First Interstate BancSystem(FIBK) - 2025 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements (Unaudited) The unaudited consolidated financial statements for First Interstate BancSystem, Inc. show a decrease in total assets to $27.6 billion from $29.1 billion at year-end 2024, with Q2 2025 net income rising to $71.7 million from $60.0 million in the prior-year period. Consolidated Balance Sheets The balance sheet reflects a decrease in total assets primarily due to reductions in loans and investment securities, while stockholders' equity increased. Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $27,566.4 | $29,137.4 | $(1,571.0) | (5.4)% | | Net Loans Held for Investment | $16,143.8 | $17,640.8 | $(1,497.0) | (8.5)% | | Total Investment Securities | $7,312.2 | $7,744.6 | $(432.4) | (5.6)% | | Total Deposits | $22,630.6 | $23,015.6 | $(385.0) | (1.7)% | | Other Borrowed Funds | $250.0 | $1,567.5 | $(1,317.5) | (84.1)% | | Total Stockholders' Equity | $3,421.8 | $3,304.0 | $117.8 | 3.6% | - The decrease in total assets was primarily driven by a reduction in net loans held for investment and total investment securities. On the liability side, there was a significant decrease in other borrowed funds and a modest decline in total deposits[7] Consolidated Statements of Income The income statement shows an increase in net income for Q2 2025 and year-to-date, driven by higher net interest income and a lower provision for credit losses. Quarterly Income Statement Highlights (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $207.2 | $201.7 | +2.7% | | (Reduction of) Provision for Credit Losses | $(0.3) | $9.0 | -103.3% | | Noninterest Income | $41.1 | $42.6 | -3.5% | | Noninterest Expense | $155.1 | $156.9 | -1.1% | | Net Income | $71.7 | $60.0 | +19.5% | | Diluted EPS | $0.69 | $0.58 | +19.0% | Year-to-Date Income Statement Highlights (in millions, except per share data) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $412.2 | $401.8 | +2.6% | | Provision for Credit Losses | $19.7 | $14.3 | +37.8% | | Noninterest Income | $83.1 | $84.7 | -1.9% | | Noninterest Expense | $315.7 | $317.1 | -0.4% | | Net Income | $121.9 | $118.4 | +3.0% | | Diluted EPS | $1.18 | $1.15 | +2.6% | Consolidated Statements of Comprehensive Income Comprehensive income significantly increased in Q2 2025, primarily due to higher net income and positive changes in unrealized gains on available-for-sale securities. - Comprehensive income for Q2 2025 was $106.3 million, a significant increase from $61.4 million in Q2 2024, driven by higher net income and a $44.7 million positive change in net unrealized gains on available-for-sale securities[9] Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity increased, primarily due to net income and other comprehensive income, partially offset by common stock dividends. - Total stockholders' equity increased from $3.30 billion at December 31, 2024, to $3.42 billion at June 30, 2025, primarily due to net income of $121.9 million and other comprehensive income of $89.0 million, partially offset by common stock dividends of $97.1 million[13] Consolidated Statements of Cash Flows Cash flows for the six months ended June 30, 2025, show a net increase in cash and cash equivalents, driven by investing activities and partially offset by financing activities. Six Months Ended June 30, 2025 Cash Flow Summary (in millions) | Cash Flow Activity | Amount | | :--- | :--- | | Net cash provided by operating activities | $146.6 | | Net cash provided by investing activities | $1,742.2 | | Net cash used in financing activities | $(1,695.2) | | Net increase in cash and cash equivalents | $193.6 | - Significant cash inflows from investing activities were driven by a net change in loans held for investment ($1,064.6 million) and proceeds from investment securities ($626.4 million)[14] - Major cash outflows in financing activities included a net decrease in deposits of $385.0 million and a net decrease in other borrowed funds of $1,317.5 million[14] Notes to Unaudited Consolidated Financial Statements The notes provide details on the company's single operating segment, accounting policies, investment securities, loan portfolio changes, and regulatory capital. - The company operates as a single reporting segment: community banking, with key accounting policies consistent with the 2024 Annual Report on Form 10-K[17][21] - As of June 30, 2025, the company had significant unrealized losses on its investment securities portfolio, primarily due to fluctuations in interest rates, with gross unrealized losses on available-for-sale securities totaling $306.9 million[23][28] - Loans held for sale increased substantially to $335.2 million from $0.9 million at year-end 2024, mainly due to the pending sale of Arizona and Kansas branches[37] - Non-accrual loans increased by 39.3% to $192.7 million as of June 30, 2025, from $138.3 million at year-end 2024, primarily driven by increases in commercial real estate and agricultural loans[196] - In June 2025, the company issued $125.0 million of 7.625% fixed-to-floating rate subordinated notes due 2035, and announced its intention to redeem its outstanding $100.0 million 5.25% subordinated notes on August 15, 2025[75][119] - The company and its subsidiary bank exceeded all regulatory capital adequacy requirements to be deemed "well-capitalized" as of June 30, 2025[85] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a year-over-year increase in Q2 2025 net income to $71.7 million, driven by lower credit loss provisions and reduced interest expense on borrowings. Executive Overview and Recent Developments The company has undertaken several strategic initiatives in 2025, including exiting