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SECURITIES AND EXCHANGE
COMMISSION WASHINGTON, D.C.
20549

______________________FORM
10-K

|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------------

For the fiscal year ended: December
31, 2007

|o |  | TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
|- |  | ----------------------------------------------------------------------------------------------------

For the transition period from
______to ______

Commission file number:
0-23322

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

|**Oregon**                                    | **93-1034484**                 
|--------------------------------------------- | -------------------------------
|(State of Incorporation)                      | (IRS Employer Identification #)
|                                             
|**1100 N.W. Wall Street, Bend,
      Oregon** | **97701**                      
|(Address of principal executive
    offices)  | (Zip Code)                     

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

Securities registered pursuant to
Section 12(b) of the Act:

|**Common Stock, no par
    value** | **The NASDAQ Stock Market,
    LLC**
|---------------------------------- | ------------------------------------
|(Title of Class)                   | (Name of Exchange on Which
  Listed)

Securities registered pursuant to
Section 12(g) of the Act: N/A

Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No x

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Exchange Act. Yes o No x

Indicate by check mark whether the
registrant: (1) has 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 o

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. o

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act (check one):

Large Accelerated Filer o           Accelerated
Filer x          Non-accelerated Filer o Smaller
Reporting Company o

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes o No x

The aggregate market
value of the voting stock held by non-affiliates of the Registrant at June 30,
2007 (the last business day of the most recent second quarter) was $639,223,757
(based on the closing price as quoted on the NASDAQ Capital Market on that
date).

Indicate
the number of shares outstanding of each of the registrants classes of common
stock, as of the latest practicable date. 28,011,699shares of no par value
Common Stock on February 29, 2008.

DOCUMENTS INCORPORATED BY
REFERENCE

Portions
of the registrants definitive Proxy Statement for its 2008 Annual Meeting of
Shareholders of Cascade Bancorp to be held on April 28, 2008 are incorporated by
reference in this Form 10-K in response to Part III, Items 10, 11, 12, 13 and
14.

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|CASCADE BANCORP FORM
      10-KANNUAL REPORT TABLE OF
      CONTENTS
|--------------------------------------------------------------------
|                                                                    
|**PART I**                                                          
|                                                                    
|Item 1.                                                             
|Item
      1A.                                                      
|Item 1B.                                                            
|Item
      2.                                                       
|Item 3.                                                             
|Item
      4.                                                       
|                                                                    
|**PART II**                                                         
|Item
      5.                                                       
|                                                                    
|Item 6.                                                             
|Item
      7.                                                       
|Item 7A.                                                            
|Item 8.                                                             
|Item 9.                                                             
|Item
      9A.                                                      
|Item 9B.                                                            
|                                                                    
|PART III                                                            
|Item 10.                                                            
|Item 11.                                                            
|Item 12.                                                            
|                                                                    
|Item 13.                                                            
|Item 14.                                                            
|                                                                    
|PART IV                                                             
|Item 15.                                                            
|Signatures                                                          

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PART I

ITEM 1. BUSINESS

The
disclosures in this Item are qualified by the Risk Factors set forth in Item 1A
and the Section entitled Contingency Information Concerning Forward-Looking
Statements included in Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations in this report and any other
cautionary statements contained herein.

Cascade Bancorp

**The
Company**

Cascade
Bancorp (Bancorp), is an Oregon chartered Financial Holding Company formed in
1990, headquartered in Bend, Oregon. Bancorp conducts its business activities
through its wholly-owned subsidiary, Bank of the Cascades (the Bank) which
provides a broad range of commercial and retail banking services (collectively,
Bancorp and the Bank are referred to as the Company or Cascade). At December
31, 2007, the Company had total consolidated assets of approximately $2.4
billion, net loans of approximately $2.0 billion and deposits of approximately
$1.7 billion.

**Overview & Business
Strategy**

Cascade
operates in some of the fastest growing markets in the nation. In terms of
banking growth markets, the footprint of Cascades banking franchise ranks as
the top community bank footprint in the Northwest and among the top ten banks in
the nation1.

Management and directors of Cascade
have developed and implemented long-term goals and strategies with the objective
of achieving sustainable, above peer diluted earnings per share (EPS) growth for
its shareholders while progressively serving the banking and financial needs of
its customers and communities. The Companys business strategies include: 1)
operate in and expand into growth markets; 2) strive to recruit and retain the
best relationship bankers in such markets; 3) consistently deliver the highest
levels of customer service, and; 4) apply state-of-the-art technology for the
convenience of customers. Cascades mission statement is to deliver the best in
community banking for the financial well-being of customers and shareholders.

The Company is managed by legal
entity and not lines of business and therefore it presents one principal
operating segment for financial reporting purposes. For more information
regarding the Companys operating segment, see Note 1 to the Companys
consolidated financial statements included under Basis of Presentation and
Summary of Significant Accounting Policies.

The Companys original market was
Central Oregon, whose population has grown in the 96th percentile nationally for
the past decade due largely to in-migration of those seeking the quality of life
offered by the region. The region has natural high-desert beauty, bountiful
recreational and cultural choices, good weather, and premier healthcare
services. The Company has grown with the community to a point of holding a 29%
deposit market share of this historically fast growing market. The combination
of a fast growing economy and powerful market share contributed to sustained
high performance over the past decade. In recent years, management has sought to
augment its banking footprint by expanding into other attractive Oregon markets,
including Northwest and Southwest Oregon. Loans and deposits in these markets
total a combined 34% and 29%, respectively of total Company balances. In April
of 2006, Cascade acquired Farmers and Merchants Bank (F&M) in Boise, Idaho.
F&M held the top community bank deposit market share of 6.9% in Ada County
at that time. At December 31, 2007, this newest market held loans and deposits
of approximately 31% and 28%, respectively of total Company balances. This
expansion furthered the diversification of the Companys banking business into
multiple states and markets.

____________________

|1Projected
      MSA population growth 2005-2010, weighted by bank deposits; Includes all
      public banks with assets $2B - $10B (ex-M&A targets); Source SNL
      Financial LC / ESRI.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3

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The
following table reflects the compounded growth rates the Company has achieved
over the periods indicated, however there can be no assurance as to future
results:

Annual Compound
      Growth
    
    **1 year**
    
    **3 year**
    
    **5 year**Earnings Per Share Growth
    -21.6%
    
    12.2%
    
    12.6%Net
      Income Growth
    -1.8%
    
    23.3%
    
    20.7%Loan Growth
    8.2%
    
    33.4%
    
    32.4%Deposit Growth
    0.3%
    
    25.1%
    
    27.1%


**Key Performance
Indicators**

The
Company has established the following performance goals: 1) consistently achieve
growth in EPS that is above the norm of a group of peer banks; 2) consistently
exceed 15% return on tangible equity; 3) identify and prudently manage credit
and business risk; 4) strive to profitably diversify revenue sources and
markets, and; 5) deliver advanced technology for the benefit of its customers.
In order to achieve these goals, the Company has established key measures that
specify annual and multi-year growth targets for loans and deposits, set
benchmarks for its credit quality and the net interest margin. In addition,
non-financial measurements are set with respect to sales and customer
relationship and retention goals to assist management in directing and
monitoring results. In 2007, as a consequence of the downturn in real estate
markets, the Company incurred elevated credit losses and was subject to the
general slowing of economic growth within its footprint, causing results to fall
short of its key performance targets for the first time in many years. No
assurance can be provided that key performance indicators can be met or exceeded
in the future.

Subsidiaries

**Bank of the
Cascades**

The Bank
is an Oregon State chartered bank, opened for business in 1977 and now operates
34 branches serving communities in Central, Southwest and Northwest Oregon, as
well as in the greater Boise, Idaho area. The Bank offers a broad range of
commercial and retail banking services to its customers. Lending activities
serve small to medium-sized businesses, municipalities and public organizations,
professional and consumer relationships. 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. It originates and services 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, internet banking and electronic bill
payment. In addition, the Bank serves business customer deposit needs with a
suite of cash management services. The Bank also provides investment and trust
related services to its clientele.

With the
sustained increase in population and economy within its Oregon markets, the
Company has enjoyed rapid growth in assets and profitability over the past
decade. More recently, the Company has diversified its geographic footprint by
expanding into growth markets in the greater Boise, Idaho area with its April
2006 acquisition of F&M (see Completed Acquisition of F&M Holding
Company below.)

The principal office of the Bank is
at 1100 N.W. Wall Street, Bend, Oregon 97701, 541-385-6205.

**Cascade Bancorp Statutory
Trusts I, II, III and IV**

Cascade
Bancorp Statutory Trusts I, II, III and IV are wholly-owned subsidiary trusts of
Bancorp formed to facilitate the issuance of pooled trust preferred securities
(trust preferred securities). The trusts were organized in December 2004,
March 2006, and June 2006, respectively, in connection with four offerings of
trust preferred securities. For more information regarding Bancorps issuance of
trust preferred securities, see Note 9 Junior Subordinated Debentures to the
Companys audited consolidated financial statements included in Item 8 of this
report.

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Completed Acquisition of F&M
Holding Company

On April
20, 2006, the Company completed its acquisition of F&M Holding Company
(F&M) of Boise, Idaho and currently operates 12 banking offices in the
area.

Under the
terms of the merger agreement announced December 27, 2005, the stockholders of
F&M received 6,656,249 shares of Company common stock and $22.5 million in
cash, less a holdback of $3.9 million to assure credit performance regarding
certain loans. The assets and liabilities of F&M were recorded on the
Companys consolidated balance sheet at their fair market values as of the
acquisition date. F&Ms results of operations have been included in the
Companys consolidated statement of income since acquisition date. At December
31, 2007, the holdback amount has been reduced to $1.7 million as certain loans
have either paid-off or been upgraded as to credit quality.

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
very strong. Bancorp has no employees other than its executive officers, who are
also employees of the Bank. The Company had 559 full-time equivalent employees
as of December 31, 2007, down from 573 at the prior year-end. This modest
decrease primarily resulted from normal attrition of non-essential staff
positions.

Executive Officers of the
Registrant

The
names, ages as of December 31, 2007, and positions of the current executive
officers of Bancorp are listed below.

Officers Name
    
    
    Age
    
    
    **Position**Patricia Moss
    
    54
    
    President and CEO of Cascade Bancorp since
      1998.CEO of Bank of the Cascades since 1998.Gregory Newton
    
    56
    
    Executive Vice President, Chief Financial Officer andSecretary of Cascade Bancorp and Bank of the Cascadessince
      2002.Michael Delvin
    
    59
    
    Executive Vice President and Chief Operating
      Officerof Cascade Bancorp since 1998 and President and
      ChiefOperating Officer of Bank of the Cascades since
      2004.Peggy
      Biss
    
    49
    
    Executive Vice President, Chief Human Resources Officer
      ofCascade Bancorp and Bank of the Cascades since 2002.


Risk Management

The
Company has risk management policies with respect to identification, assessment,
and management of important business risks. Such risks include, but are not
limited to, credit quality and loan concentration risks, liquidity risk,
interest rate risk, economic and market risk, as well as operating risks such as
compliance, disclosure, internal control, legal and reputation risks.

Credit
risk management objectives include loan policies and underwriting practices
designed to prudently manage credit risk, and monitoring processes to identify
and manage loan portfolio concentrations. Funding policies are designed to
maintain an appropriate volume and mix of core relationship deposits and time
deposit balances to minimize liquidity risk while efficiently funding its loan
and investment activities. In addition, the Company also utilizes borrowings
from reliable counterparties such as the Federal Home Loan Bank (FHLB) and the
Federal Reserve Bank (FRB) to augment its liquidity. The Company also utilizes
brokered deposits as part of its wholesale funding strategies.

The
Company monitors and manages its sensitivity to changing interest rates by
utilizing simulation analysis and scenario modeling and by adopting asset and
liability strategies and tactics to control the volatility of its net interest
income in the event of changes in interest rates. Operating related risks are
managed through implementation of and adherence to a system of internal
controls. Key control processes and procedures are subject to internal and
external testing in the course of internal audit and regulatory compliance
activities and the Company is subject

5

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to the requirements of Sarbanes Oxley
Act of 2002. While the Company believes its risk management strategies and
processes are prudent and appropriate to manage the wide range of risks inherent
in its business, there can be no assurance that such strategies and processes
will detect, contain, eliminate or prevent risks that could result in adverse
financial results in the future.

Competition

Commercial and consumer banking in Oregon and Idaho are highly
competitive businesses. The Bank 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 price competition
for deposits and loans, competition exists with respect to the scope and type of
services offered, customer service levels, convenience, as well as competition
in fees and service charges. Improvements in technology, communications and the
Internet have intensified delivery channel competition. Competitor behavior may
result in heightened competition for banking and financial services and thus
affect future profitability.

The Bank
competes for customers principally through the effectiveness and professionalism
of its bankers and its commitment to customer service. In addition, it competes
by offering attractive financial products and services, and by the convenient
and flexible delivery of those products and services. The Company believes its
community banking philosophy, technology investments 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 and deposit officers have significant experience in their respective
marketplaces. This enables them to maintain close working relationships with
their customers. To compete for larger loans, the Bank may participate loans to
other financial institutions for customers whose borrowing requirements exceed
the Companys lending limits.

Government Policies

The
operations of Bancorps subsidiaries are affected by state and federal
legislative changes and by policies of various regulatory authorities. These
policies include, for example, statutory maximum legal lending rates, domestic
monetary policies of the Board of Governors of the Federal Reserve System,
United States fiscal policy, and capital adequacy and liquidity constraints
imposed by federal and state regulatory agencies.

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. 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. 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. The description set forth below of the significant elements of the laws
and regulations that apply to the Company is qualified in its entirety by
reference to the full statutes, regulations and policies that are
described.

**Bank Holding Company
Regulation**

Bancorp
is a one-bank financial holding company within the meaning of the Bank Holding
Company Act (Act), and as such, is subject to regulation, supervision and
examination by the Federal Reserve Bank (FRB). Bancorp has been designated a
Financial Holding Company as defined in the 1999 Gramm-Leach-Bliley Act (see
description below), and does not expect such designation to have a material
effect on its financial condition or results of operations. Bancorp 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

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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.

**State Regulations Concerning
Cash Dividends**

The
principal source of Bancorps cash revenues have been provided from dividends
received from the Bank. The Oregon banking laws impose certain limitations on
the payment of dividends by Oregon state chartered banks. The amount of the
dividend may not be greater than the Banks unreserved retained earnings,
deducting from that, to the extent not already charged against earnings or
reflected in a reserve, the following: (1) all bad debts, which are debts on
which interest is past due and unpaid for at least six months, unless the debt
is fully secured and in the process of collection; (2) all other assets charged
off as required by the Director of the Department of Consumer and Business
Services or a state or federal examiner; (3) all accrued expenses, interest and
taxes of the institution.

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.

**Federal and State Bank
Regulation**

The Bank
is 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 the Idaho Department of
Finance, respectively, 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 current CRA rating of the Bank is
satisfactory.

The Bank is subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
executive officers, directors, principal shareholders or any related interest of
such persons. Extensions of credit: (1) 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 (2) 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.

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

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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 meets substantially all
the standards that have been adopted.

**Capital Adequacy and Prompt
Corrective Action**

Banks and
bank holding companies are subject to various regulatory capital requirements
administered by state and federal banking agencies. Capital adequacy guidelines
and, additionally for banks, prompt corrective action regulations, involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by regulators about
components, risk weighting and other factors.

The
Federal Reserve Board, the Office of the Comptroller of the Currency (OCC) and
the FDIC have substantially similar risk-based capital ratio and leverage ratio
guidelines for banking organizations. The guidelines are intended to ensure that
banking organizations have adequate capital given the risk levels of assets and
off-balance sheet financial instruments. Under the guidelines, banking
organizations are required to maintain minimum ratios for Tier 1 capital and
total capital to risk-weighted assets (including certain off-balance sheet
items, such as letters of credit). For purposes of calculating the ratios, a
banking organizations assets and some of its specified off-balance sheet
commitments and obligations are assigned to various risk categories. A
depository institutions or holding companys capital, in turn, is classified in
one of three tiers, depending on type:

- Core Capital (Tier
  1).Tier 1 capital
  includes common equity, retained earnings, qualifying non-cumulative perpetual
  preferred stock, a limited amount of qualifying cumulative perpetual stock at
  the holding company level, minority interests in equity accounts of
  consolidated subsidiaries, qualifying trust preferred securities, less
  goodwill, most intangible assets and certain other assets.
- Supplementary Capital (Tier
  2).Tier 2 capital
  includes, among other things, perpetual preferred stock and trust preferred
  securities not meeting the Tier 1 definition, qualifying mandatory convertible
  debt securities, qualifying subordinated debt, and allowances for possible
  loan and lease losses, subject to limitations.
- Market Risk Capital (Tier
  3).Tier 3 capital
  includes qualifying unsecured subordinated debt.

Bancorp,
like other bank holding companies, currently is required to maintain Tier 1
capital and total capital (the sum of Tier 1, Tier 2 and Tier 3 capital) equal
to at least 4.0% and 8.0%, respectively, of its total risk-weighted assets
(including various off-balance-sheet items, such as letters of credit). The
Bank, like other depository institutions, is required to maintain similar
capital levels under capital adequacy guidelines. For a depository institution
to be considered well capitalized under the regulatory framework for prompt
corrective action, its Tier 1 and total capital ratios must be at least 6.0% and
10.0% on a risk-adjusted basis, respectively.

Bank holding companies and banks
subject to the market risk capital guidelines are required to incorporate market
and interest rate risk components into their risk-based capital standards. Under
the market risk capital guidelines, capital is allocated to support the amount
of market risk related to a financial institutions ongoing trading activities.

Bank
holding companies and banks are also required to comply with minimum leverage
ratio requirements. The leverage ratio is the ratio of a banking organizations
Tier 1 capital to its total adjusted quarterly average assets (as defined for
regulatory purposes). The requirements necessitate a minimum leverage ratio of
3.0% for financial holding companies and national banks that either have the
highest supervisory rating or have implemented the appropriate federal
regulatory authoritys risk-adjusted measure for market risk. All other
financial holding companies and national banks are required to maintain a
minimum leverage ratio of 4.0%, unless a different minimum is specified by an
appropriate regulatory authority. For a depository institution to be considered
well capitalized under the regulatory framework for prompt corrective action,
its leverage ratio must be at least 5.0%.

The Federal Deposit Insurance Act,
as amended (FDIA), requires among other things, the federal banking agencies
to take prompt corrective action in respect of depository institutions that do
not meet minimum capital requirements. The FDIA sets forth the following five
capital tiers: well capitalized, adequately capitalized,

8

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undercapitalized, significantly
undercapitalized and critically undercapitalized. A depository institutions
capital tier will depend upon how its capital levels compare with various
relevant capital measures and certain other factors, as established by
regulation. The relevant capital measures are the total capital ratio, the Tier
1 capital ratio and the leverage ratio.

Under the
regulations adopted by the federal regulatory authorities, a bank will be: (i)
well capitalized if the institution has a total risk-based capital ratio of
10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a
leverage ratio of 5.0% or greater, and is not subject to any order or written
directive by any such regulatory authority to meet and maintain a specific
capital level for any capital measure; (ii) adequately capitalized if the
institution has a total risk-based capital ratio of 8.0% or greater, a Tier 1
risk-based capital ratio of 4.0% or greater, and a leverage ratio of 4.0% or
greater and is not well capitalized; (iii) undercapitalized if the
institution has a total risk-based capital ratio that is less than 8.0%, a Tier
1 risk-based capital ratio of less than 4.0% or a leverage ratio of less than
4.0%; (iv) significantly undercapitalized if the institution has a total
risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of
less than 3.0% or a leverage ratio of less than 3.0%; and (v) critically
undercapitalized if the institutions tangible equity is equal or less than
2.0% of average quarterly tangible assets. An institution may be downgraded to,
or deemed to be in, a capital category that is lower than indicated by its
capital ratios if it is determined to be in an unsafe or unsound condition or if
it receives an unsatisfactory examination rating with respect to certain
matters. The Company believes that, as of December 31, 2007, the Bank was well
capitalized, based on the ratios and guidelines described above. A banks
capital category is determined solely for the purpose of applying prompt
corrective action regulations, and the capital category may not constitute an
accurate representation of the banks overall financial condition or prospects
for other purposes.

The FDIA
generally prohibits a depository institution from making any capital
distributions (including payment of a dividend) or paying any management fee to
its parent holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized institutions are subject to growth
limitations and are required to submit a capital restoration plan. The agencies
may not accept such a plan without determining, among other things, that the
plan is based on realistic assumptions and is likely to succeed in restoring the
depository institutions capital. In addition, for a capital restoration plan to
be acceptable, the depository institutions parent holding company must
guarantee that the institution will comply with such capital restoration plan.
The aggregate liability of the parent holding company is limited to the lesser
of (i) an amount equal to 5.0% of the depository institutions total assets at
the time it became undercapitalized and (ii) the amount which is necessary (or
would have been necessary) to bring the institution into compliance with all
capital standards applicable with respect to such institution as of the time it
fails to comply with the plan. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.

Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets, and cessation of receipt of deposits from correspondent
banks. Critically undercapitalized institutions are subject to the appointment
of a receiver or conservator.

At
December 31, 2007, the Companys leverage, Tier 1 capital and total risked-based
capital ratios were 9.90%, 10.02% and 11.27%, respectively.

For
information regarding the capital ratios and leverage ratio of Bancorp and the
Bank see the discussion under the section captioned Liquidity and Sources of
Funds included in Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operation and Note 20  Regulatory Matters in the notes
to consolidated financial statements included in Item 8 Financial Statements and
Supplementary Data, elsewhere in this report.

The
federal regulatory authorities risk-based capital guidelines are based upon the
1988 capital accord of the Basel Committee on Banking Supervision (the BIS).
The BIS is a committee of central banks and bank supervisors/regulators from the
major industrialized countries that develops broad policy guidelines for use by
each countrys supervisors in determining the supervisory policies they apply.
In 2004, the BIS published a new capital accord to replace its 1988 capital
accord (BIS II). BIS II provides two approaches for setting capital standards
for credit risk  an internal ratings-based approach tailored to individual
institutions circumstances and a standardized approach that bases risk
weightings on external credit assessments to a much greater extent than
permitted in existing risk-based capital guidelines. BIS II also would set
capital requirements for operational risk and refine the existing capital
requirements for market risk exposures.

9

---

The U.S.
banking and thrift agencies are developing proposed revisions to their existing
capital adequacy regulations and standards based on BIS II. In November 2007,
the agencies adopted a definitive final rule for implementing BIS II in the
United States that would apply only to internationally active banking
organizations, or core banks  defined as those with consolidated total assets
of $250 billion or more or consolidated on-balance sheet foreign exposures of
$10 billion or more. The final rule will be effective as of April 1, 2008. Other
U.S. banking organizations may elect to adopt the requirements of this rule (if
they meet applicable qualification requirements), but they will not be required
to apply them. The rule also allows a banking organizations primary federal
supervisor to determine that the application of the rule would not be
appropriate in light of the banks asset size, level of complexity, risk
profile, or scope of operations. This new proposal, which is intended to be
finalized before the core banks may start their first transition period year
under BIS II, will replace the agencies earlier proposed amendments to existing
risk-based capital guidelines to make them more risk sensitive (formerly
referred to as the BIS I-A approach).

The
Company is not required to comply with BIS II. The Company has not made a
determination as to whether it will elect to apply the BIS II requirements when
they become effective.

**Deposit Insurance**

Substantially all of the deposits of the Bank are insured up to
applicable limits by the Deposit Insurance Fund (DIF) of the FDIC and are
subject to deposit insurance assessments to maintain the DIF. The FDIC utilizes
a risk-based assessment system that imposes insurance premiums based upon a risk
matrix that takes into account a banks capital level and supervisory rating
(CAMELS rating). As of January 1, 2007, the previous nine risk categories
utilized in the risk matrix were condensed into four risk categories which
continue to be distinguished by capital levels and supervisory ratings. For
large, Risk Category 1 institutions (generally those with assets in excess of
$10 billion) that have long-term debt issuer ratings assessment rates are
determined from weighted-average CAMELS component ratings and long-term debt
issuer ratings. The minimum annualized assessment rate for large institutions is
5 basis points per $100 of deposits and the maximum annualized assessment rate
is 7 basis points per $100 of deposits. Quarterly assessment rates for large
institutions in Risk Category 1 may vary within this range depending upon
changes in CAMELS component ratings and long-term debt issuer ratings.

Under the
Federal Deposit Insurance Reform Act of 2005, which became law in 2006, the Bank
received a onetime assessment credit of $.3 million. This credit was utilized to
partially offset $1.1 million of assessments during 2007. This credit was not
available to offset Financing Corporation (FICO) assessments. DIF-insured
institutions are required to pay a FICO assessment, in order to fund the
interest on bonds issued to resolve thrift failures in the 1980s. The assessment
rate for the fourth quarter of 2007 was 0.0125% of insured deposits and is
adjusted quarterly. These assessments, which may be revised based upon the level
of DIF deposits, will continue until the FICO bonds mature in the years 2017
through 2019. The Banks FICO assessment expense for 2007 was approximately
$200,000, and management expects the 2008 expense to be comparable to
2007.

**USA Patriot Act**

Under the
USA Patriot Act of 2001, adopted by the U.S. Congress on October 26, 2001, FDIC
insured banks and commercial banks were required to increase their due diligence
efforts for correspondent accounts and private banking customers. The USA
Patriot Act requires the Bank to engage in additional record keeping or
reporting, requiring identification of owners of accounts, or of the customers
of foreign banks with accounts, and restricts or prohibits certain correspondent
accounts.

**Office of Foreign Assets Control Regulation**

The
United States has imposed economic sanctions that affect transactions with
designated foreign countries, nationals and others. These are typically known as
the OFAC rules based on their administration by the U.S. Treasury Department
Office of Foreign Assets Control (OFAC). The OFAC-administered sanctions
targeting countries take many different forms. Generally, however, they contain
one or more of the following elements: (i) restrictions on trade with or
investment in a sanctioned country, including prohibitions against direct or
indirect imports from and exports to a sanctioned country and prohibitions on
U.S. persons engaging in financial transactions relating to making investments
in, or providing investment-related advice or assistance to, a sanctioned
country; and (ii) blocking of assets in which the government or specially
designated nationals of the sanctioned country have an interest, by prohibiting
transfers of property subject to U.S. jurisdiction (including property in the
possession or control of U.S. persons). Blocked assets (e.g., property and bank
deposits) cannot be paid out, withdrawn, set off or transferred in any manner
without a license from OFAC. Failure to comply with these sanctions could have
serious legal and reputational consequences.

10

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**Interstate Banking
Legislation**

Under the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(Riegle-Neal Act), as amended, a bank holding company may acquire banks in
states other than its home state, subject to certain limitations. The
Riegle-Neal Act also authorizes banks to merge across state lines, thereby
creating interstate branches. Banks are also permitted to acquire and to
establish de novo branches in other states where authorized under the laws of
those states.

**Available
Information**

Bancorps
filings with the Securities and Exchange Commission (SEC), including its
annual report on Form 10-K, quarterly reports on Form 10-Q, periodic reports on
Form 8-K and amendments to these reports, are accessible free of charge at our
website at http://www.botc.com as soon as reasonably practicable after filing
with the SEC. By making this reference to our website, Bancorp does not intend
to incorporate into this report any information contained in the website. The
website should not be considered part of this report.

The SEC
maintains a website at http://www.sec.gov that contains reports, proxy and
information statements, and other information regarding issuers including
Bancorp that file electronically with the SEC.

ITEM 1A. RISK FACTORS

There are
a number of risks and uncertainties, many of which are beyond the Companys
control that could have a material adverse impact on the Companys financial
condition or results of operations. The Company describes below the most
significant of these risks and uncertainties. These should not be viewed as an
all inclusive list or in any particular order. Additional risks that are not
currently considered material may also have an adverse effect on the Company.
This report is qualified in its entirety by these risk factors.

Before
making an investment decision you should carefully consider the specific risks
detailed in this section and other risks facing the Company including, among
others, those certain risks, uncertainties and assumptions identified herein by
management that are difficult to predict and that could materially affect the
Companys financial condition and results of operations and other risks
described in this Form 10-K, the information in Part I, Item 1 Business, Part
II, Item 7 Managements Discussion and Analysis of Financial Condition and
Results of Operations and the Companys cautionary statements as to
Forward-Looking Statements contained therein.

Adverse changes in economic growth and vitality in the Companys banking
markets may negatively impact the Company.

The
Companys business is closely tied to the economies of Idaho and Oregon in
general and is particularly affected by the economies of Central, Southern and
Northwest Oregon, as well as the Greater Boise, Idaho area. A sustained economic
downturn could effect these local economies, resulting in an adverse affect on
the Companys financial condition or results of operations.

The
Company has a concentration in real estate lending. A sustained downturn in real
estate within the Companys markets could negatively impact the Company.

