Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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Acquired loans (b):
|
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|
|
|
|
|
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
$
|
317
|
|
|
$
|
—
|
|
|
$
|
317
|
|
|
$
|
92,173
|
|
|
$
|
92,490
|
|
Non-owner occupied
|
—
|
|
|
—
|
|
|
—
|
|
|
98,034
|
|
|
98,034
|
|
Total commercial real estate loans
|
317
|
|
|
—
|
|
|
317
|
|
|
190,207
|
|
|
190,524
|
|
Construction
|
—
|
|
|
17
|
|
|
17
|
|
|
10,367
|
|
|
10,384
|
|
Residential real estate
|
2,053
|
|
|
543
|
|
|
2,596
|
|
|
51,872
|
|
|
54,468
|
|
Commercial and industrial
|
257
|
|
|
—
|
|
|
257
|
|
|
28,029
|
|
|
28,286
|
|
Consumer
|
9
|
|
|
—
|
|
|
9
|
|
|
1,407
|
|
|
1,416
|
|
|
$
|
2,636
|
|
|
$
|
560
|
|
|
$
|
3,196
|
|
|
$
|
281,882
|
|
|
$
|
285,078
|
|
|
|
|
|
|
|
|
|
|
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Total loans:
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|
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Commercial real estate:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
$
|
522
|
|
|
$
|
490
|
|
|
$
|
1,012
|
|
|
$
|
390,199
|
|
|
$
|
391,211
|
|
Non-owner occupied
|
100
|
|
|
—
|
|
|
100
|
|
|
612,297
|
|
|
612,397
|
|
Total commercial real estate loans
|
622
|
|
|
490
|
|
|
1,112
|
|
|
1,002,496
|
|
|
1,003,608
|
|
Construction
|
97
|
|
|
393
|
|
|
490
|
|
|
210,548
|
|
|
211,038
|
|
Residential real estate
|
3,541
|
|
|
543
|
|
|
4,084
|
|
|
427,758
|
|
|
431,842
|
|
Commercial and industrial
|
547
|
|
|
338
|
|
|
885
|
|
|
413,551
|
|
|
414,436
|
|
Consumer
|
331
|
|
|
12
|
|
|
343
|
|
|
43,145
|
|
|
43,488
|
|
|
$
|
5,138
|
|
|
$
|
1,776
|
|
|
$
|
6,914
|
|
|
$
|
2,097,498
|
|
|
$
|
2,104,412
|
|
|
|
|
|
|
|
|
|
|
|
(a) Loans organically made through the Company’s normal and customary origination process, including ARM purchases.
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(b) Loans acquired in the acquisition of Home and PPFS.
|
Loans contractually past due 90 days or more on which the Company continued to accrue interest were
$0.62 million
and
$0.02 million
at
March 31, 2017
and
December 31, 2016
, respectively.
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
The following table presents information related to impaired loans, by portfolio class, at
March 31, 2017
and
December 31, 2016
(dollars in thousands):
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Impaired loans
|
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With a
related
allowance
|
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Without a
related
allowance
|
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Total
recorded
balance
|
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Unpaid
principal
balance
|
|
Related
allowance
|
March 31, 2017
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Commercial real estate:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
$
|
—
|
|
|
$
|
490
|
|
|
$
|
490
|
|
|
$
|
490
|
|
|
$
|
—
|
|
Non-owner occupied
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial real estate loans
|
—
|
|
|
490
|
|
|
490
|
|
|
490
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial and industrial
|
6,565
|
|
|
337
|
|
|
6,902
|
|
|
10,425
|
|
|
2,000
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
6,565
|
|
|
$
|
827
|
|
|
$
|
7,392
|
|
|
$
|
10,915
|
|
|
$
|
2,000
|
|
|
|
|
|
|
|
|
|
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|
December 31, 2016
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Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
$
|
—
|
|
|
$
|
640
|
|
|
$
|
640
|
|
|
$
|
1,077
|
|
|
$
|
—
|
|
Non-owner occupied
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial real estate loans
|
—
|
|
|
640
|
|
|
640
|
|
|
1,077
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial and industrial
|
6,701
|
|
|
333
|
|
|
7,034
|
|
|
10,359
|
|
|
2,000
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
6,701
|
|
|
$
|
973
|
|
|
$
|
7,674
|
|
|
$
|
11,436
|
|
|
$
|
2,000
|
|
At
March 31, 2017
and
December 31, 2016
, the total recorded balance of impaired loans in the above table included
no
troubled debt restructuring (“TDR”) loans.
The following table presents, by portfolio class, the average recorded investment in impaired loans for the
three
months ended
March 31, 2017
and
2016
(dollars in thousands):
|
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|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Commercial real estate:
|
|
|
|
|
|
Owner occupied
|
$
|
565
|
|
|
$
|
2,876
|
|
Non-owner occupied
|
—
|
|
|
1,607
|
|
Total commercial real estate loans
|
565
|
|
|
4,483
|
|
Construction
|
—
|
|
|
183
|
|
Residential real estate
|
—
|
|
|
9
|
|
Commercial and industrial
|
6,968
|
|
|
5,201
|
|
Consumer
|
—
|
|
|
—
|
|
|
$
|
7,533
|
|
|
$
|
9,876
|
|
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
Interest income recognized for cash payments received on impaired loans for the
three
months ended
March 31, 2017
and 2016 was
$0.2 million
and
$0.1 million
, respectively.
