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Section 1: 424B3 (424B3)

424B3
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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-225521

 

LOGO

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Northwest Bancorporation, Inc. Shareholder:

On April 25, 2018, First Interstate BancSystem, Inc. (which we refer to as “First Interstate”) and Northwest Bancorporation, Inc. (which we refer to as “Northwest”) entered into an Agreement and Plan of Merger (which we refer to as the “merger agreement”) under which Northwest will merge with and into First Interstate, with First Interstate remaining as the surviving entity. This transaction is referred to in this document as the “merger.” Following the merger, Inland Northwest Bank, the wholly-owned subsidiary of Northwest, will merge with and into First Interstate Bank, the wholly-owned subsidiary of First Interstate, with First Interstate Bank as the surviving entity. This transaction is referred to in this document as the “bank merger.” Before we complete the merger, the shareholders of Northwest must approve the merger agreement.

If the merger is completed, Northwest shareholders will be entitled to receive, for each share of Northwest common stock they own, 0.516 shares of First Interstate Class A common stock. The maximum number of shares of First Interstate Class A common stock estimated to be issuable upon completion of the merger is 3,982,842. Based on First Interstate’s closing price of $40.10 on April 25, 2018, which was the last trading date preceding the public announcement of the proposed merger, each share of Northwest common stock exchanged for 0.516 shares of First Interstate Class A common stock would have a value of $20.69, or approximately $159.7 million in the aggregate. Based on First Interstate’s closing price of $42.40 on June 27, 2018, which is the most recent practicable trading day before the printing of this document, each share of Northwest common stock exchanged for 0.516 shares of First Interstate Class A common stock would have a value of $21.88. The common stock of First Interstate trades on the Nasdaq Global Select Market under the symbol “FIBK.” The common stock of Northwest is quoted on the OTC Market’s Pink Marketplace under the symbol “NBCT.” The market price of both First Interstate Class A common stock and Northwest common stock will fluctuate before the completion of the merger; therefore, you are urged to obtain current market quotations for First Interstate Class A common stock and Northwest common stock.

Although the number of shares of First Interstate Class A common stock that holders of Northwest common stock will be entitled to receive is fixed, the market value of the stock consideration will fluctuate with the market price of First Interstate Class A common stock and will not be known at the time Northwest shareholders vote on the merger. However, Northwest has the right to terminate the merger agreement if, at any time during a five-day period commencing on the fifth day before closing, the average closing price of First Interstate Class A common stock over the 20 consecutive trading days ending on and including the fifth day before closing (1) is less than $32.00 and (2) underperforms the KBW Regional Banking Index by more than 20% during the same time period. If Northwest elects to exercise this termination right, then First Interstate has the option to increase the exchange ratio to a level that would eliminate the effects of the two requirements of this termination right.

The affirmative vote of two-thirds of the outstanding shares of Northwest common stock is required to approve the merger agreement. Northwest shareholders will vote to adopt the merger agreement at a special meeting of shareholders to be held at 5:00 p.m., local time, on August 14, 2018 at the Airway Heights branch of Inland Northwest Bank located at 11917 West Sunset Highway, Airway Heights, Washington.

Northwest’s board of directors unanimously recommends that Northwest shareholders vote “FOR” the adoption of the merger agreement.

This document contains information that you should consider in evaluating the proposed merger. In particular, you should carefully read the section captioned “Risk Factors” beginning on page 14 for a discussion of certain risk factors relating to the merger. You can also obtain information about First Interstate from documents filed with the Securities and Exchange Commission.

We look forward to seeing you at the shareholders meeting and we appreciate your continued support.

 

LOGO
Russell A. Lee
President and Chief Executive Officer
Northwest Bancorporation, Inc.

The shares of First Interstate Class A common stock to be issued in the merger are not deposits or savings accounts or other obligations of any bank or savings association and are not insured by the FDIC or any other governmental agency.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the merger described in this document or the First Interstate Class A common stock to be issued in the merger, or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense.

The date of this proxy statement/prospectus is July 3, 2018, and it is first being mailed or otherwise delivered to shareholders of Northwest on or about July 9, 2018.


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ABOUT THIS DOCUMENT

This proxy statement/prospectus, which we refer to as “this document,” which forms part of a registration statement on Form S-4 filed with the Securities and Exchange Commission (which we refer to as the “SEC”) by First Interstate, constitutes a prospectus of First Interstate with respect to the shares of First Interstate Class A common stock to be issued to Northwest shareholders, as required by the merger agreement. This document also constitutes a proxy statement and a notice of meeting with respect to the special meeting of shareholders of Northwest.

You should rely only on the information contained in this document. No one has been authorized to provide you with information that is different from the information contained in this document. This document is dated July 3, 2018. You should not assume that the information contained in this document is accurate as of any date other than that date. Neither the mailing of this document to Northwest shareholders nor the issuance by First Interstate of its common stock in connection with the merger will create any implication to the contrary.

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this document regarding First Interstate has been provided by First Interstate and information contained in this document regarding Northwest has been provided by Northwest.


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NORTHWEST BANCORPORATION, INC.

421 West Riverside Avenue, Suite 113

Spokane, Washington 99201

Notice of Special Meeting of Shareholders to be held August 14, 2018

To the Shareholders of Northwest:

Northwest will hold a special meeting of shareholders (which we refer to as the “Northwest special meeting”) at 5:00 p.m., local time, on August 14, 2018, at the Airway Heights Branch of Inland Northwest Bank located at 11917 West Sunset Highway, Airway Heights, Washington, to consider and vote on the following matters:

 

  1. a proposal to approve the merger agreement, dated as of April 25, 2018, by and between First Interstate BancSystem, Inc. and Northwest Bancorporation, Inc. and the merger, pursuant to which Northwest will merge with and into First Interstate. A copy of the merger agreement is included as Annex A to the accompanying proxy statement/prospectus; and

 

  2. a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to approve the merger agreement (which we refer to as the “Northwest adjournment proposal”).

Both of these items are described in more detail in the accompanying proxy statement/prospectus and its annexes. We urge you to read these materials carefully and in their entirety. The enclosed document forms a part of this notice.

Northwest’s board of directors unanimously recommends that Northwest shareholders vote “FOR” both of the proposals.

Northwest shareholders of record as of the close of business on June 27, 2018 are entitled to notice of, and to vote at, the Northwest special meeting and any adjournments or postponements of the Northwest special meeting.

Northwest shareholders have the right to dissent from the merger and obtain payment of the cash appraisal fair value of their Northwest shares under applicable provisions of Washington law. A copy of the provisions regarding dissenters’ rights is attached as Annex B to the accompanying proxy statement/prospectus. For details of your dissenter’s rights and how to exercise them, please see the discussion under “Description of the Merger—Dissenters’ Rights of Appraisal.

Your vote is very important. Your proxy is being solicited by Northwest’s board of directors. For the proposed merger to be completed, the proposal to approve the merger agreement must be approved by the affirmative vote of two-thirds of the outstanding shares of Northwest common stock. The Northwest adjournment proposal will be approved if a majority of the votes cast on such proposal at the Northwest special meeting are voted in favor of such proposal.

Whether or not you plan to attend the Northwest special meeting, we urge you to vote. Shareholders of record may vote:

 

    By internet – access www.investorvote.com/nbct and follow the on-screen instructions;

 

    By telephone – call 1-800-652-VOTE (8683) and follow the instructions;

 

    By mail – complete, sign, date and mail your proxy card in the envelope provided as soon as possible; or

 

    In person – vote your shares in person by attending the Northwest special meeting.

If you hold your stock in “street name” through a banker or broker, please follow the instructions on the voting instruction card furnished by the record holder.


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If you have any questions or need assistance voting your shares, please contact our proxy solicitor, Laurel Hill Advisory Group, toll free at (888) 742-1305.

 

By Order of the Board of Directors,
LOGO
Leilani T. McKernan
Corporate Secretary

Spokane, Washington

July 9, 2018


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REFERENCES TO AVAILABLE INFORMATION

This document incorporates important business and financial information about First Interstate from documents filed with the SEC that have not been included in or delivered with this document. You may read and copy these documents at the SEC’s public reference room located at 100 F Street, NE, Washington, DC 20549. Copies of these documents also can be obtained at prescribed rates by writing to the Public Reference Section of the SEC, at 100 F Street, NE, Washington, DC 20549 or by calling 1-800-SEC-0330 for additional information on the operation of the public reference facilities. This information is also available at the Internet site the SEC maintains at http://www.sec.gov. See “Where You Can Find More Information” on page 93.

You also may request orally or in writing copies of these documents at no cost by contacting First Interstate at the following address:

First Interstate BancSystem, Inc.

401 North 31st Street

Billings, Montana 59101

Attention: Kirk D. Jensen, General Counsel

Telephone: (406) 255-5304

If you are a Northwest shareholder and would like to request documents from First Interstate, please do so by August 7, 2018 to receive them before the Northwest special meeting.


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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE NORTHWEST SPECIAL MEETING

     1  

SUMMARY

     6  

RISK FACTORS

     14  

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

     19  

SELECTED HISTORICAL FINANCIAL AND OTHER DATA

     21  

Selected Consolidated Historical Financial Data of First Interstate

     21  

Selected Consolidated Historical Financial Data of Northwest

     22  

UNAUDITED COMPARATIVE PRO FORMA PER SHARE DATA

     24  

SPECIAL MEETING OF NORTHWEST SHAREHOLDERS

     25  

Date, Time and Place of Meeting

     25  

Purpose of the Meeting

     25  

Who Can Vote at the Meeting

     25  

Quorum; Vote Required

     25  

Shares Held by Northwest Officers and Directors and by First Interstate

     26  

Voting and Revocability of Proxies

     26  

Solicitation of Proxies

     27  

NORTHWEST PROPOSAL NO. 1 APPROVAL OF THE MERGER AGREEMENT

     28  

NORTHWEST PROPOSAL NO. 2 ADJOURNMENT OF THE NORTHWEST SPECIAL MEETING

     29  

DESCRIPTION OF THE MERGER

     30  

General

     30  

Consideration to be Received in the Merger

     30  

Background of the Merger

     30  

Northwest’s Reasons for the Merger and Recommendation of the Board of Directors

     33  

D.A. Davidson’s Opinion to Northwest’s Board of Directors

     35  

Certain Financial Projections Utilized by the Northwest Board of Directors and Northwest’s Financial Advisor

     52  

First Interstate’s Reasons for the Merger

     54  

Treatment of Northwest Stock Purchase Warrants and Restricted Stock

     55  

Surrender of Stock Certificates

     55  

Accounting Treatment of the Merger

     56  

Material U.S. Federal Income Tax Consequences of the Merger

     56  

Regulatory Matters Relating to the Merger

     58  

Interests of Certain Persons in the Merger that are Different from Yours

     59  

Employee Matters

     61  

Operations of First Interstate Bank after the Merger

     62  

Resale of Shares of First Interstate Class A Common Stock

     62  

Time of Completion

     63  

Conditions to Completing the Merger

     63  

Conduct of Business Before the Merger

     64  

Additional Covenants of Northwest and First Interstate in the Merger Agreement

     68  

Representations and Warranties Made by First Interstate and Northwest in the Merger Agreement

     71  

Terminating the Merger Agreement

     72  

Termination Fee

     73  

Expenses

     73  

Changing the Terms of the Agreement and Plan of Merger

     74  

Voting Agreements

     74  

Dissenters’ Rights of Appraisal

     74  

DESCRIPTION OF FIRST INTERSTATE CAPITAL STOCK

     76  

COMPARISON OF RIGHTS OF SHAREHOLDERS

     81  

MANAGEMENT AND OPERATIONS AFTER THE MERGER

     89  

MARKET PRICE AND DIVIDEND INFORMATION

     90  


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STOCK OWNERSHIP OF NORTHWEST

     91  

LEGAL MATTERS

     93  

EXPERTS

     93  

WHERE YOU CAN FIND MORE INFORMATION

     93  

 

Annex A   Agreement and Plan of Merger, dated as of April 25, 2018, by and between First Interstate BancSystem, Inc. and Northwest Bancorporation, Inc.    A-1
Annex B   Washington Statutes RCW 23B.13.010 – 23B.13.310, Regarding Dissenters’ Rights    B-1
Annex C   Opinion of D.A. Davidson & Co., Financial Advisor to Northwest Bancorporation, Inc.    C-1


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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE NORTHWEST SPECIAL MEETING

The following are answers to certain questions that you may have regarding the merger and the Northwest special meeting. We urge you to read carefully the remainder of this document because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the annexes to, and the documents incorporated by reference in this document.

 

Q: WHY AM I RECEIVING THIS DOCUMENT?

 

A. You are receiving this document because you are a shareholder of Northwest as of June 27, 2018, the record date for the Northwest special meeting. This document is being used by the board of directors of Northwest to solicit proxies of the Northwest shareholders about the approval of the merger agreement and related matters. This document also serves as the prospectus for shares of First Interstate Class A common stock to be issued in exchange for shares of Northwest common stock in the merger.

To approve the merger agreement, Northwest has called a special meeting of its shareholders (which we refer to as the “Northwest special meeting”). This document also serves as a notice of the Northwest special meeting, and describes the proposals to be presented at the Northwest special meeting.

You should read this document carefully and in its entirety. The enclosed materials allow you to have your shares voted by proxy without attending your special meeting. Your vote is important. We encourage you to submit your proxy as soon as possible.

 

Q: WHAT AM I BEING ASKED TO VOTE ON?

 

A: You are being asked to vote on the approval of a merger agreement that provides for the merger of Northwest with and into First Interstate. You are also being asked to vote on a proposal to adjourn the shareholder meeting to a later date or dates, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the meeting to approve the merger agreement (which we refer to as the “Northwest adjournment proposal”).

 

Q: WHAT VOTE DOES NORTHWEST’S BOARD OF DIRECTORS RECOMMEND?

 

A: Northwest’s board of directors has determined that the proposed merger is in the best interests of Northwest shareholders, has unanimously approved the merger agreement and unanimously recommends that Northwest shareholders vote “FOR” the approval of the merger agreement and “FOR” the Northwest adjournment proposal. See the section entitled “Description of the Merger—Northwest’s Reasons for the Merger and Recommendation of the Board of Directors” beginning on page 33 of this document.

 

Q: WHAT WILL NORTHWEST SHAREHOLDERS RECEIVE IN THE MERGER?

 

A: If the merger is completed, Northwest shareholders will receive 0.516 shares of First Interstate Class A common stock (which we refer to as the “merger consideration”) for each share of Northwest common stock held immediately before the merger. First Interstate will not issue any fractional shares of First Interstate Class A common stock in the merger. First Interstate will pay to each former Northwest shareholder who holds fractional shares an amount in cash determined by multiplying the average of the closing sale prices of First Interstate Class A common stock for the 20 consecutive trading days ending on and including the fifth day preceding the closing date of the merger, which we refer to as the “average closing price,” by the fraction of a share (rounded to the nearest cent) of First Interstate Class A common stock that such shareholder would otherwise be entitled to receive.

 

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Q: HOW WILL THE MERGER AFFECT NORTHWEST EQUITY AWARDS?

 

A: Northwest equity awards will be affected as follows:

Stock Purchase Warrants: At the effective time of the merger, each warrant to purchase shares of Northwest common stock outstanding immediately before the effective time of the merger, whether or not vested, will be canceled and, upon First Interstate’s receipt of a warrant termination agreement from the holder, exchanged for a cash payment equal to the product of (1) the number of shares of Northwest common stock subject to the warrant multiplied by (2) the amount by which the product of the average closing price and the exchange ratio exceeds the exercise price of such warrant, less applicable withholding taxes.

Restricted Stock Awards: At the effective time of the merger, each outstanding share of restricted stock will vest and be converted into the right to receive 0.516 shares of First Interstate Class A common stock.

 

Q: WHAT EQUITY STAKE WILL NORTHWEST SHAREHOLDERS HOLD IN FIRST INTERSTATE IMMEDIATELY FOLLOWING THE MERGER?

 

A: Immediately following completion of the merger, Northwest shareholders will own approximately 10.2% of the outstanding shares of First Interstate Class A common stock and 6.4% of the aggregate outstanding shares of First Interstate Class A common stock and First Interstate Class B common stock, which we refer to collectively in this document as “First Interstate common stock,” which equates to 2.6% of the voting power of First Interstate common stock.

 

Q: WHAT HAPPENS IF I AM ELIGIBLE TO RECEIVE A FRACTION OF A SHARE OF FIRST INTERSTATE CLASS A COMMON STOCK AS PART OF THE MERGER CONSIDERATION?

 

A: If the aggregate number of shares of First Interstate Class A common stock that you are entitled to receive as part of the merger consideration includes a fraction of a share of First Interstate Class A common stock, you will receive cash instead of that fractional share. See the section entitled “Description of the MergerConsideration to be Received in the Merger” beginning on page 30 of this document.

 

Q: HOW DO NORTHWEST SHAREHOLDERS EXCHANGE THEIR STOCK CERTIFICATES?

 

A: Shortly after the merger, First Interstate’s exchange agent will send instructions to you on how and where to surrender your Northwest stock certificates after the merger is completed. Please do not send your Northwest stock certificates with your proxy card.

 

Q: ARE NORTHWEST’S SHAREHOLDERS ENTITLED TO APPRAISAL RIGHTS?

 

A: Yes. If you vote against the merger, and take certain other actions required by Washington law, you will have dissenter’s rights under RCW 23B.13.010 - 23B.13.310. Exercise of these rights will result in the purchase of your shares at “fair value,” as determined in accordance with Washington law. Please read the section entitled “Description of the Merger—Dissenters’ Rights of Appraisal” on page 74 of this document for additional information.

 

Q: IS COMPLETION OF THE MERGER SUBJECT TO ANY CONDITIONS BESIDES SHAREHOLDER APPROVAL?

 

A: Yes. The merger must receive the required regulatory approvals, and there are other customary closing conditions that must be satisfied. For more information about the conditions to the completion of the merger, see “Description of the Merger—Conditions to Completing the Merger” on page 63 of this document.

 

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Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?

 

A: We will complete the merger as soon as possible. Before that happens, the merger agreement must be approved by Northwest’s shareholders and we must obtain the necessary regulatory approvals, among other conditions. Assuming timely receipt of regulatory and shareholder approvals, we expect to complete the merger late in the third quarter or early in the fourth quarter of 2018.

 

Q: ARE THERE RISKS THAT I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE TO APPROVE THE MERGER AGREEMENT?

 

A: Yes. You should consider the risk factors set forth in the section entitled “Risk Factors” beginning on page 14 of this document.

 

Q: WHAT VOTE IS REQUIRED TO APPROVE THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING?

 

A: The proposal to approve the merger agreement must be approved by the affirmative vote of two-thirds of the outstanding shares of Northwest common stock. Consequently, abstentions and broker non-votes with respect to the merger agreement will effectively act as votes “AGAINST” such proposal.

Approval of the Northwest adjournment proposal requires that the votes cast in favor of the proposal exceed the votes cast against. Abstentions and broker non-votes will not affect the outcome of the Northwest adjournment proposal.

 

Q: WHAT IS THE QUORUM REQUIREMENT FOR THE SPECIAL MEETING?

 

A: The presence at the Northwest special meeting, in person or by proxy, of shareholders representing a majority of the outstanding shares of Northwest common stock will constitute a quorum. Abstentions and broker non-votes, if any, will be included in determining the number of shares present at the meeting for purposes of determining the presence of a quorum.

 

Q: WHEN AND WHERE IS THE SPECIAL MEETING?

 

A: The Northwest special meeting is scheduled to take place at the Airway Heights Branch of Inland Northwest Bank located at 11917 West Sunset Highway, Airway Heights, Washington, at 5:00 p.m., local time, on August 14, 2018.

 

Q: WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?

 

A: Holders of shares of Northwest common stock at the close of business on June 27, 2018 are entitled to vote at the Northwest special meeting. As of the record date, 7,267,205 shares of Northwest common stock were outstanding and entitled to vote.

 

Q: IF I PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, SHOULD I STILL RETURN MY PROXY?

 

A: Yes. Whether or not you plan to attend the special meeting, you should promptly submit your proxy so that your shares will be voted at the special meeting. The failure of a shareholder to vote in person or by proxy will have the same effect as a vote “AGAINST” the merger agreement.

 

Q: WHAT DO I NEED TO DO NOW TO VOTE MY SHARES OF COMMON STOCK?

 

A: If you are a “shareholder of record,” you can vote your shares as follows:

 

    via internet at www.investorvote.com/nbct;

 

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    via telephone by calling 1-800-652-VOTE (8683);

 

    by completing and returning the proxy card that is enclosed; or

 

    by voting in person at the special meeting.

Please refer to the specific instructions set forth on the proxy card. We encourage you to vote via the internet or by telephone.

 

Q: HOW CAN I CHANGE MY VOTE AFTER I HAVE SUBMITTED MY PROXY?

 

A: You may change your vote at any time before your proxy is voted at the special meeting by: (1) filing with the Corporate Secretary a duly executed revocation of proxy; (2) submitting a new proxy card with a later date; (3) voting again via the internet or by telephone; or (4) voting in person at the meeting (your attendance at the meeting will not by itself revoke your proxy). The Northwest Corporate Secretary’s mailing address is 421 West Riverside Avenue, Suite 113, Spokane, Washington 99201.

If you hold your shares of Northwest common stock in “street name” through a bank or broker, you should contact your bank or broker to change your vote or revoke your proxy.

Your last vote will be the vote that is counted.

 

Q: IF MY SHARES ARE HELD IN “STREET NAME” BY MY BROKER, BANK OR OTHER NOMINEE, WILL MY BROKER, BANK OR OTHER NOMINEE AUTOMATICALLY VOTE MY SHARES FOR ME?

 

A: No. Your broker, bank or other nominee will not be able to vote your shares of common stock on the proposal to approve the merger agreement or on the other proposals unless you provide instructions on how to vote. Please instruct your broker, bank or other nominee how to vote your shares, following the directions that your broker, bank or other nominee provides. If you do not provide instructions to your broker, bank or other nominee, your shares will not be voted, and this will have the effect of voting “AGAINST” the merger agreement. Please review the instructions from your broker, bank or other nominee to see if your broker, bank or other nominee offers telephone or internet voting.

 

Q: WHAT ARE THE DEADLINES FOR VOTING?

 

A: You may: (1) vote by mail at any time before the meeting as long as your proxy is received before the time of the special meeting; or (2) vote by internet or telephone by 1:00 a.m., Pacific Time, on August 14, 2018.

If your shares are held in “street name,” you must vote your shares according to the voting instructions form by the deadline set by your broker, bank or other nominee.

 

Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO NORTHWEST SHAREHOLDERS?

 

A: It is a condition to the completion of the merger that First Interstate and Northwest receive written opinions from their respective counsel to the effect that the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, which we refer to in this document as the “Internal Revenue Code.” Subject to the limitations and qualifications described in the section entitled “Description of the Merger—Material U.S. Federal Income Tax Consequences of the Merger,” if you are a United States holder of Northwest common stock, generally you will not recognize any gain or loss with respect to the exchange of shares of Northwest common stock for shares of First Interstate Class A common stock in the merger. However, Northwest shareholders generally will recognize gain or loss with respect to cash received instead of fractional shares of First Interstate Class A common stock that the Northwest shareholders would otherwise be entitled to receive.

 

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You should read “Description of the Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 56 of this document for more information about the United States federal income tax consequences of the merger. Tax matters can be complicated and the tax consequences of the merger will depend on your particular tax situation. You should consult your tax advisor to determine the tax consequences of the merger to you.

 

Q: IF I AM A NORTHWEST SHAREHOLDER, SHOULD I SEND IN MY NORTHWEST STOCK CERTIFICATES NOW?

 

A: No. Please do not send in your Northwest stock certificates with your proxy. Promptly following the completion of the merger, an exchange agent will send you instructions for exchanging Northwest stock certificates for the merger consideration. See “Description of the Merger—Surrender of Stock Certificates” beginning on page 55.

 

Q: WHAT SHOULD I DO IF I HOLD MY SHARES OF NORTHWEST COMMON STOCK IN BOOK-ENTRY FORM?

 

A: You are not required to take any additional actions if your shares of Northwest common stock are held in book-entry form. Promptly following the completion of the merger, shares of Northwest common stock held in book-entry form automatically will be exchanged for shares of First Interstate Class A common stock in book-entry form and cash to be paid in exchange for fractional shares, if any.

 

Q: WHOM MAY I CONTACT IF I CANNOT LOCATE MY NORTHWEST STOCK CERTIFICATE(S)?

 

A: If you are unable to locate your original Northwest stock certificate(s), you should contact Computershare Trust Company, N.A., Northwest’s transfer agent, at (800) 368-5948.

 

Q: WHO CAN ANSWER MY OTHER QUESTIONS?

 

A: If you have more questions about the merger, the shareholder meeting or how to submit your proxy, or if you need additional copies of this document or a proxy card you should contact:

Laurel Hill Advisory Group

2 Robbins Lane, Suite 201

Jericho, New York 11753

Banks and Brokers: call (516) 933-3100

All Others: call toll free (888) 742-1305

 

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SUMMARY

This summary highlights selected information in this document and may not contain all of the information important to you. To understand the merger more fully, you should read this entire document carefully, including the annexes and the documents attached to or incorporated by reference into this document.

The Companies

First Interstate BancSystem, Inc.

401 North 31st Street

Billings, Montana 59101

(406) 255-5304

First Interstate, a Montana corporation, is a bank holding company headquartered in Billings, Montana. It is the parent company of First Interstate Bank, a Montana-chartered bank. First Interstate Bank is a community bank operating over 120 banking offices, including online and mobile banking services, throughout Idaho, Montana, Oregon, South Dakota, Washington, and Wyoming. First Interstate Class A common stock is listed on The Nasdaq Global Select Market under the symbol “FIBK.” At March 31, 2018, First Interstate had total assets of $12.27 billion, total deposits of $10.0 billion and shareholders’ equity of $1.43 billion.

Northwest Bancorporation, Inc.

421 West Riverside Avenue, Suite 113

Spokane, Washington 99201

(509) 456-8888

Northwest, a Washington corporation, is a bank holding company headquartered in Spokane, Washington. It is the parent company of Inland Northwest Bank, a Washington-chartered community bank that currently operates 20 offices across Washington, Idaho, and Oregon. Northwest’s stock is quoted on the OTC Market’s Pink Marketplace under the symbol “NBCT.” At March 31, 2018, Northwest had total assets of $826.8 million, total deposits of $721.0 million and shareholders’ equity of $81.7 million.

Background of the Merger (page 30)

Increased legislative and regulatory scrutiny of the financial services industry in recent years, as well as the ongoing consolidation in the financial services industry, have affected financial institutions generally and Northwest, in particular. As part of its ongoing consideration and evaluation of Northwest’s long-term prospects and strategies, Northwest’s board of directors and management have been carefully considering all options to grow Northwest in an effort to remain competitive.

After considering Northwest’s options and a number of factors including the competitive and economic environment, the board of directors determined that an acquisition by First Interstate was Northwest’s best option to realize reasonable value for Northwest’s shareholders in the current challenging banking market.

For more information about the background of the merger we recommend you read the section of this document entitled “Description of the Merger—Background of the Merger.”

Northwest’s Reasons for the Merger and Recommendation of the Board of Directors (page 33)

In evaluating whether to adopt the merger agreement, the Northwest board of directors determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are fair to, and in the best interests of, Northwest’s shareholders. In making this determination, Northwest’s directors consulted with Northwest’s management and its financial and legal advisors, and considered a number of factors.



 

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These factors are discussed under the heading “Description of the Merger—Northwests Reasons for the Merger and Recommendation of the Board of Directors.” After reviewing such factors, the Northwest board of directors unanimously determined that the merger and the transactions contemplated thereby are fair to, and in the best interests of, Northwest’s shareholders and unanimously recommended and continues to recommend that Northwest’s shareholders vote “FOR” the merger agreement at the Northwest special meeting.

In addition, the Northwest board of directors unanimously recommends that Northwest shareholders vote “FOR” the Northwest adjournment proposal.

Special Meeting of Northwest Shareholders; Required Vote (page 25)

The Northwest special meeting is scheduled to be held at the Airway Heights Branch of Inland Northwest Bank located at 11917 West Sunset Highway, Airway Heights, Washington, at 5:00 p.m., local time, on August 14, 2018. At the Northwest special meeting, Northwest shareholders will be asked to vote on a proposal to approve the merger agreement by and between Northwest and First Interstate. Northwest shareholders may also be asked to approve the Northwest adjournment proposal if there are not sufficient votes at the Northwest special meeting to approve the merger agreement.

Only Northwest shareholders of record as of the close of business on June 27, 2018 are entitled to notice of, and to vote at, the Northwest special meeting and any adjournments or postponements of the meeting.

Approval of the merger agreement requires the affirmative vote of the holders of two-thirds of the outstanding shares of Northwest common stock entitled to vote. Approval of the Northwest adjournment proposal requires the affirmative vote of a majority of the votes cast by the Northwest shareholders at the Northwest special meeting. As of June 27, 2018, the record date for the Northwest special meeting, there were 7,267,205 shares of Northwest common stock outstanding and entitled to vote. The directors and executive officers of Northwest, as a group, beneficially owned 1,959,387 shares of Northwest common stock, not including shares that may be acquired upon the exercise of stock purchase warrants, representing approximately 27.0% of the outstanding shares of Northwest common stock as of the record date.

Each of the directors and certain executive officers of Northwest, solely in their individual capacity as a Northwest shareholder, have entered into a separate voting agreement with First Interstate, pursuant to which each such Northwest director or executive officer has agreed to vote in favor of the merger agreement.

The Merger and the Merger Agreement (page 30)

The merger of Northwest with and into First Interstate is governed by the merger agreement. The merger agreement provides that if all of the conditions are satisfied or waived, Northwest will be merged with and into First Interstate, with First Interstate as the surviving entity. We encourage you to read the merger agreement, which is included as Annex A to this document.

What Northwest Shareholders Will Receive in the Merger (page 30)

If the merger is completed, Northwest shareholders will receive 0.516 shares (such number being referred to as the “exchange ratio”) of First Interstate Class A common stock for each share of Northwest common stock held immediately before the merger. First Interstate will not issue any fractional shares of First Interstate Class A common stock in the merger. First Interstate will pay to each former Northwest shareholder who holds fractional shares an amount in cash determined by multiplying the average of the closing sale prices of First Interstate Class A common stock for the 20 consecutive trading days ending on and including the fifth day preceding the closing date of the merger by the fraction of a share (rounded to the nearest cent) of First Interstate Class A common stock that such shareholder would otherwise be entitled to receive.



