Business Combinations

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business Combinations

Business Combinations

On the Acquisition Date, pursuant to the previously announced 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 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 Acquisition Date. Preliminary goodwill of $80.2 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 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 Acquisition Date based on additional information that may be obtained by us that existed as of the Acquisition Date.

Purchase Price (in thousands, except per 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	15,407
Bank owned life insurance	15,896
Other assets	13,259
Intangible asset acquired (1)	7,667
Total assets	$	945,261
LIABILITIES
Deposits	$	760,648
Other liabilities	23,354
Total liabilities	$	784,002
Net identifiable assets acquired			161,259
Goodwill			$	80,189
(1) Intangible assets consist of core deposit intangibles acquired in the Home transaction. The core deposit intangible is being amortized over a 10 year period, which is its expected useful life.

The estimated fair values presented in the above table reflect additional information that the Company obtained during the three months ended September 30, 2014, which resulted in changes to certain fair value estimates made as of the Acquisition Date. Material adjustments to the acquisition date estimated fair values are recorded in the period in which the acquisition occurred, and as a result, previously recorded results have changed. After considering this additional information, the estimated fair values of premises and equipment decreased $1.2 million and the estimated fair value of loans increased $0.1 million from that originally reported in the three months ended June 30, 2014. The estimated net deferred tax asset increased $0.2 million as a result of these revised fair values. Additionally, the Company recorded a $3.5 million increase in acquired other liabilities related to a purchase accounting adjustment identified during the three months ended September 30, 2014. The combined effect of these items discussed above resulted in a net increase to goodwill of $4.4 million from that originally reported in the three months ended June 30, 2014 to $80.2 million, which is recognized in the September 30, 2014 consolidated balance sheet.

Merger related charges of $0.5 million and $11.3 million were recorded in the consolidated statement of comprehensive income for the three and nine months ended September 30, 2014, respectively. 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 three and nine month periods ended September 30, 2014 and 2013, as if the acquisition had occurred on January 1 of each year. These adjustments reflect the impact of certain purchase accounting fair value measurements, primarily comprised of Home’s loan, investment and deposit portfolios. In addition, the $0.5 million and $11.3 million in merger-related expenses noted earlier are included in each period presented. 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 at the beginning of each period presented, nor are they intended to represent or be indicative of future results of operations.

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013
Net interest income	$	18,592	$	23,309	$	59,870	$	67,433
Non-interest expense	19,728		23,693		88,455		83,123
Net income	2,432		2,689		8,689		46,473
Net income per diluted share	0.03		0.04		0.11		0.65