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What changed in FIRST INTERSTATE BANCSYSTEM INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FIRST INTERSTATE BANCSYSTEM INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+451 added−433 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-24)

Top changes in FIRST INTERSTATE BANCSYSTEM INC's 2023 10-K

451 paragraphs added · 433 removed · 302 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

49 edited+20 added−16 removed115 unchanged
Biggest changeWe are proud to provide lending opportunities to clients that participate in a wide variety of industries, including: • Agriculture • Hospitality • Technology • Construction • Housing • Tourism • Education • Professional services • Technology • Governmental services • Real Estate Development • Wholesale trade • Healthcare • Retail 2 Table of Contents We completed a recapitalization of our previously-existing common stock in March 2010, pursuant to which we effected a 4-for-1 split of our previously-existing common stock, a redesignation of our previously-existing common stock into Class B common stock, which was entitled to five votes per share, and the creation of a new class of common stock designated as Class A common stock, which has been since creation and continues to be entitled to one vote per share.
Biggest changeThrough our bank subsidiary, First Interstate Bank, we deliver a comprehensive range of banking products and services—including online and mobile banking—to individuals, businesses, government entities, and others throughout our market areas. 2 Table of Conten ts We are proud to provide lending opportunities to clients that participate in a wide variety of industries, including: • Agriculture • Healthcare • Professional services • Technology • Construction • Hospitality • Real Estate Development • Tourism • Education • Housing • Retail • Wholesale trade • Governmental services Historically, the Company’s authorized common stock had consisted of 200,000,000 shares, of which 100,000,000 shares were designated as Class A common stock and 100,000,000 were designated as Class B common stock.
As a result, we now have only one class of common stock outstanding and issuable upon exercise of outstanding rights to acquire common stock, all with equivalent voting rights: namely, Class A common stock.
As a result, we now have only one class of common stock outstanding and issuable upon exercise of outstanding rights to acquire common stock, all with equivalent voting rights: namely, common stock.
The Bank is subject to supervision and regular examination by its primary banking regulators, the Federal Reserve and the Montana Department of Administration, Division of Banking and Financial Institutions (the “Montana Division”). The Bank is also subject to supervision and regular examination by the Consumer Financial Protection Bureau (“CFPB”).
The Bank is subject to supervision and regular examination by its primary banking regulators, the Federal Reserve and the Montana Department of Administration, Division of Banking and Financial Institutions (the “Montana Division”). The Bank is also subject to supervision and examination by the Consumer Financial Protection Bureau (“CFPB”).
Community banking encompasses commercial and consumer banking services provided through our Bank: primarily the acceptance of deposits, the extension of credit, mortgage loan origination and servicing, and wealth management, which includes trust, employee benefit, investment management, insurance, agency, and custodial services to individuals, businesses, and nonprofit organizations.
Community banking encompasses commercial, governmental, and consumer banking services provided through our Bank: primarily the acceptance of deposits, the extension of credit, mortgage loan origination and servicing, and wealth management, which includes trust, employee benefit, investment management, insurance, agency, and custodial services to individuals, businesses, and nonprofit organizations.
For example, a risk weight of 0% is assigned to cash and United States government securities, a risk weight of 50% generally is assigned to prudently underwritten first lien one- to four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans, and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors. 8 Table of Contents In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
For example, a risk weight of 0% is assigned to cash and United States government securities, a risk weight of 50% generally is assigned to prudently underwritten first lien one- to four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans, and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors. 8 Table of Conten ts In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
On October 3, 2022, the Federal Reserve finalized a rule that amends Regulation II to specify, among other things, that debit card issuers should enable all debit card transactions, including card-not-present transactions such as online payments, to be processed on at least two unaffiliated payment card networks. The final rule becomes effective July 1, 2023.
On October 3, 2022, the Federal Reserve finalized a rule that amends Regulation II to specify, among other things, that debit card issuers should enable all debit card transactions, including card-not-present transactions such as online payments, to be processed on at least two unaffiliated payment card networks. The final rule became effective July 1, 2023.
This combination of authority and accountability allows our banking offices to provide personalized service and localized community support while at the same time remaining focused on our overall financial vitality. Lending Activities We offer real estate, consumer, commercial, agricultural, and other loans to individuals and businesses in our market areas.
This combination of authority and accountability allows our banking offices to provide personalized service and localized community support while at the same time remaining focused on our overall financial vitality. Lending Activities We offer real estate, consumer, commercial, agricultural, and other loans to individuals, government entities, and businesses in our market areas.
This autonomy enables our banking offices to remain competitive by quickly responding to local market conditions and enhancing relationships with our clients in those markets. While our banking offices enjoy a level of authority and flexibility, they remain accountable to company-wide standards and established limits on the authority and discretion.
This autonomy enables our banking offices to remain competitive by quickly responding to local market conditions and enhancing relationships with our clients in those markets. While our banking offices enjoy a level of flexibility, they remain accountable to company-wide standards and established limits on their authority and discretion.
We have a vested interest in the strength of our communities and strive to make them better places to live and work. Each year, the Company creates commitment to community plans for all our markets, which includes donating 2% of our net income before tax for charitable purposes.
We have a vested interest in the strength of our communities and strive to make them better places to live and work. Each year, the Company creates commitment to community plans for all our markets, which includes donating a portion of our net income before tax for charitable purposes.
These services include the administration of estates and personal trusts, management of investment accounts for individuals, employee benefit plans and charitable foundations, and insurance planning. 4 Table of Contents Centralized Services We have centralized certain operational activities to provide consistent service levels to our clients across the Bank, which helps us gain efficiency in management of those activities as well as ensure regulatory compliance.
These services include the administration of estates and personal trusts, management of investment accounts for individuals, employee benefit plans and charitable foundations, and insurance planning. 4 Table of Conten ts Centralized Services We have centralized certain operational activities to provide consistent service levels to our clients across the Bank, which helps us gain efficiency in management of those activities as well as ensure regulatory compliance.
We operate in markets with a diverse employment base covering numerous industries and we believe our community bank approach to providing client service is a competitive advantage that strengthens the Company’s ability to effectively provide financial products and services to businesses and individuals in its markets. 5 Table of Contents Competition There is significant competition among commercial banks in our market areas.
We operate in markets with a diverse employment base covering numerous industries and we believe our community bank approach to providing client service is a competitive advantage that strengthens the Company’s ability to effectively provide financial products and services to businesses and individuals in its markets. 5 Table of Conten ts Competition There is significant competition among commercial banks in our market areas.
We are subject to the interchange fee cap and having at least two unaffiliated payment card networks because our assets exceed $10 billion. 10 Table of Contents Client Privacy and Other Consumer Protections Federal and State laws impose client privacy requirements on any company engaged in financial activities, including us.
We are subject to the interchange fee cap and having at least two unaffiliated payment card networks because our assets exceed $10 billion. 10 Table of Conten ts Client Privacy and Other Consumer Protections Federal and State laws impose client privacy requirements on any company engaged in financial activities, including us.
Under federal law, First Interstate BancSystem, Inc. is required to serve as a source of financial and managerial strength to the Bank, which may include providing financial assistance to the Bank if the Bank experiences financial distress.
Under federal law, First Interstate is required to serve as a source of financial and managerial strength to the Bank, which may include providing financial assistance to the Bank if the Bank experiences financial distress.
We plan to continue to advance our business in a disciplined and prudent manner, fueled by organic growth in our existing market areas and expansion into new and complementary markets when appropriate acquisition and other opportunities arise. 3 Table of Contents Community Banking We have one operating segment—community banking.
We plan to continue to advance our business in a disciplined and prudent manner, fueled by organic growth in our existing market areas and expansion into new and complementary markets when appropriate acquisition and other opportunities arise. 3 Table of Conten ts Community Banking We have one operating segment—community banking.
The Bank is not, however, currently subject to a specific regulatory dividend limitation. 7 Table of Contents The Federal Reserve has issued a policy statement regarding the payment of dividends and the repurchase of common stock by bank holding companies.
The Bank is not, however, currently subject to a specific regulatory dividend limitation. 7 Table of Conten ts The Federal Reserve has issued a policy statement regarding the payment of dividends and the repurchase of common stock by bank holding companies.
As of June 30, 2022, based on publicly available information provided by the FDIC, we believe the Bank controlled approximately 16.9% of the total deposits of all insured depository institutions located in Montana. As such, the state limitation may limit our ability to directly or indirectly acquire additional banks located in Montana.
As of June 30, 2023, based on publicly available information provided by the FDIC, we believe the Bank controlled approximately 16.6% of the total deposits of all insured depository institutions located in Montana. As such, the state limitation may limit our ability to directly or indirectly acquire additional banks located in Montana.
Minimum underwriting standards generally specify that loans: (1) are made to borrowers generally located within or adjacent to our market footprint or own businesses and/or real estate within or adjacent to our footprint, with limited exceptions that may include participation loans and loans to national accounts; (2) are made only for identified legal purposes; (3) have specifically identified sources of repayment; (4) mature within designated maximum maturity periods that coincide with repayment sources; (5) are appropriately collateralized whenever possible; (6) are supported by current credit information; (7) do not exceed the Bank’s legal lending limit; (8) include medium-term fixed interest rates or variable rates that are adjusted within designated time frames; and (9) require compliance with laws and regulations including a flood zone and risk determination prior to closing.
Each loan must meet minimum underwriting standards specified in our credit policies and procedures, which generally specify that loans: (1) are made to borrowers generally located within or adjacent to our market footprint or own businesses and/or real estate within or adjacent to our footprint, with limited exceptions that may include participation loans and loans to national accounts; (2) are made only for identified legal purposes; (3) have specifically identified sources of repayment; (4) mature within designated maximum maturity periods that coincide with repayment sources; (5) are appropriately collateralized whenever possible; (6) are supported by current credit information; (7) do not exceed the Bank’s legal lending limit; (8) include medium-term fixed interest rates or variable rates that are adjusted within designated time frames; and (9) require compliance with laws and regulations including a flood zone and risk determination prior to closing.
Although final rules had not been adopted as of as of December 31, 2022, if these or other regulations are adopted in a form similar to the proposed rule-making, they could impose limitations on the manner in which we may structure compensation for our executives. Cyber-security Federal regulators have issued two related statements regarding cyber-security.
Although final rules had not been adopted as of as of December 31, 2023, if these or other regulations are adopted in a form similar to the proposed rule-making, they could impose limitations on the manner in which we may structure compensation for our executives. Cybersecurity Federal regulators have issued two related statements regarding cybersecurity.
Credit authorities are established and assigned based on the credit experience and credit acumen of each branch loan officer. Credit authority is under the direction of our Chief Credit Officer or such officer’s designee and is reviewed on an ongoing basis.
Credit authorization is established and assigned based on the credit experience and credit acumen of each branch loan officer. Credit authorization is under the direction of our Chief Credit Officer or such officer’s designee and is reviewed on an ongoing basis.
While each loan must meet minimum underwriting standards established in our credit policies, qualified bankers are granted levels of credit authority in approving and pricing loans to assure that banking offices are responsive to competitive issues and community needs in each market area. Lending authorities are established at individual, branch, and market levels.
While each loan must meet minimum underwriting standards, qualified bankers are granted levels of credit authority for approving and pricing loans to assure that banking offices are responsive to competitive issues and community needs in each market area. Lending authorization is established at individual, branch, and market levels.
In addition, our credit policies include lending limitations to minimize concentrations of credit in agricultural, commercial, real estate, or consumer loans. Furthermore, each minimum underwriting standard must be documented, with exceptions noted, as a part of the loan approval process.
In addition, our credit policies include lending limitations to minimize concentrations of credit in agricultural, commercial, real estate, or consumer loans. Furthermore, the criteria meeting our underwriting standards must be documented, with exceptions noted, as a part of the loan approval process.
As the regulatory framework for bank holding companies and banks continues to grow and become more complex, the cost of complying with regulatory requirements continues to increase. 6 Table of Contents Financial and Bank Holding Company First Interstate BancSystem, Inc. is a bank holding company and has registered as a financial holding company under regulations issued by the Federal Reserve.
As the regulatory framework for bank holding companies and banks continues to evolve and become more complex, the cost of complying with regulatory requirements continues to increase. 6 Table of Conten ts Financial and Bank Holding Company First Interstate is a bank holding company and has registered as a financial holding company under regulations issued by the Federal Reserve.
These programs impacted 64% of our total employees. Our compensation strategies are designed to pay for performance, pay competitively within our markets, and support pay equity among comparable jobs and markets across the company. We make data-driven decisions regarding employee compensation based on the job, experience, and performance.
Our compensation strategies are designed to pay for performance, pay competitively within our markets, and support pay equity among comparable jobs and markets across the company. We make data-driven decisions regarding employee compensation based on the job, experience, and performance.
We offer the following compensation and benefit programs as part of our total rewards package: • Competitive Total Compensation • Base salary • Pay for performance short-term and long-term incentive programs for eligible employees 13 Table of Contents • Comprehensive Benefit Programs • Medical, dental, and vision plans • 401(k) plan with a 100% match on the first 6% contributed • Paid time off • Health savings accounts with employer contribution • Flexible spending accounts • Company paid childcare assistance program • Student debt employer repayment program • Additional Benefits: short-term disability; long-term disability; employee assistance program; free or discounted banking products and services; wellness program; and flexible work arrangements Growth and Development We invest time and resources to develop the talent needed to remain competitive in our markets and remain an employer of choice.
We offer the following compensation and benefit programs as part of our total rewards package: • Competitive Total Compensation • Base salary • Pay for performance short-term and long-term incentive programs for eligible employees • Comprehensive Benefit Programs • Medical, dental, and vision plans • 401(k) plan with a 100% match on the first 6% contributed • Paid time off • Health savings accounts with employer contribution • Flexible spending accounts • Company paid childcare assistance program • Student debt employer repayment program • Additional Benefits: short-term disability; long-term disability; employee assistance program; free or discounted banking products and services; wellness program; and flexible work arrangements Growth and Development In our ongoing commitment to fostering a dynamic and competitive workforce, we have dedicated significant time and resources to nurture our talent.
We take pride in creating a workplace environment that values our employees for their differences while ensuring equity in all we do. We are committed to advocating for the rights and respect of all and actively participate in achieving this by setting an example.
We take pride in creating a workplace environment that values our employees for their differences while ensuring equity in all we do. We are committed to advocating for the rights and respect of all and actively participate in achieving this by setting an example. In 2023 the Company focused its efforts on education, employee connection, and communications.
As of December 31, 2022, we had consolidated assets of $32.3 billion, deposits of $25.1 billion, loans held for investment of $18.1 billion, and total stockholders’ equity of $3.1 billion. Our mission is to help people and their money work better together.
As of December 31, 2023, we had consolidated assets of $30.7 billion, deposits of $23.3 billion, loans held for investment of $18.3 billion, and total stockholders’ equity of $3.2 billion. Our mission is to help people and their money work better together.
The executive team is comprised equally of men and women, and the Company’s senior leadership team was 54.5% female and 45.5% male. Commitment to Community/ Volunteerism We are “all-in” when it comes to giving back—with time, money, and heart.
The executive team is comprised of 75.0% female and 25.0% male, and the Company’s senior leadership team was 45.5% female and 54.5% male. 12 Table of Conten ts Commitment to Community / Volunteerism We are “all-in” when it comes to giving back—with time, money, and heart.
The Company’s SEC filings are also available through the SEC’s website at www.sec.gov. Our website and the information contained therein or connected thereto is not intended to be incorporated by reference into this report and should not be considered a part of this report, and the referenced websites are not intended to act as active hyperlinks.
Our website and the information contained therein or connected thereto is not intended to be incorporated by reference into this report and should not be considered a part of this report, and the referenced websites are not intended to act as active hyperlinks.
The Federal Reserve has authority to bring an enforcement action against a bank or bank holding company and all “institution-affiliated parties” of a bank or bank holding company, including directors, officers, stockholders, and under certain circumstances, attorneys, appraisers, and accountants for the bank or holding company.