 

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Based on First Interstate’s closing price of $40.10 on April 25, 2018, which was the last trading date preceding the public announcement of the proposed merger, each share of Northwest common stock exchanged for 0.516 shares of First Interstate Class A common stock would have a value of $20.69. Based on the deemed value per share to Northwest shareholders and assuming an aggregate of 7,518,686 shares of Northwest common stock outstanding and 200,000 warrants outstanding with a weighted average exercise price of $7.25 per shares, the aggregate merger consideration to holders of Northwest common stock and warrants was approximately $158.2 million on April 25, 2018. Based on First Interstate’s closing price of $42.40 on June 27, 2018, which is the most recent practicable trading day before the printing of this document, each share of Northwest common stock exchanged for 0.516 shares of First Interstate Class A common stock would have a value of $21.88. The common stock of First Interstate trades on the Nasdaq Global Select Market under the symbol “FIBK.” The common stock of Northwest is quoted on the OTC Market’s Pink Marketplace under the symbol “NBCT.” The market price of both First Interstate Class A common stock and Northwest common stock will fluctuate before the completion of the merger; therefore, you are urged to obtain current market quotations for First Interstate Class A common stock and Northwest common stock.

Market Price and Share Information (page 90)

The following table shows the closing price per share of First Interstate Class A common stock, the closing price per share of Northwest common stock and the equivalent price per share of Northwest common stock, giving effect to the merger, on April 25, 2018, which is the last day on which shares of each of First Interstate Class A common stock and Northwest common stock traded preceding the public announcement of the proposed merger, and on June 27, 2018, the most recent practicable date before the mailing of this document. The implied value of one share of Northwest common stock is computed by multiplying the price of a share of First Interstate Class A common stock by the 0.516 exchange ratio. See “Description of the Merger—Consideration to be Received in the Merger.”

 

     First Interstate
Common Stock
     Northwest
Common Stock
     Implied Value of One
Share of
Northwest
Common Stock
 

April 25, 2018

   $ 40.10      $ 14.00      $ 20.69  

June 27, 2018

   $ 42.40      $ 21.30      $ 21.88  

Treatment of Northwest Equity Awards (page 55)

At the effective time of the merger, each warrant to purchase shares of Northwest common stock outstanding immediately before the effective time of the merger, whether or not vested, will be canceled and, upon First Interstate’s receipt of a warrant termination agreement from the holder, exchanged for a cash payment equal to the product of (1) the number of shares of Northwest common stock subject to the warrant multiplied by (2) the amount by which the product of the average closing price and the exchange ratio exceeds the exercise price of such option, less applicable withholding taxes.

At the effective time of the merger, each outstanding share of restricted stock will vest and be converted into the right to receive 0.516 shares of First Interstate Class A common stock.

D.A. Davidson’s Opinion to Northwest Bancorporation, Inc.’s Board of Directors (page 35)

On April 25, 2018, the Northwest board of directors received an opinion from its financial advisor, D.A. Davidson & Co. (which we refer to as “D.A. Davidson”), to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by D.A. Davidson as set forth in its opinion, the exchange ratio in the proposed merger was fair, from



 

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a financial point of view, to the holders of Northwest common stock. Subsequent changes in the operations and prospects of Northwest or First Interstate, general market and economic conditions and other factors that may be beyond the control of Northwest or First Interstate may significantly alter the value of Northwest or First Interstate or the prices of Northwest common stock or First Interstate Class A common stock by the time the merger is completed. Because Northwest does not anticipate asking D.A. Davidson to update its opinion, the opinion will not address the fairness of the exchange ratio from a financial point of view at the time the merger is completed or as of any other date other than the date of such opinion.

The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached as Annex C to this document and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by D.A. Davidson in preparing the opinion.

D.A. Davidson’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the Northwest board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion addressed only the fairness, from a financial point of view, as of the date of the opinion, of the exchange ratio in the merger to the holders of Northwest common stock. It did not address, among other things as set forth in D.A. Davidson’s opinion, the underlying business decision of the Northwest board of directors to engage in the merger or enter into the merger agreement or constitute a recommendation to the Northwest board of directors in connection with the merger, and it does not constitute a recommendation to any holder of Northwest common stock as to how to vote in connection with the merger or any other matter.

For a description of the opinion that the Northwest board of directors received from D.A. Davidson, please refer to the section entitled “Description of the MergerD.A. Davidson’s Opinion to Northwest’s Board of Directors.”

Interests of Certain Persons in the Merger that are Different from Yours (page 59)

In considering the information contained in this document, you should be aware that Northwest’s executive officers have employment and other compensation agreements or plans that give them financial interests in the merger that are different from, or in addition to, the interests of Northwest shareholders generally. The Northwest board of directors was aware of these interests at the time it approved the merger agreement. These interests include, among other things:

 

    employment agreements between Inland Northwest Bank and each of Russell A. Lee, President and Chief Executive Officer of Northwest, Holly A. Poquette, Executive Vice President and Chief Financial Officer of Northwest, Chad R. Burchard, Executive Vice President and Chief Banking Officer of Northwest and two other officers of Northwest that provide for cash severance payments if the executive’s employment is voluntarily terminated or involuntarily terminated without cause within two years following a change in control and during the term of the employment agreement;

 

    change in control agreements between Inland Northwest Bank and three officers that each provide for cash severance payments if the officer’s employment is voluntarily terminated for good reason or involuntarily terminated without cause within one year following a change in control and during the term of the change in control agreement;

 

    the acceleration of vesting of all outstanding Northwest restricted stock awards, which will be exchanged for the merger consideration;

 

    settlement agreements that First Interstate, First Interstate Bank, Northwest and Inland Northwest Bank entered into with each of Mr. Lee and Ms. Poquette, concurrent with the execution of the merger agreement, in full satisfaction of their rights under their employment agreements;


 

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    a non-competition agreement and a consulting and release agreement that First Interstate Bank entered into with Russell A. Lee concurrent with the execution of the merger agreement;

 

    the continued employment of Russell A. Lee, President and Chief Executive Officer of Northwest, as First Interstate Bank’s Executive Vice President of Special Projects;

 

    the continued employment of Holly A. Poquette, Executive Vice President and Chief Financial Officer, for up to six months to facilitate the integration of Inland Northwest Bank with First Interstate Bank; and

 

    the rights of Northwest officers and directors under the merger agreement to continued indemnification coverage and continued coverage under directors’ and officers’ liability insurance policies.

Northwest Shareholders Dissenters’ Rights (page 74)

Under Washington law, Northwest shareholders have the right to dissent from the merger and receive cash for the fair value of their shares of Northwest common stock. A shareholder electing to dissent must strictly comply with all the procedures required by Washington law. These procedures are described later in this document, and a copy of the relevant statutory provisions is attached as Annex B. For more information on dissenters’ rights, see “Description of the MergerDissenters’ Rights of Appraisal.

Regulatory Matters Relating to the Merger (page 58)

Under the terms of the merger agreement, the bank merger cannot be completed unless it is first approved by the Board of Governors of the Federal Reserve System, which we refer to in this document as the “Federal Reserve Board,” the Montana Division of Banking and Financial Institutions, which we refer to in this document as the “Montana Division,” and the Washington State Department of Financial Institutions, which we refer to in this document as the “Washington Department.” First Interstate has filed the required applications. While First Interstate does not know of any reason why it would not obtain the approvals in a timely manner, First Interstate cannot be certain when or if it will receive the regulatory approvals.

Conditions to Completing the Merger (page 63)

The completion of the merger is subject to the fulfillment of a number of customary closing conditions, including:

 

    approval of the merger agreement by Northwest shareholders;

 

    receipt of all required regulatory approvals, consents or waivers and the expiration of all statutory waiting periods;

 

    the absence of any order, decree, injunction, statute, rule or regulation that prevents the consummation of the merger or the bank merger or that makes completion of the merger or the bank merger illegal;

 

    receipt of consent of all third parties whose consent is required to consummate the merger, except where failure to obtain such consent would not have a material adverse effect on First Interstate;

 

    effectiveness of the registration statement of which this document is a part;

 

    authorization for listing on the Nasdaq Stock Market of the shares of First Interstate Class A common stock to be issued in the merger;

 

    receipt by each of First Interstate and Northwest of an opinion from their respective legal counsel to the effect that the merger will be treated for federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code;


 

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    subject to the materiality standards provided in the merger agreement, the continued accuracy of the representations and warranties of First Interstate and Northwest in the merger agreement;

 

    performance in all material respects by each of First Interstate and Northwest of its respective obligations under the merger agreement, unless waived by the other party;

 

    the absence of any material adverse effect with respect to First Interstate or Northwest since the date of the merger agreement;

 

    none of the regulatory approvals containing any materially burdensome conditions; and

 

    not more than 10% of the outstanding shares of Northwest common stock have exercised dissenters’ rights.

Terminating the Merger Agreement (page 72)

The merger agreement may be terminated by mutual written consent of First Interstate and Northwest at any time before the completion of the merger. Additionally, subject to conditions and circumstances described in the merger agreement, either First Interstate or Northwest may terminate the merger agreement if, among other things, any of the following occur:

 

    Northwest shareholders do not approve the merger agreement at the Northwest special meeting (in the case of Northwest terminating, only if Northwest has complied with certain obligations, including calling the Northwest special meeting and recommending that the Northwest shareholders approve the merger);

 

    any required regulatory approval has been denied and such denial has become final and non-appealable, or a governmental authority or court has issued a final, unappealable order prohibiting consummation of the transactions contemplated by the merger agreement;

 

    the merger has not been consummated by January 31, 2019, unless the failure to complete the merger by that time was due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements provided in the merger agreement; or

 

    there is a breach by the other party of any covenant or agreement contained in the merger agreement, or any representation or warranty of the other party becomes untrue, in each case such that the conditions to closing would not be satisfied and such breach or untrue representation or warranty has not been or cannot be cured within 30 days after the giving of written notice to such party of such breach.

First Interstate may also terminate the merger agreement if Northwest breaches its obligations in any material respect regarding the solicitation of other acquisition proposals or submission of the merger agreement to Northwest’s shareholders or if the Northwest board of directors does not publicly recommend in this document that Northwest shareholders approve the merger agreement or withdraws or revises its recommendation in a manner adverse to First Interstate.

Northwest may also terminate the merger agreement:

 

    before adoption and approval of the merger agreement by its shareholders, to enter into an agreement with respect to a superior proposal to be acquired by a third party, but only if Northwest’s board of directors has determined in good faith based on the advice of legal counsel that failure to take such action would cause the Northwest board of directors to violate its fiduciary duties and Northwest has not breached its obligations regarding the solicitation of other acquisition proposals; and


 

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    within the five-day period commencing with the fifth day before the closing date of the merger (which we refer to as the “determination date”), if both of the following conditions have been satisfied:

 

    the average daily closing sale prices of a share of First Interstate Class A common stock as reported on the Nasdaq Global Select Market for the 20 consecutive trading days ending on and including the determination date is less than $32.00 (80% of the closing sale price of First Interstate Class A common stock on the last trading date before the date of the first public announcement of the merger agreement); and

 

    First Interstate Class A common stock underperforms the KBW Regional Banking Index by more than 20% during the same period.

However, if Northwest chooses to exercise this termination right, First Interstate has the option, within five days of receipt of notice from Northwest, to adjust the merger consideration and prevent termination under this provision.

Termination Fee (page 73)

Under certain circumstances described in the merger agreement in connection with the termination of the merger agreement, including circumstances involving alternative acquisition proposals with respect to Northwest and changes in the recommendation of the Northwest board of directors to its shareholders, Northwest will owe First Interstate a $5.1 million termination fee. See “Description of the Merger—Termination Fee” for a description of the circumstances under which the termination fee is payable. The termination fee could discourage other companies from seeking to acquire Northwest.

Accounting Treatment of the Merger (page 56)

The merger will be accounted for using the acquisition method in accordance with U.S. generally accepted accounting principles.

Comparison of Rights of Shareholders (page 81)

When the merger is completed, Northwest shareholders will receive shares of First Interstate Class A common stock and become First Interstate shareholders with their rights governed by Montana law and by First Interstate’s amended and restated articles of incorporation and bylaws. The rights of Northwest shareholders will change as a result of the merger due to differences in First Interstate’s and Northwest’s governing documents. See “Comparison of Rights of Shareholders” for a summary of the material differences between the respective rights of Northwest shareholders and First Interstate shareholders.

Material U.S. Federal Income Tax Consequences of the Merger (page 56)

The merger is intended to qualify for U.S federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. Accordingly, U.S. holders of Northwest common stock generally will not recognize any gain or loss on the exchange of shares of Northwest common stock for shares of First Interstate Class A common stock. However, a U.S. holder of Northwest common stock generally will recognize gain or loss with respect to cash received instead of a fractional share of First Interstate Class A common stock that a U.S. holder would otherwise be entitled to receive.

This tax treatment may not apply to all Northwest shareholders. Determining the actual tax consequences of the merger to you can be complicated and will depend on your particular circumstances. Northwest shareholders should consult their own tax advisor for a full understanding of the merger’s tax consequences that are particular to each shareholder.



 

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To review the tax consequences of the merger to Northwest shareholders in greater detail, please see the section “Description of the Merger—Material U.S. Federal Income Tax Consequences of the Merger.”

Risk Factors (page 14)

You should consider all the information contained in or incorporated by reference into this document in deciding how to vote for the proposals presented in the document. In particular, you should consider the factors described under “Risk Factors.”



 

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RISK FACTORS

In deciding how to vote, you should consider carefully all of the information included in this document and its annexes, all of the information incorporated by reference into the document and the risk factors identified by First Interstate with respect to First Interstate’s operations included in its filings with the SEC, including First Interstate’s Annual Report on Form 10-K for the year ended December 31, 2017. See “Where You Can Find More Information.” In addition, you should consider the following risk factors.

Risks Related to the Merger

Because the price of First Interstate Class A common stock will fluctuate, Northwest shareholders cannot be certain of the market value of the merger consideration.

Upon the completion of the merger, each share of Northwest common stock outstanding immediately before the completion of the merger will be converted into the right to receive 0.516 shares of First Interstate Class A common stock. The market value of the merger consideration may vary from the closing price of First Interstate Class A common stock on the date the execution of the merger agreement was announced, on the date that this document was mailed to Northwest shareholders, on the date of the Northwest special meeting and on the date the merger is completed. The market price of First Interstate Class A common stock may fluctuate as a result of a variety of factors, including general market and economic conditions, changes in First Interstate’s business, operations and prospects, and regulatory considerations. Therefore, at the time of the Northwest special meeting, Northwest shareholders will not know or be able to calculate the market value of the First Interstate Class A common stock they will receive upon completion of the merger. For example, based on the range of closing prices of First Interstate Class A common stock during the period from April 25, 2018, the last trading day before public announcement of the merger, through June 27, 2018, the last practicable date before the date of this document, the merger consideration represented a market value ranging from a low of $20.90 to a high of $23.09 for each share of Northwest common stock. You should obtain current market quotations for shares of First Interstate Class A common stock and Northwest common stock. See “Market Price and Dividend Information” on page 90 for ranges of historic market prices of First Interstate Class A common stock and Northwest common stock.

The price of First Interstate Class A common stock might decrease after the merger.

Upon completion of the merger, holders of Northwest common stock will become shareholders of First Interstate. First Interstate Class A common stock could decline in value after the merger. For example, during the twelve-month period ending on June 27, 2018 (the most recent practicable date before the printing of this document), the closing price of First Interstate Class A common stock varied from a low of $33.65 to a high of $44.75 and ended that period at $42.40. The market value of First Interstate Class A common stock fluctuates based upon general market conditions, First Interstate’s business, operations and prospects and other factors. Further, the market price of First Interstate Class A common stock after the merger may be affected by factors different from those currently affecting the common stock of First Interstate or Northwest. The businesses of Northwest and First Interstate differ and, accordingly, the results of operations of the combined company and the market price of the combined company’s shares of common stock may be affected by factors different from those currently affecting the independent results of operations and market prices of common stock of each of Northwest and First Interstate. For a discussion of the business of First Interstate and of certain factors to consider in connection with its business, see the documents incorporated by reference in this document and referred to under “Where You Can Find More Information beginning on page 93.

Northwest and First Interstate will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effects of the merger on employees and customers may have an adverse effect on Northwest or First Interstate. These uncertainties may impair Northwest’s or First Interstate’s ability to attract,

 

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retain and motivate key personnel until the merger is completed, and could cause customers and others that interact with Northwest or First Interstate to seek to change existing business relationships with Northwest or First Interstate. Retention of certain employees by Northwest or First Interstate may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with the combined company. If key employees depart because of issues relating to the uncertainty and difficulty of integration, or a desire not to remain with Northwest or First Interstate, Northwest’s business or First Interstate’s business could be harmed. In addition, subject to certain exceptions, Northwest has agreed to operate its business in the ordinary course before closing, which may prevent it from pursuing certain growth opportunities. See “Description of the Merger—Conduct of Business Before the Merger for a description of the restrictive covenants applicable to Northwest and First Interstate.

Failure to complete the merger could negatively impact the stock prices and future businesses and financial results of First Interstate and Northwest.

There can be no assurance that the merger will be completed. If the merger is not completed, the ongoing businesses of First Interstate and Northwest may be adversely affected and First Interstate and Northwest will be subject to a number of risks, including the following:

 

    First Interstate and Northwest will be required to pay certain costs relating to the merger, whether or not the merger is completed, such as legal, accounting, financial advisor, proxy solicitation and printing fees;

 

    under the merger agreement, First Interstate and Northwest are subject to certain restrictions on the conduct of their respective businesses before completing the merger, which may adversely affect their ability to execute certain of its business strategies if the merger is terminated; and

 

    matters relating to the merger may require substantial commitments of time and resources by First Interstate and Northwest management, which could otherwise have been devoted to other opportunities that may have been beneficial to First Interstate and Northwest as independent companies.

In addition, if the merger is not completed, First Interstate and/or Northwest may experience negative reactions from the financial markets and from their respective customers and employees. First Interstate and/or Northwest also could be subject to litigation related to any failure to complete the merger or to proceedings commenced by First Interstate or Northwest against the other seeking damages or to compel the other to perform its obligations under the merger agreement. These factors and similar risks could have an adverse effect on the results of operation, business and stock prices of First Interstate and Northwest.

First Interstate may be unable to successfully integrate Northwest’s operations or retain Northwest’s employees, which could adversely affect the combined company.

The merger involves the integration of two companies that have previously operated independently. The difficulties of combining the operations of the two companies include, among other things: integrating personnel with diverse business backgrounds; combining different corporate cultures; and retaining key employees.

The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the business and the loss of key personnel. The integration of the two companies will substantially benefit from the experience and expertise of certain key employees of Northwest who are expected to be retained by First Interstate. First Interstate may not be successful in retaining these employees for the time period necessary to successfully integrate Northwest’s operations with those of First Interstate. The diversion of management’s attention and any delays or difficulties encountered in connection with the merger and the integration of the two companies’ operations could have an adverse effect on the business and results of operations of First Interstate following the merger.

Additionally, First Interstate may not be able to successfully achieve the level of cost savings, revenue enhancements and other synergies that it expects, and may not be able to capitalize upon the existing customer

 

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relationships of Northwest to the extent anticipated, or it may take longer, or be more difficult or expensive than expected, to achieve these goals. These matters could have an adverse effect on First Interstate’s business, results of operation and stock price.

The termination fee and the restrictions on solicitation contained in the merger agreement may discourage other companies from trying to acquire Northwest.

Until the completion of the merger, with some exceptions, Northwest is prohibited from soliciting, initiating, encouraging or participating in any discussion of or otherwise considering any inquiry or proposal that may lead to an acquisition proposal, such as a merger or other business combination transactions, with any person other than First Interstate. In addition, Northwest has agreed to pay a $5.1 million termination fee to First Interstate in specified circumstances. These provisions could discourage other companies that may have an interest in acquiring Northwest from considering or proposing such an acquisition even though those other companies might be willing to offer greater value to Northwest’s shareholders than First Interstate has offered in the merger. The payment of the termination fee would also have a material adverse effect on Northwest’s financial condition and results of operations.

Certain of Northwest’s directors and officers have interests that are different from, or in addition to, interests of Northwest shareholders generally.

Certain directors and officers of Northwest have interests in the merger that are different from, or in addition to, the interests of Northwest shareholders generally. These include: (1) employment and change in control agreements for certain directors and officers of Northwest and Inland Northwest Bank that provide for cash severance payments upon a termination without cause or a termination generally with good reason following the completion of the merger; (2) the acceleration of vesting of all outstanding restricted stock awards; (3) settlement agreements entered into with each of Russell A. Lee, President and Chief Executive Officer of Northwest, and Holly A. Poquette, Executive Vice President and Chief Financial Officer of Northwest, concurrent with the execution of the merger agreement; (4) a non-competition agreement and a consulting and release agreement entered into with Mr. Lee concurrent with the execution of the merger agreement; (5) continued employment of Mr. Lee as First Interstate Bank’s Executive Vice President of Special Projects; (6) continued employment of Ms. Poquette for up to six months to facilitate the integration of Inland Northwest Bank with First Interstate Bank; and (7) provisions in the merger agreement relating to indemnification of directors and officers and insurance for directors and officers of Northwest for events occurring before the merger. For a more detailed discussion of these interests, see “Description of the Merger—Interests of Certain Persons in the Merger that are Different from Yours beginning on page 59.

Northwest shareholders will have a reduced ownership and voting interest after the merger and will exercise less influence over management of the combined organization.

First Interstate shareholders and Northwest shareholders each currently have the right to vote in the election of their respective board of directors and on various other matters affecting their respective company. Upon the completion of the merger, Northwest’s shareholders will become shareholders of First Interstate with a percentage ownership of the combined organization that is substantially smaller than such shareholders’ percentage ownership of Northwest.

The reduced voting power of Northwest shareholders is further effected by the two classes of common stock that First Interstate maintains. First Interstate Class B common stock is entitled to five votes per share, while shares of First Interstate Class A common stock, which is what will be issued to Northwest shareholders, are entitled to one vote per share. As of June 27, 2018, members of the Scott family held 362,124 shares of First Interstate Class A common stock and 21,721,123 shares of First Interstate Class B common stock and, therefore, controlled in excess of 72.9% of the voting power of First Interstate’s outstanding common stock. As a result, the Scott family will be able to exert a significant degree of influence or actual control over First Interstate’s

 

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management and affairs and over matters requiring shareholder approval, including the election of directors, a merger, consolidation or sale of all or substantially all of First Interstate’s assets and any other significant transaction. This concentrated control will limit Northwest shareholders’ future ability to influence corporate matters, and the interests of the Scott family may not always coincide with First Interstate’s interests or your interests.

The fairness opinion to the board of directors Northwest rendered on the date of the signing of the merger agreement does not reflect any changes in circumstances after the date of such fairness opinions.

D.A. Davidson delivered to the board of directors of Northwest its opinion on April 25, 2018. The opinion does not reflect changes that may occur or may have occurred after the date of such opinion, including changes to the operations and prospects of First Interstate or Northwest, changes in general market and economic conditions or regulatory or other factors that may materially alter or affect the value of First Interstate Class A common stock or Northwest common stock. The opinion speaks only as of the date on which it was rendered and not as of the date of this document or any other date.

There is no assurance when or even if the merger will be completed.

Completion of the merger is subject to satisfaction or waiver of a number of conditions. See “Description of the Merger—Conditions to Completing the Merger beginning on page 63. There can be no assurance that First Interstate and Northwest will be able to satisfy the closing conditions or that closing conditions beyond their control will be satisfied or waived.

First Interstate and Northwest can agree at any time to terminate the merger agreement, even if Northwest shareholders have already voted to approve the merger agreement. First Interstate and Northwest can also terminate the merger agreement under other specified circumstances.

Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.

Before the merger and the bank merger may be completed, First Interstate and Northwest must obtain approvals from the Federal Reserve Board, the Montana Division and the Washington Department. Other approvals, waivers or consents from regulators may also be required. In determining whether to grant these approvals the regulators consider a variety of factors, including the regulatory standing of each party. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain approval or delay their receipt. These regulators may impose conditions on the completion of the merger or the bank merger or require changes to the terms of the merger or the bank merger. Such conditions or changes could have the effect of delaying or preventing completion of the merger or the bank merger or imposing additional costs on or limiting the revenues of the combined company following the merger and the bank merger, any of which might have an adverse effect on the combined company following the merger.

The shares of First Interstate Class A common stock to be received by Northwest shareholders as a result of the merger will have different rights from the shares of Northwest common stock.

Upon completion of the merger, Northwest shareholders will become First Interstate shareholders. Their rights as shareholders Class A common stock will be governed by Montana corporate law and the amended and restated articles of incorporation and bylaws of First Interstate. The rights associated with Northwest common stock are governed by Washington law and the articles of incorporation and bylaws of Northwest and are different from the rights associated with First Interstate Class A common stock. See the section of this document entitled “Comparison of Rights of Shareholders” beginning on page 81 for a discussion of the different rights associated with First Interstate Class A common stock.

 

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Goodwill incurred in the merger may negatively affect First Interstate’s financial condition.

To the extent that the merger consideration, consisting of shares of First Interstate Class A common stock to be issued in the merger, exceeds the fair value of the net assets, including identifiable intangibles of Northwest, that amount will be reported as goodwill by First Interstate. In accordance with current accounting guidance, goodwill will not be amortized but will be evaluated for impairment annually. A failure to realize expected benefits of the merger could adversely impact the carrying value of the goodwill recognized in the merger, and in turn negatively affect First Interstate’s financial condition.

Risks Relating to First Interstate’s Business

You should read and consider risk factors specific to First Interstate’s business that will also affect the combined company after the merger. These risks are described in the sections entitled “Risk Factors” in First Interstate’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and in other documents incorporated by reference into this document. Please see the section entitled “Where You Can Find More Information beginning on page 93 of this document for the location of information incorporated by reference into this document.

 

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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

Some of the statements contained or incorporated by reference in this document are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 giving First Interstate’s or Northwest’s expectations or predictions of future financial or business performance or conditions. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “projections,” “prospects” or “potential,” by future conditional verbs such as “will,” “would,” “should,” “could” or “may,” or by variations of such words or by similar expressions. Such forward-looking statements include, but are not limited to, statements about the benefits of the merger or the bank merger, including future financial and operating results of First Interstate, Northwest or the combined company following the merger, the combined company’s plans, objectives, expectations and intentions, cost savings and/or revenue enhancements to be achieved in the merger, the expected timing of the completion of the merger, financing plans and the availability of capital, the likelihood of success and impact of litigation and other statements that are not historical facts. These statements are only predictions based on First Interstate’s and Northwest’s current expectations and projections about future events. There are important factors that could cause First Interstate’s and Northwest’s actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, you should consider the numerous risks and uncertainties described in the section entitled “Risk Factors beginning on page 14.

These forward-looking statements are subject to numerous assumptions, risks, and uncertainties that change over time. In addition to factors previously disclosed in First Interstate’s reports filed with the SEC, the following factors, among others, could cause actual results to differ materially from forward-looking statements:

 

    the inability to close the merger and the bank merger in a timely manner;

 

    the failure of Northwest shareholders to approve the merger agreement;

 

    failure to obtain applicable regulatory approvals and meet other closing conditions to the merger on the expected terms and schedule;

 

    the potential impact of announcement or consummation of the proposed merger with Northwest on relationships with third parties, including customers, employees, and competitors;

 

    business disruption following the merger;

 

    difficulties and delays in integrating the First Interstate and Northwest businesses or fully realizing cost savings and other benefits;

 

    First Interstate’s potential exposure to unknown or contingent liabilities of Northwest;

 

    the challenges of integrating, retaining, and hiring key personnel;

 

    failure to attract new customers and retain existing customers in the manner anticipated;

 

    the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger;

 

    any interruption or breach of security resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems;

 

    changes in First Interstate’s stock price before closing;

 

    operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which First Interstate and Northwest are highly dependent;

 

   

changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, including, but not limited to, the Dodd-Frank Wall Street Reform

 

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and Consumer Protection Act, which we refer to as the “Dodd-Frank Act,” and other changes pertaining to banking, securities, taxation, rent regulation and housing, financial accounting and reporting, environmental protection, and insurance, and the ability to comply with such changes in a timely manner;

 

    changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Federal Reserve Board;

 

    changes in interest rates, which may affect First Interstate’s or Northwest’s net income, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of First Interstate’s or Northwest’s assets, including its investment securities;

 

    changes to the federal tax code;

 

    the imposition of tariffs or other domestic or international governmental policies impacting the value of the agricultural or other products of the borrowers of First Interstate or Northwest;

 

    changes in accounting principles, policies, practices, or guidelines;

 

    changes in First Interstate’s credit ratings or in First Interstate’s ability to access the capital markets;

 

    natural disasters, war, or terrorist activities; and

 

    other economic, competitive, governmental, regulatory, technological, and geopolitical factors affecting First Interstate’s or Northwest’s operations, pricing, and services.

Additionally, the timing and occurrence or non-occurrence of events may be subject to circumstances beyond First Interstate’s or Northwest’s control.

Annualized, projected and estimated numbers are used for illustrative purposes only, are not forecasts and may not reflect actual results.

For any forward-looking statements made in this document or in any documents incorporated by reference into this document, First Interstate and Northwest claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this document or the date of the applicable document incorporated by reference in this document. Except to the extent required by applicable law, neither First Interstate nor Northwest undertake to update forward-looking statements to reflect facts, circumstances, assumptions, or events that occur after the date the forward-looking statements are made. All written and oral forward-looking statements concerning the merger or other matters addressed in this document and attributable to First Interstate, Northwest, or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this document.

 

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SELECTED HISTORICAL FINANCIAL AND OTHER DATA

The following tables present selected historical financial information for First Interstate and for Northwest at and for the dates indicated. The following information is only a summary and not necessarily indicative of the results of future operations of First Interstate, Northwest or the combined company. This information has been derived in part from and should be read in conjunction with the audited consolidated financial statements of First Interstate, which are incorporated by reference into this document. The financial information for First Interstate at December 31, 2017 and 2016 and for the three years ended December 31, 2017 should be read in connection with the audited consolidated financial statements and related notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2017. The financial information for First Interstate for the three months ended March 31, 2018 and 2017 should be read in connection with the unaudited financial statements and notes thereto included in its Quarterly Report on Form 10-Q for the three months ended March 31, 2018. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the operating results for the year ending December 31, 2018 or for any other period. See “Where You Can Find More Information on page  93.

