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, ~~2020~~2021

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

For the transition period from to

COMMISSION FILE NUMBER 001-34653

________________________________________________________________________________________________________

FIRST INTERSTATE BANCSYSTEM, INC.

(Exact name of registrant as specified in its charter)

________________________________________________________________________________________________________


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

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

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

_________________________________________________________________________________________________

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


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

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

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


September 30, ~~2020~~2021 – Class A common stock			~~41,143,592~~41,715,627
September 30, ~~2020~~2021 – Class B common stock			~~21,971,339~~20,515,516

Quarterly Report on Form 10-Q


	FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
	Index
	September 30, ~~2020~~2021
		Page Nos.
	Part I - Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets	3

	Consolidated Statements of Income	4

	Consolidated Statements of Comprehensive Income	5

	Consolidated Statements of Changes in Stockholders’ Equity	6

	Consolidated Statements of Cash Flows	8

	Notes to Unaudited Consolidated Financial Statements	10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4841

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6656

Item 4.	Controls and Procedures	6656

	Part II - Other Information

Item 1.	Legal Proceedings	6656

Item 1A.	Risk Factors	6656

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6859

Item 3.	Defaults Upon Senior Securities	6859

Item 4.	Mine Safety Disclosures	6959

Item 5.	Other Information	6959

Item 6.	Exhibits	6960

Signatures		7061

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	291.4	$	241.5	Cash and due from banks	$	227.6	$	261.4
Interest bearing deposits in banks	Interest bearing deposits in banks	1,569.1		835.2		Interest bearing deposits in banks	2,005.8		2,015.3
Federal funds sold	Federal funds sold	0.1		0.1		Federal funds sold	0.1		0.1
Total cash and cash equivalents	Total cash and cash equivalents	1,860.6		1,076.8		Total cash and cash equivalents	2,233.5		2,276.8
Investment securities:	Investment securities:					Investment securities:
Available-for-sale	Available-for-sale	3,453.5		2,960.0		Available-for-sale	4,403.6		4,008.7
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
Held-to-maturity, net (estimated fair values of $1,632.5 and $55.0 at September 30, 2021 and December 31, 2020, respectively)						Held-to-maturity, net (estimated fair values of $1,632.5 and $55.0 at September 30, 2021 and December 31, 2020, respectively)	1,618.1		51.6
Total investment securities	Total investment securities	3,508.5		3,052.3		Total investment securities	6,021.7		4,060.3
Mortgage loans held for sale, at fair value	Mortgage loans held for sale, at fair value	102.0		100.9		Mortgage loans held for sale, at fair value	42.5		74.0
Loans held for investment, net of deferred fees and costs	Loans held for investment, net of deferred fees and costs	10,152.2		8,930.7		Loans held for investment, net of deferred fees and costs	9,622.5		9,807.5
Allowance for credit losses	Allowance for credit losses	145.5		73.0		Allowance for credit losses	135.1		144.3
Net loans held for investment	Net loans held for investment	10,006.7		8,857.7		Net loans held for investment	9,487.4		9,663.2
Goodwill	Goodwill	621.6		621.6		Goodwill	621.6		621.6
Company-owned life insurance	Company-owned life insurance	294.9		293.8		Company-owned life insurance	300.5		296.4
Premises and equipment, net of accumulated depreciation	Premises and equipment, net of accumulated depreciation	307.8		306.0		Premises and equipment, net of accumulated depreciation	297.3		312.3
Core deposit intangibles, net of accumulated amortization	Core deposit intangibles, net of accumulated amortization	53.8		62.1		Core deposit intangibles, net of accumulated amortization	43.7		51.2
Accrued interest receivable	Accrued interest receivable	56.7		46.7		Accrued interest receivable	52.9		51.1
Mortgage servicing rights, net of accumulated amortization and impairment reserve	Mortgage servicing rights, net of accumulated amortization and impairment reserve	24.1		30.2		Mortgage servicing rights, net of accumulated amortization and impairment reserve	27.0		24.0
Other real estate owned (“OREO”)	Other real estate owned (“OREO”)	5.7		8.5		Other real estate owned (“OREO”)	2.3		2.5

Other assets	Other assets	227.1		187.6		Other assets	241.8		215.3
Total assets	Total assets	$	17,069.5	$	14,644.2	Total assets	$	19,372.2	$	17,648.7
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Deposits:	Deposits:					Deposits:
Non-interest bearing	Non-interest bearing	$	4,798.2	$	3,426.5	Non-interest bearing	$	5,617.9	$	4,633.5
Interest bearing	Interest bearing	9,084.2		8,237.0		Interest bearing	10,389.4		9,583.5
Total deposits	Total deposits	13,882.4		11,663.5		Total deposits	16,007.3		14,217.0
Securities sold under repurchase agreements	Securities sold under repurchase agreements	820.3		697.6		Securities sold under repurchase agreements	1,007.5		1,091.4
Accounts payable and accrued expenses	Accounts payable and accrued expenses	148.5		129.6		Accounts payable and accrued expenses	146.0		144.4
Accrued interest payable	Accrued interest payable	8.1		12.1		Accrued interest payable	6.6		5.8
Deferred tax liability, net	Deferred tax liability, net	29.8		26.7		Deferred tax liability, net	17.4		27.2
Long-term debt	Long-term debt	112.4		13.9		Long-term debt	112.4		112.4

Allowance for credit losses on off-balance sheet credit exposures	Allowance for credit losses on off-balance sheet credit exposures	3.4		0		Allowance for credit losses on off-balance sheet credit exposures	3.2		3.7

Subordinated debentures held by subsidiary trusts	Subordinated debentures held by subsidiary trusts	87.0		86.9		Subordinated debentures held by subsidiary trusts	87.0		87.0
Total liabilities	Total liabilities	15,091.9		12,630.3		Total liabilities	17,387.4		15,688.9
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; 0 shares issued and outstanding as of September 30, 2020 or December 31, 2019		0		0
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; no shares issued and outstanding as of September 30, 2021 or December 31, 2020						Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; no shares issued and outstanding as of September 30, 2021 or December 31, 2020	—		—
Common stock	Common stock	976.8		1,049.3		Common stock	943.6		941.1
Retained earnings	Retained earnings	938.9		953.6		Retained earnings	1,026.9		962.1
Accumulated other comprehensive income, net	Accumulated other comprehensive income, net	61.9		11.0		Accumulated other comprehensive income, net	14.3		56.6
Total stockholders’ equity	Total stockholders’ equity	1,977.6		2,013.9		Total stockholders’ equity	1,984.8		1,959.8
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	17,069.5	$	14,644.2	Total liabilities and stockholders’ equity	$	19,372.2	$	17,648.7

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Interest income:	Interest income:									Interest income:
Interest and fees on loans	Interest and fees on loans	$	112.3	$	120.0	$	336.4	$	352.3	Interest and fees on loans	$	111.9	$	112.3	$	325.1	$	336.4
Interest and dividends on investment securities:	Interest and dividends on investment securities:									Interest and dividends on investment securities:
Taxable	Taxable	15.5		15.1		48.4		45.9		Taxable	17.1		15.5		48.7		48.4
Exempt from federal taxes	Exempt from federal taxes	0.6		0.5		1.6		1.5		Exempt from federal taxes	1.4		0.6		4.2		1.6
Interest on deposits in banks	Interest on deposits in banks	0.5		5.7		3.5		14.3		Interest on deposits in banks	0.7		0.5		1.7		3.5

Total interest income	Total interest income	128.9		141.3		389.9		414.0		Total interest income	131.1		128.9		379.7		389.9
Interest expense:	Interest expense:									Interest expense:
Interest on deposits	Interest on deposits	3.4		13.4		15.2		39.6		Interest on deposits	1.9		3.4		6.4		15.2
Interest on securities sold under repurchase agreements	Interest on securities sold under repurchase agreements	0.1		1.0		0.7		3.1		Interest on securities sold under repurchase agreements	0.1		0.1		0.3		0.7

Interest on other debt	Interest on other debt	1.7		0.3		3.0		1.0		Interest on other debt	1.5		1.7		4.5		3.0
Interest on subordinated debentures held by subsidiary trusts	Interest on subordinated debentures held by subsidiary trusts	0.7		1.1		2.4		3.5		Interest on subordinated debentures held by subsidiary trusts	0.7		0.7		2.1		2.4
Total interest expense	Total interest expense	5.9		15.8		21.3		47.2		Total interest expense	4.2		5.9		13.3		21.3
Net interest income	Net interest income	123.0		125.5		368.6		366.8		Net interest income	126.9		123.0		366.4		368.6
Provision for credit losses		5.2		2.6		53.7		10.1
Net interest income after provision for credit losses		117.8		122.9		314.9		356.7
(Reversal of) provision for credit losses										(Reversal of) provision for credit losses	—		5.2		(5.1)		53.7
Net interest income after provision for (reversal of) credit losses										Net interest income after provision for (reversal of) credit losses	126.9		117.8		371.5		314.9
Non-interest income:	Non-interest income:									Non-interest income:
Payment services revenues	Payment services revenues	10.5		10.8		30.0		30.7		Payment services revenues	12.2		10.5		33.8		30.0
Mortgage banking revenues	Mortgage banking revenues	14.3		10.4		39.4		24.6		Mortgage banking revenues	11.6		14.3		32.8		39.4
Wealth management revenues	Wealth management revenues	5.9		5.9		17.5		17.8		Wealth management revenues	6.5		5.9		19.1		17.5
Service charges on deposit accounts	Service charges on deposit accounts	4.3		5.3		13.3		15.7		Service charges on deposit accounts	4.4		4.3		12.1		13.3
Other service charges, commissions and fees		5.0		1.7		10.0		5.2
Other service charges, commissions, and fees										Other service charges, commissions, and fees	1.4		5.0		5.1		10.0

Investment securities gains (losses), net		0.1		0.1		0.1		0.1
Investment securities gains, net										Investment securities gains, net	0.3		0.1		0.2		0.1
Other income	Other income	4.6		4.0		12.5		13.4		Other income	3.3		4.6		10.0		12.5

Total non-interest income	Total non-interest income	44.7		38.2		122.8		107.5		Total non-interest income	39.7		44.7		113.1		122.8
Non-interest expense:	Non-interest expense:									Non-interest expense:
Salaries and wages	Salaries and wages	46.0		40.1		130.1		115.3		Salaries and wages	42.0		46.0		122.6		130.1
Employee benefits	Employee benefits	11.8		11.9		36.4		40.3		Employee benefits	12.9		11.8		43.7		36.4
Outsourced technology services	Outsourced technology services	8.4		7.9		24.5		23.9		Outsourced technology services	8.2		8.4		24.7		24.5
Occupancy, net	Occupancy, net	7.2		7.1		21.3		21.2		Occupancy, net	7.3		7.2		21.7		21.3
Furniture and equipment	Furniture and equipment	4.1		3.3		11.1		10.2		Furniture and equipment	4.5		4.1		13.0		11.1
OREO expense, net of income	OREO expense, net of income	0		(0.8)		(0.4)		(0.5)		OREO expense, net of income	—		—		(0.1)		(0.4)
Professional fees	Professional fees	2.9		3.5		8.6		9.3		Professional fees	2.7		2.9		9.3		8.6
FDIC insurance premiums	FDIC insurance premiums	1.3		0.4		4.5		3.5		FDIC insurance premiums	1.7		1.3		4.8		4.5

Core deposit intangibles amortization	Core deposit intangibles amortization	2.7		3.0		8.3		8.3		Core deposit intangibles amortization	2.4		2.7		7.4		8.3
Other expenses	Other expenses	15.1		16.5		45.7		46.9		Other expenses	17.6		15.1		49.6		45.7

Acquisition related expenses	Acquisition related expenses	0		3.8		0		19.6		Acquisition related expenses	6.6		—		6.6		—
Total non-interest expense	Total non-interest expense	99.5		96.7		290.1		298.0		Total non-interest expense	105.9		99.5		303.3		290.1
Income before income tax expense	Income before income tax expense	63.0		64.4		147.6		166.2		Income before income tax expense	60.7		63.0		181.3		147.6
Income tax expense	Income tax expense	14.7		15.3		33.3		37.6		Income tax expense	13.6		14.7		40.3		33.3
Net income	Net income	$	48.3	$	49.1	$	114.3	$	128.6	Net income	$	47.1	$	48.3	$	141.0	$	114.3

Earnings per common share (Basic)	Earnings per common share (Basic)	$	0.76	$	0.76	$	1.78	$	2.03	Earnings per common share (Basic)	$	0.76	$	0.76	$	2.29	$	1.78
Earnings per common share (Diluted)	Earnings per common share (Diluted)	$	0.76	$	0.76	$	1.78	$	2.03	Earnings per common share (Diluted)	0.76		0.76		$	2.28	$	1.78

Weighted average common shares outstanding (Basic)	Weighted average common shares outstanding (Basic)	63,764,474		64,832,324		64,184,832		63,232,575		Weighted average common shares outstanding (Basic)	61,673,656		63,764,474		61,641,342		64,184,832
Weighted average common shares outstanding (Diluted)	Weighted average common shares outstanding (Diluted)	63,861,457		65,043,486		64,295,525		63,471,283		Weighted average common shares outstanding (Diluted)	61,747,972		63,861,457		61,732,822		64,295,525

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net income	Net income	$	48.3	$	49.1	$	114.3	$	128.6	Net income	$	47.1	$	48.3	$	141.0	$	114.3
Other comprehensive income, before tax:
Other comprehensive (loss) income, before tax:										Other comprehensive (loss) income, before tax:
Investment securities available-for sale:	Investment securities available-for sale:									Investment securities available-for sale:
Change in net unrealized (losses) gains during period	Change in net unrealized (losses) gains during period	(4.2)		4.2		69.9		58.0		Change in net unrealized (losses) gains during period	(13.4)		(4.2)		(81.0)		69.9
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-sale		0		0		0		(6.0)
Reclassification adjustment for net gain included in income										Reclassification adjustment for net gain included in income	(0.3)		(0.1)		(0.2)		(0.1)

Unrealized gain on derivatives		0		0		0.2		0
Net change in unamortized gains on available-for-sale securities transferred into held-to-maturity										Net change in unamortized gains on available-for-sale securities transferred into held-to-maturity	(2.5)		—		22.3		—
Unrealized loss on derivatives										Unrealized loss on derivatives	3.2		—		2.3		0.2

Defined benefit post-retirement benefits plans:	Defined benefit post-retirement benefits plans:									Defined benefit post-retirement benefits plans:
Change in net actuarial loss	Change in net actuarial loss	(0.1)		(0.2)		(0.5)		(0.5)		Change in net actuarial loss	—		(0.1)		—		(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 income (loss), before tax										Other comprehensive income (loss), before tax	(13.0)		(4.4)		(56.6)		69.5
Changes in deferred taxes related to other comprehensive income (loss)										Changes in deferred taxes related to other comprehensive income (loss)	3.2		1.1		14.3		(18.6)
Other comprehensive (loss) income, net of tax	Other comprehensive (loss) income, net of tax	(3.3)		2.9		50.9		38.0		Other comprehensive (loss) income, net of tax	(9.8)		(3.3)		(42.3)		50.9
Comprehensive income, net of tax	Comprehensive income, net of tax	$	45.0	$	52.0	$	165.2	$	166.6	Comprehensive income, net of tax	$	37.3	$	45.0	$	98.7	$	165.2

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions, except share and per share data)
(Unaudited)
Three Months Ended 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 expense 0 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 issued 0 0 0 0
4,735 non-vested common shares forfeited or canceled 0 0 0 0
5,143 stock options exercised, net of 0 shares tendered in payment of option price and income tax withholding amounts 0.1 0 0 0.1
Stock-based compensation expense 1.8 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 retired 0 — — 0
662 non-vested common shares issued — — — —
14,502 non-vested common shares forfeited or canceled 0 — — 0
18,983 stock options exercised, net of 5,425 shares tendered in payment of option price and income tax withholding amounts 0.2 — — 0.2
Stock-based compensation expense 2.0 — — 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


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, 2021	$	941.6	$	1,005.2	$	24.1	$	1,970.9


Net income	—		47.1		—		47.1

Other comprehensive loss, net of tax expense	—		—		(9.8)		(9.8)
Common stock transactions:
574 common shares purchased and retired	—		—		—		—

1,782 non-vested common shares issued	—		—		—		—
12,620 non-vested common shares forfeited or canceled	—		—		—		—

2,324 stock options exercised, net of 0 shares tendered in payment of option price and income tax withholding amounts	—		—		—		—

Stock-based compensation expense	2.0		—		—		2.0
Common cash dividends declared ($0.41 per share)	—		(25.4)		—		(25.4)
Balance at September 30, 2021	$	943.6	$	1,026.9	$	14.3	$	1,984.8


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 expense	—		—		(3.3)		(3.3)
Common stock transactions:
1,445,300 common shares purchased and retired	(46.3)		—		—		(46.3)

924 non-vested common shares issued	—		—		—		—
4,735 non-vested common shares forfeited or canceled	—		—		—		—

5,143 stock options exercised, net of 0 shares tendered in payment of option price and income tax withholding amounts	0.1		—		—		0.1

Stock-based compensation expense	1.8		—		—		1.8
Common cash dividends declared ($0.34 per share)	—		(21.9)		—		(21.9)
Balance at September 30, 2020	$	976.8	$	938.9	$	61.9	$	1,977.6

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, 2020										Balance at December 31, 2020	$	941.1	$	962.1	$	56.6	$	1,959.8

Net income										Net income	—		141.0		—		141.0

Other comprehensive loss, net of tax expense										Other comprehensive loss, net of tax expense	—		—		(42.3)		(42.3)
Common stock transactions:										Common stock transactions:
128,038 common shares purchased and retired										128,038 common shares purchased and retired	(5.4)		—		—		(5.4)
19,081 common shares issued										19,081 common shares issued	—		—		—		—
241,307 non-vested common shares issued										241,307 non-vested common shares issued	—		—		—		—
39,993 non-vested common shares forfeited or canceled										39,993 non-vested common shares forfeited or canceled	—		—		—		—

42,987 stock options exercised, net of 6,177 shares tendered in payment of option price and income tax withholding amounts										42,987 stock options exercised, net of 6,177 shares tendered in payment of option price and income tax withholding amounts	0.4		—		—		0.4

Stock-based compensation expense										Stock-based compensation expense	7.5		—		—		7.5
Common cash dividends declared ($1.23 per share)										Common cash dividends declared ($1.23 per share)	—		(76.2)		—		(76.2)
Balance at September 30, 2021										Balance at September 30, 2021	$	943.6	$	1,026.9	$	14.3	$	1,984.8
		Common stock		Retained earnings		Accumulated other comprehensive income (loss)		Total stockholders’ equity
Balance at December 31, 2019	Balance at December 31, 2019	$	1,049.3	$	953.6	$	11.0	$	2,013.9	Balance at December 31, 2019	$	1,049.3	$	953.6	$	11.0	$	2,013.9
Cumulative change related to the adoption of ASU 2016-13	Cumulative change related to the adoption of ASU 2016-13	0		(24.1)		0		(24.1)		Cumulative change related to the adoption of ASU 2016-13	—		(24.1)		—		(24.1)
Adjusted balance at January 1, 2020	Adjusted balance at January 1, 2020	1,049.3		929.5		11.0		1,989.8		Adjusted balance at January 1, 2020	1,049.3		929.5		11.0		1,989.8
Net income	Net income	—		114.3		—		114.3		Net income	—		114.3		—		114.3

Other comprehensive income, net of tax expense	Other comprehensive income, net of tax expense	0		0		50.9		50.9		Other comprehensive income, net of tax expense	—		—		50.9		50.9
Common stock transactions:	Common stock transactions:									Common stock transactions:
2,539,041 common shares purchased and retired	2,539,041 common shares purchased and retired	(78.9)		0		0		(78.9)		2,539,041 common shares purchased and retired	(78.9)		—		—		(78.9)
19,491 common shares issued	19,491 common shares issued	0		0		0		0		19,491 common shares issued	—		—		—		—
329,024 non-vested common shares issued	329,024 non-vested common shares issued	0		0		0		0		329,024 non-vested common shares issued	—		—		—		—
30,323 non-vested common shares forfeited or canceled	30,323 non-vested common shares forfeited or canceled	0		0		0		0		30,323 non-vested common shares forfeited or canceled	—		—		—		—

89,411 stock options exercised, net of 26,124 shares tendered in payment of option price and income tax withholding amounts	89,411 stock options exercised, net of 26,124 shares tendered in payment of option price and income tax withholding amounts	0.8		0		0		0.8		89,411 stock options exercised, net of 26,124 shares tendered in payment of option price and income tax withholding amounts	0.8		—		—		0.8

Stock-based compensation expense	Stock-based compensation expense	5.6		0		0		5.6		Stock-based compensation expense	5.6		—		—		5.6
Common cash dividends declared ($1.62 per share)	Common cash dividends declared ($1.62 per share)	0		(104.9)		0		(104.9)		Common cash dividends declared ($1.62 per share)	—		(104.9)		—		(104.9)
Balance at September 30, 2020	Balance at September 30, 2020	$	976.8	$	938.9	$	61.9	$	1,977.6	Balance at September 30, 2020	$	976.8	$	938.9	$	61.9	$	1,977.6

Balance at December 31, 2018		$	866.7	$	851.8	$	(24.6)	$	1,693.9
Net income		—		128.6		—		128.6

Other comprehensive income, net of tax expense		0		0		38.0		38.0
Common stock transactions:
43,560 common shares purchased and retired		(2.5)		0		0		(2.5)
4,356,498 common shares issued		176.1		0		0		176.1
211,826 non-vested common shares issued		0		0		0		0
35,919 non-vested common shares forfeited or canceled		0		0		0		0

117,669 stock options exercised, net of 40,533 shares tendered in payment of option price and income tax withholding amounts		0.9		0		0		0.9

Stock-based compensation expense		6.6		0		0		6.6
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

See accompanying notes to unaudited consolidated financial statements.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited)	FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited)					FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited)
		Nine Months Ended September 30,						Nine Months Ended September 30,
		2020		2019				2021		2020
Cash flows from operating activities:	Cash flows from operating activities:						Cash flows from operating activities:
Net income	Net income	$	114.3	$	128.6		Net income	$	141.0	$	114.3
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		53.7		10.1
Provision for (reversal of) credit losses							Provision for (reversal of) credit losses	(5.1)		53.7
Net loss on disposal of premises and equipment	Net loss on disposal of premises and equipment	0.1		0			Net loss on disposal of premises and equipment	(1.9)		0.1
Depreciation and amortization	Depreciation and amortization	33.0		29.0			Depreciation and amortization	33.4		33.0
Net premium amortization on investment securities	Net premium amortization on investment securities	10.2		6.4			Net premium amortization on investment securities	29.0		10.2
Net gain on investment securities transactions	Net gain on investment securities transactions	(0.1)		(0.1)			Net gain on investment securities transactions	(0.2)		(0.1)
Realized and unrealized net gains on mortgage banking activities	Realized and unrealized net gains on mortgage banking activities	(39.3)		(21.1)			Realized and unrealized net gains on mortgage banking activities	(19.1)		(39.3)
Net gain on sale of investments in unrelated entities	Net gain on sale of investments in unrelated entities	(1.0)		0			Net gain on sale of investments in unrelated entities	—		(1.0)
Net gain on sale of OREO	Net gain on sale of OREO	(0.7)		(1.7)			Net gain on sale of OREO	(0.2)		(0.7)
Write-downs of OREO and other assets pending disposal	Write-downs of OREO and other assets pending disposal	0.1		0.7			Write-downs of OREO and other assets pending disposal	—		0.1

Mortgage servicing rights impairment		9.9		0
Mortgage servicing rights (recovery) impairment							Mortgage servicing rights (recovery) impairment	(5.9)		9.9
Deferred taxes	Deferred taxes	(7.1)		0.5			Deferred taxes	4.6		(7.1)
Net increase in cash surrender value of company-owned life insurance	Net increase in cash surrender value of company-owned life insurance	(5.6)		(4.2)			Net increase in cash surrender value of company-owned life insurance	(4.1)		(5.6)
Stock-based compensation expense	Stock-based compensation expense	5.6		6.6			Stock-based compensation expense	7.5		5.6

Originations of mortgage loans held for sale	Originations of mortgage loans held for sale	(1,148.7)		(770.1)			Originations of mortgage loans held for sale	(596.6)		(1,148.7)
Proceeds from sales of mortgage loans held for sale	Proceeds from sales of mortgage loans held for sale	1,177.2		710.9			Proceeds from sales of mortgage loans held for sale	645.1		1,177.2
Changes in operating assets and liabilities, net of effects of acquisition:
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Increase in interest receivable	Increase in interest receivable	(10.0)		(4.0)			Increase in interest receivable	(1.8)		(10.0)
Increase in other assets	Increase in other assets	(40.3)		(31.0)			Increase in other assets	(21.8)		(40.3)
Decrease in accrued interest payable		(4.0)		(13.6)
Increase (decrease) in accrued interest payable							Increase (decrease) in accrued interest payable	0.8		(4.0)
Increase in accounts payable and accrued expenses	Increase in accounts payable and accrued expenses	15.5		9.7			Increase in accounts payable and accrued expenses	0.7		15.5
Net cash provided by operating activities	Net cash provided by operating activities	162.8		56.7			Net cash provided by operating activities	205.4		162.8
Cash flows from investing activities:	Cash flows from investing activities:						Cash flows from investing activities:
Purchases of investment securities:	Purchases of investment securities:						Purchases of investment securities:

Held-to-maturity							Held-to-maturity	(1,069.5)		—
Available-for-sale	Available-for-sale	(1,548.8)		(740.3)			Available-for-sale	(1,891.4)		(1,548.8)
Proceeds from maturities and pay-downs of investment securities:
Proceeds from sales, maturities, and pay-downs of investment securities:							Proceeds from sales, maturities, and pay-downs of investment securities:
Held-to-maturity	Held-to-maturity	37.2		33.2			Held-to-maturity	163.9		37.2
Available-for-sale	Available-for-sale	1,114.9		681.9			Available-for-sale	747.8		1,114.9

Proceeds from bank-owned life insurance settlements	Proceeds from bank-owned life insurance settlements	4.4		1.6			Proceeds from bank-owned life insurance settlements	—		4.4

Extensions of credit to clients, net of repayments	Extensions of credit to clients, net of repayments	(1,240.0)		(136.0)			Extensions of credit to clients, net of repayments	172.5		(1,240.0)
Recoveries of loans charged-off	Recoveries of loans charged-off	5.1		8.2			Recoveries of loans charged-off	7.2		5.1
Proceeds from sale of OREO	Proceeds from sale of OREO	6.6		14.0			Proceeds from sale of OREO	1.1		6.6

Proceeds from the sale of Health Savings Accounts		0		0.3

Proceeds from sale of investments in unrelated entities	Proceeds from sale of investments in unrelated entities	2.2		0			Proceeds from sale of investments in unrelated entities	—		2.2
Acquisition of bank and bank holding company, net of cash and cash equivalents received		0		298.4

Capital expenditures, net of sales	Capital expenditures, net of sales	(17.7)		(10.2)			Capital expenditures, net of sales	(5.5)		(17.7)
Net cash (used in) provided by investing activities		$	(1,636.1)	$	151.1
Net cash used in investing activities							Net cash used in investing activities	$	(1,873.9)	$	(1,636.1)

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In millions)
(Unaudited)
Nine Months Ended September 30,
2020 2019
Cash flows from financing activities:
Net increase in deposits $ 2,218.9 $ 412.3
Net increase (decrease) in securities sold under repurchase agreements 122.7 (105.9)
Net decrease in other borrowed funds 0 (4.1)
Repayments of long-term debt (0.1) (2.0)
Advances on long-term debt 98.6 0.1
Proceeds from issuance of common stock 0.8 0.9
Purchase and retirement of common stock (78.9) (2.5)
Dividends paid to common stockholders (104.9) (59.0)
Net cash provided by financing activities 2,257.1 239.8
Net increase in cash and cash equivalents 783.8 447.6
Cash and cash equivalents at beginning of period 1,076.8 822.0
Cash and cash equivalents at end of period $ 1,860.6 $ 1,269.6
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 36.0 $ 34.8
Cash paid during the period for interest expense 25.4 42.7
Supplemental disclosures of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for operating lease liabilities 3.5 39.6
Transfer of loans to other real estate owned 3.2 14.0
Capitalization of internally originated mortgage servicing rights 9.5 2.8
Supplemental schedule of noncash investing activities from acquisitions:
Investment securities available for sale $ 0 $ 78.7
Loans held for sale 0 0.5
Loans held for investment 0 416.6
Premises and equipment 0 23.6
Goodwill 0 76.3
Core deposit intangible 0 16.6
Company-owned life insurance 0 15.2
Interest receivable 0 2.2
Other real estate owned 0 2.4
Other assets 0 6.5
Total noncash assets acquired 0 638.6
Liabilities assumed:
Deposits $ 0 $ 706.7
Securities sold under repurchase agreements 0 30.4
Accounts payable and accrued expenses 0 19.4
Other borrowed funds 0 4.1
Trust preferred securities — —
Deferred tax liability 0 (0.4)
Total liabilities assumed $ 0 $ 760.2


FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In millions) (Unaudited)
	Nine Months Ended September 30,
	2021		2020
Cash flows from financing activities:
Net increase in deposits	$	1,790.3	$	2,218.9
Net (decrease) increase in securities sold under repurchase agreements	(83.9)		122.7


Repayments of long-term debt	—		(0.1)
Advances on long-term debt	—		98.6

Proceeds from issuance of common stock	0.4		0.8

Purchase and retirement of common stock	(5.4)		(78.9)
Dividends paid to common stockholders	(76.2)		(104.9)
Net cash provided by financing activities	1,625.2		2,257.1
Net (decrease) increase in cash and cash equivalents	(43.3)		783.8
Cash and cash equivalents at beginning of period	2,276.8		1,076.8
Cash and cash equivalents at end of period	$	2,233.5	$	1,860.6



Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes	$	41.3	$	36.0
Cash paid during the period for interest expense	12.5		25.4

Supplemental disclosures of non-cash investing and financing activities:



Right-of-use assets obtained in exchange for operating lease liabilities	0.8		3.5

Transfer of loans to other real estate owned	0.7		3.2
Capitalization of internally originated mortgage servicing rights	2.0		9.5

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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

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,~~(collectively, 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, ~~2020~~2021 and December 31, ~~2019,~~2020, the results of operations, ~~and~~ changes in stockholders’ equity, and cash flows for each of the three and nine month periods ended September 30, ~~2020~~2021 and ~~2019, and cash flows for each of the nine month periods ended September 30,~~ 2020, ~~and 2019,~~ in conformity with U.S. generally accepted accounting principles (“GAAP”). The balance sheet information at December 31, ~~2019~~2020 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, ~~2020~~2021 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, ~~2019.~~2020, which includes a description of significant accounting policies. Operating results for the three and nine months ended September 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021.

