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):

TABLE OF CONTENTS

  
                                      1100 NW Wall Street
                                      Bend, Oregon 97701

November 10, 2009

Dear Shareholder:

You are cordially invited to attend a Special Meeting of Shareholders of Cascade Bancorp to be held on December 7, 2009, at 8:00 a.m. Pacific Time at 1100 NW Wall Street, Bend, Oregon.

The 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 the Shareholders. Directors and Officers of Cascade Bancorp as well as representatives of Delap LLP, Cascade Bancorp’s independent auditors, 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, by telephone or by mail in order to ensure a quorum.

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

Sincerely,

Gregory D. Newton

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 materials set forth in Appendix A.

TABLE OF CONTENTS

CASCADE BANCORP
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
To Be Held at 8:00 a.m. Pacific Time on December 7, 2009

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 December 7, 2009, at 8:00 a.m. Pacific Time (the “Special Meeting”) for the following purposes:

If you were a shareholder of record of Cascade as of the close of business on October 26, 2009 (the “Record Date”), you are entitled to receive this notice of, and to vote at, the Special Meeting and any adjournments or postponements thereof.

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

Please note, Appendix A of the 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 A 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 by the Internet, telephone or mail in order to ensure the presence of a quorum.

Registered holders may vote:

1. By Internet: go to http://www.proxyvote.com;

2. By toll-free telephone: call 1-800-690-6903; or

3. By mail: mark, sign and date and promptly mail the enclosed proxy card.

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 Investor Relations tab, 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,

Gregory D. Newton
Secretary
November 10, 2009
Bend, Oregon

TABLE OF CONTENTS

PROXY STATEMENT
OF
CASCADE BANCORP

1100 NW Wall Street
Bend, Oregon 97701
(541) 385-6205

SPECIAL MEETING OF SHAREHOLDERS

December 7, 2009

Why am I receiving these materials?

The Board of Directors of 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 November 12, 2009, 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”):

The Board has unanimously voted in favor of both amendments to our Articles of Incorporation and the Private Offerings and unanimously recommends your approval of each of Proposals 1, 2 and 3.

Why is the Board of Directors calling the Special Meeting?

The significant downturn in economic activity and declining real estate values has had a direct and adverse effect on the financial condition and results of operations of the Company and its wholly-owned subsidiary, Bank of the Cascades (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 allowance for loan losses for the Company leading to a net loss of $44.6 million in the nine month period ended September 30, 2009, and total stockholders’ equity at September 30, 2009 of $93.1 million, a decrease of $42.2 million from December 31, 2008.

On August 27, 2009 the Bank entered into an agreement with the Federal Deposit Insurance Corporation (“FDIC”), its principal federal banking regulator, and the Oregon Division of Finance and Corporate Securities (“DFCS”) which requires the Bank to take certain measures to improve its safety and soundness. In connection with this agreement, the Bank stipulated to the issuance by the FDIC and the DFCS of a cease-and-desist order dated August 27, 2009 against the Bank based on certain findings from an examination of the Bank conducted in February 2009 based upon financial and lending data measured as of December 31, 2008 (the “Order”). In entering into the stipulation and consenting to entry of the Order, the Bank did not concede the findings or admit to any of the assertions therein.

TABLE OF CONTENTS

Under the Order, the Bank is required to develop and adopt a plan to maintain the minimum capital requirements for a “well-capitalized” bank within 60 days of the date of the Order, August 27, 2009, including a Tier 1 leverage ratio of at least 10% at the Bank level beginning 150 days from the issuance of the Order.

On October 23, 2009, the Board adopted a capital plan to satisfy certain requirements of the Order. The strategic plan includes required comprehensive plans to address capital, credit, liquidity and profitability, with related strategies, action steps and goals for each, as well as targeted financial outcomes as required by the Order. The Public Offering and the Private Offerings discussed below are a part of the strategic plan.

In addition, on October 26, 2009, the Company entered into a written agreement with the Federal Reserve Bank of San Francisco 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, a plan to maintain sufficient capital at the Company and the Bank within 60 days of the date of the Written Agreement.

At September 30, 2009, the Bank’s Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios were 5.76%, 7.34% and 8.61%, respectively and the Company’s Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios were 4.22%, 5.38% and 8.61%, respectively. In order for the Bank to meet and maintain the capital requirements of the Order, the Bank estimates that it needs approximately $129 million of additional equity capital, based on its forecasts of operating results for the fourth quarter of 2009.

As previously disclosed, the Company has been engaged in discussions to attempt to raise additional capital from a variety of sources. The Company has filed a registration statement on Form S-1 with the Securities and Exchange Commission (the “SEC”) pursuant to which it intends to offer up to $108 million of its Common Stock in a public offering (the “Public Offering”), subject to market and other conditions including consummation of the Private Offerings. In addition, on October 29, 2009, we announced a proposed purchase of shares of our Common Stock by David F. Bolger (“Mr. Bolger”), who currently beneficially holds approximately 21.3% of our outstanding Common Stock, and by an affiliate of Lightyear Fund II, L.P. (“Lightyear”), in separate Private Offerings. The total gross proceeds from the Private Offerings will be $65 million, consisting of $25 million from Mr. Bolger and $40 million from Lightyear. The shares of our Common Stock in the Private Offerings are being sold at a per share purchase price equal to the lesser of (A) $0.87 per share, and (B) the net proceeds per share to the Company in connection with the Public Offering. This pricing structure was negotiated between each of Mr. Bolger and Lightyear and the Company. On October 28, 2009 (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 $1.07 per share. Mr. Bolger’s purchase will be made pursuant to a Securities Purchase Agreement dated October 29, 2009 (the “Bolger Purchase Agreement”), and Lightyear’s purchase will be made pursuant to a Securities Purchase Agreement dated October 29, 2009 (the “Lightyear Purchase Agreement” and together with the Bolger Purchase Agreement, the “Securities Purchase Agreements”).

The Securities Purchase Agreements are subject to certain conditions, including, among others, (i) the representations and warranties in the Securities Purchase Agreements being true and correct at the closing date; (ii) the completion of the Private Offerings and the Public Offering for proceeds of at least $150 million (net of underwriting commissions and discounts); (iii) the Company entering into agreements by November 16, 2009, that are not subject to any conditions in the control of the holder or termination rights by such holder to repurchase and cancel at least $66.5 million aggregate liquidation amount of the outstanding trust preferred securities by issuer trusts originated by the Company at a discount of not less than 80% of such aggregate liquidation amount; (iv) the Company and its subsidiaries shall be in compliance in all material respects with the policies and procedures adopted by them and disclosed to Mr. Bolger and Lightyear in the Three Year Financial Plan dated October 24, 2009, and none of such policies and procedures shall have been revoked or modified in any respect that would make it materially less likely that the Company and its subsidiaries will be able to comply with the Order (or other enforcement orders in effect as of 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 10% higher than the amount set forth as of September 30, 2009, (B) non-performing assets on its balance sheet shall not be more

TABLE OF CONTENTS

than 17.5% higher than the amount set forth as of September 30, 2009 and (C) the Company’s net loss, exclusive of tax adjustments or tax expense, for the period October 1, 2009 to the second business day prior to the closing of the Private Offerings shall not exceed $25 million; (vi) receipt by the Company and Lightyear of all the necessary regulatory approvals; and (vii) receipt of the approvals required of our shareholders being sought at the Special Meeting.

In addition, the consummation of the transactions contemplated by the Lightyear Purchase Agreement, and accordingly, the Bolger Purchase Agreement, are subject to (i) Lightyear receiving written confirmation from the Federal Reserve that neither Lightyear nor its affiliates will be deemed to control the Company or any of its subsidiaries after the closing for purposes of the Bank Holding Company Act of 1956, as amended (“BHC Act”) or the Change in Bank Control Act of 1978, as amended (“CBC Act”) and (ii) Lightyear being reasonably satisfied that the Company and its subsidiaries have taken such actions and adopted such policies and procedures as may be necessary to comply with the Order as well as any other enforcement order issued by a federal or state banking regulator between the date of the Lightyear Purchase Agreement and the closing.

In order to consummate the Public Offering and the Private Offerings, the Company is required to obtain shareholder approval of Proposals 1 and 2 set forth in this proxy statement.

What will be the effect on our capital ratios of consummation of the Public Offering and the Private Offerings?

The Company intends to contribute a substantial portion of the proceeds to the Bank as additional capital. It is anticipated that following such contribution, the Bank’s capital ratios would meet the regulatory standards for a “well capitalized” institution and that its Tier 1 leverage ratio would exceed 10% as required by the Order.

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 Public Offering and the Private Offerings. As discussed above, it is anticipated that consummation of the Public Offering and the Private Offerings will provide sufficient additional capital to meet the capital requirements of the Order.

As of October 26, 2009, the Company had 28,156,483 shares of Common Stock outstanding. Assuming that the shares of Common Stock in the Public Offering are sold at a price of $0.87 per share, the Company will issue approximately 185,571,044 additional shares of Common Stock in these (excluding any shares issued in connection with any exercise of the over-alllotment option.) offerings. Existing shareholders have no preemptive rights to purchase their pro rata share of the Common Stock offered in the Private Offerings or the Public Offering. Therefore, the issuance of shares of Common Stock in the Private Offerings and the Public Offering will be significantly dilutive in voting power, resulting in our existing shareholders owning approximately 13.2% of the outstanding Common Stock of the Company (assuming 185,571,044 shares of Common Stock are sold in the Private Offerings and the Public Offering). See “Background and Purpose of Proposals 1 and 2” for additional information on the number of shares that may be issued in the Public Offering and 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 45,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. The current authorized but unissued and unreserved shares of Common Stock is insufficient to effectuate the Public Offering and/or the Private Offerings. Amending the Articles of Incorporation enables the Board of Directors to issue up to an additional 255,000,000 shares of Common Stock without further shareholder approvals or delay and, thereby, provides the Company with sufficient authorized shares of Common Stock to complete the Private Offerings and the Public Offering and provides additional shares that can be used for general corporate purposes which may be deemed advisable and in the best interests of Cascade and its shareholders.

TABLE OF CONTENTS

What will happen if the shareholders fail to approve the Proposal increasing the amount of authorized Common Stock?

In the event that the shareholders of the Company fail to approve the amendment of the Company’s Articles of Incorporation to increase the amount of authorized Common Stock, the Company will not have the ability to issue shares in excess of the currently authorized 45,000,000 shares, and the Company will not be able to raise additional capital through the contemplated Public Offering and 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 well as the Company’s financial results 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, could subject the Bank to seizure by the FDIC.

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 percent or more of its common stock or 20 percent 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 percent of the Company’s Common Stock being issued to investors in a private placement 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 to such an arrangement, that company may be subject to the delisting of its securities from NASDAQ.

What will happen if the shareholders fail to approve the issuance of Common Stock in the Private Offerings?

If the shareholders fail to approve the Private Offerings, the Company will not be able to sell its shares to the private investors and therefore will be unable to raise the anticipated gross proceeds of $65 million in such Private Offerings. The Public Offering is subject to market and other conditions including consummation of the Private Offerings. A failure to consummate the Private Offerings will result in the Company’s inability to consummate the Public Offering. If the Company does not raise capital through the Public Offering and Private Offerings, the Company will not be able to meet its capital ratio requirements and therefore will likely be unable to comply with the Order. 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 subject to seizure by the FDIC.

Why is the amendment to the Articles of Incorporation to effect a reverse split of the Company’s Common Stock necessary?

Assuming a purchase price ranging from $0.75 to $1.25 per share (and assuming no exercise by the underwriters of the over-allotment option), following completion of the Private Offerings and the Public Offering, the Company will have approximately 176,707,425 to 243,418,894 shares of its Common Stock outstanding. The Board of Directors believes that this number of outstanding shares is excessive for a financial services company the size of the Company. The low per share market price of the Company’s Common Stock impairs its marketability to and acceptance by institutional investors and other members of the investing public and creates a negative impression of the Company. Theoretically, decreasing the number of shares of Common Stock outstanding should not, by itself, affect the marketability of the shares, the type of investor who would be interested in acquiring them, or the Company’s reputation in the financial community. In practice, however, many investors and market makers consider low-priced stocks as unduly speculative in nature and, as a matter of policy, avoid investment and trading in such stocks. The presence of these negative perceptions may be adversely affecting, and may continue to adversely affect, not only the pricing of the Company’s Common Stock but also its trading liquidity. These perceptions may also affect the Company’s commercial business and its ability to raise additional capital through the sale of stock or the cost of debt it may incur. In addition, the low per share market price of the Company’s Common Stock puts the Company at risk of failing to meet the minimum-bid-price and other requirements for maintaining listing of its Common

TABLE OF CONTENTS

Stock on the NASDAQ Capital Market. If the market price of the Common Stock rises as a result of the reverse split, this will help the Company to comply with the minimum-bid-price and other requirements for maintaining listing of its Common Stock on the NASDAQ Capital Market.

What will happen if the shareholders fail to approve the Proposal authorizing the reverse split of the Company’s Common Stock?

The low per share market price and high number of shares outstanding may impair the marketability to and acceptance by institutional investors and other members of the investing public of our Common Stock. In addition, the low per share market price may result in the Company failing to comply with the minimum-bid-price and other requirements for maintaining listing of its Common Stock on the NASDAQ Capital Market. In the event that the shareholders of the Company fail to approve the amendment of the Company’s Articles of Incorporation effecting the reverse split of the Company’s Common Stock, the number of shares of the Company’s Common Stock outstanding will remain at the current level and the per share market price of the outstanding Common Stock will likely remain low.

