<PAGE>




         [LOGO]






                               1998 ANNUAL REPORT
                                 SEC FORM 10-K



                               To provide you more complete information about
                               Cascade Bancorp, we have included our Form 10-K,
                               as filed with the Securities and Exchange
                               Commission, with our Annual Report. A table of
                               contents is on page 2.







                               [GRAPHIC]




<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              --------------------

                                   FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
                  For the fiscal year ended: December 31, 1998
                                             -----------------

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                  For the transition period from ____ to ____

                        Commission file number: 0-23322
                                                -------

                                CASCADE BANCORP
               (Name of registrant as specified in its charter)

                 Oregon                                    93-1034484
        (State of Incorporation)                (IRS Employer Identification #)

   1100 NW Wall Street, Bend, Oregon                          97701
(Address of principal executive offices)                   (Zip Code)

                                (541) 385-6205
                        (Registrants telephone number)

                          --------------------------

      Securities registered under Section 12(b) of the Exchange Act: None

                 Securities registered under Section 12(g) of
                               the Exchange Act:

                          Common Stock, no par value
                               (Title of Class)

Indicate by check mark whether the registrant: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  X  No
                                       ---    ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
            ---

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. $96,225,820 AGGREGATE MARKET VALUE AS OF FEBRUARY 12, 1999, BASED ON THE
AVERAGE BID AND ASKED PRICE.

Indicate the number of shares outstanding of each of the registrants classes of
common stock, as of the latest practicable date. 6,238,432 SHARES OF NO PAR
VALUE COMMON STOCK ON FEBRUARY 12, 1999.

                      DOCUMENTS INCORPORATED BY REFERENCE

Part III is incorporated by reference from the issuer's definitive proxy
statement for the annual meeting of shareholders to be held on April 26, 1999.


<PAGE>

                                CASCADE BANCORP
                                   FORM 10-K
                                 ANNUAL REPORT
                               TABLE OF CONTENTS

PART I                                                                      PAGE

     Item 1.  BUSINESS.........................................................3

     Item 2.  PROPERTIES......................................................16

     Item 3   LEGAL PROCEEDINGS...............................................17

     Item 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............17

PART II

     Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                    STOCKHOLDER MATTERS.......................................18

     Item 6.  SELECTED FINANCIAL DATA.........................................19

     Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                    CONDITION AND RESULTS OF OPERATIONS.......................21

     Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......26

     Item 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........27

     Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                    AND FINANCIAL DISCLOSURE..................................27

PART III

     Item 10 through 13
              Part III, items 10 through 13 are incorporated by reference
              from the Company's definitive proxy statement issued in
              conjunction with the Company's Annual Meeting of Shareholders
              to be held on April 26, 1999. (Executive Officers,
              Compensation arrangements, Director and Management Ownership;
              Related Party Transactions)

PART IV

     Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON 
                    FORM 8-K..................................................28

SIGNATURES....................................................................29


<PAGE>

                                    PART I

ITEM 1.       BUSINESS

COMPANY

              Cascade Bancorp (Bancorp) is a bank holding Company formed in 1990
and is headquartered in Bend, Oregon. Bancorp's wholly-owned subsidiaries are
Bank of the Cascades, (the Bank), a state chartered, federally-insured
commercial bank and Cascade Finance which is a consumer finance Company,
(collectively, the Company). At December 31, 1998 the Company had total
consolidated assets of approximately $301 million, net loans of $203 million and
deposits of $271 million. In its main Deschutes County business area, the
Company is the market share leader in customer deposits, construction and
commercial real estate lending as well as in residential mortgage origination
and financing.

BANK OF THE CASCADES

              The Bank was chartered as a state bank in March 1976 and opened
for business in February 1977. Bank of the Cascades is a community bank which
operates a full service commercial and consumer banking business within and
adjacent to the communities of Bend, Redmond, Sunriver, Sisters and Prineville,
in Deschutes and Crook County, Oregon. The Bank's headquarters is located in
downtown Bend, Oregon. The headquarters includes administrative offices, a
mortgage lending office, and a separate data processing and drive-up facility.
The bank operates eight offices throughout Central Oregon. Two new offices are
scheduled to open in the first quarter of 1999. The Bank entered a new market in
Salem, Oregon with a full service branch office in January 1999. In addition,
the Bank will open a second office in Redmond, Oregon later in the quarter,
bringing total banking offices to ten. For further details see Item 7 of
Management's Discussion and Analysis of Financial Condition and Results of
Operations elsewhere in this report.

              The Bank offers a broad range of commercial and personal banking
services to its customers. Lending activities target small to medium-sized
businesses as well as consumers. The Bank provides commercial real estate loans,
real estate construction and development loans, commercial and industrial loans
as well as consumer installment, line-of-credit, credit card, and home equity
loans. The Bank originates residential mortgage loans that are typically sold on
the secondary market. The Bank offers a broad range of consumer and business
deposit services from checking accounts to money market and certificate of
deposit accounts.

              In mid 1999 the Company intends to offer Trust and Investment
services, initially in Central Oregon. Trust services will focus on the personal
trust needs of existing and prospective clients by providing living and
testamentary trust, asset and financial management, and fiduciary services.
Retail investment services, including stock brokerage, mutual fund and fixed
income services, are expected to be provided by a licensed on-site broker
through a broker/dealer agent relationship. In addition, the Company intends to
open a Loan Production Office (LPO) in suburban Portland in 1999, targeting
small to medium sized commercial real estate, construction and business lending
in that market. For further details see Item 7 of Management's Discussion and
Analysis of Financial Condition and Results of Operations elsewhere in this
report.

CASCADE FINANCE

              Cascade Finance opened in January 1997 and is based in Bend,
Oregon. Cascade Finance purchases local retail installment contracts and offers
direct consumer loans. At year-end 1998, Cascade Finance had approximately $5
million in consumer installment loans outstanding; predominately used automobile
financing. Management does not anticipate Cascade Finance will have a material
impact on the Company's consolidated financial condition or results of 
operations in 1999.

                                       3

<PAGE>



BUSINESS STRATEGY
------------------------------------------------------------------------------
                       -  BROADEN CUSTOMER RELATIONSHIPS
                   -  PROVIDE UNCOMPROMISING CUSTOMER SERVICE
              -  APPLY TECHNOLOGY FOR THE CONVENIENCE OF CUSTOMERS
                     -  COMMITTMENT TO HOMETOWN COMMUNITIES
------------------------------------------------------------------------------

              During its 22-year commitment to provide hometown banking services
to Central Oregon communities, the Company has become the market share leader in
both the lending and deposit businesses in the Deschutes County business area.
Its strategy is to profitably grow its business by attracting and retaining high
value relationship customers. This is accomplished by offering uncompromising
customer service and a broad array of products and financial services.
Additionally, the Company is committed to providing convenient customer access
to its products and services. Therefore, the Company applies advances in bank
technology and delivery systems to the benefit of its customers. As an example
of its commitment to technology, in 1998 the Company became one of only a few
Oregon community banks to deliver Internet banking and bill paying services to
its customers, which complement its traditional delivery channels of convenient
branch and ATM locations.

              In addition to targeting growth and increased market share in its
existing locations, the Company may also consider future expansion by de novo
branching where it identifies market opportunities (such as the new Salem and
Redmond offices). The Company may also consider making selective business
acquisitions to expand its market opportunities.

              The Company's broad risk management objectives are to develop loan
policies and underwriting practices designed to prudently manage credit risk,
and to maintain an appropriate mix of core deposits and time deposit balances to
efficiently fund its loan and investment activities. The Company does not use
brokered deposits as a source of funds. The Company monitors its sensitivity to
changing interest rates primarily by utilizing simulation analysis in addition
to traditional interest rate gap calculations.

EMPLOYEES

              Bancorp has no employees other than its executive officers, who
are also employees of the Bank. As of December 31, 1998, the Company had 185
full-time equivalent employees including 6 full-time equivalent employees at
Cascade Finance. None of the employees of the Company are subject to a
collective bargaining agreement. The Company considers its relationships with
its employees to be good.

COMPETITION

              Commercial and consumer banking in Central Oregon, and in the
State of Oregon as a whole, is highly competitive. The Company competes
principally with other commercial banks, savings and loan associations, credit
unions, mortgage companies, and other financial service providers with respect
to the scope and type of services offered, interest rates paid on deposits and
pricing of loans, among other factors. Many of these competitors have greater
resources than the Company and therefore have larger lending capabilities and
may provide other services that the Company does not offer.

              The Company competes for customers principally through its
commitment to customer service, the relative attractiveness of its products and
services, as well as by providing convenience in delivering those products and
services. The Company believes its hometown banking philosophy and its focus on
small and medium-sized businesses, professionals and consumers enables it to
compete effectively with other financial service providers. In addition, the
Company's lending officers and senior managers have significant experience in
their respective marketplaces. This enables them to maintain close working
relationships with their customers. To serve customers whose borrowing
requirements exceed its lending limits, the Bank may participate loans to other
financial institutions.

                                        4

<PAGE>

CONSOLIDATED STATISTICAL INFORMATION

              The following tables present certain financial and statistical
information with respect to the Company for the periods indicated. Most of the
information is required by Guide 3, "Statistical Disclosure by Bank Holding
Companies", by the Securities and Exchange Commission. At the beginning of each
table, information is presented as to the nature of data disclosed in the table.

              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 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.

ANALYSIS OF CHANGES IN INTEREST DIFFERENTIAL

         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. (Dollars in thousands):

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                       ------------------------------------------------------------------------------
                                                   1998 over 1997                              1997 over 1996
                                       ---------------------------------------    -----------------------------------
                                                      Amount of Change                           Amount of Change
                                          Total         Attributed to              Total         Attributed to
                                        Increase    -----------------------       Increase     ----------------------
                                       (Decrease)    Volume         Rate         (Decrease)      Volume        Rate
                                       ----------   ---------     ---------      ----------    ---------      -------
<S>                                      <C>         <C>          <C>             <C>           <C>           <C>
Interest income:
       Interest and fees on loans        $  3,469    $  3,446     $     23        $  1,724      $  1,235      $   489
       Taxable securities                     110         273         (163)          1,234         1,184           50
       Non-taxable securities                 (32)        (31)          (1)            (20)          (18)          (2)
       Federal funds sold                      70          78           (8)             86            75           11
                                         --------    --------     --------        --------      --------      -------
           Total interest income            3,617       3,766         (149)          3,024         2,476          548

Interest expense:
       Interest on deposits:
           Interest bearing demand            435         535         (100)            553           583          (30)
           Savings                             20          23           (3)             (2)            1           (3)
           Time                               296         276           20             125           131           (6)
       Other borrowings                      (357)       (413)          56              59            76          (17)
                                         --------    --------     --------        --------      --------      -------
            Total interest expense            394         421          (27)            735           791          (56)
                                         --------    --------     --------        --------      --------      -------

Net interest spread                      $  3,223    $  3,345     $   (122)       $  2,289      $  1,685      $   604
                                         --------    --------     --------        --------      --------      -------
                                         --------    --------     --------        --------      --------      -------
</TABLE>
                                        5



<PAGE>



AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID

              The following table sets forth for 1998, 1997 and 1996 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. (Dollars in thousands):

<TABLE>
<CAPTION>
                                       Years ended                    Years ended                  Years ended
                                    December 31, 1998              December 31, 1997            December 31, 1996
                               ----------------------------  ----------------------------   ---------------------------
                                          Interest  Average             Interest  Average            Interest  Average
                                Average   Income/  Yield or  Average    Income/  Yield or   Average  Income/  Yield or
                                Balance   Expense   Rates    Balance    Expense   Rates     Balance  Expense    Rates
                               ---------  -----------------  ---------  -----------------   -------  ------------------
<S>                            <C>        <C>       <C>      <C>        <C>       <C>      <C>       <C>       <C>
ASSETS
Taxable securities             $  39,954  $  2,617   6.55%   $  35,898  $  2,507   6.98%    18,717   $  1,273   6.80%
Non-taxable securities (1)         1,003        42   4.19%       1,751        74   4.23%     2,155         94   4.36%
Federal funds sold                10,107       537   5.31%       8,646       467   5.40%     7,241        381   5.26%
Loans (2)(3)(4)                  182,280    19,257  10.56%     149,698    15,788  10.55%   137,798     14,064  10.21%
                               ---------  --------           ---------  --------           -------   --------
   Total earning assets          233,344    22,453   9.62%     195,993    18,836   9.61%   165,911     15,812   9.53%
Reserve for loan losses           (2,264)                       (1,784)                     (1,764)
Cash and due from banks           17,827                        18,922                      14,530
Premises and equipment, net        5,394                         4,710                       3,810
Other Assets                       9,855                         7,921                       6,729
                               ---------                     ---------                     -------
      Total assets             $ 264,156                     $ 225,762                     189,216
                               ---------                     ---------                     -------
                               ---------                     ---------                     -------

LIABILITIES &  STOCKHOLDER'S
EQUITY
Int. bearing demand deposits   $ 120,530  $  3,518   2.92%   $ 102,484  $  3,083   3.01%    83,154   $  2,530   3.04%
Savings deposits                  14,086       304   2.16%      13,027       284   2.18%    12,975        286   2.20%
Time deposits                     25,295     1,294   5.12%      19,846       998   5.03%    17,235        873   5.07%
Other borrowings                     780        65   8.33%       6,269       422   6.73%     5,173        363   7.02%
                               ---------  --------           ---------  --------           -------   --------
Total interest bearing 
liabilities                      160,691     5,181   3.22%     141,626     4,787   3.38%   118,537      4,052   3.42%

Demand deposits                   75,826                        58,062                      46,886
Other liabilities                  2,263                         1,755                       2,348
                               ---------                     ---------                     -------
Total liabilities                238,780                       201,443                     167,771
Stockholders' equity              25,376                        24,319                      21,445
                               ---------                     ---------                     -------
    Total liabilites & equity  $ 264,156                     $ 225,762                     189,216
                               ---------                     ---------                     -------
                               ---------                     ---------                     -------

                                          --------                      --------                      -------
Net interest income                       $ 17,272                      $ 14,049                      $11,760
                                          --------                      --------                      -------
                                          --------                      --------                      -------


Net interest spread                                  6.40%                         6.23%                        6.11%
                                                     -----                         -----                        -----
                                                     -----                         -----                        -----

Net interest income to earning assets                7.40%                         7.17%                        7.09%
                                                     -----                         -----                        -----
                                                     -----                         -----                        -----
</TABLE>
---------------------

(1)   Yields on tax-exempt securities have not been stated on a tax-equivalent
      basis.
(2)   Average non-accrual loans included in the computation of average loans was
      insignificant for 1998, 1997 and 1996.
(3)   Loan related fees included in the above yield calculations: $1,236,000 in 
      1998, $1,012,000 in 1997 and $780,000 in 1996.
(4)   Includes mortgage loans held for sale.

                                        6

<PAGE>



LOAN PORTFOLIO COMPOSITION

         Interest earned on the loan portfolio is the primary source of income
for the Company. Net loans represent 67% of total assets as of December 31,
1998. Although the Company strives to serve the credit needs of its service
area, its primary focus is on real estate related and commercial credits. The
Company makes substantially all of its loans to customers located within the
Companys service area. The Company has no loans defined as highly leveraged
transactions by the Federal Reserve Bank. The Company has no significant
agricultural loans.

         The following table presents the composition of the Companys loan
portfolio, at the dates indicated (dollars in thousands):

<TABLE>
<CAPTION>
                                                                               December 31,
                                            --------------------------------------------------------------------------------
                                                 1998             1997              1996            1995            1994
<S>                                         <C>             <C>               <C>             <C>              <C>
                                            ------------    -------------     -------------   -------------    ------------
Commercial.............................     $     31,280    $      30,059     $      22,485   $      21,711    $     20,114

Real Estate:
         Construction..................           44,875           30,863            34,375          33,984          22,259
         Mortgage......................           36,671           23,396            19,774          24,750          18,656
         Commercial....................           70,524           52,356            42,391          31,019          25,054

Installment............................           22,693           18,901            14,666          15,271          13,333
                                            ------------    -------------     -------------   -------------    ------------

                                                 206,043          155,575           133,691         126,735          99,416
Less:
         Reserve for loan losses.......            2,636            2,048             1,691           1,651           1,172
         Deferred loan fees............              864              502               373             372             325
                                            ------------    -------------     -------------   -------------    ------------

                                                   3,500            2,550             2,064           2,023           1,497
                                            ------------    -------------     -------------   -------------    ------------

                                            $    202,543    $     153,025     $     131,627   $     124,712    $     97,919
                                            ------------    -------------     -------------   -------------    ------------
                                            ------------    -------------     -------------   -------------    ------------
</TABLE>

         At December 31, 1998, the maturities of all loans by category were 
as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                         Due after
                                                          one, but               Due
                                    Due within           within five          after five
        Loan Category                one year               years               years               Total
---------------------------     --------------        --------------       -------------    ---------------
<S>                             <C>                   <C>                  <C>              <C>

Commercial..................    $        24,034       $         6,619      $         627    $        31,280

Real Estate:
         Construction.......             35,357                 9,163                355             44,875
         Mortgage...........             24,302                 3,105              9,264             36,671
         Commercial.........             17,216                50,347              2,961             70,524

Installment.................             16,053                 6,339                301             22,693
                                ---------------       ---------------      -------------    ---------------
                                $       116,962       $        75,573      $      13,508    $       206,043
                                ---------------       ---------------      -------------    ---------------
                                ---------------       ---------------      -------------    ---------------
</TABLE>

         Variable rate loans due after one year totaled $52,678 at December 31,
1998 and loans with predetermined or fixed rates due after one year totaled
$36,403 at December 31, 1998.


                                              7

<PAGE>


LENDING AND CREDIT MANAGEMENT

         Although a risk of nonpayment exists with respect to all loans, certain
specific types of risks are associated with different types of loans. Due to the
nature of the Companys customer base and the growth experienced in the Companys
market area, real estate is frequently a material component of collateral for
the Companys loans. The expected source of repayment of these loans is generally
the operations of the borrower's business or personal income; however, real
estate collateral provides an additional measure of security. Risks associated
with real estate loans include fluctuating land values, local economic
conditions, changes in tax policies, and a concentration of loans within the
Bank's market area.

         The Company has a comprehensive risk management process to control,
underwrite, monitor and manage credit risk in lending. The Company mitigates
risks on construction loans by generally lending funds to customers that have
been prequalified for long term financing and who are using experienced
contractors approved by the Company. Making the majority of commercial real
estate loans to owner-occupied users of the property mitigates the commercial
real estate risk.

