Cascade Bancorp (CACB) 10-Q 2014 Q1 Quarterly report

UNITED STATES

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, 2014

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: 000-23322

CASCADE BANCORP

(Exact name of registrant as specified in its charter)

Oregon	93-1034484
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

1100 N.W. Wall Street

Bend, Oregon 97701

(Address of principal executive offices)

(Zip Code)

(877) 617-3400

(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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

¨ Large accelerated filer   ¨ Accelerated filer   ¨ Non-accelerated filer   x Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨  No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 47,561,360 shares of no par value Common Stock as of May 5, 2014.

CASCADE BANCORP & SUBSIDIARY

FORM 10-Q

QUARTERLY REPORT

March 31, 2014

	INDEX
		Page
PART I:  FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets:
	March 31, 2014 and December 31, 2013	3
	Condensed Consolidated Statements of Operations:
	Three months ended March 31, 2014 and 2013	4
	Condensed Consolidated Statements of Comprehensive Income:
	Three months ended March 31, 2014 and 2013	5
	Condensed Consolidated Statements of Cash Flows:
	Three months ended March 31, 2014 and 2013	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	41
Item 4.	Controls and Procedures.	41
PART II:  OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	42
Item 5	Other Information	42
Item 6.	Exhibits	42
SIGNATURES		43

2

PART I – FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

Cascade Bancorp & Subsidiary

Condensed Consolidated Balance Sheets

March 31, 2014 and December 31, 2013

(Dollars in thousands)

(unaudited) 

	March 31,   2014			December 31, 2013
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	30,776		$	33,300
Interest bearing deposits	19,239			48,527
Federal funds sold	22			22
Total cash and cash equivalents	50,037			81,849
Investment securities available-for-sale	189,752			194,481
Investment securities held-to-maturity, estimated fair value of $1,336 ($1,342 at 2013)	1,320			1,320
Federal Home Loan Bank (FHLB) stock	9,820			9,913
Loans held for sale	4,398			10,359
Loans, net	983,925			973,618
Premises and equipment, net	32,376			32,953
Bank-owned life insurance (BOLI)	36,750			36,567
Other real estate owned (OREO), net	2,995			3,144
Deferred tax asset (DTA), net	49,477			50,068
Other assets	13,163			11,947
Total assets	$	1,374,013		$	1,406,219
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand	$	450,648		$	431,079
Interest bearing demand	534,723			544,668
Savings	53,443			50,258
Time	123,779			141,315
Total deposits	1,162,593			1,167,320
FHLB borrowings	—			27,000
Other liabilities	21,157			23,184
Total liabilities	1,183,750			1,217,504
Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized; none issued or outstanding	—			—
Common stock, no par value; 100,000,000 shares authorized; 47,562,849 issued and outstanding (47,592,061 in 2013)	330,988			330,839
Accumulated deficit	(141,145		)	(142,088		)
Accumulated other comprehensive income (loss)	420			(36		)
Total stockholders' equity	190,263			188,715
Total liabilities and stockholders' equity	$	1,374,013		$	1,406,219

See accompanying notes to condensed consolidated financial statements.

3

Cascade Bancorp & Subsidiary

Condensed Consolidated Statements of Operations

Three Months Ended March 31, 2014 and 2013

(Dollars in thousands, except per share amounts)

(unaudited)

	Three months ended    March 31,
	2014			2013
Interest income:
Interest and fees on loans	$	10,749		$	11,238
Interest on investments	1,328			1,322
Other investment income	27			37
Total interest income	12,104			12,597
Interest expense:
Deposits:
Interest bearing demand	175			166
Savings	4			5
Time	183			333
Other borrowings	5			474
Total interest expense	367			978
Net interest income	11,737			11,619
Loan loss provision	—			—
Net interest income after loan loss provision	11,737			11,619
Non-interest income:
Service charges on deposit accounts	753			735
Card issuer and merchant services fees, net	1,001			751
Earnings on bank owned life insurance ("BOLI")	183			211
Mortgage banking income, net	434			1,160
Swap fee income	326			—
Other income	655			499
Total non-interest income	3,352			3,356
Non-interest expense:
Salaries and employee benefits	7,643			7,647
Occupancy	1,140			1,155
Information Technology	787			577
Equipment	337			368
Communications	383			366
FDIC insurance	232			445
OREO (income) expense	(8		)	277
Professional services	1,332			681
Other expenses	2,004			1,795
Total non-interest expense	13,850			13,311
Income before income taxes	1,239			1,664
Income tax (provision) benefit	(296		)	32
Net income	$	943		$	1,696
Basic and diluted income per share:
Net income per common share	$	0.02		$	0.04
Net income per common share (diluted)	$	0.02		$	0.04

See accompanying notes to condensed consolidated financial statements.

4

Cascade Bancorp & Subsidiary

Condensed Consolidated Statements of Comprehensive Income

Three Months Ended March 31, 2014 and 2013

(Dollars in thousands)

(unaudited)

	Three months ended    March 31,
	2014			2013
Net Income	$	943		$	1,696
Other Comprehensive income:
Change in unrealized gain (loss) on investment securities available-for-sale	735			(885		)
Tax effect of the unrealized gain (loss) on investment securities available-for-sale	(279		)	337
Total other comprehensive income (loss)	$	456		$	(548	)
Comprehensive income	$	1,399		$	1,148

See accompanying notes to condensed consolidated financial statements.

5

Cascade Bancorp & Subsidiary

Condensed Consolidated Statements of Cash Flows

Three Months EndedMarch 31, 2014 and 2013

(Dollars in thousands)

(unaudited)

	Three months ended    March 31,
	2014			2013
Net cash provided by operating activities	$	4,473		$	4,084
Investing activities:
Purchases of investment securities available-for-sale	(3		)	(3		)
Proceeds from maturities, calls, and prepayments of investment securities available-for-sale	5,393			22,974
Proceeds from maturities, calls of investment securities held-to-maturity	—			7
Proceeds from redemption of FHLB stock	93			93
Loan originations, net	(10,307		)	(24,627		)
Proceeds from sales (purchases) of premises and equipment, net	128			(382		)
Proceeds from sales of OREO	166			1,568
Net cash used in investing activities	(4,530		)	(370		)
Financing activities:
Net (decrease) increase in deposits	(4,727		)	27,953
Tax effect of non-vested restricted stock	(28		)	—
FHLB advance borrowings	60,000			—
Repayment of FHLB advances	(87,000		)	—
Net cash provided by (used in) financing activities	(31,755		)	27,953
Net (decrease) increase in cash and cash equivalents	(31,812		)	31,667
Cash and cash equivalents at beginning of period	81,849			113,028
Cash and cash equivalents at end of period	$	50,037		$	144,695
Supplemental disclosures of cash flow information:
Interest paid	$	1,329		$	1,020
Loans transferred to OREO	$	—		$	940

See accompanying notes to condensed consolidated financial statements.

6

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

1.    Basis of Presentation

The accompanying interim condensed consolidated financial statements include the accounts of Cascade Bancorp (“Bancorp”), an Oregon chartered single bank holding company, and its wholly-owned subsidiary, Bank of the Cascades (the “Bank”) (collectively, the “Company” or “Cascade”). All significant inter-company accounts and transactions have been eliminated in consolidation.

The interim condensed consolidated financial statements have been prepared by the Company without audit and in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, certain financial information and footnotes have been omitted or condensed. In the opinion of management, the condensed consolidated financial statements include all adjustments (all of which are of a normal and recurring nature) necessary for the fair presentation of the results of the interim periods presented. 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 dates of the balance sheets and income and expenses for the reporting periods. Actual results could differ from those estimates. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

The condensed consolidated financial statements as of and for the year ended December 31, 2013 were derived from audited consolidated financial statements, but do not include all disclosures contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The interim condensed consolidated financial statements should be read in conjunction with the December 31, 2013 consolidated financial statements, including the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Certain amounts in 2013 have been reclassified to conform to the 2014 presentation, however the reclassifications do not have a material impact on the condensed consolidated financial statements.

7

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

2.    Investment Securities

Investment securities at March 31, 2014 and December 31, 2013 consisted of the following (dollars in thousands):

	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
March 31, 2014
Available-for-sale
U.S. Agency mortgage-backed securities (MBS) *	$	167,104	$	3,212	$	(3,022	)	$	167,294
Non-agency MBS	12,921		47		(381		)	12,587
U.S. Agency asset-backed securities	8,544		863		(45		)	9,362
Mutual fund	505		4		—			509
	$	189,074	$	4,126	$	(3,448	)	$	189,752
Held-to-maturity
Tax credit investments	$	614	$	—	$	—		$	614
Obligations of state and political subdivisions	706		16		—			722
	$	1,320	$	16	$	—		$	1,336
December 31, 2013
Available-for-sale
U.S. Agency MBS *	$	171,853	$	3,125	$	(3,646	)	$	171,332
Non-agency MBS	13,500		11		(414		)	13,097
U.S. Agency asset-backed securities	8,683		887		(21		)	9,549
Mutual fund	502		1		—			503
	$	194,538	$	4,024	$	(4,081	)	$	194,481
Held-to-maturity
Tax credit investments	$	614	$	—	$	—		$	614
Obligations of state and political subdivisions	706		22		—			728
	$	1,320	$	22	$	—		$	1,342

* U.S. Agency MBS include private label MBS of approximately $10.9 million and $11.3 million at March 31, 2014 and December 31, 2013, respectively, which are supported by FHA/VA collateral.

The following table presents the contractual maturities of investment securities at March 31, 2014 (dollars in thousands):

	Available-for-sale				Held-to-maturity
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Due in one year or less	$	—	$	—	$	510	$	516
Due after one year through five years	62		64		196		206
Due after five years through ten years	47,731		45,294		—		—
Due after ten years	140,776		143,885		—		—
Mutual fund	505		509		—		—
Tax credit investments	—		—		614		614
	$	189,074	$	189,752	$	1,320	$	1,336

8

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

The following table presents the fair value and gross unrealized losses of the Bank’s investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2014 and December 31, 2013 (dollars in thousands):

	Less than 12 months					12 months or more					Total
	Estimated  fair value		Unrealized losses			Estimated  fair value		Unrealized losses			Estimated  fair value		Unrealized losses
March 31, 2014
U.S. Agency MBS	$	36,691	$	(780	)	$	31,300	$	(2,242	)	$	67,991	$	(3,022	)
Non-Agency MBS	9,710		(381		)	6		—			9,716		(381		)
U.S. Agency asset-backed securities	770		(1		)	1,691		(44		)	2,461		(45		)
	$	47,171	$	(1,162	)	$	32,997	$	(2,286	)	$	80,168	$	(3,448	)
December 31, 2013
U.S. Agency MBS	$	35,440	$	(810	)	$	30,779	$	(2,836	)	$	66,219	$	(3,646	)
Non-Agency MBS	9,569		(412		)	179		(2		)	9,748		(414		)
U.S. Agency asset-backed securities	703		(4		)	1,775		(17		)	2,478		(21		)
	$	45,712	$	(1,226	)	$	32,733	$	(2,855	)	$	78,445	$	(4,081	)

The unrealized losses on investments in U.S. Agency and non-agency MBS and U.S Agency asset-backed securities are primarily due to changes in market yield/rate spreads at March 31, 2014 and December 31, 2013 as compared to yield/rate spread relationships prevailing at the time specific investment securities were purchased. Management expects the fair value of these investment securities to recover as securities approach their maturity dates. Management does not believe that the above gross unrealized losses on investment securities are other-than-temporary. Accordingly, no impairment adjustments have been recorded.

