The following table presents, for the periods indicated, condensed average balance sheet information using daily average balances, together with interest income and yields earned on average interest earning assets and interest expense and rates paid on average interest-bearing liabilities.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
| Average Balance | Interest | Average Rate | | Average Balance | Interest | Average Rate | | Average Balance | Interest | Average Rate |
Interest earning assets: | | | | | | | | | | | |
Loans (1) (2) | $ | 7,985.0 |
| $ | 405.9 |
| 5.08 | % | | $ | 6,675.4 |
| $ | 327.4 |
| 4.90 | % | | $ | 5,378.3 |
| $ | 261.7 |
| 4.87 | % |
Investment securities (2) | 2,639.4 |
| 58.4 |
| 2.21 |
| | 2,417.5 |
| 47.6 |
| 1.97 |
| | 2,093.5 |
| 37.6 |
| 1.80 |
|
Interest bearing deposits in banks | 573.6 |
| 11.3 |
| 1.97 |
| | 634.2 |
| 7.1 |
| 1.13 |
| | 478.9 |
| 2.6 |
| 0.54 |
|
Federal funds sold | 11.1 |
| — |
| — |
| | 0.7 |
| — |
| — |
| | 1.6 |
| — |
| — |
|
Total interest earnings assets | 11,209.1 |
| 475.6 |
| 4.24 |
| | 9,727.8 |
| 382.1 |
| 3.93 |
| | 7,952.3 |
| 301.9 |
| 3.80 |
|
Non-earning assets | 1,405.6 |
| | | | 1,133.7 |
| | | | 772.1 |
| | |
Total assets | $ | 12,614.7 |
| | | | $ | 10,861.5 |
| | | | $ | 8,724.4 |
| | |
Interest bearing liabilities: | | | | | | | | | | | |
Demand deposits | $ | 2,882.8 |
| $ | 8.1 |
| 0.28 | % | | $ | 2,553.1 |
| $ | 5.5 |
| 0.21 | % | | $ | 2,162.6 |
| $ | 2.2 |
| 0.10 | % |
Savings deposits | 3,166.7 |
| 12.5 |
| 0.39 |
| | 2,739.2 |
| 7.7 |
| 0.28 |
| | 2,037.4 |
| 2.7 |
| 0.13 |
|
Time deposits | 1,199.5 |
| 12.0 |
| 1.00 |
| | 1,112.7 |
| 8.2 |
| 0.73 |
| | 1,094.2 |
| 7.8 |
| 0.71 |
|
Repurchase agreements | 642.8 |
| 2.7 |
| 0.42 |
| | 587.1 |
| 1.3 |
| 0.21 |
| | 481.0 |
| 0.4 |
| 0.09 |
|
Other borrowed funds | 1.7 |
| 0.2 |
| 11.76 |
| | 23.9 |
| 1.5 |
| 6.42 |
| | — |
| — |
| — |
|
Long-term debt | 17.6 |
| 1.3 |
| 7.39 |
| | 8.0 |
| 0.6 |
| 7.48 |
| | 28.2 |
| 1.8 |
| 6.43 |
|
Subordinated debentures held by subsidiary trusts | 84.1 |
| 4.1 |
| 4.88 |
| | 82.5 |
| 3.1 |
| 3.85 |
| | 82.5 |
| 2.8 |
| 3.34 |
|
Total interest bearing liabilities | 7,995.2 |
| 40.9 |
| 0.51 |
| | 7,106.5 |
| 27.9 |
| 0.39 |
| | 5,885.9 |
| 17.7 |
| 0.30 |
|
Non-interest bearing deposits | 2,984.3 |
| | | | 2,430.9 |
| | | | 1,812.6 |
| | |
Other non-interest bearing liabilities | 109.4 |
| | | | 80.4 |
| | | | 62.4 |
| | |
Stockholders’ equity | 1,525.8 |
| | | | 1,243.7 |
| | | | 963.5 |
| | |
Total liabilities and stockholders’ equity | $ | 12,614.7 |
| | | | $ | 10,861.5 |
| | | | $ | 8,724.4 |
| | |
Net FTE interest income | | $ | 434.7 |
| | | | $ | 354.2 |
| | | | $ | 284.2 |
| |
Less FTE adjustments (2) | | (2.2 | ) | | | | (4.4 | ) | | | | (4.5 | ) | |
Net interest income from consolidated statements of income | | $ | 432.5 |
| | | | $ | 349.8 |
| | | | $ | 279.7 |
| |
Interest rate spread | | | 3.73 | % | | | | 3.54 | % | | | | 3.50 | % |
Net FTE interest margin (3) | | | 3.88 | % | | | | 3.64 | % | | | | 3.57 | % |
Cost of funds, including non-interest bearing demand deposits (4) | | | 0.37 | % | | | | 0.29 | % | | | | 0.23 | % |
| |
(1) | Average loan balances include non-accrual loans. Interest income on loans includes amortization of deferred loan fees net of deferred loan costs, which is not material. |
| |
(2) | Interest income and average rates for tax exempt loans and securities are presented on a fully taxable equivalent, or FTE, basis. The federal income tax rate of 21%, 35%, and 35% was utilized at December 31, 2018, 2017, and 2016, respectively. |
| |
(3) | Net FTE interest margin during the period equals (i) the difference between interest income on interest earning assets and the interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period. |
| |
(4) | Cost of funds including non-interest bearing demand deposits is calculated by dividing total interest on interest bearing liabilities by the sum of total interest bearing liabilities plus non-interest bearing deposits. |
Net FTE interest income increased $80.5$2.0 million to $499.0 million during 2020, as compared to $497.0 million in 2019. The increase is primarily attributable to lower cost of funds on interest-bearing deposit balances, which was partially offset by interest on higher long-term debt balances, as a result of the subordinated debt offering in May 2020, and lower levels of interest earned on earning assets as a result of lower interest rates. Also contributing to net FTE interest income during 2020, as compared to 2019, was interest accretion related to the fair value of acquired loans of $13.1 million during 2020 as compared to $18.4 million in 2019, of which $5.2 million was the result of early loan payoffs during 2020, as compared to $8.0 million in 2019. Net FTE interest income was also impacted by recoveries of previously charged-off interest of $0.4 million in 2020, as compared to $3.1 million in 2019. The Company’s net interest margin ratio decreased 52 basis points to 3.47% during 2020, as compared to 3.99% in 2019. Exclusive of interest accretion related to acquired loans and the impact of recoveries of charged-off interest, our 2020 net interest margin ratio decreased 44 basis points over our similarly calculated net interest margin ratio in 2019.
Net FTE interest income increased $62.3 million to $497.0 million during 2019, as compared to $434.7 million duringin 2018, as compared to $354.2 million in 2017, primarily due to higher outstanding loan balances as a result of the full year impact of the BOTCInland Northwest Bank (“INB”) acquisition, the INB acquisition,Idaho Independent Bank (“IIBK”) and Community 1st Bank (“CMYF”) acquisitions, and organic loan growth, combined with increases in yields earned on interest earning assets, which were partially offset by a higher cost of funds, as a result of increasing our rates on client deposits in response to increases in the Federal Fund rate.funds. Also contributing to the increase in net FTE interest income during 2018,2019, as compared to 2017,2018, was interest accretion related to the fair value of loans. Interest accretion related to the fair valuation of acquired loans was $13.7of $18.4 million during 20182019 as compared to $10.7$13.7 million in 2017,2018, of which $5.9$8.0 million was the result of early loan payoffs during 20182019 as compared to $5.1$5.9 million in 2017.2018. Net FTE interest income was also positively impacted by recoveries of previously charged-off interest of $3.1 million in 2019, as compared to $4.0 million in 2018, as compared to $5.6 million in 2017.2018. The Company’s net interest margin ratio increased 2411 basis points to 3.88%3.99% during 2018,2019, as compared to 3.64%3.88% in 2017.2018. Exclusive of interest accretion related to acquired loans and the impact of recoveries of charged-off interest, our 20182019 net interest margin ratio increased 2510 basis points over our similarly calculated net interest margin ratio in 2017.
Net FTE interest income increased $70.0 million to $354.2 million during 2017, as compared to $284.2 million in 2016, primarily due to higher outstanding loan balances as a result of the BOTC acquisition and organic loan growth, combined with increases in yields earned on interest earning assets, which were partially offset by a higher cost of funds, as a result of increasing our rates on client deposits in response to increases in the Federal Fund rate. Also contributing to the increase in net FTE interest income during 2017, as compared to 2016, was interest accretion related to the fair value of loans. Interest accretion related to the fair valuation of acquired loans was $10.7 million during 2017 as compared to $6.3 million in 2016, of which $5.1 million was the result of early loan payoffs during 2017 as compared to $3.8 million in 2016. Net FTE interest income was also positively impacted by recoveries of previously charged-off interest of $5.6 million in 2017, as compared to $2.6 million in 2016. The Company’s net interest margin ratio increased seven basis points to 3.64% during 2017, as compared to 3.57% in 2016. Exclusive of interest accretion related to acquired loans and the impact of recoveries of charged-off interest, our 2017 net interest margin ratio increased two basis points over our similarly calculated net interest margin ratio in 2016.
2018.
The table below sets forth, for the periods indicated, a summary of the changes in interest income and interest expense resulting from estimated changes in average asset and liability balances (volume) and estimated changes in average interest rates (rate). Changes which are not due solely to volume or rate have been allocated to these categories based on the respective percent changes in average volume and average rate as they compare to each other.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Analysis of Interest Changes Due To Volume and Rates | | | | | | | | |
| Year Ended December 31, 2020 compared with December 31, 2019 | | Year Ended December 31, 2019 compared with December 31, 2018 | | Year Ended December 31, 2018 compared with December 31, 2017 |
(Dollars in millions) | Volume | Rate | Net | | Volume | Rate | Net | | Volume | Rate | Net |
Interest earning assets: | | | | | | | | | | | |
Loans (1) | $ | 50.3 | | $ | (67.8) | | $ | (17.5) | | | $ | 45.4 | | $ | 20.9 | | $ | 66.3 | | | $ | 64.2 | | $ | 14.3 | | $ | 78.5 | |
Investment Securities (1) | 13.8 | | (12.0) | | 1.8 | | | 1.9 | | 4.7 | | 6.6 | | | 4.4 | | 6.4 | | 10.8 | |
Interest bearing deposits in banks | 9.2 | | (23.9) | | (14.7) | | | 5.3 | | 2.2 | | 7.5 | | | (0.7) | | 4.9 | | 4.2 | |
| | | | | | | | | | | |
Total change | 73.3 | | (103.7) | | (30.4) | | | 52.6 | | 27.8 | | 80.4 | | | 67.9 | | 25.6 | | 93.5 | |
Interest bearing liabilities: | | | | | | | | | | | |
Demand deposits | 1.7 | | (8.1) | | (6.4) | | | 0.4 | | 0.1 | | 0.5 | | | 0.7 | | 1.9 | | 2.6 | |
Savings deposits | 2.7 | | (18.7) | | (16.0) | | | 1.2 | | 4.7 | | 5.9 | | | 1.2 | | 3.6 | | 4.8 | |
Time deposits | (3.8) | | (5.0) | | (8.8) | | | 2.8 | | 7.5 | | 10.3 | | | 0.6 | | 3.2 | | 3.8 | |
Repurchase agreements | 0.5 | | (3.5) | | (3.0) | | | 0.1 | | 1.1 | | 1.2 | | | 0.1 | | 1.3 | | 1.4 | |
Other borrowed funds | — | | — | | — | | | (0.2) | | — | | (0.2) | | | (1.4) | | 0.1 | | (1.3) | |
Long-term debt | 5.2 | | (1.9) | | 3.3 | | | (0.2) | | 0.2 | | — | | | 0.7 | | — | | 0.7 | |
Subordinated debentures held by subsidiary trusts | — | | (1.5) | | (1.5) | | | 0.1 | | 0.3 | | 0.4 | | | 0.1 | | 0.9 | | 1.0 | |
Total change | 6.3 | | (38.7) | | (32.4) | | | 4.2 | | 13.9 | | 18.1 | | | 2.0 | | 11.0 | | 13.0 | |
Increase in FTE net interest income (1) | $ | 67.0 | | $ | (65.0) | | $ | 2.0 | | | $ | 48.4 | | $ | 13.9 | | $ | 62.3 | | | $ | 65.9 | | $ | 14.6 | | $ | 80.5 | |
Analysis of Interest Changes Due To Volume and Rates (Dollars in millions) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 compared with December 31, 2017 | | Year Ended December 31, 2017 compared with December 31, 2016 | | Year Ended December 31, 2016 compared with December 31, 2015 |
| Volume | Rate | Net | | Volume | Rate | Net | | Volume | Rate | Net |
Interest earning assets: | | | | | | | | | | | |
Loans (1) | $ | 64.2 |
| $ | 14.3 |
| $ | 78.5 |
| | $ | 63.1 |
| $ | 2.6 |
| $ | 65.7 |
| | $ | 15.8 |
| $ | (2.1 | ) | $ | 13.7 |
|
Investment Securities (1) | 4.4 |
| 6.4 |
| 10.8 |
| | 5.8 |
| 4.1 |
| 9.9 |
| | (1.7 | ) | 2.1 |
| 0.4 |
|
Interest bearing deposits in banks | (0.7 | ) | 4.9 |
| 4.2 |
| | 0.8 |
| 3.7 |
| 4.5 |
| | (0.1 | ) | 1.1 |
| 1.0 |
|
Total change | 67.9 |
| 25.6 |
| 93.5 |
| | 69.7 |
| 10.4 |
| 80.1 |
| | 14.0 |
| 1.1 |
| 15.1 |
|
Interest bearing liabilities: | | | | | | | | | | | |
Demand deposits | 0.7 |
| 1.9 |
| 2.6 |
| | 0.4 |
| 2.9 |
| 3.3 |
| | 0.1 |
| — |
| 0.1 |
|
Savings deposits | 1.2 |
| 3.6 |
| 4.8 |
| | 0.9 |
| 4.1 |
| 5.0 |
| | 0.1 |
| — |
| 0.1 |
|
Time deposits | 0.6 |
| 3.2 |
| 3.8 |
| | 0.1 |
| 0.2 |
| 0.3 |
| | (0.6 | ) | (0.1 | ) | (0.7 | ) |
Repurchase agreements | 0.1 |
| 1.3 |
| 1.4 |
| | 0.1 |
| 0.7 |
| 0.8 |
| | — |
| 0.2 |
| 0.2 |
|
Other borrowed funds | (1.4 | ) | 0.1 |
| (1.3 | ) | | — |
| 1.5 |
| 1.5 |
| | — |
| — |
| — |
|
Long-term debt | 0.7 |
| — |
| 0.7 |
| | (1.3 | ) | 0.1 |
| (1.2 | ) | | (0.8 | ) | 0.4 |
| (0.4 | ) |
Subordinated debentures held by subsidiary trusts | 0.1 |
| 0.9 |
| 1.0 |
| | — |
| 0.4 |
| 0.4 |
| | — |
| 0.3 |
| 0.3 |
|
Total change | 2.0 |
| 11.0 |
| 13.0 |
| | 0.2 |
| 9.9 |
| 10.1 |
| | (1.2 | ) | 0.8 |
| (0.4 | ) |
Increase (decrease) in FTE net interest income (1) | $ | 65.9 |
| $ | 14.6 |
| $ | 80.5 |
| | $ | 69.5 |
| $ | 0.5 |
| $ | 70.0 |
| | $ | 15.2 |
| $ | 0.3 |
| $ | 15.5 |
|
(1)Interest income and average rates for tax exempt loans and securities are presented on a FTE basis. | |
(1) | Interest income and average rates for tax exempt loans and securities are presented on a FTE basis. |
Provision for LoanCredit Losses
Effective January 1, 2020, the Company adopted ASC 326, Measurement of Credit Losses on Financial Instruments, which replaced the historically used incurred loss methodology with an expected loss methodology and is referred to as the current expected credit loss (CECL) accounting standard. Upon adoption, the Company recorded an increase in the allowance for credit losses on loans of $30.0 million and an increase in the allowance for credit losses on off-balance sheet credit exposures of $2.3 million that was offset in shareholders’ equity and deferred taxes. Fluctuations in the provision for credit losses reflect management’s estimate of possible credit losses based upon the composition of our loan portfolio, evaluation of the borrowers’ ability to repay, collateral value underlying loans, loan loss trends, and estimated effects of current and forecasted economic conditions on our loans held for investment portfolio. During 2018,2020, we recorded a provision for loancredit losses of $8.6$56.9 million, as compared to $11.0$13.9 million in 2017. The decrease2019, with the difference largely attributable to the adoption of CECL and which reflects an increase in provisionexpected losses over the life of the loans held for loan losses recordedinvestment portfolios associated with significant changes in 2018 was primarilythe Company’s internal economic forecast as a result of improvement in credit quality and lower levelsCOVID-19, including uncertainty regarding the benefits of net loan charge-offs. During 2017, we recorded a provision for loan losses of $11.0 million, as compared to $10.0 million in 2016. The increase in provision for loans losses recorded in 2017 was primarily a result of a higher level of net loan charge-offs.government stimulus programs. The provision for credit losses is reflective of net charge-offs of $14.2 million, or 0.14% of average loans losses recordedoutstanding, for 2020, compared to $13.9 million, or 0.16% of average loans outstanding in 2016 was primarily attributable to the application of historical loan loss rates to loan growth combined with increases in net loan charge-offs. 2019.
For information regarding our non-performing loans, see “Non-Performing Assets” included herein. For information regarding our allowance for credit losses, see “Financial Condition—Allowance for LoanCredit Losses” included herein.
Non-interest Income
Our principal sources of non-interest income primarily include fee-based revenues such as payment services, mortgage banking and wealth management revenues, service charges on deposit accounts, and other service charges, commissions, and fees. The following table presents the composition of our non-interest income as of the dates indicated:
Non-interest income (Dollars in millions) |
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | % Change | |
| 2018 | | 2017 | | 2016 | | 2018 vs 2017 | | 2017 vs 2016 | |
Payment services revenues | $ | 43.3 |
| | $ | 43.3 |
| | $ | 34.4 |
| | — | % | | 25.9 | % | |
Mortgage banking revenues | 24.9 |
| | 28.9 |
| | 37.2 |
| | (13.8 | ) | | (22.3 | ) | |
Wealth management revenues | 23.2 |
| | 21.1 |
| | 20.5 |
| | 10.0 |
| | 2.9 |
| |
Service charges on deposit accounts | 21.8 |
| | 21.3 |
| | 18.4 |
| | 2.3 |
| | 15.8 |
| |
Other service charges, commissions and fees | 15.1 |
| | 13.3 |
| | 11.5 |
| | 13.5 |
| | 15.7 |
| |
Loss on termination of interest rate swap | — |
| | (1.1 | ) | | — |
| | NM |
| | NM |
| |
Investment securities (losses) gains, net | (0.1 | ) | | 0.7 |
| | 0.3 |
| | NM |
| | NM |
| |
Other income | 15.1 |
| | 14.3 |
| | 10.0 |
| | 5.6 |
| | 43.0 |
| |
Non-recurring litigation recovery | — |
| | — |
| | 4.2 |
| | NM |
| | NM |
| |
Total non-interest income | $ | 143.3 |
| | $ | 141.8 |
| | $ | 136.5 |
| | 1.1 | % | | 3.9 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-interest Income | Year Ended December 31, | | % Change | |
(Dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 vs 2019 | | 2019 vs 2018 | |
Payment services revenues | $ | 41.1 | | | $ | 41.5 | | | $ | 43.3 | | | (1.0) | % | | (4.2) | % | |
Mortgage banking revenues* | 47.3 | | | 33.2 | | | 29.7 | | | 42.5 | | | 11.8 | | |
Wealth management revenues | 23.8 | | | 23.8 | | | 23.2 | | | — | | | 2.6 | | |
Service charges on deposit accounts | 17.6 | | | 21.1 | | | 21.8 | | | (16.6) | | | (3.2) | | |
Other service charges, commissions, and fees* | 12.1 | | | 7.0 | | | 5.8 | | | 72.9 | | | 20.7 | | |
| | | | | | | | | | |
Investment securities gains (losses), net | 0.3 | | | 0.1 | | | (0.1) | | | 200.0 | | | (200.0) | | |
Other income | 14.5 | | | 15.9 | | | 15.1 | | | (8.8) | | | 5.3 | | |
| | | | | | | | | | |
Total non-interest income* | $ | 156.7 | | | $ | 142.6 | | | $ | 138.8 | | | 9.9 | | | 2.7 | | |
* Certain reclassifications, none of which were material, have been made to conform 2019 and 2018 amounts to the 2020 presentation. |
Non-interest income increased $1.5$14.1 million, or 1.1%9.9%, to $143.3$156.7 million in 2018,2020, as compared to $141.8$142.6 million in 2017,2019, and $5.3increased $3.8 million, or 3.9%2.7%, to $141.8$142.6 million in 20172019 as compared to $136.5$138.8 million in 2016.2018. Significant components of these fluctuations are discussed below.
Payment services revenues consist of interchange fees that merchants pay for processing electronic payment transactions and ATM service fees. Payment services revenues was stable in 2018, as compared to $43.3 million for the same period in 2017, and increased $8.9 million, or 25.9%, to $43.3 million in 2017, as compared to $34.4 million in 2016. These changes were attributable to additional interchange income due to increased debit card and credit card transaction volumes. Additionally, 2018 reflects a decrease in payment services revenues of $6.5 million attributable to the Durbin Amendment rule (which limits the amount of interchange fees certain banks may charge), which impacted our Company beginning July 1, 2018.
Mortgage banking revenues include origination and processing fees on residential real estate loans held for sale and gains on residential real estate loans sold to third parties. Fluctuations in market interest rates have a significant impact on mortgage banking revenues. Higher interest rates can reduce the demand for home loans and loans to refinance existing mortgages. Conversely, lower interest rates generally stimulate refinancing and home loan origination. Mortgage banking revenues decreased $4.0increased $14.1 million, or 13.8%42.5%, to $24.9$47.3 million in 2018,2020, as compared to $28.9$33.2 million in 2017.2019. The decrease isincrease was primarily attributabledriven by increased mortgage loan production due to higher levels of refinance activity as a lackresult of demandthe favorable interest rate environment. The increase was partially offset by mortgage servicing impairments related to projected increases in mortgage prepayment rates due to the refinance marketfavorable interest rate environment of $9.9 million in 2020 and reduced gain on sale margins.$0.4 million in 2019. Loans originated for home purchases accounted for approximately 79.3%42.7% of 20182020 loan production, as compared to approximately 71.9%68.2% in 2017.
2019.
Mortgage banking revenues decreased $8.3increased $3.5 million, or 22.3%11.8%, to $28.9$33.2 million in 2017,2019, as compared to $37.2$29.7 million in 2016.2018. The decreaseincrease is mainlyprimarily attributable to a softeningincreased demand in the refinance market given risingas a result of lower interest rates. Loans originated for home purchases accounted for approximately 71.9%68.2% of 20172019 loan production, as compared to approximately 57.7%79.3% in 2016.2018.
Wealth management revenuesService charge fees are principally comprised of fees earned for management of trust assetsprimarily driven by service and investment services. Wealth management revenues increased $2.1overdraft charges on deposit accounts. These service charges decreased $3.5 million, or 10.0%16.6%, to $17.6 million in 2020, as compared to $21.1 million for the same period in 20172019 and were stabledecreased $0.7 million, or 3.2%, in 2017,2019, as compared to $20.5$21.8 million in 2016.2018. The 2018 increasedecrease in 2020 is driven by a concentrated effort on revenue growth through a consistent sales practice coupled with a change in our pricing exception protocol.
Service charges on deposit accounts were stable in 2018 at $21.8 million, as compared to $21.3 million for the same period in 2017 and increased $2.9 million, or 15.8%, in 2017, as compared to $18.4 million in 2016, primarily due to changes in client behavior in addition to the BOTC acquisition in May 2017.
Company waiving continuous overdraft fees and regular overdraft fees for clients receiving U.S. government stimulus checks during the second quarter of 2020.
Other service charges, commissions, and fees primarily include mortgage servicing fees, fees earned on certain derivative interest rate contracts, insurance commissions, and insurance commissions.safe deposit boxes. Other service charges, commissions, and fees increased $1.8$5.1 million, or 13.5%72.9%, to $12.1 million in 2020, as compared $7.0 million in 2019 and increased $1.2 million, or 20.7%, in 2019, as compared to the same period in 2017 and increased $1.8 million, or 15.7%, in 2017, as compared to $11.5$5.8 million in 2016,2018. These increases were primarily due to the INB acquisition in August 2018 and the BOTC acquisition in May 2017, respectively. Additionally, mortgage loan servicing fee income increased year-over-year as a result of an increase in the number of loans serviced and additional fees earned on derivative interest rate swap contracts offered to customers.clients.
Other income primarily includes company-owned life insurance revenues, check printing income, agency stock dividends and gains on sales of miscellaneous assets. Other income was relatively stable in 2018 at $15.1 million, as compared to $14.3 million for the same period in 2017. Other income increased $4.3 million, or 43.0%, in 2017, as compared to $10.0 million in 2016, primarily due to the one-time gain of $3.0 million on the sale of Health Savings Accounts.
During 2016, we recorded non-recurring litigation recoveries of $4.2 million related to a lender liability lawsuit originally settled in 2015.
Non-interest Expense
The following table presents the composition of our non-interest expense as of the dates indicated:
Non-interest expense (Dollars in millions) | |
| | Year Ended December 31, | | % Change | | |
| 2018 | | 2017 | | 2016 | | 2018 vs 2017 | | 2017 vs 2016 | | |
Non-interest Expense | | Non-interest Expense | Year Ended December 31, | | % Change | |
(Dollars in millions) | | (Dollars in millions) | 2020 | | 2019 | | 2018 | | 2020 vs 2019 | | 2019 vs 2018 | |
Salaries and wages | $ | 146.4 |
| | $ | 122.7 |
| | $ | 108.7 |
| | 19.3 | % | | 12.9 | % | | Salaries and wages | $ | 173.7 | | | $ | 155.3 | | | $ | 146.4 | | | 11.8 | % | | 6.1 | % | |
Employee benefits | 47.9 |
| | 37.6 |
| | 35.2 |
| | 27.4 |
| | 6.8 |
| | Employee benefits | 49.4 | | | 51.5 | | | 47.9 | | | (4.1) | | | 7.5 | | |
Outsourced technology services | 28.7 |
| | 25.1 |
| | 20.5 |
| | 14.3 |
| | 22.4 |
| | Outsourced technology services | 32.8 | | | 32.3 | | | 28.7 | | | 1.5 | | | 12.5 | | |
Occupancy, net | 25.4 |
| | 22.4 |
| | 17.7 |
| | 13.4 |
| | 26.6 |
| | Occupancy, net | 28.5 | | | 28.3 | | | 25.4 | | | 0.7 | | | 11.4 | | |
Furniture and equipment | 12.7 |
| | 11.5 |
| | 9.6 |
| | 10.4 |
| | 19.8 |
| | Furniture and equipment | 15.5 | | | 13.2 | | | 12.7 | | | 17.4 | | | 3.9 | | |
OREO expense, net of income | 0.3 |
| | 0.4 |
| | — |
| | (25.0 | ) | | — |
| | OREO expense, net of income | (0.5) | | | (2.2) | | | 0.3 | | | (77.3) | | | NM | |
Professional fees | 6.9 |
| | 6.8 |
| | 5.0 |
| | 1.5 |
| | 36.0 |
| | Professional fees | 10.9 | | | 11.6 | | | 10.5 | | | (6.0) | | | 10.5 | | |
FDIC insurance premiums | 5.6 |
| | 4.7 |
| | 4.5 |
| | 19.1 |
| | 4.4 |
| | FDIC insurance premiums | 5.9 | | | 3.5 | | | 5.6 | | | 68.6 | | | (37.5) | | |
Mortgage servicing rights amortization | 3.1 |
| | 3.0 |
| | 3.0 |
| | 3.3 |
| | — |
| | |
Mortgage servicing rights impairment recovery | — |
| | (0.1 | ) | | — |
| | NM |
| | NM |
| | |
| Core deposit intangibles amortization | 7.9 |
| | 5.5 |
| | 3.4 |
| | 43.6 |
| | 61.8 |
| | Core deposit intangibles amortization | 10.9 | | | 11.2 | | | 7.9 | | | (2.7) | | | 41.8 | | |
Other expenses | 63.6 |
| | 57.1 |
| | 50.6 |
| | 11.4 |
| | 12.8 |
| | |
Other expenses* | | Other expenses* | 60.4 | | | 63.6 | | | 58.6 | | | (5.0) | | | 8.5 | | |
| Acquisition related expenses | 12.4 |
| | 27.2 |
| | 2.8 |
| | (54.4 | ) | | 871.4 |
| | Acquisition related expenses | — | | | 20.3 | | | 12.4 | | | (100.0) | | | 63.7 | | |
Total non-interest expense | $ | 360.9 |
| | $ | 323.9 |
| | $ | 261.0 |
| | 11.4 | % | | 24.1 | % | | |
Total non-interest expense* | | Total non-interest expense* | $ | 387.5 | | | $ | 388.6 | | | $ | 356.4 | | | (0.3) | | | 9.0 | | |
| * Certain reclassifications, none of which were material, have been made to conform 2019 and 2018 amounts to the 2020 presentation. | | * Certain reclassifications, none of which were material, have been made to conform 2019 and 2018 amounts to the 2020 presentation. |
Non-interest expense increased $37.0decreased $1.1 million, or 11.4%0.3%, to $360.9$387.5 million in 2018,2020, as compared to $323.9$388.6 million in 2017,2019, and increased $62.9$32.2 million, or 24.1%9.0%, to $323.9$388.6 million in 2017,2019, as compared to $261.0$356.4 million in 2016.2018. Significant components of these increases are discussed in more detail below.
Salaries and wages expense increased $23.7$18.4 million, or 19.3%11.8%, to $146.4$173.7 million in 2018,2020, as compared to $122.7$155.3 million in 2017.2019. The increase was primarily due to inflationarynormal merit wage increases, one-time separation payments, higher mortgage loan originator commissions, higher levels of incentive compensation,accruals, and increased personnel costs associated with the INB acquisition in August 2018 and the full-year impact of the BOTC acquisitionIIBK and CMYF acquisitions in May 2017.
April 2019.
Salaries and wages expense increased $14.0$8.9 million, or 12.9%6.1%, to $122.7$155.3 million in 2017,2019, as compared to $108.7$146.4 million in 2016.2018. The increase was primarily due to inflationary wagenormal merit increases one-time separation payments, and increased personnel costs associated with the BOTC acquisitionIIBK and CMYF acquisitions in May 2017April 2019 and the full-year impact of the Flathead BankINB acquisition in August 2016.2018.
Employee benefits expense decreased $2.1 million, or 4.1%, to $49.4 million in 2020, as compared to $51.5 million in 2019. The decrease in employee benefits expense was primarily due to decreased health care costs, partially offset by the full-year impact of the IIBK and CMYF acquisitions in April 2019.
Employee benefits expense increased $10.3$3.6 million, or 27.4%7.5%, to $51.5 million in 2019, as compared to $47.9 million in 2018, as compared to $37.6 million in 2017.2018. The increase in employee benefits expense in 2018,2019, as compared to 2017,2018, was primarily due to higher profit sharing contributions and additional benefit costs resulting from the INB acquisitionIIBK and CMYF acquisitions in August 2018April 2019 and the full-year impact of the BOTC acquisition in May 2017 and an increase in our group insurance costs.
Employee benefits expense increased $2.4 million, or 6.8%, to $37.6 million in 2017, as compared to $35.2 million in 2016. The increase in employee benefits expense in 2017, as compared to 2016, were due to additional benefits costs resulting from the BOTC acquisition in May 2017 and the full-year impact of the Flathead BankINB acquisition in August 2016.2018.
Outsourced technology services expense increased $0.5 million, or 1.5%, to $32.8 million in 2020, as compared to $32.3 million in 2019, and increased $3.6 million, or 14.3%12.5%, in 2019, as compared to $28.7 million in 2018, as compared to $25.1 million in 2017.2018. The 2019 increase was primarily due to expenses resulting from the INB acquisitionIIBK and CMYF acquisitions in August 2018April 2019 and the full-year impact of the BOTCINB acquisition in May 2017.August 2018.
Outsourced technology servicesOccupancy, net expense increased $4.6$0.2 million, or 22.4%0.7%, to $25.1$28.5 million in 2017,2020, as compared to $20.5$28.3 million in 2016.2019 and increased $2.9 million, or 11.4%, in 2019, as compared to $25.4 million in 2018. The 2019 increase was primarily due to expenses resulting from the BOTC acquisitionIIBK and CMYF acquisitions in May 2017.
Occupancy, net expense increased $3.0 million or 13.4%, to $25.4 million in 2018, as compared to $22.4 million in 2017. The increase was primarily due to expenses resulting from the INB acquisition in August 2018 and the full-year impact of the BOTC acquisition in May 2017.
Occupancy, net expense increased $4.7 million or 26.6%, to $22.4 million in 2017, as compared to $17.7 million in 2016. The increase was primarily due to expenses resulting from the BOTC acquisition in May 2017.
April 2019.
Core deposit intangibles represent the intangible value of depositor relationships resulting from deposit liabilities assumed, as a result of acquisitions, and are amortized based on the estimated useful lives of the related deposits. Core deposit intangibles amortization expense increased $2.4decreased $0.3 million, or 43.6%2.7%, to $10.9 million in 2020, as compared to $11.2 million in 2019, and increased $3.3 million or 41.8%, to $11.2 million in 2019, as compared to $7.9 million in 2018, as compared to $5.5 million in 2017, and increased $2.1 million or 61.8%, to $5.5 million in 2017, as compared to $3.4 million in 2016, due to additional amortization of core deposit intangibles recorded in conjunction with recent acquisitions. We acquired core deposit intangibles of $16.6 million in conjunction with our acquisitions of IIBK and CMYF in April 2019 and $15.7 million in conjunction with our acquisition of INB in August 2018, $48.0 million in conjunction with our acquisition of BOTC in May 2017, and $2.5 million in conjunction with our acquisition of Flathead in August 2016.2018. For additional information regarding acquired core deposit intangibles, see “Notes to Consolidated Financial Statements—Acquisitions,” included in Part IV, Item 15 of this report.
Other expenses primarily include advertising and public relations costs; office supply, postage, freight, telephone, and travel expenses; donations expense; debit and credit card expenses; board of director fees; legal expenses; and, other losses. Other expenses increased $6.5decreased $3.2 million, or 11.4%5.0%, to $60.4 million in 2020, as compared to $63.6 million in 2019. The decrease in other expenses were primarily the result of lower travel expenses as a result of COVID-19 travel restrictions.
Other expenses increased $5.0 million, or 8.5%, to $63.6 million in 2018,2019, as compared to $57.1$58.6 million in 2017. Increases2018. The increase in other expenses arewere due to the additional operating expenses resulting from the IIBK and CMYF acquisitions in April 2019 and the INB acquisition in August 2018 and the BOTC acquisition in May 2017, and higher new market tax credit amortization as a result of our participation in additional new market tax credit projects.2018.
Other expenses increased $6.5 million, or 12.8%, to $57.1 million in 2017, as compared to $50.6 million in 2016. Increases in other expenses are due to the additional operating expenses resulting from the BOTC acquisition in May 2017 and the Flathead Bank acquisition in August 2016. The increase is also due to higher advertising and promotional expenses incurred to promote the Company’s brand awareness in its new markets in the West Division, along with consultant fees related to our client experience program.
During 2018, 2017 and 2016, weWe recorded no acquisition related expenses ofduring 2020, compared to $20.3 million and $12.4 million $27.2 millionduring 2019 and $2.8 million,2018, respectively. Acquisition related expenses primarily include legal and professional fees; technology, conversion, and contract termination costs; employee retention payments, and;payments; and travel expenses. For additional information regarding our acquisitions, see “Recent Trends and Developments” included herein and “Notes to Consolidated Financial Statements—Acquisitions,” included in Part IV, Item 15 of this report.
Income Tax Expense
Our effective federal tax rate was 17.5% for the year ended December 31, 2020, 18.8% for the year ended December 31, 2019, and 17.1% for the year ended December 31, 2018, 27.2% for the year ended December 31, 2017 and 29.7% for the year ended December 31, 2016. Our federal tax rate was reduced as a result of the Tax Cuts and Jobs Act enacted on December 22, 2017. The effective tax rate for 2017 was impacted by the adjustment of our deferred tax assets and liabilities related to the tax rate change as a result of the Tax Cuts and Jobs Act.2018. Fluctuations in effective federal income tax rates are primarily due to the re-measurement of deferred tax assets and liabilities resulting from the enactment of federal tax reform for (2017 only), and the timing of federal tax credits resulting from our participation in the New Markets Tax Credits Program, a program through the U.S. Department of Treasury aimed at attracting private capital into low-income communities. For additional information about our participation in the New Markets Tax Credits Program, see “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies,” included in Part IV, Item 15 of this report.
State income tax applies primarily to pretax earnings generated within California, Idaho, Montana, Oregon, and South Dakota for 2018 and 2017 and Montana and South Dakota for 2016.Dakota. Our effective state tax rate was 5.4% for the year ended December 31, 2020, 4.2% for the year ended December 31, 2019, and 5.2% for the year ended December 31, 2018, 4.8% for the year ended December 31, 2017 and 4.4% for the year ended December 31, 2016.
2018.
Net Income
Net income wasdecreased $19.8 million, or 10.9%, to $161.2 million, or $2.53 per diluted share, in 2020, compared to $181.0 million, or $2.83 per diluted share, in 2019 and increased $20.8 million, or 13.0%, to $181.0 million, or $2.83 per diluted share, in 2019, as compared to $160.2 million, or $2.75 per diluted share, in 2018, compared to $106.5 million, or $2.05 per diluted share,2018. There were no acquisition related expenses in 2017 and $95.7 million, or $2.13 per diluted share, in 2016.2020. The after-tax impact of acquisition related expenses on earnings per share was $0.24 and $0.17 $0.34,in 2019 and $0.04, respectively for the periods.2018, respectively.
Summary of Quarterly Results
The following tables present the Company’s summarized quarterly financial information for the fiscal years ended December 31, 20182020 and 2017.2019. | | Quarterly Results (Unaudited) (Dollars in millions except per share data) | | Quarterly Results (Unaudited) (Dollars in millions except per share data) | | |
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |
Year Ended December 31, 2018 (1) | | |
Year Ended December 31, 2020 (1) | | Year Ended December 31, 2020 (1) | | |
Interest income | $ | 107.6 |
| $ | 113.0 |
| $ | 121.2 |
| $ | 131.6 |
| Interest income | $ | 132.2 | | $ | 128.8 | | $ | 128.9 | | $ | 133.6 | | |
Interest expense | 7.8 |
| 9.2 |
| 11.2 |
| 12.7 |
| Interest expense | 9.1 | | 6.3 | | 5.9 | | 5.2 | | |
Net interest income | 99.8 |
| 103.8 |
| 110.0 |
| 118.9 |
| Net interest income | 123.1 | | 122.5 | | 123.0 | | 128.4 | | |
Provision for loan losses | 2.1 |
| 2.9 |
| 2.0 |
| 1.6 |
| Provision for loan losses | 29.0 | | 19.5 | | 5.2 | | 3.2 | | |
Net interest income after provision for loan losses | 97.7 |
| 100.9 |
| 108.0 |
| 117.3 |
| Net interest income after provision for loan losses | 94.1 | | 103.0 | | 117.8 | | 125.2 | | |
Non-interest income | 35.2 |
| 37.6 |
| 36.2 |
| 34.3 |
| |
Non-interest expense | 85.9 |
| 84.9 |
| 90.7 |
| 99.4 |
| |
Non-interest income* | | Non-interest income* | 38.4 | | 39.7 | | 44.7 | | 33.9 | | |
Non-interest expense* | | Non-interest expense* | 95.0 | | 95.6 | | 99.5 | | 97.4 | | |
Income before income taxes | 47.0 |
| 53.6 |
| 53.5 |
| 52.2 |
| Income before income taxes | 37.5 | | 47.1 | | 63.0 | | 61.7 | | |
Income tax expense | 10.3 |
| 11.9 |
| 12.1 |
| 11.8 |
| Income tax expense | 8.2 | | 10.4 | | 14.7 | | 14.8 | | |
Net income | $ | 36.7 |
| $ | 41.7 |
| $ | 41.4 |
| $ | 40.4 |
| Net income | $ | 29.3 | | $ | 36.7 | | $ | 48.3 | | $ | 46.9 | | |
| | | |
Basic earnings per common share | $ | 0.65 |
| $ | 0.74 |
| $ | 0.71 |
| $ | 0.67 |
| Basic earnings per common share | $ | 0.45 | | $ | 0.57 | | $ | 0.76 | | $ | 0.76 | | |
Diluted earnings per common share | 0.65 |
| 0.74 |
| 0.71 |
| 0.67 |
| Diluted earnings per common share | 0.45 | | 0.57 | | 0.76 | | 0.76 | | |
Dividends paid per common share | 0.28 |
| 0.28 |
| 0.28 |
| 0.28 |
| Dividends paid per common share | 0.34 | | 0.34 | | 0.34 | | 0.38 | | |
(1) Quarterly amounts may not add to annual amounts due to the effect of rounding on a quarterly basis. | |
Special dividends per common share | | Special dividends per common share | 0.60 | | — | | — | | — | | |
|
The following table presents the composition of our loan portfolio as of the dates indicated:
The following table presents the maturity distribution of our loan portfolio and the sensitivity of the loans to changes in interest rates as of December 31, 2018:2020:
Non-Performing Assets
Non-performing assets include non-accrual loans, loans contractually past due by 90 days or more and still accruing interest, and OREO. The following table sets forth information regarding non-performing assets as of the dates indicated:
Non-Performing Assets and Troubled Debt Restructurings Non-Performing Assets and Troubled Debt Restructurings (Dollars in thousands) |
| | | | | | | | | | | | | | | |
As of December 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Non-performing loans: | | | | | |
Non-accrual loans | $ | 54.3 |
| $ | 69.4 |
| $ | 72.8 |
| $ | 66.3 |
| $ | 62.2 |
|
Accruing loans past due 90 days or more | 3.8 |
| 3.1 |
| 3.8 |
| 5.6 |
| 2.5 |
|
Total non-performing loans | 58.1 |
| 72.5 |
| 76.6 |
| 71.9 |
| 64.7 |
|
OREO | 14.4 |
| 10.1 |
| 10.0 |
| 6.3 |
| 13.6 |
|
Total non-performing assets | $ | 72.5 |
| $ | 82.6 |
| $ | 86.6 |
| $ | 78.2 |
| $ | 78.3 |
|
| | | | | |
Troubled debt restructurings not included above (1) | $ | 5.6 |
| $ | 12.6 |
| $ | 22.3 |
| $ | 15.4 |
| $ | 21.0 |
|
| | | | | |
Non-performing loans to total loans (2) | 0.68 | % | 0.95 | % | 1.40 | % | 1.37 | % | 1.32 | % |
Non-performing assets to total loans and OREO (3) | 0.85 |
| 1.08 |
| 1.58 |
| 1.49 |
| 1.59 |
|
Non-performing assets to total assets (4) | 0.55 |
| 0.68 |
| 0.96 |
| 0.90 |
| 0.91 |
|
Allowance for loan losses to non-performing loans (5) | 125.65 |
| 99.40 |
| 99.52 |
| 106.71 |
| 114.58 |
|
(Dollars in millions) | |
(1) | Accruing loans modified in troubled debt restructurings are not considered non-performing loans. While still considered impaired under applicable accounting guidance, these loans are performing as agreed under their modified terms and management expects performance to continue. |
| |
(2) | Including accruing troubled debt restructurings described in footnote 1, the ratio of non-performing loans to total loans would be 0.75%, 1.12%, 1.81%, 1.67% and 1.75% as of December 31, 2018, 2017, 2016, 2015 and 2014, respectively. |
| |
(3) | Including accruing troubled debt restructurings described in footnote 1, the ratio of non-performing assets to total loans and OREO would be 0.92%, 1.25%, 1.98%, 1.78% and 2.02% as of December 31, 2018, 2017, 2016, 2015 and 2014, respectively. |
| |
(4) | Including accruing troubled debt restructurings described in footnote 1, the ratio of non-performing assets to total assets would be 0.59%, 0.78%, 1.20%, 1.07% and 1.15% as of December 31, 2018, 2017, 2016, 2015 and 2014, respectively. |
| |
(5) | Including accruing troubled debt restructurings described in footnote 1, the ratio of allowance for loan losses to non-performing loans would be 114.55%, 84.72%, 77.04%, 87.89% and 86.57% as of December 31, 2018, 2017, 2016, 2015, and 2014, respectively. |
| | | | | | | | | | | | | | | | | |
As of December 31, | 2020 | 2019 | 2018 | 2017 | 2016 |
Non-performing loans: | | | | | |
Non-accrual loans | $ | 39.5 | | $ | 42.9 | | $ | 54.3 | | $ | 69.4 | | $ | 72.8 | |
Accruing loans past due 90 days or more | 8.5 | | 5.7 | | 3.8 | | 3.1 | | 3.8 | |
Total non-performing loans | 48.0 | | 48.6 | | 58.1 | | 72.5 | | 76.6 | |
OREO | 2.5 | | 8.5 | | 14.4 | | 10.1 | | 10.0 | |
Total non-performing assets | $ | 50.5 | | $ | 57.1 | | $ | 72.5 | | $ | 82.6 | | $ | 86.6 | |
| | | | | |
Troubled debt restructurings not included above (1) | $ | 3.2 | | $ | 5.5 | | $ | 5.6 | | $ | 12.6 | | $ | 22.3 | |
| | | | | |
Non-accrual loans to loans held for investment | 0.40 | % | 0.48 | % | 0.64 | % | 0.92 | % | 1.34 | % |
Non-performing assets to loans held for investment and OREO (2) | 0.51 | | 0.64 | | 0.86 | | 1.09 | | 1.60 | |
Non-performing assets to total assets (3) | 0.29 | | 0.39 | | 0.55 | | 0.68 | | 0.96 | |
Allowance for credit losses to non-performing loans (4) | 300.63 | | 150.21 | | 125.65 | | 99.40 | | 99.52 | |
(2)Including accruing troubled debt restructurings described in footnote 1, the ratio of Contents
non-performing assets to loans held for investment and OREO would be 0.55%, 0.70%, 0.92%, 1.26% and 2.01% as of December 31, 2020, 2019, 2018, 2017, and 2016, respectively.
(3)Including accruing troubled debt restructurings described in footnote 1, the ratio of non-performing assets to total assets would be 0.30%, 0.43%, 0.59%, 0.78% and 1.20% as of December 31, 2020, 2019, 2018, 2017, and 2016, respectively.
(4)Including accruing troubled debt restructurings described in footnote 1, the ratio of allowance for credit losses to non-performing loans would be 281.84%, 134.91%, 114.55%, 84.72% and 77.04% as of December 31, 2020, 2019, 2018, 2017, and 2016, respectively.
Non-performing loans. Non-performing loans include non-accrual loans and loans contractually past due 90 days or more and still accruing interest. Impaired loans include all loans risk rated doubtful, loans placed on non-accrual status and loans renegotiated in troubled debt restructurings, with the exception of consumer loans. We monitor and evaluate collateral values on impaired loans quarterly. Appraisals are required on all impaired loans every 18-24 months, or sooner as conditions necessitate. We update valuations on collateral underlying oil and gas credits based on recent market-based oil price forecasts provided by an independent third party. We also monitor real estate values by market for our larger market areas. Based on trends in real estate values, adjustments may be made to the appraised value based on time elapsed between the appraisal date and the impairment analysis or a new appraisal may be ordered. Appraised values in our smaller market areas may be adjusted based on trends identified through discussions with local realtors and appraisers. Appraisals are also adjusted for selling costs. The collateral valuation is compared to the loan balance and any resulting shortfall is recorded in the allowance for loan losses as a specific valuation allowance. Provisions for loan losses are impacted by changes in the specific valuation allowances and historical or general valuation elements of the allowance for loan losses.
Total non-performing loans decreased $14.4$0.6 million, or 19.9%1.2%, to $58.1$48.0 million as of December 31, 2018,2020, from $72.5$48.6 million as of December 31, 2017.2019. Non-accrual loans, the largest component of non-performing loans, decreased $15.1$3.4 million, or 21.8%7.9%, to $39.5 million as of December 31, 2020, from $42.9 million as of December 31, 2019.
Total non-performing loans decreased $9.5 million, or 16.4%, to $48.6 million as of December 31, 2019, from $58.1 million as of December 31, 2018. Non-accrual loans, the largest component of non-performing loans, decreased $11.4 million, or 21.0%, to $42.9 million as of December 31, 2019, from $54.3 million as of December 31, 2018, from $69.4 million as of December 31, 2017.2018. This decrease was primarily due to the movement of non-performing loans out of the portfolio through pay-downs, charge-offs, and the saleresolution of $9.3 million of construction andworkout strategies in the commercial real estate loans.loan portfolio.
Total non-performing loans increased $4.1 million, or 5.4%, to $72.5 million as of December 31, 2017, from $76.6 million as of December 31, 2016. Non-accrual loans decreased $3.3 million, or 4.6%, to $69.5 million as of December 31, 2017, from $72.8 million as of December 31, 2016. This decrease was primarily due to the movement of non-performing loans out of the portfolio through pay-downs, charge-offs and foreclosures.
The following table sets forth the allocation of our non-performing loans among our different types of loans as of the dates indicated.
Non-Performing Loans by Loan Type (Dollars in millions) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, |
| 2018 | Percent | | 2017 | Percent | | 2016 | Percent | | 2015 | Percent | | 2014 | Percent |
Real estate: | | | | | | | | | | | | | | |
Commercial | $ | 10.0 |
| 17.2 | % | | $ | 27.1 |
| 37.4 | % | | $ | 26.5 |
| 34.6 | % | | $ | 24.2 |
| 33.6 | % | | $ | 27.7 |
| 42.8 | % |
Construction: | |
|
| | |
|
| | |
|
| | |
|
| | |
|
|
Land acquisition and development | 3.9 |
| 6.7 |
| | 3.3 |
| 4.6 |
| | 5.3 |
| 6.9 |
| | 7.9 |
| 11.0 |
| | 8.2 |
| 12.7 |
|
Residential | 1.0 |
| 1.7 |
| | 1.7 |
| 2.3 |
| | 0.5 |
| 0.6 |
| | 0.3 |
| 0.4 |
| | 0.3 |
| 0.4 |
|
Commercial | 0.2 |
| 0.3 |
| | 3.8 |
| 5.2 |
| | 0.8 |
| 1.0 |
| | 1.0 |
| 1.3 |
| | 2.6 |
| 4.0 |
|
Total construction | 5.1 |
| 8.7 |
| | 8.8 |
| 12.1 |
| | 6.6 |
| 8.5 |
| | 9.2 |
| 12.7 |
| | 11.1 |
| 17.1 |
|
Residential | 6.8 |
| 11.8 |
| | 8.6 |
| 11.8 |
| | 7.1 |
| 9.3 |
| | 7.3 |
| 10.2 |
| | 4.6 |
| 7.0 |
|
Agricultural | 12.6 |
| 21.7 |
| | 3.6 |
| 5.0 |
| | 4.3 |
| 5.7 |
| | 5.3 |
| 7.4 |
| | 6.8 |
| 10.6 |
|
Total real estate | 34.5 |
| 59.4 |
| | 48.1 |
| 66.3 |
| | 44.5 |
| 58.1 |
| | 46.0 |
| 63.9 |
| | 50.2 |
| 77.5 |
|
Consumer | 3.5 |
| 6.0 |
| | 3.3 |
| 4.6 |
| | 2.9 |
| 3.8 |
| | 1.9 |
| 2.7 |
| | 1.3 |
| 2.0 |
|
Commercial | 17.1 |
| 29.4 |
| | 20.3 |
| 28.0 |
| | 26.2 |
| 34.2 |
| | 23.0 |
| 32.0 |
| | 12.8 |
| 19.8 |
|
Agricultural | 3.0 |
| 5.2 |
| | 0.8 |
| 1.1 |
| | 3.0 |
| 3.9 |
| | 0.7 |
| 1.0 |
| | 0.4 |
| 0.7 |
|
Other | — |
| — |
| | — |
| — |
| | — |
| — |
| | 0.3 |
| 0.4 |
| | — |
| — |
|
Total non-performing loans | $ | 58.1 |
| 100.0 | % | | $ | 72.5 |
| 100.0 | % | | $ | 76.6 |
| 100.0 | % | | $ | 71.9 |
| 100.0 | % | | $ | 64.7 |
| 100.0 | % |
Non-accrual loans. We generally place loans excluding acquired credit impaired loans, on non-accrual status when they become 90 days past due unless they are well secured and in the process of collection. When a loan is placed on non-accrual status, any interest previously accrued but not collected is reversed from income. If allNon-accrual loans on non-accrual status had been current in accordance with their original terms, gross interest income ofdecreased approximately $3.0 million, $3.5 million and $3.4 million, would have been accrued for the years endedto $39.5 million, as of December 31, 2018, 20172020, from $42.9 million as of December 31, 2019, primarily as a result of the execution and 2016, respectively.
workout strategies of non-performing loans. Accruing loans past due 90 days or more increased $2.8 million, or 49.1%, primarily due to an increase in commercial real estate and agricultural loan portfolios. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and when, in the opinion of management, the loans are estimated to be fully collectible as to both principal and interest. Loans returned to accrual status are no longer considered impaired.
For additional information regarding non-performing loans, see “Notes to Consolidated Financial Statements—Loans”Loans Held For Investment” included in financial statements included Part IV, Item 15 of this report.
OREO. OREO consists of real property acquired through foreclosure on the collateral underlying defaulted loans. We initially record OREO at fair value less estimated selling costs. Any excess of loan carrying value over the fair value of the real estate acquired is recorded as a charge against the allowance for loancredit losses. Estimated losses that result from the ongoing periodic valuation of these properties are charged to earnings in the period in which they are identified. The fair values of OREO properties are estimated using appraisals and management estimates of current market conditions. OREO properties are appraised every 18-24 months unless deterioration in local market conditions indicates the need to obtain new appraisals sooner. OREO properties are evaluated by management quarterly to determine if additional write-downs are appropriate or necessary based on current market conditions. Quarterly evaluations include a review of the most recent appraisal of the property and reviews of recent appraisals and comparable sales data for similar properties in the same or adjacent market areas. Commercial and agricultural OREO properties are listed with unrelated third party professional real estate agents or brokers local to the areas where the marketed properties are located. Residential properties are typically listed with local realtors, after any redemption period has expired. We rely on these local real estate agents and/or brokers to list the properties on the local multiple listing system, to provide marketing materials and advertisements for the properties, and to conduct open houses.
OREO increased $4.3decreased $6.0 million, or 42.6%70.6%, to $14.4$2.5 million as of December 31, 2018,2020, from $10.1$8.5 million as of December 31, 2017.2019. During 2018,2020, we recorded additions to OREO of $12.1$3.3 million, acquired $0.6 million in conjunction with the INB acquisition, wrote down the fair value of OREO properties by $0.1 million, and sold OREO with a book value of $8.3$9.2 million. As of December 31, 2018, 17.2%2020, 69.1% of our OREO balance was related to land and land development properties, 68.5% to commercial properties 13.9%and 30.9% to residential real estate properties and 0.4% to constructionland properties.
OREO remained constant at $10.1decreased $5.9 million, or 41.0%, to $8.5 million as of December 31, 20172019, from $14.4 million as compared toof December 31, 2016.2018. During 2017,2019, we recorded additions to OREO of $6.6$14.1 million, $1.2acquired $2.4 million of which was acquired in conjunction with the BOTCIIBK acquisition, wrote down the fair value of OREO properties by $0.4$0.9 million, and sold OREO with a book value of $6.1$21.8 million. As of December 31, 2017, 18.7%2019, 25.5% of our OREO balance was related to land and land development properties, 54.1%46.8% to commercial properties, 26.6%27.0% to residential real estate properties, and 0.6%0.7% to construction properties.
The following table sets forth the allocation of our non-performing loans among our different types of loans as of the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-Performing Loans by Loan Type (Dollars in millions) | As of December 31, |
2020 | Percent | | 2019 | Percent | | 2018 | Percent | | 2017 | Percent | | 2016 | Percent |
Real estate: | | | | | | | | | | | | | | |
Commercial | $ | 13.6 | | 28.3 | % | | $ | 13.6 | | 28.0 | % | | $ | 10.0 | | 17.2 | % | | $ | 27.1 | | 37.4 | % | | $ | 26.5 | | 34.6 | % |
Construction: | | | | | | | | | | | | | | |
Land acquisition and development | 0.8 | | 1.7 | | | 1.7 | | 3.5 | | | 3.9 | | 6.7 | | | 3.3 | | 4.6 | | | 5.3 | | 6.9 | |
Residential | 1.1 | | 2.3 | | | — | | — | | | 1.0 | | 1.7 | | | 1.7 | | 2.3 | | | 0.5 | | 0.6 | |
Commercial | 0.1 | | 0.2 | | | 0.5 | | 1.0 | | | 0.2 | | 0.3 | | | 3.8 | | 5.2 | | | 0.8 | | 1.0 | |
Total construction | 2.0 | | 4.2 | | | 2.2 | | 4.5 | | | 5.1 | | 8.7 | | | 8.8 | | 12.1 | | | 6.6 | | 8.5 | |
Residential | 5.1 | | 10.6 | | | 5.7 | | 11.7 | | | 6.8 | | 11.8 | | | 8.6 | | 11.8 | | | 7.1 | | 9.3 | |
Agricultural | 6.2 | | 12.9 | | | 5.2 | | 10.7 | | | 12.6 | | 21.7 | | | 3.6 | | 5.0 | | | 4.3 | | 5.7 | |
Total real estate | 26.9 | | 56.1 | | | 26.7 | | 54.9 | | | 34.5 | | 59.4 | | | 48.1 | | 66.3 | | | 44.5 | | 58.1 | |
Consumer | 3.6 | | 7.5 | | | 3.5 | | 7.3 | | | 3.5 | | 6.0 | | | 3.3 | | 4.6 | | | 2.9 | | 3.8 | |
Commercial | 13.0 | | 27.1 | | | 16.0 | | 32.9 | | | 17.1 | | 29.4 | | | 20.3 | | 28.0 | | | 26.2 | | 34.2 | |
Agricultural | 4.5 | | 9.4 | | | 2.4 | | 4.9 | | | 3.0 | | 5.2 | | | 0.8 | | 1.1 | | | 3.0 | | 3.9 | |
Other | — | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | — | |
Total non-performing loans | $ | 48.0 | | 100.0 | % | | $ | 48.6 | | 100.0 | % | | $ | 58.1 | | 100.0 | % | | $ | 72.5 | | 100.0 | % | | $ | 76.6 | | 100.0 | % |
Collateral-dependent loans. Collateral-dependent loans rely solely on the operation or sale of the collateral for repayment. In evaluating the overall risk associated with a loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of protection provided by the cash flow and value of any underlying collateral. The loan may become collateral-dependent where the borrower is experiencing financial difficulty and as sources of repayment become inadequate over time and that repayment is expected to be provided substantially through the operation or sale of the collateral.
Troubled Debt Restructurings. Modifications of performing loans are made in the ordinary course of business and are completed on a case-by-case basis as negotiated with the borrower. Loan modifications typically include interest rate concessions, interest-only periods, short-term payment deferrals, and extension of amortization periods to provide payment relief. A loan modification is considered a troubled debt restructuring if the borrower is experiencing financial difficulties and we, for economic or legal reasons, grant a concession to the borrower that we would not otherwise consider. Those modifications deemed to be troubled debt restructurings are monitored centrally to ensure proper classification as a troubled debt restructuring and if or when the loan may be placed on accrual status.
As of December 31, 2018,2020, we had loans renegotiated in troubled debt restructurings of $23.4$14.5 million, of which $17.8$11.3 million were reported as non-accrual loans in the non-performing asset and troubled debt restructurings and non-performing loan tables above. The remaining $5.6$3.2 million were on accrual status and are reported as troubled debt restructurings in the non-performing asset and troubled debt restructurings table above.
As of December 31, 2017,2019, we had loans renegotiated in troubled debt restructurings of $44.5$24.9 million, of which $31.9$19.4 million were reported as non-accrual loans in the non-performing asset and troubled debt restructurings and non-performing loan tables above. The remaining $12.6$5.5 million were on accrual status and are reported as troubled debt restructurings in the non-performing asset and troubled debt restructurings table above.
For additional information regarding loans modified in troubled debt restructurings, see “Notes to Consolidated Financial Statements—Loans”Loans Held For Investment” included in financial statements included Part IV, Item 15 of this report.
Allowance for LoanCredit Losses
The Company performs a quarterly assessment of the adequacy of its allowance for loancredit losses in accordance with GAAP.GAAP and as modified by the adoption of CECL. The allowance for credit losses for 2020 comparative periods utilized the incurred loss methodology under historical GAAP as described in our 2019 Form 10-K. The methodology used to assess the adequacy is consistently applied to the Company’s loanloans held for investment portfolio. The allowance for loancredit losses is established through a provision for loancredit losses based on our evaluation of knownquantitative and inherentqualitative risk factors in our loan portfolio at each balance sheet date. In determining the allowance for loancredit losses, we estimate losses on specific loans, or groups of loans, where the probableexpected loss can be identified and reasonably determined. The balance of the allowance for loancredit losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature or tenure of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current environmental and economic factors, and the estimated impact of current and forecasted economic conditions on certain historical loan loss rates. See the discussion under “Critical Accounting Estimates and Significant Accounting Policies — Allowance for LoanCredit Losses” above.
The allowance for loancredit losses is increased by provisions charged against earnings and net recoveries of charged-off loans and is reduced by negative provisions credited to earnings and net loan charge-offs. Loans, or portions thereof, are charged-off when management believes that the collectability of the principal is unlikely or, with respect to consumer installment and credit card loans, according to established delinquency schedules. The allowance for loancredit losses consists of three elements:
| |
(1) | Specific valuation allowances associated with impaired loans. Specific valuation allowances are determined based on assessment of the fair value of the collateral underlying the loans as determined through independent appraisals, the present value of future cash flows, observable market prices and any relevant qualitative or environmental factors impacting the loan. No specific valuation allowances are recorded for impaired loans that are adequately secured. |
| |
(2) | Historical valuation allowances based on loan loss experience for similar loans with similar characteristics and trends. Historical valuation allowances are determined by applying percentage loss factors to the credit exposures from outstanding loans. For commercial, agricultural and real estate loans, loss factors are applied based on the internal risk classifications of these loans. For consumer loans, loss factors are applied on a portfolio basis. For commercial, agriculture and real estate loans, loss factor percentages are based on a migration analysis of our historical loss experience, designed to account for credit deterioration. For consumer loans, loss factor percentages are based on a three-year loss history. |
| |
(3) | General valuation allowances determined based on changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, general economic conditions and other qualitative risk factors both internal and external to us.
|
(1)Specific valuation allowances associated with collateral-dependent loans. Specific valuation allowances are determined based on assessment of the fair value of the collateral underlying the loans as determined through independent appraisals, the present value of future cash flows, observable market prices, and any relevant qualitative or environmental factors impacting loans.
