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Acquisitions | 9 Months Ended
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Sep. 30, 2019
Business Combinations [Abstract] |
Acquisitions | Acquisitions Community 1 st Bank. On October 11, 2018, the Company entered into a definitive agreement to acquire all of the outstanding stock of Community 1st Bank (“CMYF”), a community bank headquartered in Post Falls, Idaho with three banking offices in North Idaho. The acquisition was completed on April 8, 2019, and conversion of the data processing systems occurred on June 7, 2019. Consideration for the acquisition was $18.8 million, consisting of the issuance of 0.463 million shares of the Company's Class A common stock valued at $40.64 per share, the closing price of the Company's Class A common stock as quoted on the NASDAQ stock market on the acquisition date. Holders of each share of CMYF common stock received 0.3784 shares of First Interstate Class A common stock for each share of CMYF common stock. Previously unvested CMYF restricted stock awards outstanding immediately prior to the close of the transaction vested and were considered issued and outstanding at acquisition close and included in consideration. All CMYF stock options outstanding, vested and were settled by CMYF prior to the close of the transaction. The assets and liabilities of CMYF were provisionally recorded in the Company’s consolidated financial statements at their estimated fair values as of the acquisition date and will be finalized in the coming months. The excess value of the consideration paid over the fair value of assets acquired and liabilities assumed is recorded as provisional goodwill. The preliminary purchase price allocation resulted in provisional goodwill of $2.2 million, which is not deductible for income tax purposes. Goodwill resulting from the acquisition was allocated to the Company’s one operating segment, community banking, and consists largely of the synergies and economies of scale expected from combining the operations of CMYF and the Company. The Company provisionally recorded net assets acquired of approximately $16.6 million consisting of approximately $129.1 million in assets, inclusive of $78.8 million of loans, of which $0.7 million were classified as credit impaired, and assumed approximately $112.5 million of liabilities, inclusive of $110.1 million of deposits. Adjustments to the fair value marks for premises and equipment and accounts payable and accrued expenses were made since the prior quarter, none of which were material. The adjustments had no impact on 2019 earnings and resulted in a net decrease to goodwill of $0.3 million from the second quarter reported balances. Due to the recent closing of the transaction, all amounts reported are provisional pending the review of valuations obtained from third parties. Core deposit intangible assets of $3.0 million are being amortized using an accelerated method over the estimated useful lives of the related deposits of 10 years. Unaudited pro forma consolidated revenues and net income as if the CMYF acquisition had occurred as of January 1, 2019, are not presented because the effect of this acquisition was not considered significant. The accompanying consolidated statements of income for the three and nine months ended September 30, 2019, include the results of operations of the acquired entity from the April 8, 2019 acquisition date. Although legally merged with FIB, the acquired entity continued to do business as CMYF until June 7, 2019, at which point CMYF’s operations were integrated with the Company’s operations. Idaho Independent Bank. On October 11, 2018, the Company also entered into a definitive agreement to acquire all of the outstanding stock of Idaho Independent Bank (“IIBK”), a community bank headquartered in Coeur d' Alene, Idaho with 11 banking offices across Idaho. The acquisition was completed on April 8, 2019, and the Company converted data processing systems on June 7, 2019. Consideration for the acquisition was $157.3 million, consisting of the issuance of 3.871 million shares of the Company's Class A common stock valued at $40.64 per share, the closing price of the Company's Class A common stock as quoted on the NASDAQ stock market on the acquisition date. Holders of each share of IIBK common stock received 0.50 shares of First Interstate Class A common stock for each share of IIBK common stock. Previously unvested IIBK restricted stock awards outstanding immediately prior to the close of the transaction vested and were considered issued and outstanding at acquisition close and included in consideration. All IIBK stock options outstanding, vested and were settled by IIBK prior to the close of the transaction. The assets and liabilities of IIBK were provisionally recorded in the Company’s consolidated financial statements at their estimated fair values as of the acquisition date and will be finalized in the coming months. The excess value of the consideration paid over the fair value of assets acquired and liabilities assumed is recorded as provisional goodwill. The preliminary purchase price allocation resulted in provisional goodwill of $74.1 million, which is not deductible for income tax purposes. Goodwill resulting from the acquisition was allocated to the Company’s one operating segment, community banking, and consists largely of the synergies and economies of scale expected from combining the operations of IIBK and the Company. The following table summarizes the consideration paid, fair values of the IIBK assets acquired and liabilities assumed, and the resulting goodwill. Due to the recent closing of the transaction, all amounts reported are provisional pending the review of valuations obtained from third parties.
