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, 2023. 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.

Non-GAAP Financial Measures

In addition to financial measures presented in accordance with GAAP, this document contains GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding our results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found herein.

Fully-Taxable Equivalent Basis. Interest income, yields, and ratios on an FTE basis are considered non-GAAP financial measures. Management believes net interest income on an FTE basis provides an insightful picture of the interest margin for comparison purposes. The FTE basis also allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The FTE basis assumes a federal statutory tax rate of 21 percent. We encourage readers to consider the Consolidated Financial Statements and other financial information contained in this Form 10-K in their entirety, and not to rely on any single financial measure.

Executive Overview

We are a financial and bank holding company headquartered in Billings, Montana. As of December 31, 2023, we had consolidated assets of $30.7 billion, deposits of $23.3 billion, loans held for investment of $18.3 billion, and total stockholders’ equity of $3.2 billion.

As of December 31, 2023, we had 304 banking offices in operation, including branches and detached drive-up facilities, in communities across Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, South Dakota, Washington, and Wyoming. Through our bank subsidiary, FIB, we deliver a comprehensive range of banking products and services—including online and mobile banking—to individuals, businesses, governmental entities, and others throughout our market areas. Our clients participate in a wide variety of industries, including:

•Agriculture •Healthcare •Professional services •Technology

•Construction •Hospitality •Real Estate Development •Tourism

•Education •Housing •Retail •Wholesale trade

•Governmental services

Our Business

Our principal business activity is lending to, accepting deposits from, and conducting financial transactions for individuals, businesses, governmental entities, and other entities located in the communities we serve. 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 deposit accounts and other borrowings; (ii) salaries and employee benefits; (iii) furniture, equipment, and occupancy expenses for maintaining our facilities; (iv) data processing and communication costs primarily associated with maintaining loan and deposit functions; (v) professional fees, including FDIC insurance assessments; (vi) income tax expense; (vii) provisions for credit losses; (viii) intangible amortization; (ix) other real estate owned expenses; and (x) other ancillary expenses including legal expenses, credit card rewards expense, fees associated with originating and closing loans, insurance, and other expenses necessary to support our employees and service our clients. From time to time, we also incur acquisition costs related to our strategic acquisitions.

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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 limited discretion to approve and price loans within pre-approved limits which assures that we are responsive to community needs in each market area and remain competitive. 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.

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 opportunities in a strategic thoughtful manner that we believe will enhance our franchise and provide greater shareholder value.

During 2022, we acquired Great Western Bancorp, Inc., the parent company of GWB, a Sioux Falls, South Dakota based community bank, for total consideration of $1,723.3 million, consisting of the issuance of 46.9 million shares of the Company’s Class A common stock valued at $36.76 per share. 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, 2023, 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. On May 24, 2023, the Company’s shareholders approved a conversion of the Company’s state of incorporation from Montana to Delaware. At the effective time of the conversion, each outstanding share of the Company’s Class A common stock became an outstanding share of common stock of the Company and each outstanding option, warrant or other right to acquire shares of the Company’s previously designated Class A common stock became an outstanding option, warrant or other right to acquire shares of common stock of the Company. The former holders of Class A and Class B common stock now hold common stock with the same voting powers, preferences, rights and qualifications, limitations and restrictions as the other holders of common stock. All shares of the Company’s outstanding capital stock are now composed solely of shares of common stock and are entitled to one vote per share. The Company’s common stock continues to trade on the NASDAQ Stock Market under the ticker symbol “FIBK.”

Economic Conditions

During the first half of 2023, the banking industry experienced significant volatility with multiple high-profile bank failures leading to broader industry concerns related to funding and liquidity. Despite these developments, the Company’s liquidity position and balance sheet remains strong, and the capital ratios continue to exceed all regulatory well-capitalized requirements as of December 31, 2023. Our deposit base is diversified, including by depositor, which includes individuals, businesses across multiple industries, municipalities, and other entities, as well as geographically, across our 14-state footprint. As of December 31, 2023, our FDIC insured deposits were 65.6% of total deposits, including accounts eligible for pass-through insurance.

Beginning in the third quarter of 2022, the Bank began borrowing from the FHLB to fund loan growth and provide excess liquidity for deposit outflows. Total deposits decreased $1.8 billion at December 31, 2023 compared to December 31, 2022. As a result of the declines in deposits, and limited re-investment of portfolio cash flows, at December 31, 2023, other borrowed funds which are comprised of FHLB advances increased $0.3 billion to $2.6 billion at December 31, 2023, from $2.3 billion at December 31, 2022 at an average rate of 5.32% and 3.72%, respectively.

As of February 23, 2024, the Bank had available borrowing capacity of $3.8 billion with the FHLB and $2.0 billion with the Federal Reserve Bank based on pledged investment securities and loan collateral.

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During the first quarter of 2023, the Federal Reserve Bank (“FRB”) offered a new Bank Term Funding Program (“BTFP”) for eligible depository institutions. The BTFP offers loans of up to one-year to institutions pledging collateral eligible for purchase by the FRB in open market operations such as U.S. Treasuries, U.S. Agency securities, and U.S. agency mortgage-backed securities. These assets will be valued at par for pledging purposes. In January 2024, the Company accessed borrowings through the BTFP which enabled the Company to pay off higher rate FHLB advances and support its current cash position.

U.S. inflation, as reported by the Bureau of Labor Statistics, has been volatile with data showing a multi-decade high in June 2022, climbing to 9.1%, going as low as 3.0% in June 2023, and finishing at 3.4% in December 2023. While our operating expenses are affected by general inflation, the asset and liability structure of the Company largely consists of monetary items. Monetary items, such as cash, investments, loans, deposits and other borrowings, are 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 a more significant impact on a financial institution’s performance than does general inflation. However, inflation may have negative impacts on the Company’s clients and their customers, impacting their ability or willingness to repay loans or maintain deposits.

The Federal Reserve stated its current objective is to return the rate of inflation to 2% and it has been aggressively acting to achieve this goal. In response to sustained inflationary pressures, the Federal Reserve increased short-term interest rates 525 basis points between March 16, 2022 and July 26, 2023. With the general inflationary pressures easing, the Federal Reserve slowed it’s pace of raising interest rates in the second half of 2023. The recent interest rate increases have resulted in increased returns on our interest earning assets. The Company’s yield on interest earning assets increased to 4.57% as of December 31, 2023 from 3.63% as of December 31, 2022, and 2.96% as of December 31, 2021.

However, as the short end (up to two years) of the yield curve on the U.S. Treasuries has increased, interest rates have had a more significant impact on the Company’s cost of funds, primarily as a result of the shift of non-interest-bearing deposits into higher-cost interest-bearing and time deposit balances and higher levels of variable rate debt. The Company’s cost of funds increased to 1.46% at December 31, 2023, from 0.29% at December 31, 2022, and 0.10% at December 31, 2021. Overall, the change in the mix and cost of funds has offset the changes in the mix and yield on earning assets, resulting in compression of the Company’s FTE net interest margin, a non-GAAP measure, to 3.14% at December 31, 2023, from 3.36% at December 31, 2022, and expansion from 2.85% at December 31, 2021, as a result of higher levels and yields on earning assets more than offsetting higher levels and costs of interest bearing liabilities.

