Mergers and Acquisitions

9 Months Ended

Sep. 30, 2019

On July 31, 2019, the Company acquired 100 percent of the outstanding common stock of Heritage Bancorp and its wholly-owned subsidiary, Heritage Bank of Nevada, a community bank based in Reno, Nevada. Heritage provides banking services to individuals and businesses throughout northern Nevada with locations in Carson City, Gardnerville, Reno and Sparks. The acquisition expands the Company’s franchise footprint into Northern Nevada. Heritage operates as a new division of the Bank under its existing name and management team. The preliminary value of the Heritage acquisition was $245,805,000 and resulted in the Company issuing 5,473,276 shares of its common stock. The fair value of the Company shares issued was determined on the basis of the closing market price of the Company’s common stock on the July 31, 2019 acquisition date. The excess of the preliminary fair value of consideration transferred over total identifiable net assets was recorded as goodwill. The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and Heritage. None of the goodwill is deductible for income tax purposes as the acquisition was accounted for as a tax-free exchange.

On April 30, 2019, the Company acquired 100 percent of the outstanding common stock of FNB Bancorp and its wholly-owned subsidiary, The First National Bank of Layton, a community bank based in Layton, Utah. FNB provides banking services to individuals and businesses throughout Utah with locations in Layton, Bountiful, Clearfield and Draper. The acquisition expands the Company’s presence in Utah and sets the stage for future growth. The branches of FNB, along with the Bank’s branches operating in Utah, operate as a new division of the Bank under the name “First Community Bank Utah, division of Glacier Bank.” The preliminary value of the FNB acquisition was $87,157,000 and resulted in the Company issuing 2,046,341 shares of its common stock. The fair value of the Company shares issued was determined on the basis of the closing market price of the Company’s common stock on the April 30, 2019 acquisition date. The excess of the preliminary fair value of consideration transferred over total identifiable net assets was recorded as goodwill. The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and FNB. None of the goodwill is deductible for income tax purposes as the acquisition was accounted for as a tax-free exchange.

The assets and liabilities of Heritage and FNB were recorded on the Company’s consolidated statements of financial condition at their preliminary estimated fair values as of their acquisition dates and their results of operations have been included in the Company’s consolidated statements of operations since those dates. The following table discloses the preliminary fair value estimates of the consideration transferred, the total identifiable net assets acquired and the resulting goodwill arising from the Heritage and FNB acquisitions. The Company is continuing to obtain information to determine the fair values of the acquired assets and liabilities.


(Dollars in thousands)	Heritage July 31, 2019		FNB April 30, 2019
Fair value of consideration transferred
Fair value of Company shares issued	$	229,385	$	87,153
Cash consideration	16,420		4

Total fair value of consideration transferred	245,805		87,157
Recognized amounts of identifiable assets acquired and liabilities assumed
Identifiable assets acquired
Cash and cash equivalents	84,446		11,311
Debt securities	103,231		47,247
Loans receivable	615,279		245,485
Core deposit intangible ¹	13,566		8,963
Accrued income and other assets	35,891		24,848
Total identifiable assets acquired	852,413		337,854
Liabilities assumed
Deposits	722,220		274,646
Borrowings ²	—		7,273
Accrued expenses and other liabilities	9,923		10,079
Total liabilities assumed	732,143		291,998
Total identifiable net assets	120,270		45,856
Goodwill recognized	$	125,535	$	41,301

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¹ The core deposit intangible for each acquisition was determined to have an estimated life of 10 years.

² Borrowings assumed with the FNB acquisition include Tier 1 subordinated debentures of $5,864,000.

The preliminary fair values of the Heritage and FNB assets acquired include loans with preliminary fair values of $615,279,000 and $245,485,000, respectively. The gross principal and contractual interest due under the Heritage and FNB contracts was $617,214,000 and $248,226,000, respectively. The Company evaluated the principal and contractual interest due at the acquisition date and determined that an insignificant amount was not expected to be collectible.

The Company incurred $2,635,000 and $1,428,000 of expenses in connection with the Heritage and FNB acquisitions, respectively, during the nine months ended September 30, 2019. Mergers and acquisition expenses are included in other expense in the Company's consolidated statements of operations and consist of third-party costs and employee retention and severance expenses.

Total income consisting of net interest income and non-interest income of the acquired operations of Heritage was approximately $6,346,000 and net loss was approximately $1,737,000 from July 31, 2019 to September 30, 2019. Total income consisting of net interest income and non-interest income of the acquired operations of FNB was approximately $7,834,000 and net income was approximately $1,791,000 from April 30, 2019 to September 30, 2019. The following unaudited pro forma summary presents consolidated information of the Company as if the Heritage and FNB acquisitions had occurred on January 1, 2018:


	Three Months ended				Nine Months ended
(Dollars in thousands)	September 30, 2019		September 30, 2018	September 30, 2019	September 30, 2018
Net interest income and non-interest income	$	177,932	161,836	498,073	449,582
Net income	47,424		57,877	158,635	152,484