Management intends to hold the investment securities classified as held-to-maturity until they mature, at which time the Company will receive full amortized cost value for such investment securities. Furthermore, as of March 31, 2014, management did not have the intent to sell any of the securities classified as available-for-sale in the table above and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost.

9

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

 3.Loans and reserve for credit losses

 The composition of the loan portfolio at March 31, 2014 and December 31, 2013 was as follows (dollars in thousands):

	March 31, 2014					December 31, 2013
	Amount			Percent		Amount			Percent
Commercial real estate:
Owner occupied	$	195,111		19.4	%	$	204,998		20.6	%
Non-owner occupied	348,597			34.6	%	347,014			34.8	%
Total commercial real estate loans	543,708			54.0	%	552,012			55.4	%
Construction	55,436			5.5	%	52,503			5.3	%
Residential real estate	100,550			10.0	%	101,557			10.2	%
Commercial and industrial	273,444			27.1	%	254,170			25.5	%
Consumer	34,216			3.4	%	35,990			3.6	%
Total loans	1,007,354			100.0	%	996,232			100.0	%
Less:
Deferred loan fees	(1,707		)			(1,757		)
Reserve for loan losses	(21,722		)			(20,857		)
Loans, net	$	983,925				$	973,618

For the three months endedMarch 31, 2014, total loan balances increased by $11.1 million mainly due to an increased commercial and industrial portfolio, primarily related to the Company's syndicated national credit portfolio.

Approximately 69.5% of the Bank’s loan portfolio at March 31, 2014 consisted of real estate-related loans, including construction and development loans, residential mortgage loans, and commercial loans secured by commercial real estate. The Bank's results of operations and financial condition are affected by general economic trends and in particular, the strength of the local residential and commercial real estate markets in Central, Southern and Northwest Oregon and the greater Boise/Treasure Valley, Idaho area. Economic trends can significantly affect the strength of the local real estate market. Real estate values could be affected by, among other things, a worsening of economic conditions, an increase in foreclosures, a decline in home sale volumes, and an increase in interest rates. Furthermore, the Bank may experience an increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws, or default on their loans or other obligations to the Bank given a sustained weakness or a weakening in business and economic conditions generally or specifically in the principal markets in which the Bank does business. An increase in the number of delinquencies, bankruptcies, or defaults could result in a higher level of non-performing assets, net charge-offs, and loan loss provision. Management is targeting to reduce CRE concentration over the long term, but real estate-related loans will remain a significant portfolio component due to the nature of the economies, businesses, and markets we serve.

In the normal course of business, the Bank may participate portions of loans to third parties in order to extend the Bank’s lending capability or to mitigate risk. At both March 31, 2014 and December 31, 2013, the portion of loans participated to third-parties (which are not included in the accompanying condensed consolidated financial statements) totaled $11.3 million.

The reserve for loan losses represents management’s estimate of known and inherent losses in the loan portfolio as of the condensed consolidated balance sheet date and is recorded as a reduction to loans. The reserve for loan losses is increased by charges to operating expense through the loan loss provision, and decreased by loans charged-off, net of recoveries. The reserve for loan losses requires complex subjective judgments as a result of the need to make estimates about matters that are uncertain. The reserve for loan losses is maintained at a level currently considered adequate to provide for potential loan losses based on management’s assessment of various factors affecting the loan portfolio.

At March 31, 2014 and December 31, 2013, management believes that the Company’s reserve for loan losses is at an appropriate level under current circumstances and prevailing economic conditions. However the reserve for loan losses is based on estimates and actual losses may vary from the current estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. Therefore, management cannot provide

10

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

assurance that, in any particular period, the Company will not have significant losses in relation to the amount reserved. The level of the reserve for loan losses is also determined after consideration of bank regulatory guidance and recommendations and is subject to review by such regulatory authorities who may require increases or decreases to the reserve based on their evaluation of the information available to them at the time of their examinations of the Bank.

For purposes of assessing the appropriate level of the reserve for loan losses, the Company analyzes loans and commitments to loan, and the amount of reserves allocated to loans and commitments to loan in each of the following reserve categories: pooled reserves, specifically identified reserves for impaired loans, and the unallocated reserve. Also, for purposes of analyzing loan portfolio credit quality and determining the appropriate level of reserve for loan losses, the Company identifies loan portfolio segments and classes based on the nature of the underlying loan collateral.

The increase in the reserve for loan losses from December 31, 2013 to March 31, 2014 was mainly related to recoveries during the period. The unallocated reserve for loan losses at March 31, 2014 has increased $1.3 million from the balance at December 31, 2013. Management has evaluated the increased balance, which was a result of continued decreases in our expected loss rates in the more recent periods as well as significant recoveries in the first quarter of 2014. Management believes that the amount of unallocated reserve for loan losses is appropriate given the projected growth in specific loan categories and will continue to evaluate the amount going forward.

Transactions and allocations in the reserve for loan losses and unfunded loan commitments, by portfolio segment, for the three months ended March 31, 2014 and 2013 were as follows (dollars in thousands):

	Commercial real estate			Construction			Residential real estate			Commercial  and  industrial			Consumer			Unallocated		Total
Three months ended March 31, 2014
Reserve for loan losses
Balance at December 31, 2013	$	9,565		$	535		$	2,381		$	6,261		$	1,401		$	714	$	20,857
Loan loss provision (credit)	(1,560		)	278			(55		)	(18		)	62			1,293		—
Recoveries	941			85			124			911			87			—		2,148
Loans charged off	(143		)	(296		)	(223		)	(314		)	(307		)	—		(1,283		)
Balance at end of period	$	8,803		$	602		$	2,227		$	6,840		$	1,243		$	2,007	$	21,722
Reserve for unfunded lending commitments
Balance at December 31, 2013	$	48		$	268		$	25		$	75		$	24		$	—	$	440
Provision for unfunded loan commitments	—			—			—			—			—			—		—
Balance at end of period	$	48		$	268		$	25		$	75		$	24		$	—	$	440
Reserve for credit losses
Reserve for loan losses	$	8,803		$	602		$	2,227		$	6,840		$	1,243		$	2,007	$	21,722
Reserve for unfunded lending commitments	48			268			25			75			24			—		440
Total reserve for credit losses	$	8,851		$	870		$	2,252		$	6,915		$	1,267		$	2,007	$	22,162

11

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

	Commercial real estate			Construction			Residential real estate			Commercial  and  industrial			Consumer			Unallocated			Total
Three months ended March 31, 2013
Reserve for loan losses
Balance at December 31, 2012	$	11,596		$	1,583		$	3,551		$	7,267		$	2,177		$	1,087		$	27,261
Loan loss provision (credit)	(280		)	316			182			125			86			(429		)	—
Recoveries	178			124			117			512			59			—			990
Loans charged off	(269		)	(787		)	(136		)	(2,228		)	(283		)	—			(3,703		)
Balance at end of period	$	11,225		$	1,236		$	3,714		$	5,676		$	2,039		$	658		$	24,548
Reserve for unfunded lending commitments
Balance at December 31, 2012	$	48		$	268		$	25		$	75		$	24		$	—		$	440
Provision for unfunded loan commitments	—			—			—			—			—			—			—
Balance at end of period	$	48		$	268		$	25		$	75		$	24		$	—		$	440
Reserve for credit losses
Reserve for loan losses	$	11,225		$	1,236		$	3,714		$	5,676		$	2,039		$	658		$	24,548
Reserve for unfunded lending commitments	48			268			25			75			24			—			440
Total reserve for credit losses	$	11,273		$	1,504		$	3,739		$	5,751		$	2,063		$	658		$	24,988

12

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

An individual loan is impaired when, based on current information and events, management believes that it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The following table presents the reserve for loan losses and the recorded investment in loans by portfolio segment and impairment evaluation method at March 31, 2014 and December 31, 2013 (dollars in thousands):

	Reserve for loan losses						Recorded investment in loans
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
March 31, 2014
Commercial real estate	$	660	$	8,143	$	8,803	$	29,121	$	514,587	$	543,708
Construction	—		602		602		1,739		53,697		55,436
Residential real estate	62		2,165		2,227		426		100,124		100,550
Commercial and industrial	286		6,554		6,840		5,238		268,206		273,444
Consumer	—		1,243		1,243		—		34,216		34,216
	$	1,008	$	18,707	19,715		$	36,524	$	970,830	$	1,007,354
Unallocated					2,007
					$	21,722
December 31, 2013
Commercial real estate	$	665	$	8,900	$	9,565	$	32,227	$	519,785	$	552,012
Construction	—		535		535		1,987		50,516		52,503
Residential real estate	62		2,319		2,381		430		101,127		101,557
Commercial and industrial	56		6,205		6,261		5,823		248,347		254,170
Consumer	—		1,401		1,401		—		35,990		35,990
	$	783	$	19,360	20,143		$	40,467	$	955,765	$	996,232
Unallocated					714
					$	20,857

The Company uses credit risk ratings, which reflect the Bank’s assessment of a loan’s risk or loss potential, for purposes of assessing the appropriate level of reserve for loan losses. The Bank’s credit risk rating definitions along with applicable borrower characteristics for each credit risk rating are as follows:

Acceptable

The borrower is a reasonable credit risk and demonstrates the ability to repay the loan from normal business operations. Loans are generally made to companies operating in an economy and/or industry that is generally sound. The borrower tends to operate in regional or local markets and has achieved sufficient revenues for the business to be financially viable. The borrowers financial performance has been consistent in normal economic times and has been average or better than average for its industry.

A loan can also be considered Acceptable even though the borrower may have some vulnerability to downturns in the economy due to marginally satisfactory working capital and debt service cushion. Availability of alternate financing sources may be limited or nonexistent. In some cases, the borrower’s management, may have limited depth or continuity but is still considered capable. An adequate primary source of repayment is identified while secondary sources may be illiquid, more speculative, less readily identified, or reliant upon collateral liquidation. Loan agreements will be well defined, including several financial performance covenants and detailed operating covenants. This category also includes commercial loans to individuals with average or better than average capacity to repay.

