CASCADE BANCORP - FORM 10-Q

Attached files

file	filename
EX-32 - EXHIBIT 32 - CASCADE BANCORP	cacb-2015x0331xexx32.htm
EX-31.2 - EXHIBIT 31.2 - CASCADE BANCORP	cacb-2015x0331xexx312.htm
EX-31.1 - EXHIBIT 31.1 - CASCADE BANCORP	cacb-2015x0331xexx311.htm
EXCEL - IDEA: XBRL DOCUMENT - CASCADE BANCORP	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)



X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2015



	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to_________

Commission file number: 000-23322

CASCADE BANCORP

(Exact name of registrant as specified in its charter)



Oregon	93-1034484
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

1100 N.W. Wall Street

Bend, Oregon 97701

(Address of principal executive offices)

(Zip Code)

(877) 617-3400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

¨ Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 72,468,905 shares of no par value Common Stock as of May 6, 2015.

CASCADE BANCORP & SUBSIDIARY

FORM 10-Q

QUARTERLY REPORT

March 31, 2015



	INDEX
		Page
PART I: FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets:	3
	March 31, 2015 and December 31, 2014

	Condensed Consolidated Statements of Operations:	4
	Three months ended March 31, 2015 and 2014

	Condensed Consolidated Statements of Comprehensive Income:	5
	Three months ended March 31, 2015 and 2014

	Condensed Consolidated Statements of Cash Flows:	6
	Three months ended March 31, 2015 and 2014

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	49

Item 4.	Controls and Procedures.	49

PART II: OTHER INFORMATION

Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 3.	Defaults Upon Senior Securities	49

Item 4.	Mine Safety Disclosures	49

Item 5	Other Information	50

Item 6.	Exhibits	50

SIGNATURES		51

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Cascade Bancorp & Subsidiary

Condensed Consolidated Balance Sheets

March 31, 2015 and December 31, 2014

(Dollars in thousands)

(unaudited)



	March 31, 2015			December 31, 2014
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	43,417		$	39,115
Interest bearing deposits	16,117			43,701
Federal funds sold	273			273
Total cash and cash equivalents	59,807			83,089
Investment securities available-for-sale	317,761			319,882
Investment securities held-to-maturity, estimated fair value of $153,911 at March 31, 2015 ($155,555 at December 31, 2014)	148,573			152,579
Federal Home Loan Bank (FHLB) stock	25,369			25,646
Loans held for sale	1,474			6,690
Loans, net	1,547,531			1,468,784
Premises and equipment, net	43,274			43,649
Bank-owned life insurance (BOLI)	53,692			53,449
Other real estate owned (OREO), net	4,830			3,309
Deferred tax asset (DTA), net	62,630			66,126
Core deposit intangible (CDI)	7,478			7,683
Goodwill	78,610			80,082
Other assets	31,992			30,169
Total assets	$	2,383,021		$	2,341,137
LIABILITIES & STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand	$	677,515		$	619,377
Interest bearing demand	992,545			995,497
Savings	134,146			129,610
Time	210,990			237,138
Total deposits	2,015,196			1,981,622
Other liabilities	45,826			44,032
Total liabilities	2,061,022			2,025,654
Stockholders’ equity:
Preferred stock, no par value; 5,000,000 shares authorized; none issued or outstanding	—			—
Common stock, no par value; 100,000,000 shares authorized; 72,472,034 issued and outstanding as of March 31, 2015 (72,491,850 as of December 31, 2014)	451,449			450,999
Accumulated deficit	(133,233		)	(138,351		)
Accumulated other comprehensive income	3,783			2,835
Total stockholders’ equity	321,999			315,483
Total liabilities and stockholders’ equity	$	2,383,021		$	2,341,137

See accompanying notes to condensed consolidated financial statements.

Cascade Bancorp & Subsidiary

Condensed Consolidated Statements of Operations

Three Months Ended March 31, 2015 and 2014

(Dollars in thousands, except per share amounts)

(unaudited)



	Three months ended March 31,
	2015			2014
Interest income:
Interest and fees on loans	$	16,494		$	10,749
Interest on investments	2,983			1,328
Other interest income	33			27
Total interest income	19,510			12,104

Interest expense:
Deposits:
Interest bearing demand	312			175
Savings	10			4
Time	224			183
Other borrowings	—			5
Total interest expense	546			367

Net interest income	18,964			11,737
Loan loss provision (recovery)	(2,000		)	—
Net interest income after loan loss provision	20,964			11,737

Non-interest income:
Service charges on deposit accounts	1,261			753
Card issuer and merchant services fees, net	1,643			1,001
Earnings on BOLI	242			183
Mortgage banking income, net	788			434
Swap fee income	515			326
SBA gain on sales and fee income	362			214
Other income	1,311			441
Total non-interest income	6,122			3,352

Non-interest expense:
Salaries and employee benefits	11,130			7,643
Occupancy	1,366			1,140
Information technology	938			787
Equipment	357			337
Communications	541			383
Federal Deposit Insurance Corporation (FDIC) insurance	398			232
OREO expense	57			(8		)
Professional services	957			1,332
Card issuer	863			358
Insurance	209			174
Other expenses	2,004			1,472
Total non-interest expense	18,820			13,850

Income before income taxes	8,266			1,239
Income tax provision	(3,148		)	(296		)
Net income	$	5,118		$	943

Basic and diluted income per share:
Net income per common share	$	0.07		$	0.02
Net income per common share (diluted)	$	0.07		$	0.02

See accompanying notes to condensed consolidated financial statements.

Cascade Bancorp & Subsidiary

Condensed Consolidated Statements of Comprehensive Income

Three Months Ended March 31, 2015 and 2014

(Dollars in thousands)

(unaudited)



	Three months ended March 31,
	2015			2014
Net income	$	5,118		$	943

Other comprehensive income:
Change in unrealized gain on investment securities available-for-sale	1,530			735
Tax effect of the unrealized gain on investment securities available-for-sale	(582		)	(279		)
Total other comprehensive income	948			456
Comprehensive income	$	6,066		$	1,399

See accompanying notes to condensed consolidated financial statements.

Cascade Bancorp & Subsidiary

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2015 and 2014

(Dollars in thousands)

(unaudited)



	Three months ended March 31,
	2015			2014
Net cash provided by operating activities	$	11,958		$	4,473

Investing activities:
Purchases of investment securities available-for-sale	(19,883		)	(3		)
Proceeds from sales, maturities, calls, and prepayments of investment securities available-for-sale	23,028			5,393
Proceeds from sales, maturities, calls of investment securities held-to-maturity	3,945			—
Proceeds from redemption of FHLB stock	277			93
Loan originations, net	(78,305		)	(10,307		)
Purchases of premises and equipment	(136		)	(128		)
Proceeds from sales of premises and equipment	26			256
Proceeds from sales of other assets	730			—
Proceeds from sales of OREO	32			166
Net cash used in investing activities	(70,286		)	(4,530		)

Financing activities:
Net increase in deposits	35,046			(4,727		)
Tax effect of non-vested restricted stock	—			(28		)
FHLB advance borrowings	5,000			60,000
Repayment of FHLB advances	(5,000		)	(87,000		)
Net cash provided by (used in) financing activities	35,046			(31,755		)
Net decrease in cash and cash equivalents	(23,282		)	(31,812		)
Cash and cash equivalents at beginning of period	83,089			81,849
Cash and cash equivalents at end of period	$	59,807		$	50,037

Supplemental disclosures of cash flow information:
Interest paid	$	3,028		$	1,329
Loans transferred to OREO	$	1,558		$	—

See accompanying notes to condensed consolidated financial statements.

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

1. Basis of Presentation

The accompanying interim condensed consolidated financial statements include the accounts of Cascade Bancorp (“Bancorp”), an Oregon-chartered single bank holding company, and its wholly-owned subsidiary, Bank of the Cascades (the “Bank”) (collectively, the “Company” or “Cascade”). All significant inter-company accounts and transactions have been eliminated in consolidation.

The interim condensed consolidated financial statements have been prepared by the Company without audit and in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, certain financial information and footnotes have been omitted or condensed. In the opinion of management, the condensed consolidated financial statements include all adjustments (all of which are of a normal and recurring nature) necessary for the fair presentation of the results of the interim periods presented. In preparing the condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the balance sheets and income and expenses for the reporting periods. Actual results could differ from those estimates. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

The condensed consolidated financial statements as of and for the year ended December 31, 2014 were derived from audited consolidated financial statements, but do not include all disclosures contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the "2014 Annual Report"). The interim condensed consolidated financial statements should be read in conjunction with the December 31, 2014 consolidated financial statements, including the notes thereto, included in the 2014 Annual Report .

Certain amounts in 2014 have been reclassified to conform to the 2015 presentation; however the reclassifications do not have a material impact on the condensed consolidated financial statements.

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

2. Investment Securities

Investment securities at March 31, 2015 and December 31, 2014 consisted of the following (dollars in thousands):



	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
March 31, 2015
Available-for-sale
U.S. Agency mortgage-backed securities (MBS) *	$	216,911	$	5,107	$	(431	)	$	221,587
Non-agency MBS	78,955		329		(169		)	79,115
U.S. Agency asset-backed securities	8,023		890		(46		)	8,867
Corporate securities	7,369		289		—			7,658
Mutual fund	516		18		—			534
	$	311,774	$	6,633	$	(646	)	$	317,761
Held-to-maturity
U.S. Agency MBS	$	106,277	$	3,913	$	—		$	110,190
Obligations of state and political subdivisions	41,732		1,434		(9		)	43,157
Tax credit investments	564		—		—			564
	$	148,573	$	5,347	$	(9	)	$	153,911

December 31, 2014
Available-for-sale
U.S. Agency MBS *	$	232,514	$	4,562	$	(896	)	$	236,180
Non-agency MBS	66,872		232		(407		)	66,697
U.S. Agency asset-backed securities	8,192		858		(42		)	9,008
Corporate securities	7,333		137		—			7,470
Mutual fund	514		13		—			527
	$	315,425	$	5,802	$	(1,345	)	$	319,882
Held-to-maturity
U.S. Agency MBS	$	110,175	$	2,032	$	—		$	112,207
Obligations of state and political subdivisions	41,840		962		(18		)	42,784
Tax credit investments	564		—		—			564
	$	152,579	$	2,994	$	(18	)	$	155,555

* U.S. Agency MBS include private label MBS of approximately $8.8 million and $9.3 million at March 31, 2015 and December 31, 2014, respectively, which are supported by FHA/VA collateral.

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

The following table presents the contractual maturities of investment securities at March 31, 2015 (dollars in thousands):



	Available-for-sale				Held-to-maturity
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Due in one year or less	$	340	$	342	$	195	$	199
Due after one year through five years	7,435		7,489		20,385		20,697
Due after five years through ten years	69,345		69,376		98,199		102,235
Due after ten years	234,138		240,020		29,230		30,216
Mutual fund	516		534		—		—
Tax credit investments	—		—		564		564
	$	311,774	$	317,761	$	148,573	$	153,911

The following table presents the fair value and gross unrealized losses of the Bank’s investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2015 and December 31, 2014 (dollars in thousands):



	Less than 12 months					12 months or more					Total
	Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses
March 31, 2015
Available-for-sale
U.S. Agency MBS	$	852	$	—		$	40,111	$	(431	)	$	40,963	$	(431	)
Non-Agency MBS	24,696		(44		)	5,975		(125		)	30,671		(169		)
U.S. Agency asset-backed securities	545		(3		)	1,540		(43		)	2,085		(46		)
	$	26,093	$	(47	)	$	47,626	$	(599	)	$	73,719	$	(646	)

Held-to-maturity
Obligations of state and political subdivisions	$	1,022	$	(9	)	$	—	$	—		$	1,022	$	(9	)
	$	1,022	$	(9	)	$	—	$	—		$	1,022	$	(9	)

December 31, 2014
Available-for-sale
U.S. Agency MBS	$	15,807	$	(17	)	$	41,479	$	(879	)	$	57,286	$	(896	)
Non-Agency MBS	23,953		(220		)	6,411		(187		)	30,364		(407		)
U.S. Agency asset-backed securities	718		(6		)	1,582		(36		)	2,300		(42		)
	$	40,478	$	(243	)	$	49,472	$	(1,102	)	$	89,950	$	(1,345	)

Held-to-maturity
Obligations of state and political subdivisions	$	3,806	$	(18	)	$	—	$	—		$	3,806	$	(18	)
	$	3,806	$	(18	)	$	—	$	—		$	3,806	$	(18	)

The unrealized losses on investments in U.S. Agency and non-agency MBS and U.S. Agency asset-backed securities are primarily due to changes in market yield/rate spreads at March 31, 2015 and December 31, 2014 as compared to yield/rate spread relationships prevailing at the time specific investment securities were purchased. Management expects the fair value of these investment

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

securities to recover as securities approach their maturity dates. Management does not believe that the above gross unrealized losses on investment securities are other-than-temporary. Accordingly, no impairment adjustments have been recorded.

Management intends to hold the investment securities classified as held-to-maturity until they mature, at which time the Company will receive full amortized cost value for such investment securities. Furthermore, as of March 31, 2015, management did not have the intent to sell any of the securities classified as held-to-maturity in the table above and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost.