~~Current Expected Credit Losses~~

On January 1, 2020, the Company adopted Accounting Standards Codification (“ASC”) 326, Measurement of Credit Losses on Financial Instruments (“ASC 326”), and replaced the historically used incurred loss methodology with an expected loss methodology that is referred to as the Current Expected Credit Loss (CECL) methodology. (2) Investment Securities

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 held-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 similar instruments) and net investments in leases 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 allowance rather than as a write-down on available-for-sale debt securities that management does not intend to sell or believes that it is more likely than not they will be required to sell. See “Note 16 - Recent Authoritative Accounting Guidance” included in this report for 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~~approximate fair values of ~~ASC 326 on January 1, 2020:~~

Pre-ASC 326 Adoption Post-ASC 326 Adoption Impact of ASC 326 Adoption
Assets:
Allowance for credit losses on HTM securities $ 0 $ 0 $ 0
Allowance for credit losses on loans held for investment 73.0 103.0 30.0
Liabilities:
Off-balance sheet credit exposures 0 2.3 2.3
Deferred tax liability 26.7 18.5 (8.2)
Equity:
Retained earnings 953.6 929.5 (24.1)

~~Debt Security Investments~~

Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and carried at amortized cost. Investments in debt securities that may be sold in response to or in anticipation of changes in interest rates and resulting prepayment risk, or other factors, are classified as available-for-sale and carried at fair value. The unrealized gains and losses on theseinvestment securities are ~~reported, net of applicable income taxes,~~summarized as a separate component of stockholders’ equity and comprehensive income. Management determines the appropriate classification of securities at the time of purchase and at each reporting date management reassesses the appropriateness of the classification.follows:


September 30, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-Sale:
U.S. Treasury notes	$	697.4	$	—	$	(5.6)	$	691.8
State, county, and municipal securities	444.9		2.1		(7.1)		439.9
Obligations of U.S. government agencies	332.3		0.2		(6.6)		325.9
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	2,021.4		25.9		(16.0)		2,031.3
Private mortgage-backed securities	83.7		0.1		(0.3)		83.5
Collateralized loan obligations	452.4		0.6		—		453.0
Corporate securities	376.7		4.2		(2.7)		378.2

Total	$	4,408.8	$	33.1	$	(38.3)	$	4,403.6


September 30, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Held-to-Maturity:
State, county, and municipal securities	$	69.7	$	2.3	$	(0.5)	$	71.5

U.S. agency residential mortgage-backed securities & collateralized mortgage obligations (1)	1,537.5		20.5		(8.4)		1,549.6
Corporate securities	10.9		0.5		—		11.4

Total	$	1,618.1	$	23.3	$	(8.9)	$	1,632.5
(1) Amortized costs presented above include $22.3 million of unamortized gains in U.S. agency residential mortgage-backed securities and collateralized mortgage obligations related to the 2021 second quarter transfer of securities from available-for-sale to held-to-maturity.

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.

~~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.

~~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.

~~Table of Contents~~

~~FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES~~

~~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.

~~Table of Contents~~

~~FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(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.


December 31, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-Sale:

State, county, and municipal securities	$	462.1	$	4.8	$	(1.0)	$	465.9
Obligations of U.S. government agencies	332.9		1.0		(2.0)		331.9
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	2,830.8		69.3		(2.5)		2,897.6
Private mortgage-backed securities	10.9		0.1		(0.1)		10.9
Corporate securities	295.8		6.5		(0.1)		302.2
Other investments	0.2		—		—		0.2
Total	$	3,932.7	$	81.7	$	(5.7)	$	4,008.7

~~Table of Contents~~

~~FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in millions, except share and per share data)~~

~~(2)~~ ~~Acquisitions~~

~~Community 1~~st ~~Bank.~~ On October 11, 2018, the Company entered into a definitive agreement to acquire all 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 463,134 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. 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 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 was recorded as goodwill. The purchase price allocation resulted in goodwill of $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 recorded net assets acquired of approximately $16.5 million consisting of approximately $129.1 million in assets, inclusive of $78.8 million of loans, of which $0.7 million were classified as credit impaired, and assumed approximately $112.6 million of liabilities, inclusive of $110.1 million of deposits. All amounts reported were finalized during the fourth quarter of 2019.

~~Core deposit intangible assets of $3.0 million are being amortized using an accelerated method over the estimated useful lives of the related deposits of 10 years.~~

Unaudited pro forma consolidated revenues and net income as if the CMYF acquisition had occurred as of January 1, 2019, are not presented because the effect of this acquisition was not considered significant.

The accompanying consolidated statements of income for the three and nine months ended September 30, 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, 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 3,871,422 shares of the Company’s Class A common stock valued at $40.64 per share, the closing price of the Company’s Class A common stock as quoted on the NASDAQ stock market on the acquisition date. Holders of each share of IIBK common stock received 0.50 shares of First Interstate Class A common stock for each share of IIBK common stock. Previously unvested IIBK restricted stock awards outstanding immediately prior to the close of the transaction vested and were considered issued and outstanding at acquisition close and were included in consideration. All IIBK stock options outstanding vested and were settled by IIBK prior to the close of the transaction.

The assets and liabilities of IIBK were recorded in the Company’s consolidated financial statements at their estimated fair values as of the acquisition date. The excess value of the consideration paid over the fair value of assets acquired and liabilities assumed is recorded as goodwill. The purchase price allocation resulted in goodwill of $73.0 million, which is not deductible for income tax purposes. Goodwill resulting from the acquisition was allocated to the Company’s 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.

~~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 summarizes the consideration paid, fair values of the IIBK assets acquired and liabilities assumed, and the resulting goodwill. All amounts reported were finalized during the fourth quarter of 2019.

As Recorded Fair Value As Recorded
As of April 8, 2019 by IIBK Adjustments by the Company
Assets acquired:
Cash and cash equivalents $ 270.7 $ 0 $ 270.7
Investment securities 62.7 0.5 (1) 63.2
Loans held for investment 347.6 (9.8) (2) 337.8
Mortgage loans held for sale 0.5 0 0.5
Allowance for loan loss (6.3) 6.3 (3) 0
Premises and equipment 16.5 4.8 (4) 21.3
Other real estate owned (“OREO”) 0.4 2.0 (5) 2.4
Company owned life insurance 15.2 0 15.2
Core deposit intangible assets 0 13.6 (6) 13.6
Deferred tax assets, net 3.2 (2.6) (7) 0.6
Other assets 8.6 (0.7) (8) 7.9
Total assets acquired 719.1 14.1 733.2
Liabilities assumed:
Deposits 596.5 0.1 (9) 596.6
Accounts payable and accrued expense 15.2 2.6 (10) 17.8
Other borrowed funds 4.0 0.1 (11) 4.1
Securities sold under repurchase agreements 30.4 0 30.4
Total liabilities assumed 646.1 2.8 648.9
Net assets acquired $ 73.0 $ 11.3 $ 84.3
Consideration paid:
Class A common stock $ 157.3
Total consideration paid $ 157.3
Goodwill $ 73.0


~~Explanation of fair value adjustments and the removal of previously recorded fair value marks recorded by IIBK:~~
~~(1)~~			~~Write up of the book value of investments to their estimated fair values on the date of acquisition based upon quotes obtained from an independent third-party pricing service.~~
~~(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.
~~(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.

~~Table of Contents~~

~~FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES~~

~~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.~~

Effective 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 were 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 purchased loans acquired in business combinations, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The Company 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” 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 underlying 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 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 collected~~	~~20.2~~
~~Interest component of cash flows expected to be collected (“accretable discount”)~~	~~3.4~~
~~Fair value of acquired credit-impaired loans~~	$	~~16.8~~

~~Information regarding 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 collected~~	~~15.2~~
~~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, 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.~~

~~Table of Contents~~

~~FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in millions, except share and per share data)~~

~~(3)~~ ~~Investment Securities~~

~~The amortized cost and the approximate fair values of investment securities are summarized for the periods indicated:~~

September 30, 2020 Amortized
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 securities 233.6 2.7 (0.2) 236.1
Obligations of U.S. government agencies 278.4 1.0 (0.6) 278.8
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations 2,535.3 76.9 (0.5) 2,611.7
Private mortgage-backed securities 20.0 0.2 (0.1) 20.1
Corporate securities 292.9 5.4 (0.5) 297.8
Other investments 1.0 0 0 1.0
Total $ 3,369.2 $ 86.2 $ (1.9) $ 3,453.5��

September 30, 2020 Amortized
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 obligations 1.0 0.1 0 1.1
Corporate securities 4.0 0.1 0 4.1
Other investments 0.1 0 0 0.1
Total $ 55.0 $ 3.4 $ 0 $ 58.4

December 31, 2019 Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value
Available-for-Sale:
U.S. Treasury notes $ 9.0 $ 0 $ 0 $ 9.0
State, county and municipal securities 80.1 0.8 0 80.9
Obligations of U.S. government agencies 367.5 0.1 (0.8) 366.8
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations 2,303.6 19.6 (6.0) 2,317.2
Private mortgage-backed securities 47.6 0 (0.4) 47.2
Corporate securities 134.5 1.2 0 135.7
Other investments 3.2 0 0 3.2
Total $ 2,945.5 $ 21.7 $ (7.2) $ 2,960.0


December 31, 2019		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2020										December 31, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Held-to-Maturity:	Held-to-Maturity:									Held-to-Maturity:
State, county and municipal securities		$	57.3	$	2.1	$	0	$	59.4
Obligations of U.S. government agencies		19.8		0		0		19.8
State, county, and municipal securities										State, county, and municipal securities	$	46.6	$	3.2	$	—	$	49.8

U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	1.2		0		0		1.2		U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	1.0		0.1		—		1.1
Corporate securities	Corporate securities	13.9		0.1		0		14.0		Corporate securities	3.9		0.1		—		4.0
Other investments	Other investments	0.1		0		0		0.1		Other investments	0.1		—		—		0.1
Total	Total	$	92.3	$	2.2	$	0	$	94.5	Total	$	51.6	$	3.4	$	—	$	55.0

There were no material gross realized gains and no material gross losses on the disposition of available-for-sale investment securities during the three and nine month periods ended September 30, 2021 and 2020.

As of September 30, 2021, the Company had general obligation securities with amortized costs of $56.9 million included in state, county, and municipal securities, of which $40.9 million, or 71.9%, were issued by political subdivisions or agencies within the states of Idaho, Montana, Oregon, South Dakota, Washington, and Wyoming.

The following tables show the gross unrealized losses and fair values of investment securities, aggregated by investment category, and the length of time individual investment securities have been in an unrealized loss position as of September 30, 2021 and December 31, 2020. There were no held-to-maturity securities in an unrealized loss position at December 31, 2020.


	Less than 12 Months				12 Months or More				Total
September 30, 2021	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-Sale:
U.S. Treasury notes	$	691.8	$	(5.6)	$	—	$	—	$	691.8	$	(5.6)
State, county, and municipal securities	287.7		(7.1)		—		—		287.7		(7.1)
Obligations of U.S. government agencies	301.2		(6.6)		—		—		301.2		(6.6)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	964.9		(16.0)		—		—		964.9		(16.0)
Private mortgage-backed securities	54.3		(0.3)		—		—		54.3		(0.3)
Corporate securities	158.7		(2.6)		21.2		(0.1)		179.9		(2.7)

Total	$	2,458.6	$	(38.2)	$	21.2	$	(0.1)	$	2,479.8	$	(38.3)

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)

~~There were 0 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, 2020 and 2019.~~



	Less than 12 Months				12 Months or More				Total
September 30, 2021	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Held-to-Maturity:


U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	$	772.3	$	(8.4)	$	—	$	—	$	772.3	$	(8.4)
State, county, and municipal securities	29.0		(0.5)		—		—		29.0		(0.5)
Total	$	801.3	$	(8.9)	$	—	$	—	$	801.3	$	(8.9)

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, 2020 and December 31, 2019. There was 0 material allowance for credit loss as of September 30, 2020.

Less than 12 Months 12 Months or More Total
September 30, 2020 Fair
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 agencies 102.0 (0.6) 0 0 102.0 (0.6)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations 88.2 (0.4) 11.4 (0.1) 99.6 (0.5)
Private mortgage-backed securities — 0 12.7 (0.1) 12.7 (0.1)
Corporate securities 54.1 (0.5) 0 0 54.1 (0.5)
Total $ 266.9 $ (1.7) $ 24.1 $ (0.2) $ 291.0 $ (1.9)


		Less than 12 Months				12 Months or More				Total					Less than 12 Months				12 Months or More				Total
December 31, 2019		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
December 31, 2020														December 31, 2020	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-Sale:	Available-for-Sale:													Available-for-Sale:

State, county, and municipal securities														State, county, and municipal securities	$	148.1	$	(1.0)	$	—	$	—	$	148.1	$	(1.0)
Obligations of U.S. government agencies	Obligations of U.S. government agencies	$	185.3	$	(0.8)	$	0	$	0	$	185.3	$	(0.8)	Obligations of U.S. government agencies	235.6		(2.0)		—		—		235.6		(2.0)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	740.1		(4.6)		155.9		(1.4)		896.0		(6.0)		U.S. agency residential mortgage-backed securities & collateralized mortgage obligations	434.0		(2.4)		12.3		(0.1)		446.3		(2.5)
Private mortgage-backed securities	Private mortgage-backed securities	0		0		46.6		(0.4)		46.6		(0.4)		Private mortgage-backed securities	—		—		4.3		(0.1)		4.3		(0.1)

Corporate securities														Corporate securities	20.9		(0.1)		—		—		20.9		(0.1)

Total	Total	$	925.4	$	(5.4)	$	202.5	$	(1.8)	$	1,127.9	$	(7.2)	Total	$	838.6	$	(5.5)	$	16.6	$	(0.2)	$	855.2	$	(5.7)

The 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.

~~The~~As of September 30, 2021 and December 31, 2020, the Company had ~~127~~278 and ~~331~~181 individual ~~available-for-sale~~ investment securities, respectively, that were in an unrealized loss position, ~~as of September 30, 2020 and December 31, 2019, respectively,~~ related primarily to fluctuations in current interest rates. As of September 30, ~~2020,~~2021, 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~~intend to sell any of the available-for-sale securities in the above table and ~~it is more likely than not that~~ the Company does not anticipate it will ~~not~~ have to sell any securities before a recovery in cost.

There ~~was 0t a~~were no material ~~allowance~~allowances for credit ~~losses during the three and nine month periods ended~~loss as of September 30, ~~2020~~2021 or ~~2019~~December 31, 2020 for available-for-sale or held-to-maturity securities.

Maturities of securities do not reflect rate repricing opportunities present in adjustable-rate mortgage-backed securities. In the table below, the Company had variable rate mortgage-backed and corporate securities which had an amortized cost of $540.2 million and were classified as available-for-sale as of September 30, 2021. 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, 2021	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Within one year	$	625.0	$	722.7	$	662.2	$	667.4
After one year but within five years	1,514.8		1,621.1		365.7		369.7
After five years but within ten years	1,295.3		1,161.6		263.6		266.8
After ten years	973.7		898.2		326.6		328.6
Total	$	4,408.8	$	4,403.6	$	1,618.1	$	1,632.5

As of September 30, 2021, the Company held investment securities callable within one year with amortized costs and estimated fair values of $212.3 million and $209.9 million, respectively. These investment securities are primarily included in the “after five years but within ten years” category in the table above. As of September 30, 2021, the Company held no callable structured notes.

2012

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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)

Maturities of investment securities at September 30, 2020 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, 2020 Amortized
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 years 1,446.5 1,251.2 30.5 31.9
After five years but within ten years 627.9 864.5 14.1 16.1
After ten years 642.4 406.5 1.5 1.5
Total $ 3,369.2 $ 3,453.5 $ 55.0 $ 58.4

As of September 30, 2020, the Company held investment securities callable within one year with amortized costs and estimated fair values of $252.5 million and $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~~2021 and December 31, ~~2019,~~2020, the Company recorded amortized costs of ~~$2,097.6~~$2,373.4 million and ~~$2,132.0~~$2,323.0 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 ~~value at~~values as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 of ~~$2,165.0~~$2,399.1 million and ~~$2,144.9~~$2,383.6 million, respectively. All securities sold under repurchase agreements are with 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 secondary market were $102.0 million as of September 30, 2020, compared to $100.9 million as of December 31, 2019. Residential loans that the Company originated with the intent to sell are recorded at fair value. Conforming agency mortgage production is sold on a servicing retained basis. Certain loans, such as government guaranteed mortgage loans, are sold on a servicing released basis.

~~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)~~(3) Loans Held for Investment

The following table presents loans by segment as of the dates indicated:


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Real estate loans:	Real estate loans:					Real estate loans:
Commercial	Commercial	$	3,690.9	$	3,487.8	Commercial	$	3,883.2	$	3,743.2
Construction loans:	Construction loans:					Construction loans:
Land acquisition & development	Land acquisition & development	274.8		302.1		Land acquisition & development	260.2		265.0
Residential	Residential	227.9		244.1		Residential	268.4		250.9
Commercial	Commercial	530.8		431.5		Commercial	610.2		523.5
Total construction loans	Total construction loans	1,033.5		977.7		Total construction loans	1,138.8		1,039.4
Residential	Residential	1,311.2		1,246.1		Residential	1,554.9		1,396.3
Agricultural	Agricultural	227.7		226.6		Agricultural	229.9		220.6
Total real estate loans	Total real estate loans	6,263.3		5,938.2		Total real estate loans	6,806.8		6,399.5
Consumer loans:	Consumer loans:					Consumer loans:
Indirect	Indirect	812.8		784.6		Indirect	756.8		805.1
Direct and advance lines	Direct and advance lines	162.1		179.0		Direct and advance lines	132.9		150.6
Credit card	Credit card	69.9		81.6		Credit card	64.1		70.2
Total consumer loans	Total consumer loans	1,044.8		1,045.2		Total consumer loans	953.8		1,025.9
Commercial	Commercial	2,599.6		1,673.7		Commercial	1,668.7		2,153.9
Agricultural	Agricultural	274.7		279.1		Agricultural	212.4		247.6
Other, including overdrafts	Other, including overdrafts	4.2		0		Other, including overdrafts	1.3		1.6
Loans held for investment	Loans held for investment	10,186.6		8,936.2		Loans held for investment	9,643.0		9,828.5
Deferred loan fees and costs	Deferred loan fees and costs	(34.4)		(5.5)		Deferred loan fees and costs	(20.5)		(21.0)
Loans held for investment, net of deferred fees and costs	Loans held for investment, net of deferred fees and costs	10,152.2		8,930.7		Loans held for investment, net of deferred fees and costs	9,622.5		9,807.5
Allowance for credit losses	Allowance for credit losses	(145.5)		(73.0)		Allowance for credit losses	(135.1)		(144.3)
Net loans held for investment	Net loans held for investment	$	10,006.7	$	8,857.7	Net loans held for investment	$	9,487.4	$	9,663.2

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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)

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, 2020		Beginning Balance		Provision for Credit Loss Expense		Loans Charged-Off		Recoveries Collected		Ending Balance
Three Months Ended September 30, 2021												Three Months Ended September 30, 2021	Beginning Balance		Provision for (reversal of) Credit Loss		Loans Charged-Off		Recoveries Collected		Ending Balance
Allowance for credit losses (1)	Allowance for credit losses (1)											Allowance for credit losses (1)
Real estate:	Real estate:											Real estate:
Commercial real estate:	Commercial real estate:											Commercial real estate:
Non-owner occupied	Non-owner occupied	$	23.6	$	1.5	$	0	$	0.1	$	25.2	Non-owner occupied	$	22.9	$	1.1	$	—	$	—	$	24.0
Owner occupied	Owner occupied	19.1		0.1		(0.2)		0.1		19.1		Owner occupied	16.6		(0.6)		—		—		16.0
Multi-family	Multi-family	8.5		2.3		0		0		10.8		Multi-family	11.6		0.2		—		—		11.8
Total commercial real estate	Total commercial real estate	51.2		3.9		(0.2)		0.2		55.1		Total commercial real estate	51.1		0.7		—		—		51.8
Construction:	Construction:											Construction:
Land acquisition & development	Land acquisition & development	1.5		(0.5)		0		0.2		1.2		Land acquisition & development	1.0		(0.2)		—		0.1		0.9
Residential construction	Residential construction	1.3		0.3		0		0		1.6		Residential construction	1.5		0.3		—		—		1.8
Commercial construction	Commercial construction	6.3		0.8		0		0		7.1		Commercial construction	8.0		(1.3)		—		—		6.7
Total construction	Total construction	9.1		0.6		0		0.2		9.9		Total construction	10.5		(1.2)		—		0.1		9.4
Residential real estate:	Residential real estate:											Residential real estate:
Residential 1-4 family	Residential 1-4 family	10.3		(1.1)		0		0		9.2		Residential 1-4 family	13.4		(0.2)		—		—		13.2
Home equity and HELOC	Home equity and HELOC	1.5		0		0		0		1.5		Home equity and HELOC	1.4		(0.1)		—		0.1		1.4
Total residential real estate	Total residential real estate	11.8		(1.1)		0		0		10.7		Total residential real estate	14.8		(0.3)		—		0.1		14.6
Agricultural real estate	Agricultural real estate	3.1		(0.2)		0		0		2.9		Agricultural real estate	3.0		0.1		—		—		3.1
Total real estate	Total real estate	75.2		3.2		(0.2)		0.4		78.6		Total real estate	79.4		(0.7)		—		0.2		78.9
Consumer:	Consumer:											Consumer:
Indirect	Indirect	16.4		0.7		(0.8)		0.7		17.0		Indirect	15.8		(0.1)		(0.8)		0.5		15.4
Direct and advance lines	Direct and advance lines	5.1		0.6		(1.1)		0.2		4.8		Direct and advance lines	4.6		0.5		(0.8)		0.4		4.7
Credit card	Credit card	2.0		0.6		(0.6)		0.2		2.2		Credit card	1.6		0.4		(0.4)		0.2		1.8
Total consumer	Total consumer	23.5		1.9		(2.5)		1.1		24.0		Total consumer	22.0		0.8		(2.0)		1.1		21.9
Commercial:	Commercial:											Commercial:
Commercial and floor plans	Commercial and floor plans	41.0		(1.2)		(3.3)		0.2		36.7		Commercial and floor plans	29.0		0.3		(0.1)		0.2		29.4
Commercial purpose secured by 1-4 family	Commercial purpose secured by 1-4 family	5.1		(0.2)		0		0.1		5.0		Commercial purpose secured by 1-4 family	4.4		(0.2)		—		—		4.2
Credit card	Credit card	0.4		0.3		(0.4)		0		0.3		Credit card	0.3		—		—		—		0.3
Total commercial	Total commercial	46.5		(1.1)		(3.7)		0.3		42.0		Total commercial	33.7		0.1		(0.1)		0.2		33.9
Agricultural:	Agricultural:											Agricultural:
Agricultural	Agricultural	0.9		0		0		0		0.9		Agricultural	0.4		—		—		—		0.4

Total agricultural	Total agricultural	0.9		0		0		0		0.9		Total agricultural	0.4		—		—		—		0.4
Total allowance for credit losses	Total allowance for credit losses	$	146.1	$	4.0	$	(6.4)	$	1.8	$	145.5	Total allowance for credit losses	$	135.5	$	0.2	$	(2.1)	$	1.5	$	135.1

(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.
(1) Amounts presented are exclusive of the allowance for credit losses related to unfunded commitments which are included in Note “Financial Instruments with Off-Balance Sheet Risk” included in this report.												(1) Amounts presented are exclusive of the allowance for credit losses related to unfunded commitments which are included in Note “Financial Instruments with Off-Balance Sheet Risk” included in this report.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)


Nine Months Ended September 30, 2020		Beginning Balance		Initial Impact of Adopting ASC 326		Provision for Credit Loss Expense		Loans Charged-Off		Recoveries Collected		Ending Balance
Nine Months Ended September 30, 2021														Nine Months Ended September 30, 2021	Beginning Balance		Provision for (reversal of) Credit Loss		Loans Charged-Off		Recoveries Collected		Ending Balance
Allowance for credit losses (1)	Allowance for credit losses (1)													Allowance for credit losses (1)
Real estate:	Real estate:													Real estate:
Commercial real estate:	Commercial real estate:													Commercial real estate:
Non-owner occupied	Non-owner occupied	$	8.8	$	4.9	$	11.4	$	0	$	0.1	$	25.2	Non-owner occupied	$	25.5	$	(1.6)	$	—	$	0.1	$	24.0
Owner occupied	Owner occupied	10.0		3.5		5.7		(0.3)		0.2		19.1		Owner occupied	18.3		—		(2.3)		—		16.0
Multi-family	Multi-family	0.7		6.9		3.2		0		0		10.8		Multi-family	11.0		0.8		—		—		11.8
Total commercial real estate	Total commercial real estate	19.5		15.3		20.3		(0.3)		0.3		55.1		Total commercial real estate	54.8		(0.8)		(2.3)		0.1		51.8
Construction:	Construction:													Construction:
Land acquisition & development	Land acquisition & development	1.9		(0.1)		(0.3)		(0.5)		0.2		1.2		Land acquisition & development	1.3		(0.8)		(0.1)		0.5		0.9
Residential construction	Residential construction	1.5		(0.9)		1.0		0		0		1.6		Residential construction	1.6		0.3		(0.1)		—		1.8
Commercial construction	Commercial construction	2.7		1.3		3.1		0		0		7.1		Commercial construction	7.3		(0.6)		(0.1)		0.1		6.7
Total construction	Total construction	6.1		0.3		3.8		(0.5)		0.2		9.9		Total construction	10.2		(1.1)		(0.3)		0.6		9.4
Residential real estate:	Residential real estate:													Residential real estate:
Residential 1-4 family	Residential 1-4 family	1.8		10.6		(3.3)		0		0.1		9.2		Residential 1-4 family	11.4		1.8		—		—		13.2
Home equity and HELOC	Home equity and HELOC	1.0		0.5		(0.1)		0		0.1		1.5		Home equity and HELOC	1.4		(0.2)		(0.1)		0.3		1.4
Total residential real estate	Total residential real estate	2.8		11.1		(3.4)		0		0.2		10.7		Total residential real estate	12.8		1.6		(0.1)		0.3		14.6
Agricultural real estate	Agricultural real estate	0.5		1.8		0.6		0		0		2.9		Agricultural real estate	2.7		0.4		—		—		3.1
Total real estate	Total real estate	28.9		28.5		21.3		(0.8)		0.7		78.6		Total real estate	80.5		0.1		(2.7)		1.0		78.9
Consumer:	Consumer:													Consumer:
Indirect	Indirect	4.5		8.8		5.1		(3.2)		1.8		17.0		Indirect	16.7		(0.3)		(2.9)		1.9		15.4
Direct and advance lines	Direct and advance lines	2.9		3.0		1.3		(3.1)		0.7		4.8		Direct and advance lines	4.6		1.2		(2.0)		0.9		4.7
Credit card	Credit card	2.5		0.3		1.0		(2.2)		0.6		2.2		Credit card	2.6		—		(1.4)		0.6		1.8
Total consumer	Total consumer	9.9		12.1		7.4		(8.5)		3.1		24.0		Total consumer	23.9		0.9		(6.3)		3.4		21.9
Commercial:	Commercial:													Commercial:
Commercial and floor plans	Commercial and floor plans	25.5		(5.1)		20.0		(4.7)		1.0		36.7		Commercial and floor plans	34.2		(4.9)		(2.2)		2.3		29.4
Commercial purpose secured by 1-4 family	Commercial purpose secured by 1-4 family	5.9		(3.8)		2.8		(0.1)		0.2		5.0		Commercial purpose secured by 1-4 family	4.7		(0.8)		(0.1)		0.4		4.2
Credit card	Credit card	1.2		(1.1)		1.0		(0.9)		0.1		0.3		Credit card	0.3		0.2		(0.3)		0.1		0.3
Total commercial	Total commercial	32.6		(10.0)		23.8		(5.7)		1.3		42.0		Total commercial	39.2		(5.5)		(2.6)		2.8		33.9
Agricultural:	Agricultural:													Agricultural:
Agricultural	Agricultural	1.6		(0.6)		0		(0.1)		0		0.9		Agricultural	0.7		(0.1)		(0.2)		—		0.4

Total agricultural	Total agricultural	1.6		(0.6)		0		(0.1)		0		0.9		Total agricultural	0.7		(0.1)		(0.2)		—		0.4
Total allowance for credit losses	Total allowance for credit losses	$	73.0	$	30.0	$	52.5	$	(15.1)	$	5.1	$	145.5	Total allowance for credit losses	$	144.3	$	(4.6)	$	(11.8)	$	7.2	$	135.1

(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.
(1) Amounts presented are exclusive of the allowance for credit losses related to unfunded commitments which are included in Note “Financial Instruments with Off-Balance Sheet Risk” included in this report.														(1) Amounts presented are exclusive of the allowance for credit losses related to unfunded commitments which are included in Note “Financial Instruments with Off-Balance Sheet Risk” included in this report.

