David Fisher / The Bulletin

Cascade Bancorp reported a dip in third-quarter profits Tuesday, although its loan portfolio and deposit base were both up.

The company, which operates Bank of the Cascades, reported net income of $10 million for the quarter that ended Sept. 30, down from $10.5 million in third quarter 2006 and from $10.2 million in the second quarter. Diluted earnings per share were 35 cents in the third quarter, down from 37 cents in third quarter 2006 and 36 cents in the second quarter.

Slumping real estate markets and a shrinking profit margin on loans weighed down the bank’s profits, according to a press release that accompanied the company’s earnings report.

The company’s per-share earnings fell a penny short of Wall Street analysts’ consensus estimates of 36 cents per share, and its stock took a drubbing Tuesday.

Its share price fell 6.37 percent to $20.27 on 3.7 times the average trading volume, closing near its 52-week low of $20.08. The stock has shed 36.5 percent of its value since it hit its 52-week high on Dec. 28.

Cascade Bancorp President and CEO Patricia Moss highlighted the positives, noting that the bank has avoided much of the financial damage inflicted on more aggressive players in the residential mortgage markets.

“In an environment of slowing real estate activity that triggered recent turmoil on Wall Street, Cascade continued to deliver solid financial results,” Moss said in the press release. “I am pleased to report the company does not have direct exposure to the highly publicized subprime mortgage issues because it neither originated nor purchased such assets in its loan or investment portfolios.”

In a phone interview, Moss said the bank’s continuing deposit and loan growth is a sign that its long-term growth prospects remain strong, despite the drag from residential real estate.

“We are in such fabulous markets, with Bend, Medford, Portland and Boise, over the long term we think we are positioned better than anybody,” Moss said. “... We have the number one growth footprint in the Northwest.”

Joe Morford, a San Francisco banking industry analyst who covers Cascade Bancorp for RBC Capital Markets, said investors punished Cascade for a rising level of nonperforming construction loans in its Boise market — news that outweighed the strength of its deposit and loan growth.

“I guess overall it was a mixed quarter,” Morford said. “On balance maybe a bit disappointing because of the rise in credit problems.”

Jim Bradshaw, vice president and senior research analyst for D.A. Davidson in Portland, said he thinks the bank’s strong loan growth and cost controls will buoy its returns through the real estate downdraft.

“I’d say they’re still performing pretty highly, and I don’t think the credit issue is going to get out of hand or turn out to have a lot of losses buried in it,” Bradshaw said.

The bank’s nonperforming loans swelled to $21 million, or 0.89 percent of total assets, by Sept. 30, up from $9.4 million a year ago, the company’s release said. Moss said the loans, which involved “a few Boise builder/developers,” may result in longer paybacks or other adjustments but are not expected to end in losses.

The bank’s reserve for loan losses stood at $1.75 million, or 1.37 percent of total loans, down from 1.43 percent in the prior quarter and from 1.39 percent the year before.

Its overall $2 billion loan portfolio grew 9 percent over the third quarter a year ago, driven mainly by construction, commercial and industrial lending, according to the press release.

Deposits rose 10 percent from a year ago to $1.8 billion, about flat from the previous quarter, according to the release. “Customer relationship” deposits — defined by the bank as core accounts such as checking, savings and money market accounts, but excluding wholesale and brokered deposits — rose 4.5 percent from the second quarter, driven largely by strong use of business money market accounts in the Portland and Boise markets. But noninterest-bearing checking accounts averaged $89.1 million for the quarter, down 15.7 percent from a year ago, battered by “the contraction of real estate related activity in Cascade markets,” the bank’s release said.

Net interest margins, or the difference between the interest rates the bank pays for money and the rates it can charge to borrowers, slid to 5.24 percent from 5.34 percent in the previous quarter, the release said, partly due to loan rates that adjusted downward after the Federal Reserve dropped its key short-term federal funds rate late in the quarter.

The bank’s noninterest income slid 10.2 percent to $5.2 million, compared with the third quarter last year, the release said, due partly to a drop in mortgage origination activity along with reduced gains on investments.

Cascade Bancorp owns 100 percent of Bank of the Cascades, which has 33 branches in Central Oregon, Southern Oregon, Portland, Salem and Boise. The holding company has repurchased 53,900 shares of its own stock, at an average price of $22.37 per share, since its board of directors authorized a 5 percent stock repurchase program in August.

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