FIBK US Equity☆

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. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. All of such forward-looking statements are expressly qualified by reference to the cautionary statements provided under the caption “Cautionary Note Regarding Forward-Looking Statements” included on page 1 in Part I of this report. Furthermore, a number of known and unknown factors may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. 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. 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.

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

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. 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. Fluctuations in the loan portfolio are directly related to the economies of the communities we serve. 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. We fund our loan portfolio primarily with the core deposits from our clients and cash flows off of the investment portfolio. We generally do not rely on brokered deposits to fund our loans and rely to a limited extent on wholesale funding sources. For additional information about our underwriting standards and loan approval process, see “Business—Lending Activities,” included in Part I, Item 1 of this report.

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Recent Trends and Developments

Acquisitions

During the past few years, we have increased our community banking footprint across the Rocky Mountain and Pacific Northwest regions and have expanded into the Midwest and Southwest regions, in large part due to our acquisition activity. 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.

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. The merger was completed on February 1, 2022 and the core systems were converted in May 2022, at which point GWB’s operations were integrated with the Company’s operations. The acquisition of GWB’s 174 banking offices across Arizona, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota expanded the Company’s geographical footprint. 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.

Common Stock

On March 25, 2022, all outstanding shares of the Company’s Class B common stock automatically converted into shares of the Company’s Class A common stock on a one-for-one basis, pursuant to the terms of the Company’s Third Amended and Restated Articles of Incorporation, as amended (the “Charter”). No additional shares of Class B common stock are permitted to be issued. The former holders of Class B common stock now hold Class A common stock with the same voting powers, preferences, rights and qualifications, limitations and restrictions as the other holders of Class A common stock. All shares of the Company’s outstanding capital stock are now composed solely of shares of Class A common stock and are entitled to one vote per share. The Company’s Class A common stock will continue to trade on the NASDAQ Stock Market under the ticker symbol “FIBK.”

Economic Conditions

U.S. inflation data hit a multi-decade high in June 2022, climbing to 9.1%, as reported by the Bureau of Labor Statistics, and then decreased to 6.5% in December 2022. The effect of inflation on the Company differs significantly from the effect on other industries. While our operating expenses are affected by general inflation, the asset and liability structure of the Company is largely of monetary items. Monetary items, such as cash, investments, loans, deposits and other borrowings, are those assets and liabilities which are or will be converted into a fixed number of dollars regardless of changes in prices. As a result, changes in interest rates have more of an impact on a Company’s performance than does general inflation. However, inflation may have negative impacts on the Company’s clients, including on their businesses and consumers and their ability or willingness to invest, save or spend. It may also impact their ability to repay loans.

The Federal Reserve has stated its objective of returning inflation to 2% and has been aggressively acting to achieve this goal. In response to sustained inflationary pressures, the Federal Reserve increased short-term interest rates 450 basis points between March 16, 2022 and February 2, 2023. While there have been some signs that general inflation pressures are easing, the Federal Reserve has continued to raise interest rates into 2023 and is currently reducing its ownership of agency mortgage-backed securities and treasury securities. With these recent interest rate increases, the short end (up to two years) of the yield curve has increased. Net interest income continued to rise into the end of 2022 as a result of higher yields and a more favorable asset mix. However, increases in interest rates may have negative impacts on the Company’s funding base, as the Company’s deposits have recently declined, following industry-wide trends, and could potentially diminish our clients demand for and their ability to repay loans.

Gross domestic product declined 2.2% for the first and second quarters of 2022, increased 3.2% for the third quarter of 2022, and increased 2.9% in the fourth quarter of 2022. It is unclear whether the economic performance of the U.S. economy in 2022 will result in an economic slowdown, downturn, or recession in 2023 or after; any one of which could impact the Company. Such changes impact the level of deposits by our clients, and thus impact one of our primary lending sources, by causing higher volumes of withdrawals or lower volume of deposits by our clients. The credit quality of the Company’s loans may also be impacted as clients weather adverse economic conditions which could result in an increase in credit losses or other related expenses.

COVID-19

Management continues to monitor the impact of COVID-19 on the Company’s financial results. Over the past year, the COVID-19 pandemic has affected our operations to a limited degree, although it has had varying degrees of disruptions and restrictions on our clients and to our clients’ operations, staffing, and demand for certain products and services.

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Primary Factors Used in Evaluating Our Business

As a banking institution, we manage and evaluate our financial condition and our results of operations. We monitor and evaluate the levels and trends of the line items included in our balance sheet and statements of income, as well as various financial ratios that are commonly used in our industry. We analyze these ratios and financial trends against both our own historical levels as well as and the financial condition and performance of comparable banking institutions in our region and nationally.

Results of Operations

Principal tools we use to manage and evaluate the results of our operations include tracking performance through metrics such as return on average equity, return on average assets, efficiency ratio, non-interest expense as a percent of total average assets, earnings per share, total shareholder return, net interest income, non-interest income, non-interest expense, and net income. Net interest income is affected by a number of factors such as the level of interest rates, changes in interest rates, and changes in the volume and composition of interest earning assets and interest-bearing liabilities. Changes in interest rate spread, which is the difference between interest earned on assets and interest paid on liabilities, has the most significant impact on net interest income. Other factors like volume of loans, investment securities, and other interest earning assets, compared to the volume of interest-bearing deposits and other indebtedness, also cause changes in our net interest income between periods. Non-interest bearing sources of funds, such as demand deposits and stockholders’ equity, help support earning assets.

The impact of funding, including non-interest-bearing deposit sources, is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. We evaluate our net interest income by assessing the yields on our loans and other earning assets, the costs of our deposits and other funding sources, and the levels of our net interest spread and net interest margin.

We seek to increase our non-interest income over time, and we evaluate our non-interest income relative to the trends of the individual types of non-interest income in view of changes in the regulatory environment and prevailing market conditions. We manage our non-interest expenses in consideration of growth opportunities and our community banking model that emphasizes client service and responsiveness. We evaluate our non-interest expense on factors that include our non-interest expense relative to our average assets, our efficiency ratio, and the trends of the individual categories of non-interest expense.

Finally, we seek to increase our net income and provide favorable shareholder returns over time, and we evaluate our net income relative to the performance of similar bank holding companies on factors that include return on average assets, return on average equity, total shareholder return, and growth in earnings.

Financial Condition

We manage and evaluate our financial condition by focusing on liquidity, the diversification and quality of our loans, the adequacy of our allowance for credit losses, the diversification and terms of our deposits and other funding sources, the re-pricing characteristics and maturities of our assets and liabilities, including potential interest rate exposure, and the adequacy of our capital levels. We seek to maintain sufficient levels of cash and investment securities to meet potential payment and funding obligations, and we evaluate our liquidity on factors that include the levels of cash and highly liquid assets relative to our liabilities, the quality and maturities of our investment securities, the ratio of loans held for investment to deposits, and any reliance on brokered certificates of deposit or other wholesale funding sources.

We seek to maintain a diverse and high-quality loan portfolio and evaluate our asset quality on factors that include the allocation of our loans among loan types, credit exposure to any single borrower or industry type, non-performing assets as a percentage of loans held for investment and OREO, and loan charge-offs as a percentage of average loans. 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 seek to fund our assets primarily using core client deposits spread among various deposit categories, and we evaluate our deposit and funding mix on factors that include the allocation of our deposits among deposit types, the level of our non-interest-bearing deposits, the ratio of our core deposits (i.e. excluding time deposits above $250,000) to our total deposits, and our reliance on brokered deposits or other wholesale funding sources, such as borrowings from other banks or agencies. We seek to manage the mix, maturities, and re-pricing characteristics of our assets and liabilities to maintain relative stability of our net interest rate margin in a changing interest rate environment, and we evaluate our asset-liability management using models to evaluate the changes to our net interest income under different interest rate scenarios.

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Finally, we seek to maintain adequate capital levels to absorb unforeseen operating losses and to help support the growth of our balance sheet. We evaluate our capital adequacy using the regulatory and financial capital ratios including leverage capital ratio, tier 1 common capital to total risk-weighted assets, tier 1 risk-based capital ratio, and total risk-based capital ratio.

Critical Accounting Estimates and Significant Accounting Policies

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States and follow practices prescribed within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. The most significant accounting policies we follow are summarized in “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies” included in Part IV, Item 15 of this report.

Our critical accounting estimates are summarized below. Management considers an accounting estimate to be critical if: (1) the accounting estimate requires management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain, and (2) changes in the estimate that are reasonably likely to occur from period to period, or the use of different estimates that management could have reasonably used in the current period, would have a material impact on our consolidated financial statements, results of operations, or liquidity.

Allowance for Credit Losses

The allowance for credit losses is a valuation account that creates an allowance for credit losses expected over the life of loans at each balance sheet date, which is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Increases in the allowance are recorded through net income as a provision for credit loss expense. Decreases in the allowance are recorded through net income as a reversal of provision for credit loss expense. Loans are charged-off against the allowance when management confirms the uncollectibility of a loan balance. 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.

We perform a quarterly assessment of the risks inherent in our loan portfolio, as well as a detailed review of each significant loan we have assessed to have weaknesses that does not share common risk characteristics with other loans. Based on this analysis, we record a provision for credit losses in order to maintain the allowance for credit losses at appropriate levels. In determining the allowance for credit losses, management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental and economic conditions, such as changes in unemployment rates, property values, or other relevant factors. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.