Pass-Watch

Loans are graded Pass-Watch when temporary situations increase the level of the Bank’s risk associated with the loan, and remain graded Pass-Watch until the situation has been corrected. These situations may involve one or more weaknesses in cash flow, collateral value or indebtedness that could, if not corrected within a reasonable period of time, jeopardize the full repayment of

13

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

the debt. In general, loans in this category remain adequately protected by the borrower’s net worth and paying capacity, or pledged collateral.

Special Mention

A Special Mention credit has potential weaknesses that may, if not checked or corrected, weaken the loan or leave the Bank inadequately protected at some future date. Loans in this category are deemed by management of the Bank to be currently protected but reflect potential problems that warrant more than the usual management attention but do not justify a Substandard classification.

Substandard

Substandard loans are those inadequately protected by the net worth and paying capacity of the obligor and/or by the value of the pledged collateral, if any. Substandard loans have a high probability of payment default or they have other well-defined weaknesses. They require more intensive supervision and borrowers are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants.

CRE and construction loans are classified Substandard when well-defined weaknesses are present which jeopardize the orderly liquidation of the loan. Well-defined weaknesses include a project’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, and/or the project’s failure to fulfill economic expectations. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

In addition, Substandard loans also include impaired loans. Impaired loans bear the characteristics of Substandard loans as described above, and the Company has determined it does not expect timely payment of all contractually due interest and principal. Impaired loans may be adequately secured by collateral.

During the three months ended March 31, 2014, the Bank reduced loans classified as special mention and substandard by $17.8 million. Remediation was accomplished through credit upgrades mainly owing to improved obligor cash flows as well as payoffs/paydowns, and/or note sales.

14

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

The following table presents, by portfolio class, the recorded investment in loans by internally assigned grades at March 31, 2014 and December 31, 2013 (dollars in thousands):

	Loan grades
	Acceptable		Pass-Watch		Special Mention		Substandard		Total
March 31, 2014
Commercial real estate:
Owner occupied	$	145,041	$	17,945	$	10,777	$	21,348	$	195,111
Non-owner occupied	289,886		35,332		13,814		9,565		348,597
Total commercial real estate loans	434,927		53,277		24,591		30,913		543,708
Construction	50,188		2,322		1,798		1,128		55,436
Residential real estate	97,910		1,536		167		937		100,550
Commercial and industrial	257,166		8,572		1,571		6,135		273,444
Consumer	34,165		—		—		51		34,216
	$	874,356	$	65,707	$	28,127	$	39,164	$	1,007,354
December 31, 2013
Commercial real estate:
Owner occupied	$	147,865	$	19,798	$	14,730	$	22,605	$	204,998
Non-owner occupied	278,854		33,827		24,188		10,145		347,014
Total commercial real estate loans	426,719		53,625		38,918		32,750		552,012
Construction	46,274		2,772		2,131		1,326		52,503
Residential real estate	98,633		1,570		147		1,207		101,557
Commercial and industrial	242,053		3,518		2,694		5,905		254,170
Consumer	35,984		—		—		6		35,990
	$	849,663	$	61,485	$	43,890	$	41,194	$	996,232

15

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

The following table presents, by portfolio class, an age analysis of past due loans, including loans placed on non-accrual at March 31, 2014 and December 31, 2013 (dollars in thousands):

	30-89 days past due		90 days or more past due		Total past due		Current		Total loans
March 31, 2014
Commercial real estate:
Owner occupied	$	2,035	$	1,054	$	3,089	$	192,022	$	195,111
Non-owner occupied	792		—		792		347,805		348,597
Total commercial real estate loans	2,827		1,054		3,881		539,827		543,708
Construction	—		39		39		55,397		55,436
Residential real estate	362		235		597		99,953		100,550
Commercial and industrial	621		1,607		2,228		271,216		273,444
Consumer	94		51		145		34,071		34,216
	$	3,904	$	2,986	$	6,890	$	1,000,464	$	1,007,354
December 31, 2013
Commercial real estate:
Owner occupied	$	959	$	2,905	$	3,864	$	201,134	$	204,998
Non-owner occupied	—		—		—		347,014		347,014
Total commercial real estate loans	959		2,905		3,864		548,148		552,012
Construction	215		119		334		52,169		52,503
Residential real estate	436		163		599		100,958		101,557
Commercial and industrial	597		2,077		2,674		251,496		254,170
Consumer	53		6		59		35,931		35,990
	$	2,260	$	5,270	$	7,530	$	988,702	$	996,232

Loans contractually past due 90 days or more on which the Company continued to accrue interest were $0.1 million and $1.1 million at March 31, 2014 and December 31, 2013, respectively.

16

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

The following table presents information related to impaired loans, by portfolio class, at March 31, 2014 and December 31, 2013 (dollars in thousands):

	Impaired loans
	With a related allowance		Without a related allowance		Total recorded balance		Unpaid principal balance		Related allowance
March 31, 2014
Commercial real estate:
Owner occupied	$	2,754	$	3,629	$	6,383	$	8,561	$	647
Non-owner occupied	1,111		21,627		22,738		22,771		13
Total commercial real estate loans	3,865		25,256		29,121		31,332		660
Construction	689		1,050		1,739		1,740		—
Residential real estate	172		254		426		513		62
Commercial and industrial	3,845		1,393		5,238		6,077		286
Consumer	—		—		—		—		—
	$	8,571	$	27,953	$	36,524	$	39,662	$	1,008
December 31, 2013
Commercial real estate:
Owner occupied	$	2,772	$	6,582	$	9,354	$	12,707	$	652
Non-owner occupied	1,116		21,757		22,873		22,904		13
Total commercial real estate loans	3,888		28,339		32,227		35,611		665
Construction	751		1,236		1,987		2,029		—
Residential real estate	174		256		430		515		62
Commercial and industrial	4,074		1,749		5,823		6,701		56
Consumer	—		—		—		—		—
	$	8,887	$	31,580	$	40,467	$	44,856	$	783

At March 31, 2014 and December 31, 2013, the total recorded balance of impaired loans in the above table included $31.1 million and $33.2 million, respectively, of Troubled Debt Restructuring (“TDR”) loans which were not on non-accrual status.

The following table presents, by portfolio class, the average recorded investment in impaired loans for the three months ended March 31, 2014 and 2013 (dollars in thousands):

	Three Months Ended    March 31,
	2014		2013
Commercial real estate:
Owner occupied	$	7,868	$	15,209
Non-owner occupied	22,806		28,250
Total commercial real estate loans	30,674		43,459
Construction	1,863		6,514
Residential real estate	428		4,836
Commercial and industrial	5,530		9,384
Consumer	—		1,788
	$	38,495	$	65,981

Interest income recognized for cash payments received on impaired loans for the three months endedMarch 31, 2014 was insignificant.

17

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

Information with respect to the Company’s non-accrual loans, by portfolio class, at March 31, 2014 and December 31, 2013 is as follows (dollars in thousands):

	March 31, 2014		December 31, 2013
Commercial real estate:
Owner occupied	$	2,572	$	4,443
Non-owner occupied	280		280
Total commercial real estate loans	2,852		4,723
Construction	106		236
Residential real estate	465		399
Commercial and industrial	2,398		1,868
Total non-accrual loans	$	5,821	$	7,226
Accruing loans which are contractually past due 90 days or more:
Commercial real estate:
Owner occupied	$	—	$	—
Non-owner occupied	—		—
Total commercial real estate loans	—		—
Construction	39		—
Residential real estate	—		—
Commercial and industrial	—		1,077
Consumer	51		6
Total accruing loans which are contractually past due 90 days or more	$	90	$	1,083

TDRs

The Company allocated $1.0 million and $0.8 million of specific reserves to customers whose loan terms have been modified in TDRs as of March 31, 2014 and December 31, 2013, respectively. TDRs involve the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow. As indicated above, TDRs may also include loans to borrowers experiencing financial distress that renewed at existing contractual rates, but below market rates for comparable credit quality. The Company has been actively utilizing these programs and working with its customers to improve obligor cash flow and related prospect for repayment. Concessions may include, but are not limited to, interest rate reductions, principal forgiveness, deferral of interest payments, extension of the maturity date, and other actions intended to minimize potential losses to the Company. For each commercial loan restructuring, a comprehensive credit underwriting analysis of the borrower’s financial condition and prospects of repayment under the revised terms is performed to assess whether the new structure can be successful and whether cash flows will be sufficient to support the restructured debt. Generally, if the loan is on accrual at the time of restructuring, it will remain on accrual after the restructuring. After six consecutive payments under the restructured terms, a nonaccrual restructured loan is reviewed for possible upgrade to accruing status.

Typically, once a loan is identified as a TDR it will retain that designation until it is paid off, because restructured loans generally are not at market rates following restructuring. Under certain circumstances a TDR may be removed from TDR status if it is determined to no longer be impaired and the loan is at a competitive interest rate. Under such circumstances, allowance allocations for loans removed from TDR status would be based on the historical allocation for the applicable loan grade and loan class.

18

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

The following table presents, by portfolio segment, information with respect to the Company’s loans that were modified and recorded as TDRs during the three months ended March 31, 2014 and 2013 (dollars in thousands):

	Three months ended March 31,
	2014			2013
	Number of loans	TDR outstanding recorded investment		Number of loans	TDR outstanding recorded investment
Commercial real estate	—	$	—	5	$	27,677
Construction	—	—		2	115
Residential real estate	—	—		3	152
Commercial and industrial	—	—		8	399
Consumer	—	—		12	358
	—	$	—	30	$	28,701

There were no loans modified and recorded as TDRs during the three months endedMarch 31, 2014. During the same period in 2013, TDR activity was primarily the result of remediation to bolster cash flow of stressed loans, and included the restructuring of a large CRE credit in the Bank’s loan portfolio.

At March 31, 2014 and 2013, the Company had remaining commitments to lend on loans accounted for as TDRs of $0 and $0.02 million, respectively.

The following table presents, by portfolio segment, the post modification recorded investment for TDRs restructured during the three months ended March 31, 2013 by the primary type of concession granted (dollars in thousands). There were no TDRs restructured during the three months ended March 31, 2014.