Selected Consolidated Historical Financial Data of First Interstate

 

     At or For the
Three Months
Ended March 31,
    At or For the Year Ended December 31,  
     2018     2017     2017     2016     2015     2014     2013  
     (Dollars in thousands, except per share amounts)  

FINANCIAL CONDITION DATA

      

Total assets

   $ 12,273,435     $ 9,061,234     $ 12,213,255     $ 9,063,895     $ 8,728,196     $ 8,609,936     $ 7,564,651  

Cash and cash equivalents

     744,225       807,952       758,986       782,023       780,457       798,670       534,827  

Investment securities

     2,742,932       2,148,559       2,693,206       2,124,468       2,057,505       2,287,110       2,151,543  

Net loans

     7,573,297       5,323,548       7,542,208       5,402,330       5,169,379       4,823,243       4,259,514  

Securities sold under repurchase agreements

     633,800       587,570       642,961       537,556       510,635       502,250       457,437  

Deposits

     10,025,855       7,300,179       9,934,871       7,376,110       7,088,937       7,006,212       6,133,750  

Long-term debt

     15,719       27,994       13,126       27,970       27,885       38,067       36,917  

Subordinated debentures

     82,477       82,477       82,477       82,477       82,477       82,477       82,477  

Total shareholders’ equity

     1,432,353       1,001,596       1,427,616       982,593       950,493       908,924       801,581  

OPERATING DATA

      

Net interest income

   $ 99,800     $ 68,893     $ 349,843     $ 279,765     $ 264,363     $ 248,461     $ 236,967  

Provision (credit) for loan losses

     2,050       1,730       11,053       9,991       6,822       (6,622     (6,125

Non-interest income

     35,156       29,107       141,753       136,496       121,515       111,835       113,024  

Non-interest expense

     85,865       63,693       323,821       261,011       248,599       236,435       220,724  

Income tax expense

     10,349       9,451       50,201       49,623       43,662       45,214       46,566  

Net income

     36,692       23,126       106,521       95,636       86,795       84,401       86,136  

COMMON SHARE DATA

      

Basic earnings per share

   $ 0.65     $ 0.52     $ 2.07     $ 2.15     $ 1.92     $ 1.89     $ 1.98  

Diluted earnings per share

     0.65       0.51       2.05       2.13       1.90       1.87       1.96  

Dividends per share

     0.28       0.24       0.96       0.88       0.80       0.64       0.41  

Book value per share (1)

     25.26       22.19       25.28       21.87       20.92       19.85       18.15  

Outstanding shares (basic)

     56,241,201       44,680,258       51,429,366       44,511,774       45,184,091       44,615,060       43,566,681  

Outstanding shares (diluted)

     56,652,178       45,238,908       51,903,209       44,910,396       45,646,418       45,210,561       44,044,602  

KEY OPERATING RATIOS

      

Return on average assets

     1.22     1.05     0.98     1.10     1.02     1.06     1.16

Return on average common equity

     10.34       9.48       8.57       9.93       9.37       9.86       11.05  

Interest rate spread

     3.64       3.40       3.54       3.50       3.39       3.41       3.44  

Net interest margin (2)

     3.75       3.49       3.64       3.57       3.46       3.49       3.54  

Average shareholders’ equity to average assets

     11.83       11.07       11.45       11.04       10.87       10.77       10.49  

Dividend payout ratio (3)

     43.08       46.15       46.38       40.93       41.65       33.83       20.71  

Efficiency ratio (4)

     62.32       64.35       64.77       61.88       63.55       65.24       63.43  

 

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     At or For the
Three Months
Ended March 31,
    At or For the Year Ended December 31,  
     2018     2017     2017     2016     2015     2014     2013  

Allowance for loan losses to total loans

     0.96     1.41     0.95     1.39    
1.46

    1.52     1.96

Non-performing loans to total loans (5)

     0.87       1.47       0.95       1.40       1.37       1.32       2.22  

Non-performing assets to total assets (6)

     0.63       0.98       0.68       0.96       0.90       0.91       1.48  

Allowance for loan losses to
non-performing loans

     110.03       96.33       99.40       99.52       106.71       114.58       88.28  

Net charge-offs to average loans

     0.04       0.13       0.23       0.20       0.08       0.10       0.21  

CAPITAL RATIOS

      

Total risk-based capital ratio

     12.93       14.94       12.76       15.13       15.36       16.15       16.75  

Tier 1 risk-based capital ratio

     12.09       13.75       11.93       13.89       13.99       14.52       14.93  

Leverage ratio

     9.07       10.09       8.86       10.11       10.12       9.61       10.08  

Common equity tier 1 risk-based

     11.17       12.50       11.04       12.65       12.69       13.08       13.31  

 

(1) Book value equals common shareholders’ equity per share.
(2) Net interest margin is presented on a fully taxable equivalent basis.
(3) Dividend payout ratio represents dividends per common share divided by basic earnings per common share.
(4) Efficiency ratio represents non-interest expense less amortization of intangible assets, divided by the aggregate of net interest income and non-interest income.
(5) Non-performing loans include non-accrual loans and loans past due 90 days or more and still accruing interest.
(6) Non-performing assets include non-accrual loans, loans past due 90 days or more and still accruing interest and other real estate owned.

Selected Consolidated Historical Financial Data of Northwest

 

    At or For the
Three Months
Ended March 31,
    At or For the Year Ended December 31,  
    2018     2017     2017     2016     2015     2014     2013  
    (Dollars in thousands, except per share amounts)  

FINANCIAL CONDITION DATA

     

Total assets

  $ 826,836     $ 641,655     $ 826,774     $ 636,528     $ 610,802     $ 421,807     $ 394,203  

Cash and cash equivalents

    79,824       87,515       55,941       80,082       60,981       19,717       18,736  

Investment securities

    39,297       22,796       41,458       25,328       34,242       40,287       51,706  

Net loans

    661,474       494,210       682,220       490,816       477,336       336,421       296,938  

Deposits

    721,038       552,064       722,622       548,421       525,885       358,680       320,624  

Total shareholders’ equity

    81,725       67,120       79,865       66,055       60,876       38,713       34,957  

OPERATING DATA

     

Net interest income

  $ 8,861     $ 6,044     $ 30,235     $ 24,948     $ 18,829     $ 15,504     $ 15,377  

Provision for loan losses

    211       203       1,136       363       220       267       1,500  

Non-interest income

    1,072       1,078       5,124       4,729       3,992       3,516       4,440  

Non-interest expense

    7,026       5,462       27,226       21,830       18,101       14,067       14,726  

Income tax expense

    548       487       2,868       2,413       1,440       1,426       318  

Net income

    2,148       970       4,129       5,071       3,060       3,260       3,273  

Net income applicable to common shares

    2,148       970       4,129       5,071       3,060       3,260       2,599  

COMMON SHARE DATA

     

Basic earnings per share

  $ 0.30     $ 0.15     $ 0.61     $ 0.79     $ 0.62     $ 0.79     $ 0.82  

Diluted earnings per share

    0.29       0.15       0.59       0.78       0.61       0.78       0.81  

Dividends per share

    0.00       0.00       0.00       0.00       0.00       0.00       0.00  

Book value per share (1)

    11.25       10.45       11.04       10.29       9.56       9.31       8.49  

Outstanding shares (basic)

    7,254,079       6,420,161       6,794,669       6,382,048       4,910,233       4,122,863       3,152,160  

Outstanding shares (diluted)

    7,446,454       6,594,681       6,982,182       6,511,253       4,999,185       4,199,018       3,208,917  

KEY OPERATING RATIOS

     

Return on average assets

    1.04     0.61     0.57     0.82     0.63     0.80     0.83

 

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    At or For the
Three Months
Ended March 31,
    At or For the Year Ended December 31,  
    2018     2017     2017     2016     2015     2014     2013  

Return on average common equity

    10.64     5.83     5.74     8.00     6.39     8.91     9.62

Interest rate spread

    4.41       3.95       4.39       4.23       4.04       3.89       4.09  

Net interest margin

    4.60       4.13       4.57       4.41       4.22       4.10       4.28  

Average shareholders’ equity to average assets

    9.79       10.49       9.97       10.27       9.90       8.95       9.60  

Dividend payout ratio

    0.00       0.00       0.00       0.00       0.00       0.00       0.00  

Efficiency ratio (2)

    70.7       76.7       77.0       73.6       79.3       74.0       74.3  

Allowance for loan losses to total loans

    1.12       1.27       1.05       1.26       1.24       1.67       1.91  

Non-performing loans to total loans (3)

    0.27       0.20       0.21       0.15       0.26       0.10       1.19  

Non-performing assets to total assets (4)

    0.37       0.26       0.33       0.23       0.25       0.33       1.34  

Allowance for loan losses to
non-performing loans

    409.1       634.7       501.3       846.4       479.2       1618.1       160.6  

Net (recoveries) charge-offs to average loans

    (0.02     0.23       0.02       0.03       (0.02     0.11       0.33  

CAPITAL RATIOS

     

Total risk-based capital ratio

    11.81       13.16       11.23       13.16       12.63       13.79       13.89  

Tier 1 risk-based capital ratio

    9.98       11.02       9.48       11.01       10.45       11.03       11.01  

Leverage ratio

    9.23       10.31       8.89       10.06       10.96       10.28       10.02  

Common equity tier 1 risk-based

    9.31       10.17       8.84       10.15       9.56       n/a       n/a  

 

(1) Book value equals common shareholders’ equity per share.
(2) Efficiency ratio represents non-interest expense divided by the aggregate of net interest income and non-interest income.
(3) Non-performing loans include non-accrual loans and loans past due 90 days or more and still accruing interest.
(4) Non-performing assets include non-accrual loans, loans past due 90 days or more and still accruing interest and other real estate owned.

 

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UNAUDITED COMPARATIVE PRO FORMA PER SHARE DATA

The following table shows information about First Interstate’s and Northwest’s earnings per common share, dividends per share and book value per share, and similar information giving effect to the merger (which we refer to as “pro forma” information). In presenting the unaudited comparative pro forma information as of and for the periods shown, we assumed that First Interstate and Northwest had been merged on the date indicated or at the beginning of the periods presented, as applicable.

The information listed as “pro forma combined” was prepared using the exchange ratio of 0.516. The information listed as “per equivalent Northwest share” was obtained by multiplying the pro forma amounts by the exchange ratio of 0.516. First Interstate anticipates that the combined company will derive financial benefits from the merger that include reduced operating expenses and the opportunity to earn more revenue. The unaudited pro forma combined information, while helpful in illustrating the financial characteristics of First Interstate following the merger under one set of assumptions, does not reflect these benefits and, accordingly, does not attempt to predict or suggest future results. The unaudited pro forma combined information also does not necessarily reflect what the historical results of First Interstate would have been had our companies been combined during this period.

The information in the following table is based on, and should be read together with, the historical financial information that we have presented in or incorporated by reference in this document.

 

     First
Interstate
Historical
     Northwest
Historical
     Pro Forma
Combined (1)(2)(3)
     Per Equivalent
Northwest
Share (4)
 

Book value per share:

           

At March 31, 2018

   $ 25.26      $ 11.25      $ 25.72      $ 13.27  

At December 31, 2017

     25.28        11.04        25.77        13.30  

Cash dividends declared per share:

           

Three months ended March 31, 2018

     0.28        —          0.28        0.14  

Year ended December 31, 2017

     0.96        —          0.96        0.50  

Basic earnings per share:

           

Three months ended March 31, 2018

     0.65        0.30        0.65        0.33  

Year ended December 31, 2017

     2.07        0.61        2.00        0.95  

Diluted earnings per share:

           

Three months ended March 31, 2018

     0.65        0.29        0.64        0.33  

Year ended December 31, 2017

     2.05        0.59        1.98        0.94  

 

(1) Pro forma dividends per share represent First Interstate’s historical dividends per share.
(2) The pro forma combined book value per share of First Interstate common stock is based upon the pro forma combined common stockholders’ equity for First Interstate and Northwest divided by total pro forma common shares of the combined entities.
(3) The pro forma combined earnings per share represents historical combined net income for First Interstate and Northwest divided by total pro forma weighted average common shares of the combined entities. See the preceding paragraphs for additional explanatory information.
(4) Represents the pro forma combined information multiplied by the exchange ratio.

 

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SPECIAL MEETING OF NORTHWEST SHAREHOLDERS

This document is being provided to holders of Northwest common stock as Northwest’s proxy statement in connection with the solicitation of proxies by and on behalf of its board of directors to be voted at the Northwest special meeting and at any adjournment or postponement of the Northwest special meeting. This document is also being provided to holders of Northwest common stock as First Interstate’s prospectus in connection with the issuance by First Interstate of its shares of Class A common stock as consideration in the proposed merger.

Date, Time and Place of Meeting

The Northwest special meeting is scheduled to be held as follows:

Date: August 14, 2018

Time: 5:00 p.m., local time

Place: Airway Heights Branch of Inland Northwest Bank located at 11917 West Sunset Highway, Airway Heights, Washington

Purpose of the Meeting

At the Northwest special meeting, Northwest’s shareholders will be asked to:

 

    Approve the merger agreement, pursuant to which Northwest will merge with and into First Interstate, with First Interstate surviving the merger, and each share of Northwest common stock outstanding immediately before the completion of the merger will be converted into the right to receive 0.516 shares of First Interstate Class A common stock.

 

    Approve the Northwest adjournment proposal, if necessary.

Who Can Vote at the Meeting

You are entitled to vote if the records of Northwest showed that you held shares of Northwest common stock as of the close of business on June 27, 2018, which is the record date for the Northwest special meeting. As of the close of business on the record date, 7,267,205 shares of Northwest common stock were outstanding. Each share of Northwest common stock has one vote on each matter presented to shareholders. If your shares are held in “street name” by your broker, bank or other nominee and you wish to vote in person at the Northwest special meeting, you will have to obtain a “legal proxy” from your broker, bank or other nominee entitling you to vote at the Northwest special meeting.

Quorum; Vote Required

The Northwest special meeting will conduct business only if a majority of the outstanding shares of Northwest common stock is represented in person or by proxy at the meeting to constitute a quorum. If you submit valid proxy instructions or attend the meeting in person, your shares will be counted to determine whether there is a quorum, even if you abstain from voting. If you fail to provide voting instructions to your broker, bank or other nominee with respect to a proposal, that broker, bank or other nominee will not vote your shares with respect to that proposal.

Approval of the merger agreement requires the affirmative vote of two-thirds of the outstanding shares of Northwest common stock. Failure to submit valid proxy instructions or to vote in person will have the same effect as a vote against the merger agreement. Broker non-votes and abstentions from voting will have the same effect as voting against the merger agreement.

 

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Approval of the Northwest adjournment proposal requires that the votes cast in favor of the proposal exceed the votes cast against the proposal. The failure to vote in person or submit valid proxy instructions, broker non-votes and abstentions will have no effect on the voting on the proposal.

Shares Held by Northwest Officers and Directors and by First Interstate

As of June 27, 2018, directors and executive officers of Northwest beneficially owned 2,159,387 shares of Northwest common stock. This equals 28.8% of the outstanding shares of Northwest common stock as of June 27, 2018. Each of the directors and certain executive officers of Northwest, solely in their individual capacity as a Northwest shareholder, have entered into a separate voting agreement with First Interstate to vote the 1,937,220 shares of Northwest common stock eligible to be voted at the special meeting by them in favor of the merger agreement. As of June 27, 2018, neither First Interstate nor any of its subsidiaries, directors or executive officers owned any shares of Northwest common stock.

Voting and Revocability of Proxies

You may vote in person at the Northwest special meeting or by proxy. To ensure your representation at the Northwest special meeting, Northwest recommends that you vote by proxy even if you plan to attend the Northwest special meeting. You can change your vote at the special meeting.

If you are a “shareholder of record,” you can vote your shares:

 

    via internet at www.investorvote.com/nbct;

 

    via telephone by calling 1-800-652-VOTE (8683);

 

    by completing and mailing the proxy card that is enclosed; or

 

    by voting in person at the special meeting.

Please refer to the specific instructions set forth on the proxy card. We encourage you to vote via the internet or by telephone.

Northwest shareholders whose shares are held in “street name” by their broker, bank or other nominee must follow the instructions provided by their broker, bank or other nominee to vote their shares. Your broker, bank or other nominee may allow you to deliver your voting instructions via telephone or the internet. If your shares are held in “street name” and you wish to vote in person at the Northwest special meeting, you will have to obtain a “legal proxy” from your broker, bank or other nominee entitling you to vote at the special meeting.

If you are a holder of record of Northwest common stock, voting instructions are included on the enclosed proxy card. If you properly complete and timely submit your proxy, your shares will be voted as you have directed. You may vote for, against or abstain with respect to each matter. If you are the holder of record of your shares of Northwest common stock and submit your proxy without specifying a voting instruction, your shares of Northwest common stock will be voted “FOR” the proposal to approve the merger agreement and “FOR” the Northwest adjournment proposal. If your shares are held in street name and you return an incomplete instruction card to your broker, bank or other nominee, that broker, bank or other nominee will not vote your shares with respect to any matter.

You may revoke your proxy at any time before it is voted at the special meeting by:

 

    filing with the Corporate Secretary of Northwest a duly executed revocation of proxy;

 

    submitting a new proxy with a later date;

 

    voting again via the internet or by telephone not later than 1:00 a.m., Pacific Time, on August 14, 2018; or

 

    voting in person at the special meeting.

 

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If your shares are held in “street name,” you should contact your broker, bank or other nominee to change your vote.

Attendance at the Northwest special meeting will not, in and of itself, constitute a revocation of a proxy. All written notices of revocation and other communication with respect to the revocation of proxies should be addressed to:

Northwest Bancorporation, Inc.

421 West Riverside Avenue, Suite 113

Spokane, Washington 99201

Attention: Leilani T. McKernan, Corporate Secretary

Solicitation of Proxies

Northwest will pay for the solicitation of proxies from Northwest shareholders. In addition to soliciting proxies by mail, Laurel Hill Advisory Group, a proxy solicitation firm, will assist Northwest in soliciting proxies for the Northwest special meeting. Northwest will pay $6,000 for these services plus out-of-pocket expenses. Additionally, directors, officers and employees of Northwest and Inland Northwest Bank may solicit proxies personally and by telephone. None of these persons will receive additional or special compensation for soliciting proxies. Northwest will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions.

 

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NORTHWEST PROPOSAL NO. 1

APPROVAL OF THE MERGER AGREEMENT

At the Northwest special meeting, shareholders will consider and vote on a proposal to approve the merger agreement. Details about the merger agreement, including each party’s reasons for the merger, the effect of approval of the merger agreement and the timing of effectiveness of the merger, are discussed in the section entitled “Description of the Merger beginning on page 30 of this document.

Northwest’s board of directors unanimously recommends

that Northwest shareholders vote “FOR”

approval of the merger agreement.

 

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NORTHWEST PROPOSAL NO. 2

ADJOURNMENT OF THE NORTHWEST SPECIAL MEETING

If there are insufficient proxies at the time of the Northwest special meeting to approve the merger agreement, Northwest shareholders may be asked to vote on a proposal to adjourn the meeting to a later date to allow additional time to solicit additional proxies. Northwest’s board of directors does not currently intend to propose adjournment at the Northwest special meeting if there are sufficient votes to approve the merger agreement (Proposal No. 1).

Northwest’s board of directors unanimously recommends

that Northwest shareholders vote “FOR”

approval of the Northwest adjournment proposal.

 

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DESCRIPTION OF THE MERGER

The following summary of the merger agreement is qualified by reference to the complete text of the merger agreement. A copy of the merger agreement is attached as Annex A to this document and is incorporated by reference into this document. You should read the merger agreement completely and carefully as it, rather than this description, is the legal document that governs the merger.

General

The merger agreement provides for the merger of Northwest with and into First Interstate, with First Interstate as the surviving entity. Following the merger of Northwest with First Interstate, Inland Northwest Bank will merge with and into First Interstate Bank, with First Interstate Bank as the surviving entity.

Consideration to be Received in the Merger

When the merger becomes effective, each share of Northwest common stock issued and outstanding immediately before completion of the merger will automatically be converted into the right to receive 0.516 shares of First Interstate Class A common stock, plus cash in lieu of any fractional share, without interest.

If First Interstate declares a stock dividend or distribution on shares of its common stock or subdivides, splits, reclassifies or combines the shares of First Interstate Class A common stock before the effective time of the merger, then the exchange ratio will be adjusted to provide Northwest shareholders with the same economic effect as contemplated by the merger agreement before any of these events.

Northwest’s shareholders will not receive fractional shares of First Interstate Class A common stock. Instead, Northwest’s shareholders will receive a cash payment for any fractional shares in an amount equal to the product of (1) the fraction of a share of First Interstate Class A common stock to which he, she or it is entitled multiplied by (2) the average closing sales price of First Interstate Class A common stock over the 20 consecutive trading days ending on and including the fifth day before the closing date of the merger.

Background of the Merger

As part of ongoing consideration and evaluation of Northwest’s long-term prospects and strategies, Northwest’s board of directors and senior management have regularly reviewed and assessed business strategies and objectives, including strategic opportunities and challenges, and have considered various strategic options potentially available to Northwest, all with the goal of enhancing value for Northwest shareholders. The strategic discussions have focused on, among other things, remaining as a stand-alone company, the costs and benefits associated with becoming a public company, the business and regulatory environment facing financial institutions generally and Northwest, in particular, as well as conditions and ongoing consolidation in the financial services industry.

As part of this ongoing evaluation, the Northwest board of directors considered the merits of selling the institution, merging with another institution of similar size and complementary business, or remaining independent, as well as the challenges of remaining competitive in the current economic, regulatory and interest rate climate, and the potentially increased operating costs associated with regulatory compliance, technology investment and competitive forces.

On September 19, 2017, D.A. Davidson was invited to present various strategic alternatives with the Northwest board of directors, including the benefits and challenges of pursuing organic growth, an acquisition strategy, merger transactions, an initial public offering (which we refer to as an “IPO”), or outright strategic sale of Northwest, and to discuss the overall market conditions. Following this meeting, the Northwest board of directors decided to pursue the IPO strategy.

 

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On December 19, 2017, D.A. Davidson discussed with the Northwest board of directors the IPO market conditions, strategy for an IPO, potential timeline and D.A. Davidson’s experience in leading public offerings for bank holding companies.

On January 19, 2018, D.A. Davidson was retained by the Northwest board of directors to serve as lead managing underwriter for Northwest to conduct an IPO to raise capital for strategic growth opportunities and potentially to repay indebtedness. Subsequently, D.A. Davidson and Northwest began due diligence and preparing necessary offering documentation.

On February 20, 2018, Northwest’s CEO directed D.A. Davidson to contact prospective acquirers to determine if there was any interest in an acquisition of Northwest, as an alternative to and in comparison with Northwest’s IPO strategy. Northwest approved a list of four companies to be contacted to solicit potential interest for an acquisition of Northwest. Two of the prospective acquirers expressed interest, including First Interstate and another bank (which we refer to as “Bank B”) each of which signed a confidentiality agreement to receive confidential information about Northwest. The confidentiality agreements did not restrict Northwest from negotiating or entering into a definitive agreement with any other party at any time. D.A. Davidson requested for both First Interstate and Bank B to submit non-binding indication of interest by March 13, 2018, which would identify, among other items, the proposed purchase price, the form of consideration, the plans for the combined company, timeline to complete a transaction and conditions and approvals required to complete a strategic transaction.

In early March 2018, Russell A. Lee, the CEO of Northwest, had in-person meetings with the CEOs of both First Interstate and Bank B, respectively.

On March 9, 2018, First Interstate sent a non-binding indication of interest letter to Northwest which provided for 100% stock consideration based on a fixed exchange ratio of 0.5 shares of First Interstate common stock for each share of Northwest common stock. Based on market prices as of such date, the consideration was valued at $20.78 per share or aggregate merger consideration of $157.7 million.

On March 13, 2018, D.A. Davidson provided the Northwest board of directors a status update for the IPO project and discussed the pro forma impact of the IPO, including the dilution to be incurred based on a range of offer prices and size of the offering, and a market update, including valuation and performance metrics of Northwest’s publicly traded peers. Subsequently, D.A. Davidson provided an update to the Northwest board regarding the discussions with First Interstate and Bank B, including an overview of the non-binding indication of interest letter from First Interstate. D.A. Davidson explained Bank B was expected to submit a non-binding indication of interest letter during the next week. The Northwest board discussed the proposed terms of the non-binding indication of interest letter and the benefits to shareholders, employees and customers provided by the merger and the relative benefits of proceeding with the merger or continuing with the public offering, noting the execution risk associated with pursuing the public offering. The Northwest board then instructed Mr. Lee and D.A. Davidson to negotiate certain terms with First Interstate for a revised offer, and to continue discussions with Bank B.

On March 19, 2018, D.A. Davidson and Northwest executed an engagement agreement for D.A. Davidson to render financial advisory and investment banking services to Northwest. D.A. Davidson also agreed to provide the Northwest board of directors with a fairness opinion.

On March 23, 2018, representatives of Bank B and D.A. Davidson held a phone call, whereby Bank B verbally indicated a valuation range of $20.50 to $21.50 per share for Northwest. Bank B explained a written indication would be sent the following week.

On March 23, 2018 representatives of D.A. Davidson participated in a conference call to update the Northwest board of directors on the written indication received from First Interstate and the verbal proposal

 

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received from Bank B. Further discussions occurred between Northwest and First Interstate and between Northwest and Bank B.

On March 27, 2018, Bank B submitted its non-binding indication of interest letter to Northwest, which included a range of consideration of $20.09 per share to $21.00 per share, or aggregate consideration of $152.3 million to $159.3 million, based on market prices as of such date.

On March 27, 2018, First Interstate sent a revised indication of interest letter to Northwest for an exchange ratio of 0.516, an increase of 3.2% compared to the original written indication dated March 9, 2018. Based on market prices as of such date, the consideration was valued at $20.15 per share, or aggregate of $152.9 million.

On March 27, 2018, representatives of D.A. Davidson participated on a conference call with Northwest’s board of directors to further discuss the two indications from First Interstate and Bank B. D.A. Davidson discussed and compared the two non-binding indications of interest, including the proposed merger consideration and other terms described in the two proposals, and compared each company’s financial performance, stock price trading history and dividend history, among other things. In particular, the Northwest board of directors discussed the upside to Northwest shareholders, relative to the proposal received from Bank B, of potential dividend payments from First Interstate if First Interstate continued to issue dividend payments consistent with its dividend payment history. The Northwest board of directors also discussed the advantages of First Interstate’s existing market footprint being complementary to the Northwest existing market footprint, in contrast to Bank B, for whom the Pacific Northwest would be a new market. Following this discussion, the Northwest board of directors voted to authorize Mr. Lee to execute the non-binding indication of interest with First Interstate, and concurrently enter into a period of exclusivity with First Interstate for 35 days. Subsequent to executing the non-binding indication of interest, both First Interstate and Northwest organized remaining due diligence to be completed and coordinated for in-person management meetings.

On March 29, 2018, Northwest received a draft version of the definitive merger agreement from First Interstate, and the parties began negotiating the terms of the merger agreement with respective legal and financial advisors.

On March 29, 2018, Northwest and D.A. Davidson sent a reverse due diligence request list to First Interstate and its advisors. Subsequently, First Interstate began uploading information into an online data room, and the parties conducted a conference call on April 10, 2018 with First Interstate’s CEO and CFO.

On April 17, 2018, Northwest’s board of directors held a meeting with Witherspoon Kelley, its legal counsel, and D.A. Davidson to review the current draft of the merger agreement. D.A. Davidson provided an overview of the financial aspects of the proposed transaction, including the value of the merger consideration based on updated prices, and, among other things, comparative information relative to similar merger transactions. Further, Witherspoon Kelley reviewed the draft merger agreement and addressed questions from the board members. Following the meeting, the board of directors instructed Northwest management, Witherspoon Kelley and D.A. Davidson to complete the remaining open items in the merger agreement and ancillary agreements.

On April 23, 2018, First Interstate’s board of directors held a meeting at which representatives of First Interstate’s senior management were present and representatives from its financial advisor, Sandler O’Neill & Partners, L.P. (which we refer to as “Sandler”), and its legal counsel, Luse Gorman, PC (which we refer to as “Luse Gorman”), were present via telephone. Representatives of Sandler reviewed the financial aspects of the transaction and the financial analysis supporting its opinion. After discussion among First Interstate’s board of directors and its advisors, representatives of Sandler delivered its opinion, dated April 23, 2018, to First Interstate’s board of directors to the effect that, as of such date and based on and subject to the qualifications, limitations and assumptions stated in its opinion, the exchange ratio to be paid to the Northwest shareholders by First Interstate in the proposed merger was fair to First Interstate from a financial point of view. First Interstate’s

 

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board of directors was updated on the results of the completion of the legal and business due diligence review of Northwest. A representative of Luse Gorman reviewed in detail the terms of the merger agreement. After further discussion, First Interstate’s board of directors unanimously approved the merger agreement.

On April 23, 2018, Northwest’s board of directors held a meeting at which Mr. Lee advised the Northwest board of directors that First Interstate’s board of directors had approved the merger agreement. Mr. Lee also updated the Northwest board of directors regarding the impact the proposed transaction was expected to have on certain employees, noting that he and Chad Burchard were both expected to be retained by First Interstate following consummation of the merger to help ensure key Northwest personnel would be retained by First Interstate following the merger. The Northwest board of directors further discussed the impact of the proposed transaction on Northwest’s shareholders, employees, customers and the communities it serves.

On April 25, 2018, Northwest held a board of directors meeting at which the board of directors reviewed the final form of the merger agreement and ancillary agreements. Further, D.A. Davidson presented its opinion to the board of directors at this meeting, to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by D.A. Davidson as set forth in such opinion, that the exchange ratio to be paid to the Northwest shareholders in the transaction was fair from a financial point of view. Following discussion of the relative benefits of the proposed transaction with First Interstate to Northwest shareholders, employees and customers, the board of directors voted to approve the merger agreement. Later that day, First Interstate and Northwest entered into the merger agreement and issued a joint press release announcing the transaction. The parties to the voting agreements also entered into the voting agreements.

Northwest’s Reasons for the Merger and Recommendation of the Board of Directors

The Northwest board of directors believes the merger is in the best interests of the Northwest shareholders. After careful consideration, the Northwest board of directors unanimously approved the merger agreement at a meeting held on April 25, 2018 and recommends that Northwest shareholders vote “FOR” approval of the merger agreement and “FOR” adjournment of the meeting to a later date or dates to permit further solicitation of proxies, if necessary.

