|SECURITIES AND EXCHANGE
COMMISSIONWashington, 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, 2000
|--------------------------------------------

|[_] |  | 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(State of Incorporation) | 93-1034484(IRS Employer Identification #)
|------------------------------ | -----------------------------------------

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

|(541) 385-6205
(Registrants telephone number)



Securities registered
under Section 12(b) of the Exchange Act: NoneSecurities
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 herein, 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. [___]


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. $91,177,161 aggregate
market value as of March 5, 2001, based on the average bid and asked price.


Indicate
the number of shares outstanding of each of the registrants classes of common stock, as
of the latest practicable date. 6,886,543 shares of no par value Common Stock on March 5,
2001.



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 23, 2001.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CASCADE BANCORP
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS


PART I
|------------------------------------------------------------------

| | Item 1. |  | BUSINESS |  | 3
| | ------- |  | -------- |  | -

| | Item 2. |  | PROPERTIES |  | 17
| | ------- |  | ---------- |  | --

| | 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 |  | 25
| | -------- |  | ---------------------------------------------------------- |  | --

| | 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 23, 2001.  (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 |  | 27
| | -------- |  | ---------------------------------------------------------------- |  | --

|SIGNATURES |  | 28
|---------- |  | --

|2
|-

|PART I



ITEM 1.     
BUSINESS



Company


Cascade
Bancorp (Bancorp) is an Oregon chartered Financial Holding Company formed in 1990 and
headquartered in Bend, Oregon. Bancorps principal subsidiary is Bank of the Cascades
(the Bank). The Holding Company has an inactive subsidiary, Cascade Bancorp Financial
Services, Inc (collectively, the Company). At December 31, 2000 the Company had total
consolidated assets of approximately $423 million, net loans of approximately $353
million and deposits of approximately $358 million.



Bank of the
Cascades


The
Bank was chartered as an Oregon State bank in March 1976 and opened for business in
February 1977. Bank of the Cascades is a community bank offering the full range of
financial services to its business and consumer clients, including trust and investments.
The Bank has a network of eleven branches, nine located in Central Oregon, and two in the
Salem area, of Oregon. In Deschutes County, its largest market concentration, the Company
is the market share leader in customer deposits, holding over 30% share. It also is the
market share leader in construction and commercial real estate lending as well as in
residential mortgage origination and home equity lending. Owing to in-migration and a
flourishing tourism industry, the population of Deschutes County has grown at a rate
faster than any County in the Northwest during the past decade. The Banks headquarters
is located in Bend, Oregon.


With a
relationship banking strategy, the Bank offers a broad range of commercial and personal
banking services to its customers. Lending activities serve small to medium-sized
business and consumer accounts. 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 provides consumer and business deposit services including checking, money
market, and time deposit accounts and related payment services such as cash management,
lock box, internet banking and bill payment. In addition, the Bank purchases used vehicle
installment contracts from local dealerships and also offers direct consumer finance
loans.


In
mid-1999 the Company began offering Trust and Investment services. Trust services focus
on the personal trust needs of existing and prospective clients by providing living and
testamentary trust, asset and financial management, and fiduciary services. Investment
services are provided by a licensed on-site broker through a broker/dealer agent
relationship.



Cascade
Bancorp Financial Services


The
Company formerly engaged in the dealer vehicle installment contracts business through
Cascade Bancorp Financial Services, Inc (CBFS). Those activities as well as the assets,
liabilities and capital of CBFS became a division of the Bank in 2000, and the subsidiary
is now inactive.



Employees


The
Company views its employees as an integral resource in achieving its strategies and long
term goals, and considers its relationship with its employees to be good. Bancorp has no
employees other than its executive officers, who are also employees of the Bank. As of
December 31, 2000, the Company had 207 full-time equivalent employees compared to 205 a
year earlier. None of the employees of the Company are subject to a collective bargaining
agreement.
3
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Business
Strategy
|-----------------

| | PROVIDE SHAREHOLDERS WITH EXCEPTIONAL VALUE BY DELIVERING THE BEST IN COMMUNITY BANKING
AND RELATED FINANCIAL SERVICES
|- | ----------------------------------------------------------------------------------------------------------------------

|Cascade
Bancorp has established the following key performance goals: 1) Consistently exceed 20%
return on equity, 2) Consistently exceed 12% growth in earnings per share, 3) Identify
and prudently manage credit and business risk and 4) Strive to profitably diversify
revenue and continuously seek efficiency improvements in all its activities. There can be
no assurance as to the ongoing achievement of these goals due to the inherent uncertainty
of future events, competitive forces, the vitality of the local, regional and national
economy and other unforeseen circumstances.


For
nearly a quarter of a century, Bank of the Cascades has focused on delivering the best in
hometown banking services to the Oregon communities it serves. Its strategy is to
profitably grow its business by attracting and retaining high value relationship
customers. This is accomplished by providing the personal touch customer service while
offering a broad array of products and financial services. The Company is committed to
providing customer choice in delivery channels by implementing advanced technology and
delivery systems. Such channels include traditional branches, ATMs, Internet banking, and
telephonic access.


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. The Company expects to open its third office in the Salem area in
mid 2001. The Company may also consider strategic partnerships or 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. Funding policies are designed to
maintain an appropriate volume and mix of core deposits and time deposit balances to
efficiently fund its loan and investment activities. The Company may complement its
deposit gathering strategies with wholesale funding from reliable counterparties such as
the Federal Home Loan Bank. The Company monitors its sensitivity to changing interest
rates primarily by utilizing simulation analysis in addition to traditional interest rate
gap calculations.



Competition


Commercial
and consumer banking in Central Oregon, as well as in the State of Oregon and nation as a
whole, is highly competitive. The Company competes principally with other commercial
banks, savings and loan associations, credit unions, mortgage companies, brokers and
other non-bank financial service providers. In addition to traditional competition in
interest rates paid on deposits and pricing of loans, competition exists with respect to
the scope and type of services offered, customer service levels, convenience as well as
in fees and service charges. In addition, improvements in technology, communications and
the Internet have intensified delivery channel competition. Certain competitors may have
greater resources than the Company resulting in heightened competition for banking and
financial services.


The
Company competes for customers principally through its commitment to customer service,
the relative attractiveness of its products and services, and by ensuring customer
convenience and functionality in accessing those products and services. The Company
believes its hometown banking philosophy, technology and focus on small and medium-sized
business, professional and consumer accounts, 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
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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, published 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):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                           | Year ended December 31,
|-------------------------- | -----------------------
|
|
|
|Interest income:           |                        
|Interest and fees on loans |                        
|Taxable securities         |                        
|Non-taxable securities     |                        
|Federal funds sold         |                        
|                          
|Total interest income      |                        
|Interest expense:          |                        
|Interest on deposits:      |                        
|Interest bearing demand    |                        
|Savings                    |                        
|Time                       |                        
|Other borrowings           |                        
|                          
|Total interest expense     |                        
|                          
|Net interest spread        |                        
|                          

|5
|-

|Average
Balances and Average Rates Earned and Paid


The
following table sets forth for 2000, 1999, and 1998 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):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | Year endedDecember 31, 2000 | Year endedDecember 31, 1999 | Year endedDecember 31, 1998
|------------------------------------- | --------------------------- | --------------------------- | ---------------------------
|
|                                     
|Assets                                |                             |                            
|Taxable securities                    |                             |                             | $                          
|Non-taxable securities (1)            |                             |                             |                            
|Federal funds sold                    |                             |                             |                            
|Loans (2)(3)(4)                       |                             |                             |                            
|                                     
|Total earning assets                  |                             |                             |                            
|Reserve for loan losses               |                             |                             |                            
|Cash and due from banks               |                             |                             |                            
|Premises and equipment, net           |                             |                             |                            
|Other Assets                          |                             |                             |                            
|                                     
|Total assets                          |                             |                             | $                          
|                                     
|Liabilities & Stockholders Equity    |                             |                            
|Int. bearing demand deposits          |                             |                             | $                          
|Savings deposits                      |                             |                             |                            
|Time deposits                         |                             |                             |                            
|Other borrowings                      |                             |                             |                            
|                                     
|Total interest bearing liabilities    |                             |                             |                            
|Demand deposits                       |                             |                             |                            
|Other liabilities                     |                             |                             |                            
|                                     
|Total liabilities                     |                             |                             |                            
|Stockholders equity                  |                             |                             |                            
|                                     
|Total liabilities & equity            |                             |                             | $                          
|                                     
|                                     
|Net interest income                   |                             |                             |                            
|                                     
|Net interest spread                   |                             |                             |                            
|                                     
|Net interest income to earning assets |                             |                             |                            
|                                     

|(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 were
insignificant for 2000, 1999, and 1998.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(3) |  | Loan
related fees included in the above yield calculations: $1,537,675 in 2000, $1,552,000 in
1999, and $1,236,000 in 1998.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes
mortgage loans held for sale.
|--- |  | --------------------------------------

|6
|-

|Loan Portfolio
Composition


Interest
earned on the loan portfolio is the primary source of income for the Company.
Net loans represent 83% of total assets as of December 31,2000. The Company
makes substantially all of its loans to customers located within the
Companys service area. Due to the rapid growth in population and the
tourism and service nature of the economy in its primary markets, the Bank loan
concentration has historically been in real estate construction and commercial
real estate. 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 Companys loan portfolio,
at the dates indicated (dollars in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | December 31,
|----------------------- | ------------
|
|Commercial              |             
|                       
|Real Estate:            |             
|Construction            |             
|Mortgage                |             
|Commercial              |             
|                       
|Installment             |             
|                       
|                        |             
|Less:                   |             
|Reserve for loan losses |             
|Deferred loan fees      |             
|                       
|                        |             
|                       
|                        |             
|                       

|At
December 31, 2000, the maturities of all loans by category were as follows
(dollars in thousands):
|-----------------------------------------------------------------------------------------------------

|Loan Category | Due withinone year | Due afterone, butwithin fiveyears | Due afterfive years | Total  
|------------- | ------------------ | --------------------------------- | ------------------- | -------
|Commercial    |                    |                                   | $                   | 38,157 
|             
|Real Estate:  |                    |                                  
|Construction  |                    |                                   |                     | 61,502 
|Mortgage      |                    |                                   |                     | 6,572  
|Commercial    |                    |                                   |                     | 22,552 
|             
|Installment   |                    |                                   |                     | 28,087 
|             
|              |                    |                                   | $                   | 156,870
|             

|Variable
rate loans due after one year totaled $115,870 at December 31, 2000 and loans
with predetermined or fixed rates due after one year totaled $85,934 at December
31, 2000.


7
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Lending and
Credit Management


The
Company has a comprehensive risk management process to control, underwrite,
monitor and manage credit risk in lending. The underwriting process relies
principally on historical and prospective cash flow analysis augmented by
collateral assessment, credit bureau information, as well as business plan
assessment. Ongoing loan portfolio monitoring is performed by a centralized
credit administration function including review and testing of compliance to
loan policies and procedures. Internal and external auditors periodically sample
and test certain credit files as well.


Risk
of nonpayment exists with respect to all loans, although certain specific types
of risks are associated with different types of loans. Due to the nature of the
Companys customer base and the growth experienced in the Companys
market area, real estate is frequently a material component of collateral for
the Companys loans. The expected source of repayment of these loans is
generally the operations of the borrowers business, or the obligors
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 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, but does not eliminate,
commercial real estate risk.


The
following table presents information with respect to non-performing assets
(dollars in thousands):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | December 31,
|----------------------------------- | ------------
|
|Loans on non-accrual status         |             
|                                   
|Loans past due 90 days or more      |             
|But not on non-accrual status       |             
|                                   
|Other real estate owned             |             
|                                   
|Total non-performing assets         |             
|                                   
|Percentage of non-performing assets |             
|to total assets                     |             

|The
accrual of interest on a loan is discontinued when, in managements
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 Banks 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, 2000, 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
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Reserve for Loan Losses


The
reserve for loan losses is maintained at a level consistent with the known and
inherent risks within the loan portfolio. The reserve is increased by provisions
charged to operations and reduced by loans charged-off, net of recoveries. In
evaluating the adequacy of the Reserve for Loan Losses, management considers
such factors as historic and current loss experience, portfolio quality
characteristics, specific evaluation of problem loans, assessment of current and
prospective economic conditions, risk and collateral profiles, risk
characteristics and concentration of loan types. However, this assessment cannot
preclude unforeseen loan losses that are sizable in relation to the amount
reserved.