Many of
the Companys loans are secured by real estate located in Oregon and Idaho.
Declining real estate values and fluctuating interest rates may result in
customers inability to repay loans. See Loans  Real Estate Loan
Concentration In Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations. These trends may continue and may result
in losses that exceed the estimates that are currently included in the reserve
for credit losses, which could adversely affect the Companys financial
conditions and results of operations.

**The Companys reserve for
credit losses may not be adequate to cover actual loan losses.**

The risk
of nonpayment of loans is inherent in all lending activities, and nonpayment, if
it occurs, may have an adverse effect on the Companys financial condition or
results of operation. The Company maintains a reserve for credit losses to
absorb estimated probable loan losses inherent in the loan and commitment
portfolios as of the balance sheet date. In determining the level of the
reserve, management makes various assumptions and judgments about the loan
portfolio. If the Companys assumptions are incorrect, the reserve for credit
losses may not be sufficient to cover losses, which could adversely affect the
Companys financial condition or results of operations. The Company establishes
its level of reserve for credit losses as a result of managements continued
evaluation of specific credit risks, loan loss experience, quality of the
current loan portfolio, loan concentration, economic conditions, regulations,

11

---

political climate, new information
about borrowers, additional problem loans and other factors. See section Loans
 Loan Portfolio Composition in Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations for detailed description of loan
portfolio to which the reserve for credit losses applies.

**Changes in interest rates
could adversely impact the Company.**

The
Companys earnings are highly dependent on the difference between the interest
earned on loans and investments and the interest paid on deposits and
borrowings. Changes in market interest rates impact the rates earned on loans
and investment securities and the rates paid on deposits and borrowings. In
addition, changes to the market interest rates may impact the level of loans,
deposits and investments, and the credit quality of existing loans. These rates
may be affected by many factors beyond the Companys control, including general
and economic conditions and the monetary and fiscal policies of various
governmental and regulatory authorities. Changes in interest rates may
negatively impact the Companys ability to attract deposits, make loans and
achieve satisfactory interest rate spreads, which could adversely affect the
Companys financial condition or results of operations.

**The Company is subject to
extensive regulation.**

The
Companys operations are subject to extensive regulation by federal and state
banking authorities which impose requirements and restrictions on the Companys
operations. The regulations affect the Companys investment practices, lending
activities, and dividend policy, among other things. Changes to laws and
regulations or other actions by regulatory agencies could, among other things,
make regulatory compliance more difficult or expensive for the Company, could
limit the products the Company can offer or increase the ability of non banks to
compete and could adversely affect the Company in significant but unpredictable
ways which in turn could have a material adverse effect on the Companys
financial condition or results of operations. Failure to comply with the laws or
regulations could result in fines, penalties, sanctions and damage to the
Companys reputation which could have an adverse effect on the Companys
business and financial results.

**Competition may adversely
affect the Company.**

The
Company faces competition for its services from a variety of competitors. The
Companys future growth and success depends on its ability to compete
effectively. The Company competes for deposits, loans and other financial
services with numerous financial service providers including banks, thrifts,
credit unions, mortgage companies, broker dealers, and insurance companies. To
the extent these competitors have less regulatory constraints, lower cost
structures, or increased economies of scales they may be able to offer a greater
variety of products and services or more favorable pricing for such products and
services. As a result, the Companys competitive position could be weakened,
which could adversely affect the Companys financial condition and results of
operations.

**Our information systems may
experience an interruption or breach in security.**

The
Company relies on its computer information systems in the conduct of its
business. The Company has policies and procedures in place to protect against
and reduce the occurrences of failures, interruptions, or breaches of security
of these systems, however, there can be no assurance that these policies and
procedures will eliminate the occurrence of failures, interruptions or breaches
of security or that they will adequately restore or minimize any such events.
The occurrence of a failure, interruption or breach of security of the Companys
computer information systems could result in a loss of information, business or
regulatory scrutiny, or other events, any of which could have a material adverse
effect on the Companys financial condition or results of operations.

**We continually encounter
technological change.**

Frequent
introductions of new technology-driven products and services in the financial
services industry result in the need for rapid technological change. In
addition, the effective use of technology may result in improved customer
service and reduced costs. The Companys future success depends, to a certain
extent, on its ability to identify the needs of our customers and address those
needs by using technology to provide the desired products and services and to
create additional efficiencies in its operations. Certain competitors may have
substantially greater resources to invest in technological improvements. We may
not be able to successfully implement new technology-driven products and
services or to effectively market these products and services to our customers.
Failure to implement the necessary technological changes could have a material
adverse impact on our business and, in turn, our financial condition and results
of operations.

12

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**The Companys controls and
procedures may fail or be circumvented.**

Management regularly reviews and updates the Companys internal controls,
disclosure controls and procedures, and corporate governance policies and
procedures. Any system of controls, however well designed and operated, is based
in part on certain assumptions and can provide only reasonable, not absolute,
assurances that the objectives of the system are met. Any failure or
circumvention of the Corporations controls and procedures or failure to comply
with regulations related to controls and procedures could have a material
adverse effect on the Companys business, results of operations and financial
condition. See Item 9A Controls and Procedures.

**Bancorp relies on dividends
from the Bank.**

Bancorp
is a separate legal entity from the Bank and substantially all of Bancorps
revenues are derived from Bank dividends. These dividends may be limited by
certain federal and state laws and regulations. In addition, any distribution of
assets of the Bank upon a liquidation or reorganization would be subject to the
prior liens of the Banks creditor. If the Bank is unable to pay dividends to
Bancorp, Bancorp may not be able to pay dividends on its stock or pay interest
on its debt, which would have a material adverse effect on the Companys
financial condition and results of operations.

**The Company may not be able
to attract or retain key banking employees.**

The
Company strives to attract and retain key banking professionals, management and
staff. Competition to attract the best professionals in the industry can be
intense which will limit the Companys ability to hire new professionals.
Banking related revenues and net income could be adversely affected in the event
of the unexpected loss of key personnel. The Company has employment agreements
with certain key executive officers.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

At
December 31, 2007, the Company conducted full-service community banking through
34 branches, including eleven in Central Oregon, four in the Salem/Keizer area,
five in Southern Oregon, one office in Portland, and 13 branches serving the
Boise, Idaho/Treasure Valley market.

In
Oregon, three branch buildings are owned and are situated on leased land. The
Bank owns the land and buildings at seven branch locations. The Bank leases the
land and buildings at eleven branch locations. In addition, the Bank leases
space for the Operations and Information Systems departments located in Bend.
All leases include multiple renewal options.

In Idaho,
Cascade owns the land and buildings at 10 branch locations and leases the land
and building at three branch locations. A 13thbranch opened in Eagle, Idaho in
January 2008, in which the land and building are owned.

Cascades main office is located at
1100 NW Wall Street, Bend, Oregon, and consists of approximately 15,000 square
feet (sq. ft.). 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. The current rent is $6,084 per month
with adjustments every five years by mutual agreement of landlord and tenant.
The main bank branch occupies the ground floor. Human Resources and Executive
Offices occupy approximately 8,400 square feet. A separate drive-up facility is
also located on this site, which also houses the Finance and Marketing
departments.

In 2004,
the Bank purchased the Boyd Building with 26,035 square feet in downtown Bend.
This building is now occupied by Credit Services, Mortgage Division and
Trust/Private Financial Services. Including Bank use, the space is near full
occupancy.

The Bank
sold the Cascade Building in the Old Mill district of Bend in early 2007, to the
partners in the construction at a cost-plus price basis that was agreed upon
earlier. The Bank leased back 2,000 sq. ft. for its Old Mill banking
branch.

In the
opinion of management, all of the Banks properties are adequately insured, its
facilities are in good condition and together with any anticipated improvements
and additions, are adequate to meet it operating needs for the foreseeable
future.

13

---

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 does not expect the ultimate disposition
of these matters to have a material adverse effect on the business or financial
position of the Company.

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

No matters were submitted to a vote
of shareholders during the fourth quarter of 2007.

PART II

|**ITEM
      5.** |  | **MARKET FOR REGISTRANTS
      COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
      EQUITY SECURITIES**
|----------------- |  | -------------------------------------------------------------------------------------------------------------------------------

Cascade
Bancorp common stock trades on the NASDAQ Capital Market under the symbol
CACB. The high and low sales prices and cash dividends shown below are
retroactively adjusted for stock dividends and splits and are based on actual
trade statistical information provided by the Nasdaq Capital Market for the
periods indicated. Prices do not include retail mark-ups, mark-downs or
commissions:

First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter2007High
    
    $31.00
    
    $25.50
    
    $24.85
    
    $23.90Low
    
    $24.68
    
    $21.43
    
    $21.41
    
    $13.922006High
    
    $23.82
    
    $23.72
    
    $30.40
    
    $31.49Low
    
    $18.49
    
    $21.21
    
    $22.02
    
    $27.89


The
Company declared a 25% (5:4) stock split in October 2006. The Company announced
a policy of declaring regular quarterly cash dividends in 1997. However, there
can be no assurance as to future dividends because they are dependent on the
Companys future earnings, capital requirements and financial condition. The
dividends declared and paid listed below have been retroactively adjusted for
past stock dividends and stock splits.

First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth QuarterPer Share
    
    Per Share
    
    Per Share
    
    Per Share2008
    
    $0.10
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A2007
    
    $0.09
    
    
    $0.09
    
    
    
    $0.09
    
    
    
    $0.102006
    
    $0.07
    
    
    $0.07
    
    
    
    $0.07
    
    
    
    $0.09


At
February 29, 2008, the Company had 35,000,000 shares of common stock authorized
with 28,011,699 shares issued and outstanding, held by approximately 8,100
shareholders of record.

The
following table sets forth Information regarding securities authorized for
issuance under the Companys equity plans as of December 31, 2007. Additional
information regarding the Companys equity plans is presented in Note 18 of theNotes to Consolidated Financial
Statementsincluded in Item 8 of this
report.

|                                       |  |                             |         |                     |  | #
      of securities remaining
|-------------------------------------- |  | --------------------------- | ------- | ------------------- |  | -------------------------------
|                                       |  |                             |         |                     |  | available for future           
|                                       |  | #
      of securities to be |         | Weighted average    |  | issuance under plan            
|                                       |  | issued on exercise of       |         | exercise price of   |  | (excluding securities in       
|                                       |  | outstanding options         |         | outstanding options |  | column (a)                     
|Plan Category                          |  | (a)                         |         | (b)                 |  | (c)                            
|Equity compensation plans              |  |                             |         |                     |  |                                
|approved by security holders           |  |                             | 751,088 |                     |  |                                
|                                       | 
|Equity compensations plans             |  |                             |         |                     |  |                                
|not
      approved by security holders |  |                             | None    |                     |  |                                
|Total                                  |  |                             | 751,088 |                     |  |                                

14

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On August
13, 2007, the Board of Directors authorized the Company to purchase up to five
percent (5%) of the Companys issued outstanding common shares. Purchases are to
occur at managements discretion over a two-year period. The following table
provides information with respect to purchases made by or on behalf of the
Company during the fourth quarter ended December 31, 2007:

|                         |  |                  |         |                     |  |                  |  | Maximum Number      
|------------------------ |  | ---------------- | ------- | ------------------- |  | ---------------- |  | --------------------
|                         |  |                  |         |                     |  | Total Number of  |  | of
      Shares That
|                         |  |                  |         |                     |  | Shares           |  | May Yet Be          
|                         |  |                  |         |                     |  | Purchased as     |  | Purchased Under     
|                         |  | Total Number of  |         | Average
      Price |  | Part of Publicly |  | the Plan at the End 
|Period                   |  | Shares Purchased |         | Paid per Share      |  | Announced Plan   |  | of the Period       
|10/1/07 - 10/31/07       |  |                  | 283,700 |                     |  | $19.81           |  |                     
|11/1/07 -
      11/30/07 |  |                  | 104,100 |                     |  | $17.16           |  |                     
|12/1/07 - 12/31/07       |  |                  | 41,400  |                     |  | $15.91           |  |                     
|Total                    |  |                  | 429,200 |                     |  |                  |  |                     

Five-Year Stock Performance Graph

The graph
below compares theyearly percentage change in
the cumulative shareholder return on the Companyscommon stock during the five years
ended December 31, 2007with: (i) the Total
Return Index for the NASDAQ Stock Market (U.S. Companies) as reported by the
Center for Research in Securities Prices and (ii) the Total Return Index for
NASDAQ Bank Stocks as reported by the Center for Research in Securities Prices.
This comparison assumes $100.00 was invested on December 31, 2002, in the
Companys common stock and the comparison groups and assumes the reinvestment of
all cash dividends prior to any tax effect and adjusted to give retroactive
effect to material changes resulting from stock dividends and splits.



|                                 |  | PeriodEnding
|-------------------------------- |  | ------------
|Index                            |  | 12/31/02    
|Cascade Bancorp                  |  | 100.00      
|NASDAQ
      Composite           |  | 100.00      
|SNL Bank NASDAQ Index            |  | 100.00      
|Northwest
      Community Banks* |  | 100.00      

*Northwest Community Banks consists
of publicly traded commercial banks, excluding Cascade Bancorp,
headquartered in Oregon and Washington with total assets between $700
million and $3 billion in 2007.

15

---

ITEM 6. SELECTED FINANCIAL
DATA

The
following consolidated selected financial data is derived from the Companys
audited consolidated financial statements as of and for the five years ended
December 31, 2007. The following consolidated financial data should be read in
conjunction with Managements Discussion and Analysis of Financial Condition and
Results of Operations and the Consolidated Financial Statements and related
notes included elsewhere in this report. All of the Companys acquisitions
during the five years ended December 31, 2007 were accounted for using the
purchase method. Accordingly, the operating results of the acquired companies
are included with the Companys results of operations since their respective
dates of acquisition.

Dollars in thousands, except per
share data and ratios; unaudited

|                                                    |  | Years ended December 31,
|--------------------------------------------------- |  | ------------------------
|                                                    |  | 2007                    
|Balance Sheet Data (at period end)                  |  |                         
|Investment securities                               |  |                         
|Loans, gross                                        |  |                         
|Total assets                                        |  |                         
|Total deposits                                      |  |                         
|Non-interest
      bearing deposits                 |  |                         
|Customer
      relationship deposits (1)            |  |                         
|Total shareholders equity (book) (2)               |  |                         
|Total shareholders equity (tangible) (2)           |  |                         
|Income
      Statement Data                         |  |                         
|Interest income                                     |  |                         
|Interest expense                                    |  |                         
|Net
      interest income                           |  |                         
|Provision for loan losses and commitments           |  |                         
|Net
      interest income after loan loss provision |  |                         
|Noninterest income                                  |  |                         
|Noninterest expense                                 |  |                         
|Income before income taxes                          |  |                         
|Provision for income taxes                          |  |                         
|Net income                                          |  |                         
|Share Data (2)                                      |  |                         
|Basic earnings per common share                     |  |                         
|Diluted earnings
      per common share             |  |                         
|Book value per common share                         |  |                         
|Tangible book value per common share                |  |                         
|Cash dividends declared per common share            |  |                         
|Ratio of dividends declared to net income           |  |                         
|Basic Average shares outstanding                    |  |                         
|Fully Diluted average shares outstanding            |  |                         

____________________Notes:

|(1) |  | Customer relationship
      deposits include core deposit transaction accounts such as checking, money
      market and savings, while excluding all wholesale or brokered deposits and
      time deposits greater than $100,000.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Adjusted to reflect
      25% (5:4) stock splits declared in March 2004 and October
  2006.                                                                                                                                       

16

---

Dollars in thousands, except per
share data and ratios; unaudited

|                                                          |  | Years ended December 31,
|--------------------------------------------------------- |  | ------------------------
|                                                          |  | 2007                    
|Key Ratios                                                |  |                         
|Return on average total shareholders equity
      (book) |  |                         
|Return on average total shareholders                     |  |                         
|equity
      (tangible) (1)                               |  |                         
|Return on average total assets                            |  |                         
|Net
      interest spread                                 |  |                         
|Net interest margin                                       |  |                         
|Total revenue (net int inc + non int inc)                 |  |                         
|Efficiency ratio (2)                                      |  |                         
|Asset Quality Ratios                                      |  |                         
|Reserve for credit losses                                 |  |                         
|Reserve for credit losses to ending loans                 |  |                         
|Non-performing assets (3)                                 |  |                         
|Non-performing
      assets to total loans                |  |                         
|Delinquent >30 days to total loans                        |  |                         
|Net
      Charge offs                                    |  |                         
|Net loan charge-offs (annualized)                         |  |                         
|Mortgage Activity                                         |  |                         
|Mortgage Originations                                     |  |                         
|Total Servicing
      Portfolio (sold loans)              |  |                         
|Capitalized Mortgage Servicing Rights (MSRs)             |  |                         
|Capital Ratios                                            |  |                         
|Average shareholders equity to average assets            |  |                         
|Leverage ratio (4)                                        |  |                         
|Total risk-based capital ratio (4)                        |  |                         



|(1) |  | Excludes goodwill, core deposit
      intangible and other identifiable intangible assets, related to
      acquisitions of Community Bank of Grants Pass and F&M Holding
      Company.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Efficiency ratio is noninterest
      expense divided by (net interest income + noninterest
income).                                                                                    
|   
|(3) |  | Nonperforming assets consist of
      loans contractually past due 90 days or more, nonaccrual loans and other
      real estate owned.                                                 
|   
|(4) |  | Computed in accordance with FRB
      and FDIC guidelines.                                                                                                                              

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

This
discussion highlights key information as determined by management but may not
contain all of the information that is important to you. For a more complete
understanding, the following should be read in conjunction with the Companys
audited consolidated financial statements and the notes thereto as of December
31, 2007 and 2006 and for each of the years in the three-year period ended
December 31, 2007 included elsewhere in this report.

Cautionary Information Concerning
Forward-Looking Statements

This
annual report on Form 10-K contains forward-looking statements, which are not
historical facts and pertain to our future operating results. These statements
include, but are not limited to, our plans, objectives, expectations and
intentions and are not statements of historical fact. When used in this report,
the word expects, believes, anticipates, could, may, will, should,
plan, predicts, expects, projections, potential, continue and other
similar expressions constitute forward-looking statements, as do any other
statements that expressly or implicitly predict future events, results or
performance, and such statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Certain risks and
uncertainties could cause actual results to differ materially from those
expressed or implied forward-looking statements, including, among others, the
risk factors described in this report as well as general business and economic
conditions, including the residential and commercial real estate markets;
changes in interest rates including timing or relative degree of change;
competition

17

---

in the industry; changes in regulatory
conditions or requirements or new legislation; and changes in accounting
policies. In addition, these forward-looking statements are subject to
assumptions with respect to future business conditions, strategies and
decisions, and such assumptions are subject to change.

Results
may differ materially from the results discussed due to changes in business and
economic conditions that negatively affect credit quality, which may be
exacerbated by our concentration of operations in the States of Oregon and Idaho
generally, including the Oregon communities of Central Oregon, Northwest Oregon,
Southern Oregon, and the greater Boise area, specifically. Likewise, competition
or changes in interest rates could negatively affect the net interest margin, as
could 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 or updated forward-looking statements to reflect
the occurrence of unanticipated events or circumstances after the date hereof.
Readers should carefully review all disclosures filed by the Company from time
to time with the SEC.

Critical Accounting Policies

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

*Reserve for Credit Losses:*Arriving at an appropriate level of reserve
for credit losses (reserve for loan losses and loan commitments) involves a high
degree of judgment and assessment of multiple variables that result in
relatively complex calculations and analysis. The Companys reserve for credit
losses provides for probable losses based upon evaluations of known and inherent
risks in the loan portfolio. Management uses historical information to assess
the adequacy of the reserve for credit losses and considers factors with respect
to the prevailing business environment. The reserve may be affected by changing
economic conditions and various external factors, which may impact the portfolio
in ways currently unforeseen. The reserve is increased by provisions for loan
losses and by recoveries of loans previously charged-off and reduced by loans
charged-off. For a full discussion of the Companys methodology of assessing the
adequacy of the reserve for credit losses. See Reserve for Credit Losses later
in this report.

Mortgage Servicing Rights (MSRs):Determination of the fair value of MSRs requires the estimation of
multiple interdependent variables, the most impactful of which is mortgage
prepayment speeds. Prepayment speeds are estimates of the pace and magnitude of
future mortgage payoff or refinance behavior of customers whose loans are
serviced by the Company. Errors in estimation of prepayment speeds or other key
servicing variables could subject MSRs to impairment risk. On a quarterly basis,
the Company engages a qualified third party to provide an estimate of the fair
value of MSRs using a discounted cash flow model with assumptions and estimates
based upon observable market-based data and methodology common to the mortgage
servicing market. Management believes it applies reasonable assumptions under
the circumstances, however, because of possible volatility in the market price
of MSRs, and the vagaries of any relatively illiquid market, there can be no
assurance that risk management and existing accounting practices will result in
the avoidance of possible impairment charges in future periods. See also
Non-Interest Income later in this item, Note 6 of the Consolidated Financial
Statements included elsewhere in this report.

Highlights and Summary of
Performance Q4 and Full Year 2007
Financial Performance

- Earnings Per Share and Net Income Full Year
  2007:at $1.05 per share with net income of
  $30.0 million compared to $1.34 per share and
  $35.7 million net income in 2006.
- Earnings Per Share and Net Income Fourth
  Quarter 2007:at $0.01 per share and net
  income of $.3 million compared to $0.36 per
  share and $10.2 million, respectively for the year ago
  quarter.
- Loan Growth:up 6.5% year-over-year and seasonally flat on a linked-quarter
  basis.
- Customer Relationship Deposits:up 7.2% year-over-year, down 2.9% on a
  linked-quarter basis.
- Net Interest Margin:decreased to 4.94% vs. 5.54% for the prior year quarter and
  5.24% in the linked- quarter.
- Fourth Quarter Credit Quality Metrics:The Company incurred an elevated provision for
  loan losses of $15.6 million and net
  charge-offs of $6.5 million for the fourth quarter with non-performing assets
  at $55.7 million at December 31,
  2007.

18

---

The
Company reported 2007 full year diluted earnings per share (EPS-diluted) at
$1.05 per share down 21.6% as compared to 2006 with net income at $30.0 million
versus $35.7 million for 2006. The fourth quarter included a $15.6 million
(pre-tax) provision for loan losses to increase the Companys level of credit
reserves primarily related to deterioration within its residential land
development loan portfolio. Of this amount, $1.7 million was to increase the
unallocated portion of the reserve for credit losses to approximately 10% of the
total reserves. This action is taken in recognition of the elevated level of
uncertainty as to the severity of the real estate downturn and its related
effects on loan credit quality. These actions resulted in a full year 2007
provision for loan losses of $19.4 million versus $6.0 million in 2006. Fourth
quarter 2007 earnings were $0.01 per share on $.3 million of net income,
compared to $0.36 per share and $10.2 million for the year ago quarter and as
compared to $0.35 for the linked-quarter. Fourth quarter net-charge-offs were
approximately $6.5 million, a majority of which were against loans affected by
the real estate downturn.

With the elevated provision for loan
losses in the fourth quarter, return on equity was 0.36% for that period and
10.92% for the full year of 2007. Return on tangible equity was 0.61% for the
fourth quarter and 18.83% for the full year, while return on assets was 0.04%
for the fourth quarter and 1.28% for the full year.

**Loan growth and credit
quality**

At
December 31, 2007, Cascades loan portfolio had grown to $2.04 billion, up 8.2%
compared to a year ago. However, due to the general effects of the downturn in
the real estate market coupled with seasonal slowing in the pace of construction
and real estate activity during the fourth quarter, loan volumes were
essentially flat when compared to the linked quarter. See Loans  Loan
Portfolio Comparison below.

Cascade
recorded an elevated level of fourth quarter loan loss provision at $15.6
million, which brought the full year provision to $19.4 million. Net loan
charge-offs were $6.5 million or 1.27% (annualized) of total loans for the
quarter compared to 0.31% (annualized) for the linked-quarter. Non-performing
assets (NPAs) were $55.7 million as of December 31, 2007, or 2.73% of total
loans compared to $21.5 million or 1.05% of total loans for the linked-quarter.
Of this NPA balance, assets classified as other real estate owned totaled $9.8
million. Current NPAs are primarily comprised of residential land development
and construction related credits in the Boise, Idaho and Southern Oregon
markets.

The
reserve for credit losses totaled 1.81% of loans at year end, compared to 1.42%
a year earlier and 1.37% for the linked-quarter. The 2007 increase in reserve
for credit losses and the elevated level of NPAs recognized by the Company were
mainly due to heightened credit risk in its residential land development
portfolio. The nationwide downturn in real estate has slowed lot and home sales
within the Companys markets. This has impacted certain developers by
lengthening the marketing period of their projects and negatively affecting
borrower liquidity and collateral values. See Loans  Real Estate Loan
Concentration Below.

Management believes reserves are at an appropriate level based upon its
current evaluation and analysis of portfolio credit quality and prevailing
economic conditions. With uncertainty as to the depth and duration of the real
estate slowdown and its economic effect on the communities within Cascades
banking markets, no assurance can be given that the reserve will be adequate in
future periods. If the real estate economy continues to deteriorate, an elevated
level of loan loss provisioning may be required in the future. See Loan Loss
Provision below.

**Deposit
growth**

At
December 31, 2007, customer relationship deposits2were up 7.2% compared to a year
ago but decreased 2.9% on a linked-quarter basis. This decline in part reflects
the end of the peak summer and fall tourism and construction season wherein
deposit balances typically ease through the winter quarter. However, management
also believes a general slowing in real estate activity has contributed to this
trend, as deposits in real estate related business accounts show a reduction in
average and end of period balances as compared to the prior year and quarter.
This is particularly evident in a decline in non-interest bearing deposits where
customer retention was strong, but average balances fell $31.2 million or 6.5%
between the third and fourth quarters of 2007. The declines were largely in
Central Oregon where the Company has 29% deposit market share. Total deposits at
December 31, 2007 were $1.7 billion, up 0.3%

____________________

|2 |  | Customer
      relationship deposits include core deposit transaction accounts such as
      checking, money market and savings, while excluding all wholesale or
      brokered deposits and time deposits greater than $100,000.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19

---

compared to a year ago and down 7.0% on
a linked-quarter basis, as brokered deposits declined $48.3 million during the
quarter. The fourth quarter decline in non-core deposits were mainly because
management tactically replaced higher cost brokered deposits with lower cost
borrowings. See Deposit Liabilities and Time Deposit Maturities.

**Non-interest income and
expense**

Non-interest income for 2007 was $21.1 million, 16.4% above the prior
year, including service fee income which was at $9.7 million, up 20.2% from the
prior year mainly because of increased activity and attendant full year effect
of additional volumes from the April 2006 acquisition of the F&M bank in
Boise, Idaho. For the full year 2007, residential mortgage originations totaled
$170.1 million, down 3.2% when compared to $176.6 million in 2006. Related net
mortgage revenue was $2.7 million, a decrease 0.1% compared to $3.0 million for
the previous year. Fourth quarter net mortgage revenue was $.7 million, slightly
less than the third quarter of $.8 million. Note that delinquency rate within
Cascades nearly $500 million portfolio of serviced residential mortgage loans
remains substantially better than national norms at only 0.19% in Oregon and
0.42% in Idaho.

Non-interest expense for the year increased 18.0% compared to 2006 and
fourth quarter expenses were 4.5% above the year ago quarter. The year-over-year
increase was primarily due to higher human resources costs in support of
Cascades ongoing growth and infrastructure investments. Importantly, the
Company successfully converted to a more robust core information technology
system during the fourth quarter of 2007, providing an enhanced platform to
support growth in the years ahead. As the Company adjusts to a lower level of
real estate related business activity, management anticipates a very modest
increase in non interest expense for 2008. See Non-Interest Income / Net
Interest Margin below.

RESULTS OF OPERATIONS -Years ended December 31, 2007, 2006,
and 2005

Income Statement
Overview

**Net
Income**

Net
income for 2007 decreased $5.7 million, or 16.0% compared to 2006. The decrease
was primarily due to a year over year increase in loan loss provision of $13.4
million. For the year, net interest income increased $10.2 million or 10.4% and
non-interest income was higher by $3.0 million or 16.4%. Non-interest expense
increased $9.5 million or 18.0% for the year primarily due to higher human
resources costs in support of Cascades ongoing growth and infrastructure
investments. In addition, tax expense decreased 18.5% as a result of a decrease
in net income. Net income for 2006 increased $13.3 million as compared to 2005.
This increase was primarily due to Cascades acquisition of F&M, along with
an increase of $3.0 million in net interest income, offset in part by increases
of $9.5 million in non interest expense and $3.0 in loan loss
provision.

**Net Interest Income / Net
Interest Margin**

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

Primarily
because of higher loan volumes, total interest income increased approximately
$32.6 million (or 23.5%) for 2007. Increased volumes of interest bearing
deposits and borrowings in conjunction with higher interest rates paid caused
total interest expense to increase approximately $22.4 million (or 55.6%) for
2007 as compared to the prior year.

