Cascade Bancorp (CACB)

[Enterprising Investor]

Cascade Bancorp Reports First Quarter 2015 Net Income Of $5.1 Million, Or $0.07 Per Share, And Strong Loan Growth During The Period (5/04/15)

BEND, Ore., May 4, 2015 /PRNewswire/ -- Cascade Bancorp (NASDAQ: CACB) ("Company" or "Cascade"), the holding company for Bank of the Cascades ("Bank"), today announced its financial results for the three months ended March 31, 2015.

Q1 2015 Financial Highlights

•Net income for the quarter was $5.1 million, or $0.07 per share, compared to $5.0 million, or $0.07 per share, for the fourth quarter of 2014 ("linked quarter"). First quarter 2015 net income benefitted from approximately $2.1 million (pre-tax) of one-time items.

•Loan growth for the quarter was $79.9 million, to $1.6 billion. Organic growth1 from the linked quarter was approximately $33.7 million, or 2.3% (9.2% annualized), with increases in commercial real estate ("CRE") loans, construction loans, and consumer residential loans.

•Total deposits were up $33.6 million over the linked quarter. Demand deposits increased by $58.1 million, or 9.4% on a linked quarter basis, partially offset by runoff in higher priced certificates of deposit ("CDs") acquired in the acquisition of Home Federal Bancorp, Inc. ("HFB") in May 2014. Checking balances represented over 55% of total deposits and the overall cost of funds was 0.11% compared to 0.13% during the linked quarter.

•Net interest margin ("NIM") was 3.74% for the quarter, compared to 3.68% in the linked quarter and 3.83% in the first quarter 2014 (prior to the HFB acquisition).

•$2.0 million credit to the loan loss provision arising from the remediation of a loan previously written off; the third consecutive quarter of net recoveries.

•Credit quality metrics were solid with allowance for loan losses maintained at 1.48% of gross loans.

•At March 31, 2015, stockholders' equity was $322.0 million compared to $315.5 million at December 31, 2014.

•Return on average assets ("ROAA") was 0.88% compared to 0.84% in the linked quarter and 0.28% in the first quarter 2014.

•Return on equity ("ROE") was 6.52% compared to 6.41% in the linked quarter and 2.02% in the first quarter 2014.

"I am very pleased with our progress this quarter, which reflects significant growth and positive financial metrics," said Terry Zink, President and CEO. "First and foremost, our organic loan growth in the first quarter was solid and broad-based, an indication of not only improved levels of business activity in our footprint but also strong execution by our bankers. Additionally, this quarter's momentum and improving loan pipeline bodes well for continued revenue growth. Meanwhile, the $2.0 million credit to our loan loss provision this quarter underscores the strategic benefit of our aggressive remediation of credit issues in past years."

Mr. Zink continued, "One differentiating characteristic of the Cascade franchise is our strong market share in growing communities in the Northwest. The U.S. Census Bureau recently reported that Cascade's main banking markets in the Bend and Boise metropolitan statistical areas were both in the 95th percentile in the nation in rate of population growth. Thus, our key strategic initiatives are to generate organic loan growth faster than our peers while expanding our low-cost core deposit franchise. At the same time, we remain proactive in the pursuit of value enhancing merger and acquisition opportunities that are strategically coherent. Taken together, we have set a goal to grow Cascade toward $5 billion in assets over a medium term horizon."

Financial Review

The financial statements as of March 31, 2015 are inclusive of purchase accounting adjustments to HFB assets and liabilities, which were acquired on May 16, 2014. The following year over year comparisons are significantly affected because HFB related results are included for the March 31, 2015 quarter, but not included for last year's corresponding quarter.

Balance Sheet:

Total assets at March 31, 2015 were stable at $2.4 billion, compared with the linked quarter at $2.3 billion, with lower cash balances offset by higher loans outstanding. On a year over year basis, total assets increased from $1.4 billion at March 31, 2014 mainly due to the HFB acquisition.

Cash and cash equivalents at March 31, 2015 were $59.8 million compared to $83.1 million at December 31, 2014, as cash was utilized to fund loan growth. Investment securities classified as available-for-sale and held-to-maturity were stable at $466.3 million at March 31, 2015, as compared to $472.5 million at December 31, 2014. Securities are up year over year mainly as a result of the HFB acquisition. Similarly, on March 31, 2015, goodwill and deferred tax assets were stable at $78.6 million and $62.6 million, respectively, as compared to $80.1 million and $66.1 million, respectively, for the linked quarter. Higher balances in these asset categories on a year over year basis resulted from purchase accounting related to the HFB acquisition.

Gross loans at March 31, 2015 were $1.6 billion, compared to $1.5 billion at December 31, 2014. Organic loan growth for the first quarter of 2015 was approximately $33.7 million, or 2.3% for the quarter (9.2% annualized). Growth was concentrated in CRE, construction, and consumer residential loans. The latter included both retained and acquired first lien adjustable rate mortgages (ARMs). Strategically, the Bank prioritized expansion of its ARM portfolio to further diversify its overall loan portfolio by geography and loan type. Commercial and industrial loans were flat, with organic growth being offset by a modest decline in the shared national credit portfolio. The Company's loan to deposit ratio improved to 76.8% as compared to 74.1% on a linked quarter basis. The Company has identified the improvement of this ratio as a key priority in 2015 after experiencing a dip resulting from the HFB acquisition. As of March 31, 2015, gross loans were up $0.6 billion, compared to the year ago period owing to originated loan portfolio growth as well as the inclusion of HFB acquired loans.

