First Interstate BancSystem(FIBK) - 2023 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements (Unaudited) Presents First Interstate BancSystem's unaudited consolidated financial statements for Q2 and H1 2023, with detailed explanatory notes Consolidated Balance Sheets Total assets decreased to $30,976.3 million from $32,287.8 million at year-end 2022, primarily due to reduced investment securities and cash, alongside a decline in liabilities from lower deposits Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $30,976.3 | $32,287.8 | | Total cash and cash equivalents | $680.5 | $870.5 | | Total investment securities | $9,175.6 | $10,397.9 | | Net loans held for investment | $18,038.8 | $17,879.1 | | Goodwill | $1,100.9 | $1,100.9 | | Total Liabilities | $27,855.1 | $29,214.0 | | Total deposits | $23,579.2 | $25,073.6 | | Other borrowed funds | $2,589.0 | $2,327.0 | | Total Stockholders' Equity | $3,121.2 | $3,073.8 | Consolidated Statements of Income Net income for Q2 2023 increased to $67.0 million due to lower non-interest expense, and H1 2023 net income surged to $123.3 million Key Income Statement Data (in millions, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $218.4 | $239.0 | $457.3 | $417.4 | | Provision for credit losses | $11.7 | $(1.7) | $26.9 | $59.6 | | Non-interest Income | $44.1 | $49.9 | $60.5 | $98.7 | | Non-interest Expense | $163.9 | $210.3 | $329.7 | $417.5 | | Net Income | $67.0 | $64.1 | $123.3 | $30.7 | | Diluted EPS | $0.65 | $0.59 | $1.19 | $0.30 | Consolidated Statements of Comprehensive (Loss) Income Comprehensive income for Q2 2023 was $7.1 million, a significant improvement from a $63.7 million loss in Q2 2022, driven by reduced other comprehensive losses Comprehensive Income (Loss) Summary (in millions) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $67.0 | $64.1 | $123.3 | $30.7 | | Other comprehensive (loss) income, net of tax | $(59.9) | $(127.8) | $18.1 | $(318.8) | | Comprehensive income (loss), net of tax | $7.1 | $(63.7) | $141.4 | $(288.1) | Consolidated Statement of Changes in Stockholders' Equity Stockholders' equity increased from $3,073.8 million at year-end 2022 to $3,121.2 million at June 30, 2023, driven by net income and other comprehensive income, partially offset by dividends Reconciliation of Stockholders' Equity - H1 2023 (in millions) | Description | Amount | | :--- | :--- | | Balance at December 31, 2022 | $3,073.8 | | Net income | $123.3 | | Other comprehensive income, net of tax | $18.1 | | Common cash dividends declared | $(97.2) | | Stock-based compensation & other | $3.2 | | Balance at June 30, 2023 | $3,121.2 | Consolidated Statements of Cash Flows For H1 2023, cash and cash equivalents decreased by $190.0 million, primarily due to $1,454.5 million used in financing activities, largely from a $1.5 billion decrease in deposits Cash Flow Summary - H1 2023 vs H1 2022 (in millions) | Cash Flow Category | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $229.6 | $269.2 | | Net cash provided by (used in) investing activities | $1,034.9 | $(163.4) | | Net cash used in financing activities | $(1,454.5) | $(1,391.3) | | Net decrease in cash and cash equivalents | $(190.0) | $(1,285.5) | Notes to Unaudited Consolidated Financial Statements This section provides detailed disclosures for the consolidated financial statements, covering key accounting policies, acquisitions, asset composition, credit quality, and capital adequacy - The Company transitioned its Current Expected Credit Loss (CECL) model in Q2 2023, which did not materially impact the financial statements[105] - On February 1, 2022, the Company acquired Great Western Bancorp, Inc. for $1.72 billion, resulting in $479.3 million in goodwill[67][69] - Effective January 1, 2023, the Company adopted ASU 2022-02, eliminating accounting guidance for Troubled Debt Restructurings (TDRs) and enhancing loan modification disclosures[15][268] Loan Portfolio Composition (in millions) | Loan Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Real estate | $13,604.4 | $13,456.2 | | Consumer | $980.2 | $1,058.5 | | Commercial | $3,002.7 | $2,882.6 | | Agricultural | $688.0 | $708.3 | | Total Loans Held for Investment | $18,277.0 | $18,114.8 | Allowance for Credit Losses (ACL) Activity - H1 2023 (in millions) | Description | Amount | | :--- | :--- | | Beginning Balance (Jan 1, 2023) | $220.1 | | Provision for Credit Losses | $22.1 | | Loans Charged-Off | $(23.0) | | Recoveries Collected | $5.4 | | Ending Balance (June 30, 2023) | $224.6 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance and condition, highlighting significant H1 2023 net income growth and balance sheet shifts influenced by rising interest rates and deposit trends Executive Overview and Recent Trends Despite H1 2023 banking volatility, the company maintains strong liquidity and capital, with key trends including increased cost of funds to 1.43% and a rise in FHLB advances to $2.6 billion - Despite banking industry volatility in H1 2023, the Company's liquidity and balance sheet remain strong, with capital ratios exceeding all regulatory well-capitalized requirements[287] - The cost of interest-bearing funds increased to 1.43% in Q2 2023 from 1.10% in Q1 2023, driven