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)


Three Months Ended September 30, 2020	Beginning Balance		Provision for Credit Loss Expense		Loans Charged-Off		Recoveries Collected		Ending Balance
Allowance for credit losses (1)
Real estate:
Commercial real estate:
Non-owner occupied	$	23.6	$	1.5	$	—	$	0.1	$	25.2
Owner occupied	19.1		0.1		(0.2)		0.1		19.1
Multi-family	8.5		2.3		—		—		10.8
Total commercial real estate	51.2		3.9		(0.2)		0.2		55.1
Construction:
Land acquisition & development	1.5		(0.5)		—		0.2		1.2
Residential construction	1.3		0.3		—		—		1.6
Commercial construction	6.3		0.8		—		—		7.1
Total construction	9.1		0.6		—		0.2		9.9
Residential real estate:
Residential 1-4 family	10.3		(1.1)		—		—		9.2
Home equity and HELOC	1.5		—		—		—		1.5
Total residential real estate	11.8		(1.1)		—		—		10.7
Agricultural real estate	3.1		(0.2)		—		—		2.9
Total real estate	75.2		3.2		(0.2)		0.4		78.6
Consumer:
Indirect	16.4		0.7		(0.8)		0.7		17.0
Direct and advance lines	5.1		0.6		(1.1)		0.2		4.8
Credit card	2.0		0.6		(0.6)		0.2		2.2
Total consumer	23.5		1.9		(2.5)		1.1		24.0
Commercial:
Commercial and floor plans	41.0		(1.2)		(3.3)		0.2		36.7
Commercial purpose secured by 1-4 family	5.1		(0.2)		—		0.1		5.0
Credit card	0.4		0.3		(0.4)		—		0.3
Total commercial	46.5		(1.1)		(3.7)		0.3		42.0
Agricultural:
Agricultural	0.9		—		—		—		0.9

Total agricultural	0.9		—		—		—		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 “Financial Instruments with Off-Balance Sheet Risk” included in this report.

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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)


Nine Months Ended September 30, 2020	Beginning Balance		Impact of Adopting ASC 326		Provision for Credit Loss Expense		Loans Charged-Off		Recoveries Collected		Ending Balance
Allowance for credit losses (1)
Real estate:
Commercial real estate:
Non-owner occupied	$	8.8	$	4.9	$	11.4	$	—	$	0.1	$	25.2
Owner occupied	10.0		3.5		5.7		(0.3)		0.2		19.1
Multi-family	0.7		6.9		3.2		—		—		10.8
Total commercial real estate	19.5		15.3		20.3		(0.3)		0.3		55.1
Construction:
Land acquisition & development	1.9		(0.1)		(0.3)		(0.5)		0.2		1.2
Residential construction	1.5		(0.9)		1.0		—		—		1.6
Commercial construction	2.7		1.3		3.1		—		—		7.1
Total construction	6.1		0.3		3.8		(0.5)		0.2		9.9
Residential real estate:
Residential 1-4 family	1.8		10.6		(3.3)		—		0.1		9.2
Home equity and HELOC	1.0		0.5		(0.1)		—		0.1		1.5
Total residential real estate	2.8		11.1		(3.4)		—		0.2		10.7
Agricultural real estate	0.5		1.8		0.6		—		—		2.9
Total real estate	28.9		28.5		21.3		(0.8)		0.7		78.6
Consumer:
Indirect	4.5		8.8		5.1		(3.2)		1.8		17.0
Direct and advance lines	2.9		3.0		1.3		(3.1)		0.7		4.8
Credit card	2.5		0.3		1.0		(2.2)		0.6		2.2
Total consumer	9.9		12.1		7.4		(8.5)		3.1		24.0
Commercial:
Commercial and floor plans	25.5		(5.1)		20.0		(4.7)		1.0		36.7
Commercial purpose secured by 1-4 family	5.9		(3.8)		2.8		(0.1)		0.2		5.0
Credit card	1.2		(1.1)		1.0		(0.9)		0.1		0.3
Total commercial	32.6		(10.0)		23.8		(5.7)		1.3		42.0
Agricultural:
Agricultural	1.6		(0.6)		—		(0.1)		—		0.9

Total agricultural	1.6		(0.6)		—		(0.1)		—		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 “Financial Instruments with Off-Balance Sheet Risk” included in this report.

Collateral-Dependent Financial Loans

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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 following tables ~~represent activity in the allowance for credit losses for loans held for investment under historical GAAP:~~

Three Months Ended September 30, 2019 Beginning Balance Provision for Credit Loss Expense Loans Charged-Off Recoveries Collected Ending Balance
Allowance for credit losses
Real estate $ 27.7 $ 0.4 $ (0.3) $ 0.8 $ 28.6
Consumer 9.1 2.7 (2.8) 0.8 9.8
Commercial 35.7 (0.4) (1.6) 1.3 35.0
Agricultural 1.7 (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, 2019 Beginning Balance Provision for Credit Loss Expense Loans Charged-Off Recoveries Collected Ending Balance
Allowance for credit losses
Real estate $ 31.0 $ (1.3) $ (3.3) $ 2.2 $ 28.6
Consumer 8.7 7.1 (9.1) 3.1 9.8
Commercial 31.3 4.3 (3.5) 2.9 35.0
Agricultural 2.0 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 amortized cost basis of collateral-dependent loans by class of loans as of ~~September 30, 2020. The comparable period is not presented because~~ the 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.dates indicated:


		Collateral Type									Collateral Type
As of September 30, 2020		Business Assets		Real Property		Other		Total
As of September 30, 2021										As of September 30, 2021	Business Assets		Real Property		Other		Total

Real estate	Real estate	$	0.2	$	0.5	$	0	$	0.7	Real estate	$	1.2	$	7.3	$	—	$	8.5

Commercial	Commercial	9.8		5.0		0.4		15.2		Commercial	3.1		0.9		—		4.0
Agricultural	Agricultural	0		0.1		0		0.1		Agricultural	—		0.7		—		0.7

Total collateral-dependent	Total collateral-dependent	$	10.0	$	5.6	$	0.4	$	16.0	Total collateral-dependent	$	4.3	$	8.9	$	—	$	13.2

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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)~~



	Collateral Type
As of December 31, 2020	Business Assets		Real Property		Other		Total








Real estate	$	1.3	$	6.5	$	1.1	$	8.9
Commercial	6.1		1.3		0.4		7.8
Agricultural	—		0.8		—		0.8
Total collateral-dependent	$	7.4	$	8.6	$	1.5	$	17.5

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~~continue to accrue 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 - 59 60 - 89 > 90 30 or More
Days Days Days Days Current Non-accrual Total
As of September 30, 2020 Past Due Past Due Past Due Past Due Loans
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 & development 1.4 0.6 0.5 2.5 271.7 0.6 274.8
Residential 0.4 0.2 1.5 2.1 225.8 0 227.9
Commercial 0.1 0 0 0.1 530.2 0.5 530.8
Total construction loans 1.9 0.8 2.0 4.7 1,027.7 1.1 1,033.5
Residential 1.7 2.3 0.2 4.2 1,302.4 4.6 1,311.2
Agricultural 0 0.1 0 0.1 220.0 7.6 227.7
Total real estate loans 9.2 3.8 5.8 18.8 6,221.3 23.2 6,263.3
Consumer:
Indirect consumer 4.0 1.6 0.1 5.7 805.3 1.8 812.8
Other consumer 0.5 0.2 0.1 0.8 160.8 0.5 162.1
Credit card 0.7 0.3 0.6 1.6 68.3 0 69.9
Total consumer loans 5.2 2.1 0.8 8.1 1,034.4 2.3 1,044.8
Commercial 5.6 8.2 2.1 15.9 2,567.5 16.2 2,599.6
Agricultural 1.8 0.2 0.9 2.9 268.7 3.1 274.7
Other, including overdrafts 0 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 - 59 60 - 89 > 90 30 or More
Days Days Days Days Current Non-accrual Total
As of December 31, 2019 Past Due Past Due Past Due Past Due Loans
Loans (1)
Loans
Real estate
Commercial $ 5.5 $ 1.1 $ 0.6 $ 7.2 $ 3,467.6 $ 13.0 $ 3,487.8
Construction:
Land acquisition & development 0.7 0.8 0.3 1.8 298.9 1.4 302.1
Residential 1.5 0.8 0 2.3 241.8 0 244.1
Commercial 0 0 0 0 431.0 0.5 431.5
Total construction loans 2.2 1.6 0.3 4.1 971.7 1.9 977.7
Residential 3.8 1.4 1.1 6.3 1,235.2 4.6 1,246.1
Agricultural 0.8 0.5 0 1.3 220.1 5.2 226.6
Total real estate loans 12.3 4.6 2.0 18.9 5,894.6 24.7 5,938.2
Consumer:
Indirect consumer 7.6 1.9 0.5 10.0 773.0 1.6 784.6
Other consumer 1.2 0.5 0.1 1.8 176.7 0.5 179.0
Credit card 0.8 0.5 0.8 2.1 79.5 0 81.6
Total consumer loans 9.6 2.9 1.4 13.9 1,029.2 2.1 1,045.2
Commercial 4.8 2.6 2.3 9.7 1,650.3 13.7 1,673.7
Agricultural 0.9 0.1 0 1.0 275.7 2.4 279.1
Other, including overdrafts 0 0 0 0 0 0 0
Loans held for investment $ 27.6 $ 10.2 $ 5.7 $ 43.5 $ 8,849.8 $ 42.9 $ 8,936.2

~~(1)~~ As of 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.


							Total Loans
	30 - 59		60 - 89		> 90		30 or More
	Days		Days		Days		Days		Current		Non-accrual		Total
As of September 30, 2021	Past Due		Past Due		Past Due		Past Due		Loans		Loans (1)		Loans
Real estate
Commercial	$	6.1	$	4.0	$	0.3	$	10.4	$	3,864.0	$	8.8	$	3,883.2
Construction:
Land acquisition & development	0.7		—		0.2		0.9		258.8		0.5		260.2
Residential	—		—		—		—		268.4		—		268.4
Commercial	1.9		—		—		1.9		608.3		—		610.2
Total construction loans	2.6		—		0.2		2.8		1,135.5		0.5		1,138.8
Residential	0.2		2.7		1.4		4.3		1,546.3		4.3		1,554.9
Agricultural	—		0.2		1.2		1.4		222.9		5.6		229.9
Total real estate loans	8.9		6.9		3.1		18.9		6,768.7		19.2		6,806.8
Consumer:
Indirect consumer	4.0		1.1		0.2		5.3		750.0		1.5		756.8
Other consumer	0.7		0.2		0.1		1.0		131.7		0.2		132.9
Credit card	0.6		0.2		0.4		1.2		62.9		—		64.1
Total consumer loans	5.3		1.5		0.7		7.5		944.6		1.7		953.8
Commercial	3.7		0.6		0.9		5.2		1,656.4		7.1		1,668.7
Agricultural	0.3		—		0.5		0.8		209.7		1.9		212.4
Other, including overdrafts	—		—		—		—		1.3		—		1.3
Loans held for investment	$	18.2	$	9.0	$	5.2	$	32.4	$	9,580.7	$	29.9	$	9,643.0

2618

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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)


							Total Loans
	30 - 59		60 - 89		> 90		30 or More
	Days		Days		Days		Days		Current		Non-accrual		Total
As of December 31, 2020	Past Due		Past Due		Past Due		Past Due		Loans		Loans (1)		Loans
Real estate
Commercial	$	7.6	$	1.2	$	4.0	$	12.8	$	3,720.8	$	9.6	$	3,743.2
Construction:
Land acquisition & development	2.5		1.1		0.1		3.7		260.6		0.7		265.0
Residential	1.5		0.4		—		1.9		247.9		1.1		250.9
Commercial	12.2		—		—		12.2		511.2		0.1		523.5
Total construction loans	16.2		1.5		0.1		17.8		1,019.7		1.9		1,039.4
Residential	4.7		1.6		0.5		6.8		1,384.9		4.6		1,396.3
Agricultural	2.0		—		—		2.0		212.4		6.2		220.6
Total real estate loans	30.5		4.3		4.6		39.4		6,337.8		22.3		6,399.5
Consumer:
Indirect consumer	6.4		2.0		0.5		8.9		794.3		1.9		805.1
Other consumer	0.8		0.2		0.2		1.2		149.0		0.4		150.6
Credit card	0.6		0.4		0.6		1.6		68.6		—		70.2
Total consumer loans	7.8		2.6		1.3		11.7		1,011.9		2.3		1,025.9
Commercial	6.2		1.8		1.2		9.2		2,132.9		11.8		2,153.9
Agricultural	0.4		0.6		1.4		2.4		242.1		3.1		247.6
Other, including overdrafts	—		—		—		—		1.6		—		1.6
Loans held for investment	$	44.9	$	9.3	$	8.5	$	62.7	$	9,726.3	$	39.5	$	9,828.5

(1) As of September 30, 2021 and December 31, 2020, none of our non-accrual loans were earning interest income. Additionally, no material interest income was recognized on non-accrual loans during the three and nine months ended September 30, 2021 and 2020, respectively, and no material accrued interest was reversed at September 30, 2021 and 2020, respectively.

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 in connection with the ongoing loan collection processes. Loan modifications typically include adjustments to certain terms including 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.~~under other circumstances. Certain troubled ~~debt restructurings~~loans are on non-accrual status at the time of ~~restructuring and~~debt restructuring. These restructured loans may be returned to accrual status if the borrower has sustained repayment performance ~~in accordance with~~as required under 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 date is equal to or greater than the rate that the Company ~~was willing to accept~~might grant for a new loan at the time of the restructuring ~~for a new loan with~~at comparable risk, then the loan will ~~return~~be reclassified to performing status and the accrual of interest will resume. ~~Any such loan~~Loans that return to performing status will continue to be individually evaluated for credit deterioration ~~and disclosed as collateral dependent loans.~~

in the ordinary course of business.

The 2020 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 Coronavirus Disease 2019 (“COVID–1919”) 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~~January 1, 2022 or the date that is 60 days after the termination of the national emergency.

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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 Company renegotiated loans in troubled debt restructurings in the amount of ~~$20.0~~$6.9 million as of September 30, ~~2020,~~2021, of which ~~$16.8~~$4.8 million were included in non-accrual loans and ~~$3.2~~$2.1 million were on accrual status. As of September 30, ~~2020,~~2021, the Company allocated ~~$4.3~~$0.1 million of allowance for credit losses to those loans and the Company had 0no 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~~$14.5 million as of December 31, ~~2019,~~2020, of which ~~$19.4~~$11.3 million were included in non-accrual loans and ~~$5.5~~$3.2 million were on accrual status. As of December 31, ~~2019,~~2020, the Company allocated ~~$0.3~~$2.9 million of allowance for credit losses to those loans and the Company had 0no material commitments to lend additional funds to borrowers whose existing loans have been renegotiated or are classified as non-accrual.

The Company had 0no material new troubled debt restructurings during the three and nine months ended September 30, ~~2020.~~2021.

For troubled debt restructurings that were on non-accrual status or otherwise deemed collateral-dependent before a modification, the ~~modification, a specific reserve~~Company may have already ~~be recorded.~~recorded an allowance for credit losses. In periods subsequent to modification, the Company continues to evaluate all troubled debt restructurings for possible credit deterioration and, where deterioration is observed, recognizes credit loss through the allowance. Additionally, the Company continues to work these loans ~~continue to work~~ through the credit cycle through charge-off, pay-off, or foreclosure. Financial effects of modifications of troubled debt restructurings may include principal loan forgiveness or other charge-offs directly related to the restructuring. The Company had 0no charge-offs directly related to modifying troubled debt restructurings during the three and nine months ended September 30, ~~2020~~2021 or ~~2019.~~2020.

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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 Company had 0no 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, ~~2020.~~2021. The Company considers a payment default to occur on troubled debt restructurings when the loan is 90 days or more past due or is placed on non-accrual status after the modification.

The terms of certain other loans were modified during the quarter ended September 30, ~~2020 that~~2021 where the loan 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.~~restructuring and the borrowers had not been experiencing financial difficulties. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant. These loans have a total recorded investment of $148.5 million as of September 30, 2021.

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 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 analyzes 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 loans and commercial real estate loans. This analysis is performed no less than on an annual basis, ~~dependent~~depending upon the size of exposure and the contractual obligations governing the borrower’s financial reporting ~~frequency to which the borrower is contractually obligated.~~frequency. Homogeneous loans, including small business loans, are typically managed by payment performance. The Company internally 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.~~agencies. The Uniform Classification System defines three broad categories of criticized assets, which the Company uses as credit quality indicators in addition to the 6 Pass ratings in its 10-point rating scale:

Special Mention — includes loans that exhibit a potential weakness in financial condition, loan structure, or documentation that warrants management’s close attention. If not promptly corrected, the potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

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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)

Substandard — includes loans that are inadequately protected by the current net worth and paying capacity of the 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 may 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 on the basis of currently existing facts, conditions, and values to a point where collection or liquidation for full repayment is highly questionable and improbable. Doubtful loans are required to be placed on non-accrual status and are assigned specific loss exposure.

Loans not meeting the criteria above that are analyzed individually as part of the ~~above described~~above-described process are considered to be pass-rated loans.

The Company evaluates the credit quality and loan performance for the allowance for credit loan losses of the following segments based on the aforementioned risk scale for the periods indicated:


	September 30, 2021
	Term Loans Amortized Cost Basis by Origination Year
Risk by Collateral	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial real estate non-owner occupied:
Pass	$	408.9	$	467.7	$	258.9	$	160.7	$	94.9	$	426.9	$	11.6	$	1,829.6
Special mention	0.2		1.5		2.2		—		—		13.9		—		17.8
Substandard	3.9		15.5		2.4		0.8		1.1		13.1		—		36.8

Total	$	413.0	$	484.7	$	263.5	$	161.5	$	96.0	$	453.9	$	11.6	$	1,884.2

Commercial real estate owner occupied:
Pass	$	317.5	$	325.0	$	247.5	$	166.0	$	106.2	$	368.1	$	12.7	$	1,543.0
Special mention	1.1		5.3		1.9		5.1		3.1		18.6		—		35.1
Substandard	3.5		5.0		5.8		8.4		2.8		23.0		0.1		48.6

Total	$	322.1	$	335.3	$	255.2	$	179.5	$	112.1	$	409.7	$	12.8	$	1,626.7

Commercial multi-family:
Pass	$	62.7	$	116.3	$	46.3	$	20.6	$	36.9	$	87.6	$	1.9	$	372.3



Total	$	62.7	$	116.3	$	46.3	$	20.6	$	36.9	$	87.6	$	1.9	$	372.3

Land, acquisition and development:
Pass	$	80.2	$	73.7	$	42.6	$	15.7	$	21.0	$	21.9	$	2.0	$	257.1
Special mention	1.0		0.2		—		—		0.1		—		—		1.3
Substandard	0.6		0.2		—		0.7		0.1		0.1		0.1		1.8

Total	$	81.8	$	74.1	$	42.6	$	16.4	$	21.2	$	22.0	$	2.1	$	260.2

Residential construction:
Pass	$	98.2	$	23.8	$	26.5	$	1.0	$	1.6	$	—	$	116.3	$	267.4
Special mention	—		—		—		—		0.4		—		—		0.4
Substandard	0.2		0.4		—		—		—		—		—		0.6

Total	$	98.4	$	24.2	$	26.5	$	1.0	$	2.0	$	—	$	116.3	$	268.4

Commercial construction:
Pass	$	207.7	$	221.2	$	147.4	$	27.7	$	0.6	$	5.6	$	—	$	610.2



Total	$	207.7	$	221.2	$	147.4	$	27.7	$	0.6	$	5.6	$	—	$	610.2

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 evaluates the credit quality and loan performance for the allowance for credit loan losses of the following segments based on the aforementioned risk scale:~~


	September 30, 2021
	Term Loans Amortized Cost Basis by Origination Year
Risk by Collateral	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
Agricultural real estate:
Pass	$	52.8	$	39.9	$	37.3	$	24.2	$	13.4	$	31.2	$	3.8	$	202.6
Special mention	0.1		1.5		1.2		0.6		0.1		3.6		1.0		8.1
Substandard	1.0		1.7		6.7		2.7		1.3		3.4		—		16.8
Doubtful	2.4		—		—		—		—		—		—		2.4
Total	$	56.3	$	43.1	$	45.2	$	27.5	$	14.8	$	38.2	$	4.8	$	229.9

Commercial and floor plans:
Pass	$	509.2	$	182.7	$	107.8	$	90.6	$	50.9	$	101.2	$	246.3	$	1,288.7
Special mention	0.8		12.7		0.9		2.1		3.6		3.1		3.9		27.1
Substandard	2.2		2.8		1.6		2.0		0.7		4.9		1.1		15.3

Total	$	512.2	$	198.2	$	110.3	$	94.7	$	55.2	$	109.2	$	251.3	$	1,331.1

Commercial purpose secured by 1-4 family:
Pass	$	66.2	$	67.3	$	30.6	$	24.6	$	16.4	$	36.4	$	13.7	$	255.2
Special mention	—		0.2		0.2		0.5		0.1		0.8		0.4		2.2
Substandard	1.2		1.4		0.7		1.0		0.2		1.6		0.1		6.2

Total	$	67.4	$	68.9	$	31.5	$	26.1	$	16.7	$	38.8	$	14.2	$	263.6

Agricultural:
Pass	$	30.3	$	27.1	$	10.5	$	7.8	$	3.5	$	2.0	$	108.0	$	189.2
Special mention	0.9		0.6		0.5		0.3		—		0.3		3.1		5.7
Substandard	9.6		0.8		1.4		2.6		0.1		0.2		1.3		16.0

Total	$	40.8	$	28.5	$	12.4	$	10.7	$	3.6	$	2.5	$	112.4	$	210.9

September 30, 2020
Term Loans Amortized Cost Basis by Origination Year
Risk by Collateral 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total
Commercial real estate non-owner occupied:
Pass $ 397.3 $ 299.3 $ 213.8 $ 108.8 $ 159.0 $ 368.2 $ 12.8 $ 1,559.2
Special mention 0 3.1 0.9 0.1 0.7 17.6 0 22.4
Substandard 15.9 2.8 0.9 4.1 1.1 14.8 0 39.6
Doubtful 0 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 mention 7.3 8.7 7.8 3.1 15.4 14.6 0.2 57.1
Substandard 6.7 6.6 12.4 5.2 18.5 13.6 0.5 63.5
Doubtful 0.2 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 mention 0 0 0 0 0 0 0 0
Substandard 0 0 0 0 0 0.1 0 0.1
Doubtful 0 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 mention 0.4 0.1 0 1.0 0 1.2 0.3 3.0
Substandard 0.4 0 1.2 0.1 0 0.2 0.4 2.3
Doubtful 0 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 mention 0 0 0 0 0 0 0 0
Substandard 0.6 0 1.2 0 0 0 0 1.8
Doubtful 0 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 mention 0 1.4 1.5 0 0 0 0 2.9
Substandard 0 0.8 0 0 0 0.1 0 0.9
Doubtful 0 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 mention 3.4 7.6 1.2 1.6 0.9 3.9 0.9 19.5
Substandard 0.1 8.3 3.5 1.1 3.5 5.4 1.8 23.7
Doubtful 0 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


	December 31, 2020
	Term Loans Amortized Cost Basis by Origination Year
Risk by Collateral	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
Commercial real estate non-owner occupied:
Pass	$	495.9	$	304.9	$	216.0	$	105.3	$	139.7	$	336.5	$	13.8	$	1,612.1
Special mention	0.3		2.3		0.9		0.1		6.4		13.7		—		23.7
Substandard	15.7		2.7		1.0		4.1		1.1		13.9		—		38.5
Doubtful	—		—		0.2		—		—		—		—		0.2
Total	$	511.9	$	309.9	$	218.1	$	109.5	$	147.2	$	364.1	$	13.8	$	1,674.5

Commercial real estate owner occupied:
Pass	$	416.3	$	312.5	$	211.2	$	122.4	$	153.7	$	357.9	$	8.9	$	1,582.9
Special mention	7.1		9.6		4.8		3.1		18.6		20.0		—		63.2
Substandard	8.9		6.5		11.5		5.0		15.1		11.1		0.3		58.4
Doubtful	0.2		—		—		0.2		—		0.1		—		0.5
Total	$	432.5	$	328.6	$	227.5	$	130.7	$	187.4	$	389.1	$	9.2	$	1,705.0

Commercial multi-family:
Pass	$	132.5	$	58.9	$	23.5	$	41.6	$	25.8	$	80.5	$	0.8	$	363.6
Special mention	—		—		—		—		—		0.1		—		0.1


Total	$	132.5	$	58.9	$	23.5	$	41.6	$	25.8	$	80.6	$	0.8	$	363.7

2922

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)


		September 30, 2020																	December 31, 2020
		Term Loans Amortized Cost Basis by Origination Year																	Term Loans Amortized Cost Basis by Origination Year
Risk by Collateral	Risk by Collateral	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total		Risk by Collateral	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
Land, acquisition and development:																		Land, acquisition and development:
Pass																		Pass	$	104.6	$	58.8	$	26.4	$	30.7	$	7.6	$	26.3	$	5.8	$	260.2
Special mention																		Special mention	0.2		0.1		—		0.9		—		1.2		0.5		2.9
Substandard																		Substandard	0.3		—		1.2		0.1		—		0.1		0.1		1.8
Doubtful																		Doubtful	—		—		—		—		—		0.1		—		0.1
Total																		Total	$	105.1	$	58.9	$	27.6	$	31.7	$	7.6	$	27.7	$	6.4	$	265.0

Residential construction:																		Residential construction:
Pass																		Pass	$	80.4	$	64.7	$	16.7	$	5.6	$	—	$	0.1	$	82.1	$	249.6

Substandard																		Substandard	0.2		—		—		—		—		—		1.1		1.3

Total																		Total	$	80.6	$	64.7	$	16.7	$	5.6	$	—	$	0.1	$	83.2	$	250.9

Commercial construction:																		Commercial construction:
Pass																		Pass	$	236.1	$	195.4	$	61.2	$	11.9	$	6.0	$	(0.3)	$	11.6	$	521.9
Special mention																		Special mention	—		—		1.5		—		—		—		—		1.5
Substandard																		Substandard	—		—		—		—		—		0.1		—		0.1

Total																		Total	$	236.1	$	195.4	$	62.7	$	11.9	$	6.0	$	(0.2)	$	11.6	$	523.5

Agricultural real estate:																		Agricultural real estate:
Pass																		Pass	$	50.0	$	45.3	$	28.2	$	17.2	$	12.7	$	27.2	$	5.3	$	185.9
Special mention																		Special mention	2.8		6.7		1.0		1.5		0.9		1.0		0.5		14.4
Substandard																		Substandard	1.4		5.9		3.4		0.9		3.4		4.4		0.6		20.0
Doubtful																		Doubtful	—		0.3		—		—		—		—		—		0.3
Total																		Total	$	54.2	$	58.2	$	32.6	$	19.6	$	17.0	$	32.6	$	6.4	$	220.6

Commercial and floor plans:	Commercial and floor plans:																	Commercial and floor plans:
Pass	Pass	$	1,385.9	$	173.4	$	150.5	$	86.3	$	48.8	$	100.3	$	236.6	$	2,181.8	Pass	$	1,029.4	$	153.0	$	136.0	$	69.8	$	43.0	$	92.3	$	233.1	$	1,756.6
Special mention	Special mention	8.9		1.2		2.0		7.3		4.2		0.6		2.9		27.1		Special mention	5.6		1.0		1.9		7.0		3.9		0.5		2.4		22.3
Substandard	Substandard	6.0		4.6		4.5		0.5		4.5		2.5		11.9		34.5		Substandard	8.8		1.8		4.3		0.4		4.1		1.1		11.5		32.0
Doubtful	Doubtful	2.2		3.7		0.1		0		0.1		2.6		0.1		8.8		Doubtful	0.3		0.4		—		—		0.1		2.6		0.2		3.6
Total	Total	$	1,403.0	$	182.9	$	157.1	$	94.1	$	57.6	$	106.0	$	251.5	$	2,252.2	Total	$	1,044.1	$	156.2	$	142.2	$	77.2	$	51.1	$	96.5	$	247.2	$	1,814.5

