SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q (MARK ONE) / X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 1997 --------------- / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ---------- Commission file number: 0-23322 ----------- CASCADE BANCORP (Exact name of Registrant as specified in its charter) Oregon 93-1034484 (State of Incorporation) (I.R.S. Employer Identification No.) 1100 NW Wall Street Bend, Oregon 97701 (Address of principal executive offices) (Zip Code) (541) 385-6205 (Registrant's telephone number, including area code) ---------------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 4,265,934 shares of no par value Common Stock on July 31, 1997. --------------------------- - ------------------------------------- CASCADE BANCORP AND SUBSIDIARIES FORM 10-Q QUARTERLY REPORT JUNE 30, 1997 INDEX PART I: FINANCIAL INFORMATION PAGE Condensed Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996.. . . . . . . . . . . . . . . . .3 Condensed Consolidated Statements of Income for the six months and three months ended June 30, 1997 and 1996 . . . . .4 Condensed Consolidated Statements of Changes in Stockholders' Equity for the six months and three months ended June 30, 1997 and 1996 .. . . . .5 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1996. . . . . . . . . . . . . .6 Notes to Condensed Consolidated Financial Statements .. . . . . . . . . . . .7 Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . .. . . . . . . . . . . . . . . . 11 PART II: OTHER INFORMATION Item 4. Submissions of Matters to a Vote of Security Holders . . . . 13 Item 6. Exhibits and Reports on Form 8-K . .. . . . . . . . . . . . . 13 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2 CASCADE BANCORP & SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 (Unaudited) 1997 1996 ------------ ------------ ASSETS Cash and cash equivalents: Cash and due from banks $ 22,373,769 $ 19,567,608 Federal funds sold 2,000,000 9,325,000 ------------ ------------ Total cash and cash equivalents 24,373,769 28,892,608 Investment securities available-for-sale 34,024,688 24,476,627 Investment securities held-to-maturity 3,100,851 3,320,207 Loans, net 147,968,989 131,626,742 Mortgage loans held for sale 1,599,306 610,650 Premises and equipment, net 4,675,760 4,280,754 Accrued interest and other assets 8,745,344 8,068,985 ------------ ------------ Total assets $224,488,707 $201,276,573 ============ ============ LIABILITIES & STOCKHOLDERS' EQUITY Liabilities: Deposits: Demand $ 59,215,977 $ 51,484,370 Interest bearing demand 100,344,461 89,144,726 Savings 12,961,261 12,511,495 Time deposits 20,039,502 17,941,503 ------------ ------------ Total deposits 192,561,201 171,082,094 Federal funds purchased 1,000,000 - Long-term debt 5,000,000 5,000,000 Accrued interest and other liabilities 1,138,513 1,622,430 ------------ ------------ Total liabilities 199,699,714 177,704,524 Stockholders'equity: Common stock, no par value; 10,000,000 shares authorized; 4,265,934 issued and outstanding 13,058,417 13,058,417 Retained earnings 11,649,304 10,442,535 Unrealized gains on investment securities available-for-sale, net of deferred income taxes 81,272 71,097 ------------ ------------ Total stockholders' equity 24,788,993 23,572,049 ------------ ------------ Total liabilities and stockholders' equity $224,488,707 $201,276,573 ============ ============ See accompanying notes. 3 CASCADE BANCORP & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1997 and 1996 (Unaudited) SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 1997 1996 1997 1996 ---------- ---------- ----------- ----------- Interest income: Interest and fees on loans $7,383,223 $6,895,026 $3,879,444 $3,492,324 Taxable interest on investments 1,125,559 311,519 657,920 137,202 Nontaxable interest on investments 41,613 50,667 20,495 28,187 Interest on federal funds sold 141,325 207,358 41,100 104,051 ---------- ---------- ---------- ---------- Total interest income 8,691,720 7,464,570 4,598,959 3,761,764 Interest expense: Deposits: Interest bearing demand 1,384,780 1,193,600 718,035 596,792 Savings 136,273 139,981 69,790 69,971 Time 479,193 419,819 247,914 216,790 Other borrowings 245,722 172,561 159,752 85,498 ---------- ---------- ---------- ---------- Total interest expense 2,245,968 1,925,961 1,195,491 969,051 ---------- ---------- ---------- ---------- Net interest income 6,445,752 5,538,609 3,403,468 2,792,713 Loan loss provision 375,861 148,721 279,783 66,454 ---------- ---------- ---------- ---------- Net interest income after loan loss provision 6,069,891 5,389,888 3,123,685 2,726,259 Noninterest income: Service charges on deposit accounts 870,418 734,773 446,707 381,144 Mortgage loan origination and processing fees 488,250 501,300 261,186 290,961 Gains on sales of mortgage loans 140,381 241,197 77,151 56,013 Other income 512,754 453,876 267,466 225,896 ---------- ---------- ---------- ---------- Total noninterest income 2,011,803 1,931,146 