Cascade Bancorp's deal for F&M Holding Co. gave Patricia L. Moss something she has been after for a long time: an entry point into one of the West's fastest-growing metropolitan markets.
Cascade announced late Tuesday that it had a deal to buy the $600 million-asset F&M of Boise, Idaho, for $147 million in cash and stock. The deal, by far the Bend, Ore., company's biggest to date, would boost its assets by nearly 43%, to $2 billion.
"We identified early on that this is a market and a company we really wanted to partner with," Ms. Moss, Cascade's president and chief executive, said Wednesday in a conference call with analysts and investors.
The population of the Boise metropolitan statistical area grew 46.1%, to 432,000, from 1990 to 2000, according to the Census Bureau. In Ada County, which includes Boise, it rose 10.5%, to 333,000, from 2000 to 2004.
And Boise is growing wealthier as it gets bigger. The area's median household income, which was $43,000 in 2000, will reach $58,000 in 2007, according to ESRI Business Information Solutions.
F&M, the parent of Farmers and Merchants State Bank, has clearly benefited from that growth. It earned $5.6 million last year, nearly twice as much as in 2001, and $5.3 million in the first nine months of 2005.
Though F&M is the largest banking company based in Boise, it has just 6.65% of the area's $6.2 billion deposit market. Large banks control 67%, but Ms. Moss said that with the resources of Cascade behind it, Farmers and Merchants - which would retain its name - could steal market share there "for years to come." The deal is to close in April.
Farmers and Merchants had plans to open one new branch, and Ms. Moss said Cascade may build more in the Boise market.
She would not say how long she had courted F&M, but James Bradshaw, an analyst with D.A. Davidson & Co. in Portland, Ore., said that she had "coveted" the Boise market for at least five years.
"I can assure you she's done a ton of homework," he said.
He said Boise is expected to continue to grow fast because its cost of living is substantially below that of other western cities. "Boise is still awfully affordable compared to Las Vegas or Reno, or anywhere in California," he said.
The deal price is 3.49 times F&M's book value. Cascade's chief financial officer, Gregory Newton, said that is significantly higher than the average for comparable deals this year, but that P/E is more important for this deal, given F&M's strong and growing earnings.
The price is 22 times F&M's trailing 12 months earnings, which is slightly below the average for comparable deals, Mr. Newton said.
Mr. Bradshaw said the price is not excessive, given Boise's demographics. "The math still works, even though the price is pretty high," he said.
Cascade's investors seemed to welcome the deal. Its stock was trading up 0.77% Wednesday afternoon, at $23.53.
Farmers and Merchants is to be merged into Bank of the Cascades but the Boise-area operation will be run under the F&M name, with the same employees, led by Michael Mooney, Farmers and Merchants' president.
"We could not have asked for a better partner," Mr. Mooney said in a press release Wednesday. "We will keep our name … [and] continue to make loan decisions locally."
He said that the company plans to keep all 28 of its lending officers.
F&M's board of directors will act as an advisory board through the end of 2006, and members will receive the same compensation F&M has paid them. Its chairman, Clarence Jones, and another director, Thomas M. Wells, will join Cascade's board.
F&M's largest shareholder, David F. Bolger, would own a 24% stake in Cascade.
Cascade has made only one bank acquisition; in January 2004 it bought the $47 million-asset Community Bank of Grants Pass, Ore., for $12.1 million.
Still, Mr. Bradshaw said he sees little integration risk, given that Cascade is to retain F&M's management and board.
"They're not going to mess with the day-to-day operations of this company," he said. "They're keeping the colonels and lieutenants in place. From top to bottom, Farmers and Merchants looks like a fine organization that Cascade can tweak and make even better."
