<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, 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 August 3, 2000.
================================================================================
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
FORM 10-Q
QUARTERLY REPORT
JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION Page
----
<S> <C>
Condensed Consolidated Balance Sheets
as of June 30, 2000 and December 31, 1999.......................................3
Condensed Consolidated Statements of Income
for the six months and three months ended June 30, 2000 and 1999 ...............4
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the six months ended June 30, 2000 and 1999.................................5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 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.............................................. 15
Signatures.....................................................................................16
</TABLE>
2
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS 2000 1999
------------- -------------
<S> <C> <C>
Cash and cash equivalents -
cash and due from banks $ 21,415,981 $ 19,420,537
Investment securities available-for-sale 27,897,412 29,069,224
Investment securities held-to-maturity 2,399,820 2,742,794
Loans, net 323,638,226 274,902,232
Mortgage loans held for sale 1,443,546 422,999
Premises and equipment, net 8,199,119 7,743,235
Accrued interest and other assets 16,059,438 13,603,002
------------- -------------
Total assets $ 401,053,542 $ 347,904,023
============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 132,911,155 $ 107,188,433
Interest bearing demand 142,993,199 123,448,962
Savings 16,417,041 15,688,114
Time deposits 63,560,770 38,987,032
------------- -------------
Total deposits 355,882,165 285,312,541
Federal Home Loan Bank borrowings 10,000,000 13,000,000
Federal funds purchased - 17,100,000
Federal Reserve Bank borrowings 625,000 -
Accrued interest and other liabilities 2,971,374 2,919,984
------------- -------------
Total liabilities 369,478,539 318,332,525
Stockholders' equity:
Common stock, no par value;
10,000,000 shares authorized;
6,879,884 issued and outstanding (6,862,234-1999) 17,768,806 17,728,564
Retained earnings 14,659,421 12,465,355
Accumulated other comprehensive income (loss) (853,224) (622,421)
------------- -------------
Total stockholders' equity 31,575,003 29,571,498
------------- -------------
Total liabilities and stockholders' equity $ 401,053,542 $ 347,904,023
============= =============
</TABLE>
See accompanying notes.
3
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 15,711,015 $ 11,808,679 $ 8,243,623 $ 6,283,247
Taxable interest on investments 947,541 1,398,468 474,424 676,643
Nontaxable interest on investments 21,499 27,067 10,794 12,658
Interest on federal funds sold 21,115 37,214 9,614 18,446
------------ ------------ ------------ ------------
Total interest income 16,701,170 13,271,428 8,738,455 6,990,994
Interest expense:
Deposits:
Interest bearing demand 2,247,619 1,728,272 1,188,908 881,294
Savings 158,126 151,456 79,336 77,820
Time 1,430,334 775,674 807,095 388,412
Other borrowings 735,161 341,614 346,013 214,663
------------ ------------ ------------ ------------
Total interest expense 4,571,240 2,997,016 2,421,352 1,562,189
------------ ------------ ------------ ------------
Net interest income 12,129,930 10,274,412 6,317,103 5,428,805
Loan loss provision 1,236,000 1,105,947 625,000 734,385
------------ ------------ ------------ ------------
Net interest income after loan loss provision 10,893,930 9,168,465 5,692,103 4,694,420
Noninterest income:
Service charges on deposit accounts 1,273,537 1,170,474 680,512 603,592
Mortgage loan origination and processing fees 454,691 707,657 248,818 342,873
Losses on sales of mortgage loans, net (231,621) (166,741) (132,281) (113,867)
Losses on sale of investment securities
available-for-sale - (2,494) - (2,494)
Other income 1,237,897 1,039,797 599,457 539,581
------------ ------------ ------------ ------------
Total noninterest income 2,734,504 2,748,693 1,396,506 1,369,685
Noninterest expense:
Salaries and employee benefits 4,781,087 4,173,280 2,416,242 2,112,801
Net occupancy and equipment 1,083,910 1,022,461 546,361 514,367
Other expenses 2,289,996 2,019,034 1,166,903 993,910
------------ ------------ ------------ ------------
Total noninterest expense 8,154,993 7,214,775 4,129,506 3,621,078
------------ ------------ ------------ ------------
Income before income taxes 5,473,441 4,702,383 2,959,103 2,443,027
Provision for income taxes 2,179,434 1,779,522 1,182,964 936,507
------------ ------------ ------------ ------------
Net income $ 3,294,007 $ 2,922,861 $ 1,776,139 $ 1,506,520
============ ============ ============ ============
Basic net income per common share $ 0.48 $ 0.43 $ 0.26 $ 0.22