Commercial purpose secured by 1-4 family:	Commercial purpose secured by 1-4 family:																	Commercial purpose secured by 1-4 family:
Pass	Pass	$	60.3	$	62.9	$	38.4	$	23.8	$	16.7	$	42.4	$	19.5	$	264.0	Pass	$	82.3	$	53.7	$	33.7	$	20.7	$	15.5	$	34.9	$	17.5	$	258.3
Special mention	Special mention	0.3		0.6		0.3		0.3		0.6		0.9		0.4		3.4		Special mention	0.5		0.5		0.3		0.1		0.5		0.8		0.8		3.5
Substandard	Substandard	2.4		1.1		4.4		0.3		1.4		1.4		0.1		11.1		Substandard	2.4		1.0		4.8		0.3		1.4		1.0		0.1		11.0
Doubtful		0		0		0.1		0		0		0		0		0.1

Total	Total	$	63.0	$	64.6	$	43.2	$	24.4	$	18.7	$	44.7	$	20.0	$	278.6	Total	$	85.2	$	55.2	$	38.8	$	21.1	$	17.4	$	36.7	$	18.4	$	272.8

Agricultural:	Agricultural:																	Agricultural:
Pass	Pass	$	39.5	$	26.5	$	14.2	$	5.7	$	3.9	$	1.4	$	140.9	$	232.1	Pass	$	47.4	$	18.1	$	10.7	$	4.2	$	3.0	$	1.3	$	130.9	$	215.6
Special mention	Special mention	2.6		0.6		0.5		0.1		0.1		0.4		13.8		18.1		Special mention	1.5		0.7		0.4		—		0.1		0.3		13.4		16.4
Substandard	Substandard	6.4		1.9		4.3		1.4		0.1		0.4		8.2		22.7		Substandard	3.7		1.5		4.2		0.6		0.1		0.4		3.6		14.1
Doubtful		0		0.1		0		0.1		0		0		0		0.2

Total	Total	$	48.5	$	29.1	$	19.0	$	7.3	$	4.1	$	2.2	$	162.9	$	273.1	Total	$	52.6	$	20.3	$	15.3	$	4.8	$	3.2	$	2.0	$	147.9	$	246.1

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 borrower 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 Collateral 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total
Residential 1-4 family:
Performing $ 311.1 $ 119.8 $ 71.4 $ 57.9 $ 76.9 $ 270.2 $ 0 $ 907.3
Nonperforming 0 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
Nonperforming 0.1 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
Nonperforming 0 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
Nonperforming 0 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

3023

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)


	September 30, 2021
	Term Loans Amortized Cost Basis by Origination Year
Risk by Collateral	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total





Residential 1-4 family:
Performing	$	324.5	$	490.7	$	79.4	$	35.0	$	30.5	$	199.2	$	—	$	1,159.3
Nonperforming	—		0.9		0.4		—		0.4		1.9		—		3.6
Total	$	324.5	$	491.6	$	79.8	$	35.0	$	30.9	$	201.1	$	—	$	1,162.9

Consumer home equity and HELOC:
Performing	$	11.8	$	8.1	$	4.7	$	5.2	$	4.0	$	13.2	$	343.1	$	390.1
Nonperforming	0.3		—		0.3		—		0.6		0.7		—		1.9
Total	$	12.1	$	8.1	$	5.0	$	5.2	$	4.6	$	13.9	$	343.1	$	392.0

Consumer indirect:
Performing	$	223.5	$	236.0	$	124.6	$	74.6	$	44.1	$	52.2	$	—	$	755.0
Nonperforming	0.1		0.4		0.3		0.3		0.2		0.5		—		1.8
Total	$	223.6	$	236.4	$	124.9	$	74.9	$	44.3	$	52.7	$	—	$	756.8
Consumer direct and advance line:
Performing	$	34.9	$	31.5	$	17.9	$	16.2	$	6.8	$	8.8	$	16.5	$	132.6
Nonperforming	—		—		0.1		0.1		0.1		—		—		0.3
Total	$	34.9	$	31.5	$	18.0	$	16.3	$	6.9	$	8.8	$	16.5	$	132.9


	December 31, 2020
	Term Loans Amortized Cost Basis by Origination Year
Risk by Collateral	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total





Residential 1-4 family:
Performing	$	491.1	$	113.9	$	57.2	$	47.8	$	65.7	$	234.6	$	—	$	1,010.3
Nonperforming	0.1		0.7		—		—		—		1.2		—		2.0
Total	$	491.2	$	114.6	$	57.2	$	47.8	$	65.7	$	235.8	$	—	$	1,012.3

Consumer home equity and HELOC:
Performing	$	12.0	$	7.1	$	7.1	$	9.7	$	4.7	$	14.4	$	328.1	$	383.1
Nonperforming	0.1		0.2		—		—		0.1		0.4		0.1		0.9
Total	$	12.1	$	7.3	$	7.1	$	9.7	$	4.8	$	14.8	$	328.2	$	384.0

Consumer indirect:
Performing	$	334.5	$	187.9	$	117.9	$	73.8	$	47.6	$	42.6	$	—	$	804.3
Nonperforming	0.1		0.2		0.1		0.2		0.1		0.1		—		0.8
Total	$	334.6	$	188.1	$	118.0	$	74.0	$	47.7	$	42.7	$	—	$	805.1
Consumer direct and advance line:
Performing	$	47.1	$	29.4	$	28.1	$	11.9	$	5.3	$	8.6	$	19.9	$	150.3
Nonperforming	0.1		—		0.1		—		—		—		0.1		0.3
Total	$	47.2	$	29.4	$	28.2	$	11.9	$	5.3	$	8.6	$	20.0	$	150.6

The Company considers the performance of the loan portfolio and its impact on the allowance for credit loan losses. For certain credit card loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in credit card loans based on payment ~~activity:~~activity for the periods indicated:

As of September 30, 2020 Consumer Commercial Agricultural Total
Credit Card:
Performing $ 69.3 $ 68.5 $ 1.5 $ 139.3
Nonperforming 0.6 0.3 0.1 1.0
Total $ 69.9 $ 68.8 $ 1.6 $ 140.3

Table of Contents

~~The following presents the recorded investment~~FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in ~~the Company’s loans by risk grades~~millions, except share and ~~loan class as of the date shown below:~~per share data)

As of December 31, 2019 Pass Other Assets
Especially
Mentioned Substandard Doubtful Total
Criticized
Loans Total Loans
Real estate:
Commercial $ 3,305.0 $ 84.7 $ 97.3 $ 0.8 $ 182.8 $ 3,487.8
Construction:
Land acquisition & development 295.4 3.8 1.9 1.0 6.7 302.1
Residential 241.0 0.9 2.2 0 3.1 244.1
Commercial 428.3 1.7 1.5 0 3.2 431.5
Total construction loans 964.7 6.4 5.6 1.0 13.0 977.7
Residential 1,235.4 2.6 7.8 0.3 10.7 1,246.1
Agricultural 185.7 14.3 26.6 0 40.9 226.6
Total real estate loans 5,690.8 108.0 137.3 2.1 247.4 5,938.2
Consumer:
Indirect consumer 781.5 0.2 2.9 0 3.1 784.6
Direct consumer 177.7 0.4 0.8 0.1 1.3 179.0
Credit card 81.6 0 0 0 0 81.6
Total consumer loans 1,040.8 0.6 3.7 0.1 4.4 1,045.2
Commercial 1,569.4 40.4 60.3 3.6 104.3 1,673.7
Agricultural 247.8 8.5 22.7 0.1 31.3 279.1
Total $ 8,548.8 $ 157.5 $ 224.0 $ 5.9 $ 387.4 $ 8,936.2


As of September 30, 2021	Consumer		Commercial		Agricultural		Total
Credit Card:
Performing	$	63.7	$	73.9	$	1.5	$	139.1
Nonperforming	0.4		0.1		—		0.5
Total	$	64.1	$	74.0	$	1.5	$	139.6



As of December 31, 2020	Consumer		Commercial		Agricultural		Total
Credit Card:
Performing	$	69.6	$	66.3	$	1.5	$	137.4
Nonperforming	0.6		0.3		—		0.9
Total credit card	$	70.2	$	66.6	$	1.5	$	138.3

There were 0 material purchases of portfolio loans and 0 material sales of loans held for investment during the three and nine months ended September 30, ~~2020~~2021 or ~~2019.~~2020.

~~Purchased Credit Deteriorated Loans~~

The Company has purchased loans acquired in business combinations, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. See “Note 2 - Acquisitions” included in this report, for additional details.

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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)~~

~~(6)~~(4) 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:~~is reflected in the following table:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Beginning balance	Beginning balance	$	6.5	$	27.5	$	8.5	$	14.4	Beginning balance	$	2.0	$	6.5	$	2.5	$	8.5
OREO acquired through acquisition		0		0		0		2.4

Additions	Additions	2.0		0.7		3.2		14.0		Additions	0.4		2.0		0.7		3.2

Valuation adjustments	Valuation adjustments	(0.1)		(0.2)		(0.1)		(0.7)		Valuation adjustments	—		(0.1)		—		(0.1)
Dispositions	Dispositions	(2.7)		(10.2)		(5.9)		(12.3)		Dispositions	(0.1)		(2.7)		(0.9)		(5.9)
Ending balance	Ending balance	$	5.7	$	17.8	$	5.7	$	17.8	Ending balance	$	2.3	$	5.7	$	2.3	$	5.7

~~The carrying values of~~There were $0.5 million and no foreclosed residential real estate properties included in other real estate owned ~~were $2.3 million and $2.3 million~~ as of September 30, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020. The Company had recorded investments in consumer mortgage loans secured by residential real estate for which formal foreclosure proceedings were in process of foreclosure of ~~$0.2~~$0.6 million and ~~$1.4~~$0.2 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

~~(7)~~(5) Derivatives and Hedging Activities

~~For asset~~The Company is exposed to certain risks arising from both its business operations and ~~liability~~economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through the management ~~purposes,~~of its business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. The Company enters into derivative financial instruments, such as interest rate swap contracts to manage or hedge ~~against changes~~exposures that arise from business activities that result in ~~forecasted~~the receipt or payment of future known and uncertain cash ~~flows due to~~amounts, the value of which are determined by interest rates and 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.

~~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 also enters into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with a third-party financial institution. Because the Company acts as an intermediary for the client, changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact the Company’s results of operations.

In the normal course of business, the Company enters into interest rate lock commitments to finance residential mortgage loans that are not designated as accounting hedges. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee, provided the loan meets underwriting guidelines and closes within the timeframe established by the Company. Interest rate risk arises on these commitments and subsequently closed loans if interest rates change between the time of the interest rate lock and the delivery of the loan to the investor. Loan commitments related to residential mortgage loans intended to be sold are considered derivatives and are marked to market through earnings. In addition to the effects of the change in market interest rate, the fair value measurement of the derivative also contemplates the expected cash flows to be received from the counterparty from the future sale of the loan.

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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 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~~The forward loan sales contracts are marked to market through earnings and are not designated as accounting ~~hedges.~~hedges during the interest rate lock commitment period and through the duration of the forward loan sales contracts. 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.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During 2020 and 2021, such derivatives were used to hedge the variable cash flows associated with the existing variable-rate borrowings (trust preferred securities).

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate liabilities. During the next twelve months, the Company estimates that an additional $0.1 million will be reclassified as an increase to interest expense.

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.

On June 17, 2021, the Company invested $500.0 million in five-year U.S. Treasuries at 87 basis points, while simultaneously entering into a two-year forward starting, three-year pay-fixed interest rate swap on $500.0 million notional. Beginning on June 30, 2023, the Company will begin receiving effective federal funds, and ~~estimated~~will pay 1.19% interest on such funds. The interest rate swap was designated as a fair ~~values~~value hedge. The Company assesses the hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative. The Company has determined at the onset of the hedge that the derivative instrument will be a highly effective hedge throughout the term of the contract, any portion of derivative instrument subsequently determined to be ineffective will be recognized in earnings.

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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)

On August 2, 2021, the Company invested $200.0 million in seven-year U.S. Treasuries at 99 basis points, while simultaneously entering into a three-year forward starting, four-year pay-fixed interest rate swap on $200.0 million notional amount. Beginning on August 31, 2024, the Company will begin receiving effective federal funds, and will pay 1.22% interest on such funds. The interest rate swap was designated as a fair value hedge. The Company assesses the hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivative. The Company has determined at the onset of the hedge that the derivative instrument will be a highly effective hedge throughout the term of the contract, any portion of derivative instrument subsequently determined to be ineffective will be recognized in earnings.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

The following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges for the periods indicated:


	September 30, 2021				December 31, 2020
	Carrying Amount of the Hedged Assets/(Liabilities)		Cumulative Amount of Fair Value Hedging Adjustment		Carrying Amount of the Hedged Assets/(Liabilities)		Cumulative Amount of Fair Value Hedging Adjustment
Available-for-sale securities	$	697.7	$	(2.3)	$	—	$	—

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

The table below presents the fair value of the Company’s ~~derivatives are presented in~~derivative financial instruments and classification on the ~~following table. Fair value estimates are obtained from third parties and are based on pricing models.~~balance sheet for the periods indicated:

September 30, 2020 December 31, 2019
Notional Amount Estimated
Fair Value Notional Amount Estimated
Fair Value
Derivative Assets (included in other assets on the consolidated balance sheets):
Non-hedging interest rate derivatives:
Interest rate swap contracts $ 754.3 $ 61.3 $ 503.2 $ 21.9
Interest rate lock commitments 186.9 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 contracts 754.3 61.3 503.2 21.9
Forward loan sales contracts 237.0 1.6 128.0 0.3
Total derivative liabilities $ 1,078.9 $ 63.1 $ 631.2 $ 22.2


	September 30, 2021					December 31, 2020
	Notional Amount		Balance Sheet Location	Estimated Fair Value		Notional Amount		Balance Sheet Location	Estimated Fair Value

Derivatives designated as hedges:
Interest rate swap contracts	$	200.0		$	2.6	$	—		$	—

Derivatives not designated as hedges:
Interest rate swap contracts	854.8			27.5		799.7			52.0
Interest rate lock commitments	149.8			3.1		101.9			3.3
Forward loan sales contracts	164.2			0.9		—			—


Derivative assets in the balance sheet	$	1,368.8	Other Assets	$	34.1	$	901.6	Other Assets	$	55.3


Derivatives designated as hedges:
Interest rate swap contracts	$	587.6		$	0.4	$	87.6		$	0.2

Derivatives not designated as hedges:
Interest rate swap contracts	854.8			20.7		799.7			16.6

Forward loan sales contracts	—			—		126.8			1.1


Derivative liabilities in the balance sheet	$	1,442.4	Accrued Expenses	$	21.1	$	1,014.1	Accrued Expenses	$	17.9

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)

There were 0no material effects of derivative instruments in fair value or cash flow ~~hedging relationships~~hedge accounting on ~~the consolidated statements of~~accumulated other comprehensive income ~~for~~during the three and nine months ended September 30, 2021 or 2020.

There were no material effects from the Company’s fair value or cash flow hedged derivative financial instruments on the income statement during the three and nine months ended September 30, 2021 or 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 tables illustrate~~table below presents the ~~potential~~ effect of the Company’s ~~master netting arrangements, by type of~~derivative financial ~~instrument,~~instruments that are not designated as hedging instruments on the ~~Company’s consolidated balance sheets~~income statement for the periods indicated:

September 30, 2020
Gross Amounts Recognized Gross Amounts Offset in the Balance Sheet Net Amounts in the Balance Sheet Financial Instruments Fair Value of Financial Collateral in the Balance Sheet Net Amount
Financial Assets
Interest rate swap contracts $ 61.3 $ 0 $ 61.3 $ 0 $ 28.7 $ 32.6
Mortgage related derivatives 7.0 0 7.0 0 0 7.0
Total derivatives 68.3 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 derivatives 1.6 0 1.6 0 0 1.6
Total derivatives 63.1 0 63.1 0 0 63.1
Repurchase agreements 820.3 820.3 0 820.3 0
Total liabilities $ 883.4 $ 0 $ 883.4 $ 0 $ 820.3 $ 63.1


	Three Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2021		2020
	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative				Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Interest rate lock commitments	Mortgage banking revenues	$	1.3	$	(0.6)	Mortgage banking revenues	$	1.7	$	4.4

December 31, 2019
Gross Amounts Recognized Gross Amounts Offset in the Balance Sheet Net Amounts in the Balance Sheet Financial Instruments Fair Value of Financial Collateral in the Balance Sheet Net Amount
Financial Assets
Interest rate swap contracts $ 21.9 $ 0 $ 21.9 $ 0.1 $ 18.0 $ 3.8
Mortgage related derivatives 1.3 0 1.3 0 0 1.3
Total derivatives 23.2 0 23.2 0.1 18.0 5.1
Total assets $ 23.2 $ 0 $ 23.2 $ 0.1 $ 18.0 $ 5.1
Financial Liabilities
Interest rate swap contracts $ 21.9 $ 0 $ 21.9 $ 0.1 $ 0 $ 21.8
Mortgage related derivatives 0.3 0 0.3 0 0 0.3
Total derivatives 22.2 0 22.2 0.1 0 22.1
Repurchase agreements 697.6 0 697.6 0 697.6 0
Total liabilities $ 719.8 $ 0 $ 719.8 $ 0.1 $ 697.6 $ 22.1
The Company recorded fee revenues of $0.4 million and $3.7 million for the three months ended September 30, 2021 and September 30, 2020, respectively and $1.6 million and $6.4 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. The Company includes swap fee revenues in other service charges, commissions, and fees.

The tables below present the gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of the periods indicated:


	September 30, 2021
	Gross Assets Recognized		Gross Assets Offset in the Balance Sheet		Net Assets in the Balance Sheet		Financial Instruments		Cash Collateral Received		Net Amount
Interest rate swap contracts	$	30.1	$	—	$	30.1	$	—	$	11.0	$	19.1
Mortgage related derivatives	4.0		—		4.0		—		—		4.0
Total derivatives	34.1		—		34.1		—		11.0		23.1
Total assets	$	34.1	$	—	$	34.1	$	—	$	11.0	$	23.1

	Gross Liabilities Recognized		Gross Liabilities Offset in the Balance Sheet		Net Liabilities in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Interest rate swap contracts	$	21.1	$	—	$	21.1	$	—	$	—	$	21.1

Total derivatives	21.1		—		21.1		—		—		21.1
Repurchase agreements	1,007.5		—		1,007.5		—		1,007.5		—
Total liabilities	$	1,028.6	$	—	$	1,028.6	$	—	$	1,007.5	$	21.1

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)


	December 31, 2020
	Gross Assets Recognized		Gross Assets Offset in the Balance Sheet		Net Assets in the Balance Sheet		Financial Instruments		Cash Collateral Received		Net Amount
Interest rate swap contracts	$	52.0	$	—	$	52.0	$	—	$	17.2	$	34.8
Mortgage related derivatives	3.3		—		3.3		—		—		3.3
Total derivatives	55.3		—		55.3		—		17.2		38.1
Total assets	$	55.3	$	—	$	55.3	$	—	$	17.2	$	38.1

	Gross Liabilities Recognized		Gross Liabilities Offset in the Balance Sheet		Net Liabilities in the Balance Sheet		Financial Instruments		Cash Collateral Posted		Net Amount
Interest rate swap contracts	$	16.8	$	—	$	16.8	$	—	$	—	$	16.8
Mortgage related derivatives	1.1		—		1.1		—		—		1.1
Total derivatives	17.9		—		17.9		—		—		17.9
Repurchase agreements	1,091.4		—		1,091.4		—		1,091.4		—
Total liabilities	$	1,109.3	$	—	$	1,109.3	$	—	$	1,091.4	$	17.9

Credit-risk-related Contingent Feature

The ~~following table presents~~Company has agreements with each of its derivative counterparties that contain a provision where if the ~~pre-tax gains or losses~~Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well / adequately capitalized institution, then in certain instances the Company could be required to post additional capital and in certain instances the counterparty would have the right to terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of September 30, 2021, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, which was $10.7 million related to these agreements. As of September 30, 2021, the Company has minimum collateral posting thresholds with certain of its derivative ~~contracts that were recorded in other non-interest income in~~counterparties and has posted excess collateral of $0.3 million. If the ~~Company’s statements~~Company had breached any of ~~income for~~these provisions at September 30, 2021, it could have been required to settle its obligations under the ~~periods indicated:~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
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 income 0 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
agreements at their termination value of $10.7 million.

~~(8)~~(6) Capital Stock

The Company had ~~41,143,592~~41,715,627 shares of Class A common stock and ~~21,971,339~~20,515,516 shares of Class B common stock outstanding as of September 30, ~~2020.~~2021. The Company had ~~43,129,085~~40,335,113 shares of Class A common stock and ~~22,117,254~~21,760,686 shares of Class B common stock outstanding as of December 31, ~~2019.~~2020.

During the nine months ended September 30, ~~2020,~~2021, the Company issued ~~19,491~~19,081 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 $0.6~~was $0.9 million and is included in employee benefits in the consolidated statement of income and in stock-based compensation expense in the ~~accompanying~~ consolidated statements of changes in stockholders' equity.

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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)

On June 11, 2019, the Company’s board of directors adopted a stock repurchase program where the Company may repurchase up to 2.5 million of its outstanding shares of Class A common stock. On September 12, 2020, the Company’s board of directors increased the number of shares of Class A common stock authorized to be repurchased by the Company under the stock repurchase program by an additional 3.0 million shares for a total of 5.5 million shares.

~~During~~ There were no shares repurchased under the program during the three months ended September 30, ~~2020,~~2021. During the nine months ended September 30, 2021, the Company repurchased and retired ~~1,445,300~~72,700 shares of our Class A common stock at a total cost of ~~$46.3~~$2.9 million, including costs and commissions, at an average cost of ~~$32.05~~$39.69 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, 2020, the Company repurchased and retired 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. The shares of common stock repurchased during the period represented 45.5%1.3% of the total 5.5 million shares authorized to be repurchased. As of September 30, ~~2020,~~2021, there were ~~3.0~~1.9 million shares remaining authorized under the repurchase program.

All other stock repurchases during the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, 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.

~~(9)~~(7) Earnings per Common Share

Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period presented, excluding unvested restricted stock. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares determined for the basic earnings per share computation plus the dilutive effects of stock-based compensation using the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share for the periods presented:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	47.1	$	48.3	$	141.0	$	114.3
Weighted average common shares outstanding for basic earnings per share computation	61,673,656		63,764,474		61,641,342		64,184,832
Dilutive effects of stock-based compensation	74,316		96,983		91,480		110,693
Weighted average common shares outstanding for diluted earnings per common share computation	61,747,972		63,861,457		61,732,822		64,295,525

Basic earnings per common share	$	0.76	$	0.76	$	2.29	$	1.78
Diluted earnings per common share	$	0.76	$	0.76	$	2.28	$	1.78

Anti-dilutive unvested time restricted stock	89,142		68,397		88,677		73,633

The Company had 355,981 and 293,236 shares of unvested restricted stock as of September 30, 2021 and 2020, respectively, that were not included in the computation of diluted earnings per common share because performance conditions for vesting had not been met.

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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 following table sets forth the computation of basic and diluted earnings per share for the three and nine month periods ended September 30, 2020 and 2019:~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Net income $ 48.3 $ 49.1 $ 114.3 $ 128.6
Weighted average common shares outstanding for basic earnings per share computation 63,764,474 64,832,324 64,184,832 63,232,575
Dilutive effects of stock-based compensation 96,983 211,162 110,693 238,708
Weighted average common shares outstanding for diluted earnings per common share computation 63,861,457 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 stock 68,397 4,808 73,633 5,569

The Company had 293,236 and 143,415 shares of unvested restricted stock as of September 30, 2020 and 2019, respectively, that were not included in the computation of diluted earnings per common share because performance conditions for vesting had not been met.

~~(10)~~(8) Regulatory Capital

As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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, ~~2020~~2021 and December 31, ~~2019~~2020 are presented in the following tables:


		Actual				Minimum Required for Capital Adequacy Purposes				For Capital Adequacy Purposes Plus Capital Conservation Buffer				Minimum to Be Well Capitalized Under Prompt Corrective Action Requirements(1)					Actual				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, 2020		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2021																		September 30, 2021	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total risk-based capital:	Total risk-based capital:																	Total risk-based capital:
Consolidated	Consolidated	$	1,585.8	14.45	%	$	877.7	8.00	%	$	1,152.0	10.50	%	$	1,097.1	10.00	%	Consolidated	$	1,642.0	14.00	%	$	938.0	8.00	%	$	1,231.1	10.50	%	$	1,172.5	10.00	%
FIB	FIB	1,412.5		12.91		875.1		8.00		1,148.6		10.50		1,093.9		10.00		FIB	1,464.8		12.53		935.1		8.00		1,227.3		10.50		1,168.9		10.00

Tier 1 risk-based capital:	Tier 1 risk-based capital:																	Tier 1 risk-based capital:
Consolidated	Consolidated	1,378.3		12.56		658.3		6.00		932.6		8.50		877.7		8.00		Consolidated	1,442.6		12.30		703.5		6.00		996.6		8.50		938.0		8.00
FIB	FIB	1,305.1		11.93		656.3		6.00		929.8		8.50		875.1		8.00		FIB	1,365.4		11.68		701.3		6.00		993.5		8.50		935.1		8.00

Common equity tier 1 risk-based capital:	Common equity tier 1 risk-based capital:																	Common equity tier 1 risk-based capital:
Consolidated	Consolidated	1,294.2		11.80		493.7		4.50		768.0		7.00		713.1		6.50		Consolidated	1,358.5		11.59		527.6		4.50		820.7		7.00		762.1		6.50
FIB	FIB	1,305.1		11.93		492.3		4.50		765.7		7.00		711.0		6.50		FIB	1,365.4		11.68		526.0		4.50		818.2		7.00		759.8		6.50

Leverage capital ratio:	Leverage capital ratio:																	Leverage capital ratio:
Consolidated	Consolidated	1,378.3		8.62		639.3		4.00		639.3		4.00		799.1		5.00		Consolidated	1,442.6		7.81		738.5		4.00		738.5		4.00		923.1		5.00
FIB	FIB	1,305.1		8.18		638.2		4.00		638.2		4.00		797.8		5.00		FIB	1,365.4		7.41		737.2		4.00		737.2		4.00		921.5		5.00


	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, 2020	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total risk-based capital:
Consolidated	$	1,575.7	14.19	%	$	888.3	8.00	%	$	1,165.8	10.50	%	$	1,110.3	10.00	%
FIB	1,426.8		12.89		885.6		8.00		1,162.3		10.50		1,107.0		10.00
Tier 1 risk-based capital:
Consolidated	1,369.0		12.33		666.2		6.00		943.8		8.50		888.3		8.00
FIB	1,320.1		11.93		664.2		6.00		940.9		8.50		885.6		8.00
Common equity tier 1 risk-based capital:
Consolidated	1,284.9		11.57		499.6		4.50		777.2		7.00		721.7		6.50
FIB	1,320.1		11.93		498.1		4.50		774.9		7.00		719.5		6.50
Leverage capital ratio:
Consolidated	1,369.0		8.16		671.0		4.00		671.0		4.00		838.7		5.00
FIB	1,320.1		7.88		669.7		4.00		669.7		4.00		837.2		5.00

(1) The ratios for the requirements to be deemed “well-capitalized” are only applicable to FIB. However, the Company manages its capital position as if the requirements apply to the consolidated company and has presented the ratios as if they also applied on a consolidated basis.

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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)

In connection with the adoption of ~~CECL,~~the Current Expected Credit Loss accounting standard (“CECL”), or ASC 326, on January 1, 2020, 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.

Actual Minimum Required for Capital Adequacy Purposes For Capital Adequacy Purposes Plus Capital Conservation Buffer Minimum to Be Well Capitalized Under Prompt Corrective Action Requirements(1)
December 31, 2019 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total risk-based capital:
Consolidated $ 1,495.3 14.10 % $ 848.5 8.00 % $ 1,113.6 10.50 % $ 1,060.6 10.00 %
FIB 1,321.4 12.50 845.8 8.00 1,110.1 10.50 1,057.2 10.00
Tier 1 risk-based capital:
Consolidated 1,422.3 13.41 636.3 6.00 901.5 8.50 848.5 8.00
FIB 1,248.4 11.81 634.3 6.00 898.6 8.50 845.8 8.00
Common equity tier 1 risk-based capital:
Consolidated 1,338.2 12.62 477.3 4.50 742.4 7.00 689.4 6.50
FIB 1,248.4 11.81 475.7 4.50 740.0 7.00 687.2 6.50
Leverage capital ratio:
Consolidated 1,422.3 10.13 561.6 4.00 561.6 4.00 702.0 5.00
FIB 1,248.4 8.91 560.4 4.00 560.4 4.00 700.4 5.00

~~(11)~~(9) Commitments and Contingencies

In the normal course of business, the Company is involved in various ~~other~~ claims and litigation. The Company establishes accruals for legal matters when potential losses associated with the actions become probable and the amount of loss can be reasonably estimated. There is no assurance that the ultimate resolution of these matters will not significantly exceed the amounts that the Company has accrued. Accruals for legal matters are based on management’s best judgment after consultation with counsel and others. In the opinion of management, following consultation with legal counsel, the ultimate liability or disposition ~~thereof~~ of all ~~other~~such 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, ~~2020,~~2021, the Company had commitments under construction contracts of ~~$10.6~~$3.3 million.