Total deposits were seasonally stable at $2.0 billion at March 31, 2015 as compared to the linked quarter. Non-interest bearing accounts increased by $58.1 million, or 9.4% on a linked quarter basis, but were partially offset by runoff in higher priced CDs acquired with the HFB acquisition. This resulted in an overall cost of funds at 0.11% for the quarter as compared to 0.13% in the linked quarter and 0.13% for the year ago quarter.

Total stockholders' equity at March 31, 2015 was $322.0 million compared to $315.5 million at December 31, 2014. The increase was predominately due to first quarter net income. Tangible common stockholders' equity2 was $235.9 million at March 31, 2015 and $227.7 million at December 31, 2014. The common stockholders' equity ratio to total assets and tangible common stockholders' equity ratio to total assets3 were 13.51% and 9.90% at March 31, 2015, respectively, and 13.48% and 9.73% at December 31, 2014, respectively.

At March 31, 2015, the Bank was considered "well capitalized" for regulatory purposes with the following ratios: Tier 1 leverage ratio of 8.56%; Common Equity Tier-1 risk-weighted ratio of 10.55%; Total tier-1 equity to risk-weighted assets of 10.55%; and total capital to risk-weighted assets of 11.82%. The minimum capital requirements to be considered "well capitalized" under the Basel III rules are 5.00%; 6.50%; 8.00%; and 10.00%, respectively.

Income Statement:

For the quarter ended March 31, 2015, net income was $5.1 million, or $0.07 per share, up 1.5% compared to the linked quarter net income of $5.0 million, or $0.07 per share, and compared to $0.9 million, or $0.02 per share, in the first quarter of 2014. The first quarter 2015 results were benefitted by a $2.0 million credit (pre-tax) to the provision for loan losses arising from the remediation of an outstanding credit that had previously been fully written off. In addition, the Company recorded a gain on disposition of decommissioned branches of approximately $0.7 million (pre-tax), similar to the gain that occurred in the prior quarter. Disposition of overlap offices arising from the HFB acquisition is largely complete. These items were partially offset by certain transitory expense items aggregating $0.6 million (pre-tax).

Total interest income was $19.5 million for first quarter of 2015 as compared to $19.7 million in the linked quarter and $12.1 million in the first quarter of 2014. The increase over the first quarter of 2014 was primarily related to inclusion of earnings on assets acquired in the HFB acquisition for the first quarter of 2015.

Total interest expense for the first quarter of 2015 was $0.5 million, compared to $0.7 million in the linked quarter and $0.4 million for the first quarter of 2014. The increase in the first quarter of 2015 over the first quarter of 2014 was primarily the result of the inclusion of expenses related to deposits acquired in the HFB acquisition.

Net interest income was $19.0 million for the first quarter of 2015, stable as compared to the $19.1 million for the linked quarter.

The net interest margin ("NIM") for the first quarter of 2015 improved to 3.74% compared to 3.68% for the linked quarter and 3.83% for the first quarter of 2014. The improvement from the linked quarter relates primarily to an increase in loans as a percent of earning assets for the period. Accretion of acquisition-related discounts/premiums was comparable between the periods. NIM in the first quarter of 2014 was higher than in the first quarter of 2015 because of the impact of a lower loan-to-deposit ratio of acquired HFB earning assets.

The provision for loan losses was credited $2.0 million (pre-tax) arising from the remediation of an outstanding B note that had previously been written off. In the aftermath of the 2008 recession, the Company had restructured certain adversely risk rated loans into A/B notes, with the B notes fully written off. In certain circumstances, the remediation of other such loans in the future may also result in a similar credit to the provision.

Non-interest income for the first quarter of 2015 was $6.1 million compared to $6.5 million in the linked quarter and $3.4 million for the first quarter of 2014. Both the current and linked quarter included gain on sale of previously decommissioned branches at approximately $0.7 million. The linked quarter decline was mainly due to lower volume of Small Business Administration loan sales.

Non-interest expense in the first quarter of 2015 was $18.8 million compared to $17.5 million in the linked quarter due to several factors. While base salaries were stable, payroll taxes and incentive accruals were higher for the period. In addition, certain transitory expense items aggregating $0.6 million (pre-tax) were recorded. These include costs to transition to a paid time off employee benefit program, the write off of remaining lease expense on an abandoned operations center and expense related to the consolidation of imaging platforms.

The income tax provision for first quarter of 2015 was $3.1 million, representing a 38.1% effective tax rate for the period, slightly lower than statutory due to the impact of permanent differences.

Asset Quality

Credit quality metrics were solid, with a continuing trend toward lower loan delinquencies and non-performing asset ratios. The Bank has recorded net loan recoveries in each of the periods since the HFB acquisition closed in the second quarter of 2014. The ratio of loan loss reserve to total loans was stable at 1.48% as of March 31, 2015.

At March 31, 2015, delinquent loans were 0.17% of the loan portfolio. This compares to 0.27% as of December 31, 2014 and 0.33% as of March 31, 2014. Net loan recoveries totaled $3.2 million for the first quarter of 2015 compared to net recoveries of $0.7 million and $0.9 million for the linked quarter and first quarter of 2014, respectively.

Non-performing assets as a percentage of total assets was 0.53% at March 31, 2015, as compared to 0.64% at the end of the linked quarter and 0.65% a year ago.

Acquired loans are recorded at fair value with no allowance for loan and lease 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).

Conference Call

As previously announced, a conference call and webcast discussing the first quarter 2015 results will be held today, May 4, 2015 at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). Shareholders, analysts and other interested parties are invited to join the webcast by registering at http://public.viavid.com/index.php?id=114213 or the live conference call by dialing [phone] prior to 2:00 p.m. Pacific Time.

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 39 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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