Business Combinations

Prime Pacific Financial Services, Inc.

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 “PPFS merger”).

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 PPFS 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 $3.3 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
Investment securities	—
FHLB stock	424
Loans, net	102,670
Premises and equipment	5,333
Other real estate owned	—
Deferred tax asset	2,488
Bank owned life insurance	1,491
Other assets	2,364
Total assets	$	122,395
Liabilities
Deposits	$	101,544
Other liabilities	8,212
Total liabilities	$	109,756

Net identifiable assets acquired			12,639
Intangible asset acquired (1)			342
Goodwill			$	3,258

(1) Intangible assets consist of core deposit intangibles. The useful life for which the core deposit intangible is being amortized is 10 years.

PPFS merger-related charges of $1.5 million were recorded in the consolidated statement of comprehensive income for the year ended December 31, 2016. 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 twelve months ended December 31, 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 $1.5 million in acquisition-related expenses noted earlier are included in the twelve months ended December 31, 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.



	Twelve months ended December 31,
	2016		2015
Net interest income	$	96,511	$	83,931
Non-interest expense	96,898		83,418
Net income	18,825		19,532
Net income per diluted share	0.26		0.26

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” and together with the PPFS merger, the “2016 acquisitions”). 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 year ended December 31, 2016. Such expenses primarily related to professional and legal services, human resource costs and information system charges. For the year ended December 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.

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, between the Company and Home, Home merged with and into Cascade with Cascade continuing as the surviving corporation (the “Home merger”). Immediately after the Home 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 strategic rationale for the Home merger was to enhance the Company’s franchise value by improving earnings, revenue, scale and efficiency and to improve deposit market share in select high growth markets in Oregon and Idaho.

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 Home 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. Goodwill of $78.6 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.



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	$	759,176
Other liabilities	23,354
Total liabilities	$	782,530
Net identifiable assets acquired			162,838
Goodwill			$	78,610

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

Home 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 Home merger 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