(2)Historical valuation allowances based on loan loss experience for similar loans with similar characteristics and trends. The Company applies probability of default and loss given default methodologies for all portfolio segments. The Company uses a transition matrix for probability of default components of the methodology and a historical average for the loss given default components of the methodology. The probability of default and loss given default is applied to the current principal balance as of the reporting date. The transition matrix determines the probability of default by tracking the historical movement of loans between loan risk tiers over a defined period of time. Loan transitions are measured by either internal ratings or delinquency status. Those loans tracked by ratings are generally commercial purpose including agricultural, commercial, and commercial real estate. Those loans tracked by delinquency are generally consumer in nature, with the exception of multi-family and credit cards. The loss given default used as the basis for the estimate of credit losses is comprised of the Company’s historical loss experiences from 2008 to the current period, based on a migration analysis of our historical loss experience, designed to account for credit deterioration. The model compares the most recent period losses to prior period defaults to calculate the loss given default, which is averaged over the historical observations.
(3)General valuation allowances determined based on changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, general economic conditions or forecasts, and other qualitative risk factors, both internal and external to us, including the incorporation of a one-year forecast period for economic conditions.
Based on the assessment of the adequacy of the allowance for loancredit losses, the Company records provisions for loancredit losses to maintain the allowance for loancredit losses at appropriate levels.
Loans acquired in business combinations are initially recorded at fair value with noas adjusted for credit risk and an allowance for loancredit losses onat the date of acquisition. Subsequent toFor loans with no significant evidence of credit deterioration since origination, the difference between the fair value and the unpaid principal balance of the loan at the acquisition date anis amortized into interest income using the effective interest method over the remaining period to contractual maturity. An allowance for loancredit loss is recorded for the emergencelife of new probable and estimableloan expected credit losses on loans acquired without evidence of credit impairment. Loansdeterioration. Subsequent changes to the allowance for credit losses are recorded through provision expense using the same methodology as other loans held for investment.
For loans acquired in business combinations with evidence of deterioration in credit impairment are regularly monitoredquality since origination, the Company determines the fair value of the loans by estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest. An allowance for credit losses is recognized by estimating the expected credit losses of the purchased asset and recording an adjustment to the extent thatacquisition date fair value to establish the performance has deteriorated frominitial amortized cost basis of the Company’s expectations atasset. Differences between the dateestablished amortized cost basis, and the unpaid principal balance of acquisition, anthe asset, is considered to be a non-credit discount/premium and is accreted/amortized into interest income using the level yield interest method. Subsequent changes to the allowance for loancredit losses is established. As of December 31, 2018 and 2017, management determined that an allowance of $0.8 million and $1.0 million, respectively, related toare recorded through provision expense using the same methodology as other loans acquired in prior year acquisitions with evidence of credit impairment was required under GAAP.held for investment.
Loans, or portions thereof, are charged-off against the allowance for loancredit losses when management believes that the collectability of the principal is unlikely, or, with respect to consumer installment loans, according to an established delinquency schedule. Generally, loans are charged-off when (1) there has been no material principal reduction within the previous 90 days and there is no pending sale of collateral or other assets, (2) there is no significant or pending event which will result in principal reduction within the upcoming 90 days, (3) it is clear that we will not be able to collect all or a portion of the loan, (4) payments on the loan are sporadic, will result in an excessive amortization, or are not consistent with the collateral held, or (5) foreclosure or repossession actions are pending. Loan charge-offs do not directly correspond with the receipt of independent appraisals or the use of observable market data if the collateral value is determined to be sufficient to repay the principal balance of the loan.
If the impaireda collateral-dependent loan is adequately collateralized, a specific valuation allowance is not recorded. As such, significant changes in impairedcollateral-dependent and non-performing loans do not necessarily correspond proportionally with changes in the specific valuation component of the allowance for loancredit losses. Additionally, the Company expects the timing of charge-offs will vary between quarters and will not necessarily correspond proportionally to changes in the allowance for loancredit losses or changes in non-performing or impairedcollateral dependent loans due to timing differences among the initial identification of an impaireda collateral-dependent loan, recording of a specific valuation allowance for the impaired loancollateral-dependent loans, and any resulting charge-off of uncollectible principal.
During 2018, we recorded provisions for loan losses
During 2017, we recorded provisions for loan losses of $11.0 million, as compared to $10.0 million in 2016. Increases in provisions for loan losses during 2017, as compared to 2016, are reflective of higher levels of net loan charge-offs.
The following table sets forth information regarding our allowance for loancredit losses as of the dates and for the periods indicated.
Allowance for Credit Losses
(Dollars in millions)
| | | | | | | | | | | | | | | | | |
As of and for the year ended December 31, | 2020 | 2019 | 2018 | 2017 | 2016 |
Allowance for credit losses on loans: (1) | | | | | |
Beginning balance | $ | 73.0 | | $ | 73.0 | | $ | 72.1 | | $ | 76.2 | | $ | 76.8 | |
Initial impact of adopting ASC 326 | 30.0 | | — | | — | | — | | — | |
Provision charged to operating expense (2) | 55.5 | | 13.9 | | 8.6 | | 11.0 | | 10.0 | |
Charge-offs: | | | | | |
Real estate | | | | | |
Commercial | 0.4 | | 0.2 | | 1.9 | | 2.3 | | 3.5 | |
Construction | 0.5 | | 2.0 | | 0.7 | | 0.8 | | 0.7 | |
Residential | — | | 1.3 | | 1.1 | | 1.2 | | 1.0 | |
| | | | | |
Consumer | 10.8 | | 13.0 | | 11.3 | | 11.3 | | 8.6 | |
Commercial | 9.1 | | 6.6 | | 4.7 | | 6.8 | | 5.8 | |
Agricultural | 0.1 | | 0.5 | | — | | 0.4 | | 0.2 | |
Total charge-offs | 20.9 | | 23.6 | | 19.7 | | 22.8 | | 19.8 | |
Recoveries: | | | | | |
Real estate | | | | | |
Commercial | 0.3 | | 0.5 | | 1.9 | | 0.9 | | 0.5 | |
Construction | 0.4 | | 1.3 | | 0.9 | | 0.2 | | 1.8 | |
Residential | 0.4 | | 0.9 | | 0.9 | | 0.3 | | 0.3 | |
Agricultural | — | | — | | — | | — | | 0.6 | |
Consumer | 3.9 | | 3.6 | | 4.5 | | 4.2 | | 2.8 | |
Commercial | 1.7 | | 3.4 | | 3.6 | | 2.1 | | 3.2 | |
Agricultural | — | | — | | 0.2 | | — | | — | |
Total recoveries | 6.7 | | 9.7 | | 12.0 | | 7.7 | | 9.2 | |
Net charge-offs | 14.2 | | 13.9 | | 7.7 | | 15.1 | | 10.6 | |
Ending balance | $ | 144.3 | | $ | 73.0 | | $ | 73.0 | | $ | 72.1 | | $ | 76.2 | |
| | | | | |
Allowance for off-balance sheet credit losses: | | | | | |
Beginning balance | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
Initial impact of adopting ASC 326 | 2.3 | | — | | — | | — | | — | |
Provision for off-balance sheet credit losses | 1.4 | | — | | — | | — | | — | |
Ending balance | $ | 3.7 | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | |
Total allowance for credit losses | $ | 148.0 | | $ | 73.0 | | $ | 73.0 | | $ | 72.1 | | $ | 76.2 | |
Total provision for credit losses | 56.9 | | 13.9 | | 8.6 | | 11.0 | | 10.0 | |
Loans held for investment | 9,807.5 | | 8,930.7 | | 8,470.4 | | 7,567.7 | | 5,416.7 | |
Average loans | 9,825.0 | | 8,879.1 | | 7,985.0 | | 6,675.4 | | 5,378.3 | |
Net charge-offs to average loans | 0.14 | % | 0.16 | % | 0.10 | % | 0.23 | % | 0.20 | % |
Allowance to non-accrual loans | 365.32 | | 170.16 | | 134.44 | | 103.89 | | 104.67 | |
Allowance to loans held for investment | 1.47 | | 0.82 | | 0.86 | | 0.95 | | 1.41 | |
| | | | | |
(1) Allowance for credit losses on loans (ACLL) for the 2020 periods; allowance for loan losses (ALLL) for the 2019 periods. |
(2) Provision for credit losses on loans for the 2020 periods; provision for loan losses for the 2019 periods. |
Allowance for Loan Losses (Dollars in millions) |
| | | | | | | | | | | | | | | |
As of and for the year ended December 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Balance at the beginning of period | $ | 72.1 |
| $ | 76.2 |
| $ | 76.8 |
| $ | 74.2 |
| $ | 85.3 |
|
Charge-offs: | | | | | |
Real estate | | | | | |
Commercial | 1.9 |
| 2.3 |
| 3.5 |
| 0.3 |
| 2.0 |
|
Construction | 0.7 |
| 0.8 |
| 0.7 |
| 2.4 |
| 0.3 |
|
Residential | 1.1 |
| 1.2 |
| 1.0 |
| 0.7 |
| 0.7 |
|
Agricultural | — |
| — |
| — |
| 0.7 |
| — |
|
Consumer | 11.3 |
| 11.3 |
| 8.6 |
| 5.6 |
| 4.9 |
|
Commercial | 4.7 |
| 6.8 |
| 5.8 |
| 1.7 |
| 6.0 |
|
Agricultural | — |
| 0.4 |
| 0.2 |
| 0.2 |
| 0.1 |
|
Total charge-offs | 19.7 |
| 22.8 |
| 19.8 |
| 11.6 |
| 14.0 |
|
Recoveries: | | | | | |
Real estate | | | | | |
Commercial | 1.9 |
| 0.9 |
| 0.5 |
| 1.8 |
| 1.0 |
|
Construction | 0.9 |
| 0.2 |
| 1.8 |
| 0.9 |
| 2.0 |
|
Residential | 0.9 |
| 0.3 |
| 0.3 |
| 0.4 |
| 0.4 |
|
Agricultural | — |
| — |
| 0.6 |
| — |
| — |
|
Consumer | 4.5 |
| 4.2 |
| 2.8 |
| 2.6 |
| 2.3 |
|
Commercial | 3.6 |
| 2.1 |
| 3.2 |
| 1.7 |
| 3.8 |
|
Agricultural | 0.2 |
| — |
| — |
| — |
| — |
|
Total recoveries | 12.0 |
| 7.7 |
| 9.2 |
| 7.4 |
| 9.5 |
|
Net charge-offs | 7.7 |
| 15.1 |
| 10.6 |
| 4.2 |
| 4.5 |
|
Provision for loan losses | 8.6 |
| 11.0 |
| 10.0 |
| 6.8 |
| (6.6 | ) |
Balance at end of period | $ | 73.0 |
| $ | 72.1 |
| $ | 76.2 |
| $ | 76.8 |
| $ | 74.2 |
|
Period end loans | $ | 8,503.7 |
| $ | 7,614.3 |
| $ | 5,478.5 |
| $ | 5,246.2 |
| $ | 4,897.4 |
|
Average loans | 7,985.0 |
| 6,675.4 |
| 5,378.3 |
| 5,056.8 |
| 4,602.9 |
|
Net charge-offs to average loans | 0.10 | % | 0.23 | % | 0.20 | % | 0.08 | % | 0.10 | % |
Allowance to period-end loans | 0.86 |
| 0.95 |
| 1.39 |
| 1.46 |
| 1.52 |
|
TheOur allowance for loancredit losses on loans was $73.0$144.3 million, or 0.86%1.47% of period-end loans at December 31, 2018, compared to $72.1 million, or 0.95% of period-end loans, at December 31, 2017, and $76.2 million, or 1.39% of period-end loans, at December 31, 2017. The decrease in the allowanceheld for loan losses as a percentage of totalinvestment, including PPP loans, as of December 31, 2018,2020, as compared to $73.0 million, or 0.82% of loans held for investment, as of December 31, 2017 and2019. The increase in the percentage from December 31, 2016,2019 is primarily due to the additiona result of acquired loans which are initially recorded at fair value with no carryoveradoption of the relatedCECL standard and changes in the Company’s internal economic forecast in response to COVID-19 and uncertainty regarding the benefits of government stimulus enacted in response to COVID-19. The allowance for credit losses represents management’s estimate of expected credit losses in the loan losses.portfolio expected over the life of the loan, including the incorporation of a one-year forecast period for economic conditions.
During second quarter 2016, we performed an in-depth review of qualitative factors used in determining the appropriate level ofWhile the allowance for credit losses on loans of 1.47% include the PPP loan balances, the allowance for credit losses to better reflect our loss experience. The review resulted in reductions in general reserves allocated to commercial real estate and construction loans. Decreases in general reserves were more than offset by increases in specific reservesdoes not include a reserve on commercial real estatethe 100% Small Business Administration guaranteed PPP loans. The adjustment of qualitative factors combined with management’s assessment ofallowance for credit losses on specific loans with identified weaknesses did not result in a material impact to the overall level of our allowance for loan losses.
As of December 31, 2018, our direct exposure to the energy sector was approximately $78.2 million in loan commitments, including approximately $61.8 million outstanding loans related to drilling and extraction activity, of which, approximately $28.6 million in loans are advanced to service companies. We also had commitments to lend an additional $16.4 million to energy borrowers. Reserves allocated to energy loans as a percentage of total energyperiod-end loans totaled 8.2% as ofheld for investment would have been 12 basis points higher had the PPP loan balances been excluded at December 31, 2018, compared to 8.8% as of December 31, 2017. The decrease in reserves allocated to energy loans was primarily due to the charge-off of specific reserves related to one borrower.
2020.
Although we have established our allowance for loancredit losses in accordance with GAAP in the United States and we believe that the allowance for loancredit losses is adequate to provide for known and inherent losses in the portfolio at all times, future provisions will be subject to on-going evaluations of the risks in the loan portfolio. If the economy declines or asset quality deteriorates, material additional provisions could be required.
The allowance for loancredit losses is allocated to loan categories based on the relative risk characteristics, asset classifications, and actual loss experienceexpected losses of the loan portfolio. The following table provides a summary of the allocation of the allowance for loancredit losses for specific loan categories as of the dates indicated. The allocations presented should not be interpreted as an indication that charges to the allowance for loancredit losses will be incurred in these amounts or proportions, or that the portion of the allowance allocated to each loan category represents the total amount available for future losses that may occur within these categories. The unallocated portion
Allocation of the allowanceAllowance for loan losses and the total allowance are applicable to the entire loan portfolio.Credit Losses
Allocation of the Allowance for Loan Losses (Dollars in thousands) | |
| As of December 31, | 2018 | 2017 | 2016 | 2015 | 2014 | As of December 31, | 2020 | 2019 | 2018 | 2017 | 2016 |
| Allocated Reserves | % of Loan Category to Total Loans | Allocated Reserves | % of Loan Category to Total Loans | Allocated Reserves | % of Loan Category to Total Loans | Allocated Reserves | % of Loan Category to Total Loans | Allocated Reserves | % of Loan Category to Total Loans | | Allocated Reserves | % of Loan Category to Loans | Allocated Reserves | % of Loan Category to Loans | Allocated Reserves | % of Loan Category to Loans | Allocated Reserves | % of Loan Category to Loans | Allocated Reserves | % of Loan Category to Loans |
Real estate | $ | 31.0 |
| 68.6 | % | $ | 31.7 |
| 68.0 | % | $ | 28.6 |
| 64.2 | % | $ | 52.3 |
| 65.1 | % | $ | 53.9 |
| 65.9 | % | Real estate | $ | 80.5 | | 65.1 | % | $ | 28.9 | | 66.5 | % | $ | 31.0 | | 66.0 | % | $ | 31.7 | | 65.3 | % | $ | 28.6 | | 60.4 | % |
Consumer | 8.7 |
| 12.6 |
| 8.7 |
| 13.6 |
| 7.7 |
| 17.7 |
| 5.1 |
| 16.1 |
| 5.0 |
| 15.6 |
| Consumer | 23.9 | | 10.4 | | 9.9 | | 11.7 | | 8.7 | | 12.6 | | 8.7 | | 13.7 | | 7.7 | | 17.9 | |
Commercial | 31.3 |
| 15.4 |
| 30.5 |
| 16.0 |
| 38.1 |
| 14.6 |
| 18.8 |
| 15.1 |
| 14.3 |
| 15.2 |
| Commercial | 39.2 | | 22.0 | | 32.6 | | 18.7 | | 31.3 | | 18.4 | | 30.5 | | 19.2 | | 38.1 | | 19.2 | |
Agricultural | 2.0 |
| 3.0 |
| 1.2 |
| 1.8 |
| 1.8 |
| 2.4 |
| 0.6 |
| 2.7 |
| 1.0 |
| 2.5 |
| Agricultural | 0.7 | | 2.5 | | 1.6 | | 3.1 | | 2.0 | | 3.0 | | 1.2 | | 1.8 | | 1.8 | | 2.5 | |
Mortgage loans held for sale | — |
| 0.4 |
| — |
| 0.6 |
| — |
| 1.1 |
| — |
| 1.0 |
| — |
| 0.8 |
| |
Other loans | | Other loans | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
Unallocated | — |
| N/A |
| — |
| N/A |
| — |
| N/A |
| — |
| N/A |
| — |
| N/A |
| Unallocated | — | | N/A | — | | N/A | — | | N/A | — | | N/A | — | | N/A |
Totals | $ | 73.0 |
| 100.0 | % | $ | 72.1 |
| 100.0 | % | $ | 76.2 |
| 100.0 | % | $ | 76.8 |
| 100.0 | % | $ | 74.2 |
| 100.0 | % | Totals | $ | 144.3 | | 100.0 | % | 73.0 | 100.0 | % | $ | 73.0 | | 100.0 | % | $ | 72.1 | | 100.0 | % | $ | 76.2 | | 100.0 | % |
The allowance for loancredit losses allocated to real estate loans decreased 2.2%increased 178.5%, to $31.0$80.5 million, as of December 31, 2018,2020, from $31.7$28.9 million as of December 31, 2017,2019, primarily due to lower levelsthe adoption of specific reservesCECL and lower loss ratesthe expected losses over the life of the loans in the real estate portfolio. The allowance for loancredit losses allocated to real estate loans increased 10.5%decreased 6.8% to $31.6$28.9 million as of December 31, 2017,2019, from $28.6$31.0 million as of December 31, 2016,2018, primarily due to lower loss rates offset by higher levels of specific reserves and higher loss rates in the real estate portfolio.
The allowance for credit losses allocated to consumer loans increased 141.4%, to $23.9 million, as of December 31, 2020, from $9.9 million as of December 31, 2019, primarily due to the adoption of CECL and the expected losses over the life of the loans in the consumer portfolio. The allowance for credit losses allocated to consumer loans increased 13.8% to $9.9 million as of December 31, 2019, from $8.7 million as of December 31, 2018, primarily due to higher loss rates within consumer portfolio.
The allowance for loan losses allocated to commercial loans increased 2.6%20.3% to $31.3$39.2 million as of December 31, 2018,2020, from $30.5$32.6 million as of December 31, 2017,2019, primarily due to higher loss rates offset by lower levels of specific reserves and higher loss rates within the commercial portfolio. The allowance for loan losses allocated to commercial loans decreased 19.7%increased 4.2% to $30.6$32.6 million as of December 31, 2017,2019, from $38.1$31.3 million as of December 31, 2016,2018, primarily due to higher loss rates offset by lower levels of specific reserves and lower rates within the commercial portfolio.
Investment Securities
We manage our investment portfolio to obtain the highest yield possible while meeting our risk tolerance and liquidity guidelines and satisfying the pledging requirements for deposits of state and political subdivisions and securities sold under repurchase agreements. Our portfolio principally comprises U.S. government agency residential mortgage-backed securities and collateralized mortgage obligations, U.S. government agency securities, and tax exempttax-exempt securities. Federal funds sold and interest bearinginterest-bearing deposits in bank are additional investments that are classified as cash equivalents rather than as investment securities. Investment securities classified as available-for-sale are recorded at fair value, while investment securities classified as held-to-maturity are recorded at amortized cost. Unrealized gains or losses, net of the deferred tax effect, on available-for-sale securities are reported as increases or decreases in accumulated other comprehensive income or loss, a component of stockholders’ equity.
Investment securities decreased $15.7increased $1,008.0 million, or 0.6%33.0%, to $4,060.3 million as of December 31, 2020, from $3,052.3 million as of December 31, 2019. The increase is primarily due to the investment of funds generated through deposit growth. Investment securities increased $374.8 million, or 14.0%, to $3,052.3 million as of December 31, 2019, from $2,677.5 million as of December 31, 2018, from $2,693.2 million as of December 31, 2017. The decrease is due to normal fluctuations in our investment portfolio. Investment securities increased $568.7 million, or 26.8%, to $2,693.2 million as of December 31, 2017, from $2,124.5 million as of December 31, 2016.2018. Approximately $481.6$78.7 million of this increase was attributable to the acquisitionacquisitions of BOTCIIBK and CMYF in May 2017April 2019 with the remaining increase due to normal fluctuations in ourthe investment portfolio.
The following table sets forth the book value, percentage of total investment securities and weighted average yields on investment securities as of December 31, 2018. Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%.
Securities Maturities and Yield (Dollars in millions) |
| | | | | | | |
| Book Value | % of Total Investment Securities | Weighted Average FTE Yield |
U.S. Treasuries | | | |
Maturing within one year | $ | 2.6 |
| 0.10 | % | 3.79 | % |
Mark-to-market adjustments on securities available-for-sale | — |
| — |
| NA |
|
Total | 2.6 |
| 0.10 |
| 3.79 |
|
U.S. Government agency securities | | | |
Maturing within one year | 107.7 |
| 4.02 |
| 1.53 |
|
Maturing in one to five years | 430.1 |
| 16.06 |
| 4.15 |
|
Maturing in five to ten years | 51.3 |
| 1.92 |
| 2.77 |
|
Mark-to-market adjustments on securities available-for-sale | (10.1 | ) | (0.38 | ) | NA |
|
Total | 579.0 |
| 21.62 |
| 3.61 |
|
Mortgage-backed securities | | | |
Maturing within one year | 361.8 |
| 13.51 |
| 2.61 |
|
Maturing in one to five years | 1,172.2 |
| 43.78 |
| 1.78 |
|
Maturing in five to ten years | 120.6 |
| 4.50 |
| 3.02 |
|
Maturing after ten years | 173.6 |
| 6.48 |
| 3.19 |
|
Mark-to-market adjustments on securities available-for-sale | (23.4 | ) | (0.87 | ) | NA |
|
Total | 1,804.8 |
| 67.40 |
| 2.22 |
|
Marketable CDs | | | |
Maturing within one year | 1.2 |
| 0.05 |
| 2.06 |
|
Maturing in one to five years | 0.7 |
| 0.03 |
| 2.17 |
|
Mark-to-market adjustments on securities available-for-sale | — |
| — |
| NA |
|
Total | 1.9 |
| 0.08 |
| 2.11 |
|
Tax exempt securities | | | |
Maturing within one year | 11.9 |
| 0.45 |
| 2.55 |
|
Maturing in one to five years | 61.2 |
| 2.29 |
| 3.13 |
|
Maturing in five to ten years | 71.0 |
| 2.65 |
| 3.86 |
|
Maturing after ten years | 6.8 |
| 0.25 |
| 4.89 |
|
Mark-to-market adjustments on securities available-for-sale | — |
| — |
| NA |
|
Total | 150.9 |
| 5.64 |
| 3.51 |
|
Corporate securities | | | |
Maturing within one year | 56.7 |
| 2.12 |
| 1.81 |
|
Maturing in one to five years | 76.5 |
| 2.86 |
| 2.32 |
|
Maturing after ten years | 6.0 |
| 0.22 |
| 5.75 |
|
Mark-to-market adjustments on securities available-for-sale | (1.0 | ) | (0.04 | ) | NA |
|
Total | 138.2 |
| 5.16 |
| 2.28 |
|
Other securities | | | |
Maturing in five to ten years | 0.1 |
| — |
| 7.66 |
|
Mark-to-market adjustments on securities available-for-sale | — |
| — |
| NA |
|
Total | 0.1 |
| — |
| 7.66 |
|
Total | $ | 2,677.5 |
| 100.00 | % | 2.21 | % |
Maturities of securities noted above reflect $64.7 million of investment securities at their final maturities which have call provisions within the next year. Based on current market interest rates, management expects approximately $2.0 million of these securities will be called in 2019.
funds generated through deposit growth.
As of December 31, 2018,2020, the estimated duration of our investment portfolio was 2.53.3 years, as compared to 2.72.4 years as of December 31, 2017.2019. The weighted average yield on investment securities increased 24decreased 37 basis points to 2.21%2.02% in 2018,2020, from 1.97%2.39% in 2017,2019, and increased 1718 basis points to 1.97%2.39% in 2017,2019, from 1.80%2.21% in 2016.
2018.
As of December 31, 2018,2020, investment securities with amortized costs and fair values of $1,943.1$2,323.0 million and $1,908.4$2,383.6 million, respectively, were pledged to secure public deposits and securities sold under repurchase agreements, as compared to $2,087.7$2,132.0 million and $2,062.6$2,144.9 million, respectively, as of December 31, 2017.2019. For additional information concerning securities sold under repurchase agreements, see “—Securities Sold Under Repurchase Agreements” included herein.
Mortgage-backed securities and, to a limited extent other securities, have uncertain cash flow characteristics that present additional interest rate risk in the form of prepayment or extension risk primarily caused by changes in market interest rates. This additional risk is generally rewarded in the form of higher yields. Maturities of mortgage-backed securities presented abovebelow have been adjusted to reflect shorter maturities based upon estimated prepayments of principal. As of December 31, 2018,2020, the carrying value of our investments in non-agency mortgage-backed securities totaled $72.0$10.9 million. All other mortgage-backed securities included in the table abovebelow were issued by U.S. government agencies and corporations. As of December 31, 2018,2020, there were no significant concentrations of investments (greater than 10% of stockholders’ equity) in any individual security issuer, except for U.S. government or agency-backed securities.
Approximately 76.5%82.8% and 77.4%80.1% of our tax-exempt securities were general obligation securities as of December 31, 20182020 and 2017,2019, respectively, of which 57.8%67.4% and 81.0%61.0%, respectively, were issued by political subdivisions or agencies within the states of Idaho, Montana, Oregon, South Dakota, Washington, and Wyoming.
We evaluate our investment portfolio quarterly for other-than-temporary declines in the market value of individual investment securities. This evaluation includes monitoring credit ratings; market, industry and corporate news; volatility in market prices; and, determining whether the market value of a security has been below its cost for an extended period of time. As of December 31, 2018,2020, we had available-for-sale investment securities with fair values aggregating $995.9$16.6 million that had been in a continuous loss position more than twelve12 months. Gross unrealized losses on these securities totaled $20.0$0.2 million as of December 31, 2018,2020, and were primarily attributable to changes in interest rates. NoAs the Company does not have the intent to sell any of the available-for-sale securities and it is more likely than not that the Company will not have to sell any securities before a recovery in cost, no impairment or credit losses were recorded during 2018, 20172020, 2019, or 2016.2018.
The following table sets forth the carrying value as of December 31, 2020 and 2019, and the percentage of total investment securities and weighted average yields on investment securities as of December 31, 2020. Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%.
| | | | | | | | | | | | | | | | | |
| 2019 | | 2020 |
Securities Maturities and Yield (Dollars in millions) | Carrying Value | | Carrying Value | % of Total Investment Securities | Weighted Average FTE Yield |
U.S. Treasuries | | | | | |
Maturing within one year | $ | 9.0 | | | $ | — | | — | % | — | % |
| | | | | |
| | | | | |
Mark-to-market adjustments on securities available-for-sale | — | | | — | | — | | NA |
Total | 9.0 | | | — | | — | | — | |
U.S. government agency securities | | | | | |
Maturing within one year | 120.4 | | | 1.5 | | 0.04 | | 1.56 | |
Maturing in one to five years | 130.7 | | | 1.1 | | 0.03 | | 5.17 | |
Maturing in five to ten years | 136.2 | | | 330.3 | | 8.13 | | 1.42 | |
Mark-to-market adjustments on securities available-for-sale | (0.7) | | | (1.0) | | (0.03) | | NA |
Total | 386.6 | | | 331.9 | | 8.17 | | 1.44 | |
Mortgage-backed securities | | | | | |
Maturing within one year | 543.5 | | | 657.1 | | 16.18 | | 2.59 | |
Maturing in one to five years | 1,246.2 | | | 1,505.8 | | 37.09 | | 1.09 | |
Maturing in five to ten years | 116.8 | | | 141.1 | | 3.48 | | 2.44 | |
Maturing after ten years | 445.9 | | | 538.7 | | 13.27 | | 2.05 | |
Mark-to-market adjustments on securities available-for-sale | 13.2 | | | 66.8 | | 1.65 | | NA |
Total | 2,365.6 | | | 2,909.5 | | 71.67 | | 1.90 | |
Marketable CDs | | | | | |
Maturing within one year | 2.9 | | | 0.2 | | — | | 2.50 | |
Maturing in one to five years | 0.3 | | | — | | — | | — | |
| | | | | |
| | | | | |
Mark-to-market adjustments on securities available-for-sale | — | | | — | | — | | NA |
Total | 3.2 | | | 0.2 | | — | | 2.50 | |
Tax exempt securities | | | | | |
Maturing within one year | 13.9 | | | 12.9 | | 0.32 | | 3.01 | |
Maturing in one to five years | 60.4 | | | 52.0 | | 1.28 | | 3.34 | |
Maturing in five to ten years | 52.3 | | | 59.8 | | 1.47 | | 3.03 | |
Maturing after ten years | 10.8 | | | 384.0 | | 9.46 | | 2.76 | |
Mark-to-market adjustments on securities available-for-sale | 0.8 | | | 3.8 | | 0.09 | | NA |
Total | 138.2 | | | 512.5 | | 12.62 | | 2.82 | |
Corporate securities | | | | | |
Maturing within one year | 26.2 | | | 24.0 | | 0.59 | | 2.44 | |
Maturing in one to five years | 78.2 | | | 56.6 | | 1.39 | | 2.55 | |
Maturing in five to ten years | 44.0 | | | 219.1 | | 5.40 | | 2.82 | |
| | | | | |
Mark-to-market adjustments on securities available-for-sale | 1.2 | | | 6.4 | | 0.16 | | NA |
Total | 149.6 | | | 306.1 | | 7.54 | | 2.68 | |
Other securities | | | | | |
| | | | | |
Maturing in one to five years | 0.1 | | | 0.1 | | — | | 7.72 | |
| | | | | |
Mark-to-market adjustments on securities available-for-sale | — | | | — | | — | | NA |
Total | 0.1 | | | 0.1 | | — | | 7.72 | |
Total | $ | 3,052.3 | | | $ | 4,060.3 | | 100.00 | % | 2.02 | % |
Maturities of the 2020 securities noted above reflect $282.4 million of investment securities at their final maturities, which have call provisions within the next year. Based on current market interest rates, management expects approximately $81.5 million of these securities will be called in 2021.
For additional information concerning investment securities, see “Notes to Consolidated Financial Statements — Investment Securities” included in Part IV, Item 15.
Goodwill and Intangibles
Goodwill was $621.6 million as of December 31, 2020 and 2019. Goodwill increased $102.0$74.9 million, or 22.94%13.7%, to $621.6 million as of December 31, 2019, from $546.7 million as of December 31, 2018, from $444.7 million as of December 31, 2017, attributable to the provisional goodwill recorded in conjunction with the acquisitionacquisitions of INBIIBK and theCMYF and finalization of provisional amounts related to prior acquisitions. Goodwill increased $231.9 million, or 109.0%, to $444.7 million as of December 31, 2017, from $212.8 million as of December 31, 2016, attributable to the goodwill recorded in conjunction with the acquisition of BOTC.INB.
Core deposit intangibles represent the intangible value of depositor relationships resulting from deposit liabilities assumed and are amortized based on the estimated useful lives of the related deposits. Core deposit intangibles, net of accumulated amortization, increased $7.8decreased $10.9 million, or 15.9%17.6%, to $51.2 million as of December 31, 2020, from $62.1 million as of December 31, 2019, due to scheduled amortization expense. Core deposit intangibles, net of accumulated amortization increased $5.2 million, or 9.1%, to $62.1 million as of December 31, 2019, from $56.9 million as of December 31, 2018, from $49.1 million as of December 31, 2017, attributable to the core deposit intangibles recorded in conjunction with the acquisitionacquisitions of INB. Core deposit intangibles, net of accumulated amortization increased $39.5 million, or 411.5%, to $49.1 million as December 31, 2017, from $9.6 million as of December 31, 2016, attributable to the core deposit intangibles recorded in conjunction with the acquisition of BOTC.IIBK and CMYF. We acquired core deposit intangibles of $16.6 million in conjunction with our acquisitions of IIBK and CMYF in April 2019 and $15.7 million in conjunction with our acquisition of INB in August 2018, $48.0 million in conjunction with our acquisition of BOTC in May 2017, and $2.5 million in conjunction with our acquisition of Flathead in August 2016.
Deposits
We emphasize developing relationships with our customersclients in order to increase our core deposit base, which is our primary funding source. Our deposits consist of non-interest bearing and interest bearinginterest-bearing demand, savings, individual retirement, and time deposit accounts.
The following table summarizes our deposits as of the dates indicated:
Deposits (Dollars in millions) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, | 2018 | Percent | 2017 | Percent | 2016 | Percent | 2015 | Percent | 2014 | Percent |
Non-interest bearing demand | $ | 3,158.3 |
| 29.6 | % | $ | 2,900.0 |
| 29.2 | % | $ | 1,906.3 |
| 25.8 | % | $ | 1,823.7 |
| 25.6 | % | $ | 1,791.4 |
| 25.6 | % |
Interest bearing: | | | | | | | | | | |
Demand | 2,957.5 |
| 27.7 |
| 2,787.5 |
| 28.1 |
| 2,276.5 |
| 30.9 |
| 2,178.4 |
| 30.8 |
| 2,133.3 |
| 30.4 |
|
Savings | 3,247.9 |
| 30.4 |
| 3,095.4 |
| 31.2 |
| 2,141.8 |
| 29.0 |
| 1,955.2 |
| 27.6 |
| 1,843.4 |
| 26.3 |
|
Time, $100 or more | 547.6 |
| 5.1 |
| 432.0 |
| 4.3 |
| 461.4 |
| 6.3 |
| 487.4 |
| 6.9 |
| 520.1 |
| 7.4 |
|
Time, other | 769.4 |
| 7.2 |
| 720.0 |
| 7.2 |
| 590.1 |
| 8.0 |
| 644.2 |
| 9.1 |
| 718.1 |
| 10.3 |
|
Total interest bearing | 7,522.4 |
| 70.4 |
| 7,034.9 |
| 70.8 |
| 5,469.8 |
| 74.2 |
| 5,265.2 |
| 74.4 |
| 5,214.9 |
| 74.4 |
|
Total deposits | $ | 10,680.7 |
| 100.0 | % | $ | 9,934.9 |
| 100.0 | % | $ | 7,376.1 |
| 100.0 | % | $ | 7,088.9 |
| 100.0 | % | $ | 7,006.3 |
| 100.0 | % |
(Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, | 2020 | Percent | 2019 | Percent | 2018 | Percent | 2017 | Percent | 2016 | Percent |
Non-interest bearing demand | $ | 4,633.5 | | 32.6 | % | $ | 3,426.5 | | 29.4 | % | $ | 3,158.3 | | 29.6 | % | $ | 2,900.0 | | 29.2 | % | $ | 1,906.3 | | 25.8 | % |
Interest bearing: | | | | | | | | | | |
Demand | 4,118.9 | | 29.0 | | 3,195.4 | | 27.4 | | 2,957.5 | | 27.7 | | 2,787.5 | | 28.1 | | 2,276.5 | | 30.9 | |
Savings | 4,405.9 | | 31.0 | | 3,591.6 | | 30.8 | | 3,247.9 | | 30.4 | | 3,095.4 | | 31.2 | | 2,141.8 | | 29.0 | |
Time, $100 or more | 419.3 | | 2.9 | | 651.1 | | 5.6 | | 547.6 | | 5.1 | | 432.0 | | 4.3 | | 461.4 | | 6.3 | |
Time, other | 639.4 | | 4.5 | | 798.9 | | 6.8 | | 769.4 | | 7.2 | | 720.0 | | 7.2 | | 590.1 | | 8.0 | |
Total interest bearing | 9,583.5 | | 67.4 | | 8,237.0 | | 70.6 | | 7,522.4 | | 70.4 | | 7,034.9 | | 70.8 | | 5,469.8 | | 74.2 | |
Total deposits | $ | 14,217.0 | | 100.0 | % | $ | 11,663.5 | | 100.0 | % | $ | 10,680.7 | | 100.0 | % | $ | 9,934.9 | | 100.0 | % | $ | 7,376.1 | | 100.0 | % |
Total deposits increased $745.8$2,553.5 million, or 7.51%21.9%, to $14,217.0 million as of December 31, 2020, from $11,663.5 million as of December 31, 2019, primarily related to an increase of $1,207.0 million in non-interest-bearing business deposits and an increase in interest bearing demand and savings deposits. These increases were partially offset by decreases in interest bearing time deposits. During 2020, the mix of deposits shifted slightly from higher-costing time deposits to lower-costing savings and demand deposits. Deposit mix fluctuations and deposit growth were driven by lower interest rates paid on deposits as a result of a drop in the federal funds rate and a change in client behavior related to the COVID-19 and economic stimulus provided by the U.S. government. Total deposits increased $982.8 million, or 9.2%, to $11,663.5 million as of December 31, 2019, from $10,680.7 million as of December 31, 2018, from $9,934.9 million as of December 31, 2017, with approximately $696.3$706.7 million of the increase attributable to the INB acquisitionIIBK and CMYF acquisitions in August 2018. TotalApril 2019.
Non-interest-bearing demand deposits. Non-interest-bearing demand deposits increased $2,558.8$1,207.0 million, or 34.7%35.2%, to $9,934.9$4,633.5 million as of December 31, 2017,2020, from $7,376.1$3,426.5 million as of December 31, 2016, with2019. The increase in 2020 was largely driven by changes in client behavior related to COVID-19 and the increase attributable toeconomic stimulus provided by the BOTC acquisition in May 2017. During 2018, the mix of deposits shifted slightly from lower-costing savings and demand deposits to higher-costing time deposits.
Non-interest bearing demand deposits. Non-interest bearingU.S. government. Non-interest-bearing demand deposits increased $258.3$268.2 million, or 8.9%8.5%, to $3,426.5 million as of December 31, 2019, from $3,158.3 million as of December 31, 2018, from $2,900.02018. Approximately $244.9 million of the increase in 2019 was attributable to the acquisitions of IIBK and CMYF in April 2019. Exclusive of the IIBK and CMYF acquisitions, non-interest-bearing demand deposits decreased organically $23.3 million, or 0.7%.
Interest bearing demand deposits. Interest bearing demand deposits increased $923.5 million, or 28.9%, to $4,118.9 million as of December 31, 2017.2020, from $3,195.4 million as of December 31, 2019. The increase in 2020 was largely driven by changes in client behavior related to COVID-19 and the economic stimulus provided by the U.S. government. Interest-bearing demand deposits increased $237.9 million, or 8.0%, to $3,195.4 million as of December 31, 2019, from $2,957.5 million as of December 31, 2018. Approximately $171.8 million of the increase in 2019 was attributable to the acquisitions of IIBK and CMYF in April 2019. Exclusive of the IIBK and CMYF acquisitions, interest bearing demand deposits decreased organically $66.1 million, or 2.2%.
Savings deposits. Savings deposits increased $814.3 million, or 22.7%, to $4,405.9 million as of December 31, 2020, from $3,591.6 million as of December 31, 2019. The increase in 2020 was largely driven by changes in client behavior related to COVID-19 and the economic stimulus provided by the U.S. government. Savings deposits increased $343.7 million, or 10.6%, to $3,591.6 million as of December 31, 2019, from $3,247.9 million as of December 31, 2018. Approximately $254.7 million of the increase in 2019 was attributable to the acquisitions of IIBK and CMYF in April 2019. Exclusive of the IIBK and CMYF acquisitions, savings deposits decreased $89.0 million, or 2.7%.
Time deposits of $100,000 or more. Time deposits of $100,000 or more decreased $231.8 million, or 35.6%, to $419.3 million as of December 31, 2020, from $651.1 million as of December 31, 2019. The decrease in 2020 was largely driven by changes in client behavior related to COVID-19 and the economic stimulus provided by the U.S. government. Time deposits of $100,000 or more increased $103.5 million, or 18.9%, to $651.1 million as of December 31, 2019, from $547.6 million as of December 31, 2018. Approximately $26.4 million of the increase in 2019 was attributable to the acquisitions of IIBK and CMYF in April 2019. Exclusive of the IIBK and CMYF acquisitions, time deposits of $100,000 or more increased organically $77.1 million, or 14.1%.
Other time deposits. Other time deposits decreased $159.5 million, or 20.0%, to $639.4 million as of December 31, 2020, from $798.9 million as of December 31, 2019. The decrease in 2020 was largely driven by changes in client behavior related to COVID-19 and the economic stimulus provided by the U.S. government. Other time deposits increased $29.5 million, or 3.8%, to $798.9 million as of December 31, 2019, from $769.4 million as of December 31, 2018. Approximately $8.9 million of this increase was attributable to the acquisitionacquisitions of INBIIBK and CMYF in August 2018.April 2019. Exclusive of the INB acquisition, non-interest bearing demand deposits increased organically $26.5 million, or 0.9%. Non-interest bearing demand deposits increased $993.7 million, or 52.1%, to $2,900.0 million as of December 31, 2017, from $1,906.3 million as of December 31, 2016, with the increase attributable to the BOTC acquisition in May 2017. Exclusive of acquired deposits, non-interest bearing demand deposits decreased $15.0 million, or 0.8%.
Interest bearing demand deposits. Interest bearing demand deposits increased $170.0 million, or 6.1%, to $2,957.5 million as of December 31, 2018, from $2,787.5 million as of December 31, 2017. Approximately $158.2 million of this increase was attributable to the acquisition of INB in August 2018. Exclusive of the INB acquisition, interest bearing demand deposits increased organically $11.8 million, or 0.4%. Interest bearing demand deposits increased $511.0 million, or 22.4%, to $2,787.5 million as of December 31, 2017, from $2,276.5 million as of December 31, 2016, with the increase attributable to the BOTC acquisition in May 2017. Exclusive of acquired deposits, interest bearing demand deposits decreased organically $106.2 million, or 4.7%.
Savings deposits. Savings deposits increased $152.5 million, or 4.9%, to $3,247.9 million as of December 31, 2018, from $3,095.4 million as of December 31, 2017. Approximately $204.6 million of this increase was attributable to the acquisition of INB in August 2018. Exclusive of the INB acquisition, savings deposits decreased $52.1 million, or 1.7%. Savings deposits increased $953.6 million, or 44.5%, to $3,095.4 million as of December 31, 2017, from $2,141.8 million as of December 31, 2016, with approximately $902.5 million of the increase attributable to the BOTC acquisition in May 2017. Exclusive of acquired deposits, savings deposits increased organically $51.1 million, or 2.4%, net of the health savings deposits sold in 2017.
Time deposits of $100,000 or more. Time deposits of $100,000 or more increased $115.6 million, or 26.8%, to $547.6 million as of December 31, 2018, from $432.0 million as of December 31, 2017. Approximately $28.7 million of this increase was attributable to the acquisition of INB in August 2018. Exclusive of the INB acquisition, time deposits of $100,000 or more increased organically $86.9 million, or 20.1%. Time deposits of $100,000 or more decreased $29.4 million, or 6.4%, to $432.0 million as of December 31, 2017, from $461.4 million as of December 31, 2016. Exclusive of acquired deposits, time deposits of $100,000 or more decreased $83.2 million, or 18.0%.
Other time deposits. Other time deposits increased $49.4 million, or 6.9%, to $769.4 million as of December 31, 2018, from $720.0 million as of December 31, 2017. Approximately $73.0 million of this increase was attributable to the acquisition of INB in August 2018. Exclusive of the INB acquisition,IIBK and CMYF acquisitions, other time deposits decreased $23.6$20.6 million, or 3.3%2.7%. Other time deposits increased $129.9 million, or 22.0%, to $720.0 million as of December 31, 2017, from $590.1 million as of December 31, 2016. Exclusive of other time deposits acquired in the BOTC acquisition in May 2017, other time deposits decreased $40.4 million, or 6.8%, from December 31, 2016 to December 31, 2017.
As of December 31, 20182020 and 2017,2019, we had Certificate of Deposit Account Registry Service, or CDARS, deposits of $87.1$97.3 million and $94.2$117.7 million, respectively. As of December 31, 20182020, we had no brokered deposits and 2017,as of December 31, 2019 we had brokered deposits of $24.1$2.9 million, and zero, respectively. Our brokered depositswhich were acquired through acquisitions.
For additional information concerning customerclient deposits, including the use of repurchase agreements, see “Business—Community Banking—Deposit Products,” included in Part I, Item 1 and “Notes to Consolidated Financial Statements—Deposits,” included in Part IV, Item 15 of this report.
Securities Sold Under Repurchase Agreements
Under repurchase agreements with commercial and municipal depositors, customerclient deposit balances are invested in short-term U.S. government agency securities overnight and are then repurchased the following day. All outstanding repurchase agreements are due in one day and balances fluctuate in the normal course of business. Repurchase agreement balances increased $69.4$393.8 million, or 10.8%56.5%, to $1,091.4 million as of December 31, 2020, from $697.6 million as of December 31, 2019, and decreased $14.8 million, or 2.1%, as of December 31, 2019 from $712.4 million as of December 31, 2018, from $643.0 million as of December 31, 2017, and increased $105.4 million, or 19.6%, as of December 31, 2017 from $537.6 million as of December 31, 2016.
2018.
The following table sets forth certain information regarding securities sold under repurchase agreements as of the dates indicated:
Securities Sold Under Repurchase Agreements Securities Sold Under Repurchase Agreements (Dollars in millions) |
| | | | | | | | | |
As of and for the year ended December 31, | 2018 | 2017 | 2016 |
Securities sold under repurchase agreements: | | | |
Balance at period end | $ | 712.4 |
| $ | 643.0 |
| $ | 537.6 |
|
Average balance | 642.8 |
| 587.1 |
| 481.0 |
|
Maximum amount outstanding at any month-end | 712.4 |
| 704.4 |
| 537.6 |
|
Average interest rate: | | | |
During the year | 0.42 | % | 0.21 | % | 0.09 | % |
At period end | 0.59 |
| 0.26 |
| 0.18 |
|
(Dollars in millions) | | | | | | | | | | | |
As of and for the year ended December 31, | 2020 | 2019 | 2018 |
Securities sold under repurchase agreements: | | | |
Balance at period end | $ | 1,091.4 | | $ | 697.6 | | $ | 712.4 | |
Average balance | 765.8 | | 677.3 | | 642.8 | |
Maximum amount outstanding at any month-end | 1,092.1 | | 713.0 | | 712.4 | |
Average interest rate: | | | |
During the year | 0.12 | % | 0.58 | % | 0.42 | % |
At period end | 0.03 | | 0.20 | | 0.59 | |
Long-TermLong-term Debt
Long-term debt increased $2.7$98.5 million, or 20.6%708.6%, to $112.4 million as of December 31, 2020, from $13.9 million as of December 31, 2019. In May 2020, the Company issued $100.0 million of subordinated notes due May 15, 2030. The subordinated notes were issued with a fixed-to-floating rate of 5.25% and an effective rate of 5.33%, due to issuance costs.
Long-term debt decreased $1.9 million, or 12.0%, to $13.9 million as of December 31, 2019, from $15.8 million as of December 31, 2018, from $13.1 million as of December 31, 2017, primarily due to $2.6 million related to two note payables related to a New Market Tax Credit (“NMTC”). On March 21, 2018, the Company borrowed $2.0 million on aredemption of one note payable maturing on March 31, 2038, with interest only at a 1.30% fixed rate, payable monthly, until March 31, 2025 and then principal and interest payable at a 3.25% fixed rate until maturity. The note is collateralized by the Company’s equity interest in FC Sub CDE, LLC, a community development entity, or CDE, owned 99.9% by the Company. On March 29, 2018, the Company borrowed $0.6 million on a 1.30% fixed rate note payable maturing on June 1, 2034, with interest only, payable monthly, until March 31, 2025 and then principal and interest payable until maturity. The note is collateralized by the Company’s equity interest in BH Sub CDE, LLC, a CDE owned 99.9% by the Company.
Long-term debt decreased $14.9 million, or 53.2%, to $13.1 million as of December 31, 2017, from $28.0 million as of December 31, 2016 due to the reclassification of $20.0 million of subordinated debt to other borrowed funds, as the maturity of the debt was then under one year, which was offset by an increase on November 16, 2017, when the Company borrowed $5.1 million related to a NMTC on a 1.0% fixed rate note payable maturing on December 31, 2041. The note payable is interest only, payable quarterly, until December 31, 2025 and then principal and interest payable until maturity. The note is collateralized by the Company’s equity interest related to a NMTC in BFCC Sub CDE, LLC, a CDE owned 99.9% by the Company.September 2032. For additional information regarding the long-term debt, see “Notes to Consolidated Financial Statements—Long-Term Debt and Other Borrowed Funds,” included in Part IV, Item 15 of this report.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses increased $7.5$14.8 million, or 8.7%11.4%, to $94.1$144.4 million as of December 31, 2018,2020, from $86.6$129.6 million as of December 31, 2017. This increase was2019, attributable to an increase in forward contracts, higher incentive compensation accruals, as a result of the acquisition of INB in August 2018 and other fluctuations in the normal course of business. Accounts payable and accrued expenses increased $41.7$35.5 million, or 92.9%37.7%, to $86.6$129.6 million as of December 31, 2017,2019, from $44.9$94.1 million as of December 31, 2016. This increase was2018, primarily attributable to deferred compensation accrualsthe Company recognizing $39.6 million in liabilities related to leases, as a result of the acquisitionadoption of BOTCASU 2016-02, on January 1, 2019, in May 2017.addition to fluctuations in the normal course of business.
Deferred Tax Liability/Asset
As of December 31, 2018, we had aThe net deferred tax liability of $8.6increased $0.5 million, as comparedor 1.9%, to a net deferred tax asset of $4.0$27.2 million as of December 31, 2017.2020, from $26.7 million as of December 31, 2019. The shift innet deferred taxestax liability increased $18.1 million, or 210.5%, to $26.7 million as of December 31, 2019, from a net asset to a net liability was$8.6 million as of December 31, 2018, primarily due to decreases in deferred tax assets as a result of the utilization of NOL carryforwards, reduction of deferred compensation liabilities, and federal tax credit carryforwardsan increase in unrealized gains in our investment portfolio; the decreases were offset by increases in deferred tax liabilities related to amortization of intangible assets and depreciation of fixed assets.an increase in mortgage servicing rights retained.
As of December 31, 2017, we had a net deferred tax asset of $4.0 million, as compared to a net deferred tax liability of $6.8 million as of December 31, 2016. The shift in deferred taxes from a net liability to a net asset was primarily due to increases in deferred tax assets related to NOL carryforwards and federal tax credits from the BOTC merger. These increases were partially offset by increases in deferred tax liabilities related to depreciation of fixed assets.
Contractual Obligations
Contractual obligations as of December 31, 20182020 are summarized in the following table.
| | | | | | | | | | | | | | | | | |
Contractual Obligations (Dollars in millions) | Payments Due |
Within One Year | One Year to Three Years | Three Years to Five Years | After Five Years | Total |
Deposits without a stated maturity | $ | 13,158.3 | | $ | — | | $ | — | | $ | — | | $ | 13,158.3 | |
Time deposits | 817.4 | | 201.1 | | 39.2 | | 1.0 | | 1,058.7 | |
Securities sold under repurchase agreements | 1,091.4 | | — | | — | | — | | 1,091.4 | |
| | | | | |
Long-term debt obligations (1) | — | | 5.1 | | — | | 106.2 | | 111.3 | |
Financing lease obligations | 0.1 | | 0.2 | | 0.2 | | 0.6 | | 1.1 | |
Operating lease obligations | 7.0 | | 11.7 | | 8.6 | | 15.4 | | 42.7 | |
Purchase obligations (2) | 4.6 | | — | | — | | — | | 4.6 | |
Subordinated debentures held by subsidiary trusts (3) | — | | — | | — | | 87.0 | | 87.0 | |
Total contractual obligations | $ | 15,078.8 | | $ | 218.1 | | $ | 48.0 | | $ | 210.2 | | $ | 15,555.1 | |
Contractual Obligations (Dollars in millions) |
| | | | | | | | | | | | | | | |
| Payments Due |
| Within One Year | One Year to Three Years | Three Years to Five Years | After Five Years | Total |
Deposits without a stated maturity | $ | 9,363.7 |
| $ | — |
| $ | — |
| $ | — |
| $ | 9,363.7 |
|
Time deposits | 823.4 |
| 452.5 |
| 41.1 |
| — |
| 1,317.0 |
|
Securities sold under repurchase agreements | 712.4 |
| — |
| — |
| — |
| 712.4 |
|
Long-term debt obligations (1) | — |
| — |
| 5.0 |
| 9.4 |
| 14.4 |
|
Capital lease obligations | 0.1 |
| 0.2 |
| 0.2 |
| 0.9 |
| 1.4 |
|
Operating lease obligations | 6.0 |
| 11.2 |
| 10.4 |
| 18.1 |
| 45.7 |
|
Purchase obligations (2) | 2.7 |
| — |
| — |
| — |
| 2.7 |
|
Subordinated debentures held by subsidiary trusts (3) | — |
| — |
| — |
| 86.9 |
| 86.9 |
|
Total contractual obligations | $ | 10,908.3 |
| $ | 463.9 |
| $ | 56.7 |
| $ | 115.3 |
| $ | 11,544.2 |
|
(1)Long-term debt obligations consists of fixed rate note payables with various interest rates from 1.00% to 6.24% and maturities from July 29, 2022 through December 31, 2041 and 5.25% fixed-to-floating rate subordinated notes due May 15, 2030. For additional information concerning long-term debt, see “Notes to Consolidated Financial Statements—Long Term Debt and Other Borrowed Funds” included in Part IV, Item 15. | |
(1) | Long-term debt obligations consists of fixed rate note payables with various interest rates from 1.00% to 6.24% and maturities from July 29, 2022 through March 31, 2038. For additional information concerning long-term debt, see “Notes to Consolidated Financial Statements — Long Term Debt and Other Borrowed Funds” included in Part IV, Item 15. |
| |
(2) | Purchase obligations relate to obligations under construction contracts to build or renovate banking offices. |
| |
(3) | The subordinated debentures are unsecured, with various interest rates and maturities from June 30, 2035 through April 1, 2038. Interest distributions are payable quarterly; however, we may defer interest payments at any time for a period not exceeding 20 consecutive quarters. For additional information concerning the subordinated debentures, see “Notes to Consolidated Financial Statements — Subordinated Debentures Held by Subsidiary Trusts” included in Part IV, Item 15.
|
(2)Purchase obligations relate to obligations under construction contracts to build or renovate banking offices.
(3)The subordinated debentures are unsecured, with various interest rates and maturities from June 30, 2035 through April 1, 2038. Interest distributions are payable quarterly; however, we may defer interest payments at any time for a period not exceeding 20 consecutive quarters. For additional information concerning the subordinated debentures, see “Notes to Consolidated Financial Statements—Subordinated Debentures Held by Subsidiary Trusts” included in Part IV, Item 15.
We also have obligations under a post-retirement healthcare benefit plan. These obligations represent actuariallyactuarial determined future benefit payments to eligible plan participants. See “Notes to Consolidated Financial Statements — Employee Benefit Plans” included in Part IV, Item 15.
Off-Balance Sheet Arrangements
We have entered into various arrangements not reflected on the consolidated balance sheet that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, or liquidity. These include guarantees, commitments to extend credit, and standby letters of credit.
We guarantee the distributions and payments for redemption or liquidation of capital trust preferred securities issued by our wholly-owned subsidiary business trusts to the extent of funds held by the trusts. Although the guarantees are not separately recorded, the obligations underlying the guarantees are fully reflected on our consolidated balance sheets as subordinated debentures held by subsidiary trusts. The subordinated debentures currently qualify as tier 1 capital under the Federal Reserve capital adequacy guidelines. For additional information regarding the subordinated debentures, see “Notes to Consolidated Financial Statements — Statements—Subordinated Debentures Held by Subsidiary Trusts” included in Part IV, Item 15.
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers.clients. These financial instruments include commitments to extend credit and standby letters of credit. For additional information regarding our off-balance sheet arrangements, see “Notes to Consolidated Financial Statements — Statements—Financial Instruments with Off-Balance Sheet Risk” included in Part IV, Item 15.
Capital Resources and Liquidity Management
Capital Resources
Stockholders’ equity is influenced primarily by earnings, dividends, sales and redemptions of common stock, and changes in the unrealized holding gains or losses, net of taxes, on available-for-sale investment securities. Stockholders’ equity increased $266.3decreased $54.1 million, or 18.7%2.7%, to $1,959.8 million as of December 31, 2020 from $2,013.9 million as of December 31, 2019, due to stock repurchases related to the Company’s stock repurchase program, stock repurchases of vested restricted shares tendered in lieu of cash for payment of income tax withholding amounts by participants, regular and special cash dividends paid to common shareholders during 2020 of $128.6 million, and the cumulative effect of adopting ASC 326, a new accounting principle. This decrease was offset by retention of earnings, other comprehensive income, and proceeds from stock option exercises.
Stockholders’ equity increased $320.0 million, or 18.9%, to $2,013.9 million as of December 31, 2019 from $1,693.9 million as of December 31, 2018, from $1,427.6 million as of December 31, 2017, due primarily to the retention of earnings, stock-based compensation,other comprehensive income, proceeds from stock option exercises, and issuance of additional Class A common stock as partial consideration for the acquisitionacquisitions of Northwest.IIBK and CMYF. This increase was offset by other comprehensive losses, stock repurchases of vested restricted shares tendered in lieu of cash for payment of income tax withholding amounts by participants and aggregate cash dividends of $64.1$79.2 million to common shareholders during 2018.
2019.
On January 29, 2019,28, 2021, we declared a quarterly dividend to common stockholders of $0.31$0.41 per share, which was paid on February 21, 201919, 2021 to shareholders of record as of February 11, 2019. For additional information regarding9, 2021. The dividend equates to a 4.3% annual yield based on the repurchases, see “Notes to Consolidated Financial Statements — Capital Stock and Dividend Restrictions” included in Part IV, Item 15$37.95 average closing pricing of this report.
Stockholders’ equity increased $445.0 million, or 45.3%, to $1,427.6 million as of December 31, 2017 from $982.6 million as of December 31, 2016, due primarily to the retention of earnings and issuance ofCompany’s common stock as partial consideration forreported on NASDAQ during the acquisitionfourth quarter of Cascade Bancorp. Increases in stockholders’ equity due to earnings retention were partially offset by the repurchase and retirement of our common stock and aggregate cash dividends of $48.6 million2020.
On February 19, 2020, we paid a special dividend to common stockholders of $0.60 per share on March 12, 2020 to shareholders during 2017.of record as of March 2, 2020.
On August 16, 2018,During 2020, the Company issued 3,837,540 shares of its Class A common stock with an aggregate value of $173.3 million as partial consideration for the acquisition of Northwest. In addition, during 2018, the Company issued 11,38919,491 shares of its Class A common stock to directors for their annual service on the Company’s board of directors. The aggregate value of the shares issued to directors of $0.5$0.6 million is included in stock-based compensation expense in the accompanying consolidated statements of changes in stockholders’ equity.
On June 8, 2018, we filed11, 2019, the Company’s board of directors adopted a registration statement on Form S-4, as amended on July 2, 2018,stock repurchase program permitting the Company to register 3,982,842repurchase up to 2.5 million of its outstanding shares of Class A common stock. On March 23, 2020, the Company’s board of directors suspended stock repurchases in response to the COVID-19 pandemic. Effective August 24, 2020, the Company’s board of directors lifted the temporary suspension of the Company’s stock repurchase program. On September 12, 2020, the Company’s board of directors increased the number of shares of Class A common stock authorized to be issued as partial consideration for our acquisitionrepurchased by the Company under the stock repurchase program by an additional 3.0 million shares bringing the total number of Northwest.
On November 28, 2018, we filed a registration statement on Form S-4, as amended on January 16, 2019,shares authorized under the program to register 4,045,3025.5 million shares. During 2020, the Company repurchased and retired 3.5 million shares of Class A common stock to be issued as partial consideration for our acquisition of IIBK.
On November 28, 2018, we filed a registration statement on Form S-4, as amended on January 16, 2019, to register 492,069 shares of Class A commonunder the stock to be issued as partial consideration for our acquisition of CMYF.
repurchase program.
For additional information regarding the acquisition,repurchases, see “—Executive Overview—Recent Trends and Developments” included above “Notes to Consolidated Financial Statements—Acquisitions,”Capital Stock and Dividend Restrictions” included in Part IV, Item 15 of this report.
On April 8, 2019, the Company issued 3,871,422 and 463,134 shares of its Class A common stock with an aggregate value of $157.3 million and $18.8 million as consideration for the acquisitions of IIBK and CMYF, respectively.
As a bank holding company, the Board of Governors ofCompany must comply with the capital requirements established by the Federal Reserve, and our subsidiary Bank ormust comply with the Federal Reserve Board, issued a final rule implementing a revised regulatory capital framework for U.S. banks in accordance withrequirements established by the FDIC. The current risk-based guidelines applicable to us and our Bank are based on the Basel III international accord and satisfying related mandates underframework, as implemented by the Dodd-Frank Act. Under the final rule, minimum capital requirements will increase for both quantity and quality of capital held by banking organizations. The final rule includes a new common equity tier 1 minimum capital requirement of 4.5% of risk-weighted assets and increases the minimum tier 1 capital requirement from 4.0% to 6.0% of risk-weighted assets. The minimum total risk-based capital remains unchanged at 8.0% of total risk-weighted assets. In addition to the minimum common equity tier 1, tier 1 and total risk-based capital requirements, the final rule requires banking organizations to hold a buffer of common equity tier 1 capital in an amount above 2.5% of total risk-weighted assets to avoid restrictions on capital distributions and discretionary bonus payments to executive officers. The minimum regulatory capital requirements and compliance with a standardized approach for determining risk-weighted assets of the final rule became effective for us on January 1, 2015. The capital conservation buffer framework transition period began January 1, 2016, with full implementation effective January 1, 2019.
federal bank regulators. As of December 31, 20182020 and 2017, we2019, the Company had capital levels that, in all cases, exceeded the well capitalized guidelines. Additionally, our calculations indicate that as of December 31, 2018, we would meet all fully phased-in Basel III capital adequacy requirements. For additional information regarding the impact of this final rule, see “Regulation and Supervision — Capital Standards and Prompt Corrective Action” included in Part I, Item 1 of this report. guidelines to be deemed “well-capitalized.”
