First Interstate BancSystem(US:FIBK)2024-11-04 21:42Part I - Financial Information Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for First Interstate BancSystem, Inc. as of September 30, 2024, and for the three and nine-month periods then ended, including balance sheets, income statements, and cash flows Consolidated Financial Statements The consolidated financial statements show a decrease in total assets to $29.6 billion, driven by reductions in investment securities and loans, with net income for Q3 2024 decreasing to $55.5 million due to lower net interest income and higher credit loss provisions Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Items | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $29,595.5 | $30,671.2 | | Net Loans Held for Investment | $17,801.7 | $18,051.9 | | Total Investment Securities | $8,275.6 | $9,049.4 | | Total Deposits | $22,864.1 | $23,323.1 | | Total Liabilities | $26,229.7 | $27,443.7 | | Total Stockholders' Equity | $3,365.8 | $3,227.5 | Consolidated Income Statement Highlights (in millions, except EPS) | Income Statement Items | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $205.5 | $213.7 | $607.3 | $671.0 | | Provision for Credit Losses | $19.8 | $(0.1) | $34.1 | $26.8 | | Net Income | $55.5 | $72.7 | $173.9 | $196.0 | | Diluted EPS | $0.54 | $0.70 | $1.69 | $1.89 | Consolidated Cash Flow Highlights (Nine Months Ended, in millions) | Cash Flow Items | Sep 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $259.8 | $358.7 | | Net Cash Provided by Investing Activities | $1,200.0 | $1,329.7 | | Net Cash Used in Financing Activities | $(1,339.2) | $(1,965.8) | | Net Increase (Decrease) in Cash | $120.6 | $(277.4) | Notes to Unaudited Consolidated Financial Statements The notes provide detailed disclosures on accounting policies and financial instrument specifics, highlighting a decrease in investment securities and loans, an increase in non-performing loans, and the company's strong capital ratios - Total investment securities decreased by $773.8 million (8.6%) to $8,275.6 million as of September 30, 2024, from $9,049.4 million at year-end 2023, primarily due to normal paydowns and maturities220 - Net loans held for investment decreased by $252.5 million (1.4%) to $18,027.1 million as of September 30, 2024, compared to year-end 2023, with a notable decline in construction real estate loans223 - Non-accrual loans increased by 62.3% to $172.7 million as of September 30, 2024, primarily driven by a single $54.4 million commercial and industrial loan relationship being moved to non-accrual status225 - The company and its subsidiary bank exceeded all capital adequacy requirements to be deemed "well-capitalized" as of September 30, 2024117253 Management's Discussion and Analysis (MD&A) Management discusses the company's financial performance, highlighting that lower net income in Q3 2024 was driven by a higher provision for credit losses and compressed net interest margin due to increased funding costs, while maintaining strong capital and liquidity Executive Overview and Recent Trends The company operates 299 banking offices across 14 states, maintaining ample liquidity and capital with a diversified deposit base, amidst an economic environment characterized by easing inflation and a recent Federal Reserve rate cut - The company operates a community banking footprint with 299 offices across fourteen states169 - As of September 30, 2024, 65.0% of total deposits were FDIC insured. The company's capital ratios exceed all regulatory requirements to be deemed "well-capitalized"173175 - The Federal Reserve decreased short-term interest rates by 50 basis points in September 2024, marking a shift after a prolonged period of rate hikes177 Results of Operations Net income for Q3 2024 decreased to $55.5 million, primarily due to a higher provision for credit losses and reduced net interest income, partially offset by increases in non-interest income and decreases in non-interest expense Net Income and EPS (in millions, except per share) | Period | Net Income | Diluted EPS | | :--- | :--- | :--- | | Q3 2024 | $55.5 | $0.54 | | Q3 2023 | $72.7 | $0.70 | | 9M 2024 | $173.9 | $1.69 | | 9M 2023 | $196.0 | $1.89 | - Net interest income decreased by $8.2 million in Q3 2024 compared to Q3 2023, due to higher interest expense on deposits and borrowings. The net interest margin (NIM) was 3.01%, down from 3.05% in the prior-year quarter193195 - A provision for credit losses of $19.8 million was recorded in Q3 2024, compared to a reversal of $0.1 million