Cascade Bancorp (CACB)

[Enterprising Investor]

Cascade Bancorp Reports Third Quarter 2014 Financial Results (10/28/14)

BEND, Ore., Oct. 28, 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 third quarter of 2014.

The Company reported net income for the third quarter of 2014 of $2.4 million, or $0.03 per share. Excluding approximately $1.3 million in acquisition and one-time expenses (pretax) as well as a non-recurring tax provision true up expense of $0.4 million, adjusted earnings1 would have been $3.6 million, or $0.05 per share for the quarter. This compares with a net loss of $4.7 million, or $0.08 per share, in the preceding quarter which included $12.3 million in costs (pretax) related to the May 16, 2014 acquisition of Home Federal Bancorp, Inc. ("HFB") and one-time expenses. Since the Company's acquisition of HFB was completed during the second quarter of 2014, revenue and expenses arising from HFB's previous operations have been included with the Company's results for the full third quarter of 2014, while the preceding quarter included results from former HFB operations for approximately one-half of the quarter. Net income for the third quarter a year ago was $1.5 million, or $0.03 per share.

"With the completion of our successful integration of HFB, our full focus is directed toward capitalizing on our strong market share in growth markets of Oregon and Idaho. Cascade is built upon an enviable low cost deposit franchise, and our goal is to increase revenues by growing loans at a pace well above peer banks," commented Terry Zink, President and Chief Executive Officer of Cascade Bancorp. "Indicative of this opportunity is that our loan to deposit ratio is 73.8% at September 30, 2014. We believe this suggests Cascade has significant capacity to grow our lending book in support of our customers in Oregon and Idaho, and to build toward our goal of achieving leading returns in the region."

For the quarter ended September 30, 2014, total deposits increased to $2.0 billion, or 2.3%, and total loans increased to $1.4 billion, or 4.9%, as compared to June 30, 2014. Deposit growth was primarily attributable to organic growth combined with strong retention of former HFB customers, underscoring the success of the HFB acquisition and customer system conversion activities completed in the prior quarter. Loan growth was largely attributable to the investment of excess liquidity into floating rate shared national credits. These assets are part of Cascade's strategy to moderate duration risk in the combined balance sheet and better position the bank for an eventual increase in market interest rates.

On May 16, 2014 the Company completed its acquisition of HFB resulting in a $2.3 billion banking franchise with top community bank market share in growth markets of Oregon and Idaho. With the inclusion of HFB, as of September 30, 2014, total deposits increased 70.2% from December 31, 2013 to $2.0 billion with cost of deposits under 0.15%. As of September 30, 2014, 53.6% of total deposits are in checking account balances. Gross loans increased 47.2% from December 31, 2013 to $1.5 billion as of September 30, 2014, inclusive of HFB loans.

The financial statements as of September 30, 2014 are inclusive of purchase accounting adjustments to HFB assets and liabilities as of the acquisition date. The financial results for the third quarter of 2014 include HFB income and expense since the acquisition date. The comparative changes described below arise mainly from the benefits and costs related to the HFB acquisition.

Third Quarter 2014 Financial Highlights

•Net income for the third quarter of 2014 was $2.4 million, or $0.03 per share, as compared to net income of $1.5 million, or $0.03 per share for the third quarter of 2013. Earnings for the third quarter of 2014 included acquisition related and one-time expenses (pretax), as well as a non-recurring tax true up expense.

•At September 30, 2014 stockholders' equity increased to $308.4 million with the acquisition of HFB, 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 assets2 were 13.20% and 9.58% at September 30, 2014 and 13.42% and 13.38% at December 31, 2013, respectively.

•Net loans at September 30, 2014 totaled $1.4 billion, an increase of 48.3% compared to December 31, 2013.

•Total deposits as of September 30, 2014 were $2.0 billion, up 70.2% compared to December 31, 2013.

•Net interest margin ("NIM") for the third quarter of 2014 was 3.63% compared to 3.98% in the second quarter of 2014 and 3.81% in the third quarter of 2013. The decline was mainly due to the high level of liquidity maintained during the quarter, which is pending prospective deployment to loans and other earning assets.

•Credit quality was strong with non-performing assets ("NPAs") at 0.74% of total assets at September 30, 2014 compared to 0.88% at September 30, 2013. Net recoveries for the third quarter of 2014 were $0.9 million, as compared to net charge offs of $1.0 million in the third quarter of 2013.

Financial Review

Total assets at September 30, 2014 were $2.3 billion, compared with $1.4 billion at December 31, 2013. The increase from year-end 2013 mainly reflects the $945.3 million in tangible net assets at fair value acquired in the HFB acquisition.

Cash and cash equivalents at September 30, 2014 were $137.3 million compared to $81.8 million at December 31, 2013. The increased liquidity at September 30, 2014 as compared to year-end 2013 was the result of the acquisition of HFB, and includes the effect of a post-closing sale of certain long-duration HFB investment securities. Cascade intends to opportunistically redeploy its increased liquidity into organic loans and certain wholesale assets over the next several quarters. Cascade's strategic aim is to moderate duration risk in the combined balance sheet by replacing the longest duration HFB investment securities with a combination of floating and adjustable-rate assets. Investment securities classified as available-for-sale and held-to-maturity were $445.2 million at September 30, 2014 as compared to $195.8 million at December 31, 2013 and $201.4 million at September 30, 2013. The increase in investment securities classified as available-for-sale and held-to-maturity at September 30, 2014 was primarily the result of the HFB acquisition.

