Financial Performance & Asset Mix - Total assets were $17.7 billion[5] - Total deposits reached $14.2 billion[5] - Net loans accounted for 54.8% of the asset mix[6] - Investment securities represented 23.0% of the asset mix[6] - Deposits made up 90.6% of the liability mix[6] - Net interest income contributed 79.1% to the Q4 2020 revenue[6] - Non-interest income accounted for 20.9% of the Q4 2020 revenue[6] Pandemic Response - PPP Loans - The company originated PPP loans totaling $370 million for loans under $150K, $219 million for loans between $150K and $350K, $421 million for loans between $350K and $2MM, and $154 million for loans over $2MM[11] - PPP loan forgiveness status as of 12/31/20: $201 million forgiveness requested for loans under $150K with $134 million funded, $142 million forgiveness requested for loans between $150K and $350K with $89 million funded, $310 million forgiveness requested for loans between $350K and $2MM with $204 million funded, and $68 million forgiveness requested for loans over $2MM with no amount funded[12] - The company pledged an additional $1 million in 2020 to support communities[16] Loan Portfolio & Credit Quality - The loan portfolio totaled $9.8 billion[33] - Agriculture RE accounted for 22% of the loan mix[33] - Commercial RE represented 38% of the loan mix[33] - Consumer loans made up 10% of the loan mix[33] - The hospitality portfolio exposure totaled $755.7 million with $57.9 million in unfunded commitments, representing 7.7% of the total loan portfolio[47, 48] - The agriculture portfolio exposure totaled $468.2 million with $163.9 million in unfunded commitments, representing 4.8% of the total loan portfolio[61, 62]

Financial Data and Key Metrics Changes - The company generated net income of $46.9 million or $0.76 per share in Q4 2020, with pretax pre-provision income of $64.9 million [7] - Net interest income increased by $5.4 million from the prior quarter, driven by PPP loan fee acceleration, contributing $16.7 million in Q4, up from $10.6 million [16] - The net interest margin decreased by 4 basis points to 3.25%, with a decline of 17 basis points attributed to deposit growth deployed at lower yields [17] Business Line Data and Key Metrics Changes - Loans held for investment decreased by $345 million primarily due to the forgiveness of approximately $425 million of PPP loans [23] - Noninterest income decreased by $10.8 million quarter-over-quarter to $33.9 million, mainly due to lower mortgage banking revenues [19] - The company expects refinancing volumes in the mortgage business to decline by about 50% in 2021, with total production projected to decline by about 30% [21] Market Data and Key Metrics Changes - Total deposits increased at an annualized rate of 9.5% in Q4 2020, with growth primarily in lower-cost deposit categories [9] - The company reported a decline in nonperforming loans by $6.4 million and nonperforming assets by $9.6 million, indicating improved asset quality [26] - The delinquency rate in the indirect portfolio declined from 2019 levels and remained below industry averages [25] Company Strategy and Development Direction - The company is committed to a balanced approach to capital deployment, focusing on organic growth, acquisitions, stock repurchases, and dividends [13] - Plans to launch a digital small business lending portal in May 2021 to enhance customer acquisition [32] - The company aims to leverage its technology platform to refine digital capabilities and improve revenue generation [31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the economic recovery and the potential for loan growth in the mid-single-digit range, excluding PPP impacts [33] - The company anticipates a solid year of earnings growth if the vaccine rollout and stimulus measures positively impact the economy [34] - Management noted that they are not facing significant legacy issues, allowing them to focus on driving profitable growth [28] Other Important Information - The company repurchased over 1 million shares of common stock during Q4 2020 and declared an increase in the quarterly dividend to $0.41 per share, an 8% increase from the previous quarter [13] - The allowance for credit losses as a percentage of loans held for investment increased to 1.47% [27] Q&A Session Summary Question: What is the mix of the mortgages being retained? - The company retains a mix of 10, 15, and 30-year fixed loans, with the yield on 30-year loans at about 3.26% [39] Question: What will drive the return to CECL day 1 levels for the allowance? - Management indicated that the vaccine rollout and economic recovery will be key factors in determining reserve levels [41] Question: What factors could lead to upside in commercial lending growth? - Management noted that economic growth and migration into their markets could drive increased demand for commercial lending [42] Question: What is the appetite for the next round of PPP loans? - Management expects additional deposit growth from the second round of PPP loans, with current applications around 15% [44] Question: Are there any opportunities for M&A? - Management is open to considering acquisitions of banks with higher loan-to-deposit ratios to enhance liquidity [60]

FORM 10-Q Quarterly Report [Registrant Information](index=1&type=section&id=Registrant%20Information) First Interstate BancSystem, Inc. (FIBK) is a large accelerated filer with all required SEC reports filed - Registrant is a **large accelerated filer** and has filed all required reports[3](index=3&type=chunk)[5](index=5&type=chunk) Shares Outstanding (September 30, 2020) | Class of Stock | Shares Outstanding (September 30, 2020) | | :--------------- | :-------------------------------------- | | Class A common | 41,143,592 | | Class B common | 21,971,339 | Index [Part I - Financial Information](index=3&type=section&id=Part%20I%20-%20Financial%20Information) This part details the company's unaudited consolidated financial statements, management's discussion and analysis, market risk, and controls [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section includes the unaudited consolidated balance sheets, income statements, and cash flows - This section includes the unaudited consolidated financial statements: Balance Sheets, Statements of Income, Statements of Comprehensive Income, Statements of Changes in Stockholders' Equity, Statements of Cash Flows, and Notes to Unaudited Consolidated Financial Statements[7](index=7&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=3&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations - This section provides management's perspective on the company's financial condition and results of operations, including discussions on key financial metrics and trends[7](index=7&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=3&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section addresses the company's exposure to market risks and how they are managed - This section addresses the company's exposure to market risks and how they are managed[7](index=7&type=chunk) [Item 4. Controls and Procedures](index=3&type=section&id=Item%204.%20Controls%20and%20Procedures) This section covers the effectiveness of the company's disclosure controls and procedures - This section covers the effectiveness of the company's disclosure controls and procedures[7](index=7&type=chunk) [Part II - Other Information](index=3&type=section&id=Part%20II%20-%20Other%20Information) This part includes disclosures on legal proceedings, risk factors, and other required information [Item 1. Legal Proceedings](index=3&type=section&id=Item%201.%20Legal%20Proceedings) This section provides updates on any material legal proceedings - This section provides updates on any material legal proceedings[7](index=7&type=chunk) [Item 1A. Risk Factors](index=3&type=section&id=Item%201A.