Attached files
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| 8-K/A - 8-K/A - FIRST INTERSTATE BANCSYSTEM INC | fibk-20170814x8ka.htm |
Unaudited Combined Condensed Consolidated Pro Forma Financial Data
The unaudited combined condensed consolidated pro forma financial information has been prepared using the acquisition method of accounting, giving effect to the merger of First Interstate with Cascade. The unaudited combined condensed consolidated pro forma balance sheet combines the historical information of First Interstate and Cascade as of March 31, 2017 and assumes that the merger was completed on that date. The unaudited combined condensed consolidated pro forma income statement combines the historical financial information of First Interstate and Cascade and give effect to the merger as if it had been completed as of the beginning of 2016. The unaudited combined condensed consolidated pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations or financial condition had the merger been completed on the dates described above, nor is it necessarily indicative of the results of operations in future periods or the future financial position of the combined entities. The financial information should be read in conjunction with the accompanying notes to the unaudited combined condensed consolidated pro forma financial information. Certain reclassifications have been made to Cascade’s historical financial information to conform to First Interstate’s presentation of financial information.
The actual value of First Interstate Class A common stock recorded as consideration in the merger is based on the closing price of First Interstate Class A common stock on the date prior of the merger being completed. The merger was completed as of May 30, 2017. For the pro forma financial information, the fair value of First Interstate Class A common stock that was issued in connection with the merger was based on First Interstate’s closing stock price of $34.30 as of May 30, 2017.
The pro forma financial information includes estimated adjustments, including adjustments to record assets and liabilities of Cascade at their respective fair values and represents the pro forma estimates by First Interstate based on available fair value information as of the date of the merger date. In some cases, where noted, more recent information has been used to support estimated adjustments in the pro forma financial information.
The pro forma adjustments included in this section are subject to change depending on changes in interest rates and the components of assets and liabilities and as additional information becomes available and additional analyses are performed. The final allocation of the purchase price for the merger will be determined after completion of thorough analyses to determine the fair value of Cascade tangible and identifiable intangible assets and liabilities as of the date the merger is completed. Increases or decreases in the estimated fair values of the net assets as compared with the information shown in the unaudited combined condensed consolidated pro forma financial information may change the amount of the purchase price allocated to other assets and liabilities and the residual goodwill value, and may impact First Interstate’s income statement due to adjustments in yield and/or amortization of the adjusted assets or liabilities. Any changes to Cascade’s shareholders’ equity, including results of operations from March 31, 2017 through the date the merger is completed, will also change the purchase price allocation, which may include the recording of a lower or higher amount of goodwill. The final adjustments may be materially different from the unaudited pro forma adjustments presented in this document.
First Interstate anticipates that the merger will provide the combined company with financial benefits that include reduced operating expenses. The unaudited combined condensed consolidated pro forma financial data, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings or opportunities to earn additional revenue and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined during these periods.
The unaudited combined condensed consolidated pro forma financial information has been derived from and should be read in conjunction with the historical consolidated financial statements and the related notes of First Interstate and Cascade, which are incorporated in this document by reference.
Unaudited Combined Consolidated Pro Forma Statement of Financial Condition | ||||||||||||||||||||||
As of March 31, 2017* | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||
FIBK Historical | CACB Historical | CACB Pro Forma Adjustments for Prior CACB Acquisitions** | CACB Adjusted | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||||
