Merging Home Federal Bank with Bank of the Cascades is a smart move, provided the new bank’s executives deliver the savings they expect the merger will bring, banking experts said Monday.

“The academic view of mergers is that they’re the winner’s curse,” said Jon Moulton, adjunct professor of finance at the University of Oregon.

Cascades Bancorp, holding company for Bend-based Bank of the Cascades, paid Home Federal shareholders about $240 million in cash and Cascades Bancorp stock in a deal approved Friday by shareholders of both banks. The merged business will operate as Bank of the Cascades. The merger will basically double the bank’s assets to about $2.3 billion.

To mark the event, Terry Zink, Bank of the Cascades president and CEO, pledged $2 billion in loans over the next three years in its Oregon and Idaho markets. He also promised $175,000 in philanthropic giving to nearly 100 organizations in the coming month, according to a bank announcement Monday.

Now, bank executives must reduce the merged bank’s operating costs and bolster its earnings, said Moulton and Jeff Rulis, bank analyst and senior vice president of investment firm D.A. Davidson & Co., of Great Falls, Mont. Rulis said the test is whether the new bank obtains the $26.3 million in savings calculated by Macquarie Group, financial adviser to Bank of the Cascades.

“If they hit that figure, plus add some revenue synergies and in the process leverage capital to improve overall profitability, I think the price could be justified,” Rulis wrote in an email. “The merger really is a ‘show me’ story that won’t be determined until Home is integrated.”

Bank of the Cascades heightened expectations in October when it trumped a $192.4 million bid made by Washington-based Banner Bank in September to acquire Home Federal.

“They paid a premium for that,” Rulis said in an interview Monday. “For that premium … they’ll have to prove those cost savings are real and pull that off. Their hurdle is a little higher given the higher price.”

He said Bank of the Cascades’ return on equity in 2013, at 3 percent to 4 percent, fell short of the 8 percent to 9 percent expected of banks its size.

On the up side, Rulis said, Bank of the Cascades in 2013 earned a respectable 77 percent from interest income, and with the merger increased its potential for noninterest revenue, including fees for services.

Moulton said he views the merger as part of a plan to rebuild the bank and reduce the growing cost of regulations imposed after the Great Recession.

“From what I reviewed previously, (Bank of the Cascades) had done quite a significant job of getting their house in order before they stepped out to make this move,” he said.

— Reporter: 541-617-7815, jditzler@bendbulletin.com