indirect lending, selling branches, and outsourcing its consumer credit card portfolio, while maintaining ample liquidity. - The company has undertaken several strategic initiatives in 2025: ceased originating indirect loans as of February 28, 2025; entered an agreement to sell 12 branches in Arizona and Kansas, including approximately $705 million in deposits and $331 million in loans, expected to close in Q4 2025; and completed the outsourcing of its consumer credit card portfolio in June 2025, selling $74.2 million in loans and recognizing a $4.3 million gain[136][137][138] - The company maintains ample liquidity, with 64.6% of total deposits being FDIC insured as of June 30, 2025, and available borrowing capacity of $5.2 billion with the FHLB and $2.4 billion with the FRB as of July 31, 2025[139][140] Results of Operations Q2 2025 net income increased due to a lower provision for credit losses and higher net interest income, with the net interest margin expanding to 3.30%. - Q2 2025 net income increased by $11.7 million year-over-year to $71.7 million, primarily due to a $9.3 million lower provision for credit losses and a $5.5 million increase in net interest income[150] Net Interest Margin Analysis | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Interest Margin (GAAP) | 3.30% | 2.97% | | Net FTE Interest Margin (Non-GAAP) | 3.32% | 3.00% | - The provision for credit losses was a net reduction of $0.3 million in Q2 2025, compared to a $9.0 million provision in Q2 2024, with net charge-offs decreasing to $5.8 million from $13.5 million in the prior-year quarter[167] - Noninterest expense decreased by $1.8 million year-over-year in Q2 2025, mainly due to lower FDIC insurance premiums ($2.6 million decrease) and OREO expense ($2.0 million decrease)[176][180][181] Financial Condition Total assets decreased by $1.6 billion, driven by declines in loans and investment securities, while non-performing assets increased. - Total assets decreased by $1.6 billion (5.4%) to $27.6 billion at June 30, 2025, from year-end 2024, driven by decreases in loans and investment securities[186] - Loans held for investment decreased by $1.5 billion (8.4%) since year-end, impacted by the discontinuation of indirect lending, the sale of the credit card portfolio, and the transfer of loans to held-for-sale for the pending branch divestiture[192][194] Non-Performing Assets (in millions) | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Non-accrual loans | $192.7 | $138.3 | | Total non-performing assets | $197.5 | $145.6 | | NPA to Total Assets | 0.72% | 0.50% | - The allowance for credit losses (ACL) was $209.6 million, or 1.28% of loans held for investment, up from 1.14% at year-end 2024, reflecting changes in portfolio mix and economic outlook[208] Capital Resources and Liquidity Management Stockholders' equity increased, and the company maintains a "well-capitalized" status with substantial available liquidity. - Stockholders' equity increased by $117.8 million to $3.42 billion since year-end 2024, benefiting from retained earnings and a decrease in unrealized losses on available-for-sale securities[218] - The company and its bank subsidiary remain "well-capitalized" under all regulatory guidelines as of June 30, 2025[220] Available Liquidity (in billions) | Source | June 30, 2025 | | :--- | :--- | | Remaining FHLB Capacity | $4.9 | | Remaining FRB Capacity | $2.5 | | Cash and Deposits in Banks | $1.1 | | Total Available Liquidity | $8.5 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company manages market risk, primarily interest rate risk, through its Asset Liability Committee (ALCO), using NII sensitivity analysis and derivatives to model and hedge against interest rate changes. Net Interest Income Sensitivity Analysis (1-Year Horizon) | Change in Interest Rate (bps) | Projected % Change in NII (June 30, 2025) | | :--- | :--- | | +200 | (0.70)% | | +100 | (0.25)% | | -100 | — | | -200 | (0.15)% | - The company utilizes two active interest rate collars with a total notional amount of $300.0 million, maturing in August 2025, to manage interest rate risk on variable-rate loans[240] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter. - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective[244] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, such controls[245] Part II - Other Information Item 1. Legal Proceedings The company is involved in various legal matters in the normal course of business but does not expect the ultimate disposition of these matters to have a material adverse effect on its financial condition or operating results. - Management does not expect any ongoing or anticipated legal matters to have a material adverse effect on the company's business, financial condition, or operating results[248] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024. - No material changes in risk factors were reported for the period covered by this quarterly report[249] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased a small number of shares during the quarter, related to redemptions of vested restricted shares tendered by employees to cover income tax withholding amounts. Share Repurchases in Q2 2025 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2025 | — | $— | | May 2025 | 258 | $26.79 | | June 2025 | — | $— | | Total | 258 | $26.79 | Item 5. Other Information During the second quarter of 2025, none of the company's directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements. - No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the quarter ended June 30, 2025[253] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, debt indentures, employment agreements, and required SEC certifications