Assets | ||||||||||||||||||||||
Cash and cash equivalents | $ | 807,952 | $ | 157,268 | $ | — | $ | 157,268 | $ | (165,867 | ) | (1) | $ | 799,353 | ||||||||
Investment securities | 2,148,559 | 608,916 | — | 608,916 | 4,876 | (2) | 2,762,351 | |||||||||||||||
Federal Home Loan Bank (FHLB) stock | — | 3,838 | — | 3,838 | — | 3,838 | ||||||||||||||||
Loans, net | 5,323,548 | 2,092,240 | 5,170 | 2,097,410 | (6,346 | ) | (3) | 7,414,612 | ||||||||||||||
Other real estate owned | 9,428 | 1,727 | — | 1,727 | — | 11,155 | ||||||||||||||||
Company-owned life insurance | 199,262 | 56,869 | — | 56,869 | — | 256,131 | ||||||||||||||||
Premises and equipment, net of accumulated depreciation | 195,472 | 45,880 | — | 45,880 | 1,315 | (4) | 242,667 | |||||||||||||||
Mortgage servicing rights, net of accumulated amortization and impairment reserve | 19,454 | 2,423 | — | 2,423 | 1,378 | (5) | 23,255 | |||||||||||||||
Deferred tax asset | — | 40,333 | (7,068 | ) | 33,265 | (15,268 | ) | (6) | 17,997 | |||||||||||||
Core deposit intangibles, net of accumulated amortization | 9,018 | 11,943 | (11,943 | ) | — | 47,950 | (7) | 56,968 | ||||||||||||||
Goodwill | 212,820 | 85,852 | (85,852 | ) | — | 227,350 | (8) | 440,170 | ||||||||||||||
Accrued interest receivable | 27,712 | — | — | — | — | 27,712 | ||||||||||||||||
Other assets | 108,009 | 29,383 | — | 29,383 | — | 137,392 | ||||||||||||||||
Total assets | $ | 9,061,234 | $ | 3,136,672 | $ | (99,693 | ) | $ | 3,036,979 | $ | 95,388 | $ | 12,193,601 | |||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||
Deposits | $ | 7,300,179 | $ | 2,714,781 | $ | (320 | ) | $ | 2,714,461 | $ | (934 | ) | (9) | $ | 10,013,706 | |||||||
Securities sold under repurchase agreements | 587,570 | — | — | — | — | 587,570 | ||||||||||||||||
Subordinated debentures held by subsidiary trusts | 82,477 | — | — | — | — | 82,477 | ||||||||||||||||
Long-term debt | 27,994 | — | — | — | — | 27,994 | ||||||||||||||||
Deferred tax liability | 12,748 | — | — | — | — | (6) | 12,748 | |||||||||||||||
Accrued expenses and other liabilities | 48,670 | 43,301 | — | 43,301 | 408 | (10) | 92,379 | |||||||||||||||
Total liabilities | 8,059,638 | 2,758,082 | (320 | ) | 2,757,762 | (526 | ) | 10,816,874 | ||||||||||||||
Stockholders' Equity: | ||||||||||||||||||||||
Preferred stock | — | — | — | — | — | — | ||||||||||||||||
Common stock | 297,173 | 472,564 | — | 472,564 | (86,595 | ) | (11) | 683,142 | ||||||||||||||
Retained earnings | 707,016 | (94,240 | ) | (99,373 | ) | (193,613 | ) | 182,775 | (11) | 696,178 | ||||||||||||
Accumulated other comprehensive income, net | (2,593 | ) | 266 | — | 266 | (266 | ) | (11) | (2,593 | ) | ||||||||||||
Total stockholders' equity | 1,001,596 | 378,590 | (99,373 | ) | 279,217 | 95,914 | 1,376,727 | |||||||||||||||
Total liabilities and stockholders' equity | $ | 9,061,234 | $ | 3,136,672 | $ | (99,693 | ) | $ | 3,036,979 | $ | 95,388 | $ | 12,193,601 | |||||||||
Unaudited Combined Condensed Consolidated Pro Forma Statement of Financial Condition
As of March 31, 2017
(Dollars in thousands)
* | Assumes that the acquisition of Cascade was completed as of March 31, 2017 utilizing the acquisition method of accounting. Estimated fair value adjustments for loans, investment securities, core deposit intangibles, deposits and fixed assets were determined by management of First Interstate. Actual fair value adjustments, where appropriate, will be determined as of the merger completion date and will be amortized and accreted into income. |
** | This column removes the unamortized purchase accounting adjustments from prior acquisitions executed by Cascade. |
(1) | The pro forma adjustment of $165,867 includes $155,029 of cash consideration paid to acquire Cascade at a stated price of $1.91 for each share of Cascade common stock outstanding as of the balance sheet date and additional cash adjustments related to the cash pay-out of Cascade’s stock options and restricted stock units. Also included in the adjustments is $10,838 of cash paid for acquisition costs. |
(2) | Represents the estimated $4,876 fair value adjustment to Cascade’s investment portfolio. |
(3) | The pro forma adjustment of $6,346 includes an accretable component of $29,802 and a non-accretable component of $1,901 offset by the removal of Cascade’s pre-existing allowance for loan loss of $25,357, which is not carried over. |
(4) | Represents a $1,315 write-up of the premises and equipment based upon fair value estimates. |
(5) | Represents an incremental fair value adjustment for Cascade’s mortgage servicing assets of $1,378. |
