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

ý    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2018
OR
 ¨    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                   to                   
COMMISSION FILE NUMBER 001-34653
________________________________________________________________________________________________________ 
FIRST INTERSTATE BANCSYSTEM, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________________________________________________________ 
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
_________________________________________________________________________________________________ 

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  ý    No  ¨
    
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.)     Yes  ý    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
ý
  
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  ý
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
 
September 30, 2018 – Class A common stock
 
38,107,555

 
 
September 30, 2018 – Class B common stock
 
22,501,994

 

 




Quarterly Report on Form 10-Q

 
FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
 
 
Index
 
 
September 30, 2018
 
 
 
Page Nos.
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 


2

Table of Contents



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

 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
Cash and due from banks
$
229.8

 
$
196.5

Interest bearing deposits in banks
686.8

 
562.3

Federal funds sold
48.4

 
0.1

Total cash and cash equivalents
965.0

 
758.9

Investment securities:
 
 
 
Available-for-sale
2,158.8

 
2,208.7

Held-to-maturity (estimated fair values of $407.4 and $483.3 at September 30, 2018 and December 31, 2017, respectively)
417.8

 
484.5

Total investment securities
2,576.6

 
2,693.2

Loans held for investment
8,480.3

 
7,567.7

Mortgage loans held for sale
37.7

 
46.6

Total loans
8,518.0

 
7,614.3

Less allowance for loan losses
73.6

 
72.1

Net loans
8,444.4

 
7,542.2

Goodwill
546.4

 
444.7

Company-owned life insurance
273.7

 
260.6

Premises and equipment, net of accumulated depreciation
244.2

 
241.9

Accrued interest receivable
48.0

 
38.0

Mortgage servicing rights, net of accumulated amortization and impairment reserve
27.0

 
24.8

Core deposit intangibles, net of accumulated amortization
59.3

 
49.1

Other real estate owned (“OREO”)
17.3

 
10.1

Deferred tax asset, net
—

 
4.0

Other assets
153.9

 
145.8

Total assets
$
13,355.8

 
$
12,213.3

Liabilities and Stockholders’ Equity
 
 
 
Deposits:
 
 
 
Non-interest bearing
$
3,261.2

 
$
2,900.0

Interest bearing
7,584.4

 
7,034.9

Total deposits
10,845.6

 
9,934.9

Securities sold under repurchase agreements
635.9

 
643.0

Accounts payable and accrued expenses
99.4

 
86.6

Accrued interest payable
6.7

 
5.6

Deferred tax liability, net
3.0

 
—

Long-term debt
22.4

 
13.1

Other borrowed funds
1.5

 
20.0

Subordinated debentures held by subsidiary trusts
86.9

 
82.5

Total liabilities
11,701.4

 
10,785.7

Stockholders’ equity:
 
 
 
Nonvoting noncumulative preferred stock without par value; authorized 100,000 shares; no shares issued and outstanding as of September 30, 2018 or December 31, 2017
—

 
—

Common stock
865.5

 
687.0

Retained earnings
828.3

 
752.6

Accumulated other comprehensive loss, net
(39.4
)
 
(12.0
)
Total stockholders’ equity
1,654.4

 
1,427.6

Total liabilities and stockholders’ equity
$
13,355.8

 
$
12,213.3

See accompanying notes to unaudited consolidated financial statements.

3

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,
 
2018
 
2017
 
2018
 
2017
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans
$
103.9

 
$
94.0

 
$
292.1

 
$
231.6

Interest and dividends on investment securities:
 
 
 
 
 
 
 
Taxable
13.9

 
11.7

 
41.0

 
30.2

Exempt from federal taxes
0.6

 
0.8

 
1.8

 
2.5

Interest on deposits in banks
2.8

 
2.3

 
6.9

 
4.8

Total interest income
121.2

 
108.8

 
341.8

 
269.1

Interest expense:
 
 
 
 
 
 
 
Interest on deposits
8.9

 
6.2

 
22.3

 
15.3

Interest on securities sold under repurchase agreements
0.7

 
0.4

 
1.8

 
0.9

Interest on other borrowed funds
0.1

 
0.4

 
0.2

 
0.4

Interest on other debt
0.4

 
0.2

 
0.9

 
1.2

Interest on subordinated debentures held by subsidiary trusts
1.1

 
0.8

 
3.0

 
2.3

Total interest expense
11.2

 
8.0

 
28.2

 
20.1

Net interest income
110.0

 
100.8

 
313.6

 
249.0

Provision for loan losses
2.0

 
3.4

 
7.0

 
7.5

Net interest income after provision for loan losses
108.0

 
97.4

 
306.6

 
241.5

Non-interest income:
 
 
 
 
 
 
 
Payment services revenues
10.1

 
12.4

 
33.5

 
31.0

Mortgage banking revenues
6.7

 
8.2

 
19.3

 
22.5

Wealth management revenues
5.8

 
5.5

 
17.5

 
15.6

Service charges on deposit accounts
5.7

 
5.9

 
16.6

 
15.3

Other service charges, commissions and fees
3.4

 
3.6

 
11.1

 
9.6

Loss on termination of interest rate swap
—

 
(1.1
)
 
—

 
(1.1
)
Investment securities gains (losses), net
—

 
0.8

 
—

 
0.8

Other income
4.5

 
3.0

 
11.0

 
10.9

Total non-interest income
36.2

 
38.3

 
109.0

 
104.6

Non-interest expense:
 
 
 
 
 
 
 
