UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

 

Check the appropriate Box:

CASCADE BANCORP

(Name of Registrant as Specified In Its Charter)

Payment of Filing Fee (Check the appropriate box):

  
                                      1100 NW Wall Street
                                      Bend, Oregon 97701

[__], 2010

Dear Shareholder:

You are cordially invited to attend a Special Meeting of Shareholders of Cascade Bancorp to be held on [__], [20__], at [5:00] p.m. Pacific Time, at 1100 NW Wall Street, Bend, Oregon.

The attached Notice of Special Meeting of Shareholders, Proxy Statement and all attachments thereto are included herein and describe the formal business to be transacted at the Special Meeting of Shareholders. Directors and officers of Cascade Bancorp as well as a representative of Delap LLP, Cascade Bancorp’s independent registered public accounting firm, will be present to respond to appropriate shareholder questions.

YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the meeting in person, please vote your proxy via the Internet, telephone or mail in order to ensure a quorum.

Your continued interest and support of Cascade Bancorp are sincerely appreciated.

Sincerely,

Andrew J. Gerlicher
Secretary

Please give careful attention to all of the information enclosed with this letter, including the information contained or incorporated by reference in the proxy statement, and specifically the information set forth in Appendix B.

CASCADE BANCORP

NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT [5:00] P.M. PACIFIC TIME ON [__], [20__]

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Cascade Bancorp (“Cascade” or the “Company”) will be held at 1100 NW Wall Street, Bend, Oregon, on [__], [20__], at [5:00] p.m. Pacific Time (the “Special Meeting”) for the following purposes:

Proposal 1. To approve an amendment to the Company’s Articles of Incorporation, as amended, to increase the number of authorized shares of the Company’s Common Stock from 40,000,000 to 100,000,000;

Proposal 2. To approve the issuance of up to $177 million of the Company’s Common Stock to investors in private offerings exempt from registration under the Securities Act of 1933, as amended, pursuant to Securities Purchase Agreements entered into by the Company and such investors on November 16, 2010, which will result in such investors acquiring in the aggregate approximately 94% of the outstanding voting securities of the Company; and

Proposal 3. To transact such other business as may properly come before the Special Meeting or at any adjournment or postponement thereof.

NOTE: The Board of Directors is not aware of any other business to come before the Special Meeting or any adjournment or postponement thereof.

If you were a shareholder of record of Cascade as of the close of business on November 23, 2010 (the “Record Date”), you are entitled to receive this notice of, and to vote at, the Special Meeting and any adjournment or postponement thereof.

A representative of Delap LLP, the Company’s independent registered public accounting firm, will be present at the Special Meeting to respond to appropriate questions from shareholders.

Please note, Appendix B of the proxy statement includes material information regarding the financial condition and results of operations of the Company, including certain financial statements. The materials set forth in Appendix B should be read carefully in connection with this proxy statement and the Proposals set forth herein.

YOUR VOTE IS VERY IMPORTANT . Whether or not you plan to attend the Special Meeting, we urge you to vote and submit your proxy via the Internet, telephone or mail in order to ensure the presence of a quorum.

Registered holders may vote:

Beneficial holders .  If your shares are held in the name of a broker, bank or other holder of record, you must follow the instructions you receive from the holder of record to vote your shares.

The proxy statement to shareholders is available at www.botc.com under the About Us tab, under Investor Relations, under SEC Filings. Your Vote is Important . Please vote as promptly as possible by using the Internet or telephone or by signing, dating and returning the enclosed proxy card.

By Order of the Board of Directors,

Andrew J. Gerlicher
Secretary

[__], 2010
Bend, Oregon

PROXY STATEMENT
OF
CASCADE BANCORP
1100 N.W. Wall Street
Bend, Oregon 97701
(541) 385-6205

SPECIAL MEETING OF SHAREHOLDERS
[ __ ], [20__]

Why am I receiving these materials?

The Board of Directors of Cascade Bancorp (“Cascade” or the “Company”) has called a Special Meeting of Shareholders to vote on the Proposals described below. As a shareholder of record on the Record Date of the Special Meeting, you are entitled to vote on the Proposals at the Special Meeting. Our shareholders are invited to attend the Special Meeting and are requested to vote on the Proposals described in this proxy statement.

What items will be voted on at the Special Meeting?

This proxy statement, which was first mailed to shareholders on or about December [__], 2010, is furnished in connection with the solicitation of proxies by the Board of Directors to be voted at the Special Meeting. The purpose of this proxy statement is to solicit the votes of the shareholders of the Company with respect to the following matters (the “Proposals”):

Proposal 1. To approve an amendment to the Company’s Articles of Incorporation, as amended (the “Articles of Incorporation”), to increase the number of authorized shares of the Company’s Common Stock from 40,000,000 to 100,000,000;

Proposal 2. To approve the issuance of up to $177 million of the Company’s Common Stock to investors in private offerings exempt from registration under the Securities Act of 1933, as amended, pursuant to Securities Purchase Agreements entered into by the Company and such investors on November 16, 2010, which will result in such investors acquiring in the aggregate approximately 94% of the outstanding voting securities of the Company (the “Private Offerings”); and

Proposal 3. To transact other business as may properly come before the Special Meeting or any adjournment or postponement thereof.

The Board of Directors has unanimously voted in favor of the amendment to our Articles of Incorporation and the Private Offerings and unanimously recommends your approval of each of Proposals 1 and 2.

Effect of Reverse Stock Split

On November 22, 2010, the Company effected a one for ten reverse stock split of its Common Stock. All share numbers and per share amounts in this proxy statement have been adjusted for the reverse stock split.

If the Proposals are approved, what will be the effect on existing shareholders?

If Proposals 1 and 2 are approved, the Company will be in a position to consummate the Private Offerings. As discussed under “Background and Purpose of Proposals 1 and 2” below, it is anticipated that consummation of the Private Offerings will provide sufficient additional capital to meet the capital requirements of the regulatory orders levied against the Company and its wholly-owned banking subsidiary, Bank of the Cascades (the “Bank”).

As of the Record Date, the Company had [__] shares of Common Stock outstanding. The Company will issue approximately 44,243,750 additional shares of Common Stock in the Private Offerings. Existing shareholders have no preemptive rights to purchase their pro rata share of the Common Stock offered in the Private Offerings. Therefore, the issuance of shares of Common Stock in the Private Offerings will be significantly dilutive in voting power, resulting in our existing shareholders owning approximately [6.06]% of the outstanding Common Stock of the Company (assuming 44,243,750 shares of Common Stock are sold in the Private Offerings). See “Background and Purpose of Proposals 1 and 2” for additional information on the number of shares that may be issued in the Private Offerings.

Why is the amendment to the Articles of Incorporation increasing the authorized shares of Common Stock necessary?

Currently the Company’s Articles of Incorporation restrict equity capital issuance to a maximum of 40,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. The current amount of authorized but unissued and unreserved shares of Common Stock is insufficient to effectuate the Private Offerings. Amending the Articles of Incorporation enables the Board of Directors to issue a sufficient number of shares to complete the Private Offerings and provides approximately 52.9 million additional shares of Common Stock the Company may issue without further shareholder approvals (except as may be required in a specific case by law or NASDAQ Marketplace Rules), which provides the Company with additional shares that can be used for general corporate purposes, including the exercise of outstanding stock options, which may be deemed advisable and in the best interests of the Company and its shareholders.

Why is a shareholder vote required for the issuance of Common Stock in the Private Offerings?

The Company’s Common Stock is listed on the NASDAQ Capital Market and the Company is subject to NASDAQ Marketplace Rules. NASDAQ Marketplace Rule 5635(d) requires that a company listed on NASDAQ obtain shareholder approval in connection with a transaction (other than a public offering) involving the potential issuance of common stock (or securities convertible into or exercisable for common stock) equal to 20% or more of its common stock or 20% or more of its voting power outstanding before the issuance for less than the greater of book or market value of the stock as of the date of the transaction. The Private Offerings will result in greater than 20% of the Company’s outstanding Common Stock being issued to investors in private placements for less than the greater of book value or market value of our Common Stock, and therefore shareholder approval is required. To the extent that a NASDAQ-listed company does not obtain shareholder approval prior to such a transaction, that company may be subject to the delisting of its securities from NASDAQ.

What will happen if the shareholders fail to approve the Proposals?

In the event that the shareholders of the Company fail to approve either Proposal, the Company will not have the ability to complete the Private Offerings. An inability to raise additional capital will have a material adverse impact on the Company’s ability to comply with the Order (as defined below) as well as the Company’s financial condition and results of operations. If the Company is unable to comply with the Order in a timely manner, the Company could be subject to additional regulatory sanctions, and if its capital levels and liquidity are further impaired, the Bank could be seized by the FDIC, in which event the Company’s ability to continue as a going concern would be at risk.

When and where is the Special Meeting?

The Special Meeting will be held at 1100 NW Wall Street, Bend, Oregon, on [__], [20__] at [5:00] p.m. Pacific Time.

Who may vote?

If you were a shareholder of the Company as of the close of business on November 23, 2010, you are entitled to vote at the Special Meeting and at any adjournments or postponements thereof. As of the Record Date, there were [__] shares outstanding held by approximately [__] holders of record.

How do I vote?

We encourage you to vote electronically or by telephone. You may vote via the Internet at www.proxyvote.com, by mail, or by telephone by calling 1-800-579-1639. Please see the instructions on the proxy or vote instruction card. To vote by mail, please complete, sign and date the proxy card and return it to us at your earliest convenience.

If you are a shareholder of record as of November 23, 2010, you may vote in person at the Special Meeting. Even if you plan to attend the Special Meeting, please complete, date, and sign the accompanying proxy card and return it promptly to us by mail, or vote via the Internet or telephone.

If you are a beneficial owner of shares registered in the name of your broker, bank, or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization

rather than from the Company. Simply complete and mail the proxy card to ensure that your vote is counted. Alternatively, you may vote by telephone or over the Internet as instructed by your broker or bank. To vote in person at the Special Meeting, you must obtain a valid proxy from your broker, bank, or other agent. You may contact your broker or bank to request a proxy form.

How is my proxy voted?

If you submit a properly executed proxy with no instructions, the named proxy holders will vote your shares in favor of the Proposals. In addition, the named proxy holders will vote in their discretion on such other matters that may be considered at the Special Meeting. The Board of Directors has named Patricia L. Moss, Gary L. Hoffman and/or Jerol E. Andres as the proxy holders. Their names appear on the proxy form accompanying this proxy statement. You may name another person to act as your proxy if you wish, but that person would need to attend the Special Meeting in person or further vote your shares by proxy.

How do I change or revoke a proxy?

After voting you may change your vote one or more times, or you may revoke your proxy at any time before the vote is taken at the Special Meeting. You may revoke your proxy by submitting a proxy bearing a later date or by notifying the Secretary of the Company (in person or in writing by mail) of your wish to revoke your proxy. You may also change your proxy or vote by voting again via the Internet or by telephone as described in “How do I vote?” above. If you wish to revoke your proxy by mail, your revocation must be received by the Secretary of the Company no later than 5:00 p.m., Pacific Time, on [__], [20__], the last business day before the Special Meeting. You may also revoke your proxy by oral request if you are present at the Special Meeting.

You may still attend the Special Meeting even if you have submitted a proxy. You should be aware that simply attending the Special Meeting will not, of itself, revoke a proxy.

If your shares are held by your broker or bank as nominee or agent, you should follow the instructions provided by your broker or your bank.

How do we determine a quorum?

We must have a quorum to conduct any business at the Special Meeting. Shareholders holding at least a majority of the outstanding shares of Common Stock must either attend the Special Meeting or submit proxies to have a quorum. If you come to the Special Meeting or submit a proxy but you abstain from voting on a given matter, we will still count your shares as present for determining a quorum, but not count your shares as voting for or against the given matter.

What if a quorum is not present at the meeting?

If a quorum is not present at the scheduled time of the meeting, a majority of the shareholders present or represented by proxy may adjourn the meeting until a quorum is present. The time and place of the adjourned meeting will be announced at the time the adjournment is taken, and no other notice will be given. An adjournment will have no effect on the business that may be conducted at the meeting. The Board of Directors must fix a new Record Date to determine the shareholders entitled to vote at the adjourned meeting if the meeting is adjourned more than 120 days after the date fixed for the original meeting.

How do we count votes?

The named proxy holders will vote your shares as you instruct on your proxy. We will not count abstentions or broker non-votes for or against a matter submitted to a vote of shareholders. Each share is entitled to one vote.

A broker non-vote occurs when a broker or other nominee holder, such as a bank, submits a proxy representing shares that another person actually owns, and that person has not given voting instructions on a non-routine matter to the broker or other nominee. A broker may only vote those shares if the beneficial owner gives the broker voting instructions. We will count broker non-votes as present for establishing a quorum.

What is the voting requirement to approve the Proposals?

Approval of Increase in Authorized Common Stock

Assuming the existence of a quorum, the amendment to our Articles of Incorporation to increase the number of authorized shares of the Company’s Common Stock will be approved if the number of shares voted in favor of the Proposal to approve the amendment to the Articles of Incorporation exceeds the number of shares voted against.

Approval of Private Offerings

Assuming the existence of a quorum, the issuance of Common Stock in the Private Offerings will be approved if a majority of the shares of Common Stock present in person or by proxy at the Special Meeting vote in favor of the Private Offerings.

How many shares are held by directors, officers and affiliates?

As of the Record Date, our directors and officers beneficially owned [__] shares, [__] of which are entitled to vote, including [__] shares of our Common Stock that are held in the Company’s 401(k) plan and are voted by the trustees of the plan. In addition, as of the Record Date, Mr. Bolger beneficially owned [__] shares of our Common Stock. The shares held by our officers, directors and Mr. Bolger constitute approximately [__]% of the total shares outstanding and entitled to be voted at the Special Meeting. We expect all directors, executive officers and Mr. Bolger to vote in favor of all Proposals.

Who is paying the cost of this proxy solicitation?

Cascade will bear the cost of soliciting proxies from its shareholders. In addition to using the mail, proxies may be solicited by personal interview, telephone, and electronic communication. Cascade requests that banks, brokerage houses, other institutions, nominees, and fiduciaries forward their proxy soliciting material to their principals and obtain authorization for the execution of proxies. Officers and other employees of Cascade and the Bank, acting on Cascade’s behalf, may solicit proxies personally. Cascade may pay compensation for soliciting proxies, and will, upon request, pay the standard charges and expenses of banks, brokerage houses, other institutions, nominees, and fiduciaries for forwarding proxy materials to and obtaining proxies from their principals. In addition, Cascade has engaged Morrow & Co., LLC to solicit proxies for a fee of $5,500.

Are there appraisal rights with respect to the proposals?

There are no appraisal rights applicable to any matters to be considered at the Special Meeting.