(6) | Represents adjustments in the net deferred tax assets of $15,268 resulting from the fair value adjustments related to the acquired assets and liabilities, identifiable intangibles and other deferred tax items. The actual tax liability adjustment will depend on facts and circumstances existing at the completion of the merger. The existing Cascade deferred tax asset of $7,068 resulting from fair value adjustments is not carried over. |
(7) | Represents the recognition of the fair value of the core deposit intangible asset and other identifiable intangible assets. The core deposits intangible asset approximates 1.8% of estimated core deposit liabilities assumed. Core deposits are defined as total deposits less time deposits. The existing Cascade core deposit intangibles of $11,943 are not carried over. |
(8) | Calculated to reflect the acquisition accounting adjustments related to the acquisition of Cascade. The consideration to be paid to acquire Cascade consists of the right to receive 0.14864 shares of First Interstate Class A common stock and $1.91 in cash for each issued and outstanding share of Cascade common stock. For purposes of this pro forma financial presentation, the fair value of First Interstate Class A common stock issued as consideration for the acquisition of was based on the May 30, 2017 closing price of First Interstate’s Class A common stock of $34.30 per share. The acquisition accounting adjustments assume that Cascade’s stockholders’ equity is eliminated and purchase price, goodwill and intangible assets are reflected on the financial statement of First Interstate pursuant to the application of acquisition accounting. The existing Cascade goodwill of $85,852 is not carried over. |
Assumptions/Inputs | |||
Cash | $ | 155,029 | |
Value of First Interstate common stock issued | 385,969 | ||
Total consideration | 540,998 | ||
Cascade’s net assets: | |||
Cascade’s shareholders’ equity | 279,217 | ||
Fair value adjustments: | |||
Investment securities | 4,876 | ||
Loans | (6,346 | ) | |
Premises and equipment | 1,315 | ||
Core deposit intangibles | 47,950 | ||
Mortgage servicing rights | 1,378 | ||
Time Deposits | 934 | ||
Accounts Payable and Accrued Expenses | (408 | ) | |
Fair value adjustments | 49,699 | ||
Tax effect of fair value adjustments | (15,268 | ) | |
Total adjustment of net assets acquired | 34,431 | ||
Adjusted net assets acquired | 313,648 | ||
Estimated goodwill | 227,350 | ||
(9) | Represents a fair value adjustment to deposits to reflect the difference between portfolio yields and market rates for time deposits acquired in the acquisition. Yield adjustments were calculated using present value analysis. Cash flow was discounted to present value using market rates for similar deposits. The yield adjustment is the aggregate present value for the difference. The existing Cascade fair value adjustment of $320 is not carried over |
(10) | Increase in fair value due to credit card incentive program and swap liability offset. |
(11) | Reflects the elimination of Cascade’s stockholders’ equity and the issuance of 11,252,750 shares of First Interstate Class A common stock at a price of $34.30 per share. |
Unaudited Combined Consolidated Pro Forma Statement of Operations | ||||||||||||
For the Three Months Ended March 31, 2017* | ||||||||||||
(In thousands, except for per share data) | ||||||||||||
FIBK Historical | CACB Historical | CACB Pro Forma Adjustments for Prior CACB Acquisitions | CACB Adjusted | Pro Forma Adjustments | Pro Forma Combined | |||||||
Interest income: | ||||||||||||
Interest and fees on loans | $63,729 | $21,554 | $— | $21,554 | $1,292 | (1) | $ | 86,575 | ||||
Interest and dividends on investment securities | 9,514 | 3,985 | — | 3,985 | (253) | (1) | 13,246 | |||||
Interest on deposits in banks | 1,212 | — | — | — | — | 1,212 | ||||||
Other income | 2 | 82 | — | 82 | — | 84 | ||||||
Total interest income | 74,457 | 25,621 | — | 25,621 | 1,039 | 101,117 | ||||||
Interest expense: | ||||||||||||
Interest on deposits | 4,118 | 730 | — | 730 | 58 | (1) | 4,906 | |||||
Interest on securities sold under repurchase agreements | 248 | — | — | — | — | 248 | ||||||
Interest on long-term debt | 453 | — | — | — | — | 453 | ||||||
Interest on subordinated debentures held by subsidiary trusts | 745 | — | — | — | — | 745 | ||||||
Other borrowings | — | 25 | — | 25 | — | 25 | ||||||
Total interest expense | 5,564 | 755 | — | 755 | 58 | 6,377 | ||||||
Net interest income before provision for loan losses | 68,893 | 24,866 | — | 24,866 | 981 | 94,740 | ||||||
Provision for loan losses | 1,730 | — | — | — | — | 1,730 | ||||||
Net interest income after provision for loan losses | 67,163 | 24,866 | — | 24,866 | 981 | 93,010 | ||||||
Non-interest income: | ||||||||||||
Payment services revenues | 8,445 | — | — | — | — | 8,445 | ||||||
Mortgage banking revenues | 6,548 | — | — | — | — | 6,548 | ||||||