The
following table summarizes the Companys reserve for loan losses and
charge-off and recovery activity for each of the last five years (dollars in
thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | Year ended December 31,
|-------------------------------- | -----------------------
|
|Loans outstanding at             |                        
|End of period                    |                        
|                                
|Average loans outstanding        |                        
|During the period                |                        
|                                
|Reserve balance,                 |                        
|Beginning of period              |                        
|                                
|Recoveries:                      |                        
|Commercial                       |                        
|Real Estate:                     |                        
|Construction                     |                        
|Mortgage                         |                        
|Commercial                       |                        
|Installment                      |                        
|                                
|                                 |                        
|                                
|Loans charged off:               |                        
|Commercial                       |                        
|Real Estate:                     |                        
|Construction                     |                        
|Mortgage                         |                        
|Commercial                       |                        
|Installment                      |                        
|                                
|                                 |                        
|                                
|Net loans charged-off            |                        
|Provision charged to operations  |                        
|                                
|Reserve balance, end of period   |                        
|Ratio of net loans charged-off   |                        
|to average loans outstanding     |                        
|                                
|Ratio of reserve for loan losses |                        
|to loans at end of period        |                        
|                                

|9
|-

|Allocation of
Reserve for Loan Losses


The
following table presents estimated allocation of the Reserve for Loan Losses to
major loan types. As a part of the methodology employed by the Company to
analyze the adequacy of the Reserve for Loan Losses, management may estimate and
allocate portions of the reserve for loan losses to specific loan categories. In
this process, the Company seeks to quantify, at a point in time, its estimate of
the inherent credit loss exposure within each loan type, given relative and know
credit quality circumstances, historical loss rates as well as the impact of
current and anticipated economic and business conditions. Such an allocation
process may not accurately predict future credit losses by loan type or in
aggregate. The total Reserve is available to absorb losses that may arise from
any loan type or category. For comparative purposes, prior period allocation
figures may be re-estimated to reflect evolving analytical methods.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|             | December 31,
|------------ | ------------
|
|
|Commercial   |             
|Real Estate: |             
|Construction |             
|Mortgage     |             
|Commercial   |             
|Installment  |             
|Unallocated  |             
|            
|             |             
|            

|             | December 31,
|------------ | ------------
|
|
|Commercial   |             
|Real Estate: |             
|Construction |             
|Mortgage     |             
|Commercial   |             
|Installment  |             
|Unallocated  |             
|            
|             |             
|            

|10
|--

|Investment
Portfolio


The
following table shows the carrying value of the Companys portfolio of
investments at December 31, 2000, 1999, and 1998 (dollars in thousands).
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                | December 31,
|----------------------------------------------- | ------------
|
|U.S. Treasury securities                        |             
|Obligations of U.S. Government agencies         |             
|Obligations of state and political subdivisions |             
|Mortgage-backed securities                      |             
|Corporate debt securities                       |             
|                                               
|Total debt securities                           |             
|                                               
|Federal Home Loan Bank stock                    |             
|Equity securities                               |             
|                                               
|Total investment securities                     |             
|                                               

|The
following is a summary of the contractual maturities and weighted average yields
of investment securities at December 31, 2000 (dollars in thousands):
|----------------------------------------------------------------------------------------------------------------------------------------------------------

|Type and maturity                      | CarryingValue | WeightedAverageYield (1)
|-------------------------------------- | ------------- | ------------------------
|U.S. Treasury Securities               |               |                         
|Due after 1 but within 5 years         |               |                         
|                                      
|Total U.S. Treasury Securities         |               |                         
|U.S. Government Agencies               |               |                         
|Due after 1 but within 5 years         |               |                         
|                                      
|Total U.S. Government Agencies         |               |                         
|State and Political Subdivisions       |               |                         
|Due within 1 year                      |               |                         
|Due after 1 but within 5 years         |               |                         
|                                      
|Total State and Political Subdivisions |               |                         
|Mortgage-Backed Securities             |               |                         
|                                      
|Total Debt Securities                  |               |                         
|Equity securities                      |               |                         
|                                      
|Total Securities                       |               |                         
|                                      

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

|11
|--

|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):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | Years ended December 31,
|----------------------- | ------------------------
|
|
|
|Demand                  |                         
|Interest-bearing demand |                         
|Savings                 |                         
|Time                    |                         
|                       
|Total Deposits          |                         
|                       

|As
of December 31, 2000 the Companys time deposit liabilities had the
following times remaining to maturity (dollars in thousands):
|------------------------------------------------------------------------------------------------------------------------------------

|                                    | Time deposits of$100,000 or more (1) | All otherTime deposits (2)
|----------------------------------- | ------------------------------------ | --------------------------
|
|
|3 months or less                    |                                      | $15,013                   
|Over 3 months     Through 6 months  |                                      | 2,259                     
|Over 6 months     Through 12 months |                                      | 5,466                     
|Over 12 months                      |                                      | 2,310                     
|                                   
|Total                               |                                      | $25,048                   
|                                   

|(1) |  | Time
deposits of $100,000 or more represent 6.99% of total deposits as of December 31, 2000.
|--- |  | --------------------------------------------------------------------------------------------

|(2) |  | All
other time deposits represent 10.85% of total deposits as of December 31, 2000.
|--- |  | -----------------------------------------------------------------------------------

|Short-Term
Borrowings


At
December 31, 2000, the Companys other short-term borrowings consisted of
FHLB borrowings totaling $25.5 million ($15.5 million under the FHLB CMA Program
and a $10.0 million seven day advance maturing 1/4/01). At December 31, 1999,
the Companys other short-term borrowings consisted of FHLB borrowings
totaling $13.0 million ($5.0 million under the FHLB CMA Program and $8.0 million
under a promissory note agreement due 2/11/00) and federal funds purchased
totaling $17.1 million. At December 31, 1998, the Company had no short-term
borrowings.


The
following table sets forth certain information with respect to the
Companys other short-term borrowings at December 31 and during each of
2000 and 1999 (dollars in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                  | December 31,
|----------------------------------------------------------------- | ------------
|
|Amount outstanding at year-end                                    |             
|Weighted average interest rate at year-end                        |             
|Maximum amount outstanding at any month-end during the year       |             
|Daily average amount outstanding during the year Average weighted |             
|interest rate during the year                                     |             

|12
|--

|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.



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 has been designated a
Financial Holding Company as defined in the 1999 Gramm-Leach-Bliley Act (see
description below). 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.



Financial
Modernization Act


On
November 12, 1999 the Gramm-Leach-Bliley Act became law, repealing the 1933
Glass-Steagall Acts separation of the commercial and investment banking
industries. The Gramm-Leach-Bliley Act expands the range of nonbanking
activities a bank holding company may engage in, while reserving existing
authority for bank holding companies to engage in activities that are closely
related to banking. The new legislation creates a new category of holding
company called a Financial Holding Company, a subset of bank holding
companies that satisfy the following criteria:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|1. |  | all
of the depository institution subsidiaries must be well capitalized and well managed;
|-- |  | -----------------------------------------------------------------------------------------

|2. |  | the
holding company must file with the Federal Reserve Board a declaration that it elects to
be a financial holding company to engage in activities that would not have been
permissible before the Gramm-Leach-Bliley Act; and
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13
|--

|
|

|3. |  | all
of the depository institution subsidiaries must have a Community Reinvestment Act rating
of satisfactory or better.
|-- |  | -------------------------------------------------------------------------------------------------------------------------

|Financial
holding companies may engage in any activity that (i) is financial in nature or
incidental to such financial activity (ii) is complementary to a financial
activity and does not pose a substantial risk to the safety and soundness of
depository institutions or the financial system generally. The
Gramm-Leach-Bliley Act specifies certain activities that are financial in
nature. These activities include:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | acting as a principal, agent or broker for insurance;
| | - | -----------------------------------------------------

| |  | underwriting, dealing in or making a market in securities; and
| | - | --------------------------------------------------------------

| |  | providing financial and investment advice.
| | - | ------------------------------------------

|The
Federal Reserve Board and the Secretary of the Treasury have authority to decide
whether other activities are also financial in nature or incidental to financial
activity, taking into account changes in technology, changes in the banking
marketplace, competition for banking services and so on.


The
Gramm-Leach-Bliley Act has only recently become law. Regulations of the banking
agencies implementing the legislative changes can be expected in the near
future. Except for the increase in competitive pressures faced by all banking
organizations that is a likely consequence of the Gramm-Leach-Bliley Act, the
legislation and implementing regulations are likely to have a more immediate
impact on large regional and national institutions than on community based
institutions engaged principally in traditional banking activities. Because the
legislation permits bank holding companies to engage in activities previously
prohibited altogether or severely restricted because of the risks they posed to
the banking system, implementing regulations can be expected to impose strict
and detailed prudential safeguards on affiliations among banking and nonbanking
companies in a holding company organization. Additionally, because the
legislation allows various affiliates within a single holding company
organization to serve a broader array of customers financial goals,
including their banking, insurance and investment goals, implementing
regulations can be expected to impose strict safeguards on sharing of customer
information among affiliated entities within an organization.


The
Company evaluated the provisions of the Act and became a designated
Financial Holding Company during the second quarter of 2000. It does
not expect such designation to have a material effect on its financial condition
or results of operations.



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.







14
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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
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 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 1.296
cents per $100 of deposits per year. The Banks FDIC insurance expense for
2000 was approximately $62,000.



Regulatory
Dividend Restrictions


The
principal source of Bancorp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 Bancorp 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, 2000 the Company
is considered well capitalized according to these regulatory capital
guidelines. See footnote 17 to the Financial Statements in this report.





15
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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
Companys 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 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.






16
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 affect 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, 2000, the Company conducted banking services in eleven locations. Nine
located in Central Oregon and two in the Salem area of Oregon. All offices are free
standing buildings except one location, which is leased space in a supermarket. The main
office/administrative center and five 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.
The Bank owns property in the Old Mill district of Bend for a possible future branch, or
combination branch/operations facility. In addition to the above, the Bank has entered
into a land lease in South Salem, Oregon which is targeted to open in mid-2001.




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 $5,290
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. In 1999 the Bank acquired a 3,000 square
foot adjacent building for future expansion of administrative functions for $295,000.
Certain other operations are located in an adjacent building subject to a short-term
lease agreement.


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
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.,
Ragen MacKenzie, Inc., D.A. Davidson & Co., Hoefer & Arnett, 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.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     | First Quarter | Second Quarter | Third Quarter | Fourth Quarter
|---- | ------------- | -------------- | ------------- | --------------
|2000 |               |                |               |               
|High |               | $  12.38       |               | $  11.69      
|Low  |               | $    8.50      |               | $    8.75     
|     |               |                |              
|1999 |               |                |               |               
|High |               | $  16.71       |               | $  16.36      
|Low  |               | $  14.89       |               | $  13.64      

|The
Company declared a 10% stock dividend in June 1999. The Company announced the
establishment of regular quarterly cash dividends in 1997. The dividends declared and
paid listed below have been retroactively adjusted for past stock dividends and stock
splits.



DIVIDENDS
DECLARED AND PAID
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     | First QuarterPer Share |          | Second QuarterPer Share |          | Third QuarterPer Share |          | Fourth QuarterPer Share
|---- | ---------------------- | -------- | ----------------------- | -------- | ---------------------- | -------- | -----------------------
|2001 |                        | $    .09 |                         | N/A      |                        | N/A      |                        
|2000 |                        | $    .08 |                         | $    .08 |                        | $    .08 |                        
|1999 |                        | $    .08 |                         | $    .08 |                        | $    .08 |                        

|At
March 5, 2001, the Company had 6,886,543 shares of common stock outstanding held by
approximately 2,700 shareholders of record.