Information with respect to the Company’s non-performing loans, by portfolio class, at
March 31, 2017
and
December 31, 2016
is as follows (dollars in thousands):
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|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Commercial real estate:
|
|
|
|
|
|
Owner occupied
|
$
|
2,337
|
|
|
$
|
1,739
|
|
Non-owner occupied
|
278
|
|
|
2,659
|
|
Total commercial real estate loans
|
2,615
|
|
|
4,398
|
|
Construction
|
409
|
|
|
429
|
|
Residential real estate
|
1,411
|
|
|
1,598
|
|
Commercial and industrial
|
7,706
|
|
|
7,270
|
|
Consumer
|
—
|
|
|
—
|
|
Total non-accrual loans
|
$
|
12,141
|
|
|
$
|
13,695
|
|
|
|
|
|
Accruing loans which are contractually past due 90 days or more:
|
|
|
|
|
|
Residential real estate
|
583
|
|
|
—
|
|
Commercial and industrial
|
12
|
|
|
5
|
|
Consumer
|
29
|
|
|
12
|
|
Total accruing loans which are contractually past due 90 days or more
|
$
|
624
|
|
|
$
|
17
|
|
TDRs
The Company allocated
no
specific reserves to customers whose loan terms had been modified in TDRs as of
March 31, 2017
and
December 31, 2016
. TDRs involve the restructuring of loan terms to allow customers to mitigate the risk of foreclosure by meeting a lower loan payment requirement based upon their current cash flow. As indicated above, TDRs may also include loans to borrowers experiencing financial distress that renewed at existing contractual rates, but below market rates for comparable credit quality. The Company has been actively utilizing these programs and working with its customers to improve obligor cash flow and related prospects for repayment. Concessions may include, but are not limited to, interest rate reductions, principal forgiveness, deferral of interest payments, extension of the maturity date, and other actions intended to minimize potential losses to the Company. For each commercial loan restructuring, a comprehensive credit underwriting analysis of the borrower’s financial condition and prospects of repayment under the revised terms is performed to assess whether the new structure can be successful and whether cash flows will be sufficient to support the restructured debt. Generally, if the loan is on accrual status at the time of restructuring, it will remain on accrual status after the restructuring. After
six
consecutive payments under the restructured terms, a non-accrual restructured loan is reviewed for possible upgrade to accrual status.
Typically, once a loan is identified as a TDR it will retain that designation until it is paid off, because restructured loans generally are not at market rates following restructuring. Under certain circumstances, a TDR may be removed from TDR status if it is determined to no longer be impaired and the loan is at a competitive interest rate. Under such circumstances, allowance allocations for loans removed from TDR status would be based on the historical allocation for the applicable loan grade and loan class.
There were
no
loans modified and recorded as TDRs during the
three months ended March 31, 2017
and
one
loan modified and recorded as a TDR during the three months ended March 31,
2016
.
The following table presents, by portfolio segment, the information with respect to the Company’s loans that were modified and recorded as TDRs during the
three months ended March 31, 2017
and
2016
(dollars in thousands).
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2017
|
|
2016
|
|
Number of
loans
|
|
TDR outstanding
recorded investment
|
|
Number of
loans
|
|
TDR outstanding
recorded investment
|
Commercial real estate
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial and industrial
|
—
|
|
|
—
|
|
|
1
|
|
|
22
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
1
|
|
|
$
|
22
|
|
At both
March 31, 2017
and
2016
, the Company had
no
remaining commitments to lend on loans accounted for as TDRs.
The following table presents, by portfolio segment, the post modification recorded investment for TDRs restructured during the
three months ended March 31, 2017
and
2016
.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2017
|
|
Rate
reduction
|
|
Term
extension
|
|
Rate reduction
and term
extension
|
|
Total
|
Commercial real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial and industrial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2016
|
|
Rate
reduction
|
|
Term
extension
|
|
Rate reduction
and term
extension
|
|
Total
|
Commercial real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential real estate
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial and industrial
|
|
—
|
|
|
22
|
|
|
—
|
|
|
22
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
22
|
|
There were
no
TDRs that had payment defaults during the
three months ended
March 31, 2017
or
2016
that had been previously restructured within the twelve months prior to
March 31, 2017
or
2016
.
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
5. Other Real Estate Owned (
“
OREO
”)
, net
The following table presents activity related to OREO for the periods shown (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
1,677
|
|
|
$
|
3,274
|
|
Additions
|
50
|
|
|
—
|
|
Balances at end of period
|
$
|
1,727
|
|
|
$
|
3,274
|
|
The following table summarizes activity in the OREO valuation allowance for the periods shown (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
776
|
|
|
$
|
776
|
|
Additions to the valuation allowance
|
—
|
|
|
—
|
|
Reductions due to sales
|
—
|
|
|
—
|
|
Balance at end of period
|
$
|
776
|
|
|
$
|
776
|
|
The following table summarizes OREO (income) expenses for the periods shown (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
2017
|
|
2016
|
Operating costs
|
$
|
10
|
|
|
$
|
45
|
|
Increases in valuation allowance
|
—
|
|
|
167
|
|
Total
|
$
|
10
|
|
|
$
|
212
|
|
6. Mortgage Servicing Rights (“MSRs”)
The Bank sells a predominant share of the fixed rate mortgage loans it originates into the secondary market while retaining servicing of such loans. Mortgage Servicing Rights (“MSRs”), included in other assets in the condensed consolidated financial statements as of
March 31, 2017
and
December 31, 2016
, are accounted for at the lower of origination value less accumulated amortization or current fair value. The net carrying value of MSRs at
March 31, 2017
and
December 31, 2016
was
$2.4 million
and
$2.3 million
, respectively. There was
no
valuation allowance at
March 31, 2017
or
December 31, 2016
.
The following table presents activity in MSRs for the periods shown (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
2,348
|
|
|
$
|
2,186
|
|
Additions
|
242
|
|
|
128
|
|
Amortization
|
(167
|
)
|
|
(163
|
)
|
Balances at end of period
|
$
|
2,423
|
|
|
$
|
2,151
|
|
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
Mortgage banking income, net, consisted of the following for the periods shown (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
2017
|
|
2016
|
Origination and processing fees
|
$
|
103
|
|
|
$
|
58
|
|
Gain on sales of loans, net
|
986
|
|
|
439
|
|
Servicing fees
|
225
|
|
|
161
|
|
Amortization
|
(167
|
)
|
|
(163
|
)
|
Mortgage banking income, net
|
$
|
1,147
|
|
|
$
|
495
|
|
7. Goodwill and other intangible assets
The Company recorded
$3.3 million
of goodwill in connection with the PPFS merger. The Company recorded
$4.0 million
of goodwill in connection with the branch acquisition. The Company recorded
$78.6 million
of goodwill in connection with the Home merger.
