First Interstate BancSystem, Inc. Reports Second Quarter Earnings

First Interstate BancSystem, Inc. (NASDAQ:FIBK) (the "Company") today reported financial results for the second quarter of 2024. For the quarter, the Company reported net income of $60.0 million, or $0.58 per share, which compares to net income of $58.4 million, or $0.57 per share, for the first quarter of 2024 and net income of $67.0 million, or $0.65 per share, for the second quarter of 2023.

HIGHLIGHTS

• Criticized loans decreased $12.0 million at June 30, 2024, compared to March 31, 2024, driven by loan upgrades, payoffs, and charge-offs.
• Non-performing assets decreased $14.5 million at June 30, 2024, compared to March 31, 2024, driven primarily by the paydown of nonaccrual loans and disposal of OREO properties in the second quarter of 2024.
• Net interest margin increased to 2.97% for the second quarter of 2024, a 6 basis point increase from the first quarter of 2024. Net interest margin, on a fully taxable equivalent ("FTE") basis¹, increased to 3.00% for the second quarter of 2024, or a 7 basis point increase from the first quarter of 2024.
• Loans held for investment increased $32.2 million at June 30, 2024, compared to March 31, 2024.
• Total deposits increased $60.7 million at June 30, 2024 from March 31, 2024.
• Non-interest expense decreased $3.3 million for the second quarter of 2024, compared to the first quarter of 2024 and decreased $7.0 million compared to the second quarter of 2023.

"We continued executing well in the second quarter, with results generally in-line with expectations. We were pleased to see our net interest margin expansion, as expected, a reduction in non-performing assets, and continued expense control. Given our strong levels of capital and liquidity, adequate allowance for credit losses, and continued expectations for net interest margin expansion and expense control, we believe we are well positioned for the remainder of 2024 into 2025 and remain confident in our ability to generate solid returns," said Kevin P. Riley, President and Chief Executive Officer of First Interstate BancSystem, Inc.

¹ Represents a Non-GAAP Financial Measure. See Non-GAAP Financial Measures included below for a reconciliation to this measure's most directly comparable GAAP financial measure.

DIVIDEND DECLARATION

On July 24, 2024, the Company's board of directors declared a dividend of $0.47 per common share, payable on August 15, 2024, to common stockholders of record as of August 5, 2024. The dividend equates to a 7.1% annualized yield based on the $26.48 per share average closing price of the Company's common stock as reported on NASDAQ during the second quarter of 2024.

NET INTEREST INCOME

Net interest income increased $1.6 million, or 0.8%, to $201.7 million, during the second quarter of 2024, compared to net interest income of $200.1 million during the first quarter of 2024, primarily due to a decrease in interest expense resulting from a decrease in average other borrowed funds during the second quarter of 2024. Net interest income decreased $16.7 million, or 7.6%, during the second quarter of 2024 compared to the second quarter of 2023, primarily due to an increase in interest expense resulting from higher costs of interest-bearing deposits, partially offset be an increase in interest and fees on loans in the second quarter of 2024.

• Interest accretion attributable to the fair valuation of acquired loans from acquisitions contributed to net interest income during the second quarter of 2024, the first quarter of 2024, and the second quarter of 2023, in the amounts of $5.1 million, $6.5 million, and $4.6 million, respectively.

The net interest margin ratio was 2.97% for the second quarter of 2024, compared to 2.91% during the first quarter of 2024, and 3.09% during the second quarter of 2023. The net FTE interest margin ratio², was 3.00% for the second quarter of 2024, compared to 2.93% during the first quarter of 2024, and 3.12% during the second quarter of 2023. Excluding interest accretion from the fair value of acquired loans, on a quarter-over-quarter basis, the adjusted net interest margin ratio (FTE)², was 2.92%, an increase of 8 basis points from the prior quarter, primarily driven by lower interest expense as a result of decreased borrowings. Excluding interest accretion from the fair value of acquired loans, on a year-over-year basis, the adjusted net interest margin ratio (FTE) decreased 13 basis points, primarily as a result of higher interest-bearing deposit costs, which was partially offset by loan yield expansion and a modestly favorable change in the mix of earning assets.

² Represents a Non-GAAP Financial Measure. See Non-GAAP Financial Measures included below for a reconciliation to this measure's most directly comparable GAAP financial measure.

PROVISION FOR CREDIT LOSSES

During the second quarter of 2024, the Company recorded a provision for credit losses of $9.0 million. This compares to a provision for credit losses of $5.3 million during the first quarter of 2024 and $11.7 million during the second quarter of 2023.

