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First Interstate BancSystem, Inc. Reports Third Quarter 2012 Results

Salaries and wages expense increased during the three and nine months ended September 30, 2012, as compared to the same periods in the prior year, primarily due to higher incentive bonus accruals, inflationary wage increases and increases in commissions and overtime related to the substantial increase in residential real estate loan activity.

Employee benefits expense increased during third quarter 2012, as compared to second quarter 2012 and third quarter 2011, primarily due to increases in the market value of securities held under deferred compensation plans. During third quarter 2012, fluctuations in the market values of securities held under deferred compensation plans resulted in employee benefits expense of $357 thousand, as compared to reducing employee benefits expense by $356 thousand during second quarter 2012 and $572 thousand during third quarter 2011.

Increases in employee benefits expense during the nine months ended September 30, 2012, as compared to the same period in 2011, were primarily due to increases in the market values of securities held under deferred compensation plans and higher stock-based compensation expense and increases in profit sharing accruals reflective of the Company's improved performance.

Increases in OREO expense during third quarter 2012, as compared to second quarter of 2012, were primarily due to write-downs of $2.3 million in the estimated fair values of OREO properties. Third quarter write-downs were partially offset by gains on the sale of OREO properties of $775 thousand.

Other expenses decreased during third quarter 2012, as compared to second quarter 2012, primarily due to non-recurring expenses recorded during second quarter 2012, including donations expense of $1.5 million associated with the sale of a bank building to a charitable organization and the write-off of $428 thousand of unamortized issuance costs associated with the redemption of junior subordinated debentures.

Other expenses increased during the nine months ended September 30, 2012, as compared to the same period in 2011, primarily due to increased donations expense and the write-off of unamortized debt issuance costs discussed in the previous paragraph, and the accrual of $3.0 million of estimated collection and settlement costs during the first quarter 2012.

ASSET QUALITY

(Unaudited; $ in thousands)

 
For the Three Months Ended
    September 30,2012   June 30,2012   September 30,2011
Allowance for loan losses - beginning of period $ 102,794   $ 115,902   $ 124,579
Charge-offs (14,813 ) (26,745 ) (20,405 )
Recoveries 1,525 1,637 2,129
Provision   9,500     12,000     14,000  
Allowance for loan losses - end of period   $ 99,006     $ 102,794     $ 120,303  
 
    September 30,2012   June 30,2012   September 30,2011
Period end loans $ 4,180,051 $ 4,169,963 $ 4,275,717
Average loans 4,183,016 4,159,565 4,291,632
Non-performing loans:
Non-accrual loans 122,931 129,923 223,961
Accruing loans past due 90 days or more 4,339 6,451 3,001
Troubled debt restructurings   35,428     35,959     35,616  
Total non-performing loans 162,698 172,333 262,578
Other real estate owned   39,971     53,817     25,080  
Total non-performing assets   $ 202,669     $ 226,150     $ 287,658  
 
Net charge-offs to average loans, annualized 1.26 % 2.43 % 1.69 %
Provision for loan losses to average loans, annualized 0.90 % 1.16 % 1.29 %
Allowance for loan losses to period end loans 2.37 % 2.47 % 2.81 %
Allowance for loan losses to total non-performing loans 60.85 % 59.65 % 45.82 %
Non-performing loans to period end loans 3.89 % 4.13 % 6.14 %
Non-performing assets to period end loans and other real estate owned 4.80 % 5.35 % 6.69 %
Non-performing assets to total assets   2.72 %   3.10 %   3.94 %

As of September 30, 2012, total non-performing loans included $144 million of real estate loans, of which $46 million were construction loans and $79 million were commercial real estate loans. Non-performing construction loans as of September 30, 2012 were comprised of land acquisition and development loans of $32 million, commercial construction loans of $11 million and residential construction loans of $3 million. Decreases in non-performing loans as of September 30, 2012, as compared to June 30, 2012, are primarily due to the movement of non-accrual loans out of the loan portfolio through charge-off or foreclosure.

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