If approved, when will the reverse split become effective?

The reverse split will become effective upon the filing of the amendment to the Company’s Articles of Incorporation with the Oregon Secretary of State. We anticipate filing the amendment following the consummation of the Private Offerings and the Public Offering. However, the Board of Directors reserves the right not to implement this Proposal, even if approved by the Company’s shareholders.

When and where is the Special Meeting?

The Special Meeting will be held at 1100 NW Wall Street, Bend, Oregon, on December 7, 2009 at 8:00 a.m. Pacific Time.

Who may vote?

If you were a shareholder of the Company as of the close of business on October 26, 2009, you are entitled to vote at the Special Meeting and at any adjournments or postponements thereof. As of the Record Date, there were 28,156,483 shares outstanding held by approximately 491 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 1-800-690-6903. 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, 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.

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 and Gary L. Hoffman, M.D. 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 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

TABLE OF CONTENTS

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 December 4, 2009, 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.

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 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?

Assuming the existence of a quorum, each 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. 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 978,285 shares, 707,686 of which are entitled to vote, including 30,303 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 3,463,044 shares of our Common Stock. The shares held by our officers, directors and Mr. Bolger constitute approximately 24.2% 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?

We will bear the cost of soliciting proxies from our shareholders. In addition to using the mail, proxies may be solicited by personal interview, telephone, and electronic communication. We request 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. Our officers and other of our employees and the Bank acting on our behalf, may solicit proxies personally. We have hired Morrow & Co., LLC to solicit proxies for a fee of $5,500, 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, we may engage an outside proxy solicitation firm to render proxy solicitation services.

TABLE OF CONTENTS

Are there any retroactive adjustments to the data in this proxy statement?

All share related data has been retroactively adjusted for the five-for-four stock split declared and paid in 2006.

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 December 7, 2009:

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

TABLE OF CONTENTS

IMPORTANT NOTICES

Appendix A 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 A should be read carefully in connection with this proxy statement and the Proposals set forth herein.

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.

TABLE OF CONTENTS

BACKGROUND AND PURPOSE OF PROPOSALS 1 AND 2

The significant downturn in economic activity and declining real estate values has had a direct and adverse effect on the financial condition and results of operations of the Company and the Bank, including substantial reductions in their capital levels. The impact on the Bank has been an elevated level of non-performing assets and charge-offs and an associated increase in the allowance for loan losses leading to a net loss of $44.6 million in the nine month period ended September 30, 2009, and total stockholders’ equity at September 30, 2009 of $93.1 million, a decrease of $42.2 million from December 31, 2008.

On August 27, 2009 the Bank entered into the Order pursuant to which the Bank is required 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, on October 26, 2009, the Company entered into the Written Agreement pursuant to which 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 previously disclosed, in an effort to meet the requirements of the Order and the Written Agreement, and to bolster its capital position, the Company has engaged in discussions to attempt to raise additional capital from a variety of sources. As a result of those discussions, on October 29, 2009, we announced a proposed purchase of shares of our Common Stock by Mr. Bolger and Lightyear, in separate Private Offerings. The total gross proceeds from the Private Offerings will be $65 million, consisting of $25 million from Mr. Bolger and $40 million from Lightyear. The shares of our Common Stock in the Private Offerings are being sold at a purchase price per share equal to the lesser of (A) $0.87 per share and (B) the net proceeds per share to the Company in connection with the Public Offering. This pricing structure was negotiated between each of Mr. Bolger and Lightyear and the Company. On October 28, 2009 (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 $1.07 per share.

The Securities Purchase Agreements are subject to certain conditions, including, among others, (i) the representations and warranties in the Securities Purchase Agreements being true and correct as of the closing date; (ii) the completion of the Private Offerings and the Public Offering for proceeds of at least $150 million (net of underwriting commissions and discounts); (iii) the Company entering into agreements by November 16, 2009, that are not subject to any conditions in the control of the holder or termination rights by such holder to repurchase and cancel at least $66.5 million aggregate liquidation amount of the outstanding trust preferred securities by issuer trusts originated by the Company at a discount of not less than 80% of such aggregate liquidation amount; (iv) the Company and its subsidiaries shall be in compliance in all material respects with the policies and procedures adopted by them and disclosed to Mr. Bolger and Lightyear in the Three Year Financial Plan dated October 24, 2009, and none of such policies and procedures shall have been revoked or modified in any respect that would make it materially less likely that the Company and its subsidiaries will be able to comply with the Order (or other enforcement orders in effect as of 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 10% higher than the amount set forth as of September 30, 2009, (B) non-performing assets on its balance sheet shall not be more than 17.5% higher than the amount set forth as of September 30, 2009 and (C) the Company’s net loss, exclusive of tax adjustments or tax expense, for the period October 1, 2009 to the second business day prior to the closing of the Private Offerings shall not exceed $25 million; (vi) receipt by the Company and Lightyear of all the necessary regulatory approvals; and (vii) receipt of the approvals required of our shareholders being sought at the Special Meeting.

In addition, the consummation of the transactions contemplated by the Lightyear Purchase Agreement, and accordingly, the Bolger Purchase Agreement, are subject to (i) Lightyear receiving written confirmation from the Federal Reserve that neither Lightyear nor its affiliates will be deemed to control the Company or any of its subsidiaries after the closing for purposes of the BHC Act or the CBC Act and (ii) Lightyear being reasonably satisfied that the Company and its subsidiaries have taken such actions and adopted such policies and procedures as may be necessary to comply with the Order as well as any other enforcement order issued by a federal or state banking regulator in effect as of the closing.

TABLE OF CONTENTS

In addition, we have filed a registration statement on Form S-1 with the Securities and Exchange Commission (the “SEC”) to register up to a maximum of $108 million, including any over-allotment option, of shares of our Common Stock. The Public Offering is subject to market and other conditions including consummation of the Private Offerings. The registration statement has not been declared effective as of the date of this proxy statement. The underwriters of the Public Offering will have an over-allotment option to purchase up to an additional 15% of the shares of our Common Stock sold in the Public Offering for a thirty day period following the closing of the Public Offering. Regulatory approval is not required for the issuance of our common stock in the Public Offering or the Private Offerings.

On October 26, 2009, the Company entered into a binding letter agreement with Cohen & Company Financial Management, LLC (the “Letter Agreement”) for the restructuring of the Company’s trust preferred securities in an aggregate principal amount of $66.5 million (the “TPS”). Pursuant to the Letter Agreement, the Company will exchange the TPS for senior notes in the aggregate principal amount of $13.30 million representing 20% of the original balance of the TPS (the “Notes”). If this exchange is consummated, the holders of the TPS will not receive the $1.38 million in accrued but unpaid dividends owed at September 30, 2009. Interest will accrue on the Notes at a fixed rate of 7.5% per annum, payable quarterly, and the Notes will mature five years from the date of issuance. The Company will be obligated to redeem the Notes for cash upon the fifth day following the closing of this offering. In connection with the restructuring of the TPS, the Company will pay Cohen & Company Securities, LLC a fee of $2.7 million for services in connection with the restructuring. The consummation of the exchange of the TPS is subject to prior approval by the Federal Reserve Bank of San Francisco and the DFCS, the Company’s primary regulators, which approval has not yet been obtained. The exchange of the TPS for the Notes will have no effect on capital at the Bank and does not impact the amount of capital needed by the Bank to comply with the Order. At the Company level, approximately $30.5 million of the TPS is includable in Tier 1 capital. The redemption of the TPS will have a negligible impact on Tier 1 capital because the net gain on the extinguishment of the TPS liability will offset the elimination of the current TPS component of Tier 1 capital. Approximately $36.0 million of the TPS is includable in Tier 2 capital. Accordingly, the Company’s total risk based capital will be reduced by approximately $36.0 million as a result of the TPS redemption.

In order for the Bank to meet the capital requirements of the Order, the Bank estimates that it will need approximately $129 million of additional equity capital, based on its forecast of operating results for the fourth quarter of 2009. We intend to use the net proceeds from the Public Offering and the Private Offerings (estimated net proceeds of $150 million) to provide approximately $129 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 $13.3 million of the proceeds for the repurchase of our trust preferred securities. We expect to use the remainder of the net proceeds to pay expenses of the transaction, to reimburse Mr. Bolger and Lightyear for their out-of-pocket fees and expenses and for general working capital purposes of the Company. Based on our estimates of the tax effects of the repurchase of the trust preferred securities and the Private and Public Offerings and our current estimates of results of operations for the fourth quarter of 2009, we believe that the addition of $129 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.

Currently the Company’s Articles of Incorporation, as amended restrict our equity capital issuance to a maximum of 45,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. The current authorized but unissued and unreserved shares of Common Stock is insufficient to effectuate the Public Offering and/or the Private Offerings. Amending the Articles of Incorporation to increase the maximum authorized shares of Common Stock will provide the Company with sufficient authorized shares of Common Stock to complete the Private Offerings and the Public Offering and allow flexibility for possible future capital raising opportunities. In addition, approval of the Private Offerings will increase the likelihood that the Company will be able to consummate the Public Offering and raise sufficient additional capital to meet the requirements of the Order.

As of the Record Date, the Company had 28,156,483 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 or the Public Offering. Therefore, the issuance of shares of our Common Stock in the

TABLE OF CONTENTS

Private Offerings and the Public Offering will be significantly dilutive in voting power and in the trading price to our existing shareholders. In addition, the market price of our Common Stock could decline as a result of the Private Offerings and the Public Offering 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 examples of the potential dilutive effect of the Private Offerings and the Public Offering based on a Public Offering per share price ranging from $0.75 to $1.25 and assumed number of shares to be issued:

Public Offering Price per Share		Existing Shares Outstanding		Newly Issued Shares*		Total Shares Outstanding		Existing Share Ownership		New Share Ownership
$0.75		28,156,483		215,262,411		243,418,894		11.6%		88.4%
$0.85		28,156,483		189,937,422		218,093,905		12.9%		87.1%
$1.00		28,156,483		167,010,516		195,166,999		14.4%		85.6%
$1.25		28,156,483		148,550,942		176,707,425		15.9%		84.1%

Please note, Appendix A 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 A 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 45,000,000 TO 300,000,000.

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 45,000,000 to 300,000,000. 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 Public Offering and 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 B 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, as amended restrict equity capital issuance to a maximum of 45,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. The current authorized but unissued and unreserved shares of Common Stock is insufficient to effectuate the Public Offering and/or the Private Offerings. Amending the Articles of Incorporation enables the Board of Directors to issue up to an additional 255,000,000 shares of Common Stock without further shareholder approvals or delay and, thereby, provides the Company with sufficient authorized shares of Common Stock to complete the Private Offerings and the Public Offering and provides additional shares that can be used for general corporate purposes including a possible future capital raise and for acquisitions 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 Public Offering and 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 45,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. As of October 26, 2009 there were 28,156,483 shares of Common Stock

TABLE OF CONTENTS

issued and outstanding and 1,338,921 shares of Common Stock reserved for issuance pursuant to the Company’s existing incentive plans. Outstanding shares of Common Stock and reserved for issuance upon exercise of outstanding options shares now represent approximately 66.0% of the 45,000,000 authorized. No shares of Preferred Stock are currently outstanding. Currently, there are no preemptive rights outstanding with respect to our Common Stock.

Once the Public Offering and the Private Offerings are consummated, assuming a purchase price of our Common Stock of $0.75 to $1.25 per share (and assuming no exercise by the underwriters of the over-allotment option), the total issued and outstanding shares will be further increased by approximately 148,550,942 to 215,262,411 shares for a total number of outstanding shares of Common Stock of approximately 176,707,425 to 243,418,894. 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 $65 MILLION OF COMMON STOCK TO INVESTORS IN PRIVATE OFFERINGS

The Company and its Board of Directors believe it is in the best interests of the Company and its shareholders to sell $65 million (total gross proceeds) of shares of Common Stock to investors in the Private Offerings. The number of shares issued will depend on the final price per share in the Private Offerings. The Private Offerings will result in greater than 20 percent 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. 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 percent or more of its Common Stock or 20 percent 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 to such an arrangement, that company may be subject to the delisting of its securities from NASDAQ.

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 beginning 150 days from the date of the Order. 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 within 60 days of the date of the Order. In addition, the Written Agreement requires the Company to develop and adopt a plan to maintain sufficient capital at the Company and the Bank within 60 days of the Written Agreement.

In an effort to meet the requirements of the Order and the Written Agreement and to bolster its capital position, the Company has been engaged in discussions to raise additional capital from a variety of sources. On October 29, 2009, we announced a proposed purchase of shares of our Common Stock by Mr. Bolger and by Lightyear, for total gross proceeds of $65 million in the Private Offerings, consisting of $25 million from Mr. Bolger and $40 million from Lightyear.

