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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: SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 0-23322
CASCADE BANCORP
(Exact name of Registrant as specified in its charter)
OREGON 93-1034484
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 NW Wall Street
Bend, Oregon 97701
(Address of principal executive offices)
(Zip Code)
(541) 385-6205
(Registrant's telephone number, including area code)
--------------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 6,879,884 SHARES OF NO PAR
VALUE COMMON STOCK ON OCTOBER 31, 2000.
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CASCADE BANCORP & SUBSIDIARIES
FORM 10-Q
QUARTERLY REPORT
SEPTEMBER 30, 2000
INDEX
PAGE
----
PART I: FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
as of September 30, 2000 and December 31, 1999.........................................................3
Condensed Consolidated Statements of Income
for the nine months and three months ended September 30, 2000 and 1999 ................................4
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended September 30, 2000 and 1999..................................................5
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 2000 and 1999..................................................6
Notes to Condensed Consolidated Financial Statements.................................................................7
Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................................11
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................................................... 14
Signatures..........................................................................................................15
2
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(Unaudited)
2000 1999
------------------- -----------------
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 25,972,073 $ 19,420,537
Federal funds sold 3,150,000 --
------------------- -----------------
Total cash and cash equivalents 29,122,073 19,420,537
Investment securities available-for-sale 28,531,854 29,069,224
Investment securities held-to-maturity 2,428,428 2,742,794
Loans, net 330,214,043 274,902,232
Mortgage loans held for sale 2,661,924 422,999
Premises and equipment, net 8,601,282 7,743,235
Accrued interest and other assets 15,029,019 13,603,002
------------------- -----------------
Total assets $ 416,588,623 $ 347,904,023
=================== =================
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 140,085,855 $ 107,188,433
Interest bearing demand 150,862,349 123,448,962
Savings 16,692,522 15,688,114
Time deposits 51,771,427 38,987,032
------------------- -----------------
Total deposits 359,412,153 285,312,541
Federal Home Loan Bank borrowings 20,000,000 13,000,000
Federal funds purchased -- 17,100,000
Accrued interest and other liabilities 3,878,147 2,919,984
------------------- -----------------
Total liabilities 383,290,300 318,332,525
Stockholders' equity:
Common stock, no par value;
10,000,000 shares authorized;
6,879,884 issued and outstanding (6,862,234-1999) 17,768,806 17,728,564
Retained earnings 16,128,963 12,465,355
Accumulated other comprehensive income (loss) (599,446) (622,421)
------------------- -----------------
Total stockholders' equity 33,298,323 29,571,498
------------------- -----------------
Total liabilities and stockholders' equity $ 416,588,623 $ 347,904,023
=================== =================
See accompanying notes.
3
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------------- -------------- -------------- ---------------
Interest income:
Interest and fees on loans $ 24,389,440 $ 18,571,839 $ 8,678,425 $ 6,763,160
Taxable interest on investments 1,420,822 1,915,506 473,281 517,038
Nontaxable interest on investments 29,162 37,858 7,663 10,791
Interest on federal funds sold 124,914 74,243 103,799 37,029
