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Cascade Bancorp Reports Operating Results (10-Q)

November 03, 2010 | About:
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10qk

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Cascade Bancorp (CACB) filed Quarterly Report for the period ended 2010-09-30.

Cascade Bancorp has a market cap of $14.6 million; its shares were traded at around $0.5 with and P/S ratio of 0.1. CACB is in the portfolios of Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

On August 3, 2010, the Company determined that it would restate its audited consolidated financial statements as of and for the year ended December 31, 2009. This restatement was related to an examination by banking regulators of the Bank that commenced on March 15, 2010. In connection with the examination the regulators provided additional information to the Company on July 29, 2010 which resulted in management refining and enhancing its model for calculating the reserve for loan losses by considering an expanded scope of information and augmenting the qualitative and judgmental factors used to estimate potential losses inherent in the loan portfolio. As a result of the restatement, the December 31, 2009 reserve for loan losses increased to $58.6 million from the previously reported $37.6 million. The loan loss provision for the year ended December 31, 2009 increased from $113.0 million to $134.0 million.

The Company s financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the declining value of collateral securing those loans, is reflective of the business environment in the markets where the Company operates. The present significant downturn in economic activity and declining real estate values has had a direct and adverse effect on the condition and results of operations of the Company. This is particularly evident in the residential land development and residential construction segments of the Company s loan portfolio. Developers or home builders whose cash flows are dependent on the sale of lots or completed residences have reduced ability to service their loan obligations and the market value of underlying collateral has been and continues to be adversely affected. The impact on the Company has been an elevated level of impaired loans, an associated increase in provisioning expense and charge-offs for the Company leading to a net loss in 2009 and 2008 of $114.8 million and $134.6 million, respectively. During 2010 the level of impaired loans have declined, as has the pace of charge-offs and provisioning expense leading to a net loss of $15.1 million for the nine months including a loss of $3.4 million for the quarter ended September 30, 2010. The local and regional economy also has a direct impact on the volume of bank deposits. Core deposits have declined since mid-2006 because business and retail customers have experienced a reduction in cash available to deposit in the Bank and have migrated balances to “too big to fail institutions” out of concerns for soundness of many community banks.

The Company had a net loss of ($0.12) per share or ($3.4 million) for the third quarter 2010, compared to ($0.01) per share or ($0.3 million) for the linked-quarter. The loss primarily resulted from lower net interest income of $1.1 million as compared to the linked-quarter and a tax adjustment of $1.1 million. Reserve for credit losses was approximately $52.5 million or 4.11% of gross loans compared to approximately $59.3 million or 3.83% at December 31, 2009 (as amended). NPA s decreased to $129.5 million compared to $140.1 million for the linked-quarter and delinquent loans decreased to 0.48% of gross loans compared to 0.75% for the linked-quarter and 0.65% at December 31, 2009. Net charge-offs were $9.2 million for the third quarter of 2010 up from $4.9 million for the linked-quarter, mainly due to the linked-quarter included $5.1 million in recoveries as compared to the current quarters recoveries of $0.6 million. Net interest income was lower for the third quarter of 2010 primarily due to reduced interest and loan fee income related to the decline in earning loan volumes. Non-interest income decreased $0.8 million during the third quarter of 2010 when compared to the linked-quarter mainly due to a gain on sales of investment securities of $.6 million recorded in the linked-quarter. When compared to the year-ago period non-interest income was down $5.1 primarily due to a one-time $3.2 gain recorded on the sale of the Bank s credit card merchant business recorded in the year-ago period.

Compared to the linked-quarter, non-interest expense was down by $1.0 million or 5.5% because of lower FDIC and OREO related expenses. In addition, salaries and benefits cost were down $0.2 million or 3.1% from the prior quarter. As compared to the year-ago quarter, noninterest expenses were down by $8.5 million primarily due to decreases in OREO expenses of $6.1 million, salary expenses of $1.1 million and other expenses of $1.1 million for the quarter compared to the year-ago quarter.

Total deposits at September 30, 2010, were $1.5 billion, down $87.2 million or 5.5% from the linked-quarter and down $354.1 million or 19.2% compared to the year-ago quarter. In general, deposit balances have declined due to the combination of adverse customer effects of current economic conditions and some migration to too-big-to-fail banks due to uncertainty. Linked-quarter declines were primarily in interest bearing demand (NOW) accounts totaling $59.9 million resulting from the Bank s active reduction of Oregon public funds.

For the nine month and three month periods ended September 30, 2010, Cascade reported a net loss of ($15.1 million) or ($0.54) per share and a net loss of ($3.4 million) or ($0.12) per share, respectively. These losses are significantly lower than the same period in the prior year due to reduced loan loss provision and other credit quality related expenses. Net interest income was down $8.8 million for the nine months and down $2.4 million for the quarter ended September 30, 2010, as compared to the same periods in the prior year, mainly due to lower loan balances and interest foregone on non performing loans. Non-interest income was down 45.0% and 63.4%, respectively, for the nine month and three month periods ended September 30, 2010 primarily due to decreases in all categories with the larger decreases in mortgage revenue and service charges. In addition, the prior year periods included a one-time gain on the sale of business merchant services of $3.2 million. Non-interest expenses are down for the periods presented primarily due to a reduction OREO related expenses as well as decreases in staffing expenses.

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