Salaries and wages
36.8

 
34.7

 
105.7

 
88.4

Employee benefits
11.9

 
10.2

 
35.5

 
29.6

Outsourced technology services
6.8

 
6.6

 
20.9

 
17.9

Occupancy, net
6.5

 
6.1

 
18.8

 
16.0

Furniture and equipment
3.5

 
3.1

 
9.5

 
8.2

OREO expense, net of income
0.2

 
0.2

 
0.3

 
0.2

Professional fees
1.9

 
1.9

 
5.2

 
4.7

FDIC insurance premiums
1.4

 
1.7

 
4.3

 
3.4

Mortgage servicing rights amortization
0.8

 
0.8

 
2.3

 
2.1

Mortgage servicing rights recovery
—

 
—

 
—

 
(0.1
)
Core deposit intangibles amortization
2.0

 
1.9

 
5.5

 
3.6

Other expenses
15.8

 
14.5

 
48.1

 
40.9

Acquisition related expenses
3.1

 
13.0

 
5.4

 
23.9

Total non-interest expense
90.7

 
94.7

 
261.5

 
238.8

Income before income tax expense
53.5

 
41.0

 
154.1

 
107.3

Income tax expense
12.1

 
13.7

 
34.3

 
35.0

Net income
$
41.4

 
$
27.3

 
$
119.8

 
$
72.3

 
 
 
 
 
 
 
 
Earnings per common share (Basic)
$
0.71

 
$
0.49

 
$
2.10

 
$
1.46

Earnings per common share (Diluted)
$
0.71

 
$
0.48

 
$
2.09

 
$
1.45

Weighted average common shares outstanding (Basic)
58,254,575

 
56,094,401

 
56,951,029

 
49,514,818

Weighted average common shares outstanding (Diluted)
58,640,475

 
56,530,868

 
57,330,027

 
50,000,882

See accompanying notes to unaudited consolidated financial statements.

4

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,
 
2018
2017
 
2018
2017
Net income
$
41.4

$
27.3

 
$
119.8

$
72.3

Other comprehensive income, before tax:
 
 
 
 
 
Investment securities available-for sale:
 
 
 
 
 
Change in net unrealized (losses) gains during period
(6.3
)
(1.8
)
 
(33.9
)
15.6

Reclassification adjustment for net (gains) losses included in income
—

(0.8
)
 
—

(0.8
)
Change in unamortized loss on available-for-sale securities transferred into held-to-maturity
0.5

0.5

 
1.5

1.4

Unrealized loss (gain) on derivatives
—

(0.6
)
 
—

(1.1
)
Reclassification adjustment for derivatives net (gains) losses included in income
—

1.1

 
—

1.1

Defined benefit post-retirement benefits plans:
 
 
 
 
 
Change in net actuarial gain
(0.2
)
(0.2
)
 
(0.5
)
(1.1
)
Other comprehensive income (loss), before tax
(6.0
)
(1.8
)

(32.9
)
15.1

Deferred tax benefit (expense) related to other comprehensive income
1.6

0.8

 
8.6

(6.0
)
Other comprehensive (loss) income, net of tax
(4.4
)
(1.0
)
 
(24.3
)
9.1

Comprehensive income, net of tax
$
37.0

$
26.3

 
$
95.5

$
81.4

See accompanying notes to unaudited consolidated financial statements.


5

Table of Contents

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

 
Common
stock
 
Retained
earnings
 
Accumulated
other
comprehensive
income (loss)
 
Total
stockholders’
equity
Balance at December 31, 2017
$
687.0

 
$
752.6

 
$
(12.0
)
 
$
1,427.6

Net income
—

 
119.8

 
—

 
119.8

Reclassification of the income tax effects of the Tax Cut and Jobs Act from AOCI
—

 
3.1

 
(3.1
)
 
—

Other comprehensive income, net of tax expense
—

 
—

 
(24.3
)
 
(24.3
)
Common stock transactions:
 
 
 
 
 
 


23,960 common shares purchased and retired
(1.0
)
 
—

 
—

 
(1.0
)
3,848,929 common shares issued
173.3

 
—

 
—

 
173.3

210,039 non-vested common shares issued
—

 
—

 
—

 
—

40,122 non-vested common shares forfeited
—

 
—

 
—

 
—

148,834 stock options exercised, net of 28,194 shares tendered in payment of option price and income tax withholding amounts
1.9

 
—

 
—

 
1.9

Stock-based compensation expense
4.3

 
—

 
—

 
4.3

Common cash dividends declared (0.84 per share)
—

 
(47.2
)
 
—

 
(47.2
)
Balance at September 30, 2018
$
865.5

 
$
828.3

 
$
(39.4
)
 
$
1,654.4

 
 
 
 
 
 
 
 
Balance at December 31, 2016
$
296.1

 
$
694.6

 
$
(8.1
)
 
$
982.6

Net income
—

 
72.3

 
—

 
72.3

Other comprehensive income, net of tax expense
—

 
—

 
9.1

 
9.1

Common stock transactions:
 
 
 
 
 
 
 
22,727 common shares purchased and retired
(0.9
)
 
—

 
—

 
(0.9
)
11,267,676 common shares issued
385.9

 
—

 
—

 
385.9

134,044 non-vested common shares issued
—

 
—

 
—

 
—

30,070 non-vested common shares forfeited
—

 
—

 
—

 
—

180,789 stock options exercised, net of 56,082 shares tendered in payment of option price and income tax withholding amounts
2.0

 
—

 
—

 
2.0

Stock-based compensation expense
3.4

 
—

 
—

 
3.4

Common cash dividends declared (0.72 per share)
—

 
(35.0
)
 
—

 
(35.0
)
Balance at September 30, 2017
$
686.5

 
$
731.9

 
$
1.0

 
$
1,419.4

See accompanying notes to unaudited consolidated financial statements.

