Resources Worth Routing: Cole Quoted in the Bend Bulletin

As seen in the Bend Bulletin on November 17, 2016

Bank of the Cascades to be acquired

Montana’s First Interstate to acquire Bend-based bank

By Joseph Ditzler, The Bulletin, @josefditzler  November 17, 2016

Cascade Bancorp, the parent company of Bend-based Bank of the Cascades, is seeing strong growth across its Northwest footprint as a result of the economy and recent acquisitions, CEO Terry Zink said Wednesday. “The many strategic investments we have made are fueling our growth,” Zink said during a conference call with investors on third-quarter earnings. Net income was down slightly from the second quarter because of expenses related to the acquisition of Seattle-area Prime Pacific

Cascade Bancorp, the holding company for Bend-based Bank of the Cascades, reported a strong first quarter Wednesday, with 8.24 percent growth in revenue over the previous quarter for a total $27.6 million. If trends in loan growth continue, the bank could realize 18.5 percent revenue growth this year, said Terry Zink, president and CEO of Cascade Bancorp. Growth in lending is one prong of a strategy re-emphasized by bank executives Wednesday during the first-quarter earnings

Cascade Bancorp, the holding company for Bend-based Bank of the Cascades, has agreed to become part of First Interstate Bank, a Montana-based bank nearly three times the size of Cascades, according to an announcement Thursday.

The acquisition, should government regulators and shareholders agree, could be complete by July, said Cascades Bancorp President and CEO Terry Zink. The deal, valued at approximately $589 million and six months in the making, would create a regional bank that extends from west of the Rocky Mountains to the Pacific Ocean. It also marks the zenith of Bank of the Cascades, which nearly expired with the Great Recession of 2007-09.

“It’s impressive when you look at the number of banks that didn’t survive,” Zink said. “Back in 2009, 2010, there was a very strong possibility that all of our shareholders would have lost everything, and our employees their jobs.”

He said the proposed acquisition would preserve most of the approximately 600 jobs at Bank of the Cascades, which has 51 branches and loan offices in Oregon, Idaho and Washington. It also gives First Interstate Bank an open door to commercial lending opportunities through Bank of the Cascades locations in Portland and Seattle.

Growth in commercial lending, and a more diversified loan portfolio, are characteristic of the post-recession Bank of the Cascades. The bank has $2.1 billion in loans and $2.7 billion in deposits, according to Thursday’s announcement.

“They run their bank very similar to the way we run ours,” Zink said. But, he said, “First Interstate has a very large wealth management division that we don’t have. That’s an opportunity for our customers.”

Ralph Cole, executive vice president of research at Ferguson Wellman Capital Management, a Portland financial consulting firm, said bank acquisitions and mergers are less common now than analysts expected. One reason: the cost of complying with bank regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The same regulatory hurdles that make combinations costly also provide an incentive for banks to combine their back-office staff tasked with keeping their banks in compliance, Cole said.

“That hurdle has gotten a lot higher in 2016 than it was in 2006,” he said.

Another incentive for First Interstate is that Bank of the Cascades is about the right size and the right fit for a profitable acquisition, Cole said. Seattle is a very tempting target for its wide range of economic opportunity, and Bank of the Cascades is already generating loans there. In addition to a six-member commercial loan office created there last year, Cascades this year acquired Prime Pacific Bank, a small bank north of Seattle with $122.9 million in assets. Acquiring the bank cost Cascades about $17 million.

In March, Bank of the Cascades acquired 15 branches of Bank of America along the coasts of Oregon and Washington for about $10 million. That deal brought another $470 million in deposits and about 60,000 new customer accounts into the Cascades fold.

The bank continued to grow in revenue along with its acquisitions. For the third quarter, the bank’s reported net interest income was $23.8 million, up $1.6 million, or 7.1 percent from the second quarter.

In its most significant post-recession move, Bank of the Cascades in May 2014 nearly doubled in asset size by merging with Home Federal Bank, of Nampa, Idaho. That deal, for which Cascades Bancorp paid $265.7 million in cash and stock, increased the bank footprint from Grants Pass to Mountain Home, Idaho, and from Portland to Klamath Falls. It grew to about 80,000 customer accounts and $2.5 billion in assets.

Acquisition by First Interstate may come at an opportune time, Cole said. The regulatory environment ahead may change under President-elect Donald Trump and interest rates may rise, two barriers to increasing revenue at banks.

“It’s a harder business than it was 10 years ago,” he said. But, “I don’t think banks will continue to be in the sights of regulators as much. It will be a better environment for banks, but what will be interesting is if it increases their appetite to make loans.”

Zink, who’s been at the Cascades helm since January 2012, said he would retire once the deal is closed. He said his predecessor, former Cascades Bancorp President and CEO Patty Moss, and Chief Financial Officer Greg Newton were instrumental in recapitalizing the bank and saving it from extinction during and immediately after the Great Recession.

“I look at that and feel fortunate for what we were able to accomplish,” he said. “The bank will go on, it will continue to grow. The name will change, but the legacy will be strong.”