18
|----------------------------------------------------------------------------------------------------------------------------------------

|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):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                   | Years ended December 31, |            
|-------------------------------------------------- | ------------------------ | -----------
|Income Statement Data                              |                          | 2000       
|Interest income                                    |                          | $  35,523  
|Interest expense                                   |                          | 9,959      
|Net interest income                                |                          | 25,564     
|Loan loss provision                                |                          | 2,751      
|Noninterest income                                 |                          | 5,767      
|Noninterest expense                                |                          | 16,578     
|Income before income taxes                         |                          | 12,002     
|Provision for income taxes                         |                          | 4,683      
|Net income                                         |                          | $    7,319 
|Share Data                                         |                         
|Basic earnings per common share (1)                |                          | $      1.06
|Diluted earnings per common share (1)              |                          | $      1.05
|Book value per common share (1)                    |                          | $      5.08
|Cash dividends per common share (1)                |                          | $      0.32
|Ratio of dividends declared to net income          |                          | 30.1       
|Basic Weighted shares outstanding (1)(6)           |                          | 6,877      
|Diluted weighted shares outstanding (1)(6)         |                          | 6,987      
|Balance Sheet Data                                 |                         
|Investment securities                              |                          | $  26,081  
|Loans, net (2)                                     |                          | 352,538    
|Total assets                                       |                          | 423,293    
|Total deposits                                     |                          | 358,198    
|Total shareholders equity (6)                     |                          | 34,981     
|Selected Ratios                                    |                         
|Return on average total shareholders equity (6)   |                          | 23.27      
|Return on average total assets                     |                          | 1.86       
|Net interest spread                                |                          | 5.78       
|Net interest margin                                |                          | 7.21       
|Efficiency ratio (3)                               |                          | 52.91      
|Asset Quality Ratios                               |                         
|Reserve for loan losses to ending total loans      |                          | 1.40       
|Nonperforming assets to ending total assets (4)    |                          | 0.16       
|Net loan charge-offs to average loans              |                          | 0.39       
|Capital Ratios                                     |                         
|Average shareholders equity to average assets (6) |                          | 7.99       
|Leverage ratio (5)                                 |                          | 8.27       
|Total risk-based capital ratio (5)                 |                          | 10.64      

|(1) |  | Adjusted
to reflect a 10% stock dividend declared in 1996, a two-for-one stock split in 1997, a
three-for-two stock in 1998, and 10% stock dividend in 1999.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes
mortgage loans held for sale.
|--- |  | --------------------------------------

|(3) |  | Efficiency
ratio is noninterest expense divided by (net interest income + noninterest income).
|--- |  | ----------------------------------------------------------------------------------------------

|(4) |  | Nonperforming
assets consist of nonaccrual loans, loans contractually past due 90 days or more and
other real estate owned.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------

|(5) |  | Computed
in accordance with FRB and FDIC guidelines.
|--- |  | ----------------------------------------------------

|(6) |  | 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 beginning in 1998.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|19
|--

---

|Selected
Quarterly Financial Data



The
following table sets forth the Companys unaudited data regarding operations for each
quarter of 2000 and 1999. 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):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              | 2000 Quarters Ended |        
|--------------------------------------------- | ------------------- | -------
|
|Interest income                               |                     | $9,559 
|Interest expense                              |                     | 2,776  
|                                             
|Net interest income                           |                     | 6,783  
|Loan loss provision                           |                     | 795    
|                                             
|Net interest income after loan loss provision |                     | 5,988  
|Noninterest income                            |                     | 1,510  
|Noninterest expense                           |                     | 4,210  
|                                             
|Income before income taxes                    |                     | 3,288  
|Provision for income taxes                    |                     | 1,282  
|                                             
|Net income                                    |                     | $2,006 
|                                             
|Weighted average number                       |                    
|of shares outstanding (1)                     |                     | 6,880  
|Basic earnings per share (1)                  |                     | $  0.29
|Fully diluted weighted average                |                    
|Number of shares outstanding (1)              |                     | 7,001  
|Fully diluted earnings per share (1)          |                     | $  0.29

|                                              | 1999 Quarters Ended |        
|--------------------------------------------- | ------------------- | -------
|
|Interest income                               |                     | $7,477 
|Interest expense                              |                     | 1,767  
|                                             
|Net interest income                           |                     | 5,710  
|Loan loss provision                           |                     | 455    
|                                             
|Net interest income after loan loss provision |                     | 5,255  
|Noninterest income                            |                     | 1,378  
|Noninterest expense                           |                     | 3,948  
|                                             
|Income before income taxes                    |                     | 2,685  
|Provision for income taxes                    |                     | 1,017  
|Net income                                    |                     | $1,668 
|                                             
|Weighted average number                       |                    
|of shares outstanding (1)                     |                     | 6,867  
|Basic earnings per share (1)                  |                     | $  0.24
|Fully diluted weighted average                |                    
|Number of shares outstanding (1)              |                     | 6,975  
|Fully diluted earnings per share (1)          |                     | $  0.24

|(1) |  | Adjusted
to give retroactive effect to a 10% stock dividend declared in June 1999.
|--- |  | ----------------------------------------------------------------------------------

20

|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, 2000 and 1999
and for each of the three years in the period ended December 31, 2000 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 2000 net income was $7.3 million, up 17.3% from the $6.2 million earned in
1999. Net income in 1999 represented an 8.2% increase from 1998s net income of $5.8
million. During the reported periods, progressively higher earnings have led to improved
earnings per share and strong return on equity. Diluted earnings per share reached $1.05
in 2000 compared to $.89 in 1999 and $.82 in 1998, while return on equity was 23.3% in
2000 compared to 22.3% in 1999 and 22.7% in 1998.


Increased
earnings in 2000 were primarily due to a $78.6 million or 28.1% increase in the Companys
loan portfolio with a resulting increase in net interest income. Investment portfolio
securities declined by $5.7 million in 2000 due to a combination of maturities, calls and
sales within the portfolio. The net growth in earning assets in 2000 was funded by
expansion in customer deposit balances augmented by Federal Home Loan Bank and other
wholesale borrowings. Similarly, 1999 earnings improved because of strong growth in the
loan portfolio funded by a solid increase in deposit balances. During the third quarter
ended September 30, 2000, approximately $6.7 million in deposits were purchased from
Liberty Banks Salem branch, which was closing. The transaction did not have a material
impact to the financial results of the Company.


The
Company opened a new branch banking office in Keizer, Oregon, during the second quarter
of 2000, bringing total branch locations to eleven. The Keizer office is currently
meeting internal projections as to financial performance. Management generally targets
new branches to achieve profitability within two to three years, however there can be no
assurance that future profitability will be achieved.


The
Company anticipates opening a third branch banking office in South Salem, Oregon in
mid-2001, bringing total branch locations to twelve. The opening of this branch is not
expected to be material to the financial results of the Company in 2001.


Overall
trends in both non-interest income and expense continue to be affected by strong growth
in the number of customer relationships serviced by the Company and by higher account
transaction volumes. In addition, start up costs for new branch locations and new product
lines (such as Trust) have contributed to higher expenses during the periods reported. In
2000, total non-interest income increased by 6.6% or $358,000 primarily due to increased
service charge income and merchant/visa related income, while revenue related to
residential mortgage banking activities were modestly lower than in the prior year. Total
non-interest income in 1999 declined by 5.3% or $305,000 compared to 1998 due to reduced
revenue in residential mortgage banking activities owing to the higher interest rate
environment. The rate of growth in non-interest expenses during 2000 moderated to 10.3%,
down from a 19.8% increase in 1999. 1999 expenses included start-up branch expansions in
Salem and Redmond, Oregon, while the year 2000 was affected by costs for a new branch
location in Keizer, Oregon.




21
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|RESULTS OF
OPERATIONS  Years ended December 31, 2000, 1999, and 1998




Net Interest
Income


In
2000, net interest income (net of funding costs) increased 17.6% to $25.6 million
compared to 1999, as growth in loan volumes generated higher interest income. Similarly,
strong loan growth in 1999 drove an increase in net interest income of 25.9% to $21.7
million compared to 1998. In the year 2000, gross interest income from loans and
investment activities increased $7.4 million compared to the year earlier. This followed
a 1999 increase in interest income of $5.6 million compared to 1998. Increased earning
assets at year-end 2000 were funded by a year over year growth in deposits of $72.9
million. Although the Banks loan growth in 2000 was partially funded by the use of
higher cost borrowed funds, the increase in interest income related to higher loan
volumes exceeded the higher cost of such borrowing.


The
Companys net interest margin remained among the highest in its peer group at 7.21%,
compared to 7.46% in 1999 and 7.40% in 1998. Yields on earning assets in 2000, 1999 and
1998 were 10.02%, 9.64% and 9.62%, respectively. Average rates paid on interest bearing
deposits and borrowings increased in to 4.24% in the year 2000, up from 3.43% in 1999 and
3.22% in 1998, impacted by generally higher market interest rates beginning in mid 1999.
This increase had a lesser affect on the margin because of the relatively high level of
non-interest bearing deposits held by the Company. When non-interest bearing deposits are
included in the calculation, the overall cost of funds for the company was 2.77% for the
year 2000 compared to 2.11% and 2.19% in 1999 and 1998, respectively. While the Bank has
historically maintained a net interest margin well above peer banks and anticipates this
to continue, the Companys future net interest margin is likely to be lower from the peak
margins of 1999 and 1998.



Loan Loss
Provision


The
loan loss provision increased during the periods presented to maintain its Loan Loss
Reserve at a level that was adequate to cover known and inherent losses in its growing
loan portfolio. The Loan loss provision for 2000 was $2.8 million compared to $2.1
million in 1999 and $1.2 million in 1998. The Banks ratio of reserve for loan losses to
total loans was 1.40% at December 31, 2000 compared to 1.26% at December 31, 1999.
Management believes the reserve for loan losses is adequate to absorb potential losses on
identified problem loans as well as inherent losses at historical and expected levels.



Noninterest
Income


During
the periods reported, the Company has experienced steady increases in service fee income
directly related to increased business activity. Non-interest income increased 6.6% to
$5.8 million in 2000 compared to 1999. However, excluding mortgage-related origination
fees and gains and losses on sale of mortgage loans, year 2000 non-interest income
increased 15.2% as compared to the prior year. Total non-interest income in 1999 was down
5.3% compared to 1998 due to volatility in mortgage banking revenues resulting from the
increasing interest rate environment that developed during 1999.


Specifically,
mortgage loan origination and processing fees decreased to $1.0 million in 2000 from $1.3
million the prior year, a consequence of the higher interest rate climate. Residential
mortgage origination volumes totaled $77 million in 2000, $98 million in 1999, and $147
million in 1998. The general level and direction of interest rates directly influence the
volume and profitability of mortgage banking. Therefore there can be no assurance as to
the amount of origination fees and gains on sales of residential mortgage loans in the
future. 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 building volumes of serviced loans, 2000 mortgage servicing fees
increased to $701,000 in 2000 compared to $640,000 in 1999 and $492,000 in 1998. 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 $3.0 million at year-end 2000 compared to $2.8 million at
year-end 1999 and $2.3 million at year-end 1998.







22
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Noninterest
Expense


Total
non-interest expense for 2000 was $16.6 million, an increase if $1.6 million or 10.3%
from 1999. This was compared to an increase of $2.5 million or 19.8% in 1999 over 1998.
Noninterest expense increased due to higher personnel and operating expenses, a
consequence of continued growth in business volumes, as well as start-up expenses related
to the new branch in Keizer, Oregon. The general level of compensation increased along
with higher costs for benefits including healthcare and payroll taxes. Similarly, rapid
growth in business volumes was the primary factor in the 1999 increase in salary and
benefits of $1.5 million from 1998 levels. Other categories of expense grew in both 2000
and 1999 in tandem with business expansion, including occupancy, equipment, supplies,
information technology and communications costs.




Income Taxes


The
provision for income taxes increased during the periods presented primarily as a result
of higher pre-tax income.