6

Table of Contents

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

 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
119.8

 
$
72.3

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
7.0

 
7.5

Depreciation and amortization
19.9

 
17.9

Net premium amortization on investment securities
7.9

 
8.6

Net gain on investment securities transactions
—

 
(0.8
)
Realized and unrealized net gains on mortgage banking activities
(4.2
)
 
(15.3
)
Net gain on sale of OREO
(0.4
)
 
(0.4
)
Write-downs of OREO and other assets pending disposal
0.1

 
0.3

Net (gain) on sale of Health Savings Accounts
—

 
(3.1
)
Mortgage servicing rights recovery
—

 
(0.1
)
Deferred tax expenses
13.2

 
19.8

Net increase in cash surrender value of company-owned life insurance
(3.6
)
 
(3.8
)
Stock-based compensation expense
4.3

 
3.4

Originations of mortgage loans held for sale
(738.3
)
 
(719.2
)
Proceeds from sales of mortgage loans held for sale
747.1

 
731.1

Changes in operating assets and liabilities, net of effects of acquisition:
 
 
 
Increase in interest receivable
(6.4
)
 
(3.2
)
(Increase) decrease in other assets
(0.7
)
 
(4.8
)
Increase in accrued interest payable
0.9

 
0.2

Decrease in accounts payable and accrued expenses
5.3

 
(15.7
)
Net cash provided by operating activities
171.9

 
94.7

Cash flows from investing activities:
 
 
 
Purchases of investment securities:
 
 
 
Held-to-maturity
(0.3
)
 
(12.8
)
Available-for-sale
(320.6
)
 
(386.5
)
Proceeds from maturities and pay-downs of investment securities:
 
 
 
Held-to-maturity
66.9

 
76.0

Available-for-sale
333.3

 
319.9

Extensions of credit to customers, net of repayments
(225.5
)
 
(20.9
)
Recoveries of loans charged-off
9.6

 
6.5

Proceeds from sale of OREO
4.3

 
4.1

Acquisition of intangible assets
—

 
(28.0
)
Proceeds from the sale of Health Savings Accounts
—

 
6.1

Acquisition of bank and bank holding company, net of cash and cash equivalents received
28.2

 
91.8

Capital expenditures, net of sales
(0.5
)
 
(12.2
)
Net cash provided by (used in) investing activities
$
(104.6
)
 
$
44.0


7

Table of Contents

FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
(Unaudited)
 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from financing activities:
 
 
 
Net increase (decrease) in deposits
$
214.4

 
$
(111.6
)
Net (decrease) increase in securities sold under repurchase agreements
(7.1
)
 
97.7

Net decrease in other borrowed funds
(24.5
)
 
10.0

Repayments of long-term debt
(0.4
)
 
(0.1
)
Advances on long-term debt
2.7

 
—

Proceeds from issuance of common stock
1.9

 
2.0

Purchase and retirement of common stock
(1.0
)
 
(0.9
)
Dividends paid to common stockholders
(47.2
)
 
(35.0
)
Net cash provided by (used in) financing activities
138.8

 
(37.9
)
Net increases (decrease) in cash and cash equivalents
206.1

 
100.8

Cash and cash equivalents at beginning of period
758.9

 
782.0

Cash and cash equivalents at end of period
$
965.0

 
$
882.8

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for income taxes
$
15.8

 
$
24.3

Cash paid during the period for interest expense
27.1

 
19.9

 
 
 
 
Supplemental disclosures of noncash investing and financing activities:
 
 
 
Transfer of loans to loans held for sale
$
1.4

 
$
6.3

Transfer of loans to other real estate owned
10.7

 
3.2

Capitalization of internally originated mortgage servicing rights
4.5

 
4.1

 
 
 
 
Supplemental schedule of noncash investing activities from acquisitions:
 
 
 
Investment securities available for sale
$
3.1

 
$
424.3

Investment securities held to maturity
—

 
57.3

Loans held for sale
—

 
10.2

Loans
713.1

 
2,080.4

Premises and equipment
14.0

 
46.7

Goodwill
100.8

 
232.2

Core deposit intangible
15.7

 
48.0

Mortgage servicing rights
—

 
3.5

Interest receivable
3.6

 
57.0

Company-owned life insurance
9.5

 
26.0

Deferred tax assets
—

 
7.6

Other real estate owned
0.6

 
1.2

Other assets
6.5

 
31.6

Total noncash assets acquired
866.9

 
3,026.0

 
 
 
 
Liabilities assumed:
 
 
 
Deposits
$
696.3

 
$
2,669.0

Accounts payable and accrued expenses
7.7

 
62.9

Long-term debt
7.0

 
—

Other borrowed funds
6.0

 
—

Trust preferred securities
4.4

 
—

Deferred tax liability
0.4

 
—

Total liabilities assumed
721.8

 
2,731.9

See accompanying notes to unaudited consolidated financial statements.

8

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



(1)
Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements of First Interstate BancSystem, Inc., First Interstate Bank (“FIB”), Inland Northwest Bank (“INB’), and its other subsidiaries (together, the “Company”) contain all adjustments (all of which are of a normal recurring nature) necessary to present fairly the financial position of the Company at September 30, 2018 and December 31, 2017, the results of operations for each of the three and nine month periods ended September 30, 2018 and 2017, and cash flows and changes in stockholders’ equity for each of the nine month periods ended September 30, 2018 and 2017, in conformity with U.S. generally accepted accounting principles (“GAAP”). The balance sheet information at December 31, 2017 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, 2018 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, 2017. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

Revenue Recognition

Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The new revenue recognition standards became effective for the Company on January 1, 2018.

The majority of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, guarantees, derivatives and investment securities, as well as revenue related to our mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within our disclosures. ASC 606 is applicable to non-interest revenue streams such as wealth management and trust fee income, service charges on deposit accounts, interchange and other fees, and annuity and insurance commissions. However, the recognition of these revenue streams did not change significantly upon the adoption of ASC 606. Substantially all of the Company’s revenue is generated from contracts with customers. Descriptions of our revenue-generating activities that are within the scope of ASC 606 are discussed below:

•
Wealth management and trust fee income - this represents monthly fees due from wealth management customers as consideration for managing the customers’ assets. Wealth management and trust services include custody of assets, investment management, fees for trust services and similar fiduciary activities. Revenue is recognized when our performance obligation is completed. The Company does not earn performance-based incentives. Optional services such as settlement, court, and regulatory fees are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred).