%20Risk%20Factors) This section outlines potential risks that could affect the company's business and financial results - This section outlines potential risks that could affect the company's business and financial results[7](index=7&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=3&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on any unregistered sales of equity securities and how the proceeds were used - This section reports on any unregistered sales of equity securities and how the proceeds were used[7](index=7&type=chunk) [Item 3. Defaults Upon Senior Securities](index=3&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section discloses any defaults on senior securities - This section discloses any defaults on senior securities[7](index=7&type=chunk) [Item 4. Mine Safety Disclosures](index=3&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section provides disclosures related to mine safety - This section provides disclosures related to mine safety[7](index=7&type=chunk) [Item 5. Other Information](index=3&type=section&id=Item%205.%20Other%20Information) This section includes any other information not covered in previous items - This section includes any other information not covered in previous items[7](index=7&type=chunk) [Item 6. Exhibits](index=3&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report - This section lists all exhibits filed with the report[7](index=7&type=chunk) Consolidated Financial Statements [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew to $17,069.5 million, driven by higher cash, investments, and loans, funded by a significant rise in deposits Consolidated Balance Sheet Highlights (in millions) | Item | Sep 30, 2020 | Dec 31, 2019 | | :------------------------------------ | :----------- | :----------- | | Total cash and cash equivalents | $1,860.6 | $1,076.8 | | Total investment securities | $3,508.5 | $3,052.3 | | Net loans held for investment | $10,006.7 | $8,857.7 | | Total assets | $17,069.5 | $14,644.2 | | Total deposits | $13,882.4 | $11,663.5 | | Total liabilities | $15,091.9 | $12,630.3 | | Total stockholders' equity | $1,977.6 | $2,013.9 | - Total assets increased by **$2,425.3 million (16.6%)** from December 31, 2019, primarily due to increases in cash and cash equivalents, investment securities, and loans held for investment[11](index=11&type=chunk) - Total deposits increased by **$2,218.9 million (19.0%)** from December 31, 2019, with non-interest bearing deposits seeing a substantial rise[11](index=11&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Quarterly net income slightly decreased to $48.3 million, while nine-month net income fell to $114.3 million due to higher credit loss provisions Consolidated Statements of Income Highlights (in millions, except per share data) | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total interest income | $128.9 | $141.3 | $389.9 | $414.0 | | Total interest expense | $5.9 | $15.8 | $21.3 | $47.2 | | Net interest income | $123.0 | $125.5 | $368.6 | $366.8 | | Provision for credit losses | $5.2 | $2.6 | $53.7 | $10.1 | | Total non-interest income | $44.7 | $38.2 | $122.8 | $107.5 | | Total non-interest expense | $99.5 | $96.7 | $290.1 | $298.0 | | Net income | $48.3 | $49.1 | $114.3 | $128.6 | | Earnings per common share (Basic) | $0.76 | $0.76 | $1.78 | $2.03 | - Net interest income decreased by **$2.5 million (2.0%)** for the three months ended September 30, 2020, primarily due to lower yields on interest-earning assets, partially offset by PPP loan interest income[15](index=15&type=chunk)[288](index=288&type=chunk) - Provision for credit losses significantly increased to **$53.7 million** for the nine months ended September 30, 2020, from $10.1 million in the prior year, reflecting the adoption of CECL and increased reserves[15](index=15&type=chunk)[296](index=296&type=chunk) - Total non-interest income increased by **$6.5 million (17.0%)** for the three months and **$15.3 million (14.2%)** for the nine months ended September 30, 2020, driven by higher mortgage banking revenues and other service charges[15](index=15&type=chunk)[299](index=299&type=chunk) [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Nine-month comprehensive income was $165.2 million, supported by a significant increase in net unrealized gains on investment securities Consolidated Statements of Comprehensive Income Highlights (in millions) | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $48.3 | $49.1 | $114.3 | $128.6 | | Other comprehensive (loss) income, net of tax | $(3.3) | $2.9 | $50.9 | $38.0 | | Comprehensive income, net of tax | $45.0 | $52.0 | $165.2 | $166.6 | - Other comprehensive income, net of tax, increased to **$50.9 million** for the nine months ended September 30, 2020, from $38.0 million in the prior year, primarily due to a $69.9 million change in net unrealized gains on available-for-sale investment securities[19](index=19&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity decreased to $1,977.6 million due to stock repurchases and the adoption of ASC 326 Consolidated Statements of Changes in Stockholders' Equity Highlights (in millions) | Item | Sep 30, 2020 | Dec 31, 2019 | | :------------------------------------------ | :----------- | :----------- | | Common stock | $976.8 | $1,049.3 | | Retained earnings | $938.9 | $953.6 | | Accumulated other comprehensive income, net | $61.9 | $11.0 | | Total stockholders' equity | $1,977.6 | $2,013.9 | - Stockholders' equity decreased by **$36.3 million (1.8%)** from December 31, 2019, primarily due to **$78.9 million in common stock repurchases** and a **$24.1 million cumulative effect reduction** to retained earnings from ASC 326 adoption[25](index=25&type=chunk)[346](index=346&type=chunk) - The company repurchased **2.5 million shares** of Class A common stock for **$77.5 million** during the nine months ended September 30, 2020[180](index=180&type=chunk)[350](index=350&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities increased to $162.8 million, while financing activities provided $2,257.1 million from a large deposit increase Consolidated Statements of Cash Flows Highlights (in millions) | Item | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $162.8 | $56.7 | | Net cash (used in) provided by investing activities | $(1,636.1) | $151.1 | | Net cash provided by financing activities | $2,257.1 | $239.8 | | Net increase in cash and cash equivalents | $783.8 | $447.6 | | Cash and cash equivalents at end of period | $1,860.6 | $1,269.6 | - Net cash provided by operating activities increased by **$106.1 million**, driven by higher net income and provision for credit losses, partially offset by changes in mortgage banking activities[27](index=27&type=chunk) - Investing activities shifted from a net cash inflow of $151.1 million in 2019 to a net outflow of **$1,636.1 million** in 2020, primarily due to increased purchases of available-for-sale investment securities and extensions of credit to clients[27](index=27&type=chunk) - Financing activities saw a significant increase in net cash provided, from $239.8 million in 2019 to **$2,257.1 million** in 2020, largely attributable to a **$2,218.9 million net increase in deposits**[29](index=29&type=chunk) Notes to Unaudited Consolidated Financial Statements [(1) Basis of Presentation](index=11&type=section&id=%281%29%20Basis%20of%20Presentation) The company adopted ASC 326 (CECL) on January 1, 2020, resulting in a $24.1 million reduction to retained earnings - The company adopted ASC 326 (CECL) on January 1, 2020, shifting from an incurred loss to an expected loss methodology for credit losses[33](index=33&type=chunk) Impact of ASC 326 Adoption on January 1, 2020 (in millions) | Item | Pre-ASC 326 Adoption | Post-ASC 326 Adoption | Impact of ASC 326 Adoption | | :------------------------------------------ | :------------------- | :-------------------- | :------------------------- | | Allowance for credit losses on loans | $73.0 | $103.0 | $30.0 | | Off-balance sheet credit exposures | — | $2.3 | $2.3 | | Deferred tax liability | $26.7 | $18.5 | $(8.2) | | Retained earnings | $953.6 | $929.5 | $(24.1) | - The adoption of ASC 326 resulted in a **$24.1 million** cumulative-effect adjustment reduction to retained earnings[35](index=35&type=chunk)[225](index=225&type=chunk) [(2) Acquisitions](index=17&type=section&id=%282%29%20Acquisitions) The company completed the acquisitions of Community 1st Bank and Idaho Independent Bank in April 2019 - Acquired Community 1st Bank (CMYF) on April 8, 2019, for **$18.8 million** in Class A common stock, resulting in **$2.3 million in goodwill**[85](index=85&type=chunk)[86](index=86&type=chunk) - Acquired Idaho Independent Bank (IIBK) on April 8, 2019, for **$157.3 million** in Class A common stock, resulting in **$73.0 million in goodwill**[91](index=91&type=chunk)[92](index=92&type=chunk) IIBK