EVERETT, Wash., April 22, 2008 (PRIME NEWSWIRE) -- Cascade Financial Corporation (Nasdaq:CASB), parent company of Cascade Bank, today reported that it earned $2.6 million, or $0.21 per diluted share, in the first quarter of 2008, compared to $3.8 million, or $0.30 per diluted share, in the first quarter a year ago. As previously reported, the results include a $2.4 million loan loss provision that reflected an increase in nonperforming loans, and general slowdown in the housing market. This provision reduced after tax earnings by approximately $1.6 million, or $0.13 per share.
"Our underlying business performance for the quarter was solid, with significant loan and deposit growth. Total loans grew 11% year over year and were up 4% from the prior quarter. Checking deposits were up 10% year over year, and up 8% over the prior quarter," stated Carol K. Nelson, President and CEO. "Despite the increase in the loan loss provision for the quarter, Cascade is well positioned to pursue its strategies over the long term. The recent slowdown in the residential development and construction market has led to an increase in nonperforming loans, which makes it prudent to strengthen our reserve position at this time."
1Q08 Financial Highlights: (compared to 1Q07)
* Total loans increased 11% to $1.15 billion. * Total deposits grew 7% to $951 million. * Personal checking account balances grew 9%. * Business checking account balances grew 12%. * Strong growth in new checking accounts resulted in 19% growth in checking fees. * Total assets increased 9% to $1.50 billion.
Loan Growth
Total loans outstanding increased $45 million for the quarter, or 16% on an annualized basis between March 31, 2008, and December 31, 2007. Nearly all of this growth occurred in the multifamily construction portfolio, with a $26 million increase in multifamily construction and a $15 million increase in permanent multifamily loans. The strength in the rental market due to adverse conditions in the single family housing market has created a strong lending niche in apartments. The apartment market is experiencing very low vacancy rates and this segment of the portfolio has no delinquencies.
Compared to a year ago, total loans increased 11% to $1.15 billion at the end of the quarter, from $1.04 billion at March 31, 2007. Business loans increased 3% over the same period to $470 million. Cascade's construction loans outstanding increased to $411 million at March 31, 2008, a 29% increase over March 31, 2007. This increase is a result of the growth in multifamily construction mentioned above, as well as $64 million in land acquisition and development loans that originated during the first half of 2007. Commercial real estate loans were down 2% to $115 million. Permanent multifamily loans were down 9% from year ago levels to $27 million, despite the strong first quarter 2008 growth, due to higher than normal payoffs from low rate national lenders and conduits. Total retail loans, which include single-family mortgages as well as home equity and other consumer loans, increased 9% to $130 million from the end of March 2007 to the end of March 2008.
Cascade has not engaged in the practice of subprime residential lending and the loan portfolio does not contain any such loans.
The following table shows loans in each category: (3/31/08 compared to 3/31/07)
One Year
LOANS ($ in 000s) Mar. 31, 2008 Dec. 31, 2007 Mar. 31, 2007 Change
Business $ 469,940 $ 468,453 $ 456,234 3%
R/E Construction 411,189 381,810 318,181 29%
Commercial R/E 115,087 120,421 117,524 -2%
Multifamily 26,964 11,397 29,646 -9%
Retail 129,910 126,072 119,376 9%
----------- ----------- ----------- -------
Total loans $ 1,153,090 $ 1,108,153 $ 1,040,961 11%
Loan growth contributed to a 9% increase in total assets to $1.50 billion. The investment portfolio increased by $32 million during the first quarter to $264 million, as Cascade sought to take advantage of increased credit spreads available on investment securities. The investment portfolio contains no collateralized debt obligations.
Credit Quality
As detailed in Cascade's press release of April 3, 2008, nonperforming loans (NPLs) increased by $15.7 million and represented 1.50% of total loans at March 31, 2008, compared to 0.14% three months earlier and 0.09% a year ago. At quarter-end, NPLs were $17.3 million, and consisted of nine loans to six borrowers. Loans to two of these borrowers, totaling $16.8 million, accounted for 97% of the NPLs at March 31, 2008. NPLs were $1.5 million at the end of the preceding quarter and $953,000 at the end of March 2007.
"While we are disappointed by these additions to nonperforming loans, we believe the risk management practices and monitoring systems we have in place will help to mitigate further deterioration in the portfolio. Also, the delinquency ratios of our remaining loan portfolio at just 27 basis points compares very favorably to all Washington State banks," said Robert Disotell, Chief Credit Officer.