Net interest income increased to
$108.5 million or 10.4% in 2007 over 2006 as average earning assets increased
21.5% over 2006. 2006 net interest income increased 65.0% over 2005 primarily
due to the acquisition of F&M and continued loan growth. Higher market
interest rates contributed to this increase, as yields increased on a larger
base of earning assets, exceeding the higher cost of funds on incremental
liability balances. Yields earned on assets increased to 8.21% for 2007, as
compared to 8.07% in 2006 and 6.94% in 2005. Meanwhile, the average rates paid
on interest bearing liabilities for 2007 increased to 4.01% in 2007 from 3.42%
in 2006 and 2.07% in 2005. Note that with the Federal Reserve lowering market
rates aggressively beginning in late 2007 and early 2008, loan yields and rates
paid are likely to decline into 2008.

20

---

The
Companys net interest margin (NIM) decreased to 5.23% for 2007, as compared to
5.73% for 2006. In addition, the Company reported a decline in its NIM to 4.94%
for the fourth quarter of 2007, compared to 5.24% for the preceding quarter and
5.54% for the year ago quarter. Three factors contributed to the lower NIM for
the fourth quarter of 2007 including interest forgone and reversed on NPAs,
lower average balances in non-interest bearing deposit accounts for the quarter,
and the effect of lower market interest rates on the Companys asset and
liability mix.

The
margin can also be affected by factors beyond market interest rates, including
loan or deposit volume shifts and/or aggressive rate offerings by competitor
institutions. The Companys financial model indicates a relatively stable
interest rate risk profile within a reasonable range of rate movements around
the forward rates currently predicted by financial markets. Because of its
relatively high proportion of non-interest bearing funds, the Companys NIM is
most adversely affected in the event the federal funds rate falls to a very low
level.

**Components of Net Interest
Margin**

The
following table presents further analysis of the components of Cascades net
interest margin and sets forth for 2007, 2006, and 2005 information with regard
to average balances of assets and liabilities, as well as total dollar amounts
of interest income from interest-earning assets and interest expense on
interest-bearing liabilities, resultant average yields or rates, net interest
income, net interest spread, net interest margin and the ratio of average
interest-earning assets to average interest-bearing liabilities for the
Company:

|                                         |  | Year ended        |           | Year ended        |  | Year ended        
|---------------------------------------- |  | ----------------- | --------- | ----------------- |  | ------------------
|(dollars in
      thousands)             |  | December 31, 2007 |           | December 31, 2006 |  | December 31, 2005 
|                                         |  |                   |           | **Interest**      |  | **Average**       
|                                         |  | Average           |           | **Income/**       |  | **Yield
      or**
|                                         |  | **Balance**       |           | **Expense**       |  | **Rates**         
|Assets                                   |  |                   |           |                   |  |                   
|Taxable
      securities                 |  | $                 | 93,793    |                   |  | $                 
|Non-taxable securities (1)               |  |                   | 7,952     |                   |  |                   
|Interest bearing
      balances due from |  |                   |           |                   |  |                   
|Federal Home Loan Bank                   |  |                   | 3,735     |                   |  |                   
|Federal funds sold                       |  |                   | 3,910     |                   |  |                   
|Federal Home
      Loan Bank stock       |  |                   | 6,991     |                   |  |                   
|Loans (1)(2)(3)(4)                       |  |                   | 1,974,435 |                   |  |                   
|Total earning assets                     |  |                   | 2,090,816 |                   |  |                   
|Reserve for loan losses                  |  |                   | (24,498   | )                 |  |                   
|Cash and due
      from banks            |  |                   | 55,427    |                   |  |                   
|Premises and equipment, net              |  |                   | 38,307    |                   |  |                   
|Other
      Assets                       |  |                   | 178,682   |                   |  |                   
|Total assets                             |  | $                 | 2,338,734 |                   |  |                   
|                                        
|Liabilities and Stockholders Equity     |  |                   |           |                   |  |                   
|Int. bearing
      demand deposits       |  | $                 | 889,069   |                   |  |                   
|Savings deposits                         |  |                   | 41,327    |                   |  |                   
|Time
      deposits                      |  |                   | 340,324   |                   |  |                   
|Other borrowings                         |  |                   | 294,854   |                   |  |                   
|Total interest bearing liabilities       |  |                   | 1,565,574 |                   |  |                   
|Demand deposits                          |  |                   | 469,015   |                   |  |                   
|Other
      liabilities                  |  |                   | 29,590    |                   |  |                   
|Total liabilities                        |  |                   | 2,064,179 |                   |  |                   
|Stockholders
      equity               |  |                   | 274,555   |                   |  |                   
|Total liabilities & equity               |  | $                 | 2,338,734 |                   |  |                   
|                                         |  |                   |           |                   |  |                   
|Net interest income                      |  |                   |           |                   |  | $                 
|Net interest
      spread                |  |                   |           |                   |  |                   
|Net interest income to earning           |  |                   |           |                   |  |                   
|assets                                   |  |                   |           |                   |  |                   

21

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|(1) |  | Yields on tax-exempt
      loans and securities have been stated on a tax-equivalent
  basis.                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Average non-accrual
      loans included in the computation of average loans for 2007 was $20.6
      million and was insignificant for 2006 and 2005.                        
|   
|(3) |  | Loan related fees
      recognized during the period and included in the yield calculation were
      $5.8 million in 2007, $4.8 million in 2006 and $2.6 million in
    2005.
|   
|(4) |  | Includes mortgage
      loans held for sale.                                                                                                                                  

**Changes in Interest Income
and Expense**

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

|(dollars in
      thousands)  | Year ended December 31,
|----------------------------- | -----------------------
|                              | 2007 over 2006         
|                              | Total                  
|                              | Increase               
|                              | (Decrease)             
|Interest income:              |                        
|Interest and fees on loans    | $                      
|Taxable securities            |                        
|Non-taxable securities        |                        
|Interest bearing balances due |                        
|from FHLB                     |                        
|Federal Home Loan Bank stock  |                        
|Federal funds sold            |                        
|Total interest income         |                        
|Interest expense:             |                        
|Interest on deposits:         |                        
|Interest bearing demand       |                        
|Savings                       |                        
|Time                          |                        
|Other borrowings              |                        
|Total interest expense        |                        
|Net interest
      income     | $                      

The
amount of change in net interest income attributed to volume was $17.1 million,
primarily due to an increase in the average volume of loans from $1.6 billion in
2006 to $2.0 billion in 2007. The amount of change attributed to rate decreased
$6.9 million, primarily due to an increase in the yield on interest bearing
demand from 2.82% in 2006 to 3.46% in 2007.

**Loan Loss
Provision**

At
December 31, 2007, the reserve for credit losses (reserve for loan losses and
reserve for unfunded commitments) was 1.81% of outstanding loans, as compared to
1.42% for the year ago period. The loan loss provision was $19.4 million in
2007, $6.0 million in 2006 and $3.1 million in 2005. Provision expense is
determined by the Companys ongoing analytical and evaluative assessment of the
adequacy of the reserve for credit losses. At December 31, 2007, management
believes that its reserve for credit losses is at an appropriate level under
current circumstances and prevailing economic conditions. For further
discussion, see Reserve for Credit Losses below. There can be no assurance
that the reserve for credit losses will be sufficient to cover actual loan
related losses. See Item 1A Risk Factors and Highlights  Loan Growth and
Credit Quality earlier in this item.

22

---

**Non-interest
Income**

Total
non-interest income was $21.1 million, 16.4% above the prior year, including
service fee income which was at $9.7 million, up 20.2% from the prior year
mainly because of increased activity and attendant full year effect of
additional volumes from the April 2006 acquisition of the F&M bank in Boise,
Idaho. The 2006 increase was due to the acquisition of F&M, which brought
increased volume of banking accounts and related fee-based transaction activity
in deposit account services and overdraft transactions. Income related to
residential mortgage origination activity was slightly lower in 2007 as compared
to 2006 due to the slowing real estate activity in both Idaho and Oregon.

**Mortgage Banking Income -
Home Mortgage Originations and Mortgage Related Revenue**

The
Company provides residential mortgage services on a direct to customer basis and
does no business through third party (brokerage) channels. The Company has
focused its originations in conventional mortgage products while avoiding
option-ARM or high leverage products such as those that have led to the much
publicized failures of sub-prime type mortgage firms. The low delinquency rate
within Cascades loan servicing portfolio underscores this long-held discipline
in mortgage origination. At year end, the portfolio contained over 3,600
mortgage loans of which only 7 were past due more than 30 days. The delinquency
rate on this nearly $500 million portfolio of serviced residential mortgage
loans remains substantially better than national norms at only 0.19%.

Residential mortgage originations
totaled $170.1 million in 2007, down 3.2% when compared to $176.6 million in
2006. Related net mortgage revenue was $2.7 million, a decrease 0.1% compared to
$3.0 million for the previous year. Non-Interest income arising from mortgage
services totaled approximately $3.0 million in 2006 compared to $2.3 million in
2005. The general level and direction of interest rates directly influence the
volume and profitability of mortgage banking. Rates continued to stabilize in
2007 and 2006, compared to a modest increase in 2005.

The
Company sells a significant portion of its residential mortgage loans to Fannie
Mae, a U.S. Government sponsored enterprise and other secondary market
investors. The Company services such loans for Fannie Mae and is paid
approximately .25% per annum on the outstanding balances for providing this
service. Such revenues are included in the above mortgage banking results.
Mortgages serviced for Fannie Mae totaled $494.0 million at December 31, 2007,
relatively flat as compared to $494.9 million at December 31, 2006 and slightly
lower then the $498.7 million at December 31, 2005. The related Mortgage
Servicing Rights (MSRs) were approximately $3.8 million in 2007and $4.1 million
in 2006.

The Company capitalizes the
estimated market value of MSRs into income upon the sale of each originated
mortgage loan. The Company amortizes MSRs in proportion to the servicing income
it receives from Fannie Mae over the estimated life of the underlying mortgages,
considering prepayment expectations and refinancing patterns. In addition, the
Company amortizes, in full, any remaining MSRs balance that is specifically
associated with a serviced loan that is refinanced or paid-off.

At
December 31, 2007, expressed as a percentage of loans serviced, the book value
of MSR was .76% of serviced mortgage loans, while fair value was approximately
1.07% of serviced mortgages. Fair value as a percentage of loans serviced was
estimated at 1.12% a year ago.

Mortgage loans not sold to the
Federal National Mortgage Association (Fannie Mae or FNMA), are generally
sold servicing released to other secondary market investors. Loans sold on this
basis generate no future servicing fees for the Company.

**Non-interest
Expenses**

Total
non-interest expense for 2007 increased 18.0% to $62.5 million as compared to
2006. This increase was primarily due to higher human resources costs in support
of Cascades ongoing growth and infrastructure investments. Importantly, the
Company successfully converted to a more robust core information technology
system during the fourth quarter of 2007, providing an enhanced platform to
support growth in the years ahead. Total non-interest expenses for 2006 were
54.9% higher compared to 2005, primarily due to the acquisition of F&M. The
Companys efficiency ratio was 48.2% in 2007 compared to 45.5% in 2006, notably
better than peer banks for the period. As the Company adjusts to a lower level
of real estate related business activity, management anticipates a very modest
increase in non interest expense for 2008.

23

---

**Income
Taxes**

The
provision for income taxes decreased in 2007 primarily as a result of lower
pre-tax income and increased in 2006 over 2005 due to higher pre-tax income. The
Companys effective tax rate remains lower than the statutory tax rate due to
nontaxable income generated from investments in bank owned life insurance,
tax-exempt municipal bonds, business energy tax credits and low income housing
credits.

Financial Condition

**Balance Sheet
Overview**

Total
assets increased 6.8% to $2.4 billion at December 31, 2007, compared to $2.2
billion at December 31, 2006. Loans grew $159.5 million or 8.5% to $2.0 billion
at year-end 2007. Growth in total assets was primarily funded by other
borrowings which increased to $327.9 million or 91.4% over 2006. Deposits
remained relatively flat at $1.7 billion or .3% above the prior year-end, mainly
due to a decrease in brokered time deposits of $86.5 million that were included
in 2006. Taking these brokered time deposits into consideration, deposits
actually increased approximately 5.8% year-over-year

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

**Investment
Securities**

The
following table shows the carrying value of the Companys portfolio of
investments at December 31, 2007, 2006, and 2005.

(dollars in
      thousands)December 31,2007
    
    2006
    
    2005U.S. Agency mortgage-backed securities
    
    $
    65,202
    
    $
    72,610
    
    $
    38,408U.S. Government
      and agency securities
    
    
    10,497
    
    
    19,318
    
    
    11,925Obligations of state and political subdivisions
    
    
    6,917
    
    
    9,180
    
    
    6,464Other
      asset-backed securities
    
    
    3,538
    
    
    4,019
    
    
    Total debt securities
    
    
    86,154
    
    
    105,127
    
    
    56,797Mutual
      fund
    
    
    412
    
    
    390
    
    
    377Equity securities
    
    
    449
    
    
    1,406
    
    
    2,112Total investment securities
    
    $
    87,015
    
    $
    106,923
    
    $
    59,286


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

24

---

The
Companys investment portfolio decreased by $19.9 million, or 18.6% from
December 31, 2006 to December 31, 2007 as a result of ordinary maturities and
prepayments on securities within the portfolio. The following is a summary of
the contractual maturities and weighted average yields of investment securities
at December 31, 2007:

|(dollars in thousands)                       |          |        |         |           |  
|-------------------------------------------- | -------- | ------ | ------- | --------- | -
|                                             |          |        |         | Weighted 
|                                             | Carrying |        | Average
|Type and maturity                            |          | Value  |         | Yield (1)
|U.S. Agency mortgage-backed securities       |          |        |         |           |  
|Due within
      1 year                      | $        | 2,848  |         | 4.79      | %
|Due after
      1 but within 5 years         |          | 296    |         | 4.67      | %
|Due after
      5 but within 10 years        |          | 5,102  |         | 5.68      | %
|Due after
      10 years                     |          | 56,956 |         | 5.18      | %
|Total U.S. Agency mortgage-backed securities |          | 65,202 |         | 5.20      | %
|U.S. Government and Agency Securities        |          |        |         |           |  
|Due after
      1 but within 5 years         |          | 10,497 |         | 5.50      | %
|Total U.S. Government and Agency Securities  |          | 10,497 |         | 5.50      | %
|State and Political Subdivisions (1)         |          |        |         |           |  
|Due within
      1 year                      |          | 2,747  |         | 3.42      | %
|Due after
      1 but within 5 years         |          | 1,546  |         | 4.36      | %
|Due after
      5 but within 10 years        |          | 1,846  |         | 4.62      | %
|Due after
      10 years                     |          | 778    |         | 4.70      | %
|Total State and Political Subdivisions       |          | 6,917  |         | 4.09      | %
|U.S. Agency asset-backed securities          |          |        |         |           |  
|Due after
      1 but within 5 years         |          | 3,538  |         | 5.46      | %
|Total U.S. Agency asset-backed securities    |          | 3,538  |         | 5.46      | %
|Total
      debt securities                  |          | 86,154 |         | 5.27      | %
|Mutual
      fund                            |          | 412    |         | 4.42      | %
|Equity securities                            |          | 449    |         | 2.07      | %
|Total
      Securities                       | $        | 87,015 |         | 5.14      | %

|(1) |  | Yields on tax-exempt
      securities have been stated on a tax equivalent
basis.
|--- |  | ---------------------------------------------------------------------------------

The
average years to maturity of the Companys investment portfolio was 4.8 years at
December 31, 2007 compared to 5.1 years at December 31, 2006.

Investments are mainly classified as available for sale and consist
mainly of MBS and Agency notes backed by government sponsored enterprises, such
as the Government National Mortgage Association (Ginnie Mae), FNMA and FHLB.
The Company regularly reviews its investment portfolio to determine whether any
securities are other than temporarily impaired. The Company did not invest in
securities backed by sub-prime mortgages and believes its investment portfolio
has negligible exposure to such risk at this date. At December 31, 2007, the
portfolio had an unrealized loss on available for sale securities of
approximately $.1 million and no other than temporary impaired
securities.

Loans

**Loan Portfolio
Composition**

Net loans
represent 84% of total assets as of December 31, 2007. The Company makes
substantially all of its loans to customers located within the Companys service
areas. As a result of the economic conditions and characteristics of the
Companys primary markets, including among others, the rapid growth in
population and the nature of the tourism and service industry found in much of
its market areas, Cascades loan portfolio has historically been concentrated in
real estate related loans. At the time of the 2006 acquisition of F&M in
Boise, Idaho, F&Ms loan

25

---

portfolio was similar in composition to
that of Cascade. While the Company has sought to increase the diversification of
its loan portfolio by geography and loan type, it is expected that real estate
lending will continue to be a major concentration within the loan portfolio. The
Company has no significant agricultural loans.

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

|                             |      |           |       | %
      of |      |  |       |           | %
      of |     |       |  |          | %
      of |       |     |          |  | %
      of |         |  |     |   | %
      of
|---------------------------- | ---- | --------- | ----- | ---------- | ---- |  | ----- | --------- | ---------- | --- | ----- |  | -------- | ---------- | ----- | --- | -------- |  | ---------- | ------- |  | --- | - | ----------
|                             |      |           |       | gross      |      |  |       |           | gross      |     |       |  |          | gross      |       |     |          |  | gross      |         |  |     |   | gross     
|(dollars in
      thousands) | 2007 |           | loans |            | 2006 |  | loans |           | **2005**   |     | loans |  | **2004** |            | loans |     | **2003** |  | loans     
|Commercial                   | $    | 606,408   |       | 30         | %    |  | $     | 560,728   |            | 30  | %     |  | $        | 320,619    |       | 31  | %        |  | $          | 252,575 |  | 29  | % |           
|Real
      Estate:           |      |           |       |            |      |  |       |           |            |     |       |  |          |            |       |     |          |  |            |         |  |     |   |           
|Construction/lot:            |      |           |       |            |      |  |       |           |            |     |       |  |          |            |       |     |          |  |            |         |  |     |   |           
|Residential land development |      | 309,916   |       | 15         | %    |  |       | 264,225   |            | 14  | %     |  |          | 66,584     |       | 6   | %        |  |            | 56,073  |  | 7   | % |           
|Residential construction     |      | 124,714   |       | 6          | %    |  |       | 156,008   |            | 8   | %     |  |          | 74,416     |       | 7   | %        |  |            | 48,028  |  | 6   | % |           
|Commercial construction      |      | 252,199   |       | 13         | %    |  |       | 168,018   |            | 9   | %     |  |          | 79,230     |       | 8   | %        |  |            | 74,615  |  | 9   | % |           
|Subtotal                     |      | 686,829   |       | 34         | %    |  |       | 588,251   |            | 31  | %     |  |          | 220,230    |       | 21  | %        |  |            | 178,716 |  | 21  | % |           
|Mortgage                     |      | 88,509    |       | 4          | %    |  |       | 80,860    |            | 4   | %     |  |          | 56,724     |       | 5   | %        |  |            | 52,668  |  | 6   | % |           
|Commercial                   |      | 612,694   |       | 30         | %    |  |       | 606,340   |            | 32  | %     |  |          | 417,580    |       | 40  | %        |  |            | 338,392 |  | 39  | % |           
|Consumer                     |      | 47,038    |       | 2          | %    |  |       | 51,083    |            | 3   | %     |  |          | 34,551     |       | 3   | %        |  |            | 37,209  |  | 4   | % |           
|Total loans                  |      | 2,041,478 |       | 100        | %    |  |       | 1,887,262 |            | 100 | %     |  |          | 1,049,704  |       | 100 | %        |  |            | 859,560 |  | 100 | % |           
|Less:                        |      |           |       |            |      |  |       |           |            |     |       |  |          |            |       |     |          |  |            |         |  |     |   |           
|Reserve for loan losses      |      | 33,875    |       |            |      |  |       | 23,585    |            |     |       |  |          | 14,688     |       |     |          |  |            | 12,412  |  |     |   |           
|Total loans,
      net       | $    | 2,007,603 |       |            |      |  | $     | 1,863,677 |            |     |       |  | $        | 1,035,016  |       |     |          |  | $          | 847,148 |  |     |   |           

The
following table provides the geographic distribution of the Companys loan
portfolio by region as a percent of total company-wide loans at December 31,
2007:

|                             |         |         |           | %
      of |               |  |       |         | %
      of |    |       |  |       | %
      of |       |       |       |  | %
      of |         |       |    |   | %
      of
|---------------------------- | ------- | ------- | --------- | ---------- | ------------- |  | ----- | ------- | ---------- | -- | ----- |  | ----- | ---------- | ----- | ----- | ----- |  | ---------- | ------- | ----- | -- | - | ----------
|                             | Central |         | **gross** |            | **Northwest** |  | gross |         | Southern   |    | gross |  |       |            |       | gross |       |  |            |         | gross
|(dollars in
      thousands) | Oregon  |         | loans     |            | Oregon        |  | loans |         | Oregon     |    | loans |  | Idaho |            | loans |       | Total |  | loans     
|Commercial                   | $       | 194,115 |           | 10         | %             |  | $     | 185,926 |            | 9  | %     |  | $     | 66,026     |       | 3     | %     |  | $          | 160,341 |       | 8  | % |           
|Real
      Estate:           |         |         |           |            |               |  |       |         |            |    |       |  |       |            |       |       |       |  |            |         |       |    |   |           
|Construction/lot             |         | 227,606 |           | 11         | %             |  |       | 118,104 |            | 6  | %     |  |       | 84,883     |       | 4     | %     |  |            | 256,236 |       | 13 | % |           
|Mortgage                     |         | 30,188  |           | 1          | %             |  |       | 9,585   |            | 0  | %     |  |       | 7,641      |       | 0     | %     |  |            | 41,095  |       | 2  | % |           
|Commercial                   |         | 239,337 |           | 12         | %             |  |       | 96,349  |            | 5  | %     |  |       | 105,498    |       | 5     | %     |  |            | 171,510 |       | 8  | % |           
|Consumer                     |         | 22,131  |           | 1          | %             |  |       | 4,569   |            | 0  | %     |  |       | 4,382      |       | 0     | %     |  |            | 15,956  |       | 1  | % |           
|Total loans                  | $       | 713,377 |           | 35         | %             |  | $     | 414,533 |            | 20 | %     |  | $     | 268,430    |       | 12    | %     |  | $          | 645,138 |       | 32 | % |           

At December 31, 2007, the
contractual maturities of all loans by category were as follows:

Due afterone, but(dollars in thousands)
    Due within
    
    within five
    
    Due afterLoan Category
    
    one year
    
    years
    
    five years
    
    TotalCommercial
    $
    290,815
    
    $
    217,189
    
    $
    98,404
    
    $
    606,408Real
      Estate:Construction/lot
    
    471,982
    
    
    182,499
    
    
    32,348
    
    
    686,829Mortgage
    
    12,882
    
    
    13,170
    
    
    62,457
    
    
    88,509Commercial
    
    6,335
    
    
    39,510
    
    
    566,849
    
    
    612,694Consumer
    
    3,272
    
    
    23,419
    
    
    20,347
    
    
    47,038$
    785,286
    
    $
    475,787
    
    $
    780,405
    
    $
    2,041,478


At
December 31, 2007, variable and adjustable rate loans contractually due after
one year totaled $1.0 billion and loans with predetermined or fixed rates due
after one year totaled $256.2 million.

26

---

**Real Estate Loan
Concentration Risk**

Real
estate loans have historically represented a significant portion of the
Companys overall loan portfolio and real estate is frequently a material
component of collateral for the Companys loans. Approximately two-thirds of
total loans have exposure to real estate, including construction and lot loans
(comprised of land development plus residential and commercial construction loan
types), commercial real estate loans, residential mortgage loans, and consumer
real estate. Risks associated with real estate loans include fluctuating land
values, demand and prices for housing or commercial properties, national,
regional and local economic conditions, changes in tax policies, and
concentration within the Banks market area. Management believes that, because
of the strong historic and projected population in-migration and related
economic growth expected in the Banks markets, its real estate concentration
risk is mitigated to an acceptable level over the long term. However no
assurance can be given that the Companys assessment of its real estate risk
will be accurate in either the short or long term.

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

(a)Residential land development category.This category is included in the
construction/lot portfolio balances above, and represents loans made to
developers for the purpose of acquiring raw land and/or for the subsequent
development and sale of residential lots. Such loans typically finance land
purchase and infrastructure development of properties (i.e. roads, utilities,
etc.) with the aim of making improved lots ready for subsequent sale to
consumers or builders for ultimate construction of residential units. The
primary source of repayment of such loans is generally the cash flow from
developer sale of lots or improved parcels of land while real estate collateral,
secondary sources and personal guarantees may provide an additional measure of
security for such loans. Strong demand for housing as well as the market
expansion opportunity associated with the Companys acquisition of F&M in
2006 has led to loan growth in this category in recent years. However, the
recent nationwide downturn in real estate has slowed lot and home sales within
the Companys markets especially in late 2007 and early 2008. This has impacted
certain developers by lengthening the marketing period of their projects and
negatively affecting borrower liquidity and collateral values. Weakness in this
category of loans contributed significantly to the elevated level of provision
for loan losses in the fourth quarter of 2007. The situation continues to be
closely monitored and an elevated level of provisioning may be required should
deterioration continue.

%
      ofConstr/
    
    %
      of%
      of
    
    lot
    
    gross(dollars in
      thousands)
    2007
    
    **category**
    
    **portfolio**
    
    **loans**
    
    2006Residential Land Development:Raw Land
    $
    107,160
    
    34
    %
    
    16
    %
    
    5
    %
    
    $
    99,223Land
      Development
    
    183,809
    
    59
    %
    
    27
    %
    
    9
    %
    
    
    141,466Speculative Lots
    
    20,916
    
    7
    %
    
    3
    %
    
    1
    %
    
    
    25,530$
    311,885
    
    100
    %
    
    45
    %
    
    15
    %
    
    $
    266,219Geographic
      distribution by region:Central Oregon
    $
    107,150
    
    34
    %
    
    16
    %
    
    5
    %
    
    $
    89,749Northwest Oregon
    
    5,328
    
    2
    %
    
    1
    %
    
    0
    %
    
    
    6,411Southwest Oregon
    
    32,541
    
    10
    %
    
    5
    %
    
    2
    %
    
    
    29,635Total Oregon
    
    145,019
    
    46
    %
    
    21
    %
    
    7
    %
    
    
    125,795Idaho
    
    166,866
    
    54
    %
    
    24
    %
    
    8
    %
    
    
    140,424Grand
      total
    $
    311,885
    
    100
    %
    
    45
    %
    
    15
    %
    
    $
    266,219


27

---

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

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

Speculative construction lending finances builders/contractors who rely
on the sale of completed homes to repay loans. The Bank may finance construction
costs within residential subdivisions or on a custom site basis. Speculative
construction loans increased with the 2006 acquisition of F&M and grew at a
steady pace in 2007 as a result of the overall growth in population and demand
for housing within the communities served by the Bank. The nationwide downturn
in residential real estate has slowed lot and home sales within the Companys
markets. This may impact certain builders by lengthening the marketing period
for constructed homes and negatively affecting borrower liquidity and collateral
values.

%
      ofConsrtr./
    
    %
      of%
      of
    
    lot
    
    gross(dollars in
      thousands)
    2007
    
    **category**
    
    **portfolio**
    
    loans
    
    2006Residential Construction:Pre sold
    $
    46,527
    
    37
    %
    
    7
    %
    
    2
    %
    
    $
    64,654Lots
    
    20,575
    
    16
    %
    
    3
    %
    
    1
    %
    
    
    27,235Speculative Construction
    
    58,048
    
    46
    %
    
    8
    %
    
    3
    %
    
    
    64,916$
    125,150
    
    100
    %
    
    18
    %
    
    6
    %
    
    $
    156,805Geographic
      distribution by region:Central Oregon
    $
    52,316
    
    42
    %
    
    8
    %
    
    3
    %
    
    $
    66,856Northwest Oregon
    
    19,356
    
    15
    %
    
    3
    %
    
    1
    %
    
    
    28,675Southwest Oregon
    
    14,252
    
    11
    %
    
    2
    %
    
    1
    %
    
    
    21,043Total Oregon
    
    85,924
    
    69
    %
    
    12
    %
    
    4
    %
    
    
    116,574Idaho
    
    39,226
    
    31
    %
    
    6
    %
    
    2
    %
    
    
    40,231Grand
      total
    $
    125,150
    
    100
    %
    
    18
    %
    
    6
    %
    
    $
    156,805


(c)
Commercial construction category.This
category is included in the construction/lot portfolio balances above, and
represents lending to finance the construction or development of commercial
properties. Obligors may be the business owner/occupier of the building who
intends to operate its business from the property upon construction, or non
owner (speculative) developers. The expected source of repayment of these loans
is typically the sale or refinancing of the project upon completion of the
construction phase. In certain circumstances, the Company may provide or commit
to take-out financing upon construction. Take-out financing is subject to the
project meeting specific underwriting guidelines. No assurance can be given that
such take-out financing will be available upon project completion.