While gross domestic product has expanded at or above 2.0% since the second quarter of 2022, it is unclear whether the volatility of 2022 and 2023 in the economic performance of the U.S. economy will lead to an economic slowdown, downturn, or recession or whether its regular pattern of growth will continue. Any economic slowdown, downturn, or recession could impact the Company and one of its primary funding sources, by impacting the level of deposits held by our clients, whether through a higher volume of withdrawals or through a lower volume of inflows to deposits. The credit quality of the Company’s loans may also be impacted if clients must weather adverse economic conditions which could result in an increase in credit losses or other related expenses.

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, the speed of 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, short-term borrowings, 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.

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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, short-term borrowings and other funding sources, the re-pricing characteristics and maturities of our assets and liabilities, including potential interest rate exposure, and the adequacy of our capital levels. 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 two-year forecast period at each balance sheet date, and we evaluate the level of our allowance for credit losses relative to our overall loan portfolio and the level of non-performing loans and potential charge-offs.

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 mitigate the impact of a changing interest rate environment on our net interest margin, and we evaluate our asset-liability management using models to evaluate the changes to our net interest income under different interest rate scenarios.

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 tangible common equity to tangible assets, leverage capital ratio, tier 1 common capital to total risk-weighted assets, tier 1 risk-based capital ratio, and total risk-based capital ratio.

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.

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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. The allowance for credit losses represents management’s estimate of expected credit losses in the loans held for investment portfolio over the life of the loan, including the incorporation of a two-year forecast period with one-year reversion period for economic conditions.

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 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.”

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 2023 annual goodwill impairment qualitative assessment as of July 1, 2023 and performed a quantitative assessment as of October 31, 2023 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.

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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, 2023 to December 31, 2022. A similar discussion and analysis that compares the fiscal year 2022 to the fiscal year ended December 31, 2021, may be found in Part II, Item 7, “Results of Operations” of our Form 10-K for the fiscal year ended December 31, 2022, which is incorporated herein by reference.

Net Income

Net income increased $55.3 million, or 27.3%, to $257.5 million, or $2.48 per diluted share, in 2023, compared to $202.2 million, or $1.96 per diluted share, in 2022. There were no acquisition related expenses in 2023 compared to $118.9 million of acquisition related expenses incurred in 2022 related to the 2022 acquisition of GWB. The after-tax impact of acquisition related expenses on earnings per share was $0.90 in 2022.

Performance Ratios

Return on average common stockholders’ equity 8.17 6.34 9.73

(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, short-term borrowings, and various other forms of indebtedness. Net interest income is affected by the level of interest rates, changes in interest rates, the speed of changes to interest rates, and changes in the volume and composition of interest earning assets and interest-bearing liabilities.

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, short-term borrowings, 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.

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Net interest income decreased $63.8 million during 2023, as compared to the same period in 2022, primarily due to a decrease in interest accretion related to the fair valuation of acquired loans and an increase in interest expense as a result of the cost of interest-bearing liabilities.

Net interest income included interest accretion related to the fair value of acquired loans of $20.4 million during 2023 as compared to $50.4 million in 2022, of which $2.5 million was the result of early loan payoffs during 2023, as compared to $21.8 million in 2022. There were no material recoveries of previously charged-off loan interest in 2023 or 2022.

Our net interest margin ratio decreased 21 basis points to 3.12% during 2023, as compared to 3.33% in 2022. Our net FTE interest margin ratio, a non-GAAP financial measure, decreased 22 basis points to 3.14% during 2023, as compared to 3.36% in 2022. Exclusive of the impact of interest accretion on acquired loans and the impact of recoveries of charged-off interest, our 2023 net FTE interest margin ratio decreased 11 basis points over our similarly calculated net interest margin ratio in 2022.

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.

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Average Balance Sheets, Yields, and Rates

Year Ended December 31,

Interest earning assets:

Investment securities

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

Interest-bearing liabilities:

Less FTE adjustments(2) (7.0) (8.1) (2.2)

Net FTE interest margin (non-GAAP)(3) 3.14 3.36 2.85

Cost of funds, including non-interest-bearing demand deposits(4) 1.46 0.29 0.10

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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:

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

Non-GAAP Reconciliation

The table below provides a reconciliation of the GAAP measure of net interest margin to the non-GAAP measure of net FTE interest margin.

For the Year Ended

FTE interest income 7.0 8.1 2.2

Net interest margin (GAAP) (A) / (C) 3.12 3.33 2.84

Net interest margin (FTE) (Non-GAAP) (B) / (C) 3.14 3.36 2.85

Provision for (reduction of) 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 2023, the Company recorded a provision for credit losses of $32.2 million, as compared to a $82.7 million provision for credit losses in 2022. The provision during 2023 includes a provision for credit losses of $31.1 million related to loans held for investment, provision for credit losses of $2.2 million related to unfunded commitments, and a reduction of credit losses of $1.1 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 $23.5 million, or 0.13% of average loans outstanding, for 2023, compared to $30.1 million, or 0.18% of average loans outstanding in 2022.

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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.

Non-interest Income

Non-interest income also contributes to our operating results with fee-based revenues such as payment services, mortgage banking and wealth management revenues, service charges on deposit accounts, and other service charges, commissions, and fees. 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

Investment securities (losses) gains, net (23.5) (24.4) 1.1 0.9 (25.5) (3.7) NM

Non-interest income decreased $16.2 million in 2023 as compared to the same period in 2022. Significant components of these fluctuations are discussed below.

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 $10.3 million in 2023 as compared to the same period in 2022, primarily as a result of the decline in home loan production volume as a result of rising interest rates, along with tighter gain-on-sale spreads compared to 2022. The realized revenue during 2023 was not impacted by a recovery of a previous impairment of our mortgage servicing rights as compared with a $3.4 million recovery in 2022.

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 decreased $6.0 million in 2023 as compared to the same period in 2022, primarily due to a decrease of $4.5 million in swap fee revenues earned on derivative interest rate swap contracts offered to clients.

Non-interest Expense

Non-interest expense decreased $109.2 million in 2023 as compared to the same period in 2022. The decrease was primarily a result of the $118.9 million decrease in acquisition expenses related the GWB acquisition incurred during 2022, in addition to lower incentive compensation accruals, partially offset by increased expenses in 2023 as a result of a full year of combined operations, post-GWB acquisition and a special FDIC insurance assessment of $10.5 million. Expenses related to acquisitions include legal fees, consulting fees, investment banking fees, conversion and contract termination costs, and retention and severance compensation costs. Other significant components of non-interest expense are discussed below. For additional information regarding acquisitions, see “Note 2 – Acquisition” in the accompanying “Notes to Consolidated Financial Statements” included in this report.