For the second quarter of 2024, the allowance for credit losses included net charge-offs of $13.5 million, or an annualized 0.30% of average loans outstanding, compared to net charge-offs of $8.4 million, or an annualized 0.18% of average loans outstanding, for the first quarter of 2024 and net charge-offs of $11.4 million, or an annualized 0.25% of average loans outstanding, for the second quarter of 2023. Net loan charge-offs in the second quarter of 2024 were composed of charge-offs of $16.3 million, including the charge-off of a $6.8 million specific allocation related to a construction real estate loan, and recoveries of $2.8 million.

The Company's allowance for credit losses as a percentage of period-end loans held for investment was 1.28% at June 30, 2024, compared to 1.25% at March 31, 2024 and 1.23% at June 30, 2023. Coverage of non-performing loans increased to 138.4% at June 30, 2024, compared to 130.1% at March 31, 2024 and 242.0% at June 30, 2023.

NON-INTEREST INCOME

Non-interest income was $42.6 million for the second quarter of 2024, increasing $0.5 million and decreasing $1.5 million compared to the first quarter of 2024 and the second quarter of 2023, respectively.

NON-INTEREST EXPENSE

The Company's non-interest expense was $156.9 million for the second quarter of 2024, a decrease of $3.3 million from the first quarter of 2024 and a decrease of $7.0 million from the second quarter of 2023.

Salary and wages expense increased $1.1 million during the second quarter of 2024 compared to the first quarter of 2024, primarily due to a reversal of short-term incentives in the first quarter for the over accrual of short-term incentives at December 31, 2024. Salaries and wages expense decreased $1.8 million during the second quarter of 2024 compared to the second quarter of 2023, primarily due to lower salaries and wages and net severance costs from expense reduction initiatives undertaken by the Company in 2023, which were partially offset by higher short-term incentive accruals in the second quarter of 2024.

Employee benefit expenses decreased $2.4 million during the second quarter of 2024 compared to the first quarter of 2024, primarily due to a decrease of $2.5 million of the seasonal reset of payroll taxes. Employee benefit expenses decreased $2.4 million during the second quarter of 2024 compared to the second quarter of 2023, primarily due to lower health insurance costs, partially offset by higher long-term incentive accruals.

Other expenses decreased $1.6 million during the second quarter of 2024 compared to the first quarter of 2024, primarily due to a decrease in professional fees and a decrease in FDIC insurance related the special assessment fee accrued in the first quarter of 2024. Other expenses decreased $3.6 million during the second quarter of 2024 compared to the second quarter of 2023, primarily as a result of decreases in software and software maintenance costs, credit card reward accruals, and new market tax credit amortization expenses as a result of the adoption of ASU 2023-02.

Other real estate owned expenses were stable during the second quarter of 2024 compared to the first quarter of 2024 and increased $1.4 million compared to the second quarter of 2023. The year-over-year increase was primarily due to the write down of a commercial property in the second quarter of 2024.

BALANCE SHEET

Total assets increased $144.7 million, or 0.5%, to $30,289.5 million as of June 30, 2024, from $30,144.8 million as of March 31, 2024, primarily due to increases in cash and cash equivalents, loans, and other assets, which was partially offset by a decrease in investment securities. Total assets decreased $686.8 million, or 2.2%, from $30,976.3 million as of June 30, 2023, primarily due to decreases in investment securities which funded declines in deposits and securities sold under repurchase agreements, which was partially offset by an increase in cash and cash equivalents.

Investment securities decreased $224.5 million, or 2.6%, to $8,401.6 million as of June 30, 2024, from $8,626.1 million as of March 31, 2024, primarily as a result of normal pay-downs and maturities. Investment securities decreased $774.0 million, or 8.4%, from $9,175.6 million as of June 30, 2023, primarily as a result of normal pay-downs and maturities, partially offset by a $100.2 million increase in fair market values and a reduction of $1.3 million in allowance for credit losses on available-for-sale investment securities during the period.

The following table presents the composition and comparison of loans held for investment as of the quarters-ended:

The ratio of loans held for investment to deposits was 79.7%, as of June 30, 2024, compared to 79.8% as of March 31, 2024 and 77.5% as of June 30, 2023.

Total deposits increased $60.7 million, or 0.3%, to $22,870.7 million as of June 30, 2024, from $22,810.0 million as of March 31, 2024, with increases in non-interest bearing and demand deposits, which were partially offset by decreases in all other categories. Total deposits decreased $708.5 million, or 3.0%, from $23,579.2 million as of June 30, 2023, with decreases in all types of deposits except for time deposits $250 thousand and over.

Securities sold under repurchase agreements decreased $52.4 million, or 6.6%, to $741.8 million as of June 30, 2024, from $794.2 million as of March 31, 2024, and decreased $188.1 million, or 20.2%, from $929.9 million as of June 30, 2023, resulting from normal fluctuations in the liquidity needs of the Company's clients.