In accordance with the Intangibles - Goodwill and Other topic of the Financial Accounting Standards Board (“FASB”) ASC, goodwill is not amortized but is reviewed for potential impairment at the reporting unit level. Management analyzes its goodwill for impairment on an annual basis and between annual tests in certain circumstances, such as upon material adverse changes in legal, business, regulatory and economic factors. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The Company performed an impairment assessment as of December 31, 2016 and 2015 and concluded that there was no impairment to goodwill.
Core deposit intangibles (“CDI”) are evaluated for impairment if events and circumstances indicate a possible impairment. The CDI are amortized on a straight-line basis over an estimated life of
10
years. The following table sets forth activity for CDI for the
three
months ended
March 31, 2017
and
2016
(dollars in thousands).
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
2017
|
|
2016
|
Gross CDI balance, beginning of period
|
$
|
14,966
|
|
|
$
|
8,196
|
|
Accumulated amortization, beginning of period
|
(2,649
|
)
|
|
(1,333
|
)
|
CDI, net, beginning of period
|
12,317
|
|
|
6,863
|
|
Established through acquisitions
|
—
|
|
|
6,427
|
|
CDI current period amortization
|
(374
|
)
|
|
(205
|
)
|
Total CDI, end of period
|
$
|
11,943
|
|
|
$
|
13,085
|
|
The following table provides the estimated future amortization expense of CDI for the remaining period ending
December 31, 2017
and the succeeding four years (dollars in thousands):
|
|
|
|
|
|
Years Ending December 31,
|
|
|
2017
|
|
$
|
1,122
|
|
2018
|
|
1,497
|
|
2019
|
|
1,497
|
|
2020
|
|
1,497
|
|
2021
|
|
1,497
|
|
8. Basic and Diluted Net Income per Share
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
The Company’s basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. The Company’s diluted net income per share is computed by dividing net income by the weighted-average number of common shares outstanding plus any incremental shares arising from the dilutive effect of stock-based compensation.
The numerators and denominators used in computing basic and diluted net income per common share for the
three
months ended
March 31, 2017
and
2016
can be reconciled as follows (dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31,
|
|
2017
|
|
2016
|
Net income
|
$
|
6,762
|
|
|
$
|
1,940
|
|
|
|
|
|
Weighted-average shares outstanding - basic
|
75,059,838
|
|
|
71,883,745
|
|
Dilutive securities
|
882,770
|
|
|
269,191
|
|
Weighted-average shares outstanding - diluted
|
75,942,608
|
|
|
72,152,936
|
|
Common stock equivalent shares excluded due to antidilutive effect
|
—
|
|
|
3,361,524
|
|
|
|
|
|
Basic and diluted:
|
|
|
|
|
|
Net income per common share
|
$
|
0.09
|
|
|
$
|
0.03
|
|
Net income per common share (diluted)
|
$
|
0.09
|
|
|
$
|
0.03
|
|
9. Stock-Based Compensation
At
March 31, 2017
,
1,630,830
shares reserved under the Company’s stock-based compensation plans were available for future grants.
During the
three months ended March 31, 2017
and
2016
,
no
shares of restricted stock or stock options were granted by the Company.
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
The following table presents the activity related to stock options for the
three months ended March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted-
average
exercise
price
|
|
Weighted-
average
remaining
contractual
term (years)
|
|
Aggregate
intrinsic
value (000)
|
Options outstanding at January 1, 2017
|
3,383,972
|
|
|
$
|
5.32
|
|
|
8.0
|
|
$
|
11,180.8
|
|
Granted
|
—
|
|
|
—
|
|
|
N/A
|
|
N/A
|
|
Canceled / forfeited
|
(907
|
)
|
|
3.62
|
|
|
N/A
|
|
N/A
|
|
Exercised
|
(8,150
|
)
|
|
4.60
|
|
|
N/A
|
|
N/A
|
|
Expired
|
(3,207
|
)
|
|
273.20
|
|
|
N/A
|
|
N/A
|
|
Options outstanding at March 31, 2017
|
3,371,708
|
|
|
$
|
5.06
|
|
|
7.8
|
|
$
|
9,769.3
|
|
Options exercisable at March 31, 2017
|
71,708
|
|
|
$
|
17.68
|
|
|
4.1
|
|
$
|
133.3
|
|
|
|
|
|
|
|
|
|
Options outstanding at January 1, 2016
|
3,375,909
|
|
|
$
|
5.44
|
|
|
9.0
|
|
$
|
4,243.7
|
|
Granted
|
—
|
|
|
—
|
|
|
N/A
|
|
N/A
|
|
Canceled / forfeited
|
(234
|
)
|
|
78.08
|
|
|
N/A
|
|
N/A
|
|
Expired
|
(1,634
|
)
|
|
$
|
151.20
|
|
|
N/A
|
|
N/A
|
|
Options outstanding at March 31, 2016
|
3,374,041
|
|
|
$
|
5.34
|
|
|
8.8
|
|
$
|
3,038.4
|
|
Options exercisable at March 31, 2016
|
74,041
|
|
|
29.80
|
|
|
4.5
|
|
$
|
2.4
|
|
Stock-based compensation expense related to stock options for the
three months ended March 31, 2017
and
2016
was
$0.3 million
. As of
March 31, 2017
, there was approximately
$3.1 million
of unrecognized compensation cost related to non-vested stock options that will be recognized over the remaining vesting periods of the stock options.
