<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, 2000
/ / 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 or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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. 6,879,884 SHARES OF NO PAR
VALUE COMMON STOCK ON APRIL 30, 2000.
================================================================================
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
FORM 10-Q
QUARTERLY REPORT
MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
------
<S> <C>
Condensed Consolidated Balance Sheets
as of March 31, 2000 and December 31, 1999............................3
Condensed Consolidated Statements of Income
for the three months ended March 31, 2000 and 1999 ...................4
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 2000 and 1999....................5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2000 and 1999....................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.................................... 14
Signatures.........................................................................15
</TABLE>
2
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 19,884,126 $ 19,420,537
Federal funds sold 4,500,000 -
------------------- -----------------
Total cash and cash equivalents 24,384,126 19,420,537
Investment securities available-for-sale 28,173,496 29,069,224
Investment securities held-to-maturity 2,771,729 2,742,794
Loans, net 299,256,412 274,902,232
Mortgage loans held for sale 981,495 422,999
Premises and equipment, net 7,951,003 7,958,439
Accrued interest and other assets 14,100,934 13,387,798
------------------- -----------------
Total assets $ 377,619,195 $ 347,904,023
=================== =================
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 123,284,308 $ 107,188,433
Interest bearing demand 133,811,238 123,448,962
Savings 16,026,350 15,688,114
Time deposits 59,219,068 38,987,032
------------------- -----------------
Total deposits 332,340,964 285,312,541
Federal Home Loan Bank borrowings 10,000,000 13,000,000
Federal funds purchased - 17,100,000
Federal Reserve Bank borrowings 1,220,000 -
Accrued interest and other liabilities 3,829,098 2,919,984
------------------- -----------------
Total liabilities 347,390,062 318,332,525
Stockholders' equity:
Common stock, no par value;
10,000,000 shares authorized;
6,871,759 issued and outstanding (6,862,234-1999) 17,750,281 17,728,564
Retained earnings 13,433,674 12,465,355
Accumulated other comprehensive income (loss) (954,822) (622,421)
------------------- -----------------
Total stockholders' equity 30,229,133 29,571,498
------------------- -----------------
Total liabilities and stockholders' equity $ 377,619,195 $ 347,904,023
=================== =================
</TABLE>
See accompanying notes.
3
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------------- -------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 7,467,392 $ 5,525,432
Taxable interest on investments 473,117 721,825
Nontaxable interest on investments 10,705 14,409
Interest on federal funds sold 11,501 18,768
------------------- -------------------
Total interest income 7,962,715 6,280,434
Interest expense:
Deposits:
Interest bearing demand 1,058,711 846,978
Savings 78,790 73,636
Time 623,239 387,262
Other borrowings 389,148 126,951
------------------- -------------------
Total interest expense 2,149,888 1,434,827
------------------- -------------------
Net interest income 5,812,827 4,845,607
Loan loss provision 611,000 371,562
------------------- -------------------
Net interest income after loan loss provision 5,201,827 4,474,045
Noninterest income:
Service charges on deposit accounts 593,025 566,882
Mortgage loan origination and processing fees 205,873 364,784
Gains (losses) on sales of mortgage loans, net (99,340) (52,874)
Other income 638,440 500,216
------------------- -------------------
Total noninterest income 1,337,998 1,379,008
Noninterest expense:
Salaries and employee benefits 2,364,845 2,060,479
Net occupancy and equipment 566,045 545,195
Other expenses 1,094,597 988,023
------------------- -------------------
Total noninterest expense 4,025,487 3,593,697
------------------- -------------------
Income before income taxes 2,514,338 2,259,356
Provision for income taxes 996,470 843,015
------------------- -------------------
Net income $ 1,517,868 $ 1,416,341
=================== ===================
Basic net income per common share $ 0.22 $ 0.21
=================== ===================
Diluted net income per common share $ 0.22 $ 0.20
=================== ===================
</TABLE>
See accompanying notes.