Nonperforming assets were 1.16% of total assets, compared to 0.11% at the end of the preceding quarter, and 0.07% a year ago. Net charge-offs (NCOs) were $1.5 million in the quarter, compared to $99,000 in the previous quarter and $68,000 in the first quarter a year ago.
The provision for loan losses exceeded NCOs by $900,000 to keep pace with growth in the loan portfolio. The total allowance for loan losses, which includes an allowance for minimal off-balance sheet loan commitments, totaled $12.7 million at quarter-end, equal to 1.10% of total loans.
"We believe that by strengthening our allowance for loan losses we are taking decisive action to address credit issues as rapidly as we can based on the information currently available to us," Nelson said.
Deposit Growth
"Our intense focus on generating checking accounts paid dividends in the first quarter of 2008," Nelson said. "Our personal checking account balances grew by 9% over the past twelve months, and our business account balances grew by 12%. Additionally, we had a 19% increase in checking account fees in the first quarter, compared to the same period last year. We have enhanced our product line, augmented our Treasury Management services and increased our already aggressive sales efforts in search of these accounts. To further reduce our reliance on CDs, savings and money market account balances grew by 23% over the past year to $359 million, which increased to 38% of total deposits as of March 31, 2008."
Total deposits were $951 million at quarter-end, up 7% from $889 million a year earlier.
The following table shows deposits in each category: (3/31/08 compared to 3/31/07)
Mar. 31, Dec. 31, Mar. 31, One Year
DEPOSITS ($ in 000s) 2008 2007 2007 Change
Personal checking accounts $ 64,827 $ 58,126 $ 59,475 9%
Business checking accounts 84,247 80,064 75,440 12%
Savings and MMDA 358,646 327,264 292,726 23%
CDs 443,755 439,442 461,032 -4%
--------- --------- --------- -----
Total deposits $ 951,475 $ 904,896 $ 888,673 7%
Capital and Stock Repurchase Program
Stockholders' equity increased 8% to $124 million, compared to $115 million at the end of March 2007. Book value per share grew to $10.27 at quarter-end, from $9.50 a year ago. Tangible book value was $8.18 per share at the end of the quarter, compared to $7.40 a year earlier. Cascade remains well capitalized for regulatory purposes with a Tier 1 Capital ratio of 8.51%, as of March 31, 2008.
No Cascade stock was repurchased during the first quarter of 2008, under the Company's existing repurchase plan. Since May 31, 2007, Cascade has repurchased 52,293 shares, or 13.9% of the amount of stock permitted under the plan. The repurchased shares represent 0.4% of the total stock outstanding.
Operating Results
First quarter net interest income increased 2% to $10.5 million, compared to $10.3 million in the first quarter of 2007. Although average earning assets increased 9%, interest income was impacted by the reversal of approximately $700,000 in interest income related to the loans that were placed on nonaccrual. Total other income increased 20% to $2.5 million for the quarter, compared to $2.1 million in the first quarter a year ago, including a $464,000 gain on sale of securities. The bulk of that gain was the sale of $15 million in investment grade corporate bonds used to fund loan growth. The other main driver of the Bank's performance in the quarter was the 19% increase in checking fees resulting from the growth of the checking balances and the number of accounts. Cascade recognized $305,000 in fair value gain on its $10 million in junior subordinated debentures. Also, income from Bank owned life insurance (BOLI) increased with the purchase of an additional $5 million and transferring the majority of existing policies to a new, higher yielding structure.
Total other expense was up 8% to $6.9 million in the first quarter of 2008, compared to $6.4 million in the same quarter a year ago. Of the $512,000 increase in expense, $268,000 represents increased compensation and personnel expense, primarily due to increased staffing levels from the opening of our Shoreline branch and our Burlington loan production office.
Net Interest Margin & Interest Rate Risk
Cascade's net interest margin was 3.02% for the first quarter of 2008, compared to 3.26% in the first quarter a year ago. "Of the 24 basis point drop in the margin, 20 basis points can be attributed to the accrual reversal and the remaining four basis point drop can be attributed to the cuts in the target funds rate. Like most banks, our Prime based loans reprice more quickly than our liabilities funding those assets," Johnson said. "Our yield on loans decreased 91 basis points compared to a year earlier, as the Federal Reserve lowered the target Fed funds rate by 300 basis points in the past 12 months, taking the Prime rate and the yield on our approximately $400 million of Prime-based loans down with it. As a partial offset to this pressure on our margin, we sold some lower yielding investments replacing them with higher yielding securities. With the purchase of additional higher yielding investments, the yield on our investment portfolio increased 98 basis points from the prior year. The net result of the reversal of accrued loan interest and lower Prime rate was that the yield on earning assets decreased by 55 basis points to 6.62%."