The following table presents the activity related to non-vested restricted stock for the
three months ended
March 31, 2017
:
|
|
|
|
|
|
|
|
|
Number of
shares
|
|
Weighted-
average grant
date fair value
per share
|
Non-vested as of January 1, 2017
|
1,148,975
|
|
|
$
|
6.39
|
|
Granted
|
—
|
|
|
—
|
|
Vested
|
—
|
|
|
—
|
|
Canceled / forfeited
|
(2,841
|
)
|
|
5.28
|
|
Non-vested as of March 31, 2017
|
1,146,134
|
|
|
$
|
6.39
|
|
Non-vested restricted stock is scheduled to vest over a
three
to
five
year period. The unearned compensation on restricted stock is being amortized to expense on a straight-line basis over the estimated applicable service or vesting periods. As of
March 31, 2017
, unrecognized compensation cost related to non-vested restricted stock totaled approximately
$4.5 million
, which is expected to be recognized over the next five years. Total expense recognized by the Company for non-vested restricted stock for the
three months ended
March 31, 2017
and
2016
was
$0.5 million
and
$0.4 million
, respectively. There was
$0.2 million
unrecognized compensation cost related to restricted stock units (“RSUs”) at
March 31, 2017
and
December 31, 2016
.
10. Interest Rate Swap Derivatives
Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require no net investment and allow for the net settlement of positions. The notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. The underlying variable represents a specified interest rate, index, or other component. The interaction between the notional amount and the underlying variable determines the number of
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
units to be exchanged between the parties and influences the market value of the derivative contract. The Company obtains dealer quotation to value its derivative contracts.
The Company periodically enters into certain commercial loan interest rate swap agreements in order to provide commercial loan customers the ability to convert from variable to fixed interest rates. Under these agreements, the Company provides the customer with a variable rate loan and enters into an interest rate swap in which the customer receives a variable rate payment in exchange for a fixed rate payment. The Company offsets its risk exposure by entering into an offsetting interest rate swap with a dealer counterparty for the same notional amount and length of term as the customer interest rate swap providing the dealer counterparty with a fixed rate payment in exchange for a variable rate payment. Generally, these instruments help the Company manage exposure to market risk and meet customer financing needs. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors such as market-driven interest rates and prices or other economic factors.
The Company is exposed to credit-related losses in the event of non-performance by the counterparty to these agreements. Credit risk of the financial contract is controlled through the credit approval, limits, and monitoring procedures and management does not expect the counterparties to fail their obligations.
In connection with the interest rate swaps between the Company and the dealer counterparties, the agreements contain a provision that if the Company fails to maintain its status as a well-capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations. Similarly, the Company could be required to settle its obligations under certain of its agreements if certain credit ratings fall below specified standards or if specific regulatory events occur, such as a publicly issued memorandum of understanding, cease and desist order, or a termination of insurance coverage by the FDIC.
As of
March 31, 2017
and
December 31, 2016
, the notional values or contractual amounts and fair values of the Company’s derivatives not designated in hedge relationships were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
March 31, 2017
|
|
December 31, 2016
|
|
|
Notional/
Contract Amount
|
|
Fair Value (1)
|
|
Notional/
Contract Amount
|
|
Fair Value (1)
|
|
Notional/
Contract Amount
|
|
Fair Value (2)
|
|
Notional/
Contract Amount
|
|
Fair Value (2)
|
Interest rate swaps
|
|
$
|
263,281
|
|
|
$
|
3,053
|
|
|
$
|
256,950
|
|
|
$
|
5,239
|
|
|
$
|
263,281
|
|
|
$
|
3,053
|
|
|
$
|
256,950
|
|
|
$
|
5,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Included in Other Assets on the condensed consolidated balance sheet.
|
|
|
|
|
(2) Included in Other Liabilities on the condensed consolidated balance sheet.
|
|
|
|
|
Swap fee income, as included in non-interest income, was
$0.3 million
for the
three
months ended
March 31, 2017
and
$0.7 million
for the
three
months ended
March 31, 2016
.
The Company generally posts collateral against derivative liabilities in the form of cash. Collateral posted against derivative liabilities was
$6.3 million
and
$5.0 million
as of
March 31, 2017
and
December 31, 2016
, respectively.
Derivative assets and liabilities are recorded at fair value on the balance sheet and do not take into account the effects of master netting agreements. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis and to offset net derivative position with related collateral where applicable.
The following table illustrates the potential effect of the Company’s derivative master netting arrangements, by type of financial instrument, on the Company’s condensed consolidated balance sheet as of
March 31, 2017
and
December 31, 2016
(dollars in thousands):
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
Gross Amounts of Financial Instruments Not Offset in the Balance Sheet
|
|
|
Gross Amounts Recognized
|
|
Amounts offset in the Balance Sheet
|
|
Net Amounts in the Balance Sheet
|
|
Netting Adjustment Per Applicable Master Netting Agreements
|
|
Fair Value of Financial Collateral in the Balance Sheet
|
|
Net Amount
|
Asset Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
3,053
|
|
|
$
|
—
|
|
|
$
|
3,053
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
3,053
|
|
|
$
|
—
|
|
|
$
|
3,053
|
|
|
$
|
—
|
|
|
$
|
6,300
|
|
|
$
|
(3,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Gross Amounts of Financial Instruments Not Offset in the Balance Sheet
|
|
|
Gross Amounts Recognized
|
|
Amounts offset in the Balance Sheet
|
|
Net Amounts in the Balance Sheet
|
|
Netting Adjustment Per Applicable Master Netting Agreements
|
|
Fair Value of Financial Collateral in the Balance Sheet
|
|
Net Amount
|
Asset Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
5,239
|
|
|
$
|
—
|
|
|
$
|
5,239
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
5,239
|
|
|
$
|
—
|
|
|
$
|
5,239
|
|
|
$
|
—
|
|
|
$
|
5,000
|
|
|
$
|
239
|
|
11. Income Taxes
In determining the valuation of deferred tax assets (“DTA”), management considers whether it is more likely than not that some portion or all of the DTA will or will not be realized. The Company’s ultimate realization of the DTA is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the nature and amount of historical and projected future taxable income, the scheduled reversal of DTA and liabilities, and available tax planning strategies in making this assessment. The amount of deferred taxes recognized could be impacted by changes to any of these variables.