Goodwill recorded in connection with HFB acquisition totaled $76.7 million. There was no goodwill in prior periods. The deferred tax asset is $69.3 million at September 30, 2014 compared to $50.1 million at December 31, 2013.

Total net loans at September 30, 2014 were $1.4 billion which includes HFB's acquired loans. Net loans at the end of the third quarter of 2014 are up 48.3% compared to December 31, 2013 and 57.5% on a year-over-year basis. The commercial and industrial loan portfolio was $372.5 million at September 30, 2014 compared to $254.2 million at December 31, 2013 and $211.2 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 $2.0 billion at September 30, 2014, which includes the addition of $760.6 million of HFB acquired deposits in the second quarter of 2014. The September 30, 2014 deposits represent a 70.2% increase over the balance at December 31, 2013 and a 66.1% increase on a year-over-year basis.

Total stockholders' equity at September 30, 2014 was $308.4 million compared to $188.7 million at December 31, 2013. The increase was predominately due to the effect of HFB acquisition. Tangible capital3 was $223.8 million at September 30, 2014 and $188.2 million at December 31, 2013. The total common equity ratio to total assets and tangible common equity ratio2 to total assets were 13.20% and 9.58% at September 30, 2014 and 13.42% and 13.38% at December 31, 2013, respectively. At September 30, 2014, the Bank's regulatory ratios exceeded those required to be designated "well-capitalized" with Tier 1 leverage, Tier 1 risk-based, and Total risk-based capital regulatory ratios of 7.40%, 9.70% and 10.95%, respectively. These ratios are lower than prior periods because of the inclusion of HFB acquired average assets for the entire third quarter as compared to inclusion for approximately one-half of the prior quarter.

The Company reported net income for the third quarter of 2014 of $2.4 million, or $0.03 per share. This compares to a net loss for the second quarter of 2014 ("linked quarter") of $4.7 million, or $0.08 per share, and net income for the third quarter of 2013 of $1.5 million, or $0.03 per share. The improvement in the third quarter of 2014 over the linked quarter is primarily attributable to the reduction of acquisition-related and one-time expenses, which were $0.5 million and $0.8 million in the third quarter of 2014, respectively, and $9.9 million and $2.4 million in the linked quarter, respectively. Acquisition and one-time costs in the third quarter of 2014 were mainly human resource, professional service, property and equipment and IT/card related. The third quarter of 2014 also included a non-recurring tax provision true up expense of $0.4 million. The improvement in the third quarter of 2014 over third quarter 2013 is primarily the result of the inclusion of earnings on HFB acquired assets.

Net interest income was $18.6 million for the quarter ending September 30, 2014 as compared to $15.7 million for the second quarter of 2014, and to $12.1 million in the third quarter of 2013. The comparative increase was mainly related to inclusion of earnings on assets acquired in the HFB acquisition for the full third quarter of 2014, compared to inclusion for approximately half of the second quarter of 2014.

Total interest income was $19.3 million for the quarter ending September 30, 2014 as compared to $16.2 million in the second quarter of 2014 and $12.5 million in the third quarter of 2013. The comparative increase was primarily related to inclusion of earnings on assets acquired in the HFB acquisition for the full third quarter of 2014.

Total interest expense for the third quarter of 2014 was $0.7 million compared to $0.5 million in the second quarter of 2014 and $0.5 million for the third quarter of 2013. The increase in the third quarter of 2014 over the second quarter of 2014 was primarily the result of the inclusion of expenses related to deposits acquired from HFB for the full third quarter of 2014.

The NIM for the third quarter of 2014 was 3.63%, compared to the linked quarter net interest margin of 3.98%. The decline was mainly due to the high level liquidity maintained during the third quarter, which is pending prospective deployment to loans and other earning assets. Excess liquidity is also a result of the bank's strategy to redeploy long duration HFB investment securities into a combination of floating and adjustable-rate assets. The Company's strategic objective is to moderate duration risk in the combined balance sheet and better position the bank to benefit from rising market interest rates.

Non-interest income for the third quarter 2014 was $5.5 million compared to $4.8 million in the second quarter 2014 and $3.6 million for the third quarter of 2013. This relates mainly to the inclusion of revenues relating to assets acquired in the HFB acquisition for a full quarter, as compared to half of the second quarter 2014, as well as increases in card revenue and service charges.

Non-interest expense for the third quarter 2014 was $19.7 million compared to $30.2 million for the second quarter 2014 and $13.6 million for the third quarter of 2013. The second quarter 2014 included $12.3 million of acquisition related and one-time charges, while the third quarter of 2014 included $1.3 million of such expenses. Operating expenses relating to operations acquired in the HFB acquisition are included for approximately half of the second quarter and for the full third quarter of 2014. On a year-to-date basis, merger related and other one-time expenses total $11.3 million and $3.2 million, respectively.

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 HFB acquisition was $6.0 million, consisting of an interest rate and a credit mark which will be accreted over the life of the loans (approximately 10 years).

At September 30, 2014, delinquent loans were 0.34% of the loan portfolio, inclusive of HFB delinquencies. This compares to 0.27% as of June 30, 2014 and 0.40% for the year ago period. Net loan recoveries totaled $0.9 million for the third quarter of 2014 compared to net charge-offs of $1.0 million for the third quarter of 2013.

Non-performing assets as a percentage of total assets was 0.74% at September 30, 2014, as compared to 0.80% at the end of the second quarter 2014 and 0.88% a year ago.

The Company made no provision for loan losses as management believes the reserve for loan losses of $21.4 million at September 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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