Important Notice regarding the availability of the proxy materials for the special shareholder meeting to be held on [__ ], [20__]:

This Notice of Special Meeting and proxy statement are also available on the Internet at www.botc.com under the About Us tab, under Investor Relations, under SEC Filings.

IMPORTANT NOTICES

Appendix B of this proxy statement includes material information regarding the financial condition and results of operation of the Company, including certain financial statements. The materials set forth in Appendix B should be read carefully in connection with this proxy statement and the Proposals set forth herein. Historical numbers and per share information set forth in Appendix B have not been adjusted to reflect the one for ten reverse stock split effective November 22, 2010.

Our Common Stock is not a savings account, deposit, or other obligation of our bank subsidiary and is not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

We have not authorized any person to give any information or to make any representations other than the information and statements included in this proxy statement. You should not rely on any other information. The information contained in this proxy statement is correct only as of the date of this proxy statement, regardless of the date it is delivered.

The words “Cascade,” the “Company,” “we,” “our,” and “us,” as used in this proxy statement, refer to Cascade Bancorp and its wholly-owned subsidiary, Bank of the Cascades, collectively, unless the context indicates otherwise.

Cautionary Information Concerning Forward-Looking Statements

This proxy statement contains forward-looking statements, which are not historical facts and pertain to our future operating results. 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 word “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. Certain risks and uncertainties and the Company’s success in managing such risks and uncertainties may cause actual results to differ materially from those projected, including among others, the risk factors described in Item 1A of our Annual Report on Form 10-K/A for the year ended December 31, 2009, filed with the Securities and Exchange Commission (“SEC”) on August 23, 2010, as well as the following factors: the investment transactions described in this proxy statement may not be completed in a timely manner or at all; our inability to comply in a timely manner with the Order with the FDIC and the DFCS, under which we are currently operating, could lead to further regulatory sanctions or orders, which could further restrict our operations and negatively affect our results of operations and financial condition; local and national economic conditions could be less favorable than expected or could have a more direct and pronounced effect on us than expected and adversely affect our results of operations and financial condition; the local housing/real estate market could continue to decline for a longer period than we anticipate; the risks presented by a continued economic recession, which could continue to adversely affect credit quality, collateral values, including real estate collateral and OREO properties, investment values, liquidity and loan originations, reserves for loan losses and charge offs of loans and loan portfolio delinquency rates and may be exacerbated by our concentration of operations in the States of Oregon and Idaho generally, and the Oregon communities of Central Oregon, Northwest Oregon, Southern Oregon and the greater Boise area, specifically; interest rate changes could significantly reduce net interest income and negatively affect funding sources; competition among financial institutions could increase significantly; competition or changes in interest rates could negatively affect net interest margin, as could other factors listed from time to time in the Company’s reports filed with the SEC; the reputation of the financial services industry could further deteriorate, which could adversely affect our ability to access markets for funding and to acquire and retain customers; and existing regulatory requirements, changes in regulatory requirements and legislation and our inability to meet those requirements, including capital requirements and increases in our deposit insurance premium, could adversely affect the businesses in which we are engaged, our results of operations and financial condition.

These forward-looking statements speak only as of the date of this proxy statement. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. Readers should carefully review all disclosures filed by the Company from time to time with the SEC.

BACKGROUND AND PURPOSE OF PROPOSALS 1 AND 2

Background of Private Offerings

The significant downturn in economic activity and declining real estate values that commenced in late 2008 had a direct and adverse effect on the financial condition and results of operations of the Company and the Bank, including substantial reductions in the capital levels of both the Company and the Bank. The impact on the Company has been an elevated level of non-performing assets and charge-offs and an associated increase in the reserve for loan losses for the Company, leading to a decrease in total stockholders’ equity from $135.2 million at December 31, 2008 to $8.9 million at September 30, 2010.

On August 27, 2009, the Bank entered into an agreement with the Federal Deposit Insurance Corporation (the “FDIC”), its principal federal banking regulator, and the Oregon Division of Finance and Corporate Securities, its principal state regulator (the “DFCS”), which requires the Bank to take certain measures to improve its safety and soundness. In connection with that agreement, the Bank stipulated to the issuance by the FDIC and the DFCS of a cease-and-desist order (the “Order”).

Under the Order, the Bank is required to take certain measures to improve its capital position, maintain liquidity ratios, reduce its level of non-performing assets, reduce its loan concentrations in certain portfolios, improve management practices and board supervision and assure that its reserve for loan losses is maintained at an appropriate level. Among the corrective actions required are for the Bank to develop and adopt a plan to maintain the minimum risk based capital requirements for a “well-capitalized” bank, including a Tier 1 leverage ratio of at least 10% at the Bank level beginning 150 days from the issuance of the Order.

In addition to the Order, on October 26, 2009, the Company entered into a written agreement with the Federal Reserve Bank of San Francisco (the “FRB”) and DFCS (the “Written Agreement”), which requires the Company to take certain measures to improve its safety and soundness. Under the Written Agreement, the Company is required to develop and submit for approval within 60 days of the Written Agreement a plan to maintain sufficient capital at the Company and the Bank.

As of September 30, 2010, the Company and the Bank failed to meet the requirements of the Order and the Written Agreement to bring capital ratios to the targeted levels. To meet and maintain the capital requirements of the Order and the Written Agreement, the Bank estimates that it will need a minimum of approximately $150 million of additional equity capital. The economic environment in our market areas and the duration of the downturn in the real estate market will continue to have a significant impact on the implementation of the Bank’s business plans. Failure to increase capital levels consistent with the requirements of the Order and the Written Agreement could result in further enforcement actions by our regulators, including placing the Bank into conservatorship or receivership, and could affect the Company’s ability to continue as a going concern.

As previously disclosed, the Company has been engaged in discussions to attempt to raise additional capital from a variety of sources. In the fourth quarter of 2009, the Company filed a registration statement on Form S-1 with the SEC pursuant to which it intended to offer up to $108 million of its Common Stock in a public offering, subject to market and other conditions. The Company did not proceed with the registration and sale of shares under the registration statement, and withdrew the registration statement in December 2009. In addition, on October 29, 2009, the Company announced a proposed purchase of shares of our Common Stock by David F. Bolger (“Mr. Bolger”), who currently beneficially holds approximately 12.13% of our outstanding Common Stock, and by an affiliate of Lightyear Fund II, L.P. (“Lightyear”), in separate private placements. The Company entered into a Securities Purchase Agreement dated October 29, 2009 with each of Mr. Bolger and Lightyear (the “Bolger Purchase Agreement” and the “Lightyear Purchase Agreement,” respectively). The obligation of each of Mr. Bolger and Lightyear to purchase shares of our Common Stock under the Bolger Purchase Agreement and the Lightyear Purchase Agreement, each as amended, was subject to certain conditions, including, among others, the sale of shares of our Common Stock in additional private placements generating proceeds of at least $150 million (including the investments of Mr. Bolger and Lightyear). After withdrawing the registration statement in December 2009, the Company continued to seek capital from private investors, during which time Mr. Bolger and Lightyear extended their commitments to purchase shares of the Company’s Common Stock pursuant to the terms and conditions of the Bolger Purchase Agreement and the Lightyear Purchase Agreement, each as amended.

On November 16, 2010, the Company announced that it had entered into an Amended and Restated Securities Purchase Agreement dated November 16, 2010 with each of Mr. Bolger and Lightyear, amending and restating the Bolger Purchase Agreement and the Lightyear Purchase Agreement, and it had entered into additional Securities Purchase Agreements dated November 16, 2010 with an affiliate of Leonard Green & Partners, L.P. (“Leonard Green”); with an affiliate of WL Ross & Co. LLC (“WL Ross”); and with five investors including (i) Michael F. Rosinus, through his IRA (“Rosinus”), (ii) Keefe Ventures Fund LP (“Keefe”), (iii) Weichert Enterprise LLC (“Weichert”), (iv) an affiliate of Smith Management (“Smith”) and (v) Cougar Trading, LLC (“Cougar”) (collectively, the “Securities Purchase Agreements”).

The total gross proceeds from the Private Offerings pursuant to the Securities Purchase Agreements will be $176,975,000, consisting of $25 million from Mr. Bolger, $45.875 million from each of Lightyear, Leonard Green, and WL Ross, $9.15 million from Smith and an aggregate of $5.2 million from the remaining investors. Subject to all the terms and conditions of the relevant Securities Purchase Agreement, the shares of our Common Stock are being sold at an adjusted per share purchase price equal to $4.00 (which purchase price following the reverse stock split discussed below was adjusted from the $0.40 per share purchase price reflected in the Securities Purchase Agreements). On November 15, 2010 (the day prior to the announcement of the Private Offerings), the closing price of the Company’s Common Stock on the NASDAQ Capital Market was $0.44 per share.

At September 30, 2010, the Bank’s Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios were 3.91%, 5.24% and 6.53%, respectively, and the Company’s Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios were 0.34%, 0.45% and 0.90%, respectively. Giving pro forma effect to the approximately $177 million capital raise and the consummation of the transactions contemplated by the Exchange Agreements described below, the Bank’s Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios as of September 30, 2010 are estimated at 11.13%, 16.14% and 17.39%, respectively, and the Company’s Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios as of September 30, 2010 are estimated at 10.47%, 15.16% and 16.41%, respectively. On a pro forma basis, the regulatory capital ratios of the Company and the Bank would exceed current benchmarks for “well capitalized” designation. The pro forma capital ratios would also exceed the levels required for the Bank and the Company to be in compliance with the terms of the Order and the Written Agreement requiring the Bank and the Company to raise capital.

As previously announced, on October 26, 2009, the Company entered into a binding letter agreement (the “Letter Agreement”) with Cohen & Company Financial Management, LLC (“Cohen”) for the restructuring of the Company’s outstanding trust preferred securities. In connection with the Letter Agreement, on November 16, 2010, the Company entered into Exchange Agreements (the “Exchange Agreements”) among the Company, Cohen, ATP Management LLC and each of Alesco Preferred Funding VI, Ltd., Alesco Preferred Funding X, Ltd., Alesco Preferred Funding XI, Ltd. and Alesco Preferred Funding XIV, Ltd. (collectively, the “Alesco CDOs”). Pursuant to the Exchange Agreements, the Alesco CDOs, as holders of the Company’s trust preferred securities having an aggregate principal amount of $66.5 million, will exchange the trust preferred securities for promissory notes issued by the Company. The Exchange Agreements provide for two alternative forms of promissory notes to be issued by the Company in exchange for the trust preferred securities, depending upon regulatory approval. If approved by the FRB and the DFCS, the Company will issue promissory notes (the “Primary Notes”) in the aggregate principal amount of $66.5 million plus accrued interest that (i) accrue interest at the same rate applicable to the trust preferred securities, payable quarterly with the permission of the FRB (if permission is required) and otherwise added to and compounded with the principal balance of the notes; and (ii) mature five years from the date of issuance. If the Private Offerings close on or before February 4, 2011, the Primary Notes would become immediately due and payable in the aggregate amount of $13.3 million, plus accrued interest on the notional principal amount of $13.3 million at a fixed rate of 7.5% per annum. If the Primary Notes are not approved by the FRB and the DFCS by December 31, 2010, the Company will issue promissory notes (the “Alternative Notes”) in the aggregate principal amount of $13.3 million that (i) accrue interest at a fixed rate of 7.5% per annum, payable quarterly; (ii) mature five years from the date of issuance; and (iii) become immediately due and payable in the aggregate amount of $13.3 million, plus any accrued interest, at the closing of the Private Offerings. Subject to all of their terms and conditions, the Exchange Agreements will close one business day after the earlier to

occur of (i) receipt of notification from the FRB and the DFCS that the issuance of the Primary Notes has been approved or denied, and (ii) December 31, 2010. If the Primary Notes have not been approved by the FRB and the DFCS by December 31, 2010, the Company will issue the Alternative Notes pursuant to the terms of the Exchange Agreements. The sum of cash to be paid by the Company in connection with the consummation of the transactions contemplated by the Exchange Agreements, including payment in full of the promissory notes issued pursuant thereto, will be approximately $15.3 million; that amount includes the aggregate principal amount of $13.3 million plus accrued interest, a fee of approximately $1.7 million related to the exchange of the trust preferred securities (which will be paid to the holders of the trust preferred securities), and other expenses.

On November 16, 2010, the Company also announced that its Board of Directors had approved a one for ten reverse stock split, effective November 22, 2010. As a result of the reverse stock split, each ten shares of the Company’s Common Stock outstanding at the time of the reverse split were automatically reclassified and changed into one share of Common Stock, and the total number of shares of Common Stock outstanding was reduced from approximately 28.5 million to approximately 2.85 million. The per share purchase price to be paid by the investors for our Common Stock pursuant to the Securities Purchase Agreements was adjusted proportionately, from $0.40 per share to $4.00 per share. The terms and reasons for the reverse stock split are more fully described in the Company’s proxy materials filed with the SEC on November 10, 2009, but the primary reason the Company elected to effect the one for ten reverse stock split was to regain compliance with Rule 5550(a)(2) of the NASDAQ Marketplace Rules. Rule 5550(a)(2) requires companies listed on the NASDAQ Capital Market to maintain a minimum bid price of at least $1 per share. As previously disclosed in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, the Company was required by NASDAQ to evidence a closing bid price of $1.00 or more for a minimum of ten prior consecutive trading days by December 13, 2010. The reverse stock split was approved by the Company’s shareholders on December 7, 2009.

Terms and Conditions of the Private Offerings

The Securities Purchase Agreements are subject to certain conditions to closing, including, among others, (i) the representations and warranties in the Securities Purchase Agreements being true and correct as of the dates specified in the Securities Purchase Agreements; (ii) the completion of the Private Offerings for gross proceeds of an aggregate amount not less than $165 million nor more than $177 million; (iii) the exchanges of the Company’s trust preferred securities shall have been completed pursuant to and in accordance with the terms of the Exchange Agreements, and the consummation of the Private Offerings shall constitute a Capital Raise, as defined in and pursuant to the Exchange Agreements (an equity capital raise of at least $150 million constitutes a Capital Raise), requiring the payment in full of such promissory notes for an amount not to exceed, in the aggregate, $13.3 million plus accrued interest; (iv) the absence of a material adverse effect on the Company and the Bank between November 16, 2010 and closing; (v) as of the close of business on the second business day immediately preceding the closing of the Private Offerings, the Company’s (A) classified assets on its balance sheet shall not be more than 5% higher than the amount set forth as of June 30, 2010, (B) non-performing assets on its balance sheet shall not be more than 5% higher than the amount set forth as of June 30, 2010 and (C) the Company’s net loss, exclusive of tax adjustments or tax expense, for the period June 30, 2010 to the second business day prior to the closing of the Private Offerings shall not exceed $20 million; (vi) the receipt of all required regulatory approvals, without the imposition of a burdensome condition; (vii) other than the Order and the Written Agreement, no other regulatory agreements shall have been threatened or issued by any governmental entity with regulatory authority over the Company or the Bank nor shall the Company or the Bank have entered into or consented to any other regulatory agreements; (viii) certain of the investors having received written confirmation from the FRB that neither such investors nor their affiliates will be deemed to “control” the Company or the Bank for purposes of the Bank Holding Company Act of 1956, as amended (the “BHC Act”); (ix) the appointment of one designee from each of Lightyear, Leonard Green, and WL Ross to each of the Board of Directors of the Company and the board of directors of the Bank; (x) the Company having caused the shares of Common Stock to be issued in the Private Offerings to be approved for listing on the NASDAQ Capital Market; and (xi) receipt of the approvals required of our shareholders being sought at the Special Meeting. Under the Securities Purchase Agreements, the Company agreed to indemnify the investors and their affiliates for breaches of representations, warranties, agreements and covenants in certain circumstances.