•
Service charges on deposit accounts - these represent general service fees for account maintenance and activity- or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed for account maintenance services or when a transaction has been completed (such as a wire transfer or check orders). Payment for such performance obligations are generally received at a point in time when the performance obligations are satisfied.


9

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


•
Interchange and other fees - these fees primarily represent debit and credit card income comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Mastercard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income primarily represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Swap fee income primarily represents income associated with the execution of dealer bank swap agreements. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for interchange and other service charges are largely satisfied, and related revenue recognized, when completion of the services are rendered at a point in time.

•
Annuity and Insurance commissions - these primarily represent commissions received on annuity product sales. The Company acts as an intermediary between the Company’s customer and the insurance carrier. The Company’s performance obligation is generally satisfied upon the issuance of the annuity policy, the carrier then remits the commission payment to the Company, and the Company recognizes the revenue at a point in time.

(2)
Acquisitions

Idaho Independent Bank. On October 11, 2018, the Company 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, in an all-stock transaction valued at approximately $181.3 million in aggregate, or $22.73 per share of IIBK stock. The Company believes the transaction, if completed on the terms contemplated, will complement the Company's footprint and will provide the Company with an expanded presence in several high-growth markets, including Boise and Coeur d’Alene, Idaho. The transaction has been approved by the boards of directors of both companies and is expected to close and convert data processing systems in the second quarter of 2019, subject to customary conditions, including regulatory approval and IIBK shareholder approval.

Community 1st Bank. On October 11, 2018, the Company also entered into a definitive agreement to acquire all of the outstanding stock of Community 1st Bank ("CMYF"), a community bank headquartered in Post Falls, Idaho with three banking offices in North Idaho, in an all-stock transaction valued at approximately$21.5 million in aggregate, or $17.20 per share of CMYF stock. The Company believes the transaction, if completed on the terms contemplated, will complement the Company’s footprint and will provide the Company with an expanded presence in North Idaho's high-growth markets. The transaction has been approved by the boards of directors of both companies and is expected to close and convert data processing systems in the second quarter of 2019, subject to customary conditions, including regulatory approval and CMYF shareholder approval.

Northwest Bancorporation, Inc. On April 25, 2018, the Company entered into a definitive agreement to acquire all of the outstanding stock of Northwest Bancorporation, Inc. (“Northwest”), the parent company of Inland Northwest Bank (“INB”), a Spokane, Washington based community bank with 20 banking offices across Idaho, Oregon and Washington. The acquisition was completed on August 16, 2018, and the Company will merge INB with its existing bank subsidiary, First Interstate Bank, on November 9, 2018.

Consideration for the acquisition was $176.3 million, consisting of the issuance of 3.84 million shares of the Company's Class A common stock valued at $45.15 per share, the closing price of the Company's Class A common stock as quoted on the NASDAQ stock exchange on the acquisition date. The Company paid approximately $3.0 million in cash related to Northwest warrants, which were included in the consideration paid. Holders of each share of Northwest common stock received 0.516 shares of First Interstate Class A common stock for each share of Northwest common stock. Additionally, all Northwest stock purchase warrants outstanding immediately prior to the close of the transaction were canceled in exchange for the right to receive a cash payment as provided in the Agreement. Previously unvested Northwest restricted stock awards outstanding immediately prior to the close of the transaction vested and were considered issued and outstanding at acquisition close.

The assets and liabilities of Northwest were provisionally recorded in the Company’s consolidated financial statements at their estimated fair values as of the acquisition date and will be finalized in the coming months. The excess value of the consideration paid over the fair value of assets acquired and liabilities assumed is recorded as provisional goodwill. The preliminary purchase price allocation resulted in provisional goodwill of $100.8 million, which is not deductible for income tax purposes. Goodwill resulting from the acquisition was allocated to the Company’s one operating segment,

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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)


community banking, and consists largely of the synergies and economies of scale expected from combining the operations of Northwest and the Company.

The following table summarizes the consideration paid, fair values of the Northwest assets acquired and liabilities assumed, and the resulting goodwill. Due to the recent closing of the transaction, all amounts reported are provisional pending the review of valuations obtained from third parties.
 
As Recorded
Fair Value
 
As Recorded
As of August 16, 2018
by Northwest
Adjustments
 
by the Company
 
 
 
 
 
Assets acquired:
 
 
 
 
Cash and cash equivalents
$
31.2

$
—

 
$
31.2

Investment securities
3.1

—

 
3.1

Loans held for investment
727.9

(14.8
)
(1)
713.1

Allowance for loan loss
(8.0
)
8.0

(2)
—

Premises and equipment
14.5

(0.5
)
(3)
14.0

Other real estate owned (“OREO”)
0.3

0.3

 
0.6

Core deposit intangible assets
2.4

13.3

(4)
15.7

Deferred tax assets, net
1.2

(1.6
)
(5)
(0.4
)
Other assets
29.3

(9.7
)
(6)
19.6

Total assets acquired
801.9

(5.0
)
 
796.9

 
 
 
 
 
Liabilities assumed:
 
 
 
 
Deposits
696.1

0.2

(7)
696.3

Accounts payable and accrued expense
8.1

(0.4
)
(8)
7.7

Long term debt
13.0

—


13.0

Trust preferred securities
5.2

(0.8
)
(9)
4.4

Total liabilities assumed
722.4

(1.0
)
 
721.4

 
 
 
 
 
Net assets acquired
$
79.5

$
(4.0
)
 
$
75.5

 
 
 
 
 
Consideration paid:
 
 
 
 
Cash
 
 
 
$
3.0

Class A common stock
 
 
 
173.3

Total consideration paid
 
 
 
176.3

 
 
 
 
 
Goodwill
 
 
 
$
100.8

 
 
 
 