28

---

The 2007
growth in this portion of the overall construction portfolio is largely a result
of opportunities in the Northwest Oregon region of the Bank where the Portland
market has remained relatively strong with trade, technology and services. No
assurance can be given that the relative economic strength of this market will
continue. While the severity of the housing-led downturn generally has not had a
proportional impact on the credit quality and performance of commercial
construction at this time, no assurance can be given that residential real
estate or other economic events will not adversely impact this category of our
loan portfolio.

%
      ofConsrtr./
    
    %
      of%
      of
    
    lot
    
    gross(dollars in
      thousands)
    2007
    
    **category**
    
    **portfolio**
    
    loans
    
    2006Commercial Construction:Pre sold
    $
    166,725
    
    66
    %
    
    24
    %
    
    8
    %
    
    $
    71,215Lots
    
    17,525
    
    7
    %
    
    3
    %
    
    1
    %
    
    
    38,476Speculative
    
    38,031
    
    15
    %
    
    6
    %
    
    2
    %
    
    
    51,841Speculative Lots
    
    30,815
    
    12
    %
    
    4
    %
    
    2
    %
    
    
    8,126$
    253,096
    
    100
    %
    
    37
    %
    
    12
    %
    
    $
    169,658Geographic distribution by region:Central Oregon
    $
    68,880
    
    27
    %
    
    10
    %
    
    3
    %
    
    $
    46,531Northwest Oregon
    
    93,979
    
    37
    %
    
    14
    %
    
    5
    %
    
    
    56,145Southwest Oregon
    
    39,235
    
    16
    %
    
    6
    %
    
    2
    %
    
    
    25,790Total Oregon
    
    202,094
    
    80
    %
    
    29
    %
    
    10
    %
    
    
    128,466Idaho
    
    51,002
    
    20
    %
    
    7
    %
    
    2
    %
    
    
    41,192Grand
      total
    $
    253,096
    
    100
    %
    
    37
    %
    
    12
    %
    
    $
    169,658


(d)Commercial real estate (CRE) portfolio.This $614.9 million portfolio generally represents loans to finance
retail, office and industrial commercial properties. The expected source of
repayment of CRE loans is generally the operations of the borrowers business,
rents or the obligors personal income. Management believes that commercial real
estate collateral may provide an additional measure of security for such loans.
CRE loans represent approximately 32% of total loans outstanding as of December
31, 2007. Approximately 53% of CRE loans are made to owner-occupied users of the
commercial property, while 47% of CRE loans are to obligors who do not directly
occupy the property. Management believes that lending to owner-occupied
businesses mitigates, but does not eliminate, commercial real estate risk. While
the severity of the housing-led downturn generally has not had a proportional
impact on the credit quality and performance of CRE portfolio as of December 31,
2007, no assurance can be given that residential real estate or other economic
factors will not adversely impact the CRE portfolio.

%
      of
    
    %
      oftotal
    
    grossCommercial
      Real Estate:
    2007
    
    CRE
    
    loans
    
    2006Owner occupied
    $
    325,990
    
    53
    %
    
    16
    %
    
    $
    319,376Non-owner occupied
    
    288,873
    
    47
    %
    
    14
    %
    
    
    282,888$
    614,863
    
    100
    %
    
    30
    %
    
    $
    602,264


The
following table provides the geographic distribution of the Companys CRE loan
portfolio by region as a percent of total company-wide CRE loans at December 31,
2007:

|                              |         |         |       | %
      of |           |  |       |        | %
      of |    |       |  |       | %
      of |       |     |       |  | %
      of |         |  |   
|----------------------------- | ------- | ------- | ----- | ---------- | --------- |  | ----- | ------ | ---------- | -- | ----- |  | ----- | ---------- | ----- | --- | ----- |  | ---------- | ------- |  | --
|                              |         |         |       | total      |           |  |       |        | total      |    |       |  |       | total      |       |     |       |  | total      |         |  |   
|                              | Central |         | CRE   |            | Northwest |  | CRE   |        | Southern   |    | CRE   |  |       |            |       | CRE |       |  |           
|Commercial
      Real Estate: | Oregon  |         | loans |            | Oregon    |  | loans |        | Oregon     |    | loans |  | Idaho |            | loans |     | Total
|Owner occupied                | $       | 128,349 |       | 21         | %         |  | $     | 39,512 |            | 6  | %     |  | $     | 53,757     |       | 9   | %     |  | $          | 104,372 |  | 17
|Non-owner occupied            |         | 112,008 |       | 18         | %         |  |       | 57,166 |            | 9  | %     |  |       | 51,944     |       | 8   | %     |  |            | 67,755  |  | 11
|Total loans                   | $       | 240,357 |       | 39         | %         |  | $     | 96,678 |            | 15 | %     |  | $     | 105,701    |       | 17  | %     |  | $          | 172,127 |  | 28

29

---

**Lending and Credit
Management**

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

**Reserve for Credit
Losses**

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

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

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

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

The
unallocated portion of the reserve is based upon managements evaluation of
various factors that are not directly measured in the determination of the
allocated and specific reserves. Such factors include uncertainties in economic
conditions, uncertainties in identifying triggering events that directly
correlate to subsequent loss rates, risk factors that have not yet manifested
themselves in loss allocation factors and historical loss experience data that
may not precisely correspond to the current portfolio. Examples of such factors
could include originating loans

30

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in new or unfamiliar markets,
initiating new loan programs or products, or initiating specialty lending to
industry sectors that may be new to the Company. Although this allocation
process may not accurately predict credit losses by loan type or in aggregate,
the total reserve for credit losses is available to absorb losses that may arise
from any loan type or category. Due to the subjectivity involved in the
determination of the unallocated portion of the reserve for loan losses, the
relationship of the unallocated component to the total reserve for loan losses
may fluctuate from period to period. During the fourth quarter of 2007, the
Company increased its unallocated reserve to approximately $3.7 million or 10%
of total reserves in response to the elevated level of uncertainty as to the
severity of the real estate downturn and its related effects on loan credit
quality. No assurance can be given that this increase in unallocated reserves
will be sufficient for future periods or circumstances.

The total
amount of actual loan losses may vary significantly from the estimated amount.
No assurance can be given that, in any particular period, loan losses will not
be sustained that are sizable in relation to the amount reserved, or that
changing economic factors or other environmental conditions could cause
increases in the loan loss provision.

The
Banks ratio of reserve for credit losses to total loans has been relatively
stable for the last several years but increased especially in the fourth quarter
of 2007 reflecting higher risk resulting from the real estate downturn
especially with respect to deterioration in the land development loan portfolio
discussed above. The reserve was 1.81% at December 31, 2007 compared to 1.42% at
December 31, 2006, and 1.40% at December 31, 2005. At this date, management
believes that the Companys reserve is at an appropriate level under current
circumstances and prevailing economic conditions.

Effective
in the fourth quarter of 2006, the Company began classifying reserves for
unfunded commitments as a liability on the consolidated balance sheet. Such
reserves are included as part of the overall reserve for credit losses. Prior to
2006, unfunded commitments were classified in accordance with industry practice
of other banks in our peer group. Reserves for unfunded commitments totaled
approximately $3,163 and $3,213 at December 31, 2007 and 2006,
respectively.

Allocation of Reserve for Credit
Losses

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

31

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

|                                | 2007                  |        | 2006             
|------------------------------- | --------------------- | ------ | -----------------
|                                | **Reserve
      for** |        | **Allocated**    
|                                | loan and              |        | reserve as       
|                                | commitment            |        | a
      % of loan
|(dollars in
      thousands)    | losses                |        | category         
|Commercial                      | $                     | 10,388 |                  
|Real
      Estate:              |                       |        |                  
|Construction/lot                |                       | 13,433 |                  
|Mortgage                        |                       | 1,521  |                  
|Commercial                      |                       | 3,901  |                  
|Consumer                        |                       | 1,684  |                  
|Committed/unfunded              |                       | 2,414  |                  
|Unallocated                     |                       | 3,697  |                  
|Total reserve for credit losses | $                     | 37,038 |                  
|                               
|                                | 2005                  |        | 2004             
|                                | **Reserve
      for** |        | **Allocated**    
|                                | loan and              |        | reserve as       
|                                | commitment            |        | a
      % of loan
|                                | losses                |        | category         
|Commercial                      | $                     | 3,526  |                  
|Real
      Estate:              |                       |        |                  
|Construction/lot                |                       | 2,445  |                  
|Mortgage                        |                       | 567    |                  
|Commercial                      |                       | 2,821  |                  
|Consumer                        |                       | 1,281  |                  
|Committed/unfunded              |                       | 2,753  |                  
|Unallocated                     |                       | 1,295  |                  
|Total reserve for credit losses | $                     | 14,688 |                  
|                               
|                                | 2003                  |        |                  
|                                | **Reserve
      for** |        | **Allocated**    
|                                | loan and              |        | reserve as       
|                                | commitment            |        | a
      % of loan
|                                | losses                |        | category         
|Commercial                      | $                     | 1,977  |                  
|Real
      Estate:              |                       |        |                  
|Construction/lot                |                       | 1,183  |                  
|Mortgage                        |                       | 581    |                  
|Commercial                      |                       | 2,133  |                  
|Consumer                        |                       | 1,144  |                  
|Committed/unfunded              |                       | 1,372  |                  
|Unallocated                     |                       | 1,009  |                  
|Total reserve for credit losses | $                     | 9,399  |                  

32

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

|(dollars in
      thousands)              |  | Year ended December 31,
|----------------------------------------- |  | -----------------------
|                                          |  | 2007                   
|Loans outstanding at                      |  |                        
|end
      of period                       |  | $                      
|Average loans
      outstanding           |  |                        
|during the period                         |  | $                      
|Reserve for loan losses, balance          |  |                        
|beginning of period                       |  | $                      
|Recoveries:                               |  |                        
|Commercial                                |  |                        
|Real Estate:                              |  |                        
|Construction                              |  |                        
|Mortgage                                  |  |                        
|Commercial                                |  |                        
|Consumer                                  |  |                        
|                                          |  |                        
|Loans charged
      off:                  |  |                        
|Commercial                                |  |                        
|Real Estate:                              |  |                        
|Construction                              |  |                        
|Mortgage                                  |  |                        
|Commercial                                |  |                        
|Consumer                                  |  |                        
|                                          |  |                        
|Net loans
      charged-off               |  |                        
|Provision charged to operations           |  |                        
|Reserves
      acquired from CBGP         |  |                        
|Reserve for unfunded commitments          |  |                        
|reclassified to other liabilities         |  |                        
|Reserves
      acquired from F&M          |  |                        
|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                    |  |                        

The following table presents
information with respect to non-performing assets:

|                                     |  | December 31,
|------------------------------------ |  | ------------
|(dollars in
      thousands)         |  | 2007        
|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 loans                 |  |             

33

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The
increase in non-performing assets at year-end 2007 is due to heightened credit
risk within the residential land development and construction related credits in
the Boise, Idaho and Southern Oregon markets. The increase is a result of the
nationwide downturn in real estate which has slowed lot and home sales within
the Companys markets. This has impacted certain developers by lengthening the
marketing period of their projects and negatively affecting borrower liquidity
and collateral values (for further discussion, see Real Estate Loan
Concentration Risk above).

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. Interest
income that was reversed and charged against income for 2007 was $1.2 million,
and was insignificant for the years of 2006 and 2005.

During
our normal loan review procedures, a loan is considered to be impaired when it
is probable that we will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Impaired loans are measured based on
the present value of expected future cash flows, discounted at the loans
effective interest rate or, as a practical expedient, at the loans observable
market price or the fair market value of the collateral if the loan is
collateral dependent. Impaired loans are currently measured at lower of cost or
fair value. Certain large groups of smaller balance homogeneous loans,
collectively measured for impairment, are excluded. Impaired loans are charged
to the allowance when management believes, after considering economic and
business conditions, collection efforts and collateral position that the
borrowers financial condition is such that collection of principal is not
probable. In addition, net overdraft losses are included in the calculation of
the allowance for loan losses per the guidance provided by regulatory
authorities early in 2005, in Joint Guidance on Overdraft Protection Programs.

At December 31, 2007, the Companys
recorded investment in certain loans that were considered to be impaired was
$45.9 million and specific valuation allowances were $3.9 million. Impaired
loans were insignificant at year-end 2006.

Bank-Owned Life Insurance
(BOLI)

The
Company has purchased BOLI to protect itself against the loss of certain key
employees and directors due to death and to offset the Banks future obligations
to its employees under its retirement and benefit plans. See footnote 1 of the
Companys notes to consolidated financial statements located under item 8 of
this report. During 2007 the Bank did not purchase any new BOLI, however for
2006 and 2005, the Bank purchased $13.6 million and $1.4 million, respectively.
The cash surrender value of the Banks total life insurance policies was $33.3
and $31.7 million at December 31, 2007 and 2006, respectively. The Bank recorded
income from the BOLI policies of $1.6 million in 2007, $.8 million in 2006 and
$.7 million in 2005.

The
Company owns both general account and separate account BOLI. The separate
account BOLI was purchased in the fourth quarter of 2006 as an investment
expected to provide a long-term source of earnings to support existing employee
benefit plans. The fair value of the general account BOLI is based on the
insurance contract cash surrender value. The cash surrender value of the
separate account BOLI is the quoted market price of the underlying securities,
further supported by a stable value wrap, which mitigates, but may not fully
insulate investment against changes in the fair market value depending on
severity and duration of possible market price disruption.

Liabilities

Deposit Liabilities and Time Deposit Maturities.Total deposits for 2007 remained steady when compared to
2006. Meanwhile, total deposits averaged $1.7 billion for the full year 2007, up
20.0% or $289.4 million from the prior year average. 2007 average
non-interest-bearing demand was down $40.0 million or 7.8% and average interest
bearing demand (including money market deposits) was up $193.0 million or 27.7%.

34

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At
December 31, 2007, total deposits were $1.7 billion, relatively unchanged from
year-end 2006. In order to fund the Companys strong asset growth, Cascade
utilizes brokered and Certificate of Deposit Registry Program (CDARS) deposits.
At December 31, 2007, such brokered deposits totaled $71.4 million and CDARS
deposits totaled approximately $80.1 million.

Rates paid on all interest bearing
deposit categories increased in 2007 as the Federal Reserve continued its
program to push market rates higher. In addition, the brokered deposits
discussed above carry rates that are often at higher national market
levels.

Historically Cascade has had a relatively high proportion of its deposits
in non-interest bearing accounts. However, especially during the latter half of
2006 and into 2007, non interest bearing balances eased to approximately 26.1%
of total deposits as of year-end, compared to a full year average of 27.0%.
While it is not atypical for Cascades deposits to seasonally slow or even
decline modestly late in the year after the peak summer construction season, the
decline in 2007 appears to be exacerbated as a consequence of the nation-wide
slowing in real estate activity following the excessive pace in 2005 and early
2006.

Average
time deposits during 2007 increased $141.9 million to $340.3 million as compared
to 2006 averages. The increase in time deposits primarily resulted from the use
of national market brokered CDs that were part of the Companys wholesale
funding strategies in 2007. In addition, the Bank began using the CDARS program
in 2006. CDARS deposits are utilized to meet the needs of certain customers
whose investment policies may necessitate or require FDIC insurance (see
Deposits, Liabilities and Time Deposit Maturities and Liquidity and Sources
of Funds in this item). Of the increase in average time deposits during 2007,
brokered CDs and CDARS accounted for approximately $48.2 million and $64.1
million, respectively. The Company does not aggressively market time deposits
within local markets as they are not believed to be key to its relationship
banking strategy.

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,
|----------------------- |  | ------------------------------
|                        |  | 2007                          
|Deposit Liabilities     |  |                               
|                        |  |                               
|                        |  | Amount                        
|Demand                  |  | $                             
|Interest-bearing demand |  |                               
|Savings                 |  |                               
|Time                    |  |                               
|Total Deposits          |  | $                             

As of
December 31, 2007, the Companys time deposit liabilities had the following
times remaining to maturity:

|**(dollars
      in thousands)** |  | Time deposits of    |         | All other        
|-------------------------------- |  | ------------------- | ------- | -----------------
|                                 |  | $100,000 ormore (1) |         | Time deposits (2)
|Remaining time to
      maturity |  |                     | Amount  |                  
|3 months or less                 |  | $                   | 44,483  |                  
|Due
      after 3 months through |  |                     |         |                  
|6
      months                   |  |                     | 14,032  |                  
|Due after 6 months through       |  |                     |         |                  
|12
      months                  |  |                     | 26,070  |                  
|Due
      after 12 months        |  |                     | 32,351  |                  
|Total                            |  | $                   | 116,936 |                  

|(1) |  | Time deposits of $100,000 or more
      represent 7.0% of total deposits as of December 31, 2007.
|--- |  | -------------------------------------------------------------------------------------------------
|   
|(2) |  | All other time deposits represent
      8.4% of total deposits as of December 31, 2007.          

35

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Junior
Subordinated Debentures.The purpose of the
Companys $68.6 million of trust preferred securities was to fund the cash
portion of the F&M acquisition, to support general corporate purposes and to
augment regulatory capital. Management believes the securities qualify as Tier 1
regulatory capital and are priced at a competitive level. The Companys
obligations under the Junior Subordinated Debentures (the Debentures) and
related agreements, taken together, constitute a full and irrevocable guarantee
by the Company of the obligations of the trusts. The trust preferred securities
are subject to mandatory redemption upon the maturity of the Debentures, or upon
earlier redemption as provided in the Indenture related to the Debentures. The
trust preferred securities may be called by the Company at par at varying times
subsequent to September 15, 2011, and may be redeemed earlier upon the
occurrence of certain events that impact the income tax or the regulatory
capital treatment of the trust preferred securities. See Note 9 of the
consolidated financial statements included in Item 8 of this report for
additional details.

Other
Borrowings.At December 31, 2007 the Bank had
a total of $117.4 million in long-term borrowings from FHLB with maturities from
2008 to 2025. Approximately $77.3 million of this amount bears a fixed or
adjustable weighted average rate of 3.94% while the remaining $40.0 million
float with LIBOR. In addition, at December 31, 2007, the Bank had short-term
borrowings with FHLB and FRB of approximately $175.8 million and $34.7 million,
respectively. At year-end 2006, the Bank had a total of $120.4 million in
long-term borrowings from FHLB bearing a weighted-average interest rate of
4.77%. In addition, at December 31, 2006, the Bank had short-term borrowings
with FHLB and FRB of approximately $48.8 million and $2.1 million, respectively.
See Liquidity and Sources of Funds below for further discussion.

Contractual Obligations.As of
December 31, 2007, the Company has entered into the contractual obligations to
make future payments as listed below:

|(dollars in
      thousands)          |  | Payments Due by Period
|------------------------------------- |  | ----------------------
|                                      |  |                       
|                                      |  | Total                 
|Time deposits of $100,000 and over    |  | $                     
|Federal Home
      Loan Bank advances |  |                       
|Junior subordinated debentures        |  |                       
|Operating
      leases                |  |                       
|Total contractual obligations         |  | $                     

Off-Balance Sheet Arrangements.A
schedule of significant off-balance sheet commitments at December 31, 2007 is
included in the following table (dollars in thousands):

Commitments to extend credit
    $
    669,336Commitments
      under credit card lines of credit
    
    30,490Standby letters of credit
    
    27,602Total
      off-balance sheet commitments
    $
    727,428


See Note
13 of the Notes to Consolidated Financial Statements included in Item 8 hereof
for a discussion of the nature, business purpose, and importance of off-balance
sheet arrangements.

Stockholders Equity

The
Companys total stockholders equity at December 31, 2007 was $275.3 million, an
increase of $14.2 million from December 31, 2006. The increase primarily
resulted from net income for the year ended December 31, 2007 of $30.0 million,
less cash dividends paid to shareholders of $10.5 million during 2007, less the
cost to repurchase shares of $9.2 million. In addition, at December 31, 2007 the
Company had accumulated other comprehensive income of approximately $.5 million.

CAPITAL RESOURCES

From time
to time the Company makes commitments to acquire banking properties or to make
equipment or technology related investments of capital. At December 31, 2007,
the Company had no material capital expenditure commitments apart from those
incurred in the ordinary course of business.

36

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Management believes that the capital resources of the Company will be
adequate to meet its needs for the reasonable foreseeable future. Additional
information regarding capital resources is located in Note 20 of the Notes to
the Consolidated Financial Statements included in item 8 this report.

LIQUIDITY AND SOURCES OF FUNDS

Bancorp
is a holding company and its primary sources of liquidity are the dividends
received from the Bank. Banking regulations may limit the amount of the dividend
that the Bank may pay to the Bancorp.

The
objective of the Banks liquidity management is to maintain ample cash flows to
meet obligations for depositor withdrawals, fund the borrowing needs of loan
customers, and to fund ongoing operations. Core relationship deposits are the
primary source of the Banks liquidity. As such, the Bank focuses on deposit
relationships with local business and consumer clients who maintain multiple
accounts and services at the Bank. Management views such deposits as the
foundation of its long-term liquidity because it believes such core deposits are
more stable and less sensitive to changing interest rates and other economic
factors compared to large time deposits or wholesale purchased funds. The Banks
customer relationship strategy has resulted in a relatively higher percentage of
its deposits being held in checking and money market accounts, and a lesser
percentage in time deposits. Total deposits increased in 2006 and 2007 in part
due to the use of brokered CDs where the Bank pays national market rates. The
Banks present funding mix is diverse, with approximately 76% of its checking
account balances arising from business and public accounts and 24% from
consumers. The composition of money market and interest-bearing demand accounts
was 58% business and 42% consumer. Management invests excess funds in short-term
and overnight money market instruments

A further source of funds and
liquidity is the Banks capability to borrow from reliable counterparties. The
Bank utilizes its investment securities, certain loans and FHLB Stock to provide
collateral to support its borrowing needs. Diversified and reliable sources of
wholesale funds are utilized to augment core deposit funding. Policy requires
the analysis and testing of such sources to ensure ample cash flow is available
under a range of circumstances. Management believes that its focus on core
relationship deposits coupled with access to borrowing through reliable
counterparties provides reasonable and prudent assurance that ample liquidity is
available. However, depositor or counterparty behavior could change in response
to competition, economic or market situations or other unforeseen circumstances,
which could have liquidity implications that may require different strategic or
operational actions. One source of wholesale funding is brokered deposits. At
December 31, 2007, such deposits totaled approximately $24.7 million, down from
$114.3 million at December 31, 2006. This decline was a result of redeployment
to more cost effective borrowing sources because of high rates on brokered
deposits.

The
Banks primary counterparty for borrowing purposes is the FHLB. At December 31,
2007, the FHLB had extended the Bank a secured line of credit of $838.6 million
that may be accessed for short or long-term borrowings given sufficient
qualifying collateral. As of December 31, 2007, the Bank had qualifying
collateral pledged for FHLB borrowings totaling $342.4 million. The Bank also
had $70.1 million in short-term borrowing availability from the FRB that
requires specific qualifying collateral. In addition, the Bank maintained
unsecured lines of credit totaling $105.0 million for the purchase of funds on a
short-term basis from several commercial bank counterparties. At December 31,
2007, the Bank had remaining available borrowing capacity on its aggregate lines
of credit totaling $691.0 million given sufficient collateral. However at
December 31, 2007, the Banks collateral availability limited such borrowing
capacity to approximately $324.4 million in aggregate.

Liquidity may be affected by the
Banks routine commitments to extend credit. Historically a significant portion
of such commitments (such as lines of credit) have expired or terminated without
funding. In addition, more than one-third 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. At December 31, 2007, the Bank had approximately $727.4 million in
outstanding commitments to extend credit, compared to approximately $713.9
million at year-end 2006. Management believes that the Banks available
resources will be sufficient to fund its commitments in the normal course of
business.

37

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INFLATION

The
effect of changing prices on financial institutions is typically different than
on non-banking companies since virtually all of a banks assets and liabilities
are monetary in nature. In particular, interest rates are significantly affected
by inflation, but neither the timing nor magnitude of the changes are directly
related to price level indices; therefore, the Company can best counter
inflation over the long term by managing net interest income and controlling net
increases in noninterest income and expenses.

ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The
disclosures in this item are qualified by the Risk Factors set forth in Item 1A
and the Section entitled Cautionary Information Concerning Forward-Looking
Statements included in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations in this report and any other
cautionary statements contained herein.

Interest Rate Risk and Asset and
Liability Management

The goal
of the Companys asset and liability management policy is to maximize long-term
profitability under the range of likely interest rate scenarios. Interest rate
risk management requires estimating the probability and impact of changes in
interest rates on assets and liabilities. The Board of Directors oversees
implementation of strategies to control interest rate risk. Management hires and
engages a qualified independent service provider to assist in modeling, monthly
reporting and assessing interest rate risk. The Companys methodology for
analyzing interest rate risk includes simulation modeling as well as 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 has
historically adjusted its sensitivity to changing interest rates by
strategically managing its loan and deposit portfolios with respect to pricing,
maturity or contractual characteristics. The Bank may also target the expansion
or contraction of specific investment portfolio or borrowing structures to
further affect its risk profile. In addition, the Bank is authorized to enter
into interest rate swap or other hedging contracts with re-pricing
characteristics that tend to moderate interest rate risk. However, there are no
material structured hedging instruments in use at this time. Because of the
volatility of market rates, event risk and other uncertainties described below,
there can be no assurance of the effectiveness of management programs to achieve
its interest rate risk objectives.

To assess
and estimate the degree of interest rate risk, the Company utilizes a
sophisticated simulation model that estimates the possible volatility of Company
earnings resulting from changes in interest rates. Management first establishes
a wide range of possible interest rate scenarios over a two-year forecast
period. Such scenarios routinely include a stable or unchanged scenario and an
estimated or most likely scenario given current and forecast economic
conditions. In addition, scenarios titled rising rates, declining rates, and
alternate declining rates are established to stress-test the impact of more
dramatic rate movements that are perceived as less likely, but may still
possibly occur. Next, net interest income and earnings are simulated in each
scenario. Note that earnings projections include the effect of estimated loan
and deposit growth that management deems reasonable; however, such volume
projections are not varied by rate scenario. Note also that the downturn in real
estate has caused elevated levels of non performing loans which lowers reported
NIM depending on the absolute volume of such assets. Simulated earnings are
compared over a two-year time horizon. The following table defines the market
interest rates projected in various interest rate scenarios. Generally,
projected market rates are reached gradually over the 2-year simulation horizon.

|                   |  | Actual Market |    | Estimated     |      | Alt. Declining |  | Declining     |   | Rising       
|------------------ |  | ------------- | -- | ------------- | ---- | -------------- |  | ------------- | - | -------------
|                   |  | Rates at      |    | Rates at      |      | Rates at       |  | Rates at      |   | Rates at     
|                   |  | December 2007 |    | December 2009 |      | December2009   |  | December 2009 |   | December 2009
|Federal Funds Rate |  | 4.25          | %  |               | 3.00 | %              |  | 2.00          | % |              
|Prime
      Rate   |  | 7.25          | %  |               | 6.00 | %              |  | 5.00          |   |              
|Yield Curve Spread |  |               |    |               |      |                |  |               |   |              
|Fed Funds to       |  |               |    |               |      |                |  |               |   |              
|10-year Treas.     |  | (.23          | %) |               | .25  | %              |  | 1.10          | % |              

38

---

The
following table presents percentage changes in simulated future earnings under
the above-described scenarios as compared to earnings under the Estimated rate
scenario calculated as of this year end. The effect on earnings assumes no
changes in non-interest income or expense between scenarios.

|                                           |  | First Twelve Month  |                      | Second Twelve Month |                      | 24th Month annualized
|------------------------------------------ |  | ------------------- | -------------------- | ------------------- | -------------------- | ---------------------
|                                           |  | Average % Change in |                      | Average % Change in |                      | %
      Change in    
|Estimated Rate Scenario compared
      to: |  |                     | Pro-forma Net Income |                     | Pro-forma Net Income |                      
|Alternate Declining Rate Scenario          |  | (1.9                | %)                   |                     | (7.3                 | %)                   
|Declining Rate Scenario                    |  | (5.1                | %)                   |                     | (14.7                | %)                   
|Rising Rate Scenario                       |  | 4.8                 | %                    |                     | 19.9                 | %                    

Managements assessment of interest rate risk and scenario analysis must
be considered in the context of market interest rates and overall economic
conditions. Beginning in mid 2004, the Federal Reserve engineered a gradual
rising in short term market interest rates. Meanwhile, long term rates remained
relatively stable resulting in a flattening of yield curve between short and
long term rates. However, with the much publicized subprime, real estate and
credit market disruptions of 2007, market participants are currently
anticipating a rapid decline in rates in 2008.