Wealth management revenues | 5,013 | — | — | — | — | 5,013 | ||||||
Service charges on deposit accounts | 4,350 | 1,651 | — | 1,651 | — | 6,001 | ||||||
Other service charges, commissions and fees | 2,676 | — | — | — | — | 2,676 | ||||||
Investment securities gains, net | 2 | — | — | — | — | 2 | ||||||
Other income | 2,073 | 1,062 | — | 1,062 | — | 3,135 | ||||||
Card issuer and merchant services fees, net | — | 2,276 | — | 2,276 | — | 2,276 | ||||||
Earnings on BOLI | — | 286 | — | 286 | — | 286 | ||||||
Mortgage banking income, net | — | 1,147 | — | 1,147 | — | 1,147 | ||||||
Swap fee income | — | 256 | — | 256 | — | 256 | ||||||
SBA gain on sales and fee income | — | 798 | — | 798 | — | 798 | ||||||
Total non-interest income | 29,107 | 7,476 | — | 7,476 | — | 36,583 | ||||||
Non-interest expense: | ||||||||||||
Salaries and employee benefits | 35,357 | 12,628 | — | 12,628 | — | 47,985 | ||||||
Information technology | 5,300 | 1,181 | — | 1,181 | — | 6,481 | ||||||
Occupancy and equipment | 7,062 | 2,211 | — | 2,211 | 11 | (1) | 9,284 | |||||
OREO expense, net of income | (48) | 10 | — | 10 | — | (38 | ) | |||||
Professional fees | 1,029 | 891 | — | 891 | — | 1,920 | ||||||
FIBK Historical | CACB Historical | CACB Pro Forma Adjustments for Prior CACB Acquisitions | CACB Adjusted | Pro Forma Adjustments | Pro Forma Combined | |||||||
FDIC insurance premiums | 875 | 517 | — | 517 | — | 1,392 | ||||||
Mortgage servicing rights amortization | 612 | — | — | — | 53 | (1) | 665 | |||||
Mortgage servicing rights impairment recovery | (70) | — | — | — | — | (70 | ) | |||||
Core deposit intangibles amortization | 630 | — | — | — | 1,298 | (1) | 1,928 | |||||
Acquisition expenses | 705 | — | — | — | (705) | — | ||||||
Communications | — | 593 | — | 593 | — | 593 | ||||||
Card issuer | — | 872 | — | 872 | — | 872 | ||||||
Insurance | — | 160 | — | 160 | — | 160 | ||||||
Other expenses | 12,241 | 2,272 | — | 2,272 | — | 14,513 | ||||||
Total non-interest expense | 63,693 | 21,335 | — | 21,335 | 657 | 85,685 | ||||||
Income before income tax expense | 32,577 | 11,007 | — | 11,007 | 324 | 43,908 | ||||||
Income tax expense | 9,451 | 4,245 | — | 4,245 | 113 | 13,809 | ||||||
Net income | $23,126 | $6,762 | $— | $6,762 | 211 | $ | 30,099 | |||||
Basic earnings per common share | $0.52 | $0.09 | $ | 0.54 | ||||||||
Diluted earnings per common share | $0.51 | $0.09 | $ | 0.53 | ||||||||
Basic weighted average shares outstanding | 44,680,258 | 75,059,838 | 11,252,750 | (2) | 55,933,008 | |||||||
Diluted weighted average shares outstanding | 45,238,908 | 75,942,608 | 11,252,750 | (2) | 56,491,658 | |||||||
Unaudited Combined Condensed Consolidated Pro Forma Statement of Operations
For the Quarter Ended March 31, 2017
(Dollars in thousands)
* | Assumes that the acquisition of Cascade was completed as of the beginning of the earliest period presented utilizing the acquisition method of accounting. Estimated fair value adjustments for loans, investment securities, core deposit intangibles, time deposits and fixed assets were determined by management of First Interstate. The resulting premiums and discounts for purposes of the unaudited combined condensed consolidated pro forma financial data, where appropriate, are being amortized and accreted into income as more fully described in the notes below. Actual fair value adjustments will be determined as of the merger completion date and will be amortized and accreted into income over the estimated remaining lives of the respective assets and liabilities. |
(1) | The following table summarizes the estimated period impact of the amortization (accretion) of the related acquisition accounting adjustments on the pro forma statement of operations (in thousands): |
Category | Estimated Life in Years | Amortization (Accretion) Method | Amortization (Accretion) for the Quarter Ended March 31, 2017 |
Loans | various | LY | $1,292 |
Investment securities | 10 | LY | (253) |
Premises and equipment | 30 | SL | 11 |
Core deposit intangible | 10 | SD | 1,298 |
Mortgage servicing rights | 12 | SD | 53 |
Time Deposits | 7 | SD | 58 |
____________________
Tax rate = 35%
SL - straight line method
SD - sum-of-the-years digits method
LY - level yield method
(2) | Pro forma basic and diluted weighted average common shares outstanding as of March 31, 2017 were determined by adding the number of shares issued to Cascade’s shareholders to First Interstate’s historical weighted average basic and diluted outstanding common shares outstanding as of March 31, 2017. The stock consideration paid to acquire Cascade consists of the issuance of 11,252,750 shares of First Interstate Class A common stock based upon the fixed exchange rate established in the merger agreement. |