| As Recorded | Fair Value |  | As Recorded
As of April 8, 2019 | by IIBK | Adjustments |  | by the Company
Assets acquired: |  |  |  |
Cash and cash equivalents | $ | 270.7 |  | $ | — |  |  | $ | 270.7 |
Investment securities | 62.7 |  | 0.5 |  | (1) | 63.2 |
Loans held for investment | 347.6 |  | (9.8 | ) | (2) | 337.8 |
Mortgage loans held for sale | 0.5 |  | — |  |  | 0.5 |
Allowance for loan loss | (6.3 | ) | 6.3 |  | (3) | — |
Premises and equipment | 16.5 |  | 7.0 |  | (4) | 23.5 |
Other real estate owned (“OREO”) | 0.4 |  | 2.0 |  | (5) | 2.4 |
Company owned life insurance | 15.2 |  | — |  |  | 15.2 |
Core deposit intangible assets | — |  | 13.6 |  | (6) | 13.6 |
Deferred tax assets, net | 3.2 |  | (3.2 | ) | (7) | — |
Other assets | 8.6 |  | (0.8 | ) | (8) | 7.8 |
Total assets acquired | 719.1 |  | 15.6 |  |  | 734.7 |
Liabilities assumed: |  |  |  |
Deposits | 596.5 |  | 0.1 |  | (9) | 596.6 |
Accounts payable and accrued expense | 15.2 |  | 5.2 |  | (10) | 20.4 |
Other borrowed funds | 4.0 |  | 0.1 |  | (11) | 4.1 |
Securities sold under repurchase agreements | 30.4 |  | — |  |  | 30.4 |
Total liabilities assumed | 646.1 |  | 5.4 |  |  | 651.5 |
Net assets acquired | $ | 73.0 |  | $ | 10.2 |  |  | $ | 83.2 |
Consideration paid: |  |  |  |
Class A common stock |  |  |  | $ | 157.3 |
Total consideration paid |  |  |  | $ | 157.3 |
Goodwill |  |  |  | $ | 74.1 |
Adjustments to the fair value marks for premises and equipment, deferred tax assets, accounts payable and accrued expenses were made since the prior quarter, none of which were material. The adjustments had no impact on 2019 earnings and a net decrease to goodwill of $0.6 million from the second quarter reported balances. Explanation of fair value adjustments and the removal of previously recorded fair value marks recorded by IIBK:
(1) | Write up of the book value of investments to their estimated fair values on the date of acquisition based upon quotes obtained from an independent third party pricing service.
(2) | Write down of the book value of loans to their estimated fair values. The fair value of the loans was estimated using cash flow projections based on the remaining maturity and repricing terms, adjusted for estimated future credit losses and prepayments and discounted to present value using a risk-adjusted market rate for similar loans. The fair value of collateral dependent loans acquired with deteriorated credit quality was estimated based on the Company’s analysis of the fair value of each loan’s underlying collateral, discounted using market-derived rates of return with consideration given to the period of time and costs associated with foreclosure and disposition of the collateral.
(3) | Adjustment to remove the IIBK allowance for loan losses at acquisition date, as the credit risk is included in the fair value adjustment for loans receivable described in (2) above.
(4) | Write up of the book value of premises and equipment to their estimated fair values on the date of acquisition based upon broker’s opinion of value.
(5) | Adjustment to the book value of other real estate owned to their estimated fair values on the date of acquisition based on appraisal value.
(6) | Adjustment represents the value of the core deposit base assumed in the acquisition based upon valuation from an independent accounting and advisory firm.
(7) | Adjustment consists of the write-off of pre-existing deferred tax assets and purchase accounting adjustments as a result of the acquisition.
(8) | Adjustment consists of reductions to the fair value of other items.
(9) | Increase in book value of time deposits to their estimated fair values based upon interest rates of similar time deposits with similar terms on the date of acquisition based upon valuation from an independent accounting and advisory firm.
(10) | Adjustment to the liability for the nonqualified retirement plan.
(11) | Adjustment of the book value of debt to the estimated fair values on the date of acquisition based upon interest rates in the market.