In
managements judgment and at this date, the interest rate risk profile of the
Bank is reasonably balanced within the most likely range of possible outcomes.
The model indicates that should future interest rates actually follow the path
indicated in the estimated rate scenario, the net interest margin would range
between 4.70% and 4.80% all else being equal. However, with the more dramatic
changes reflected in the rising or declining scenarios, the model suggests
the margin would likely fall outside of this range should such interest rates
actually occur. This is mainly because the Bank has a large portion of
non-interest bearing funds (approximately 25% of total deposits) that are
assumed to be relatively insensitive to changes in interest rates. Thus in the
event of rising rates, yields on earning assets would tend to increase at a
faster pace than overall cost of funds, leading to an improving margin.
Conversely, should rates fall to the very low levels assumed in the declining
scenario, yields on loans and securities would compress against an already low
cost of funds. Also in this declining rate scenario, the model assumes an
annualized 35% prepayment rate on loans currently outstanding that would
refinance to lower rates, contributing to margin compression. Thus in the
declining rate scenario where the federal fund rates fall to just 0.50%, the
model indicates that the net interest margin could average approximately 5.1%
below the range noted above during the first 12 months of the forecast horizon,
and up to 14.7% below during the second twelve months. Management has concluded
that the degree of margin and earnings volatility under the above scenarios is
acceptable because of the cost of mitigating such risk and because the model
suggests that the Bank would still generate satisfactory returns under such
circumstances.

Please
carefully review and consider the following information regarding the risk of
placing undue reliance on simulation models, interest rate projections and
scenario results. In all scenarios discussed above, results are modeled using
managements estimates as to growth in loans, deposits and other balance sheet
items, as well as the expected mix and pricing thereof. These volume estimates
are static in the various scenarios. Such estimates may be inaccurate as to
future periods. Model results are only indicative of interest rate risk exposure
under various scenarios. The results do not encompass all possible paths of
future market rates, in terms of absolute change or rate of change, or changes
in the shape of the yield curve. Nor does the simulation anticipate changes in
credit conditions that could affect results. Likewise, scenarios do not include
possible changes in volumes, pricing or portfolio management tactics that may
enable management to moderate the effect of such interest rate changes.

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) model assumptions may differ from actual outcomes; (3)
uncertainties as to customer behavior in response to changing circumstances; (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; and (7) other unanticipated credit conditions or other events
impacting volatility in market conditions and interest rates.

39

---

Interest Rate Gap
Table

In the
opinion of management, the use of interest rate gap analysis is less valuable
than the simulation method discussed above as a means to measure and manage
interest rate risk. This is because it is a static measure of rate sensitivity
and does not capture the possible magnitude or pace of rate changes. At year-end
2006, 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 $337.0
million.

The
Company considers its rate-sensitive assets to be those that either contains a
provision to adjust the interest rate periodically or matures within one year.
These assets include certain loans and leases and investment securities and
interest bearing balances with FHLB. Rate-sensitive liabilities are those
liabilities that are considered sensitive to periodic interest rate changes
within one year, including maturing time certificates, savings deposits,
interest-bearing demand deposits and junior subordinated debentures.

Set forth
below is a table showing the interest rate sensitivity gap of the Companys
assets and liabilities over various re-pricing periods and maturities, as of
December 31, 2007:

|                                               |  |                |           |      |  | After 90 days |          | After one   |  |            |         |   |  |   |         |  
|---------------------------------------------- |  | -------------- | --------- | ---- |  | ------------- | -------- | ----------- |  | ---------- | ------- | - |  | - | ------- | -
|                                               |  |                |           |      |  | within one    |          | year within |  | After five |         |   |  |  
|(Dollars in
      thousands)                   |  | Within 90 Days |           | year |  | five years    |          | years       |  | Total     
|INTEREST EARNING ASSETS:                       |  |                |           |      |  |               |          |             |  |            |         |   |  |   |         |  
|Investments & fed funds sold                   |  | $              | 668       |      |  | $             | 5,684    |             |  | $          | 15,899  |   |  | $ | 65,432  |  
|Interest bearing balances with FHLB            |  |                | 3         |      |  |               |         |             |  |            |        |   |  |   |        |  
|Loans                                          |  |                | 1,098,391 |      |  |               | 52,865   |             |  |            | 779,991 |   |  |   | 110,231 |  
|Total
      interest earning assets            |  | $              | 1,099,062 |      |  | $             | 58,549   |             |  | $          | 795,890 |   |  | $ | 175,663 |  
|                                              
|INTEREST BEARING LIABILITIES:                  |  |                |           |      |  |               |          |             |  |            |         |   |  |   |         |  
|Interest-bearing demand deposits               |  | $              | 801,340   |      |  | $             | 135,508  |             |  | $          |        |   |  | $ |        |  
|Savings deposits                               |  |                | 18,860    |      |  |               | 18,860   |             |  |            |        |   |  |   |        |  
|Time deposits                                  |  |                | 127,585   |      |  |               | 80,730   |             |  |            | 48,752  |   |  |   |        |  
|Total interest bearing deposits                |  |                | 947,785   |      |  |               | 235,098  |             |  |            | 48,752  |   |  |   |        |  
|Junior subordinated debentures                 |  |                | 54,898    |      |  |               |         |             |  |            |        |   |  |   | 13,660  |  
|Federal funds purchased                        |  |                | 14,802    |      |  |               |         |             |  |            |        |   |  |   |        |  
|Other borrowings                               |  |                | 34,658    |      |  |               | 188,780  |             |  |            | 69,114  |   |  |   | 35,315  |  
|Customer repurchase agreements                 |  |                | 18,614    |      |  |               |         |             |  |            |        |   |  |   |        |  
|Total interest bearing liabilities             |  | $              | 1,070,757 |      |  | $             | 423,878  |             |  | $          | 117,866 |   |  | $ | 48,975  |  
|Interest rate sensitivity gap                  |  | $              | 28,305    |      |  | $             | (365,329 | )           |  | $          | 678,024 |   |  | $ | 126,688 |  
|Cumulative
      interest rate sensitivity gap |  | $              | 28,305    |      |  | $             | (337,024 | )           |  | $          | 341,000 |   |  | $ | 467,688 |  
|Interest rate gap as a percentage of total     |  |                |           |      |  |               |          |             |  |            |         |   |  |   |         |  
|interest earning assets                        |  |                | 1.33      | %    |  |               | -17.16   | %           |  |            | 31.84   | % |  |   | 5.95    | %
|Cumulative
      interest rate gap as a        |  |                |           |      |  |               |          |             |  |            |         |   |  |   |         |  
|percentage of total earning assets             |  |                | 1.33      | %    |  |               | -15.83   | %           |  |            | 16.02   | % |  |   | 21.97   | %

40

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ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

The
following reports, audited consolidated financial statements and the notes
thereto are set forth in this Annual Report on Form 10-K on the pages indicated:

|                                                                 |  | Page
|---------------------------------------------------------------- |  | ----
|Report of Independent Registered Public Accounting
      Firm    |  | 42  
|Consolidated
      Balance Sheets at December 31, 2007 and 2006  |  | 43  
|For the Years Ended December 31, 2007, 2006 and 2005:            |  |     
|Consolidated Statements of Income                                |  | 44  
|Consolidated Statements of Changes in Stockholders
      Equity |  | 45  
|Consolidated Statements of Cash Flows                            |  | 47  
|Notes to Consolidated Financial Statements                       |  | 48  

41

---

REPORT OF SYMONDS, EVANS &
COMPANY, P.C., INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Cascade Bancorp

We have audited the accompanying
consolidated balance sheets of Cascade Bancorp and its subsidiary, Bank of the
Cascades (collectively, the Company), as of December 31, 2007 and 2006, and
the related consolidated statements of income, changes in stockholders equity,
and cash flows for each of the years in the three-year period ended December 31,
2007. The Companys management is responsible for these consolidated financial
statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (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 its subsidiary as of December 31, 2007
and 2006, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2007 in conformity with
accounting principles generally accepted in the United States of America.

We have also audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
the Companys internal control over financial reporting as of December 31, 2007,
based on criteria established inInternal
ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission, and our report
dated March 5, 2008 expressed an adverse opinion.

Portland, Oregon March 5,
2008

42

---

CASCADE BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE
SHEETS

DECEMBER 31, 2007 AND 2006

(Dollars in thousands)

|                                                                    |  | 2007 |           | 2006
|------------------------------------------------------------------- |  | ---- | --------- | ----
|ASSETS                                                             
|Cash and cash
      equivalents:                                    |  |      |           |     
|Cash
      and due from banks                                       |  | $    | 62,470    |     
|Interest bearing deposits with Federal Home Loan
      Bank         |  |      | 3         |     
|Federal funds sold                                                  |  |      | 668       |     
|Total cash and cash equivalents                                     |  |      | 63,141    |     
|Investment securities available-for-sale                            |  |      | 83,835    |     
|Investment
      securities held-to-maturity, estimated fair        |  |      |           |     
|value of $3,193 ($3,687 in 2006)                                    |  |      | 3,180     |     
|Federal Home Loan Bank stock                                        |  |      | 6,991     |     
|Loans,
      net                                                    |  |      | 2,007,603 |     
|Premises and equipment, net                                         |  |      | 38,062    |     
|Goodwill                                                            |  |      | 105,047   |     
|Core deposit intangibles                                            |  |      | 9,502     |     
|Bank-owned life
      insurance                                     |  |      | 33,304    |     
|Accrued interest and other assets                                   |  |      | 43,827    |     
|Total assets                                                        |  | $    | 2,394,492 |     
|                                                                   
|LIABILITIES AND STOCKHOLDERS EQUITY                               
|Liabilities:                                                        |  |      |           |     
|Deposits:                                                           |  |      |           |     
|Demand                                                              |  | $    | 435,503   |     
|Interest bearing demand                                             |  |      | 936,848   |     
|Savings                                                             |  |      | 37,720    |     
|Time                                                                |  |      | 257,067   |     
|Total deposits                                                      |  |      | 1,667,138 |     
|Junior subordinated debentures                                      |  |      | 68,558    |     
|Federal funds purchased                                             |  |      | 14,802    |     
|Other borrowings                                                    |  |      | 327,867   |     
|Customer repurchase agreements                                      |  |      | 18,614    |     
|Accrued interest and other liabilities                              |  |      | 22,227    |     
|Total liabilities                                                   |  |      | 2,119,206 |     
|Stockholders equity:                                               |  |      |           |     
|Common stock, no par value; 35,000,000 shares
      authorized;     |  |      |           |     
|28,034,172 shares issued and outstanding (28,330,259 in
      2006) |  |      | 157,153   |     
|Retained earnings                                                   |  |      | 117,600   |     
|Accumulated other comprehensive income                              |  |      | 533       |     
|Total stockholders equity                                          |  |      | 275,286   |     
|Total liabilities and stockholders equity                          |  | $    | 2,394,492 |     

See accompanying notes.

43

---

CASCADE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF
INCOME

YEARS ENDED DECEMBER 31, 2007, 2006
AND 2005

(Dollars in thousands, except per
share amounts)

|                                                                        |  | 2007 |         | 2006 |  | 2005
|----------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ----
|Interest and dividend income:                                           |  |      |         |      |  |     
|Interest and fees on loans                                              |  | $    | 165,361 |      |  | $   
|Taxable interest on investment securities                               |  |      | 5,160   |      |  |     
|Nontaxable interest on investment securities                            |  |      | 283     |      |  |     
|Interest on interest bearing deposits with Federal Home Loan
      Bank |  |      | 195     |      |  |     
|Interest on federal funds sold                                          |  |      | 187     |      |  |     
|Dividends on Federal Home Loan Bank stock                               |  |      | 42      |      |  |     
|Total interest and dividend income                                      |  |      | 171,228 |      |  |     
|Interest expense:                                                       |  |      |         |      |  |     
|Deposits:                                                               |  |      |         |      |  |     
|Interest bearing demand                                                 |  |      | 30,727  |      |  |     
|Savings                                                                 |  |      | 202     |      |  |     
|Time                                                                    |  |      | 15,804  |      |  |     
|Junior subordinated debentures and other borrowings                     |  |      | 15,991  |      |  |     
|Total interest expense                                                  |  |      | 62,724  |      |  |     
|Net interest
      income                                               |  |      | 108,504 |      |  |     
|Loan
      loss provision                                               |  |      | 19,400  |      |  |     
|Net interest income
      after loan loss provision                     |  |      | 89,104  |      |  |     
|Noninterest income:                                                     |  |      |         |      |  |     
|Service charges on deposit accounts, net                                |  |      | 9,710   |      |  |     
|Mortgage banking income, net                                            |  |      | 2,730   |      |  |     
|Card issuer and merchant service fees, net                              |  |      | 3,930   |      |  |     
|Earnings on bank-owned life insurance                                   |  |      | 1,574   |      |  |     
|Net gains (losses) on sales of other real estate owned                  |  |      | (85     | )    |  |     
|Gains on sales of investment securities available-for-sale              |  |      | 260     |      |  |     
|Other                                                                   |  |      | 3,021   |      |  |     
|Total noninterest income                                                |  |      | 21,140  |      |  |     
|Noninterest
      expenses:                                             |  |      |         |      |  |     
|Salaries and employee benefits                                          |  |      | 36,344  |      |  |     
|Equipment                                                               |  |      | 2,250   |      |  |     
|Occupancy                                                               |  |      | 4,438   |      |  |     
|Communications                                                          |  |      | 1,988   |      |  |     
|Other                                                                   |  |      | 17,489  |      |  |     
|Total noninterest expenses                                              |  |      | 62,509  |      |  |     
|Income
      before income taxes                                        |  |      | 47,735  |      |  |     
|Provision for income
      taxes                                        |  |      | 17,756  |      |  |     
|Net
      income                                                        |  | $    | 29,979  |      |  | $   
|Basic earnings per
      common share                                   |  | $    | 1.06    |      |  | $   
|Diluted
      earnings per common share                                 |  | $    | 1.05    |      |  | $   

See accompanying notes.

44

---

CASCADEBANCORPANDSUBSIDIARY

CONSOLIDATEDSTATEMENTSOFCHANGESINSTOCKHOLDERSEQUITY

YEARSENDEDDECEMBER31, 2007, 2006 AND 2005

(Dollarsinthousands,except per shareamounts)

|                                                                          |  |                 |  |               |         |            |  |              |         | Unearned           |  |               |        |                  
|------------------------------------------------------------------------- |  | --------------- |  | ------------- | ------- | ---------- |  | ------------ | ------- | ------------------ |  | ------------- | ------ | -----------------
|                                                                          |  |                 |  |               |         |            |  |              |         | compensation       |  | Accumulated   |        |                  
|                                                                          |  |                 |  |               |         |            |  |              |         | on
      nonvested |  | other         |        | Total            
|                                                                          |  | Number
      of |  | Comprehensive |         | **Common** |  | **Retained** |         | restricted         |  | comprehensive |        | **stockholders'**
|                                                                          |  | shares          |  | income (loss) |         | stock      |  | earnings     |         | stock              |  | income (loss) |        | equity           
|Balances at December 31, 2004                                             |  | 20,923,283      |  |               |         |            |  | $            | 32,079  |                    |  | $             | 53,707 |                  
|Comprehensive
      income:                                               |  |                 |  |               |         |            |  |              |         |                    |  |               |        |                  
|Net
      income                                                          |  |                |  |               | $22,436 |            |  |              |        |                    |  |               | 22,436 |                  
|Other comprehensive loss - unrealized losses on
      investment          |  |                 |  |               |         |            |  |              |         |                    |  |               |        |                  
|securities available-for-sale of approximately $261 (net
      of         |  |                 |  |               |         |            |  |              |         |                    |  |               |        |                  
|income taxes of approximately $160)                                       |  |                |  |               | (261    | )          |  |              |        |                    |  |               |       |                  
|Total
      comprehensive income                                          |  |                |  |               | $22,175 |            |  |              |        |                    |  |               |       |                  
|Nonvested
      restricted stock grants, net                              |  | 62,483          |  |               |         |            |  |              | 590     |                    |  |               |       |                  
|Amortization of unearned compensation on nonvested restricted
      stock |  |                |  |               |         |            |  |              |        |                    |  |               |       |                  
|Cash dividends
      paid (aggregating $.26 per share)                    |  |                |  |               |         |            |  |              |        |                    |  |               | (5,572 | )                
|Stock options exercised                                                   |  | 206,128         |  |               |         |            |  |              | 797     |                    |  |               |       |                  
|Tax benefit from
      non-qualified stock options exercised              |  |                |  |               |         |            |  |              | 240     |                    |  |               |       |                  
|Balances at December 31, 2005                                             |  | 21,191,894      |  |               |         |            |  |              | 33,706  |                    |  |               | 70,571 |                  
|Comprehensive
      income:                                               |  |                 |  |               |         |            |  |              |         |                    |  |               |        |                  
|Net
      income                                                          |  |                |  |               | $35,677 |            |  |              |        |                    |  |               | 35,677 |                  
|Other comprehensive income - unrealized gains on
      investment         |  |                 |  |               |         |            |  |              |         |                    |  |               |        |                  
|securities available-for-sale of approximately $590 (net
      of         |  |                 |  |               |         |            |  |              |         |                    |  |               |        |                  
|income taxes of approximately $361), net of
      reclassification        |  |                 |  |               |         |            |  |              |         |                    |  |               |        |                  
|adjustment for net gains on sales of investment
      securities          |  |                 |  |               |         |            |  |              |         |                    |  |               |        |                  
|available-for-sale included in net income of
      approximately          |  |                 |  |               |         |            |  |              |         |                    |  |               |        |                  
|$366 (net of income taxes of approximately $224)                          |  |                |  |               | 224     |            |  |              |        |                    |  |               |       |                  
|Total
      comprehensive income                                          |  |                |  |               | $35,901 |            |  |              |        |                    |  |               |       |                  
|Transfer to common stock due to implementation of SFAS 123R               |  |                |  |               |         |            |  |              | (442    | )                  |  |               |       |                  
|Common stock issued in conjunction with acquisition                       |  |                 |  |               |         |            |  |              |         |                    |  |               |        |                  
|of
      F&M Holding Company (Note 11)                                    |  | 6,656,249       |  |               |         |            |  |              | 124,552 |                    |  |               |       |                  
|Nonvested
      restricted stock grants, net                              |  | 42,241          |  |               |         |            |  |              |        |                    |  |               |       |                  
|Stock-based compensation expense                                          |  |                |  |               |         |            |  |              | 1,149   |                    |  |               |       |                  
|Cash dividends
      paid (aggregating $.31 per share)                    |  |                |  |               |         |            |  |              |        |                    |  |               | (8,136 | )                
|Stock options exercised                                                   |  | 439,875         |  |               |         |            |  |              | 2,609   |                    |  |               |       |                  
|Tax benefit from
      non-qualified stock options exercised              |  |                |  |               |         |            |  |              | 625     |                    |  |               |       |                  
|Balances at December 31, 2006                                             |  | 28,330,259      |  |               |         |            |  |              | 162,199 |                    |  |               | 98,112 |                  

Seeaccompanyingnotes.

45

---

CASCADEBANCORPANDSUBSIDIARY

CONSOLIDATEDSTATEMENTSOFCHANGESINSTOCKHOLDERSEQUITY(continued)

YEARSENDEDDECEMBER31, 2007, 2006 AND 2005

(Dollarsinthousands,except per shareamounts)

|                                                                  |  |            |   |               |  |         |   |          |   | Unearned           |   |                   |   |                  
|----------------------------------------------------------------- |  | ---------- | - | ------------- |  | ------- | - | -------- | - | ------------------ | - | ----------------- | - | -----------------
|                                                                  |  |            |   |               |  |         |   |          |   | **compensation**   |   | **Accumulated**   |   |                  
|                                                                  |  |            |   |               |  |         |   |          |   | on
      nonvested |   | other             |   | Total            
|                                                                  |  | Number of  |   | Comprehensive |  | Common  |   | Retained |   | restricted         |   | **comprehensive** |   | **stockholders'**
|                                                                  |  | shares     |   | income (loss) |  | stock   |   | earnings |   | stock              |   | income (loss)     |   | equity           
|Comprehensive income:                                             |  |            |   |               |  |         |   |          |   |                    |   |                   |   |                  
|Net income                                                        |  |           |   |               |  | $29,979 |   |          | $ |                   |   |                   | $ | 29,979           
|Other comprehensive loss - unrealized losses on investment        |  |            |   |               |  |         |   |          |   |                    |   |                   |   |                  
|securities available-for-sale of approximately $70 (net
      of  |  |            |   |               |  |         |   |          |   |                    |   |                   |   |                  
|income taxes of approximately $43), net of
      reclassification |  |            |   |               |  |         |   |          |   |                    |   |                   |   |                  
|adjustment for net gains on sales of investment
      securities  |  |            |   |               |  |         |   |          |   |                    |   |                   |   |                  
|available-for-sale included in net income of
      approximately  |  |            |   |               |  |         |   |          |   |                    |   |                   |   |                  
|$162 (net of income taxes of approximately $98)                   |  |           |   |               |  | (232    | ) |          |   |                   |   |                   |   |                 
|Total
      comprehensive income                                  |  |           |   |               |  | $29,747 |   |          |   |                   |   |                   |   |                 
|Nonvested restricted stock grants, net                            |  | 40,904     |   |               |  |         |   |          |   |                   |   |                   |   |                 
|Stock-based
      compensation expense                            |  |           |   |               |  |         |   |          |   | 1,632              |   |                   |   |                 
|Cash dividends paid (aggregating $.37 per share)                  |  |           |   |               |  |         |   |          |   |                   |   |                   |   | (10,491          
|Stock options
      exercised                                     |  | 146,109    |   |               |  |         |   |          |   | 1,979              |   |                   |   |                 
|Tax benefit from non-qualified stock options exercised            |  |           |   |               |  |         |   |          |   | 548                |   |                   |   |                 
|Repurchases of
      common stock                                 |  | (483,100   | ) |               |  |         |   |          |   | (9,205             | ) |                   |   |                 
|Balances at December 31, 2007                                     |  | 28,034,172 |   |               |  |         |   |          | $ | 157,153            |   |                   | $ | 117,600          

Seeaccompanyingnotes.

46

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CASCADE BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2007, 2006
AND 2005

(Dollars in thousands)

|                                                                      |  | 2007 |          | 2006 |  | 2005
|--------------------------------------------------------------------- |  | ---- | -------- | ---- |  | ----
|Cash
      flows from operating activities:                           |  |      |          |      |  |     
|Net income                                                            |  | $    | 29,979   |      |  | $   
|Adjustments to reconcile net income to net cash
      provided        |  |      |          |      |  |     
|by operating activities:                                              |  |      |          |      |  |     
|Depreciation and amortization                                         |  |      | 4,541    |      |  |     
|Loan loss provision                                                   |  |      | 19,400   |      |  |     
|Credit for deferred income taxes                                      |  |      | (6,841   | )    |  |     
|Discounts (gains) on sales of mortgage loans,
      net               |  |      | (102     | )    |  |     
|Gains on sales of investment securities
      available-for-sale      |  |      | (260     | )    |  |     
|Dividends on Federal Home Loan Bank stock                             |  |      |         |      |  |     
|Deferred benefit plan expenses                                        |  |      | 2,690    |      |  |     
|Stock-based compensation expense                                      |  |      | 1,632    |      |  |     
|Amortization of unearned compensation on restricted
      stock       |  |      |         |      |  |     
|Gain on sales of premises and equipment,
      net                    |  |      | (342     | )    |  |     
|Increase in accrued interest and other
      assets                   |  |      | (2,569   | )    |  |     
|Increase (decrease) in accrued interest and other
      liabilities   |  |      | (7,900   | )    |  |     
|Originations of mortgage loans                                        |  |      | (170,095 | )    |  |     
|Proceeds from sales of mortgage loans                                 |  |      | 168,917  |      |  |     
|Net
      cash provided by operating activities                       |  |      | 39,050   |      |  |     
|Cash
      flows from investing activities:                           |  |      |          |      |  |     
|Purchases of investment securities available-for-sale                 |  |      | (14,859  | )    |  |     
|Purchases of investment securities held-to-maturity                   |  |      |         |      |  |     
|Proceeds from maturities, calls and prepayments of                    |  |      |          |      |  |     
|investment securities available-for-sale                              |  |      | 34,137   |      |  |     
|Proceeds from sales of investment securities
      available-for-sale |  |      | 525      |      |  |     
|Proceeds from maturities and calls of investment
      securities     |  |      |          |      |  |     
|held-to-maturity                                                      |  |      | 505      |      |  |     
|Purchase of Federal Home Loan Bank stock                              |  |      |         |      |  |     
|Loan originations, net                                                |  |      | (173,712 | )    |  |     
|Cash
      exchanged in acquisition of F&M Holding Company, net       |  |      |         |      |  |     
|Purchases of premises and equipment, net                              |  |      | 458      |      |  |     
|Purchases of bank-owned life insurance                                |  |      |         |      |  |     
|Proceeds from sales of other real estate owned                        |  |      | 2,227    |      |  |     
|Net
      cash used in investing activities                           |  |      | (150,719 | )    |  |     
|Cash flows from
      financing activities:                           |  |      |          |      |  |     
|Net
      increase in deposits                                        |  |      | 5,522    |      |  |     
|Net
      decrease in customer repurchase agreements                  |  |      | (25,404  | )    |  |     
|Proceeds from issuance of junior subordinated
      debentures        |  |      |         |      |  |     
|Net increase (decrease) in federal funds purchased                    |  |      | (375     | )    |  |     
|Net
      increase in other borrowings                                |  |      | 156,577  |      |  |     
|Cash dividends paid                                                   |  |      | (10,491  | )    |  |     
|Proceeds from stock options exercised                                 |  |      | 1,979    |      |  |     
|Repurchases of common stock                                           |  |      | (9,205   | )    |  |     
|Tax
      benefit from non-qualified stock options exercised          |  |      | 548      |      |  |     
|Net
      cash provided by financing activities                       |  |      | 119,151  |      |  |     
|Net
      increase (decrease) in cash and cash equivalents            |  |      | 7,482    |      |  |     
|Cash and cash
      equivalents at beginning of year                  |  |      | 55,659   |      |  |     
|Cash
      and cash equivalents at end of year                        |  | $    | 63,141   |      |  | $   

See accompanying notes.

47

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CASCADE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

1. Basis of presentation and summary
of significant accounting policies

Basis of presentation

The accompanying consolidated financial
statements include the accounts of Cascade Bancorp (Bancorp), an Oregon
chartered financial holding company, and its wholly-owned subsidiary, Bank of
the Cascades (the Bank) (collectively, the Company). Prior to July 6, 2007,
the Bank operated branches in Idaho under the name of Farmers & Merchants, a
Bank of the Cascades Company (see Note 11). Effective July 6, 2007, the Company
announced that such branches in Idaho changed their name to Bank of the
Cascades. All significant intercompany accounts and transactions have been
eliminated in consolidation.

Bancorp has also established four
subsidiary grantor trusts in connection with the issuance of trust preferred
securities (see Note 9). In accordance with the requirements of Financial
Accounting Standards Board (FASB) Interpretation No. 46(R), Consolidation of
Variable Interest Entities (as amended), the accounts and transactions of these
trusts are not included in the accompanying consolidated financial
statements.

All share and per share information in
the accompanying consolidated financial statements have been adjusted to give
retroactive effect to a 5-for-4 stock split in 2006.

Certain amounts in 2006 and 2005 have
been reclassified to conform with the 2007 presentation.

Description of
business

The Bank conducts a general banking
business, operating branches in Central, Southern and Northwest Oregon, as well
as the Boise, Idaho area. Its activities include the usual lending and deposit
functions of a commercial bank: commercial, construction, real estate,
installment, credit card and mortgage loans; checking, money market, time
deposit and savings accounts; Internet banking and bill payment; automated
teller machines and safe deposit facilities. Additionally, the Bank originates
and sells mortgage loans into the secondary market and offers trust and
investment services.

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 and
gains when earned and expenses and losses 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, gains, expenses, and
losses during the reporting periods. Actual results could differ from those
estimates.

Segment reporting

The Company is managed by legal entity
and not by lines of business. The Company has determined that its operations are
solely in the community banking industry and include traditional community
banking services, including lending activities; acceptance of demand, savings,
and time deposits; business services; and trust services. These products and
services have similar distribution methods, types of customers and regulatory
responsibilities. The performance of the Company and Bank is reviewed by the
executive management team and the Companys Board of Directors (the Board) on a
monthly basis. All of the executive officers of the Company are members of the
Banks executive management team, and operating decisions are made based on the
performance of the Company as a whole. Accordingly, disaggregated segment
information is not required to be presented in the accompanying consolidated
financial statements, and the Company will continue to present one segment for
financial reporting purposes.

