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Section 1: 10-Q (10-Q)

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________________________________________________________________________________________________________

FORM 10-Q

_____________________________________________________________________________________________________________________________________________________

☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2019

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

COMMISSION FILE NUMBER 001-34653

________________________________________________________________________________________________________

FIRST INTERSTATE BANCSYSTEM, INC.

(Exact name of registrant as specified in its charter)

________________________________________________________________________________________________________



Montana		81-0331430
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

401 North 31st Street
Billings,	MT	59116-0918
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (406) 255-5390

_________________________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, no par value	FIBK	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:



June 30, 2019 – Class A common stock	42,902,824
June 30, 2019 – Class B common stock	22,325,994

Quarterly Report on Form 10-Q

	FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
	Index
	June 30, 2019
		Page Nos.
	Part I - Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets	3

	Consolidated Statements of Income	4

	Consolidated Statements of Comprehensive Income	5

	Consolidated Statements of Changes in Stockholders’ Equity	6

	Consolidated Statements of Cash Flows	8

	Notes to Unaudited Consolidated Financial Statements	10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	44

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	62

Item 4.	Controls and Procedures	62

	Part II - Other Information

Item 1.	Legal Proceedings	62

Item 1A.	Risk Factors	62

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63

Item 3.	Defaults Upon Senior Securities	63

Item 4.	Mine Safety Disclosures	63

Item 5.	Other Information	63

Item 6.	Exhibits	64

Signatures		65

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions, except share data) (Unaudited)

	June 30, 2019		December 31, 2018
Assets
Cash and due from banks	$	261.0	$	244.1
Interest bearing deposits in banks	865.8		577.8
Federal funds sold	2.1		0.1
Total cash and cash equivalents	1,128.9		822.0
Investment securities:
Available-for-sale	2,609.7		2,270.7
Held-to-maturity (estimated fair values of $100.8 and $400.7 at June 30, 2019 and December 31, 2018, respectively)	98.8		406.8
Total investment securities	2,708.5		2,677.5
Loans held for investment	8,995.2		8,470.4
Mortgage loans held for sale	64.1		33.3
Total loans	9,059.3		8,503.7
Less allowance for loan losses	74.2		73.0
Net loans	8,985.1		8,430.7
Goodwill	623.5		546.7
Company-owned life insurance	291.7		275.1
Premises and equipment, net of accumulated depreciation	321.1		245.2
Core deposit intangibles, net of accumulated amortization	67.9		56.9
Accrued interest receivable	50.2		44.9
Mortgage servicing rights, net of accumulated amortization and impairment reserve	28.6		27.7
Other real estate owned (“OREO”)	27.6		14.4
Other assets	181.5		159.1
Total assets	$	14,414.6	$	13,300.2
Liabilities and Stockholders’ Equity
Deposits:
Non-interest bearing	$	3,372.9	$	3,158.3
Interest bearing	8,117.0		7,522.4
Total deposits	11,489.9		10,680.7
Securities sold under repurchase agreements	686.7		712.4
Accounts payable and accrued expenses	149.9		94.1
Accrued interest payable	12.4		7.8
Deferred tax liability, net	24.4		8.6
Long-term debt	15.8		15.8
Subordinated debentures held by subsidiary trusts	86.9		86.9
Total liabilities	12,466.0		11,606.3
Stockholders’ equity:
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; no shares issued and outstanding as of June 30, 2019 or December 31, 2018	—		—
Common stock	1,045.6		866.7
Retained earnings	892.5		851.8
Accumulated other comprehensive gain (loss), net	10.5		(24.6		)
Total stockholders’ equity	1,948.6		1,693.9
Total liabilities and stockholders’ equity	$	14,414.6	$	13,300.2