--------------- -------------- -------------- ---------------
Total interest income 25,964,338 20,599,446 9,263,168 7,328,018
Interest expense:
Deposits:
Interest bearing demand 3,671,058 2,721,118 1,423,439 992,846
Savings 239,958 234,633 81,832 83,177
Time 2,317,227 1,163,043 886,893 387,369
Other borrowings 954,348 450,784 219,187 109,170
--------------- -------------- -------------- ---------------
Total interest expense 7,182,591 4,569,578 2,611,351 1,572,562
--------------- -------------- -------------- ---------------
Net interest income 18,781,747 16,029,868 6,651,817 5,755,456
Loan loss provision 1,956,000 1,655,138 720,000 549,191
--------------- -------------- -------------- ---------------
Net interest income after loan loss provision 16,825,747 14,374,730 5,931,817 5,206,265
Noninterest income:
Service charges on deposit accounts 1,959,028 1,763,274 685,491 592,800
Mortgage loan origination and processing fees 697,787 975,641 243,096 267,984
Losses on sales of mortgage loans, net (311,608) (271,805) (79,987) (105,064)
Losses on sale of investment securities
available-for-sale -- (10,619) -- (8,125)
Other income 1,911,759 1,574,105 673,862 534,308
--------------- -------------- -------------- ---------------
Total noninterest income 4,256,966 4,030,596 1,522,462 1,281,903
Noninterest expense:
Salaries and employee benefits 7,217,711 6,415,782 2,436,624 2,242,502
Net occupancy and equipment 1,524,834 1,524,497 440,924 502,036
Other expenses 3,625,171 3,138,649 1,335,175 1,119,615
--------------- -------------- -------------- ---------------
Total noninterest expense 12,367,716 11,078,928 4,212,723 3,864,153
--------------- -------------- -------------- ---------------
Income before income taxes 8,714,997 7,326,398 3,241,556 2,624,015
Provision for income taxes 3,401,059 2,755,642 1,221,625 976,120
--------------- -------------- -------------- ---------------
Net income $ 5,313,938 $ 4,570,756 $ 2,019,931 $ 1,647,895
=============== ============== ============== ===============
Basic net income per common share $ 0.77 $ 0.67 $ 0.29 $ 0.24
=============== ============== ============== ===============
Diluted net income per common share $ 0.76 $ 0.65 $ 0.29 $ 0.24
=============== ============== ============== ===============
See accompanying notes.
4
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE RETAINED COMPREHENSIVE COMMON STOCKHOLDERS'
INCOME (LOSS) EARNINGS INCOME (LOSS) STOCK EQUITY
------------- ------------ ------------- ------------ --------------
Balance at December 31, 1998 $ 17,218,415 $ 157,722 $ 9,545,545 $ 26,921,682
Comprehensive Income:
Net Income $ 4,570,756 4,570,756 -- -- 4,570,756
Other comprehensive loss, net of tax:
Unrealized losses on
securities available-for-sale (418,627) -- (418,627) -- (418,627)
-------------
Comprehensive income $ 4,152,129
=============
Cash dividends paid (1,671,125) -- -- (1,671,125)
10% Stock Dividend declared in June 1999 (8,771,010) -- 8,771,010 --
Repurchases of common stock (55,990 shares) -- -- (834,583) (834,583)
Stock options exercised (74,619 shares) -- -- 315,655 315,655
------------ ------------- ------------ --------------
Balance at September 30, 1999 $ 11,347,036 $ (260,905) $ 17,797,627 $ 28,883,758
============ ============= ============ ==============
Balance at December 31, 1999 $ 12,465,355 $ (622,421) $ 17,728,564 $ 29,571,498
Comprehensive Income:
Net Income $ 5,313,938 5,313,938 -- -- 5,313,938
Other comprehensive income, net of tax:
Unrealized gain on
securities available-for-sale 22,975 -- 22,975 -- 22,975
-------------
Comprehensive income $ 5,336,913
=============
Cash dividends paid (1,650,330) -- -- (1,650,330)
Stock options exercised (17,650 shares) -- -- 40,242 40,242
============ ============= ============ ==============
Balance at September 30, 2000 $ 16,128,963 $ (599,446) $ 17,768,806 $ 33,298,323
============ ============= ============ ==============
See accompanying notes.