For loans acquired in a business combination with no significant evidence of credit deterioration since origination, the Company estimates an allowance for credit losses of the loans determined using the same methodology as other loans held for investment.

The allowance for credit losses is maintained at an amount we believe to be sufficient to provide for estimated losses expected over the life of the loans at each balance sheet date resulting from management’s assessment of the quantitative and qualitative factors utilized to determine the allowance for credit losses. Management monitors qualitative and quantitative trends in the loan portfolio, including changes in the levels of past due, internally classified, and non-performing loans. Changes in the estimates and assumptions are possible and may have a material impact on our allowance, and as a result, on our consolidated financial statements or results of operations.

See “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies” for a description of the methodology used to determine the allowance for credit losses and our policy pertaining to acquired loans. See “Notes to Consolidated Financial Statements—Loans” for a discussion on the factors driving changes in the amount of the allowance for credit losses. See also Part I, Item 1A, “Risk Factors—Credit Risks.”

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Goodwill

The excess purchase price over the fair value of net assets from acquisitions, or goodwill, is evaluated for impairment at least annually and on an interim basis if an event or circumstance indicates it is likely impairment has occurred. Goodwill impairment is determined by comparing the fair value of a reporting unit to its carrying amount. In any given year, the Company may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If it is not more likely than not that the fair value of the reporting unit is in excess of the carrying value, or if the Company elects to bypass the qualitative assessment, a quantitative impairment test is performed. In performing a quantitative test for impairment, the fair value of net assets is estimated based on analyses of the Company’s market value, discounted cash flows, and peer values. The determination of goodwill impairment is sensitive to market-based economics and other key assumptions used in determining or allocating fair value. Variability in the market and changes in assumptions or subjective measurements used to estimate fair value are reasonably possible and may have a material impact on our consolidated financial statements or results of operations.

Our annual goodwill impairment test is performed each year as of July 1. The Company performed its 2022 annual goodwill impairment qualitative assessment and determined the Company’s goodwill was not considered impaired.

For additional information regarding goodwill, see “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies,” included in Part IV, Item 15 of this report and “Risk Factors—Operational Risks,” included in Part I, Item 1A of this report.

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. For loans with no significant evidence of credit deterioration since origination, the difference between the fair value and the unpaid principal balance of the loan at the acquisition date is amortized into interest income using the effective interest method over the remaining period to contractual maturity.

Loans acquired with evidence of deterioration in credit quality since origination, or PCD loans, are accounted for in accordance with ASC Topic 326-20 “Financial instruments - credit losses.” Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and then discounting those cash flows at an appropriate market rate of interest. An allowance for credit losses is recognized by estimating the expected credit losses of the purchased asset and recording an adjustment to the acquisition date fair value to establish the initial amortized cost basis of the asset. Differences between the established fair value, or amortized cost basis, and the unpaid principal balance of the asset is considered to be a non-credit discount/premium and is accreted/amortized into interest income using the interest method accounted for in accordance with ASC 310-10. Subsequent changes to the allowance for credit losses are recorded through provision for credit loss expense using the same methodology as other loans held for investment.

For additional information regarding acquired loans, see “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies,” “Notes to Consolidated Financial Statements—Acquisitions,” and “Notes to Consolidated Financial Statements—Loans Held for Investment,” included in Part IV, Item 15 of this report.

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. 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.

Net Income

Net income increased $10.1 million, or 5.3%, to $202.2 million, or $1.96 per diluted share, in 2022, compared to $192.1 million, or $3.11 per diluted share, in 2021. This included $118.9 million of acquisition related expenses in 2022 related to the 2022 acquisition of GWB compared to $11.6 million of acquisition related expenses incurred in 2021. The after-tax impact of acquisition related expenses on earnings per share was $0.90 and $0.15 in 2022 and 2021, respectively.

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Performance Ratios

Return on average common stockholders’ equity 6.34 9.73 8.12

(1)Our efficiency ratio definition conforms with the FDIC definition for all periods presented as non-interest expense less amortization of intangible assets divided by net interest income plus non-interest income.

(2)Common stock dividend payout ratio represents dividends per common share divided by basic earnings per common share.

Net Interest Income

Net interest income, the largest source of our operating income, is derived from interest, dividends, and fees received on interest earning assets, less interest expense incurred on interest bearing liabilities. Interest earning assets primarily include loans and investment securities. 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.

Changes in interest rate spread, which is the difference between interest earned on assets and interest paid on liabilities, has the most significant impact on net interest income. Other factors like volume of loans, investment securities, and other interest earning assets compared to the volume of interest-bearing deposits and other indebtedness also cause changes in our net interest income between periods. Non-interest-bearing sources of funds, such as demand deposits and stockholders’ equity, help to support earning assets.

Net interest income increased $453.4 million to $942.6 million during 2022, as compared to $489.2 million in 2021. On a fully taxable equivalent (FTE) basis, net interest income increased $459.3 million during 2022. The increase is a result of the impact of higher levels of earning assets largely related to the GWB acquisition and higher market yields on earning assets following the Federal Fund rate increases during 2022. Also contributing to the increase in net interest income during 2022, as compared to 2021, was interest accretion related to the fair value of acquired loans of $50.4 million during 2022 as compared to $9.1 million in 2021, of which $21.8 million was the result of early loan payoffs during 2022, as compared to $5.0 million in 2021. There were no material recoveries of previously charged-off loan interest in 2022 or 2021. Partially offsetting these increases in net interest income were decreased levels of interest income earned as the Payroll Protection Program (“PPP”) loans were forgiven, and increased interest expense on other borrowed funds, and higher cost of funds on interest-bearing deposit balances.

The Company’s net interest margin ratio increased 51 basis points to 3.36% during 2022, as compared to 2.85% in 2021. Exclusive of interest accretion related to loans acquired through acquisition and the impact of recoveries of charged-off interest, our 2022 net interest margin ratio increased 38 basis points over our similarly calculated net interest margin ratio in 2021, as a result of a shift in the mix of earning assets toward investment securities and loans and increases in yields on earning assets, partially offset by higher costs associated with interest bearing liabilities.

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The following table presents, for the periods indicated, condensed average balance sheet information using daily average balances, together with interest income and yields earned on average interest earning assets and interest expense and rates paid on average interest-bearing liabilities.

Average Balance Sheets, Yields, and Rates

Year Ended December 31,

Interest earning assets:

Federal funds sold 0.5 — — 0.1 — — 0.1 — —

Interest-bearing liabilities:

Less FTE adjustments (2) (8.1) (2.2) (2.0)

(1)Average loan balances include mortgage loans held for sale and non-accrual loans. Interest income on loans includes amortization of deferred loan fees net of deferred loan costs of $7.5 million, $40.6 million, and $32.5 million during 2022, 2021, and 2020, respectively.

(2)Management believes fully taxable equivalent, or FTE, interest income is useful to investors in evaluating the Company’s performance as a comparison of the returns between a tax-free investment and a taxable alternative. The Company adjusts interest income and average rates for tax exempt loans and securities to a FTE basis utilizing a 26.25%, 21.00%, and 21.00% tax rate for 2022, 2021, and 2020, respectively.

(3)Net FTE interest margin during the period equals (i) the difference between interest income on interest earning assets and the interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period.

(4)Calculated by dividing total interest on interest-bearing liabilities by the sum of total interest-bearing liabilities plus non-interest-bearing deposits.

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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). Changes which are not due solely to volume or rate have been allocated to these categories based on the respective percent changes in average volume and average rate as they compare to each other.

Analysis of Interest Changes Due To Volume and Rates

(Dollars in millions) Volume Rate Net Volume Rate Net Volume Rate Net

Interest earning assets:

Interest bearing liabilities:

Other borrowed funds — 15.3 15.3 — — — — — —

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

Provision for Credit Losses

Fluctuations in the provision for credit losses reflect management’s estimate of possible credit losses based upon the composition of our loan portfolio, evaluation of the borrowers’ ability to repay, collateral value underlying loans, loan loss trends, and estimated effects of current and forecasted economic conditions on our loans held for investment and investment securities portfolios.

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. The provision during 2022 includes $68.4 million related to loans held for investment, of which $59.5 million was related to acquired non-PCD loans related to the acquisition of GWB, $12.4 million related to unfunded commitments, and $1.9 million related to held-to-maturity securities. The allowance for credit losses is updated quarterly based on the current loan and investment securities portfolios, asset quality metrics, and a review of the current economic outlook. 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. For information regarding our allowance for credit losses, see “Financial Condition—Allowance for Credit Losses” included herein.

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Non-interest Income

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

Non-interest Income Year Ended December 31, $ Change % Change

Non-interest income increased $13.7 million, or 9.2%, to $163.2 million in 2022, as compared to $149.5 million in 2021. Significant components of these fluctuations are discussed below.

Payment services revenues consist of interchange revenue that merchants pay for processing electronic payment transactions, associated fees earned from the issuance of business credit cards, consumer credit cards, and debit cards, and ATM service fees. Payment services revenues increased $29.0 million, or 64.3%, to $74.1 million in 2022, as compared to $45.1 million for the same period in 2021, mainly as result of increased volume associated with the acquisition of GWB.

