Business Combinations (Notes)

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Business Combinations

Business Combinations

Prime Pacific Financial Services, Inc.

At close of business on August 1, 2016, (the "PPFS Acquisition Date”), the Company acquired Prime Pacific Financial Services, Inc. (“PPFS”), the holding company of Prime Pacific Bank, National Association, a Snohomish county, national banking association.

The merger was completed following the approval of PPFS shareholders, as well as the satisfaction of other customary closing conditions, including receipt of all requisite regulatory approvals.

Each share of PPFS common stock was converted into the right to receive 0.3050 shares of Cascade common stock. The conversion resulted in Cascade issuing 2,921,012 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 $2.2 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 and the economies of scale expected from combining the two banking organizations.

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 PPFS’s previously established reserve for loan losses.

The following table provides a summary of the purchase price calculation as of the PPFS 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 PPFS Acquisition Date based on additional information that may be obtained by us that existed as of the PPFS Acquisition Date.

Purchase Price (in thousands), except per share data
Cascade shares issued for PPFS shares			2,921,012
Cascade share price			$	5.56
Consideration from common stock conversion (0.3050 ratio)			$	16,238
Cash paid in lieu of fractional shares			$	1
Total purchase price			16,239
Assets
Cash and cash equivalents	$	7,625
FHLB stock	424
Loans, net	102,837
Premises and equipment	6,302
Deferred tax asset	2,156
Bank owned life insurance	1,491
Other assets	2,364
Total assets	$	123,199
Liabilities
Deposits	$	101,544
Other liabilities	7,939
Total liabilities	$	109,483
Net identifiable assets acquired			13,716
Intangible asset acquired (1)			342
Goodwill			$	2,181
(1) Intangible assets consist of core deposit intangibles. The useful life for which the core deposit intangible is being amortized is 10 years.

PPFS acquisition-related charges of $1.2 million and $1.3 million were recorded in the consolidated statement of comprehensive income for the three and nine months ended September 30, 2016, respectively. Such expenses were for human resources and professional services, among other categories, and include investment banker fees, legal and accounting support, as well as severance, IT and certain branch consolidation items.

The following table provides the unaudited pro forma information for the results of operations for the three and nine months ended September 30, 2016 and 2015, as if the acquisition had occurred on January 1, 2015. These adjustments reflect the impact of certain purchase accounting fair value measurements, primarily comprised of PPFS’s loan and deposit portfolios. In addition, the $1.3 million in acquisition-related expenses noted earlier are included in the nine months ended September 30, 2015. 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 acquisition 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,
	2016	2015	2016	2015
Net interest income	24,379	21,775	71,547	62,815
Non-interest expense	24,243	20,487	73,843	63,742
Net income	5,151	5,314	12,846	13,704
Net income per diluted share	0.07	0.07	0.17	0.18

Bank of America, National Association branches

On March 4, 2016, the Bank completed the acquisition of twelve Oregon branch locations and three Washington branch locations from Bank of America, National Association (the “branch acquisition”). This transaction allowed Cascade the opportunity to enhance and strengthen its footprint in Oregon, while providing entry into the Washington market. The Bank assumed approximately $469.9 million of branch deposits, paying a 2.00% premium on the average balance of deposits assumed, for a cash purchase price of $9.7 million.

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

ASSETS
Cash and cash equivalents	$	456,611
Premises and equipment, net	3,113
Core deposit intangibles	6,427
Goodwill	3,984
Other assets	463
Total assets	$	470,598
LIABILITIES
Deposits	$	469,889
Other liabilities	709
Total liabilities	$	470,598

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

The fair value of demand deposit accounts assumed from the branch acquisition approximated the carrying value as checking and savings 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 branch acquisition were expensed as incurred in the quarter ended March 31, 2016. Such expenses primarily related to professional and legal services, human resource costs and information system charges. For the quarter ended March 31, 2016, the Company incurred $2.3 million of expenses related to the branch acquisition.

Pro forma income statements are not being presented as the information is not practicable to produce.