4
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE RETAINED COMPREHENSIVE COMMON STOCKHOLDERS'
INCOME (LOSS) EARNINGS INCOME (LOSS) STOCK EQUITY
--------------- -------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
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 loss, net of tax:
Unrealized losses on
securities available-for-sale (94,901) - (94,901) - (94,901)
---------------
Comprehensive income $ 1,321,440
===============
Cash dividends paid (1,122,088) - - (1,122,088)
Repurchases of common stock (54,340 shares) - - (809,552) (809,552)
Stock options exercised (53,148 shares) - - 227,026 227,026
-------------- ------------- -------------- -----------------
Balance at March 31, 1999 $ 17,512,668 $ 62,821 $ 8,963,019 $ 26,538,508
============== ============= ============== =================
Balance at December 31, 1999 $ 12,465,355 $ (622,421) $ 17,728,564 $ 29,571,498
Comprehensive Income:
Net Income $ 1,517,868 1,517,868 - - 1,517,868
Other comprehensive loss, net of tax:
Unrealized losses on
securities available-for-sale (332,401) - (332,401) - (332,401)
---------------
Comprehensive income $ 1,185,467
===============
Cash dividends paid (549,549) - - (549,549)
Stock options exercised (9,525 shares) - - 21,717 21,717
-------------- ------------- -------------- -----------------
Balance at March 31, 2000 $ 13,433,674 $ (954,822) $ 17,750,281 $ 30,229,133
============== ============= ============== =================
See accompanying notes.
</TABLE>
5
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---------------- ----------------
<S> <C> <C>
Net cash provided by operating activities $ 2,187,692 $ 1,978,998
Investing activities:
Proceeds from maturities and calls of investment securities
available-for-sale 361,791 3,754,859
Purchases of investment securities held-to-maturity (30,000) (29,800)
Net increase in loans (25,064,520) (22,572,988)
Purchases of premises and equipment, net (111,965) (1,057,586)
---------------- ----------------
Net cash used in investing activities (24,844,694) (19,905,515)
Financing activities:
Net increase in deposits 47,028,423 4,732,419
Cash dividends (549,549) (561,459)
Repurchases of stock - (809,552)
Proceeds from issuance of stock 21,717 227,026
Net increase (decrease) in other borrowings (18,880,000) 11,000,000
---------------- ----------------
Net cash provided by financing activities 27,620,591 14,588,434
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 4,963,589 (3,338,083)
Cash and cash equivalents at beginning of period 19,420,537 26,838,900
---------------- ----------------
Cash and cash equivalents at end of period $ 24,384,126 $ 23,500,817
================ ================
</TABLE>
See accompanying notes.
6
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying 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
Bancorp Financial Services, Inc. (collectively, "the Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The interim condensed consolidated financial statements are prepared by
management and 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, 1999 was derived from audited
financial statements, but does not include all disclosures contained in the
Company's 1999 Annual Report to Shareholders.
The interim condensed consolidated financial statements should be read
in conjunction with the December 31, 1999 consolidated financial statements,
including the notes thereto, included in the Company's 1999 Annual Report to
Shareholders.
Certain amounts for 1999 have been reclassified to conform with the
2000 presentation.
2. INVESTMENT SECURITIES
Investment securities at March 31, 2000 and December 31, 1999 consisted
of the following:
<TABLE>
<CAPTION>
AMORTIZED GROSS UNREALIZED GROSS UNREALIZED ESTIMATED FAIR
MARCH 31, 2000 COST GAINS LOSSES VALUE
-------------------------------- ----------------- ------------------ ----------------- ---------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Government and