In reaching its determination to unanimously approve the merger agreement, the Northwest board of directors consulted with Northwest’s management, D.A. Davidson and Witherspoon Kelley and considered a number of factors. Following is a description of each of the material factors that the Northwest board of directors believes favor the merger:

 

    the Northwest board of directors’ assessment, based in part on presentations by D.A. Davidson and its management and the results of the due diligence investigation of First Interstate conducted by Northwest’s management and financial and legal advisors, of the business, financial performance, operations, capital level, asset quality, management, financial condition, competitive position and stock performance of First Interstate on an historical and a prospective basis, and of the combined company on a pro forma basis including anticipated cost savings;

 

    the Northwest board of directors’ knowledge of Northwest’s business, operations, financial condition, earnings, asset quality and prospects;

 

    the financial and growth prospects for Northwest and its shareholders of a business combination with First Interstate as compared to continuing to operate as a stand-alone entity;

 

    the information presented by D.A. Davidson to the Northwest board of directors with respect to the merger and the opinion of D.A. Davidson that, as of the date of that opinion, the exchange ratio to be paid to the Northwest shareholders in the transaction was fair from a financial point of view (see “Description of the MergerD.A. Davidsons Opinion to Northwests Board of Directors”);

 

    the dividend payment history of First Interstate and possible dividend payments following the merger;

 

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    the benefits to Northwest and its customers of operating as part of a larger organization, including enhancements in products and services, higher lending limits, and greater financial resources;

 

    the Northwest board of directors’ belief that the two companies share a common vision of the importance of customer service and local decision-making and that management and employees of Northwest and First Interstate possess complementary skills and expertise;

 

    the current and prospective economic and competitive environment facing the financial services industry generally, and Northwest in particular, including the continued rapid consolidation in the financial services industry and the competitive effects of the increased consolidation on smaller financial institutions such as Northwest;

 

    First Interstate’s interest in expanding its business banking and commercial real estate businesses in Northwest’s market areas, and the complementary market areas, banking philosophy and community focus of both Northwest and First Interstate;

 

    First Interstate’s historical record and commitment with respect to the communities and employees of the companies it has acquired and its belief that Northwest is a high quality financial services company with a compatible business culture and shared approach to customer service and increasing shareholder value;

 

    the increasing importance of operational scale and financial resources in maintaining efficiency and remaining competitive over the long term and being able to capitalize on technological developments which significantly impact industry competitive conditions;

 

    the greater market capitalization and trading liquidity of First Interstate common stock in the event that Northwest shareholders desire to sell the shares of First Interstate common stock to be received by them following completion of the merger;

 

    the expected social and economic impact of the merger on the constituencies served by Northwest, including its borrowers, customers, depositors, employees, suppliers and communities;

 

    the employee and severance benefits to be provided to Northwest employees and career opportunities in a larger organization;

 

    that Northwest’s shareholders will be able to exchange their shares in a tax-free transaction; and

 

    the Northwest board of directors’ assessment, with the assistance of counsel, concerning the expected likelihood that First Interstate would obtain all regulatory approvals required for the merger.

In the course of its deliberations regarding the merger, the Northwest board of directors also considered the following information that the Northwest board of directors determined did not outweigh the benefits to Northwest and its shareholders expected to be generated by the merger:

 

    the potential risk of diverting management attention and resources from the operation of Northwest’s business and towards the completion of the merger;

 

    the restrictions on the conduct of Northwest’s business prior to the completion of the merger, which are customary for public company merger agreements involving financial institutions, but which, subject to specific exceptions, could delay or prevent Northwest from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of Northwest absent the pending merger;

 

    the potential risks associated with achieving anticipated cost synergies and savings and successfully integrating Northwest’s business, operations and workforce with those of First Interstate;

 

    the transaction costs;

 

    that the interests of certain of Northwest’s directors and executive officers may be different from, or in addition to, the interests of Northwest’s other shareholders as described under the heading “—Interests of Certain Persons in the Merger that are Different from Yours”;

 

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    that, while Northwest expects that the merger will be consummated, there can be no assurance that all conditions to the parties’ obligations to complete the merger agreement will be satisfied, including the risk that necessary regulatory or shareholder approvals might not be obtained and, as a result, the merger may not be consummated;

 

    the risk of potential employee attrition and/or adverse effects on Northwest’s business and customer relationships as a result of the pending merger;

 

    that: (1) Northwest would be prohibited from affirmatively soliciting acquisition proposals after execution of the merger agreement; and (2) Northwest would be obligated to pay to Northwest a termination fee of $5.1 million if the merger agreement is terminated under certain circumstances, all of which may discourage other parties potentially interested in a strategic transaction with Northwest from pursuing such a transaction; and

 

    the other risks described under “Risk Factors” beginning on page 14.

The above discussion of the information and factors considered by the Northwest board of directors is not intended to be exhaustive, but includes the material factors the board of directors considered. In reaching its determination to approve and recommend the acquisition, the board of directors did not assign any relative or specific weights to the foregoing factors, and individual directors may have given differing weights to different factors. The Northwest board of directors also did not undertake to make any specific determination as to whether any factor was decisive in reaching its ultimate determination. The Northwest board of directors instead based its recommendation on the totality of the information presented.

In considering the recommendation of the Northwest board of directors with respect to the proposal to adopt and approve the merger agreement, Northwest shareholders should be aware that Northwest’s directors and executive officers have interests in the merger that may be different from, or in addition to, those of other Northwest shareholders. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger and in recommending that the merger agreement be approved by Northwest’s shareholders. See “—Interests of Certain Persons in the Merger that are Different from Yours.”

In the course of its deliberations with respect to the merger, the Northwest board of directors discussed the anticipated impact of the merger on Northwest, its shareholders, and its various other constituencies, and determined that the benefits to Northwest and its constituencies expected to result from the merger would likely outweigh any disadvantages identified during the board of directors’ deliberations.

For the reasons set forth above, the Northwest board of directors determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Northwest’s shareholders, and approved the merger agreement. The Northwest board of directors unanimously recommends that the Northwest shareholders vote “FOR” the approval of the merger agreement and “FOR” the Northwest adjournment proposal.

This summary of the reasoning of the Northwest board of directors and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Statement About Forward-Looking Statements.”

D.A. Davidson’s Opinion to Northwest’s Board of Directors

On March 19, 2018, Northwest entered into an engagement agreement with D.A. Davidson to render financial advisory and investment banking services to Northwest. As part of its engagement, D.A. Davidson agreed to assist Northwest in analyzing, structuring, negotiating and, if appropriate, effecting a transaction between Northwest and another corporation or business entity. D.A. Davidson also agreed to provide

 

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Northwest’s board of directors with an opinion as to the fairness, from a financial point of view, of the exchange ratio to the holders of Northwest’s common stock in the proposed merger. Northwest engaged D.A. Davidson because D.A. Davidson is a nationally recognized investment banking firm with substantial experience in transactions similar to the merger and is familiar with Northwest and its business. As part of its investment banking business, D.A. Davidson is continually engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

On April 25, 2018, the Northwest board of directors held a meeting to evaluate the proposed merger. At this meeting, D.A. Davidson reviewed the financial aspects of the proposed merger and rendered an opinion to the Northwest board that, as of such date and based upon and subject to assumptions made, procedures followed, matters considered and limitations on the review undertaken, the exchange ratio was fair, from a financial point of view, to holders of Northwest’s common stock in the proposed merger.

The full text of D.A. Davidson’s written opinion, dated April 25, 2018, is attached as Annex C to this document and is incorporated herein by reference. The description of the opinion set forth herein is qualified in its entirety by reference to the full text of such opinion. Northwest’s shareholders are urged to read the opinion in its entirety.

D.A. Davidson’s opinion speaks only as of the date of the opinion and D.A. Davidson undertakes no obligation to revise or update its opinion. The opinion is directed to the Northwest board of directors and addresses only the fairness, from a financial point of view, of the exchange ratio to the holders of Northwest’s common stock in the proposed merger. The opinion does not address, and D.A. Davidson expresses no view or opinion with respect to, (1) the underlying business decision of Northwest to engage in the merger, (2) the relative merits or effect of the merger as compared to any alternative business transactions or strategies that may be or may have been available to or contemplated by Northwest or Northwest’s board of directors, or (3) any legal, regulatory, accounting, tax or similar matters relating to Northwest, its shareholders or relating to or arising out of the merger. The opinion expresses no view or opinion as to any terms or other aspects of the merger, except for the merger consideration. Northwest and First Interstate determined the exchange ratio through the negotiation process. The opinion does not constitute a recommendation to any Northwest shareholder as to how such shareholder should vote at the Northwest meeting on the merger or any related matter. The opinion does not express any view as to the amount or nature of the compensation to any of Northwest’s officers, directors or employees, or any class of such persons, relative to the merger consideration, or with respect to the fairness of any such compensation. The opinion has been reviewed and approved by D.A. Davidson’s Fairness Opinion Committee in conformity with its policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.

D.A. Davidson has reviewed the Registration Statement on Form S-4 of which this document is a part and consented to the inclusion of its opinion to the Northwest board of directors as Annex C to this document and to the references to D.A. Davidson and its opinion contained herein. A copy of the consent of D.A. Davidson is attached as Exhibit 99.2 to the Registration Statement on Form S-4.

In connection with rendering its opinion, D.A. Davidson reviewed, among other things, the following:

 

    a draft of the merger agreement dated April 25, 2018;

 

    certain financial statements and other historical financial and business information about First Interstate and Northwest made available to D.A. Davidson from published sources and/or from the internal records of First Interstate and Northwest that D.A. Davidson deemed relevant;

 

    certain publicly available analyst earnings estimates for First Interstate for the years ending December 31, 2018 and December 31, 2019, and estimated long-term growth rate for the years thereafter, in each case as discussed with, and confirmed by, senior management of First Interstate and Northwest;

 

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    financial projections for Northwest for the years ending December 31, 2018 and December 31, 2019, and estimated long-term growth rate for the years thereafter, in each case as discussed with, and confirmed by, senior management of Northwest;

 

    the current market environment generally and the banking environment in particular;

 

    the financial terms of certain other transactions in the financial institution industry, to the extent publicly available;

 

    the market and trading characteristics of public companies and public bank holding companies in particular;

 

    the relative contributions of First Interstate and Northwest to the combined company;

 

    the pro forma financial impact of the transaction, taking into consideration the amount and timing of the transaction costs and cost savings;

 

    the net present value of Northwest with consideration of projected financial results;

 

    the net present value of First Interstate with consideration of projected financial results;

 

    such other financial studies, analyses and investigations and financial, economic and market criteria and other information as D.A. Davidson considered relevant including discussions with management and other representatives and advisors of First Interstate and Northwest concerning the business, financial condition, results of operations and prospects of First Interstate and Northwest.

In arriving at its opinion, D.A. Davidson assumed and relied upon the accuracy and completeness of all information supplied or otherwise made available to D.A. Davidson, discussed with or reviewed by or for D.A. Davidson, or publicly available, and D.A. Davidson did not independently verify, and did not assume responsibility for independently verifying, such information or undertake an independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of Northwest or First Interstate, nor did D.A. Davidson make an independent appraisal or analysis of Northwest or First Interstate with respect to the merger. In addition, D.A. Davidson did not assume any obligation to conduct, nor did D.A. Davidson conduct, any physical inspection of the properties or facilities of Northwest or First Interstate and has not been provided with any reports of such physical inspections. D.A. Davidson did not make an independent evaluation or appraisal of the adequacy of the allowance for loan losses of Northwest or First Interstate nor has D.A. Davidson reviewed any individual credit files relating to Northwest or First Interstate. D.A. Davidson assumed that the respective allowances for loan losses for both Northwest and First Interstate are adequate to cover such losses and will be adequate on a pro forma basis for the combined entity. D.A. Davidson assumed that there has been no material change in Northwest’s or First Interstate’s assets, financial condition, results of operations, cash flows, business or prospects since the date of the most recent financial statements provided to D.A. Davidson and that neither Northwest and First Interstate is party to any material pending transaction, including without limitation any financing, recapitalization, acquisition or merger, divestiture or spin-off, other than the merger. D.A. Davidson assumed in all respects material to its analysis that Northwest and First Interstate will remain as going concerns for all periods relevant to its analysis. D.A. Davidson also assumed in all respects material to its analysis that all of the representations and warranties contained in the merger agreement and all related agreements are true and correct. D.A. Davidson has assumed that in the course of obtaining the necessary regulatory or other consents or approvals (contractual or otherwise) for the merger, no restrictions, including any divestiture requirements or amendment or modifications, will be imposed that will have a material adverse effect on Northwest or the contemplated benefits of the merger. D.A. Davidson’s opinion was necessarily based upon information available to D.A. Davidson and economic, market, financial and other conditions as they exist and can be evaluated on the date the fairness opinion letter was delivered to Northwest’s board of directors.

With respect to the financial forecasts and other analyses (including information relating to certain pro forma financial effects of, and strategic implications and operational benefits anticipated to result from, the transaction) provided to or otherwise reviewed by or for or discussed with D.A. Davidson, D.A. Davidson was

 

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advised by management of Northwest that such forecasts and other analyses were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of management of Northwest as to the future financial performance of Northwest and the other matters covered thereby, and that the financial results (including the potential strategic implications and operational benefits anticipated to result from the transaction) reflected in such forecasts and analyses will be realized in the amounts and at the times projected. D.A. Davidson assumes no responsibility for and expresses no opinion as to these forecasts and analyses or the assumptions on which they were based. D.A. Davidson has relied on the assurances of management of Northwest that they are not aware of any facts or circumstances that would make any of such information, forecasts or analyses inaccurate or misleading.

D.A. Davidson did not make an independent evaluation of the quality of Northwest’s or First Interstate’s deposit base, nor has D.A. Davidson independently evaluated potential deposit concentrations or the deposit composition of Northwest or First Interstate. D.A. Davidson did not make an independent evaluation of the quality of Northwest’s or First Interstate’s investment securities portfolio, nor has D.A. Davidson independently evaluated potential concentrations in the investment securities portfolio of Northwest or First Interstate.

D.A. Davidson’s opinion does not take into account individual circumstances of specific holders with respect to control, voting or other rights which may distinguish such holders.

D.A. Davidson does not express any opinion as to the value of any asset of Northwest whether at current market prices or in the future, or as to the price at which Northwest or its assets could be sold in the future. D.A. Davidson also expresses no opinion as to the price at which Northwest’s common stock or First Interstate’s common stock will trade following announcement of the transaction or at any future time.

D.A. Davidson has not evaluated the solvency or fair value of Northwest or First Interstate under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. This opinion is not a solvency opinion and does not in any way address the solvency or financial condition of Northwest or First Interstate. D.A. Davidson is not expressing any opinion as to the impact of the transaction on the solvency or viability of Northwest or First Interstate or the ability of Northwest or First Interstate to pay their respective obligations when they come due.

Set forth below is a summary of the material financial analyses performed by D.A. Davidson in connection with rendering its opinion. The summary of the analyses of D.A. Davidson set forth below is not a complete description of the analysis underlying its opinion, and the order in which these analyses are described below is not indicative of any relative weight or importance given to those analyses by D.A. Davidson. The following summaries of financial analyses include information presented in tabular format. You should read these tables together with the full text of the summary financial analyses, as the tables alone are not a complete description of the analyses.

Unless otherwise indicated, the following quantitative information, to the extent it is based on market data, is based on market data as of April 23, 2018 and is not necessarily indicative of market conditions after such date.

 

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Implied Valuation Multiples for Northwest based on the Merger Consideration

D.A. Davidson reviewed the financial terms of the proposed transaction. As described in the merger agreement, each outstanding share of common stock of Northwest will be converted into the right to receive 0.516 shares of First Interstate Class A common stock. The terms and conditions of the merger are more fully described in the merger agreement. For purposes of the financial analyses described below, based on the closing price of First Interstate Class A common stock on April 23, 2018 of $40.45, the exchange ratio represented an implied value of $20.87 per share of Northwest common stock. Based upon financial information as of or for the twelve-month period ended March 31, 2018 and other financial and market information described below, D.A. Davidson calculated the following transaction ratios:

Transaction Ratios

 

     Per Share     Aggregate  

Transaction Price / Q1 2018 Net Income (Annualized)

     18.0     18.6

Transaction Price / LTM Net Income, Core (1)

     20.3     21.7

Transaction Price / 2018E Net Income (2)

     18.0     18.3

Transaction Price / 2019E Net Income (2)

     15.4     15.4

Transaction Price / Book Value (Excluding RSAs)

     185.5     195.4

Transaction Price / Book Value (Vested RSAs)

     192.0     195.4

Transaction Price / Tangible Book Value (Excluding RSAs)

     217.6     229.2

Transaction Price / Tangible Book Value (Vested RSAs)

     225.3     229.2

Tangible Book Premium / Core Deposits (3)

     —         14.7

Transaction Price / Northwest’s Closing Price as of 4/23/2018 (4)

     54.0  

Transaction Price / Northwest’s 20-Day Average Price as of 4/23/2018 (5)

     54.5  

 

  (1) Net income, excluding deferred tax asset impairment and merger related expenses
  (2) Financial projections in 2018 and 2019 based on management budget, as discussed with and confirmed by Northwest management
  (3) Tangible book premium / core deposits calculated by dividing the excess or deficit of the aggregate transaction value compared to tangible book value by core deposits
  (4) Based on Northwest’s Closing Price as of April 23, 2018 of $13.55
  (5) Based on Northwest’s 20-Day Average Price as of April 23, 2018 of $13.51

 

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Stock Price Performance of First Interstate and Northwest

D.A. Davidson reviewed the history of the reported trading prices and volume of Northwest common stock and First Interstate Class A common stock and the relationship between the movements in the prices of Northwest common stock and First Interstate Class A common stock to movements in certain stock indices, including the Russell 3000 and the KBW Regional Bank Index. D.A. Davidson also compared the stock price performance of Northwest or First Interstate with the performance of the Russell 3000 and the KBW Nasdaq Regional Banking Index as follows:

One Year Stock Performance

 

     Beginning Index Value
on 4/21/2017
    Ending Index Value on
4/23/2018
 

Russell 3000

     100.00     113.61

KBW Nasdaq Regional Banking Index

     100.00     108.79

First Interstate

     100.00     102.15

Northwest

     100.00     114.83

Three Year Stock Performance

 

     Beginning Index Value
on 4/21/2015
    Ending Index Value on
4/23/2018
 

Russell 3000

     100.00     126.06

KBW Nasdaq Regional Banking Index

     100.00     141.56

First Interstate

     100.00     143.80

Northwest

     100.00     136.18

 

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Contribution Analysis

D.A. Davidson analyzed the relative contribution of Northwest and First Interstate to certain financial and operating metrics for the pro forma combined company. Such financial and operating metrics included: (1) market capitalization; (2) adjusted net income during the preceding twelve months ended March 31, 2018; (3) estimates of First Interstate net income in 2018 and 2019 using U.S. generally accepted accounting principles (which we refer to as “GAAP”) and based on publicly available consensus street estimates and estimates of Northwest GAAP net income in 2018 and 2019 based on Northwest management’s budget; (4) total assets; (5) gross loans; (6) total deposits; (7) non-interest bearing demand deposits; (8) non-maturity deposits; and (9) tangible common equity. The relative contribution analysis did not give effect to the impact of any synergies as a result of the proposed merger. The results of this analysis are summarized in the table below, which also compares the results of this analysis with the implied pro forma ownership percentages of First Interstate or Northwest shareholders in the combined company based on the exchange ratio:

Contribution Analysis

 

    First Interstate
Stand-alone
    First
Interstate
% of Total
    Northwest
Stand-alone
    Northwest
% of Total
 

Market Capitalization

       

Market Capitalization (4/23/2018) (in thousands)

  $ 2,268,286       95.8   $ 98,400       4.2

Income Statement—Historical

       

LTM Net Income, Adjusted (in thousands) (1)

  $ 120,021       94.2   $ 7,361       5.8

Income Statement—Projections

       

2018E Net Income (in thousands) (2) (3)

  $ 166,696       95.0   $ 8,731       5.0

2019E Net Income (in thousands) (2) (3)

  $ 182,001       94.6   $ 10,357       5.4

Balance Sheet

       

Total Assets (in thousands)

  $ 12,273,400       93.7   $ 820,934       6.3

Gross Loans, Incl. Loans Held for Sale (in thousands)

  $ 7,646,800       92.0   $ 669,306       8.0

Total Deposits (in thousands)

  $ 10,025,900       93.3   $ 721,038       6.7

Non-Interest Bearing Demand Deposits (in thousands)

  $ 2,897,600       92.4   $ 238,343       7.6

Non-Maturity Deposits (in thousands)

  $ 8,891,200       93.5   $ 613,626       6.5

Tangible Common Equity (in thousands)

  $ 911,443       92.9   $ 69,667       7.1

Pro Forma Ownership

       

Merger Transaction—Actual

      93.6       6.4

 

Note: Pro forma contribution does not include any purchase accounting or merger adjustments

 

  (1) Net income for the preceding twelve months ending March 31, 2018, excluding deferred tax asset impairment and merger related expenses
  (2) Financial projections for First Interstate in 2018 and 2019 based on publicly available consensus Street estimates, as discussed with and confirmed by First Interstate and Northwest management
  (3) Financial projections for Northwest in 2018 and 2019 based on management budget, as discussed with and confirmed by Northwest management

 

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Northwest Comparable Companies Analysis

D.A. Davidson used publicly available information to compare selected financial and market trading information for Northwest and a group of 12 financial institutions selected by D.A. Davidson which: (1) were headquartered in Washington, Oregon and Idaho; (2) had their common stock listed on an over-the-counter exchange; (3) had assets greater $300 million; and (4) were not pending merger targets or ethnic banks. The 12 financial institutions were as follows:

 

Baker Boyer Bancorp

BEO Bancorp

Cashmere Valley Bank

Citizens Bancorp

Commencement Bank

Community Financial Group, Inc.

  

Idaho Independent Bank

Pacific Financial Corporation

Peoples Bancorp

People’s Bank of Commerce

Summit Bank

W.T.B. Financial Corporation

 

* Does not reflect impact from pending acquisitions or acquisitions closed after April 23, 2018

The analysis compared the financial condition and market performance of Northwest and the 12 financial institutions identified above based on publicly available financial and market trading information for Northwest and the 12 financial institutions as of and for the twelve-month or three-month period ended March 31, 2018. The table below shows the results of this analysis (excluding the impact of earnings per share multiples considered not meaningful by D.A. Davidson).

Financial Condition and Performance

 

           Comparable Companies  
     Northwest     Median     Average     Minimum     Maximum  

Total Assets (in millions)

   $ 826.8     $ 652.6     $ 1,187.2     $ 318.8     $ 6,281.3  

Loan / Deposit Ratio

     92.8     78.1     76.6     53.5     92.7

Non-Performing Assets / Total Assets

     0.37     0.18     0.46     0.00     2.67

Tangible Common Equity Ratio

     8.55     9.51     9.61     8.11     11.34

Net Interest Margin (Most Recent Quarter)

     4.60     4.18     4.19     3.00     5.74

Efficiency Ratio (Most Recent Quarter)

     71.3     66.4     65.0     54.5     75.5

Pre-Tax, Pre-Provision Return on Average Assets (Most Recent Quarter) (1)

     1.42     1.67     1.67     1.24     2.51

Market Performance Multiples

 

           Comparable Companies  
     Northwest     Median     Average     Minimum     Maximum  

Market Capitalization (in millions)

   $ 98.4     $ 88.6     $ 171.1     $ 31.7     $ 912.9  

Price Change (LTM)

     14.8     18.8     20.3     -7.2     57.3

Price Change (YTD)

     8.8     4.3     6.3     -8.7     27.5

Price / MRQ Earnings Per Share

     11.7     13.8     14.4     7.5     20.8

Price / LTM Earnings Per Share

     13.2     16.6     17.3     9.8     28.2

Price / Tangible Book Value Per Share

     141.2     153.3     144.2     81.9     183.0

Dividend Yield (Most Recent Quarter)

     0.00     0.65     1.24     0.00     4.65

 

(1) Income before provision, gain/loss on securities, non-recurring items and taxes, as a percentage of average assets

 

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First Interstate Comparable Companies Analysis

D.A. Davidson used publicly available information to compare selected financial and market trading information for First Interstate and a group of 13 financial institutions selected by D.A. Davidson which: (1) were headquartered in the western portion of the United States; (2) had their common stock listed on the NASDAQ or New York Stock Exchange; (3) had assets between $5.0 billion and $25.0 billion; and (4) were not pending merger targets or ethnic banks. These 13 financial institutions were as follows:

 

Banc of California, Inc.

Banner Corporation

BofI Holding, Inc.

Cathay General Bancorp

Columbia Banking System, Inc.

CVB Financial Corp.

Glacier Bancorp, Inc.

  

HomeStreet, Inc.

Opus Bank

Pacific Premier Bancorp, Inc.

PacWest Bancorp

Washington Federal, Inc.

Western Alliance Bancorporation

 

* Does not reflect impact from pending acquisitions or acquisitions closed after April 23, 2018

The analysis compared the financial condition and market performance of First Interstate and the 13 financial institutions identified above based on publicly available financial and market trading information for First Interstate and the 13 financial institutions as of and for the twelve-month or three-month period ended March 31, 2018. The 2018 and 2019 earnings per share multiples for First Interstate and the 13 financial institutions identified above based on publicly available consensus street estimates for First Interstate and the 13 financial institutions. The table below shows the results of this analysis (excluding the impact of earnings per share multiples considered not meaningful by D.A. Davidson).

Financial Condition and Performance

 

     First
Interstate
    Comparable Companies  
       Median     Average     Minimum     Maximum  

Total Assets (in millions)

   $ 12,273.4     $ 10,327.9     $ 12,367.9     $ 6,742.0     $ 24,149.3  

Loan / Deposit Ratio

     76.3     91.0     91.2     71.5     107.1

Non-Performing Assets / Total Assets

     0.63     0.37     0.38     0.04     0.87

Tangible Common Equity Ratio

     7.76     9.81     9.78     6.78     11.46

Net Interest Margin (Most Recent Quarter)

     3.75     4.00     3.93     3.01     5.11

Efficiency Ratio (Most Recent Quarter)

     62.3     50.3     55.2     39.1     85.9

Pre-Tax Pre-Provision Return on Average Assets (Most Recent Quarter) (1)

     1.62     2.07     1.91     0.39     2.85

Market Performance Multiples

 

     First
Interstate
    Comparable Companies  
       Median     Average     Minimum     Maximum  

Market Capitalization (in millions)

   $ 2,293.8     $ 2,611.2     $ 2,835.8     $ 736.3     $ 6,516.8  

Price Change (LTM)

     2.1     7.4     13.0     -13.8     62.0

Price Change (YTD)

     1.0     1.3     2.2     -7.7     39.7

Price / MRQ Earnings Per Share

     16.6     15.7     16.9     5.3     28.1

Price / LTM Earnings Per Share

     19.7     20.8     20.6     10.7     27.8

Price / 2018E Earnings Per Share (2)

     13.8     16.1     16.5     12.6     27.8

Price / 2019E Earnings Per Share (2)

     12.8     13.2     13.8     11.4     16.1

Price / Tangible Book Value Per Share

     251.6     263.8     229.5     108.8     316.2

Dividend Yield (Most Recent Quarter)

     2.77     2.09     1.68     0.00     3.84

 

 

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(1) Income before provision, gain/loss on securities, non-recurring items and taxes, as a percentage of average assets
(2) Earnings per share estimates based on publicly available consensus street estimates

Precedent Transactions Analysis

D.A. Davidson reviewed three sets of comparable merger and acquisition transactions. The sets of mergers and acquisitions included: (1) “Nationwide Transactions,” (2) “Nationwide Stock Transactions,” and (3) “Western U.S. Transactions.”

“Nationwide Transactions” included 26 transactions where:

 

    the selling company was a bank headquartered in the United States;

 

    the selling company’s total assets were between $600 million and $1.5 billion;

 

    the transaction was announced between November 8, 2016 and April 23, 2018;

 

    the transaction’s pricing information was publicly available; and

 

    the transaction was not a merger of equals.

“Nationwide Stock Transactions” included nine transactions where:

 

    the selling company was a bank headquartered in the United States;

 

    the selling company’s total assets were between $600 million and $1.5 billion;

 

    the transaction was announced between November 8, 2016 and April 23, 2018;

 

    the consideration to the selling company’s common shareholders was 100% stock;

 

    the transaction’s pricing information was publicly available; and

 

    the transaction was not a merger of equals.

“Western U.S. Transactions” included 17 transactions where:

 

    the selling company was a bank headquartered in the western portion of the United States;

 

    the selling company’s total assets were between $300 million and $2.0 billion;

 

    the transaction was announced between November 8, 2016 and April 23, 2018;

 

    the transaction’s pricing information was publicly available; and

 

    the transaction was not a merger of equals.

The following tables set forth the transactions included in “Nationwide Transactions,” “Nationwide Stock Transactions,” and “Western U.S. Transactions,” and are sorted by announcement date:

Nationwide Transactions

 

Announcement Date

  

Acquirer

  

Target

4/18/2018*

   BancorpSouth Bank    Icon Capital Corporation

4/09/2018*

   Triumph Bancorp, Inc.    First Bancorp of Durango, Inc.

2/12/2018*

   Mechanics Bank    Learner Financial Corporation

1/16/2018*

   Mid Penn Bancorp, Inc.    First Priority Financial Corp.

12/12/2017*

   Heartland Financial USA, Inc.    First Bank Lubbock Bancshares, Inc.

 

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Announcement Date

  

Acquirer

  

Target

12/11/2017*

   TriCo Bancshares    FNB Bancorp

11/28/2017*

   Independent Bank Group, Inc.    Integrity Bancshares, Inc.

11/27/2017*

   Byline Bancorp, Inc.    First Evanston Bancorp, Inc.

11/17/2017*

   Ameris Bancorp    Atlantic Coast Financial Corporation

10/26/2017

   Glacier Bancorp, Inc.    Inter-Mountain Bancorp., Inc.

10/16/2017

   Midland States Bancorp, Inc.    Alpine Bancorporation, Inc.

8/15/2017

   Howard Bancorp, Inc.    1st Mariner Bank

8/09/2017

   Pacific Premier Bancorp, Inc.    Plaza Bancorp

6/27/2017

   United Community Banks, Inc.    Four Oaks Fincorp, Inc.

6/26/2017

   National Bank Holdings Corporation    Peoples, Inc.

6/15/2017

   State Bank Financial Corporation    AloStar Bank of Commerce

6/12/2017

   Southside Bancshares, Inc.    Diboll State Bancshares, Inc.

6/12/2017

   Carolina Financial Corporation    First South Bancorp, Inc.

3/13/2017

   First Busey Corporation    Mid Illinois Bancorp, Inc.

2/13/2017

   Heartland Financial USA, Inc.    Citywide Banks of Colorado, Inc.

2/06/2017

   First Busey Corporation    First Community Financial Partners

1/31/2017

   Bryn Mawr Bank Corporation    Royal Bancshares of Pennsylvania, Inc.

1/26/2017

   Midland States Bancorp, Inc.    Centrue Financial Corporation

1/17/2017

   Renasant Corporation    Metropolitan BancGroup, Inc.

12/14/2016

   Veritex Holdings, Inc.    Sovereign Bancshares, Inc.

11/30/2016

   CenterState Banks, Inc.    Gateway Financial Holdings of Florida

 

* Indicates the transaction was pending as of April 23, 2018

Nationwide Stock Transactions

 

Announcement Date

  

Acquirer

  

Target

1/16/2018*

   Mid Penn Bancorp, Inc.    First Priority Financial Corp.

12/12/2017*

   Heartland Financial USA, Inc.    First Bank Lubbock Bancshares, Inc.

12/11/2017*

   TriCo Bancshares    FNB Bancorp

10/26/2017

   Glacier Bancorp, Inc.    Inter-Mountain Bancorp., Inc.