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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 primarily consist of salaries, severance, commissions, overtime, bonus accrual, and temporary employee expenses. Salaries and wages expense decreased $19.0 million in 2023 as compared to the same period in 2022, primarily as a result of lower short-term incentives of $31.0 million, which were partially offset by higher salaries and wages of $11.9 million as a result of the full year of combined operations, post-GWB acquisition and higher severance costs.

Outsourced technology services primarily include technology services related to the core system platform, software as a service, automated teller machines, technology equipment and software maintenance. Outsourced technology services expense increased $4.7 million in 2023 as compared to the same period in 2022, primarily due to inflationary impacts to technology contracts and costs associated with higher transaction volumes from a full year of expenses resulting from the GWB acquisition.

Occupancy, net expense include building expenses such as lease, depreciation, rent, maintenance and repairs, property taxes, snow removal, utility and janitorial, and insurance. Occupancy, net expense increased $4.0 million in 2023 as compared to the same period in 2022, primarily due to increased expenses resulting from the GWB acquisition.

The FDIC insures deposits at FDIC-insured financial institutions and charges insured financial institutions premiums to maintain the DIF at a specific level. FDIC insurance premiums increased $17.5 million in 2023 as compared to the same period in 2022, primarily attributable to the incremental two basis point assessment fee imposed by the FDIC which began in the first quarter of 2023 and the special assessment of $10.5 million to cover the losses incurred by the DIF in response to 2023 bank failures. Under the special assessment, the Bank was assessed 13.4 basis points annually on an assessment base equal to its estimated uninsured deposits, after excluding the first $5 billion of uninsured deposits. The special assessment will be collected on a quarterly basis for eight quarters beginning with the first quarter of 2024, although the FDIC retained the flexibility to extend the special assessment period as well as impose a one-time shortfall assessment to collect any remaining amount to fully recover the losses to the DIF.

Other expenses primarily include advertising and public relations costs; office supply, postage, freight, telephone, and travel expenses; donations expense; debit and credit card expenses; board of director fees; legal expenses; and other operational losses. Other expenses increased $7.0 million in 2023 as compared to the same period in 2022. The increase in other expenses are mainly attributable to an increase in our credit card rewards accrual as a result of higher engagement by our clients in our improved rewards program and swap servicing.

Acquisition related expenses primarily include legal and professional fees; technology, conversion, and contract termination costs; employee severance and retention payments; and travel expenses. There were no acquisition related expenses incurred during 2023, compared to $118.9 million of acquisition related expenses incurred during 2022, related to the 2022 acquisition of GWB. 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 18.4% for the year ended December 31, 2023 compared to 16.1% for the year ended December 31, 2022. Fluctuations in effective federal income tax rates are primarily due to an increase in pre-tax income, a decrease in net tax exempt interest income, a decrease in tax credits, and an increase in the non-deductible portion of FDIC premium expense, which was partially offset by an increase in the cash surrender value of company owned life insurance, and a decrease in non-deductible acquisition costs.

State income tax applies primarily to pretax earnings generated within Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, and South Dakota. Our effective state tax rate was 5.1% for the year ended December 31, 2023 compared to 5.2% for the year ended December 31, 2022.

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 2022 to fiscal year ended December 31, 2021 may be found in Part II, Item 7, “Financial Condition” in our Annual Report on Form 10-K for the year ended December 31, 2022, which is incorporated herein by reference.

Total Assets

Total assets decreased $1,616.6 million, or 5.0%, to $30,671.2 million as of December 31, 2023, from $32,287.8 million as of December 31, 2022, primarily due to declines in deposits and securities sold under repurchase agreements, partially offset by an increase in other borrowed funds. 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 treasury notes, U.S. government agency, U.S. government agency commercial mortgage-backed securities, U.S. government residential mortgage-backed securities, collateralized mortgage obligations, corporate securities, and tax-exempt securities. Debt securities rated in the highest category by nationally recognized rating agencies and debt securities backed by the U.S. Government and government sponsored agencies, both on a direct and indirect basis, represented approximately 94.8% of the investment portfolio’s HTM segment at December 31, 2023. All other held-to-maturity debt securities rated below AAA, not backed by the U.S. Government or government sponsored agencies, or which are not rated represented approximately 5.2% of total HTM debt securities at December 31, 2023. 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 decreased $1,348.5 million, or 13.0%, to $9,049.4 million as of December 31, 2023, from $10,397.9 million as of December 31, 2022. The decrease was the result of the disposition of $853.0 million of investment securities during the first quarter of 2023, with proceeds primarily used to reduce short-term borrowings, and normal amortization of the portfolio, partially offset by increases in fair market values and purchases of $134.7 million during the period.

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

As of December 31, 2023, the estimated duration of our investment portfolio was 3.5 years, as compared to 3.7 years as of December 31, 2022. The weighted average yield on investment securities increased 72 basis points to 2.91% in 2023, from 2.19% in 2022.

As of December 31, 2023, investment securities with amortized costs and fair values of $3,858.6 million and $3,462.2 million, respectively, were pledged to secure public deposits and securities sold under repurchase agreements, as compared to $4,998.9 million and $4,432.0 million, respectively, as of December 31, 2022. For additional information concerning securities sold under repurchase agreements, see “—Securities Sold Under Repurchase Agreements” included herein.

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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, 2023, the carrying value of our investments in non-agency mortgage-backed securities totaled $241.3 million. All other mortgage-backed securities included in the table below were issued by U.S. government entities and sponsored entities. As of December 31, 2023, there were no significant concentrations of investments (greater than 10% of stockholders’ equity) in any individual security issuer, except for U.S. government or agency-backed securities.

Approximately 74.2% and 77.9% of our tax-exempt securities were general obligation securities as of December 31, 2023 and 2022, respectively, of which 31.1% and 38.0%, respectively, were issued by political subdivisions or agencies within the states we operate, including Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, South Dakota, Washington, and Wyoming.

As of December 31, 2023, we had investment securities with fair values aggregating $8,284.5 million that had been in a continuous loss position more than 12 months. Gross unrealized losses on these securities totaled $803.4 million as of December 31, 2023, and were attributable to changes in interest rates. At December 31, 2023 and December 31, 2022, the Company had no allowance for credit losses on available-for-sale securities and an allowance for credit losses on held-to maturity securities classified as corporate and municipal securities of $0.8 million and $1.9 million, respectively.

The following table sets forth the carrying value as of December 31, 2023 and 2022, and the percentage of total investment securities and weighted average yields on investment securities as of December 31, 2023. Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%.

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U.S. Treasury securities

Maturing in five to ten years 200.6 — — —

U.S. government agency securities

Mortgage-backed securities

Collateralized loan obligation securities

Municipal securities

Corporate securities

Maturing within one year 15.8 — — —

Maturities of the 2023 securities noted above reflect $1,603.3 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 $1.0 million of these securities will be called in 2024. For additional information concerning investment securities, see “Notes to Consolidated Financial Statements — Investment Securities” included in Part IV, Item 15.