Terms and Conditions of the Private Offerings

The shares of our Common Stock in the Private Offerings are being sold at a per share purchase price equal to the lesser of (A) $0.87 per share and (B) the net proceeds per share to the Company in connection with the Public Offering. This pricing structure was negotiated between each of Mr. Bolger and Lightyear and

TABLE OF CONTENTS

the Company. The total gross proceeds from the Private Offerings will be $65 million, consisting of $25 million from Mr. Bolger and $40 million from Lightyear. On October 28, 2009 (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 $1.07 per share. Mr. Bolger’s purchase will be made pursuant to the Bolger Purchase Agreement and Lightyear’s purchase will be made pursuant to the Lightyear Purchase Agreement. No commissions are payable with respect to Mr. Bolger’s investment to Keefe, Bruyette & Woods, Inc. The Company will pay a commission of 4.4% of the proceeds from Lightyear’s investment. Pursuant to the Bolger Purchase Agreement and the Lightyear Purchase Agreement, respectively, the Company is required to reimburse Mr. Bolger and Lightyear for their out-of-pocket fees and expenses incurred in connection with the Private Offerings, including fees of legal counsel, accounting and financial advisors, and investment banking advisors, up to $1.25 million and $1.4 million, respectively.

Under the Securities Purchase Agreements, the Company agreed to indemnify Mr. Bolger and Lightyear for breaches of representations and warranties in certain circumstances. The Securities Purchase Agreements are subject to certain conditions, including, among others, (i) representations and warranties in the Securities Purchase Agreements being true and correct as of the closing date; (ii) the completion of the Private Offerings and the Public Offering for proceeds of at least $150 million (net of underwriting commissions and discounts); (iii) the Company entering into agreements by November 16, 2009, that are not subject to any conditions in the control of the holder or termination rights by such holder to repurchase and cancel at least $66.5 million aggregate liquidation amount of the outstanding trust preferred securities by issuer trusts originated by the Company at a discount of not less than 80% of such aggregate liquidation amount; (iv) the Company and its subsidiaries shall be in compliance in all material respects with the policies and procedures adopted by them and disclosed to Mr. Bolger and Lightyear in the Three Year Financial Plan dated October 24, 2009, and none of such policies and procedures shall have been revoked or modified in any respect that would make it materially less likely that the Company and its subsidiaries will be able to comply with the Order; (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 10% higher than the amount set forth as of September 30, 2009, (B) non-performing assets on its balance sheet shall not be more than 17.5% higher than the amount set forth as of September 30, 2009 and (C) the Company’s net loss, exclusive of tax adjustments or tax expense, for the period October 1, 2009 to the second business day prior to the closing of the Private Offerings shall not exceed $25 million; (vi) receipt by the Company and Lightyear of all the necessary regulatory approvals; and (vii) receipt of the approvals required of our shareholders being sought at the Special Meeting.

In addition, the consummation of the transactions contemplated by the Lightyear Purchase Agreement and accordingly, the Bolger Purchase Agreement, are subject to (i) Lightyear receiving written confirmation from the Federal Reserve that neither Lightyear nor its affiliates will be deemed to control the Company or any of its subsidiaries after the closing for purposes of the BHC Act or the CBC Act and (ii) Lightyear being reasonably satisfied that the Company and its subsidiaries have taken such actions and adopted such policies and procedures as may be necessary to comply with the Order as well as any other enforcement order issued by a federal or state banking regulator in effect as of the closing.

Under the Securities Purchase Agreements, the Company has granted registration rights to each of Mr. Bolger and Lightyear. Within thirty days of the closing date of the Private Offerings, the Company must file a shelf registration statement covering the registrable securities held by Mr. Bolger and Lightyear, including all securities purchased by each of Mr. Bolger and Lightyear pursuant to the Securities Purchase Agreements. In addition, each of Mr. Bolger and Lightyear have piggy-back registration rights, pursuant to which they may include registrable securities held by them in any subsequent registration of securities (not including the Public Offering) by the Company, subject to certain conditions.

Subject to certain customary conditions, the Company has granted each of Mr. Bolger and Lightyear preemptive rights on any subsequent offering of the Company's securities (not including the Public Offering) at a purchase price of less than 95% of the market price of the Company's Common Stock on the last trading day preceding the date of the agreement with respect to such issuance of securities. Mr. Bolger and Lightyear will each have such rights until such time as Mr. Bolger or Lightyear, as applicable, or their respective affiliates, cease to own 5% or more of all of the outstanding Common Stock of the Company.

TABLE OF CONTENTS

The Company has also agreed to take all necessary action to eliminate or minimize the effect of any anti-takeover laws, including anti-takeover provisions of the Company’s Articles of Incorporation, on the Private Offerings. In addition, so long as either Mr. Bolger or Lightyear owns at least 5% of the outstanding Common Stock of the Company, the Company has agreed not to enter into any poison pill agreement, stockholders’ rights plan or similar agreement, unless such agreement contains an exemption for each of Mr. Bolger and his affiliates or, Lightyear and its affiliates, as the case may be.

Under an existing shareholders agreement between Mr. Bolger and the Company, Mr. Bolger is entitled to nominate two directors to the Company’s Board of Directors. This arrangement will remain in place following the Private Offerings pursuant to the Bolger Purchase Agreement. Under the terms of the Lightyear Purchase Agreement, Lightyear will be entitled to nominate one director to the Company’s Board of Directors. In addition, commencing at the next annual shareholders meeting, the Company has agreed not to increase the number of directors to more than nine without the consent of Lightyear and Mr. Bolger.

Effect on Currently Outstanding Common Stock

The Private Offerings will result in Mr. Bolger and Lightyear 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 and in the trading price to our existing shareholders. In addition, the market price of our Common Stock could decline as a result of the Private Offerings and/or the Public Offering as a result of 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.

The Company and its Board of Directors believe it is in the best interests of the Company and its shareholders to sell $65 million of Common Stock to investors in the Private Offerings. The Private Offerings will result in greater than 20 percent 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. Therefore, 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 percent or more of its Common Stock or 20 percent 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 to such an arrangement, that company may be subject to the delisting of its securities from NASDAQ.

This description of the Securities Purchase Agreements is a summary of the material terms of such agreements and does not purport to be a complete description of all of the terms of such agreements. Copies of the Securities Purchase Agreements are included as exhibits to our current report on Form 8-K filed with the SEC on October 30, 2009.

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

PROPOSAL 3.  TO APPROVE AN AMENDMENT TO OUR ARTICLES OF INCORPORATION TO EFFECT A ONE FOR TEN REVERSE STOCK SPLIT OF THE COMPANY’S COMMON STOCK, A SIMULTANEOUS REDUCTION IN THE NUMBER OF AUTHORIZED SHARES AND PAYMENT OF CASH FOR RESULTING FRACTIONAL SHARES

General

The Company and its Board of Directors currently believe it would be in the best interests of the Company and its shareholders to adopt an amendment of the Company’s Articles of Incorporation authorizing

TABLE OF CONTENTS

a reverse stock split in which all outstanding shares of our Common Stock would be exchanged at a ratio of one for ten and a simultaneous decrease in the total number of shares of authorized Common Stock.

The proposed set of amendments to our Articles of Incorporation is attached to this proxy statement as Appendix C. If the amendment is approved, the number of issued and outstanding shares of Common Stock would be reduced by an exchange ratio of one share for every ten shares currently outstanding (the “Exchange Ratio”). If this Proposal is approved, the total number of authorized shares of Common Stock will be reduced from 300,000,000 (if Proposal 1 is approved by shareholders) to 40,000,000. The reverse stock split would become effective upon filing the amendment with the Oregon Secretary of State, which is anticipated to occur following the completion of the Public and Private Offerings. The Board of Directors may, at its sole discretion, elect not to implement the approved reverse stock split, even if the Proposal is approved by the shareholders.

Purpose and Background of the Reverse Split

The Board of Directors believes that the low per share market price of the Company’s Common Stock and the large number of shares of Common Stock outstanding impairs its marketability to and acceptance by institutional investors and other members of the investing public and creates a negative impression of the Company. Theoretically, decreasing the number of shares of Common Stock outstanding should not, by itself, affect the marketability of the shares, the type of investor who would be interested in acquiring them, or the Company’s reputation in the financial community. In practice, however, many investors and market makers consider low-priced stocks as unduly speculative in nature and, as a matter of policy, avoid investment and trading in such stocks. The presence of these negative perceptions may be adversely affecting, and may continue to adversely affect, not only the pricing of the Company’s Common Stock but also its trading liquidity. These perceptions may also affect the Company’s commercial business and its ability to raise additional capital through the sale of stock or the cost of debt it may incur.

The Company hopes that the decrease in the number of shares of its outstanding Common Stock resulting from the reverse split, and the anticipated increase in the price per share, will encourage greater interest in its Common Stock among members of the financial community and the investing public and possibly create a more liquid market for the Company’s shareholders with respect to those shares presently held by them. However, the possibility exists that shareholder liquidity may be adversely affected by the reduced number of shares which would be outstanding if the reverse split is effected, particularly if the price per share of the Company’s Common Stock begins a declining trend after the reverse split is effected. Companies which effect reverse stock splits often experience such a declining trend.

The Company’s Common Stock is listed on the NASDAQ Capital Market and therefore the Company is subject to certain continued listing standards and requirements, including a minimum bid price of its Common Stock of at least $1.00 per share. For example, if the bid price of the Company’s Common Stock falls below $1.00 per share or the market value of the publicly held Common Stock falls below certain amounts for thirty consecutive trading days, the Company’s Common Stock may be delisted from the NASDAQ Capital Market. The Company’s Common Stock has periodically fallen below $1.00 per share since October 13, 2009. A delisting of our Common Stock from the NASDAQ Capital Market would have a material adverse impact on the Company financial condition and results of operation. If the market price of the Common Stock rises as a result of the reverse split, this will help the Company to comply with the minimum-bid-price and other requirements for maintaining listing of its Common Stock on the NASDAQ Capital Market.

There can be no assurance that the reverse split will achieve any of the desired results. There also can be no assurance that the price per share of the Company’s Common Stock immediately after the reverse split will increase proportionately with the reverse split, or that any increase will be sustained for any period of time.

The Company is not aware of any present efforts by anyone to accumulate its Common Stock, and the proposed reverse split is not intended to be an anti-takeover device.

Summary of General Effect on Price for Common Stock

On October 28, 2009, the closing price for the Company’s Common Stock on the NASDAQ Capital Market was $1.07 per share. By decreasing the number of outstanding shares of Common Stock without altering the aggregate economic interest represented by the shares, the Company believes the market price will

TABLE OF CONTENTS

be proportionally increased. However, there can be no assurance that the market price of the Common Stock will rise to or maintain any particular level or that the Company will at any time or at all times be able to meet the minimum-bid-price and other requirements for maintaining listing of its Common Stock on the NASDAQ Capital Market.

Effects of Reverse Split on Common Stock; No Fractional Shares

The principal effect of the reverse split will be to decrease the number of outstanding shares of the Company’s Common Stock. The total number of shares of Common Stock each shareholder holds will be reclassified automatically into the number of shares equal to the number of shares each shareholder held immediately before the reverse split reduced in accordance with the Exchange Ratio. If the total number of shares a shareholder holds is not evenly divisible by the Exchange Ratio, that shareholder will not receive a fractional share but instead will receive cash in an amount equal to the fraction of a share that shareholder otherwise would have been entitled to receive multiplied by the last reported sale price of the Common Stock before the reverse split takes effect.

The proposed amendment to the Articles of Incorporation would effect a decrease in the Company’s total number of outstanding shares of Common Stock, and a simultaneous decrease in the total number of shares of authorized Common Stock from 300,000,000 to 40,000,000. Following the Public Offering and the Private Offerings, the number of outstanding shares of Common Stock and shares reserved for issuance upon the exercise of options will exceed the current number of fully diluted outstanding shares of Common Stock. The reverse stock split would decrease the number of outstanding shares of Common Stock, therefore increasing the number of shares of Common Stock available for future issuances. Such shares could be used for acquisitions, future equity financings, employee incentivization, or any other proper corporate purpose.

The proposed amendment to the Articles of Incorporation will not otherwise alter or modify the rights, preferences, privileges or restrictions of the Common Stock or Preferred Stock.

Effect on Outstanding Options

As of October 28, 2009, there were options to purchase 1,004,914 shares of the Company’s Common Stock outstanding. Under the terms of the options, when the reverse split becomes effective, the number of shares covered by each option will be decreased and the conversion or exercise price per share will be increased in accordance with the Exchange Ratio.

No Effect on Legal Ability to Pay Dividends

The Company does not believe that the reverse split will have any effect with respect to future distributions, if any, to the Company’s shareholders. In the fourth quarter of 2008 the Company reduced its dividend to zero and in the second quarter of 2009 the Company deferred payments on its Trust Preferred Securities. The Company is unable to pay dividends on its Common Stock until it makes all accrued payments on its Trust Preferred Securities, and the Company does not anticipate paying dividends in the near future. There can be no assurance as to future dividends because they are dependent on the Company’s future earnings, capital requirements and financial conditions.

Payment for Fractional Shares; Exchange of Stock Certificates

The Company will appoint American Stock Transfer to act as exchange agent for holders of Common Stock in connection with the reverse split. The Company will deposit with the exchange agent, as soon as practicable after the effective date of the reverse split, cash in an amount equal to the value of the estimated aggregate number of fractional shares that will result from the reverse split. The funds required to purchase the fractional share interests are available and will be paid from the Company’s then available cash reserves. The Company’s shareholder list shows that some of the outstanding Common Stock is registered in the names of clearing agencies and broker nominees. Because the Company does not know the numbers of shares held by each beneficial owner for whom the clearing agencies and broker nominees are record holders, the Company cannot predict with certainty the number of fractional shares that will result from the reverse split or the total amount it will be required to pay for fractional share interests. However, the Company does not expect that the amount will be material.