Acquisition Summary (as of April 8, 2019, in millions) | Item | As Recorded by IIBK | Fair Value Adjustments | As Recorded by the Company | | :------------------------ | :------------------ | :--------------------- | :------------------------- | | Total assets acquired | $719.1 | $14.1 | $733.2 | | Total liabilities assumed | $646.1 | $2.8 | $648.9 | | Net assets acquired | $73.0 | $11.3 | $84.3 | | Consideration paid | | | $157.3 | | Goodwill | | | $73.0 | [(3) Investment Securities](index=21&type=section&id=%283%29%20Investment%20Securities) The investment securities portfolio increased to $3,508.5 million, with the majority in available-for-sale U.S. agency mortgage-backed securities Investment Securities Portfolio (in millions) | Category | Sep 30, 2020 (Fair Value) | Dec 31, 2019 (Fair Value) | | :--------------------------------------------------------------------- | :------------------------ | :------------------------ | | Available-for-Sale: | | | | U.S. Treasury notes | $8.0 | $9.0 | | State, county and municipal securities | $236.1 | $80.9 | | Obligations of U.S. government agencies | $278.8 | $366.8 | | U.S. agency residential mortgage-backed securities & collateralized mortgage obligations | $2,611.7 | $2,317.2 | | Private mortgage-backed securities | $20.1 | $47.2 | | Corporate securities | $297.8 | $135.7 | | Other investments | $1.0 | $3.2 | | **Total Available-for-Sale** | **$3,453.5** | **$2,960.0** | | Held-to-Maturity: | | | | State, county and municipal securities | $53.1 | $59.4 | | U.S agency residential mortgage-backed securities & collateralized mortgage obligations | $1.1 | $1.2 | | Corporate securities | $4.1 | $14.0 | | Other investments | $0.1 | $0.1 | | **Total Held-to-Maturity** | **$58.4** | **$94.5** | | **Total Investment Securities** | **$3,508.5** | **$3,052.3** | - As of September 30, 2020, the company had **$24.1 million** in available-for-sale securities with continuous unrealized losses for more than twelve months, primarily due to interest rate changes[110](index=110&type=chunk)[111](index=111&type=chunk)[339](index=339&type=chunk) [(4) Loans Held for Sale](index=24&type=section&id=%284%29%20Loans%20Held%20for%20Sale) Mortgage loans held for sale increased slightly to $102.0 million due to higher refinance activity Loans Held for Sale (in millions) | Item | Sep 30, 2020 | Dec 31, 2019 | | :-------------------- | :----------- | :----------- | | Mortgage loans held for sale, at fair value | $102.0 | $100.9 | - The increase in loans held for sale is primarily due to **higher levels of refinance activity** resulting from lower interest rates[117](index=117&type=chunk)[316](index=316&type=chunk) [(5) Loans Held for Investment](index=25&type=section&id=%285%29%20Loans%20Held%20for%20Investment) Net loans held for investment increased by $1,221.5 million, primarily driven by $1.2 billion in PPP loan originations Loans Held for Investment, Net (in millions) | Category | Sep 30, 2020 | Dec 31, 2019 | | :---------------------------------------- | :----------- | :----------- | | Real estate loans: | | | | Commercial | $3,690.9 | $3,487.8 | | Construction loans | $1,033.5 | $977.7 | | Residential | $1,311.2 | $1,246.1 | | Agricultural | $227.7 | $226.6 | | **Total real estate loans** | **$6,263.3** | **$5,938.2** | | Consumer loans: | | | | Indirect | $812.8 | $784.6 | | Direct and advance lines | $162.1 | $179.0 | | Credit card | $69.9 | $81.6 | | **Total consumer loans** | **$1,044.8** | **$1,045.2** | | Commercial | $2,599.6 | $1,673.7 | | Agricultural | $274.7 | $279.1 | | Other, including overdrafts | $4.2 | — | | Loans held for investment, net of deferred fees and costs | $10,152.2 | $8,930.7 | | Allowance for credit losses | $(145.5) | $(73.0) | | **Net loans held for investment** | **$10,006.7**| **$8,857.7** | - Commercial loans increased significantly by **$925.9 million (55.3%)** due to **$1.2 billion in PPP loan originations**, partially offset by other portfolio pay-downs[315](index=315&type=chunk) - Total consumer loans slightly decreased by $0.4 million, with indirect loans increasing and direct/credit card loans decreasing due to reduced spending and pay-downs[314](index=314&type=chunk) - The allowance for credit losses on loans increased to **$145.5 million** as of September 30, 2020, from $73.0 million at December 31, 2019, primarily due to the adoption of CECL and changes in economic forecasts related to COVID-19[119](index=119&type=chunk)[335](index=335&type=chunk) [(6) Other Real Estate Owned](index=37&type=section&id=%286%29%20Other%20Real%20Estate%20Owned) Other real estate owned (OREO) decreased to $5.7 million due to dispositions exceeding additions Other Real Estate Owned (in millions) | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Beginning balance | $6.5 | $27.5 | $8.5 | $14.4 | | Additions | $2.0 | $0.7 | $3.2 | $14.0 | | Valuation adjustments | $(0.1) | $(0.2) | $(0.1) | $(0.7) | | Dispositions | $(2.7) | $(10.2) | $(5.9) | $(12.3) | | Ending balance | $5.7 | $17.8 | $5.7 | $17.8 | - The carrying value of foreclosed residential real estate properties within OREO remained stable at **$2.3 million** as of September 30, 2020 and December 31, 2019[156](index=156&type=chunk) [(7) Derivatives and Hedging Activities](index=37&type=section&id=%287%29%20Derivatives%20and%20Hedging%20Activities) The company utilizes interest rate swaps for hedging and non-hedging purposes, with derivative assets and liabilities increasing significantly - The company entered into three interest rate swap contracts totaling **$87.6 million** in notional amount, designated as cash flow hedges, effective May 1, 2020, to hedge variable rate debt[159](index=159&type=chunk)[165](index=165&type=chunk) Derivative Instruments (in millions) | Item | Sep 30, 2020 (Notional Amount) | Sep 30, 2020 (Estimated Fair Value) | Dec 31, 2019 (Notional Amount) | Dec 31, 2019 (Estimated Fair Value) | | :---------------------------------- | :----------------------------- | :---------------------------------- | :----------------------------- | :---------------------------------- | | Derivative Assets: | | | | | | Non-hedging interest rate swap contracts | $754.3 | $61.3 | $503.2 | $21.9 | | Interest rate lock commitments | $186.9 | $7.0 | $67.8 | $1.3 | | **Total derivative assets** | **$941.2** | **$68.3** | **$571.0** | **$23.2** | | Derivative Liabilities: | | | | | | Hedging interest rate swap contracts | $87.6 | $0.2 | — | — | | Non-hedging interest rate swap contracts | $754.3 | $61.3 | $503.2 | $21.9 | | Forward loan sales contracts | $237.0 | $1.6 | $128.0 | $0.3 | | **Total derivative liabilities** | **$1,078.9** | **$63.1** | **$631.2** | **$22.2** | - Net fee income from non-hedging interest rate derivatives recognized in other non-interest income was **$3.7 million** for the three months and **$6.4 million** for the nine months ended September 30, 2020[175](index=175&type=chunk) [(8) Capital Stock](index=40&type=section&id=%288%29%20Capital%20Stock) The company increased its stock repurchase program and repurchased 2.5 million shares for $77.5 million Common Stock Outstanding | Class of Stock | Shares Outstanding (Sep 30, 2020) | | :--------------- | :-------------------------------- | | Class A common | 41,143,592 | | Class B common | 21,971,339 | - The company's board of directors increased the stock repurchase program authorization by 3.0 million shares, bringing the total to **5.5 million shares**[178](index=178&type=chunk) - During the nine months ended September 30, 2020, the company repurchased and retired **2.5 million shares** of Class A common stock at a total cost of **$77.5 million**[180](index=180&type=chunk) [(9) Earnings per Common Share](index=40&type=section&id=%289%29%20Earnings%20per%20Common%20Share) Quarterly EPS remained flat at $0.76, while nine-month EPS decreased to $1.78 from $2.03 in the prior year Earnings Per Common Share (EPS) | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (in millions) | $48.3 | $49.1 | $114.3 | $128.6 | | Weighted average common shares outstanding (Basic) | 63,764,474 | 64,832,324 | 64,184,832 | 63,232,575 | | Weighted average common shares outstanding (Diluted) | 63,861,457 | 65,043,486 | 64,295,525 | 63,471,283 | | Basic earnings per common share | $0.76 | $0.76 | $1.78 | $2.03 | | Diluted earnings per common share | $0.76 | $0.76 | $1.78 | $2.03 | - The decrease in