Mortgage banking revenues include origination and processing fees on residential real estate loans held for sale, gains on residential real estate loans sold to third parties, income earned from the servicing of mortgages originated by the Company which are held by third parties, and any impairments to or subsequent recovery of the Company’s mortgage servicing rights valuation. Mortgage banking revenues decreased $22.1 million, or 54.2%, to $18.7 million in 2022, as compared to $40.8 million in 2021, primarily as a result of the decline in both home loan production volume as a result of rising interest rates, along with tighter gain-on-sale spreads compared to 2021. The realized revenue was also impacted by a $3.4 million recovery of a previous impairment of our mortgage servicing rights during 2022 as compared with a $6.9 million recovery in 2021.

Wealth management revenues are principally comprised of fees earned for management of trust assets and investment services. Wealth management revenues increased $8.0 million in 2022, or 30.4%, to $34.3 million, as compared to $26.3 million in 2021, primarily due to increased volume associated with the acquisition of GWB, which were partially offset by the decline in market values impacting assets under management, which is the basis on which we assess fees. The Company had $7.5 billion of assets under management at December 31, 2022 compared to $5.9 billion at December 31, 2021.

Service charge fees are primarily driven by service and overdraft charges on deposit accounts. These service charges increased $8.1 million, or 49.1%, to $24.6 million in 2022, as compared to $16.5 million in 2021. The increase in 2022 is primarily due to increased volume as a result of the acquisition of GWB, partially offset by the Company’s decision to discontinue assessing non-sufficient fund charges and reducing overdraft fees mid-year, and the decision to increase the earnings credit rate on business deposits late in the year.

Other service charges, commissions, and fees primarily include fees earned on certain derivative interest rate contracts, insurance commissions, and safe deposit boxes. Other service charges, commissions, and fees increased $7.6 million, or 96.2%, to $15.5 million in 2022, as compared $7.9 million in 2021, primarily due to increased volume as a result of the acquisition of GWB and increased swap fee revenues earned on derivative interest rate swap contracts offered to clients.

Investment securities gains (losses), net includes realized gains and losses associated with the sales of investment securities. Investment securities gain (losses), net decreased $25.5 million to a loss of $24.4 million as compared to a gain of $1.1 million during 2021. The decrease was primarily due to a loss of $46.3 million incurred on the sale of $500 million in U.S. treasury notes previously swapped, partially offset by the recognition of the remaining deferred swap termination gain of $22.1 million. Notional proceeds from the transactions were reinvested back into the securities portfolio at higher yields, with the incremental interest income recovering the net realized loss in approximately 2.5 years.

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Other income primarily includes company-owned life insurance revenues, check printing income, agency stock dividends, and gains on sales of miscellaneous assets. Other income increased $8.6 million, or 72.9%, to $20.4 million in 2022, as compared to $11.8 million for the same period in 2021, primarily due to an increase in the cash surrender value of life insurance of $4.9 million, a $1.7 million recovery in the credit valuation discount on derivatives acquired in the GWB acquisition, and a $1.4 million gain on the disposition of the GWB acquired subordinated debt.

Non-interest Expense

Non-interest expense increased $360.5 million, or 88.9%, to $766.0 million in 2022, as compared to $405.5 million in 2021. The increase was mainly a result of $118.9 million of acquisition expenses related to the GWB acquisition, increased operating expenses related to the GWB acquisition, and higher incentive and donation expenses as a result of Company performance.

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

Non-interest Expense Year Ended December 31, $ Change % Change

Salaries and wages expense increased $117.2 million, or 71.1%, to $282.1 million in 2022, as compared to $164.9 million in 2021, primarily as a result of the additional employee-related expenses resulting from the acquisition of GWB, a fuel stipend provided to lower wage earners for six months, an increase of minimum wage to $17, and higher incentive accruals, which were partially offset by lower commission expenses.

Employee benefits expense increased $21.7 million, or 38.9%, to $77.5 million in 2022, as compared to $55.8 million in 2021, primarily due to higher benefit costs related to the additional employees resulting from the GWB acquisition.

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 expense increased $21.5 million, or 65.5%, to $54.3 million in 2022, as compared to $32.8 million in 2021, primarily due to inflationary impacts to technology contracts and costs associated with higher transaction volumes associated with the GWB acquisition.

The increases in net occupancy expense, furniture and equipment, professional fees, FDIC insurance premiums, and other intangibles amortization during 2022, as compared to 2021 are primarily due to additional operating expenses, maintenance and repairs, and depreciation from the additional banking offices added in the GWB acquisition, along with higher amortization, legal and consulting costs related to the GWB acquisition.

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. The increase in other expenses are mainly attributable to the GWB acquisition. Donations expense is calculated based on net income before tax, resulting in a year-over-year increase.

Acquisition related expenses primarily include legal and professional fees; technology, conversion, and contract termination costs; employee severance and retention payments; and travel expenses. 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. 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.

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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. 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.

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.

Financial Condition

The financial condition discussion below is based upon our Consolidated Balance Sheet in Part IV, Item 15 of this Report. 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.

Total assets increased $12,615.9 million, or 64.1%, to $32,287.8 million as of December 31, 2022, from $19,671.9 million as of December 31, 2021, primarily due to $13,351.8 million of assets acquired in the acquisition of GWB. Significant fluctuations in balance sheet accounts are discussed below.

Investment Securities

We manage our investment portfolio to obtain the highest yield possible while meeting our risk tolerance and liquidity guidelines and satisfying the pledging requirements for deposits of state and political subdivisions and securities sold under repurchase agreements. Our portfolio principally comprises U.S treasuries, U.S. government agency residential 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. 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. Federal funds sold and interest-bearing deposits in the Bank are additional investments that are classified as cash equivalents rather than as investment securities. Investment securities classified as available-for-sale are recorded at fair value, while investment securities classified as held-to-maturity are recorded at amortized cost. 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. The increase was primarily due to $2,699.0 million of securities acquired in the GWB acquisition and the redeployment of cash and cash equivalents into the securities portfolio. In conjunction with the acquisition of GWB, the Company transferred debt securities categorized as held-to-maturity with an estimated fair value of $10.9 million to the available-for-sale category classification and transferred debt securities categorized as available-for-sale with an estimated fair value of $463.6 million to the held-to-maturity classification during the first quarter of 2022.

In 2022, the Company terminated the $500.0 million, two-year forward starting, three-year pay-fixed interest rate swap, resulting in a $23.3 million gain. The gain associated with the $500.0 million interest rate swap was to be accreted into income through May 2026. However, the U.S. Treasury securities associated with the swap were sold on September 1, 2022 for a loss of $46.3 million. As such, the derivative gain was accreted through August 2022 and then in September 2022 the remaining derivative gain of $22.1 million was recognized as income in investment securities gains (losses), for a net loss of $24.2 million. The Company also terminated the $200.0 million, three-year forward starting, four-year pay fixed interest rate swap, resulting in a $8.5 million gain that will be accreted into income through July 2028.

See Notes “Investment Securities” and “Derivatives and Hedging Activities” included in Part IV, Item 15 of this report for additional details.

As of December 31, 2022, the estimated duration of our investment portfolio was 3.7 years, as compared to 3.6 years as of December 31, 2021. The weighted average yield on investment securities increased 83 basis points to 2.19% in 2022, from 1.36% in 2021.

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As of December 31, 2022, investment securities with amortized costs and fair values of $4,998.9 million and $4,432.0 million, respectively, were pledged to secure public deposits and securities sold under repurchase agreements, as compared to $2,617.8 million and $2,610.8 million, respectively, as of December 31, 2021. 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. This additional risk is generally rewarded in the form of higher yields. Maturities of mortgage-backed securities presented below are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. 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, 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.

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.

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. No impairment or credit losses were recorded during 2022, 2021, or 2020 for available-for-sale securities.

The following table sets forth the carrying value as of December 31, 2022 and 2021, and the percentage of total investment securities and weighted average yields on investment securities as of December 31, 2022. Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%.

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U.S. Treasuries

U.S. government agency securities

Mortgage-backed securities

Collateralized loan obligations

Mark-to-market adjustments on securities available-for-sale 1.2 (33.6) (0.32) NA

Tax exempt securities

Corporate securities

Maturities of the 2022 securities noted above reflect $1,443.3 million of investment securities at their final maturities, which have call provisions within the next year. 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.

Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB) stock

The Bank is a member of the FHLB of Minneapolis and the FRB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. 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. These securities are carried at cost.

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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. Loans held for sale increased $49.8 million, or 165.4%, to $79.9 million as of December 31, 2022, compared to $30.1 million as of December 31, 2021, primarily due to $217.0 million of certain agricultural and commercial loans transferred from loans held for investment to loans held for sale as a result of the GWB acquisition and a transfer of a commercial construction loan from loans held for investment during 2022, which was partially offset by resolutions of $142.3 million of loans acquired from GWB and a decrease in mortgage loan activity.