============ ============ ============ ============
Diluted net income per common share $ 0.47 $ 0.42 $ 0.25 $ 0.22
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 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 $ 2,922,861 2,922,861 - - 2,922,861
Other comprehensive loss, net of tax:
Unrealized losses on
securities available-for-sale (479,296) - (479,296) - (479,296)
------------
Comprehensive income $ 2,443,565
============
Cash dividends paid (1,121,841) - - (1,121,841)
10% Stock Dividend declared in June 1999 (8,771,010) - 8,771,010 -
Repurchases of common stock (55,990 shares) - - (834,583) (834,583)
Stock options exercised (54,791 shares) - - 230,774 230,774
------------ ------------ ------------ ------------
Balance at June 30, 1999 $ 10,248,425 $ (321,574) $ 17,712,746 $ 27,639,597
============ ============ ============ ============
Balance at December 31, 1999 $ 12,465,355 $ (622,421) $ 17,728,564 $ 29,571,498
Comprehensive Income:
Net Income $ 3,294,007 3,294,007 - - 3,294,007
Other comprehensive loss, net of tax:
Unrealized losses on
securities available-for-sale (230,803) - (230,803) - (230,803)
------------
Comprehensive income $ 3,063,204
============
Cash dividends paid (1,099,941) - - (1,099,941)
Stock options exercised (17,650 shares) - - 40,242 40,242
------------ ------------ ------------ ------------
Balance at June 30, 2000 $ 14,659,421 $ (853,224) $ 17,768,806 $ 31,575,003
============ ============ ============ ============
</TABLE>
See accompanying notes.
5
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 1,864,628 $ 4,130,208
Investing activities:
Proceeds from maturities and calls of investment securities
available-for-sale 803,937 9,099,554
Proceeds from sales of investment securities available-for-sale - 633,265
Purchases of investment securities held-to-maturity (54,500) (88,136)
Proceeds from maturities and calls of investment securities
held-to-maturity 394,775 334,802
Net increase in loans (50,203,615) (51,779,502)
Purchases of premises and equipment, net (844,706) (1,664,218)
------------ ------------
Net cash used in investing activities (49,904,109) (43,464,235)
Financing activities:
Net increase in deposits 70,569,624 30,676,544
Cash dividends (1,099,941) (1,121,841)
Repurchases of stock - (834,583)
Proceeds from issuance of stock 40,242 230,774
Net increase (decrease) in other borrowings (19,475,000) 19,000,000
------------ ------------
Net cash provided by financing activities 50,034,925 47,950,894
------------ ------------
Net increase in cash and cash equivalents 1,995,444 8,616,867
Cash and cash equivalents at beginning of period 19,420,537 26,838,900
------------ ------------
Cash and cash equivalents at end of period $ 21,415,981 $ 35,455,767
============ ============
</TABLE>
See accompanying notes.
6
<PAGE>
CASCADE BANCORP & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 2000 and December 31, 1999
consisted of the following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
JUNE 30, 2000 COST GAINS LOSSES FAIR VALUE
--------------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Government and
Agency securities ...... $15,532,725 $ - $ 293,064 $15,239,661
Mortgage-backed securities... 9,214,769 - 252,244 8,962,525
U.S. Treasury securities .... 1,998,243 3,637 - 2,001,880
Equity securities ........... 2,527,843 - 834,497 1,693,346
----------- ----------- ----------- -----------
$29,273,580 $ 3,637 $ 1,379,805 $27,897,412
=========== =========== =========== ===========
HELD-TO-MATURITY
Obligations of state and
political subdivisions.. $ 669,220 $ 2,478 $ 7,021 $ 664,677
FHLB stock .................. 1,730,600 - - 1,730,600
----------- ----------- ----------- -----------
$ 2,399,820 $ 2,478 $ 7,021 $ 2,395,277
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
2. INVESTMENT SECURITIES (CONT.)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED 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 June 30, 2000 and December
31, 1999 was as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Commercial ................... $ 53,627,879 $ 43,794,517
Real Estate:
Construction .......... 72,789,856 60,583,812
Mortgage .............. 29,951,778 27,843,683
Commercial ............ 127,371,103 109,468,780
Installment .................. 45,624,264 37,989,342
------------ ------------
329,364,880 279,680,134
Less:
Reserve for loan losses 4,317,855 3,525,185
Deferred loan fees .... 1,408,799 1,252,717
------------ ------------
5,726,654 4,777,902
------------ ------------
Loans, net ................... $323,638,226 $274,902,232
============ ============
</TABLE>
Transactions in the reserve for loan losses for the six months ended
June 30, 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 .... 1,236,000 1,105,947
Recoveries ......................... 87,823 77,756
Loans charged off .................. (531,153) (428,150)
