Cascade Bancorp Reports Fourth Quarter 2014 Net Income Of $5.0 Million, Or $0.07 Per Share, Up 107% Compared To The Prior Quarter (1/29/15)
BEND, Ore., Jan. 29, 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 and full year ended December 31, 2014.
2014 Financial Highlights
For the Fourth Quarter Ended December 31, 2014:
•Net income of $5.0 million, or $0.07 per share, up 107.2% compared to the third quarter of 2014 ("linked quarter"); the current quarter included approximately $0.01 per share in gain on the sale of decommissioned branches.
•Return on average assets ("ROAA") improved to 0.84% from 0.41% in the linked quarter.
•Return on equity ("ROE") improved to 6.41% from 3.12% in the linked quarter.
•Net interest margin ("NIM") improved to 3.68% from 3.63% in the linked quarter.
•Loan growth of 8.3% (annualized) for the period.
•Credit quality strong; allowance for loan and lease losses ("ALLL") at 1.51% of loans, including net recoveries for consecutive quarters; and non-performing assets ("NPAs") at 0.64%.
•Total deposits stable with 53.3% in checking balances and 0.13% cost of funds.
•Efficiency ratio1 at 68.6%, improved from 81.8% in the linked quarter.
For the Year Ended December 31, 2014:
•Net income of $3.7 million, or $0.06 per share, which includes significant non-recurring costs related to the acquisition of Home Federal Bancorp ("HFB").
•Net loans of $1.5 billion, an increase of 50.9% compared to the year prior mainly due to the HFB acquisition.
•Total deposits of $2.0 billion, up 69.8% compared to the year prior mainly due to the HFB acquisition.
•Credit quality strong with NPAs at 0.64% of total assets at December 31, 2014 compared to 0.81% at December 31, 2013. Net recoveries for 2014 were $1.2 million, as compared to net charge offs of $7.4 million in 2013.
•At December 31, 2014 stockholders' equity at $315.5 million compared to $188.7 million at December 31, 2013.
•Total common equity ratio to total assets and tangible common equity ratio to total assets2 of 13.48% and 9.73% at December 31, 2014 and 13.42% and 13.38% at December 31, 2013, respectively.
"We are very pleased with our significant progress in 2014, the catalyst of which was our successful acquisition of Home Federal Bank that closed just seven short months ago. The success of bringing these two strong institutions together is a tribute to the professionalism and commitment of the now combined Cascade banking team," commented Terry Zink, President and Chief Executive Officer of Cascade. "Since the merger, our team has grown both loans and deposits while expanding our suite of banking services for all customers, including mobile banking. The team's success is further underscored by our fourth quarter earnings of $5.0 million, which is more than double the prior quarter and quadruple year ago levels."
Mr. Zink continued, "We are also energized by our momentum in growing both loans and deposits, especially with the tailwind of an improving economy within our footprint in Oregon and Idaho. We are enthusiastic with the prospect of continued success in 2015 as we execute upon our stated goal of delivering financial returns above peer bank levels. In addition, we continue to be proactive in working to expand our scale and footprint to further enhance franchise value."
Financial Summary
The sequential improvement in the fourth quarter results is attributable to increased net interest income arising from higher average loan balances, as well as linked quarter growth in non-interest income and a reduction in non-interest expense levels. Non-interest income was up 17.0% on a linked quarter basis mainly because of an increase in the Company's Small Business Administration ("SBA") lending revenue and a gain on sale of previously decommissioned branches ($0.7 million, pre-tax). Non-interest expense in the fourth quarter of 2014 was down 11.1% compared to the linked quarter mainly owing to favorable trends in human resource and marketing related expenses. This improvement was expected given that the linked quarter included $1.3 million in non-recurring costs mainly related to the May 16, 2014 acquisition of HFB.
For the year ended December 31, 2014, net income was $3.7 million, or $0.06 per share, which included significant non-recurring costs related to the HFB acquisition. In comparison, net income for the year ended December 31, 2013 was $50.8 million, or $1.08 per share, which was the result of the Company's reversal of a full valuation allowance of $50.1 million in the Company's deferred tax asset ("DTA") in the second quarter of 2013.