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, 2023 and December 31, 2022, the Company held $223.2 million and $198.6 million, respectively, in equity securities in a combination of FRB and FHLB stocks, which are restricted nonmarketable securities acquired to meet regulatory requirements. 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 decreased $32.5 million, or 40.7%, to $47.4 million as of December 31, 2023, compared to $79.9 million as of December 31, 2022, primarily due to the transfer of $29.6 million of agricultural loans to loans held for investment, the transfer of a $6.4 million construction real estate loan to OREO, the repayment or pay-off of $15.5 million of loans, and a decrease in mortgage loan activity. The decrease was partially offset by the transfer of a $27.3 million commercial real estate loan from loans held for investment to loans held for sale during 2023.

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:

Consumer:

Other, including overdrafts 0.1 — 9.2 — 1.5 —

Deferred loan fees and costs (12.5) (15.6) (12.3)

Allowance for credit losses to loans held for investment 1.25 % 1.22 % 1.31 %

Loans held for investment, net of deferred fees and costs, increased $180.4 million, or 1.0%, to $18,279.6 million as of December 31, 2023, as compared to $18,099.2 million as of December 31, 2022,

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 34.4% and 37.0% of our commercial real estate loans were owner occupied as of December 31, 2023 and 2022, 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, 2023, our construction loan portfolio was divided among the following categories: approximately $343.6 million, or 18.8%, residential construction; approximately $1,147.9 million, or 62.9%, commercial construction; and approximately $335.0 million, or 18.3%, land acquisition and development.

Residential real estate loans. Residential real estate loans are typically secured by first liens on the financed property. Included in residential real estate loans were home equity loans and lines of credit of $541.8 million, or 24.1%, and $548.9 million, or 25.1%, as of December 31, 2023 and 2022, respectively.

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Agricultural real estate loans. Agricultural real estate loans are secured by farmland or ranchland consisting of short, intermediate, and long-term structures to experienced agriculturalists who have demonstrated management capabilities, established production and historical financial performance.

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 77.3% and 78.4% of our consumer loans as of December 31, 2023 and 2022, respectively, were indirect consumer loans.

Commercial Loans. We provide a mix of variable and fixed rate commercial loans. The loans are typically made to small and medium-sized manufacturing, wholesale, retail, and service businesses for working capital needs and business expansions. Commercial loans generally include lines of credit, business credit cards, and loans with maturities of five years or less and outstanding balances tend to be cyclical in nature. The loans are generally made with business operations as the primary source of repayment and are typically collateralized by inventory, accounts receivable, equipment, and/or personal guarantees.

Agricultural Loans. 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, 2023. 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 0.1 — — — 0.1 — —

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 $47.2 million, to $106.4 million, as of December 31, 2023, from $59.2 million as of December 31, 2022, primarily due to a $28.7 million agricultural loan transferred loans held for sale to loans held for investment and a construction real estate and commercial real estate loan. Accruing loans past due 90 days or more decreased $1.5 million, or 23.4% driven by a decrease in all loan types except for agricultural loans as a result of the transfer of a loan from loans held for sale to loans held for investment. 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.

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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 $16.5 million as of December 31, 2023, from $12.7 million as of December 31, 2022, primarily attributable to the transfer of a $5.8 million loan held for sale to OREO, partially offset by dispositions. As of December 31, 2023, 60.7% of our OREO balance was related to an agricultural real estate property, 38.5% was related to commercial properties, and 0.8% was related to a construction property.

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

Non-Performing Assets(Dollars in millions) As of December 31,

Non-performing loans:

Accruing loans past due 90 days or more 4.9 6.4 2.8

Non-accrual loans to loans held for investment 0.58 % 0.33 % 0.27 %

Non-performing assets to loans held for investment and OREO 0.70 0.43 0.32

Non-performing assets to total assets 0.42 0.24 0.15

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.

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

Real estate:

Consumer:

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 $52.6 million as of December 31, 2023, from $39.1 million as of December 31, 2022, primarily due to a construction loan.

Modifications to borrowers experiencing financial difficulty. Modifications of loans are made in the ordinary course of business and are completed on a case-by-case basis through negotiation with the borrower in connection with the ongoing loan collection processes. Loan modifications are made to provide borrowers payment relief. From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty. In some cases, these modifications may result in new loans. Loan modifications to borrowers experiencing financial difficulty may be in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension or a combination thereof, among other things. Those modifications deemed to be for borrowers experiencing financial difficulty are monitored centrally to ensure proper classification and if or when the loan may be placed on accrual status.

Effective January 1, 2023, the Company adopted ASU 2022-02, which eliminated accounting guidance for troubled debt restructurings while requiring disclosures of borrowers experiencing financial difficulty for modifications related to principal reductions, interest rate reductions, term extensions, and more than insignificant payment delay. See “Notes to Consolidated Financial Statements—Recent Authoritative Accounting Guidance” included in financial statements included Part IV, Item 15 of this report for further discussion of the amendments in this update. For additional information regarding modifications to borrowers experiencing financial difficulty, 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 appropriateness of its allowance for credit losses in accordance with GAAP. 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 forecasted economic conditions on 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:

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(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)Collective valuation allowances based on loan loss experience and future expectations for similar loans with similar characteristics and trends. The Company applies open pool methodologies for all portfolio segments. The open pool methodology averages quarterly loss rates by modeling segment, calculated as quarter-to-date net charge off balance divided by the end of period balance. Loss rates are recalculated quarterly with recoveries captured in the quarter a loan was charged off, are averaged across a look back period from 2009 to the current period, and are annualized. Macroeconomic-conditioned historical loss rates are applied to loan-level cash flows. Expected future principal and interest cash flows are calculated using contractual repayment terms and prepayment, utilization, interest rate, and probability of default assumptions. Macroeconomic sensitivity models calculate segment-specific multipliers using third party forecast data. The multipliers condition the annual loss rates over the 2-year forecast period, followed by a 1-year straight-line reversion to the unadjusted historical average loss rates. The unadjusted loss rates then apply for the remaining life of the loan. Estimated losses are totaled and aggregated to the segment level.

(3)General valuation allowances determined based on asset quality trends, industry concentrations, environmental risks, changes in portfolio composition, and other qualitative risk factors, both internal and external to the Company. Other qualitative factors, including changes in loan and lending policies, collateral quality, underwriting standards and personnel, credit review quality, and model imprecision, are also considered.

Based on the assessment of the appropriateness 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 loss is recorded for the expected credit losses over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense using the same methodology as other loans held for investment.

For loans acquired in business combinations with evidence of deterioration in credit quality since origination, the Company determines the fair value of the loans by estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest. An allowance for credit losses is recognized by estimating the expected credit losses of the purchased asset and recording an adjustment to the acquisition date fair value to establish the initial amortized cost basis of the asset. Differences between the established amortized cost basis, and the unpaid principal balance of the asset, is considered to be a non-credit discount/premium and is accreted/amortized into interest income using the level yield interest method. Subsequent changes to the allowance for credit losses are recorded through provision expense using the same methodology as other loans held for investment.