in Q3 2023. This was driven by net charge-offs of $27.4 million, primarily from commercial and construction real estate loans204 - Non-interest income increased by $4.4 million in Q3 2024, largely due to a $2.6 million gain on a branch sale208 - Non-interest expense decreased by $1.7 million in Q3 2024, driven by lower professional and other fees, despite incurring $3.8 million in CEO transition-related expenses209 Financial Condition As of September 30, 2024, total assets decreased by 3.5% to $29.6 billion, primarily due to declines in investment securities and loans, while non-performing assets increased, and the allowance for credit losses remained stable - Total assets decreased by $1.1 billion to $29.6 billion as of September 30, 2024, from December 31, 2023217 - Total deposits decreased by $459.0 million to $22.9 billion, while other borrowed funds decreased by $523.0 million245249 Non-Performing Assets (in millions) | Category | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Non-accrual loans | $172.7 | $106.4 | | Loans 90+ days past due | $1.8 | $4.9 | | Total Non-Performing Loans | $174.5 | $111.3 | | Other Real Estate Owned (OREO) | $4.4 | $16.5 | | Total Non-Performing Assets | $178.9 | $127.8 | - The allowance for credit losses was $225.4 million, representing 1.25% of loans held for investment, consistent with the year-end 2023 ratio240 Capital Resources and Liquidity Management The company maintains strong capital and liquidity positions, with stockholders' equity increasing to $3.4 billion, all regulatory capital ratios exceeding 'well-capitalized' minimums, and total available liquidity of $6.5 billion - Stockholders' equity increased by $138.3 million (4.3%) to $3,365.8 million as of September 30, 2024, from year-end 2023250 - A quarterly dividend of $0.47 per common share was declared on October 23, 2024252 Available Liquidity (in billions) | Source | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Remaining FHLB/FRB/BTFP Capacity | $5.8 | $6.7 | | Cash and Interest-Bearing Deposits | $0.7 | $0.6 | | Total Available Liquidity | $6.5 | $7.3 | Market Risk Disclosures The company's primary market risk is interest rate risk, managed by its ALCO, with simulation models indicating a liability-sensitive balance sheet and the use of derivatives to mitigate this risk - The company's primary source of earnings, net interest income, is exposed to interest rate risk, which is managed by the Asset Liability Committee (ALCO)261262 Net Interest Income Sensitivity (1-Year Horizon) | Change in Interest Rate (bps) | Projected % Change in Net Interest Income | | :--- | :--- | | +200 | (4.28)% | | +100 | (1.94)% | | -100 | 4.86% | | -200 | 8.30% | - To manage interest rate risk, the company had effective interest rate collars and swaps with a total notional amount of $600.0 million as of September 30, 2024266 Controls and Procedures As of September 30, 2024, the company's CEO and CFO concluded that disclosure controls and procedures are effective, with no material changes in internal control over financial reporting during the third quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2024269 - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, such control270 Part II - Other Information Legal Proceedings and Risk Factors The company is involved in various legal claims arising in the ordinary course of business, which are not expected to have a material adverse effect on financial results, and there have been no material changes to previously disclosed risk factors - The company is involved in various legal claims and actions in the ordinary course of business, which are not expected to have a material adverse effect on its financial condition or results of operations273 - There have been no material changes in the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2023274 Share Repurchases and Other Disclosures During Q3 2024, the company had no unregistered sales of equity securities, repurchased 3,972 shares for tax withholding purposes, and reported no defaults on senior securities or changes in Rule 10b5-1 trading plans Common Stock Repurchases (Q3 2024) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2024 | 541 | $32.35 | | August 2024 | 1,444 | $30.43 | | September 2024 | 1,987 | $30.44 | | Total | 3,972 | $30.70 | - Share repurchases were redemptions of vested restricted shares tendered by employees to cover income tax withholding amounts and were not part of a publicly announced plan276 - No defaults upon senior securities were reported for the period277