5
CASCADE BANCORP & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
2000 1999
------------------ -----------------
Net cash provided by operating activities $ 5,434,831 $ 8,099,791
Investing activities:
Proceeds from maturities and calls of investment securities
available-for-sale 1,107,858 18,334,586
Proceeds from sales of investment securities available-for-sale - 633,265
Purchases of investment securities available-for-sale (526,638) -
Purchases of investment securities held-to-maturity (83,000) (117,636)
Proceeds from maturities and calls of investment securities
held-to-maturity 394,775 334,802
Net increase in loans (57,579,419) (62,684,580)
Purchases of premises and equipment, net (1,436,395) (1,784,046)
------------------ -----------------
Net cash used in investing activities (58,122,819) (45,283,609)
Financing activities:
Net increase in deposits 74,099,612 37,465,817
Cash dividends (1,650,330) (1,671,125)
Repurchases of stock - (834,583)
Proceeds from issuance of stock 40,242 315,655
Net increase (decrease) in other borrowings (10,100,000) 5,500,000
------------------ -----------------
Net cash provided by financing activities 62,389,524 40,775,764
------------------ -----------------
Net increase in cash and cash equivalents 9,701,536 3,591,946
Cash and cash equivalents at beginning of period 19,420,537 26,838,900
------------------ -----------------
Cash and cash equivalents at end of period $ 29,122,073 $ 30,430,846
================== =================
See accompanying notes.
6
CASCADE BANCORP & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements
include the accounts of Cascade Bancorp (Bancorp), a bank holding company,
and its wholly-owned subsidiaries, Bank of the Cascades (the Bank) and
Cascade Bancorp Financial Services, Inc. (collectively, "the Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The interim condensed consolidated financial statements are prepared by
management and are unaudited, but include all adjustments, consisting of only
normal accruals, which the Company considers necessary for a fair
presentation of the results of operations for such interim periods. In
preparing the condensed consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheets and income and
expenses for the periods. Actual results could differ from those estimates.
The balance sheet data as of December 31, 1999 was derived from audited
financial statements, but does not include all disclosures contained in the
Company's 1999 Annual Report to Shareholders.
The interim condensed consolidated financial statements should be read
in conjunction with the December 31, 1999 consolidated financial statements,
including the notes thereto, included in the Company's 1999 Annual Report to
Shareholders.
Certain amounts for 1999 have been reclassified to conform with the 2000
presentation.
2. INVESTMENT SECURITIES
Investment securities at September 30, 2000 and December 31, 1999
consisted of the following:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
SEPTEMBER 30, 2000 COST GAINS LOSSES FAIR VALUE
- ------------------------------------ ------------ ---------- ----------- ------------
AVAILABLE-FOR-SALE
U.S. Government and
Agency securities........ $ 15,530,011 $ 120 $ 154,982 $ 15,375,149
Mortgage-backed securities 9,442,354 25,886 175,101 9,293,139
U.S. Treasury securities............ 1,998,496 15,264 -- 2,013,760
Equity securities................... 2,527,843 -- 678,037 1,849,806
------------ ---------- ----------- ------------
$ 29,498,704 $ 41,270 $ 1,008,120 $ 28,531,854
============ ========== =========== ============
HELD-TO-MATURITY
Obligations of state and
political subdivisions... $ 669,328 $ 1,935 $ 4,598 $ 666,665
FHLB stock.......................... 1,759,100 -- -- 1,759,100
------------ ---------- ----------- ------------
$ 2,428,428 $ 1,935 $ 4,598 $ 2,425,765
============ ========== =========== ============
7
2. INVESTMENT SECURITIES (CONT.)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1999 COST GAINS LOSSES FAIR VALUE
- ---------------------------- ----------- ----------- ----------- -----------
AVAILABLE-FOR-SALE
U.S. Government and
Agency securities ...... $15,538,091 $ -- $ 255,820 $15,282,271
Mortgage-backed securities.. 10,009,453 -- 240,969 9,768,484
U.S. Treasury securities ... 1,997,742 17,878 -- 2,015,620
Equity securities .......... 2,527,843 -- 524,994 2,002,849