Core deposit intangible assets of $13.6 million are being amortized using an accelerated method over the estimated useful lives of the related deposits of 10 years. The Company acquired certain loans that are subject to Accounting Standards Codification ("ASC") Topic 310-30 "Loans and Debt Securities Acquired with Deteriorated Credit Quality." ASC Topic 310-30 provides recognition, measurement and disclosure guidance for acquired loans that have evidence of deterioration in credit quality since origination for which it is probable, at acquisition, the Company will be unable to collect all contractual amounts owed. For loans that meet the criteria stipulated in ASC Topic 310-30, the excess of all cash flows expected at acquisition over the initial fair value of the loans acquired ("accretable yield") is amortized to interest income over the expected remaining lives of the underlying loans using the effective interest method. The accretable yield will fluctuate due to changes in (i) estimated lives of underling credit-impaired loans, (ii) assumptions regarding future principal and interest amounts collected, and (iii) indices used to fair value variable rate loans. Information regarding IIBK loans acquired deemed credit-impaired as of the April 8, 2019 acquisition date are as follows:
Contractually required principal and interest payments | $ | 24.1 |
Contractual cash flows not expected to be collected (“non-accretable discount”) | 3.9 |
Cash flows expected to be collected | 20.2 |
Interest component of cash flows expected to be collected (“accretable discount”) | 3.4 |
Fair value of acquired credit-impaired loans | $ | 16.8 |
Information regarding IIBK acquired loans not deemed credit-impaired at the April 8, 2019 acquisition date are as follows:
Contractually required principal and interest payments | $ | 398.7 |
Contractual cash flows not expected to be collected | 15.2 |
Fair value at acquisition | $ | 321.5 |
Unaudited pro forma consolidated revenues and net income as if the IIBK acquisition had occurred as of January 1, 2019, are not presented because the effect of this acquisition was not considered significant. The accompanying consolidated statements of income for the three and nine months ended September 30, 2019, include the results of operations of the acquired entity from the April 8, 2019 acquisition date. Although legally merged with FIB, the acquired entity continued to do business as IIBK until June 7, 2019, at which point IIBK’s operations were integrated with the Company’s operations. Northwest Bancorporation, Inc. On April 25, 2018, the Company entered into a definitive agreement to acquire all of the outstanding stock of Northwest Bancorporation, Inc. (“Northwest”), the parent company of Inland Northwest Bank (“INB”), a Spokane, Washington based community bank with 20 banking offices across Idaho, Oregon and Washington. The acquisition was completed on August 16, 2018, and the Company merged INB with its existing bank subsidiary, First Interstate Bank, on November 9, 2018. Consideration for the acquisition was $176.3 million, consisting of the issuance of 3.84 million shares of the Company's Class A common stock valued at $45.15 per share, the closing price of the Company's Class A common stock as quoted on the NASDAQ stock market on the acquisition date. The Company paid approximately $3.0 million in cash related to Northwest warrants, which were included in the consideration paid. Holders of each share of Northwest common stock received 0.516 shares of First Interstate Class A common stock for each share of Northwest common stock. Additionally, all Northwest stock purchase warrants outstanding immediately prior to the close of the transaction were canceled in exchange for the right to receive a cash payment as provided in the Agreement. Previously unvested Northwest restricted stock awards outstanding immediately prior to the close of the transaction vested and were considered issued and outstanding at acquisition close. The assets and liabilities of Northwest were recorded in the Company’s consolidated financial statements at their estimated fair values as of the acquisition date. The excess value of the consideration paid over the fair value of assets acquired and liabilities assumed is recorded as goodwill. The purchase price allocation resulted in goodwill of $100.7 million, which is not deductible for income tax purposes. Goodwill resulting from the acquisition was allocated to the Company’s one operating segment, community banking, and consists largely of the synergies and economies of scale expected from combining the operations of Northwest and the Company. The following table summarizes the consideration paid, fair values of the Northwest assets acquired and liabilities assumed, and the resulting goodwill. All amounts reported were finalized in the second quarter of 2019.
| As Recorded | Fair Value |  | As Recorded
As of August 16, 2018 | by Northwest | Adjustments |  | by the Company
Assets acquired: |  |  |  |
Cash and cash equivalents | $ | 31.2 |  | $ | — |  |  | $ | 31.2 |
Investment securities | 3.1 |  | — |  |  | 3.1 |
Loans held for investment | 727.9 |  | (14.8 | ) | (1) | 713.1 |
Allowance for loan loss | (8.0 | ) | 8.0 |  | (2) | — |
Premises and equipment | 14.5 |  | — |  |  | 14.5 |
Other real estate owned (“OREO”) | 0.3 |  | 0.3 |  |  | 0.6 |
Core deposit intangible assets | 2.4 |  | 13.3 |  | (3) | 15.7 |
Other assets | 29.3 |  | (10.0 | ) | (4) | 19.3 |
Total assets acquired | 800.7 |  | (3.2 | ) |  | 797.5 |
Liabilities assumed: |  |  |  |
Deposits | 696.1 |  | 0.2 |  | (5) | 696.3 |
Accounts payable and accrued expense | 8.1 |  | (0.4 | ) | (6) | 7.7 |
Long term debt | 13.0 |  | 0.1 |  |  | 13.1 |
Trust preferred securities | 5.2 |  | (0.8 | ) | (7) | 4.4 |
Deferred tax liability, net | (1.2 | ) | 1.6 |  | (8) | 0.4 |
Total liabilities assumed | 721.2 |  | 0.7 |  |  | 721.9 |
Net assets acquired | $ | 79.5 |  | $ | (3.9 | ) |  | $ | 75.6 |
Consideration paid: |  |  |  |
Cash |  |  |  | $ | 3.0 |
Class A common stock |  |  |  | 173.3 |
Total consideration paid |  |  |  | 176.3 |
Goodwill |  |  |  | $ | 100.7 |
Explanation of fair value adjustments and the removal of previously recorded fair value marks recorded by Northwest:
(1) | Write down of the book value of loans to their estimated fair values. The fair value of the loans was estimated using cash flow projections based on the remaining maturity and repricing terms, adjusted for estimated future credit losses and prepayments and discounted to present value using a risk-adjusted market rate for similar loans. The fair value of collateral dependent loans acquired with deteriorated credit quality was estimated based on the Company’s analysis of the fair value of each loan’s underlying collateral, discounted using market-derived rates of return with consideration given to the period of time and costs associated with foreclosure and disposition of the collateral.