48

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

Cash and cash
equivalents

For purposes of reporting cash flows,
cash and cash equivalents include cash on hand, amounts due from banks
(including cash items in process of collection), interest bearing deposits with
Federal Home Loan Bank (FHLB) and federal funds sold. Generally, any interest
bearing deposits are invested for a maximum of 90 days. Federal funds are
generally 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

Noncash transactions resulted from
unrealized gains and losses on investment securities available-for-sale, net of
income taxes, reclassification of unearned compensation on nonvested restricted
stock to common stock, issuance of nonvested restricted stock, common stock
issued in conjunction with the acquisition of F&M Holding Company (F&M),
and stock-based compensation expense, all as disclosed in the accompanying
consolidated statements of changes in stockholders equity; the net
capitalization of originated mortgage-servicing rights, as disclosed in Note 6;
a 5-for-4 stock split in 2006; the transfer of approximately $11,666 and $367 of
loans to other real estate owned in 2007 and 2006, respectively, and transfers
of general account bank-owned life insurance (BOLI) policies to separate account
BOLI policies in 2006.

During 2007, 2006 and 2005, the Company
paid approximately $62,902, $37,941 and $12,983, respectively, in interest
expense.

During 2007, 2006 and 2005, the Company
made income tax payments of approximately $24,940, $24,270 and $13,579,
respectively.

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 during 2007, 2006 or 2005.

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. The fair value of
available-for-sale securities is based on quoted market prices, when available.
If quoted market prices are not available, fair values are estimated using
quoted market prices for similar instruments.

Management determines the appropriate
classification of securities at the time of purchase.

Gains and losses on the sales 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 generally 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. In estimating other-than-temporary impairment
losses, management considers, among other things, (i) the length of time and the
extent

49

---

CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

to which the fair value has been less
than cost, (ii) the financial condition and near term prospects of the issuer,
and (iii) the intent and ability of the Company to retain its investment in the
issuer for a period of time sufficient to allow for any anticipated recovery of
fair value. The related write-downs would be included in earnings as realized
losses. Management believes that all unrealized losses on investment securities
at December 31, 2007 and 2006 are temporary (see Note 3).

FHLB stock

The Banks investment in FHLB stock is
carried at cost, 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, 2007, 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; however, stock redemptions are at the discretion of
the FHLB.

Loans

Loans are stated at the amount of
unpaid principal, reduced by the reserve for loan losses, the undisbursed
portion of loans in process and deferred loan fees.

Interest income on loans is accrued
daily based on the principal amounts outstanding. Allowances are established for
uncollected interest on loans for which the interest is determined to be
uncollectible. Generally, all loans past due (based on contractual terms) 90
days or more are placed on non-accrual status and internally classified as
substandard. Any interest income accrued at that time is reversed. Subsequent
collections are applied proportionately to past due principal and interest,
unless collectibility of principal is in doubt, in which case all payments are
applied to principal. Loans are removed from non-accrual status only when the
loan is deemed current, and the collectibility of principal and interest is no
longer doubtful, or, on one-to-four family loans, when the loan is less than 90
days delinquent.

The Bank charges fees for originating
loans. These fees, net of certain loan origination costs, are deferred and
amortized to interest income, on the level-yield basis, over the loan term. If
the loan is repaid prior to maturity, the remaining unamortized deferred loan
origination fee is recognized in interest income at the time of repayment.

Reserve for loan losses

The reserve for loan losses represents
managements recognition of the assumed risks of extending credit. The reserve
is established to absorb known and inherent losses in the loan portfolio as of
the consolidated balance sheet date. As of December 31, 2006, the Bank
established a separate liability for inherent losses on unfunded loan
commitments. Prior to December 31, 2006, the liability for unfunded loan
commitments was included in the reserve for loan losses. The reserve is
maintained at a level currently considered adequate to provide for potential
loan losses based on managements assessment of various factors affecting 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 level of reserve for
loan losses is also subject to review by the bank regulatory authorities who may
require increases to the reserve based on their evaluation of the information
available to it at the time of its examination of the Bank. The reserve is
increased by provisions charged to operations and reduced by loans charged-off,
net of recoveries.

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

50

---

CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

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

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

The unallocated portion of the reserve
is based upon managements evaluation of various factors that are not directly
measured in the determination of the allocated and specific reserves. Such
factors include uncertainties in economic conditions, uncertainties in
identifying triggering events that directly correlate to subsequent loss rates,
risk factors that have not yet manifested themselves in loss allocation factors
and historical loss experience data that may not precisely correspond to the
current portfolio. The unallocated reserve may also be affected by review by the
bank regulatory authorities who may require increases to the reserve based on
their evaluation of the information available to it at the time of its
examination. Also, loss data representing a complete economic cycle is not
available for all sections of the loan portfolio. Accordingly, the unallocated
reserve helps to minimize the risk related to the margin of imprecision inherent
in the estimation of allocated loan losses. Due to the subjectivity involved in
the determination of the unallocated portion of the reserve for loan losses, the
relationship of the unallocated component to the total reserve for loan losses
may fluctuate from period to period.

Reserve for unfunded loan
commitments

The Company maintains a separate
reserve for losses related to unfunded loan commitments. Management estimates
the amount of probable losses related to unfunded loan commitments by applying
the loss factors used in the reserve for loan loss methodology to an estimate of
the expected amount of funding and applies this adjusted factor to the unused
portion of unfunded loan commitments. The reserve for unfunded loan commitments
totaled $3,163 and $3,213 at December 31, 2007 and 2006, respectively, and these
amounts are included in accrued interest and other liabilities in the
accompanying consolidated balance sheets. Prior to December 31, 2006, the
reserve for unfunded loan commitments was included in the reserve for loan
losses for financial reporting purposes.

Mortgage servicing
rights

Mortgage servicing rights (MSRs) are
measured by allocating the carrying value of loans between the assets sold and
interest retained, based upon the relative estimated fair value at date of sale.
MSRs are capitalized at their allocated carrying value and amortized in
proportion to, and over the period of, estimated future net servicing revenue.
Impairment of MSRs is assessed based on the estimated fair value of servicing
rights. Fair value is estimated

51

---

CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

using discounted cash flows of
servicing revenue less servicing costs taking into consideration market
estimates of prepayments as applied to underlying loan type, note rate and term.
Impairment adjustments, if any, are recorded through a valuation
allowance.

Fees earned for servicing mortgage
loans are reported as income when the related mortgage loan payments are
received. The Company classifies MSRs as accrued interest and other assets in
the accompanying consolidated balance sheets.

Premises and
equipment

Premises and equipment are stated at
cost, less accumulated depreciation and amortization. Depreciation and
amortization is computed on the straight-line method 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.

Goodwill and other intangible
assets

Goodwill and other intangible assets
represent the excess of the purchase price and related costs over the fair value
of net assets acquired in business combinations under the purchase method of
accounting. As of December 31, 2007 and 2006, the carrying value of goodwill was
$105,047, which arose from the acquisition of F&M during 2006 (see Note 11)
and from the acquisition of Community Bank of Grants Pass (CBGP) during 2004.

In accordance with Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets, goodwill cannot be amortized; however, it must be tested for impairment
at least annually. The impairment test for goodwill requires a two-step process.
First, the aggregate estimated fair value of a reporting unit is compared to its
carrying amount, including goodwill. If the estimated fair value exceeds the
carrying amount, no impairment exists. If the carrying amount of the reporting
unit exceeds the estimated fair value, then a second step of the impairment test
is required in order to determine the implied fair value of the reporting units
goodwill. If the carrying amount of the reporting units goodwill exceeds the
implied fair value, then goodwill impairment is recognized by writing goodwill
down to the implied fair value. The Company performs its annual impairment test
for goodwill as of September 30 of each year. Goodwill would be tested for
impairment between annual tests if an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting unit below its
carrying amount. The goodwill impairment evaluation process requires the Company
to make estimates and assumptions with regard to the fair value of a reporting
unit. Differences in the identification of reporting units and the use of
valuation techniques could result in materially different evaluations of
impairment. Such differences could result in future impairment of goodwill that
would, in turn, negatively impact the Companys results of operations. For
purposes of the goodwill impairment test, the Company identified a single
reporting unit. Based on the results of valuation testing performed, in the
opinion of management, the Company has not experienced any goodwill impairment
during the years ended December 31, 2007, 2006 and 2005.

Other intangible assets include core
deposit intangibles (CDI) and other identifiable finite-life intangible assets
which are being amortized over their estimated useful lives primarily under the
straight-line method. The CDI arose from the acquisitions of F&M and CBGP,
and totaled approximately $9,502 and $11,082 at December 31, 2007 and 2006,
respectively. The CDI is included in accrued interest and other assets in the
accompanying consolidated balance sheets and is being amortized over an
eight-year period for F&M and over a seven-year period for CBGP. Other
intangible assets, exclusive of CDI, are not significant at December 31, 2007
and 2006.

52

---

CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

Bank-owned life
insurance

The Company has purchased BOLI to
protect itself against the loss of certain key employees and directors due to
death. At December 31, 2007 and 2006, the Company had $26,271 and $13,600,
respectively, of separate account BOLI and $7,033 and $18,130, respectively, of
general account BOLI. During 2006, approximately $11,400 of existing general
account BOLI was transferred into the separate account.

The separate account BOLI was purchased
in the fourth quarter of 2006 as an investment expected to provide a long-term
source of earnings to support existing employee benefit plans. The fair value of
the general account BOLI is based on the insurance contract cash surrender
value. The cash surrender value of the separate account BOLI is the quoted
market price of the underlying securities, further supported by a stable value
wrap, which mitigates, but may not fully protect the investment against changes
in the fair market value depending on the severity and duration of possible
market price disruption.

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. Holding costs; subsequent write-downs to net realizable value,
if any; or any disposition gains or losses are included in noninterest income
and expenses. The valuation of other real estate is subjective in nature and may
be adjusted in the future because of changes in economic conditions. Other real
estate was approximately $9,765 at December 31, 2007 and was insignificant at
December 31, 2006, and is included in accrued interest and other assets in the
accompanying consolidated balance sheets.

Federal funds
purchased

Federal funds purchased are short-term
borrowings that typically mature within one to ninety days.

Customer repurchase
agreements

The Bank enters into repurchase
agreements with customers who wish to deposit amounts in excess of the Federal
Deposit Insurance Corporation (the FDIC) insured amount of $100,000. Each
agreement is for a fixed length of time at a fixed interest rate. These deposits
are not insured by the FDIC but are collateralized by an interest in pledged
securities. The Bank has classified these borrowings separately from deposits.

Advertising

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

Income taxes

The provision (credit) for income taxes
is based on income and expenses as reported for financial statement purposes
using the asset and liability method for accounting for deferred taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. 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 (credit) for income taxes. A valuation allowance, if needed, reduces
deferred tax assets to the expected amount to be realized.

53

---

CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

Trust assets

Assets of the Banks trust department,
other than cash on deposit at the Bank, are not included in the accompanying
consolidated financial statements because they are not assets of the Bank.
Assets (unaudited) totaling approximately $163,000 and $147,000 were held in
trust as of December 31, 2007 and 2006, respectively.

Transfers of financial assets

Transfers of financial assets are
accounted for as sales when control over the assets has been surrendered.
Control over transferred assets is deemed to be surrendered when (i) the assets
have been isolated from the Company, (ii) the transferee obtains the right (free
of conditions that constrain it from taking advantage of that right) to pledge
or exchange the transferred assets, and (iii) the Company does not maintain
effective control over the transferred assets through an agreement to repurchase
them before their maturity.

Recently issued accounting
standards

In February 2006, the FASB issued SFAS
No. 155, Accounting for Certain Hybrid Financial Instruments - an amendment of
FASB Statements No. 133 and 140. SFAS No. 155 amends SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, to permit fair value
re-measurement for any hybrid financial instrument with an embedded derivative
that otherwise would require bifurcation, provided that the whole instrument is
accounted for on a fair value basis. SFAS No. 155 also amends SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, to allow a qualifying special-purpose entity to hold a
derivative financial instrument that pertains to a beneficial interest other
than another derivative financial instrument. SFAS No. 155 was effective for all
financial instruments acquired or issued by the Company after January 1, 2007.
The adoption of SFAS No. 155 did not have a material impact on the Companys
consolidated financial statements.

In March 2006, the FASB issued SFAS No.
156, Accounting for Servicing of Financial Assets - an amendment of FASB
Statement No. 140. SFAS No. 156 requires all separately recognized servicing
assets and liabilities to be initially measured at fair value. In addition,
entities are permitted to choose to either subsequently measure servicing rights
at fair value and report changes in fair value in earnings, or amortize
servicing rights in proportion to and over the estimated net servicing income or
loss and assess the rights for impairment. Beginning with the fiscal year in
which an entity adopts SFAS No. 156, it may elect to subsequently measure a
class of servicing assets and liabilities at fair value. Post adoption, an
entity may make this election as of the beginning of any fiscal year. An entity
that elects to subsequently measure a class of servicing assets and liabilities
at fair value should apply that election to all new and existing recognized
servicing assets and liabilities within that class. The effect of re-measuring
an existing class of servicing assets and liabilities at fair value is to be
reported as a cumulative-effect adjustment to retained earnings as of the
beginning of the period of adoption. The statement also requires additional
disclosures. The Company adopted SFAS No. 156 on January 1, 2007. The adoption
of SFAS No. 156 did not have a material impact on the Companys consolidated
financial statements.

In July 2006, the FASB issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB 109 (FIN 48). FIN 48 establishes a recognition threshold
and measurement for income tax positions recognized in an enterprises financial
statements in accordance with SFAS 109, Accounting for Income Taxes. FIN 48
also prescribes a two-step evaluation process for tax positions. The first step
is recognition and the second is measurement. For recognition, an enterprise
judgmentally determines whether it is more-likely-than-not that a tax position
will be sustained upon examination, including resolution of related appeals or
litigation processes, based on the technical merits of the position. If the tax
position meets the more-likely-than-not recognition threshold it is measured
and recognized in the financial statements. If a tax position does not meet the
more-likely-than-not recognition threshold, the benefit of that position is not
recognized in the financial statements. Tax positions that meet the
more-likely-than-not recognition threshold at the effective date of FIN 48 may
be recognized, or continue

54

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

to be recognized, upon adoption of FIN
48. The cumulative effect of applying the provisions of FIN 48 shall be reported
as an adjustment to the opening balance of retained earnings for that fiscal
year. FIN 48 was effective for fiscal years beginning after December 15, 2006.
Accordingly, the Company adopted FIN 48 on January 1, 2007. The adoption of FIN
48 did not have a material impact on the Companys consolidated financial
statements.

In September 2006, the FASB issued SFAS
No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes
a framework for measuring fair value and expands disclosures about fair value
measurements. It clarifies that fair value is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants in the market in which the reporting entity
transacts. SFAS No. 157 does not require any new fair value measurements;
rather, it provides enhanced guidance to other pronouncements that require or
permit assets or liabilities to be measured at fair value. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007, with earlier
adoption permitted. In February 2008, the FASB issued FASB Staff Position (FSB)
No. 157-2 in which delays the effective date for nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually). The
Company is currently evaluating the impact that SFAS No. 157 may have on its
future consolidated financial statements.

On September 20, 2006, the FASB
ratified Emerging Issue Task Force (EITF) Issue 06-5, Accounting for Purchases
of Life Insurance  Determining the Amount That Could Be Realized in Accordance
with FASB Technical Bulletin No. 85-4 (FTB 85-4), Accounting for Purchases of
Life Insurance (EITF 06-5). EITF 06-5 addresses the methods by which an entity
should determine the amounts that could be realized under an insurance contract
at the consolidated balance sheet date when applying FTB 85-4, and whether the
determination should be on an individual or group policy basis. EITF 06-5 was
effective for fiscal years beginning after December 15, 2006. The adoption of
EITF 06-5 did not have a material impact on the Companys consolidated financial
statements.

In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities 
Including an amendment of FASB Statement No. 115. SFAS No. 159 provides
entities with an option to report certain financial assets and liabilities at
fair value  with changes in fair value reported in earnings  and requires
additional disclosures related to an entitys election to use fair value
reporting. It also requires entities to display the fair value of those assets
and liabilities for which the entity has elected to use fair value on the face
of the balance sheet. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the impact that SFAS No.
159 may have on its future consolidated financial statements.

In December 2007, the FASB issued SFAS
No. 141 (revised 2007) (SFAS No. 141R), Business Combinations. SFAS No. 141R
replaces SFAS No. 141, Business Combinations and applies to all transactions
and other events in which one entity obtains control over one or more other
businesses. SFAS No. 141R retains the fundamental requirements of SFAS No. 141
that the acquisition method of accounting be used for all business combinations
and for the acquirer to be identified for each business combination. SFAS No.
141R requires an acquirer to recognize the assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree at the acquisition
date, measured at their fair values as of the acquisition date. SFAS No. 141R
also requires an acquirer to recognize assets acquired and liabilities assumed
arising from contractual contingencies as of the acquisition date, measured at
their acquisition-date fair values. This changes the requirements of SFAS No.
141 which permitted deferred recognition of preacquisition contingencies, until
the recognition criteria for SFAS No. 5, Accounting for Contingencies were
met. SFAS No. 141R will also require acquirers to expense acquisition-related
costs as incurred rather than require allocation of such costs to the assets
acquired and liabilities assumed. SFAS No. 141R is effective for business
combination reporting for fiscal years beginning after December 15, 2008. The
Company expects SFAS No. 141R to have a material impact on the accounting for
any business combination occurring on or after January 1, 2009.

In December 2007, the FASB issued SFAS
No. 160, Noncontrolling Interests in Consolidated Financial Statements - an
amendment of ARB No. 51. SFAS No. 160 amends Accounting Research Bulletin (ARB)
No. 51, Consolidated Financial Statements, to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary

55

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

and for the deconsolidation of a
subsidiary. SFAS No. 160 also clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. SFAS No. 160
requires consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interest. Prior
to SFAS No. 160, net income attributable to the noncontrolling interest
generally was reported as an expense or other deduction in arriving at
consolidated net income. Additional disclosures are required as a result of SFAS
No. 160 to clearly identify and distinguish between the interests of the
parents owners and the interests of the noncontrolling owners of a subsidiary.
SFAS No. 160 is effective for fiscal years beginning after December 15, 2008.
The Company is currently evaluating the impact that SFAS No. 160 may have on its
future consolidated financial statements.

In November 2007, the Securities and
Exchange Commission (SEC) issued Staff Accounting Bulletin No. 109 (SAB 109).
SAB 109 supersedes SAB 105 and indicates that the expected net future cash flows
related to the associated servicing of a loan should be included in the
measurement of all written loan commitments that are accounted for at fair value
through earnings. SAB 109 is to be applied on a prospective basis to derivative
loan commitments issued or modified in fiscal quarters beginning after December
15, 2007. The adoption of SAB 109 is not expected to have a material impact on
the Companys future consolidated financial statements.

Stock-based
compensation

Prior to January 1, 2006, the Company
accounted for stock-based compensation arrangements under the recognition and
measurement principles of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations
(collectively, APB No. 25). Under this method, no compensation expense was
recognized for the year ended December 31, 2005, as the exercise price of each
stock option which the Company granted was equal to the market value of the
underlying common stock on the date of grant.

Effective January 1, 2006, the Company
adopted SFAS No. 123 (revised 2004) (SFAS 123R), Share-Based Payment. SFAS
123R requires the measurement of compensation cost for all stock-based awards to
be based on the grant-date fair value and the recognition of compensation cost
over the service period of stock-based awards, which is generally the same as
the vesting period. The fair value of stock options is determined using the
Black-Scholes valuation model, which is consistent with the Companys valuation
methodology previously utilized for stock options in the footnote disclosures
required under SFAS No. 123, Accounting for Stock-Based Compensation.

The Company has adopted SFAS 123R using
a modified version of prospective application (modified prospective
application). Under modified prospective application, as it is applicable to the
Company, SFAS 123R applies to new awards and to awards modified, repurchased or
cancelled after January 1, 2006. Additionally, compensation cost for the portion
of awards for which the requisite service has not been rendered (generally
referring to non-vested awards) that are outstanding as of January 1, 2006, must
be recognized as the remaining requisite service is rendered during the period
of and/or the periods after the adoption of SFAS 123R. The attribution of
compensation cost for those earlier awards will be based on the same method and
on the same grant-date fair values previously determined for the pro forma
disclosures required for companies that did not adopt the fair value accounting
method for stock-based employee compensation. Modified prospective application
provides for no retroactive application to prior periods and no cumulative
adjustment to equity accounts. In accordance with SFAS 123R, unearned
compensation on nonvested restricted stock has been reclassified to common stock
effective January 1, 2006.

56

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

The following pro forma disclosures
illustrate the effect on net income and earnings per share for the year ended
December 31, 2005, if the Company had applied the fair value method of SFAS No.
123 prior to January 1, 2006:

|Net
      income - as reported                                            | $ | 22,436 |  
|------------------------------------------------------------------------- | - | ------ | -
|Deduct: Total
      stock-based employee compensation expense             |   |        |  
|determined under fair value based methods for all awards,                 |   |        |  
|net of related income tax effects                                         |   | (594   | )
|Pro
      forma net income - used in basic and diluted earnings per share | $ | 21,842 |  
|Earnings per common
      share:                                          |   |        |  
|Basic - as reported                                                       | $ | 1.06   |  
|Basic - pro forma                                                         | $ | 1.04   |  
|Diluted - as reported                                                     | $ | 1.03   |  
|Diluted - pro forma                                                       | $ | 1.00   |  

The Companys stockbased compensation
plans are described more fully in Note 18.

Stock repurchases

On August 13, 2007, the Board
authorized the Company to acquire, from time to time, up to 5% of the Companys
issued and outstanding common shares over a two-year period. Managements
discretion will determine the timing of the stock repurchase transactions and
the number of shares repurchased. Consideration will be given to factors
including market price of the stock, growth expectations, general economic
conditions, established and special trading blackout periods, and other
investment opportunities. As of December 31, 2007, the Company had repurchased a
total of 483,100 shares at an average price of $19.05.

2. Cash and due from banks

By regulation, the Bank must meet
reserve requirements as established by the Federal Reserve Bank (FRB)
(approximately $1,360 and $27,209 at December 31, 2007 and 2006, respectively).
Accordingly, the Bank complies with such requirements by holding cash and
maintaining average reserve balances with the FRB in accordance with such
regulations.

57

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

3. Investment securities

Investment securities at December 31,
2007 and 2006 consisted of the following:

|                                                |           |            | Gross      |  | Gross      |                |           
|----------------------------------------------- | --------- | ---------- | ---------- |  | ---------- | -------------- | ----------
|                                                | Amortized |            | unrealized |  | unrealized |                | Estimated 
|                                                | cost      |            | gains      |  | losses     |                | fair value
|2007                                            |           |            |            |  |            |                |           
|Available-for-sale                              |           |            |            |  |            |                |           
|U.S. Agency mortgage-backed securities          |           | $  64,874  |            |  |            | $   452        |           
|U.S.
      Government and agency securities     |           | 10,187     |            |  |            | 310            |           
|Obligations of state and political subdivisions |           | 3,710      |            |  |            | 30             |           
|U.S.
      Agency asset-backed securities       |           | 3,490      |            |  |            | 48             |           
|Equity securities                               |           | 310        |            |  |            | 139            |           
|Mutual
      fund                               |           | 405        |            |  |            | 7              |           
|                                                |           | $  82,976  |            |  |            | $   986        |           
|Held-to-maturity                                |           |            |            |  |            |                |           
|Obligations of state and political subdivisions |           | $    3,180 |            |  |            | $    
      24 |           
|                                                |          
|2006                                            |           |            |            |  |            |                |           
|**Available-for-sale**                          |           |            |            |  |            |                |           
|U.S. Agency mortgage-backed securities          |           | $  72,420  |            |  |            | $   387        |           
|U.S.
      Government and agency securities     |           | 19,128     |            |  |            | 195            |           
|Obligations of state and political subdivisions |           | 5,481      |            |  |            | 21             |           
|U.S.
      Agency asset-backed securities       |           | 4,002      |            |  |            | 18             |           
|Equity securities                               |           | 576        |            |  |            | 830            |           
|Mutual
      fund                               |           | 388        |            |  |            | 2              |           
|                                                |           | $101,995   |            |  |            | $1,453         |           
|Held-to-maturity                                |           |            |            |  |            |                |           
|Obligations of state and political subdivisions |           | $    3,695 |            |  |            | $    
      22 |           

58

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

The following table presents the fair
value and gross unrealized losses of the Banks investment securities,
aggregated by investment category and length of time that individual securities
have been in a continuous unrealized loss position, at December 31, 2007 and
2006:

|                                    | Less than 12
      months |         | 12
      months or more |  | Total        
|----------------------------------- | ------------------------- | ------- | ----------------------- |  | -------------
|                                    | **Estimated**             |         | **Unrealized**          |  | **Estimated**
|                                    | fair value                |         | losses                  |  | fair value   
|2007                                |                           |         |                         |  |              
|U.S. Agency mortgage-backed         |                           |         |                         |  |              
|securities                          |                           | $14,684 |                         |  |              
|Obligations of state and            |                           |         |                         |  |              
|political
      subdivisions        |                           |        |                         |  |              
|                                    |                           | $14,684 |                         |  |              
|                                    |                          
|2006                                |                           |         |                         |  |              
|U.S. Agency mortgage-backed         |                           |         |                         |  |              
|securities                          |                           | $17,000 |                         |  |              
|U.S Government and                  |                           |         |                         |  |              
|agency securities                   |                           | 2,885   |                         |  |              
|U.S. Agency asset-backed securities |                           | 622     |                         |  |              
|Obligations of state and            |                           |         |                         |  |              
|political
      subdivisions        |                           | 333     |                         |  |              
|                                    |                           | $20,840 |                         |  |              

Management of the Company has the
intent and ability to hold the investment securities classified as
held-to-maturity until they mature, at which time the Company will receive full
amortized cost value for such investment securities. Furthermore, as of December
31, 2007, management of the Company also had the intent and ability to hold the
investment securities classified as available-for-sale for a period of time
sufficient for a recovery of cost. The unrealized losses on the above investment
securities are primarily due to increases in market interest rates over the
yields available at the time the specific investment securities were purchased
by the Company. Management of the Company expects the fair value of these
investment securities to recover as the investment securities approach their
maturity dates or repricing dates, or if market yields for such investment
securities decline. Management of the Company does not believe that any of the
investment securities are impaired due to reasons of credit quality.
Accordingly, management of the Company does not believe that any of the above
gross unrealized losses on investment securities are other-than-temporary and,
accordingly, no impairment adjustments have been recorded.

59

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

The amortized cost and estimated fair
value of investment securities at December 31, 2007, 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.

|                                             |           |           | Estimated
|-------------------------------------------- | --------- | --------- | ---------
|                                             | Amortized |           | fair     
|Available-for-sale                           | cost      |           | value    
|Due one year or less                         |           | $  4,710  |          
|Due after one
      year through five years  |           | 14,356    |          
|Due after five years through ten years       |           | 5,795     |          
|Due after ten
      years                    |           | 57,400    |          
|Equity securities                            |           | 310       |          
|Mutual
      fund                            |           | 405       |          
|                                             |           | $82,976   |          
|                                             |          
|Held-to-maturity                             |           |           |          
|Due one year or
      less                   |           | $     967 |          
|Due after one year through five years        |           | 1,182     |          
|Due after five
      years through ten years |           | 1,031     |          
|                                             |           | $  3,180  |          

Investment securities with a carrying
value of approximately $86,139 and $104,605 at December 31, 2007 and 2006,
respectively, were pledged to secure public deposits, customer repurchase
agreements and for other purposes as required or permitted by law.

The Company had no gross realized
losses on sales of investment securities during the years ended December 31,
2007, 2006, and 2005. Gross realized gains on sales of investment securities
during the years ended December 31, 2007, 2006, and 2005, are as disclosed in
the accompanying consolidated statements of income.

4. Loans

Loans at December 31, 2007 and 2006
consisted of the following:

|                                   | 2007        |  | 2006       
|---------------------------------- | ----------- |  | -----------
|Commercial                         | $   606,408 |  | $   560,728
|Real
      Estate:                 |             |  |            
|Construction/lot                   | 686,829     |  | 588,251    
|Mortgage                           | 88,509      |  | 80,860     
|Commercial                         | 612,694     |  | 606,340    
|Consumer                           | 47,038      |  | 51,083     
|                                  
|Total loans                        | 2,041,478   |  | 1,887,262  
|Less reserve for
      loan losses | 33,875      |  | 23,585     
|                                   | $2,007,603  |  | $1,863,677 

Included in mortgage loans at December
31, 2007 and 2006 were approximately $4,306 and $3,027, respectively, in
mortgage loans held for sale. In addition, the above loans are net of deferred
loan fees of approximately $5,659 and $5,664 at December 31, 2007 and 2006,
respectively.