Residential mortgage loans sold to investors in the secondary market are sold with varying recourse provisions. Essentially all 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 ~~$1.1~~$0.4 million of sold residential mortgage loans with recourse provisions still in effect as of September 30, ~~2020.~~2021.

On September 16, 2021, the Company entered into a definitive agreement to acquire all of the outstanding stock of Great Western Bancorp, Inc. (“Great Western”), the parent company of Great Western Bank (“GWB”), a Sioux Falls, South Dakota based community bank with 174 banking offices across Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota, in an all-stock transaction where each outstanding share of Great Western will convert into the right to receive 0.8425 shares of the Company's Class A common stock in an all-stock transaction valued at approximately $2.0 billion in aggregate based on the closing price of the Company’s Class A common stock on September 15, 2021. The transaction has been approved by the boards of directors of both companies and is expected to close in the first quarter of 2022 and to convert data processing systems in the second quarter of 2022, subject to customary conditions, including regulatory and shareholder approvals.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)

~~(12)~~(10) Financial Instruments with Off-Balance Sheet Risk

~~The~~In the normal course of business, 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 clients. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recorded in the consolidated balance sheets. Commitments to extend credit are agreements to lend to a client 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. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third party. The credit risk involved in issuing letters of credit is essentially the same as the credit risk involved in extending loan facilities to clients. The Company’s policy for obtaining collateral, and determining the nature of such collateral, is essentially the same as in the Company’s policies for making commitments to extend credit. The estimated fair value of the obligation undertaken by the Company in issuing standby letters of credit is included in accounts payable and accrued expenses in the Company’s consolidated balance sheets.

The following table presents our financial instruments with off-balance sheet risk, as well as the activity in the allowance for off-balance sheet credit losses related to those financial instruments:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Beginning balance	Beginning balance	$	2.3	$	0	$	0	$	0	Beginning balance	$	3.4	$	2.3	$	3.7	$	—
Initial impact of adopting ASC 326	Initial impact of adopting ASC 326	0		0		2.3		0		Initial impact of adopting ASC 326	—		—		—		2.3
Provision for credit loss expense		1.2		0		1.2		0
Provision for (reversal of) credit loss expense										Provision for (reversal of) credit loss expense	(0.2)		1.2		(0.5)		1.2
Ending balance of allowance for off-balance sheet credit losses	Ending balance of allowance for off-balance sheet credit losses	$	3.5	$	0	$	3.5	$	0	Ending balance of allowance for off-balance sheet credit losses	$	3.2	$	3.5	$	3.2	$	3.5

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 credit 58.8 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.


	September 30, 2021		December 31, 2020
Unused credit card lines	$	682.5	$	682.8
Commitments to extend credit	2,558.6		2,280.0
Standby letter of credit	59.8		59.0

~~(13)~~(11) Other Comprehensive Income/Loss

The gross amounts of each component of other comprehensive income and the related tax effects are as follows:


		Pre-tax				Tax Expense (Benefit)				Net of Tax					Pre-tax				Tax Expense (Benefit)				Net of Tax
Three Months Ended September 30,	Three Months Ended September 30,	2020		2019		2020		2019		2020		2019		Three Months Ended September 30,	2021		2020		2021		2020		2021		2020
Investment securities available-for sale:	Investment securities available-for sale:													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)
Change in net unrealized loss during period														Change in net unrealized loss during period	$	(13.4)	$	(4.2)	$	(3.3)	$	(1.1)	$	(10.1)	$	(3.1)
Reclassification adjustment for net gain included in net income														Reclassification adjustment for net gain included in net income	(0.3)		(0.1)		(0.1)		—		(0.2)		(0.1)

Net change in unamortized gains on available-for-sale securities transferred into held-to-maturity														Net change in unamortized gains on available-for-sale securities transferred into held-to-maturity	(2.5)		—		(0.6)		—		(1.9)		—
Unrealized loss on derivatives														Unrealized loss on derivatives	3.2		—		0.8		—		2.4		—

Defined benefits post-retirement benefit plan:	Defined benefits post-retirement benefit plan:													Defined benefits post-retirement benefit plan:
Change in net actuarial gains	Change in net actuarial gains	(0.1)		(0.2)		0		—		(0.1)		(0.2)		Change in net actuarial gains	—		(0.1)		—		—		—		(0.1)
Total other comprehensive (loss) income	Total other comprehensive (loss) income	$	(4.4)	$	3.9	$	(1.1)	$	1.0	$	(3.3)	$	2.9	Total other comprehensive (loss) income	$	(13.0)	$	(4.4)	$	(3.2)	$	(1.1)	$	(9.8)	$	(3.3)

Pre-tax Tax Expense (Benefit) Net of Tax
Nine Months Ended September 30, 2020 2019 2020 2019 2020 2019
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-sale 0 (6.0) 0 (1.6) 0 (4.4)
Unrealized loss on derivatives 0.2 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

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)



	Pre-tax				Tax Expense (Benefit)				Net of Tax
Nine Months Ended September 30,	2021		2020		2021		2020		2021		2020
Investment securities available-for sale:
Change in net unrealized (loss) gains during period	$	(81.0)	$	69.9	$	(20.5)	$	18.7	$	(60.5)	$	51.2
Reclassification adjustment for net gain included in net income	(0.2)		(0.1)		(0.1)		—		(0.1)		(0.1)

Net change in unamortized gains on available-for-sale securities transferred into held-to-maturity	22.3		—		5.7		—		16.6		—
Unrealized loss on derivatives	2.3		0.2		0.6		—		1.7		0.2

Defined benefits post-retirement benefit plan:
Change in net actuarial gains	—		(0.5)		—		(0.1)		—		(0.4)
Total other comprehensive (loss) income	$	(56.6)	$	69.5	$	(14.3)	$	18.6	$	(42.3)	$	50.9

The components of accumulated other comprehensive income, net of related tax effects, are as follows:

September 30, 2020 December 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 plans 0 0.4
Net accumulated other comprehensive gains $ 61.9 $ 11.0


	September 30, 2021		December 31, 2020
Net unrealized (loss) gain on investment securities available-for-sale	$	(4.0)	$	56.8
Net unrealized gain on investment securities transferred to held-to-maturity	16.6		—
Net unrealized gain (loss) on derivatives	1.7		(0.2)

Net accumulated other comprehensive gains	$	14.3	$	56.6

~~(14)~~(12) 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~~2021 and ~~2019.~~2020.

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 0no transfers between fair value hierarchy levels during the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

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.

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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)

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.

~~Table of Contents~~

~~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 three-month LIBOR forward curve to estimate variable rate cash inflows and the federal funds effective swap rate to estimate the discount rate. The estimated variable rate cash inflows are compared to the fixed rate outflows and such difference is discounted to a present value to estimate the fair value of the interest rate swaps. The change in the value of derivative assets attributable to basis risk, or the risk that offsetting investments in a hedging strategy will not experience price changes in entirely opposite directions from each other, was not significant in the reported periods. The Company also obtains and compares the reasonableness of the pricing from an independent third party.

For purposes of potential valuation adjustments to our derivative positions, we evaluate the credit risk of our counterparties as well as ours. Accordingly, we have considered factors such as the likelihood of our default and the default of our counterparties, our net exposures and remaining contractual life, among other things, in determining if any fair value adjustments related to credit risk are required. The change in value of derivative assets and derivative liabilities attributable to credit risk was not significant during the reported periods.

Interest Rate Lock Commitments. Fair value measurements for interest rate lock commitments are obtained from an independent pricing service. The fair value measurements consider observable data that may include prices available from secondary market investors taking into consideration various characteristics of the loan, including the loan amount, interest rate, value of the servicing, and loan to value ratio, among other things. Observable data is then adjusted to reflect changes in interest rates, the Company’s estimated pull-through rate, and estimated direct costs necessary to complete the commitment into a closed loan net of origination and processing fees collected from the borrower.

Forward Loan Sales Contracts. The fair value measurements for forward loan sales contracts are obtained from an independent pricing service. The fair value measurements consider observable data that includes sales of similar loans.

Deferred Compensation Plan Assets and Liabilities. The fair values of deferred compensation plan assets and liabilities are based primarily on the use of independent, market-based data to reflect a value that would be reasonably expected in an orderly transaction between market participants at the measurement date. These investments are in the same funds and purchased in the same amounts as the participants’ selected investments, which represent the underlying liabilities to plan participants. Deferred compensation plan liabilities are recorded at amounts due to participants, based on the fair value of participants’ selected investments.

Financial assets and financial liabilities measured at fair value on a recurring basis are as follows:

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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)

~~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, 2021	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment debt securities available-for-sale:
U.S. Treasury notes	$	691.8	$	—	$	691.8	$	—
State, county, and municipal securities	439.9			—	439.9			—
Obligations of U.S. government agencies	325.9			—	325.9			—
U.S. agencies mortgage-backed securities & collateralized mortgage obligations	2,031.3			—	2,031.3			—
Private mortgage-backed securities	83.5			—	83.5			—
Collateralized loan obligations	453.0			—	453.0			—
Corporate securities	378.2			—	378.2			—

Loans held for sale	42.5			—	42.5			—
Derivative assets:
Interest rate swap contracts	30.1			—	30.1			—
Interest rate lock commitments	3.1			—	3.1			—
Forward loan sale contracts	0.9			—	0.9			—
Derivative liabilities:
Interest rate swap contracts	21.1			—	21.1			—

Deferred compensation plan assets	21.6			—	21.6			—
Deferred compensation plan liabilities	21.6			—	21.6			—

Fair Value Measurements at Reporting Date Using
As of September 30, 2020 Balance Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Investment debt securities available-for-sale:
U.S. Treasury Notes $ 8.0 $ 0 $ 8.0 $ 0
State, county and municipal securities 236.1 0 236.1 0
Obligations of U.S. government agencies 278.8 0 278.8 0
U.S. agencies mortgage-backed securities & collateralized mortgage obligations 2,611.7 0 2,611.7 0
Private mortgage-backed securities 20.1 0 20.1 0
Corporate securities 297.8 0 297.8 0
Other investments 1.0 0 1.0 0
Loans held for sale 102.0 0 102.0 0
Derivative assets:
Interest rate swap contracts 61.3 0 61.3 0
Interest rate lock commitments 7.0 0 7.0 0
Derivative liabilities:
Interest rate swap contracts 61.5 0 61.5 0
Forward loan sale contracts 1.6 0 1.6 0
Deferred compensation plan assets 18.9 0 18.9 0
Deferred compensation plan liabilities 18.9 0 18.9 0

Fair Value Measurements at Reporting Date Using
As of December 31, 2019 Balance Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Investment debt securities available-for-sale:
U.S. Treasury notes $ 9.0 $ 0 $ 9.0 $ 0
State, county and municipal securities 80.9 0 80.9 0
Obligations of U.S. government agencies 366.8 0 366.8 0
U.S. agencies mortgage-backed securities & collateralized mortgage obligations 2,317.2 0 2,317.2 0
Private mortgage-backed securities 47.2 0 47.2 0
Corporate securities 135.7 0 135.7 0
Other investments 3.2 0 3.2 0
Loans held for sale 100.9 0 100.9 0
Derivative assets:
Interest rate swap contracts 21.9 0 21.9 0
Interest rate lock commitments 1.3 0 1.3 0
Derivative liabilities
Interest rate swap contracts 21.9 0 21.9 0
Forward loan sales contracts 0.3 0 0.3 0
Deferred compensation plan assets 18.2 0 18.2 0
Deferred compensation plan liabilities 18.2 0 18.2 0

~~Table of Contents~~

~~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, 2020	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Investment debt securities available-for-sale:

State, county and municipal securities	$	465.9	$	—	465.9	$	—
Obligations of U.S. government agencies	331.9			—	331.9		—
U.S. agencies mortgage-backed securities & collateralized mortgage obligations	2,897.6			—	2,897.6		—
Private mortgage-backed securities	10.9			—	10.9		—
Corporate securities	302.2			—	302.2		—
Other investments	0.2			—	0.2		—
Loans held for sale	74.0			—	74.0		—
Derivative assets:
Interest rate swap contracts	52.0			—	52.0		—
Interest rate lock commitments	3.3			—	3.3		—

Derivative liabilities
Interest rate swap contracts	16.8			—	16.8		—
Forward loan sales contracts	1.1			—	1.1		—
Deferred compensation plan assets	19.1			—	19.1		—
Deferred compensation plan liabilities	19.1			—	19.1		—

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 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, 2020 Balance Quoted 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 owned 1.1 0 0 1.1
Long-lived assets to be disposed of by sale 5.0 0 0 5.0
Fair Value Measurements at Reporting Date Using
As of December 31, 2019 Balance Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Impaired Loans* $ 27.6 $ 0 $ 0 $ 27.6
Other real estate owned 2.2 0 0 2.2
Long-lived assets to be disposed of by sale 6.2 0 0 6.2
*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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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)


				Fair Value Measurements at Reporting Date Using
As of September 30, 2021	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Collateral dependent loans	$	12.5	$	—	$	—	$	12.5

Long-lived assets to be disposed of by sale	3.2			—		—	3.2

				Fair Value Measurements at Reporting Date Using
As of December 31, 2020	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Collateral dependent loans	$	14.7	$	—	$	—	$	14.7

Long-lived assets to be disposed of by sale	5.3			—		—	5.3

Collateral-dependent Loans. Collateral-dependent loans are reported at the fair value of the underlying collateral if repayment is expected solely from collateral. The collateral-dependent loans are reported at fair value through specific valuation allowance allocations. In addition, when it is determined that the fair value of a 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 credit losses. Collateral values are estimated using independent appraisals and management estimates of current market conditions. As of September 30, ~~2020,~~2021, certain ~~collateral dependent~~collateral-dependent loans with a carrying value of ~~$16.0~~$13.2 million were reduced by specific valuation allowance allocations of ~~$4.6~~$0.7 million ~~with 0 material loan charge-offs~~ resulting in a reported fair value of ~~$11.4~~$12.5 million. As of December 31, ~~2019,~~2020, certain ~~impaired~~collateral-dependent loans with a carrying value of ~~$41.3~~$17.5 million were reduced by specific valuation allowance allocations of ~~$3.6 million and partial loan charge-offs of $10.1~~$2.8 million resulting in a reported fair value of ~~$27.6~~$14.7 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 credit 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 of~~no material write downs on OREO properties during the nine months ended September 30, 2021 and 2020, ~~and 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, 2021, the Company had long-lived assets to be disposed of by sale with carrying and fair values aggregating $3.2 million. As of December 31, 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 $6.4$5.5 million, reduced by write-downs of $0.2 million, resulting in a fair value of ~~$6.2~~$5.3 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)~~

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											Fair Value As of
		September 30, 2020		December 31, 2019		Valuation Technique	Unobservable Inputs	Range (Weighted Average)					September 30, 2021		December 31, 2020		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Collateral dependent loans	Collateral dependent loans	$	11.4	$	27.6	Appraisal	Appraisal adjustment	0%	-	56%	(22%)	Collateral dependent loans	$	12.5	$	14.7	Appraisal	Appraisal adjustment	0%	-	18%	(9%)
Other real estate owned		1.1		2.2		Appraisal	Appraisal adjustment	8%	-	65%	(27%)

Long-lived assets to be disposed of by sale	Long-lived assets to be disposed of by sale	5.0		6.2		Appraisal	Appraisal adjustment	0%	-	37%	(3%)	Long-lived assets to be disposed of by sale	3.2		5.3		Appraisal	Appraisal adjustment	0%	-	0%

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.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)

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.

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 that are currently offered for deposits ~~with~~that have 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-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~~that have 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.

The estimated fair values of financial instruments that are reported in the Company’s consolidated balance sheets, and are segregated by the level of the valuation inputs within the fair value hierarchy that are utilized to measure fair value, are as follows:


					Fair Value Measurements at Reporting Date Using
As of September 30, 2021	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	2,233.5	$	2,233.5	$	2,233.5	$	—	$	—
Investment debt securities available-for-sale	4,403.6		4,403.6		—		4,403.6		—
Investment debt securities held-to-maturity	1,618.1		1,632.5		—		1,632.5		—
Accrued interest receivable	52.9		52.9		—		52.9		—
Mortgage servicing rights, net	27.0		27.4		—		27.4		—
Loans held for sale	42.5		42.5		—		42.5		—
Net loans held for investment	9,487.4		9,587.1		—		9,574.6		12.5
Derivative assets	34.1		34.1		—		34.1		—
Deferred compensation plan assets	21.6		21.6		—		21.6		—
Total financial assets	$	17,920.7	$	18,035.2	$	2,233.5	$	15,789.2	$	12.5

Financial liabilities:
Total deposits, excluding time deposits	$	15,019.3	$	15,019.3	$	15,019.3	$	—	$	—
Time deposits	988.0		987.3		—		987.3		—
Securities sold under repurchase agreements	1,007.5		1,007.5		—		1,007.5		—

Accrued interest payable	6.6		6.6		—		6.6		—
Long-term debt	112.4		121.5		—		121.5		—
Subordinated debentures held by subsidiary trusts	87.0		83.9		—		83.9		—
Derivative liabilities	21.1		21.1		—		21.1		—
Deferred compensation plan liabilities	21.6		21.6		—		21.6		—
Total financial liabilities	$	17,263.5	$	17,268.8	$	15,019.3	$	2,249.5	$	—

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(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
As of September 30, 2020 Carrying Amount Estimated
Fair Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Financial assets:
Cash and cash equivalents $ 1,860.6 $ 1,860.6 $ 1,860.6 $ 0 $ 0
Investment debt securities available-for-sale 3,453.5 3,453.5 0 3,453.5 0
Investment debt securities held-to-maturity 55.0 58.4 0 58.4 0
Accrued interest receivable 56.7 56.7 0 56.7 0
Mortgage servicing rights, net 24.1 24.1 0 24.1 0
Loans held for sale 102.0 102.0 0 102.0 0
Net loans held for investment 10,006.7 9,927.4 0 9,916.0 11.4
Derivative assets 68.3 68.3 0 68.3 0
Deferred compensation plan assets 18.9 18.9 0 18.9 0
Total financial assets $ 15,645.8 $ 15,569.9 $ 1,860.6 $ 13,697.9 $ 11.4
Financial liabilities:
Total deposits, excluding time deposits $ 12,770.3 $ 12,770.3 $ 12,770.3 $ 0 $ 0
Time deposits 1,112.1 1,115.4 0 1,115.4 0
Securities sold under repurchase agreements 820.3 820.3 0 820.3 0
Accrued interest payable 8.1 8.1 0 8.1 0
Long-term debt 112.4 111.6 0 111.6 0
Subordinated debentures held by subsidiary trusts 87.0 82.0 0 82.0 0
Derivative liabilities 63.1 63.1 0 63.1 0
Deferred compensation plan liabilities 18.9 18.9 0 18.9 0
Total financial liabilities $ 14,992.2 $ 14,989.7 $ 12,770.3 $ 2,219.4 $ 0

~~Table of Contents~~

~~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											Fair Value Measurements at Reporting Date Using
As of December 31, 2019		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of December 31, 2020												As of December 31, 2020	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,076.8	$	1,076.8	$	1,076.8	$	0	$	0	Cash and cash equivalents	$	2,276.8	$	2,276.8	$	2,276.8	$	—	$	—
Investment debt securities available-for-sale	Investment debt securities available-for-sale	2,960.0		2,960.0		0		2,960.0		0		Investment debt securities available-for-sale	4,008.7		4,008.7		—		4,008.7		—
Investment debt securities held-to-maturity	Investment debt securities held-to-maturity	92.3		94.5		0		94.5		0		Investment debt securities held-to-maturity	51.6		55.0		—		55.0		—
Accrued interest receivable	Accrued interest receivable	46.7		46.7		0		46.7		0		Accrued interest receivable	51.1		51.1		—		51.1		—
Mortgage servicing rights, net	Mortgage servicing rights, net	30.2		34.8		0		34.8		0		Mortgage servicing rights, net	24.0		24.0		—		24.0		—
Loans held for sale	Loans held for sale	100.9		100.9		0		100.9		0		Loans held for sale	74.0		74.0		—		74.0		—
Net loans held for investment	Net loans held for investment	8,857.7		8,930.7		0		8,906.7		24.0		Net loans held for investment	9,663.2		9,785.6		—		9,770.9		14.7
Derivative assets	Derivative assets	23.2		23.2		0		23.2		0		Derivative assets	55.3		55.3		—		55.3		—
Deferred compensation plan assets	Deferred compensation plan assets	18.2		18.2		0		18.2		0		Deferred compensation plan assets	19.1		19.1		—		19.1		—
Total financial assets	Total financial assets	$	13,206.0	$	13,285.8	$	1,076.8	$	12,185.0	$	24.0	Total financial assets	$	16,223.8	$	16,349.6	$	2,276.8	$	14,058.1	$	14.7

Financial liabilities:	Financial liabilities:											Financial liabilities:
Total deposits, excluding time deposits	Total deposits, excluding time deposits	$	10,213.5	$	10,213.5	$	10,213.5	$	0	$	0	Total deposits, excluding time deposits	$	13,158.3	$	13,158.3	$	13,158.3	$	—	$	—
Time deposits	Time deposits	1,450.0		1,446.6		0		1,446.6		0		Time deposits	1,058.7		1,061.1		—		1,061.1		—
Securities sold under repurchase agreements	Securities sold under repurchase agreements	697.6		697.6		0		697.6		0		Securities sold under repurchase agreements	1,091.4		1,091.4		—		1,091.4		—

Accrued interest payable	Accrued interest payable	12.1		12.1		0		12.1		0		Accrued interest payable	5.8		5.8		—		5.8		—
Long-term debt	Long-term debt	13.9		10.4		0		10.4		0		Long-term debt	112.4		116.5		—		116.5		—
Subordinated debentures held by subsidiary trusts	Subordinated debentures held by subsidiary trusts	86.9		81.3		0		81.3		0		Subordinated debentures held by subsidiary trusts	87.0		81.3		—		81.3		—
Derivative liabilities	Derivative liabilities	22.2		22.2		0		22.2		0		Derivative liabilities	17.9		17.9		—		17.9		—
Deferred compensation plan liabilities	Deferred compensation plan liabilities	18.2		18.2		0		18.2		0		Deferred compensation plan liabilities	19.1		19.1		—		19.1		—
Total financial liabilities	Total financial liabilities	$	12,514.4	$	12,501.9	$	10,213.5	$	2,288.4	$	0	Total financial liabilities	$	15,550.6	$	15,551.4	$	13,158.3	$	2,393.1	$	—

~~(15)~~ ~~Long-Term Debt~~

In May 2020, the Company issued $100.0 million of subordinated notes due May 15, 2030. The subordinated notes were issued with a fixed-to-floating rate of 5.25% and an effective rate of 5.33%, due to issuance costs.

~~(16)~~(13) Recent Authoritative Accounting Guidance

~~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. A prospective transition approach is required for debt securities for which other-than-temporary impairment was recognized before the effective date.

~~Table of Contents~~

~~FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in millions, except share and per share data)~~

On January 1, 2020, the Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. The adoption of ASU 2016-13 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, 2020. The transition adjustment included 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, 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 reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. The remaining discount on the PCD assets was determined to be related to noncredit factors and will be accreted into interest income on a level-yield method over the life of the loans.

The Company has elected to opt into the transition election to mitigate the effects of ASC 326 on the regulatory capital ratios relative to recent legislation in relief of COVID‑19 pandemic on the economy and 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 COVID‑19. Refer to “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. The amendments in this Update became effective for the Company on January 1, 2020, and as the amendment is a revision to the disclosure requirements did not have a significant impact on the Company’s consolidated financial statements, 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~~ASU remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements that have been identified as ~~relevant.~~meeting the requirements. 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 the concepts discussed in the Concepts Statement. The amendments in this ~~Update~~ASU are effective for public business entities with fiscal years ending after December 15, ~~2020,~~2020. The amendments in this ASU became effective 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~~on January 1, 2021 and did not have ~~an immaterial~~a significant impact on ~~our~~the Company’s consolidated financial statements, ~~disclosures.~~

results of operations, or liquidity.

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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.2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Accounting.”In ~~August 2018,~~March 2020, the FASB issued ASU ~~2018-15, Intangibles-Goodwill~~2020-04, which provides temporary exceptions that are optional for applying GAAP to loan and ~~Other- Internal-Use Software (Subtopic 350-40).~~lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate, with such modification considered to be "minor" so that any existing unamortized origination fees/costs will carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications will not be accounted for as separate contracts. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. The Company adopted certain elections related to cash flow hedges which did not have a significant impact on the Company’s financial position or results of operations. The Company is currently evaluating the impact of the adoption of other expedients in the standard and does not anticipate it will have a significant impact on the Company’s financial position or results of operations.

ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs.” In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs, that clarifies when an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. 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, and interim periods within those fiscal years, beginning after December 15, ~~2019, for public business entities.~~2020. The amendments in this ~~Update~~ASU became effective for the Company on January 1, ~~2020~~2021 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.~~2021-01, “Reference Rate Reform (Topic 848)” In ~~April 2019,~~January 2021, the FASB issued ASU ~~2019-04, Codification Improvements to~~2021-01, Reference Rate Reform Topic ~~326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,~~848, that clarifies certain exceptions that are optional in Topic 848 for contract modifications and ~~improves areas~~hedge accounting and apply those exceptions to derivatives that are affected by the discounting transition. An entity may elect to apply the amendments in this ASU on a full retrospective basis as of ~~guidance related~~any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the ~~recently issued standards on credit losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and measurement~~date of ~~financial instruments (ASU 2016-01). The amendments generally have~~ the ~~same effective dates as their related standards.~~issuance of a final ASU. If ~~already adopted,~~an entity elects to apply any of the amendments in this ASU for an eligible hedging relationship, any adjustments as a result 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~~those elections must be reflected as of the ~~beginning~~date the entity applies the election. The amendments in this ASU do not apply to contract modifications made, new hedging relationships entered into, or existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain exceptions that are optional in which the accounting effects of the ~~Company’s next annual reporting period; early adoption is permitted.~~hedging activity are recorded through the end of the hedging relationship (including periods after December 31, 2022). The Company ~~previously adopted both ASU 2017-12~~is currently evaluating the impact of the standard and ~~ASU 2016-01 and~~does not anticipate it will have a significant impact on the ~~amendments~~Company’s financial position or results of ~~ASU 2019-04 became effective upon adoption of ASU 2016-13.~~

operations.

~~(17)~~(14) Subsequent Events

Subsequent events have been evaluated for potential recognition and disclosure through the date the Company’s financial statements were filed with the SEC. On October ~~26, 2020,~~25, 2021, the Company declared a quarterly dividend to common shareholders of ~~$0.38~~$0.41 per share, to be paid on November ~~16, 2020~~18, 2021 to shareholders of record as of November ~~6, 2020.~~

8, 2021.

No other undisclosed events requiring recognition or disclosure were identified.

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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, 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”~~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 only First Interstate Bank.

The following discussion of our consolidated financial data reflects our historical results of operations and financial condition and should be read in conjunction with our financial statements and related notes thereto presented elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2020, including the audited financial statements and related notes contained therein, as previously filed with the Securities and Exchange Commission, or SEC.

Cautionary Note Regarding Forward-Looking Statements and Factors that Could Affect Future Results

~~“Forward-looking statements” are~~This Quarterly Report on Form 10-Q contains forward-looking 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, or the Exchange Act, 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,” “views,” “continues” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” ~~“may”~~“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,~~A detailed discussion of risks that may cause actual results to differ materially from current expectations in the forward-looking statements ~~including those set forth~~is included below in this ~~report: political, legal, regulatory,~~report under the caption “Risk Factors” 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 clients’ business); actions taken by the Board of Governors of the Federal Reserve including changes in the interest rate environment or interest rate changes and other changes to monetary policy; the effect of the various actions taken by the US or local government in response to the COVID-19 pandemic; credit performance of our loan portfolio; adequacy of the allowance for credit 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 our 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; regulatory actions related to, and interpretations of, risk-based capital 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 a failure or breach of our operational or security systems or infrastructure, that could adversely affect our business, financial performance and 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 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 acquisitions or achieve expected costs savings or revenue growth associated with 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 our common stock; decline in market price and volatility of our 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 our indebtedness.