As of the Record Date, the Company had approximately 491 holders of record of the Company’s Common Stock (although the Company had significantly more beneficial holders). The Company does not

TABLE OF CONTENTS

expect the reverse split and the payment of cash in lieu of fractional shares to result in a significant reduction in the number of record holders. The Company presently does not intend to seek any change in its status as a reporting company for federal securities law purposes, either before or after the reverse split.

On or after the effective date of the reverse split, the Company will mail a letter of transmittal to each shareholder. Each shareholder will be able to obtain a certificate evidencing its post-reverse-split shares and, if applicable, cash in lieu of a fractional share only by sending the exchange agent its old stock certificate(s), together with the properly executed and completed letter of transmittal and such evidence of ownership of the shares as the Company may require. Shareholders will not receive certificates for post-reverse-split shares unless and until their old certificates are surrendered. Shareholders should not forward their certificates to the exchange agent until they receive the letter of transmittal, and they should only send in their certificates with the letter of transmittal. The exchange agent will send each shareholder’s new stock certificate and payment in lieu of any fractional share promptly after receipt of that shareholder’s properly completed letter of transmittal and old stock certificate(s). Shareholders who hold shares in street name through a nominee (such as a bank or broker) will be treated in the same manner as shareholders whose shares are registered in their names, and nominees will be instructed to effect the reverse split for their beneficial holders. However, nominees may have different procedures and shareholders holding shares in street name should contact their nominees.

Shareholders will not have to pay any service charges in connection with the exchange of their certificates or the payment of cash in lieu of fractional shares.

Approvals Required

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. The Board of Directors reserves the right not to implement this Proposal.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” PROPOSAL 3.

TABLE OF CONTENTS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the shares of Common Stock beneficially owned as of October 28, 2009, 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:

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 79 Chestnut Street Ridgewood, NJ 07450-2533			2,734,985				—				—				—				2,734,985				9.71	%
The David F. Bolger(1) 2008 Nongrantor Charitable Lead Annuity Trust c/o Wells, Jaworski, & Liebman, LLP 12 Route 17 North, P.O. Box 1827 Paramus, NJ 07652			2,526,955				—				—				—				2,526,955				8.97	%
T. Rowe Price Associates, Inc.(2) 100 E. Pratt Street Baltimore, Maryland 21202			2,647,500				—				—				—				2,647,500				9.40	%
The David F. Bolger(1) 2008 Grantor Retained Annuity Trust c/o Bolger & Co., Inc. 79 Chestnut Street Ridgewood, NJ 07450			728,059				—				—				—				728,059				2.59	%
Barclays Global Investors, NA 400 Howard Street San Francisco, CA 94105			1,762,644				—				—				—				1,762,644				6.26	%
Officers and Directors:
Jerol E. Andres, Director			35,402				—				—				—				35,402				0.13	%
Gary L. Hoffman, Director			107,888				—				7,420				—				115,308				0.41	%
Ryan R. Patrick, Director			41,165				—				7,420				—				48,585				0.17	%
James E. Petersen, Director			106,548				—				7,420				—				113,968				0.40	%
Judi Johansen, Director			16,057				—				—				—				16,057				0.06	%
Henry Hewitt, Director			11,386				—				—				—				11,386				0.04	%
Patricia L. Moss, Director			76,842				42,623				116,625				17,246				253,336				0.90	%
Clarence Jones, Director			31,063				—				—				—				31,063				0.11	%
Thomas M. Wells, Director			41,799				—				—				—				41,799				0.15	%
Michael J. Delvin, Officer			9,281				18,454				22,103				542				50,380				0.18	%
Gregory D. Newton, Officer			42,798				12,770				57,447				1,110				114,125				0.41	%
Peggy L. Biss, Officer			47,358				10,949				52,164				11,405				121,876				0.43	%
Michael Allison, Officer			0				25,000				—				—				25,000				0.09	%
All Directors and Executive Officers as a Group (13)			567,587				109,796				270,599				30,303				978,285				3.47%

TABLE OF CONTENTS

SHAREHOLDER PROPOSALS FOR 2010 ANNUAL MEETING

In order to be eligible under the SEC’s shareholder proposal rule (Rule 14a-8) 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 16, 2009.

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 an April 28, 2010, meeting, no earlier than January 29, 2010, and not later than the close of business on February 28, 2010.)

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
		Gregory D. Newton SECRETARY

Bend, Oregon
November 10, 2009

TABLE OF CONTENTS

Appendix A

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, 2009 and December 31, 2008 and 2007 and for the nine-month periods ended September 30, 2009 and 2008 and each of the years in the three-year period ended December 31, 2008 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 proxy statement, 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 filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2009, as well as the following factors: our inability to comply in a timely manner with the cease and desist order with the Federal Deposit Insurance Corporation (“FDIC”) and the Oregon Division of Finance and Corporate Securities (“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; we may be compelled to seek additional capital in the future to augment capital levels or ratios or improve liquidity, but capital or liquidity may not be available when needed or on acceptable terms; 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 SEC reports; 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 an 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.

TABLE OF CONTENTS

Recent Developments

Regulatory Order

On August 27, 2009 the Bank entered into an agreement with the FDIC, its principal federal banking regulator, and the DFCS which requires the Bank to take certain measures to improve its safety and soundness.

In connection with this agreement, the Bank stipulated to the issuance by the FDIC and the DFCS of a cease-and-desist order against the Bank based on certain findings from an examination of the Bank conducted in February 2009 based upon financial and lending data measured as of December 31, 2008 (the “Order”). In entering into the stipulation and consenting to entry of the order, the Bank did not concede the findings or admit to any of the assertions therein.

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 to 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 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. At September 30, 2009, the Company’s Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios were 4.22%, 5.38% and 8.61%, respectively, meeting the regulatory benchmarks for “adequately capitalized” and the Bank’s Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios were 5.76%, 7.34% and 8.61%, respectively, meeting the regulatory benchmarks for “adequately-capitalized.” These ratios include a reduction of 80 basis points in the Tier 1 leverage ratio and 102 basis points in the Tier 1 risk-based and total risk-based capital ratios related to a disallowance of $18.7 million or approximately 54% of the Company’s deferred income tax assets based upon a regulatory accounting calculation standard that is not directly applicable under generally accepted accounting principles (“GAAP”). Management’s assessment is primarily dependent on historical taxable income and projections of future taxable income, which are directly related to the Company’s core earnings capacity and its prospects to generate core earnings in the future. Projections of core earnings and taxable income are inherently subject to uncertainty and estimates that may change given uncertain economic outlook, banking industry conditions and other factors. 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-capital and total risk-based capital, respectively. However, as mentioned above, pursuant to the Order the Bank is required to maintain a Tier 1 leverage ratio of at least 10% in order to be considered “well-capitalized.”

In addition, the Bank must retain qualified management and must notify the FDIC and the DFCS in writing when it proposes to add any individual to its board of directors or to employ any new senior executive officer. On September 3, 2009, the Company announced the appointment of a new Executive Officer to the Company and Bank to the position of Executive Vice President and Chief Credit Officer. Under the Order the Bank’s board of directors must also increase its participation in the affairs of the Bank, assuming full responsibility for the approval of sound policies and objectives and for the supervision of all the Bank’s activities.

The Order further requires the Bank to ensure the level of the reserve for loan losses is maintained at appropriate levels to safeguard the book value of the Bank’s loans and leases, and to reduce the amount of classified loans as of the date of the Order to no more than 75% of capital within 120 days of the date of the Order. The Bank also must adopt and implement plans to reduce delinquent loans and reduce loans and other extensions of credit to borrowers in the troubled commercial real estate market sector. The Order also requires the Bank to develop a written three-year strategic plan, a plan for improving and sustaining earnings, and a plan to preserve liquidity.

The Order restricts the Bank from taking certain actions without the consent of the FDIC and the DFCS, including paying cash dividends, and from extending additional credit to certain types of borrowers.

TABLE OF CONTENTS

The Order further requires the Bank to maintain a primary liquidity ratio (net cash, net short-term and marketable assets divided by net deposits and short-term liabilities) of at least 15%. During the second quarter of 2009, the Company substantially increased its interest bearing balances held mainly at the Federal Reserve Bank (“FRB”). This action was taken to bolster the Bank’s liquidity as part of its contingency planning to help ensure ample and sufficient liquidity under a wide variety of adverse stress-test conditions. At September 30, 2009 the balances held at the FRB were $294.3 million or approximately 13% of total assets and our primary liquidity ratio was 20.25%. This contingent liquidity has the effect of lowering the Company’s net interest income because such assets presently earn only an overnight rate of 0.25%, which is below the cost of deposits. Subject to the restriction on liquidity ratios in the Order, the Company intends to redeploy such assets into higher earning loans and investments at such time as management and the board of directors believes is prudent and within the context of the Order.

We may also face additional restrictions from the Board of Governors of the Federal Reserve System (the “Federal Reserve”) based on the Bank’s capitalization. The consequences of the Bank failing to become “well-capitalized” could include additional restrictions on activities and loans and loss of Cascade Bancorp’s status as a ”Financial Holding Company” as defined in the 1999 Gramm-Leach-Bliley Act.

Written Agreement

On October 26, 2009, the Company entered into a written agreement with the Federal Reserve Bank of San Francisco (the “Reserve Bank”) and DFCS (the “Written Agreement”), which requires the Company to take certain measure to improve its safety and soundness. Under the Written Agreement, the Company is required to develop and submit for approval, a plan to maintain sufficient capital at the Company and the Bank within 60 days of the Written Agreement. The Company must notify the Reserve Bank in writing within 30 days after any quarter in which any of the Company or the Bank’s capital ratio fall below the approved plan’s minimum ratios.

In addition, the Written Agreement restricts the Company from taking certain actions without the consent of Reserve Bank and DFCS, including paying any dividends, taking dividends from the Bank and making any distributions of interest, principal or other sums on subordinated debt or trust preferred securities. The Written Agreement further requires the Company to notify the Reserve Bank and the DFCS in writing when it proposes to add any individual to its board of directors or to employ any new senior executive officer.

We may also face additional restrictions from the Board of Governors of the Federal Reserve based on the Bank’s capitalization and other conditions giving rise to the Order. The consequences of the Bank failing to become “well-capitalized” could include additional restrictions on activities and loans.

Critical Accounting Policies and Accounting Estimates

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that our most critical accounting policies upon which our financial condition depends, and which involve the most complex or subjective decisions or assessments are as follows:

Reserve for Credit Losses:  The Company’s reserve for credit losses provides for possible 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. 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, 2008” below.

TABLE OF CONTENTS

Other Real Estate Owned and Foreclosed Assets:  Other real estate owned or other foreclosed assets acquired through loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the reserve for loans losses. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate. If it is determined that fair value declines subsequent to foreclosure, a valuation allowance is recorded through noninterest expense. Operating costs associated with the assets after acquisition are also recorded as noninterest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expenses.

Mortgage Servicing Rights (MSRs):  Determination of the fair value of MSRs requires the estimation of multiple interdependent variables, the most impactful of which is mortgage prepayment speeds. Prepayment speeds are estimates of the pace and magnitude of future mortgage payoff or refinance behavior of customers whose loans are serviced by the Company. Errors in estimation of prepayment speeds or other key servicing variables could subject MSRs to impairment risk. On a quarterly basis, the Company engages a qualified third party to provide an estimate of the fair value of MSRs using a discounted cash flow model with assumptions and estimates based upon observable market-based data and methodology common to the mortgage servicing market. Management believes it applies reasonable assumptions under the circumstances, however, because of possible volatility in the market price of MSRs, and the vagaries of any relatively illiquid market, there can be no assurance that risk management and existing accounting practices will result in the avoidance of possible impairment charges in future periods. See also “Non-Interest Income” below and Note 7 (“Mortgage Servicing Rights”) of the Company’s interim Consolidated Unaudited Financial Statements as of and for the nine-month period ending September 30, 2009.

Deferred Income Taxes:  As of September 30, 2009 and December 31, 2008, the Company had recorded net deferred income tax assets (“DTA”) (which are included in other assets in the accompanying condensed consolidated balance sheets) of approximately $34.6 million and $22.2 million, respectively. The realization of deferred income tax assets is assessed and a valuation allowance is recorded if it is “more likely than not” that all or a portion of the deferred tax asset will not be realized. “More likely than not” is defined as greater than a 50% chance. All available evidence, both positive and negative is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. Management’s assessment is primarily dependent on historical taxable income and projections of future taxable income, which are directly related to the Company’s core earnings capacity and its prospects to generate core earnings in the future. Projections of core earnings and taxable income are inherently subject to uncertainty and estimates that may change given uncertain economic outlook, banking industry conditions and other factors. Management is considering certain transactions that would increase the likelihood that a DTA will be realized. Specifically, it is contemplating the effect of a possible exchange of existing trust preferred securities (“TPS”) (see Note 9 (“Junior Subordinated Debentures”) of the Company’s interim Consolidated Unaudited Financial Statements as of and for the nine-month period ending September 30, 2009) for cash whereby the TPS would be extinguished resulting in a taxable gain and thereby increasing the likelihood that the Company’s DTA would be fully realized. Any possible exchange of TPS would be subject to approval by the Reserve Bank pursuant to the Written Agreement discussed elsewhere in this proxy statement. Management may also consider other transactions including the sale marketable securities and liquidation of Bank owned life insurance. Execution of certain transactions may be considered viable but changing market conditions, tax laws, and other factors could affect the success thereof. Net operating loss carryforwards, if any, may be limited should a stock offering or sale of securities cause a change in control as defined in Internal Revenue Code (“IRC”) Section 382. In addition, net unrealized built in losses, as defined in IRC Section 382 may be limited. Based upon management’s analysis of available evidence, it has determined that it is “more likely than not” that the Company’s deferred income tax assets as of September 30, 2009 will be fully realized and therefore no valuation allowance was recorded. However, the Company can give no assurance that in the future its DTA will not be impaired since such determination is based on projections of future earnings and the possible effect of the transactions discussed above, which are subject to uncertainty and estimates that may change given economic conditions and other factors. Due to the uncertainty of estimates and projections, it is reasonably possible that the Company will be required to record adjustments to the valuation allowance in future reporting periods.