1,052,510 954,014 Noninterest expense: Salaries and employee benefits 2,301,785 2,015,161 1,125,836 965,213 Net occupancy & equipment 735,234 618,000 386,250 302,457 Other expenses 1,326,702 1,141,362 678,450 577,093 ---------- ---------- ---------- ---------- Total noninterest expense 4,363,721 3,774,523 2,190,536 1,844,763 ---------- ---------- ---------- ---------- Income before income taxes 3,717,973 3,546,511 1,985,659 1,835,510 Provision for income taxes 1,444,719 1,332,967 783,727 689,825 ---------- ---------- ---------- ---------- Net income $2,273,254 $2,213,544 $1,201,932 $1,145,685 ========== ========== ========== ========== Net income per common share $ 0.53 $ 0.52 $ 0.28 $ 0.27 ========== ========== ========== ========== See accompanying notes. 4 CASCADE BANCORP & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (Unaudited) UNREALIZED GAINS (LOSSES) ON SECURITIES TOTAL COMMON RETAINED AVALABLE STOCKHOLDERS' STOCK EARNINGS FOR SALE EQUITY ----------- ------------ ---------- ------------ Balance at December 31, 1995 $ 9,253,012 $ 9,734,936 $ 52,007 $ 19,039,955 10% stock dividend (193,906 shares) Declared in June 1996 3,805,405 (3,805,405) - - Net change in unrealized gains (losses) on securities available-for-sale - - (33,167) (33,167) Net income - 2,213,544 - 2,213,544 ----------- ----------- ---------- ------------ Balance at June 30, 1996 $13,058,417 $ 8,143,075 $ 18,840 $ 21,220,332 =========== =========== ========== ============ Balance at December 31, 1996 $13,058,417 $10,442,535 $ 71,097 $ 23,572,049 Net change in unrealized gains on securities available-for-sale - - 10,175 10,175 Cash dividend declared in January 1997 ($0.50 per common share) - (1,066,485) - (1,066,485) Net income - 2,273,254 - 2,273,254 ----------- ----------- ---------- ----------- Balance at June 30, 1997 $13,058,417 $11,649,304 $ 81,272 $ 24,788,993 =========== =========== ========== =========== See accompanying notes. 5 CASCADE BANCORP & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (Unaudited) 1997 1996 ------------ ------------ Net cash provided by operating activities $ 572,344 $ 446,169 Investing activities: Purchases of investment securities available-for-sale (22,495,000) (3,985,000) Proceeds from maturities and calls of investment securities available-for-sale 13,010,469 2,491,406 Purchases of investment securities held-to-maturity (55,400) (909,309) Proceeds from maturities and calls of investment securities held-to-maturity 269,797 546,287 Net increase in loans (16,577,727) (6,425,843) Purchases of premises and equipments, net (655,944) (347,101) ------------- ------------ Net cash used in investing activities (26,503,806) (8,629,560) Financing activities: Net increase in deposits 21,479,107 12,540,995 Cash dividends paid (1,066,485) - Net increase in federal funds purchased 1,000,000 - ------------- ------------ Net cash provided (used) by financing activities 21,412,622 12,540,995 ------------- ------------ Net increase (decrease) in cash and cash equivalents (4,518,839) 4,357,604 Cash and cash equivalents at beginning of period 28,892,608 27,112,461 ------------- ------------ Cash and cash equivalents at end of period $ 24,373,769 $ 31,470,065 ============= ============ See accompanying notes. 6 CASCADE BANCORP & SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 (Unaudited) 1. BASIS OF PRESENTATION The interim condensed consolidated financial statements include the accounts of Cascade Bancorp (Bancorp), a bank holding company, and its wholly- owned subsidiaries, Bank of the Cascades (the Bank) and Cascade Finance, (collectively, "the Company"). The Bank is an Oregon State-chartered, federally insured commercial bank and Cascade Finance is a consumer finance company. All significant intercompany accounts and transactions have been eliminated in consolidation. The interim condensed consolidated financial statements are unaudited, but include all adjustments, consisting of only normal accruals, which the Company considers necessary for a fair presentation of the results of operations for such interim periods. In preparing the condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheets and income and expenses for the periods. Actual results could differ from those estimates. The interim condensed consolidated financial statements should be read in conjunction with the December 31, 1996 consolidated financial statements, including the notes thereto, included in Bancorp's 1996 Annual Report to Shareholders. Certain amounts for 1996 have been reclassified to conform with the 1997 presentation. 2. INVESTMENT SECURITIES Investment securities at June 30, 1997 and December 31, 1996 consisted of the following: GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED JUNE 30, 1997 COST GAINS LOSSES FAIR VALUE - ------------------------------ ------------ --------- ---------- ----------- Available-for-Sale - ------------------ U.S. Government agencies...... $ 30,911,201 $ 119,737 $ 27,500 $ 31,003,438 U.S. Treasury securities...... 