3. Loans and reserve for credit losses

The composition of the loan portfolio at March 31, 2015 and December 31, 2014 was as follows (dollars in thousands):



	March 31, 2015					December 31, 2014
	Amount			Percent		Amount			Percent
Originated loans (a):
Commercial real estate:
Owner occupied	$	236,233		18.4	%	$	198,845		16.8	%
Non-owner occupied	379,517			29.5	%	383,287			32.4	%
Total commercial real estate loans	615,750			47.9	%	582,132			49.2	%
Construction	117,684			9.2	%	100,437			8.5	%
Residential real estate	174,191			13.6	%	122,478			10.4	%
Commercial and industrial	343,403			26.7	%	342,746			29.0	%
Consumer	34,485			2.6	%	34,897			2.9	%
Total loans	1,285,513			100.0	%	1,182,690			100.0	%

Less:
Deferred loan fees	(1,902		)			(1,703		)
Reserve for loan losses	(23,244		)			(22,053		)
Loans, net	$	1,260,367				$	1,158,934

Acquired loans (b):
Commercial real estate:
Owner occupied	$	46,656		18.7	%	$	48,413		18.0	%
Non-owner occupied	95,219			38.1	%	102,890			38.2	%
Total commercial real estate loans	141,875			56.8	%	151,303			56.2	%
Construction	18,558			7.4	%	22,564			8.4	%
Residential real estate	66,484			26.6	%	71,385			26.5	%
Commercial and industrial	21,226			8.5	%	22,444			8.3	%
Consumer	1,780			0.7	%	1,963			0.6	%
Total loans	$	249,923		100.0	%	$	269,659		100.0	%


Acquired covered loans (c):
Commercial real estate:
Owner occupied	$	11,462		30.8	%	$	11,851		29.5	%
Non-owner occupied	10,985			29.5	%	11,366			28.3	%
Total commercial real estate loans	22,447			60.3	%	23,217			57.8	%
Construction	2,328			6.3	%	2,427			6.0	%
Residential real estate	9,478			25.5	%	10,824			26.9	%
Commercial and industrial	2,600			7.0	%	3,285			8.2	%
Consumer	388			0.9	%	438			1.1	%
Total loans	$	37,241		100.0	%	$	40,191		100.0	%

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)



Total loans:
Commercial real estate:
Owner occupied	$	294,351		18.7	%	$	259,109		17.4	%
Non-owner occupied	485,721			30.9	%	497,543			33.3	%
Total commercial real estate loans	780,072			49.6	%	756,652			50.7	%
Construction	138,570			8.8	%	125,428			8.4	%
Residential real estate	250,153			15.9	%	204,687			13.7	%
Commercial and industrial	367,229			23.4	%	368,475			24.7	%
Consumer	36,653			2.3	%	37,298			2.5	%
Total loans	1,572,677			100.0	%	1,492,540			100.0	%

Less:
Deferred loan fees	(1,902		)			(1,703		)
Reserve for loan losses	(23,244		)			(22,053		)
Loans, net	$	1,547,531				$	1,468,784

(a) Originated loans are loans organically made through the Company’s normal and customary origination process.
(b) Acquired loans are loans acquired in the acquisition of Home Federal Bancorp, Inc. ("Home"), discussed elsewhere in this Quarterly Report on Form 10-Q (the "Form 10-Q"), less acquired covered loans.
(c) Acquired covered loans are loans acquired in the acquisition of Home that are covered under FDIC loss share agreements.

The following describes the distinction between originated, acquired and acquired covered loan portfolios and certain significant accounting policies relevant to each of these portfolios.

Originated loans

Loans originated for investment are stated at their principal amount outstanding adjusted for partial charge-offs, the reserve for loan losses and net deferred loan fees and costs. Interest income on loans is accrued over the term of the loans. Interest is not accrued on loans where collectability is uncertain. Accrued interest on loans is presented in “Other assets” on the condensed consolidated balance sheet. Loan origination fees and certain direct costs incurred to extend credit are deferred and amortized over the term of the loan as an adjustment to the related loan yield.

Approximately 70.7% of the Bank’s originated loan portfolio at March 31, 2015 consisted of real estate-related loans, including construction and development loans, residential mortgage loans, and commercial loans secured by commercial real estate. At March 31, 2015, approximately 74.3% of the Bank’s total portfolio (inclusive of acquired and acquired covered loans) consisted of real estate-related loans as described above. The Bank’s results of operations and financial condition are affected by general economic trends and in particular, the strength of the local residential and commercial real estate markets in Central, Southern and Northwest Oregon and the greater Boise/Treasure Valley, Idaho area. Real estate values could be affected by, among other things, a worsening of national and local economic conditions, an increase in foreclosures, a decline in home sale volumes, and an increase in interest rates. Furthermore, the Bank may experience an increase in the number of borrowers who become delinquent, file for protection under bankruptcy laws, or default on their loans or other obligations to the Bank in the event of a sustained downturn in business and economic conditions generally or specifically in the principal markets in which the Bank does business. An increase in the number of delinquencies, bankruptcies, or defaults could result in a higher level of non-performing assets, net charge-offs, and loan loss provision. Management expects to diversify its commercial real estate ("CRE") concentration over time, but real estate-related loans will remain a significant portfolio component due to the nature of the economies, businesses, and markets the Bank serves.

In the normal course of business, the Bank may participate portions of loans to third parties in order to extend the Bank’s lending capability or to mitigate risk. At March 31, 2015 and December 31, 2014, the portion of loans participated to third parties (which are not included in the accompanying condensed consolidated financial statements) totaled $40.0 million and $34.5 million, respectively.

Acquired and acquired covered loans

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

Acquired loans and acquired covered loans are those purchased in the Company's acquisition of Home, which was completed on May 16, 2014 (the "Acquisition Date"). See the 2014 Annual Report for further information on the Home acquisition. These loans were recorded at estimated fair value at the Acquisition Date. The fair value estimates for acquired and acquired covered loans is based on expected prepayments, charge-offs and the amount and timing of undiscounted expected principal, interest and other cash flows. The net fair value adjustment to the acquired and acquired covered loans at acquisition was a reduction of $6.0 million, representing a valuation adjustment for interest rate and credit which will be accreted over the life of the loans (approximately 10 years).

Of the loans acquired on the Acquisition Date and still held at March 31, 2015, $10.0 million, or 3.5%, were graded substandard. Of that amount $1.8 million or 18.0% of the substandard loans were covered under a loss sharing agreement with the FDIC. With the amount of classified loans acquired being nominal, all loans acquired are treated in a manner consistent with originated loans for credit risk management and accounting purposes.

As of March 31, 2015, $37.2 million, or 13.0%, of the $287.2 million in acquired and acquired covered loans were covered under loss sharing agreements with the FDIC. The agreements were entered into in September 2009 and September 2010 between the FDIC and Home. The loss sharing agreements have limited terms (10 years for net losses on single-family residential real estate loans, as defined by the FDIC, five years for losses on non-residential real estate loans, as defined by the FDIC, and an additional three years with respect to recoveries on non-residential real estate loans). After the expiration of the loss sharing agreements, the Company will not be indemnified for losses and related expenses on covered assets. When the loss sharing agreements expire, the Company’s and the Bank’s risk-based capital ratios will be reduced. While the agreements are in place, the covered assets receive a 20% risk-weighting. When the agreements expire, the risk-weighting for previously covered assets will most likely increase to 100%, based on current regulatory capital definitions. Nearly all of the assets remaining in the covered asset portfolios are non-single family covered assets. Therefore, most of the covered assets were no longer indemnified after September 2014 or will no longer be indemnified after September 2015. Only $1.8 million of the acquired covered loans were graded substandard. With the amount of classified loans covered under these agreements being nominal, amounts that may be due to or due from the FDIC under loss sharing agreements will be accounted for on a cash basis.

A net loss share payable was recorded at the Acquisition Date which represents the estimated value of reimbursement the Company expects to pay to the FDIC for recoveries net of incurred losses on covered loans. These expected reimbursements are recorded as part of covered loans in the accompanying consolidated balance sheets. Upon the determination of an incurred loss or recovery the loss share receivable/payable will be changed by the amount due to or due from the FDIC.

Changes in the loss share payable (receivable) associated with acquired covered loans for the three months ended March 31, 2015 were as follows (dollars in thousands):



	Three months ended
	March 31, 2015
Balance at beginning of period	$	(449	)
Paid to FDIC	449
Increase due to impairment	73
FDIC reimbursement	(446		)
Shared loss expenses	36
Shared income	—
Adjustments from prior periods	5
Balance at end of period	$	(332	)

Reserve for loan losses

The reserve for loan losses represents management’s estimate of known and inherent losses in the loan portfolio as of the condensed consolidated balance sheet date and is recorded as a reduction to loans. The reserve for loan losses is increased by charges to operating expense through the loan loss provision, and decreased by loans charged-off, net of recoveries. The reserve for loan losses requires complex subjective judgments as a result of the need to make estimates about matters that are uncertain. The reserve for loan losses is maintained at a level currently considered adequate to provide for potential loan losses based on management’s assessment of various factors affecting the loan portfolio.

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

However the reserve for loan losses is based on estimates and actual losses may vary from the current estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. Therefore, management cannot provide assurance that, in any particular period, the Company will not have significant losses in relation to the amount reserved. The level of the reserve for loan losses is also determined after consideration of bank regulatory guidance and recommendations and is subject to review by such regulatory authorities who may require increases or decreases to the reserve based on their evaluation of the information available to them at the time of their examinations of the Bank.

For purposes of assessing the appropriate level of the reserve for loan losses, the Company analyzes loans and commitments to loan, and the amount of reserves allocated to loans and commitments to loan in each of the following reserve categories: pooled reserves, specifically identified reserves for impaired loans, and the unallocated reserve. Also, for purposes of analyzing loan portfolio credit quality and determining the appropriate level of reserve for loan losses, the Company identifies loan portfolio segments and classes based on the nature of the underlying loan collateral.

As of March 31, 2015, the reserve for loan loss methodology was enhanced within the Company's commercial and industrial ("C&I") loan portfolio with respect to its holdings of shared national credits ("SNCs"). Risk rating for individual SNCs are estimated using analysis of both public debt ratings and internal ratings. Expected loss rates are determined based upon historical published specific loss data for similar loans based on average losses and losses stratified by public debt ratings. Public ratings combined with internal risk rates are used to determine a minimum historical loss factor for each SNC loan. This amount may be increased for qualitative conditions including macroeconomic environment and observations by the Company’s SNC management group. The SNC lending strategy is intended to diversify the Company’s credit risk profile geographically and by industry. Additionally, such loans enhance the Company’s interest rate risk profile as they float with LIBOR rates.

The increase in the reserve for loan losses from December 31, 2014 to March 31, 2015 was related to net recoveries during the period. The unallocated reserve for loan losses at March 31, 2015 has decreased $2.9 million from the balance at December 31, 2014, mainly related to implementation of its reserve methodology enhancement described above. Management believes that the amount of unallocated reserve for loan losses is appropriate and will continue to evaluate the amount going forward.

Acquired reserve for loan losses

The fair value estimates for acquired and acquired covered loans is based on expected prepayments, charge-offs, and the amount and timing of undiscounted expected principal, interest and other cash flows. The net fair value adjustment to the acquired and acquired covered loans was $6.0 million, representing a valuation adjustment for interest rate and credit quality. The credit portion of the fair value adjustment not accreted at any point in time represents the estimated reserve for loan losses for acquired loans. If the Company determines that this amount is insufficient, a provision to the reserve for loan losses will be made.

Covered reserve for loan losses

The reserve for loan losses on covered loans is estimated similarly to acquired loans as described above except any increase to the reserve from a recovery or a decrease in the reserve from a charge-off is partially offset by an increase in the loss share payable (or receivable) for the portion of the losses recoverable and recoveries payable to the FDIC under the loss sharing agreements. No allowance was recorded at quarter-end given management’s judgment that purchase discounts adequately address the estimated losses in the acquired loans.

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

Transactions and allocations in the reserve for loan losses and unfunded loan commitments, by portfolio segment, for the three months ended March 31, 2015 and 2014 were as follows (dollars in thousands):



	Commercial real estate			Construction		Residential real estate			Commercial and industrial			Consumer			Unallocated			Total
Three months ended March 31, 2015
Reserve for loan losses
Balance at December 31, 2014	$	5,614		$	1,133	$	2,121		$	6,844		$	1,047		$	5,294		$	22,053
Loan loss provision (credit)	(3,947		)	23		276			4,436			147			(2,935		)	(2,000		)
Recoveries	3,390			99		325			211			115			—			4,140
Loans charged off	(276		)	—		(210		)	(132		)	(331		)	—			(949		)
Balance at end of period	$	4,781		$	1,255	$	2,512		$	11,359		$	978		$	2,359		$	23,244

Reserve for unfunded lending commitments
Balance at December 31, 2014	$	48		$	268	$	25		$	75		$	24		$	—		$	440
Provision for unfunded loan commitments	—			—		—			—			—			—			—
Balance at end of period	$	48		$	268	$	25		$	75		$	24		$	—		$	440

Reserve for credit losses
Reserve for loan losses	$	4,781		$	1,255	$	2,512		$	11,359		$	978		$	2,359		$	23,244
Reserve for unfunded lending commitments	48			268		25			75			24			—			440
Total reserve for credit losses	$	4,829		$	1,523	$	2,537		$	11,434		$	1,002		$	2,359		$	23,684

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)



	Commercial real estate			Construction			Residential real estate			Commercial and industrial			Consumer			Unallocated		Total
Three months ended March 31, 2014
Reserve for loan losses
Balance at December 31, 2013	$	9,565		$	535		$	2,381		$	6,261		$	1,401		$	714	$	20,857
Loan loss provision (credit)	(1,560		)	278			(55		)	(18		)	62			1,293		—
Recoveries	941			85			124			911			87			—		2,148
Loans charged off	(143		)	(296		)	(223		)	(314		)	(307		)	—		(1,283		)
Balance at end of period	$	8,803		$	602		$	2,227		$	6,840		$	1,243		$	2,007	$	21,722

Reserve for unfunded lending commitments
Balance at December 31, 2013	$	48		$	268		$	25		$	75		$	24		$	—	$	440
Provision for unfunded loan commitments	—			—			—			—			—			—		—
Balance at end of period	$	48		$	268		$	25		$	75		$	24		$	—	$	440

Reserve for credit losses
Reserve for loan losses	$	8,803		$	602		$	2,227		$	6,840		$	1,243		$	2,007	$	21,722
Reserve for unfunded lending commitments	48			268			25			75			24			—		440
Total reserve for credit losses	$	8,851		$	870		$	2,252		$	6,915		$	1,267		$	2,007	$	22,162

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

An individual loan is impaired when, based on current information and events, management believes that it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The following table presents the reserve for loan losses and the recorded investment in loans by portfolio segment and impairment evaluation method at March 31, 2015 and December 31, 2014 (dollars in thousands):



	Reserve for loan losses						Recorded investment in loans
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
March 31, 2015
Commercial real estate	$	60	$	4,721	$	4,781	$	26,295	$	753,777	$	780,072
Construction	—		1,255		1,255		743		137,827		138,570
Residential real estate	—		2,512		2,512		142		250,011		250,153
Commercial and industrial	21		11,338		11,359		3,023		364,206		367,229
Consumer	—		978		978		—		36,653		36,653
	$	81	$	20,804	20,885		$	30,203	$	1,542,474	$	1,572,677
Unallocated					2,359
					$	23,244

December 31, 2014
Commercial real estate	$	60	$	5,554	$	5,614	$	28,947	$	727,705	$	756,652
Construction	—		1,133		1,133		963		124,465		125,428
Residential real estate	—		2,121		2,121		317		204,370		204,687
Commercial and industrial	25		6,819		6,844		3,495		364,980		368,475
Consumer	—		1,047		1,047		—		37,298		37,298
	$	85	$	16,674	16,759		$	33,722	$	1,458,818	$	1,492,540
Unallocated					5,294
					$	22,053

The above reserve for loan losses includes an unallocated allowance of $2.4 million at March 31, 2015 and $5.3 million at December 31, 2014. The change in the unallocated allowance is mainly a result of an enhanced reserve methodology for the C&I loans, specifically related to SNC loans as described above.