Three Months Ended    March 31, 2013	Rate reduction		Term extension		Rate reduction and term extension		Total
Commercial real estate	$	3,809	$	2,368	$	21,500	$	27,677
Construction	—		115		—		115
Residential real estate	—		152		—		152
Commercial and industrial	174		173		52		399
Consumer	—		358		—		358
	$	3,983	$	3,166	$	21,552	$	28,701

The following table presents, by portfolio segment, the TDRs which had payment defaults during the three months endedMarch 31, 2014 and 2013 that had been previously restructured within the last twelve months prior to March 31, 2014 and 2013 (dollars in thousands):

19

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

	Three months ended March 31,
	2014			2013
	Number of loans	TDRs restructured in the period with a payment default		Number of loans	TDRs restructured in the period with a payment default
Commercial real estate	—	$	—	2	$	3,500
Construction	—	—		—	—
Residential real estate	—	—		—	—
Commercial and industrial loans	1	963		—	—
Consumer loans	—	—		—	—
	1	$	963	2	$	3,500

4.    Mortgage Servicing Rights (“MSRs”)

The Bank sells a predominant share of the mortgage loans it originates into the secondary market while retaining servicing of such loans. MSRs included in other assets in the condensed consolidated financial statements as of March 31, 2014 and December 31, 2013 are accounted for at the lower of origination value less accumulated amortization or current fair value. The net carrying value of MSRs at both March 31, 2014 and December 31, 2013 was $2.2 million. There was no valuation allowance at March 31, 2014 or December 31, 2013.

The following table presents activity in MSRs for the periods shown (dollars in thousands):

	Three months ended    March 31,
	2014			2013
Balance at beginning of period	$	2,232		$	1,308
Additions	95			311
Amortization	(99		)	(73		)
Change in valuation allowance	—			—
Balances at end of period	$	2,228		$	1,546

Mortgage banking income, net, consisted of the following for the periods shown (dollars in thousands):

	Three months ended    March 31,
	2014			2013
Origination and processing fees	$	102		$	174
Gain on sales of mortgage loans, net	274			964
MSR valuation allowance	—			—
Servicing fees	157			95
Amortization	(99		)	(73		)
Mortgage banking income, net	$	434		$	1,160

20

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

5.    Other Real Estate Owned, net

The following table presents activity related to OREO for the periods shown (dollars in thousands):

	Three months ended    March 31,
	2014			2013
Balance at beginning of period	$	3,144		$	6,552
Additions	—			940
Dispositions	(148		)	(5,360		)
Change in valuation allowance	(1		)	3,552
Balances at end of period	$	2,995		$	5,684

The following table summarizes activity in the OREO valuation allowance for the periods shown (dollars in thousands):

	Three months ended    March 31,
	2014			2013
Balance at beginning of period	$	2,394		$	10,642
Additions to the valuation allowance	64			197
Reductions due to sales	(63		)	(3,749		)
Balance at end of period	$	2,395		$	7,090

The following table summarizes OREO expenses for the periods shown (dollars in thousands):

	Three months ended    March 31,
	2014			2013
Operating costs	$	9		$	36
Net (gains) losses on dispositions	(81		)	44
Increases in valuation allowance	64			197
Total	$	(8	)	$	277

6.    Basic and Diluted Net Income per Common Share

The Company’s basic net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. The Company’s diluted net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding plus any incremental shares arising from the dilutive effect of stock-based compensation.

21

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

The numerators and denominators used in computing basic and diluted net income per common share for the three months endedMarch 31, 2014 and 2013 can be reconciled as follows (dollars in thousands, except per share data):

	Three months ended    March 31,
	2014		2013
Net income	$	943	$	1,696
Weighted-average shares outstanding - basic	47,233,077		47,141,298
Dilutive securities	63,150		112,632
Weighted-average shares outstanding - diluted	47,296,227		47,253,930
Common stock equivalent shares excluded due to antidilutive effect	106,666		32,399
Basic and diluted:
Net income per common share	$	0.02	$	0.04
Net income per common share (diluted)	$	0.02	$	0.04

7.    Stock-Based Compensation

At March 31, 2014, 4,572,513 shares reserved under the stock-based compensation plans were available for future grants.

During the three months ended March 31, 2014, the Company granted 3,937 shares of restricted stock with a weighted-average grant date fair value of $5.08 per share, which vest during 2017. During the same period, no stock options were granted. During the three months ended March 31, 2013, the Company granted 8,824 additional shares of restricted stock with a weighted-average grant date fair value of $6.80 per share, which vest during 2016. During the same period, the Company also granted 5,507 stock options with a weighted-average grant date fair value of approximately $6.80 per option. These stock options vest in 2016. The Company used the Black-Scholes option-pricing model with the following weighted-average assumptions to value options granted in 2013: 

	2013
Dividend yield	—	%
Expected volatility	77.2	%
Risk-free interest rate	1.1	%
Expected option lives	6.0 years

The dividend yield was based on historical dividend information. The Company has not paid dividends since the third quarter of 2008 resulting in the dividend yield of 0.0%. The expected volatility was based on the historical volatility of the Company’s common stock price. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the date of grant for periods corresponding with the expected lives of the options granted. The expected option lives represent the period of time that options are expected to be outstanding, giving consideration to vesting schedules and historical exercise and forfeiture patterns.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of publicly-traded options that have no vesting restrictions and are fully transferable.  The Black-Scholes model is affected by subjective assumptions including historical volatility of the Company’s common stock price.  Because the Company has relatively low average trading volume in its common stock, its estimated volatility may be higher than publicly-traded companies with greater trading volumes. 

22

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

The following table presents the activity related to stock options for the three months ended March 31, 2014 and 2013:

	Options		Weighted- average exercise price		Weighted- average remaining contractual term (years)	Aggregate intrinsic value (000)
Options outstanding at January 1, 2014	111,571		$	38.92	6.2	$	—
Canceled / forfeited	(336	)	77.04		N/A	N/A
Expired	(4,569	)	129.60		N/A	N/A
Options outstanding at March 31, 2014	106,666		$	34.91	6.2	$	0.6
Options exercisable at March 31, 2014	88,172		$	40.99	5.7	$	—
Options outstanding at January 1, 2013	139,446		$	53.66	6.2	$	79.4
Granted	5,507		6.80		10.0	—
Canceled / forfeited	(3,010	)	47.20		N/A	N/A
Expired	(10,806	)	90.72		N/A	N/A
Options outstanding at March 31, 2013	131,137		$	48.50	6.6	$	88.2
Options exercisable at March 31, 2013	92,781		$	66.45	5.5	$	56.8

Stock-based compensation expense related to stock options for the three months ended March 31, 2014 and 2013 was approximately $0.01 million and $0.03 million, respectively. As of March 31, 2014, there was approximately $0.04 million unrecognized compensation cost related to nonvested stock options which will be recognized over the remaining vesting periods of the underlying stock options.

The following table presents the activity related to nonvested restricted stock for the three months endedMarch 31, 2014:

	Number of shares		Weighted- average grant date fair value per share
Nonvested as of January 1, 2014	354,270		$	9.41
Granted	3,937		5.08
Vested	(68,673	)	6.25
Canceled / forfeited	(2,250	)	5.78
Nonvested as of March 31, 2014	287,284		$	10.14

Restricted stock is generally scheduled to vest over a three year period, with the unearned compensation related to restricted stock amortized to expense on a straight-line basis. As of March 31, 2014, unrecognized compensation cost related to nonvested restricted stock totaled approximately $1.1 million. Total expense recognized by the Company for nonvested restricted stock for the three months endedMarch 31, 2014 and 2013 was $0.2 million and $0.1 million, respectively. There was no unrecognized compensation cost related to restricted stock units (“RSUs”) at March 31, 2014 and December 31, 2013, as all RSUs were fully-vested at the date of the grant.

8.      Interest Rate Swap Derivatives

Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require no net investment and allow for the net settlement of positions. The notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. The underlying variable represents a specified interest rate, index, or other component. The interaction between the notional amount and the underlying variable determines the number of

23

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

units to be exchanged between the parties and influences the market value of the derivative contract. The Company obtains dealer quotation to value its derivative contracts.

The Company periodically enters into certain commercial loan interest rate swap agreements in order to provide commercial loan customers the ability to convert from variable to fixed interest rates. Under these agreements, the Company provides the customer with a variable rate loan and enters into an interest rate swap in which the customer receives a variable rate payment in exchange for a fixed rate payment. The Company offsets its risk exposure by entering into an offsetting interest rate swap with a dealer counterparty for the same notional amount and length of term as the customer interest rate swap providing the dealer counterparty with a fixed rate payment in exchange for a variable rate payment. Generally, these instruments help the Company manage exposure to market risk and meet customer financing needs. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors such as market-driven interest rates and prices or other economic factors.

The Company is exposed to credit-related losses in the event of nonperformance by the counterparty to these agreements. Credit risk of the financial contract is controlled through the credit approval, limits, and monitoring procedures and management does not expect the counterparties to fail their obligations.

In connection with the interest rate swaps between the Company and the dealer counterparties, the agreements contain a provision where if the Company fails to maintain its status as a well capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations. Similarly, the Company could be required to settle its obligations under certain of its agreements if certain credit ratings fall below specified standards or if specific regulatory events occur, such as a publicly issued memorandum of understanding, cease and desist order, or a termination of insurance coverage by the FDIC.

As of March 31, 2014, the notional values or contractual amounts and fair values of the Company's derivatives not designated in hedge relationships were as follows (in thousands).

	Asset Derivatives				Liability Derivatives
	March 31, 2014				March 31, 2014
	Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (2)
Interest rate swaps	$	31,388	$	839	$	31,388	$	839
(1) Included in Other Assets on the Consolidated Balance Sheet.
(2) Included in Other Liabilities on the Consolidated Balance Sheet.

Swap fee income, as included in noninterest income, was $0.3 million for the three months ended March 31, 2014. No derivatives instruments were in place at March 31, 2013.

The Company generally posts collateral against derivative liabilities in the form of cash. Collateral posted against derivative liabilities was $0.8 million and $0.3 million as of March 31, 2014 and December 31, 2013, respectively.

Derivative assets and liabilities are recorded at fair value on the balance sheet and do not take into account the effects of master netting agreements. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis and to offset net derivative position with related collateral where applicable.

The following table illustrates the potential effect of the Company's derivative master netting arrangements, by type of financial instrument, on the Company's balance sheet as of March 31, 2014 (in thousands):

24

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

	March 31, 2014
							Gross Amounts of Financial Instruments Not Offset in the Balance Sheet
	Gross Amounts Recognized		Amounts offset in the Balance Sheet		Net Amounts in the Balance Sheet		Netting Adjustment Per Applicable Master Netting Agreements		Fair Value of Financial Collateral in the Balance Sheet		Net Amount
Asset Derivatives
Interest rate swaps	$	839	$	—	$	839	$	—	$	—	$	839
Liability Derivatives
Interest rate swaps	$	839	$	—	$	839	$	—	$	790	$	49

9.    Income Taxes

In assessing the realizability of deferred tax assets (“DTA”), management considers whether it is more likely than not that some portion or all of the DTA will or will not be realized. The Company's ultimate realization of the DTA is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the nature and amount of historical and projected future taxable income, the scheduled reversal of deferred tax assets and liabilities, and available tax planning strategies in making this assessment. The amount of deferred taxes recognized could be impacted by changes to any of these variables.

