First Interstate BancSystem's latest — and biggest — acquisition addresses a list of potential issues for the Billings, Mont., company.

The $589 million acquisition for Cascade Bancorp in Bend, Ore., — the seventh-largest of the year by deal value — lets the $9 billion-asset First Interstate cross over an important regulatory threshold in one leap. It also extends the company's reach into several faster-growing markets.

While opportunity certainly exists, the largest bank in Big Sky Country may have to adjust to business conditions in urban centers in Oregon and Washington that are vastly different from any that exist in its current markets.

"I think there were some challenges that First Interstate was facing, all of which are somewhat mitigated by the deal," said Jeffrey Rulis, an analyst at D.A. Davidson. "Certainly there are some questions as to the culture of Interstate and their customer base, relative to a metro-area-type customer. It's a different landscape to some degree."

The Seattle area, for instance, is home to a number of Fortune 500 companies such as Amazon, Microsoft and Starbucks, and its economy has ties to international trade. First Interstate's current markets, which are mostly in Montana, Wyoming and South Dakota, are more focused on tourism and natural resources.

To look at it another way, the Seattle area has 903 branches and $98 billion in deposits, compared with 384 offices and $22 billion in deposits across Montana, based on data from the Federal Deposit Insurance Corp.

"The economies of Portland and Seattle are totally different animals than they have ever seen," said Timothy Coffey, an analyst at FIG Partners. "It's very competitive. My feeling is they will be cautious."

First Interstate's management chose to tout the opportunities during a Friday conference call set up to discuss the deal. The combined company should be able to grow by roughly 5.5%, said Marcy Mutch, First Interstate's chief financial officer.

First Interstate will have minimal exposure to big urban markets, said Kevin Riley, First Interstate's president and chief executive. Cascade has about $500 million in loans in Seattle and Portland, which represents just 4% of the roughly $12 billion in assets that First Interstate will have once the deal closes.

While Seattle and Portland will be important new markets, First Interstate is eager to grow elsewhere. Riley said he was mainly attracted to Cascade because of its other markets, which largely resemble First Interstate's existing operations.

"It's nice to be in those two cities, but I don't want anyone to get too focused on that," Riley said. "You have to be careful how you grow there, because it is highly competitive."

Cascade does business in a number of markets, including central Oregon and Idaho, which have similar characteristics to those in Montana. Cascade made a big play in Idaho in 2014 when it bought the $1 billion-asset Home Bancorp in Nampa for $266 million.

Each company operates in several second- and third-tier cities, which allows for a dominant market presence, helps with brand recognition and provides "more control over the competition," said Jacquelynne Bohlen, an analyst at Keefe, Bruyette & Woods. "Obviously Cascade had a growth strategy in Portland and Seattle, but that's not the primary focus of First Interstate," she said.

First Interstate had been preparing for additional growth — it faces mandatory stress testing and a cap on interchange fees when it crosses $10 billion in assets — by hiring executives from bigger banks and expanding its back-office operations. Earlier this year it hired Stephen Yose, a former KeyCorp credit executive, as its chief credit officer.

For Cascade, the sale — which includes a healthy 215% premium to its tangible book value — seems to be a happy ending for a company that raised $177 million in 2010 to boost capital and satisfy a regulatory order.

Terry Zink, who came out of retirement to become Cascade's president and CEO four years ago, said selling the company was never the endgame, though ensuring investors had options for cashing out was important. "We tried to put us in the position so that the private equity in the bank had options in terms of what they wanted to do," he said.

Zink, who turned 65 this week, said he plans to retire again after helping First Interstate with the transition. That will give him more time to spend with his six grandchildren and to expand his classic car collection, he said.

The Cascade name could remain in use for a while after the deal closes.

While First Interstate has a licensing agreement with Wells Fargo to use its name in eight states — a deal reached after Wells bought First Interstate Bancorp. in Los Angeles in 1996 — the pact does not include Oregon and Washington. Riley's team is in talks with the San Francisco banking giant about buying the name outright.

The deal makes it likely that First Interstate, which has bought three banks since 2014, will take a pause from acquisitions to focus on the integration and organic growth.

"We will hopefully stay on the sidelines for a period of time to digest this," Riley said. "But if something comes along that's too good to be true, we would have to look at it. We would be foolish not to."

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