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Cascade Bancorp Reports Operating Results (10-Q)

August 24, 2010 | About:

Cascade Bancorp (NASDAQ:CACB) filed Quarterly Report for the period ended 2010-06-30.

Cascade Bancorp has a market cap of $15 million; its shares were traded at around $0.5336 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 is related to an examination by banking regulators of the Bank that commenced on March 15, 2010 and is related to the reserve for loan losses and loan loss provision. 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 the first half of 2010 the level of impaired loans have declined, as has the pace of charge-offs and provisioning expense leading to a net loss of only $0.3 million for the second quarter of 2010, a reduction of $10.9 million when compared to the first quarter of 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 ($0.01) per share or ($0.3 million) for the second quarter 2010, primarily due to reduced loan loss provision and other credit quality related expense. The Company can provide no assurance or guidance as to its financial prospects for succeeding quarters given the high level of uncertainty as to the economy and other factors described in the Company s filings and disclosures. The current quarter results are as compared to a net loss per share of ($0.40) or ($11.3 million) for the linked-quarter and ($1.00) or ($28.1 million) for the year-ago quarter. Reserve for credit losses increased to approximately $60.6 million or 4.49% of gross loans compared to approximately $59.3 million or 3.83% at December 31, 2009 (as amended). NPA s decreased to $142.5 million compared to $160.7 million for the linked-quarter and delinquent loans were well contained at 0.75% of gross loans compared to 0.65% at December 31, 2009. Net charge-offs were $5.2 million for the second quarter of 2010 down from $12.0 million for the linked-quarter. Net interest income remained steady at $16.0 million for the second quarter as compared to the linked-quarter despite a decrease in gross loans as compared to prior periods. Non-interest income was stable when compared to the linked-quarter and was $1.2 million below the year ago quarter primarily due to decreases in service charges and mortgage revenue. Compared to the linked-quarter, non-interest expense was down by $1.0 million or 5.4% because of lower OREO related expenses. In addition, salaries and benefits cost were down $0.4 million or 5.4% from the prior quarter. As compared to the year ago quarter, noninterest expenses were down by $4.6 million primarily due to decreases in OREO expenses of $1.9 million, other expenses of $2.1 million and salaries of $1.0 million for the quarter compared to the year-ago quarter.

Total deposits at June 30, 2010, were $1.6 billion, down $157.1 million or 9.1% from the linked-quarter and down $379.5 million or 19.4% compared to the year-ago quarter. The decrease for the linked-quarter was primarily due to decreases of $146.4 million in interest bearing demand and demand deposits of $35.0 million, which were partially offset by an increase in time deposits of $23.9 million. When comparing the year-over-year period all categories of deposits were down with the main decreases in interest bearing demand and demand deposits. Total time deposits increased by $23.9 million for the linked-quarter due to an increase in internet deposits which were partially offset by a reduction in brokered deposits. Total time deposits decreased $201.0 million year-over-year primarily due to maturity of brokered deposits. This decline was partially offset by higher internet sourced funds. The Company is restricted from acquiring additional brokered deposits under the terms of the Order discussed above and is managing its deposit strategy accordingly.

Non interest checking balances were down due to economic and customer migration. This was largely offset by an increase in NOW accounts due to higher uninsured public fund balances. The Bank s internet listing service deposits at June 30, 2010 were approximately $257.7 million, an increase of $66.1 million or $34.5% since December 31, 2009 and an increase of $89.6 million from a year ago. Such deposits are sourced by posting time deposit rates on an internet site where institutions seeking to deploy funds contact the Bank directly to open a deposit account.

Cascade reported a net loss of ($11.6 million) or ($0.41) per share and a net loss of ($0.3 million) or ($0.01) per share for the six month and three month periods ended June 30, 2010, respectively. The loss for the six month period is significantly lower than the same period in the prior year due to reduced loan loss provision and other credit quality related expenses, which also is a contributing factor for the positive results reported for the second quarter. Net interest income was down $6.5 million for the six months and down $2.8 million for the quarter ended June 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 for 30.2% and 24.2%, respectively, for the six months and three months ended June 30, 2010. Non-interest expenses are down for the periods presented primarily due to a reduction in staffing expenses.

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About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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