First Interstate BancSystem(FIBK) - 2021 Q3 - Quarterly Report

Part I - Financial Information Financial Statements (Unaudited) Unaudited Q3 2021 financial statements reflect asset growth to $19.4 billion, driven by deposits and investments, and a significant increase in nine-month net income due to credit loss provision reversal Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $19,372.2 | $17,648.7 | | Total Cash and Cash Equivalents | $2,233.5 | $2,276.8 | | Total Investment Securities | $6,021.7 | $4,060.3 | | Net Loans Held for Investment | $9,487.4 | $9,663.2 | | Total Liabilities | $17,387.4 | $15,688.9 | | Total Deposits | $16,007.3 | $14,217.0 | | Total Stockholders' Equity | $1,984.8 | $1,959.8 | - Total assets grew by 9.8% to $19.37 billion as of September 30, 2021, from $17.65 billion at the end of 2020[10] - The growth in assets was primarily funded by a 12.6% increase in total deposits, which reached $16.01 billion[10] - Net loans held for investment slightly decreased to $9.49 billion, while total investment securities saw a significant increase of 48.3% to $6.02 billion[10] Consolidated Statements of Income Consolidated Income Statement Highlights (in millions, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $126.9 | $123.0 | $366.4 | $368.6 | | (Reversal of) Provision for Credit Losses | $0.0 | $5.2 | $(5.1) | $53.7 | | Non-interest Income | $39.7 | $44.7 | $113.1 | $122.8 | | Non-interest Expense | $105.9 | $99.5 | $303.3 | $290.1 | | Net Income | $47.1 | $48.3 | $141.0 | $114.3 | | Diluted EPS | $0.76 | $0.76 | $2.28 | $1.78 | - For the nine months ended September 30, 2021, the company recorded a reversal of provision for credit losses of $5.1 million, compared to a provision of $53.7 million in the same period of 2020, significantly boosting net income[14] - Acquisition-related expenses of $6.6 million were incurred in Q3 2021, which were not present in the prior year period[14] Consolidated Statements of Comprehensive Income Comprehensive Income (in millions) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $47.1 | $48.3 | $141.0 | $114.3 | | Other Comprehensive (Loss) Income, net of tax | $(9.8) | $(3.3) | $(42.3) | $50.9 | | Comprehensive Income, net of tax | $37.3 | $45.0 | $98.7 | $165.2 | - For the nine months ended September 30, 2021, the company experienced a significant other comprehensive loss of $42.3 million, primarily due to a $81.0 million pre-tax change in net unrealized losses on available-for-sale investment securities[16] Consolidated Statements of Changes in Stockholders' Equity - Total stockholders' equity increased from $1,959.8 million at December 31, 2020, to $1,984.8 million at September 30, 2021[18][22] - The increase in stockholders' equity was driven by net income of $141.0 million, partially offset by an other comprehensive loss of $42.3 million and common cash dividends of $76.2 million for the nine-month period[22] - The company declared cash dividends of $0.41 per share in Q3 2021 and $1.23 per share for the nine months ended September 30, 2021[18][22] Consolidated Statements of Cash Flows Cash Flow Summary (in millions) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $205.4 | $162.8 | | Net Cash used in Investing Activities | $(1,873.9) | $(1,636.1) | | Net Cash from Financing Activities | $1,625.2 | $2,257.1 | | Net (Decrease) Increase in Cash | $(43.3) | $783.8 | - Investing activities for the nine months ended September 30, 2021, were dominated by net purchases of investment securities, totaling $2,149.2 million[24] - Financing activities were primarily driven by a net increase in deposits of $1,790.3 million for the nine-month period[26] Notes to Unaudited Consolidated Financial Statements - The company's total investment securities portfolio grew to $6.02 billion at September 30, 2021, from $4.06 billion at year-end 2020, with a significant increase in held-to-maturity securities[30] - Total loans held for investment decreased slightly to $9.64 billion from $9.83 billion at year-end 2020, with real estate loans growing while commercial and consumer loans declined[46] - The allowance for credit losses decreased to $135.1 million at September 30, 2021, from $144.3 million at year-end 2020, reflecting a reversal of provision of $4.6 million for the nine-month period[52] - On September 16, 2021, the Company entered into a definitive agreement to acquire Great Western Bancorp, Inc. in an all-stock transaction valued at approximately $2.0 billion, expected to close in Q1 2022[132] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes asset growth to deposit increases and investment deployment, with Q3 2021 net interest income up, non-interest income down, and expenses rising due to acquisition costs, alongside the pending Great Western Bancorp acquisition Executive Overview and Recent Developments - First Interstate is a community banking-focused financial holding company with 147 banking offices across six states: Idaho, Montana, Oregon, South Dakota, Washington, and Wyoming[180] - On September 15, 2021, the company announced a definitive agreement to acquire Great Western Bancorp, Inc. in an all-stock transaction valued at approximately $2.0 billion, expected to close in Q1 2022[185] - Management continues to monitor the