During the
three
months ended
March 31, 2017
, the Company recorded a
$4.2 million
income tax provision. During the
three
months ended
March 31, 2016
, the Company recorded a
$1.2 million
income tax provision. As of
March 31, 2017
, the net DTA was
$40.3 million
compared with a net DTA of
$45.2 million
as of
December 31, 2016
. During the first quarter of
2017
and
2016
, the Company’s current taxes consisted of federal and state alternative minimum taxes and other state minimum taxes. The Company’s estimated effective income tax rate differs from the statutory income tax rate primarily due to the exclusion of certain BOLI and municipal bond interest income from taxable income, less the impact of tax affected disallowed merger costs. Other differences to the effective tax rate were related to normal recurring permanent differences and tax credits.
There are a number of tax issues that impact the deferred tax asset balance, including changes in temporary differences between the financial statement recognition of revenue and expenses, applicable federal and state corporate tax rates, estimates as to the deductibility of prior losses and potential consequence of Section 382 of the Internal Revenue Code. See also “Critical Accounting Policies and Accounting Estimates - Deferred Income Taxes” included in Part II, Item 7 of the 2016 Annual Report.
12. Fair Value Measurements
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
GAAP establishes a hierarchy for determining fair value measurements that includes three levels and is based upon the valuation techniques used to measure assets and liabilities. The three levels are as follows:
|
|
•
|
Level 1
: Inputs that are quoted unadjusted prices in active markets - that the Company has the ability to access at the measurement date - for identical assets or liabilities.
|
|
|
•
|
Level 2:
Inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs derived principally from, or corroborated by, observable market data by correlation or other means.
|
|
|
•
|
Level 3:
Inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
|
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s assets and liabilities carried at fair value. Where available, fair value is based upon quoted market prices. Significant balances of the Bank’s financial assets and liabilities do not have quoted market prices. In such circumstances, fair value is based upon internal or third party models that primarily use, as inputs, observable market-based parameters, such as yields and discount rates of comparable instruments of like duration or credit quality. Valuation adjustments may be made to model results with respect to various assets or liabilities. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes that the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain assets and liabilities could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and, therefore, estimates of fair value after the condensed consolidated balance sheet date may differ significantly from the amounts presented herein.
The following is a description of the valuation methodologies used for assets measured at fair value on a recurring or nonrecurring basis, as well as the general classification of such assets pursuant to valuation hierarchy:
Investment securities available-for-sale
: Where quoted prices for identical assets are available in an active market, investment securities available-for-sale are classified within level 1 of the hierarchy. If quoted market prices for identical securities are not available, then fair values are estimated by independent sources using pricing models and/or quoted prices of investment securities with similar characteristics or discounted cash flows. The Company has categorized its investment securities available-for-sale as level 2, since a majority of such securities are MBS which are mainly priced in this latter manner.
Interest rate swap derivatives
: The fair value of the interest rate lock commitments and forward sales commitments are estimated using quoted or published market prices for similar instruments, adjusted for factors such as pull-through rate assumptions based on historical information, where appropriate. The fair value of the interest rate swaps is determined using a discounted cash flow technique with values provided by third party swap dealers or consultants. The Company has determined that the majority of the inputs used to value its interest rate swap derivatives fall within Level 2.
Impaired loans
: In accordance with GAAP, loans are measured for impairment using one of three methods: an observable market price (if available), the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the fair value of the loan’s collateral (if collateral dependent). Estimated fair value of the loan’s collateral is determined by appraisals or independent valuations which are then adjusted for the estimated costs related to liquidation of the collateral. Management’s ongoing review of appraisal information may result in additional discounts or adjustments to valuation based upon more recent market sales activity or more current appraisal information derived from properties of similar type and/or locale. A significant portion of the Bank’s impaired loans are measured using the estimated fair market value of the collateral less the estimated costs to sell. The Company has categorized all its loans impaired during the calendar year utilizing fair value metrics as level 3. Loans that were impaired during the calendar year based on the present value of expected future cash flows discounted at the loans’ effective interest rates are not included in the table below as the loans’ effective interest rates are not based on current market rates.
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
OREO
: The Company’s OREO is measured at estimated fair value less estimated costs to sell. Fair value is generally determined based on third-party appraisals of fair value in an orderly sale. Historically, appraisals have considered comparable sales of like assets in reaching a conclusion as to fair value. Since many recent real estate sales could be termed “distressed sales”, and since a preponderance have been short-sale or foreclosure related, this has directly impacted appraisal valuation estimates. Estimated costs to sell OREO are based on standard market factors. The valuation of OREO is subject to significant external and internal judgment. Management periodically reviews OREO to determine whether the property continues to be carried at the lower of its recorded book value or estimated fair value, net of estimated costs to sell. The Company has categorized its OREO as level 3.