These include enhanced risk management and corporate governance processes specified by the regulators. The Federal Reserve has authority to bring an enforcement action against a bank or bank holding company and all “institution-affiliated parties” of a bank or bank holding company, including directors, officers, stockholders, and under certain circumstances, attorneys, appraisers, and accountants for the bank or holding company.
As of December 31, 2022, we operated 307 banking offices, including detached drive-up facilities, in communities across 14 states—Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, South Dakota, Washington, and Wyoming.
We operate 304 banking offices, including branches and detached drive-up facilities, in communities across 14 states—Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, South Dakota, Washington, and Wyoming.
At the record date for our first annual stockholders’ meeting following the completion of the GWB acquisition, all outstanding shares and rights to acquire shares of Class B common stock were automatically converted into the same number of outstanding shares and rights to acquire the same number of shares, as applicable, of Class A common stock.
On March 24, 2022, the record date for our first annual stockholders’ meeting following the completion of the Great Western Bank (“GWB”) acquisition on February 1, 2022, all outstanding shares and rights to acquire shares of Class B common stock were automatically converted into the same number of outstanding shares and rights to acquire the same number of shares, as applicable, of Class A common stock.
Market Area The following table reflects our deposit market share and branch locations by state: Deposit Market Share and Branch Locations by State % of Market Deposits (1) Deposit Market Share Rank (1) Number of Branches (2) Arizona 0.3 25 9 Colorado 0.6 22 20 Idaho 4.3 7 22 Iowa 2.4 7 46 Kansas 0.2 106 2 Minnesota — 309 1 Missouri 0.1 147 6 Montana 16.9 2 43 Nebraska 3.1 7 45 North Dakota 0.1 76 1 Oregon 2.4 10 33 South Dakota 0.6 4 46 Washington 0.3 32 18 Wyoming 13.7 1 15 Total 307 (1) Source: FDIC.gov-data as of June 30, 2022.
Market Area The following table reflects our deposit market share and branch locations by state: Deposit Market Share and Branch Locations by State % of Market Deposits (1) Deposit Market Share Rank (1) Number of Branches (2) Arizona 0.3 21 9 Colorado 0.5 26 20 Idaho 4.3 8 22 Iowa 1.9 9 45 Kansas 0.1 158 2 Minnesota — 305 1 Missouri 0.1 142 6 Montana 16.6 2 42 Nebraska 2.5 7 44 North Dakota 0.1 74 1 Oregon 2.5 9 33 South Dakota 0.5 5 46 Washington 0.4 29 18 Wyoming 13.7 1 15 Total 304 (1) Source: FDIC.gov-data as of June 30, 2023.
The recapitalization was completed in preparation for our initial public offering, or IPO, of Class A common stock later that same month on the NASDAQ stock market, or NASDAQ, under the symbol “FIBK.” Since our IPO, we have expanded our market reach through organic growth and strategic acquisitions, including our acquisitions of Mountain West Bank, United Bank, N.A., Flathead Bank of Bigfork, Bank of the Cascades, Inland Northwest Bank, Idaho Independent Bank, Community 1st Bank, and most recently, as mentioned above, GWB.
The Class A common stock is traded on the NASDAQ stock market, or NASDAQ, under the symbol “FIBK.” Since our initial public offering, we have expanded our market reach through organic growth and strategic acquisitions, including our acquisitions of Mountain West Bank, United Bank, N.A., Flathead Bank of Bigfork, Bank of the Cascades, Inland Northwest Bank, Idaho Independent Bank, Community 1st Bank, and GWB.
All outstanding repurchase agreements are due in one business day. Wealth Management We provide a wide range of trust, employee benefit, investment management, insurance, agency, and custodial services to individuals, businesses, and nonprofit organizations.
Wealth Management We provide a wide range of trust, employee benefit, investment management, insurance, agency, and custodial services to individuals, businesses, and nonprofit organizations.
The proposed rule requires covered institutions to establish policies and procedures for monitoring and evaluating their compensation practices. The comment period ended in July 2016.
The proposed rule requires covered institutions to establish policies and procedures for monitoring and evaluating their compensation practices. The comment period ended in July 2016, but the SEC is expected to resurrect this issue as a new proposed rule in 2024.
In 2022, Kevin Riley, CEO and President, signed the CEO Action Pledge that aligns First Interstate Bank with 2,000 other organizations which pledge to take action to cultivate environments where diverse experiences and perspectives are welcomed.
Kevin Riley, CEO and President, signed the CEO Action Pledge that aligns First Interstate Bank with 2,000 other organizations which pledge to take action to cultivate environments where diverse experiences and perspectives are welcomed. In the second quarter of 2023, we invited all employees to complete our customized LinkedIn Learning Path.
USA PATRIOT Act The USA PATRIOT Act of 2001 amended the Bank Secrecy Act of 1970 and the Money Laundering Control Act of 1986 and adopted additional measures requiring insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing.
Management endeavors to respond proactively to any instances of non-compliance and to implement and update appropriate procedures to prevent instances of non-compliance and other violations from occurring. 11 Table of Conten ts USA PATRIOT Act The USA PATRIOT Act of 2001 amended the Bank Secrecy Act of 1970 and the Money Laundering Control Act of 1986 and adopted additional measures requiring insured depository institutions, broker-dealers, and certain other financial institutions to have policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing.
Although the Bank’s policies and procedures are designed to achieve compliance with all fair lending and CRA requirements, instances of non-compliance are occasionally identified through normal operational activities. Management endeavors to respond proactively to any instances of non-compliance and to implement and update appropriate procedures to prevent instances of non-compliance and other violations from occurring.
Although the Bank’s policies and procedures are designed to achieve compliance with all fair lending and CRA requirements, instances of non-compliance are occasionally identified through normal operational activities.
We champion DEI initiatives in the communities we serve and engage with new partners to ensure we are recruiting and retaining diverse talent across our footprint.
We expanded our DEI Council to ensure further geographic representation and formalized our Council Governance. We championed DEI initiatives in the communities we serve and engaged with new partners to ensure we are recruiting and retaining diverse talent across our footprint.
Compensation and Benefits We strive to provide competitive wages, benefits, and programs that meet the varying needs of our workforce. We continually review our programs to ensure we remain competitive and take care of our employees.
Compensation and Benefits We strive to provide competitive wages, benefits, and programs that meet the varying needs of our workforce. We continually review our programs to ensure we remain competitive and take care of our employees. In 2023, we increased the salary threshold for the Childcare Assistance Program (CCAP) from $60,000 to $70,000.
Item 1. Business Our Company We are a financial and bank holding company focused on community banking. Since our incorporation in Montana in 1971, we have grown both organically and through strategic acquisitions, most recently through our acquisition on February 1, 2022 of Great Western Bancorp, Inc. (“Great Western”) and its wholly-owned banking subsidiary, Great Western Bank (“GWB”).
Item 1. Business Our Company We are a financial and bank holding company focused on community banking. Since our incorporation in Montana in 1971, we have grown both organically and through strategic acquisitions.
In addition to substantial penalties and corrective measures that may be assessed for a violation of fair lending laws, the federal banking agencies may take compliance with such laws and the CRA into account when evaluating applications for transactions such as mergers and for new branches. 11 Table of Contents In connection with its assessment of CRA performance, the appropriate bank regulatory agency assigns a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial noncompliance.” The Bank received an “outstanding” rating on its most recently published CRA examination.
In addition to substantial penalties and corrective measures that may be assessed for a violation of fair lending laws, the federal banking agencies may take compliance with such laws and the CRA into account when evaluating applications for transactions such as mergers and for new branches.
We have comprehensive credit policies establishing company-wide underwriting and documentation standards to assist management in the lending process and to limit our risk. Each loan must meet minimum underwriting standards specified in our credit policies and procedures.
We have comprehensive credit policies that establish company-wide underwriting and documentation standards to manage the lending process and limit our risk.
If the institution fails to submit an acceptable plan within the time allowed by the agency or fails in any material respect to implement an accepted plan, the agency must, by order, require the institution to correct the deficiency and may take other supervisory action.
If the institution fails to submit an acceptable plan within the time allowed by the agency or fails in any material respect to implement an accepted plan, the agency must, by order, require the institution to correct the deficiency and may take other supervisory action. 9 Table of Conten ts Pursuant to the Dodd-Frank Act, federal banking regulators impose additional supervisory measures on banking organizations such as us when they exceed $10 billion in assets.
In addition, Regulation O imposes lending limits on loans to insiders and their related interests and imposes, in certain circumstances, requirements for prior approval of the loans by the Bank board of directors. 9 Table of Contents Safety and Soundness Standards and Other Supervisory and Enforcement Mechanisms The federal banking agencies have adopted guidelines establishing standards for safety and soundness, asset quality and earnings, loan documentation, credit underwriting, interest rate risk exposure, internal controls, and audit systems.
Safety and Soundness Standards and Other Supervisory and Enforcement Mechanisms The federal banking agencies have adopted guidelines establishing standards for safety and soundness, asset quality and earnings, loan documentation, credit underwriting, interest rate risk exposure, internal controls, and audit systems.
Employee Base As of December 31, 2022, we employed 3,783 full-time equivalent employees, with none represented by a collective bargaining agreement. This represents an increase of 1,425 employees from December 31, 2021. As of December 31, 2022, approximately 68.4% of our workforce was female, 31.4% was male, and 0.2% have not declared.
Our values guide how we make decisions, treat each other, and serve our clients. Employee Base As of December 31, 2023, we employed 3,585 full-time equivalent employees, with none represented by a collective bargaining agreement. This represents a decrease of 198 employees from December 31, 2022.
The increased assessment would improve the likelihood that the DIF reserve ratio would reach the required minimum by the statutory deadline, consistent with the FDIC’s Amended Restoration Plan. The rule will become effective as of January 1, 2023.
Despite this decrease, caused in part by the costs associated with the bank failures in the first half of 2023, the FDIC projects that the DIF Reserve Ratio will reach the statutory minimum ahead of the statutory deadline of September 30, 2028, consistent with the FDIC’s Amended Restoration Plan which became effective as of January 1, 2023.
In 2022, we offered our employees a leadership development program centered around neuroscience and self-awareness; foundational role-based training programs; and on-demand learning opportunities and resources. Diversity, Equity, and Inclusion We work to foster a culture of diversity, equity, and inclusion, or DEI, not only within our Company, but within the communities where we live and work.
We have expanded our Individual Development plan process and instituted executive coaching programs for successors, ensuring preparedness for the future. 13 Table of Conten ts Diversity, Equity, and Inclusion We work to foster a culture of diversity, equity, and inclusion, or DEI, not only within our Company, but within the communities where we live and work.
During this past year, we focused on integrating the employees of Great Western Bank into our culture. We approach our culture with an aspirational lens. It is not a stand-alone initiative or program—it is integrated in our systems, our processes, and our DNA. Our values guide how we make decisions, treat each other, and serve our clients.
For additional discussion on cybersecurity, see Part I, Item 1C, “Cybersecurity” included herein. Human Capital Culture is critically important to the Company’s success; our people are our number one priority. We approach our culture with an aspirational lens. It is not a stand-alone initiative or program—it is integrated in our systems, our processes, and our DNA.
Removed
For additional information regarding the Great Western and GWB acquisition see Part II, Item 7, “Management’s Discussion and Analysis of Financial Information and Results of Operations—Recent Trends and Developments.” Through our bank subsidiary, First Interstate Bank, we deliver a comprehensive range of banking products and services—including online and mobile banking—to individuals, businesses, municipalities, and others throughout our market areas.
Added
The Class A common stock had one vote per share while the Class B common stock had five votes per share and was convertible to Class A common stock on a share-for-share basis.
Removed
Holders of Class B common stock and Class A common stock voted together as a single class on all matters submitted to a vote of shareholders, except as otherwise required by law or by our articles of incorporation.
Added
All outstanding repurchase agreements are due in one business day. Additionally, the Company is a member of the IntraFi Network, which allows banking clients insured cash sweep products with access to FDIC insurance protection on deposits that exceed FDIC insurance limits.
Removed
The Dodd-Frank Act and the revised regulations limit the use of hybrid capital instruments in meeting regulatory capital requirements, including instruments similar to those which we currently have issued and outstanding.
Added
In addition, Regulation O imposes lending limits on loans to insiders and their related interests and imposes, in certain circumstances, requirements for prior approval of the loans by the Bank board of directors.
Removed
As of December 31, 2021, we met the criteria for grandfathering under the Dodd-Frank Act, therefore, the limitations on use of hybrid capital instruments did not then apply to our outstanding instruments which included Tier 1 qualification for trust preferred securities.
Added
In addition, to recover costs associated with protecting uninsured depositors during the bank failures in the first half of 2023, in November 2023, the FDIC implemented a 13.4 basis point annual special assessment on uninsured deposits above $5 billion, to be collected during an anticipated eight consecutive quarters beginning with the first quarter of 2024.
Removed
Our acquisition by merger of Great Western, however, negated qualification for the grandfathering provisions as the Company surpassed $15.0 billion in assets by that acquisition, effective February 1, 2022, with the result that our trust preferred securities now qualify only as Tier 2 capital.
Added
The Company accrued $10.5 million in the fourth quarter of 2023 for the special assessment. The ultimate impact and timing of recognition will depend on the final outcome of the ongoing FDIC deliberations. The special assessment is in addition to the assessment rates finalized as part of FDIC’s Amended Restoration Plan.
Removed
Pursuant to the Dodd-Frank Act, federal banking regulators impose additional supervisory measures on banking organizations such as us when they exceed $10 billion in assets. These include enhanced risk management and corporate governance processes specified by the regulators.
Added
As of June 30, 2023, the DIF balance was $117 billion and the DIF Reserve Ratio had decreased from 1.25% as of December 31, 2022 to 1.1% as of June 30, 2023.
Removed
Based on the FDIC’s recent projections, however, the FDIC determined that the DIF reserve ratio is at risk of not reaching the statutory minimum by the statutory deadline of September 30, 2028 without increasing the deposit insurance assessment rates.
Added
In October 2023, the Federal Reserve proposed revising Regulation II to lower the cap from its current rate of 21 cents and .05% of the transaction, plus a one-cent fraud-prevention adjustment, to 14.4 cents and .04% per transaction and a 1.3 cents fraud-prevention adjustment, effective June 30, 2025.
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In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ a variety of preventative and detective controls and tools to monitor, block, and provide alerts regarding suspicious activity and to report on any suspected advanced persistent threats.
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In connection with its assessment of CRA performance, the appropriate bank regulatory agency assigns a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial noncompliance.” The Bank received an “outstanding” rating on its most recently published CRA examination.
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We also offset cyber risk through internal training, testing of our employees, and we procure insurance to provide assistance on significant incidents and to offset potential liability. We have not experienced a significant compromise, significant data loss, or any material financial losses related to cyber-security attacks.
Added
As of December 31, 2023, approximately 68.2% of our workforce was female, 31.6% was male, and 0.2% have not declared.
Removed
Risks and exposures related to cyber-security attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of third-party service providers, internet banking, mobile banking, and other technology-based products and services by us and our clients. 12 Table of Contents Human Capital Culture is critically important to the Company’s success; our people are our number one priority.
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We added a second Dental Plan option giving our employees a more affordable option. To our VSP vision Plan we added VSP Lightcare which gives non-prescription wearers a sun glass or blue light filtering glass option.
Removed
In 2022, we added two weeks of Parental/Caregiver Leave to facilitate family bonding after birth, adoption, or foster care placement; or to care for a family member that may be suffering from a serious health condition.
Added
In 2023, we made strides in employee development, offering multifaceted development programs centered around neuroscience and emotional intelligence. This initiative was complimented by role-based training programs and on-demand learning opportunities and resources, reinforcing our commitment to equipping our workforce with the skills needed to excel in our markets.
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In April 2022, in response to high fuel costs, we created a fuel stipend program that provided an extra $130 per month to eligible employees through September 2022. In the fourth quarter of 2022, we raised our company minimum hourly wage to $17 per hour and adjusted other compensation for those directly and indirectly impacted.