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

If a collateral-dependent loan is adequately collateralized, a specific valuation allowance for credit losses 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.

Our allowance for credit losses on loans was $227.7 million, or 1.25% of loans held for investment as of December 31, 2023, as compared to $220.1 million, or 1.22% of loans held for investment, as of December 31, 2022. The increase in the percentage from December 31, 2022 is primarily a result of loan growth and credit migration.

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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 appropriate to provide for known and expected 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 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:

ACL recorded on PCD loans — 59.5 —

Provision for (reduction of) operating expense 31.1 68.4 (14.7)

Charge-offs:

Real estate

Agricultural — 0.2 0.7

Agricultural — 5.4 0.2

Recoveries:

Real estate

Agricultural 0.3 0.4 —

Agricultural 0.4 2.9 —

Allowance for off-balance sheet credit losses:

Beginning balance $ 16.2 $ 3.8 $ 3.7

Provision for off-balance sheet credit losses 2.2 12.4 0.1

Allowance for credit losses on investment securities:

Beginning balance $ 1.9 $ — $ —

Provision for credit losses (1.1) 1.9 —

Ending balance $ 0.8 $ 1.9 $ —

Total provision for (reduction of) credit losses 32.2 82.7 (14.6)

Net charge-offs to average loans 0.13 % 0.18 % 0.07 %

Allowance to loans held for investment 1.25 1.22 1.31

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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)

Deferred Tax Asset

The net deferred tax asset decreased $60.5 million, to $150.0 million as of December 31, 2023, from $210.5 million as of December 31, 2022, primarily due to a decrease in deferred tax assets related to the unrealized fair value of investment securities, deferred compensation, and interest rate swap contracts designated as hedges.

Other Assets

Other assets decreased $80.3 million, to $268.4 million as of December 31, 2023, from $348.7 million as of December 31, 2022, primarily attributable to a decrease in interest rate swap contracts.

Total Liabilities

Total liabilities decreased $1,770.3 million, or 6.1%, to $27,443.7 million as of December 31, 2023, from $29,214.0 million as of December 31, 2022, primarily due to a decrease of $1,750.5 million in deposits and decreases in securities sold under repurchase agreements and accounts payable and accrued expenses. These decreases were partially offset by an increase in other borrowed funds. Significant fluctuations in liability accounts are discussed below.

Deposits

Total deposits decreased $1,750.5 million, to $23,323.1 million as of December 31, 2023, from $25,073.6 million as of December 31, 2022, with decreases in all types of deposits with the exception of time deposits.

As of December 31, 2023 and 2022, we had Certificate of Deposit Account Registry Service, or CDARS, deposits of $26.6 million and $36.6 million, respectively. As of December 31, 2023 and 2022, we had zero and $12.5 million of brokered deposits, respectively.

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 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 decreased $270.2 million, or 25.7%, to $782.7 million as of December 31, 2023, from $1,052.9 million as of December 31, 2022.

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 decreased $65.5 million, to $380.4 million as of December 31, 2023, from $445.9 million as of December 31, 2022, primarily attributable to a decrease in derivative liabilities of $32.3 million and a decrease in accrued salaries and wages and employee benefits of $29.2 million.

Other Borrowed Funds

Other borrowed funds consists of FHLB borrowings with maturity tenors of up to three-months, to address short-term funding needs. Other borrowed funds increased $276.0 million, to $2,603.0 million as of December 31, 2023 compared to 2,327.0 million at December 31, 2022, primarily as a result of a decrease in total deposits and securities under repurchase agreements, partially offset by a decline in investment securities and cash and cash equivalents.

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 $153.7 million, or 5.0%, to $3,227.5 million as of December 31, 2023 from $3,073.8 million as of December 31, 2022, due to changes in accumulated other comprehensive loss related to unrealized gains on available-for-sale securities 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, a stock purchase pursuant to an agreement, and cash dividends paid. Regular cash dividends paid to common shareholders during 2023 amounted to approximately $195.1 million.

On January 26, 2024, we declared a quarterly dividend to common stockholders of $0.47 per share, which was paid on February 19, 2024 to shareholders of record as of February 9, 2024. The dividend equates to a 7.2% annual yield based on the $26.01 average closing price of the Company’s common stock as reported on NASDAQ during the fourth quarter of 2023.

On December 14, 2023, the Company completed the repurchase of one million shares of its common stock from the estate of a stockholder at a price of $32.14 per share, or the closing price per share of the common stock as reported on the Nasdaq Stock Market on December 14, 2023, representing an aggregate purchase price of $32.1 million. For additional information regarding the repurchase, see “Notes to Consolidated Financial Statements—Related Party Transactions” included in Part IV, Item 15 of this report.

During 2022, the Company repurchased and retired the five million shares of common stock under its previously existing stock repurchase program. As of December 31, 2023, the Company did not have a repurchase program in effect.

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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 2023, the Company issued 54,414 shares of its 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 $1.2 million is amortized into stock-based compensation expense in the accompanying consolidated statements of changes in stockholders’ equity over a one-year service-based period.

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, 2023 and 2022, the Company had capital levels that, in all cases, exceeded the guidelines to be deemed “well-capitalized.”

For additional information regarding our capital levels, see “Notes to Consolidated Financial Statements—Regulatory Capital,” included in Part IV, Item 15 of this report.

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 or BTFP, 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.

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 $20,313.2 million and time deposits of $2,648.7 million, due in one year or less in addition to time deposits due in more than one year of $361.2 million as of December 31, 2023. For additional details in regard to the Company’s deposits see “Notes to Consolidated Financial Statements—Deposits” included in Part IV, Item 15 of this report.

As of December 31, 2023, the Company had securities sold under repurchase agreements of $782.7 million due in one year or less as the agreements with our client counterparties mature on the next banking day.

As of December 31, 2023, the Company had $2,603.0 million of FHLB borrowings due in less than one year, $99.0 million of fixed-to-floating rate subordinated notes due in more than one year, and available borrowing capacity of $3,619.6 million with the FHLB. 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 $3,039.5 million secured by government and agency backed securities and a blanket pledge of agricultural and commercial loans and has an unused $50.0 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.

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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, 2023, the Company had subordinated debentures held by subsidiary trusts of $163.1 million due in more than one year. For additional information concerning the subordinated debentures, see “Notes to Consolidated Financial Statements—Subordinated Debentures Held by Subsidiary Trusts” included in Part IV, Item 15 of this report.

The Company has future minimum rental commitments, exclusive of maintenance and operating costs, required under operating leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 2023 with $11.6 million due in one year or less and $39.0 million due in more than one year. 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, 2023, the Company expects to recover its investments through the use of tax credits generated by the investments.