The Securities Purchase Agreements provide that no investor will be required to purchase a number of shares of our Common Stock that would cause the investor to be deemed to own, control or have the power to vote, for purposes of the BHC Act, and the rules and regulations promulgated thereunder, 25% (or, with respect to each of Rosinus, Keefe, Weichert, Smith and Cougar, 9.9%) or more of any class of Voting Securities (as defined in the BHC Act). In addition, no investor or affiliate of an investor will be required (i) to become a “bank holding company” within the meaning of the BHC Act, a “savings and loan holding company” within the meaning of the Home Owners' Loan Act, or a similarly regulated entity under any similar or successor law; (ii) to support or maintain the capital, liquidity, or financial condition of the Company or its subsidiaries; (iii) to modify or limit its operations or commercial practices (except as they relate to the Company and its subsidiaries); (iv) to modify or limit its governance, structure, or compensation arrangements; (v) to modify the terms of the Securities Purchase Agreement between the investor and the Company; (vi) to become subject to any other condition that would reasonably be expected to adversely affect (with respect to the investor or its affiliates) any material financial term of the transactions contemplated by the relevant Securities Purchase Agreement or the anticipated benefits to such investor and its affiliates thereunder; or (vii) to propose, agree, or accept any of the items described in clauses (i) through (vi) as a condition to receiving any regulatory or governmental approval or consent.

Under the Securities Purchase Agreements, at closing, the Company will grant registration rights to each investor pursuant to a registration rights agreement. Within 30 days of the closing date of the Private Offerings, the Company must file a shelf registration statement covering the registrable securities held by the investors, including all securities purchased by the investors pursuant to the Securities Purchase Agreements. In addition, the investors have piggy-back registration rights, pursuant to which they may include registrable securities held by them in any subsequent registration of securities by the Company, subject to certain conditions.

Subject to certain customary conditions and exceptions, the Company has granted each of Mr. Bolger, Lightyear, Leonard Green and WL Ross preemptive rights on any subsequent offering of the Company's securities (“New Securities”). In the event of a subsequent offering of the Company’s securities, whether public or private, Mr. Bolger, Lightyear, Leonard Green and WL Ross will each have the right to purchase up to the amount of New Securities in the aggregate required to enable him or it to maintain his or its proportionate Common Stock-equivalent interest in the Company immediately prior to any such issuance of New Securities. Any such purchase will be at the same price (net of any underwriting discounts or sales commissions) and on the same terms as offered to others. Mr. Bolger, Lightyear, Leonard Green and WL Ross will each have the foregoing preemptive rights until such time as he or it, or an affiliate, ceases to own 5% or more of all of the outstanding shares of Common Stock of the Company (counting for such purposes all shares of Common Stock into or for which the securities of the Company owned by the investor are directly or indirectly convertible or exercisable and excluding as shares owned and shares outstanding all shares of Common Stock issued by the Company after the closing of the Private Offerings). The foregoing preemptive rights may be transferred by each of Mr. Bolger, Lightyear, Leonard Green and WL Ross in the case of (i) any transfer of Common Stock to an affiliate and (ii) a sale, in one transaction or a series of related transactions, of shares of Common Stock to a third party purchaser or group in an amount that exceeds 10% of the total number of shares of Common Stock outstanding.

Under an existing shareholders agreement between Mr. Bolger and the Company, Mr. Bolger is entitled to nominate one director to the Company’s Board of Directors. Effective as of the closing of the Private Offerings, one designee of each of Lightyear, Leonard Green and WL Ross will be appointed to each of the Company’s Board of Directors and the board of directors of the Bank. From the closing of the Private Offerings, for so long as Mr. Bolger, Lightyear, Leonard Green and WL Ross, each together with his or its affiliates, owns at least 5% or more of all of the outstanding shares of Common Stock (counting for such purposes all shares of Common Stock into or for which the securities of the Company owned by the investor are directly or indirectly convertible or exercisable and excluding as shares owned and shares outstanding all shares of Common Stock issued by the Company after the closing of the Private Offerings), at any election of directors of the Company or the Bank, such investor will have the right to nominate one candidate for election to each of the Company’s Board of Directors and the board of directors of the Bank, as a candidate recommended by the Company’s Board of Directors (each person so nominated an “Investor Nominee”).

Notwithstanding anything to the contrary in the Articles of Incorporation, bylaws, or any other policies of the Company, the Bank, the Company’s Board of Directors or the board of directors of the Bank, the Investor Nominee will be elected by plurality of the votes cast by the shares of Common Stock entitled to vote at a meeting at which a quorum is present.

Mr. Bolger, Lightyear, Leonard Green and WL Ross each may specify, subject to any applicable exchange listing standards and independence requirements, up to two committees (other than the audit committee) of each of the Board of Directors and the board of directors of the Bank on which his or its Investor Nominee will serve (without restricting the Investor Nominee from serving on any other committee to which he is appointed by the Board of Directors or the board of directors of the Company Bank). As of the closing of the Private Offerings, the Company’s Nominating and Corporate Governance Committee will consist of all members of the Board of Directors other than directors who are employed by the Company or the Bank.

Each of Mr. Bolger, Lightyear, Leonard Green and WL Ross will also be entitled, subject to applicable law and certain restrictions on committee composition, to designate a person who is reasonably acceptable to the Company’s Board of Directors to attend meetings of the Company’s Board of Directors (or any committee thereof) and the board of directors of the Bank (or any committee thereof) in a nonvoting observer capacity. If any of Mr. Bolger, Lightyear, Leonard Green or WL Ross no longer beneficially owns the 5% minimum number of shares of Common Stock necessary to nominate a director, he or it will have no further rights to have a board observer attend board and committee meetings.

In addition, commencing at the next annual shareholders meeting, the Company has agreed that the size of its Board of Directors and the board of directors of the Bank shall not exceed ten.

The Company and the Bank must enter into a customary Directors & Officers Indemnification Agreement with each Investor Nominee at or prior to the closing of the Private Offerings. Any replacement Investor Nominee will be entitled to enter into a Directors & Officers Indemnification Agreement with the Company and the Bank on the same terms as the original Investor Nominees. The Company and the Bank will be fully and primarily responsible for the indemnification and advancement of expenses of the Investor Nominees.

The Securities Purchase Agreements can be terminated by (i) both the Company and the investor party thereto by mutual consent; (ii) the Company or the investor party thereto if the conditions to closing are not satisfied on or before February 4, 2011; (iii) the Company or the investor party thereto if any governmental entity issues any order, decree or injunction or takes any other action restraining, enjoining or prohibiting any of the transactions contemplated by the Securities Purchase Agreement, and such order, decree, injunction or other action has become final and nonappealable; (iv) the investor party thereto if a “change in control” within the meaning of any employee benefit plan of the Company or of the Bank occurs; and (v) in the Bolger, Lightyear, Leonard Green and WL Ross Securities Purchase Agreements, by the investor party thereto if (A) it receives notice from the FRB that the FRB will not issue a non-objection letter with respect to the Change in Bank Control Act of 1978, as amended, notice filed by the investor, or that the FRB will not issue the non-objection letter without the imposition of a burdensome condition, (B) the investor is advised by the FDIC that the capital raise and subsequent contribution of proceeds by the Company to the Bank will not satisfy the capital requirements set forth by the FDIC in the Order, or (C) upon consummation of the capital raise, the promissory notes issued by the Company pursuant to the Exchange Agreements, by their terms, may no longer be paid in full for an aggregate amount equal to not more than $13.3 million plus accrued interest.

Pursuant to the Securities Purchase Agreements, the Company is required to reimburse certain of the investors for their out-of-pocket fees and expenses incurred in connection with the Private Offerings, including fees of legal counsel, due diligence activities, accounting and financial advisors, and investment banking advisors. Mr. Bolger will be reimbursed in the amount of $1.75 million (including $1.25 million the Company had previously accrued but not paid relating to Mr. Bolger’s out-of-pocket fees and expenses incurred in connection with Mr. Bolger’s October 2009 purchase agreement and the Company’s unsuccessful December 2009 capital raising efforts). Lightyear will be reimbursed in the amount of $745,642 (Lightyear was previously reimbursed in the amount of approximately $1.2 million relating to Lightyear’s out-of-pocket fees and expenses incurred in connection with Lightyear’s October 2009 purchase agreement and the

Company’s unsuccessful December 2009 capital raising efforts). Leonard Green and WL Ross will each be reimbursed in the amount of $458,750.

The above description of the Securities Purchase Agreements is a summary of the material terms of the agreements and does not purport to be a complete description of all of the terms of the agreements. Copies of the Securities Purchase Agreements are included as exhibits to our Current Report on Form 8-K filed with the SEC on November [__], 2010.

Use of Proceeds

We intend to use the gross proceeds from the Private Offerings (estimated gross proceeds of approximately $177 million) to provide approximately $151.3 million to the Bank to support its growth and related regulatory capital needs, including the requirements of the Order and the Written Agreement, and approximately $15.3 million of the proceeds for the prepayment of the promissory notes issued pursuant to the Exchange Agreements and the payment of related fees and costs. We expect to use the remainder of the proceeds to pay expenses of the transactions, to reimburse the investors for their out-of-pocket fees and expenses and for general working capital purposes of the Company. Based on our estimates of the effects of the repurchase of the trust preferred securities and the Private Offerings, we believe that the addition of $151.3 million of capital to the Bank will enable it to meet the capital ratios required to be a “well-capitalized” institution and will allow it to achieve a Tier 1 leverage ratio in excess of 10% as required by the Order.

Effect on Currently Outstanding Common Stock

As of the Record Date, the Company had [__] shares of Common Stock outstanding. Existing shareholders have no preemptive rights to purchase their pro rata share of the Common Stock offered in the Private Offerings. Therefore, the issuance of shares of our Common Stock in the Private Offerings will be significantly dilutive in voting power to our existing shareholders. In addition, the market price of our Common Stock could decline as a result of the Private Offerings and as a result of sales of shares of our Common Stock made after such offerings, or the perception that such sales could occur.

The following table sets forth the potential dilutive effect of the Private Offerings based on the approximate number of our shares outstanding as of the Record Date, November 23, 2010, and an adjusted per share offering price to the investors equal to $4.00 (which is the adjusted purchase price of the Private Offerings following the one for ten reverse stock split of our Common Stock effected on November 22, 2010):

Existing Shares outstanding

Newly Issued Shares

Total Shares Outstanding

Existing Share Ownership

New Share Ownership

[__]

[__]

[__]

[6.06]%

[93.94]%

Please note, Appendix B of this proxy statement includes material information regarding the financial condition and results of operation of the Company, including certain financial statements. The materials set forth in Appendix B should be read carefully in connection with your vote on Proposals 1 and 2.

PROPOSAL 1. TO APPROVE AN AMENDMENT TO OUR ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 40,000,000 TO 100,000,000.

At the Special Meeting, shareholders will be asked to consider and vote upon a proposal to amend the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock from 40,000,000 to 100,000,000. The Board of Directors has unanimously approved the amendment, and believes such action to be in the best interests of the Company and its shareholders for the reasons set forth below. The purpose of the amendment to the Articles of Incorporation is to enable shares of Common Stock to be issued in the Private Offerings and for possible future capital raising opportunities and general corporate purposes as approved by the Board of Directors.

The complete text of the form of the Amendment to the Articles of Incorporation for the increase in the number of authorized shares of Common Stock is set forth in Appendix A to this proxy statement. Such text is however subject to revision for such changes as may be required by the Oregon Secretary of State and other changes consistent with this Proposal that we may deem necessary or appropriate.

Purpose of the Increase in Number of Authorized Shares of Common Stock

Currently the Company’s Articles of Incorporation restrict equity capital issuance to a maximum of 40,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. The current amount of authorized but unissued and unreserved shares of Common Stock is insufficient to effectuate the Private Offerings. Amending the Articles of Incorporation enables the Board of Directors to issue a sufficient number of shares to complete the Private Offerings and provides approximately 52.9 million additional shares of Common Stock the Company may issue without further shareholder approvals (except as may be required in a specific case by law or NASDAQ Marketplace Rules), which provides the Company with additional shares that can be used for general corporate purposes, including the exercise of outstanding stock options, which may be deemed advisable and in the best interests of the Company and its shareholders.

The Board of Directors has unanimously determined that Proposal 1 is desirable and in the shareholders’ best interest, since it will permit us to consummate the Private Offerings, which are anticipated to provide the capital to meet the requirements of the Order.

Description of Common Stock

Our authorized capital stock currently consists of 40,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. As of the Record Date, there were [__] shares of Common Stock issued and outstanding and [__] shares of Common Stock reserved for issuance pursuant to the Company’s existing incentive plans. As of the Record Date, shares of our Common Stock that are either outstanding or reserved for issuance upon exercise of outstanding options represent approximately [__]% of the 40,000,000 authorized shares of our Common Stock. No shares of Preferred Stock are currently outstanding. Once the Private Offerings are consummated, given the per share offering price to the investors of $4.00 (which is the adjusted purchase price of the Private Offerings following the one for ten reverse stock split), the total number of issued and outstanding shares will be further increased by approximately 44,243,750 shares for a total number of outstanding shares of Common Stock of approximately [__]. Additionally, the Company may issue additional shares of Common Stock or Preferred Stock to the public or private investors for additional capital in the future and for other corporate and business purposes.

Required Vote

Assuming the existence of a quorum, the amendment to the Articles of Incorporation will be approved if the number of shares voted in favor of the Proposal to approve the amendment to the Articles of Incorporation exceeds the number of shares voted against.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” PROPOSAL 1.

