Loan growth was up $169 million or 9.0% compared to the year ago period, and increased $83 million or 4.2% on a linked-quarter basis. Similarly, Customer Relationship Deposits were up $136 million or 9.2% year-over-year and increased $70 million or 4.5% on a linked-quarter basis. The Company defines customer relationship deposits to include core banking accounts such as checking, money market, and savings but excluding all wholesale or brokered deposits and CD’s greater than $100,000. Return on Equity was 13.54% and Return on Tangible Equity was 23.06% for the third quarter of 2007 and Return on Assets was 1.69%.
“In an environment of slowing real estate activity that triggered recent turmoil on Wall Street, Cascade continued to deliver solid financial results,” said Patricia L. Moss, President and CEO. “I am pleased to report the Company does not have direct exposure to the highly publicized sub-prime mortgage issues because it neither originated nor purchased such assets in its loan or investment portfolios.” She added, “The Company has strong capital and reserves as we manage through this real estate downturn, and I am optimistic that we are well positioned to capitalize on growth opportunities once this cycle has run its course. “
STOCK REPURCHASE PROGRAM
On August 13, 2007, the Company announced that the Board of Directors approved a stock repurchase program of up to 5% of the Company's issued and outstanding common shares. Purchases will occur at management’s discretion over a two-year period. At September 30, 2007, the Company has acquired 53,900 shares (or about 4% of the shares approved for possible repurchase) at an average price per share of $22.37 totaling $1.2 million.
LOAN GROWTH AND CREDIT QUALITY:
At September 30, 2007, Cascade’s Loan Portfolio was $2.0 billion, up 9.0% compared to the year ago period and up $82.5 million or 4.2% on a linked-quarter basis. Loan portfolio growth was primarily in construction related credits along with higher commercial and industrial loans outstanding.
As expected for the quarter ended September 30, 2007, credit metrics trended higher from their historic lows of 2006. Net loan charge-offs were $1.6 million or 0.32% (annualized) of total loans for the quarter compared to 0.10% (annualized) for the linked-quarter. There was no concentration of charge-offs as to amount, loan type, or geographic location. Also, the quarter saw a modest uptick in consumer related loan charge-offs. Meanwhile, delinquent loans greater than 30 days past due were stable at 0.09% of total loans, compared to 0.11% for the linked-quarter. Non-performing assets (NPA’s) were also higher at $21.0 million as of September 30, 2007, or 0.89% of assets compared to $9.4 million or 0.41% of assets for the linked-quarter. The increase in NPA’s was mainly residential construction credits in the Boise, Idaho market which has experienced some slowing in new home sales1 .
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| 1 | For public information as to real estate metrics in Cascade’s markets, see the Company’s Investor Presentation dated Sept 1, 2007 at www.botc.com/investor relations. |
The Reserve for Credit Losses (reserve for loan losses and unfunded commitments) was a sturdy 1.37% of total loans at September 30, 2007, compared to 1.43% for the prior quarter and 1.39% a year ago. Cascade’s loan loss provision was $1.75 million for the third quarter of 2007, up from $1.0 million for the linked-quarter but below the $2.2 million provision in the year ago period. Cascade’s credit reserves remain strong compared to the average of its peer banks and management believes such reserves are at an appropriate level based upon its analysis and assessment of portfolio credit quality and prevailing economic conditions.
DEPOSIT GROWTH:
At September 30, 2007, Customer Relationship deposits were up 9.2% compared to a year ago and increased 4.5% on a linked-quarter basis. The majority of the linked-quarter growth was from the Idaho and Portland markets, including strong deposit inflows to our new corporate money market sweep product for select business customers. For the third quarter of 2007, average non-interest bearing deposits were stable at $476.7 million compared to the linked quarter. However, current quarter average non-interest bearing deposits were $89.1 million or 15.7% below the average of the same quarter a year ago mainly due to the contraction of real estate related activity in Cascade markets. Total Deposits were $1.8 billion, up 10.0% compared to a year ago and flat on a linked-quarter basis.
NET INTEREST MARGIN & INTEREST RATE RISK:
Cascade’s Net Interest Margin (NIM) eased modestly to 5.24% for the third quarter of 2007, down 10 basis points from the linked-quarter, primarily due to a decrease in yields on earning assets.
Yields on earning assets during the third quarter of 2007 were lower at 8.29% compared to 8.39% in the linked-quarter quarter and up from 8.22% in the year ago quarter. Lower yields were a result of the Federal Reserve’s action to reduce short term fed funds rate by 50 basis points late in the quarter and the effect of interest adjustments with respect to non performing loans.