1Q08 4Q07 3Q07 2Q07 1Q07 4Q06 3Q06 2Q06 1Q06
---------------------------------------------------------------
Asset
yield 6.62% 7.20% 7.29% 7.30% 7.17% 7.03% 6.95% 6.76% 6.53%
Liabil-
ity
cost 4.03% 4.32% 4.42% 4.39% 4.38% 4.26% 4.15% 3.94% 3.60%
Spread 2.59% 2.88% 2.87% 2.91% 2.79% 2.77% 2.80% 2.82% 2.93%
Margin 3.02% 3.38% 3.37% 3.37% 3.26% 3.23% 3.24% 3.24% 3.31%
"Our interest rate risk management models continue to show that we have moderate exposure to interest rate movements," Johnson said. "However, dramatic moves by the Federal Reserve will pressure margins in the short term. Also, the competition for loans and deposits remains strong, which will continue to place pressure on our spreads as well. Not withstanding further significant rate cuts by the Fed, we expect our Net Interest Margin to return to a range more consistent with the past year of 3.10% to 3.25% in the next quarter."
Performance Measures
In the first quarter of 2008, Cascade's return on average GAAP equity (ROE) was 8.4%, compared to 13.3% a year earlier. Return on average tangible equity (ROTE) was 10.5% for the first quarter of 2008, compared to 17.0% a year ago. Management uses ROTE, a non-GAAP performance measure, to exclude the goodwill created by the 2004 acquisition of Issaquah Bancshares and believes that it provides a more consistent comparison with pre-merger performance. Return on average assets (ROA) was 0.71% for the quarter versus 1.13% for the first quarter of 2007. The efficiency ratio was 53.6% in the first quarter of 2008, versus 52.1% in the same quarter a year ago.
Conference Call
Cascade's management team will host a conference call on Wednesday, April 23, at 11:00 a.m. PDT (2:00 p.m. EDT). Interested investors may listen to the call live or via replay at www.cascadebank.com under shareholder information. Investment professionals are invited to dial (303) 262-2130 to participate in the live call. A telephone replay of the call will be available for a month at (303) 590-3000, using passcode 11111042#.
About Cascade Financial
Established in 1916, Cascade Bank, the only operating subsidiary of Cascade Financial Corporation, is a state chartered commercial bank headquartered in Everett, Washington. Cascade Bank has proudly served the Puget Sound region for over 90 years and operates 20 full service branches in Everett, Lynnwood, Marysville, Mukilteo, Shoreline, Smokey Point, Issaquah, Clearview, Woodinville, Lake Stevens, Bellevue, Snohomish and North Bend. Cascade Bank currently operates a loan production office in Burlington, Washington and will expand its service in Skagit County by opening a full service branch in May 2008.
In January 2008, Cascade was ranked #10 on Washington CEO magazine's list of Top 25 Washington Banks. In September 2007, U.S. Banker magazine named President and CEO Carol Nelson one of the 25 Most Powerful Women in Banking. In July 2007, Cascade was named to Sandler O'Neill's Bank and Thrift Sm-All Stars - Class of 2007, which recognized Cascade as one of the top 24 best performing small capitalization institutions from a field of 610 publicly traded banks and thrifts in the U.S. with market capitalizations less than $2 billion. In making their selections, Sandler focused on growth, profitability, credit quality and capital strength. In June 2007, Cascade was ranked #44 on the Seattle Times' Northwest 100, a list of public companies.
Non-GAAP Financial Measures
This press release contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles ("GAAP"). These measures include return on tangible equity and tangible book value per share. These measures should not be construed as a substitute for GAAP measures; they should be read and used in conjunction with Cascade's GAAP financial information. A reconciliation of the included non-GAAP financial measures to GAAP measures is included elsewhere in this release.