PROPOSAL 2. TO APPROVE THE ISSUANCE OF UP TO $177 MILLION OF COMMON STOCK TO INVESTORS IN THE PRIVATE OFFERINGS

The Company and its Board of Directors believe it is in the best interests of the Company and its shareholders to sell up to $177 million (total gross proceeds) of shares of Common Stock to investors in the Private Offerings. Because the Company’s Common Stock is listed on the NASDAQ Capital Market, the Company is subject to NASDAQ Marketplace Rules. NASDAQ Marketplace Rule 5635(d) requires that a company listed on NASDAQ obtain shareholder approval in connection with a transaction other than a public offering involving the potential issuance of Common Stock (or securities convertible into or exercisable for Common Stock) equal to 20% or more of its Common Stock or 20% or more of its voting power outstanding before the issuance for less than the greater of book or market value of the stock as of the date of the transaction. To the extent that a NASDAQ-listed company does not obtain shareholder approval prior to such a transaction, that company may be subject to the delisting of its securities from NASDAQ. The Private Offerings will result in greater than 20% of the Company’s Common Stock being issued to private investors for less than the greater of book value or market value of our Common Stock.

Purpose and Background of Private Offerings

As previously discussed under “Background and Purpose of Proposals 1 and 2” above, the Order requires the Bank to raise additional capital so that it achieves and maintains a Tier 1 leverage ratio of at least 10% at the Bank level. The Order further requires the Bank to develop a capital plan to meet and thereafter maintain the minimum capital requirements for a “well-capitalized” bank. In addition, the Written Agreement requires the Company to develop and adopt a plan to maintain sufficient capital at the Company and the Bank. As of the date of this proxy statement, the Bank and the Company are not in compliance with certain requirements of the Order and the Written Agreement tied to or dependent upon execution of a capital raise.

On November 16, 2010, the Company announced that it had entered into the Securities Purchase Agreements, the terms and conditions of which are described under “Background and Purpose of Proposals 1 and 2” above. We intend to use the gross proceeds from the Private Offerings (estimated gross proceeds of approximately $177 million) to provide approximately $151.3 million to the Bank to support its growth and related regulatory capital needs, including the requirements of the Order and the Written Agreement, and approximately $15.3 million of the proceeds for the prepayment of the promissory notes issued pursuant to the Exchange Agreements and the payment of related fees and costs. We expect to use the remainder of the proceeds to pay expenses of the transactions, to reimburse the investors for their out-of-pocket fees and expenses and for general working capital purposes of the Company. Based on our estimates of the effects of the repurchase of the trust preferred securities and the Private Offerings, we believe that the addition of $151.3 million of capital to the Bank will enable it to meet the capital ratios required to be a “well-capitalized” institution and will allow it to achieve a Tier 1 leverage ratio in excess of 10% as required by the Order.

Effect on Currently Outstanding Common Stock

The Private Offerings will result in the investors party to the Securities Purchase Agreements collectively owning a substantial percentage of our outstanding Common Stock. Holders of our shares of Common Stock have no preemptive rights that entitle holders to purchase their pro rata shares of the Common Stock offered in the Private Offerings. Therefore, as discussed above under “Background and Purpose of Proposals 1 and 2,” the issuance of shares of our Common Stock in the Private Offerings will be significantly dilutive in voting power to our existing shareholders. In addition, the market price of our Common Stock could decline as a result of the Private Offerings due to sales of shares of our Common Stock made after such offerings, or the perception that such sales could occur.

Approvals Required

Assuming the existence of a quorum, the Private Offerings will be approved if a majority of the shares voted at the Special Meeting are voted in favor of the Proposal to approve the Private Offerings.

Pro Forma Financial Information

Basis of Presentation

The unaudited pro forma consolidated balance sheet tables and unaudited pro forma earnings per share tables presented below have been prepared by our management to illustrate the impact of the Private Offerings and consummation of the transactions contemplated by the Exchange Agreements, including payment in full of the promissory notes issued in exchange for our trust preferred securities (“TPS”) pursuant to the Exchange Agreements. The following tables present the Company’s unaudited consolidated balance sheets adjusted for the pro forma impacts of the Private Offerings and the TPS exchange transaction for the periods shown. The pro forma consolidated balance sheet as of September 30, 2010 assumes the Company completed the Private Offerings and TPS exchange transaction on September 30, 2010, which consisted of the issuance of 44,243,750 shares of Common Stock. The pro forma balance sheet adjustments reflect cash received in the Private Offerings of approximately $177.0 million, estimated direct costs of the capital raise of $10.6 million and a net increase in Common Stock of approximately $166.4 million. In addition, the pro forma balance sheet adjustments reflect cash paid of $15.3 million (which amount includes the aggregate principal amount of $13.3 million plus accrued interest, a fee of approximately $1.7 million related to the exchange of the TPS which will be paid to the holders of the TPS, and other expenses) in connection with the retirement of $68.6 million of outstanding TPS bonds, resulting in a $54.5 million pre-tax gain on the exchange transaction, $39.2 million after tax gain.

* All share and per share amounts have been adjusted to reflect the one for ten reverse stock split effective November 22, 2010.

Consolidated Balance Sheet September 30, 2010 (dollars in thousands, except per share amounts)		Actual (unaudited)		TPS / Private Offerings Adjustment				Pro Forma (unaudited)
Assets
Cash and cash equivalents		$	331,683			$	151,118				(A)			$	482,801
Investments			132,738												132,738
Loans, net of reserve for loan losses			1,225,154												1,225,154
Other assets			139,858				(2,058	)			(B)				137,800
Total assets		$	1,829,433			$	149,060							$	1,978,493
Liabilities and Shareholders' Equity
Deposits		$	1,488,848			$	—							$	1,488,848
Junior subordinated debentures			68,558				(68,558	)			(C)				—
Borrowings			236,000												236,000
Other liabilities			27,178				10,628				(D)				37,806
Total liabilities			1,820,584				(57,930	)							1,762,654
Preferred stock			—												—
Common stock, no par value			160,105				166,375				(E)				326,480
Accumulated deficit			(153,004	)			40,615				(D),(F)				(112,389	)
Accumulated other comprehensive income			1,748				—								1,748
Total shareholders's equity			8,849				206,990								215,839
Total liabilities and shareholders' equity		$	1,829,433			$	149,060							$	1,978,493
Regulatory Capital Ratios
Cascade Bancorp
Leverage Ratio			0.34	%											10.47	%
Tier 1 Capital Ratio			0.45	%											15.16	%
Total Capital Ratio			0.90	%											16.41	%
Bank of the Cascades
Leverage Ratio			3.91	%											11.13	%
Tier 1 Capital Ratio			5.24	%											16.14	%
Total Capital Ratio			6.53	%											17.39	%
Per Common Share
Common book value per share		$	3.10											$	4.50
Tangible common book value per share		$	1.30											$	4.40

Earnings Per Share

The following table presents the Company’s unaudited earnings (loss) per share adjusted for the pro forma impacts of the Private Offerings and the Company's payment-in-full of the promissory notes it will issue in exchange for the TPS pursuant to the Exchange Agreements, for the periods shown. The below pro forma consolidated earnings (loss) per share calculations assume that the Company completed the Private Offerings on September 30, 2010, which includes the issuance of 44,243,750 shares of Common Stock on September 30, 2010, and paid off the promissory notes to be issued in exchange for the TPS pursuant to the Exchange Agreements as of September 30, 2010.

* All share and per share amounts have been adjusted to reflect the one for ten reverse stock split effective November 22, 2010.

		For the Three Months Ended September 30, 2010
(dollars in thousands, except per share amounts)		Actual (unaudited)		Private Offerings Adjustment		TPS Exchange Adjustment		Pro Forma (unaudited)
Net income (loss)		$	(3,438	)						$	40,615			$	37,177
Basic earnings (loss) per common share		$	(1.23	)										$	0.79
Diluted earnings (loss) per common share		$	(1.23	)										$	0.79
Weighted average common shares outstanding			2,804,975				44,243,750								47,048,725
Common stock equivalent shares excluded due to antidilutive effect			47,684												47,684

		For the Nine Months Ended September 30, 2010
(dollars in thousands, except per share amounts)		Actual (unaudited)		Private Offerings Adjustment		TPS Exchange Adjustment		Pro Forma (unaudited)
Net income (loss)		$	(15,051	)						$	40,615			$	25,564
Basic earnings (loss) per common share		$	(5.37	)										$	1.83
Diluted earnings (loss) per common share		$	(5.37	)										$	1.83
Weighted average common shares outstanding			2,804,784				11,151,849								13,956,633
Common stock equivalent shares excluded due to antidilutive effect			48,293												48,293

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” PROPOSAL 2.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the shares of Common Stock beneficially owned as of November 8, 2010, by each director and each named executive officer, the directors and named executive officers as a group and those persons known to beneficially own more than 5% of our Common Stock. The following table gives pro forma effect to the one for ten reverse stock split effected November 22, 2010.

Listing of ownership of Cascade Bancorp Stock
Director's/Executive Officer's
November 8, 2010

Beneficial Owner’s Name		Shares of Common Stock		Nonvested Restricted Stock		Stock Options Exercisable		Shares held in 401(K) Plan		Total Shares of Common Stock Owned		Percent of Class
5% Owners:
David F. Bolger (1)			346,304				—				—				—				346,304				12.13	%
79 Chestnut Street Ridgewood, NJ 07450-2533
Valley Hospital Foundation			252,695				—				—				—				252,695				8.85	%
223 North Van Dien Avenue Ridgewood, NJ 07450
Officers and Directors:
Jerol E. Andres, Director			3,540				—				—				—				3,540				0.12	%
Gary L. Hoffman, Director			10,788				—				742				—				11,530				0.40	%
Ryan R. Patrick, Director			4,116				—				742				—				4,858				0.17	%
Judi Johansen, Director			1,605				—				—				—				1,605				0.06	%
Henry Hewitt, Director			1,138				—				—				—				1,138				0.04	%
Patricia L. Moss, Director			8,921				9,679				11,870				1,830				32,300				1.13	%
Thomas M. Wells, Director			4,179				—				—				—				4,179				0.15	%
Michael J. Delvin, Officer			1,421				4,717				3,178				741				10,057				0.35	%
Gregory D. Newton, Officer			4,582				4,903				5,349				117				14,951				0.52	%
Peggy L. Biss, Officer			4,981				4,291				4,760				1,217				15,249				0.53	%
Michael Allison, Officer			—				6,000				—				—				6,000				0.21	%
All Directors and Executive Officers as a Group (11)			45,271				29,590				26,641				3,905				105,407				3.69%

SHAREHOLDER PROPOSALS FOR 2011 ANNUAL MEETING

In order to be eligible under the SEC’s shareholder proposal rule (Rule 14a-8 promulgated under the Securities Exchange Act of 1934) for inclusion in the proxy materials of Cascade Bancorp for next year’s Annual Meeting of Shareholders, any shareholder proposal to take action at such meeting must, in addition to complying with the shareholder eligibility and other requirements of the SEC’s rules governing such proposals, be received at the Company’s main office at 1100 N.W. Wall Street, Bend, Oregon 97701 no later than November 15, 2010.

For a proper shareholder proposal submitted outside of the process provided by Rule 14a-8 to be eligible for presentation at the annual meeting, timely notice must be received by the Secretary of the Company, in writing, not less than 60 days, nor more than 90 days, before the date of the meeting (for example, for an April 25, 2011, meeting, no earlier than January 25, 2011, and not later than the close of business on February 24, 2011).

OTHER MATTERS

The Board of Directors is not aware of any business to come before the Special Meeting other than those matters described above in this proxy statement. However, if any other matters should properly come before the Special Meeting, it is intended that proxies in the accompanying form will be voted in accordance with the judgment of the person or persons voting the proxies.

By Order of the Board of Directors

Andrew J. Gerlicher
SECRETARY

Bend, Oregon
[__], 2010

Appendix A

Exhibit A
to
Articles of Amendment
of
Cascade Bancorp

Subsection (a) of Article VII shall be amended and restated in its entirety as follows:

Article VII

(a)  The Corporation is authorized to issue shares of two classes: 5,000,000 shares of Preferred Stock and 100,000,000 shares of Common Stock.

Appendix B

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 audited and unaudited consolidated financial statements and the notes thereto as of September 30, 2010 and December 31, 2009 and 2008 and for the nine-month periods ended September 30, 2010 and 2009 and each of the years in the three-year period ended December 31, 2009 included elsewhere in this proxy statement.

Cautionary Information Concerning Forward-Looking Statements

This proxy statement contains forward-looking statements, which are not historical facts and pertain to our future operating results. 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 word “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. Certain risks and uncertainties and the Company’s success in managing such risks and uncertainties may cause actual results to differ materially from those projected, including among others, the risk factors described in our Annual Report on Form 10-K/A for the year ended December 31, 2009, filed with the Securities and Exchange Commission (“SEC”) on August 23, 2010, as well as the following factors: the investment transactions described in this proxy statement may not be completed in a timely manner or at all; our inability to comply in a timely manner with the Order with the FDIC and the DFCS, under which we are currently operating, could lead to further regulatory sanctions or orders, which could further restrict our operations and negatively affect our results of operations and financial condition; local and national economic conditions could be less favorable than expected or could have a more direct and pronounced effect on us than expected and adversely affect our results of operations and financial condition; the local housing/real estate market could continue to decline for a longer period than we anticipate; the risks presented by a continued economic recession, which could continue to adversely affect credit quality, collateral values, including real estate collateral and OREO properties, investment values, liquidity and loan originations, reserves for loan losses and charge offs of loans and loan portfolio delinquency rates and may be exacerbated by our concentration of operations in the States of Oregon and Idaho generally, and the Oregon communities of Central Oregon, Northwest Oregon, Southern Oregon and the greater Boise area, specifically; interest rate changes could significantly reduce net interest income and negatively affect funding sources; competition among financial institutions could increase significantly; competition or changes in interest rates could negatively affect net interest margin, as could other factors listed from time to time in the Company’s reports filed with the SEC; the reputation of the financial services industry could further deteriorate, which could adversely affect our ability to access markets for funding and to acquire and retain customers; and existing regulatory requirements, changes in regulatory requirements and legislation and our inability to meet those requirements, including capital requirements and increases in our deposit insurance premium, could adversely affect the businesses in which we are engaged, our results of operations and financial condition.

These forward-looking statements speak only as of the date of this proxy statement. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. Readers should carefully review all disclosures filed by the Company from time to time with the SEC.

Recent Developments

The Company continues to implement the following operating plan to improve its financial condition 1) reduce loan portfolio to mitigate credit risk and conserve capital; 2) strive to maintain liquidity by sustaining core insured deposits and other funding sources; 3) reduce controllable non-interest expenses; and 4) retain

high performing employees. Because of the uncertainties of the current economic climate and other factors outside of its control, there can be no assurance that the implementation of this plan will be successful.