         The Company manages the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in prudent
lending activities. The following table presents information with respect to
non-performing assets (dollars in thousands):

<TABLE>
<CAPTION>

                                                                            December 31,
                                                        -------------------------------------------------------
                                                           1998      1997        1996        1995       1994
                                                        --------  ---------  ---------   ---------- -----------
<S>                                                     <C>       <C>        <C>         <C>
Loans on non-accrual status.........................    $    172  $      43  $       50  $       45 $         -

Loans past due 90 days or more
   but not on non-accrual status ...................           -         45          27          21           4

Other real estate owned.............................         409          9           -           -           -
                                                        --------  ---------  ---------   ---------- -----------
Total non-performing assets.........................    $    581  $      97  $       77  $       66 $         4
                                                        --------  ---------  ---------   ---------- -----------
                                                        --------  ---------  ---------   ---------- -----------

Percentage of non-performing assets
   to total assets..................................        .19%       .04%        .04%        .04%        .00%
</TABLE>

         The accrual of interest on a loan is discontinued when, in managements
judgment, the future collectibility of principal or interest is in doubt. Loans
placed on nonaccrual status may or may not be contractually past due at the time
of such determination, and may or may not be secured. When a loan is placed on
nonaccrual status, it is the Banks policy to reverse, and charge against current
income, interest previously accrued but uncollected. Interest subsequently
collected on such loans is credited to loan principal if, in the opinion of
management, full collectibility of principal is doubtful. If interest on
nonaccrual loans had been accrued, such income would have been insignificant for
the periods presented.

         At December 31, 1998, there were no potential problem loans, except as
discussed above, where known information about possible credit problems of the
borrower caused management to have serious doubts as to the ability of such
borrower to comply with the present loan repayment terms and which may result in
such loans being placed on a non-accrual basis.


                                         8

<PAGE>



RESERVE FOR LOAN LOSSES

         The provision for loan losses charged to operating expense is based on
the Companys loan loss experience and such other factors which, in management's
judgement, should be considered in estimating possible loan losses. Management
monitors the loan portfolio to ensure that the reserve for loan losses is
adequate to cover outstanding loans on non-accrual status and any current loans
deemed to be in serious doubt of repayment according to each loan's repayment
plan. The following table summarizes the Companys reserve for loan losses and
charge-off and recovery activity for each of the last five years (dollars in
thousands):

<TABLE>
<CAPTION>

                                                                     Year ended December 31,
                                             ----------------------------------------------------------------------
                                                 1998          1997           1996          1995           1994
<S>                                          <C>          <C>            <C>           <C>            <C>       
Loans outstanding at
   end of period........................     $   206,043  $     155,575  $    133,691  $    126,735   $      99,416
                                             -----------  -------------  ------------  ------------   -------------
                                             -----------  -------------  ------------  ------------   -------------
Average loans outstanding
   during the period...................      $   182,280  $     149,698  $    137,798  $    121,883   $      86,072
                                             -----------  -------------  ------------  ------------   -------------
                                             -----------  -------------  ------------  ------------   -------------

Reserve balance,                                                                          
   Beginning of period .................     $   2,048    $       1,691  $      1,651  $      1,172   $         930
                                                                           

Recoveries:                                                                                          
   Commercial...........................               2             16             2            70              22
   Real Estate:                                                                                          
      Construction......................               -              -             -             -               -
      Mortgage..........................               1              2             -             -               -
      Commercial........................               -              -             -             1               -
   Installment..........................              39             42            28            30               4

                                             -----------  -------------  ------------  ------------   -------------

                                                      42             60            30           101              26
Loans charged off:
   Commercial...........................           (254)           (80)         (212)          (24)            (53)
   Real Estate:
      Construction......................               -              -             -             -               -
      Mortgage..........................            (91)          (442)          (50)             -               -
      Commercial........................               -              -             -           (2)               -
   Installment..........................           (288)          (256)         (160)          (77)            (42)

                                             -----------  -------------  ------------  ------------   -------------

                                                   (633)          (778)         (422)         (103)            (95)
                                             -----------  -------------  ------------  ------------   -------------

Net loans charged-off...................           (591)          (718)         (392)           (2)            (69)
Provision charged to operations.........          1,179          1,075           432           481             311
                                             -----------  -------------  ------------  ------------   -------------

Reserve balance, end of period..........     $     2,636  $       2,048  $      1,691  $      1,651   $       1,172
                                             -----------  -------------  ------------  ------------   -------------
                                             -----------  -------------  ------------  ------------   -------------

Ratio of net loans charged-off
   to average loans outstanding.........            .32%           .48%          .28%          .00%            .08%
                                             -----------  -------------  ------------  ------------   -------------
                                             -----------  -------------  ------------  ------------   -------------

Ratio of reserve for loan losses
   to loans at end of period............           1.28%          1.32%         1.26%         1.30%           1.18%
                                             -----------  -------------  ------------  ------------   -------------
                                             -----------  -------------  ------------  ------------   -------------
</TABLE>


                                              9

<PAGE>

ALLOCATION OF RESERVE FOR LOAN LOSSES

         The Company does not normally allocate the reserve for loan losses to
specific loan categories. An allocation to these major categories is made below
for presentation purposes. This allocation process does not necessarily measure
anticipated future credit losses; rather, it seeks to measure the Bank's
assessment at a point in time of perceived credit loss exposure and the impact
of current and anticipated economic conditions. A schedule dividing the reserve
for loan losses into allocated and unallocated categories is furnished below for
the end of each of the last five years (dollars in thousands):

<TABLE>
<CAPTION>
                                                                  December 31,
                             -------------------------------------------------------------------------------------
                                        1998                          1997                         1996
                             --------------------------    ------------------------  -----------------------------

                                            % of loans                   % of loans                    % of loans
                                             in each                      in each                        in each
                                           category to                  category to                    category to
                               Amount      total loans       Amount     total loans      Amount        total loans
                           ------------    ------------   ----------    -----------  ------------      ------------
<S>                        <C>             <C>            <C>           <C>          <C>               <C>

Commercial................ $        189              15%  $       188             20% $        145               17%
Real Estate:
  Construction............          331              22           236             20           227               26
  Mortgage................          199              18            81             15            78               15
  Commercial..............          221              34           245             33           186               32
Installment...............          320              11           102             12            92               10
Unallocated...............        1,376               -         1,196              -           963                -
                           ------------     -----------   -----------    -----------  ------------      -----------
                           $      2,636             100%   $    2,048            100% $      1,691              100%
                           ------------     -----------   -----------    -----------  ------------      -----------
                           ------------     -----------   -----------    -----------  ------------      -----------
</TABLE>

<TABLE>
<CAPTION>
                                                            December 31,
                                ---------------------------------------------------------------
                                              1995                            1994
                                ---------------------------    --------------------------------

                                                 % of loans                        % of loans
                                                  in each                           in each
                                    Amount      category to        Amount         category to
                                                total loans                       total loans
                                 ----------     ------------   ------------       -------------
<S>                              <C>            <C>            <C>                <C>         

Commercial...................    $      153               17%  $        120                  20%
Real Estate:
  Construction...............           218               27            123                  22
  Mortgage...................            80               20             83                  19
  Commercial.................           148               24            126                  25
Installment..................            94               12             86                  14
Unallocated..................           958                -            634                   -
                                 ----------      -----------   ------------       -------------
                                 $    1,651              100%  $      1,172                 100%
                                 ----------      -----------   ------------       -------------
                                 ----------      -----------   ------------       -------------
</TABLE>


                                                         10

<PAGE>


INVESTMENT PORTFOLIO

         The following table shows the carrying value of the Companys portfolio
of investments at December 31, 1998, 1997 and 1996 (dollars in thousands).

<TABLE>
<CAPTION>

                                                                                December 31,
                                                              ---------------------------------------------------
                                                                    1998               1997              1996
                                                              --------------    ---------------     -------------
<S>                                                           <C>                <C>                <C>
U.S. Treasury securities...................................   $        3,109     $        3,083     $       4,009
Obligations of U.S. Government agencies....................           26,849             38,339            20,468
Obligations of state and political subdivisions............            1,410              1,030             2,013
Mortgage-backed securities.................................           14,891                  -                 -
Corporate debt securities..................................              631                  -                 -
                                                              --------------     --------------     -------------

      Total debt securities................................           46,890             42,452            26,490
                                                              --------------     --------------     -------------

Federal Home Loan Bank stock...............................            1,529              1,416             1,307
Equity securities..........................................            2,532                532                 -
                                                              --------------     --------------     -------------

         Total investment securities.......................   $       50,951     $       44,400     $      27,797
                                                              --------------     --------------     -------------
                                                              --------------     --------------     -------------
</TABLE>


         The following is a summary of the contractual maturities and weighted
average yields of investment securities at December 31, 1998 (dollars in
thousands):

<TABLE>
<CAPTION>
                                                                                     Weighted
                                                                 Carrying            Average
          Type and maturity                                        value             Yield (1)
--------------------------------------                         ---------------    -------------
<S>                                                            <C>                <C>       
U.S. Treasury Securities
       Due within 1 year                                        $      1,003            6.61%
       Due after 1 but within 5 years                                                   6.68%
                                                                       2,106
                                                                ------------
              Total U.S. Treasury Securities                           3,109            6.66%

U.S. Government Agencies
       Due after 1 but within 5 years                                 26,849            6.55%
                                                                ------------
              Total U.S. Government Agencies                          26,849            6.55%

State and Political Subdivisions
       Due within 1 year                                                 155            4.13%
                                                                         
       Due after 1 but within 5 years                                                   4.37%
                                                                       1,255
                                                                ------------
              Total State and Political Subdivisions                   1,410            4.33%

Corporate Debt Securities
       Due after 1 but within 5 years                                                   5.51%
                                                                         631
                                                                ------------
              Total Corporate Bonds                                      631            5.51%

Mortgage-Backed Securities                                            14,891            5.91%
                                                                ------------

              Total Debt Securities                                   46,890            6.27%

Equity securities                                                      4,061           
                                                                ------------         --------
                          Total Securities                      $     50,951            6.27%
                                                                ------------         --------
                                                                ------------         --------
</TABLE>

(1) Yields on tax-exempt securities have not been stated on a tax 
equivalent basis.


                                                    11


<PAGE>

DEPOSIT LIABILITIES AND TIME DEPOSIT MATURITIES

         The following table summarizes the average amount of, and the 
average rate paid on, each of the deposit categories for the periods shown 
(dollars in thousands):

<TABLE>
<CAPTION>
                                                                    Years ended December 31,
                                      --------------------------------------------------------------------------------
                                                  1998                          1997                       1996
Deposit Liabilities                             Average                       Average                     Average
---------------------------------     ---------------------------    ------------------------   ------------------------
                                             Amount    Rate Paid            Amount  Rate Paid          Amount  Rate Paid
---------------------------------     ---------------------------    ------------------------   ------------------------
<S>                                   <C>              <C>           <C>            <C>         <C>            <C>
Demand............................    $      75,826     N/A          $      58,062    N/A       $      46,886     N/A
Interest-bearing demand...........          120,530    2.92%               102,484   3.01%             83,154    3.04%
Savings...........................           14,086    2.16%                13,027   2.18%             12,975    2.20%
Time..............................           25,295    5.12%                19,846   5.03%             17,235    5.07%
                                      -------------                  -------------              -------------
   Total Deposits.................    $     235,737                  $     193,419              $     160,250
                                      -------------                  -------------              -------------
                                      -------------                  -------------              -------------
</TABLE>

         As of December 31, 1998 the Company's time deposit liabilities had 
the following times remaining to maturity (dollars in thousands): 

<TABLE>
<CAPTION>
                                                 Time deposits of                        All other
                                               $100,000 or more (1)                  Time deposits (2)
                                         ------------------------------        ---------------------------
Remaining time to maturity                    Amount            Percent             Amount         Percent
------------------------------------     ------------------------------        ---------------------------
<S>                                      <C>                    <C>            <C>                  <C>
3 months or less....................     $         2,867         36.26%        $         8,066      35.22%
Over 3 months
   Through 6 months.................               2,019         25.54%                  5,445      23.78%
Over 6 months
   Through 12 months................               2,017         25.51%                  5,667      24.74%
Over 12 months......................               1,003         12.69%                  3,725      16.26%
                                         ------------------------------        ---------------------------
      Total.........................     $         7,906        100.00%        $        22,903     100.00%
                                         ------------------------------        ---------------------------
                                         ------------------------------        ---------------------------
</TABLE>
-------------------

(1) Time deposits of $100,000 or more represent 2.92% of total deposits as of 
December 31, 1998.

(2) All other time deposits represent 8.46% of total deposits as of December 
31, 1998.

SUPERVISION AND REGULATION

              Bancorp and the Bank are extensively regulated under federal 
and Oregon law. These laws and regulations are primarily intended to protect 
depositors and the deposit insurance fund, not shareholders of the Company. 
To the extent that the following information describes statutory or 
regulatory provisions, it is qualified in its entirety by reference to the 
particular statutory or regulatory provisions. Any change in applicable laws 
or regulations may have a material effect on the business and prospects of 
the Company. The operations of the Company may be affected by legislative 
changes and by the policies of various regulatory authorities. Management is 
unable to predict the nature or the extent of the effects on its business and 
earnings that fiscal or monetary policies, economic control or new Federal or 
State legislation may have in the future.

                                      12

<PAGE>

FEDERAL BANK HOLDING COMPANY REGULATION

              The Company is a one-bank holding Company within the meaning of 
the Bank Holding Company Act (Act), and as such, it is subject to regulation, 
supervision and examination by the Federal Reserve Bank (FRB). The Company is 
required to file annual reports with the FRB and to provide the FRB such 
additional information as the FRB may require.

              The Act requires every bank holding Company to obtain the prior 
approval of the FRB before (1) acquiring, directly or indirectly, ownership 
or control of any voting shares of another bank or bank holding Company if, 
after such acquisition, it would own or control more than 5% of such shares 
(unless it already owns or controls the majority of such shares); (2) 
acquiring all or substantially all of the assets of another bank or bank 
holding Company; or (3) merging or consolidating with another bank holding 
Company. The FRB will not approve any acquisition, merger or consolidation 
that would have a substantial anticompetitive result, unless the 
anticompetitive effects of the proposed transaction are clearly outweighed by 
a greater public interest in meeting the convenience and needs of the 
community to be served. The FRB also considers capital adequacy and other 
financial and managerial factors in reviewing acquisitions or mergers.

              With certain exceptions, the Act also prohibits a bank holding 
Company from acquiring or retaining direct or indirect ownership or control 
of more than 5% of the voting shares of any Company which is not a bank or 
bank holding Company, or from engaging directly or indirectly in activities 
other than those of banking, managing or controlling banks, or providing 
services for its subsidiaries. The principal exceptions to these prohibitions 
involve certain non-bank activities which, by statute or by FRB regulation or 
order, have been identified as activities closely related to the business of 
banking or of managing or controlling banks. In making this determination, 
the FRB considers whether the performance of such activities by a bank 
holding Company can be expected to produce benefits to the public such as 
greater convenience, increased competition or gains in efficiency in 
resources, which can be expected to outweigh the risks of possible adverse 
effects such as decreased or unfair competition, conflicts of interest or 
unsound banking practices.

FEDERAL AND STATE BANK REGULATION

              The Bank, as a Federal Deposit Insurance Corporation (FDIC) 
insured bank which is not a member of the Federal Reserve System, is subject 
to the supervision and regulation of the State of Oregon Department of 
Consumer and Business Services, Division of Finance and Corporate Securities, 
and to the supervision and regulation of the FDIC. These agencies may 
prohibit the Bank from engaging in what they believe constitute unsafe or 
unsound banking practices.

              The Community Reinvestment Act (CRA) requires that, in 
connection with examinations of financial institutions within their 
jurisdiction, the FRB or the FDIC evaluate the record of the financial 
institutions in meeting the credit needs of their local communities, 
including low and moderate income neighborhoods, consistent with the safe and 
sound operation of those banks. These factors are also considered in 
evaluating mergers, acquisitions and applications to open a branch or 
facility. The Bank's current CRA rating is "Outstanding".

              The Bank is also subject to certain restrictions imposed by the 
Federal Reserve Act on extensions of credit to executive officers, directors, 
principal stockholders or any related interest of such persons. Extensions of 
credit (i) must be made on substantially the same terms, collateral and 
following credit underwriting procedures that are not less stringent than 
those prevailing at the time for comparable transactions with persons not 
described above, and (ii) must not involve more than the normal risk of 
repayment or present other unfavorable features. The Bank is also subject to 
certain lending limits and restrictions on overdrafts to such persons. A 
violation of these restrictions may result in the assessment of substantial 
civil monetary penalties on the Bank or any officer, director, employee, 
agent or other person participating in the conduct of the affairs of the 
Bank, the imposition of a cease and desist order, and other regulatory 
sanctions.

                                      13

<PAGE>

              Under the Federal Deposit Insurance Corporation Improvement Act 
(FDICIA), each Federal banking agency is required to prescribe by regulation, 
non-capital safety and soundness standards for institutions under its 
authority. These standards are to cover internal controls, information 
systems and internal audit systems, loan documentation, credit underwriting, 
interest rate exposure, asset growth, compensation, fees and benefits, such 
other operational and managerial standards as the agency determines to be 
appropriate, and standards for asset quality, earnings and stock valuation. 
An institution, which fails to meet these standards, must develop a plan 
acceptable to the agency, specifying the steps that the institution will take 
to meet the standards. Failure to submit or implement such a plan may subject 
the institution to regulatory sanctions. The Company believes that the Bank 
already meets substantially all the standards that are likely to be adopted, 
and therefore does not believe that the implementation of these regulatory 
standards will materially affect the Company's business operations.

INTERSTATE BANKING LEGISLATION

              Under the Riegle-Neal Interstate Banking and Branching 
Efficiency Act of 1994 (the "Interstate Act"), bank holding companies are 
permitted to acquire banks located in any state regardless of the state law 
in effect at the time. The Interstate Act also provides for the nationwide 
interstate branching of banks. Under the Interstate Act, both national and 
state chartered banks, including Oregon, are permitted to merge across state 
lines and thereby create interstate branch networks.

DEPOSIT INSURANCE

              As a member institution of the FDIC, the deposits of the Bank 
are currently insured to a maximum of $100,000 per depositor through the Bank 
Insurance Fund ("BIF"), and the Bank is required to pay semiannual deposit 
insurance premium assessments to the FDIC.

              The FDICIA included provisions to reform the Federal deposit 
insurance system, including the implementation of risk-based deposit 
insurance premiums. The FDICIA also permits the FDIC to make special 
assessments on insured depository institutions in amounts determined by the 
FDIC to be necessary to give it adequate assessment income to repay amounts 
borrowed from the U.S. Treasury and other sources or for any other purpose 
the FDIC deems necessary. Pursuant to the FDICIA, the FDIC implemented a 
transitional risk-based insurance premium system on January 1, 1993. 
Generally, banks are assessed insurance premiums according to how much risk 
they are deemed to present to the BIF. Banks with higher levels of capital 
and involving a low degree of supervisory concern are assessed lower premiums 
than banks with lower levels of capital or involving a higher degree of 
supervisory concern.