The average cost of funds paid on interest bearing liabilities was stable during the third quarter of 2007 at 4.11% as compared to 4.09% in the linked-quarter but up from 3.64% for the year ago quarter. This year over year increase was primarily due to an increase in both volume and rates paid on interest bearing deposits, partially offset by a decrease in borrowings.
Looking forward, management expects the NIM will initially ease between five and 10 basis points in the coming quarter as a result of the interest rate reduction enacted by the Federal Reserve on September 18, 2007. The NIM may be further affected by competitive pricing pressures, yield curve shape and changes in LIBOR credit spreads, all of which can affect both rate and mix of loans, deposits and funding sources.
The NIM can also be affected by factors beyond market interest rates, including loan or deposit volume shifts and/or aggressive rate offerings by competitor institutions. Cascade’s financial model indicates a relatively modest interest rate risk profile within a reasonable range of rate movements around the forward rates currently predicted by financial markets. Because of its relatively high proportion of non-interest bearing funds, Cascade’s NIM is most adversely affected in the event short term market rates fall to a very low level. See cautionary “Forward Looking Statements” below and in Cascade’s Form 10-K report for further information on risk factors including interest rate risk.
NON-INTEREST INCOME AND EXPENSE:
Non-Interest Income was $5.2 million, essentially flat compared to the linked-quarter and down 10.2% from the third quarter of 2006. The year over year decline is partially the result of reduced mortgage origination volume and related revenue owing to the slowing pace of real estate activity as well as a reduced level of gain on sale of investment securities compared to the year ago period. For the third quarter of 2007, residential mortgage originations totaled $38.8 million, down 23.0% from the year ago period and down 24.6% from the linked-quarter. Related net mortgage revenue was $.6 million, down from $.9 million in the year ago period and compared to $.8 million for the prior quarter.
Non-Interest Expense for the third quarter of 2007 was at a level comparable to the immediately preceding quarter, but up 4.5% compared to the third quarter of 2006. The year over year increase was primarily due to higher human resources costs in support of Cascade’s ongoing growth and infrastructure investments.
BUSINESS STRATEGY:
Operating in some of the fastest growing markets in the nation, Cascade Bancorp (headquartered in Bend, Oregon) and its wholly-owned subsidiary, Bank of the Cascades, operates in Oregon and Idaho markets. In terms of banking growth markets, Cascade ranks as the top community bank footprint in the Northwest and among the top ten banks in the nation2 . Cascade has a business strategy that focuses on delivering the best in community banking for the financial well-being of customers and shareholders. The Bank implements its strategy by combining outstanding service, competitive financial products, local expertise and advanced technology applied for the convenience of customers. Founded in 1977, Bank of the Cascades offers full-service community banking through 33 branches in Central Oregon, Southern Oregon, Portland/Salem and Boise/Treasure Valley. The Bank has been rated among the top performing banks in the nation for the ninth consecutive year by Independent Community Bankers of America, as well as being named the 2007 top community bank in the Northwest by US Banker Magazine. The Bank is honored to be among the top 40 "Best 100 Companies to Work For in Oregon, 2007," compiled by Oregon Business Magazine. For further information on Bank of the Cascades, please visit our web site at http://www.botc.com.
FORWARD LOOKING STATEMENTS
This release contains forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties may include but are not necessarily limited to fluctuations in interest rates, inflation, government regulations and general economic conditions, and competition within the business areas in which Cascade is conducting its operations. For a discussion of factors, which could cause results to differ, please see Cascade's reports on Forms 10-K and 10-Q as filed with the Securities and Exchange Commission and Cascade's press releases. When used in this release, the words or phrases such as "will likely result in", "management expects that", "will continue", "is anticipated", "estimate", "projected", or similar expressions, are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. Cascade undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. This statement is included for the express purpose of protecting Cascade Bancorp and PSLRA's safe harbor provisions.
The ability of Cascade to predict results or the actual effect of future plans and strategies is uncertain, and actual results may differ. You can obtain documents filed by Cascade free of charge at the website maintained by the SEC at www.sec.gov. In addition, you may obtain documents filed with the SEC by Cascade Bancorp free of charge by contacting: Investor Relations, Cascade Bancorp, 1100 NW Wall St., PO Box 369, Bend, OR 97701 (541) 385-6205.
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