----------- ----------- ----------- -----------
$30,073,129 $ 17,878 $ 1,021,783 $29,069,224
=========== =========== =========== ===========
HELD-TO-MATURITY
Obligations of state and
political subdivisions.. $ 1,066,694 $ 5,243 $ 7,975 $ 1,063,962
FHLB stock ................. 1,676,100 -- -- 1,676,100
----------- ----------- ----------- -----------
$ 2,742,794 $ 5,243 $ 7,975 $ 2,740,062
=========== =========== =========== ===========
3. LOANS AND RESERVE FOR LOAN LOSSES
The composition of the loan portfolio at September 30, 2000 and December
31, 1999 was as follows:
2000 1999
------------ ------------
Commercial .................. $ 49,744,114 $ 43,794,517
Real Estate:
Construction .......... 66,900,786 60,583,812
Mortgage .............. 31,691,646 27,843,683
Commercial ............ 138,143,585 109,468,780
Installment ................. 49,586,829 37,989,342
------------ ------------
336,066,960 279,680,134
Less:
Reserve for loan losses 4,617,531 3,525,185
Deferred loan fees .... 1,235,386 1,252,717
------------ ------------
5,852,917 4,777,902
------------ ------------
Loans, net .................. $330,214,043 $274,902,232
============ ============
Transactions in the reserve for loan losses for the nine months ended
September 30, 2000 and 1999 were as follows:
2000 1999
----------- -----------
Balance at beginning of period $ 3,525,185 $ 2,635,820
Provision charged to operations 1,956,000 1,655,138
Recoveries .................... 142,429 131,547
Loans charged off ............. (1,006,083) (1,061,240)
----------- -----------
Balance at end of period ...... $ 4,617,531 $ 3,361,265
=========== ===========
The reserve for loan losses represents management's recognition of the
assumed risks of extending credit and the quality of the existing loan
portfolio. The reserve is maintained at a level considered adequate to
provide for potential loan losses based on management's assessment of various
factors affecting the portfolio. Such factors include loss experience, review
of problem loans, current economic conditions, and an overall evaluation of
the quality, risk characteristics and concentration of loans in the
portfolio. The reserve is increased by provisions charged to operations and
reduced by loans charged-off, net of recoveries.
8
3. LOANS AND RESERVE FOR LOAN LOSSES (CONT.)
The Bank manages the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in
prudent lending activities.
Although a risk of nonpayment exists with respect to all loans, certain
specific types of risks are associated with different types of loans. Due to
the nature of the Bank's customer base and the growth experienced in the
Bank's market area, real estate is frequently a material component of
collateral for the Bank's loans. The expected source of repayment of these
loans is generally the operations of the borrower's business or personal
income; however, real estate collateral provides an additional measure of
security. Risks associated with real estate loans include fluctuating land
values, local economic conditions, changes in tax policies, and a
concentration of loans within the Bank's market area.
The Bank mitigates risks on construction loans by generally lending
funds to customers that have been prequalified for long term financing and
who are using experienced contractors approved by the Bank. Commercial real
estate risk is mitigated by making the majority of commercial real estate
loans to owner-occupied users of the property.
The following table presents information with respect to non-performing
assets at September 30, 2000 and December 31, 1999 (dollars in thousands):
2000 1999
----- -----
Loans on non-accrual status ....... $ 902 $ 582
Loans past due 90 days or more
but not on non-accrual status 39 40
Other real estate owned ........... -- 40
----- -----
Total non-performing assets ....... $ 941 $ 662
===== =====
Percentage of non-performing assets
to total assets ............. 0.23% 0.19%
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 nine months ended September 30, 2000 and 1999.
At September 30, 2000, except as discussed above, there were no
potential material problem loans, where known information about possible
credit problems of the borrower caused management to have serious doubts as
to the ability of such borrower to comply with the present loan repayment
terms and which may result in such loans being placed on a non-accrual basis.