Safe Harbor Statement
This document contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. All such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Those factors include, but are not limited to: continued strong demand for Cascade's products and services, the risks inherent in significant construction and commercial RE lending, the ability to attract low-cost deposits and commercial loans, expectations for the net interest margin, maintaining asset quality, management's ability to minimize interest rate exposure and the impact of interest rate movements, the ability to attract and retain qualified people, general economic conditions and the Company's ability to successfully adjust to any changes in these conditions, and other factors. For a discussion of factors that could cause actual results to differ, please see the Company's publicly available Securities and Exchange Commission filings, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
BALANCE SHEET
(Dollars in thousands except per share amounts)
(Unaudited)
Three One
March 31, Dec. 31, Month March 31, Year
2008 2007 Change 2007 Change
---------- ---------- ------ ---------- ------
Cash and due from
banks $ 13,235 $ 12,911 3% $ 20,696 -36%
Interest bearing
deposits 9,256 1,619 472% 22,451 -59%
Securities held-
for-trading -- -- NA 68,579 -100%
Securities avail-
able-for-sale 117,509 82,860 42% 76,569 53%
Securities held-to-
maturity 134,574 137,238 -2% 84,424 59%
Federal Home Loan
Bank (FHLB) stock 11,920 11,920 0% 11,920 0%
---------- ---------- ----------
Total securities 264,003 232,018 14% 241,492 9%
---------- ---------- ----------
Loans
Business 469,940 468,453 0% 456,234 3%
R/E construction 411,189 381,810 8% 318,181 29%
Commercial real
estate 115,087 120,421 -4% 117,524 -2%
Multifamily-perm 26,964 11,397 137% 29,646 -9%
Home equity/con-
sumer 28,142 27,688 2% 27,148 4%
Residential 101,768 98,384 3% 92,228 10%
---------- ---------- ----------
Total loans 1,153,090 1,108,153 4% 1,040,961 11%
---------- ---------- ----------
Deferred loan fees (3,722) (3,724) 0% (3,524) 6%
Allowance for loan
losses (12,544) (11,653) 8% (11,170) 12%
---------- ---------- ----------
Loans, net 1,136,824 1,092,776 4% 1,026,267 11%
---------- ---------- ----------
Premises and
equipment 15,222 14,160 8% 13,777 10%
Bank owned life
insurance (BOLI) 22,890 22,658 1% 18,139 26%
Other assets 16,518 16,227 2% 13,983 18%
Goodwill and other
intangibles 25,184 25,219 0% 25,325 -1%
---------- ---------- ----------
Total assets $1,503,132 $1,417,588 6% $1,382,130 9%
========== ========== ==========
Deposits
Personal checking
accounts $ 64,827 $ 58,126 12% $ 59,475 9%
Business checking
accounts 84,247 80,064 5% 75,440 12%
Savings and money
market accounts 358,646 327,264 10% 292,726 23%
Certificates of
deposit 443,755 439,442 1% 461,032 -4%
---------- ---------- ----------
Total deposits 951,475 904,896 5% 888,673 7%
---------- ---------- ----------
FHLB advances 249,000 231,000 8% 242,723 3%
Securities sold
under agreement to
repurchase 140,633 120,625 17% 95,719 47%
Jr. Sub. Deb
(Trust Preferred
Securities) 15,465 15,465 0% 15,465 0%
Jr. Sub. Deb
(Trust Preferred
Securities) @ fair
value 11,117 11,422 -3% 12,012 -7%
Other liabilities 11,732 12,084 -3% 12,571 -7%
---------- ---------- ----------
Total liabilities 1,379,422 1,295,492 6% 1,267,163 9%
---------- ---------- ----------
Stockholders' equity
Common stock and
paid in capital 40,591 40,442 0% 39,919 2%
Retained earnings 83,822 82,169 2% 75,725 11%
Accumulated compre-
hensive (loss) (703) (515) 37% (677) 4%
---------- ---------- ----------
Total stockholders'
equity 123,710 122,096 1% 114,967 8%
---------- ---------- ----------
Total liabilities
and stockholders'
equity $1,503,132 $1,417,588 6% $1,382,130 9%
========== ========== ==========
INCOME STATEMENT
(Dollars in thousands except per share amounts)
(Unaudited)
Quarter Ended Three Quarter Ended One
March 31, Dec. 31, Month March 31, Year
2008 2007 Change 2007 Change
---------- ---------- ------ ---------- ------
Interest income $ 23,014 $ 24,137 -5% $ 22,631 2%
Interest expense 12,539 12,820 -2% 12,354 1%
---------- ---------- ----------
Net interest income 10,475 11,317 -7% 10,277 2%