The Company uses credit risk ratings, which reflect the Bank’s assessment of a loan’s risk or loss potential, for purposes of assessing the appropriate level of reserve for loan losses. The Bank’s credit risk rating definitions along with applicable borrower characteristics for each credit risk rating are as follows:

Acceptable

The borrower is a reasonable credit risk and demonstrates the ability to repay the loan from normal business operations. Loans are generally made to companies operating in an economy and/or industry that is generally sound. The borrower tends to operate in regional or local markets and has achieved sufficient revenues for the business to be financially viable. The borrowers financial performance has been consistent in normal economic times and has been average or better than average for its industry.

A loan can also be considered Acceptable even though the borrower may have some vulnerability to downturns in the economy due to marginally satisfactory working capital and debt service cushion. Availability of alternate financing sources may be limited or nonexistent. In some cases, the borrower’s management may have limited depth or continuity but is still considered capable. An adequate primary source of repayment is identified while secondary sources may be illiquid, more speculative, less readily identified, or reliant upon collateral liquidation. Loan agreements will be well defined, including several financial performance covenants and detailed operating covenants. This category also includes commercial loans to individuals with average or better than average capacity to repay.

Pass-Watch

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

Loans are graded Pass-Watch when temporary situations increase the level of the Bank’s risk associated with the loan, and remain graded Pass-Watch until the situation has been corrected. These situations may involve one or more weaknesses in cash flow, collateral value or indebtedness that could, if not corrected within a reasonable period of time, jeopardize the full repayment of the debt. In general, loans in this category remain adequately protected by the borrower’s net worth and paying capacity, or pledged collateral.

Special Mention

A Special Mention credit has potential weaknesses that may, if not checked or corrected, weaken the loan or leave the Bank inadequately protected at some future date. Loans in this category are deemed by management of the Bank to be currently protected but reflect potential problems that warrant more than the usual management attention but do not justify a Substandard classification.

Substandard

Substandard loans are those inadequately protected by the net worth and paying capacity of the obligor and/or by the value of the pledged collateral, if any. Substandard loans have a high probability of payment default or they have other well-defined weaknesses. They require more intensive supervision and borrowers are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity, or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants.

CRE and construction loans are classified Substandard when well-defined weaknesses are present which jeopardize the orderly liquidation of the loan. Well-defined weaknesses include a project’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, and/or the project’s failure to fulfill economic expectations. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Substandard loans also include impaired loans. Impaired loans bear the characteristics of Substandard loans as described above, and the Company has determined it does not expect timely payment of all contractually due interest and principal. Impaired loans may be adequately secured by collateral.

During the three months ended March 31, 2015, the Bank reduced loans classified as Special Mention and Substandard in the originated loan portfolio by $10.2 million, while total loans classified as Special Mention and Substandard decreased $17.5 million. Remediation on the originated portfolio was accomplished through credit upgrades mainly owing to improved obligor cash flows as well as payoffs/paydowns, and/or sales. Work began on the acquired and acquired covered portfolio at Acquisition Date.

The following table presents, by portfolio class, the recorded investment in loans by internally assigned grades at March 31, 2015 and December 31, 2014 (dollars in thousands):



	Loan grades
	Acceptable		Pass-Watch		Special Mention		Substandard		Total
March 31, 2015
Originated loans (a):
Commercial real estate:
Owner occupied	$	207,846	$	10,907	$	1,084	$	16,396	$	236,233
Non-owner occupied	346,677		10,832		16,469		5,539		379,517
Total commercial real estate loans	554,523		21,739		17,553		21,935		615,750
Construction	113,769		2,236		1,620		59		117,684
Residential real estate	171,546		1,373		607		665		174,191
Commercial and industrial	302,680		26,593		10,629		3,501		343,403
Consumer	34,463		—		—		22		34,485
	$	1,176,981	$	51,941	$	30,409	$	26,182	$	1,285,513

Acquired loans (b):

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)



Commercial real estate:
Owner occupied	$	34,848	$	7,936	$	3,612	$	260	$	46,656
Non-owner occupied	70,938		11,925		5,814		6,542		95,219
Total commercial real estate loans	105,786		19,861		9,426		6,802		141,875
Construction	18,446		—		—		112		18,558
Residential real estate	65,192		—		—		1,292		66,484
Commercial and industrial	17,530		3,663		—		33		21,226
Consumer	1,775		—		—		5		1,780
	$	208,729	$	23,524	$	9,426	$	8,244	$	249,923

Acquired covered loans (c):
Commercial real estate:
Owner occupied	$	11,207	$	—	$	—	$	255	$	11,462
Non-owner occupied	5,726		—		4,615		644		10,985
Total commercial real estate loans	16,933		—		4,615		899		22,447
Construction	46		2,238		—		44		2,328
Residential real estate	9,120		—		—		358		9,478
Commercial and industrial	2,096		—		—		504		2,600
Consumer	388		—		—		—		388
	$	28,583	$	2,238	$	4,615	$	1,805	$	37,241

Total loans:
Commercial real estate:
Owner occupied	$	253,901	$	18,843	$	4,696	$	16,911	$	294,351
Non-owner occupied	423,341		22,757		26,898		12,725		485,721
Total commercial real estate loans	677,242		41,600		31,594		29,636		780,072
Construction	132,261		4,474		1,620		215		138,570
Residential real estate	245,858		1,373		607		2,315		250,153
Commercial and industrial	322,306		30,256		10,629		4,038		367,229
Consumer	36,626		—		—		27		36,653
	$	1,414,293	$	77,703	$	44,450	$	36,231	$	1,572,677

(a) Originated loans are loans organically made through the Company’s normal and customary origination process.
(b) Acquired loans are loans acquired in the acquisition of Home less acquired covered loans.
(c) Acquired covered loans are loans acquired in the acquisition of Home that are covered under FDIC loss share agreements.



	Loan grades
	Acceptable		Pass-Watch		Special Mention		Substandard		Total
December 31, 2014
Originated loans (a):
Commercial real estate:
Owner occupied	$	167,509	$	8,749	$	4,035	$	18,552	$	198,845

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)



Non-owner occupied	350,420		10,383		16,145		6,339		383,287
Total commercial real estate loans	517,929		19,132		20,180		24,891		582,132
Construction	95,440		3,086		1,850		61		100,437
Residential real estate	119,280		1,380		552		1,266		122,478
Commercial and industrial	306,030		18,721		14,676		3,319		342,746
Consumer	34,852		—		—		45		34,897
	$	1,073,531	$	42,319	$	37,258	$	29,582	$	1,182,690

Acquired loans (b):
Commercial real estate:
Owner occupied	$	42,673	$	1,125	$	4,352	$	263	$	48,413
Non-owner occupied	75,340		11,019		12,265		4,266		102,890
Total commercial real estate loans	118,013		12,144		16,617		4,529		151,303
Construction	22,448		—		—		116		22,564
Residential real estate	70,002		—		—		1,383		71,385
Commercial and industrial	22,236		151		—		57		22,444
Consumer	1,907		—		—		56		1,963
	$	234,606	$	12,295	$	16,617	$	6,141	$	269,659

Acquired covered loans (c):
Commercial real estate:
Owner occupied	$	10,363	$	—	$	1,048	$	440	$	11,851
Non-owner occupied	5,668		361		4,641		696		11,366
Total commercial real estate loans	16,031		361		5,689		1,136		23,217
Construction	48		2,332		—		47		2,427
Residential real estate	9,601		—		—		1,223		10,824
Commercial and industrial	2,779		—		—		506		3,285
Consumer	438		—		—		—		438
	$	28,897	$	2,693	$	5,689	$	2,912	$	40,191

Total loans:
Commercial real estate:
Owner occupied	$	220,545	$	9,874	$	9,435	$	19,255	$	259,109
Non-owner occupied	431,428		21,763		33,051		11,301		497,543
Total commercial real estate loans	651,973		31,637		42,486		30,556		756,652
Construction	117,936		5,418		1,850		224		125,428
Residential real estate	198,883		1,380		552		3,872		204,687
Commercial and industrial	331,045		18,872		14,676		3,882		368,475
Consumer	37,197		—		—		101		37,298
	$	1,337,034	$	57,307	$	59,564	$	38,635	$	1,492,540

(a) Originated loans are loans organically made through the Company’s normal and customary origination process.
(b) Acquired loans are loans acquired in the acquisition of Home less acquired covered loans.
(c) Acquired covered loans are loans acquired in the acquisition of Home that are covered under FDIC loss share agreements.

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

The following table presents, by portfolio class, an age analysis of past due loans, including loans placed on non-accrual at March 31, 2015 and December 31, 2014 (dollars in thousands):



	30-89 days past due		90 days or more past due		Total past due		Current		Total loans
March 31, 2015
Originated loans (a):
Commercial real estate:
Owner occupied	$	—	$	1,870	$	1,870	$	234,363	$	236,233
Non-owner occupied	301		646		947		378,570		379,517
Total commercial real estate loans	301		2,516		2,817		612,933		615,750
Construction	59		—		59		117,625		117,684
Residential real estate	2,078		—		2,078		172,113		174,191
Commercial and industrial	164		425		589		342,814		343,403
Consumer	98		22		120		34,365		34,485
	$	2,700	$	2,963	$	5,663	$	1,279,850	$	1,285,513

Acquired loans (b):
Commercial real estate:
Owner occupied	$	—	$	—	$	—	$	46,656	$	46,656
Non-owner occupied	—		—		—		95,219		95,219
Total commercial real estate loans	—		—		—		141,875		141,875
Construction	—		—		—		18,558		18,558
Residential real estate	695		333		1,028		65,456		66,484
Commercial and industrial	—		—		—		21,226		21,226
Consumer	11		—		11		1,769		1,780
	$	706	$	333	$	1,039	$	248,884	$	249,923

Acquired covered loans (c):
Commercial real estate:
Owner occupied	$	—	$	—	$	—	$	11,462	$	11,462
Non-owner occupied	—		—		—		10,985		10,985
Total commercial real estate loans	—		—		—		22,447		22,447
Construction	—		—		—		2,328		2,328
Residential real estate	257		—		257		9,221		9,478
Commercial and industrial	6		5		11		2,589		2,600
Consumer	2		—		2		386		388
	$	265	$	5	$	270	$	36,971	$	37,241

Total loans:
Commercial real estate:
Owner occupied	$	—	$	1,870	$	1,870	$	292,481	$	294,351
Non-owner occupied	301		646		947		484,774		485,721
Total commercial real estate loans	301		2,516		2,817		777,255		780,072
Construction	59		—		59		138,511		138,570
Residential real estate	3,030		333		3,363		246,790		250,153
Commercial and industrial	170		430		600		366,629		367,229

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)



Consumer	111		22		133		36,520		36,653
	$	3,671	$	3,301	$	6,972	$	1,565,705	$	1,572,677

December 31, 2014
Originated loans (a):
Commercial real estate:
Owner occupied	$	732	$	3,716	$	4,448	$	194,397	$	198,845
Non-owner occupied	1,718		971		2,689		380,598		383,287
Total commercial real estate loans	2,450		4,687		7,137		574,995		582,132
Construction	—		100		100		100,337		100,437
Residential real estate	662		110		772		121,706		122,478
Commercial and industrial	288		334		622		342,124		342,746
Consumer	139		45		184		34,713		34,897
	$	3,539	$	5,276	$	8,815	$	1,173,875	$	1,182,690

Acquired loans (b):
Commercial real estate:
Owner occupied	$	24	$	—	$	24	$	48,389	$	48,413
Non-owner occupied	—		120		120		102,770		102,890
Total commercial real estate loans	24		120		144		151,159		151,303
Construction	—		—		—		22,564		22,564
Residential real estate	1,361		288		1,649		69,736		71,385
Commercial and industrial	—		—		—		22,444		22,444
Consumer	55		—		55		1,908		1,963
	$	1,440	$	408	$	1,848	$	267,811	$	269,659

Acquired covered loans (c):
Commercial real estate:
Owner occupied	$	—	$	—	$	—	$	11,851	$	11,851
Non-owner occupied	—		27		27		11,339		11,366
Total commercial real estate loans	—		27		27		23,190		23,217
Construction	—		—		—		2,427		2,427
Residential real estate	375		—		375		10,449		10,824
Commercial and industrial	—		—		—		3,285		3,285
Consumer	11		—		11		427		438
	$	386	$	27	$	413	$	39,778	$	40,191

Total loans:
Commercial real estate:
Owner occupied	$	756	$	3,716	$	4,472	$	254,637	$	259,109
Non-owner occupied	1,718		1,118		2,836		494,707		497,543
Total commercial real estate loans	2,474		4,834		7,308		749,344		756,652
Construction	—		100		100		125,328		125,428
Residential real estate	2,398		398		2,796		201,891		204,687
Commercial and industrial	288		334		622		367,853		368,475
Consumer	205		45		250		37,048		37,298
	$	5,365	$	5,711	$	11,076	$	1,481,464	$	1,492,540

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

(a) Originated loans are loans organically made through the Company's normal and customary origination process.

