XML 25 R9.htm IDEA: XBRL DOCUMENT

ACQUISITIONS

12 Months Ended

Dec. 31, 2021

NOTE 2 – ACQUISITIONS

On July 22, 2021, the Company entered into the Merger Agreement with Teton, parent company of Rocky Mountain Bank, a Wyoming-chartered bank headquartered in Jackson, Wyoming. The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Teton would merge into the Company, with the Company continuing as the surviving corporation. The Merger Agreement also provides that following the merger, Rocky Mountain Bank would merge with and into the Bank, with the Bank surviving the bank merger. The transaction closed on December 31, 2021 with an aggregate purchase price of $51.3 million. Total acquisition costs incurred through December 31, 2021 for the transaction were approximately $4.1 million and are primarily reflected in the Data processing, Professional services, and Salaries and employee benefits lines of the Consolidated Statements of Income, with a remaining immaterial amount in the Other line of the Consolidated Statements of Income. As part of its long-term growth strategy, the Teton Acquisition expands First Western’s presence in Wyoming and allows the Bank to deliver its unique approach to private and commercial banking to more clients in the region.

The Teton Acquisition was accounted for under the acquisition method of accounting and therefore all assets and liabilities have been measured and recorded at their fair values as of the acquisition close date of December 31, 2021. All non-equity acquisition related costs were expensed as incurred and are included in noninterest expense in the Consolidated Statements of Income. Certain acquisition costs related to the issuance of equity were capitalized as of December 31, 2021. Market value adjustments for assets acquired and liabilities assumed are amortized or accreted on a level yield basis over the estimated life of the asset or liability. Loans acquired are recorded at their estimated fair value and therefore no allowance for loan and lease losses was recorded at the date of acquisition. Goodwill of $6.4 million, which is not tax deductible, was recognized in the transaction and represents expected synergies and cost savings resulting from combining the expanded footprint and expertise of the associates. Additionally, core deposit intangible assets have been identified and recorded at their estimated fair values and are amortized over their estimated useful life. On August 31, 2021, the Company completed the issuance and sale of subordinated notes, which provided partial funding of the transaction. See Note 10 – Borrowings.

As of December 31, 2021, loans, deposits, core deposit intangible, and equity warrants fair values are considered provisional. These items contain estimates of the accounting for the acquisition which are subject to revision in future periods when the application of purchase accounting is finalized. The Company utilized preliminary balance sheet values to estimate the fair values and then applied those values to the acquired balances as of December 31, 2021. The final valuation will be determined based on the actual December 31, 2021 balances which is in process at the time of this filing.

The following presents the estimated fair values of the assets acquired and liabilities assumed in the December 31, 2021 transaction with Teton, and reflects all adjustments made to the fair value of the opening balance sheet on December 31, 2021 (in thousands):



Fair value of consideration transferred	December 31, 2021
Cash consideration	$	11,501
Common stock issued		39,818
Total fair value of consideration transferred		51,319

Assets acquired
Cash and cash equivalents		132,498
Available-for-sale securities, at fair value		18,218
Correspondent bank stock, at cost		928
Mortgage loans held for sale		840
Loans, net		252,275
Premises and equipment		17,758
Accrued interest receivable		923
Accounts receivable		95
Other receivable		520
Core deposit intangible⁽¹⁾		1,264
Other assets		66
Assets held for sale		115
Total assets acquired		425,500

Liabilities assumed
Deposits		379,227
Accrued interest payable		26
Other liabilities		1,283
Deferred tax liabilities, net		42
Total liabilities assumed		380,578
Net assets acquired		44,922
Goodwill recognized	$	6,397

_____________________________________

⁽¹⁾ The core deposit intangible was determined to have an estimated life of 10 years.

The fair value adjustments were determined using discounted expected cash flows. Loans had a fair value of $252.3 million and a contractual balance of $256.3 million as of December 31, 2021. The discount on the loans acquired in this transaction due to anticipated credit loss, as well as considerations for market interest rates, totaled $4.0 million, representing 1.6% of their contractual balance. There were no loans acquired that were considered to be purchased credit impaired ("PCI") loans.