For additional information regarding our capital levels, see “Notes to Consolidated Financial Statements—Regulatory Capital,” included in Part IV, Item 15 of this report.
Liquidity
Liquidity measures our ability to meet current and future cash flow needs on a timely basis and at a reasonable cost. We manage our liquidity position to meet the daily cash flow needs of customers,clients, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders. Our liquidity position is supported by management of liquid assets and liabilities and access to alternative sources of funds. Liquid assets include cash, interest bearing deposits in banks, federal funds sold, available-for-sale investment securities, and maturing or prepaying balances in our held-to-maturity investment and loan portfolios. Liquid liabilities include core deposits, federal funds purchased, securities sold under repurchase agreements, and borrowings. Other sources of liquidity include the sale of loans, the ability to acquire additional national market funds through non-core deposits, the issuance of additional collateralized borrowings such as FHLB advances, the issuance of debt securities, additional borrowings through the Federal Reserve’s discount window, and the issuance of preferred or common securities.
Our short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers, capital expenditures, and shareholder dividends. These liquidity requirements are met primarily through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, debt financing, and increases in customerclient deposits. For additional information regarding our operating, investing and financing cash flows, see “Consolidated Financial Statements—Consolidated Statements of Cash Flows,” included in Part IV, Item 15 of this report.
IV.
As a holding company, we are a corporation separate and apart from our subsidiary Bank and, therefore, we provide for our own liquidity. Our mainprimary sources of funding include management fees and dividends declared and paid by our subsidiariesthe Bank and access to capital markets. There are statutory, regulatory, and debt covenant limitations that affect the ability of our Bank to pay dividends to us. Management believes that such limitations will not impact our ability to meet our ongoing short-term cash obligations. For additional information regarding dividend restrictions, see “—Financial“Financial Condition—Capital Resources and Liquidity Management” above, and “Business—Government Regulation and Supervision—Dividends and Restrictions on Transfers of Funds to Us and the Bank”Funds” included in Part I, Item 1 of this report, and “Risk Factors—Liquidity Risks Relating to the Market and Our Business.”
Regulatory and Compliance Risks” included in Part I, Item 1A of this report.
Management continuously monitors our liquidity position and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Our management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources, or operations. In addition, our management is not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on us.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposure is interest rate risk. Our business and the composition of our balance sheet consists of investments in interest earning assets (principally loans and investment securities) which are primarily funded by interest bearing liabilities (deposits and indebtedness). Such financial instruments have varying levels of sensitivity to changes in market interest rates. Interest rate risk results when, due to different maturity dates and repricing intervals, interest rate indices for interest earning assets fluctuate adversely relative to interest bearing liabilities, thereby creating a risk of decreased net earnings and cash flow.
Although we characterize some of our interest-sensitive assets as securities available-for-sale, such securities are not purchased with the intent to sell in the near term. Rather, such securities may be sold in response to or in anticipation of changes in interest rates and resulting prepayment risk. See “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies” included in Part IV, Item 15 of this report.
Asset Liability Management
The goal of asset liability management is the prudent control of market risk, liquidity, and capital. Asset liability management is governed by policies, goals, and objectives adopted and reviewed by the Bank’s board of directors. Development of asset liability management strategies is the responsibility of the Asset Liability Committee, or ALCO, which is composed of members of senior management.
Interest Rate Risk
Interest rate risk is the risk of loss of future earnings or long-term value due to changes in interest rates. Our primary source of earnings is net interest income, which is affected by changes in interest rates, the relationship between rates on interest bearinginterest-bearing assets and liabilities, the impact of interest rate fluctuations on asset prepayments, and the mix of interest bearinginterest-bearing assets and liabilities.
The ability to optimize net interest income is largely dependent upon the achievement of an interest rate spread that can be managed during periods of fluctuating interest rates. Interest sensitivity is a measure of the extent to which net interest income will be affected by market interest rates over a period of time. Interest rate sensitivity is related to the difference between amounts of interest earning assets and interest bearinginterest-bearing liabilities which either reprice or mature within a given period of time. The difference is known as interest rate sensitivity gap.
The following table shows interest rate sensitivity gaps and the earnings sensitivity ratio for different intervals as of December 31, 2018.2020. The information presented in the table is based on our mix of interest earning assets and interest bearinginterest-bearing liabilities and historical experience regarding their interest rate sensitivity.
| | | | | | | | | | | | | | | | | |
Interest Rate Sensitivity Gaps (Dollars in millions) | Projected Maturity or Repricing |
Three Months or Less | Three Months to One Year | One Year to Five Years | After Five Years | Total |
Interest earning assets: | | | | | |
Loans (1) | $ | 2,981.4 | | $ | 2,246.2 | | $ | 4,090.1 | | $ | 450.3 | | $ | 9,768.0 | |
Investment securities (2) | 309.7 | | 575.9 | | 2,178.6 | | 996.1 | | 4,060.3 | |
Interest bearing deposits in banks | 2,011.5 | | 2.2 | | 1.5 | | 0.1 | | 2,015.3 | |
Federal funds sold | 0.1 | | — | | — | | — | | 0.1 | |
Total interest earning assets | $ | 5,302.7 | | $ | 2,824.3 | | $ | 6,270.2 | | $ | 1,446.5 | | $ | 15,843.7 | |
Interest bearing liabilities: | | | | | |
Interest bearing demand accounts (3) | $ | 1,250.7 | | $ | — | | $ | 2,868.2 | | $ | — | | $ | 4,118.9 | |
Savings deposits (3) | 2,462.4 | | 1,032.2 | | 911.3 | | — | | 4,405.9 | |
Time deposits, $100 or more | 92.7 | | 223.3 | | 102.9 | | 0.4 | | 419.3 | |
Other time deposits | 247.4 | | 254.0 | | 137.5 | | 0.5 | | 639.4 | |
Securities sold under repurchase agreements | 1,091.4 | | — | | — | | — | | 1,091.4 | |
| | | | | |
Long-term debt | — | | 0.1 | | 5.5 | | 106.8 | | 112.4 | |
Subordinated debentures held by subsidiary trusts | 87.0 | | — | | — | | — | | 87.0 | |
Total interest bearing liabilities | $ | 5,231.6 | | $ | 1,509.6 | | $ | 4,025.4 | | $ | 107.7 | | $ | 10,874.3 | |
Rate gap | $ | 71.1 | | $ | 1,314.7 | | $ | 2,244.8 | | $ | 1,338.8 | | $ | 4,969.4 | |
Cumulative rate gap | 71.1 | | 1,385.8 | | 3,630.6 | | 4,969.4 | | |
Cumulative rate gap as a percentage of total interest earning assets | 0.45 | % | 8.75 | % | 22.92 | % | 31.37 | % | 31.37 | % |
(1)Does not include non-accrual loans of $39.5 million. Variable rate loans are included in the three months or less category in the above table although certain of these loans have reached interest rate floors and may not immediately reprice.
(2)Adjusted to reflect: (a) expected shorter maturities based upon our historical experience of early prepayments of principal, and (b) the redemption of callable securities on their next call date.
(3)Interest bearing demand and savings deposits, while technically subject to immediate withdrawal, actually display sensitivity characteristics that generally fall within one to five years. Their allocation is presented based on those sensitivity characteristics. If these deposits were included in the three month or less category, the above table would reflect a negative three month gap of $4.7 million, a negative cumulative one year gap of $2.4 million, and a positive cumulative one to five year gap of $3.6 million.
Interest Rate Sensitivity Gaps (Dollars in millions) |
| | | | | | | | | | | | | | | |
| Projected Maturity or Repricing |
| Three Months or Less | Three Months to One Year | One Year to Five Years | After Five Years | Total |
Interest earning assets: | | | | | |
Loans (1) | $ | 2,727.6 |
| $ | 1,559.1 |
| $ | 3,648.8 |
| $ | 513.9 |
| $ | 8,449.4 |
|
Investment securities (2) | 207.2 |
| 423.8 |
| 1,412.3 |
| 634.2 |
| 2,677.5 |
|
Interest bearing deposits in banks | 577.8 |
| — |
| — |
| — |
| 577.8 |
|
Federal funds sold | 0.1 |
| — |
| — |
| — |
| 0.1 |
|
Total interest earning assets | $ | 3,512.7 |
| $ | 1,982.9 |
| $ | 5,061.1 |
| $ | 1,148.1 |
| $ | 11,704.8 |
|
Interest bearing liabilities: | | | | | |
Interest bearing demand accounts (3) | $ | 841.1 |
| $ | 667.6 |
| $ | 1,448.8 |
| $ | — |
| $ | 2,957.5 |
|
Savings deposits (3) | 1,380.4 |
| 243.6 |
| 1,623.9 |
| — |
| 3,247.9 |
|
Time deposits, $100 or more | 63.5 |
| 247.9 |
| 236.2 |
| — |
| 547.6 |
|
Other time deposits | 249.4 |
| 262.6 |
| 257.4 |
| — |
| 769.4 |
|
Securities sold under repurchase agreements | 712.4 |
| — |
| — |
| — |
| 712.4 |
|
Long-term debt | — |
| 0.1 |
| 5.4 |
| 10.3 |
| 15.8 |
|
Subordinated debentures held by subsidiary trusts | 86.9 |
| — |
| — |
| — |
| 86.9 |
|
Total interest bearing liabilities | $ | 3,333.7 |
| $ | 1,421.8 |
| $ | 3,571.7 |
| $ | 10.3 |
| $ | 8,337.5 |
|
Rate gap | $ | 179.0 |
| $ | 561.1 |
| $ | 1,489.4 |
| $ | 1,137.8 |
| $ | 3,367.3 |
|
Cumulative rate gap | 179.0 |
| 740.1 |
| 2,229.5 |
| 3,367.3 |
| |
Cumulative rate gap as a percentage of total interest earning assets | 1.53 | % | 6.32 | % | 19.05 | % | 28.77 | % | 28.77 | % |
| |
(1) | Does not include non-accrual loans of $54.3 million. Variable rate loans are included in the three months or less category in the above table although certain of these loans have reached interest rate floors and may not immediately reprice. |
| |
(2) | Adjusted to reflect: (a) expected shorter maturities based upon our historical experience of early prepayments of principal, and (b) the redemption of callable securities on their next call date. |
| |
(3) | Interest bearing demand and savings deposits, while technically subject to immediate withdrawal, actually display sensitivity characteristics that generally fall within one to five years. Their allocation is presented based on those sensitivity characteristics. If these deposits were included in the three month or less category, the above table would reflect a negative three month gap of $3.8 million, a negative cumulative one year gap of $2.3 million and a positive cumulative one to five year gap of $2.2 million. |
Net Interest Income Sensitivity
We believe net interest income sensitivity provides the best perspective of how day-to-day decisions affect our interest rate risk profile. We monitor net interest income sensitivity by utilizing an income simulation model to subject twelve12 and 24 month net interest income to various rate movements. Simulations modeled quarterly include scenarios where market rates change instantaneously up or down in a parallel manner and scenarios where market rates gradually increase 200 basis points. Estimates produced by our income simulation model are based on numerous assumptions including, but not limited to: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) repricing characteristics for market rate sensitive instruments, (4) differing sensitivities of financial instruments due to differing underlying rate indices, (5) varying loan prepayment speeds for different interest rate scenarios, (6) the effect of interest rate limitations in our assets, such as caps and floors, and (7) overall growth and repayment rates and product mix of assets and liabilities. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results, but rather to provide insight into our current interest rate exposure and execute appropriate asset/liability management strategies accordingly.
We target a mix of interest earning assets and interest bearing liabilities such that no more than 4.0% of the net interest income will be at risk over a one-year period, should interest rates immediately shift up or down 100 basis points, or gradually shift up 200 basis points over a 12 month period. As of December 31, 2018,2020, our income simulation model predicted net interest income would increase $2.0 million, or 0.42%7.00% on an immediate 100 basis point shock.shock, assuming a static balance sheet. Assuming a 0.5% gradual increase in interest rates during each of the next four consecutive quarters, net interest income would increase $6.3$27.6 million or 1.33%6.32%. Both scenarios predictConversely, if interest rates declined 100 basis points, the model indicates that net interest income would decline 7.04% under a static balance sheet scenario.
We did not simulate the gradual 200 basis points decrease in interest rates due to the low rate environment as of December 31, 2020. Additionally, rates are modeled not to fall below 0% with a decrease in interest rates. Although we did not simulate a ramp decrease in interest rates due to the low rate environment as of December 31, 2020, a further decline in interest rates would result in compression of our net interest income.
Each scenario predicts that our interest bearing assets reprice faster than our interest bearing liabilities. We are not currently engaged in significant derivative or balance sheet hedging activities to manage our interest rate risk.
The preceding interest rate sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results.
Recent Accounting Pronouncements
The expected impact of accounting standards recently issued but not yet adopted are discussed in “Notes to Consolidated Financial Statements—Authoritative Accounting Guidance” included in Part IV, Item 15 of this report.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of First Interstate BancSystem, Inc. and subsidiaries are contained in Part IV, Item 15 of this report and are incorporated herein by reference.
Report of RSM US LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets — December 31, 20182020 and 20172019
Consolidated Statements of Income — Years Ended December 31, 2018, 20172020, 2019, and 20162018
Consolidated Statements of Comprehensive Income — Years Ended December 31, 2018, 20172020, 2019, and 20162018
Consolidated Statements of Stockholders’ Equity — Years Ended December 31, 2018, 20172020, 2019, and 20162018
Consolidated Statements of Cash Flows — Years Ended December 31, 2018, 20172020, 2019, and 20162018
Notes to Consolidated Financial Statements
Refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for selected quarterly financial data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no disagreements with accountants on accounting and financial disclosure.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We have established and maintain disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act. As of December 31, 2018,2020, our management evaluated, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of December 31, 2018,2020, were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods required by the SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting includes controls and procedures designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of our published financial statements in accordance with U.S. generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even systems that are deemed to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As permitted by guidance provided by the staff of the U.S. Securities and Exchange Commission, the scope of management’s assessment of internal control over financial reporting as of December 31, 2018 has excluded the Company’s wholly owned subsidiary, Inland Northwest Bank, which was acquired on August 16, 2018, but did not merge with and into First Interstate Bank until November 9, 2018.
Our management, including the Chief Executive Officer and the Chief Financial Officer, assessed the effectiveness of our system of internal control over financial reporting as of December 31, 20182020 based on the guidelines established in the Internal Control--Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we believe that, as of December 31, 2018,2020, our system of internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
RSM US LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestationa report on the effectiveness of our internal control over financial reporting as of December 31, 2018.2020. The report, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2018,2020, is included below.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of First Interstate BancSystem, Inc.
Opinion on the Internal Control Over Financial Reporting
We have audited First Interstate BancSystem, Inc. and its subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 20182020 and 2017, and2019, the consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018,2020, and the related notes to the consolidated financial statements of the Company and our report dated February 27, 201926, 2021 expressed an unqualified opinion.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Inland Northwest Bank from its assessment of internal control over financial reporting as of December 31, 2018, because it was acquired by the Company in a purchase business combination in the third quarter of 2018. We have also excluded Inland Northwest Bank from our audit of internal control over financial reporting. Inland Northwest Bank operated as a wholly-owned subsidiary of the Company from August 16, 2018 (the date of acquisition) until it was merged into First Interstate Bank on November 9, 2018. Inland Northwest Bank’s total assets represented approximately 6.0% of the Company’s related consolidated assets as of the date of the merger.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control Overover Financial Reporting. Our responsibility is to express an opinion on the Company’sCompany's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s//s/ RSM US LLP
Des Moines, Iowa
February 27, 201926, 2021
Item 9B. Other Information
There were no items required to be disclosed in a report on Form 8-K during the fourth quarter of 20182020 that were not reported.
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Information concerning directors, executive officers, and corporate governance is set forth under the heading, “Directors and Executive Officers” and “Corporate Governance” in our Proxy Statement relating to our 20192021 annual meeting of shareholders and is incorporated herein incorporated by reference.
Information concerning our compliance with section 16(a) of the Securities Exchange Act of 1934 is set forth under the heading “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” in our Proxy Statement relating to our 20192021 annual meeting of shareholders and is herein incorporated herein by reference.
Item 11. Executive Compensation
Information concerning executive compensation is set forth under the headings “Compensation Discussion and Analysis” and “Compensation of Executive Officers and Directors” in our Proxy Statement relating to our 20192021 annual meeting of shareholders and is herein incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information concerning security ownership of certain beneficial owners and management as well as related stockholder matters is set forth under the heading “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plans” in our Proxy Statement relating to our 20192021 annual meeting of shareholders and is herein incorporated herein by reference.
The following table provides information, as of December 31, 2018,2020, regarding our equity compensation plans.
|
| | | | | | |
| | Number of Securities to be | | Weighted Average | | Number of Securities |
| | Issued Upon Exercise of | | Exercise Price of | | Remaining Available |
| | Outstanding Options, | | Outstanding Options, | | For Future Issuance Under |
Plan Category | | Warrants and Rights | | Warrants and Rights | | Equity Compensation Plans(1) |
| | | | | | |
Equity compensation plans | | | | | | |
approved by shareholders(2) | | 428,176 | | $15.61 | | 1,727,765 |
| | | | | | |
Equity compensation plans not | | | | | | |
approved by shareholders | | NA | NA | NA |
| | | | | | | | | | | | | | | | | | | | |
| | Number of Securities to be | | Weighted Average | | Number of Securities |
| | Issued Upon Exercise of | | Exercise Price of | | Remaining Available |
| | Outstanding Options, | | Outstanding Options, | | For Future Issuance Under |
Plan Category | | Warrants, and Rights | | Warrants, and Rights | | Equity Compensation Plans(1) |
| | | | | | |
Equity compensation plans | | | | | | |
approved by shareholders(2) | | 79,318 | | $14.49 | | 1,141,186 |
| | | | | | |
Equity compensation plans not | | | | | | |
approved by shareholders | | NA | NA | NA |
Total | | 79,318 | | $14.49 | | 1,141,186 |
|
| | | | |
(1) | Excludes number of securities to be issued upon exercise of outstanding options, warrants and rights. |
(2) | |
(2) | Represents stock options issued pursuant to the 2015 Equity Compensation Plan, as amended and restated. For additional information, see “Notes to Consolidated Financial Statements—Stock BasedStock-Based Compensation” included in financial statements included Part IV, Item 15 of this report. |
Item 13. Certain Relationships and Related Transactions and Director Independence
Information concerning relationships and related party transactions of certain of our executive officers, directors, and greater than 5% shareholders as well as the independence of our directors is set forth under the headings “Directors and Executive Officers” and “Certain Relationships and Related Transactions” in our Proxy Statement relating to our 20192021 annual meeting of shareholders and is herein incorporated herein by reference. In addition, see “Notes to Consolidated Financial Statements—Related Party Transactions” included in Part IV, Item 15.
Item 14. Principal Accountant Fees and Services
Information concerning principal accountant fees and services is set forth under the heading “Directors and Executive Officers — Principal“Principal Accounting Fees and Services” in our Proxy Statement relating to our 20192021 annual meeting of shareholders and is herein incorporated by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)1. Our audited consolidated financial statements follow.
| |
(a) | 1. Our audited consolidated financial statements follow. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of First Interstate BancSystem, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of First Interstate BancSystem, Inc. and its subsidiaries (the Company) as of December 31, 20182020 and 2017,2019, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018,2020, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 27, 201926, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 27 to the financial statements, the Company has changed its method of accounting for the allowance for credit losses effective January 1, 2020 due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No. 326, Financial Instruments - Credit Losses (ASC 326).
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses - Loans Held for Investment
The Company’s loans held for investment portfolio totaled $9,807.5 million as of December 31, 2020 and the associated allowance for credit losses on loans held for investment was $144.3 million. As described in Notes 1 and 6 to the financial statements, the allowance for credit losses on loans held for investment is a valuation account that is deducted from the Company’s amortized cost basis of loans held for investment to present the net amount of loans held for investment expected to be collected. The Company’s allowance for credit losses on loans held for investment consists of three elements: (1) specific valuation allowances associated with collateral‑dependent loans; (2) historical valuation allowances based on loan loss experience for similar loans with similar characteristics and trends; and (3) adjustments to historical loss information for differences in current loan‑specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in or forecasted changes in environmental and economic conditions, such as changes in unemployment rates, property values, or other relevant factors.
We identified the adjustments to historical loss information component of the allowance for credit losses on loans held for investment, both as it relates to current conditions and forecasted scenarios, as a critical audit matter, because auditing this component of the allowance for credit losses on loans held for investment required significant auditor judgement related to estimates determined by management which are highly subjective and are highly sensitive to change in significant assumptions.
Our audit procedures related to the Company’s adjustments to historical loss information component of the allowance for credit losses on loans held for investment included the following, among others:
•We obtained an understanding of the relevant controls related to the allowance for credit losses on loans held for investment and tested such controls for design and operating effectiveness, including controls relating to management’s review and approval of the allowance for credit losses on loans held for investment calculation, management’s assessment and review of the adjustments to historical loss information component of the allowance for credit losses on loans held for investment for current conditions and forecasted scenarios and management’s validation of underlying source data.
•We tested management’s calculation of adjustments to historical loss information within the allowance for credit losses on loans held for investment calculation by agreeing calculation inputs to the Company’s internal and external source data, including for current and forecasted conditions, verifying the mathematical accuracy of the calculation of adjustments to historical loss information, and evaluating whether adjustments to historical loss information within the allowance for credit losses on loans held for investment, or lack thereof, were consistent with Company provided internal data and external independent data, including data related to current and forecasted periods.
•We assessed the reasonableness of management’s calculated changes in adjustments to historical loss information within the allowance for credit losses on loans held for investment calculation by evaluating the magnitude and directional consistency of changes, or lack thereof, in the level of adjustments to historical loss information between periods and evaluating whether management’s conclusions were consistent with Company provided internal data and external independent data, including data related to current and forecasted periods.
•We agreed management’s calculated adjustments to historical loss information to the allowance for credit losses on loans held for investment calculation.
/s/ RSM US LLP
We have served as the Company’s auditor since 2004.
Des Moines, Iowa
February 27, 201926, 2021
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions, except share data) |
| | | | | | | |
December 31, | 2018 | | 2017 |
Assets | | | |
Cash and due from banks | $ | 244.1 |
| | $ | 196.5 |
|
Interest bearing deposits in banks | 577.8 |
| | 562.3 |
|
Federal funds sold | 0.1 |
| | 0.1 |
|
Total cash and cash equivalents | 822.0 |
| | 758.9 |
|
Investment securities: | | | |
Available-for-sale | 2,270.7 |
| | 2,208.7 |
|
Held-to-maturity (estimated fair values of $400.7 and $483.3 at December 31, 2018 and 2017, respectively) | 406.8 |
| | 484.5 |
|
Total investment securities | 2,677.5 |
| | 2,693.2 |
|
Loans held for investment | 8,470.4 |
| | 7,567.7 |
|
Mortgage loans held for sale | 33.3 |
| | 46.6 |
|
Total loans | 8,503.7 |
| | 7,614.3 |
|
Less allowance for loan losses | 73.0 |
| | 72.1 |
|
Net loans | 8,430.7 |
| | 7,542.2 |
|
Goodwill | 546.7 |
| | 444.7 |
|
Company-owned life insurance | 275.1 |
| | 260.6 |
|
Premises and equipment, net of accumulated depreciation | 245.2 |
| | 241.9 |
|
Core deposit intangibles, net of accumulated amortization | 56.9 |
| | 49.1 |
|
Accrued interest receivable | 44.9 |
| | 38.0 |
|
Mortgage servicing rights, net of accumulated amortization and impairment reserve | 27.7 |
| | 24.8 |
|
Other real estate owned (“OREO”) | 14.4 |
| | 10.1 |
|
Deferred tax asset, net | — |
| | 4.0 |
|
Other assets | 159.1 |
| | 145.8 |
|
Total assets | $ | 13,300.2 |
| | $ | 12,213.3 |
|
Liabilities and Stockholders’ Equity | | | |
Deposits: | | | |
Non-interest bearing | $ | 3,158.3 |
| | $ | 2,900.0 |
|
Interest bearing | 7,522.4 |
| | 7,034.9 |
|
Total deposits | 10,680.7 |
| | 9,934.9 |
|
Securities sold under repurchase agreements | 712.4 |
| | 643.0 |
|
Accounts payable and accrued expenses | 94.1 |
| | 86.6 |
|
Accrued interest payable | 7.8 |
| | 5.6 |
|
Deferred tax liability, net | 8.6 |
| | — |
|
Long-term debt | 15.8 |
| | 13.1 |
|
Other borrowed funds | — |
| | 20.0 |
|
Subordinated debentures held by subsidiary trusts | 86.9 |
| | 82.5 |
|
Total liabilities | 11,606.3 |
| | 10,785.7 |
|
Stockholders’ equity: | | | |
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; no shares issued or outstanding as of December 31, 2018 and 2017 | — |
| | — |
|
Common stock | 866.7 |
| | 687.0 |
|
Retained earnings | 851.8 |
| | 752.6 |
|
Accumulated other comprehensive income (loss), net | (24.6 | ) | | (12.0 | ) |
Total stockholders’ equity | 1,693.9 |
| | 1,427.6 |
|
Total liabilities and stockholders’ equity | $ | 13,300.2 |
| | $ | 12,213.3 |
|
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIESSee accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share data) |
| | | | | | | | | | | |
Year Ended December 31, | 2018 | | 2017 | | 2016 |
Interest income: | | | | | |
Interest and fees on loans | $ | 404.3 |
| | $ | 324.7 |
| | $ | 259.2 |
|
Interest and dividends on investment securities: | | | | | |
Taxable | 55.4 |
| | 42.8 |
| | 32.2 |
|
Exempt from federal taxes | 2.4 |
| | 3.2 |
| | 3.4 |
|
Interest on deposits in banks | 11.3 |
| | 7.1 |
| | 2.6 |
|
Total interest income | 473.4 |
| | 377.8 |
| | 297.4 |
|
Interest expense: | | | | | |
Interest on deposits | 32.6 |
| | 21.4 |
| | 12.7 |
|
Interest on securities sold under repurchase agreements | 2.7 |
| | 1.3 |
| | 0.4 |
|
Interest on other borrowed funds | 0.2 |
| | 0.5 |
| | — |
|
Interest on long-term debt | 1.3 |
| | 1.7 |
| | 1.8 |
|
Interest on subordinated debentures held by subsidiary trusts | 4.1 |
| | 3.1 |
| | 2.7 |
|
Total interest expense | 40.9 |
| | 28.0 |
| | 17.6 |
|
Net interest income | 432.5 |
| | 349.8 |
| | 279.8 |
|
Provision for loan losses | 8.6 |
| | 11.0 |
| | 10.0 |
|
Net interest income after provision for loan losses | 423.9 |
| | 338.8 |
| | 269.8 |
|
Non-interest income: | | | | | |
Payment services revenues | 43.3 |
| | 43.3 |
| | 34.4 |
|
Mortgage banking revenues | 24.9 |
| | 28.9 |
| | 37.2 |
|
Wealth management revenues | 23.2 |
| | 21.1 |
| | 20.5 |
|
Service charges on deposit accounts | 21.8 |
| | 21.3 |
| | 18.4 |
|
Other service charges, commissions and fees | 15.1 |
| | 13.3 |
| | 11.5 |
|
Loss on termination of interest rate swap | — |
| | (1.1 | ) | | — |
|
Investment securities (losses) gains, net | (0.1 | ) | | 0.7 |
| | 0.3 |
|
Other income | 15.1 |
| | 14.3 |
| | 10.0 |
|
Non-recurring litigation recovery | — |
| | — |
| | 4.2 |
|
Total non-interest income | 143.3 |
| | 141.8 |
| | 136.5 |
|
Non-interest expense: | | | | | |
Salaries and wages | 146.4 |
| | 122.7 |
| | 108.7 |
|
Employee benefits | 47.9 |
| | 37.6 |
| | 35.2 |
|
Outsourced technology services | 28.7 |
| | 25.1 |
| | 20.5 |
|
Occupancy, net | 25.4 |
| | 22.4 |
| | 17.7 |
|
Furniture and equipment | 12.7 |
| | 11.5 |
| | 9.6 |
|
Professional fees | 6.9 |
| | 6.8 |
| | 5.0 |
|
FDIC insurance premiums | 5.6 |
| | 4.7 |
| | 4.5 |
|
Mortgage servicing rights amortization | 3.1 |
| | 3.0 |
| | 3.0 |
|
Mortgage servicing rights impairment recovery | — |
| | (0.1 | ) | | — |
|
OREO expense, net of income | 0.3 |
| | 0.4 |
| | — |
|
Core deposit intangibles amortization | 7.9 |
| | 5.5 |
| | 3.4 |
|
Other expenses | 63.6 |
| | 57.1 |
| | 50.6 |
|
Acquisition related expenses | 12.4 |
| | 27.2 |
| | 2.8 |
|
Total non-interest expense | 360.9 |
| | 323.9 |
| | 261.0 |
|
Income before income tax expense | 206.3 |
| | 156.7 |
| | 145.3 |
|
Income tax expense | 46.1 |
| | 50.2 |
| | 49.6 |
|
Net income | $ | 160.2 |
| | $ | 106.5 |
| | $ | 95.7 |
|
| | | | | |
Basic earnings per common share | $ | 2.77 |
| | $ | 2.07 |
| | $ | 2.15 |
|
Diluted earnings per common share | 2.75 |
| | 2.05 |
| | 2.13 |
|
See accompanying notes to consolidated financial statements.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) |
| | | | | | | | | | | |
Year ended December 31, | 2018 | | 2017 | | 2016 |
Net income | $ | 160.2 |
| | $ | 106.5 |
| | $ | 95.7 |
|
Other comprehensive income (loss) before tax: | | | | | |
Investment securities available-for-sale: | | | | | |
Change in net unrealized gains (losses) during the period | (13.9 | ) | | (6.5 | ) | | (19.4 | ) |
Reclassification adjustment for net losses (gains) included in income | 0.1 |
| | (0.7 | ) | | (0.3 | ) |
Change in unamortized loss on available-for-sale investment securities transferred into held-to-maturity | 1.6 |
| | 1.9 |
| | 1.9 |
|
Change in net unrealized gain (loss) on derivatives | — |
| | (1.1 | ) | | (0.2 | ) |
Reclassification adjustment for derivative net losses included in income | — |
| | 1.1 |
| | — |
|
Defined benefit post-retirement benefit plans: | | | | | |
Change in net actuarial loss | (0.6 | ) | | (1.3 | ) | | 3.9 |
|
Other comprehensive income (loss), before tax | (12.8 | ) | | (6.6 | ) | | (14.1 | ) |
Deferred tax benefit (expense) related to other comprehensive income (loss) | 3.3 |
| | 2.8 |
| | 5.5 |
|
Other comprehensive income (loss), net of tax | (9.5 | ) | | (3.8 | ) | | (8.6 | ) |
Comprehensive income | $ | 150.7 |
| | $ | 102.7 |
| | $ | 87.1 |
|
| | | | | | | | | | | |
December 31, | 2020 | | 2019 |
Assets | | | |
Cash and due from banks | $ | 261.4 | | | $ | 241.5 | |
Interest bearing deposits in banks | 2,015.3 | | | 835.2 | |
Federal funds sold | 0.1 | | | 0.1 | |
Total cash and cash equivalents | 2,276.8 | | | 1,076.8 | |
Investment securities: | | | |
Available-for-sale | 4,008.7 | | | 2,960.0 | |
Held-to-maturity, net (estimated fair values of $55.0 and $94.5 at December 31, 2020 and 2019, respectively) | 51.6 | | | 92.3 | |
Total investment securities | 4,060.3 | | | 3,052.3 | |
Mortgage loans held for sale, at fair value | 74.0 | | | 100.9 | |
Loans held for investment, net of deferred fees and costs | 9,807.5 | | | 8,930.7 | |
Allowance for credit losses | 144.3 | | | 73.0 | |
Net loans held for investment | 9,663.2 | | | 8,857.7 | |
Goodwill | 621.6 | | | 621.6 | |
Company-owned life insurance | 296.4 | | | 293.8 | |
Premises and equipment, net of accumulated depreciation | 312.3 | | | 306.0 | |
Core deposit intangibles, net of accumulated amortization | 51.2 | | | 62.1 | |
Accrued interest receivable | 51.1 | | | 46.7 | |
Mortgage servicing rights, net of accumulated amortization and impairment reserve | 24.0 | | | 30.2 | |
Other real estate owned (“OREO”) | 2.5 | | | 8.5 | |
| | | |
Other assets | 215.3 | | | 187.6 | |
Total assets | $ | 17,648.7 | | | $ | 14,644.2 | |
Liabilities and Stockholders’ Equity | | | |
Deposits: | | | |
Non-interest bearing | $ | 4,633.5 | | | $ | 3,426.5 | |
Interest bearing | 9,583.5 | | | 8,237.0 | |
Total deposits | 14,217.0 | | | 11,663.5 | |
Securities sold under repurchase agreements | 1,091.4 | | | 697.6 | |
Accounts payable and accrued expenses | 144.4 | | | 129.6 | |
Accrued interest payable | 5.8 | | | 12.1 | |
Deferred tax liability, net | 27.2 | | | 26.7 | |
Long-term debt | 112.4 | | | 13.9 | |
| | | |
Allowance for credit losses on off-balance sheet credit exposures | 3.7 | | | 0 | |
| | | |
Subordinated debentures held by subsidiary trusts | 87.0 | | | 86.9 | |
Total liabilities | 15,688.9 | | | 12,630.3 | |
Stockholders’ equity: | | | |
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; no shares issued or outstanding as of December 31, 2020 or 2019 | 0 | | | 0 | |
Common stock | 941.1 | | | 1,049.3 | |
Retained earnings | 962.1 | | | 953.6 | |
Accumulated other comprehensive income, net | 56.6 | | | 11.0 | |
Total stockholders’ equity | 1,959.8 | | | 2,013.9 | |
Total liabilities and stockholders’ equity | $ | 17,648.7 | | | $ | 14,644.2 | |
See accompanying notes to consolidated financial statements.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In millions, except share and per share data) |
| | | | | | | | | | | | | | | |
| Common Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity |
Balance at December 31, 2015 | $ | 311.7 |
| | $ | 638.4 |
| | $ | 0.4 |
| | $ | 950.5 |
|
Net income | — |
| | 95.7 |
| | — |
| | 95.7 |
|
Other comprehensive loss, net of tax expense | — |
| | — |
| | (8.6 | ) | | (8.6 | ) |
Common stock transactions: | | | | | | | |
1,015,389 common shares purchased and retired | (26.9 | ) | | — |
| | — |
| | (26.9 | ) |
16,347 common shares issued | — |
| | — |
| | — |
| | — |
|
190,239 non-vested common shares issued | — |
| | — |
| | — |
| | — |
|
29,844 non-vested common shares forfeited or canceled | — |
| | — |
| | — |
| | — |
|
336,598 common shares purchased and retired 104,643 shares tendered in payment of option price and income tax withholding amounts | 4.7 |
| | — |
| | — |
| | 4.7 |
|
Tax benefit of stock-based compensation | 2.2 |
| | — |
| | — |
| | 2.2 |
|
Stock-based compensation expense | 4.4 |
| | — |
| | — |
| | 4.4 |
|
Common cash dividends declared ($0.88 per share) | — |
| | (39.4 | ) | | — |
| | (39.4 | ) |
Balance at December 31, 2016 | $ | 296.1 |
| | $ | 694.7 |
| | $ | (8.2 | ) |
| $ | 982.6 |
|
Net income | — |
| | 106.5 |
| | — |
| | 106.5 |
|
Other comprehensive loss, net of tax expense | — |
| | — |
| | (3.8 | ) | | (3.8 | ) |
Common stock transactions: | | |
| | | |
|
33,063 common shares purchased and retired | (1.3 | ) | | — |
| | — |
| | (1.3 | ) |
11,267,676 common shares issued | 386.0 |
| | — |
| | — |
| | 386.0 |
|
140,246 non-vested common shares issued | — |
| | — |
| | — |
| | — |
|
53,571 non-vested common shares forfeited or canceled | — |
| | — |
| | — |
| | — |
|
218,095 common shares purchased and retired 67,792 shares tendered in payment of option price and income tax withholding amounts | 2.4 |
| | — |
| | — |
| | 2.4 |
|
Stock-based compensation expense | 3.8 |
| | — |
| | — |
| | 3.8 |
|
Common cash dividends declared ($0.96 per share) | — |
| | (48.6 | ) | | — |
| | (48.6 | ) |
Balance at December 31, 2017 | $ | 687.0 |
| | $ | 752.6 |
| | $ | (12.0 | ) | | $ | 1,427.6 |
|
Net income | — |
| | 160.2 |
| | — |
| | 160.2 |
|
Reclassification of the income tax effects of the Tax Cut and Jobs Act from AOCI | — |
| | 3.1 |
| | (3.1 | ) | | — |
|
Other comprehensive income, net of tax expense | — |
| | — |
| | (9.5 | ) | | (9.5 | ) |
Common stock transactions: | | | | | | | |
24,271 common shares purchased and retired | (1.0 | ) | | — |
| | — |
| | (1.0 | ) |
3,848,929 common shares issued | 173.3 |
| | — |
| | — |
| | 173.3 |
|
214,892 non-vested common shares issued | — |
| | — |
| | — |
| | — |
|
43,079 non-vested common shares forfeited or canceled | — |
| | — |
| | — |
| | — |
|
161,217 common shares purchased and retired 38,450 shares tendered in payment of option price and income tax withholding amounts | 1.8 |
| | — |
| | — |
| | 1.8 |
|
Stock-based compensation expense | 5.6 |
| | — |
| | — |
| | 5.6 |
|
Common cash dividends declared ($1.12 per share) | — |
| | (64.1 | ) | | — |
| | (64.1 | ) |
Balance at December 31, 2018 | $ | 866.7 |
| | $ | 851.8 |
| | $ | (24.6 | ) | | $ | 1,693.9 |
|
(In millions, except per share data) | | | | | | | | | | | | | | | | | |
Year Ended December 31, | 2020 | | 2019 | | 2018 |
Interest income: | | | | | |
Interest and fees on loans | $ | 453.4 | | | $ | 470.9 | | | $ | 404.3 | |
Interest and dividends on investment securities: | | | | | |
Taxable | 63.4 | | | 62.3 | | | 55.4 | |
Exempt from federal taxes | 2.7 | | | 2.0 | | | 2.4 | |
Interest on deposits in banks | 4.1 | | | 18.8 | | | 11.3 | |
| | | | | |
Total interest income | 523.6 | | | 554.0 | | | 473.4 | |
Interest expense: | | | | | |
Interest on deposits | 18.1 | | | 49.3 | | | 32.6 | |
Interest on securities sold under repurchase agreements | 0.9 | | | 3.9 | | | 2.7 | |
Interest on other borrowed funds | 0 | | | 0 | | | 0.2 | |
Interest on long-term debt | 4.6 | | | 1.3 | | | 1.3 | |
Interest on subordinated debentures held by subsidiary trusts | 3.0 | | | 4.5 | | | 4.1 | |
Total interest expense | 26.6 | | | 59.0 | | | 40.9 | |
Net interest income | 497.0 | | | 495.0 | | | 432.5 | |
Provision for credit losses | 56.9 | | | 13.9 | | | 8.6 | |
Net interest income after provision for credit losses | 440.1 | | | 481.1 | | | 423.9 | |
Non-interest income: | | | | | |
Payment services revenues | 41.1 | | | 41.5 | | | 43.3 | |
Mortgage banking revenues | 47.3 | | | 33.2 | | | 29.7 | |
Wealth management revenues | 23.8 | | | 23.8 | | | 23.2 | |
Service charges on deposit accounts | 17.6 | | | 21.1 | | | 21.8 | |
Other service charges, commissions, and fees | 12.1 | | | 7.0 | | | 5.8 | |
| | | | | |
Investment securities gains (losses), net | 0.3 | | | 0.1 | | | (0.1) | |
Other income | 14.5 | | | 15.9 | | | 15.1 | |
| | | | | |
Total non-interest income | 156.7 | | | 142.6 | | | 138.8 | |
Non-interest expense: | | | | | |
Salaries and wages | 173.7 | | | 155.3 | | | 146.4 | |
Employee benefits | 49.4 | | | 51.5 | | | 47.9 | |
Outsourced technology services | 32.8 | | | 32.3 | | | 28.7 | |
Occupancy, net | 28.5 | | | 28.3 | | | 25.4 | |
Furniture and equipment | 15.5 | | | 13.2 | | | 12.7 | |
OREO expense, net of income | (0.5) | | | (2.2) | | | 0.3 | |
Professional fees | 10.9 | | | 11.6 | | | 10.5 | |
FDIC insurance premiums | 5.9 | | | 3.5 | | | 5.6 | |
| | | | | |
| | | | | |
Core deposit intangibles amortization | 10.9 | | | 11.2 | | | 7.9 | |
Other expenses | 60.4 | | | 63.6 | | | 58.6 | |
| | | | | |
Acquisition related expenses | 0 | | | 20.3 | | | 12.4 | |
Total non-interest expense | 387.5 | | | 388.6 | | | 356.4 | |
Income before income tax expense | 209.3 | | | 235.1 | | | 206.3 | |
Income tax expense | 48.1 | | | 54.1 | | | 46.1 | |
Net income | $ | 161.2 | | | $ | 181.0 | | | $ | 160.2 | |
| | | | | |
| | | | | |
| | | | | |
Basic earnings per common share | $ | 2.53 | | | $ | 2.84 | | | $ | 2.77 | |
Diluted earnings per common share | 2.53 | | | 2.83 | | | 2.75 | |
See accompanying notes to consolidated financial statements.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) |
| | | | | | | | | | | |
Year Ended December 31, | 2018 | | 2017 | | 2016 |
Cash flows from operating activities: | | | | | |
Net income | $ | 160.2 |
| | $ | 106.5 |
| | $ | 95.7 |
|
Adjustments to reconcile net income from operations to net cash provided by operating activities: | | | | |
|
Provision for loan losses | 8.6 |
| | 11.0 |
| | 10.0 |
|
Net (gain) loss on disposal of property and equipment | — |
| | 0.2 |
| | 0.6 |
|
Depreciation and amortization | 27.6 |
| | 18.4 |
| | 19.5 |
|
Net premium amortization on investment securities | 10.0 |
| | 11.6 |
| | 12.5 |
|
Net (gain) loss on investment securities transactions | 0.1 |
| | (0.7 | ) | | (0.3 | ) |
Realized and unrealized net gains on mortgage banking activities | (23.0 | ) | | (25.2 | ) | | (26.8 | ) |
Net loss (gain) on sale of OREO | (0.8 | ) | | 0.1 |
| | (0.9 | ) |
Write-down of OREO and other assets pending disposal | 0.1 |
| | 0.4 |
| | 0.8 |
|
Net (gain) on sale of Health Savings Accounts | — |
| | (3.1 | ) | | — |
|
Mortgage servicing rights recovery | — |
| | (0.1 | ) | | — |
|
Deferred income tax expense (benefit) | 15.8 |
| | 20.9 |
| | 3.4 |
|
Net increase in cash surrender value of company-owned life insurance policies | (5.0 | ) | | (5.4 | ) | | (4.5 | ) |
Stock-based compensation expense | 5.6 |
| | 3.9 |
| | 4.4 |
|
Tax benefits from stock-based compensation | — |
| | — |
| | 2.1 |
|
Excess tax benefits from stock-based compensation | — |
| | — |
| | (1.6 | ) |
Originations of mortgage loans held for sale | (768.1 | ) | | (815.0 | ) | | (1,042.5 | ) |
Proceeds from sales of mortgage loans held for sale | 798.4 |
| | 860.1 |
| | 1,054.5 |
|
Changes in operating assets and liabilities: | | | | | |
(Increase) decrease in interest receivable | (3.3 | ) | | (0.6 | ) | | (1.1 | ) |
Decrease (increase) in other assets | (8.0 | ) | | (6.1 | ) | | (2.2 | ) |
Increase (decrease) in interest payable | 2.2 |
| | 0.2 |
| | 0.4 |
|
Increase (decrease) in accounts payable and accrued expenses | (0.2 | ) | | (22.5 | ) | | (6.0 | ) |
Net cash provided by operating activities | 220.2 |
| | 154.6 |
|
| 118.0 |
|
Cash flows from investing activities: | | | | | |
Purchases of investment securities: | | | | | |
Held-to-maturity | (2.0 | ) | | (12.8 | ) | | (18.2 | ) |
Available-for-sale | (541.0 | ) | | (614.3 | ) | | (905.9 | ) |
Proceeds from maturities, pay-downs, calls and sales of investment securities: | | | | | |
Held-to-maturity | 79.3 |
| | 97.4 |
| | 112.6 |
|
Available-for-sale | 460.0 |
| | 426.2 |
| | 814.6 |
|
Extensions of credit to customers, net of repayments | (221.7 | ) | | (99.7 | ) | | (168.3 | ) |
Recoveries of loans charged-off | 12.0 |
| | 7.8 |
| | 9.2 |
|
Proceeds from sales of OREO | 9.1 |
| | 5.9 |
| | 5.3 |
|
Acquisition of intangible assets | — |
| | (28.0 | ) | | — |
|
Proceeds from the sale of Health Savings Accounts | — |
| | 6.1 |
| | — |
|
Proceeds from sale of loan production office | — |
| | — |
| | 0.9 |
|
Acquisition of bank and bank holding company, net of cash and cash equivalents received | 28.1 |
| | 91.8 |
| | 18.6 |
|
Capital expenditures, net of proceeds from sales | (6.1 | ) | | (11.0 | ) | | (11.9 | ) |
Net cash provided by (used in) investing activities | $ | (182.3 | ) | | $ | (130.6 | ) | | $ | (143.1 | ) |
(In millions) | | | | | | | | | | | | | | | | | |
Year ended December 31, | 2020 | | 2019 | | 2018 |
Net income | $ | 161.2 | | | $ | 181.0 | | | $ | 160.2 | |
Other comprehensive income (loss) before tax: | | | | | |
Investment securities available-for-sale: | | | | | |
Change in net unrealized gains (losses) during the period | 61.8 | | | 54.9 | | | (13.9) | |
Reclassification adjustment for net (gains) losses included in income | (0.3) | | | (0.1) | | | 0.1 | |
Reclassification adjustment for securities transferred from held-to-maturity to available-for-sale | 0 | | | (6.0) | | | 0 | |
Change in unamortized loss on available-for-sale investment securities transferred into held-to-maturity | 0 | | | 0 | | | 1.6 | |
Change in net unrealized loss on derivatives | 0.2 | | | 0 | | | 0 | |
| | | | | |
Defined benefit post-retirement benefit plans: | | | | | |
Change in net actuarial loss | (0.5) | | | (0.8) | | | (0.6) | |
Other comprehensive income (loss), before tax | 61.2 | | | 48.0 | | | (12.8) | |
Deferred tax (expense) benefit related to other comprehensive income (loss) | (15.6) | | | (12.4) | | | 3.3 | |
Other comprehensive income (loss), net of tax | 45.6 | | | 35.6 | | | (9.5) | |
Comprehensive income, net of tax | $ | 206.8 | | | $ | 216.6 | | | $ | 150.7 | |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In millions) |
| | | | | | | | | | | |
Year Ended December 31, | 2018 | | 2017 | | 2016 |
Cash flows from financing activities: | | | | | |
Net increase (decrease) in deposits | $ | 49.5 |
| | $ | (110.2 | ) | | $ | 77.6 |
|
Net increase (decrease) in securities sold under repurchase agreements | 69.4 |
| | 105.4 |
| | 8.9 |
|
Net increase (decrease) in other borrowed funds | (26.1 | ) | | 0.1 |
| | — |
|
Repayments of long-term debt | (7.1 | ) | | 0.1 |
| | (0.1 | ) |
Advances on long-term debt | 2.8 |
| | 5.0 |
| | 0.2 |
|
Proceeds from issuance of common stock | 1.8 |
| | 2.4 |
| | 4.7 |
|
Excess tax benefits from stock-based compensation | — |
| | — |
| | 1.6 |
|
Purchase and retirement of common stock | (1.0 | ) | | (1.3 | ) | | (26.9 | ) |
Dividends paid to common stockholders | (64.1 | ) | | (48.6 | ) | | (39.4 | ) |
Net cash provided by (used in) financing activities | 25.2 |
| | (47.1 | ) | | 26.6 |
|
Net increase (decrease) in cash and cash equivalents | 63.1 |
| | (23.1 | ) | | 1.5 |
|
Cash and cash equivalents at beginning of period | 758.9 |
| | 782.0 |
| | 780.5 |
|
Cash and cash equivalents at end of period | $ | 822.0 |
| | $ | 758.9 |
| | $ | 782.0 |
|
| | | | | |
Supplemental disclosures of cash flow information: | | | | | |
Cash paid during the period for income taxes | $ | 25.3 |
| | $ | 28.8 |
| | $ | 54.4 |
|
Cash paid during the period for interest expense | 38.7 |
| | 27.8 |
| | 17.2 |
|
| | | | | |
Supplemental disclosures of noncash investing and financing activities: | | | | | |
Transfer from long-term debt to other borrowed funds | $ | — |
| | $ | 20.0 |
| | $ | — |
|
Transfer of loans to other real estate owned | 12.1 |
| | 5.2 |
| | 7.6 |
|
Capitalization of internally originated mortgage servicing rights | 6.1 |
| | 5.6 |
| | 5.8 |
|
| | | | | |
Supplemental schedule of noncash investing activities from acquisitions: | | | | | |
Investment securities available for sale | $ | 3.1 |
| | $ | 424.3 |
| | $ | — |
|
Investment securities held to maturity | — |
| | 57.3 |
| | — |
|
Loans held for sale | — |
| | 10.3 |
| | — |
|
Loans | 713.1 |
| | 2,079.3 |
| | — |
|
Premises and equipment | 14.0 |
| | 47.7 |
| | — |
|
Goodwill | 101.1 |
| | 231.9 |
| | — |
|
Core deposit intangible | 15.7 |
| | 48.0 |
| | — |
|
Mortgage servicing rights | — |
| | 3.5 |
| | — |
|
Company-owned life insurance | 9.5 |
| | 57.0 |
| | — |
|
Deferred tax assets | — |
| | 28.6 |
| | — |
|
Interest receivable | 3.6 |
| | 7.6 |
| | — |
|
Other real estate owned | 0.6 |
| | 1.2 |
| | — |
|
Other assets | 6.2 |
| | 31.6 |
| | — |
|
Total noncash assets acquired | $ | 866.9 |
| | $ | 3,028.3 |
| | $ | — |
|
| | | | | |
Liabilities assumed: | | | | | |
Deposits | $ | 696.3 |
| | $ | 2,669.0 |
| | $ | — |
|
Accounts payable and accrued expenses | 7.7 |
| | 64.2 |
| | — |
|
Long-term debt | 7.0 |
| | — |
| | — |
|
Other borrowed funds | 6.1 |
| | — |
| | — |
|
Trust preferred securities | 4.4 |
| | — |
| | — |
|
Deferred tax liability | 0.3 |
| | — |
| | — |
|
Total liabilities assumed | $ | 721.8 |
| | $ | 2,733.2 |
| | $ | — |
|
See accompanying notes to consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In millions, except share and per share data) |
| Common Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity |
Balance at December 31, 2017 | $ | 687.0 | | | $ | 752.6 | | | $ | (12.0) | | | $ | 1,427.6 | |
Net income | 0 | | | 160.2 | | | 0 | | | 160.2 | |
Reclassification of the income tax effects of the Tax Cut and Jobs Act from AOCI | 0 | | | 3.1 | | | (3.1) | | | 0 | |
Other comprehensive loss, net of tax expense | 0 | | | 0 | | | (9.5) | | | (9.5) | |
Common stock transactions: | | | | | | | |
24,271 common shares purchased and retired | (1.0) | | | 0 | | | 0 | | | (1.0) | |
3,848,929 common shares issued | 173.3 | | | 0 | | | 0 | | | 173.3 | |
214,892 non-vested common shares issued | 0 | | | 0 | | | 0 | | | 0 | |
43,079 non-vested common shares forfeited or canceled | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | |
161,217 stock options exercised, net of 38,450 shares tendered in payment of option price and income tax withholding amounts | 1.8 | | | 0 | | | 0 | | | 1.8 | |
| | | | | | | |
Stock-based compensation expense | 5.6 | | | 0 | | | 0 | | | 5.6 | |
Common cash dividends declared ($1.12 per share) | 0 | | | (64.1) | | | 0 | | | (64.1) | |
Balance at December 31, 2018 | $ | 866.7 | | | $ | 851.8 | | | $ | (24.6) | | | $ | 1,693.9 | |
Net income | 0 | | | 181.0 | | | 0 | | | 181.0 | |
| | | | | | | |
Other comprehensive income, net of tax expense | 0 | | | 0 | | | 35.6 | | | 35.6 | |
Common stock transactions: | | | | | | | |
43,560 common shares purchased and retired | (2.5) | | | 0 | | | 0 | | | (2.5) | |
4,356,973 common shares issued | 176.1 | | | 0 | | | 0 | | | 176.1 | |
212,587 non-vested common shares issued | 0 | | | 0 | | | 0 | | | 0 | |
46,198 non-vested common shares forfeited or canceled | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | |
143,222 stock options exercised, net of 47,971 shares tendered in payment of option price and income tax withholding amounts | 1.0 | | | 0 | | | 0 | | | 1.0 | |
| | | | | | | |
Stock-based compensation expense | 8.0 | | | 0 | | | 0 | | | 8.0 | |
Common cash dividends declared ($1.24 per share) | 0 | | | (79.2) | | | 0 | | | (79.2) | |
Balance at December 31, 2019 | $ | 1,049.3 | | | $ | 953.6 | | | $ | 11.0 | | | $ | 2,013.9 | |
Cumulative change related to the adoption of ASU 2016-13 | 0 | | | (24.1) | | | 0 | | | (24.1) | |
Adjusted balance at January 1, 2020 | 1,049.3 | | | 929.5 | | | 11.0 | | | 1,989.8 | |
Net income | 0 | | | 161.2 | | | 0 | | | 161.2 | |
| | | | | | | |
Other comprehensive income, net of tax expense | 0 | | | 0 | | | 45.6 | | | 45.6 | |
Common stock transactions: | | | | | | | |
3,578,743 common shares purchased and retired | (116.8) | | | 0 | | | 0 | | | (116.8) | |
19,491 common shares issued | 0 | | | 0 | | | 0 | | | 0 | |
332,085 non-vested common shares issued | 0 | | | 0 | | | 0 | | | 0 | |
34,912 non-vested common shares forfeited or canceled | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | |
111,539 stock options exercised, net of 26,124 shares tendered in payment of option price and income tax withholding amounts | 1.1 | | | 0 | | | 0 | | | 1.1 | |
| | | | | | | |
Stock-based compensation expense | 7.5 | | | 0 | | | 0 | | | 7.5 | |
Common cash dividends declared ($2.00 per share) | 0 | | | (128.6) | | | 0 | | | (128.6) | |
Balance at December 31, 2020 | $ | 941.1 | | | $ | 962.1 | | | $ | 56.6 | | | $ | 1,959.8 | |
See accompanying notes to consolidated financial statements.
| | | | | | | | | | | | | | | | | |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) |
Year Ended December 31, | 2020 | | 2019 | | 2018 |
Cash flows from operating activities: | | | | | |
Net income | $ | 161.2 | | | $ | 181.0 | | | $ | 160.2 | |
Adjustments to reconcile net income from operations to net cash provided by operating activities: | | | | | |
Provision for credit losses* | 56.9 | | | 13.9 | | | 8.6 | |
Net loss (gain) on disposal of property and equipment | 0.3 | | | (1.5) | | | (1.2) | |
Depreciation and amortization | 45.1 | | | 38.7 | | | 27.6 | |
Net premium amortization on investment securities | 15.9 | | | 8.9 | | | 10.0 | |
Net (gain) loss on investment securities transactions | (0.3) | | | (0.1) | | | 0.1 | |
Realized and unrealized net gains on mortgage banking activities | (49.3) | | | (30.5) | | | (23.0) | |
Net gain on sale of investments in unrelated entities | (1.0) | | | 0 | | | 0 | |
Net gain on sale of OREO | (0.9) | | | (3.6) | | | (0.8) | |
Write-downs of OREO and other assets pending disposal | 0.1 | | | 0.9 | | | 0.1 | |
| | | | | |
Mortgage servicing rights impairment | 9.9 | | | 0.4 | | | 0 | |
Deferred taxes | (6.6) | | | 5.4 | | | 15.8 | |
Net increase in cash surrender value of company-owned life insurance policies | (7.6) | | | (6.7) | | | (5.0) | |
Stock-based compensation expense | 7.5 | | | 8.0 | | | 5.6 | |
| | | | | |
| | | | | |
Originations of mortgage loans held for sale | (1,404.2) | | | (1,015.6) | | | (768.1) | |
Proceeds from sales of mortgage loans held for sale | 1,468.4 | | | 971.2 | | 798.4 |
| | | | | |
Changes in operating assets and liabilities: | | | | | |
(Increase) decrease in interest receivable | (4.4) | | | 0.3 | | | (3.3) | |
Increase in other assets | (27.7) | | | (22.1) | | | (8.0) | |
(Decrease) increase in interest payable | (6.3) | | | (13.5) | | | 2.2 | |
Increase (decrease) in accounts payable and accrued expenses | 11.3 | | | (7.8) | | | (0.2) | |
Net cash provided by operating activities | 268.3 | | | 127.3 | | | 219.0 | |
Cash flows from investing activities: | | | | | |
Purchases of investment securities: | | | | | |
Held-to-maturity | 0 | | | 0 | | | (2.0) | |
Available-for-sale | (2,444.1) | | | (1,270.0) | | | (541.0) | |
Proceeds from maturities, pay-downs, calls and sales of investment securities: | | | | | |
Held-to-maturity | 40.4 | | | 35.6 | | | 79.3 | |
Available-for-sale | 1,441.4 | | | 978.6 | | | 460.0 | |
| | | | | |
| | | | | |
Proceeds from bank-owned life insurance settlements | 5.0 | | | 3.2 | | | 0 | |
| | | | | |
Extensions of credit to clients, net of repayments | (901.3) | | | (81.4) | | | (221.7) | |
Recoveries of loans charged-off | 6.7 | | | 9.7 | | | 12.0 | |
Proceeds from sales of OREO | 10.1 | | | 25.4 | | | 9.1 | |
| | | | | |
Proceeds from the sale of health savings accounts | 0 | | | 0.3 | | | 0 | |
Proceeds from sale of investments in unrelated entities | 2.2 | | | 0 | | | 0 | |
Acquisition of banks and bank holding companies, net of cash and cash equivalents received | 0 | | | 298.4 | | | 28.1 | |
Capital expenditures, net of proceeds from sales | (30.2) | | | (16.6) | | | (4.9) | |
Net cash used in investing activities | $ | (1,869.8) | | | $ | (16.8) | | | $ | (181.1) | |
| | | | | | | | | | | | | | | | | |
| | | | | |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In millions) |
Year Ended December 31, | 2020 | | 2019 | | 2018 |
Cash flows from financing activities: | | | | | |
Net increase in deposits | $ | 2,553.5 | | | $ | 276.2 | | | $ | 49.5 | |
Net increase (decrease) in securities sold under repurchase agreements | 393.8 | | | (45.2) | | | 69.4 | |
Net decrease in other borrowed funds | 0 | | | (4.1) | | | (26.1) | |
| | | | | |
Repayments of long-term debt | (0.1) | | | (2.0) | | | (7.1) | |
Advances on long-term debt | 98.6 | | | 0.1 | | | 2.8 | |
| | | | | |
Proceeds from issuance of common stock | 1.1 | | | 1.0 | | | 1.8 | |
| | | | | |
| | | | | |
Purchase and retirement of common stock | (116.8) | | | (2.5) | | | (1.0) | |
Dividends paid to common stockholders | (128.6) | | | (79.2) | | | (64.1) | |
| | | | | |
Net cash provided by (used in) financing activities | 2,801.5 | | | 144.3 | | | 25.2 | |
Net increase (decrease) in cash and cash equivalents | 1,200.0 | | | 254.8 | | | 63.1 | |
Cash and cash equivalents at beginning of period | 1,076.8 | | | 822.0 | | | 758.9 | |
Cash and cash equivalents at end of period | $ | 2,276.8 | | | $ | 1,076.8 | | | $ | 822.0 | |
| | | | | |
Supplemental disclosures of cash flow information: | | | | | |
Cash paid during the period for income taxes | $ | 54.4 | | | $ | 51.2 | | | $ | 25.3 | |
Cash paid during the period for interest expense | 32.9 | | | 54.7 | | | 38.7 | |
| | | | | |
Supplemental disclosures of noncash investing and financing activities: | | | | | |
Amortization of unrealized gains and losses on transfers of securities | $ | 0 | | | $ | 0 | | | $ | 1.6 | |
Transfer of securities from held-to-maturity to available-for-sale | 0 | | | 281.1 | | | 0 | |
Right-of-use assets obtained in exchange for operating lease liabilities | 3.6 | | | 39.6 | | | 0 | |
| | | | | |
Transfer of loans to other real estate owned | 3.3 | | | 14.1 | | | 12.1 | |
Capitalization of internally originated mortgage servicing rights | 11.7 | | | 7.3 | | | 6.0 | |
| | | | | |
Supplemental schedule of noncash investing activities from acquisitions: | | | | | |
Investment securities available for sale | $ | 0 | | | $ | 78.7 | | | $ | 3.1 | |
| | | | | |
Loans held for sale | 0 | | | 0.5 | | | 0 | |
Loans | 0 | | | 416.6 | | | 713.1 | |
Premises and equipment | 0 | | | 24.6 | | | 14.0 | |
Goodwill | 0 | | | 75.3 | | | 101.1 | |
Core deposit intangible | 0 | | | 16.6 | | | 15.7 | |
| | | | | |
Company-owned life insurance | 0 | | | 15.2 | | | 9.5 | |
| | | | | |
Interest receivable | 0 | | | 2.2 | | | 3.6 | |
Other real estate owned | 0 | | | 2.4 | | | 0.6 | |
Other assets | 0 | | | 6.5 | | | 6.2 | |
Total noncash assets acquired | $ | 0 | | | $ | 638.6 | | | $ | 866.9 | |
| | | | | |
Liabilities assumed: | | | | | |
Deposits | $ | 0 | | | $ | 706.7 | | | $ | 696.3 | |
Securities sold under repurchase agreements | 0 | | | 30.4 | | | 0 | |
Accounts payable and accrued expenses | 0 | | | 19.9 | | | 7.7 | |
Long-term debt | 0 | | | 4.1 | | | 7.0 | |
Other borrowed funds | 0 | | | 0 | | | 6.1 | |
Trust preferred securities | 0 | | | 0 | | | 4.4 | |
Deferred tax liability | 0 | | | 0.1 | | | 0.3 | |
Total liabilities assumed | $ | 0 | | | $ | 761.2 | | | $ | 721.8 | |
*Provision for credit losses for 2020; Provision for loan losses for 2019 and 2018. |
See accompanying notes to consolidated financial statements.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| |
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business. First Interstate BancSystem, Inc. (the “Parent Company” and collectively with its subsidiaries, the “Company”) is a financial and bank holding company that, through the branch offices of its bank subsidiary, provides a comprehensive range of banking products and services to individuals, businesses, municipalities, and other entities throughout Idaho, Montana, Oregon, South Dakota, Washington, and Wyoming. In addition to its primary emphasis on commercial and consumer banking services, the Company also offers trust, employee benefit, investment, and insurance services through its bank subsidiary. The Company is subject to competition from other financial institutions and nonbank financial companies, and is also subject to the regulations of various government agencies and undergoes periodic examinations by those regulatory authorities.