 
Explanation of fair value adjustments and the removal of previously recorded fair value marks recorded by Northwest:
(1)
Write down of the book value of loans to their estimated fair values. The fair value of the loans was estimated using cash flow projections based on the remaining maturity and repricing terms, adjusted for estimated future credit losses and prepayments and discounted to present value using a risk-adjusted market rate for similar loans. The fair value of collateral dependent loans acquired with deteriorated credit quality was estimated based on the Company’s analysis of the fair value of each loan’s underlying collateral, discounted using market-derived rates of return with consideration given to the period of time and costs associated with foreclosure and disposition of the collateral.
(2)
Adjustment to remove the Northwest allowance for loan losses at acquisition date, as the credit risk is included in the fair value adjustment for loans receivable described in (1) above.
(3)
Write down of the book value of premises and equipment to their estimated fair values on the date of acquisition based upon broker’s opinion of value.
(4)
Adjustment represents the value of the core deposit base assumed in the acquisition based upon valuation from an independent accounting and advisory firm.
(5)
Adjustment consists of the write-off of pre-existing deferred tax assets and purchase accounting adjustments as a result of the acquisition.

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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)
Adjustment consists of reductions to the fair value of other items, including the removal of Northwest previously recorded goodwill.
(7)
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.
(8)
Decrease due to the write-off of off balance sheet reserves.
(9)
Write down of the book value of debt to the estimated fair values on the date of acquisition based upon favorable interest rates in the market.
    
Core deposit intangible assets of $15.7 million are being amortized using an accelerated method over the estimated useful lives of the related deposits of ten years.

The Company acquired certain loans that are subject to Accounting Standards Codification ("ASC") Topic 310-30 "Loans and Debt Securities Acquired with Deteriorated Credit Quality." ASC Topic 310-30 provides recognition, measurement and disclosure guidance for acquired loans that have evidence of deterioration in credit quality since origination for which it is probable, at acquisition, the Company will be unable to collect all contractual amounts owed. For loans that meet the criteria stipulated in ASC Topic 310-30, the excess of all cash flows expected at acquisition over the initial fair value of the loans acquired ("accretable yield") is amortized to interest income over the expected remaining lives of the underlying loans using the effective interest method. The accretable yield will fluctuate due to changes in (i) estimated lives of underling credit-impaired loans, (ii) assumptions regarding future principal and interest amounts collected, and (iii) indices used to fair value variable rate loans.
Information regarding Northwest loans acquired deemed credit-impaired as of the August 16, 2018 acquisition date are as follows:
Contractually required principal and interest payments
$
27.5

Contractual cash flows not expected to be collected (“non-accretable discount”)
4.4

Cash flows expected to be collected
23.1

Interest component of cash flows expected to be collected (“accretable discount”)
3.2

Fair value of acquired credit-impaired loans
$
19.9


Information regarding Northwest acquired loans not deemed credit-impaired at the August 16, 2018 acquisition date are as follows:
Contractually required principal and interest payments
$
894.8

Contractual cash flows not expected to be collected
26.1

Fair value at acquisition
$
693.2


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

The accompanying consolidated statements of income for the three and nine months ended September 30, 2018, include the results of operations of the acquired entity from the August 16, 2018 acquisition date. For the period from August 16, 2018 to September 30, 2018, Northwest reported revenues of $5.9 million and net income of $2.1 million. The acquired entity will continued to operate as INB until November 9, 2018 at which point INB’s operations will be integrated with the Company’s operations, and INB will merge with FIB.

Cascade Bancorp. On November 17, 2016, the Company entered into an agreement and plan of merger (the “Agreement”) to acquire all of the outstanding stock of Cascade Bancorp (“Cascade”), parent company of Bank of the Cascades, an Oregon-based community bank with 46 banking offices across Oregon, Idaho, and Washington. This transaction was strategic in allowing the Company to expand its community banking footprint in the Northwest corridor of the United States. The merger was completed on May 30, 2017. Holders of each share of Cascade common stock

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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)


received 0.14864 shares of First Interstate Class A common stock and $1.91 in cash, without interest, for each share of Cascade common stock. In connection with the merger, the Company issued approximately 11.3 million shares of First Interstate Class A common stock, which was valued at $34.30 per share, which was the closing price of First Interstate Class A common stock on the acquisition date. Cash paid by First Interstate was approximately $155.0 million, which included the cash portion of the merger consideration and the cash in lieu of fractional shares that Cascade Bancorp shareholders would have otherwise been entitled to receive. Total consideration exchanged in connection with the merger amounted to $541.0 million.

All “in-the-money” Cascade options and all Cascade restricted stock units outstanding immediately prior to the transaction close were canceled in exchange for the right to receive a cash payment as provided in the Agreement. The Company paid approximately $9.3 million in cash related to Cascade options and restricted stock units, which was included in the consideration paid.

Unvested Cascade restricted stock awards outstanding immediately prior to the transaction close were canceled in exchange for the right to receive a cash payment and Company shares as provided in the Agreement. The Company paid a total of approximately $2.2 million in cash and issued approximately 168 thousand Company shares, valued at $34.30 per share, related to Cascade unvested restricted stock awards. Of the cash paid and shares issued related to Cascade unvested restricted stock awards, approximately $2.4 million was allocated to expense and excluded from consideration paid due to the acceleration of award vesting at the Company’s discretion. The remaining balance of approximately $5.5 million related to unvested Cascade restricted stock awards is included in the consideration paid.

The assets and liabilities of Cascade were recorded in the Company’s consolidated financial statements at their estimated fair values as of the acquisition date. The excess value of the consideration paid over the fair value of assets acquired and liabilities assumed is recorded as goodwill. The purchase price allocation resulted in goodwill of $232.8 million, which is not deductible for income tax purposes. Goodwill resulting from the acquisition was allocated to the Company’s one operating segment, community banking, and consists largely of the synergies and economies of scale expected from combining the operations of Cascade and the Company.


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


The following table summarizes the consideration paid, fair values of the Cascade assets acquired and liabilities assumed, and the resulting goodwill. All amounts were finalized in the first quarter of 2018.
 
