UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________________________________________________________________________________________ 
FORM 10-Q
_____________________________________________________________________________________________________________________________________________________ 

☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 20192020
OR
 ☐    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                   to                   
COMMISSION FILE NUMBER 001-34653
________________________________________________________________________________________________________ 
FIRST INTERSTATE BANCSYSTEM, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________________________________________________________ 
Montana81-0331430
(State or other jurisdiction of

incorporation or organization)
(IRS Employer

Identification No.)
401 North 31st Street
Billings,MT59116-0918
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (406) (406) 255-5390
_________________________________________________________________________________________________ 

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, no par valueFIBKNASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)     Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐ No  ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
September 30, 2020 – Class A common stock41,143,592 
September 30, 2020 – Class B common stock21,971,339 



Quarterly Report on Form 10-Q
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Index
September 30, 2020
Page Nos.
Part I - Financial Information
September 30, 2019 – Class A common stockItem 1.43,034,082
September 30, 2019 – Class B common stock22,195,679



Quarterly Report on Form 10-Q

3
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
Index
September 30, 2019
Page Nos.
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets
3
Consolidated Statements of Income
4
5
6
8
10
Item 2.
4348
Item 3.
6166
Item 4.
6266
Part II - Other Information
Item 1.
6266
Item 1A.
6266
Item 2.
6368
Item 3.
6368
Item 4.
6369
Item 5.
6369
Item 6.
6469
6570



















2

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In millions, except share data)

(Unaudited)
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
(Unaudited)
September 30,
2019		 December 31,
2018		September 30,
2020		December 31,
2019
Assets   Assets
Cash and due from banks$298.4
 $244.1
Cash and due from banks$291.4 $241.5 
Interest bearing deposits in banks971.1
 577.8
Interest bearing deposits in banks1,569.1 835.2 
Federal funds sold0.1
 0.1
Federal funds sold0.1 0.1 
Total cash and cash equivalents1,269.6
 822.0
Total cash and cash equivalents1,860.6 1,076.8 
Investment securities:   Investment securities:
Available-for-sale2,732.2
 2,270.7
Available-for-sale3,453.5 2,960.0 
Held-to-maturity (estimated fair values of $97.2 and $400.7 at September 30, 2019 and December 31, 2018, respectively)94.9
 406.8
Held-to-maturity, net (estimated fair values of $58.4 and $94.5 at September 30, 2020 and December 31, 2019, respectively)Held-to-maturity, net (estimated fair values of $58.4 and $94.5 at September 30, 2020 and December 31, 2019, respectively)55.0 92.3 
Total investment securities2,827.1
 2,677.5
Total investment securities3,508.5 3,052.3 
Loans held for investment8,992.6
 8,470.4
Mortgage loans held for sale108.9
 33.3
Total loans9,101.5
 8,503.7
Less allowance for loan losses75.0
 73.0
Net loans9,026.5
 8,430.7
Mortgage loans held for sale, at fair valueMortgage loans held for sale, at fair value102.0 100.9 
Loans held for investment, net of deferred fees and costsLoans held for investment, net of deferred fees and costs10,152.2 8,930.7 
Allowance for credit lossesAllowance for credit losses145.5 73.0 
Net loans held for investmentNet loans held for investment10,006.7 8,857.7 
Goodwill622.6
 546.7
Goodwill621.6 621.6 
Company-owned life insurance292.8
 275.1
Company-owned life insurance294.9 293.8 
Premises and equipment, net of accumulated depreciation302.8
 245.2
Premises and equipment, net of accumulated depreciation307.8 306.0 
Core deposit intangibles, net of accumulated amortization65.0
 56.9
Core deposit intangibles, net of accumulated amortization53.8 62.1 
Accrued interest receivable51.1
 44.9
Accrued interest receivable56.7 46.7 
Mortgage servicing rights, net of accumulated amortization and impairment reserve29.8
 27.7
Mortgage servicing rights, net of accumulated amortization and impairment reserve24.1 30.2 
Other real estate owned (“OREO”)17.8
 14.4
Other real estate owned (“OREO”)5.7 8.5 
Other assets196.5
 159.1
Other assets227.1 187.6 
Total assets$14,701.6
 $13,300.2
Total assets$17,069.5 $14,644.2 
Liabilities and Stockholders’ Equity   Liabilities and Stockholders’ Equity
Deposits:   Deposits:
Non-interest bearing$3,639.7
 $3,158.3
Non-interest bearing$4,798.2 $3,426.5 
Interest bearing8,159.9
 7,522.4
Interest bearing9,084.2 8,237.0 
Total deposits11,799.6
 10,680.7
Total deposits13,882.4 11,663.5 
Securities sold under repurchase agreements636.9
 712.4
Securities sold under repurchase agreements820.3 697.6 
Accounts payable and accrued expenses145.8
 94.1
Accounts payable and accrued expenses148.5 129.6 
Accrued interest payable12.3
 7.8
Accrued interest payable8.1 12.1 
Deferred tax liability, net23.6
 8.6
Deferred tax liability, net29.8 26.7 
Long-term debt13.9
 15.8
Long-term debt112.4 13.9 
Allowance for credit losses on off-balance sheet credit exposuresAllowance for credit losses on off-balance sheet credit exposures3.4 0 
Subordinated debentures held by subsidiary trusts86.9
 86.9
Subordinated debentures held by subsidiary trusts87.0 86.9 
Total liabilities12,719.0
 11,606.3
Total liabilities15,091.9 12,630.3 
Stockholders’ equity:   Stockholders’ equity:
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; no shares issued and outstanding as of September 30, 2019 or December 31, 2018—
 —
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; 0 shares issued and outstanding as of September 30, 2020 or December 31, 2019Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; 0 shares issued and outstanding as of September 30, 2020 or December 31, 20190 0 
Common stock1,047.8
 866.7
Common stock976.8 1,049.3 
Retained earnings921.4
 851.8
Retained earnings938.9 953.6 
Accumulated other comprehensive gain (loss), net13.4
 (24.6)
Accumulated other comprehensive income, netAccumulated other comprehensive income, net61.9 11.0 
Total stockholders’ equity1,982.6
 1,693.9
Total stockholders’ equity1,977.6 2,013.9 
Total liabilities and stockholders’ equity$14,701.6
 $13,300.2
Total liabilities and stockholders’ equity$17,069.5 $14,644.2 
See accompanying notes to unaudited consolidated financial statements.
3

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Interest income:       
Interest and fees on loans$120.0
 $103.9
 $352.3
 $292.1
Interest and dividends on investment securities:       
Taxable15.1
 13.9
 45.9
 41.0
Exempt from federal taxes0.5
 0.6
 1.5
 1.8
Interest on deposits in banks5.7
 2.8
 14.3
 6.9
Total interest income141.3
 121.2
 414.0
 341.8
Interest expense:       
Interest on deposits13.4
 8.9
 39.6
 22.3
Interest on securities sold under repurchase agreements1.0
 0.7
 3.1
 1.8
Interest on other borrowed funds—
 0.1
 —
 0.2
Interest on other debt0.3
 0.4
 1.0
 0.9
Interest on subordinated debentures held by subsidiary trusts1.1
 1.1
 3.5
 3.0
Total interest expense15.8
 11.2
 47.2
 28.2
Net interest income125.5
 110.0
 366.8
 313.6
Provision for loan losses2.6
 2.0
 10.1
 7.0
Net interest income after provision for loan losses122.9
 108.0
 356.7
 306.6
Non-interest income:       
Payment services revenues10.8
 10.1
 30.7
 33.5
Mortgage banking revenues10.5
 6.7
 24.3
 19.3
Wealth management revenues5.9
 5.8
 17.8
 17.5
Service charges on deposit accounts5.3
 5.7
 15.7
 16.6
Other service charges, commissions and fees4.2
 3.4
 12.7
 11.1
Investment securities gains (losses), net0.1
 —
 0.1
 —
Other income4.0
 4.5
 13.4
 11.0
Total non-interest income40.8
 36.2
 114.7
 109.0
Non-interest expense:       
Salaries and wages40.6
 36.8
 117.1
 105.7
Employee benefits11.9
 11.9
 40.3
 35.5
Outsourced technology services7.9
 6.8
 23.9
 20.9
Occupancy, net7.1
 6.5
 21.2
 18.8
Furniture and equipment3.3
 3.5
 10.2
 9.5
OREO expense, net of income(0.8) 0.2
 (0.5) 0.3
Professional fees3.5
 1.9
 7.7
 5.2
FDIC insurance premiums0.4
 1.4
 3.5
 4.3
Mortgage servicing rights amortization1.2
 0.8
 3.1
 2.3
Core deposit intangibles amortization3.0
 2.0
 8.3
 5.5
Other expenses17.4
 15.8
 50.8
 48.1
Acquisition related expenses3.8
 3.1
 19.6
 5.4
Total non-interest expense99.3
 90.7
 305.2
 261.5
Income before income tax expense64.4
 53.5
 166.2
 154.1
Income tax expense15.3
 12.1
 37.6
 34.3
Net income$49.1
 $41.4
 $128.6
 $119.8
        
Earnings per common share (Basic)$0.76
 $0.71
 $2.03
 $2.10
Earnings per common share (Diluted)$0.76
 $0.71
 $2.03
 $2.09
Weighted average common shares outstanding (Basic)64,832,324
 58,254,575
 63,232,575
 56,951,029
Weighted average common shares outstanding (Diluted)65,043,486
 58,640,475
 63,471,283
 57,330,027
(In millions, except per share data)
(Unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Interest income:
Interest and fees on loans$112.3 $120.0 $336.4 $352.3 
Interest and dividends on investment securities:
Taxable15.5 15.1 48.4 45.9 
Exempt from federal taxes0.6 0.5 1.6 1.5 
Interest on deposits in banks0.5 5.7 3.5 14.3 
Total interest income128.9 141.3 389.9 414.0 
Interest expense:
Interest on deposits3.4 13.4 15.2 39.6 
Interest on securities sold under repurchase agreements0.1 1.0 0.7 3.1 
Interest on other debt1.7 0.3 3.0 1.0 
Interest on subordinated debentures held by subsidiary trusts0.7 1.1 2.4 3.5 
Total interest expense5.9 15.8 21.3 47.2 
Net interest income123.0 125.5 368.6 366.8 
Provision for credit losses5.2 2.6 53.7 10.1 
Net interest income after provision for credit losses117.8 122.9 314.9 356.7 
Non-interest income:
Payment services revenues10.5 10.8 30.0 30.7 
Mortgage banking revenues14.3 10.4 39.4 24.6 
Wealth management revenues5.9 5.9 17.5 17.8 
Service charges on deposit accounts4.3 5.3 13.3 15.7 
Other service charges, commissions and fees5.0 1.7 10.0 5.2 
Investment securities gains (losses), net0.1 0.1 0.1 0.1 
Other income4.6 4.0 12.5 13.4 
Total non-interest income44.7 38.2 122.8 107.5 
Non-interest expense:
Salaries and wages46.0 40.1 130.1 115.3 
Employee benefits11.8 11.9 36.4 40.3 
Outsourced technology services8.4 7.9 24.5 23.9 
Occupancy, net7.2 7.1 21.3 21.2 
Furniture and equipment4.1 3.3 11.1 10.2 
OREO expense, net of income0 (0.8)(0.4)(0.5)
Professional fees2.9 3.5 8.6 9.3 
FDIC insurance premiums1.3 0.4 4.5 3.5 
Core deposit intangibles amortization2.7 3.0 8.3 8.3 
Other expenses15.1 16.5 45.7 46.9 
Acquisition related expenses0 3.8 0 19.6 
Total non-interest expense99.5 96.7 290.1 298.0 
Income before income tax expense63.0 64.4 147.6 166.2 
Income tax expense14.7 15.3 33.3 37.6 
Net income$48.3 $49.1 $114.3 $128.6 
Earnings per common share (Basic)$0.76 $0.76 $1.78 $2.03 
Earnings per common share (Diluted)$0.76 $0.76 $1.78 $2.03 
Weighted average common shares outstanding (Basic)63,764,474 64,832,324 64,184,832 63,232,575 
Weighted average common shares outstanding (Diluted)63,861,457 65,043,486 64,295,525 63,471,283 
See accompanying notes to unaudited consolidated financial statements.
4

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 Three Months Ended September 30, Nine Months Ended September 30,
 20192018 20192018
Net income$49.1
$41.4
 $128.6
$119.8
Other comprehensive income (loss), before tax:     
Investment securities available-for sale:     
Change in net unrealized gains (losses) during period4.2
(6.3) 58.0
(33.9)
Reclassification adjustment for net (gains) losses included in income(0.1)—
 (0.1)—
Reclassification adjustment for securities transferred from held-to-maturity to available-for-sale—
—
 (6.0)—
Change in unamortized loss on available-for-sale securities transferred into held-to-maturity—
0.5
 —
1.5
Change in net actuarial gain(0.2)(0.2) (0.5)(0.5)
Other comprehensive income (loss), before tax3.9
(6.0)
51.4
(32.9)
Deferred tax (expense) benefit related to other comprehensive income(1.0)1.6
 (13.4)8.6
Other comprehensive income (loss), net of tax2.9
(4.4) 38.0
(24.3)
Comprehensive income, net of tax$52.0
$37.0
 $166.6
$95.5
(In millions)
(Unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net income$48.3 $49.1 $114.3 $128.6 
Other comprehensive income, before tax:
Investment securities available-for sale:
Change in net unrealized (losses) gains during period(4.2)4.2 69.9 58.0 
Reclassification adjustment for net gains included in income(0.1)(0.1)(0.1)(0.1)
Reclassification adjustment for securities transferred from held-to-maturity to available-for-sale0 0 0 (6.0)
Unrealized gain on derivatives0 0 0.2 0 
Defined benefit post-retirement benefits plans:
Change in net actuarial loss(0.1)(0.2)(0.5)(0.5)
Other comprehensive (loss) income, before tax(4.4)3.9 69.5 51.4 
Deferred tax expense related to other comprehensive loss (income)1.1 (1.0)(18.6)(13.4)
Other comprehensive (loss) income, net of tax(3.3)2.9 50.9 38.0 
Comprehensive income, net of tax$45.0 $52.0 $165.2 $166.6 
See accompanying notes to unaudited consolidated financial statements.


5

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions, except share and per share data)
(Unaudited)
Three Months Ended September 30,
Common
stock		Retained
earnings		Accumulated
other
comprehensive
income (loss)		Total
stockholders’
equity
Balance at June 30, 2020$1,021.2 $912.5 $65.2 $1,998.9 
Net income— 48.3 — 48.3 
Other comprehensive loss, net of tax expense0 0 (3.3)(3.3)
Common stock transactions:
1,445,300 common shares purchased and retired(46.3)0 0 (46.3)
924 non-vested common shares issued0 0 0 0 
4,735 non-vested common shares forfeited or canceled0 0 0 0 
5,143 stock options exercised, net of 0 shares tendered in payment of option price and income tax withholding amounts0.1 0 0 0.1 
Stock-based compensation expense1.8 0 0 1.8 
Common cash dividends declared ($0.34 per share)0 (21.9)0 (21.9)
Balance at September 30, 2020$976.8 $938.9 $61.9 $1,977.6 
Balance at June 30, 2019$1,045.6 $892.5 $10.5 $1,948.6 
Net income— 49.1 — 49.1 
Other comprehensive income, net of tax expense— — 2.9 2.9 
Common stock transactions:
4,200 common shares purchased and retired0 — — 0 
662 non-vested common shares issued— — — — 
14,502 non-vested common shares forfeited or canceled0 — — 0 
18,983 stock options exercised, net of 5,425 shares tendered in payment of option price and income tax withholding amounts0.2 — — 0.2 
Stock-based compensation expense2.0 — — 2.0 
Common cash dividends declared ($0.31 per share)— (20.2)— (20.2)
Balance at September 30, 2019$1,047.8 $921.4 $13.4 $1,982.6 












6
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions, except share and per share data)
(Unaudited)
 Three Months Ended September 30,
 Common
stock		 Retained
earnings		 Accumulated
other
comprehensive
income (loss)		 Total
stockholders’
equity
Balance at June 30, 2019$1,045.6
 $892.5
 $10.5
 $1,948.6
Net income—
 49.1
 —
 49.1
Other comprehensive income, net of tax expense—
 —
 2.9
 2.9
Common stock transactions:      

4,200 common shares purchased and retired—
 —
 —
 —
662 non-vested common shares issued—
 —
 —
 —
14,502 non-vested common shares forfeited or canceled—
 —
 —
 —
18,983 stock options exercised, net of 5,425 shares tendered in payment of option price and income tax withholding amounts0.2
 —
 —
 0.2
Stock-based compensation expense2.0
 —
 —
 2.0
Common cash dividends declared ($0.31 per share)—
 (20.2) —
 (20.2)
Balance at September 30, 2019$1,047.8
 $921.4
 $13.4
 $1,982.6
        
Balance at June 30, 2018$690.7
 $802.6
 $(35.0) $1,458.3
Net income—
 41.4
 —
 41.4
Other comprehensive loss, net of tax expense—
 —
 (4.4) (4.4)
Common stock transactions:       
1,364 common shares purchased and retired(0.1) —
 —
 (0.1)
3,837,540 common shares issued173.3
 —
 —
 173.3
5,048 non-vested common shares issued—
 —
 —
 —
12,975 non-vested common shares forfeited or canceled—
 —
 —
 —
20,836 stock options exercised, net of 3,465 shares tendered in payment of option price and income tax withholding amounts0.3
 —
 —
 0.3
Stock-based compensation expense1.3
 —
 —
 1.3
Common cash dividends declared ($0.28 per share)—
 (15.7) —
 (15.7)
Balance at September 30, 2018$865.5
 $828.3
 $(39.4) $1,654.4


Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)
(In millions, except share and per share data)
(Unaudited)
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)
(In millions, except share and per share data)
(Unaudited)
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (continued)
(In millions, except share and per share data)
(Unaudited)
Nine Months Ended September 30,
Nine Months Ended September 30,Common
stock		Retained
earnings		Accumulated other
comprehensive
income (loss)		Total
stockholders’
equity
Balance at December 31, 2019Balance at December 31, 2019$1,049.3 $953.6 $11.0 $2,013.9 
Cumulative change related to the adoption of ASU 2016-13Cumulative change related to the adoption of ASU 2016-130 (24.1)0 (24.1)
Adjusted balance at January 1, 2020Adjusted balance at January 1, 20201,049.3 929.5 11.0 1,989.8 
Net incomeNet income— 114.3 — 114.3 
Other comprehensive income, net of tax expenseOther comprehensive income, net of tax expense0 0 50.9 50.9 
Common stock transactions:Common stock transactions:
2,539,041 common shares purchased and retired2,539,041 common shares purchased and retired(78.9)0 0 (78.9)
19,491 common shares issued19,491 common shares issued0 0 0 0 
329,024 non-vested common shares issued329,024 non-vested common shares issued0 0 0 0 
30,323 non-vested common shares forfeited or canceled30,323 non-vested common shares forfeited or canceled0 0 0 0 
89,411 stock options exercised, net of 26,124 shares tendered in payment of option price and income tax withholding amounts89,411 stock options exercised, net of 26,124 shares tendered in payment of option price and income tax withholding amounts0.8 0 0 0.8 
Stock-based compensation expenseStock-based compensation expense5.6 0 0 5.6 
Common cash dividends declared ($1.62 per share)Common cash dividends declared ($1.62 per share)0 (104.9)0 (104.9)
Balance at September 30, 2020Balance at September 30, 2020$976.8 $938.9 $61.9 $1,977.6 
Common
stock		 Retained
earnings		 Accumulated
other
comprehensive
income (loss)		 Total
stockholders’
equity
Balance at December 31, 2018$866.7
 $851.8
 $(24.6) $1,693.9
Balance at December 31, 2018$866.7 $851.8 $(24.6)$1,693.9 
Net income—
 128.6
 —
 128.6
Net income— 128.6 — 128.6 
Other comprehensive income, net of tax expense—
 —
 38.0
 38.0
Other comprehensive income, net of tax expense0 0 38.0 38.0 
Common stock transactions:       Common stock transactions:
43,560 common shares purchased and retired(2.5) —
 —
 (2.5)43,560 common shares purchased and retired(2.5)0 0 (2.5)
4,356,498 common shares issued176.1
 —
 —
 176.1
4,356,498 common shares issued176.1 0 0 176.1 
211,826 non-vested common shares issued—
 —
 —
 —
211,826 non-vested common shares issued0 0 0 0 
35,919 non-vested common shares forfeited or canceled—
 —
 —
 —
35,919 non-vested common shares forfeited or canceled0 0 0 0 
117,669 stock options exercised, net of 40,533 shares tendered in payment of option price and income tax withholding amounts0.9
 —
 —
 0.9
117,669 stock options exercised, net of 40,533 shares tendered in payment of option price and income tax withholding amounts0.9 0 0 0.9 
Stock-based compensation expense6.6
 —
 —
 6.6
Stock-based compensation expense6.6 0 0 6.6 
Common cash dividends declared ($0.93 per share)—
 (59.0) —
 (59.0)Common cash dividends declared ($0.93 per share)0 (59.0)0 (59.0)
Balance at September 30, 2019$1,047.8
 $921.4
 $13.4
 $1,982.6
Balance at September 30, 2019$1,047.8 $921.4 $13.4 $1,982.6 
       
Balance at December 31, 2017$687.0
 $752.6
 $(12.0) $1,427.6
Net income—
 119.8
 —
 119.8
Reclassification of the income tax effects of the Tax Cut and Jobs Act from AOCI—
 3.1
 (3.1) —
Other comprehensive loss, net of tax expense—
 —
 (24.3) (24.3)
Common stock transactions:       
23,960 common shares purchased and retired(1.0) —
 —
 (1.0)
3,848,929 common shares issued173.3
 —
 —
 173.3
210,039 non-vested common shares issued—
 —
 —
 —
40,122 non-vested common shares forfeited or canceled—
 —
 —
 —
148,834 stock options exercised, net of 28,194 shares tendered in payment of option price and income tax withholding amounts1.9
 —
 —
 1.9
Stock-based compensation expense4.3
 —
 —
 4.3
Common cash dividends declared ($0.84 per share)—
 (47.2) —
 (47.2)
Balance at September 30, 2018$865.5
 $828.3
 $(39.4) $1,654.4
See accompanying notes to unaudited consolidated financial statements.









7

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Nine Months Ended September 30,
 20202019
Cash flows from operating activities:
Net income$114.3 $128.6 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses53.7 10.1 
Net loss on disposal of premises and equipment0.1 0 
Depreciation and amortization33.0 29.0 
Net premium amortization on investment securities10.2 6.4 
Net gain on investment securities transactions(0.1)(0.1)
Realized and unrealized net gains on mortgage banking activities(39.3)(21.1)
Net gain on sale of investments in unrelated entities(1.0)0 
Net gain on sale of OREO(0.7)(1.7)
Write-downs of OREO and other assets pending disposal0.1 0.7 
Mortgage servicing rights impairment9.9 0 
Deferred taxes(7.1)0.5 
Net increase in cash surrender value of company-owned life insurance(5.6)(4.2)
Stock-based compensation expense5.6 6.6 
Originations of mortgage loans held for sale(1,148.7)(770.1)
Proceeds from sales of mortgage loans held for sale1,177.2 710.9 
Changes in operating assets and liabilities, net of effects of acquisition:
Increase in interest receivable(10.0)(4.0)
Increase in other assets(40.3)(31.0)
Decrease in accrued interest payable(4.0)(13.6)
Increase in accounts payable and accrued expenses15.5 9.7 
Net cash provided by operating activities162.8 56.7 
Cash flows from investing activities:
Purchases of investment securities:
Available-for-sale(1,548.8)(740.3)
Proceeds from maturities and pay-downs of investment securities:
Held-to-maturity37.2 33.2 
Available-for-sale1,114.9 681.9 
Proceeds from bank-owned life insurance settlements4.4 1.6 
Extensions of credit to clients, net of repayments(1,240.0)(136.0)
Recoveries of loans charged-off5.1 8.2 
Proceeds from sale of OREO6.6 14.0 
Proceeds from the sale of Health Savings Accounts0 0.3 
Proceeds from sale of investments in unrelated entities2.2 0 
Acquisition of bank and bank holding company, net of cash and cash equivalents received0 298.4 
Capital expenditures, net of sales(17.7)(10.2)
Net cash (used in) provided by investing activities$(1,636.1)$151.1 
8
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Nine Months Ended September 30,
 2019 2018
Cash flows from operating activities:   
Net income$128.6
 $119.8
Adjustments to reconcile net income to net cash provided by operating activities:   
Provision for loan losses10.1
 7.0
Depreciation and amortization29.0
 19.9
Net premium amortization on investment securities6.4
 7.9
Net gain on investment securities transactions(0.1) —
Realized and unrealized net gains on mortgage banking activities(21.1) (4.2)
Net loss (gain) on sale of OREO(1.7) (0.4)
Write-downs of OREO and other assets pending disposal0.7
 0.1
Deferred income tax expense0.5
 13.2
Net increase in cash surrender value of company-owned life insurance(4.2) (3.6)
Stock-based compensation expense6.6
 4.3
Originations of mortgage loans held for sale(770.1) (738.3)
Proceeds from sales of mortgage loans held for sale710.9
 747.1
Changes in operating assets and liabilities, net of effects of acquisition:   
Increase in interest receivable(4.0) (6.4)
Increase in other assets(31.0) (0.7)
(Decrease) increase in accrued interest payable(13.6) 0.9
Decrease in accounts payable and accrued expenses9.7
 5.3
Net cash provided by operating activities56.7
 171.9
Cash flows from investing activities:   
Purchases of investment securities:   
Held-to-maturity—
 (0.3)
Available-for-sale(740.3) (320.6)
Proceeds from maturities and pay-downs of investment securities:   
Held-to-maturity33.2
 66.9
Available-for-sale681.9
 333.3
Purchases of company-owned life insurance1.6
 —
Extensions of credit to customers, net of repayments(136.0) (225.5)
Recoveries of loans charged-off8.2
 9.6
Proceeds from sale of OREO14.0
 4.3
Proceeds from the sale of Health Savings Accounts0.3
 —
Acquisition of bank and bank holding company, net of cash and cash equivalents received298.4
 28.2
Capital expenditures, net of sales(10.2) (0.5)
Net cash provided by (used in) investing activities$151.1
 $(104.6)


Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In millions)
(Unaudited)
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In millions)
(Unaudited)
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In millions)
(Unaudited)
Nine Months Ended September 30,Nine Months Ended September 30,
2019 201820202019
Cash flows from financing activities:   Cash flows from financing activities:
Net increase in deposits$412.3
 $214.4
Net increase in deposits$2,218.9 $412.3 
Net decrease in securities sold under repurchase agreements(105.9) (7.1)
Net increase (decrease) in securities sold under repurchase agreementsNet increase (decrease) in securities sold under repurchase agreements122.7 (105.9)
Net decrease in other borrowed funds(4.1) (24.5)Net decrease in other borrowed funds0 (4.1)
Repayments of long-term debt(2.0) (0.4)Repayments of long-term debt(0.1)(2.0)
Advances on long-term debt0.1
 2.7
Advances on long-term debt98.6 0.1 
Proceeds from issuance of common stock0.9
 1.9
Proceeds from issuance of common stock0.8 0.9 
Purchase and retirement of common stock(2.5) (1.0)Purchase and retirement of common stock(78.9)(2.5)
Dividends paid to common stockholders(59.0) (47.2)Dividends paid to common stockholders(104.9)(59.0)
Net cash provided by financing activities239.8
 138.8
Net cash provided by financing activities2,257.1 239.8 
Net increase in cash and cash equivalents447.6
 206.1
Net increase in cash and cash equivalents783.8 447.6 
Cash and cash equivalents at beginning of period822.0
 758.9
Cash and cash equivalents at beginning of period1,076.8 822.0 
Cash and cash equivalents at end of period$1,269.6
 $965.0
Cash and cash equivalents at end of period$1,860.6 $1,269.6 
   
Supplemental disclosures of cash flow information:   Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes$34.8
 $15.8
Cash paid during the period for income taxes$36.0 $34.8 
Cash paid during the period for interest expense42.7
 27.1
Cash paid during the period for interest expense25.4 42.7 
   
Supplemental disclosures of non-cash investing and financing activities:   Supplemental disclosures of non-cash investing and financing activities:
Amortization of unrealized gains and losses on transfers of securities$—
 $1.4
Right-of-use assets obtained in exchange for operating lease liabilities39.6
 —
Right-of-use assets obtained in exchange for operating lease liabilities3.5 39.6 
Transfer of loans to other real estate owned14.0
 10.7
Transfer of loans to other real estate owned3.2 14.0 
Capitalization of internally originated mortgage servicing rights2.8
 4.5
Capitalization of internally originated mortgage servicing rights9.5 2.8 
   
Supplemental schedule of noncash investing activities from acquisitions:   Supplemental schedule of noncash investing activities from acquisitions:
Investment securities available for sale$78.7
 $3.1
Investment securities available for sale$0 $78.7 
Loans held for sale0.5
 —
Loans held for sale0 0.5 
Loans416.6
 713.1
Loans held for investmentLoans held for investment0 416.6 
Premises and equipment23.6
 14.0
Premises and equipment0 23.6 
Goodwill76.3
 100.8
Goodwill0 76.3 
Core deposit intangible16.6
 15.7
Core deposit intangible0 16.6 
Company-owned life insurance15.2
 9.5
Company-owned life insurance0 15.2 
Interest receivable2.2
 3.6
Interest receivable0 2.2 
Other real estate owned2.4
 0.6
Other real estate owned0 2.4 
Other assets6.5
 6.5
Other assets0 6.5 
Total noncash assets acquired638.6
 866.9
Total noncash assets acquired0 638.6 
   
Liabilities assumed:   Liabilities assumed:
Deposits$706.7
 $696.3
Deposits$0 $706.7 
Securities sold under repurchase agreements30.4
 —
Securities sold under repurchase agreements0 30.4 
Accounts payable and accrued expenses19.4
 7.7
Accounts payable and accrued expenses0 19.4 
Long-term debt—
 7.0
Other borrowed funds4.1
 6.0
Other borrowed funds0 4.1 
Trust preferred securities—
 4.4
Trust preferred securities— — 
Deferred tax liability(0.4) 0.4
Deferred tax liability0 (0.4)
Total liabilities assumed760.2
 721.8
Total liabilities assumed$0 $760.2 
See accompanying notes to unaudited consolidated financial statements.
9

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)



(1)Basis of Presentation

(1)    Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated financial statements of First Interstate BancSystem, Inc., First Interstate Bank (“FIB”), and its other subsidiaries (together, the “Company”) contain all adjustments (all of which are of a normal recurring nature) necessary to present fairly the financial position of the Company at September 30, 20192020 and December 31, 2018,2019, the results of operations and changes in stockholders’ equity for each of the three and nine month periods ended September 30, 20192020 and 2018,2019, and cash flows for each of the nine month periods ended September 30, 20192020 and 2018,2019, in conformity with U.S. generally accepted accounting principles (“GAAP”). The balance sheet information at December 31, 20182019 is derived from audited consolidated financial statements. Certain reclassifications, none of which were material, have been made to conform prior year financial statements to the September 30, 20192020 presentation. These reclassifications did not change previously reported net income or stockholders’ equity.