During the three months ended March 31, 2014 and 2013, the Company recorded a $0.3 million income tax provision and $32 thousand income tax benefit, respectively. As of March 31, 2014, the net deferred tax asset was $49.5 million. Included in the net deferred taxes are NOL's (tax affected) for federal taxes of $27.5 million, Oregon state taxes of $2.9 million and Idaho state taxes of $2.6 million. Also included in the net deferred taxes are federal and state tax credits of $1.0 million and $0.1 million, respectively. This is compared with a deferred tax asset as of December 31, 2013 of $50.1 million. The Company reversed substantially all of the its DTA valuation allowance at June 30, 2013 of $41.6 million and the reversal of certain previously written-off deferred tax benefits of $8.5 million resulting from the reassessment of the Company's Internal Revenue Code ("IRC") Section 382 limitations and other related analyses.

There are a number of tax issues that impact the deferred tax asset balance including changes in temporary differences between the financial statement recognition of revenue and expenses, estimates as to the deductibility of prior losses and potential consequence of Section 382 of the IRC. See also “Critical Accounting Policies and Accounting Estimates - Deferred Income Taxes” included in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

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Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

10.    Fair Value Measurements

GAAP establishes a hierarchy for determining fair value measurements which includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The three levels are as follows:

• Level 1: Inputs that are quoted unadjusted prices in active markets - that the Company has the ability to access at the measurement date - for identical assets or liabilities.

• Level 2: Inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs derived principally from, or corroborated by, observable market data by correlation or other means.

• Level 3: Inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s assets and liabilities carried at fair value. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internal or third party models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that assets or liabilities are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes that the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain assets and liabilities could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and, therefore, estimates of fair value after the condensed consolidated balance sheet date may differ significantly from the amounts presented herein.

The following is a description of the valuation methodologies used for assets measured at fair value on a recurring or nonrecurring basis, as well as the general classification of such assets pursuant to valuation hierarchy:

Investment securities available-for-sale: Where quoted prices for identical assets are available in an active market, investment securities available-for-sale are classified within level 1 of the hierarchy. If quoted market prices for identical securities are not available, then fair values are estimated by independent sources using pricing models and/or quoted prices of investment securities with similar characteristics or discounted cash flows. The Company has categorized its investment securities available-for-sale as level 2, since a majority of such securities are MBS which are mainly priced in this latter manner.

Interest rate swap derivatives: The fair value of interest rate swap derivatives is determined based on mid-market values derived from market pricing data available for comparable transactions in the over-the-counter interest rate derivative market (Level 2 inputs). The fair value adjustment is included in other assets or other liabilities.

Impaired loans: In accordance with GAAP, loans measured for impairment are reported at estimated fair value, including impaired loans measured at an observable market price (if available), the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the fair value of the loan’s collateral (if collateral dependent). Estimated fair value of the loan’s collateral is determined by appraisals or independent valuations which are then adjusted for the estimated costs related to liquidation of the collateral. Management’s ongoing review of appraisal information may result in additional discounts or adjustments to valuation based upon more recent market sales activity or more current appraisal information derived from properties of similar type and/or locale. A significant portion of the Bank’s impaired loans are measured using the estimated fair market value of the collateral less the estimated costs to sell. The Company has categorized its impaired loans as level 3.

OREO: The Company’s OREO is measured at estimated fair value less estimated costs to sell. Fair value is generally determined based on third-party appraisals of fair value in an orderly sale. Historically, appraisals have considered comparable sales of like assets in reaching a conclusion as to fair value. Since many recent real estate sales could be termed “distressed sales”, and since a preponderance have been short-sale or foreclosure related, this has directly impacted appraisal valuation estimates.

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Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

Estimated costs to sell OREO are based on standard market factors. The valuation of OREO is subject to significant external and internal judgment. Management periodically reviews OREO to determine whether the property continues to be carried at the lower of its recorded book value or estimated fair value, net of estimated costs to sell. The Company has categorized its OREO as level 3.

The Company’s financial assets measured at fair value on a recurring basis at March 31, 2014 and December 31, 2013 were as follows (dollars in thousands):

	Level 1		Level 2		Level 3
March 31, 2014
Assets:
Investment securities available-for-sale	$	—	$	189,752	$	—
Interest rate swap derivatives	—		839		—
Total assets	$	—	$	190,591	$	—
Liabilities:
Interest rate swap derivatives	$	—	$	839	$	—
December 31, 2013
Assets:
Investment securities available-for-sale	$	—	$	194,481	$	—

Certain assets are measured at fair value on a nonrecurring basis (e.g., the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments when there is evidence of impairment). The following table represents the assets measured at fair value on a nonrecurring basis by the Company at March 31, 2014 and December 31, 2013 (dollars in thousands):

	Level 1		Level 2		Level 3
March 31, 2014
Impaired loans with specific valuation allowances	$	—	$	—	$	8,571
Other real estate owned	—		—		2,995
	$	—	$	—	$	11,566
December 31, 2013
Impaired loans with specific valuation allowances	$	—	$	—	$	8,887
Other real estate owned	—		—		3,144
	$	—	$	—	$	12,031

The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at March 31, 2014 and December 31, 2013 (dollars in thousands):

	March 31, 2014
	Fair Value Estimate		Valuation Techniques	Unobservable Input
Impaired loans	$	8,571	Market approach	Appraised value less selling costs of 5% to 10% Additional discounts of 5% to 50% to appraised value to reflect liquidation value
Other real estate owned	$	2,995	Market approach	Appraised value less selling costs of 5% to 10%

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Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

	December 31, 2013
	Fair Value Estimate		Valuation Techniques	Unobservable Input
Impaired loans	$	8,887	Market approach	Appraised value less selling costs of 5% to 10% Additional discounts of 5% to 50% to appraised value to reflect liquidation value
Other real estate owned	$	3,144	Market approach	Appraised value less selling costs of 5% to 10%

The Company did not change the methodology used to determine fair value for any assets or liabilities during 2013, or during the three months ended March 31, 2014. In addition, for any given class of assets, the Company did not have any transfers between level 1, level 2, or level 3 during 2013 or the three months ended March 31, 2014.

The following disclosures are made in accordance with the provisions of GAAP, which requires the disclosure of fair value information about financial instruments where it is practicable to estimate that value.

In cases where quoted market values are not available, the Company primarily uses present value techniques to estimate the fair value of its financial instruments. Valuation methods require considerable judgment, and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used. Accordingly, the estimates provided herein do not necessarily indicate amounts which could be realized in a current market exchange.

In addition, as the Company normally intends to hold the majority of its financial instruments until maturity, it does not expect to realize many of the estimated amounts disclosed. The disclosures also do not include estimated fair value amounts for items which are not defined as financial instruments but which may have significant value. The Company does not believe that it would be practicable to estimate a representational fair value for these types of items as of March 31, 2014 and December 31, 2013.

Because GAAP excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements, any aggregation of the fair value amounts presented would not represent the underlying value of the Company.

The Company uses the following methods and assumptions to estimate the fair value of its financial instruments:

Cash and cash equivalents:  The carrying amount approximates the estimated fair value of these instruments.

Investment securities: See above description.

FHLB stock:  The carrying amount approximates the estimated fair value of this investment.

Loans:  The estimated fair value of non-impaired loans is calculated by discounting the contractual cash flows of the loans using March 31, 2014 and December 31, 2013 origination rates. The resulting amounts are adjusted to estimate the effect of changes in the credit quality of borrowers since the loans were originated. Estimated fair values for impaired loans are determined using an observable market price, (if available), the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the loan’s collateral (if collateral dependent) as described above. Observable market prices for community bank loans are not generally available given the non-homogenous characteristics of such loans.

BOLI: The carrying amount approximates the estimated fair value of these instruments.

MSRs: The estimated fair value of MSRs is calculated by discounting the expected future contractual cash flows. The amount of impairment recognized is the amount, if any, by which the amortized cost of the rights exceeds its estimated fair value. Impairment, if deemed temporary, is recognized through a valuation allowance to the extent that estimated fair value is less than the recorded amount.

Interest rate swap derivatives: See above description.

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Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

Deposits:  The estimated fair value of demand deposits, consisting of checking, interest bearing demand, and savings deposit accounts, is represented by the amounts payable on demand. At the reporting date, the estimated fair value of time deposits is calculated by discounting the scheduled cash flows using the March 31, 2014 and December 31, 2013 rates offered on those instruments.

Other borrowings:   The fair value of other borrowings (including federal funds purchased, if any) are estimated using discounted cash flow analyses based on the Bank’s March 31, 2014 and December 31, 2013 incremental borrowing rates for similar types of borrowing arrangements.

Loan commitments and standby letters of credit: The majority of the Bank’s commitments to extend credit have variable interest rates and “escape” clauses if the customer’s credit quality deteriorates. Therefore, the fair values of these items are not significant and are not included in the following table.

The estimated fair values of the Company’s significant on-balance sheet financial instruments at March 31, 2014 and December 31, 2013 were approximately as follows (dollars in thousands):

		March 31, 2014				December 31, 2013
	Level in Fair Value Hierarchy	Carrying value		Estimated fair value		Carrying value		Estimated fair value
Financial assets:
Cash and cash equivalents	Level 1	$	50,037	$	50,037	$	81,849	$	81,849
Investment securities:
Available-for-sale	Level 2	189,752		189,752		194,481		194,481
Held-to-maturity	Level 2	1,320		1,336		1,320		1,342
FHLB stock	Level 2	9,820		9,820		9,913		9,913
Loans held-for-sale	Level 2	4,398		4,398		10,359		10,359
Loans, net	Level 3	983,925		979,819		973,618		977,142
BOLI	Level 3	36,750		36,750		36,567		36,567
MSRs	Level 3	2,228		2,910		2,232		2,790
Interest rate swap derivatives	Level 2	839		839		—		—
Financial liabilities:
Deposits	Level 2	1,162,593		1,162,715		1,167,320		1,167,532
FHLB borrowings	Level 2	—		—		27,000		27,000
Interest rate swap derivatives	Level 2	839		839		—		—

11.      Regulatory Matters

Bancorp and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Bancorp and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Bancorp’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require Bancorp and the Bank to maintain minimum amounts and ratios (set forth in the tables below) of Tier 1 capital to average assets and Tier 1 and total capital to risk-weighted assets (all as defined in the regulations).

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Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

Federal banking regulators are required to take prompt corrective action if an insured depository institution fails to satisfy certain minimum capital requirements. Such actions could potentially include a leverage capital limit, a risk-based capital requirement, and any other measure of capital deemed appropriate by the federal banking regulator for measuring the capital adequacy of an insured depository institution. In addition, payment of dividends by Bancorp and the Bank are subject to restriction by state and federal regulators and availability of retained earnings.