FINANCIAL
CONDITION


The
Company continued to experience positive growth in 2000 in conjunction with the economic
performance of the communities it serves. Total assets increased 21.7% to $423.3 million
at December 31, 2000 compared to $347.9 million at December 31, 1999. Growth in total
assets was primarily funded by a $72.9 million increase in deposits at period end. Due to
the growth in deposits coupled with a decrease in investment securities, the Company was
able to reduce its overall borrowings by $4.6 million at year-end 2000. In the continuing
strong economic environment in the markets served by the Company, the loan portfolio was
up 28.1% to $358 million at year-end 2000, $78.6 million higher than a year earlier. Loan
growth was concentrated both in the construction portfolio, up 46.6% or $23.0 million,
and the commercial real estate portfolio, up 29.4% or $32.8 million. These increases are
consistent with the nature of economic growth in the markets served by the Company.


The
investment portfolio declined to $26.1 million at year-end 2000 compared to $31.8 million
at year-end 1999. This reduction of investment securities resulted from a combination of
maturities, calls, and sales within the portfolio. The cash proceeds from the declining
investment portfolio were re-deployed to support the funding of increased loan volumes.


Total
deposits at year end 2000 were $358.2 million, an increase of $72.9 million or 25.5%
compared to year-end 1999. Deposits averaged $338.3 million for the full year 2000, up
18.0% or $51.7 million from the prior year average. Comparative year-end changes in
deposit composition include interest bearing demand up $25.9 million or 21.0%, time
deposits up $24.9 million or 64.0%, and non-interest bearing demand up $21.1 million or
19.6%.


The
Company had no off balance sheet derivative financial instruments as of December 31, 2000
and 1999.



CAPITAL
RESOURCES


The
Companys total stockholders equity at December 31, 2000 was $35.0 million, an increase
of $5.4 million from December 31, 1999. 2000 equity was increased by earnings of $7.3
million for the year less cash dividends paid to shareholders of $2.2 million. At
year-end 2000, net unrealized losses on investment securities available-for-sale
decreased to $.4 million from $.6 million a year earlier.






23
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|LIQUIDITY


It is
the Companys liquidity goal to have sufficient available 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. The Bank utilizes its available-for-sale
investment securities to provide collateral to support its borrowing needs.



At
December 31, 2000 the Bank maintained unsecured lines of credit totaling $19.0 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 $63.5 million that may
be accessed for short or long-term borrowings given sufficient qualifying collateral. The
Bank also had $17.9 million short term borrowing availability from the Federal Reserve
System that requires specific qualifying collateral. At December 31, 2000 the Bank had
outstanding short-term borrowings totaling $25.5 million, with aggregate remaining
available borrowings of $74.9 million, given sufficient collateral availability.


At
December 31, 2000 the Bank had approximately $121 million in outstanding commitments to
extend credit. Historically a significant portion of the commitments will expire or
terminate without funding. In addition, approximately 35% of total commitments pertain to
various construction projects. Under the terms of such construction commitments,
completion of specified project benchmarks must be certified before funds may be drawn.
Management believes that the Banks available resources will be sufficient to fund its
commitments in the normal course of business.


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.





24
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Interest Rate
Risk and Asset and Liability Management


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 mitigate its risk profile. 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 its risk management objectives.




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 had tended to originate loans
with maturities and repricing terms which are shorter than those of deposit
relationships. These maturity and repricing differences had tended to create an interest
rate risk profile whereby the Company would tend to generate higher earnings should
market interest rates rise and lower earnings should interest rates fall. However, the
past years strong loan growth coupled with increased short-term borrowings and deposits
has moderated the Companys historic interest rate risk profile. At year-end 2000 the
Companys future net interest income volatility is less adversely impacted under
scenarios of both higher and lower interest rates than a year ago.


The
Company analyzes its interest rate risk by simulation modeling as well as 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. The Banks simulation analysis model
forecasts net interest income and earnings given a baseline rate scenario that is deemed
a most likely estimate of the trajectory of rates given current and forecast economic
conditions. The model then computes a percentage change in earnings from this baseline
rate scenario under various circumstances of gradually rising and declining market
interest rates over one and two year time horizons. The following table defines extremes
in market interest rates used in the model for rapidly rising and rapidly declining
interest rate scenarios. These market rate extremes are reached gradually over the 2-year
simulation horizon.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   | Baseline Rates |       | Rising Rates |        | Declining Rates |      
|------------------ | -------------- | ----- | ------------ | ------ | --------------- | -----
|Federal Funds Rate |                | 5.25% |              | 12.25% |                 | 2.00%
|Prime Rate         |                | 8.25% |              | 15.25% |                 | 5.00%

|The
following table presents percentage change in earnings per the simulation model under the
above-described scenarios of gradually rising and declining interest rates as of year-end
2000.


Estimated
percentage increase/(decrease) in earnings compared to baseline rate scenario:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | First twelve Months |         | Second twelve Months |        
|----------------------- | ------------------- | ------- | -------------------- | -------
|Rising Rate Scenario    |                     | (6.67%) |                      | (8.55%)
|Declining Rate Scenario |                     | (2.19%) |                      | (5.69%)

|The
above results are only indicative of the Companys possible range of interest rate risk
exposure under various scenarios. The results do not encompass all possible changes in
market rates, or anticipate changes in credit conditions that could affect results. Nor
do the results include possible changes in volumes, pricing or portfolio management
tactics that may enable management to moderate the effect of such interest rate changes.



25
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Simulations
are dependent on assumptions and estimations that management believes are reasonable,
although the actual results may vary substantially, and there can be no assurance that
simulation results are reliable indicators of future earnings under such conditions. This
is, in part, because of the nature and uncertainties inherent in simulating future events
including: 1) no presumption of changes in asset and liability strategies in response to
changing circumstances; 2) errors in assumptions within the model; 3) uncertainties as to
customer behavior in response to changing circumstance; 4) unexpected absolute and
relative loan and deposit volume changes; 5) unexpected absolute and relative loan and
deposit pricing levels; 6) unexpected behavior by competitors; 7) other unanticipated
credit conditions or other events impacting volatility in market conditions and interest
rates.


At
year-end 2000, the Companys one-year cumulative interest rate gap analysis indicates
that rate sensitive liabilities maturing or available for repricing within one-year
exceeded rate sensitive assets by approximately $54.4 million compared to $62.8 million
at year-end 1999.





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, 2000.
Maturities are based on contractual terms and repricing amounts are based on actual
historical experiences (dollars in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                         | Within90days |              | After 90dayswithinone Year |              | Afterone yearwithinfive years |            | Afterfiveyears |             | Total |          
|---------------------------------------- | ------------ | ------------ | -------------------------- | ------------ | ----------------------------- | ---------- | -------------- | ----------- | ----- | ---------
|INTEREST EARNING ASSETS:                 |              |              |                            |              |                               |            |                |             |       |          
|Investments & fed funds sold             |              | $        775 |                            | $        395 |                               | $  25,686  |                | $          |       | $  26,856
|Loans                                    |              | $ 118,348    |                            | 38,522       |                               | 167,302    |                | 34,502      |       | 358,674  
|                                        
|Total interest earning assets            |              | $ 119,123    |                            | $   38,917   |                               | $192,988   |                | $  34,502   |       | $385,530 
|                                        
|INTEREST BEARING LIABILITIES:            |             
|Interest-bearing demand deposits         |              | $   74,130   |                            | $   56,632   |                               | $    6,767 |                | $  11,799   |       | $149,328 
|Savings deposits                         |              |             |                            |             |                               | 6,735      |                | 9,957       |       | 16,692   
|Time deposits                            |              | 27,085       |                            | 29,104       |                               | 7,739      |                |            |       | 63,928   
|                                        
|Total interest bearing deposits          |              | 101,215      |                            | 85,736       |                               | 21,241     |                | 21,756      |       | 229,948  
|Other borrowings                         |              | 25,500       |                            |             |                               |           |                |            |       | 25,500   
|                                        
|Total interest bearing liabilities       |              | $ 126,715    |                            | $   85,736   |                               | $  21,241  |                | $  21,756   |       | $255,448 
|                                        
|Interest rate sensitivity gap            |              | $  (7,592    | )                          | $(46,819     | )                             | $171,747   |                | $  12,746   |       | $130,082 
|Interest rate gap as a percentage        |             
|Of total interest earning assets         |              | (1.97        | )%                         | (12.14       | )%                            | 44.55      | %              | 3.31        | %     | 33.74    
|                                        
|Cumulative interest rate sensitivity gap |              | $  (7,592    | )                          | $(54,411     | )                             | $117,336   |                | $130,082    |       | $130,082 
|Cumulative interest rate gap as a        |             
|Percentage of total earning assets       |              | (1.97        | )%                         | (14.11       | )%                            | 30.43      | %              | 30.43       | %     | 30.43    
|                                        

|26
|--

|ITEM 8.  
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


For
financial statements, see Index to Consolidated Financial Statements on page 29.


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


None


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 23, 2001.



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 29.
| | --- | --- | ---------------------------------------------------------------------------------------------------------------------------------------------

| |  | (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, 2000.
| | --------------------------------------------------------------------------------------------------------------------

| | (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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|27
|--

|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. MossPresident/Chief Executive OfficerDate: February 27, 2001 | Gregory D. NewtonSenior Vice President/Chief Financial OfficerDate: February 27, 2001

|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 27, 2001
|----------------------------------------------- | -----------------
|Jerry E. Andres, Director                       | Date             
|                                               
|/s/ Gary L. Capps                               | February 27, 2001
|Gary L. Capps, Director/Chairman                | Date             
|                                               
|/s/ Gary L. Hoffman                             | February 27, 2001
|Gary L. Hoffman, Director/Vice Chairman         | Date             
|                                               
|/s/ Patricia L. Moss                            | February 27, 2001
|Patricia L. Moss, Director/President/CEO        | Date             
|                                               
|/s/ Ryan R. Patrick                             | February 27, 2001
|Ryan R. Patrick, Director                       | Date             
|                                               
|/s/ James E. Petersen                           | February 27, 2001
|James E. Petersen, Director/Assistant Secretary | Date             

28

|CASCADE BANCORPIndex to Consolidated
Financial Statements


(Item 14(a))
|------------------------------------------------------------------------

|                                                           |  | Page | 
|---------------------------------------------------------- |  | ---- | 
|Report of Independent Auditors                             |  | 30   | 
|                                                           | 
|Consolidated Balance Sheets at                             | 
|December 31, 2000 and 1999                                 |  | 31   | 
|                                                           | 
|For the Years Ended December 31, 2000, 1999 and 1998:      | 
|Consolidated Statements of Income                          |  | 32   | 
|Consolidated Statements of Changes in Stockholders Equity |  | 33   | 
|Consolidated Statements of Cash Flows                      |  | 34   | 
|                                                           | 
|Notes to Consolidated Financial Statements                 |  | 35   | 

|29
|--

|REPORT OF SYMONDS,
EVANS & COMPANY, 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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted in the United States.
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, 2000 and 1999, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States.



/s/ Symonds, Evans & Company, P.C.


