Cascade Bancorp, the holding company for Bank of the Cascades, announced its financial results for the three months and full year ended December 31, 2013. Net income for the fourth quarter of 2013 was $1.2 million or $0.03 per share compared to $1.3 million or $0.03 per share for the fourth quarter of 2012. The results of the fourth quarter of 2013 included expenses of approximately $1.0 million in merger costs related to the acquisition of Home Federal Bancorp, $0.7 million related the Company’s annual incentive plan and a $0.3 million tax adjustment reflecting the expiration of certain tax credits. Partially offsetting these expenses was a recovery of $1.0 million in interest from the payoff of a non-accrual loan.
Terry Zink, president and chief executive officer of Cascade Bancorp commented, “I am pleased to report that 2013 was a remarkable and transformational year for Bank of the Cascades. The Bank cleared its legacy credit quality and regulatory issues, enhanced its capital and achieved solid organic growth. These results were critical to our successful bid for Home announced in October.
Our Home merger planning process indicates the closing of the transaction could occur as early as March 2014, and that we will achieve the cost savings and revenue synergy goals that underpin the logic for this combination. While the next several quarters will include normal purchase accounting activity and integration related costs, we remain confident that the financial and quality metrics of the resulting Cascade will compare favorably with the top performing banks in the Pacific Northwest by the fourth quarter of 2014.”
Zink added, “During the fourth quarter, we saw a 6.2 percent growth in our loan portfolio as compared to the previous quarter. Our loans outstanding are now nearly $1.0 billion with continued positive trends in credit quality metrics. At the same time we introduced mobile banking services for our customers and upgraded our online banking services.“I also want to comment on the importance of substantially completing our number one strategic priority of returning Cascade’s loan portfolio to a condition of sound quality. The Bank has completed a long journey from the depths of the great recession.
The Cascade team has worked tirelessly and effectively to clear legacy problems in order to build a strong foundation from which to grow in the future. I am pleased that the achievements of 2013 demonstrate that Cascade is positioned, ready and focused to capitalize on what we believe is an exciting future.”
• Net income for the full year 2013 was $50.8 million or $1.08 per basic share compared to $6.0 million or $0.13 per share for the year 2012. The primary reason for the increase in net income for 2013 was the reversal of a full valuation allowance of $50.1 million in the Company’s deferred tax asset (“DTA”) in the second quarter of 2013.
• Net Interest Margin (“NIM”) was 3.75 percent for the year ended December 31, 2013 compared to 3.85 percent for the year ended December 31, 2012.
• Stockholders equity increased to $188.7 million or $3.97 per basic share at December 31, 2013 as compared to $140.8 million or $2.97 per basic share at December 31, 2012 due primarily to the DTA recognition in the second quarter of 2013.
• Gross loans (total loans, less deferred loan fees) at December 31, 2013 were up $138.2 million or 16.1 percent compared to December 31, 2012.
• At December 31, 2013, substandard loans were reduced by 67.5 percent to $41.2 million compared to December 31, 2012; non-performing assets improved to 0.81 percent of total assets compared to 1.94 percent at December 31, 2012; and 2013 net charge-offs were $7.4 million compared to $17.7 million in 2012.
• Total deposits at December 31, 2013 increased $91.1 million or 8.46 percent compared to December 31, 2012.
• Tier 1 Capital Leverage Ratio at the Bank rose to at 10.49 percent at December 31, 2013 compared to 10.42 percent at December 31, 2012.
Significant Milestones Achieved in 2013
On October 23, 2013, the Company announced the signing of a merger agreement with Home Federal Bancorp, a community bank in the Pacific Northwest with approximately $1 billion in assets which upon closure is expected to unlock significant efficiency and profitability opportunities. Assuming completion of the merger, the Company will become among the largest community banks in the Pacific Northwest1 with over $2.3 billion in assets, hold a top community bank market share in its Central Oregon and Boise Idaho markets, and expand its footprint to include Eugene, Oregon.
• On October 18, 2013 Cascade completed the customer integration of three former branches of American West Bank.
• The Bank implemented mobile banking and mobile bill pay services as well as upgraded its online banking platform to enhance customer convenience and service.
• The Bank achieved strong growth in both loans and deposits.
• The Company substantially completed its priority goal of returing to a strong credit quality profile with improvements in all credit quality related metrics.
Financial Review
Total assets increased $104.8 million to $1.4 billion at December 31, 2013, as compared to $1.3 billion at December 31, 2012. The increase for the year ended December 31, 2013 as compared to the prior year was driven by $146.2 million growth in total loans outstanding (total loans, including loans held for sale, less deferred loan fees), a decrease in cash and cash equivalents of $31.2 million and a $50.1 million increase in DTA, partially offset by a decrease of $63.1 million in investment securities available-for-sale. The increase in DTA was the result of a second quarter 2013 reversal of its full valuation allowance.