----------- -----------
Balance at end of period ........... $ 4,317,855 $ 3,391,373
=========== ===========
</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>
3. LOANS AND RESERVE FOR LOAN LOSSES (CONT.)
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 June 30, 2000 and December 31, 1999 (dollars in
thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Loans on non-accrual status .................. $466 $582
Loans past due 90 days or more
but not on non-accrual status .......... 46 40
Other real estate owned ...................... - 40
---- ----
Total non-performing assets .................. $512 $662
==== ====
Percentage of non-performing assets
to total assets ........................ 0.13% 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 six months ended June 30, 2000 and 1999.
At June 30, 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 June 30, 2000 and December 31, 1999, the Bank held servicing
rights to approximately $279,393,000 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
June 30, 2000 and December 31, 1999 include approximately $2,903,000 and
approximately $2,838,000, respectively, for the estimated fair value of
capitalized mortgage servicing rights.
9
<PAGE>
4. MORTGAGE SERVICING RIGHTS (CONT.)
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 $40.0 million that may be accessed for
short or long-term borrowings. At June 30, 2000 the Bank had $10,000,000 in
borrowings outstanding from FHLB on a 28 day auction advance with a rate of
6.61% that matures on July 21, 2000. At December 31, 1999, the Bank had a total
of $13,000,000 in borrowings outstanding from the FHLB bearing a weighted
average 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 June 30, 2000 the Bank had $625,000 in overnight
borrowings outstanding from the FRB at a rate of 6.60%. As of December 31, 1999
the Bank had $17,100,000 in Federal funds purchased. There were no Federal funds
purchased at June 30, 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>
Six months ended Three months ended
June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding - basic 6,873,991 6,852,850 6,878,498 6,847,420
Incremental shares from
stock options 106,863 152,086 100,941 138,182
--------- --------- --------- ---------
Weighted average shares
outstanding - diluted 6,980,854 7,004,936 6,979,439 6,985,602
========= ========= ========= =========
</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 June 30, 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 June 30, 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 six month and three-month periods ended June 30, 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 $3,294,000 or $.48
basic net income per common share, for the six months ended June 30, 2000,
compared to net income of approximately $2,923,000, or $.43 basic net income per
common share, for the same period in 1999. This represents an increase in net
income of 12.7 percent. Net income for the quarter ended June 30, 2000 was
approximately $1,776,000, or $.26 basic net income per common share, compared to
net income of approximately $1,507,000, or $.22 basic net income per common
share, for the same period in 1999. This represents an increase in net income of
17.9 percent. The increases in earnings during the periods presented were
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 continued to expand during
the second quarter of 2000, bringing total loans to $329.4 million. Loans grew
by 17.8% since year-end 1999 and 27.3% compared to a year ago. Bank deposits
were up 24.7% to $355.9 million from year-end 1999 and up 18.0% 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 six months of 2000 resulted from increased
public funding sources as well as new deposit investment products which
augmented the funding base.
In June, 2000 the Bank opened a new full-service branch in the
community of Keizer, Oregon. This is the second branch in the Salem/Keizer area
and the 11th branch for the Bank overall. During the quarter, the Bank announced
it had reached agreement with Liberty Bank of Eugene, Oregon to purchase the
deposits of the Liberty Branch in Salem, Oregon. The deposits acquired are
expected to total approximately $11 million and the transaction is expected to
close in August 2000. The transaction will not be material to the financial
results of the Company. In addition, the Bank reported that its Salem branch,
opened in January 1999, had grown to $40.3 million in loans and $16.2 million in
deposits at June 30, 2000.
During the second quarter of 2000, the Company became a designated
Financial Holding Company under the Financial Modernization Act as discussed
below.