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During that time frame, 2,870 employees completed the Learning Path. This Learning Path has been added to new employee onboarding materials to provide them the opportunity to experience the same robust learning opportunities our existing employees received. This Learning Path serves as the foundation for our 3-part Leading the Way to DEI training, our in-house training program.
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To further promote the importance of DEI, in 2021 the Company formed our DEI Council to help formulate and implement strategic ways we can support DEI as part of everything we do. Our efforts focus on educating employees about DEI and celebrating the differences within our workforce.
Added
In 2022, our DEI Council, HR team, and Executive and Senior Leadership Team participated in the first iterations of Leading the Way. We then rolled the training out to the people leaders in our company with multiple session options over a 3-month period; over 600 leaders participated in Leading the Way training.
Removed
In September 2022, we added a DEI Specialist with a full-time focus on implementing our DEI efforts, and in October of 2022, 40 employees from across the Bank participated in DEI implementation training. This training provided participants with new perspectives, tools, and skills for employees to lead and facilitate conversations about DEI.
Added
We created bridge resources for managers to use with their teams to prepare them for the Leading the Way training that will be rolled out to all employees in the spring of 2024. We also spent time updating and refining our DEI resources and communications both internally and externally.
Removed
We will begin facilitating and deploying this experience throughout the Bank’s footprint during 2023 and beyond. In October 2022, we launched the DEI Collective Learning Series where we host a monthly educational and community-building webinar series that provides opportunities for our employees to learn about our DEI efforts.
Added
We launched the Diversity, Equity, and Inclusion page of our corporate site to further the visibility of our commitment to our communities and potential candidates. We invested time in our internal intranet page to provide additional resources and align our internal and external DEI messaging.
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The intent of this series is to provide a safe space to ask questions and learn and grow together as an organization. Each event features a rotating panel of employees, community members, and external partners who share about designated topics on DEI and belonging.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeChanges include, among other things: • Changes to risk-weights under the standardized approach • Restrictions on the use of models under the advanced approaches • Revisions to the credit valuation adjustment risk framework • An overhaul of the operational risk framework, including a more explicit operational risk capital charge under the standardized approach • Refinements to the leverage ratio framework • Creation of an output floor on the regulatory capital benefits that a banking organization using the advanced approaches can derive relative to the standardized approach On September 9, 2022, the federal banking regulators announced their intent to revise U.S. regulatory capital requirements to align with Basel IV requirements.
Biggest changeChanges include, among other things: • Changes to risk-weights under the standardized approach • Restrictions on the use of models under the advanced approaches • Revisions to the credit valuation adjustment risk framework • An overhaul of the operational risk framework, including a more explicit operational risk capital charge under the standardized approach • Refinements to the leverage ratio framework • Creation of an output floor on the regulatory capital benefits that a banking organization using the advanced approaches can derive relative to the standardized approach 16 Table of Conten ts In September 2022, the federal banking regulators announced their intent to revise U.S. regulatory capital requirements to align with Basel IV requirements, more recently referred to as the Basel III “Endgame,” and in July 2023 issued a notice of proposed rulemaking for comment that would substantially revise the regulatory capital framework for banking organizations with total assets of $100 billion or more and their depository institutions subsidiaries and banking organizations with significant trading activity.
Item 1A. Risk Factors Like other financial institutions and bank holding companies, the success of our business is subject to a number of risks and uncertainties, many of which are outside our control.
Item 1A. Risk Factors Like other financial institutions and bank holding companies, the success of our business is subject to a number of risks and uncertainties, many of which are outside of our control.
In addition to post-acquisition integration related risks, inherent uncertainties exist when assessing or integrating the operations of another business into which we may make an investment or with which we may enter into a commercial relationship. We may not be able to fully achieve the strategic objectives and planned operating efficiencies relevant to an investment or strategic relationship.
In addition to post-acquisition integration related risks, inherent uncertainties exist when assessing or integrating the operations of another business into which we may make an investment or with which we may enter a commercial relationship. We may not be able to fully achieve the strategic objectives and planned operating efficiencies relevant to an investment or strategic relationship.
If the markets were to react negatively to the announcement of the acquisition, or if the economy were to suffer or enter into a recession following an acquisition, we may not timely, or at all, achieve the expected benefits of an acquisition and our business and the value of our Class A common stock could be harmed.
If the markets were to react negatively to the announcement of the acquisition, or if the economy were to suffer or enter into a recession following an acquisition, we may not timely, or at all, achieve the expected benefits of an acquisition and our business and the value of our common stock could be harmed.
We are dependent upon the services of our management team and directors and if the services of any of them were to become unavailable, it could have an adverse effect on the Company. Our future success and profitability is substantially dependent upon the management skills of senior management and directors.
We are dependent upon the services of our management team and directors and if the services of any of them were to become unavailable, it could have an adverse effect on the Company. Our future success and profitability are substantially dependent upon the management skills of senior management and directors.
To the extent these policies do not mitigate the volatility and uncertainty related to inflation and the effects of inflation, or to the extent conditions otherwise worsen, we could experience adverse effects on our business, financial condition, and results of operations.
To the extent these monetary policies do not mitigate the volatility and uncertainty related to inflation and the effects of inflation, or to the extent conditions otherwise worsen, we could experience adverse effects on our business, financial condition, and results of operations.
We maintain a portfolio of investment securities that may be used as a secondary source of liquidity to the extent the securities are not pledged for collateral.
We maintain a portfolio of investment securities that may be used as a secondary source of liquidity to the extent the securities are not pledged as collateral.
The unanticipated loss or unavailability of key employees could harm our ability to operate our business or execute our business strategy. The Company faces significant competition in the recruitment of highly motivated individuals who can deliver our Company’s purpose, mission, and values, which has recently intensified as a result of changes in the labor market and COVID-19.
The unanticipated loss or unavailability of key employees could harm our ability to operate our business or execute our business strategy. The Company faces significant competition in the recruitment of highly motivated individuals who can deliver our Company’s purpose, mission, and values, which has recently intensified as a result of changes in the labor market.
Deterioration in economic conditions could result in the following consequences, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: • demand for our products and services may decline; • loan delinquencies, problem assets, and foreclosures may increase; • increases in the provisions for credit losses and loans and lease charge-offs; • decrease in net interest income derived from lending activities; • collateral for loans, especially real estate, may decline in value; • future borrowing power of our clients may be reduced; • the value of our securities portfolio may decline; • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and • increases in our operating expenses associated with attending to the effects of the above noted consequences. 17 Table of Contents Volatility and uncertainty related to inflation and the effects of inflation, which may lead to increased costs for businesses and consumers and potentially contribute to poor business and economic conditions generally, may enhance or contribute to some of the risks discussed herein.
Deterioration in economic conditions could result in the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity, and results of operations: • demand for our products and services may decline; • loan delinquencies, problem assets, and foreclosures may increase; • increases in the provisions for credit losses and loans and lease charge-offs; • decrease in net interest income derived from lending activities; • collateral for loans, especially real estate, may decline in value; • future borrowing power of our clients may be reduced; • the value of our securities portfolio may decline; • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and • increases in our operating expenses associated with attending to the effects of the above noted consequences. 18 Table of Conten ts Volatility and uncertainty related to inflation and the effects of inflation, which may lead to increased costs for businesses and consumers and potentially contribute to poor business and economic conditions generally, may enhance or contribute to some of the risks discussed herein.
Tax legislative initiatives or assessments could adversely affect our results of operations and financial condition. We are subject to income and other taxes in the United States and in the various state and local jurisdictions in which we operate. The laws and regulations related to tax matters are extremely complex and subject to varying interpretations.
Tax legislative initiatives or assessments could adversely affect our results of operations and financial condition. We are subject to income and other taxes in the United States and in the various state and local jurisdictions where we operate. The laws and regulations related to tax matters are extremely complex and subject to varying interpretations.
A successful security breach could result in violations of applicable privacy and other laws, financial loss to us or to our clients, loss of confidence in our security measures, significant litigation exposure, and harm to our reputation, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. 22 Table of Contents Privacy, information security, and data protection laws, rules, and regulations could affect or limit how we collect and use personal information, increase our costs, and adversely affect our business opportunities.
A successful security breach could result in violations of applicable privacy and other laws, financial loss to us or to our clients, loss of confidence in our security measures, significant litigation exposure, and harm to our reputation, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. 22 Table of Conten ts Privacy, information security, and data protection laws, rules, and regulations could affect or limit how we collect and use personal information, increase our costs, and adversely affect our business opportunities.
We may be subject to more stringent capital requirements in the future, the impact of which could have a material risk on our operations. Federal and state banking regulators also possess broad powers to take supervisory actions as they deem appropriate.
We may be subject to more stringent capital requirements in the future, the impact of which could have a material risk to our operations. Federal and state banking regulators possess broad powers to take supervisory actions as they deem appropriate.
The Company may experience significant competition from new or existing competitors, which may reduce its client base or cause it to adjust prices for its products and services in order to maintain market share. There is intense competition among banks in the Company’s market area.
The Company may experience significant competition from new or existing competitors, which may reduce its client base or cause it to adjust prices for its products and services in order to maintain market share. There is intense competition among banks in the Company’s market areas.
Maintaining our reputation depends, in part, on our ability to identify and address issues that may arise such as potential conflicts of interest, anti-money laundering, fair lending issues, client personal information and privacy issues, cyber-security, employee, client and other third-party fraud, record-keeping, regulatory investigations, and any litigation that may arise from the failure or perceived failure of us to comply with legal and regulatory requirements.
Maintaining our reputation depends, in part, on our ability to identify and address issues that may arise such as potential conflicts of interest, anti-money laundering, fair lending issues, client personal information and privacy issues, cybersecurity, employee, client and other third-party fraud, record-keeping, regulatory investigations, and any litigation that may arise from the failure or perceived failure of us to comply with legal and regulatory requirements.
The inability to attract and retain clients or to effectively compete for new business may have a material and adverse effect on our financial condition and results of operations. 20 Table of Contents The Company also experiences competition from non-bank companies inside and outside of its market area and, in some cases, from companies other than those traditionally considered financial sector participants.
The inability to attract and retain clients or to effectively compete for new business may have a material and adverse effect on our financial condition and results of operations. The Company also experiences competition from non-bank companies inside and outside of its market area and, in some cases, from companies other than those traditionally considered financial sector participants.
We have adopted and completed material share repurchase programs over the past several years as a means by which to return value to shareholders, and the new excise tax may materially negatively impact our willingness to engage in such programs in the future may materially increase or our costs associated with engaging in any such programs to the extent we determine to engage in them in the future.
We have adopted and completed material share repurchase programs over the past several years as a means by which to return value to shareholders, and the new excise tax may have a material and negative impact on our willingness to engage in such programs in the future or may materially increase our costs associated with engaging in any such programs to the extent we determine to engage in them in the future.
Failure to maintain and implement adequate programs and fully comply with all of the relevant laws or regulations could have serious legal, financial, and reputational consequences for us, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required, or to prohibit such transactions even if approval is not required.
Failure to maintain and implement adequate programs and fully comply with relevant laws or regulations could have serious legal, financial, and reputational consequences for us, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required, or to prohibit such transactions even if approval is not required.
You should consider carefully the following important factors in evaluating us and our business before you make an investment decision about our securities. 14 Table of Contents Regulatory and Compliance Risks New governmental regulations and/or changes in existing governmental regulations could have a material adverse effect on the Company.
You should consider carefully the following important factors in evaluating us and our business before you make an investment decision about our securities. 14 Table of Conten ts Regulatory and Compliance Risks New governmental regulations and/or changes in existing governmental regulations could have a material adverse effect on the Company.
Both the scope of the laws and regulations and the intensity of the supervision to which our business is subject have increased in recent years in response, we believe, to a number of factors including the 2008 financial crisis as well as technological and market changes. Regulatory enforcement and fines have also increased across the banking and financial services sector.
Both the scope of the laws and regulations and the intensity of the supervision to which our business is subject have increased in recent years in response, we believe, to various factors including the 2008 financial crisis as well as technological and market changes. Regulatory enforcement and fines have also increased across the banking and financial services sector.
The remediation costs and any other financial liabilities associated with an environmental hazard could have a material, adverse effect on our cash flows, financial condition, and results of operations. 24 Table of Contents If our systems of internal operating and accounting controls were to become ineffective, our financial information could be negatively impacted.
The remediation costs and any other financial liabilities associated with an environmental hazard could have a material, adverse effect on our cash flows, financial condition, and results of operations. If our systems of internal operating and accounting controls were to become ineffective, our financial information could be negatively impacted.
Deposit levels may be affected by a number of factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions that affect savings levels and the amount of liquidity in the economy, including government stimulus efforts in response to economic crises.
Deposit levels may be affected by several factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions that affect savings levels and the amount of liquidity in the economy, including government stimulus efforts in response to economic crises.
Denial-of-service attacks have been launched against a number of large financial services institutions, primarily resulting in inconvenience. Future ransomware and cyber-attacks could be more disruptive and damaging. Hacking and identity theft risks, in particular, could cause serious reputational harm to the Company and the Bank.
Denial-of-service attacks have been launched against several large financial services institutions, primarily resulting in inconvenience. Future ransomware and cyber-attacks could be more disruptive and damaging. Hacking and identity theft risks, in particular, could cause serious reputational harm to the Company and the Bank.
If the cash flow from business operations is reduced as a result of adverse conditions, the borrower’s ability to repay the loan may be impaired. Commercial loans are, on average, larger loans as compared to other loans with less readily-marketable collateral.
If the cash flow from business operations is reduced because of adverse conditions, the borrower’s ability to repay the loan may be impaired. Commercial loans are, on average, larger loans as compared to other loans with less readily marketable collateral.
Operational Risks Our Company faces cyber-security risks, including “ denial-of-service attacks, ” “ hacking, ” and “ identity theft ” that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure.
Operational Risks Our Company faces cybersecurity risks, including “ denial-of-service attacks, ” “ hacking, ” and “ identity theft ” that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure.
Anti-takeover provisions in Montana law and our articles of incorporation and bylaws, as well as regulatory approvals that would be required under federal law, could make it more difficult for a third party to acquire control of us and may prevent stockholders from receiving a premium for their shares of our common stock.
Anti-takeover provisions in Delaware law and our certificate of incorporation and bylaws, as well as regulatory approvals that would be required under federal law, could make it more difficult for a third party to acquire control of us and may prevent stockholders from receiving a premium for their shares of our common stock.
As a result, defaults by, or even rumors or questions about, one or more financial services companies or the financial services industry generally have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.
As a result, defaults by, or even rumors or questions about, one or more financial services companies or the financial services industry at times have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.
Certain members of the executive branch of the federal government have also expressed an interest in increased regulation of these types of fees. Any of these changes or new legislation could increase our future compliance and other operating expenses and could have a material adverse effect on our business, financial condition, and results of operation.
Certain elements of the federal government have also expressed an interest in increased regulation of these types of fees. Any of these changes or new legislation could increase our future compliance and other operating expenses and could have a material adverse effect on our business, financial condition, and results of operation.
In addition, changes in consumer spending and saving habits could adversely affect our operations, and the Company may be unable to develop competitive and timely new products and services in response. As the pace of technology and change advance, continuous innovation is expected to exert long-term pressure on the financial services industry.
In addition, changes in consumer spending and saving habits could adversely affect our operations, and the Company may be unable to develop competitive and timely new products and services in response. As technology continues to advance, continuous innovation is expected to exert long-term pressure on the financial services industry.
We may experience potential stresses on liquidity management. We may see deposit levels decrease as clients adjust to distressed economic conditions by using the funds that would otherwise be savings. Accordingly, we may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations.
We may see deposit levels decrease as clients adjust to distressed economic conditions by using the funds that would otherwise be savings. Accordingly, we may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations.
We may not be successful in retaining key employees or finding and integrating suitable successors in the event of key employee loss or unavailability. We may not be able to attract and retain qualified employees to operate our business effectively, which could have an adverse effect on our business.