8/15/2017

   Howard Bancorp, Inc.    1st Mariner Bank

8/09/2017

   Pacific Premier Bancorp, Inc.    Plaza Bancorp

6/12/2017

   Carolina Financial Corporation    First South Bancorp, Inc.

1/31/2017

   Bryn Mawr Bank Corporation    Royal Bancshares of Pennsylvania, Inc.

1/17/2017

   Renasant Corporation    Metropolitan BancGroup, Inc.

 

* Indicates the transaction was pending as of April 23, 2018

Western U.S. Transactions

 

Announcement Date

  

Acquirer

  

Target

3/08/2018*

   Heritage Financial Corporation    Premier Commercial Bancorp

2/26/2018*

   First Choice Bancorp    Pacific Commerce Bancorp

1/11/2018*

   Heritage Commerce Corp    United American Bank

12/19/2017*

   First Foundation Inc.    PBB Bancorp

12/15/2017*

   Amalgamated Bank    New Resource Bancorp

12/11/2017*

   TriCo Bancshares    FNB Bancorp

11/07/2017*

   Suncrest Bank    CBBC Bancorp

10/26/2017

   Glacier Bancorp, Inc.    Inter-Mountain Bancorp., Inc.

 

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Table of Contents

Announcement Date

  

Acquirer

  

Target

8/09/2017

   Pacific Premier Bancorp, Inc.    Plaza Bancorp

7/26/2017

   Heritage Financial Corporation    Puget Sound Bancorp, Inc.

7/26/2017

   Triumph Bancorp, Inc.    Valley Bancorp, Inc.

6/15/2017

   First Foundation Inc.    Community 1st Bancorp

6/06/2017

   Glacier Bancorp, Inc.    Columbine Capital Corporation

5/02/2017

   Seacoast Commerce Banc Holdings    Capital Bank

2/13/2017

   Heartland Financial USA, Inc.    Citywide Banks of Colorado, Inc.

12/13/2016

   Pacific Premier Bancorp, Inc.    Heritage Oaks Bancorp

11/15/2016

   Glacier Bancorp, Inc.    TFB Bancorp, Inc.

 

* Indicates the transaction was pending as of April 23, 2018

For each transaction referred to above, D.A. Davidson compared, among other things, the following implied ratios:

 

    transaction price compared to tangible book value on a per share and aggregate basis, based on the latest publicly available financial statements of the target company prior to the announcement of the transaction;

 

    transaction price compared to earnings per share for the last twelve months, based on the latest publicly available financial statements of the target company prior to the announcement of the transaction;

 

    transaction price per share compared to the closing stock price of the target company for the day prior to the announcement of the transaction; and

 

    tangible book premium to core deposits based on the latest publicly available financial statements of the target company prior to the announcement of the transaction.

D.A. Davidson compared the multiples of the comparable transaction groups and other operating financial data where relevant to the proposed merger multiples and other operating financial data of Northwest as of or for the three-month period ended March 31, 2018. The table below sets forth the results of this analysis.

Financial Condition and Performance

 

          Nationwide     Nationwide Stock     Western U.S.  
    NBCT     Median     Average     Mini-
mum
    Maxi-
mum
    Median     Average     Mini-
mum
    Maxi-
mum
    Median     Average     Mini-
mum
    Maxi-
mum
 

Total Assets (in millions)

  $ 826.8     $ 959.7     $ 968.2     $ 612.0     $ 1,377.4     $ 1,009.6     $ 1,010.5     $ 612.0     $ 1,274.6     $ 468.6     $ 694.4     $ 305.6     $ 1,988.3  

Return on Average Assets (Last Twelve Months)

    1.04     0.96     0.93     -0.25     2.37     1.03     0.86     -0.25     1.41     0.97     0.97     0.40     1.77

Return on Average Equity (Last Twelve Months)

    10.64     8.95     9.42     -2.39     23.63     10.78     9.18     -2.39     15.92     9.48     9.75     5.50     19.43

Tangible Common Equity Ratio

    8.55     9.23     9.79     6.20     20.47     8.08     8.67     6.20     14.66     9.16     8.92     6.28     11.96

Efficiency Ratio (Last Twelve Months)

    71.3     67.9     68.3     52.8     98.0     68.9     69.8     57.8     98.0     62.2     64.3     52.9     76.7

Non-Performing Assets / Total Assets

    0.37     0.81     1.03     0.16     3.81     0.61     0.82     0.16     2.07     0.20     0.51     0.00     1.98

 

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Table of Contents
Transaction Multiples  
          Nationwide     Nationwide Stock     Western U.S.  
    NBCT     Median     Average     Mini-
mum
    Maxi-
mum
    Median     Average     Mini-
mum
    Maxi-
mum
    Median     Average     Mini-
mum
    Maxi-
mum
 

Transaction Price / Tangible Book Value (Per Share)

    225.3     187.3     188.5     100.9     259.9     209.2     207.9     116.0     259.9     202.9     202.7     135.1     259.9

Transaction Price / Tangible Book Value (Aggregate)

    229.2     190.2     190.5     100.9     278.2     209.2     212.2     116.0     278.2     207.2     207.6     138.6     278.2

Transaction Price / Last Twelve Months EPS

    20.3x       21.0x       21.9x       7.2x       37.6x       20.9x       21.3x       13.5x       32.6x       21.9x       22.6x       15.8x       35.9x  

One-Day Market Premium (1)

    54.0     15.5     16.8     7.4     45.0     15.5     19.1     7.4     45.0     27.8     33.2     7.6     75.8

Tangible Book Premium / Core Deposits (2)

    14.7     12.2     11.9     0.4     21.8     13.4     14.2     10.0     21.8     12.3     12.6     5.8     21.8

 

(1) Based on NBCT’s Closing Price as of 4/23/2018 of $13.55
(2) Tangible book premium / core deposits calculated by dividing the excess or deficit of the aggregate transaction value over tangible book value by core deposits

Net Present Value Analysis for Northwest

D.A. Davidson performed an analysis that estimated the net present value per share of Northwest common stock under various circumstances. The analysis assumed: (1) Northwest performed in accordance with management’s budget for the years ending December 31, 2018 and December 31, 2019; and (2) an estimated long-term growth rate for the years thereafter, as discussed with and confirmed by Northwest management. To approximate the terminal value of Northwest common stock at December 31, 2023, D.A. Davidson applied price to earnings multiples of 12.0x to 22.0x and multiples of tangible book value ranging from 140.0% to 240.0%. The income streams and terminal values were then discounted to present values using different discount rates ranging from 12.00% to 17.00% chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Northwest’s common stock. In evaluating the discount rate, D.A. Davidson used industry standard methods of adding the current risk-free rate, which is based on the 20-year Treasury yield, plus the published Duff & Phelps Industry Equity Risk Premium and the published Duff & Phelps Size Premium.

At the April 25, 2018 Northwest board of directors meeting, D.A. Davidson noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

As illustrated in the following tables, the analysis indicates an imputed range of values per share of Northwest common stock of $9.66 to $22.77 when applying the price to earnings multiples to the financial forecasts and $10.62 to $23.41 when applying the multiples of tangible book value to the financial forecasts.

Earnings Per Share Multiples

 

     Earnings Per Share Multiple  

Discount Rate

   12.0x      14.0x      16.0x      18.0x      20.0x      22.0x  

12.00%

   $ 12.42      $ 14.49      $ 16.56      $ 18.63      $ 20.70      $ 22.77  

13.00%

   $ 11.80      $ 13.77      $ 15.73      $ 17.70      $ 19.66      $ 21.63  

14.00%

   $ 11.22      $ 13.08      $ 14.95      $ 16.82      $ 18.69      $ 20.56  

15.00%

   $ 10.67      $ 12.44      $ 14.22      $ 16.00      $ 17.78      $ 19.55  

16.00%

   $ 10.15      $ 11.84      $ 13.53      $ 15.22      $ 16.91      $ 18.60  

17.00%

   $ 9.66      $ 11.27      $ 12.88      $ 14.49      $ 16.10      $ 17.71  

 

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Tangible Book Value Multiples

 

     Tangible Book Value Per Share Multiple  

Discount Rate

   140.0%      160.0%      180.0%      200.0%      220.0%      240.0%  

12.00%

   $ 13.66      $ 15.61      $ 17.56      $ 19.51      $ 21.46      $ 23.41  

13.00%

   $ 12.97      $ 14.83      $ 16.68      $ 18.53      $ 20.39      $ 22.24  

14.00%

   $ 12.33      $ 14.09      $ 15.86      $ 17.62      $ 19.38      $ 21.14  

15.00%

   $ 11.73      $ 13.40      $ 15.08      $ 16.75      $ 18.43      $ 20.10  

16.00%

   $ 11.16      $ 12.75      $ 14.35      $ 15.94      $ 17.53      $ 19.13  

17.00%

   $ 10.62      $ 12.14      $ 13.65      $ 15.17      $ 16.69      $ 18.21  

D.A. Davidson also considered and discussed with the Northwest board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, D.A. Davidson performed a similar analysis assuming Northwest estimated earnings per share in 2023 varied from 20.00% above projections to 20.00% below projections. This analysis resulted in the following range of per share values for Northwest common stock, using the same price to earnings multiples of 12.0x to 22.0x and a discount rate of 15.00%.

 

Variance to    Earnings Per Share Multiple  

2023 EPS

   12.0x      14.0x      16.0x      18.0x      20.0x      22.0x  

20.00%

   $ 12.80      $ 14.93      $ 17.06      $ 19.20      $ 21.33      $ 23.46  

15.00%

   $ 12.27      $ 14.31      $ 16.35      $ 18.40      $ 20.44      $ 22.49  

10.00%

   $ 11.73      $ 13.69      $ 15.64      $ 17.60      $ 19.55      $ 21.51  

5.00%

   $ 11.20      $ 13.07      $ 14.93      $ 16.80      $ 18.66      $ 20.53  

0.00%

   $ 10.67      $ 12.44      $ 14.22      $ 16.00      $ 17.78      $ 19.55  

-5.00%

   $ 10.13      $ 11.82      $ 13.51      $ 15.20      $ 16.89      $ 18.58  

-10.00%

   $ 9.60      $ 11.20      $ 12.80      $ 14.40      $ 16.00      $ 17.60  

-15.00%

   $ 9.07      $ 10.58      $ 12.09      $ 13.60      $ 15.11      $ 16.62  

-20.00%

   $ 8.53      $ 9.95      $ 11.38      $ 12.80      $ 14.22      $ 15.64  

Illustrative Net Present Value Analysis for Pro Forma Northwest

For illustrative purposes, D.A. Davidson performed an analysis that estimated the net present value per share of Northwest common stock if reinvested in First Interstate under various circumstances, including the impact of the merger with First Interstate. The analysis assumed (1) Northwest performed in accordance with management budget for the years ending December 31, 2018 and December 31, 2019, (2) an estimated long-term growth rate for the years thereafter, as discussed with and confirmed by Northwest management; and (3) the pro forma financial impact of the merger with First Interstate including the cost savings estimates, purchase accounting adjustments and transaction expenses, as discussed with and confirmed by Northwest management. The analysis also assumed (1) First Interstate performed in accordance with publicly available consensus Street estimates for the years ending December 31, 2018 and December 31, 2019, and (2) an estimated long-term growth rate for the years thereafter, as discussed with and confirmed by First Interstate and Northwest management. To approximate the terminal value of Northwest common stock at December 31, 2022, D.A. Davidson applied forward price to earnings multiples of 12.0x to 22.0x and multiples of tangible book value ranging from 180.0% to 280.0%. The income streams and terminal values were then discounted to present values using different discount rates ranging from 8.00% to 13.00% chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Northwest’s common stock. In evaluating the discount rate, D.A. Davidson used industry standard methods of adding the current risk-free rate, which is based on the 20-year Treasury yield, plus the published Duff & Phelps Industry Equity Risk Premium and the published Duff & Phelps Size Premium.

 

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At the April 25, 2018 Northwest board of directors meeting, D.A. Davidson noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

As illustrated in the following tables, the analysis indicates an imputed range of values per share of Northwest common stock, after adjusting for the exchange ratio of 0.516, of $16.62 to $35.70 when applying the forward price to earnings multiples to the financial forecasts and $17.50 to $32.31 when applying the multiples of tangible book value to the financial forecasts.

Earnings Per Share Multiples

 

     Earnings Per Share Multiple  

Discount Rate

   12.0x      14.0x      16.0x      18.0x      20.0x      22.0x  

8.00%

   $ 20.44      $ 23.50      $ 26.55      $ 29.60      $ 32.65      $ 35.70  

9.00%

   $ 19.60      $ 22.52      $ 25.44      $ 28.36      $ 31.28      $ 34.21  

10.00%

   $ 18.80      $ 21.59      $ 24.39      $ 27.19      $ 29.99      $ 32.78  

11.00%

   $ 18.04      $ 20.72      $ 23.39      $ 26.07      $ 28.75      $ 31.43  

12.00%

   $ 17.31      $ 19.88      $ 22.45      $ 25.01      $ 27.58      $ 30.15  

13.00%

   $ 16.62      $ 19.09      $ 21.55      $ 24.01      $ 26.47      $ 28.93  

Tangible Book Value Multiples

 

     Tangible Book Value Per Share Multiple  

Discount Rate

   180.0%      200.0%      220.0%      240.0%      260.0%      280.0%  

8.00%

   $ 21.53      $ 23.69      $ 25.84      $ 28.00      $ 30.15      $ 32.31  

9.00%

   $ 20.64      $ 22.70      $ 24.77      $ 26.83      $ 28.89      $ 30.96  

10.00%

   $ 19.79      $ 21.77      $ 23.75      $ 25.72      $ 27.70      $ 29.67  

11.00%

   $ 18.99      $ 20.88      $ 22.78      $ 24.67      $ 26.56      $ 28.45  

12.00%

   $ 18.23      $ 20.04      $ 21.85      $ 23.67      $ 25.48      $ 27.29  

13.00%

   $ 17.50      $ 19.24      $ 20.98      $ 22.72      $ 24.45      $ 26.19  

D.A. Davidson also considered and discussed with the Northwest board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, D.A. Davidson performed a similar analysis assuming Northwest’s pro forma estimated earnings per share in 2023 varied from 20.00% above projections to 20.00% below projections. This analysis resulted in the following range of per share values for Northwest common stock, after adjusting for the exchange ratio of 0.516, using the same forward price to earnings multiples of 12.0x to 22.0x, and using a discount rate of 11.00%.

 

Variance to

2023 EPS

   Earnings Per Share Multiple  
   12.0x      14.0x      16.0x      18.0x      20.0x      22.0x  

20.00%

   $ 21.25      $ 24.47      $ 27.68      $ 30.90      $ 34.11      $ 37.33  

15.00%

   $ 20.45      $ 23.53      $ 26.61      $ 29.69      $ 32.77      $ 35.85  

10.00%

   $ 19.64      $ 22.59      $ 25.54      $ 28.48      $ 31.43      $ 34.38  

5.00%

   $ 18.84      $ 21.65      $ 24.47      $ 27.28      $ 30.09      $ 32.91  

0.00%

   $ 18.04      $ 20.72      $ 23.39      $ 26.07      $ 28.75      $ 31.43  

-5.00%

   $ 17.23      $ 19.78      $ 22.32      $ 24.87      $ 27.41      $ 29.96  

-10.00%

   $ 16.43      $ 18.84      $ 21.25      $ 23.66      $ 26.07      $ 28.48  

-15.00%

   $ 15.62      $ 17.90      $ 20.18      $ 22.46      $ 24.73      $ 27.01  

-20.00%

   $ 14.82      $ 16.96      $ 19.11      $ 21.25      $ 23.39      $ 25.54  

 

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Net Present Value Analysis for First Interstate

D.A. Davidson performed an analysis that estimated the net present value per share of First Interstate common stock under various circumstances. The analysis assumed: (1) First Interstate performed in accordance with publicly available consensus street estimates for the years ending December 31, 2018 and December 31, 2019, and (2) an estimated long-term growth rate for the years thereafter, as discussed with and confirmed by First Interstate and Northwest management. To approximate the terminal value of First Interstate common stock at December 31, 2022, D.A. Davidson applied forward price to earnings multiples of 12.0x to 22.0x and multiples of tangible book value ranging from 180.0% to 280.0%. The income streams and terminal values were then discounted to present values using different discount rates ranging from 8.00% to 13.00% chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of First Interstate’s common stock. In evaluating the discount rate, D.A. Davidson used industry standard methods of adding the current risk-free rate, which is based on the 20-year Treasury yield, plus the published Duff & Phelps Industry Equity Risk Premium and the published Duff & Phelps Size Premium.

At the April 25, 2018 Northwest board of directors meeting, D.A. Davidson noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

As illustrated in the following tables, the analysis indicates an imputed range of values per share of First Interstate common stock of $31.99 to $68.05 when applying the forward price to earnings multiples to the financial forecasts and $34.01 to $62.34 when applying the multiples of tangible book value to the financial forecasts.

Earnings Per Share Multiples

 

     Earnings Per Share Multiple  

Discount Rate

   12.0x      14.0x      16.0x      18.0x      20.0x      22.0x  

8.00%

   $ 39.24      $ 45.00      $ 50.77      $ 56.53      $ 62.29      $ 68.05  

9.00%

   $ 37.64      $ 43.15      $ 48.67      $ 54.19      $ 59.70      $ 65.22  

10.00%

   $ 36.12      $ 41.40      $ 46.68      $ 51.96      $ 57.24      $ 62.52  

11.00%

   $ 34.67      $ 39.73      $ 44.79      $ 49.85      $ 54.91      $ 59.97  

12.00%

   $ 33.30      $ 38.15      $ 43.00      $ 47.84      $ 52.69      $ 57.54  

13.00%

   $ 31.99      $ 36.64      $ 41.29      $ 45.94      $ 50.58      $ 55.23  

Tangible Book Value Multiples

 

     Tangible Book Value Per Share Multiple  

Discount Rate

   180.0%      200.0%      220.0%      240.0%      260.0%      280.0%  

8.00%

   $ 41.74      $ 45.86      $ 49.98      $ 54.10      $ 58.22      $ 62.34  

9.00%

   $ 40.03      $ 43.97      $ 47.92      $ 51.86      $ 55.80      $ 59.75  

10.00%

   $ 38.41      $ 42.18      $ 45.96      $ 49.73      $ 53.51      $ 57.29  

11.00%

   $ 36.87      $ 40.48      $ 44.10      $ 47.72      $ 51.33      $ 54.95  

12.00%

   $ 35.40      $ 38.87      $ 42.33      $ 45.80      $ 49.26      $ 52.73  

13.00%

   $ 34.01      $ 37.33      $ 40.65      $ 43.98      $ 47.30      $ 50.62  

D.A. Davidson also considered and discussed with the Northwest board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, D.A. Davidson performed a similar analysis assuming First Interstate estimated earnings per share in 2023 varied from 20.00% above projections to 20.00% below projections. This analysis resulted in

 

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the following range of per share values for First Interstate common stock, using the same forward price to earnings multiples of 12.0x to 22.0x and a discount rate of 11.00%.

 

Variance to

2023 EPS

   Earnings Per Share Multiple  
   12.0x      14.0x      16.0x      18.0x      20.0x      22.0x  

20.00%

   $ 40.74      $ 46.81      $ 52.88      $ 58.96      $ 65.03      $ 71.10  

15.00%

   $ 39.23      $ 45.04      $ 50.86      $ 56.68      $ 62.50      $ 68.31  

10.00%

   $ 37.71      $ 43.27      $ 48.84      $ 54.40      $ 59.97      $ 65.53  

5.00%

   $ 36.19      $ 41.50      $ 46.81      $ 52.13      $ 57.44      $ 62.75  

0.00%

   $ 34.67      $ 39.73      $ 44.79      $ 49.85      $ 54.91      $ 59.97  

-5.00%

   $ 33.15      $ 37.96      $ 42.77      $ 47.57      $ 52.38      $ 57.18  

-10.00%

   $ 31.64      $ 36.19      $ 40.74      $ 45.30      $ 49.85      $ 54.40  

-15.00%

   $ 30.12      $ 34.42      $ 38.72      $ 43.02      $ 47.32      $ 51.62  

-20.00%

   $ 28.60      $ 32.65      $ 36.70      $ 40.74      $ 44.79      $ 48.84  

Financial Impact Analysis

D.A. Davidson performed pro forma merger analyses that combined projected income statement and balance sheet information of Northwest and First Interstate. Assumptions regarding the accounting treatment, acquisition adjustments and cost savings were used to calculate the financial impact that the merger would have on certain projected financial results of First Interstate. In the course of this analysis, D.A. Davidson used the publicly available consensus street estimates for First Interstate for the years ending December 31, 2018 and December 31, 2019, and used management’s budget for Northwest for the years ending December 31, 2018 and December 31, 2019 provided by Northwest management. This analysis indicated that the merger is expected to be accretive to First Interstate’s estimated earnings per share beginning in 2018, after excluding non-recurring transaction-related expenses. The analysis also indicated that the merger is expected to be dilutive to tangible book value per share for First Interstate and that First Interstate would maintain capital ratios in excess of those required for First Interstate to be considered well-capitalized under existing regulations. For all of the above analyses, the actual results achieved by First Interstate and Northwest prior to and following the merger will vary from the projected results, and the variations may be material.

D.A. Davidson prepared its analyses for purposes of providing its opinion to Northwest’s board of directors as to the fairness, from a financial point of view, of the exchange ratio to the holders of Northwest’s common stock in the proposed merger and to assist Northwest’s board of directors in analyzing the proposed merger. The analyses do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties and their respective advisors, none of Northwest, First Interstate or D.A. Davidson or any other person assumes responsibility if future results are materially different from those forecasted.

D.A. Davidson’s opinion was one of many factors considered by the Northwest’s board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the board of directors of Northwest or management with respect to the merger or the merger consideration.

D.A. Davidson and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions. D.A. Davidson acted as financial advisor to Northwest in connection with, and participated in certain of the negotiations leading to the merger. D.A. Davidson is a full-service securities firm engaged, either directly or through its affiliates, in securities trading, investment management, financial planning and benefits counseling, financing and brokerage activities for both companies

 

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and individuals. In the ordinary course of these activities, D.A. Davidson and its affiliates may provide such services to Northwest, First Interstate and their respective affiliates, may actively trade the debt and equity securities (or related derivative securities) of Northwest and First Interstate for their own account and for the accounts of their customers and may at any time hold long and short positions of such securities. Northwest selected D.A. Davidson as its financial advisor because it is a recognized investment banking firm that has substantial experience in transactions similar to the merger. Pursuant to a letter agreement executed on March 19, 2018, Northwest engaged D.A. Davidson as its financial advisor in connection with the contemplated transaction. Pursuant to the terms of the engagement letter, Northwest agreed to pay D.A. Davidson a cash fee of $125,000 concurrently with the rendering of its opinion. Northwest will pay to D.A. Davidson at the time of closing of the merger a contingent cash fee equal to 1.125% of the aggregate consideration. Northwest has also agreed to reimburse D.A. Davidson for all reasonable out-of-pocket expenses, including fees of counsel, and to indemnify D.A. Davidson and certain related persons against specified liabilities, including liabilities under the federal securities laws, relating to or arising out of its engagement.

D.A. Davidson has, in the past, provided certain investment banking services to Northwest and its affiliates, has had a material relationship with Northwest and its affiliates and has received compensation and reimbursement of out-of-pocket expenses for such services. During the two years preceding the date of the opinion, D.A. Davidson received compensation for acting as Northwest’s financial advisor on the acquisition of CenterPointe Community Bank. Additionally, D.A. Davidson may provide investment banking services to the combined company in the future and may receive future compensation.

Certain Financial Projections Utilized by the Northwest Board of Directors and Northwest’s Financial Advisor

Northwest does not, as a matter of course, publicly disclose forecasts or internal projections as to future performance, earnings, or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, Northwest’s management provided its financial advisor, D.A. Davidson, and First Interstate with certain non-public unaudited prospective financial information regarding Northwest prepared by Northwest’s management that was considered by D.A. Davidson for the purpose of preparing its fairness opinion, as described in this document under the heading “– D.A. Davidson’s Opinion to Northwest’s Board of Directors” beginning on page 35. This non-public unaudited prospective financial information was prepared as part of Northwest’s overall process of analyzing various strategic initiatives, and was not prepared for the purposes of, or with a view toward, public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, published guidelines of the SEC regarding forward-looking statements, or GAAP. A summary of certain significant elements of this information is set forth below. The information included below does not comprise all of the prospective financial information provided by Northwest to D.A. Davidson and First Interstate.

Although presented with numeric specificity, the financial forecasts reflect numerous estimates and assumptions of Northwest’s management made at the time they were prepared, and assume execution of various strategic initiatives that Northwest is no longer pursuing in light of the merger. These and the other estimates and assumptions underlying the financial forecasts involve judgments with respect to, among other things, the future interest rate environment and other economic, competitive, regulatory, and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic, competitive, and regulatory uncertainties and contingencies, including, among other things, the inherent uncertainty of the business and economic conditions affecting the industry in which Northwest operates, and the risks and uncertainties described under “Risk Factors” beginning on page 14 and “Cautionary Note About Forward-Looking Statements” beginning on page 19, all of which are difficult to predict and many of which are outside the control of Northwest and will be beyond the control of the combined company. There can be no assurance that the underlying assumptions would prove to be accurate or that the projected results would be realized, and actual results likely would differ materially from those reflected in the financial forecasts, whether

 

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or not the merger is completed. Further, these assumptions do not include all potential actions that management could or might have taken during these time periods.

The inclusion in this document of the non-public unaudited prospective financial information below should not be regarded as an indication that Northwest, First Interstate, their respective boards of directors, or D.A. Davidson considered, or now consider, these projections and forecasts to be a reliable predictor of future results. The financial forecasts are not fact and should not be relied upon as being necessarily indicative of future results, and this information should not be relied on as such. In addition, this information represents Northwest management’s evaluation at the time it was prepared of certain measures of Northwest’s expected future financial performance on a stand-alone basis, assuming execution of certain strategic initiatives. The unaudited prospective financial information does not give effect to the merger, including the impact of negotiating or executing the merger agreement, the expenses that may be incurred in connection with consummating the merger, the potential synergies that may be achieved by the combined company as a result of the merger, the effect on either First Interstate or Northwest, as applicable, of any business or strategic decision or action that has been or will be taken as a result of the merger agreement having been executed, or the effect of any business or strategic decisions or actions that would likely have been taken if the merger agreement had not been executed, but that were instead altered, accelerated, postponed, or not taken in anticipation of the merger.

No assurances can be given that these financial forecasts and the underlying assumptions are reasonable or that, if they had been prepared as of the date of this document, similar assumptions would be used. In addition, the financial forecasts may not reflect the manner in which First Interstate would operate the Northwest business after the merger. First Interstate and Northwest do not intend to, and each disclaims any obligation to, make publicly available any update or other revision to this unaudited prospective financial information to reflect circumstances occurring since its preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions.

The financial forecasts summarized in this section were prepared by and are the responsibility of the management of Northwest. No independent registered public accounting firm has examined, compiled, or otherwise performed any procedures with respect to the prospective financial information contained in these financial forecasts and, accordingly, no independent registered public accounting firm has expressed any opinion or given any other form of assurance with respect thereto and no independent registered public accounting firm assumes any responsibility for the prospective financial information.

Further, the unaudited prospective financial information does not take into account the effect on Northwest or Inland Northwest Bank of any possible failure of the merger to occur. None of Northwest, Inland Northwest Bank, or D.A. Davidson, or their respective affiliates, officers, directors, advisors, or other representatives has made, makes, or is authorized in the future to make any representation to any shareholder of Northwest, or other person regarding Northwest’s ultimate performance compared to the information contained in the unaudited prospective financial information or that the projected results will be achieved. The inclusion of the unaudited prospective financial information herein should not be deemed an admission or representation by First Interstate or Northwest that it is viewed as material information of Northwest or Inland Northwest Bank particularly in light of the inherent risks and uncertainties associated with such projections.

In light of the foregoing, and taking into account that the Northwest special meeting will be held several months after the unaudited prospective financial information was prepared, as well as the uncertainties inherent in any forecasted information, Northwest shareholders are cautioned not to place unwarranted reliance on such information.

 

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The following table presents select unaudited prospective financial data of Northwest for the years ending December 31, 2018 through 2019 prepared by Northwest’s management and provided to D.A. Davidson and First Interstate.

 

     As of and For the Year Ended December 31,  
             2018                      2019          

Net Income (000s)

   $ 8,731      $ 10,357  

Earnings Per Share

     1.16        1.36  

First Interstate’s Reasons for the Merger

First Interstate’s board of directors believes that the merger is in the best interests of First Interstate and its shareholders. In deciding to approve the merger and the merger agreement, First Interstate’s board of directors considered a number of factors, including:

 

    Northwest’s community banking orientation, its favorable reputation within its local communities and its compatibility with First Interstate and its subsidiaries;

 

    First Interstate management’s review of the business, operations, earnings and financial condition, including asset quality, of Northwest;

 

    the scale, scope and strength of operations, product lines and delivery systems that could be achieved by combining First Interstate and Northwest;

 

    the complementary nature of the business, market areas and corporate cultures of First Interstate and Northwest;

 

    First Interstate’s historic performance in similar markets, including its recent successes in Oregon, Idaho and Washington following its acquisition of Bank of the Cascades in 2017;

 

    the expectation that the merger will create the opportunity for the combined company to have superior future earnings and prospects compared to First Interstate’s earnings and prospects on a stand-alone basis;

 

    First Interstate’s successful track record of creating shareholder value through merger and acquisition transactions, including its proven experience in successfully integrating acquired businesses and management’s belief that it will be able to integrate Northwest with First Interstate successfully;

 

    the financial presentation, dated April 23, 2018, of Sandler to the First Interstate board of directors and the opinion, dated April 23, 2018, of Sandler to the First Interstate board of directors as to the fairness, from a financial point of view and as of the date of the opinion, to First Interstate of the exchange ratio in the proposed merger;

 

    the review by First Interstate’s board of directors with its management and legal advisors of the structure and other terms of the merger and the expectation of First Interstate’s legal advisors that the merger will qualify as a transaction of a type that is generally tax-free to Northwest shareholders for U.S. federal income tax purposes (except with respect to cash received in lieu of fractional shares of First Interstate Class A common stock);

 

    First Interstate’s expectation that it will achieve cost savings equal to 30% of Northwest’s current annualized non-interest expense;

 

    that the transaction is expected to be accretive to earnings per share;

 

    the pro forma financial effects of the proposed transaction, including the expected dilution to tangible book value per share; and

 

    the likelihood of regulators approving the merger without burdensome conditions or delay.

 

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The foregoing discussion of the information and factors considered by First Interstate’s board of directors is not intended to be exhaustive. In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, First Interstate’s board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. First Interstate’s board of directors considered all these factors as a whole, with the assistance of First Interstate’s management and First Interstate’s outside financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.