(2) | Adjustment to remove the Northwest allowance for loan losses at acquisition date, as the credit risk is included in the fair value adjustment for loans receivable described in (1) above.
(3) | Adjustment represents the value of the core deposit base assumed in the acquisition based upon valuation from an independent accounting and advisory firm.
(4) | Adjustment consists of reductions to the fair value of other items, including the removal of Northwest previously recorded goodwill.
(5) | Increase in book value of time deposits to their estimated fair values based upon interest rates of similar time deposits with similar terms on the date of acquisition based upon valuation from an independent accounting and advisory firm.
(6) | Decrease due to the write-off of off balance sheet reserves.
(7) | Write down of the book value of debt to the estimated fair values on the date of acquisition based upon favorable interest rates in the market.
(8) | Adjustment consists of the write-off of pre-existing deferred tax assets and purchase accounting adjustments as a result of the acquisition.
Core deposit intangible assets of $15.7 million are being amortized using an accelerated method over the estimated useful lives of the related deposits of 10 years. The Company acquired certain loans that are subject to Accounting Standards Codification ("ASC") Topic 310-30 "Loans and Debt Securities Acquired with Deteriorated Credit Quality." ASC Topic 310-30 provides recognition, measurement and disclosure guidance for acquired loans that have evidence of deterioration in credit quality since origination for which it is probable, at acquisition, the Company will be unable to collect all contractual amounts owed. For loans that meet the criteria stipulated in ASC Topic 310-30, the excess of all cash flows expected at acquisition over the initial fair value of the loans acquired ("accretable yield") is amortized to interest income over the expected remaining lives of the underlying loans using the effective interest method. The accretable yield will fluctuate due to changes in (i) estimated lives of underling credit-impaired loans, (ii) assumptions regarding future principal and interest amounts collected, and (iii) indices used to fair value variable rate loans. Information regarding Northwest loans acquired deemed credit-impaired as of the August 16, 2018 acquisition date are as follows:
Contractually required principal and interest payments | $ | 27.5 |
Contractual cash flows not expected to be collected (“non-accretable discount”) | 4.4 |
Cash flows expected to be collected | 23.1 |
Interest component of cash flows expected to be collected (“accretable discount”) | 3.2 |
Fair value of acquired credit-impaired loans | $ | 19.9 |
Information regarding Northwest acquired loans not deemed credit-impaired at the August 16, 2018 acquisition date are as follows:
Contractually required principal and interest payments | $ | 894.8 |
Contractual cash flows not expected to be collected | 26.1 |
Fair value at acquisition | $ | 693.2 |
Unaudited pro forma consolidated revenues and net income as if the Northwest acquisition had occurred as of January 1, 2018, are not presented because the effect of this acquisition was not considered significant. The accompanying consolidated statements of income for the three and nine months ended September 30, 2019, include the results of operations of the acquired entity from the August 16, 2018 acquisition date. The acquired entity continued to operate as INB until November 9, 2018 at which point INB’s operations were integrated with the Company’s operations, and INB merged with FIB. The Company recorded $3.8 million and $19.6 million in pre-tax acquisition related expenses for the three and nine months ended September 30, 2019. These costs are incorporated in non-interest expenses in the Company’s consolidated statements of income.
| Three Months Ended September 30, 2019 |  | Three Months Ended September 30, 2018 |  | Nine Months Ended September 30, 2019 |  | Nine Months Ended September 30, 2018
Legal and Professional Fees | $ | 0.1 |  |  | $ | 2.4 |  |  | $ | 0.8 |  |  | $ | 3.0 |
Employee Expenses | 1.4 |  |  | — |  |  | 8.2 |  |  | 0.1 |
Technology Conversion and Contract Termination | 1.5 |  |  | 0.5 |  |  | 8.7 |  |  | 2.0 |
Other | 0.8 |  |  | 0.2 |  |  | 1.9 |  |  | 0.3 |
Total Acquisition Related Expenses | $ | 3.8 |  |  | $ | 3.1 |  |  | $ | 19.6 |  |  | $ | 5.4 |

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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