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share data) (Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
Interest income:
Interest and fees on loans	$	120.9	$	96.5		$	232.3	$	188.2
Interest and dividends on investment securities:
Taxable	15.7		13.9			30.8		27.1
Exempt from federal taxes	0.5		0.6			1.0		1.2
Interest on deposits in banks	5.0		2.0			8.6		4.1
Total interest income	142.1		113.0			272.7		220.6
Interest expense:
Interest on deposits	14.1		7.2			26.2		13.4
Interest on securities sold under repurchase agreements	1.1		0.7			2.1		1.1
Interest on other borrowed funds	—		—			—		0.1
Interest on other debt	0.4		0.3			0.7		0.5
Interest on subordinated debentures held by subsidiary trusts	1.2		1.0			2.4		1.9
Total interest expense	16.8		9.2			31.4		17.0
Net interest income	125.3		103.8			241.3		203.6
Provision for loan losses	3.8		2.9			7.5		5.0
Net interest income after provision for loan losses	121.5		100.9			233.8		198.6
Non-interest income:
Payment services revenues	10.5		12.9			19.9		23.4
Mortgage banking revenues	8.4		7.2			13.8		12.6
Wealth management revenues	5.8		5.8			11.9		11.7
Service charges on deposit accounts	5.4		5.3			10.4		10.9
Other service charges, commissions and fees	4.2		3.8			8.5		7.7
Investment securities gains (losses), net	—		—			—		—
Other income	5.1		2.6			9.4		6.5
Total non-interest income	39.4		37.6			73.9		72.8
Non-interest expense:
Salaries and wages	40.4		34.3			76.5		68.9
Employee benefits	14.0		12.3			28.4		23.6
Outsourced technology services	8.1		7.1			16.0		14.1
Occupancy, net	7.1		6.0			14.1		12.3
Furniture and equipment	3.4		2.9			6.9		6.0
OREO expense, net of income	0.2		(0.1		)	0.3		0.1
Professional fees	2.3		2.1			4.2		3.3
FDIC insurance premiums	1.6		1.4			3.1		2.9
Mortgage servicing rights amortization	1.0		0.7			1.9		1.5
Core deposit intangibles amortization	3.0		1.7			5.3		3.5
Other expenses	17.5		16.5			33.4		32.3
Acquisition related expenses	13.5		—			15.8		2.3
Total non-interest expense	112.1		84.9			205.9		170.8
Income before income tax expense	48.8		53.6			101.8		100.6
Income tax expense	10.9		11.9			22.3		22.2
Net income	$	37.9	$	41.7		$	79.5	$	78.4

Earnings per common share (Basic)	$	0.59	$	0.74		$	1.27	$	1.39
Earnings per common share (Diluted)	$	0.59	$	0.74		$	1.27	$	1.38
Weighted average common shares outstanding (Basic)	64,504,546		56,335,186			62,419,442		56,288,453
Weighted average common shares outstanding (Diluted)	64,707,459		56,699,021			62,668,391		56,670,400

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income	$	37.9		$	41.7		$	79.5		$	78.4
Other comprehensive income (loss), before tax:
Investment securities available-for sale:
Change in net unrealized gains (losses) during period	20.2			(3.9		)	53.8			(27.6		)
Reclassification adjustment for securities transferred from held-to-maturity to available-for-sale	—			—			(6.0		)	—
Change in unamortized loss on available-for-sale securities transferred into held-to-maturity	—			0.5			—			1.0
Defined benefit post-retirement benefits plans:
Change in net actuarial gain	(0.2		)	(0.2		)	(0.3		)	(0.3		)
Other comprehensive income (loss), before tax	20.0			(3.6		)	47.5			(26.9		)
Deferred tax (expense) benefit related to other comprehensive income	(5.1		)	0.9			(12.4		)	7.0
Other comprehensive income (loss), net of tax	14.9			(2.7		)	35.1			(19.9		)
Comprehensive income, net of tax	$	52.8		$	39.0		$	114.6		$	58.5

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (In millions, except share and per share data) (Unaudited)