4. MORTGAGE SERVICING RIGHTS
At September 30, 2000 and December 31, 1999, the Bank held servicing
rights to approximately $286,671,000 and $268,792,000, respectively, in
mortgage loans which have been sold to the Federal National Mortgage
Association. Such mortgage loans are not included in the accompanying
condensed consolidated balance sheets. The sale of these mortgage loans are
subject to technical underwriting standards and requirements which may result
in repurchase risk. Such risks are considered in the determination of the
reserve for loan losses. Other assets in the accompanying condensed
consolidated balance sheets as of September 30, 2000 and December 31, 1999
include approximately $2,960,000 and $2,838,000, respectively, of capitalized
mortgage servicing rights accounted for at the lower of cost or fair value.
9
4. MORTGAGE SERVICING RIGHTS (CONT.)
The fair value of the capitalized mortgage servicing rights is
determined based on estimates of the present value of expected future cash
flows and comparisons to current market transactions involving mortgage
servicing rights with similar portfolio characteristics. The predominant risk
characteristics in estimating the fair value of mortgage servicing rights
include, but are not limited to, changes in interest rates, prepayment
pattern changes, interest types (ie., fixed and variable) and loan types.
5. BORROWING AGREEMENTS
The Bank is a member of the Federal Home Loan Bank (FHLB) which provides
a secured line of credit of $62.0 million that may be accessed for short or
long-term borrowings. At September 30, 2000 the Bank had a total of $20
million in borrowings outstanding from FHLB, consisting of $10 million in
overnight borrowings at a rate of 5.95% and $10 million on a 90 day advance
at a rate of 5.70% that matured on October 19, 2000. At December 31, 1999,
the Bank had a total of $13 million in borrowings outstanding from the FHLB
bearing a weighted average interest rate of 5.79%. As of December 31, 1999
the Bank had $17.1 million in Federal funds purchased. There were no Federal
funds purchased at September 30, 2000.
6. EARNINGS PER COMMON SHARE
The Company's basic earnings per common share are computed by dividing
net income by the basic weighted-average shares outstanding during the
period. The Company's diluted earnings per common share are computed by
dividing net income by the diluted weighted-average number of shares
outstanding during the period. A reconciliation of the weighted average
shares used to compute basic and diluted earnings per share is as follows:
Nine months ended Three months ended
September 30, September 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
Weighted average shares
outstanding - basic 6,875,955 6,855,758 6,879,884 6,861,573
Incremental shares from
stock options 104,260 146,810 102,374 136,259
-------------- -------------- -------------- --------------
Weighted average shares
outstanding - diluted 6,980,215 7,002,568 6,982,258 6,997,832
============== ============== ============== ==============
As of September 30, 2000, approximately 42,600 shares remain authorized
for possible repurchase under the Company's stock repurchase plan.
8. ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement 133" (SFAS 137), an amendment of SFAS 133, which
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. In June 2000, FASB issued SFAS 138 "Accounting for
Certain Derivative Instruments and Certain Hedging Activities as an amendment
to SFAS 137. SFAS 133, as amended by SFAS 137 and SFAS 138, is effective for
all quarterly and annual financial statements of fiscal years beginning after
June 15, 2000. The Company had no significant derivatives as of September 30,
2000, nor does the Company engage in any hedging activities. Accordingly, the
Company does not anticipate that the adoption of SFAS 133, as amended by SFAS
137 and SFAS 138, will have a material effect on its consolidated financial
position or results of operations.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's unaudited condensed consolidated financial statements and the notes
thereto for the nine-month and three-month periods ended September 30, 2000
and 1999, included in this report.
When used in the following discussion, the word "expects," "believes,"
"anticipates" and other similar expressions are intended to identify
forward-looking statements, which are made pursuant to the safe harbor
provisions of the private securities litigation reform act of 1995. Such
forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected.
Specific risks and uncertainties include, but are not limited to, general
business and economic conditions, and other factors listed from time to time
in the Company's SEC reports. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publish revised
forward-looking statements to reflect the occurrence of unanticipated events
or circumstances after the date hereof.