On April 19, 2010 the Bank received notification from the Oregon State Treasury that the Oregon Revised Statutes established a maximum aggregate balance of 100% of the Bank’s net worth for Oregon public fund deposits for banks whose regulatory capital ratios are less than that required to be categorized “adequately capitalized”. The statute does not require divestiture but restricts a bank in this circumstance from accepting additional public funds where such deposit would cause aggregate balances to exceed 100%. On September 29, 2010, the Bank received notification from the Oregon State Treasury that it had failed to comply with the statute within the 90-day period provided. Therefore, the Bank was required to reduce its aggregate Oregon Public Fund balances to a level below 100% of the Bank’s net worth by October 1, 2010. Accordingly, the Bank reduced its aggregate Oregon Public Fund balances to a level below 100% of the Bank’s net worth on October 1, 2010, achieving compliance with the statute. The Bank will continue to accept public deposits and operate in compliance with this statute.

On August 18, 2010, the Bank was sued in an asserted class action lawsuit, Russell Firkins & Rena Firkins v. Bank of the Cascades , Case No. 1:10-cv-414-BLW in the United States District Court for the District of Idaho. The lawsuit alleges that, in 2004, the Bank’s predecessor (Farmers and Merchants Bank), acting as trustee under three similar trust indentures, inappropriately disbursed the proceeds of three bond issuances, supposedly resulting years later in the bondholders’ loss of their collective investment of approximately $23.5 million. Recovery is sought on theories of breach of the indentures, breach of fiduciary duty, and conversion. The lawsuit is in its initial stages and the class has not been certified. While the outcome of this proceeding cannot be predicted with certainty, based on management’s review, management believes that the lawsuit is without merit and plans to vigorously pursue its defenses. Management also believes that if any liability were to result, it would not have a material adverse effect on the Company’s consolidated liquidity, financial condition or results of operations.

On August 3, 2010, after discussion with its outside independent accountants and financial reporting consultants, the Audit Committee of the Company concluded, based upon the findings of its bank regulatory examination and recommendation of management, that the Company’s previously issued financial statements as of and for the year ended December 31, 2009 and three month period ended March 31, 2010, as reported in the Company’s Annual Report on Form 10-K and Quarterly Report on Form 10-Q, respectively, could no longer be relied upon. This determination was made in connection with an examination by banking regulators of the Bank. The Bank regulatory examination commenced on March 15, 2010, and at the conclusion of the on-site examination of the Bank, examiners orally informed the Company that it was their opinion that the allowance for loan and lease losses (“ALLL”) was underfunded as of the subject dates. Following significant discussion and consideration, on July 29, 2010 the Bank received written specification of the required Call Report amendments. The Bank has amended its Call Report of Condition (‘Call Report’) for the subject periods, and the Company has amended its Annual Report on Form 10-K for the year ended December 31, 2009 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.

On June 16, 2010, the Company received a letter from NASDAQ advising the Company that it had not regained compliance with Rule 5550(a)(2) of the NASDAQ Marketplace Rules with respect to the minimum bid price requirement of $1.00 per share as required by the notice letter received by the Company on December 17, 2009. A NASDAQ appeal hearing was held on July 22, 2010 and on September 8, 2010 the Company was notified that the request to remain listed on the NASDAQ Stock Market was granted, subject to certain conditions. The Panel granted the full extent of its exception authority, to December 13, 2010, by which time the Company must have evidenced a closing bid price of $1.00 or more for a minimum of ten prior consecutive trading days. The shareholders of the Company have approved reverse splits of the Company’s Common Stock at various levels, up to a 1 for 10 reverse split. On November 16, 2010, the Company announced a 1 for 10 reverse stock split effective November 22, 2010, and the Company believes that implementation of the reverse split will permit the Company to regain compliance with the Rule.

Effective April 30, 2010, the Company executed an agreement to sell its mortgage servicing assets as previously discussed in the Company’s Form 10-Q/A for March 31, 2010. Going forward the Bank will not

directly service mortgage loans it originates, but rather sell originations servicing released. ‘Servicing released’ means that whoever the Bank sells the loan to will service or arrange for servicing of the loan.

Critical Accounting Policies and Accounting Estimates

The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While the Company bases estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.

The Company considers accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the Company’s financial statements. Accounting policies related to the reserve for loan losses are considered to be critical, as these policies involve considerable subjective judgment and estimation by management.

For additional information regarding critical accounting policies, refer to Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Accounting Estimates included in the Company’s Form 10-K/A for the year ended December 31, 2009.

There have been no significant changes in the Company’s application of critical accounting policies since December 31, 2009, with the exception of the Company’s reserve for credit losses as described below under “Reserve for Credit Losses”.

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 (reserve for loan losses and 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 as well as consideration of the prevailing business environment. On an ongoing basis the Company seeks to refine its methodology such that the reserve is responsive to the effect that qualitative and environmental factors have upon the loan portfolio. However, external factors and changing economic conditions may impact the portfolio and the level of reserves in ways currently unforeseen.

On August 3, 2010, the Company determined that it would restate its audited consolidated financial statements as of and for the year ended December 31, 2009. This restatement was related to an examination by banking regulators of the Bank that commenced on March 15, 2010. In connection with the examination the regulators provided additional information to the Company on July 29, 2010 which resulted in management refining and enhancing its model for calculating the reserve for loan losses by considering an expanded scope of information and augmenting the qualitative and judgmental factors used to estimate potential losses inherent in the loan portfolio. As a result of the restatement, the December 31, 2009 reserve for loan losses increased to $58.6 million from the previously reported $37.6 million. The loan loss provision for the year ended December 31, 2009 increased from $113.0 million to $134.0 million.

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 “Reserve for Credit Losses” under “Financial Condition — as of December 31, 2009” below.

Economic Conditions

The Company’s business is closely tied to the economies of Idaho and Oregon in general and is particularly affected by the economies of Central, Southern and Northwest Oregon, as well as the Greater Boise, Idaho area. The uncertain depth and duration of the present economic downturn could continue to

cause further deterioration of these local economies, resulting in an adverse effect on the Company’s financial condition and results of operations. Real estate values in these areas have declined and may continue to fall. Unemployment rates in these areas have increased significantly and could increase further. Business activity across a wide range of industries and regions has been impacted and local governments and many businesses are facing serious challenges due to the lack of consumer spending driven by elevated unemployment and uncertainty. Recently the national and regional economies and real estate price depreciation have appeared to show signs of stabilization. However, elevated unemployment and other indicators continue to suggest, as articulated by Fed Chairman Bernanke that there remains “unusual uncertainty” as to direction of the economy.

The Company’s financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the declining value of collateral securing those loans, is reflective of the business environment in the markets where the Company operates. The present significant downturn in economic activity and declining real estate values has had a direct and adverse effect on the condition and results of operations of the Company. This is particularly evident in the residential land development and residential construction segments of the Company’s loan portfolio. Developers or home builders whose cash flows are dependent on the sale of lots or completed residences have reduced ability to service their loan obligations and the market value of underlying collateral has been and continues to be adversely affected. The impact on the Company has been an elevated level of impaired loans, an associated increase in provisioning expense and charge-offs for the Company leading to a net loss in 2009 and 2008 of $114.8 million and $134.6 million, respectively. During 2010 the level of impaired loans have declined, as has the pace of charge-offs and provisioning expense leading to a net loss of $15.1 million for the nine months including a loss of $3.4 million for the quarter ended September 30, 2010. The local and regional economy also has a direct impact on the volume of bank deposits. Core deposits have declined since mid-2006 because business and retail customers have experienced a reduction in cash available to deposit in the Bank and have migrated balances to “too big to fail institutions” out of concerns for soundness of many community banks.

Highlights and Summary of Recent Performance —  Third Quarter of 2010

Third Quarter Performance :

The Company had a net loss of ($0.12) per share or ($3.4 million) for the third quarter 2010, compared to ($0.01) per share or ($0.3 million) for the linked-quarter. The loss primarily resulted from lower net interest income of $1.1 million as compared to the linked-quarter and a tax adjustment of $1.1 million. Reserve for credit losses was approximately $52.5 million or 4.11% of gross loans compared to approximately $59.3 million or 3.83% at December 31, 2009 (as amended). NPA’s decreased to $129.5 million compared to

$140.1 million for the linked-quarter and delinquent loans decreased to 0.48% of gross loans compared to 0.75% for the linked-quarter and 0.65% at December 31, 2009. Net charge-offs were $9.2 million for the third quarter of 2010 up from $4.9 million for the linked-quarter, mainly due to the linked-quarter included $5.1 million in recoveries as compared to the current quarters recoveries of $0.6 million. Net interest income was lower for the third quarter of 2010 primarily due to reduced interest and loan fee income related to the decline in earning loan volumes. Non-interest income decreased $0.8 million during the third quarter of 2010 when compared to the linked-quarter mainly due to a gain on sales of investment securities of $.6 million recorded in the linked-quarter. When compared to the year-ago period non-interest income was down $5.1 million primarily due to a one-time $3.2 million gain recorded on the sale of the Bank’s credit card merchant business recorded in the year-ago period.

Compared to the linked-quarter, non-interest expense was down by $1.0 million or 5.5% because of lower FDIC and OREO related expenses. In addition, salaries and benefits cost were down $0.5 million or 6.5% from the prior quarter. As compared to the year-ago quarter, noninterest expenses were down by $8.5 million primarily due to decreases in OREO expenses of $6.1 million, salary expenses of $1.1 million and other expenses of $1.1 million for the quarter compared to the year-ago quarter.

At September 30, 2010, Cascade’s loan portfolio was approximately $1.3 billion, down $72.2 million and $399.1 million when compared to the linked-quarter and a year-ago, respectively. Loans have declined primarily due to loan payoffs, reduced demand owing to economic contraction, an increase in loan charge-offs and management’s strategic loan reduction program to mitigate credit risk and preserve capital.

Total deposits at September 30, 2010, were $1.5 billion, down $354.1 million or 19.2% compared to the year-ago quarter mainly as a result of decreases in interest bearing demand and demand deposits.

The NIM was 3.51% for the third quarter of 2010 compared to 3.60% for the linked-quarter and 3.13% for the year-ago period. The linked-quarter decline was mainly due to decreases in loans fees and lower rates on short term interest bearing deposits. Interest bearing deposits (including FRB) held for liquidity purposes totaled $302.8 million or approximately 17% of total assets at September 30, 2010 compared to $319.6 million at December 31, 2009. During the quarter interest bearing funds held at FRB had the effect of lowering the Company’s NIM by approximately 52 basis points because such assets presently earn a low overnight rate of 0.25% which is below the average cost of funds. The Company is required to hold liquid funds per the terms of the Order. In addition, the NIM for this quarter was affected by approximately 7 basis points due to interest reversals on loans placed into a non-performing status.

At September 30, 2010, the Bank’s Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios were 3.91%, 5.24% and 6.53%, respectively, relatively stable compared to the linked-quarter. However, they do not meet regulatory benchmarks for “adequately-capitalized.” Regulatory benchmarks for an “adequately-capitalized” designation are 4%, 4% and 8% for Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital, respectively; “well-capitalized” benchmarks are 5%, 6%, and 10% for Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital, respectively. However, pursuant to the Order, the Bank is required to maintain a Tier 1 leverage ratio of at least 10% to be considered “well-capitalized” Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios at the Company level are lower than those at the Bank, primarily because holding company ratios disallow inclusion of trust preferred debentures which qualify as capital at the Bank itself. Accordingly, the Company’s Tier 1 leverage, Tier risk-based and total risk-based capital ratios were 0.34%, 0.45% and 0.90%, respectively as of September 30, 2010.

Loan portfolio and credit quality

At September 30, 2010, Cascade’s loan portfolio was approximately $1.3 billion, down $72.2 million and $399.1 million when compared to the linked-quarter and a year-ago, respectively. Loans have declined primarily due to loan payoffs, reduced demand owing to economic contraction, an increase in loan charge-offs and management’s strategic loan reduction program which has resulted in lower loan portfolio risk exposure and helped to support regulatory capital ratios. The loan reduction plan has included select loan sales and loan participations as well as non-renewal of mainly transaction only loans where the Company does not consider itself to be the customer’s primary bank based upon the overall balance of its banking and deposit relationship with the customer.

Commercial Real Estate (“CRE”) and Commercial and Industrial (“C&I”) loan portfolios continue to perform in a satisfactory manner given the adverse economic climate. At September 30, 2010, total loans delinquent greater than 30 days were at 0.48% of total loans compared to 0.65% at December 31, 2009. CRE and C&I portfolios at September 30, 2010 were 0.22% and 0.14%, respectively. CRE and C&I delinquencies were 0.11% and 0.18% at December 31, 2009. CRE loans represent the largest portion of Cascade’s portfolio at 53% of total loans and the C&I loans represent 24% of total loans. Credit quality challenges have been centered in the Bank’s residential land development and construction portfolios. Ongoing favorable CRE and C&I credit metrics is attributable to the Company’s underwriting disciplines including guarantor support and secondary sources, as well as its granularity and our avoidance of conduit type lending. However, due to the current economic challenges no assurance can be given that the favorable delinquency rates for CRE and C&I portfolios will continue.

At September 30, 2010, NPA’s were $129.6 million, or 7.1% of total assets compared to $161.0 million or 7.4% of total assets at December 31, 2009. Because of the uncertain real estate market, no assurances can be given as to the timing of ultimate disposition of these NPA’s or that the sale price will be at or above carrying fair value. The orderly resolution of non-performing loans and OREO properties is a priority for management. In the past several quarters the Bank has been able to sell certain OREO properties and non performing loans to investors at or near their carrying value. Carrying values reflect write-downs and charge off amounts previously taken on such assets. However, future sales are subject to uncertainty because of the volatility of property value prices with respect to distressed assets.

At September 30, 2010, the total reserve for credit losses was $52.5 million or 4.11% of total loans compared to $59.3 million or 3.83% at December 31, 2009. Management believes the reserve for credit losses is at an appropriate level based on evaluation and analysis of portfolio credit quality in conjunction with prevailing economic conditions and estimated fair values of collateral supporting non performing loans. The reserve includes approximately $6.9 million or 13.2% in unallocated reserves which reflects qualitative risk factors such as level and trend of charge-off and recoveries; level and trend in delinquencies, nonaccrual loans and impaired loans; and experience, ability, and depth of lending management staff, economic conditions, risk identification practices, loan review influence, loan trends, effects of underwriting practices and changes in policy. With uncertainty as to the depth and duration of the real estate slowdown and its economic effect on the communities within the Bank’s banking markets, we can give no assurances that the reserve will be adequate in future periods or that the level of NPA’s will not increase. Further provisioning and charge-offs may be required before values stabilize. In addition, the level of reserve for loan losses is subject to review by the Bank’s regulatory authorities who may require adjustments to the reserve based on their evaluation of the information available.