Agency securities........... $ 15,535,407 $ - $ 311,719 $ 15,223,688
Mortgage-backed securities 9,652,289 - 306,941 9,345,348
U.S. Treasury securities........ 1,997,992 1,388 - 1,999,380
Equity securities............... 2,527,843 - 922,763 1,605,080
----------------- ------------ ------------ -------------
$ 29,713,531 $ 1,388 $ 1,541,423 $ 28,173,496
================= ============ ============ =============
HELD-TO-MATURITY
Obligations of state and
political ubdivisions....... $ 1,065,129 $ 6,094 $ 7,666 $ 1,063,557
FHLB stock...................... 1,706,600 - - 1,706,600
---------------- ------------ ------------ -------------
$ 2,771,729 $ 6,094 $ 7,666 $ 2,770,157
================= ============ ============ =============
</TABLE>
7
<PAGE>
2. INVESTMENT SECURITIES (CONT.)
<TABLE>
<CAPTION>
AMORTIZED GROSS UNREALIZED GROSS UNREALIZED ESTIMATED
DECEMBER 31, 1999 COST GAINS LOSSES FAIR VALUE
-------------------------------- --------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Government and
Agency securities........... $ 15,538,091 $ - $ 255,820 $ 15,282,271
Mortgage-backed securities 10,009,453 240,969 9,768,484
U.S. Treasury securities........ 1,997,742 17,878 - 2,015,620
Equity securities............... 2,527,843 - 524,994 2,002,849
---------------- ---------------- ---------------- --------------
$ 30,073,129 $ 17,878 $ 1,021,783 $ 29,069,224
================ ================ ================ ===============
HELD-TO-MATURITY
Obligations of state and
political subdivisions..... $ 1,066,694 $ 5,243 $ 7,975 $ 1,063,962
FHLB stock..................... 1,676,100 - - 1,676,100
---------------- ---------------- ---------------- ---------------
$ 2,742,794 $ 5,243 $ 7,975 $ 2,740,062
================ ================ ================ ===============
</TABLE>
3. LOANS AND RESERVE FOR LOAN LOSSES
The composition of the loan portfolio at March 31, 2000 and December
31, 1999 was as follows:
<TABLE>
<CAPTION>
2000 1999
------------------ ------------------
<S> <C> <C>
Commercial............................. $ 43,105,485 $ 43,794,517
Real Estate:
Construction..................... 68,856,995 60,583,812
Mortgage......................... 28,611,497 27,843,683
Commercial....................... 122,798,427 109,468,780
Installment............................ 40,991,263 37,989,342
------------------ ------------------
304,363,667 279,680,134
Less:
Reserve for loan losses........... 3,891,758 3,525,185
Deferred loan fees................ 1,215,497 1,252,717
------------------ ------------------
5,107,255 4,777,902
------------------ ------------------
Loans, net.............................. $ 299,256,412 $ 274,902,232
================== ==================
</TABLE>
Transactions in the reserve for loan losses for the three months ended
March 31, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
2000 1999
------------------ ------------------
<S> <C> <C>
Balance at beginning of period............ $ 3,525,185 $ 2,635,820
Provision charged to operations........... 611,000 371,562
Recoveries................................ 25,914 44,934
Loans charged off......................... (270,341) (194,107)
----------------- ------------------
Balance at end of period.................. $ 3,891,758 $ 2,858,209
================= ==================
</TABLE>
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 collateral provides an additional measure of security. Risks associated
with real estate loans include fluctuating land values, local economic
conditions, changes in tax policies, and a concentration of loans within the
Bank's market area.
The 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. Commercial real estate
risk is 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, 2000 and December 31, 1999 (dollars in
thousands):
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Loans on non-accrual status..................... $ 311 $ 582
Loans past due 90 days or more
but not on non-accrual status............. 21 40
Other real estate owned......................... - 40
------------ ------------
Total non-performing assets..................... $ 332 $ 662
============ ============
Percentage of non-performing assets
to total assets........................... 0.09% 0.19%
</TABLE>
The accrual of interest on a loan is discontinued when, in
management's judgment, the future collectibility of principal or interest is in
doubt. Loans placed on nonaccrual status may or may not be contractually past
due at the time of such determination, and may or may not be secured. When a
loan is placed on nonaccrual status, it is the Bank's policy to reverse, and
charge against current income, interest previously accrued but uncollected.
Interest subsequently collected on such loans is credited to loan principal if,
in the opinion of management, full collectibility of principal is doubtful. If
interest on nonaccrual loans had been accrued, such income would have been
insignificant for the three months ended March 31, 2000 and 1999.
At March 31, 2000, except as discussed above, there were no potential
problem loans, 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 March 31, 2000 and December 31, 1999, the Bank held servicing rights
to approximately $273,686,000 and $268,792,000, respectively, in mortgage loans
which have been sold to the Federal National Mortgage Association. Such mortgage
loans are not included in the accompanying condensed consolidated balance
sheets. The sale of these mortgage loans are subject to technical underwriting
standards and requirements which may result in repurchase risk. Such risks are
considered in the determination of the reserve for loan losses. Other assets
in the accompanying condensed consolidated balance sheets as of March 31, 2000
and December 31, 1999 include approximately $2,874,000 and approximately
$2,838,000, respectively, for the estimated fair value of 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 include, but are
not limited to, interest rates, interest types (ie., fixed and variable and
loan types) .