RESULTS OF OPERATIONS - SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999
NET INTEREST INCOME
Net interest income increased 18.1 percent for the six months and
16.4 percent for the three months ended June 30, 2000 as compared to the same
periods in 1999. These net increases 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 $3,430,000 (or 25.8%)
for the six months and $1,747,000 (or 25.0%) for the three months ended June 30,
2000 as compared to the same periods in 1999. These increases for both the
six-month and three-month periods were primarily the result of an increase in
the volume of loans. With
11
<PAGE>
the Federal Reserve engineering a higher interest rate climate over the past
year, yields on earning assets increased in the second quarter of 2000 to 10.00%
compared to 9.67% for the same period in 1999.
Total interest expense increased approximately $1,574,000 (or 52.5%)
for the six months and $859,000 (or 55.0%) for the three months ended June 30,
2000 as compared to the same periods 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 4.18% compared to 3.40% 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 7.23% for the second quarter 2000, compared to 7.37% for the year
ago quarter.
LOAN LOSS PROVISION
The loan loss provision increased approximately $130,000 for the six
months and decreased approximately $109,000 for the three months ended June 30,
2000 as compared to the same periods in 1999. Management believes the loan loss
provision maintains the reserve for loan losses at an appropriate level
consistent with the known and inherent risks within the loan portfolio. However,
no assurance can be given that in any particular period loan losses could be
sustained that are sizable in relation to the amount reserved, or that changing
economic factors or other environmental conditions could cause increases in the
provision. The Bank's ratio of reserve for loan losses to total loans was 1.31
percent at June 30, 2000 compared to 1.26 percent at December 31, 1999.
NONINTEREST INCOME
Total noninterest income remained relatively constant for the six
months and the three months ended June 30, 2000 as compared to the same periods
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 13.0 percent for the six months
and 14.0 percent for the three months ended June 30, 2000 as compared to the
same periods 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, Keizer 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 second
quarter of 2000 with total assets increasing 15.3% to $401.1 million at June 30,
2000 compared to $347.9 million at December 31, 1999. This increase is primarily
due to strong loan growth. Total loans outstanding increased 17.8 percent to
$329.4 million at June 30, 2000 as compared to $279.7 million at December 31,
1999. The growth was concentrated in the commercial real estate loan portfolio,
up $17.9 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 24.7 percent to $355.9 million at June 30, 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
$19.5 million at June 30, 2000.
The Company had no off balance sheet derivative financial instruments
as of June 30, 2000 and December 31, 1999.
12
<PAGE>
CAPITAL RESOURCES
The Company's total stockholders equity at June 30, 2000 was $31.6
million, an increase of $2.0 million from December 31, 1999. The increase was
the net result of earnings of $3.3 million for the six months ended June 30,
2000, less cash dividends to shareholders of $1.1 million during the first six
months of 2000. In addition, higher market interest rates and lower common stock
prices resulted in a $.2 million increase in net unrealized loss on investment
securities available-for-sale. At June 30, 2000 the Company had a total
unrealized loss on available for sale securities of approximately $.9 million.
At June 30, 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 9.25% and 10.50%, 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 June 30, 2000 the Bank maintained unsecured lines of credit
totaling $19.0 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 $40.0 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 June 30, 2000 the Bank's deposit totals included a $16.6 million
Certificate of Deposit instrument from the State of Oregon ($9.2 million due
7/19/00 and $7.4 million due 8/16/00) through their State community bank CD
program. The Company continues to have ample available funding sources.
At June 30, 2000, the Bank had approximately $106.6 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
June 30, 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 evaluated the provisions of the Act and became a
designated "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.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) April 24, 2000, Annual Meeting
(b) Need not be completed
(c) The following matters were voted on at the Annual Meeting of
Shareholders held on April 24, 2000:
1. The re-election of two directors:
<TABLE>
<CAPTION>
Number Number Total
Of Votes of Votes Number of
Director "FOR" "WITHHELD" Votes
-------- --------- ---------- ---------
<S> <C> <C> <C>
Roger J. Shields 6,127,062 22,984 6,150,046
Jerol Andres 6,112,069 37,977 6,150,046
</TABLE>
(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, 2000.
(b) REPORTS ON FORM 8-K. The Company did not file any reports on
Form 8-K during the second quarter ended June 30, 2000.
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 8/3/00 By /s/ Patricia L. Moss
---------------------- --------------------------------------
Patricia L. Moss, President & CEO
Date 8/3/00 By /s/ Gregory D. Newton
---------------------- --------------------------------------
Gregory D. Newton, SVP/Chief
Financial Officer
16
