Cascade Bancorp (CACB)

[Enterprising Investor]

Cascade Bancorp Reports Second Quarter 2014 Financial Results (8/14/14)

END, Ore., Aug. 14, 2014 /PRNewswire/ -- Cascade Bancorp, (NASDAQ: CACB) ("Company" or "Cascade") the holding company for Bank of the Cascades ("Bank"), today announced its financial results for the second quarter of 2014.

The Company reported a net loss for the second quarter of 2014 of $4.7 million, or $0.08 per share as compared to net income of $46.4 million or $0.98 per share for the second quarter of 2013. The net loss for the second quarter of 2014 was primarily due to merger-related expenses recorded of $9.9 million related to the acquisition of Home Federal Bancorp, Inc. ("Home") which was completed in the second quarter and other one-time charges. The net income in the second quarter of 2013 was mainly attributable to the release of the Company's valuation allowance on its deferred tax asset ("DTA"). Net income for the first quarter of 2014 was $0.9 million or $0.02 per common share.

On May 16, 2014 the Company completed its acquisition of Home resulting in a $2.3 billion banking franchise with top community bank market share in growth markets of Oregon and Idaho. At June 30, 2014, total deposits increased 66.4% from December 31, 2013 to $1.9 billion with cost of deposits under 0.15%. As of June 30, 2014, 52.1% of total deposits are in checking account balances. Net loans increased 41.0% from December 31, 2013 to $1.4 billion as of June 30, 2014 with the addition of Home loans.

Systems integration was completed on May 27, 2014 which was a main step to enabling the projected right-sizing of the combined branch network and the realization of overhead and operational efficiencies. The combination is expected to significantly enhance future profitability, with improved revenue and cost structure efficiencies. Customer benefits include access to a broader offering including mobile banking, cash management, card services and stronger lending capabilities.

"We are extremely pleased with having both closed and integrated Home Federal Bancorp during the last two weeks of May," commented Terry Zink, President and Chief Executive Officer of Cascade Bancorp. "As anticipated, our second quarter loss resulted from acquisition related charges. While there is still more to do, we expect the third and fourth quarters of 2014 will demonstrate the potential earnings power of the combined banks as we build momentum in loan balances funded by a strong and stable core deposit franchise."

Zink continued, "The cost savings anticipated in the Home transaction are on track and I am also pleased that the loans acquired with Home are satisfactory in terms of credit quality. With the acquisition largely behind us, we look forward to expanding banking relationships with our new Home customers across the Cascade footprint."

The financial statements as of June 30, 2014 are inclusive of purchase accounting adjustments to Home assets and liabilities as of the acquisition date. The financial results for the second quarter of 2014 include Home income and expense for approximately one-half of this quarterly period. The comparative changes described below arise mainly from the benefits and costs related to the Home acquisition.

Second Quarter 2014 Financial Highlights

Including acquisition related expenses, the net loss for the second quarter of 2014 was $4.7 million or $0.08 per share compared to net income of $46.4 million or $0.98 per share for the second quarter of 2013. Acquisition related costs were $9.9 million for the second quarter of 2014 and $10.8 million year-to-date (pretax).

At June 30, 2014 stockholders' equity increased to $306.9 million with the acquisition of Home, including purchase accounting adjustments. This compares to $188.7 million at December 31, 2013.

The total common equity ratio to total assets and tangible common equity ratio to total assets1 were 13.41% and 9.74% at June 30, 2014 and 13.42% and 13.38%, at December 31, 2013, respectively.

Net loans at June 30, 2014 totaled $1.4 billion, an increase of 41.0 % compared to December 31, 2013.

Total deposits as of June 30, 2014 were $1.9 billion up 66.4% compared to December 31, 2013.

Net interest margin ("NIM") for the second quarter of 2014 was 3.98% compared to 3.83% in the first quarter of 2014.

Credit quality improved with non-performing assets ("NPA's") at 0.80% of total assets at June 30, 2014 compared to 1.01% at June 30, 2013. Net charge offs for the second quarter of 2014 were $1.3 million, as compared to $2.9 million in the second quarter of 2013.

