the three months ended
March 31, 1999, the Company repurchased 49,400 shares of its
common stock outstanding pursuant to a Board of Directors
authorized program. This had the effect of reducing equity by
$.8 million during the first quarter of 1999. During the three
months ended March 31, 1999, net unrealized gains on investment
securities available-for-sale decreased by $.1 million.
At March 31, 1999, the Company?s Tier 1 and total risked-
based capital ratios under the Federal Reserve Board?s (?FRB?)
risk-based capital guidelines were approximately 10.7% and 11.8%,
respectively. The FRB?s minimum risk-based capital ratio
guidelines for Tier 1 and total capital are 4% and 8%, respectively.
12
<PAGE>
LIQUIDITY
The Company analyzes and manages its liquidity to ensure the
availability of sufficient funds to meet depositor withdrawals as
well as to fund borrowing needs of its loan customers. The
Bank?s stable deposit base is the foundation of its long-term
liquidity since these funds are not subject to significant
volatility as a result of changing interest rates and other
economic factors. A further source of liquidity is the Bank's
ability to borrow funds from a variety of reliable
counterparties. In addition, the Bank has substantial available-
for-sale investment securities that could be liquidated to
provide an additional source of liquidity.
At March 31, 1999 the Bank maintained unsecured lines of
credit totaling $17.5 million for the purchase of funds on a
short-term basis. The Bank is also a member of the Federal Home
Loan Bank (FHLB) which provides a secured line of credit of $31.5
million that may be accessed for short or long-term borrowings.
Owing to rapid loan growth and the expected slow seasonal deposit
growth in the first quarter, the Bank had short-term borrowings
from the FHLB of $11.0 million and no long-term borrowings at
March 31, 1999. The Company continues to have ample available
funding sources.
At March 31, 1999, the Bank had approximately $91 million in
outstanding commitments to extend credit. Approximately one-third
of the commitments pertains to various construction projects.
Under the terms of such commitments, completion of specified
project benchmarks must be certified before funds may be drawn.
In addition, it is anticipated that a portion of the commitments
will expire or terminate without funding. Management believes
that the Bank's available resources will be sufficient to fund
its commitments in the normal course of business.
MARKET RISK
Market risk is the risk of loss from adverse changes in
market prices and rates. The Company?s market risk arises
principally from interest rate risk in its lending, deposit and
borrowing activities. Management actively monitors and manages
its interest rate risk exposure. Although the Company manages
other risks, as in credit quality and liquidity risk, in the
normal course of business, management considers interest rate
risk to be a significant market risk which could have the largest
material effect on the Company?s financial condition and results
of operations. Other types of market risks, such as foreign
currency exchange rate risk and commodity price risk, do not
arise in the normal course of the Company's business activities.
The Company did not experience a material change in market
risk at March 31, 1999 as compared to December 31, 1998.
YEAR 2000 DISCLOSURE
The Year 2000 (Y2K) issue may pose unique challenges to all
businesses due to the inability of some computers and computer
software programs to accurately recognize, for years after 1999,
dates which are often expressed as a two digit number. This
inability to recognize date information accurately could
potentially affect computer operations and calculations, or could
cause computer systems to not operate at all. Accordingly, Y2K
may precipitate related consequences that are not possible to
foresee.
Major business risks associated with the Y2K issue may
include, but are not limited to, infrastructure failures,
disruptions to the economy in general, disruption of private and
government activities, excessive cash withdrawal activity and/or
reduced financial liquidity. In addition, increased problem
loans and credit losses may impact the Company in the event
borrowers fail to prepare for Y2K. The above risks could expose
the Company to loss of revenues, litigation and asset quality
deterioration.
The federal banking regulators have issued several
statements providing guidance to financial institutions on the
steps the regulators expect financial institutions to take to
become Y2K compliant. Each of the federal banking regulators is
also examining the financial institutions under its jurisdiction
to assess each institution's compliance with the outstanding
guidance. If an institution's progress in addressing the Y2K
problem is deemed by its primary federal regulator to be less
than satisfactory, the institution will be required to enter into
a memorandum of understanding with the regulator which will,
among other things, require the institution to promptly develop
and submit an acceptable plan for becoming Y2K compliant and to
provide periodic reports describing the institution's progress in
implementing the plan.