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019. Operating results for the three and nine months ended September 30, 20192020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.2020.

Current Expected Credit Losses
Leases

We have leased branchesOn January 1, 2020, the Company adopted Accounting Standards Codification (“ASC”) 326, Measurement of Credit Losses on Financial Instruments (“ASC 326”), and office spacereplaced the historically used incurred loss methodology with an expected loss methodology that is referred to as the Current Expected Credit Loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans held for investment receivables and have entered into variousheld-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other agreementssimilar instruments) and net investments in conducting our business. At inception, we determine whetherleases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an agreement representsallowance rather than as a lease and at commencement we evaluate each lease agreementwrite-down on available-for-sale debt securities that management does not intend to determine whether the leasesell or believes that it is an operating or financing lease. Some of our lease agreements have contained renewal options, tenant improvement allowances, rent holidays and rent escalation clauses. As discussed inmore likely than not they will be required to sell. See “Note 16 –- Recent Authoritative Accounting Guidance” included in this report we adopted ASU 2016-02, asfor additional details.
The following table summarizes the estimated allowance for credit losses related to financial assets and off-balance sheet credit exposures and the corresponding impacts on the deferred tax liability and retained earnings upon adoption of ASC 326 on January 1, 2019.2020:

Pre-ASC 326 AdoptionPost-ASC 326 AdoptionImpact of ASC 326 Adoption
Assets:   
Allowance for credit losses on HTM securities$0 $0 $0 
Allowance for credit losses on loans held for investment73.0 103.0 30.0 
Liabilities:
Off-balance sheet credit exposures0 2.3 2.3 
Deferred tax liability26.7 18.5 (8.2)
Equity:
Retained earnings953.6 929.5 (24.1)
PursuantDebt Security Investments
Investments in debt securities that the Company has the positive intent and ability to ASU 2016-02, all of our long-term operating leases outstanding on December 31, 2018 continuedhold to bematurity are classified as operating leases. Our capital lease outstandingheld-to-maturity and carried at December 31, 2018 isamortized 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, 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 financing lease. Withseparate component of stockholders’ equity and comprehensive income. Management determines the adoptionappropriate classification of ASU 2016-02, we recorded on our balance sheet an operating lease right-of-use asset, within the Premises and Equipment line item, and an operating lease liability, within the Other Liabilities line item. 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 recognizedsecurities at the commencementtime of purchase and at each reporting date based onmanagement reassesses the present value of remaining lease payments over the lease term. As the Company’s leases do not provide an implicit rate, we used 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 lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. During the third quarter of 2019, a reassessmentappropriateness of the lease terms within the lease portfolio was performed, resulting in a $15.0 million decrease to the right-of-use leased assets and right-of use lease liabilities which had no corresponding impact to the results of operations. The change is due to reconsideration of the reasonable certainty of extensions, terminations, and the right to exercise options in those leases. 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. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Prior to our adoption of ASU 2016-02, when our lease agreements contained renewal options, tenant improvement allowances, rent holidays and rent escalation clauses, we recorded a deferred rent asset or liability equal to the difference between the rent expense and the future minimum lease payments due. The lease expense related to operating leases was recognized on a straight-line basis in the statements of operations over the term of each lease. In cases where the lessor granted us leasehold improvement allowances that reduced our lease expense, we capitalized the improvements as incurred and recognized deferred rent, which was amortized over the shorter of the lease term or the expected useful life of the improvements.

classification.
10

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
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 recorded on the trade date in investment securities gains and losses and determined using the specific identification method.
Accrued interest receivable on investment securities totaled $10.5 million at September 30, 2020 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.
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 is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
11

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
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 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 Investment
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost or principal balance outstanding. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred loan fees and costs. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
Accrued interest receivable on loans held for investment totaled $45.7 million at September 30, 2020 and was reported in the accrued interest receivable line item on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance of underlying loans.
Interest income on mortgage and commercial loans is discontinued and placed on nonaccrual status at the time the loan is 90 days delinquent unless the 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. Past-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 is considered doubtful.
All interest accrued but not received for loans placed on nonaccrual is reversed against 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 not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in 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
The 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 determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. 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.
12

(2)Acquisitions
Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Adjustments to historical loss information are made 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 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 principal balance as of the reporting date. The TM determines the PD by 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 bands.
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 day count, or 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 the current period. The model compares the most recent period losses to prior period defaults to calculate the LGD, which is averaged over the historical observations.
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.
The Company segments the loan portfolio into pools based on the 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 expected credit loss.
The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:
Portfolio segments using the Company’s risk ratings include the following:
Commercial real estate non-owner-occupied loans. These loans include a mix of variable and fixed rate non-farm, non-residential real estate loans secured by non-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 residential 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 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.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
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.
Portfolio segments utilizing the delinquency bands include the following:
Consumer indirect loans. These include loan contracts advanced for the 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.
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(Dollars in millions, except share and per share data)
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 restructurings. The allowance for credit 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 exposed 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. 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 credit loss expense. The estimate considers the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be 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 credit losses on 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 unfunded portion of the commitment will be funded given existing economic conditions.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
(2)    Acquisitions

Community 1st Bank. On October 11, 2018, the Company entered into a definitive agreement to acquire all of the outstanding stock of Community 1st Bank (“CMYF”), a community bank headquartered in Post Falls, Idaho with 3 banking offices in North Idaho. 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, consisting of the issuance of 0.463 million463,134 shares of the Company'sCompany’s Class A common stock valued at $40.64 per share, the closing price of the Company'sCompany’s Class A common stock as quoted on the NASDAQ stock market on the acquisition date. Holders of each share of CMYF common stock received 0.3784 shares of First Interstate Class A common stock for each share of CMYF common stock. Previously unvested CMYF restricted stock awards outstanding immediately prior to the close of the transaction vested and were considered issued and outstanding at acquisition 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 CMYF 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 $2.2$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 CMYF and the Company.

The Company provisionally recorded net assets acquired of approximately $16.6$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 $112.5$112.6 million of liabilities, inclusive of $110.1 million of deposits. Adjustments to the fair value marks for premises and equipment and accounts payable and accrued expenses were made since the prior quarter, none of which were material. The adjustments had no impact on 2019 earnings and resulted in a net decrease to goodwill of $0.3 million from the second quarter reported balances. 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.
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 for the three and nine months ended September 30, 2019,2020, 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.
Idaho Independent Bank. On October 11, 2018, the Company also entered into a definitive agreement to acquire all of the outstanding stock of Idaho Independent Bank (“IIBK”), a community bank headquartered in Coeur d' Alene,d’Alene, Idaho with 11 banking offices across Idaho. The acquisition was completed on April 8, 2019, and the Company converted data processing systems on June 7, 2019.

Consideration for the acquisition was $157.3 million, consisting of the issuance of 3.871 million3,871,422 shares of the Company'sCompany’s Class A common stock valued at $40.64 per share, the closing price of the Company'sCompany’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.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)



The assets and liabilities of IIBK 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 is recorded as provisional goodwill. The preliminary purchase price allocation resulted in provisional goodwill of $74.1$73.0 million, which is not deductible for income tax purposes. Goodwill resulting from the acquisition was allocated to the Company’s 1 operating segment, community banking, and consists largely of the synergies and economies of scale expected from combining the operations of IIBK and the Company.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
The following table summarizes the consideration paid, fair values of the IIBK 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 RecordedFair Value As RecordedAs RecordedFair ValueAs Recorded
As of April 8, 2019by IIBKAdjustments by the CompanyAs of April 8, 2019by IIBKAdjustmentsby the Company
   
Assets acquired:   Assets acquired:
Cash and cash equivalents$270.7
$—
 $270.7
Cash and cash equivalents$270.7 $0 $270.7 
Investment securities62.7
0.5
(1)63.2
Investment securities62.7 0.5 (1)63.2 
Loans held for investment347.6
(9.8)(2)337.8
Loans held for investment347.6 (9.8)(2)337.8 
Mortgage loans held for sale0.5
—
 0.5
Mortgage loans held for sale0.5 0 0.5 
Allowance for loan loss(6.3)6.3
(3)—
Allowance for loan loss(6.3)6.3 (3)0 
Premises and equipment16.5
7.0
(4)23.5
Premises and equipment16.5 4.8 (4)21.3 
Other real estate owned (“OREO”)0.4
2.0
(5)2.4
Other real estate owned (“OREO”)0.4 2.0 (5)2.4 
Company owned life insurance15.2
—
 15.2
Company owned life insurance15.2 0 15.2 
Core deposit intangible assets—
13.6
(6)13.6
Core deposit intangible assets0 13.6 (6)13.6 
Deferred tax assets, net3.2
(3.2)(7)—
Deferred tax assets, net3.2 (2.6)(7)0.6 
Other assets8.6
(0.8)(8)7.8
Other assets8.6 (0.7)(8)7.9 
Total assets acquired719.1
15.6
 734.7
Total assets acquired719.1 14.1 733.2 
   
Liabilities assumed:   Liabilities assumed:
Deposits596.5
0.1
(9)596.6
Deposits596.5 0.1 (9)596.6 
Accounts payable and accrued expense15.2
5.2
(10)20.4
Accounts payable and accrued expense15.2 2.6 (10)17.8 
Other borrowed funds4.0
0.1
(11)4.1
Other borrowed funds4.0 0.1 (11)4.1 
Securities sold under repurchase agreements30.4
—
 30.4
Securities sold under repurchase agreements30.4 0 30.4 
Total liabilities assumed646.1
5.4
 651.5
Total liabilities assumed646.1 2.8 648.9 
   
Net assets acquired$73.0
$10.2
 $83.2
Net assets acquired$73.0 $11.3 $84.3 
   
Consideration paid:   Consideration paid:
Class A common stock  $157.3
Class A common stock$157.3 
Total consideration paid  $157.3
Total consideration paid$157.3 
   
Goodwill  $74.1
Goodwill$73.0 
   
Adjustments to the fair value marks for premises and equipment, deferred tax assets, accounts payable and accrued expenses were made since the prior quarter, none of which were material. The adjustments had no impact on 2019 earnings and a net decrease to goodwill of $0.6 million from the second quarter reported balances. Explanation of fair value adjustments and the removal of previously recorded fair value marks recorded by 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 partythird-party pricing service.
(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.


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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


(3)
(3)Adjustment to remove the IIBK 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 broker’s opinion of value.
(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.
(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.
(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.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
(10)Adjustment to the liability for the nonqualified retirement plan.
(11)Adjustment of the book value of debt to the estimated fair values on the date of acquisition based upon interest rates in the market.

Core deposit intangible assets of $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 IIBK loans acquired deemed credit-impairedcredit impaired as of the April 8, 2019 acquisition date are as follows:
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 collected20.2
Interest component of cash flows expected to be collected (“accretable discount”)3.4
Fair value of acquired credit-impaired loans$16.8

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 collected20.2 
Interest component of cash flows expected to be collected (“accretable discount”)3.4 
Fair value of acquired credit-impaired loans$16.8 
Information regarding IIBK acquired loans not deemed credit-impaired at the April 8, 2019 acquisition date are as follows:
Contractually required principal and interest payments$398.7
Contractual cash flows not expected to be collected15.2
Fair value at acquisition$321.5

Contractually required principal and interest payments$398.7 
Contractual cash flows not expected to be collected15.2 
Fair value at acquisition$321.5 
Unaudited pro forma consolidated revenues and net income as if the IIBK 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 for the three and nine months ended September 30, 2019,2020, 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 IIBK until June 7, 2019, at which point IIBK’s operations were integrated with the Company’s operations.

The Company recorded 0 pre-tax acquisition related expenses for the three and nine month periods ended September 30, 2020.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


Northwest Bancorporation, Inc.(3)      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. Investment Securities

The acquisition was completed on August 16, 2018,amortized cost 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 market 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 Northwest restricted stock awards outstanding immediately prior to the close of the transaction vested and were considered issued and outstanding at acquisition close.

The assets and liabilities of Northwest 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 $100.7 million, which is not deductible for income tax purposes. Goodwill resulting from the acquisition was allocated to the Company’s 1 operating segment, community banking, and consists largely of the synergies and economies of scale expected from combining the operations of Northwest and the Company.

The following table summarizes the consideration paid,approximate fair values of investment securities are summarized for the Northwest assets acquired and liabilities assumed, and the resulting goodwill. All amounts reported were finalized in the second quarter of 2019.periods indicated:
September 30, 2020Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value
Available-for-Sale:
U.S. Treasury notes$8.0 $0 $0 $8.0 
State, county and municipal securities233.6 2.7 (0.2)236.1 
Obligations of U.S. government agencies278.4 1.0 (0.6)278.8 
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations2,535.3 76.9 (0.5)2,611.7 
Private mortgage-backed securities20.0 0.2 (0.1)20.1 
Corporate securities292.9 5.4 (0.5)297.8 
Other investments1.0 0 0 1.0 
Total$3,369.2 $86.2 $(1.9)$3,453.5��
 As RecordedFair Value As Recorded
As of August 16, 2018by NorthwestAdjustments by the Company
     
Assets acquired:    
Cash and cash equivalents$31.2
$—
 $31.2
Investment securities3.1
—
 3.1
Loans held for investment727.9
(14.8)(1)713.1
Allowance for loan loss(8.0)8.0
(2)—
Premises and equipment14.5
—

14.5
Other real estate owned (“OREO”)0.3
0.3
 0.6
Core deposit intangible assets2.4
13.3
(3)15.7
Other assets29.3
(10.0)(4)19.3
Total assets acquired800.7
(3.2) 797.5
     
Liabilities assumed:    
Deposits696.1
0.2
(5)696.3
Accounts payable and accrued expense8.1
(0.4)(6)7.7
Long term debt13.0
0.1
 13.1
Trust preferred securities5.2
(0.8)(7)4.4
Deferred tax liability, net(1.2)1.6
(8)0.4
Total liabilities assumed721.2
0.7
 721.9
     
Net assets acquired$79.5
$(3.9) $75.6
     
Consideration paid:    
Cash   $3.0
Class A common stock   173.3
Total consideration paid   176.3
     
Goodwill   $100.7
     


September 30, 2020Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value
Held-to-Maturity:
State, county and municipal securities$49.9 $3.2 $0 $53.1 
U.S agency residential mortgage-backed securities & collateralized mortgage obligations1.0 0.1 0 1.1 
Corporate securities4.0 0.1 0 4.1 
Other investments0.1 0 0 0.1 
Total$55.0 $3.4 $0 $58.4 

December 31, 2019Amortized
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 securities80.1 0.8 0 80.9 
Obligations of U.S. government agencies367.5 0.1 (0.8)366.8 
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations2,303.6 19.6 (6.0)2,317.2 
Private mortgage-backed securities47.6 0 (0.4)47.2 
Corporate securities134.5 1.2 0 135.7 
Other investments3.2 0 0 3.2 
Total$2,945.5 $21.7 $(7.2)$2,960.0 

December 31, 2019Amortized
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 agencies19.8 0 0 19.8 
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations1.2 0 0 1.2 
Corporate securities13.9 0.1 0 14.0 
Other investments0.1 0 0 0.1 
Total$92.3 $2.2 $0 $94.5 
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


Explanation of fair value adjustments and the removal of previously recorded fair value marks recorded by Northwest:
(1)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)Adjustment to remove the Northwest allowance for loan losses at acquisition date, as the credit risk is included in the fair value adjustment for loans receivable described in (1) above.
(3)Adjustment represents the value of the core deposit base assumed in the acquisition based upon valuation from an independent accounting and advisory firm.
(4)Adjustment consists of reductions to the fair value of other items, including the removal of Northwest previously recorded goodwill.
(5)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.
(6)Decrease due to the write-off of off balance sheet reserves.
(7)Write down of the book value of debt to the estimated fair values on the date of acquisition based upon favorable interest rates in the market.
(8)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 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 Accounting Standards Codification ("ASC") Topic 310-30 "Loans and Debt Securities Acquired with Deteriorated Credit Quality." ASC Topic 310-30 provides recognition, measurement and disclosure guidance for acquired loans that have evidence of deterioration in credit quality since origination for which it is probable, at acquisition, the Company will be unable to collect all contractual amounts owed. 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") 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 Northwest loans acquired deemed credit-impaired as of the August 16, 2018 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 collected23.1
Interest component of cash flows expected to be collected (“accretable discount”)3.2
Fair value of acquired credit-impaired loans$19.9

Information regarding Northwest acquired loans not deemed credit-impaired at the August 16, 2018 acquisition date are as follows:
Contractually required principal and interest payments$894.8
Contractual cash flows not expected to be collected26.1
Fair value at acquisition$693.2

Unaudited pro forma consolidated revenues and net income as if the Northwest acquisition had occurred as of January 1, 2018, are not presented because the effect of this acquisition was not considered significant.


Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


The accompanying consolidated statements of income for the three and nine months ended September 30, 2019, include the results of operations of the acquired entity from the August 16, 2018 acquisition date. 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.
The Company recorded $3.8 million and $19.6 million in pre-tax acquisition related expenses for the three and nine months ended September 30, 2019. These costs are incorporated in non-interest expenses in the Company’s consolidated statements of income.
 Three Months Ended September 30, 2019 Three Months Ended September 30, 2018 Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018
Legal and Professional Fees$0.1
 $2.4
 $0.8
 $3.0
Employee Expenses1.4
 —
 8.2
 0.1
Technology Conversion and Contract Termination1.5
 0.5
 8.7
 2.0
Other0.8
 0.2
 1.9
 0.3
Total Acquisition Related Expenses$3.8
 $3.1
 $19.6
 $5.4

(3)Goodwill and Core Deposit Intangibles

Management analyzes its goodwill for impairment on an annual basis and between annual tests in certain circumstances, such as upon material adverse changes in legal, business, regulatory, and economic factors. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The Company performed an impairment assessment as of July 1, 2019 and 2018 and concluded that there was 0 impairment to goodwill.
The following table presents a rollforward of goodwill from the beginning of the year to goodwill as of the dates indicated:
  September 30,
2019		 December 31,
2018
Net carrying value at beginning of the period $546.7
 $444.7
Additions to provisional goodwill from acquisitions 75.9
 102.0
Net carrying value at end of period $622.6
 $546.7


The following table presents Core deposit intangibles (“CDI”) as of the dates indicated:
  September 30,
2019		 December 31,
2018
Gross CDI, at beginning of the period $89.7
 $74.0
Established through acquisitions or provisional adjustments 16.6
 15.7
Reductions due to sale of accounts (0.3) —
Accumulated amortization (41.0) (32.8)
Net CDI, end of period $65.0
 $56.9


The Company recorded $3.0 million and $2.0 million of CDI amortization expense for the three months ended September 30, 2019 and 2018, respectively, and $8.3 million and $5.5 million for the nine months ended September 30, 2019 and 2018, respectively.

CDI are evaluated for impairment if events and circumstances indicate a possible impairment and are amortized using an accelerated method based on the estimated weighted average useful lives of the related deposits, which is generally ten years.


Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


The following table provides the estimated future CDI amortization expense:
Years Ending December 31,   
2019 remaining  $2.9
2020  10.9
2021  9.9
2022  9.0
2023  8.2
Thereafter  24.1
Total  $65.0


(4)     Investment Securities

The amortized cost and approximate fair values of investment securities are summarized as follows:
September 30, 2019
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Available-for-Sale:    
U.S. Treasury notes$7.0
$—
$—
$7.0
State, county and municipal securities77.4
1.0
—
78.4
Obligations of U.S. government agencies427.2
0.3
(0.8)426.7
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations2,046.6
21.1
(4.5)2,063.2
Private mortgage-backed securities54.4
0.1
(0.4)54.1
Corporate securities96.0
0.7
—
96.7
Other investments6.1
—
—
6.1
Total$2,714.7
$23.2
$(5.7)$2,732.2
September 30, 2019
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Held-to-Maturity:    
State, county and municipal securities$59.7
$2.3
$—
$62.0
Obligations of U.S. government agencies19.9
—
—
19.9
U.S agency residential mortgage-backed securities & collateralized mortgage obligations1.2
—
—
1.2
Corporate securities14.0
—
—
14.0
Other investments0.1
—
—
0.1
Total$94.9
$2.3
$—
$97.2
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 agencies569.3
0.1
(10.2)559.2
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations1,566.4
2.5
(24.1)1,544.8
Private mortgage-backed securities72.0
—
(1.8)70.2
Corporate securities92.9
—
(1.0)91.9
Other investments2.0
—
—
2.0
Total$2,305.2
$2.6
$(37.1)$2,270.7

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


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
Obligations of U.S. government agencies19.8
—
(0.3)19.5
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations189.7
0.3
(6.5)183.5
Corporate securities46.3
0.1
(0.6)45.8
Other investments0.1
—
—
0.1
Total$406.8
$2.2
$(8.3)$400.7


At December 31, 2018, we had $406.8 million of investment securities classified as held to maturity. As a result of the adoption of ASU 2017-12 discussed in “Note 16 – Recent Authoritative Accounting Guidance” included in this report, the Company transferred investment securities classified as held-to-maturity to investment securities available-for-sale. At the time of transfer, the amortized cost and fair value of these securities totaled $281.1 million and $275.0 million, respectively. In addition, the unrealized loss of $6.0 million was recorded in the consolidated statement of comprehensive income.

There were no0 material gross realized gains or losses from the disposition of available-for-sale investment securities for the three and nine month periods ended September 30, 20192020 and 2018.2019.

As of September 30, 2020, the Company had general obligation securities with amortized costs of $41.9 million included in state, county and municipal securities, of which $27.8 million, or 66.3%, 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 available-for-sale investment securities, aggregated by investment category, and the length of time individual investment securities have been in a continuous unrealized loss position as of September 30, 20192020 and December 31, 2018.2019. There werewas 0 held-to-maturity investment securities in a material gross unrealizedallowance for credit loss position as of September 30, 2019:2020.
 Less than 12 Months 12 Months or More Total
September 30, 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$136.1
$(0.5) $85.7
$(0.3) $221.8
$(0.8)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations452.7
(3.3) 187.0
(1.2) 639.7
(4.5)
Private mortgage-backed securities—
—
 35.4
(0.4) 35.4
(0.4)
Total$588.8
$(3.8) $308.1
$(1.9) $896.9
$(5.7)
 Less than 12 Months12 Months or MoreTotal
September 30, 2020Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses
Available-for-Sale:      
State, county and municipal securities$22.6 $(0.2)$0 $0 $22.6 $(0.2)
Obligations of U.S. government agencies102.0 (0.6)0 0 102.0 (0.6)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations88.2 (0.4)11.4 (0.1)99.6 (0.5)
Private mortgage-backed securities— 0 12.7 (0.1)12.7 (0.1)
Corporate securities54.1 (0.5)0 0 54.1 (0.5)
Total$266.9 $(1.7)$24.1 $(0.2)$291.0 $(1.9)

Less than 12 Months12 Months or MoreTotal
December 31, 2019December 31, 2019Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses
Available-for-Sale:Available-for-Sale:   
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)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 obligations735.2
(14.5) 503.7
(9.6) 1,238.9
(24.1)U.S. agency residential mortgage-backed securities & collateralized mortgage obligations740.1 (4.6)155.9 (1.4)896.0 (6.0)
Private mortgage-backed securities—
—
 69.4
(1.8) 69.4
(1.8)Private mortgage-backed securities0 0 46.6 (0.4)46.6 (0.4)
Corporate securities24.9
(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)Total$925.4 $(5.4)$202.5 $(1.8)$1,127.9 $(7.2)

Table of ContentsThe available-for-sale securities portfolio contains 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 interest rates and other market conditions.
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


 Less than 12 Months 12 Months or More Total
December 31, 2018Fair
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)
Obligations of U.S. government agencies19.5
(0.3) —
—
 19.5
(0.3)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations45.0
(2.2) 120.2
(4.3) 165.2
(6.5)
Corporate securities—
—
 39.6
(0.6) 39.6
(0.6)
Total$90.4
$(2.8) $216.9
$(5.5) $307.3
$(8.3)

The investment portfolio is evaluated quarterly for other-than-temporary declines in the market value of each individual investment security. The Company had 334127 and 760331 individual available-for-sale investment securities that were in an unrealized loss position as of September 30, 20192020 and December 31, 2018,2019, respectively, related primarily to fluctuations in the current interest rates. As of September 30, 2019,2020, 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. NaN impairment

There was 0t a material allowance for credit losses were recorded during the three and nine month periods ended September 30, 2020 or 2019 for available-for-sale or 2018.held-to-maturity securities.

20

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Maturities of investment securities at September 30, 20192020 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
September 30, 2019
Amortized
Cost
Estimated
Fair Value
 
Amortized
Cost
Estimated
Fair Value
Within one year$621.4
$624.9
 $38.3
$38.3
After one year but within five years1,454.9
1,464.0
 31.4
31.8
After five years but within ten years236.8
238.6
 21.9
23.7
After ten years401.6
404.7
 3.3
3.4
Total$2,714.7
$2,732.2
 $94.9
$97.2

 Available-for-SaleHeld-to-Maturity
September 30, 2020Amortized
Cost		Estimated
Fair Value		Amortized
Cost		Estimated
Fair Value
Within one year$652.4 $931.3 $8.9 $8.9 
After one year but within five years1,446.5 1,251.2 30.5 31.9 
After five years but within ten years627.9 864.5 14.1 16.1 
After ten years642.4 406.5 1.5 1.5 
Total$3,369.2 $3,453.5 $55.0 $58.4 
        
As of September 30, 2019,2020, the Company hadheld investment securities callable within one year with amortized costs and estimated fair values of $160.5$252.5 million and $160.8$252.5 million, respectively. These investment securities are primarily included in the “after one year but within five years” category in the table above. As of September 30, 2020, the Company held 0 callable structured notes.