HIGHLIGHTS
The Company reported net income of approximately $5,314,000 or $.77
basic net income per common share, for the nine months ended September 30,
2000, compared to net income of approximately $4,571,000, or $.67 basic net
income per common share, for the same period in 1999. This represents an
increase in net income of 16.3 percent. Net income for the quarter ended
September 30, 2000 was approximately $2,020,000, or $.29 basic net income per
common share, compared to net income of approximately $1,648,000, or $.24
basic net income per common share, for the same period in 1999. This
represents an increase in net income of 22.6 percent. The increases in
earnings during the periods presented were primarily due to strong growth in
the Company's loan portfolio with a resulting increase in net interest income.
The loan portfolio continued to expand during the third quarter of 2000,
bringing total loans to $336.1 million. Loans grew by 20.2% since year-end
1999 and 25.5% compared to a year ago. Bank deposits were up 26.0% to $359.4
million from year-end 1999 and up 16.6% over the past year. Deposit growth in
the first nine months of 2000 resulted from increased public funding sources
as well as new deposit investment products, which augmented the funding base.
The third quarter of 2000 performance reflected a 10% increase in average
core deposits compared to the preceeding quarter (checking, money market and
savings accounts). At quarter end, 86% of our deposits were "core" in nature,
while time deposits fell to only 14% of the total deposits.
During the third quarter ended September 30, 2000, approximately $6.7
million in deposits of Liberty Bank's Salem Branch were successfully
transferred to Bank of the Cascades. The transaction did not have a material
impact to the financial results of the Company. In addition, the Bank
reported that it has plans to open a third branch in the Salem area in 2001.
RESULTS OF OPERATIONS - NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2000
AND 1999
NET INTEREST INCOME
Net interest income increased 17.2 percent for the nine months and 15.6
percent for the three months ended September 30, 2000 as compared to the same
periods in 1999. These net increases primarily resulted from higher loan
volumes generating increased interest income, which exceeded the increase in
interest expense necessary to fund this growth.
Total interest income increased approximately $5,365,000 (or 26.0%) for
the nine months and $1,935,000 (or 26.4%) for the three months ended
September 30, 2000 as compared to the same periods in 1999. These increases
for both the nine-month and three-month periods were primarily the result of
an increase in the volume of loans. With the Federal Reserve engineering a
higher interest rate climate over the past year, yields on earning assets
increased in the third quarter of 2000 to 10.01% compared to 9.81% for the
same period in 1999.
11
Total interest expense increased approximately $2,613,000 (or 57.2%) for
the nine months and $1,039,000 (or 66.1%) for the three months ended
September 30, 2000 as compared to the same periods in 1999. The higher
interest rate climate resulted in increased rates paid on deposit accounts
compared to a year ago, with overall cost of interest bearing funds
increasing to 4.34% compared to 3.35% a year ago. There were increases in all
categories of interest expense, with the largest increase due to higher rates
and volumes in money market accounts and time deposits. As a consequence of
the above factors, the net interest margin declined to 7.19% for the third
quarter 2000, compared to 7.70% for the year ago quarter.
LOAN LOSS PROVISION
The loan loss provision increased approximately $301,000 for the nine
months and approximately $171,000 for the three months ended September 30,
2000 as compared to the same periods in 1999. Management believes the loan
loss provision maintains the reserve for loan losses at an appropriate level
consistent with the known and inherent risks within the loan portfolio.
However, no assurance can be given that in any particular period loan losses
could be sustained that are sizable in relation to the amount reserved, or
that changing economic factors or other environmental conditions could cause
increases in the provision. The Bank's ratio of reserve for loan losses to
total loans was 1.37 percent at September 30, 2000 compared to 1.26 percent
at December 31, 1999.