TABLE OF CONTENTS

Goodwill and Other Intangibles:  Net assets of entities acquired in purchase transactions are recorded at fair value at the date of acquisition. Identified intangibles are amortized on a straight-line basis over the period benefited. Goodwill is not amortized, although it is reviewed for impairment on an annual basis or if events or circumstances indicate a potential impairment. The impairment test is performed in two phases. The first step is to estimate the fair value of the reporting unit assuming it is sold in an orderly transaction between knowledgeable market participants. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its estimated fair value, an additional procedure must be performed. That additional procedure compares the implied fair value of the reporting unit’s goodwill (as defined in SFAS No. 142, Goodwill and Other Intangible Assets) with the carrying amount of that goodwill. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The Company used an independent third party accounting firm to perform its impairment testing which concluded no goodwill impairment at its annual test as of September 30, 2008. The third party performed an interim test as of December 31, 2008, and then subsequently updated its analysis. This report concluded the estimated fair value of the Company’s reporting unit was less than its book value resulting in a noncash after-tax impairment charge of $105.0 million as of December 31, 2008 eliminating all previously recorded goodwill.

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 deterioration of these local economies, resulting in an adverse affect on the Company’s financial condition or results of operations. Unemployment rates have increased significantly and are expected to increase further. Business activity across a wide range of industries and regions is greatly reduced and local governments and many businesses are facing serious challenges due to the lack of consumer spending driven by elevated unemployment and uncertainty.

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 value of collateral securing those loans, is highly dependent upon on 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 affect on the condition and results of operations for 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 sale of lots or completed residences experienced reduced ability to service their loan obligations and the market value of underlying collateral was 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 of $44.6 million and $12.6 million in the nine month and three month periods ended September 30, 2009. 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 realized a reduction in cash available to deposit in the Bank. However, core deposits are showing signs of stabilization in the third quarter of 2009 as indicated by an increase in average balances in non-interest bearing accounts in the current quarter after declining for 10 consecutive quarters.

Highlights and Summary of Recent Performance — Third Quarter of 2009

TABLE OF CONTENTS

Cascade reported a third quarter 2009 net loss of $12.6 million or $0.45 per share compared to net income of $0.3 million or $0.01 per share for the year-ago quarter primarily due to elevated loan loss provision expense, decreased net interest income, and an increase in noninterest expense due to OREO valuation charges. Loans were lower mainly due to management’s actions to strategically reduce outstanding loans, declining loan originations and increased loan charge-offs. Management actions to lower loan volumes included loan sales or 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. Non-performing assets (“NPAs”) were $197.3 million down from $204.1 million in the linked-quarter. The third quarter 2009 provision for loan losses totaled $22.0 million (pre-tax) with net loan charge-offs of $31.3 million (pre-tax) primarily due to declining real estate appraised values backing collateral dependent loans. Net interest income was lower for the third quarter of 2009 primarily due to reduced interest and loan fee income related to the decline in loan volumes and interest reversed and foregone on NPAs. Non-interest income increased $2.6 million for the three months ended September 30, 2009 compared to the year-ago level primarily due to a one-time gain recorded on the sale of the Bank’s credit card merchant business of $3.2 million described below. Non-interest expenses were higher primarily due to OREO valuation adjustments of approximately $9.0 million and FDIC insurance of $1.8 million for the quarter. OREO and FDIC expenses were $0.4 million and $0.5 million in the year ago third quarter, respectively.

Total deposits at September 30, 2009, were $1.8 billion, up 4.8% compared to the year-ago quarter mainly as a result of increased time deposits. Non-interest bearing deposits decreased 3.9% from the year ago quarter, but increased modestly to $428.9 million or by $4.0 million compared to the linked-quarter. Customer time deposits increased as did those from internet and brokered sources. The Company is restricted from acquiring additional brokered deposits under the terms of the Order discussed above and is managing its deposit strategy accordingly.

The net interest margin (“NIM”) was 3.13% for the third quarter of 2009 compared to 3.52% for the linked-quarter and 4.42% in the year-ago period mainly due to balances held with Federal Reserve Bank for liquidity purposes. Federal Reserve Bank balances were $294.3 million or approximately 13% of total assets at September 30, 2009 and were insignificant at December 31, 2008. This had the effect of lowering the Company’s NIM for the quarter ended September 30, 2009 by 32 basis points because such assets presently earn a low overnight rate of 0.25% which is below the average cost of deposits. Subject to the restriction on liquidity ratios in the Order, the Company intends to prudently redeploy such assets into higher earning loans and investments over time. The NIM was also lower by 7 basis points compared to the linked-quarter due to interest reversals and interest foregone on non-performing assets. On September 1, 2009, the Company sold its merchant card processing business and certain miscellaneous assets utilized in connection with that business. The Company recognized a pre-tax net gain resulting from the sale of the merchant card processing business of approximately $3.2 million in the third quarter of 2009.

Pursuant to the Order discussed above, the Bank is required to develop and adopt a plan to maintain the minimum 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. At September 30, 2009, the Company’s Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios were 4.22%, 5.38% and 8.61%, respectively, meeting the regulatory benchmarks for “adequately capitalized” and the Bank’s Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios were 5.76%, 7.34% and 8.61%, respectively, meeting the regulatory benchmarks for “adequately-capitalized.” These ratios include a reduction of 80 basis points in the Tier 1 leverage ratio and 102 basis points in the Tier 1 and total risk-based capital ratios related to a disallowance of $18.7 million or approximately 54% of the Company’s deferred tax assets based upon a regulatory accounting calculation standard that is not directly applicable under generally accepted accounting principles (“GAAP”). Regulatory benchmarks for “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,

TABLE OF CONTENTS

respectively. However, as mentioned above, pursuant to the Order the Bank is required to maintain a Tier 1 leverage ratio of at least 10% in order to be considered “well-capitalized.”

Loan Portfolio and Credit Quality

At September 30, 2009, Cascade’s loan portfolio was approximately $1.7 billion, down $127.0 million and $374.0 million when compared to the linked-quarter and a year-ago, respectively. Loans have declined primarily due to reduced loan originations, an increase in loan charge-offs and management’s strategic loan reduction program that 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. These actions resulted in lower loan portfolio risk exposure and thereby helped to support regulatory capital ratios.

Broadly, provisioning expenses and charge-offs were primarily due to deteriorating appraised values on collateral dependent loans especially in the residential land development portfolio. Appraised values continued to decline in part because nearly all sales of such properties are distressed sales such as bank short sales or foreclosures.

NPAs decreased to $197.3 million, or 8.7% of total assets compared to $204.1 million or 8.5% of total assets for the linked-quarter and $159.4 million or 7.0% at December 31, 2008, primarily due to charge-offs, sales and valuation adjustments on impaired loans and OREO. The land development portfolio is nearly all classified as NPA. Such loans represent approximately 8% of the Bank’s overall loan portfolio but nearly 69% of total NPAs. Because of the uncertain real estate market, no assurances can be given as to the timing of ultimate disposition of such assets 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.

At September 30, 2009, loans delinquent greater than 30 days were at 0.28% of total loans compared to 0.52% for the linked-quarter and 0.33% for the year ended December 31, 2008. At September 30, 2009 the delinquency rate in our commercial real estate (“CRE”) portfolio and our commercial and industrial (“C&I”) portfolio was 0.05% and 0.15%, respectively, compared to 0.39% and 0.85% at December 31, 2008. CRE loans represent the largest portion of Cascade’s portfolio at 41% of total loans and the C&I loans represent 27% of total loans. While credit quality challenges continue to be centered in the Bank’s residential land development portfolio, the current economic challenges have had an impact on the CRE and C&I portfolio as well. We can provide no assurance that the delinquency rate in the Bank’s CRE and C&I portfolio will not continue to increase.

At September 30, 2009 the total reserve for credit losses was $53.8 million or 3.21% of total loans. 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 $7.2 million or 15.7% in unallocated reserves which reflect 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 and other relevant staff. With uncertainty as to the depth and duration of the real estate slowdown and its economic effect on the communities within Cascades’ banking markets, we can give no assurances that the reserve will be adequate in future periods or that the level of NPAs will not increase. Further provisioning and charge-offs may be required before values stabilize. See “Loans — Real Estate Loan Concentration” under “Financial Condition — as of December 31, 2008” below.

Deposits

Total deposits at September 30, 2009 were $1.8 billion, up 4.8% compared to a year-ago, up 2.7% compared to December 31, 2008, and down 5.8% on a linked-quarter basis. The increase over a year-ago is primarily due to higher brokered deposits as well as recent success in attracting internet sourced deposits and stabilizing local customer account totals. However, pursuant to the Order, the Bank is not permitted to accept additional brokered deposits. The impact of the announcement of the Order in the third quarter of 2009 may have contributed to the decrease in deposits from the linked-quarter and such decreases were within the level management projected and was prepared for.

TABLE OF CONTENTS

At September 30, 2009 wholesale brokered deposits totaled $167.0 million compared to $159.2 million at December 31, 2008. In addition, local relationship based reciprocal Certificate of Deposit Registry Program (“CDARs”) deposits totaled $68.9 million at September 30, 2009. However, “adequately capitalized” banks are restricted from accessing wholesale brokered deposits. Further, the Order restricts the Bank’s ability to accept additional brokered deposits, including the Bank’s reciprocal CDARs program, for which it previously had a temporary waiver from the FDIC. The Bank’s internet listing service deposits at September 30, 2009 was approximately $211.1 million compared to $168.1 million at June 30, 2009 and a de minimus balance at year-end 2008. 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.

The Bank’s primary counterparty for borrowing purposes is the Federal Home Loan Bank (“FHLB”) of Seattle, and liquid assets are mainly balances held at FRB. Available borrowing capacity has been reduced as we drew on our available sources. Borrowing capacity from FHLB of Seattle or FRB may fluctuate based upon the acceptability and risk rating of loan collateral, and counterparties could adjust discount rates applied to such collateral at their discretion, and FRB or FHLB of Seattle could restrict or limit our access to secured borrowings. As with many community banks, correspondent banks have withdrawn unsecured lines of credit or now require collateralization for the purchase of fed funds on a short-term basis due to the present adverse economic environment.

To provide customer assurances, the Company is participating in the FDIC’s temporary 100% guarantee of non-interest bearing checking accounts, including NOW accounts paying less than 0.50%. Additionally, under recent changes from the FDIC, all interest bearing deposit accounts are insured up to $250,000 through December 31, 2013.

Cash Dividend

In view of the present adverse and uncertain economic conditions and consistent with the Company’s dividend policy wherein quarterly cash dividends are to be paid from current earnings, the Board of Directors has decided to omit the quarterly cash dividend at this time.

Results of Operations — Nine Months and Three Months Ended September 30, 2009 and 2008

Income Statement Overview

Net Loss

Net loss increased $47.6 million for the nine months and increased $13.0 million for the quarter ended September 30, 2009 as compared to the same periods in 2008. These increases were primarily due to elevated level of loan loss provision, a decrease in net interest income and OREO valuation adjustments for each period presented. The loan loss provision increased $46.7 million for the nine months and increased $6.6 million for the quarter ended September 30, 2009 compared to the year ago periods. Net interest income decreased $17.4 million for the nine months and decreased $6.7 million for the quarter ended September 30, 2009 mainly due to lower loan balances and interest reversed and foregone on non performing loans. Non-interest income was up for both the nine month and three month periods ending September 30, 2009, due to a one-time gain on the sale of our merchant business of $3.2 million and increased mortgage revenue due to increased refinance activity. Meanwhile non-interest expense increased $17.0 million for the nine months and increased $12.0 million for the quarter ended September 30, 2009, primarily due to expenses related to other real estate owned and legal related costs, offset by a reduction in staffing expenses in the current periods.

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.

TABLE OF CONTENTS

Yields on earning assets during the nine months and three months ended September 30, 2009 were 5.12% and 4.72%, respectively, compared to 6.59% and 6.28%, for the nine months and three months ended September 30, 2008. The decline in yields for the periods presented are 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 nine months ended September 30, 2009 was 1.96% relatively flat when compared to the third quarter of 2009 rate paid of 1.91%. The average rate paid on liabilities for the nine months ended September 30, 2008 was 2.61% and was down in the third quarter of 2008 to 2.35%, primarily due to declining market rates.

For the nine months and quarter ended September 30, 2009, the net interest margin (“NIM”) was 3.16% and 3.13%, respectively compared to 4.54% and 4.42% for the nine months and quarter ended September 30, 2008. Meanwhile, the overall cost of funds was down to 1.55% for the nine months ended September 30, 2009 compared to 2.10% for year-ago period. The lower NIM was primarily due to increases in interest bearing balances held with the Federal Reserve Bank reducing the margin by approximately 32 basis points compared to the linked-quarter. In addition, the NIM for the quarter ended September 30, 2009 was affected by approximately 7 basis points compared to 10 basis points for the year ago period primarily due to interest reversals on loans placed into a non-performing status.