Gross loans outstanding were $994.5 million at December 31, 2013 an increase of $138.2 million as compared to December 31, 2012 gross loan balance of $856.3 million. This growth in gross loans outstanding was largely attributable to local lending including owner-occupied commercial real estate, small business loans and lines, consumer lending, including residential mortgages and increased shared national credits in the commercial and industrial portfolio. Loan quality continued to improve during 2013 with remediation of special mention and substandard loans.
These adversely risk rated loans totaled $85.1 million at December 31, 2013 as compared to $175.6 million at December 31, 2012. Remediation was accomplished through payoffs/pay downs, note sales and/or charge offs related to the restructure of adversely risk rated loans as well as credit upgrades owing to improved obligor cash flows. Non-performing assets as of December 31, 2013 improved to 0.81 percent of total assets as compared to 1.94 percent at December 31, 2012.
During 2013, management made a $1.0 million provision for loan losses compared to a $1.1 million provision for loan losses in 2012. The reserve for loan losses was at 2.08 percent of total loans at December 31, 2013. No provision for loan loss was made in the fourth quarter of 2013 or 2012. Deposit balances increased $91.1 million to $1.2 billion at December 31, 2013 as compared to December 31, 2012 balances of $1.1 billion.
The increase is across all deposit categories and relates to expanded customer relationships and a strengthening economy in our market areas. The Company had $27.0 million of short term FHLB borrowings as of December 31, 2013 compared to $60.0 million in long-term FHLB borrowings at December 31, 2012. The Company pre-paid the $60.0 million of long term borrowings outstanding at December 31, 2012 during the second quarter of 2013, incurring a prepayment penalty of $3.8 million.
Net income for the three months ended December 31, 2013 was $1.2 million or $0.03 per share compared to $1.3 million or $0.03 per share for the fourth quarter of 2012. The results of the fourth quarter of 2013 included approximately $1.0 million in merger costs related to the previously announced Home acquisition, $0.7 million related the Company’s annual incentive plan, and a $0.3 million tax adjustment reflecting the expiration of certain state tax credits.
Partially offsetting these items was a recovery of $1.0 million in interest from the payoff of a non-accrual loan. Net income for the full year of 2013 was $50.8 million or $1.08 per basic share compared to $6.0 million or $0.13 per share for the year ended 2012. Net income for the year ended 2013 includes a net credit to income tax provision of $50.2 million largely the result of the Company’s reversal of its prior DTA allowance. The 2012 income tax provision was $79.0 thousand. Net interest income was $48.2 million for the full year of 2013, compared to $49.9 million for the full year of 2012.
This year-over-year decline in net interest income was largely due to the declining rate environment especially on loans and investments. Net interest income for the three months ended December 31, 2013 was $13.1 million, up $1.0 million from $12.1 million during the three months ended September 30, 2013 and up $1.1 million from $12.0 million for the three months ended December 31, 2012. The quarter-over-quarter increases were mainly due to the full recovery of principal and $1.0 million in interest from repayment of a previously non-accrual loan. Interest expense for the year ended December 31, 2013 was $2.8 million compared to $5.0 million for the year ended December 31, 2012.
This $2.2 million decrease year-over-year was due to the decreased rates on deposits in the low market rate environment as well as prepayment of $60.0 million of FHLB borrowings bearing a weighted average rate of 3.17 percent during the second quarter of 2013. Interest expense for the three months ended December 31, 2013 was $0.4 million, compared to $0.5 million for the three months ended September 30, 2013 and $1.1 million for the three months ended December 31, 2012. Non-interest income for the year ended December 31, 2013 was $14.5 million compared to $13.1 million for the year ended December 31, 2012.
This increase is primarily related to increased card issuer and merchant service fees, as well as increased other income. Included in other income is the Company’s newly initiated SBA and customer interest rate swap products. Non-interest income for the three months ended December 31, 2013, September 30, 2013 and December 31, 2012 were $3.9 million, $3.6 million and $3.5 million, respectively.
Non-interest expense for the year ended December 31, 2013 was $61.0 million, compared to $55.8 million for the year ended December 31, 2012. The $5.2 million increase was primarily related to the $3.8 million prepayment penalty on early payoff of FHLB advances as well approximately $1.0 million in merger costs related to previously announced Home acquisition and $0.7 million related the Company’s annual incentive plan.
Non-interest expense for the three months ended December 31, 2013 was $14.8 million which included the merger costs discussed above. Non-interest expense for the quarter ending September 30, 2013 and December 31, 2012 were $13.6 million and $14.1 million, respectively.