nine-month EPS is primarily due to **lower net income**, despite a slight increase in weighted average common shares outstanding[184](index=184&type=chunk) [(10) Regulatory Capital](index=41&type=section&id=%2810%29%20Regulatory%20Capital) The company and its subsidiary bank exceeded all capital adequacy requirements and maintained 'well-capitalized' status Regulatory Capital Ratios (Consolidated, as of Sep 30, 2020) | Capital Ratio | Actual Ratio | Minimum Required for Capital Adequacy Purposes | Minimum to Be Well Capitalized | | :----------------------------- | :----------- | :--------------------------------------------- | :----------------------------- | | Total risk-based capital | 14.45% | 8.00% | 10.00% | | Tier 1 risk-based capital | 12.56% | 6.00% | 8.00% | | Common equity tier 1 risk-based capital | 11.80% | 4.50% | 6.50% | | Leverage capital ratio | 8.62% | 4.00% | 5.00% | - The company elected to opt into the transition election for ASC 326, **deferring its impact on regulatory capital over a five-year period**, as allowed by interim final rules in response to the COVID-19 pandemic[187](index=187&type=chunk)[227](index=227&type=chunk) [(11) Commitments and Contingencies](index=42&type=section&id=%2811%29%20Commitments%20and%20Contingencies) The company had $10.6 million in construction commitments and $1.1 million in sold loans with recourse provisions - The company had commitments under construction contracts totaling **$10.6 million** as of September 30, 2020[190](index=190&type=chunk) - As of September 30, 2020, **$1.1 million** of sold residential mortgage loans had recourse provisions still in effect[191](index=191&type=chunk) - Management believes that the ultimate liability or disposition of all other claims and litigation is **not expected to have a material adverse effect** on the company's financial condition, results of operations, or liquidity[189](index=189&type=chunk) [(12) Financial Instruments with Off-Balance Sheet Risk](index=43&type=section&id=%2812%29%20Financial%20Instruments%20with%20Off-Balance%20Sheet%20Risk) The allowance for off-balance sheet credit losses increased to $3.5 million following the adoption of ASC 326 Off-Balance Sheet Financial Instruments (in millions) | Item | Sep 30, 2020 | Dec 31, 2019 | | :------------------------------------------ | :----------- | :----------- | | Unused credit card lines | $691.9 | $671.8 | | Commitments to extend credit | $2,173.2 | $2,067.0 | | Standby letter of credit | $58.8 | $42.7 | | Ending balance of allowance for off-balance sheet credit losses | $3.5 | — | - The initial impact of adopting ASC 326 on January 1, 2020, increased the allowance for off-balance sheet credit losses by **$2.3 million**[194](index=194&type=chunk) [(13) Other Comprehensive Income/Loss](index=43&type=section&id=%2813%29%20Other%20Comprehensive%20Income%2FLoss) Nine-month other comprehensive income was $50.9 million, driven by unrealized gains on available-for-sale investment securities Total Other Comprehensive Income (in millions) | Item | 3 Months Ended Sep 30, 2020 (Net of Tax) | 3 Months Ended Sep 30, 2019 (Net of Tax) | 9 Months Ended Sep 30, 2020 (Net of Tax) | 9 Months Ended Sep 30, 2019 (Net of Tax) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Investment securities available-for-sale | $(3.2) | $3.1 | $51.1 | $38.5 | | Unrealized gain on derivatives | — | — | $0.2 | — | | Defined benefits post-retirement benefit plan | $(0.1) | $(0.2) | $(0.4) | $(0.5) | | **Total other comprehensive (loss) income** | **$(3.3)** | **$2.9** | **$50.9** | **$38.0** | Components of Accumulated Other Comprehensive Income, Net of Tax (in millions) | Item | Sep 30, 2020 | Dec 31, 2019 | | :------------------------------------------ | :----------- | :----------- | | Net unrealized gains on investment securities available-for-sale | $62.1 | $10.6 | | Net unrealized loss on derivatives | $(0.2) | — | | Net actuarial gains on defined benefit post-retirement benefit plans | — | $0.4 | | **Net accumulated other comprehensive gains** | **$61.9** | **$11.0** | [(14) Fair Value Measurements](index=45&type=section&id=%2814%29%20Fair%20Value%20Measurements) The company measures financial instruments at fair value using a three-level hierarchy, primarily relying on Level 2 observable inputs - Fair value measurements are categorized into **Level 1** (quoted prices in active markets), **Level 2** (observable inputs other than Level 1 prices), and **Level 3** (unobservable inputs)[199](index=199&type=chunk) Fair Value Measurements at Reporting Date (in millions, Sep 30, 2020) | Item | Balance | Level 1 | Level 2 | Level 3 | | :----------------------------------------------------------------- | :-------- | :------ | :-------- | :------ | | Investment debt securities available-for-sale | $3,453.5 | — | $3,453.5 | — | | Loans held for sale | $102.0 | — | $102.0 | — | | Derivative assets (Interest rate swap contracts, Interest rate lock commitments) | $68.3 | — | $68.3 | — | | Derivative liabilities (Interest rate swap contracts, Forward loan sale contracts) | $63.1 | — | $63.1 | — | | Collateral dependent loans (non-recurring) | $11.4 | — | — | $11.4 | | Other real estate owned (non-recurring) | $1.1 | — | — | $1.1 | - There were **no transfers** between fair value hierarchy levels during the three and nine months ended September 30, 2020 and 2019[200](index=200&type=chunk) [(15) Long-Term Debt](index=51&type=section&id=%2815%29%20Long-Term%20Debt) The company issued $100.0 million of subordinated notes due 2030 with a 5.25% fixed-to-floating rate - The company issued **$100.0 million** in subordinated notes in May 2020, maturing on May 15, 2030, with a **5.25% fixed-to-floating rate**[222](index=222&type=chunk) [(16) Recent Authoritative Accounting Guidance](index=51&type=section&id=%2816%29%20Recent%20Authoritative%20Accounting%20Guidance) The company adopted ASU 2016-13 (CECL) on January 1, 2020, resulting in a $24.1 million reduction to retained earnings - ASU 2016-13 (CECL) was adopted on January 1, 2020, increasing the allowance for loan losses by **$30.0 million** and off-balance sheet credit exposures by **$2.3 million**, with a net **$24.1 million reduction to retained earnings**[223](index=223&type=chunk)[225](index=225&type=chunk) - The company elected to apply the **five-year transition relief** for CECL's impact on regulatory capital, as provided by recent COVID-19 legislation[227](index=227&type=chunk) - ASU 2018-13 (Fair Value Measurement) and ASU 2018-15 (Internal-Use Software) became effective on January 1, 2020, with **no significant impact** on financial statements[228](index=228&type=chunk)[231](index=231&type=chunk) [(17) Subsequent Events](index=53&type=section&id=%2817%29%20Subsequent%20Events) The company declared a quarterly dividend of $0.38 per common share in October 2020 - A quarterly dividend of **$0.38 per common share** was declared on October 26, 2020, payable on November 16, 2020[233](index=233&type=chunk) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations [Cautionary Note Regarding Forward-Looking Statements and Factors that Could Affect Future Results](index=54&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements%20and%20Factors%20that%20Could%20Affect%20Future%20Results) This section identifies risks and uncertainties that could cause actual results to differ materially from expectations - Forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates, and other important factors that could cause actual results to differ materially[240](index=240&type=chunk) - Key risk factors include political, legal, regulatory, and general economic conditions, actions by the Federal Reserve, credit performance, acquisition integration, operating costs, and the impact of the COVID-19 pandemic[240](index=240&type=chunk) - The company does not undertake any obligation to update publicly any forward-looking statements, except as required by applicable laws[243](index=243&type=chunk) [Executive Overview](index=55&type=section&id=Executive%20Overview) First Interstate BancSystem, Inc. is a financial holding company with $17.1 billion in assets and 150 banking offices - First Interstate BancSystem, Inc. is headquartered in Billings, Montana, and operates 150 banking offices in Idaho, Montana, Oregon, South Dakota, Washington, and Wyoming[244](index=244&type=chunk) Key Financial