First Interstate BancSystem(FIBK) - 2023 Q1 - Quarterly Report

Part I - Financial Information Financial Statements (Unaudited) Unaudited Q1 2023 financial statements show a significant turnaround to $56.3 million net income, with total assets decreasing to $31.6 billion Consolidated Balance Sheets Total assets decreased to $31.64 billion as of March 31, 2023, primarily due to reduced investment securities, while stockholders' equity increased to $3.16 billion Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $31,637.7 | $32,287.8 | | Total Investment Securities | $9,425.5 | $10,397.9 | | Net Loans Held for Investment | $18,019.6 | $17,879.1 | | Total Liabilities | $28,477.4 | $29,214.0 | | Total Deposits | $24,107.0 | $25,073.6 | | Other Borrowed Funds | $2,710.0 | $2,327.0 | | Total Stockholders' Equity | $3,160.3 | $3,073.8 | Consolidated Statements of Income (loss) Q1 2023 net income was $56.3 million ($0.54 diluted EPS), a significant improvement from a prior-year loss, driven by increased net interest income and lower credit provisions Income Statement Summary (in millions, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Interest Income | $238.9 | $178.4 | | Provision for Credit Losses | $15.2 | $61.3 | | Total Non-interest Income | $16.4 | $48.8 | | Total Non-interest Expense | $165.8 | $207.2 | | Net Income (Loss) | $56.3 | ($33.4) | | Diluted EPS | $0.54 | ($0.36) | Consolidated Statements of Comprehensive Income (Loss) Q1 2023 comprehensive income was $134.3 million, a significant improvement from prior-year loss, driven by net income and unrealized gains on investment securities Comprehensive Income (Loss) Summary (in millions) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Income (Loss) | $56.3 | ($33.4) | | Other Comprehensive Income (Loss), net of tax | $78.0 | ($191.0) | | Comprehensive Income (Loss), net of tax | $134.3 | ($224.4) | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $3.16 billion by March 31, 2023, driven by net income and other comprehensive income, partially offset by dividends Changes in Stockholders' Equity - Q1 2023 (in millions) | Description | Amount | | :--- | :--- | | Balance at December 31, 2022 | $3,073.8 | | Net Income | $56.3 | | Other Comprehensive Income, net of tax | $78.0 | | Common Stock Cash Dividends Declared | ($48.3) | | Other Transactions (net) | $0.5 | | Balance at March 31, 2023 | $3,160.3 | Consolidated Statements of Cash Flows Net cash and cash equivalents increased by $210.2 million in Q1 2023, with significant inflows from investing activities offsetting financing outflows Cash Flow Summary - Q1 2023 vs Q1 2022 (in millions) | Cash Flow Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $57.7 | $64.9 | | Net Cash Provided by Investing Activities | $868.3 | $1,522.5 | | Net Cash Used in Financing Activities | ($715.8) | ($120.9) | | Net Increase in Cash and Cash Equivalents | $210.2 | $1,466.5 | Notes to Unaudited Consolidated Financial Statements Notes detail accounting policies, the GWB acquisition, portfolio management, derivatives, capital adequacy, fair value, and new accounting standard adoptions - The acquisition of Great Western Bank (GWB) was completed on February 1, 2022, for $1.72 billion, resulting in $479.3 million of goodwill[58][82] - In Q1 2023, the company sold $853.0 million in available-for-sale securities, realizing a net loss of $23.4 million[76] - The company adopted ASU 2022-02, which eliminated accounting guidance for Troubled Debt Restructurings (TDRs) and enhanced disclosure requirements for loan modifications to borrowers experiencing financial difficulty[115][274] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights strong Q1 2023 financial performance with $56.3 million net income, driven by increased net interest income and lower credit provisions, alongside active balance sheet management Results of Operations Q1 2023 profitability was driven by a 33.9% increase in net interest income and lower credit provisions, despite a significant drop in non-interest income Key Performance Metrics - Q1 2023 vs Q1 2022 | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Interest Income | $238.9M | $178.4M | | Provision for Credit Losses | $15.2M | $61.3M | | Non-interest Income | $16.4M | $48.8M | | Non-interest Expense | $165.8M | $207.2M | | Net Income (Loss) | $56.3M | ($33.4M) | - The net interest margin (FTE, non-GAAP) increased by 56 basis points to 3.36% compared to the prior year, driven by higher asset yields[332] - Non-interest expense in Q1 2022 included $65.2 million in acquisition-related expenses for the GWB acquisition, which were absent in Q1 2023[325] Financial Condition Total assets decreased to $31.6 billion due to reduced investment securities, while loans grew and non-performing assets increased to 0.31% of total assets - Total assets decreased by $650.1 million (2.0%) during Q1 2023, primarily due to a decrease in investment securities[343] - Total deposits decreased by $966.6 million (3.9%) during the quarter, while other borrowed funds (primarily FHLB advances) increased by $383.0 million[378][395] Non-Performing Assets (in millions) | Metric | March 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Non-performing Loans | $85.3 | $65.6 | | OREO | $13.4 | $12.7 | | Total Non-performing Assets | $98.7 | $78.3 | | NPA / Total Assets | 0.31% | 0.24% | - The allowance for credit losses on loans was 1.24% of loans held for investment, up slightly from 1.22% at year-end 2022[389] Quantitative and Qualitative Disclosures about Market Risk Market risk analysis indicates a shift to a slightly liability-sensitive position, with a 100 bps rate increase projected to decrease net interest income by 0.37% Interest Rate Sensitivity Analysis (Net Interest Income Change over 12 months) | Rate Shock Scenario | Projected NII Change | | :--- | :--- | | +100 bps Immediate Shock | -0.37% | | -100 bps Immediate Shock | +1.76% | Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during Q1 2023 - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the period[405] - No material changes in internal control over financial reporting were identified during the quarter[415] Part II - Other Information Legal Proceedings The company is involved in various legal actions, but management expects no material adverse effect on financial condition or operations - The company states that the disposition of all claims and litigation is not expected to have a material adverse effect on its consolidated financial condition, results of operations, or liquidity[408] Risk Factors No material changes to risk factors were reported from the 2022 Annual Report on Form 10-K - No material changes in risk factors from the 2022 Annual Report on Form 10-K were reported for the period[417] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred in Q1 2023; 55,080 shares were repurchased for tax withholding on vested restricted shares Share Repurchases in Q1 2023 | Month | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January 2023 | 0 | $0.00 | | February 2023 | 18,403 | $36.99 | | March 2023 | 36,677 | $31.42 | | Total | 55,080 | $33.28 | - The stock repurchases were redemptions of vested restricted shares tendered by participants in the company's equity compensation plan to cover tax withholding amounts[419] Other Information The company amended its Bylaws to enhance procedural and disclosure requirements for shareholder nominations and proposals - The company amended its bylaws to enhance procedural mechanics and disclosure requirements for shareholder nominations and proposals[410] Exhibits Exhibits filed with Form 10-Q include Bylaws amendment, CEO/CFO certifications, and Interactive Data Files (XBRL) - The list of exhibits includes CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 1350, as well as XBRL data files[411]