Other borrowed funds is comprised of Federal Home Loan Bank and Bank Term Funding Program variable-rate, overnight and fixed-rate borrowings with contractual tenors of up to one year. Other borrowed funds increased $88.0 million, or 3.8%, to $2,430.0 million as of June 30, 2024, from $2,342.0 million as of March 31, 2024, as a result of higher cash balances held at quarter end, and decreased $159.0 million from June 30, 2023, as a result of adjusting the funding mix between other borrowed funds and long-term debt related to $250.0 million of 18-month Federal Home Loan Bank borrowing in the first quarter of 2024.

The Company is considered to be "well-capitalized" as of June 30, 2024, having exceeded all regulatory capital adequacy requirements. During the second quarter of 2024, the Company paid regular common stock dividends of approximately $49.0 million, or $0.47 per share.

CREDIT QUALITY

As of June 30, 2024, non-performing assets decreased $14.5 million, or 7.7%, to $174.9 million, compared to $189.4 million as of March 31, 2024, primarily due to a reduction of non-accrual loans and disposal of OREO properties.

Criticized loans decreased $12.0 million, or 1.9%, to $618.0 million as of June 30, 2024, from $630.0 million as of March 31, 2024, driven primarily by upgrades and paydowns in the agricultural real estate and construction real estate portfolios and a $6.8 million charge-off of a construction real estate loan. The decrease was partially offset by downgrades in the commercial real estate portfolio.

NON-GAAP FINANCIAL MEASURES

In addition to results presented in accordance with accounting principles generally accepted in the United States of America, or GAAP, this press release contains the following non-GAAP financial measures that management uses to evaluate our performance relative to our capital adequacy standards: (i) tangible common stockholders' equity; (ii) tangible assets; (iii) tangible book value per common share; (iv) tangible common stockholders' equity to tangible assets; (v) average tangible common stockholders' equity; (vi) return on average tangible common stockholders' equity; (vii) net FTE interest income; (viii) net FTE interest margin ratio; (ix) adjusted net FTE interest income; and (x) adjusted net FTE interest margin ratio. Tangible common stockholders' equity is calculated as total common stockholders' equity less goodwill and other intangible assets (excluding mortgage servicing rights). Tangible assets are calculated as total assets less goodwill and other intangible assets (excluding mortgage servicing rights). Tangible book value per common share is calculated as tangible common stockholders' equity divided by common shares outstanding. Tangible common stockholders' equity to tangible assets is calculated as tangible common stockholders' equity divided by tangible assets. Average tangible common stockholders' equity is calculated as average stockholders' equity less average goodwill and other intangible assets (excluding mortgage servicing rights). Return on average tangible common stockholders' equity is calculated as net income available to common shareholders divided by average tangible common stockholders' equity. Net FTE interest income is calculated as net interest income, adjusted to include its FTE interest income. Net FTE interest margin ratio is calculated as net FTE interest income divided by average interest-earning assets. Adjusted net FTE interest income is calculated as net GTE interest income excluding purchase accounting interest accretion on acquired loans. Adjusted net FTE interest margin ratio is calculated as adjusted net FTE interest income divided by average interest earning assets. These non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies because other companies may not calculate these non-GAAP measures in the same manner. They also should not be considered in isolation or as a substitute for measures prepared in accordance with GAAP.

The Company adjusts the most directly comparable capital adequacy GAAP financial measures to the non-GAAP financial measures described in subclauses (i) through (vi) above to exclude goodwill and other intangible assets (except mortgage servicing rights). Management believes these non-GAAP financial measures, which are intended to complement the capital ratios defined by banking regulators and to present on a consistent basis our and our acquired companies' organic continuing operations without regard to acquisition costs and other adjustments that we consider to be unpredictable and dependent on a significant number of factors that are outside our control, are useful to investors in evaluating the Company's performance because, as a general matter, they either do not represent an actual cash expense and are inconsistent in amount and frequency depending upon the timing and size of our acquisitions (including the size, complexity and/or volume of past acquisitions, which may drive the magnitude of acquisition related costs, but may not be indicative of the size, complexity and/or volume of future acquisitions or related costs), or they cannot be anticipated or estimated in a particular period (in particular as it relates to unexpected recovery amounts). This impacts the ratios that are important to analysts and allows investors to compare certain aspects of the Company's capitalization to other companies.

See the Non-GAAP Financial Measures table included herein and the textual discussion for a reconciliation of the above described non-GAAP financial measures to their most directly comparable GAAP financial measures.