              On November 14, 1995, the FDIC Board of Directors voted to 
further reduce the insurance premiums paid on deposits covered by BIF and to 
maintain existing assessment rates for deposits covered by the Savings 
Association Insurance Fund (SAIF). Effective for the first semiannual 
assessment period of 1996, assessment rates were lowered by four cents per 
$100 of assessable deposits for all risk categories, subject to the statutory 
requirement that all institutions pay at least $2,000 annually for FDIC 
insurance. The four-cent reduction in BIF rates utilizes the adjustment 
procedure established by the FDIC Board to change rates within a five-cent 
range without first having to seek public comment.

              The Deposit Insurance Funds Act of 1996 ("Funds Act") 
eliminated the statutorily-imposed minimum assessment amount effective 
January 1, 1997. The Funds Act also authorizes assessments on Bank Insurance 
Fund-assessable deposits (such as, the Bank's deposits) and stipulates that 
the rate of assessment must equal one-fifth the Financing Corporation 
assessment rate that is applied to deposits assessable by the Savings 
Association Insurance Fund. The Financing Corporation assessment rate for 
Bank Insurance Fund-assessable deposits is 1.256 cents per $100 of deposits 
per year. The Bank's FDIC insurance expense for 1998 was approximately $32,000 
and management anticipates that the FDIC insurance expense for 1999 will be 
approximately $37,000 based upon deposits held at December 31, 1998.

                                      14

<PAGE>

REGULATORY DIVIDEND RESTRICTIONS

              The principal source of the Company's cash revenues have been 
provided from dividends received from the Bank. The Oregon banking laws 
impose the following limitations on the payment of dividends by Oregon state 
chartered banks: (1) no dividends may be paid which would impair capital; (2) 
until the surplus fund of a bank is equal to 50% of its capital, no dividends 
may be declared unless there has been carried to the surplus account no less 
than one fifth of its net profits for the dividend period; and (3) dividends 
are payable only out of a bank's undivided profits.

              In addition, the appropriate regulatory authorities are 
authorized to prohibit banks and bank holding companies from paying 
dividends, which would constitute an unsafe or unsound banking practice. The 
Bank and the Company are not currently subject to any regulatory restrictions 
on their dividends other than those noted above.

REGULATORY CAPITAL

              The Federal bank regulatory agencies use capital adequacy 
guidelines in their examination and regulation of bank holding companies and 
banks. If the capital falls below the minimum levels established by these 
guidelines, the bank holding company or bank may be denied approval to 
acquire or establish additional banks or non-bank businesses or to open 
facilities. At December 31, 1998 the Company is considered well capitalized" 
according to these regulatory capital guidelines. See footnote 17 to the 
Financial Statements in this report.

              The FRB and FDIC promulgate risk-based capital guidelines for 
banks and bank holding companies. Risk-based capital guidelines are designed 
to make capital requirements sensitive to differences in risk profile among 
banks and bank holding companies, to account for off-balance sheet exposure 
and to minimize disincentives for holding liquid assets. Assets and 
off-balance sheet items are assigned to broad risk categories, each with 
appropriate weights. The resulting capital ratios represent capital as a 
percentage of total risk-weighted assets and off-balance sheet items. The 
guidelines are minimums, and the FRB has noted that bank holding companies 
contemplating significant expansion programs should not allow expansion to 
diminish their capital ratios and should maintain ratios well in excess of 
the minimum. The current guidelines require all bank holding companies and 
banks to maintain a minimum risk-based total capital ratio equal to 8%, of 
which at least 4% must be Tier 1 capital.

              Tier 1 capital for bank holding companies includes common 
stockholders' equity, qualifying perpetual preferred stock (up to 25% of 
total Tier 1 capital, if cumulative; under a FRB rule, redeemable perpetual 
preferred stock may not be counted as Tier 1 capital unless the redemption is 
subject to the prior approval of the FRB) and minority interests in equity 
accounts of consolidated subsidiaries, less intangibles. Tier 2 capital 
includes: (I) the allowance for loan losses of up to 1.25% of risk-weighted 
assets; (ii) any qualifying perpetual preferred stock which exceeds the 
amount which may be included in Tier 1 capital; (iii) hybrid capital 
instrument; (iv) perpetual debt; (v) mandatory convertible securities and 
(vi) subordinated debt and intermediate term preferred stock of up to 50% of 
Tier 1 capital. Total capital is the sum of Tier 1 and Tier 2 capital less 
reciprocal holdings of other banking organizations, capital instruments and 
investments in unconsolidated subsidiaries.

              Banks' and bank holding companies' assets are given 
risk-weights of 0%, 20%, 50% and 100%. In addition, certain off-balance sheet 
items are given credit conversion factors to convert them to asset equivalent 
amounts to which an appropriate risk-weight will apply. These computations 
result in the total risk-weighted assets.

              Loans are generally assigned to the 100% risk category, except 
for first mortgage loans fully secured by residential property, which carry a 
50% rating. The Companys investment securities, mainly U.S. Government 
sponsored agency obligations, are assigned to the 20% category, except for 
municipal or state revenue bonds, which have a 50% risk-weight, and direct 
obligations of or obligations fully guaranteed by

                                      15

<PAGE>

the United States Treasury or United States Government, which have 0% 
risk-weight. Off-balance sheet items, direct credit substitutes, including 
general guarantees and standby letters of credit backing financial 
obligations, are given a 100% conversion factor. Transaction related 
contingencies such as bid bonds, other standby letters of credit and undrawn 
commitments, including commercial credit lines with an initial maturity of 
more than one year, have a 50% conversion factor. Short-term, 
self-liquidating trade contingencies are converted at 20%, and short-term 
commitments have a 0% factor.

              The FRB also has implemented a leverage ratio, which is Tier 1 
capital as a percentage of average total assets less intangibles, to be used 
as a supplement to risk-based guidelines. The principal objective of the 
leverage ratio is to place a constraint on the maximum degree to which a bank 
holding Company may leverage its equity capital base. The FRB requires a 
minimum leverage ratio of 3%. However, for all but the most highly rated bank 
holding companies and for bank holding companies seeking to expand, the FRB 
expects an additional cushion of at least 1% to 2%.

              The FDICIA also created a new statutory framework of 
supervisory actions indexed to the capital level of the individual 
institution. Under regulations adopted by the FDIC, an institution is 
assigned to one of five capital categories depending on its total risk-based 
capital ratio, Tier 1 risk-based capital ratio, and leverage ratio, together 
with certain subjective factors. Institutions that are deemed 
"undercapitalized", depending on the category to which they are assigned, are 
subject to certain mandatory supervisory corrective actions.

MONETARY POLICY

              The earnings of a bank holding company are affected by the 
policies of regulatory authorities, including the FRB, in connection with the 
FRB's regulation of the money supply. Various methods employed by the FRB are 
open market operations in United States Government securities, changes in the 
discount rate on member bank borrowings and changes in reserve requirements 
against member bank deposits. These methods are used in varying combinations 
to influence overall growth and distribution of bank loans, investments and 
deposits, and their use may also effect interest rates charged on loans or 
paid on deposits. The monetary policies of the FRB have had a significant 
affect on the operating results of commercial banks in the past and are 
expected to continue to do so in the future.

ITEM 2.       PROPERTIES

              At December 31, 1998, the Company conducted banking services in 
eight locations in Deschutes and Crook counties in Central Oregon. All 
offices are free standing buildings except one location, which is leased 
space in a supermarket. The main office/administrative center and three other 
branch buildings are owned and are situated on leased land. The Bank owns 
land and building at two branch locations. The Bank leases land and building 
at two branch locations. All leases include multiple renewal options. Cascade 
Finance is housed in separate leased retail space in Bend, Oregon.

              The Bank's Main Office and Administrative Center is located at 
1100 NW Wall Street, Bend, Oregon, and consists of approximately 15,000 
square feet. The building is owned by the Bank and is situated on leased 
land. The ground lease term is for 30 years and commenced June 1, 1989. There 
are ten renewal options of five years each. Monthly rental is $4,600 per 
month with adjustments every five years by mutual agreement of landlord and 
tenant. The main bank branch occupies the ground floor. Mortgage lending, 
administrative and operational functions occupy approximately 8,400 square 
feet. A separate data processing and drive-up facility is also located on 
site. Certain other operations are located in an adjacent building subject to 
a short-term lease agreement.

              In addition to the above, the Bank has opened a new Salem 
branch in January 1999. The branch is located in the Capitol Center building 
in downtown Salem, Oregon. The land and the building are leased with bank and 
office space of 8,200 square feet. The lease term, with options, extends to 
2058. The current monthly office space lease is $9,949 and is subject to 
change annually based on a rate schedule

                                      16

<PAGE>

included in the lease. The monthly ground lease is $2,167 and is subject to 
change annually. Further, a downtown Redmond, Oregon branch office is 
scheduled to open during the first quarter of 1999. This is the Bank's second 
location serving the Redmond community. The building and land are leased with 
bank and office space of 4,800 square feet. The lease term extends to 2028. 
The current monthly lease amount is $4,320 and is subject to change annually 
based on a rate schedule included in the lease. See footnote 15 in the 
accompanying Consolidated Financial Statements for a summarization of future 
minimum lease payment obligations.

              In the opinion of management all of the Bank's properties are 
adequately insured.

ITEM 3.           LEGAL PROCEEDINGS

              The Company is from time to time a party to various legal 
actions arising in the normal course of business. Management believes that 
there is no threatened or pending proceedings against the Company, which, if 
determined adversely, would have a material effect on the business or 
financial position of the Company.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  None.

                                      17

<PAGE>



                                     PART II

ITEM 5.           MARKET FOR CASCADE BANCORP'S COMMON STOCK AND RELATED 
                  STOCKHOLDER MATTERS

              Cascade Bancorp common stock trades on The NASDAQ Small Cap 
Market tier of The NASDAQ Stock Market under the symbol CACB. The primary 
market makers are: Dain Rauscher Wessels Inc., Pacific Crest Securities, 
Black & Company Inc., Herzog, Heine, Geduld, Inc., and Keefe, Bruyette & 
Woods, Inc.

              The high and low sales prices shown below are retroactively 
adjusted for stock dividends and splits and are based on actual trade 
statistical information provided by The NASDAQ Stock Market for the periods 
indicated.

<TABLE>
<CAPTION>
                              FIRST QUARTER          SECOND QUARTER          THIRD QUARTER         FOURTH QUARTER
                              -------------          --------------          -------------         --------------
          <S>                 <C>                    <C>                     <C>                   <C>
          1998
          ----
          High                   $22.67                  $22.00                 $22.94                 $20.25
          Low                    $17.33                  $17.67                 $15.13                 $16.38
          1997
          High                   $10.25                  $13.67                 $15.83                 $19.00
          Low                     $7.09                  $8.59                  $11.50                 $13.67
</TABLE>

The Company declared a three-for-two stock split in June 1998 and a 
two-for-one stock split in July 1997. The Company also announced the 
establishment of regular quarterly cash dividends in 1997.

DIVIDENDS DECLARED AND PAID

<TABLE>
<CAPTION>
                              FIRST QUARTER          SECOND QUARTER          THIRD QUARTER         FOURTH QUARTER
                              -------------          --------------          -------------         --------------
                                PER SHARE              PER SHARE               PER SHARE              PER SHARE
                                ---------              ---------               ---------              ---------
          <S>                   <C>                    <C>                     <C>                    <C>
          1999                    $.09                    N/A                     N/A                    N/A

          1998                    $.08                    $.08                   $.09                   $.09

          1997                    $.16                    None                   $.07                   $.07
</TABLE>

(1)  Dividends declared and paid have been adjusted to reflect the three-for-
     two stock split declared in June 1998 and the two-for-one stock split 
     declared in July 1997.

              At February 12, 1999, the Company had 6,238,432 shares of 
common stock outstanding held by approximately 2,500 shareholders of record.

                                      18

<PAGE>

ITEM 6.           SELECTED FINANCIAL DATA

          The following selected financial data should be read in conjunction 
with the Company's consolidated financial statements and the accompanying 
notes which are included in this Annual Report on Form 10-K, (in thousands, 
except per share data and ratios; unaudited):

<TABLE>
<CAPTION>
                                                                               YEARS ENDED DECEMBER 31,
                                                                  ---------------------------------------------------
INCOME STATEMENT DATA                                                  1998      1997      1996       1995      1994
                                                                       ----      ----      ----       ----      ----
<S>                                                                 <C>       <C>       <C>        <C>       <C>
     Interest income............................................    $22,453   $18,836   $15,812    $13,904   $10,081
     Interest expense...........................................      5,181     4,787     4,052      3,769     2,156
     Net interest income........................................     17,272    14,049    11,760     10,135     7,925
     Loan loss provision........................................      1,179     1,075       432        481       311
     Net interest income after loan loss provision..............     16,092    12,974    11,328      9,654     7,614
     
     Noninterest income.........................................      5,611     4,310     4,020      3,099     2,443
     Noninterest expense........................................     12,446     9,379     8,113      7,144     6,294
     Income before income taxes.................................      9,257     7,905     7,235      5,609     3,763
     Provision for income taxes.................................      3,491     2,864     2,722      1,977     1,379
     Net income.................................................     $5,766    $5,041    $4,513     $3,632    $2,384
SHARE DATA
     Basic earnings per common share (1)........................      $0.93     $0.79     $0.71      $0.56     $0.38
     Diluted earnings per common share (1)......................      $0.90     $0.77     $0.69      $0.56     $0.37
     Book value per common share (1)............................      $4.32     $3.87     $3.77      $3.04     $2.37
     Cash dividends per common share (1)........................      $0.34     $0.30         -          -         -
     Ratio of dividends declared to net income..................     36.70%    37.99%         -          -         -
     Basic Weighted shares outstanding (1)(5)...................      6,227     6,383     6,399      6,399     6,273
     Diluted weighted shares outstanding (1)(5).................      6,423     6,567     6,507      6,458     6,392
     BALANCE SHEET DATA (AT PERIOD END)
     Investment securities......................................    $50,951   $44,400   $27,797    $13,368   $32,648
     Loans, net.................................................    202,543   153,025   131,627    124,711    96,927
     Total assets...............................................    300,774   242,611   201,277    177,562   146,803
     Total deposits.............................................    270,863   211,345   171,082    152,438   128,260
     Total shareholders' equity (5).............................     26,922    24,236    23,572     19,040    14,811
SELECTED RATIOS
     Return on average total shareholders' equity (5)...........     22.72%    20.73%    21.04%     21.36%    16.98%
     Return on average total assets.............................      2.18%     2.23%     2.39%      2.24%     1.78%
     Net interest spread........................................      6.40%     6.23%     6.11%      5.97%     5.96%
     Net interest margin........................................      7.40%     7.17%     7.09%      6.92%     6.71%
     Efficiency ratio (2).......................................     54.39%    51.09%    51.41%     53.28%    60.71%
ASSET QUALITY RATIOS
     Reserve for loan losses to ending total loans..............      1.28%     1.32%     1.26%      1.30%     1.18%
     Nonperforming assets to ending total assets (3)............      0.19%     0.04%     0.04%      0.04%     0.00%
     Net loan charge-offs to average loans......................      0.32%     0.48%     0.28%      0.00%     0.08%
CAPITAL RATIOS
     Average shareholders' equity to average assets (5).........      9.61%    10.77%    11.33%     10.47%    10.51%
     Leverage ratio (4).........................................      8.99%     9.63%    11.48%     10.64%     9.68%
     Total risk-based capital ratio (4).........................     12.47%    14.29%    16.51%     14.29%    14.69%
</TABLE>

(1) Adjusted to reflect 10% stock dividends declared in 1994, 1995 and 1996, a
    two-for-one stock split in 1997 and a Three-for-two stock split in 1998.
(2) Efficiency ratio is noninterest expense divided by (net interest income +
    noninterest income - non-recurring items).
(3) Nonperforming assets consist of nonaccrual loans, loans contractually past
    due 90 days or more and other real estate owned.
(4) Computed in accordance with FRB and FDIC guidelines.
(5) During 1997 the Board adopted a stock repurchase plan to buyback
    approximately 2.5% of common stock. In addition, the Board adopted a
    plan to repurchase up to an additional 2.5% of common stock during 1998.

                                      19

<PAGE>

SELECTED QUARTERLY FINANCIAL DATA

          The following  table sets forth the Company's  unaudited data 
regarding operations for each quarter of 1998 and 1997.This information, in 
the opinion of management, includes all normal recurring adjustments 
necessary to state fairly the information set forth therein (in thousands, 
except per share amounts):

<TABLE>
<CAPTION>
                                                                      1998 Quarters Ended
                                                  -----------------------------------------------------------
                                                      Dec. 31        Sept. 30         June 30        Mar. 31
                                                  ------------    ------------    ------------    -----------
<S>                                               <C>             <C>             <C>             <C>
Interest income                                   $     6,218     $     5,892     $     5,354     $    4,989
Interest expense                                        1,374           1,352           1,239          1,216
                                                  ------------    ------------    ------------    -----------
Net interest income                                     4,844           4,540           4,115          3,773
Loan loss provision                                       503             308             284             84
                                                  ------------    ------------    ------------    -----------
Net interest income after loan loss provision           4,341           4,232           3,831          3,689
Noninterest income                                      1,402           1,501           1,491          1,217
Noninterest expense                                     3,345           3,231           3,047          2,823
                                                  ------------    ------------    ------------    -----------
Income before income taxes                              2,398           2,502           2,275          2,083
Provision for income taxes                                885             967             836            804
                                                  ------------    ------------    ------------    -----------
Net income                                        $     1,513     $     1,535     $     1,439     $    1,279
                                                  ------------    ------------    ------------    -----------
                                                  ------------    ------------    ------------    -----------
Weighted average number
  of shares outstanding (1)                             6,227           6,230           6,223          6,228
Basic earnings per share (1)                            $0.24           $0.25           $0.23          $0.21
Fully diluted weighted average number
  of shares outstanding (1)                             6,409           6,427           6,431          6,440
Fully diluted earnings per share (1)                    $0.24           $0.24           $0.22          $0.20

                                                                      1997 Quarters Ended
                                                  -----------------------------------------------------------
                                                      Dec. 31        Sept. 30         June 30        Mar. 31
                                                  ------------    ------------    ------------    -----------
Interest income                                   $     5,230     $     4,914     $     4,599     $    4,093
Interest expense                                        1,302           1,239           1,195          1,051
                                                  ------------    ------------    ------------    -----------
Net interest income                                     3,928           3,675           3,404          3,042
Loan loss provision                                       468             231             280             96
                                                  ------------    ------------    ------------    -----------
Net interest income after loan loss provision           3,460           3,444           3,124          2,946
Noninterest income                                      1,135           1,217           1,026            932
Noninterest expense                                     2,671           2,398           2,164          2,146
                                                  ------------    ------------    ------------    -----------
Income before income taxes                              1,924           2,263           1,986          1,732
Provision for income taxes                                618             802             784            660
                                                  ------------    ------------    ------------    -----------
Net income                                        $     1,306     $     1,461     $     1,202     $    1,072
                                                  ------------    ------------    ------------    -----------
                                                  ------------    ------------    ------------    -----------
Weighted average number
  of shares outstanding (1)                             6,320           6,414           6,399          6,399
Basic earnings per share (1)                            $0.21           $0.22           $0.19          $0.17
Fully diluted weighted average number
  of shares outstanding (1)                             6,515           6,617           6,623          6,633
Fully diluted earnings per share (1)                    $0.20           $0.22           $0.18          $0.17
</TABLE>

-------------------
(1)  Adjusted to give retroactive effect to a three-for-two stock split 
     declared in June 1998 and a two-for-one stock split declared in 
     July, 1997.