The Company’s only financial assets measured at fair value on a recurring basis at
March 31, 2017
and
December 31, 2016
were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
March 31, 2017
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Investment securities available-for-sale
|
$
|
—
|
|
|
$
|
469,720
|
|
|
$
|
—
|
|
Interest rate swap derivatives
|
—
|
|
|
3,053
|
|
|
—
|
|
Total assets
|
$
|
—
|
|
|
$
|
472,773
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Interest rate swap derivatives
|
$
|
—
|
|
|
$
|
3,053
|
|
|
$
|
—
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Investment securities available-for-sale
|
$
|
—
|
|
|
$
|
494,819
|
|
|
$
|
—
|
|
Interest rate swap derivatives
|
—
|
|
|
5,239
|
|
|
—
|
|
Total assets
|
$
|
—
|
|
|
$
|
500,058
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Interest rate swap derivatives
|
—
|
|
|
5,239
|
|
|
—
|
|
Certain assets are measured at fair value on a nonrecurring basis (e.g., the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments when there is evidence of impairment). The following table represents the assets measured at fair value on a nonrecurring basis by the Company at
March 31, 2017
and
December 31, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
March 31, 2017
|
|
|
|
|
|
|
|
|
Impaired loans
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
140
|
|
Other real estate owned
|
—
|
|
|
—
|
|
|
50
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
190
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Impaired loans
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
66
|
|
Other real estate owned
|
—
|
|
|
—
|
|
|
1,677
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,743
|
|
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at
March 31, 2017
and
December 31, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Fair Value Estimate
|
|
Valuation Techniques
|
|
Unobservable Input
|
Impaired loans
|
$
|
140
|
|
|
Market approach
|
|
Appraised value less selling costs of 5% to 10%
Additional discounts of 5% to 90% to appraised value to reflect liquidation value
|
Other real estate owned
|
$
|
50
|
|
|
Market approach
|
|
Appraised value less selling costs of 5% to 10%
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Fair Value Estimate
|
|
Valuation Techniques
|
|
Unobservable Input
|
Impaired loans
|
$
|
66
|
|
|
Market approach
|
|
Appraised value less selling costs of 5% to 10%
Additional discounts of 70% to 100% to appraised value to reflect liquidation value
|
Other real estate owned
|
$
|
1,677
|
|
|
Market approach
|
|
Appraised value less selling costs of 5% to 10%
|
The Company did not change the methodology used to determine fair value for any assets or liabilities during the
three months ended March 31, 2017
or during
2016
. In addition, for any given class of assets, the Company did not have any transfers between level 1, level 2, or level 3 during the
three months ended March 31, 2017
or during
2016
.
The following disclosures are made in accordance with the provisions of GAAP, which requires the disclosure of fair value information about financial instruments where it is practicable to estimate that value.
In cases where quoted market values are not available, the Company primarily uses present value techniques to estimate the fair value of its financial instruments. Valuation methods require considerable judgment, and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used. Accordingly, the estimates provided herein do not necessarily indicate amounts which could be realized in a current market exchange.
In addition, as the Company normally intends to hold the majority of its financial instruments until maturity, it does not expect to realize many of the estimated amounts disclosed. The disclosures also do not include estimated fair value amounts for items which are not defined as financial instruments but which may have significant value. The Company does not believe that it would be practicable to estimate a representational fair value for these types of items as of
March 31, 2017
and
December 31, 2016
.
Because GAAP excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements, any aggregation of the fair value amounts presented would not represent the underlying value of the Company.
The Company uses the following methods and assumptions to estimate the fair value of its financial instruments:
Cash and cash equivalents
: The carrying amount approximates the estimated fair value of these instruments.
Investment securities
: See above description.
FHLB stock
: The carrying amount approximates the estimated fair value of this investment.
Loans
: The estimated fair value of non-impaired loans is calculated by discounting the contractual cash flows of the loans using
March 31, 2017
and
December 31, 2016
origination rates. The resulting amounts are adjusted to estimate the effect of changes in the credit quality of borrowers since the loans were originated. Estimated fair values for impaired loans are determined using an observable market price (if available) or the fair value of the loan’s collateral (if collateral dependent) as described above. Observable market prices for community bank loans are not generally available given the non-homogenous characteristics of such loans.
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
BOLI
: The carrying amount of both the separate and general account BOLI approximates the estimated fair value of these instruments. Fair values of insurance policies owned are based on the insurance contracts’ cash surrender values.
MSRs
: The estimated fair value of MSRs is calculated by discounting the expected future contractual cash flows. Factors considered in the estimated fair value calculation include prepayment speed forecasts, market discount rates, earning rates, servicing costs, acquisition costs, ancillary income, and borrower rates.
Deposits
: The estimated fair value of demand deposits, consisting of checking, interest bearing demand, and savings deposit accounts, is represented by the amounts payable on demand. At the reporting date, the estimated fair value of time deposits is calculated by discounting the scheduled cash flows using the
March 31, 2017
and
December 31, 2016
rates offered on those instruments.
Other borrowings:
The fair value of other borrowings (including federal funds purchased, if any) is estimated using discounted cash flow analysis based on the Bank’s
March 31, 2017
and
December 31, 2016
incremental borrowing rates for similar types of borrowing arrangements.
Loan commitments and standby letters of credit
: The majority of the Bank’s commitments to extend credit have variable interest rates and “escape” clauses if the customer’s credit quality deteriorates. Therefore, the fair values of these items are not significant and are not included in the following table.
The estimated fair values of the Company’s significant on-balance sheet financial instruments at
March 31, 2017
and
December 31, 2016
were approximately as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Level in Fair
Value
Hierarchy
|
|
Carrying
value
|
|
Estimated
fair value
|
|
Carrying
value
|
|
Estimated
fair value
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
Level 1
|
|
$
|
157,268
|
|
|
$
|
157,268
|
|
|
$
|
72,577
|
|
|
$
|
72,577
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
Level 2
|
|
469,720
|
|
|
469,720
|
|
|
494,819
|
|
|
494,819
|
|
Held-to-maturity
|
Level 2
|
|
139,196
|
|
|
141,594
|
|
|
140,557
|
|
|
142,272
|
|
FHLB stock
|
Level 2
|
|
3,838
|
|
|
3,838
|
|
|
3,268
|
|
|
3,268
|
|
Loans held-for-sale
|
Level 2
|
|
4,066
|
|
|
4,066
|
|
|
8,651
|
|
|
8,651
|
|
Loans, net
|
Level 3
|
|
2,088,174
|
|
|
2,078,424
|
|
|
2,077,358
|
|
|
2,064,937
|
|
BOLI
|
Level 3
|
|
56,869
|
|
|
56,869
|
|
|
56,957
|
|
|
56,957
|
|
MSRs
|
Level 3
|
|
2,423
|
|
|
3,701
|
|
|
2,348
|
|
|
3,321
|
|
Interest rate swap derivatives
|
Level 2
|
|
3,053
|
|
|
3,053
|
|
|
5,239
|
|
|
5,239
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
Level 2
|
|
2,714,781
|
|
|
2,713,431
|
|
|
2,661,813
|
|
|
2,661,045
|
|
Interest rate swap derivatives
|
Level 2
|
|
3,053
|
|
|
3,053
|
|
|
5,239
|
|
|
5,239
|
|
13. Regulatory Matters
Bancorp and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Bancorp and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Bancorp’s and the Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
Quantitative measures established by regulation to provide for capital adequacy require Bancorp and the Bank to maintain minimum amounts and ratios (set forth in the tables below) of Tier 1 capital to average assets, common equity Tier 1 capital to risk-weighted assets (“CET1”), and Tier 1 and total capital to risk-weighted assets (all as defined in the regulations).