Basis of Presentation. The Company’s consolidated financial statements include the accounts of the Parent Company and its operating subsidiaries. As of December 31, 2018,2020, the Company had one1 significant subsidiary, First Interstate Bank (“FIB”). All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications, none of which were material, have been made in the consolidated financial statements for 20172019 and 20162018 to conform to the 20182020 presentation. These reclassifications did not change previously reported net income or stockholders’ equity.
Business Combinations. The Company accounts for all business combinations using the acquisition method of accounting. Under this method of accounting, acquired assets and assumed liabilities are included with the acquirer's accounts as of the date of acquisition, with any excess of purchase price over the fair value of the net assets acquired recognized as either finite lived intangibles or capitalized as goodwill. In addition, acquisition related costs and restructuring costs are recognized as period expenses as incurred. Fair values are subject to refinement over the measurement period, not to exceed one year after the closing date.
Equity Method Investments. The Company has investments in real estate joint ventures that are not consolidated because the Company does not own a majority voting interest, control the operations or receive a majority of the losses or earnings of the joint venture. These joint ventures are accounted for using the equity method of accounting whereby the Company initially records its investment at cost (or fair value at the date of acquisition) and then subsequently adjusts the carrying value for the Company’s proportionate share of distributions and earnings or losses of the joint ventures.
Variable Interest Entities. The Company’s wholly-owned business trusts, FI Statutory Trust I (“Trust I”), FI Capital Trust II (“Trust II”), FI Statutory Trust III (“Trust III”), FI Capital Trust IV (“Trust IV”), FI Statutory Trust V (“Trust V”), FI Statutory Trust VI (“Trust VI”), and Northwest Bancorporation Capital Trust I (“Trust VII”) are variable interest entities for which the Company is not a primary beneficiary. Accordingly, the accounts of Trust I, Trust II, Trust III, Trust IV, Trust V, Trust VI, and Trust VII are not included in the accompanying consolidated financial statements, and are instead accounted for using the equity method of accounting.
The Company has equity investments in variable interest Certified Development Entities (“CDEs”) which have received allocations under the New Markets Tax Credits Program. The underlying activities of the CDEs are community development projects designed primarily to promote community welfare, such as economic rehabilitation and development of low-income areas by providing housing, services, or jobs for residents. The maximum exposure to loss in the CDEs is the amount of equity invested and credit extended by the Company. The Company has credit protection in the form of indemnification agreements, guarantees, and collateral arrangements. As the primary beneficiary of these variable interest entities, the Company’s consolidated financial statements include the assets, liabilities, and results of operations of the CDEs. The primary activities of the CDEs are recognized in interest and fees on loans, other non-interest income and long-term debt interest expense on the Company’s statements of operations. Related cash flows are recognized in loans originated, principal collected on loans and advances or repayments of long-term debt.
Assets Held in Fiduciary or Agency Capacity. The Company holds certain trust assets in a fiduciary or agency capacity. The Company also purchases and sells federal funds as an agent. These and other assets held in an agency or fiduciary capacity are not assets of the Company and, accordingly, are not included in the accompanying consolidated financial statements.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Use of Estimates. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change relate to the determination of the allowance for loancredit losses, the valuation of goodwill, fair valuations of investment securities and other financial instruments, and the status of loss contingencies.
Cash and Cash Equivalents. For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold for one dayone-day periods, and interest bearinginterest-bearing deposits in banks with original maturities of less than three months. As of December 31, 20182020 and 2017,2019, the Company had cash of $574.4$1,989.3 million and $552.0$769.3 million, respectively, on deposit with the Federal Reserve Bank. In addition, the Company maintained compensating balances with the Federal Reserve Bank of approximately $28.1 million0 and $16.1$46.3 million as of December 31, 20182020 and 2017,2019, respectively, to reduce service charges for check clearing services.
Investment Securities. Debt Security Investments. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and carried at amortized cost. Investments in debt securities that may be sold in response to or in anticipation of changes in interest rates and resulting prepayment risk, or other factors, and marketable equity securities are classified as available-for-sale and carried at fair value. The unrealized gains and losses on these securities are reported, net of applicable income taxes, as a separate component of stockholders’ equity and comprehensive income. Management determines the appropriate classification of securities at the time of purchase and at each reporting date management reassesses the appropriateness of the classification.
The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for accretion of discounts to maturity and amortization of premiums over the estimated average life of the security, without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated, or in the case of callable securities, through the first call date, using the effective yield method. Such amortization and accretion is included in interest income. Realized gains and losses on sales are includedrecorded on the trade date in investment securities gains. Declinesgains and losses and determined using the specific identification method.
Accrued interest receivable on investment securities totaled $12.6 million and $9.8 million at December 31, 2020 and 2019, respectively, and was reported in the accrued interest receivable line item on the consolidated balance sheets.
Allowance for Credit Losses - Held-to-Maturity Securities: Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
Management classifies the held-to-maturity portfolio into the following major security types:
State, county, and municipal securities. Municipal bonds issued by municipal governments within the U.S. These types of securities are primarily composed of general obligation bonds, or municipal bonds backed by the credit and taxing power of the issuing jurisdiction and revenue obligation bonds, or municipal bonds that are financed by income-producing projects and are secured by a specified source of revenue. Municipal issues shall have at least an "A-" rating by Moody's and/or Standard and Poor’s, or equivalent creditworthiness must be established prior to purchase. All non-rated or private placement securities must be analyzed and approved by the Company’s Credit Department and documented prior to purchase.
Obligations of U.S. government agencies and entities. Securities held by the Company are primarily issued by The Federal Home Loan Mortgage Corporation, known as Freddie Mac, and The Federal National Mortgage Association, Fannie Mae, which are implicitly guaranteed by the U.S. government and are consistently highly rated by major rating agencies with very little risk to default.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
U.S. agency residential mortgage backed securities and Collateralized Mortgage Obligations.Residential mortgage backed securities held by the Company are primarily issued by U.S. government agencies and entities. These securities are either explicitly or implicitly guaranteed by the U.S. government, are consistently highly rated by major rating agencies with very little risk to default. Collateralized mortgage obligations include agency and non-agency residential securities which currently carry ratings no lower than investment grade “BBB-” and pass the federal financial institutions examinations test (Collateral Mortgage Obligation volatility test) at the time of purchase.
Corporate securities. Securities held by the Company are primarily comprised of corporate bonds (both senior and subordinated-debt) issued by a firm or public entity which currently carry ratings no lower than investment grade “BBB-” or better by Moody’, Standard and Poor’s, or Kroll rating agencies. All corporate subordinated-debt securities are analyzed and approved by the Company prior to purchase.
Allowance for Credit Losses - Available-For-Sale Securities: For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company performs a qualitative assessment as to whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value of securities below theiris less than the amortized cost basis. Any impairment that are judged to be other-than-temporary are included in other expenses if the declinehas not been recorded through an allowance for credit losses is related to credit losses. Other-than-temporary impairment losses related to other factors are recognized in other comprehensive income, netincome.
Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of income taxes. In estimating other-than-temporary impairment losses,an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses.
Loans Held for Sale.Residential loans the Company considers, among other things,originated with the length of timeintent to sell are classified as loans held for sale and the extent to which therecorded at fair value, has been less than cost, the financial condition and near-term prospectsdetermined individually, as of the issuer andbalance sheet date. The loan’s fair value includes the servicing value of the loans as well as any accrued interest.
Loans Held for Investment.Loans that management has the intent and ability ofto hold for the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The cost of securities sold is based on the specific identification method.
Loans. Loansforeseeable future or until maturity or payoff are reported at amortized cost or principal balance outstanding. Amortized cost is the principal amount outstanding. Interest income on loans is calculated using the simple interest method on the daily balance outstanding, net of the principal amount outstanding.purchase premiums and discounts and deferred loan fees and costs. Loan origination fees, andnet of certain direct origination costs, are deferred and recognized in interest income using the net amountlevel-yield method without anticipating prepayments.
Accrued interest receivable on loans held for investment totaled $37.9 million and $36.9 million at December 31, 2020 and 2019, respectively, and was reported in the accrued interest receivable line item on the consolidated balance sheets. Interest income is amortized as an adjustmentaccrued on the unpaid principal balance of the related loan’s yield using a level yield method over the expected lives of the relatedunderlying loans.
The accrual of interestInterest income on mortgage and commercial loans is discontinued when, in management’s opinion,and placed on nonaccrual status at the borrower may be unable to meet payment obligations as they become due or when atime the loan becomes contractually past due ninetyis 90 days or more with respect to interest or principal,delinquent unless such past duethe loan is well secured and in process of collection.
Mortgage loans that are 180 days past due and commercial loans are charged off to the extent principal or interest is deemed uncollectible. Consumer and credit card loans continue to accrue interest until they are charged off no later than 120 days past due unless the loan is in the process of collection. WhenPast-due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest accrual is discontinued, all unpaidconsidered doubtful.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
All interest accrued interestbut not received for loans placed on nonaccrual is reversed against current period interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is subsequentlynot recognized onlyuntil the loan balance is reduced to zero. Under the extent cash payments arecash-basis method, interest income is recorded when the payment is received in excess of principal due.cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and when, in the opinion of management, the loans are estimated to be fully collectible as to both principal and interest.
Purchased Credit Deteriorated (“PCD”) Loans
A loanThe Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. Loans that meet at least one of the following criteria are considered to have experienced more-than-insignificant credit deterioration since origination at the date of acquisition: 1) delinquent as of the acquisition date; 2) has been downgraded since origination; 3) has been placed on nonaccrual status at any point since origination; or 4) for which credit spreads have widened beyond market-level thresholds. PCD loans are recorded at the amount paid for the loan. An allowance for credit losses is considered impaired when, based upon current information and events, it is probable thatdetermined using the Company will be unable to collect,same methodology as other loans held for investment. The initial allowance for credit losses determined on a timelycollective basis all amounts due accordingis allocated to the contractual termsindividual loans. The sum of the loan’s original agreement.purchase price and allowance for credit losses becomes its initial amortized cost basis. The amountdifference between the initial amortized cost basis and the par value of the impairment is measured using cash flows discounted at the loan’s effective interest rate, except when it is determined that the primary source of repayment for the loan is a noncredit discount or premium, which is amortized into interest income over the operation or liquidationlife of the underlying collateral. Inloan. Subsequent changes to the allowance for credit losses are recorded through provision expense.
Allowance for Credit Losses - Loans held for investment
The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. When forecasting expected recoveries, the amounts should not exceed the aggregate of amounts that have previously been or are expected to be charged-off loans. The Company has elected to not forecast recoveries.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses.
Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such cases,as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental and economic conditions, such as changes in unemployment rates, property values, or other relevant factors.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.
The Company applies Probability of Default (PD), and Loss Given Default (LGD), methodologies for all portfolio segments. The Company uses a Transition Matrix (TM) for PD components of the methodology and a historical average for the LGD components of methodology. The PD and LGD is applied to the current fair valueprincipal balance as of the collateral, reducedreporting date. The TM determines the PD by anticipated selling costs,tracking the historical movement of loans between loan risk tiers over a defined period of time. The Company currently has 16 portfolio segments for which we track monthly movement between either risk ratings, or delinquency date count, or delinquency band.
While the TM functions similarly across all portfolio segments, generally speaking, commercial portfolios use the Company’s risk rating scale and consumer portfolios use the delinquency band. Loans using risk ratings are scored utilizing the Company’s risk rating scale. The risk rating scale is 1-10, with 1 being the best rating, 6 being a pass but on watch, and 7-10 being various stages of criticized loans. Risk ratings 8 or greater and in a non-accrual status are considered in a defaulted state. Loans using delinquency band are measured using a 5-grade band, with 1 being current and 5 being 90 or more days past due.
The LGD used as the basis for the estimate of credit losses is comprised of the Company’s historical loss experience from 2008 to measure impairment.the current period, based on a migration analysis of our historical loss experience, designed to account for credit deterioration. The model compares the most recent period losses to prior period defaults to calculate the LGD, which is averaged over the historical observations.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Economic scenarios and forecasts along with current portfolio conditions and trends are monitored and accounted for through the Company’s qualitative framework. The Company utilizes a one-year forecast period with immediate reversion to historical loss rates.
The Company considers impaired loans to include all loans, except consumer loans, that are risk rated as doubtful or on which interest accrual has been discontinued or that have been renegotiated in a troubled debt restructuring. Interest payments received on impaired loans are appliedsegments the loan portfolio into pools based on whether they are on accrualthe following risk characteristics: financial asset type, collateral type, loan characteristics, credit characteristics, outstanding loan balances, contractual terms and prepayment assumptions, vintage, industry of borrower and concentrations, and historical or non-accrual status. Interest income recognized byexpected credit loss.
The Company has identified the Company on impaired loans primarily relates to loans modified in troubled debt restructurings that remain on accrual status. Interest payments received on non-accrual impaired loans are applied to principal. Interest income is subsequently recognized only tofollowing portfolio segments and measures the extent cash payments are received in excess of principal due.
Loans acquired in a business combination are recorded and initially measured at their estimated fair value as of the acquisition date, with no carryover of the related allowance for credit losses. Credit risks are included in the determination of fair value. For loans with no significant evidence of credit deterioration since origination, the difference between the fair value and the unpaid principal balance of the loan at the acquisition date is amortized into interest incomelosses using the effective interest method over the remaining period to contractual maturity. The accounting for loans acquired with evidence of a deterioration of credit quality is described below.following methods:
Loans acquired through the completion of a transfer, including loans acquired in business combinations, that have evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance. The difference between the undiscounted cash flows expected at acquisition and the recorded fair value of the loan, or the “accretable yield,” is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “nonaccretable difference,” are not recognized as a yield adjustment, a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the initial measurement are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment. Valuation allowances on these impaired loans reflect only losses incurred after the acquisition.
A loan is considered a troubled debt restructuring when a borrower is experiencing financial difficulties that leads to a restructuring of the loan and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. These concessions may include rate reductions, principal forgiveness, extension of maturity date and other actions to minimize potential losses. Certain troubled debt restructurings are on non-accrual status at the time of restructuring and are returned to accrual status only after considering the borrower’s sustained repayment performance in accordance with the restructuring agreement for a reasonable period of at least six months and management is reasonably assured of future performance. If the troubled debt restructuring meets these performance criteria and the interest rate granted at the modification is equal to or greater than the rate that the Company was willing to accept at the time of the restructuring for a new loan with comparable risk, then the loan will no longer be disclosed as a troubled debt restructuring although they continue to be individually evaluated for impairment and disclosed as impaired loans.
Loans held for sale include residential mortgage loans originated for immediate sale. The Company has elected to account for loans held for salePortfolio segments using the fair value option. UnderCompany’s risk ratings include the fair value option, net loan origination fees are recognized in non-interest income at the timefollowing:
Commercial real estate non-owner-occupied loans. These loans include a mix of origination. Subsequent changes in the estimated fair values of loans held for sale are recorded as unrealized gainsvariable and losses in non-interest income. Estimated fair values of loans held for sale are determined based upon current secondary market prices for loans with similar coupons, maturities and credit quality, or in the case of committed loans, on current delivery prices. Gains and losses on loans held for sale are recognized based on the difference between the net sales proceeds, including the estimated value associated with servicing assets or liabilities, and the net carrying value of the loans sold. Adjustments to reflect unrealized gains and losses resulting from changes in fair value of loans held for sale, as well as realized gains and losses on the sale of loans, are included in non-interest income - mortgage banking revenues on the accompanying consolidated statements of income. Loans held for sale were $33.3 million and $46.6 million as of December 31, 2018 and 2017, respectively.
As of December 31, 2018, the Company had $0.4 million recorded investments in consumer mortgagefixed rate non-farm, non-residential real estate loans secured by residentialnon-owner-occupied properties. Commercial real estate non-owner-occupied loans are generally secured by first liens on income-producing real estate and generally mature in less than 10 years.
Commercial real estate owner-occupied loans. Non-farm, non-residential real estate loans are generally secured by first liens on real estate where the owner occupant is the majority tenant of the property and generally mature in less than 10 years.
Construction land acquisition and development loans. Construction land acquisition and development loans are primarily to commercial builders for which formal foreclosure proceedings wereresidential lot development and the construction of single-family residences and commercial real estate properties. Construction loans are generally underwritten pursuant to pre-approved permanent financing. During the construction phase the borrower pays interest only. Construction land acquisition and development loans generally mature in process.three years or less.
Residential construction loans. Residential construction loans are primarily to commercial builders or owner occupants for the construction of single-family residences. Construction loans are generally underwritten pursuant to credit worthiness or pre-qualification for permanent financing. During the construction phase the borrower pays interest only. Residential construction loans generally mature in one to two years.
Commercial construction loans. Commercial construction loans are primarily to commercial builders for commercial real estate properties. Construction loans are generally underwritten pursuant to credit worthiness or pre-qualification for permanent financing. During the construction phase the borrower pays interest only. Commercial construction loans generally mature in two years or less.
Agricultural real estate loans. These include loans secured by farmland or ranchland consisting of short, intermediate, and long-term structures to experienced agriculturalists who have demonstrated management capabilities, established production and historical financial performance. Agricultural real estate loans generally mature in ten years or less.
Commercial and floor plan loans. The Company provides a mix of variable and fixed rate commercial loans in addition to loans to finance dealership floor inventories. The loans are typically made to small and medium-sized manufacturing, wholesale, retail, and service businesses for working capital needs and business expansions. Commercial loans generally include lines of credit, business credit cards, and loans with maturities of five years or less and outstanding balances tend to be cyclical in nature. The loans are generally made with business operations as the primary source of repayment, and are typically collateralized by inventory, accounts receivable, equipment, and/or personal guarantees. Commercial and floor plan loans generally mature in seven years or less.
Commercial purpose secured by 1-4 family loans. These include loans for commercial purposes secured by 1-4 family residential property. Commercial purpose loans secured by 1-4 family generally mature in seven years or less.
Agricultural loans. Agricultural loans generally consist of short and medium-term loans and lines of credit that are primarily used for crops, livestock, equipment, and general operations. Agricultural loans are ordinarily secured by assets such as livestock or equipment and are repaid from the operations of the farm or ranch. Agricultural loans generally have maturities of seven years or less, with operating lines for one production season.
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(Dollars in millions, except share and per share data)
Portfolio segments utilizing the delinquency bands include the following:
AllowanceConsumer indirect loans. These include loan contracts advanced for Loan Lossesthe purchase of automobiles, boats, and other consumer goods from the consumer product dealer networks within the market areas we serve. Indirect dealer loans are generally secured by automobiles, recreational vehicles, boats, and other types of personal property and are made on an installment basis. Consumer indirect line loans generally mature in seven years or less.
Consumer direct and advance line loans. These loans are originated for a variety of purposes including the purchase of automobiles, boats and other consumer goods, home improvements, medical expenses, vehicle repairs, debt consolidation, and planned expenses. Consumer direct and advance line loans generally mature in seven years or less.
Consumer credit card loans. These are lines of credit offered to clients in our market areas that are generally floating rate loans and include both unsecured and secured lines. Consumer credit card loans generally do not have stated maturities but are reviewed periodically and are unconditionally cancellable.
Consumer home equity and home equity lines of credit (“HELOC”). These include home equity loans and lines of credit that are secured by residential property. Consumer home equity loans generally mature in 15 years or less and HELOC loans generally mature in 25 years or less.
Residential 1-4 family and multi-family lending. These are loans to finance the purchase or refinance of residential property which are typically secured by first liens, inclusive of 1-4 family as well as 5+ residential properties. Residential 1-4 family loans generally mature within 15 years but can be up to 30 years. Multi-family loans generally mature in 10 years or less.
Commercial real estate multi-family loans. Commercial real estate multi-family loans are generally secured by first liens on income-producing rental real estate consisting of 5 or more residential dwelling units and generally mature in less than 10 years. For CECL related segmentation, multi-family loans are modeled with residential 1-4 family but are reported under Commercial Real Estate.
Commercial credit card loans. These are lines of credit for commercial purposes that are generally floating rate loans and include both unsecured and secured lines. For CECL related segmentation, commercial credit card loans are modeled separately but are reported under Commercial. Commercial credit card loans generally do not have stated maturities but are reviewed periodically and are unconditionally cancellable.
Agricultural credit card loans. Lines of credit for agricultural purposes that are generally floating rate loans and are unsecured or secured. For CECL related segmentation, agricultural credit card loans are modeled separately but are reported under Commercial. Agricultural credit card loans generally do not have stated maturities but are reviewed periodically and are unconditionally cancellable.
Contractual Term.Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
A loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a troubled debt restructuring. The allowance for loancredit loss on a troubled debt restructuring is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit loss is determined by discounting the expected future cash flows at the original interest rate of the loan.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures. The Company estimates expected credit losses over the contractual period in which the Company is establishedexposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. Management considers our unused credit card lines and federal fund lines, extended to others, to be considered unconditionally cancellable.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Credit card receivables are run through the transition matrices and their unused lines are excluded from the final loss calculation because they are unconditionally cancellable. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for loancredit loss expense. The estimate considers the likelihood that funding will occur and an estimate of expected credit losses which is chargedon commitments expected to expense. Loans, or portions thereof, are charged againstbe funded over the estimated life.
The Company has identified commitments to extend credit and standby letters of credit determined not to be unconditionally cancellable as categories with off-balance sheet credit exposures and uses the commitment balance, expected loss rate, and utilization rate as primary assumptions to develop the allowance for loancredit losses when management believeson those exposures. The loss rate expectation is the same for both the unfunded and funded portions of the credit exposure. The utilization rate represents management’s best estimate of the probability that the collectabilityunfunded portion of the principal is unlikely or, with respect to consumer installment and credit card loans, according to established delinquency schedules. The allowance balance is an amount that management believescommitment will be adequate to absorb known and inherent losses in the loan portfolio based upon quarterly analysis of the current risk characteristics of the loan portfolio, an assessment of individual problem loans and actual loss experience, industry concentrations and currentfunded given existing economic factors and the estimated impact of current economic and environmental conditions on historical loss rates.conditions.
Loans acquired in business combinations are recorded at their estimated fair values on the date of acquisition. Accordingly, no allowance for loan losses related to these loans is recorded at the date of transfer. An allowance for loan losses is recorded for credit deterioration occurring subsequent to the transfer date.
Goodwill. The excess purchase price over the fair value of net assets from acquisitions, or goodwill, is evaluated for impairment at least annually and on an interim basis if an event or circumstance indicates that it is likely impairment has occurred. Goodwill impairment is determined by comparing the fair value of a reporting unit to its carrying amount. In any given year the Company may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If it is not more likely than not that the fair value of the reporting unit is in excess of the carrying value, or if the Company elects to bypass the qualitative assessment, a quantitative impairment test is performed. In performing a quantitative test for impairment, the fair value of net assets is estimated based on analyses of the Company’s market value, discounted cash flows and peer values. The determination of goodwill impairment is sensitive to market-based economics and other key assumptions used in determining or allocating fair value. Variability in the market and changes in assumptions or subjective measurements used to allocate fair value are reasonably possible and may have a material impact on our consolidated financial statements or results of operations.
Core Deposit Intangibles. Core deposit intangibles represent the intangible value of depositor relationships resulting from deposit liabilities assumed, as a result of acquisitions, and are amortized using an accelerated method based on the estimated weighted average useful lives of the related deposits.deposits, which is generally ten years.
Mortgage Servicing Rights. The Company recognizes the rights to service mortgage loans for others, whether acquired or internally originated. Mortgage servicing rights are initially recorded at fair value based on comparable market data and are amortized in proportion to and over the period of estimated net servicing income. Mortgage servicing rights are evaluated quarterly for impairment by discounting the expected future cash flows, taking into consideration the estimated level of prepayments based on current industry expectations and the predominant risk characteristics of the underlying loans including loan type, note rate and loan term. Impairment adjustments, if any, are recorded through a valuation allowance.
Premises and Equipment. Buildings, furniture, and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed using straight-line methods over estimated useful lives of 5 to 45 years for buildings and improvements and 43 to 15 years for furniture and equipment. Leasehold improvements and assets acquired under capitala financing lease are amortized over the shorter of their estimated useful lives or the terms of the related leases. Land is recorded at cost. Costs incurred for maintenance and repairs are expensed as incurred.
We have leased branches and office space and have entered into various other agreements in conducting our business. Operating lease right-of-use assets are included within the Premises and Equipment line item and our operating lease liability is included within the Other Liabilities line item. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as property taxes are expensed as incurred. Lease and non-lease components are accounted for separately as the amounts are readily determinable under our lease contracts. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Upon adoption of ASU 2016-02, the Company elected to apply certain practical expedients whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for any existing leases. We elected the hindsight practical expedient to determine the lease term for existing leases.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
In recognizing lease right-of use assets and related lease liabilities, we determine whether an agreement represents a lease and at commencement of the lease we evaluate each agreement to determine whether the lease is an operating or financing lease. Some of our lease agreements have contained renewal options, tenant improvement allowances, rent holidays, and rent escalation clauses. We hold one financing lease with the remaining leases classified as operating leases. Right-of-use lease assets represent our right to use the underlying asset for the lease term and the lease obligation represents our commitment to make the lease payments arising from the lease. Right-of-use lease assets and obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term. For the Company’s leases that do not provide an implicit rate, we use an estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The right-of-use lease asset includes any lease payments made prior to commencement and excludes any lease incentives. The estimated lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
Company-Owned Life Insurance. Key executive and group life insurance policies are recorded at their cash surrender value. Separate account group life insurance policies are subject to a stable value contract that offsets the impact of interest rate fluctuations on the market value of the policies and are recorded at the stabilized investment value. Increases in the cash surrender or stabilized investment value of insurance policies, as well as insurance proceeds received, are recorded as other non-interest income, and are not subject to income taxes.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Deferred Compensation Plan. The Company has a deferred compensation plan for the benefit of certain highly compensated officers and directors of the Company. The plan allows for discretionary employer contributions in excess of tax limits applicable to the Company’s 401(k) and profit sharing plansplan and the deferral of salary, short-term incentives, or director fees subject to certain limitations. Deferred compensation plan assets and liabilities are included in the Company’s consolidated balance sheets at fair value.
As of December 31, 20182020 and 2017,2019, deferred compensation plan assets were $12.1$19.1 million and $12.2$18.2 million, respectively. Corresponding deferred compensation plan liabilities were $12.1$19.1 million and $12.2$18.2 million as of December 31, 20182020 and 2017,2019, respectively.
Impairment of Long-Lived Assets. Long-lived assets, including premises and equipment and certain identifiable intangibles, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
The amount of the impairment loss, if any, is based on the asset’s fair value. NoNaN impairment losses were recognized in 2018 and 2017, respectively. Impairment losses of $0.2 million were recognized in other non-interest expense in 2016.2020, 2019, or 2018.
Other Real Estate Owned. Real estate acquired in satisfaction of loans is initially carried at current fair value less estimated selling costs. Any excess of loan carrying value over the fair value of the real estate acquired is recorded as a charge to the allowance for loancredit losses. Subsequent declines in fair value less estimated selling costs are included in OREO expense. Subsequent increases in fair value less estimated selling costs are recorded as a reduction in OREO expense to the extent of recognized losses. Operating expenses, net of related income, and gains or losses on sales are included in OREO expense. Write-downs of $0.1 million, $0.4 million and $0.6 million were recorded in 2018, 2017 and 2016, respectively. The carrying value of foreclosed residential real estate properties included in other real estate owned was $2.0 million as of December 31, 2018, and $2.7 million as of December 31, 2017.
Restricted Equity Securities. The Company, as a member of the Federal Reserve Bank and the Federal Home Loan Bank (“FHLB”), is required to maintain investments in each of the organization’s capital stock. As of December 31, 2018,2020, restricted equity securities of the Federal Reserve Bank and the FHLB of $37.5$42.8 million and $10.7$10.6 million, respectively, were included in other assets at cost. As of December 31, 2017,2019, restricted equity securities of the Federal Reserve Bank and the FHLB were $31.8$42.8 million and $10.2$10.7 million, respectively. No ready market exists for these restricted equity securities, and they have no quoted market values. Restricted equity securities are periodically reviewed for impairment based on ultimate recovery of par value. The determination of whether a decline affects the ultimate recovery of par value is influenced by the significance of the decline compared to the cost basis of the restricted equity securities, the length of time a decline has persisted, the impact of legislative and regulatory changes on the issuing organizations, and the liquidity positions of the issuing organizations. Based on management’s assessment, no impairment losses were recorded on restricted equity securities during 2018, 20172020, 2019, or 2016.2018.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Derivatives and Hedging Activities. For asset and liability management purposes, the Company enters into interest rate swap contracts to hedge against changes in forecasted cash flows due to interest rate exposures. Interest rate swaps are contracts in which a series of interest payments are exchanged over a prescribed period. The notional amount upon which the interest payments are based is not exchanged.
The Company formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The swap agreements are derivative instruments and convert a portion of the Company’s forecasted variable rate debt to a fixed rate (i.e., cash flow hedge) over the payment term of the interest rate swap. The effective portion of the gain or loss on cash flow hedging instruments is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same period during which the transaction affects earnings. The ineffective portion
When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively when (a) it is determined that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item (including forecasted transactions); (b) the derivative expires or is sold, terminated, or exercised; (c) the derivative is dedesignated as a hedge instrument, because it is unlikely that a forecasted transaction will occur; or (d) management determines that designation of the gain or lossderivative as a hedge instrument is no longer appropriate.
When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative will continue to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings. In all other situations in which hedge accounting is discontinued, the derivative instruments, if any, iswill be carried at its fair value on the balance sheet, with subsequent changes in its fair value recognized in current-period earnings. The Company does not enter into interest rate swap agreements for trading or speculative purposes. As of December 31, 2018, the Company does not have an existing agreement.
The Company also enters into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customerclient while at the same time entering into an offsetting interest rate swap with a third partythird-party financial institution. Because the Company acts as an intermediary for the customer,client, changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact the Company’s results of operations.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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In the normal course of business, the Company enters into interest rate lock commitments to finance residential mortgage loans that are not designated as accounting hedges. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by the Company. Interest rate risk arises on these commitments and subsequently closed loans if interest rates change between the time of the interest rate lock and the delivery of the loan to the investor. Loan commitments related to residential mortgage loans intended to be sold are considered derivatives and are marked to market through earnings. In addition to the effects of the change in market interest rate, the fair value measurement of the derivative also contemplates the expected cash flows to be received from the counterparty from the future sale of the loan.
The Company sells residential mortgage loans on either a best efforts or mandatory delivery basis. The Company mitigates the effect of the interest rate risk inherent in providing interest rate lock commitments by entering into forward loan sales contracts. During the interest rate lock commitment period, these forward loan sales contracts are marked to market through earnings and are not designated as accounting hedges. Exclusive of the fair value component associated with the projected cash flows from the loan delivery to the investor, the changes in fair value related to movements in market rates of the interest rate lock commitments and the forward loan sales contracts generally move in opposite directions, and the net impact of changes in these valuations on net income during the loan commitment period is generally inconsequential. When the loan is funded to the borrower, the interest rate lock commitment derivative expires and the Company records a loan held for sale. The forward loan sales contract acts as a hedge against the variability in cash to be received from the loan sale.
The changes in measurement of the estimated fair values of the interest rate lock commitments and forward loan sales contracts are included in mortgage banking revenues in the accompanying consolidated statements of income.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
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(Dollars in millions, except share and per share data)
Software. Capitalized software, stated at cost less accumulated amortization, includes purchased software, capitalizable application development costs associated with internally developed software, and cloud computing arrangements, including capitalizable implementation costs associated with hosting arrangements that are service contracts. Capitalized software is included in premises and equipment, net of accumulated depreciation on the Consolidated Balance Sheets. Amortization expense, generally computed on the straight-line method, is charged to furniture and equipment in the Consolidated Statements of Income over the estimated useful life of the software, generally three to five years, or the term of the hosting arrangement for implementation costs related to service contracts.
Cloud computing arrangements include software as a service (SaaS), platform as a service (PaaS), infrastructure as a service (IaaS) and other similar hosting arrangements. The Company primarily utilizes SaaS and PaaS arrangements. Capitalized implementation costs of hosting arrangements that are service contracts were $6.0 million and $9.2 million at December 31, 2020 and 2019, respectively.
Earnings Per Common Share. Basic and diluted earnings per common share are calculated using a two-class method. Under the two-class method, basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding outstanding participating securities. Participating securities include non-vested performance restricted stock awards granted and all non-vested time restricted stock awards.
Diluted earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding determined for the basic earnings per share calculation plus the dilutive effect of stock compensation using the treasury stock method.
Income Taxes. The Parent Company and its subsidiaries have elected to be included in a consolidated federal income tax return. For state income tax purposes, the combined taxable income of the Parent Company and its subsidiaries is apportioned among the states in which operations take place. Federal and state income taxes attributable to the subsidiaries, computed on a separate return basis, are paid to or received from the Parent Company.
The Company accounts for income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are determined based on enacted income tax rates which will be in effect when the differences between the financial statement carrying values and tax bases of existing assets and liabilities are expected to be reported in taxable income.
Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon examination. Uncertain tax positions are initially recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. The Company provides for interest and, in some cases, penalties on tax positions that may be challenged by the taxing authorities. Interest expense is recognized beginning in the first period that such interest would begin accruing. Penalties are recognized in the period that the Company claims the position in the tax return. Interest and penalties on income tax uncertainties are classified within income tax expense in the consolidated statements of income. With few exceptions, the Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2015.2017. The Company had no0 material penalties as of December 31, 2018, 20172020, 2019, or 2016.2018.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Revenue Recognition. The Company recognizes revenue as it is earned based on contractual terms, as transactions occur, or as services are provided and collectability is reasonably assured. The principal source of revenue is interest income from loans and investments. The Company also earns non-interest income from various banking and financial services offered to its customers.clients. Certain specific policies related to non-interest income include the following:
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Wealth management and trust fee income
Wealth management and trust fee income represents monthly fees due from wealth management customersclients as consideration for managing the customers’clients’ assets. Wealth management and trust services include custody of assets, investment management, fees for trust services and similar fiduciary activities. Revenue is recognized when our performance obligation is completed. The Company does not earn performance-based incentives. Optional services such as settlement, court, and regulatory fees are also available to existing trust and asset management customers.clients. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred).
time.
Service charges on deposit accounts
Service charges on deposit accounts represent general service fees for account maintenance and activity- or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed for account maintenance services or when a transaction has been completed (such as a wire transfer or check orders). Payment for such performance obligations are generally received at a point in time when the performance obligations are satisfied.
Interchange and other fees
Interchange and other fees primarily represent debit and credit card income comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as MasterCard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income primarily represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Swap fee income primarily represents income associated with the execution of dealer bank swap agreements. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services.
The Company’s performance obligation for interchange and other service charges are largely satisfied, and related revenue recognized, when completion of the services are rendered at a point in time.
Annuity and insurance commissions
Annuity and insurance commissions primarily represent commissions received on annuity product sales. The Company acts as an intermediary between the Company’s customerclient and the insurance carrier. The Company’s performance obligation is generally satisfied upon the issuance of the annuity policy, the carrier then remits the commission payment to the Company, and the Company recognizes the revenue at a point in time.
Comprehensive Income. Comprehensive income includes net income, as well as other changes in stockholders’ equity that result from transactions and economic events other than those with shareholders. In addition to net income, the Company’s comprehensive income includes the after tax effect of changes in unrealized gains and losses on available-for-sale investment securities and derivatives designated as cash flow hedges, changes in the unamortized gain or loss on available-for-sale investment securities transferred to held-to-maturity and changes in net actuarial gains and losses on defined benefit post-retirement benefits plans.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Segment Reporting. An operating segment is defined as a component of a business for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and evaluate performance. The "Segment Reporting" topic of the FASB ASC requires that public companies report certain information about operating segments. It also requires that public companies report certain information about their products and services, the geographic areas in which they operate, and their major customers.clients. The Company is a holding company for a regional community bank, which offers a wide array of products and services to its customers.clients. The Company has one1 reporting unit and one operating segment, community banking, which encompasses commercial and consumer banking services offered to individuals, businesses, municipalities and other entities.
For additional information concerning community banking, see “Business—Community Banking,” included in Part I, Item 1 of this report.
Advertising Costs. Advertising costs are expensed as incurred. Advertising expense was $2.8 million, $4.2 million, and $3.2 million $3.5 million,in 2020, 2019, and $2.8 million2018, respectively.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in 2018, 2017millions, except share and 2016, respectively.per share data)
Transfers of Financial Assets. Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company; the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets; and, the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Stock-Based Compensation. Compensation cost for all stock-based awards is measured at fair value on the date of grant and is recognized over the requisite service period for awards expected to vest. The impact of forfeitures of stock-based payment awards on compensation expense is recognized as forfeitures occur. Stock-based compensation expense of $5.6$7.5 million, $3.8$8.0 million, and $4.4$5.6 million for the years ended December 31, 2018, 20172020, 2019, and 2016,2018, respectively, is included in benefits expense in the Company’s consolidated statements of income. Related income tax benefits recognized for the years ended December 31, 2020, 2019, and 2018 2017were $0.4 million, $1.2 million, and 2016 were $1.1 million, $2.6 million and $2.2 million, respectively.respectively, is included in income tax expense in the Company’s consolidated statements of income.
Fair Value Measurements. In general, fair value measurements are based upon quoted market prices, where available. If quoted market prices are not available, fair value measurements are estimated using relevant market information and other assumptions. Fair value estimates involve uncertainties and require some degree of judgment regarding interest rates, credit risk, prepayments and other factors. The use of different assumptions or estimation techniques may have a significant effect on the fair value amounts reported.
(2)ACQUISITIONS
Idaho IndependentCommunity 1st Bank. On October 11, 2018, the Company entered into a definitive agreement to acquire all of the outstanding stock of IIBK, a community bank headquartered in Coeur d' Alene, Idaho with 11 banking offices across Idaho, in an all-stock transaction valued at approximately $181.3 million in aggregate, or $22.73 per share of IIBK stock, based on a per share price of First Interstate Class A common stock of $45.45 per share as of October 5, 2018. IIBK shareholders will be entitled to receive 0.50 shares of First Interstate Class A common stock for each share of IIBK common stock they own. The transaction has been approved by the boards of directors of both companies and is expected to close and convert data processing systems in the second quarter of 2019, subject to customary conditions, including regulatory and shareholder approvals.
Community 1st Bank. On October 11, 2018, the Company also entered into a definitive agreement to acquire all of the outstanding stock of CMYF, a community bank headquartered in Post Falls, Idaho with three3 banking offices in North Idaho, in an all-stock transaction valued at approximately $21.5Idaho. The acquisition was completed on April 8, 2019, and conversion of the data processing systems occurred on June 7, 2019.
Consideration for the acquisition was $18.8 million, in aggregate, or $17.20 per shareconsisting of CMYF stock, based on a per share pricethe issuance of First Interstate463,134 shares of the Company’s Class A common stock of $45.45valued at $40.64 per share, the closing price of the Company’s Class A common stock as quoted on the NASDAQ stock market on the acquisition date. Holders of October 5, 2018.each share of CMYF stockholders will be entitled to receivecommon stock received 0.3784 shares of First Interstate Class A common stock for each share of CMYF common stock they own. The transaction has been approved by the boards of directors of both companies and is expected to close and convert data processing systems in the second quarter of 2019, subject to customary conditions, including regulatory and shareholder approvals.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Northwest Bancorporation, Inc. On April 25, 2018, the Company entered into a definitive agreement to acquire all of the outstanding stock of Northwest Bancorporation, Inc. (“Northwest”), the parent company of Inland Northwest Bank (“INB”), a Spokane, Washington based community bank with 20 banking offices across Idaho, Oregon and Washington. The acquisition was completed on August 16, 2018, and the Company merged INB with its existing bank subsidiary, First Interstate Bank, on November 9, 2018.
Consideration for the acquisition was $176.3 million, consisting of the issuance of 3.84 million shares of the Company's Class A common stock valued at $45.15 per share, the closing price of the Company's Class A common stock as quoted on the NASDAQ stock exchange on the acquisition date. The Company paid approximately $3.0 million in cash related to Northwest warrants, which were included in the consideration paid. Holders of each share of Northwest common stock received 0.516 shares of First Interstate Class A common stock for each share of Northwest common stock. Additionally, all Northwest stock purchase warrants outstanding immediately prior to the close of the transaction were canceled in exchange for the right to receive a cash payment as provided in the Agreement. Previously unvested NorthwestCMYF restricted stock awards outstanding immediately prior to the close of the transaction vested and were considered issued and outstanding at acquisition close.
close and included in consideration. All CMYF stock options outstanding vested and were settled by CMYF prior to the close of the transaction.
The assets and liabilities of NorthwestCMYF were provisionally recorded in the Company’s consolidated financial statements at their estimated fair values as of the acquisition date and will be finalized in the coming months.date. The excess value of the consideration paid over the fair value of assets acquired and liabilities assumed iswas recorded as provisional goodwill. The preliminary purchase price allocation resulted in provisional goodwill of $101.1$2.3 million, which is not deductible for income tax purposes. Goodwill resulting from the acquisition was allocated to the Company’s one operating segment, community banking, and consists largely of the synergies and economies of scale expected from combining the operations of NorthwestCMYF and the Company.
The Company recorded net assets acquired of approximately $16.5 million consisting of approximately $129.1 million in assets, inclusive of $78.8 million of loans, of which $0.7 million were classified as credit impaired, and assumed approximately $112.6 million of liabilities, inclusive of $110.1 million of deposits. All amounts reported were finalized during the fourth quarter of 2019.
Core deposit intangible assets of $3.0 million are being amortized using an accelerated method over the estimated useful lives of the related deposits of 10 years.
Unaudited pro forma consolidated revenues and net income as if the CMYF acquisition had occurred as of January 1, 2019, are not presented because the effect of this acquisition was not considered significant.
The accompanying consolidated statements of income include the results of operations of the acquired entity from the April 8, 2019 acquisition date. Although legally merged with FIB, the acquired entity continued to do business as CMYF until June 7, 2019, at which point CMYF’s operations were integrated with the Company’s operations.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Idaho Independent Bank. On October 11, 2018, the Company also entered into a definitive agreement to acquire all the outstanding stock of IIBK, a community bank headquartered in Coeur d’Alene, Idaho with 11 banking offices across Idaho. The acquisition was completed on April 8, 2019, and the Company converted data processing systems occurred on June 7, 2019.
Consideration for the acquisition was $157.3 million, consisting of the issuance of 3,871,422 shares of the Company’s Class A common stock valued at $40.64 per share, the closing price of the Company’s Class A common stock as quoted on the NASDAQ stock market on the acquisition date. Holders of each share of IIBK common stock received 0.50 shares of First Interstate Class A common stock for each share of IIBK common stock. Previously unvested IIBK restricted stock awards outstanding immediately prior to the close of the transaction vested and were considered issued and outstanding at acquisition close and were included in consideration. All IIBK stock options outstanding vested and were settled by IIBK prior to the close of the transaction.
The assets and liabilities of IIBK were recorded in the Company’s consolidated financial statements at their estimated fair values as of the acquisition date. The excess value of the consideration paid over the fair value of assets acquired and liabilities assumed is recorded as goodwill. The purchase price allocation resulted in goodwill of $73.0 million, which is not deductible for income tax purposes. Goodwill resulting from the acquisition was allocated to the Company’s one operating segment, community banking, and consists largely of the synergies and economies of scale expected from combining the operations of IIBK and the Company.
The following table summarizes the consideration paid, fair values of the NorthwestIIBK assets acquired and liabilities assumed, and the resulting goodwill. Due to the recent closing of the transaction, allAll amounts reported are provisional pendingwere finalized during the reviewfourth quarter of valuations obtained from third parties.2019.
|
| | | | | | | | | | |
| As Recorded | Fair Value | | As Recorded |
As of August 16, 2018 | by Northwest | Adjustments | | by the Company |
| | | | |
Assets acquired: | | | | |
Cash and cash equivalents | $ | 31.2 |
| $ | — |
| | $ | 31.2 |
|
Investment securities | 3.1 |
| — |
| | 3.1 |
|
Loans held for investment | 727.9 |
| (14.8 | ) | (1) | 713.1 |
|
Allowance for loan loss | (8.0 | ) | 8.0 |
| (2) | — |
|
Premises and equipment | 14.5 |
| (0.5 | ) | (3) | 14.0 |
|
Other real estate owned (“OREO”) | 0.3 |
| 0.3 |
| | 0.6 |
|
Core deposit intangible assets | 2.4 |
| 13.3 |
| (4) | 15.7 |
|
Other assets | 29.3 |
| (10.0 | ) | (5) | 19.3 |
|
Total assets acquired | 800.7 |
| (3.7 | ) | | 797.0 |
|
| | | | |
Liabilities assumed: | | | | |
Deposits | 696.1 |
| 0.2 |
| (6) | 696.3 |
|
Accounts payable and accrued expense | 8.1 |
| (0.4 | ) | (7) | 7.7 |
|
Long term debt | 13.0 |
| 0.1 |
| | 13.1 |
|
Trust preferred securities | 5.2 |
| (0.8 | ) | (8) | 4.4 |
|
Deferred tax liability, net | (1.2 | ) | 1.5 |
| (9) | 0.3 |
|
Total liabilities assumed | 721.2 |
| 0.6 |
| | 721.8 |
|
| | | | |
Net assets acquired | $ | 79.5 |
| $ | (4.3 | ) | | $ | 75.2 |
|
| | | | |
Consideration paid: | | | | |
Cash | | | | $ | 3.0 |
|
Class A common stock | | | | 173.3 |
|
Total consideration paid | | | | 176.3 |
|
| | | | |
Goodwill | | | | $ | 101.1 |
|
| | | | |
| | | | | | | | | | | | | | |
| As Recorded | Fair Value | | As Recorded |
As of April 8, 2019 | by IIBK | Adjustments | | by the Company |
| | | | |
Assets acquired: | | | | |
Cash and cash equivalents | $ | 270.7 | | $ | 0 | | | $ | 270.7 | |
Investment securities | 62.7 | | 0.5 | | (1) | 63.2 | |
Loans held for investment | 347.6 | | (9.8) | | (2) | 337.8 | |
Mortgage loans held for sale | 0.5 | | 0 | | | 0.5 | |
Allowance for loan loss | (6.3) | | 6.3 | | (3) | 0 | |
Premises and equipment | 16.5 | | 4.8 | | (4) | 21.3 | |
Other real estate owned (“OREO”) | 0.4 | | 2.0 | | (5) | 2.4 | |
Company owned life insurance | 15.2 | | 0 | | | 15.2 | |
Core deposit intangible assets | 0 | | 13.6 | | (6) | 13.6 | |
Deferred tax assets, net | 3.2 | | (2.6) | | (7) | 0.6 | |
Other assets | 8.6 | | (0.7) | | (8) | 7.9 | |
Total assets acquired | 719.1 | | 14.1 | | | 733.2 | |
| | | | |
Liabilities assumed: | | | | |
Deposits | 596.5 | | 0.1 | | (9) | 596.6 | |
Accounts payable and accrued expense | 15.2 | | 2.6 | | (10) | 17.8 | |
Other borrowed funds | 4.0 | | 0.1 | | (11) | 4.1 | |
Securities sold under repurchase agreements | 30.4 | | 0 | | | 30.4 | |
| | | | |
| | | | |
Total liabilities assumed | 646.1 | | 2.8 | | | 648.9 | |
Net assets acquired | $ | 73.0 | | $ | 11.3 | | | $ | 84.3 | |
| | | | |
Consideration paid: | | | | |
| | | | |
Class A common stock | | | | $ | 157.3 | |
Total consideration paid | | | | $ | 157.3 | |
Goodwill | | | | $ | 73.0 | |
| | | | |
|
| | | | |
Explanation of fair value adjustments and the removal of previously recorded fair value marks recorded by Northwest. Note adjustments to the marks for deferred tax assets, other assets, and long term debt were made since the prior quarter, none of which were material. The adjustments had no impact on 2018 earnings and a net increase to goodwill of $0.3 million from the third quarter reported balances.IIBK: |
(1) | Write up of the book value of investments to their estimated fair values on the date of acquisition based upon quotes obtained from an independent third-party pricing service. |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| | | | | |
(2) | Write down of the book value of loans to their estimated fair values. The fair value of the loans was estimated using cash flow projections based on the remaining maturity and repricing terms, adjusted for estimated future credit losses and prepayments and discounted to present value using a risk-adjusted market rate for similar loans. The fair value of collateral dependent loans acquired with deteriorated credit quality was estimated based on the Company’s analysis of the fair value of each loan’s underlying collateral, discounted using market-derived rates of return with consideration given to the period of time and costs associated with foreclosure and disposition of the collateral. |
(2)(3) | Adjustment to remove the NorthwestIIBK allowance for loan losses at acquisition date, as the credit risk is included in the fair value adjustment for loans receivable described in (1)(2) above. |
(3)(4) | Write downup of the book value of premises and equipment to their estimated fair values on the date of acquisition based upon broker’s opinion of value. |
(4)(5) | Adjustment to the book value of other real estate owned to their estimated fair values on the date of acquisition based on appraisal value. |
(6) | Adjustment represents the value of the core deposit base assumed in the acquisition based upon valuation from an independent accounting and advisory firm. |
(5)(7) | Adjustment consists of the write-off of pre-existing deferred tax assets and purchase accounting adjustments as a result of the acquisition. |
(8) | Adjustment consists of reductions to the fair value of other items, including the removal of Northwest previously recorded goodwill.items. |
(6)(9) | Increase in book value of time deposits to their estimated fair values based upon interest rates of similar time deposits with similar terms on the date of acquisition based upon valuation from an independent accounting and advisory firm. |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
|
(10) | Adjustment to the liability for the nonqualified retirement plan. |
(7)(11) | Decrease due to the write-off of off balance sheet reserves. |
(8) | Write downAdjustment of the book value of debt to the estimated fair values on the date of acquisition based upon favorable interest rates in the market. |
(9) | Adjustment consists of the write-off of pre-existing deferred tax assets and purchase accounting adjustments as a result of the acquisition. |
Core deposit intangible assets of $15.7$13.6 million are being amortized using an accelerated method over the estimated useful lives of the related deposits of 10 years.
TheEffective January 1, 2020, the Company began accounting for PCD loans pursuant to ASC Topic 326. As such, the following disclosures are no longer applicable for the current period and are only presented for periods prior to the adoption of ASC Topic 326. Prior to the adoption of ASC 326, the Company acquired certain loans that arewere subject to Accounting Standards Codification ("ASC"(“ASC”) Topic 310-30 "Loans“Loans and Debt Securities Acquired with Deteriorated Credit Quality."” ASC Topic 310-30 provides recognition, measurement, and disclosure guidance for purchased loans acquired loans that havein business combinations, for which there was, at acquisition, evidence of more than insignificant deterioration inof credit quality since origination for which it is probable, at acquisition, theorigination. The Company will be unable to collect all contractual amounts owed.has purchased such loans through business combinations. For loans that meet the criteria stipulated in ASC Topic 310-30, the excess of all cash flows expected at acquisition over the initial fair value of the loans acquired ("(“accretable yield")yield” is amortized to interest income over the expected remaining lives of the underlying loans using the effective interest method. The accretable yield will fluctuate due to changes in (i) estimated lives of underlingunderlying credit-impaired loans, (ii) assumptions regarding future principal and interest amounts collected, and (iii) indices used to fair value variable rate loans.
Information regarding NorthwestIIBK loans acquired deemed credit-impairedcredit impaired as of the August 16, 2018April 8, 2019 acquisition date are as follows: |
| | | |
Contractually required principal and interest payments | $ | 27.5 |
|
Contractual cash flows not expected to be collected (“non-accretable discount”) | 4.4 |
|
Cash flows expected to be collected | 23.1 |
|
Interest component of cash flows expected to be collected (“accretable discount”) | 3.2 |
|
Fair value of acquired credit-impaired loans | $ | 19.9 |
|
| | | | | |
Contractually required principal and interest payments | $ | 24.1 | |
Contractual cash flows not expected to be collected (“non-accretable discount”) | 3.9 | |
Cash flows expected to be collected | 20.2 | |
Interest component of cash flows expected to be collected (“accretable discount”) | 3.4 | |
Fair value of acquired credit-impaired loans | $ | 16.8 | |
Information regarding NorthwestIIBK acquired loans not deemed credit-impaired at the August 16, 2018April 8, 2019 acquisition date are as follows:
|
| | | |
Contractually required principal and interest payments | $ | 894.8 |
|
Contractual cash flows not expected to be collected | 26.1 |
|
Fair value at acquisition | $ | 693.2 |
|
| | | | | |
Contractually required principal and interest payments | $ | 398.7 | |
Contractual cash flows not expected to be collected | 15.2 | |
Fair value at acquisition | $ | 321.5 | |
Unaudited pro forma consolidated revenues and net income as if the NorthwestIIBK acquisition had occurred as of January 1, 2017,2019, are not presented because the effect of this acquisition was not considered significant.
The accompanying consolidated statements of income include the results of operations of the acquired entity from the August 16, 2018 acquisition date. For the period from August 16, 2018 to September 30, 2018, Northwest reported revenues of $5.9 million and net income of $2.1 million. The acquired entity continued to operate as INB until November 9, 2018 at which point INB’s operations were integrated with the Company’s operations, and INB merged with FIB. Standalone amounts for INB were no longer available after that date.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Cascade Bancorp. On November 17, 2016, the Company entered into an agreement and plan of merger (the “Agreement”) to acquire all of the outstanding stock of Cascade Bancorp (“Cascade”), parent company of Bank of the Cascades, an Oregon-based community bank with 46 banking offices across Oregon, Idaho, and Washington. This transaction was strategic in allowing the Company to expand its community banking footprint in the Northwest corridor of the United States. The merger was completed on May 30, 2017. Holders of each share of Cascade common stock received 0.14864 shares of First Interstate Class A common stock and $1.91 in cash, without interest, for each share of Cascade common stock. In connection with the merger, the Company issued approximately 11.3 million shares of First Interstate Class A common stock, which was valued at $34.30 per share, which was the closing price of First Interstate Class A common stock on the acquisition date. Cash paid by First Interstate was approximately $155.0 million, which included the cash portion of the merger consideration and the cash in lieu of fractional shares that Cascade Bancorp shareholders would have otherwise been entitled to receive. Total consideration exchanged in connection with the merger amounted to $541.0 million.
All “in-the-money” Cascade options and all Cascade restricted stock units outstanding immediately prior to the transaction close were canceled in exchange for the right to receive a cash payment as provided in the Agreement. The Company paid approximately $9.3 million in cash related to Cascade options and restricted stock units, which was included in the consideration paid.
Unvested Cascade restricted stock awards outstanding immediately prior to the transaction close were canceled in exchange for the right to receive a cash payment and Company shares as provided in the Agreement. The Company paid a total of approximately $2.2 million in cash and issued approximately 168 thousand Company shares, valued at $34.30 per share, related to Cascade unvested restricted stock awards. Of the cash paid and shares issued related to Cascade unvested restricted stock awards, approximately $2.4 million was allocated to expense and excluded from consideration paid due to the acceleration of award vesting at the Company’s discretion. The remaining balance of approximately $5.5 million related to unvested Cascade restricted stock awards is included in the consideration paid.
The assets and liabilities of Cascade were recorded in the Company’s consolidated financial statements at their estimated fair values as of the acquisition date. The excess value of the consideration paid over the fair value of assets acquired and liabilities assumed is recorded as goodwill. The purchase price allocation resulted in goodwill of $232.8 million, which is not deductible for income tax purposes. Goodwill resulting from the acquisition was allocated to the Company’s one operating segment, community banking, and consists largely of the synergies and economies of scale expected from combining the operations of Cascade and the Company.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The following table summarizes the consideration paid, fair values of the Cascade assets acquired and liabilities assumed, and the resulting goodwill. All amounts were finalized in the first quarter of 2018.
|
| | | | | | | | | | |
| As Recorded | Fair Value | | As Recorded |
As of May 30, 2017 | by Cascade | Adjustments | | by the Company |
| | | | |
Assets acquired: | | | | |
Cash and cash equivalents | $ | 246.8 |
| $ | — |
| | $ | 246.8 |
|
Investment securities | 476.7 |
| 4.9 |
| (1) | 481.6 |
|
Loans held for investment | 2,111.0 |
| (31.7 | ) | (2) | 2,079.3 |
|
Mortgage loans held for sale | 10.3 |
| — |
| | 10.3 |
|
Allowance for loan losses | (24.0 | ) | 24.0 |
| (3) | — |
|
Premises and equipment | 46.6 |
| 0.1 |
| (4) | 46.7 |
|
Other real estate owned (“OREO”) | 1.2 |
| — |
| | 1.2 |
|
Core deposit intangible assets | — |
| 48.0 |
| (5) | 48.0 |
|
Deferred tax assets, net | 47.6 |
| (20.9 | ) | (6) | 26.7 |
|
Other assets | 98.6 |
| 2.1 |
| (7) | 100.7 |
|
Total assets acquired | 3,014.8 |
| 26.5 |
| | 3,041.3 |
|
| | | | |
Liabilities assumed: | | | | |
Deposits | 2,669.9 |
| (0.9 | ) | (8) | 2,669.0 |
|
Accounts payable and accrued expense | 62.2 |
| 1.9 |
| (9) | 64.1 |
|
Total liabilities assumed | 2,732.1 |
| 1.0 |
| | 2,733.1 |
|
| | | | |
Net assets acquired | $ | 282.7 |
| $ | 25.5 |
| | $ | 308.2 |
|
| | | | |
Consideration paid: | | | | |
Cash | | | | $ | 155.0 |
|
Class A common stock | | | | 386.0 |
|
Total consideration paid | | | | $ | 541.0 |
|
| | | | |
Goodwill | | | | $ | 232.8 |
|
| | | | |
|
| |
Explanation of fair value adjustments: |
(1) | Write up of the book value of investments to their estimated fair values on the date of acquisition based upon quotes obtained from an independent third party pricing service. |
(2) | Write down of the book value of loans to their estimated fair values. Shared National Credits (SNC) were recorded at quoted sales prices where available. The fair value of the remaining loans was estimated using cash flow projections based on the remaining maturity and repricing terms, adjusted for estimated future credit losses and prepayments and discounted to present value using a risk-adjusted market rate for similar loans. The fair value of collateral dependent loans acquired with deteriorated credit quality was estimated based on the Company’s analysis of the fair value of each loan’s underlying collateral, discounted using market-derived rates of return with consideration given to the period of time and costs associated with foreclosure and disposition of the collateral. |
(3) | Adjustment to remove the Cascade allowance for loan losses at acquisition date, as the credit risk is included in the fair value adjustment for loans receivable described in (2) above. |
(4) | Write up of the book value of premises and equipment to their estimated fair values on the date of acquisition based upon appraisals obtained from an independent third party appraiser or broker’s opinion of value. |
(5) | Adjustment represents the value of the core deposit base assumed in the acquisition based upon valuation from an independent accounting and advisory firm. |
(6) | Adjustment consists of the write-off of pre-existing deferred tax assets and purchase accounting adjustments as a result of the acquisition. |
(7) | Adjustment consists of various other assets recorded as a result of the acquisition, including mortgage servicing rights, SBA servicing rights, and favorable leases offset by reductions to the fair value of other items. |
(8) | Decrease in book value of time deposits to their estimated fair values based upon interest rates of similar time deposits with similar terms on the date of acquisition based upon valuation from an independent accounting and advisory firm. |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
|
| |
(9) | Increase in fair value due to credit card incentive program, unfavorable leases, write-off of balance sheet reserve, and swap liability offset. |
Core deposit intangible assets of $48.0 million are being amortized using an accelerated method over the estimated useful lives of the related deposits of 10 years.
The Company acquired certain loans that are subject to ASC Topic 310-30. For loans that meet the criteria stipulated in Topic 310-30, the excess of all cash flows expected at acquisition over the initial fair value of the loans acquired (“accretable yield”) is amortized to interest income over the expected remaining lives of the underlying loans using the effective interest method. The accretable yield will fluctuate due to changes in (i) estimated lives of underling credit-impaired loans, (ii) assumptions regarding future principal and interest amounts collected, and (iii) indices used to fair value variable rate loans.
Information regarding Cascade loans acquired deemed credit-impaired as of the May 30, 2017 acquisition date is as follows:
|
| | | |
Contractually required principal and interest payments | $ | 49.7 |
|
Contractual cash flows not expected to be collected (“non-accretable discount”) | 24.7 |
|
Cash flows expected to be collected | 25.0 |
|
Interest component of cash flows expected to be collected (“accretable discount”) | 1.9 |
|
Fair value of acquired credit-impaired loans | $ | 23.1 |
|
Information regarding Cascade acquired loans not deemed credit-impaired at the May 30, 2017 acquisition date is as follows:
|
| | | |
Contractually required principal and interest payments | $ | 2,098.1 |
|
Contractual cash flows not expected to be collected | 23.3 |
|
Fair value at acquisition | $ | 2,066.5 |
|
The accompanying consolidated statements of income include the results of operations of the acquired entity from the May 30, 2017April 8, 2019 acquisition date. ForAlthough IIBK legally merged with FIB, the period from May 30, 2017 to June 30, 2017, Cascade reported revenues of $12.9 million and net income of $3.0 million. The acquired entitiesentity continued to operatedo business as Bank of the CascadesIIBK until August 11, 2017June 7, 2019, at which point Cascade’sIIBK’s operations were integrated with the Company’s operations, and Bank of the Cascades merged with FIB. Standalone amounts for the Bank of the Cascades were no longer available after that date.