13
<PAGE>
Failure to satisfactorily address the Y2K problem may also expose
a financial institution to other forms of enforcement action that
its primary federal regulator deems appropriate to address the
deficiencies in the institution's Y2K remediation program.
The Company has completed an assessment of the Y2K 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, testing, certification and remediation activities to
date, management believes that the Company is well prepared to
respond to the issue and run successfully in the year 2000 and
beyond.
The Company has identified mission critical computer
applications and related processes and has formalized plans to
address potential issues that may arise as a result of the date
change. An application, system or process is mission critical if
it is deemed vital to the successful continuance of a core
business activity. For substantially all mission critical
applications the Company has performed tests and has obtained
performance certifications on hardware, software, and
environmental systems except for the applications noted below.
The Company has also required and received certifications from
substantially all major software application vendors to ensure
that their systems are Y2K compliant, except for the applications
noted below. The Company has confirmed that substantially all
mission critical systems have the capacity to process information
with dates beyond December 31, 1999 except for the applications
noted below.
The Company has a Y2K Contingency Plan in place that
addresses mission critical as well as non-critical applications.
For each non-critical application, the contingency plan details
how tasks can be accomplished if the application is not
operational. Under FFIEC bank regulatory guidelines, a financial
institution is not required to have a contingency plan for
mission-critical systems and applications if the system or
application has been remediated, tested, and implemented as Y2K
compliant. Mission critical applications will rely on the above-
described testing, certification and remediation program to
ensure all such systems and applications are Y2K compliant. If
the Company experiences system failures due to unforeseen Y2K
events, the Company's current Business Contingency Plan will be
implemented. This plan is designed to enable the Company to
function in the event of a short-term business interruption owing
to unexpected and/or emergency circumstances. Operating under
this plan and depending on the nature of the interruption, the
Company may provide only limited services, may revert to manual
recording of customer and counter-party transactions and/or may
revert to manual updating of financial records. The encoding and
processing of checks and drafts may be performed at a contingency
site. Alternate check presentment, delivery and settlement
methods may be implemented. Transactions previously executed via
wire transfer and/or Federal Reserve Account maintenance activity
may revert to telephonic methodology. The Business Contingency
Plan is tested annually but there can be no assurance as to its
effectiveness under Y2K contingent circumstances.
The Company has identified and formally contacted its
significant customers, suppliers and counterparties regarding
Y2K. In so doing the Company has encouraged their Y2K testing
and remediation and has requested Y2K compliance certifications
from these parties. Management believes these significant
parties will test and take steps necessary to achieve Y2K
compliance, however, no assurance can be made that their response
to the Y2K situation will not precipitate adverse consequences
for the Company. In addition, the Company has acknowledged that
increased problem loans and credit losses could ensue due to Y2K,
and has considered this contingent risk in the determination of
its allowance for loan losses. Although management believes the
allowance for loan losses is adequate at March 31, 1999, there
can be no assurance as to the future adequacy of the allowance
for loan losses in respect to the yet unknown affect of Y2K .
The Company anticipates that the costs of testing and
remediating applications and systems for Y2K will not be material
to future operating results or financial condition. Apart from
internal staff hours allocated to Y2K testing and assurance,
expenditures related to Y2K issues total approximately $58,000 to
date.
Although management believes that it has tested, analyzed
and certified mission critical applications with respect to Y2K
compliance, there can be no assurance that the Company will not
be impacted by unanticipated Y2K contingent circumstances.
14
<PAGE>
PART II - OTHER INFORMATION
----------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits were required to be filed for the
quarter ended March 31, 1999.
(b) REPORTS ON FORM 8-K. The Company did not file any
reports on Form 8-K during the first quarter ended
March 31, 1999.
15
<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 5/11/99 By /s/ Patricia L. Moss
----------------- ---------------------------------------------
Patricia L. Moss, President & CEO
Date 5/12/99 By /s/ Gregory D. Newton
----------------- ---------------------------------------------
Gregory D. Newton, SVP/Chief Financial Officer
16
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 20,450,817
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,050,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 44,072,739
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<LOANS> 228,551,982
<ALLOWANCE> 2,858,209
<TOTAL-ASSETS> 316,511,400
<DEPOSITS> 275,595,150
<SHORT-TERM> 11,000,000
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0
0
<COMMON> 8,963,019
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<NET-INCOME> 1,416,341
<EPS-PRIMARY> .23
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