by higher-cost deposits and increased FHLB borrowings[289] - FHLB advances increased from $0.6 billion at September 30, 2022, to $2.6 billion at June 30, 2023, with the average rate rising to 5.31%[289] Results of Operations Net income for Q2 2023 increased to $67.0 million due to lower non-interest expense, and H1 2023 net income surged to $123.3 million driven by higher net interest income and reduced acquisition expenses Change in Net Interest Income (in millions) | Period | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $218.4 | $239.0 | $(20.6) | | Six Months Ended June 30 | $457.3 | $417.4 | $39.9 | - Net interest income in H1 2023 included $9.8 million in accretion from acquired loans, compared to $24.3 million in H1 2022[173] - Total non-interest income decreased by $38.2 million in H1 2023, primarily due to a $23.3 million net loss on investment securities sales and an $8.5 million decrease in mortgage banking revenues[177] - Total non-interest expense decreased by $87.8 million in H1 2023, almost entirely due to the absence of $111.0 million in prior-year acquisition-related expenses[178][220] Financial Condition Total assets decreased by $1,311.5 million (4.1%) to $30,976.3 million at June 30, 2023, driven by lower cash and investment securities due to deposit declines, while loans grew - Total assets decreased by $1.31 billion, or 4.1%, to $30.98 billion as of June 30, 2023[183] - Investment securities decreased by $1.22 billion, or 11.8%, primarily due to $853.0 million in Q1 2023 dispositions and market value declines[185] - Non-accrual loans increased by $26.9 million (45.4%) to $86.1 million as of June 30, 2023, primarily in construction and commercial real estate[188] - The allowance for credit losses was $224.6 million, or 1.23% of loans held for investment, as of June 30, 2023, compared to $220.1 million, or 1.22%, at year-end 2022[335] - Total deposits decreased by $1.49 billion, or 6.0%, during H1 2023, driven by declines in non-interest-bearing and savings deposits, partially offset by increased time deposits[342] Capital Resources and Liquidity Management Stockholders' equity increased by $47.4 million to $3,121.2 million at June 30, 2023, maintaining a strong capital position exceeding regulatory requirements, supported by substantial FHLB and Federal Reserve borrowing capacity - Stockholders' equity increased by $47.4 million (1.5%) to $3,121.2 million as of June 30, 2023[347] - The company's board declared a quarterly dividend of $0.47 per common share on July 25, 2023[348] - As of June 30, 2023, the company's capital levels exceeded all 'well-capitalized' guidelines established by the Federal Reserve and FDIC[349] - As of June 30, 2023, the Bank had remaining borrowing capacity of $4.5 billion with the FHLB, $2.5 billion with the Fed's BTFP, and $0.6 billion at the Fed's Discount Window[354][361] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section updates the company's market risk assessment, primarily interest rate risk, showing a more asset-sensitive position where a +100 basis point rate shock decreases net interest income by 2.32% - As of June 30, 2023, an immediate +100 basis point parallel shock in interest rates was projected to decrease net interest income by 2.32% over the following twelve months[366] - An immediate -100 basis point parallel shock was projected to increase net interest income by 3.51%[366] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of June 30, 2023[368] - There were no material changes in internal control over financial reporting during the quarter ended June 30, 2023[369] Part II - Other Information Item 1. Legal Proceedings The company is involved in various legal actions in the ordinary course of business, which management believes will not materially affect its financial condition or results of operations - The Company is involved in various legal actions in the ordinary course of business, but management does not expect their resolution to have a material adverse effect on its financial condition[372] Item 1A. Risk Factors 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, 2022 - There have been no material changes in risk factors from those described in the Annual Report on Form 10-K for the year ended December 31, 2022[373] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2023, the company had no unregistered equity sales, repurchasing 348 shares at an average price of $23.92 per share, primarily for tax withholding Share Repurchases in Q2 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2023 | 44 | $29.51 | | May 2023 | 0 | $0.00 | | June 2023 | 304 | $23.11 | | Total | 348 | $23.92 | - The stock repurchases were redemptions of vested restricted shares tendered to cover tax withholding for participants in the company's equity compensation plan[376] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the period Item 4. Mine Safety Disclosures This item is not applicable to the company's operations Item 5. Other Information No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the quarter Item 6. Exhibits This section lists all exhibits filed with the report, including CEO and CFO certifications, corporate governance, and compensation plan documents