Metrics (as of September 30, 2020, in billions) | Metric | Amount | | :--------------------- | :----- | | Consolidated assets | $17.1 | | Deposits | $13.9 | | Loans | $10.3 | | Total stockholders' equity | $2.0 | [Our Business](index=55&type=section&id=Our%20Business) The company's core business involves lending and deposit-taking, with income primarily from interest on loans and investments - Principal business activities include lending, accepting deposits, and conducting financial transactions for individuals, businesses, and municipalities[245](index=245&type=chunk) - Income is primarily from interest on loans and investments, with non-interest income from fees for lending, deposit, wealth management, mortgage, and electronic banking services[245](index=245&type=chunk) - The loan portfolio is diversified across real estate, consumer, commercial, and agricultural loans, funded primarily by core client deposits[246](index=246&type=chunk) [Recent Trends and Developments](index=55&type=section&id=Recent%20Trends%20and%20Developments) The company adopted CECL and participated in the Paycheck Protection Program, approving $1.2 billion in loans - The company adopted CECL on January 1, 2020, and continues to evaluate bank acquisitions and strategic opportunities[247](index=247&type=chunk) - The COVID-19 pandemic led to a federal funds rate cut and the CARES Act, including the Paycheck Protection Program (PPP)[249](index=249&type=chunk) - The company approved approximately **11,700 PPP applications for $1.2 billion** and granted deferrals on approximately 325 loans totaling **$47.5 million** for COVID-19 affected clients[250](index=250&type=chunk)[251](index=251&type=chunk) [Primary Factors Used in Evaluating Our Business](index=57&type=section&id=Primary%20Factors%20Used%20in%20Evaluating%20Our%20Business) The company evaluates its business by monitoring financial condition, performance, and key financial ratios - The company monitors financial condition and performance using balance sheet and income statement trends, and industry-standard financial ratios[255](index=255&type=chunk) - Key performance metrics include return on average equity, net interest income, non-interest income, non-interest expense, and net income[256](index=256&type=chunk) - Financial condition is evaluated based on liquidity, loan portfolio diversification and quality, allowance for credit losses, deposit and funding mix, asset-liability management, and capital adequacy[261](index=261&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk) [Critical Accounting Estimates and Significant Accounting Policies](index=58&type=section&id=Critical%20Accounting%20Estimates%20and%20Significant%20Accounting%20Policies) Critical accounting estimates include the allowance for credit losses under CECL and goodwill impairment - Critical accounting estimates include the **allowance for credit losses** and **goodwill impairment**, which require significant management judgment and can materially impact financial statements[267](index=267&type=chunk) - The allowance for credit losses is an estimate of expected credit losses over the life of loans, based on historical experience, current conditions, and a one-year economic forecast[268](index=268&type=chunk)[269](index=269&type=chunk) - Goodwill is evaluated for impairment at least annually, with fair value estimated using market value, discounted cash flows, and peer values[275](index=275&type=chunk)[276](index=276&type=chunk) [Results of Operations](index=59&type=section&id=Results%20of%20Operations) Results were influenced by lower interest rates and PPP loans, with significant growth in non-interest income from mortgage banking [Net Interest Income](index=59&type=section&id=Net%20Interest%20Income) Quarterly net interest income decreased by 2.0% to $123.0 million, while the nine-month figure increased slightly by 0.5% Net Interest Income (in millions) | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net interest income | $123.0 | $125.5 | $368.6 | $366.8 | | Net FTE interest margin | 3.29% | 3.93% | 3.55% | 4.01% | - The decrease in net interest income for the three months was mainly due to **lower yields on interest-earning assets**, largely related to the March 2020 federal funds rate decrease, partially offset by **$10.6 million interest income from PPP loans**[288](index=288&type=chunk) - Net FTE interest margin decreased by **64 basis points to 3.29%** for the three months and **46 basis points to 3.55%** for the nine months ended September 30, 2020, primarily due to lower asset yields, significant PPP loan balances at low yields, and higher cash balances[291](index=291&type=chunk) [Provision for Credit Losses](index=63&type=section&id=Provision%20for%20Credit%20Losses) The provision for credit losses increased significantly to $53.7 million for the nine months, reflecting the adoption of CECL Provision for Credit Losses (in millions) | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Provision for credit losses | $5.2 | $2.6 | $53.7 | $10.1 | - The increase in provision for credit losses is mainly attributable to the **adoption of CECL** on January 1, 2020, and an increase in reserves on unfunded loan commitments[296](index=296&type=chunk) - Net charge-offs for the third quarter of 2020 were **$4.6 million**, or an annualized **0.18%** of average loans outstanding, compared to $1.8 million (0.08%) in the same period of 2019[296](index=296&type=chunk) [Non-interest Income](index=63&type=section&id=Non-interest%20Income) Non-interest income grew 17.0% for the quarter and 14.2% for the nine months, driven by mortgage banking revenues Non-interest Income (in millions) | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Payment services revenues | $10.5 | $10.8 | $30.0 | $30.7 | | Mortgage banking revenues | $14.3 | $10.4 | $39.4 | $24.6 | | Wealth management revenues | $5.9 | $5.9 | $17.5 | $17.8 | | Service charges on deposit accounts | $4.3 | $5.3 | $13.3 | $15.7 | | Other service charges, commissions and fees | $5.0 | $1.7 | $10.0 | $5.2 | | Investment securities gains (losses), net | $0.1 | $0.1 | $0.1 | $0.1 | | Other income | $4.6 | $4.0 | $12.5 | $13.4 | | **Total non-interest income** | **$44.7** | **$38.2** | **$122.8** | **$107.5** | - Mortgage banking revenues increased by **$3.9 million (37.5%)** for the three months and **$14.8 million (60.2%)** for the nine months, driven by increased mortgage loan production from higher refinance activity, partially offset by mortgage servicing impairments[300](index=300&type=chunk) - Other service charges, commissions and fees increased by **$3.3 million (194.1%)** for the three months and **$4.8 million (92.3%)** for the nine months, primarily due to additional fees earned on derivative interest rate swap contracts[305](index=305&type=chunk) [Non-interest Expense](index=64&type=section&id=Non-interest%20Expense) Nine-month non-interest expense decreased by 2.7% due to a $19.6 million reduction in acquisition-related expenses Non-interest Expense (in millions) | Item | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Salaries and wages | $46.0 | $40.1 | $130.1 | $115.3 | | Employee benefits | $11.8 | $11.9 | $36.4 | $40.3 | | Outsourced technology services | $8.4 | $7.9 | $24.5 | $23.9 | | Occupancy, net | $7.2 | $7.1 | $21.3 | $21.2 | | Furniture and equipment | $4.1 | $3.3 | $11.1 | $10.2 | | OREO expense, net of income | — | $(0.8) | $(0.4) | $(0.5) | | Professional fees | $2.9 | $3.5 | $8.6 | $9.3 | | FDIC insurance premiums | $1.3 | $0.4 | $4.5 | $3.5 | | Core deposit intangibles amortization | $2.7 | $3.0 | $8.3 | $8.3 | | Other expenses | $15.1 | $16.5 | $45.7 | $46.9 | | Acquisition related expenses | — | $3.8 | — | $19.6 | | **Total non-interest expense** | **$99.5** | **$96.7** | **$290.1** | **$298.0** | - Salaries and wages increased by **$5.9 million (14.7%)** for the three months and **$14.8 million (12.8%)** for the nine months, due to higher mortgage loan originator commissions, incentive accruals, and additional employees from acquisitions[307](index=307&type=chunk) - Acquisition-related expenses decreased by **$19.6 million** for the nine months ended September 30, 2020, as major acquisition activities concluded[306](index=306&type=chunk) [Income Tax Expense](index=65&type=section&id=Income%20Tax%20Expense) The effective tax rate was 23.3% for the third quarter