60

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

A substantial portion of the Banks
loans are collateralized by real estate in four major markets (Central, Southern
and Northwest Oregon, as well as the Boise, Idaho area), and, accordingly, the
ultimate collectibility of a substantial portion of the Banks loan portfolio is
susceptible to changes in the local economic conditions in such
markets.

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, 2007 and 2006,
the portion of these loans participated to third-parties (which are not included
in the accompanying consolidated financial statements) totaled approximately
$72,776 and $78,115, respectively.

5. Reserve for loan losses

Transactions in the reserve for loan
losses for the years ended December 31, 2007, 2006 and 2005 were as
follows:

|                                                     | 2007     |   |  | 2006    |   |  | 2005    |  
|---------------------------------------------------- | -------- | - |  | ------- | - |  | ------- | -
|Balance
      at beginning of year                   | $ 23,585 |   |  | $14,688 |   |  | $12,412 |  
|Loan loss
      provision                            | 19,400   |   |  | 6,000   |   |  | 3,050   |  
|Recoveries                                           | 1,290    |   |  | 690     |   |  | 492     |  
|Loans charged
      off                              | (10,400  | ) |  | (1,972  | ) |  | (1,266  | )
|Reclassification to reserve for unfunded commitments |         |   |  | (3,213  | ) |  |        |  
|Reserves acquired from
      F&M                     |         |   |  | 7,392   |   |  |        |  
|Balance
      at end of year                         | $ 33,875 |   |  | $23,585 |   |  | $14,688 |  

Starting in the fourth quarter of 2006,
the Bank began classifying its reserve for unfunded loan commitments as other
liabilities; prior to the fourth quarter of 2006, the reserve for unfunded loan
commitments was included as a component of the reserve for loan losses in
accordance with the industry practice of other banks in its peer group. Reserves
for unfunded loan commitments totaled approximately $2,414, $3,213 and $2,753 at
December 31, 2007, 2006 and 2005, respectively.

Loans on nonaccrual status at December
31, 2007 and 2006 were approximately $45,865 and $2,679, respectively. Interest
income which would have been realized on such nonaccrual loans outstanding at
year-end, if they had remained current, was approximately $1,307 and $163 for
the years ended December 31, 2007 and 2006 and was insignificant for the year
ended December 31, 2005.

Loans contractually past due 90 days or
more on which the Company continued to accrue interest were insignificant at
December 31, 2007 and 2006.

Total impaired loans as of December 31,
2007 and 2006 were as follows:

|                                                                        | 2007     |  | 2006   
|----------------------------------------------------------------------- | -------- |  | -------
|Impaired loans with an associated allowance                             | $45,797  |  | $2,515 
|Impaired loans
      without an associated allowance                    | 68       |  | 164    
|Total recorded investment in impaired loans                             | $45,865  |  | $2,679 
|Amount of the
      reserve for loan losses allocated to impaired loans | $  3,885 |  | $   363

The average recorded investment in
impaired loans was approximately $24,272 and $896 for the years ended December
31, 2007 and 2006, respectively. Interest income recognized for cash payments
received on impaired loans for the years ended December 31, 2007, 2006, and 2005
was insignificant.

61

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

The following table presents
information with respect to non-performing assets:

|                                                                  | 2007    |  | 2006  
|----------------------------------------------------------------- | ------- |  | ------
|Loans on nonaccrual status                                        | $45,865 |  | $2,679
|Loans past due
      90 days or more but not on nonaccrual status | 51      |  |      
|Other real estate owned                                           | 9,765   |  | 326   
|Total
      non-performing assets                                 | $55,681 |  | $3,005

6. Mortgage banking activities

The Bank sells a predominant share of
the mortgage loans it originates into the secondary market. However, it has
retained the right to service sold loans with principal balances totaling
approximately $494,000, $495,000 and $499,000 as of December 31, 2007, 2006 and
2005, respectively. These balances are not included in the accompanying
consolidated balance sheets. The sales of these mortgage loans are subject to
technical underwriting requirements and related repurchase risks. However, as of
December 31, 2007 and 2006, management is not aware of any mortgage loans which
will have to be repurchased.

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, 2007 and 2006, mortgage
loans held for sale were carried at cost, which approximated estimated market
value.

Transactions in the Companys MSRs for
the years ended December 31, 2007, 2006 and 2005 were as follows:

|                             | 2007    |   |  | 2006    |   |  | 2005    |  
|---------------------------- | ------- | - |  | ------- | - |  | ------- | -
|Balance at beginning of year | $ 4,096 |   |  | $ 4,439 |   |  | $ 4,663 |  
|Additions                    | 839     |   |  | 919     |   |  | 1,318   |  
|Amortization                 | (1,179  | ) |  | (1,262  | ) |  | (1,542  | )
|Balance at end
      of year | $ 3,756 |   |  | $ 4,096 |   |  | $ 4,439 |  

At December 31, 2007 and 2006, the fair
value of the Companys MSRs was approximately $5,279 and $5,600, respectively.
The key assumptions used in estimating the fair value of MSRs at December 31,
2007 included weighted-average mortgage prepayment rates of approximately 194%
for the first year, 184% for the second year and 175% thereafter (198%, 177% and
156%, respectively, in 2006). A 9% discount rate was also applied in both years.

The Company analyzes its MSRs by
underlying loan type and interest rate (primarily fixed and adjustable). The
estimated fair values are obtained through an independent third-party valuation,
utilizing future cash flows which incorporate numerous assumptions including
servicing income, servicing costs, market discount rates, prepayment speeds,
default rates and other market-driven data. Accordingly, changes in such
assumptions could significantly effect the estimated fair values of the
Companys MSRs.

No valuation allowance for MSRs was
required for the years ended December 31, 2007, 2006 and 2005.

Mortgage banking income, net, consisted
of the following for the years ended December 31, 2007, 2006 and
2005:

|                                            | 2007    |   |  | 2006    |   |  | 2005    |  
|------------------------------------------- | ------- | - |  | ------- | - |  | ------- | -
|Origination and processing fees             | $ 1,744 |   |  | $ 1,960 |   |  | $ 1,824 |  
|Gains on sales
      of mortgage loans, net | 898     |   |  | 1,055   |   |  | 688     |  
|Servicing fees                              | 1,267   |   |  | 1,271   |   |  | 1,286   |  
|Amortization                                | (1,179  | ) |  | (1,262  | ) |  | (1,542  | )
|Mortgage banking income, net                | $ 2,730 |   |  | $ 3,024 |   |  | $ 2,256 |  

62

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

7. Premises and equipment

Premises and equipment at December 31,
2007 and 2006 consisted of the following:

|                                                     | 2007     |  | 2006    
|---------------------------------------------------- | -------- |  | --------
|Land                                                 | $  9,362 |  | $  9,402
|Buildings and leasehold
      improvements           | 26,935   |  | 28,741  
|Furniture and equipment                              | 14,098   |  | 12,651  
|                                                     | 50,395   |  | 50,794  
|Less
      accumulated depreciation and amortization | 13,584   |  | 11,562  
|                                                     | 36,811   |  | 39,232  
|Construction in progress                             | 1,251    |  | 1,321   
|Premises and equipment,
      net                    | $38,062  |  | $40,553 

8. Time deposits

Time deposits in amounts of $100,000 or
more aggregated approximately $116,919 and $199,532 at December 31, 2007 and
2006, respectively.

At December 31, 2007, the scheduled
annual maturities of all time deposits were approximately as follows:

2008
    $208,0002009
    22,0002010
    17,0002011
    9,0002012
    1,000$257,000


9. Junior subordinated debentures

The Company has established four
subsidiary grantor trusts for the purpose of issuing trust preferred securities
(TPS) and common securities. The common securities were purchased by the
Company, and the Companys investment in the common securities of $2,058 at both
December 31, 2007 and 2006, is included in accrued interest and other assets in
the accompanying consolidated balance sheets.

63

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

The TPS are subordinated to any other
borrowings of the Company, and no principal payments are required until the
related maturity dates (unless conditions are met as described below). The
significant terms of each individual trust are as follows:

|                                        |  |           |  |           |  | Junior               |         |          |  | Effective              
|--------------------------------------- |  | --------- |  | --------- |  | -------------------- | ------- | -------- |  | -----------------------
|                                        |  | Issuance  |  | Maturity  |  | subordinated         |         | Interest |  | rate
      at          
|Issuance Trust                          |  | date      |  | date      |  | debentures
      (A) |         | rate     |  | December
      31, 2007
|                                        |  |           |  |           |  |                      |         |          |  | 3-month                
|                                        |  |           |  |           |  |                      |         |          |  | LIBOR                  
|Cascade Bancorp Trust I (D)             |  | 12/31/04  |  | 3/15/2035 |  |                      | $20,619 |          |  | + 1.80% (C)            
|                                       
|Cascade Bancorp Statutory Trust II (E)  |  | 3/31/2006 |  | 6/15/2036 |  |                      | 13,660  |          |  | 6.619% (B)             
|                                       
|                                        |  |           |  |           |  |                      |         |          |  | 3-month                
|                                        |  |           |  |           |  |                      |         |          |  | LIBOR                  
|Cascade Bancorp Statutory Trust III (E) |  | 3/31/2006 |  | 6/15/2036 |  |                      | 13,660  |          |  | + 1.33% (C)            
|                                       
|                                        |  |           |  |           |  |                      |         |          |  | 3-month                
|                                        |  |           |  |           |  |                      |         |          |  | LIBOR                  
|Cascade Bancorp Statutory Trust IV (F)  |  | 6/29/2006 |  | 9/15/2036 |  |                      | 20,619  |          |  | + 1.54% (C)            
|Totals                                  |  |           |  |           |  |                      | $68,558 |          |  |                        

|(A) |  | The Junior
      Subordinated Debentures (Debentures) were issued with substantially the
      same terms as the TPS and are the sole assets of the related trusts. The
      Companys obligations under the Debentures and related agreements, taken
      together, constitute a full and irrevocable guarantee by the Company of
      the obligations of the trusts.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                          
|(B) |  | The Debentures bear a
      fixed quarterly interest rate for 20 quarters, at which time the rate
      begins to float on a quarterly basis based on the three-month London
      Inter-Bank Offered Rate (LIBOR) plus 1.33% thereafter until
      maturity.                                                                                                           
|   
|(C) |  | The three-month LIBOR
      in effect as of December 31, 2007 was 4.99%.                                                                                                                                                                                                                                                                                                 
|   
|(D) |  | The TPS may be called
      by the Company at par at any time subsequent to March 15, 2010 and may be
      redeemed earlier upon the occurrence of certain events that impact the
      income tax or the regulatory capital treatment of the TPS.                                                                                                                      
|   
|(E) |  | The TPS may be called
      by the Company at par at any time subsequent to June 15, 2011 and may be
      redeemed earlier upon the occurrence of certain events that impact the
      income tax or the regulatory capital treatment of the TPS.                                                                                                                       
|   
|(F) |  | The TPS may be called
      by the Company at par at any time subsequent to September 15, 2011 and may
      be redeemed earlier upon the occurrence of certain events that impact the
      income tax or the regulatory capital treatment of the
  TPS.                                                                                                                

In accordance with industry practice,
the Companys liability for the common securities has been included with the
Debentures in the accompanying consolidated balance sheets. Management believes
that at December 31, 2007 and 2006, the TPS meet applicable regulatory
guidelines to qualify as Tier I capital.

Interest payments on all TPS are made
on a quarterly basis on March 15, June 15, September 15 and December
15.

64

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

10. Other borrowings

The Bank participates in the FHLBs
Cash Management Advance Program (the Program). At December 31, 2007, the Bank
had $293,209 ($169,175 at December 31, 2006) in borrowings outstanding from the
FHLB under the Program with fixed interest at rates ranging from 2.96% to 6.62%.
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. At December 31, 2007, the Bank had remaining
available borrowings from the FHLB of approximately $545,374, given availability
and sufficiency of eligible collateral. As of December 31, 2007, the Bank had
collateral with which to pledge for borrowings totaling approximately
$342,402.

At December 31, 2007, the contractual
maturities of the Banks FHLB borrowings outstanding were approximately as
follows:

2008
    $188,7802009
    24,0002010
    5,1142011
    20,0002012
    20,000Thereafter
    35,315$293,209


At December 31, 2007, the Bank had
approximately $70,070 in available short-term borrowings from the FRB,
collateralized by certain of the Banks loans. Such available borrowings include
participation in the Treasury Tax and Loan program of the federal government,
with access to this funding source limited to $15,000 and is fully at the
discretion of the U.S. Treasury. Of the total available FRB borrowings, at
December 31, 2007, the Bank had approximately $34,658 ($2,115 at December 31,
2006) in total borrowings outstanding from the FRB. As an additional source of
liquidity, the Bank had federal fund borrowing agreements with correspondent
banks aggregating approximately $105,000 at December 31, 2007 and 2006,
respectively. At December 31, 2007 and 2006, the Company had outstanding
borrowings of $14,802 and $15,177, respectively, under these federal funds
borrowings agreements.

11. Mergers and acquisitions

On April 20, 2006, the Company
completed its acquisition of F&M to facilitate its expansion into the Idaho
market. F&Ms banking subsidiary, Farmers & Merchants State Bank (FMSB),
operated 11 branches in Boise, Idaho and surrounding markets. In exchange for
100% of the outstanding common stock of F&M, the stockholders of F&M
received 6,656,249 shares of the Companys common stock (valued at $124,552) and
$22,500 in cash (less a holdback of $3,902 related to the uncertain
collectibility of specific F&M loans). The common stock issued was valued at
$18.71 per share, representing an average of the closing market prices for two
days before and after the date the acquisition terms were agreed to and
announced.

Upon completion of this acquisition,
F&M was merged into the Company. Accordingly, the assets and liabilities of
F&M were recorded in the Companys consolidated balance sheet at their
estimated fair market values as of the acquisition date. The acquisition was
accounted for using the purchase method of accounting.

At December 31, 2007, the holdback
amount has been reduced to $1,702 from $3,268 at December 31, 2006, as certain
loans have either paid-off or been upgraded and, therefore, removed from the
holdback.

65

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

The following table summarizes the
estimated fair value of assets acquired and liabilities assumed at the date of
acquisition:

Cash and cash equivalents
    $
    (8,350
    )Investment
      securities
    
    106,159Loans, net
    
    493,900Premises and
      equipment, net
    
    16,479Core deposit intangibles
    
    11,800Goodwill
    
    98,695Other assets
    
    3,302Total assets acquired
    
    721,985Deposits
    
    482,707Borrowings
    
    82,589Other liabilities
    
    9,637Total liabilities assumed
    
    574,933Total purchase price
    $
    147,052


The accompanying consolidated financial
statements include the results of operations of F&M only since April 20,
2006, the date of acquisition. The following unaudited summary information
presents the consolidated results of operations of the Company for the year
ended December 31, 2006 on a pro forma basis, as if the F&M acquisition had
occurred at January 1, 2006:

Net interest income
    $
    107,288Loan loss
      provision
    
    6,750Net interest income after loan loss provision
    
    100,538Non interest
      income
    
    19,895Non interest expense
    
    59,297Income before
      income taxes
    
    61,136Provision for income taxes
    
    23,159Net
      income
    $
    37,977Net income per common shareBasic
    $
    1.35Diluted
    $
    1.32Average shares
      outstandingBasic
    
    28,091,018Diluted
    
    28,692,516


The pro forma results include the
accretion of the fair value adjustments on loans and deposits, the additional
depreciation on fair value adjustments of premises, and the amortization of the
CDI. The pro forma number of average common shares outstanding includes
adjustments for shares issued for the acquisition and the impact of additional
dilutive securities. The pro forma results presented do not reflect potential
cost savings or revenue enhancements related to the acquisition, and are not
necessarily indicative of what actually would have occurred if the acquisition
had been completed as of the beginning of the period presented, nor are they
necessarily indicative of future consolidated results.

66

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

12. Core deposit intangibles

Net unamortized CDI totaled $9,502 and
$11,082 at December 31, 2007 and 2006, respectively. Amortization expense
related to the CDI during the years ended December 31, 2007, 2006 and 2005
totaled $1,580, $1,089 and $78, respectively.

At December 31, 2007, the forecasted
CDI annual amortization expense for each of the next five years and thereafter
is as follows:

2008
    $
    1,5812009
    
    1,5332010
    
    1,4762011
    
    1,4762012
    
    1,476Thereafter
    
    1,960


13. Commitments, guarantees and
contingencies

In the ordinary 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 financial 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 financial instruments reflect the extent of the Banks
involvement in these particular classes of financial instruments. As of December
31, 2007 and 2006, the Bank had no material commitments to extend credit at
below-market interest rates and held no significant derivative financial
instruments.

The Banks exposure to credit loss for
commitments to extend credit, commitments under credit card lines of credit and
standby letters of credit is represented by the contractual amount of these
instruments. The Company follows the same credit policies in underwriting and
offering commitments and conditional obligations as it does for on-balance sheet
financial instruments.

A summary of the Banks off-balance
sheet financial instruments at December 31, 2007 and 2006 is approximately as
follows:

2007
    
    2006Commitments to extend credit
    $
    669,336
    
    $
    660,786Commitments
      under credit card lines of credit
    
    30,490
    
    
    29,284Standby letters of credit
    
    27,602
    
    
    23,825Total off-balance sheet financial
      instruments
    $
    727,428
    
    $
    713,895


Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require the payment of
fees. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The Bank applies established credit related standards and
underwriting practices in evaluating the creditworthiness of such obligors. The
amount of collateral obtained, if it is deemed necessary by the Bank upon the
extension of credit, is based on managements credit evaluation of the
counterparty.

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

67

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

Standby letters of credit are written
conditional commitments issued by the Bank to guarantee the performance of a
customer to a third-party. These guarantees are primarily issued to support
public and private borrowing arrangements. In the event the customer does not
perform in accordance with the terms of the agreement with the third-party, the
Bank would be required to fund the commitment. The maximum potential amount of
future payments the Bank could be required to make is represented by the
contractual amount of the commitment. If the commitment were funded, the Bank
would be entitled to seek recovery from the customer. The Banks policies
generally require that standby letter of credit arrangements contain security
and debt covenants similar to those involved in extending loans to customers.
The credit risk involved in issuing standby letters of credit is essentially the
same as that involved in extending loan facilities to customers.

The Bank considers the fees collected
in connection with the issuance of standby letters of credit to be
representative of the fair value of its obligations undertaken in issuing the
guarantees. In accordance with accounting standards generally accepted in the
United States related to guarantees, the Bank defers fees collected in
connection with the issuance of standby letters of credit. The fees are then
recognized in income proportionately over the life of the standby letter of
credit agreement. At December 31, 2007 and 2006, the Banks deferred standby
letter of credit fees, which represent the fair value of the Banks potential
obligations under the standby letter of credit guarantees, were insignificant to
the accompanying consolidated financial statements. The Bank also has certain
lending commitments for conforming residential mortgage loans to be sold into
the secondary market which are considered derivative instruments under the
guidelines of SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 149. However, in the opinion of management,
such derivative amounts are not significant, and, therefore, no derivative
assets or liabilities are recorded in the accompanying consolidated financial
statements.

The Bank leases certain land and
facilities under operating leases, some of which include renewal options and
escalation clauses. At December 31, 2007, the aggregate minimum rental
commitments under operating leases that have initial or remaining non-cancelable
lease terms in excess of one year were approximately as follows:

2008
    $
    2,4392009
    
    1,9232010
    
    1,4642011
    
    1,2212012
    
    1,173Thereafter
    
    8,399$
    16,619


Total rental expense was approximately
$2,309, $1,801 and $1,254 in 2007, 2006 and 2005, respectively.

The Company has entered into employment
contracts and benefit plans with certain executive officers and members of the
Board that allow for payments (or accelerated payments) contingent upon a change
in control of the Company.

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 statements as of and for the year ended December 31, 2007.

68

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per share amounts)

14. Income taxes

The provision (credit) for income taxes
for the years ended December 31, 2007, 2006 and 2005 was approximately as
follows:

|                                 | **2007** |        | **2006** |  | **2005**
|-------------------------------- | -------- | ------ | -------- |  | --------
|Current:                         |          |        |          |  |         
|Federal                          | $        | 20,682 |          |  | $       
|State                            |          | 3,915  |          |  |         
|                                 |          | 24,597 |          |  |         
|Deferred                         |          | (6,841 | )        |  |         
|Provision for
      income taxes | $        | 17,756 |          |  | $       

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, 2007, 2006,
and 2005 were approximately as follows:

|                                          | **2007** |        | **2006** |  | **2005**
|----------------------------------------- | -------- | ------ | -------- |  | --------
|Expected federal income tax provision at  |          |        |          |  |         
|statutory rates                           | $        | 16,707 |          |  | $       
|State income taxes, net of federal effect |          | 2,070  |          |  |         
|Effect of nontaxable income, net          |          | (928   | )        |  |         
|Other, net                                |          | (93    | )        |  |         
|Provision for income taxes                | $        | 17,756 |          |  | $       

The components of the net deferred tax
assets and liabilities at December 31, 2007 and 2006 were approximately as
follows:

|                                                            | 2007 |        | 2006
|----------------------------------------------------------- | ---- | ------ | ----
|Deferred tax assets:                                        |      |        |     
|Reserve for loan losses and unfunded loan
      commitments | $    | 14,721 |     
|Deferred benefit plan expenses, net                         |      | 4,774  |     
|Other                                                       |      | 577    |     
|Total deferred tax assets                                   |      | 20,072 |     
|Deferred tax
      liabilities:                             |      |        |     
|Accumulated depreciation and amortization                   |      | 1,807  |     
|Deferred loan income                                        |      | 1,649  |     
|MSRs                                                        |      | 1,493  |     
|Purchased intangibles related to F&M and CBGP               |      | 4,235  |     
|FHLB
      stock dividends                                  |      | 589    |     
|Net unrealized gains on investment
      securities         |      | 327    |     
|Other                                                       |      |       |     
|Total deferred tax liabilities                              |      | 10,100 |     
|Net deferred tax assets                                     | $    | 9,972  |     

No valuation allowance for deferred tax
assets was recorded at December 31, 2007 and 2006, as management believes that
it is more likely than not that all of the deferred tax assets will be realized
because they were supported by recoverable taxes paid in prior years.

69

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

15. 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 and nonvested restricted stock. All share and per share amounts in 2006
and 2005 have been retroactively adjusted to reflect a 5-for-4 stock split
declared in 2006.

The numerators and denominators used in
computing basic and diluted earnings per common share for the years ended
December 31, 2007, 2006 and 2005 can be reconciled as follows:

|                                                             |                     |        |                   | **Weighted-** |               |  |   |      | 
|------------------------------------------------------------ | ------------------- | ------ | ----------------- | ------------- | ------------- |  | - | ---- | 
|                                                             | **Net**             |        | **average**       |               |               |  |   |     
|                                                             | income              |        | **shares**        |               | **Per-share**
|                                                             | **(numerator****)** |        | **(denominator)** |               | **amount**   
|2007                                                         |                     |        |                   |               |               |  |   |      | 
|Basic
      earnings per common share                       |                     |        |                   |               |               |  |   |      | 
|Income
      available to common stockholders                | $                   | 29,979 |                   | 28,242,684    |               |  | $ | 1.06 | 
|Effect of stock options and nonvested restricted
      stock |                     |       |                   | 334,720       |               |  |   |      | 
|Diluted earnings per common share                            | $                   | 29,979 |                   | 28,577,404    |               |  | $ | 1.05 | 
|                                                             |                    
|2006                                                         |                     |        |                   |               |               |  |   |      | 
|Basic
      earnings per common share                       |                     |        |                   |               |               |  |   |      | 
|Income
      available to common stockholders                | $                   | 35,677 |                   | 26,062,018    |               |  | $ | 1.37 | 
|Effect of stock options and nonvested restricted
      stock |                     |       |                   | 601,498       |               |  |   |      | 
|Diluted earnings per common share                            | $                   | 35,677 |                   | 26,663,516    |               |  | $ | 1.34 | 
|                                                             |                    
|2005                                                         |                     |        |                   |               |               |  |   |      | 
|Basic
      earnings per common share                       |                     |        |                   |               |               |  |   |      | 
|Income
      available to common stockholders                | $                   | 22,436 |                   | 21,069,932    |               |  | $ | 1.06 | 
|Effect of stock options and nonvested restricted
      stock |                     |       |                   | 710,724       |               |  |   |      | 
|Diluted earnings per common share                            | $                   | 22,436 |                   | 21,780,656    |               |  | $ | 1.03 | 

16. Transactions with related
parties

Certain 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.

70

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

An analysis of activity with respect to
loans to officers and directors of the Bank for the years ended December 31,
2007 and 2006 was approximately as follows:

|                             | 2007 |        | 2006
|---------------------------- | ---- | ------ | ----
|Balance at beginning of year | $    | 999    |     
|Additions                    |      | 1,983  |     
|Repayments                   |      | (1,975 | )   
|Balance at end
      of year | $    | 1,007  |     

17. 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 the
Companys contributions related to the Plan are at the discretion of the Board,
not to exceed the amount deductible for federal income tax purposes.

Employees vest in the Companys
contributions to the Plan over a period of five years. The total amounts charged
to operations under the Plan were approximately $1,977, $1,899 and $1,019 for
the years ended December 31, 2007, 2006 and 2005, respectively.

Other benefit plans

The Bank has deferred compensation
plans for the Board and certain key executives and managers, a salary
continuation plan and a supplemental executive retirement (SERP) plan for
certain key executives. 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 and SERP plans
for certain key executives provide specified benefits to the participants upon
termination or change of control. The benefits are subject to certain vesting
requirements, and vested amounts are generally payable upon termination or
change of control 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. These plans also include
death benefit provisions for certain participants.

To assist in the funding of these
plans, the Bank has purchased bank-owned life insurance policies on the majority
of the participants. The cash surrender value of the general account policies at
December 31, 2007 and 2006 was approximately $7,033 and $6,697, respectively.
The cash surrender value of the separate account policies, including the value
of the stable value wraps, was approximately $26,271 and $25,033 at December 31,
2007 and 2006, respectively. At December 31, 2007 and 2006, the liabilities
related to the deferred compensation plans included in accrued interest and
other liabilities in the accompanying consolidated balance sheets totaled
approximately $4,584 and $4,312, respectively. The amount of expense charged to
operations in 2007, 2006 and 2005 related to the deferred compensation plans was
approximately $1,744, $1,035 and $701, respectively. As of December 31, 2007 and
2006, the liabilities related to the salary continuation and SERP plans included
in accrued interest and other liabilities in the accompanying consolidated
balance sheets totaled approximately $6,606 and $5,269, respectively. The amount
of expense charged to operations in 2007, 2006 and 2005 for the salary
continuation, SERP and fee continuation plans was approximately $1,560, $934 and
$1,084, respectively. For financial reporting purposes, such expense amounts
have not been adjusted for income earned on the bank-owned life insurance
policies.

71

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

18. Stock-based compensation plans

Under the Companys stock-based
compensation plans approved by shareholders, the Company may grant Incentive
Stock Options (ISOs), Non-qualified Stock Options (NSOs) and/or restricted stock
to key employees and directors. These stock-based compensation plans were
established to reward employees and directors who contribute to the success and
profitability of the Company and to give such employees and directors a
proprietary interest in the Company, thereby enhancing their personal interest
in the Companys continued success. These plans also assist the Company in
attracting and retaining key employees and qualified corporate directors.

The stock-based compensation plans
prescribe various terms and conditions for the granting of stock-based
compensation and the total number of shares authorized for this purpose. For
ISOs, the option strike price must be no less than 100% of the stock price at
the grant date; and for NSOs, the option strike price can be no less than 85% of
the stock price at the grant date, and all grants to date have been at 100%.
Restricted stock must be at fair market value on the grant date. At December 31,
2007, 596,787 shares reserved under the stock-based compensation plans were
available for future grants. Generally, options become exercisable in varying
amounts based on years of employee service and vesting schedules. All options
expire after a period of ten years from the date of grant.

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

|                            | 2007    |  | 2006    |  | 2005   
|--------------------------- | ------- |  | ------- |  | -------
|Dividend yield              | 1.3%    |  | 1.4%    |  | 1.7%   
|Expected
      volatility   | 29.9%   |  | 34.2%   |  | 38.5%  
|Risk-free interest rate     | 4.8%    |  | 4.3%    |  | 3.7%   
|Expected option
      lives | 6 years |  | 6 years |  | 6 years

The dividend yield is based on
historical dividend information. The expected volatility is based on historical
volatility of the Companys common stock price. The risk-free interest rate is
based on the U.S. Treasury yield curve in effect at the date of grant for
periods corresponding with the expected lives of the options granted. The
expected option lives represent the period of time that options are expected to
be outstanding giving consideration to vesting schedules and historical exercise
and forfeiture patterns.

