Cascade Financial Corporation (Nasdaq:CASB) (the Company), the
parent company of Cascade Bank (the Bank), announced today that it
has successfully completed a series of balance sheet restructuring
transactions which will immediately put the Company and the Bank in
an improved financial position including increased capital ratios
and increased net interest margin. The transactions included the
restructuring of the Company's securities portfolio, prepayment
and/or modification of the Company's Federal Home Loan Bank (FHLB)
advances, and the purchase of interest rate caps to hedge against
rising rates.
"In this persistently low interest rate environment there was a
sizeable amount of negative drag on our balance sheet driven in
large part by high cost borrowings. Stronger deposit growth
and a reduction in the real estate construction loan portfolio over
the past few quarters led to increased on-balance sheet liquidity
which provided us the opportunity to pursue this deleveraging
strategy," stated Carol K. Nelson, President and CEO. "We were
able to monetize gains in our securities portfolio to offset the
cost of prepaying the FHLB borrowings. The end result will
shrink the balance sheet, improve our capital ratios, reduce
interest expense, improve our net interest margin and have a
minimal impact on shareholders' equity. These restructuring
transactions, which commenced late in the third quarter and were
completed early in the fourth quarter, are part of the Company's
overall business plan to strengthen its financial condition going
forward."
In addition to restructuring the securities portfolio to
monetize gains, the Company prepaid $80 million in FHLB advances to
shrink the balance sheet, restructured $159 million of fixed rate
FHLB advances into lower cost floating rate advances to reduce
current interest expense, and purchased interest rate caps in a
like amount to limit exposure to rising interest rates while
preserving the income benefits from this restructuring.
Details of the transactions include the following:
- The Company used low-yielding interest-earning deposits at the
Federal Reserve Bank to prepay $80 million of FHLB advances at an
average rate of 3.75%, incurring approximately $4.8 million in
prepayment penalties
- The Company offset the prepayment penalties with approximately
$5.0 million in gains from the sale of investment
securities. In total, the Company sold approximately $252
million in securities with a weighted average book yield of
2.0%
- The Company reinvested substantially all of the proceeds from
the securities sale into new securities with a 0% to 20%
risk-weight at an average yield of 2.4%
- The Company restructured $159 million of long-maturity FHLB
"option" advances, callable quarterly as rates rise, into
floating-rate, option-free borrowings, reducing the current average
rate on the advances by 1.38%
- The Company purchased a series of interest rate caps totaling
$159 million in notional amount to manage interest rate risk going
forward. These caps were designed to protect both net interest
margin and shareholder equity from potential future rising interest
rates.
The transactions leave the Company with continued high levels of
on-balance sheet liquidity, and bring the Company's interest rate
risk position from highly asset-sensitive closer to a neutral
position towards interest rates.
Approximately $1.1 million of the securities gains were
recognized in the third quarter of 2010 and Cascade expects to
recognize approximately $3.9 million in the fourth quarter of 2010
due to the timing of the transactions. All of the
approximately $4.8 million in prepayment penalty from the
retirement of FHLB borrowings will be recognized in the fourth
quarter of 2010.
In addition to the restructuring transactions, the Company is
proactively taking steps to improve its net interest margin and
capitalization by allowing additional non-core funding to run off,
further shrinking the balance sheet and removing negative carry, as
well as other potential strategies to further reduce funding
costs.
"This remains a highly challenging operating environment for
community banks," added Nelson. "This strategy has allowed us to
improve our net interest margin and capital position, and reduced
our reliance on non-core funding while maintaining a prudent
interest rate risk profile, all of which are critical goals for the
Company."
As previously announced, under a Consent Order with the FDIC and
Washington State DFI, effective July 21, 2010, Cascade Bank's
regulators have directed Cascade Bank to increase its overall
capital levels and, in particular, are requiring Cascade Bank to
increase its Tier 1 leverage capital to 10% of the Bank's total
assets and total risk based capital to 12% of the Bank's risk
weighted assets by November 18, 2010. The Company's ability to
raise additional capital will depend on conditions in the capital
markets at that time, which are outside its control, and on the
Company's financial performance.
Sandler O'Neill + Partners, L.P. served as advisor to
Cascade Financial in developing and implementing the balance sheet
restructuring strategies.
About Cascade Financial
Established in 1916, Cascade Bank, the only operating subsidiary
of Cascade Financial Corporation, is a state chartered commercial
bank headquartered in Everett, Washington. Cascade Bank
maintains an "Outstanding" CRA rating and has proudly served the
Puget Sound region for over 90 years. Cascade Bank operates 22
full service branches in Everett, Lynnwood, Marysville, Mukilteo,
Shoreline, Smokey Point, Issaquah, Clearview, Woodinville, Lake
Stevens, Bellevue, Snohomish, North Bend, Burlington and
Edmonds.
Forward-Looking Statements
This press release contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995 ("PSLRA"). This statement is included for the express
purpose of availing Cascade of the protections of the safe harbor
provisions of the PSLRA. Readers should not place undue
reliance on forward-looking statements, which reflect management's
views only as of the date hereof. The words "should,"
"anticipate," "expect," "will," "believe," and words of similar
meaning are intended, in part, to help identify forward-looking
statements. Additional forward-looking statements include
statements about the benefits of the balance sheet restructurings
to improve the Company's financial condition, reduce its risk
profile and improve its shareholder value proposition, as well as
statements about the Company taking steps to improve its net
interest Margin and capitalization by allowing additional non-core
funding to run off, further shrinking the balance sheet and
removing negative carry, as well as further reducing funding costs.
Future events are difficult to predict, and the expectations
described above are subject to risks and uncertainties that may
cause actual results to differ materially. Should one or more
of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those anticipated, estimated or expected. In addition to
discussions about risks and uncertainties set forth from time to
time in the Company's filings with the Securities and Exchange
Commission, factors that may cause actual results to differ
materially from those contemplated in these forward-looking
statements include, among others: (1) the Company's ability to
raise additional capital to satisfy the consent order on acceptable
terms, if at all;(2) the effect of the consent order on the
Company's operations and potential future supervisory action
against the Company or Cascade Bank; (3) failure to maintain
adequate levels of capital and liquidity to support the Company's
operations; (4) the extent and duration of continued economic and
market disruptions and governmental actions to address these
disruptions; (5) the risk of new and changing legislation,
regulation and/or regulatory actions; (6) local and national
general and economic conditions; (7) changes in interest rates; (8)
reductions in loan demand or deposit levels or failure to attract
loans and deposits; (9) changes in loan collectability, defaults
and charge-off rates; and (10) adequacy of the Company's allowance
for loan losses, credit quality and the effect of credit quality on
its provision for credit losses and allowance for loan losses.
Cascade undertakes no obligation to publicly revise or update
these forward-looking statements to reflect events or circumstances
that arise after the date of this release. Readers should carefully
review the risk factors described in this and other documents
Cascade files from time to time with the Securities and Exchange
Commission, including Cascade's 2009 Form 10-K and Cascade's Form
10-Q for the quarter ending June 30, 2010.
CONTACT: Investor Contacts:
Carol K. Nelson, CEO
Debra L. Johnson, CFO
Cascade Bank
425.339.5500
www.cascadebank.com
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