5. BORROWING AGREEMENTS
The Bank is a member of the Federal Home Loan Bank (FHLB) which
provides a secured line of credit of $37.5 million that may be accessed for
short or long-term borrowings. At March 31, 2000 the Bank had $10,000,000 in
borrowings outstanding from FHLB under a promissory note agreement, which are
due April 12, 2000 and bear interest at a fixed rate of 6.01%. At December 31,
1999, the Bank had a total of $13,000,000 in borrowings outstanding from the
FHLB bearing an average weighted interest rate of 5.79%. During the first
quarter of 2000, the Bank was approved for a seasonal borrowing line from the
Federal Reserve Bank (FRB) in the amount of $20 million. At March 31, 2000 the
Bank had $1,220,000 in overnight borrowings outstanding from the FRB at a rate
of 5.95%. As of December 31, 1999 the Bank had $17,100,000 in Federal funds
purchased. There were no Federal funds purchased at March 31, 2000.
6. EARNINGS PER COMMON SHARE
The Company's basic earnings per common share are computed by dividing
net income by the basic weighted-average shares outstanding during the period.
The Company's diluted earnings per common share are computed by dividing net
income by the diluted weighted-average number of shares outstanding during the
period. A reconciliation of the weighted average shares used to compute basic
and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
-------------- --------------
<S> <C> <C>
Weighted average shares
outstanding - basic 6,869,484 6,858,280
Incremental shares from
stock options 107,606 170,275
-------------- --------------
Weighted average shares
outstanding - diluted 6,977,090 7,028,555
============== ==============
</TABLE>
All weighted average shares, repurchased shares and per share amounts
in the accompanying condensed consolidated financial statements have been
adjusted to retroactively reflect a 10% stock dividend declared in June, 1999.
As of March 31, 2000, approximately 42,600 shares remain authorized for
possible repurchase under the Company's stock repurchase plan.
8. ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement 133" (SFAS 137), an amendment of SFAS 133, which establishes
accounting and reporting standards for derivative instruments and hedging
activities and requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. SFAS 133, as amended by SFAS 137, is effective for all quarterly and
annual financial statements of fiscal years beginning after June 15, 2000. The
Company had no significant derivatives as of March 31, 2000, nor does the
Company engage in any hedging activities. Accordingly, the Company does not
anticipate that the adoption of SFAS 133, as amended by SFAS 137, will have a
material effect on its consolidated financial position or results of operations.
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, 2000 and 1999, 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 $1,518,000, or $.22
basic net income per common share, for the three months ended March 31, 2000,
compared to net income of approximately $1,416,000, or $.21 basic net income per
common share, for the same period in 1999. This represents an increase in net
income of 7.2 percent. The increase in earnings was primarily due to strong
growth in the Company's loan portfolio with a resulting increase in net interest
income.
The Company announced its loan portfolio expanded by $24 million during
the first quarter of 2000, bringing total loans to a record $304 million. Loans
grew by 8.8% since year-end 1999 and 32.7% compared to a year ago. Bank deposits
were up 16.5% to $332 million from year-end 1999 and up 20.6% over the past
year. Because of the seasonal nature of the tourism and construction industries
in the Bank's market area, its deposits often soften in the winter months.
However deposit growth in the first quarter of 2000 resulted from increased
public funding sources as well as new deposit investment products which
augmented the funding base.
The Bank reported that its Salem branch, opened in January 1999, had
grown to $36 million in loans and $15.1 million in deposits at March 31, 2000.
The Bank expects to open a new branch banking office in the adjacent community
of Keizer, Oregon in June, 2000.
The Company anticipates applying for Financial Holding Company status
as promulgated by the Financial Modernization Act as discussed below.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NET INTEREST INCOME
Net interest income increased 20.0 percent for the three months ended
March 31, 2000 as compared to the same period in 1999. The increase primarily
resulted from higher loan volumes generating increased interest income, which
exceeded the increase in interest expense necessary to fund this growth.
Total interest income increased approximately $1,682,300 (or 26.8%) for
the three months ended March 31, 2000 as compared to the same period in 1999.
This increase was primarily the result of an increase in the volume of loans.
With the Federal Reserve engineering a higher interest rate climate over the
past year, yields on earning assets increased in the first quarter of 2000 to
9.81% compared to 9.39% for the same period in 1999.
11
<PAGE>
Total interest expense increased approximately $715,100 (or 49.8%) for
the three months ended March 31, 2000 as compared to the same period in 1999.
The higher interest rate climate resulted in increased rates paid on deposit
accounts compared to a year ago, with overall cost of funds increasing to 3.93%
compared to 3.56% a year ago. There were increases in all categories of interest
expense, with the largest increase due to higher rates and volumes in money
market accounts and time deposits. As a consequence of the above factors, the
net interest margin declined to 7.16% for the first quarter 2000, compared to
7.24% for the year ago quarter and 7.37% for the fourth quarter of 1999.