Total loans at December 31, 2014 were $1.5 billion, up 2.1% (or 8.3% annualized) as compared to September 30, 2014. Loan growth for the fourth quarter of 2014 was concentrated in residential and construction portfolios, with commercial and industrial ("C&I") flat. Total deposits at December 31, 2014 were steady at $2.0 billion with an average cost of funds at 0.13%, similar to the linked quarter. Average deposits during the fourth quarter of 2014 were up $15.8 million, or 3.1% annualized, on a linked quarter basis and checking account balances represented 53.3% of total deposits at December 31, 2014.
Detailed Financial Review
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 acquisition of HFB, as of December 31, 2014, total deposits increased 69.8% from December 31, 2013 to $2.0 billion with cost of deposits of 0.13%. As of December 31, 2014, 53.3% of total deposits were in checking account balances. Gross loans increased 49.8% from December 31, 2013 to $1.5 billion as of December 31, 2014, inclusive of the acquired HFB loans.
The financial statements as of December 31, 2014 are inclusive of purchase accounting adjustments to HFB assets and liabilities as of the acquisition date. The financial results for the fourth quarter and year ended December 31, 2014 include HFB income and expense since the acquisition date.
The year-over-year comparative changes described below arise mainly from the benefits and costs related to the HFB acquisition.
Balance sheet:
Total assets at December 31, 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 total assets at fair value acquired in the HFB acquisition.
Cash and cash equivalents at December 31, 2014 were $83.1 million compared to $81.8 million at December 31, 2013. Investment securities classified as available-for-sale and held-to-maturity were $472.5 million at December 31, 2014 as compared to $195.8 million at December 31, 2013. The increase in securities was mainly the result of the acquisition of HFB.
Goodwill recorded in connection with the HFB acquisition totaled $80.1 million. There was no goodwill in prior periods. The net DTA was $66.1 million at December 31, 2014 compared to $50.1 million at December 31, 2013.
Net loans at December 31, 2014 were $1.5 billion, which includes HFB acquired loans. Net loans at the end of 2014 were up 50.9% compared to December 31, 2013. The Company had a loan/deposit ratio of 74.1% as of December 31, 2014. Cascade intends to opportunistically redeploy excess liquidity into organic loans and certain wholesale assets over the coming quarters to improve its loan/deposit ratio and its overall yield on earning asset. The C&I loan portfolio was $368.5 million at December 31, 2014 compared to $254.2 million at December 31, 2013 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 December 31, 2014, which includes the addition of $760.6 million of HFB acquired deposits in the second quarter of 2014. The December 31, 2014 deposits represent a 69.8% increase over the balance at December 31, 2013.
Total stockholders' equity at December 31, 2014 was $315.5 million compared to $188.7 million at December 31, 2013. The increase was predominately due to the effect of the HFB acquisition. Tangible capital3 was $227.7 million at December 31, 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 13.48% and 9.73% at December 31, 2014 and 13.42% and 13.38% at December 31, 2013, respectively. At December 31, 2014, the Bank's estimated 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 7.51%, 9.73% and 10.98%, respectively. These ratios are lower than the prior year because of the inclusion of the acquired HFB assets and the effects of purchase accounting on regulatory ratios.
Income Statement:
Net interest income was $19.1 million for the fourth quarter of 2014, up 2.7% (or 10.6% annualized) as compared to $18.6 million for the linked quarter. This increase related to an increase in average loan balances between the quarters from $1.4 billion to $1.5 billion in third and fourth quarters of 2014, respectively. Net interest income in the fourth quarter of 2013 did not include the acquisition of HFB. For the full year of 2014, net interest income was $65.1 million as compared to $48.2 million for the full year of 2013, mainly due to the inclusion of HFB since the acquisition date in May 2014. There was no provision for loan losses during the reporting periods.
Total interest income was $19.8 million for fourth quarter of 2014 as compared to $19.3 million in the linked quarter and $13.5 million in the fourth quarter of 2013. The comparative increase was primarily related to inclusion of earnings on assets acquired in the HFB acquisition for the full fourth quarter of 2014. Total interest income was $67.4 million for the full year of 2014 as compared to $51.0 million for the full year of 2013. The increase over the prior year was mainly due to the inclusion of HFB since the acquisition date in 2014.
