The following discussion should be read in conjunction with the Company's unaudited condensed consolidated financial statements and the notes thereto as of March 31, 2012 and the operating results for the three months then ended, included elsewhere in this Quarterly Report on Form 10-Q. 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 27, 2012, including its audited 2011 consolidated financial statements and the notes thereto as of December 31, 2011 and 2010 and for each of the years in the three-year period ended December 31, 2011.

Cautionary Information Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements about the Company's plans and anticipated results of operations and financial condition. 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," "projections," "continue" and other similar expressions constitute forward-looking statements, as do any other statements that expressly or implicitly predict future events, results or performance, and such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain risks and uncertainties, and the Company's success in managing such risks and uncertainties could cause actual results to differ materially from those projected, including, among others, the risk factors disclosed in Part 1 - Item 1A of the Company's Annual Report on Form 10-K filed with the SEC on March 27, 2012 for the year ended December 31, 2011.

These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. Readers should carefully review all disclosures filed by the Company from time to time with the SEC.

Critical Accounting Policies and Accounting Estimates

The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While the Company bases estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.

The Company considers accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the Company's financial statements. Accounting policies related to the reserve for loan losses are considered to be critical, as these policies involve considerable subjective judgment and estimation by management.

During the year ended December 31, 2011, the Company revised and continued to enhance its methodology for estimating the adequacy of the reserve for loan losses. The significant revisions to the methodology included (1) the application of historical loss factors by risk rating for each loan segment, as compared to the prior method which utilized blended historical loss factors, (2) a change to historical look-back periods, and (3) refinement of the qualitative factors and application thereof used to adjust the estimated historical loss factors. The reserve for loan losses at March 31, 2012 and December 31, 2011 were significantly affected by inclusion of charge-offs incurred in the 2011 Bulk Sale of certain loans (see Note 2) and related effect on historical loss factors,risk rating changes within the loan portfolio, and changes in the level of expected loss on impaired loans.

For additional information regarding critical accounting policies, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Accounting Estimates included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

There have been no significant changes in the Company's application of critical accounting policies since December 31, 2011.

Economic Conditions

The Company's business is closely tied to the economies of Idaho and Oregon in general and is particularly affected by the economies of Central, Southern and Northwest Oregon, as well as the greater Boise/Treasure Valley, Idaho area. The uncertain depth and duration of the present economic downturn could continue to cause further deterioration of these local economies, resulting in an adverse effect on the Company's financial condition and results of operations. Real estate values in these areas have declined and may continue to fall or remain depressed for an uncertain amount of time. Unemployment rates in these areas continue to be high and could increase further. Business activity across a wide range of industries and regions has been impacted and local governments and many businesses are facing serious challenges due to the lack of consumer spending driven by elevated unemployment and uncertainty. Recently, the national and regional economies and real estate price declines have appeared to show signs of stabilization. However, elevated unemployment and other indicators continue to suggest that the future direction of the economy remains uncertain.

CASCADE BANCORP
Selected Consolidated Financial Highlights
(In thousands, except per share data and ratios; unaudited)