2,984,623 36,627 - 3,021,250 ------------ --------- ---------- ------------ $ 33,895,824 $ 156,364 $ 27,500 $ 34,024,688 Held-to-Maturity - ---------------- Obligations of state and Political subdivisions..... $ 1,737,987 $ 2,494 $ 4,316 $ 1,736,165 Other......................... 1,362,864 - - 1,362,864 ------------ --------- ---------- ------------ $ 3,100,851 $ 2,494 $ 4,316 $ 3,099,029 ============ ========= ========== ============ GROSS GROSS AMORTIZED UNREALIZED UNREALIZE ESTIMATED DECEMBER 31, 1996 COST GAINS LOSSES FAIR VALUE - ------------------------------ ------------ ---------- ---------- ----------- Available-for-Sale - ------------------ U.S. Government agencies...... $ 20,372,543 $ 95,022 $ - $ 20,467,565 U.S. Treasury securities...... 3,989,347 19,715 - 4,009,062 ------------ --------- ---------- ------------ $ 24,361,890 $ 114,737 $ - $ 24,476,627 Held-to-Maturity - ---------------- Obligations of state and Political subdivisions..... $ 2,012,743 $ 3,103 $ 2,808 $ 2,013,038 Other......................... 1,307,464 - - 1,307,464 ------------ --------- ---------- ------------ $ 3,320,207 $ 3,103 $ 2,808 $ 3,320,502 ============ ========= ========== ============ 7 3. LOANS AND RESERVCE FOR LOAN LOSSES The composition of the loan portfolio at June 30, 1997 and December 31, 1996 was as follows: 1997 1996 ----------- ------------ Commercial.................... $ 27,599,904 $ 22,485,269 Real Estate: Construction............... 36,951,654 34,375,243 Mortgage................... 21,791,882 19,774,232 Commercial................. 46,005,937 42,390,479 Installment................... 17,970,855 14,665,629 ------------ ------------ 150,320,232 133,690,852 Less: Reserve for loan losses.... 1,917,400 1,691,260 Deferred loan fees......... 433,843 372,850 ------------ ------------ 2,351,243 2,064,110 ------------ ------------ Loans, net ................... $147,968,989 $131,626,742 ============ ============ Mortgage loans held for sale of $1,599,306 and $610,650 at June 30, 1997 and December 31, 1996, respectively, represent real estate mortgage loans. These loans are recorded at cost which approximates market. Transactions in the reserve for loan losses for the six months ended June 30, 1997 and 1996 were as follows: 1997 1996 ----------- ------------ Balance at beginning of period... $ 1,691,260 $ 1,651,352 Provisions charged to operations. 375,861 148,721 Loans charged off................ (187,274) (29,871) Recoveries of loans previously chargedoff.................... 37,553 6,759 ------------ ------------ Balance at end of period......... $ 1,917,400 $ 1,776,961 ============ ============ The reserve for loan losses represents management's recognition of the assumed risks of extending credit and the quality of the existing loan portfolio. The reserve is maintained at a level considered adequate to provide for potential loan losses based on management's assessment of various factors affecting the portfolio. Such factors include loss experience, review of problem loans, current economic conditions, and an overall evaluation of the quality, risk characteristics and concentration of loans in the portfolio. The reserve is increased by provisions charged to operations and reduced by loans charged-off, net of recoveries. Although a risk of nonpayment exists with respect to all loans, certain specific types of risks are associated with different types of loans. Due to the nature of the Bank's customer base and the growth experienced in the Bank's market area, real estate is frequently a material component of collateral for the Bank's loans. The expected source of repayment of these loans is generally the operations of the borrower's business or personal income; however, real estate provides an additional measure of security. Risks associated with real estate loans include fluctuating land values, local economic conditions, changes in tax policies, and a concentration of loans within the Bank's market area. The Bank mitigates risks on construction loans by generally lending funds to customers that have been prequalified for long term financing and who are using experienced contractors approved by the Bank. The commercial real estate risk is further mitigated by making the majority of commercial real estate loans to owner-occupied users of the property. The Bank manages the general risks inherent in the loan portfolio by following loan policies and underwriting practices designed to result in prudent lending activities. 8 The following table presents information with respect to non-performing assets at June 30, 1997 and December 31, 1996 (dollars in thousands): 1997 1996 ------ ------ Loans on non-accrual status........... $ 62 $ 50 Loans past due 90 days or more but non on non-accrual status...... 