NONINTEREST INCOME
Total noninterest income was modestly higher for the nine months but
18.8 percent higher for the three months ended September 30, 2000 as compared
to the same periods in 1999. The main factor that has slowed year to date
growth in overall noninterest income has been lower net revenue in
residential mortgage origination activity, a consequence of the higher
interest rate climate. Excluding mortgage-related origination fees and loss
on sale of mortgage loans, noninterest income is up 16.4 percent and 21.5
percent for the year to date and third quarter, respectively, as compared to
the prior year periods. This fee income growth is due to higher service fee
and other income directly related to increased business activity over the
course of the year. For the nine months, Mortgage related income decreased
45.1 percent as compared to the same period in 1999. However, with more
stable rate rates of late, the third quarter mortgage related results were
flat compared to the year ago quarter.
NONINTEREST EXPENSE
Total noninterest expense increased 11.6 percent for the nine months and
9.0 percent for the three months ended September 30, 2000 as compared to the
same periods in 1999. Noninterest expense increased as a result of increased
personnel and operating expenses which are impacted by continued growth in
business volumes, as well as expenses related to branch start-ups in Salem
and Keizer, Oregon.
INCOME TAXES
Income tax expense increased between the periods presented primarily as
a result of higher pre-tax income.
FINANCIAL CONDITION
The Company continued to experience steady growth in the third quarter
of 2000 with total assets increasing 19.7% to $416.6 million at September 30,
2000 compared to $347.9 million at December 31, 1999. This increase is
primarily due to strong loan growth. Total loans outstanding increased 20.2
percent to $336.1 million at September 30, 2000 as compared to $279.7 million
at December 31, 1999. The growth was concentrated in the commercial real
estate loan portfolio, up $28.7 million consistent with the nature of
economic growth in the markets served by the Company.
Increased assets were funded primarily by growth in deposits. Deposits
increased 26.0 percent to $359.4 million at September 30, 2000 compared to
$285.3 million at December 31, 1999. A portion of this growth was
attributable to the acquisition of the deposits from Liberty Bank's Salem
branch of approximately $6.7 million along with new and expanded public fund
customer deposits. Because deposit growth exceeded loan growth, the Company
was able to reduce its overall borrowings by $10.1 million at September 30,
2000.
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The Company had no off balance sheet derivative financial instruments as
of September 30, 2000 and December 31, 1999.
CAPITAL RESOURCES
The Company's total stockholders equity at September 30, 2000 was $33.3
million, an increase of $3.7 million from December 31, 1999. The increase was
the net result of earnings of $5.3 million for the nine months ended
September 30, 2000, less cash dividends to shareholders of $1.7 million
during the first nine months of 2000. In addition, improved market prices for
common stock and bond prices resulted in a slight net unrealized gain on
investment securities available-for-sale. At September 30, 2000 the Company
had a net unrealized loss on available for sale securities of approximately
$.6 million.
At September 30, 2000, the Company's Tier 1 and total risked-based
capital ratios under the Federal Reserve Board's (AFRB@) risk-based capital
guidelines were approximately 9.44% and 10.69%, respectively. The FRB's
minimum risk-based capital ratio guidelines for Tier 1 and total capital are
4% and 8%, respectively.
LIQUIDITY
The Company analyzes and manages its liquidity to ensure the
availability of sufficient funds to meet depositor withdrawals as well as to
fund borrowing needs of its loan customers. The Bank's stable deposit base is
the foundation of its long-term liquidity since these funds are not subject
to significant volatility as a result of changing interest rates and other
economic factors. A further source of liquidity is the Bank's ability to
borrow funds from a variety of reliable counterparties. The Bank has
substantial available-for-sale investment securities that provide collateral
to support its borrowing needs.
At September 30, 2000 the Bank maintained unsecured lines of credit
totaling $19.0 million for the purchase of funds on a short-term basis. The
Bank is also a member of the Federal Home Loan Bank (FHLB) which provides a
secured line of credit of $62.0 million that may be accessed for short or
long-term borrowings. The Company continues to have ample available funding
sources.
At September 30, 2000, the Bank had approximately $113.8 million in
outstanding commitments to extend credit. Approximately 40% of the
commitments pertained to various construction projects. Under the terms of
such commitments, completion of specified project benchmarks must be
certified before funds may be drawn. In addition, it is anticipated that a
portion of other commitments will expire or terminate without funding.
