Cascade Bancorp, parent company of Bank of the Cascades, announced net income of $0.04 per share or $2.0 million including an approximate $2.0 million tax credit for the period. This compares to linked-quarter net income of $0.93 per share or $31.0 million including a $32.8 million after-tax extraordinary gain on extinguishment of $68.6 million in Debentures. Excluding this gain, the net loss from operations for the linked-quarter was approximately ($0.06) per share or ($1.8) million, and a net loss of ($0.12) per share or ($0.3) million for the year-ago quarter.
Patricia L. Moss, chief executive officer commented, “We are pleased our second quarter results reflect a very strong capital position and continued progress at Bank of the Cascades. We are well positioned to make quality loans to support our customers and help grow the economic vitality of our communities. While many of our regional economies remain challenged, our focus is on partnering with our local businesses and neighbors to provide the full range of banking services including lending programs to help build a healthy financial future.”
Balance Sheet:
Capital ratios remain very strong as of June 30, 2011, with Bank of the Cascades significantly exceeding the regulatory benchmarks for a “well-capitalized” bank at 14.43 percent, 18.65 percent and 19.92 percent for Tier 1 capital leverage ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio, respectively. These ratios compare to regulatory “well-capitalized” minimums of 5 percent, 6 percent, and 10 percent, respectively. Federal and state banking agencies require the Bank to maintain the minimum capital requirements for a “well-capitalized” bank, including a Tier 1 leverage ratio of at least 10 percent of which the Bank has exceeded as of June 30, 2011.
At June 30, 2011, loan balances are down $47.3 million on a linked-quarter basis and down a total of $97.7 million or 8.0 percent from year-end. Loans have declined primarily due to continued payoffs resulting from customers acting to reduce their debt levels in the challenging economy. Credit quality continued to improve as NPA’s were reduced to $98.2 million at June 30, 2011 compared to $120.5 million at year-end 2010 and $105.5 million for the linked-quarter. Net loan charge-offs totaled $3.7 million for the current quarter, down from a linked-quarter amount
of $9.7 million.
Local core customer deposits (checking, savings, and money market accounts) have increased by $17.4 million from the linked-quarter, and are up $40.5 million from year-end 2010. Total deposits at June 30, 2011, were $1.16 billion, down $20.0 million or 1.7 percent compared to the linked-quarter and down 26.7 percent compared to the year ago quarter. The continued decline in the current quarter is due primarily to the planned maturities and reduction of rate sensitive internet sourced time deposits.
Net Income
Pretax income for the quarter ended June 30, 2011 was approximately breakeven as compared to a pretax loss of ($4.1) million for the linked-quarter. There was a $2.0 million tax credit in the current quarter compared to a $2.3 million tax credit in the linked-quarter resulting in after-tax net income of $2.0 million in the June 30, 2011 quarter as compared to a loss from operations of ($1.8) million in the quarter ended March 31, 2011. These tax credits arise because the Company recognized a portion of its deferred tax assets on which a full valuation allowance was previously recorded.
Net interest income:
Net interest income was $14.7 million for the current quarter, compared to $14.3 million for the linkedquarter. This outcome was a result of a slight decline in interest income attributable to the reduction in loans, offset by a significant improvement in overall funding costs and corresponding decrease in interest expense of $0.9 million quarter-over-quarter. Lower funding costs were the result of actions taken in the first quarter of 2011 and early in the second quarter of 2011 related to the Company’s reduction of excess liquidity. These actions included extinguishment of $68.6 million in Debentures; call/maturity of $239 million in internet sourced time deposits; and repayment of $70 million of FHLB advances in the first half of the year. Net interest income was down 8.4 percent when compared to the year-ago period due to lower average earning assets.
The NIM increased for the second quarter of 2011 to 3.97 percent compared to 3.72 percent for the linked-quarter and 3.60 percent for the year-ago period due to the efforts described above. The Company’s primary liquidity ratio remains at a strong 20.38 percent with $219.1 million held in cash and cash equivalents at June 30, 2011, compared to $271.3 million at December 31, 2010.
Loan Loss Provision / Loan Loss Reserve:
At June 30, 2011, the reserve for credit losses (reserve for loan losses and reserve for unfunded
commitments) was approximately $41.7 million or 3.71 percent of outstanding loans compared to the linked-quarter 3.70 percent and 4.35 percent a year earlier. The loan loss provision was $2.0 million in the second quarter of 2011 compared to $5.5 million in the linked-quarter and $2.5 million a year earlier.
Non-Interest Income:
Non-interest income in the second quarter of 2011 was $2.8 million as compared to $2.7 million in the linked-quarter and $3.7 million a year earlier. This slight improvement from the first quarter of 2011 was due to seasonal increases in service charge revenue, net mortgage revenue and in card issuer and merchant services fees.
Non-Interest Expense:
Non-interest expenses for the second quarter of 2011 were $15.5 million as compared to $15.6 million in the linked-quarter and $18.2 million in the comparable period of 2010. The year-over-year declines are largely attributable to lower FDIC deposit insurance. FDIC deposit insurance costs are down 44.8 percent from the first quarter of 2011 and 68.0 percent from the same quarter in 2010 attributable to the Company’s return to “well-capitalized” category and consequent lower insurance assessment rate. Also contributing to lower FDIC insurance was that, effective April 1, 2011, the FDIC deposit insurance assessment base was changed from average quarterly deposits to average quarterly assets, generally benefiting most community banks including Cascade. Non-interest expense for the current quarter includes a $0.6 million one-time non-recurring reduction in salaries and employee benefits arising from insurance stop-loss credits with respect to the Company’s employee healthcare program. Offsetting this item were higher other expenses including $0.3 million in costs related to the early repayment of $20 million in FHLB advances and a $0.5 million increase in consulting and recruiting services. OREO related expenses declined from the year ago period as higher costs were incurred in 2010 arising from back-property taxes related to the foreclosure of OREO properties during that period.
Income Taxes:
During the six months ended June 30, 2011, the Company recorded a net income tax provision of
approximately $17.7 million. Included in this amount was an income tax provision of approximately $22.1 million related to the extraordinary gain on the extinguishment of the Debentures, which was calculated based on the Company’s estimated statutory income tax rates. The net income tax provision of $17.7 million also includes a credit for income taxes of approximately $4.4 million related to the Company’s loss from operations excluding the
extraordinary gain. This credit for income taxes was calculated based on management’s current projections of estimated full-year pre-tax results of operations, estimated utilization of deferred tax assets on which a full valuation allowance was previously recorded, and other permanent book/tax differences. Accordingly, this calculation and the prospective income tax amounts are subject to future adjustment as additional facts become available and management’s estimates are revised.
As of June 30, 2011, the Company maintained a valuation allowance of $35.1 million against the deferred tax asset. This amount represented a $10.0 million decrease from year-end 2010 due to the estimated utilization of certain deferred tax assets during the six and three months ended June 30, 2011. See also “Critical Accounting Policies – Deferred Income Taxes” included in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2010.