                                      20


<PAGE>

ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
               RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with the Company's 
audited consolidated financial statements and the notes thereto as of 
December 31, 1998 and 1997 and for each of the three years in the period 
ended December 31, 1998 included elsewhere in this report.

     When used in the following discussion, the word "expects," "believes," 
"anticipates" and other similar expressions are intended to identify 
forward-looking statements, which are made pursuant to the safe harbor 
provisions of the private securities litigation reform act of 1995. Such 
forward-looking statements are subject to certain risks and uncertainties 
that could cause actual results to differ materially from those projected. 
Specific risks and uncertainties include, but are not limited to, general 
business and economic conditions, and other factors listed from time to time 
in the Company's SEC reports. 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.

HIGHLIGHTS

     The Company's 1998 net income was $5.8 million, up 14.4% from the $5.0 
million earned in 1997. Net income in 1997 represented an 11.7% increase from 
1996's net income of $4.5 million. Increased earnings in 1998 and 1997 were 
primarily a result of higher net interest income, as the continuing strong 
local economy of Central Oregon coupled with successful lending programs 
enabled the Company to increase outstanding loans as well as investment 
portfolio assets. The growth in earning assets was funded by a similar strong 
expansion in customer deposit balances. Progressively higher earnings have 
led to improved earnings per share while return on equity has remained above 
20% in each of the years reported. Diluted earnings per share reached $.90 in 
1998 compared to $.77 in 1997 and $.69 in 1996, while return on equity was 
22.7% in 1998 compared to 20.7% in 1997 and 21.0% in 1996. Both non-interest 
income and non-interest expenses grew in tandem with expanded business levels.

     The Company anticipates opening two new branch banking offices in 1999, 
bringing total branch locations to ten. The Bank entered the Salem, Oregon 
market with a full service branch office in January 1999. In addition, the 
Bank will open in Redmond, Oregon late in the first quarter of 1999. This 
will be a second branch serving the Redmond community. The new branch offices 
are not expected to be material to the financial results of the Company in 
1999. Management anticipates the offices to achieve break-even financial 
results within one to three years, however there can be no assurance that 
future profitability will be achieved.

     In mid 1999 the Company intends to offer Trust and Investment services, 
initially in Central Oregon. Trust services will focus on the personal trust 
needs of existing and prospective clients by providing living and 
testamentary trust, asset and financial management, and fiduciary services. 
Retail investment services, including stock brokerage, mutual fund and fixed 
income services, are expected to be provided by a licensed on-site broker 
through a broker/dealer agent relationship. In addition, the Company intends 
to open a Loan Production Office (LPO) in suburban Portland in 1999, 
targeting small to medium business and commercial real estate lending in that 
rapidly growing market. These activities are not expected to be material to 
the financial results of the Company in 1999. Management anticipates 
break-even financial results for these activities within one to three years, 
however there can be no assurance that future profitability will be achieved.

RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

NET INTEREST INCOME

     Net interest income increased 22.9% in 1998 to $17.3 million, as loan
volumes and customer


                                      21
<PAGE>

deposits continued to expand with the strong local economy of Central Oregon. 
1997 net interest income increased 19.5% to $14.0 million compared to 1996. 
Interest from loans and investment activities increased $3.6 million in 1998 
compared to 1997 due to a $32.6 million growth in average loans outstanding 
plus a $3.3 million increase in average investment securities. Interest 
income increased $3.0 million in 1997 compared to 1996 as average loans 
increased $11.9 million. Funding sources in 1998 grew to support higher 
earning assets with deposits totaling $270.9 million at year end, an increase 
of $59.5 million or 28.2% compared to year end 1997. Similarly, 1997 deposits 
of $211.3 million exceeded year end 1996 by $40.3 million or 23.5%. Despite 
markedly higher deposit volumes, Interest expense increased only $.4 million 
in 1998 compared to 1997 because a large portion of the deposit growth was in 
interest-free checking accounts and low cost interest bearing demand 
deposits. $5 million in FHLB borrowings were paid off in early 1998. In 1997, 
deposit interest expense increased $.7 million compared to 1996. The Company's
net interest margin expanded from 7.09% in 1996, to 7.17% in 1997 and to 
7.40% in 1998. Yields on earning assets in 1996, 1997, and 1998 were 9.53%, 
9.61%, and 9.62%, respectively. Average rates paid on deposits and borrowings 
declined from 3.42% in 1996 to 3.38% in 1997 to 3.22% in 1998. Declines in 
the general level of market interest rates in the second half of 1998 were 
beginning to modestly effect yields and the interest margin late in the 
fourth quarter of 1998. Modest compression of the margin is expected to 
continue into 1999 in the absence of significant volatility in market 
interest rates.

LOAN LOSS PROVISION

     The loan loss provision increased during the periods presented to keep 
pace with loan growth. The Bank's ratio of reserve for loan losses to total 
loans was 1.28% at December 31, 1998 as compared to 1.32% at December 31, 
1997. Management believes the reserve for loan losses is adequate to absorb 
potential losses on identified nonperforming assets as well as general losses 
at historical and expected levels.

NONINTEREST INCOME

     Noninterest income increased 30.2% to $5.6 million in 1998 compared to 
$4.3 million the prior year, while 1997 noninterest income was 7.2% above 
1996. In part, these increases were a function of growing customer 
transaction account activity, which generated increased fees during the 
periods presented. Service charges on deposit accounts increased to $1.9 
million in 1998, up from $1.8 million in 1997 and $1.6 million in 1996. 
Residential mortgage loan origination and processing fees also contributed to 
higher noninterest income, increasing to $1.8 million in 1998, up from $1.1 
million in both 1997 and 1996. This increase was due to higher mortgage loan 
origination volumes, which totaled $147 million in 1998 compared to $85 
million and $88 million in 1997 and 1996 respectively. The origination and 
refinance of residential mortgage loans, and related fee income is dependent 
upon the general level and direction of interest rates. Therefore there can 
be no assurance that origination fees and gains on sales of residential 
mortgage loans will contribute to the Company's future earnings. The Bank 
commenced in-house servicing of residential mortgage loans in March 1998. 
Serviced loans are bank originated residential mortgages that have been sold 
to FNMA. The mortgages were previously sub-serviced by another financial 
institution. Primarily due to higher volumes of serviced loans, 1998 mortgage 
servicing fees increased 120.7% to $492,000 after a 13.0% increase in 1997. 
Related mortgage servicing rights are amortized in proportion to estimated 
net servicing income. In the event of rapid customer refinancing or 
prepayment activity, market valuation of capitalized mortgage servicing 
rights could be impaired. Capitalized mortgage servicing rights totaled 
approximately $2.3 million at year end 1998 as compared to $1.3 million at 
year end 1997, and $.6 million at year end 1996. Other Income was $426,000 
higher in 1998 over 1997 due to increased Visa interchange revenue of 
$65,000, higher earnings on life insurance policies of $52,000 and $52,000 in 
additional ATM usage fees on non-bank customers

NONINTEREST EXPENSE

         Total 1998 noninterest expense was $12.5 million, an increase of $3.1
million or 32.7% from 1997. This is compared to an increase of 15.6% in 1997
over 1996. Salaries and benefits increased $1.9 million in 1998 as staffing
increased to ensure quality customer service was maintained in tandem with
markedly higher customer account transaction activity. 1997 salary and benefits
increased $.8 million from 1996. It


                                      22
<PAGE>

is anticipated that this human resources trend will continue into 1999 owing 
to staff additions for new branch offices in Salem and Redmond, Oregon. 
Expenses for occupancy and equipment costs increased $.3 million in 1998 
compared to 1997 primarily due to higher data processing and network costs in 
the delivery of customer products and services. Similarly, higher 1997 
occupancy and equipment expense was attributable to growing size and activity 
levels.

INCOME TAXES

     The provision for income taxes increased between the periods presented 
primarily as a result of higher pre-tax income. The effective tax rate in 
1997 was lower than other years due to a state income tax rebate.

FINANCIAL CONDITION

     The Company continued to experience strong growth in 1998 with total 
assets increasing 24.0% to $300.8 million at December 31, 1998 compared to 
$242.6 million at December 31, 1997. The higher total assets were funded 
primarily by an increase in deposits, which also compensated for the payoff 
of a $5 million FHLB term borrowing. Loans outstanding totaled $205.5 million 
at year end 1998, $50.0 million higher than a year earlier, an increase of 
32.2%. Loan growth was concentrated in real estate categories, up $45.5 
million. Investments at year end 1998 were $51.0 million compared to $44.4 
million at year end 1997. Strong deposit growth funded increased earning 
assets. Total deposits at year end 1998 were $270.9 million, an increase of 
$59.5 million or 28.2% compared to year end 1997. Deposit growth was 
concentrated in noninterest bearing demand accounts, up $50.3 million or 
77.2% to $115.5 million at December 31, 1998. $22.6 million of this increase 
was a one time transfer late in 1998 of certain customer account balances 
that were previously paid interest as interest bearing demand accounts.

     The Company had no off balance sheet derivative financial instruments as 
of December 31, 1998 and 1997.

YEAR 2000 DISCLOSURE

     The Year 2000 (Y2K) issue may pose unique challenges to all businesses 
due to the inability of some computers and computer software programs to 
accurately recognize, for years after 1999, dates which are often expressed 
as a two digit number. This inability to recognize date information 
accurately could potentially affect computer operations and calculations, or 
could cause computer systems to not operate at all. Accordingly, Y2K may 
precipitate related consequences that are not possible to foresee.

     Major business risks associated with the Year 2000 issue may include, 
but are not limited to, infrastructure failures, disruptions to the economy 
in general, disruption of private and government activities, excessive cash 
withdrawal activity and/or reduced financial liquidity. In addition, 
increased problem loans and credit losses may impact the Company in the event 
borrowers fail to prepare for Y2K. The above risks could expose the Company 
to loss of revenues, litigation and asset quality deterioration.

     The federal banking regulators have issued several statements providing 
guidance to financial institutions on the steps the regulators expect 
financial institutions to take to become Year 2000 compliant. Each of the 
federal banking regulators is also examining the financial institutions under 
its jurisdiction to assess each institution's compliance with the outstanding 
guidance. If an institution's progress in addressing the Year 2000 problem is 
deemed by its primary federal regulator to be less than satisfactory, the 
institution will be required to enter into a memorandum of understanding with 
the regulator which will, among other things, require the institution to 
promptly develop and submit an acceptable plan for becoming Year 2000 
compliant and to provide periodic reports describing the institution's 
progress in implementing the plan. Failure to satisfactorily address the Year 
2000 problem may also expose a financial institution to other forms of 
enforcement action that its primary federal regulator deems appropriate to 
address the deficiencies in the institution's Year 2000 remediation program.


                                      23
<PAGE>

     The Company has completed an assessment of the Year 2000 issue, 
considering the risk that date fields in existing computer applications might 
fail to recognize the year 2000 and therefore create erroneous results. Based 
upon the results of our assessment, testing, certification and remediation 
activities to date, management believes that the Company is well prepared to 
respond to the issue and run successfully in the year 2000 and beyond.

     The Company has identified mission critical computer applications and 
related processes and has formalized plans to address potential issues that 
may arise as a result of the date change. An application, system or process 
is mission critical if it is deemed vital to the successful continuance of a 
core business activity. For substantially all mission critical applications 
the Company has performed tests and has obtained performance certifications 
on hardware, software, and environmental systems except for the applications 
noted below. The Company has also required and received certifications from 
substantially all major software application vendors to ensure that their 
systems are Year 2000 compliant, except for the applications noted below. The 
Company has confirmed that substantially all mission critical systems have 
the capacity to process information with dates beyond December 31, 1999 
except for the applications noted below.

     The status of all mission critical systems that were not fully Y2K 
tested and/or remediated as of December 31, 1998 is as follows: 1) Proof of 
deposit systems and related applications were remediated and tested for Y2K 
compliance on Jan. 20, 1999. 2) The bankcard processing application will not 
be fully Y2K tested under Federal Financial Institutions Examination Council 
guidelines until March 31 1999; any required remediation would be 
subsequently undertaken. 3) The computer application interfacing mortgage 
sales transactions with the purchaser of such mortgages will be Y2K tested by 
March 31 1999 and any required remediation would be subsequently undertaken. 
Management is presently unaware of any issue that could have the effect of 
delaying or preventing successful Y2K compliance of these applications by 
June 30, 1999.

     At year-end 1998, a Year 2000 Contingency Plan was in place that 
addressed mission critical as well as non-critical applications. For each 
non-critical application, the contingency plan details how tasks can be 
accomplished if the application is not operational. Under FFIEC bank 
regulatory guidelines, a financial institution is not required to have a 
contingency plan for mission-critical systems and applications if the system 
or application has been remediated, tested, and implemented as Y2K compliant. 
Mission critical applications will rely on the above-described testing, 
certification and remediation program to ensure all such systems and 
applications are Year 2000 compliant. If the Company experiences system 
failures due to unforeseen Y2K events, the Company's current Business 
Contingency Plan will be implemented. This plan is designed to enable the 
Company to function in the event of a short-term business interruption owing 
to unexpected and/or emergency circumstances. Operating under this plan and 
depending on the nature of the interruption, the Company may provide only 
limited services, may revert to manual recording of customer and 
counter-party transactions and/or may revert to manual updating of financial 
records. The encoding and processing of checks and drafts may be performed at 
a contingency site. Alternate check presentment, delivery and settlement 
methods may be implemented. Transactions previously executed via wire 
transfer and/or Federal Reserve Account maintenance activity may revert to 
telephonic methodology. The Business Contingency Plan is tested annually but 
there can be no assurance as to its effectiveness under Y2K contingent 
circumstances.

     The Company has identified and formally contacted its significant 
customers, suppliers and counterparties regarding Y2K. In so doing the 
Company has encouraged their Y2K testing and remediation and has requested 
Y2K compliance certifications from these parties. Management believes these 
significant parties will test and take steps necessary to achieve Y2K 
compliance, however, no assurance can be made that their response to the Y2K 
situation will not precipitate adverse consequences for the Company. In 
addition, the Company has acknowledged that increased problem loans and 
credit losses could ensue due to Y2K, and has considered this contingent risk 
in the determination of its allowance for loan losses. Although management 
believes the allowance for loan losses is adequate at December 31, 1998, 
there can be no assurance as to the future adequacy of the allowance for loan 
losses in respect to the yet unknown affect of Y2K .


                                      24
<PAGE>

     The Company anticipates that the costs of testing and remediating 
applications and systems for Y2K will not be material to future operating 
results or financial condition. Apart from internal staff hours allocated to 
Y2K testing and assurance, expenditures related to Y2K issues total 
approximately $55,000 to date,

     Although management believes that it has tested, analyzed and certified 
mission critical applications with respect to Year 2000 compliance, there can 
be no assurance that the Company will not be impacted by unanticipated Year 
2000 contingent circumstances.

INFLATION

     The general rate of inflation over the past two years, as measured by 
the Consumer Price Index, has not changed significantly, and management does 
not consider the effects of inflation on the Company's financial position and 
earnings to be material.

LIQUIDITY

     The Company analyzes and manages its liquidity to ensure the 
availability of sufficient funds to meet depositor withdrawals as well as to 
fund borrowing needs of its loan customers. The Bank's stable deposit base is 
the foundation of its long-term liquidity since these funds are not subject 
to significant volatility as a result of changing interest rates and other 
economic factors. A further source of liquidity is the Bank's ability to 
borrow funds from a variety of reliable counterparties. In addition, the Bank 
has substantial available-for-sale investment securities that could be 
liquidated to provide an additional source of liquidity.

     At December 31, 1998 the Bank maintained five unsecured lines of credit 
totaling $17.5 million for the purchase of funds on a short-term basis. The 
Bank is also a member of the Federal Home Loan Bank (FHLB) which provides a 
secured line of credit of $12.1 million that may be accessed for short or 
long-term borrowings. At December 31, 1998 the Bank had no short or long term 
borrowings.

     At December 31, 1998, the Bank had approximately $78 million in 
outstanding commitments to extend credit. Approximately one-third of the 
commitments pertains to various construction projects. Under the terms of 
such commitments, completion of specified project benchmarks must be 
certified before funds may be drawn. In addition, it is anticipated that a 
portion of the commitments will expire or terminate without funding. 
Management believes that the Bank's available resources will be sufficient to 
fund its commitments in the normal course of business.

CAPITAL RESOURCES

     The Companys total stockholders equity at December 31, 1998 was $26.9 
million, an increase of $2.7 million from December 31, 1997. 1998 equity was 
increased by earnings of $5.8 million for the year less cash dividends paid 
to shareholders of $2.1 million during 1998. In addition, during 1998, the 
Company repurchased 46,944 shares of its common stock outstanding pursuant to 
a Board of Directors authorized program. This had the effect of reducing 
equity by $.9 million during the year. At year end 1998, net unrealized gains 
on investment securities available-for-sale decreased to $.2 million from $.3 
million a year earlier.


                                      25
<PAGE>

ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK AND ASSET AND LIABILITY MANAGEMENT

     The Company's profitability, like most financial institutions, depends to 
a large extent upon its net interest income, which is the difference between 
the interest earned on assets (loans and investments), versus the interest 
expense paid on its liabilities (deposits and borrowings). The Company's 
historical business activity tends to originate loans with maturities and 
repricing terms which are shorter than those of deposit relationships. These 
maturity and repricing differences create a natural interest rate risk 
profile whereby the Company will tend to generate higher earnings should 
market interest rates rise and lower earnings should interest rates fall.