We may not be successful in retaining key employees or finding and integrating suitable successors in the event of key employee loss or unavailability. 24 Table of Conten ts We may not be able to attract and retain qualified employees to operate our business effectively, which could have an adverse effect on our business.
Additionally, a significant decline in general economic conditions caused by the economic slowdown in Europe and the United States, the impact of trade negotiations, escalating tensions with China, economic conditions in China, including the global economic impacts of the Chinese economy, China’s regulation of commerce, escalating military tensions in Europe as a result of Russia’s invasion of Ukraine or elsewhere, the outbreak of other international or domestic hostilities or other unrest, a default by the United States or other governments in repaying financial obligations, a shutdown of all or part of the United States government or other governments, the effects of the pandemic or other health crises, acts of terrorism, climate-related events such as prolonged drought, unemployment, or other economic and geopolitical factors beyond our control, could further impact these local economic conditions and negatively affect our business and results of operations.
Additionally, a significant decline in general economic conditions caused by the economic slowdown in Europe and the United States, the impact of trade negotiations, escalating tensions with China, economic conditions in China, including the global economic impacts of the Chinese economy, China’s regulation of commerce, escalating military tensions in Europe as a result of Russia’s military action in Ukraine, and the conflict in Israel and the surrounding regions, the outbreak of other international or domestic hostilities or other unrest, a default by the United States or other governments in repaying financial obligations, a shutdown of all or part of the United States government or other governments, the effects of pandemics or other health crises, acts of terrorism, climate-related events such as prolonged drought, unemployment, or other economic and geopolitical factors beyond our control, could further impact these local economic conditions and negatively affect our business and results of operations.
Our articles of incorporation provide that our Board may issue up to 100,000 shares of preferred stock, in one or more series, without stockholder approval and with such terms, conditions, rights, privileges, and preferences as the Board may deem appropriate.
Our certificate of incorporation provides that our Board may issue up to 100,000 shares of preferred stock, in one or more series, without stockholder approval and with such terms, conditions, rights, privileges, and preferences as the Board may deem appropriate.
These costs, along with unfavorable pricing upon disposition, may adversely affect our cash flows, financial condition, and results of operations. If hazardous or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property damage.
Additionally, we may experience unfavorable pricing in connection with our disposition of foreclosed properties. These costs, along with unfavorable pricing upon disposition, may adversely affect our cash flows, financial condition, and results of operations. If hazardous or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property damage.
Congress may enact legislation from time-to-time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time-to-time affecting the regulation of financial institutions chartered by or operating in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied.
Congress may enact legislation from time-to-time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time-to-time affecting the regulation of financial institutions chartered by or operating in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the application of existing regulations.
These factors include: • general economic conditions; • prevailing market conditions; • our historical performance and capital structure; • estimates of our business potential and earnings prospects; • an overall assessment of our management; • our performance relative to our peers; • market demand for our shares; • perceptions of the banking industry in general; • political influences on investor sentiment; • consumer confidence; • consummation of a strategic acquisition or other implementation of our expansion plans; • international or domestic hostilities, or other international or domestic calamities, including wars or international conflicts with respect to which the United States may or may not be directly involved; and • global conditions, earthquakes, tsunamis, tornados, floods, fires, pandemics, and other natural catastrophic events.
These factors include: • general economic conditions; • prevailing market conditions; • our historical performance and capital structure; • estimates of our business potential and earnings prospects; • an overall assessment of our management; • our performance relative to our peers; • market demand for our shares; • impact of potential large sales by investors with significant holdings, including members of the Scott Family shareholder group; • perceptions of the banking industry in general; • political influences on investor sentiment; • consumer confidence; • consummation of a strategic acquisition or other implementation of our expansion plans; • international or domestic hostilities, or other international or domestic calamities, including wars or international conflicts with respect to which the United States may or may not be directly involved; and • global conditions, earthquakes, tsunamis, tornados, floods, fires, pandemics, and other natural catastrophic events.
An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.
In January 2019, the phase-in of the capital conservation buffer requirement was completed. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.
As of December 31, 2022, we had goodwill of $1,100.9 million, or 35.8% of our total stockholders’ equity. Identifiable intangible assets other than goodwill consist of core deposit intangibles and other intangible assets (primarily customer relationships).
As of December 31, 2023, we had goodwill of $1,100.9 million, or 34.1% of our total stockholders’ equity. Identifiable intangible assets other than goodwill consist of core deposit intangibles and other intangible assets (primarily customer relationships).
As such, shares of our Class A common stock rank junior to all our indebtedness, including any subordinated term loans, subordinated debentures held by trusts that have issued trust-preferred securities, and other non-equity claims on us with respect to assets available to satisfy claims on us.
Shares of our common stock are equity interests and do not constitute indebtedness. As such, shares of our common stock rank junior to all our indebtedness, including any subordinated term loans, subordinated debentures held by trusts that have issued trust-preferred securities, and other non-equity claims on us with respect to assets available to satisfy claims on us.
We invest in certain AAA senior tranches of the capital structure in CLO securities. The senior tranche takes priority with respect to the interest and principal cash flows of the CLO security, while retaining the last priority in a loss scenario. The senior tranches are relatively more liquid than the subordinated notes due to the accompanying credit enhancement.
The senior tranche takes priority with respect to the interest and principal cash flows of the CLO security, while retaining the last priority in a loss scenario. The senior tranches are relatively more liquid than the subordinated notes due to the accompanying credit enhancement.
Regulatory authorities have imposed cease and desist orders and significant civil money penalties against institutions found to be violating these regulations. If any of the foregoing were to come to pass, our business, financial condition, or results of operations could be materially and adversely affected.
Regulatory authorities have imposed cease and desist orders and significant civil money penalties against institutions found to be violating these regulations. If any of the foregoing were to come to pass, our business, financial condition, or results of operations could be materially and adversely affected. Federal deposit insurance premiums could increase further in the future.
A trade war or other governmental action related to tariffs or international trade agreements or policies, as well as COVID-19 or other potential epidemics or pandemics, have the potential to negatively impact our and/or our clients’ costs, demand for our clients’ products, and/or the U.S. economy or certain sectors thereof and, thus, adversely affect our business, financial condition, and results of operations.
Tariffs and retaliatory tariffs have been imposed, and additional tariffs and retaliatory tariffs are periodically discussed. 19 Table of Conten ts A trade war or other governmental action related to tariffs or international trade agreements or policies, as well as COVID-19 or other potential epidemics or pandemics, have the potential to negatively impact our and/or our clients’ costs, demand for our clients’ products, and/or the U.S. economy or certain sectors thereof and, thus, adversely affect our business, financial condition, and results of operations.
The Company is extensively regulated under federal and state banking laws and regulations that are intended primarily for the protection of depositors, the DIF, and the banking system as a whole.
The Company is extensively regulated under federal and state banking laws and regulations that are intended primarily for the protection of clients, the DIF, and the banking system.
These changes, including trade policies and tariffs affecting other countries, including China, countries comprising the European Union or Middle East, Canada, and Mexico, and retaliatory tariffs by such countries, could materially harm our business. Tariffs and retaliatory tariffs have been imposed, and additional tariffs and retaliatory tariffs are periodically discussed.
These changes, including trade policies and tariffs affecting other countries, including China, countries comprising the European Union or Middle East, Canada, and Mexico, and retaliatory tariffs by such countries, could materially harm our business.
The value of any investment in this asset class could decrease depending on the performance of the underlying collateral in the CLO. As of December 31, 2022, we had available-for-sale CLO securities with an estimated fair value of $1,111.6 million, or 16.0% of our available-for-sale investment portfolio.
The value of any investment in this asset class could decrease depending on the performance of the underlying collateral in the CLO. As of December 31, 2023, we had available-for-sale CLO securities with an estimated fair value of $1,119.7 million, or 19.2% of our available-for-sale investment portfolio.
Furthermore, relatively low unemployment rates may lead to significant increases in labor costs such as salaries, wages, and employee benefits expenses as we compete for qualified and skilled employees, which could negatively impact our results of operations and prospects. Costs associated with repossessed properties, including environmental remediation, may adversely impact our results of operations, cash flows, and financial condition.
Furthermore, relatively low unemployment rates may lead to significant increases in labor costs such as salaries, wages, and employee benefits expenses as we compete for qualified and skilled employees, which could negatively impact our results of operations and prospects.
Our success depends, in part, on our ability to adapt our products and services to evolving industry standards and client expectations. There is increasing pressure to provide products and services at lower prices. Lower prices can reduce our net interest margin and revenues from our fee-based products and services.
Our success depends, in part, on our ability to adapt our products and services to evolving industry standards and client expectations. There is increasing pressure to provide products and services at lower prices.
The Company relies on other companies to provide certain key components of its business infrastructure. We are reliant upon certain external vendors to provide products and services necessary to maintain our day-to-day operations and we outsource many of our major systems, such as certain data processing, loan servicing, and deposit processing systems.
We are reliant upon certain external vendors to provide products and services necessary to maintain our day-to-day operations and we outsource many of our major systems, such as certain data processing, loan servicing, and deposit processing systems.
Defending our reputation, trademarks, and other intellectual property, including through litigation, could result in costs that could have a material adverse effect on our business, financial condition, or results of operations.
Defending our reputation, trademarks, and other intellectual property, including through litigation, could result in costs that could have a material adverse effect on our business, financial condition, or results of operations. The results of mainstream media and social media contagion and speculation could impact the banking system and have an adverse effect on us.
Any failure to comply with laws and regulations, including the Community Reinvestment Act (CRA) and fair lending laws, could lead to material penalties. We must comply with the CRA, the Equal Credit Opportunity Act, the Fair Housing Act, and other fair lending laws and regulations that impose non-discriminatory lending and other requirements on financial institutions.
We must comply with the CRA, the Equal Credit Opportunity Act, the Fair Housing Act, and other fair lending laws and regulations that impose non-discriminatory lending and other requirements on financial institutions.
As of December 31, 2022, we had $11.4 billion of commercial loans, including $8.5 billion of commercial real estate loans, representing approximately 63.0% of our loans held for investment portfolio. Commercial loans may involve greater risks than our other types of lending.
Our loans held for investment portfolio are concentrated in commercial real estate and commercial business loans. As of December 31, 2023, we had $11.8 billion of commercial loans, including $8.9 billion of commercial real estate loans, representing approximately 64.5% of our loans held for investment portfolio. Commercial loans may involve greater risks than our other types of lending.
The ability of borrowers to repay loans can be adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters, which could be exacerbated by potential climate change, and international instability. 18 Table of Contents Additionally, deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to clients on alternative investments and general economic conditions.
The ability of borrowers to repay loans can be adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters, which could be exacerbated by potential climate change, and international instability.
The Basel III-based U.S. capital rules, among other things, impose a capital measure called Common Equity Tier 1 Capital, or CET1 capital, to which most deductions/adjustments to regulatory capital measures must be made.
The Basel III-based U.S. capital rules, among other things, impose a capital measure called Common Equity Tier 1 Capital, or CET1 capital, to which most deductions/adjustments to regulatory capital measures must be made. In addition, the Basel III-based U.S. capital rules specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain specified requirements.
From time-to-time, the Financial Accounting Standards Board (“FASB”) and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can materially impact how we record and report our financial condition and results of operations. For example, the FASB issued amendments to its guidance on the credit impairment of financial instruments.
Changes in accounting standards could materially negatively impact our financial statements. From time-to-time, the Financial Accounting Standards Board (“FASB”) and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can materially impact how we record and report our financial condition and results of operations.
In addition, a decrease in interest rates could negatively impact our margins and profitability and uncertainty about the timing and magnitude of future interest rate increases could reduce borrowing demand and, thus, the need for our lending services. 19 Table of Contents Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but could also adversely affect (1) our ability to originate loans and obtain deposits, (2) the fair value of our financial assets and liabilities, including mortgage servicing rights, (3) our ability to realize gains on the sale of assets, and (4) the average duration of our mortgage-backed securities and collateralized mortgage obligations portfolios.
Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but could also adversely affect (1) our ability to originate loans and obtain deposits, (2) the fair value of our financial assets and liabilities, including mortgage servicing rights, (3) our ability to realize gains on the sale of assets, and (4) the average duration of our mortgage-backed securities and collateralized mortgage obligations portfolios.
Replacing these third-party vendors could also entail significant delay and expense. 23 Table of Contents Our reputation is very important to our ability to maintain, attract and retain client relationships and if our reputation were impaired it, could have an adverse effect on the Company.
Replacing these third-party vendors could also entail significant delay and expense. Our reputation is very important to our ability to maintain, attract and retain client relationships and if our reputation were impaired, it could have an adverse effect on the Company. Our clients expect us to deliver personalized financial services with the highest standards of performance, professionalism, compliance, and ethics.
Our clients expect us to deliver personalized financial services with the highest standards of performance, professionalism, compliance, and ethics. Damage to our reputation could undermine retention of our current clients and our ability to attract potential clients while also impairing the confidence of our counterparties and vendors, the result of which affects our ability to effect transactions.
Damage to our reputation could undermine retention of our current clients and our ability to attract potential clients while also impairing the confidence of our counterparties and vendors, the result of which affects our ability to effect transactions.
In addition, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against companies.
In addition, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
The costs of defending any such challenge and any adverse outcome arising from such a challenge could damage our reputation or could have a material adverse effect on our business, financial condition, or results of operations. 16 Table of Contents We are subject to the USA PATRIOT Act, OFAC guidelines and requirements, the Bank Secrecy Act (“BSA”), and related Financial Crimes Enforcement Network (“FinCEN”) and Federal Financial Institutions Examination Council (“FFIEC”) Guidelines and regulations and any failure to comply with them could result in material implications that could harm our business.
We are subject to the USA PATRIOT Act, OFAC guidelines and requirements, the Bank Secrecy Act (“BSA”), and related Financial Crimes Enforcement Network (“FinCEN”) and Federal Financial Institutions Examination Council (“FFIEC”) Guidelines and regulations and any failure to comply with them could result in material implications that could harm our business.
We expect to incur significant costs related to acquisitions by merger and subsequent integration activities. We have incurred and expect to incur certain non-recurring costs associated with mergers. These costs include financial advisory, legal, 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.
We have incurred and expect to incur certain non-recurring costs associated with mergers. These costs include financial advisory, legal, 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. 27 Table of Conten ts We may incur substantial costs in connection with the integration of acquired companies.
We are also expected to incur substantial costs in connection with the integration of acquired companies. 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, pricing, and benefits.
There are many 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, pricing, and benefits.
In addition, our articles of incorporation provide for staggered terms for our Board and limitations on persons authorized to call a special meeting of stockholders.
In addition, our certificate of incorporation provides for staggered terms for our Board and limitations on persons authorized to call a special meeting of stockholders and advance notice requirements for stockholder proposals at stockholder meetings.
(According to the FDIC Improvement Act of 1991, a depository institution is “well-capitalized” if it has a total risk-based capital ratio of 10% or greater; a Tier 1 risk-based capital ratio of 8.0% or greater; a Tier 1 leverage ratio of 5.0% or greater; a common equity Tier 1 capital ratio of 6.5% or greater; and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure.) In January 2019, the phase-in of the new capital conservation buffer requirement was completed.
In addition, the final rule established a “capital conservation buffer” that, once fully phased in and combined with established minimum common equity, risk-based assets capital, and total capital ratios, will exceed the prompt corrective action “well-capitalized” thresholds (According to the FDIC Improvement Act of 1991, a depository institution is “well-capitalized” if it has a total risk-based capital ratio of 10% or greater; a Tier 1 risk-based capital ratio of 8.0% or greater; a Tier 1 leverage ratio of 5.0% or greater; a common equity Tier 1 capital ratio of 6.5% or greater; and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure.).
While we believe we comply with all applicable tax laws, rules, and regulations in the relevant jurisdictions, the tax authorities may determine that we owe additional taxes or apply existing laws and regulations more broadly, which could result in a significant increase in liabilities for taxes and interest in excess of accrued liabilities and harm our business and financial condition.