The Company has entered into various arrangements not reflected on the consolidated balance sheet that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, or liquidity. As of December 31, 2023, the Company had unused credit card lines of $814.0 million, commitments to extend credit of $4,069.2 million and standby letters of credit of $97.1 million. Among the $4,069.2 million in credit commitments outstanding, $658.5 million are related to home equity and home equity lines of credit, $1,786.4 million are related to traditional working capital commercial lines, and $926.9 million are unfunded for current or future construction projects. 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.

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 such as the level of interest rates, changes in interest rates, the speed of changes in interest rates, and changes in the volume and composition of interest earning assets and interest-bearing liabilities. 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. We do not have any trading instruments nor do we classify any portion of the investment portfolio as trading. See “Notes to Consolidated Financial Statements—Summary of Significant Accounting Policies” included in Part IV, Item 15 of this report.

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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 and monitoring of interest rate risk are 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 the level of interest rates, changes in interest rates, the speed of changes in interest rates, the relationship between rates on interest-bearing assets and liabilities, the impact of interest rate fluctuations on asset prepayments, and the mix of interest-bearing assets and liabilities.

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.

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 or non-parallel manner. 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.

The following table presents the net interest income simulation model’s projected change in net interest income over a one-year horizon due to a change in interest rates. The net interest income simulation assumes parallel shifts in the yield curve and a static balance sheet. The net interest income simulation also uses a “deposit beta” modeling assumption which is an estimate of the change in interest-bearing deposit pricing for a given change in market interest rates. In up-rate scenarios, the deposit beta assumption is 30% with the pricing change occurring in the first month of the net interest income simulation horizon. In down-rate scenarios, the deposit beta assumption is 50% with the pricing change occurring in the first month of the net interest income simulation horizon. Actual changes to deposit pricing may vary significantly from this assumption due to management actions, customer behavior, and market forces, which may have significant impacts to our net interest income. The net interest income simulations at December 31, 2023 project that interest-bearing liabilities reprice faster than our interest earning assets.

Change in Interest Rate Percent Change in Net Interest Income

(basis points) December 31, 2023

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

The Company uses financial derivative instruments for management of interest rate sensitivity. 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 when they become effective. As of December 31, 2023, $900.0 million of the cash flow hedges were effective with the remaining $250.0 million becoming effective in April 2024.

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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, 2023 and 2022

Consolidated Statements of Income — Years Ended December 31, 2023, 2022, and 2021

Consolidated Statements of Comprehensive Income — Years Ended December 31, 2023, 2022, and 2021

Consolidated Statements of Stockholders’ Equity — Years Ended December 31, 2023, 2022, and 2021

Consolidated Statements of Cash Flows — Years Ended December 31, 2023, 2022, and 2021

Notes to Consolidated Financial Statements

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

None.

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, 2023, 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, 2023, 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

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that: pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with proper authorizations; and 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.

All internal control over financial reporting processes and systems, no matter how well designed, have inherent limitations. Therefore, even processes and 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 Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2023, based on the criteria and guidelines established in the Internal Control--Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such assessment, management determined that the Company’s internal control over financial reporting was not effective as of December 31, 2023, to the extent of the material weakness discussed below. Notwithstanding the foregoing determination, the deficiencies in our internal control over financial reporting and the material weakness described in this report did not result in any material misstatement in our consolidated financial statements or other disclosures included in this Annual Report on Form 10-K.

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A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In connection with its evaluation and assessment, the following combined deficiencies culminating in a material weakness have been identified by management.

Our management concluded that the Company’s control over the establishment of new deposit accounts was not effectively designed to fully consider all of the relevant attributes and the sufficiency of the coverage of this control was not documented or assessed. In addition, segregation of duties over the establishment of new loan accounts and the maintenance of loan and deposit accounts was not adequately enforced by the workflow system. The Company also did not have effective information technology general controls (ITGCs) supporting the Company’s internal control over financial reporting related to the documentation of the completeness and accuracy of user access to systems, change management segregation of duties over two systems, and sufficient identification of transfers between systems. These combined deficiencies, which in aggregate result in a material weakness, impact other automated and manual business process controls in the control environment that are dependent on the ineffective controls.

A discussion of the remediation steps that the Company has undertaken, including subsequent to year-end, to better define and document the appropriateness of its control environment and eliminate each of the deficiencies is provided below in this Item 9A under the caption “—Management’s Remediation Plan”, which immediately follows the more specific description of the above identified deficiencies.

Importantly, and as noted above, the deficiencies in our internal control over financial reporting and the material weakness described in this report did not result in any material misstatement in our consolidated financial statements or other disclosures. These deficiencies merely were determined to create a reasonable possibility that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis.

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 an audit report on our internal control over financial reporting as of December 31, 2023. RSM US LLP’s report is presented below this management report in Item 9A of this Annual Report on Form 10-K.

Management’s Remediation Plan

Beginning in July 2023, we pivoted from 100% testing of new deposit account attributes to sampling at up to a 30% testing approach of new deposit account attributes. The redesign did not adequately define the sampling methodology, including escalation procedures, and did not include all key deposit account attributes.

Regarding the remediation of the deficiency concerning the testing of new deposit account attributes, subsequent to year-end we engaged independent third-party consultants to assist us in evaluating the appropriateness and effectiveness of our testing approach and quantifying the reasonableness of the sample size. In addition, subsequent to year-end, we performed further testing over 2023 new deposit accounts with no material findings. We also took steps to ensure inclusion of all relevant fields to financial reporting within the scope of the review of new deposit accounts, revise sampling procedures to achieve additional precision, included rationale for sampling approach based on required exception rates for a material misstatement to be possible, and will include escalation procedures.

With respect to our workflow system associated with the establishment of new loan accounts and the maintenance of loan and deposit accounts, our workflow system is configured to automatically identify individuals who performed a deposit or loan boarding or maintenance activity and deny them access to perform a review of the activity performed. It was determined, however, that the workflow system had a vulnerability that could allow employees to edit some keywords associated with documents and workflows. It was determined that this vulnerability could pose segregation of duties concerns as employees with account boarding and maintenance access could bypass the control to allow them to perform quality control on their own activity.

With respect to the remediation of the segregation of duties deficiency related to our workflow system, upon identification of the deficiency, management promptly removed the ability of an employee to edit relevant ‘keyword’ fields in the workflow system to ensure appropriate level of system access. Following the remediation efforts, management performed a review of activity, including a review of workflow system logs, engaged in during 2023 to seek to identify any potential instances of unauthorized changes to keywords and investigate instances of actual segregation of duties violations related to deposit account maintenance and loan boarding and maintenance activity, and no unauthorized changes or violations were identified.