Bancorp’s actual and required capital amounts and ratios as of March 31, 2014 and December 31, 2013 are presented in the following table (dollars in thousands): 

	Actual				Regulatory minimum to be "adequately capitalized"				Regulatory minimum to be "well capitalized"
	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
March 31, 2014
Tier 1 leverage (to average assets)	$	146,020	10.9	%	$	53,630	4.0	%	$	67,037	5.0	%
Tier 1 capital (to risk-weighted assets)	146,020		13.2		44,280		4.0		66,420		6.0
Total capital (to risk-weighted assets)	159,962		14.5		88,560		8.0		110,700		10.0
December 31, 2013
Tier 1 leverage (to average assets)	$	142,937	10.5	%	$	54,527	4.0	%	$	68,159	5.0	%
Tier 1 capital (to risk-weighted assets)	142,937		13.0		44,021		4.0		66,031		6.0
Total capital (to risk-weighted assets)	156,787		14.3		88,041		8.0		110,052		10.0

The Bank’s actual and required capital amounts and ratios are presented in the following table (dollars in thousands):

	Actual				Regulatory minimum to be "adequately capitalized"				Regulatory minimum to be "well capitalized"
	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
March 31, 2014
Tier 1 leverage (to average assets)	$	145,936	10.9	%	$	53,627	4.0	%	$	67,034	5.0	%
Tier 1 capital (to risk-weighted assets)	145,936		13.2		44,196		4.0		66,294		6.0
Total capital (to risk-weighted assets)	159,852		14.5		88,392		8.0		110,490		10.0
December 31, 2013
Tier 1 leverage (to average assets)	$	142,964	10.5	%	$	54,529	4.0	%	$	68,162	5.0	%
Tier 1 capital (to risk-weighted assets)	142,964		13.0		43,939		4.0		65,909		6.0
Total capital (to risk-weighted assets)	156,788		14.3		87,879		8.0		109,848		10.0

12.      Commitments and Contingencies

The Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business.  While the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s condensed consolidated financial position, results of operations, or cash flows.

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Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2014

(unaudited)

13.      New Authoritative Accounting Guidance

In January 2014, the FASB issued ASU 2014-04, "Receivables- Troubled Debt Restructurings by Creditors (subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure" ("ASU 2014-04"). The provisions of ASU 2014-04 clarify that when an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either 1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or 2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through similar legal agreement. The provisions of ASU 2014-04 are effective for annual and interim reporting periods beginning on or after December 15, 2014. The adoption of ASU 2014-04 is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU 2013-11"). ASU 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. No new recurring disclosures are required. The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2013 and are to be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The adoption of ASU 2013-11 is not expected to have a material impact on the Company's consolidated financial statements.

14.      Subsequent Event

On October 23, 2013 the Company, jointly with Home Federal Bancorp, Inc. (NASDAQ: HOME) ("Home Federal"), the holding company for Home Federal Bank, announced the signing of a definitive agreement and plan of merger whereby the Company and Home Federal intend to merge in a transaction valued at approximately $265.7 million, payable in a mix of cash and the Company's common stock to Home Federal's stockholders. The combined company is expected to have over $2.0 billion in assets and serve communities across Oregon and Idaho. The transaction was unanimously approved by the boards of directors of the Company and Home Federal.

On February 20, 2014, Cascade received regulatory approval from the Federal Deposit Insurance Corporation to merge with Home Federal Bank, with Bank of the Cascades continuing as the surviving entity.

On April 11, 2014, the Company received notice of non-objection from the Federal Reserve Bank, acting on delegated authority from the Board of Governors of the Federal Reserve System, to consummate the merger with Home Federal, and to thereby acquire Home Federal Bank. The Federal Reserve Bank also waived the filing of a formal application by Cascade for the Merger.

As the Company also received the necessary regulatory approvals from the Oregon Department of Consumer and Business Services, Division of Finance and Corporate Securities, as well as the Idaho Department of Finance, all regulatory approvals and non-objections required to be obtained prior to the completion of the Merger have now been obtained.

Completion of the Merger remains subject to approval of Home’s shareholders and Cascade’s shareholders, as well as the satisfaction of other customary closing conditions. Assuming such approvals are received and conditions are satisfied, the Company expects to complete the merger in May 2014.

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ITEM 2.       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, included elsewhere in this Quarterly Report on Form 10-Q. This discussion highlights key information as determined by management but may not contain all of the information that is important to you. For a more complete understanding, the following should be read in conjunction with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2014, including its audited 2013 consolidated financial statements and the notes thereto as of December 31, 2013 and 2012 and for each of the years in the three-year period ended December 31, 2013.

In this documents please note that “we” “our” “us” “Cascade” or the “Company” refer collectively to Cascade Bancorp (“Bancorp”), an Oregon chartered single bank holding company and its wholly-owned subsidiary, Bank of the Cascades (the “Bank”).

Cautionary Information Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements about the Company’s plans and anticipated results of operations and financial condition. These statements include, but are not limited to, our plans, objectives, expectations and intentions and are not statements of historical fact. When used in this report, the words “expects,” “believes,” “anticipates,” “could,” “may,” “will,” “should,” “plan,” “predicts,” “projections,” “continue” and other similar expressions constitute forward-looking statements, as do any other statements that expressly or implicitly predict future events, results or performance, and such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain risks and uncertainties, and the Company’s success in managing such risks and uncertainties could cause actual results to differ materially from those projected, including, among others, the risk factors disclosed in Part II – Item 1A of this Quarterly Report on Form 10-Q and in Part I - Item 1A of the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2014 for the year ended December 31, 2013.

These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. Readers should carefully review all disclosures filed by the Company from time to time with the SEC.

 Critical Accounting Policies and Accounting Estimates

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that our most critical accounting policies upon which our financial condition depends, and which involve the most complex or subjective decisions or assessments are as follows.

Reserve for Credit Losses

The Company’s reserve for credit losses provides for estimated losses based upon evaluations of known and inherent risks in the loan portfolio and related loan commitments. Arriving at an estimate of the appropriate level of reserve for credit losses (which consists of our reserve for loan losses and our reserve for loan commitments) involves a high degree of judgment and assessment of multiple variables that result in a methodology with relatively complex calculations and analysis. Management uses historical information to assess the adequacy of the reserve for loan losses and considers qualitative factors including economic conditions and a range of other factors in its determination of the reserve. On an ongoing basis, the Company seeks to enhance and refine its methodology such that the reserve is at an appropriate level and responsive to changing conditions. In this regard, as of June 30, 2013 management implemented a homogeneous pool approach to estimating reserves for consumer and small business loans. As of March 31, 2014, this change has not had a material effect on the level of the reserve for loan losses. However, the Company’s methodology may not accurately estimate inherent loss or external factors and changing economic conditions may impact the loan portfolio and the level of reserves in ways currently unforeseen.

The reserve for loan losses is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. The reserve for loan commitments is increased and decreased through non-interest expense. For a full discussion of the Company’s methodology of assessing the adequacy of the reserve for credit losses, see "Loan Portfolio and Credit Quality” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2013.

Deferred Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are

32

reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision (credit) for income taxes. A valuation allowance, if needed, reduces deferred tax assets to the expected amount to be realized.

Deferred tax assets are recognized subject to management's judgment that realization is “more likely than not.” Uncertain tax positions that meet the more likely than not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the amount of benefit that management believes has a greater than 50% likelihood of realization upon settlement. Tax benefits not meeting our realization criteria represent unrecognized tax benefits. We account for interest and penalties as a component of income tax expense.

The Company reversed its deferred tax asset, or DTA, valuation allowance as of June 30, 2013 due to management’s determination that it was more likely than not that a significant portion of the Company's DTA would be realized. Management’s determination resulted from consideration of both the positive and negative evidence available that can be objectively verified. For a full discussion of the Company’s considerations, see "Deferred Income Taxes” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2013.

As of March 31, 2014 and December 31, 2013, the Company had a net deferred tax asset of $49.5 million and $50.1 million, respectively. There are a number of tax issues that impact the deferred tax asset balance, including changes in temporary differences between the financial statement and tax recognition of revenue and expenses and estimates as to the deductibility of prior losses.

Other Real Estate Owned and Foreclosed Assets

Other real estate owned and other foreclosed assets acquired through loan foreclosure are initially recorded at estimated fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the reserve for loan losses. Due to the subjective nature of establishing the asset’s fair value when it is acquired, the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate. If it is determined that fair value declines subsequent to foreclosure, a valuation allowance is recorded through non-interest expense. Operating costs associated with the assets after acquisition are also recorded as non-interest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other non-interest expenses.

Economic Conditions

The Company's business is closely tied to the economies of Idaho and Oregon which in turn are influenced by regional and national economic trends and conditions. Economic conditions in both Idaho and Oregon have improved from the severe economic downturn in 2007 through 2009, and both regions have experienced gains in employment and real estate prices since such time. Economic conditions and real estate prices have also improved nationally since the economic downturn. However lingering effects of the economic downturn, including fiscal imbalances, continue to affect employment and business and consumer confidence to various degrees and the future direction of both the national and regional economies remains uncertain. The Company's markets continue to be sensitive to real estate values and unemployment rates continue to be higher than prior to the downturn. An unforeseen economic shock or a return of adverse economic conditions could cause deterioration of local economies and adversely affect the Company's financial condition and results of operations.

Financial Highlights and Summary of the First Quarter of 2014 (period ended March 31, 2014)

• Net Income for the First Quarter of 2014: $0.9 million, or $0.02, per common share in the first quarter of 2014 compared to $1.7 million, or $0.04, per common share for the first quarter of 2013. The current quarter includes $0.8 million of merger related expenses.

• Stockholders Equity/Book Value per Share: Equity increased to $190.3 million, or $4.00, per share, at March 31, 2014 compared to $188.7 million, or $3.97 per share, at December 31, 2013. The increase was mainly a result of income earned in the first three months of 2014.

• Loans: Gross loans are up $11.1 million, or 1.12%, compared to December 31, 2013.

• Deposits: Total deposits are down $4.7 million, or 0.40%, compared to December 31, 2013.

• Credit Quality: Reserve for loan losses at $21.7 million, or 2.15%, of loans compared to $20.9 million, or 2.08%, of loans at December 31, 2013; no loan loss provision was recorded in the first quarter of 2014 or 2013.

• Credit Quality: Net recoveries for the first quarter of 2014 were $0.9 million, as compared to net charge-offs of $2.7 million in the first quarter of 2013. Gross charge-offs decreased as a result of the lower frequency of special mention and substandard loans.

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• Credit Quality: Non-performing assets improved to 0.65% of total assets at March 31, 2014 compared to 0.81% at December 31, 2013.

• Net Interest Margin ("NIM"): NIM was 3.83% for the quarter ended March 31, 2014 compared to 4.11% for the quarter ended December 31, 2013.