Portland, OregonJanuary 10, 2001



30
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CASCADE BANCORP AND
SUBSIDIARIES


CONSOLIDATED BALANCE
SHEETS


December 31, 2000 and
1999
|-------------------------------------------------------------------------------------------

|ASSETS                                                 | 2000 |                | 1999 |               
|------------------------------------------------------ | ---- | -------------- | ---- | --------------
|Cash and cash equivalents:                             |      |                |      |               
|Cash and due from banks                                |      | $   20,999,520 |      | $   19,420,537
|Federal funds sold                                     |      | 775,000        |      |              
|                                                      
|Total cash and cash equivalents                        |      | 21,774,520     |      | 19,420,537    
|Investment securities available-for-sale               |      | 23,623,499     |      | 29,069,224    
|Investment securities held-to-maturity, estimated fair |     
|value of $2,455,478 ($2,740,062 in 1999)               |      | 2,457,236      |      | 2,742,794     
|Loans, net                                             |      | 352,538,370    |      | 275,325,231   
|Premises and equipment, net                            |      | 8,665,939      |      | 7,739,702     
|Accrued interest and other assets                      |      | 14,233,784     |      | 13,606,535    
|                                                      
|Total assets                                           |      | $ 423,293,348  |      | $ 347,904,023 
|                                                      
|LIABILITIES AND STOCKHOLDERS EQUITY                   |     
|                                                      
|Liabilities:                                           |     
|Deposits:                                              |     
|Demand                                                 |      | $ 128,249,678  |      | $ 107,188,433 
|Interest bearing demand                                |      | 149,327,912    |      | 123,448,962   
|Savings                                                |      | 16,692,324     |      | 15,688,114    
|Time                                                   |      | 63,927,847     |      | 38,987,032    
|                                                      
|Total deposits                                         |      | 358,197,761    |      | 285,312,541   
|Federal Home Loan Bank borrowings                      |      | 25,500,000     |      | 13,000,000    
|Federal funds purchased                                |      |               |      | 17,100,000    
|Accrued interest and other liabilities                 |      | 4,614,134      |      | 2,919,984     
|                                                      
|Total liabilities                                      |      | 388,311,895    |      | 318,332,525   
|Stockholders equity:                                  |     
|Common stock, no par value; 10,000,000 shares          |     
|authorized; 6,879,884 shares issued and outstanding    |     
|(6,862,234 in 1999)                                    |      | 17,768,806     |      | 17,728,564    
|Retained earnings                                      |      | 17,583,393     |      | 12,465,355    
|Accumulated other comprehensive loss                   |      | (370,746       | )    | (622,421      
|                                                      
|Total stockholders equity                             |      | 34,981,453     |      | 29,571,498    
|                                                      
|Total liabilities and stockholders equity             |      | $ 423,293,348  |      | $ 347,904,023 
|                                                      

|See accompanying notes.


31
|----------------------------

|ASCADE BANCORP AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME


Years ended December
31, 2000, 1999 and 1998
|------------------------------------------------------------------------------------------------------------------

|                                                    | 2000 |                   | 1999 |                    | 1998 |                   
|--------------------------------------------------- | ---- | ----------------- | ---- | ------------------ | ---- | ------------------
|Interest and dividend income:                       |      |                   |      |                    |      |                   
|Interest and fees on loans                          |      | $ 33,475,140      |      | $ 25,540,073       |      | $ 19,256,895      
|Taxable interest on investment securities           |      | 1,750,855         |      | 2,246,594          |      | 2,504,127         
|Nontaxable interest on investment securities        |      | 35,853            |      | 47,718             |      | 41,518            
|Interest on federal funds sold                      |      | 149,551           |      | 94,577             |      | 537,271           
|Dividends on Federal Home Loan Bank stock           |      | 111,700           |      | 147,200            |      | 112,800           
|                                                   
|Total interest and dividend income                  |      | 35,523,099        |      | 28,076,162         |      | 22,452,611        
|Interest expense:                                   |     
|Deposits:                                           |     
|Interest bearing demand                             |      | 5,192,145         |      | 3,742,079          |      | 3,518,361         
|Savings                                             |      | 322,606           |      | 315,848            |      | 303,702           
|Time                                                |      | 3,124,446         |      | 1,579,061          |      | 1,293,588         
|Federal Home Loan Bank borrowings                   |      | 1,273,274         |      | 603,529            |      | 47,757            
|Federal funds purchased                             |      | 46,393            |      | 96,432             |      | 17,449            
|                                                   
|Total interest expense                              |      | 9,958,864         |      | 6,336,949          |      | 5,180,857         
|                                                   
|Net interest income                                 |      | 25,564,235        |      | 21,739,213         |      | 17,271,754        
|Loan loss provision                                 |      | 2,751,000         |      | 2,110,138          |      | 1,179,399         
|                                                   
|Net interest income after loan loss provision       |      | 22,813,235        |      | 19,629,075         |      | 16,092,355        
|Noninterest income:                                 |     
|Service charges on deposit accounts                 |      | 2,641,647         |      | 2,354,816          |      | 1,947,138         
|Mortgage loan origination and processing fees       |      | 993,298           |      | 1,269,191          |      | 1,788,001         
|Gains (losses) on sales of mortgage loans, net      |      | (381,156          | )    | (334,070           | )    | 198,129           
|Losses on sales of investment securities available- |     
|for-sale                                            |      | (4,375            | )    | (10,619            | )    |                  
|Mortgage loan servicing fees, net                   |      | 700,998           |      | 639,998            |      | 492,402           
|Merchant bankcard fees, net                         |      | 451,192           |      | 300,502            |      | 300,348           
|VISA interchange                                    |      | 361,446           |      | 276,095            |      | 152,808           
|Other                                               |      | 1,003,563         |      | 912,618            |      | 834,394           
|                                                   
|Total noninterest income                            |      | 5,766,613         |      | 5,408,531          |      | 5,713,220         
|Noninterest expenses:                               |     
|Salaries and employee benefits                      |      | 9,646,300         |      | 8,560,000          |      | 7,045,542         
|Equipment                                           |      | 903,393           |      | 1,044,435          |      | 1,019,394         
|Occupancy                                           |      | 1,175,058         |      | 1,000,747          |      | 793,219           
|Supplies                                            |      | 507,331           |      | 527,004            |      | 393,344           
|Third-party account services                        |      | 611,373           |      | 488,281            |      | 409,217           
|Communications                                      |      | 449,851           |      | 438,371            |      | 382,498           
|Advertising                                         |      | 239,210           |      | 212,225            |      | 352,955           
|Other                                               |      | 3,045,373         |      | 2,755,582          |      | 2,151,966         
|                                                   
|Total noninterest expenses                          |      | 16,577,889        |      | 15,026,645         |      | 12,548,135        
|                                                   
|Income before income taxes                          |      | 12,001,959        |      | 10,010,961         |      | 9,257,440         
|Provision for income taxes                          |      | 4,683,200         |      | 3,772,500          |      | 3,491,400         
|                                                   
|Net income                                          |      | $   7,318,759     |      | $   6,238,461      |      | $   5,766,040     
|                                                   
|Basic earnings per common share                     |      | $            1.06 |      | $              .91 |      | $              .84
|                                                   
|Diluted earnings per common share                   |      | $            1.05 |      | $              .89 |      | $              .82
|                                                   

|See accompanying notes.



32
|-----------------------------

|CASCADE BANCORP AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERSEQUITY


Years ended December
31, 2000, 1999 and 1998
|-------------------------------------------------------------------------------------------------------------------------------------------

|                                      | Number ofstockholdersshares |           | Comprehensiveincome (loss) |               | Commonstock |              | Retainedearnings |              | Accumulatedothercomprehensiveincome (loss) |               | Totalstockholdersequity |             
|------------------------------------- | --------------------------- | --------- | -------------------------- | ------------- | ----------- | ------------ | ---------------- | ------------ | ------------------------------------------ | ------------- | ------------------------ | ------------
|Balance at December 31, 1997          |                             | 4,172,238 |                            |               |             | $ 10,365,015 |                  | $ 13,568,644 |                                            | $    302,765  |                          | $ 24,236,424
|Comprehensive income:                 |                            
|Net income                            |                             |          |                            | $   5,766,040 |             |             |                  | 5,766,040    |                                            |              |                          | 5,766,040   
|Other comprehensive loss -            |                            
|unrealized losses on investment       |                            
|securities available-for-sale (net    |                            
|of income taxes of approximately      |                            
|$ 91,000)                             |                             |          |                            | (145,043      | )           |             |                  |             |                                            | (145,043      | )                        | (145,043    
|                                     
|Comprehensive income                  |                             |          |                            | $   5,620,997 |             |             |                  |             |                                            |              |                          |            
|                                     
|Cash dividends paid (aggregating      |                            
|$.31 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 |                            |               |             | 9,545,545    |                  | 17,218,415   |                                            | 157,722       |                          | 26,921,682  
|Comprehensive income:                 |                            
|Net income                            |                             |          |                            | $   6,238,461 |             |             |                  | 6,238,461    |                                            |              |                          | 6,238,461   
|Other comprehensive loss -            |                            
|unrealized losses on investment       |                            
|securities available-for-sale (net    |                            
|of income taxes of approximately      |                            
|$476,000), net of reclassification    |                            
|adjustment for net losses on sales of |                            
|investment securities available-for-  |                            
|sale included in net income (net of   |                            
|income taxes of approximately $4,000) |                             |          |                            | (780,143      | )           |             |                  |             |                                            | (780,143      | )                        | (780,143    
|                                     
|Comprehensive income                  |                             |          |                            | $   5,458,318 |             |             |                  |             |                                            |              |                          |            
|                                     
|Cash dividends paid (aggregating      |                            
|$.32 per share)                       |                             |          |                            |              |             | (2,220,508   | )                |             |                                            | (2,220,508    | )                       
|10% stock dividend                    |                             | 622,608   |                            |               |             | 8,771,013    |                  | (8,771,013   | )                                          |              |                          |            
|Stock options exercised               |                             | 75,534    |                            |               |             | 317,738      |                  |             |                                            |              |                          | 317,738     
|Repurchases of common stock           |                             | (61,990   | )                          |               |             | (905,732     | )                |             |                                            |              |                          | (905,732    
|                                     
|Balance at December 31, 1999          |                             | 6,862,234 |                            |               |             | 17,728,564   |                  | 12,465,355   |                                            | (622,421      | )                        | 29,571,498  
|Comprehensive income:                 |                            
|Net income                            |                             |          |                            | $   7,318,759 |             |             |                  | 7,318,759    |                                            |              |                          | 7,318,759   
|Other comprehensive income-           |                            
|unrealized gains on investment        |                            
|securities available-for-sale (net    |                            
|of income taxes of approximately      |                            
|$154,000) net of classification       |                            
|adjustment for net losses on sales of |                            
|investment securities available-for-  |                            
|sale included in net income (net of   |                            
|income taxes of approximately $4,000) |                             |          |                            | 251,675       |             |             |                  |             |                                            | 251,675       |                          | 251,675     
|                                     
|Comprehensive income                  |                             |          |                            | $   7,570,434 |             |             |                  |             |                                            |              |                         
|                                     
|Cash dividends paid (aggregating      |                            
|$.32 per share)                       |                             |          |                            |               |             |             |                  | (2,200,721   | )                                          |              |                          | (2,200,721  
|Stock options exercised               |                             | 17,650    |                            |               |             | 40,242       |                  |             |                                            |              |                          | 40,242      
|                                     
|Balance at December 31, 2000          |                             | 6,879,884 |                            |               |             | $ 17,768,806 |                  | $ 17,583,393 |                                            | $   (370,746) |                          | $34,981,453 
|                                     

|See accompanying notes.


