XML 128 R10.htm IDEA: XBRL DOCUMENT v2.4.1.9
Acquisitions
12 Months Ended
Dec. 31, 2014
Business Combinations [Abstract]  
Mergers, Acquisitions and Dispositions Disclosures
On February 10, 2014, the Company entered into an agreement and plan of merger to acquire all of the outstanding stock of Mountain West Financial Corp ("MWFC"), a Montana-based bank holding company that operated one wholly-owned subsidiary bank, Mountain West Bank, NA ("MWB"), with branches located in five of the Company's current market areas in Montana. The acquisition was completed on July 31, 2014, and the Company merged MWB with its existing bank subsidiary, First Interstate Bank ("FIB"), on October 17, 2014. The acquisition allowed the Company to gain market share in several of its current market areas. The Company also benefited from cost savings related to the merger of MWB with FIB.

Under the terms of the agreement and plan of merger, each outstanding share of Mountain West common stock was canceled and converted into the right to receive 0.2552 shares of the Company's Class A common stock plus $7.125 in cash, or, at the stockholder's election, an amount in all cash or all stock intended to be substantially equal in value to the combination of stock and cash merger consideration described above. Consideration for the acquisition of $74,451 consisted of cash of $38,479 and the issuance of 1,378,230 shares of the Company's Class A common stock valued at $26.10 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 acquisition was accounted for using the acquisition method with the cash portion of the purchase price funded from cash on hand. In conjunction with the acquisition, the Company recognized acquisition costs of $4,017.

The assets and liabilities of MWFC 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 was recorded as goodwill. Goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of MWFC and the Company. This acquisition was accounted for as a tax-free exchange; therefore, goodwill recorded in conjunction with this acquisition is not deductible for income tax purposes.

The following table summarizes the consideration paid, fair values of MWFC assets acquired and liabilities assumed and the resulting goodwill. The amount reported below for net deferred tax asset is provisional pending completion of the Company's review of tax items.
 
As Recorded
Fair Value
 
As Recorded
As of July 31, 2014
by MWFC
Adjustments
 
by the Company
 
 
 
 
 
Assets acquired:
 
 
 
 
Cash and cash equivalents
$
74,035

$

 
$
74,035

Investment securities
104,945

(34
)
(1)
104,911

Loans
378,558

(18,286
)
(2)
360,272

Allowance for loan losses
(11,598
)
11,598

(3)

Premises and equipment
35,283

(5,847
)
(4)
29,436

Company-owned life insurance
13,046


 
13,046

Deferred tax asset, net
6,491

1,135

(5)
7,626

Core deposit intangible

11,014

(6)
11,014

Other assets
16,559

(5,300
)
(7)
11,259

Total assets acquired
617,319

(5,720
)
 
611,599

 
 
 
 
 
Liabilities assumed:
 
 
 
 
Deposits
515,538

(159
)
(8)
515,379

Other liabilities
20,501

2,730

(9)
23,231

Subordinated debentures held by subsidiary trusts
20,439


(10)
20,439

Total liabilities assumed
556,478

2,571

 
559,049

 
 
 
 
 
Net assets acquired
$
60,841

$
(8,291
)
 
52,550

 
 
 
 
 
Consideration paid:
 
 
 
 
Cash
 
 
 
38,479

Class A common stock
 
 
 
35,972

Total consideration
 
 
 
74,451

 
 
 
 
 
Goodwill
 
 
 
$
21,901

Explanation of fair value adjustments:
(1)
Write down of the book value of investment securities 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. Except for collateral dependent loans acquired with deteriorated credit quality, the fair value of 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 the 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 MWB allowance for loan losses at acquisition date as the credit risk is accounted for in the fair value adjustment for loans receivable described in (2) above.
(4)
Write down of the book value of premises and equipment to their estimated fair values based upon appraisals obtained from an independent third party appraiser.
(5)
Adjustment represents the net deferred tax assets resulting from fair value adjustments related to acquired assets, assumed liabilities, core deposit intangible assets and other purchase accounting adjustments.
(6)
Adjustment represents the value of the core deposit base assumed in the acquisition based upon a valuation obtained from an independent third party valuation expert.
(7)
Adjustment consists of a reduction in the value of equity method investments, accrued interest receivable and accrued net income taxes receivable, and the write-off of pre-existing goodwill and computer software costs.
(8)
Decrease 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.
(9)
Adjustment represents increases in the book values of other liabilities to their estimated fair values at the acquisition date. The adjustment primarily consists of a $2,000 increase to an acquired operating lease obligation and a $473 increase to Federal Home Loan Bank borrowings based upon interest interest rates of similar obligations with similar characteristics on the date of acquisition.
(10)
Recorded value of junior subordinated debentures held by subsidiary trusts approximated fair value as of the acquisition date due to the short-term nature of the instruments. These debentures were redeemed at par value in December 2014.

    
Fair values of assets acquired and liabilities assumed as part of the MWFC acquisition were estimated using relevant market information and significant other inputs and generally fall within Levels 2 and 3 of the fair value hierarchy.

The core deposit intangible asset of $11,014 is being amortized using an accelerated method over the estimated useful lives of the related deposits of ten 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 is it probable, at acquisition, the Company will be unable to collect all contractual amounts owned. 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 acquired credit-impaired loans as of the July 31, 2014 acquisition date is as follows:
Contractually required principal and interest payments
$
112,882

Contractual cash flows not expected to be collected ("non-accretable discount")
74,760

Cash flows expected to be collected
38,122

Interest component of cash flows expected to be collected ("accretable discount")
5,233

Fair value of acquired credit-impaired loans
$
32,889

Information regarding acquired loans not deemed credit-impaired at the acquisition date is as follows:
Contractually required principal and interest payments
$
445,345

Contractual cash flows not expected to be collected
(15,090
)
Fair value at acquisition
327,383



The accompanying consolidated statements of income include the results of operations of the acquired entity from the July 31, 2014 acquisition date. Operations of the acquired entity were immediately integrated with the Company's operations and the acquired bank was merged with the Company's existing banking subsidiary in October 2014. Post-acquisition revenues and net income of the acquired entity were not captured separately subsequent to the merger. As such, the Company has determined it is not practical to report the post-acquisition date revenues and net income of the acquired entity that were included in the Company's consolidated income statement for the year ended December 31, 2014.

The following table presents unaudited pro forma consolidated revenues and net income as if the acquisition had occurred as of January 1, 2013.
Year ended December 31, (unaudited)
2014
2013
Interest income
$
280,102

$
280,455

Non-interest income
114,984

120,005

Total revenues
$
395,086

$
400,460

 
 
 
Net income
$
87,129

$
84,264



The unaudited pro forma net income presented in the table above for 2014 was adjusted to exclude acquisition-related costs, including change in control expenses related to employee benefit plans, stock option cancellation fees and legal and professional expenses, of $5,052, net of tax. Pro forma net income presented in the table above for 2013 was adjusted to include the aforementioned acquisition-related costs. The unaudited pro forma net income presented in the table above for 2014 and 2013 includes adjustments for scheduled amortization of core deposit intangible assets acquired in the acquisition. No adjustments were made for operating costs savings and other business synergies expected as a result of the acquisition, or accretion or amortization of fair value adjustments other than core deposit intangible assets.