TABLE OF CONTENTS

Components of Net Interest Margin

The following table sets forth for the quarters ended September 30, 2009 and 2008 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, 2009												Quarter Ended September 30, 2008
		Average Balance				Interest Income/ Expense				Average Yield or Rates				Average Balance				Interest Income/ Expense				Average Yield or Rates
Assets
Taxable securities		$	101,558			$	1,229				4.80	%		$	82,857			$	1,096				5.25	%
Non-taxable securities(1)			3,566				47				5.23	%			4,291				40				3.70	%
Interest bearing balances due from other banks			347,880				219				0.25	%			—				—				0.00	%
Federal funds sold			3,919				1				0.10	%			1,457				6				1.63	%
Federal Home Loan Bank stock			10,472				—				0.00	%			13,351				45				1.34	%
Loans(1)(2)(3)(4)			1,734,611				24,712				5.65	%			2,060,256				33,042				6.36	%
Total earning assets/interest income			2,202,006				26,208				4.72	%			2,162,212				34,229				6.28	%
Reserve for loan losses			(58,589	)											(39,073	)
Cash and due from banks			40,790												50,938
Premises and equipment, net			38,492												36,492
Bank-owned life insurance			33,615												33,946
Accrued interest and other assets			110,247												177,872
Total assets		$	2,366,561											$	2,422,387
Liabilities and Stockholders’ Equity
Interest bearing demand deposits		$	756,852				1,891				0.99	%		$	803,886				3,396				1.68	%
Savings deposits			33,433				18				0.21	%			37,561				36				0.38	%
Time deposits			729,951				4,647				2.53	%			401,770				3,045				3.01	%
Other borrowings			314,801				2,261				2.85	%			471,979				3,669				3.08	%
Total interest bearing liabilities/interest expense			1,835,037				8,817				1.91	%			1,715,196				10,146				2.35	%
Demand deposits			415,544												407,420
Other liabilities			12,560												16,628
Total liabilities			2,263,141												2,139,244
Stockholders’ equity			103,420												283,143
Total liabilities and stockholders’ equity		$	2,366,561											$	2,422,387
Net interest income						$	17,391											$	24,083
Net interest spread											2.82	%											3.93	%
Net interest income to earning assets											3.13	%											4.42	%

TABLE OF CONTENTS

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, 2009, 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, 2009 vs. 2008
		Total				Volume				Rate
Interest income:
Interest and fees on loans		$	(8,330	)		$	(5,223	)		$	(3,107	)
Investments and other			309				460				(151	)
Total interest income			(8,021	)			(4,763	)			(3,258	)
Interest expense:
Interest bearing demand			(1,505	)			(199	)			(1,306	)
Savings			(18	)			(4	)			(14	)
Time deposits			1,602				2,487				(885	)
Other borrowings			(1,408	)			(1,222	)			(186	)
Total interest expense			(1,329	)			1,062				(2,391	)
Net interest income		$	(6,692	)		$	(5,825	)		$	(867	)

Loan Loss Provision

The loan loss provision for the nine months ended September 30, 2009 was $85.0 million and for the quarter ended September 30, 2009 was $22.0 million, as compared to $38.3 million and $15.4 million for the nine months and three months periods, respectively, a year ago. These increases were primarily due to deteriorating appraised values on collateral dependent loans especially in the residential land development portfolio. In addition, the Bank has increased its level of pooled and unallocated reserves in response to the challenging economic environment. At September 30, 2009, the reserve for credit losses (reserve for loan losses and loan commitments) was 3.21% of outstanding loans, as compared to 2.48% for the year ago period and 2.46% at December 31, 2008. For further discussion, see “Critical Accounting Policies and Accounting Estimates —  Reserve for Credit Losses” and “Loan Portfolio and Credit Quality” above. 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 filed with the Securities and Exchange Commission on March 13, 2009.

Non-Interest Income

Non-interest income increased 9.3% for the nine months and increased 8.9% for the quarter ended September 30, 2009 compared to the year ago periods after excluding the one-time gain of $3.2 million on the sale of the merchant card processing business. For the nine months ended September 30, 2009, service charges on deposit accounts were down $0.9 million, earnings on bank-owned life insurance was down $0.7 million, and other income was down $0.3 million as adjusted. These decreases were partially offset by gains on sales of investment securities available-for-sale of $0.6 million and increased mortgage revenue. Mortgage revenue was higher for the nine months ended September 30, 2009 at $155.1 million or 52.6% compared to the same period in 2008. Mortgage originations for the third quarter of 2009 were up 31.5% compared to the year ago quarter. Historically, the Company has focused on originating conventional mortgage products throughout its history while purposefully avoiding sub-prime/option-ARM type products. As a result, the delinquency rate within Cascade’s $548 million portfolio of serviced residential mortgage loans is approximately 2.44%, notably below the national mortgage delinquency rate of 13.16% as of June 30, 2009. The fair value of our servicing portfolio at September 30, 2009 is estimated to exceed book value by amounts ranging from $0.7 million to $1.8 million.

TABLE OF CONTENTS

Non-Interest Expense

Non-interest expense for the nine months and three months ended September 30, 2009 increased 35.5% and 87.2%, respectively, from the same periods a year ago. The 2009 increases are attributable to increases in the cost of FDIC insurance and OREO related costs, partially offset by a reduction in salaries and employee benefits expense.

FDIC deposit insurance assessments increased $4.2 million for the nine months and increased $1.3 million for the quarter ended September 30, 2009 when compared to the same period in 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 as of September 30, 2009.

OREO costs and valuation adjustments increased $14.1 million for the nine months and increased $9.4 million for the three months ended September 30, 2009 when compared to the same periods in 2008, primarily due to a continuation in decreases in real estate values on real estate secured loans.

Income Taxes

The Company’s effective income tax rates for the nine months and three months ended September 30, 2009 were 44% and 41%, respectively. In general, these effective rates are higher than the expected statutory rates primarily due to the utilization of losses and the benefit from tax credits. The Company’s effective income tax rate of approximately 4% for the nine months ended September 30, 2008, was primarily related to elevated level of losses incurred in the period. The tax rate for the three months ended September 30, 2009 increased due to an increase in the Oregon tax rate which was signed into law during the three months ended September 30, 2009. As of September 30, 2009, the Company had recorded refundable income taxes receivable of approximately $19.7 million related to the carryback of operating losses to prior years. For discussion of the Company’s deferred income tax assets see “Critical Accounting Policies — Deferred Income Taxes” above.

Results of Operations — Years Ended December 31, 2008, 2007 and 2006

Income Statement Overview

Net Income

The Company reported a net loss for 2008 of ($134.6) million compared to net income of $30.0 million in 2007. The decrease was primarily due to the noncash after-tax goodwill impairment charge of $105.0 million which eliminated all previously recorded goodwill, and to a loan loss provision of $99.6 million, for a year-over-year provision increase of $80.2 million due to the deteriorating economic environment which adversely effected loan repayment capacity and collateral values, particularly with respect to residential land development loans. For the year, net interest income decreased $13.1 million or 12.1% due mainly to lower average yields, including interest reversed, and interest foregone on non-performing loans. Non-interest income was lower by $1.4 million or 6.6%. Non-interest expense increased $110.9 million or 177.5% for the year primarily due to the goodwill impairment charge of $105.0. In addition, OREO expenses which were $8.4 million in 2008 as compared to only $0.1 million in 2007. Also, tax expense decreased 231.3% as a result of a decrease in net income. Net income for 2007 decreased $5.7 million as compared to 2006. This decrease was primarily due to an increase of $13.4 million in loan loss provision over the prior year.

Net Interest Income/Net Interest Margin

Total interest income decreased approximately $33.5 million (or 19.5%) for 2008 primarily because of lower average yields, including interest reversed, and interest foregone on non-performing loans. Total interest expense for 2008 also declined by approximately $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 $95.4 million or 12.1% in 2008 over 2007. Net interest income increased 10.4% in 2007 over 2006 primarily due an increase in average earning assets of 21.5% over 2006. Yields earned on assets decreased to 6.40% for 2008, as compared to 8.21 in 2007 and 8.07% in 2006. Meanwhile, the average rates paid on interest bearing liabilities for 2008 decreased to 2.49% compared to 4.01% in 2007 and 3.42% in 2006.

TABLE OF CONTENTS

The Company’s net interest margin (“NIM”) decreased to 4.44% for 2008, as compared to 5.23% for 2007. Three factors contributed to the lower NIM for the year ended December 31, 2008, including interest forgone and reversed on NPAs, lower average balances in non-interest bearing deposit accounts for the quarter, 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. Because of its relatively high proportion of non-interest bearing funds, the Company’s NIM is most adversely affected in the event the federal funds rate falls to a very low level.

Net interest income would have been $100.4 million had the NPL’s been paying in accordance with the terms of the loans, and the amount of interest income that would have been included in net interest income for that period for such loans.

TABLE OF CONTENTS

Components of Net Interest Margin

The following table presents further analysis of the components of Cascade’s net interest margin and sets forth for 2008, 2007, and 2006 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, 2008												Year Ended December 31, 2007												Year Ended December 31, 2006
(Dollars in Thousands)		Average Balance				Interest Income/ Expense				Average Yield or Rates				Average Balance				Interest Income/ Expense				Average Yield Rates				Average Balance				Interest Income/ Expense				Average Yield or Rates
Assets
Taxable securities		$	85,034			$	4,462				5.25	%		$	93,793			$	5,259				5.61	%		$	98,324			$	4,919				5.00	%
Non-taxable securities(1)			5,211				255				4.89	%			7,952				283				3.56	%			8,831				384				4.35	%
Interest bearing balances due from Federal Home Loan Bank			13				0				0.00	%			3,735				195				5.22	%			7,293				344				4.72	%
Federal funds sold			2,026				31				1.53	%			3,910				187				4.78	%			11,156				510				4.57	%
Federal Home Loan Bank stock			11,458				111				0.97	%			6,991				42				0.60	%			5,617				7				0.12	%
Loans(1)(2)(3)(4)			2,054,199				133,346				6.49	%			1,974,435				165,690				8.39	%			1,590,315				132,847				8.35	%
Total earning assets			2,157,941				138,205				6.40	%			2,090,816				171,656				8.21	%			1,721,536				139,011				8.07	%
Reserve for loan losses			(38,827	)											(24,498	)											(22,026	)
Cash and due from banks			48,341												55,427												62,374
Premises and equipment, net			37,273												38,307												35,082
Other Assets			207,094												178,682												116,867
Total assets		$	2,411,822											$	2,338,734											$	1,913,833
Liabilities and Stockholders’ Equity
Int. bearing demand deposits		$	844,136				15,540				1.84	%		$	889,069				30,727				3.46	%		$	696,100				19,608				2.82	%
Savings deposits			36,761				135				0.37	%			41,327				202				0.49	%			46,756				216				0.46	%
Time deposits			386,990				12,850				3.32	%			340,324				15,804				4.64	%			198,415				8,108				4.09	%
Other borrowings			434,112				13,846				3.19	%			294,854				15,991				5.42	%			237,206				12,389				5.22	%
Total interest bearing liabilities			1,701,999				42,371				2.49	%			1,565,574				62,724				4.01	%			1,178,477				40,321				3.42	%
Demand deposits			407,980												469,015												509,145
Other liabilities			20,904												29,590												22,773
Total liabilities			2,130,883												2,064,179												1,710,395
Stockholders’ equity			280,939												274,555												203,438
Total liabilities & equity		$	2,411,822											$	2,338,734											$	1,913,833
Net interest income						$	95,834											$	108,932											$	98,690
Net interest spread											3.92	%											4.20	%											4.65	%
Net interest income to earning assets											4.44	%											5.23	%											5.73	%

TABLE OF CONTENTS

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,
		2008 Over 2007												2007 Over 2006
		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		$	(32,344	)		$	6,694			$	(39,038	)		$	32,843			$	32,087			$	756
Taxable securities			(797	)			(491	)			(306	)			340				(227	)			567
Non-taxable securities			(28	)			(98	)			70				(101	)			(38	)			(63	)
Interest bearing balances due from FHLB			(195	)			(194	)			(1	)			(149	)			(168	)			19
Federal Home Loan Bank stock			69				27				42				35				2				33
Federal funds sold			(156	)			(90	)			(66	)			(323	)			(331	)			8
Total interest income			(33,451	)			5,848				(39,299	)			32,645				31,325				1,320
Interest expense:
Interest on deposits:
Interest bearing demand			(15,187	)			(1,553	)			(13,634	)			11,119				5,436				5,683
Savings			(67	)			(22	)			(45	)			(14	)			(25	)			11
Time			(2,954	)			2,167				(5,121	)			7,696				5,799				1,897
Other borrowings			(2,145	)			7,552				(9,697	)			3,602				3,010				591
Total interest expense			(20,353	)			8,144				(28,497	)			22,403				14,220				8,182
Net interest income		$	(13,098	)		$	(2,296	)		$	(10,802	)		$	10,242			$	17,105			$	(6,862	)

Loan Loss Provision

At December 31, 2008, the reserve for credit losses (reserve for loan losses and reserve for unfunded commitments) was 2.46% of outstanding loans, as compared to 1.81% for the year ago period. The loan loss provision was $99.6 million in 2008, $19.4 million in 2007 and $6.0 million in 2006. 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, 2008, 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” under “Financial Condition — as of December 31, 2008 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 filed with the Securities and Exchange Commission on March 13, 2009.