(b) Acquired loans are loans acquired in the acquisition of Home less acquired covered loans.

Loans contractually past due 90 days or more on which the Company continued to accrue interest were $0.03 million and $0.05 million at March 31, 2015 and December 31, 2014, respectively.

The following table presents information related to impaired loans, by portfolio class, at March 31, 2015 and December 31, 2014 (dollars in thousands):



	Impaired loans
	With a related allowance		Without a related allowance		Total recorded balance		Unpaid principal balance		Related allowance
March 31, 2015
Commercial real estate:
Owner occupied	$	432	$	3,116	$	3,548	$	5,087	$	41
Non-owner occupied	1,080		21,667		22,747		22,806		19
Total commercial real estate loans	1,512		24,783		26,295		27,893		60
Construction	—		743		743		743		—
Residential real estate	—		142		142		181		—
Commercial and industrial	2,339		684		3,023		3,574		21
Consumer	—		—		—		—		—
	$	3,851	$	26,352	$	30,203	$	32,391	$	81

December 31, 2014
Commercial real estate:
Owner occupied	$	436	$	5,624	$	6,060	$	8,699	$	41
Non-owner occupied	1,087		21,800		22,887		22,943		19
Total commercial real estate loans	1,523		27,424		28,947		31,642		60
Construction	—		963		963		963		—
Residential real estate	—		317		317		353		—
Commercial and industrial	2,702		793		3,495		3,962		25
Consumer	—		—		—		—		—
	$	4,225	$	29,497	$	33,722	$	36,920	$	85

At March 31, 2015 and December 31, 2014, the total recorded balance of impaired loans in the above table included $22.1 million and $22.8 million, respectively, of troubled debt restructuring (“TDR”) loans which were not on non-accrual status.

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

The following table presents, by portfolio class, the average recorded investment in impaired loans for the three months ended March 31, 2015 and 2014 (dollars in thousands):



	Three Months Ended March 31,
	2015		2014
Commercial real estate:
Owner occupied	$	4,804	$	7,868
Non-owner occupied	22,817		22,806
Total commercial real estate loans	27,621		30,674
Construction	853		1,863
Residential real estate	229		428
Commercial and industrial	3,259		5,530
Consumer	—		—
	$	31,962	$	38,495

Interest income recognized for cash payments received on impaired loans for the three months ended March 31, 2015 was insignificant.

Information with respect to the Company’s non-accrual loans, by portfolio class, at March 31, 2015 and December 31, 2014 is as follows (dollars in thousands):



	March 31, 2015		December 31, 2014
Commercial real estate:
Owner occupied	$	3,323	$	5,564
Non-owner occupied	1,433		1,940
Total commercial real estate loans	4,756		7,504
Construction	171		216
Residential real estate	2,134		3,165
Commercial and industrial	802		744
Consumer	5		56
Total non-accrual loans	$	7,868	$	11,685

Accruing loans which are contractually past due 90 days or more:
Commercial real estate:
Owner occupied	$	—	$	—
Non-owner occupied	—		—
Total commercial real estate loans	—		—
Construction	—		—
Residential real estate	—		—
Commercial and industrial	12		9
Consumer	22		45
Total accruing loans which are contractually past due 90 days or more	$	34	$	54

TDRs

The Company allocated $0.1 million and $0.1 million of specific reserves to customers whose loan terms have been modified in TDRs as of March 31, 2015 and December 31, 2014, respectively. TDRs involve the restructuring of terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow. As indicated

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

above, TDRs may also include loans to borrowers experiencing financial distress that renewed at existing contractual rates, but below market rates for comparable credit quality. The Company has been actively utilizing these programs and working with its customers to improve obligor cash flow and related prospect for repayment. Concessions may include, but are not limited to, interest rate reductions, principal forgiveness, deferral of interest payments, extension of the maturity date, and other actions intended to minimize potential losses to the Company. For each commercial loan restructuring, a comprehensive credit underwriting analysis of the borrower’s financial condition and prospects of repayment under the revised terms is performed to assess whether the new structure can be successful and whether cash flows will be sufficient to support the restructured debt. Generally, if the loan is on accrual status at the time of restructuring, it will remain on accrual status after the restructuring. After six consecutive payments under the restructured terms, a non-accrual restructured loan is reviewed for possible upgrade to accruing status.

Typically, once a loan is identified as a TDR it will retain that designation until it is paid off, because restructured loans generally are not at market rates following restructuring. Under certain circumstances, a TDR may be removed from TDR status if it is determined to no longer be impaired and the loan is at a competitive interest rate. Under such circumstances, allowance allocations for loans removed from TDR status would be based on the historical allocation for the applicable loan grade and loan class.

There were no loans modified and recorded as TDRs during the three months ended March 31, 2015 or 2014. At both March 31, 2015 and 2014, the Company had no remaining commitments to lend on loans accounted for as TDRs.

The following table presents, by portfolio segment, the TDRs which had payment defaults during the three months ended March 31, 2014 that had been previously restructured within the last twelve months prior to March 31, 2014 (dollars in thousands). There were no TDRs which had payment defaults during the three months ended March 31, 2015 that had been previously restructured within the last twelve months prior to March 31, 2015.



	2014
	Number of loans	TDRs restructured in the period with a payment default
Commercial real estate	—	$	—
Construction	—	—
Residential real estate	—	—
Commercial and industrial loans	1	963
Consumer loans	—	—
	1	$	963

4. Other Real Estate Owned, net

The following table presents activity related to OREO for the periods shown (dollars in thousands):



	Three months ended March 31,
	2015			2014
Balance at beginning of period	$	3,309		$	3,144
Additions	1,558			—
Dispositions	(40		)	(148		)
Change in valuation allowance	3			(1		)
Balances at end of period	$	4,830		$	2,995

The following table summarizes activity in the OREO valuation allowance for the periods shown (dollars in thousands):

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)



	Three months ended March 31,
	2015			2014
Balance at beginning of period	$	2,323		$	2,394
Additions to the valuation allowance	5			64
Reductions due to sales	(8		)	(63		)
Balance at end of period	$	2,320		$	2,395

The following table summarizes OREO expenses (income) for the periods shown (dollars in thousands):



	Three months ended March 31,
	2015		2014
Operating costs	$	52	$	9
Net gains on dispositions	—		(81		)
Increases in valuation allowance	5		64
Total	$	57	$	(8	)

5. Mortgage Servicing Rights (“MSRs”)

The Bank sells a predominant share of the mortgage loans it originates into the secondary market while retaining servicing of such loans. MSRs included in other assets in the condensed consolidated financial statements as of March 31, 2015 and December 31, 2014 are accounted for at the lower of origination value less accumulated amortization or current fair value. The net carrying value of MSRs at March 31, 2015 and December 31, 2014 was $2.3 million and $2.2 million, respectively. There was no valuation allowance at March 31, 2015 or December 31, 2014.

The following table presents activity in MSRs for the periods shown (dollars in thousands):



	Three months ended March 31,
	2015			2014
Balance at beginning of period	$	2,248		$	2,232
Additions	226			95
Amortization	(187		)	(99		)
Change in valuation allowance	—			—
Balances at end of period	$	2,287		$	2,228

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

Mortgage banking income, net, consisted of the following for the periods shown (dollars in thousands):



	Three months ended March 31,
	2015			2014
Origination and processing fees	$	258		$	102
Gain on sales of mortgage loans, net	552			274
MSR valuation allowance	—			—
Servicing fees	165			157
Amortization	(187		)	(99		)
Mortgage banking income, net	$	788		$	434

6. Goodwill and other intangibles assets

The Company recorded $78.6 million of goodwill in connection with the acquisition of Home in 2014. In accordance with the Intangibles - Goodwill and Other topic of the FASB ASC, goodwill is not amortized but is reviewed for potential impairment at the reporting unit level. Management analyzes its goodwill for impairment on an annual basis and between annual tests in certain circumstances, such as upon material adverse changes in legal, business, regulatory and economic factors. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The Company performed an impairment assessment as of December 31, 2014 and concluded that there was no impairment.

Core deposit intangibles (“CDI”) are evaluated for impairment if events and circumstances indicate a possible impairment. The CDI is amortized on a straight-line basis over an estimated life of 10 years. The following table sets forth activity for CDI for the three months ended March 31, 2015 and 2014 (dollars in thousands).



	Three months ended March 31,
	2015			2014
Gross core deposit intangibles balance, beginning of period	$	8,196		$	529
Accumulated amortization, beginning of period	(513		)	—
Core deposit intangible, net, beginning of period	7,683			529
Established through acquisitions	—			—
CDI current period amortization	(205		)	(27		)
Total core deposit intangible, end of period	$	7,478		$	502

The following table provides the estimated future amortization expense of core deposit intangibles for the remaining nine months ending December 31, 2015 and the succeeding four years (dollars in thousands):



Years Ending December 31,
2015	$	615
2016	820
2017	820
2018	820
2019	820

7. Basic and Diluted Net Income per Share

The Company’s basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. The Company’s diluted net income per share is computed by dividing net income by the weighted-average number of common shares outstanding plus any incremental shares arising from the dilutive effect of stock-based compensation.

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

The numerators and denominators used in computing basic and diluted net income per common share for the three months ended March 31, 2015 and 2014 can be reconciled as follows (dollars in thousands, except per share data):



	Three months ended March 31,
	2015		2014
Net income	$	5,118	$	943

Weighted-average shares outstanding - basic	71,673,368		47,233,077
Dilutive securities	178,113		63,150
Weighted-average shares outstanding - diluted	71,851,481		47,296,227
Common stock equivalent shares excluded due to antidilutive effect	3,368,731		106,666

Basic and diluted:
Net income per common share	$	0.07	$	0.02
Net income per common share (diluted)	$	0.07	$	0.02

8. Stock-Based Compensation

At March 31, 2015, 666,022 shares reserved under the Company’s stock-based compensation plans were available for future grants.

During the three months ended March 31, 2015, the Company granted 4,598 shares of restricted stock with a weighted-average grant date fair value of $4.34 per share, which vest in 2018 . During the same period, the Company granted 3,300,000 stock options with a weighted-average exercise price of $4.79 per share, of which 50% vest in 2018, 25% vest in 2019 and 25% vest in 2020 on the grant date anniversary. During the three months ended March 31, 2014, the Company granted 3,937 additional shares of restricted stock with a weighted-average grant date fair value of $5.08 per share, which vest in 2017. During the same period, no stock options were granted. The Company used the Black-Scholes option-pricing model with the following weighted-average assumptions to value options granted in 2015:



	2015
Dividend yield	—	%
Expected volatility	36.6	%
Risk-free interest rate	1.3	%
Expected option lives	5.0 years

The dividend yield was based on historical dividend information. The Company has not paid dividends since the third quarter of 2008 resulting in the dividend yield of 0.0%. The expected volatility was based on the historical volatility of the Company’s common stock price as adjusted for certain historical periods of extraordinary volatility in order to provide a basis for a reasonable estimate of fair value. Periods that were determined to be extraordinary were replaced with the mean volatility of like publicly-traded community banks in the western U.S. Over time, identified periods of extraordinary volatility will recede and will be replaced with the Company's actual historical volatility. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the date of grant for periods corresponding with the expected lives of the options granted. The expected option lives represent the period of time that options are expected to be outstanding, giving consideration to vesting schedules and historical exercise and forfeiture patterns.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of publicly-traded options that have no vesting restrictions and are fully transferable. The Black-Scholes model is affected by subjective assumptions, including historical volatility of the Company’s common stock price.

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

The following table presents the activity related to stock options for the three months ended March 31, 2015 and 2014:



	Options		Weighted- average exercise price		Weighted- average remaining contractual term (years)	Aggregate intrinsic value (000)
Options outstanding at January 1, 2015	85,901		$	34.85	5.7	$	—
Granted	3,300,000		4.79		9.8	33.0
Canceled / forfeited	(327	)	51.77		N/A	N/A
Expired	(1,691	)	151.20		N/A	N/A
Options outstanding at March 31, 2015	3,383,883		$	5.48	9.7	$	33.0
Options exercisable at March 31, 2015	65,389		$	39.95	4.9	$	—


Options outstanding at January 1, 2014	111,571		$	38.92	6.2	$	—
Canceled / forfeited	(336	)	77.04		N/A	N/A
Expired	(4,569	)	129.60		N/A	N/A
Options outstanding at March 31, 2014	106,666		$	34.91	6.2	$	0.6
Options exercisable at March 31, 2014	88,172		$	40.99	5.7	$	—

Stock-based compensation expense related to stock options for the three months ended March 31, 2015 and 2014 was approximately $0.17 million and $0.01 million, respectively. As of March 31, 2015, there was approximately $5.2 million unrecognized compensation cost related to non-vested stock options that will be recognized over the remaining vesting periods of the underlying stock options.

The following table presents the activity related to non-vested restricted stock for the three months ended March 31, 2015:



	Number of shares		Weighted- average grant date fair value per share
Non-vested as of January 1, 2015	794,473		$	6.62
Granted	4,598		4.34
Vested	(5,197	)	4.81
Canceled / forfeited	(16,833	)	4.90
Non-vested as of March 31, 2015	777,041		$	6.54

Restricted stock is generally scheduled to vest over a three to five year period, with the unearned compensation related to restricted stock amortized to expense on a straight-line basis. As of March 31, 2015, unrecognized compensation cost related to non-vested restricted stock totaled approximately $2.9 million. Total expense recognized by the Company for non-vested restricted stock for the three months ended March 31, 2015 and 2014 was $0.3 million and $0.2 million, respectively. There was no unrecognized compensation cost related to restricted stock units (“RSUs”) at March 31, 2015 and December 31, 2014, as all RSUs were fully-vested at the date of the grant.