Acquisition of Home Federal Bancorp

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Financial Review

Total assets at June 30, 2014 were $2.3 billion, compared with $1.4 billion at December 31, 2013. The increase from year-end 2013 mainly reflects the $946.1 million in tangible net assets at fair value acquired in the Home acquisition.

Cash and cash equivalents at June 30, 2014 were $164.3 million compared to $81.8 million at December 31, 2013. The increased liquidity at June 30, 2014 as compared to year-end 2013 was the result of the acquisition of Home, and includes the effect of a post-closing sale of certain long-duration Home investment securities. Cascade intends to opportunistically redeploy its increased liquidity into organic loans and certain wholesale assets over the balance of the year. Cascade's strategic aim is to reduce duration risk in the combined balance sheet by replacing the longest duration Home investment securities with a combination of floating and adjustable-rate assets. Investment securities classified as available-for-sale and held-to-maturity were $430.8 million at June 30, 2014 as compared to $195.8 million at December 31, 2013 and $218.6 million at June 30, 2013. The increase in investment securities classified as available-for-sale and held-to-maturity at June 30, 2014 was a result of the Home combination.

Goodwill recorded in connection with Home acquisition totaled $75.8 million. There was no goodwill in prior periods. The deferred tax asset is $70.0 million at June 30, 2014 compared to $50.1 million at December 31, 2013.

Total net loans at June 30, 2014 were $1.4 billion which includes Home's acquired loans. Net loans at the end of the second quarter of 2014 are up 41.0% compared to December 31, 2013 and 54.6% on a year-over-year basis. Organic loan growth during the second quarter of 2014 was muted because production was largely offset by the payoff of a top 10 customer loan related to the customer's excess liquidity. The organic loan pipeline at June 30, 2014 was at its strongest level in a year, mainly in commercial and industrial ("C&I") loans and owner-occupied commercial real estate. The C&I loan portfolio was $300.7 million at June 30, 2014 compared to $254.2 million at December 31, 2013 and $197.0 million a year earlier and includes Cascade's shared national credit portfolio of floating rate participations that have been acquired with the strategic aim of diversifying credit risk while improving the Company's interest rate risk profile.

Total deposits were $1.9 billion at June 30, 2014, including $760.6 million of Home acquired deposits, a 66.4% increase over the balance at December 31, 2013 and 75.9% on a year-over-year basis.

Total stockholders' equity at June 30, 2014 was $306.9 million compared to $188.7 million at December 31, 2013. The increase was predominately due to the effect of Home acquisition. Tangible capital2 was $223.0 million at June 30, 2014 and $188.2 million at December 31, 2013. The total common equity ratio to total assets and tangible common equity ratio1 to total assets were 13.41% and 9.74% at June 30, 2014 and 13.42% and 13.38%, at December 31, 2013, respectively.

The Company reported a net loss for the second quarter of 2014 of $4.7 million, or $0.08 per share due primarily to Home acquisition-related expenses of $9.9 million and other one-time charges of $2.4 million. This compares to net income for the first quarter of 2014 ("linked quarter") of $0.9 million or $0.02 per share, and $46.4 million or $0.98 per share in the second quarter of 2013. The linked quarter period included $0.9 million in transaction related expenses related to the acquisition of Home.

Net interest income was $15.7 million for the quarter ending June 30, 2014 as compared to $11.7 million for the first quarter of 2014, and to $11.5 million in the year ago quarter. The comparative increase was related to inclusion of earnings on Home acquired assets for approximately half of the second quarter of 2014.

Total interest income was $16.2 million for the quarter ending June 30, 2014 as compared to $12.1 million in the first quarter of 2014 and $12.4 million in the year ago quarter. The comparative increase was related to inclusion of earnings on Home acquired assets for approximately half of the second quarter of 2014.