                                                           Year over Year Quarter          Linked Quarter
                                                       1st Qtr       1st Qtr       %       4th Qtr     %
Balance Sheet Data (at period end)                       2012         2011      Change       2011    Change
   Investment securities                                 $243,094      $128,408   89.3%     $210,840  15.3%
   Loans, gross                                           869,836     1,173,580  -25.9%      897,564  -3.1%
   Total assets                                         1,312,381     1,600,883  -18.0%    1,303,450   0.7%
   Total deposits                                       1,093,682     1,175,184   -6.9%    1,086,827   0.6%
     Non-interest bearing deposits                        384,809       374,153    2.8%      371,662   3.5%
   Total common shareholders' equity (book)               134,056       209,543  -36.0%      132,881   0.9%
   Tangible common shareholders' equity (tangible)
   (1)                                                    134,056       205,000  -34.6%      132,881   0.9%
Income Statement Data
   Interest income                                        $14,596       $18,304  -20.3%      $14,914  -2.1%
   Interest expense                                         1,471         3,970  -63.0%        2,038 -27.8%
   Net interest income                                     13,125        14,334   -8.4%       12,876   1.9%
   Loan loss provision                                      1,100         5,500  -80.0%       14,700 -92.5%
   Net interest income (loss) after loan loss
   provision                                               12,025         8,834   36.1%      (1,824) 759.3%
   Noninterest income                                       2,966         2,668   11.2%        2,665  11.3%
   Noninterest expense                                     13,908        15,643  -11.1%       26,629 -47.8%
   Loss before income taxes                                 1,083       (4,141)  126.1%     (25,788) 104.2%
   Credit (provision) for income taxes                       (25)       (2,346)   98.9%        (123)  79.7%
   Net income
   (loss)                                                   1,058       (1,795)  158.9%     (25,911) 104.1%
   Extraordinary gain on extinguishment of junior
   subordinated
          debentures, net of income taxes                      -         32,839 -100.0%            -   0.0%
   Net income
   (loss)                                                  $1,058       $31,044  -96.6%    ($25,911) 104.1%
Share Data
   Basic net income (loss) per common share (incl.
   extraordinary net gain)                                  $0.02         $0.93  -97.9%      ($0.55) 103.6%
   Diluted net income (loss) per common share (incl.
   extraordinary net gain)                                  $0.02         $0.93  -97.9%      ($0.55) 103.6%
   Book value per common share                              $2.84         $4.45  -36.3%        $2.81   0.9%
   Tangible book value per common share                     $2.84         $4.36  -34.9%        $2.81   0.9%
   Basic average shares outstanding                        47,092        33,258   41.6%       47,091   0.0%
   Fully diluted average shares outstanding                47,235        33,301   41.8%       47,091   0.3%
Key Ratios
   Return on average total shareholders' equity
   (book)                                                   3.16%        82.16%  -96.2%      -64.59% 104.9%
   Return on average total shareholders' equity
   (tangible)                                               3.16%        84.79%  -96.3%      -64.59% 104.9%
   Return on average total assets                           0.32%         7.51%  -95.7%       -7.44% 104.3%
   Net interest spread                                      4.04%         2.94%   37.4%        3.67%  10.1%
   Net interest margin                                      4.31%         3.72%   15.9%        4.04%   6.7%
   Total revenue (net int inc + non int inc)              $16,091       $17,002   -5.4%      $15,540   3.5%
   Efficiency ratio
   (2)                                                     86.44%        92.01%   -6.1%      171.36% -49.6%
Credit Quality Ratios
   Reserve for credit losses                              $45,501       $43,395    4.9%      $45,455   0.1%
   Reserve to ending total loans                            5.23%         3.70%   41.5%        5.06%   3.3%
   Non-performing assets (NPAs) (3)                       $26,675      $105,453  -74.7%      $30,404 -12.3%
   Non-performing assets to total assets                    2.03%         6.59%  -69.1%        2.33% -12.9%
   Delinquent >30 days to total loans (excl. NPAs)          0.29%         0.55%  -48.4%        0.34% -15.1%
   Net Charge off's (NCOs)                                  1,055         9,713  -89.1%        1,504 -29.9%
   Net loan charge-offs (annualized)                        0.48%         3.23%  -85.2%        0.65% -26.9%
   Provision for loan losses to NCOs                      104.27%        56.63%   84.1%      977.39% -89.3%
Bank Capital Ratios (4)
   Tier 1 capital leverage ratio                           11.45%        13.54%  -15.4%       10.81%   5.9%
   Tier 1 risk-based capital ratio                         15.22%        17.66%  -13.8%       14.86%   2.4%
   Total risk-based capital ratio                          16.51%        18.93%  -12.8%       16.15%   2.2%
Bancorp Capital Ratios (4)
   Tier 1 capital leverage ratio                           10.00%        12.24%  -18.3%        9.42%   6.2%
   Tier 1 risk-based capital ratio                         13.37%        16.12%  -17.1%       13.04%   2.5%
   Total risk-based capital ratio                          14.67%        17.40%  -15.7%       14.34%   2.3%