Federal banking regulators are required to take prompt corrective action if an insured depository institution fails to satisfy certain minimum capital requirements. Such actions could potentially include a leverage capital limit, a risk-based capital requirement, and any other measure of capital deemed appropriate by the federal banking regulator for measuring the capital adequacy of an insured depository institution. In addition, payment of dividends by Bancorp and the Bank are subject to restriction by state and federal regulators and availability of retained earnings.
In July 2013, the Board of Governors of the Federal Reserve System and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (“Basel III”). Under the final rules, which became effective for the Bancorp and the Bank on January 1, 2015 and are subject to a phase-in period through January 1, 2019, minimum requirements increased for both the quantity and quality of capital held by the Bancorp and the Bank. The rules include a CET1ratio of
4.5%
and a capital conservation buffer of
2.5%
above the regulatory minimum risk-based capital requirements, which when fully phased-in, effectively results in a minimum CET1 ratio of
7.0%
. Basel III also (i) raises the minimum ratio of Tier 1 capital to risk-weighted assets from
4.0%
to
6.0%
(which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of
8.5%
when fully phased-in), (ii) effectively results in a minimum total capital to risk-weighted assets ratio of
10.5%
(with the capital conservation buffer fully phased-in), and (iii) requires a minimum leverage ratio of
4.0%
. Basel III also makes changes to risk weights for certain assets and off-balance-sheet exposures.
Bancorp’s and Bank’s actual capital amounts and ratios and the required capital ratios under the prompt corrective action framework as of
March 31, 2017
and
December 31, 2016
are presented in the following table (dollars in thousands):
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Regulatory minimum to
be “adequately
capitalized”
|
|
Basel III Minimum Capital Adequacy with Capital Conservation Buffer
|
|
Regulatory minimum
to be “well capitalized”
|
|
Capital
Amount
|
|
Ratio
|
|
Capital
Amount
|
|
Ratio
|
|
Capital Amount
|
|
Ratio
|
|
Capital
Amount
|
|
Ratio
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bancorp
|
$
|
268,576
|
|
|
9.0
|
%
|
|
$
|
119,006
|
|
|
4.0
|
%
|
|
N/A
|
|
|
N/A
|
|
$
|
148,758
|
|
|
5.0
|
%
|
Bank
|
263,389
|
|
|
8.9
|
%
|
|
118,810
|
|
|
4.0
|
%
|
|
N/A
|
|
|
N/A
|
|
148,512
|
|
|
5.0
|
%
|
CET1 capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bancorp
|
268,576
|
|
|
10.9
|
|
|
111,111
|
|
|
4.5
|
|
|
143,210
|
|
|
5.8
|
|
160,494
|
|
|
6.5
|
|
Bank
|
263,389
|
|
|
10.6
|
|
|
111,460
|
|
|
4.5
|
|
|
143,660
|
|
|
5.8
|
|
160,998
|
|
|
6.5
|
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bancorp
|
268,576
|
|
|
10.9
|
|
|
148,148
|
|
|
6.0
|
|
|
180,247
|
|
|
7.3
|
|
197,531
|
|
|
8.0
|
|
Bank
|
263,389
|
|
|
10.6
|
|
|
148,614
|
|
|
6.0
|
|
|
180,813
|
|
|
7.3
|
|
198,152
|
|
|
8.0
|
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bancorp
|
294,376
|
|
|
11.9
|
|
|
197,531
|
|
|
8.0
|
|
|
229,630
|
|
|
9.3
|
|
246,914
|
|
|
10.0
|
|
Bank
|
289,189
|
|
|
11.7
|
|
|
198,152
|
|
|
8.0
|
|
|
230,351
|
|
|
9.3
|
|
247,690
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bancorp
|
$
|
259,216
|
|
|
8.6
|
%
|
|
$
|
120,604
|
|
|
4.0
|
%
|
|
N/A
|
|
|
N/A
|
|
$
|
150,754
|
|
|
5.0
|
%
|
Bank
|
254,270
|
|
|
8.4
|
%
|
|
120,462
|
|
|
4.0
|
%
|
|
N/A
|
|
|
N/A
|
|
150,578
|
|
|
5.0
|
%
|
CET1 capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bancorp
|
259,216
|
|
|
10.5
|
|
|
110,738
|
|
|
4.5
|
|
|
$
|
125,504
|
|
|
5.1
|
|
159,955
|
|
|
6.5
|
|
Bank
|
254,270
|
|
|
10.3
|
|
|
110,933
|
|
|
4.5
|
|
|
$
|
125,724
|
|
|
5.1
|
|
160,237
|
|
|
6.5
|
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bancorp
|
259,216
|
|
|
10.5
|
|
|
147,651
|
|
|
6.0
|
|
|
$
|
162,416
|
|
|
6.6
|
|
196,868
|
|
|
8.0
|
|
Bank
|
254,270
|
|
|
10.3
|
|
|
147,911
|
|
|
6.0
|
|
|
$
|
162,702
|
|
|
6.6
|
|
197,214
|
|
|
8.0
|
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bancorp
|
284,949
|
|
|
11.6
|
|
|
196,868
|
|
|
8.0
|
|
|
$
|
211,633
|
|
|
8.6
|
|
246,085
|
|
|
10.0
|
|
Bank
|
280,003
|
|
|
11.4
|
|
|
197,214
|
|
|
8.0
|
|
|
212,005
|
|
|
8.6
|
|
246,518
|
|
|
10.0
|
|
14. Commitments and Contingencies
The Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.