Total interest expense for the second quarter of 2014 was $0.5 million compared to $0.4 million in the first quarter of 2014 and $0.9 million for the second quarter of 2013. The increase in the second quarter of 2014 over the first quarter of 2014 was a result of the inclusion of Home deposit expense for approximately half of the second quarter of 2014.

The NIM for the second quarter of 2014 was 3.98%, this compares to the prior quarter net interest margin of 3.83%. As described above, the Company's strategic aim is to moderate duration risk in the combined balance sheet and better position the bank to benefit from rising market interest rates. In part, this strategy will include redeployment of long duration Home investment securities into a combination of floating and adjustable-rate assets. These actions are expected to occur over the next several quarters. Internal forecasts as to the effect of this strategy will be a NIM estimated between 3.65% to 3.75% by the fourth quarter of 2014 (inclusive of discount accretion of fair value marks). Because future interest rates are unpredictable and the execution of the Company's redeployment strategy is uncertain no assurance can be given as to the achievement of the NIM forecast.

Non-interest income for the second quarter 2014 was $4.8 million compared to $3.4 million in the first quarter 2014 and $3.5 million for the second quarter of 2013. This relates mainly to the inclusion of Home revenues for half of the current quarter as well as increased card revenue.

Non-interest expense for the second quarter 2014 was $30.2 million and includes $12.3 million of acquisition related and one-time charges. Acquisition expenses are related to severance, branch consolidation costs, contract termination, disposal of excess equipment, and professional and legal services rendered in connection with the acquisition. Other items include charges related to occupancy and certain incentive plan accruals in the period. Home operating expenses are included for approximately half of the current quarter. Non-interest expense for the first quarter of 2014 was $13.9 million and $19.3 million for the year ago period.

Asset Quality

Acquired loans are recorded at fair value with no allowance for loan losses brought forward in accordance with purchase accounting principles. The net fair value adjustment to acquired loans from the Home acquisition was $6.1 million, consisting of an interest rate and a credit mark which will be accreted over the life of the loans (approximately 10 years).

The Company has determined it will report on a cash basis any potential future benefits and/or costs incurred with respect to Home's remaining Federal Deposit Insurance Commission ("FDIC") loss share receivables (or payables). The remaining benefit and/or cost of the FDIC Agreements are not expected to be material to the Company's financial condition. In the acquired loan portfolio, $53.6 million in loans remain covered loans at June 30, 2014 of which 91.6 % are currently performing. Estimated future losses on acquired covered loans are included in the fair value purchase accounting mark. Home had two acquired loss sharing agreements that the Company now holds, which expire in the third quarter of 2014 and 2015, respectively.

At June 30, 2014, delinquent loans were 0.27% of the loan portfolio, inclusive of Home delinquencies. This compares to 0.33% as of March 31, 2014 and 0.51% for the year ago period. Net loan charge-offs totaled $1.3 million for the second quarter of 2014 compared to $2.9 million for the second quarter of 2013.

Non-performing assets as a percentage of total assets was 0.80% at June 30, 2014, as compared to 0.65% at the end of the first quarter 2014 and 1.01% a year ago. The increase in the current quarter relates to the inclusion of Home non-performing assets, of which 22.1% of current non performing Home loans are subject to FDIC loss sharing agreements.

The Company made no provision for loan losses as management believes the reserve for loan losses of $20.5 million at June 30, 2014 is adequate.

About Cascade Bancorp and Bank of the Cascades

Cascade Bancorp (NASDAQ: CACB), headquartered in Bend, Oregon, and its wholly owned subsidiary, Bank of the Cascades, operate in Oregon and Idaho markets. Founded in 1977, Bank of the Cascades offers full-service community banking through 40 branches in Central, Southern and Northwest Oregon, as well as in the greater Boise/Treasure Valley, Idaho area. The Bank has a business strategy that focuses on delivering the best in community banking for the financial well-being of customers and shareholders. It executes its strategy through the consistent delivery of full relationship banking focused on attracting and retaining value-driven customers. For further information, please visit our website at www.botc.com.

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