Non-Interest Income

Total non-interest income was $20.0 million for the year ended December 31, 2008, 5.8% below the prior year, primarily due to a decrease of 83.2% in earnings on bank-owned life insurance due to lowered investment returns in the volatile securities markets that persisted in 2008. 2007 non-interest income increased compared to 2006 due to increased volume of banking accounts and related fee-based transaction activity in deposit account services and overdraft transactions. Income related to residential mortgage origination activity decreased approximately 23.1% in 2008 as compared to 2007 as a result of tightening credit conditions in national markets and related home-buyer caution.

TABLE OF CONTENTS

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 Cascade’s loan servicing portfolio underscores this long-held discipline in mortgage origination. At year end, the portfolio contained about 3,600 mortgage loans of which only 21 were past due more than 30 days. The delinquency rate on this $512 million portfolio of serviced residential mortgage loans was at only 1.10%, notably below the national mortgage delinquency rate of 11.18% at December 31, 2008.

Residential mortgage originations totaled $121.7 million in 2008, down 28.5% when compared to $170.1 million in 2007. Related net mortgage revenue was $2.1 million, a decrease of 22.2% compared to $2.7 million for the previous year. Non-Interest income arising from mortgage services totaled approximately $3.0 million in 2006. The general level and direction of interest rates directly influence the volume and profitability of mortgage banking. Rates continued to decrease in 2008 and 2007, compared to stabilized rates in 2006. Despite the lower interest rate climate in 2008, the tightening of credit conditions in national markets and related home-buyer caution caused residential mortgage originations to decline in 2008 to $121.7 million or 28.5% less than the $170.1 million in 2007. Net mortgage related revenue was down 22.2% at $2.1 million compared to $2.7 million for 2007.

The Company sells 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 $512.2 million at December 31, 2008, an increase over $494.0 million at December 31, 2007 and compared to $494.9 million at December 31, 2006. The related Mortgage Servicing Rights (“MSRs”) were approximately $3.6 million in 2008 and $3.8 million in 2007.

As of December 31, 2008, the fair value of mortgage servicing rights (“MSR”) portfolio was estimated to exceed book value by amounts ranging from $0.5 million to $2.4 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, 2008, expressed as a percentage of loans serviced, the book value of MSR was .70% of serviced mortgage loans, while fair value was approximately .89% of serviced mortgages. Fair value as a percentage of loans serviced was estimated at 1.07% a year earlier.

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.

Non-Interest Expenses

Total non-interest expense for 2008 increased 177.5% to $173.7 million as compared to 2007. This increase was primarily due to the noncash after-tax goodwill impairment charge and expenses related to the Company’s OREO properties. Human resource costs were down year-over-year as staffing was trimmed in response to slowing economy, and executive bonuses were foregone in both 2007 and 2008. Total non-interest expenses for 2007 were 18.0% higher compared to 2006, primarily due higher human resources costs in support of Cascades ongoing growth and infrastructure investments. One of these investments was the conversion to a more robust core information technology system during the fourth quarter of 2007, providing an enhanced platform to support growth in the years ahead. The Company’s efficiency ratio was 150.6% in 2008 compared to 48.2% in 2007.

TABLE OF CONTENTS

Income Taxes

The provision for income taxes decreased in 2008 primarily as a result of lower pre-tax income and increased in 2007 over 2006 due to higher pre-tax income. The Company’s effective tax rate remains lower than the statutory tax rate due to nontaxable income generated from investments in bank owned life insurance, tax-exempt municipal bonds, business energy tax credits and low income housing credits.

Financial Condition — As of September 30, 2009

Balance Sheet Overview

At September 30, 2009 total assets remained steady at $2.3 billion compared to year-end 2008. Cash and cash equivalents increased $291.6 million or 15.0% of total assets at September 30, 2009 compared to year-end 2008. Total loans have been reduced by $280.4 million as compared to year-end 2008 and $127.0 million since the prior quarter-end primarily due to management’s strategic loan reduction program that included select loan sales or loan participations as well as non-renewal of mainly transaction only loans where deposit relationship with customers was viewed as de minimus. Loan charge-offs of $78.4 million for the nine months and $30.6 million for the quarter ended September 30, 2009, also contributed to the overall reduction in loan balances. 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 decreased due to provisions of the Order limiting the use of brokered deposits.

The Company had no material off balance sheet derivative financial instruments as of September 30, 2009 and December 31, 2008.

Off-Balance Sheet Arrangements

A summary of the Bank’s off-balance sheet commitments at September 30, 2009 and December 31, 2008 is included in the following table (dollars in thousands):

		September 30, 2009				December 31, 2008
Commitments to extend credit		$	271,090			$	465,500
Commitments under credit card lines of credit			28,699				30,522
Standby letters of credit			9,544				18,583
Total off-balance sheet financial instruments		$	309,333			$	514,605

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

TABLE OF CONTENTS

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, 2009 was $93.1 million, a decrease of $42.2 million from December 31, 2008. The decrease primarily resulted from a net loss for the nine months ended September 30, 2009.

Financial Condition — As of December 31, 2008

Balance Sheet Overview

Total assets decreased 4.9% to $2.278 billion at December 31, 2008, compared to $2.394 billion at December 31, 2007. This was mainly the result of the noncash after-tax Goodwill Impairment of $105.0 million which resulted in the elimination of all previously recorded goodwill. Also, loans decreased $85.3 million or 4.2% to $1.956 billion at year-end 2008 as the downturn in economy reduced loan demand, and certain non performing loans were charged off. Deposits grew 7.6% to $1.795 billion over the prior year-end, mainly due to an increase in brokered time deposits of $123.0 million. Customer relationship deposits were lower as the effects of the slowing economy on retail and business customers resulting in generally lower deposit resources. Taking brokered time deposits into consideration, deposits decreased approximately 0.6% year-over-year.

The following sections provide detailed analysis of the Company’s financial condition as of December 31, 2008, 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, 2008, 2007, and 2006.

		December 31,
(Dollars in Thousands)		2008				2007				2006
U.S. Agency mortgage-backed securities		$	93,534			$	65,202			$	72,610
U.S. Government and agency securities			8,726				10,497				19,319
Obligations of state and political subdivisions			3,741				6,917				9,180
Other asset-backed securities			3,260				3,538				4,019
Total debt securities			109,261				86,154				105,127
Mutual fund			430				412				390
Equity securities			—				449				1,406
Total investment securities		$	109,691			$	87,015			$	106,923

Mortgage-backed securities (“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.

TABLE OF CONTENTS

The Company’s investment portfolio increased by $22.7 million, or 26.1% from December 31, 2007 to December 31, 2008 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, 2008:

(Dollars in Thousands) Type and Maturity		Carrying Value				Weighted Average Yield(1)
U.S. Agency mortgage-backed securities
Due after 5 but within 10 years		$	6,352				5.22	%
Due after 10 years			87,198				5.34	%
Total U.S. Agency mortgage-backed securities			93,550				5.33	%
U.S. Government and Agency Securities
Due within 1 year			2,026				6.04	%
Due after 1 but within 5 years			6,684				5.27	%
Total U.S. Government and Agency Securities			8,710				5.46	%
State and Political Subdivisions(1)
Due within 1 year			200				4.78	%
Due after 1 but within 5 years			1,805				6.04	%
Due after 5 but within 10 years			1,736				6.09	%
Total State and Political Subdivisions			3,741				5.99	%
U.S. Agency asset-backed securities
Due within 1 year			688				5.54	%
Due after 1 but within 5 years			2,572				5.39	%
Total U.S. Agency asset-backed securities			3,260				5.42	%
Total debt securities			109,261				5.37	%
Mutual fund			430				4.69	%
Total Securities		$	109,691				5.36	%

The average years to maturity of the Company’s investment portfolio was 6.5 years at December 31, 2008 compared to 4.8 years at December 31, 2007. Duration of the portfolio is lower than average life since many of the securities are adjustable rate mortgage securities (“ARMs”) 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 of Seattle. 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, 2008, the portfolio had an unrealized losses on available for sale securities of approximately $1.4 million and no other than temporary impaired securities.

Loans

Loan Portfolio Composition

Net loans represented 84% of total assets as of December 31, 2008. 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 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. At the time of the 2006 acquisition of F&M in Boise, Idaho, F&M’s loan portfolio was similar in composition to that of Cascade. 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

TABLE OF CONTENTS

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)		2008				% of Gross Loans				2007				% of Gross Loans				2006				% of Gross Loans				2005				% of Gross Loans				2004				% of Gross Loans
Commercial		$	582,831				30	%		$	606,408				30	%		$	560,728				30	%		$	320,619				31	%		$	252,575				29	%
Real Estate:
Construction/lot:			517,721				26	%			686,829				34	%			588,251				31	%			220,230				21	%			178,716				21	%
Mortgage			96,248				5	%			88,509				4	%			80,860				4	%			56,724				5	%			52,668				6	%
Commercial			703,149				36	%			612,694				30	%			606,340				32	%			417,580				40	%			338,392				39	%
Consumer			56,235				3	%			47,038				2	%			51,083				3	%			34,551				3	%			37,209				4	%
Total loans			1,956,184				100	%			2,041,478				100	%			1,887,262				100	%			1,049,704				100	%			859,560				100	%
Less:
Reserve for loan losses			47,166								33,875								23,585								14,688								12,412
Total loans, net		$	1,909,018							$	2,007,603							$	1,863,677							$	1,035,016							$	847,148

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, 2008:

(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		$	190,409				10	%		$	176,210				9	%		$	54,266				3	%		$	161,946				8	%		$	582,831				30	%
Real Estate:
Construction/lot			167,218				9	%			118,363				6	%			52,244				3	%			179,896				9	%			517,721				26	%
Mortgage			39,852				2	%			9,641				0	%			8,863				0	%			37,892				2	%			96,248				5	%
Commercial			275,133				14	%			131,122				7	%			119,196				6	%			177,698				9	%			703,149				36	%
Consumer			26,236				1	%			6,461				0	%			4,088				0	%			19,450				1	%			56,235				3	%
Total loans		$	698,848				36	%		$	441,797				23	%		$	238,657				11	%		$	576,882				29	%		$	1,956,184				100	%

At December 31, 2008, 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		$	282,412			$	203,213			$	97,207			$	582,831
Real Estate:
Construction/Lot			382,987				103,561				31,174				517,721
Mortgage			7,821				16,665				71,762				96,248
Commercial			21,781				80,000				601,368				703,149
Consumer			6,165				21,987				28,083				56,235
		$	701,166			$	425,425			$	829,593			$	1,956,184

At December 31, 2008, variable and adjustable rate loans contractually due after one year totaled $935.2 million and loans with predetermined or fixed rates due after one year totaled $319.8 million.

TABLE OF CONTENTS

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. Management believes that, because of the strong historic and projected population in-migration and related economic growth expected in the Bank’s markets, its real estate concentration risk is mitigated to an acceptable level over the long term. However because of the unprecedented economic deterioration and its effects on real estate no assurance can be given that the Company’s assessment of its real estate risks will be accurate in either the short or long term.

The following paragraphs provide information on portions of the Company’s real estate loan portfolio as of December 31, 2008, 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. Recent nationwide downturn in real estate has slowed lot and home sales within the Company’s markets and the credit crisis of the third quarter 2008 exacerbated the trend. 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 contributed significantly to the elevated level of provision for loan losses in the fourth quarter of 2008. The situation continues to be closely monitored and an elevated level of provisioning may be required should deterioration continue.

(Dollars in Thousands)		12/31/2008				% of Category				% of Constr/ Lot Portfolio				% of Gross Loans				12/31/2007
Residential Land Development:
Raw Land		$	72,329				36	%			14	%			4	%		$	107,160
Land Development			112,234				56	%			22	%			6	%			183,809
Speculative Lots			14,855				7	%			3	%			1	%			20,916
		$	199,418				100	%			39	%			10	%		$	311,885
Geographic distribution by region:
Central Oregon		$	74,209				37	%			14	%			4	%		$	107,150
Northwest Oregon			4,670				2	%			1	%			0	%			5,328
Southern Oregon			12,722				6	%			2	%			1	%			32,541
Total Oregon			91,601				46	%			18	%			5	%			145,019
Idaho			107,816				54	%			21	%			6	%			166,866
Grand total		$	199,418				100	%			39	%			10	%		$	311,885

TABLE OF CONTENTS

(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 2008 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)		2008				% of Category				% of Consrtr./ Lot Portfolio				% of Gross Loans				2007
Residential Construction
Pre sold		$	62,153				58	%			12	%			3	%		$	64,714
Lots			17,331				16	%			3	%			1	%			20,575
Speculative Construction			28,461				26	%			5	%			1	%			58,048
		$	107,945				100	%			21	%			6	%		$	143,337
Geographic distribution by region:
Central Oregon		$	43,593				40	%			8	%			2	%		$	52,785
Northwest Oregon			30,445				28	%			6	%			2	%			31,652
Southern Oregon			5,799				5	%			1	%			0	%			14,252
Total Oregon			79,837				74	%			15	%			4	%			98,689
Idaho			28,109				26	%			5	%			1	%			44,648
Grand total		$	107,945				100	%			21	%			6	%		$	143,337

(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.