As Recorded
Fair Value
 
As Recorded
As of May 30, 2017
by Cascade
Adjustments
 
by the Company
 
 
 
 
 
Assets acquired:
 
 
 
 
Cash and cash equivalents
$
246.8

$
—

 
$
246.8

Investment securities
476.7

4.9

(1)
481.6

Loans held for investment
2,111.0

(31.7
)
(2)
2,079.3

Mortgage loans held for sale
10.3

—

 
10.3

Allowance for loan loss
(24.0
)
24.0

(3)
—

Premises and equipment
46.6

0.1

(4)
46.7

Other real estate owned (“OREO”)
1.2

—

 
1.2

Core deposit intangible assets
—

48.0

(5)
48.0

Deferred tax assets, net
47.6

(20.9
)
(6)
26.7

Other assets
98.6

2.1

(7)
100.7

Total assets acquired
3,014.8

26.5

 
3,041.3

 
 
 
 
 
Liabilities assumed:
 
 
 
 
Deposits
2,669.9

(0.9
)
(8)
2,669.0

Accounts Payable and Accrued Expense
62.2

1.9

(9)
64.1

Total liabilities assumed
2,732.1

1.0

 
2,733.1

 
 
 
 
 
Net assets acquired
$
282.7

$
25.5

 
$
308.2

 
 
 
 
 
Consideration paid:
 
 
 
 
Cash
 
 
 
$
155.0

Class A common stock
 
 
 
386.0

Total consideration paid
 
 
 
541.0

 
 
 
 
 
Goodwill
 
 
 
$
232.8

 
 
 
 
 

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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)


Explanation of fair value adjustments:
(1)
Write up of the book value of investments to their estimated fair values on the date of acquisition based upon quotes obtained from an independent third party pricing service.
(2)
Write down of the book value of loans to their estimated fair values. Shared National Credits (SNC) were recorded at quoted sales prices where available. The fair value of the remaining loans was estimated using cash flow projections based on the remaining maturity and repricing terms, adjusted for estimated future credit losses and prepayments and discounted to present value using a risk-adjusted market rate for similar loans. The fair value of collateral dependent loans acquired with deteriorated credit quality was estimated based on the Company’s analysis of the fair value of each loan’s underlying collateral, discounted using market-derived rates of return with consideration given to the period of time and costs associated with foreclosure and disposition of the collateral.
(3)
Adjustment to remove the Cascade allowance for loan losses at acquisition date, as the credit risk is included in the fair value adjustment for loans receivable described in (2) above.
(4)
Write up of the book value of premises and equipment to their estimated fair values on the date of acquisition based upon appraisals obtained from an independent third party appraiser or broker’s opinion of value.
(5)
Adjustment represents the value of the core deposit base assumed in the acquisition based upon valuation from an independent accounting and advisory firm.
(6)
Adjustment consists of the write-off of pre-existing deferred tax assets and purchase accounting adjustments as a result of the acquisition.
(7)
Adjustment consists of various other assets recorded as a result of the acquisition, including mortgage servicing rights, SBA servicing rights, and favorable leases offset by reductions to the fair value of other items.
(8)
Decrease in book value of time deposits to their estimated fair values based upon interest rates of similar time deposits with similar terms on the date of acquisition based upon valuation from an independent accounting and advisory firm.
(9)
Increase in fair value due to credit card incentive program, unfavorable leases, write-off of balance sheet reserve, and swap liability offset.
    
Core deposit intangible assets of $48.0 million are being amortized using an accelerated method over the estimated useful lives of the related deposits of 10 years.

The Company acquired certain loans that are subject to ASC Topic 310-30. For loans that meet the criteria stipulated in Topic 310-30, the excess of all cash flows expected at acquisition over the initial fair value of the loans acquired (“accretable yield”) is amortized to interest income over the expected remaining lives of the underlying loans using the effective interest method. The accretable yield will fluctuate due to changes in (i) estimated lives of underling credit-impaired loans, (ii) assumptions regarding future principal and interest amounts collected, and (iii) indices used to fair value variable rate loans.
Information regarding Cascade loans acquired deemed credit-impaired as of the May 30, 2017 acquisition date is as follows:
Contractually required principal and interest payments
$
49.7

Contractual cash flows not expected to be collected (“non-accretable discount”)
24.7

Cash flows expected to be collected
25.0

Interest component of cash flows expected to be collected (“accretable discount”)
1.9

Fair value of acquired credit-impaired loans
$
23.1



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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)


Information regarding Cascade acquired loans not deemed credit-impaired at the May 30, 2017 acquisition date is as follows:
Contractually required principal and interest payments
$
2,098.1

Contractual cash flows not expected to be collected
23.3

Fair value at acquisition
$
2,066.5

                                                    
The accompanying consolidated statements of income for the three and nine months ended September 30, 2018 and 2017, include the results of operations of the acquired entity from the May 30, 2017 acquisition date. The acquired entities continued to operate as Bank of the Cascades until August 11, 2017 at which point Cascade’s operations were integrated with the Company’s operations, and Bank of the Cascades was merged with FIB. Standalone amounts for the Bank of the Cascades were no longer available after that date.

The following table presents unaudited pro forma consolidated revenues and net income as if the Cascade acquisition had occurred as of January 1, 2016.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
2017
 
2018
2017
Interest income
$
121.2

$
108.7

 
$
341.8

$
312.1

Non-interest income
36.2

38.3

 
109.0

116.2

Total revenues
$
157.4

$
147.0

 
$
450.8

$
428.3

 
 
 
 
 
 
Net income
$
41.4

$
34.9

 
$
119.8

$
94.0

 
 
 
 
 
 
EPS - basic
$
0.71

$
0.52

 
$
2.10

$
1.55

EPS - diluted
0.71

0.51

 
2.09

1.53


The unaudited pro forma net income presented in the table above for 2017 was adjusted to exclude acquisition-related costs, including change in control expenses related to employee benefit plans and legal and professional expenses of $19.7 million, net of tax. The unaudited pro forma net income presented in the table above for 2018 and 2017 includes adjustments for scheduled amortization of core deposit intangible assets acquired in the acquisition. The unaudited supplemental pro forma net income presented in the table above for 2017 does not capture operating cost savings and other business synergies expected as a result of the acquisition.