While we believe we comply with all applicable tax laws, rules, and regulations in the relevant jurisdictions, the tax authorities may determine that we owe additional taxes or apply existing laws and regulations differently, which could result in a significant increase in liabilities for taxes and interest in excess of accrued liabilities and harm our business and financial condition. 15 Table of Conten ts New tax legislative initiatives, including increases in the corporate tax rate, may be enacted, negatively impacting our effective tax rate at the federal and state level, and potentially adversely affecting our tax positions or tax liabilities.
This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. 26 Table of Contents “Anti-takeover” provisions and the regulations to which we are subject may also make it more difficult for a third party to acquire control of us, even if the change in control could be deemed beneficial to stockholders.
“Anti-takeover” provisions and the regulations to which we are subject may also make it more difficult for a third party to acquire control of us, even if the change in control could be deemed beneficial to stockholders. We are a financial and bank holding company incorporated in the State of Delaware.
An inverted yield curve or downward shift in interest rates may also adversely affect the yield on investment securities by increasing the prepayment risk on certain securities. A flattening or inversion of the yield curve or a negative interest rate environment in the United States could create downward pressure on our net interest margin.
An inverted yield curve or downward shift in interest rates may also adversely affect the yield on investment securities by increasing the prepayment risk on certain securities.
As of December 31, 2022, 42.0% of our loans were advanced to our clients on a variable or adjustable-rate basis. The higher borrowing costs resulting from the increases by the Federal Reserve may cause financial hardship on our borrowers, reducing the ability of borrowers to repay their current loan obligations.
The prolonged higher borrowing costs resulting from the increases by the Federal Reserve may cause financial hardship on our borrowers, reducing the ability of borrowers to repay their current loan obligations.
Some of our larger competitors may have greater capital and resources than the Company, higher lending limits, and products and services not offered by us. Any potential adverse reactions to our financial condition or status in the marketplace, as compared to its competitors, could limit our ability to attract and retain clients and to compete for new business opportunities.
Any potential adverse reactions to our financial condition or status in the marketplace, as compared to its competitors, could limit our ability to attract and retain clients and to compete for new business opportunities.
It is unclear, however, when further guidance will become available and when any changes will go into effect. The impact of Basel IV will depend upon the manner in which it is implemented in the U.S. with respect to institutions like First Interstate and FIB. Changes in accounting standards could materially negatively impact our financial statements.
The proposal would not amend the capital requirements applicable to smaller, less complex banking organizations. It is unclear, however, when further guidance will become available and when any changes will go into effect. The impact of Basel IV will depend upon the way it is implemented in the U.S. with respect to institutions like First Interstate and FIB.
Factors that could reduce our access to liquidity sources include a downturn in our local or national economies, unfavorable market conditions, difficult or illiquid credit markets, or adverse regulatory actions against us. A failure to maintain adequate liquidity could have a material, adverse effect on our regulatory standing, business, financial condition, and results of operations.
Factors that could reduce our access to liquidity sources include a downturn in our local or national economies, unfavorable market conditions, difficult or illiquid credit markets, impairments on the value of the collateral we use to secure certain of our borrowings, or adverse regulatory actions against us.
In addition, certain provisions of Montana law may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price of such common stock.
These and other provisions may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price of such common stock. 28 Table of Conten ts Further, the acquisition of specified amounts of our common stock (in some cases, the acquisition or control of more than 5% of our voting stock) may require certain regulatory approvals, including the approval of the Federal Reserve and one or more of our state banking regulatory agencies.
Our credit standards, procedures, and policies may not prevent us from incurring substantial credit losses, particularly in light of recent market developments including the recent increases by the Federal Reserve to its benchmark interest rate. Our loans held for investment portfolio are concentrated in commercial real estate and commercial business loans.
We take on credit risk by virtue of making loans and extending loan commitments and letters of credit. Our credit standards, procedures, and policies may not prevent us from incurring substantial credit losses, particularly considering recent market developments including the recent increases by the Federal Reserve to its benchmark interest rate.
Loss of deposits or a change in deposit mix could increase the Company’s funding costs and negatively affect the Company’s operations. Deposits are a low cost and stable source of funding. We depend on checking and savings, negotiable order of withdrawal, money market deposit account balances, and other forms of client deposits as our primary source of funding.
We depend on checking and savings, negotiable order of withdrawal, money market deposit account balances, and other forms of client deposits as our primary source of funding.
The amendments were effective for fiscal year 2020, which introduced a new impairment model based on current expected credit losses (“CECL”) rather than incurred losses. As a result of the amendments, we increased our allowance for credit losses, which had a significant impact on our results of operations.
For example, the FASB issued amendments to its guidance on the credit impairment of financial instruments. The amendments were effective for fiscal year 2020, which introduced a new impairment model based on current expected credit losses (“CECL”) rather than incurred losses.
Adverse events or circumstances could impact the recoverability of these intangible assets including loss of core deposits, significant losses of customer accounts and/or balances, increased competition or adverse changes in the economy. To the extent these intangible assets are deemed unrecoverable, a non-cash impairment charge would be recorded which could have a material adverse effect on our results of operations.
Adverse events or circumstances could impact the recoverability of these intangible assets including loss of core deposits, significant losses of customer accounts and/or balances, increased competition or adverse changes in the economy.
The Company may not be successful in introducing new products and services, achieving market acceptance of its products and services, anticipating or reacting to consumers’ changing technological preferences, or developing and maintaining loyal clients. In addition, we could lose market share to the shadow banking system or other non-traditional banking organizations.
Also, these and other capital investments in our business may not produce expected growth in earnings anticipated at the time of the expenditure. The Company may not be successful in introducing new products and services, achieving market acceptance of its products and services, anticipating or reacting to consumers’ changing technological preferences, or developing and maintaining loyal clients.
Strategic Risks Difficulties 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 may prevent us from achieving the expected benefits from these acquisitions, investments, or relationships.
Failure to successfully keep pace with technological change affecting the financial services industry could have a material, adverse impact on our business and, in turn, on our financial condition, results of operations, and prospects. 25 Table of Conten ts Strategic Risks We may encounter difficulties in combining the operations of future 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 may prevent us from achieving the expected benefits from these acquisitions, investments, or relationships.
As a result, an increase in credit losses could have a material adverse effect on our earnings, financial condition, results of operations, and prospects. The soundness of other financial institutions could adversely affect the Company. Financial services companies are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties.
The soundness of other financial institutions could adversely affect the Company. Financial services companies are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties. For example, we execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutional clients.
There are significant costs associated with our ownership of these properties including, but not limited to, personnel costs, taxes and insurance, completion and repair costs, and valuation adjustments. Additionally, we may experience unfavorable pricing in connection with our disposition of foreclosed properties.
During the ordinary course of business, we may foreclose on and take title to properties serving as collateral for certain loans. There are significant costs associated with our ownership of these properties including, but not limited to, personnel costs, taxes and insurance, completion and repair costs, and valuation adjustments.
It also may prove impossible to achieve them at all or in their entirety as a result of unexpected factors or events.
It also may prove impossible to achieve them at all or in their entirety as a result of unexpected factors or events. As a result, any acquisition could ultimately prove dilutive to our equity and shareholders’ earnings per share, thereby adversely affecting our financial condition and results of operations.
Clients may shift their deposits into higher-cost products, or the Company may need to raise its interest rates to remain competitive in the marketplace. Higher funding costs reduce the Company’s net interest income and net income. Market Risks Changes in interest rates may have an adverse effect on demand for our products and services and on our profitability.
Clients may shift their deposits into higher-cost products, or the Company may need to raise its interest rates to remain competitive in the marketplace.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2022, we provided banking services at 307 locations in Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, South Dakota, Washington, and Wyoming, of which 72 properties are leased from independent third parties, one property was leased from a related entity, and 234 physical properties are owned by us.
Biggest changeAs of December 31, 2023, we provided banking services at 304 locations in Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, South Dakota, Washington, and Wyoming, of which 74 properties are leased from independent third parties, one property was leased from a related entity, and 229 physical properties are owned by us.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeTotal Number of Shares Maximum Number of Shares Total Number of Average Price Purchased as Part of Publicly That May Yet Be Purchased Period Shares Purchased (1) Paid Per Share Announced Plans or Programs Under the Plans or Programs October 2022 — $ — — — November 2022 1,112 44.88 — — December 2022 — — — — Total 1,112 $ 44.88 — — (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. 29 Table of Contents Performance Graph The performance graph below compares the cumulative total shareholder return on our common stock with the cumulative total return on equity securities of companies included in the NASDAQ Composite Index, KBW NASDAQ Bank Index, and the KBW NASDAQ Regional Banking Index, measured on the last trading day of each year shown.
Biggest changeTotal 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 October 1, 2023 to October 31, 2023 103 $ 23.31 — — November 1, 2023 to November 30, 2023 28 23.15 — — December 1, 2023 to December 31, 2023 1,000,138 32.14 — — Total 1,000,269 $ 32.14 — — (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 the repurchase of one million shares of common stock from the estate of a stockholder on December 14, 2023 . 33 Table of Conten ts Performance Graph The performance graph below compares the cumulative total shareholder return on our common stock with the cumulative total return on equity securities of companies included in the NASDAQ Composite Index, KBW NASDAQ Bank Index, and the KBW NASDAQ Regional Banking Index, measured on the last trading day of each year shown.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table provides information with respect to purchases made by or on behalf of us or any “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Exchange Act), of our common stock during the three months ended December 31, 2022.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table provides information with respect to purchases made by or on behalf of us or any “affiliated purchasers” (as defined in Rule 10b-18(a)(3) under the Exchange Act), of our common stock during the three months ended December 31, 2023.
The KBW NASDAQ Regional Banking Index seeks to reflect the performance of U.S. companies that do business as publicly traded regional banks or thrifts in the U.S. This graph assumes a $100 investment in our Class A common stock on December 31, 2017, and reinvestment of dividends on the date of payment without commissions.
The KBW NASDAQ Regional Banking Index seeks to reflect the performance of U.S. companies that do business as publicly traded regional banks or thrifts in the U.S. This graph assumes a $100 investment in our common stock on December 31, 2018, and reinvestment of dividends on the date of payment without commissions.
Sales of Unregistered Securities There were no sales of equity securities by us during the years ended December 31, 2022, 2021, or 2020 that were not registered under the Securities Act of 1933.
Sales of Unregistered Securities There were no sales of equity securities by us during the years ended December 31, 2023, 2022, or 2021 that were not registered under the Securities Act of 1933.
Dividends It is our policy to pay a quarterly dividend to all common shareholders. On January 25, 2023, the Company declared a quarterly cash dividend amount of $0.47 per share of common stock. While we currently intend to continue paying quarterly dividends, the Board may change or eliminate the payment of future dividends.
On January 26, 2024, the Company declared a quarterly cash dividend amount of $0.47 per share of common stock. While we currently intend to continue paying quarterly dividends, the Board may change or eliminate the payment of future dividends.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock is listed on the NASDAQ Stock Market under the symbol “FIBK.” As of December 31, 2022, we had 2,488 record shareholders, including the Wealth Management division of FIB as trustee for 376,464 shares of common stock held on behalf of 508 individual participants in the Savings and Profit Sharing Plan for Employees of First Interstate BancSystem, Inc., or the Savings Plan.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock is listed on the NASDAQ Stock Market under the symbol “FIBK.” As of December 31, 2023, we had 1,761 record shareholders, including the Wealth Management division of FIB as trustee for 306,734 shares of common stock held on behalf of 447 individual participants in the Savings and Profit Sharing Plan for Employees of First Interstate BancSystem, Inc., or the Savings Plan. 32 Table of Conten ts Dividends It is our policy to pay a quarterly dividend to all common shareholders.
Removed
Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 First Interstate BancSystem, Inc. $ 100.00 $ 93.78 $ 110.84 $ 114.38 $ 118.48 $ 117.55 NASDAQ Composite 100.00 97.16 132.81 192.47 235.15 158.65 KBW NASDAQ Bank Index 100.00 82.29 112.01 100.46 138.97 109.23 KBW NASDAQ Regional Banking Index 100.00 82.50 102.15 93.25 127.42 118.59
Added
Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 First Interstate BancSystem, Inc. $ 100.00 $ 118.20 $ 121.98 $ 126.35 $ 125.36 $ 106.82 NASDAQ Composite 100.00 136.69 198.10 242.03 163.28 236.17 KBW NASDAQ Bank Index 100.00 136.13 122.09 168.88 132.75 131.57 KBW NASDAQ Regional Banking Index 100.00 123.81 113.03 154.45 143.75 143.17

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAllowance for Credit Losses (Dollars in millions) As of and for the year ended December 31, 2022 2021 2020 2019 2018 Allowance for credit losses on loans: (1) Beginning balance $ 122.3 $ 144.3 $ 73.0 $ 73.0 $ 72.1 Initial impact of adoption of ASC 326 — — 30.0 — — ACL recorded on PCD loans 59.5 — — — — Provision charged to operating expense (2) 68.4 (14.7) 55.5 13.9 8.6 Charge-offs: Real estate Commercial 11.7 2.3 0.4 0.2 1.9 Construction 9.2 1.4 0.5 2.0 0.7 Residential 0.3 0.1 — 1.3 1.1 Agricultural 0.2 0.7 — — — Consumer 10.1 8.2 10.8 13.0 11.3 Commercial 8.1 3.7 9.1 6.6 4.7 Agricultural 5.4 0.2 0.1 0.5 — Total charge-offs 45.0 16.6 20.9 23.6 19.7 Recoveries: Real estate Commercial 3.0 0.1 0.3 0.5 1.9 Construction 0.5 0.6 0.4 1.3 0.9 Residential 0.8 0.3 0.4 0.9 0.9 Agricultural 0.4 — — — — Consumer 5.0 4.5 3.9 3.6 4.5 Commercial 2.3 3.8 1.7 3.4 3.6 Agricultural 2.9 — — — 0.2 Total recoveries 14.9 9.3 6.7 9.7 12.0 Net charge-offs 30.1 7.3 14.2 13.9 7.7 Ending balance $ 220.1 $ 122.3 $ 144.3 $ 73.0 $ 73.0 Allowance for off-balance sheet credit losses: Beginning balance $ 3.8 $ 3.7 $ — $ — $ — Initial impact of adopting ASC 326 — — 2.3 — — Provision for off-balance sheet credit losses 12.4 0.1 1.4 — — Ending balance $ 16.2 $ 3.8 $ 3.7 $ — $ — Allowance for credit losses on investment securities: Beginning balance $ — $ — $ — $ — $ — Provision for credit losses 1.9 — — — — Ending balance $ 1.9 $ — $ — $ — $ — Total allowance for credit losses $ 238.2 $ 126.1 $ 148.0 $ 73.0 $ 73.0 Total provision for (reversal of) credit losses 82.7 (14.6) 56.9 13.9 8.6 Loans held for investment, net of deferred fees and costs 18,099.2 9,331.7 9,807.5 8,930.7 8,470.4 Average loans 16,802.2 9,788.9 9,825.0 8,879.1 7,985.0 Net charge-offs to average loans 0.18 % 0.07 % 0.14 % 0.16 % 0.10 % Allowance to non-accrual loans 371.79 491.16 365.32 170.16 134.44 Allowance to loans held for investment 1.22 1.31 1.47 0.82 0.86 (1) Allowance for credit loss on loans (ACLL) for the 2020-22 periods; allowance for loan loss (ALLL) for the 2019 and prior periods.