and 22.6% for the nine-month period Effective Tax Rate | Period | 2020 | 2019 | | :-------------------------- | :---- | :---- | | Three Months Ended Sep 30 | 23.3% | 23.8% | | Nine Months Ended Sep 30 | 22.6% | 22.6% | [Financial Condition](index=65&type=section&id=Financial%20Condition) Total assets grew significantly, driven by PPP loans and investment securities, and funded by a substantial rise in deposits [Total Assets](index=65&type=section&id=Total%20Assets) Total assets increased by 16.6% to $17,069.5 million, driven by growth in loans, investments, and cash Total Assets (in millions) | Date | Amount | | :----------- | :--------- | | Sep 30, 2020 | $17,069.5 | | Dec 31, 2019 | $14,644.2 | - The increase in total assets was primarily driven by growth in loans held for investment (PPP loans), investment securities, and cash and cash equivalents, supported by higher deposit levels[312](index=312&type=chunk) [Loans Held for Investment, Net of Deferred Fees and Costs](index=65&type=section&id=Loans%20Held%20for%20Investment%2C%20Net%20of%20Deferred%20Fees%20and%20Costs) Net loans held for investment increased by 13.7% to $10,152.2 million, largely due to $1.2 billion in PPP loans Loans Held for Investment, Net (in millions) | Date | Amount | | :----------- | :---------- | | Sep 30, 2020 | $10,152.2 | | Dec 31, 2019 | $8,930.7 | - Commercial loans increased by **$925.9 million (55.3%)** to $2,599.6 million, primarily due to **$1.2 billion in PPP loan originations**[315](index=315&type=chunk) - Total real estate loans increased by **$325.1 million (5.5%)**, with growth in commercial, construction, and residential segments[313](index=313&type=chunk) [Loans Held for Sale](index=65&type=section&id=Loans%20Held%20for%20Sale) Loans held for sale increased slightly to $102.0 million due to higher residential mortgage originations Loans Held for Sale (in millions) | Date | Amount | | :----------- | :------ | | Sep 30, 2020 | $102.0 | | Dec 31, 2019 | $100.9 | - The increase is primarily due to higher levels of refinance activity driven by lower interest rates[316](index=316&type=chunk) [Non-performing Assets](index=66&type=section&id=Non-performing%20Assets) Total non-performing assets increased slightly to $60.1 million, with the ratio to total loans held for investment remaining stable at 0.54% Non-Performing Assets (in millions) | Item | Sep 30, 2020 | Dec 31, 2019 | Sep 30, 2019 | | :------------------------------------------ | :----------- | :----------- | :----------- | | Non-accrual loans | $44.8 | $42.9 | $50.1 | | Accruing loans past due 90 days or more | $9.6 | $5.7 | $7.0 | | Total non-performing loans | $54.4 | $48.6 | $57.1 | | OREO | $5.7 | $8.5 | $17.8 | | **Total non-performing assets** | **$60.1** | **$57.1** | **$74.9** | | Non-performing loans to loans held for investment | 0.54% | 0.54% | 0.63% | - Non-accrual loans increased by **$1.9 million** to $44.8 million, primarily due to the adoption of the CECL standard and the transition from purchase credit impaired to purchase credit deteriorated loans[323](index=323&type=chunk) - OREO decreased by **$2.8 million (32.9%)** from December 31, 2019[323](index=323&type=chunk) [Allowance for Credit Losses](index=67&type=section&id=Allowance%20for%20Credit%20Losses) The allowance for credit losses on loans increased significantly to $145.5 million, or 1.43% of loans, due to CECL adoption Allowance for Credit Losses (in millions) | Item | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | | :------------------------------------------ | :----------- | :----------- | :----------- | :----------- | :----------- | | Allowance for credit losses on loans | $145.5 | $146.1 | $129.1 | $73.0 | $75.0 | | Allowance for off-balance sheet credit losses | $3.5 | $2.3 | $2.1 | — | — | | **Total allowance for credit losses** | **$149.0** | **$148.4** | **$131.2** | **$73.0** | **$75.0** | | Allowance to loans held for investment | 1.43% | 1.46% | 1.45% | 0.82% | 0.83% | - The increase in ACLL is primarily a result of the **adoption of the CECL standard** and changes in the company's internal economic forecast in response to COVID-19 and uncertainty regarding government stimulus benefits[335](index=335&type=chunk) - Excluding PPP loan balances, the allowance for credit losses on loans as a percentage of period-end loans held for investment would have been **20 basis points higher** at September 30, 2020[336](index=336&type=chunk) [Investment Securities](index=69&type=section&id=Investment%20Securities) Investment securities increased by 14.9% to $3,508.5 million, representing 20.6% of total assets Investment Securities (in millions) | Date | Amount | % of Total Assets | | :----------- | :--------- | :---------------- | | Sep 30, 2020 | $3,508.5 | 20.6% | | Dec 31, 2019 | $3,052.3 | 20.8% | - The estimated duration of the investment portfolio was **2.3 years** as of September 30, 2020[337](index=337&type=chunk) - **No impairment losses** or credit impairment were recorded on available-for-sale securities in an unrealized loss position, as the company has the intent and ability to hold them for recovery[339](index=339&type=chunk) [Other Assets](index=70&type=section&id=Other%20Assets) Other assets increased by 21.1% to $227.1 million, primarily due to a $45.1 million increase in interest rate swap contracts Other Assets (in millions) | Date | Amount | | :----------- | :------ | | Sep 30, 2020 | $227.1 | | Dec 31, 2019 | $187.6 | - The increase is primarily attributable to a **$45.1 million increase** in interest rate swap contracts[341](index=341&type=chunk) [Deposits](index=70&type=section&id=Deposits) Total deposits increased significantly by 19.0% to $13,882.4 million, driven by PPP loan proceeds and new clients Total Deposits (in millions) | Date | Amount | | :----------- | :---------- | | Sep 30, 2020 | $13,882.4 | | Dec 31, 2019 | $11,663.5 | Deposit Composition (in millions) | Category | Sep 30, 2020 | % of Total | Dec 31, 2019 | % of Total | | :------------------------ | :----------- | :--------- | :----------- | :--------- | | Non-interest-bearing demand | $4,798.2 | 34.5% | $3,426.5 | 29.4% | | Interest bearing: | | | | | | Demand | $3,814.1 | 27.5% | $3,195.4 | 27.4% | | Savings | $4,158.0 | 30.0% | $3,591.6 | 30.8% | | Time, $100 and over | $427.6 | 3.1% | $651.1 | 5.6% | | Time, other | $684.5 | 4.9% | $798.9 | 6.8% | | **Total interest bearing**| **$9,084.2** | **65.5%** | **$8,237.0** | **70.6%** | | **Total deposits** | **$13,882.4**| **100.0%** | **$11,663.5**| **100.0%** | - The increase in deposits is primarily attributable to **proceeds from PPP loans**, new clients acquired through the PPP process, and higher cash balances of existing clients[342](index=342&type=chunk) [Securities Sold Under Repurchase Agreement](index=70&type=section&id=Securities%20Sold%20Under%20Repurchase%20Agreement) Repurchase agreement balances increased by 17.6% to $820.3 million due to normal fluctuations Securities Sold Under Repurchase Agreements (in millions) | Date | Amount | | :----------- | :------ | | Sep 30, 2020 | $820.3 | | Dec 31, 2019 | $697.6 | - All outstanding repurchase agreements are due in one day and balances fluctuate in the normal course of business[344](index=344&type=chunk) [Deferred Tax Asset / Liability](index=70&type=section&id=Deferred%20Tax%20Asset%20%2F%20Liability) The net deferred tax liability increased by 11.6% to $29.8 million, mainly due to mark-to-market gains Deferred Tax Liability, Net (in millions) | Date | Amount | | :----------- | :------ | | Sep 30, 2020 | $29.8 | | Dec 31, 2019 | $26.7 | - The increase was primarily due to an increase in mark-to-market gains, partially offset by an increase in the allowance for credit losses as a result of the adoption of ASC 326[345](index=345&type=chunk) [Capital Resources and Liquidity Management](index=70&type=section&id=Capital%20Resources%20and%20Liquidity%20Management) Stockholders' equity decreased by 1.8% to $1,977.6 million due to stock repurchases and ASC 326 adoption Stockholders' Equity (in millions) | Date | Amount | | :----------- | :--------- | | Sep 30, 2020 | $1,977.6 | | Dec 31, 2019 | $2,013.9 | - Stockholders' equity decreased due to **stock repurchases ($77.5 million for nine months)** and the **$24.1 million cumulative effect of adopting ASC 326**, offset by retention of earnings and other comprehensive