The following table presents unaudited pro forma consolidated revenues and net income as if the Cascade acquisition had occurred as of January 1, 2016.
|
| | | | | | |
Year ended December 31, (unaudited) | 2018 | 2017 |
Interest income | $ | 473.4 |
| $ | 420.8 |
|
Non-interest income | 143.3 |
| 153.3 |
|
Total revenues | $ | 616.7 |
| $ | 574.1 |
|
| | |
Net income | $ | 162.5 |
| $ | 126.4 |
|
| | |
EPS - basic | $ | 2.81 |
| $ | 2.03 |
|
EPS - diluted | 2.79 |
| 2.01 |
|
The unaudited pro forma net income presented in the table above for 2018 and 2017 was adjusted to exclude acquisition-related costs, including change in control expenses related to employee benefit plans and legal and professional expenses, of $2.3 million and $21.8 million, respectively, net of tax. The unaudited pro forma net income presented in the table above for 2018 and 2017 includes adjustments for scheduled amortization of core deposit intangible assets acquired in the acquisition. The unaudited supplemental pro forma net income presented in the table above for 2018 and 2017 does not capture operating costs savings and other business synergies expected as a result of the acquisition.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
operations.
Acquisition related expenses
The Company recordedThere were 0 material third party acquisition related costs ofrecorded by the Company in 2020 compared to $20.3 million and $12.4 million $27.2 millionof third party acquisition related costs recorded in 2019 and $2.8 million in 2018, 2017 and 2016, respectively. These costs are incorporated in non-interest expense in the Company’s consolidated statements of income and are summarized below.income.
|
| | | | | | | | | |
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 |
Legal and professional fees | $ | 4.0 |
| $ | 9.6 |
| $ | 2.1 |
|
Employee expenses | 1.1 |
| 5.1 |
| 0.2 |
|
Technology conversion and contract termination | 6.6 |
| 10.2 |
| 0.2 |
|
Other | 0.7 |
| 2.3 |
| 0.3 |
|
Total acquisition related expenses | $ | 12.4 |
| $ | 27.2 |
| $ | 2.8 |
|
| | | | | | | | | | | |
(3) | GOODWILL AND CORE DEPOSIT INTANGIBLES | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Goodwill |
| | | | | | | | |
| Year Ended December 31, | |
| 2018 | | 2017 | |
Net carrying value at beginning of period | $ | 444.7 |
| | $ | 212.8 |
| |
Acquisitions and measurement period adjustments | 102.0 |
| | 231.9 |
| |
Net carrying value at end of period | $ | 546.7 |
| | $ | 444.7 |
| |
(3) GOODWILL AND CORE DEPOSIT INTANGIBLES
Goodwill
| | | | | | | | | | | | | | | | |
| Year Ended December 31, | |
| 2020 | | 2019 | | | |
Net carrying value at beginning of period | $ | 621.6 | | | $ | 546.7 | | | | |
Acquisitions and measurement period adjustments | 0 | | | 74.9 | | | | |
Net carrying value at end of period | $ | 621.6 | | | $ | 621.6 | | | | |
The Company performed its annual goodwill impairment qualitative assessment as of July 1, 2018, 2017,2020, 2019, and 20162018 and determined the Company’s goodwill was not0t considered impaired. In addition, there were no events or circumstances that occurred during the second half of 20182020 that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value, the Company did not perform interim testing as of December 31, 2018.2020.
Core deposit intangibles (“CDI”) Core deposit intangibles (“CDI”)
The following table sets forth activity for identifiable core deposit intangibles subject to amortization:
|
| | | | | | | | |
| Year Ended December 31, | |
| 2018 | | 2017 | |
Gross CDI, beginning of period | $ | 74.0 |
| | $ | 29.2 |
| |
Established through acquisitions | 15.7 |
| | 48.0 |
| |
Reductions due to sale of accounts | — |
| | (3.2 | ) | |
Accumulated amortization | (32.8 | ) | | (24.9 | ) | |
Net CDI, end of period | $ | 56.9 |
| | $ | 49.1 |
| |
The following table sets forth activity for identifiable core deposit intangibles subject to amortization: | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | |
Gross CDI, beginning of period | $ | 106.0 | | | $ | 89.7 | | | |
Established through acquisitions | 0 | | | 16.6 | | | |
Reductions due to sale of accounts | 0 | | | (0.3) | | | |
Accumulated amortization | (54.8) | | | (43.9) | | | |
Net CDI, end of period | $ | 51.2 | | | $ | 62.1 | | | |
Amortization expense of CDI assets was $7.9$10.9 million, $5.5$11.2 million and $3.4$7.9 million for the fiscal years ended December 31, 2020, 2019 and 2018, 2017 and 2016, respectively.
CDI are evaluated for impairment if events and circumstances indicate a possible impairment. The CDI are amortized using an accelerated method based on the estimated weighted average useful lives of the related deposits, which is generally ten years.
The following table provides estimated future CDI amortization expense:
| | | | | |
Years ending December 31, | |
2021 | $ | 9.9 | |
2022 | 9.0 | |
2023 | 8.2 | |
2024 | 7.3 | |
2025 | 6.5 | |
Thereafter | 10.3 | |
Total | $ | 51.2 | |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
In 2017, the Company sold the custodial rights to our Health Savings Account (“HSA”) portfolio to HealthEquity, Inc. for $6.2 million, of which $3.2 million was attributable to BOTC acquired deposits which were sold at fair market value.
The following table provides estimated future CDI amortization expense: |
| | | | |
Years ending December 31, | | |
2019 | $ | 8.9 |
| |
2020 | 8.1 |
| |
2021 | 7.5 |
| |
2022 | 6.9 |
| |
2023 | 6.3 |
| |
Thereafter | 19.2 |
| |
Total | $ | 56.9 |
| |
| |
(4) | (4) INVESTMENT SECURITIES |
The amortized cost and approximate fair values of investment securities are summarized as follows:
| | | | | | | | | | | | | | |
December 31, 2020 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value |
Available-for-Sale | | | | |
| | | | |
State, county, and municipal securities | $ | 462.1 | | $ | 4.8 | | $ | (1.0) | | $ | 465.9 | |
Obligations of U.S. government agencies | 332.9 | | 1.0 | | (2.0) | | 331.9 | |
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations | 2,830.8 | | 69.3 | | (2.5) | | 2,897.6 | |
Private mortgage-backed securities | 10.9 | | 0.1 | | (0.1) | | 10.9 | |
Corporate Securities | 295.8 | | 6.5 | | (0.1) | | 302.2 | |
Other investments | 0.2 | | 0 | | 0 | | 0.2 | |
Total | $ | 3,932.7 | | $ | 81.7 | | $ | (5.7) | | $ | 4,008.7 | |
|
| | | | | | | | | | | | |
December 31, 2018 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value |
Available-for-Sale | | | | |
U.S. Treasury notes | $ | 2.6 |
| $ | — |
| $ | — |
| $ | 2.6 |
|
Obligations of U.S. government agencies | 569.3 |
| 0.1 |
| (10.2 | ) | 559.2 |
|
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations | 1,566.4 |
| 2.5 |
| (24.1 | ) | 1,544.8 |
|
Private mortgage-backed securities | 72.0 |
| — |
| (1.8 | ) | 70.2 |
|
Corporate Securities | 92.9 |
| — |
| (1.0 | ) | 91.9 |
|
Other investments | 2.0 |
| — |
| — |
| 2.0 |
|
Total | $ | 2,305.2 |
| $ | 2.6 |
| $ | (37.1 | ) | $ | 2,270.7 |
|
| | | | | | | | | | | | | | |
December 31, 2020 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value |
Held-to Maturity | | | | |
State, county, and municipal securities | $ | 46.6 | | $ | 3.2 | | $ | 0 | | $ | 49.8 | |
| | | | |
U.S agency residential mortgage-backed securities & collateralized mortgage obligations | 1.0 | | 0.1 | | 0 | | 1.1 | |
Corporate securities | 3.9 | | 0.1 | | 0 | | 4.0 | |
Other investments | 0.1 | | 0 | | 0 | | 0.1 | |
Total | $ | 51.6 | | $ | 3.4 | | $ | 0 | | $ | 55.0 | |
| | | | | | | | | | | | | | |
December 31, 2019 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value |
Available-for-Sale | | | | |
U.S. Treasury notes | $ | 9.0 | | $ | 0 | | $ | 0 | | $ | 9.0 | |
State, county, and municipal securities | 80.1 | | 0.8 | | 0 | | 80.9 | |
Obligations of U.S. government agencies | 367.5 | | 0.1 | | (0.8) | | 366.8 | |
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations | 2,303.6 | | 19.6 | | (6.0) | | 2,317.2 | |
Private mortgage-backed securities | 47.6 | | 0 | | (0.4) | | 47.2 | |
Corporate Securities | 134.5 | | 1.2 | | 0 | | 135.7 | |
Other investments | 3.2 | | 0 | | 0 | | 3.2 | |
Total | $ | 2,945.5 | | $ | 21.7 | | $ | (7.2) | | $ | 2,960.0 | |
| | | | | | | | | | | | | | |
December 31, 2019 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value |
Held-to Maturity | | | | |
State, county, and municipal securities | $ | 57.3 | | $ | 2.1 | | $ | 0 | | $ | 59.4 | |
Obligations of U.S. government agencies | 19.8 | | 0 | | 0 | | 19.8 | |
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations | 1.2 | | 0 | | 0 | | 1.2 | |
Corporate securities | 13.9 | | 0.1 | | 0 | | 14.0 | |
Other investments | 0.1 | | 0 | | 0 | | 0.1 | |
Total | $ | 92.3 | | $ | 2.2 | | $ | 0 | | $ | 94.5 | |
There were 0 material gross realized gains and 0 material gross realized losses on the disposition of available-for-sale securities during 2020, 2019, or 2018.
|
| | | | | | | | | | | | |
December 31, 2018 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value |
Held-to Maturity | | | | |
State, county and municipal securities | $ | 150.9 |
| $ | 1.8 |
| $ | (0.9 | ) | $ | 151.8 |
|
U.S agency residential mortgage-backed securities & collateralized mortgage obligations | 189.7 |
| 0.3 |
| (6.5 | ) | 183.5 |
|
Corporate securities | 46.3 |
| 0.1 |
| (0.6 | ) | 45.8 |
|
Obligations of U.S. government agencies | 19.8 |
| — |
| (0.3 | ) | 19.5 |
|
Other investments | 0.1 |
| — |
| — |
| 0.1 |
|
Total | $ | 406.8 |
| $ | 2.2 |
| $ | (8.3 | ) | $ | 400.7 |
|
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
|
| | | | | | | | | | | | |
December 31, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value |
Available-for-Sale | | | | |
U.S. Treasury notes | $ | 3.2 |
| $ | — |
| $ | — |
| $ | 3.2 |
|
Obligations of U.S. government agencies | 569.5 |
| — |
| (8.0 | ) | 561.5 |
|
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations | 1,474.1 |
| 3.8 |
| (15.4 | ) | 1,462.5 |
|
Private mortgage-backed securities | 91.5 |
| — |
| (0.8 | ) | 90.7 |
|
Corporate Securities | 88.0 |
| 0.1 |
| (0.3 | ) | 87.8 |
|
Other investments | 3.0 |
| — |
| — |
| 3.0 |
|
Total | $ | 2,229.3 |
| $ | 3.9 |
| $ | (24.5 | ) | $ | 2,208.7 |
|
|
| | | | | | | | | | | | |
December 31, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value |
Held-to Maturity | | | | |
State, county and municipal securities | $ | 172.4 |
| $ | 2.6 |
| $ | (0.6 | ) | $ | 174.4 |
|
Obligations of U.S. government agencies | 19.8 |
| — |
| (0.2 | ) | 19.6 |
|
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations | 230.5 |
| 8.8 |
| (11.6 | ) | 227.7 |
|
Corporate securities | 61.6 |
| 0.1 |
| (0.3 | ) | 61.4 |
|
Other investments | 0.2 |
| — |
| — |
| 0.2 |
|
Total | $ | 484.5 |
| $ | 11.5 |
| $ | (12.7 | ) | $ | 483.3 |
|
There were no material gross gains and $0.1 million of gross losses realized on the disposition of available-for-sale securities in 2018.
Gross gains of $1.1 million and $0.4 million were realized on the disposition of available-for-sale securities in 2017 and 2016, respectively. Gross losses of $0.4 million and $0.1 million were realized on the disposition of available-for-sale securities in 2017 and 2016, respectively.
As of December 31, 2018,2020, the Company had general obligation securities with amortized costs of $115.5$38.6 million included in state, county, and municipal securities, of which $66.8$26.0 million, or 67.4% were issued by political subdivisions or agencies within the states of Idaho, Montana, Oregon, South Dakota, Washington, and Wyoming.
The following tables show the gross unrealized losses and fair values of investment securities, aggregated by investment category, and the length of time individual investment securities have been in a continuous unrealized loss position, as of December 31, 20182020 and 2017.2019. There were no held-to-maturity securities in a continuous unrealized loss position as of December 31, 2020.
| | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | 12 Months or More | Total |
December 31, 2020 | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses |
Available-for-Sale | | | | | | |
| | | | | | |
State, county, and municipal securities | $ | 148.1 | | $ | (1.0) | | $ | 0 | | $ | 0 | | $ | 148.1 | | $ | (1.0) | |
Obligations of U.S. government agencies | 235.6 | | (2.0) | | 0 | | 0 | | 235.6 | | (2.0) | |
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations | 434.0 | | (2.4) | | 12.3 | | (0.1) | | 446.3 | | (2.5) | |
Private mortgage-backed securities | 0 | | 0 | | 4.3 | | (0.1) | | 4.3 | | (0.1) | |
Corporate securities | 20.9 | | (0.1) | | 0 | | 0 | | 20.9 | | (0.1) | |
| | | | | | |
Total | $ | 838.6 | | $ | (5.5) | | $ | 16.6 | | $ | (0.2) | | $ | 855.2 | | $ | (5.7) | |
|
| | | | | | | | | | | | | | | | | | |
| Less than 12 Months | 12 Months or More | Total |
December 31, 2018 | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses |
Available-for-Sale | | | | | | |
Obligations of U.S. government agencies | $ | 363.1 |
| $ | (7.9 | ) | $ | 154.5 |
| $ | (2.3 | ) | $ | 517.6 |
| $ | (10.2 | ) |
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations | 735.2 |
| (14.5 | ) | 503.7 |
| (9.6 | ) | 1,238.9 |
| (24.1 | ) |
Private mortgage-backed securities | — |
| — |
| 69.4 |
| (1.8 | ) | 69.4 |
| (1.8 | ) |
Corporate securities | 24.9 |
| (0.2 | ) | 51.4 |
| (0.8 | ) | 76.3 |
| (1.0 | ) |
Total | $ | 1,123.2 |
| $ | (22.6 | ) | $ | 779.0 |
| $ | (14.5 | ) | $ | 1,902.2 |
| $ | (37.1 | ) |
| | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | 12 Months or More | Total |
December 31, 2019 | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses |
Available-for-Sale | | | | | | |
| | | | | | |
Obligations of U.S. government agencies | $ | 185.3 | | $ | (0.8) | | $ | 0 | | $ | 0 | | $ | 185.3 | | $ | (0.8) | |
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations | 740.1 | | (4.6) | | 155.9 | | (1.4) | | 896.0 | | (6.0) | |
Private mortgage-backed securities | 0 | | 0 | | 46.6 | | (0.4) | | 46.6 | | (0.4) | |
| | | | | | |
| | | | | | |
Total | $ | 925.4 | | $ | (5.4) | | $ | 202.5 | | $ | (1.8) | | $ | 1,127.9 | | $ | (7.2) | |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
|
| | | | | | | | | | | | | | | | | | |
| Less than 12 Months | 12 Months or More | Total |
December 31, 2018 | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses |
Held-to-Maturity | | | | | | |
State, county and municipal securities | $ | 25.9 |
| $ | (0.3 | ) | $ | 57.1 |
| $ | (0.6 | ) | $ | 83.0 |
| $ | (0.9 | ) |
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations | 45.0 |
| (2.2 | ) | 120.2 |
| (4.3 | ) | 165.2 |
| (6.5 | ) |
Corporate securities | — |
| — |
| 39.6 |
| (0.6 | ) | 39.6 |
| (0.6 | ) |
Obligations of U.S. government agencies | 19.5 |
| (0.3 | ) | — |
| — |
| 19.5 |
| (0.3 | ) |
Total | $ | 90.4 |
| $ | (2.8 | ) | $ | 216.9 |
| $ | (5.5 | ) | $ | 307.3 |
| $ | (8.3 | ) |
|
| | | | | | | | | | | | | | | | | | |
| Less than 12 Months | 12 Months or More | Total |
December 31, 2017 | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses |
Available-for-Sale | | | | | | |
Obligations of U.S. government agencies | 284.9 |
| (3.4 | ) | 266.1 |
| (4.6 | ) | 551.0 |
| (8.0 | ) |
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations | 670.1 |
| (6.2 | ) | 439.2 |
| (9.2 | ) | 1,109.3 |
| (15.4 | ) |
Private mortgage-backed securities | 74.0 |
| (0.8 | ) | — |
| — |
| 74.0 |
| (0.8 | ) |
Corporate securities | 51.3 |
| (0.3 | ) | — |
| — |
| 51.3 |
| (0.3 | ) |
Total | $ | 1,080.3 |
| $ | (10.7 | ) | $ | 705.3 |
| $ | (13.8 | ) | $ | 1,785.6 |
| $ | (24.5 | ) |
|
| | | | | | | | | | | | | | | | | | |
| Less than 12 Months | 12 Months or More | Total |
December 31, 2017 | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses |
Held-to-Maturity | | | | | | |
State, county and municipal securities | $ | 53.3 |
| $ | (0.4 | ) | $ | 12.3 |
| $ | (0.2 | ) | $ | 65.6 |
| $ | (0.6 | ) |
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations | 76.4 |
| (9.1 | ) | 60.5 |
| (2.5 | ) | $ | 136.9 |
| $ | (11.6 | ) |
Corporate securities | $ | 41.2 |
| $ | (0.2 | ) | $ | 5.0 |
| $ | (0.1 | ) | $ | 46.2 |
| $ | (0.3 | ) |
Obligations of U.S. government agencies | $ | 9.7 |
| $ | — |
| $ | 9.9 |
| $ | (0.2 | ) | $ | 19.6 |
| $ | (0.2 | ) |
Total | $ | 180.6 |
| $ | (9.7 | ) | $ | 87.7 |
| $ | (3.0 | ) | $ | 268.3 |
| $ | (12.7 | ) |
The investmentavailable-for-sale securities portfolio is evaluated quarterly for other-than-temporary declinescontains securities that are guaranteed by a sovereign entity or are generally considered to have non-credit related risks, such as interest rate risk or prepayment and liquidity factors. The Company considers whether the securities are issued by the federal government or its agencies and whether downgrades by bond rating agencies have occurred. The unrealized losses are due to changes in theinterest rates and other market value of each individual investment security. Consideration is given to the length of time and the extent to which the fair value has been less than cost; the financial condition and near term prospects of the issuer; and, the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. conditions.
The Company had 760181 and 581338 individual investment securities that were in an unrealized loss position as of December 31, 20182020 and 2017, respectively. Unrealized losses as of December 31, 2018 and 20172019, respectively, related primarily to fluctuations in the current interest rates. The fair value of these investment securities is expected to recover as the securities approach their maturity or repricing date or if market yields for such investments decline. As of December 31, 2018,2020, the Company had the intent and ability to hold these investment securities for a period of time sufficient to allow for an anticipated recovery. Furthermore, the Company does not have the intent to sell any of the available-for-sale securities in the above table and it is more likely than not that the Company will not have to sell any securities before a recovery in cost. NoThere were 0 material allowances for credit loss as of December 31, 2020 and 0 impairment losses were recorded during 2019 or 2018 2017 or 2016.for investment securities.
Maturities of securities do not reflect rate repricing opportunities present in adjustable-rate mortgage-backed securities. As of December 31, 2020 and 2019, the Company had variable rate mortgage-backed securities with amortized costs of $220.7 million and $298.1 million, respectively, classified as available-for-sale in the table below.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Maturities of investment securities atas of December 31, 20182020 are shown below. Maturities of mortgage-backed securities have been adjusted to reflect shorter maturities based upon estimated prepayments of principal. All other investment securities maturities are shown at contractual maturity dates.
| | | | | | | | | | | | | | | | | |
| Available-for-Sale | | Held-to-Maturity |
December 31, 2020 | Amortized Cost | Estimated Fair Value | | Amortized Cost | Estimated Fair Value |
Within one year | $ | 687.6 | | $ | 991.4 | | | $ | 8.3 | | $ | 8.4 | |
After one year but within five years | 1,587.7 | | 1,362.6 | | | 27.8 | | 29.0 | |
After five years but within ten years | 736.2 | | 996.3 | | | 14.1 | | 16.2 | |
After ten years | 921.2 | | 658.4 | | | 1.4 | | 1.4 | |
Total | $ | 3,932.7 | | $ | 4,008.7 | | | $ | 51.6 | | $ | 55.0 | |
|
| | | | | | | | | | | | | |
| Available-for-Sale | | Held-to-Maturity |
December 31, 2018 | Amortized Cost | Estimated Fair Value | | Amortized Cost | Estimated Fair Value |
Within one year | $ | 477.8 |
| $ | 472.3 |
| | $ | 64.1 |
| $ | 63.0 |
|
After one year but within five years | 1,519.2 |
| 1,495.0 |
| | 221.6 |
| 216.7 |
|
After five years but within ten years | 154.5 |
| 151.9 |
| | 94.4 |
| 94.9 |
|
After ten years | 153.7 |
| 151.5 |
| | 26.7 |
| 26.1 |
|
Total | $ | 2,305.2 |
| $ | 2,270.7 |
| | $ | 406.8 |
| $ | 400.7 |
|
AtAs of December 31, 2018,2020, the Company had investment securities callable within one year with amortized costs and estimated fair values of $64.7$282.4 million and $64.8$281.7 million, respectively. These investment securities are primarily classified as available-for-sale and included in the after one yearfive years but within fiveten years category in the table above.
At As of December 31, 2018,2020, the Company had 0 callable structured notes with amortized costs and estimated fair values of $2.0 million and $2.0 million, respectively. These callable structured notes, which are classified as available-for-sale and included in the after one year but within five years category in the table above.
Maturities of securities do not reflect rate repricing opportunities present in adjustable rate mortgage-backed securities. At December 31, 2018 and 2017, the Company had variable rate mortgage-backed securities with amortized costs of $219.5 million and $247.9 million, respectively, classified as available-for-sale in the table above.
notes.
There arewere no significant concentrations of investments at December 31, 2018,2020, (greater than 10 percent of stockholders’ equity) in any individual security issuer, except for U.S. government or agency-backed securities.
Investment securities withAs of December 31, 2020 and 2019, the Company recorded amortized costcosts of $1,943.1$2,323.0 million and $2,087.7$2,132.0 million, at December 31, 2018 and 2017, respectively, werefor investment securities pledged to secure public deposits and securities sold under repurchase agreements. Theagreements and had approximate fair valuevalues as of securities pledged at December 31, 20182020 and 2017 was $1,908.42019 of $2,383.6 million and $2,062.6$2,144.9 million, respectively. All securities sold under repurchase agreements are with customersclients and mature on the next banking day. The Company retains possession of the underlying securities sold under repurchase agreements.
(5) LOANS HELD FOR SALE
Mortgage loans held for immediate sale in the secondary market were $74.0 million as of December 31, 2020, compared to $100.9 million as of December 31, 2019. Residential loans that the Company originated with the intent to sell are recorded at fair value. Conforming agency mortgage production is sold on a servicing retained basis. Certain loans, such as government guaranteed mortgage loans, are sold on a servicing released basis.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
(6) LOANS HELD FOR INVESTMENT
The following table presents loans by classsegment as of the dates indicated:
| | | | | | | | | | | |
| 2020 | | 2019 |
Real estate loans: | | | |
Commercial* | $ | 3,743.2 | | | $ | 3,487.8 | |
Construction loans: | | | |
Land acquisition & development | 265.0 | | | 302.1 | |
Residential | 250.9 | | | 244.1 | |
Commercial | 523.5 | | | 431.5 | |
Total construction loans | 1,039.4 | | | 977.7 | |
Residential* | 1,396.3 | | | 1,246.1 | |
Agricultural | 220.6 | | | 226.6 | |
Total real estate loans | 6,399.5 | | | 5,938.2 | |
Consumer loans: | | | |
Indirect | 805.1 | | | 784.6 | |
Direct and advance lines | 150.6 | | | 179.0 | |
Credit card | 70.2 | | | 81.6 | |
Total consumer loans | 1,025.9 | | | 1,045.2 | |
Commercial* | 2,153.9 | | | 1,673.7 | |
Agricultural | 247.6 | | | 279.1 | |
Other, including overdrafts | 1.6 | | | 0 | |
Loans held for investment | 9,828.5 | | | 8,936.2 | |
Deferred loan fees and costs | (21.0) | | | (5.5) | |
Loans held for investment, net of deferred fees and costs | 9,807.5 | | | 8,930.7 | |
Allowance for credit losses | (144.3) | | | (73.0) | |
Net loans held for investment | $ | 9,663.2 | | | $ | 8,857.7 | |
| | | |
|
|
| | | | | | | |
December 31, | 2018 | | 2017 |
Real estate loans: | | | |
Commercial | $ | 3,235.4 |
| | $ | 2,822.9 |
|
Construction: | | | |
Land acquisition & development | 321.6 |
| | 348.7 |
|
Residential | 242.8 |
| | 240.2 |
|
Commercial | 274.3 |
| | 119.4 |
|
Total construction loans | 838.7 |
| | 708.3 |
|
Residential | 1,542.0 |
| | 1,487.4 |
|
Agricultural | 217.4 |
| | 158.2 |
|
Total real estate loans | 5,833.5 |
| | 5,176.8 |
|
Consumer: | | | |
Indirect consumer | 787.8 |
| | 784.7 |
|
Other consumer | 200.6 |
| | 175.1 |
|
Credit card | 81.8 |
| | 74.6 |
|
Total consumer loans | 1,070.2 |
| | 1,034.4 |
|
Commercial | 1,310.3 |
| | 1,215.4 |
|
Agricultural | 254.8 |
| | 136.2 |
|
Other, including overdrafts | 1.6 |
| | 4.9 |
|
Loans held for investment | 8,470.4 |
| | 7,567.7 |
|
Mortgage loans held for sale | 33.3 |
| | 46.6 |
|
Total loans | $ | 8,503.7 |
| | $ | 7,614.3 |
|
The*In conjunction with the adoption of ASC 326, the Company has lending policiesreclassified certain 2019 amounts in our multi-family loan portfolio from residential real estate to commercial real estate. Additionally, we reclassified certain 2019 amounts in our commercial 1-4 family and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and internally risk-classified loans.
Real estate loans include construction and permanent financing for both single-family and multi-unit properties, term loans for commercial agricultural and industrial property and/or buildings and home equity loans and lines of credit secured by real estate. Longer-term residential real estate loans are generally sold in the secondary market. Those residential real estate loans not sold are typically secured by first liens on the financed property and generally mature in less than fifteen years. Home equity loans and lines of credit are typically secured by first or second liens on residential real estate and generally do not exceed a loan to value ratio of 80%. The Company had home equity loans and lines of credit of $409.5 million and $397.0 million as of December 31, 2018 and 2017, respectively, included in residential real estate loans. Commercial and agricultural real estate loans are generally secured by first liens on income-producing real estate and generally mature in less than 5 years.
Construction loans are primarily to commercial builders for residential lot development and the construction of single-family residences andfrom commercial real estate properties. Construction loans are generally underwritten pursuant to pre-approved permanent financing. Duringcommercial to conform to the construction phase the borrower pays interest only.
Consumer loans include direct personal loans, credit card loans, lines of credit and indirect dealer loans for the purchase of automobiles, recreational vehicles, boats and other consumer goods. Personal loans and indirect dealer loans are generally secured by automobiles, boats and other types of personal property and are made on an installment basis. Credit cards are offered to individuals in our market areas. Lines of credit are generally floating rate loans that are unsecured or secured by personal property.
2020 presentation. These reclassifications did not change previously reported loan totals.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Allowance for Credit Losses
Commercial loans include a mix of variable and fixed rate loans made to small and medium-sized manufacturing, wholesale, retail and service businesses for working capital needs and business expansions. Commercial loans generally include lines of credit, business credit cards and loans with maturities of five years or less. The loans are generally made with business operations asfollowing tables represent, by loan portfolio segment, the primary source of repayment, but also include collateralization by inventory, accounts receivable, equipment and/or personal guarantees.
Agricultural loans generally consist of short and medium-term loans and lines of credit that are primarily used for crops, livestock, equipment and general operations. Agricultural loans are ordinarily secured by assets such as livestock or equipment and are repaid from the operations of the farm or ranch. Agricultural loans generally have maturities of five years or less, with operating lines for one production season.
Includedactivity in the loan table above, are loans acquired in business combinations including certain loans that had evidence of deterioration inallowance for credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected. The following table displays the outstanding unpaid principal balance and accrual status of loans acquired with credit impairment as of December 31, 2018 and 2017.
|
| | | | | | | |
December 31, | 2018 | | 2017 |
Outstanding principal | $ | 43.4 |
| | $ | 38.2 |
|
Carrying value: | | | |
Loans on accrual status | 30.2 |
| | 24.9 |
|
Total carrying value | $ | 30.2 |
| | $ | 24.9 |
|
The following table summarizes changes in the accretable yieldlosses for loans acquired credit impairedheld for the years ended December 31, 2018, 2017, and 2016:investment: |
| | | | | | | | | | | |
Year Ended December 31, | 2018 | | 2017 | | 2016 |
Beginning balance | $ | 7.3 |
| | $ | 6.8 |
| | $ | 6.7 |
|
Acquisitions | 3.2 |
| | 1.9 |
| | 1.1 |
|
Additions | 0.6 |
| | 0.1 |
| | — |
|
Accretion income | (3.1 | ) | | (2.9 | ) | | (2.5 | ) |
Reductions due to exit events | (1.1 | ) | | (1.5 | ) | | (1.1 | ) |
Reclassifications from nonaccretable differences | 2.0 |
| | 2.9 |
| | 2.6 |
|
Ending balance | $ | 8.9 |
| | $ | 7.3 |
| | $ | 6.8 |
|
| | | | | | | | | | | | | | | | | | | | |
December 31, 2020 | Beginning Balance | Impact of Adopting ASC 326 | Provision for Credit Loss Expense | Loans Charged-Off | Recoveries Collected | Ending Balance |
Allowance for credit losses (1) | | | | | | |
Real estate: | | | | | | |
Commercial real estate: | | | | | | |
Non-owner occupied | $ | 8.8 | | $ | 4.9 | | $ | 11.7 | | $ | 0 | | $ | 0.1 | | $ | 25.5 | |
Owner occupied | 10.0 | | 3.5 | | 5.0 | | (0.4) | | 0.2 | | 18.3 | |
Multi-family | 0.7 | | 6.9 | | 3.4 | | 0 | | 0 | | 11.0 | |
Total commercial real estate | 19.5 | | 15.3 | | 20.1 | | (0.4) | | 0.3 | | 54.8 | |
Construction: | | | | | | |
Land acquisition & development | 1.9 | | (0.1) | | (0.4) | | (0.5) | | 0.4 | | 1.3 | |
Residential construction | 1.5 | | (0.9) | | 1.0 | | 0 | | 0 | | 1.6 | |
Commercial construction | 2.7 | | 1.3 | | 3.3 | | 0 | | 0 | | 7.3 | |
Total construction | 6.1 | | 0.3 | | 3.9 | | (0.5) | | 0.4 | | 10.2 | |
Residential real estate: | | | | | | |
Residential 1-4 family | 1.8 | | 10.6 | | (1.1) | | 0 | | 0.1 | | 11.4 | |
Home equity and HELOC | 1.0 | | 0.5 | | (0.4) | | 0 | | 0.3 | | 1.4 | |
Total residential real estate | 2.8 | | 11.1 | | (1.5) | | 0 | | 0.4 | | 12.8 | |
Agricultural real estate | 0.5 | | 1.8 | | 0.4 | | 0 | | 0 | | 2.7 | |
Total real estate | 28.9 | | 28.5 | | 22.9 | | (0.9) | | 1.1 | | 80.5 | |
Consumer: | | | | | | |
Indirect | 4.5 | | 8.8 | | 5.4 | | (4.1) | | 2.1 | | 16.7 | |
Direct and advance lines | 2.9 | | 3.0 | | 1.6 | | (3.9) | | 1.0 | | 4.6 | |
Credit card | 2.5 | | 0.3 | | 1.8 | | (2.8) | | 0.8 | | 2.6 | |
Total consumer | 9.9 | | 12.1 | | 8.8 | | (10.8) | | 3.9 | | 23.9 | |
Commercial: | | | | | | |
Commercial and floor plans | 25.5 | | (5.1) | | 20.4 | | (8.0) | | 1.4 | | 34.2 | |
Commercial purpose secured by 1-4 family | 5.9 | | (3.8) | | 2.5 | | (0.1) | | 0.2 | | 4.7 | |
Credit card | 1.2 | | (1.1) | | 1.1 | | (1.0) | | 0.1 | | 0.3 | |
Total commercial | 32.6 | | (10.0) | | 24.0 | | (9.1) | | 1.7 | | 39.2 | |
Agricultural: | | | | | | |
Agricultural | 1.6 | | (0.6) | | (0.2) | | (0.1) | | 0 | | 0.7 | |
| | | | | | |
Total agricultural | 1.6 | | (0.6) | | (0.2) | | (0.1) | | 0 | | 0.7 | |
Total allowance for credit losses | $ | 73.0 | | $ | 30.0 | | $ | 55.5 | | $ | (20.9) | | $ | 6.7 | | $ | 144.3 | |
| | | | | | |
(1) Amounts presented are exclusive of the allowance for credit losses related to unfunded commitments which are included in “Note 19 - Financial Instruments with Off-Balance Sheet Risk” included in this report. |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The following tables represent activity in the allowance for credit losses for loans held for investment under historical GAAP:
| | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2019 | Real Estate | Consumer | Commercial | Agriculture | Other | Total |
Allowance for loan losses: | | | | | | |
Beginning balance | $ | 31.0 | | $ | 8.7 | | $ | 31.3 | | $ | 2.0 | | $ | 0 | | $ | 73.0 | |
Provision charged (credited) to operating expense | (1.3) | | 10.6 | | 4.5 | | 0.1 | | 0 | | 13.9 | |
Less loans charged-off | (3.5) | | (13.0) | | (6.6) | | (0.5) | | 0 | | (23.6) | |
Add back recoveries of loans previously charged-off | 2.7 | | 3.6 | | 3.4 | | 0 | | 0 | | 9.7 | |
Ending balance | $ | 28.9 | | $ | 9.9 | | $ | 32.6 | | $ | 1.6 | | $ | 0 | | $ | 73.0 | |
| | | | | | |
Individually evaluated for impairment | $ | 1.7 | | $ | 0 | | $ | 1.7 | | $ | 0.2 | | $ | 0 | | $ | 3.6 | |
Collectively evaluated for impairment | 27.2 | | 9.9 | | 30.9 | | 1.4 | | 0 | | 69.4 | |
Ending balance | $ | 28.9 | | $ | 9.9 | | $ | 32.6 | | $ | 1.6 | | $ | 0 | | $ | 73.0 | |
| | | | | | |
Total loans: | | | | | | |
Individually evaluated for impairment | $ | 41.1 | | $ | 0 | | $ | 17.3 | | $ | 6.3 | | $ | 0 | | $ | 64.7 | |
Collectively evaluated for impairment | 5,897.1 | | 1,045.2 | | 1,656.4 | | 272.8 | | 0 | | 8,871.5 | |
Loans held for investment | $ | 5,938.2 | | $ | 1,045.2 | | $ | 1,673.7 | | $ | 279.1 | | $ | 0 | | $ | 8,936.2 | |
| | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2018 | Real Estate | Consumer | Commercial | Agriculture | Other | Total |
Allowance for loan losses: | | | | | | |
Beginning balance | $ | 31.7 | | $ | 8.7 | | $ | 30.5 | | $ | 1.2 | | $ | 0 | | $ | 72.1 | |
Provision charged (credited) to operating expense | (0.7) | | 6.8 | | 1.9 | | 0.6 | | 0 | | 8.6 | |
Less loans charged-off | (3.7) | | (11.3) | | (4.7) | | 0 | | 0 | | (19.7) | |
Add back recoveries of loans previously charged-off | 3.7 | | 4.5 | | 3.6 | | 0.2 | | 0 | | 12.0 | |
Ending balance | $ | 31.0 | | $ | 8.7 | | $ | 31.3 | | $ | 2.0 | | $ | 0 | | $ | 73.0 | |
| | | | | | |
Individually evaluated for impairment | $ | 1.3 | | $ | 0 | | $ | 5.2 | | $ | 0.3 | | $ | 0 | | $ | 6.8 | |
Collectively evaluated for impairment | 29.7 | | 8.7 | | 26.1 | | 1.7 | | 0 | | 66.2 | |
Ending balance | $ | 31.0 | | $ | 8.7 | | $ | 31.3 | | $ | 2.0 | | $ | 0 | | $ | 73.0 | |
| | | | | | |
Total loans: | | | | | | |
Individually evaluated for impairment | $ | 41.8 | | $ | 0 | | $ | 19.9 | | $ | 3.1 | | $ | 0 | | $ | 64.8 | |
Collectively evaluated for impairment | 5,546.1 | | 1,070.2 | | 1,540.4 | | 251.7 | | 1.6 | | 8,410.0 | |
Loans held for investment | $ | 5,587.9 | | $ | 1,070.2 | | $ | 1,560.3 | | $ | 254.8 | | $ | 1.6 | | $ | 8,474.8 | |
Collateral-Dependent Financial Loans
A collateral-dependent financial loan relies solely on the operation or sale of the collateral for repayment. In evaluating the overall risk associated with a loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of protection provided by the cash flow and value of any underlying collateral. The loan may become collateral-dependent where the borrower is experiencing financial difficulty and as sources of repayment become inadequate over time and that repayment is expected to be provided substantially through the operation or sale of the collateral. The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2020.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| | | | | | | | | | | | | | |
| Collateral Type |
As of December 31, 2020 | Business Assets | Real Property | Other | Total |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Real estate | $ | 1.3 | | $ | 6.5 | | $ | 1.1 | | $ | 8.9 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Commercial | 6.1 | | 1.3 | | 0.4 | | 7.8 | |
Agricultural | 0 | | 0.8 | | 0 | | 0.8 | |
| | | | |
Total collateral-dependent | $ | 7.4 | | $ | 8.6 | | $ | 1.5 | | $ | 17.5 | |
Impaired Loans
Prior to the adoption of ASC 326 on January 1, 2020, loans were reported as impaired when, based on then current information and events, it was probable we would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. The amount of the impairment was measured using cash flows discounted at the loan’s effective interest rate, except when it was determined that the primary source of repayment for the loan was the operation or liquidation of the underlying collateral. In such cases, the current fair value of the collateral, reduced by anticipated selling costs, was used to measure impairment. The Company considered impaired loans to include all loans, except consumer loans, that were risk rated as doubtful or for which interest accrual had been discontinued or that would have been renegotiated in a troubled debt restructuring. Interest payments received on impaired loans were applied based on whether they were on accrual or non-accrual status. Interest income recognized by the Company on impaired loans primarily related to loans modified in troubled debt restructurings that remained on accrual status. Interest payments received on non-accrual impaired loans were applied to principal. Interest income was subsequently recognized only to the extent cash payments were received in excess of the principal due. The following tables present information on the Company’s recorded investment of impaired loans as of the dates indicated:
| | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Unpaid Total Principal Balance | Recorded Investment With No Allowance | Recorded Investment With Allowance | Total Recorded Investment | Related Allowance |
Real estate: | | | | | |
Commercial | $ | 29.2 | | $ | 12.9 | | $ | 10.8 | | $ | 23.7 | | $ | 0.7 | |
Construction: | | | | | |
Land acquisition & development | 9.2 | | 0.4 | | 2.6 | | 3.0 | | 0.5 | |
Residential | 0.1 | | 0 | | 0 | | 0 | | 0 | |
Commercial | 1.0 | | 0.5 | | 0 | | 0.5 | | 0.1 | |
Total construction loans | 10.3 | | 0.9 | | 2.6 | | 3.5 | | 0.6 | |
Residential | 6.9 | | 3.9 | | 1.8 | | 5.7 | | 0.2 | |
Agricultural | 8.6 | | 5.2 | | 3.0 | | 8.2 | | 0.2 | |
Total real estate loans | 55.0 | | 22.9 | | 18.2 | | 41.1 | | 1.7 | |
Commercial | 25.5 | | 12.0 | | 5.3 | | 17.3 | | 1.7 | |
Agricultural | 6.9 | | 2.3 | | 4.0 | | 6.3 | | 0.2 | |
Total | $ | 87.4 | | $ | 37.2 | | $ | 27.5 | | $ | 64.7 | | $ | 3.6 | |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Unpaid Total Principal Balance | Recorded Investment With No Allowance | Recorded Investment With Allowance | Total Recorded Investment | Related Allowance |
Real estate: | | | | | |
Commercial | $ | 22.2 | | $ | 8.6 | | $ | 7.7 | | $ | 16.3 | | $ | 0.7 | |
Construction: | | | | | |
Land acquisition & development | 10.0 | | 0.4 | | 3.5 | | 3.9 | | 0.2 | |
Residential | 1.1 | | 0.6 | | 0.4 | | 1.0 | | 0.1 | |
Commercial | 0.7 | | 0.2 | | 0 | | 0.2 | | 0 | |
Total construction loans | 11.8 | | 1.2 | | 3.9 | | 5.1 | | 0.3 | |
Residential | 8.8 | | 5.7 | | 2.0 | | 7.7 | | 0.3 | |
Agricultural | 12.9 | | 12.5 | | 0.2 | | 12.7 | | 0 | |
Total real estate loans | 55.7 | | 28.0 | | 13.8 | | 41.8 | | 1.3 | |
Commercial | 24.1 | | 5.5 | | 14.4 | | 19.9 | | 5.2 | |
Agricultural | 3.2 | | 2.5 | | 0.6 | | 3.1 | | 0.3 | |
Total | $ | 83.0 | | $ | 36.0 | | $ | 28.8 | | $ | 64.8 | | $ | 6.8 | |
The following table presents the average recorded investment in and income recognized on impaired loans for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended December 31, |
| | | 2019 | | 2018 |
| | | | Average Recorded Investment | Income Recognized | | Average Recorded Investment | Income Recognized |
Real estate | | | | $ | 41.4 | | $ | 0.1 | | | $ | 50.0 | | $ | 0.1 | |
Commercial | | | | 18.7 | | 0.2 | | | 21.9 | | 0.2 | |
Agricultural | | | | 4.6 | | 0 | | | 2.1 | | 0 | |
Total | | | | $ | 64.7 | | $ | 0.3 | | | $ | 74.0 | | $ | 0.3 | |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans classified in the following table as greater than 90 days past due are still accruing interest. The following tables present the contractual aging of the Company’s recorded investmentamortized cost basis in past due loans by classportfolio as of the period indicated:dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total Loans | | | | |
| 30 - 59 | 60 - 89 | > 90 | 30 or More | | | | |
| Days | Days | Days | Days | Current | Non-accrual | Total | |
As of December 31, 2020 | Past Due | Past Due | Past Due | Past Due | Loans | Loans (1) | Loans | |
Real estate | | | | | | | | |
Commercial | $ | 7.6 | | $ | 1.2 | | $ | 4.0 | | $ | 12.8 | | $ | 3,720.8 | | $ | 9.6 | | $ | 3,743.2 | | |
Construction: | | | | | | | | |
Land acquisition & development | 2.5 | | 1.1 | | 0.1 | | 3.7 | | 260.6 | | 0.7 | | 265.0 | | |
Residential | 1.5 | | 0.4 | | 0 | | 1.9 | | 247.9 | | 1.1 | | 250.9 | | |
Commercial | 12.2 | | 0 | | 0 | | 12.2 | | 511.2 | | 0.1 | | 523.5 | | |
Total construction loans | 16.2 | | 1.5 | | 0.1 | | 17.8 | | 1,019.7 | | 1.9 | | 1,039.4 | | |
Residential | 4.7 | | 1.6 | | 0.5 | | 6.8 | | 1,384.9 | | 4.6 | | 1,396.3 | | |
Agricultural | 2.0 | | 0 | | 0 | | 2.0 | | 212.4 | | 6.2 | | 220.6 | | |
Total real estate loans | 30.5 | | 4.3 | | 4.6 | | 39.4 | | 6,337.8 | | 22.3 | | 6,399.5 | | |
Consumer: | | | | | | | | |
Indirect consumer | 6.4 | | 2.0 | | 0.5 | | 8.9 | | 794.3 | | 1.9 | | 805.1 | | |
Other consumer | 0.8 | | 0.2 | | 0.2 | | 1.2 | | 149.0 | | 0.4 | | 150.6 | | |
Credit card | 0.6 | | 0.4 | | 0.6 | | 1.6 | | 68.6 | | 0 | | 70.2 | | |
Total consumer loans | 7.8 | | 2.6 | | 1.3 | | 11.7 | | 1,011.9 | | 2.3 | | 1,025.9 | | |
Commercial | 6.2 | | 1.8 | | 1.2 | | 9.2 | | 2,132.9 | | 11.8 | | 2,153.9 | | |
Agricultural | 0.4 | | 0.6 | | 1.4 | | 2.4 | | 242.1 | | 3.1 | | 247.6 | | |
Other, including overdrafts | 0 | | 0 | | 0 | | 0 | | 1.6 | | 0 | | 1.6 | | |
Loans held for investment | $ | 44.9 | | $ | 9.3 | | $ | 8.5 | | $ | 62.7 | | $ | 9,726.3 | | $ | 39.5 | | $ | 9,828.5 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total Loans | | | | |
| 30 - 59 | 60 - 89 | > 90 | 30 or More | | | | |
| Days | Days | Days | Days | Current | Non-accrual | Total | |
As of December 31, 2019 | Past Due | Past Due | Past Due | Past Due | Loans | Loans (1) | Loans | |
Real estate | | | | | | | | |
Commercial | $ | 5.5 | | $ | 1.1 | | $ | 0.6 | | $ | 7.2 | | $ | 3,467.6 | | $ | 13.0 | | $ | 3,487.8 | | |
Construction: | | | | | | | | |
Land acquisition & development | 0.7 | | 0.8 | | 0.3 | | 1.8 | | 298.9 | | 1.4 | | 302.1 | | |
Residential | 1.5 | | 0.8 | | 0 | | 2.3 | | 241.8 | | 0 | | 244.1 | | |
Commercial | 0 | | 0 | | 0 | | 0 | | 431.0 | | 0.5 | | 431.5 | | |
Total construction loans | 2.2 | | 1.6 | | 0.3 | | 4.1 | | 971.7 | | 1.9 | | 977.7 | | |
Residential | 3.8 | | 1.4 | | 1.1 | | 6.3 | | 1,235.2 | | 4.6 | | 1,246.1 | | |
Agricultural | 0.8 | | 0.5 | | 0 | | 1.3 | | 220.1 | | 5.2 | | 226.6 | | |
Total real estate loans | 12.3 | | 4.6 | | 2.0 | | 18.9 | | 5,894.6 | | 24.7 | | 5,938.2 | | |
Consumer: | | | | | | | | |
Indirect consumer | 7.6 | | 1.9 | | 0.5 | | 10.0 | | 773.0 | | 1.6 | | 784.6 | | |
Other consumer | 1.2 | | 0.5 | | 0.1 | | 1.8 | | 176.7 | | 0.5 | | 179.0 | | |
Credit card | 0.8 | | 0.5 | | 0.8 | | 2.1 | | 79.5 | | 0 | | 81.6 | | |
Total consumer loans | 9.6 | | 2.9 | | 1.4 | | 13.9 | | 1,029.2 | | 2.1 | | 1,045.2 | | |
Commercial | 4.8 | | 2.6 | | 2.3 | | 9.7 | | 1,650.3 | | 13.7 | | 1,673.7 | | |
Agricultural | 0.9 | | 0.1 | | 0 | | 1.0 | | 275.7 | | 2.4 | | 279.1 | | |
Other, including overdrafts | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | |
Loans held for investment | $ | 27.6 | | $ | 10.2 | | $ | 5.7 | | $ | 43.5 | | $ | 8,849.8 | | $ | 42.9 | | $ | 8,936.2 | | |
(1) As of December 31, 2020 and December 31, 2019, NaN of our non-accrual loans were earning interest income. NaN material interest income was recognized on non-accrual loans at December 31, 2020 and 2019, respectively. Additionally, 0 material accrued interest was reversed at December 31, 2020.
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | Total Loans | | | |
| 30 - 59 | 60 - 89 | > 90 | 30 or More | | | |
| Days | Days | Days | Days | Current | Non-accrual | Total |
As of December 31, 2018 | Past Due | Past Due | Past Due | Past Due | Loans | Loans | Loans |
Real estate | | | | | | | |
Commercial | $ | 10.4 |
| $ | 1.0 |
| $ | 0.8 |
| $ | 12.2 |
| $ | 3,214.0 |
| $ | 9.2 |
| $ | 3,235.4 |
|
Construction: | | | | | | | |
Land acquisition & development | 1.6 |
| 0.1 |
| 0.2 |
| 1.9 |
| 316.0 |
| 3.7 |
| 321.6 |
|
Residential | 1.0 |
| 0.4 |
| — |
| 1.4 |
| 240.4 |
| 1.0 |
| 242.8 |
|
Commercial | 0.4 |
| — |
| — |
| 0.4 |
| 273.7 |
| 0.2 |
| 274.3 |
|
Total construction loans | 3.0 |
| 0.5 |
| 0.2 |
| 3.7 |
| 830.1 |
| 4.9 |
| 838.7 |
|
Residential | 8.8 |
| 1.1 |
| 0.2 |
| 10.1 |
| 1,525.3 |
| 6.6 |
| 1,542.0 |
|
Agricultural | 2.2 |
| — |
| — |
| 2.2 |
| 202.6 |
| 12.6 |
| 217.4 |
|
Total real estate loans | 24.4 |
| 2.6 |
| 1.2 |
| 28.2 |
| 5,772.0 |
| 33.3 |
| 5,833.5 |
|
Consumer: | | | | |
|
| | |
Indirect consumer | 6.8 |
| 2.1 |
| 0.4 |
| 9.3 |
| 776.8 |
| 1.7 |
| 787.8 |
|
Other consumer | 1.4 |
| 0.5 |
| 0.1 |
| 2.0 |
| 198.1 |
| 0.5 |
| 200.6 |
|
Credit card | 0.9 |
| 0.4 |
| 0.8 |
| 2.1 |
| 79.7 |
| — |
| 81.8 |
|
Total consumer loans | 9.1 |
| 3.0 |
| 1.3 |
| 13.4 |
| 1,054.6 |
| 2.2 |
| 1,070.2 |
|
Commercial | 8.3 |
| 1.2 |
| 1.3 |
| 10.8 |
| 1,283.7 |
| 15.8 |
| 1,310.3 |
|
Agricultural | 2.1 |
| 0.3 |
| — |
| 2.4 |
| 249.4 |
| 3.0 |
| 254.8 |
|
Other, including overdrafts | — |
| — |
| — |
| — |
| 1.6 |
| — |
| 1.6 |
|
Loans held for investment | 43.9 |
| 7.1 |
| 3.8 |
| 54.8 |
| 8,361.3 |
| 54.3 |
| 8,470.4 |
|
Mortgage loans originated for sale | — |
| — |
| — |
| — |
| 33.3 |
| — |
| 33.3 |
|
Total loans | $ | 43.9 |
| $ | 7.1 |
| $ | 3.8 |
| $ | 54.8 |
| $ | 8,394.6 |
| $ | 54.3 |
| $ | 8,503.7 |
|
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | Total Loans | | | |
| 30 - 59 | 60 - 89 | > 90 | 30 or More | | | |
| Days | Days | Days | Days | Current | Non-accrual | Total |
As of December 31, 2017 | Past Due | Past Due | Past Due | Past Due | Loans | Loans | Loans |
Real estate | | | | | | | |
Commercial | $ | 2.9 |
| $ | 0.5 |
| $ | 0.3 |
| $ | 3.7 |
| $ | 2,792.4 |
| $ | 26.8 |
| $ | 2,822.9 |
|
Construction: | | | | | | | |
Land acquisition & development | 7.3 |
| 0.3 |
| 0.3 |
| 7.9 |
| 337.8 |
| 3.0 |
| 348.7 |
|
Residential | 2.1 |
| — |
| — |
| 2.1 |
| 236.4 |
| 1.7 |
| 240.2 |
|
Commercial | — |
| — |
| — |
| — |
| 115.6 |
| 3.8 |
| 119.4 |
|
Total construction loans | 9.4 |
| 0.3 |
| 0.3 |
| 10.0 |
| 689.8 |
| 8.5 |
| 708.3 |
|
Residential | 13.3 |
| 1.4 |
| 0.4 |
| 15.1 |
| 1,464.1 |
| 8.2 |
| 1,487.4 |
|
Agricultural | 0.3 |
| — |
| 0.2 |
| 0.5 |
| 154.3 |
| 3.4 |
| 158.2 |
|
Total real estate loans | 25.9 |
| 2.2 |
| 1.2 |
| 29.3 |
| 5,100.6 |
| 46.9 |
| 5,176.8 |
|
Consumer: | | | |
|
|
|
| | |
Indirect consumer | 7.8 |
| 2.1 |
| 0.4 |
| 10.3 |
| 772.6 |
| 1.8 |
| 784.7 |
|
Other consumer | 1.6 |
| 0.5 |
| 0.1 |
| 2.2 |
| 172.6 |
| 0.3 |
| 175.1 |
|
Credit card | 0.9 |
| 0.6 |
| 0.7 |
| 2.2 |
| 72.4 |
| — |
| 74.6 |
|
Total consumer loans | 10.3 |
| 3.2 |
| 1.2 |
| 14.7 |
| 1,017.6 |
| 2.1 |
| 1,034.4 |
|
Commercial | 3.9 |
| 1.7 |
| 0.7 |
| 6.3 |
| 1,189.5 |
| 19.6 |
| 1,215.4 |
|
Agricultural | 1.8 |
| 0.1 |
| — |
| 1.9 |
| 133.5 |
| 0.8 |
| 136.2 |
|
Other, including overdrafts | — |
| — |
| — |
| — |
| 4.9 |
| — |
| 4.9 |
|
Loans held for investment | 41.9 |
| 7.2 |
| 3.1 |
| 52.2 |
| 7,446.1 |
| 69.4 |
| 7,567.7 |
|
Mortgage loans originated for sale | — |
| — |
| — |
| — |
| 46.6 |
| — |
| 46.6 |
|
Total loans | $ | 41.9 |
| $ | 7.2 |
| $ | 3.1 |
| $ | 52.2 |
| $ | 7,492.7 |
| $ | 69.4 |
| $ | 7,614.3 |
|
Acquired loans that meet the criteria for non-accrual of interest prior to the acquisition were considered performing upon acquisition. If interest on non-accrual loans had been accrued, such income would have approximated $3.0 million, $3.5 million and $3.4 million during the years ended December 31, 2018, 2017, and 2016, respectively.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The Company considers impaired loans to include all originated loans, except consumer loans, that are risk rated as doubtful, or have been placed on non-accrual status or renegotiated in troubled debt restructurings, and all loans acquired with evidence of deterioration in credit quality and for which it was probable, at the acquisition, that the Company would be unable to collect all contractual amounts owed. The following tables present information on the Company’s recorded investment in impaired loans as of dates indicated:
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
| Unpaid Total Principal Balance | Recorded Investment With No Allowance | Recorded Investment With Allowance | Total Recorded Investment | Related Allowance |
Real estate: | | | | | |
Commercial | $ | 22.2 |
| $ | 8.6 |
| $ | 7.7 |
| $ | 16.3 |
| $ | 0.7 |
|
Construction: | | | | | |
Land acquisition & development | 10.0 |
| 0.4 |
| 3.5 |
| 3.9 |
| 0.2 |
|
Residential | 1.1 |
| 0.6 |
| 0.4 |
| 1.0 |
| 0.1 |
|
Commercial | 0.7 |
| 0.2 |
| — |
| 0.2 |
| — |
|
Total construction loans | 11.8 |
| 1.2 |
| 3.9 |
| 5.1 |
| 0.3 |
|
Residential | 8.8 |
| 5.7 |
| 2.0 |
| 7.7 |
| 0.3 |
|
Agricultural | 12.9 |
| 12.5 |
| 0.2 |
| 12.7 |
| — |
|
Total real estate loans | 55.7 |
| 28.0 |
| 13.8 |
| 41.8 |
| 1.3 |
|
Commercial | 24.1 |
| 5.5 |
| 14.4 |
| 19.9 |
| 5.2 |
|
Agricultural | 3.2 |
| 2.5 |
| 0.6 |
| 3.1 |
| 0.3 |
|
Total | $ | 83.0 |
| $ | 36.0 |
| $ | 28.8 |
| $ | 64.8 |
| $ | 6.8 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2017 |
| Unpaid Total Principal Balance | Recorded Investment With No Allowance | Recorded Investment With Allowance | Total Recorded Investment | Related Allowance |
Real estate: | | | | | |
Commercial | $ | 45.6 |
| $ | 20.9 |
| $ | 14.1 |
| $ | 35.0 |
| $ | 3.9 |
|
Construction: | | | | | |
Land acquisition & development | 10.0 |
| 3.4 |
| 0.5 |
| 3.9 |
| — |
|
Residential | 1.8 |
| 1.7 |
| — |
| 1.7 |
| — |
|
Commercial | 4.7 |
| 0.4 |
| 3.5 |
| 3.9 |
| 2.2 |
|
Total construction loans | 16.5 |
| 5.5 |
| 4.0 |
| 9.5 |
| 2.2 |
|
Residential | 11.5 |
| 8.2 |
| 2.0 |
| 10.2 |
| 0.1 |
|
Agricultural | 3.7 |
| 3.6 |
| — |
| 3.6 |
| — |
|
Total real estate loans | 77.3 |
| 38.2 |
| 20.1 |
| 58.3 |
| 6.2 |
|
Commercial | 29.5 |
| 12.4 |
| 11.4 |
| 23.8 |
| 4.4 |
|
Agricultural | 1.1 |
| 0.8 |
| 0.3 |
| 1.1 |
| 0.2 |
|
Total | $ | 107.9 |
| $ | 51.4 |
| $ | 31.8 |
| $ | 83.2 |
| $ | 10.8 |
|
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
| Unpaid Total Principal Balance | Recorded Investment With No Allowance | Recorded Investment With Allowance | Total Recorded Investment | Related Allowance |
Real estate: | | | | | |
Commercial | $ | 57.0 |
| $ | 24.4 |
| $ | 21.4 |
| $ | 45.8 |
| $ | 2.8 |
|
Construction: | | | | | |
Land acquisition & development | 12.1 |
| 4.3 |
| 1.8 |
| 6.1 |
| 0.8 |
|
Residential | 1.6 |
| 0.2 |
| 0.6 |
| 0.8 |
| — |
|
Commercial | 4.8 |
| 3.9 |
| 0.7 |
| 4.6 |
| 0.7 |
|
Total construction loans | 18.5 |
| 8.4 |
| 3.1 |
| 11.5 |
| 1.5 |
|
Residential | 8.2 |
| 4.1 |
| 2.5 |
| 6.6 |
| 0.3 |
|
Agricultural | 5.1 |
| 4.5 |
| 0.2 |
| 4.7 |
| — |
|
Total real estate loans | 88.8 |
| 41.4 |
| 27.2 |
| 68.6 |
| 4.6 |
|
Commercial | 40.3 |
| 13.2 |
| 19.2 |
| 32.4 |
| 9.3 |
|
Agricultural | 3.7 |
| 3.3 |
| 0.4 |
| 3.7 |
| 0.1 |
|
Total | $ | 132.8 |
| $ | 57.9 |
| $ | 46.8 |
| $ | 104.7 |
| $ | 14.0 |
|
The following tables present the average recorded investment in and income recognized on impaired loans for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
| Average Recorded Investment | Income Recognized | | Average Recorded Investment | Income Recognized | | Average Recorded Investment | Income Recognized |
Real estate | 50.0 |
| 0.1 |
| | 63.5 |
| 0.3 |
| | 69.2 |
| 0.3 |
|
Commercial | 21.9 |
| 0.2 |
| | 28.1 |
| 0.2 |
| | 30.1 |
| 0.3 |
|
Agricultural | 2.1 |
| — |
| | 2.4 |
| — |
| | 1.8 |
| — |
|
Total | $ | 74.0 |
| $ | 0.3 |
| | $ | 94.0 |
| $ | 0.5 |
| | $ | 101.1 |
| $ | 0.6 |
|
The amount of interest income recognized by the Company within the period that the loans were impaired was primarily related to loans modified in troubled debt restructurings that remained on accrual status. Interest payments received on non-accrual impaired loans are applied to principal. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. If interest on impaired loans had been accrued, interest income on impaired loans during 2018, 2017, and 2016 would have been approximately $3.0 million, $3.5 million and $4.2 million, respectively.