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~~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, ~~2019.~~2020, under the captions “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors”. These factors and the other risk factors described in ~~the Company’s~~our 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~~our actual results, performance, or achievements to differ materially from those expressed in or implied by any of ~~the Company’s~~our forward-looking statements. Other unknown or unpredictable factors also could harm ~~the Company’s~~our 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, 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 our periodic reports filed with the SEC under the Securities Exchange Act of 1934, as amended, under the caption “Risk Factors.”~~above. Interested parties are urged to read in their entirety ~~such~~the referenced risk factors prior to making any investment decision 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.~~law. 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~~focused on community banking. Since our incorporation in Montana ~~corporation~~ in 1971, we have grown both organically 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, 2020,~~through strategic acquisitions. Today, we ~~had consolidated assets of $17.1 billion, deposits of $13.9 billion, loans of $10.3 billion, and total stockholders’ equity of $2.0 billion. We currently~~ operate ~~150~~147 banking offices, including detached drive-up facilities, in communities across six states—Idaho, Montana, Oregon, South Dakota, Washington, and ~~Wyoming in addition to internet and mobile banking services.~~Wyoming. Through our bank subsidiary, ~~FIB,~~First Interstate Bank, we deliver a comprehensive range of banking products and ~~services~~ services—including online and mobile banking—to individuals, businesses, municipalities, and ~~other entities~~others throughout our market areas. ~~Our~~We are proud to provide lending opportunities to clients that participate in a wide variety of industries, ~~including agriculture, construction, education, energy, governmental services, healthcare, mining, professional services, retail, technology, tourism, and wholesale trade.~~including:

~~Our Business~~

•Agriculture

•Governmental services

•Professional services

•Tourism

•Construction

•Healthcare

•Real Estate Development

•Wholesale trade

•Education

•Hospitality

•Retail

•Energy

•Housing

•Technology

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 fixed income investments.

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We also derive income from non-interest sources such asas: (i) fees received in connection with various lending and deposit services; (ii) wealth management services, such as trust, employee benefit, investment, and insurance services; (iii) mortgage loan originations, sales and servicing; (iv) merchant and electronic banking services; and (v) from time-to-time, gains on sales of ~~assets.~~ assets and securities.

Our principal expenses ~~include~~include: (i) interest expense on deposits accounts and ~~borrowings, operating~~other borrowings; (ii) salaries and employee benefits; (iii) data processing and communication costs primarily associated with maintaining loan and deposit functions; (iv) furniture, equipment, and occupancy expenses for maintaining our facilities; (v) professional fees, including FDIC insurance assessments; (vi) income tax expense; (vii) provisions for credit ~~losses,~~losses; (viii) core deposit intangible amortization; 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(ix) other real estate ~~loans. Fluctuations in the loan portfolio are directly~~owned expenses. We also incur acquisition costs from time to time related to ~~the economies of the communities we serve. While each loan originated must meet minimum underwriting standards established in~~ our credit policies, bankers 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 clients, generally without utilizing brokered deposits and with minimal reliance on wholesale funding sources. strategic acquisitions.

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 continue to evaluate bank acquisitions and other strategic opportunities on an on-going basis. ~~The Company adopted CECL on January 1, 2020.~~

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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~~On September 15, 2021, the Company ~~participates. Designed~~entered into a definitive agreement 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 two-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 suspend 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%acquire all of the outstanding ~~balance had made~~stock of Great Western, the parent company of GWB, a ~~payment within~~Sioux Falls, South Dakota based community bank with 174 banking offices across Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota, in an all-stock transaction where each outstanding share of Great Western will convert into the ~~period. Additionally, as~~right to receive 0.8425 shares of ~~October 30, 2020,~~ the ~~Company currently has forbearance requests granted~~Company's Class A common stock in an all-stock transaction valued at approximately $2.0 billion in aggregate based on ~~approximately 28 residential mortgage loans totaling $6.6 million.~~

the closing price of the Company’s Class A common stock on September 15, 2021. The ~~COVID-19 pandemic triggered a period of material global economic slowdown and recent trends suggest that, while the ongoing recovery is progressing, the pace~~transaction has been ~~impacted~~approved by ~~changing rates~~the boards of ~~positive diagnoses~~directors of both companies and ~~additional measures by U.S.~~is expected to close in the first quarter of 2022 and ~~local governments~~convert data processing systems in the second quarter of 2022, subject to ~~manage developments. Management continues to actively work to minimize the current~~customary conditions, including regulatory 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 extent to which COVID-19 impacts the Company’s financial results remains fluid and will continue to depend on a number of things including 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, 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 virus, any possible resurgence of the COVID-19 virus after the initial outbreak, and other factors.shareholder approvals.

Management continues to monitor the impact of COVID-19 on the Company’s financial results. ~~The~~Over the past year, the COVID-19 pandemic has affected our operations ~~and~~to a limited degree, although it has had varying degrees of disruptions and restrictions toon our borrowers and to our borrowers’ ~~supply chains, closures of some facilities,~~operations, staffing, and ~~decreases in~~ demand for certain products and services. ~~Recent increases~~COVID-19 has severely disrupted supply chains and adversely affected production, demand, sales, and employee productivity across a range of industries, including those of our borrowers. With the wide-spread distribution of the COVID-19 vaccines, and the United States moving beyond the most acute phases of the pandemic into recovery, our branches and drive-ups are functioning at normal operating hours and are adequately staffed. While 33% of our back-office staff continue to work from home, the majority of the back-office employees are back in the office. Although the impact of the COVID-19 vaccines initially resulted in success in reducing the spread of COVID-19 within the United States, the Delta variant has increased the spread of COVID-19 in multiple regions across the United States at varying times to peak pandemic levels. This has resulted in a return of mask mandates and other emergency measures in certain regions of the United States. To date, such measures have ~~signaled that~~not been re-enacted in regions where the Company operates. The Company is monitoring this resurgence and its potential impact on the Company’s operations and remains poised to change course should conditions require. As such, the scope, duration, and severity of the pandemic is not yet fully known. As a result, even with a burgeoning recovery, there continues to be some uncertainty as to the long-term effect on the economy and the Company.

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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~~performance and the financial condition and performance of comparable banking institutions in our region and nationally.

~~Results of Operations~~

~~Principal tools we use~~As discussed in ~~managing and evaluating~~ our ~~results of operations include tracking~~Annual Report on Form 10-K for the year ended December 31, 2020, our financial 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~~impacted by a number of external factors ~~such~~outside our control, as well as our ability to execute on the ~~level~~key components of ~~interest rates, changes in interest rates,~~our strategy for continued success and ~~changes in~~future growth. See Part II – Other Information “Item 1A – Risk Factors” for an update of the volume and composition of interest earning assets and interest-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. Otherrisk factors ~~like volume of loans, investment securities, and other interest earning assets, compared to the volume of interest-bearing deposits and indebtedness, also cause changes~~disclosed in our ~~net interest income between periods. Non-interest-bearing sources of funds, such as demand deposits and stockholders’ equity, help support earning assets.~~

~~The impact of funding, including non-interest-bearing deposit sources, is captured in~~Annual Report on Form 10-K for 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 client 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~~

We manage and evaluate our financial condition by focusing on liquidity, the diversification and quality of our loans, the adequacy of our allowance for credit 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 credit 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 credit 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 client 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.year ended December 31, 2020.

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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, ~~2019.~~

~~Our~~2020, as referenced in Note 1 to the unaudited financials in this quarterly report. There have been no material changes in 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 Credit Losses~~

The allowance for credit losses is a valuation account that creates an allowance for credit losses expected over the life of the loans at each balance sheet 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 credit losses represents management’s estimate of expected credit losses in the loan 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 that does not share common risk characteristics with other loans. Based on this analysis, we record a provision for credit losses in order to maintain the allowance for credit losses at appropriate levels. In determining the allowance for credit losses, management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such 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.

For non-PCD loans acquired in a business combination 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 through net income as credit loss expense. Decreases in the allowance are recorded through net income as a reversal of credit loss 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 maintained at an amount we believe is sufficient to provide for estimated losses expected over the life of the loans at each balance sheet date resulting from management’s assessment of the quantitative and qualitative factors utilized to determine the allowance for credit losses. Management monitors qualitative and quantitative trends in the loan portfolio, including changes in the levels of past due, internally classified, and non-performing loans. Changes in the 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.

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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 January 1, 2020, general allowances and nonspecific allowances were based on incurred credit losses. Note 1 of the “Notes to Unaudited Consolidated Financial Statements” included in Part I, Item 1 of this report describes the methodology used to determine the allowance for credit 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 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 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 to the Consolidated Financial Statements”described in our Annual Report on Form 10-K for the year ended December 31, ~~2019 describes~~2020, during the quarterly period covered by this quarterly report.

The preparation of financial statements in conformity with GAAP requires management to measure the company’s financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on our ~~accounting policy with regard~~operations is reflected in increased operating expenses. Management considers changes in interest rates to ~~goodwill.~~

~~Our annual goodwill impairment test is performed each year as~~impact our financial condition and results of ~~July 1~~st~~. Upon~~operations to a far greater degree than changes in prices due to inflation. Although interest rates are greatly influenced by changes in the ~~most recent goodwill impairment qualitative assessment,~~inflation rate, they do not necessarily change at the ~~Company determined its goodwill was not considered impaired. We will continue to monitor our performance and~~same rate or in the ~~economic conditions within our market, the U.S., and worldwide,~~same magnitude as the ~~impact of~~inflation rate. We manage our interest rate risk in several ways. Refer to “Note – Derivatives and Hedging Activities” in 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 with evidence of deterioration in credit quality since origination, or PCD loans, are accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 326-20 “Financial instruments - credit losses.” 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. 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 using the interest method in accordance with ASC 310-10. Subsequent changes to the allowance for credit losses are recorded through provision expense using the same methodology as other loans held for investment. Note 1 of theaccompanying “Notes to Unaudited Consolidated Financial Statements” ~~included~~for further discussion on how we manage interest rate risk. There can be no assurance that we will not be materially adversely affected by future changes in ~~Part I, Item 1 of this report describes~~interest rates, as interest rates are highly sensitive to many factors that are beyond our ~~policy in regard to acquired loans.~~control.

Results of Operations

The following discussion and analysis is intended to provide ~~greater~~ detail about the results of our operations and financial condition.

Net Interest Income

Our operating results depend primarily on our net interest income, which is the difference between the interest the Company earns on its interest-earning assets, such as loans and investment securities, and the expense the Company pays on interest-bearing liabilities, such as deposits and borrowings. Net interest income depends on both the volume of our interest-earning assets and interest-bearing liabilities and the interest rates the Company earns or pays on them.

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-bearing deposits and indebtedness also cause changes in our net interest income between periods. Non-interest-bearing sources of funds, such as demand deposits and stockholders’ equity, help to support earning assets.

~~Table of Contents~~

~~The~~For the periods indicated, 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-bearing liabilities.

Average Balance Sheets, Yields and Rates
(Dollars in millions) Three Months Ended
September 30, 2020 September 30, 2019
Average
Balance Interest Average
Rate Average
Balance Interest Average
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 banks 1,295.1 0.5 0.15 1,004.4 5.7 2.25
Federal funds sold 0.1 — — 1.4 — —
Total interest earning assets $ 14,949.5 $ 129.4 3.44 % $ 12,722.2 $ 141.8 4.42 %
Non-earning assets 1,739.9 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 deposits 4,081.4 0.3 0.03 3,517.5 5.2 0.59
Time deposits 1,167.3 2.7 0.92 1,557.2 6.0 1.53
Repurchase agreements 781.2 0.1 0.05 669.5 1.0 0.59
Long-term debt 112.3 1.7 6.02 15.4 0.3 7.73
Subordinated debentures held by subsidiary trusts 86.9 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 deposits 4,517.3 3,430.4
Other non-interest-bearing liabilities 226.0 159.9
Stockholders’ equity 2,008.2 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 spread 3.20 % 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	Average Balance Sheets, Yields and Rates													Average Balance Sheets, Yields and Rates	Three Months Ended
(Dollars in millions)	(Dollars in millions)	Nine Months Ended												(Dollars in millions)	September 30, 2021						September 30, 2020
		September 30, 2020						September 30, 2019
		Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
															Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
Interest earning assets:	Interest earning assets:													Interest earning assets:
Loans (1) (2)	Loans (1) (2)	$	9,723.2	$	337.4	4.64	%	$	8,846.1	$	353.3	5.34	%	Loans (1) (2)	$	9,805.2	$	112.2	4.54	%	$	10,219.2	$	112.6	4.38	%
Investment securities (2)	Investment securities (2)	3,172.3		50.5		2.13		2,665.5		47.9		2.40		Investment securities (2)	5,875.0		18.8		1.27		3,435.1		16.3		1.89
Interest bearing deposits in banks	Interest bearing deposits in banks	1,023.7		3.5		0.46		779.0		14.3		2.45		Interest bearing deposits in banks	1,712.2		0.7		0.16		1,295.1		0.5		0.15
Federal funds sold	Federal funds sold	0.2		—		—		0.9		—		—		Federal funds sold	0.1		—		—		0.1		—		—
Total interest earning assets	Total interest earning assets	$	13,919.4	$	391.4	3.76	%	$	12,291.5	$	415.5	4.52	%	Total interest earning assets	$	17,392.5	$	131.7	3.00	%	$	14,949.5	$	129.4	3.44	%
Non-earning assets	Non-earning assets	1,732.1						1,683.2						Non-earning assets	1,688.7						1,739.9
Total assets	Total assets	$	15,651.5					$	13,974.7					Total assets	$	19,081.2					$	16,689.4
Interest bearing liabilities:
Interest-bearing liabilities:														Interest-bearing liabilities:
Demand deposits	Demand deposits	$	3,512.5	$	1.7	0.06	%	$	3,018.3	$	7.3	0.32	%	Demand deposits	$	4,474.0	$	0.4	0.04	%	$	3,708.8	$	0.4	0.04	%
Savings deposits	Savings deposits	3,855.1		2.0		0.07		3,416.6		15.9		0.62		Savings deposits	4,842.9		0.4		0.03		4,081.4		0.3		0.03
Time deposits	Time deposits	1,271.2		11.5		1.21		1,474.2		16.4		1.49		Time deposits	996.9		1.1		0.44		1,167.3		2.7		0.92
Repurchase agreements	Repurchase agreements	706.0		0.7		0.13		680.1		3.1		0.61		Repurchase agreements	993.5		0.1		0.04		781.2		0.1		0.05

Long-term debt	Long-term debt	63.9		3.0		6.27		15.6		1.0		8.57		Long-term debt	112.4		1.5		5.29		112.3		1.7		6.02
Subordinated debentures held by subsidiary trusts	Subordinated debentures held by subsidiary trusts	86.9		2.4		3.69		86.9		3.5		5.38		Subordinated debentures held by subsidiary trusts	87.0		0.7		3.19		86.9		0.7		3.20
Total interest-bearing liabilities	Total interest-bearing liabilities	$	9,495.6	$	21.3	0.30	%	$	8,691.7	$	47.2	0.73	%	Total interest-bearing liabilities	$	11,506.7	$	4.2	0.14	%	$	9,937.9	$	5.9	0.24	%
Non-interest-bearing deposits	Non-interest-bearing deposits	3,956.8						3,261.5						Non-interest-bearing deposits	5,416.5						4,517.3
Other non-interest-bearing liabilities	Other non-interest-bearing liabilities	208.3						157.0						Other non-interest-bearing liabilities	172.7						226.0
Stockholders’ equity	Stockholders’ equity	1,990.8						1,864.5						Stockholders’ equity	1,985.3						2,008.2
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	15,651.5					$	13,974.7					Total liabilities and stockholders’ equity	$	19,081.2					$	16,689.4
Net FTE interest income	Net FTE interest income			$	370.1					$	368.3			Net FTE interest income			$	127.5					$	123.5
Less FTE adjustments (2)	Less FTE adjustments (2)			(1.5)						(1.5)				Less FTE adjustments (2)			(0.6)						(0.5)
Net interest income from consolidated statements of income	Net interest income from consolidated statements of income			$	368.6					$	366.8			Net interest income from consolidated statements of income			$	126.9					$	123.0
Interest rate spread	Interest rate spread					3.46	%					3.79	%	Interest rate spread					2.86	%					3.20	%
Net FTE interest margin (3)	Net FTE interest margin (3)					3.55						4.01		Net FTE interest margin (3)					2.91						3.29
Cost of funds, including non-interest-bearing demand deposits (4)	Cost of funds, including non-interest-bearing demand deposits (4)					0.21						0.53		Cost of funds, including non-interest-bearing demand deposits (4)					0.10						0.16

(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.
(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 of $13.6 million at September 30, 2021 and $8.6 million at September 30, 2020.														(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 of $13.6 million at September 30, 2021 and $8.6 million at September 30, 2020.
(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.	(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.													(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.

(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.														(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.														(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~~Net interest income ~~decreased $2.5~~increased $3.9 million, or ~~2.0%~~3.2%, to ~~$123.0~~$126.9 million during the three months ended September 30, ~~2020,~~2021, as compared to ~~$125.5~~$123.0 million for the same period in ~~2019.~~2020. The ~~decrease was primarily~~increase is the result of ~~lower~~increased yields on loans as a result of interest ~~earning assets largely~~and fees related to ~~the March 2020 decrease~~PPP loans, higher volumes of interest-bearing deposits in ~~the federal funds rate, along with~~banks, and lower ~~levels of charged-off interest recoveries and interest accretion related to the fair value of acquired~~rates on interest-bearing liabilities. The increased yields on loans ~~which~~ were ~~largely~~partially offset by ~~the addition~~declining yields on investment securities. The Company earned a total of ~~$10.6~~$14.2 million of interest income, ~~from~~including loan fees, on PPP loans during the three months ended September 30, ~~2020. Net interest income increased $1.8 million, or 0.5%, to $368.6 million during the nine months ended September 30, 2020,~~2021 as compared to ~~$366.8~~$10.6 million of interest income, including loan fees, on PPP loans for the same period in 2019. The increase 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 lower 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 fair value of acquired loans, and lower costs of funds during the nine months ended September 30, 2020.

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Average Balance Sheets, Yields and Rates	Nine Months Ended
(Dollars in millions)	September 30, 2021						September 30, 2020
	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
Interest earning assets:
Loans (1) (2)	$	9,882.3	$	325.9	4.41	%	$	9,723.2	$	337.4	4.64	%
Investment securities (2)	5,147.0		53.8		1.40		3,172.3		50.5		2.13
Interest bearing deposits in banks	1,824.9		1.7		0.12		1,023.7		3.5		0.46
Federal funds sold	0.1		—		—		0.2		—		—
Total interest earning assets	$	16,854.3	$	381.4	3.03	%	$	13,919.4	$	391.4	3.76	%
Non-earning assets	1,687.0						1,732.1
Total assets	$	18,541.3					$	15,651.5
Interest bearing liabilities:
Demand deposits	$	4,349.1	$	1.4	0.04	%	$	3,512.5	$	1.7	0.06	%
Savings deposits	4,710.1		1.1		0.03		3,855.1		2.0		0.07
Time deposits	1,020.3		3.9		0.51		1,271.2		11.5		1.21
Repurchase agreements	1,020.8		0.3		0.04		706.0		0.7		0.13

Long-term debt	112.4		4.5		5.35		63.9		3.0		6.27
Subordinated debentures held by subsidiary trusts	87.0		2.1		3.23		86.9		2.4		3.69
Total interest-bearing liabilities	$	11,299.7	$	13.3	0.16	%	$	9,495.6	$	21.3	0.30	%
Non-interest-bearing deposits	5,096.5						3,956.8
Other non-interest-bearing liabilities	179.6						208.3
Stockholders’ equity	1,965.5						1,990.8
Total liabilities and stockholders’ equity	$	18,541.3					$	15,651.5
Net FTE interest income			$	368.1					$	370.1
Less FTE adjustments (2)			(1.7)						(1.5)
Net interest income from consolidated statements of income			$	366.4					$	368.6
Interest rate spread					2.87	%					3.46	%
Net FTE interest margin (3)					2.92						3.55
Cost of funds, including non-interest-bearing demand deposits (4)					0.11						0.21

(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 of $30.7 million at September 30, 2021 and $18.0 million at September 30, 2020.
(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.

Net interest income decreased $2.2 million, or 0.6%, to $366.4 million during the nine months ended September 30, 2021, as compared to $368.6 million for the same period in 2020. The decrease resulted from the sustained decline in rates across the yield curve, resulting in declining yields on loans and investment securities. Partially offsetting these rate pressures was higher levels of interest earning assets and lower rates on interest-bearing liabilities.

The Company earned a total of $34.3 million of interest income, including loan fees, on PPP loans during the nine months ended September 30, 2021 as compared to $19.2 million of interest income, including loan fees, on PPP loans for the same period in 2020. The Company had $13.1 million of unearned fees accrued as of September 30, 2021 related to PPP loans.

Net interest income included interest accretion related to the fair valuation of acquired loans of $2.3 million during the three months ended September 30, 2021, of which $1.4 million was the result of early loan payoffs, and $7.2 million during the nine months ended September 30, 2021, of which $4.0 million was the result of early loan payoffs. This compares to interest accretion 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.

~~There were no material recoveries~~Table of previously charged-off interest included in net interest income for the three months ended September 30, 2020 and $0.2 million during the nine months ended September 30, 2020, as compared to $0.4 million and $2.8 million during the same period in 2019.Contents

Our net FTE interest margin ratio decreased 6438 basis points to ~~3.29%~~2.91% for the three months ended September 30, ~~2020,~~2021, as compared to ~~3.93%~~3.29% for the same period in ~~2019.~~2020. Similarly, our net FTE interest margin ratio decreased 4663 basis points to ~~3.55%~~2.92% for the nine months ended September 30, ~~2020,~~2021, as compared to ~~4.01%~~3.55% for the same period in ~~2019.~~2020. The decreases in net FTE interest margin ratio during the three months ended September 30, ~~2020,~~2021, as compared to the same period in ~~2019,~~2020, and during the nine months ended September 30, ~~2020,~~2021, as compared to the same period in ~~2019,~~2020, were primarily the result of a shift in mix of earning assets toward investment securities invested at lower yields, higher interest-earning cash balances and lower yields on interest earning assets as 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 debtloans, which were partially offset by lower ~~deposit~~deposits 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 ~~3.20%~~2.86% during the three months ended September 30, ~~2020,~~2021, as compared to ~~3.80%~~3.20% for the same period in ~~2019,~~2020, or a 6034 basis point decrease, and ~~3.45%~~2.86% during the nine months ended September 30, ~~2020,~~2021, as compared to ~~3.83%~~3.46% in the same period in ~~2019,~~2020, or a 3860 basis point decrease. This decrease was primarily due to a shift in the mix of earning assets toward investment securities that are invested at lower yields, and higher interest-earning cash balances and lower yields on ~~interest earning assets as a result of the impact of the reduction in the March 2020 federal funds rate, significant~~loans excluding PPP ~~loan~~ balances, ~~at low yields, higher cash balances, and interest on long-term debt~~which were partially offset by lower ~~deposit~~deposits 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)~~(referred to as “rate”) for the three and nine month periods ended September 30, ~~2020~~2021 and ~~2019.~~2020. Changes which are not due solely to volume or rate have been allocated to these categories based on the respective percent changes in average volume and average rate as they compare to each other.

Analysis of Interest Changes Due to Volume and Rates
(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
Interest earning assets:
Loans (1)
$ 15.5 $ (23.3) $ (7.8) $ 35.1 $ (51.0) $ (15.9)
Investment securities (1)
4.5 (3.9) 0.6 9.1 (6.5) 2.6
Interest bearing deposits in banks 1.6 (6.8) (5.2) 4.5 (15.3) (10.8)
Total change 21.6 (34.0) (12.4) 48.7 (72.8) (24.1)
Interest bearing liabilities:
Demand deposits 0.5 (2.3) (1.8) 1.2 (6.8) (5.6)
Savings deposits 0.8 (5.7) (4.9) 2.0 (15.9) (13.9)
Time deposits (1.5) (1.8) (3.3) (2.3) (2.6) (4.9)
Repurchase agreements 0.2 (1.1) (0.9) 0.1 (2.5) (2.4)
Long-term debt 1.9 (0.5) 1.4 3.1 (1.1) 2.0
Subordinated debentures held by subsidiary trusts — (0.4) (0.4) — (1.1) (1.1)
Total change 1.9 (11.8) (9.9) 4.1 (30.0) (25.9)
Increase (decrease) in FTE net interest income (1)
$ 19.7 $ (22.2) $ (2.5) $ 44.6 $ (42.8) $ 1.8


Analysis of Interest Changes Due to Volume and Rates
(Dollars in millions)	Three Months Ended September 30, 2021 compared with Three Months Ended September 30, 2020						Nine Months Ended September 30, 2021 compared with Nine Months Ended September 30, 2020
	Volume		Rate		Net		Volume		Rate		Net
Interest earning assets:
Loans (1)	$	(4.6)	$	4.2	$	(0.4)	$	5.5	$	(17.0)	$	(11.5)
Investment securities (1)	11.6		(9.1)		2.5		31.4		(28.1)		3.3
Interest bearing deposits in banks	0.2		—		0.2		2.7		(4.5)		(1.8)

Total change	7.2		(4.9)		2.3		39.6		(49.6)		(10.0)
Interest bearing liabilities:
Demand deposits	0.1		(0.1)		—		0.4		(0.7)		(0.3)
Savings deposits	0.1		—		0.1		0.4		(1.3)		(0.9)
Time deposits	(0.4)		(1.2)		(1.6)		(2.3)		(5.3)		(7.6)
Repurchase agreements	—		—		—		0.3		(0.7)		(0.4)

Long-term debt	—		(0.2)		(0.2)		2.3		(0.8)		1.5
Subordinated debentures held by subsidiary trusts	—		—		—		—		(0.3)		(0.3)
Total change	(0.2)		(1.5)		(1.7)		1.1		(9.1)		(8.0)
Increase (decrease) in FTE net interest income (1)	$	7.4	$	(3.4)	$	4.0	$	38.5	$	(40.5)	$	(2.0)

(1)Interest income and average rates for tax exempt loans and securities are presented on a FTE basis.

~~Table of Contents~~

Provision for (Reversal of) Credit 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 thehad no provision for credit losses ~~reflect management’s estimate of possible credit losses based upon~~during the ~~composition of our loan portfolio, evaluation of the borrowers’ ability~~three months ended September 30, 2021, as compared 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 credit losses of $5.2 million during ~~the three months ended September 30, 2020, as compared to $2.6 million during~~ same period in ~~2019,~~2020, with the ~~difference mainly~~decrease attributable to both the ~~increase~~improvement in ~~reserves on unfunded loan commitments.~~our underlying asset quality metrics, and the improved economic outlook assumptions driving our CECL model. The provision ~~is reflective~~considered the impact of net charge-offs of $0.6 million, or an annualized 0.02% of average loans outstanding, for the third quarter of 2021, compared to $4.6 million, or an annualized 0.18% of average loans outstanding ~~for the third quarter of 2020, compared to $1.8 million, or an annualized 0.08% of average loans outstanding~~ during same period in ~~2019.~~2020.

For information regarding our non-performing loans, see “Financial Condition – Non-Performing Assets” included herein. For more information on our allowance for credit losses, see “Financial Condition – Allowance for Credit Losses” included herein.

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Non-interest Income

~~Our~~Non-interest income also contributes to our operating results with our principal sources of non-interest income primarily ~~include~~including fee-based revenues such as payment services, mortgage banking and wealth management revenues, service charges on deposit accounts and other service charges, commissions and fees. The following table presents the composition of our non-interest income as of the dates indicated:

Non-interest income Three Months Ended September 30, $ Change % Change Nine Months Ended September 30, $ Change % Change
(Dollars in millions) 2020 2019 2020 2019
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 revenues 5.9 5.9 — — 17.5 17.8 (0.3) (1.7)
Service charges on deposit accounts 4.3 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), net 0.1 0.1 — — 0.1 0.1 — NM
Other income 4.6 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 %

* Certain reclassifications, none of which were material, have been made to conform 2019 amounts to the 2020 presentation.


Non-interest income	Three Months Ended September 30,				$ Change		% Change		Nine Months Ended September 30,				$ Change		% Change
(Dollars in millions)	2021		2020						2021		2020
Payment services revenues	$	12.2	$	10.5	$	1.7	16.2	%	$	33.8	$	30.0	$	3.8	12.7	%
Mortgage banking revenues	11.6		14.3		(2.7)		(18.9)		32.8		39.4		(6.6)		(16.8)
Wealth management revenues	6.5		5.9		0.6		10.2		19.1		17.5		1.6		9.1
Service charges on deposit accounts	4.4		4.3		0.1		2.3		12.1		13.3		(1.2)		(9.0)
Other service charges, commissions and fees	1.4		5.0		(3.6)		(72.0)		5.1		10.0		(4.9)		(49.0)

Investment securities gains (losses), net	0.3		0.1		0.2		200.0		0.2		0.1		0.1		100.0
Other income	3.3		4.6		(1.3)		(28.3)		10.0		12.5		(2.5)		(20.0)

Total non-interest income	$	39.7	$	44.7	$	(5.0)	(11.2)	%	$	113.1	$	122.8	$	(9.7)	(7.9)	%

Total non-interest income ~~increased $6.5~~decreased $5.0 million, or ~~17.0%~~11.2%, to ~~$44.7~~$39.7 million for the three months ended September 30, ~~2020,~~2021, as compared to ~~$38.2~~$44.7 million for the same period in ~~2019~~2020 and ~~increased $15.3~~decreased $9.7 million, or ~~14.2%~~7.9%, to ~~$122.8~~$113.1 million for the nine months ended September 30, ~~2020,~~2021, as compared to ~~$107.5~~$122.8 million for the same period in ~~2019.~~2020. Significant components of ~~theses~~these fluctuations are discussed below.