The Company recorded $3.1 million of Northwest related pre-tax acquisition related expenses for the three months ended September 30, 2018 and $5.4 million of Northwest and Cascade related pre-tax acquisition related expenses for the nine months ended September 30, 2018. These costs are incorporated in non-interest expenses in the Company’s consolidated statements of income.
 
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
Legal and Professional Fees
 
$
2.4

 
$
3.0

Employee Expenses
 
—

 
0.1

Technology Conversion and Contract Termination
 
0.5

 
2.0

Other
 
0.2

 
0.3

Total Acquisition Related Expenses
 
$
3.1

 
$
5.4



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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)


(3)
Goodwill and Core Deposit Intangibles

Management analyzes its goodwill for impairment on an annual basis and between annual tests in certain circumstances, such as upon material adverse changes in legal, business, regulatory and economic factors. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The Company performed an impairment assessment as of July 1, 2018 and 2017 and concluded that there was no impairment to goodwill.
Goodwill
 
 
As of September 30,
 
 
2018
 
2017
Net carrying value at beginning of nine month period
 
$
444.7

 
$
212.8

Addition to provisional goodwill from acquisition
 
100.8

 
232.2

Measurement period adjustment to previously recorded goodwill
 
0.9

 
—

Net carrying value at end of period
 
$
546.4

 
$
445.0


Core deposit intangibles (“CDI”)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
CDI, net, beginning of period
 
$
45.6

 
$
52.8

 
$
49.1

 
$
9.6

Established through acquisitions or provisional adjustments
 
15.7

 
—

 
15.7

 
48.0

Reductions due to sale of accounts
 
—

 
—

 
—

 
(3.1
)
CDI current period amortization
 
(2.0
)
 
(1.9
)
 
(5.5
)
 
(3.6
)
Total CDI, net, end of period
 
$
59.3

 
$
50.9

 
$
59.3

 
$
50.9


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

The following table provides the estimated future CDI amortization expense:
Years Ending December 31,
 
 
 
2018 remaining
 
 
$
2.4

2019
 
 
8.9

2020
 
 
8.1

2021
 
 
7.5

2022
 
 
6.9

Thereafter
 
 
25.5

Total
 
 
$
59.3



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


(4)     Investment Securities

The amortized cost and approximate fair values of investment securities are summarized as follows:
September 30, 2018
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Available-for-Sale:
 
 
 
 
U.S. Treasury notes
$
3.0

$
—

$
—

$
3.0

Obligations of U.S. government agencies
576.2

—

(15.3
)
560.9

U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
1,462.0

1.4

(37.8
)
1,425.6

Private mortgage-backed securities
74.8

—

(1.8
)
73.0

Corporate securities
93.0

0.1

(1.0
)
92.1

Other investments
4.2

—

—

4.2

Total
$
2,213.2

$
1.5

$
(55.9
)
$
2,158.8

September 30, 2018
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Held-to-Maturity:
 
 
 
 
State, county and municipal securities
$
153.7

$
1.2

$
(1.7
)
$
153.2

Obligations of U.S. government agencies
19.7

—

(0.3
)
19.4

U.S agency residential mortgage-backed securities & collateralized mortgage obligations
198.0

7.8

(16.8
)
189.0

Corporate securities
46.3

—

(0.6
)
45.7

Other investments
0.1

—

—

0.1

Total
$
417.8

$
9.0

$
(19.4
)
$
407.4

December 31, 2017
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Available-for-Sale:
 
 
 
 
U.S. Treasury notes
$
3.2

$
—

$
—

$
3.2

Obligations of U.S. government agencies
569.5

—

(8.0
)
561.5

U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
1,474.1

3.8

(15.4
)
1,462.5

Private mortgage-backed securities
91.5

—

(0.8
)
90.7

Corporate securities
88.0

0.1

(0.3
)
87.8

Other investments
3.0

—

—

3.0

Total
$
2,229.3

$
3.9

$
(24.5
)
$
2,208.7

December 31, 2017
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Held-to-Maturity:
 
 
 
 
State, county and municipal securities
$
172.4

$
2.6

$
(0.6
)
$
174.4

Obligations of U.S. government agencies
19.8

—

(0.2
)
19.6

U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
230.5

8.8

(11.6
)
227.7

Corporate securities
61.6

0.1

(0.3
)
61.4

Other investments
0.2

—

—

0.2

Total
$
484.5

$
11.5

$
(12.7
)
$
483.3

    

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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)


There were no material gross realized gains and losses from the disposition of available-for-sale investment securities for the three and nine months ended September 30, 2018 and 2017.

The following tables show the gross unrealized losses and fair values of investment securities, aggregated by investment category, and the length of time individual investment securities have been in a continuous unrealized loss position, as of September 30, 2018 and December 31, 2017:
 
Less than 12 Months
 
12 Months or More
 
Total
September 30, 2018
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
Available-for-Sale:
 
 
 
 
 
 
 
 
Obligations of U.S. government agencies
$
199.9

$
(4.8
)
 
$
346.5

$
(10.5
)
 
$
546.4

$
(15.3
)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
851.8

(19.2
)
 
448.2

(18.6
)
 
1,300.0

(37.8
)
Private mortgage-backed securities
49.9

(1.2
)
 
22.9

(0.6
)
 
72.8

(1.8
)
Corporate securities
38.7

(0.9
)
 
1.9

(0.1
)
 
40.6

(1.0
)
Total
$
1,140.3

$
(26.1
)
 
$
819.5

$
(29.8
)
 
$
1,959.8

$
(55.9
)
 
Less than 12 Months
 
12 Months or More
 
Total
September 30, 2018
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
Held-to-Maturity:
 