Biggest changeAllowance for Credit Losses (Dollars in millions) As of and for the year ended December 31, 2023 2022 2021 Allowance for credit losses on loans: Beginning balance $ 220.1 $ 122.3 $ 144.3 ACL recorded on PCD loans — 59.5 — Provision for (reduction of) operating expense 31.1 68.4 (14.7) Charge-offs: Real estate Commercial 7.6 11.7 2.3 Construction 10.3 9.2 1.4 Residential 0.6 0.3 0.1 Agricultural — 0.2 0.7 Consumer 14.0 10.1 8.2 Commercial 3.4 8.1 3.7 Agricultural — 5.4 0.2 Total charge-offs 35.9 45.0 16.6 Recoveries: Real estate Commercial 4.2 3.0 0.1 Construction 0.1 0.5 0.6 Residential 0.1 0.8 0.3 Agricultural 0.3 0.4 — Consumer 4.7 5.0 4.5 Commercial 2.6 2.3 3.8 Agricultural 0.4 2.9 — Total recoveries 12.4 14.9 9.3 Net charge-offs 23.5 30.1 7.3 Ending balance $ 227.7 $ 220.1 $ 122.3 Allowance for off-balance sheet credit losses: Beginning balance $ 16.2 $ 3.8 $ 3.7 Provision for off-balance sheet credit losses 2.2 12.4 0.1 Ending balance $ 18.4 $ 16.2 $ 3.8 Allowance for credit losses on investment securities: Beginning balance $ 1.9 $ — $ — Provision for credit losses (1.1) 1.9 — Ending balance $ 0.8 $ 1.9 $ — Total allowance for credit losses $ 246.9 $ 238.2 $ 126.1 Total provision for (reduction of) credit losses 32.2 82.7 (14.6) Loans held for investment, net of deferred fees and costs 18,279.6 18,099.2 9,331.7 Average loans 18,299.6 16,802.2 9,788.9 Net charge-offs to average loans 0.13 % 0.18 % 0.07 % Allowance to non-accrual loans 214.00 371.79 491.16 Allowance to loans held for investment 1.25 1.22 1.31 54 Table of Conten ts The allowance for credit losses is allocated to loan categories based on the relative risk characteristics, asset classifications, and expected losses of the loan portfolio.
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.
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.
Agricultural Loans. Our 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.
Our 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.
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.
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.
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.
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.
Our principal expenses include: (i) interest expense on deposits accounts and 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; (viii) intangible amortization; (ix) other real estate owned expenses; and (x) other ancillary expenses including legal expenses, credit card rewards expense, fees associated with originating and closing loans, insurance, and other expenses necessary to support our employees and service our clients.
Our principal expenses include: (i) interest expense on deposit accounts and other borrowings; (ii) salaries and employee benefits; (iii) furniture, equipment, and occupancy expenses for maintaining our facilities; (iv) data processing and communication costs primarily associated with maintaining loan and deposit functions; (v) professional fees, including FDIC insurance assessments; (vi) income tax expense; (vii) provisions for credit losses; (viii) intangible amortization; (ix) other real estate owned expenses; and (x) other ancillary expenses including legal expenses, credit card rewards expense, fees associated with originating and closing loans, insurance, and other expenses necessary to support our employees and service our clients.
Our clients participate in a wide variety of industries, including: • Agriculture • Hospitality • Technology • Construction • Housing • Tourism • Education • Professional services • Technology • Governmental services • Real Estate Development • Wholesale trade • Healthcare • Retail Our Business Our principal business activity is lending to, accepting deposits from, and conducting financial transactions for individuals, businesses, municipalities, and other entities located in the communities we serve.
Our clients participate in a wide variety of industries, including: • Agriculture • Healthcare • Professional services • Technology • Construction • Hospitality • Real Estate Development • Tourism • Education • Housing • Retail • Wholesale trade • Governmental services Our Business Our principal business activity is lending to, accepting deposits from, and conducting financial transactions for individuals, businesses, governmental entities, and other entities located in the communities we serve.
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 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. Agricultural Loans.
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.
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 forecasted economic conditions on historical loan loss rates.
While each loan we originate must meet minimum underwriting standards we establish through our credit policies, our bankers are granted discretion to approve and price loans within pre-approved limits which assures that we are responsive to community needs in each market area and remain competitive.
While each loan we originate must meet minimum underwriting standards we establish through our credit policies, our bankers are granted limited discretion to approve and price loans within pre-approved limits which assures that we are responsive to community needs in each market area and remain competitive.
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.
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 or BTFP, and the issuance of preferred or common securities.
Net interest income is affected by a number of factors such as the level of interest rates, changes in interest rates, and changes in the volume and composition of interest earning assets and interest-bearing liabilities.
Net interest income is affected by a number of factors such as the level of interest rates, changes in interest rates, the speed of changes in interest rates, and changes in the volume and composition of interest earning assets and interest-bearing liabilities.
Fair Values of Loans Acquired in Business Combinations 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.
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.
Agricultural loans generally have maturities of five years or less, with operating lines for one production season. The following table presents the contractual maturity distribution and interest rates of our loan portfolio as of December 31, 2022. The amounts provided below do not reflect scheduled repayment or prepayment assumptions related to the loan portfolio.
Agricultural loans generally have maturities of five years or less, with operating lines for one production season. The following table presents the contractual maturity distribution and interest rates of our loan portfolio as of December 31, 2023. The amounts provided below do not reflect scheduled repayment or prepayment assumptions related to the loan portfolio.
The accompanying consolidated statements of income for the period ended December 31, 2022, include the results of operations of the acquired entity from the February 1, 2022 acquisition date.
The accompanying consolidated statements of income for the period ended December 31, 2023, include the results of operations of the acquired entity from the February 1, 2022 acquisition date.
We maintain our allowance for credit losses based on an estimate of expected credit losses in the loans held for investment portfolio over the life of the loan, including the incorporation of a one-year forecast period 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 maintain our allowance for credit losses based on an estimate of expected credit losses in the loans held for investment portfolio over the life of the loan, including the incorporation of a two-year forecast period 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.
As of December 31, 2022, the Company expects to recover its investments through the use of tax credits generated by the investments. The Company has entered into various arrangements not reflected on the consolidated balance sheet that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, or liquidity.
As of December 31, 2023, the Company expects to recover its investments through the use of tax credits generated by the investments. The Company has entered into various arrangements not reflected on the consolidated balance sheet that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, or liquidity.
As of December 31, 2022 and 2021, 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 “Notes to Consolidated Financial Statements—Regulatory Capital,” included in Part IV, Item 15 of this report.
As of December 31, 2023 and 2022, 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 “Notes to Consolidated Financial Statements—Regulatory Capital,” included in Part IV, Item 15 of this report.
As of December 31, 2022, the Company had subordinated debentures held by subsidiary trusts of $163.1 million due in more than one year. For additional information concerning the subordinated debentures, see “Notes to Consolidated Financial Statements—Subordinated Debentures Held by Subsidiary Trusts” included in Part IV, Item 15 of this report.
As of December 31, 2023, the Company had subordinated debentures held by subsidiary trusts of $163.1 million due in more than one year. For additional information concerning the subordinated debentures, see “Notes to Consolidated Financial Statements—Subordinated Debentures Held by Subsidiary Trusts” included in Part IV, Item 15 of this report.
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.
Management monitors 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.
State income tax applies primarily to pretax earnings generated within Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, and South Dakota. Our effective state tax rate was 5.2% for the year ended December 31, 2022 compared to 5.1% for the year ended December 31, 2021.
State income tax applies primarily to pretax earnings generated within Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, and South Dakota. Our effective state tax rate was 5.1% for the year ended December 31, 2023 compared to 5.2% for the year ended December 31, 2022.
A similar discussion and analysis comparing fiscal year 2021 to fiscal year ended December 31, 2020 may be found in Part II, Item 7, “Financial Condition” in our Annual Report on Form 10-K for the year ended December 31, 2021, which is incorporated herein by reference.
A similar discussion and analysis comparing fiscal year 2022 to fiscal year ended December 31, 2021 may be found in Part II, Item 7, “Financial Condition” in our Annual Report on Form 10-K for the year ended December 31, 2022, which is incorporated herein by reference.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2022.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2023.
A similar discussion and analysis that compares the fiscal year 2021 to the fiscal year ended December 31, 2020, may be found in Part II, Item 7, “Results of Operations” of our Form 10-K for the fiscal year ended December 31, 2021, which is incorporated herein by reference.
A similar discussion and analysis that compares the fiscal year 2022 to the fiscal year ended December 31, 2021, may be found in Part II, Item 7, “Results of Operations” of our Form 10-K for the fiscal year ended December 31, 2022, which is incorporated herein by reference.
See also Part I, Item 1A, “Risk Factors—Credit Risks.” 34 Table of Contents 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.
See also Part I, Item 1A, “Risk Factors—Credit Risks.” 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.
As of December 31, 2022, there were no significant concentrations of investments (greater than 10% of stockholders’ equity) in any individual security issuer, except for U.S. government or agency-backed securities.
As of December 31, 2023, there were no significant concentrations of investments (greater than 10% of stockholders’ equity) in any individual security issuer, except for U.S. government or agency-backed securities.
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.
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, short-term borrowings 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.
For additional information concerning long-term debt, see “Notes to Consolidated Financial Statements—Long Term Debt and Other Borrowed Funds” included in Part IV, Item 15 of this report. The Company guarantees the distribution and payment for redemption or liquidation of capital trust preferred securities issued by our wholly-owned subsidiary business trusts to the extent of funds held by the trusts.
For additional information concerning long-term debt, see “Notes to Consolidated Financial Statements—Long Term Debt and Other Borrowed Funds” included in Part IV, Item 15 of this report. 57 Table of Conten ts The Company guarantees the distribution and payment for redemption or liquidation of capital trust preferred securities issued by our wholly owned subsidiary business trusts to the extent of funds held by the trusts.
We evaluate our capital adequacy using the regulatory and financial capital ratios including leverage capital ratio, tier 1 common capital to total risk-weighted assets, tier 1 risk-based capital ratio, and total risk-based capital ratio.
We evaluate our capital adequacy using the regulatory and financial capital ratios including tangible common equity to tangible assets, leverage capital ratio, tier 1 common capital to total risk-weighted assets, tier 1 risk-based capital ratio, and total risk-based capital ratio.
For additional information concerning securities sold under repurchase agreements, see “—Securities Sold Under Repurchase Agreements” included herein. Mortgage-backed securities and, to a limited extent other securities, have uncertain cash flow characteristics that present additional interest rate risk in the form of prepayment or extension risk primarily caused by changes in market interest rates.
For additional information concerning securities sold under repurchase agreements, see “—Securities Sold Under Repurchase Agreements” included herein. 46 Table of Conten ts Mortgage-backed securities and, to a limited extent other securities, have uncertain cash flow characteristics that present additional interest rate risk in the form of prepayment or extension risk primarily caused by changes in market interest rates.
Results of Operations The following discussion and analysis is intended to provide detail about the results of operations by comparing the years ended December 31, 2022 to December 31, 2021.
Results of Operations The following discussion and analysis is intended to provide detail about the results of operations by comparing the years ended December 31, 2023 to December 31, 2022.
Through our bank subsidiary, FIB, we deliver a comprehensive range of banking products and services—including online and mobile banking—to individuals, businesses, municipalities, and others throughout our market areas.
Through our bank subsidiary, FIB, we deliver a comprehensive range of banking products and services—including online and mobile banking—to individuals, businesses, governmental entities, and others throughout our market areas.
(4) Calculated by dividing total interest on interest-bearing liabilities by the sum of total interest-bearing liabilities plus non-interest-bearing deposits. 37 Table of Contents The table below sets forth, for the periods indicated, a summary of the changes in interest income and interest expense resulting from estimated changes in average asset and liability balances (volume) and estimated changes in average interest rates (rate).
(4) Calculated by dividing total interest on interest-bearing liabilities by the sum of total interest-bearing liabilities plus non-interest-bearing deposits. 42 Table of Conten ts The table below sets forth, for the periods indicated, a summary of the changes in interest income and interest expense resulting from estimated changes in average asset and liability balances (volume) and estimated changes in average interest rates (rate).
As part of our overall growth strategy, we will continue to evaluate bank acquisitions and other strategic opportunities in a strategic thoughtful manner in which we believe will provide greater shareholder value.
As part of our overall growth strategy, we will continue to evaluate bank acquisitions and other opportunities in a strategic thoughtful manner that we believe will enhance our franchise and provide greater shareholder value.
Outsourced technology services primarily includes technology services related to the core system platform, software as a service products, automated teller machines, technology equipment and software maintenance.
Outsourced technology services primarily include technology services related to the core system platform, software as a service, automated teller machines, technology equipment and software maintenance.
As of December 31, 2022, we had 307 banking offices in operation, 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.
As of December 31, 2023, we had 304 banking offices in operation, including branches and detached drive-up facilities, in communities across Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, South Dakota, Washington, and Wyoming.
Expected recoveries recorded in the valuation account do not exceed the aggregate of loan amounts previously charged-off and loans expected to be charged-off. The allowance for credit losses represents management’s estimate of expected credit losses in the loans held for investment portfolio over the life of the loan, including the incorporation of a one-year forecast period for economic conditions.
Expected recoveries recorded in the valuation account do not exceed the aggregate of loan amounts previously charged-off. The allowance for credit losses represents management’s estimate of expected credit losses in the loans held for investment portfolio over the life of the loan, including the incorporation of a two-year forecast period with one-year reversion period for economic conditions.
These securities are carried at cost. 43 Table of Contents Loans Held for Sale Loans held for sale consist of residential mortgage loans pending sale to investors in the secondary market and loans reclassified from loans held for investment due to management’s intent and decision to sell the loans.
These securities are carried at cost. 48 Table of Conten ts Loans Held for Sale Loans held for sale consist of residential mortgage loans pending sale to investors in the secondary market and loans reclassified from loans held for investment due to management’s intent and decision to sell the loans.
Commercial real estate loans include loans for property and improvements used commercially by the borrower or for lease to others for the production of goods or services. Approximately 37.0% and 41.7% of our commercial real estate loans were owner occupied as of December 31, 2022 and 2021, respectively. Construction loans .
Commercial real estate loans include loans for property and improvements used commercially by the borrower or for lease to others for the production of goods or services. Approximately 34.4% and 37.0% of our commercial real estate loans were owner occupied as of December 31, 2023 and 2022, respectively. Construction loans .
Based on current market interest rates, management expects approximately $12.9 million of these securities will be called in 2023. For additional information concerning investment securities, see “Notes to Consolidated Financial Statements — Investment Securities” included in Part IV, Item 15.
Based on current market interest rates, management expects approximately $1.0 million of these securities will be called in 2024. For additional information concerning investment securities, see “Notes to Consolidated Financial Statements — Investment Securities” included in Part IV, Item 15.
The allowance for credit losses consists of three elements: (1) Specific valuation allowances associated with collateral-dependent and other individually evaluated loans.
The allowance for credit losses consists of three elements: 52 Table of Conten ts (1) Specific valuation allowances associated with collateral-dependent and other individually evaluated loans.
For additional information regarding our GWB acquisition, see “Recent Trends and Developments” included herein and “Notes to Consolidated Financial Statements—Acquisitions,” included in Part IV, Item 15 of this report. 40 Table of Contents Income Tax Expense Our effective federal tax rate was 16.1% for the year ended December 31, 2022 compared to 17.4% for the year ended December 31, 2021.
For additional information regarding our GWB acquisition, see “Recent Trends and Developments” included herein and “Notes to Consolidated Financial Statements—Acquisitions,” included in Part IV, Item 15 of this report. 45 Table of Conten ts Income Tax Expense Our effective federal tax rate was 18.4% for the year ended December 31, 2023 compared to 16.1% for the year ended December 31, 2022.
For additional details in regards to the Company’s deposits see “Notes to Consolidated Financial Statements—Deposits” included in Part IV, Item 15 of this report. As of December 31, 2022, the Company had securities sold under repurchase agreements of $1,052.9 million due in one year or less as the agreements with our client counterparties mature on the next banking day.
For additional details in regard to the Company’s deposits see “Notes to Consolidated Financial Statements—Deposits” included in Part IV, Item 15 of this report. As of December 31, 2023, the Company had securities sold under repurchase agreements of $782.7 million due in one year or less as the agreements with our client counterparties mature on the next banking day.
Our portfolio principally comprises U.S treasuries, U.S. government agency residential and commercial mortgage-backed securities and collateralized mortgage obligations, U.S. government agency, corporate securities, and tax-exempt securities. Debt securities rated in the highest category by nationally recognized rating agencies and held-to-maturity debt securities backed by the U.S.