Loans Held for Investment, Net of Deferred Fees and Costs

The following table presents the composition of our loan portfolio as of the dates indicated:

Loans Outstanding

(Dollars in millions)

As of December 31,

Real estate:

Loans held for investment, net of deferred fees and costs, increased $8,767.5 million, or 94.0%, to $18,099.2 million as of December 31, 2022, as compared to $9,331.7 million as of December 31, 2021, primarily due to $7,705.0 million of loans acquired that were classified as held for investment in the GWB acquisition. Loans held for investment included PPP loans, net of deferred fees, of $5.0 million and $96.3 million as of December 31, 2022 and December 31, 2021, respectively. Excluding the impact of GWB acquired loans and PPP loans, loans held for investment as of December 31, 2022, increased $1,153.8 million from December 31, 2021, primarily driven by increases in real estate and consumer loans, partially offset by a decrease in agricultural loans.

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The following table presents the composition and comparison of loans held for investment, including the February 1, 2022 loans acquired from GWB:

GWB Acquired Loans as of February 1, 2022

Real estate loans:

Construction loans:

Consumer loans:

Real Estate Loans. We provide interim construction and permanent financing for both single-family and multi-unit properties, medium-term loans for commercial, agricultural and industrial property and/or buildings and equity lines of credit secured by real estate.

Commercial real estate 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. Construction loans are primarily to commercial builders for residential lot development and the construction of single-family residences and commercial real estate properties. Construction loans are generally underwritten pursuant to pre-approved permanent financing. 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. Included in residential real estate loans were home equity loans and lines of credit of $548.9 million and $394.6 million as of December 31, 2022 and 2021, respectively.

Consumer Loans. Our consumer loans include direct personal loans; credit card loans and lines of credit; and indirect loans created when we purchase consumer loan contracts advanced for the purchase of automobiles, boats, and other consumer goods from the consumer product dealer network within the market areas we serve. Personal loans and indirect dealer loans are generally secured by automobiles, recreational vehicles, boats, and other types of personal property and are made on an installment basis. Credit cards are offered to clients in our market areas. Lines of credit are generally floating rate loans that are unsecured or secured by personal property. Approximately 78.4% and 79.2% of our consumer loans as of December 31, 2022 and 2021, respectively, were indirect consumer loans.

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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. 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 increased $1,407.1 million, or 95.4%, to $2,882.6 million as of December 31, 2022, from $1,475.5 million as of December 31, 2021, primarily as a result of loans acquired from GWB, partially offset by PPP forgiveness. Commercial loans included $5.0 million of PPP loans as of December 31, 2022 compared to $100.0 million as of December 31, 2021.

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. 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. The within one year category includes loans overdrafts and loans with no stated maturity.

Maturities and Interest Rate Sensitivities

(Dollars in millions) Contractual Maturity Range Maturing After One Year

Other 9.2 — — — 9.2 — —

Non-Performing Assets

Non-performing assets include non-accrual loans, loans contractually past due by 90 days or more and still accruing interest, and OREO.

Non-accrual loans. We generally place loans on non-accrual status when they become 90 days past due unless they are well secured and in the process of collection. When a loan is placed on non-accrual status, any interest previously accrued but not collected is reversed from income. Non-accrual loans increased $34.3 million, to $59.2 million, as of December 31, 2022, from $24.9 million as of December 31, 2021, primarily as a result of the loans acquired from GWB. Accruing loans past due 90 days or more increased $3.6 million, or 128.6%, primarily as a result of the loans acquired from GWB. 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. 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. Estimated losses that result from the ongoing periodic valuation of these properties are charged to earnings in the period in which they are identified. The fair values of OREO properties are estimated using appraisals and management estimates of current market conditions. OREO properties are appraised every 18-24 months unless deterioration in local market conditions indicates the need to obtain new appraisals sooner. OREO properties are evaluated by management quarterly to determine if additional write-downs are appropriate or necessary based on current market conditions. Quarterly evaluations include a review of the most recent appraisal of the property and reviews of recent appraisals and comparable sales data for similar properties in the same or adjacent market areas. Commercial and agricultural OREO properties are listed with unrelated third party professional real estate agents or brokers local to the areas where the marketed properties are located. Residential properties are typically listed with local realtors, after any redemption period has expired. We rely on these local real estate agents and/or brokers to list the properties on the local multiple listing system, to provide marketing materials and advertisements for the properties, and to conduct open houses.

OREO increased to $12.7 million as of December 31, 2022, from $2.0 million as of December 31, 2021, primarily attributable to $15.8 million of other real estate owned acquired in the GWB acquisition, partially offset by dispositions. As of December 31, 2022, 95.3% of our OREO balance was related to agricultural real estate properties and 4.7% was related to a commercial property.

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The following table sets forth information regarding non-performing assets as of the dates indicated:

Non-performing loans:

(1)Accruing loans modified in troubled debt restructurings are not considered non-performing loans. While still considered impaired under applicable accounting guidance for the 2019 and 2018 periods, these loans are performing as agreed under their modified terms and management expects performance to continue.

(2)Including accruing troubled debt restructurings described in footnote 1, the ratio of non-performing assets to loans held for investment and OREO would be 0.77%, 0.34%, 0.55%, 0.70% and 0.92% as of December 31, 2022, 2021, 2020, 2019, and 2018, respectively.

(3)Including accruing troubled debt restructurings described in footnote 1, the ratio of non-performing assets to total assets would be 0.43%, 0.16%, 0.30%, 0.43% and 0.59% as of December 31, 2022, 2021, 2020, 2019, and 2018, respectively.

(4)Including accruing troubled debt restructurings described in footnote 1, the ratio of allowance for credit losses to non-performing loans would be 174.68%, 407.67%, 281.84%, 134.91% and 114.55% as of December 31, 2022, 2021, 2020, 2019, and 2018, respectively.

For additional information regarding non-performing loans, see “Notes to Consolidated Financial Statements—Loans Held For Investment” included in financial statements included Part IV, Item 15 of this report.

Non-performing loans. Non-performing loans include non-accrual loans and loans contractually past due 90 days or more and still accruing interest. The following table sets forth the allocation of our non-performing loans among our different types of loans as of the dates indicated.

Non-Performing Loans by Loan Type(Dollars in millions) As of December 31,

Real estate:

Construction:

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Collateral-dependent loans. Collateral-dependent loans rely solely on the operation or sale of the collateral for repayment. In evaluating the overall risk associated with a loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of protection provided by the cash flow and value of any underlying collateral. The loan may become collateral-dependent where the borrower is experiencing financial difficulty and as sources of repayment become inadequate over time and that repayment is expected to be provided substantially through the operation or sale of the collateral. Collateral-dependent loans increased to $39.1 million as of December 31, 2022, from $11.7 million as of December 31, 2021, primarily as a result of the loans acquired from GWB.

Troubled Debt Restructurings. Modifications of performing loans are made in the ordinary course of business and are completed on a case-by-case basis as negotiated with the borrower. Loan modifications typically include interest rate concessions, interest-only periods, short-term payment deferrals, and extension of amortization periods to provide payment relief. A loan modification is considered a troubled debt restructuring if the borrower is experiencing financial difficulties and we, for economic or legal reasons, grant a concession to the borrower that we would not otherwise consider. Those modifications deemed to be troubled debt restructurings are monitored centrally to ensure proper classification as a troubled debt restructuring and if or when the loan may be placed on accrual status.

As of December 31, 2022 and December 31, 2021, we had loans renegotiated in troubled debt restructurings of $64.6 million and $6.2 million, respectively, of which $4.2 million and $3.9 million were reported as non-accrual loans in the non-performing asset and troubled debt restructurings and non-performing loan tables above as of December 31, 2022 and December 31, 2021, respectively. The remaining $60.4 million and $2.3 million as of December 31, 2022 and December 31, 2021, respectively, were on accrual status and are reported as troubled debt restructurings in the non-performing asset and troubled debt restructurings table above. The increase in troubled debt restructuring from December 31, 2022 and December 31, 2021 was primarily as a result of loans acquired during the GWB acquisition.

For additional information regarding loans modified in troubled debt restructurings, see “Notes to Consolidated Financial Statements—Loans Held For Investment” included in financial statements included Part IV, Item 15 of this report.

Allowance for Credit Losses

The Company performs a quarterly assessment of the adequacy of its allowance for credit losses in accordance with GAAP. The methodology used to assess the adequacy is consistently applied to the Company’s portfolio of loans held for investment. The allowance for credit losses is established through a provision for credit losses based on our evaluation of quantitative and qualitative risk factors in our loan portfolio at each balance sheet date. In determining the allowance for credit losses, we estimate losses on specific loans, or groups of loans, where the expected loss can be identified and reasonably determined over the life of the 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. See the discussion under “Critical Accounting Estimates and Significant Accounting Policies — Allowance for Credit Losses” above.

The allowance for credit losses is increased by provisions charged against earnings and net recoveries of charged-off loans and is reduced by negative provisions credited to earnings and net loan charge-offs. The allowance for credit losses consists of three elements:

(1)Specific valuation allowances associated with collateral-dependent and other individually evaluated loans. Specific valuation allowances are determined based on assessment of the fair value of the collateral underlying the loans as determined through independent appraisals, the present value of future cash flows, observable market prices, and any relevant qualitative or environmental factors impacting loans.

