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First Interstate BancSystem, Inc. Reports Preliminary Results For Fourth Quarter 2011

In February 2011, the FDIC issued a final rule that, among other things, modified the definition of an institution's deposit insurance assessment base and revised assessment rate schedules. These changes, which became effective April 1, 2011, resulted in a reduction in the Company's FDIC insurance premiums.

Variations in net OREO expense between periods were primarily due to fluctuations in write-downs of the estimated fair value of OREO properties. Fourth quarter 2011 net OREO expense included $562 thousand of net operating expenses, $1.5 million of fair value write-downs and net gains of $33 thousand on the sale of OREO properties. Approximately 75% of write-downs recorded during the current quarter related to properties in our stressed markets, which include the Flathead, Gallatin Valley and Jackson market areas.

Net OREO expense during twelve months ended December 31, 2011 included $1.8 million of net operating expenses, $7.5 million of fair value write-downs and net gains of $567 thousand on the sale of OREO properties, as compared to $1.7 million of net operating expenses, $6.7 million of fair value write-downs and net gains of $708 thousand on the sale of OREO properties during the same period in 2010. Approximately 72% of write-downs recorded during 2011 related to properties in the Flathead, Gallatin Valley and Jackson market areas.

Fluctuations in the fair value of mortgage servicing rights were due to changes in assumptions regarding estimated prepayments of the underlying residential mortgage loans, which typically correspond with changes in market interest rates.

ASSET QUALITY

(Unaudited; $ in thousands)

      Three Months Ended

December 31,2011

         

September 30,2011

         

December 31,2010

Allowance for loan losses - beginning of period $ 120,303 $ 124,579 $ 120,236
Charge-offs (22,435 ) (20,405 ) (18,045 )
Recoveries 962 2,129 789
Provision 13,751   14,000   17,500  
Allowance for loan losses - end of period $ 112,581   $ 120,303   $ 120,480  
 

December 31,2011

September 30,2011

December 31,2010

Period end loans $ 4,186,549 $ 4,275,717 $ 4,367,909
Average loans 4,236,228 4,291,632 4,402,141
Non-performing loans:
Non-accrual loans 199,983 223,961 195,342
Accruing loans past due 90 days or more 4,111 3,001 1,852
Troubled debt restructurings 37,376   35,616   13,490  
Total non-performing loans 241,470 262,578 210,684
Other real estate owned 37,452   25,080   33,632  
Total non-performing assets $ 278,922   $ 287,658   $ 244,316  
Net charge-offs to average loans, annualized 2.01 % 1.69 % 1.56 %
Provision for loan losses to average loans, annualized 1.29 % 1.29 % 1.58 %
Allowance for loan losses to period end loans 2.69 % 2.81 % 2.76 %
Allowance for loan losses to total non-performing loans 46.62 % 45.82 % 57.19 %
Non-performing loans to period end loans 5.77 % 6.14 % 4.82 %
Non-performing assets to period end loans and other real estate owned 6.60 % 6.69 % 5.55 %
Non-performing assets to total assets 3.81 % 3.94 % 3.26 %
 

The Company's loan portfolio continued to be adversely impacted by difficult economic conditions in certain of its market areas. The Flathead, Gallatin Valley and Jackson market areas, which are dependent upon resort and second home communities, accounted for approximately 43% of the Company's non-performing assets versus only 18% of the Company's total loans as of December 31, 2011.

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