Since a significant portion of the Bank’s loans are collateralized by real estate, the Bank primarily measures impairment of such loans based on the estimated fair value of’ the underlying real estate collateral. OREO is carried at the lower of cost or estimated net realizable value, which is also based on the estimated fair value of the related real estate property. The valuation of real estate collateral and OREO is subjective in nature and may be adjusted in the future because of changes in economic conditions. The valuation of real estate collateral and OREO is also subject to review by Federal and State bank regulatory authorities who may require increases or decreases to carrying amounts based on their evaluation of the information available to them at the time of their examinations of the Bank, in addition to State banking regulations which require periodic mandatory write-downs of OREO. Management considers third-party appraisals, as well as independent fair market value assessments from realtors or persons involved in selling real estate and OREO, in determining the estimated fair value of particular properties. In addition, as certain of these third-party appraisals and independent fair market value assessments are only updated on an annual basis, changes in the values of specific properties may have occurred subsequent to the most recent appraisals. Accordingly, the amounts of any such potential changes — and any related adjustments — are generally recorded at the time such information is received.

Deposits

Total deposits at September 30, 2010, were $1.5 billion, down $87.2 million or 5.5% from the linked-quarter and down $354.1 million or 19.2% compared to the year-ago quarter. In general, deposit balances have declined due to the combination of adverse customer effects of current economic conditions and

some migration to too-big-to-fail banks due to uncertainty. Linked-quarter declines were primarily in interest bearing demand (NOW) accounts totaling $59.9 million resulting from the Bank’s active reduction of Oregon public funds.

To provide ongoing customer assurance, nearly 100% of the Bank’s deposits are covered by FDIC insurance and the Company is participating in the FDIC’s TAG program. In that regard, effective July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed and FDIC deposit-insurance has been permanently increased to $250,000 effective immediately. The Transaction Guarantee Program (TAG) has been extended to December 31, 2012. The TAG program currently provides unlimited FDIC insurance for non-interest bearing accounts, IOLTAs, and interest-bearing checking accounts with an interest rate of .25 or less, this coverage is separate and in addition to the general limit. Effective December 31, 2010, the TAG program will no longer include or provide unlimited insurance for low-interest NOW accounts or IOLTAs (0.25 interest rate or less). These accounts will be subject to the standard $250,000 coverage.

Consistent with the terms of the Order the Company has reduced its brokered deposits to a negligible level. The Bank’s internet listing service deposits at September 30, 2010 were approximately $283.3 million, an increase of $88.2 million or 45.2% since December 31, 2009 and an increase of $72.2 million from a year-ago. Such deposits are sourced by posting time deposit rates on an internet site where institutions seeking to deploy funds contact the Bank directly to open a deposit account.

RESULTS OF OPERATIONS —  Nine Months and Three Months ended September 30, 2010 and 2009

Income Statement Overview

Net Loss

For the nine month and three month periods ended September 30, 2010, Cascade reported a net loss of ($15.1 million) or ($0.54) per share and a net loss of ($3.4 million) or ($0.12) per share, respectively. These losses are significantly lower than the same period in the prior year due to reduced loan loss provision and other credit quality related expenses. Net interest income was down $8.8 million for the nine months and down $2.4 million for the quarter ended September 30, 2010, as compared to the same periods in the prior year, mainly due to lower loan balances and interest foregone on non performing loans. Non-interest income was down 45.0% and 63.4%, respectively, for the nine month and three month periods ended September 30, 2010 primarily due to decreases in all categories with the larger decreases in mortgage revenue and service charges. In addition, the prior year periods included a one-time gain on the sale of business merchant services of $3.2 million. Non-interest expenses are down for the periods presented primarily due to a reduction OREO related expenses as well as decreases in staffing expenses.

Net Interest Income/Net Interest Margin

Net interest income was lower on linked-quarter basis due to lower earning assets and reduced deposit balances. The NIM was 3.51% for the third quarter of 2010 compared to 3.60% for the linked-quarter and 3.13% for the year-ago period. The linked-quarter decline was mainly due to decreases in loans fees and lower rates on short term interest bearing deposits (including FRB balances held for liquidity purposes). The overall cost of funds was down to 1.24% for the quarter ended September 30, 2010 compared to 1.55% for the year-ago quarter. Interest bearing balances held for liquidity purposes with the Federal Reserve Bank reduced the margin by approximately 52 basis points because earnings were below cost of funds. In addition, the NIM for the quarter ended September 30, 2010 was affected by approximately 7 basis points due to interest reversals on loans placed into a non-performing status.

Yields on earning assets during the third quarter of 2010 were 4.86% compared to 4.97% for the linked-quarter and 4.72% for the third quarter of 2009. The decline in yields is mainly a result of declining market rates as well as the effect of interest forgone and reversed on non-performing loans. The average rate paid on interest bearing liabilities for the quarter ended September 30, 2010 was 1.52% compared to 1.55% for the linked-quarter and 1.91% for the third quarter of 2009.

Components of Net Interest Margin

The following table sets forth for the quarters ended September 30, 2010 and 2009 information with regard to average balances of assets and liabilities, as well as total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities, resultant average yields or rates, net interest income, net interest spread and net interest margin for the Company (dollars in thousands):

		Quarter ended September 30, 2010		Quarter ended September 30, 2009
		Average Balance		Interest Income/ Expense		Average Yield or Rates		Average Balance		Interest Income/ Expense		Average Yield or Rates
Assets
Taxable securities		$	123,365			$	1,288				4.14	%		$	101,558			$	1,229				4.80	%
Non-taxable securities			1,807				17				3.73	%			3,566				34				3.78	%
Interest bearing balances due from other banks			227,726				139				0.24	%			347,880				219				0.25	%
Federal funds sold			3,014				1				0.13	%			3,919				1				0.10	%
Federal Home Loan Bank stock			10,472				—				0.00	%			10,472				—				0.00	%
Loans (1) (2) (3)			1,317,509				19,185				5.78	%			1,734,611				24,608				5.63	%
Total earning assets/interest income			1,683,893				20,630				4.86	%			2,202,006				26,091				4.70	%
Reserve for loan losses			(56,253	)											(58,589	)
Cash and due from banks			95,606												40,790
Premises and equipment, net			36,104												38,492
Bank-owned life insurance			33,637												33,615
Accrued interest and other assets			75,306												110,247
Total assets		$	1,868,293											$	2,366,561
Liabilities and Stockholders’ Equity
Interest bearing demand deposits		$	638,025				1,101				0.68	%		$	756,852				1,891				0.99	%
Savings deposits			31,053				22				0.28	%			33,433				18				0.21	%
Time deposits			528,571				2,789				2.09	%			729,951				4,647				2.53	%
Other borrowings			302,500				1,827				2.40	%			314,801				2,261				2.85	%
Total interest bearing liabilities/interest expense			1,500,149				5,739				1.52	%			1,835,037				8,817				1.91	%
Demand deposits			328,130												415,544
Other liabilities			27,571												12,560
Total liabilities			1,855,850												2,263,141
Stockholders’ equity			12,443												103,420
Total liabilities and stockholders’ equity		$	1,868,293											$	2,366,561
Net interest income						$	14,891											$	17,274
Net interest spread											3.34	%											2.79	%
Net interest income to earning assets											3.51	%											3.11	%

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 quarter ended September 30, 2010, and attributes such variance to “volume” or “rate” changes. Variances that were immaterial have been allocated equally between rate and volume categories (dollars in thousands):

		Quarter ended September 30, 2010 vs. 2009
		Total		Volume		Rate
Interest income:
Interest and fees on loans		$	(5,528	)		$	(5,942	)		$	414
Investments and other			(51	)			160				(211	)
Total interest income			(5,579	)			(5,782	)			203
Interest expense:
Interest bearing demand			(790	)			(297	)			(493	)
Savings			5				(1	)			6
Time deposits			(1,858	)			(1,297	)			(561	)
Other borrowings			(435	)			(99	)			(336	)
Total interest expense			(3,078	)			(1,694	)			(1,384	)
Net interest income		$	(2,501	)		$	(4,088	)		$	1,587

Loan Loss Provision

The loan loss provision for the nine months ended September 30, 2010 was $19.0 million and for the quarter ended September 30, 2010 was $3.0 million, as compared to $85.0 million and $22.0 million for the nine-month and three-month periods, respectively, a year ago. The decreases in 2010 were primarily due to stabilizing credit quality profile and lower absolute and relative charge-offs than in the prior periods. Last year the Company’s adverse trend in NPA’s peaked in March 2009. Since that time both the frequency and severity of charge-offs has abated somewhat.

As of September 30, 2010, the Bank is maintaining its level of reserves for credit losses (reserve for loan losses and loan commitments) of approximately $52 million or 4.11% of gross loans, down slightly from 4.28% for the linked-quarter, but comparable to the balance of reserves for the amended periods of December 31, 2009 and March 31, 2010 of 3.83% and 4.16%, respectively. In addition, the Bank has maintained solid levels of pooled and unallocated reserves in consideration of qualitative factors including the continued uncertainty of the economic environment. The level of reserve for loan losses 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 — Reserve for Credit Losses” above and “Loan Portfolio and Credit Quality” under “Financial Condition — As of December 31, 2009” below. There can be no assurance that the reserve for credit losses will be sufficient to cover actual loan related losses. See the risk factors described in our Annual Report on Form 10-K/A for the year ended December 31, 2009, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above, and elsewhere in this proxy statement.

Non-Interest Income

Non-interest income as reported for the nine and three months ended September 30, 2010, decreased 45.0% and 63.4%, respectively, compared to the year ago periods. However, the prior year periods included a one-time gain on the sale of business merchant services of $3.2 million and when adjusted out the decreases in non-interest income for the nine months and three months ended September 30, 2010 are 33.0% and 38.8%, respectively. The adjusted decreases are generally a function of slowing economic activity affecting service charge revenue, net mortgage revenue and a decrease in card issuer and merchant services fees. Service charges were down $1.6 million and $0.8 million for the nine-month and three-month periods primarily due to less usage of overdraft protection while net mortgage revenue was off $2.3 million year-to-date due to a decrease in mortgage originations of 86.3% compared to the same period in 2009.

Non-Interest Expense

Non-interest expense decreased 19.1% and 33.2% for the nine and three months ended September 30, 2010, respectively. The 2010 decreases are primarily due to a reduction in salaries and employee benefits expense of 12.0% year-to-date and lower costs and valuation adjustments to OREO for both the nine month and three month periods of 2010 compared to the same periods a year ago. OREO costs for the nine months ended September 30, 2010 were $5.2 million compared to $6.7 million for the year-ago period.

Income Taxes

During the three months ended September 30, 2010 the IRS commenced a required examination of the Company’s 2009 tax year and December 31, 2009 income tax receivable of $43.3 million. In connection therewith and in completion of the 2009 income tax examination, the Company settled with the IRS’ field examiner and recorded a provision for income taxes of $1.1 million for the three months ended September 30, 2010. The provision for income taxes of $0.5 million for the nine months ended September 30, 2010 also reflects adjustments to the 2009 income tax receivable. During the three month and nine month periods ended September 30, 2009, the Company recorded income tax benefits of $9,744 and $31,367, respectively, as management believed at that time that it was more likely than not that such benefits would be received. Effective December 31, 2009, management determined that there should be a 100% valuation allowance against the Company’s net deferred tax assets.

As of September 30, 2010, the Company maintained a valuation allowance of $37.4 million against the deferred tax asset balance of $36.3 million, for a net deferred tax credit of $1.1 million. This amount represented a $0.1 million increase from year-end 2009 due to an increase in gross unrealized gains in the Company’s investment portfolio during the nine months ended September 30, 2010. The Company’s future net deferred tax asset or liability will continue to be impacted by changes in the gross unrealized gains/losses on the Company’s investment portfolio. For discussion of the Company’s deferred income tax assets see “Critical Accounting Policies — Deferred Income Taxes” included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2009.

Results of Operations — Years ended December 31, 2009, 2008 and 2007

Net Income/Loss

The Company recorded a net loss of ($114.8) million (or $4.10) per share in 2009 compared to a net loss of ($134.6) million or ($4.82) per share for 2008 and net income of $30.0 million in 2007 or $1.05 per share. The loss in 2009 primarily resulted from a decrease in net interest income of $22.7 million, $134.0 million loan loss provision, a valuation allowance against our deferred tax assets of $35.5 million, and OREO expenses of $23.1 million. The loss in 2008 mainly resulted from the Company’s non-cash impairment of goodwill in the amount of $105.0 million, a $99.6 million loan loss provision as well as a decrease in net interest income of $13.1 million.

Net Interest Income/Net Interest Margin

For most financial institutions, including the Company, the primary component of earnings is net interest income. Net interest income is the difference between interest income earned, principally from loans and investment securities portfolio, and interest paid, principally on customer deposits and borrowings. Changes in net interest income typically result from changes in volume, spread and margin. Volume refers to the dollar level of interest-earning assets and interest-bearing liabilities. Spread refers to the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities. Margin refers to net interest income divided by interest-earning assets and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities.

Total interest income decreased approximately $31.0 million (or 22.5%) for 2009 due mainly to lower average earning assets and interest reversals and interest foregone on non-performing loans. In 2008 interest income was down by $33.5 million (or 19.5%) as compared to 2007 primarily because of lower average yields, including interest reversed, and interest foregone on non-performing loans. Total interest expense declined by approximately $8.2 million (or 19.4%) for 2009 primarily due to lower rates. Interest expense dropped $20.4 million (or 32.4%) for 2008 as compared to 2007 as a result of lower rates and reduced

volumes of interest bearing deposits and borrowings. Accordingly, net interest income decreased to $72.7 million or 23.8% in 2009 over 2008. Net interest income decreased $13.1 million or 12.1% in 2008 over 2007. Yields earned on assets decreased to 5.03% for 2009 as compared to 6.40% in 2008 and 8.21% in 2007. Meanwhile, the average rates paid on interest bearing liabilities for 2009 decreased to 1.93% compared to 2.49% in 2008 and 4.01% in 2007.

The Company’s net interest margin (NIM) decreased to 3.43% for 2009 as compared to 4.44% for 2008. Three factors contributed to the lower NIM for the year ended December 31, 2009, including interest forgone and reversed on NPA’s, an elevated level of assets held at the FRB for contingent liquidity purposes, lower average customer balances in non-interest bearing deposit accounts, and the effect of lower market interest rates on the Company’s asset and liability mix. The margin can also be affected by factors beyond market interest rates, including loan or deposit volume shifts and/or aggressive rate offerings by competitor institutions. The Company’s financial model indicates a relatively stable interest rate risk profile within a reasonable range of rate movements around the forward rates currently predicted by financial markets.

