CASCADE BANCORP - 10-K filing on 2015-03-10

Business Combinations

12 Months Ended

Dec. 31, 2014

Business Combinations

Home Federal Bank ("Home")

On May 16, 2014 (the "Home Acquisition Date"), pursuant to the Agreement and Plan of Merger, dated as of October 23, 2013 (the "Merger Agreement"), between the Company and Home, Home merged with and into Cascade with Cascade continuing as the surviving corporation (the "Merger"). Immediately after the Merger, Home Federal Bank, a wholly-owned subsidiary of Home, merged with and into Bank of the Cascades, a wholly-owned subsidiary of Cascade, with Bank of the Cascades continuing as the surviving bank. The results of Home's operations are included in the Company's financial results beginning on the Home Acquisition Date.

All of Home’s common stock was converted into the right to receive $8.43 in cash and 1.6772 shares of Cascade common stock. The conversion of Home’s common stock into Cascades common stock resulted in Cascade issuing 24,309,131 shares of its common stock.

The Merger was accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the Home Acquisition Date. Preliminary goodwill of $80.1 million was calculated as the purchase premium after adjusting for the fair value of net assets acquired and represents the value expected from the synergies created from combining the two banking organizations as well as the economies of scale expected from combining the operations of the two companies. None of the goodwill is deductible for income tax purposes as the Merger is accounted for as a tax-free exchange.

In most instances, determining the fair value of the acquired assets and assumed liabilities required us to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations relates to the valuation of acquired loans. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and other factors, such as prepayments. In accordance with the applicable accounting guidance for business combinations, there was no carry-over of Home’s previously established reserve for loan losses.

The following table provides a summary of the purchase price calculation as of the Home Acquisition Date and the identifiable assets purchased and the liabilities assumed at their estimated fair values. These fair value measurements are provisional based on third-party valuations that are currently under review and are subject to refinement for up to one year after the Home Acquisition Date based on additional information that may be obtained by us that existed as of the Home Acquisition Date.



Purchase Price (in thousands, except share data)
Cascade Bancorp common stock shares issued for Home Federal shares			24,309,131
Cascade share price as calculated in the Merger Agreement			$	4.91
Consideration from common stock conversion (1.6772 ratio)			$	119,285
Consideration paid in cash ($8.43 per share)			$	122,163
Total purchase price			241,448
ASSETS
Cash and cash equivalents	$	160,782
Investment securities	318,893
Loans	392,411
Premises and equipment	17,432
Other real estate owned	3,514
Deferred tax asset	15,514
BOLI	15,896
Other assets	13,259
Core deposit intangible	7,667
Total assets	$	945,368
LIABILITIES
Deposits	$	760,648
Other liabilities	23,354
Total liabilities	$	784,002
Net identifiable assets acquired			161,366
Goodwill			$	80,082

(1) The core deposit intangible is being amortized over a 10 year period, which is its expected useful life.

Merger related charges of $11.6 million were recorded in the consolidated statement of comprehensive income for the year to date December 31, 2014. Such expenses were primarily related to professional and legal services, equipment and property maintenance, and information system charges incurred in connection with the acquisition.

The following table provides the unaudited pro forma information for the results of operations for the year to date periods ended December 31, 2014 and 2013, as if the acquisition had occurred on January 1, 2013. These adjustments reflect the impact of certain purchase accounting fair value measurements, primarily comprised of Home’s loan, investment and deposit portfolios. In addition, merger-related expenses and certain change in control costs incurred in 2014 have been excluded from the pro forma December 31, 2014 results and included in the pro forma results for December 31, 2013. These unaudited pro forma results are presented for illustrative purposes only and are not intended to represent or be indicative of the actual results of operations of the combined banking organization that would have been achieved had the Merger occurred on January 1, 2013, nor are they intended to represent or be indicative of future results of operations.



	Twelve Months Ended December 31,
	2014		2013
Net interest income	$	79,373	$	77,932
Non interest expense	89,205		110,454
Net income	11,288		27,308
Net income per diluted share	0.16		0.38

AmericanWest Bank ("AWB") Branch Acquisition

On October 18, 2013, the Bank received required regulatory approval and completed its previously announced purchase of AWB's Klamath Falls, Oregon branch and the assumption of customer relationships, including deposits and selected loans of AWB's Bend and Redmond, Oregon branch offices. In total, the Bank acquired approximately $25.5 million of deposits, paying a deposit premium of 2.00% of the balance of core in-market deposits assumed, and approximately $1.6 million of performing loans for a cash purchase price of $2.8 million. The primary purpose of the acquisition was to expand the Company’s market share in the Central Oregon region.

The following is a condensed balance sheet disclosing the estimated fair value amounts of the acquired branches of AWB assigned to the major consolidated asset and liability captions at the acquisition date (dollars in thousands):



Cash and cash equivalents	$	22,828
Loans, net	1,635
Premises and equipment, net	475
Core deposit intangible	529
Other assets	19
Total assets	$	25,486

Deposits	$	25,485
Other liabilities	1
Total liabilities and stockholders’ equity	$	25,486

The core deposit intangible asset recognized as part of the business combination will be amortized over its estimated useful life of approximately 10 years.

The fair value of deposit accounts acquired from AWB was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit were valued by comparing the contractual cost of the portfolio to a similar portfolio bearing current market rates.

Direct costs related to the AWB acquisition were expensed as incurred in the year ended December 31, 2013. These acquisition and integration expenses included technology and communications, occupancy and equipment, professional services and other noninterest expenses. For the year ended December 31, 2013, the Company incurred $0.2 million of expenses related to the AWB acquisition costs.