Collateral dependent impaired loans are recorded at the fair value less selling costs of the underlying collateral determined using discounted cash flows, independent appraisals and management estimates based upon current market conditions. For loans measured under the present value of cash flows method, the change in present value attributable to the passage of time, if applicable, is recognized in the provision for loan losses and thus no interest income is recognized.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Troubled Debt Restructurings
Modifications of performing loans are made in the ordinary course of business and are completed on a case-by-case basis as negotiated with the borrower.borrower in connection with the ongoing loan collection processes. Loan modifications typically include interest rate changes, interest only periods of less than twelve months, short-term payment deferrals and extension of amortization periods to provide payment relief. A loan modification is considered a troubled debt restructuring if the borrower is experiencing financial difficulties and the Company, for economic or legal reasons, grants a concession to the borrower that it would not otherwise consider. Certain troubled debt restructurings are on non-accrual status at the time of restructuring and may be returned to accrual status after consideringif the borrower’sborrower has sustained repayment performance in accordance with the restructuring agreement for a period of at least six months and management is reasonably assured of the borrower’s future performance. If the troubled debt restructuring meets these performance criteria, and the interest rate granted at the modification is equal to or greater than the rate that the Company was willing to accept at the time of the restructuring for a new loan with comparable risk, then the loan will return to performing status and the accrual of interest will resume, although theyresume. Any such loan will continue to be individually evaluated for impairmentcredit deterioration and disclosed as impairedcollateral dependent loans.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020 in response to the outbreak of a new strain of coronavirus (also known as, and hereinafter referred to as, “COVID-19”). Key provisions of the CARES Act include one-time payments to individuals, strengthened unemployment insurance, additional health-care funding, temporary amendments to the Internal Revenue Code, and loans and grants to certain businesses. The CARES Act was later extended by the Coronavirus Response and Relief Supplemental Appropriations Act, 2021, or RELIEF Act, which was signed into law on December 27, 2020. The CARES Act provided financial institutions with options on the treatment of troubled debt restructurings, and the Company elected to apply these options at the individual loan level. Under the CARES Act, the Company can elect: (1) to suspend the requirements under GAAP for loan modifications related to the COVID–19 pandemic that would otherwise be categorized as a troubled debt restructuring; and/or (2) to suspend any determination of a loan modified as being a troubled debt restructuring as a result of the effects of the COVID–19 pandemic, including impairment for accounting purposes. If the Company elects a suspension noted above, the suspension (a) will be effective for the term of the loan modification, but solely with respect to any modification, including a forbearance arrangement, an interest rate modification, a repayment plan, and any other similar arrangement that defers or delays the payment of principal or interest, occurring for a loan that was not more than 30 days past due as of December 31, 2019; and (b) will not apply to any adverse impact on the credit of a borrower that is not related to the COVID–19 pandemic. These suspensions currently are expected to end on January 1, 2022.
The Company hadrenegotiated loans renegotiated in troubled debt restructurings in the amount of $23.4$14.5 million as of December 31, 2018,2020, of which $17.8$11.3 million were included in non-accrual loans and $5.6$3.2 million were on accrual status. As of December 31, 2020, the Company allocated $2.9 million of allowance for credit losses to those loans and the Company had 0 material commitments to lend additional funds to borrowers whose existing loans have been renegotiated or are classified as non-accrual.
The Company hadrenegotiated loans renegotiated in troubled debt restructurings in the amount of $44.5$24.9 million as of December 31, 2017,2019, of which $31.9$19.4 million were included in non-accrual loans and $12.6$5.5 million were on accrual status.
The following table presents information on As of December 31, 2019, the Company’s troubled debt restructurings that occurred duringCompany allocated $0.3 million of allowance for credit losses to those loans and the periods indicated:Company had 0 material commitments to lend additional funds to borrowers whose existing loans have been renegotiated or are classified as non-accrual.
|
| | | | | | | | | | | | | | | | | | | |
| | Number of Notes | | Type of Concession | Principal Balance at Restructure Date |
Year Ended December 31, 2018 | | | Interest only period | Extension of terms or maturity | Interest rate adjustment | Other |
Commercial real estate | | 3 |
| | $ | 3.6 |
| $ | — |
| $ | — |
| $ | — |
| $ | 3.6 |
|
Agriculture real estate | | 1 |
| | — |
| — |
| — |
| 0.2 |
| 0.2 |
|
Consumer | | 1 |
| | — |
| — |
| — |
| 0.3 |
| 0.3 |
|
Total loans restructured | | 5 |
| | $ | 3.6 |
| $ | — |
| $ | — |
| $ | 0.5 |
| $ | 4.1 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Number of Notes | | Type of Concession | Principal Balance at Restructure Date |
Year Ended December 31, 2017 | | | Interest only period | Extension of terms or maturity | Interest rate adjustment | Other |
Commercial real estate | | 5 |
| | $ | 1.5 |
| $ | 0.4 |
| $ | — |
| $ | 0.9 |
| $ | 2.8 |
|
Agriculture real estate | | 1 |
| | — |
| 0.8 |
| — |
| — |
| 0.8 |
|
Commercial | | 17 |
| | 1.2 |
| 2.0 |
| — |
| 6.0 |
| 9.2 |
|
Agriculture | | 1 |
| | — |
| 0.1 |
| — |
| — |
| 0.1 |
|
Total loans restructured | | 24 |
| | $ | 2.7 |
| $ | 3.3 |
| $ | — |
| $ | 6.9 |
| $ | 12.9 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Number of Notes | | Type of Concession | Principal Balance at Restructure Date |
Year Ended December 31, 2016 | | | Interest only period | Extension of terms or maturity | Interest rate adjustment | Other |
Commercial real estate | | 18 |
| | $ | 0.4 |
| $ | 5.5 |
| $ | 0.2 |
| $ | 1.8 |
| $ | 7.9 |
|
Commercial construction | | 1 |
| | — |
| 3.7 |
| — |
| — |
| 3.7 |
|
Residential real estate | | 1 |
| | — |
| 0.1 |
| — |
| — |
| 0.1 |
|
Commercial | | 13 |
| | 4.4 |
| 0.4 |
| — |
| 3.3 |
| 8.1 |
|
Agriculture | | 2 |
| | — |
| 0.3 |
| — |
| — |
| 0.3 |
|
Total loans restructured | | 35 |
| | $ | 4.8 |
| $ | 10.0 |
| $ | 0.2 |
| $ | 5.1 |
| $ | 20.1 |
|
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The following table presents information of the Company’s troubled debt restructurings that occurred during the periods indicated:
Other concessions include payment reductions or deferrals for a specified period of time or the extension of amortization schedules. A specific reserve may have been previously recorded for loans modified in | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Number of Notes | | Type of Concession | Principal Balance at Restructure |
December 31, 2020 | Interest only period | Extension of term or amortization schedule | Interest rate adjustment | Other (1) |
Commercial real estate | 3 | | $ | 0.2 | | $ | 0 | | $ | 0 | | $ | 0.1 | | $ | 0.3 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total loans restructured during period | 3 | | $ | 0.2 | | $ | 0 | | $ | 0 | | $ | 0.1 | | $ | 0.3 | |
|
| | | | | | | |
December 31, 2019 | | | | | | | |
| | | | |
| | | | |
Commercial real estate | 4 | | $ | 0.2 | | $ | 0.2 | | $ | 0 | | $ | 2.9 | | $ | 3.3 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Commercial | 1 | | 0 | | 0 | | 0 | | 5.0 | | 5.0 | |
Agriculture | 6 | | 0 | | 0 | | 0 | | 2.1 | | 2.1 | |
| | | | | | | |
Total loans restructured during period | 11 | | $ | 0.2 | | $ | 0.2 | | $ | 0 | | $ | 10.0 | | $ | 10.4 | |
|
| | | | | | | |
December 31, 2018 | | | | | | | |
| | | | |
| | | | |
Commercial real estate | 3 | | $ | 3.6 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 3.6 | |
| | | | | | | |
| | | | | | | |
Agriculture real estate | 1 | | 0 | | 0 | | 0 | | 0.2 | | 0.2 | |
| | | | | | | |
| | | | | | | |
Consumer | 1 | | 0 | | 0 | | 0 | | 0.3 | | 0.3 | |
Total loans restructured during period | 5 | | $ | 3.6 | | $ | 0 | | $ | 0 | | $ | 0.5 | | $ | 4.1 | |
(1) Other includes concessions that reduce or defer payments for a specified period of time and/or concessions that do not fit into other designated categories. |
| | | | | | | |
For troubled debt restructurings that were on non-accrual status or otherwise deemed impairedcollateral-dependent before the modification.modification, a specific reserve may already be recorded. In periods subsequent to modification, the Company continues to evaluate all loans modified in troubled debt restructurings for possible impairment, which is recognizedcredit deterioration and recognizes credit loss through the allowance for loan losses.allowance. Additionally, these loans continue to work through the credit cycle through charge-off, pay-off, or foreclosure. Financial effects of modifications of troubled debt restructurings may include principal loan forgiveness or other charge-offs directly related to the restructuring. The Company had no0 charge-offs directly related to loans modified inmodifying troubled debt restructurings taken atduring December 31, 2020, 2019, and 2018.
The Company had 0 material troubled debt restructurings during the time of restructuringprevious 12 months for which there was a payment default during 2018, 2017,December 31, 2020, 2019, and 2016.
2018. The Company considers a payment default to occur on loans modified in troubled debt restructurings when the loan is 90 days or more past due or wasis placed on non-accrual status after the modification. The Company’s loans modified in troubled debt restructurings within the previous 12 months for which there was a payment default during the period were not significant as of December 31, 2018 and December 31, 2016. As of December 31, 2017, the Company had one $1.3 million commercial loan modified in troubled debt restructurings within the previous 12 months for which there was a payment default during the period. As of December 31, 2018, 2017, and 2016 all of the loans modified in troubled debt restructurings with payment defaults during the previous twelve months were on non-accrual status.
AtThe terms of certain other loans were modified during the quarter ended December 31, 2018, there were no material commitments to lend additional funds2020 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment of $63.5 million as of December 31, 2020. The modification of these loans involved either a modification of the terms of a loan to borrowers whose existing loans have been renegotiatedwho were not experiencing financial difficulties or are classified as non-accrual.a delay in a payment that was considered to be insignificant.
In order to determine whether a borrower is experiencing financial difficulty, the Company evaluates the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Credit Quality Indicators
As part of the on-going and continuous monitoring of the credit quality of the Company’s loan portfolio, management tracks internally assigned risk classifications of loans.loans based on relevant information about the ability of borrowers to service their debt including, among other factors, current financial information, historical payment experience, credit documentation, public information, and current economic trends. The Company adheresanalyzes loans individually to classify the credit risk of the loans. This analysis generally includes loans with an outstanding balance greater than $1.0 million, which are generally considered non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed no less than on an annual basis, dependent upon the size of exposure and the financial reporting frequency to which the borrower is contractually obligated. Homogeneous loans, including small business loans are typically managed by payment performance. The Company risk rates its loans internally in accordance with a Uniform Classification System developed jointly by the various bank regulatory agencies to internally risk rate loans. The Uniform Classification System defines three broad categories of criticized assets, which the Company uses as credit quality indicators:indicators in addition to the 6 Pass ratings in its 10-point rating scale:
Other Assets Especially MentionedSpecial Mention — includes loans that exhibit weaknessesa potential weakness in financial condition, loan structure, or documentation which ifthat warrants management’s close attention. If not promptly corrected, the potential weaknesses may lead toresult in deterioration of the developmentrepayment prospects for the loan or of abnormal risk elements.the institution’s credit position at some future date.
Substandard — includes loans that are inadequately protected by the current soundnet worth and paying capacity of the borrower.borrower which have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Although the primary source of repayment for a Substandard issubstandard loan may not currently be sufficient, collateral or other sources of repayment are sufficient to satisfy the debt. Continuance of a Substandardsubstandard loan is not warranted unless positive steps are taken to improve the worthiness of the credit.
Doubtful — includes loans that exhibit pronounced weaknesses to a point where collection or liquidation in full, on the basis of currently existing facts, conditions, and values to a point where collection or liquidation for full repayment is highly questionable and improbable. Doubtful loans are required to be placed on non-accrual status and are assigned specific loss exposure.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The following tables presentCompany evaluates the Company’s recorded investment in criticized loans by class and credit quality indicatorand loan performance for the allowance for credit loan losses of the following segments based on the most recent analysis performed as of the dates indicated:aforementioned risk scale:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | | |
| Term Loans Amortized Cost Basis by Origination Year | | | |
Risk by Collateral | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans Amortized Cost Basis | | Total |
Commercial real estate non-owner occupied: | | | | | | | | | |
Pass | $ | 495.9 | | $ | 304.9 | | $ | 216.0 | | $ | 105.3 | | $ | 139.7 | | $ | 336.5 | | $ | 13.8 | | | $ | 1,612.1 | |
Special mention | 0.3 | | 2.3 | | 0.9 | | 0.1 | | 6.4 | | 13.7 | | 0 | | | 23.7 | |
Substandard | 15.7 | | 2.7 | | 1.0 | | 4.1 | | 1.1 | | 13.9 | | 0 | | | 38.5 | |
Doubtful | 0 | | 0 | | 0.2 | | 0 | | 0 | | 0 | | 0 | | | 0.2 | |
Total | $ | 511.9 | | $ | 309.9 | | $ | 218.1 | | $ | 109.5 | | $ | 147.2 | | $ | 364.1 | | $ | 13.8 | | | $ | 1,674.5 | |
Commercial real estate owner occupied: | | | | | | | | | |
Pass | $ | 416.3 | | $ | 312.5 | | $ | 211.2 | | $ | 122.4 | | $ | 153.7 | | $ | 357.9 | | $ | 8.9 | | | $ | 1,582.9 | |
Special mention | 7.1 | | 9.6 | | 4.8 | | 3.1 | | 18.6 | | 20.0 | | 0 | | | 63.2 | |
Substandard | 8.9 | | 6.5 | | 11.5 | | 5.0 | | 15.1 | | 11.1 | | 0.3 | | | 58.4 | |
Doubtful | 0.2 | | 0 | | 0 | | 0.2 | | 0 | | 0.1 | | 0 | | | 0.5 | |
Total | $ | 432.5 | | $ | 328.6 | | $ | 227.5 | | $ | 130.7 | | $ | 187.4 | | $ | 389.1 | | $ | 9.2 | | | $ | 1,705.0 | |
Commercial multi-family: | | | | | | | | | |
Pass | $ | 132.5 | | $ | 58.9 | | $ | 23.5 | | $ | 41.6 | | $ | 25.8 | | $ | 80.5 | | $ | 0.8 | | | $ | 363.6 | |
Special mention | 0 | | 0 | | 0 | | 0 | | 0 | | 0.1 | | 0 | | | 0.1 | |
| | | | | | | | | |
| | | | | | | | | |
Total | $ | 132.5 | | $ | 58.9 | | $ | 23.5 | | $ | 41.6 | | $ | 25.8 | | $ | 80.6 | | $ | 0.8 | | | $ | 363.7 | |
Land, acquisition and development: | | | | | | | | | |
Pass | $ | 104.6 | | $ | 58.8 | | $ | 26.4 | | $ | 30.7 | | $ | 7.6 | | $ | 26.3 | | $ | 5.8 | | | $ | 260.2 | |
Special mention | 0.2 | | 0.1 | | 0 | | 0.9 | | 0 | | 1.2 | | 0.5 | | | 2.9 | |
Substandard | 0.3 | | 0 | | 1.2 | | 0.1 | | 0 | | 0.1 | | 0.1 | | | 1.8 | |
Doubtful | 0 | | 0 | | 0 | | 0 | | 0 | | 0.1 | | 0 | | | 0.1 | |
Total | $ | 105.1 | | $ | 58.9 | | $ | 27.6 | | $ | 31.7 | | $ | 7.6 | | $ | 27.7 | | $ | 6.4 | | | $ | 265.0 | |
Residential construction: | | | | | | | | | |
Pass | $ | 80.4 | | $ | 64.7 | | $ | 16.7 | | $ | 5.6 | | $ | 0 | | $ | 0.1 | | $ | 82.1 | | | $ | 249.6 | |
| | | | | | | | | |
Substandard | 0.2 | | 0 | | 0 | | 0 | | 0 | | 0 | | 1.1 | | | 1.3 | |
| | | | | | | | | |
Total | $ | 80.6 | | $ | 64.7 | | $ | 16.7 | | $ | 5.6 | | $ | 0 | | $ | 0.1 | | $ | 83.2 | | | $ | 250.9 | |
Commercial construction: | | | | | | | | | |
Pass | $ | 236.1 | | $ | 195.4 | | $ | 61.2 | | $ | 11.9 | | $ | 6.0 | | $ | (0.3) | | $ | 11.6 | | | $ | 521.9 | |
Special mention | 0 | | 0 | | 1.5 | | 0 | | 0 | | 0 | | 0 | | | 1.5 | |
Substandard | 0 | | 0 | | 0 | | 0 | | 0 | | 0.1 | | 0 | | | 0.1 | |
| | | | | | | | | |
Total | $ | 236.1 | | $ | 195.4 | | $ | 62.7 | | $ | 11.9 | | $ | 6.0 | | $ | (0.2) | | $ | 11.6 | | | $ | 523.5 | |
Agricultural real estate: | | | | | | | | | |
Pass | $ | 50.0 | | $ | 45.3 | | $ | 28.2 | | $ | 17.2 | | $ | 12.7 | | $ | 27.2 | | $ | 5.3 | | | $ | 185.9 | |
Special mention | 2.8 | | 6.7 | | 1.0 | | 1.5 | | 0.9 | | 1.0 | | 0.5 | | | 14.4 | |
Substandard | 1.4 | | 5.9 | | 3.4 | | 0.9 | | 3.4 | | 4.4 | | 0.6 | | | 20.0 | |
Doubtful | 0 | | 0.3 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 0.3 | |
Total | $ | 54.2 | | $ | 58.2 | | $ | 32.6 | | $ | 19.6 | | $ | 17.0 | | $ | 32.6 | | $ | 6.4 | | | $ | 220.6 | |
Commercial and floor plans: | | | | | | | | | |
Pass | $ | 1,029.4 | | $ | 153.0 | | $ | 136.0 | | $ | 69.8 | | $ | 43.0 | | $ | 92.3 | | $ | 233.1 | | | $ | 1,756.6 | |
Special mention | 5.6 | | 1.0 | | 1.9 | | 7.0 | | 3.9 | | 0.5 | | 2.4 | | | 22.3 | |
Substandard | 8.8 | | 1.8 | | 4.3 | | 0.4 | | 4.1 | | 1.1 | | 11.5 | | | 32.0 | |
Doubtful | 0.3 | | 0.4 | | 0 | | 0 | | 0.1 | | 2.6 | | 0.2 | | | 3.6 | |
Total | $ | 1,044.1 | | $ | 156.2 | | $ | 142.2 | | $ | 77.2 | | $ | 51.1 | | $ | 96.5 | | $ | 247.2 | | | $ | 1,814.5 | |
|
| | | | | | | | | | | | |
As of December 31, 2018 | Other Assets Especially Mentioned | Substandard | Doubtful | Total Criticized Loans |
Real estate: | | | | |
Commercial | $ | 102.5 |
| $ | 87.4 |
| $ | 2.9 |
| $ | 192.8 |
|
Construction: | | | | |
Land acquisition & development | 5.0 |
| 7.0 |
| 3.3 |
| 15.3 |
|
Residential | 2.8 |
| 2.0 |
| 0.4 |
| 5.2 |
|
Commercial | 1.7 |
| 3.9 |
| — |
| 5.6 |
|
Total construction loans | 9.5 |
| 12.9 |
| 3.7 |
| 26.1 |
|
Residential | 3.0 |
| 10.8 |
| 0.7 |
| 14.5 |
|
Agricultural | 9.0 |
| 24.0 |
| 0.1 |
| 33.1 |
|
Total real estate loans | 124.0 |
| 135.1 |
| 7.4 |
| 266.5 |
|
Consumer: | | | | |
Indirect consumer | 0.7 |
| 2.1 |
| 0.1 |
| 2.9 |
|
Direct consumer | 0.3 |
| 0.8 |
| 0.1 |
| 1.2 |
|
Total consumer loans | 1.0 |
| 2.9 |
| 0.2 |
| 4.1 |
|
Commercial | 39.4 |
| 45.8 |
| 11.8 |
| 97.0 |
|
Agricultural | 14.4 |
| 17.8 |
| 1.5 |
| 33.7 |
|
Total | $ | 178.8 |
| $ | 201.6 |
| $ | 20.9 |
| $ | 401.3 |
|
|
| | | | | | | | | | | | |
As of December 31, 2017 | Other Assets Especially Mentioned | Substandard | Doubtful | Total Criticized Loans |
Real estate: | | | | |
Commercial | $ | 78.0 |
| $ | 96.4 |
| $ | 10.3 |
| $ | 184.7 |
|
Construction: | | | | |
Land acquisition & development | 3.2 |
| 16.4 |
| — |
| 19.6 |
|
Residential | 2.3 |
| 1.7 |
| 0.5 |
| 4.5 |
|
Commercial | 2.4 |
| 3.6 |
| 3.5 |
| 9.5 |
|
Total construction loans | 7.9 |
| 21.7 |
| 4.0 |
| 33.6 |
|
Residential | 3.9 |
| 12.5 |
| 1.9 |
| 18.3 |
|
Agricultural | 4.3 |
| 19.1 |
| — |
| 23.4 |
|
Total real estate loans | 94.1 |
| 149.7 |
| 16.2 |
| 260.0 |
|
Consumer: | | | | |
Indirect consumer | 0.8 |
| 2.2 |
| 0.3 |
| 3.3 |
|
Direct consumer | 0.4 |
| 0.7 |
| 0.2 |
| 1.3 |
|
Total consumer loans | 1.2 |
| 2.9 |
| 0.5 |
| 4.6 |
|
Commercial | 54.7 |
| 56.3 |
| 11.1 |
| 122.1 |
|
Agricultural | 5.1 |
| 8.3 |
| 0.4 |
| 13.8 |
|
Total | $ | 155.1 |
| $ | 217.2 |
| $ | 28.2 |
| $ | 400.5 |
|
The Company maintains a credit review function, which is independent of the credit approval process, to assess assigned internal risk classifications and monitor compliance with internal lending policies and procedures. Written action plans with firm target dates for resolution of identified problems are maintained and reviewed on a quarterly basis for all categories of criticized loans.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | | |
| Term Loans Amortized Cost Basis by Origination Year | | | |
Risk by Collateral | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans Amortized Cost Basis | | Total |
Commercial purpose secured by 1-4 family: | | | | | | | | | |
Pass | $ | 82.3 | | $ | 53.7 | | $ | 33.7 | | $ | 20.7 | | $ | 15.5 | | $ | 34.9 | | $ | 17.5 | | | $ | 258.3 | |
Special mention | 0.5 | | 0.5 | | 0.3 | | 0.1 | | 0.5 | | 0.8 | | 0.8 | | | 3.5 | |
Substandard | 2.4 | | 1.0 | | 4.8 | | 0.3 | | 1.4 | | 1.0 | | 0.1 | | | 11.0 | |
| | | | | | | | | |
Total | $ | 85.2 | | $ | 55.2 | | $ | 38.8 | | $ | 21.1 | | $ | 17.4 | | $ | 36.7 | | $ | 18.4 | | | $ | 272.8 | |
Agricultural: | | | | | | | | | |
Pass | $ | 47.4 | | $ | 18.1 | | $ | 10.7 | | $ | 4.2 | | $ | 3.0 | | $ | 1.3 | | $ | 130.9 | | | $ | 215.6 | |
Special mention | 1.5 | | 0.7 | | 0.4 | | 0 | | 0.1 | | 0.3 | | 13.4 | | | 16.4 | |
Substandard | 3.7 | | 1.5 | | 4.2 | | 0.6 | | 0.1 | | 0.4 | | 3.6 | | | 14.1 | |
| | | | | | | | | |
Total | $ | 52.6 | | $ | 20.3 | | $ | 15.3 | | $ | 4.8 | | $ | 3.2 | | $ | 2.0 | | $ | 147.9 | | | $ | 246.1 | |
| | | | | | | | | |
| |
(6) | ALLOWANCE FOR LOAN LOSSES |
The Company evaluates the credit quality, loan performance, and the allowance for credit loan losses of its residential and consumer loan portfolios, based primarily on the aging status of the loan and payment activity. Accordingly, loans on nonaccrual status, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings are considered to be nonperforming for purposes of credit quality evaluation. The following tables present a summarythe recorded investment of changes inour other loan portfolios based on the credit risk profile of loans that are performing and loans that are nonperforming as of the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | | |
| Term Loans Amortized Cost Basis by Origination Year | | | |
Risk by Collateral | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Revolving Loans Amortized Cost Basis | | Total |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Residential 1-4 family: | | | | | | | | | |
Performing | $ | 491.1 | | $ | 113.9 | | $ | 57.2 | | $ | 47.8 | | $ | 65.7 | | $ | 234.6 | | $ | 0 | | | $ | 1,010.3 | |
Nonperforming | 0.1 | | 0.7 | | 0 | | 0 | | 0 | | 1.2 | | 0 | | | 2.0 | |
Total | $ | 491.2 | | $ | 114.6 | | $ | 57.2 | | $ | 47.8 | | $ | 65.7 | | $ | 235.8 | | $ | 0 | | | $ | 1,012.3 | |
Consumer home equity and HELOC: | | | | | | | | | |
Performing | $ | 12.0 | | $ | 7.1 | | $ | 7.1 | | $ | 9.7 | | $ | 4.7 | | $ | 14.4 | | $ | 328.1 | | | $ | 383.1 | |
Nonperforming | 0.1 | | 0.2 | | 0 | | 0 | | 0.1 | | 0.4 | | 0.1 | | | 0.9 | |
Total | $ | 12.1 | | $ | 7.3 | | $ | 7.1 | | $ | 9.7 | | $ | 4.8 | | $ | 14.8 | | $ | 328.2 | | | $ | 384.0 | |
Consumer indirect: | | | | | | | | | |
Performing | $ | 334.5 | | $ | 187.9 | | $ | 117.9 | | $ | 73.8 | | $ | 47.6 | | $ | 42.6 | | $ | 0 | | | $ | 804.3 | |
Nonperforming | 0.1 | | 0.2 | | 0.1 | | 0.2 | | 0.1 | | 0.1 | | 0 | | | 0.8 | |
Total | $ | 334.6 | | $ | 188.1 | | $ | 118.0 | | $ | 74.0 | | $ | 47.7 | | $ | 42.7 | | $ | 0 | | | $ | 805.1 | |
Consumer direct and advance line: | | | | | | | | | |
Performing | $ | 47.1 | | $ | 29.4 | | $ | 28.1 | | $ | 11.9 | | $ | 5.3 | | $ | 8.6 | | $ | 19.9 | | | $ | 150.3 | |
Nonperforming | 0.1 | | 0 | | 0.1 | | 0 | | 0 | | 0 | | 0.1 | | | 0.3 | |
Total | $ | 47.2 | | $ | 29.4 | | $ | 28.2 | | $ | 11.9 | | $ | 5.3 | | $ | 8.6 | | $ | 20.0 | | | $ | 150.6 | |
| | | | | | | | | |
The Company considers the performance of the loan portfolio and its impact on the allowance for credit loan losseslosses. For certain credit card loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by portfolio segment:payment activity. The following table presents the recorded investment in credit card loans based on payment activity:
| | | | | | | | | | | | | | |
As of December 31, 2020 | Consumer | Commercial | Agricultural | Total |
Credit Card: | | | | |
Performing | $ | 69.6 | | $ | 66.3 | | $ | 1.5 | | $ | 137.4 | |
Nonperforming | 0.6 | | 0.3 | | 0 | | 0.9 | |
Total | $ | 70.2 | | $ | 66.6 | | $ | 1.5 | | $ | 138.3 | |
|
| | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2018 | Real Estate | Consumer | Commercial | Agriculture | Other | Total |
Allowance for loan losses: | | | | | | |
Beginning balance | $ | 31.7 |
| $ | 8.7 |
| $ | 30.5 |
| $ | 1.2 |
| $ | — |
| $ | 72.1 |
|
Provision charged (credited) to operating expense | (0.7 | ) | 6.8 |
| 1.9 |
| 0.6 |
| — |
| 8.6 |
|
Less loans charged-off | (3.7 | ) | (11.3 | ) | (4.7 | ) | — |
| — |
| (19.7 | ) |
Add back recoveries of loans previously charged-off | 3.7 |
| 4.5 |
| 3.6 |
| 0.2 |
| — |
| 12.0 |
|
Ending balance | $ | 31.0 |
| $ | 8.7 |
| $ | 31.3 |
| $ | 2.0 |
| $ | — |
| $ | 73.0 |
|
| | | | | | |
Individually evaluated for impairment | $ | 1.3 |
| $ | — |
| $ | 5.2 |
| $ | 0.3 |
| $ | — |
| $ | 6.8 |
|
Collectively evaluated for impairment | 29.7 |
| 8.7 |
| 26.1 |
| 1.7 |
| — |
| 66.2 |
|
Ending balance | $ | 31.0 |
| $ | 8.7 |
| $ | 31.3 |
| $ | 2.0 |
| $ | — |
| $ | 73.0 |
|
| | | | | | |
Total loans: | | | | | | |
Individually evaluated for impairment | $ | 41.8 |
| $ | — |
| $ | 19.9 |
| $ | 3.1 |
| $ | — |
| $ | 64.8 |
|
Collectively evaluated for impairment | 5,791.7 |
| 1,070.2 |
| 1,290.4 |
| 251.7 |
| 1.6 |
| 8,405.6 |
|
Total loans held for investment | $ | 5,833.5 |
| $ | 1,070.2 |
| $ | 1,310.3 |
| $ | 254.8 |
| $ | 1.6 |
| $ | 8,470.4 |
|
|
| | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2017 | Real Estate | Consumer | Commercial | Agriculture | Other | Total |
Allowance for loan losses: | | | | | | |
Beginning balance | $ | 28.6 |
| $ | 7.7 |
| $ | 38.1 |
| $ | 1.8 |
| $ | — |
| $ | 76.2 |
|
Provision charged (credited) to operating expense | 6.0 |
| 8.1 |
| (2.9 | ) | (0.2 | ) | — |
| 11.0 |
|
Less loans charged-off | (4.3 | ) | (11.3 | ) | (6.8 | ) | (0.4 | ) | — |
| (22.8 | ) |
Add back recoveries of loans previously charged-off | 1.4 |
| 4.2 |
| 2.1 |
| — |
| — |
| 7.7 |
|
Ending balance | $ | 31.7 |
| $ | 8.7 |
| $ | 30.5 |
| $ | 1.2 |
| $ | — |
| $ | 72.1 |
|
| | | | | | |
Individually evaluated for impairment | $ | 6.2 |
| $ | — |
| $ | 4.4 |
| $ | 0.2 |
| $ | — |
| $ | 10.8 |
|
Collectively evaluated for impairment | 25.5 |
| 8.7 |
| 26.1 |
| 1.0 |
| — |
| 61.3 |
|
Ending balance | $ | 31.7 |
| $ | 8.7 |
| $ | 30.5 |
| $ | 1.2 |
| $ | — |
| $ | 72.1 |
|
| | | | | | |
Total loans: | | | | | | |
Individually evaluated for impairment | $ | 58.3 |
| $ | — |
| $ | 23.8 |
| $ | 1.1 |
| $ | — |
| $ | 83.2 |
|
Collectively evaluated for impairment | 5,118.5 |
| 1,034.4 |
| 1,191.6 |
| 135.1 |
| 4.9 |
| 7,484.5 |
|
Total loans held for investment | $ | 5,176.8 |
| $ | 1,034.4 |
| $ | 1,215.4 |
| $ | 136.2 |
| $ | 4.9 |
| $ | 7,567.7 |
|
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The following presents the recorded investment in the Company’s loans by risk grades and loan class as of the date shown below: |
| | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2016 | Real Estate | Consumer | Commercial | Agriculture | Other | Total |
Allowance for loan losses: | | | | | | |
Beginning balance | $ | 52.3 |
| $ | 5.1 |
| $ | 18.8 |
| $ | 0.6 |
| $ | — |
| $ | 76.8 |
|
Provision charged (credited) to operating expense | (21.7 | ) | 8.4 |
| 21.9 |
| 1.4 |
| — |
| 10.0 |
|
Less loans charged-off | (5.2 | ) | (8.6 | ) | (5.8 | ) | (0.2 | ) | — |
| (19.8 | ) |
Add back recoveries of loans previously charged-off | 3.2 |
| 2.8 |
| 3.2 |
| — |
| — |
| 9.2 |
|
Ending balance | $ | 28.6 |
| $ | 7.7 |
| $ | 38.1 |
| $ | 1.8 |
| $ | — |
| $ | 76.2 |
|
| | | | | | |
Individually evaluated for impairment | $ | 4.6 |
| $ | — |
| $ | 9.3 |
| $ | 0.1 |
| $ | — |
| $ | 14.0 |
|
Collectively evaluated for impairment | 24.0 |
| 7.7 |
| 28.8 |
| 1.7 |
| — |
| 62.2 |
|
Ending balance | $ | 28.6 |
| $ | 7.7 |
| $ | 38.1 |
| $ | 1.8 |
| $ | — |
| $ | 76.2 |
|
| | | | | | |
Total loans: | | | | | | |
Individually evaluated for impairment | $ | 68.6 |
| $ | — |
| $ | 32.4 |
| $ | 3.7 |
| $ | — |
| $ | 104.7 |
|
Collectively evaluated for impairment | 3,445.4 |
| 970.3 |
| 765.5 |
| 129.2 |
| 1.6 |
| 5,312.0 |
|
Total loans held for investment | $ | 3,514.0 |
| $ | 970.3 |
| $ | 797.9 |
| $ | 132.9 |
| $ | 1.6 |
| $ | 5,416.7 |
|
| | | | | | | | | | | | | | | | | | | | |
As of December 31, 2019 | Pass | Other Assets Especially Mentioned | Substandard | Doubtful | Total Criticized Loans | Total Loans |
Real estate: | | | | | | |
Commercial | $ | 3,305.0 | | $ | 84.7 | | $ | 97.3 | | $ | 0.8 | | $ | 182.8 | | $ | 3,487.8 | |
Construction: | | | | | | |
Land acquisition & development | 295.4 | | 3.8 | | 1.9 | | 1.0 | | 6.7 | | 302.1 | |
Residential | 241.0 | | 0.9 | | 2.2 | | 0 | | 3.1 | | 244.1 | |
Commercial | 428.3 | | 1.7 | | 1.5 | | 0 | | 3.2 | | 431.5 | |
Total construction loans | 964.7 | | 6.4 | | 5.6 | | 1.0 | | 13.0 | | 977.7 | |
Residential | 1,235.4 | | 2.6 | | 7.8 | | 0.3 | | 10.7 | | 1,246.1 | |
Agricultural | 185.7 | | 14.3 | | 26.6 | | 0 | | 40.9 | | 226.6 | |
Total real estate loans | 5,690.8 | | 108.0 | | 137.3 | | 2.1 | | 247.4 | | 5,938.2 | |
Consumer: | | | | | | |
Indirect consumer | 781.5 | | 0.2 | | 2.9 | | 0 | | 3.1 | | 784.6 | |
Direct consumer | 177.7 | | 0.4 | | 0.8 | | 0.1 | | 1.3 | | 179.0 | |
Credit card | 81.6 | | — | | — | | — | | — | | 81.6 | |
Total consumer loans | 1,040.8 | | 0.6 | | 3.7 | | 0.1 | | 4.4 | | 1,045.2 | |
Commercial | 1,569.4 | | 40.4 | | 60.3 | | 3.6 | | 104.3 | | 1,673.7 | |
Agricultural | 247.8 | | 8.5 | | 22.7 | | 0.1 | | 31.3 | | 279.1 | |
Total | $ | 8,548.8 | | $ | 157.5 | | $ | 224.0 | | $ | 5.9 | | $ | 387.4 | | $ | 8,936.2 | |
There were 0 material purchases of portfolio loans and 0 material sales of loans held for investment during the three and nine months ended December 31, 2020 or 2019.
Purchased Credit Deteriorated Loans
The Company performs a quarterly assessmenthas purchased loans acquired in business combinations, for which there was, at acquisition, evidence of the adequacymore than insignificant deterioration of its allowancecredit quality since origination. See “Note 2 - Acquisitions” included in this report, for loan losses in accordance with GAAP. The methodology used to assess the adequacy is consistently applied to the Company’s loan portfolioadditional details.
(7) PREMISES AND EQUIPMENT
Premises and consists of three elements: (1) specific valuation allowances based on probable losses on impaired loans; (2) historical valuation allowances based on loan loss experience for similar loans with similar characteristicsequipment and trends;related accumulated depreciation are as follows:
| | | | | | | | | | | |
December 31, | 2020 | | 2019 |
Land | $ | 52.9 | | | $ | 50.8 | |
Buildings and improvements | 349.5 | | | 330.1 | |
Furniture and equipment | 88.9 | | | 94.2 | |
Total premises and equipment | 491.3 | | | 475.1 | |
Less accumulated depreciation | (179.0) | | | (169.1) | |
Premises and equipment, net | $ | 312.3 | | | $ | 306.0 | |
Depreciation expense was $25.8 million, $23.3 million, and (3) general valuation allowances determined based on changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, general economic conditions and other qualitative risk factors both internal and external to the Company.
Specific allowances are established for loans where management has determined that probability of a loss exists by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies and any relevant qualitative or economic factors impacting the loan. Historical valuation allowances are determined by applying percentage loss factors to the credit exposures from outstanding loans. For commercial, agricultural and real estate loans, loss factors are applied based on the internal risk classifications of these loans. For consumer loans, loss factors are applied on a portfolio basis. For commercial, agriculture and real estate loans, loss factor percentages are based on a migration analysis of our historical loss experience, designed to account for credit deterioration. For consumer loans, the loss factor percentages are based on a three-year loss history$16.2 million for the 2018 period and on a one-year loss history for the comparable periods. The loan loss rates for 2018 also incorporate the available loss history data from BOTC prior to the merger date to represent a consolidated institutional loss rate for both originated and acquired portfolios. General valuation allowances are determined by evaluating, on a quarterly basis, changes in the nature and volume of the loan portfolio, overall portfolio quality, industry concentrations, current economic and regulatory conditions and the estimated impact of these factors on historical loss rates.
An allowance for loan losses is established for loans acquired deemed credit impaired and for which the Company projects a decrease in the expected cash flows in periods subsequent to the acquisition of such loans. As ofyears ended December 31, 2020, 2019, and 2018, respectively.
The Parent Company and 2017, the Company’s allowance for loan losses included $0.8 milliona FIB branch office lease premises from an affiliated entity. See Note 18—Commitments and $1.0 million, respectively, related to loans acquired credit impaired.
Contingencies.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| |
(7) | PREMISES AND EQUIPMENT |
Premises and equipment and related accumulated depreciation are as follows:
|
| | | | | | | |
December 31, | 2018 | | 2017 |
Land | $ | 49.9 |
| | $ | 49.4 |
|
Buildings and improvements | 268.1 |
| | 257.1 |
|
Furniture and equipment | 104.0 |
| | 97.7 |
|
Total premises and equipment | 422.0 |
| | 404.2 |
|
Less accumulated depreciation | (176.8 | ) | | (162.3 | ) |
Premises and equipment, net | $ | 245.2 |
| | $ | 241.9 |
|
The Parent Company and a FIB branch office lease premises from an affiliated entity. See Note 17—Commitments and Contingencies.
| |
(8) | (8) COMPANY-OWNED LIFE INSURANCE |
Company-owned life insurance consists of the following:
| | December 31, | 2018 | | 2017 | December 31, | 2020 | | 2019 |
Key executive, principal shareholder | $ | 4.7 |
| | $ | 4.2 |
| Key executive, principal shareholder | $ | 3.1 | | | $ | 4.4 | |
Key executive split dollar | 9.4 |
| | 4.9 |
| Key executive split dollar | 7.0 | | | 7.0 | |
Group life | 261.0 |
| | 251.5 |
| Group life | 286.3 | | | 282.4 | |
Total | $ | 275.1 |
| | $ | 260.6 |
| Total | $ | 296.4 | | | $ | 293.8 | |
The Company maintains key executive life insurance policies on certain principal shareholders. Under these policies, the Company receives benefits payable upon the death of the insured. The net cash surrender value of key executive, principal shareholder insurance policies was $4.7$3.1 million and $4.2$4.4 million at December 31, 20182020 and 2017,2019, respectively.
The Company also has life insurance policies covering selected other key officers. The net cash surrender value of these policies was $9.4 million and $4.9$7.0 million at December 31, 20182020 and 2017,2019, respectively. Under these policies, the Company receives benefits payable upon death of the insured. An endorsement split dollar agreement has been executed with the selected key officers whereby a portion of the policy death benefit is payable to their designated beneficiaries. The endorsement split dollar agreement will provide post-retirement coverage for those selected key officers meeting specified retirement qualifications. The Company expenses the earned portion of the post-employment benefit through the vesting period.
The Company has group life insurance policies covering selected officers of FIB. The net cash surrender value of these policies was $261.0$286.3 million and $251.5$282.4 million at December 31, 20182020 and 2017,2019, respectively. Under these policies, the Company receives benefits payable upon death of the insured. The Company has entered into either an endorsement split dollar agreement or a survivor income benefit agreement withat the election of each insured officer. Under the endorsement split dollar agreements, a portion of the policy death benefit is payable to the insured’s designated beneficiary if the insured is employed by the Company at the time of death. Under the survivor income benefit agreements, the Company makes a lump-sum payment to the insured’s designated beneficiary if the insured is employed by the Company at the time of death.
(9) OTHER REAL ESTATE OWNED
Information with respect to the Company’s other real estate owned follows:
| | | | | | | | | | | | | | | | | |
Year Ended December 31, | 2020 | | 2019 | | 2018 |
Balance at beginning of year | $ | 8.5 | | | $ | 14.4 | | | $ | 10.1 | |
OREO acquired through acquisitions | 0 | | | 2.4 | | | 0.6 | |
Additions | 3.3 | | | 14.1 | | | 12.1 | |
Capitalized improvements | 0 | | | 0.3 | | | 0 | |
Valuation adjustments | (0.1) | | | (0.9) | | | (0.1) | |
Dispositions | (9.2) | | | (21.8) | | | (8.3) | |
Balance at end of year | $ | 2.5 | | | $ | 8.5 | | | $ | 14.4 | |
Write-downs of $0.1 million, $0.9 million, and $0.1 million during 2020, 2019, and 2018, respectively, were adjustments based on internal evaluations and other sources, including management estimates of the current fair value of properties, and adjustments directly related to receipt of updated appraisals.
The carrying value of foreclosed residential real estate properties included in other real estate owned was 0 as of December 31, 2020 and $2.3 million as of December 31, 2019. The Company had recorded investments in consumer mortgage loans secured by residential real estate for which formal foreclosure proceedings were in process of foreclosure of $0.2 million and $0.4 million as of December 31, 2020 and December 31, 2019, respectively.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| |
(9) | OTHER REAL ESTATE OWNED |
(10) DERIVATIVES AND HEDGING ACTIVITIES
Information with respectFor asset and liability management purposes, the Company enters into interest rate swap contracts to hedge against changes in forecasted cash flows due to interest rate exposures. Interest rate swaps are contracts in which a series of interest payments are exchanged over a prescribed period. The notional amount upon which the interest payments are based is not exchanged. The amount exchanged is determined by reference to the Company’snotional amount and the other real estate owned follows:
|
| | | | | | | | | | | |
Year Ended December 31, | 2018 | | 2017 | | 2016 |
Balance at beginning of year | $ | 10.1 |
| | $ | 10.0 |
| | $ | 6.3 |
|
Acquisitions | 0.6 |
| | 1.2 |
| | 1.1 |
|
Additions | 12.1 |
| | 5.4 |
| | 7.6 |
|
Valuation adjustments | (0.1 | ) | | (0.4 | ) | | (0.6 | ) |
Dispositions | (8.3 | ) | | (6.1 | ) | | (4.4 | ) |
Balance at end of year | $ | 14.4 |
| | $ | 10.1 |
| | $ | 10.0 |
|
Write-downs of $0.1 million during 2018 were adjustments based on other sources, including management estimatesterms of the current fair value of properties. Write-downs of $0.4 millionindividual agreements. The swap agreements are derivative instruments and $0.6 million during 2017 and 2016, respectively, were adjustments based on other sources, including management estimates of the current fair value of properties and adjustments directly related to receipt of updated appraisals.
| |
(10) | DERIVATIVES AND HEDGING ACTIVITIES |
The notional amounts and estimated fair valuesconvert a portion of the Company’s derivatives are presented in the following table. Fair value estimates are obtained from third parties and are based on pricing models.
|
| | | | | | | | | | | | | |
| December 31, 2018 | | December 31, 2017 |
| Notional Amount | Estimated Fair Value | | Notional Amount | Estimated Fair Value |
Derivative Assets (included in other assets on the consolidated balance sheets) | | | |
Non-hedging interest rate derivatives: | | | | | |
Interest rate swap contracts | $ | 403.3 |
| $ | 8.8 |
| | $ | 344.2 |
| $ | 7.5 |
|
Interest rate lock commitments | 51.0 |
| 1.3 |
| | 60.7 |
| 1.3 |
|
Total derivative assets | $ | 454.3 |
| $ | 10.1 |
| | $ | 404.9 |
| $ | 8.8 |
|
| | | | | |
Derivative Liabilities (included in accounts payable and accrued expenses on the consolidated balance sheets) |
Non-hedging interest rate derivatives: | | | | | |
Interest rate swap contracts | $ | 403.3 |
| $ | 8.8 |
| | $ | 344.2 |
| $ | 7.8 |
|
Forward loan sales contracts | 64.6 |
| 0.6 |
| | 88.8 |
| 0.1 |
|
Total derivative liabilities | $ | 467.9 |
| $ | 9.4 |
| | $ | 433.0 |
| $ | 7.9 |
|
On September 6, 2017, the Company paid $1.1 millionforecasted variable rate debt to terminate an existing interesta fixed rate swap contract designated as a(i.e., cash flow hedge, originally entered into on September 22, 2015, with a notional amount of $100 million. Underhedge) over the termspayment term of the interest rate swap contract,swap. The gain or loss on cash flow hedging instruments is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same period during which the transaction affects earnings. The Company would have paid a fixeddoes not enter into interest rate of 1.94% and the counterparty would have paid to the Company a variable interest rate equal to the three-month LIBOR. As the contract was terminated prior to the effective date of September 15, 2017, no cash was exchanged outside of the termination payment.swap agreements for trading or speculative purposes.
The effective portion of changesChanges in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
On May 1, 2020, the Company entered into three interest rate swap contracts that were designated as cash flow hedges. The ineffective portioncontracts included a notional amount of $46.4 million, $36.1 million, and $5.1 million. The Company pays a fixed interest rate of 0.40%, 0.34%, and 0.40%, respectively, and the counterparty pays to the Company a variable interest rate equal to the three-month LIBOR under the terms of the interest rate swap contracts. NaN cash was exchanged until the effective date, which began on May 1, 2020 and ends on April 1, 2022, March 15, 2022, and March 30, 2022, respectively. The Company designated the interest payments related to the trust preferred securities as the cash flow hedge. The hedge was fully effective during the current period. The Company expects the hedge to remain highly effective during the remaining term of the interest rate swap.
The Company also enters into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with a third-party financial institution. Because the Company acts as an intermediary for the client, changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact the Company’s results of operations.
In the normal course of business, the Company enters into interest rate lock commitments to finance residential mortgage loans that are not designated as accounting hedges. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee, provided the loan meets underwriting guidelines and closes within the timeframe established by the Company. Interest rate risk arises on these commitments and subsequently closed loans if interest rates change between the time of the interest rate lock and the delivery of the loan to the investor. Loan commitments related to residential mortgage loans intended to be sold are considered derivatives and are marked to market through earnings. In addition to the effects of the change in market interest rate, the fair value measurement of the derivatives is recognized directly in earnings. derivative also contemplates the expected cash flows to be received from the counterparty from the future sale of the loan.
The Company didsells residential mortgage loans on either a best efforts or mandatory delivery basis. The Company mitigates the effect of the interest rate risk inherent in providing interest rate lock commitments by entering into forward loan sales contracts. During the interest rate lock commitment period, these forward loan sales contracts are marked to market through earnings and are not record anydesignated as accounting hedges. Exclusive of the fair value component associated with the projected cash flows from the loan delivery to the investor, the changes in fair value related to movements in market rates of the interest rate lock commitments and the forward loan sales contracts generally move in opposite directions, and the net impact of changes in these valuations on net income during the loan commitment period is generally inconsequential. When the loan is funded to the borrower, the interest rate lock commitment derivative expires, and the Company records a loan held for sale. The forward loan sales contract acts as a hedge ineffectiveness at December 31, 2018against the variability in cash to be received from the loan sale. The changes in measurement of the estimated fair values of the interest rate lock commitments and 2017.forward loan sales contracts are included in mortgage banking revenues in the accompanying consolidated statements of income.
The notional amounts and estimated fair values of the Company’s derivatives are presented in the following table. Fair value estimates are obtained from third parties and are based on pricing models.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Notional Amount | Estimated Fair Value | | Notional Amount | Estimated Fair Value |
Derivative Assets (included in other assets on the consolidated balance sheets) | | | |
| | | | | |
| | | | | |
| | | | | |
Non-hedging interest rate derivatives: | | | | | |
Interest rate swap contracts | $ | 799.7 | | $ | 52.0 | | | $ | 503.2 | | $ | 21.9 | |
Interest rate lock commitments | 101.9 | | 3.3 | | | 67.8 | | 1.3 | |
| | | | | |
Total derivative assets | $ | 901.6 | | $ | 55.3 | | | $ | 571.0 | | $ | 23.2 | |
| | | | | |
Derivative Liabilities (included in accounts payable and accrued expenses on the consolidated balance sheets) |
Derivatives designated as hedges: | | | | | |
Interest rate swap contracts | $ | 87.6 | | $ | 0.2 | | | $ | 0 | | $ | 0 | |
Non-hedging interest rate derivatives: | | | | | |
Interest rate swap contracts | 799.7 | | $ | 52.0 | | | 503.2 | | $ | 21.9 | |
| | | | | |
Forward loan sales contracts | 126.8 | | 1.1 | | | 128.0 | | 0.3 | |
Total derivative liabilities | $ | 1,014.1 | | $ | 53.3 | | | $ | 631.2 | | $ | 22.2 | |
There were 0 material effects of derivative instruments in cash flow hedging relationships on the consolidated statements of income at December 31, 2020.
Derivative assets and liabilities are recorded at fair value on the balance sheet and do not take into account the effects of master netting arrangements. Master netting arrangements allow the Company to settle all contracts held with a single counterparty on a net basis and to offset net contract position with related collateral where applicable.
The following table illustrates the potential effect of the Company’s master netting arrangements, by type of financial instrument, on the Company’s consolidated balance sheets as of December 31, 2018 and December 31, 2017:the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts in the Balance Sheet | | Financial Instruments | | Fair Value of Financial Collateral in the Balance Sheet | | Net Amount |
Financial Assets | | | | | | | | | | | |
Interest rate swap contracts | $ | 52.0 | | | $ | 0 | | | $ | 52.0 | | | $ | 0 | | | $ | 17.2 | | | $ | 34.8 | |
Mortgage related derivatives | 3.3 | | | 0 | | | 3.3 | | | 0 | | | 0 | | | 3.3 | |
Total derivatives | 55.3 | | | 0 | | | 55.3 | | | 0 | | | 17.2 | | | 38.1 | |
Total assets | $ | 55.3 | | | $ | 0 | | | $ | 55.3 | | | $ | 0 | | | $ | 17.2 | | | $ | 38.1 | |
| | | | | | | | | | | |
Financial Liabilities | | | | | | | | | | | |
Interest rate swap contracts | $ | 52.2 | | | $ | 0 | | | $ | 52.2 | | | $ | 0 | | | $ | 0 | | | $ | 52.2 | |
Mortgage related derivatives | 1.1 | | | 0 | | | 1.1 | | | 0 | | | 0 | | | 1.1 | |
Total derivatives | 53.3 | | | 0 | | | 53.3 | | | 0 | | | 0 | | | 53.3 | |
Repurchase agreements | 1,091.4 | | | 0 | | 1,091.4 | | | 0 | | | 1,091.4 | | | 0 | |
Total liabilities | $ | 1,144.7 | | | $ | 0 | | | $ | 1,144.7 | | | $ | 0 | | | $ | 1,091.4 | | | $ | 53.3 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts in the Balance Sheet | | Financial Instruments | | Fair Value of Financial Collateral in the Balance Sheet | | Net Amount |
Financial Assets | | | | | | | | | | | |
Interest rate swap contracts | $ | 8.8 |
| | $ | — |
| | $ | 8.8 |
| | $ | 2.7 |
| | $ | 2.4 |
| | $ | 3.7 |
|
Mortgage related derivatives | 1.3 |
| | — |
| | 1.3 |
| | — |
| | — |
| | 1.3 |
|
Total derivatives | 10.1 |
| | — |
| | 10.1 |
| | 2.7 |
| | 2.4 |
| | 5.0 |
|
Total assets | $ | 10.1 |
| | $ | — |
| | $ | 10.1 |
| | $ | 2.7 |
| | $ | 2.4 |
| | $ | 5.0 |
|
| | | | | | | | | | | |
Financial Liabilities | | | | | | | | | | | |
Interest rate swap contracts | $ | 8.8 |
| | $ | — |
| | $ | 8.8 |
| | $ | 2.7 |
| | $ | 4.1 |
| | $ | 2.0 |
|
Mortgage related derivatives | 0.6 |
| | — |
| | 0.6 |
| | — |
| | — |
| | 0.6 |
|
Total derivatives | 9.4 |
| | — |
| | 9.4 |
| | 2.7 |
| | 4.1 |
| | 2.6 |
|
Repurchase agreements | 712.4 |
| | — |
| | 712.4 |
| | — |
| | 712.4 |
| | — |
|
Total liabilities | $ | 721.8 |
| | $ | — |
| | $ | 721.8 |
| | $ | 2.7 |
| | $ | 716.5 |
| | $ | 2.6 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts in the Balance Sheet | | Financial Instruments | | Fair Value of Financial Collateral in the Balance Sheet | | Net Amount |
Financial Assets |
Interest rate swap contracts | $ | 7.5 |
| | $ | — |
| | $ | 7.5 |
| | $ | 2.4 |
| | $ | — |
| | $ | 5.1 |
|
Mortgage related derivatives | 1.3 |
| | — |
| | 1.3 |
| | — |
| | — |
| | 1.3 |
|
Total derivatives | 8.8 |
| | — |
| | 8.8 |
| | 2.4 |
| | — |
| | 6.4 |
|
Total assets | $ | 8.8 |
| | $ | — |
| | $ | 8.8 |
| | $ | 2.4 |
| | $ | — |
| | $ | 6.4 |
|
| | | | | | | | | | | |
Financial Liabilities |
Interest rate swap contracts | $ | 7.8 |
| | $ | — |
| | $ | 7.8 |
| | $ | 2.4 |
| | $ | 3.3 |
| | $ | 2.1 |
|
Mortgage related derivatives | 0.1 |
| | — |
| | 0.1 |
| | — |
| | — |
| | 0.1 |
|
Total derivatives | 7.9 |
| | — |
| | 7.9 |
| | 2.4 |
| | 3.3 |
| | 2.2 |
|
Repurchase agreements | 643.0 |
| | — |
| | 643.0 |
| | — |
| | 643.0 |
| | — |
|
Total liabilities | $ | 650.9 |
| | $ | — |
| | $ | 650.9 |
| | $ | 2.4 |
| | $ | 646.3 |
| | $ | 2.2 |
|
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts in the Balance Sheet | | Financial Instruments | | Fair Value of Financial Collateral in the Balance Sheet | | Net Amount |
Financial Assets |
Interest rate swap contracts | $ | 21.9 | | | $ | 0 | | | $ | 21.9 | | | $ | 0.1 | | | $ | 18.0 | | | $ | 3.8 | |
Mortgage related derivatives | 1.3 | | | 0 | | | 1.3 | | | 0 | | | 0 | | | 1.3 | |
Total derivatives | 23.2 | | | 0 | | | 23.2 | | | 0.1 | | | 18.0 | | | 5.1 | |
Total assets | $ | 23.2 | | | $ | 0 | | | $ | 23.2 | | | $ | 0.1 | | | $ | 18.0 | | | $ | 5.1 | |
| | | | | | | | | | | |
Financial Liabilities |
Interest rate swap contracts | $ | 21.9 | | | $ | 0 | | | $ | 21.9 | | | $ | 0.1 | | | $ | 0 | | | $ | 21.8 | |
Mortgage related derivatives | 0.3 | | | 0 | | | 0.3 | | | 0 | | | 0 | | | 0.3 | |
Total derivatives | 22.2 | | | 0 | | | 22.2 | | | 0.1 | | | 0 | | | 22.1 | |
Repurchase agreements | 697.6 | | | 0 | | | 697.6 | | | 0 | | | 697.6 | | | 0 | |
Total liabilities | $ | 719.8 | | | $ | 0 | | | $ | 719.8 | | | $ | 0.1 | | | $ | 697.6 | | | $ | 22.1 | |
| | | | | | | | | | | |
The following table presents the pre-tax gains or losses related to derivative contracts that were recorded in accumulated other comprehensive income and other non-interest income in the Company’s statements of income:
| | | | | | | | | | | | | | | | | |
As of or For The Year Ended December 31, | 2020 | | 2019 | | 2018 |
Derivatives designated as hedges: | | | | | |
Amount of loss recognized in other comprehensive income (effective portion) | $ | (0.1) | | | $ | 0 | | | $ | 0 | |
Reclassification adjustment for derivative net gain included in income | (0.1) | | | 0 | | | 0 | |
| | | | | |
Non-hedging interest rate derivatives: | | | | | |
Amount of gain recognized in other non-interest income | 0 | | | 0 | | | 0.3 | |
Amount of net fee income recognized in other non-interest income | 7.7 | | | 2.5 | | | 1.3 | |
Amount of net gains (losses) recognized in mortgage banking revenues | $ | 1.2 | | | $ | 0.3 | | | $ | (0.5) | |
|
| | | | | | | | | | | |
As of or For The Year Ended December 31, | 2018 | | 2017 | | 2016 |
Derivatives designated as hedges: | | | | | |
Amount of loss recognized in other comprehensive income (effective portion) | $ | — |
| | $ | (1.1 | ) | | $ | (0.2 | ) |
Reclassification adjustment for derivative net (gains) losses included in income | — |
| | 1.1 |
| | — |
|
Non-hedging interest rate derivatives: | | | | | |
Amount of gain (loss) recognized in other non-interest income | 0.3 |
| | — |
| | 0.1 |
|
Amount of net fee income recognized in other non-interest income | 1.3 |
| | 0.8 |
| | 0.9 |
|
Amount of net gains (losses) recognized in mortgage banking revenues | (0.5 | ) | | (1.7 | ) | | 1.4 |
|
| |
(11) | (11) MORTGAGE SERVICING RIGHTS |
Information with respect to the Company’s mortgage servicing rights follows:
| | Year Ended December 31, | 2018 | | 2017 | | 2016 | Year Ended December 31, | 2020 | | 2019 | | 2018 |
Balance at beginning of year | $ | 24.8 |
| | $ | 18.7 |
| | $ | 15.9 |
| Balance at beginning of year | $ | 30.6 | | | $ | 27.7 | | | $ | 24.8 | |
Acquisitions of mortgage servicing rights | — |
| | 3.5 |
| | — |
| |
| Originations of mortgage servicing rights | 6.0 |
| | 5.6 |
| | 5.8 |
| Originations of mortgage servicing rights | 11.7 | | | 7.3 | | | 6.0 | |
| Amortization expense | (3.1 | ) | | (3.0 | ) | | (3.0 | ) | Amortization expense | (8.0) | | | (4.4) | | | (3.1) | |
| Balance at end of year | 27.7 |
| | 24.8 |
| | 18.7 |
| Balance at end of year | 34.3 | | | 30.6 | | | 27.7 | |
Less valuation reserve | — |
| | — |
| | (0.2 | ) | Less valuation reserve | (10.3) | | | (0.4) | | | 0 | |
Balance at end of year, net of valuation reserve | $ | 27.7 |
| | $ | 24.8 |
| | $ | 18.5 |
| Balance at end of year, net of valuation reserve | $ | 24.0 | | | $ | 30.2 | | | $ | 27.7 | |
| | | | | | |
Principal balance of serviced loans underlying mortgage servicing rights | $ | 3,698.2 |
| | $ | 3,636.7 |
| | $ | 3,127.5 |
| Principal balance of serviced loans underlying mortgage servicing rights | $ | 3,585.5 | | | $ | 3,710.1 | | | $ | 3,698.2 | |
Mortgage servicing rights as a percentage of serviced loans | 0.75 | % | | 0.68 | % | | 0.59 | % | Mortgage servicing rights as a percentage of serviced loans | 0.67 | % | | 0.81 | % | | 0.75 | % |
At December 31, 2018,2020, the estimated fair value and weighted average remaining life of the Company’s mortgage servicing rights were $42.4$24.0 million and 8.03.9 years, respectively. The fair value of mortgage servicing rights was determined using discount rates ranging from 10.4%8.3% to 12.1%10.0% and monthly prepayment speeds ranging from 0.4%1.2% to 1.5%2.5% depending upon the risk characteristics of the underlying loans. At December 31, 2017,2019, the estimated fair value and weighted average remaining life of the Company’s mortgage servicing rights were $40.1$34.8 million and 7.36.0 years, respectively. The fair value of mortgage servicing rights was determined using discount rates ranging from 9.5%9.3% to 11.3%11.0% and monthly prepayment speeds ranging from 0.5%0.6% to 1.8%1.5% depending upon the risk characteristics of the underlying loans. There were no0 material impairments reversed in 2020, 2019 and 2018, 2017 and 2016, respectively. NoNaN permanent impairment was recorded in 2018, 20172020, 2019, or 2016.2018.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Deposits are summarized as follows:
| | December 31, | 2018 | | 2017 | December 31, | 2020 | | 2019 |
Non-interest bearing demand | $ | 3,158.3 |
| | $ | 2,900.0 |
| Non-interest bearing demand | $ | 4,633.5 | | | $ | 3,426.5 | |
Interest bearing: | | | | Interest bearing: | |
Demand | 2,957.5 |
| | 2,787.5 |
| Demand | 4,118.9 | | | 3,195.4 | |
Savings | 3,247.9 |
| | 3,095.4 |
| Savings | 4,405.9 | | | 3,591.6 | |
Time, $100 and over | 547.6 |
| | 432.0 |
| Time, $100 and over | 419.3 | | | 651.1 | |
Time, other | 769.4 |
| | 720.0 |
| Time, other | 639.4 | | | 798.9 | |
Total interest bearing | 7,522.4 |
| | 7,034.9 |
| Total interest bearing | 9,583.5 | | | 8,237.0 | |
Total deposits | $ | 10,680.7 |
| | $ | 9,934.9 |
| Total deposits | $ | 14,217.0 | | | $ | 11,663.5 | |
Other time deposits include $24.10 and $2.9 million and zero brokered deposits as of December 31, 20182020 and 2017,2019, respectively, and deposits obtained through the Company’s participation in the Certificate of Deposit Account Registry Service (“CDARS”). CDARS deposits totaled $87.1$97.3 million and $94.2$117.7 million as of December 31, 20182020 and 2017,2019, respectively.
As of December 31, 20182020 and 2017,2019, the Company had time deposits of $221.0$193.0 million and $182.0$278.4 million, respectively, that met or exceeded the FDIC insurance limit of $250,000.