As of September 30, 2020 and December 31, 2019, the Company had callable structured notes withrecorded amortized costs of $2,097.6 million and estimated$2,132.0 million, respectively, for investment securities. These investment securities were pledged to secure public deposits and securities sold under repurchase agreements and had an approximate fair valuesvalue at September 30, 2020 and December 31, 2019 of $1.0$2,165.0 million each. These callable structured notes, whichand $2,144.9 million, respectively. All securities sold under repurchase agreements are classified as available-for-sale, are includedwith clients and mature on the next banking day. The Company retains possession of the underlying securities sold under repurchase agreements.

(4)     Loans Held for Sale

Mortgage loans held for immediate sale in the after one year but within five years category insecondary market were $102.0 million as of September 30, 2020, compared to $100.9 million as of December 31, 2019. Residential loans that the table above.    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.


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Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


(5)    Loans Held for Investment
(5)Loans
    
The following table presents loans by classsegment as of the dates indicated:
September 30,
2020		December 31,
2019
Real estate loans:  
Commercial$3,690.9 $3,487.8 
Construction loans:
Land acquisition & development274.8 302.1 
Residential227.9 244.1 
Commercial530.8 431.5 
Total construction loans1,033.5 977.7 
Residential1,311.2 1,246.1 
Agricultural227.7 226.6 
Total real estate loans6,263.3 5,938.2 
Consumer loans:
Indirect812.8 784.6 
Direct and advance lines162.1 179.0 
Credit card69.9 81.6 
Total consumer loans1,044.8 1,045.2 
Commercial2,599.6 1,673.7 
Agricultural274.7 279.1 
Other, including overdrafts4.2 0 
Loans held for investment10,186.6 8,936.2 
Deferred loan fees and costs(34.4)(5.5)
Loans held for investment, net of deferred fees and costs10,152.2 8,930.7 
Allowance for credit losses(145.5)(73.0)
Net loans held for investment$10,006.7 $8,857.7 
 September 30,
2019		 December 31,
2018
Real estate loans:   
Commercial$3,468.2
 $3,235.4
Construction:   
Land acquisition & development309.6
 321.6
Residential261.8
 242.8
Commercial386.7
 274.3
Total construction loans958.1
 838.7
Residential1,556.3
 1,542.0
Agricultural226.5
 217.4
Total real estate loans6,209.1
 5,833.5
Consumer:   
Indirect consumer797.8
 787.8
Other consumer188.8
 200.6
Credit card80.3
 81.8
Total consumer loans1,066.9
 1,070.2
Commercial1,422.6
 1,310.3
Agricultural292.7
 254.8
Other, including overdrafts1.3
 1.6
Loans held for investment8,992.6
 8,470.4
Mortgage loans held for sale108.9
 33.3
Total loans$9,101.5
 $8,503.7

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Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
Allowance for Credit Losses
The following tables represent, by loan portfolio segment, the activity in the allowance for credit losses for loans held for investment:
Three Months Ended September 30, 2020Beginning BalanceProvision for Credit Loss ExpenseLoans Charged-OffRecoveries CollectedEnding Balance
Allowance for credit losses (1)
Real estate: 
Commercial real estate:
Non-owner occupied$23.6 $1.5 $0 $0.1 $25.2 
Owner occupied19.1 0.1 (0.2)0.1 19.1 
Multi-family8.5 2.3 0 0 10.8 
Total commercial real estate51.2 3.9 (0.2)0.2 55.1 
Construction:
Land acquisition & development1.5 (0.5)0 0.2 1.2 
Residential construction1.3 0.3 0 0 1.6 
Commercial construction6.3 0.8 0 0 7.1 
Total construction9.1 0.6 0 0.2 9.9 
Residential real estate:
Residential 1-4 family10.3 (1.1)0 0 9.2 
Home equity and HELOC1.5 0 0 0 1.5 
Total residential real estate11.8 (1.1)0 0 10.7 
Agricultural real estate3.1 (0.2)0 0 2.9 
Total real estate75.2 3.2 (0.2)0.4 78.6 
Consumer:
Indirect16.4 0.7 (0.8)0.7 17.0 
Direct and advance lines5.1 0.6 (1.1)0.2 4.8 
Credit card2.0 0.6 (0.6)0.2 2.2 
Total consumer23.5 1.9 (2.5)1.1 24.0 
Commercial:
Commercial and floor plans41.0 (1.2)(3.3)0.2 36.7 
Commercial purpose secured by 1-4 family5.1 (0.2)0 0.1 5.0 
Credit card0.4 0.3 (0.4)0 0.3 
Total commercial46.5 (1.1)(3.7)0.3 42.0 
Agricultural:
Agricultural0.9 0 0 0 0.9 
Total agricultural0.9 0 0 0 0.9 
Total allowance for credit losses$146.1 $4.0 $(6.4)$1.8 $145.5 
(1) Amounts presented are exclusive of the allowance for credit losses related to unfunded commitments which are included in “Note 12 - Financial Instruments with Off-Balance Sheet Risk” included in this report.
23

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)

Nine Months Ended September 30, 2020Beginning BalanceInitial Impact of Adopting ASC 326Provision for Credit Loss ExpenseLoans Charged-OffRecoveries CollectedEnding Balance
Allowance for credit losses (1)
Real estate:  
Commercial real estate:
Non-owner occupied$8.8 $4.9 $11.4 $0 $0.1 $25.2 
Owner occupied10.0 3.5 5.7 (0.3)0.2 19.1 
Multi-family0.7 6.9 3.2 0 0 10.8 
Total commercial real estate19.5 15.3 20.3 (0.3)0.3 55.1 
Construction:
Land acquisition & development1.9 (0.1)(0.3)(0.5)0.2 1.2 
Residential construction1.5 (0.9)1.0 0 0 1.6 
Commercial construction2.7 1.3 3.1 0 0 7.1 
Total construction6.1 0.3 3.8 (0.5)0.2 9.9 
Residential real estate:
Residential 1-4 family1.8 10.6 (3.3)0 0.1 9.2 
Home equity and HELOC1.0 0.5 (0.1)0 0.1 1.5 
Total residential real estate2.8 11.1 (3.4)0 0.2 10.7 
Agricultural real estate0.5 1.8 0.6 0 0 2.9 
Total real estate28.9 28.5 21.3 (0.8)0.7 78.6 
Consumer:
Indirect4.5 8.8 5.1 (3.2)1.8 17.0 
Direct and advance lines2.9 3.0 1.3 (3.1)0.7 4.8 
Credit card2.5 0.3 1.0 (2.2)0.6 2.2 
Total consumer9.9 12.1 7.4 (8.5)3.1 24.0 
Commercial:
Commercial and floor plans25.5 (5.1)20.0 (4.7)1.0 36.7 
Commercial purpose secured by 1-4 family5.9 (3.8)2.8 (0.1)0.2 5.0 
Credit card1.2 (1.1)1.0 (0.9)0.1 0.3 
Total commercial32.6 (10.0)23.8 (5.7)1.3 42.0 
Agricultural:
Agricultural1.6 (0.6)0 (0.1)0 0.9 
Total agricultural1.6 (0.6)0 (0.1)0 0.9 
Total allowance for credit losses$73.0 $30.0 $52.5 $(15.1)$5.1 $145.5 
(1) Amounts presented are exclusive of the allowance for credit losses related to unfunded commitments which are included in “Note 12 - Financial Instruments with Off-Balance Sheet Risk” included in this report.

24

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED 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:
Three Months Ended September 30, 2019Beginning BalanceProvision for Credit Loss ExpenseLoans Charged-OffRecoveries CollectedEnding Balance
Allowance for credit losses
Real estate$27.7 $0.4 $(0.3)$0.8 $28.6 
Consumer9.1 2.7 (2.8)0.8 9.8 
Commercial35.7 (0.4)(1.6)1.3 35.0 
Agricultural1.7 (0.1)0 0 1.6 
Total allowance for credit losses$74.2 $2.6 $(4.7)$2.9 $75.0 

Nine Months Ended September 30, 2019Beginning BalanceProvision for Credit Loss ExpenseLoans Charged-OffRecoveries CollectedEnding Balance
Allowance for credit losses
Real estate$31.0 $(1.3)$(3.3)$2.2 $28.6 
Consumer8.7 7.1 (9.1)3.1 9.8 
Commercial31.3 4.3 (3.5)2.9 35.0 
Agricultural2.0 0 (0.4)0 1.6 
Total allowance for credit losses$73.0 $10.1 $(16.3)$8.2 $75.0 

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 Company’s recorded investment and contractual agingamortized cost basis of the Company’s recorded investment incollateral-dependent loans by class of loans as of September 30, 2020. The comparable period is not presented because the dates indicated. collateral-dependent loans classification did not exist under prior GAAP. Under historical guidance, the recorded investment of impaired loans and the related specific reserve was $64.7 million and $3.6 million, respectively, as of December 31, 2019.
Collateral Type
As of September 30, 2020Business AssetsReal PropertyOtherTotal
Real estate$0.2 $0.5 $0 $0.7 
Commercial9.8 5.0 0.4 15.2 
Agricultural0 0.1 0 0.1 
Total collateral-dependent$10.0 $5.6 $0.4 $16.0 
25

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED 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 amortized cost basis in loans by portfolio as of the dates indicated.
Total Loans
30 - 5960 - 89> 9030 or More
DaysDaysDaysDaysCurrentNon-accrualTotal
As of September 30, 2020Past DuePast DuePast DuePast DueLoans
Loans (1)
Loans
Real estate
Commercial$5.6 $0.6 $3.6 $9.8 $3,671.2 $9.9 $3,690.9 
Construction:
Land acquisition & development1.4 0.6 0.5 2.5 271.7 0.6 274.8 
Residential0.4 0.2 1.5 2.1 225.8 0 227.9 
Commercial0.1 0 0 0.1 530.2 0.5 530.8 
Total construction loans1.9 0.8 2.0 4.7 1,027.7 1.1 1,033.5 
Residential1.7 2.3 0.2 4.2 1,302.4 4.6 1,311.2 
Agricultural0 0.1 0 0.1 220.0 7.6 227.7 
Total real estate loans9.2 3.8 5.8 18.8 6,221.3 23.2 6,263.3 
Consumer:
Indirect consumer4.0 1.6 0.1 5.7 805.3 1.8 812.8 
Other consumer0.5 0.2 0.1 0.8 160.8 0.5 162.1 
Credit card0.7 0.3 0.6 1.6 68.3 0 69.9 
Total consumer loans5.2 2.1 0.8 8.1 1,034.4 2.3 1,044.8 
Commercial5.6 8.2 2.1 15.9 2,567.5 16.2 2,599.6 
Agricultural1.8 0.2 0.9 2.9 268.7 3.1 274.7 
Other, including overdrafts0 0 0 0 4.2 0 4.2 
Loans held for investment$21.8 $14.3 $9.6 $45.7 $10,096.1 $44.8 $10,186.6 

Total Loans
30 - 5960 - 89> 9030 or More
DaysDaysDaysDaysCurrentNon-accrualTotal
As of December 31, 2019Past DuePast DuePast DuePast DueLoans
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 & development0.7 0.8 0.3 1.8 298.9 1.4 302.1 
Residential1.5 0.8 0 2.3 241.8 0 244.1 
Commercial0 0 0 0 431.0 0.5 431.5 
Total construction loans2.2 1.6 0.3 4.1 971.7 1.9 977.7 
Residential3.8 1.4 1.1 6.3 1,235.2 4.6 1,246.1 
Agricultural0.8 0.5 0 1.3 220.1 5.2 226.6 
Total real estate loans12.3 4.6 2.0 18.9 5,894.6 24.7 5,938.2 
Consumer:
Indirect consumer7.6 1.9 0.5 10.0 773.0 1.6 784.6 
Other consumer1.2 0.5 0.1 1.8 176.7 0.5 179.0 
Credit card0.8 0.5 0.8 2.1 79.5 0 81.6 
Total consumer loans9.6 2.9 1.4 13.9 1,029.2 2.1 1,045.2 
Commercial4.8 2.6 2.3 9.7 1,650.3 13.7 1,673.7 
Agricultural0.9 0.1 0 1.0 275.7 2.4 279.1 
Other, including overdrafts0 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 September 30, 2020 and December 31, 2019, none of our non-accrual loans were earning interest income. Additionally, 0 material interest income was recognized on non-accrual loans during the three and nine months ended September 30, 2020 and 2019, respectively. NaN material and $0.3 million of accrued interest was reversed during the three and nine months ended September 30, 2020.

26
    Total Loans   
 30 - 5960 - 89> 9030 or More   
 DaysDaysDaysDaysCurrentNon-accrualTotal
As of September 30, 2019Past DuePast DuePast DuePast DueLoansLoansLoans
Real estate       
Commercial$5.0
$4.6
$0.7
$10.3
$3,444.3
$13.6
$3,468.2
Construction:       
Land acquisition & development1.4
0.1
0.7
2.2
307.0
0.4
309.6
Residential4.1
—
0.8
4.9
256.5
0.4
261.8
Commercial1.5
—
—
1.5
384.7
0.5
386.7
Total construction loans7.0
0.1
1.5
8.6
948.2
1.3
958.1
Residential2.1
1.3
0.9
4.3
1,548.4
3.6
1,556.3
Agricultural—
—
0.1
0.1
221.3
5.1
226.5
Total real estate loans14.1
6.0
3.2
23.3
6,162.2
23.6
6,209.1
Consumer:       
Indirect consumer7.1
2.0
0.6
9.7
786.0
2.1
797.8
Other consumer1.1
0.6
0.3
2.0
186.3
0.5
188.8
Credit card0.9
0.4
0.6
1.9
78.4
—
80.3
Total consumer loans9.1
3.0
1.5
13.6
1,050.7
2.6
1,066.9
Commercial4.3
2.9
2.1
9.3
1,392.3
21.0
1,422.6
Agricultural0.6
0.1
0.2
0.9
288.9
2.9
292.7
Other, including overdrafts—
—
—
—
1.3
—
1.3
Loans held for investment28.1
12.0
7.0
47.1
8,895.4
50.1
8,992.6
Mortgage loans originated for sale—
—
—
—
108.9
—
108.9
Total loans$28.1
$12.0
$7.0
$47.1
$9,004.3
$50.1
$9,101.5


Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


    Total Loans   
 30 - 5960 - 89> 9030 or More   
 DaysDaysDaysDaysCurrentNon-accrualTotal
As of December 31, 2018Past DuePast DuePast DuePast DueLoansLoansLoans
Real estate       
Commercial$10.4
$1.0
$0.8
$12.2
$3,214.0
$9.2
$3,235.4
Construction:       
Land acquisition & development1.6
0.1
0.2
1.9
316.0
3.7
321.6
Residential1.0
0.4
—
1.4
240.4
1.0
242.8
Commercial0.4
—
—
0.4
273.7
0.2
274.3
Total construction loans3.0
0.5
0.2
3.7
830.1
4.9
838.7
Residential8.8
1.1
0.2
10.1
1,525.3
6.6
1,542.0
Agricultural2.2
—
—
2.2
202.6
12.6
217.4
Total real estate loans24.4
2.6
1.2
28.2
5,772.0
33.3
5,833.5
Consumer:       
Indirect consumer6.8
2.1
0.4
9.3
776.8
1.7
787.8
Other consumer1.4
0.5
0.1
2.0
198.1
0.5
200.6
Credit card0.9
0.4
0.8
2.1
79.7
—
81.8
Total consumer loans9.1
3.0
1.3
13.4
1,054.6
2.2
1,070.2
Commercial8.3
1.2
1.3
10.8
1,283.7
15.8
1,310.3
Agricultural2.1
0.3
—
2.4
249.4
3.0
254.8
Other, including overdrafts—
—
—
—
1.6
—
1.6
Loans held for investment43.9
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


Loans from business combinations included in the tables above include certain loans that had evidence of deterioration in 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 balances and accrual status of loans acquired with credit impairment as of the dates indicated:    
 September 30, 2019 December 31, 2018
Outstanding balance$52.8
 $43.4
Carrying value   
Loans on accrual status39.9
 30.2
Total carrying value$39.9
 $30.2

The following table summarizes changes in the accretable yield for loans acquired deemed credit impaired for the three and nine month periods ended September 30, 2019 and 2018:
 Three Months Ended September 30, Nine Months Ended September 30,
 20192018 20192018
Beginning balance$10.8
$6.5
 $8.9
$7.3
Acquisitions—
3.2
 3.4
3.2
Additions—
—
 —
0.4
Accretion income(0.8)(0.7) (2.5)(2.4)
Reductions due to exit events(0.2)(0.1) (1.3)(0.6)
Reclassifications from non-accretable differences0.2
0.6
 1.5
1.6
Ending balance$10.0
$9.5
 $10.0
$9.5



Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


Acquired loans that met the criteria for non-accrual of interest prior to acquisition were considered performing upon acquisition. If interest on non-accrual loans had been accrued, such income would have been approximately $0.6 million and $0.8 million for the three months ended September 30, 2019 and 2018, respectively, and approximately $2.0 million and $1.6 million for the nine months ended September 30, 2019 and 2018, respectively.

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 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 the dates indicated:
As of September 30, 2019
Unpaid
Total
Principal
Balance
Recorded
Investment
With No
Allowance
Recorded
Investment
With
Allowance
Total
Recorded
Investment
Related
Allowance
Real estate:     
Commercial$28.4
$13.2
$9.7
$22.9
$0.7
Construction:     
Land acquisition & development6.8
0.4
0.2
0.6
—
Residential0.6
0.4
—
0.4
—
Commercial1.0
0.5
0.1
0.6
—
Total construction loans8.4
1.3
0.3
1.6
—
Residential6.3
3.1
2.0
5.1
0.2
Agricultural7.6
5.1
2.1
7.2
0.1
Total real estate loans50.7
22.7
14.1
36.8
1.0
Commercial30.9
12.6
12.4
25.0
2.9
Agricultural5.8
2.8
2.5
5.3
0.2
Total$87.4
$38.1
$29.0
$67.1
$4.1
As of 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 & development10.0
0.4
3.5
3.9
0.2
Residential1.1
0.6
0.4
1.0
0.1
Commercial0.7
0.2
—
0.2
—
Total construction loans11.8
1.2
3.9
5.1
0.3
Residential8.8
5.7
2.0
7.7
0.3
Agricultural12.9
12.5
0.2
12.7
—
Total real estate loans55.7
28.0
13.8
41.8
1.3
Commercial24.1
5.5
14.4
19.9
5.2
Agricultural3.2
2.5
0.6
3.1
0.3
Total$83.0
$36.0
$28.8
$64.8
$6.8


Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


The following table presents the average recorded investment in and income recognized on impaired loans for the periods indicated:
 Three Months Ended September 30,
 2019 2018
  Average Recorded Investment  Income Recognized  Average Recorded Investment  Income Recognized
Real estate$33.9
 $—
 $54.5
 $—
Commercial22.1
 —
 20.7
 —
Agricultural6.0
 —
 1.9
 —
Total$62.0
 $—
 $77.1
 $—

 Nine Months Ended September 30,
 2019 2018
  Average Recorded Investment  Income Recognized  Average Recorded Investment  Income Recognized
Real estate$39.2
 $—
 $54.1
 $0.2
Commercial22.5
 0.1
 22.0
 0.1
Agricultural4.1
 —
 1.6
 —
Total$65.8
 $0.1
 $77.7
 $0.3


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 would have been approximately $0.6 million and $0.8 million for the three months ended September 30, 2019 and 2018, respectively, and approximately $2.0 million and $1.6 million for the nine months ended September 30, 2019 and 2018, respectively.
Collateralized impaired loans are generally recorded at the fair value of the underlying collateral 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.

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 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 end the earlier of December 31, 2020 or the date that is 60 days after the termination of the national emergency.
    
The Company hadrenegotiated loans renegotiated in troubled debt restructurings in the amount of $19.5$20.0 million as of September 30, 2020, of which $16.8 million were included in non-accrual loans and $3.2 million were on accrual status. As of September 30, 2020, the Company allocated $4.3 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 renegotiated loans in troubled debt restructurings in the amount of $24.9 million as of December 31, 2019, of which $14.0$19.4 million were included in non-accrual loans and $5.5 million were on accrual status. The Company had loans renegotiated in troubled debt restructurings of $23.4 million asAs of December 31, 2018,2019, the Company allocated $0.3 million of which $17.8 million were included in non-accrualallowance for credit losses to those loans and $5.6 million were on accrual status.the Company had 0 material commitments to lend additional funds to borrowers whose existing loans have been renegotiated or are classified as non-accrual.


Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


The Company had 0 material new troubled debt restructurings during the three months ended September 30, 2019 and $0.2 million of troubled debt restructurings that occurred during the nine months ended September 30, 2019.2020.
  Number of Notes Type of ConcessionPrincipal Balance at Restructure Date
Nine Months Ended September 30, 2019  Interest only periodExtension of term or amortization scheduleInterest rate adjustmentOther (1)
Commercial real estate 1 $—
$0.2
$—
$—
$0.2
Total loans restructured during period 1 $—
$0.2
$—
$—
$0.2
(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, a specific reserve may already be recorded. In periods subsequent to modification, the Company continues to evaluate all troubled debt restructurings for possible impairmentcredit deterioration and recognizes impairmentcredit loss through the allowance. Additionally, these loans continue to work their way 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 0 charge-offs directly related to modifying troubled debt restructurings during the three and nine months ended September 30, 20192020 or 2018.2019.
27

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
    
The Company had 0 material troubled debt restructurings during the previous 12 months for which there was a payment default during the three and nine months ended September 30, 2019.2020. The Company considers a payment default to occur on troubled debt restructurings when the loan is 90 days or more past due or wasis placed on non-accrual status after the modification.

AtThe terms of certain other loans were modified during the quarter ended September 30, 2019, 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 $65.9 million as of September 30, 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.
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 loan ismay not currently be sufficient, collateral or other sources of repayment are sufficient to satisfy the debt. Continuance of a substandard 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.

Company management undertakesLoans not meeting the samecriteria above that are analyzed individually as part of the above described process for assigning risk ratings to acquired loans as it does for originated loans. Acquired loans rated as substandard or lower, or that were on non-accrual status or designated as troubled debt restructurings at the time of acquisition are deemedconsidered to be acquired credit impaired loans accounted for under ASC Topic 310-30, regardless of whether they are classified as performing or non-performingpass-rated loans.
28

The following tables present the Company’s recorded investment in criticized loans by class and credit quality indicator based on the most recent analysis performed as of the dates indicated:

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


As of September 30, 2019
Other Assets
Especially
Mentioned
SubstandardDoubtful
Total
Criticized
Loans
Real estate:    
Commercial$90.0
$96.5
$1.5
$188.0
Construction:    
Land acquisition & development5.0
5.0
0.1
10.1
Residential0.9
1.4
0.4
2.7
Commercial2.3
1.5
—
3.8
Total construction loans8.2
7.9
0.5
16.6
Residential3.3
7.0
0.3
10.6
Agricultural15.5
25.3
—
40.8
Total real estate loans117.0
136.7
2.3
256.0
Consumer:    
Indirect consumer0.3
3.2
—
3.5
Direct consumer0.4
1.0
0.1
1.5
Total consumer loans0.7
4.2
0.1
5.0
Commercial40.2
62.5
9.9
112.6
Agricultural16.6
25.7
0.2
42.5
Total$174.5
$229.1
$12.5
$416.1
As of December 31, 2018
Other Assets
Especially
Mentioned
SubstandardDoubtful
Total
Criticized
Loans
Real estate:    
Commercial$102.5
$87.4
$2.9
$192.8
Construction:    
Land acquisition & development5.0
7.0
3.3
15.3
Residential2.8
2.0
0.4
5.2
Commercial1.7
3.9
—
5.6
Total construction loans9.5
12.9
3.7
26.1
Residential3.0
10.8
0.7
14.5
Agricultural9.0
24.0
0.1
33.1
Total real estate loans124.0
135.1
7.4
266.5
Consumer:    
Indirect consumer0.7
2.1
0.1
2.9
Direct consumer0.3
0.8
0.1
1.2
Total consumer loans1.0
2.9
0.2
4.1
Commercial39.4
45.8
11.8
97.0
Agricultural14.4
17.8
1.5
33.7
Total$178.8
$201.6
$20.9
$401.3

The Company maintains a credit review function, which is independent ofevaluates the credit approval process, to assess assigned internal risk classificationsquality and monitor compliance with internal lending policies and procedures.

Written action plans with firm target datesloan performance for resolution of identified problems are maintained and reviewed on a quarterly basis for all categories of criticized loans.

(6)Allowance for Loan Losses
The following tables present a summary of changes in the allowance for credit loan losses by portfolio segment forof the periods indicated:following segments based on the aforementioned risk scale:
September 30, 2020
Term Loans Amortized Cost Basis by Origination Year
Risk by Collateral20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
Commercial real estate non-owner occupied:
Pass$397.3 $299.3 $213.8 $108.8 $159.0 $368.2 $12.8 $1,559.2 
Special mention0 3.1 0.9 0.1 0.7 17.6 0 22.4 
Substandard15.9 2.8 0.9 4.1 1.1 14.8 0 39.6 
Doubtful0 0 0.2 0 0 0 0 0.2 
Total$413.2 $305.2 $215.8 $113.0 $160.8 $400.6 $12.8 $1,621.4 
Commercial real estate owner occupied:
Pass$325.0 $324.4 $220.9 $131.4 $166.3 $407.1 $13.9 $1,589.0 
Special mention7.3 8.7 7.8 3.1 15.4 14.6 0.2 57.1 
Substandard6.7 6.6 12.4 5.2 18.5 13.6 0.5 63.5 
Doubtful0.2 0 0 0.1 0 0.1 0 0.4 
Total$339.2 $339.7 $241.1 $139.8 $200.2 $435.4 $14.6 $1,710.0 
Commercial multi-family:
Pass$106.0 $63.0 $29.2 $42.4 $26.1 $90.8 $1.9 $359.4 
Special mention0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0.1 0 0.1 
Doubtful0 0 0 0 0 0 0 0 
Total$106.0 $63.0 $29.2 $42.4 $26.1 $90.9 $1.9 $359.5 
Land, acquisition and development:
Pass$81.0 $71.0 $40.4 $33.0 $9.4 $28.5 $6.1 $269.4 
Special mention0.4 0.1 0 1.0 0 1.2 0.3 3.0 
Substandard0.4 0 1.2 0.1 0 0.2 0.4 2.3 
Doubtful0 0 0 0 0 0.1 0 0.1 
Total$81.8 $71.1 $41.6 $34.1 $9.4 $30.0 $6.8 $274.8 
Residential construction:
Pass$65.1 $73.3 $14.9 $5.6 $0.3 $0.1 $66.8 $226.1 
Special mention0 0 0 0 0 0 0 0 
Substandard0.6 0 1.2 0 0 0 0 1.8 
Doubtful0 0 0 0 0 0 0 0 
Total$65.7 $73.3 $16.1 $5.6 $0.3 $0.1 $66.8 $227.9 
Commercial construction:
Pass$188.4 $223.3 $84.2 $12.0 $9.7 $0.3 $8.7 $526.6 
Special mention0 1.4 1.5 0 0 0 0 2.9 
Substandard0 0.8 0 0 0 0.1 0 0.9 
Doubtful0 0 0.4 0 0 0 0 0.4 
Total$188.4 $225.5 $86.1 $12.0 $9.7 $0.4 $8.7 $530.8 
Agricultural real estate:
Pass$35.7 $46.6 $31.2 $18.1 $14.3 $30.2 $6.4 $182.5 
Special mention3.4 7.6 1.2 1.6 0.9 3.9 0.9 19.5 
Substandard0.1 8.3 3.5 1.1 3.5 5.4 1.8 23.7 
Doubtful0 2.0 0 0 0 0 0 2.0 
Total$39.2 $64.5 $35.9 $20.8 $18.7 $39.5 $9.1 $227.7 
29


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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