Treatment of Northwest Stock Purchase Warrants and Restricted Stock

At the effective time of the merger, each stock purchase warrant to purchase shares of Northwest common stock outstanding immediately before the effective time of the merger, whether or not vested, will be canceled and, upon First Interstate’s receipt of a warrant termination agreement from the holder, exchanged for a cash payment equal to the product of (1) the number of shares of Northwest common stock subject to the stock purchase warrant multiplied by (2) the amount by which the product of the average closing price and the exchange ratio exceeds the exercise price of such warrant, less applicable withholding taxes.

At the effective time of the merger, each outstanding share of restricted stock will vest and be converted into the right to receive 0.516 shares of First Interstate Class A common stock.

Surrender of Stock Certificates

The conversion of Northwest common stock into the right to receive the merger consideration will occur automatically at the effective time of the merger. As soon as practicable after the completion of the merger, the exchange agent will mail to Northwest shareholders a letter of transmittal, together with instructions for the exchange of their Northwest common stock certificates for the merger consideration. Until you surrender your Northwest stock certificates for exchange after completion of the merger, you will not be paid dividends or other distributions declared after the merger with respect to any First Interstate Class A common stock into which your Northwest shares have been converted. When you surrender your Northwest stock certificates accompanied by a properly completed letter of transmittal, First Interstate will pay any unpaid dividends or other distributions, without interest, that had become payable with respect to the shares of First Interstate Class A common stock into which your Northwest shares had been converted.

If you own shares of Northwest common stock in “street name” through a broker, bank or other nominee, you should receive or seek instructions from the broker, bank or other nominee holding your shares concerning how to surrender your shares of Northwest common stock in exchange for the merger consideration.

If you own shares of Northwest common stock in book-entry form, you are not required to take any additional action to exchange such shares for the merger consideration. Promptly following the completion of the merger, shares of Northwest common stock held in book-entry form automatically will be exchanged for shares of First Interstate Class A common stock in book-entry form and cash to be paid in exchange for fractional shares, if any.

If your Northwest stock certificates have been lost, stolen or destroyed, you will have to provide an affidavit claiming your Northwest stock certificates to be lost, stolen or destroyed, and post a bond in such amount as the exchange agent may direct before you receive any consideration for your shares.

After the completion of the merger, there will be no further transfers of Northwest common stock. Northwest stock certificates presented for transfer after the completion of the merger will be canceled and exchanged for the merger consideration.

 

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Accounting Treatment of the Merger

First Interstate will account for the merger under the “acquisition” method of accounting according to U.S. generally accepted accounting principles. Using the acquisition method of accounting, the assets (including identifiable intangible assets) and liabilities of Northwest will be recorded by First Interstate at their respective fair values at the time of the completion of the merger. The excess of First Interstate’s purchase price over the net fair value of the assets acquired and liabilities assumed will then be recorded as goodwill.

Material U.S. Federal Income Tax Consequences of the Merger

General. The following discussion sets forth the material United States federal income tax consequences of the merger to U.S. holders (as defined below) of Northwest common stock. This discussion does not address any tax consequences arising under the laws of any state, locality, foreign jurisdiction or U.S. federal tax laws other than federal income tax law. This discussion is based upon the Internal Revenue Code, the regulations of the United States Department of the Treasury and court and administrative rulings and decisions in effect on the date of this document. These laws may change, possibly retroactively, and any change could affect the continuing validity of this discussion.

For purposes of this discussion, the term “U.S. holder” means:

 

    a citizen or resident of the United States for U.S. federal income tax purposes;

 

    a corporation created or organized under the laws of the United States or any of its political subdivisions;

 

    a trust that (1) is subject to the supervision of a court within the United States and the control of one or more United States persons or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as United States person; or

 

    an estate that is subject to United States federal income tax on its income regardless of its source.

This discussion assumes that you hold your shares of Northwest common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code. Further, the discussion does not address all aspects of United States federal income taxation that may be relevant to you in light of your particular circumstances or that may be applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:

 

    a financial institution;

 

    a tax-exempt organization;

 

    an S corporation or other pass-through entity;

 

    an insurance company;

 

    a mutual fund;

 

    a dealer in securities or foreign currencies;

 

    a trader in securities who elects the mark-to-market method of accounting for your securities;

 

    a Northwest shareholder whose shares are qualified small business stock for purposes of Section 1202 of the Internal Revenue Code or who may otherwise be subject to the alternative minimum tax provisions of the Internal Revenue Code;

 

    a Northwest shareholder who received Northwest common stock through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan;

 

    a person who has a functional currency other than the U.S. dollar; or

 

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    a Northwest shareholder who holds Northwest common stock as part of a hedge, straddle or a constructive sale or conversion transaction.

If a partnership (including an entity treated as a partnership for United States federal income tax purposes) holds Northwest common stock, the tax treatment of a partner in the partnership will generally depend on the status of such partner and the activities of the partnership.

This discussion is not intended to be tax advice to any particular holder of Northwest common stock. Tax matters regarding the merger are complicated, and the tax consequences of the merger to you will depend on your particular situation. Northwest shareholders are urged to consult their tax advisors as to the U.S. federal income tax consequences of the merger, as well as the effects of state, local, federal non-income and non-U.S. tax laws.

It is a condition to the closing of the merger that First Interstate receive the opinion of its legal counsel, Luse Gorman, PC, and Northwest receive the opinion of its legal counsel, Witherspoon Kelley, each dated as of the effective time of the merger, substantially to the effect that, on the basis of facts, representations and assumptions set forth or referred to in that opinion (including factual representations contained in certificates of officers of First Interstate and Northwest), the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. The tax opinions are not binding on the Internal Revenue Service, which we refer to as the “IRS,” or any court. First Interstate and Northwest have not sought and will not seek any ruling from the IRS regarding any matters relating to the merger and, as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below. In addition, if any of the representations or assumptions upon which the opinions are based are inconsistent with the actual facts, the U.S. federal income tax consequences of the merger could be adversely affected.

Based on the opinion that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, the material U.S. federal income tax consequences of the merger are as follows:

 

    No gain or loss will be recognized by a U.S. holder of Northwest stock upon the receipt of shares of First Interstate Class A common stock in exchange therefor pursuant to the merger (except in respect of cash received in lieu of fractional shares, as discussed below);

 

    The aggregate adjusted tax basis of the shares of First Interstate Class A common stock received by the U.S. holder in the merger will be the same as the aggregate adjusted tax basis of shares of Northwest stock surrendered in exchange therefor, reduced by the tax basis allocable to any fractional share of First Interstate Class A common stock for which cash is received;

 

    The holding period of First Interstate Class A common stock received by a U.S. holder will include the holding period of the Northwest stock exchanged therefor; and

 

    Although no fractional shares of First Interstate Class A common stock will be issued in the merger, a U.S. holder who receives cash in lieu of such a fractional share of First Interstate Class A common stock will generally be treated as having received the fractional share pursuant to the merger and then having sold that fractional share of First Interstate Class A common stock for cash. As a result, a U.S. holder will generally recognize gain or loss equal to the difference between the amount of cash received and the portion of the holder’s aggregate adjusted tax basis of the shares of Northwest stock surrendered that is allocable to its fractional share. Any capital gain or loss will be long-term capital gain or loss if the holding period for the fractional share (including the holding period of the shares of Northwest stock surrendered therefor) is more than one year. Long-term capital gains of individuals generally are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

For purposes of the above discussion of the basis and holding periods for shares of Northwest stock and First Interstate Class A common stock, Northwest shareholders who acquired different blocks of Northwest stock

 

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at different times or at different prices must calculate their basis and holding periods separately for each identifiable block of such stock exchanged or received in the merger.

Backup Withholding. Payments of cash (including cash in lieu of a fractional share, if any) to a U.S. holder of Northwest stock may, under certain circumstances, be subject to information reporting and backup withholding (currently at a rate of 24%) unless such holder provides proof of an applicable exemption or, in the case of backup withholding, furnishes its taxpayer identification number and otherwise complies with the backup withholding rules. Any amounts withheld from payments to a U.S. holder of Northwest stock under the backup withholding rules are not an additional tax and generally will be allowed as a refund or credit against such holder’s federal income tax liability provided that the holder timely furnishes the required information to the IRS.

Reporting Requirements. U.S. holders of Northwest stock who receive First Interstate Class A common stock pursuant to the merger will be required to retain records pertaining to the merger, and any such holder who, immediately before the merger, holds at least 5% (by vote or value) of the outstanding Northwest stock, or securities of Northwest with a basis for federal income tax purposes of at least $1 million, will be required to file with its U.S. federal income tax return for the year in which the merger takes place a statement setting forth certain facts relating to the merger. U.S. holders are urged to consult with their tax advisors with respect to these and other reporting requirements applicable to the merger.

The preceding discussion is a summary of the material U.S. federal income tax consequences of the merger to a U.S. holder of Northwest stock and does not address all potential tax consequences that apply or that may vary with, or are contingent on, individual circumstances, and should not be construed as tax advice. Moreover, the discussion does not address any U.S. federal non-income tax or any foreign, state or local tax consequences of the merger. Tax matters are very complicated and, accordingly, we strongly urge you to consult with a tax advisor to determine the particular federal, state, local and foreign income and other tax consequences to you of the merger.

Regulatory Matters Relating to the Merger

Completion of the merger is subject to the receipt of all required approvals and consents from regulatory authorities. The merger is subject to approval by the Federal Reserve Board, the Montana Division and the Washington Department. First Interstate has filed the required applications. While First Interstate does not know of any reason why it would not obtain the approvals in a timely manner, First Interstate cannot be certain when or if it will receive the regulatory approvals.

Federal Reserve Board. The merger and the bank merger are subject to approval by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended, and the Bank Merger Act, respectively.

The Federal Reserve Board takes into consideration a number of factors when acting on applications under the Bank Merger Act and the Bank Holding Company Act, including: (1) the financial and managerial resources and the effect of the proposed merger on these resources (including capital and pro forma capital ratios of the combined organization, the management expertise, internal controls, and risk management systems, especially those with respect to compliance with laws applicable to consumers and “fair lending” laws); (2) the effect of the proposal on competition; (3) the future prospects of the existing and merged entities; (4) the convenience and needs of the communities served; (5) any risk to the stability of the United States banking or financial system; and (6) the effectiveness of the acquiring entity in combating money laundering activities. The Federal Reserve Board also reviews the records of the relevant insured depository institutions under the Community Reinvestment Act of 1997, which we refer to as the “CRA.” In connection with such a review, the Federal Reserve Board will provide an opportunity for public comment on the application and is authorized to hold a public meeting or other proceeding if it determines such meeting or other proceeding would be appropriate.

In addition, a period of 15 to 30 days must expire following approval by the Federal Reserve Board before completion of the merger is allowed, within which period the United States Department of Justice may file

 

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objections to the merger under the federal anti-trust laws. While First Interstate and Northwest believe that the likelihood of objection by the Department of Justice is remote in this case, there can be no assurance that the Department of Justice will not initiate proceedings to block the merger.

Montana Division. Prior approval of the bank merger is required from the Montana Division. The Division requires a 30-day public comment period on a bank merger application and may consider any comments received and other factors in considering the bank merger.

Washington Department. The bank merger is subject to and must comply with the requirements of the Revised Code of Washington, which we refer to as the “RCW.” Under the RCW, notice of the bank merger must be provided to the Washington Department along with a copy of the Bank Merger Act application filed with the Federal Reserve Board and the applicable fee.

Additional Regulatory Approvals and Notices. Notifications and/or applications requesting approval may be submitted to various other federal and state regulatory authorities and self-regulatory organizations. The bank merger will result in First Interstate’s acquisition of Northwest branches located in Idaho and Oregon. Accordingly, First Interstate will submit a notice to the Idaho Department of Finance and the Oregon Department of Consumer and Business Services.

The merger cannot proceed in the absence of the requisite regulatory approvals. See “—Conditions to Completing the Merger” and “—Terminating the Merger Agreement.” There can be no assurance that the requisite regulatory approvals will be obtained, and if obtained, there can be no assurance as to the date of any approval. There also can be no assurance that any regulatory approvals will not contain a condition or requirement that causes the approvals to fail to satisfy one or more conditions set forth in the merger agreement and described under “—Conditions to Completing the Merger.”

The approval of any application merely implies the satisfaction of regulatory criteria for approval, which does not include, for example, review of the merger from the standpoint of the adequacy of the merger consideration. Furthermore, regulatory approvals do not constitute an endorsement or recommendation with respect to the merger.

Interests of Certain Persons in the Merger that are Different from Yours

In considering the recommendation of the board of directors of Northwest to approve the merger agreement and the merger, you should be aware that Northwest’s executive officers have employment and other compensation agreements or plans that give them financial interests in the merger that are different from, or in addition to, the interests of Northwest shareholders generally, which are described below. Northwest’s board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and the transactions contemplated by the merger agreement.

Treatment of Restricted Stock Awards. The merger agreement provides that at the effective time of the merger, each unvested share of restricted stock issued by Northwest and outstanding at the effective time of the merger will fully vest and convert into the right to receive the same merger consideration that all other shares of Northwest common stock are entitled to receive in the merger.

Restricted Stock Awards Held by Northwest’s Three Most Highly Compensated Executive Officers. Russell A. Lee, Holly A. Poquette and Chad R. Burchard, the three most highly compensated executive officers based on 2017 compensation, hold 33,333, 11,867, and 15,167 restricted stock awards, respectively, that will become fully vested at the effective time of the merger, assuming the effective date of the merger is September 30, 2018, and convert into the right to receive the same merger consideration that all other shares of Northwest common stock are entitled to receive in the merger. Northwest’s non-employee directors do not hold any non-vested restricted stock awards. The estimated value of the restricted stock awards that would be made to

 

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each of Russell A. Lee, Holly A. Poquette and Chad R. Burchard on settlement of their unvested Northwest equity awards is $673,460, $239,761 and $306,434, respectively. These estimated values are based on a per share price of Northwest common stock of $20.20, which is the average closing market price of Northwest common stock over the five business days following the public announcement of the merger. The actual value of the unvested equity awards will be determined based on the closing price at the effective time of the merger.

Payments Under Employment Agreements with Inland Northwest Bank. Inland Northwest Bank previously entered into employment agreements with each of Messrs. Lee and Burchard and Ms. Poquette. The employment agreements provide generally that in the event an involuntary termination of employment without cause (as defined in the executive’s agreement) or a voluntary termination by the executive within 24 months following a change in control (which we refer to as the “Change in Control Election Period”), the executive will receive a cash severance payment equal to the executive’s monthly base salary for the number of remaining months in the Change in Control Election Period. Each employment agreement provides that payments will be reduced by the minimum amount necessary so that such payments would not result in the loss of deductibility to Northwest under Section 280G of the Internal Revenue Code or imposition of excise taxes on the executive under Section 4999 of the Internal Revenue Code. Mr. Lee and Ms. Poquette’s benefits under their employment agreements will be determined pursuant to a settlement agreement entered into with each executive concurrent with the execution of the merger agreement, as discussed in more detail below. The estimated amount that would be payable to Mr. Burchard under his employment agreement is $415,000.

Settlement Agreements with Russell A. Lee and Holly A. Poquette. In connection with the execution of the merger agreement, First Interstate, First Interstate Bank, Northwest and Inland Northwest Bank entered into a settlement agreement with each of Mr. Lee and Ms. Poquette. In accordance with the terms of each settlement agreement, the executive’s employment agreement will be terminated, effective as of the closing of the merger, and in lieu of any payments under such agreement, Mr. Lee and Ms. Poquette, respectively, will be entitled to a cash payment equal to one dollar less than three times the executive’s “base amount,” as determined in accordance with Section 280G of the Internal Revenue Code, less: (1) the “parachute payment” value, as determined in accordance with Section 280G of the Code, of the accelerated vesting of the executive’s restricted stock outstanding as of the closing of the merger; (2) for Mr. Lee only, the payment will be further reduced by the value of the life insurance, with a death benefit of $1,200,000, that First Interstate Bank will provide to him in his capacity as a First Interstate Bank executive; and (3) for Ms. Poquette only, the payment will be further reduced by the retention payment of $150,000 that she will be entitled to receive as a First Interstate Bank officer. The payments are subject to a possible reduction so that the payments to Mr. Lee or Ms. Poquette, respectively, would not result in the loss of deductibility to Northwest under Section 280G of the Internal Revenue Code or imposition of excise taxes on Mr. Lee under Section 4999 of the Internal Revenue Code. The settlement agreement with Mr. Lee provides that he will continue employment with First Interstate Bank as the Executive Vice President of Special Projects at an initial base salary rate of $350,000 per year and that First Interstate will grant Mr. Lee a one-time restricted stock grant with a grant date fair value equal to $200,000, with such award subject to a two-year vesting schedule, with vesting in equal tranches every six months. The settlement agreement with Ms. Poquette provides that she will continue employment with First Interstate Bank with her current base salary until the earlier of (1) six months following the date of the merger, or (2) an earlier date as determined by First Interstate Bank (which we refer to as the “Retention Date”) and First Interstate Bank will pay her an additional $150,000 if she is employed on the Retention Date. The estimated amounts that would be payable to Russell A. Lee and Holly A. Poquette under their settlement agreements is approximately $812,212, and $410,452, respectively.

Non-Competition Agreement and Consulting and Release Agreement with Russell A. Lee. In connection with the execution of the merger agreement, First Interstate Bank entered into a non-competition agreement and a consulting and release agreement with Mr. Lee. The non-competition agreement provides generally that Mr. Lee may not compete with First Interstate Bank and he may not solicit business, customers and employees for two years following the date he terminates his position with First Interstate Bank (which we refer to as the “Resignation Date”). In exchange for the non-competition and non-solicitation restrictions, First

 

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Interstate or First Interstate Bank will pay Mr. Lee an amount equal to $1.2 million. The consulting and release agreement provides that Mr. Lee will serve as a consultant to First Interstate Bank, on the first business day immediately following the Resignation Date, for up to two years. In exchange for consulting services and a full release of legal claims, First Interstate Bank will pay Mr. Lee an amount equal to $14,583 a month.

Summary of Merger-Related Executive Compensation for Northwest’s Three Most Highly Compensated Executive Officers. The following table sets forth the amount of payments and benefits that each of Messrs. Lee, Burchard and Ms. Poquette would receive in connection with the merger, as described above. This table does not include the value of benefits in which the executives are vested without regard to the occurrence of a change in control. The amounts shown below are estimates based on multiple assumptions that may or may not actually occur, and as a result, the actual amounts to be received by an executive may differ materially from the amounts shown below.

 


Executive

   Cash
($)(1) 
     Equity
($)(2)
     Non-Competition
Agreement
($)
     Consulting and
Release
Agreement
($)(3)
     Total
($)
 

Russell A. Lee

     1,512,212        873,460        1,200,000        350,000        3,935,672  

Holly A. Poquette

     560,452        239,761        —          —          800,213  

Chad R. Burchard

     415,000        306,434        —          —          721,434  

 

(1) The cash payments consist of: (a) for Mr. Lee, an estimated $812,212 payable pursuant to his settlement agreement and an estimated payment of up to $700,000 payable as an officer of First Interstate Bank, assuming that he remains employed for two years; and (b) for Ms. Poquette, an estimated $410,452 payable pursuant to her settlement agreement and a $150,000 retention payment, assuming that she remains employed for up to six months; (c) for Mr. Burchard, the estimated amount payable under his employment agreement. The cash severance payments, as applicable, will be reduced to avoid excise taxes under Section 280G of the Internal Revenue Code; and accordingly, the above cash payments reflect a reduction for Mr. Lee and Ms. Poquette of $136,838 and $24,359, respectively.
(2) Represents the estimated value of the non-vested restricted stock awards that become vested at the effective time of the merger, based on a per share price of Northwest common stock of $20.20, which is the average closing market price of Northwest common stock over the five business days following the public announcement of the merger. In addition, for Mr. Lee, the amount includes the restricted stock grant, with a value of $200,000 and subject to a two-year vesting schedule, that he will receive immediately following the effective date of the merger.
(3) Represents the amount of consulting fees to be paid to Mr. Lee, assuming he provides consulting services for two years.

Indemnification and Insurance of Directors and Officers. In the merger agreement, First Interstate has agreed to indemnify and hold harmless each of the current and former officers and directors of Northwest and its subsidiaries against any costs, expenses, judgments, fines, amounts paid in settlements, damages and other liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether arising before or after the effective time of the merger, pertaining to any matter that existed or occurred at or before the effective time of the merger to the same extent as Northwest currently provides for indemnification of its officers and directors. First Interstate has also agreed to maintain in effect for a period of six years following the effective time of the merger the directors’ and officers’ liability insurance policy currently maintained by Northwest or to provide a policy with comparable coverage, provided that, to obtain such insurance coverage, First Interstate is not obligated to expend, in the aggregate, an amount exceeding 200% of the amount of the annual premiums currently paid by Northwest for such insurance.

Employee Matters

Each person who is an employee of Inland Northwest Bank as of the effective time of the merger (whose employment is not specifically terminated as of the effective time of the merger) will become an employee of

 

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First Interstate Bank. These employees would continue on Inland Northwest Bank’s benefit plans through the end of 2018 and will be eligible to participate in employee benefit plans and compensation opportunities that are substantially comparable to the employee benefit and compensation opportunities that are generally made available to similarly situated employees of First Interstate Bank beginning in 2019; provided, however, that continuing employees will not be eligible to participate in any frozen plans of First Interstate Bank. With respect to any First Interstate Bank medical, dental or vision insurance plan, First Interstate Bank will cause any preexisting condition limitations or eligibility waiting periods to be waived and credit each continuing employee for any co-payments or deductibles incurred by such continuing employee under an Inland Northwest Bank health plan for the plan year in which coverage commences under First Interstate Bank’s health plan. Terminated Inland Northwest Bank employees that do not continue as employees of First Interstate Bank following the effective time of the merger, and their qualified beneficiaries, will have the right to continued coverage in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985.

Continuing employees will receive prior service credit for purposes of eligibility and vesting (but not for purposes of benefit accrual under First Interstate Bank’s 401(k) Plan for 2018 employer contributions) provided that such recognition of service will not (1) apply to paid time-off, to the extent, at First Interstate Bank’s discretion, the cash value of unused paid time-off is paid to continuing employees, or (2) operate to duplicate any benefits with respect to the same period of service.

Each full-time employee of Northwest or Inland Northwest Bank whose employment is involuntarily terminated by First Interstate (other than for cause) within six months following the effective time of the merger and who is not covered by a separate employment agreement, change in control agreement or other agreement that provides for the payment of severance will, upon executing an appropriate release in the form reasonably determined by First Interstate, receive a severance payment equal to two weeks of base pay for each year of service with Northwest, with a minimum payment equal to four weeks for base pay and a maximum payment of 52 weeks of base pay. First Interstate will offer Inland Northwest Bank employees whose jobs are eliminated as a result of the merger priority in applying for open positions with First Interstate and First Interstate Bank.

First Interstate will provide all employees of Inland Northwest Bank whose employment was terminated other than for cause, disability or retirement at or following the merger, job counseling and outplacement assistance services to assist such employees in locating new employment. First Interstate will notify all such employees of opportunities for positions that First Interstate Bank reasonably believes such persons are qualified and will consider any application for such positions submitted by such persons, provided, however, that any decision to offer employment to any such person will be made in the sole discretion of First Interstate Bank.

A retention bonus pool will be established for employees of Inland Northwest Bank other than employees of Inland Northwest Bank who are covered by employment agreements or other contracts providing for severance, as jointly designated by First Interstate and Inland Northwest Bank. The amount and payment date of the retention bonus for each employee will be jointly determined by First Interstate and Inland Northwest Bank.

Operations of First Interstate Bank after the Merger

The merger agreement provides for the merger of Northwest with and into First Interstate, with First Interstate as the surviving entity. Following the merger of Northwest with and into First Interstate, First Interstate will merge Inland Northwest Bank with and into First Interstate Bank, with First Interstate Bank as the surviving bank.

The directors and executive officers of First Interstate and First Interstate Bank will remain the same following the merger.

Resale of Shares of First Interstate Class A Common Stock

All shares of First Interstate Class A common stock issued to Northwest’s shareholders in connection with the merger will be freely transferable. This document does not cover any resales of the shares of First Interstate

 

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Class A common stock to be received by Northwest’s shareholders upon completion of the merger, and no person may use this document in connection with any resale.

Time of Completion

Unless the parties agree otherwise and unless the merger agreement has otherwise been terminated, the closing of the merger will take place within 15 days following the date on which all of the conditions to the merger contained in the merger agreement are satisfied or waived. See “—Conditions to Completing the Merger.” On the closing date, to merge Northwest into First Interstate, First Interstate will file Articles of Merger with the Montana Secretary of State and the Washington Secretary of State. The merger will become effective at the time stated in the Articles of Merger.

It is currently expected that the merger will be completed late in the third quarter or early in the fourth quarter of 2018. However, because completion of the merger is subject to regulatory approvals and other conditions, the parties cannot be certain of the actual timing of the completion of the merger.

Conditions to Completing the Merger

First Interstate’s and Northwest’s obligations to consummate the merger are conditioned on the following:

 

    approval of the merger agreement by Northwest shareholders;

 

    receipt of all required regulatory approvals, consents or waivers and the expiration of all statutory waiting periods;

 

    the absence of any order, decree, injunction, statute, rule or regulation that prevents the consummation of the merger or the bank merger or that makes completion of the merger or the bank merger illegal;

 

    receipt of consent of all third parties whose consent is required to consummate the merger, except where failure to obtain such consent would not have a material adverse effect on First Interstate;

 

    effectiveness of the registration statement of which this document is a part;

 

    First Interstate filing a notice with The Nasdaq Stock Market for the listing of the shares of First Interstate Class A common stock to be issued by First Interstate in the merger, and The Nasdaq Stock Market authorizing and not objecting to the listing of such shares of First Interstate Class A common stock; and

 

    receipt by each of First Interstate and Northwest of an opinion from their respective legal counsel to the effect that the merger will be treated for federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code.

In addition, First Interstate’s obligations to consummate the merger are conditioned on the following:

 

    the representations and warranties of Northwest contained in the merger agreement being true and correct as of the closing date of the merger (except to the extent such representations and warranties speak as of an earlier date and subject to materiality and material adverse effect standards described in the merger agreement), and the receipt by First Interstate of a written certificate from Northwest’s Chief Executive Officer and Chief Financial Officer to that effect;

 

    Northwest’s performance in all material respects of all of its obligations and covenants required to be performed before the effective time of the merger, and First Interstate’s receipt of a written certificate from Northwest’s Chief Executive Officer and Chief Financial Officer to that effect;

 

   

none of the regulatory approvals, consents or waivers necessary to consummate the merger and the transactions contemplated by the merger agreement including any condition or requirement that would so materially and adversely impact the economic or business benefits to First Interstate of the

 

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transactions contemplated by the merger agreement that, had such condition or requirement been known, First Interstate would not, in its reasonable judgment, have entered into the merger agreement; and

 

    as of the date immediately before the closing of the merger, no more than 10% of the outstanding shares of Northwest common stock having exercised its dissenters’ rights.

In addition, Northwest’s obligations to consummate the merger are conditioned on the following:

 

    the representations and warranties of First Interstate contained in the merger agreement being true and correct as of the closing date of the merger (except to the extent such representations and warranties speak as of an earlier date and subject to materiality and material adverse effect standards described in the merger agreement), and Northwest’s receipt of a written certificate from First Interstate’s Chief Executive Officer and Chief Financial Officer to that effect; and

 

    First Interstate’s performance in all material respects of all of its obligations and covenants required to be performed before the effective time of the merger, and Northwest’s receipt of a written certificate from Northwest’s Chief Executive Officer and Chief Financial Officer to that effect.

First Interstate and Northwest cannot guarantee that all of the conditions to the merger will be satisfied or waived by the party permitted to do so.