LOAN LOSS PROVISION
The loan loss provision increased approximately $239,400 for the three
months ended March 31, 2000 as compared to the same period in 1999. Management
believes the increase in the current loan loss provision maintains the reserve
for loan losses at an appropriate level consistent with growth in loan balances.
The Bank's ratio of reserve for loan losses to total loans was 1.28 percent at
March 31, 2000 compared to 1.26 percent at December 31, 1999.
NONINTEREST INCOME
Total noninterest income decreased 3.0 percent for the three months
ended March 31, 2000 as compared to the same period in 1999. While service
charge income and other income increased with higher business volumes, these
increases were largely offset by decreases in mortgage loan origination and
processing fees and gains (losses) on sales of mortgage loans. This decline in
mortgage related revenues was predominately a function of reduced re-finance
activity, a consequence of the higher interest rate climate discussed above.
NONINTEREST EXPENSE
Total noninterest expense increased 12.0 percent for the three months
ended March 31, 2000 as compared to the same period in 1999. Noninterest expense
increased as a result of increased personnel and operating expenses due to
continued growth in business volumes, and expenses related to branch start-ups
in Salem and downtown Redmond, Oregon.
INCOME TAXES
Income tax expense increased between the periods presented primarily as
a result of higher pre-tax income.
FINANCIAL CONDITION
The Company continued to experience steady growth in the first quarter
of 2000 with total assets increasing 8.5% to $377.6 million at March 31, 2000
compared to $347.9 million at December 31, 1999. This increase is primarily due
to strong loan growth. Total loans outstanding increased 32.7 percent to $304.4
million at March 31, 2000 as compared to $279.7 million at December 31, 1999.
The growth was concentrated in the commercial real estate loan portfolio, up
$13.3 million consistent with the nature of economic growth in the markets
served by the Company.
Increased assets were funded primarily by growth in deposits. Deposits
increased 16.5 percent to $332.3 million at March 31, 2000 compared to $285.3
million at December 31, 1999. A portion of this growth was attributable to new
and expanded public fund customer deposits. Because deposit growth exceeded loan
growth, the Company was able to reduce its overall borrowings by $18.9 million
and sold federal funds totaling $4.5 million at March 31, 2000.
The Company had no off balance sheet derivative financial instruments
as of March 31, 2000 and December 31, 1999.
12
<PAGE>
CAPITAL RESOURCES
The Company's total stockholders equity at March 31, 2000 was $30.2
million, an increase of $.6 million from December 31, 1999. The increase was the
net result of earnings of $1.5 million for the three months ended March 31,
2000, less cash dividends to shareholders of $.5 million during the first
quarter of 2000. In addition, higher market interest rates and lower common
stock prices resulted in a $.3 million increase in net unrealized loss on
investment securities available-for-sale. At March 31, 2000 the Company had a
total unrealized loss on available for sale securities of approximately $1.0
million.
At March 31, 2000, the Company's Tier 1 and total risked-based capital
ratios under the Federal Reserve Board's ("FRB") risk-based capital guidelines
were approximately 9.44% and 10.65%, respectively. The FRB's minimum risk-based
capital ratio guidelines for Tier 1 and total capital are 4% and 8%,
respectively.
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. The Bank has substantial
available-for-sale investment securities that provide collateral to support its
borrowing needs.
At March 31, 2000 the Bank maintained unsecured lines of credit
totaling $18.0 million for the purchase of funds on a short-term basis. The Bank
is also a member of the Federal Home Loan Bank (FHLB) which provides a secured
line of credit of $37.5 million that may be accessed for short or long-term
borrowings. In addition, during the first quarter, the Bank was approved for a
seasonal borrowing line from the Federal Reserve Bank (FRB) in the amount of $20
million. At March 31, 2000 the Bank's deposit totals included a $15 million
Certificate of Deposit instrument from the State of Oregon through their State
community bank CD program. The Company continues to have ample available funding
sources.
At March 31, 2000, the Bank had approximately $115.4 million in
outstanding commitments to extend credit. Approximately one-third of the
commitments pertained 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 other
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, 2000 as compared to December 31, 1999.