September 30, 2020
Term Loans Amortized Cost Basis by Origination Year
Risk by Collateral20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
Commercial and floor plans:
Pass$1,385.9 $173.4 $150.5 $86.3 $48.8 $100.3 $236.6 $2,181.8 
Special mention8.9 1.2 2.0 7.3 4.2 0.6 2.9 27.1 
Substandard6.0 4.6 4.5 0.5 4.5 2.5 11.9 34.5 
Doubtful2.2 3.7 0.1 0 0.1 2.6 0.1 8.8 
Total$1,403.0 $182.9 $157.1 $94.1 $57.6 $106.0 $251.5 $2,252.2 
Commercial purpose secured by 1-4 family:
Pass$60.3 $62.9 $38.4 $23.8 $16.7 $42.4 $19.5 $264.0 
Special mention0.3 0.6 0.3 0.3 0.6 0.9 0.4 3.4 
Substandard2.4 1.1 4.4 0.3 1.4 1.4 0.1 11.1 
Doubtful0 0 0.1 0 0 0 0 0.1 
Total$63.0 $64.6 $43.2 $24.4 $18.7 $44.7 $20.0 $278.6 
Agricultural:
Pass$39.5 $26.5 $14.2 $5.7 $3.9 $1.4 $140.9 $232.1 
Special mention2.6 0.6 0.5 0.1 0.1 0.4 13.8 18.1 
Substandard6.4 1.9 4.3 1.4 0.1 0.4 8.2 22.7 
Doubtful0 0.1 0 0.1 0 0 0 0.2 
Total$48.5 $29.1 $19.0 $7.3 $4.1 $2.2 $162.9 $273.1 
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 the recorded investment of our other loan portfolios based on the credit risk profile of loans that are performing and loans that are nonperforming as of the periods indicated:
September 30, 2020
Term Loans Amortized Cost Basis by Origination Year
Risk by Collateral20202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
Residential 1-4 family:
Performing$311.1 $119.8 $71.4 $57.9 $76.9 $270.2 $0 $907.3 
Nonperforming0 0.7 0.2 0 0 0.9 0 1.8 
Total$311.1 $120.5 $71.6 $57.9 $76.9 $271.1 $0 $909.1 
Consumer home equity and HELOC:
Performing$10.2 $8.3 $9.6 $10.7 $5.3 $16.7 $340.7 $401.5 
Nonperforming0.1 0 0 0.1 0 0.4 0 0.6 
Total$10.3 $8.3 $9.6 $10.8 $5.3 $17.1 $340.7 $402.1 
Consumer indirect:
Performing$273.8 $212.9 $134.0 $85.9 $56.8 $48.9 $0 $812.3 
Nonperforming0 0.2 0.1 0 0.1 0.1 0 0.5 
Total$273.8 $213.1 $134.1 $85.9 $56.9 $49.0 $0 $812.8 
Consumer direct and advance line:
Performing$40.6 $34.1 $33.9 $14.1 $6.5 $9.8 $22.9 $161.9 
Nonperforming0 0 0.1 0.1 0 0 0 0.2 
Total$40.6 $34.1 $34.0 $14.2 $6.5 $9.8 $22.9 $162.1 
Three Months Ended September 30, 2019Real EstateConsumerCommercialAgricultureOtherTotal
Allowance for loan losses:      
Beginning balance$27.7
$9.1
$35.7
$1.7
$—
$74.2
Provision charged to operating expense0.4
2.7
(0.4)(0.1)—
2.6
Less loans charged-off(0.3)(2.8)(1.6)—
—
(4.7)
Add back recoveries of loans previously
   charged-off
0.8
0.8
1.3
—
—
2.9
Ending balance$28.6
$9.8
$35.0
$1.6
$—
$75.0
       
Nine Months Ended September 30, 2019Real EstateConsumerCommercialAgricultureOtherTotal
Allowance for loan losses:      
Beginning balance$31.0
$8.7
$31.3
$2.0
$—
$73.0
Provision charged to operating expense(1.3)7.1
4.3
—
—
10.1
Less loans charged-off(3.3)(9.1)(3.5)(0.4)—
(16.3)
Add back recoveries of loans previously
charged-off		2.2
3.1
2.9
—
—
8.2
Ending balance$28.6
$9.8
$35.0
$1.6
$—
$75.0
       
As of September 30, 2019Real EstateConsumerCommercialAgricultureOtherTotal
Allowance for loan losses:      
Loans individually evaluated for impairment$1.0
$—
$2.9
$0.2
$—
$4.1
Loans collectively evaluated for impairment27.6
9.8
32.1
1.4
—
70.9
Allowance for loan losses$28.6
$9.8
$35.0
$1.6
$—
$75.0
       
As of September 30, 2019Real EstateConsumerCommercialAgricultureOtherTotal
Loans held for investment:      
Individually evaluated for impairment$36.8
$—
$25.0
$5.3
$—
$67.1
Collectively evaluated for impairment6,172.3
1,066.9
1,397.6
287.4
1.3
8,925.5
Total loans held for investment$6,209.1
$1,066.9
$1,422.6
$292.7
$1.3
$8,992.6
30

Three Months Ended September 30, 2018Real EstateConsumerCommercialAgricultureOtherTotal
Allowance for loan losses: 
 
 
 
 
 
Beginning balance$34.0
$7.8
$30.5
$1.8
$—
$74.1
Provision charged to operating expense(0.9)2.4
0.5
—
—
2.0
Less loans charged-off(0.7)(3.0)(1.1)—
—
(4.8)
Add back recoveries of loans previously
   charged-off
0.6
1.2
0.5
—
—
2.3
Ending balance$33.0
$8.4
$30.4
$1.8
$—
$73.6
       
Nine Months Ended September 30, 2018Real EstateConsumerCommercialAgricultureOtherTotal
Allowance for loan losses: 
 
 
 
 
 
Beginning balance$31.7
$8.7
$30.5
$1.2
$—
$72.1
Provision charged to operating expense1.5
4.6
0.5
0.4
—
7.0
Less loans charged-off(2.8)(8.5)(3.7)—
—
(15.0)
Add back recoveries of loans previously
   charged-off
2.6
3.6
3.1
0.2
—
9.5
Ending balance$33.0
$8.4
$30.4
$1.8
$—
$73.6

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


As of December 31, 2018Real Estate
Consumer
Commercial
Agriculture
OtherTotal
Allowance for loan losses:      
Loans individually evaluated for impairment$1.3
$—
$5.2
$0.3
$—
$6.8
Loans collectively evaluated for impairment29.7
8.7
26.1
1.7
—
66.2
Allowance for loan losses$31.0
$8.7
$31.3
$2.0
$—
$73.0
       
As of December 31, 2018Real Estate
Consumer
Commercial
Agriculture
Other
Total
Loans held for investment: 
 
 
 
 
 
Individually evaluated for impairment$41.8
$—
$19.9
$3.1
$—
$64.8
Collectively evaluated for impairment5,791.7
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

The Company performs a quarterly assessment ofconsiders the adequacy of its allowance for loan losses in accordance with GAAP. The methodology used to assess the adequacy is consistently applied to the Company’s loan portfolio 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 characteristics and trends; and (3) general valuation allowances determined based on changes in the natureperformance of the loan portfolio overall portfolioand its impact on the allowance for credit loan losses. For certain credit card loan classes, the Company also evaluates credit 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 for the 2018 period and on a one-year loss history for the comparable periods. The loan loss rates for 2018 and 2019 incorporate the available loss history data from Bank of the Cascades 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 volumeaging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in credit card loans based on payment activity:
As of September 30, 2020ConsumerCommercialAgriculturalTotal
Credit Card:
Performing$69.3 $68.5 $1.5 $139.3 
Nonperforming0.6 0.3 0.1 1.0 
Total$69.9 $68.8 $1.6 $140.3 
The following presents the recorded investment in the Company’s loans by risk grades and loan class as of the date shown below:
As of December 31, 2019PassOther Assets
Especially
Mentioned		SubstandardDoubtfulTotal
Criticized
Loans		Total Loans
Real estate:    
Commercial$3,305.0 $84.7 $97.3 $0.8 $182.8 $3,487.8 
Construction:
Land acquisition & development295.4 3.8 1.9 1.0 6.7 302.1 
Residential241.0 0.9 2.2 0 3.1 244.1 
Commercial428.3 1.7 1.5 0 3.2 431.5 
Total construction loans964.7 6.4 5.6 1.0 13.0 977.7 
Residential1,235.4 2.6 7.8 0.3 10.7 1,246.1 
Agricultural185.7 14.3 26.6 0 40.9 226.6 
Total real estate loans5,690.8 108.0 137.3 2.1 247.4 5,938.2 
Consumer:
Indirect consumer781.5 0.2 2.9 0 3.1 784.6 
Direct consumer177.7 0.4 0.8 0.1 1.3 179.0 
Credit card81.6 0 0 0 0 81.6 
Total consumer loans1,040.8 0.6 3.7 0.1 4.4 1,045.2 
Commercial1,569.4 40.4 60.3 3.6 104.3 1,673.7 
Agricultural247.8 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 overall portfolio quality, industry concentrations, current economicloans and regulatory conditions0 material sales of loans held for investment during the three and the estimated impact of these factors on historical loss rates.nine months ended September 30, 2020 or 2019.

An allowance for loan losses is established forPurchased Credit Deteriorated Loans
The Company has purchased loans acquired that are deemed credit impaired andin business combinations, for which the Company projects a decreasethere was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. See “Note 2 - Acquisitions” included in the expected cash flows in periods subsequent to the acquisition of such loans. As of September 30, 2019 and December 31, 2018, the Company’s allowancethis report, for loan losses included $0.7 million and $0.8 million, respectively, related to loans acquired credit impaired.additional details.

(7)Other Real Estate Owned
Information with respect to the Company’s other real estate owned follows:
31
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
Beginning balance$27.5
 $14.9
 $14.4
 $10.1
OREO acquired through acquisition—
 0.6
 2.4
 0.6
Additions0.7
 3.2
 14.0
 10.6
Valuation adjustments(0.2) (0.1) (0.7) (0.1)
Dispositions(10.2) (1.3) (12.3) (3.9)
Ending balance$17.8
 $17.3
 $17.8
 $17.3


Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


(6)    Other Real Estate Owned

Other real estate owned is a category of real estate owned by the Company as a result of a default by the borrower. Information with respect to the Company’s other real estate owned follows:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Beginning balance$6.5 $27.5 $8.5 $14.4 
OREO acquired through acquisition0 0 0 2.4 
Additions2.0 0.7 3.2 14.0 
Valuation adjustments(0.1)(0.2)(0.1)(0.7)
Dispositions(2.7)(10.2)(5.9)(12.3)
Ending balance$5.7 $17.8 $5.7 $17.8 
The carrying values of foreclosed residential real estate properties included in other real estate owned were $2.7$2.3 million and $2.0$2.3 million as of September 30, 20192020 and December 31, 2018,2019, respectively. The Company had $0.6 million ofrecorded investments in consumer mortgage loans collateralizedsecured by residential real estate property thatfor which formal foreclosure proceedings were in the process of foreclosure of $0.2 million and $1.4 million as of September 30, 20192020 and $0.4 million as of December 31, 2018.2019, respectively.

(7)    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 amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements. 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 of the gain or loss on derivative instruments, if any, is recognized in earnings. The Company does not enter into interest rate swap agreements for trading or speculative purposes.

The effective portion of changes 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. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

On May 1, 2020, the Company entered into three interest rate swap contracts that were designated as cash flow hedges. The contracts 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. As such, 0 amount of hedge ineffectiveness was included in the Company's income statement for the three and nine months ended September 30, 2020. The Company expects the hedge to remain highly effective during the remaining term of the interest rate swap.

32

(8)Derivatives and Hedging Activities

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
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.
    
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.
    

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


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.
September 30, 2020December 31, 2019
Notional AmountEstimated
Fair Value		Notional AmountEstimated
Fair Value
Derivative Assets (included in other assets on the consolidated balance sheets):
Non-hedging interest rate derivatives:
Interest rate swap contracts$754.3 $61.3 $503.2 $21.9 
Interest rate lock commitments186.9 7.0 67.8 1.3 
Total derivative assets$941.2 $68.3 $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 contracts754.3 61.3 503.2 21.9 
Forward loan sales contracts237.0 1.6 128.0 0.3 
Total derivative liabilities$1,078.9 $63.1 $631.2 $22.2 
 September 30, 2019 December 31, 2018
 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$494.0
$30.8
 $403.3
$8.8
Interest rate lock commitments122.4
2.0
 51.0
1.3
Forward loan sales contracts174.7
0.2
 —
—
Total derivative assets$791.1
$33.0
 $454.3
$10.1
      
Derivative Liabilities (included in accounts payable and accrued expenses on the consolidated balance sheets):
Non-hedging interest rate derivatives:     
Interest rate swap contracts$494.0
$30.8
 $403.3
$8.8
Forward loan sales contracts—
—
 64.6
0.6
Total derivative liabilities$494.0
$30.8
 $467.9
$9.4

33

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
There were 0 material effects of derivative instruments in cash flow hedging relationships on the consolidated statements of income for the three and nine months ended September 30, 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 illustratestables illustrate the potential effect of the Company’s master netting arrangements, by type of financial instrument, on the Company’s consolidated balance sheets as of September 30, 2019 and December 31, 2018:for the periods indicated:
September 30, 2020
Gross Amounts RecognizedGross Amounts Offset in the Balance SheetNet Amounts in the Balance SheetFinancial InstrumentsFair Value of Financial Collateral in the Balance SheetNet Amount
Financial Assets
Interest rate swap contracts$61.3 $0 $61.3 $0 $28.7 $32.6 
Mortgage related derivatives7.0 0 7.0 0 0 7.0 
Total derivatives68.3 0 68.3 0 28.7 39.6 
Total assets$68.3 $0 $68.3 $0 $28.7 $39.6 
Financial Liabilities
Interest rate swap contracts$61.5 $0 $61.5 $0 $0 $61.5 
Mortgage related derivatives1.6 0 1.6 0 0 1.6 
Total derivatives63.1 0 63.1 0 0 63.1 
Repurchase agreements820.3 820.3 0 820.3 0 
Total liabilities$883.4 $0 $883.4 $0 $820.3 $63.1 
December 31, 2019
Gross Amounts RecognizedGross Amounts Offset in the Balance SheetNet Amounts in the Balance SheetFinancial InstrumentsFair Value of Financial Collateral in the Balance SheetNet Amount
Financial Assets
Interest rate swap contracts$21.9 $0 $21.9 $0.1 $18.0 $3.8 
Mortgage related derivatives1.3 0 1.3 0 0 1.3 
Total derivatives23.2 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 derivatives0.3 0 0.3 0 0 0.3 
Total derivatives22.2 0 22.2 0.1 0 22.1 
Repurchase agreements697.6 0 697.6 0 697.6 0 
Total liabilities$719.8 $0 $719.8 $0.1 $697.6 $22.1 
34
 September 30, 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$30.8
 $—
 $30.8
 $0.1
 $19.7
 $11.0
Mortgage related derivatives2.2
 —
 2.2
 —
 —
 2.2
Total derivatives33.0
 —
 33.0
 0.1
 19.7
 13.2
Total assets$33.0
 $—
 $33.0
 $0.1
 $19.7
 $13.2
            
Financial Liabilities
Interest rate swap contracts$30.8
 $—
 $30.8
 $0.1
 $—
 $30.7
Mortgage related derivatives—
 —
 —
 —
 —
 —
Total derivatives30.8
 —
 30.8
 0.1
 —
 30.7
Repurchase agreements636.9
 —
 636.9
 —
 636.9
 —
Total liabilities$667.7
 $—

$667.7

$0.1

$636.9

$30.7


Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


 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 derivatives1.3
 —
 1.3
 —
 —
 1.3
Total derivatives10.1
 —
 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 derivatives0.6
 —
 0.6
 —
 —
 0.6
Total derivatives9.4
 —
 9.4
 2.7
 4.1
 2.6
Repurchase agreements712.4
 —
 712.4
 —
 712.4
 —
Total liabilities$721.8
 $—
 $721.8
 $2.7
 $716.5
 $2.6


The following table presents the pre-tax gains or losses related to derivative contracts that were recorded in other non-interest income in the Company’s statements of income for the periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Derivatives designated as hedges:
Amount of gain recognized in other comprehensive income (effective portion)$0 $0 $0.2 $0 
Reclassification adjustment for derivatives net (gains) losses included in income0 0 0.2 0 
Non-hedging interest rate derivatives:
Amount of net fee income recognized in other non-interest income$3.7 $0.5 6.4 1.8 
Amount of net (losses) gains recognized in mortgage banking revenues(0.6)0.4 4.4 1.5 
 Three Months Ended September 30, Nine Months Ended September 30,
 20192018 20192018
Non-hedging interest rate derivatives:     
Amount of gain recognized in other non-interest income$—
$0.1
 $—
$0.4
Amount of net fee income recognized in other non-interest income0.5
—
 1.8
0.9
Amount of net gains recognized in mortgage banking revenues0.4
—
 1.5
—


(8)    Capital Stock
(9)Capital Stock
    
The Company had 43,034,08241,143,592 shares of Class A common stock and 22,195,67921,971,339 shares of Class B common stock outstanding as of September 30, 2019.2020. The Company had 38,169,57543,129,085 shares of Class A common stock and 22,453,67222,117,254 shares of Class B common stock outstanding as of December 31, 2018.2019.

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. In addition, duringDuring the nine months ended September 30, 2019,2020, the Company issued 21,94219,491 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 $0.8$0.6 million is included in stock-based compensation expense in the accompanying consolidated statements of changes in stockholders' equity.

On June 11, 2019, the company’sCompany’s board of directors adopted a new stock repurchase program to replace the program that had been in place since 2015 and which had only 24,123 shares of Class A common stock remaining to be purchased thereunder. Under the new stock repurchase program,where the Company may repurchase up to 2.5 million of its outstanding shares of Class A common stock. To dateOn 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 has 0t repurchased any shares under the current authorization.stock repurchase program by an additional 3.0 million shares for a total of 5.5 million shares.

During the three months ended September 30, 2020, the Company repurchased and retired 1,445,300 shares of our Class A common stock at a total cost of $46.3 million, including costs and commissions, at an average cost of $32.05 per share. The shares of common stock repurchased during the period represented 26.3% of the total 5.5 million shares authorized to be repurchased.
During the nine months ended September 30, 2019 and 2018,2020, the Company did not repurchase anyrepurchased and retired 2.5 million shares of itsour Class A common stock at a total cost of $77.5 million, including costs and commissions, at an average cost of $31.01 per share. The shares of common stock repurchased during the period represented 45.5% of the total 5.5 million shares authorized to be repurchased. As of September 30, 2020, there were 3.0 million shares remaining authorized under the repurchase program.

All other than stock repurchases whichduring the nine months ended September 30, 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.

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and(9)    Earnings per share data)Common Share



(10)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.
35

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)

The following table sets forth the computation of basic and diluted earnings per share for the three and nine month periods ended September 30, 20192020 and 2018:2019:
 Three Months Ended September 30, Nine Months Ended September 30,
 20192018 20192018
Net income$49.1
$41.4
 $128.6
$119.8
Weighted average common shares outstanding for basic earnings per share computation64,832,324
58,254,575
 63,232,575
56,951,029
Dilutive effects of stock-based compensation211,162
385,900
 238,708
378,998
Weighted average common shares outstanding for diluted earnings per common share computation65,043,486
58,640,475
 63,471,283
57,330,027
      
Basic earnings per common share$0.76
$0.71
 $2.03
$2.10
Diluted earnings per common share$0.76
$0.71
 $2.03
$2.09
      
Anti-dilutive unvested time restricted stock4,808
4,376
 5,569
120,553

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net income$48.3 $49.1 $114.3 $128.6 
Weighted average common shares outstanding for basic earnings per share computation63,764,474 64,832,324 64,184,832 63,232,575 
Dilutive effects of stock-based compensation96,983 211,162 110,693 238,708 
Weighted average common shares outstanding for diluted earnings per common share computation63,861,457 65,043,486 64,295,525 63,471,283 
Basic earnings per common share$0.76 $0.76 $1.78 $2.03 
Diluted earnings per common share$0.76 $0.76 $1.78 $2.03 
Anti-dilutive unvested time restricted stock68,397 4,808 73,633 5,569 
The Company had 143,415293,236 and 154,176143,415 shares of unvested restricted stock as of September 30, 20192020 and 2018,2019, respectively, that were not included in the computation of diluted earnings per common share because performance conditions for vesting had not been met.
    
(11)Regulatory Capital
On July 2, 2013, the Board of Governors of the Federal Reserve Bank issued a final rule implementing a revised regulatory capital framework for U.S. banks in accordance with the Basel III international accord and satisfying related mandates under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The revised regulatory capital framework (the “Basel III(10)    Regulatory Capital Rules”) substantially revised the risk-based capital requirements applicable to bank holding companies and depository institutions by defining the components of capital and addressing other issues affecting the numerator in banking institutions’ regulatory capital ratios, addressing risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replacing the existing risk-weighting approach with a more risk-sensitive approach. The Basel III Capital Rules became effective for the Company on January 1, 2015, subject to a phase-in period for certain provisions. The capital conservation buffer required under Basel III began to phase in starting January 1, 2016 and became fully implemented on January 1, 2019.

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


As of September 30, 20192020 and December 31, 2018,2019, the Company exceeded all capital adequacy requirements to which it is subject. Actual capital amounts and ratios for the Company and its subsidiary Bank, as of September 30, 20192020 and December 31, 20182019 are presented in the following tables: 
 ActualMinimum Required for Capital Adequacy PurposesFor Capital Adequacy Purposes Plus Capital Conservation BufferMinimum to Be Well Capitalized Under Prompt Corrective Action Requirements(1)
September 30, 2020Amount RatioAmount RatioAmount RatioAmount Ratio
Total risk-based capital:        
Consolidated$1,585.8 14.45 %$877.7 8.00 %$1,152.0 10.50 %$1,097.1 10.00 %
FIB1,412.5 12.91 875.1 8.00 1,148.6 10.50 1,093.9 10.00 
Tier 1 risk-based capital:
Consolidated1,378.3 12.56 658.3 6.00 932.6 8.50 877.7 8.00 
FIB1,305.1 11.93 656.3 6.00 929.8 8.50 875.1 8.00 
Common equity tier 1 risk-based capital:
Consolidated1,294.2 11.80 493.7 4.50 768.0 7.00 713.1 6.50 
FIB1,305.1 11.93 492.3 4.50 765.7 7.00 711.0 6.50 
Leverage capital ratio:
Consolidated1,378.3 8.62 639.3 4.00 639.3 4.00 799.1 5.00 
FIB1,305.1 8.18 638.2 4.00 638.2 4.00 797.8 5.00 

36

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED 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)
September 30, 2019Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total risk-based capital:           
Consolidated$1,460.2
13.71% $851.9
8.000% $1,118.1
10.50% $1,064.9
10.00%
FIB1,308.6
12.33
 849.0
8.000
 1,114.3
10.50
 1,061.3
10.00
Tier 1 risk-based capital:           
Consolidated1,385.2
13.01
 638.9
6.000
 905.2
8.50
 851.9
8.00
FIB1,233.7
11.62
 636.8
6.000
 902.1
8.50
 849.0
8.00
Common equity tier 1 risk-based capital:           
Consolidated1,298.3
12.19
 479.2
4.500
 745.4
7.00
 692.2
6.50
FIB1,233.7
11.62
 477.6
4.500
 742.9
7.00
 689.8
6.50
Leverage capital ratio:           
Consolidated1,385.2
9.96
 556.2
4.000
 556.2
4.00
 695.3
5.00
FIB1,233.7
8.96
 550.5
4.000
 550.5
4.00
 688.1
5.00
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 System, and the FDIC issued an interim final rule that allows banking organizations to mitigate the effects of ASC 326 on their regulatory capital computations. This interim rule is in addition to the three-year transition period already in place under the capital transition rule previously issued in February 2019. Banking organizations can elect to mitigate the estimated cumulative regulatory capital effects for an additional two years. This rule allows an institution to defer transitioning the impact of ASC 326 into its regulatory capital calculation, including ratios, over an extended period. Additionally, the interim rule extends the transition period whereby an institution can defer the impact from ASC 326 on the current period, determined based on the difference 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 transition election and is adopting transition relief over the permissible five-year period.

ActualMinimum Required for Capital Adequacy PurposesFor Capital Adequacy Purposes Plus Capital Conservation BufferMinimum to Be Well Capitalized Under Prompt Corrective Action Requirements(1)
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, 2018Amount Ratio Amount Ratio Amount Ratio Amount Ratio
December 31, 2019December 31, 2019Amount RatioAmount RatioAmount RatioAmount Ratio
Total risk-based capital:           Total risk-based capital:    
Consolidated$1,285.0
12.99% $791.2
8.00% $976.6
9.875% $989.0
10.00%Consolidated$1,495.3 14.10 %$848.5 8.00 %$1,113.6 10.50 %$1,060.6 10.00 %
FIB1,184.5
12.01
 788.8
8.00
 973.7
9.875
 986.0
10.00
FIB1,321.4 12.50 845.8 8.00 1,110.1 10.50 1,057.2 10.00 
Tier 1 risk-based capital:           Tier 1 risk-based capital:
Consolidated1,212.0
12.26
 593.4
6.00
 778.8
7.875
 791.2
8.00
Consolidated1,422.3 13.41 636.3 6.00 901.5 8.50 848.5 8.00 
FIB1,111.6
11.27
 591.6
6.00
 776.5
7.875
 788.8
8.00
FIB1,248.4 11.81 634.3 6.00 898.6 8.50 845.8 8.00 
Common equity tier 1 risk-based capital:           Common equity tier 1 risk-based capital:
Consolidated1,127.8
11.40
 445.0
4.50
 630.5
6.375
 642.8
6.50
Consolidated1,338.2 12.62 477.3 4.50 742.4 7.00 689.4 6.50 
FIB1,111.6
11.27
 443.7
4.50
 628.6
6.375
 640.9
6.50
FIB1,248.4 11.81 475.7 4.50 740.0 7.00 687.2 6.50 
Leverage capital ratio:           Leverage capital ratio:
Consolidated1,212.0
9.47
 511.9
4.00
 511.9
4.000
 639.9
5.00
Consolidated1,422.3 10.13 561.6 4.00 561.6 4.00 702.0 5.00 
FIB1,111.6
8.97
 495.9
4.00
 495.9
4.000
 619.8
5.00
FIB1,248.4 8.91 560.4 4.00 560.4 4.00 700.4 5.00 
(1) The ratios for the requirements to be deemed “well capitalized”“well-capitalized” are only applicable to FIB. However, the Company manages its capital position as if the requirements apply to the consolidated entitycompany and has presented the ratios as if they also applied on a consolidated basis.

(12)Commitments and Contingencies
(11)    Commitments and Contingencies
    
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 of all other claims and litigation is not expected to have a material adverse effect on the consolidated financial condition, results of operations, or liquidity of the Company.
As of September 30, 2019,2020, the Company had commitments under construction contracts of $2.0$10.6 million.

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


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; 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 $1.0$1.1 million of sold residential mortgage loans with recourse provisions still in effect as of September 30, 2019.2020.
37

Table of Contents
(13)Financial Instruments with Off-Balance Sheet Risk
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
(12)    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. 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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. At September 30, 2019, commitments to extend credit to existing and new borrowers approximated $2,835.8 million, which included $746.0 million on unused credit card lines and $1,238.4 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. At September 30, 2019,
The following table presents our financial instruments with off-balance sheet risk, as well as the Company had outstanding standby letters of credit of $52.2 million. The estimated fair value of the obligation undertaken by the Company in issuing the standby letters of credit is included in other liabilitiesactivity in the Company’s consolidated balance sheet.allowance for off-balance sheet credit losses related to those financial instruments:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Beginning balance$2.3 $0 $0 $0 
Initial impact of adopting ASC 3260 0 2.3 0 
Provision for credit loss expense1.2 0 1.2 0 
Ending balance of allowance for off-balance sheet credit losses$3.5 $0 $3.5 $0 


September 30,
2020		December 31,
2019
Unused credit card lines*$691.9 $671.8 
Commitments to extend credit*2,173.2 2,067.0 
Standby letter of credit58.8 42.7 
* In conjunction with the adoption of ASC 326, the Company presented the December 31, 2019 balances to conform to the September 30, 2020 presentation.