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

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

As part of the qualitative adjustments, the Company considers future economic conditions over the one-year forecast period. There are 10 economic factors that are considered in our assessment which are compared against the Moody’s Analytics economic scenarios. The outcome of this analysis adjusts the one-year forecasted expectations which are incorporated into the qualitative adjustments. Other qualitative factors, including changes in loan and lending policies, underwriting standards and personnel, and assessments of portfolio loan quality, among others, are also considered. During the period ending December 31, 2022, other qualitative factors were adjusted based on our assessment of loan quality and sustained loan quality trends in certain loan categories, offset by a more conservative set of assumptions about the economic outlook.

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

Loans acquired in business combinations are initially recorded at fair value as adjusted for credit risk and an allowance for credit losses at the date of acquisition. For loans with no significant evidence of credit deterioration since origination, the difference between the fair value and the unpaid principal balance of the loan at the acquisition date is amortized into interest income using the effective interest method over the remaining period to contractual maturity. An allowance for credit losses is recorded for the expected credit losses over the life of the loan on loans acquired without evidence of credit deterioration. The Company established an allowance for credit losses on acquired GWB non-PCD loans by recording a provision expense of $68.3 million through the income statement upon closing. Subsequent changes to the allowance for credit losses are recorded through provision expense using the same methodology as other loans held for investment.

For loans acquired in business combinations with evidence of deterioration in credit quality since origination, the Company determines the fair value of the loans by estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest. An allowance for credit losses is recognized by estimating the expected credit losses of the purchased asset and recording an adjustment to the acquisition date fair value to establish the initial amortized cost basis of the asset. On February 1, 2022, the Company established a provisional allowance for credit losses of $84.3 million, which was subsequently adjusted as a result of a fair value re-evaluation during 2022 by $24.8 million to $59.5 million on GWB PCD loans acquired. Neither the establishment of the initial allowance against PCD loans, or the subsequent adjustments, were reflected in the income statement, but rather were booked as adjustments to the acquired amortized cost of the loans. Differences between the established amortized cost basis, and the unpaid principal balance of the asset, is considered to be a non-credit discount/premium and is accreted/amortized into interest income using the level yield interest method. The difference between the amortized cost basis and the unpaid principal balance of $31.2 million was established on GWB PCD loans acquired on February 1, 2022 and adjusted as a result of a fair value re-evaluation during 2022 by $8.4 million to $39.6 million. Subsequent changes to the allowance for credit losses are recorded through provision expense using the same methodology as other loans held for investment.

Loans, or portions thereof, are charged-off against the allowance for credit losses when management believes the collectability of the principal is unlikely, or, with respect to consumer installment loans, according to an established delinquency schedule. Generally, loans are charged-off when (1) there has been no material principal reduction within the previous 90 days and there is no pending sale of collateral or other assets, (2) there is no significant or pending event which will result in principal reduction within the upcoming 90 days, (3) it is clear that we will not be able to collect all or a portion of the loan, (4) payments on the loan are sporadic, will result in an excessive amortization, or are not consistent with the collateral held, or (5) foreclosure or repossession actions are pending. Loan charge-offs do not directly correspond with the receipt of independent appraisals or the use of observable market data if the collateral value is determined to be sufficient to repay the principal balance of the loan.

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

Allowance for Credit Losses

(Dollars in millions)

Allowance for credit losses on loans: (1)

Initial impact of adoption of ASC 326 — — 30.0 — —

ACL recorded on PCD loans 59.5 — — — —

Charge-offs:

Real estate

Agricultural 0.2 0.7 — — —

Recoveries:

Real estate

Agricultural 0.4 — — — —

Agricultural 2.9 — — — 0.2

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 provision for (reversal of) credit losses 82.7 (14.6) 56.9 13.9 8.6

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Our allowance for credit losses on loans was $220.1 million, or 1.22% of loans held for investment as of December 31, 2022, as compared to $122.3 million, or 1.31% of loans held for investment, as of December 31, 2021. The decrease in the percentage from December 31, 2021 is primarily a result of lower overall loss rates resulting in lower expected lifetime losses, partially offset by adverse changes in our economic outlook. The allowance for credit losses represents management’s estimate of expected credit losses in the loan portfolio expected over the life of the loan, including the incorporation of a one-year forecast period for economic conditions.

Although we have established our allowance for credit losses in accordance with GAAP in the United States and we believe that the allowance for credit losses is adequate to provide for known and inherent losses in the portfolio at all times, future provisions will be subject to on-going evaluations of the risks in the loan portfolio. If the economy declines or asset quality deteriorates, material additional provisions could be required.

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. The following table provides a summary of the allocation of the allowance for credit losses for specific loan categories as of the dates indicated. The allocations presented should not be interpreted as an indication that charges to the allowance for credit losses will be incurred in these amounts or proportions, or that the portion of the allowance allocated to each loan category represents the total amount available for future losses that may occur within these categories.

Allocation of the Allowance for Credit Losses

(Dollars in millions)

The allowance for credit losses allocated to real estate, consumer, commercial, and agricultural loans increased $97.8 million as of December 31, 2022 as compared to December 31, 2021, primarily as a result of GWB acquired loans.

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. Additionally, the Company expects the timing of charge-offs will vary between quarters and will not necessarily correspond proportionally to changes in the allowance for credit losses or changes in non-performing or collateral dependent loans due to timing differences among the initial identification of a collateral-dependent loan, recording of a specific valuation allowance for collateral-dependent loans, and any resulting charge-off of uncollectible principal.

Goodwill and Other Intangibles

The Company’s intangible assets consist primarily of the excess of cost over the fair value of net assets of acquired businesses (“goodwill”) and other identifiable intangible assets (core deposit and customer relationship intangibles). Goodwill totaled $1,100.9 million and $621.6 million as of December 31, 2022 and 2021, respectively. The increase is attributable to goodwill recorded in conjunction with the acquisition of GWB.

Core deposit intangibles represent the intangible value of depositor relationships resulting from deposit liabilities assumed and are amortized based on the estimated useful lives of the related deposits. Customer relationship intangibles represent the intangible value of customer relationships resulting from excess earnings associated with the expected fee income related to the underlying client relationships. Other intangibles, net of accumulated amortization, increased $55.7 million, to $97.0 million as of December 31, 2022, from $41.3 million as of December 31, 2021, The increase is a result of the intangibles acquired in the GWB acquisition, partially offset by the sale of health savings accounts and scheduled amortization expense.

For additional information concerning Goodwill and Intangibles, see “Notes to Consolidated Financial Statements — Goodwill and Intangibles” included in Part IV, Item 15.

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Company-Owned Life Insurance

Company-owned life insurance is comprised of life insurance policies recorded at their cash surrender value. Company-owned life insurance increased $196.4 million, to $497.9 million as of December 31, 2022, from $301.5 million as of December 31, 2021, attributable to amounts recorded in conjunction with the acquisition of GWB.

Premises and equipment, net

Premises and equipment, net of accumulated depreciation increased $145.1 million, to $444.7 million as of December 31, 2022, from $299.6 million as of December 31, 2021, attributable to amounts recorded in conjunction with the acquisition of GWB offset by depreciation expense.

Deferred Tax Asset / Liability

As of December 31, 2022, we had a net deferred tax asset of $210.5 million, as compared to a net deferred tax liability of $9.3 million as of December 31, 2021, primarily due to net deferred tax asset benefit recorded in conjunction with the acquisition of GWB and the increase in our mark-to-market losses on investment securities.

Other Assets

Other assets increased $164.6 million, to $348.7 million as of December 31, 2022, from $184.1 million as of December 31, 2021. The increase is primarily attributable to $200.8 million recorded in conjunction with the acquisition of GWB.

Total Liabilities

Total liabilities increased $11,528.7 million, or 65.2%, to $29,214.0 million as of December 31, 2022, from $17,685.3 million as of December 31, 2021, primarily due to $12,107.8 million of liabilities assumed with the acquisition of GWB. Significant fluctuations in liability accounts are discussed below.

Deposits

Total deposits increased $8,804.0 million, to $25,073.6 million as of December 31, 2022, from $16,269.6 million as of December 31, 2021, primarily due to $11,688.0 million in deposit balances acquired as a result of the GWB acquisition. Following the acquisition of $11,688.0 million of GWB deposits acquired on February 1, deposits subsequently decreased $2,884.0 million, or 17.7%, compared to December 31, 2021, largely due to a decline in business-related non-interest bearing balances, a decrease in higher-cost, non-relationship deposits acquired from GWB, held in interest-bearing savings and time deposits, $250 thousand and over.

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.

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

Deposits

(Dollars in millions)

Interest bearing:

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.

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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. 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.

The following table sets forth certain information regarding securities sold under repurchase agreements as of the dates indicated:

Securities Sold Under Repurchase Agreements

(Dollars in millions)

Securities sold under repurchase agreements:

Average interest rate:

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses increased $297.5 million, to $445.9 million as of December 31, 2022, from $148.4 million as of December 31, 2021, primarily attributable to $110.4 million recorded in conjunction with the acquisition of GWB, the deferral of $33.0 million in payment service incentives primarily related to the GWB acquisition, and an increase in derivative liabilities of $140.7 million.