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

Financial Highlights and Summary of the First Quarter of 2012

º FirstQuarter Net Income Per Share: $0.02 per share or $1.1 million.
º Credit Quality: Reserve for loan losses at $44.0 million or 5.04% of loans, including a $1.1 million loan loss provision for the period.
º Credit Quality: Net charge-offs for the quarter were $1.1 million, or 0.48% of loans (annualized), down from $1.5 million for the fourth quarter 2011 and $9.7 million for the first quarter 2011.
º Credit Quality: Non-performing assets were 2.03% of total assets at March 31, 2012, compared to 2.33% at December 31, 2011 and 6.59% at March 31, 2011.
º Loans: Gross loans were down $27.7 million or 3.1% from December 31, 2011 resulting from continued payoff and paydowns.
º Deposits: Total deposits were up $6.9 million or 0.6% from December 31, 2011.
º Net Interest Margin ("NIM"): NIM rose to 4.31% from 4.04% at December 31, 2011 and 3.72% at March 31, 2011.

The Company recorded net income of $0.02 per share or $1.1 million in the first quarter of 2012. This compares to the fourth quarter 2011 net loss of ($0.55) per share or ($25.9) million and net income of $0.93 per share or $31.0 million for the year-ago quarter.

For the first quarter of 2012, net interest income was $13.1 million compared to $12.9 million for the fourth quarter of 2011. This almost 2.0% increase is a result of a decrease in interest income of $318 thousand due to lower loan balances, offset by a larger decrease in interest expense of $567 thousand. Lower interest expense in the current period was due to lower rates paid on deposits as well as repayment of the Company's remaining internet deposits (approximately $28.0 million) in December 2011.

Non-interest income was up from the fourth quarter of 2011 by $301 thousand while non-interest expense was down $12.7 million. Increased non-interest income was a result of improved residential mortgage revenues including $300 thousand in mortgage servicing rights valuation. The decreased non-interest expense in the first quarter of 2012 was a result of $8.3 million lower expenses related to OREO valuation, disposition, and operation costs and a one-time $3.4 million charge to fully impair the Bank's Core Deposits Intangible ("CDI") in the fourth quarter of 2011.

At March 31, 2012, the Company's gross loan portfolio was $869.8 million, down $27.7 million from December 31, 2011 and $303.7 million from March 31, 2011. The decline in this quarter is due to continued customer payoffs and paydowns of loans. A substantial portion of the decline in loan balances from a year ago is due to the September 2011 Bulk Sale of approximately $110.0 million (carrying amount) of certain non-performing, substandard and related performing loans, discussed in Note 2 to the condensed consolidated financial statements included in this Quarterly Report.

At March 31, 2011 total deposits are $1.1 billion up $6.9 million from December 31, 2011 and down $81.5 million from the same period a year ago. Internet deposits decreased $80.5 million year-over-year owing to the Bank's planned call and prepayment of internet deposits during 2011 including approximately $28.0 million in the fourth quarter of 2011. At March 31, 2012, the Bank had no internet sourced deposits. Total non-interest bearing deposits have held steady over the past year and at March 31, 2012 represents approximately 35% of the Bank's total deposits. The Bank anticipates further reduction in deposits in the second quarter as a result of expected movement of municipal deposits to the Oregon State sponsored municipal funds pool which carries above market rate returns at this point in the rate cycle.

The NIM at March 31, 2012 was 4.31%, compared to 4.04% at December 31, 2011 and 3.72% at March 31, 2011. The continued increase in the NIM is a result of decreased interest expense related to the maturities/repayments of internet sourced deposits in 2011 as well as the repayment of FHLB Advances and TLGP debt in 2011.

At March 31, 2012, the Bank's Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios were 11.45%, 15.22% and 16.51%, Regulatory minimums for a "well-capitalized" bank are 5%, 6%, and 10% for Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital, respectively. Bancorp's Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were 10.00%, 13.37% and 14.65%, respectively, as of March 31, 2012.

RESULTS OF OPERATIONS - Three Months ended March 31, 2012 and 2011

Income Statement

Net Income

For the three months ended March 31, 2012, the Company recorded net income of $0.02 per share or $1.1 million. Year-to-date results include a loan loss provision of $1.1 million. For the year-ago period, the Company recorded a net loss before extraordinary gain ($0.06) per share or ($1.8) million and a $0.93 per share or $31.0 million net income after an extraordinary gain on the extinguishment of junior subordinated debentures of $32.8 million, net of tax.