(14)Other Comprehensive Income/Loss
(13)    Other Comprehensive Income/Loss
    
The gross amounts of each component of other comprehensive income and the related tax effects are as follows:
Pre-taxTax Expense (Benefit)Net of Tax
Three Months Ended September 30,202020192020201920202019
Investment securities available-for sale:
Change in net unrealized (loss) gain during period$(4.2)$4.2 $(1.1)$1.0 $(3.1)$3.2 
Reclassification adjustment for net gains included in net income(0.1)(0.1)0 0 (0.1)(0.1)
Defined benefits post-retirement benefit plan:
Change in net actuarial gains(0.1)(0.2)0 — (0.1)(0.2)
Total other comprehensive (loss) income$(4.4)$3.9 $(1.1)$1.0 $(3.3)$2.9 
 Pre-tax Tax Expense (Benefit) Net of Tax
Three Months Ended September 30,2019 2018 2019 2018 2019 2018
Investment securities available-for sale:           
Change in net unrealized gains during period$4.2
 $(6.3) $1.0
 $(1.7) $3.2
 $(4.6)
Reclassification adjustment for net gains included in net income(0.1) —
 —
 —
 (0.1) —
Change in unamortized loss on available-for-sale securities transferred into held-to-maturity—
 0.5
 —
 0.1
 —
 0.4
Defined benefits post-retirement benefit plan:           
Change in net actuarial (gain) loss(0.2) (0.2) —
 —
 (0.2) (0.2)
Total other comprehensive income (loss)$3.9
 $(6.0) $1.0
 $(1.6) $2.9
 $(4.4)

Pre-taxTax Expense (Benefit)Net of Tax
Nine Months Ended September 30,202020192020201920202019
Investment securities available-for sale:
Change in net unrealized gains during period$69.9 $58.0 $18.7 $15.0 $51.2 $43.0 
Reclassification adjustment for net gains included in net income(0.1)(0.1)0 0 (0.1)(0.1)
Reclassification adjustment for securities transferred from held-to-maturity to available-for-sale0 (6.0)0 (1.6)0 (4.4)
Unrealized loss on derivatives0.2 0 0 0 0.2 0 
Defined benefits post-retirement benefit plan:
Change in net actuarial gains(0.5)(0.5)(0.1)— (0.4)(0.5)
Total other comprehensive income$69.5 $51.4 $18.6 $13.4 $50.9 $38.0 
38
 Pre-tax Tax Expense (Benefit) Net of Tax
Nine Months Ended September 30,2019 2018 2019 2018 2019 2018
Investment securities available-for sale:           
Change in net unrealized gains during period$58.0
 $(33.9) $15.0
 $(8.9) $43.0
 $(25.0)
Reclassification adjustment for net gains included in net income(0.1) —
 —
 —
 (0.1) —
Reclassification adjustment for securities transferred from held-to-maturity to available-for-sale(6.0) —
 (1.6) —
 (4.4) —
Change in unamortized loss on available-for-sale securities transferred into held-to-maturity—
 1.5
 —
 0.4
 —
 1.1
Defined benefits post-retirement benefit plan:           
Change in net actuarial (gain) loss(0.5) (0.5) —
 (0.1) (0.5) (0.4)
Total other comprehensive income (loss)$51.4
 $(32.9) $13.4
 $(8.6) $38.0
 $(24.3)


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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)




The components of accumulated other comprehensive loss,income, net of related tax effects, are as follows:
 September 30, 2019 December 31, 2018
Net unrealized gain (loss) on investment securities available-for-sale$12.9
 $(25.5)
Net actuarial gain (loss) on defined benefit post-retirement benefit plans0.5
 0.9
Net accumulated other comprehensive gain (loss)$13.4
 $(24.6)
September 30, 2020December 31, 2019
Net unrealized gains on investment securities available-for-sale$62.1 $10.6 
Net unrealized loss on derivatives(0.2)0 
Net actuarial gains on defined benefit post-retirement benefit plans0 0.4 
Net accumulated other comprehensive gains$61.9 $11.0 


(14)    Fair Value Measurements
(15)Fair Value Measurements
                
Fair value is defined as the price that would be received to sell an asset or be 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.

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 three and nine months ended September 30, 2020 and 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 no0 transfers between Level 1 and Level 2fair value hierarchy levels during the three and nine months ended September 30, 20192020 and 2018.
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.
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.
39

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED 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

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


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.

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 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.
40

Financial assets and liabilities measured at fair value on a recurring basis are as follows:
  Fair Value Measurements at Reporting Date Using
As of September 30, 2019Balance
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$7.0
$—$7.0
$—
State, county and municipal securities78.4
 —78.4
 —
Obligations of U.S. government agencies426.7
 —426.7
 —
U.S. agencies mortgage-backed securities & collateralized mortgage obligations2,063.2
 —2,063.2
 —
Private mortgage-backed securities54.1
 —54.1
 —
Corporate securities96.7
 —96.7
 —
Other investments6.1
 —6.1
 —
Loans held for sale108.9
 —108.9
 —
Derivative assets:

     
Interest rate swap contracts30.8
 —30.8
 —
Interest rate lock commitments2.0
 —2.0
 —
Forward loan sale contracts0.2
 —0.2
 —
Derivative liabilities:

     
Interest rate swap contracts30.8
 —30.8
 —
Deferred compensation plan assets17.5
 —17.5
 —
Deferred compensation plan liabilities17.5
 —17.5
 —

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


Financial assets and liabilities measured at fair value on a recurring basis are as follows:
 Fair Value Measurements at Reporting Date Using
As of September 30, 2020BalanceQuoted 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$8.0 $0$8.0 $0
State, county and municipal securities236.1 0236.1 0
Obligations of U.S. government agencies278.8 0278.8 0
U.S. agencies mortgage-backed securities & collateralized mortgage obligations2,611.7 02,611.7 0
Private mortgage-backed securities20.1 020.1 0
Corporate securities297.8 0297.8 0
Other investments1.0 01.0 0
Loans held for sale102.0 0102.0 0
Derivative assets:
Interest rate swap contracts61.3 061.3 0
Interest rate lock commitments7.0 07.0 0
Derivative liabilities:
Interest rate swap contracts61.5 061.5 0
Forward loan sale contracts1.6 01.6 0
Deferred compensation plan assets18.9 018.9 0
Deferred compensation plan liabilities18.9 018.9 0
 Fair Value Measurements at Reporting Date Using
As of December 31, 2019BalanceQuoted 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$9.0 $0$9.0 $0
State, county and municipal securities80.9 080.9 0
Obligations of U.S. government agencies366.8 0366.8 0
U.S. agencies mortgage-backed securities & collateralized mortgage obligations2,317.2 02,317.2 0
Private mortgage-backed securities47.2 047.2 0
Corporate securities135.7 0135.7 0
Other investments3.2 03.2 0
Loans held for sale100.9 0100.9 0
Derivative assets:
Interest rate swap contracts21.9 021.9 0
Interest rate lock commitments1.3 01.3 0
Derivative liabilities
Interest rate swap contracts21.9 021.9 0
Forward loan sales contracts0.3 00.3 0
Deferred compensation plan assets18.2 018.2 0
Deferred compensation plan liabilities18.2 018.2 0
  Fair Value Measurements at Reporting Date Using
As of December 31, 2018Balance
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
$—
Obligations of U.S. government agencies559.2
 —559.2
 —
U.S. agencies mortgage-backed securities & collateralized mortgage obligations1,544.8
 —1,544.8
 —
Private mortgage-backed securities70.2
 —70.2
 —
Corporate securities91.9
 —91.9
 —
Other investments2.0
 —2.0
 —
Loans held for sale33.3
 —33.3
 —
Derivative assets:      
Interest rate swap contracts8.8
 —8.8
 —
Interest rate lock commitments1.3
 —1.3
 —
Derivative liabilities      
Interest rate swap contracts8.8
 —8.8
 —
Forward loan sales contracts0.6
 —0.6
 —
Deferred compensation plan assets12.1
 —12.1
 —
Deferred compensation plan liabilities12.1
 —12.1
 —
41

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED 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 September 30, 2019BalanceQuoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Impaired loans$27.2
$—$—$27.2
Other real estate owned2.9
 — —2.9
Long-lived assets to be disposed of by sale6.9
 — —6.9
       
   Fair Value Measurements at Reporting Date Using
As of December 31, 2018BalanceQuoted Prices in Active Markets for Identical Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Impaired loans$24.1
$—$—$24.1
Other real estate owned0.6
 — —0.6
Long-lived assets to be disposed of by sale4.9
 — —4.9

 Fair Value Measurements at Reporting Date Using
As of September 30, 2020BalanceQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Collateral dependent loans*$11.4 $0$0$11.4 
Other real estate owned1.1 001.1 
Long-lived assets to be disposed of by sale5.0 005.0 
 Fair Value Measurements at Reporting Date Using
As of December 31, 2019BalanceQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Impaired Loans*$27.6 $0$0$27.6 
Other real estate owned2.2 002.2 
Long-lived assets to be disposed of by sale6.2 006.2 
*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.
    

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


ImpairedCollateral-dependent Loans. Collateralized impairedCollateral-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 September 30, 2020, certain collateral dependent loans with a carrying value of $16.0 million were reduced by specific valuation allowance allocations of $4.6 million with 0 material loan charge-offs resulting in a reported fair value of $11.4 million. As of December 31, 2019, certain impaired loans with a carrying value of $39.1$41.3 million were reduced by specific valuation allowance allocations of $4.1$3.6 million and partial loan charge-offs of $7.8$10.1 million resulting in a reported fair value of $27.2 million. As of December 31, 2018, certain impaired loans with a carrying value of $36.3 million were reduced by specific valuation allowance allocations of $6.8 million and partial loan charge-offs of $5.4 million resulting in a reported fair value of $24.1$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. The Company had $0.1 million and $0.7 million and no materialof write downs on OREO properties during the nine months ended September 30, 20192020 and 2018,2019, respectively.
    
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 September 30, 2020, the Company had long-lived assets to be disposed of by sale with carrying values aggregating $5.2 million, which was reduced by write-downs of $0.2 million, resulting in a fair value of $5.0 million. As of December 31, 2019, the Company had long-lived assets to be disposed of by sale with carrying values aggregating $7.1$6.4 million, which was reduced by write-downs of $0.2 million, resulting in a fair value of $6.9 million. As of December 31, 2018, the Company had long-lived assets to be disposed of by sale with carrying values aggregating $5.4 million, reduced by write-downs of $0.5 million, resulting in a fair value of $4.9$6.2 million.         

42

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED 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:
 Fair Value As of      
 September 30, 2019December 31, 2018
Valuation
Technique
Unobservable
Inputs
Range
(Weighted Average)
Impaired loans$27.2
$24.1
AppraisalAppraisal adjustment0%-26%(13%)
Other real estate owned2.9
0.6
AppraisalAppraisal adjustment8%-96%(39%)
Long-lived assets to be disposed of by sale6.9
4.9
AppraisalAppraisal adjustment0%-43%(10%)

Fair Value As of
September 30, 2020December 31, 2019Valuation
Technique		Unobservable
Inputs		Range
(Weighted Average)
Collateral dependent loans$11.4 $27.6 AppraisalAppraisal adjustment0%-56%(22%)
Other real estate owned1.1 2.2 AppraisalAppraisal adjustment8%-65%(27%)
Long-lived assets to be disposed of by sale5.0 6.2 AppraisalAppraisal adjustment0%-37%(3%)
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 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 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.
        

Table of Contents
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


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.    

43

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED 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 September 30, 2019Carrying 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 September 30, 2020As of September 30, 2020Carrying AmountEstimated
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$1,269.6
$1,269.6
$1,269.6
$—
$—
Cash and cash equivalents$1,860.6 $1,860.6 $1,860.6 $0 $0 
Investment debt securities available-for-sale2,732.2
2,732.2
—
2,732.2
—
Investment debt securities available-for-sale3,453.5 3,453.5 0 3,453.5 0 
Investment debt securities held-to-maturity94.9
97.2
—
97.2
—
Investment debt securities held-to-maturity55.0 58.4 0 58.4 0 
Accrued interest receivable51.1
51.1
—
51.1
—
Accrued interest receivable56.7 56.7 0 56.7 0 
Mortgage servicing rights, net29.8
32.1
—
32.1
—
Mortgage servicing rights, net24.1 24.1 0 24.1 0 
Loans held for sale108.9
108.9
—
108.9
—
Loans held for sale102.0 102.0 0 102.0 0 
Net loans held for investment8,917.6
8,953.4
—
8,926.2
27.2
Net loans held for investment10,006.7 9,927.4 0 9,916.0 11.4 
Derivative assets33.0
33.0
—
33.0
—
Derivative assets68.3 68.3 0 68.3 0 
Deferred compensation plan assets17.5
17.5
—
17.5
—
Deferred compensation plan assets18.9 18.9 0 18.9 0 
Total financial assets$13,254.6
$13,295.0
$1,269.6
$11,998.2
$27.2
Total financial assets$15,645.8 $15,569.9 $1,860.6 $13,697.9 $11.4 
 
Financial liabilities: Financial liabilities:
Total deposits, excluding time deposits$10,264.6
$10,264.6
$10,264.6
$—
$—
Total deposits, excluding time deposits$12,770.3 $12,770.3 $12,770.3 $0 $0 
Time deposits1,535.0
1,530.9
—
1,530.9
—
Time deposits1,112.1 1,115.4 0 1,115.4 0 
Securities sold under repurchase agreements636.9
636.9
—
636.9
—
Securities sold under repurchase agreements820.3 820.3 0 820.3 0 
Accrued interest payable12.3
12.3
—
12.3
—
Accrued interest payable8.1 8.1 0 8.1 0 
Long-term debt13.9
11.3
—
11.3
—
Long-term debt112.4 111.6 0 111.6 0 
Subordinated debentures held by subsidiary trusts86.9
77.9
—
77.9
—
Subordinated debentures held by subsidiary trusts87.0 82.0 0 82.0 0 
Derivative liabilities30.8
30.8
—
30.8
—
Derivative liabilities63.1 63.1 0 63.1 0 
Deferred compensation plan liabilities17.5
17.5
—
17.5
—
Deferred compensation plan liabilities18.9 18.9 0 18.9 0 
Total financial liabilities$12,597.9
$12,582.2
$10,264.6
$2,317.6
$—
Total financial liabilities$14,992.2 $14,989.7 $12,770.3 $2,219.4 $0 
44

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


 Fair Value Measurements at Reporting Date Using
As of December 31, 2019Carrying AmountEstimated
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-sale2,960.0 2,960.0 0 2,960.0 0 
Investment debt securities held-to-maturity92.3 94.5 0 94.5 0 
Accrued interest receivable46.7 46.7 0 46.7 0 
Mortgage servicing rights, net30.2 34.8 0 34.8 0 
Loans held for sale100.9 100.9 0 100.9 0 
Net loans held for investment8,857.7 8,930.7 0 8,906.7 24.0 
Derivative assets23.2 23.2 0 23.2 0 
Deferred compensation plan assets18.2 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 deposits1,450.0 1,446.6 0 1,446.6 0 
Securities sold under repurchase agreements697.6 697.6 0 697.6 0 
Accrued interest payable12.1 12.1 0 12.1 0 
Long-term debt13.9 10.4 0 10.4 0 
Subordinated debentures held by subsidiary trusts86.9 81.3 0 81.3 0 
Derivative liabilities22.2 22.2 0 22.2 0 
Deferred compensation plan liabilities18.2 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, 2018Carrying 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$822.0
$822.0
$822.0
$—
$—
Investment debt securities available-for-sale2,270.7
2,270.7
—
2,270.7
—
Investment debt securities held-to-maturity406.8
400.7
—
400.7
—
Accrued interest receivable44.9
44.9
—
44.9
—
Mortgage servicing rights, net27.7
42.4
—
42.4
—
Loans held for sale33.3
33.3
—
33.3
—
Net loans held for investment8,397.4
8,439.7
—
8,415.6
24.1
Derivative assets10.1
10.1
—
10.1
—
Deferred compensation plan assets12.1
12.1
—
12.1
—
Total financial assets$12,025.0
$12,075.9
$822.0
$11,229.8
$24.1
      
Financial liabilities:     
Total deposits, excluding time deposits$9,363.7
$9,363.7
$9,363.7
$—
$—
Time deposits1,317.0
1,299.0
—
1,299.0
—
Securities sold under repurchase agreements712.4
712.4
—
712.4
—
Accrued interest payable7.8
7.8
—
7.8
—
Long-term debt15.8
13.0
—
13.0
—
Subordinated debentures held by subsidiary trusts86.9
84.9
—
84.9
—
Derivative liabilities9.4
9.4
—
9.4
—
Deferred compensation plan liabilities12.1
12.1
—
12.1
—
Total financial liabilities$11,525.1
$11,502.3
$9,363.7
$2,138.6
$—


(16)
Recent Authoritative Accounting Guidance(15)    Long-Term Debt            
    
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. 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. Additionally, in December 2018, the FASB 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,May 2020, the Company recognized right-of-use assetsissued $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 related lease liabilities totaling $54.6 million and $54.6 million, respectively, with an immaterial impact on its consolidated resultseffective rate of operations and liquidity. During the third quarter of 2019, a reassessment of the lease terms within the lease portfolio was performed, resulting in a $15.0 million adjustment to the right-of-use leased assets, to $39.6 million, and the right-of-use lease liabilities, to $39.6 million, which had no corresponding impact to the results of operations. The change is5.33%, due to reconsideration of the reasonable certainty of extensions, terminations, and the right to exercise options in those leases. The Company elected to apply certain practical expedients provided under ASU 2016-02 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. The Companyissuance costs.


Table of Contents(16)    Recent Authoritative Accounting Guidance
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


elected the hindsight practical expedient to determine the lease term for existing leases. We also did not apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). Lease and non-lease components are accounted for separately as the amounts are readily determinable under our lease contracts.

ASU 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 January 1, 2020. We have formed a cross-functional working group comprised of individuals from various functional areas including 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 are in the process of implementing a third-party vendor solution. The adoption of ASU 2016-13 could result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “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 certain 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.
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ASU 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. As the Company amortized premiums on callable debt securities to the earliest call date, the amendments in ASU 2017-08 became effective for the Company on January 1, 2019, and did not have a significant impact on the Company’s consolidated financial statements, results of operations, or liquidity.


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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)


ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.”
In August 2017,
On January 1, 2020, 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 withCompany adopted ASC 326 using the economic objectives of those activities. In addition, this ASU makes certain targeted improvements to simplify the application of the hedge accounting, including to derivative instruments as well as allow a one-time election to reclassify fixed-rate, prepayable debt securities from a held-to-maturity classification to an available-for-sale classification. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018. Guidance related to existing cash flow hedges and, if elected, fair value hedges is to be applied under a modified retrospective approachmethod for all financial assets measured at amortized cost and guidance related to amended presentation and disclosures is to be applied under a prospective approach. Uponoff-balance sheet credit exposures. The adoption of ASU 2017-12 on2016-13 resulted in an increase in the allowance for loan losses as a result of changing from the “incurred loss” model, which encompassed allowances for current known and inherent losses within the portfolio, to the “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. The amendments, as applied to our debt securities, had no material impact. The amendments were applied through a cumulative-effect adjustment to retained earnings of $24.1 million as of January 1, 2019,2020. The transition adjustment included an increase in the guidanceallowance 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 corresponding increases in deferred tax assets of $8.2 million.

The Company adopted ASC 326 using the prospective transition approach for PCD financial assets, previously classified as purchased credit impaired, or PCI, and accounted for under ASC 310-30. In accordance with the standard, the Company did not have an impactreassess whether PCI assets met the criteria of PCD assets as of the date of adoption. The remaining discount on the Company's derivatives and, thus, no adjustments were madePCD assets was determined to be related to derivatives. In conjunction withnoncredit factors and will be accreted into interest income on a level-yield method over the adoptionlife of ASU 2017-12, the loans.

The Company madehas elected to opt into the transition election to reclassify $281.1 millionmitigate the effects of ASC 326 on the regulatory capital ratios relative to recent legislation in book valuerelief of securities, that qualified,COVID‑19 pandemic on the economy and financial institutions in the United States. The referenced relief allows a total five-year phase in of the CECL impact on capital and relief over the next two years for the impact on the allowance for credit losses resulting from held-to-maturityCOVID‑19. Refer to available-for-sale.“Note 10 - Regulatory Capital” for additional details of the 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.

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.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)
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-Goodwill and 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. 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.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share and per share data)



ASU 2018-16, “Derivatives 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.” In October 2018, the FASB issued ASU 2018-16, Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. 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 ASU 2018-16 became effective for the Company in conjunction with the adoption of ASU 2017-12 on January 1, 2019,2020 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”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. The Company previously adopted both ASU 2017-12 and ASU 2016-01 and does not expect the amendments of ASU 2019-04 to have a material impact on the Company’s consolidated financial statements, resultsbecame effective upon adoption of operations or liquidity.ASU 2016-13.

(17)    Subsequent Events
    
Subsequent events have been evaluated for potential recognition and disclosure through the date financial statements were filed with the SEC. On October 30, 2019,26, 2020, the Company declared a quarterly dividend to common shareholders of $0.31$0.38 per share, to be paid on November 19, 201916, 2020 to shareholders of record as of November 9, 2019.6, 2020.

No other undisclosed events requiring recognition or disclosure were identified.

47

Item 2.
    
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018,2019, including the audited financial statements contained therein, filed with the Securities and Exchange Commission, or SEC.
When we refer to “we,” “our,” “us,” “First Interstate” or the “Company” in this report, we mean First Interstate BancSystem, Inc. and our consolidated subsidiaries, including our wholly-owned subsidiary, First Interstate Bank (“FIB”), unless the context indicates that we refer only to the parent company, First Interstate BancSystem, Inc. When we refer to the “Bank” or “FIB” in this report, we mean First Interstate Bank.

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Cautionary Note Regarding Forward-Looking Statements and Factors that Could Affect Future Results
“Forward-looking statements” are statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder, that involve inherent risks and uncertainties. Any statements about our plans, objectives, expectations, strategies, beliefs, or future performance or events constitute forward-looking statements. Such statements are identified by words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trends,” “objectives,” “continues” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “may” or similar expressions. Forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates and other important factors that could cause actual results to differ materially from any results, performance or events expressed or implied by such forward-looking statements. The following factors, among others, may cause actual results to differ materially from current expectations in the forward-looking statements, including those set forth in this report: political, legal, regulatory, and general economic or business conditions, either nationally or regionally; geopolitical uncertainties throughout the world; weather-related and other adverse climate conditions, disease, outbreaks, viruses, wide-spread health emergencies, pandemics, and other adverse biological conditions (including the recent outbreak of COVID-19, or other adverse conditions that may impact our business and our customers’ business;clients’ business); actions taken by the Board of Governors of the Federal Reserve including changes in the interest rate environment or interest rate changes madeand other changes to monetary policy; the effect of the various actions taken by the Federal Reserve;US or local government in response to the COVID-19 pandemic; credit performance of our loan portfolio; adequacy of the allowance for loancredit losses and access to low-cost funding sources; our ability to achieve the projected cost savings from our acquisitions and do so in the time expected; operating costs, customer loss and business disruption following our acquisitions may be greater than expected; the unavailability of LIBOR; impairment of goodwill; dependence on the Company’sour management team and ability to attract and retain qualified employees; disruptions to our workforce, including as a result of COVID-19 or other political, legal, regulatory, and general economic or business conditions, could adversely affect our business; governmental regulation and changes in regulatory, tax and accounting rules and interpretations; stringentregulatory actions related to, and interpretations of, risk-based capital requirements;guidelines; the effect of banking and financial services reform; future FDIC insurance premium increases; CFPB restrictions on our ability to originate and sell mortgage loans; cyber-security risks, including items such as “deniala failure or breach of service,” “hacking”our operational or security systems or infrastructure, that could adversely affect our business, financial performance and “identity theft”;reputation; currency fluctuations that impact the value of the U.S. dollar in global markets; management distraction and costs associated with defending against, and unfavorable resolution with respect to, significant litigation, including class action litigation, and regulatory proceedings; inability to meet liquidity risks and technological innovations;requirements; inability to grow organically or through acquisitions; impairment of collateral underlying our loans; environmental remediation and other costs associated with repossessed properties; ineffective internal operational controls; competition; meeting market demand with current and new products; reliance on external vendors; soundness of other financial institutions; failure of technology and failure to effectively implement technology-driven products and services; risks associated with introducing and implementing new lines of business, products or services; failure to execute on strategic or operational plans, including the ability to complete mergers and acquisitions or fully achieve expected costs savings or revenue growth associated with mergers and acquisitions; deposit attrition, customer loss and/or revenue loss following completed acquisitions; anti-takeover provisions; changes in dividend policy and the inability of our bank subsidiary to pay dividends; the uninsured nature of any investment in Class A or Class Bour common stock; decline in market price and volatility of Class A and Class Bour common stock; voting control of Class B common stock stockholders; controlled company status; dilution as a result of future equity issuances; and subordination of common stock to Company debt.our indebtedness.
48

A more detailed discussion of each of the foregoing risks is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019. These factors and the other risk factors described in the Company’s periodic and current reports filed with the SEC from time to time, however, are not necessarily all of the important factors that could cause the Company’s actual results, performance, or achievements to differ materially from those expressed in or implied by any of the Company’s forward-looking statements. Other unknown or unpredictable factors also could harm the Company’s results. Investors and others are encouraged to read the more detailed discussion of the Company’s risks contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019.
All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above and included in the Company’sour periodic reports filed with the SEC under the Securities Exchange Act of 1934, as amended, under the caption “Risk Factors.” Interested parties are urged to read in their entirety such risk factors prior to making any investment decisionsdecision with respect to the Company. Forward-looking statements speak only as of the date they are made and we do not undertake or assume any obligation to update publicly any of these statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.    
Executive Overview
We are a financial and bank holding company incorporated as a Montana corporation in 1971, and headquartered in Billings, Montana. Our Class A common stock is listed on the NASDAQ stock market under the symbol “FIBK.” As of September 30, 2019,2020, we had consolidated assets of $14.7$17.1 billion, deposits of $11.8$13.9 billion, loans of $9.1$10.3 billion, and total stockholders’ equity of $2.0 billion. We currently operate 152150 banking offices, including detached drive-up facilities, in communities across Idaho, Montana, Oregon, South Dakota, Washington, and Wyoming in addition to internet and mobile banking services. Through our bank subsidiary, FIB, we deliver a comprehensive range of banking products and services to individuals, businesses, municipalities, and other entities throughout our market areas. Our customersclients participate in a wide variety of industries, including agriculture, construction, education, energy, governmental services, healthcare, mining, professional services, retail, technology, tourism, and wholesale trade.

Our Business            
Our principal business activity is lending to, accepting deposits from, and conducting financial transactions with and for individuals, businesses, municipalities, and other entities located in the communities we serve. We derive our income principally from interest charged on loans and, to a lesser extent, from interest and dividends earned on investments. We also derive income from non-interest sources such as fees received in connection with various lending and deposit services; trust, employee benefit, investment, and insurance services; mortgage loan originations, sales and servicing; merchant and electronic banking services; and, from time to time,time-to-time, gains on sales of assets. Our principal expenses include interest expense on deposits and borrowings, operating expenses, provisions for loancredit losses, and income tax expense.
Our loan portfolio consists of a mix of real estate, consumer, commercial, agricultural, and other loans, including fixed and variable rate loans. Our real estate loans comprise commercial real estate, construction (including residential, commercial and land development loans), residential, agricultural, and other real estate loans. Fluctuations in the loan portfolio are directly related to the economies of the communities we serve. While each loan originated must meet minimum underwriting standards established in our credit policies, lending officersbankers are granted discretion within pre-approved limits in approving and pricing loans to assure that the banking offices are responsive to competitive issues and community needs in each market area. We fund our loan portfolio primarily with the core deposits from our customers,clients, generally without utilizing brokered deposits and with minimal reliance on wholesale funding sources.     
Recent Trends and Developments
During the past few years, we have increased our community banking footprint across the Rocky Mountain and Pacific Northwest regions, in large part due to our acquisition activity. We will continue to evaluate bank acquisitions and other strategic opportunities on an on-going basis. The Company adopted CECL on January 1, 2020.
On October 11, 2018,
49

Since its emergence in Wuhan, China in December 2019, COVID-19 has spread throughout the world, significantly impacting the entire world’s economies. The global impact of the pandemic has been rapidly evolving and many countries, including the United States, have reacted by instituting a wide variety of control measures including states of emergency, mandatory quarantines, required business and school closures, implementing state-wide “shelter in place” orders, and restricting travel. The United States government has taken a number of actions to mitigate the impact of the COVID-19 pandemic on the U.S. economy. For instance, in March 2020, the Federal Reserve cut the federal funds rate, lowered the interest rate on emergency lending at the discount window, and lengthened the term of overnight loans up to 90 days. The CARES Act, signed into law in March 2020, provided one-time payments to individuals, strengthened unemployment insurance, additional health-care funding, loans and grants to certain businesses, and temporary amendments to the Internal Revenue Code.
The CARES Act also created a new guaranteed, unsecured loan program under the Small Business Administration called the Paycheck Protection Program, or the PPP, in which the Company entered intoparticipates. Designed to incentivize certain businesses to keep their workers on the payroll during the pandemic period, PPP loans are fully forgivable so long as the funds are used as prescribed by the program, are for a definitive agreementtwo-year or five-year term, earn interest at a rate of 1%, require no collateral or personal guarantees, and have deferred loan payments. The Company actively participated in assisting our clients with applications for resources through the program and approved approximately 11,700 applications for approximately $1.2 billion. The program ended on August 8, 2020 and it is unclear whether there will be an extension of the program.
The CARES Act permits financial institutions to acquire allsuspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 and is intended to provide interpretive guidance as to conditions that would constitute a short-term modification that would not meet the definition of a troubled debt restructuring. This includes the following: (i) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration, and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. The Company is applying this guidance to qualifying loan modifications and, as of October 30, 2020, we had approximately 325 loans on deferrals totaling approximately $47.5 million of which approximately 26.4% of the outstanding stockbalance had made a payment within the period. Additionally, as of IIBK,October 30, 2020, the Company currently has forbearance requests granted on approximately 28 residential mortgage loans totaling $6.6 million.
The COVID-19 pandemic triggered a community bank headquartered in Coeur d' Alene, Idaho with 11 banking offices across Idaho.period of material global economic slowdown and recent trends suggest that, while the ongoing recovery is progressing, the pace has been impacted by changing rates of positive diagnoses and additional measures by U.S. and local governments to manage developments. Management continues to actively work to minimize the current and future impact of this unprecedented situation, making adjustments to operations where appropriate or necessary to try and minimize the impact of COVID-19. As of October 31, 2020, a significant number of Company employees continue to work remotely and the Company has not yet established a timetable for the full work force to return to our facilities. This has not, however, caused a significant disruption to the Company operations. The acquisitionextent to which COVID-19 impacts the Company’s financial results remains fluid and merger was completedwill continue to depend on April 8, 2019, and conversiona number of things including the extent of the data processing systems occurredspread of the virus, the rate of infection, the severity of illness and the degree of lethality, the relative effect on June 7, 2019. Considerationvarious portions of the population, the measures taken to combat the virus and their effectiveness, including the development and availability of vaccines and therapeutics, the effect on international trade of any measures taken to combat the virus, any action taken (such as the lowering of interest rates) by government entities to combat the negative macroeconomic effects of these measures, the timing and availability of any treatments or vaccines for the acquisition was $157.3 million, consistingvirus, any possible resurgence of the issuanceCOVID-19 virus after the initial outbreak, and other factors.
Management continues to monitor the impact of 3.871 million sharesCOVID-19 on the Company’s financial results. The COVID-19 pandemic has affected our operations and has had varying degrees of disruptions and restrictions to our borrowers and to our borrowers’ supply chains, closures of some facilities, and decreases in demand for certain products and services. Recent increases in the spread of COVID-19 in multiple regions across the United States have signaled that the scope, duration, and severity of the Company's Class A common stock valued at $40.64 per share,pandemic is not yet fully known. As a result, there continues to be uncertainty as to the closing price of the Company's Class A common stock as quotedlong-term effect on the NASDAQ stock market oneconomy and the acquisition date. HoldersCompany.
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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 three banking offices in North Idaho. The acquisition and merger 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, consisting of the issuance of 0.463 million 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 CMYF common stock received 0.3784 shares of First Interstate Class A common stock for each share of CMYF common stock.