Long-term Debt

Long-term debt consists of subordinated notes, new market tax credits, and a financing lease. Long-term debt increased $8.4 million, to $120.8 million as of December 31, 2022, from $112.4 million as of December 31, 2021, respectively. The increase is due to the addition of two new market tax credits, partially offset by one new market tax credit that matured during 2022. For additional information regarding 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.

Other Borrowed Funds

Other borrowed funds consists of FHLB borrowings with maturity tenors of up to one-month, to address short-term funding needs. Total other borrowed funds amounted to $2,327.0 million as of December 31, 2022 compared to zero at December 31, 2021.

Allowance for credit losses on off-balance sheet credit exposures

Allowance for credit losses on off-balance sheet credit exposures is related to unfunded credit commitments which include items such as letters of credit, financial guarantees, and binding unfunded loan commitments. This allowance increased $12.4 million, to $16.2 million as of December 31, 2022, from $3.8 million at December 31, 2021.

Subordinated debentures held by subsidiary trusts

Subordinated debentures held by subsidiary trusts increased $76.1 million, to $163.1 million as of December 31, 2022, from $87.0 million as of December 31, 2021, primarily attributable to amounts recorded in conjunction with the acquisition of GWB.

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Capital Resources and Liquidity

Capital Resources

Stockholders’ equity is influenced primarily by earnings, dividends, sales and redemptions of common stock, and changes in the unrealized holding gains or losses, net of taxes, on available-for-sale investment securities. Stockholders’ equity increased $1,087.2 million, or 54.7%, to $3,073.8 million as of December 31, 2022 from $1,986.6 million as of December 31, 2021, due to the issuance of additional common stock as consideration for the acquisition of GWB, proceeds from stock option exercises, and retention of earnings, which are partially offset by stock repurchases of vested restricted shares tendered in lieu of cash for payment of income tax withholding amounts by participants, stock purchases pursuant to the stock repurchase program, other comprehensive loss, and cash dividends paid. 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. 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.

On May 25, 2022, the Company’s board of directors adopted a stock repurchase program, terminating the program that had been in place since 2019 and had 1,889,158 shares of Class A common stock remaining to be purchased thereunder. Under the new stock repurchase program, the Company was authorized to repurchase up to 5.0 million of its outstanding shares of Class A common stock. Any repurchased shares were to be returned to authorized but unissued shares of Class A common stock in accordance with Montana law. During 2022, the Company repurchased and retired 5.0 million shares of Class A common stock under the stock repurchase program at a cost of $197.4 million at an average price of $39.48 per share. At December 31, 2022, there were no remaining shares authorized to be purchased under a stock repurchase program.

For additional information regarding the repurchases, see “Notes to Consolidated Financial Statements—Capital Stock and Dividend Restrictions” included in Part IV, Item 15 of this report.

During 2022, the Company issued 33,769 shares of its Class A common stock to directors for their annual service on the Company’s board of directors. The aggregate value of the shares issued to directors of $1.3 million is included in stock-based compensation expense in the accompanying consolidated statements of changes in stockholders’ equity.

As a bank holding company, the Company must comply with the capital requirements established by the Federal Reserve, and our subsidiary Bank must comply with the capital requirements established by the FDIC. The current risk-based guidelines applicable to us and our Bank are based on the Basel III framework, as implemented by the federal bank regulators. As of 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.

Liquidity

Liquidity measures our ability to meet current and future cash flow needs on a timely basis and at a reasonable cost. We manage our liquidity position to meet the daily cash flow needs of clients, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders. Our liquidity position is supported by management of liquid assets and liabilities and access to alternative sources of funds. Liquid assets include cash, interest bearing deposits in banks, federal funds sold, available-for-sale investment securities, and maturing or prepaying balances in our held-to-maturity investment and loan portfolios. Liquid liabilities include core deposits, federal funds purchased, securities sold under repurchase agreements, and borrowings. Other sources of liquidity include the sale of loans, the ability to acquire additional national market funds through non-core deposits, the issuance of additional collateralized borrowings such as FHLB advances, the issuance of debt securities, additional borrowings through the Federal Reserve’s discount window, and the issuance of preferred or common securities.

The primary effect of inflation on our operations is reflected in increased operating costs. In our management’s opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond our control, including changes in the expected rate of inflation, the influence of general and local economic conditions, and the monetary and fiscal policies of the United States government, its agencies, and various other governmental regulatory authorities.

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In the ordinary course of business, we have entered into contractual obligations and have made other commitments to make future payments. Our short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers, capital expenditures, and shareholder dividends. These liquidity requirements are met primarily through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, debt financing, and increases in client deposits. For additional information regarding our operating, investing and financing cash flows, see “Consolidated Financial Statements—Consolidated Statements of Cash Flows,” included in Part IV, Item 15 of this report.

The Company had deposits without a stated maturity of $23,145.2 million and time deposits of $1,532.6 million, due in one year or less in addition to time deposits due in more than one year of $395.8 million as of 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.

As of December 31, 2022, the Company had $2,327.0 million of FHLB borrowings due in less than one year and $98.9 million of fixed-to-floating rate subordinated notes due in more than one year. The Company has unused federal fund lines of credit with third parties amounting to $235.0 million, subject to funds availability. These lines are subject to cancellation without notice. The Company also has an unused line of credit with the FRB for borrowings up to $763.3 million secured by a blanket pledge of agricultural and commercial loans, and has an unused $100.0 million revolving line of credit with another third party. 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. Although the guarantees are not separately recorded, the obligations underlying the guarantees are fully reflected on our consolidated balance sheets as subordinated debentures held by subsidiary trusts. The subordinated debentures currently qualify as tier 2 capital under the Federal Reserve capital adequacy guidelines. 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.

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. For additional information concerning leases, see “Notes to Consolidated Financial Statements—Commitments and Contingencies” included in Part IV, Item 15 of this report.

The Company is a limited partner in several tax-advantaged limited partnerships that have been formed for the purpose of investing in approved qualified affordable housing, renewable energy, or other renovation or community revitalization projects. 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, 2022, the Company had unused credit card lines of $827.6 million, commitments to extend credit of $5,173.3 million and standby letters of credit of $93.8 million. 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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. For additional information regarding our off-balance sheet arrangements, see “Notes to Consolidated Financial Statements—Financial Instruments with Off-Balance Sheet Risk” included in Part IV, Item 15 of this report.

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As a bank holding company, we are a corporation separate and apart from our subsidiary Bank and, therefore, we provide for our own liquidity. Our primary sources of funding include management fees and dividends declared and paid by the Bank and access to capital markets. There are statutory, regulatory, and debt covenant limitations that affect the ability of our Bank to pay dividends to us. Management believes that such limitations will not impact our ability to meet our ongoing short-term cash obligations. For additional information regarding dividend restrictions, see “Financial Condition—Capital Resources and Liquidity” above, “Business—Government Regulation and Supervision—Dividends and Restrictions on Transfers of Funds” included in Part I, Item 1 of this report, and “Risk Factors—Liquidity Risks and Regulatory and Compliance Risks” included in Part I, Item 1A of this report.

Management continuously monitors our liquidity position and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Our management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources, or operations. In addition, our management is not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on us.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure is interest rate risk. Our business and the composition of our balance sheet consists of investments in interest earning assets (principally loans and investment securities) which are primarily funded by interest bearing liabilities (deposits and indebtedness). 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.

Although we characterize some of our interest-sensitive assets as securities available-for-sale, such securities are not purchased with the intent to sell in the near term. Rather, such securities may be sold in response to or in anticipation of changes in interest rates and resulting prepayment risk. 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. 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. 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.

The ability to optimize net interest income is largely dependent upon the achievement of an interest rate spread that can be managed during periods of fluctuating interest rates. Interest sensitivity is a measure of the extent to which net interest income will be affected by market interest rates over a period of time. 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. 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.

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Interest earning assets:

Interest bearing deposits in banks 519.7 — — 1.5 521.2

Federal funds sold 0.1 — — — 0.1

Interest bearing liabilities:

Securities sold under repurchase agreements 1,052.9 — — — 1,052.9

Subordinated debentures held by subsidiary trusts 163.1 — — — 163.1

(1)Does not include non-accrual loans of $59.2 million. 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.

(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. 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.

Net Interest Income Sensitivity

We believe net interest income sensitivity provides the best perspective of how day-to-day decisions affect our interest rate risk profile. We monitor net interest income sensitivity by utilizing an income simulation model to subject 12- and 24- month net interest income to various rate movements. 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. Estimates produced by our income simulation model are based on numerous assumptions including, but not limited to: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) repricing characteristics for market rate sensitive instruments, (4) differing sensitivities of financial instruments due to differing underlying rate indices, (5) varying loan prepayment speeds for different interest rate scenarios, (6) the effect of interest rate limitations in our assets, such as caps and floors, and (7) overall growth and repayment rates and product mix of assets and liabilities. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results, but rather to provide insight into our current interest rate exposure and execute appropriate asset/liability management strategies accordingly.

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. 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. 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. The preceding interest rate sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results.

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The Company uses financial derivative instruments for management of interest rate sensitivity. In August 2022, the Company entered into two interest rate collars related to variable-rate loans that were designated as cash flow hedges with a total notional amount of $300.0 million. The collars designated as cash flow hedges synthetically fix the interest income received by the Company when the collar index falls below a floor rate on a rate reset during the term of the collar and when the collar index exceeds the cap rate on a rate reset during the term of the collar without exchange of the underlying notional amount. 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.