Our portfolio principally comprises U.S treasury notes, U.S. government agency, U.S. government agency commercial mortgage-backed securities, U.S. government residential mortgage-backed securities, collateralized mortgage obligations, corporate securities, and tax-exempt securities. Debt securities rated in the highest category by nationally recognized rating agencies and debt securities backed by the U.S.
As of December 31, 2022 and December 31, 2021, the Company held $198.6 million and $53.8 million, respectively, in equity securities in a combination of FRB and FHLB stocks, which are restricted nonmarketable securities acquired to meet regulatory requirements.
As of December 31, 2023 and December 31, 2022, the Company held $223.2 million and $198.6 million, respectively, in equity securities in a combination of FRB and FHLB stocks, which are restricted nonmarketable securities acquired to meet regulatory requirements.
The Company has future minimum rental commitments, exclusive of maintenance and operating costs, required under operating leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 2022 with $11.5 million due in one year or less and $42.4 million due in more than one year.
The Company has future minimum rental commitments, exclusive of maintenance and operating costs, required under operating leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 2023 with $11.6 million due in one year or less and $39.0 million due in more than one year.
Approximately 78.4% and 79.2% of our consumer loans as of December 31, 2022 and 2021, respectively, were indirect consumer loans. 45 Table of Contents Commercial Loans. We provide a mix of variable and fixed rate commercial loans. The loans are typically made to small and medium-sized manufacturing, wholesale, retail, and service businesses for working capital needs and business expansions.
Approximately 77.3% and 78.4% of our consumer loans as of December 31, 2023 and 2022, respectively, were indirect consumer loans. Commercial Loans. We provide a mix of variable and fixed rate commercial loans. The loans are typically made to small and medium-sized manufacturing, wholesale, retail, and service businesses for working capital needs and business expansions.
Interest income on loans includes amortization of deferred loan fees net of deferred loan costs of $7.5 million, $40.6 million, and $32.5 million during 2022, 2021, and 2020, respectively.
Interest income on loans includes amortization of deferred loan fees net of deferred loan costs of $1.3 million, $7.5 million, and $40.6 million during 2023, 2022, and 2021, respectively.
Government and government sponsored agencies, both on a direct and indirect basis, represented approximately 94.4% of the investment portfolio at December 31, 2022. All other held-to-maturity debt securities rated below AAA, not backed by the U.S. Government or government sponsored agencies, or which are not rated represented approximately 5.6% of total debt securities at December 31, 2022.
Government and government sponsored agencies, both on a direct and indirect basis, represented approximately 94.8% of the investment portfolio’s HTM segment at December 31, 2023. All other held-to-maturity debt securities rated below AAA, not backed by the U.S. Government or government sponsored agencies, or which are not rated represented approximately 5.2% of total HTM debt securities at December 31, 2023.
As of December 31, 2022, we had investment securities with fair values aggregating $2,620.8 million that had been in a continuous loss position more than 12 months. Gross unrealized losses on these securities totaled $495.9 million as of December 31, 2022, and were attributable to changes in interest rates.
As of December 31, 2023, we had investment securities with fair values aggregating $8,284.5 million that had been in a continuous loss position more than 12 months. Gross unrealized losses on these securities totaled $803.4 million as of December 31, 2023, and were attributable to changes in interest rates.
Therefore, you are encouraged to read in its entirety the information provided under the caption “Risk Factors” included under Item 1A in Part I of this report for a discussion of risk factors that may negatively impact our expected results, performance, or achievements discussed below. Executive Overview We are a financial and bank holding company headquartered in Billings, Montana.
Therefore, you are encouraged to read in its entirety the information provided under the caption “Risk Factors” included under Item 1A in Part I of this report for a discussion of risk factors that may negatively impact our expected results, performance, or achievements discussed below.
If 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.
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.
Approximately 77.9% and 82.7% of our tax-exempt securities were general obligation securities as of December 31, 2022 and 2021, respectively, of which 38.0% and 72.8%, respectively, were issued by political subdivisions or agencies within the states of Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, South Dakota, Washington, and Wyoming.
Approximately 74.2% and 77.9% of our tax-exempt securities were general obligation securities as of December 31, 2023 and 2022, respectively, of which 31.1% and 38.0%, respectively, were issued by political subdivisions or agencies within the states we operate, including Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, South Dakota, Washington, and Wyoming.
Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%. 42 Table of Contents 2021 2022 Securities Maturities and Yield (Dollars in millions) Carrying Value Carrying Value % of Total Investment Securities Weighted Average FTE Yield U.S.
Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%. 47 Table of Conten ts December 31, 2022 December 31, 2023 Securities Maturities and Yield (Dollars in millions) Carrying Value Carrying Value % of Total Investment Securities Weighted Average FTE Yield U.S.
Analysis of Interest Changes Due To Volume and Rates Year Ended December 31, 2022 compared with December 31, 2021 Year Ended December 31, 2021 compared with December 31, 2020 Year Ended December 31, 2020 compared with December 31, 2019 (Dollars in millions) Volume Rate Net Volume Rate Net Volume Rate Net Interest earning assets: Loans (1) $ 308.6 $ 57.4 $ 366.0 $ (1.7) $ (21.8) $ (23.5) $ 50.3 $ (67.8) $ (17.5) Investment Securities (1) 61.9 83.1 145.0 42.8 (35.7) 7.1 13.8 (12.0) 1.8 Investment in FHLB and FRB Stock 1.2 2.6 3.8 — 0.2 0.2 0.1 (0.5) (0.4) Interest bearing deposits in banks (0.7) 6.8 6.1 2.3 (3.8) (1.5) 9.2 (23.9) (14.7) Total change 371.0 149.9 520.9 43.4 (61.1) (17.7) 73.4 (104.2) (30.8) Interest bearing liabilities: Demand deposits 1.2 12.7 13.9 0.5 (0.9) (0.4) 1.7 (8.1) (6.4) Savings deposits 1.2 21.8 23.0 0.5 (1.4) (0.9) 2.7 (18.7) (16.0) Time deposits 2.7 0.6 3.3 (2.4) (6.3) (8.7) (3.8) (5.0) (8.8) Repurchase agreements — 2.1 2.1 0.3 (0.8) (0.5) 0.5 (3.5) (3.0) Other borrowed funds — 15.3 15.3 — — — — — — Long-term debt 0.5 (0.5) — 2.2 (0.8) 1.4 5.2 (1.9) 3.3 Subordinated debentures held by subsidiary trusts 2.2 1.8 4.0 — (0.2) (0.2) — (1.5) (1.5) Total change 7.8 53.8 61.6 1.1 (10.4) (9.3) 6.3 (38.7) (32.4) Increase in FTE net interest income (1) $ 363.2 $ 96.1 $ 459.3 $ 42.3 $ (50.7) $ (8.4) $ 67.1 $ (65.5) $ 1.6 (1) Interest income and average rates for tax exempt loans and securities are presented on a FTE basis.
Analysis of Interest Changes Due To Volume and Rates Year Ended December 31, 2023 compared with December 31, 2022 Year Ended December 31, 2022 compared with December 31, 2021 Year Ended December 31, 2021 compared with December 31, 2020 (Dollars in millions) Volume Rate Net Volume Rate Net Volume Rate Net Interest earning assets: Loans (1) $ 71.0 $ 117.8 $ 188.8 $ 308.6 $ 57.4 $ 366.0 $ (1.7) $ (21.8) $ (23.5) Investment Securities (1) (13.2) 67.3 54.1 61.9 83.1 145.0 42.8 (35.7) 7.1 Investment in FHLB and FRB Stock 3.7 3.9 7.6 1.2 2.6 3.8 — 0.2 0.2 Interest bearing deposits in banks (6.9) 13.9 7.0 (0.7) 6.8 6.1 2.3 (3.8) (1.5) Total change 54.6 202.9 257.5 371.0 149.9 520.9 43.4 (61.1) (17.7) Interest bearing liabilities: Demand deposits (2.1) 33.6 31.5 1.2 12.7 13.9 0.5 (0.9) (0.4) Savings deposits (2.1) 99.8 97.7 1.2 21.8 23.0 0.5 (1.4) (0.9) Time deposits 5.6 59.5 65.1 2.7 0.6 3.3 (2.4) (6.3) (8.7) Repurchase agreements (0.4) 4.3 3.9 — 2.1 2.1 0.3 (0.8) (0.5) Other borrowed funds 78.3 40.2 118.5 — 15.3 15.3 — — — Long-term debt (0.1) (0.1) (0.2) 0.5 (0.5) — 2.2 (0.8) 1.4 Subordinated debentures held by subsidiary trusts 0.3 5.6 5.9 2.2 1.8 4.0 — (0.2) (0.2) Total change 79.5 242.9 322.4 7.8 53.8 61.6 1.1 (10.4) (9.3) Increase in FTE net interest income (1) $ (24.9) $ (40.0) $ (64.9) $ 363.2 $ 96.1 $ 459.3 $ 42.3 $ (50.7) $ (8.4) (1) Interest income and average rates for tax exempt loans and securities are presented on a FTE basis.
We initially record OREO at fair value less estimated selling costs. Any excess of loan carrying value over the fair value of the real estate acquired is recorded as a charge against the allowance for credit losses.
OREO consists of real property acquired through foreclosure on the collateral underlying defaulted loans. We initially record OREO at fair value less estimated selling costs. Any excess of loan carrying value over the fair value of the real estate acquired is recorded as a charge against the allowance for credit losses.
Interest bearing liabilities include deposits and various forms of indebtedness. Net interest income is affected by the level of interest rates, changes in interest rates, volume of loans, and changes in the composition of interest earning assets and interest-bearing liabilities.
Interest bearing liabilities include deposits, short-term borrowings, and various other forms of indebtedness. Net interest income is affected by the level of interest rates, changes in interest rates, the speed of changes to interest rates, and changes in the volume and composition of interest earning assets and interest-bearing liabilities.
Specific valuation allowances are determined based on assessment of the fair value of the collateral underlying the loans as determined through independent appraisals, the present value of future cash flows, observable market prices, and any relevant qualitative or environmental factors impacting loans. (2) Historical valuation allowances based on loan loss experience for similar loans with similar characteristics and trends.
Specific valuation allowances are determined based on assessment of the fair value of the collateral underlying the loans as determined through independent appraisals, the present value of future cash flows, observable market prices, and any relevant qualitative or environmental factors impacting loans.
From time to time, we also incur acquisition costs related to our strategic acquisitions. 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 construction loans), residential, agricultural, and other real estate loans.
From time to time, we also incur acquisition costs related to our strategic acquisitions. 35 Table of Conten ts Our loan portfolio consists of a mix of real estate, consumer, commercial, agricultural, and other loans, including fixed and variable rate loans.
As of December 31, 2022 and 2021, we had Certificate of Deposit Account Registry Service, or CDARS, deposits of $36.6 million and $104.5 million, respectively. As of December 31, 2022 and 2021, we had no brokered deposits.
As of December 31, 2023 and 2022, we had Certificate of Deposit Account Registry Service, or CDARS, deposits of $26.6 million and $36.6 million, respectively. As of December 31, 2023 and 2022, we had zero and $12.5 million of brokered deposits, respectively.
Regular cash dividends paid to common shareholders during 2022 amounted to approximately $182.1 million. On January 25, 2023, we declared a quarterly dividend to common stockholders of $0.47 per share, which was paid on February 17, 2023 to shareholders of record as of February 7, 2023.
Regular cash dividends paid to common shareholders during 2023 amounted to approximately $195.1 million. On January 26, 2024, we declared a quarterly dividend to common stockholders of $0.47 per share, which was paid on February 19, 2024 to shareholders of record as of February 9, 2024.
The following table presents the composition of our non-interest income as of the dates indicated: Non-interest Income Year Ended December 31, $ Change % Change (Dollars in millions) 2022 2021 2020 2022 vs 2021 2021 vs 2020 2022 vs 2021 2021 vs 2020 Payment services revenues $ 74.1 $ 45.1 $ 41.1 $ 29.0 $ 4.0 64.3 % 9.7 % Mortgage banking revenues 18.7 40.8 47.3 (22.1) (6.5) (54.2) (13.7) Wealth management revenues 34.3 26.3 23.8 8.0 2.5 30.4 10.5 Service charges on deposit accounts 24.6 16.5 17.6 8.1 (1.1) 49.1 (6.3) Other service charges, commissions, and fees 15.5 7.9 12.1 7.6 (4.2) 96.2 (34.7) Investment securities (losses) gains, net (24.4) 1.1 0.3 (25.5) 0.8 NM 266.7 Other income* 20.4 11.8 13.7 8.6 (1.9) 72.9 (13.9) Total non-interest income $ 163.2 $ 149.5 $ 155.9 $ 13.7 $ (6.4) 9.2 (4.1) * Certain reclassifications, none of which were material, have been made to conform 2020 and 2021 amounts to the 2022 presentation.
The following table presents the composition of our non-interest income as of the dates indicated: Non-interest Income Year Ended December 31, $ Change % Change (Dollars in millions) 2023 2022 2021 2023 vs 2022 2022 vs 2021 2023 vs 2022 2022 vs 2021 Payment services revenues $ 76.4 $ 74.1 $ 45.1 $ 2.3 $ 29.0 3.1 % 64.3 % Mortgage banking revenues 8.4 18.7 40.8 (10.3) (22.1) (55.1) (54.2) Wealth management revenues 35.3 34.3 26.3 1.0 8.0 2.9 30.4 Service charges on deposit accounts 23.0 24.6 16.5 (1.6) 8.1 (6.5) 49.1 Other service charges, commissions, and fees 9.5 15.5 7.9 (6.0) 7.6 (38.7) 96.2 Investment securities (losses) gains, net (23.5) (24.4) 1.1 0.9 (25.5) (3.7) NM Other income 17.9 20.4 11.8 (2.5) 8.6 (12.3) 72.9 Total non-interest income $ 147.0 $ 163.2 $ 149.5 $ (16.2) $ 13.7 (9.9) 9.2 Non-interest income decreased $16.2 million in 2023 as compared to the same period in 2022.
As of December 31, 2022, the carrying value of our investments in non-agency mortgage-backed securities totaled $264.9 million. All other mortgage-backed securities included in the table below were issued by U.S. government agencies and corporations.
As of December 31, 2023, the carrying value of our investments in non-agency mortgage-backed securities totaled $241.3 million. All other mortgage-backed securities included in the table below were issued by U.S. government entities and sponsored entities.
The provision for credit losses is reflective of net charge-offs of $30.1 million, or 0.18% of average loans outstanding, for 2022, compared to $7.3 million, or 0.07% of average loans outstanding in 2021. For information regarding our non-performing loans, see “Non-Performing Assets” included herein.
The provision for credit losses is reflective of net charge-offs of $23.5 million, or 0.13% of average loans outstanding, for 2023, compared to $30.1 million, or 0.18% of average loans outstanding in 2022. 43 Table of Conten ts For information regarding our non-performing loans, see “Non-Performing Assets” included herein.
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.
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.
All outstanding repurchase agreements are due in one day and balances fluctuate in the normal course of business. Repurchase agreement balances increased $1.8 million, or 0.2%, to $1,052.9 million as of December 31, 2022, from $1,051.1 million as of December 31, 2021.
All outstanding repurchase agreements are due in one day and balances fluctuate in the normal course of business. Repurchase agreement balances decreased $270.2 million, or 25.7%, to $782.7 million as of December 31, 2023, from $1,052.9 million as of December 31, 2022.
Among the $5,173.3 million in credit commitments outstanding, $686.0 million are related to home equity and home equity lines of credit, $1,874.2 million are related to traditional working capital commercial lines, and $1,769.9 million are unfunded for current or future construction projects.
Among the $4,069.2 million in credit commitments outstanding, $658.5 million are related to home equity and home equity lines of credit, $1,786.4 million are related to traditional working capital commercial lines, and $926.9 million are unfunded for current or future construction projects.
Subsequent changes to the allowance for credit losses are recorded through provision expense using the same methodology as other loans held for investment.
An allowance for credit loss is recorded for the expected credit losses over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense using the same methodology as other loans held for investment.