Maturities of time deposits at December 31, 20182020 are as follows:
| | | Time, $100 and Over | | Total Time | | Time, $100 and Over | | Total Time |
Due within 3 months or less | $ | 45.0 |
| | $ | 253.8 |
| Due within 3 months or less | $ | 65.8 | | | $ | 271.1 | |
Due after 3 months and within 6 months | 49.0 |
| | 149.2 |
| Due after 3 months and within 6 months | 77.2 | | | 190.8 | |
Due after 6 months and within 12 months | 217.5 |
| | 420.4 |
| Due after 6 months and within 12 months | 173.0 | | | 355.5 | |
Due within 2020 | 159.7 |
| | 323.7 |
| |
Due within 2021 | 63.5 |
| | 128.8 |
| |
Due within 2022 | 9.8 |
| | 30.3 |
| Due within 2022 | 81.7 | | | 171.1 | |
Due within 2023 and thereafter | 3.1 |
| | 10.8 |
| |
Due within 2023 | | Due within 2023 | 7.3 | | | 30.0 | |
Due within 2024 | | Due within 2024 | 4.0 | | | 15.2 | |
Due within 2025 and thereafter | | Due within 2025 and thereafter | 10.3 | | | 25.0 | |
Total | $ | 547.6 |
| | $ | 1,317.0 |
| Total | $ | 419.3 | | | $ | 1,058.7 | |
Interest expense on time deposits of $100 and over was $7.0$6.5 million, $4.3$11.5 million, and $3.7$5.0 million for the years ended December 31, 2018, 20172020, 2019, and 2016,2018, respectively.
(13) LONG-TERM DEBT AND OTHER BORROWED FUNDS
A summary of long-term debt follows:
| | | | | | | | | | | |
December 31, | 2020 | | 2019 |
Parent Company: | | | |
Fixed to floating subordinated notes, 5.25% fixed rate effective May 2020 through May 2025 | $ | 98.6 | | | $ | — | |
Subsidiaries: | | | |
8.00% finance lease obligation with term ending October 25, 2029 | 1.1 | | | 1.2 | |
2.28% note payable maturing July 29, 2022, principal due at maturity, interest payable monthly | 5.0 | | | 5.0 | |
1.00% note payable maturing December 31, 2041, interest only payable quarterly until December 31, 2025 and then principal and interest until maturity | 5.1 | | | 5.1 | |
Note payable maturing March 31, 2038, interest only payable at 1.30% monthly until March 31, 2025 and then principal and interest at 3.25% until maturity | 2.0 | | | 2.0 | |
1.30% note payable maturing June 1, 2034, interest only payable monthly until March 31, 2025 and then principal and interest until maturity | 0.6 | | | 0.6 | |
Total long-term debt | $ | 112.4 | | | $ | 13.9 | |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| |
(13) | LONG-TERM DEBT AND OTHER BORROWED FUNDS |
A summary of long-term debt follows:
|
| | | | | | | |
December 31, | 2018 | | 2017 |
Subsidiaries: | | | |
8.00% capital lease obligation with term ending October 25, 2029 | 1.3 |
| | 1.4 |
|
6.24% note payable maturing September 6, 2032, principal due at maturity, interest payable monthly | 1.8 |
| | 1.6 |
|
2.28% note payable maturing July 29, 2022, principal due at maturity, interest payable monthly | 5.0 |
| | 5.0 |
|
1.00% note payable maturing December 31, 2041, interest only payable quarterly until December 31, 2025 and then principal and interest until maturity | 5.1 |
| | 5.1 |
|
Note payable maturing March 31, 2038, interest only payable at 1.30% monthly until March 31, 2025 and then principal and interest at 3.25% until maturity | 2.0 |
| | — |
|
1.30% note payable maturing June 1, 2034, interest only payable monthly until March 31, 2025 and then principal and interest until maturity | 0.6 |
| | — |
|
Total long-term debt | $ | 15.8 |
| | $ | 13.1 |
|
| | Maturities of long-term debt at December 31, 2018 are as follows: | | | |
2019 | | $ | 0.1 |
| |
2020 | | 0.1 |
| |
Maturities of long-term debt at December 31, 2020 were as follows: | | Maturities of long-term debt at December 31, 2020 were as follows: | |
2021 | | 0.1 |
| 2021 | | $ | 0.1 | |
2022 | | 5.1 |
| 2022 | | 5.2 | |
2023 | | 0.1 |
| 2023 | | 0.1 | |
2024 | | 2024 | | 0.1 | |
2025 | | 2025 | | 0.1 | |
Thereafter | | 10.3 |
| Thereafter | | 106.8 | |
Total | | $ | 15.8 |
| Total | | $ | 112.4 | |
The Company has available lines of credit with the FHLB of approximately $1,399.0$1,697.5 million, subject to collateral availability. As of December 31, 20182020 and 2017,2019, there were no0 long or short-term advances outstanding with the FHLB.
The Company has a capitalfinancing lease obligation on a banking office. Assets acquired under capitalthe financing lease, consistingconsist solely of a building and leasehold improvements, and are included in premises and equipment and are subject to depreciation.
On May 15, 2020, the Company completed a public offering of $100.0 million fixed-to-floating rate subordinated notes due May 15, 2030 (the “Notes”). The debt is included in Tier 2 capital for the Company. The Company may elect to redeem the Notes, in whole or in part, on any early redemption date which is any interest payment date on or after May 15, 2025 at a redemption price equal to 100% of the principal amount plus any accrued and unpaid interest. The Company may also redeem the Notes, in whole but not in part, upon certain conditions as defined in the indenture agreement. Any early redemption of the Notes will be subject to regulatory approval.
From and including the date of issuance to, but excluding, May 15, 2025, or earlier redemption date, the Notes bear interest at an initial fixed rate of 5.25% per annum, payable semi-annually in arrears on May 15 and November 15 of each year, which commenced on November 15, 2020. From and including May 15, 2025 to, but excluding, May 15, 2025, or earlier redemption date, the Notes will bear interest at a floating rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR (as defined in the Indenture Agreement), plus 518.0 basis points, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, commencing on August 15, 2025.
Unamortized debt issuance costs of $1.4 million are being amortized to maturity. Subordinated debt is presented net of issuance costs on the consolidated balance sheet.
The Notes are unsecured, subordinated obligations of the Company and: (i) rank junior to all of the Company’s existing and future senior indebtedness; (ii) rank equal in right of payment with any of the Company’s existing and future subordinated indebtedness; (iii) rank senior to the Company’s obligations relating to any junior subordinated debt securities issued to its capital trust subsidiaries; (iv) are effectively subordinated to all of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and (v) are structurally subordinated to all of the existing and future liabilities and obligations of the Company’s subsidiaries, including deposit liabilities and claims of other creditors of the Company’s bank subsidiary, First Interstate Bank.
Proceeds from the private placement of subordinated notes were used for general corporate purposes.
Additionally, the Company borrowed or assumed through acquisitions $14.4 million and $11.7$12.6 million as of December 31, 20182020 and 2017, respectively,2019, related to New Market Tax Credits. The long-term debt obligations consists of fixed rate note payables with various interest rates from 1.00% to 6.24%3.25% and maturities from July 29, 2022 through MarchDecember 31, 2038,2041, collateralized by the Company’s equity interest in various CDEs, which are 99.9% owned by the Company.
The Company had no material other borrowed funds as of December 31, 2018. As of December 31, 2017,2020 and 2019, the Company had 0 material other borrowed funds of $20.0 million, primarily consisting of a fixed rate subordinated term loan which was redeemed during the first quarter of 2018.
funds.
The Company has federal funds lines of credit with third parties amounting to $205.0 million, subject to funds availability. These lines are subject to cancellation without notice. The Company also has a line of credit with the Federal Reserve Bank for borrowings up to $461.7$478.6 million secured by a blanket pledge of indirect consumer loans, and has an unused $50.0 million revolving line of credit with U.S. Bank National Association.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| |
(14) | (14) SUBORDINATED DEBENTURES HELD BY SUBSIDIARY TRUSTS |
The Company sponsors seven7 wholly-owned business trusts, Trust I, Trust II, Trust III, Trust IV, Trust V, Trust VI, and Trust VII (collectively, the “Trusts”). The Trusts were formed for the exclusive purpose of issuing an aggregate of $84.3$84.4 million of 30-year floating rate mandatorily redeemable capital trust preferred securities (“Trust Preferred Securities”) to third-party investors. The Trusts also issued, in aggregate, $2.6 million of common equity securities to the Parent Company. Proceeds from the issuance of the Trust Preferred Securities and common equity securities were invested in 30-year junior subordinated deferrable interest debentures (“Subordinated Debentures”) issued by the Parent Company.
A summary of Subordinated Debenture issuances follows:
| | | | Principal Amount Outstanding as of December 31, | | Principal Amount Outstanding as of December 31, |
Issuance | | Maturity Date | | 2018 | | 2017 | Issuance | | Maturity Date | | 2020 | | 2019 |
October 2007 | | January 1, 2038 | | $ | 10.3 |
| | $ | 10.3 |
| October 2007 | | January 1, 2038 | | $ | 10.3 | | | $ | 10.3 | |
November 2007 | | December 15, 2037 | | 15.5 |
| | 15.5 |
| November 2007 | | December 15, 2037 | | 15.5 | | | 15.5 | |
December 2007 | | December 15, 2037 | | 20.6 |
| | 20.6 |
| December 2007 | | December 15, 2037 | | 20.6 | | | 20.6 | |
December 2007 | | April 1, 2038 | | 15.5 |
| | 15.5 |
| December 2007 | | April 1, 2038 | | 15.5 | | | 15.5 | |
January 2008 | | April 1, 2038 | | 10.3 |
| | 10.3 |
| January 2008 | | April 1, 2038 | | 10.3 | | | 10.3 | |
January 2008 | | April 1, 2038 | | 10.3 |
| | 10.3 |
| January 2008 | | April 1, 2038 | | 10.3 | | | 10.3 | |
June 2005 | | June 30, 2035 | | 4.4 |
| | — |
| June 2005 | | June 30, 2035 | | 4.5 | | | 4.4 | |
Total subordinated debentures held by subsidiary trusts | Total subordinated debentures held by subsidiary trusts | | $ | 86.9 |
| | $ | 82.5 |
| Total subordinated debentures held by subsidiary trusts | | $ | 87.0 | | | $ | 86.9 | |
In October 2007, the Company issued $10.3 million of Subordinated Debentures to Trust II. The Subordinated Debentures bear a cumulative floating interest rate equal to LIBOR plus 2.25% per annum. As of December 31, 2018,2020, the interest rate on the Subordinated Debentures was 5.05%2.48%.
In November 2007, the Company issued $15.5 million of Subordinated Debentures to Trust I. The Subordinated Debentures bore interest at a fixed rate of 7.50% for five years after issuance until December 16, 2012, and thereafter at a variable rate equal to LIBOR plus 2.75% per annum. As of December 31, 2018,2020, the interest rate on the Subordinated Debentures was 5.54%2.97%.
In December 2007, the Company issued $20.6 million of Subordinated Debentures to Trust III. The Subordinated Debentures bore interest at a fixed rate of 6.88% for five years after issuance until December 15, 2012, and thereafter at a variable rate equal to LIBOR plus 2.40% per annum. As of December 31, 2018,2020, the interest rate on the Subordinated Debentures was 5.19%2.62%.
In December 2007, the Company issued $15.5 million of Subordinated Debentures to Trust IV. The Subordinated Debentures bear a cumulative floating interest rate equal to LIBOR plus 2.70% per annum. As of December 31, 20182020 the interest rate on the Subordinated Debentures was 5.50%2.93%.
In January 2008, the Company issued $10.3 million of Subordinated Debentures to Trust V. The Subordinated Debentures bore interest at a fixed rate of 6.78% for five years after issuance until April 1, 2013, and thereafter at a variable rate equal to LIBOR plus 2.75% per annum. As of December 31, 20182020 the interest rate on the Subordinated Debentures was 5.55%2.98%.
In January 2008, the Company issued $10.3 million of Subordinated Debentures to Trust VI. The Subordinated Debentures bear a cumulative floating interest rate equal to LIBOR plus 2.75% per annum. As of December 31, 2018,2020, the interest rate on the Subordinated Debentures was 5.55%2.98%.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
In conjunction with the acquisition of Northwest in August 2018, the Company acquired Northwest Bancorporation Capital Trust I (“Trust VII”). The Northwest Trust was formed for the exclusive purpose of issuing an aggregate of $5.0 million of 30-year floating rate mandatorily redeemable capital trust preferred securities (“Northwest Trust Preferred Securities”) to third-party investors. The Trusts also issued, in aggregate, $0.2 million of common equity securities to Northwest. Proceeds from the issuance of the Trust Preferred Securities and common equity securities were invested in 30-year junior subordinated deferrable interest debentures (“Northwest Subordinated Debentures”)
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
issued by Northwest. The Subordinated Debentures bore interest at a fixed rate of 5.95% for five years after issuance until June 30, 2010, and thereafter at a variable rate equal to LIBOR plus 1.70% per annum. As of December 31, 20182020 the interest rate on the Subordinated Debentures was 4.50%1.94%.
The Subordinated Debentures are unsecured with interest distributions payable quarterly. The Company may defer the payment of interest at any time provided that the deferral period does not extend past the stated maturity. During any such deferral period, distributions on the Trust Preferred Securities will also be deferred and the Company’s ability to pay dividends on its common and preferred shares is restricted. The Subordinated Debentures may be redeemed, subject to approval by the Federal Reserve Bank, at the Company’s option on or after five years from the date of issue, or at any time in the event of unfavorable changes in laws or regulations. Debt issuance costs consisting primarily of underwriting discounts and professional fees were capitalized and are being amortized through maturity to interest expense using the straight-line method, which approximates level yield.
The terms of the Trust Preferred Securities are identical to those of the Subordinated Debentures. The Trust Preferred Securities are subject to mandatory redemption upon repayment of the Subordinated Debentures at their stated maturity dates or earlier redemption in an amount equal to their liquidation amount plus accumulated and unpaid distributions to the date of redemption. The Company guarantees the payment of distributions and payments for redemption or liquidation of the Trust Preferred Securities to the extent of funds held by the Trusts.
Subject to certain limitations, the Trust Preferred Securities qualify as tier 1 capital of the Parent Company under the Federal Reserve Board’s capital adequacy guidelines. Proceeds from the issuance of the Trust Preferred Securities were used to fund acquisitions.
| |
(15) | (15) CAPITAL STOCK AND DIVIDEND RESTRICTIONS |
The Company’s authorized common stock consists of 200,000,000 shares, of which, 100,000,000 shares are designated as Class A common stock and 100,000,000 are designated as Class B common stock. The Class A common stock has one1 vote per share. The Class B common stock has five5 votes per share and is convertible to Class A common stock on a share-for-share basis at any time.
The Company had 38,169,57540,335,113 shares of Class A common stock and 22,453,67221,760,686 shares of Class B common stock outstanding as of December 31, 2018.2020. The Company had 33,560,20243,129,085 shares of Class A common stock and 22,905,35722,117,254 shares of Class B common stock outstanding as of December 31, 2017.
2019.
During 2018,2020, the Company issued 11,38919,491 shares of its Class A common stock with an aggregate value of $0.5$0.6 million to directors for their service on the Company’s board of directors during 2018.2020. During 2017,2019, the Company issued 14,92622,417 shares of its Class A common stock with an aggregate value of $0.5$0.8 million to directors for their service on the Company’s board of directors during 2017.2019. The aggregate value of the shares issued to directors of is included in stock-based compensation expense in the accompanying consolidated statements of changes in stockholders’ equity.
During 2018 and 2017,On June 11, 2019, the Company’s board of directors adopted a stock repurchase program permitting the Company did notto repurchase anyup to 2.5 million of its outstanding shares of itsClass A common stock. On March 23, 2020, the Company’s board of directors suspended stock repurchases in response to the COVID-19 pandemic. Effective August 24, 2020, the Company’s board of directors lifted the temporary suspension of the Company’s stock repurchase program. On September 12, 2020, the Company’s board of directors increased the number of shares of Class A common stock authorized to be repurchased by the Company under the stock repurchase program by an additional 3.0 million shares bringing the total number of shares authorized under the program to 5.5 million shares. During 2020, the Company repurchased and retired 3,538,142 shares of Class A common stock under the stock repurchase program.
All other than stock repurchases whichduring 2020 and 2019 were redemptions of vested restricted shares tendered in lieu of cash for payment of income tax withholding amounts by participants in the Company’s equity compensation plans.
On November 28, 2018, we filed a registration statement on Form S-4, as amended on January 16,April 8, 2019, to register 492,069the Company issued 3,871,422 and 463,134 shares of its Class A common stock to be issuedwith an aggregate value of $157.3 million and $18.8 million as consideration for our acquisitionthe acquisitions of CMYF.
On November 28, 2018, we filed a registration statement on Form S-4, as amended on January 16, 2019, to register 4,045,302 shares of Class A common stock to be issued as consideration for our acquisition of IIBK.IIBK and CMYF, respectively.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
On June 8, 2018, we filed a registration statement on Form S-4, as amended on July 2, 2018 with registration statement on Form S-4/A, to register 3,982,842 shares of Class A common stock to be issued as consideration for our acquisition of Northwest.
On AugustMarch 16, 2018, the Company issued 3,837,540 shares of its Class A common stock with an aggregate value of $173.3 million as consideration for the acquisition of Northwest.
On September 25, 2017,2020, the Company filed a universal shelf registration statement on Form S-3, which was subsequently declared effective by the SEC. The shelf registration statement permits usallows the Company to offerraise additional capital from time to time through offers and sales of registered securities consisting of debt securities, preferred stock, depository shares, common stock, warrants, purchase contracts, and units or units consisting of any combination of the foregoing securities. The Company may sell upthese securities using the prospectus in the shelf registration statement, together with applicable prospectus supplements, from time to $250.0 million of our Class A common sharestime, in one or more future public offerings. At the present time, we have no specific plans to offer any of the securities covered by the registration statement.
The payment of dividends by subsidiary banks is subject to various federal and state regulatory limitations. In general, a bank is limited, without the prior consent of its regulators, to paying dividends that do not exceed current year net profits together with retained earnings from the two preceding calendar years. The Company’s debt instruments also include limitations on the payment of dividends.
| |
(16) | (16) EARNINGS PER COMMON SHARE |
Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period presented, excluding unvested restricted stock. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares determined for the basic earnings per share computation plus the dilutive effects of stock-based compensation using the treasury stock method.
The following table sets forth the computation of basic and diluted earnings per common share:
| | Year Ended December 31, | 2018 | | 2017 | | 2016 | Year Ended December 31, | 2020 | | 2019 | | 2018 |
Net income, basic and diluted | $ | 160.2 |
| | $ | 106.5 |
| | $ | 95.7 |
| Net income, basic and diluted | $ | 161.2 | | | $ | 181.0 | | | $ | 160.2 | |
Weighted average common shares outstanding for basic earnings per share computation | 57,778,857 |
| | 51,429,366 |
| | 44,511,774 |
| Weighted average common shares outstanding for basic earnings per share computation | 63,611,891 | | | 63,645,029 | | | 57,778,857 | |
Dilutive effects of stock-based compensation | 438,266 |
| | 473,843 |
| | 398,622 |
| Dilutive effects of stock-based compensation | 117,579 | | | 239,839 | | | 438,266 | |
Weighted average common shares outstanding for diluted earnings per common share computation | 58,217,123 |
| | 51,903,209 |
| | 44,910,396 |
| Weighted average common shares outstanding for diluted earnings per common share computation | 63,729,470 | | | 63,884,868 | | | 58,217,123 | |
| | | | | | |
Basic earnings per common share | $ | 2.77 |
| | $ | 2.07 |
| | $ | 2.15 |
| Basic earnings per common share | $ | 2.53 | | | $ | 2.84 | | | $ | 2.77 | |
Diluted earnings per common share | 2.75 |
| | 2.05 |
| | 2.13 |
| Diluted earnings per common share | 2.53 | | | 2.83 | | | 2.75 | |
The Company had 448, 83,6353,094, 150, and 7,215448 unvested time restricted stock outstanding as of December 31, 2018, 2017,2020, 2019, and 20162018 respectively, that were not included in the computation of diluted earnings per common share because their effect would be anti-dilutive. The Company had 83,475, 113,874291,540, 138,298, and 155,63783,475 shares of unvested restricted stock as of December 31, 2018, 2017,2020, 2019, and 2016,2018, respectively, that were not included in the computation of diluted earnings per common share because performance conditions for vesting had not been met.
| |
(17) | (17) REGULATORY CAPITAL |
The Company and the Bank are subject to various regulatory capital requirements administered by federal banking regulators and the Federal Reserve. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Parent Company, like all bank holding companies, is not subject to the prompt corrective action provisions. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and tier 1 capital to risk-weighted assets, and of tier 1 capital to average assets, as defined in the regulations. As of December 31, 2018,2020, the Company exceeded all capital adequacy requirements to which it is subject.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
As of December 31, 2018,2020, the most recent notification from the regulatory agencies categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since the most recent notification that management believes have changed the Bank's categories.
As an approved mortgage seller, the Bank is required to maintain a minimum level of capital specified by the United States Department of Housing and Urban Development. At December 31, 20182020 and 2017,2019, the Bank met these requirements.
The Company’s actual capital amounts and ratios and selected minimum regulatory thresholds and prompt corrective action provisions as of December 31, 20182020 and 20172019 are presented in the following tables:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | Adequately Capitalized Basel III Phase-In Schedule | | Adequately Capitalized Basel III Fully Phased-In | | Well Capitalized (1) |
| Amount | Ratio | | Amount | Ratio | | Amount | Ratio | | Amount | Ratio |
December 31, 2018 | | | | | | | | | | | |
Total risk-based capital: | | | | | | | | | | | |
Consolidated | $ | 1,285.0 |
| 12.99 | % | | $ | 976.6 |
| 9.875 | % | | $ | 1,038.4 |
| 10.50 | % | | $ | 989.0 |
| 10.00 | % |
FIB | 1,184.5 |
| 12.01 |
| | 973.7 |
| 9.875 |
| | 1,035.3 |
| 10.50 |
| | 986.0 |
| 10.00 |
|
Tier 1 risk-based capital: | | | | | | | | | | | |
Consolidated | 1,212.0 |
| 12.26 |
| | 778.8 |
| 7.875 |
| | 840.6 |
| 8.50 |
| | 791.2 |
| 8.00 |
|
FIB | 1,111.6 |
| 11.27 |
| | 776.5 |
| 7.875 |
| | 838.1 |
| 8.50 |
| | 788.8 |
| 8.00 |
|
Common equity tier 1 risk-based capital: | | | | | | | | | | | |
Consolidated | 1,127.8 |
| 11.40 |
| | 630.5 |
| 6.375 |
| | 692.3 |
| 7.00 |
| | 642.8 |
| 6.50 |
|
FIB | 1,111.6 |
| 11.27 |
| | 628.6 |
| 6.375 |
| | 690.2 |
| 7.00 |
| | 640.9 |
| 6.50 |
|
Leverage capital ratio: | | | | | | | | | | | |
Consolidated | 1,212.0 |
| 9.47 |
| | 511.9 |
| 4.00 |
| | 511.9 |
| 4.00 |
| | 639.9 |
| 5.00 |
|
FIB | 1,111.6 |
| 8.97 |
| | 495.9 |
| 4.00 |
| | 495.9 |
| 4.00 |
| | 619.8 |
| 5.00 |
|
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| | | | | | | | | | | | | | | | | | | | Actual | | Minimum Required for Capital Adequacy Purposes | | For Capital Adequacy Purposes Plus Capital Conservation Buffer | | Minimum to Be Well Capitalized Under Prompt Corrective Action Requirements (1) |
| Actual | | Adequately Capitalized Basel III Phase-In Schedule | | Adequately Capitalized Basel III Fully Phased-In | | Well Capitalized (1) | |
| Amount | Ratio | | Amount | Ratio | | Amount | Ratio | | Amount | Ratio | |
December 31, 2017 | | | | | | | | | | | | |
December 31, 2020 | | December 31, 2020 | Amount | Ratio | | Amount | Ratio | | Amount | Ratio | | Amount | Ratio |
Total risk-based capital: | | | | | | | | | | | | Total risk-based capital: | | | | | | | |
Consolidated | $ | 1,112.5 |
| 12.76 | % | | $ | 806.5 |
| 9.25 | % | | $ | 915.5 |
| 10.50 | % | | $ | 871.9 |
| 10.00 | % | Consolidated | $ | 1,575.7 | | 14.19 | | | $ | 888.3 | | 8.00 | % | | $ | 1,165.8 | | 10.50 | % | | $ | 1,110.3 | | 10.00 | % |
FIB | 1,066.6 |
| 12.29 |
| | 802.7 |
| 9.25 |
| | 911.2 |
| 10.50 |
| | 867.8 |
| 10.00 |
| FIB | 1,426.8 | | 12.89 | | | 885.6 | | 8.00 | | | 1,162.3 | | 10.50 | | | 1,107.0 | | 10.00 | |
Tier 1 risk-based capital: | | | | | | | | | | | | Tier 1 risk-based capital: | |
Consolidated | 1,040.3 |
| 11.93 |
| | 632.1 |
| 7.25 |
| | 741.1 |
| 8.50 |
| | 697.5 |
| 8.00 |
| Consolidated | 1,369.0 | | 12.33 | | | 666.2 | | 6.00 | | | 943.8 | | 8.50 | | | 888.3 | | 8.00 | |
FIB | 994.4 |
| 11.46 |
| | 629.1 |
| 7.25 |
| | 737.6 |
| 8.50 |
| | 694.2 |
| 8.00 |
| FIB | 1,320.1 | | 11.93 | | | 664.2 | | 6.00 | | | 940.9 | | 8.50 | | | 885.6 | | 8.00 | |
Common equity tier 1 risk-based capital: | | | | | | | | | | | | Common equity tier 1 risk-based capital: | |
Consolidated | 962.4 |
| 11.04 |
| | 501.3 |
| 5.75 |
| | 610.3 |
| 7.00 |
| | 566.7 |
| 6.50 |
| Consolidated | 1,284.9 | | 11.57 | | | 499.6 | | 4.50 | | | 777.2 | | 7.00 | | | 721.7 | | 6.50 | |
FIB | 994.4 |
| 11.46 |
| | 499.0 |
| 5.75 |
| | 607.4 |
| 7.00 |
| | 564.1 |
| 6.50 |
| FIB | 1,320.1 | | 11.93 | | | 498.1 | | 4.50 | | | 774.9 | | 7.00 | | | 719.5 | | 6.50 | |
Leverage capital ratio: | | | | | | | | | | | | Leverage capital ratio: | |
Consolidated | 1,040.3 |
| 8.86 |
| | 469.9 |
| 4.00 |
| | 469.9 |
| 4.00 |
| | 587.4 |
| 5.00 |
| Consolidated | 1,369.0 | | 8.16 | | | 671.0 | | 4.00 | | | 671.0 | | 4.00 | | | 838.7 | | 5.00 | |
FIB | 994.4 |
| 8.48 |
| | 469.1 |
| 4.00 |
| | 469.1 |
| 4.00 |
| | 586.3 |
| 5.00 |
| FIB | 1,320.1 | | 7.88 | | | 669.7 | | 4.00 | | | 669.7 | | 4.00 | | | 837.2 | | 5.00 | |
(1) The ratios for the well capitalized requirement are only applicable to FIB. However, the Company manages its capital position as if the requirement applies to the consolidated entity and has presented the ratios as if they also applied on a consolidated basis.
On July 2, 2013,In connection with the adoption of CECL, or ASC 326, the Company recognized an after-tax cumulative effect reduction to retained earnings totaling $24.1 million. In March 2020, the Office of the Comptroller of Currency, the Board of Governors of the Federal Reserve BankSystem, and the FDIC issued aan interim final rule implementing a revisedthat allows banking organizations to mitigate the effects of ASC 326 on their regulatory capital framework for U.S. bankscomputations. This interim rule is in accordance withaddition to the Basel III international accord and satisfying related mandatesthree-year transition period already in place under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The revisedcapital transition rule previously issued in February 2019. Banking organizations can elect to mitigate the estimated cumulative regulatory capital framework (the “Basel III Capital Rules”) substantially revisedeffects for an additional two years. This rule allows an institution to defer transitioning the risk-based capital requirements applicable to bank holding companies and depository institutions by defining the componentsimpact of capital and addressing other issues affecting the numerator in banking institutions’ASC 326 into its regulatory capital calculation, including ratios, addressing risk weights and other issues affectingover an extended period. Additionally, the denominator in banking institutions’ regulatory capital ratios and replacinginterim rule extends the existing risk-weighting approach with a more risk-sensitive approach. The Basel III Capital Rules became effective fortransition period whereby an institution can defer the Companyimpact from ASC 326 on January 1, 2015, subject to a phase-inthe current period, for certain provisions.
When fully phased in on January 1, 2019, the Basel III Capital Rules will require the Company to maintain (i) a minimum ratio of common equity tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% tier 1 capital to risk-weighted assets of at least 7.0% upon full implementation), (ii) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation) and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of tier 1 capital to average quarterly assets.
The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019). The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to us. The capital conservation buffer is designed to absorb losses during periods of economic stress and, as detailed above, effectively increases the minimum required risk-weighted capital ratios. Banking institutions with a ratio of common equity tier 1 capital to risk-weighted assets below the effective minimum (4.5% plus the capital conservation buffer and, if applicable, the countercyclical capital buffer) will face constraints on dividends, equity repurchases and compensationdetermined based on the amountdifference between the new ASC 326 allowance for credit losses and the allowance for loan losses under the incurred loss method from previous GAAP, for up to two years. The total impact related to ASC 326 would then be transitioned into regulatory capital and the associated ratios over a three-year transition period, beginning after the initial two-year deferral period, for a total transition period of five years. The Company has elected to opt into the shortfall. As of December 31, 2018,transition election and is adopting transition relief over the Company’s capital conservation buffer was 4.99% for the consolidated company and 4.01% for FIB.permissible five-year period.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | Minimum Required for Capital Adequacy Purposes | | For Capital Adequacy Purposes Plus Capital Conservation Buffer | | Minimum to Be Well Capitalized Under Prompt Corrective Action Requirements (1) |
December 31, 2019 | Amount | Ratio | | Amount | Ratio | | Amount | Ratio | | Amount | Ratio |
Total risk-based capital: | | | | | | | | | | | |
Consolidated | $ | 1,495.3 | | 14.10 | % | | $ | 848.5 | | 8.00 | % | | $ | 1,113.6 | | 10.50 | % | | $ | 1,060.6 | | 10.00 | % |
FIB | 1,321.4 | | 12.50 | | | 845.8 | | 8.00 | | | 1,110.1 | | 10.50 | | | 1,057.2 | | 10.00 | |
Tier 1 risk-based capital: | | | | | | | | | | | |
Consolidated | 1,422.3 | | 13.41 | | | 636.3 | | 6.00 | | | 901.5 | | 8.50 | | | 848.5 | | 8.00 | |
FIB | 1,248.4 | | 11.81 | | | 634.3 | | 6.00 | | | 898.6 | | 8.50 | | | 845.8 | | 8.00 | |
Common equity tier 1 risk-based capital: | | | | | | | | | | | |
Consolidated | 1,338.2 | | 12.62 | | | 477.3 | | 4.50 | | | 742.4 | | 7.00 | | | 689.4 | | 6.50 | |
FIB | 1,248.4 | | 11.81 | | | 475.7 | | 4.50 | | | 740.0 | | 7.00 | | | 687.2 | | 6.50 | |
Leverage capital ratio: | | | | | | | | | | | |
Consolidated | 1,422.3 | | 10.13 | | | 561.6 | | 4.00 | | | 561.6 | | 4.00 | | | 702.0 | | 5.00 | |
FIB | 1,248.4 | | 8.91 | | | 560.4 | | 4.00 | | | 560.4 | | 4.00 | | | 700.4 | | 5.00 | |
| |
(18) | (1) The ratios for the well capitalized requirement are only applicable to FIB. However, the Company manages its capital position as if the requirement applies to the consolidated entity and has presented the ratios as if they also applied on a consolidated basis. (18) COMMITMENTS AND CONTINGENCIES |
The Company had commitments under construction contracts of $2.7$4.6 million as of December 31, 2018.
2020.
The Parent Company and the Billings office of FIB are the anchor tenants in a building owned by an entity in which FIB has a 50.0% ownership interest.
The Company leases certain premises and equipment from third parties under operating leases. Total rental expense to third parties was $5.1 million, $4.8 million, and $3.2 million, $2.5 million,in 2020, 2019, and $1.9 million, in 2018, 2017 and 2016, respectively.
The total future minimum rental commitments, exclusive of maintenance and operating costs, required under operating leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 2018,2020, are as follows:
| | | Third Parties | | Related Entity | | Total | | Third Parties | | Related Entity | | Total |
For the year ending December 31: | | | | | | For the year ending December 31: | | | | | |
2019 | $ | 4.4 |
| | $ | 1.6 |
| | $ | 6.0 |
| |
2020 | 4.2 |
| | 1.5 |
| | 5.7 |
| |
2021 | 4.1 |
| | 1.4 |
| | 5.5 |
| 2021 | $ | 5.6 | | | $ | 1.4 | | | $ | 7.0 | |
2022 | 4.1 |
| | 1.2 |
| | 5.3 |
| 2022 | 5.2 | | | 1.4 | | | 6.6 | |
2023 | 3.9 |
| | 1.2 |
| | 5.1 |
| 2023 | 4.0 | | | 1.1 | | | 5.1 | |
2024 | | 2024 | 3.5 | | | 1.0 | | | 4.5 | |
2025 | | 2025 | 3.1 | | | 1.0 | | | 4.1 | |
Thereafter | 15.3 |
| | 2.8 |
| | 18.1 |
| Thereafter | 13.4 | | | 2.0 | | | 15.4 | |
Total | $ | 36.0 |
| | $ | 9.7 |
| | $ | 45.7 |
| Total | $ | 34.8 | | | $ | 7.9 | | | $ | 42.7 | |
Residential mortgage loans sold to investors in the secondary market are sold with varying recourse provisions. Essentially all of the loan sales agreements require the repurchase of a mortgage loan by the seller in situations such as breach of representation, warranty, or covenant; untimely document delivery; false or misleading statements; failure to obtain certain certificates or insurance; unmarketability; etc.or unmarketability. Certain loan sales agreements contain repurchase requirements based on payment-related defects that are defined in terms of the number of days or months since the purchase, the sequence number of the payment, and/or the number of days of payment delinquency. Based on the specific terms stated in the agreements, the Company had $1.5$0.6 million and $1.9$0.9 million of sold residential mortgage loans with recourse provisions still in effect as of December 31, 20182020 and 2017,2019, respectively.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The Company did not repurchase any significant amount of loans from secondary market investors under the terms of loan sales agreements during the years ended December 31, 2018, 20172020, 2019 and 2016.2018. In the opinion of management, the risk of recourse and the subsequent requirement of loan repurchase to the Company is not significant, and accordingly no liabilities have been established related to such. In addition, the Company made various representations and warranties associated with the sale of loans. The Company has not incurred significant losses resulting from these provisions.
On October 11, 2018, the Company entered into a definitive agreement to acquire all of the outstanding stock of IIBK, a community bank headquartered in Coeur d' Alene, Idaho with 11 banking offices across Idaho, in an all-stock transaction valued at approximately $181.3 million in aggregate, or $22.73 per share of IIBK stock, based on a per share price of First Interstate Class A common stock of $45.45 per share as of October 5, 2018. IIBK shareholders will be entitled to receive 0.50 shares of First Interstate Class A common stock for each share of IIBK common stock they own. The transaction has been approved by the boards of directors of both companies and is expected to close and convert data processing systems in the second quarter of 2019, subject to customary conditions, including regulatory and shareholder approvals.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Also on October 11, 2018, the Company entered into a definitive agreement to acquire all of the outstanding stock of CMYF, a community bank headquartered in Post Falls, Idaho with three banking offices in North Idaho, in an all-stock transaction valued at approximately $21.5 million in aggregate, or $17.20 per share of CMYF stock, based on a per share price of First Interstate Class A common stock of $45.45 per share as of October 5, 2018. CMYF stockholders will be entitled to receive 0.3784 shares of First Interstate Class A common stock for each share of CMYF common stock they own. The transaction has been approved by the boards of directors of both companies and is expected to close and convert data processing systems in the second quarter of 2019, subject to customary conditions, including regulatory and shareholder approvals.
A substantial portion of the Company’s customers’clients’ ability to honor their contracts is dependent on the economy in Idaho, Montana, Oregon, South Dakota, Washington, and Wyoming. The Company’s loan portfolio is diversified and assigned to risk classifications by industry concentrations and the current economic conditions. These industry concentrations of credit are taken into consideration by management in determining the allowance for loan and leasecredit losses.
In the normal course of business, the Company is involved in various other claims and litigation. In the opinion of management, following consultation with legal counsel, the ultimate liability or disposition thereof is not expected to have a material adverse effect on the consolidated financial condition, results of operations, or liquidity of the Company.
| |
(19) | (19) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK |
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.clients. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recorded in the consolidated balance sheets. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, premises and equipment, and income-producing commercial properties.
Commitments to extend credit are agreements to lend to a customerclient as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Generally, commitments to extend credit are subject to annual renewal. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments to extend credit to borrowers approximated $2,620.4 million at December 31, 2018, which included $726.7 million on unused credit card lines and $1,058.5 million with commitment maturities beyond one year. Commitments to extend credit to borrowers approximated $2,179.5 million at December 31, 2017, which included $635.3 million on unused credit card lines and $775.0 million with commitment maturities beyond one year.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customerclient to a third party. Most commitments extend for no more than two years and are generally subject to annual renewal. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.clients. The Company’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit. At December 31, 2018 and 2017, the Company had outstanding stand-by letters of credit of $46.7 million and $50.5 million, respectively. The estimated fair value of the obligation undertaken by the Company in issuing standby letters of credit is included in accounts payable and accrued expenses in the Company’s consolidated balance sheets.
The following table presents our financial instruments with off-balance sheet risk, as well as the activity in the allowance for off-balance sheet credit losses related to those financial instruments not considered unconditionally cancellable:
| | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
Beginning balance | | $ | 0 | | | $ | 0 | |
Initial impact of adopting ASC 326 | | 2.3 | | | 0 | |
Provision for credit loss expense | | 1.4 | | | 0 | |
Ending balance of allowance for off-balance sheet credit losses | | $ | 3.7 | | | $ | 0 | |
| | | | | | | | | | | | | | |
| | December 31, 2020 | | December 31, 2019 |
Unused credit card lines* | | $ | 682.8 | | | $ | 671.8 | |
Commitments to extend credit* | | 2,280.0 | | | 2,067.0 | |
Standby letter of credit | | 59.0 | | | 42.7 | |
| | | | |
* In conjunction with the adoption of ASC 326, the Company presented the December 31, 2019 balances to conform to the December 30, 2020 presentation. |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Income tax expense consists of the following:
| | | | | | | | | | | | | | | | | |
Year ended December 31, | 2020 | | 2019 | | 2018 |
Current: | | | | | |
Federal | $ | 42.4 | | | $ | 40.5 | | | $ | 23.1 | |
State | 12.3 | | | 8.2 | | | 7.2 | |
Total current | 54.7 | | | 48.7 | | | 30.3 | |
Deferred: | | | | | |
Federal | (5.7) | | | 3.7 | | | 12.3 | |
State | (0.9) | | | 1.7 | | | 3.5 | |
Total deferred | (6.6) | | | 5.4 | | | 15.8 | |
| | | | | |
Total income tax expense | $ | 48.1 | | | $ | 54.1 | | | $ | 46.1 | |
|
| | | | | | | | | | | |
Year ended December 31, | 2018 | | 2017 | | 2016 |
Current: | | | | | |
Federal | $ | 23.1 |
| | $ | 24.3 |
| | $ | 40.3 |
|
State | 7.2 |
| | 5.0 |
| | 5.9 |
|
Total current | 30.3 |
| | 29.3 |
| | 46.2 |
|
Deferred: | | | | | |
Federal | 12.3 |
| | 18.4 |
| | 2.9 |
|
State | 3.5 |
| | 2.5 |
| | 0.5 |
|
Total deferred | 15.8 |
| | 20.9 |
| | 3.4 |
|
Total income tax expense | $ | 46.1 |
| | $ | 50.2 |
| | $ | 49.6 |
|
Total income tax provision differs from the amount of income tax determined by applying the statutory federal income tax rate of 21% for 2018 and 35% for 2017 and 2016, respectively,the periods presented to income before income taxes due to the following:
| | | | | | | | | | | | | | | | | |
Year ended December 31, | 2020 | | 2019 | | 2018 |
Tax expense at the statutory tax rate | $ | 44.0 | | | $ | 49.4 | | | $ | 43.3 | |
Increase (decrease) in tax resulting from: | | | | | |
Tax-exempt income | (2.1) | | | (2.8) | | | (2.8) | |
State income tax, net of federal income tax benefit | 9.0 | | | 9.9 | | | 8.5 | |
Benefit of stock-based compensation plans | (0.4) | | | (1.2) | | | (1.1) | |
Federal tax credits | (2.3) | | | (2.0) | | | (2.6) | |
| | | | | |
Other, net | (0.1) | | | 0.8 | | | 0.8 | |
Tax expense at effective tax rate | $ | 48.1 | | | $ | 54.1 | | | $ | 46.1 | |
|
| | | | | | | | | | | |
Year ended December 31, | 2018 | | 2017 | | 2016 |
Tax expense at the statutory tax rate | $ | 43.3 |
| | $ | 54.9 |
| | $ | 50.8 |
|
Increase (decrease) in tax resulting from: | | | | | |
Tax-exempt income | (2.8 | ) | | (4.5 | ) | | (4.4 | ) |
State income tax, net of federal income tax benefit | 8.5 |
| | 4.9 |
| | 4.3 |
|
Benefit of stock-based compensation plans | (1.1 | ) | | (2.6 | ) | | — |
|
Federal tax credits | (2.6 | ) | | (2.5 | ) | | (2.1 | ) |
Benefit due to enactment of federal tax reform | — |
| | (2.2 | ) | | — |
|
Other, net | 0.8 |
| | 2.2 |
| | 1.0 |
|
Tax expense at effective tax rate | $ | 46.1 |
| | $ | 50.2 |
| | $ | 49.6 |
|
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The tax effects of temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the net deferred tax asset (liability) relate to the following:
| | | | | | | | | | | |
December 31, | 2020 | | 2019 |
Deferred tax assets: | | | |
Loans, principally due to allowance for credit losses | $ | 36.5 | | | $ | 18.1 | |
Loan discount | 4.0 | | | 7.2 | |
| | | |
Deferred compensation | 19.5 | | | 18.1 | |
Non-performing loan interest | 1.2 | | | 1.0 | |
Other real estate owned write-downs and carrying costs | 0 | | | 0.1 | |
Tax credit carryforwards | 0 | | | 0.2 | |
Net operating loss carryforwards (1) | 2.0 | | | 2.6 | |
Lease liabilities | 9.5 | | | 9.9 | |
| | | |
| | | |
| | | |
Other | 3.2 | | | 0.9 | |
Deferred tax assets | 75.9 | | | 58.1 | |
Deferred tax liabilities: | | | |
Fixed assets, principally differences in bases and depreciation | (10.9) | | | (8.8) | |
Deferred loan costs | (4.4) | | | (2.8) | |
Investment securities, unrealized gains | (19.2) | | | (3.9) | |
Investment in joint venture partnership, principally due to differences in depreciation of partnership assets | (0.9) | | | (0.7) | |
Right of use assets | (9.2) | | | (9.7) | |
Prepaid amounts | (0.5) | | | (0.5) | |
Government agency stock dividends | (1.2) | | | (1.2) | |
Goodwill and core deposit intangibles | (50.3) | | | (49.2) | |
Mortgage servicing rights | (5.6) | | | (7.2) | |
Other | (0.9) | | | (0.8) | |
Deferred tax liabilities | (103.1) | | | (84.8) | |
Net deferred tax assets (liabilities) | $ | (27.2) | | | $ | (26.7) | |
|
| | | | | | | |
December 31, | 2018 | | 2017 |
Deferred tax assets: | | | |
Loans, principally due to allowance for loan losses | $ | 18.4 |
| | $ | 18.0 |
|
Loan discount | 8.3 |
| | 6.7 |
|
Investment securities, unrealized losses | 8.9 |
| | 5.6 |
|
Deferred compensation | 17.0 |
| | 13.1 |
|
Non-performing loan interest | 1.2 |
| | 1.1 |
|
Other real estate owned write-downs and carrying costs | 0.3 |
| | 0.6 |
|
Tax credit carryforwards (1) | 0.1 |
| | 3.7 |
|
Net operating loss carryforwards (2) | 3.9 |
| | 8.7 |
|
Other | 0.1 |
| | 3.1 |
|
Deferred tax assets | 58.2 |
| | 60.6 |
|
Deferred tax liabilities: | | | |
Fixed assets, principally differences in bases and depreciation | (6.9 | ) | | (6.7 | ) |
Deferred loan costs | (2.6 | ) | | (1.7 | ) |
Investment in joint venture partnership, principally due to differences in depreciation of partnership assets | (0.8 | ) | | (0.8 | ) |
Prepaid amounts | (0.6 | ) | | (0.6 | ) |
Government agency stock dividends | (1.5 | ) | | (1.6 | ) |
Goodwill and core deposit intangibles | (44.2 | ) | | (38.1 | ) |
Mortgage servicing rights | (6.4 | ) | | (5.7 | ) |
Other | (3.8 | ) | | (1.4 | ) |
Deferred tax liabilities | (66.8 | ) | | (56.6 | ) |
Net deferred tax assets (liabilities) | $ | (8.6 | ) | | $ | 4.0 |
|
(1)Based on filed tax returns and amounts expected to be reported in current year tax returns (December 31, 2018), we had remaining federal tax credit carryforwards of $0.1 million from acquired companies. The remaining federal tax credits were primarily generated from AMT tax credit carryforwards, and their use is subject to annual limitations.
(2) As of December 31, 2018,2020, we had remaining federal net operating loss carryforwards of $5.4$3.4 million from acquired companies, which is available to offset federal taxable income and state net operating loss carryforwards in amounts which vary by state. The federal net operating losses will expire beginning in 20292030 and ending in 20372036 and the state net operating losses will expire beginning in 20192023 and ending in 2034. The use of these carryforwards is subject to annual limitations.
The Company had current net income tax receivables of $2.0$8.1 million and $5.7$6.1 million at December 31, 20182020 and 2017,2019, respectively.
| |
(21) | (21) STOCK-BASED COMPENSATION |
The Company has equity awards outstanding under two2 stock-based compensation plans; the 2015 Equity Incentive Plan (the “2015 Plan”) and the 2006 Equity Compensation Plan, as amended and restated (the “2006 Plan”). These plans were primarily established to enhance the Company’s ability to attract, retain and motivate employees. The Company’s Board of Directors or, upon delegation, the Compensation Committee of the Board of Directors (“Compensation Committee”) has exclusive authority to select employees, advisors and others, including directors, to receive awards and to establish the terms and conditions of each award made pursuant to the Company’s stock-based compensation plans.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The 2015 Plan, approved by the Company’s shareholders in May 2015, was established to provide the Company with flexibility to select from various equity-based performance compensation methods, and to be able to address changing accounting and tax rules and corporate governance practices by optimally utilizing performance based compensation. The 2015 Plan did not increase the number of shares of common stock available for awards under the 2006 Plan.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The 2006 Plan, approved by the Company’s shareholders in May 2006 and May 2014, was established to consolidate into one plan the benefits available under all other than existing share-based award plans. The 2006 Plan continues with respect to awards made prior to June 2015. All shares of common stock available for future grant under the 2006 Plan were transferred into the 2015 Plan. At December 31, 2018,2020, there were 1,727,7651,141,186 common shares available for future grant under the 2015 Plan.
Stock Options. All options granted have an exercise price equal to fair market value, which is currently defined as the closing sales price for the stock as quoted on the NASDAQ Stock Market for the last market trading day preceding the date that the Company’s Board of Directors awards the benefit. Options may be subject to vesting as determined by the Company’s Board of Directors or Compensation Committee, and can be exercised for periods of up to ten years from the date of grant.
No stock option awards were granted in 20182020 or 2017.2019. All outstanding stock option awards were fully vested as of December 31, 2016. As such, there was no compensation expense or related income tax benefits recognized related to stock option awards in 20182020 or 2017.2019. Compensation expense related to stock option awards and the related income tax benefits for the year ended December 31, 2016 were not considered material.
The following table summarizes Class A and Class B stock option activity under the Company’s active stock option plans:
| | Year Ended December 31, 2018 | Number of Shares | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contract Life | |
Year Ended December 31, 2020 | | Year Ended December 31, 2020 | Number of Shares | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contract Life |
Outstanding options, beginning of year | 642,255 |
| | $ | 16.13 |
| | | Outstanding options, beginning of year | 221,197 | | | $ | 15.33 | | | |
Granted | — |
| | — |
| | | Granted | 0 | | | 0 | | | |
Exercised | (199,667 | ) | | 17.12 |
| | | Exercised | (139,795) | | | 15.80 | | | |
Forfeited | (14,412 | ) | | 20.87 |
| | | Forfeited | (2,084) | | | 16.35 | | | |
Expired | — |
| | — |
| | | Expired | 0 | | | 0 | | | |
Outstanding options, end of year | 428,176 |
| | $ | 15.61 |
| | 1.56 years | Outstanding options, end of year | 79,318 | | | $ | 14.49 | | | 0.83 |
Outstanding options exercisable, end of year | 428,176 |
| | $ | 15.61 |
| | 1.56 years | Outstanding options exercisable, end of year | 79,318 | | | $ | 14.49 | | | 0.83 |
The total intrinsic value of fully-vested stock options outstanding as of December 31, 20182020 was $9.0$2.1 million. The total intrinsic value of options exercised was $3.1 million, $4.9 million, $6.3 million and $5.6$4.9 million during the years ended December 31, 2018, 20172020, 2019, and 2016,2018, respectively. The actual tax benefit realized for the tax deduction from option exercises totaled $0.5 million, $0.9 million, $2.0 million and $2.1$0.9 million for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively. The Company received cash of $1.8$1.1 million, $2.4$1.0 million, and $4.7$1.8 million from stock option exercises during the years ended December 31, 2018, 20172020, 2019, and 2016,2018, respectively. The Company redeemed common stock with aggregate values of $1.6$1.0 million, $2.8$2.0 million, and $3.1$1.6 million tendered in payment for stock option exercises during the years ended December 31, 2018, 20172020, 2019, and 2016,2018, respectively.
Restricted Stock Awards. Common stock issued under the Company’s restricted stock plan may not be sold or otherwise transferred until restrictions have lapsed or performance objectives have been obtained. During the vesting periods, participants have voting rights and receive dividends on all time restricted shares and vesting performance restricted shares. Upon termination of employment, common shares upon which restrictions have not lapsed must be returned to the Company.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
All restricted share awards are classified as equity awards. The fair value of equity-classified restricted stock awards is amortized as compensation expense on a straight-line basis over the period restrictions lapse or performance goals are met. Compensation expense related to restricted stock awards of $5.6$7.5 million, $3.3$8.0 million and $3.9$5.6 million was included in benefits on the Company’s consolidated statements of income for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively. Related income tax benefitsexpense of $0.1 million was recognized for the year ended December 31, 2020 and related income tax benefit of $0.4 million and $0.2 million were recognized for the years ended December 31, 2018, 20172019 and 2016 were $0.2 million, $0.6 million and $1.5 million,2018, respectively.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The following table presents information regarding the Company’s restricted stock:
| | As of December 31, 2018 | Number of Shares | | Weighted-Average Measurement Date Fair Value | |
As of December 31, 2020 | | As of December 31, 2020 | Number of Shares | | Weighted-Average Measurement Date Fair Value |
Restricted stock, beginning of year | 292,506 |
| | $ | 33.24 |
| Restricted stock, beginning of year | 363,022 | | | $ | 41.47 | |
Granted | 214,893 |
| | 40.97 |
| Granted | 332,085 | | | 28.56 | |
Vested | (83,736 | ) | | 32.42 |
| Vested | (135,366) | | | 40.11 | |
Forfeited | (43,079 | ) | | 36.64 |
| Forfeited | (34,912) | | | 35.50 | |
Canceled | — |
| | — |
| Canceled | 0 | | | 0 | |
Restricted stock, end of year | 380,584 |
| | $ | 37.46 |
| Restricted stock, end of year | 524,829 | | | $ | 33.65 | |
During 2018,2020, the Company issued 214,893332,085 restricted common shares. The 20182020 restricted share awards included 59,4641,352 additional shares related to the 2017 performance restricted stock grants and 196,278 performance restricted shares, of which 29,73298,139 vest in varying percentages upon achievement of defined return on equity performance goals, and 29,73298,139 vest in varying percentages upon achievement of defined total return to shareholder goals. Vesting of the 2020 performance restricted shares is also contingent on employment as of December 31, 2020.March 15, 2023. Additionally, 155,429134,455 time-restricted shares were issued during 20182020 that vest one-third on each annual anniversary of the grant date through February 15, 2021,2023, contingent on continued employment through the vesting date.
As of December 31, 2018,2020, there was $7.9$9.5 million of unrecognized compensation cost related to non-vested, restricted stock awards expected to be recognized over a period of 1.911.33 years.
| |
(22) | (22) EMPLOYEE BENEFIT PLANS |
Profit Sharing Plan. The Company hashad a noncontributory profit sharing plan.plan which was terminated on January 1, 2020. All employees, other than temporary employees, working 20 hours or more per week arewere eligible to participate in the profit sharing plan. The Company’s Board of Directors authorizesauthorized all contributions to the profit sharing plan. Participants becomebecame 100% vested upon the completion of two years of vesting service. Accrued contribution expense for this plan of $2.1 million and $2.4 million $1.6 millionin 2019 and $2.7 million in 2018, 2017 and 2016, respectively, is included in employee benefits expense in the Company’s consolidated statements of income.
Savings Plan. In addition, the Company has a contributory employee savings plan. Eligibility requirements for this planAll employees are the same as those for the profit sharing plan discussedeligible to participate in the preceding paragraph.plan. Employee participation in the plan is at the option of the employee. The Company contributes $1.25 for each $1.00contributed 100% of employee contributions up to 4%the first 6% and 5% of the participating employee’s compensation.eligible compensation in 2020 and 2019, respectively. Contribution expense for this plan of $8.9 million, $7.0 million, and $6.3 million $5.5 millionin 2020, 2019, and $4.8 million in 2018, 2017 and 2016, respectively, is included in employee benefits expense in the Company’s consolidated statements of income.
Post-Retirement Healthcare Plan. The Company sponsors a contributory defined benefit healthcare plan (the “Plan”) for active employees and employees and directors retiring from the Company at the age of at least 55 years and with at least 15 years of continuous service. Retired Plan participants contribute the full cost of benefits based on the average per capita cost of benefit coverage for both active employees and retired Plan participants.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
In 2016, the Company amended the Plan to discontinue offering healthcare benefits to future retirees beginning July 1, 2016, with current retirees as of July 1, 2016 continuing in the Plan. The Company recorded a $2.8 million gain in conjunction with the Plan amendment, which was recorded in other comprehensive income and is being amortized as a reduction in net periodic benefit cost over the weighted average remaining service period of active employees expected to receive post-retirement healthcare benefits under the Plan of approximately four years. The Plan amendment triggered a curtailment, which immediately reduced the Company’s accumulated post-retirement benefit obligation and net periodic benefit cost by $2.8 million and $0.3 million, respectively.
The Plan’s unfunded benefit obligation of $0.5$0.3 million and $0.7$0.4 million as of December 31, 20182020 and 2017,2019, respectively, is included in accounts payable and accrued expenses in the Company’s consolidated balance sheets. Net periodic benefit costs of $0.8$0.5 million, $0.4$0.7 million and $0.2$0.8 million for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively, are included in employee benefits expense in the Company’s consolidated statements of income.