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.

Item 8. Financial Statements and Supplementary Data

The following consolidated financial statements of First Interstate BancSystem, Inc. and subsidiaries are contained in Part IV, Item 15 of this report and are incorporated herein by reference.

Report of RSM US LLP, Independent Registered Public Accounting Firm (PCAOB ID: 49)

Consolidated Balance Sheets — December 31, 2022 and 2021

Consolidated Statements of Income — Years Ended December 31, 2022, 2021, and 2020

Consolidated Statements of Comprehensive Income — Years Ended December 31, 2022, 2021, and 2020

Consolidated Statements of Stockholders’ Equity — Years Ended December 31, 2022, 2021, and 2020

Consolidated Statements of Cash Flows — Years Ended December 31, 2022, 2021, and 2020

Notes to Consolidated Financial Statements

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There have been no disagreements with accountants on accounting and financial disclosure.

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Item 9A. Controls and Procedures

Disclosure Controls and Procedures

We have established and maintain disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act. As of December 31, 2022, our management evaluated, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of December 31, 2022, were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods required by the SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting includes controls and procedures designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of our published financial statements in accordance with U.S. generally accepted accounting principles.

As permitted by guidance provided by the staff of the U.S. Securities and Exchange Commission, the scope of management’s assessment of internal control over financial reporting as of December 31, 2022 has excluded Great Western Bank, which was acquired and merged into First Interstate Bank on February 1, 2022. The acquired entity continued operations doing business as Great Western Bank using separate systems until system conversion on May 23, 2022. Great Western Bank’s total assets represented approximately 40.4 percent of the Company’s related consolidated assets as of the date of the merger.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even systems deemed to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, including the Chief Executive Officer and the Chief Financial Officer, assessed the effectiveness of our system of internal control over financial reporting as of December 31, 2022 based on the guidelines established in the Internal Control--Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we believe that, as of December 31, 2022, our system of internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

RSM US LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued a report on the effectiveness of our internal control over financial reporting as of December 31, 2022. The report, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2022, is included below.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of First Interstate BancSystem, Inc.

Opinion on the Internal Control Over Financial Reporting

We have audited First Interstate BancSystem, Inc.’s (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2022 and 2021, the consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022 and the related notes to the consolidated financial statements of the Company and our report dated February 24, 2023 expressed an unqualified opinion.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Great Western Bank from its assessment of internal control over financial reporting as of December 31, 2022, which was merged when acquired by the Company in a purchase business combination in the first quarter of 2022. We have also excluded Great Western Bank from our audit of internal control over financial reporting. Great Western Bank continued operations doing business as Great Western Bank using separate systems until system conversion on May 23, 2022. Great Western Bank’s total assets represented approximately 40.4 percent of the Company’s related consolidated assets as of the date of the merger.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ RSM US LLP

Des Moines, Iowa

February 24, 2023

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Item 9B. Other Information

There were no items required to be disclosed in a report on Form 8-K during the fourth quarter of 2022 that were not reported.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

Item 10. Directors, Executive Officers, and Corporate Governance

Information concerning directors, executive officers, and corporate governance is set forth under the heading, “Directors and Executive Officers” and “Corporate Governance” in our Proxy Statement relating to our 2023 annual meeting of shareholders and is incorporated herein by reference.

Information concerning our compliance with section 16(a) of the Securities Exchange Act of 1934 is set forth under the heading “Delinquent Section 16(a) Reports” in our Proxy Statement relating to our 2023 annual meeting of shareholders and is herein incorporated herein by reference.

Item 11. Executive Compensation

Information concerning executive compensation is set forth under the headings “Compensation Discussion and Analysis” and “Compensation of Named Executive Officers and Directors” in our Proxy Statement relating to our 2023 annual meeting of shareholders and is herein incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information concerning security ownership of certain beneficial owners and management as well as related stockholder matters is set forth under the heading “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plans” in our Proxy Statement relating to our 2023 annual meeting of shareholders and is herein incorporated herein by reference.

The following table provides information, as of December 31, 2022, regarding our equity compensation plans.

Number of Securities to be Weighted Average Number of Securities

Issued Upon Exercise of Exercise Price of Remaining Available

Outstanding Options, Outstanding Options, For Future Issuance Under

Equity compensation plans

approved by shareholders — $— 361,605

Equity compensation plans not

approved by shareholders NA NA NA

Item 13. Certain Relationships and Related Transactions and Director Independence

Information concerning relationships and related party transactions of certain of our executive officers, directors, and greater than 5% shareholders as well as the independence of our directors is set forth under the headings “Directors and Executive Officers” and “Certain Relationships and Related Transactions” in our Proxy Statement relating to our 2023 annual meeting of shareholders and is herein incorporated herein by reference. In addition, see “Notes to Consolidated Financial Statements—Related Party Transactions” included in Part IV, Item 15.

Item 14. Principal Accountant Fees and Services

Information concerning principal accountant fees and services is set forth under the heading “Principal Accounting Fees and Services” in our Proxy Statement relating to our 2023 annual meeting of shareholders and is herein incorporated by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)1. Our audited consolidated financial statements follow.

The list of all financial statements filed as part of this filing is included above under Part II, Item 8. Financial Statements and Supplementary Data, on page 58, and incorporated herein by reference. Such audited consolidated financial statements follow:

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of First Interstate BancSystem, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of First Interstate BancSystem, Inc. and its subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 24, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses - Loans Held for Investment

The Company’s loans held for investment portfolio totaled $18,099.2 million as of December 31, 2022, and the associated allowance for credit losses on loans held for investment was $220.1 million. As described in Notes 1 and 6 to the financial statements, the allowance for credit losses on loans held for investment is a valuation account that is deducted from the Company’s amortized cost basis of loans held for investment to present the net amount of loans held for investment expected to be collected. The Company’s allowance for credit losses on loans held for investment consists of three elements: (1) specific valuation allowances associated with collateral‐dependent loans; (2) historical valuation allowances based on loan loss experience for similar loans with similar characteristics and trends; and (3) adjustments to historical loss information for differences in current loan‐specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in or forecasted changes in environmental and economic conditions, such as changes in unemployment rates, property values, or other relevant factors.

We identified the adjustments to historical loss information component of the allowance for credit losses on loans held for investment, both as it relates to current conditions and forecasted scenarios, as a critical audit matter, because auditing this component of the allowance for credit losses on loans held for investment required significant auditor judgement related to estimates determined by management which are highly subjective and are highly sensitive to change in significant assumptions.

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Our audit procedures related to the Company’s adjustments to historical loss information component of the allowance for credit losses on loans held for investment included the following, among others:

•We obtained an understanding of the relevant controls related to the allowance for credit losses on loans held for investment and tested such controls for design and operating effectiveness, including controls relating to management’s review and approval of the allowance for credit losses on loans held for investment calculation, management’s assessment and review of the adjustments to historical loss information component of the allowance for credit losses on loans held for investment for current conditions and forecasted scenarios and management’s validation of underlying source data.

•We tested management’s calculation of adjustments to historical loss information within the allowance for credit losses on loans held for investment calculation by agreeing calculation inputs to the Company’s internal and external source data, including for current and forecasted conditions, verifying the mathematical accuracy of the calculation of adjustments to historical loss information, and evaluating whether adjustments to historical loss information within the allowance for credit losses on loans held for investment, or lack thereof, were reasonable and consistent with Company provided internal data and external independent data, including data related to current and forecasted periods.

•We assessed the reasonableness of management’s calculated changes in adjustments to historical loss information within the allowance for credit losses on loans held for investment calculation by evaluating the magnitude and directional consistency of changes, or lack thereof, in the level of adjustments to historical loss information between periods and evaluating whether management’s conclusions were reasonable and consistent with Company provided internal data and external independent data, including data related to current and forecasted periods.

•We agreed management’s calculated adjustments to historical loss information to the allowance for credit losses on loans held for investment calculation.

Fair Value of Loans Held for Investment Acquired in Business Combinations

The Company completed an acquisition on February 1, 2022, acquiring loans held for investment with an estimated fair value of $7,705.0 million as of the acquisition date. As described in Notes 1 and 2 to the financial statements, the Company estimated the acquisition date fair value of loans held for investment by segmenting the acquired portfolio into purchase credit deteriorated (PCD) and non-PCD loans.

The estimated fair value of non-PCD loans and PCD loans at the acquisition date was $7,022.2 million and $623.3 million, respectively. Non-PCD loans were pooled based on similar characteristics. PCD loans were valued at the loan level. The Company’s valuation of non-PCD loans and PCD loans utilized a discounted cash flow analysis. The discount rate utilized to determine the estimated fair value of non-PCD loans and PCD loans considered the cost of funds rate, capital charges, servicing costs, liquidity premiums and risk premiums. The credit discount for non-PCD loans and PCD loans was estimated based on probability of default and loss given default assumptions.

The determination of the estimated fair value of loans held for investment required management to make certain estimates about discount rates, future expected cash flows, and market conditions at the time of the acquisition, as well as other future events that are highly subjective in nature.