Conduct of Business Before the Merger

Northwest has agreed that, until completion of the merger and unless consented to by First Interstate, or to the extent required by law or regulation of any governmental entity, neither Northwest nor its subsidiaries will:

General Business

 

    conduct its business other than in the regular, ordinary and usual course consistent with past practice;

 

    fail to use reasonable efforts to maintain and preserve intact its business organization, properties, leases, employees and advantageous business relationships and retain the services of its officers and key employees;

 

    take any action that would adversely affect or materially delay its ability to perform its obligations under the merger agreement or to consummate the transactions contemplated by the merger agreement;

Indebtedness

 

    incur, modify, extend or renegotiate any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any person, other than deposits in the ordinary course of business consistent with past practice and advances from the Federal Home Loan Bank with a maturity of not more than one year;

 

    prepay any indebtedness or other similar arrangements to cause Northwest to incur any prepayment penalty;

 

    purchase any brokered certificates of deposit;

Capital Stock

 

    adjust, split, combine or reclassify its capital stock;

 

    make, declare or pay any dividend or make any other distribution on its capital stock, except for distributions payable to service Northwest’s outstanding subordinated notes and distributions from Inland Northwest Bank to Northwest to cover certain expenses;

 

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    grant any person any right to acquire any shares of its capital stock or make any grant or award under the Northwest’s equity plans;

 

    issue any additional shares of capital stock or any securities or obligations convertible or exercisable for any shares of its capital stock, except pursuant to the exercise of stock purchase warrants outstanding as of the date of the merger agreement;

 

    redeem or otherwise acquire any shares of its capital stock other than a security interest or as a result of the enforcement of a security interest and other than provided in the merger agreement;

Dispositions

 

    sell, transfer, mortgage, encumber or otherwise dispose of any of its real property or other assets to any person other than to its subsidiary or cancel, release or assign any indebtedness or claims, other than in the ordinary course of business consistent with past practice;

Investments

 

    make any equity investment, either by purchase of stock or securities, contributions to capital, property transfers, or purchase of any property or assets of any other person, or form any new subsidiary;

 

    purchase any debt security other than U.S. government and U.S. government agency securities with final maturities of less than one year;

 

    enter into any futures contract, option, swap agreement, interest rate cap, interest rate floor, interest rate exchange agreement, or take any other action to hedge the exposure of its interest-earning assets or interest-bearing liabilities to changes in market rates of interest;

Contracts

 

    enter into, renew, amend or terminate any material contract or make any change in its leases or material contracts;

Loans

 

    except for loans or commitments for loans that have previously been approved by Northwest before the date of the merger agreement, make, renegotiate, renew, increase the amount of, extend the term of, modify or purchase any loans, or make any commitment in respect of any of the foregoing, except in conformity with existing lending practices;

 

    make any new loan, or commit to make any new loan, to any director or executive officer of Northwest or Inland Northwest Bank, or, except for in accordance with Regulation O of the Federal Reserve Board regulations, amend, renew or increase any existing loan, or commit to do so, with any director or executive officer of Northwest or Inland Northwest Bank;

 

    purchase or sell any mortgage loan servicing rights other than in the ordinary course of business consistent with past practice;

Benefit Plans

 

    increase the compensation or benefits payable to any employee or director other than in the ordinary course of business consistent with past practice and pursuant to policies and written incentive plans in effect;

 

    pay any bonus, pension, retirement allowance or contribution except for cash bonuses in the ordinary course of business, consistent with past practice but not to exceed 10% of such individual’s base salary or wage rate as of the date of the merger agreement;

 

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    become a party to, renew or amend any employee benefit, pension, retirement, profit-sharing or welfare plan or employment, severance or change in control agreement;

 

    amend the terms of any outstanding stock purchase warrant or accelerate the vesting of, or lapse the restrictions with respect to, any stock purchase warrants or other stock-based compensation; or make any contributions to any defined contribution plan not in the ordinary course of business consistent with past practice;

Employees

 

    elect any person to any office with the title of Senior Vice President or higher who does not currently hold such office or elect any person to the board of directors who is not a member of the board as of the date of the merger agreement;

 

    hire any employee whose annual base salary would be greater than $100,000, except as may be necessary to replace any employee;

Settling Claims

 

    commence any action or proceeding other than to enforce any obligation owed to Northwest and in accordance with past practice, or settle any claim, action or proceeding against it involving payment of money damages in excess of $100,000 or that would impose any material restrictions on Northwest’s operations;

Governing Documents

 

    amend Northwest’s articles of incorporation or bylaws, or similar governing documents;

Deposits

 

    increase or decrease the rate of interest paid on time deposits or on certificates of deposit, except in the ordinary course of business;

Capital Expenditures

 

    make any capital expenditures in excess of $100,000, other than existing binding commitments as of the date of the merger agreement and expenditures reasonably necessary to maintain existing assets in good repair;

Branches

 

    establish or commit to establish any new branch office or file any application to relocate or terminate any banking office;

Policies

 

    make any changes in policies in any material respect in existence on the date of the merger agreement with regard to: the extension of credit, or the establishment of reserves with respect to possible loss thereon or the charge off of losses incurred thereon; investments; asset/liability management; deposit pricing or gathering; underwriting, pricing, originating, acquiring, selling, servicing or buying or selling rights to service, loans; its hedging practices and policies; or other material banking policies, in each case except as may be required by changes in applicable law or regulations, generally accepted accounting principles, or at the direction of a governmental entity;

 

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Communications

 

    except as required by law or for communications in the ordinary course of business consistent with past practice that do not relate to the merger: (1) issue any communication of a general nature to employees without prior consultation with First Interstate and, to the extent relating to post-closing employment, benefit or compensation information, without the prior consent of First Interstate (which will not be unreasonably withheld, conditioned or delayed); or (2) issue any communication of a general nature to customers without the prior approval of First Interstate (which will not be unreasonably withheld, conditioned or delayed);

Environmental Assessments

 

    except with respect to foreclosures in process as of the date of the merger agreement, foreclose upon or take a deed or title to any commercial real estate (1) without providing prior notice to First Interstate and conducting a Phase I environmental assessment of the property, and (2) if the Phase I environmental assessment reflects the presence of any hazardous material or underground storage tank;

Taxes

 

    make, change or rescind any material tax election concerning Northwest’s taxes or tax returns, file any amended tax return, enter into any closing agreement with respect to taxes, settle any material tax claim, assessment or surrender any right to claim a tax refund;

Accounting

 

    implement or adopt any change in its accounting principles, practices or methods, other than as may be required by generally accepted accounting principles or regulatory guidelines;

New Lines of Business

 

    enter into any new lines of business;

Merger or Liquidation

 

    merge or consolidate Inland Northwest Bank or any subsidiary with any other corporation or restructure, reorganize or completely or partially liquidate or dissolve itself or any of its subsidiaries;

Tax-Free Reorganization

 

    knowingly take action that would prevent or impede the merger from qualifying as a reorganization under the Internal Revenue Code;

Other Agreements

 

    take any action that is intended or expected to result in any of Northwest’s representations and warranties set forth in the merger agreement being or becoming untrue in any material respect at any time before the effective time, or in any of the closing conditions not being satisfied or in a violation of any provision of the merger agreement; or

 

    agree to take, commit to take or adopt any resolutions in support of any of the actions prohibited by the section in the merger agreement governing Northwest’s conduct of business until the completion of the merger.

 

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First Interstate has agreed that, until the completion of the merger and unless permitted by Northwest, or to the extent required by laws or regulation of any governmental entity, or as expressly contemplated or permitted by the merger agreement or as required by law, it will not:

 

    conduct its business other than in the regular, ordinary and usual course consistent with past practice;

 

    fail to use reasonable efforts to maintain and preserve intact its business organization, properties, leases, employees and advantageous business relationships and retain the services of its officers and key employees;

 

    take any action that would adversely affect or materially delay its ability to perform its obligations under the merger agreement or to consummate the transactions contemplated by the merger agreement;

 

    take any action that is intended or expected to result in any of First Interstate’s representations and warranties set forth in the merger agreement being or becoming untrue in any material respect at any time before the effective time, or in any of the closing conditions not being satisfied or in a violation of any provision of the merger agreement;

 

    knowingly take action that would prevent or impede the merger from qualifying as a reorganization under the Internal Revenue Code;

 

    agree to take, commit to take or adopt any resolutions in support of any of the actions prohibited by the section in the merger agreement governing First Interstate’s conduct of business until the completion of the merger; or

 

    amend or repeal its articles of incorporation or bylaws in a manner that would adversely affect Northwest or any Northwest shareholder or the transactions contemplated by the merger agreement.

Additional Covenants of Northwest and First Interstate in the Merger Agreement

Agreement Not to Solicit Other Proposals. From the date of the merger agreement until the earlier of the closing of the merger or the termination of the merger agreement, Northwest will not, and will not authorize or permit any of its subsidiaries or any of its subsidiaries’ officers, directors, employees, or any investment banker, financial advisor, attorney, accountant or other representative, directly or indirectly: (1) solicit, initiate, induce or encourage, or take any action to facilitate, any inquiries, offers, discussions or the making of any proposal that constitutes or could reasonably be expected to lead to, an acquisition proposal by a third party; (2) furnish any confidential or non-public information regarding Northwest, or afford access to any such information or data, to any person in connection with or in response to an acquisition proposal by a third party or an inquiry or indication of interest that would reasonably be expected to lead to such an acquisition proposal; (3) continue or otherwise participate in any discussions or negotiations, or otherwise communicate in any way with any person other than First Interstate, regarding an acquisition proposal by a third party; (4) approve, endorse or recommend any acquisition proposal by a third party; (5) release any person from, waive any provisions of, or fail to use its reasonable best efforts to enforce any confidentiality agreement or standstill agreement to which Northwest is a party; or (6) enter into or consummate any agreement, agreement in principle, letter of intent, arrangement or understanding contemplating any acquisition proposal by a third party or requiring Northwest to abandon, terminate or fail to consummate the transactions contemplated by the merger agreement.

An acquisition proposal is a proposal or offer, whether or not in writing, with respect to any of the following:

 

    any merger, consolidation, share exchange, business combination or other similar transaction involving Northwest or its subsidiaries;

 

    any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 20% or more of the consolidated assets of Northwest in a single transaction or series of transactions;

 

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    any tender offer or exchange offer for 20% or more of the outstanding shares of Northwest capital stock or the filing of a registration statement under the Securities Act of 1933, as amended, in connection therewith;

 

    any transaction that is similar in form, substance or purpose to any of the foregoing transactions or any combination of the foregoing transactions; or

 

    any public announcement, notice or regulatory filing or a proposal, plan or intention to do any of the foregoing transactions or any agreement to engage in any of the foregoing transactions.

Despite the agreement of Northwest not to solicit other acquisition proposals, Northwest may generally, negotiate or have discussions with, or provide non-public information to, a third party before the Northwest shareholder meeting, provided that the Northwest board of directors determines in good faith, after consultation with its outside legal counsel, that the failure to take such action would reasonably be expected to violate the directors’ fiduciary obligations to Northwest’s shareholders under applicable law and that the acquisition proposal constitutes or is reasonably expected to result in a superior proposal. Before providing any non-public information to, or entering into discussions with, a third party, Northwest must give First Interstate written notice of the identity of the third party and of Northwest’s intention to furnish non-public information to, or enter into discussion with, such third party and Northwest must enter into a confidentiality agreement with such third party on terms no more favorable to such third party than the confidentiality agreement between First Interstate and Northwest. A “superior proposal” is an unsolicited, bona fide written offer or proposal made by a third party to consummate an acquisition proposal by a third party that: (1) Northwest’s board of directors determines in good faith, after consulting with its outside legal counsel and its financial advisor, would, if consummated, result in a transaction that is more favorable to the shareholders of Northwest than the transactions contemplated by the merger agreement (taking into account all factors relating to such proposed transaction deemed relevant by Northwest’s board of directors, including without limitation, the amount and form of consideration, the timing of payment, the risk of consummation of the transaction, the financing thereof and all other conditions thereto (including any adjustments to the terms and conditions of such transactions proposed by First Interstate in response to such acquisition proposal)); (2) is for 100% of the outstanding shares of Northwest common stock or all or substantially all of the assets of Northwest; and (3) is reasonably likely to be completed on the terms proposed, in each case taking into account all legal, financial, regulatory and other aspects of such acquisition proposal.

If Northwest receives an acquisition proposal or information request from a third party or enters into negotiations with a third party regarding a superior proposal, Northwest must notify First Interstate orally within 24 hours, and within two calendar days in writing, of the receipt of the acquisition proposal or information request and provide First Interstate with information about the third party and its proposal or information request.

Certain Other Covenants. The merger agreement also contains other agreements relating to the conduct of First Interstate and Northwest before consummation of the merger, including but not limited to the following:

 

    each party will promptly advise the other party of (1) any representation or warranty made by it contained in the merger agreement becoming untrue or inaccurate in any material respect or (2) the failure by it to comply in any material respect with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under the merger agreement;

 

    First Interstate and Northwest will provide each other reasonable access during normal business hours to its books, records, contracts, properties, personnel, information technology systems and such other information relating to the other party as may be reasonably requested;

 

    Northwest will provide First Interstate with a copy of each report filed with a governmental entity, each periodic report provided to its senior management and all materials relating to its business or operations furnished to its board of directors, each press release and all other information concerning its business, properties and personnel as First Interstate may reasonably request;

 

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    Northwest will meet with First Interstate on a regular basis to discuss and plan for the conversion of Northwest’s data processing and related electronic information systems;

 

    First Interstate and Northwest will cooperate with each other and use their reasonable best efforts to prepare and file all necessary applications, notices and other filings with any governmental entity, the approval of which is required to complete the merger and the other transaction contemplated by the merger agreement;

 

    First Interstate and Northwest, and their respective subsidiaries, will use their reasonable best efforts to obtain all third-party consents that are required to consummate the merger and the other transactions contemplated by the merger agreement;

 

    Northwest will take all steps required to exempt First Interstate, the merger agreement and the transactions contemplated by the merger agreement from any provisions of an anti-takeover nature in Northwest’s articles of incorporation and bylaws, or similar organizational documents, and the provisions of any federal or state anti-takeover laws;

 

    First Interstate and Northwest will use their reasonable best efforts to take promptly all actions and to do promptly all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by the merger agreement;

 

    First Interstate and Northwest will consult with one another before issuing any press release or otherwise making public statements with respect to the merger;

 

    Northwest will take all actions necessary to call, give notice of, convene and hold a meeting of its shareholders as promptly as practicable to vote on the merger agreement and the transactions provided for in the merger agreement;

 

    Northwest’s board of directors will recommend at its shareholder meeting that the shareholders vote to approve the merger agreement and will use its commercially reasonable efforts to obtain shareholders’ approval (provided, however, that, before the Northwest special meeting, Northwest’s board of directors may, if it concludes in good faith (after consultation with its outside legal advisors) that the failure to do so would be reasonably likely to result in a violation of its fiduciary duties under applicable law, withdraw, modify or change its recommendation that Northwest’s shareholders approve the merger agreement in a manner adverse to First Interstate; provided Northwest has not breached its obligation not to solicit other acquisition proposals and, if the decision relates to a third party acquisition proposal, Northwest has provided to First Interstate the material terms and conditions of the acquisition proposal or inquiry and given First Interstate the opportunity to revise the merger agreement in light of the third party acquisition proposal);

 

    within 45 days following the date of the merger agreement, First Interstate will prepare and file a registration statement, of which this document forms a part, with the SEC registering the shares of First Interstate Class A common stock to be issued in the merger to Northwest shareholders;

 

    First Interstate will use its reasonable best efforts to have the registration statement, of which this document forms a part, declared effective by the SEC;

 

    First Interstate will take any action required to be taken under applicable state securities laws;

 

    before completion of the merger, First Interstate will notify The Nasdaq Stock Market of the additional shares of First Interstate Class A common stock that First Interstate will issue in exchange for shares of Northwest common stock;

 

    First Interstate will indemnify Northwest’s and its subsidiaries’ current and former directors, officers and employees to the fullest extent as would have been permitted under Washington law and the Northwest articles of incorporation and bylaws and advance expenses as incurred to the fullest extent permitted under applicable law;

 

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    First Interstate will maintain for a period of six years after completion of the merger Northwest’s current directors’ and officers’ liability insurance policies, or policies of at least the same coverage and amount and containing terms and conditions that are no less favorable than the current policy, with respect to acts or omissions occurring after before the effective time of the merger, except that First Interstate is not required to incur in the aggregate an expense greater than 200% of Northwest’s current annual directors’ and officers’ liability insurance premium;

 

    Northwest will give First Interstate the opportunity to participate, at its own expense, in the defense or settlement of any shareholder litigation against Northwest and/or its directors relating to the transactions contemplated by the merger agreement, and no such settlement will be agreed to without First Interstate’s prior written consent (such consent not to be unreasonably withheld or delayed); and

 

    First Interstate will assume the Northwest Bancorporation Capital Trust I trust preferred securities and all of Northwest’s obligations under the related indentures at the closing of the merger.

Representations and Warranties Made by First Interstate and Northwest in the Merger Agreement

First Interstate and Northwest have made certain customary representations and warranties to each other in the merger agreement relating to their businesses. The representations and warranties contained in the merger agreement were made only for purposes of such agreement and are made as of specific dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed to by First Interstate or Northwest, including being qualified by disclosures between the parties. These representations and warranties may have been made to allocate risk between the parties to the merger agreement instead of establishing these matters as facts, and may be subject to standards of materiality that differ from the standard of materiality that an investor may apply when reviewing statements of factual information.

Each of First Interstate and Northwest has made representations and warranties to the other regarding, among other things:

 

    corporate matters, including due organization, qualification and the organizational structure, including corporate matters related to subsidiaries;

 

    capitalization, including total outstanding shares and classes of stock;

 

    authority relative to execution and delivery of the merger agreement and the absence of conflicts with, violations of, or a default under organizational documents or other obligations as a result of the merger;

 

    governmental filings and consents necessary to complete the merger;

 

    the timely filing of regulatory and, for First Interstate, securities reports;

 

    financial statements;

 

    undisclosed liabilities;

 

    litigation matters;

 

    tax matters;

 

    the absence of any event or action that would, or reasonably be expected to, constitute a material adverse effect since December 31, 2017;

 

    legal proceedings;

 

    the absence of regulatory actions;

 

    compliance with applicable laws;

 

    the existence, performance and legal effect of certain contracts;

 

    intellectual property and IT systems;

 

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    labor and employee benefit matters;

 

    real and personal property;

 

    receipt of a fairness opinion;

 

    compliance with applicable environmental laws;

 

    loan portfolio matters;

 

    anti-takeover provisions;

 

    insurance matters;

 

    corporate documents and records;

 

    community reinvestment act and regulatory compliance matters;

 

    internal controls; and

 

    tax treatment of the merger.

In addition, Northwest has made other representations and warranties about itself to First Interstate as to:

 

    brokers or financial advisor fees;

 

    material interests of certain persons;

 

    investment portfolio matters;

 

    related party transactions; and

 

    trust accounts.

The representations and warranties of each of First Interstate and Northwest will expire upon the effective time of the merger.

Terminating the Merger Agreement

The merger agreement may be terminated by mutual written consent of First Interstate and Northwest at any time before the completion of the merger. Additionally, subject to conditions and circumstances described in the merger agreement, either First Interstate or Northwest may terminate the merger agreement if, among other things, any of the following occur:

 

    Northwest shareholders do not approve the merger agreement at the Northwest special meeting (in the case of Northwest terminating, only if Northwest has complied with certain obligations relating to calling the Northwest special meeting and recommending that the Northwest shareholders approve the merger agreement);

 

    any required regulatory approval has been denied and such denial has become final and non-appealable, or a governmental authority or court has issued a final, unappealable order prohibiting consummation of the transactions contemplated by the merger agreement;

 

    the merger has not been consummated by January 31, 2019, unless the failure to complete the merger by that time was due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements provided in the merger agreement; or

 

    there is a breach by the other party of any covenant or agreement contained in the merger agreement, or any representation or warranty of the other party becomes untrue, in each case such that the conditions to closing would not be satisfied and such breach or untrue representation or warranty has not been or cannot be cured within 30 days after the giving of written notice to such party of such breach.

 

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First Interstate may also terminate the merger agreement if Northwest breaches its obligations in any material respect regarding the solicitation of other acquisition proposals or submission of the merger agreement to Northwest’s shareholders or if the Northwest board of directors does not publicly recommend in this document that Northwest shareholders approve the merger agreement or withdraws or revises its recommendation in a manner adverse to First Interstate.

Northwest may also terminate the merger agreement:

 

    before adoption and approval of the merger agreement by its shareholders, to enter into an agreement with respect to a superior proposal to be acquired by a third party, but only if Northwest’s board of directors has determined in good faith based on the advice of legal counsel that failure to take such action would cause the Northwest board of directors to violate its fiduciary duties and Northwest has not breached its obligations regarding the solicitation of other acquisition proposals; and

 

    within the five-day period commencing with the fifth day before the closing date of the merger (which we refer to as the “determination date”), if both of the following conditions have been satisfied:

 

    the average daily closing sale prices of a share of First Interstate Class A common stock as reported on the Nasdaq Global Select Market for the 20 consecutive trading days ending on and including the determination date is less than $32.00 (80% of the closing sale price of First Interstate Class A common stock on the third trading date before the date of the first public announcement of the merger agreement); and

 

    First Interstate Class A common stock underperforms the KBW Regional Banking Index by more than 20% during the same period.

However, if Northwest chooses to exercise this termination right, First Interstate has the option, within five days of receipt of notice from Northwest, to adjust the merger consideration and prevent termination under this provision.

Termination Fee

The merger agreement requires Northwest to pay First Interstate a fee of $5.1 million if Northwest terminates the merger agreement to enter into an agreement with respect to an acquisition proposal. Additionally, Northwest must pay the termination fee if First Interstate terminates the merger agreement as a result of a breach by Northwest of its covenants regarding acquisition proposals or its obligation to submit the merger agreement to its shareholders, or if Northwest’s board of directors fails to recommend approval of the merger agreement or, after recommending the approval of the merger agreement, it withdraws, modifies or changes its recommendation, so long as at the time of such termination First Interstate is not in material breach of any representation, warranty, or material covenant contained in the merger agreement.

If (1) First Interstate terminates the merger agreement because Northwest breaches a covenant or agreement or if any representation or warranty of Northwest has become untrue and such breach or untrue representation or warranty has not been or cannot be cured within 30 days following written notice to Northwest and such breach giving rise to such termination was knowing and intentional, or (2) either party terminates the merger agreement because Northwest’s shareholders fail to approve and adopt the merger agreement, then Northwest must pay the termination fee if (a) an acquisition proposal was publicly announced (i) before the termination of the merger agreement if terminated in accordance with (1) above, or (ii) before Northwest’s shareholder meeting if terminated in accordance with (2), above, and (b) within 12 months after termination of the merger agreement, Northwest consummates or enters into an agreement with respect to an acquisition proposal.

Expenses

Each of First Interstate and Northwest will pay its own costs and expenses incurred in connection with the merger.

 

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Changing the Terms of the Agreement and Plan of Merger

Before the completion of the merger, First Interstate and Northwest may agree to waive, amend or modify any provision of the merger agreement. However, after the vote by Northwest shareholders, First Interstate and Northwest can make no amendment or modification that would reduce the amount or alter or change the kind of consideration to be received by Northwest’s shareholders or that would contravene any provisions of the MBCA or applicable state and federal banking laws, rules and regulations.

Voting Agreements

Each of Northwest’s directors and certain executive officers, in their individual capacity as a Northwest shareholder, have entered into a separate voting agreement with First Interstate, pursuant to which each such director and executive officer has agreed to vote all shares of Northwest common stock over which he or she exercises sole or shared dispositive and voting rights in favor of the approval of the merger agreement and certain related matters and against alternative transactions. Under the voting agreements, Northwest’s directors and executive officers may not, without the prior written consent of First Interstate, transfer any of their shares of Northwest common stock except for certain limited purposes described in the voting agreements. These voting agreements will terminate if the merger agreement is terminated. As of June  27, 2018, shares constituting 26.7% of the voting power of Northwest common stock were subject to the voting agreements.

Dissenters’ Rights of Appraisal

Under the Washington Business Corporation Act, which we refer to as the “WBCA,” Northwest shareholders are entitled to exercise dissenters’ rights and to receive the fair value in cash of their shares of Northwest common stock if they fully comply with the provisions of the WBCA relating to dissenters’ rights, if the merger agreement is approved and the merger is consummated. As noted below, First Interstate may terminate the merger agreement if holders of 10% or more of the outstanding shares of Northwest common stock propose to exercise dissenters’ rights with respect to the merger. The following summary of the WBCA provisions with respect to dissenters’ rights is qualified in its entirety by reference to those statutes. Shareholders anticipating exercising dissenters’ rights with respect to the merger are strongly encouraged to consult their legal counsel and tax, financial or other appropriate advisors.

The WBCA requires that shareholders be accorded dissenters’ rights in connection with the proposed merger transaction. A copy of the relevant portions of the WBCA, Sections 23B.13.010 through 23B.13.310 are included as Annex B. The following discussion of dissenters’ rights is qualified in its entirety by reference to those statutes.

A shareholder may elect to dissent from the proposed merger transaction and, upon consummation of the transaction, to receive the “fair value” of such shareholder’s Northwest common stock.

In order to properly exercise dissenters’ rights, the shareholder must:

 

    not vote in favor of the merger agreement; and

 

    before the time of the vote taken by Northwest shareholders, notify Northwest of the shareholder’s intent to exercise dissenters’ rights.

Except in certain circumstances specified in the WBCA, a shareholder electing to assert dissenters’ rights must generally assert such rights with respect to all shares of Northwest common stock beneficially owned by the shareholder. If a shareholder fails to meet the requirements for assertion of dissenters’ rights such shareholder is not entitled to payment for his or her shares under the WBCA.

If a shareholder properly asserts dissenters’ rights and the proposed merger is consummated, First Interstate, as the surviving corporation in the merger, will send each shareholder who has properly exercised dissenters’

 

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rights a dissenter’s notice, notifying the shareholder of, among other things, the completion of the merger and providing the shareholder instructions for the deposit of certificates representing the dissenter’s Northwest shares and supplying a form for demanding payment. A dissenting shareholder failing to timely demand payment or to deposit certificates representing the dissented Northwest common stock is not thereafter entitled to receive payment for his or her shares under the WBCA.

First Interstate, as the surviving corporation in the merger, is required to pay all dissenting Northwest shareholders who have properly and timely exercised dissenters’ rights, deposited certificates and demanded payment of the “fair value” for their shares of Northwest common stock. The amount of payment is determined by First Interstate and made to dissenting shareholders within time frames specified by the WBCA. If a shareholder is dissatisfied with the amount of the payment determined by First Interstate, such shareholder may notify First Interstate in writing, within 30 days after First Interstate made or offered to make payment, of the shareholder’s own estimate of the fair value of his or her shares and demand payment for such amount (less any payment made by First Interstate). First Interstate may, after the receipt of such demand, elect to pay the additional amount demanded or, within 60 days following receipt of such demand, commence a legal proceeding for a determination of the “fair value” of the shares.

 

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DESCRIPTION OF FIRST INTERSTATE CAPITAL STOCK

As a result of the merger, Northwest shareholders will become First Interstate shareholders. Your rights as a shareholder of First Interstate will be governed by the MBCA, First Interstate’s amended and restated articles of incorporation and First Interstate’s bylaws. The following summary describes the material terms of First Interstate’s capital stock and is subject to, and qualified by, First Interstate’s amended and restated articles of incorporation and bylaws and Montana law. We urge you to read the applicable provisions of the MBCA, First Interstate’s amended and restated articles of incorporation and First Interstate’s bylaws. Copies of First Interstate’s governing documents have been filed with the SEC. See “Where You Can Find More Information” as to how to obtain a copy of First Interstate’s articles of incorporation and bylaws.

General

First Interstate’s amended and restated articles of incorporation provide for two classes of common stock: First Interstate Class A common stock, which has one vote per share, and First Interstate Class B common stock, which has five votes per share. Any holder of First Interstate Class B common stock may at any time convert his or her shares into shares of First Interstate Class A common stock on a share-for-share basis. The shares of First Interstate Class B common stock will be automatically converted into shares of First Interstate Class A common stock on a share-for-share basis:

 

    when the aggregate number of shares of First Interstate Class B common stock outstanding as of the record date for any meeting of First Interstate shareholders is less than 20% of the aggregate number of shares of First Interstate Class A common stock and First Interstate Class B common stock then outstanding; or

 

    upon any transfer, whether or not for value, except for permitted transfers as set forth in First Interstate’s articles of incorporation and described below.

The shares of First Interstate Class B common stock are generally non-transferable, except in connection with a permitted transfer as set forth in First Interstate’s amended and restated articles of incorporation and described below. The rights of the two classes of First Interstate’s common stock are otherwise identical.

First Interstate’s authorized capital stock consists of 200,100,000 shares, each with no par value per share, of which:

 

    100,000,000 shares are designated as First Interstate Class A common stock;

 

    100,000,000 shares are designated as First Interstate Class B common stock; and

 

    100,000 shares are designated as preferred stock.

At June 27, 2018 First Interstate had issued and outstanding 34,201,140 shares of First Interstate Class A common stock and 22,559,402 shares of First Interstate Class B common stock. At June 27, 2018, First Interstate also had outstanding stock options to purchase an aggregate of 482,648 shares of First Interstate Class A common stock. There were no outstanding shares of First Interstate preferred stock at June 27, 2018.

Common Stock

Dividends. The holders of First Interstate Class A common stock and First Interstate Class B common stock are entitled to share equally, on a per share basis, in any dividends that First Interstate’s board of directors may declare from time to time from legally available funds, subject to limitations under Montana law and the preferential rights of holders of any outstanding shares of preferred stock. If a dividend is paid in the form of shares of common stock or rights to acquire shares of common stock, the holders of First Interstate Class A common stock will be entitled to receive First Interstate Class A common stock, or rights to acquire First

 

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Interstate Class A common stock, as the case may be, and the holders of First Interstate Class B common stock will be entitled to receive shares of First Interstate Class B common stock, or rights to acquire First Interstate Class B common stock, as the case may be. First Interstate is not subject to regulatory restrictions on the payment of dividends. However, its ability to pay dividends may depend, in part, upon dividends it receives from First Interstate Bank. Applicable regulations limit dividends and other distributions by First Interstate Bank.

Voting Rights. The holders of First Interstate common stock possess exclusive voting rights. The holders of First Interstate Class A common stock are entitled to one vote per share and the holders of First Interstate Class B common stock are entitled to five votes per share on any matter to be voted upon by the shareholders. Holders of First Interstate Class A common stock and First Interstate Class B common stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders, unless otherwise required by law or First Interstate’s articles of incorporation.

First Interstate’s amended and restated articles of incorporation provide that it may not, without first obtaining the affirmative vote of the holders of a majority of the outstanding shares of First Interstate Class A common stock and First Interstate Class B common stock, each voting as a separate class, issue any additional shares of First Interstate Class B common stock, subject to certain exceptions. The holders of First Interstate common stock are not entitled to cumulative voting rights with respect to the election of directors. Directors will be elected by a majority of the voting power of the shares of First Interstate capital stock present in person or represented by proxy at the meeting and entitled to vote on the election of directors.

Liquidation. Upon liquidation, dissolution or winding up of First Interstate, the holders of First Interstate Class A common stock and First Interstate Class B common stock are entitled to share equally, on a per share basis, in all First Interstate’s assets available for distribution after payment or provision for payment of all its debts and liabilities. If First Interstate issues preferred stock, the holders of First Interstate preferred stock may have a priority over the holders of First Interstate common stock upon liquidation or dissolution.

Conversion. First Interstate Class A common stock is not convertible into any other shares of First Interstate’s capital stock. Each share of First Interstate Class B common stock is convertible at any time, at the option of the holder, into one share of First Interstate Class A common stock. However, each share of First Interstate Class B common stock will convert automatically into one share of First Interstate Class A common stock upon certain transfers that are not permitted under First Interstate’s amended and restated articles of incorporation. See “—Transfer” below. Once converted into First Interstate Class A common stock, the First Interstate Class B common stock cannot be reissued.

Transfer. Outstanding shares of First Interstate Class B common stock are subject to transfer restrictions under First Interstate’s amended and restated articles of incorporation, limiting their transfer principally to: (1) the holder’s spouse; (2) certain of the holder’s relatives; (3) estates, trusts or other fiduciary arrangements established for the benefit of a holder of First Interstate Class B common stock; (4) certain charitable remainder trusts; provided that the noncharitable beneficiary of any such trust is one or more of the individuals or fiduciary arrangements set forth in (1) through (3) above; and (5) corporations and partnerships wholly-owned by holders of First Interstate Class B common stock and/or any one or more of the individuals or fiduciary arrangements set forth in (1) through (3) above. Furthermore, the First Interstate Class B common stock is not listed on The Nasdaq Stock Market or any other exchange, and there is no trading market for the First Interstate Class B common stock.

Shares of First Interstate Class B common stock will convert automatically into shares of First Interstate Class A common stock if they are transferred to any party who is not an eligible transferee as described in the preceding paragraph and set forth in First Interstate’s amended and restated articles of incorporation.

Subdivision; Combination. No class of common stock may be subdivided or combined unless the other class of common stock concurrently is subdivided or combined in the same proportion and in the same manner.

Preemptive Rights. The holders of First Interstate common stock do not have any preemptive rights.

 

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Preferred Stock

First Interstate’s board of directors is authorized, without approval of the holders of First Interstate Class A common stock or First Interstate Class B common stock, to issue preferred stock from time to time in one or more series in such number and with such designations, preferences, powers and other special rights as may be stated in the resolution providing for such preferred stock. The issuance of First Interstate preferred stock with voting, dividend, liquidation and conversion rights could dilute the voting strength of the holders of First Interstate common stock and may assist management in impeding an unfriendly takeover or attempted change in control.