     It is the Company's Asset and Liability management policy to manage 
interest rate risk to maximize long term profitability under the range of 
likely interest rate scenarios. The Board of Directors oversees 
implementation of strategies to control interest rate risk. The Company may 
take steps to alter its net sensitivity position by offering deposit and/or 
loan structures that tend to counter the natural rate risk profile of the 
Company. In addition, the Company may acquire investment securities, interest 
rate swaps or other hedging instruments with repricing characteristics that 
tend to moderate interest rate risk. Because of the volatility of market 
rates and uncertainties described above there can be no assurance of the 
effectiveness of management programs to achieve a targeted moderation of risk.

     The Company analyzes interest rate risk by simulation modeling and by 
traditional interest rate gap analysis. While both methods provide an 
indication of risk for a given change in interest rates, it is management's 
opinion that simulation is the more effective tool for asset and liability 
management. Analyses are dependent on assumptions and estimations that 
management believes are reasonable, although the actual results may vary 
substantially.

     The Bank's simulation analysis forecasts net interest income and earnings 
given unchanged interest rates (stable rate scenario). The model then 
estimates a percentage change from the stable rate scenario under scenarios 
of rising and falling market interest rates over one and two year time 
horizons. The simulation model estimates that in the event of a decline of 
1.5% in market interest rates, earnings could be adversely impacted up to 
approximately 9.9%, while a similar increase in market rates would have a 
favorable impact of approximately 11.3%. Because of uncertainties as to the 
extent of customer behavior, refinance activity, absolute and relative loan 
and deposit pricing levels, competitor pricing and market behavior, product 
volumes and mix, and other unexpected changes in economic events impacting 
movements and volatility in market rates, there can be no assurance that 
simulation results are reliable indicators of earnings under such conditions.

     At year end 1998, the Company's one year cumulative interest rate gap 
analysis indicates that rate sensitive assets maturing or available for 
repricing within one-year exceeded rate sensitive liabilities by 
approximately $6.2 million. A year earlier, rate sensitive assets exceeded 
maturing or available for repricing rate sensitive liabilities by $11.0 
million.

     It is the Company's policy to manage interest rate risk to maximize long 
term profitability under the range of likely interest rate scenarios. The 
Board of Directors oversees implementation of strategies to control interest 
rate risk.


                                      26
<PAGE>

INTEREST RATE GAP TABLE

     Set forth below is a table showing the interest rate sensitivity Gap of 
the Company's assets and liabilities over various repricing periods and 
maturities, as of December 31, 1998. Maturities are based on contractual 
terms and repricing amounts are based on actual historical experiences 
(dollars in thousands):

<TABLE>
<CAPTION>

                                                        After 90
                                                          days         After
                                             Within      within       One year
                                               90         one       within five   After five 
                                              days        Year         years         years       Total
                                            --------   ----------   -----------   ----------   ---------
<S>                                        <C>         <C>          <C>           <C>          <C>
INTEREST EARNING ASSETS:

   Investments & fed funds sold             $  9,453   $      155   $    49,793   $        -   $  59,401
   Loans                                      74,591       42,371        75,573       13,508     206,043
                                            --------   ----------   -----------   ----------   ---------
     Total interest earning assets          $ 84,044   $   42,526   $   125,366   $   13,508   $ 265,444
                                            --------   ----------   -----------   ----------   ---------
                                            --------   ----------   -----------   ----------   ---------
INTEREST BEARING LIABILITIES:

   Interest-bearing demand deposits         $ 42,969   $   43,662   $    22,950   $        -   $ 109,581
     Savings deposits                              -            -         6,026        8,915      14,941
   Time deposits                              10,934       15,148         4,727            -      30,809
                                            --------   ----------   -----------   ----------   ---------
     Total interest bearing deposits          53,903       58,810        33,703        8,915     155,331

   Other borrowings                                -            -             -            -           -
                                            --------   ----------   -----------   ----------   ---------
     Total interest bearing liabilities     $ 53,903   $   58,810   $    33,703   $    8,915   $ 155,331
                                            --------   ----------   -----------   ----------   ---------
                                            --------   ----------   -----------   ----------   ---------

Interest rate sensitivity gap               $ 30,141   $ (16,284)   $    91,663   $    4,593   $ 110,113
Interest rate gap as a percentage
   of total interest earning assets           11.35%      (6.13%)        34.53%        1.73%      41.48%
                                            --------   ----------   -----------   ----------   ---------
                                            --------   ----------   -----------   ----------   ---------
Cumulative interest rate sensitivity gap    $ 30,141   $   13,857   $   105,520   $  110,113   $ 110,113
Cumulative interest rate gap as a
   Percentage of total earning assets         11.35%        5.22%        39.75%       41.48%         N/A
                                            --------   ----------   -----------   ----------   ---------
                                            --------   ----------   -----------   ----------   ---------

</TABLE>


ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     For financial statements, see Index to Consolidated Financial Statements 
on page 28.

ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
               FINANCIAL DISCLOSURE

     None


                                      27
<PAGE>

                                   PART III

     Part III is incorporated by reference from the Company's definitive 
proxy statement issued in conjunction with the Company's Annual Meeting of 
Shareholders to be held April 26, 1999.


                                   PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

    (a)  (1)  The financial statements required in this Annual Report 
              are listed in the accompanying Index to Consolidated Financial 
              Statements on page 30.

         (2)  Financial Statement Schedules.

              All financial statement schedules are omitted because they are
              not applicable or not required, or because the required
              information is included in the consolidated financial
              statements or the notes thereto.

    (b)       Reports on Form 8-K.

              The Company did not file any reports on Form 8-K during the
              last quarter of the fiscal year ended December 31, 1998.

    (c)       Exhibits.

              The list of exhibits has been intentionally omitted. Upon
              written request, we will provide to you, without charge, a
              copy of the list of exhibits as filed with the Securities and
              Exchange Commission. Additionally, we will furnish you with a
              copy of any exhibit upon written request. Written requests to
              obtain a list of exhibits or any exhibit should be sent to
              Bank of the Cascades, 1100 NW Wall Street, Bend, Oregon 97701,
              Attention: Investor Relations.


                                      28
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the registrant has duly caused this report to be signed 
on its behalf by the undersigned, thereunto duly authorized.

CASCADE BANCORP                           CASCADE BANCORP


/s/ Patricia L. Moss                      /s/ Gregory D. Newton
-------------------------------------     ------------------------------------
Patricia L. Moss                          Gregory D. Newton
President/Chief Executive Officer         Senior Vice President/Chief Financial
Date: February 22, 1999                   Officer
                                          Date: February 22, 1999

     Pursuant to the requirements of the Securities Exchange Act of 1934, 
this report has been signed below by the following persons on behalf of the 
registrant and in the capacities and on the dates indicated.

/s/ Jerry E. Andres                                    February 22, 1999
-----------------------------------------------        -----------------------
Jerry E. Andres, Director                              Date


/s/ Gary L. Capps                                      February 22, 1999
-----------------------------------------------        -----------------------
Gary L. Capps, Director/Chairman                       Date


/s/ Gary L. Hoffman                                    February 22, 1999
-----------------------------------------------        -----------------------
Gary L. Hoffman, Director/Vice Chairman                Date


/s/ Patricia L. Moss                                   February 22, 1999
-----------------------------------------------        -----------------------
Patricia L. Moss, Director/President/CEO               Date


/s/ Ryan R. Patrick                                    February 22, 1999
-----------------------------------------------        -----------------------
Ryan R. Patrick, Director                              Date


/s/ James E. Petersen                                  February 22, 1999
-----------------------------------------------        -----------------------
James E. Petersen, Director/Assistant Secretary        Date


/s/ Roger J. Shields                                   February 22, 1999
-----------------------------------------------        -----------------------
Roger J. Shields, Director                             Date


/s/ Jacob M. Wolfe                                     February 22, 1999
-----------------------------------------------        -----------------------
Jacob M. Wolfe, Director                               Date


                                      29
<PAGE>

                                CASCADE BANCORP
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (ITEM 14(a))

                                                                            PAGE

Report of Independent Auditors................................................31


Consolidated Balance Sheets at
     December 31, 1998 and 1997...............................................32


For the Years Ended December 31, 1998, 1997 and 1996:
     Consolidated Statements of Income........................................33
     Consolidated Statements of Changes in Stockholders' Equity...............34
     Consolidated Statements of Cash Flows....................................35


Notes to Consolidated Financial Statements....................................36


                                      30

<PAGE>





                  REPORT OF SYMONDS, EVANS & LARSON, P.C.,
                            INDEPENDENT AUDITORS


To the Board of Directors and
Stockholders of Cascade Bancorp


We have audited the accompanying consolidated balance sheets of Cascade 
Bancorp and subsidiaries as of December 31, 1998 and 1997, and the related 
consolidated statements of income, changes in stockholders' equity, and cash 
flows for each of the three years in the period ended December 31, 1998. 
These consolidated financial statements are the responsibility of the 
Company's management. Our responsibility is to express an opinion on these 
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the consolidated financial 
statements are free of material misstatement. An audit includes examining, on 
a test basis, evidence supporting the amounts and disclosures in the 
consolidated financial statements. An audit also includes assessing the 
accounting principles used and significant estimates made by management, as 
well as evaluating the overall financial statement presentation. We believe 
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Cascade 
Bancorp and subsidiaries as of December 31, 1998 and 1997, and the results of 
their operations and their cash flows for each of the three years in the 
period ended December 31, 1998 in conformity with generally accepted 
accounting principles.


Symonds, Evans & Larson, P.C.


January 15, 1999
Portland, Oregon

                                      31
<PAGE>

                      CASCADE BANCORP AND SUBSIDIARIES

                        CONSOLIDATED BALANCE SHEETS

                        DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
ASSETS                                        1998                  1997       
------                                 ------------------    ------------------

<S>                                    <C>                   <C>
Cash and cash equivalents:
   Cash and due from banks             $       18,388,900    $       21,053,706
   Federal funds sold                           8,450,000             8,500,000
                                       ------------------    ------------------
       Total cash and cash equivalents         26,838,900            29,553,706
Investment securities available-for-sale       48,012,491            41,953,637
Investment securities held-to-maturity,
   estimated fair value of $2,952,327 
   ($2,452,975 in 1997)                         2,938,489             2,445,957
Loans, net                                    202,543,262           153,024,926
Mortgage loans held for sale                    2,119,642             1,876,186
Premises and equipment, net                     5,984,501             5,057,388
Accrued interest and other assets              12,337,131             8,699,681
                                       ------------------    ------------------

       Total assets                    $      300,774,416    $      242,611,481
                                       ==================    ==================

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
   Deposits:
     Demand                            $      115,532,163    $       65,199,160
     Interest bearing demand                  109,580,561           111,481,437
     Savings                                   14,940,897            13,070,325
     Time                                      30,809,110            21,593,851
                                       ------------------    ------------------
       Total deposits                         270,862,731           211,344,773
   Accrued interest and other 
      liabilities                               2,990,003             2,030,284
   Long-term debt                               -                     5,000,000
                                       ------------------    ------------------
       Total liabilities                      273,852,734           218,375,057
Commitments and contingencies 
   (Notes 1, 4, 9, 15 and 16)

Stockholders' equity:
   Common stock, no par value; 
      10,000,000 shares authorized; 
      6,226,082 shares issued and 
      outstanding (4,172,238 in 1997)           9,545,545            10,365,015
   Retained earnings                           17,218,415            13,568,644
   Accumulated other comprehensive income         157,722               302,765
                                       ------------------    ------------------
       Total stockholders' equity              26,921,682            24,236,424
                                       ------------------    ------------------
       Total liabilities and 
          stockholders' equity         $      300,774,416    $      242,611,481
                                       ==================    ==================
</TABLE>
                            See accompanying notes.

                                      32
<PAGE>



                                         CASCADE BANCORP AND SUBSIDIARIES

                                         CONSOLIDATED STATEMENTS OF INCOME

                                   YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                 1998                1997                1996      
                                                            ---------------     ---------------    ----------------
<S>                                                         <C>                <C>                 <C>
Interest income:
   Interest and fees on loans                               $    19,256,895     $    15,788,357    $     14,063,738
   Taxable interest on investment securities                      2,504,127           2,402,987           1,177,535
   Nontaxable interest on investment securities                      41,518              73,646              94,143
   Interest on federal funds sold                                   537,271             467,300             381,567
   Dividends on Federal Home Loan Bank stock                        112,800             103,300              95,100
                                                            ---------------     ---------------    ----------------
                  Total interest income                          22,452,611          18,835,590          15,812,083
Interest expense:
   Deposits:
     Interest bearing demand                                      3,518,361           3,082,614           2,529,619
     Savings                                                        303,702             284,093             285,762
     Time                                                         1,293,588             998,334             872,806
   Long-term debt                                                    36,734             348,000             356,541
   Other borrowings                                                  28,472              73,472               6,824
                                                            ---------------     ---------------    ----------------
                  Total interest expense                          5,180,857           4,786,513           4,051,552
                                                            ---------------     ---------------    ----------------
Net interest income                                              17,271,754          14,049,077          11,760,531
Loan loss provision                                               1,179,399           1,075,109             432,141
                                                            ---------------     ---------------    ----------------
Net interest income after loan loss provision                    16,092,355          12,973,968          11,328,390
Noninterest income:
   Service charges on deposit accounts                            1,947,138           1,810,072           1,551,146
   Mortgage loan origination and processing fees                  1,788,001           1,092,786           1,051,381
   Gains on sales of mortgage loans, net                            198,129             399,947             496,782
   Mortgage loan servicing fees, net                                492,402             223,086             197,424
   Merchant bankcard fees, net                                      300,348             324,625             262,914
   Other                                                            885,419             459,838             459,973
                                                            ---------------     ---------------    ----------------
                  Total noninterest income                        5,611,437           4,310,354           4,019,620
Noninterest expense:
   Salaries and employee benefits                                 7,045,542           5,175,149           4,412,356
   Equipment                                                      1,092,319             898,156             724,954
   Occupancy                                                        793,219             668,023             623,385
   Third-party account services                                     409,217             293,071             240,202
   Supplies                                                         393,344             284,756             274,363
   Communications                                                   382,498             305,428             272,086
   Advertising                                                      352,955             269,236             229,366
   Other                                                          1,977,258           1,485,662           1,336,394
                                                            ---------------     ---------------    ----------------
                  Total noninterest expense                      12,446,352           9,379,481           8,113,106
                                                            ---------------     ---------------    ----------------
Income before income taxes                                        9,257,440           7,904,841           7,234,904
Provision for income taxes                                        3,491,400           2,863,700           2,721,900
                                                            ---------------     ---------------    ----------------
Net income                                                  $     5,766,040     $     5,041,141    $      4,513,004
                                                            ===============     ===============    ================
Basic earnings per common share                             $           .93     $           .79    $            .71
                                                            ===============     ===============    ================
Diluted earnings per common share                           $           .90     $           .77    $            .69
                                                            ===============     ===============    ================
</TABLE>
                                            See accompanying notes.

                                                        33
<PAGE>



                                CASCADE BANCORP AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                          YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                              ACCUMULATED 
                                    NUMBER                                       OTHER                         TOTAL
                                      OF        COMPREHENSIVE   RETAINED     COMPREHENSIVE      COMMON      STOCKHOLDERS'
                                    SHARES         INCOME       EARNINGS        INCOME           STOCK         EQUITY
                                   ---------   --------------  -----------   -------------  -------------  --------------
<S>                                <C>         <C>             <C>           <C>            <C>            <C>
Balance at December 31, 1995       1,939,061                   $ 9,734,936   $      52,007  $   9,253,012  $   19,039,955

Comprehensive income:
   Net income                              -   $    4,513,004    4,513,004               -              -       4,513,004
   Other comprehensive income
     - unrealized gains on
       securities available-for-
       sale, net of income taxes
       of  approximately
       $12,000                             -           19,090            -          19,090              -          19,090
                                              ---------------

Comprehensive income                          $     4,532,094
                                              ===============

10% stock dividend                   193,906                    (3,805,405)              -      3,805,405               -
                                   ---------                   -----------   -------------  -------------   -------------

Balance at December 31, 1996       2,132,967                    10,442,535          71,097     13,058,417      23,572,049

Comprehensive income:
   Net income                              -  $     5,041,141    5,041,141               -              -       5,041,141
   Other comprehensive income
     - unrealized gains on
       securities available-for-
       sale, net of  income
       taxes of  approximately
       $143,000                            -          231,668            -         231,668              -         231,668
                                              ---------------

Comprehensive income                          $     5,272,809
                                              ===============

Cash dividends paid
   (aggregating  $.30 per share)           -                    (1,915,032)              -              -     (1,915,032)

Two-for-one stock split            2,132,967                              -              -              -               -

Stock options exercised               24,936                              -              -        100,000         100,000

Repurchases of common
   stock                            (118,632)                             -              -     (2,793,402)     (2,793,402)
                                   ---------                   -----------   -------------  -------------   -------------


Balance at December 31, 1997       4,172,238                    13,568,644         302,765     10,365,015      24,236,424

Comprehensive income:
   Net income                              -  $     5,766,040    5,766,040               -              -       5,766,040
   Other comprehensive income
     - unrealized losses on
       securities available-for-
       sale, net of income tax
       benefit of approximately
       $91,000                             -         (145,043)           -        (145,043)             -        (145,043)
                                               --------------

Comprehensive income                           $    5,620,997
                                               ==============

Cash dividends paid (aggregating
   $.34 per share)                         -                    (2,116,269)              -              -      (2,116,269)

Three-for-two stock split          2,086,119                             -               -              -               -

Stock options exercised               14,669                             -               -         42,473          42,473

Repurchases of common stock          (46,944)                            -               -       (861,943)       (861,943)
                                   ---------                   -----------   -------------  -------------   -------------

Balance at December 31, 1998       6,226,082                 $  17,218,415   $     157,722  $   9,545,545   $  26,921,682
                                   =========                 =============   =============  =============   =============
</TABLE>
                                                          34
<PAGE>
                                         CASCADE BANCORP AND SUBSIDIARIES

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                 1998                1997                1996      
                                                            ---------------     ---------------    ----------------
<S>                                                         <C>                <C>                 <C>
Cash flows from operating activities:
   Net income                                               $     5,766,040     $     5,041,141    $      4,513,004
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Depreciation and amortization                              1,478,815             715,253             694,005
       Loan loss provision                                        1,179,399           1,075,109             432,141
       Provision for deferred income taxes                           27,000             279,000             515,000
       Discounts on sales of mortgage loans, net                    822,870             295,053              53,436
       Dividends on Federal Home Loan Bank stock                   (112,800)           (103,300)            (95,100)
       Deferred benefit plan expenses                               396,000             270,000             271,000
       Increase in accrued interest and other assets             (2,822,725)         (1,033,079)         (2,151,666)
       Increase in accrued interest and other liabilities           563,719             137,854             267,180
       Originations of mortgage loans                          (146,507,292)        (84,860,279)        (87,996,351)
       Proceeds from sales of mortgage loans                    145,440,966          83,299,690          90,208,110
                                                            ---------------     ---------------    ----------------
                  Net cash provided by operating activities       6,231,992           5,116,442           6,710,759
Cash flows from investing activities:
   Purchases of investment securities available-for-sale        (21,957,636)        (41,026,887)        (23,838,205)
   Purchases of investment securities held-to-maturity             (563,903)             (5,400)         (1,073,016)
   Proceeds from maturities and calls of investment
     securities available-for-sale                               15,663,174          23,923,471           9,320,018
   Proceeds from maturities and calls of investment
     securities held-to-maturity                                    184,171             982,950           1,383,215
   Other loan originations, net                                 (50,697,735)        (22,473,293)         (7,347,528)
   Purchases of premises and equipment, net                      (1,782,254)         (1,491,887)         (1,404,123)
   Purchases of life insurance contracts                         (1,423,900)           (130,000)           (615,000)
   Surrender of life insurance contracts                             49,066             111,457                   -
                                                            ---------------     ---------------    ----------------
                  Net cash used in investing activities         (60,529,017)        (40,109,589)        (23,574,639)
Cash flows from financing activities:
   Net increase in deposits                                      59,517,958          40,262,679          18,644,027
   Stock options exercised                                           42,473             100,000                   -
   Repurchases of common stock                                     (861,943)         (2,793,402)                  -
   Cash dividends paid                                           (2,116,269)         (1,915,032)                  -
   Repayment of long-term debt                                   (5,000,000)                  -                   -
                                                            ---------------     ---------------    ----------------
                  Net cash provided by financing activities      51,582,219          35,654,245          18,644,027
                                                            ---------------     ---------------    ----------------
Net increase (decrease) in cash and cash equivalents             (2,714,806)            661,098           1,780,147
Cash and cash equivalents at beginning of the year               29,553,706          28,892,608          27,112,461
                                                            ---------------     ---------------    ----------------

Cash and cash equivalents at end of the year                $    26,838,900     $    29,553,706    $     28,892,608
                                                            ===============     ===============    ================
</TABLE>
                                              See accompanying notes.