We identified the estimated fair value of loans held for investment that were acquired in the current year as a critical audit matter because of the judgements necessary by management to determine the fair value of loans held for investment, and the related high degree of auditor judgement and the extensive audit effort involved in testing management’s estimates and assumptions. The significant estimates and assumptions necessary to estimate the fair value of non-PCD and PCD loans that required a high degree of auditor judgement and increased audit effort included assumptions related to probability of default and loss given default, cost of funds, capital charges, servicing cost, liquidity premiums and risk premiums.

Our audit procedures related to the Company’s estimated fair value of loans held for investment acquired in the current year included the following, among others:

•We obtained an understanding of the relevant controls related to the estimated fair value of loans held for investment acquired in the current year and tested such controls for design and operating effectiveness, including controls relating to management’s review and approval of the assumptions related to probability of default and loss given default and assumptions related to cost of funds, capital charges, servicing cost, liquidity premiums and risk premium utilized in the discounted cash flow calculations for loans held for investment.

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•We tested the completeness and accuracy of the data inputs used in the loans held for investment estimated fair value calculations by comparing the data to source documents and external information sources.

•We utilized internal valuation specialists to assist in testing management’s methodologies and techniques for appropriateness, as well as evaluating significant assumptions such as probability of default and loss given default, cost of funds, capital charges, servicing cost, liquidity premiums and risk premiums, by comparing the data to source documents provided by the Company, obtaining comparative information from external sources and performing mathematical accuracy checks.

Fair Value of Loans Held for Sale Acquired in Business Combinations

The Company completed an acquisition on February 1, 2022, acquiring loans held for sale with an estimated fair value of $217.0 million as of the acquisition date. As described in Notes 1 and 2 to the financial statements, the Company estimated the acquisition date fair value of loans for sale based on discounted payoffs and quotes or bids from third party investors.

The determination of the estimated fair value of loans held for sale required management to make certain estimates and assumptions about loans held for sale and to evaluate whether additional information obtained related to certain loans held for sale necessitated measurement period adjustments to provisional fair values, which are subjective in nature.

We identified the estimated fair value of loans held for sale that were acquired in the current year as a critical audit matter because of the judgements necessary by management to determine the fair value of loans held for sale, and the related high degree of auditor judgement and the audit effort involved in testing management’s estimates and assumptions. The significant estimates and assumptions necessary to estimate the fair value of loans held for sale that required a high degree of auditor judgement and increased audit effort included assumptions related to discounted payoffs, quotes or bids from third party investors and whether additional information obtained related to certain loans held for sale necessitated measurement period adjustments to provisional fair values.

Our audit procedures related to the Company’s estimated fair value of loans held for sale acquired in the current year included the following, among others:

•We obtained an understanding of the relevant controls related to the estimated fair value of loans held for sale acquired in the current year and tested such controls for design and operating effectiveness, including controls relating to management’s review and approval of the assumptions related to discounted payoffs, quotes or bids from third party investors and whether additional information obtained related to certain loans held for sale necessitated measurement period adjustments to provisional fair values.

•We tested the completeness and accuracy of the data inputs used in the loans held for sale estimated fair value calculations, including measurement period adjustments for loans held for sale, by comparing the data to source documents and external information sources.

•We evaluated management’s methodologies and techniques for appropriateness, as well as evaluating significant assumptions such as discounted payoffs, quotes or bids from third party investors and additional information related to certain loans held for sale leading to measurement period adjustments, by comparing the data to source documents provided by the Company, obtaining corroborative information from external sources and performing mathematical accuracy checks.

/s/ RSM US LLP

We have served as the Company’s auditor since 2004.

Des Moines, Iowa

February 24, 2023

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

Assets

Interest bearing deposits in banks 521.2 2,176.1

Federal funds sold 0.1 0.1

Investment securities:

FHLB and FRB stock, at cost 198.6 53.8

Loans held for investment, net of deferred fees and costs 18,099.2 9,331.7

Premises and equipment, net of accumulated depreciation 444.7 299.6

Other intangibles, net of accumulated amortization 97.0 41.3

Accrued interest receivable 118.3 47.4

Other real estate owned 12.7 2.0

Deferred tax asset, net 210.5 —

Liabilities and Stockholders’ Equity

Deposits:

Securities sold under repurchase agreements 1,052.9 1,051.1

Accounts payable and accrued expenses 445.9 148.4

Accrued interest payable 14.5 3.7

Deferred tax liability, net — 9.3

Other borrowed funds 2,327.0 —

Allowance for credit losses on off-balance sheet credit exposures 16.2 3.8

Subordinated debentures held by subsidiary trusts 163.1 87.0

Stockholders’ equity:

Accumulated other comprehensive loss, net (477.1) (11.0)

Total liabilities and stockholders’ equity $ 32,287.8 $ 19,671.9

See accompanying notes to consolidated financial statements.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

Interest income:

Interest and dividends on investment securities:

Exempt from federal taxes 5.4 5.6 2.7

Interest and dividends on FHLB and FRB stock 4.8 1.0 0.8

Interest on deposits in banks 8.7 2.6 4.1

Interest expense:

Interest on securities sold under repurchase agreements 2.5 0.4 0.9

Interest on other borrowed funds 15.3 — —

Interest on long-term debt 6.0 6.0 4.6

Interest on subordinated debentures held by subsidiary trusts 6.8 2.8 3.0

Provision for (reversal of) credit losses 82.7 (14.6) 56.9

Non-interest income:

Service charges on deposit accounts 24.6 16.5 17.6

Other service charges, commissions, and fees 15.5 7.9 12.1

Investment securities (losses) gains, net (24.4) 1.1 0.3

Non-interest expense:

OREO expense, net of income 2.3 (0.2) (0.5)

FDIC insurance premiums 14.0 6.6 5.9

Other intangibles amortization 15.9 9.9 10.9

Acquisition related expenses 118.9 11.6 —

Earnings per common share (Basic) $ 1.96 $ 3.12 $ 2.53

Earnings per common share (Diluted) 1.96 3.11 2.53

See accompanying notes to consolidated financial statements.

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

Other comprehensive (loss) income before tax:

Investment securities available-for-sale:

Change in net unrealized (losses) gains during the period (613.1) (113.7) 61.8

Change in net unrealized (gain) loss on derivatives (6.7) 4.2 0.2

Defined benefit post-retirement benefit plans:

Change in net actuarial loss — — (0.5)

Other comprehensive (loss) income, before tax (621.3) (90.4) 61.2

Other comprehensive (loss) income, net of tax (466.1) (67.6) 45.6

Comprehensive (loss) income, net of tax $ (263.9) $ 124.5 $ 206.8

See accompanying notes to consolidated financial statements.

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Cumulative change related to the adoption of ASU 2016-13 — (24.1) — (24.1)

Other comprehensive income, net of tax expense — — 45.6 45.6

Common stock transactions:

19,491 common shares issued — — — —

332,085 non-vested common shares issued — — — —

34,912 non-vested common shares forfeited or canceled — — — —

Stock-based compensation expense 7.5 — — 7.5

Common cash dividends declared ($2.00 per share) — (128.6) — (128.6)

Other comprehensive loss, net of tax expense — — (67.6) (67.6)

Common stock transactions:

128,171 common shares purchased and retired (5.4) — — (5.4)

19,081 common shares issued — — — —

241,307 non-vested common shares issued — — — —

73,044 non-vested common shares forfeited or canceled — — — —

Stock-based compensation expense 8.9 — — 8.9

Common cash dividends declared ($1.64 per share) — (101.6) — (101.6)

Other comprehensive loss, net of tax expense — — (466.1) (466.1)

Common stock transactions:

458,177 non-vested common shares issued — — — —

106,891 non-vested common shares forfeited or canceled — — — —

Stock-based compensation expense 9.6 — — 9.6

Common cash dividends declared ($1.70 per share) — (182.1) — (182.1)

See accompanying notes to consolidated financial statements.

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Cash flows from operating activities:

Provision for (reversal of) credit losses 82.7 (14.6) 56.9

Net (gain) loss on disposal of premises and equipment (2.0) (1.8) 0.3

Net premium amortization on investment securities 17.0 38.8 15.9

Net loss (gain) on investment securities transactions 24.4 (1.1) (0.3)

Net gain on sale of investments in unrelated entities — — (1.0)

Net gain on sale of OREO (0.7) (0.3) (0.9)

Write-downs of OREO and other assets pending disposal 2.8 — 0.1

Net gain on extinguishment of debt (1.4) — —

Mortgage servicing rights (recovery) impairment (3.4) (6.9) 9.9

Stock-based compensation expense 9.6 8.9 7.5

Originations of mortgage loans held for sale (429.5) (817.4) (1,404.2)

Proceeds from sales of mortgage loans held for sale 461.6 883.9 1,468.4

Changes in operating assets and liabilities:

(Increase) decrease in interest receivable (37.8) 3.7 (4.4)

Increase (decrease) in accrued interest payable 8.4 (2.0) (6.3)

Increase (decrease) in accounts payable and accrued expenses 183.1 (1.7) 11.3

Cash flows from investing activities:

Purchases of investment securities:

Proceeds from sales, maturities, and pay-downs of investment securities:

Purchases of FHLB and FRB stock (241.4) — —