9. Interest Rate Swap Derivatives

Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require no net investment and allow for the net settlement of positions. The notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. The underlying variable represents a specified interest rate, index, or other component. The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the market value of the derivative contract. The Company obtains dealer quotation to value its derivative contracts.

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

The Company periodically enters into certain commercial loan interest rate swap agreements in order to provide commercial loan customers the ability to convert from variable to fixed interest rates. Under these agreements, the Company provides the customer with a variable rate loan and enters into an interest rate swap in which the customer receives a variable rate payment in exchange for a fixed rate payment. The Company offsets its risk exposure by entering into an offsetting interest rate swap with a dealer counterparty for the same notional amount and length of term as the customer interest rate swap providing the dealer counterparty with a fixed rate payment in exchange for a variable rate payment. Generally, these instruments help the Company manage exposure to market risk and meet customer financing needs. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors such as market-driven interest rates and prices or other economic factors.

The Company is exposed to credit-related losses in the event of non-performance by the counterparty to these agreements. Credit risk of the financial contract is controlled through the credit approval, limits, and monitoring procedures and management does not expect the counterparties to fail their obligations.

In connection with the interest rate swaps between the Company and the dealer counterparties, the agreements contain a provision that if the Company fails to maintain its status as a well-capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations. Similarly, the Company could be required to settle its obligations under certain of its agreements if certain credit ratings fall below specified standards or if specific regulatory events occur, such as a publicly issued memorandum of understanding, cease and desist order, or a termination of insurance coverage by the FDIC.

As of March 31, 2015 and December 31, 2014, the notional values or contractual amounts and fair values of the Company’s derivatives not designated in hedge relationships were as follows (dollars in thousands).



	Asset Derivatives								Liability Derivatives
	March 31, 2015				December 31, 2014				March 31, 2015				December 31, 2014
	Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (2)		Notional/ Contract Amount		Fair Value (2)
Interest rate swaps	$	98,370	$	6,926	$	82,935	$	4,828	$	98,370	$	6,926	$	82,935	$	4,828

(1) Included in Other Assets on the condensed consolidated balance sheet.
(2) Included in Other Liabilities on the condensed consolidated balance sheet.

Swap fee income, as included in non-interest income, was $0.5 million and $0.3 million for the three months ended March 31, 2015 and 2014, respectively.

The Company generally posts collateral against derivative liabilities in the form of cash. Collateral posted against derivative liabilities was $6.7 million and $4.6 million as of March 31, 2015 and December 31, 2014, respectively.

Derivative assets and liabilities are recorded at fair value on the balance sheet and do not take into account the effects of master netting agreements. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis and to offset net derivative position with related collateral where applicable.

The following table illustrates the potential effect of the Company’s derivative master netting arrangements, by type of financial instrument, on the Company’s condensed consolidated balance sheet as of March 31, 2015 and December 31, 2014 (dollars in thousands):

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)



	March 31, 2015
							Gross Amounts of Financial Instruments Not Offset in the Balance Sheet
	Gross Amounts Recognized		Amounts offset in the Balance Sheet		Net Amounts in the Balance Sheet		Netting Adjustment Per Applicable Master Netting Agreements		Fair Value of Financial Collateral in the Balance Sheet		Net Amount
Asset Derivatives
Interest rate swaps	$	6,926	$	—	$	6,926	$	—	$	—	$	6,926

Liability Derivatives
Interest rate swaps	$	6,926	$	—	$	6,926	$	—	$	6,690	$	236

	December 31, 2014
							Gross Amounts of Financial Instruments Not Offset in the Balance Sheet
	Gross Amounts Recognized		Amounts offset in the Balance Sheet		Net Amounts in the Balance Sheet		Netting Adjustment Per Applicable Master Netting Agreements		Fair Value of Financial Collateral in the Balance Sheet		Net Amount
Derivative assets
Interest rate swaps	$	4,828	$	—	$	4,828	$	—	$	—	$	4,828

Derivative liabilities
Interest rate swaps	$	4,828	$	—	$	4,828	$	—	$	4,595	$	233

10. Income Taxes

In assessing the realizability of deferred tax assets (“DTA”), management considers whether it is more likely than not that some portion or all of the DTA will or will not be realized. The Company’s ultimate realization of the DTA is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the nature and amount of historical and projected future taxable income, the scheduled reversal of deferred tax assets and liabilities, and available tax planning strategies in making this assessment. The amount of deferred taxes recognized could be impacted by changes to any of these variables.

During the three months ended March 31, 2015 and 2014, the Company recorded a $3.1 million and $0.3 million income tax provision, respectively. As of March 31, 2015, the net deferred tax asset was $62.6 million. This is compared with a deferred tax asset as of December 31, 2014 of $66.1 million. During the first quarter of 2015, the Company’s current taxes consisted of federal and state alternative minimum taxes and other state minimum taxes. Our estimated effective income tax rates differs from the statutory income tax rate primarily due to our use of net operating losses to offset current taxes.

There are a number of tax issues that impact the deferred tax asset balance including changes in temporary differences between the financial statement recognition of revenue and expenses, estimates as to the deductibility of prior losses and potential consequence of Section 382 of the IRC. See also “Critical Accounting Policies and Accounting Estimates - Deferred Income Taxes” included in Part II, Item 7 of the Company’s 2014 Annual Report.

11. Fair Value Measurements

GAAP establishes a hierarchy for determining fair value measurements which includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The three levels are as follows:

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)


•	Level 1: Inputs that are quoted unadjusted prices in active markets - that the Company has the ability to access at the measurement date - for identical assets or liabilities.

•

Level 2: Inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs derived principally from, or corroborated by, observable market data by correlation or other means.


•	Level 3: Inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s assets and liabilities carried at fair value. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internal or third-party models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that assets or liabilities are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes that the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain assets and liabilities could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and, therefore, estimates of fair value after the condensed consolidated balance sheet date may differ significantly from the amounts presented herein.

The following is a description of the valuation methodologies used for assets measured at fair value on a recurring or non-recurring basis, as well as the general classification of such assets pursuant to valuation hierarchy:

Investment securities available-for-sale: Where quoted prices for identical assets are available in an active market, investment securities available-for-sale are classified within level 1 of the hierarchy. If quoted market prices for identical securities are not available, then fair values are estimated by independent sources using pricing models and/or quoted prices of investment securities with similar characteristics or discounted cash flows. The Company has categorized its investment securities available-for-sale as level 2, since a majority of such securities are MBS which are mainly priced in this latter manner.

Interest rate swap derivatives: The fair value of interest rate swap derivatives is determined based on mid-market values derived from market pricing data available for comparable transactions in the over-the-counter interest rate derivative market (level 2 inputs). The fair value adjustment is included in other assets or other liabilities.

Impaired loans: In accordance with GAAP, loans are measured for impairment using one of three methods: an observable market price (if available), the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the fair value of the loan’s collateral (if collateral dependent). Estimated fair value of the loan’s collateral is determined by appraisals or independent valuations which are then adjusted for the estimated costs related to liquidation of the collateral. Management’s ongoing review of appraisal information may result in additional discounts or adjustments to valuation based upon more recent market sales activity or more current appraisal information derived from properties of similar type and/or locale. A significant portion of the Bank’s impaired loans are measured using the estimated fair market value of the collateral less the estimated costs to sell. The Company has categorized all its loans impaired during the calendar year utilizing fair value metrics as level 3. Loans that were impaired during the calendar year based on the present value of expected future cash flows discounted at the loans’ effective interest rates are not included in the table below as the loans’ effective interest rates are not based on current market rates.

OREO: The Company’s OREO is measured at estimated fair value less estimated costs to sell. Fair value is generally determined based on third-party appraisals of fair value in an orderly sale. Historically, appraisals have considered comparable sales of like assets in reaching a conclusion as to fair value. Since many recent real estate sales could be termed “distressed sales”, and since a preponderance have been short-sale or foreclosure related, this has directly impacted appraisal valuation estimates. Estimated costs to sell OREO are based on standard market factors. The valuation of OREO is subject to significant external and internal judgment. Management periodically reviews OREO to determine whether the property continues to be carried at the lower

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

of its recorded book value or estimated fair value, net of estimated costs to sell. The Company has categorized its OREO as level 3.

The Company’s financial assets measured at fair value on a recurring basis at March 31, 2015 and December 31, 2014 were as follows (dollars in thousands):



	Level 1		Level 2		Level 3
March 31, 2015
Assets:
Investment securities available-for-sale	$	—	$	317,761	$	—
Interest rate swap derivatives	—		6,926		—
Total assets	$	—	$	324,687	$	—

Liabilities:
Interest rate swap derivatives	$	—	$	6,926	$	—

December 31, 2014
Assets:
Investment securities available-for-sale	$	—	$	319,882	$	—
Interest rate swap derivatives	—		4,828		—
Total assets	$	—	$	324,710	$	—

Liabilities:
Interest rate swap derivatives	—		4,828		—

Certain assets are measured at fair value on a non-recurring basis (e.g., the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments when there is evidence of impairment). The following table represents the assets measured at fair value on a non-recurring basis by the Company at March 31, 2015 and December 31, 2014 (dollars in thousands):



	Level 1		Level 2		Level 3
March 31, 2015
Impaired loans	$	—	$	—	$	—
Other real estate owned	—		—		4,830
	$	—	$	—	$	4,830

December 31, 2014
Impaired loans	$	—	$	—	$	1,423
Other real estate owned	—		—		3,309
	$	—	$	—	$	4,732

The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at March 31, 2015 and December 31, 2014 (dollars in thousands):



	March 31, 2015
	Fair Value Estimate		Valuation Techniques	Unobservable Input
Impaired loans	$	—	Market approach	Appraised value less selling costs of 5% to 10% Additional discounts of 5% to 50% to appraised value to reflect liquidation value
Other real estate owned	$	4,830	Market approach	Appraised value less selling costs of 5% to 10%

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)



	December 31, 2014
	Fair Value Estimate		Valuation Techniques	Unobservable Input
Impaired loans	$	1,423	Market approach	Appraised value less selling costs of 5% to 10% Additional discounts of 5% to 50% to appraised value to reflect liquidation value
Other real estate owned	$	3,309	Market approach	Appraised value less selling costs of 5% to 10%

The Company did not change the methodology used to determine fair value for any assets or liabilities during 2014, or during the three months ended March 31, 2015. In addition, for any given class of assets, the Company did not have any transfers between level 1, level 2, or level 3 during 2014 or the three months ended March 31, 2015.

The following disclosures are made in accordance with the provisions of GAAP, which requires the disclosure of fair value information about financial instruments where it is practicable to estimate that value.

In cases where quoted market values are not available, the Company primarily uses present value techniques to estimate the fair value of its financial instruments. Valuation methods require considerable judgment, and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used. Accordingly, the estimates provided herein do not necessarily indicate amounts which could be realized in a current market exchange.

In addition, as the Company normally intends to hold the majority of its financial instruments until maturity, it does not expect to realize many of the estimated amounts disclosed. The disclosures also do not include estimated fair value amounts for items which are not defined as financial instruments but which may have significant value. The Company does not believe that it would be practicable to estimate a representational fair value for these types of items as of March 31, 2015 and December 31, 2014.

Because GAAP excludes certain financial instruments and all non-financial instruments from its disclosure requirements, any aggregation of the fair value amounts presented would not represent the underlying value of the Company.

The Company uses the following methods and assumptions to estimate the fair value of its financial instruments:

Cash and cash equivalents: The carrying amount approximates the estimated fair value of these instruments.

Investment securities: See above description.

FHLB stock: The carrying amount approximates the estimated fair value of this investment.

Loans: The estimated fair value of non-impaired loans is calculated by discounting the contractual cash flows of the loans using March 31, 2015 and December 31, 2014 origination rates. The resulting amounts are adjusted to estimate the effect of changes in the credit quality of borrowers since the loans were originated. Estimated fair values for impaired loans are determined using an observable market price (if available), the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the loan’s collateral (if collateral dependent) as described above. Observable market prices for community bank loans are not generally available given the non-homogenous characteristics of such loans.

BOLI: The carrying amount approximates the estimated fair value of these instruments.

MSRs: The estimated fair value of MSRs is calculated by discounting the expected future contractual cash flows. Factors considered in the estimated fair value calculation include prepayment speed forecasts, market discount rates, earning rates, servicing costs, acquisition costs, ancillary income, and borrower rates.

Interest rate swap derivatives: See above description.

Deposits: The estimated fair value of demand deposits, consisting of checking, interest bearing demand, and savings deposit accounts, is represented by the amounts payable on demand. At the reporting date, the estimated fair value of time deposits

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

is calculated by discounting the scheduled cash flows using the March 31, 2015 and December 31, 2014 rates offered on those instruments.

Loan commitments and standby letters of credit: The majority of the Bank’s commitments to extend credit have variable interest rates and “escape” clauses that permit the Bank to terminate its commitment if the customer’s credit quality deteriorates. Therefore, the fair values of these items are not significant and are not included in the following table.

The estimated fair values of the Company’s significant on-balance sheet financial instruments at March 31, 2015 and December 31, 2014 were approximately as follows (dollars in thousands):



		March 31, 2015				December 31, 2014
	Level in Fair Value Hierarchy	Carrying value		Estimated fair value		Carrying value		Estimated fair value
Financial assets:
Cash and cash equivalents	Level 1	$	59,807	$	59,807	$	83,089	$	83,089
Investment securities:
Available-for-sale	Level 2	317,761		317,761		319,882		319,882
Held-to-maturity	Level 2	148,573		153,911		152,579		155,555
FHLB stock	Level 2	25,369		25,369		25,646		25,646
Loans held-for-sale	Level 2	1,474		1,474		6,690		6,690
Loans, net	Level 3	1,547,531		1,555,842		1,468,784		1,471,327
BOLI	Level 3	53,692		53,692		53,449		53,449
MSRs	Level 3	2,287		2,857		2,248		2,773
Interest rate swap derivatives	Level 2	6,926		6,926		4,828		4,828

Financial liabilities:
Deposits	Level 2	2,015,196		2,015,393		1,981,622		1,981,994
Interest rate swap derivatives	Level 2	6,926		6,926		4,828		4,828

12. Regulatory Matters

Bancorp and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Bancorp and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Bancorp’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require Bancorp and the Bank to maintain minimum amounts and ratios (set forth in the tables below) of Tier 1 capital to average assets, common equity Tier 1 capital, and Tier 1 and total capital to risk-weighted assets (all as defined in the regulations).