Payment services revenues consist of interchange fees that merchants pay for processing electronic payment transactions and ATM service fees. Payment services revenues increased $1.7 million, or 16.2%, to $12.2 million during the three months ended September 30, 2021, as compared to $10.5 million earned during the same period in 2020. For the nine months ended September 30, 2021, payment services revenue increased $3.8 million, or 12.7%, to $33.8 million, as compared to $30.0 million during the same period in 2020. The increases in payment services revenues is mainly attributable to higher business credit card volume during the three and nine months ended September 30, 2021.

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 recoveries and other expenses), and origination and processing fees on residential real estate loans held for sale. Mortgage banking revenues ~~increased $3.9~~decreased $2.7 million, or ~~37.5%~~18.9%, to ~~$14.3~~$11.6 million during the three months ended September 30, ~~2020,~~2021, as compared to ~~$10.4~~$14.3 million during the same period in ~~2019.~~2020, primarily driven by a decline in total origination volume. For the nine months ended September 30, ~~2020,~~2021, mortgage banking revenues ~~increased $14.8~~decreased $6.6 million, or ~~60.2%~~16.8%, to ~~$39.4~~$32.8 million as compared to ~~$24.6~~$39.4 million during the same period in ~~2019.~~2020. The increases were primarily driven by increased mortgage loan production due 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 $9.8 milliondecrease for the ~~three and~~ nine months ended September 30, 2021 was primarily driven by a decline in origination volume and refinance activity compared to the 2020 ~~respectively. As~~periods. The impact of volume declines on mortgage banking revenue was compounded by an intentional decrease in the percentage of originations sold on the secondary market through the first half of 2021, which was offset by a ~~result~~$5.9 million recovery in our mortgage servicing rights valuation in the first quarter of ~~our higher levels of refinancing activity, our~~2021 as compared with $9.8 million in valuation write-downs for the nine months ended September 30, 2020. The overall loan production for originated home purchases was approximately ~~48.6%~~65.8% and ~~40.1%~~56.2% of production for the three and nine months ended September 30, ~~2020,~~2021, respectively, compared to ~~66.0%~~48.6% and ~~73.8%~~40.1% for the same periods in ~~2019.~~2020.

Wealth management revenues are principally comprised of fees earned for management of trust assets and investment services. Wealth management revenues increased $0.6 million, or 10.2%, to $6.5 million during the three months ended September 30, 2021, as compared to $5.9 million during the same period in 2020. For the nine months ended September 30, 2021, wealth management revenues increased $1.6 million, or 9.1%, to $19.1 million as compared to $17.5 million during the same period in 2020, primarily due to an increase in trust services. The Company had $5.7 billion of assets under management at September 30, 2021 compared to $5.2 billion at December 31, 2020.

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Service charge fees are primarily driven by service and overdraft charges on deposit accounts. ~~These service~~Service charges ~~decreased $1.0~~increased $0.1 million, or ~~18.9%~~2.3%, to ~~$4.3~~$4.4 million during the three months ended September 30, ~~2020,~~2021, as compared to ~~$5.3~~$4.3 million during the same period in ~~2019, primarily due to changes in client behavior.~~2020. For the nine months ended September 30, ~~2020,~~2021, service charges on deposit accounts decreased ~~$2.4~~$1.2 million, or ~~15.3%~~9.0%, to ~~$13.3~~$12.1 million as compared to ~~$15.7~~$13.3 million during the same period in ~~2019. The decrease was~~2020, primarily due to higher levels of client account balances and changes in client behavior resulting in ~~addition to the Company waiving continuous~~lower service and overdraft ~~fees and regular overdraft fees for clients receiving U.S. government stimulus checks during the second quarter of 2020.~~

charges.

Other service charges, commissions, and fees primarily include fees earned on certain derivative interest rate contracts, insurance commissions, and safe deposit boxes. Other service charges, commissions, and fees ~~increased $3.3~~decreased $3.6 million, or ~~194.1%~~72.0%, to ~~$5.0~~$1.4 million during the three months ended September 30, ~~2020,~~2021, as compared to ~~$1.7~~$5.0 million during the same period in ~~2019.~~2020. For the nine months ended September 30, ~~2020,~~2021, other service charges, commissions and fees ~~increased $4.8~~decreased $4.9 million, or ~~92.3%~~49.0%, to ~~$10.0~~$5.1 million as compared to ~~$5.2~~$10.0 million during the same period in ~~2019.~~2020. The ~~increases~~decreases were primarily due to ~~additional~~fewer fees earned on derivative interest rate swap contracts offered to ~~clients.~~clients during 2021.

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 $1.3 million, or 28.3%, to $3.3 million during the three months ended September 30, 2021, as compared to $4.6 million during the same period in 2020 and decreased $2.5 million, or 20.0%, to $10.0 million during the nine months ended September 30, 2021, as compared to $12.5 million during the same period in 2020. The decreases in other income between periods was principally due to life insurance benefits earned in 2020.

Non-interest Expense

Non-interest expense increased $6.4 million, or 6.4%, to $105.9 million during the three months ended September 30, 2021 as compared to $99.5 million during the same period in 2020. The increase was mainly a result of acquisition related expenses, employee benefits, and the litigation accrual, partially offset by a decrease in salaries and wages. Expenses related to acquisitions primarily include legal fees, consulting fees, and investment banking fees.

Non-interest expense increased $13.2 million, or 4.6%, to $303.3 million during the nine months ended September 30, 2021 as compared to $290.1 million during the same period in 2020. The increase was mainly a result of acquisition related expenses, the litigation accrual, and employee benefits, partially offset by a decrease in salaries and wages.

The following table presents the composition of our non-interest expense as of the dates indicated:


Non-interest expense	Non-interest expense																	Non-interest expense	Three Months Ended September 30,				$ Change		% Change					Nine Months Ended September 30,								$ Change		% Change
(Dollars in millions)	(Dollars in millions)	Three Months Ended September 30,				$ Change		% Change		Nine Months Ended September 30,				$ Change		% Change		(Dollars in millions)	2021		2020							2021				2020
		2020		2019						2020		2019
Salaries and wages*		$	46.0	$	40.1	$	5.9	14.7	%	$	130.1	$	115.3	$	14.8	12.8	%
Salaries and wages																		Salaries and wages	$	42.0	$	46.0			$	(4.0)		(8.7)	%			$	122.6			$	130.1			$	(7.5)		(5.8)	%
Employee benefits	Employee benefits	11.8		11.9		(0.1)		(0.8)		36.4		40.3		(3.9)		(9.7)		Employee benefits	12.9		11.8		1.1		9.3					43.7				36.4				7.3		20.1
Outsourced technology services	Outsourced technology services	8.4		7.9		0.5		6.3		24.5		23.9		0.6		2.5		Outsourced technology services	8.2		8.4		(0.2)		(2.4)					24.7				24.5				0.2		0.8
Occupancy, net	Occupancy, net	7.2		7.1		0.1		1.4		21.3		21.2		0.1		0.5		Occupancy, net	7.3		7.2		0.1		1.4					21.7				21.3				0.4		1.9
Furniture and equipment	Furniture and equipment	4.1		3.3		0.8		24.2		11.1		10.2		0.9		8.8		Furniture and equipment	4.5		4.1		0.4		9.8					13.0				11.1				1.9		17.1
OREO expense, net of income	OREO expense, net of income	—		(0.8)		0.8		—		(0.4)		(0.5)		0.1		NM		OREO expense, net of income	—		—		—		—					(0.1)				(0.4)				0.3		(75.0)
Professional fees*		2.9		3.5		(0.6)		(17.1)		8.6		9.3		(0.7)		(7.5)
Professional fees																		Professional fees	2.7		2.9		(0.2)		(6.9)					9.3				8.6				0.7		8.1
FDIC insurance premiums	FDIC insurance premiums	1.3		0.4		0.9		225.0		4.5		3.5		1.0		28.6		FDIC insurance premiums	1.7		1.3		0.4		30.8					4.8				4.5				0.3		6.7

Core deposit intangibles amortization	Core deposit intangibles amortization	2.7		3.0		(0.3)		(10.0)		8.3		8.3		—		—		Core deposit intangibles amortization	2.4		2.7		(0.3)		(11.1)					7.4				8.3				(0.9)		(10.8)
Other expenses*		15.1		16.5		(1.4)		(8.5)		45.7		46.9		(1.2)		(2.6)
Other expenses																		Other expenses	17.6		15.1		2.5		16.6					49.6				45.7				3.9		8.5

Acquisition related expenses	Acquisition related expenses	—		3.8		(3.8)		(100.0)		—		19.6		(19.6)		(100.0)		Acquisition related expenses	6.6		—		6.6		100.0					6.6				—				6.6		100.0
Total non-interest expense	Total non-interest expense	$	99.5	$	96.7	$	2.8	2.9	%	$	290.1	$	298.0	$	(7.9)	(2.7)	%	Total non-interest expense	$	105.9	$	99.5	$	6.4	6.4		%			$	303.3			$	290.1			$	13.2	4.6		%

* Certain reclassifications, none of which were material, have been made to conform 2019 amounts to the 2020 presentation.

~~Non-interest~~Salaries and wages expense ~~increased $2.8~~decreased $4.0 million, or ~~2.9%~~8.7%, to ~~$99.5~~$42.0 million during the three months ended September 30, ~~2020~~2021, as compared to ~~$96.7~~$46.0 million during the same period in ~~2019~~2020. Salaries and wages decreased ~~$7.9~~$7.5 million, or ~~2.7%~~5.8%, to ~~$290.1~~$122.6 million during the nine months ended September 30, ~~2020~~2021 as compared to ~~$298.0~~$130.1 million during the same period in ~~2019.~~2020. The ~~decrease was mainly a~~decreases are the result of ~~decreased acquisition expenses~~lower mortgage loan originator commissions and lower levels of ~~$19.6 million~~incentive accruals during ~~the nine months ended September 30, 2020, partially offset by an increase in salaries and wages. Expenses related~~2021 as compared 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.2020.

~~Salaries and wages~~Employee benefits expense increased ~~$5.9~~$1.1 million, or ~~14.7%~~9.3%, to ~~$46.0~~$12.9 million during the three months ended September 30, ~~2020,~~2021, as compared to ~~$40.1~~$11.8 million during the same period in ~~2019,~~2020, as a result of higher mortgage loan originator commissions and higher levels of incentive accruals. Salaries and wages increased $14.8 million, or 12.8%, to $130.1 million during the nine months ended September 30, 2020 as compared to $115.3 million during the same period in 2019. The increase reflects higher levels of wages related to additional employees as a result of the IIBK and CMYF acquisitions, higher mortgage loan originator commissions, and higher levels of incentive accruals during the nine months ended September 30, 2020.health insurance costs.

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Employee benefits expense ~~decreased $0.1~~increased $7.3 million, or ~~0.8%~~20.1%, to ~~$11.8~~$43.7 million during the nine months ended September 30, 2021 as compared to $36.4 million during the same period in 2020. These increases are primarily due to higher health insurance costs and higher long-term incentive accruals as compared to 2020.

Furniture and equipment expense increased $0.4 million, or 9.8%, to $4.5 million during the three months ended September 30, ~~2020,~~2021, as compared to ~~$11.9~~$4.1 million during the same period in ~~2019. Employee benefits expense decreased $3.9~~2020 and increased $1.9 million, or ~~9.7%~~17.1%, to ~~$36.4~~$13.0 million during the nine months ended September 30, ~~2020~~2021 as compared to ~~$40.3~~$11.1 million during the same period in ~~2019. These decreases are~~2020. The increase during the nine months ended September 30, 2021 is primarily due to ~~lower health insurance costs as compared to 2019.~~an increase in depreciation expense.

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 ~~decreased $1.4~~increased $2.5 million, or ~~8.5%~~16.6%, to ~~$15.1~~$17.6 million during the three months ended September 30, ~~2020,~~2021, as compared to ~~$16.5~~$15.1 million during the same period in ~~2019 and decreased~~2020, partially due to a $1.2 million litigation accrual, loan and debit card expenses. Other expenses increased $3.9 million, or ~~2.6%~~8.5%, to ~~$45.7~~$49.6 million during the nine months ended September 30, ~~2020,~~2021, as compared to ~~$46.9~~$45.7 million during the same period in ~~2019. The decreases are primarily the result of lower travel expenses.~~2020, partially due to a $1.2 million litigation accrual, higher donation expenses, and elevated new market tax credit amortization during 2021.

Income Tax Expense

Our effective tax rate was 22.4% for the three months ended September 30, 2021 compared to 23.3% for the three months ended September 30, 2020 ~~compared to 23.8% for the three months ended September 30, 2019~~ and ~~22.6%~~22.2% for the nine months ended September 30, ~~2020~~2021 and 22.6% for the same period in ~~2019.~~2020.

Financial Condition

Total Assets

Total assets increased ~~$2,425.3~~$1,723.5 million, or ~~16.6%~~9.8%, to ~~$17,069.5~~$19,372.2 million as of September 30, ~~2020,~~2021, from ~~$14,644.2~~$17,648.7 million as of December 31, ~~2019,~~2020, primarily ~~due to an increase in loans held for investment as a result of the PPP loans originated and increases in investment securities and cash and cash equivalents~~ as a result of higher levels of ~~deposits.~~deposits deployed primarily into the investment securities portfolio. Significant fluctuations in balance sheet accounts are discussed below. More information regarding the results as of December 31, 2020 can be found in our Annual Report on Form 10-K for the year ended December 31, 2020.

Loans Held for Investment, Net of Deferred Fees and Costs

Loans held for investment ~~net~~decreased $185.5 million, or 1.9%, to $9,643.0 million as of September 30, 2021, as compared to $9,828.5 million as of December 31, 2020 primarily as a result of declines in PPP loans and the consumer loan portfolio. Net of deferred fees and costs, ~~increased $1,221.5~~loans held for investment decreased $185.0 million, or ~~13.7%~~1.9%, to ~~$10,152.2~~$9,622.5 million as of September 30, ~~2020,~~2021, as compared to ~~$8,930.7~~$9,807.5 million as of December 31, ~~2019. Significant contributing portfolios are discussed in greater detail below:~~2020.

Total real estate loans increased ~~$325.1~~$407.3 million, or ~~5.5%~~6.4%, to ~~$6,263.3~~$6,806.8 million as of September 30, ~~2020,~~2021, as compared to ~~$5,938.2~~$6,399.5 million as of December 31, ~~2019.~~2020. Within the portfolio, commercial real estate loans increased ~~$203.1~~$140.0 million, or ~~5.8%~~3.7%, to ~~$3,690.9~~$3,883.2 million as of September 30, ~~2020,~~2021, as compared to ~~$3,487.8~~$3,743.2 million as of December 31, ~~2019.~~2020. Construction loans increased ~~$55.8~~$99.4 million, or ~~5.7%~~9.6%, to ~~$1,033.5~~$1,138.8 million as of September 30, ~~2020,~~2021, as compared to ~~$977.7~~$1,039.4 million as of December 31, ~~2019.~~2020. Residential loans increased ~~$65.1~~$158.6 million, or ~~5.2%~~11.4%, to ~~$1,311.2~~$1,554.9 million as of September 30, ~~2020,~~2021, as compared to ~~$1,246.1~~$1,396.3 million as of December 31, ~~2019,~~2020, and agricultural loans increased ~~$1.1~~$9.3 million, or ~~0.5%~~4.2%, to ~~$227.7~~$229.9 million as of September 30, ~~2020,~~2021, compared to ~~$226.6~~$220.6 million as of December 31, ~~2019.~~2020.

~~Total~~As a result of heightened levels of payoffs and pay-downs during 2021, along with supply chain issues impacting our indirect portfolio, total consumer loans decreased ~~$0.4~~$72.1 million, or 7.0%, to ~~$1,044.8~~$953.8 million as of September 30, ~~2020,~~2021, from ~~$1,045.2~~$1,025.9 million as of December 31, ~~2019.~~2020. Within the consumer loan portfolio, indirect loans ~~increased $28.2~~decreased $48.3 million, or ~~3.6%~~6.0% to ~~$812.8~~$756.8 million as of September 30, ~~2020,~~2021, as compared to ~~$784.6~~$805.1 million as of December 31, ~~2019,~~2020, direct loans decreased ~~$16.9~~$17.7 million, or ~~9.4%~~11.8% to ~~$162.1~~$132.9 million as of September 30, ~~2020,~~2021, as compared to ~~$179.0~~$150.6 million as of December 31, ~~2019. Credit~~2020 and credit card loans decreased ~~$11.7~~$6.1 million, or ~~14.3%~~8.7%, to ~~$69.9~~$64.1 million as of September 30, ~~2020~~2021 compared to ~~$81.6~~$70.2 million as of December 31, ~~2019, primarily attributable to decreases in spending~~2020.

Primarily as a result of ~~COVID-19 and~~PPP loan ~~pay-downs.~~

~~Commercial~~activity, commercial loans ~~increased $925.9~~decreased $485.2 million, or ~~55.3%~~22.5%, to ~~$2,599.6~~$1,668.7 million as of September 30, ~~2020,~~2021, from ~~$1,673.7~~$2,153.9 million as of December 31, ~~2019,~~2020. Commercial loans included $293.5 million of PPP loans as ~~a result~~of September 30, 2021 compared to $739.8 million as of December 31, 2020. During 2021, $926.7 million of PPP loans were forgiven by the Small Business Administration and the Company originated an additional $480.4 million of PPP loans. Net of the ~~$1.2 billion~~impact of PPP ~~loan originations partially offset by pay-downs within the portfolio.~~loans, commercial loans decreased $38.9 million or 1.8% from December 31, 2020.

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Agricultural operating loans decreased ~~$4.4~~$35.2 million, or ~~1.6%~~14.2%, to ~~$274.7~~$212.4 million as of September 30, ~~2020,~~2021, from ~~$279.1~~$247.6 million as of December 31, ~~2019.~~2020, primarily due to payoffs and pay-downs within the portfolio.

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 $1.1~~decreased $31.5 million, or ~~1.1%~~42.6%, to ~~$102.0~~$42.5 million as of September 30, ~~2020,~~2021, compared to ~~$100.9~~$74.0 million as of December 31, ~~2019. The increase is~~2020, primarily ~~due to an increase~~as a result of a decrease in originations of mortgage loans held for sale ~~as a result of higher levels of~~related to refinance ~~activity driven by lower interest rates.~~

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activity.

Non-performing Assets

Non-performing assets include non-accrual loans, loans contractually past due by 90 days or more and still accruing interest, and OREO. The following table sets forth information regarding non-performing assets as of the dates indicated.

Non-Performing Assets and Troubled Debt Restructurings
(Dollars in millions) September 30,
2020 June 30,
2020 March 31,
2020 December 31,
2019 September 30,
2019
Non-performing loans:
Non-accrual loans $ 44.8 $ 49.9 $ 51.1 $ 42.9 $ 50.1
Accruing loans past due 90 days or more 9.6 7.7 12.0 5.7 7.0
Total non-performing loans 54.4 57.6 63.1 48.6 57.1
OREO 5.7 6.5 8.2 8.5 17.8
Total non-performing assets $ 60.1 $ 64.1 $ 71.3 $ 57.1 $ 74.9
Troubled debt restructurings not included above $ 3.2 $ 3.4 $ 5.0 $ 5.5 $ 5.5
Non-performing loans to loans held for investment 0.54 % 0.57 % 0.71 % 0.54 % 0.63 %
Non-performing assets to loans held for investment and OREO 0.59 0.64 0.80 0.64 0.83
Non-performing assets to total assets 0.35 0.39 0.49 0.39 0.51

Non-performing ~~loans.~~loans. Non-performing loans include non-accrual loans and loans contractually past due 90 days or more and still accruing interest. Collateral-dependent loans include all loans that rely solely on the operation or sale of the collateral for repayment. We monitor and evaluate collateral values on collateral-dependent loans quarterly. Appraisals are required on all collateral 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 credit losses as a specific valuation allowance. Provisions for credit losses are impacted by changes in the specific valuation allowances and historical or general valuation elements of the allowance for credit losses.

~~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, 2019 Percent
of Total
Real estate:
Commercial $ 13.5 24.8 % $ 13.6 28.0 %
Construction:
Land acquisition and development 1.1 2.0 1.7 3.5
Residential 1.5 2.8 — —
Commercial 0.5 0.9 0.5 1.0
Total construction 3.1 5.7 2.2 4.5
Residential 4.8 8.8 5.7 11.7
Agricultural 7.6 14.0 5.2 10.7
Total real estate 29.0 53.3 26.7 54.9
Consumer 3.1 5.7 3.5 7.3
Commercial 18.3 33.6 16.0 32.9
Agricultural 4.0 7.4 2.4 4.9
Total non-performing loans $ 54.4 100.0 % $ 48.6 100.0 %

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Non-accrual loans. We generally place 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. Non-accrual loans ~~increased~~decreased approximately ~~$1.9~~$9.6 million, or 24.3%, to ~~$44.8~~$29.9 million, as of September 30, ~~2020,~~2021, from ~~$42.9~~$39.5 million as of December 31, ~~2019,~~2020, across all loan portfolios driven primarily ~~as a result of~~by decreases in the ~~adoption of the CECL standard~~commercial, agricultural, residential construction, 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.~~commercial real estate portfolios. Accruing loans past due 90 days or more ~~increased $3.9~~decreased $3.3 million, or ~~68.4%~~38.8%, primarily due to ~~an increase~~decreases in the commercial real estate and agricultural portfolios, partially offset by increases in the residential real estate and agricultural real estate loan portfolios. Other real estate owned decreased ~~$2.8~~$0.2 million, or ~~32.9%~~8.0%, from December 31, ~~2019.~~2020.

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, 2021		Percent of Total		December 31, 2020		Percent of Total
Real estate:
Commercial	$	9.1	25.9	%	$	13.6	28.3	%
Construction:
Land acquisition and development	0.7		2.0		0.8		1.7
Residential	—		—		1.1		2.3
Commercial	—		—		0.1		0.2
Total construction	0.7		2.0		2.0		4.2
Residential	5.7		16.2		5.1		10.6
Agricultural	6.8		19.5		6.2		12.9
Total real estate	22.3		63.6		26.9		56.0
Consumer	2.4		6.8		3.6		7.5
Commercial	8.0		22.8		13.0		27.1
Agricultural	2.4		6.8		4.5		9.4

Total non-performing loans	$	35.1	100.0	%	$	48.0	100.0	%

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Non-performing assets. Non-performing assets include non-performing loans and OREO. The following table sets forth information regarding non-performing assets as of the dates indicated.


Non-Performing Assets and Troubled Debt Restructurings
(Dollars in millions)	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Non-performing loans:
Non-accrual loans	$	29.9		$	30.4		$	37.0		$	39.5		$	44.8
Accruing loans past due 90 days or more	5.2			5.2			4.4			8.5			9.6
Total non-performing loans	35.1			35.6			41.4			48.0			54.4
OREO	2.3			2.0			2.2			2.5			5.7
Total non-performing assets	$	37.4		$	37.6		$	43.6		$	50.5		$	60.1

Troubled debt restructurings not included above (1)	$	2.1		$	2.2		$	3.1		$	3.2		$	3.2

Non-accrual loans to loans held for investment	0.31		%	0.31		%	0.38		%	0.40		%	0.44		%
Non-performing loans to loans held for investment	0.36			0.36			0.42			0.49			0.54
Non-performing assets to loans held for investment and OREO	0.39			0.38			0.44			0.51			0.59
Non-performing assets to total assets	0.19			0.20			0.24			0.29			0.35

(1)Accruing loans modified in trouble debt restructurings are not considered non-performing loans as the loans are performing as agreed under their modified terms and management expects performance to continue.

Allowance for Credit Losses

The Company performs a quarterly assessment of the adequacy of its allowance for credit losses in accordance with ~~GAAP and as modified by the adoption of CECL.~~GAAP. The methodology used to assess the adequacy is consistently applied to the Company’s ~~loan~~loans held for investment portfolio. The allowance for credit losses is established through a provision for credit losses based on our evaluation of quantitative and qualitative risk factors in our loan portfolio at each balance sheet date. In determining the allowance for credit losses, we estimate losses on specific loans, or groups of loans, where the expected loss can be identified and reasonably determined. The balance of the allowance for credit losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature or tenure of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current environmental and economic factors, and the estimated impact of current and forecasted economic conditions on certain historical loan loss rates. ~~See the discussion under “Critical Accounting Estimates and Significant Accounting Policies - Allowance for Credit Losses.”~~

The allowance for credit 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 credit losses consists of three elements:

(1)Specific valuation allowances associated with collateral-dependent ~~loans. Specific valuation allowances~~loans which 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 PDprobability of default and ~~LGD~~loss given default methodologies for all portfolio segments. The Company uses a TMtransition matrix for PDprobability of default components of the methodology and a historical average for the ~~LGD~~loss given default components of the methodology. The PDprobability of default and ~~LGD~~loss given default is applied to the current principal balance as of the reporting date. The TMtransition matrix determines the PDprobability of default by tracking the historical movement of loans between loan risk tiers over a defined period of time. Loan transitions are measured by either internal ratings or delinquency status. Those loans tracked by ratings are generally commercial purpose including agricultural, commercial, and commercial real estate. Those loans tracked by delinquency are generally consumer in nature, with the exception of multi-family and credit cards. The ~~LGD~~loss given default used as the basis for the estimate of credit losses is comprised of the Company’s historical loss experiences from 2008 to the current ~~period.~~period, based on a migration analysis of our historical loss experience, which is designed to account for credit deterioration. The model compares the most recent period losses to prior period defaults to calculate the ~~LGD,~~loss given default, which is averaged over the historical observations.

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(3)General valuation allowances determined based on changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, general economic conditions or forecasts, and other qualitative risk factors, both internal and external to us, including the incorporation of a one-year forecast period for economic conditions.

Based on the assessment of the adequacy of the allowance for credit losses, the Company records provisions for credit losses to maintain the allowance for credit losses at appropriate levels.

Loans acquired in business combinations are initially recorded at fair value as adjusted for credit risk and an allowance for credit losses at 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~~An allowance for credit loss is recorded for the ~~life of loan~~ expected credit losses over the life of the loan on loans acquired without evidence of credit ~~impairment.~~

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deterioration. Subsequent changes to the allowance for credit losses are recorded through provision expense using the same methodology as other loans held for investment.

For loans acquired in business combinations with evidence of deterioration in credit quality 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 acquisition date fair value to establish the initial amortized cost basis of the asset. Differences between the established 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 using the level yield interest method. Subsequent changes to the allowance for credit losses are recorded through provision expense using the same methodology as other loans held for investment.

Loans, or portions thereof, are charged-off against the allowance for credit losses when management believes 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~~a collateral-dependent loan is adequately collateralized, a specific valuation allowance is not recorded. As such, significant changes in collateral-dependent and non-performing loans do not necessarily correspond proportionally with changes in the specific valuation component of the allowance for credit 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 credit losses or changes in non-performing or collateral dependent loans due to timing differences among the initial identification of a collateral-dependent loan, recording of a specific valuation allowance for ~~the~~ collateral-dependent ~~loan,~~loans, and any resulting charge-off of uncollectible principal.

~~The following table sets forth information regarding our allowance for credit 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
Commercial 0.2 0.1 — — —
Construction — — 0.5 0.1 —
Residential — — — 0.1 0.3
Consumer 2.5 3.0 3.0 3.9 2.8
Commercial 3.7 0.9 1.1 3.1 1.6
Agricultural — 0.1 — 0.1 —
Total charge-offs 6.4 4.1 4.6 7.3 4.7
Recoveries:
Real estate
Commercial 0.2 0.1 — — 0.1
Construction 0.2 — — 0.1 0.6
Residential — 0.2 — 0.4 0.1
Consumer 1.1 0.9 1.1 0.5 0.8
Commercial 0.3 0.6 0.4 0.5 1.3
Total recoveries 1.8 1.8 1.5 1.5 2.9
Net charge-offs 4.6 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 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 losses 1.2 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 losses 5.2 19.5 29.0 3.8 2.6
Loans held for investment 10,152.2 10,032.5 8,918.0 8,930.7 8,992.6
Average loans 10,219.2 9,949.6 8,995.6 9,041.1 9,053.6
Net loans charged-off to average loans, annualized 0.18 % 0.09 % 0.14 % 0.25 % 0.08 %
Allowance to loans held for investment 1.43 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 credit losses on loans was ~~$145.5~~$135.1 million, or ~~1.43%~~1.40% of loans held for investment as of September 30, 2021, including PPP loans, as ~~of September 30, 2020, as~~ compared to ~~$73.0~~$144.3 million, or ~~0.82%~~1.47% of loans held for investment, as of December 31, ~~2019.~~2020. The ~~increase~~decrease in the percentage from December 31, ~~2019~~2020 is primarily a result of ~~adoption of the CECL standard and~~ changes in the Company’s internal economic forecast and improvement in ~~response to COVID-19 and uncertainty regarding the benefits of government stimulus enacted in response to COVID-19.~~credit quality. The allowance for credit losses represents management’s estimate of expected credit losses in the loan portfolio expected over the life of the loan, including the incorporation of a one-year forecast period for economic conditions.

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The following table sets forth information regarding our allowance for credit losses as of and for the periods indicated.