RESULTS OF OPERATIONS –Three Months Ended March 31, 2014 and 2013

Total loans and loans held-for-sale outstanding increased $5.2 million to $1.0 billion at March 31, 2014 compared to December 31, 2013. The growth was primarily attributable to increased balances of shared national credits in the commercial and industrial portfolio.

Loan quality continued to improve with remediation of special mention and substandard loans. Loans categorized as such totaled $67.3 million at March 31, 2014 as compared to $85.1 million at December 31, 2013. Remediation was accomplished through credit upgrades owing to improved obligor cash flows as well as payoffs/paydowns, note sales and/or charge offs related to the restructure of adversely risk rated loans. Non-performing assets as of March 31, 2014 improved to 0.65% of total assets as compared to 0.81% at December 31, 2013. Net recoveries during the first quarter of 2014 were $0.9 million; the Company made no provision for loan losses as management believes the reserve for loan losses of $21.7 million at March 31, 2014 is adequate.

Total deposits as of March 31, 2014 were $4.7 million lower than the balance at December 31, 2013. The relatively unchanged balance in deposits over the quarter was due to lower seasonal usage and less fluctuation of balances in customer accounts.

Non-interest income of $3.4 million in the first quarter of 2014 remained consistent with non-interest income of $3.4 million in the first quarter of 2013. Non-interest expense increased $0.5 million in the first quarter of 2014 as compared to the first quarter of 2013, due primarily to merger related expenses of $0.8 million in the first quarter of 2014.

Income Statement

Net Income

Net income for the quarter ended March 31, 2014 was $0.02 per share, or $0.9 million, compared to $0.04 per share, or $1.7 million, for the first quarter of 2013. The decrease in net income in the first quarter of 2014 compared to the same period in 2013 was primarily the result of $0.8 million in transactional expenses related to our proposed merger with Home Federal Bancorp, Inc.

Net Interest Income

Net interest income was $11.7 million for the first quarter of 2014, comparable to $11.6 million in the first quarter of 2013.

Total interest income decreased $0.5 million from $12.6 million in the first quarter of 2013 to $12.1 million in the first quarter of 2014. The decrease was due primarily to lower interest rates in the first quarter of 2014 compared to the same period in 2013. Total interest expense for the first quarter of 2014 decreased $0.6 million compared to the first quarter of 2013. This improvement was primarily due to lower rates on deposits and reduced borrowing expenses.

Components of Net Interest Margin

The following tables set forth the components of the Company's net interest margin for the three months endedMarch 31, 2014 and 2013. The tables present average balance sheet information, interest income and yields on average interest-earning assets, interest expense and rates paid on average interest-bearing liabilities, net interest income, net interest spread and net interest margin for the Company (dollars in thousands):

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	Three Months Ended March 31,
	2014							2013
	Average Balance			Interest Income/ Expense		Average Yield or Rates		Average Balance			Interest Income/ Expense		Average Yield or Rates
Assets
Investment securities	$	192,495		$	1,328	2.80	%	$	245,847		$	1,322	2.18	%
Interest bearing balances due from other banks	46,086			27		0.24	%	67,275			37		0.22	%
Federal funds sold	22			—		—	%	23			—		—	%
Federal Home Loan Bank stock	9,890			—		—	%	10,273			—		—	%
Loans (1)(2)(3)	994,926			10,749		4.38	%	880,006			11,238		5.18	%
Total earning assets/interest income	1,243,419			12,104		3.95	%	1,203,424			12,597		4.25	%
Reserve for loan losses	(21,482		)					(27,134		)
Cash and due from banks	27,094							29,750
Premises and equipment, net	32,792							34,287
Bank-owned life insurance	36,637							35,784
Accrued interest and other assets	66,010							18,633
Total assets	$	1,384,470						$	1,294,744
Liabilities and Stockholders' Equity
Interest bearing demand deposits	$	541,731		175		0.13	%	$	507,042		166		0.13	%
Savings deposits	51,891			4		0.03	%	41,851			5		0.05	%
Time deposits	136,570			183		0.54	%	129,148			333		1.05	%
Other borrowings	6,978			5		0.29	%	66,356			474		2.90	%
Total interest bearing liabilities/interest expense	737,170			367		0.20	%	744,397			978		0.53	%
Demand deposits	435,803							385,263
Other liabilities	22,061							23,068
Total liabilities	1,195,034							1,152,728
Stockholders' equity	189,436							142,016
Total liabilities and stockholders' equity	$	1,384,470						$	1,294,744
Net interest income				$	11,737						$	11,619
Net interest spread						3.75	%						3.71	%
Net interest income to earning assets						3.83	%						3.92	%

(1) Average non-performing loans included in the computation of average loans for the three months ended March 31, 2014 and 2013 was approximately $5.3 million and $17.5 million, respectively.

(2) Loan related fees, including prepayment penalties, recognized during the period and included in the yield calculation totaled approximately $0.2 million in 2014 and $0.5 million in 2013.

(3) Includes loans held for sale.

Analysis of Changes in Interest Income and Expense

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The following table shows the dollar amount of increase (decrease) in the Company’s consolidated interest income and expense for the three months endedMarch 31, 2014, and attributes such variance to “volume” or “rate” changes (dollars in thousands):

	Three Months Ended March 31,
	2014 over 2013
	Total Increase			Amount of Change Attributed to
	(Decrease)			Volume			Rate
Interest income:
Interest and fees on loans	$	(489	)	$	1,469		$	(1,958	)
Interest on investment securities	6			(286		)	292
Other investment income	(10		)	(12		)	2
Total interest income	(493		)	1,171			(1,664		)
Interest expense:
Interest on deposits:
Interest bearing demand	9			11			(2		)
Savings	(1		)	1			(2		)
Time deposits	(150		)	19			(169		)
Other borrowings	(469		)	(425		)	(44		)
Total interest expense	(611		)	(394		)	(217		)
Net interest income	$	118		$	1,565		$	(1,447	)

Loan Loss Provision

The Company did not record a loan loss provision during the first quarter of 2014 or 2013.

Net recoveries in the first quarter of 2014 were $0.9 million compared to net charge-offs of $2.7 million in the first quarter of 2013 primarily in the commercial real estate and commercial and industrial loan categories. At March 31, 2014, the reserve for loan losses was $21.7 million, or 2.15%, of outstanding loans compared to $20.9 million, or 2.08%, of outstanding loans at December 31, 2013.

The Bank maintains pooled and impaired loan reserves with additional consideration of qualitative factors and unallocated reserves in reaching its determination of the total reserve for loan losses. The level of reserves is subject to review by the Bank’s regulatory authorities who may require adjustments to the reserve based on their evaluation and opinion of economic and industry factors as well as specific loans in the portfolio. For further discussion, see “Critical Accounting Policies and Estimates” in this report and “Loan Portfolio and Credit Quality” in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. There can be no assurance that the reserve for credit losses will be sufficient to cover actual loan-related losses.

The reserve for unfunded lending commitments was $0.4 million at March 31, 2014, which remained unchanged from December 31, 2013.

Non-Interest Income

Non-interest income was as follows for the periods presented below (dollars in thousands):

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	Three Months Ended    March 31, 2014		Three Months Ended    March 31, 2013		% Change
Service charges on deposit accounts	$	753	$	735	2.4	%
Card issuer and merchant services fees, net	1,001		751		33.3	%
Earnings on BOLI	183		211		(13.3	)%
Mortgage banking income, net	434		1,160		(62.6	)%
Swap fee income	326		—		100.0	%
Other income	655		499		31.3	%
Total non-interest income	$	3,352	$	3,356	(0.1	)%

Total non-interest income remained relatively consistent in the first quarter of 2014 compared to the same period in 2013 mainly as a result of increased card issuer and merchant services fees along with revenues from programs instituted by the Company in the second half of 2013, being offset by reduced mortgage banking income.

During the quarter ended March 31, 2014, service charges on deposit accounts remained consistent compared to the same period in 2013 mainly as a result of a similar mix of deposit transactions and product offerings.

Card issuer and merchant service fees increased in the first quarter of 2014 compared to the same periods in 2013 primarily due to higher transaction volume and the conversion of our cards to a new vendor completed in the first quarter of 2014.

Net mortgage banking income decreased in the three months ended March 31, 2014 compared to the three months ended March 31, 2013, mainly due to lower residential mortgage origination volumes and related gains on sales.

We recorded swap fee income of $0.3 million in the first quarter of 2014 in connection with the Company’s newly initiated interest rate swap products.

Other income for the three months ended March 31, 2014 increased over the three months ended March 31, 2013 mainly as a result of increased Small Business Administration ("SBA") fees due to increased activity as well as income from syndicated loan sales and money pass revenue, from programs we initiated in the later part of 2013.

Non-Interest Expense

Non-interest expense was as follows for the periods presented below (dollars in thousands):

	Three Months Ended    March 31, 2014			Three Months Ended    March 31, 2013		% Change
Salaries and employee benefits	$	7,643		$	7,647	(0.1	)%
Occupancy	1,140			1,155		(1.3	)%
Information Technology	787			577		36.4	%
Equipment	337			368		(8.4	)%
Communications	383			366		4.6	%
FDIC insurance	232			445		(47.9	)%
OREO	(8		)	277		(102.9	)%
Professional services	1,332			681		95.6	%
Other expenses	2,004			1,795		11.6	%
Total non-interest expense	$	13,850		$	13,311	4.0	%

Total non-interest expense for the three months ended March 31, 2014 increased over the three months ended March 31, 2013 due primarily to merger related expenses of $0.8 million in the first quarter of 2014.

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Total salaries and benefits remained consistent during the three months ended March 31, 2014 compared to the same period in 2013.

Information technology for the first quarter of 2014 increased over the same period in 2013, due primarily to merger related expenses including additional cost for our core service provider as well as costs incurred to implement Internet banking for our customers.

Occupancy, equipment and communications expenses for the three months ended March 31, 2014 were comparable to the same period in 2013.

FDIC insurance declined for the three months ended March 31, 2014 compared to the same period in 2013. This decrease was mainly due to reduced monetary assessments by the Federal Deposit Insurance Corporation (“FDIC”) as a result of the Bank's improved financial condition.

OREO expenses decreased in the three months ended March 31, 2014 compared to the same period in 2013, mainly as a result of a gain of sales of OREO properties of $0.08 million in the first quarter of 2014 compared to losses of $0.04 million in the same period of 2013, which was primarily the result of higher real estate prices in 2014.

Professional services increased during the three months ended March 31, 2014 compared to the same period in 2013, due primarily to merger related expenses.

Other expenses increased in the first quarter of 2014 compared to the same periods in 2013 mainly as a result of expenses related to new product offerings to customers that were initiated in the later part of 2013.

Income Taxes

During the three months ended March 31, 2014, the Company recorded an income tax provision of $0.3 million compared to a $0.03 million income tax benefit during the three months ended March 31, 2013.