Components of Net Interest Margin

The following table presents further analysis of the components of Cascade’s net interest margin and sets forth for 2009, 2008, and 2007 information with regard to average balances of assets and liabilities, as well as total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities, resultant average yields or rates, net interest income, net interest spread, net interest margin and the ratio of average interest-earning assets to average interest-bearing liabilities for the Company:

		Year ended December 31, 2009		Year ended December 31, 2008		Year ended December 31, 2007
(dollars in thousands)		Average Balance		Interest Income/ Expense		Average Yield or Rates		Average Balance		Interest Income/ Expense		Average Yield or Rates		Average Balance		Interest Income/ Expense		Average Yield or Rates
Assets			(Restated)
Taxable securities		$	101,033			$	5,085				5.03	%		$	85,034			$	4,462				5.25	%		$	93,793			$	5,259				5.61	%
Non-taxable securities (1)			3,643				186				5.11	%			5,211				255				4.89	%			7,952				283				3.56	%
Interest bearing balances due from FRB and FHLB			209,451				486				0.23	%			13				—				0.00	%			3,735				195				5.22	%
Federal funds sold			7,454				17				0.23	%			2,026				31				1.53	%			3,910				187				4.78	%
Federal Home Loan Bank stock			10,472				—				0.00	%			11,458				111				0.97	%			6,991				42				0.60	%
Loans (1) (2) (3) (4)			1,798,723				101,507				5.64	%			2,054,199				133,346				6.49	%			1,974,435				165,690				8.39	%
Total earning assets			2,130,776				107,281				5.03	%			2,157,941				138,205				6.40	%			2,090,816				171,656				8.21	%
Reserve for loan losses			(57,268	)											(38,827	)											(24,498	)
Cash and due from banks			37,836												48,341												55,427
Premises and equipment, net			38,805												37,273												38,307
Other Assets			145,440												207,094												178,682
Total assets		$	2,295,589											$	2,411,822											$	2,338,734
Liabilities and Stockholders’ Equity
Int. bearing demand deposits		$	735,667				7,267				0.99	%		$	844,136				15,540				1.84	%		$	889,069				30,727				3.46	%
Savings deposits			33,275				73				0.22	%			36,761				135				0.37	%			41,327				202				0.49	%
Time deposits			688,430				17,915				2.60	%			386,990				12,850				3.32	%			340,324				15,804				4.64	%
Other borrowings			312,301				8,880				2.84	%			434,112				13,846				3.19	%			294,854				15,991				5.42	%
Total interest bearing liabilities			1,769,673				34,135				1.93	%			1,701,999				42,371				2.49	%			1,565,574				62,724				4.01	%
Demand deposits			407,344												407,980												469,015
Other liabilities			8,659												20,904												29,590
Total liabilities			2,185,676												2,130,883												2,064,179
Stockholders’ equity			109,913												280,939												274,555
Total liabilities & equity		$	2,295,589											$	2,411,822											$	2,338,734
Net interest income						$	73,146											$	95,834											$	108,932
Net interest spread											3.11	%											3.92	%											4.20	%
Net interest income to earning assets											3.43	%											4.44	%											5.23	%

Changes in Interest Income and Expense

The following table shows the dollar amount of the increase (decrease) in the Company’s consolidated interest income and expense, and attributes such variance to “volume” or “rate” changes. Variances that were immaterial have been allocated equally between rate and volume categories:

		Year ended December 31,
		2009 over 2008		2008 over 2007
		Total Increase (Decrease)		Amount of Change Attributed to		Total Increase (Decrease)		Amount of Change Attributed to
(dollars in thousands)		Volume		Rate		Volume		Rate
Interest income:
Interest and fees on loans		$	(31,839	)		$	(16,584	)		$	(15,255	)		$	(32,344	)		$	6,694			$	(39,038	)
Taxable securities			627				840				(213	)			(797	)			(491	)			(306	)
Non-taxable securities			(69	)			(77	)			8				(28	)			(98	)			70
Interest bearing balances due from FRB and FHLB			482				0				482				(195	)			(194	)			(1	)
Federal Home Loan Bank stock			(111	)			(10	)			(101	)			69				27				42
Federal funds sold			(14	)			83				(97	)			(156	)			(90	)			(66	)
Total interest income			(30,924	)			(15,748	)			(15,176	)			(33,451	)			5,848				(39,299	)
Interest expense:
Interest on deposits:
Interest bearing demand			(8,273	)			(1,997	)			(6,276	)			(15,187	)			(1,553	)			(13,634	)
Savings			(62	)			(13	)			(49	)			(67	)			(22	)			(45	)
Time			5,065				10,009				(4,944	)			(2,954	)			2,167				(5,121	)
Other borrowings			(4,966	)			(3,885	)			(1,081	)			(2,145	)			7,552				(9,697	)
Total interest expense			(8,236	)			4,114				(12,350	)			(20,353	)			8,144				(28,497	)
Net interest income		$	(22,688	)		$	(19,862	)		$	(2,826	)		$	(13,098	)		$	(2,296	)		$	(10,802	)

Loan Loss Provision

At December 31, 2009, the reserve for credit losses (reserve for loan losses and reserve for unfunded commitments) was 3.83% of outstanding loans, as compared to 2.46% for 2008 and 1.81% in 2007. The loan loss provision was $134.0 million in 2009, $99.6 million in 2008 and $19.4 million in 2007. Provision expense is determined by the Company’s ongoing analytical and evaluative assessment of the adequacy of the reserve for credit losses. At December 31, 2009, management believes that its reserve for credit losses is at an appropriate level under current circumstances and prevailing economic conditions. For further discussion, see “Reserve for Credit Losses” below. There can be no assurance that the reserve for credit losses will be sufficient to cover actual loan related losses or that additional provision expense will not be required should economic conditions remain adverse. See the risk factors described in our Annual Report on Form 10-K/A for the year ended December 31, 2009, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above, and elsewhere in this proxy statement.

Non-interest Income

Total non-interest income decreased 8.1% in 2009 compared to 2008 after excluding the one-time gain of $3.2 million on the sale of the merchant card processing business. Service charges on deposit accounts were down $1.3 million, card issuer and merchant service fees were down $0.7 million and earnings on bank-owned life insurance was down $0.2 million. These decreases were partially offset by increases in mortgage banking income, gains on sales of investment securities available-for-sale and other income. Non-interest income decreased 5.8% in 2008 compared to 2007 mainly due to earnings on bank-owned life insurance resulting from lowered investment returns in the volatile securities markets that persisted in 2008.

Mortgage Banking Income — Home Mortgage Originations and Mortgage Related Revenue

The Company provides residential mortgage services on a direct to customer basis and does no business through third party (brokerage) channels. The Company has focused its originations in conventional mortgage products while avoiding sub-prime/option-ARM type products. The low delinquency rate within the Company’s loan servicing portfolio underscores this long-held discipline in mortgage origination. At December 31, 2009, the portfolio contained about 3,750 mortgage loans totaling $543 million with a delinquency rate of loans past due >30 days of only 2.58%, notably below the Mortgage Bankers Association (MBA) national mortgage delinquency rate of 14.41% at September 30, 2009.

Residential mortgage originations totaled $177.2 million in 2009, up 45.4% when compared to $121.7 million in 2008. Related net mortgage revenue was $2.8 million, an increase of 34.6% compared to $2.1 million for the previous year. Non-Interest income arising from mortgage servicing totaled approximately $2.7 million in 2007. The general level and direction of interest rates directly influence the volume and profitability of the yield curve in mortgage banking. A lower interest rate climate continued in 2009 and 2008 which had the affect of decreasing the profitability of mortgage banking due to a lower interest rate yield curve.

Historically, the Company sold a predominant portion of its residential mortgage loans to Fannie Mae, a U.S. Government sponsored enterprise and other secondary market investors. The Company services such loans for Fannie Mae and is paid approximately .25% per annum on the outstanding balances for providing this service. Such revenues are included in the above mortgage banking results. Mortgages serviced for Fannie Mae totaled $542.9 million at December 31, 2009, an increase over $512.2 million at December 31, 2008 and an increase over $494.0 million at December 31, 2007. The related Mortgage Servicing Rights (MSRs) were approximately $3.9 million in 2009 and $3.6 million in 2008.

As described in our Annual Report on Form 10-K/A for the year ended December 31, 2009 under “Recent Developments”, the Bank received a letter from FNMA advising that the Bank failed to meet FNMA’s minimum required Total Risk Based Capital ratio of 10% as of September 30, 2009. The letter stated that the Bank was being suspended as a Fannie Mae Seller/Servicer effective immediately. It was noted that failure to meet applicable standards would result in termination of the Bank’s Selling and Servicing Contract. As of December 31, 2009, and through the date of this report, the Bank does not meet FNMA’s minimum financial standards. As a result, the Company may not sell mortgage loans to FNMA and FNMA may terminate its agreement to allow the Company to service FNMA loans in the future. Mortgage loans not sold to the Federal National Mortgage Association (“Fannie Mae” or “FNMA”), are generally sold servicing released to other secondary market investors. Loans sold on this basis generate no future servicing fees for the Company.

The estimated fair value of mortgage servicing rights (“MSR”) portfolio is estimated to exceed book value by amounts ranging from $0.8 million to $1.9 million. The Company capitalizes the estimated market value of MSRs into income upon the sale of each originated mortgage loan. The Company amortizes MSRs in proportion to the servicing income it receives from Fannie Mae over the estimated life of the underlying mortgages, considering prepayment expectations and refinancing patterns. In addition, the Company amortizes, in full, any remaining MSRs balance that is specifically associated with a serviced loan that is refinanced or paid-off. At December 31, 2009, expressed as a percentage of loans serviced, the book value of MSR was .73% of serviced mortgage loans, while fair value was approximately .97% of serviced mortgages. Fair value as a percentage of loans serviced was estimated at .89% a year earlier.

Effective April 30, 2010, the Company executed an agreement to sell its mortgage servicing assets. See “Recent Developments” above.

Non-interest Expenses

Non-interest expense for 2009 decreased 45.5% to $94.7 million as compared to 2008. After adjusting for the non-cash goodwill impairment charge recorded in 2008, non-interest expense for 2009 increased $26.1 million or 38.0%. The increases in 2009 are attributable to increases in OREO related costs, FDIC insurance, and other professional services, partially offset by a reduction in salaries and employee benefits expense.

OREO expenses were $23.1 million in 2009 compared to $8.4 million in 2008 and were only $0.1 million in 2007. OREO costs and valuation adjustments increased $14.7 million for 2009 compared to 2008, primarily due to depressed real estate values on foreclosed land development properties. In addition, FDIC deposit insurance assessments increased $5.2 million or 305.7% in 2009 when compared to 2008, reflecting the FDIC’s higher base assessment rate for 2009 and expenses related to the FDIC’s industry-wide emergency special assessment in the second quarter. FDIC premiums have increased due to the rise in financial institution failures in 2008 and 2009, the Company’s voluntary participation in the Temporary Liquidity Guarantee Program and the FDIC’s rates applicable to banks in the Company’s regulatory classification. Professional fees increased $4.5 million or 175.3% which includes legal, accounting and other professional services in connection with the Company’s efforts to raise capital in the fourth quarter of 2009. Meanwhile, the Company continued to see a reduction in salary expenses, and employee benefits expenses declined as staffing continues to be trimmed in response to the slowing economy, no executive bonuses were paid in 2008, or 2009. Total non-interest expense for 2008 increased 177.5% to $173.7 million as compared to 2007 primarily due to the noncash after-tax goodwill impairment charge and expenses related to the Company’s OREO properties. Human resource costs were down in 2008 compared to 2007 as executive bonuses were foregone in both 2007 and 2008.The Company’s efficiency ratio was 99.9% in 2009 compared to 150.6% in 2008.

Income Taxes

As of December 31, 2009, the Company had recorded refundable income taxes receivable of approximately $43.3 million related to the carryback of operating losses to prior years and had provided a $35.5 million charge to create a full valuation allowance against its deferred tax assets. For discussion of the Company’s deferred income tax assets see “Critical Accounting Policies — Deferred Income Taxes” in our Annual Report on Form 10-K/A for the year ended December 31, 2009.

Financial Condition — As of September 30, 2010

Balance Sheet Overview

As compared to year-end 2009 total assets have declined to $1.8 billion at September 30, 2010 mainly because of continued reduction in loan portfolio. Total deposits are similarly lower due to the combination of adverse customer effects of current economic conditions and some migration to too-big-to-fail banks due to uncertainty. Time deposits are down mainly as a result of a decrease in brokered deposits of $116.5 million since year-end that have been partially offset with an increase in internet deposits. Cash and cash equivalents were $331.7 million or 18.1% of total assets at September 30, 20109. Total loans have been reduced by $271.0 million as compared to year-end 2009. The reduction in loan balances has resulted in lower credit risk exposure and has helped to support the Bank’s regulatory capital ratios. Net charge-offs of $26.1 million for the nine months ended September 30, 2010, also contributed to the overall reduction in loan balances.

The Company had no material off balance sheet derivative financial instruments as of September 30, 2010 and December 31, 2009.

Off-Balance Sheet Arrangements

A summary of the Bank’s off-balance sheet commitments at September 30, 2010 and December 31, 2009 is included in the following table (dollars in thousands):

		September 30, 2010		December 31, 2009
Commitments to extend credit		$	177,888			$	253,362
Commitments under credit card lines of credit			26,325				28,455
Standby letters of credit			3,384				6,932
Total off-balance sheet financial instruments		$	207,597			$	288,749

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the 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 related standards and underwriting practices in evaluating the creditworthiness of such obligors. The amount of collateral obtained, if it is deemed necessary by the Bank upon the extension of credit, is based on management’s credit evaluation of the counterparty.

The Bank typically does not obtain collateral related to credit card commitments. Collateral held for other commitments varies but may include accounts receivable, inventory, property and equipment, residential real estate and income-producing commercial properties.

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.

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.

Stockholder’s Equity

The Company’s total stockholders’ equity at September 30, 2010 was $8.8 million, a decrease of $14.5 million from December 31, 2009. The decrease primarily resulted from a net loss for the nine months ended September 30, 2010.

Financial Condition — As of December 31, 2009

Balance Sheet Overview

At December 31, 2009 total assets were down 4.7% to $2.17 billion compared to year-end 2008. Cash and cash equivalents increased $310.4 million or 14.3% of total assets at December 31, 2009 compared to a negligible percentage at year-end 2008. Total loans have been reduced by $408.5 million to $1.5 billion at December 31, 2009 compared to $1.9 billion at year-end 2008, primarily due to initiative to reduce loans to customers where deposit relationships are not a meaningful part of the overall banking relationship. A portion of the reduction in loan balances was the result of net loan charge-offs of $122.6 million for 2009. The reduction in loan balances has resulted in lower credit risk exposure and has helped to support the Bank’s regulatory capital ratios.

Funding sources have increased in 2009, including TLGP debt issuance and internet listing service deposits. These increases also offset reduced core deposits that have trended down due to the ongoing effects of an adverse economy on local markets. Deposits have also been impacted due to provisions of the Order limiting the use of brokered deposits with deposits showing an increase of only 1.2% in 2009 over 2008.