                                                        35

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


1.     DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       PRINCIPLES OF CONSOLIDATION

       The accompanying consolidated financial statements include the accounts
       of Cascade Bancorp (Bancorp), a bank holding company, and its
       wholly-owned subsidiaries, Bank of the Cascades (the Bank) and Cascade
       Finance (collectively, "the Company"). All significant intercompany
       accounts and transactions have been eliminated in consolidation.

       DESCRIPTION OF BUSINESS

       The Bank conducts a general banking business. Its activities include the
       usual lending and deposit functions of a commercial bank: commercial,
       real estate, installment, credit card and mortgage loans; checking and
       savings accounts; automated teller machines (ATMs) and safe deposit
       facilities. The Bank also originates and sells mortgage loans into the
       secondary market.

       Cascade Finance was formed in January 1997 as a consumer finance company
       which offers consumer loans. The activities of Cascade Finance were not
       significant to the Company's consolidated financial position or results
       of operations as of and for the years ended December 31, 1998 and 1997.

       METHOD OF ACCOUNTING

       The Company prepares its consolidated financial statements in conformity
       with generally accepted accounting principles and prevailing practices
       within the banking industry. The Company utilizes the accrual method of
       accounting which recognizes income when earned and expenses when
       incurred. The preparation of consolidated financial statements in
       conformity with generally accepted accounting principles requires
       management to make estimates and assumptions that affect the reported
       amounts of assets and liabilities, the disclosure of contingent assets
       and liabilities at the date of the consolidated financial statements, 
       and the reported amounts of income and expenses during the reporting 
       periods. Actual results could differ from those estimates.

       CASH AND CASH EQUIVALENTS

       For purposes of reporting cash flows, cash and cash equivalents include
       cash on hand, amounts due from banks and federal funds sold. Generally,
       federal funds are sold for one-day periods.

       SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

       During 1998, 1997 and 1996, noncash transactions resulted from 
       unrealized gains (losses) on investment securities available-for-sale, 
       net of income taxes, as disclosed in the accompanying consolidated 
       statements of changes in stockholders' equity. In addition, during 1998, 
       1997 and 1996, noncash investing activities resulted from the net 
       capitalization of approximately $1,021,000, $695,000 and $575,000, 
       respectively, in originated mortgage servicing rights.

       During  1998,  1997  and  1996,  the  Bank  paid  approximately 
       $5,138,000, $4,747,000  and  $4,032,000, respectively, in interest 
       expense.

                                      36

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


1.     DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
       (CONTINUED)

       INVESTMENT SECURITIES

       Investment securities that management has the positive intent and ability
       to hold to maturity are classified as held-to-maturity securities and
       reported at cost, adjusted for premiums and discounts that are recognized
       in interest income using the interest method over the period to maturity.

       Investment securities that are purchased and held principally for the
       purpose of selling them in the near term are classified as trading
       securities and are reported at fair value, with unrealized gains and
       losses included in noninterest income. The Company had no trading
       securities as of December 31, 1998 or 1997.

       Investment securities that are not classified as either held-to-maturity
       securities or trading securities are classified as available-for-sale
       securities and are reported at fair value, with unrealized gains and
       losses excluded from earnings and reported as other comprehensive income,
       net of income taxes.

       Gains or losses on the sale of available-for-sale securities are
       determined using the specific-identification method. Premiums and
       discounts on available-for-sale securities are recognized in interest
       income using the interest method over the period to maturity.

       Declines in the fair value of individual held-to-maturity and
       available-for-sale securities below their cost that are other than
       temporary would result in write-downs of the individual securities to
       their fair value. The related write-downs would be included in earnings
       as realized losses.

       LOANS

       Loans are stated at the amount of unpaid principal, reduced by any
       deferred loan fees and reserves for loan losses. The reserve for loan
       losses represents management's recognition of the assumed risks of
       extending credit and the quality of the existing loan portfolio. The
       reserve is maintained at a level considered adequate to provide for
       potential loan losses based on management's assessment of various factors
       affecting the portfolio. Such factors include loss experience; review of
       problem loans; underlying collateral values; current economic conditions;
       and an overall evaluation of the quality, risk characteristics and
       concentration of loans in the portfolio. 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.

       The Company considers loans to be impaired when management believes that
       it is probable that all amounts due will not be collected according to
       the contractual terms. An impaired loan must be valued using the present
       value of expected future cash flows discounted at the loan's effective
       interest rate, the loan's observable market price or the fair value of
       the loan's underlying collateral. The Company primarily measures
       impairment on all large balance nonaccrual loans (typically commercial
       and commercial real estate loans) based on the fair value of the
       underlying collateral. In certain other cases, impairment is measured
       based on the present value of expected future cash

See accompanying notes

                                      37

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


1.     DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
       (CONTINUED)

       flows discounted at the loan's effective interest rate. Amounts deemed
       impaired are either specifically allocated for in the reserve for loan
       losses or reflected as a partial charge-off of the loan balance. Smaller
       balance homogeneous loans (typically installment loans) are collectively
       evaluated for impairment as described above. Generally, the Company
       evaluates a loan for impairment when it is placed on nonaccrual status.
       All of the Company's impaired loans at December 31, 1998 and 1997 were on
       nonaccrual status.

       The accrual of interest on impaired loans is discontinued when, in
       management's opinion, the borrower may be unable to meet payments as they
       become due. When interest accrual is discontinued, all unpaid accrued
       interest is reversed. Interest income is subsequently recognized only to
       the extent cash payments are received.

       Loan origination and commitment fees, net of certain direct loan
       origination costs, are generally recognized as an adjustment of the yield
       of the related loan.

       Interest income on all loans is accrued as earned on the simple interest
       method.

       Various regulatory agencies, as an integral part of their examination
       process, periodically review the Bank's reserve for loan losses. Such
       agencies may require the Bank to recognize additions to the reserve based
       on their judgment of information available to them at the time of their
       examinations.

       MORTGAGE LOANS

       Mortgage loans held for sale are carried at the lower of cost or
       estimated market value. Market value is determined on an aggregate loan
       basis. At December 31, 1998 and 1997, mortgage loans held for sale were
       carried at cost, which approximated estimated market value.

       At December 31, 1998 and 1997, the Bank held servicing rights to
       approximately $232,916,000 and $174,294,000, respectively, in mortgage
       loans which have been sold into the secondary market. Such mortgage loans
       are not included in the accompanying balance sheets. Beginning in March
       1998, the Bank began in-house servicing of these mortgage loans.
       Previously, such mortgage loans were sub-serviced by another financial
       institution. The sale of these mortgage loans are subject to technical
       underwriting exceptions and related repurchase risks. Such risks are
       considered in the determination of the reserve for loan losses.

       During the years ended December 31, 1998, 1997 and 1996, the Bank
       capitalized approximately $1,620,000, $836,000 and $600,000,
       respectively, in mortgage servicing rights. The capitalized mortgage
       servicing rights are being amortized in proportion to, and over the
       period of, estimated net servicing income. During the years ended
       December 31, 1998, 1997 and 1996, the amortization of the capitalized
       mortgage servicing rights totaled approximately $599,000, $141,000 and
       $25,000, respectively. The net amount of capitalized mortgage servicing
       rights at December 31, 1998 and 1997 (approximately $2,291,000 and
       $1,270,000, respectively) is included in accrued interest and other
       assets in the accompanying consolidated balance sheets.

       The fair value (which approximates the carrying amount) of the
       capitalized mortgage servicing rights at December 31, 1998 and 1997 was
       determined by management based on comparisons to current

See accompanying notes

                                      38

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


1.     DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
       (CONTINUED)

       market transactions involving mortgage servicing rights with similar
       portfolio characteristics and estimates of the net present value of
       expected future cash flows. The predominant risk characteristics of the
       underlying loans used to stratify the capitalized mortgage servicing
       rights for purposes of measuring impairment include, but are not limited
       to, interest rates, interest types (i.e., fixed and variable) and loan
       types. Each strata is then discounted to reflect the present value of the
       expected future cash flows utilizing current market assumptions including
       discount rates, prepayment speeds and delinquency rates.

       PREMISES AND EQUIPMENT

       Premises and equipment are stated at cost, less accumulated depreciation
       and amortization. Depreciation and amortization on premises and equipment
       is computed on straight-line and accelerated methods over the shorter of
       the estimated useful lives of the assets or terms of the leases.
       Amortization of leasehold improvements is included in depreciation and
       amortization expense in the accompanying consolidated financial
       statements.

       OTHER REAL ESTATE

       Other real estate, acquired through foreclosure or deeds in lieu of
       foreclosure, is carried at the lower of cost or estimated net realizable
       value. When the property is acquired, any excess of the loan balance over
       the estimated net realizable value is charged to the reserve for loan
       losses. Subsequent write-downs to net realizable value, if any, or any
       disposition gains or losses are included in noninterest income and
       expense. Other real estate at December 31, 1998 and 1997 totaled
       approximately $409,000 and $9,000, respectively.

       STOCKHOLDERS' EQUITY

       The Bank, as a state-chartered bank, is prohibited from declaring or
       paying any dividend in an amount greater than undivided profits. At
       December 31, 1998, approximately $8,719,000 was available for the payment
       of dividends to Bancorp with prior regulatory approval.

       In June 1998, the Company declared a three-for-two stock split; in June
       1997, the Company declared a two-for-one stock split; and in June 1996,
       the Company declared a 10 percent stock dividend. Basic and diluted
       earnings per common share (see Note 11), cash dividends per share and the
       stock option plan information (see Note 14) have been adjusted to give
       retroactive effect to stock splits and the stock dividend.

       During 1998, the Company repurchased 46,944 shares of its common stock
       for $861,943, and during 1997, the Company repurchased 118,632 shares of
       its common stock for $2,793,402. As of December 31, 1998, approximately
       95,000 shares remain authorized for possible repurchase under the
       Company's stock repurchase plan.

       In January 1999, the Company declared a $.09 per share cash dividend
       which totaled approximately $560,000 and is payable to stockholders of
       record as of January 25, 1999.

See accompanying notes

                                      39

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


1.     DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
       (CONTINUED)

       ADVERTISING

       Advertising costs are generally charged to expense during the year in
       which they are incurred.

       INCOME TAXES

       Deferred tax assets and liabilities are reflected at currently enacted
       income tax rates applicable to the period in which the deferred tax
       assets or liabilities are expected to be realized or settled. As changes
       in tax laws or rates are enacted, deferred tax assets and liabilities are
       adjusted through the provision for income taxes.

       OTHER RECENTLY ISSUED ACCOUNTING STANDARDS

       Beginning in the year ended December 31, 1998, the Company retroactively
       adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income"
       (SFAS 130). SFAS 130 established standards for reporting and display of
       comprehensive income and its components (revenue, expenses, gains and
       losses) in a full set of general-purpose financial statements.
       Accordingly, any unrealized gains or losses on available-for-sale
       securities are recognized as a component of comprehensive income.

       Beginning in the year ended December 31, 1998, the Company also
       retroactively adopted SFAS No. 131, "Disclosures about Segments of an
       Enterprise and Related Information" (SFAS 131). SFAS 131, in general,
       requires that public business enterprises report financial and
       descriptive information about its material reportable operating segments
       and also establishes standards for related disclosures about products and
       services, geographic areas and major customers. Operating segments are
       components of an enterprise about which separate financial information is
       available that is evaluated regularly by key management personnel in
       deciding how to allocate resources and in assessing performance.
       Management believes that based on the materiality standards of SFAS 131
       the Company primarily operates in one business segment. In addition, the
       related disclosures of SFAS 131 are included within the accompanying
       consolidated financial statements and notes as applicable.

       In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
       Hedging Activities," (SFAS 133) was issued. SFAS 133 is effective for all
       fiscal quarters of all fiscal years beginning after June 15, 1999. As of
       December 31, 1998, the Company had no derivative instruments or hedging
       activities.

       In October 1998, SFAS No. 134, "Accounting for Mortgage-Backed Securities
       Retained After the Securitization of Mortgage Loans Held for Sale by a
       Mortgage Banking Enterprise," (SFAS 134) was issued. SFAS 134 is
       effective for the first fiscal quarter beginning after December 15, 1998.
       As of December 31, 1998, the Company had not entered into any transaction
       for which SFAS 134 would apply.

       There were no other accounting standards recently issued that had a
       significant effect on the Company's financial statements.

       RECLASSIFICATIONS

       Certain amounts in 1997 and 1996 have been reclassified to conform with
       the 1998 presentation.

See accompanying notes

                                      40

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


2.     CASH AND DUE FROM BANKS

       The Bank is required to maintain an average reserve balance ($1,050,000
       and $2,066,000 at December 31, 1998 and 1997, respectively) with the
       Federal Reserve Bank or maintain such reserve balance in the form of
       cash. This requirement was met by holding cash and maintaining an average
       reserve balance with the Federal Reserve Bank in excess of this amount.

3.     INVESTMENT SECURITIES

       Investment securities at December 31, 1998 and 1997 consisted of the
       following:

<TABLE>
<CAPTION>
                                                                    Gross             Gross            Estimated
                                               Amortized         unrealized        unrealized            fair
       1998                                      cost               gains            losses              value     
       ----                                ----------------   ---------------   ----------------   ----------------
       <S>                                 <C>                <C>               <C>                <C>
       AVAILABLE-FOR-SALE
       U.S. Government and
         agency securities                 $     26,538,402   $       318,438   $          7,350   $     26,849,490
       Mortgage-backed
         securities                              15,064,132            29,777            202,794         14,891,115
       U.S. Treasury securities                   2,995,217           113,783                  -          3,109,000
       Equity securities                          2,529,512             2,724                  -          2,532,236
       Corporate debt securities                    632,505                 -              1,855            630,650
                                           ----------------   ---------------   ----------------   ----------------
                                           $     47,759,768   $       464,722   $        211,999   $     48,012,491
                                           ----------------   ---------------   ----------------   ----------------
                                           ----------------   ---------------   ----------------   ----------------
       HELD-TO-MATURITY
       Obligations of state and
         political subdivisions            $      1,409,525   $        17,393   $          3,555   $      1,423,363
       Federal Home Loan
         Bank stock                               1,528,964                 -                  -          1,528,964
                                           ----------------   ---------------   ----------------   ----------------
                                           $      2,938,489   $        17,393   $          3,555   $      2,952,327
                                           ----------------   ---------------   ----------------   ----------------
                                           ----------------   ---------------   ----------------   ----------------

                                                                    Gross             Gross            Estimated
                                               Amortized         unrealized        unrealized            fair
       1997                                      cost               gains            losses              value     
       ----                                ----------------   ---------------   ----------------   ----------------
       AVAILABLE-FOR-SALE
       U.S. Government and
         agency securities                 $     37,945,376   $       393,249   $              -   $     38,338,625
       U.S. Treasury securities                   2,988,043            95,082                  -          3,083,125
       Equity securities                            531,887                 -                  -            531,887
                                           ----------------   ---------------   ----------------   ----------------
                                           $     41,465,306   $       488,331   $              -   $     41,953,637
                                           ----------------   ---------------   ----------------   ----------------
                                           ----------------   ---------------   ----------------   ----------------
       HELD-TO-MATURITY
       Obligations of state and
         political subdivisions            $      1,029,793   $         7,018   $              -   $      1,036,811
       Federal Home Loan
         Bank stock                               1,416,164                 -                  -          1,416,164
                                           ----------------   ---------------   ----------------   ----------------
                                           $      2,445,957   $         7,018   $              -   $      2,452,975
                                           ----------------   ---------------   ----------------   ----------------
                                           ----------------   ---------------   ----------------   ----------------
</TABLE>

See accompanying notes

                                      41

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


3.     INVESTMENT SECURITIES (CONTINUED)

       The amortized cost and estimated fair value of investment securities at
       December 31, 1998, by contractual maturity, are shown below. Expected
       maturities will differ from contractual maturities, because borrowers may
       have the right to call or prepay obligations with or without call or
       prepayment penalties.