 
 
 
 
 
 
 
State, county and municipal securities
$
59.8

$
(1.0
)
 
$
26.2

$
(0.7
)
 
$
86.0

$
(1.7
)
Obligations of U.S. government agencies
9.6

(0.2
)
 
9.8

(0.1
)
 
19.4

(0.3
)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
85.8

(13.1
)
 
44.0

(3.7
)
 
129.8

(16.8
)
Corporate securities
30.9

(0.4
)
 
8.8

(0.2
)
 
39.7

(0.6
)
Total
$
186.1

$
(14.7
)
 
$
88.8

$
(4.7
)
 
$
274.9

$
(19.4
)
 
Less than 12 Months
 
12 Months or More
 
Total
December 31, 2017
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
Available-for-Sale:
 
 
 
 
 
 
 
 
Obligations of U.S. government agencies
$
284.9

$
(3.4
)
 
$
266.1

$
(4.6
)
 
$
551.0

$
(8.0
)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
670.1

(6.2
)
 
439.2

(9.2
)
 
1,109.3

(15.4
)
Private mortgage-backed securities
74.0

(0.8
)
 
—

—

 
74.0

(0.8
)
Corporate securities
51.3

(0.3
)
 
—

—

 
51.3

(0.3
)
Total
$
1,080.3

$
(10.7
)

$
705.3

$
(13.8
)

$
1,785.6

$
(24.5
)
 
Less than 12 Months
 
12 Months or More
 
Total
December 31, 2017
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
 
Fair
Value
Gross
Unrealized
Losses
Held-to-Maturity:
 
 
 
 
 
 
 
 
State, county and municipal securities
$
53.3

$
(0.4
)
 
$
12.3

$
(0.2
)
 
$
65.6

$
(0.6
)
Obligations of U.S. government agencies
9.7

—

 
9.9

(0.2
)
 
19.6

(0.2
)
U.S. agency residential mortgage-backed securities & collateralized mortgage obligations
76.4

(9.1
)
 
60.5

(2.5
)
 
136.9

(11.6
)
Corporate securities
41.2

(0.2
)
 
5.0

(0.1
)
 
46.2

(0.3
)
Total
$
180.6

$
(9.7
)
 
$
87.7

$
(3.0
)
 
$
268.3

$
(12.7
)
        

19

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 investment portfolio is evaluated quarterly for other-than-temporary declines in the market value of each individual investment security. The Company had 720 and 581 individual investment securities that were in an unrealized loss position as of September 30, 2018 and December 31, 2017, respectively. As of September 30, 2018, the Company had the intent and ability to hold these investment securities for a period of time sufficient to allow for an anticipated recovery. Furthermore, the Company does not have the intent to sell any of the available-for-sale securities in the above table and it is more likely than not that the Company will not have to sell any securities before a recovery in cost. No impairment losses were recorded during the three and nine months ended September 30, 2018 or 2017.
    
Maturities of investment securities at September 30, 2018 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, 2018
Amortized
Cost
Estimated
Fair Value
 
Amortized
Cost
Estimated
Fair Value
Within one year
$
511.5

$
501.8

 
$
70.6

$
68.9

After one year but within five years
1,444.9

1,407.9

 
222.9

216.0

After five years but within ten years
189.3

183.3

 
100.7

99.9

After ten years
67.5

65.8

 
23.6

22.6

Total
$
2,213.2

$
2,158.8

 
$
417.8

$
407.4

        
As of September 30, 2018, the Company had investment securities callable within one year with amortized costs and estimated fair values of $107.4 million and $105.1 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, 2018, the Company did not have any structured notes callable within one year.


20

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


(5)
Loans
    
The following table presents loans by class as of the dates indicated:
 
September 30,
2018
 
December 31,
2017
Real estate loans:
 
 
 
Commercial
$
3,213.1

 
$
2,822.9

Construction:
 
 
 
Land acquisition & development
314.5

 
348.7

Residential
250.6

 
240.2

Commercial
219.6

 
119.4

Total construction loans
784.7

 
708.3

Residential
1,581.2

 
1,487.4

Agricultural
217.8

 
158.2

Total real estate loans
5,796.8

 
5,176.8

Consumer:
 
 
 
Indirect consumer
800.8

 
784.7

Other consumer
198.1

 
175.1

Credit card
79.4

 
74.6

Total consumer loans
1,078.3

 
1,034.4

Commercial
1,337.2

 
1,215.4

Agricultural
264.8

 
136.2

Other, including overdrafts
3.2

 
4.9

Loans held for investment
8,480.3

 
7,567.7

Mortgage loans held for sale
37.7

 
46.6

Total loans
$
8,518.0

 
$
7,614.3




21

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


The following tables present the Company’s recorded investment and contractual aging of the Company’s recorded investment in loans by class as of the dates indicated. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.
 
 
 
 
Total Loans
 
 
 
 
30 - 59
60 - 89
> 90
30 or More
 
 
 
 
Days
Days
Days
Days
Current
Non-accrual
Total
As of September 30, 2018
Past Due
Past Due
Past Due
Past Due
Loans
Loans
Loans
Real estate
 
 
 
 
 
 
 
Commercial
$
9.6

$
3.0

$
0.5

$
13.1

$
3,185.0

$
15.0

$
3,213.1

Construction:
 
 
 
 
 
 
 
Land acquisition & development
0.7

0.7

0.4

1.8

309.0

3.7

314.5

Residential
3.4

0.4

—

3.8

246.2

0.6

250.6

Commercial
5.3

—

—

5.3

210.7

3.6

219.6

Total construction loans
9.4

1.1

0.4

10.9

765.9

7.9

784.7

Residential
3.2

7.3

1.8

12.3

1,562.5

6.4

1,581.2

Agricultural
1.3

—

0.3

1.6

203.6

12.6

217.8

Total real estate loans
23.5

11.4

3.0

37.9

5,717.0

41.9