Federal banking regulators are required to take prompt corrective action if an insured depository institution fails to satisfy certain minimum capital requirements. Such actions could potentially include a leverage capital limit, a risk-based capital requirement, and any other measure of capital deemed appropriate by the federal banking regulator for measuring the capital adequacy of an insured depository institution. In addition, payment of dividends by Bancorp and the Bank are subject to restriction by state and federal regulators and availability of retained earnings.

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

In July 2013, the Board of Governors of the Federal Reserve System and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks ("Basel III"). Under the final rules, which became effective for the Bancorp and the Bank on January 1, 2015 and are subject to a phase-in period through January 1, 2019, minimum requirements increased for both the quantity and quality of capital held by the Bancorp and the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio ("CET1" ratio) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which when fully phased-in, effectively results in a minimum CET1 ratio of 7.0%. Basel III raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of 8.5% when fully phased-in), effectively results in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital conservation buffer fully phased-in), and requires a minimum leverage ratio of 4.0%. Basel III also makes changes to risk weights for certain assets and off-balance-sheet exposures.

Bancorp’s and Bank’s actual capital amounts and ratios and the required capital ratios under the prompt corrective action framework as of March 31, 2015 and December 31, 2014 are presented in the following table (dollars in thousands):



	Actual				Regulatory minimum to be “adequately capitalized”				Regulatory minimum to be “well capitalized”
	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
March 31, 2015
Tier 1 leverage (to average assets)
Bancorp	$	196,169	8.8	%	$	89,576	4.0	%	$	111,969	5.0	%
Bank	191,318		8.6	%	89,387		4.0	%	111,734		5.0	%
CET1 capital (to risk weighted assets)
Bancorp	196,169		10.8		81,661		4.5		117,954		6.5
Bank	191,318		10.6		81,579		4.5		117,836		6.5
Tier 1 capital (to risk-weighted assets)
Bancorp	196,169		10.8		108,881		6.0		145,174		8.0
Bank	191,318		10.6		108,772		6.0		145,029		8.0
Total capital (to risk-weighted assets)
Bancorp	219,187		12.1		145,174		8.0		181,468		10.0
Bank	214,290		11.8		145,029		8.0		181,286		10.0

December 31, 2014
Tier 1 leverage (to average assets)
Bancorp	$	170,615	7.7	%	$	89,076	4.0	%	$	111,345	5.0	%
Bank	167,056		7.5	%	88,946		4.0	%	111,183		5.0	%
Tier 1 capital (to risk-weighted assets)
Bancorp	170,615		9.9		68,892		4.0		103,338		6.0
Bank	167,056		9.7		68,700		4.0		103,050		6.0
Total capital (to risk-weighted assets)
Bancorp	192,162		11.2		137,784		8.0		172,230		10.0
Bank	188,543		11.0		137,400		8.0		171,750		10.0

13. Commitments and Contingencies

Cascade Bancorp & Subsidiary

Notes to Condensed Consolidated Financial Statements

March 31, 2015

(unaudited)

The Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

14. New Authoritative Accounting Guidance

In April 2015, the FASB issued ASU 2015-03, "Interest- Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03"). ASU 2015-03 simplifies the presentation of debt issuance costs and requires that the debt issuance costs related to a recognized debt liability be presented in the balance sheet as direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance of debt issuance costs are not affected by the amendments in this update. ASU 2015-03 is effective for annual and interim reporting periods beginning after December 15, 2015. Adoption of ASU 2015-03 is not expected to have a material impact on our consolidated financial statements.

In August 2014, the FASB issued ASU 2014-14, "Receivables- Troubled Debt Structurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure" ("ASU 2014-14"). ASU 2014-14 clarifies accounting and reporting for foreclosed mortgage loans when the loan is subject to a government guarantee. The provisions require that a mortgage loan be derecognized and that a separate other receivable recognized upon foreclosure if 1) the loan has a government guarantee that is not separable from the loan before foreclosure; 2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make claim on the guarantee, and the creditor has the ability to recover under that claim; and 3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. ASU 2014-14 is effective for annual and interim reporting periods beginning after December 15, 2014. Adoption of ASU 2014-14 did not have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). ASU 2014-09 establishes a comprehensive revenue recognition standard for virtually all industries under GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: 1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 is effective for annual and interim reporting periods beginning after December 15, 2016 with three transition methods available - full retrospective, retrospective and cumulative effect approach. Adoption of ASU 2014-09 is not expected to have a material effect on our consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04, "Receivables- Troubled Debt Restructurings by Creditors (subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure" ("ASU 2014-04"). The provisions of ASU 2014-04 clarify that when an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either 1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or 2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through similar legal agreement. The provisions of ASU 2014-04 are effective for annual and interim reporting periods beginning on or after December 15, 2014. The adoption of ASU 2014-04 did not have a material impact on the Company’s consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and the notes thereto, included elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”). This discussion highlights key information as determined by management but may not contain all of the information that is important to you. For a more complete understanding, the following should be read in conjunction with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 9, 2015 (the “2014 Annual Report”), including its audited 2014

consolidated financial statements and the notes thereto as of December 31, 2014 and 2013 and for each of the years in the three-year period ended December 31, 2014.

In this Form 10-Q, please note that “we,” “our,” “us,” “Cascade” or the “Company” refer collectively to Cascade Bancorp (“Bancorp”), an Oregon chartered single bank holding company, and its wholly-owned subsidiary, Bank of the Cascades (the “Bank”).

Cautionary Information Concerning Forward-Looking Statements

This Form 10-Q contains forward-looking statements about the Company’s plans and anticipated results of operations and financial condition. These statements include, but are not limited to, our plans, objectives, expectations and intentions and are not statements of historical fact. When used in this report, the words “expects,” “believes,” “anticipates,” “could,” “may,” “will,” “should,” “plan,” “predicts,” “projections,” “continue” and other similar expressions constitute forward-looking statements, as do any other statements that expressly or implicitly predict future events, results or performance, and such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to various risks and uncertainties that may cause our actual results to differ materially and adversely from our expectations as indicated in the forward-looking statements. These risks and uncertainties include: the general condition of, and changes in, the economy of the States of Oregon and Idaho generally, and Central, Southern and Northwest Oregon, as well as the greater Boise/Treasure Valley, Idaho area; our ability to maintain asset quality and expand our market share or net interest margin; and expected cost savings, synergies and other related benefits of our recently completed merger with Home Federal Bancorp, Inc. ("Home") might not be realized within the expected timeframe and costs or difficulties relating to the integration might be greater than expected. Further, actual results may be affected by competition with other financial institutions; customer acceptance of new products and services; the regulatory environment in which we operate; and general trends in the local, regional and national banking industry and economy. Certain risks and uncertainties, and the Company’s success in managing such risks and uncertainties, could cause actual results to differ materially from those projected, including, among others, the risk factors disclosed in Part I - Item 1A of the 2014 Annual Report. However, you should be aware that these factors are not an exhaustive list, and you should not assume these are the only factors that may cause our actual results to differ from our expectations

These forward-looking statements speak only as of the date of this Form 10-Q. The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof, except as required by applicable law. Readers should carefully review all disclosures filed by the Company from time to time with the SEC.

Critical Accounting Policies and Accounting Estimates

Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements for the year ended December 31, 2014 included in our 2014 Annual Report. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that our most critical accounting policies upon which our financial condition depends, and which involve the most complex or subjective decisions or assessments are as follows.

Reserve for Credit Losses

The Company's reserve for credit losses provides for estimated losses based upon evaluations of known and inherent risks in the loan portfolio and related loan commitments. Arriving at an estimate of the appropriate level of reserve for credit losses (which consists of the Company's reserve for loan losses and reserve for loan commitments) involves a high degree of judgment and assessment of multiple variables that result in a methodology with relatively complex calculations and analysis. Management uses historical information to assess the adequacy of the reserve for loan losses and considers qualitative factors, including national and local macroeconomic conditions, real estate market behavior and a range of other factors, in its determination of the reserve.

On an ongoing basis, the Company seeks to enhance and refine its methodology such that the reserve is at an appropriate level and responsive to changing conditions. In this regard, as of March 31, 2015, the reserve for loan loss methodology was enhanced within its commercial and industrial ("C&I") loan portfolio with respect to shared national credits ("SNCs"). Risk rating for individual SNCs are estimated using analysis of both public debt ratings and internal ratings. Expected loss rates are determined based upon historical published specific loss data for similar loans based on average losses and losses stratified by public debt ratings. Public ratings combined with internal risk rates are used to determine a minimum historical loss factor for each SNC loan. This amount may be increased for qualitative conditions including macroeconomic environment and observations by the Company’s SNC management group. The SNCs lending strategy is intended to diversify the Company’s credit risk profile geographically and by industry. Additionally, such loans enhance the Company’s interest rate risk profile as they float with LIBOR rates.

Also, as of June 30, 2013, management implemented a homogeneous pool approach to estimate reserves for consumer and small business loans. This change has not had a material effect on the level of the reserve for loan losses. However, the Company's methodology may not accurately estimate inherent loss or external factors and changing economic conditions may impact the loan portfolio and the level of reserves in ways currently unforeseen.

The reserve for loan losses is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. The reserve for loan commitments is increased and decreased through non-interest expense. For a full discussion of the Company’s methodology of assessing the adequacy of the reserve for credit losses, see "Loan Portfolio and Credit Quality” in Item 7 of our 2014 Annual Report.

Deferred Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision (credit) for income taxes. A valuation allowance, if needed, reduces deferred tax assets to the expected amount to be realized.

Deferred tax assets are recognized subject to management's judgment that realization is “more likely than not.” Uncertain tax positions that meet the more likely than not recognition threshold are measured to determine the amount of benefit to recognize. An uncertain tax position is measured at the amount of benefit that management believes has a greater than 50% likelihood of realization upon settlement. Tax benefits not meeting our realization criteria represent unrecognized tax benefits. We account for interest and penalties as a component of income tax expense.

The Company reversed its deferred tax asset ("DTA") valuation allowance as of June 30, 2013 due to management’s determination that it was more likely than not that a significant portion of the Company's DTA would be realized. Management’s determination resulted from consideration of both the positive and negative evidence available that can be objectively verified. For a full discussion of the Company’s considerations, see "Deferred Income Taxes” in Part II, Item 7 of our 2014 Annual Report.

As of March 31, 2015 and December 31, 2014, the Company had a net deferred tax asset of $62.6 million and $66.1 million, respectively. There are a number of tax issues that impact the deferred tax asset balance, including changes in temporary differences between the financial statement and tax recognition of revenue and expenses and estimates as to the deductibility of prior losses.

Other Real Estate Owned ("OREO") and Foreclosed Assets

OREO and other foreclosed assets acquired through loan foreclosure are initially recorded at estimated fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the reserve for loan losses. Due to the subjective nature of establishing the asset’s fair value when it is acquired, the actual fair value of the OREO or foreclosed asset could differ from the original estimate. If it is determined that fair value declines subsequent to foreclosure, a valuation allowance is recorded through non-interest expense. Operating costs associated with the assets after acquisition are also recorded as non-interest expense. Gains and losses on the disposition of OREO and foreclosed assets are netted and posted to other non-interest expenses.

Goodwill

Goodwill from an acquisition is the value attributable to unidentifiable intangible elements acquired. At a minimum, annual evaluation of the value of goodwill is required.

An entity may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Factors assessed include all relevant events and circumstances including macroeconomic conditions, industry and market conditions, cost factors that have a negative effect on earnings and cash flows, overall financial performance, other relevant entity or reporting unit specific events and, if applicable, a sustained decrease in share price. If after assessing the totality of events or circumstances, such as those described above, an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the entity shall perform a two-step impairment test.

The first step of the impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test shall be performed to measure the amount of impairment loss, if any, when it is more likely than not that goodwill impairment exists.

The second step of the impairment test compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

Management concluded as of December 31, 2014 that there have been no material events or circumstances that have changed since the initial recognition of goodwill on the Acquisition Date (as defined below) that lead management to believe it is more likely than not that the fair value of the Bank is less than its carrying amount. Therefore, no further testing is deemed necessary.

Economic Conditions

The Company’s banking business is closely tied to the economies of Idaho and Oregon, which in turn are influenced by regional and national economic trends and conditions. Idaho and Oregon have recently been experiencing improved economic trends, including gains in employment and increased real estate activity. National and regional economies and real estate prices have generally improved, as has business and consumer confidence. The Company’s markets, however, continue to be sensitive to general economic trends and conditions, including real estate values, and an unforeseen economic shock or a return of adverse economic conditions could cause deterioration of local economies and adversely affect the Company’s business, financial condition and results of operations.

Financial Highlights

On May 16, 2014 (the “Acquisition Date”), the Company completed its acquisition of Home in a stock and cash transaction valued at $241.4 million. The transaction value includes $122.2 million in cash and the issuance of 24,309,131 shares of the Company's common stock. The completion of the acquisition provided an expanded geographic footprint for the Company and increased the size of the balance sheet wherein the combined companies expect to realize economies of scale and other operating efficiencies. Assets and liabilities acquired in the Merger were recorded at fair value

As a result of the Home acquisition, goodwill of $78.6 million was recorded. Goodwill represents the excess of the purchase price of $241.4 million less the fair value of the net identifiable assets acquired of $162.8 million.