income[346](index=346&type=chunk)[350](index=350&type=chunk) - The company and its subsidiary bank **exceeded all capital adequacy requirements** as of September 30, 2020, maintaining 'well-capitalized' status[351](index=351&type=chunk) - Liquidity is managed through liquid assets (cash, investment securities), liabilities (core deposits), and access to alternative funding sources like FHLB advances and capital markets[352](index=352&type=chunk) [Recent Accounting Pronouncements](index=71&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 16 for details on recently issued accounting pronouncements - Details on recent accounting pronouncements and their expected impact are provided in Note 16 to the Unaudited Consolidated Financial Statements[356](index=356&type=chunk) Item 3. Quantitative and Qualitative Disclosures about Market Risk [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=72&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) There have been no material changes in market risk disclosures since the prior year-end report - **No material changes** in quantitative and qualitative market risk disclosures as of September 30, 2020, compared to the prior annual report[360](index=360&type=chunk) Item 4. Controls and Procedures [Item 4. Controls and Procedures](index=72&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2020 - The Chief Executive Officer and Chief Financial Officer concluded that **disclosure controls and procedures were effective** as of September 30, 2020[362](index=362&type=chunk) - There were **no material changes** in internal control over financial reporting for the quarter ended September 30, 2020[363](index=363&type=chunk) - The effectiveness of controls and procedures is subject to inherent limitations, including cost, judgments, assumptions, human error, and fraud risk[364](index=364&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=72&type=section&id=Item%201.%20Legal%20Proceedings) There have been no material changes in legal proceedings since the prior year-end report - **No material changes** in legal proceedings as described in the Annual Report on Form 10-K for December 31, 2019[366](index=366&type=chunk) [Item 1A. Risk Factors](index=72&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, emphasizing the uncertain and adverse impact of the COVID-19 pandemic - The impact of the **COVID-19 pandemic** on the business and financial results is uncertain and unpredictable, potentially leading to material adverse effects on operations and profitability[368](index=368&type=chunk)[378](index=378&type=chunk) - The pandemic has caused disruptions to client borrowers, potential credit losses, and workforce challenges, with a significant portion of staff working remotely[374](index=374&type=chunk)[375](index=375&type=chunk) - The effectiveness and cumulative effect of U.S. government emergency actions, such as interest rate cuts and the CARES Act, on the economy and the company's financial condition remain uncertain[379](index=379&type=chunk)[381](index=381&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 1,445,300 shares of Class A common stock for $46.3 million during the quarter - **No unregistered sales** of equity securities occurred during the three months ended September 30, 2020[382](index=382&type=chunk) Class A Common Stock Purchases (Three Months Ended Sep 30, 2020) | Period | Total Shares Purchased | Average Price Paid Per Share | | :------------- | :--------------------- | :--------------------------- | | July 2020 | — | — | | August 2020 | 294,846 | $32.77 | | September 2020 | 1,150,454 | $31.83 | | **Total** | **1,445,300** | **$32.02** | - Stock repurchases included redemptions of vested restricted shares for income tax withholding and purchases under the stock repurchase program[384](index=384&type=chunk) [Item 3. Defaults Upon Senior Securities](index=74&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the period - **No defaults** upon senior securities were reported[385](index=385&type=chunk) [Item 4. Mine Safety Disclosures](index=76&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Di

First Interstate BancSystem, Inc. (NASDAQ:FIBK) Q3 2020 Earnings Conference Call October 27, 2020 11:00 AM ET Company Participants Lisa Slyter-Bray - Executive Assistant Kevin Riley - Chief Executive Officer Marcy Mutch - Chief Financial Officer Conference Call Participants Jeff Rulis - D.A. Davidson Matthew Clark - Piper Sandler Jared Shaw - Wells Fargo Jackie Bohlen - KBW Operator Good day, and welcome to the First Interstate BancSystem Third Quarter 2020 Earnings Conference Call. All participants will be ...

Investor Presentation October 2020 First Interstate BancSystem Safe Harbor This presentation contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder, that involve inherent risks and uncertainties. Any statements about our plans, objectives, expectations, strategies, beliefs, or future performance or events con ...

[Part I - Financial Information](index=2&type=section&id=Part%20I%20-%20Financial%20Information) [Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents unaudited Q2 2020 consolidated financial statements, reflecting the adoption of the CECL accounting standard Financial Highlights (Q2 2020 vs Q2 2019) | Metric | Q2 2020 (In millions) | Q2 2019 (In millions) | Change | | :--- | :--- | :--- | :--- | | Total Assets | $16,471.4 | $14,219.6 (Avg) | +15.8% | | Total Deposits | $13,340.4 | $11,663.5 (as of 12/31/19) | +14.4% | | Net Loans Held for Investment | $9,886.4 | $8,857.7 (as of 12/31/19) | +11.6% | | Net Interest Income | $122.5 | $125.3 | -2.2% | | Net Income | $36.7 | $37.9 | -3.2% | | Diluted EPS | $0.57 | $0.59 | -3.4% | - The Company adopted the **Current Expected Credit Loss (CECL)** methodology on January 1, 2020, resulting in a **$24.1 million** cumulative-effect adjustment to retained earnings[32](index=32&type=chunk)[233](index=233&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section details accounting policies and financial data, including CECL adoption and portfolio compositions [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=58&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, focusing on the impacts of the COVID-19 pandemic and CECL adoption - The company actively participated in the SBA's Paycheck Protection Program (PPP), approving over **11,400 applications** for approximately **$1.2 billion** as of July 17, 2020[258](index=258&type=chunk) - Under the CARES Act, the company granted loan modifications on approximately **1,300 loans totaling $409.1 million** to assist customers affected by COVID-19[259](index=259&type=chunk) Key Performance Metrics Comparison | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net Interest Income | $122.5 million | $125.3 million | | Provision for Credit Losses | $19.5 million | $3.8 million | | Net Income | $36.7 million | $37.9 million | | Net FTE Interest Margin | 3.52% | 4.08% | [Results of Operations](index=62&type=section&id=Results%20of%20Operations) Q2 2020 net income decreased slightly due to higher credit loss provisions, despite strong mortgage banking revenue - Net interest income **decreased by 2.2%** in Q2 2020, partially offset by **$8.6 million in interest income from PPP loans**[296](index=296&type=chunk) - The provision for credit losses **increased to $19.5 million** in Q2 2020, up from $3.8 million in Q2 2019, due to CECL adoption and the COVID-19 economic forecast[307](index=307&type=chunk) - Non-interest income **increased 5.6%** in Q2 2020, driven by a **57.8% surge in mortgage banking revenues** from high refinancing activity[309](index=309&type=chunk)[313](index=313&type=chunk) - Total non-interest expense **decreased 13.3%** in Q2 2020, mainly due to non-recurring acquisition-related expenses from the prior year[316](index=316&type=chunk) [Financial Condition](index=64&type=section&id=Financial%20Condition) Total assets and deposits grew significantly, driven by PPP loans, while asset quality remained strong - Total assets **increased by $1.8 billion (12.5%)** since December 31, 2019, primarily due to PPP loan originations and a surge in deposits[324](index=324&type=chunk) - The allowance for credit losses to loans **increased to 1.46%** from 0.82% at year-end 2019, or **1.66% excluding government-guaranteed PPP loans**[347](index=347&type=chunk)[349](index=349&type=chunk) - Total