Management believes that the Bank's available resources will be sufficient to
fund its commitments in the normal course of business.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices
and rates. The Company's market risk arises principally from interest rate
risk in its lending, deposit and borrowing activities. Management actively
monitors and manages its interest rate risk exposure. Although the Company
manages other risks, as in credit quality and liquidity risk, in the normal
course of business, management considers interest rate risk to be a
significant market risk, which could have the largest material effect on the
Company's financial condition and results of operations. Other types of
market risks, such as foreign currency exchange rate risk and commodity price
risk, do not arise in the normal course of the Company's business activities.
The Company did not experience a material change in market risk at
September 30, 2000 as compared to December 31, 1999.
FINANCIAL MODERNIZATION ACT
On November 12, 1999 the Gramm-Leach-Bliley Act became law, repealing
the 1933 Glass-Steagall Act's separation of the commercial and investment
banking industries. The Gramm-Leach-Bliley Act expands the range of
nonbanking activities a bank holding company may engage in, while reserving
existing authority for bank holding companies to engage in activities that
are closely related to banking. The new legislation creates a new category of
holding company called a "Financial Holding Company," a subset of bank
holding companies that satisfy the following criteria:
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1. all of the depository institution subsidiaries must be well
capitalized and well managed;
2. the holding company must file with the Federal Reserve Board a
declaration that it elects to be a financial holding company to engage
in activities that would not have been permissible before the
Gramm-Leach-Bliley Act; and
3. all of the depository institution subsidiaries must have a community
Reinvestment Act rating of "satisfactory" or better.
Financial holding companies may engage in any activity that (i) is
financial in nature or incidental to such financial activity (ii) is
complementary to a financial activity and does not pose a substantial risk to
the safety and soundness of depository institutions or the financial system
generally. The Gramm-Leach-Bliley Act specifies certain activities that are
financial in nature. These activities include:
- acting as a principal, agent or broker for insurance;
- underwriting, dealing in or making a market in securities; and
- providing financial and investment advice.
The Federal Reserve Board and the Secretary of the Treasury have
authority to decide whether other activities are also financial in nature or
incidental to financial activity, taking into account changes in technology,
changes in the banking marketplace, competition for banking services and so
on.
The Gramm-Leach-Bliley Act has only recently become law. Regulations of
the banking agencies implementing the legislative changes can be expected in
the near future. Except for the increase in competitive pressures faced by
all banking organizations that is a likely consequence of the
Gramm-Leach-Bliley Act, the legislation and implementing regulations are
likely to have a more immediate impact on large regional and national
institutions than on community based institutions engaged principally in
traditional banking activities. Because the legislation permits bank holding
companies to engage in activities previously prohibited altogether or which
were severely restricted because of the risks they posed to the banking
system, implementing regulations can be expected to impose strict and
detailed prudential safeguards on affiliations among banking and nonbanking
companies in a holding company organization. Additionally, because the
legislation allows various affiliates within a single holding company
organization to serve a broader array of customers' financial goals,
including their banking, insurance and investment goals, implementing
regulations can be expected to impose strict safeguards on sharing of
customer information among affiliated entities within an organization.
The Company evaluated the provisions of the Act and became a designated
"Financial Holding Company" during the second quarter of 2000. It does not
expect such designation to have a material effect on its financial condition
or results of operations.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits were required to be filed for the quarter ended
September 30, 2000.
(b) REPORTS ON FORM 8-K. The Company did not file any reports on
Form 8-K during the second quarter ended September 30, 2000.
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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 11/9/00 By /s/ Patricia L. Moss
--------------- ---------------------------------
Patricia L. Moss, President & CEO
Date 11/8/00 By /s/ Gregory D. Newton
--------------- ---------------------------------
Gregory D. Newton,
SVP/Chief Financial Officer
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