Allowance for Credit Losses	Three Months Ended
(Dollars in millions)	Sep 30, 2021			Jun 30, 2021			Mar 31, 2021			Dec 31, 2020			Sep 30, 2020
Allowance for credit losses on loans:
Beginning balance	$	135.5		$	136.6		$	144.3		$	145.5		$	146.1

Provision (reversal of) credit losses	0.2			—			(4.8)			3.0			4.0
Charge offs:
Real estate
Commercial	—			2.2			0.1			0.1			0.2
Construction	—			0.3			—			—			—
Residential	—			—			0.1			—			—

Consumer	2.0			1.6			2.7			2.3			2.5
Commercial	0.1			0.5			2.0			3.4			3.7
Agricultural	—			0.2			—			—			—
Total charge-offs	2.1			4.8			4.9			5.8			6.4
Recoveries:
Real estate
Commercial	—			0.1			—			—			0.2
Construction	0.1			0.3			0.2			0.2			0.2
Residential	0.1			0.1			0.1			0.2			—

Consumer	1.1			1.2			1.1			0.8			1.1
Commercial	0.2			2.0			0.6			0.4			0.3

Total recoveries	1.5			3.7			2.0			1.6			1.8
Net charge-offs	0.6			1.1			2.9			4.2			4.6
Ending balance	$	135.1		$	135.5		$	136.6		$	144.3		$	145.5

Allowance for off-balance sheet credit losses:
Beginning balance	$	3.4		$	3.4		$	3.7		$	3.5		$	2.3

Provision (reversal of) credit losses	(0.2)			—			(0.3)			0.2			1.2
Ending balance	$	3.2		$	3.4		$	3.4		$	3.7		$	3.5

Total allowance for credit losses	$	138.3		$	138.9		$	140.0		$	148.0		$	149.0
Total provision for (reversal of) credit losses	—			—			(5.1)			3.2			5.2
Loans held for investment	9,622.5			9,834.7			9,863.2			9,807.5			10,152.2
Average loans	9,805.2			9,969.2			9,873.1			10,127.9			10,219.2
Net loans charged-off to average loans, annualized	0.02		%	0.04		%	0.12		%	0.16		%	0.18		%
Allowance to non-accrual loans	451.84			445.72			369.19			365.32			324.78
Allowance to loans held for investment	1.40			1.38			1.38			1.47			1.43

While the 1.40% and 1.47% allowance for credit losses on loans ~~of 1.43% include the~~at September 30, 2021 and December 31, 2020, respectively, includes PPP loan ~~balance,~~balances, the 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 205 and 12 basis points higher had the PPP loan balances been excluded at September 30, ~~2020.~~2021 and December 31, 2021, respectively.

Investment Securities

We manage our investment portfolio to obtain the highest yield possible, while meeting our risk tolerance and liquidity guidelines and satisfying the pledging requirements for deposits of state and political subdivisions and securities sold under repurchase agreements. Our portfolio principally comprises U.S. treasuries, U.S. government agency residential mortgage-backed securities and collateralized mortgage obligations, U.S. government agency, corporate securities, and tax-exempt securities. Federal funds sold and interest-bearing deposits in the Bank are additional investments that are classified as cash equivalents rather than as investment securities. Investment securities ~~increased $456.2 million, or 14.9%, to $3,508.5 million, or 20.6% of total assets,~~classified as of September 30, 2020, from $3,052.3 million, or 20.8% of total assets, as of December 31, 2019. As of September 30, 2020, the estimated duration of our investment portfolio was 2.3 years, as compared to 2.4 years as of December 31, 2019.

~~We evaluate our~~ available-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 security 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 inare recorded at fair value, ~~has resulted from credit~~while investment securities classified as held-to-maturity are recorded at amortized cost. Unrealized gains or 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~~net 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 securitydeferred tax effect, on available-for-sale securities 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 recognizedreported as increases or decreases in accumulated other comprehensive ~~income.~~

Asincome or loss, a component of September 30, 2020, we had available-for-sale investment securities with fair values aggregating $24.1 million that had been in a continuous loss position more than twelve months. Gross unrealized losses on these securities of $0.2 million as of September 30, 2020 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, 2020 or 2019.stockholders’ equity.

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~~Other Assets~~

~~Other assets~~Investment securities increased ~~$39.5~~$1,961.4 million, or ~~21.1%~~48.3%, to ~~$227.1~~$6,021.7 million, or 31.1% of total assets, as of September 30, ~~2020,~~2021, from ~~$187.6~~$4,060.3 million, or 23.0% of total assets, as of December 31, ~~2019.~~2020. The increase is primarily ~~attributable~~due to ~~an increase~~the investment of ~~$45.1~~funds generated through deposit growth.

During the second quarter of 2021, the Company invested $500.0 million in ~~our~~five-year U.S. Treasuries at 87 basis points, while simultaneously entering into a two-year forward starting, three-year pay-fixed interest rate swap ~~contracts offset by decreases resulting from normal fluctuations~~on $500.0 million notional amount. Beginning on June 30, 2023, the Company will begin receiving effective federal funds, and will pay 1.19% interest on such funds.

During the third quarter of 2021, the Company also invested $200.0 million in ~~other assets.~~seven-year U.S. Treasuries at 99 basis points, while simultaneously entering into a three-year forward starting, four-year pay-fixed interest rate swap on $200.0 million notional amount. Beginning on August 31, 2024, the Company will begin receiving effective federal funds, and will pay 1.22% interest on such funds. See Notes- “Investment Securities” and “Derivatives and Hedging Activities” included in this report for additional details.

As of September 30, 2021, the estimated duration of our investment portfolio was 3.9 years, as compared to 3.3 years as of December 31, 2020.

As of September 30, 2021, we had $21.2 million available-for-sale investment securities that had been in a continuous loss position for more than twelve months. No credit impairment was recorded during the three months ended September 30, 2021 or 2020.

Deposits

Our deposits consist of non-interest-bearing and interest-bearing demand, savings, individual retirement, and time deposit accounts. Total deposits increased ~~$2,218.9~~$1,790.3 million, or ~~19.0%~~12.6%, to ~~$13,882.4~~$16,007.3 million as of September 30, ~~2020,~~2021, from ~~$11,663.5~~$14,217.0 million as of December 31, ~~2019.~~2020. The increase is ~~primarily~~ attributable to proceeds from ~~PPP loans, new clients acquired as a result~~government stimulus and the general economic health of ~~the PPP loan process, and~~our communities, resulting in higher cash balances ~~of existing~~maintained by clients.

The following table summarizes our deposits as of the dates indicated:


Deposits	Deposits									Deposits
(Dollars in millions)	(Dollars in millions)	September 30, 2020		Percent of Total		December 31, 2019		Percent of Total		(Dollars in millions)	September 30, 2021		Percent of Total		December 31, 2020		Percent of Total
Non-interest-bearing demand	Non-interest-bearing demand	$	4,798.2	34.5	%	$	3,426.5	29.4	%	Non-interest-bearing demand	$	5,617.9	35.1	%	$	4,633.5	32.6	%
Interest bearing:	Interest bearing:									Interest bearing:
Demand	Demand	3,814.1		27.5		3,195.4		27.4		Demand	4,496.5		28.1		4,118.9		29.0
Savings	Savings	4,158.0		30.0		3,591.6		30.8		Savings	4,904.9		30.6		4,405.9		31.0
Time, $100 and over		427.6		3.1		651.1		5.6
Time, $250 and over										Time, $250 and over	186.3		1.2		192.9		1.3
Time, other (1)	Time, other (1)	684.5		4.9		798.9		6.8		Time, other (1)	801.7		5.0		865.8		6.1
Total interest bearing	Total interest bearing	9,084.2		65.5		8,237.0		70.6		Total interest bearing	10,389.4		64.9		9,583.5		67.4
Total deposits	Total deposits	$	13,882.4	100.0	%	$	11,663.5	100.0	%	Total deposits	$	16,007.3	100.0	%	$	14,217.0	100.0	%

(1)Included in ~~Time, other~~“Time, other” are Certificate of Deposit Account Registry Service, or CDARS, deposits of ~~$123.1~~$106.1 million and ~~no brokered deposits~~$97.3 million as of September 30, ~~2020, compared to $117.7 million~~2021 and ~~$2.9 million as of~~ December 31, ~~2019,~~2020, respectively.

Securities Sold Under Repurchase ~~Agreement~~Agreements

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 ~~increased $122.7~~decreased $83.9 million, or ~~17.6%~~7.7%, to ~~$820.3~~$1,007.5 million as of September 30, ~~2020,~~2021, from ~~$697.6~~$1,091.4 million as of December 31, ~~2019,~~2020, as a result of normal fluctuations in account balances.

Deferred Tax Asset / Liability

Our deferred tax liability, net, ~~increased $3.1~~decreased $9.8 million, or ~~11.6%~~36.0%, to ~~$29.8~~$17.4 million as of September 30, ~~2020,~~2021, from ~~$26.7~~$27.2 million as of December 31, ~~2019,~~2020, primarily due to ~~an increase~~tax adjustments related to the decrease in our mark-to-market gains on investment securities partially offset by ~~an increase~~a decrease in tax adjustments related to our allowance for credit losses asand a ~~result~~decrease in our incentive compensation accrual.

Table of ~~the adoption of ASC 326.~~Contents

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 ~~decreased $36.3~~increased $25.0 million, or ~~1.8%~~1.3%, to ~~$1,977.6~~$1,984.8 million as of September 30, ~~2020,~~2021, from ~~$2,013.9~~$1,959.8 million as of December 31, ~~2019,~~2020, due to the retention of earnings and proceeds from stock option exercises, which are partially offset by stock repurchases related to the stock repurchase program, stock repurchases of vested restricted shares tendered in lieu of cash for payment of income tax withholding amounts by participants, ~~regular~~other comprehensive loss, and ~~special~~ cash dividends 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.paid.

On October ~~26, 2020,~~25, 2021, the Company’s board of directors declared a dividend of ~~$0.38~~$0.41 per common share, payable on November ~~16, 2020,~~18, 2021, to common stockholders of record as of November ~~6, 2020.~~8, 2021. The dividend equates to a ~~4.9%~~3.9% annual yield based on the ~~$30.98~~$42.37 average closing pricing of the Company’s common stock during the third quarter of ~~2020.~~

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2021.

On June 11, 2019, the Company’s board of directors adopted a stock repurchase program ~~permitting~~where the Company tomay repurchase up to 2.5 million of its outstanding shares of Class A common stock. On March 23, 2020, the Company’s board of directors suspended stock repurchases in response to the COVID-19 pandemic. 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 under the stock repurchase program by an additional 3.0 million shares ~~bringing the~~for a total ~~number~~ of ~~shares authorized under the program to~~ 5.5 million shares. ~~During September 2020, the Company repurchased and retired 1,150,454 shares of Class A common stock.~~

During the three months ended September 30, ~~2020,~~2021, the Company did not repurchase shares of our Class A common stock under the stock repurchase program. During the nine months ended September 30, 2021, the Company repurchased and retired a total of ~~1,445,300~~72,700 shares of our Class A common stock at a total cost of ~~$46.3~~$2.9 million, including costs and 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$39.69 per share. As of September 30, ~~2020,~~2021, there were ~~3.0~~1.9 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~~2021 and December 31, ~~2019,~~2020, 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 10 – 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 clients, while maintaining an appropriate balance between assets and liabilities to meet the ~~return on investment~~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 client 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.

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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, ~~2020,~~2021, 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, ~~2019.~~

2020.

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, ~~2020,~~2021, 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, ~~2020~~2021 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, ~~2020~~2021 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

~~There~~The Company is involved in various claims, legal actions, and complaints which arise in the ordinary course of business. In the Company’s opinion, all such matters are adequately covered by insurance, are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have ~~been no~~a material ~~changes in legal proceedings as described in our Annual Report~~adverse effect on ~~Form 10-K for~~ the ~~year ended December 31, 2019.~~

financial condition or results of operations of the Company.

Item 1A. Risk Factors

The information presented below updates, and should be read in conjunction with, the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as updated in our Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2020.~~ 2021.Except as presented below, there have been no material changes ~~for~~from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, 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.June 30, 2021.

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The merger agreement may be terminated in accordance with its terms and the merger may not be completed, which could negatively affect the Company.

~~In December 2019, a new strain of coronavirus (also known as,~~If the merger is not completed for any reason, there may be various adverse consequences and ~~hereinafter referred~~the Company may experience negative reactions from the financial markets and from its customers and employees. For example, the Company’s business may have been affected adversely by the failure 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 respondedpursue other beneficial opportunities due to the ~~COVID-19 pandemic by shutting down significant portions~~focus of ~~their economy.~~

~~The outbreak has been declared a pandemic by~~management on 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 impactmerger, without realizing any of the ~~pandemic has been rapidly evolving and many countries, including~~anticipated benefits of completing the ~~United States, have reacted by instituting a wide variety~~merger. Additionally, if the merger agreement is terminated, the market price 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~~Company’s Class A common stock could decline to the extent ofthat the ~~spread of~~current market prices reflect a market assumption that 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 thatmerger will be ~~observed due to COVID-19~~completed. If the merger agreement 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 ofterminated under certain circumstances, 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~~pay a termination fee of ~~our assets.~~$105 million to GWB.

~~The~~Additionally, the Company has ~~a limited number of employees at certain locations~~incurred 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 restrictionswill incur substantial expenses in connection with the ~~pandemic. We~~negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of filing, printing and mailing the joint proxy statement/prospectus, and all filing and other fees paid to the SEC in connection with the merger. If the merger is not completed, the Company would have ~~already temporarily closed~~to pay these expenses without realizing the expected benefits of the merger.

Litigation related to the merger could prevent or delay the completion of the merger or otherwise negatively affect the Company’s business and operations.

The Company may incur costs in connection with the defense or settlement of any shareholder or stockholder lawsuits filed in connection with the merger. Such litigation could have ~~modified hours~~an adverse effect on the financial condition and results of operations ~~accommodated appointment requests from clients,~~of the Company and ~~modified banking operations to increase contactless services for clients.~~could prevent or delay the completion of the merger.

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. WeRegulatory approvals may not be ~~successful in finding~~received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the surviving corporation following the merger.

Before the merger and ~~integrating suitable successors~~the bank merger may be completed, various approvals, consents and non-objections must be obtained from the Board of Governors of the Federal Reserve System, the Montana Division of Banking and Financial Institutions, the Division of Banking of the South Dakota Department of Labor and Regulation and other authorities in the ~~event~~United States. In determining whether to grant these approvals, the regulators consider a variety of ~~key employee loss~~factors. These approvals could be delayed or ~~unavailability.~~not obtained at all, including due to any or all of the following: an adverse development in either party’s regulatory standing, or any other factors considered by regulators in granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment, including as a result of changes in regulatory agency leadership.

Even if those approvals are granted, they may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of the surviving corporation’s business or require changes to the terms of the transactions contemplated by the merger agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the merger agreement, imposing additional material costs on or materially limiting the revenues of the surviving corporation following the merger or otherwise reduce the anticipated benefits of the merger if the merger were consummated successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, limitations, obligations or restrictions will not result in the delay or abandonment of the merger. Additionally, the completion of the merger is conditioned on the absence of certain orders, injunctions or decrees by any court or governmental entity of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the merger agreement.

Despite the Company and GWB’s commitments to use their reasonable best efforts to resolve any objection that may be asserted by any governmental entity with respect to the merger agreement, under the terms of the merger agreement, neither the Company nor GWB is required to take any action or agree to any condition or restriction in connection with obtaining these approvals that would reasonably be expected to have a material adverse effect on the business, properties, assets, liabilities, results of operations or financial condition of the surviving corporation and its subsidiaries, taken as a whole, after giving effect to the merger (measured on a scale relative to the Company and its subsidiaries, taken as a whole).

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Combining the Company and GWB may be more difficult, costly or time consuming than expected and the Company may fail to realize the anticipated benefits of the merger.

WeThe success of the merger will depend, in part, on the ability to realize the anticipated benefits and cost savings from combining the businesses of the Company and GWB. To do so, the Company and GWB must successfully integrate and combine their businesses in a manner that permits those cost savings to be realized. If the Company and GWB are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings and anticipated benefits of the merger could be less than anticipated, and integration may result in additional unforeseen expenses.

The Company and GWB have ~~any~~operated and, until the completion of the merger, will continue to operate, independently. The success of the merger will depend, in part, on the surviving corporation’s ability to successfully combine and integrate the businesses of both companies in a manner that does not materially disrupt existing customer relations or result in decreased revenue or reputational harm. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses, difficulties in integrating operations and systems, including communications systems, administrative and information technology infrastructure and financial reporting and internal control systems, or inconsistencies in standards, controls, procedures and policies that adversely affect either company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. Any disruption to either company’s business ~~interruption insurance~~could cause its customers to move their business to a competing financial institution. Integration efforts between the two companies may also divert management attention and resources. These integration matters could have an adverse effect on the Company during this transition period and for an undetermined period after completion of the merger on the surviving corporation.

The surviving corporation may be unable to successfully retain the Company or GWB personnel successfully while the merger is pending or after the merger is completed.

The success of the merger will depend in part on the surviving corporation’s ability to retain the talents and dedication of key employees currently employed by the Company and GWB. It is possible that ~~covers pandemics.~~these employees may decide not to remain with the Company or GWB, as applicable, while the merger is pending or with the surviving corporation after the merger is consummated. If wethe Company and GWB are unable to ~~recover~~retain key employees, including members of management, who are critical to the successful integration and future operations of the companies, the Company and GWB could face disruptions in their operations, loss of existing customers, loss of institutional knowledge and other key information, expertise or know-how, and unanticipated additional recruitment costs. In addition, if key employees terminate their employment, the surviving corporation’s business activities may be adversely affected and management’s attention may be diverted from successfully integrating the Company and GWB to hiring suitable replacements, all of which may cause the surviving corporation’s business to suffer. In addition, the Company and GWB may not be able to locate or retain suitable replacements for any key employees who leave either company.

The Company and GWB are expected to incur significant costs related to the merger and integration.

The Company and GWB have incurred and expect to incur certain non-recurring costs associated with the merger. These costs include legal, financial advisory, accounting, consulting and other advisory fees, severance/employee benefit-related costs, public company filing fees and other regulatory fees, printing costs, and other related costs. Some of these costs are payable by either the Company or GWB regardless of whether the merger is completed.

The surviving corporation is expected to incur substantial costs in connection with the integration of the Company and GWB. There are a large number of processes, policies, procedures, operations, technologies, and systems that may need to be integrated, including purchasing, accounting and finance, payroll, compliance, treasury management, branch operations, vendor management, risk management, lines of business, ~~disruption on~~pricing, and benefits. While the Company and GWB have assumed that a ~~timely basis~~certain level of costs will be incurred, there are many factors beyond their control that could affect the total amount or if the ~~outbreak~~timing of the integration costs. Moreover, many of the costs that will be incurred are, by their nature, difficult to estimate accurately. These integration costs may result in the surviving corporation taking charges against earnings following the completion of the merger, the amount, and ~~its effects lead to recessionary conditions or a deterioration in economic conditions, we could~~timing of which are uncertain at present.

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The Company will be subject to ~~any~~business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the ~~consequences identified above, any~~merger on employees and customers may have an adverse effect on the Company. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with the Company to pursue changes to their existing business relationships with the Company. In addition, subject to certain exceptions, the Company has agreed to operate its business in the ordinary course consistent with past practice in all material respects prior to closing, and the Company has agreed not to take certain actions, which could cause the Company to forgo other beneficial opportunities that may arise prior to the completion of the merger.

COVID-19 pandemic may delay and adversely affect the completion of the merger.

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the business, financial condition, liquidity, capital, and results of operations of the Company and GWB. Even as efforts to contain the pandemic, including vaccinations, have made progress and some restrictions have relaxed, new variants of the virus are causing additional outbreaks. The impact of the Delta variant, or other variants that may emerge, cannot be predicted at this time, and could depend on numerous factors, including the availability of vaccines in different parts of the world, vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta variant and other variants, and the response by governmental bodies to reinstate restrictive measures or adopt additional requirements or restrictive measures. If the effects of the COVID-19 pandemic cause a continued or extended decline in the economic environment and the financial results of the Company or GWB, or the business operations of the Company or GWB are further disrupted as a result of the COVID-19 pandemic, efforts to complete the merger and integrate the businesses of the Company and GWB may also be delayed and adversely affected. Additional time may be required to obtain the requisite regulatory approvals, and the Board of Governors of the Federal Reserve System, the Montana Division of Banking and Financial Institutions, the Division of Banking of the South Dakota Department of Labor and Regulation, and other regulatory authorities may impose additional requirements on the Company or GWB that must be satisfied prior to completion of the merger and could delay and adversely affect the completion of the merger, 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,~~Company’s 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.

condition.

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, ~~2020.~~2021.

(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, ~~2020.~~2021.

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 2020 — $ — — 1,445,300
August 2020 294,846 32.77 294,846 1,150,454
September 2020 1,150,454 31.83 1,150,454 3,000,000
Total 1,445,300 $ 32.02 1,445,300 3,000,000



				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 2021	168	$	41.88	—	1,889,158
August 2021	406	44.23		—	1,889,158
September 2021	—	—		—	1,889,158
Total	574	$	43.54	—	1,889,158

(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.~~

Plan.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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~~Item 4. Mine Safety Disclosures~~

~~Not applicable.~~

~~Item 5. Other Information~~

~~None.~~

Item 6. Exhibits


Exhibit Number		Description

2.1		Agreement and Plan of Merger between the Company and Great Western Bancorp, Inc. dated September 15, 2021 (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on September 20, 2021)

4.1		Stockholders’ Agreement by and between the individuals and entities listed therein and the Company, dated September 15, 2021 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on September 20, 2021)

10.1		Employment Agreement between the Company, First Interstate Bank and Kevin P. Riley dated August 19, 2021 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on August 20, 2021)

10.2		Employment Agreement between the Company, First Interstate Bank and Marcy D. Mutch dated August 19, 2021 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on August 20, 2021)

10.3		Employment Agreement between the Company, First Interstate Bank and Jodi Delahunt Hubbell dated August 19, 2021 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on August 20, 2021)

10.4		Employment Agreement between the Company, First Interstate Bank and Russell A. Lee dated August 19, 2021 (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on August 20, 2021)

10.5*		Employment Agreement between the Company, First Interstate Bank, and Kade Peterson dated August 19, 2021

10.6*		Employment Agreement between the Company, First Interstate Bank, and Kirk Jensen dated August 19, 2021

10.7*		Employment Agreement between the Company, First Interstate Bank, and Phil Gaglia dated August 19, 2021

10.8		Support Agreement by and among each of the shareholders of the Company signatory thereto, dated September 15, 2021 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on September 20, 2021)

10.9		Letter Agreement between the Company and the other parties thereto, dated September 15, 2021 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, File No. 001-34653, filed on September 20, 2021)

10 .10*		Amendment 2021-1 to the First Interstate BancSystem, Inc. Deferred Compensation Plan.

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.~~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.~~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, ~~2020~~2021

By:

/S/ KEVIN P. RILEY

Kevin P. Riley
President and Chief Executive Officer

Date:

November 4, ~~2020~~2021

By:

/S/ MARCY D. MUTCH

Marcy D. Mutch
Executive Vice President and Chief Financial Officer

7061



	Pre-ASC 326 Adoption		Post-ASC 326 Adoption		Impact of ASC 326 Adoption
Assets:
Allowance for credit losses on HTM securities	$	0	$	0	$	0
Allowance for credit losses on loans held for investment	73.0		103.0		30.0
Liabilities:
Off-balance sheet credit exposures	0		2.3		2.3
Deferred tax liability	26.7		18.5		(8.2)
Equity:
Retained earnings	953.6		929.5		(24.1)


	As Recorded		Fair Value			As Recorded
As of April 8, 2019	by IIBK		Adjustments			by the Company

Assets acquired:
Cash and cash equivalents	$	270.7	$	0		$	270.7
Investment securities	62.7		0.5		(1)	63.2
Loans held for investment	347.6		(9.8)		(2)	337.8
Mortgage loans held for sale	0.5		0			0.5
Allowance for loan loss	(6.3)		6.3		(3)	0
Premises and equipment	16.5		4.8		(4)	21.3
Other real estate owned (“OREO”)	0.4		2.0		(5)	2.4
Company owned life insurance	15.2		0			15.2
Core deposit intangible assets	0		13.6		(6)	13.6
Deferred tax assets, net	3.2		(2.6)		(7)	0.6
Other assets	8.6		(0.7)		(8)	7.9
Total assets acquired	719.1		14.1			733.2

Liabilities assumed:
Deposits	596.5		0.1		(9)	596.6
Accounts payable and accrued expense	15.2		2.6		(10)	17.8
Other borrowed funds	4.0		0.1		(11)	4.1
Securities sold under repurchase agreements	30.4		0			30.4



Total liabilities assumed	646.1		2.8			648.9

Net assets acquired	$	73.0	$	11.3		$	84.3

Consideration paid:

Class A common stock						$	157.3
Total consideration paid						$	157.3

Goodwill						$	73.0


Three Months Ended September 30, 2019	Beginning Balance		Provision for Credit Loss Expense		Loans Charged-Off		Recoveries Collected		Ending Balance
Allowance for credit losses
Real estate	$	27.7	$	0.4	$	(0.3)	$	0.8	$	28.6
Consumer	9.1		2.7		(2.8)		0.8		9.8
Commercial	35.7		(0.4)		(1.6)		1.3		35.0
Agricultural	1.7		(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, 2019	Beginning Balance		Provision for Credit Loss Expense		Loans Charged-Off		Recoveries Collected		Ending Balance
Allowance for credit losses
Real estate	$	31.0	$	(1.3)	$	(3.3)	$	2.2	$	28.6
Consumer	8.7		7.1		(9.1)		3.1		9.8
Commercial	31.3		4.3		(3.5)		2.9		35.0
Agricultural	2.0		0		(0.4)		0		1.6
Total allowance for credit losses	$	73.0	$	10.1	$	(16.3)	$	8.2	$	75.0


As of December 31, 2019	Pass		Other Assets Especially Mentioned		Substandard		Doubtful		Total Criticized Loans		Total Loans
Real estate:
Commercial	$	3,305.0	$	84.7	$	97.3	$	0.8	$	182.8	$	3,487.8
Construction:
Land acquisition & development	295.4		3.8		1.9		1.0		6.7		302.1
Residential	241.0		0.9		2.2		0		3.1		244.1
Commercial	428.3		1.7		1.5		0		3.2		431.5
Total construction loans	964.7		6.4		5.6		1.0		13.0		977.7
Residential	1,235.4		2.6		7.8		0.3		10.7		1,246.1
Agricultural	185.7		14.3		26.6		0		40.9		226.6
Total real estate loans	5,690.8		108.0		137.3		2.1		247.4		5,938.2
Consumer:
Indirect consumer	781.5		0.2		2.9		0		3.1		784.6
Direct consumer	177.7		0.4		0.8		0.1		1.3		179.0
Credit card	81.6		0		0		0		0		81.6
Total consumer loans	1,040.8		0.6		3.7		0.1		4.4		1,045.2
Commercial	1,569.4		40.4		60.3		3.6		104.3		1,673.7
Agricultural	247.8		8.5		22.7		0.1		31.3		279.1
Total	$	8,548.8	$	157.5	$	224.0	$	5.9	$	387.4	$	8,936.2


	September 30, 2020
	Gross Amounts Recognized		Gross Amounts Offset in the Balance Sheet		Net Amounts in the Balance Sheet		Financial Instruments		Fair Value of Financial Collateral in the Balance Sheet		Net Amount
Financial Assets
Interest rate swap contracts	$	61.3	$	0	$	61.3	$	0	$	28.7	$	32.6
Mortgage related derivatives	7.0		0		7.0		0		0		7.0
Total derivatives	68.3		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 derivatives	1.6		0		1.6		0		0		1.6
Total derivatives	63.1		0		63.1		0		0		63.1
Repurchase agreements	820.3				820.3		0		820.3		0
Total liabilities	$	883.4	$	0	$	883.4	$	0	$	820.3	$	63.1


	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 credit	58.8		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.


	September 30, 2020		December 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 plans	0		0.4
Net accumulated other comprehensive gains	$	61.9	$	11.0


Analysis of Interest Changes Due to Volume and Rates
(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
Interest earning assets:
Loans (1)	$	15.5	$	(23.3)	$	(7.8)	$	35.1	$	(51.0)	$	(15.9)
Investment securities (1)	4.5		(3.9)		0.6		9.1		(6.5)		2.6
Interest bearing deposits in banks	1.6		(6.8)		(5.2)		4.5		(15.3)		(10.8)

Total change	21.6		(34.0)		(12.4)		48.7		(72.8)		(24.1)
Interest bearing liabilities:
Demand deposits	0.5		(2.3)		(1.8)		1.2		(6.8)		(5.6)
Savings deposits	0.8		(5.7)		(4.9)		2.0		(15.9)		(13.9)
Time deposits	(1.5)		(1.8)		(3.3)		(2.3)		(2.6)		(4.9)
Repurchase agreements	0.2		(1.1)		(0.9)		0.1		(2.5)		(2.4)

Long-term debt	1.9		(0.5)		1.4		3.1		(1.1)		2.0
Subordinated debentures held by subsidiary trusts	—		(0.4)		(0.4)		—		(1.1)		(1.1)
Total change	1.9		(11.8)		(9.9)		4.1		(30.0)		(25.9)
Increase (decrease) in FTE net interest income (1)	$	19.7	$	(22.2)	$	(2.5)	$	44.6	$	(42.8)	$	1.8