Anti-Takeover Considerations and Provisions of First Interstate’s Articles, Bylaws and Montana Law

A number of provisions of First Interstate’s amended and restated articles of incorporation and bylaws concern matters of corporate governance and the rights of First Interstate’s shareholders. Certain of these provisions may have an anti-takeover effect by discouraging takeover attempts not first approved by First Interstate’s board of directors, including takeovers that may be considered by some of First Interstate’s shareholders to be in their best interests. To the extent takeover attempts are discouraged, temporary fluctuations in the market price of First Interstate Class A common stock, which may result from actual or rumored takeover attempts, may be inhibited. Such provisions also could delay or frustrate the removal of incumbent directors or the assumption of control by shareholders, even if such removal or assumption would be viewed by First Interstate’s shareholders as beneficial to their interests. These provisions also could discourage or make more difficult a merger, tender offer or proxy contest, even if such a transaction could be viewed by First Interstate’s shareholders as beneficial to their interests and could potentially depress the market price of First Interstate Class A common stock. First Interstate’s board of directors believes that these provisions are appropriate to protect First Interstate’s interests and the interests of First Interstate’s shareholders.

Preferred Stock. First Interstate’s board of directors may from time to time authorize the issuance of one or more classes or series of preferred stock without shareholder approval. Subject to the provisions of First Interstate’s articles of incorporation, limitations prescribed by law and the rules of The Nasdaq Stock Market, if applicable, First Interstate’s board of directors is authorized to adopt resolutions to issue shares, establish the number of shares, change the number of shares constituting any series and provide or change the voting powers, designations, qualifications, limitations or restrictions on shares of First Interstate’s preferred stock, including dividend rights, terms of redemption, conversion rights and liquidation, dissolution and winding-up preferences, in each case without any action or vote by First Interstate’s shareholders.

One of the effects of undesignated preferred stock may be to enable First Interstate’s board of directors to discourage an attempt to obtain control of First Interstate by means of a tender offer, proxy contest, merger or otherwise. The issuance of preferred stock may adversely affect the rights of holders of First Interstate Class A common stock and First Interstate Class B common stock by, among other things:

 

    restricting dividends on either or both classes of common stock;

 

    diluting the voting power of either or both classes of common stock;

 

    impairing the liquidation rights of either or both classes of common stock;

 

    delaying or preventing a change in control without further action by the shareholders; or

 

    decreasing the market price of either or both classes of common stock.

Meetings of Shareholders. First Interstate’s bylaws provide that annual meetings of First Interstate’s shareholders will be held at such time as is determined by First Interstate’s board of directors to elect directors and for the transaction of any other business as may come before the annual meeting. First Interstate’s amended and restated articles of incorporation provide that special meetings of shareholders may be called by (1) First Interstate’s board of directors, (2) the Chairman of First Interstate’s board of directors, (3) the Chief Executive

 

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Officer of First Interstate, or (4) a holder, or a group of holders, of common stock holding more than 10% of the total voting power of the outstanding shares of First Interstate capital stock then entitled to vote.

Advance Notice Provisions. First Interstate’s bylaws provide that nominations for directors may not be made by shareholders at any special meeting thereof unless the shareholders intending to make a nomination notifies First Interstate of its intention a specified number of days in advance of the meeting and furnishes to First Interstate certain information regarding itself and the intended nominee. First Interstate’s bylaws also require a shareholder to provide written demand to the First Interstate secretary and must describe the purpose for which the special meeting is to be held. Only business within the purposes described in the notice of the meeting may be conducted at a special meeting. These provisions could delay shareholder actions that are favored by the holders of a majority of First Interstate’s outstanding capital stock until the next shareholders’ meeting.

Filling of Board Vacancies. Unless First Interstate’s board of directors otherwise determines or is otherwise required by applicable law, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by the shareholders may be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of First Interstate’s board of directors, or by a sole remaining director. Each such director will hold office until the next election of directors and until such director’s successor is elected and qualified.

Amendment of the First Interstate Amended and Restated Articles of Incorporation. First Interstate’s amended and restated articles of incorporation may be amended in the manner allowed under the MBCA; however, the affirmative vote of the holders of at least 70% of the outstanding shares of the First Interstate Class A common stock, voting separately as a class, is required to amend or repeal any of the provisions in the amended and restated articles of incorporation of First Interstate relating to First Interstate common stock, a change in control transaction or a Class B acquisition transaction (each as defined in the First Interstate amended and restated articles of incorporation).

Amendment of the First Interstate Bylaws. First Interstate’s amended and restated articles of incorporation provide that the First Interstate bylaws may be adopted, altered, amended or repealed by First Interstate’s board of directors upon the affirmative vote of at least a majority of the directors then in office. First Interstate’s amended and restated articles of incorporation also provide that the bylaws may be adopted, amended, or repealed by a majority of the voting power of the shareholders entitled to vote.

Change in Control. First Interstate’s amended and restated articles of incorporation provide for certain voting thresholds needed to consummate a change in control transaction (as defined in the First Interstate amended and restated articles of incorporation). Accordingly, if First Interstate proposes to engage in a change in control transaction in which holders of First Interstate Class A common stock and First Interstate Class B common stock will receive different consideration, First Interstate will need to obtain, in addition to any shareholder approval required by the MBCA and the First Interstate amended and restated articles of incorporation, the approval of at least 70% of the outstanding shares of First Interstate Class A common stock, voting separately as a single class.

In addition, if First Interstate proposes to merge into another corporation and in the twelve months before such merger the acquiring company acquired any shares of First Interstate Class B common stock, then such merger transaction will require the affirmative vote of 70% of the outstanding shares of First Interstate Class A common stock, voting separately as a single class, unless the holders of the First Interstate Class A common stock and First Interstate Class B common stock receive the same consideration for their shares in the merger and the merger consideration paid is at least equal to the highest amount paid by the acquiring corporation for the First Interstate Class B common stock.

Transactions with Interested Shareholders. First Interstate cannot merge with or sell any material assets to any shareholder of First Interstate Class B common stock unless such transaction is approved by a majority of

 

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the disinterested directors on First Interstate’s board of directors and the holders of a majority of the shares of First Interstate Class A common stock, voting separately as a single class.

No Cumulative Voting. The MBCA provides that shareholders are not entitled to cumulate votes in the election of directors unless First Interstate’s articles of incorporation provide otherwise. First Interstate’s amended and restated articles of incorporation prohibit cumulative voting.

Dual Class Structure

As discussed above, First Interstate Class B common stock is entitled to five votes per share, while First Interstate Class A common stock is entitled to one vote per share. First Interstate Class A common stock is the class of stock to be issued to Northwest shareholders in the merger and is the only class of First Interstate’s capital stock that is publicly traded. As of June 27, 2018, members of the Scott family held 362,124 shares of First Interstate Class A common stock and 21,721,123 shares of First Interstate Class B common stock and, therefore, controlled in excess of 72.9% of the voting power of First Interstate’s outstanding stock. As a result, the Scott family will be able to exert a significant degree of influence or actual control over First Interstate’s management and affairs and over matters requiring shareholder approval, including the election of directors, a merger, consolidation or sale of all or substantially all of First Interstate’s assets and any other significant transaction. This concentrated control will limit the ability of other shareholders to influence corporate matters and the interests of the Scott family may not always coincide with First Interstate’s interests or the interests of other shareholders.

Transfer Agent and Registrar

The transfer agent and registrar for First Interstate’s common stock is American Stock Transfer & Trust Company, LLC.

Restrictions on Ownership

Under the federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person (including a company), or group acting in concert, seeks to acquire “control” of a bank holding company or a bank. An acquisition of “control” can occur upon the acquisition of ten percent or more of the voting stock of a bank holding company or depository institution or as otherwise defined by the Federal Reserve Board. Under the Change in Bank Control Act, the Federal Reserve Board has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that so acquires control would then be subject to regulation as a bank holding company.

 

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COMPARISON OF RIGHTS OF SHAREHOLDERS

The rights of shareholders of First Interstate are currently governed by First Interstate’s amended and restated articles of incorporation, bylaws and the MBCA. The rights of shareholders of Northwest are currently governed by Northwest’s articles of incorporation, bylaws and the WBCA. If the merger is completed, Northwest shareholders will become First Interstate shareholders and their rights will likewise be governed by First Interstate’s amended and restated articles of incorporation, First Interstate’s bylaws and the MBCA.

The following summary compares the rights of a Northwest shareholder and the rights of a shareholder of First Interstate. The following summary is not a complete statement of the differences between the rights of Northwest shareholders and the rights of First Interstate shareholders and is qualified in its entirety by reference to the articles of incorporation and bylaws of each corporation. Copies of First Interstate’s amended and restated articles of incorporation and bylaws are on file with the SEC and are available on written request addressed to Kirk D. Jensen, General Counsel, First Interstate BancSystem, Inc., 401 North 31st Street, Billings, Montana 59101.

Authorized Stock

 

First Interstate

  

Northwest

•  First Interstate’s articles of incorporation authorize 200,100,000 shares of capital stock, consisting of 100,000,000 shares of First Interstate Class A common stock, no par value per share, 100,000,000 shares of First Interstate Class B common stock, no par value per share, and 100,000 shares of preferred stock, no par value per share.

 

•  As of June 27, 2018, there were 34,201,140 shares of First Interstate Class A common stock issued and outstanding and 22,559,402 shares of First Interstate Class B common stock issued and outstanding.

 

•  As of June 27, 2018, there were no shares of First Interstate preferred stock issued and outstanding.

  

•  Northwest’s articles of incorporation authorize 30,000,000 shares of common stock and 500,000 shares of preferred stock.

 

•  As of June 27, 2018, there were 7,267,205 shares of Northwest common stock issued and outstanding.

 

•  As of June 27, 2018, there were no shares of Northwest preferred stock issued and outstanding.

Voting Rights

 

First Interstate

  

Northwest

•  Same provisions as Northwest with respect to cumulative voting.

  

•  Northwest’s articles of incorporation do not provide for cumulative voting by shareholders in the election of directors.

•  Each share of First Interstate Class A common stock is entitled to one vote per share. Each share of First Interstate Class B common stock is entitled to five votes per share.

  

•  Northwest’s bylaws provide that each shareholder is entitled to one vote for each share of stock held by such shareholder.

Preemptive Rights

 

First Interstate

  

Northwest

•  No holder of any stock has any preemptive rights to subscribe for or purchase any stock other than as First Interstate’s board of directors, in its sole discretion, may determine.

  

•  No holders of any stock have any preemptive rights to subscribe for or purchase any stock.

 

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Required Vote for Authorization of Certain Actions

 

First Interstate

  

Northwest

•  Under the MBCA, a two-thirds vote is generally required for approval of mergers or share exchanges, unless otherwise provided in a company’s articles of incorporation. First Interstate’s amended and restated articles of incorporation provide that, if First Interstate proposes to engage in a change in control transaction in which holders of First Interstate Class A common stock and First Interstate Class B common stock will receive different consideration, First Interstate will need to obtain, in addition to any shareholder approval required by the MBCA and the First Interstate amended and restated articles of incorporation, the approval of at least 70% of the outstanding shares of First Interstate Class A common stock, voting separately as a single class.

 

•  If First Interstate proposes to merge into another corporation and in the twelve months before such merger the acquiring company acquired any shares of First Interstate Class B common stock, then such merger transaction will require the affirmative vote of 70% of the outstanding shares of First Interstate Class A common stock, voting separately as a single class, unless the holders of the First Interstate Class A common stock and First Interstate Class B common stock receive the same consideration for their shares in the merger and the merger consideration paid is at least equal to the highest amount paid by the acquiring corporation for the First Interstate Class B common stock.

  

•  Under the WBCA, a merger or share exchange requires the approval of two-thirds of the outstanding shares of Northwest common stock.

Required Vote for Authorization of Business Combinations with Interested Shareholders

 

First Interstate

  

Northwest

•  First Interstate cannot merge with or sell any material assets to any shareholder of First Interstate Class B common stock unless such transaction is approved by a majority of the disinterested directors on First Interstate’s board of directors and the holders of a majority of the shares of First Interstate Class A common stock, voting separately as a single class.

  

•  Northwest has no similar restriction on business combinations with interested shareholders.

 

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Dissenters’ Rights

 

First Interstate

  

Northwest

•  Under the MBCA, First Interstate shareholders are entitled to exercise dissenters’ rights and to receive payment of the fair value of their shares of First Interstate common stock if they fully comply with the provisions of the MBCA relating to dissenters’ rights. Corporate actions that entitle First Interstate shareholders to exercise their dissenters’ rights include, but are not limited to, (1) mergers that require shareholder approval to be consummated, (2) amendments to the articles of incorporation that materially and adversely affect certain shareholder rights and (3) any corporate action taken pursuant to a shareholder vote (to the extent the articles of incorporation, bylaws or a resolution of the board provides that voting or nonvoting shareholders are entitled to dissent and to obtain payment for their shares).

  

•  Under the WBCA, Northwest shareholders are entitled to exercise dissenters’ rights and to receive the fair value in cash of their shares of Northwest common stock if they fully comply with the provisions of the WBCA relating to dissenters’ rights. Corporate actions that entitle Northwest shareholders to exercise their dissenters’ rights include, but are not limited to, (1) mergers that require shareholder approval to be consummated, (2) amendments to the articles of incorporation that materially and adversely affect certain shareholder rights and (3) any corporate action taken pursuant to a shareholder vote (to the extent the articles of incorporation, bylaws or a resolution of the board provides that voting or nonvoting shareholders are entitled to dissent and to obtain payment for their shares).

Dividends

 

First Interstate

  

Northwest

•  Under the MBCA, First Interstate may not declare a dividend if, after giving it effect: (1) First Interstate would not be able to pay its debts as they become due in the usual course of business; or (2) First Interstate’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The holders of First Interstate Class A common stock and First Interstate Class B common stock are entitled to share equally, on a per share basis, in any dividends that First Interstate’s board of directors may declare from time to time from legally available funds, subject to limitations under Montana law and the preferential rights of holders of any outstanding shares of preferred stock.

  

•  Under the WBCA, Northwest may not make a distribution to its shareholders if, after giving it effect: (1) Northwest would not be able to pay its liabilities as they become due in the usual course of business or (2) Northwest’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distributions, to satisfy the preferential rights upon dissolutions of shareholders whose preferential rights are superior to those receiving the distribution.

 

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Indemnification of Directors and Officers and Limitation of Liability

 

First Interstate

  

Northwest

•  First Interstate’s amended and restated articles of incorporation provides that it will indemnify to the fullest extent permitted by the MBCA any officer or director made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, or she is or was a director, officer, employee or agent of First Interstate or any predecessor to First Interstate or serves or served at any other enterprise as a director, officer, employee or agent at the request of First Interstate or any predecessor to First Interstate.

 

•  First Interstate’s bylaws further provide that it will indemnify to the fullest extent permitted by law any person who was or is a party or threatened to be a party to a proceeding or threatened proceeding by reason of the fact that such person is or was a director or officer of First Interstate or is or was serving as a director or officer serving at the request of First Interstate as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees), judgments, fines and settlements reasonably incurred by the indemnitee. Such indemnification is only permitted if (1) the indemnitee acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal proceeding, the indemnitee had no reasonable cause to believe the conduct was unlawful and (2) the indemnification is properly authorized by First Interstate according to the procedures set forth in its bylaws. Furthermore, no indemnification for actions by or in the right of the corporation is permitted in respect of any claim, issue or matter as to which the indemnitee has been adjudged liable to First Interstate, unless and only to the extent the applicable court determines the indemnitee is fairly and reasonably entitled to indemnification for expenses as the court deems proper.

 

•  Expenses reasonably incurred by an indemnitee will be paid in advance of the final disposition of any civil, criminal, administrative or investigative action, suit or proceeding upon receipt by First Interstate of an statement that the indemnitee has met the applicable standard of conduct to be

  

•  Under the WBCA, indemnification of directors and officers is authorized to cover judgments, amounts paid in settlement, and expenses arising out of actions where the director or officer acted in good faith and reasonably believed that the individual’s conduct was in or at least not opposed to the best interests of the corporation, and in criminal cases, where the director or officer had no reasonable cause to believe that his or her conduct was unlawful. Unless limited by the corporation’s articles of incorporation, Washington law requires indemnification if the director or officer is wholly successful on the merits of the action. Northwest’s bylaws provide that to the extent permitted or required by the WBCA, Northwest shall indemnify its directors and officers and shall advance fees to such persons incurred in the applicable proceeding. Any advancement of expenses will be made only upon (1) delivery to Northwest of an undertaking, by or on behalf of such indemnitee, to repay all amounts advanced if it is determined by final judicial decision (with not further right to appeal) that such indemnitee is not entitled to be indemnified and (2) written affirmation by the indemnitee to Northwest of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification. Northwest’s bylaws further provide that it will indemnify any person who was or is a party or threatened to be a party to a proceeding or threatened action, suit or proceeding by reason of the fact that such person is or was a director or officer of Northwest or is or was serving as a director or officer serving at the request of Northwest as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees), judgments, fines and settlements reasonably incurred by the indemnitee.

 

•  Except as otherwise provided in its bylaws, Northwest will indemnify an indemnitee in connection with a proceeding initiated by such indemnitee only if a proceeding was authorized or ratified by the board.

 

•  Under Northwest’s bylaws, Northwest may maintain insurance, at its expense, to protect any

 

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First Interstate

  

Northwest

entitled to indemnification and an undertaking by such indemnitee that he or she will repay the advanced expenses should it ultimately be determined that the he or she is not entitled to indemnification by First Interstate. Indemnification of and advancement of expenses to employees and agents of First Interstate is permitted to the fullest extent not prohibited by the MBCA or by any other applicable law.

 

•  Under First Interstate’s bylaws, First Interstate may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of First Interstate, or is or was a director, officer, employee or agent of First Interstate serving at the request of First Interstate as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against liability incurred by the insured in any such capacity or arising out of such status of the insured, whether or not First Interstate would have the power or obligation to indemnify the insured against liability under the provisions of First Interstate’s bylaws.

 

•  First Interstate’s amended and restated articles of incorporation include a provision that eliminates its directors’ personal liability to First Interstate or its shareholders for breach of fiduciary duty as a director to the fullest extent permitted by law.

  

person who is or was a director, officer, employee or agent of Northwest or who, while a director, officer, employee or agent of Northwest is or was serving as the request of Northwest as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any expense, liability or loss asserted against or incurred by the person in that capacity or arising from his or her status as a director, officer, employee or agent, whether or not Northwest would have the power to indemnify him or her against such expense, liability or loss under the WBCA.

 

•  Northwest’s articles of incorporation include a provision that eliminates its directors’ personal liability to Northwest or its shareholders for breach of fiduciary duty as a director to the fullest extent permitted by the WBCA, except for (1) acts or omissions finally adjudged to be intentional misconduct or a knowing violation of law, (2) conduct finally adjudged to be in violation of RCW 23B.08.310 (which involves certain distributions by a corporation) or (3) any transaction with respect to which it was finally adjudged that such director personally received a benefit to which the director was not legally entitled.

Shareholders’ Meetings

 

First Interstate

  

Northwest

•  Same provisions as Northwest with respect to notice of shareholder meetings.

 

•  Special meetings of shareholders may be called by (1) the board of directors, (2) the Chairman of the board of directors, (3) the Chief Executive Officer (or, in the absence of a Chief Executive Officer, its President) or (4) a holder, or a group of holders, of common stock holding more than 10% of the total voting power of the outstanding shares of capital stock.

 

•  Same provisions as Northwest with respect to the shareholder record date for shareholder meetings.

 

•  To nominate a director or propose new business, shareholders must give written notice to the secretary not less than the close of business on the

  

•  Notice of a meeting must be delivered and, in the case of a special meeting, a description of its purpose, no fewer than 10 days and no more than 60 days before the meeting to each shareholder or record entitled to vote.

 

•  Special meetings of shareholders may be called by (1) the President, (2) by resolution adopted by more than 50% of the entire board or (3) a holder, or a group of holders, of common stock holding more than 10% of the total voting power of the outstanding shares of capital stock.

 

•  For purposes of determining shareholders entitled to vote at a meeting, the board of directors may fix a record date. The WBCA requires that such record date be no more than 70 days before the meeting.

 

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First Interstate

  

Northwest

90th day nor earlier than the close of business on the 120th day before the anniversary of the preceding year’s annual shareholders’ meeting; provided, however, if no shareholders meeting was held in the prior year or the annual meeting is called for a date that is not within 30 days of such anniversary date, notice of the nomination is required to be delivered no later than the 10th day following the date on which notice of the meeting was mailed or made public, whichever occurs first. Each notice given by a shareholder with respect to a nomination to the board of directors or proposal for new business must be in writing and include certain information regarding the nominee or proposal and the shareholder making the nomination or proposal.

  

•  Northwest’s bylaws provide that a Northwest shareholder can submit proposals at an annual meeting by providing notice to the secretary of Northwest not less than 120 days before the date of the release of Northwest’s proxy statement in connection with the previous year’s annual meeting (or such other date or period required by Regulation 14A under the Securities Exchange Act of 1934, as amended). Each notice given by a shareholder with respect to a proposal for new business must be in writing and include certain information regarding the proposal and the shareholder making the proposal.

 

•  Northwest’s bylaws provide that a Northwest shareholder can nominate directors for election by providing notice to the secretary of Northwest not less than 60 days before the date of the meeting, provided, however, that if less than 40 days’ notice of the meeting date is given, notice by the shareholder to be timely must be provided by the close of business on the 10th day following the date on which such notice of the date of the meeting was mailed or such public disclosure was made. Each notice given by a shareholder with respect to a nomination for director must be in writing and include certain information regarding the nominee and the shareholder making the nomination.

Action by Shareholders Without a Meeting

 

First Interstate

  

Northwest

•  First Interstate’s bylaws require that any action to be taken by the shareholders of First Interstate must be taken at a duly called meeting of shareholders and may not be taken by any consent in writing by such shareholders, unless provided by applicable law.

  

•  Under the WBCA, action required or permitted to be approved by Northwest’s shareholders at a meeting may be approved without a meeting or a vote if the action is approved by all shareholders entitled to vote on the action.

 

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Board of Directors

 

First Interstate

  

Northwest

•  First Interstate’s bylaws state that the number of directors constituting the board of directors will be no less than five and no more than 18, with the exact number to be determined from time to time by the board of directors. There are currently 17 members of First Interstate’s board of directors.

 

•  First Interstate’s board of directors is divided into three classes, with each class as nearly equal in number as possible. The term of office of each class of director is three years. Each director holds office until the expiration of such director’s term or until a director dies, resigns or is removed. At each annual meeting, the number of directors equal to the number of the class whose term expires at the time of such meeting are elected to hold office.

 

•  First Interstate’s bylaws provide that vacancies on the board of directors will be filled by a vote of a majority of the remaining directors. Any director elected to fill a vacancy will hold office for the remainder of the full term of the class of directors in which the vacancy occurred.

 

•  Under First Interstate’s bylaws, any director may be removed from office at any time, with or without cause, by the affirmative vote of the holders of at least a majority of the voting power of the issued and outstanding shares of capital stock then entitled to vote in the election of directors.

  

•  Northwest’s bylaws state that the number of directors comprising the board of directors will be from nine to 15, with the exact number to be fixed from time to time by resolution of Northwest’s board of directors. There are currently 10 members of Northwest’s board of directors.

 

•  Northwest’s board of directors is divided into three approximately equal classes. The term of office of each class of director is three years. Each director holds office until the expiration of such director’s term or until a director dies, resigns or is removed. A person will not be qualified for election as a director if he or she will attain the age of 75 before the end of her or her term. The board of directors has the authority to determine the eligibility and to waive the eligibility requirements of any person for nomination or reelection to the board.

 

•  Northwest’s bylaws provide that vacancies on the board of directors will be filled by a vote of a majority of the remaining directors. Any director elected to fill a vacancy will hold office for the balance of the term except that, in the case of an increase in the number of directors, such vacancy may be filled only until the next annual meeting of shareholders, at which time the vacancy will be filled by vote of the shareholders.

 

•  Under the WBCA, shareholders may remove directors (only at a special meeting call for such purpose) with or without cause unless the articles of incorporation provide that directors may be removed only for cause. Northwest’s articles of incorporation do not address removal of directors. Northwest’s bylaws provide that any director who fails to attend nine regular meetings of the board in any 12-month period will be asked to resign.

 

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Amendment of the Bylaws

 

First Interstate

  

Northwest

•  First Interstate’s bylaws may be amended or repealed by a majority vote of the board of directors. First Interstate’s bylaws may also be amended upon a majority vote of the outstanding shares of capital stock entitled to vote.

  

•  Northwest’s bylaws may be repealed or amended by the board of directors by a vote of a majority of the directors attending the board meeting at which the change to the bylaws is considered, provided a quorum is present. The shareholders also may amend or repeal the bylaws in the manner allowed under the WBCA.

Amendment of the Articles of Incorporation

 

First Interstate

  

Northwest

•  First Interstate’s amended and restated articles of incorporation may be amended in the manner allowed under the MBCA; however, the amendment of any of the provisions relating to First Interstate common stock, a Change in Control Transaction or a Class B Acquisition Transaction will require the vote of 70% of the outstanding shares of the First Interstate Class A common stock, voting separately as a class.

  

•  Northwest’s articles of incorporation may be amended in the manner allowed under the WBCA.

 

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MANAGEMENT AND OPERATIONS AFTER THE MERGER

Board of Directors

Upon the completion of the merger, First Interstate’s board of directors will consist of all the current directors of First Interstate.

For information regarding the current directors of First Interstate, executive compensation and relationships and related transactions, see First Interstate’s proxy statement for the 2018 annual meeting of shareholders and its Annual Report on Form 10-K filed with the SEC, which are incorporated by reference in this document. See “Where I Can Find More Information.

Management

The existing executive officers of First Interstate and First Interstate Bank will not change as a result of the merger.

Operations

While there can be no assurance as to the achievement of business and financial goals, First Interstate currently expects to achieve cost savings equal to approximately 30% of Northwest’s current annualized non-interest expenses (excluding one-time non-recurring costs in 2018 identified by Northwest) through the elimination of redundant senior and executive management and other operating efficiencies (such as the elimination of duplicative data processing services). See “Cautionary Statement About Forward-Looking Statements.”

 

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MARKET PRICE AND DIVIDEND INFORMATION

First Interstate Class A common stock is listed on The Nasdaq Global Select Market under the symbol “FIBK.” Northwest common stock is quoted on the OTC Market’s Pink Marketplace under the symbol “NBCT.” The following table lists the high and low prices per share for First Interstate Class A common stock and for Northwest common stock and the cash dividends declared by First Interstate for the periods indicated.

 

     First Interstate
Common Stock
     Northwest
Common Stock
 
     High      Low      Dividends      High      Low      Dividends  

Quarter Ended

                 

June 30, 2018 (through June 27, 2018)

   $ 44.95      $ 38.70      $ 0.28      $ 22.19      $ 13.30      $  —    

March 31, 2018

     42.90        38.10        0.28        13.50        12.50        —    

December 31, 2017

     41.25        36.00        0.24        12.95        11.90        —    

September 30, 2017

     38.40        33.33        0.24        12.20        11.80        —    

June 30, 2017

     41.05        33.70        0.24        12.60        11.35        —    

March 31, 2017

     45.35        37.15        0.24        12.24        10.25        —    

December 31, 2016

     43.10        30.70        0.22        10.59        9.16        —    

September 30, 2016

     32.56        26.89        0.22        9.55        9.15        —    

June 30, 2016

     29.55        26.44        0.22        9.60        8.90        —    

March 31, 2016

     28.92        24.92        0.22        9.79        8.85        —    

The high and low trading prices for First Interstate Class A common stock as of April 25, 2018, the last trading day immediately before the public announcement of the merger, were $40.95 and $40.05, respectively. The high and low trading prices for Northwest common stock as of April 25, 2018, the last trading day immediately before the public announcement of the merger, were $14.00 and $14.00, respectively.

You should obtain current market quotations for First Interstate Class A common stock as the market price of First Interstate Class A common stock will fluctuate between the date of this document and the date on which the merger is completed. You can get these quotations from a newspaper, on the internet or by calling your broker.

Changes in the market price of First Interstate Class A common stock before the completion of the merger will affect the value of the merger consideration that Northwest shareholders will be entitled to receive upon completion of the merger.

As of June 27, 2018, there were approximately 1,723 holders of record of First Interstate Class A common stock. As of June 27, 2018, there were approximately 389 holders of record of Northwest common stock. These numbers do not reflect the number of persons or entities who may hold their stock in nominee or “street name” through brokerage firms.

Following the merger, the declaration of dividends will be at the discretion of First Interstate’s board of directors and will be determined after consideration of various factors, including earnings, cash requirements, the financial condition of First Interstate, applicable state law and government regulations and other factors deemed relevant by First Interstate’s board of directors.

 

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STOCK OWNERSHIP OF NORTHWEST

The following table sets forth the number of shares of Northwest common stock beneficially owned by any person (including any group) who is known to Northwest to be the beneficial owner of more than five percent of Northwest’s class of common stock, each director and executive officer of Northwest, and all directors and executive officers of Northwest as a group. Beneficial ownership is shown as of June 27, 2018, and is based on 7,267,205 shares of Northwest common stock outstanding as of June 27, 2018. Beneficial ownership is determined in accordance with the rules of the SEC, which generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to such securities. A security holder also is deemed to be, as of any date, the beneficial owner of all securities that such security holder has the right to acquire within 60 days after such date, such as through the exercise of warrants or the conversion of a security. Except as otherwise indicated, all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them. The address of each of Northwest’s directors and executive officers is care of Northwest Bancorporation, Inc., 421 West Riverside Avenue, Suite 113, Spokane, Washington 99201.

 

Name

   Amount and Nature of
Beneficial Ownership
    Percent of
Class
 

Directors and Executive Officers:

    

Nancy C. Allen

     —         —  

Anthony D. Bonanzino

     20,479       *  

Katie Brodie

     11,591 (1)      *  

Chad R. Burchard

     17,529       *  

Harlan D. Douglass

     924,382 (2)      12.63

Mark V. Dresback

     30,499       *  

Barry A.J. Featherstone

     8,239       *  

Randall L. Fewel

     38,712       *  

Russell A. Lee

     36,667       *  

Bryan S. Norby

     41,692 (1)      *  

Holly A. Poquette

     19,605       *  

Frank A. Reppenhagen

     991,795 (3)      13.37

Jennifer P. West

     18,197       *  

All directors and executive officers as a group (13 persons)

     2,159,387       28.83

Beneficial owner of more than 5%:

    

Banc Funds

     644,593 (4)      8.87

Concentric Equity Partners II LP

     611,025 (5)      8.41

Community Bancapital, L.P.

     380,770 (6)      5.13

Arch Investment Holdings I LTD

     61,681 (7)      0.85

Castle Creek SSF-D Investors LP

     236,098 (7)