The financial statements as of March 31, 2015 are inclusive of the effects of the combined results of operations with Home. However, Home was not present in the year ago quarter-ended March 31, 2014, and as such year over year comparisons are significantly affected by this transaction.

•

Net income for the quarter ending March 31, 2015 was $5.1 million, or $0.07 per share, compared to $0.9 million, or $0.02 per share, for the first quarter of 2014. Net income for the fourth quarter ("linked quarter") was $5.0 million, or $0.07 per share. The first quarter 2015 results were benefitted by a $2.0 million (pre-tax) negative provision for loan losses arising from a 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 linked quarter. These items were partially offset by certain transitory expense items, aggregating to $0.6 million (pre-tax), including lease abandonment of an operations center, image platform consolidation and transition to a paid time off employee benefits program.

•

Total loans at March 31, 2015 were $1.6 billion compared to $1.5 billion at December 31, 2014. Organic loan growth¹ for the first quarter of 2015 was 2.3% (approximately 9.2% annualized). For the quarter, growth was concentrated in CRE, construction, and consumer residential. The latter included both retained and acquired first lien adjustable rate mortgages ("ARMs"). The Company’s loan to deposit ratio improved to 76.8% as compared to 74.1% at December 31, 2014. The Company had outlined a key priority for 2015 to improve this ratio after a dip arising from the Home acquisition.

•

Total deposits were $2.0 billion at March 31, 2015, as compared to $2.0 billion at December 31, 2014 and $1.2 billion at March 31, 2014. The increase over March 31, 2014 was mainly a result of the inclusion of Home acquired deposits in the current period. For the current quarter, non-interest bearing accounts increased by $58.1 million, or 9.4%, over December 31, 2014, but were partially offset by runoff in higher priced CDs acquired with the Home acquisition. This resulted in an overall cost of funds at 0.11% for the quarter as compared to 0.13% for the quarter ended December 31, 2014 and 0.13% for the quarter ended March 31, 2014.

¹ Organic loan growth is a non-GAAP measure defined as total loan growth less acquired loans during the period. Total loan growth was $80.1 million during the quarter, with acquired loans representing $46.4 million, resulting in organic loan growth of $33.7 million for the quarter.


•	At March 31, 2015, the net interest margin (“NIM”) was 3.74% compared to 3.68% in the linked quarter and 3.83% for the quarter ended March 31, 2014.


•	At March 31, 2015, allowance for loan losses maintained at 1.48% of total 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”) for the quarter ending March 31, 2015 was 0.88% compared to 0.28% in the first quarter 2014 which was prior to Home acquisition, and 0.84% for the quarter ended December 31, 2014.


•	Return on equity (“ROE”) for the quarter ending March 31, 2015 was 6.52% compared 2.02% for the quarter ended March 31, 2014 and 6.41% for the quarter ended December 31, 2014.

RESULTS OF OPERATIONS –Three Months Ended March 31, 2015 and 2014

Income Statement

Net Income

Net income for the quarter ended March 31, 2015 was $0.07 per share, or $5.1 million, compared to net income of $0.02 per share, or $0.9 million, for the first quarter of 2014, mainly due to the effect of the Home acquisition which resulted in higher combined revenues, partially offset by increased operating expense. The increase in net income in the first quarter of 2015 was the result of a $9.2 million increase in net interest income after loan loss provision and a $2.8 million increase in non-interest income, partially offset by a $5.0 million increase in non-interest expense and a $2.9 million increase in the provision for income taxes.

Net Interest Income

Net interest income was $19.0 million for the first quarter of 2015, as compared to $11.7 million in the first quarter of 2014.

Total interest income increased $7.4 million from $12.1 million in the first quarter of 2014 to $19.5 million in the first quarter of 2015. This increase was due primarily to the addition of interest earning assets acquired in the Merger and originated loan growth over the past year. Accretion of the fair value discount on loans acquired as part the acquisition of Home is accreted over the remaining term to maturity of the acquired loans into interest income on loans. Accretion will vary in the event of payoffs or paydowns of specific loans. For the three months ended March 31, 2015, accretion was approximately $0.5 million.

Total interest expense for the first quarter of 2015 increased $0.2 million compared to the first quarter of 2014. Deposit interest expense for the three months ended March 31, 2015 increased over the same period in 2014 primarily as a result of increased deposits acquired as a result of the Merger.

The NIM for the first quarter of 2015 was 3.74%, compared to NIM of 3.83% in the first quarter of 2014. The decline in the current quarter from the previous period was mainly due to the impact of a lower loan to deposit ratio of the acquired Home earning assets.

Components of Net Interest Margin

The following tables set forth the components of the Company's NIM for the three months ended March 31, 2015 and 2014. The tables present average balance sheet information, interest income and yields on average interest-earning assets, interest expense and rates paid on average interest-bearing liabilities, net interest income, net interest spread and NIM for the Company (dollars in thousands):



	Three Months Ended March 31,
	2015							2014
	Average Balance			Interest Income/ Expense		Average Yield or Rates		Average Balance			Interest Income/ Expense		Average Yield or Rates
Assets
Investment securities	$	467,149		$	2,983	2.59	%	$	192,495		$	1,328	2.80	%
Interest bearing balances due from other banks	48,964			33		0.27	%	46,086			27		0.24	%
Federal funds sold	273			—		—	%	22			—		—	%
Federal Home Loan Bank stock	25,578			—		—	%	9,890			—		—	%
Loans (1)(2)(3)	1,512,769			16,494		4.42	%	994,926			10,749		4.38	%
Total earning assets/interest income	2,054,733			19,510		3.85	%	1,243,419			12,104		3.95	%
Reserve for loan losses	(23,556		)					(21,482		)
Cash and due from banks	41,069							27,094
Premises and equipment, net	43,536							32,792
Bank-owned life insurance	53,549							36,637
Deferred tax asset	66,318							49,932
Goodwill	79,951							—
Accrued interest and other assets	43,175							16,078
Total assets	$	2,358,775						$	1,384,470


Liabilities and Stockholders' Equity
Interest bearing demand deposits	$	996,267		312		0.13	%	$	541,731		175		0.13	%
Savings deposits	131,504			10		0.03	%	51,891			4		0.03	%
Time deposits	224,792			224		0.40	%	136,570			183		0.54	%
Other borrowings	278			—		—	%	6,978			5		0.29	%
Total interest bearing liabilities/interest expense	1,352,841			546		0.16	%	737,170			367		0.20	%
Demand deposits	642,391							435,803
Other liabilities	45,071							22,061
Total liabilities	2,040,303							1,195,034
Stockholders' equity	318,472							189,436
Total liabilities and stockholders' equity	$	2,358,775						$	1,384,470
Net interest income				$	18,964						$	11,737

Net interest spread						3.69	%						3.75	%

Net interest income to earning assets						3.74	%						3.83	%


(1)	Average non-performing loans included in the computation of average loans for the three months ended March 31, 2015 and 2014 was approximately $11.6 million and $5.3 million, respectively.


(2)	Loan related fees, including prepayment penalties, recognized during the period and included in the yield calculation totaled approximately $0.8 million in 2015 and $0.2 million in 2014.


(3)	Includes loans held for sale.

Analysis of Changes in Interest Income and Expense

The following table shows the dollar amount of increase (decrease) in the Company’s consolidated interest income and expense for the three months ended March 31, 2015, and attributes such variance to “volume” or “rate” changes (dollars in thousands):



	Three Months Ended March 31,
	2015 over 2014
	Total Increase			Amount of Change Attributed to
	(Decrease)			Volume			Rate
Interest income:
Interest and fees on loans	$	5,745		$	5,595		$	150
Interest on investment securities	1,655			1,895			(240		)
Other investment income	6			2			4
Total interest income	7,406			7,492			(86		)

Interest expense:
Interest on deposits:
Interest bearing demand	137			147			(10		)
Savings	6			6			—
Time deposits	41			118			(77		)
Other borrowings	(5		)	(5		)	—
Total interest expense	179			266			(87		)

Net interest income	$	7,227		$	7,226		$	1

Loan Loss Provision

The Company recorded a $2.0 million reverse provision during the three months ended March 31, 2015, arising from the remediation of an outstanding credit that had previously been written off. To remediate adversely risk rated credits in the past several years, the Company had restructured certain loans into A/B notes, with the B notes fully written off. In the event other B notes refinance or pay off in the future, the Company may benefit from such recoveries. The Company did not record a loan loss provision during the three months ended March 31, 2014.

Net recoveries in the first quarter of 2015 were $3.2 million compared to $0.9 million in the first quarter of 2014, primarily related to the B note remediation discussed above. At March 31, 2015, the reserve for loan losses was $23.2 million, or 1.48%, of outstanding loans compared to $22.1 million, or 1.48%, of outstanding loans at December 31, 2014.

The Bank maintains pooled and impaired loan reserves with additional consideration of qualitative factors and unallocated reserves in reaching its determination of the total reserve for loan losses. The level of reserves is subject to review by the Bank’s regulatory authorities who may require adjustments to the reserve based on their evaluation and opinion of economic and industry factors as well as specific loans in the portfolio. For further discussion, see “Critical Accounting Policies and Estimates” in this Form 10-Q and “Loan Portfolio and Credit Quality” in Item 7 of our 2014 Annual Report. There can be no assurance that the reserve for credit losses will be sufficient to cover actual loan-related losses.

The reserve for unfunded lending commitments was $0.4 million at March 31, 2015, which remained unchanged from December 31, 2014.

Non-Interest Income

Non-interest income was as follows for the periods presented below (dollars in thousands):



	Three Months Ended March 31, 2015		Three Months Ended March 31, 2014		% Change
Service charges on deposit accounts	$	1,261	$	753	67.5	%
Card issuer and merchant services fees, net	1,643		1,001		64.1	%
Earnings on BOLI	242		183		32.2	%
Mortgage banking income, net	788		434		81.6	%
Swap fee income	515		326		58.0	%
SBA gain on sales and fee income	362		214		69.2	%
Other income	1,311		441		197.3	%
Total non-interest income	$	6,122	$	3,352	82.6	%

Overall, the increase in non-interest income in the three months ended March 31, 2015 compared to the same period in 2014 was related to provision of banking services to a larger customer base arising from the Merger.

During the quarter ended March 31, 2015, service charges on deposit accounts and cash issuer and merchant service fees increased 67.5% and 64.1%, respectively, compared to the quarter ended March 31, 2014. The increase was mainly related to the addition of Home customer transaction volumes for banking services.

Earnings on BOLI increased 32.2% in the three months ended March 31, 2015 compared to the same period in 2014, primarily due to the addition of Home related BOLI plans.

Net mortgage banking income increased in the three months ended March 31, 2015 compared to the three months ended March 31, 2014, mainly due to higher residential mortgage origination volumes and related gains on sales. Home did not have a mortgage banking portfolio, and as a result, this change is attributable to Cascade only.

Customer interest rate swap fee income and SBA gain on sales and fee income were $0.5 million and $0.4 million, respectively, in the first quarter of 2015, representing a 58.0% and 69.2% increase over the first quarter of 2014. The Bank entered these lines of business in 2013 to expand customer services and diversify its revenue sources and the increases evidence a successful expansion of this line of business.

Other income for the three months ended March 31, 2015 increased 197.3% over the comparable prior year period. The increase in the period was due primarily to gains on sales of previously decommissioned branches, totaling $0.7 million in the first quarter of 2015. Disposition of overlap offices resulting from the Home acquisition is largely complete.

Non-Interest Expense

Non-interest expense was as follows for the periods presented below (dollars in thousands):



	Three Months Ended March 31, 2015		Three Months Ended March 31, 2014			% Change
Salaries and employee benefits	$	11,130	$	7,643		45.6	%
Occupancy	1,366		1,140			19.8	%
Information technology	938		787			19.2	%
Equipment	357		337			5.9	%
Communications	541		383			41.3	%
FDIC insurance	398		232			71.6	%
OREO	57		(8		)	(812.5	)%
Professional services	957		1,332			(28.2	)%
Card issuer	863		358			141.1	%
Insurance	209		174			20.1	%
Other expenses	2,004		1,472			36.1	%
Total non-interest expense	$	18,820	$	13,850		35.9	%

Non-interest expense for the first quarter of 2015 was $18.8 million compared to $13.9 million for the first quarter of 2014. Non-interest expense in the first quarter of 2015 includes expenses related to Home's former operations incurred since the Acquisition Date.

Total salaries and benefits increased 45.6% for the three months ended March 31, 2015 compared to the same period in 2014. The increase primarily relates to the inclusion of former employees of Home who were retained by the Company after the Acquisition Date.

Information technology for the three months ended March 31, 2015 increased over the same period in 2014, due primarily to imaging projects undertaken in 2015.

Occupancy, equipment and communications expenses for the three months ended March 31, 2015 increased an aggregate of $0.4 million compared to the three months ended March 31, 2014 primarily related to the effect of an increase in number of branches resulting from the Home acquisition.

Federal Deposit Insurance Corporation ("FDIC") insurance increased for the three months ended March 31, 2015 compared to the same period in 2014. This increase was mainly due to higher average assets, resulting largely from the Home acquisition, partially offset by reduced monetary assessments by the FDIC as a result of the Bank's improved financial condition.

OREO expenses increased slightly in the three months ended March 31, 2015 compared to the same period in 2014, mainly as a result of increased costs to maintain OREO properties during the year.

Professional services decreased during the three months ended March 31, 2015 compared to the same period in 2014, due primarily to expenses related to the Home acquisition incurred in the first quarter of 2014.

Card issuer expenses increased 141.1% in the three months ended March 31, 2015 compared to the same period in 2014, largely as a result of the inclusion of Home's former operations and customers since the Acquisition Date.

Insurance expense remained stable during the three months ended March 31, 2015 compared to the same period in 2014.

Other expenses increased in the first quarter of 2015 compared to the same period in 2014 mainly as a result of the inclusion of expenses related to Home's former operations incurred since the Acquisition Date.