33
|----------------------------

|CASCADE BANCORP AND
SUBSIDIARIES


CONSOLIDATED STATEMENTS
OF CASH FLOWS


Years ended December 31,
2000, 1999 and 1998
|-----------------------------------------------------------------------------------------------------------------------

|                                                      | 2000 |               | 1999 |               | 1998 |                
|----------------------------------------------------- | ---- | ------------- | ---- | ------------- | ---- | ---------------
|Cash flows from operating activities:                 |      |               |      |               |      |                
|Net income                                            |      | $   7,318,759 |      | $   6,238,461 |      | $     5,766,040
|Adjustments to reconcile net income to net cash       |     
|provided by operating activities:                     |     
|Depreciation and amortization                         |      | 1,506,351     |      | 1,624,955     |      | 1,405,890      
|Loan loss provision                                   |      | 2,751,000     |      | 2,110,138     |      | 1,179,399      
|Provision (credit) for deferred income taxes          |      | (103,000      | )    | (57,000       | )    | 27,000         
|Discounts on sales of mortgage loans, net             |      | 565,059       |      | 881,988       |      | 822,870        
|Losses on sales of investment securities              |     
|available-for-sale                                    |      | 4,375         |      | 10,619        |      |               
|Dividends on Federal Home Loan Bank stock             |      | (111,700      | )    | (147,200      | )    | (112,800       
|Deferred benefit plan expenses                        |      | 420,000       |      | 418,000       |      | 396,000        
|Increase in accrued interest and other assets         |      | (1,294,233    | )    | (1,632,233    | )    | (3,338,113     
|Increase (decrease) in accrued interest and           |     
|other liabilities                                     |      | 1,274,150     |      | (355,019      | )    | 563,719        
|Originations of mortgage loans                        |      | (77,207,960   | )    | (97,715,204   | )    | (146,507,292   
|Proceeds from sales of mortgage loans                 |      | 73,238,112    |      | 94,927,939    |      | 145,440,966    
|                                                     
|Net cash provided by operating activities             |      | 8,360,913     |      | 6,305,444     |      | 5,643,679      
|                                                     
|Cash flows from investing activities:                 |     
|Purchases of investment securities available-for-sale |      | (526,638      | )    | (2,079,833    | )    | (21,957,636    
|Purchases of investment securities held-to-maturity   |      |              |      |              |      | (563,903       
|Proceeds from maturities and calls of investment      |     
|securities available-for-sale                         |      | 4,378,291     |      | 15,131,540    |      | 15,663,174     
|Proceeds from sales of investment securities          |     
|available-for-sale                                    |      | 1,995,625     |      | 4,624,315     |      |               
|Proceeds from maturities and calls of investment      |     
|securities held-to-maturity                           |      | 397,259       |      | 342,895       |      | 184,171        
|Other loan originations, net                          |      | (76,559,350   | )    | (70,867,188   | )    | (50,697,735    
|Purchases of premises and equipment, net              |      | (1,734,486    | )    | (2,892,107    | )    | (1,563,457     
|Purchases of life insurance contracts                 |      | (138,000      | )    | (103,000      | )    | (1,423,900     
|Surrender of life insurance contracts                 |      | 55,628        |      | 70,942        |      | 49,066         
|                                                     
|Net cash used in investing activities                 |      | (72,131,671   | )    | (55,772,436   | )    | (60,310,220    
|                                                     
|Cash flows from financing activities:                 |     
|Net increase in deposits                              |      | 72,885,220    |      | 14,449,810    |      | 59,517,958     
|Net increase (decrease) in federal funds purchased    |      | (17,100,000   | )    | 17,100,000    |      |               
|Net increase in Federal Home Loan Bank borrowings     |      | 12,500,000    |      | 13,000,000    |      |               
|Cash dividends paid                                   |      | (2,200,721    | )    | (2,220,508    | )    | (2,116,269     
|Stock options exercised                               |      | 40,242        |      | 317,738       |      | 42,473         
|Repurchases of common stock                           |      |              |      | (905,732      | )    | (861,943       
|Repayment of long-term debt                           |      |              |      |              |      | (5,000,000     
|                                                     
|Net cash provided by financing activities             |      | 66,124,741    |      | 41,741,308    |      | 51,582,219     
|                                                     
|Net increase (decrease) in cash and cash equivalents  |      | 2,353,983     |      | (7,725,684    | )    | (3,084,322     
|Cash and cash equivalents at beginning of the year    |      | 19,420,537    |      | 27,146,221    |      | 30,230,543     
|                                                     
|Cash and cash equivalents at end of the year          |      | $ 21,774,520  |      | $ 19,420,537  |      | $   27,146,221 
|                                                     

|See accompanying notes.



34
|-----------------------------

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|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 financial holding company, and its wholly-owned subsidiaries, Bank of the
Cascades (the Bank) and Cascade Bancorp Financial Services, Inc. (presently inactive).
All significant intercompany accounts and transactions have been eliminated in
consolidation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Description
of business
| | -----------------------

| | The
Bank conducts a general banking business and primarily operates in one business segment.
Its activities include the usual lending and deposit functions of a commercial bank:
commercial, real estate, installment, credit card and mortgage loans; checking, money
market, time deposit and savings accounts; internet banking and bill payment; automated
teller machines (ATMs) and safe deposit facilities. The Bank also originates and sells
mortgage loans into the secondary market.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Bank, doing business as Cascade Finance, also purchases used automobile installment
contracts from local dealerships in addition to direct consumer finance loans.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Method
of accounting
| | --------------------

| | The
Company prepares its consolidated financial statements in conformity with accounting
principles generally accepted in the United States 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 accounting principles generally accepted in the United
States 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Bank maintains balances in correspondent bank accounts which, at times, may exceed
federally insured limits. Management believes that its risk of loss associated with such
balances is minimal due to the financial strength of the correspondent banks. The Bank
has not experienced any losses in such accounts.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Supplemental
disclosures of cash flow information
| | -------------------------------------------------

| | During
2000, 1999 and 1998, 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 2000, 1999 and 1998, noncash-investing activities resulted from the net
capitalization of approximately $181,000, $547,000 and $1,021,000, respectively, in
originated mortgage-servicing rights.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|35
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|1. |  | Description
of business and summary of significant accounting policies (continued)
|-- |  | ----------------------------------------------------------------------------------

| | During
2000, 1999 and 1998, the Bank paid approximately $9,738,000, $6,302,000 and $5,138,000,
respectively, in interest expense.
| | ---------------------------------------------------------------------------------------------------------------------------------

| | 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, 2000 or 1999.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 or loss, 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. Management believes that all unrealized losses on investment securities
as of December 31, 2000 and 1999 are temporary.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Federal Home Loan Bank stock
| | ----------------------------

| | The
Banks investment in Federal Home Loan Bank (FHLB) stock is carried at par value,
which approximates fair value. As a member of the FHLB system, the Bank is required to
maintain a minimum level of investment in FHLB stock based on specific percentages of its
outstanding mortgages, total assets or FHLB advances. At December 31, 2000, the Bank met
its minimum required investment. The Bank may request redemption at par value of any FHLB
stock in excess of the minimum required investment. Stock redemptions are at the
discretion of FHLB.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loans
| | -----

| | Loans
are stated at the amount of unpaid principal, reduced by any deferred loan fees and
reserve 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 established to absorb known and inherent losses in the loan
portfolio as of the balance sheet date. 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 historical loss experience;
review of problem loans; underlying collateral values and guaranties; 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|36
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|1. |  | Description
of business and summary of significant accounting policies (continued)
|-- |  | ----------------------------------------------------------------------------------

| | The
Bank 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 or related guaranty. The Bank 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 or
related guaranty. In certain other cases, impairment is measured based on the present
value of expected future cash flows discounted at the loans effective interest
rate. 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. Accordingly, the Bank does not separately identify individual installment
loans for impairment disclosures. Generally, the Bank evaluates a loan for impairment
when it is placed on nonaccrual status. All of the Banks impaired loans at December 31,
2000 and 1999 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 the 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, 2000 and 1999,
mortgage loans held for sale were carried at cost, which approximated estimated market
value.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2000, 1999 and 1998, the Bank held servicing rights to approximately
$295,699,000, $268,792,000 and $232,916,000, respectively, in mortgage loans which have
been sold into the secondary market. Such mortgage loans are not included in the
accompanying consolidated balance sheets. The sales 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, 2000, 1999 and 1998, the Bank capitalized approximately
$746,000, $1,154,000 and $1,620,000, 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, 2000,
1999 and 1998, the amortization of the capitalized mortgage servicing rights totaled
approximately $565,000, $607,000 and $599,000, respectively. The net amount of
capitalized mortgage servicing rights at December 31, 2000 and 1999 (approximately
$3,019,000 and $2,838,000, respectively) is included in accrued interest and other assets
in the accompanying consolidated balance sheets.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|37
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|1. |  | Description
of business and summary of significant accounting policies (continued)
|-- |  | ----------------------------------------------------------------------------------

| | The
fair value (which approximates the carrying amount) of the capitalized mortgage servicing
rights at December 31, 2000 and 1999 was determined by management based on comparisons to
current 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, and any
disposition gains or losses, are included in noninterest income and expenses. Other real
estate was insignificant at December 31, 2000 and 1999.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stockholdersequity
| | -------------------

| | In
June 1999, the Company declared a 10% stock dividend. In June 1998, the Company declared
a three-for-two stock split. 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 the stock dividend and stock split.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
1999 and 1998, the Company repurchased shares of its common stock. As of December 31,
2000, approximately 43,000 shares remain authorized for possible repurchase under the
Companys stock repurchase plan.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|38
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|1. |  | Description
of business and summary of significant accounting policies (continued)
|-- |  | ----------------------------------------------------------------------------------

| | Recently
issued accounting standards
| | ------------------------------------

| | In
June 1999, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 137, Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement 133(SFAS 137),
an amendment of SFAS 133, which establishes accounting and reporting standards for
derivative instruments and hedging activities and requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure those
instruments at fair value. In June 2000, FASB issued SFAS 138, Accounting for
Certain Derivative Instruments and Certain Hedging Activities an amendment of SFAS
133.SFAS 133, as amended by SFAS 137 and SFAS 138, is effective for all quarterly
and annual financial statements of fiscal years beginning after June 15, 2000. The
Company had no significant derivatives as of December 31, 2000, nor does the Company
engage in any hedging activities. Accordingly, the Company does not anticipate that the
adoption of SFAS 133, as amended by SFAS 137 and SFAS 138, will have a material effect on
its consolidated financial position or results of operations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Reclassifications
| | -----------------

| | Certain
amounts in 1999 and 1998 have been reclassified to conform with the 2000 presentation.
| | ----------------------------------------------------------------------------------------------

|2. |  | Cash
and due from banks
|-- |  | -----------------------

| | The
Bank is required to maintain an average reserve balance (approximately $3,097,000 and
$1,846,000 at December 31, 2000 and 1999, 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, 2000 and 1999 consisted of the following:
| | -------------------------------------------------------------------------------

|                         | Amortizedcost |               | Grossunrealizedgains |             | Grossunrealizedlosses |                 | Estimatedfairvalue |              
|------------------------ | ------------- | ------------- | -------------------- | ----------- | --------------------- | --------------- | ------------------ | -------------
|2000                     |               |               |                      |             |                       |                 |                    |              
|Available-for-sale       |              
|U.S. Government and      |              
|agency securities        |               | $10,527,299   |                      | $          |                       | $         2,911 |                    | $10,524,388  
|Mortgage-backed          |              
|securities               |               | 9,167,586     |                      | 44,672      |                       |                |                    | 9,212,258    
|U.S. Treasury securities |               | 1,998,749     |                      | 31,251      |                       |                |                    | 2,030,000    
|Equity securities        |               | 2,527,843     |                      |            |                       | 670,990         |                    | 1,856,853    
|                        
|                         |               | $24,221,477   |                      | $  75,923   |                       | $     673,901   |                    | $23,623,499  
|                        
|Held-to-maturity         |              
|Obligations of state and |              
|political subdivisions   |               | $     669,436 |                      | $    1,418  |                       | $         3,176 |                    | $     667,678
|FHLB stock               |               | 1,787,800     |                      |            |                       |                |                    | 1,787,800    
|                        
|                         |               | $  2,457,236  |                      | $    1,418  |                       | $         3,176 |                    | $  2,455,478 
|                        

|39
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|3. |  | Investment
securities (continued)
|-- |  | ---------------------------------

|                         | Amortizedcost |             | Grossunrealizedgains |                | Grossunrealizedlosses |               | Estimatedfairvalue |            
|------------------------ | ------------- | ----------- | -------------------- | -------------- | --------------------- | ------------- | ------------------ | -----------
|1999                     |               |             |                      |                |                       |               |                    |            
|Available-for-sale       |              
|U.S. Government and      |              
|agency securities        |               | $15,538,091 |                      | $             |                       | $     255,820 |                    | $15,282,271
|Mortgage-backed          |              
|securities               |               | 10,009,453  |                      |               |                       | 240,969       |                    | 9,768,484  
|U.S. Treasury securities |               | 1,997,742   |                      | 17,878         |                       |              |                    | 2,015,620  
|Equity securities        |               | 2,527,843   |                      |               |                       | 524,994       |                    | 2,002,849  
|                        
|                         |               | $30,073,129 |                      | $     17,878   |                       | $  1,021,783  |                    | $29,069,224
|                        

|                         | Amortizedcost |            | Grossunrealizedgains |        | Grossunrealizedlosses |               | Estimatedfairvalue |           
|------------------------ | ------------- | ---------- | -------------------- | ------ | --------------------- | ------------- | ------------------ | ----------
|Held-to-maturity         |               |            |                      |        |                       |               |                    |           
|Obligations of state and |              
|political subdivisions   |               | $1,066,694 |                      | $5,243 |                       | $       7,975 |                    | $1,063,962
|FHLB stock               |               | 1,676,100  |                      |       |                       |              |                    | 1,676,100 
|                        
|                         |               | $2,742,794 |                      | $5,243 |                       | $       7,975 |                    | $2,740,062
|                        

|The amortized cost and estimated
fair value of investment securities at December 31, 2000, 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.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | Amortizedcost |               | Estimatedfairvalue
|------------------------------------- | ------------- | ------------- | ------------------
|Available-for-sale                    |               |               |                   
|Due after one year through five years |               | $12,526,048   |                   
|Mortgage-backed securities            |               | 9,167,586     |                   
|Equity securities                     |               | 2,527,843     |                   
|                                     
|                                      |               | $24,221,477   |                   
|                                     
|Held-to-maturity                      |              
|Due in one year or less               |               | $     394,936 |                   
|Due after one year through five years |               | 274,500       |                   
|FHLB stock                            |               | 1,787,800     |                   
|                                     
|                                      |               | $  2,457,236  |                   
|                                     

|Investment securities with a
carrying value of approximately $18,686,000 and $13,690,000 at December 31, 2000 and
1999, respectively, were pledged to secure public deposits and for other purposes as
required or permitted by law.