Net Interest Income

Net interest income was $13.1 million for the first quarter of 2012, which was comparable to the $12.9 million recorded in the fourth quarter of 2011, but down from the $14.3 million recorded in the first quarter one year ago.

Interest income in the first quarter of 2012 decreased $318 thousand compared to the prior quarter and $3.7 million compared to the year-ago quarter. The decrease in the first quarter of 2012 is mainly due to lower average earning loan balances. Similarly, the current quarter decline compared to the year ago period was due to lower average earning loan balances coupled with lower interest reversals on non-performing loans in the current period. Loan prepayment fees were approximately $180 thousand for the first quarter 2012 which may not recur prospectively.

Interest expense decreased $567 thousand or 27.8% from the fourth quarter of 2011 and $2.5 million or 63.0% compared to the year-ago quarter. Reduced funding costs are primarily due to the repayment of internet deposits in 2011 discussed elsewhere in this report, as well a reduction of borrowings from March 31, 2011. Total borrowings decreased $126.0 million from March 31, 2011 due to the payoff of $41.0 million in TLGP debt and $85.0 million of FHLB Advances, in 2011. Borrowings did not change from December 31, 2011 to March 31, 2012. Total deposits at March 31, 2012 decreased $81.5 million from March 31, 2011, due primarily to a reduction of internet deposits of $80.6 million. At December 31, 2011 and March 31, 2012, there were no internet deposits on the Bank's balance sheet.

Components of Net Interest Margin

The following table sets forth for the quarters ended March 31, 2012 and 2011 information with regard to average balances of assets and liabilities, as well as total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities, resultant average yields or rates, net interest income, net interest spread and net interest margin for the Company (dollars in thousands):

                                                                YEAR OVER YEAR
(dollars in thousands)          Quarter ended March 31, 2012                  Quarter ended March 31, 2011
                                            Interest       Average                        Interest       Average
                             Average         Income/      Yield or         Average         Income/      Yield or
                             Balance         Expense        Rates          Balance         Expense        Rates
Assets
     Taxable securities   $     210,021     $   1,403          2.69 %   $     117,612     $   1,244          4.29 %
     Non-taxable
securities                        1,334            13          3.92 %           1,806            18          4.04 %
     Interest bearing
balances due from other
banks                           117,682            67          0.23 %         229,251           136          0.24 %
     Federal funds sold              23             -          0.00 %           2,900             -          0.00 %
     Federal Home Loan
Bank stock                       10,472             -          0.00 %          10,472             -          0.00 %
     Loans (1)(2)(3)            884,590        13,113          5.96 %       1,201,276        16,906          5.71 %
       Total earning
assets/interest income        1,224,122        14,596          4.80 %       1,563,317        18,304          4.75 %
     Reserve for loan
losses                          (43,608 )                                     (45,055 )
     Cash and due from
banks                            34,064                                        29,640
     Premises and
equipment, net                   34,099                                        35,113
     Bank-ow ned life
insurance                        34,785                                        33,556
     Accrued interest
and other assets                 29,375                                        60,690
Total assets              $   1,312,837                                 $   1,677,261
Liabilities and
Stockholders' Equity
     Interest bearing
demand deposits           $     526,783           372          0.28 %   $     463,782           585          0.51 %
     Savings deposits            34,634             9          0.10 %          31,905            17          0.22 %
     Time deposits              157,790           616          1.57 %         384,809         2,025          2.13 %
     Other borrow ings           60,000           474          3.18 %         228,283         1,343          2.39 %
        Total interest
bearing
liabilities/interest
expense                         779,207         1,471          0.76 %       1,108,779         3,970          1.45 %
     Demand deposits            375,457                                       384,968
     Other liabilities           23,637                                        30,272
Total liabilities             1,178,301                                     1,524,019
Stockholders' equity            134,536                                       153,242
Total liabilities and
stockholders' equity      $   1,312,837                                 $   1,677,261
Net interest income                         $  13,125                                     $  14,334
Net interest spread                                            4.04 %                                        3.30 %
Net interest income to
earning assets                                                 4.31 %                                        3.72 %

(1) Average non-accrual loans included in the computation of average loans w as approximately $9.0 million for 2012 and $75.4 million for 2011.