Income Taxes

The Company recorded an income tax provision of $3.1 million and $0.3 million during the three months ended March 31, 2015 and 2014, respectively.

As of March 31, 2015, the DTA was $62.6 million. This is compared with a DTA as of December 31, 2014 of $66.1 million. During the first quarter of 2014, the Company’s current taxes consisted of federal and state alternative minimum taxes and other state minimum taxes. Our estimated effective income tax rate differs from the statutory income tax rate primarily due to our use of net operating losses to offset current taxes.

In assessing the Company's ability to utilize its DTA, management considers whether it is more likely than not that some portion or all of the DTA will not be realized. The ultimate realization of DTA is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the nature and amount of historical and projected future taxable income, the scheduled reversal of deferred tax assets and liabilities, and available tax planning strategies in making this assessment. The amount of deferred taxes recognized could be impacted by changes to any of these variables.

The Company reversed its DTA valuation allowance as of June 30, 2013 due to management’s determination that it was more likely than not that a significant portion of the Company's DTA would be realized. Management’s determination resulted from consideration of both the positive and negative evidence available that can be objectively verified. For a full discussion of the Company’s considerations, see "Deferred Income Taxes” in Part II, Item 7 of our 2014 Annual Report.

Financial Condition

Total Assets and Liabilities

Total assets at March 31, 2015 were stable at $2.4 billion, compared to $2.3 billion at December 31, 2014, 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 inclusion of the Home 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 inclusion of Home balances. Similarly, on March 31, 2015, goodwill and deferred tax asset were stable at $78.6 million and $62.6 million, respectively, as compared to December 31, 2014. Higher balances in these asset categories on a year over year basis arise because of purchase accounting related to the Home acquisition.

Total 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 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 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 up despite 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% at December 31, 2014. The Company has identified the improvement of this ratio as a key priority in 2015 after experiencing a dip resulting from the Home acquisition. As of March 31, 2015, loans were up $0.6 billion compared to the year ago period owing to originated loan portfolio growth as well as the inclusion of Home acquired loans.

Loans acquired in the Home acquisition 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 Home acquisition was $6.0 million at the Acquisition Date, representing a valuation adjustment for interest rate and credit quality which will be accreted over the life of the loans (approximately 10 years).

Total deposits were seasonally stable at $2.0 billion at March 31, 2015 as compared to December 31, 2014. Non-interest bearing accounts increased by $58.1 million, or 9.4%, over December 31, 2014 but were partially offset by runoff in higher priced certificates of deposit acquired with the Home acquisition. This resulted in an overall cost of funds at 0.11% for the quarter as compared to 0.13% for the quarter ended December 31, 2014 and 0.13% for the quarter ended March 31, 2014.

From time to time the Company makes commitments to acquire banking properties or to make equipment or technology related investments of capital. At March 31, 2015, the Company had no material capital expenditure commitments apart from those incurred in the ordinary course of business.

Stockholders Equity and Capital Resources

Total stockholders’ equity at March 31, 2015 was $322.0 million, as compared to $315.5 million at December 31, 2014. The increase in total stockholders' equity was predominantly due to the first quarter 2015 net income. At March 31, 2015, the total common equity to total assets ratio was 13.51% and the Company’s basic book value per share was $4.44 as compared to the total common equity to total assets ratio of 13.48% and basic book value per share of $4.35 at December 31, 2014.

At March 31, 2015, the Bancorp’s and Bank’s capital ratios exceeded the requirements to be designated as “well-capitalized” under the Basel III regulatory capital framework. Additional information regarding capital requirements can be found in Note 12 of the notes to the condensed consolidated financial statements included in this Form 10-Q.



	Actual				Regulatory minimum to be “well capitalized”
	Capital Amount		Ratio		Capital Amount		Ratio
March 31, 2015
Tier 1 leverage (to average assets)
Bancorp	$	196,169	8.8	%	$	111,969	5.0	%
Bank	191,318		8.6	%	111,734		5.0	%
CET1 capital (to risk weighted assets)
Bancorp	196,169		10.8		117,954		6.5
Bank	191,318		10.6		117,836		6.5
Tier 1 capital (to risk-weighted assets)
Bancorp	196,169		10.8		145,174		8.0
Bank	191,318		10.6		145,029		8.0
Total capital (to risk-weighted assets)
Bancorp	219,187		12.1		181,468		10.0
Bank	214,290		11.8		181,286		10.0

December 31, 2014
Tier 1 leverage (to average assets)
Bancorp	$	170,615	7.7	%	$	111,345	5.0	%
Bank	167,056		7.5	%	111,183		5.0	%
Tier 1 capital (to risk-weighted assets)
Bancorp	170,615		9.9		103,338		6.0
Bank	167,056		9.7		103,050		6.0
Total capital (to risk-weighted assets)
Bancorp	192,162		11.2		172,230		10.0
Bank	188,543		11.0		171,750		10.0

Asset Quality

Credit quality metrics were solid as of March 31, 2015, 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 Acquisition Date. 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 fourth and first quarters 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 December 31, 2014 and 0.65% at March 31, 2014.

At March 31, 2015, $37.2 million, or 13.0%, of the $287.2 million still held in acquired and acquired covered loans were covered under loss sharing agreements with the FDIC. These loss sharing agreements will expire five years after the date of the FDIC agreements for non-single family covered assets and 10 years after the acquisitions date for single-family covered assets. The Company has determined it will report on a cash basis any potential future benefits and/or costs incurred with respect to the remaining loss share receivables (or payables) under these agreements. The remaining benefit and/or cost of the FDIC loss sharing agreements are not expected to be material to the Company’s financial condition. Estimated future losses on acquired covered loans are included in the fair value purchase accounting mark.

Off-Balance Sheet Arrangements

The following table summarizes the Bank’s off-balance sheet commitments at March 31, 2015 and December 31, 2014 (dollars in thousands):



	March 31, 2015		December 31, 2014
Commitments to extend credit	$	438,772	$	371,871
Commitments under credit card lines of credit	31,348		28,822
Standby letters of credit	5,671		4,201

Total off-balance sheet financial instruments	$	475,791	$	404,894

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the customer contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of fees. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Bank applies established credit standards and underwriting practices in evaluating the creditworthiness of such obligors and related collateral requirements, if any. Collateral held for commitments varies but may include accounts receivable, inventory, property and equipment, residential real estate and income-producing commercial properties. The Bank typically does not obtain collateral related to credit card commitments.

Standby letters of credit are written conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Bank would be required to fund the commitment. The maximum potential amount of future payments the Bank could be required to make is represented by the contractual amount of the commitment. If the commitment were funded, the Bank would be entitled to seek recovery from the customer. The Bank’s policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those involved in extending loans to customers. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers.

The increase in commitments to extend credit from the balance at December 31, 2014 to the balance at March 31, 2015 was primarily related to an increase in construction and commercial commitments.

Other than those commitments discussed above, there are no other obligations or liabilities of the Company arising from its off-balance sheet arrangements that are or are reasonably likely to become material. In addition, the Company knows of no event,

demand, commitment, trend or uncertainty that will result in or is reasonably likely to result in the termination or material reduction in availability of the off-balance sheet arrangements. The Company had no material off-balance sheet derivative financial instruments as of March 31, 2015 and December 31, 2014.

Liquidity and Sources of Funds

The objective of the Bank’s liquidity management is to maintain sufficient cash flows to meet obligations for depositor withdrawals, to fund the borrowing needs of loan customers, and to fund ongoing operations. At March 31, 2015, liquid assets of the Bank were mainly interest bearing balances held at the Federal Reserve Bank of San Francisco ("FRB") totaling $10.7 million compared to $34.2 million at December 31, 2014. The decrease was primarily the result of fundings of loans during the quarter.

Core relationship deposits are the Bank’s primary source of funds. As such, the Bank focuses on deposit relationships with local business and consumer clients who maintain multiple accounts and services at the Bank. The Company views such deposits as the foundation of its long-term liquidity because it believes such core deposits are more stable and less sensitive to changing interest rates and other economic factors compared to large time deposits or wholesale purchased funds. The Bank’s customer relationship strategy has resulted in a relatively higher percentage of its deposits being held in checking and money market accounts, and a lesser percentage in time deposits.

The Bank augments core deposits with wholesale funds from time to time. The Bank may accept local relationship-based reciprocal Certificate of Deposit Account Registry Service ("CDARS") and Demand Deposit Marketplace ("DDM") deposits. Regulators classify such as brokered deposits. At March 31, 2015 and December 31, 2014, the Company had $9.3 million and $11.5 million in reciprocal CDARS, respectively, and $51.4 million and $54.3 million in reciprocal DDM deposits, respectively.

The Bank accepts public fund deposits in Oregon and Idaho and follows rules imposed by state authorities. Current rules imposed by the Oregon State Treasury require that the Bank collateralize 50% of the uninsured public funds of Oregon entities held by the Bank. At March 31, 2015, the Bank was in compliance with this requirement. Currently there are no collateral requirements set on Idaho public deposits.

The Bank also utilizes borrowings and lines of credit as sources of funds. At March 31, 2015, the Federal Home Loan Bank of Seattle ("FHLB") had extended the Bank a secured line of credit of $467.3 million (20.00% of total assets) accessible for short or long-term borrowings given sufficient qualifying collateral. As of March 31, 2015, the Bank had qualifying collateral pledged for FHLB borrowings totaling $480.2 million, of which the Bank had $5.0 million outstanding. At March 31, 2015, the Bank also had undrawn borrowing capacity at FRB of $13.9 million supported by specific qualifying collateral. Borrowing capacity from FHLB or FRB may fluctuate based upon the acceptability and risk rating of loan collateral, and counterparties could adjust discount rates applied to such collateral at their discretion. Also, FRB or FHLB could restrict or limit our access to secured borrowings. Correspondent banks have extended $110.0 million in unsecured or collateralized short-term lines of credit for the purchase of federal funds. At March 31, 2015, the Company had no outstanding borrowings under these federal fund borrowing agreements.

Liquidity may be affected by the Bank’s routine commitments to extend credit. At March 31, 2015, the Bank had $475.8 million in total outstanding commitments to extend credit, compared to $404.9 million at year-end 2014. At this time, management believes that the Bank’s available resources will be sufficient to fund its commitments in the normal course of business.

The investment portfolio also provides a secondary source of funds as investments may be pledged for borrowings or sold for cash. This liquidity is limited, however, by counterparties’ willingness to accept securities as collateral and the market value of securities at the time of sale could result in a loss to the Bank. As of March 31, 2015, the book value of unpledged investments totaled $263.2 million compared to $285.2 million at December 31, 2014.

Bancorp is a single bank holding company and its primary ongoing source of liquidity is dividends received from the Bank. Oregon banking laws impose certain limitations on the payment of dividends by Oregon state chartered banks. The amount of the dividend may not be greater than the Bank’s unreserved retained earnings, deducting from that, to the extent not already charged against earnings or reflected in a reserve, the following: (1) all bad debts, which are debts on which interest is past due and unpaid for at least six months, unless the debt is fully secured and in the process of collection; (2) all other assets charged off as required by the Director of the Department of Consumer and Business Services or a state or federal examiner; and (3) all accrued expenses, interest and taxes of the institution.

Inflation

The effect of changing prices on financial institutions is typically different than on non-banking companies since virtually all of a bank’s assets and liabilities are monetary in nature. In particular, interest rates are significantly affected by inflation, but neither the timing nor magnitude of the changes are directly related to price level indices; therefore, the Company can best counter inflation over the long term by managing net interest income and controlling net increases in noninterest income and expenses.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedure

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Form 10-Q.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s condensed consolidated financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors previously disclosed in Part I – Item 1A Risk Factors of our 2014 Annual Report. These factors could materially and adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this Form 10-Q. There have been no material changes to Cascade’s risk factors described in our 2014 Annual Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)-(b) Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a) Not applicable.

(b) There have been no material changes to the procedures by which shareholders may nominate directors to the Company’s board of directors.

ITEM 6. EXHIBITS



Exhibit Number		Description
10.1		Form of Stock Option Grant Agreement (Incentive Stock Options) (Filed as Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on February 5, 2015 (File No. 000-23322), and incorporated herein by reference).
10.2		Form of Stock Option Grant Agreement (Nonqualified Stock Options) (Filed as Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on February 5, 2015 (File No. 000-23322), and incorporated herein by reference).
10.3		First Amendment to Employment Agreement, effective February 4, 2015, between Cascade and Terry Zink (Filed as Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed with the SEC on February 5, 2015 (File No. 000-23322), and incorporated herein by reference).
10.4		First Amendment to Employment Agreement, effective February 4, 2015, between Cascade and Charles “Chip” Reeves (Filed as Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed with the SEC on February 5, 2015 (File No. 000-23322), and incorporated herein by reference).
10.5		First Amendment to Employment Agreement, effective February 4, 2015, between Cascade and Greg Newton (Filed as Exhibit 10.5 to the registrant’s Current Report on Form 8-K filed with the SEC on February 5, 2015 (File No. 000-23322), and incorporated herein by reference).
10.6		First Amendment to Employment Agreement, effective February 4, 2015, between Cascade and Peggy Biss (Filed as Exhibit 10.6 to the registrant’s Current Report on Form 8-K filed with the SEC on February 5, 2015 (File No. 000-23322), and incorporated herein by reference).
10.7		First Amendment to Employment Agreement, effective February 4, 2015, between Cascade and Dan Lee (Filed as Exhibit 10.7 to the registrant’s Current Report on Form 8-K filed with the SEC on February 5, 2015 (File No. 000-23322), and incorporated herein by reference).
31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-4(a)
31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-4(a)
32		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			CASCADE BANCORP (Registrant)
Date	May 8, 2015	By	/s/ Terry E. Zink
			Terry E. Zink, President & Chief Executive Officer (Principal Executive Officer)

Date	May 8, 2015	By	/s/ Gregory D. Newton
			Gregory D. Newton, EVP & Chief Financial Officer (Principal Financial and Chief Accounting Officer)

Attached files

Stock widget

Investing forum

CASCADE BANCORP Reports

Also read