Weighted average actuarial assumptions used to determine the post-retirement benefit obligation at December 31, 2018,
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and the net periodic benefit costs for the year then ended, included a discount rate of 3.6% and a 6.0% annual increase in the per capita cost of covered healthcare benefits. Weighted average actuarial assumptions used to determine the post-retirement benefit obligation at December 31, 2017, and the net periodic benefit costs for the year then ended, included a discount rate of 2.4% and a 6.0% annual increase in the per capita cost of covered healthcare benefits. The estimated effect of a one percent increase or a one percent decrease in the assumed healthcare cost trend rate would not significantly impact the service and interest cost components of the net periodic benefit cost or the accumulated post-retirement benefit obligation. Future benefit payments are expected to be $0.14 million, $0.12 million, $0.09 million, $0.06 million, $0.05 million and $0.10 million for 2019, 2020, 2021, 2022, 2023, and 2024 through 2028, respectively.share data)
At December 31, 2018, the Company had accumulated other comprehensive gain related to the plan of $1.2 million, or $0.9 million net of related income tax benefit, comprised primarily of an unamortized transition asset of $0.7 million.
| |
(23) | (23) OTHER COMPREHENSIVE INCOME |
The gross amounts of each component of other comprehensive income and the related tax effects for the periods indicated are as follows:
| | | | | | | | | | | |
Year Ended December 31, 2020 | Before Tax Amount | Tax Expense (Benefit) | Net of Tax Amount |
Investment securities available-for sale: | | | |
Change in net unrealized gains during period | $ | 61.8 | | $ | 15.8 | | $ | 46.0 | |
Reclassification adjustment for net gains included in net income | (0.3) | | (0.1) | | (0.2) | |
| | | |
Change in net unrealized loss on derivatives | 0.2 | | 0 | | 0.2 | |
| | | |
Defined benefits post-retirement benefit plan: | | | |
Change in net actuarial gains | (0.5) | | (0.1) | | (0.4) | |
Total other comprehensive income | $ | 61.2 | | $ | 15.6 | | $ | 45.6 | |
| | | | | | | | | | | |
Year Ended December 31, 2019 | Before Tax Amount | Tax Expense (Benefit) | Net of Tax Amount |
Investment securities available-for sale: | | | |
Change in net unrealized gains during period | $ | 54.9 | | $ | 14.1 | | $ | 40.8 | |
Reclassification adjustment for net gains included in net income | (0.1) | | 0 | | (0.1) | |
Reclassification adjustment for securities transferred from held-to-maturity to available-for-sale | (6.0) | | (1.6) | | (4.4) | |
| | | |
| | | |
| | | |
Defined benefits post-retirement benefit plan: | | | |
Change in net actuarial gains | (0.8) | | (0.1) | | (0.7) | |
Total other comprehensive income | $ | 48.0 | | $ | 12.4 | | $ | 35.6 | |
| | | | | | | | | | | |
Year Ended December 31, 2018 | Before Tax Amount | Tax Expense (Benefit) | Net of Tax Amount |
Investment securities available-for sale: | | | |
Change in net unrealized loss during period | $ | (13.9) | | $ | (3.6) | | $ | (10.3) | |
Reclassification adjustment for net loss included in net income | 0.1 | | 0 | | 0.1 | |
Change in unamortized loss on available-for-sale securities transferred into held-to-maturity | 1.6 | | 0.4 | | 1.2 | |
| | | |
| | | |
Defined benefits post-retirement benefit plan: | | | |
Change in net actuarial loss | (0.6) | | (0.1) | | (0.5) | |
Total other comprehensive loss | $ | (12.8) | | $ | (3.3) | | $ | (9.5) | |
The components of accumulated other comprehensive income, net of income taxes, are as follows:
| | | | | | | | | | | |
Year ended December 31, | 2020 | | 2019 |
Net unrealized gain on investment securities available-for-sale | $ | 56.8 | | | $ | 10.6 | |
Net unrealized loss on derivatives | (0.2) | | | 0 | |
Net actuarial gain on defined benefit post-retirement benefit plans | 0 | | | 0.4 | |
Net accumulated other comprehensive income (loss) | $ | 56.6 | | | $ | 11.0 | |
|
| | | | | | | | | |
Year Ended December 31, 2018 | Before Tax Amount | Tax Expense (Benefit) | Net of Tax Amount |
Investment securities available-for sale: | | | |
Change in net unrealized loss during period | $ | (13.9 | ) | $ | (3.6 | ) | $ | (10.3 | ) |
Reclassification adjustment for net loss included in net income | 0.1 |
| — |
| 0.1 |
|
Change in unamortized loss on available-for-sale securities transferred into held-to-maturity | 1.6 |
| 0.4 |
| 1.2 |
|
Defined benefits post-retirement benefit plan: | | | |
Change in net actuarial loss (gain) | (0.6 | ) | (0.1 | ) | (0.5 | ) |
Total other comprehensive loss | $ | (12.8 | ) | $ | (3.3 | ) | $ | (9.5 | ) |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
(24) CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Following is condensed financial information of First Interstate BancSystem, Inc.
| | | | | | | | | | | |
December 31, | 2020 | | 2019 |
Condensed balance sheets: | | | |
Cash and cash equivalents | $ | 123.2 | | | $ | 147.1 | |
| | | |
| | | |
| | | |
Investment in bank subsidiary | 1,986.6 | | | 1,899.3 | |
Advances to subsidiaries, net | 41.0 | | | 48.9 | |
Other assets | 61.3 | | | 61.7 | |
Total assets | $ | 2,212.1 | | | $ | 2,157.0 | |
| | | |
Other liabilities | $ | 66.7 | | | $ | 56.2 | |
| | | |
Long-term debt | 98.6 | | | 0 | |
Subordinated debentures held by subsidiary trusts | 87.0 | | | 86.9 | |
Total liabilities | 252.3 | | | 143.1 | |
Stockholders’ equity | 1,959.8 | | | 2,013.9 | |
Total liabilities and stockholders’ equity | $ | 2,212.1 | | | $ | 2,157.0 | |
| | | | | | | | | | | | | | | | | |
Years Ended December 31, | 2020 | | 2019 | | 2018 |
Condensed statements of income: | | | | | |
Dividends from subsidiaries | $ | 130.0 | | | $ | 178.0 | | | $ | 148.5 | |
Other interest income | 0.1 | | | 0.3 | | | 0.1 | |
Other income, primarily management fees from subsidiaries | 28.7 | | | 25.9 | | | 17.0 | |
Total income | 158.8 | | | 204.2 | | | 165.6 | |
Salaries and benefits | 31.5 | | | 34.2 | | | 25.3 | |
Interest expense | 6.6 | | | 4.7 | | | 4.5 | |
Acquisition expenses | 0 | | | 17.0 | | | 8.1 | |
Other operating expenses, net | 15.6 | | | 14.8 | | | 14.5 | |
Total expenses | 53.7 | | | 70.7 | | | 52.4 | |
Earnings before income tax benefit | 105.1 | | | 133.5 | | | 113.2 | |
Income tax benefit | (6.1) | | | (11.9) | | | (9.3) | |
Income before undistributed earnings of subsidiaries | 111.2 | | | 145.4 | | | 122.5 | |
Undistributed earnings of subsidiaries | 50.0 | | | 35.6 | | | 37.7 | |
Net income | $ | 161.2 | | | $ | 181.0 | | | $ | 160.2 | |
| | | | | | | | | | | | | | | | | |
Years Ended December 31, | 2020 | | 2019 | | 2018 |
Condensed statements of cash flows: | | | | | |
Cash flows from operating activities: | | | | | |
Net income | $ | 161.2 | | | $ | 181.0 | | | $ | 160.2 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | |
Undistributed earnings of subsidiaries | (50.0) | | | (35.6) | | | (37.7) | |
Stock-based compensation expense | 7.5 | | | 8.0 | | | 5.6 | |
| | | | | |
| | | | | |
Other, net | (13.6) | | | 8.1 | | | 16.4 | |
Net cash provided by operating activities | 105.1 | | | 161.5 | | | 144.5 | |
Cash flows from investing activities: | | | | | |
| | | | | |
| | | | | |
| | | | | |
Acquisition of bank holding company, net of cash and cash equivalents received | 0 | | | 0 | | | (14.7) | |
| | | | | |
Net cash used in investing activities | 0 | | | 0 | | | (14.7) | |
|
| | | | | | | | | |
Year Ended December 31, 2017 | Before Tax Amount | Tax Expense (Benefit) | Net of Tax Amount |
Investment securities available-for sale: | | | |
Change in net unrealized loss during period | $ | (6.5 | ) | $ | (2.7 | ) | $ | (3.8 | ) |
Reclassification adjustment for net gains included in net income | (0.7 | ) | (0.3 | ) | (0.4 | ) |
Change in unamortized loss on available-for-sale securities transferred into held-to-maturity | 1.9 |
| 0.7 |
| 1.2 |
|
Change in net unrealized loss on derivatives | (1.1 | ) | (0.4 | ) | (0.7 | ) |
Reclassification adjustment for derivative net (gains) losses included in net income | 1.1 |
| 0.4 |
| 0.7 |
|
Defined benefits post-retirement benefit plan: | | | |
Change in net actuarial loss (gain) | (1.3 | ) | (0.5 | ) | (0.8 | ) |
Total other comprehensive loss | $ | (6.6 | ) | $ | (2.8 | ) | $ | (3.8 | ) |
|
| | | | | | | | | |
Year Ended December 31, 2016 | Before Tax Amount | Tax Expense (Benefit) | Net of Tax Amount |
Investment securities available-for sale: | | | |
Change in net unrealized loss during period | $ | (19.4 | ) | $ | (7.6 | ) | $ | (11.8 | ) |
Reclassification adjustment for net gains included in net income | (0.3 | ) | (0.1 | ) | (0.2 | ) |
Change in unamortized gain on available-for-sale securities transferred into held-to-maturity | 1.9 |
| 0.7 |
| 1.2 |
|
Change in net unrealized loss on derivatives | (0.2 | ) | (0.1 | ) | (0.1 | ) |
Defined benefits post-retirement benefit plan: | | | |
Change in net actuarial loss (gain) | 3.9 |
| 1.6 |
| 2.3 |
|
Total other comprehensive income | $ | (14.1 | ) | $ | (5.5 | ) | $ | (8.6 | ) |
The components of accumulated other comprehensive income (loss), net of income taxes, are as follows:
|
| | | | | | | |
Year ended December 31, | 2018 | | 2017 |
Net unrealized gain (loss) on investment securities available-for-sale | $ | (25.5 | ) | | $ | (13.3 | ) |
Net actuarial gain (loss) on defined benefit post-retirement benefit plans | 0.9 |
| | 1.3 |
|
Net accumulated other comprehensive income (loss) | $ | (24.6 | ) | | $ | (12.0 | ) |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| |
(24) | CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) |
Following is condensed financial information of First Interstate BancSystem, Inc.
|
| | | | | | | |
December 31, | 2018 | | 2017 |
Condensed balance sheets: | | | |
Cash and cash equivalents | $ | 72.9 |
| | $ | 42.3 |
|
Investment in bank subsidiary | 1,648.9 |
| | 1,432.3 |
|
Advances to subsidiaries, net | 46.0 |
| | 25.7 |
|
Other assets | 59.0 |
| | 61.7 |
|
Total assets | $ | 1,826.8 |
| | $ | 1,562.0 |
|
| | | |
Other liabilities | $ | 46.0 |
| | $ | 51.9 |
|
Subordinated debentures held by subsidiary trusts | 86.9 |
| | 82.5 |
|
Total liabilities | 132.9 |
| | 134.4 |
|
Stockholders’ equity | 1,693.9 |
| | 1,427.6 |
|
Total liabilities and stockholders’ equity | $ | 1,826.8 |
| | $ | 1,562.0 |
|
|
| | | | | | | | | | | |
Years Ended December 31, | 2018 | | 2017 | | 2016 |
Condensed statements of income: | | | | | |
Dividends from subsidiaries | $ | 148.5 |
| | $ | 150.0 |
| | $ | 140.0 |
|
Other interest income | 0.1 |
| | 0.1 |
| | — |
|
Other income, primarily management fees from subsidiaries | 17.0 |
| | 18.0 |
| | 15.1 |
|
Total income | 165.6 |
| | 168.1 |
| | 155.1 |
|
Salaries and benefits | 25.3 |
| | 21.8 |
| | 18.8 |
|
Interest expense | 4.5 |
| | 4.7 |
| | 4.1 |
|
Acquisition expenses | 8.1 |
| | 25.3 |
| | 1.5 |
|
Other operating expenses, net | 14.5 |
| | 13.0 |
| | 10.4 |
|
Total expenses | 52.4 |
| | 64.8 |
| | 34.8 |
|
Earnings before income tax benefit | 113.2 |
| | 103.3 |
| | 120.3 |
|
Income tax benefit | (9.3 | ) | | (14.2 | ) | | (7.7 | ) |
Income before undistributed earnings of subsidiaries | 122.5 |
| | 117.5 |
| | 128.0 |
|
Undistributed earnings of subsidiaries | 37.7 |
| | (11.0 | ) | | (32.4 | ) |
Net income | $ | 160.2 |
| | $ | 106.5 |
| | $ | 95.6 |
|
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
|
| | | | | | | | | | | |
Years Ended December 31, | 2018 | | 2017 | | 2016 |
Condensed statements of cash flows: | | | | | |
Cash flows from operating activities: | | | | | |
Net income | $ | 160.2 |
| | $ | 106.5 |
| | $ | 95.6 |
|
Adjustments to reconcile net income to cash provided by operating activities: | | | | | |
Undistributed earnings of subsidiaries | (37.7 | ) | | 11.0 |
| | 32.4 |
|
Stock-based compensation expense | 5.6 |
| | 3.9 |
| | 4.4 |
|
Tax benefits from stock-based compensation | — |
| | — |
| | 2.1 |
|
Excess tax benefits from stock-based compensation | — |
| | — |
| | (1.6 | ) |
Other, net | 16.4 |
| | 14.7 |
| | (0.8 | ) |
Net cash provided by operating activities | 144.5 |
| | 136.1 |
| | 132.1 |
|
Cash flows from investing activities: | | | | | |
Capital distributions from nonbank subsidiaries | — |
| | 18.0 |
| | 2.0 |
|
Acquisition of intangible assets | — |
| | (28.0 | ) | | — |
|
Acquisition of bank holding company, net of cash and cash equivalents received | (14.7 | ) | | (128.3 | ) | | — |
|
Investment in subsidiary | — |
| | (18.0 | ) | | — |
|
Net cash (used) provided in investing activities | (14.7 | ) | | (156.3 | ) | | 2.0 |
|
Cash flows from financing activities: | | | | | |
Net (decrease) increase in advances from subsidiaries | (9.9 | ) | | (28.4 | ) | | 9.1 |
|
Repayment of long-term debt | (26.0 | ) | | — |
| | — |
|
Proceeds from issuance of common stock, net of stock issuance costs | 1.8 |
| | 2.4 |
| | 4.7 |
|
Excess tax benefits from stock-based compensation | — |
| | — |
| | 1.6 |
|
Purchase and retirement of common stock | (1.0 | ) | | (1.3 | ) | | (26.9 | ) |
Dividends paid to common stockholders | (64.1 | ) | | (48.6 | ) | | (39.4 | ) |
Net cash used in financing activities | (99.2 | ) | | (75.9 | ) | | (50.9 | ) |
Net change in cash and cash equivalents | 30.6 |
| | (96.1 | ) | | 83.2 |
|
Cash and cash equivalents, beginning of year | 42.3 |
| | 138.4 |
| | 55.2 |
|
Cash and cash equivalents, end of year | $ | 72.9 |
| | $ | 42.3 |
| | $ | 138.4 |
|
| | | | | | | | | | | | | | | | | |
Years Ended December 31, | 2020 | | 2019 | | 2018 |
Cash flows from financing activities: | | | | | |
Net (decrease) increase in advances from subsidiaries | 16.7 | | | (6.6) | | | (9.9) | |
Proceeds from issuance of long-term debt | 98.6 | | | 0 | | | 0 | |
Repayment of long-term debt | 0 | | | 0 | | | (26.0) | |
| | | | | |
Proceeds from issuance of common stock, net of stock issuance costs | 1.1 | | | 1.0 | | | 1.8 | |
| | | | | |
Purchase and retirement of common stock | (116.8) | | | (2.5) | | | (1.0) | |
Dividends paid to common stockholders | (128.6) | | | (79.2) | | | (64.1) | |
Net cash used in financing activities | (129.0) | | | (87.3) | | | (99.2) | |
Net change in cash and cash equivalents | (23.9) | | | 74.2 | | | 30.6 | |
Cash and cash equivalents, beginning of year | 147.1 | | | 72.9 | | | 42.3 | |
Cash and cash equivalents, end of year | $ | 123.2 | | | $ | 147.1 | | | $ | 72.9 | |
There waswere 0, $176.1 million, $173.3 million in 2020, 2019 and $386.0 million in 2018, and 2017, respectively, of noncash financing activities for the issuance of common stock were related to the CMYF and IIBK acquisitions in 2019, and the INB and BOTC acquisitions, respectively. There was no noncash investing or financing activities during 2016.acquisition in 2018.
| |
(25) | (25) FAIR VALUE MEASUREMENTS |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The three levels of inputs that may be used to measure fair value are as follows:
•Level 1 - Quoted prices in active markets for identical assets or liabilities
•Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
•Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities
The methodologies used by the Company in determining the fair values of each class of financial instruments are based primarily on the use of independent, market-based data to reflect a value that would be reasonably expected in an orderly transaction between market participants at the measurement date, and therefore are classified within Level 2 of the valuation hierarchy. There have been no significant changes in the valuation techniques during the periods ended December 31, 20182020 and 2017.
2019.
The Company’s policy is to recognize transfers between levels as of the end of the reporting period. Transfers in and out of Level 1, Level 2 and Level 3 are recognized on the actual transfer date. There were no transfers between fair value hierarchy levels during the years ended December 31, 20182020 and 2017.
2019.
Further details on the methods used to estimate the fair value of each class of financial instruments above are discussed below:
Investment Debt Securities Available-for-Sale. The Company obtains fair value measurements for investment securities from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the investment’s terms and conditions, among other things. Vendors chosen by the Company are widely recognized vendors whose evaluations support the pricing functions of financial institutions, investment and mutual funds, and portfolio managers. If needed, a broker may be utilized to determine the reported fair value of investment securities. The Company has documented and evaluated the pricing methodologies used by the vendors and maintains internal processes that regularly test valuations. These internal processes include obtaining and reviewing available reports on internal controls, evaluating the prices for reasonableness given market changes, obtaining and evaluating the inputs used in the model for a sample of securities, investigating anomalies and confirming determinations through discussions with the vendor.
Loans Held for Sale. Fair value measurements for loans held for sale are obtained from an independent pricing service. The fair value measurements consider observable data that may include binding contracts or quotes or bids from third party investors as well as loan level pricing adjustments.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Interest Rate Swap Contracts. Fair values for derivative interest rate swap contracts are based upon the estimated amounts to settle the contracts considering current interest rates and are calculated using discounted cash flows that are observable or that can be corroborated by observable market data. The inputs used to determine fair value include the 3 monththree-month LIBOR forward curve to estimate variable rate cash inflows and the federal funds effective swap rate to estimate the discount rate. The estimated variable rate cash inflows are compared to the fixed rate outflows and such difference is discounted to a present value to estimate the fair value of the interest rate swaps. The change in the value of derivative assets attributable to basis risk, or the risk that offsetting investments in a hedging strategy will not experience price changes in entirely opposite directions from each other, was not significant in the reported periods. The Company also obtains and compares the reasonableness of the pricing from an independent third party.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
For purposes of potential valuation adjustments to our derivative positions, we evaluate the credit risk of our counterparties as well as ours. Accordingly, we have considered factors such as the likelihood of our default and the default of our counterparties, our net exposures and remaining contractual life, among other things, in determining if any fair value adjustments related to credit risk are required. The change in value of derivative assets and derivative liabilities attributable to credit risk was not significant during the reported periods.
Interest Rate Lock Commitments. Fair value measurements for interest rate lock commitments are obtained from an independent pricing service. The fair value measurements consider observable data that may include prices available from secondary market investors taking into consideration various characteristics of the loan, including the loan amount, interest rate, value of the servicing, and loan to value ratio, among other things. Observable data is then adjusted to reflect changes in interest rates, the Company’s estimated pull-through rate, and estimated direct costs necessary to complete the commitment into a closed loan net of origination and processing fees collected from the borrower.
Forward Loan Sales Contracts.The fair value measurements for forward loan sales contracts are obtained from an independent pricing service. The fair value measurements consider observable data that includes sales of similar loans.
Deferred Compensation Plan Assets and Liabilities. The fair values of deferred compensation plan assets and liabilities are based primarily on the use of independent, market-based data to reflect a value that would be reasonably expected in an orderly transaction between market participants at the measurement date. These investments are in the same funds and purchased in the same amounts as the participants’ selected investments, which represent the underlying liabilities to plan participants. Deferred compensation plan liabilities are recorded at amounts due to participants, based on the fair value of participants’ selected investments.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Financial assets and financial liabilities measured at fair value on a recurring basis are as follows:
| | | | | | | | | | | | | | | | | | | Fair Value Measurements at Reporting Date Using |
As of December 31, 2020 | | As of December 31, 2020 | Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Investment debt securities available-for-sale: | | Investment debt securities available-for-sale: | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using | |
As of December 31, 2018 | Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | |
Investment debt securities available-for-sale: | | | | | | | | |
U.S. Treasury Notes | $ | 2.6 |
| | $ | — |
| | $ | 2.6 |
| | $ | — |
| |
State, county, and municipal securities | | State, county, and municipal securities | $ | 465.9 | | | $ | 0 | | | $ | 465.9 | | | $ | 0 | |
Obligations of U.S. government agencies | 559.2 |
| | — |
| | 559.2 |
| | — |
| Obligations of U.S. government agencies | 331.9 | | | 0 | | | 331.9 | | | 0 | |
U.S. agency mortgage-backed securities & collateralized mortgage obligations | 1,544.8 |
| | — |
| | 1,544.8 |
| | — |
| U.S. agency mortgage-backed securities & collateralized mortgage obligations | 2,897.6 | | | 0 | | | 2,897.6 | | | 0 | |
Private mortgage-backed securities | 70.2 |
| | — |
| | 70.2 |
| | — |
| Private mortgage-backed securities | 10.9 | | | 0 | | | 10.9 | | | 0 | |
Corporate securities | 91.9 |
| | — |
| | 91.9 |
| | — |
| Corporate securities | 302.2 | | | 0 | | | 302.2 | | | 0 | |
Other investments | 2.0 |
| | — |
| | 2.0 |
| | — |
| Other investments | 0.2 | | | 0 | | | 0.2 | | | 0 | |
Loans held for sale | 33.3 |
| | — |
| | 33.3 |
| | — |
| Loans held for sale | 74.0 | | | 0 | | | 74.0 | | | 0 | |
Derivative assets: | | | | | | | | Derivative assets: | |
Interest rate swap contracts | 8.8 |
| | — |
| | 8.8 |
| | — |
| Interest rate swap contracts | 52.0 | | | 0 | | | 52.0 | | | 0 | |
Interest rate lock commitments | 1.3 |
| | — |
| | 1.3 |
| | — |
| Interest rate lock commitments | 3.3 | | | 0 | | | 3.3 | | | 0 | |
| Derivative liabilities: |
|
| | | | | | | Derivative liabilities: | |
Interest rate swap contracts | 8.8 |
| | — |
| | 8.8 |
| | — |
| Interest rate swap contracts | 52.2 | | | 0 | | | 52.2 | | | 0 | |
Forward loan sales contracts | 0.6 |
| | — |
| | 0.6 |
| | — |
| Forward loan sales contracts | 1.1 | | | 0 | | | 1.1 | | | 0 | |
Deferred compensation plan assets | 12.1 |
| | — |
| | 12.1 |
| | — |
| Deferred compensation plan assets | 19.1 | | | 0 | | | 19.1 | | | 0 | |
Deferred compensation plan liabilities | 12.1 |
| | — |
| | 12.1 |
| | — |
| Deferred compensation plan liabilities | 19.1 | | | 0 | | | 19.1 | | | 0 | |
| | | | | | | | | | | | | | | | | | | Fair Value Measurements at Reporting Date Using |
| | | Fair Value Measurements at Reporting Date Using | |
As of December 31, 2017 | Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | |
As of December 31, 2019 | | As of December 31, 2019 | Balance | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Investment debt securities available-for-sale: | | | | | | | | Investment debt securities available-for-sale: | | | | | | | |
U.S. Treasury Notes | $ | 3.2 |
| | $ | — |
| | $ | 3.2 |
| | $ | — |
| U.S. Treasury Notes | $ | 9.0 | | | $ | 0 | | | $ | 9.0 | | | $ | 0 | |
State, county, and municipal securities | | State, county, and municipal securities | 80.9 | | | — | | | 80.9 | | | — | |
Obligations of U.S. government agencies | 561.5 |
| | — |
| | 561.5 |
| | — |
| Obligations of U.S. government agencies | 366.8 | | | 0 | | | 366.8 | | | 0 | |
U.S. agency mortgage-backed securities & collateralized mortgage obligations | 1,462.5 |
| | — |
| | 1,462.5 |
| | — |
| U.S. agency mortgage-backed securities & collateralized mortgage obligations | 2,317.2 | | | 0 | | | 2,317.2 | | | 0 | |
Private mortgage-backed securities | 90.7 |
| | — |
| | 90.7 |
| | — |
| Private mortgage-backed securities | 47.2 | | | 0 | | | 47.2 | | | 0 | |
Corporate securities | 87.9 |
| | — |
| | 87.9 |
| | — |
| Corporate securities | 135.7 | | | 0 | | | 135.7 | | | 0 | |
Other investments | 3.0 |
| | — |
| | 3.0 |
| | — |
| Other investments | 3.2 | | | 0 | | | 3.2 | | | 0 | |
Loans held for sale | 46.6 |
| | — |
| | 46.6 |
| | — |
| Loans held for sale | 100.9 | | | 0 | | | 100.9 | | | 0 | |
Derivative assets: | | | | | | | | Derivative assets: | |
Interest rate swap contracts | 7.5 |
| | — |
| | 7.5 |
| | — |
| Interest rate swap contracts | 21.9 | | | 0 | | | 21.9 | | | 0 | |
Interest rate lock commitments | 1.3 |
| | — |
| | 1.3 |
| | — |
| Interest rate lock commitments | 1.3 | | | 0 | | | 1.3 | | | 0 | |
| Derivative liabilities: | | | | | | | | Derivative liabilities: | |
Interest rate swap contracts | 7.8 |
| | — |
| | 7.8 |
| | — |
| Interest rate swap contracts | 21.9 | | | 0 | | | 21.9 | | | 0 | |
Forward loan sales contracts | 0.1 |
| | — |
| | 0.1 |
| | — |
| Forward loan sales contracts | 0.3 | | | 0 | | | 0.3 | | | 0 | |
Deferred compensation plan assets | 12.2 |
| | — |
| | 12.2 |
| | — |
| Deferred compensation plan assets | 18.2 | | | 0 | | | 18.2 | | | 0 | |
Deferred compensation plan liabilities | 12.2 |
| | — |
| | 12.2 |
| | — |
| Deferred compensation plan liabilities | 18.2 | | | 0 | | | 18.2 | | | 0 | |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Additionally, from time to time, certain assets are measured at fair value on a non-recurring basis. Adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment.credit deterioration. The following table presents information about the Company’s assets and liabilities measured at fair value on a non-recurring basis:
| | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at Reporting Date Using |
As of December 31, 2020 | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Gains (Losses) |
Collateral-dependent loans* | $ | 14.7 | | $ | 0 | | $ | 0 | | $ | 14.7 | | $ | (2.8) | |
| | | | | |
Long-lived assets to be disposed of by sale | 5.3 | | 0 | | 0 | | 5.3 | | (0.2) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | | | | | |
| | Fair Value Measurements at Reporting Date Using |
As of December 31, 2018 | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Gains (Losses) |
Impaired loans | $ | 24.1 |
| $ | — |
| $ | — |
| $ | 24.1 |
| $ | (12.2 | ) |
Other real estate owned | 0.6 |
| — |
| — |
| 0.6 |
| (0.6 | ) |
Long-lived assets to be disposed of by sale | 4.9 |
| — |
| — |
| 4.9 |
| (0.5 | ) |
| | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at Reporting Date Using |
As of December 31, 2019 | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Gains (Losses) |
Impaired loans* | $ | 27.6 | | $ | 0 | | $ | 0 | | $ | 27.6 | | $ | (13.7) | |
Other real estate owned | 2.2 | | 0 | | 0 | | 2.2 | | (1.2) | |
Long-lived assets to be disposed of by sale | 6.2 | | 0 | | 0 | | 6.2 | | (0.2) | |
| | | | | |
*The Company adopted ASC 326 as of January 1, 2020 which changes the methodology of impaired loans. The comparable period presents impaired loans under previously applicable GAAP. |
|
| | | | | | | | | | | | | | | |
| | Fair Value Measurements at Reporting Date Using |
As of December 31, 2017 | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Gains (Losses) |
Impaired loans | $ | 32.6 |
| $ | — |
| $ | — |
| $ | 32.6 |
| $ | (22.2 | ) |
Other real estate owned | 1.3 |
| — |
| — |
| 1.3 |
| (1.6 | ) |
Long-lived assets to be disposed of by sale | 0.8 |
| — |
| — |
| 0.8 |
| — |
|
ImpairedCollateral-dependent Loans. Collateralized impaired Collateral-dependent loans are reported at the fair value of the underlying collateral if repayment is expected solely from collateral. The impairedcollateral-dependent loans are reported at fair value through specific valuation allowance allocations. In addition, when it is determined that the fair value of an impaireda collateral-dependent loan is less than the recorded investment in the loan, the carrying value of the loan is adjusted to fair value through a charge to the allowance for loancredit losses. Collateral values are estimated using independent appraisals and management estimates of current market conditions. As of December 31, 2018,2020, certain impairedcollateral-dependent loans with a carrying value of $36.3$17.5 million were reduced by specific valuation allowance allocations of $6.8 million and partial loan charge-offs of $5.4$2.8 million resulting in a reported fair value of $24.1$14.7 million. As of December 31, 2017,2019, certain impaired loans with a carrying value of $54.8$41.3 million were reduced by specific valuation allowance allocations of $10.8$3.6 million and partial loan charge-offs of $11.4$10.1 million resulting in a reported fair value of $32.6$27.6 million.
OREO. The fair values of OREO are estimated using independent appraisals and management estimates of current market conditions. Upon initial recognition, write-downs based on the foreclosed asset’s fair value at foreclosure are reported through charges to the allowance for loancredit losses. Periodically, the fair value of foreclosed assets is remeasured with any subsequent write-downs charged to OREO expense in the period in which they are identified.
Long-lived Assets to be Disposed of by Sale. Long-lived assets to be disposed of by sale are carried at the lower of carrying value or fair value less estimated costs to sell. The fair values of long-lived assets to be disposed of by sale are based upon observable market data and management estimates of current market conditions. As of December 31, 2018,2020, the Company had long-lived assets to be disposed of by sale with carrying values aggregating $5.4$5.5 million, which was reduced by write-downs of $0.5$0.2 million charged to other expense, resulting in a reported fair value of $4.9$5.3 million. As of December 31, 2017,2019, the Company had long-lived assets to be disposed of by sale with carrying values of $0.8$6.4 million, had zeroreduced by write-downs of $0.2 million, resulting in a reported fair value of $0.8$6.2 million.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair values:
| As of December 31, 2020 | | As of December 31, 2020 | Fair Value | Valuation Technique | Unobservable Inputs | Range (Weighted Average) |
Collateral-dependent loans* | | Collateral-dependent loans* | $ | 14.7 | | Appraisal | Appraisal adjustment | 0% | - | 18% | (9%) |
| As of December 31, 2018 | Fair Value | Valuation Technique | Unobservable Inputs | Range (Weighted Average) | |
Impaired loans | $ | 24.1 |
| Appraisal | Appraisal adjustment | 0% | - | 26% | (13%) | |
Long-lived assets to be disposed of by sale | | Long-lived assets to be disposed of by sale | 5.3 | | Appraisal | Appraisal adjustment | 0% | - | 0% |
| As of December 31, 2019 | | As of December 31, 2019 | Fair Value | Valuation Technique | Unobservable Inputs | Range (Weighted Average) |
Impaired loans* | | Impaired loans* | $ | 27.6 | | Appraisal | Appraisal adjustment | 0% | - | 56% | (22%) |
Other real estate owned | 0.6 |
| Appraisal | Appraisal adjustment | 8% | - | 96% | (39%) | Other real estate owned | 2.2 | | Appraisal | Appraisal adjustment | 8% | - | 65% | (27%) |
Long-lived assets to be disposed of by sale | 4.9 |
| Appraisal | Appraisal adjustment | 0% | - | 43% | (10%) | Long-lived assets to be disposed of by sale | 6.2 | | Appraisal | Appraisal adjustment | 0% | - | 37% | (3%) |
| | | |
As of December 31, 2017 | Fair Value | Valuation Technique | Unobservable Inputs | Range (Weighted Average) | |
Impaired loans | $ | 32.6 |
| Appraisal | Appraisal adjustment | 0% | - | 78% | (26%) | |
Other real estate owned | 1.3 |
| Appraisal | Appraisal adjustment | 8% | - | 96% | (12%) | |
Long-lived assets to be disposed of by sale | 0.8 |
| Appraisal | Appraisal adjustment | 0% | - | 0% | |
| | | |
*The Company adopted ASC 326 as of January 1, 2020 which changes the methodology of impaired loans. The comparable period presents impaired loans under previously applicable GAAP. | | *The Company adopted ASC 326 as of January 1, 2020 which changes the methodology of impaired loans. The comparable period presents impaired loans under previously applicable GAAP. |
The Company is required to disclose the fair value of financial instruments for which it is practical to estimate fair value. The methodologies for estimating the fair value of financial instruments that are measured at fair value on a recurring or non-recurring basis are discussed above. The methodologies for estimating the fair value of other financial instruments are discussed below. For financial instruments bearing a variable interest rate where no credit risk exists, it is presumed that recorded book values are reasonable estimates of fair value.
Financial Assets. Carrying values of cash, cash equivalents, and accrued interest receivable approximate fair values due to the liquid and/or short-term nature of these instruments. Fair values for investment securities held-to-maturity are obtained from an independent pricing service, which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the investment’s terms and conditions, among other things. Fair values of fixed rate loans and variable rate loans that reprice on an infrequent basis are estimated using an exit price by discounting future cash flows using current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality.quality using an exit price notion. Carrying values of variable rate loans that reprice frequently, and with no change in credit risk, approximate the fair values of these instruments.
Financial Liabilities. The fair values of demand deposits, savings accounts, securities sold under repurchase agreements, and accrued interest payable are the amounts payable on demand at the reporting date. The fair values of fixed-maturity certificates of deposit are estimated using external market rates currently offered for deposits with similar remaining maturities. The fair values of derivative liabilities are obtained from an independent pricing service, which considers observable data that may include the three-month LIBOR forward curve, the federal funds effective swap rate and cash flows, among other things. The carrying values of the interest bearinginterest-bearing demand notes to the United States Treasury are deemed an approximation of fair values due to the frequent repayment and repricing at market rates. The fixed and floating rate subordinated debentures, floating rate subordinated term loan, notes payable to the FHLB, fixed rate subordinated term debt, and capital lease obligation are estimated by discounting future cash flows using current rates for advances with similar characteristics.
Commitments to Extend Credit and Standby Letters of Credit. The fair value of commitments to extend credit and standby letters of credit, based on fees currently charged to enter into similar agreements, is not significant.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The estimated fair values of financial instruments that are reported in the Company’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, are as follows:
| | | | | | | | | | | | | | ` | | Fair Value Measurements at Reporting Date Using |
| ` | | Fair Value Measurements at Reporting Date Using | |
As of December 31, 2018 | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |
As of December 31, 2020 | | As of December 31, 2020 | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
Financial assets: | | |
| Financial assets: | | |
Cash and cash equivalents | $ | 822.0 |
| $ | 822.0 |
| $ | 822.0 |
| $ | — |
| $ | — |
| Cash and cash equivalents | $ | 2,276.8 | | $ | 2,276.8 | | $ | 2,276.8 | | $ | 0 | | $ | 0 | |
Investment debt securities available-for-sale | 2,270.7 |
| 2,270.7 |
| — |
| 2,270.7 |
| — |
| Investment debt securities available-for-sale | 4,008.7 | | 4,008.7 | | 0 | | 4,008.7 | | 0 | |
Investment debt securities held-to-maturity | 406.8 |
| 400.7 |
| — |
| 400.7 |
| — |
| Investment debt securities held-to-maturity | 51.6 | | 55.0 | | 0 | | 55.0 | | 0 | |
Accrued interest receivable | 44.9 |
| 44.9 |
| — |
| 44.9 |
| — |
| Accrued interest receivable | 51.1 | | 51.1 | | 0 | | 51.1 | | 0 | |
Mortgage servicing rights, net | 27.7 |
| 42.4 |
| — |
| 42.4 |
| — |
| Mortgage servicing rights, net | 24.0 | | 24.0 | | 0 | | 24.0 | | 0 | |
Loans held for sale | 33.3 |
| 33.3 |
| — |
| 33.3 |
| — |
| Loans held for sale | 74.0 | | 74.0 | | 0 | | 74.0 | | 0 | |
Net loans held for investment | 8,397.4 |
| 8,439.7 |
| — |
| 8,415.6 |
| 24.1 |
| Net loans held for investment | 9,663.2 | | 9,785.6 | | 0 | | 9,770.9 | | 14.7 | |
Derivative assets | 10.1 |
| 10.1 |
| — |
| 10.1 |
| — |
| Derivative assets | 55.3 | | 55.3 | | 0 | | 55.3 | | 0 | |
Deferred compensation plan assets | 12.1 |
| 12.1 |
| — |
| 12.1 |
| — |
| Deferred compensation plan assets | 19.1 | | 19.1 | | 0 | | 19.1 | | 0 | |
Total financial assets | $ | 12,025.0 |
| $ | 12,075.9 |
| $ | 822.0 |
| $ | 11,229.8 |
| $ | 24.1 |
| Total financial assets | $ | 16,223.8 | | $ | 16,349.6 | | $ | 2,276.8 | | $ | 14,058.1 | | $ | 14.7 | |
| | | |
Financial liabilities: | | Financial liabilities: | |
Total deposits, excluding time deposits | $ | 9,363.7 |
| $ | 9,363.7 |
| $ | 9,363.7 |
| $ | — |
| $ | — |
| Total deposits, excluding time deposits | $ | 13,158.3 | | $ | 13,158.3 | | $ | 13,158.3 | | $ | 0 | | $ | 0 | |
Time deposits | 1,317.0 |
| 1,299.0 |
| — |
| 1,299.0 |
| — |
| Time deposits | 1,058.7 | | 1,061.1 | | 0 | | 1,061.1 | | 0 | |
Securities sold under repurchase agreements | 712.4 |
| 712.4 |
| — |
| 712.4 |
| — |
| Securities sold under repurchase agreements | 1,091.4 | | 1,091.4 | | 0 | | 1,091.4 | | 0 | |
| Accrued interest payable | 7.8 |
| 7.8 |
| — |
| 7.8 |
| — |
| Accrued interest payable | 5.8 | | 5.8 | | 0 | | 5.8 | | 0 | |
Long-term debt | 15.8 |
| 13.0 |
| — |
| 13.0 |
| — |
| Long-term debt | 112.4 | | 116.5 | | 0 | | 116.5 | | 0 | |
Subordinated debentures held by subsidiary trusts | 86.9 |
| 84.9 |
| — |
| 84.9 |
| — |
| Subordinated debentures held by subsidiary trusts | 87.0 | | 81.3 | | 0 | | 81.3 | | 0 | |
Derivative liabilities | 9.4 |
| 9.4 |
| — |
| 9.4 |
| — |
| Derivative liabilities | 53.3 | | 53.3 | | 0 | | 53.3 | | 0 | |
Deferred compensation plan liabilities | 12.1 |
| 12.1 |
| — |
| 12.1 |
| — |
| Deferred compensation plan liabilities | 19.1 | | 19.1 | | 0 | | 19.1 | | 0 | |
Total financial liabilities | $ | 11,525.1 |
| $ | 11,502.3 |
| $ | 9,363.7 |
| $ | 2,138.6 |
| $ | — |
| Total financial liabilities | $ | 15,586.0 | | $ | 15,586.8 | | $ | 13,158.3 | | $ | 2,428.5 | | $ | 0 | |
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
| | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using |
As of December 31, 2019 | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
Financial assets: | | | | | |
Cash and cash equivalents | $ | 1,076.8 | | $ | 1,076.8 | | $ | 1,076.8 | | $ | 0 | | $ | 0 | |
Investment debt securities available-for-sale | 2,960.0 | | 2,960.0 | | 0 | | 2,960.0 | | 0 | |
Investment debt securities held-to-maturity | 92.3 | | 94.5 | | 0 | | 94.5 | | 0 | |
Accrued interest receivable | 46.7 | | 46.7 | | 0 | | 46.7 | | 0 | |
Mortgage servicing rights, net | 30.2 | | 34.8 | | 0 | | 34.8 | | 0 | |
Loans held for sale | 100.9 | | 100.9 | | 0 | | 100.9 | | 0 | |
Net loans held for investment | 8,857.7 | | 8,930.7 | | 0 | | 8,906.7 | | 24.0 | |
Derivative assets | 23.2 | | 23.2 | | 0 | | 23.2 | | 0 | |
Deferred compensation plan assets | 18.2 | | 18.2 | | 0 | | 18.2 | | 0 | |
Total financial assets | $ | 13,206.0 | | $ | 13,285.8 | | $ | 1,076.8 | | $ | 12,185.0 | | $ | 24.0 | |
| | | | | |
Financial liabilities: | | | | | |
Total deposits, excluding time deposits | $ | 10,213.5 | | $ | 10,213.5 | | $ | 10,213.5 | | $ | 0 | | $ | 0 | |
Time deposits | 1,450.0 | | 1,446.6 | | 0 | | 1,446.6 | | 0 | |
Securities sold under repurchase agreements | 697.6 | | 697.6 | | 0 | | 697.6 | | 0 | |
| | | | | |
Accrued interest payable | 12.1 | | 12.1 | | 0 | | 12.1 | | 0 | |
Long-term debt | 13.9 | | 10.4 | | 0 | | 10.4 | | 0 | |
Subordinated debentures held by subsidiary trusts | 86.9 | | 81.3 | | 0 | | 81.3 | | 0 | |
Derivative liabilities | 22.2 | | 22.2 | | — | | 22.2 | | 0 | |
Deferred compensation plan liabilities | 18.2 | | 18.2 | | 0 | | 18.2 | | 0 | |
Total financial liabilities | $ | 12,514.4 | | $ | 12,501.9 | | $ | 10,213.5 | | $ | 2,288.4 | | $ | 0 | |
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using |
As of December 31, 2017 | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
Financial assets: | | | | | |
Cash and cash equivalents | $ | 759.0 |
| $ | 759.0 |
| $ | 759.0 |
| $ | — |
| $ | — |
|
Investment debt securities available-for-sale | 2,208.7 |
| 2,208.7 |
| — |
| 2,208.7 |
| — |
|
Investment debt securities held-to-maturity | 484.5 |
| 483.3 |
| — |
| 483.3 |
| — |
|
Accrued interest receivable | 38.0 |
| 38.0 |
| — |
| 38.0 |
| — |
|
Mortgage servicing rights, net | 24.8 |
| 40.1 |
| — |
| 40.1 |
| — |
|
Loans held for sale | 46.6 |
| 46.6 |
| — |
| 46.6 |
| — |
|
Net loans held for investment | 7,495.6 |
| 7,252.2 |
| — |
| 7,219.6 |
| 32.6 |
|
Derivative assets | 8.8 |
| 8.8 |
| — |
| 8.8 |
| — |
|
Deferred compensation plan assets | 12.2 |
| 12.2 |
| — |
| 12.2 |
| — |
|
Total financial assets | $ | 11,078.2 |
| $ | 10,848.9 |
| $ | 759.0 |
| $ | 10,057.3 |
| $ | 32.6 |
|
| | | | | |
Financial liabilities: | | | | | |
Total deposits, excluding time deposits | $ | 8,783.0 |
| $ | 8,783.0 |
| $ | 8,783.0 |
| $ | — |
| $ | — |
|
Time deposits | 1,151.9 |
| 1,137.9 |
| — |
| 1,137.9 |
| — |
|
Securities sold under repurchase agreements | 643.0 |
| 643.0 |
| — |
| 643.0 |
| — |
|
Other borrowed funds | 20.0 |
| 20.0 |
| — |
| 20.0 |
| — |
|
Accrued interest payable | 5.6 |
| 5.6 |
| — |
| 5.6 |
| — |
|
Long-term debt | 13.1 |
| 11.3 |
| — |
| 11.3 |
| — |
|
Subordinated debentures held by subsidiary trusts | 82.5 |
| 76.7 |
| — |
| 76.7 |
| — |
|
Derivative liabilities | 7.9 |
| 7.9 |
| — |
| 7.9 |
| — |
|
Deferred compensation plan liabilities | 12.2 |
| 12.2 |
| — |
| 12.2 |
| — |
|
Total financial liabilities | $ | 10,719.2 |
| $ | 10,697.6 |
| $ | 8,783.0 |
| $ | 1,914.6 |
| $ | — |
|
| |
(26) | (26) RELATED PARTY TRANSACTIONS |
Certain executive officers, directors and greater than 5% shareholders of the Company and certain entities and individuals related to such persons had transactions with the Company in the ordinary course of business. These parties were deposit clients of the Bank and incurred indebtedness in the form of loans, as customers,clients, of $43.2$22.4 million and $54.6$40.3 million at December 31, 20182020 and 2017,2019, respectively. During 2018,2020, new loans and advances on existing loans of $7.6$17.2 million were funded and loan repayments totaled $17.4$17.0 million. In addition, $1.6$18.1 million of loans were removed due to changes in related parties during the year. These loansAll deposit and loan transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loanstransactions with persons not related to the Company and do not involve more than a normal risk of collectability or present other unfavorable features.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
ThePrior to 2020, the Company leasesleased an aircraft from an entity wholly-owned by the chairmana member of the Board of Directors of the Company.Scott family control group. Under the terms of the lease, we paythe Company paid a fee for each flight hour plus certain third partythird-party operating expenses related to the aircraft. During 2018, 20172019 and 2016,2018, the Company paid total fees and operating expenses of $53 thousand, $45$22 thousand and $121$53 thousand respectively, for its use of the aircraft. In addition, we lease a portion orof our hanger and provide pilot services to the Scott family control group’s related entity. During 2018, 20172020, 2019, and 2016,2018, the Company received payments from the related entity of $25$54 thousand, $17$30 thousand, and $19$25 thousand, respectively, for hangar use, pilot fees, and reimbursement of certain third partythird-party operating expenses related to the chairman’s personal use of the aircraft.
The Company purchases services from an entity which includes certain members of the Company’s control group. Services provided for the Company’s benefit include shareholder education and communication, strategic enterprise planning, and corporate governance consultation. During 2018, 20172020, 2019, and 2016,2018, the Company paid $80$85 thousand, $73$85 thousand, and $100$80 thousand, respectively, for these services.
| |
(27) | RECENT AUTHORITATIVE ACCOUNTING GUIDANCE |
ASU 2014-09, “Revenue from Contracts with Customers.” In May 2014,addition, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 introduced a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods orCompany provides human resource services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.
ASU 2015-14, “Revenue from Contracts with Customers (Topic 606) – Deferralmembers of the Effective Date” was released in AugustCompany’s control group. During 2020, 2019, and 2018, the Company received payments from these related parties of 2015 deferring the effective date of ASU 2014-09 for all entities by one year until January 1, 2018.
ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal vs Agent Considerations (Reporting Revenue Gross versus Net)” was released in March of 2016 to clarify certain principal versus agent considerations within the implementation guidance of ASC Topic 606, “Revenue from Contracts with Customers.” The effective date$0.7 million, $0.5 million, and transition of ASU 2016-08 is the same as the effective date and transition of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as discussed above.
ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” was released in April 2016 to clarify ASC Topic 606, “Revenue from Contracts with Customers” related to (i) identifying performance obligations; and (ii) the licensing implementation guidance. The effective date and transition of ASU 2016-10 is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” as discussed above.
The new revenue recognition standards became effective$0.4 million, respectively, for the Company on January 1, 2018, and did not have a material impact to our net income, or have a significant impact on the Company’s consolidated financial statements, resultsreimbursement of operations or liquidity.
human resource services provided.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
(27) RECENT AUTHORITATIVE ACCOUNTING GUIDANCE
ASU 2016-01 “Financial Instruments – Overall : Recognition and Measurement of Financial Assets and Financial Liabilities.” In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in ASU 2016-01, among other things, (i) require equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale investment securities. The amendments in ASU 2016-01 became effective for the Company on January 1, 2018, and did not have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity.
ASU 2016-02 “Leases (Topic 842).” In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” Under the new guidance, lessees will be required to recognize a lease liability and a right of use asset for all leases (with the exception of short-term leases) at the commencement date of the lease and disclose key information about leasing arrangements. Accounting by lessors is largely unchanged. ASU 2016-02 will be effective for the Company on January 1, 2019 and will be applied using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Additionally, in July 2018, the FASB issued ASU 2018-11 to provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. Upon adoption of ASU 2016-02, ASU 2018-11 and ASU 2018-20 on January 1, 2019, we expect to recognize right-of-use assets and related lease liabilities totaling $54.6 million and $54.6 million, respectively. We expect to elect to apply certain practical expedients provided under ASU 2016-02 whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also do not expect to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We expect to account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts. The Company has determined the new guidance in ASU 2016-02 will have an immaterial impact on its consolidated results of operations and liquidity.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in ASU 2016-13 require a financial asset or group of financial assets measured at amortized cost basis to be presented on a company’s financial statements at the net amount expected to be collected based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 requires a company’s income statement to reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. The amendments in ASU 2016-13 require that the allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination be measured at amortized cost basis with the initial allowance for credit losses added to the purchase price rather than being reported as a credit loss expense. ASU 2016-13 also requires that credit losses relating to available-for-sale debt securities be recorded through an allowance for credit losses. The amendments in ASU 2016-13 are effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The amendments will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period. A prospective transition approach is required for debt securities for which other-than-temporary impairment was recognized before the effective date. Amounts previously recognized in accumulated other comprehensive income as of the date of adoption that relate to improvement in cash flows expected to be collected will continue to be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after the date of adoption will be recorded in earnings when received. We are currently evaluating the potential impact of ASU 2016-13 on our financial statements, which will be effective on
On January 1, 2020. We have formed a cross-functional working group comprised of individuals from various functional areas including2020, the Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit risk management, finance and information technology, among others. We are currently working through our implementation plan which includes assessment and documentation of processes, internal controls and data sources; model development and documentation; and system configuration, among other things. We have selected and are in the process of implementing a third-party vendor solution.exposures. The adoption of ASU 2016-13 could resultresulted in an increase in the allowance for loan losses as a result of changing from anthe “incurred loss” model, which encompassesencompassed allowances for current known and inherent losses within the portfolio, to anthe “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. The adoption will also necessitate that we establish an allowance for expected credit losses for certainamendments, as applied to our debt securities, and other financial assets. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.
ASU No. 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” had no material impact. The amendments in ASU 2016-15 are intended to reduce diversity in practice in how eight particular transactions are classified in the statement of cash flows. The amendments in ASU 2016-15 became effective for the Company on January 1, 2018, and did not have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity.
ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this update provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both an input and a substantive process are present. The framework includes two sets of criteria to consider that depend on whether a set has outputs. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The amendments in ASU 2017-01 became effective for the Company on January 1, 2018, and did not have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The amendments in ASU 2017-04 remove Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. ASU No. 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019,were applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017. The amendments in ASU 2017-04 were early adopted by the Company in the third quarter of 2018, in conjunction with its annual goodwill impairment test. The annual test did not result in any impairment.
ASU No. 2017-07, “Compensation – Retirement Benefits (Topic 750): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The amendments in ASU 2017-07 requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost are required to be presented in the income separately from the service cost component and outside a subtotal of income from operations, if one is presented. The amendments in ASU 2017-07 also allow only the service cost component to be eligible for capitalization. The amendments in ASU 2017-07 are applied retrospectively for the presentation of the service cost and other components of net periodic benefit cost in the income statement and prospectively for the capitalization of the service cost in other assets. ASU 2017-07 allows the use of a practical expedient that permits an employer to use the amounts disclosed in its pension and other post-retirement benefits plan footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. ASU 2017-07 is effective for the Company for interim and annual reporting periods beginning after December 15, 2017. The amendments in ASU 2017-07 became effective for the Company on January 1, 2018, and did not have a significant impact on the Company’s consolidated financial statements, results of operations or liquidity.
ASU No. 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” The amendments in ASU 2017-08 shorten the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The new guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. ASU No. 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The guidance calls for a modified retrospective transition approach under whichthrough a cumulative-effect adjustment will be made to retained earnings of $24.1 million as of January 1, 2020. The transition adjustment included an increase in the beginningallowance for credit losses on loans of $30.0 million and an increase in the allowance for credit losses on off-balance sheet credit exposures of $2.3 million, net of the first reporting periodcorresponding increases in which the guidance is adopted. deferred tax assets of $8.2 million.
The Company currently amortizes premiums on callable debt securities toadopted ASC 326 using the earliest call date. As such, the amendments in ASU 2017-08 will not impact the Company’s consolidatedprospective transition approach for PCD financial statements, results of operationsassets, previously classified as purchased credit impaired, or PCI, and liquidity.
ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” In May 2017, the FASB issued ASU 2017-09, which clarifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. Underunder ASC 310-30. In accordance with the new guidance, an entity will not apply modification accounting to a share-based payment award if there is no change to the award’s fair value, vesting conditions and classification as an equity or liability instrument. The guidance is effective prospectively for all companies for annual periods beginning after December 15, 2017. The amendments in ASU 2017-09 became effective forstandard, the Company on January 1, 2018, and did not have a significant impact onreassess whether PCI assets met the Company’s consolidated financial statements, resultscriteria of operations or liquidity.
ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the beginning balance of each affected component of equity in the statement of financial positionPCD assets as of the date of adoption. ASU 2017-12The remaining discount on the PCD assets was determined to be related to noncredit factors and will be effective for usaccreted into interest income on January 1, 2019a level-yield method over the life of the loans.
The Company has elected to opt into the transition election to mitigate the effects of ASC 326 on the regulatory capital ratios relative to recent legislation in relief of COVID‑19 pandemic on the economy and is not expected to havefinancial institutions in the United States. The referenced relief allows a significanttotal five-year phase in of the CECL impact on our financial statements.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except sharecapital and per share data)
ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” In February 2018,relief over the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). The purpose of this updated guidance is to allow a reclassification from accumulated other comprehensive income to retained earningsnext two years for stranded tax effectsthe impact on the allowance for credit losses resulting from the Tax Cuts and Jobs Act. However, because the amendments only relateCOVID‑19. Refer to the reclassification“Note 17 - Regulatory Capital” for additional details of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The updated amendments are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company early adopted ASU 2018-02, which resulted in the reclassification from accumulated other comprehensive income to retained earnings totaling $3.1 million, reflected in the Consolidated Statements of Changes in Stockholders’ Equity.election.
ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.”In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The amendments in this Update removes, modifies, and adds to the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance ofThe amendments in this Update and delay adoption of the additional disclosures until theirbecame effective date. Whilefor the Company continueson January 1, 2020, and as the amendment is a revision to assess all potential impacts of the standard, we currently expect adoption todisclosure requirements did not have an immateriala significant impact on ourthe Company’s consolidated financial statements, disclosures.results of operations, or liquidity.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans.” In August 2018, the FASB issued ASU 2018-14, Compensation –- Retirement Benefits –- Defined Benefit Plans –- General: Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14). The amendments in this Update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. Although narrow in scope, the amendments are considered an important part of the Board’s efforts to improve the effectiveness of disclosures in the notes to financial statements by applying concepts in the Concepts Statement. The amendments in this Update are effective for fiscal years ending after December 15, 2020, for public business entities. Early adoption is permitted. While the Company continues to assess all potential impacts of the standard, we currently expect adoption to have an immaterial impact on our consolidated financial statements disclosures.
ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” In August 2018, the FASB issued ASU 2018-15, Intangibles—GoodwillIntangibles-Goodwill and Other—Other- Internal-Use Software (Subtopic 350-40). The amendments in this Update clarifies certain aspects of ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which was issued in April 2015. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the Update. The amendments in this Update are effective for fiscal years beginning after December 15, 2019, for public business entities. EarlyThe amendments in this Update became effective for the Company on January 1, 2020 and did not have a significant impact on the Company’s consolidated financial statements, results of operations, or liquidity.
ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, that clarifies and improves areas of guidance related to the recently issued standards on credit losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and measurement of financial instruments (ASU 2016-01). The amendments generally have the same effective dates as their related standards. If already adopted, the amendments of ASU 2016-01 and ASU 2016-13 are effective for fiscal years beginning after December 15, 2019 and the amendments of ASU 2017-12 are effective as of the beginning of the Company’s next annual reporting period; early adoption is permitted. WhileThe Company previously adopted both ASU 2017-12 and ASU 2016-01 and the Company continues to assess all potential impactsamendments of ASU 2019-04 became effective upon adoption of ASU 2016-13.
ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the standard, we currently expect adoptionEffects of Reference Rate Reform on Financial Accounting.” In March 2020, the FASB issued ASU 2020-04, which provides temporary optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company adopted certain elections related to cash flow hedges which did not have an immateriala significant impact on our consolidatedthe Company’s financial statements disclosures.position or results of operations. The Company is currently evaluating the impact the adoption of other expedients in the standard and does not anticipate it will have a significant impact on the Company’s financial position or results of operations.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
ASU 2018-16, “Derivatives2020-08, “Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Hedging (Topic 815) - Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.Other Costs.”In October 2018,2020, the FASB issued ASU 2018-16, Inclusion2020-08, Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs, that clarifies an entity should reevaluate whether a callable debt security is within the scope of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rateparagraph 310-20-35-33 for Hedge Accounting Purposes.each reporting period. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted. The amendments in this Update permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct U.S. Treasury obligations, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Rate. The amendments in this Update are required to be adopted concurrently with the amendments in Update 2017-12 and will bebecome effective for usthe Company on January 1, 2019. The adoption of the Update is2021 and are not expected to have a significant impact on ourthe Company’s consolidated financial statements.statements, results of operations, or liquidity.
ASU 2021-01, “Reference Rate Reform (Topic 848)” In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform Topic 848, that clarifies certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. An entity may elect to apply the amendments in this ASU on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final ASU. If an entity elects to apply any of the amendments in this ASU for an eligible hedging relationship, any adjustments as a result of those elections must be reflected as of the date the entity applies the election. The amendments in this ASU do not apply to contract modifications made, new hedging relationships entered into, or existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship (including periods after December 31, 2022). The Company is currently evaluating the impact of the standard and does not anticipate it will have a significant impact on the Company’s financial position or results of operations.
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(28) | (28) SUBSEQUENT EVENTS |
Subsequent events have been evaluated for potential recognition and disclosure through the date financial statements were filed with the Securities and Exchange Commission.
On January 29, 2019,28, 2021, the Company declared a quarterly dividend to common shareholders of $0.31$0.41 per share, which was paid on February 21, 201919, 2021 to shareholders of record as of February 11, 2019.9, 2021.
As part of the U.S. government’s response to COVID-19, the CARES Act enacted a number of measures to mitigate the impact of the COVID-19 pandemic on the U.S. economy. For instance, the CARES Act created a new guaranteed, unsecured loan program under the Small Business Administration, or SBA, called the Payroll Protection Program, or the PPP, which the Company participated in, designed to provide a direct incentive for sole proprietors, independent contractors, self-employed persons, non-profits, and small businesses with less than 500 employees, allowing for narrow exceptions with businesses greater than 500 employees, to keep their workers on the payroll during the pandemic period. The RELIEF Act extended the program, beginning in January 2021, for which the Company is actively participating in assisting our customers with applications for resources through the program and as of February 19, 2021 has approved more than 3,150 applications, for approximately $296.3 million.
No other events requiring recognition or disclosure were identified.
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(a) | 2. Financial statement schedules |
(a)2. Financial statement schedules
All other schedules to the consolidated financial statements of the Registrant are omitted since the required information is either not applicable, deemed immaterial, or is shown in the respective financial statements or in notes thereto.
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Exhibit Number | | Description |
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Exhibit
| | Description |
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| | Agreement and Plan of Merger between First Interstate BancSystem, Inc. and Northwest Bancorporation, Inc. dated April 25, 2018 (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on April 26, 2018) |
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| | Agreement and Plan of Merger between First Interstate BancSystem, Inc. and Idaho Independent Bank dated October 11, 2018 (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on October 11, 2018) |
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| | Agreement and Plan of Merger between First Interstate BancSystem, Inc. and Community 1st Bank dated October 11, 2018 (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on October 11, 2018)
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| | SecondThird Amended and Restated Articles of Incorporation dated May 30, 2017September 10, 2019 (incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, File No. 001-34653, filed for the quarter ended JuneSeptember 30, 2017)2019). |
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| | ThirdFourth Amended and Restated Bylaws dated May 24, 2017Bylaws. |
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| | Description of securities registered under Section 12 of the Securities Exchange Act (incorporated herein by reference to Exhibit 3.24.1 to the Company’s QuarterlyAnnual Report on Form 10-Q,10-K, File No. 001-34653, filed for the quarteryear ended June 30, 2017)December 31, 2019) |
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| | An Indenture, dated May 15, 2020, between First Interstate BancSystem, Inc. and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on May 18, 2020) |
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| | First Supplemental Indenture, dated May 15, 2020, between First Interstate BancSystem, Inc. and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on May 18, 2020) |
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| | Lease Agreement between Billings 401 Joint Venture and First Interstate Bank Montana dated September 20, 1985 and addendum thereto (incorporated herein by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K, File No. 001-34653, filed for the year ended December 31, 2017) |
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| | First Interstate BancSystem’s Deferred Compensation Plan dated December 1, 2006 (incorporated herein by reference to Exhibit 10.9 to the Company’s Pre-Effective Amendment No. 3 to Registration Statement on Form S-1, File No. 333-164380, filed on March 23, 2010) |
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| | First Amendment to the First Interstate BancSystem’s Deferred Compensation Plan dated October 24, 2008 (incorporated herein by reference to Exhibit 10.10 to the Company’s Pre-Effective Amendment No. 3 to Registration Statement on Form S-1, No. 333-164380, filed on March 23, 2010) |
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| | 2001 Stock Option Plan, as amended (incorporated herein by reference to Exhibit 4.12 to the Company’s Registration Statement on Form S-8, No. 333-106495, filed on June 25, 2003) |
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| | Second Amendment to 2001 Stock Option Plan (incorporated herein by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q, File No. 001-34653, filed for the quarter ended September 30, 2010) |
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| | First Interstate BancSystem, Inc. 2006 Equity Compensation Plan, amended and restated as of November 21, 2013 (incorporated herein by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8, No. 333-193543, filed on January 24, 2014) |
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| | First Interstate BancSystem, Inc. 2015 Equity and Incentive Plan , amended and restated as of January 1, 2019 (incorporated herein by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K, File No. 001-34653, filed on February 27, 2019) |
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| | First Interstate BancSystem, Inc. 2015 Equity and Incentive Plan Performance Restricted Stock Grant Agreement |
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| | First Interstate BancSystem, Inc. 2015 Equity and Incentive Plan Performance Time Vested Restricted Stock Grant Agreement |
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| | First Interstate BancSystem, Inc. Director Compensation |
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| | First Interstate BancSystem, Inc. Director Compensation Summary |
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| | Executive Employment Agreement between First Interstate BancSystem, Inc. and Kevin P. Riley dated April 3, 2018 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on April 5, 2018) |
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| | Executive Employment Agreement between First Interstate BancSystem, Inc. and Marcy D. Mutch dated April 3, 2018 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on April 5, 2018) |
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| | Executive Employment Agreement between First Interstate BancSystem, Inc. and Renee L. Newman dated April 3, 2018. |
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| | Executive Employment Agreement between First Interstate BancSystem, Inc. and Jodi Delahunt Hubbell dated April 3, 2018.2018 (incorporated herein by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K, File No. 001-34653, filed on February 27, 2019) |
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| | Executive Employment Agreement between First Interstate BancSystem, Inc. and Philip G. Gaglia dated April 3, 2018.2018 (incorporated herein by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K, File No. 001-34653, filed on February 27, 2019) |
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| | Code of Ethics for Chief Executive Officer and Senior Financial Officers (incorporated herein by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K, File No. 001-34653, filed for the fiscal year ended December 31, 2010) |
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| | Subsidiaries of First Interstate BancSystem, Inc. |
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| | Consent of RSM US LLP Independent Registered Public Accounting Firm |
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| | Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. |
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| | Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. |
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| | 18 U.S.C.Section 1350 Certifications. |
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101* | | Interactive Data File - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
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104* | | Cover Page Interactive Data File - The cover page XBRL tags are embedded within the inline XBRL document (included in Exhibit 101) |
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† Management contract or compensatory plan or arrangement.
* Filed herewith.
** Furnished (not filed) herewith.
(b)Exhibits
See Item 15(a)3 above.
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(c) | Financial Statements Schedules |
(c)Financial Statements Schedules
See Item 15(a)2 above.
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| First Interstate BancSystem, Inc. | | |
| | | | |
By: | By: | | /s/ KEVIN P. RILEY | | February 27, 201926, 2021 |
| | | Kevin P. Riley | | Date |
| | | President and Chief Executive Officer | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | | | | | | | | | | | |
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By: | /s/ JAMES R. SCOTT | | February 27, 2019 |
| James R. Scott, Chairman of the Board | | Date |
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By: | /s/ STEVEN. J. CORNING | | February 27, 2019 |
| Steven J. Corning, Director | | Date |
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By: | /s/ DANA L. CRANDALL | | February 27, 2019 |
| Dana L. Crandall, Director | | Date |
| | | |
By: | /s/ WILLIAM B. EBZERY | | February 27, 2019 |
| William B. Ebzery, Director | | Date |
| | | |
By: | /s/ CHARLES E. HART, M.D., M.S. | | February 27, 2019 |
| Charles E. Hart, M.D., M.S., Director | | Date |
| | | |
By: | /s/ JOHN M. HEYNEMAN, JR. | | February 27, 2019 |
| John M. Heyneman, Jr., Director | | Date |
| | | |
By: | /s/ DAVID L. JAHNKE | | February 27, 2019 |
| David L. Jahnke, Director | | Date |
| | | |
By: | /s/ DENNIS L. JOHNSON | | February 27, 2019 |
| Dennis L. Johnson, Director | | Date |
| | | |
By: | /s/ ROSS E. LECKIE | | February 27, 2019 |
| Ross E. Leckie, Director | | Date |
| | | |
By: | /s/ PATRICIA L. MOSS | | February 27, 2019 |
| Patricia L. Moss, Director | | Date |
| | | |
By: | /s/ JAMES R. SCOTT, JR. | | February 27, 2019 |
| James R. Scott, Jr., Director | | Date |
| | | |
By: | /s/ JONATHAN R. SCOTT | | February 27, 2019 |
| Jonathan R. Scott, Director | | Date |
| | | |
By: | /s/ TERESA A. TAYLOR | | February 27, 2019 |
| Teresa A. Taylor, Director | | Date |
| | | |
By: | /s/ PETER I. WOLD | | February 27, 2019 |
| Peter I. Wold, Director | | Date |
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By: | /s/ DAVID L. JAHNKE | | February 26, 2021 |
| David L. Jahnke, Chair of the Board | | Date |
| | | |
By: | /s/ ALICE S. CHO | | February 26, 2021 |
| Alice S. Cho, Director | | Date |
| | | |
By: | /s/ DANA L. CRANDALL | | February 26, 2021 |
| Dana L. Crandall, Director | | Date |
| | | |
By: | /s/ DENNIS L. JOHNSON | | February 26, 2021 |
| Dennis L. Johnson, Director | | Date |
| | | |
By: | /s/ JAMES R. SCOTT | | February 26, 2021 |
| James R. Scott, Director | | Date |
| | | |
By: | /s/ JAMES R. SCOTT, JR. | | February 26, 2021 |
| James R. Scott, Jr., Director | | Date |
| | | |
By: | /s/ JONATHAN R. SCOTT | | February 26, 2021 |
| Jonathan R. Scott, Director | | Date |
| | | |
By: | /s/ JOHN M. HEYNEMAN, JR. | | February 26, 2021 |
| John M. Heyneman, Jr., Director | | Date |
| | | |
By: | /s/ JOYCE A. PHILLIPS | | February 26, 2021 |
| Joyce Phillips, Director | | Date |
| | | |
By: | /s/ PATRICIA L. MOSS | | February 26, 2021 |
| Patricia L. Moss, Director | | Date |
| | | |
By: | /s/ ROSS E. LECKIE | | February 26, 2021 |
| Ross E. Leckie, Director | | Date |
| | | |
By: | /s/ STEPHEN B. BOWMAN | | February 26, 2021 |
| Stephen B. Bowman, Director | | Date |
| | | | | | | | | | | |
By: | /s/ KEVIN P. RILEY | | February 27, 201926, 2021 |
| Kevin P. Riley President, Chief Executive Officer and Director
(Principal executive officer)
| | Date |
| | | |
By: | /s/ MARCY D. MUTCH | | February 27, 201926, 2021 |
| Marcy D. Mutch Executive Vice President and Chief Financial Officer
(Principal financial and accounting officer)
| | Date |