15. New Authoritative Accounting Guidance
In March 2017, the FASB issued ASU 2017-08,
“Receivables- Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
” (
“
ASU 2017-08”). ASU 2017-08 shortens the amortization period for certain purchased callable debt securities held at a premium. The amendment requires the premium to be amortized to the earliest call date. ASU 2017-08 does not require an accounting change for securities held at a discount; the discount will continue to be amortized to maturity. ASU 2017-08 is effective for fiscal years beginning after December 15, 2018. As we approach the effective date, we will consult our third party investment carriers to insure that the securities held at a premium are being accounted for effectively.
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
In March 2017, the FASB issued ASU 2017-07,
“Compensation- Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”
(
“
ASU 2017-07”). The amendment requires that the benefit service costs be segregated from other components of the net benefit cost. Further, it is required that the service costs and other benefit costs be presented as a separate line item in the income statement, or if the two are presented together then the line item description must disclose both costs. ASU 2017-07 is effective for fiscal years beginning after December 15, 2017. As we approach the effective date, we will evaluate which classification is the most useful and transparent to our shareholders.
In January 2017, the FASB issued ASU 2017-04,
“Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
” (
“
ASU 2017-04”). ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating a step from the goodwill impairment test. The amendments in this update provide that an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. As we approach the effective date, we will consult the updated goodwill impairment test steps to determine if an impairment charge should be recognized.
In January 2017, the FASB issued ASU 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition of a Business
” (
“
ASU 2016-15”). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this update provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both an input and a substantive process are present. The framework includes two sets of criteria to consider that depend on whether a set has outputs. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. As we approach the effective date, we will consult the framework to determine if the event should be disclosed as an acquisition or disposal of an asset or business.
In August 2016, the FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
” (“ASU 2016-15”). ASU 2016-15 addresses the classification of debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of Corporate-Owned Life Insurance policies, including Bank-Owned Life Insurance policies, distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently evaluating which classifications apply to our business and will be prepared to report these classifications in the statement of cash flows.
In June 2016, the FASB issued ASU 2016-13, “
Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
” (“ASU 2016-13”). ASU 2016-13 requires financial assets that are measured at amortized cost to be presented as the net amount expected to be collected. The income statement will reflect the measurement of credit losses for newly recognized financial assets and for the expected increase or decrease of expected credit losses. ASU 2016-13 notes that credit losses related to available-for-sale debt securities should be recorded through an allowance for credit losses. The initial allowance for credit losses, for purchased available-for-sale securities, is added to the purchase price rather than reported as a credit loss expense. Subsequent changes in the allowance are recorded as credit loss expense. Interest income should be
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
recognized based on the effective interest rate, excluding the discount attributed to the assessment of credit loss at acquisition. ASU 2016-13 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating our available-for-sale security portfolio in order to determine the most efficient way to track the net amount expected to be collected on the security. As we approach the effective date, we will continue to develop this process in order to report on the expected increase or decrease of expected credit losses.
In March 2016, the FASB issued ASU 2016-09,
“Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”
(“ASU 2016-09”). ASU 2016-09 describes simplifications related to accounting and presenting share-based payment awards. ASU 2016-09 states that excess tax benefits and tax deficiencies are to be recognized as income tax expense or benefit in the income statement; excess tax benefits should be classified with other income tax as an operating activity on the statement of cash flows; an entity may make an entity-wide accounting policy to either estimate the number of awards that are expected to vest or account for forfeitures as they occur; and cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Adoption of ASU 2016-09 did not have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
“Leases”
(“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. While the effect of the pronouncement has not yet been quantified, we are continuing to evaluate the impact of recording the right-of-use assets and liabilities on our balance sheet.
In January 2016, the FASB issued ASU 2016-01,
“Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”
(“ASU 2016-01”). ASU 2016-01 simplifies the impairment assessment of equity investments, clarifies reporting disclosure requirements for financial instruments measured at amortized cost, and requires the exit price notion be disclosed when measuring fair value of financial instruments. ASU 2016-01 details the required separate presentation in other comprehensive income for the change in fair value of a liability related to change in instrument specific credit risk and details the required separate presentation of financial assets and liabilities by measurement category, and clarifies the need for a valuation allowance on DTA related to available-for-sale securities. ASU 2016-01 is effective for annual and interim reporting periods beginning after December 15, 2017. Adoption of ASU 2016-01 is not expected to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,
“Revenue from Contracts with Customers”
(“ASU 2014-09”). ASU 2014-09 establishes a comprehensive revenue recognition standard for virtually all industries under GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2016 with three transition methods available - full retrospective, retrospective and cumulative effect approach. In August 2015, the FASB issued ASU 2015-14,
“Revenue from Contracts with Customers: Deferral of the Effective Date”
(“ASU 2015-14”). ASU 2015-14 amended the effective date to December 15, 2017. In March 2016, the FASB issued ASU 2016-08,
“Revenue from Contracts with Customers: Principal Versus Agent Considerations”
(“ASU 2016-08”). ASU 2016-08 defines the roles of a principal and agent in revenue recognition and determines when control of the good or service is transferred to the customer. In April 2016, the FASB issued ASU 2016-10,
“Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing”
(“ASU 2016-10”). ASU 2016-10 establishes guidance on identifying performance obligations and licensing implementation. In May 2016, the FASB issued ASU 2016-12, “
Revenue from Contracts with Customers: Narrow- Scope
Improvements and Practical Expedients”
(“ASU 2016-12”). ASU 2016-12 clarifies the objective of the collectability criteria
Cascade Bancorp & Subsidiary
Notes to Condensed Consolidated Financial Statements
March 31, 2017
(unaudited)
and notes the differences in applying the update at transition and on an ongoing basis. In December 2016, the FASB issued ASU 2016-20, “
Revenue from Contracts with Customers: Technical Corrections and Improvements to Topic 606”
(“ASU 2016-20
”
). ASU 2016-20 provides clarity on codification or to correct unintended application of guidance. Adoption of ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 are not expected to have a material effect on our consolidated financial statements.