40
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|4. |  | Loans
|-- |  | -----

|Loans at December 31, 2000 and
1999 consisted of the following:
|---------------------------------------------------------------

|                        | 2000 |               | 1999 |              
|----------------------- | ---- | ------------- | ---- | -------------
|Commercial              |      | $  56,707,366 |      | $  43,122,090
|Real estate:            |     
|Construction            |      | 72,241,256    |      | 49,275,932   
|Mortgage                |      | 35,027,649    |      | 41,505,474   
|Commercial              |      | 144,337,388   |      | 111,577,500  
|Installment             |      | 50,360,811    |      | 34,622,137   
|                       
|                        |      | 358,674,470   |      | 280,103,133  
|Less:                   |     
|Reserve for loan losses |      | 5,020,212     |      | 3,525,185    
|Deferred loan fees      |      | 1,115,888     |      | 1,252,717    
|                       
|                        |      | 6,136,100     |      | 4,777,902    
|                       
|Loans, net              |      | $352,538,370  |      | $275,325,231 
|                       

|Included in mortgage loans as of
December 31, 2000 and 1999 were approximately $1,326,000 and $423,000, respectively, in
mortgage loans held for sale.



The Bank has nine branches located
in Central Oregon and two branches located in the Salem area of Oregon. The result of
doing business in these geographic areas has been growth in loan demand. A substantial
portion of the Banks loans are collateralized by real estate in these geographic
areas 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, 2000 and 1999, the portion
of these loans participated to third parties (which are not included in the accompanying
consolidated financial statements) totaled approximately $1,745,000 and $2,529,000,
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, 2000, 1999 and 1998 were
as follows:
| | -----------------------------------------------------------------------------------------------------------------

|                               | 2000 |             | 1999 |             | 1998 |            
|------------------------------ | ---- | ----------- | ---- | ----------- | ---- | -----------
|Balance at beginning of year   |      | $ 3,525,185 |      | $ 2,635,820 |      | $ 2,048,561
|Loan loss provision            |      | 2,751,000   |      | 2,110,138   |      | 1,179,399  
|Loans charged-off              |      | (1,469,977  | )    | (1,399,142  | )    | (634,077   
|Recoveries of loans previously |     
|charged-off                    |      | 214,004     |      | 178,369     |      | 41,937     
|                              
|Balance at end of year         |      | $ 5,020,212 |      | $ 3,525,185 |      | $ 2,635,820
|                              

|41
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|5. |  | Reserve
for loan losses (continued)
|-- |  | -----------------------------------

| |  | Impaired loans
as of December 31, 2000, 1999 and 1998 and for each of the three years in the period
ended December 31, 2000 were not significant to the accompanying consolidated financial
statements. In addition, loans past due 90 days or more and still accruing interest at
December 31, 2000 and 1999 were not significant to the accompanying consolidated
financial statements.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | Premises
and equipment
|-- |  | ----------------------

| | Premises
and equipment at December 31, 2000 and 1999 consisted of the following:
| | --------------------------------------------------------------------------------

|                                               | 2000 |              | 1999
|---------------------------------------------- | ---- | ------------ | ----
|Land                                           |      | $  1,116,498 |     
|Buildings and leasehold improvements           |      | 7,388,610    |     
|Furniture and equipment                        |      | 5,534,083    |     
|                                              
|                                               |      | 14,039,191   |     
|Less accumulated depreciation and amortization |      | 5,373,252    |     
|                                              
|                                               |      | $  8,665,939 |     
|                                              

|7. |  | Time
certificates of deposit
|-- |  | ----------------------------

| | Time
certificates of deposit in excess of $100,000 aggregated approximately $25,048,000 and
$14,073,000 at December 31, 2000 and 1999, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2000, the scheduled annual maturities of all time certificates of deposit
were approximately as follows:
| | ------------------------------------------------------------------------------------------------------------------------

|           | 
|---------- | 
|2001       | 
|2002       | 
|2003       | 
|2004       | 
|2005       | 
|Thereafter | 
|          
|           | 
|          

|8. |  | Borrowing
agreements
|-- |  | --------------------

| | The
Bank participates in the Cash Management Advance Program (the Program) with the FHLB,
which is subject to annual renewal in February 2001. As of December 31, 2000, the Bank
had $15,500,000 ($5,000,000 at December 31, 1999) in borrowings outstanding from the FHLB
under the Program with interest at 6.825%. In addition, as of December 31, 2000, the Bank
had $10,000,000 ($8,000,000 at December 31, 1999) in borrowings outstanding from the FHLB
under a promissory note agreement, which are due in January 2001 and bear interest at a
fixed rate of 6.540%. As of December 31, 2000, the Bank had remaining available
borrowings from the FHLB of approximately $37,794,000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
outstanding borrowings with the FHLB are collateralized by a blanket pledge agreement on
the Banks FHLB stock, any funds on deposit with the FHLB, investment securities and
loans.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|42
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|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 contractual amounts of these instruments
reflect the extent of the Banks involvement in these particular classes of
financial instruments. As of December 31, 2000 and 1999, the Bank held no
significant 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. The distribution of
commitments to extend credit approximates the distribution of loans outstanding.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
summary of the Banks off-balance sheet financial instruments at December 31, 2000
and 1999 is approximately as follows:
| | --------------------------------------------------------------------------------------------------------------------------

|                                              | 2000 |              | 1999 |              
|--------------------------------------------- | ---- | ------------ | ---- | -------------
|Commitments to extend credit                  |      | $100,822,000 |      | $  97,280,000
|Commitments under credit card lines of credit |      | 19,267,000   |      | 15,954,000   
|Standby letters of credit                     |      | 1,156,000    |      | 1,051,000    
|                                             
|Total off-balance sheet financial instruments |      | $121,245,000 |      | $114,285,000 
|                                             

| | 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, residential real estate
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 guaranties 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|43
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|10. |  | Income taxes
|--- |  | ------------

| | The
provision (credit) for income taxes for the years ended December 31, 2000, 1999 and 1998
was approximately as follows:
| | --------------------------------------------------------------------------------------------------------------------------

|                           | 2000 | 1999       | 1998
|-------------------------- | ---- | ---------- | ----
|Current:                   |      |            |     
|Federal                    |      | $3,991,300 |     
|State                      |      | 794,900    |     
|                          
|                           |      | 4,786,200  |     
|Deferred                   |      | (103,000   | )   
|                          
|Provision for income taxes |      | $4,683,200 |     
|                          

|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, 2000, 1999 and 1998 were approximately as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | 2000 | 1999       | 1998
|----------------------------------------- | ---- | ---------- | ----
|Expected federal income tax at statutory  |     
|rate of 34%                               |      | $4,080,700 |     
|State income taxes, net of federal effect |      | 524,600    |     
|Effect of nontaxable interest income, net |      | (30,400    | )   
|Other, net                                |      | 108,300    |     
|                                         
|Provision for income taxes                |      | $4,683,200 |     
|                                         

| | The
components of the net deferred tax assets at December 31, 2000 and 1999 were
approximately as follows:
| | ----------------------------------------------------------------------------------------------------------

|                                               | 2000 | 1999       
|---------------------------------------------- | ---- | -----------
|Assets:                                        |      |            
|Loan loss provision                            |      | $1,536,000 
|Net unrealized losses on investment securities |      | 227,000    
|Deferred benefit plan expense                  |      | 711,000    
|Other                                          |      | 188,000    
|                                              
|Total deferred tax assets                      |      | 2,662,000  
|                                              
|Liabilities:                                   |     
|Deferred loan income                           |      | 536,000    
|Mortgage servicing rights                      |      | 1,159,000  
|FHLB stock dividends                           |      | 317,000    
|Earnings on life insurance policies, net       |      | 378,000    
|Other                                          |      | 47,000     
|                                              
|Total deferred tax liabilities                 |      | 2,437,000  
|                                              
|Net deferred tax assets                        |      | $   225,000
|                                              

|44
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

| | 10. |  | Income
taxes (continued)
| | --- |  | ------------------------

| | Management
believes, primarily based upon the Companys historical performance, that the net
deferred tax assets will be recognized in the normal course of operations and,
accordingly, management has not reduced net deferred tax assets by a valuation allowance.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company made income tax payments of approximately $4,330,000, $4,165,000 and $3,267,000
during 2000, 1999 and 1998, 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
numerators and denominators used in computing basic and diluted earnings per common share
for the years ended December 31, 2000, 1999 and 1998 can be reconciled as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2000                                          | Netincome(numerator) | Shares(denominator) | Per-shareamount
|--------------------------------------------- | -------------------- | ------------------- | ---------------
|Basic earnings per common share              |                      |                     |                
|Income available to common stockholders       |                      | $7,318,759          |                
|                                             
|Effect of assumed conversion of stock options |                      |                    |                
|                                             
|Diluted earnings per common share             |                      | $7,318,759          |                
|                                             

|1999                                          |  |            | 
|--------------------------------------------- |  | ---------- | 
|Basic earnings per common share              |  |            | 
|Income available to common stockholders       |  | $6,238,461 | 
|                                             
|Effect of assumed conversion of stock options |  |           | 
|                                             
|Diluted earnings per common share             |  | $6,238,461 | 
|                                             

|1998                                          |  |            | 
|--------------------------------------------- |  | ---------- | 
|Basic earnings per common share -             |  |            | 
|Income available to common stockholders       |  | $5,766,040 | 
|                                             
|Effect of assumed conversion of stock options |  |           | 
|                                             
|Diluted earnings per common share             |  | $5,766,040 | 
|                                             

|45
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | An
analysis of activity with respect to loans to directors and officers of the Bank for the
year ended December 31, 2000 was approximately as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | 
|---------------------------- | 
|Balance at December 31, 1999 | 
|Additions                    | 
|Repayments                   | 
|                            
|Balance at December 31, 2000 | 
|                            

|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 related to the Plan are at the discretion of the Board of
Directors (the Board), not to exceed the amount deductible for federal income tax
purposes. Employees have the option to receive a portion of the employers
contribution in cash. Employees vest in the employer contributions to the Plan over a
period of five years. The total amounts charged to operations under the Plan were
approximately $967,000, $811,000 and $755,000 for the years ended December 31, 2000, 1999
and 1998, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
benefit plans
| | -------------------

| | The
Bank has deferred compensation plans for members of 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------

|46
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|13. |  | Benefit
plans (continued)
|--- |  | -------------------------