As of March 31, 2014, the net deferred tax asset was $49.5 million. Included in the net deferred taxes are net operating losses (tax affected) for federal taxes of $27.5 million, Oregon state taxes of $2.9 million and Idaho state taxes of $2.6 million. Also included in the net deferred taxes are federal and state tax credits of $1.0 million and $0.1 million, respectively. This is compared with a deferred tax liability as of December 31, 2013 of $50.1 million.

In assessing the Company's ability to utilize its deferred tax asset or “DTA”, management considers whether it is more likely than not that some portion or all of the DTA will not be realized. The ultimate realization of DTA is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the nature and amount of historical and projected future taxable income, the scheduled reversal of deferred tax assets and liabilities, and available tax planning strategies in making this assessment. The amount of deferred taxes recognized could be impacted by changes to any of these variables.

The Company reversed its DTA valuation allowance as of June 30, 2013 due to management’s determination that it was more likely than not that a significant portion of the Company's DTA would be realized. Management’s determination resulted from consideration of both the positive and negative evidence available that can be objectively verified. For a full discussion of the Company’s considerations, see "Deferred Income Taxes” in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

Financial Condition

Stockholders Equity and Capital Resources

Total stockholders’ equity increased to $190.3 million at March 31, 2014, as compared to total stockholders’ equity of $188.7 million at December 31, 2013. The increase in total stockholders' equity was primarily due to net income recorded in the three months endedMarch 31, 2014 of $0.9 million, as well as a $0.5 million increase in accumulated other comprehensive income due to net unrealized gains during the period. At March 31, 2014, the total common equity to total assets ratio was 13.8% and the Company’s basic book value per share was $4.00 as compared to the total common equity to total assets ratio of 13.4% and basic book value per share of $3.97 at December 31, 2013.

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At March 31, 2014, Bancorp’s Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios were 10.89%, 13.19% and 14.45%, respectively, and the Bank’s Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios were 10.89%, 13.21% and 14.47%, respectively, which meet regulatory benchmarks for a “well-capitalized” designation. Regulatory benchmarks for a “well-capitalized” designation are 5.00%, 6.00%, and 10.00% for Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital, respectively. Additional information regarding capital requirements can be found in Note 11 of the notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

From time to time the Company makes commitments to acquire banking properties or to make equipment or technology related investments of capital. At March 31, 2014, the Company had no material capital expenditure commitments apart from those incurred in the ordinary course of business.

Total Assets and Liabilities

Total assets were $1.4 billion at March 31, 2014, down $32.2 million from December 31, 2013. The decrease in total assets during the period ended March 31, 2014 primarily resulted from decreases in cash and cash equivalents of $31.8 million, investments of $4.7 million, and loans held for sale of $6.0 million. These decreases were partially offset by a $10.3 million increase in net loans. The increase in net loans during the three months endedMarch 31, 2014 was primarily the result of an increased shared national credit portfolio included in commercial and industrial loans. The decline in cash and cash equivalents resulted primarily from the payoff of $27.0 million short-term FHLB advances outstanding at year end. The decline in investment securities available-for-sale during the three months endedMarch 31, 2014 was primarily the result of the principal pay downs of our mortgage-backed securities.

Total liabilities were $1.2 billion at March 31, 2014, a $33.8 million decrease from December 31, 2013. This was primarily the result of $27.0 million in reduced FHLB borrowings and a $4.7 million decrease in total deposits.

Off-Balance Sheet Arrangements

The following table summarizes the Bank’s off-balance sheet commitments at March 31, 2014 and December 31, 2013 (dollars in thousands):

	March 31, 2014		December 31, 2013
Commitments to extend credit	$	221,863	$	245,906
Commitments under credit card lines of credit	25,623		24,321
Standby letters of credit	2,161		2,161
Total off-balance sheet financial instruments	$	249,647	$	272,388

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the customer contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Bank applies established credit standards and underwriting practices in evaluating the creditworthiness of such obligors and related collateral requirements, if any. Collateral held for commitments varies but may include accounts receivable, inventory, property and equipment, residential real estate and income-producing commercial properties. The Bank typically does not obtain collateral related to credit card commitments.

Standby letters of credit are written conditional commitments issued by the Bank to guarantee the performance of a customer to a third-party. These guarantees are primarily issued to support public and private borrowing arrangements. In the event the customer does not perform in accordance with the terms of the agreement with the third-party, the Bank would be required to fund the commitment. The maximum potential amount of future payments the Bank could be required to make is represented by the contractual amount of the commitment. If the commitment were funded, the Bank would be entitled to seek recovery from the customer. The Bank’s policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those involved in extending loans to customers. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers.

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Other than those commitments discussed above, there are no other obligations or liabilities of the Company arising from its off-balance sheet arrangements that are or are reasonably likely to become material.  In addition, the Company knows of no event, demand, commitment, trend or uncertainty that will result in or is reasonably likely to result in the termination or material reduction in availability of the off-balance sheet arrangements. The Company had no material off-balance sheet derivative financial instruments as of March 31, 2014 and December 31, 2013.

Liquidity and Sources of Funds

The objective of the Bank’s liquidity management is to maintain sufficient cash flows to meet obligations for depositor withdrawals, to fund the borrowing needs of loan customers, and to fund ongoing operations. At March 31, 2014, liquid assets of the Bank were mainly interest bearing balances held at the Federal Reserve Bank of San Francisco ("FRB") totaling $10.3 million compared to $39.5 million at December 31, 2013. The decrease was primarily the result of increased loans and decreased borrowings, discussed above.

Core relationship deposits are the Bank’s primary source of funds. As such, the Bank focuses on deposit relationships with local business and consumer clients who maintain multiple accounts and services at the Bank. The Company views such deposits as the foundation of its long-term liquidity because it believes such core deposits are more stable and less sensitive to changing interest rates and other economic factors compared to large time deposits or wholesale purchased funds. The Bank’s customer relationship strategy has resulted in a relatively higher percentage of its deposits being held in checking and money market accounts, and a lesser percentage in time deposits.

The Bank augments core deposits with wholesale funds from time to time. Until the cease-and-desist order (the "Order") between the Bank and the FDIC and the Oregon Division of Finance and Corporate Securities was terminated on March 7, 2013, the Bank was restricted under the terms of the Order from accepting or renewing brokered deposits. Upon termination of the Order, the Bank was permitted to accept local relationship-based reciprocal Certificate of Deposit Account Registry Service, or "CDARS" and Demand Deposit Marketplace, or "DDM" deposits. These deposits are technically classified as brokered deposits. At March 31, 2014 and December 31, 2013, the Company had $11.2 million and $21.7 million in reciprocal CDARS, respectively, and no reciprocal DDM deposits.

The Bank accepts public fund deposits in Oregon and Idaho and follows rules imposed by state authorities. Current rules imposed by the Oregon State Treasury require that the Bank collateralize 50% of the uninsured public funds of Oregon entities held by the Bank. At March 31, 2014, the Bank was in compliance with this statute. Currently there are no collateral requirements set on Idaho public deposits.

The Bank also utilizes borrowings and lines of credit as sources of funds. At March 31, 2014, the Federal Home Loan Bank of Seattle, or "FHLB" had extended the Bank a secured line of credit of $280.8 million (20.00% of total assets) accessible for short or long-term borrowings given sufficient qualifying collateral. As of March 31, 2014, the Bank had qualifying collateral pledged for FHLB borrowings totaling $302.3 million of which the Bank had nothing outstanding. At March 31, 2014, the Bank also had undrawn borrowing capacity at FRB of approximately $12.1 million supported by specific qualifying collateral. Borrowing capacity from FHLB or FRB may fluctuate based upon the acceptability and risk rating of loan collateral, and counterparties could adjust discount rates applied to such collateral at their discretion. Also, FRB or FHLB could restrict or limit our access to secured borrowings. Correspondent banks have extended $90.0 million in unsecured or collateralized short-term lines of credit for the purchase of federal funds. At March 31, 2014, the Company had no outstanding borrowings under these federal fund borrowing agreements.

Liquidity may be affected by the Bank’s routine commitments to extend credit. At March 31, 2014, the Bank had approximately $249.6 million in total outstanding commitments to extend credit, compared to approximately $272.4 million at year-end 2013. At this time, management believes that the Bank’s available resources will be sufficient to fund its commitments in the normal course of business.

The investment portfolio also provides a secondary source of funds as investments may be pledged for borrowings or sold for cash. This liquidity is limited, however, by counterparties’ willingness to accept securities as collateral and the market value of securities at the time of sale could result in a loss to the Bank. As of March 31, 2014, the book value of unpledged investments totaled approximately $20.4 million compared to $24.4 million at December 31, 2013.

As of March 31, 2014, the Bank’s primary liquidity ratio (net cash, plus net short-term and marketable assets divided by net deposits and short-term liabilities) was 20.90%.

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Bancorp is a single bank holding company and its primary ongoing source of liquidity is dividends received from the Bank. Oregon banking laws impose certain limitations on the payment of dividends by Oregon state chartered banks.  The amount of the dividend may not be greater than the Bank’s unreserved retained earnings, deducting from that, to the extent not already charged against earnings or reflected in a reserve, the following: (1) all bad debts, which are debts on which interest is past due and unpaid for at least six months, unless the debt is fully secured and in the process of collection; (2) all other assets charged off as required by the Director of the Department of Consumer and Business Services or a state or federal examiner; and (3) all accrued expenses, interest and taxes of the institution.

Inflation

The effect of changing prices on financial institutions is typically different than on non-banking companies since virtually all of a bank’s assets and liabilities are monetary in nature. In particular, interest rates are significantly affected by inflation, but neither the timing nor magnitude of the changes are directly related to price level indices; therefore, the Company can best counter inflation over the long term by managing net interest income and controlling net increases in noninterest income and expenses.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, the Company is not required to provide the information called for by Item 3.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedure

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business.  While the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s condensed consolidated financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS

There have been no material changes to Cascade’s risk factors previously disclosed in Part I – Item 1A Risk Factors of Cascade’s Annual Report on Form 10-K filed with the SEC on March 31, 2014 for the year ended December 31, 2013.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)-(b) Not applicable.

(c) During the quarter ended March 31, 2014, the Company did not repurchase any shares.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a) Not applicable.

(b) There have been no material changes to the procedures by which shareholders may nominate directors to the Company’s board of directors.

ITEM 6. EXHIBITS

31.1    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)

31.2    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)

32    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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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	May 8, 2014	By	/s/ Terry E. Zink
			Terry E. Zink, President & Chief Executive Officer (Principal Executive Officer)
Date	May 8, 2014	By	/s/ Gregory D. Newton
			Gregory D. Newton, EVP & Chief Financial Officer (Principal Financial and Chief Accounting Officer)

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