Provision for loan
losses 2,390 500 378% 250 856%
---------- ---------- ----------
Net interest income
after provision
for loan losses 8,085 10,817 -25% 10,027 -19%
---------- ---------- ----------
Other income
Checking fees 1,036 980 6% 874 19%
Service fees 231 267 -13% 254 -9%
BOLI 260 205 27% 195 33%
Gain/(loss) on
sale of securities 464 (4) NA -- NA
Gain on sale of
loans 37 32 16% 88 -58%
Valuation gain/
loss FAS 159 305 147 107% 515 -41%
Other 121 112 8% 125 -3%
---------- ---------- ----------
Total other income 2,454 1,739 41% 2,051 20%
---------- ---------- ----------
Total income 10,539 12,556 -16% 12,078 -13%
---------- ---------- ----------
Compensation expense 3,641 3,616 1% 3,373 8%
Other operating
expenses 3,294 3,371 -2% 3,050 8%
---------- ---------- ----------
Total other expense 6,935 6,987 -1% 6,423 8%
---------- ---------- ----------
Net income before
provision for
income tax 3,604 5,569 -35% 5,655 -36%
Provision for income
tax 990 1,557 -36% 1,890 -48%
---------- ---------- ----------
Net income $ 2,614 $ 4,012 -35% $ 3,765 -31%
========== ========== ==========
EARNINGS PER SHARE
INFORMATION
Earnings per
share, basic $ 0.22 $ 0.33 -35% $ 0.31 -30%
Earnings per
share, diluted $ 0.21 $ 0.33 -35% $ 0.30 -30%
Weighted average
number of shares
outstanding
Basic 12,035,806 12,023,685 12,103,616
Diluted 12,206,374 12,218,248 12,388,245
Quarter Ended
March 31, December 31, March 31,
2008 2007 2007
-------- ----------- --------
PERFORMANCE MEASURES AND RATIOS
Return on average equity 8.42% 13.11% 13.31%
Return on average tangible equity 10.50% 16.70% 16.96%
Return on average assets 0.71% 1.14% 1.13%
Efficiency ratio 53.64% 53.52% 52.10%
NIM 3.02% 3.38% 3.26%
(Dollars in Thousands except per share amounts) (Unaudited)
Quarter Ended
--------------------------------------
AVERAGE BALANCES March 31, December 31, March 31,
2008 2007 2007
------------ ------------ ------------
Average assets $ 1,472,087 $ 1,401,036 $ 1,351,906
Average earning assets 1,397,180 1,330,129 1,279,589
Average loans 1,130,012 1,095,490 1,027,127
Average deposits 927,501 896,043 853,647
Average equity 124,771 121,359 114,728
Average tangible equity 99,566 96,122 88,787
ASSET QUALITY March 31, December 31, March 31,
2008 2007 2007
------------ ------------ ------------
Nonperforming loans (NPLs) $ 17,268 $ 1,523 $ 953
Nonperforming loans/
total loans 1.50% 0.14% 0.09%
Real estate/repossessed
assets owned $ 154 $ -- $ --
Nonperforming assets $ 17,422 $ 1,523 $ 953
Nonperforming assets/
total assets 1.16% 0.11% 0.07%
Net loan charge-offs
(recoveries) in the quarter $ 1,506 $ 99 $ 68
Net charge-offs/total loans 0.13% 0.01% 0.01%
Allowance for loan losses $ 12,544 $ 11,653 $ 11,170
Plus: allowance for off-balance
sheet commitments 135 142 --
------------ ------------ ------------
Total allowance for
loan losses $ 12,679 $ 11,795 $ 11,170
Total allowance for loan
losses/total loans 1.10% 1.06% 1.07%
Total allowance for loan
losses/nonperforming loans 73% 774% 1172%
EQUITY ANALYSIS March 31, December 31, March 31,
2008 2007 2007
------------ ------------ ------------
Total equity $ 123,710 $ 122,096 $ 114,967
Less: goodwill and intangibles 25,184 25,219 25,325
------------ ------------ ------------
Tangible equity $ 98,526 $ 96,877 $ 89,642
Common stock outstanding 12,047,927 12,023,685 12,107,685
Book value per common share $ 10.27 $ 10.15 $ 9.50
Tangible book value per share $ 8.18 $ 8.06 $ 7.40
Capital/asset ratio
(including Jr. Sub. Deb.) 10.00% 10.51% 10.31%
Capital/asset ratio (Tier 1) 8.51% 8.93% 8.68%
Tangible capital/asset ratio
(excluding Jr. Sub. Deb.) 6.67% 6.96% 6.61%
Quarter Ended
--------------------------------------
INTEREST SPREAD ANALYSIS March 31, December 31, March 31,
2008 2007 2007
------------ ------------ ------------
Yield on loans 6.87% 7.64% 7.78%
Yield on investments 5.65% 5.15% 4.67%
Yield on earning assets 6.62% 7.20% 7.17%
Cost of deposits 3.45% 3.91% 3.99%
Cost of FHLB advances 4.28% 4.38% 4.81%
Cost of other borrowings 4.22% 3.25% 1.93%
Cost of Jr. Sub. Deb. 7.94% 7.80% 7.82%
Cost of interest
bearing liabilities 4.03% 4.32% 4.38%
Net interest spread 2.59% 2.88% 2.79%
Net interest margin 3.02% 3.38% 3.26%