| | 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
participants. The cash surrender value of these policies at December 31, 2000 and 1999
was approximately $6,757,000 and $6,157,000, respectively, and is included in accrued
interest and other assets in the accompanying consolidated balance sheets.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2000 and 1999, the liabilities related to the deferred compensation plans
included in the accompanying consolidated balance sheets totaled approximately $906,000
and $693,000, respectively. The amount of expense charged to operations in 2000, 1999 and
1998 related to the deferred compensation plans was approximately $219,000, $184,000 and
$182,000, respectively. As of December 31, 2000 and 1999, the liabilities related to the
salary continuation and fee continuation plans included in the accompanying consolidated
balance sheets totaled approximately $928,000 and $761,000, respectively. The amount of
expense charged to operations in 2000, 1999 and 1998 for the salary continuation and fee
continuation plans was approximately $201,000, $234,000 and $214,000, 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 2000, 1999 and 1998
was approximately $286,000, $246,000 and $196,000, 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, 2000, 1999 and 1998 resulted in an estimated weighted-average
grant date fair value of $3.70, $5.34 and $5.72, 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 for the years ended December 31, 2000, 1999 and 1998
would have been as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  | 2000        | 1999 | 1998          
|-------------------- |  | ----------- | ---- | --------------
|Net income           |  | As reported |      | $7,318,759    
|                     |  | Pro forma   |      | 7,124,066     
|Basic earnings per   |  | As reported |      | $         1.06
|common share         |  | Pro forma   |      | 1.04          
|Diluted earnings per |  | As reported |      | $         1.05
|common share         |  | Pro forma   |      | 1.02          

|47
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|14. |  | Stock
Option Plan (continued)
|--- |  | -----------------------------

| | The
Company used the Black-Scholes option-pricing model with the following weighted-average
assumptions to value options granted for the years ended December 31, 2000, 1999 and
1998:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | 2000 | 1999 | 1998
|----------------------- | ---- | ---- | ----
|Dividend yield          |      | 2    | .8% 
|Expected volatility     |      | 35   | .4% 
|Risk-free interest rate |      | 5    | .0% 
|Expected option lives   |      | 5 ye | ars 

| | Because
SFAS 123 is applicable only to options granted subsequent to December 31, 1994, the
proforma effects for 2000, 1999 and 1998 may not be representative of the effects on
reported results in future years.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2000, 148,326 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,
2000, 1999 and 1998 was as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | 2000 | 1999    | 1998
|---------------------------- | ---- | ------- | ----
|
|Balance at beginning of year |      | 316,067 |     
|Granted                      |      | 74,250  |     
|Forfeited                    |      | (12,611 | )   
|Exercised                    |      | (17,650 | )   
|                            
|Balance at end of year       |      | 360,056 |     
|                            

| | Information
regarding the number, weighted-average exercise price and weighted-average remaining
contractual life of options by range of exercise price at December 31, 2000 is as
follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     | Options outstanding | Exercisable options | 
|---- | ------------------- | ------------------- | 
|
|$  2 | .28                 | 39,886              | 
|3    | .32                 | 38,926              | 
|4    | .62                 | 36,297              | 
|6    | .59                 | 65,340              | 
|12   | .50                 | 69,750              | 
|16   | .14                 | 53,350              | 
|16   | .97                 | 56,507              | 
|    
|     |                     | 360,056             | 
|    

| | Exercisable
options as of December 31, 1999 and 1998 totaled 273,345 and 324,751, respectively.
| | -----------------------------------------------------------------------------------------------

|48
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|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, 2000, 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:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       | 
|---------------------- | 
|2001                   | 
|2002                   | 
|2003                   | 
|2004                   | 
|2005                   | 
|Thereafter             | 
|                      
|Total minimum payments | 
|                      

| | Total
rental expense was approximately $554,000, $426,000 and $286,000 in 2000, 1999 and 1998,
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, 2000.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 may have significant value.
These include such off-balance sheet items as core deposit intangibles. 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, 2000 and 1999.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|49
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|16. |  | Estimated
fair values of financial instruments (continued)
|--- |  | ----------------------------------------------------------

| | 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, 2000 and 1999 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, 2000 and 1999 rates offered on those
instruments.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FHLB
borrowings:  The carrying amount approximates the estimated fair value due to
the short-term nature of these borrowings.
| | -----------------------------------------------------------------------------------------------------------------------------

| | Federal
funds purchased:  The carrying amount approximates the estimated fair value due
to the short-term nature of these borrowings.
| | -------------------------------------------------------------------------------------------------------------------------------------

| | 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 $756,000 and $730,000 as of December 31, 2000 and 1999, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
estimated fair values of the Companys significant on-balance sheet financial
instruments at December 31, 2000 and 1999 were as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------

|                          | 2000 | 1999         
|------------------------- | ---- | -------------
|
|Financial assets:         |      |              
|Cash and cash equivalents |      | $  21,774,520
|Investment securities:    |     
|Available-for-sale        |      | 23,623,499   
|Held-to-maturity          |      | 2,457,236    
|Loans, net                |      | 352,538,370  
|Financial liabilities:    |     
|Deposits                  |      | $358,197,761 
|FHLB borrowings           |      | 25,500,000   
|Federal funds purchased   |      |             

|50
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|17. |  | Regulatory
matters
|--- |  | ------------------

| | The
Company 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, the Company 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. The Companys
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 the Company 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, 2000 and 1999, the Company and the Bank meet or exceed all
relevant capital adequacy requirements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2000, the most recent notifications from the Federal Reserve Bank
and the Federal Deposit Insurance Corporation categorized the Company and the Bank as
well capitalizedunder the regulatory framework for prompt correction action.
To be categorized as well capitalized, the Company 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 the Companys or the Banks regulatory
capital categorization.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys actual and required capital amounts and ratios are presented in the
following table (dollars in thousands):
| | -------------------------------------------------------------------------------------------------------------------------

|                          | Actual | Regulatory minimum to beadequately capitalized | Regulatory minimumto be well capitalizedunder prompt correc-tive action provisions
|------------------------- | ------ | ------------------------------------------------ | ------------------------------------------------------------------------------------
|
|December 31, 2000:        |        |                                                  |                                                                                     
|Tier 1 capital            |       
|(to average assets)       |        | $34,614                                          |                                                                                     
|Tier 1 capital            |       
|(to risk-weighted assets) |        | 34,614                                           |                                                                                     
|Total capital             |       
|(to risk-weighted assets) |        | 39,229                                           |                                                                                     
|December 31, 1999:        |       
|Tier 1 capital            |       
|(to average assets)       |        | 29,340                                           |                                                                                     
|Tier 1 capital            |       
|(to risk-weighted assets) |        | 29,340                                           |                                                                                     
|Total capital             |       
|(to risk-weighted assets) |        | 32,866                                           |                                                                                     

|51
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

|17. |  | Regulatory
matters (continued)
|--- |  | ------------------------------

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

|                          | Actual | Regulatory minimum to beadequately capitalized | Regulatory minimumto be well capitalizedunder prompt correc-tive action provisions
|------------------------- | ------ | ------------------------------------------------ | ------------------------------------------------------------------------------------
|
|December 31, 2000:        |        |                                                  |                                                                                     
|Tier 1 capital            |       
|(to average assets)       |        | $33,089                                          |                                                                                     
|Tier 1 capital            |       
|(to risk-weighted assets) |        | 33,089                                           |                                                                                     
|Total capital             |       
|(to risk-weighted assets) |        | 37,671                                           |                                                                                     
|December 31, 1999:        |       
|Tier 1 capital            |       
|(to average assets)       |        | 26,626                                           |                                                                                     
|Tier 1 capital            |       
|(to risk-weighted assets) |        | 26,626                                           |                                                                                     
|Total capital             |       
|(to risk-weighted assets) |        | 30,149                                           |                                                                                     

|18. |  | Parent
company financial information
|--- |  | ------------------------------------

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

|CONDENSED BALANCE SHEETS
|------------------------

|                                           | December 31, |               
|------------------------------------------ | ------------ | --------------
|
|Assets:                                    |              |               
|Cash and cash equivalents                  |              | $       42,891
|Due from Cascade Finance                   |              |              
|Investment securities available-for-sale   |              | 1,856,853     
|Investment in subsidiaries                 |              | 33,457,071    
|Other assets                               |              | 374,638       
|                                          
|Total assets                               |              | $35,731,453   
|                                          
|Liabilities -                              |             
|Due to the Bank                            |              | $     750,000 
|Stockholders equity                       |              | 34,981,453    
|                                          
|Total liabilities and stockholders equity |              | $35,731,453   
|                                          

|52
|--

|CASCADE BANCORP AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


December 31, 2000
|-------------------------------------------------------------------------------------------------

| | 18.
Parent company financial information
| | ----------------------------------------

|CONDENSED STATEMENTS OF INCOME
|------------------------------

|                                                  | Years ended December 31,
|------------------------------------------------- | ------------------------
|
|Interest and dividend income                      |                         
|Expenses:                                         |                         
|Administrative                                    |                         
|Interest                                          |                         
|Other                                             |                         
|                                                 
|Total expenses                                    |                         
|                                                 
|Loss before credit for income taxes and equity in |                         
|undistributed net earnings of subsidiaries        |                         
|Credit for income taxes                           |                         
|                                                 
|Loss before equity in undistributed net           |                         
|earnings of subsidiaries                          |                         
|Equity in undistributed net earnings              |                         
|of subsidiaries                                   |                         
|                                                 
|Net income                                        |                         
|                                                 

|CONDENSED STATEMENTS OF CASH FLOWS
|----------------------------------

|                                                | Years ended December 31,
|----------------------------------------------- | ------------------------
|
|Cash flows from operating activities:           |                         
|Net income                                      |                         
|Adjustments to reconcile net income             |                         
|to net cash used by operating activities:       |                         
|Undistributed net earnings of subsidiaries      |                         
|Increase in other assets                        |                         
|Decrease in accrued liabilities                 |                         
|                                               
|Net cash used by operating activities           |                         
|Cash flows used by investing activities        |                         
|purchases of investment securities available   |                         
|for-sale                                        |                         
|Cash flows from financing activities:           |                         
|Investments in Cascade Finance                  |                         
|Investment in Bank                              |                         
|Cash dividends paid                             |                         
|Dividends from the Bank                         |                         
|Stock options exercised                         |                         
|Repurchases of stock                            |                         
|Decrease (increase) in due from Cascade Finance |                         
|Increase (decrease) in due to the Bank          |                         
|                                               
|Net cash used by financing activities           |                         
|                                               
|Net decrease in cash and cash equivalents       |                         
|Cash and cash equivalents at beginning of year  |                         
|                                               
|Cash and cash equivalents at end of year        |                         
|                                               

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


53
|-----------------------------------------------------------------------------------------------------------------------------

|EXHIBITS
INDEX
|--------------

|3.1 |  | Articles
of Incorporation. As amended, filed as exhibit 3.1 to registrants Form 10-Q report for
the quarter ended June 30, 1997, and incorporated herein by reference.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 |  | Bylaws.
As amended and restated filed with this Form 10-K Annual Report.
|--- |  | ------------------------------------------------------------------------

|10.1 |  | Registrants
1994 Incentive Stock Option Plan. Filed as an exhibit to registrants Registration
Statement on Form 10-SB, filed in January, 1994, and incorporated herein by reference.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 |  | Incentive
Stock Option Plan Letter Agreement. Entered into between registrant and certain employees
pursuant to registrants 1994 Incentive Stock Option Plan. Filed as an exhibit to
registrants Registration Statement on Form 10-SB, filed in January, 1994, and
incorporated herein by reference.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 |  | Material
Contract. Advances, Security and Deposit Agreement, dated November 18, 1991, between Bank
of the Cascades and the Federal Home Loan Bank of Seattle. Filed as Exhibit 10.4 to
registrants Form 10-KSB filed December 31, 1994, and incorporated herein by reference.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 |  | Deferred
Compensation Plans. Established for the Board, certain key executives and managers during
the fourth quarter ended December 31, 1995. Filed as exhibit 10.5 to registrants Form
10-KSB filed December 31, 1995, and incorporated herein by reference.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11.1 |  | Earnings
per Share Computation. The information called for by this item is located on page 45 of
this Form 10-K Annual Report, and is incorporated herein by reference.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21.1 |  | Subsidiaries
of registrant.
|---- |  | ---------------------------

|23.1 |  | Consent
of Symonds, Evans & Company, P.C., Independent Accountants
|---- |  | ------------------------------------------------------------------