During 2022, the Company recorded a provision for credit losses of $82.7 million, as compared to a $14.6 million reversal of provision for credit losses in 2021.
During 2023, the Company recorded a provision for credit losses of $32.2 million, as compared to a $82.7 million provision for credit losses in 2022.
For information regarding our allowance for credit losses, see “Financial Condition—Allowance for Credit Losses” included herein. 38 Table of Contents Non-interest Income Our principal sources of non-interest income primarily include fee-based revenues such as payment services, mortgage banking and wealth management revenues, service charges on deposit accounts, and other service charges, commissions, and fees.
For information regarding our allowance for credit losses, see “Financial Condition—Allowance for Credit Losses” included herein. Non-interest Income Non-interest income also contributes to our operating results with 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.
Unrealized gains or losses, net of the deferred tax effect, on available-for-sale securities are reported as increases or decreases in accumulated other comprehensive income or loss, a component of stockholders’ equity. Investment securities increased $3,889.8 million, or 59.8%, to $10,397.9 million as of December 31, 2022, from $6,508.1 million as of December 31, 2021.
Unrealized gains or losses, net of the deferred tax effect, on available-for-sale securities are reported as increases or decreases in accumulated other comprehensive income or loss, a component of stockholders’ equity. Investment securities decreased $1,348.5 million, or 13.0%, to $9,049.4 million as of December 31, 2023, from $10,397.9 million as of December 31, 2022.
Fluctuations in effective federal income tax rates are primarily due to an increase in tax exempt interest income realized from the loan portfolio acquired in the GWB acquisition and an increase in the cash surrender value of company owned life insurance, which was partially offset by an increase in non-deductible acquisition costs and an increase in the non-deductible portion of FDIC premium expense related to the Company’s increase in total assets related to the GWB acquisition.
Fluctuations in effective federal income tax rates are primarily due to an increase in pre-tax income, a decrease in net tax exempt interest income, a decrease in tax credits, and an increase in the non-deductible portion of FDIC premium expense, which was partially offset by an increase in the cash surrender value of company owned life insurance, and a decrease in non-deductible acquisition costs.
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 operational losses. Other expenses increased $48.8 million, or 74.3%, to $114.5 million in 2022, as compared to $65.7 million in 2021.
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 operational losses. Other expenses increased $7.0 million in 2023 as compared to the same period in 2022.
Acquisition related expenses of $118.9 million were incurred during 2022 related to the 2022 acquisition of GWB, compared to $11.6 million of acquisition related expenses incurred during 2021.
There were no acquisition related expenses incurred during 2023, compared to $118.9 million of acquisition related expenses incurred during 2022, related to the 2022 acquisition of GWB.
The following table summarizes our deposits as of the dates indicated: Deposits (Dollars in millions) As of December 31, 2022 Percent 2021 Percent 2020 Percent 2019 Percent 2018 Percent Non-interest bearing demand $ 7,560.0 30.2 % $ 5,568.3 34.2 % $ 4,633.5 32.6 % $ 3,426.5 29.4 % $ 3,158.3 29.6 % Interest bearing: Demand 7,205.9 28.7 4,753.2 29.2 4,118.9 29.0 3,195.4 27.4 2,957.5 27.7 Savings 8,379.3 33.4 4,981.6 30.6 4,405.9 31.0 3,591.6 30.8 3,247.9 30.4 Time, $250k or more 438.0 1.8 186.7 1.2 193.0 1.3 278.4 2.4 221.0 2.0 Time, other 1,490.4 5.9 779.8 4.8 865.7 6.1 1,171.6 10.0 1,096.0 10.3 Total interest bearing 17,513.6 69.8 10,701.3 65.8 9,583.5 67.4 8,237.0 70.6 7,522.4 70.4 Total deposits $ 25,073.6 100.0 % $ 16,269.6 100.0 % $ 14,217.0 100.0 % $ 11,663.5 100.0 % $ 10,680.7 100.0 % For additional information concerning client deposits, including the use of repurchase agreements, see “Business—Community Banking—Deposit Products,” included in Part I, Item 1 and “Notes to Consolidated Financial Statements—Deposits,” included in Part IV, Item 15 of this report. 52 Table of Contents Securities Sold Under Repurchase Agreements Under repurchase agreements with commercial and municipal depositors, client deposit balances are invested in short-term U.S. government agency securities overnight and are then repurchased the following day.
The following table summarizes our deposits as of the dates indicated: Deposits (Dollars in millions) As of December 31, 2023 Percent 2022 Percent 2021 Percent Non-interest bearing demand $ 6,029.6 25.9 % $ 7,560.0 30.2 % $ 5,568.3 34.2 % Interest bearing: Demand 6,507.8 27.9 7,205.9 28.7 4,753.2 29.2 Savings 7,775.8 33.3 8,379.3 33.4 4,981.6 30.6 Time, $250k or more 811.6 3.5 438.0 1.8 186.7 1.2 Time, other 2,198.3 9.4 1,490.4 5.9 779.8 4.8 Total interest bearing 17,293.5 74.1 17,513.6 69.8 10,701.3 65.8 Total deposits $ 23,323.1 100.0 % $ 25,073.6 100.0 % $ 16,269.6 100.0 % For additional information concerning client deposits, including the use of repurchase agreements, see “Business—Community Banking—Deposit Products,” included in Part I, Item 1 and “Notes to Consolidated Financial Statements—Deposits,” included in Part IV, Item 15 of this report. 55 Table of Conten ts Securities Sold Under Repurchase Agreements Under repurchase agreements with commercial and municipal depositors, client deposit balances are invested in U.S. government agency securities overnight and are then repurchased the following day.
Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and when, in the opinion of management, the loans are estimated to be fully collectible as to both principal and interest. Other Real Estate Owned (OREO) . OREO consists of real property acquired through foreclosure on the collateral underlying defaulted loans.
Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and when, in the opinion of management, the loans are estimated to be fully collectible as to both principal and interest. 50 Table of Conten ts Other Real Estate Owned (OREO) .
The dividend equates to a 4.4% annual yield based on the $42.30 average closing price of the Company’s common stock as reported on NASDAQ during the fourth quarter of 2022.
The dividend equates to a 7.2% annual yield based on the $26.01 average closing price of the Company’s common stock as reported on NASDAQ during the fourth quarter of 2023.
We recently acquired Great Western, the parent company of GWB, a Sioux Falls, South Dakota based community bank, for total consideration of $1,723.3 million, consisting of the issuance of 46.9 million shares of the Company’s Class A common stock valued at $36.76 per share, which was the opening price of the Company’s Class A common stock as quoted on the NASDAQ stock market on the acquisition date.
During 2022, we acquired Great Western Bancorp, Inc., the parent company of GWB, a Sioux Falls, South Dakota based community bank, for total consideration of $1,723.3 million, consisting of the issuance of 46.9 million shares of the Company’s Class A common stock valued at $36.76 per share.
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.
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.
As of December 31, 2022, our construction loan portfolio was divided among the following categories: approximately $516.2 million, or 26.5%, residential construction; approximately $1,042.0 million, or 53.6%, commercial construction; and approximately $386.2 million, or 19.9%, land acquisition and development. Residential real estate loans . Residential real estate loans are typically secured by first liens on the financed property.
As of December 31, 2023, our construction loan portfolio was divided among the following categories: approximately $343.6 million, or 18.8%, residential construction; approximately $1,147.9 million, or 62.9%, commercial construction; and approximately $335.0 million, or 18.3%, land acquisition and development. Residential real estate loans . Residential real estate loans are typically secured by first liens on the financed property.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+7 added−8 removed8 unchanged
Biggest changeRecent Accounting Pronouncements The expected impact of accounting standards recently issued but not yet adopted are discussed in “Notes to Consolidated Financial Statements—Authoritative Accounting Guidance” included in Part IV, Item 15 of this report.
Biggest changeAs of December 31, 2023, $900.0 million of the cash flow hedges were effective with the remaining $250.0 million becoming effective in April 2024. 59 Table of Conten ts Recent Accounting Pronouncements The expected impact of accounting standards recently issued but not yet adopted are discussed in “Notes to Consolidated Financial Statements—Authoritative Accounting Guidance” included in Part IV, Item 15 of this report.
In October 2022, the Company entered into four forward starting receive-fixed hedges related to pools of variable-rate loans and securities that were designated as cash flow hedges with a total notional amount of $850.0 million. The swaps designated as cash flow hedges synthetically fix the interest income received by the Company once they become effective.
In October 2022, the Company entered into four forward starting receive-fixed hedges related to pools of variable-rate loans and securities that were designated as cash flow hedges with a total notional amount of $850.0 million. The swaps designated as cash flow hedges synthetically fix the interest income received by the Company when they become effective.
Our primary source of earnings is net interest income, which is affected by changes in interest rates, the relationship between rates on interest-bearing assets and liabilities, the impact of interest rate fluctuations on asset prepayments, and the mix of interest-bearing assets and liabilities.
Our primary source of earnings is net interest income, which is affected by the level of interest rates, changes in interest rates, the speed of changes in interest rates, the relationship between rates on interest-bearing assets and liabilities, the impact of interest rate fluctuations on asset prepayments, and the mix of interest-bearing assets and liabilities.
Such financial instruments have varying levels of sensitivity to changes in market interest rates. Interest rate risk results when, due to different maturity dates and repricing intervals, interest rate indices for interest earning assets fluctuate adversely relative to interest bearing liabilities, thereby creating a risk of decreased net earnings and cash flow.
Interest rate risk results when, due to different maturity dates and repricing intervals, interest rate indices for interest earning assets fluctuate adversely relative to interest bearing liabilities, thereby creating a risk of decreased net earnings and cash flow.
Simulations modeled quarterly include scenarios where market rates change instantaneously up or down in a parallel manner and scenarios where market rates gradually increase 200 basis points.
Simulations modeled quarterly include scenarios where market rates change instantaneously up or down in a parallel or non-parallel manner.
See “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies” included in Part IV, Item 15 of this report. Asset Liability Management The goal of asset liability management is the prudent control of market risk, liquidity, and capital. Asset liability management is governed by policies, goals, and objectives adopted and reviewed by the Bank’s board of directors.
See “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies” included in Part IV, Item 15 of this report. 58 Table of Conten ts Asset Liability Management The goal of asset liability management is the prudent control of market risk, liquidity, and capital.
Development of asset liability management strategies is the responsibility of the Asset Liability Committee, or ALCO, which is composed of members of senior management. Interest Rate Risk Interest rate risk is the risk of loss of future earnings or long-term value due to changes in interest rates.
Interest Rate Risk Interest rate risk is the risk of loss of future earnings or long-term value due to changes in interest rates.
The preceding interest rate sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results. 57 Table of Contents The Company uses financial derivative instruments for management of interest rate sensitivity.
Change in Interest Rate Percent Change in Net Interest Income (basis points) December 31, 2023 +200 (8.13)% +100 (4.01)% -100 6.42% -200 10.94% The preceding interest rate sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results. The Company uses financial derivative instruments for management of interest rate sensitivity.
Removed
Interest rate sensitivity is related to the difference between amounts of interest earning assets and interest-bearing liabilities which either reprice or mature within a given period of time. The difference is known as interest rate sensitivity gap. The following table shows interest rate sensitivity gaps and the earnings sensitivity ratio for different intervals as of December 31, 2022.
Added
Such financial instruments have varying levels of sensitivity to changes in market interest rates such as the level of interest rates, changes in interest rates, the speed of changes in interest rates, and changes in the volume and composition of interest earning assets and interest-bearing liabilities.
Removed
The information presented in the table is based on our mix of interest earning assets and interest-bearing liabilities and historical experience regarding their interest rate sensitivity. 56 Table of Contents Interest Rate Sensitivity Gaps (Dollars in millions) Projected Maturity or Repricing Three Months or Less Three Months to One Year One Year to Five Years After Five Years Total Interest earning assets: Loans (1) $ 5,489.3 $ 3,085.9 $ 8,024.5 $ 1,440.3 $ 18,040.0 Investment securities (2) 1,512.8 741.6 4,589.2 3,554.3 10,397.9 Interest bearing deposits in banks 519.7 — — 1.5 521.2 Federal funds sold 0.1 — — — 0.1 Total interest earning assets $ 7,521.9 $ 3,827.5 $ 12,613.7 $ 4,996.1 $ 28,959.2 Interest bearing liabilities: Interest bearing demand accounts (3) $ 2,180.0 $ — $ 5,025.9 $ — $ 7,205.9 Savings deposits (3) 2,495.4 — 5,883.9 — 8,379.3 Time deposits, $250 or more 59.9 306.4 71.7 — 438.0 Other time deposits 335.5 830.9 323.5 0.5 1,490.4 Securities sold under repurchase agreements 1,052.9 — — — 1,052.9 Other borrowed funds 2,327.0 — — — 2,327.0 Long-term debt — 0.1 0.5 120.2 120.8 Subordinated debentures held by subsidiary trusts 163.1 — — — 163.1 Total interest bearing liabilities $ 8,613.8 $ 1,137.4 $ 11,305.5 $ 120.7 $ 21,177.4 Rate gap $ (1,091.9) $ 2,690.1 $ 1,308.2 $ 4,875.4 $ 7,781.8 Cumulative rate gap (1,091.9) 1,598.2 2,906.4 7,781.8 Cumulative rate gap as a percentage of total interest earning assets (3.77) % 5.52 % 10.04 % 26.87 % 26.87 % (1) Does not include non-accrual loans of $59.2 million.
Added
We do not have any trading instruments nor do we classify any portion of the investment portfolio as trading.
Removed
Variable rate loans are included in the three months or less category in the above table and if these loans have reached interest rate floors they may not immediately reprice. (2) Adjusted to reflect: (a) expected shorter maturities based upon our historical experience of early prepayments of principal, and (b) the redemption of callable securities on their next call date.
Added
Asset liability management is governed by policies, goals, and objectives adopted and reviewed by the Bank’s board of directors. Development of asset liability management strategies and monitoring of interest rate risk are the responsibility of the Asset Liability Committee, or ALCO, which is composed of members of senior management.
Removed
(3) Interest bearing demand and savings deposits, while technically subject to immediate withdrawal, actually display sensitivity characteristics that generally fall within one to five years. Their allocation is presented based on those sensitivity characteristics.
Added
The following table presents the net interest income simulation model’s projected change in net interest income over a one-year horizon due to a change in interest rates. The net interest income simulation assumes parallel shifts in the yield curve and a static balance sheet.
Removed
If these deposits were included in the three month or less category, the above table would reflect a negative three-month gap of $12.0 billion, a negative cumulative one-year gap of $9.3 billion, and a positive cumulative one to five year gap of $2.9 billion.
Added
The net interest income simulation also uses a “deposit beta” modeling assumption which is an estimate of the change in interest-bearing deposit pricing for a given change in market interest rates. In up-rate scenarios, the deposit beta assumption is 30% with the pricing change occurring in the first month of the net interest income simulation horizon.
Removed
We continue to refine our mix of interest earning assets and interest-bearing liabilities to approach a target of no more than 4.0% of the net interest income at risk over a one-year period, should interest rates immediately shift up or down 100 basis points, or gradually shift up 200 basis points over a 12 month period.
Added
In down-rate scenarios, the deposit beta assumption is 50% with the pricing change occurring in the first month of the net interest income simulation horizon. Actual changes to deposit pricing may vary significantly from this assumption due to management actions, customer behavior, and market forces, which may have significant impacts to our net interest income.
Removed
As of December 31, 2022, our income simulation model predicted net interest income would increase 0.17% on an immediate upward 100 basis point shock, assuming a static balance sheet, and decrease of 0.31% on an immediate downward 100 basis point shock.
Added
The net interest income simulations at December 31, 2023 project that interest-bearing liabilities reprice faster than our interest earning assets.
Removed
Assuming a 0.5% gradual increase in interest rates during each of the next four consecutive quarters, net interest income would decrease $2.9 million, or decrease of 0.28%. Other than the 12-month gradual ramp, each scenario predicts that our interest-bearing assets reprice faster than our interest bearing liabilities.

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