Total interest expense for the fourth quarter of 2014 was $0.7 million, comparable to the linked quarter, and $0.4 million for the fourth quarter of 2013. The increase in the fourth quarter of 2014 over the fourth quarter of 2013 was primarily the result of the inclusion of expenses related to deposits acquired from HFB. Total interest expense for the full year 2014 was $2.3 million as compared to $2.8 million for the full year 2013 resulting from ongoing low market interest rates.
The NIM for the fourth quarter of 2014 was 3.68% compared to 3.63% for the linked quarter. The improvement relates primarily to the increase in net interest income arising from higher average loans and lower cash balances. Accretion of acquisition related discounts/premiums was comparable between the periods. NIM for the fourth quarter and full year 2013 were 4.11% and 3.90%, respectively. NIM in these periods was higher than in the fourth quarter and full year 2014 due to increased lower yielding investment securities acquired from HFB.
Non-interest income for the fourth quarter of 2014 was $6.5 million compared to $5.5 million in the linked quarter and $3.9 million for the fourth quarter of 2013. The current quarter improvement relates to the sale of previously decommissioned branches ($0.7 million, pre-tax). In addition, SBA revenues were higher in the current quarter. Non-interest income for the full year 2014 was $20.2 million compared to $14.5 million for the full year 2013. Year-over-year increases relate to the inclusion of revenues arising from the HFB acquisition, as well as improvement in customer swap, card revenue and service charges.
Non-interest expense for the fourth quarter of 2014 was $17.5 million compared to $19.7 million for the linked quarter and $14.8 million for the fourth quarter of 2013. The linked quarter improvement was in part related to the fact that the Company did not have any acquisition-related or one-time expenses in the fourth quarter, whereas such costs totaled $1.3 million (pre-tax) in the linked quarter. Non-interest expense for the full year 2014 was $81.3 million as compared to $61.0 million for the full year 2013. 2014 included expenses of operating the combined institution, as well as significant acquisition-related and other one-time expenses of $14.5 million (pre-tax).
The income tax provision for fourth quarter of 2014 was $3.0 million. This represents a 37.2% tax rate for the period and includes final HFB and other year-end tax adjustments. The income tax provision for the full year 2014 was $0.2 million, which equals a 4.5% effective tax rate. The effective tax rate differs from the statutory rates due primarily to an additional $1.0 million in tax from disallowed merger-related costs and $1.7 million tax reduction from revaluation of net deferred tax assets using maximum statutory rates. Other differences to the effective tax rate were related to normal recurring permanent differences and tax credits. The Company's 2015 tax rate is expected to approximate its 39.5% statutory rate.
Asset Quality
Credit quality metrics continued to be strong, with successive periods of 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, resulting in a 1.51% loan loss reserve to total loans ratio as of December 31, 2014.
At December 31, 2014, delinquent loans were 0.27% of the loan portfolio, inclusive of HFB delinquencies. This compares to 0.34% as of September 30, 2014 and 0.29% for the year ended December 31, 2013. Net loan recoveries totaled $0.7 million for the fourth quarter of 2014 compared to net charge-offs of $0.8 million for the fourth quarter of 2013. Year to date recoveries were $1.2 million for 2014 compared to net charge-offs of $7.4 million for 2013.
Non-performing assets as a percentage of total assets was 0.64% at December 31, 2014, as compared to 0.74% at the end of the linked quarter and 0.81% a year ago.
The Company made no provision for loan losses as management believes the reserve for loan losses of $22.1 million at December 31, 2014 is adequate.
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).
Conference Call
As previously announced, a conference call and webcast discussing the fourth quarter and year-end 2014 results will be held today, January 29, 2015 at 7:00 a.m. Pacific Time (10:00 a.m. Eastern Time). Shareholders, analysts and other interested parties are invited to join the webcast by registering at https://www.webcaster4.com/Webcast/Page/668/7048 or the live conference call by dialing (888) 428-7458 prior to 7:00 a.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 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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