impact of COVID-19, noting that while branches are operating normally, the long-term economic effect remains uncertain, particularly with the emergence of new variants[186] Results of Operations Net Interest Income and Margin | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income (millions) | $126.9 | $123.0 | $366.4 | $368.6 | | Net FTE Interest Margin | 2.91% | 3.29% | 2.92% | 3.55% | - The company recorded no provision for credit losses in Q3 2021, compared to a $5.2 million provision in Q3 2020, due to improved asset quality and a better economic outlook[210] - Total non-interest income decreased 11.2% YoY in Q3 2021, primarily due to an 18.9% decline in mortgage banking revenues and a 72.0% drop in other service charges, commissions, and fees[213][215][219] - Total non-interest expense increased 6.4% YoY in Q3 2021, driven by $6.6 million in acquisition-related expenses[221][224] Financial Condition - Total assets increased by $1.72 billion (9.8%) to $19.37 billion at September 30, 2021, from year-end 2020, mainly from deposit growth deployed into investment securities[231] - Loans held for investment decreased by 1.9% since year-end 2020, primarily due to a $446.3 million reduction in PPP loans and a decline in the consumer portfolio[232][235] - Non-performing assets decreased to $37.4 million (0.19% of total assets) at September 30, 2021, from $50.5 million (0.29% of total assets) at year-end 2020[242] - The allowance for credit losses was 1.40% of loans held for investment at September 30, 2021, down from 1.47% at year-end 2020[251] - Total deposits grew by $1.79 billion (12.6%) since year-end 2020, attributed to government stimulus and the general economic health of the communities served[260] Capital Resources and Liquidity Management - Stockholders' equity increased by $25.0 million to $1,984.8 million since year-end 2020, driven by retained earnings, partially offset by dividends and other comprehensive loss[265] - The company repurchased 72,700 shares of Class A common stock for $2.9 million during the first nine months of 2021 under its stock repurchase program[268] - As of September 30, 2021, the company and its subsidiary bank exceeded all capital adequacy requirements to be deemed "well-capitalized"[269] Quantitative and Qualitative Disclosures about Market Risk The company states that there have been no material changes in its quantitative and qualitative disclosures about market risk since its Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material changes in the quantitative and qualitative information about market risk from what was presented in the Annual Report on Form 10-K for the year ended December 31, 2020[278] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2021. There were no material changes to the company's internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of September 30, 2021[280] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, such control[281] Part II - Other Information Legal Proceedings The company is involved in various claims and legal actions arising in the ordinary course of business but believes their ultimate disposition will not have a material adverse effect on its financial condition or results of operations - The Company is involved in various claims and legal actions in the ordinary course of business, but management does not expect them to have a material adverse effect on financial condition or results of operations[284] Risk Factors Key risk factors primarily concern the pending Great Western Bancorp merger, including non-completion, regulatory hurdles, integration challenges, and the retention of key personnel - The merger with Great Western Bancorp, Inc. (GWB) may not be completed, which could lead to negative market reactions, unrecovered expenses, and a potential termination fee of $105 million payable to GWB[287][288] - Regulatory approvals for the merger may be delayed, not received, or impose conditions that could adversely affect the combined company[291][292] - Combining with GWB may be more difficult, costly, or time-consuming than expected, and the company may fail to realize the anticipated benefits and cost savings[296][297] - The success of the merger depends on retaining key employees, and their potential departure could disrupt operations and adversely affect the business[299][300] Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2021, the company repurchased a total of 574 shares of its Class A common stock at an average price of $43.54 per share. These repurchases were related to redemptions of vested restricted shares tendered by employees to cover income tax withholding amounts - There were no unregistered sales of equity securities during Q3 2021[306] Issuer Purchases of Equity Securities (Q3 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Plans | Maximum Shares Remaining for Purchase Under Plans | | :--- | :--- | :--- | :--- | :--- | | July 2021 | 168 | $41.88 | 0 | 1,889,158 | | August 2021 | 406 | $44.23 | 0 | 1,889,158 | | September 2021 | 0 | $— | 0 | 1,889,158 | | Total | 574 | $43.54 | 0 | 1,889,158 | - The stock repurchases were redemptions of vested restricted shares tendered to cover income tax withholding for participants in the company's equity compensation plan[306]