TABLE OF CONTENTS

The overall decline in 2008 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)		2008				% of Category				% of Consrtr./ Lot Portfolio				% of Gross Loans				2007
Commercial Construction:
Pre sold		$	27,826				13	%			5	%			1	%		$	61,298
Lots			16,404				8	%			3	%			1	%			17,525
Speculative			143,719				68	%			28	%			7	%			125,271
Speculative Lots			22,409				11	%			4	%			1	%			30,815
		$	210,358				100	%			41	%			11	%		$	234,909
Geographic distribution by region:
Central Oregon		$	49,817				24	%			10	%			3	%		$	68,411
Northwest Oregon			83,720				40	%			16	%			4	%			81,683
Southern Oregon			33,837				16	%			7	%			2	%			39,235
Total Oregon			167,375				80	%			32	%			9	%			189,329
Idaho			42,984				20	%			8	%			2	%			45,580
Grand total		$	210,358				100	%			41	%			11	%		$	234,909

(d) Commercial Real Estate (CRE) Portfolio.  This $703.1 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. Management believes that commercial real estate collateral may provide an additional measure of security for such loans. CRE loans represent approximately 34% of total loans outstanding as of December 31, 2008. Approximately 51% of CRE loans are made to owner-occupied users of the commercial property, while 49% of CRE loans are to obligors who do not directly occupy the property. Management believes that lending to owner-occupied businesses mitigates, but does not eliminate, commercial real estate risk. The average loan in the CRE portfolio is only about $0.6 million and 88% 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.

Commercial Real Estate:		2008				% of Total CRE				% of Gross Loans				2007
Owner occupied		$	358,232				51	%			18	%		$	325,990
Non-owner occupied			344,917				49	%			18	%			288,873
		$	703,149				100	%			34	%		$	614,863

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, 2008:

Commercial Real Estate:		Central Oregon				% of Total CRE Loans				Northwest Oregon				% of Total CRE Loans				Southern Oregon				% of Total CRE Loans				Idaho				% of Total CRE Loans				Total
Owner occupied		$	148,556				21	%		$	47,031				7	%		$	53,670				8	%		$	108,975				15	%		$	358,232
Non-owner occupied			127,806				18	%			84,624				12	%			65,716				9	%			66,771				9	%		$	344,917
Total loans		$	276,362				39	%		$	131,655				18	%		$	119,386				17	%		$	175,746				25	%		$	703,149

TABLE OF CONTENTS

Lending and Credit Management

The Company has a comprehensive risk management process to control, underwrite, monitor and manage credit risk in lending. The underwriting of loans relies principally on an analysis of an obligor’s historical and prospective cash flow augmented by collateral assessment, credit bureau information, as well as business plan assessment. Ongoing loan portfolio monitoring is performed by a centralized credit administration function including review and testing of compliance to loan policies and procedures. Internal and external auditors and bank regulatory examiners periodically sample and test certain credit files as well. Risk of nonpayment exists with respect to all loans, which could result in the classification of such loans as non-performing. Certain specific types of risks are associated with different types of loans.

Reserve for Credit Losses

The reserve for credit losses (reserve for loan losses and reserve for unfunded commitments) represents management’s recognition of the assumed and present risks of extending credit and the possible inability or failure of the obligors to make repayment. The reserve is maintained at a level considered adequate to provide for losses on loans and unfunded commitments based on management’s current assessment of a variety of current factors affecting the loan portfolio. Such factors include loss experience, review of problem loans, current economic conditions, and an overall evaluation of the quality, risk characteristics and concentration of loans in the portfolio. The level of reserve for credit losses is also subject to review by the bank regulatory authorities who may require increases to the reserve based on their evaluation of the information available to it at the time of its examination of the Bank. The reserve is based on estimates, and ultimate losses may vary from the current estimates. These estimates are reviewed periodically, and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. The reserve is increased by provisions charged to operations and reduced by loans charged-off, net of recoveries. See “Income Statement Overview — Loan Loss Provision” under “Results of Operations — Nine Months ended September 30, 2009 and 2008” and “Results of Operations — Years ended December 31, 2008, 2007 and 2006” above.

The following describes the Company’s methodology for assessing the appropriate level of the reserve for loan losses. For this purpose, loans and related commitments to loan are analyzed and reserves categorized into the allocated reserve, specifically identified reserves for impaired loans, the unallocated reserve, or the reserve for unfunded loan commitments.

The allocated portion of the reserve and the reserve for unfunded loan commitments is calculated by applying loss factors to outstanding loan balances and commitments to loan, segregated by differing risk categories. Loss factors are based on historical loss experience, adjusted for current economic trends, portfolio concentrations and other conditions affecting the portfolio. In certain circumstances with respect to adversely risk rated loans, loss factors may utilize information as to estimated collateral values, secondary sources of repayment, guarantees and other relevant factors. The allocated portion of the consumer loan reserve is estimated based mainly upon a quarterly credit scoring analysis.

Impaired loans are either specifically allocated for in the reserve for loan losses or reflected as a partial charge-off of the loan balance. The Bank considers loans to be impaired when management believes that it is probable that either principal and/or interest amounts due will not be collected according to the contractual terms. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the estimated fair value of the loan’s underlying collateral or related guaranty. Since a significant portion of the Bank’s loans are collateralized by real estate, the Bank primarily measures impairment based on the estimated fair value of the underlying collateral or related guaranty. In certain other cases, impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate. Smaller balance homogeneous loans (typically installment loans) are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual installment loans for impairment disclosures. Generally, the Bank evaluates a loan for impairment when a loan is determined to be adversely risk rated.

TABLE OF CONTENTS

The unallocated portion of the reserve is based upon management’s evaluation of various factors that are not directly measured in the determination of the allocated and specific reserves. Such factors include uncertainties in economic conditions, uncertainties in identifying triggering events that directly correlate to subsequent loss rates, risk factors that have not yet manifested themselves in loss allocation factors, regulatory examinations, and historical loss experience data that may not precisely correspond to the current portfolio. In addition, the unallocated reserve may be further adjusted based upon the direction of various risk indicators. Examples of such factors include the risk as to current and prospective economic conditions, the level and trend of charge offs or recoveries, levels and trends in delinquencies or non accrual loans, risks in originating loans in new or unfamiliar markets, risk of heightened imprecision of appraisals used in estimating real estate values, or initiating specialty lending to industry sectors that may be new to the Company. Although this allocation process may not accurately predict credit losses by loan type or in aggregate, the total reserve for credit losses is available to absorb losses that may arise from any loan type or category. Due to the subjectivity involved in the determination of the unallocated portion of the reserve for loan losses, the relationship of the unallocated component to the total reserve for loan losses may fluctuate from period to period. As of year end 2008 the Company’s unallocated reserve balance was approximately 15% of its calculated reserve based upon the management’s assessment of elevated risk factors mainly relating to uncertain and adverse economic conditions and the level and trend of delinquencies, nonaccrual loans and charge-offs.

The Bank’s ratio of reserve for credit losses to total loans has been relatively stable for the last several years but increased especially in the fourth quarter of 2008 reflecting higher risk resulting from the real estate downturn especially with respect to deterioration in the land development loan portfolio discussed above. The reserve was 2.46% at December 31, 2008 compared to 1.81% at December 31, 2007, and 1.42% at December 31, 2006. At this date, management believes that the Company’s reserve is at an appropriate level under current circumstances and prevailing economic conditions. The total amount of actual loan losses may vary significantly from the estimated amount. No assurance can be given that in any particular period, the reserve for credit losses will be sufficient, or that loan losses will not be sustained that are sizable in relation to the amount reserved, or that changing economic factors or other environmental conditions could cause increases in the loan loss provision.

Effective in the fourth quarter of 2006, the Company began classifying reserves for unfunded commitments as a liability on the consolidated balance sheet. Such reserves are included as part of the overall reserve for credit losses. Prior to 2006, unfunded commitments were classified in accordance with industry practice of other banks in our peer group. Reserves for unfunded commitments totaled approximately $1,039 and $3,163 at December 31, 2008 and 2007, respectively.

Allocation of Reserve for Credit Losses

The increase in unallocated portion of the reserve as well as the higher reserve allocated to the construction/lot portfolio reflects the elevated level of uncertainty as to the severity of the real estate downturn and its related effects on loan credit quality in general and most specifically as to the land development portfolio. Typical factors leading to changes in reserve allocation include changes in debt service coverage ratios, guarantor and/or collateral valuation as well as economic conditions that may have a specific or generalized impact on the relative risks inherent in various loan portfolios. Although this allocation process may not accurately predict credit losses by loan type or in aggregate, the total reserve for loan losses is available to absorb losses that may arise from any loan type or category.

TABLE OF CONTENTS

The following table allocates the reserve for credit losses among major loan types.

(Dollars in Thousands)		Reserve for Loan and Commitment Losses				2008 Allocated Reserve as a % of Loan Category				Loan Category as a % of Total Loans				Reserve for Loan and Commitment Losses				2007 Allocated Reserve as a % of Loan Category				Loan Category as a % of Total Loans
Commercial		$	11,614				1.99	%			29.79	%		$	10,388				1.71	%			29.70	%
Real Estate:
Construction/lot			18,722				3.62	%			26.47	%			13,433				1.96	%			33.64	%
Mortgage			1,696				1.76	%			4.92	%			1,521				1.72	%			4.34	%
Commercial			7,064				1.00	%			35.94	%			3,901				0.64	%			30.01	%
Consumer			1,893				3.37	%			2.87	%			1,684				3.58	%			2.30	%
Committed/unfunded			735				—				—				2,414				—				—
Unallocated			6,481				—				—				3,697				—				—
Total reserve for credit losses		$	48,205				2.46	%			100.00	%		$	37,038				1.81	%			100.00	%

		Reserve for Loan and Commitment Losses				2006 Allocated Reserve as a % of Loan Category				Loan Category as a % of Total Loans				Reserve for Loan and Commitment Losses				2005 Allocated Reserve as a % of Loan Category				Loan Category as a % of Total Loans
Commercial		$	7,818				1.39	%			29.71	%		$	3,526				1.10	%			30.51	%
Real Estate:
Construction/lot			6,328				1.08	%			31.17	%			2,445				1.11	%			21.01	%
Mortgage			1,112				1.38	%			4.28	%			567				1.00	%			5.39	%
Commercial			3,986				0.66	%			32.13	%			2,821				0.68	%			39.81	%
Consumer			2,050				4.01	%			2.71	%			1,281				3.71	%			3.28	%
Committed/unfunded			3,213				—				—				2,753				—				—
Unallocated			2,291				—				—				1,295				—				—
Total reserve for credit losses		$	26,798				1.42	%			100.00	%		$	14,688				1.40	%			100.00	%

		Reserve for Loan and Commitment Losses				2008 Allocated Reserve as a % of Loan Category				Loan Category as a % of Total Loans
Commercial		$	3,740				1.48	%			29.33	%
Real Estate:
Construction/lot			1,643				0.91	%			20.86	%
Mortgage			572				1.08	%			6.11	%
Commercial			2,268				0.67	%			39.39	%
Consumer			1,518				4.08	%			4.31	%
Committed/unfunded			2,077				—				—
Unallocated			603				—				—
Total reserve for credit losses		$	12,421				1.44	%			100.00	%

TABLE OF CONTENTS

The following table summarizes the Company’s reserve for credit losses and charge-off and recovery activity for each of the last five years:

		Year Ended December 31,
(Dollars in Thousands)		2008				2007				2006				2005				2004
Loans outstanding at end of period		$	1,956,184			$	2,041,478			$	1,887,262			$	1,049,705			$	859,559
Average loans outstanding during the period		$	2,054,199			$	1,974,435			$	1,590,315			$	962,514			$	737,421
Reserve for loan losses, balance beginning of period		$	33,875			$	23,585			$	14,688			$	12,412			$	9,399
Recoveries:
Commercial			800				378				122				241				202
Real Estate:
Construction			581				12				—				—				—
Mortgage			50				288				4				25				9
Commercial			62				—				37				—				—
Consumer			487				612				527				227				217
			1,980				1,290				690				493				428
Loans charged off:
Commercial			(10,411	)			(4,634	)			(529	)			(405	)			(363	)
Real Estate:
Construction			(71,833	)			(2,986	)			—				—				(151	)
Mortgage			(650	)			(941	)			(45	)			—				—
Commercial			(2,139	)			—				(7	)			—				(17	)
Consumer			(3,249	)			(1,839	)			(1,391	)			(861	)			(887	)
			(88,282	)			(10,400	)			(1,972	)			(1,266	)			(1,420	)
Net loans charged-off			(86,302	)			(9,110	)			(1,282	)			(773	)			(992	)
Provision charged to operations			99,593				19,400				6,000				3,050				3,650
Reserves acquired from CBGP			—				—				—				—				354
Reserve for unfunded commitments reclassified to other liabilities			—				—				(3,213	)			—				—
Reserves acquired from F&M			—				—				7,392				—				—
Reserve balance, end of period		$	47,166			$	33,875			$	23,585			$	14,688			$	12,412
Ratio of net loans charged-off to average loans outstanding			4.20	%			.46	%			.08	%			.08	%			.13	%
Ratio of reserve for loan losses to loans at end of period			2.41	%			1.66	%			1.25	%			1.40	%			1.44	%