(2) Loan related fees, including prepayment penalties, recognized during the period and included in the yield calculation totaled approximately $0.6 million in 2012 and $0.5 million in 2011.

(3) Includes mortgage loans held for sale.

Analysis of Changes in Interest Income and Expense

The following table shows the dollar amount of increase (decrease) in the Company's consolidated interest income and expense for the quarter ended March 31, 2012, and attributes such variance to "volume" or "rate" changes. Variances that were immaterial have been allocated equally between rate and volume categories (dollars in thousands):

                                              Quarter ended March 31,
                                                   2012 over 2011
                                          Total           Amount of Change
                                         Increase           Attributed to
                                        (Decrease)        Volume        Rate
Interest income:
     Interest and fees on loans        $     (3,793 )   $   (4,424 )   $  631
     Taxable interest in investments            159            990       (831 )
     Other investment income                    (74 )          (70 )       (4 )
       Total interest income                 (3,708 )       (3,504 )     (204 )
Interest expense:
    Interest on deposits:
     Interest bearing demand                   (213 )           83       (296 )
     Savings                                     (8 )            2        (10 )
     Time deposits                           (1,409 )       (1,197 )     (212 )
    Other borrowings                           (869 )         (993 )      124
       Total interest expense                (2,499 )       (2,105 )     (394 )
Net interest income                    $     (1,209 )   $   (1,399 )   $  190
Loan Loss Provision

Loan Loss Provision

The Company recorded a loan loss provision in the amount of $1.1 million for the current quarter which approximates net charge offs for the period. This compares to provision expense for the fourth quarter of 2011 of $14.7 million and $5.5 million in the first quarter of 2011. The 2011 provision level was affected by risk rating changes within the loan portfolio, and changes in the level of expected loss on impaired loans.

At March 31, 2012, the reserve for loan losses was approximately $44.0 million or 5.04% of outstanding loans compared to a prior quarter reserve for loan losses of 4.89% and 3.62% for the first quarter of 2011.

During the year ended December 31, 2011, the Company revised and continued to enhance its methodology for estimating the adequacy of the reserve for loan losses. The significant revisions to the methodology included (1) the application of historical loss factors by risk rating for each loan segment, as compared to the prior method which utilized blended historical loss factors, (2) a change to historical look-back periods, and (3) refinement of the qualitative factors and application thereof used to adjust the estimated historical loss factors. The reserve for loan losses at December 31, 2011 was significantly affected by the revisions and enhancements to the Company's methodology, as well as by the inclusion of charge-offs incurred in the 2011 Bulk Sale of certain loans (see Note 2) as it relates to its historical loss factors.

The reserve for unfunded lending commitments was $1.5 million at March 31, 2012, which remained unchanged from December 31, 2011, and was $941 thousand at March 31, 2011. This brings the total reserve for credit losses to 5.23% of loans at March 31, 2012, compared to 5.06% of loans at December 31, 2011 and 3.70% of loans at March 31, 2011.

Non-Interest Income

Non-interest income in the first quarter of 2012 was $3.0 million as compared to $2.7 million in the most recent prior quarter and $2.7 million a year earlier. The increase in non-interest income in the first quarter of 2012 over the first quarter of 2011 is due to an increase in mortgage revenue resulting from increased residential mortgage origination volumes and related revenues including $300 thousand in mortgage servicing rights.

Non-Interest Expense

Non-interest expense for the first quarter of 2012 was $13.9 million as compared to $26.6 million in the fourth quarter of 2011 and $15.6 million in the comparable period of 2011. The elevated level of non-interest expense in the quarter ended December 31, 2011 was largely a result of $8.3 million in nonrecurring items, including a special OREO valuation allowance to expedite disposition of OREO properties of $5.0 million and a $3.4 million charge to fully impair the Bank's CDI, as well as certain other operational costs. The year over year decline of $1.7 million was due to lower OREO costs of $904 thousand and a decrease in FDIC insurance of $434 thousand. Non-interest expense for the first quarter of 2012 includes $500 thousand OREO accrual for estimated remediation cost of a landslide that impacted an owned property. The final cost . . .