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Our ITGC user access review and validation control activity has been established to ensure that system and application access remain appropriate for each employee’s job role. During 2023, the Company onboarded a new system to increase the automation of user access reviews, intending to ensure complete and accurate populations were considered as part of the control activity. During the third quarter of 2023, it was determined that existing procedures should have more detail, and management updated the Company’s processes and expanded its written procedures for obtaining complete and accurate populations of user access reviews for each system with a manual population and held training sessions with system administrators to increase detail and add support and seek to remediate the deficiency. Additionally, during the fourth quarter of 2023, a quality assurance process was implemented to add another layer of control prior to the finalization of each periodic user’s access review. Management further intends to continue to identify systems that are compatible with the automation feature to further reduce manual processes, to consider timing of testing for systems subject to annual user access review, to review and enhance written procedures for obtaining accurate populations of user access, and conduct additional training with system administrators to further communicate the requirements of the periodic access review process, all with a view to promptly eliminate this deficiency.

Regarding the identified ITGC change management deficiency, technical limitations resulting in segregation of duties conflicts in the standard control environment were identified for changes deployed for two systems. A documented, weekly attestation and sign off is completed by management to attest to the review period; however, the preparer and reviewer are not independent of the activity to which they are attesting. In addition, due to an employee’s leave of absence, the existing control activity was not operational for part of 2023. The employee resumed documentation of the review and the related attestation of implemented changes process upon return from leave, and thereafter a retroactive review was performed to ensure that there were no unauthorized changes to the systems while the employee was on leave. Because the remediation efforts to alleviate the segregation of duties concerns were not completed prior to year-end, it was determined that the existing technical limitations resulted in segregation of duties conflicts in the standard control environment at year end.

In order to remediate the identified change management deficiency, management has initiated a project to migrate to an alternate cloud solution that is expected to enable logical access implementation to support segregation of duties requirements through automation.

The ITGCs deficiency related to the sufficient identification of transfers between only those systems supporting the Company’s internal control over financial reporting relates to the listing of relevant, specific transfers not being produced until December 2023. The Company identified all transfers between systems, which by definition included those systems supporting the Company’s internal control over financial reporting, but it did not produce separately the more limited universe of systems subsumed by the larger universe. In addition, the control did not include sufficient logging and monitoring activities to demonstrate the effective execution of the control.

To remediate the Company’s deficiency in producing the sufficient identification of transfers between only those systems supporting the Company’s internal control over financial reporting, management in December 2023 enhanced its reporting capabilities to identify only data transfers supporting the Company’s internal control over financial reporting. Furthermore, documentation of the control is being enhanced to ensure adequate system logging and monitoring for the prompt elimination of the deficiency.

By completing these remediation steps, our automated and manual business process controls that are dependent on the effectiveness of these remediated controls and ITGCs have been and will continue to be improved, with the effect that management believes that it will be able to remediate and eliminate the material weakness during 2024.

We have already completed some and are in the process of effecting other remediation efforts related to the deficiencies identified above. Remediation will not be considered complete until such controls have been properly tested for design and operating effectiveness by management and the external auditor.

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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than as described above regarding the remediation activities concerning the onboarding of a new system to increase the automation of user access reviews and the Company’s deficiency in producing the sufficient identification of transfers between only those systems supporting the Company’s internal control over financial reporting, the discussion with respect to which is incorporated herein by reference.

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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, 2023, 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, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, 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 of the Company as of December 31, 2023 and 2022, 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, 2023, and the related notes to the consolidated financial statements and our report dated February 29, 2024 expressed an unqualified opinion.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment:

The Company’s control over the establishment of new deposit accounts was not effectively designed to fully consider all of the relevant attributes and the sufficiency of the coverage of this control was not documented or assessed. In addition, segregation of duties over the establishment of new loan accounts and the maintenance of loan and deposit accounts was not adequately enforced by the workflow system. The Company also did not have effective information technology general controls (ITGCs) supporting the Company’s internal control over financial reporting related to the documentation of the completeness and accuracy of user access to systems, change management segregation of duties over two systems, and sufficient identification of transfers between systems. These combined deficiencies impact other automated and manual business process controls in the control environment that are dependent on the ineffective controls.

This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 financial statements, and this report does not affect our report dated February 29, 2024 on those financial statements.

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.

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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 29, 2024

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Item 9B. Other Information

(a) Effective February 26, 2024, pursuant to the 2023 Equity and Incentive Plan, the Company adopted (i) a form of Restricted Stock Unit Agreement to be used as the template for awards of restricted stock units and (ii) a form of Performance Restricted Stock Unit Agreement to be used as the template for awards of performance restricted stock units, that may be granted to eligible participants under the 2023 Equity and Incentive Plan, unless otherwise determined by the Compensation Committee of the Board.

(b) Information Required by Item 407(c)(3) of Regulation S-K. During the fiscal quarter ended December 31, 2023, none of the Company’s directors or executive officers adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

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 2024 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 2024 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,” “Compensation of Named Executive Officers,” “Director Compensation,” and “Corporate Governance” in our Proxy Statement relating to our 2024 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 2024 annual meeting of shareholders and is herein incorporated herein by reference.

The following table provides information, as of December 31, 2023, 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 — $— 1,389,724

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 Party Transactions,” and “Corporate Governance” in our Proxy Statement relating to our 2024 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.

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Item 14. Principal Accountant Fees and Services

Information concerning principal accountant fees and services and related information is set forth under the headings “Principal Accounting Fees and Services” and “Audit Committee Pre-Approval Policies and Procedures” in our Proxy Statement relating to our 2024 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 60, 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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Our report dated February 29, 2024 expressed an opinion that the Company had not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2023.

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 audit 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 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 separate opinions 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 $18,279.6 million as of December 31, 2023, and the associated allowance for credit losses on loans held for investment was $227.7 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. Expected future principal and interest cash flows are calculated using contractual repayment terms while considering prepayment, utilization, interest rate, and probability of default assumptions. Macroeconomic models calculate segment-specific multipliers using third party forecast data. The multipliers adjust the annual loss rates to the level expected under the economic conditions over the 2-year forecast period, followed by a 1-year straight-line reversion to the unadjusted historical average loss rates. The unadjusted loss rates then apply for the remaining life of the loan. 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 segment-specific multipliers using third party forecast data; and (3) adjustments to historical loss information for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix and trends, asset quality, or term as well as for changes in environmental and economic conditions, such as changes in unemployment rates, property values, or other relevant factors.

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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 economic forecast selection, 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.

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 approval of economic forecast selection used to derive segment-specific multipliers within its macroeconomic model, 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 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, 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.

•We evaluated management’s selected economic forecast, used to derive segment-specific multipliers within its macroeconomic model, for reasonableness against alternative industry sources.

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

Goodwill

The Company’s goodwill totaled $1,100.9 million as of December 31, 2023. As described in Notes 1 and 3 to the financial statements, the Company evaluates goodwill for impairment at least annually and on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment has occurred. As a result of the ongoing financial services economic conditions, including changes to the interest rate environment, continued volatility in the Company’s common share price, and volatility in the Company’s overall market capitalization during the third and beginning of the fourth quarter of 2023, the Company performed a quantitative interim goodwill impairment assessment for its sole reporting unit as of October 31, 2023 by weighting income and market-based approaches. The income approach measures the fair value of an interest in a business by discounting expected future cash flows to present value. The market approaches take into consideration fair values of comparable companies operating in similar lines of business that are potentially subject to similar economic and environmental factors and could be considered reasonable investment alternatives. The result of the income and market approaches were weighted in determining the fair value of the reporting unit.