	Three Months Ended June 30,
	Common stock			Retained earnings			Accumulated other comprehensive income (loss)			Total stockholders’ equity
Balance at March 31, 2019	$	866.6		$	874.7		$	(4.4	)	$	1,736.9
Net income	—			37.9			—			37.9
Other comprehensive income, net of tax expense	—			—			14.9			14.9
Common stock transactions:
607 common shares purchased and retired	(0.1		)	—			—			(0.1		)
4,356,498 common shares issued	176.1			—			—			176.1
11,136 non-vested common shares issued	—			—			—			—
16,032 non-vested common shares forfeited or canceled	—			—			—			—
41,704 stock options exercised, net of 16,104 shares tendered in payment of option price and income tax withholding amounts	0.3			—			—			0.3
Stock-based compensation expense	2.7			—			—			2.7
Common cash dividends declared ($0.31 per share)	—			(20.1		)	—			(20.1		)
Balance at June 30, 2019	$	1,045.6		$	892.5		$	10.5		$	1,948.6

Balance at March 31, 2018	$	688.0		$	776.7		$	(32.3	)	$	1,432.4
Net income	—			41.7			—			41.7
Other comprehensive loss, net of tax expense	—			—			(2.7		)	(2.7		)
Common stock transactions:
896 common shares purchased and retired	—			—			—			—
11,389 common shares issued	—			—			—			—
10,566 non-vested common shares forfeited or canceled	—			—			—			—
60,852 stock options exercised, net of 4,260 shares tendered in payment of option price and income tax withholding amounts	0.9			—			—			0.9
Stock-based compensation expense	1.8			—			—			1.8
Common cash dividends declared ($0.28 per share)	—			(15.8		)	—			(15.8		)
Balance at June 30, 2018	$	690.7		$	802.6		$	(35.0	)	$	1,458.3

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (continued) (In millions, except share and per share data) (Unaudited)

	Six Months Ended June 30,
	Common stock			Retained earnings			Accumulated other comprehensive income (loss)			Total stockholders’ equity
Balance at December 31, 2018	$	866.7		$	851.8		$	(24.6	)	$	1,693.9
Net income	—			79.5			—			79.5
Other comprehensive income, net of tax expense	—			—			35.1			35.1
Common stock transactions:
39,360 common shares purchased and retired	(2.5		)	—			—			(2.5		)
4,356,498 common shares issued	176.1			—			—			176.1
211,164 non-vested common shares issued	—			—			—			—
21,417 non-vested common shares forfeited or canceled	—			—			—			—
98,686 stock options exercised, net of 35,108 shares tendered in payment of option price and income tax withholding amounts	0.7			—			—			0.7
Stock-based compensation expense	4.6			—			—			4.6
Common cash dividends declared ($0.62 per share)	—			(38.8		)	—			(38.8		)
Balance at June 30, 2019	$	1,045.6		$	892.5		$	10.5		$	1,948.6

Balance at December 31, 2017	$	687.0		$	752.6		$	(12.0	)	$	1,427.6
Net income	—			78.4			—			78.4
Reclassification of the income tax effects of the Tax Cut and Jobs Act from AOCI	—			3.1			(3.1		)	—
Other comprehensive loss, net of tax expense	—			—			(19.9		)	(19.9		)
Common stock transactions:
22,596 common shares purchased and retired	(0.9		)	—			—			(0.9		)
11,389 common shares issued	—			—			—			—
204,991 non-vested common shares issued	—			—			—			—
27,147 non-vested common shares forfeited or canceled	—			—			—			—
127,998 stock options exercised, net of 24,729 shares tendered in payment of option price and income tax withholding amounts	1.7			—			—			1.7
Stock-based compensation expense	2.9			—			—			2.9
Common cash dividends declared ($0.56 per share)	—			(31.5		)	—			(31.5		)
Balance at June 30, 2018	$	690.7		$	802.6		$	(35.0	)	$	1,458.3

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited)

	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net income	$	79.5		$	78.4
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	7.5			5.0
Depreciation and amortization	19.3			13.1
Net premium amortization on investment securities	4.2			5.5
Realized and unrealized net gains on mortgage banking activities	(11.9		)	(3.0		)
Net loss (gain) on sale of OREO	(0.5		)	(0.4		)
Write-downs of OREO and other assets pending disposal	0.4			—
Deferred income tax expense	2.7			9.3
Net increase in cash surrender value of company-owned life insurance	(1.4		)	(2.1		)
Stock-based compensation expense	4.6			2.9
Originations of mortgage loans held for sale	(474.4		)	(382.5		)
Proceeds from sales of mortgage loans held for sale