13
<PAGE>
FINANCIAL MODERNIZATION ACT
On November 12, 1999 the Gramm-Leach-Bliley Act became law, repealing
the 1933 Glass-Steagall Act's separation of the commercial and investment
banking industries. The Gramm-Leach-Bliley Act expands the range of nonbanking
activities a bank holding company may engage in, while reserving existing
authority for bank holding companies to engage in activities that are closely
related to banking. The new legislation creates a new category of holding
company called a "Financial Holding Company," a subset of bank holding companies
that satisfy the following criteria:
1. all of the depository institution subsidiaries must be well
capitalized and well managed;
2. the holding company must file with the Federal Reserve Board a
declaration that it elects to be a financial holding company to engage
in activities that would not have been permissible before the
Gramm-Leach-Bliley Act; and
3. all of the depository institution subsidiaries must have a community
Reinvestment Act rating of "satisfactory" or better.
Financial holding companies may engage in any activity that (i) is
financial in nature or incidental to such financial activity (ii) is
complementary to a financial activity and does not pose a substantial risk to
the safety and soundness of depository institutions or the financial system
generally. The Gramm-Leach-Bliley Act specifies certain activities that are
financial in nature. These activities include:
- acting as a principal, agent or broker for insurance;
- underwriting, dealing in or making a market in securities; and
- providing financial and investment advice.
The Federal Reserve Board and the Secretary of the Treasury have
authority to decide whether other activities are also financial in nature or
incidental to financial activity, taking into account changes in technology,
changes in the banking marketplace, competition for banking services and so on.
The Gramm-Leach-Bliley Act has only recently become law. Regulations of
the banking agencies implementing the legislative changes can be expected in the
near future. Except for the increase in competitive pressures faced by all
banking organizations that is a likely consequence of the Gramm-Leach-Bliley
Act, the legislation and implementing regulations are likely to have a more
immediate impact on large regional and national institutions than on community
based institutions engaged principally in traditional banking activities.
Because the legislation permits bank holding companies to engage in activities
previously prohibited altogether or which were severely restricted because of
the risks they posed to the banking system, implementing regulations can be
expected to impose strict and detailed prudential safeguards on affiliations
among banking and nonbanking companies in a holding company organization.
Additionally, because the legislation allows various affiliates within a single
holding company organization to serve a broader array of customers' financial
goals, including their banking, insurance and investment goals, implementing
regulations can be expected to impose strict safeguards on sharing of customer
information among affiliated entities within an organization.
The Company has evaluated the provisions of the Act and expects to
submit application to become designated a "Financial Holding Company" during the
second quarter of 2000. It does not expect such designation to have a material
effect on its financial condition or results of operations.
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, 2000.
(b) REPORTS ON FORM 8-K. The Company did not file any
reports on Form 8-K during the first quarter ended
March 31, 2000.
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 5/9/00 By /s/ Patricia L. Moss
------------------ ---------------------------------------
Patricia L. Moss, President & CEO
Date 5/9/00 By /s/ Gregory D. Newton
------------------ ---------------------------------------
Gregory D. Newton, SVP/Chief Financial
Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 19,884,126
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,173,496
<INVESTMENTS-CARRYING> 2,771,729
<INVESTMENTS-MARKET> 2,770,157
<LOANS> 304,363,667
<ALLOWANCE> 3,891,758
<TOTAL-ASSETS> 377,619,195
<DEPOSITS> 332,340,964
<SHORT-TERM> 11,220,000
<LIABILITIES-OTHER> 3,829,098
<LONG-TERM> 0
0
0
<COMMON> 17,747,711
<OTHER-SE> 12,419,422
<TOTAL-LIABILITIES-AND-EQUITY> 377,619,195
<INTEREST-LOAN> 7,467,392
<INTEREST-INVEST> 483,822
<INTEREST-OTHER> 11,501
<INTEREST-TOTAL> 7,962,715
<INTEREST-DEPOSIT> 1,760,740
<INTEREST-EXPENSE> 2,149,888
<INTEREST-INCOME-NET> 5,812,827
<LOAN-LOSSES> 611,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,025,487
<INCOME-PRETAX> 2,514,338
<INCOME-PRE-EXTRAORDINARY> 2,514,338
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,517,868
<EPS-BASIC> .22
<EPS-DILUTED> .22
<YIELD-ACTUAL> 0
<LOANS-NON> 311,000
<LOANS-PAST> 21,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,525,185
<CHARGE-OFFS> (270,341)
<RECOVERIES> 25,914
<ALLOWANCE-CLOSE> 3,891,758
<ALLOWANCE-DOMESTIC> 3,891,758
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