deposits **increased by $1.7 billion (14.4%)** since year-end 2019, with non-interest-bearing deposits growing by 29.2%[356](index=356&type=chunk)[357](index=357&type=chunk) - Non-performing assets to total assets **remained low at 0.39%**, consistent with the level at December 31, 2019[331](index=331&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=65&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) No material changes in market risk disclosures occurred since the 2019 Annual Report on Form 10-K - There have been **no material changes** in market risk disclosures since the 2019 Annual Report on Form 10-K[373](index=373&type=chunk) [Controls and Procedures](index=65&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal controls over financial reporting were effective - Management concluded that **disclosure controls and procedures were effective** as of June 30, 2020[375](index=375&type=chunk) - **No material changes** to internal control over financial reporting occurred during the second quarter of 2020[376](index=376&type=chunk) [Part II - Other Information](index=65&type=section&id=Part%20II%20-%20Other%20Information) [Legal Proceedings](index=66&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material changes in legal proceedings since the 2019 annual report - There have been **no material changes in legal proceedings** since the 2019 Annual Report[380](index=380&type=chunk) [Risk Factors](index=66&type=section&id=Item%201A.%20Risk%20Factors) This section highlights new and heightened risks posed by the uncertain impact of the COVID-19 pandemic - The primary updated risk factor is the uncertain and unpredictable impact of the **COVID-19 pandemic**, which could be materially adverse[381](index=381&type=chunk) - Specific pandemic risks include a potential global recession, **increased credit losses**, and **business disruptions** due to workforce unavailability[385](index=385&type=chunk)[388](index=388&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=67&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company details stock repurchases during Q2 2020, with no shares bought under the public program Share Repurchases (Q2 2020) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2020 | 221 | $27.71 | | May 2020 | 116 | $29.84 | | June 2020 | 145 | $31.24 | | **Total** | **482** | **$29.28** | - **No shares were purchased** as part of the publicly announced repurchase plan during the quarter; **1,445,300 shares** may yet be purchased under the plan[390](index=390&type=chunk) [Exhibits](index=68&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the report, including indentures and required CEO/CFO certifications - Exhibits filed include indentures for the **5.25% Fixed-to-Floating Rate Subordinated Notes** due 2030 and required **CEO and CFO certifications**[393](index=393&type=chunk)[395](index=395&type=chunk)[396](index=396&type=chunk)

First Interstate BancSystem, Inc. (NASDAQ:FIBK) Q2 2020 Earnings Conference Call July 28, 2020 11:00 AM ET Company Participants Lisa Slyter-Bray - Executive Assistant Kevin Riley - President, CEO & Director Marcy Mutch - EVP & CFO Conference Call Participants Jared Shaw - Wells Fargo Securities Gordon McGuire - Stephens Inc. Matthew Clark - Piper Sandler & Co. Jackie Bohlen - KBW Levi Posen - D.A. Davidson & Co. Garrett Holland - Robert W. Baird & Co. Operator Good day, and welcome to the First Interstate B ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION ☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2020 OR ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to | --- | --- | |------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------| | Washing ...

Financial Data and Key Metrics Changes - The company reported a decrease in net interest income of $5.1 million from the previous quarter, primarily due to a $1.4 million decrease in accretion income and a lower level of earning assets [26] - The net interest margin decreased by 4 basis points to 3.9%, while the operating net interest margin remained unchanged at 3.77% [27] - Non-interest income increased by $6.5 million quarter-over-quarter to $43.7 million, driven mainly by higher mortgage banking revenue [29] Business Line Data and Key Metrics Changes - Mortgage banking revenue increased by $5.5 million from the prior quarter due to higher demand for refinancing, with a balanced mix of new purchases and refinancing [30] - Wealth management revenue also saw an increase over the prior quarter despite market volatility affecting assets under management [8] Market Data and Key Metrics Changes - The company has $369 million in outstanding loans to the hotel industry, representing 4.1% of total loans, with less than 1% of this portfolio impaired as of March 31 [20] - Agricultural loans totaled $483 million, representing 5.4% of total loans, with only 2.3% impaired [21] - The company has reduced its exposure to the oil and gas industry, which now represents just 1.5% of the portfolio, with only $4 million of those loans impaired [23] Company Strategy and Development Direction - The company aims to maintain a fortress balance sheet with strong asset quality based on conservative underwriting criteria, high reserves, excess capital, and ample liquidity [44] - The management is focused on enhancing technology infrastructure to support remote work and digital banking, with 72% of retail clients now utilizing the digital platform [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to weather the current economic storm, citing a strong credit culture and diversified loan portfolio [42] - The company anticipates that the impact of the COVID-19 pandemic on its portfolio will be better understood in the coming months, with a focus on maintaining strong asset quality [41] Other Important Information - The company has granted loan deferrals on approximately $1 billion of commercial and CRE loans and $45 million of consumer loans [16] - The management has suspended stock repurchase activity and will reevaluate this decision as conditions warrant in the coming quarters [48] Q&A Session Summary Question: Can you provide insight into the qualitative factors that influenced the provision increase? - Management confirmed that most of the increase in the provision was due to qualitative factors that became more severe than the Moody's baseline [50][51] Question: How sensitive are your customers to potential slowdowns in tourism? - Management indicated that warning signs may appear going into the third quarter, with tourism being a significant industry in Montana [52][53] Question: What is the current status of M&A activity? - Management stated that M&A discussions have stalled due to the current crisis, but could resume if conditions stabilize [57] Question: How do you expect the expense run rate to progress through the year? - Management expects to bring down the expense run rate as they tighten control over discretionary spending [94]

Financial Overview - Total assets reached $14.41 billion[5] - Trust assets under management totaled $4.74 billion[5] - Core deposits amounted to $11.01 billion[5] - Net loans represent 61.6% of the asset mix[5] - Net interest income accounts for 73.8% of the Q1 2020 revenue[8] - Non-interest income contributes 26.2% to the Q1 2020 revenue[8] Pandemic Response - Processed $1.159 billion in Paycheck Protection Program (PPP) applications[13] - Approved $997 million in PPP loans by the SBA through April 27, 2020[13] - Impacted 107,000 client employees through PPP loans[13] - Approved $1.047 billion in commercial deferrals, representing 16% of the portfolio balance[15] - Approved $45 million in consumer forbearances, representing 2% of the portfolio balance[15] Loan Portfolio - Total loan portfolio amounts to $9.0 billion[42] - Hospitality loans represent 6.7% of the total loan portfolio, with $607.196 million outstanding and $92.031 million in unfunded commitments[55] - Agriculture loans account for 5.4% of the total loan portfolio, with $482.973 million outstanding and $165.629 million in unfunded commitments[69] - Malls represent $52.3 million direct exposure (0.6% of total loan portfolio)[72] - Oil and Gas direct exposure is $45.0 million (0.5% of total loan portfolio) with $16.2 million in unfunded commitments[75] Asset Quality - Allowance for credit loss as a % of total loans is 1.43%[82]