On August 16, 2018, the Company completed its acquisition of Northwest, the parent company of INB, a Spokane, Washington based community bank with 20 banking offices across Idaho, Oregon, and Washington. The Company merged INB and converted data processing systems with its existing bank subsidiary, FIB, on November 9, 2018. Consideration for the acquisition included $176.3 million, consisting of the issuance of 3.838 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 market 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 Northwest restricted stock awards outstanding immediately prior to the close of the transaction vested and were considered issued and outstanding at acquisition close.
Primary Factors Used in Evaluating Our Business
As a banking institution, we manage and evaluate various aspects of both our financial condition and our results of operations. We monitor our financial condition and performance and evaluate the levels and trends of the line items included in our balance sheet and statements of income, as well as various financial ratios that are commonly used in our industry. We analyze these ratios and financial trends against both our own historical levels and the financial condition and performance of comparable banking institutions in our region and nationally.

Table of Contents

Results of Operations
Principal tools we use in managing and evaluating our results of operations include tracking performance as measured by certain metrics including return on average equity, net interest income, non-interest income, non-interest expense, and net income. Net interest income is affected by a number of factors such as the level of interest rates, changes in interest rates, and changes in the volume and composition of interest earning assets and interest bearinginterest-bearing liabilities. Changes in interest rate spread, which is the difference between interest earned on assets and interest paid on liabilities, has the most significant impact on net interest income. Other factors like volume of loans, investment securities, and other interest earning assets, compared to the volume of interest bearinginterest-bearing deposits and indebtedness, also cause changes in our net interest income between periods. Non-interest bearingNon-interest-bearing sources of funds, such as demand deposits and stockholders’ equity, help to support earning assets.
The impact of funding, including non-interest bearingnon-interest-bearing deposit sources, is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. We evaluate our net interest income by assessing the yields on our loans and other earning assets, the costs of our deposits and other funding sources, and the levels of our net interest spread and net interest margin.
We seek to increase our non-interest income over time, and we evaluate our non-interest income relative to the trends of the individual types of non-interest income in view of prevailing market conditions.
We manage our non-interest expenses in consideration of growth opportunities and our community banking model that emphasizes customerclient service and responsiveness. We evaluate our non-interest expense on factors that include our non-interest expense relative to our average assets, our efficiency ratio, and the trends of the individual categories of non-interest expense.
Finally, we seek to increase our net income and provide favorable shareholder returns over time, and we evaluate our net income relative to the performance of similar bank holding companies on factors that include return on average assets, return on average equity, total shareholder return, and growth in earnings.
Financial Condition
ManagingWe manage and evaluatingevaluate our financial condition we focusby focusing on liquidity, the diversification and quality of our loans, the adequacy of our allowance for loancredit losses, the diversification and terms of our deposits and other funding sources, the re-pricing characteristics and maturities of our assets and liabilities, including potential interest rate exposure, and the adequacy of our capital levels. We seek to maintain sufficient levels of cash and investment securities to meet potential payment and funding obligations, and we evaluate our liquidity on factors that include the levels of cash and highly liquid assets relative to our liabilities, the quality and maturities of our investment securities, the ratio of loans to deposits and any reliance on brokered certificates of deposit or other wholesale funding sources.
We seek to maintain a diverse and high quality loan portfolio and evaluate our asset quality on factors that include the allocation of our loans among loan types, credit exposure to any single borrower or industry type, non-performing assets as a percentage of total loans and OREO, and loan charge-offs as a percentage of average loans. We seek to maintain our allowance for loancredit losses at a level adequate to absorb probable losses inherent in our loan portfolio at each balance sheet date, and we evaluate the level of our allowance for loancredit losses relative to our overall loan portfolio and the level of non-performing loans and potential charge-offs.        
We seek to fund our assets primarily using core customerclient deposits spread among various deposit categories, and we evaluate our deposit and funding mix on factors that include the allocation of our deposits among deposit types, the level of our non-interest bearing deposits, the ratio of our core deposits (i.e. excluding time deposits above $100,000) to our total deposits, and our reliance on brokered deposits or other wholesale funding sources, such as borrowings from other banks or agencies. We seek to manage the mix, maturities and re-pricing characteristics of our assets and liabilities to maintain relative stability of our net interest rate margin in a changing interest rate environment, and we evaluate our asset-liability management using models to evaluate the changes to our net interest income under different interest rate scenarios.
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Finally, we seek to maintain adequate capital levels to absorb unforeseen operating losses and to help support the growth of our balance sheet. We evaluate our capital adequacy using the regulatory and financial capital ratios including leverage capital ratio, tier 1 risk-based capital ratio, total risk-based capital ratio, tangible common equity to tangible assets, and tier 1 common capital to total risk-weighted assets.

Critical Accounting Estimates and Significant Accounting Policies
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. The most significant accounting policies we follow are summarized in Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Our critical accounting estimates are summarized below. Management considers an accounting estimate to be critical if: (1) the accounting estimate requires management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain, and (2) changes in the estimate that are reasonably likely to occur from period to period, or the use of different estimates that management could have reasonably used in the current period, would have a material impact on our consolidated financial statements, results of operations, or liquidity.
Allowance for LoanCredit Losses
The provisionallowance for loancredit losses is a valuation account that creates an allowance for loancredit losses known and inherent inexpected over the loan portfoliolife of the loans at each balance sheet date.date and is deducted from or added to 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. Expected recoveries do not exceed the aggregate of amounts previously charged-off loans and expected to be charged-off loans. The allowance for loancredit losses represents management’s estimate of probableexpected credit losses inherent in the loan portfolio.portfolio expected over the life of the loan, including the incorporation of a one-year forecast period for economic conditions.
We perform a quarterly assessment of the risks inherent in our loan portfolio, as well as a detailed review of each significant loan we have assessed to have weaknesses.weaknesses that does not share common risk characteristics with other loans. Based on this analysis, we record a provision for loancredit losses in order to maintain the allowance for loancredit losses at appropriate levels. In determining the allowance for loancredit losses, we estimatemanagement 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 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 specifica collective (pool) basis when similar risk characteristics exist.
For non-PCD loans or groups of loans, where the probable loss can be identified and reasonably determined. Loans acquired in a business combinationscombination with no significant evidence of credit deterioration since origination, the Company estimates an allowance for credit losses of the loans determined using the same methodology as other loans held for investment.
Increases in the allowance are recorded at their estimated fair values onthrough net income as credit loss expense. Decreases in the dateallowance are recorded through net income as a reversal 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. Determining the amount ofloss expense. Loans are charged off against the allowance for credit losses when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off loans.
The allowance for credit losses is considered a critical accounting estimate because it requires significant judgment andmaintained at an amount we believe is sufficient to provide for estimated losses expected over the uselife of subjective measurements, includingthe loans at each balance sheet date resulting from management’s assessment of the internal risk classifications of loans, historicalquantitative and qualitative factors utilized to determine the allowance for credit losses. Management monitors qualitative and quantitative trends in the loan loss rates,portfolio, including changes in the naturelevels of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends,past due, internally classified, and the impact of current local, regional, and national economic factors on the quality of the loan portfolio.non-performing loans. Changes in thesethe estimates and assumptions are possible and may have a material impact on our allowance, and as a result, on our consolidated financial statements or results of operations. The allowance for loan losses is maintained at an amount we believe is sufficient
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As of January 1, 2020, the Company’s accounting policies have changed significantly with the adoption of ASU 326. Prior years were not restated. Prior to provide for estimated losses inherent in our loan portfolio at each balance sheet date,January 1, 2020, general allowances and fluctuations in the provision for loan losses result from management’s assessment of the adequacy of the allowance for loannonspecific allowances were based on incurred credit losses. The loan loss rates for 2018 and 2019 incorporate the available loss history data from Bank of the Cascades prior to the merger date to represent a consolidated institutional loss rate for both originated and acquired portfolios. Management monitors qualitative and quantitative trends in the loan portfolio, including changes in the levels of past due, internally classified, and non-performing loans. Note 1 of the Notes“Notes to Unaudited Consolidated Financial StatementsStatements” included in our Annual Report on Form 10-K for the year ended December 31, 2018Part I, Item 1 of this report describes the methodology used to determine the allowance for loan losses. Acredit losses and describes our policy in regard to acquired loans. Note 5 of the “Notes to Unaudited Consolidated Financial Statements” included in Part I, Item 1 of this report includes a discussion of the factors driving changes in the amount of the allowance for loan losses is included herein under the heading “Financial Condition - Allowance for Loan Losses.”credit losses.    
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 estimate fair value are reasonably possible and may have a material impact on our consolidated financial statements or results of operations. Note 1 of the Notes“Notes to the Consolidated Financial StatementsStatements” in our Annual Report on Form 10-K for the year ended December 31, 20182019 describes our accounting policy with regard to goodwill.
Our annual goodwill impairment test is performed each year as of July 1st. Upon the most recent goodwill impairment qualitative assessment, the Company determined its goodwill was not considered impaired. We will continue to monitor our performance and the economic conditions within our market, the U.S., and worldwide, as the impact of the COVID-19 pandemic continues to evolve, and will evaluate our goodwill for impairment annually or more frequently as needed.

Fair Values of Loans Acquired in Business Combinations

Loans acquired in business combinations are initially recorded at fair value with no carryover of the relatedas adjusted for credit risk and an allowance for credit losses. Credit risks are included inlosses at the determinationdate of fair value. Determining the fair value of the loans involves 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.
acquisition. 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 income using the effective interest method over the remaining period to contractual maturity. 
Loans acquired with evidence of deterioration in credit quality since origination, or PCD loans, are accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 310-30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality.326-20 “Financial instruments - credit losses.” For loans that meetDetermining 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”)involves 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 acquisition date fair value to establish the initial amortized cost basis of the asset. Differences between the established fair value, or amortized cost basis, and the unpaid principal balance of the asset is considered to be a non-credit discount/premium and is accreted/amortized into interest income over the expected remaining contractual lives of the underlying loans using the effective interest method. The Company continues to evaluate the reasonableness of expectations for the timing and amount of cash to be collected. Increasesmethod in expected cash flows subsequentaccordance with ASC 310-10. Subsequent changes to the initial measurementallowance for credit losses are recognized prospectivelyrecorded through adjustment ofprovision expense using the yield on the loan over its remaining life. Decreases in expected cash flows are recognizedsame methodology as impairment.other loans held for investment. Note 1 of the Notes“Notes to theUnaudited Consolidated Financial StatementsStatements” included in our Annual Report on Form 10-K for the year ended December 31, 2018 furtherPart I, Item 1 of this report describes our accounting policy within regard to acquired loans.
Results of Operations
The following discussion and analysis is intended to provide greater details ofdetail about the results of our operations and financial condition. The financial statements as of September 30, 2019 are inclusive of the effects of the combined results of operations of the INB acquisition, which closed in August 2018, and IIBK and CMYF acquisitions, which closed in April 2019. Due to the timing of the acquisitions, certain comparisons between periods are significantly affected by the transactions.
Net Interest Income
Changes in interest rate spread, which is the difference between interest earned on assets and interest paid on liabilities, has the most significant impact on net interest income. Other factors like volume of loans, investment securities, and other interest earning assets compared to the volume of interest bearinginterest-bearing deposits and indebtedness also cause changes in our net interest income between periods. Non-interest bearingNon-interest-bearing sources of funds, such as demand deposits and stockholders’ equity, help to support earning assets.
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The following table presents, for the periods indicated, condensed average balance sheet information, together with interest income and yields earned on average interest earning assets and interest expense and rates paid on average interest bearinginterest-bearing liabilities.
Average Balance Sheets, Yields and Rates       
(Dollars in millions)Three Months Ended
 September 30, 2019 September 30, 2018
 Average
Balance		InterestAverage
Rate		 Average
Balance		InterestAverage
Rate
Interest earning assets:       
Loans (1) (2)
$9,053.6
$120.4
5.28% $8,128.9
$104.3
5.09%
Investment securities (2)
2,662.8
15.7
2.34
 2,590.7
14.6
2.24
Interest bearing deposits in banks1,004.4
5.7
2.25
 563.4
2.8
1.97
Federal funds sold1.4
—
—
 16.8
—
—
Total interest earnings assets$12,722.2
$141.8
4.42% $11,299.8
$121.7
4.27%
Non-earning assets1,750.8
   1,440.8
  
Total assets$14,473.0
   $12,740.6
  
Interest bearing liabilities:       
Demand deposits$3,067.2
$2.2
0.28% $2,915.4
$2.3
0.31%
Savings deposits3,517.5
5.2
0.59
 3,174.1
3.4
0.42
Time deposits1,557.2
6.0
1.53
 1,206.3
3.2
1.05
Repurchase agreements669.5
1.0
0.59
 633.6
0.7
0.44
Other borrowed funds—
—
—
 2.7
0.1
14.69
Long-term debt15.4
0.3
7.73
 19.2
0.4
8.27
Subordinated debentures held by subsidiary trusts86.9
1.1
5.02
 84.7
1.1
5.15
Total interest bearing liabilities$8,913.7
$15.8
0.70% $8,036.0
$11.2
0.55%
Non-interest bearing deposits3,430.4
   3,029.4
  
Other non-interest bearing liabilities159.9
   103.3
  
Stockholders’ equity1,969.0
   1,571.9
  
Total liabilities and stockholders’ equity$14,473.0
   $12,740.6
  
Net FTE interest income $126.0
   $110.5
 
Less FTE adjustments (2)
 (0.5)   (0.5) 
Net interest income from consolidated statements of income $125.5
   $110.0
 
Interest rate spread  3.72%   3.72%
Net FTE interest margin (3)
  3.93%   3.88%
Cost of funds, including non-interest bearing demand deposits (4)
  0.51%   0.40%
(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 utilizing the 21% federal income tax rate.
(3)
Net FTE interest margin during the period equals (i) the difference between annualized interest income on interest earning assets and the annualized interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period.
(4)
Calculated by dividing total annualized interest on interest bearing liabilities by the sum of total interest bearing liabilities plus non-interest bearing deposits.
Average Balance Sheets, Yields and Rates
(Dollars in millions)Three Months Ended
September 30, 2020September 30, 2019
Average
Balance		InterestAverage
Rate		Average
Balance		InterestAverage
Rate
Interest earning assets:
Loans (1) (2)
$10,219.2 $112.6 4.38 %$9,053.6 $120.4 5.28 %
Investment securities (2)
3,435.1 16.3 1.89 2,662.8 15.7 2.34 
Interest bearing deposits in banks1,295.1 0.5 0.15 1,004.4 5.7 2.25 
Federal funds sold0.1 — — 1.4 — — 
Total interest earning assets$14,949.5 $129.4 3.44 %$12,722.2 $141.8 4.42 %
Non-earning assets1,739.9 1,750.8 
Total assets$16,689.4 $14,473.0 
Interest bearing liabilities:
Demand deposits$3,708.8 $0.4 0.04 %$3,067.2 $2.2 0.28 %
Savings deposits4,081.4 0.3 0.03 3,517.5 5.2 0.59 
Time deposits1,167.3 2.7 0.92 1,557.2 6.0 1.53 
Repurchase agreements781.2 0.1 0.05 669.5 1.0 0.59 
Long-term debt112.3 1.7 6.02 15.4 0.3 7.73 
Subordinated debentures held by subsidiary trusts86.9 0.7 3.20 86.9 1.1 5.02 
Total interest-bearing liabilities$9,937.9 $5.9 0.24 %$8,913.7 $15.8 0.70 %
Non-interest-bearing deposits4,517.3 3,430.4 
Other non-interest-bearing liabilities226.0 159.9 
Stockholders’ equity2,008.2 1,969.0 
Total liabilities and stockholders’ equity$16,689.4 $14,473.0 
Net FTE interest income$123.5 $126.0 
Less FTE adjustments (2)
(0.5)(0.5)
Net interest income from consolidated statements of income$123.0 $125.5 
Interest rate spread3.20 %3.72 %
Net FTE interest margin (3)
3.29 3.93 
Cost of funds, including non-interest-bearing demand deposits (4)
0.16 0.51 
(1) Average loan balances include mortgage loans held for sale and 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 utilizing the 21% federal income tax rate.
(3) Net FTE interest margin during the period equals (i) the difference between annualized interest income on interest earning assets and the annualized interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period.
(4) Calculated by dividing total annualized interest on interest bearing liabilities by the sum of total interest-bearing liabilities plus non-interest-bearing deposits.
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Average Balance Sheets, Yields and Rates       
(Dollars in millions)Nine Months Ended
 September 30, 2019 September 30, 2018
 Average
Balance		InterestAverage
Rate		 Average
Balance		InterestAverage
Rate
Interest earning assets:       
Loans (1) (2)
$8,846.1
$353.3
5.34% $7,804.5
$293.3
5.02%
Investment securities (2)
2,665.5
47.9
2.40
 2,658.8
43.3
2.18
Interest bearing deposits in banks779.0
14.3
2.45
 521.0
6.9
1.77
Federal funds sold0.9
—
—
 6.0
—
—
Total interest earnings assets$12,291.5
$415.5
4.52% $10,990.3
$343.5
4.18%
Non-earning assets1,683.2
   1,362.0
  
Total assets13,974.7
   $12,352.3
  
Interest bearing liabilities:       
Demand deposits$3,018.3
$7.3
0.32% $2,842.0
$5.7
0.27%
Savings deposits3,416.6
15.9
0.62
 3,132.6
8.5
0.36
Time deposits1,474.2
16.4
1.49
 1,161.4
8.1
0.93
Repurchase agreements680.1
3.1
0.61
 641.4
1.8
0.38
Other borrowed funds—
—
—
 1.9
0.2
14.07
Long-term debt15.6
1.0
8.57
 16.4
0.9
7.34
Subordinated debentures held by subsidiary trusts86.9
3.5
5.38
 83.2
3.0
4.82
Total interest bearing liabilities$8,691.7
$47.2
0.73% $7,878.9
$28.2
0.48%
Non-interest bearing deposits3,261.5
   2,892.4
  
Other non-interest bearing liabilities157.0
   96.8
  
Stockholders’ equity1,864.5
   1,484.2
  
Total liabilities and stockholders’ equity$13,974.7
   $12,352.3
  
Net FTE interest income $368.3
   $315.3
 
Less FTE adjustments (2)
 (1.5)   (1.7) 
Net interest income from consolidated statements of income $366.8
   $313.6
 
Interest rate spread  3.79%   3.70%
Net FTE interest margin (3)
  4.01%   3.84%
Cost of funds, including non-interest bearing demand deposits (4)
  0.53%   0.35%
(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 utilizing the 21% federal income tax rate.
(3)
Net FTE interest margin during the period equals (i) the difference between annualized interest income on interest earning assets and the annualized interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period.
(4)
Calculated by dividing total annualized interest on interest bearing liabilities by the sum of total interest bearing liabilities plus non-interest bearing deposits.

Average Balance Sheets, Yields and Rates
(Dollars in millions)Nine Months Ended
September 30, 2020September 30, 2019
Average
Balance		InterestAverage
Rate		Average
Balance		InterestAverage
Rate
Interest earning assets:
Loans (1) (2)
$9,723.2 $337.4 4.64 %$8,846.1 $353.3 5.34 %
Investment securities (2)
3,172.3 50.5 2.13 2,665.5 47.9 2.40 
Interest bearing deposits in banks1,023.7 3.5 0.46 779.0 14.3 2.45 
Federal funds sold0.2 — — 0.9 — — 
Total interest earning assets$13,919.4 $391.4 3.76 %$12,291.5 $415.5 4.52 %
Non-earning assets1,732.1 1,683.2 
Total assets$15,651.5 $13,974.7 
Interest bearing liabilities:
Demand deposits$3,512.5 $1.7 0.06 %$3,018.3 $7.3 0.32 %
Savings deposits3,855.1 2.0 0.07 3,416.6 15.9 0.62 
Time deposits1,271.2 11.5 1.21 1,474.2 16.4 1.49 
Repurchase agreements706.0 0.7 0.13 680.1 3.1 0.61 
Long-term debt63.9 3.0 6.27 15.6 1.0 8.57 
Subordinated debentures held by subsidiary trusts86.9 2.4 3.69 86.9 3.5 5.38 
Total interest-bearing liabilities$9,495.6 $21.3 0.30 %$8,691.7 $47.2 0.73 %
Non-interest-bearing deposits3,956.8 3,261.5 
Other non-interest-bearing liabilities208.3 157.0 
Stockholders’ equity1,990.8 1,864.5 
Total liabilities and stockholders’ equity$15,651.5 $13,974.7 
Net FTE interest income$370.1 $368.3 
Less FTE adjustments (2)
(1.5)(1.5)
Net interest income from consolidated statements of income$368.6 $366.8 
Interest rate spread3.46 %3.79 %
Net FTE interest margin (3)
3.55 4.01 
Cost of funds, including non-interest-bearing demand deposits (4)
0.21 0.53 
(1) Average loan balances include mortgage loans held for sale and 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 utilizing the 21% federal income tax rate.
(3) Net FTE interest margin during the period equals (i) the difference between annualized interest income on interest earning assets and the annualized interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period.
(4) Calculated by dividing total annualized interest on interest-bearing liabilities by the sum of total interest-bearing liabilities plus non-interest bearing deposits.
Our net interest income increased $15.5decreased $2.5 million, or 14.1%2.0%, to $125.5$123.0 million during the three months ended September 30, 2019,2020, as compared to $110.0$125.5 million for the same period in 2018,2019. The decrease was primarily the result of lower yields on interest earning assets largely related to the March 2020 decrease in the federal funds rate, along with lower levels of charged-off interest recoveries and interest accretion related to the fair value of acquired loans, which were largely offset by the addition of $10.6 million of interest income from PPP loans during the three months ended September 30, 2020. Net interest income increased $53.2$1.8 million, or 17.0%0.5%, to $366.8$368.6 million during the nine months ended September 30, 2019,2020, as compared to $313.6$366.8 million for the same period in 2018.2019. The increases in 2019 areincrease is primarily attributable to higher levels of interest earning assets and $19.2 million of interest income from PPP loans, partially offset by the result of increasedlower yields on interest earning assets largely related to the March 2020 decrease in the federal funds rate, lower levels of charged-off interest recoveries and interest accretion related to the impactfair value of acquired loans, and lower costs of funds during the IIBK and CMYF acquisitions.nine months ended September 30, 2020.
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Net interest income included interest accretion related to the fair valuation of acquired loans of $3.2 million during the three months ended September 30, 2020, of which $1.4 million was the result of early loan payoffs, and $10.0 million during the nine months ended September 30, 2020, of which $3.6 million was the result of early loan payoffs. This compares to interest accretion of $4.0 million during the three months ended September 30, 2019, of which $1.2 million was the result of early loan payoffs, and $13.2 million during the nine months ended September 30, 2019, of which $5.6 million was the result of early loan payoffs. This compares to

There were no material recoveries of previously charged-off interest accretion of $3.6 million duringincluded in net interest income for the three months ended September 30, 2018, of which $1.5 million was the result of early loan payoffs,2020 and $9.6$0.2 million during the nine months ended September 30, 2018, of which $3.7 million was the result of early loan payoffs.


Recoveries of charged-off interest also impact net interest income. Net charged-off interest recoveries were2020, as compared to $0.4 million and $2.8 million during the three and nine months ended September 30, 2019, as compared to $0.7 million and $3.3 million during the same period in 2018.2019.

Our net FTE interest margin ratio increased fivedecreased 64 basis points to 3.93%3.29% for the three months ended September 30, 2019,2020, as compared to 3.88%3.93% for the same period in 2018.2019. Similarly, our net FTE interest margin ratio increased 17decreased 46 basis points to 4.01%3.55% for the nine months ended September 30, 2019,2020, as compared to 3.84%4.01% for the same period in 2018. Increases2019. The decreases in net FTE interest margin ratio during the three months ended September 30, 2019,2020, as compared to the same period in 2018,2019, and during the nine months ended September 30, 2019,2020, as compared to the same period in 20182019, were primarily due to increases in average outstanding loans and higherthe result of lower yields on interest earning assets which wereas a result of the impact of the March 2020 reduction in the federal funds rate, significant PPP loan balances at low yields, higher cash balances, and interest on long-term debt partially offset by increases in fundinglower deposit costs.

Exclusive of the impact of the recovery of charged-off interest and the impact of interest accretion on acquired loans, our net FTE interest margin ratio was 3.80%3.20% during the three months ended September 30, 2019,2020, as compared to 3.73%3.80% for the same period in 2018,2019, or a seven60 basis point increase,decrease, and 3.83%3.45% during the nine months ended September 30, 2019,2020, as compared to 3.68%3.83% in the same period in 2018,2019, or a 1538 basis point increase.decrease, primarily due to lower yields on interest earning assets as a result of the impact of the reduction in the March 2020 federal funds rate, significant PPP loan balances at low yields, higher cash balances, and interest on long-term debt partially offset by lower deposit costs.
    