The Black-Scholes option-pricing model
was developed for use in estimating the fair value of publicly-traded options
that have no vesting restrictions and are fully transferable. Additionally, the
model requires the input of highly subjective assumptions. Because the Companys
stock options have characteristics significantly different from those of
publicly-traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimates, in the opinion of the Companys
management, the Black-Scholes option-pricing model does not necessarily provide
a reliable single measure of the fair value of the Companys stock options. The
weighted-average fair value of stock options granted was $9.14 for 2007, $7.50
for 2006 and $5.55 for 2005.

72

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CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

The following table presents the
activity related to options under all plans for the years ended December 31,
2007, 2006, and 2005.

|                                 | **2007**        |   | **2****006** |               | **2****005**   
|-------------------------------- | --------------- | - | ------------ | ------------- | ---------------
|                                 |                 |   |              | **Weighted-** |                
|                                 |                 |   |              | **average**   |                
|                                 | **Options**     |   | **exercise** |               | Options        
|                                 | **outstanding** |   | price        |               | **outstanding**
|Balance at beginning of year     | 770,095         |   |              |               | $              
|Granted                          | 139,962         |   |              |               |                
|Exercised                        | (146,109        | ) |              |               |                
|Forfeited                        | (12,860         | ) |              |               |                
|Balance at end of year           | 751,088         |   |              |               | $              
|Exercisable at
      end of year | 488,203         |   |              |               |                

The total intrinsic value of both the
outstanding stock options and outstanding exercisable stock options was
approximately $2,766 at December 31, 2007. The total intrinsic value of stock
options exercised was $2,959 in 2007, $8,400 in 2006 and $2,646 in 2005. The
total fair value of stock options vested for the years ended 2007, 2006 and 2005
was $2,925, $1,988 and $75, respectively. As of December 31, 2007, unrecognized
compensation cost related to nonvested stock options totaled $1,322, which is
expected to be recognized over a weighted-average life of less than two
years.

Information regarding the number,
weighted-average exercise price and weighted-average remaining contractual life
of options by range of exercise price at December 31, 2007 is as
follows:

|                           |  | **Options outstandin****g** |             | **Exercis****able options**
|-------------------------- |  | --------------------------- | ----------- | ---------------------------
|                           |  |                             |             |                            
|                           |  |                             |             | **Weighted-**              
|                           |  |                             |             | **average**                
|                           |  | **Number of**               |             | exercise                   
|Exercise price
      range |  |                             | **options** |                            
|Under $5.00                |  | 116,584                     |             |                            
|$5.01-$8.00                |  | 120,311                     |             |                            
|$8.01-$12.00               |  | 142,368                     |             |                            
|$12.01-$16.00              |  | 169,300                     |             |                            
|$16.01-$22.00              |  | 61,727                      |             |                            
|$22.01-$30.12              |  | 140,798                     |             |                            
|                           |  | 751,088                     |             |                            

73

---

CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

As of December 31, 2007, unrecognized
compensation cost related to nonvested restricted stock totaled approximately
$1,369, which is expected to be recognized over a weighted-average life of two
years. Total expense recognized by the Company for nonvested restricted stock
for the years ended December 31, 2007, 2006 and 2005 was $904, $545, and $304,
respectively. The following table presents the activity for nonvested restricted
stock for the year ended December 31, 2007:

|                                  |               |   |                         | **Weighted-average**
|--------------------------------- | ------------- | - | ----------------------- | --------------------
|                                  | **Number of** |   | **grant date fair**    
|                                  | shares        |   | **val****ue per share**
|Nonvested as of December 31, 2006 | 104,724       |   |                         |                     
|Granted                           | 33,688        |   |                         |                     
|Vested                            | (22,187       | ) |                         |                     
|Cancelled                         | (1,286        | ) |                         |                     
|Nonvested as of December 31, 2007 | 114,939       |   |                         |                     

In addition, during 2006, the Company
granted 42,673 shares of nonvested restricted stock at a market value of $20.72
per share (approximately $884) and 13,773 shares of nonvested restricted stock
at a market value of $22.71 (approximately $313). During 2005 the Company
granted 39,045 shares of nonvested restricted stock at a market value of $15.12
(approximately $590). Nonvested restricted stock is scheduled to vest over
periods ranging from one to five years from the grant dates, with a weighted
average remaining vesting term of 1.8 years. The unearned compensation on
restricted stock is being amortized to expense on a straight-line basis over the
applicable vesting periods.

During March 2008, the Company granted
393,840 additional stock options and 44,219 additional shares of nonvested
restricted stock with an aggregated fair value of approximately $1,728.

19. Estimated fair value of
financial instruments

The following disclosures are made in
accordance with the provisions of SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, 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 value 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. 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, 2007 and
2006.

Because SFAS No. 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.

74

---

CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

The Company uses 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.

FHLB
stock: The carrying amount approximates the
estimated fair value.

Loans: The estimated fair value of
loans is calculated by discounting the contractual cash flows of the loans using
December 31, 2007 and 2006 origination rates. The resulting amounts are adjusted
to estimate the effect of changes in the credit quality of borrowers since the
loans were originated. Fair values for impaired loans are estimated using a
discounted cash flow analysis or the underlying collateral values.

Bank-owned life insurance: The
carrying amount approximates the estimated fair value of these instruments.

Deposits: The estimated fair value of
demand deposits, consisting of checking, interest bearing demand and savings
deposit accounts, is represented by the amounts payable on demand. At the
reporting date, the estimated fair value of time deposits is calculated by
discounting the scheduled cash flows using the December 31, 2007 and 2006 rates
offered on those instruments.

Junior
subordinated debentures and other borrowings (including federal funds
purchased): The fair value of the Banks
junior subordinated debentures and other borrowings (including federal funds
purchased) are estimated using discounted cash flow analyses based on the Banks
December 31, 2007 and 2006 incremental borrowing rates for similar types of
borrowing arrangements.

Customer
repurchase agreements: The carrying value
approximates the estimated fair value.

Loan
commitments and standby letters of credit:
The majority of the Banks commitments to extend credit have variable interest
rates and escape clauses if the customers credit quality deteriorates.
Therefore, the fair values of these items are not significant and are not
included in the following table.

75

---

CASCADE BANCORP AND
SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)

DECEMBER 31, 2007

(Dollars in thousands, except per
share amounts)

The estimated fair values of the
Companys significant on-balance sheet financial instruments at December 31,
2007 and 2006 were approximately as follows:

|                               | 2007     |           | 2006      
|------------------------------ | -------- | --------- | ----------
|                               | Carrying |           | Estimated 
|                               | value    |           | fair value
|Financial assets:              |          |           |           
|Cash and cash equivalents      | $        | 63,141    |           
|Investment securities:         |          |           |           
|Available-for-sale             |          | 83,835    |           
|Held-to-maturity               |          | 3,180     |           
|FHLB stock                     |          | 6,991     |           
|Loans, net                     |          | 2,007,603 |           
|Bank-owned life insurance      |          | 33,304    |           
|Financial liabilities:         |          |           |           
|Deposits                       |          | 1,667,138 |           
|Junior subordinated debentures |          |           |           
|and other borrowings           |          | 411,227   |           
|Customer repurchase agreements |          | 18,614    |           

20. 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 tables below) of Tier 1
capital to average assets and Tier 1 and total capital to risk-weighted assets
(all as defined in the regulations). Management believes that as of December 31,
2007 and 2006, the Company and the Bank met or exceeded all relevant capital
adequacy requirements.

As of December 31, 2007, the most
recent notifications from the FRB and the FDIC 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.

76

---

CASCADE BANCORP AND
SUBSIDIARYNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)  DECEMBER 31, 2007
 (Dollars in thousands, except per share amounts)

The Companys actual and required
capital amounts and ratios are presented in the following table:

|                                |                |         |              |      |                    |  |                    |         |                       |     |           |  | **Regulatory minimum**      
|------------------------------- | -------------- | ------- | ------------ | ---- | ------------------ |  | ------------------ | ------- | --------------------- | --- | --------- |  | ----------------------------
|                                |                |         |              |      |                    |  |                    |         |                       |     |           |  | **to be well capitalized**
|                                |                |         |              |      |                    |  | Regulatory minimum |         | **under prompt**     
|                                |                |         |              |      |                    |  | to be adequately  |         | **corrective action**
|                                | **Act****ual** |         | capitalized |      | **provis****ions**
|                                | **Amount**     |         | **Ratio**    |      | Amount             |  | Ratio              |         | **Amount**            |     | **Ratio**
|December 31, 2007:              |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|Tier 1
      capital            |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|(to average assets)             | $              | 226,328 |              | 9.9  | %                  |  | $                  | 91,450  |                       | 4.0 | %         |  | $                           
|Tier 1 capital                  |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|(to
      risk-weighted assets) |                | 226,328 |              | 10.0 |                    |  |                    | 90,383  |                       | 4.0 |           |  |                             
|Total
      capital             |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|(to risk-weighted assets)       |                | 254,638 |              | 11.3 |                    |  |                    | 180,766 |                       | 8.0 |           |  |                             
|                               
|December 31, 2006:              |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|Tier 1
      capital            |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|(to average assets)             | $              | 210,272 |              | 9.8  | %                  |  | $                  | 85,627  |                       | 4.0 | %         |  | $                           
|Tier 1 capital                  |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|(to
      risk-weighted assets) |                | 210,272 |              | 10.0 |                    |  |                    | 84,212  |                       | 4.0 |           |  |                             
|Total
      capital             |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|(to risk-weighted assets)       |                | 236,968 |              | 11.3 |                    |  |                    | 168,425 |                       | 8.0 |           |  |                             

The Banks actual and required capital
amounts and ratios are presented in the following table:

|                                |                |         |              |      |                    |  |                    |         |                       |     |           |  | **Regulatory minimum**      
|------------------------------- | -------------- | ------- | ------------ | ---- | ------------------ |  | ------------------ | ------- | --------------------- | --- | --------- |  | ----------------------------
|                                |                |         |              |      |                    |  |                    |         |                       |     |           |  | **to be well capitalized**
|                                |                |         |              |      |                    |  | Regulatory minimum |         | **under prompt**     
|                                |                |         |              |      |                    |  | to be adequately  |         | **corrective action**
|                                | **Act****ual** |         | capitalized |      | **provis****ions**
|                                | **Amount**     |         | **Ratio**    |      | Amount             |  | **Rat****io**      |         | **Amount**            |     | **Ratio**
|December 31, 2007:              |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|Tier 1
      capital            |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|(to average assets)             | $              | 222,132 |              | 9.7  | %                  |  | $                  | 90,278  |                       | 4.0 | %         |  | $                           
|Tier 1 capital                  |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|(to
      risk-weighted assets) |                | 222,132 |              | 9.8  |                    |  |                    | 91,256  |                       | 4.0 |           |  |                             
|Total
      capital             |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|(to risk-weighted assets)       |                | 250,344 |              | 11.1 |                    |  |                    | 182,512 |                       | 8.0 |           |  |                             
|                               
|December 31, 2006:              |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|Tier 1
      capital            |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|(to average assets)             | $              | 206,303 |              | 9.7  | %                  |  | $                  | 85,363  |                       | 4.0 | %         |  | $                           
|Tier 1 capital                  |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|(to
      risk-weighted assets) |                | 206,303 |              | 9.8  |                    |  |                    | 84,076  |                       | 4.0 |           |  |                             
|Total
      capital             |                |         |              |      |                    |  |                    |         |                       |     |           |  |                             
|(to risk-weighted assets)       |                | 232,584 |              | 11.1 |                    |  |                    | 168,152 |                       | 8.0 |           |  |                             

77

---

CASCADE BANCORP AND
SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)DECEMBER 31, 2007(Dollars in thousands, except per
share amounts)

21. Parent company financial
information

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

CONDENSED BALANCE
SHEETS

|                                           | **Dece****mber31,**
|------------------------------------------ | -------------------
|                                           | **2007**           
|Assets:                                    |                    
|Cash and cash equivalents                  | $                  
|Investment securities available-for-sale   |                    
|Investment in subsidiary                   |                    
|Other assets                               |                    
|Total assets                               | $                  
|Liabilities and stockholders equity:      |                    
|Junior subordinated debentures             | $                  
|Other liabilities                          |                    
|Stockholders equity                       |                    
|Total liabilities and stockholders equity | $                  

CONDENSED STATEMENTS OF
INCOME

|                                                                              | **Years ended December
      31,**
|----------------------------------------------------------------------------- | ----------------------------------
|                                                                              | 2007                              
|Income:                                                                       |                                   
|Interest and dividend income                                                  | $                                 
|Gains on sales of investment securities available-for-sale                    |                                   
|Total income                                                                  |                                   
|Expenses:                                                                     |                                   
|Administrative                                                                |                                   
|Interest                                                                      |                                   
|Other                                                                         |                                   
|Total expenses                                                                |                                   
|Net loss before
      credit for income taxes, dividends from the Bank and    |                                   
|equity in undistributed net earnings of
      subsidiary                      |                                   
|Credit for income taxes                                                       |                                   
|Net loss before
      dividends from the Bank and equity in undistributed net |                                   
|earnings of subsidiary                                                        |                                   
|Dividends from the Bank                                                       |                                   
|Equity in
      undistributed net earnings of subsidiary                      |                                   
|Net income                                                                    | $                                 

78

---

CASCADE BANCORP AND
SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2007 (Dollars in
thousands, except per share amounts)CONDENSED STATEMENTS OF CASH FLOWS

|                                                                      | **Y****ears ended December 31,**
|--------------------------------------------------------------------- | --------------------------------
|                                                                      | **2007**                        
|Cash flows from operating activities:                                 |                                 
|Net income                                                            | $                               
|Adjustments to reconcile net income to net cash
      provided        |                                 
|by operating activities:                                              |                                 
|Dividends from the Bank                                               |                                 
|Equity in undistributed net earnings of subsidiary                    |                                 
|Gains on sales of investment securities
      available-for-sale      |                                 
|Stock-based compensation expense                                      |                                 
|Increase in other assets                                              |                                 
|Increase in other liabilities                                         |                                 
|Net cash provided by operating activities                             |                                 
|Cash flows from investing activities:                                 |                                 
|Investment in subsidiary                                              |                                 
|Proceeds from sales of investment securities
      available-for-sale |                                 
|Net cash provided (used) by investing
      activities                |                                 
|Cash flows from financing activities:                                 |                                 
|Cash dividends paid                                                   |                                 
|Net
      proceeds from issuance of junior subordinated debentures    |                                 
|Amortization of unearned compensation on restricted
      stock       |                                 
|Repurchases of common stock                                           |                                 
|Proceeds from stock options exercised                                 |                                 
|Tax
      benefit from non-qualified stock options exercised          |                                 
|Net cash provided (used) by financing
      activities                |                                 
|Net increase in cash and cash equivalents                             |                                 
|Cash and cash
      equivalents at beginning of year                  |                                 
|Cash and cash equivalents at end of year                              | $                               

79

---

CASCADE BANCORP AND
SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2007 (Dollars in
thousands, except per share amounts)

22. Selected quarterly financial
data (unaudited)

The following table sets forth the
Companys unaudited data regarding operations for each quarter of 2007 and 2006.
This information, in the opinion of management, includes all normal recurring
adjustments necessary to fairly state the information set forth:

|                                              | 2007   
|--------------------------------------------- | -------
|                                              | Fourth 
|                                              | Quarter
|Interest and dividend income                  | $      
|Interest
      expense                        |        
|Net interest income                           |        
|Loan loss
      provision                     |        
|Net interest income after loan loss provision |        
|Noninterest
      income                      |        
|Noninterest expenses                          |        
|Income before
      income taxes              |        
|Provision for income taxes                    |        
|Net
      income                              | $      
|Basic earnings per common share               | $      
|Fully diluted
      earnings per common share | $      

|(1) |  | Increase in fourth quarter
      provision primarily related to
      deterioration within the Companys residential land development loan
      portfolio.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|   

|                                              | 2006   
|--------------------------------------------- | -------
|                                              | Fourth 
|                                              | Quarter
|Interest and dividend income                  | $      
|Interest
      expense                        |        
|Net interest income                           |        
|Loan loss
      provision                     |        
|Net interest income after loan loss provision |        
|Noninterest
      income                      |        
|Noninterest expenses                          |        
|Income before
      income taxes              |        
|Provision for income taxes                    |        
|Net
      income                              | $      
|Basic earnings per common share               | $      
|Fully diluted
      earnings per common share | $      

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

80

---

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

None

ITEM 9A. CONTROLS AND
PROCEDURES

Evaluation of Disclosure Controls
and Procedure

As
required by Rule 13a-15 under the Exchange Act of 1934, the Company carried out
an evaluation of the effectiveness of the design and operation of the Companys
disclosure controls and procedures as of the end of the period covered by this
report. This evaluation was carried out under the supervision and with the
participation of the Companys management, including the Companys Chief
Executive Officer and the Companys Chief Financial Officer. Based upon that
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that the Companys disclosure controls and procedures were not
effective as of the end of the period covered by this report, because of the
material weaknesses described in Managements Report on Internal Control Over
Financial Reporting below.

Changes in Internal
Controls

During
2007, the Company successfully completed a core system conversion from Jack
Henry and Associates 20/20 core application to Jack Henry and Associates
Silverlake core application. The Silverlake core system will improve processing,
provide added functionality and increase capacity to support future growth and
new products and services. The Company considers the change to have a material
effect over internal controls over financial reporting and accordingly internal
controls over processes affected by the core system conversion were tested for
SOX purposes.

Managements Report on Internal
Control Over Financial Reporting

The
management of Bancorp and the Bank are responsible for establishing and
maintaining adequate internal control over financial reporting, and preparing
annual consolidated financial statements presented in conformity with accounting
principles generally accepted in the United States. The Companys internal
control system was designed to provide reasonable assurance to the Companys
management and board of directors regarding the preparation and fair
presentation of published financial statements. The Companys internal control
system contains monitoring mechanisms and actions are taken to correct
identified deficiencies.

There are
inherent limitations in the effectiveness of any internal control, including the
possibility of human error and the circumvention or overriding of controls.
Accordingly, even effective internal control can provide only reasonable
assurance with respect to financial statement preparation. Further, because of
changes in conditions, the effectiveness of internal control may vary over
time.

The
Companys management, including the Chief Executive Officer and the Chief
Financial Officer, conducted an assessment of the effectiveness of the Companys
internal control over financial reporting as of December 31, 2007. In making
this assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) inInternal ControlIntegrated Framework.
Based on the assessment as of December 31, 2007, the Company did not maintain
effective internal controls over financial reporting due to existence of two
material weaknesses in controls. These control weaknesses include the design of
the system of controls with respect to identification and recording of risk
rating changes within the loan portfolio, and construction monitoring controls
in one branch. The following more fully describes the control deficiencies that
led to managements conclusion:

- With the rapidly changing economic environment,
  particularly with respect to real estate, the Companys Credit Administration
  function had not been adequately staffed to review loans for possible credit
  quality deterioration in a timely manner. Upon becoming aware of the
  situation, management had embarked on action steps to recruit and redeploy
  resources to help support credit administration duties. However the rapid
  downturn in the real estate market combined with resource constraints
  committed to other essential operational projects resulted in a control
  breakdown in that the deterioration of certain loans and related risk rating
  changes were not fully identified in a timely manner. Adjustments arising from

81

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this situation were
made to the provision for loan losses and the reserve for loan losses in the
audited 2007 consolidated financial statements after preliminary 2007
consolidated financial information was disclosed in the Companys earnings
release on January 23, 2008. Steps to increase staffing and enhance
organizational response to this uncertain environment have been implemented.
Training for loan officers has been provided and further monitoring and
reporting has been implemented.

- Deficiencies were noted in controls for monitoring
  total loan disbursements to total project completion for commercial
  construction loans in one branch. Although independent inspections were
  performed for disbursement requests, total loan disbursement to total project
  completion was not documented by the branch at time of disbursement.
  Additionally, monthly central review of total disbursements to total project
  completed was not conducted for the same branch. Taken together the
  combination resulted in a material weakness. All accounts associated with the
  control deficiencies have been reviewed and no material adjustments were
  necessary. To address the weakness subsequent to the end of the reporting
  period, monitoring was implemented at the branch and centrally within the
  Companys Credit Administration department. In addition to the disbursement
  controls at the branch, a documented review of total disbursements to total
  project completion was implemented. Centrally, a review of independent
  inspections, total loan disbursements and total project completion for the
  branch was implemented.

In our
opinion, the deficiencies did not result in a material misstatement of the
audited financial statements as of December 31, 2007, and the additional
staffing, training and monitoring described above appropriately address the
noted deficiencies.

The
Companys independent registered public accounting firm, Symonds, Evans &
Company, P.C., have issued an attestation report on the Companys internal control over financial reporting.
This report appears on page 83 of this annual report.

82

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REPORT
OF SYMONDS, EVANS & COMPANY, P.C., INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Cascade Bancorp

We have audited the internal control
over financial reporting of Cascade Bancorp and its subsidiary, Bank of the
Cascades (collectively, the Company) as of December 31, 2007, based on
criteria established inInternal
ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). The Companys management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the
accompanying Managements Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Companys internal control
over financial reporting based on our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit of internal control
over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A companys internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit the
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.

Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

A material weakness is a control
deficiency, or combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of the Companys annual or interim consolidated financial
statements will not be prevented or detected on a timely basis. The following
material weaknesses were identified and included in managements assessment:

- Loan loss provision  The Companys Credit
  Administration Department lacked adequate staffing to ensure that timely and
  thorough monitoring and review of certain loans was performed. Accordingly,
  the deterioration of such loans and the related effect on the Companys loan
  loss provision was not identified on a timely basis by the Company. As a
  result of this material weakness, the Companys preliminary estimate
  of the loan loss provision was determined to be materially misstated, and was
  therefore increased by $8.1 million prior to the issuance of the 2007 audited consolidated financial statements.
- Commercial construction loans  There was an
  ineffective application of controls related to monitoring loan disbursements
  with respect to project completion, at both the branch and central operations
  level. As a result, the possibility existed that disbursements on these loans
  could have been made in excess of the Companys secured position, resulting in
  a potential material financial loss to the Company.

83

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These material weaknesses were
considered in determining the nature, timing, and extent of audit tests applied
in our audit of the 2007 consolidated financial statements, and this report does
not affect our report dated March 5, 2008 on those consolidated financial
statements.

In our opinion, because of the effect
of the material weaknesses described above on the achievement of the objectives of
the control criteria, the Company has not maintained effective internal control
over financial reporting as of December 31, 2007, based on the COSO
criteria.

We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets and the related consolidated statements
of income, changes in stockholders equity, and cash flows of the Company, and
our report dated March 5, 2008 expressed an unqualified opinion on those
consolidated financial statements.

Portland, Oregon March 5,
2008

ITEM 9B. OTHER
INFORMATION

None

84

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PART III

ITEM 10 . DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE

Certain information regarding executive officers is included in the
section captioned Executive Officers of the Registrant in Part 1, Item 1,
elsewhere in this report. Information
concerning directors of Bancorp required to be included in this item is set
forth under the headings Election of Directors, and Compliance with Section
16(a), in the Companys Proxy Statement for its 2008 Annual Meeting of
Shareholders to be filed within 120 days of the Companys fiscal year end of
December 31, 2007 (the Proxy Statement), and is incorporated into this report
by reference and under the heading Business-Executive Officers of the Registry
in this report.

ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive and director compensation and certain
matters regarding participation in the Companys compensation committee required
by this item is set forth under the heading Compensation Discussion &
Analysis in the Proxy Statement and is incorporated into this report by
reference.

|ITEM 12. |  | SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCK
      HOLDER MATTERS
|-------- |  | -----------------------------------------------------------------------------------------------------------

Information concerning the security ownership of certain beneficial
owners and management required by this item is set forth under the heading
Security Ownership of Management and Others in the Proxy Statement and is
incorporated into this report by reference.

|ITEM 13. |  | CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
|-------- |  | -------------------------------------------------------------------------------------

Information concerning certain relationships and related transactions
required by this item is set forth under the heading Certain Relationships and
Related Transactions and the information concerning director independence is
set forth under the heading of Committees of the Board of Directors each in
the Proxy Statement and incorporated into this report by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES
AND SERVICES

Information concerning fees paid to our independent auditors required by
this item is included under the heading Audit and Non-Audit Fees in the Proxy
Statement and is incorporated into this report by reference.

85

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES

(a) The following documents are
filed as part of this Annual Report on Form 10-K:

| | (1) |  | The consolidated financial
      statements required in this Annual Report are listed in the accompanying
      Index to Consolidated Financial Statements on page 41.                                                                                                                                                                                                                                                                         
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    
| | (2) |  | All consolidated 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                                                                                                                                                                                                    
| |    
| | (3) |  | 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 and/or a specific exhibit
      as filed with the Securities and Exchange Commission. Written requests to
      obtain a list of exhibits or any exhibit should be sent to Cascade
      Bancorp, 1100 N.W. Wall Street, Bend, Oregon 97701, attention: Investor
      Relations.

86

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SIGNATURES

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

|CASCADE BANCORP                   |               | CASCADE BANCORP                                 
|--------------------------------- | ------------- | ------------------------------------------------
|                                 
|/s/ Patricia L. Moss              |               | /s/ Gregory D. Newton                           
|Patricia L. Moss                  |               | Gregory D. Newton                               
|President/Chief Executive Officer |               | Executive Vice President/Chief Financial Officer
|                                 
|Date:                             | March 5, 2008 |                                                 

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/ Jerol E. Andres                              |  | March 5, 2008 
|------------------------------------------------ |  | --------------
|Jerol E.
      Andres, Director/Vice Chairman    |  | Date          
|                                                
|/s/ Gary L. Capps                                |  | March 5, 2008 
|Gary L. Capps,
      Director                    |  | Date          
|                                                
|/s/ Gary L. Hoffman                              |  | March 5, 2008 
|Gary L.
      Hoffman, Director/Chairman         |  | Date          
|                                                
|/s/ Henry H. Hewitt                              |  | March 5, 2008 
|Henry H.
      Hewitt, Director                  |  | Date          
|                                                
|/s/ Judith A. Johansen                           |  | March 10, 2008
|Judith A.
      Johansen, Director               |  | Date          
|                                                
|/s/ Clarence Jones                               |  | March 5, 2008 
|Clarence
      Jones, Director                   |  | Date          
|                                                
|/s/ Patricia L. Moss                             |  | March 5, 2008 
|Patricia L.
      Moss, Director/President & CEO |  | Date          
|                                                
|/s/ Ryan R. Patrick                              |  | March 5, 2008 
|Ryan R.
      Patrick, Director                  |  | Date          
|                                                
|/s/ James E. Petersen                            |  | March 5, 2008 
|James E.
      Petersen, Director                |  | Date          
|                                                
|/s/ Thomas M. Wells                              |  | March 5, 2008 
|Thomas M.
      Wells, Director                  |  | Date          

87

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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 as exhibit 3.1 to registrants Form 8-K Current Report filed on
      February 25, 2008, and is incorporated herein by reference.                                                                                                                                                                         
| |     
| | 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 |  | 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.                                                                      
| |     
| | 10.4 |  | 2002
      Equity Incentive Plan.Filed as an
      exhibit to the registrants filing on Form S-8/A, as filed with the
      Securities and Exchange Commission on April 23, 2003, and incorporated
      herein by reference.                                                                                                                        
| |     
| | 10.5 |  | Executive Employment Agreement between Cascade Bancorp, Bank of the
      Cascades, and Patricia L. Moss, entered into February 18, 2008.Filed as an exhibit to the registrants
      filing on Form 8-K Current Report, as filed with the Securities and
      Exchange Commission on February 19, 2008, and incorporated herein by
      reference.
| |     
| | 10.6 |  | Executive Employment Agreement between Cascade Bancorp, Bank of the
      Cascades, and Gregory D. Newton entered into February 18, 2008.Filed as an exhibit to the registrants
      filing on Form 8-K Current Report, as filed with the Securities and
      Exchange Commission on February 19, 2008, and incorporated herein by
      reference.
| |     
| | 10.7 |  | Executive Employment Agreement between Cascade Bancorp, Bank of the
      Cascades, and Peggy L. Biss entered into February 18, 2008.Filed as an exhibit to the registrants
      filing on Form 8-K Current Report, as filed with the Securities and
      Exchange Commission on February 19, 2008, and incorporated herein by
      reference.    
| |     
| | 10.8 |  | Executive Employment Agreement between Cascade Bancorp, Bank of the
      Cascades, and Frank R. Weis entered into February 18, 2008.Filed as an exhibit to the registrants
      filing on Form 8-K Current Report, as filed with the Securities and
      Exchange Commission on February 19, 2008, and incorporated herein by
      reference.    
| |     
| | 11.1 |  | Earnings per Share Computation.The information called for by this item is located on page 70 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.                                                                                                                                                                                                                                                                             
| |     
| | 31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                             
| |     
| | 31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                             
| |     
| | 32.0 |  | Certification of Chief Executive Officer and Chief Financial
      Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.                                                                                                                                                                                                           
| |     

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