We identified management’s estimation of the fair value of its reporting unit as a critical audit matter, because the estimation of fair value required management to make significant assumptions and estimates around forecasted net income, the selection of discount rates, the selection of control premiums utilized in the valuation and the weighting of valuation methods used in determining the fair value of the reporting unit. In addition, our audit procedures to evaluate the reasonableness of management’s net income forecasts, selection of discount rates, selection of control premiums and weighting of valuation methods utilized in the valuation required a higher degree of auditor judgement as well as an increased level of audit effort, including the involvement of valuation specialists related to valuation inputs determined by management which are highly subjective and are highly sensitive to change in significant assumptions.

Our audit procedures related to our evaluation of the reasonableness of the Company’s net income forecasts, selection of discount rates, selection of the control premium utilized and weighting of the methods in the valuation included the following, among others:

•We obtained an understanding of the relevant controls related to net income forecasts and the selection of the discount rate, control premium and the weighting of valuation methods, and tested such controls for design and operating effectiveness, including controls relating to management’s review and approval of the net income forecasts, the selection of the discount rate and control premium and the weighting of valuation methods.

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•We evaluated management’s ability to accurately forecast net income by comparing actual results to management’s historical forecasts.

•We evaluated the assumptions and estimates included in management’s net income forecasts by: 1) comparing to industry forecasts and information included in industry analyst reports; 2) considering the impact of changes in the competitive and regulatory environment on management’s forecast; and 3) assessing the reasonableness of strategic plans incorporated by the Company into the forecasts.

•We utilized internal valuation specialists to assist in evaluating the discount rate, the control premium selected by management and the weighting of valuation methods used in determining the fair value of the reporting unit. The evaluation included evaluating the reasonableness of market-based source information underlying the selection of the discount rate and control premium, testing the reasonableness of management’s method, developing independent expectations, and the mathematical accuracy of the discount rate, control premium and weighting of valuation methods calculations

/s/ RSM US LLP

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

Des Moines, Iowa

February 29, 2024

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FIRST INTERSTATE BANCSYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

Assets

Interest bearing deposits in banks 199.7 521.2

Federal funds sold 0.1 0.1

Total cash and cash equivalents 578.0 870.5

Investment securities:

Loans held for investment, net of deferred fees and costs 18,279.6 18,099.2

Allowance for credit losses (227.7) (220.1)

Premises and equipment, net of accumulated depreciation 444.3 444.7

Other intangibles, net of accumulated amortization 81.4 97.0

Other real estate owned 16.5 12.7

Liabilities and Stockholders’ Equity

Deposits:

Securities sold under repurchase agreements 782.7 1,052.9

Accounts payable and accrued expenses 380.4 445.9

Accrued interest payable 52.2 14.5

Allowance for credit losses on off-balance sheet credit exposures 18.4 16.2

Subordinated debentures held by subsidiary trusts 163.1 163.1

Stockholders’ equity:

Accumulated other comprehensive loss, net (356.5) (477.1)

Total liabilities and stockholders’ equity $ 30,671.2 $ 32,287.8

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 3.2 3.9 4.1

Interest and dividends on FHLB and FRB stock 12.4 4.8 1.0

Interest on deposits in banks 15.7 8.7 2.6

Interest expense:

Interest on securities sold under repurchase agreements 6.4 2.5 0.4

Interest on other borrowed funds 133.8 15.3 —

Interest on long-term debt 5.8 6.0 6.0

Interest on subordinated debentures held by subsidiary trusts 12.7 6.8 2.8

Provision for (reversal of) credit losses 32.2 82.7 (14.6)

Non-interest income:

Service charges on deposit accounts 23.0 24.6 16.5

Other service charges, commissions, and fees 9.5 15.5 7.9

Investment securities (losses) gains, net (23.5) (24.4) 1.1

Non-interest expense:

OREO expense, net of income 1.5 2.3 (0.2)

Other intangibles amortization 15.7 15.9 9.9

Acquisition related expenses — 118.9 11.6

Earnings per common share (Basic) $ 2.48 $ 1.96 $ 3.12

Earnings per common share (Diluted) 2.48 1.96 3.11

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 income (loss) before tax:

Investment securities available-for-sale:

Change in net unrealized gains (losses) during the period 144.8 (613.1) (113.7)

Change in net unrealized loss (gain) on derivatives 0.9 (6.7) 4.2

Other comprehensive income (loss), before tax 160.7 (621.3) (90.4)

Other comprehensive income (loss), net of tax 120.6 (466.1) (67.6)

Comprehensive income (loss), net of tax $ 378.1 $ (263.9) $ 124.5

See accompanying notes to consolidated financial statements.

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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)

Other comprehensive income, net of tax expense — — 120.6 120.6

Common stock transactions:

683,574 non-vested common shares issued — — — —

127,780 non-vested common shares forfeited or canceled — — — —

Stock-based compensation expense 4.7 — — 4.7

Common cash dividends declared ($1.88 per share) — (195.1) — (195.1)

See accompanying notes to consolidated financial statements.

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Cash flows from operating activities:

Provision for (reversal of) credit losses 32.2 82.7 (14.6)

Net (gain) loss on disposal of premises and equipment 0.7 (2.0) (1.8)

Net premium amortization on investment securities 2.4 17.0 38.8

Net loss (gain) on investment securities transactions 23.5 24.4 (1.1)

Net gain on sale of OREO (0.1) (0.7) (0.3)

Write-downs of OREO and other assets pending disposal 1.1 2.8 —

Net gain on extinguishment of debt — (1.4) —

Mortgage servicing rights recovery — (3.4) (6.9)

Stock-based compensation expense 4.7 9.6 8.9

Originations of mortgage loans held for sale (351.5) (429.5) (817.4)

Proceeds from sales of mortgage loans held for sale 359.5 461.6 883.9

Changes in operating assets and liabilities:

(Increase) decrease in interest receivable (10.8) (37.8) 3.7

Decrease (increase) in other assets 80.5 (12.9) (16.4)

Increase (decrease) in accrued interest payable 37.7 8.4 (2.0)

(Decrease) increase in accounts payable and accrued expenses (71.1) 183.1 (1.7)

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 (290.8) (241.4) —

Proceeds from FHLB and FRB stock 266.2 112.2 —

Proceeds from bank-owned life insurance settlements 5.2 1.3 1.0

Extensions of credit to clients, net of repayments (185.8) (951.4) 467.8

Proceeds from sales of OREO 3.5 3.4 1.7

Proceeds from the sale of Health Savings Accounts — 1.4 —

Capital expenditures, net of sales (28.2) (10.5) (10.3)

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Cash flows from financing activities:

Net increase in other borrowed funds 276.0 2,327.0 —

Repayments of long-term debt (0.1) (164.1) —