The table below sets forth 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) for the three and nine month periods ended September 30, 20192020 and 2018.2019. 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 RatesAnalysis of Interest Changes Due to Volume and Rates        Analysis of Interest Changes Due to Volume and Rates
(Dollars in millions)Three Months Ended September 30, 2019
compared with
Three Months Ended September 30, 2018		 Nine Months Ended September 30, 2019
compared with
Nine Months Ended September 30, 2018		(Dollars in millions)Three Months Ended September 30, 2020
compared with
Three Months Ended September 30, 2019		Nine Months Ended September 30, 2020
compared with
Nine Months Ended September 30, 2019
Volume Rate Net Volume Rate Net
(Dollars in millions)(Dollars in millions)VolumeRateNetVolumeRateNet
           
Loans (1)
$11.9
 $4.2
 $16.1
 $39.1
 $20.9
 $60.0
Loans (1)
$15.5 $(23.3)$(7.8)$35.1 $(51.0)$(15.9)
Investment securities (1)
0.4
 0.7
 1.1
 0.1
 4.5
 4.6
Investment securities (1)
4.5 (3.9)0.6 9.1 (6.5)2.6 
Interest bearing deposits in banks2.2
 0.7
 2.9
 3.4
 4.0
 7.4
Interest bearing deposits in banks1.6 (6.8)(5.2)4.5 (15.3)(10.8)
Total change14.5
 5.6
 20.1
 42.6
 29.4
 72.0
Total change21.6 (34.0)(12.4)48.7 (72.8)(24.1)
Interest bearing liabilities:           Interest bearing liabilities:
Demand deposits0.1
 (0.2) (0.1) 0.4
 1.2
 1.6
Demand deposits0.5 (2.3)(1.8)1.2 (6.8)(5.6)
Savings deposits0.4
 1.4
 1.8
 0.8
 6.6
 7.4
Savings deposits0.8 (5.7)(4.9)2.0 (15.9)(13.9)
Time deposits0.9
 1.9
 2.8
 2.2
 6.1
 8.3
Time deposits(1.5)(1.8)(3.3)(2.3)(2.6)(4.9)
Repurchase agreements—
 0.3
 0.3
 0.1
 1.2
 1.3
Repurchase agreements0.2 (1.1)(0.9)0.1 (2.5)(2.4)
Other borrowed funds(0.1) —
 (0.1) (0.2) —
 (0.2)
Long-term debt(0.1) —
 (0.1) —
 0.1
 0.1
Long-term debt1.9 (0.5)1.4 3.1 (1.1)2.0 
Subordinated debentures held by subsidiary trusts—
 —
 —
 0.1
 0.4
 0.5
Subordinated debentures held by subsidiary trusts— (0.4)(0.4)— (1.1)(1.1)
Total change1.2
 3.4
 4.6
 3.4
 15.6
 19.0
Total change1.9 (11.8)(9.9)4.1 (30.0)(25.9)
Increase in FTE net interest income (1)
$13.3
 $2.2
 $15.5
 $39.2
 $13.8
 $53.0
Increase (decrease) in FTE net interest income (1)
Increase (decrease) in FTE net interest income (1)
$19.7 $(22.2)$(2.5)$44.6 $(42.8)$1.8 
                
(1)Interest income and average rates for tax exempt loans and securities are presented on a FTE basis.
        
56

Provision for LoanCredit Losses

The Company adopted Accounting Standards Codification 326, Measurement of Credit Losses on Financial Instruments, which replaces the historically used incurred loss methodology with an expected loss methodology and is referred to as the current expected credit loss (CECL) accounting standard, becoming effective January 1, 2020. 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 loancredit losses reflect management’s estimate of possible loancredit 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 economic conditions on our loan portfolio. The Company recorded a provision for loancredit losses of $2.6$5.2 million during the three months ended September 30, 2019,2020, as compared to $2.0$2.6 million during same period in 2018. During2019, with the nine months ended September 30, 2019, we recorded adifference mainly attributable to the increase in reserves on unfunded loan commitments. The provision is reflective of net charge-offs of $4.6 million, or an annualized 0.18% of average loans outstanding, for loan lossesthe third quarter of $10.1 million, as2020, compared to $7.0$1.8 million, or an annualized 0.08% of average loans outstanding during the same period in 2018. Higher levels of the provision were attributable to organic loan growth and an increase in loans migrating from the acquired loan portfolio to the originated loan portfolio due to renewals, refinancing, and restructure year-over-year in addition to higher net-charge-offs during the nine months ended September 30, 2019. Changes in the provision for loan loss between quarters are reflective of management’s assessment of the adequacy of our allowance for loan losses.


For information regarding our non-performing loans, see “Financial Condition – Non-Performing Assets” included herein. For more information on our allowance for loancredit 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 incomeThree Months Ended September 30,$ Change% ChangeNine Months Ended September 30,$ Change% Change
(Dollars in millions)2020201920202019
Payment services revenues$10.5 $10.8 $(0.3)(2.8)%$30.0 $30.7 $(0.7)(2.3)%
Mortgage banking revenues*14.3 10.4 3.9 37.5 39.4 24.6 14.8 60.2 
Wealth management revenues5.9 5.9 — — 17.5 17.8 (0.3)(1.7)
Service charges on deposit accounts4.3 5.3 (1.0)(18.9)13.3 15.7 (2.4)(15.3)
Other service charges, commissions and fees*5.0 1.7 3.3 194.1 10.0 5.2 4.8 92.3 
Investment securities gains (losses), net0.1 0.1 — — 0.1 0.1 — NM
Other income4.6 4.0 0.6 15.0 12.5 13.4 (0.9)(6.7)
Total non-interest income$44.7 $38.2 $6.5 17.0 %$122.8 $107.5 $15.3 14.2 %
Non-interest income             
(Dollars in millions)Three Months Ended September 30, $ Change% Change Nine Months Ended September 30, $ Change% Change
 2019 2018  2019 2018 
Payment services revenues$10.8
 $10.1
 $0.7
6.9 % $30.7
 $33.5
 $(2.8)(8.4)%
Mortgage banking revenues10.5
 6.7
 3.8
56.7
 24.3
 19.3
 5.0
25.9
Wealth management revenues5.9
 5.8
 0.1
1.7
 17.8
 17.5
 0.3
1.7
Service charges on deposit accounts5.3
 5.7
 (0.4)(7.0) 15.7
 16.6
 (0.9)(5.4)
Other service charges, commissions and fees4.2
 3.4
 0.8
23.5
 12.7
 11.1
 1.6
14.4
Investment securities gains (losses), net0.1
 —
 0.1
NM
 0.1
 —
 0.1
NM
Other income4.0
 4.5
 (0.5)(11.1) 13.4
 11.0
 2.4
21.8
Total non-interest income$40.8
 $36.2
 $4.6
12.7 % $114.7
 $109.0
 $5.7
5.2 %
* Certain reclassifications, none of which were material, have been made to conform 2019 amounts to the 2020 presentation.
Total non-interest income increased $4.6$6.5 million, or 12.7%17.0%, to $40.8$44.7 million for the three months ended September 30, 2019,2020, as compared to $36.2$38.2 million for the same period in 20182019 and increased $5.7$15.3 million, or 5.2%14.2%, to $114.7$122.8 million for the nine months ended September 30, 2019,2020, as compared to $109.0$107.5 million for the same period in 2018.2019. Significant components of theses 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 increased $0.7 million, or 6.9%, to $10.8 million during the three months ended September 30, 2019, as compared to $10.1 million earned during the same period in 2018. For the nine months ended September 30, 2019, payment services revenue decreased $2.8 million, or 8.4%, to $30.7 million, as compared to $33.5 million during the same period in 2018.  A decrease in payment services revenues of $6.7 million during the nine months ended September 30, 2019 was 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. This decrease was offset by increases in debit card and credit card volume resulting in higher interchange revenues during the nine months ended September 30, 2019.
Mortgage banking revenues include gains on residential real estate loans sold, mortgage servicing revenues and direct costs related to loans sold (including amortization, mortgage servicing rights impairment and other expenses), and origination and processing fees on residential real estate loans held for sale and gains on residential real estate loans sold to third parties.sale. Mortgage banking revenues increased $3.8$3.9 million, or 56.7%37.5%, to $10.5$14.3 million during the three months ended September 30, 2019,2020, as compared to $6.7$10.4 million during the same period in 2018.2019. For the nine months ended September 30, 2019,2020, mortgage banking revenues increased $5.0$14.8 million, or 25.9%60.2%, to $24.3$39.4 million as compared to $19.3$24.6 million during the same period in 2018. These2019. The increases are duewere primarily todriven by increased mortgage loan production as a result ofdue to higher levels of refinance activity as a result of the favorable interest rate environment. These increases were partially offset by mortgage servicing impairments of $1.4 million and lower interest rates. Our$9.8 million for the three and nine months ended September 30, 2020, respectively. As a result of our higher levels of refinancing activity, our overall loan production for originated home purchases was approximately 66.0%48.6% and 73.8%40.1% of production for the three and nine months ended September 30, 2019,2020, respectively, compared to 85.1%66.0% and 78.3%73.8% for the same periods in 2018.2019.
57

Service charge fees are primarily driven by service and overdraft charges on deposit accounts. These service charges decreased $1.0 million, or 18.9%, to $4.3 million during the three months ended September 30, 2020, as compared to $5.3 million during the same period in 2019, primarily due to changes in client behavior. For the nine months ended September 30, 2020, service charges on deposit accounts decreased $2.4 million, or 15.3%, to $13.3 million as compared to $15.7 million during the same period in 2019. The decrease was primarily due to changes in client behavior in addition to the 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 $0.8$3.3 million, or 23.5%194.1%, to $4.2$5.0 million during the three months ended September 30, 2019,2020, as compared to $3.4$1.7 million during the same period in 2018.2019. For the nine months ended September 30, 2019,2020, other service charges, commissions and fees increased $1.6$4.8 million, or 14.4%92.3%, to $12.7$10.0 million as compared to $11.1$5.2 million during the same period in 2018,2019. The increases were primarily due to the IIBK and CMYF acquisitions and an increase in mortgage loan servicing fee income 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.

Table of Contents

Other income primarily includes company-owned life insurance revenues, check printing income, agency stock dividends and gains on sales of miscellaneous assets. Other income decreased $0.5 million, or 11.1%, to $4.0 million during the three months ended September 30, 2019, as compared to $4.5 million during the same period in 2018 and increased $2.4 million, or 21.8%, to $13.4 million during the nine months ended September 30, 2019, as compared to $11.0 million during the same period in 2018. The increases in other income between periods was primarily due to net gains on the sale of premises and equipment, life insurance proceeds, and other normal fluctuations in other income.

Non-interest Expense
The following table presents the composition of our non-interest expense as of the dates indicated:
Non-interest expense             Non-interest expense
(Dollars in millions)Three Months Ended September 30, $ Change% Change Nine Months Ended September 30, $ Change% Change(Dollars in millions)Three Months Ended September 30,$ Change% ChangeNine Months Ended September 30,$ Change% Change
2019 2018 2019 2018 
Salaries and wages$40.6
 $36.8
 $3.8
10.3 % $117.1
 $105.7
 $11.4
10.8 %
(Dollars in millions)(Dollars in millions)20202019$ Change% Change20202019$ Change% Change
$46.0 $40.1 $130.1 $115.3 
Employee benefits11.9
 11.9
 —
—
 40.3
 35.5
 4.8
13.5
Employee benefits11.8 11.9 (0.1)(0.8)36.4 40.3 (3.9)(9.7)
Outsourced technology services7.9
 6.8
 1.1
16.2
 23.9
 20.9
 3.0
14.4
Outsourced technology services8.4 7.9 0.5 6.3 24.5 23.9 0.6 2.5 
Occupancy, net7.1
 6.5
 0.6
9.2
 21.2
 18.8
 2.4
12.8
Occupancy, net7.2 7.1 0.1 1.4 21.3 21.2 0.1 0.5 
Furniture and equipment3.3
 3.5
 (0.2)(5.7) 10.2
 9.5
 0.7
7.4
Furniture and equipment4.1 3.3 0.8 24.2 11.1 10.2 0.9 8.8 
OREO expense, net of income(0.8) 0.2
 (1.0)NM
 (0.5) 0.3
 (0.8)NM
OREO expense, net of income— (0.8)0.8 —(0.4)(0.5)0.1 NM
Professional fees3.5
 1.9
 1.6
84.2
 7.7
 5.2
 2.5
48.1
Professional fees*Professional fees*2.9 3.5 (0.6)(17.1)8.6 9.3 (0.7)(7.5)
FDIC insurance premiums0.4
 1.4
 (1.0)(71.4) 3.5
 4.3
 (0.8)(18.6)FDIC insurance premiums1.3 0.4 0.9 225.0 4.5 3.5 1.0 28.6 
Mortgage servicing rights amortization1.2
 0.8
 0.4
50.0
 3.1
 2.3
 0.8
34.8
Core deposit intangibles amortization3.0
 2.0
 1.0
50.0
 8.3
 5.5
 2.8
50.9
Core deposit intangibles amortization2.7 3.0 (0.3)(10.0)8.3 8.3 — — 
Other expenses17.4
 15.8
 1.6
10.1
 50.8
 48.1
 2.7
5.6
Other expenses*Other expenses*15.1 16.5 (1.4)(8.5)45.7 46.9 (1.2)(2.6)
Acquisition related expenses3.8
 3.1
 0.7
22.6
 19.6
 5.4
 14.2
NM
Acquisition related expenses— 3.8 (3.8)(100.0)— 19.6 (19.6)(100.0)
Total non-interest expense$99.3
 $90.7
 $8.6
9.5 % $305.2
 $261.5
 $43.7
16.7 %Total non-interest expense$99.5 $96.7 $2.8 2.9 %$290.1 $298.0 $(7.9)(2.7)%
* Certain reclassifications, none of which were material, have been made to conform 2019 amounts to the 2020 presentation.
Non-interest expense increased $8.6$2.8 million, or 9.5%2.9%, to $99.3$99.5 million during the three months ended September 30, 20192020 as compared to $90.7$96.7 million during the same period in 20182019 and $43.7decreased $7.9 million, or 16.7%2.7%, to $305.2$290.1 million during the nine months ended September 30, 20192020 as compared to $261.5$298.0 million during the same period in 2018.2019. The decrease was mainly a result of decreased acquisition expenses of $19.6 million during the nine months ended September 30, 2020, partially offset by an increase in salaries and wages. Expenses related to acquisitions include legal fees, consulting fees, investment banking fees, conversion and contract termination costs, and retention and severance compensation costs. Other significant components of non-interest expense are discussed below. For additional information regarding acquisitions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments” included herein and “Note 2 – Acquisitions” in the accompanying “Notes to Unaudited Consolidated Financial Statements” included in this report.

Salaries and wages expense increased $3.8$5.9 million, or 10.3%14.7%, to $40.6$46.0 million during the three months ended September 30, 2019,2020, as compared to $36.8$40.1 million during the same period in 20182019, as a result of higher mortgage loan originator commissions and $11.4higher levels of incentive accruals. Salaries and wages increased $14.8 million, or 10.8%12.8%, to $117.1$130.1 million during the nine months ended September 30, 20192020 as compared to $105.7$115.3 million during the same period in 2018.2019. The increase reflects higher levels of wages related to additional employees as a result of the INB, IIBK and CMYF acquisitions.acquisitions, higher mortgage loan originator commissions, and higher levels of incentive accruals during the nine months ended September 30, 2020.
58

Employee benefits expense was stable at $11.9decreased $0.1 million, or 0.8%, to $11.8 million during the three months ended September 30, 2019,2020, as compared to $11.9 million during the same period in 2018.2019. Employee benefits expense increased $4.8decreased $3.9 million, or 13.5%9.7%, to $40.3$36.4 million during the nine months ended September 30, 20192020 as compared to $35.5$40.3 million during the same period in 2018, primarily due to higher long-term incentive costs as a result of the Company achieving certain growth goals and higher benefit costs related to the additional employees as a result of the INB, IIBK, and CMYF acquisitions.

Outsourced technology services expense increased $1.1 million, or 16.2%, to $7.9 million during the three months ended September 30, 2019, as compared to $6.8 million during the same period in 2018 and increased $3.0 million, or 14.4%, to $23.9 million during the nine months ended September 30, 2019, as compared to $20.9 million during the same period in 2018. The increases2019. These decreases are primarily due to technology expenses resulting from the INB, IIBK, and CMYF acquisitions.


Table of Contents

Occupancy, net expense increased $0.6 million, or 9.2%, to $7.1 million during the three months ended September 30, 2019,lower health insurance costs as compared to $6.5 million during the same period in 2018 and increased $2.4 million, or 12.8%, to $21.2 million during the nine months ended September 30, 2019, as compared to $18.8 million during the same period in 2018. The increases are primarily due to additional operating expenses as a result of the INB, IIBK, and CMYF acquisitions.

Professional fees increased $1.6 million, or 84.2%, to $3.5 million during the three months ended September 30, 2019, as compared to $1.9 million during the same period in 2018 and increased $2.5 million, or 48.1%, to $7.7 million during the nine months ended September 30, 2019, as compared to $5.2 million during the same period in 2018. The increases are related to a reclassification of legal and audit fees from other expenses into professional fees in addition to fees incurred related to our re-branding efforts of the Company in 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 $1.0 million, or 50.0%, to $3.0 million during the three months ended September 30, 2019, as compared to $2.0 million during the same period in 2018 and $2.8 million, or 50.9%, to $8.3 million during the nine months ended September 30, 2019, as compared to $5.5 million during the same period in 2018. The increases are primarily due to additional amortization expense resulting from the INB, IIBK, and CMYF acquisitions.

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 $1.6decreased $1.4 million, or 10.1%8.5%, to $17.4$15.1 million during the three months ended September 30, 2019,2020, as compared to $15.8$16.5 million during the same period in 20182019 and $2.7decreased $1.2 million, or 5.6%2.6%, to $50.8$45.7 million during the nine months ended September 30, 2019,2020, as compared to $48.1$46.9 million during the same period in 2018. These increases2019. The decreases are primarily due to additional costs related to the INB, IIBK, and CMYF acquisitions.result of lower travel expenses.

Income Tax Expense

Our effective tax rate was 23.3% for the three months ended September 30, 2020 compared to 23.8% for the three months ended September 30, 2019 compared to 22.6% for the three months ended September 30, 2018 and 22.6% for the nine months ended September 30, 2019, as compared to 22.3%2020 and for the same period in 2018.2019.
Financial Condition
Total Assets

Total assets increased $1,401.4$2,425.3 million, or 10.5%16.6%, to $14,701.6$17,069.5 million as of September 30, 2019,2020, from $13,300.2$14,644.2 million as of December 31, 2018,2019, primarily due to an increase in loans held for investment as a result of the recent acquisitionsPPP loans originated and increases in investment securities and cash and cash equivalents as a result of IIBK and CMFY and an increase in organic loan growth.higher levels of deposits. Significant fluctuations in balance sheet accounts are discussed below.
Total Loans
Total loans increased $597.8 million, or 7.0%, to $9,101.5 million as of September 30, 2019, as compared to $8,503.7 million as of December 31, 2018, due to $417.1 million of IIBK and CMYF acquired loans and $180.7 million of organic growth. Organic growth was primarily in commercial, agricultural, commercial real estate, agricultural real estate, and loans held for sale.
Loans Held for Investment, Net of Deferred Fees and Costs
Loans held for investment, net of deferred fees and costs, increased $522.2$1,221.5 million, or 6.2%13.7%, to $8,992.6$10,152.2 million as of September 30, 2019,2020, as compared to $8,470.4$8,930.7 million as of December 31, 2018. The loans held for investment2019. Significant contributing portfolios are discussed in greater detail below:
Total real estate loans increased $375.6$325.1 million, or 6.4%5.5%, to $6,209.1$6,263.3 million as of September 30, 2019,2020, as compared to $5,833.5$5,938.2 million as of December 31, 2018. Exclusive of $328.0 million of IIBK and CMYF acquired loans, total real estate loans increased $47.6 million, or 0.8%.2019. Within the portfolio, commercial real estate loans increased organically $81.3$203.1 million, or 2.5%5.8%, to $3,468.2$3,690.9 million construction real estate loans increased organically $18.9 million, or 2.3%, to $958.1 million, residential real estate loans decreased organically $61.7 million, or 4.0%, and agricultural real estate loans increased organically $9.1 million, or 4.2% as of September 30, 2020, as compared to $3,487.8 million as of December 31, 2019. Construction loans increased $55.8 million, or 5.7%, to $1,033.5 million as of September 30, 2020, as compared to $977.7 million as of December 31, 2019. Residential loans increased $65.1 million, or 5.2%, to $1,311.2 million as of September 30, 2020, as compared to $1,246.1 million as of December 31, 2019, and agricultural loans increased $1.1 million, or 0.5%, to $227.7 million as of September 30, 2020, compared to $226.6 million as of December 31, 2019.
Total consumer loans decreased $3.3$0.4 million or 0.3%, to $1,066.9$1,044.8 million as of September 30, 2019,2020, from $1,070.2$1,045.2 million as of December 31, 2018. Exclusive of $14.6 million of IIBK and CMYF acquired2019. Within the consumer loan portfolio, indirect loans total consumer loans decreased $17.9

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increased $28.2 million, or 1.7%. The decrease was primarily impacted by higher unsecured consumer credit underwriting standards impacting the consumer direct portfolio offset by an increase in the indirect portfolio.
Commercial loans increased $112.3 million, or 8.6%,3.6% to $1,422.6$812.8 million as of September 30, 2019, from $1,310.32020, as compared to $784.6 million as of December 31, 2018. Exclusive of $61.4 million of IIBK and CMYF acquired2019, direct loans commercial loans increased $50.9decreased $16.9 million, or 3.9%. This growth primarily occurred in Idaho, Montana, and Eastern Washington.
Agricultural loans increased $37.9 million, or 14.9%,9.4% to $292.7$162.1 million as of September 30, 2019, from $254.82020, as compared to $179.0 million as of December 31, 2018. Exclusive of $12.6 million of IIBK and CMYF acquired2019. Credit card loans agricultural loans increased $25.3decreased $11.7 million, or 9.9%. This growth was14.3%, to $69.9 million as of September 30, 2020 compared to $81.6 million as of December 31, 2019, primarily attributable to seasonal draw downsdecreases in spending as a result of COVID-19 and loan pay-downs.
Commercial loans increased $925.9 million, or 55.3%, to $2,599.6 million as of September 30, 2020, from $1,673.7 million as of December 31, 2019, as a result of the $1.2 billion of PPP loan originations partially offset by pay-downs within the portfolio.
Agricultural operating linesloans decreased $4.4 million, or 1.6%, to $274.7 million as of credit.September 30, 2020, from $279.1 million as of December 31, 2019.
Loans Held for Sale
Loans held for sale consist of residential mortgage loans pending sale to investors in the secondary market. Loans held for sale increased $75.6$1.1 million, or 227.0%1.1%, to $108.9$102.0 million as of September 30, 2019,2020, compared to $33.3$100.9 million as of December 31, 2018,2019. The increase is primarily due to increasesan increase in originations of mortgage loan origination volumes.loans held for sale as a result of higher levels of refinance activity driven by lower interest rates.
59

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 RestructuringsNon-Performing Assets and Troubled Debt Restructurings        Non-Performing Assets and Troubled Debt Restructurings
(Dollars in millions)September 30,
2019		 June 30,
2019		 March 31,
2019		 December 31,
2018		 September 30,
2018		(Dollars in millions)September 30,
2020		June 30,
2020		March 31,
2020		December 31,
2019		September 30,
2019
Non-performing loans:         Non-performing loans:
Non-accrual loans$50.1
 $41.0
 $45.1
 $54.3
 $61.2
Non-accrual loans$44.8 $49.9 $51.1 $42.9 $50.1 
Accruing loans past due 90 days or more7.0
 5.2
 7.1
 3.8
 5.2
Accruing loans past due 90 days or more9.6 7.7 12.0 5.7 7.0 
Total non-performing loans57.1
 46.2
 52.2
 58.1
 66.4
Total non-performing loans54.4 57.6 63.1 48.6 57.1 
OREO17.8
 27.6
 21.1
 14.4
 17.3
OREO5.7 6.5 8.2 8.5 17.8 
Total non-performing assets$74.9
 $73.8
 $73.3
 $72.5
 $83.7
Total non-performing assets$60.1 $64.1 $71.3 $57.1 $74.9 
Troubled debt restructurings not included above$5.5
 $5.7
 $5.8
 $5.6
 $5.9
Troubled debt restructurings not included above$3.2 $3.4 $5.0 $5.5 $5.5 
Non-performing loans to total loans0.63% 0.51% 0.61% 0.68% 0.78%
Non-performing assets to total loans and OREO0.82
 0.81
 0.86
 0.85
 0.98
Non-performing loans to loans held for investmentNon-performing loans to loans held for investment0.54 %0.57 %0.71 %0.54 %0.63 %
Non-performing assets to loans held for investment and OREONon-performing assets to loans held for investment and OREO0.59 0.64 0.80 0.64 0.83 
Non-performing assets to total assets0.51
 0.51
 0.54
 0.55
 0.63
Non-performing assets to total assets0.35 0.39 0.49 0.39 0.51 
    
Non-performing loans. Non-performing loans include non-accrual loans and loans contractually past due 90 days or more and still accruing interest. ImpairedCollateral-dependent loans include all loans risk rated doubtful, loans placedthat rely solely on non-accrual status and loans renegotiated in troubled debt restructurings, with the exceptionoperation or sale of consumer loans.the collateral for repayment. We monitor and evaluate collateral values on impairedcollateral-dependent loans quarterly. Appraisals are required on all impairedcollateral dependent 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 then compared to the loan balance and any resulting shortfall is recorded in the allowance for loancredit losses as a specific valuation allowance. Provisions for loancredit losses are impacted by changes in the specific valuation allowances and historical or general valuation elements of the allowance for loancredit losses.


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The following table sets forth the allocation of our non-performing loans among our various loan categories as of the dates indicated.
Non-Performing Loans by Loan Type
(Dollars in millions)September 30,
2020		Percent
of Total		December 31, 2019Percent
of Total
Real estate:
Commercial$13.5 24.8 %$13.6 28.0 %
Construction:
Land acquisition and development1.1 2.0 1.7 3.5 
Residential1.5 2.8 — — 
Commercial0.5 0.9 0.5 1.0 
Total construction3.1 5.7 2.2 4.5 
Residential4.8 8.8 5.7 11.7 
Agricultural7.6 14.0 5.2 10.7 
Total real estate29.0 53.3 26.7 54.9 
Consumer3.1 5.7 3.5 7.3 
Commercial18.3 33.6 16.0 32.9 
Agricultural4.0 7.4 2.4 4.9 
Total non-performing loans$54.4 100.0 %$48.6 100.0 %
60
Non-Performing Loans by Loan Type       
(Dollars in millions)September 30,
2019		 
Percent
of Total
 December 31, 2018 
Percent
of Total
Real estate:       
Commercial$14.3
 25.0% $10.0
 17.2%
Construction:       
Land acquisition and development1.1
 1.9
 3.9
 6.7
Residential1.2
 2.1
 1.0
 1.7
Commercial0.5
 0.9
 0.2
 0.3
Total construction2.8
 4.9
 5.1
 8.7
Residential4.5
 7.9
 6.8
 11.8
Agricultural5.2
 9.1
 12.6
 21.7
Total real estate26.8
 46.9
 34.5
 59.4
Consumer4.1
 7.2
 3.5
 6.0
Commercial23.1
 40.5
 17.1
 29.4
Agricultural3.1
 5.4
 3.0
 5.2
Total non-performing loans$57.1
 100.0% $58.1
 100.0%

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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 all loans on non-accrual status had been current in accordance with their original terms, gross income of approximately $2.0 million and $1.6 million would have been accrued for the nine months ended September 30, 2019 and 2018, respectively. Non-accrual loans decreasedincreased approximately $4.2$1.9 million, to $50.1$44.8 million, as of September 30, 2019,2020, from $54.3$42.9 million as of December 31, 2018.2019, primarily as a result of the adoption of the CECL standard and corresponding transition from purchase credit impaired loans to purchase credit deteriorated loans, partially offset by the execution and resolution of workout strategies of non-performing loans. Accruing loans past due 90 days or more increased $3.2$3.9 million, or 84.2%68.4%, primarily due to an increase in commercial real estate and commercial loans.agricultural loan portfolios. Other real estate owned increased $3.4decreased $2.8 million, or 23.6%32.9%, from December 31, 2018. The increase in other real estate owned was driven by $14.0 million in foreclosures and the IIBK acquired other real estate owned, offset by $12.3 million in dispositions.2019.

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 methodology used to assess the adequacy is consistently applied to the Company’s loan 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 economic conditions on certain historical loan loss rates. See the discussion under “Critical Accounting Estimates and Significant Accounting Policies - Allowance for LoanCredit Losses.”
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. 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 loans. No specific valuation allowances are recorded for impaired loans that are adequately secured.
(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. Collateral-dependent loans without a specific valuation allowance are modeled with the applicable pool and receive the corresponding allowance.

(2)Historical valuation allowances based on loan loss experience for similar loans with similar characteristics and trends. The Company applies PD and LGD methodologies for all portfolio segments. The Company uses a 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 principal balance as of the reporting date. The TM determines the PD 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 tracked by ratings are generally commercial purpose including agricultural, commercial, and commercial real estate. Those tracked by delinquency are generally consumer in nature, with the exception of multi-family and credit cards. The LGD 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. The model compares the most recent period losses to prior period defaults to calculate the LGD, which is averaged over the historical observations.
Table(3) General valuation allowances determined based on changes in the nature of Contents

(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.
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. 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 income using the effective interest method over the remaining period to contractual maturity. Subsequent to the acquisition date, 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. Loans
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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 September 30, 2019,are recorded through provision expense using the Company determined that an allowance of $0.7 million related tosame 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 impairedcollateral-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 impairedcollateral-dependent loan, and any resulting charge-off of uncollectible principal.