220 27 Other real estate owned............... - - ------ ------ Total non-performing assets........... $ 282 $ 77 ====== ====== Percentage of non-performing assets to total assets.................... .13% .04% The accrual of interest on a loan is discontinued when, in management's judgment, the future collectibility of principal or interest is in doubt. Loans placed on nonaccrual status may or may not be contractually past due at the time of such determination, and may or may not be secured. When a loan is placed on nonaccrual status, it is the Bank's policy to reverse, and charge against current income, interest previously accrued but uncollected. Interest subsequently collected on such loans is credited to loan principal if, in the opinion of management, full collectibility of principal is doubtful. If interest on nonaccrual loans had been accrued, such income would have been insignificant for the six months ended June 30, 1997 and 1996. At June 30, 1997, there were no potential problem loans, except as discussed above, where known information about possible credit problems of the borrower caused management to have serious doubts as to the ability of such borrower to comply with the present loan repayment terms and which may result in such loans being placed on a non-accrual basis. 4. MORTGAGE SERVICING RIGHTS At June 30, 1997 and December 31, 1996, the Bank held servicing rights to approximately $157,406,000 and $143,008,000, respectively, in mortgage loans which have been sold to the Federal National Mortgage Association. These mortgage loans are being serviced for the Bank by another financial institution under a sub-servicing agreement. The sale of these mortgage loans are subject to technical underwriting exceptions and related repurchase risks. Such risks are considered in the determination of the reserve for loan losses. Effective January 1, 1996, the Bank prospectively adopted Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights" (SFAS 122) (superceded by SFAS No. 125 - see Note 7). SFAS 122 required the Bank to recognize as separate assets the rights to service mortgage loans which are acquired through loan origination activities subsequent to December 31, 1995. Other assets in the accompanying condensed consolidated balance sheets as of June 30, 1997 and December 31, 1996 include approximately $922,000 and approximately $575,000, respectively, for the capitalized mortgage servicing rights. The fair value of the capitalized mortgage servicing rights was determined based on estimates of the present value of expected future cash flows and comparisons to current market transactions involving mortgage servicing rights with similar portfolio characteristics. There were no significant changes in the valuation allowance for capitalized mortgage servicing rights during the six months ended June 30, 1997 and 1996. The predominant risk characteristics of the underlying loans used to stratify the capitalized mortgage servicing rights for purposes of measuring impairment are note rates, terms and interest methods (i.e., fixed and variable). 5. OTHER BORROWINGS At June 30, 1997 and December 31, 1996, the Bank had $5.0 million in long- term debt from the Federal Home Loan Bank of Seattle (FHLB) on a three year note due in May 1998, with a fixed interest rate of 6.96%. The borrowings from FHLB are secured by Bank assets. At June 30, 1997 the Bank had $1.0 million in federal funds purchased. 9 6. NET INCOME PER COMMON SHARE Net income per common share is net income divided by the weighted average shares outstanding for that period. The weighted average number of common shares outstanding used to compute net income per common share, was approximately 4,266,000 for the six-month and three-month periods ended June 30, 1997 and 1996. Weighted average shares outstanding consists of common shares outstanding and common stock equivalents attributable to stock options. Net income per common share and weighted average shares outstanding have been restated to retroactively reflect the two-for-one stock split declared in June 1997 and the 10% stock dividend declared in June 1996. In February 1997 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). SFAS 128 supercedes APB Opinion No. 15, "Earnings per Share" and the related interpretations (APB No. 15). SFAS No. 128 will require the Company to present both basic and diluted earnings per share (EPS) on the face of the income statement and to provide a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In addition, the computation of basic EPS will not consider common stock equivalents such as stock options. SFAS No. 128 will be effective for the Company in the fourth quarter of 1997, and earlier application is not permitted. After the effective date, all prior-period EPS data presented shall be restated (including interim financial statements) to conform with the provisions of SFAS No. 128. Management believes that the calculation of basic and diluted earnings per share in accordance with SFAS No. 128 will not be significantly different than historically reported net income per share in accordance with APB No. 15. 