First Interstate BancSystem(FIBK) - 2020 Q2 - Quarterly Report

Part I - Financial Information Financial Statements (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][233] Notes to Unaudited Consolidated Financial Statements 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 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] - 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] 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 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] - 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] - Non-interest income increased 5.6% in Q2 2020, driven by a 57.8% surge in mortgage banking revenues from high refinancing activity[309][313] - Total non-interest expense decreased 13.3% in Q2 2020, mainly due to non-recurring acquisition-related expenses from the prior year[316] Financial Condition 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] - 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][349] - Total deposits increased by $1.7 billion (14.4%) since year-end 2019, with non-interest-bearing deposits growing by 29.2%[356][357] - Non-performing assets to total assets remained low at 0.39%, consistent with the level at December 31, 2019[331] Quantitative and Qualitative Disclosures about Market Risk 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] Controls and Procedures 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] - No material changes to internal control over financial reporting occurred during the second quarter of 2020[376] Part II - Other Information Legal Proceedings 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] Risk Factors 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] - Specific pandemic risks include a potential global recession, increased credit losses, and business disruptions due to workforce unavailability[385][388] Unregistered Sales of Equity Securities and Use of Proceeds 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] Exhibits 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][395][396]