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The following table sets forth information regarding our allowance for loancredit losses as of and for the periods indicated.
Allowance for Credit Losses
Three Months Ended
(Dollars in millions)Sep 30,
2020		Jun 30,
2020		Mar 31,
2020		Dec 31,
2019		Sep 30,
2019
Allowance for credit losses on loans: (1)
Beginning balance$146.1 $129.1 $73.0 $75.0 $74.2 
Initial impact of adopting ASC 326— — 30.0 — — 
Provision charged to operating expense (2)
4.0 19.3 29.2 3.8 2.6 
Charge offs:
Real estate
Commercial0.2 0.1 — — — 
Construction— — 0.5 0.1 — 
Residential— — — 0.1 0.3 
Consumer2.5 3.0 3.0 3.9 2.8 
Commercial3.7 0.9 1.1 3.1 1.6 
Agricultural— 0.1 — 0.1 — 
Total charge-offs6.4 4.1 4.6 7.3 4.7 
Recoveries:
Real estate
Commercial0.2 0.1 — — 0.1 
Construction0.2 — — 0.1 0.6 
Residential— 0.2 — 0.4 0.1 
Consumer1.1 0.9 1.1 0.5 0.8 
Commercial0.3 0.6 0.4 0.5 1.3 
Total recoveries1.8 1.8 1.5 1.5 2.9 
Net charge-offs4.6 2.3 3.1 5.8 1.8 
Balance at end of period$145.5 $146.1 $129.1 $73.0 $75.0 
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Allowance for Loan Losses         
(Dollars in millions)Three Months Ended
 Sep 30,
2019		 Jun 30,
2019		 Mar 31,
2019		 Dec 31,
2018		 Sep 30,
2018
Balance at beginning of period$74.2
 $72.4
 $73.0
 $73.6
 $74.1
Provision charged to operating expense2.6
 3.8
 3.7
 1.6
 2.0
Charge offs:         
Real estate         
Commercial—
 —
 0.2
 0.5
 0.3
Construction—
 0.6
 1.3
 0.4
 0.3
Residential0.3
 0.3
 0.6
 —
 0.1
Consumer2.8
 3.3
 3.0
 2.8
 3.0
Commercial1.6
 1.1
 0.8
 1.0
 1.1
Agricultural—
 0.3
 0.1
 —
 —
Total charge-offs4.7
 5.6
 6.0
 4.7
 4.8
Recoveries:         
Real estate         
Commercial0.1
 0.2
 0.2
 0.4
 —
Construction0.6
 0.6
 —
 0.2
 0.5
Residential0.1
 0.4
 —
 0.5
 0.1
Consumer0.8
 1.2
 1.1
 0.9
 1.2
Commercial1.3
 1.2
 0.4
 0.5
 0.5
Total recoveries2.9
 3.6
 1.7
 2.5
 2.3
Net charge-offs1.8
 2.0
 4.3
 2.2
 2.5
Balance at end of period$75.0
 $74.2
 $72.4
 $73.0
 $73.6
          
Period end loans$9,101.5
 $9,059.3
 $8,493.2
 $8,503.7
 $8,518.0
Average loans9,053.6
 8,948.3
 8,467.9
 8,520.7
 8,128.9
Net loans charged-off to average loans, annualized0.08% 0.09% 0.21% 0.10% 0.12%
Allowance to period end loans0.82
 0.82
 0.85
 0.86
 0.86
Allowance for Credit Losses
Three Months Ended
(Dollars in millions)Sep 30,
2020		Jun 30,
2020		Mar 31,
2020		Dec 31,
2019		Sep 30,
2019
Allowance for off-balance sheet credit losses:
Beginning balance$2.3 $2.1 $— $— $— 
Initial impact of adopting ASC 326— — 2.3 — — 
Provision for off-balance sheet credit losses1.2 0.2 (0.2)— — 
Balance at end of period$3.5 $2.3 $2.1 $— $— 
Total allowance for credit losses$149.0 $148.4 $131.2 $73.0 $75.0 
Total provision for credit losses5.2 19.5 29.0 3.8 2.6 
Loans held for investment10,152.2 10,032.5 8,918.0 8,930.7 8,992.6 
Average loans10,219.2 9,949.6 8,995.6 9,041.1 9,053.6 
Net loans charged-off to average loans, annualized0.18 %0.09 %0.14 %0.25 %0.08 %
Allowance to loans held for investment1.43 1.46 1.45 0.82 0.83 
(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.
Our allowance for loancredit losses on loans was $75.0$145.5 million, or 0.82%1.43% of period endloans held for investment, including PPP loans, as of September 30, 2019,2020, as compared to $73.0 million, or 0.86%0.82% of period end loans held for investment, as of December 31, 2018.2019. The decreaseincrease in the percentage from December 31, 20182019 is primarily a result of higher loan balances fromadoption of the INB, IIBK,CECL standard and CMYF acquired loans, which were recorded at fair value for INBchanges in the Company’s internal economic forecast in response to COVID-19 and provisionally recorded at fair value for IIBK and CMYFuncertainty regarding the benefits of government stimulus enacted in accordance with GAAP, with no correspondingresponse to COVID-19. The allowance for loancredit losses in purchase accounting.
Although we have established our allowance for loan losses in accordance with GAAP and we believe that our allowance for loan losses is adequate to provide for known and inherentrepresents management’s estimate of expected credit losses in the loan portfolio at all times, future provisions will be subject to on-going evaluationsexpected over the life of the risks inloan, including the incorporation of a one-year forecast period for economic conditions.
While the allowance for credit losses on loans of 1.43% include the PPP loan portfolio. Ifbalance, the economy declines or asset quality deteriorates, material additional provisions could be required.allowance for credit losses does not include a reserve on the 100% Small Business Administration guaranteed PPP loans. The allowance for credit losses on loans as a percentage of period-end loans held for investment would have been 20 basis points higher had the PPP loan balances been excluded at September 30, 2020.
Investment Securities.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. Investment securities increased $149.6$456.2 million, or 5.6%14.9%, to $2,827.1$3,508.5 million, or 19.2%20.6% of total assets, as of September 30, 2019,2020, from $2,677.5$3,052.3 million, or 20.1%20.8% of total assets, as of December 31, 2018. Exclusive of $78.7 million of IIBK and CMYF acquired securities, investment securities increased $70.9 million, or 2.6%.2019. As of September 30, 2019,2020, the estimated duration of our investment portfolio was 2.22.3 years, as compared to 2.52.4 years as of December 31, 2018.

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2019.
We evaluate our investment portfolio quarterly for other-than-temporary declinesavailable-for-sale debt securities in an unrealized loss position to assess whether we intend to sell, or whether it is more likely than not that we will be required to sell the marketsecurity before recovery of its amortized cost basis. 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 individual investment securities. This evaluation includes monitoring credit ratings; market, industry and corporate news; volatility in market prices; and, determining whethercash flows expected to be collected from the marketsecurity 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 securitycredit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been below its costrecorded through an allowance for an extended period of time. credit losses is recognized in other comprehensive income.
As of September 30, 2019,2020, we had available-for-sale investment securities with fair values aggregating $308.1$24.1 million that had been in a continuous loss position more than twelve months. Gross unrealized losses on these securities of $1.9$0.2 million as of September 30, 20192020 were attributable to changes in interest rates. As 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 losses or credit impairment were recorded during the three months ended September 30, 20192020 or 2018.2019.
At December 31, 2018, we had $406.8 million
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Table of investment securities classified as held to maturity. As a result of the adoption of ASU 2017-12 discussed in “Note 16 – Recent Authoritative Accounting Guidance” in the accompanying “Notes to Unaudited Consolidated Financial Statements” included in this report, the Company transferred investment securities classified as held-to-maturity to investment securities available-for-sale. At the time of transfer, the amortized cost and fair value of these securities totaled $281.1 million and $275.0 million, respectively. In addition, the unrealized loss of $6.0 million was recorded in the consolidated statement of comprehensive income.Contents
Goodwill and Other Intangible Assets. 

Goodwill increased $75.9 million, or 13.9%, to $622.6 million as of September 30, 2019, from $546.7 million as of December 31, 2018, attributable to the finalization of the INB acquisition and provisional goodwill of $76.3 million recorded in conjunction with the acquisitions of IIBK and CMYF.

Company-Owned Life Insurance. 

Company-owned life insurance increased $17.7 million, or 6.4%, to $292.8 million as of September 30, 2019, from $275.1 million as of December 31, 2018, primarily attributable to provisional amounts of $15.2 million recorded in conjunction with the acquisition of IIBK.

Premises and equipment. 
Premises and equipment, net of accumulated depreciation increased $57.6 million, or 23.5%, to $302.8 million as of September 30, 2019, from $245.2 million as of December 31, 2018, primarily due to $26.7 million of premises and equipment acquired with the acquisition of IIBK and CMYF and the Company recognizing right-of-use assets related to leases, as a result of the adoption of ASU 2016-02 discussed in “Note 1 – Basis of Accounting” and “Note 16 – Recent Authoritative Accounting Guidance” in the accompanying “Notes to Unaudited Consolidated Financial Statements” included in this report.
Core Deposit Intangibles, Net of Accumulated Amortization.
Core deposit intangibles, net of accumulated amortization, increased $8.1 million, or 14.2%, to $65.0 million as of September 30, 2019, from $56.9 million as of December 31, 2018, attributable to provisional core deposit intangibles of $16.6 million recorded in conjunction with the acquisitions of IIBK and CMYF offset by amortization expense.
Other real estate owned. 
Other real estate owned increased $3.4 million, or 23.6%, to $17.8 million as of September 30, 2019, from $14.4 million as of December 31, 2018. The increase in other real estate owned was driven by $14.0 million in foreclosures and the IIBK acquired other real estate owned, offset by $12.3 million in dispositions.
Other Assets
Other assets increased $37.4$39.5 million, or 23.5%21.1%, to $196.5$227.1 million as of September 30, 2019,2020, from $159.1$187.6 million as of December 31, 2018.2019. The increase is primarily attributable to provisional amounts of $8.7 million recorded for IIBK and CMYF assets in conjunction with the acquisitions, an increase in Federal Reserve stock required as a result of the acquisitions, and an increase related to$45.1 million in our interest rate swap contracts.contracts offset by decreases resulting from normal fluctuations in other assets.
Deposits
Our deposits consist of non-interest bearingnon-interest-bearing and interest bearinginterest-bearing demand, savings, individual retirement, and time deposit accounts. Total deposits increased $1,118.9$2,218.9 million, or 10.5%19.0%, to $11,799.6$13,882.4 million as of September 30, 2019,2020, from $10,680.7$11,663.5 million as of December 31, 2018.2019. The increase is primarily attributable to $706.7 million of IIBK and CMYFproceeds from PPP loans, new clients acquired deposits and an increase of $412.2 million as a result of organic growth.

Tablethe PPP loan process, and higher cash balances of Contents

existing clients.
The following table summarizes our deposits as of the dates indicated:
Deposits       Deposits
(Dollars in millions)September 30,
2019		 
Percent
of Total
 December 31,
2018		 
Percent
of Total
(Dollars in millions)September 30,
2020		Percent
of Total		December 31,
2019		Percent
of Total
Non-interest bearing demand$3,639.7
 30.8% $3,158.3
 29.6%
Non-interest-bearing demandNon-interest-bearing demand$4,798.2 34.5 %$3,426.5 29.4 %
Interest bearing:       Interest bearing:
Demand3,054.1
 25.9
 2,957.5
 27.7
Demand3,814.1 27.5 3,195.4 27.4 
Savings3,570.8
 30.3
 3,247.9
 30.4
Savings4,158.0 30.0 3,591.6 30.8 
Time, $100 and over705.2
 6.0
 547.6
 5.1
Time, $100 and over427.6 3.1 651.1 5.6 
Time, other (1)
829.8
 7.0
 769.4
 7.2
Time, other (1)
684.5 4.9 798.9 6.8 
Total interest bearing$8,159.9
 69.2% $7,522.4
 70.4%Total interest bearing9,084.2 65.5 8,237.0 70.6 
Total deposits$11,799.6
 100.0% $10,680.7
 100.0%Total deposits$13,882.4 100.0 %$11,663.5 100.0 %
    
(1)
(1)Included in Time, other are Certificate of Deposit Account Registry Service, or CDARS, deposits of $123.1 million and no brokered deposits as of September 30, 2020, compared to $117.7 million and $2.9 million as of December 31, 2019, respectively.

Included in Time, other are Certificate of Deposit Account Registry Service, or CDARS, deposits of $113.7 million and brokered deposits of $2.9 million as of September 30, 2019, compared to $87.1 million and $24.1 million as of December 31, 2018, respectively.

Securities Sold Under Repurchase Agreements. Agreement
In addition to deposits, repurchase agreements with commercial depositors, which include municipalities, provide an additional source of funds. Under repurchase agreements, 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 decreased $75.5increased $122.7 million, or 10.6%17.6%, to $636.9$820.3 million as of September 30, 2019,2020, from $712.4$697.6 million as of December 31, 2018. Exclusive of the provisional amount of $30.4 million of securities sold under repurchase agreements acquired from IIBK, securities sold under repurchase agreements decreased $105.9 million, or 14.9%.
Accounts Payable and Accrued Expenses. 
Accounts payable and accrued expenses increased $51.7 million, or 54.9%, to $145.8 million as of September 30, 2019, from $94.1 million as of December 31, 2018, primarily due to the Company recognizing lease liabilities as a result of the adoption of ASU 2016-02 discussednormal fluctuations in “Note 1 – Basis of Accounting” and “Note 16 – Recent Authoritative Accounting Guidance” in the accompanying “Notes to Unaudited Consolidated Financial Statements” included in this report.account balances.
Deferred Tax Asset / Liability
Our deferred tax liability, net, increased $15.0$3.1 million, or 174.4%11.6%, to $23.6$29.8 million as of September 30, 2019,2020, from $8.6$26.7 million as of December 31, 2018,2019, primarily due to an increase in our mark-to-market gains partially offset by an increase in our allowance for credit losses as a result of deferred taxes recorded on mark-to-market gains in 2019.the adoption of ASC 326.
Capital Resources and Liquidity Management
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 $288.7decreased $36.3 million, or 17.0%1.8%, to $1,982.6$1,977.6 million as of September 30, 2019,2020, from $1,693.9$2,013.9 million as of December 31, 2018,2019, due to stock repurchases related to the retention of earnings, other comprehensive income, stock-based compensation, proceeds from stock option exercises, and the issuance of additional shares of Class A common stock with an aggregate value of $176.1 million as consideration for the IIBK and CMYF acquisitions. This increase was offset byrepurchase 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.paid, 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. For additional information regarding the adoption of ASC 326, see “Note 1 – Basis of Presentation” in the accompanying “Notes to Unaudited Consolidated Financial Statements” included in this report.
On October 30, 2019,26, 2020, the Company’s board of directors declared a dividend of $0.31$0.38 per common share, payable on November 19, 2019,16, 2020, to common stockholders of record as of November 9, 2019.6, 2020. The dividend equates to a 3.2%4.9% annual yield based on the $39.30$30.98 average closing pricing of the Company’s common stock during the third quarter of 2019.2020.
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On June 11, 2019, the Company announced theCompany’s board of directors adopted a new stock repurchase program to replace the program that had been in place since 2015 and which had only 24,123 shares of Class A common stock remaining to be purchased thereunder. Under the new stock repurchase program,permitting the Company mayto repurchase up to 2.5 million of its outstanding shares of Class A common stock. To dateOn March 23, 2020, the Company’s board of directors suspended stock repurchases in response to the COVID-19 pandemic. The Company had repurchased 1,054,700 shares of Class A common stock under the program. Effective August 24, 2020, the Company’s board of directors lifted the temporary suspension of the Company’s stock repurchase program and repurchased and retired 294,846 shares of Class A common stock during August 2020. 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 has not repurchased any shares under the current authorization.

Tablestock repurchase program by an additional 3.0 million shares bringing the total number of Contents

On July 2, 2013, the Board of Governors of the Federal Reserve Bank issued a final rule implementing a revised regulatory capital framework for U.S. banks in accordance with the Basel III international accord and satisfying related mandatesshares authorized under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The revised regulatory capital framework (the “Basel III Capital Rules”) substantially revised the risk-based capital requirements applicableprogram to bank holding companies and depository institutions by defining the components of capital and addressing other issues affecting the numerator in banking institutions’ regulatory capital ratios, addressing risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios and replacing the existing risk-weighting approach with a more risk-sensitive approach. The Basel III Capital Rules became effective for5.5 million shares. During September 2020, the Company on January 1, 2015, subject torepurchased and retired 1,150,454 shares of Class A common stock.
During the three months ended September 30, 2020, the Company repurchased and retired a phase-in period for certain provisions. The capital conservation buffer required under Basel III began to phase in starting January 1, 2016total of 1,445,300 shares of our Class A common stock at a total cost of $46.3 million, including costs and became fully implemented on January 1, 2019.
commissions, at an average cost of $32.05 per share. During the nine months ended September 30, 2020, the Company repurchased and retired a total of 2.5 million shares of our Class A common stock at a total cost of $77.5 million, including costs and commissions, at an average cost of $31.01 per share. As of September 30, 20192020, there were 3.0 million shares remaining authorized under the repurchase program.

As a bank holding company, the Company must comply with the capital requirements established by the Federal Reserve, and our subsidiary Bank must comply with the capital requirements established by the FDIC. The current risk-based guidelines applicable to us and our Bank are based on the Basel III framework, as implemented by the federal bank regulators. As of September 30, 2020 and December 31, 2018,2019, the Company had capital levels that, in all cases, exceeded the guidelines to be deemed “well-capitalized.” For additional information regarding our capital levels, see “Note 1110 – Regulatory Capital” in the accompanying “Notes to Unaudited Consolidated Financial Statements” included in 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 the unaudited “Consolidated Statements of Cash Flows,” included in Part I, Item 1.    
As a holding company, we are a corporation separate and apart from our subsidiary Bank and, therefore, we provide for our own liquidity. Our primary sources of funding include management fees and dividends declared and paid by the 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.    
The Company continuously monitors our liquidity position and adjustments are made to the balance between sources and uses of funds as deemed appropriate. We are not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources, or operations. In addition, we are not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on us.
Recent Accounting Pronouncements    
See “Note 16 – Recent Authoritative Accounting Guidance” in the accompanying “Notes to Unaudited Consolidated Financial Statements” included in this report for details of recently issued accounting pronouncements and their expected impact on our financial statements.        
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Item 3.
        
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
    
As of September 30, 2019,2020, there have been no material changes in the quantitative and qualitative information about market risk provided pursuant to Item 305 of Regulation S-K as presented in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
    

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Item 4.
            
CONTROLS AND PROCEDURES
        
Disclosure Controls and Procedures
    
Our management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act. As of September 30, 2019,2020, an evaluation was performed, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of 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 September 30, 20192020 were effective in ensuring that information required to be disclosed in our reports filed or submitted 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.
    
Changes in Internal Control Over Financial Reporting
    
There were no changes in our internal control over financial reporting for the quarter ended September 30, 20192020 that have materially affected, or are reasonably likely to materially affect, such control.
    
Limitations on Controls and Procedures
    
The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, any system of disclosure controls and procedures or internal control over financial reporting may not be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

PART II.
        
OTHER INFORMATION

Item 1.Legal Proceedings
Item 1.    Legal Proceedings
There have been no material changes in legal proceedings as described in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.

Item 1A.Risk Factors
There have been no material changes inItem 1A.    Risk Factors
The information presented below updates the risk factors describeddisclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.2019, as updated in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. Except as presented below, there have been no material changes for the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, as updated in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

The impact of the COVID-19 pandemic on our business and financial results will depend on future developments that are uncertain and unpredictable, including the scope and duration of the pandemic, and may be materially adverse to our operations and profitability.
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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
In December 2019, a new strain of coronavirus (also known as, and hereinafter referred to as “COVID-19”) originated in Wuhan, China, and quickly spread to infect many people in the city and surrounding area. In many cases, COVID-19 causes severe illness and even death in a significant minority of cases. Since its emergence, COVID-19 has spread throughout the world, including the United States and Europe, significantly impacting the entire world’s economies. Most industrialized economies have responded to the COVID-19 pandemic by shutting down significant portions of their economy.

The outbreak has been declared a pandemic by the World Health Organization, and the United States government has declared a national emergency in response. The COVID-19 pandemic has caused significant volatility and negative pressure in financial markets throughout the world. The global impact of the pandemic has been rapidly evolving and many countries, including the United States, have reacted by instituting a wide variety of control measures including states of emergency, mandatory quarantines, required business and school closures, implementing state-wide “shelter in place” orders, and restricting travel.

The future impact of COVID-19 on the global economy will depend on the extent of the spread of the virus, the rate of infection, the severity of illness and the degree of lethality, the relative effect on various portions of the population, the measures taken to combat the virus and their effectiveness, the effect on international trade of any measures taken to combat the virus, any action taken (such as the lowering of interest rates) by government entities to combat the negative macroeconomic effects of these measures, the timing and availability of any treatments or vaccines for the virus, any possible resurgence of the COVID-19 virus after the initial outbreak, and other factors.

The COVID-19 pandemic has impacted the general economic conditions and unemployment throughout the United States, including within the Company’s territories. From March through May 2020, as virtually all states and much of the world shut down their economies to try and cope with the pandemic, U.S. unemployment claims rose sharply, at rates higher than at any other time for when such records have been kept. At this time, the magnitude of the economic deterioration that will be observed due to COVID-19 is uncertain. Starting in late May, many states began to re-open their economies but some have been forced to close all or parts of their economies intermittently due to spikes in infections. The long-term impact of the shutdowns, and the question of whether and to what extent there will be spikes in infection during the traditional flu season, make any predictions of short- and mid-term economic performance somewhat uncertain, even though the Company has continued to have strong economic performance through the COVID pandemic.

The COVID-19 pandemic has likely caused disruptions and restrictions to our client borrowers and to our borrowers’ supply chains, closures of facilities, and decreases in demand for their products and services. As a result, the demand for our products and services may be impacted, which could adversely affect our operations and profitability. Furthermore, the pandemic could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, the impact on the global economy worsens, or clients draw on their lines of credit or seek additional loans to help finance their businesses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize impairments on certain of our assets.

The Company has a limited number of employees at certain locations and administrative offices with approximately 44% of its staff working from home. The Company has activated the necessary portions of its Crisis Management Team (CMT) which is responsible for mitigating risks related to threats and hazards, including pandemics. The CMT meets multiple times a week to discuss guidelines for employees based on local/state/federal recommendations and sends frequent communications to all employees regarding the changing environment. This has not yet impacted the Company’s ability to serve its clients.However, our business operations could be disrupted if the Company’s mitigation efforts prove ineffective or, if further circumstances were to arise beyond the Company’s control. Significant portions of our workforce could become unable to work, because of, for instance, illness, quarantines, government actions, fear of contagion or other restrictions in connection with the pandemic. We have already temporarily closed or have modified hours of operations, accommodated appointment requests from clients, and modified banking operations to increase contactless services for clients.

Moreover, our future success and profitability is substantially dependent upon the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.
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We do not have any business interruption insurance that covers pandemics. If we are unable to recover from a business disruption on a timely basis or if the outbreak and its effects lead to recessionary conditions or a deterioration in economic conditions, we could be subject to any of the consequences identified above, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations. There are no comparable recent events that may provide guidance as to the effect of the spread of COVID-19 and the resulting pandemic, and, as a result, the extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, which could prove material and adverse to our business.

We may be adversely affected by the emergency actions taken by the U.S. government to mitigate the impact of the COVID-19 pandemic on the U.S. economy.

The United States government has taken a number of actions to mitigate the impact of the COVID-19 pandemic on the U.S. economy. Among others steps taken, on March 15, 2020, the Federal Reserve cut the federal funds rate to a target of 0% to 0.25% from its previous target range of 1% to 1.25%, the second reduction of the federal funds rate in March 2020. The Federal Reserve also lowered the interest rate on emergency lending at the discount window by 125 basis points to 0.25% and lengthened the term of overnight loans up to 90 days. On March 27, 2020, the CARES Act was signed into law. Key provisions of the CARES Act include one-time payments to individuals, strengthened unemployment insurance, additional health-care funding, loans and grants to certain businesses, and temporary amendments to the Internal Revenue Code. The Small Business Administration was tapped to lead the effort to loan funds to small businesses, in conjunction with banks. The Federal Reserve and the U.S. Treasury have also responded with lending programs under the CARES Act. Further, the Federal Reserve has intervened with a number of credit facilities intended to keep the capital markets liquid.

The Company successfully implemented a payment deferral program for its clients affected by COVID-19. As of October 30, 2020, there were approximately 325 loans of approximately $47.5 million that sought relief under the deferral program. The Company also became a certified Small Business Administration (“SBA”) lender, implementing the Paycheck Protection Program (“PPP”) of the CARES Act, offering loans to existing clients with 100 percent guarantees by the SBA under certain parameters. During 2020, the Company made 11,700 loans for $1.2 billion under the PPP.

There can be no assurance that these interventions by the government will be successful in mitigating the impact of the COVID-19 pandemic and it is unclear what the cumulative effect of these extraordinary actions by the U.S. government will be on the economy as a whole and upon the financial condition and results of operations of the Company and its clients, both in the short-term and the long-term. In addition, the acts of other major financial players could have significant impact on our economy in ways that are not predictable.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
(a) There were no unregistered sales of equity securities during the three months ended September 30, 2019.2020.
(b) Not applicable.
(c) The following table provides information with respect to purchases made of our Class A common stock by or on behalf of us or any “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Exchange Act), during the three months ended September 30, 2019.2020. 
Total Number ofMaximum Number
Shares Purchased as Partof Shares That May
Total Number ofAverage Priceof Publicly AnnouncedYet Be Purchased Under
PeriodShares Purchased (1)Paid Per Share Plans or Programsthe Plans or Programs
July 2020— $— — 1,445,300 
August 2020294,846 32.77 294,846 1,150,454 
September 20201,150,454 31.83 1,150,454 3,000,000 
Total1,445,300 $32.02 1,445,300 3,000,000 
(1)    Stock repurchases were redemptions of vested restricted shares tendered in lieu of cash for payment of income tax withholding amounts by participants of the Company’s 2015 Equity Compensation Plan and purchases related to our stock repurchase program.

Item 3.    Defaults upon Senior Securities
None.

68
         
      Total Number of Maximum Number
      Shares Purchased as Part of Shares That May
  Total Number of Average Price of Publicly Announced Yet Be Purchased Under
Period Shares Purchased (1) Paid Per Share  Plans or Programs the Plans or Programs
July 2019 —
 $—
 —
 2,500,000
August 2019 675
 39.05
 —
 2,500,000
September 2019 —
 —
 —
 2,500,000
Total 675
 $39.05
 —
 2,500,000

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Item 4.    Mine Safety Disclosures
Not applicable.

Item 5.    Other Information
None.
Item 6.    Exhibits
(1)Exhibit NumberStock repurchases were redemptions of vested restricted shares tendered in lieu of cash for payment of income tax withholding amounts by participants of the Company’s 2015 Equity Compensation Plan.Description

Item 3.Defaults upon Senior Securities
None.

Item 4.Mine Safety Disclosures
Not applicable.

Item 5.Other Information
None.

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Item 6.    Exhibits
Exhibit NumberDescription
3.131.1*
First Interstate BancSystem, Inc. Third Amended and Restated Articles of Incorporation.
31.1*
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.
31.2*
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.
 
32**
18 U.S.C. Section 1350 Certifications.
 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.
 104*Cover Page Interactive Data File - The cover page XBRL tags are embedded within the inline XBRL document (included in Exhibit 101)
*Filed herewith.
**Furnished herewith.





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SIGNATURES
Pursuant to the requirements 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.
 
FIRST INTERSTATE BANCSYSTEM, INC.
Date:November 4, 2020FIRST INTERSTATE BANCSYSTEM, INC.
Date:November 6, 2019By:
/S/  KEVIN P. RILEY        
Kevin P. Riley

President and Chief Executive Officer
Date:
Date:November 6, 20194, 2020By:
/S/  MARCY D. MUTCH
Marcy D. Mutch

Executive Vice President and Chief Financial Officer

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