The composition of the contractual balance of acquired loans as of December 31, 2021 is detailed in the table below (in thousands):


	Year Ended
	December 31,
	2021
Cash, Securities and Other ⁽¹⁾	$	20,080
Construction and Development		33,977
1-4 Family Residential		70,348
Non-Owner Occupied CRE		43,162
Owner Occupied CRE		33,000
Commercial and Industrial		55,690
Total loans		256,257
Acquisition fair value adjustments		(3,982)
Loans, net	$	252,275

_____________________________________

⁽¹⁾ Includes $6.7 million in PPP loans.

The Company incurred $4.1 million in expenses related to the acquisition during the year ended December 31, 2021. The following presents the acquisition expenses within Non-interest expense of the Consolidated Statements of Income (in thousands):


	Year Ended
	December 31,
	2021
Mergers and acquisitions expense:
Salaries and employee benefits	$	547
Professional services		1,118
Data processing		2,428
Other		8
Total mergers and acquisitions expense	$	4,101

On February 10, 2020, the Company entered into a branch purchase and assumption agreement with Simmons Bank, a subsidiary of Simmons First National Corporation, to acquire all of the Simmons’ Colorado locations, including three branches and one loan production office located in Denver, as well as certain deposits, loans and other assets and liabilities. The transaction closed on May 15, 2020 with an aggregate purchase price of $61.6 million, including a deposit premium of 6.06%.

During the third quarter of 2020, the Company closed two of the branches and the loan production office acquired in the Branch Acquisition.

Goodwill of $4.5 million was recognized in the transaction and represents expected synergies and cost savings resulting from combining the expanded footprint and expertise of the associates.

The following presents the estimated fair values of the assets acquired and liabilities assumed in the May 15, 2020 transaction with Simmons, and reflects all adjustments made to the fair value of the opening balance sheet through December 31, 2020 (in thousands):


	May 15,
Fair value of consideration transferred	2020
Cash consideration	$	61,599
Total fair value of consideration transferred		61,599

Assets acquired
Cash and due from banks		283
Loans, net		119,552
Core deposit intangible⁽¹⁾		53
Accrued income and other assets		382
Total assets acquired		120,270

Liabilities assumed
Deposits		63,080
Accrued expenses and other liabilities		96
Total liabilities assumed		63,176
Net assets acquired		57,094
Goodwill recognized	$	4,505

_____________________________________

⁽¹⁾ The core deposit intangible was determined to have an estimated life of 10 years.

The fair value of net assets acquired includes fair value adjustments to loans as of the acquisition date. The fair value adjustments were determined using discounted expected cash flows. Loans had a fair value of $119.6 million and a contractual balance of $120.6 million as of May 15, 2020. The discount on the loans acquired in this transaction due to anticipated credit loss, as well as considerations for market interest rates, totaled $1.1 million, representing 0.9% of their contractual balances. No allowance for loan losses related to acquired loans was recorded as a result of the Branch Acquisition. Loans acquired included short-term modifications made on a good faith basis by Simmons, in response to COVID-19. All of the modification were given additional review prior to the closing of the purchase and management determined that loans were performing prior to modification and were not considered impaired at purchase. There were no loans acquired that were considered to be PCI loans.

The composition of the acquired loan portfolio as of May 15, 2020 is detailed in the table below (in thousands):


	May 15,
	2020
Cash, Securities and Other ⁽¹⁾	$	13,457
Construction and Development		40,407
1-4 Family Residential		7,252
Non-Owner Occupied CRE		545
Owner Occupied CRE		321
Commercial and Industrial		58,660
Total loans	$	120,642

_____________________________________

⁽¹⁾ Includes $12.9 million in PPP loans.

The Company incurred $0.7 million in expenses related to the acquisition during the year ended December 31, 2020. Acquisition expenses, including Data processing, Professional fees, Salaries and employee benefit, Technology and information systems, and occupancy and equipment lines are included in the Total non-interest expense line of the Consolidated Statements of Income.

The following table presents pro forma information for the years ended December 31, 2021 and 2020, as if the Teton Acquisition and Branch Acquisition had occurred on January 1, 2020. This table has been prepared for comparative purposes only, and is not indicative of the actual results that would have been attained had the acquisitions occurred as of the beginning of the periods presented, nor is it indicative of future results (in thousands, except per share data):



		Pro Forma
		Twelve Months Ended December 31,
		2021	2020
Net interest income after provision for loan losses	$	68,019	$	56,465
Noninterest income		41,206		52,926
Net income		23,234		23,689
Pro forma earnings per share:
Basic		2.49		2.55
Diluted		2.43		2.55