7. ADOPTION OF ADDITIONAL NEW ACCOUNTING STANDARDS In June 1996, SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinquishments of Liabilities" (SFAS125) was issued. SFAS 125 superseded SFAS 122 and also established standards for when transfers of financial assets (e.g., loan participations), including those with continuing involvement by the transferor, should be considered a sale. SFAS 125 also established standards for when a liability should be considered extinquished. SFAS 125 is generally effective for transfers of assets and extinquishments of liabilities after December 31, 1996, applied prospectively. Earlier adoption or retroactive application of SFAS 125 was not permitted. In addition, in December 1996, SFAS No. 127 was issued which deferred the effective date of certain provisions of SFAS 125 for one year. The effect of adopting SFAS 125 was not significant to the Company's condensed consolidated financial statements. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1997 AND 1996 The following discussion should be read in conjunction with the Company's unaudited condensed consolidated financial statements and the notes thereto for the six-month and three-month periods ended June 30, 1997 and 1996 included in this report. The following discussion includes certain forward-looking statements. Those statements may involve a number of risks and uncertainties, which could cause actual results to differ materially from the expectation stated, including the following: slower than expected growth in the Company's business, deterioration of business conditions generally or specifically in the banking industry, regulatory changes involving banking, competitive factors, and general market conditions. FINANCIAL CONDITION The Company's total assets increased 11.5 percent to $224.5 million at June 30, 1997 compared to $201.3 million at December 31, 1996, primarily due to an increase in investment securities available-for-sale and net loans which were funded by an increase in deposits. During the six monthe ended June 30, 1997 approximately $22.6 million in investment securities were purchased with excess funds from strong deposit growth and proceeds from maturities and calls of investment securities. Loan demand was strong with total loans increasing 12.4 percent to $150.3 million at June 30, 1997 compared to $133.7 million at December 31, 1996. Deposits increased 12.6 percent to $192.6 million at June 30, 1997 compared to $171.1 million at December 31, 1996. Although all categories of deposits increased, the primary change was in demand and interest bearing demand deposits. One of the contributing factors of the Company's increased deposits is that the Bank emphasizes the development of core deposit relationships because such deposits provide a stable source of funds for operations at a relatively low cost, and because core deposit customers are more likely to purchase other banking services. Core deposits include demand, interest bearing demand and savings deposits. The Bank's core deposits aggregated approximately $172.5 million at June 30, 1997. RESULTS OF OPERATIONS The Company reported net income of $2,273,000, or $.53 per share, for the six months ended June 30, 1997, compared to net income of approximately $2,214,000, or $.52 per share, for the same period in 1996. This represents an increase in net income of 2.7 percent. Net income for the quarter ended June 30, 1997 was approximately $1,202,000, or $.28 per share, compared to net income of approximately $1,146,000, or $.27 per share, for the same period in 1996, up 4.9 percent. Net interest income increased 16.4 percent for the six months and 21.9 percent for the three months ended June 30, 1997 as compared to the 1996 periods. The net increases during these periods resulted from increases in interest income exceeding the increases in interest expense. Total interest income increased approximately $1,227,200 for the six months and approximately $837,200 for the quarter ended June 30, 1997 as compared to the 1996 periods. These were primarily the result of increases in the volume of loans and investment securities available-for-sale. Total interest expense increased approximately $320,000 for the six months and approximately $226,400 for the quarter ended June 30, 1997 as compared to the 1996 periods. These increases were primarily due to increased volume in interest bearing demand deposits and federal funds purchased. Total noninterest income increased 4.2 percent for the six months and 10.3 percent for the quarter ended June 30, 1997 as compared to the 1996 periods. The increase for the six months ended June 30, 1997 was primarily due to increases in service charges and other income, which were partially offset by decreases in mortgage loan 11 origination and processing fees and gains on sales of mortgage loans. The increase for the quarter ended June 30, 1997 was primarily due to increases in service charges, gains on sales