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

This press release 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," "continues" or similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "might," "may," or similar expressions. Forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates and other important factors that change over time and could cause actual results to differ materially from any results, performance or events expressed or implied by such forward-looking statements. Furthermore, the following factors, among others, may cause actual results to differ materially from current expectations in the forward-looking statements, including those set forth in this press release:

• new or changes in existing, governmental regulations;
• negative developments in the banking industry and increased regulatory scrutiny;
• tax legislative initiatives or assessments;
• more stringent capital requirements, to the extent they may become applicable to us;
• changes in accounting standards;
• any failure to comply with applicable laws and regulations, including, but not limited to, the Community Reinvestment Act and fair lending laws, the USA PATRIOT ACT of 2001, the Office of Foreign Asset Control guidelines and requirements, the Bank Secrecy Act, and the related Financial Crimes Enforcement Network and Federal Financial Institutions Examination Council Guidelines and regulations;
• federal deposit insurance increases;
• lending risks and risks associated with loan sector concentrations;
• a decline in economic conditions that could reduce demand for our products and services and negatively impact the credit quality of loans;
• loan credit losses exceeding estimates;
• exposure to losses in collateralized loan obligation securities;
• changes to United States trade policies, including the imposition of tariffs and retaliatory tariffs;
• the soundness of other financial institutions;
• the ability to meet cash flow needs and availability of financing sources for working capital and other needs;
• a loss of deposits or a change in product mix that increases the Company's funding costs;
• inability to access funding or to monetize liquid assets;
• changes in interest rates;
• interest rate effect on the value of our investment securities;
• cybersecurity risks, including "denial-of-service attacks," "hacking," and "identity theft" that could result in the disclosure of confidential information;
• privacy, information security, and data protection laws, rules, and regulations that affect or limit how we collect and use personal information;
• the potential impairment of our goodwill and other intangible assets;
• our reliance on other companies that provide key components of our business infrastructure;
• events that may tarnish our reputation;
• main stream and social media contagion;
• the loss of the services of key members of our management team and directors;
• our ability to attract and retain qualified employees to operate our business;
• costs associated with repossessed properties, including environmental remediation;
• the effectiveness of our systems of internal operating and accounting controls;
• our ability to implement technology-facilitated products and services or be successful in marketing these products and services to our clients;
• difficulties we may face in combining the operations of acquired entities or assets with our own operations or assessing the effectiveness of businesses in which we make strategic investments or with which we enter into strategic contractual relationships;
• competition from new or existing financial institutions and non-banks;
• investing in technology;
• incurrence of significant costs related to mergers and related integration activities;
• the volatility in the price and trading volume of our common stock;
• "anti-takeover" provisions in our certificate of incorporation and regulations, which may make it more difficult for a third party to acquire control of us even in circumstances that could be deemed beneficial to stockholders;
• changes in our dividend policy or our ability to pay dividends;
• our common stock not being an insured deposit;
• the potential dilutive effect of future equity issuances;
• the subordination of our common stock to our existing and future indebtedness;
• the impact of the combined deficiencies resulting in a material weakness in our internal control over financial reporting;
• the effect of global conditions, earthquakes, volcanoes, tsunamis, floods, fires, drought, and other natural catastrophic events; and
• the impact of climate change and environmental sustainability matters.

These factors are not necessarily all the factors that could cause our actual results, performance, or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results.

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 and described in more detail in our periodic reports filed with the Securities and Exchange Commission, or SEC, under the Securities Exchange Act of 1934, as amended, under the caption "Risk Factors." Interested parties are urged to read in their entirety such risk factors prior to making any investment 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. 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.

Second Quarter 2024 Conference Call for Investors

First Interstate BancSystem, Inc. will host a conference call to discuss the results for the second quarter of 2024 at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) on Friday, July 26, 2024. The conference call will be accessible by telephone and through the Internet. Participants may join the call by dialing 1-800-274-8461; the access code is FIBANC. To participate via the Internet, visit www.FIBK.com. The call will be recorded and made available for replay on July 26, 2024, after 1:00 p.m. Eastern Time (11:00 a.m. Mountain Time), through August 25, 2024, prior to 9:00 a.m. Eastern Time (7:00 a.m. Mountain Time), by dialing 1-800-753-9146; the access code is 24978. The call will also be archived on our website, www.FIBK.com, for one year.

About First Interstate BancSystem, Inc.

First Interstate BancSystem, Inc. is a financial and bank holding company focused on community banking. Incorporated in 1971 and headquartered in Billings, Montana, the Company operates banking offices, including detached drive-up facilities, in communities across Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, South Dakota, Washington, and Wyoming, in addition to offering online and mobile banking services. Through our bank subsidiary, First Interstate Bank, the Company delivers a comprehensive range of banking products and services to individuals, businesses, municipalities, and others throughout the Company's market areas.