The following sections provide detailed analysis of the Company’s financial condition, describing its investment securities, loan portfolio composition and credit risk management practices (including those related to the loan loss reserve), as well as its deposits, and capital position.

Investment Securities

The following table shows the carrying value of the Company’s portfolio of investments at December 31, 2009, 2008, and 2007:

		December 31,
(dollars in thousands)		2009		2008		2007
U.S. Agency and non-agency mortgage-backed securities (MBS)		$	116,639			$	93,534			$	65,202
U.S. Government and agency securities			7,481				8,726				10,497
Obligations of state and political subdivisions			3,606				3,741				6,917
U.S. Agency asset-backed securities			7,586				3,260				3,538
Total debt securities			135,312				109,261				86,154
Mutual fund			451				430				412
Equity securities			—				—				449
Total investment securities		$	135,763			$	109,691			$	87,015

MBS are mainly adjustable rate (ARM) MBS. Prepayment speeds on mortgages underlying MBS may cause the average life of such securities to be shorter (or longer) than expected.

The Company’s investment portfolio increased by $26.1 million, or 23.8% from December 31, 2008 to December 31, 2009 as a result of increased purchase activity during the year. The following is a summary of the contractual maturities and weighted average yields of investment securities at December 31, 2009:

(dollars in thousands)   Type and maturity		Carrying Value		Weighted Average Yield (1)
U.S. Agency and non-agency mortgage-backed securities
Due after 5 but within 10 years		$	875				5.19	%
Due after 10 years			115,764				4.49	%
Total U.S. Agency mortgage-backed securities			116,639				4.49	%
U.S. Government and Agency Securities
Due after 5 but within 10 years			7,481				2.25	%
Total U.S. Government and Agency Securities			7,481				2.25	%
State and Political Subdivisions (1)
Due within 1 year			200				3.25	%
Due after 1 but within 5 years			2,202				3.87	%
Due after 5 but within 10 years			1,204				4.04	%
Total State and Political Subdivisions			3,606				3.89	%
U.S. Agency asset-backed securities
Due within 1 year			1,336				5.24	%
Due after 1 but within 5 years			677				5.39	%
Due after 10 years			5,573				6.50	%
Total U.S. Agency asset-backed securities			7,586				6.18	%
Total debt securities			135,312				4.45	%
Mutual fund			451				4.57	%
Total Securities		$	135,763				4.45	%

The average years to maturity of the Company’s investment portfolio was 7.9 years at December 31, 2009 compared to 6.5 years at December 31, 2008. Duration of the portfolio is lower than average life since many of the securities are adjustable rate mortgage securities (ARM’s) with annual interest rate adjustments.

Investments are mainly classified as “available for sale” and consist mainly of MBS and Agency notes backed by government sponsored enterprises, such as the Government National Mortgage Association (“Ginnie Mae”), FNMA and FHLB. The Company regularly reviews its investment portfolio to determine whether any securities are other than temporarily impaired. The Company did not invest in securities backed by sub-prime mortgages and believes its investment portfolio has negligible exposure to such risk at this date. At December 31, 2009, the investment portfolio had gross unrealized losses on available-for-sale securities of approximately $1.4 million and management does not believe that these unrealized losses are other-than-temporary.

Loan Portfolio and Credit Quality

Loan Portfolio Composition .  Net loans represented 69% of total assets as of December 31, 2009. The Company makes substantially all of its loans to customers located within the Company’s service areas. As a result of the economic conditions and characteristics of the Company’s primary markets, including among others, the historical rapid growth in population and the nature of the tourism and service industry found in much of its market areas, Cascade’s loan portfolio has historically been concentrated in real estate related loans. The Company is presently working to reduce its construction/lot portfolio in response to the challenging real estate economy. However achieving significant reduction could prove problematic without some improvement in economic conditions and market liquidity as well as in pricing of related real estate assets. Because of the nature of its markets, real estate lending is expected to continue as a major concentration within the loan portfolio. The Company has no significant agricultural loans.

The following table presents the composition of the Company’s loan portfolio, at the dates indicated:

(dollars in thousands)		2009		% of gross loans		2008		% of gross loans		2007		% of gross loans		2006		% of gross loans		2005		% of gross loans
		(Restated)
Commercial		$	420,155				27	%		$	582,831				30	%		$	606,408				30	%		$	560,728				30	%		$	320,619				31	%
Real Estate:
Construction/lot:			308,346				20	%			517,721				26	%			686,829				34	%			588,251				31	%			220,230				21	%
Mortgage			93,465				6	%			96,248				5	%			88,509				4	%			80,860				4	%			56,724				5	%
Commercial			675,728				44	%			703,149				36	%			612,694				30	%			606,340				32	%			417,580				40	%
Consumer			49,982				3	%			56,235				3	%			47,038				2	%			51,083				3	%			34,551				3	%
Total loans			1,547,676				100	%			1,956,184				100	%			2,041,478				100	%			1,887,262				100	%			1,049,704				100	%
Less:
Reserve for loan losses			58,586								47,166								33,875								23,585								14,688
Total loans, net		$	1,489,090							$	1,909,018							$	2,007,603							$	1,863,677							$	1,035,016

The following table provides the geographic distribution of the Company’s loan portfolio by region as a percent of total company-wide loans at December 31, 2009:

(dollars in thousands)		Central Oregon		% of gross loans		Northwest Oregon		% of gross loans		Southern Oregon		% of gross loans		Idaho		% of gross loans		Total		% of gross loans
Commercial		$	146,640				26	%		$	108,635				30	%		$	42,811				20	%		$	122,069				30	%		$	420,155				27	%
Real Estate:
Construction/lot			97,496				17	%			93,192				25	%			41,982				19	%			75,676				19	%			308,346				20	%
Mortgage			39,018				7	%			8,874				2	%			8,318				4	%			37,255				9	%			93,465				6	%
Commercial			255,286				46	%			151,683				41	%			118,476				55	%			150,283				38	%			675,728				44	%
Consumer			23,119				4	%			5,853				2	%			3,915				2	%			17,095				4	%			49,982				3	%
Total loans		$	561,559				100	%		$	368,237				100	%		$	215,502				100	%		$	402,378				100	%		$	1,547,676				100	%

At December 31, 2009, the contractual maturities of all loans by category were as follows:

(dollars in thousands)   Loan Category		Due within one year		Due after one year, but within five years		Due after five years		Total
Commercial		$	195,145			$	174,265			$	50,745			$	420,155
Real Estate:
Construction/Lot			225,224				57,273				25,849				308,346
Mortgage			5,344				29,634				58,487				93,465
Commercial			16,610				202,561				456,557				675,728
Consumer			2,807				20,989				26,186				49,982
		$	445,130			$	484,722			$	617,824			$	1,547,676

At December 31, 2009, variable and adjustable rate loans contractually due after one year totaled $991.7 million and loans with predetermined or fixed rates due after one year totaled $110.8 million.

Real Estate Loan Concentration Risk.   Real estate loans have historically represented a significant portion of the Company’s overall loan portfolio and real estate is frequently a material component of collateral for the Company’s loans. Approximately two-thirds of total loans have exposure to real estate, including construction and lot loans (comprised of land development plus residential and commercial construction loan types), commercial real estate loans, residential mortgage loans, and consumer real estate. Risks associated with real estate loans include fluctuating land values, demand and prices for housing or commercial properties, national, regional and local economic conditions, changes in tax policies, and concentration within the Bank’s market area.

The following paragraphs provide information on portions of the Company’s real estate loan portfolio, specifically Construction/lot and Commercial Real Estate. All such lending activities are subject to the varied risks of real estate lending. The Company’s loan origination process requires specialized underwriting, collateral and approval procedures, which mitigates, but does not eliminate the risk that loans may not be repaid. Note that the minor balance differences between the preceding and following tables are a result of the inclusion of net deferred loan fees in the above tables.

(a) Residential land development category.   This category is included in the construction/lot portfolio balances above, and represents loans made to developers for the purpose of acquiring raw land and/or for the subsequent development and sale of residential lots. Such loans typically finance land purchase and infrastructure development of properties (i.e. roads, utilities, etc.) with the aim of making improved lots ready for subsequent sale to consumers or builders for ultimate construction of residential units. The primary source of repayment of such loans is generally the cash flow from developer sale of lots or improved parcels of land while real estate collateral, secondary sources and personal guarantees may provide an additional measure of security for such loans. The nationwide downturn in real estate has continued to slow down lot and home sales within the Company’s markets. This has adversely impacted certain developers by lengthening the marketing period of their projects and negatively affecting borrower liquidity and collateral values. Weakness in this category of loans has contributed significantly to the elevated level of provision for loan losses in 2009 and 2008. The situation continues to be closely monitored and an elevated level of provisioning may be required should deterioration continue.

(dollars in thousands)		2009		% of category		% of Constr/ lot portfolio		% of gross loans		2008
Residential Land Development:
Raw Land		$	35,258				37	%			11	%			2	%		$	72,329
Land Development			51,240				54	%			16	%			3	%			112,234
Speculative Lots			7,981				9	%			3	%			1	%			14,855
		$	94,479				100	%			30	%			6	%		$	199,418
Geographic distribution by region:
Central Oregon		$	48,176				51	%			15	%			3	%		$	74,209
Northwest Oregon			4,095				4	%			1	%			0	%			4,670
Southern Oregon			8,437				9	%			3	%			1	%			12,723
Total Oregon			60,708				64	%			19	%			4	%			91,602
Idaho			33,771				36	%			11	%			2	%			107,816
Grand total		$	94,479				100	%			30	%			6	%		$	199,418

(b) Residential construction category.   This category is included in the construction/lot portfolio balances above, and represents financing of homeowner or builder construction of new residences and condominiums where the obligor generally intends to own the home upon construction (pre-sold), or builder construction of homes for resale (speculative construction).

Pre-sold construction loans are underwritten to facilitate permanent mortgage (take-out) financing at the end of the construction phase. Especially with the turmoil in mortgage markets of the last year, no assurance can be made that committed take-out financing will be available at conclusion of construction.

Speculative construction lending finances builders/contractors who rely on the sale of completed homes to repay loans. The Bank may finance construction costs within residential subdivisions or on a custom site basis. Speculative construction loans decreased in 2009 as a result of the nationwide downturn in residential real estate. This may impact certain builders by lengthening the marketing period for constructed homes and negatively affecting borrower liquidity and collateral values.

(dollars in thousands)		2009		% of category		% of Constr/ lot portfolio		% of gross loans		2008
Residential Construction
Pre sold		$	10,115				21	%			3	%			0	%		$	62,153
Lots			11,493				24	%			4	%			1	%			17,331
Speculative Construction			26,819				55	%			9	%			2	%			28,461
		$	48,427				100	%			16	%			3	%		$	107,945
Geographic distribution by region:
Central Oregon		$	24,304				50	%			8	%			2	%		$	43,593
Northwest Oregon			7,246				15	%			2	%			0	%			30,445
Southern Oregon			3,124				6	%			1	%			0	%			5,798
Total Oregon			34,674				72	%			11	%			2	%			79,836
Idaho			13,753				28	%			4	%			1	%			28,109
Grand total		$	48,427				100	%			16	%			3	%		$	107,945

(c) Commercial construction category.   This category is included in the construction/lot portfolio balances above, and represents lending to finance the construction or development of commercial properties. Obligors may be the business owner/occupier of the building who intends to operate its business from the property upon construction, or non owner (speculative) developers. The expected source of repayment of these loans is typically the sale or refinancing of the project upon completion of the construction phase. In certain

circumstances, the Company may provide or commit to take-out financing upon construction. Take-out financing is subject to the project meeting specific underwriting guidelines.

The overall decline in 2009 in our commercial construction portfolio is mainly related to project completions. While our portfolios of these types of loans have not experienced the severe credit quality challenges experienced in residential construction projects, there can be no assurance that the credit quality in these portfolios will not be impacted should present challenging economic conditions persist. No assurance can be given that losses will not exceed the estimates that are currently included in the reserve for credit losses, which could adversely affect the Company’s financial conditions and results of operations.

(dollars in thousands)		2009		% of category		% of Constr/ lot portfolio		% of gross loans		2008
Commercial Construction:
Pre sold		$	29,080				18	%			9	%			2	%		$	27,826
Lots			9,822				6	%			3	%			1	%			16,404
Speculative			99,957				60	%			33	%			6	%			143,719
Speculative Lots			26,581				16	%			9	%			2	%			22,409
		$	165,440				100	%			54	%			11	%		$	210,358
Geographic distribution by region:
Central Oregon		$	24,674				15	%			8	%			2	%		$	49,817
Northwest Oregon			82,059				50	%			27	%			5	%			83,720
Southern Oregon			30,467				18	%			10	%			2	%			33,837
Total Oregon			137,200				83	%			45	%			9	%			167,374
Idaho			28,240				17	%			9	%			2	%			42,984
Grand total		$	165,440				100	%			54	%			11	%		$	210,358

(d) Commercial real estate (CRE) portfolio.   This $675.7 million portfolio generally represents loans to finance retail, office and industrial commercial properties. The expected source of repayment of CRE loans is generally the operations of the borrower’s business, rents or the obligor’s personal income. CRE loans represent approximately 44% of total loans outstanding as of December 31, 2009. Approximately 52% of CRE loans are made to owner-occupied users of the commercial property, while 48% of CRE loans are to obligors who do not directly occupy the property. Management believes that lending to owner-occupied businesses may mitigate, but not eliminate, commercial real estate risk. The average loan in the CRE portfolio is only about $0.6 million and 86% of balances are represented in loans under $5 million. This granular and well diversified portfolio has maintained low delinquency and only modest deterioration in the present downturn. However no assurance can be given that residential real estate or other economic factors will not adversely impact the CRE portfolio.

		2009		% of total CRE		% of gross loans		2008
Commercial Real Estate:
Owner occupied		$	348,732				52	%			22	%		$	358,232
Non-owner occupied			326,996				48	%			21	%			344,917
		$	675,728				100	%			44	%		$	703,149

The following table provides the geographic distribution of the Company’s CRE loan portfolio by region as a percent of total company-wide CRE loans at December 31, 2009:

		Central Oregon		% of total CRE loans		Northwest Oregon		% of total CRE loans		Southern Oregon		% of total CRE loans		Idaho		% of total CRE loans		Total
Commercial Real Estate:
Owner occupied		$	148,993				10	%		$	42,290				3	%		$	71,006				5	%		$	86,443				6	%		$	348,732
Non-owner occupied			105,122				7	%			109,911				7	%			47,654				3	%			64,309				4	%		$	326,996
Total loans		$	254,115				17	%		$	152,201				10	%		$	118,660				8	%		$	150,752				10	%		$	675,728