of mortgage loans and other income, partially offset by a decrease in mortgage loan origination and processing fees. Increases in service charge income during 1997 were primarily due to an increase in the volume of deposit activity during the periods presented. The decreases in mortgage loan origination and processing fees is primarily due to decreased loan originations during the periods presented. The decrease in gains on sales of mortgage loans for the six months ended June 30, 1997 was primarily attributable to the increased interest rate environment and a more competitive market. Total noninterest expense increased 15.6 percent for the six months and 18.7 percent for the quarter ended June 30, 1997 as compared to the 1996 periods. These increases are primarily the result of increased personnel and operating expenses due to continued growth of the Bank and the opening of Cascade Finance. Income tax expense increased between the periods presented primarily as a result of higher pre-tax income. LOAN LOSS PROVISION The loan loss provision increased $227,140 for the six-months and $213,329 for the quarter ended June 30, 1997 as compared to the same periods in 1996, primarily due to loan growth. Management believes the current loan loss provision maintains the reserve for loan losses at an appropriate level. The Bank's ratio of reserve for loan losses to total loans was 1.28 percent at June 30, 1997 compared to 1.26 percent at December 31, 1996. LIQUIDITY Bancorp's principal subsidiary, Bank of the Cascades, has adopted policies to maintain a relatively liquid position to enable it to respond to changes in the Bank's needs and financial environment. Generally, the Bank's major sources of liquidity are customer deposits, sales and maturities of investment securities, the use of federal funds markets and net cash provided by operating activities. In addition, scheduled loan repayments are a relatively stable source of funds, while deposit inflows, unscheduled loan prepayments, and undisbursed loan funds , are influenced by general interest rate levels, interest rates available on other investments, competition, economic conditions and other factors, and are not necessarily stable sources and uses of funds. Along with federal funds lines and undisbursed loan funds, the Bank is also a member of the Federal Home Loan Bank, Seattle, Washington, which provides secured borrowings and other funding opportunities for liquidity purposes. Management believes that the Bank's existing sources of liquidity will enable the Bank to fund its requirements in the normal course of business. CAPITAL RESOURCES During the six months ended June 30, 1997 the Company's total capital increased to $24.8 million, or 11.0 percent of total assets. The increase was primarily due to the Company's net income of $2,273,254 for the six months ended June 30, 1997 and the net change in unrealized gains on investment securities available-for-sale of $10,175. These increases to capital were partially offset by the $.50 per common share cash dividend totaling $1,066,485 paid from retained earnings during the first quarter of 1997. At June 30, 1997, the Company's Tier 1 and total risked-based capital ratios under the Federal Reserve Board's ("FRB") risk-based capital guidelines were approximately 14.1% and 15.3%, respectively. The FRB's minimum risk-based capital ratio guidelines for Tier 1 and total capital are 4% and 8%, respectively. On July 15, 1997 the Company announced the establishment of a quarterly cash dividend and the payment of a cash dividend of $.10 per common share to all shareholders of record on August 4, 1997. 12 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS (a) April 21, 1997, Annual Meeting (b) Need not be completed (c) The following matters were voted on at the Annual Meeting of Shareholders held on April 21, 1997: 1. The re-election of three directors: Number Number Total Of Votes of Votes Number of DIRECTOR "FOR" "WITHHELD" Votes ------------------ --------- --------- --------- Jerol E, Andres 1,585,879 27,289 1,613,168 Roger J. Shields 1,612,165 1,003 1,613,168 Jacob M. Wolfe 1,612,165 1,003 1,613,168 2. The approval to amend the Company's articles of incorporation: Proxy Number Number Total Votes Of Votes of Votes Number of "FOR" "AGAINST" "ABSTAIN" Votes --------- --------- -------- --------- 1,115,444 16,710 28,022 1,160,176 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of the Quarter Report on Form 10-Q. 3.1 ARTICLES OF INCORPORATION. A complete copy of the articles of incorporation as amended. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the second quarter ended June 30, 1997. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CASCADE BANCORP ---------------------------- (Registrant) Date 8/11/97 By /s/ Roger J. Shields ---------------------------- Roger J. Shields, President Date 8/12/97 By /s/ Patricia L. Moss ---------------------------- Patricia L. Moss, Chief Financial Officer 14