<TABLE>
<CAPTION>
                                                                                           Estimated
                                                                       Amortized             fair
                                                                         cost                value      
                                                                  ------------------  ------------------
       <S>                                                        <C>                 <C>
       AVAILABLE-FOR-SALE
       Due in one year or less                                    $          998,479  $        1,002,800
       Due after one year through five years                              29,167,645          29,586,340
       Mortgage-backed securities                                         15,064,132          14,891,115
       Equity securities                                                   2,529,512           2,532,236
                                                                  ------------------  ------------------

                                                                  $       47,759,768  $       48,012,491
                                                                  ------------------  ------------------
                                                                  ------------------  ------------------
       HELD-TO-MATURITY
       Due in one year or less                                    $          154,969  $          155,025
       Due after one year through five years                               1,254,556           1,268,338
       Federal Home Loan Bank stock                                        1,528,964           1,528,964
                                                                  ------------------  ------------------
                                                                  $        2,938,489  $        2,952,327
                                                                  ------------------  ------------------
                                                                  ------------------  ------------------
</TABLE>

       The Bank, as a member of the Federal Home Loan Bank of Seattle (the
       FHLB), is required to maintain an investment in capital stock of the
       FHLB. The FHLB stock is not actively traded but is redeemable by the FHLB
       at its current book value.

       Investment securities with a carrying value of approximately $12,861,000
       and $10,070,000 at December 31, 1998 and 1997, respectively, were pledged
       to secure public deposits and for other purposes as required or permitted
       by law.

4.     LOANS

       Loans at December 31, 1998 and 1997 consisted of the following:

<TABLE>
<CAPTION>
                                                                         1998                1997       
                                                                  ------------------  ------------------
       <S>                                                        <C>                 <C>
       Commercial                                                 $       31,279,762  $       30,058,992
       Real estate:
         Construction                                                     44,874,991          30,862,916
         Mortgage                                                         36,670,954          23,395,618
         Commercial                                                       70,524,183          52,356,507
       Installment                                                        22,693,633          18,901,259
                                                                  ------------------  ------------------
                                                                         206,043,523         155,575,292
       Less:
         Reserve for loan losses                                           2,635,820           2,048,561
         Deferred loan fees                                                  864,441             501,805
                                                                  ------------------  ------------------
                                                                           3,500,261           2,550,366
                                                                  ------------------  ------------------
       Loans, net                                                 $      202,543,262  $      153,024,926
                                                                  ------------------  ------------------
                                                                  ------------------  ------------------
</TABLE>

See accompanying notes

                                      42



<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


4.     LOANS (CONTINUED)

       As of December 31, 1998 and 1997, the Bank's branches were located in
       Deschutes County and Crook County, Oregon. The result of doing business
       in this geographic region has been growth in loan demand. A substantial
       portion of the Bank's loans are collateralized by real estate in this
       geographic area and, accordingly, the ultimate collectibility of a
       substantial portion of the Bank's loan portfolio is susceptible to
       changes in the local market conditions.

       In the normal course of business, the Bank participates portions of loans
       to third parties in order to extend the Bank's lending capability or to
       mitigate risk. At December 31, 1998 and 1997, the portion of these loans
       participated to third parties (which are not included in the accompanying
       consolidated financial statements) totaled approximately $2,015,000 and
       $3,567,000, respectively. The Bank also purchases participated loans from
       other financial institutions that have similar lending philosophies and
       guidelines as the Bank. The amount of loan participations purchased from
       other financial institutions at December 31, 1998 and 1997 totaled
       approximately $105,000 and $431,000, respectively.

       Also in the normal course of business, the Bank finances qualified
       construction projects. The majority of residential construction loans are
       sold into the secondary market subsequent to completion of the projects.

5.     RESERVE FOR LOAN LOSSES

       Transactions  in the reserve for loan losses for the years ended  
       December 31,  1998,  1997 and 1996 were as follows:

<TABLE>
<CAPTION>
                                                                1998                1997                1996       
                                                          -----------------  ------------------  ------------------
       <S>                                                <C>                <C>                  <C>
       Balance at beginning of year                       $       2,048,561  $       1,691,260   $        1,651,352
       Loan loss provision                                        1,179,399          1,075,109              432,141
       Loans charged-off                                           (634,077)          (777,505)            (422,170)
       Recoveries of loans previously
         charged-off                                                 41,937             59,697               29,937
                                                          -----------------  -----------------   ------------------

       Balance at end of year                             $       2,635,820  $       2,048,561   $        1,691,260
                                                          -----------------  -----------------   ------------------
                                                          -----------------  -----------------   ------------------
</TABLE>

       Impaired loans as of and for the years ended December 31, 1998 and 1997
       were not significant. Loans past due 90 days or more and still accruing
       interest were also insignificant at December 31, 1998 and 1997.

6.     PREMISES AND EQUIPMENT

       Premises and equipment at December 31, 1998 and 1997 consisted of the
       following:

<TABLE>
<CAPTION>
                                                                                    1998                1997       
                                                                             ------------------  ------------------
       <S>                                                                   <C>                 <C>
       Land                                                                  $          184,600  $          184,600
       Buildings and leasehold improvements                                           5,452,177           4,737,370
       Furniture and equipment                                                        5,085,815           4,042,012
                                                                             ------------------  ------------------

                                                                                     10,722,592           8,963,982
       Less accumulated depreciation and amortization                                 4,738,091           3,906,594
                                                                             ------------------  ------------------

                                                                             $        5,984,501  $        5,057,388
                                                                             ------------------  ------------------
                                                                             ------------------  ------------------
</TABLE>

See accompanying notes.

                                      43

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


7.     TIME CERTIFICATES OF DEPOSIT

       Time certificates of deposit in excess of $100,000 aggregated
       approximately $7,906,000 and $3,716,000 at December 31, 1998 and 1997,
       respectively. Interest expense on time certificates of deposit in excess
       of $100,000 was approximately $307,000, $169,000 and $176,000 in 1998,
       1997 and 1996, respectively.

       At December 31, 1998, the scheduled annual maturities of all time
       certificates of deposit were approximately as follows:

<TABLE>
<CAPTION>
                    <S>                                 <C>
                    1999                                $     26,081,000
                    2000                                       3,429,000
                    2001                                         683,000
                    2002                                         480,000
                    2003                                         131,000
                    Thereafter                                     5,000
                                                        ----------------
                                                        $     30,809,000
                                                        ----------------
                                                        ----------------
</TABLE>

8.     BORROWING AGREEMENTS

       The Bank participates in the Cash Management Advance Program (the
       Program) with the FHLB. Under the Program, the Bank may borrow up to a
       maximum of approximately $12,068,000 with interest at the FHLB's cash
       management rate. Borrowings outstanding under the Program are
       collateralized by a blanket pledge agreement on the FHLB stock, any funds
       on deposit with the FHLB, investment securities and loans. As of December
       31, 1998, there were no borrowings outstanding from the FHLB. As of
       December 31, 1997, the Bank had $5,000,000 in borrowings outstanding from
       the FHLB, which bore interest at a fixed rate of 6.96%.

9.     OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

       In the normal course of business, the Bank is a party to financial
       instruments with off-balance sheet risk to meet the financing needs of
       its customers. These financial instruments include commitments to extend
       credit, commitments under credit card lines of credit and standby letters
       of credit. These instruments involve, to varying degrees, elements of
       credit and interest-rate risk in excess of amounts recognized in the
       accompanying consolidated balance sheets. The contract amounts of these
       instruments reflect the extent of the Bank's involvement in these
       particular classes of financial instruments. As of December 31, 1998 and
       1997, the Bank held no derivative financial instruments.

       The Bank's exposure to credit loss in the event of nonperformance by the
       other party to the financial instrument for commitments to extend credit,
       commitments under credit card lines of credit and standby letters of
       credit, is represented by the contractual amount of those instruments.
       The Bank uses the same credit policies in making commitments and
       conditional obligations as it does for on-balance sheet instruments.

See accompanying notes.

                                      44

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


9.     OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (CONTINUED)

       A  summary  of the  Bank's  off-balance  sheet  financial  instruments  
       at  December  31,  1998  and 1997 is approximately as follows:

<TABLE>
<CAPTION>
                                                                                    1998                1997       
                                                                             ------------------  ------------------
       <S>                                                                   <C>                 <C>
       Commitments to extend credit                                          $       65,858,000  $       48,945,000
       Commitments under credit card lines of credit                                 10,889,000           5,318,000
       Standby letters of credit                                                        785,000           1,356,000
                                                                             ------------------  ------------------

       Total off-balance sheet financial instruments                         $       77,532,000  $       55,619,000
                                                                             ------------------  ------------------
                                                                             ------------------  ------------------
</TABLE>

       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 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
       evaluates each customer's creditworthiness on a case-by-case basis. The
       amount of collateral obtained, if it is deemed necessary by the Bank upon
       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 and
       income-producing commercial properties.

       Standby letters of credit are 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. The credit risk involved in issuing letters of credit is
       essentially the same as that involved in extending loan facilities to
       customers. Collateral held, if required, varies as specified above.

10.    INCOME TAXES

       The provision for income taxes for the years ended  December 31, 1998,  
       1997 and 1996 was approximately as follows:

<TABLE>
<CAPTION>
                                                                1998                1997                1996       
                                                          -----------------  ------------------  ------------------
       <S>                                                <C>                <C>                 <C>
       Current:
         Federal                                          $       2,851,400  $        2,280,700  $        1,727,900
         State                                                      613,000             304,000             479,000
                                                          -----------------  ------------------  ------------------
                                                                  3,464,400           2,584,700           2,206,900
       Deferred                                                      27,000             279,000             515,000
                                                          -----------------  ------------------  ------------------

       Provision for income taxes                         $       3,491,400  $        2,863,700  $        2,721,900
                                                          -----------------  ------------------  ------------------
                                                          -----------------  ------------------  ------------------
</TABLE>

See accompanying notes.

                                      45

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


10.    INCOME TAXES (CONTINUED)

       The provision for income taxes results in effective tax rates which are
       different than the federal income tax statutory rate. The nature of the
       differences for the years ended December 31, 1998, 1997 and 1996 were
       approximately as follows:

<TABLE>
<CAPTION>
                                                                1998                1997                1996       
                                                          -----------------  ------------------  ------------------
       <S>                                                <C>                <C>                 <C>
       Expected federal income tax at statutory
         rate of 34%                                      $       3,147,500  $        2,687,600  $        2,459,900
       Effect of nontaxable interest income, net                    (26,700)            (43,000)            (55,600)
       State income taxes, net of federal effect                    404,700             200,400             316,100
       Other, net                                                   (34,100)             18,700               1,500
                                                          -----------------  ------------------  ------------------

       Provision for income taxes                         $       3,491,400  $        2,863,700  $        2,721,900
                                                          -----------------  ------------------  ------------------
                                                          -----------------  ------------------  ------------------
</TABLE>

       The components of the net deferred tax assets and liabilities at 
       December 31, 1998 and 1997 were approximately as follows:

<TABLE>
<CAPTION>
                                                                                    1998                1997       
                                                                             ------------------  ------------------
       <S>                                                                   <C>                 <C>
       Assets:
         Loan loss provision                                                 $          838,000  $          652,000
         Deferred compensation expense                                                  405,000             253,000
         Deferred life insurance expenses                                               121,000              81,000
         Other                                                                          145,000              62,000
                                                                             ------------------  ------------------
              Total deferred tax assets                                               1,509,000           1,048,000
       Liabilities:
         Deferred loan fees                                                             236,000             325,000
         Mortgage servicing rights                                                      880,000             487,000
         FHLB stock dividends                                                           218,000             174,000
         Unrealized gains on investment securities
           available-for-sale                                                            95,000             186,000
         Earnings on life insurance policies                                            292,000             176,000
         Other                                                                           45,000              75,000
                                                                             ------------------  ------------------
              Total deferred tax liabilities                                          1,766,000           1,423,000
                                                                             ------------------  ------------------

              Net deferred tax liabilities                                   $         (257,000) $         (375,000)
                                                                             ------------------  ------------------
                                                                             ------------------  ------------------
</TABLE>

       The Company made income tax payments of approximately $3,267,000, 
       $2,520,000 and $2,680,000 during 1998, 1997 and 1996, respectively.

11. BASIC AND DILUTED EARNINGS PER COMMON SHARE

       The Company's basic earnings per common share is computed by dividing net
       income by the weighted-average number of common shares outstanding during
       the period. The Company's diluted earnings per common share is computed
       by dividing net income by the weighted-average number of common shares
       outstanding plus dilutive common shares related to stock options.

See accompanying notes.

                                      46

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


11.    BASIC AND DILUTED EARNINGS PER COMMON SHARE (CONTINUED)

       The numerators and denominators used in computing basic and diluted
       earnings per common share for the years ended December 31, 1998, 1997 and
       1996 can be reconciled as follows:

<TABLE>
<CAPTION>
                                                                        Net
                                                                      income           Shares           Per-share
                                                                    (numerator)     (denominator)        amount    
                                                                  --------------    --------------   --------------
       <S>                                                        <C>               <C>              <C>
       1998
       ----
       Basic earnings per common share -
         Income available to common stockholders                  $    5,766,040        6,227,123    $          .93
                                                                                                     --------------
                                                                                                     --------------
       Effect of assumed conversion of stock options                           -          195,816
                                                                  --------------    -------------    --------------

       Diluted earnings per common share                          $    5,766,040        6,422,939    $          .90
                                                                  --------------    -------------    --------------
                                                                  --------------    -------------    --------------

       1997
       ----

       Basic earnings per common share -
         Income available to common stockholders                  $    5,041,141        6,383,008    $          .79
                                                                                                     --------------
                                                                                                     --------------

       Effect of assumed conversion of stock options                           -          184,568
                                                                  --------------    -------------

       Diluted earnings per common share                          $    5,041,141        6,567,576    $          .77
                                                                  --------------    -------------    --------------
                                                                  --------------    -------------    --------------

       1996
       ----

       Basic earnings per common share -
         Income available to common stockholders                  $    4,513,004        6,398,901    $          .71
                                                                                                     --------------
                                                                                                     --------------

       Effect of assumed conversion of stock options                           -          108,058
                                                                  --------------    -------------

       Diluted earnings per common share                          $    4,513,004        6,506,959    $          .69
                                                                  --------------    -------------    --------------
                                                                  --------------    -------------    --------------
</TABLE>

       The above computations have not been adjusted to reflect the issuance of
       additional stock options in January 1999 (see Note 14).

12.    TRANSACTIONS WITH RELATED PARTIES

       Some of the officers and directors (and the companies with which they are
       associated) are customers of, and have had banking transactions with, the
       Bank in the ordinary course of the Bank's business. In addition, the Bank
       expects to continue to have such banking transactions in the future. All
       loans and commitments to loan to such parties are generally made on the
       same terms, including interest rates and collateral, as those prevailing
       at the time for comparable transactions with other persons. In the
       opinion of management, these transactions do not involve more than the
       normal risk of collectibility or present any other unfavorable features.

See accompanying notes.

                                      47

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


12.    TRANSACTIONS WITH RELATED PARTIES (CONTINUED)

       An analysis of activity with respect to loans to directors and officers
       of the Bank for the year ended December 31, 1998 was as follows:

<TABLE>
<CAPTION>
              <S>                                     <C>
              Balance at December 31, 1997            $        1,450,125
              Additions                                        1,712,266
              Repayments                                      (1,484,085)
                                                      ------------------
              Balance at December 31, 1998            $        1,678,306
                                                      ------------------
                                                      ------------------
</TABLE>

13.    BENEFIT PLANS

       401(K) PROFIT SHARING PLAN

       The Company maintains a 401(k) profit sharing plan (the Plan) that covers
       substantially all full-time employees. Employees may make voluntary
       tax-deferred contributions to the Plan, and employer contributions to the
       Plan are at the discretion of the Board, not to exceed the amount
       deductible for federal income tax purposes. Employees vest in the
       employer contributions over a period of five years. Employer
       contributions to the Plan which were charged to operations were
       approximately $755,000, $628,000 and $578,000 for the years ended
       December 31, 1998, 1997 and 1996, respectively.

       OTHER BENEFIT PLANS

       The Bank has deferred compensation plans for the Board and certain key
       executives and managers, a salary continuation plan for certain key
       executives and a fee continuation plan for the Board.

       In accordance with the provisions of the deferred compensation plans,
       participants can elect to defer portions of their annual compensation or
       fees. The deferred amounts generally vest as deferred. The deferred
       compensation plus interest is generally payable upon termination in
       either a lump sum or monthly installments.

       The salary continuation plan for certain key executives and the fee
       continuation plan for the Board provide defined benefits to the
       participants upon termination. The defined benefits for substantially all
       of the key executives and the Board are for periods of fifteen years and
       ten years, respectively. The benefits are subject to certain vesting
       requirements, and vested amounts are generally payable upon termination
       in either a lump sum or monthly installments.

       The Bank annually expenses amounts sufficient to accrue for the present
       value of the benefits payable to the participants under these plans.

       The plans also include death benefit provisions for certain participants.
       To assist in the funding of the plans, the Bank has purchased life
       insurance policies on the majority of the participants. The cash
       surrender value of these policies at December 31, 1998 and 1997 was
       approximately $5,521,000 and $4,054,000, respectively, and is included in
       accrued interest and other assets in the accompanying consolidated
       balance sheets.

See accompanying notes.

                                      48

<PAGE>

                       CASCADE BANCORP AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1998


13.  BENEFIT PLANS (CONTINUED)

     As of December 31, 1998 and 1997, the liabilities related to the deferred
     compensation plans included in the accompanying consolidated balance
     sheets totaled approximately $509,000 and $327,000, respectively. The
     amount of expense charged to operations in 1998, 1997 and 1996 related to
     the deferred compensation plans was approximately $182,000, $122,000 and
     $111,000, respectively. As of December 31, 1998 and 1997, the liabilities
     related to the salary continuation and fee continuation plans included in
     the accompanying consolidated balance sheets totaled approximately
     $546,000 and $332,000, respectively. The amount of expense charged to
     operations in 1998, 1997 and 1996 for the salary continuation and fee
     continuation plans was approximately $214,000, $147,000 and $160,000,
     respectively. For financial reporting purposes, such expense amounts have
     not been adjusted for income earned on the life insurance policies. The
     net amount of income earned (net of related policy load charges,
     mortality costs and surrender charges incurred) on the life insurance
     policies which was included in other noninterest income in 1998, 1997 and
     1996 was approximately $196,000, $123,000 and $162,000, respectively.

14.  STOCK OPTION PLAN

     Under the Company's Stock Option Plan, it may grant Incentive Stock
     Options (ISOs) and Non-qualified Stock Options (NSOs) to key employees.

     The option price of ISOs is the fair market value at the date of grant,
     and the option price of NSOs is to be at a price not less than 85% of the
     fair market value at the date of grant. Generally, options become
     exercisable in varying amounts based on years of employee service,
     commencing one year from the date of grant. All options expire after a
     period of ten years.

     SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS 123)
     requires companies, such as Bancorp, that use the intrinsic value method
     to account for employee stock options to provide pro forma disclosures of
     the net income and earnings per share effect of applying the fair
     value-based method of accounting for stock options. The effect of
     applying the fair value-based method to stock options granted in the
     years ended December 31, 1998, 1997 and 1996 resulted in an estimated
     weighted-average grant date fair value of $6.29, $2.55 and $1.69,
     respectively. Had compensation cost been determined based on the fair
     value of the options at the date of grant, the Company's pro forma net
     income, pro forma basic earnings per common share and pro forma diluted
     earnings per common share would have been as follows:

<TABLE>
<CAPTION>

                                                           1998          1997           1996
                                                        -----------   -----------   -----------
     <S>                                  <C>           <C>           <C>           <C>
     Net income                           As reported   $ 5,766,040   $ 5,041,141   $ 4,513,004
                                          Pro forma       5,553,108     4,905,554     4,458,164

     Basic earnings per common share      As reported   $       .93   $       .79   $       .71
                                          Pro forma             .89           .77           .70

     Diluted earnings per common share    As reported   $       .90   $       .77   $       .69
                                          Pro forma             .86           .75           .69

</TABLE>


                                      49
<PAGE>

                       CASCADE BANCORP AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1998


14.  STOCK OPTION PLAN (CONTINUED)

     The Company used the Black-Scholes option-pricing model with the
     following weighted-average assumptions to value options granted:

<TABLE>
<CAPTION>
                                        1998         1997         1996
                                     ----------   ----------   ----------
     <S>                             <C>          <C>          <C>
     Dividend yield                        1.6%         1.6%         1.6%
     Expected volatility                  36.3%        35.8%        31.8%
     Risk-free interest rate               4.6%         5.8%         6.2%
     Expected option lives              5 years      5 years      5 years

</TABLE>

     Because SFAS 123 is applicable only to options granted subsequent to
     December 31, 1994, the proforma effects for 1998, 1997 and 1996 may not
     be representative of the effects on reported results in future years.

     At December 31, 1998, 224,228 shares reserved under the Stock Option Plan
     were available for future grant. Activity related to the Stock Option
     Plan for the years ended December 31, 1998, 1997 and 1996 was as follows:

<TABLE>
<CAPTION>

                                               1998                      1997                      1996
                                       ----------------------    ---------------------    ----------------------
                                                    Weighted-                Weighted-                 Weighted-
                                       Options      average      Options     average      Options       average
                                         out-       exercise       out-      exercise       out-       exercise
                                       standing      price       standing      price      standing       price
                                       ---------   ----------    ---------   ---------    ---------   ----------
       <S>                             <C>         <C>           <C>         <C>          <C>         <C>
       Balance at beginning
         of year                        269,973    $     4.75     220,752    $    3.34     174,060    $     2.86
       Granted                           68,998         18.67      91,125         7.44      53,457          5.08
       Forfeited                         (1,654)        12.42      (4,500)        7.25      (6,765)         4.69
       Exercised                        (14,669)         2.90     (37,404)        2.67           -             -
                                       ---------   ----------    ---------   ---------    ---------   ----------

       Balance at end of year           322,648    $     7.77     269,973    $    4.75     220,752    $     3.34
                                       ---------   ----------    ---------   ---------    ---------   ----------
                                       ---------   ----------    ---------   ---------    ---------   ----------

</TABLE>


       Information regarding the number, weighted-average exercise price and
       weighted-average remaining contractual life of options by range of
       exercise price at December 31, 1998 is as follows:

<TABLE>
<CAPTION>
                                      Options outstanding               Exercisable options 
                             ---------------------------------------   ---------------------
                                                         Weighted-
                                          Weighted-       average                  Weighted-
                                          average        remaining                  average
             Exercise        Number of    exercise      contractual    Number of   exercise
           price range        options       price       life (years)    options      price
          ------------       ---------   ----------     ------------   ---------   ---------
          <S>                <C>         <C>            <C>            <C>         <C>
          $       2.51          72,378   $    2.51           5            72,378   $    2.51
                  3.65          50,637        3.65           6            50,637        3.65
                  5.08          46,860        5.08           7            46,860        5.08
            7.25-12.17          84,525        7.45           8            73,230        7.25
                 18.67          68,248       18.67           9            52,123       18.67
                             ---------                                 ---------   
                               322,648   $    7.77         7.1           295,228   $    7.14
                             ---------   ----------     ------------   ---------   ---------
                             ---------   ----------     ------------   ---------   ---------

</TABLE>

See accompanying notes.


                                      50
<PAGE>

                       CASCADE BANCORP AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1998


14.  STOCK OPTION PLAN (CONTINUED)

     Exercisable options as of December 31, 1997 and 1996 totaled 255,348 and
     206,367, respectively.

     In January 1999, ISO's for an additional 55,000 shares were granted at
     $17.75 per share, subject to the Company meeting certain performance
     standards in 1999.

15.  COMMITMENTS AND CONTINGENCIES

     The Bank leases certain land and facilities under operating leases, some
     of which include renewal options and escalation clauses. At December 31,
     1998, the aggregate minimum rental commitments under operating leases
     that have initial or remaining noncancelable lease terms in excess of one
     year were approximately as follows:

                     1999                         $        403,000
                     2000                                  453,000
                     2001                                  448,000
                     2002                                  460,000
                     2003                                  419,000
                     Thereafter                          4,897,000
                                                  ----------------
                     Total minimum payments       $      7,080,000
                                                  ----------------
                                                  ----------------

     Total rental expense was approximately $286,000, $236,000 and  
     $240,000 in 1998, 1997 and 1996, respectively.

     In the ordinary course of business, the Bank becomes involved in various
     litigation arising from normal banking activities. In the opinion of
     management, the ultimate disposition of these actions will not have a
     material adverse effect on the Company's consolidated financial position
     or results of operations at December 31, 1998.

16.  ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS

     The following disclosures are made in accordance with the provisions of
     SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
     (SFAS 107), which requires the disclosure of fair value information about
     financial instruments where it is practicable to estimate that value.

     In cases where quoted market values are not available, the Company
     primarily uses present value techniques to estimate the fair values of
     its financial instruments. Valuation methods require considerable
     judgment, and the resulting estimates of fair value can be significantly
     affected by the assumptions made and methods used. Accordingly, the
     estimates provided herein do not necessarily indicate amounts which could
     be realized in a current market exchange.

     In addition, as the Company normally intends to hold the majority of its
     financial instruments until maturity, it does not expect to realize many
     of the estimated amounts disclosed. The disclosures also do not include
     estimated fair value amounts for items which are not defined as financial
     instruments but which have significant value. These include such
     off-balance sheet items as core deposit intangibles and mortgage loan
     servicing rights originated prior to the Company's adoption of


                                      51
<PAGE>

                       CASCADE BANCORP AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1998


16.  ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

     SFAS 122 as superseded by SFAS 125. The Company does not believe that it
     would be practicable to estimate a representational fair value for these
     types of items as of December 31, 1998 and 1997.

     Because SFAS 107 excludes certain financial instruments and all
     nonfinancial instruments from its disclosure requirements, any
     aggregation of the fair value amounts presented would not represent the
     underlying value of the Company.

     The Company used the following methods and assumptions to estimate the
     fair value of its financial instruments:

         CASH AND CASH EQUIVALENTS: The carrying amount approximates the
         estimated fair value of these instruments.

         INVESTMENT SECURITIES: The market value of investment securities,
         which is based on quoted market values or the market values for
         comparable securities, represents estimated fair value.

         LOANS: The estimated fair value of loans is calculated by discounting
         the contractual cash flows of the loans using December 31, 1998 and
         1997 origination rates. The resulting amounts are adjusted to
         estimate the effect of changes in the credit quality of borrowers
         since the loans were originated.

         DEPOSITS: The estimated fair value of demand deposits, consisting of
         checking, savings and certain interest bearing demand deposit
         accounts, is represented by the amounts payable on demand. The
         estimated fair value of certificates of deposit is calculated by
         discounting the scheduled cash flows using the December 31, 1998 and
         1997 rates offered on these instruments.

         LONG-TERM DEBT: The estimated fair value of long-term debt is
         calculated by discounting the scheduled cash flows using quoted rates
         from FHLB as of December 31, 1997.

         OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: The estimated fair value of
         off-balance sheet financial instruments (primarily commitments to
         extend credit) is determined based on fees currently charged for
         similar commitments. Management estimates that these fees approximate
         $500,000 and $367,000 as of December 31, 1998 and 1997, respectively.


See accompanying notes.
                                      52
<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


16.    ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

       The estimated fair values of the Company's significant on-balance sheet
       financial instruments at December 31, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>
                                                          1998                                 1997                
                                           ----------------------------------   -----------------------------------
                                               Carrying           Estimated         Carrying           Estimated
                                                 value           fair value           value           fair value   
                                           ----------------   ---------------    --------------    ----------------
         <S>                               <C>                <C>                <C>               <C>
         Financial assets:
           Cash and cash equivalents       $     26,838,900   $    26,839,000    $    29,553,706   $     29,554,000
           Investment securities:
              Available-for-sale                 48,012,491        48,012,000         41,953,637         41,954,000
              Held-to-maturity                    2,938,489         2,952,000          2,445,957          2,453,000
           Loans, net (including mort-
              gage loans held for sale)         204,662,904       207,758,000        154,901,112        156,780,000

         Financial liabilities:
           Deposits                             270,862,731       270,960,000        211,344,773        211,379,000
           Long-term debt                                 -                 -          5,000,000          5,000,000
</TABLE>

17.    REGULATORY MATTERS

       Bancorp and the Bank are subject to various regulatory capital
       requirements administered by the federal banking agencies. Failure to
       meet minimum capital requirements can initiate certain mandatory - and
       possibly additional discretionary - actions by regulators that, if
       undertaken, could have a direct material effect on the Company's
       consolidated financial statements. Under capital adequacy guidelines and
       the regulatory framework for prompt corrective action, Bancorp and the
       Bank must meet specific capital guidelines that involve quantitative
       measures of assets, liabilities and certain off-balance sheet items as
       calculated under regulatory accounting practices. Bancorp and the Bank's
       capital amounts and classification are also subject to qualitative
       judgments by the regulators about components, risk weightings and other
       factors.

       Quantitative measures established by regulation to ensure capital
       adequacy require Bancorp and the Bank to maintain minimum amounts and
       ratios (set forth in the table below) of Tier 1 capital (as defined in
       the regulations) to average assets (as defined), and Tier 1 and total
       capital (as defined) to risk-weighted assets (as defined). Management
       believes that as of December 31, 1998, Bancorp and the Bank meet or
       exceed all relevant capital adequacy requirements.

       As of December 31, 1998, the most recent notifications from the Federal
       Reserve Bank and the Federal Deposit Insurance Corporation categorized
       Bancorp and the Bank as well capitalized under the regulatory framework
       for prompt correction action. To be categorized as well capitalized,
       Bancorp and the Bank must maintain minimum total risk-based, Tier 1
       risk-based and Tier 1 leverage ratios as set forth in the table. There
       are no conditions or events since the notifications from the regulators
       that management believes would change Bancorp's or the Bank's regulatory
       capital categorization.

See accompanying notes.

                                      53

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


17.    REGULATORY MATTERS (CONTINUED)

       Bancorp's actual and required capital amounts and ratios are presented in
       the following table (dollars in thousands):

<TABLE>
<CAPTION>

                                                                                              Regulatory minimum
                                                                   Regulatory minimum      to be "well capitalized"
                                                                          to be              under prompt correc-
                                               Actual           "adequately capitalized"    tive action provisions
                                      -----------------------   ------------------------  ------------------------
                                        Amount        Ratio        Amount        Ratio       Amount        Ratio
                                      -----------   ---------   -----------    ---------  -----------    ---------
       <S>                            <C>             <C>       <C>            <C>        <C>            <C>
       December 31, 1998:
       Tier 1 capital (to average
         assets)                      $    26,391      9.0%     $    11,740       4.0%    $    14,676       5.0%
       Tier 1 capital
         (to risk-weighted assets)         26,391     11.3            9,312       4.0          13,968       6.0
       Total capital
         (to risk-weighted assets)         29,027     12.5           18,624       8.0          23,281      10.0

       December 31, 1997:
       Tier 1 capital (to average
         assets)                           23,573      9.6            9,788       4.0          12,235       5.0
       Tier 1 capital
         (to risk-weighted assets)         23,573     13.1            7,173       4.0          10,760       6.0
       Total capital
         (to risk-weighted assets)         25,622     14.3           14,346       8.0          17,933      10.0
</TABLE>

       The Bank's actual and required capital amounts and ratios are presented
       in the following table (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                              Regulatory minimum
                                                                   Regulatory minimum      to be "well capitalized"
                                                                          to be              under prompt correc-
                                               Actual           "adequately capitalized"    tive action provisions
                                      -----------------------   ------------------------  ------------------------
                                        Amount        Ratio        Amount        Ratio       Amount        Ratio
                                      -----------   ---------   -----------    ---------  -----------    ---------
       <S>                            <C>             <C>       <C>            <C>        <C>            <C>
       December 31, 1998:
       Tier 1 capital (to average
         assets)                      $    22,347      7.7%     $    11,627       4.0%    $    14,534       5.0%
       Tier 1 capital
         (to risk-weighted assets)         22,347      9.7            9,244       4.0          13,865       6.0
       Total capital
         (to risk-weighted assets)         24,879     10.8           18,488       8.0          23,109      10.0

       December 31, 1997:
       Tier 1 capital (to average
         assets)                           18,570      7.6            9,771       4.0          12,214       5.0
       Tier 1 capital
         (to risk-weighted assets)         18,570     10.4            7,163       4.0          10,744       6.0
       Total capital
         (to risk-weighted assets)         20,565     11.5           14,326       8.0          17,907      10.0
</TABLE>

See accompanying notes.

                                      54

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


18.    PARENT COMPANY FINANCIAL INFORMATION

       Condensed financial information for Cascade Bancorp (Parent Company only)
       is presented as follows:

                                CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                             December 31,          
                                                                                    -------------------------------
                                                                                        1998              1997     
                                                                                    -------------    --------------
           <S>                                                                      <C>              <C>
           Assets:
              Cash and cash equivalents                                             $     574,438    $    4,042,545
              Due from Cascade Finance                                                  1,900,000                 -
              Equity securities available-for-sale                                      2,532,236           531,887
              Investment in subsidiaries                                               23,808,005        19,661,992
              Other assets                                                                110,672                 -
                                                                                    -------------    --------------
                  Total assets                                                      $  28,925,351    $   24,236,424
                                                                                    -------------    --------------
                                                                                    -------------    --------------
           Liabilities:
              Accrued liabilities                                                   $     103,669    $            -
              Due to the Bank                                                           1,900,000                 -
                                                                                    -------------    --------------
                  Total liabilities                                                     2,003,669                 -
           Stockholders' equity                                                        26,921,682        24,236,424
                                                                                    -------------    --------------
                  Total liabilities and stockholders' equity                        $  28,925,351    $   24,236,424
                                                                                    -------------    --------------
                                                                                    -------------    --------------
</TABLE>

                         CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                              Years ended December 31,             
                                                                  -------------------------------------------------
                                                                       1998             1997              1996     
                                                                  --------------    -------------    --------------
           <S>                                                    <C>               <C>              <C>
           Interest and dividend income                           $       19,323    $           -    $            -

           Expenses:
              Administrative                                             102,000           34,893            20,514
              Other                                                      119,525                -                 -
                                                                  --------------    -------------    --------------
                  Total expenses                                         221,525           34,893            20,514
                                                                  --------------    -------------    --------------
           Loss before income tax benefit and equity in
              undistributed net earnings of subsidiaries                (202,202)         (34,893)          (20,514)
           Income tax benefit                                             74,462           13,957             8,209
                                                                  --------------    -------------    --------------
            Loss before equity in undistributed net
              earnings of subsidiaries                                  (127,740)         (20,936)          (12,305)
            Equity in undistributed net earnings
              of subsidiaries                                          5,893,780        5,062,077         4,525,309
                                                                  --------------    -------------    --------------
           Net income                                             $    5,766,040    $   5,041,141    $    4,513,004
                                                                  --------------    -------------    --------------
                                                                  --------------    -------------    --------------
</TABLE>

See accompanying notes.

                                      55

<PAGE>

                           CASCADE BANCORP AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   DECEMBER 31, 1998


18.    PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)


                           CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              Years ended December 31,             
                                                                  -------------------------------------------------
                                                                       1998             1997              1996     
                                                                  --------------    -------------    --------------
            <S>                                                   <C>               <C>              <C>
            Cash flows from operating activities:
              Net income                                          $    5,766,040    $   5,041,141    $    4,513,004
              Adjustments to reconcile net income
                to net cash used by operating activities:
                  Undistributed net earnings of subsidiaries          (5,893,780)      (5,062,077)       (4,525,309)
                  Increase in other assets                              (110,672)               -                 -
                  Increase in accrued liabilities                        103,669                -                 -
                                                                  --------------    -------------    --------------
                    Net cash used by operating activities               (134,743)         (20,936)          (12,305)
           Cash flows used by investing activities -
              purchases of equity securities available-
              for-sale                                                (1,997,625)        (531,887)                -

            Cash flows from financing activities:
              Investments in Cascade Finance                            (500,000)        (500,000)                -
              Cash dividends paid                                     (2,116,269)      (1,915,032)                -
              Dividends from the Bank                                  2,100,000        8,993,078                 -
              Repurchases of stock                                      (861,943)      (2,793,402)                -
              Stock options exercised                                     42,473          100,000                 -
              Increase in due from Cascade Finance                    (1,900,000)               -                 -
              Decrease in due from the Bank                                    -                -             6,962
              Increase in due to the Bank                              1,900,000                -                 -
                                                                  --------------    -------------    --------------
                    Net cash provided (used) by
                      financing activities                            (1,335,739)       3,884,644             6,962
                                                                  ---------------   -------------    --------------
           Net increase (decrease) in cash
              and cash equivalents                                    (3,468,107)       3,331,821            (5,343)

           Cash and cash equivalents at beginning of year              4,042,545          710,724           716,067
                                                                  --------------    -------------    --------------
           Cash and cash equivalents at end of year               $      574,438    $   4,042,545    $      710,724
                                                                  --------------    -------------    --------------
                                                                  --------------    -------------    --------------
</TABLE>


         These financial statements have not been reviewed for accuracy
           or relevance by the Federal Deposit Insurance Corporation.

See accompanying notes.

                                      56



<PAGE>
                                EXHIBIT INDEX


<TABLE>
<CAPTION>

EXHIBIT
 INDEX                          DESCRIPTION OF EXHIBIT
-------                         ----------------------
<S>                  <C>
 23.1                 Consent of Independent Auditors.

 27.1                 Financial Data Schedule (for SEC use only).

</TABLE>